ACIT, NON-CORPORATE CIRCLE 7(1), CHENNAI, CHENNAI V. LATE SHRI MAHAVEER BHANDARI, LEGAL HEIR- SMT. LALITHA BHANDARI, CHENNAI

ITA 2785/CHNY/2024

AI Insights

The case revolves around an appeal by the Revenue against the order of the CIT(A) which had deleted the additions made by the AO on account of LTCG, non-compete fees, and adjustments under section 56(2)(vii). The additions were primarily based on a share swap transaction between the assessee, Mahaveer Bhandari, and Eros International Media Ltd (EIML) for the sale of shares in Universal Power Systems Pvt Ltd (UPSPL). The AO had adopted a fair market value for the shares that was significantly higher than the consideration agreed upon in the SPA, leading to substantial tax additions. The CIT(A) found these additions unjustified, a decision which the Tribunal upheld, emphasizing the lack of cross-examination and the reliance on unsubstantiated valuations.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 779749 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 30-10-2024
• Other Referred Cases: CIT vs. Chemech Laboratories Ltd, Mohan Polyfab Pvt. Ltd. vs The Ito, Ward- 2(1)(4), Ahmedabad, Andaman Timber Industries Vs. Comm. Of Central Excise, Kolkata, Pavankumar M. Sanghvi Vs. ITO, Wd. 3(1)(2), Baroda, Sanjay Vimalchand Jain (L/H) Shantidevi Vimalchand Jain Vs. Pr. CIT - 1, Nagpur, I.C.D.S. Ltd Vs Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITHA
• Assessee Lawyers: AJITH KUMAR CHORDIA; KETAN SHAH; AMAN SHAH
• Keywords: Set aside; Business income; Fair market value; Gift; Capital Gains; Principle of natural justice; Valuation report; Accommodation entries; Share purchase agreement; Maximum Marginal Rate; Bogus
• Section: 148; 143(3); 133(6)

Judgement Text

"आयकर अपीलȣय अͬधकरण,‘सी’ Ûयायपीठ,चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI Įी मनु क ुमार ͬगǐर,ÛयाǓयक सदèय एवं Įी एस.आर.रघुनाथा, लेखा सदèय क े सम¢ BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 2785/CHNY/2024 िनधाᭅरण वषᭅ/Assessment Year : 2016-17 The Asst. Commissioner of Income Tax, Non-Corporate Circle 7(1), Chennai. Vs. Late Shri Mahaveer Bhandari, Rep. by Legal Heir Smt. Lalitha Bhandari, 9, Athipattan Street, Mount Road, Chennai – 600 002. PAN: AADPB 877A (अपीलाथᱮ/Appellant) (Ĥ×यथȸ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Ms. Anitha, Addl.CIT ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri Ajith Kumar Chordia, CA (Through Virtual Mode) सुनवाई कᳱ तारीख/Date of Hearing : 18.07.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 15.10.2025 आदेश /O R D E R PER MANU KUMAR GIRI, JM: This appeal filed by the Revenue is directed against the order of the Ld. Commissioner of Income Tax(Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter the “Ld.CIT(A)”] dated 12.07.2024 arising out of the order dated 30.12.2018 passed by the Assistant Commissioner of Income Tax, Non Corporate Circle 9(1), Chennai (hereinafter referred to as the \"AO\") passed u/s.143(3) of Printed from counselvise.com -2 - ITA. No:2785/Chny/2024 the Income-tax Act, 1961 (hereinafter \"the Act') for the Assessment Year 2016-17 (hereinafter the\"AY\"). 2. The Registry has noted a delay of 37 days in the filing of the appeal. Considering the reasons stated in the condonation petition and the affidavit filed by the Department, and finding the explanation satisfactory, the delay is condoned. Accordingly, the appeal is admitted for adjudication. 3. Grounds of appeal Ground No. 1 -The order of the learned CIT(A) is contrary to the facts and circumstances of the case. Ground No. 2 - The learned CIT(A) ought not to have deleted the entire assessment order for the reason that the AO has not provided opportunity for cross examination, while that is a curable defect that would not vitiate the entire assessment. Ground No. 3 - The learned CIT(A) failed to appreciate that the provision of opportunity to examine does not arise in the case on hand, as the documents relied on are very much available in public domain. Ground No. 4 - The learned CIT(A) erred in passing the order of appeal, without discussing the merits of the case. Ground No. 5 - Without prejudice to the above, the learned CIT(A) ought to have upheld the addition on account of section 56(2)(vii) of Rs. 7,85,10,196/- as it was correctly computed based on the Fair Market Value as on the date of transfer. Ground No. 6 - The learned CIT(A) has erred in deleting the addition of Rs.99,39,998/- on account of non-Compete fees u/s 28(va) of the Act as it was based on the valuation report of Duff & Phelps owing to absence of separate non-compete valuation clause and relying on the Hon’ble Madras High Court decision in the case of CIT vs. Chemech Laboratories Ltd wherein it was held that where consideration is paid for all aspects of a transaction (with non-compete convenants), some portion of the consideration is to be attributed towards non-compete convenants, even in the absence of an express provision in the transaction agreements. Printed from counselvise.com -3 - ITA. No:2785/Chny/2024 Ground No.7 - For those and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. 4. Undisputed facts of the case as narrated by the ld.CIT(A) are as under: The assessee, Mahaveer Bhandari filed return of Income for the AY 2016-17 on 28/11/2016, declaring a total income of Rs.17,40,10,730/- which was processed under section 143(1) of the Income Tax Act, 1961 (“the Act”). Later the AO completed the assessment by assessing the total income at Rs. 26,24,60,920/- by adding an amount of Rs.7,85,10,196/- being difference on account of LTCG and amount of Rs. 99,39,998/- u/s.28(va) of the Income Tax Act, 1961 to the total income of the appellant. Being aggrieved by the same the assessee preferred the instant appeal. The AO stated that the case was selected for scrutiny under CASS on the issue that whether Sales turnover/receipts has been correctly offered for tax and capital gains/loss is genuine and has been correctly shown in the return of income. Smt. Lalitha Bhandari (AABPL7053K) along with her husband, Shri Mahaveer Bhandari (AADPB8777A) and son, Shri Naveen Bhandari (AABPN7974M) were shareholders in a private Limited Company named Universal Power Systems Pvt Ltd (UPSPL). The total shares of the UPSPL was 1000 shares of which Shri Mahaveer Bhandari was holding 499 shares, Smt. Lalitha Bhandari was holding 500 shares and 1 share was held by their son Shri Naveen Bhandari. The Promoters entered into a Sales purchase agreement (SPA) with Eros International Media Ltd (EIML), where the cash consideration was fixed at 35 crores, with an option to take share consideration instead of cash consideration. The Promoters have during the year on 24.02.2015, exercised an option to take share consideration, where shares of Eros International Media Ltd (EIML) was allotted. The promoters were allotted 900970 shares out Printed from counselvise.com -4 - ITA. No:2785/Chny/2024 of which appellant was allotted 4,47,782 of EIML shares on 1.8.2015, which was valued at Rs.17,39,50,059. The appellant in his computation of income has offered LTCG as Rs.17,33,79,982. EIML Shares was defined in the SPA, as up to 950,000 equity share of EIML of face value INR 10/- each, to be allotted to the Promoters as consideration for purchase by EIML of the sale shares, with a value in accordance with the Valuation Certificate. On 12.2.2015, Ladderup Corporate Advisory Pvt. Ltd valued UPSPL at Rs 35 crores as on 31st Jan 2015. No valuation was made for the Non compete and non solicitation clause of the SPA. On 13.2.2015 the stock exchanges were informed of the Boards approval for the acquisition of 100% stake of UPSPL. The EIML Board passed a resolution on 26. 3. 2015 approving the issue and allotment of upto 950000 shares to the promoters against acquisition of the 100% shares in UPSPL. Here the explanatory statement speaks of the share exchange ratio to be on the basis of the valuation report prepared by Ladderup Corporate Advisiory Pvt Ltd. Another certificate from M/s Walker Chandok & co LLP, certifying that the proposed preferential issue of shares was being made in accordance with the requirement contained in chapter VII of the SEBI ICDR Regulations was available. On 28.07.2018 an amendment agreement was executed, where it is mentioned that the promoters exercised their option to accept share consideration and 900970 shares was to be allotted to the promoters and further cash of Rs. 185/- to Mahaveer Bhandari. On 1.8.2015 EIML board passed a resolution that the shares for UPSPL was acquired against issue of 900970 equity share of EIML at Rs. 388.47 each inclusive of face value of Rs.10. The AO further stated that the annual report for 16-17 of EIML the Notes mentioned as on 1 August 2015, the company was allotted 900970 equity shares to the shareholders of UPSPL at a premium of Rs.586 per share in exchange for the entire shareholding of UPSPL. Shares so purchased have been classified as noncurrent investment. Printed from counselvise.com -5 - ITA. No:2785/Chny/2024 From the above it was very evident that on the date of transfer of shares the fair value of the shares was Rs.586 while appellant restricted to the sale consideration to Rs.35 crores, which incidentally was the cash consideration determined in the SPA. The share consideration was not determined and neither was the swap ratio, then determined. Notice under section 133(6) was issued to EMIL to produce the valuation report to justify the revision of the asset value to Rs.76.79 crs. EMIL produced a valuation report of American Appraisal India Pvt. Ltd., a division of DUFF & PHELPS (D&P) submitted by Vinay Gupta. The appellant objected to the proposal of determining the Full Value of transaction at Rs. 528.3 million. Appellant has referred to the Annual Report of 2015-16 but no reference has been made to the Annual Report of 2016-17. EMIL has revised the securities premium account as on 31.3.2016 by Rs.17.80 crs as fair value adjustment in the annual report of 16-17. Since there is no actual flow of cash, and being an exchange of share, the Full Value of consideration has to be the Fair market value of the shares as on date of transfer. Hence the Full value of consideration is adopted @Rs.586 per share and LTCG is therefore determined by adopting the full value of consideration at Rs.586 per share, which results in the addition of Rs.8,84,50,194/-. The AO iterated that the benefit derived in the form of capital gains from the sale of shares of the Company held is already offered for taxation. Further, one of the promoters also had been employed in the Company subsequent to 2015, the amount of consideration / value of benefits received on account of employment enjoyed through the Company was also offered for taxation under the head ‘income from salaries’ during the relevant Assessment Years. Such income has been offered to tax at the maximum marginal rate applicable to individuals (subject to the slab rates applicable to the individuals). It is to be noted that Mr. Naveen Bhandari, the above said promoter had received Rs.2.41 Crores during FY 2015-16 revenues / benefits from Printed from counselvise.com -6 - ITA. No:2785/Chny/2024 the Company. The appellant claim that other than capital gain the only other benefit, that the promoters derived, was on account of salary paid to Shri Naveen Bhandari. And no other shareholder took any other benefit. It is categorically clear that the remuneration is a separate and distinct benefit element of the SPA. Moreover, the appellant and his wife were not actively involved in the operations of the company. The idea and the product of the company was the brain child of Mr.Naveen Bhandari and his employment and continuation in the company was required to download the technology, to the new management. With regard to the existence of the non-competition agreement, the appellant’s claim that no separate agreement exist is correct to the extent that there is no separate agreement, but there does exist the clauses pertaining to non compete and non solicitations in the SPA, clause (9) of SPA which of course has not been separately valued. With regards to the taxability of the amount of non compete fees, though there is no separate valuation mentioned in the agreement some portion of the sales consideration should be allocated towards no compete fees. Hence an amount of Rs.2 crores based on valuation made by D&P is attributable to no compete fees and taxable as business receipts u/s 28(va) of the Act. Proportionate value to appellant comes to Rs.99,39,998/-. Consequently, the LTCG will stand reduced by Rs.99,39,998 and be treated as Business income. The FMV of the EIML shares under Rule 11UA works out to Rs. 582 per share. If the appellant’s argument that the full value of consideration of the shares was at Rs.388.47 per share, then the provision of section 56(vii) will be attracted because the fair market value as determined under Rule 11UA, exceeds the consideration declared by appellant. In this case the Fair market value works out to Rs. 26,06,09,124 as against the consideration of Rs.17,39,50,059 offered by appellant. Hence the difference Rs.8,66,59,065 was charged under section 56(vii) of the Income Tax Act under the head income from other sources. Printed from counselvise.com -7 - ITA. No:2785/Chny/2024 The appellant in his submissions stated that in exchange of transfer by way of sale of UPSPL shares to EMIL and pursuant to the share purchase agreement dated 24.02.2015, EMIL had approached their Board of Directors, shareholders, stock exchanges (NSE and BSE), SEBI and the Government of India (FIPB division) for necessary approvals. While EMIL’s shareholders approval which is relevant for the purpose of SEBI (ICDR) Regulations was received on 26.03.2015, the Government of India (FIPB division) granted its approval only on 20.07.2015. Due to this delay in the receipt of the Government approval, the process of allotment of shares to them and the relatives was completed only on 01.08.2015, yet within 15 (fifteen) days from the date of receipt of the regulatory approval as required under the SEBI (ICDR) Regulations. SPA between the parties clearly specifies the agreed consideration by the parties as Rs. 35 Crores. Preamble C of the amendment to the SPA between the parties entered on 28.07.2015 provided for payment of Rs. 185 (One Hundred and Eighty Five only) by way of cheque to Mr. Mahaveer Bhandari. This payment of Rs. 185 was done to ensure that the consideration of Rs. 35 Crores is paid in full, and as such there was no amendment to the purchase consideration. The value of investment recorded in the books of accounts of the Buyer i.e., EMIL for FY 2015-16 in Schedule “14. Non- current Investments” is Rs. 35 Crores. The transaction was also certified by SEBI registered Category – I Merchant Banker (valuation expert), stock exchanges with the “Relevant Date” of determining the share price as 24.02.2015. FY 2016-17 was the transition year and therefore, EMIL was required to adopt Ind-AS and make revaluation as against Indian GAAP which followed different principles. EMIL has restated its value of investment which is purely an accounting treatment and book entry adjustment recorded in their books of accounts under Ind-AS. Printed from counselvise.com -8 - ITA. No:2785/Chny/2024 5. The ld. CIT(A) findings are as under: I have gone through all the submissions and documents furnished by the appellant. Income Tax Appellate Tribunal – Ahmedabad in the case of Mohan Polyfab Pvt. Ltd.,, Ahmedabad vs The Ito, Ward- 2(1)(4),, Ahmedabad on 12 February, 2020 held that: IN THE INCOME TAX APPELLATE TRIBUNAL, \"SMC\" BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, VICE- PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER नधा रण वष / Asstt. Year: 2009-2010 Mohan Polyfab P.Ltd. ITO, Ward-2(1)(4) C/o. Ketan H. Shah, Vs. Ahmedabad. Advocate 512, Time Square-1Opp: Ram Baug Bungalow Thaltej Shila Road Thaltej, Ahmedabad PAN : AABCM 0389 G (Applicant) (Responent) Assessee by : Shri Ketan Shah, and Shri Aman Shah, AR Revenue by : Shri Dilipkumar, Sr.DR सन ◌ुवाई क तार ख/ Date of Hearing : 27/01/2020 घोषणा क तार ख / Date of Pronouncement: 12/02/2020 आदेश /O R D E R PER RAJPAL YADAV, VICE- PRESIDENT Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-2, Ahmedabad dated 19.12.2017 passed for the Asstt.Year 2009-10. 2. The ld.counsel for the assessee at the very outset submitted that though the issue of reopening is involved in the present appeal, but the assessee does not want to press this issue, therefore, the finding of the ld.CIT(A) to the extent of upholding of reopening of the assessment, is confirmed. On merit, the grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.28,03,000/-. 3. Brief facts of the case are that the assessee has filed its return of income on 21.9.2009 declaring total income at NIL. The AO has observed that an information vide letter dated 4.3.2016 was received from DCIT, Cent.Cir.4(3), Printed from counselvise.com -9 - ITA. No:2785/Chny/2024 Mumbai exhibiting the fact that during the investigation in the case of Satish Saraf group statements of key persons of the group, Shri Vishal Bhubani, Shri Rahul Jhunjhunwala and Shri Satish Saraf were recorded. In these statements, they have admitted that they were engaged directly or indirectly in providing accommodation entries in various forms like bogus unsecured loans, bogus share capital, bogus sales and purchase etc. and charged commission thereon at the rate of 0.10% to 0.30% depending on the nature of entry. According to the AO, the assessee was found to be one of the beneficiaries whereby it has taken entries in the form of bogus commission expenditure from such paper company viz. M/s.Sunlight Agency P.Ltd. On the strength of this information, reasons were recorded and notice under section 148 dated 22.3.2016 was issued to the assessee. In response to the notice received under section 148, the assessee has filed a letter contending therein that return filed originally be treated as filed in response to this notice. Notice under section 143(2) was issued, and thereafter the ld.AO has passed reassessment order dated 23.12.2016 under section 143(3) r.w.s. 147 of the Act. The ld.AO has made an addition of Rs.28,03,000/-. Appeal to the CIT(A) did not bring any relief to the assessee. The ld.CIT(A) has confirmed this addition by recording the following finding: \"2.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The AO has made the disallowance of bogus commission of Rs.28,03,000/- on the basis of investigation carried out in the case of Shri Satish Saraf Group, where Shri Rahul Jhunjunwla has admitted that he was indulged in providing accommodation entries to various companies through his paper company M/s. Sunlight Agency Pvt. Ltd. 2.4. The appellant company has claimed commission of Rs.28,03,000/-paid to M/s. Sunlight Agency Pvt. Ltd. for the sale made to M/s. Sajjan India Limited, Mumbai. The AO in the assessment order has noted that M/s.Sunlight Agency Pvt. Ltd. is a paper company Printed from counselvise.com -10 - ITA. No:2785/Chny/2024 of Shri Rahui Jhunjunwla which has been used to provide entry. The Honourable ITAT, Ahmedabad in the case of Pavankumar M. Sanghvi Vs. ITO, Wd. 3(1)(2), Baroda [2017] 81 Taxmann.com 308 has observed on such type of transaction as under:- \"8. As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis- a-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realities. It will, therefore, be useful to understand as to how the shell entries, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions - to give it colour of a normal business entity used as a vehicle for various financial manoeuvers. A shell entity, by itself, it not an illegal entity but it is their act of abatement, of, and being part of, financial manoeuvring to legitimize illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business - its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets its apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly Printed from counselvise.com -11 - ITA. No:2785/Chny/2024 of the financial world, as many other evils. Even a layman, much less a Member of this specialized Tribunal, cannot be oblivious of these ground realities.\" 2.5. It is noticed that M/s. Sunlight Agency Pvt. Ltd. has been engaged in providing accommodation entry and has been used to launder unaccounted money. The above company is shell company and its name have recently been struck off from Registrar of Companies in the cracking down the shell companies by government. Recently, Honourable Mumbai High Court in the case of Sanjay Vimalchand Jain (L/H) Shantidevi Vimalchand Jain Vs. Pr. CIT - 1, Nagpur in the Income Tax Appeal No. 18/2017 dated 10/04/2017, after examining the transaction of Shri Rahul Jhunjunwala controlled company has held that the group was indulged in dubious transaction meant to account for the undisclosed income. In view of the above, the addition made by the AO is found to be correct and justified and hence the same is confirmed.\" 4. A perusal of the record would indicate that stand of the AO is that Shri Rahul Jhunjhunwala was found to be indulged in providing only accommodation entries, and not in carrying any business. This fact revealed during the search carried out at the premises of Shri Rahul Jhunjhunwala. He has admitted this fact before search party. Thus, the AO on the strength of entries found in the books of accounts of Rahul Jhunjhunwala assumed that commission paid by the assessee to M/s.Sunlight Agency P.Ltd on account of sale facilitated by this concern to Sajjan India Ltd. is bogus commission, and it deserves to be disallowed as expenditure of the assessee. The case of the assessee is that it has not availed any bogus commission entry. It has requested for cross-examination of such concerned person viz. Shri Rahul Jhunjhunwala that or any other person who has disclosed this fact. The ld.AO did not provide cross-examination, rather concluded that as far as the fact of admission by Shri Rahul Jhunjhunwala that he Printed from counselvise.com -12 - ITA. No:2785/Chny/2024 was indulged in providing only accommodation entry is concerned, this has been resolved by DCIT, Cent.Cir.4(3). In other words, the information submitted by the DCIT, Cent.Cir.4(3)was treated by the AO as gospel truth for making a disallowance in the case of the assessee. 5. On the other hand, the assessee put reliance upon the judgment Hon'ble Supreme Court in the case of Andaman Timber Industries Vs. Comm. Of Central Excise, Kolkata (2015) 62 taxmann.com 3 (SC) and contended that unless incriminating material put to verification of the assessee, and the statement and the material used against the assessee is put-forth for cross-examination, such material as well as statement cannot be used against the assessee. Hon'ble Supreme Court in this judgment has observed as under: According to us, not allowing the assessee to cross- examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross- examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex- Printed from counselvise.com -13 - ITA. No:2785/Chny/2024 factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.\" 6. In the present case, the AO except confronting the assessee with some details obtained from Shri Rahul Jhunjhunwala and his company, not able to produce any other material. The AO should have granted an opportunity to cross-examine Shri Rahul Jhunjhunwala, Shri Satish Saraf or any other concerned whose statements he was relying upon, because all these statements were not recorded by the AO during the course of assessment proceedings. These were recorded by some other authorities during some other investigations. This can be used only as an information for initiating action against the assessee. They cannot be treated as gospel truth against the assessee. Therefore, if these statements are excluded on the strength of Hon'ble Supreme Court judgment cited (supra), then nothing remained against the assessee to doubt the alleged commission expenses. Therefore, in view of the above facts and circumstances, we allow this ground of appeal, and delete addition. 7. In the result, the appeal of the assessee is allowed. In the present case AO has relied upon financial statements of EMIL for FY 2016-17, and in this context, appellant has requested AO to provide an opportunity to cross examine the CFO of EMIL who has signed the financial statements for FY 2016-17 being relied upon, or his current incumbent, the Company Secretary of EMIL who has signed the financial statements for FY 2016-17 being relied upon, or his current incumbent, auditors of EMIL who has signed the financial statements for FY 2016-17 being relied upon, or his current incumbent but AO has not provided opportunity to cross examine any of them. Without providing requisite and adequate opportunity, AO passed the assessment order with an addition of Rs.8.85 crore as income in the hands of Mr. Mahaveer Bhandari. Printed from counselvise.com -14 - ITA. No:2785/Chny/2024 In view of the factual matrix of the case at hand and the discussion above, as well as the judicial precedents cited, these grounds of appeal are, accordingly, allowed and the addition made by the AO on this account is, hereby, deleted. 6. In the result, the appeal is allowed. In the result, the appeal is decided as above. 7. This order has been passed under Section 250 read with Section 251 of the Income Tax Act, 1961. 6. The ld.DR for the revenue has supported the case of the AO. She further referred the judgment of the Hon’ble Supreme Court of India in the case of I.C.D.S. Ltd Vs Commissioner of Income Tax [2020] 117 taxmann.com 723 (SC) and pleased for the set aside of the impugned order for the cross-examination. 7. We have heard the rival submissions and perused the record and case law cited at bar. The Revenue has raised seven grounds, which broadly contest the deletion of additions made by the Assessing Officer (AO) under the following heads:  Long Term Capital Gains (LTCG) – Rs.7,85,10,196/–  Non-compete fees – Rs.99,39,998/–  Section 56(2)(vii) – Fair Market Value adjustment  Alleged lack of cross-examination being an invalid ground for deletion by Ld. CIT(A). The respondent/assessee, Mr. Mahaveer Bhandari, filed his return of income for A.Y.2016–17 declaring a total income of Rs.17,40,10,730/–. The case was selected for scrutiny under CASS and assessment was completed u/s 143(3), determining the total income at Rs.26,24,60,920/–. The additions primarily arose from a share swap transaction entered into by the assessee (and his family Printed from counselvise.com -15 - ITA. No:2785/Chny/2024 members) with M/s. Eros International Media Ltd. (EIML) for the sale of shares of M/s. Universal Power Systems Pvt. Ltd. (UPSPL). The AO adopted a fair market value of Rs.586 per share of EIML based on EIML's financial statements for FY 2016–17, resulting in enhanced capital gains. Further, based on a report from Duff & Phelps, the AO allocated Rs.2 crores towards non-compete consideration (proportionate Rs.99.39 lakhs to the assessee) and taxed the same u/s 28(va). The assessee disputed the basis of valuation and treatment of the transaction. He submitted that the transaction was entered into for a pre-agreed consideration of Rs.35 crores, supported by regulatory approvals and merchant banker valuation. He also raised the issue that the AO had failed to provide an opportunity to cross-examine key officials of EIML whose financial statements were relied upon. We observe that the Ld. CIT(A) has rightly allowed relief by placing reliance on judicial precedents, including the judgment of the Hon'ble Supreme Court in Andaman Timber Industries vs. CCE [(2015) 62 taxmann.com 3 (SC)], which held that reliance on third-party statements or documents without offering the assessee an opportunity of cross- examination is a serious breach of natural justice. In the present case, the AO relied heavily on the financial statements of EIML for FY 2016–17, and valuation reports not authored or submitted by the assessee. Despite specific requests by the assessee to cross-examine the CFO, Company Secretary, and auditors of EIML, such opportunity was denied. Therefore, respectfully in line with the decisions of Andaman Timber Industries (SC) and Mohan Polyfab Pvt. Ltd. vs. ITO (ITAT Ahmedabad), we find that the denial of cross-examination on material used adversely against the assessee vitiates the assessment proceedings to the Printed from counselvise.com -16 - ITA. No:2785/Chny/2024 extent of such reliance. Hence, case law relied by the revenue is not applicable in the facts of the case. On LTCG – Valuation and Share Consideration, the AO adopted a fair market value of Rs.586 per share of EIML based on accounting revaluations in Ind-AS financial statements for FY 2016–17. The Ld. CIT(A) held, and rightly so, that such revaluation was not indicative of actual consideration received by the assessee. The SPA dated 24.02.2015 clearly specified a fixed consideration of Rs.35 crores. The actual value received was certified by a SEBI-registered merchant banker and approved by FIPB and SEBI. No new tangible evidence was brought on record by the AO to rebut the terms of the SPA or the contemporaneous regulatory approvals. Therefore, the Ld. CIT(A)’s decision to delete the LTCG enhancement is justified. Non-Compete Fees – Section 28(va) 8. We find that there was no separate non-compete agreement or clause with specific valuation. The mere existence of a clause in the SPA without quantification does not warrant arbitrary allocation of Rs.2 crores. The AO’s reliance on the Duff & Phelps report is unsubstantiated insofar as it was not placed before the assessee for rebuttal or cross-examination. In absence of a specific agreement, quantification, or tangible evidence, the addition of Rs.99,39,998/– under section 28(va) lacks merit and has been rightly deleted by the Ld. CIT(A). Section 56(2)(vii) – Income from Other Sources 9. The AO attempted to invoke section 56(2)(vii) by treating the transaction as one where the fair market value exceeded declared Printed from counselvise.com -17 - ITA. No:2785/Chny/2024 consideration. However, this was not a gift or preferential allotment but a genuine business transfer involving share swap, approved by regulatory authorities and documented through binding contracts. The provision of section 56(2)(vii) is not attracted to this transaction. The Ld. CIT(A)’s conclusion is legally and factually correct hence affirmed. In view of the above discussion and judicial precedents, we find no infirmity in the order of the Ld. CIT(A). The deletion of additions made by the AO under LTCG, non-compete fees, and section 56(2)(vii) was based on sound reasoning, legal principles, and evidence on record. Accordingly, we uphold the order of the Ld. CIT(A). All grounds raised by the Revenue are dismissed. 10. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 15th October, 2025 at Chennai. Sd/- Sd/- (एस.आर. रघुनाथा) ( मनु क ुमार िगįर) (S.R. RAGHUNATHA) (MANU KUMAR GIRI) लेखा सद˟/ACCOUNTANT MEMBER Ɋाियक सद˟/JUDICIAL MEMBER चेÛनई/Chennai, Ǒदनांक/Date: 15.10.2025 RSR आदेश कȧĤ Ǔतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Chennai 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. Printed from counselvise.com "