9911796707
TMI Blog2025 (4) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... up and other related entities by the DDIT (Investigation), Unit- 6(1), Mumbai. The case of the Assessee was also covered under such search and seizure operation and consequently notice dated 06.12.2019 u/s 153A of the Act, was issued to the Assessee, in response to which the Assessee filed its return of income on dated 10.12.2019, declaring total income at Rs."14,090/-". 4. Thereafter, various statutory notices were issued, in response to which the Assessee from time to time, attended the proceedings and filed the requisite details, as called for. On verification of the details filed by the Assessee during the course of assessment proceedings and examining the return of income, it was observed by the Assessing Officer (AO) that the Assessee, during the assessment year under consideration, has purchased following shares: Sl. No. Name of the share Number of shares Consideration amount 1. M/s. Navratan Management Pvt. Ltd. 3000 Rs.3,00,000/- 2. M/s. Muktamani Distributors Pvt. Ltd. 50,000 Rs.50,000/- 3. M/s. Mecons Pro Comotrade Pvt. Ltd. 60,000 Rs.6,00,000/- 4. M/s. Aachman Vanijya Pvt. Ltd. 3,30,000 Rs.33,00,000/- 5. The AO on perusing the financials of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 but before the 1st day of April, 2017, any property, being shares of a company not being a company in which the public are substantially interested, (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation. For the purposes of this clause, "fair market value of a property. being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);" 1.1. A plain reading of the said section, its provision & explanation it is crystal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock in trade [other than the securities referred in sub clause(b)] consumable stores of raw materials held for the purposes of his business or profession. From the above definition it is crystal clear that securities held for the purposes of business is not a capital asset unless it is for investment purposes. 1.4. Moreover, if the meaning of property as provided in clause (d) to para (h) of section 56(2)(vii) is read in its true sense and strictly your goodself will appreciate that all the assets mentioned in this clause i.e. from (i) to (ix) are in the nature of enduring and capital assets only and the concept of valuation of fair market value strictly applies in case of a property in the nature of capital asset. Therefore, to treat out of these capital assets shares and securities as non capital asset will defeat the purpose of this section because the main reason for introducing this provision was to curb black money. As far as purchases of shares and securities are concerned it can be for both capital or trading and the treatment depend upon the intention of the assessee and the entries passed in the books of accounts. If the intention of the assessee is to treat the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaken in shares of the company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration, where recipient is a firm or a company (not being a company in which public are substantially interested). The Assessee has claimed to be engaged in the business of investments and trading of the shares and securities, however, from the website https:// www.zaubacorp.com, the Assessee is identified being engaged in the business of other wholesale includes specialized wholesale not covered in any of the previous categories and wholesale is a variety of goods without any particular specialization. Further, the Assessee also contended that the section 56(2)(viia) of the Act is an extension of section 56(2)(vii) and section 56(2)(viia) of the Act is applicable only to the capital assets, however, sections 56(2)(vii) and 56(2)(viia) of the Act of the Act, are clearly distinguishable from each other. It is very clear from the definition of section 56(2)(vii) and 56(2)(viia) of the Act that section 56(2)(vii) of the Act is applicable to the individual and HUF only and section 56(2)(viia) of the Act is applicable to Firm and Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,71,500/- Total Consideration paid Rs.3,00,000/- Rs.50,000/- Difference amount Rs.25,19,100/- Rs.24,21,500/- Total Difference as per section 56(2)(viia) Rs.49,40,600/- 10. The AO on the analysis of financials of M/s. Aachman Vanijya Pvt. Ltd. and M/s. Mecons Pro Como Trade Pvt. Ltd., worked out the fair market value of such shares as under: F.Y 2016-17 1 M/s. Aachman Vanijya Pvt Ltd M/s. Mecons Commtrade Pvt Ltd 2 Book value of assets as per financials 97,79,52,293/- 10,46,76,888/= 3 Amount of tax paid as deduction or collection at sources 2,19,72,240/- 20,51,300/- 4 Amount of tax paid as advance tax 45,00,000/- 0 5 Amount of tax claimed as refund 0 0 6 Any amount shown as assets including the unamortized amount of deferred expenditure which does not represent the value of any asset 0 18,30,917/- 7 Total (A) [2-(3+4-5)-6] 95,14,80,053/- 10,07,94,671/- 8 Book value of liabilities as per financials 97,79,52,293/- 10,46,76,888/- 9 Paid up capital 2,18,02,000/- 1,99,82,000/- 10 Amount set apart for payment of dividend |0 0 11 Reserves and Surplus 94,38,07,055/- 6,04,32,469/- 12 Any amount representing provision for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . To support its contention, the appellant has submitted a copy of memorandum of association. It is submitted that, the alleged shares were purchased for the purpose of trading and not as an investment. In the Balance sheet also, these shares are shown as stock in trade and not as an investment. The provisions of section 56(2)(viia) are applicable for investment in capital assets and not for the regular business/trading activities. The appellant has further submitted that, on the similar facts in case of related concerns namely Muktamani Distributors Pvt Ltd and Alishan Distributors Pvt. Ltd, the Ld CIT (A) has allowed the appeal by bolding that, the purchase of shares was for the trading purpose. I have considered the Assessee order, submission of appellant and report received from the A.O. The appellant contended that the alleged shares have been purchased for trading activity and for the same it has relied on entries made in the balance sheet showing the same as stock in trade This, the sole contention of the appellant is that the shares were purchased as part of regular trading activity of the appellant and hence the provision of section 56(2)(viia) are not applicable. The ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries 49,23,000. It is seen that the reserve and surplus is mainly on account of receipt of security premium. In the profit and loss account the total receipts are shown as Nil. From the above, It can be seen that the appellant itself is a paper company not carrying out any business activity. 11.6 From the perusal of the financials of the alleged four companies i.e. M/s. Muktamani. Distributors Put. Ltd, M/s. Navratan Management Put. Ltd, M/s. Mecons Commotrade Put. Ltd and M/s. Aachman Vanijya Put. Ltd, it is seen that these companies are also paper companies not carrying out any actual business activities. The shares of these companies are not listed and hence are not available L for trading on public platform. All these companies are related concerns of the appellant and are closely held companies. 1.1.7. From the above discussion, it is evident that the appellant and the concerned companies are related entities which are closely held. The shares of these companies are not available for the trading purpose. From the financials of the appellant and these 4 companies it evident that, these are paper companies and not doing any business activities, In the backdrop of these fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/ 106 Taxman 601 (SC)." 11.8.4 Hon'ble Supreme Court in the case of Taparia Tools held that merely because a different treatment was given in the books of accounts cannot be a factor which would deprive the Assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of accounts are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act. 11.9 In view of the above discussion, it is evident that the real intent to purchase the shares is not trading but to acquire the stakes in the related concerns. I have also perused the orders of Ld. CIT(A) submitted by the appellant, however I defer with the decision of my predecessor Ld. CIT(A). The appellant has not contested the valuation of shares (FMV). Accordingly, the addition made by the A. of Rs. 14,70,85,848/ - is confirmed. The appeal on this ground no 1 an additional ground is thus DISMISSED." 15. The Assessee, being aggrieved, challenged the decision of the Ld. Commissioner, in affirming the addition under consideration, by raising sole effective original ground of appeal, which read as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 153D of the Act. The Ld. Add. Commissioner approved the same, on the very same day/date i.e. 27.12.2019 and thereafter assessment orders including in the instant case, was made on the very same date i.e. 27.12.2019 itself. The Assessee further submitted that the Ld. Additional Commissioner on the very same date i.e. 27.12.2019 also granted various approvals u/s 153D of the Act in other cases i.e. M/s. Navratan Management Pvt. Ltd., M/s. Muktamani Distributors Pvt. Ltd. and M/s. Aalishan Distributor Pvt. Ltd. 19. More or less, the Ld. Addl. Commissioner on dated 27-12- 2019 has granted the approval u/s 153D of the ACT in almost 13 cases and in all the said 13 cases, the respective Assessing Officers also passed the assessment orders, on the very same date (27-12- 2019) of the approval granted. The details of the approvals granted u/s 153D of the Act are as under: Sr. No. Name of entity A.Y. Date of submission of draft Assessment orders Date of approval u/s 153D Designation of Approving authority 1 M/s. Utility Supply Private Limited, 2012-13 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 2 M/s. Utility Supply Private Limited, 2013-14 27-12-2019 27-12-2019 Addl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2019 being a Friday, whereas the time barring date was 31.12.2019, which goes to show that 28.12.2019 and 29.12.2019 were Saturday and Sunday and therefore the approving authority was having only two working days in his hand i.e. 27.12.2019 and 30.12.2019 for granting the approval, in order to enable the AO to pass the final assessment order on 31.12.2019 and therefore there was no reasonable or sufficient time was available with the Ld. Additional Commissioner to apply his mind on the issues involved. And therefore the instant case is also covered by the Hon'ble Orissa High Court in the case of ACIT vs. Serajuddin & Co. (150 taxmann.com 146), wherein the Hon'ble High Court by pointing out that there are three mandatory conditions for an approval to be valid and in the absence of any reason in the approval to show that the draft orders are correct and merely using the words "seen" "approved" will not satisfy the condition of law. In that particular case the approval was sought only two days prior to the dead line like in the instant case and therefore the approval involved in the instant case is liable to be declared as invalid and not in accordance with law". Moreover, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of SMW Saspat Pvt. Ltd. Vs. ACIT (163 taxmann.com 119) also dealt with the similar provisional approval, like in the present case giving instructions to prepare proper office note, reference to 153C proceedings, penalty proceedings etc. The Hon'ble Tribunal therefore considering the fact that there was no indication qua examination of the relevant material in that detail while granting approval and the approval was given in one day's time in respect of many assessment orders, most importantly in the copy of approval there was no reference whatsoever of the approving authority, which would indicate examination of any evidence, documents, statements of various persons etc. Therefore, the approval was held as mechanical in nature and without application of mind and bad in law". 23. The Ld. Counsel Mr. Shah, further submitted that before making final assessment orders, prior approval u/s 153D of the Act, was introduced by the legislature, so that in search and seizure cases, a higher authority should apply his mind on the facts of the case or additions sought to be made and only thereafter assessment order must be passed. However, in the instant case, such action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted on 31.12.2010. Hence there is no much time left to analyze the issue of draft order on merit. Therefore, the draft order is being approved as it is submitted." (Para 6 of the order, page 207 of the Case Law Paper Book No. 2). The Hon'ble Court took cognizance of the remark made by the Addl. CIT that he did not have time to analyze the issues arising out of the draft order and hence the granting of approval was held to be a mechanical exercise. In the present case, no such qualifying remarks have been added by the Approving Authority while granting approval. The draft order was submitted on 27/ 12/2019 and the time-barring date was 4 days away, unlike in the relied upon case, when the draft order was submitted on the time barring date itself. It is submitted that facts of the relied upon case are different from the facts of the present case. (ii) ACIT v/s Serajuddin & Co., [2023] 150 taxmann.com 146 (Orissa) In the above case, the approval granted had been struck down by the Hon'ble Orissa High Court for inter alia the following reasons (Para 22 and 23 of the order, page 217 of the Case Law Paper Book No. 2): (a) ... there is not even a token mention of the draft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded that there is no provision to alter, modify, adjust, amend or rework the order once approval has been accorded and the approval granted is a conditional approval, which is not valid. In the present case, though the approval of the draft assessment order is subject to some conditions, none of these conditions relate to any modifications or alterations in the draft assessment order. The conditions relate to a comprehensive office note being prepared, intimation being sent to AOs of third parties, examination of wealth tax implications and violations of sections 269SS/T etc. None of these directions or actions have any effect on the draft assessment order. These are in the nature of housekeeping activities that the AO is being directed to complete so that the file is ready for audit etc. The approval is not conditional as the draft order is not being asked to be modified in any manner. In fact, the directions on issues or aspects to be included in the office note clearly show due application of mind by the Approving Authority as aspects related to seized material, appraisal report, returns filed etc. have all been listed by the Addl. CIT. Even if the list is alleged to be a st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions made by the Assessee and the Revenue Department ultimately held that there are three or four requirements that are mandated for seeking the approval u/s 153D of the Act: First the AO should submit the draft order "well in time"; Secondly the final approval must be in writing; Thirdly the fact that the approval has been obtained should be mentioned in the body of the assessment order. For brevity and ready reference, the relevant part of the judgment is reproduced herein below: 22. As rightly pointed out by learned counsel for the Assessee there is not even a token mention of the draft orders having been perused by the Additional CIT. The letter simply grants an approval. In other words, even the bare minimum requirement of the approving authority having to indicate what the thought process involved was is missing in the aforementioned approval order. While elaborate reasons need not be given, there has to be some indication that the approving authority has examined the draft orders and finds that it meets the requirement of the law. As explained in the above cases, the mere repeating of the words of the statute, or mere "rubber stamping" of the letter seeking sancti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of mind by the Additional CIT resulting in vitiating the assessment orders themselves". 29. In Serajuddin & Co. case (supra), the draft assessment orders were produced before the approving authority only on 29.12.2010, with the indication that the cases will be barred by limitation on 31.12.2010 and therefore the approving authority vide consolidated approval dated 30.12.2010 granted the approval. As in the instant case as well, the approval was sought for by the AO only on 27.12.2019 and the last date for completing the Assessment was 31-12-2019. Admittedly 28.12.2019 and 29.12.2019 were Saturday and Sunday and therefore the approving authority had no sufficient time except two working days {27-12-2019 and 30-12-2019) and thus, inference can be drawn that the approving authority in the constrained circumstances and immense pressure, accorded the approval on the very same day of submitting of draft order or within 12 hours itself, in haste manner and without applying its mind due to paucity of reasonable time and therefore approval would entail as invalid and bad in the eyes of law. 30. Further, coming to the judgment passed by the Hon'ble Jurisdictional High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproving authority did not apply its mind at all, while granting sanction. The satisfaction has to be with objectivity, on objective material. 33. Aforesaid judgment passed by the Hon'ble Madhya Pradesh High Court in the aforesaid case, has further got affirmed by the Hon'ble Apex Court in the case of Commissioner of Income Tax, Jabalpur (MP) vs. S. Goyanka Lime and Chemical Ltd. (2015) 64 taxmann.com 313/Special Leave Appeal (c) No.11916 of 2015 decided on 08.06.2015. 34. In the instant case as well, the AO has submitted the draft order for approval u/s 153D of the Act on dated 27-12-2019, however, it is a fact that 31.12.2019 was the last date for making the assessment order and leaving aside 28th & 29th December 2019 being Saturday & Sunday, the approving authority was having just two days only i.e. 27th & 30th December 2019. Somehow, the Approving authority accorded the approval on the very same date or less than 12 hours and therefore the instant case is squarely covered by aforesaid judgment in the case of Commissioner of Income Tax, Jabalpur Vs. S. Goyanka Lime and Chemical Ltd. {supra}, as well. 35. The Hon'ble Tribunal in the case of Nilesh Shamji Bharani vs. DCIT, Mumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in cases where search has been conducted under section 132 or requisition is made under section 132A, does not provide for any approval for such assessment. 50.2 A new section 153D has been inserted to provide that no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner except with the previous approval of the Joint Commissioner. Such provision has been made applicable to orders of assessment or reassessment passed under clause (b) of section 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A. The provision has also been made applicable to orders of assessment passed under clause (b) of section 153B in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisitioned is made under section 132A. 38. From the aforesaid analyzations, it is clear that for making the assessment or reassessment u/s 153 A & B of the Act, the approval/sanction u/s 153D of the Act of the approving auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order, is the culmination of the discussion process, not the initiation of the involvement of the Range Head, who is the approving authority", has no essence, because the Assessing Officer is an independent quasi- judicial officer and therefore he is required to act or to pass the assessment order independently and without being influenced by any interference/indulgence of/by higher Authority. May be the higher authority was involved in process of investigation or enquiry etc. but could not have interfered in deciding the issue(s) and/or passing the assessment order by the AO, except granting or rejecting the approval u/s 153D of the Act. The Approving Authority after submitting the draft order and relevant material, is required to assess the proposed assessment order independently in the context of material available on record and to give reasons for granting the approval. Admittedly in this case, approval dated 27.12.2019, does not reflect any relevant material/findings/reasoning, which can substantiate the validity of such approval. Thus, the contention raised by the Ld. DR, is untenable. Thus, on the aforesaid analyzations, we are of the considered view that in the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets (property). The Assessee further claimed that plain reading of section 56(2)(viia) of the Act and its provisions and explanation, it is crystal clear that the intent of the Revenue was not to tax the transactions entered into during the normal course of business or treat the profit of which are taxable under specific heads of income. The Assessee before the AO also demonstrated the definition of property as defined in section 56(2)(vii) of the Act and claimed that because the provisions of section 56(2)(viia) of the Act, are an extension of section 56(2)(vii) only and therefore the provisions of such section, have to be read harmoniously with provisions of section 56(2) (vii) of the Act. The Assessee further claimed that capital asset is defined in section 2(14) of the Act, which does not include "(i) any stock in trade [other than the securities referred to in sub clause (b)], consumable stores or raw materials held for the purposes of his business or profession". From the definition of "Capital Asset", it is clear that the securities held for the purposes of business is not a "capital asset unless" it is for the investment purposes. The Assessee further claimed that it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner, and raised various issues, including such as the provisions of section 56(2)(viia) of the Act are not applicable to any "stock in trade" as the same is excluded in the definition of "capital asset" as defined in section 2(14) of the Act and therefore the same cannot be doubted. 45. The Assessee further claimed that the provisions of section 56(2)(viia) of the Act are an extension to the provisions of section 56(2)(vii) of the Act and therefore definition of "property" enshrined in section 56(2)(vii) of the Act is required to be applied, while considering the provisions of section 56(2)(viia) of the Act. Further, provisions of section 56(2)(viia) of the Act are applicable to investment in "capital assets" and not for the regular business/trading activities. The Assessee further claimed before the Ld. Commissioner that under the same facts and circumstances in the cases of M/s. Muktamani Distributors Pvt. Ltd. and M/s. Aalishan Distributors Pvt. Ltd. (sister concerns of the Assessee), the then Ld. CIT(A) has held "that if the purchases of shares are for trading purpose and shown as "stock in trade" then the provisions of section 56(2)(viia) of the Act would not be appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the Ld. Commissioner doubted the veracity of the Assessee company by terming as a paper company. Whereas it is a fact that search team and the AO have not doubted the genuineness of the Assessee company and therefore the observation of the Ld. Commissioner is contrary and incorrect. The Ld. Commissioner also observed that the companies from the Assessee had purchased the shares are also paper companies, whereas it is a fact that said companies had high NAV at the time of purchase of shares, which shows that they had good financial standings at the time of purchase. Even otherwise no adverse findings have been given either by the search team during search enquiries as well as post search enquires and also during the assessment proceedings, and therefore the observations of the Ld. Commissioner are contrary to the facts on record. The Assessee further claimed that no doubt the entries in the books of account, do not define taxability but the same show the intention of the Assessee to keep shares as stock in trade. The Assessee kept some shares as "investment" and some shares as "stock in trade" which shows that the Assessee had clear intention to keep certain stocks as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation and purposes of both the provisions are identical. The Assessee further claimed that as per the provisions of section 56(2)(viia) of the Act, shares have first to qualify as "property" and the proviso to section 56(2)(viia) of the Act also uses the words "any such property" and the meaning of the word "fair market value" given in clause (viia) also refers to the word "property" in section 56(2)(viia) of the Act. And therefore borrowing such meaning from similar/analogues provisions instead of adopting general meaning of the word "property" is cardinal rules of interpretation. The Hon'ble Tribunal in the cases of Solitaire Diamond Exports vs. ITO 114 taxman 176 (Mumbai) and ACIT vs. Khoday India Ltd. (33 SOT 178) has also clearly held that in absence of any definition or meaning of the words, the meaning of such words in the genesis of such provision or similar provision, has to be adopted. 48. The Assessee, at last reiterated that because section 56(2)(viia) of the Act, is an extension of section 56(2)(vii) and therefore in the absence of any meaning of the word in clause (viia), the meaning as assigned in clause (vii), ought to be taken for interpretation purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence there is no reason for not applying the provisions of section 56(2)(viia) of the Act, to the shares purchased as stock in trade. DECISION 50. We have heard the parties and perused the material available on record and given thoughtful consideration to the findings of the Authorities below on the issue under consideration and rival contentions raised by the parties and observe that the following question emerge: "Whether the shares kept as "stock in trade" in regular/ normal course of business for trading purposes, can be subjected to the addition, with the aid of the provisions of section 56(2){viia) of the Act ?" 51. Vide circular no.05/2010 and explanatory notes to the provision of the Finance (No.2) Act, 2009, the new clause i.e. {vii} in section 56(2) of the Act was introduced being an anti-abuse measure, which read, as under: "56(2)(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,- (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution referred to in clause (23C) of section 10; or g) from any trust or institution registered under section 12AA; or h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation. For the purposes of this clause,- a) "assessable" shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 500 b) fair market value of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed; c) "jewellery" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2: d) "property" means the following capital asset of the assessee, namely: i. immovable property being land or building or both; ii. shares and securities; iii. jewellery; iv. archaeological collections; v. drawings: vi. paintings; vii. sculptures; vitt. any work of art; or ix. bullion; (e) "relative" means, (i) in case of an individual- A. spouse of the individual; B. brother or sister of the individual; C. brother or sister of the spouse of the individual; D. brother or sister of either of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions entered into the normal course of business or trade, the profits which are taxable under specific head of income. Therefore, the definition of "property" has been amended to provide that section 56(2)(vii) of the Act which will have application to the "property" which is in the nature of a capital asset of the recipient and therefore would not apply to "stock in trade", raw material and consumable stores of any business of such recipient. For clarity and better understanding, relevant clauses of said circular are reproduced herein below: 13. Taxation of certain transactions without consideration or for inadequate consideration ************ 13.1 Under the previously existing provisions of section 56(2) (vii), any sum of money or any property in kind which is received without consideration or for inadequate consideration (in excess of the prescribed limit of Rs. 50,000/-) by an individual or an HUF is chargeable to income tax in the hands of recipient under the head 'income from other sources'. However, receipts from relatives or on the occasion of marriage or under a will are outside the scope of this provision. The existing definition of property for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and company as well wherever they have received any property being share of a company (not being a company in which the public are substantially interested) without consideration or for a consideration less than aggregate fair market value of the property. And therefore it can easily be construed that sub section (viia) of section 56(2) of the Act was just an extension of sub section (vii) of section 56(2) of the Act, as claimed by the Assessee as correct. 54. Admittedly, in the provisions of section 56(2)(viia) of the Act there is no definition given to any term/clause/head except explaining the meaning of fair market value, as assigned in the explanation to clause (vii) of section 56(2) and therefore in the absence of any definition or meaning of terms/words, the definitions or meanings given in section 56(2)(vii) of the Act would be relevant and thus can be taken into consideration while considering the provisions of section 56(2) (viia) which are being corollary of the provisions of section 56(2)(vii) of the Act and the meaning of such terms/words/heads in section 56(2)(vii) of the Act, which is the genesis of such provision or similar provision, can be imported and/or consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, after examining the provisions of Section 10AA of the Act vis-à-vis the SEZ Act and rules framed thereunder, had concluded that since the definition of 'services' under the SEZ Act also includes trading activity, the activity relating to import of diamonds for re- export would qualify for deduction under Section 10AA of the Act. The aforesaid decision of the Tribunal was upheld by the Hon'ble Rajasthan High Court while discussing a batch of appeals filed by the Revenue against the decision of the Tribunal. The judgment of the Hon'ble Rajasthan High Court was delivered on 24.08.2017 in Income Tax Appeal no. 222 of 2012 and others. It is relevant to observe, in the aforesaid case also, the assessee had its unit in Surat SEZ. Similar view was again expressed by the Mumbai Bench of the Tribunal in the case of the same assessee in ITA No. 153/JP/2014 and 216/JP/2014 dated 10.01.2018. The other decisions cited by the learned AR also express similar view. Therefore, consistent with the view taken by the different Benches of the Tribunal, we are of the view that assessee is eligible to claim deduction under Section 10AA of the Act, since, the activity of import of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mechanism to prevent laundering of unaccounted income but not to transaction made in regular course of business and made applicable only, if an individual or HUF is the recipient but not to a firm or a company and therefore introducing new provision i.e. sub clause (viia) in section 56(2) of the Act, vide Finance Act 2010, firm or a company (not being a company in which the public are substantially interested) were also brought into within its ambit, for making the transactions undertaken, in shares of a company (not being a company in which the public are substantially interested) either for inadequate consideration or without consideration. The CBDT vide clause 13.4 of Circular no.1/2011 dated 06.04.2011 which is Explanatory notes to the provisions of Finance Act, 2010, specifically clarified again "that the provisions of section 56(2) (vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO vide letter dated 09.07.2021 has filed, whereby the AO without making any specific remarks against the MOA/AAA, simply supported the assessment order for making the addition. 63. Admittedly, the Assessee before both the authorities below has also demonstrated the fact that the Assessee is also engaged in the business of investment and trading of shares, as it clearly appears from the other objects (sr. nos. 9 & 23) of the Assessee company (supra) and its financial statements, wherein details of inventories of Rs.67,13,000/- is mentioned and share wise break up of inventory, has also been made, reflecting the shares of the aforesaid companies, as part of the inventory. Further, at note no.6 of the financial statements, details of shares held as investment, are also reflected, which shows the clear intention of the Assessee to keep part of the shares for trading purpose and balance shares as investment. 64. From the aforesaid facts and documents as demonstrated by the Assessee before the authorities below and us, it goes to show that the Assessee also carried/carrying out the business of trading in share, in regular course of business. May be the Assessee held the shares as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not apply to bona-fide business transaction. The CBDT Circular No.1/2011 dated 06/04/2011 explaining the provision of section 56(2)(vii) specifically states that the section was inserted as a counter evasion mechanism to prevent money laundering of unaccounted income. In paragraph 13.4 thereof, it is stated that "the intention was not to tax transactions carried out in the normal course of business or trade, the profit of which are taxable under the specific head of income". Therefore, the aforesaid transactions, as carried out in normal course of business, would not attract the rigors of provisions of Sec.56(2)(vii). 4.3 We also concur with the submissions of Ld. AR that the provision of Section 56(2)(vii) were anti-abuse provision inserted post abolition of Gift Tax Act. The same is evident from CBDT Circular No. 05/2010 dated 03/06/2010 which provided that Section 56 is being introduced as an anti-abuse measure. The same is fortified in CBDT Circular No. 01/2011 dated 06/04/2011 which also provided that these provisions are anti- abuse provisions which were applicable only if an individual or an HUF is the recipient. Therefore, transfer of shares of a company to a firm or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical issues on merit as involved in the instant case and ultimately applied the definition of "property" as defined in explanation to section 56(2)(vii) of the Act and the definition of the "capital asset" as defined u/s 2(14) of the Act, to the provisions of section 56(2)(viia) of the Act. The then Ld. CIT(A) also dealt with the observation of the then AO that from the website "https://www.zaubacorp.com" the Assessee M/s. Aalishan Distributors Pvt. Ltd. has been identified being engaged in the business of wholesale on a fee or contract basis which includes commission agents, commodity brokers and auctioneers and all other wholesalers, who trade on behalf of and on the account of others. The Ld. Commissioner ultimately deleted the identical addition as made in this case, by holding that the provisions of section 56(2)(viia) of the Act are not applicable to any shares of a company (not being a company in which the public are substantially interested), which were purchased for trading purposes during the normal course of business and held as "inventory or stock in trade", hence the AO was not justified in invoking the provisions of section 56(2)(viia) of the Act in respect of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate proceedings, the appellant was requested to submit copy of its Memorandum and Article of Association and in pursuance thereto, the appellant has submitted the same. From perusal of said MOA/ AA it is observed that under the head "Other Objects" Para 6, Page 8 of MOA/ AA, it has been mentioned as under. "6. To acquire, purchase, sell, transfer, subscribe, invest, hold dispose of and/ or deal in share, stocks, debentures, debentures stocks, unique bonds, mutual fund share, unit securities, commercial papers or other financial instruments and/ or obligations issued by any company or companies, constituted or carry on business in India or elsewhere or issued or guaranteed by any government state sovereign dominions, municipalities, public authorities or bodies, financial institutions, banks, insurance companies, corporation, public sector undertaking and/ or trust whether in India or elsewhere." From the above, it is evident that through "Other Objects" the appellant is authorized to purchase and sell of shares or deal in shares. A copy of the said MOA/ AA was forwarded to the Ld. AO, with a request to go through the same and submit comments thereof. In pursuance to the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of sec 56(2)(viia) of the Act are applicable to any share purchased for trading purposes during the normal course of business and held as inventory/stock in trade. In this respect the appellant has made elaborate submissions. To understand the issue, it is pertinent to analyze the various provisions of Act, especially the section 56 of the Act. Section 56 of the Act provides that income of every kind which is not to be excluded from total income under the Act shall be chargeable to income tax under the head "Income from other sources", if it is not chargeable to income tax under any of the head specified in sec 14, items A to E. In the present case, it is an admitted fact that the shares under considerations were purchased for trading purposes during normal course of business and the same were held as stock in trade in appellant's books of account. Hence, the income or loss arising thereof needs to computed and taxed under the head "Profits and gains of business or profession". Thus, by virtue of provisions of sec 56(1) of the Act, any income which is chargeable to tax under the head "Profits and gains of business or profession" shall be excluded from the purview ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny in which public are substantially interested" as such, but before said item/specie the legislature has used the word "any property". Rather the provision of sec 56(2) (viia) provides that "where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 (but before the 1st day of April, 2017), any property, being shares of a company not being a company in which the public are substantially interested From simple reading of provisions of sec 56(2)(vila) of the Act, it is evident that the item/ specie mentioned therein is not "shares of a company not being a company in which public are substantially interested" as such but the item/ specie therein should be any property. being shares of a company not being a company in which the public are substantially interested. Hence, to fall under sec 56(2)(vila) of the Act, shares of a company not being a company in which public are substantially interested first has to fall within the definition or category of "Property". The same is further strengthened by the fact that the Proviso to said sec 56(2)(viia) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des shares & securities. There is no separate definition of "fair market value of a share of a company not being a company in which the public are substantially interested under sec 56(2)(vii) of the Act. Therefore, the provision of sec 56(2) (vii) of the Act prescribes method of determination of "fair market value" of any shares and securities which are capital asset of the assessee and no method or mechanism has been prescribed therein to determine the "fair market value of any shares & securities, which are not capital asset of the company, ie which are held as inventory/ stock. The Ld AO's argument that the Explanation to sec 56(2)(villa) would only borrow the meaning of "fair market value" from clause (b) of Explanation to sec 56(2)(vii) and the same will not extend to other clauses of Explanation to sec. 56(2) is not supported by the law, since in Explanation to sec 56(2) (vila) there is no such restriction and rather the Explanation to sec 56(2)(viia) talks of Explanation to sec 56(2)(vii) as such, without specifying any clause/sub-clause therein. In view of above discussions, I am in agreement with the contention of the appellant that if the arguments of the Ld. AO that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset is taxable under the head "Capital Gain" and when the legislature wanted to tax deeming income on transfer of any particular capital asset, brought provisions of sec 500 of the Act by the Finance Act 2002, w.e.f 01.04.2003, which provided to adopt the stamp duty value in certain cases, on transfer by an assessee of a capital asset, being land or building or both. Since, gains on transfer of any capital asset is assessable under the head "Capital Gain", so to tax such deeming income thereof the legislature inserted sec 50C of the Act in chapter IV- E, which deals with the "Capital gains". Similarly, when the legislature wanted to tax such deeming income on transfer of particular assets other than capital assets, i.e. inventory/ stock in trade, then provisions of sec 43CA of the Act was inserted by the Finance Act 2013, w.e.f 01.04.2014. It is pertinent to note that sec 43CA was inserted in Chapter IV-D, which deals with "Profits and gains of business or profession. 7.4.11 The "capital asset has been defined u/s 2(14) of the Act and the same stipulates that the capital asset means 1. property of any kind held by an assessee, whether or not connected with his busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e line differed with the decision of his predecessor (kindly refer para 11.9 of the impugned order) and acted against the principle of 'stare decisis' (to stand by decided cases) which is as old, as the establishment of the courts. It is derived from legal maxim 'stare decisis et non quieta movere'. It is best to adhere to decisions and not to disturb questions, which have been put at rest. When a point of law has been settled, it forms a precedent which is not to be ordinarily departed afterwards. When the same point comes for consideration again in litigation, the scales of justice must be kept even and steady. A principle of law should not change from case to case. The judgments are not to be altered or changed in accordance with the individual opinions or private sentiments of the judges. The primary duty of the judiciary is to maintain rule of law. The law does not change with the opinion of the judges. In a given case the opinion of the judges may change, the principles of law however must remain on surer foundations until there is any change in legislation, or the society needs such change, as reminded again and again by the Hon'ble Apex Court and High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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