M/s. Bilakhia Holding P Ltd, Vapi V. The ACIT.,Vapi Range, Vapi

ITA 1036/AHD/2009

• Counselvise Citation: 103620514 RSA 2009
• Duration Of Justice: 5 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-01-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 06-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Gift; Business income; Depreciation; Question of law; Cost of acquisition; Tangible material; Wrong claim; Bad and doubtful debts; Difference of opinion; Non compliance; Capital receipt; Reason to believe; Change of opinion
• Section: 143(3); 80HHC; 115JB; 32; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA ACCOUNTANT MEMB ER ADDL. COMMISSIONER OF INCOME-TAX, VAPI RANGE, VAPI (APPELLANT) VS BILAKHIA HOLDINGS P. LTD, BILAKHIA HOUSE, MUKTANAND MARG, CHALA, VAPI PAN: AADCS4420J (RESPONDENT) BILAKHIA HOLDINGS P. LTD, BILAKHIA HOUSE, MUKTANAND MARG, CHALA, VAPI PAN: AADCS4420J (APPELLANT) VS ADDL. COMMISSIONER OF INCOME-TAX, VAPI RANGE, VAPI (RESPONDENT) REVENUE BY: SRI SUBHASH BAINS, CIT-DR WITH SRI O.P. BATH EJA, SR.D.R. ASSESSEE BY: SHRI S.E. DASTUR, SR. A DVOCATE WITH SRI M.K. PATEL, A.R. DATE OF HEARING : 21-03-2014 DATE OF PRONOUNCEMENT : 30-05-20 14 ITA NOS. 981 TO 985/AHD/2009 ASSTT. YEARS 2001-02, 02-03, 03-04, 04-05 & 06-07 ITA NOS. 1034 TO 1038/AHD/2009 ASSTT. YEARS 2001-02, 02-03, 03-04, 04-05 & 06-07 I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 2 / ORDER PER BENCH:- ALL THESE CROSS APPEALS HAVE BEEN FILED AGAINST TH E SEPARATE ORDERS OF LD. CIT(A) DATED 20-01-2009. SINCE ALL THESE APPEA LS BELONG TO SAME ASSESSEE, WE ARE DISPOSING THEM BY PASSING A CONSOL IDATED ORDER. 2. AT THE TIME OF HEARING BOTH THE PARTIES AGREED T HAT ITA NOS. 982/AHD/2009 & 1035/AHD/2009 FOR ASSESSMENT YEAR 20 02-03 ARE LEAD CASES AS LD. CIT(A) HAS FOLLOWED THE ORDER FOR ASSESSMENT YEAR 2002-03 IN REST OF THE ASSESSMENT YEARS. SO BOTH THE PARTIES ADVANCED THEIR ARGUMENTS IN RESPECT OF GROUNDS FOR ASSESSMENT YEAR 2002-03 WHIC H WILL TAKE CARE REST OF THE YEARS AS GROUNDS IN THOSE YEARS ARE SIMILAR. S YNOPSIS OF THE ARGUMENTS WAS ALSO FILED ON BEHALF OF THE ASSESSEE, REVENUE DID NOT FILE ANY SUCH SYNOPSIS DESPITE OPPORTUNITY FOR THE SAME WAS GIVEN ON 21.03.2014. LD. CIT-DR WAS OF THE VIEW THAT REVENUES SUBMISSION/AR GUMENTS HAVE BEEN FAIRLY INCORPORATED IN THE SYNOPSIS OF ARGUMENTS FI LED BY ASSESSSEE-COMPANY. SO THESE SYNOPSIS WERE RELIED UPON BY US FOR THE AR GUMENTS ADVANCED BY BOTH THE PARTIES. WE WILL FIRST TAKE UP REVENUES APPEAL IN ITA NO. 9 82/AHD/2009 A.Y. 2002-03 3. REVENUE HAS TAKEN FOLLOWING GROUNDS:- I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 3 1) ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT SHARES WERE RE CEIVED BY THE ASSESSEE AS GIFT WITHOUT CONSIDERATION WHEREAS THE SAME WERE RECEIVED UNDER FAMILY ARRANGEMENT. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TRANSFER U NDER FAMILY ARRANGEMENT IS FOR A CONSIDERATION WHICH IS MONETAR Y AND THEREFORE CANNOT BE TERMED AS GIFT . 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT CLAUSE-6 O F FAMILY ARRANGEMENT CLEARLY RECORDS THE CONSIDERATION BEING 'TO AVOID ANY FURTHER DISPUTES ,.,. ' AND THEREFORE TRANSFER BEI NG A CONSIDERATION CANNOT BE TERMED AS GIFT. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT BASIC INGR EDIENT I.E. NATURAL LOVE AND AFFECTION WAS NOT THERE IN THESE SHARE TRA NSACTIONS AND HENCE THESE SHARE TRANSACTION CANNOT BE TREATED AS GIFT. 5) THE LEANED CIT(A) HAS ERRED IN OBSERVING T HAT THE AO HAS CONSIDERED THE TRANSACTIONS AS A DISCOUNTED PURCHAS E WHEN IN FACT THE AO HAS HELD THAT IN VIEW OF FAMILY ARRANGEMENT, THE TRANSACTION CANNOT BE CONSIDERED AS GIFT WITHOUT CONSIDERATION. 6) ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 14,17, 11,839/- BEING AMOUNT RECEIVED BY THE ASSESSEE FROM ITS DIRECTORS BY WAY OF GIFT AND ON ACCOUNT OF ASSIGNMENT OF RIGHT TO RECEIVE BACK T HE LOANS WITHOUT CONSIDERING THE FACTS BROUGHT IN BY THE AO IN ITS E NTIRETY. 4. GROUND NO. 1 TO 5 RELATE TO NATURE OF RECEIPTS O F SHARES BY THE ASSESSEE-COMPANY I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 4 5. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE-COMPAN Y FILED ITS RETURN OF INCOME ON 28-10-2002 DECLARING TOTAL INCOME OF RS. 89,960/- UNDER REGULAR PROCEEDINGS OF THE ACT. THE ORIGINAL PROCEEDINGS U/S. 143(3) OF THE ACT WAS COMPLETED ON 16-02-2005. SUBSEQUENTLY, THE SAME WA S RE-OPENED AND ASSESSMENT WAS COMPLETED U/S. 143(3) R.W.S. 147 OF THE ACT ON 12 TH DECEMBER, 2007. DURING ASSESSMENT PROCEEDINGS ON P ERUSAL OF THE RETURN OF THE INCOME AND HAVING SUBMISSIONS IT WAS FOUND THAT ASSESSEE-COMPANY HAS CREDITED RS. 45,58,654/- DIRECTLY TO ITS CAPITAL RE SERVE BEING PROFIT ON SALE OF SHARES OF NESTLE INDIA LTD AND HINDUSTAN LEVER LTD. RECEIVED AS GIFT. THIS SUM WAS NOT ROUTED THROUGH THE PROFIT AND LOSS ACCO UNT OF THE COMPANY AND HENCE WAS NOT CONSIDERED FOR CALCULATION OF BOOK PR OFIT U/S. 115JB OF THE ACT. AS PER THE DETAILS OF CAPITAL GAIN ARISING FR OM THE TRANSFER OF SHARES WHICH WAS TRANSFERRED TO CAPITAL RESERVE ACCOUNT, T HE ASSSESSEE-COMPANY EARNED CAPITAL GAIN OF RS. 45,58,654/-. THE CAPITA L RESERVE WAS ALSO CREDITED BY A SUM OF RS. 14,17,11,839/- BEING GIFT/LOANS FRO M THE PROMOTERS OF THE COMPANY. BEFORE AO ASSESSEE-COMPANYS CLAIM WAS TH AT THE TRANSACTION OF TRANSFER OF SHARES AS PER FAMILY ARRANGEMENT FROM V ARIOUS PERSONS BELONGING TO BILAKHIA FAMILY WAS GIFT TO THE ASSESSEE. HOWEV ER AO WAS OF THE VIEW THAT SINCE THE MEMBERS OF THE BILAKHIA FAMILY HAVE TRANSFERRED THEIR SHARES TO THE ASSSESSEE COMPANY IN PURSUANCE OF DEED OF FAMI LY ARRANGEMENT DATED 16-02-2001, THE TRANSFER OF SHARES WAS NOT VOLUNTAR Y AND WITHOUT CONSIDERATION. IN VIEW OF THESE FACTS, THE AMOUNT S OF RS. 45,58,654/- AND RS. 14,17,11,839/- WERE ADDED TO THE TOTAL INCOME O F THE ASSESSEE. 5.1 MOREOVER, THE PROFIT SHOWN ON SALE OF SHARES AM OUNTING TO RS. 45,58,654/- WAS ADDED TO THE BOOK PROFIT COMPUTED U /S. 115JB OF THE ACT ON I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 5 THE GROUND THAT BOOK PROFIT WAS NOT COMPUTED AS PER THE PROVISIONS OF COMPANIES ACT READ WITH PART II AND III OF SCHEDULE VI OF COMPANIES ACT. WHILE DOING SO, RATIO LAID DOWN IN THE CASE OF HON BLE MUMBAI HIGH COURT IN THE CASE OF CIT VS. VEEKAYALAL 249 ITR 597 WAS F OLLOWED. ASSESSMENT U/S. 143(3) R.W.S. 147 OF THE ACT WAS COMPLETED DET ERMINING THE TOTAL INCOME AT RS. 14,18,1800/- UNDER REGULAR PROVISIONS OF THE ACT AND RS. 14,09,37,186/- UNDER SPECIAL PROVISIONS OF SECTION 115JB OF THE ACT. 6. AGGRIEVED BY THIS ORDER OF AO, ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A) WHO DECIDED THE APPEAL OF THE ASSESSEE AS UN DER:- (I) REOPENING OF ASSESSMENT WAS HELD TO BE VALID. (II) TRANSFER OF SHARES TO THE ASSESSEE-COMPANY BY THREE BROTHERS OF BILAKHIA WERE DIRECTED TO BE CONSIDERED AS GIFT, CO ST TO PREVIOUS OWNER AND HOLDING PERIOD OF PREVIOUS OWNER WAS AVAILABLE TO T HE ASSSESSEE. (III) HE DIRECTED THE AO TO RE-COMPUTE THE BOOK PRO FIT U/S. 115JB OF THE ACT AT RS. 45,58,654/- (IV) HE DELETED THE ADDITION OF RS. 14,17,11,839/- RECEIVED BY THE ASSESSEE-COMPANY FROM ITS DIRECTOR AS GIFT ON ACCO UNT OF ASSIGNMENT OF RIGHT TO RECEIVE BACK THE LOANS HOLDINGS THAT THE SAME RE PRESENT GIFT WITHOUT CONSIDERATION. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 6 7. AT THE TIME OF HEARING LD. DRS SUBMISSION IN RE SPECT OF SHARES WAS THAT TRANSFER OF SHARES TO THE ASSESSEE-COMPANY CAN NOT BE REGARDED AS A GIFT SINCE:- (I) FOR THE TRANSFER TO BE A GIFT IT MUST BE OUT OF NATURAL LOVE AND AFFECTION WHICH CAN EXIST ONLY BETWEEN LIVING BODIES AND ASSE SSEEE, A COMPANY, IS INANIMATE AND HENCE INCAPABLE OF RECEIVING GIFTS. (II) ATTAINING PEACE AND HARMONY IN THE FAMILY IS G OOD CONSIDERATION AND HENCE TRANSFER UNDER FAMILY ARRANGEMENT CANNOT BE S AID TO BE WITHOUT CONSIDERATION. FOR MAKING THIS SUBMISISON RELIANCE WAS PLACED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CWT VS . HH VIJAYABA, DOWGER MAHARANI SAHEB OF BHAVNAGAR PALACE (117 ITR 784) (III) THE TRANSFER IS NOT MADE VOLUNTARILY BY THE M EMBERS OF THE FAMILY BUT AS MANDATED BY THE FAMILY ARRANGEMENT ARRIVED AT BE TWEEN VARIOUS FAMILY MEMBERS. IT WAS FURTHER SUBMITTED ON BEHALF OF THE REVENUE THAT THE SHARES HAVE IN FACT BEEN PURCHASED BY THE ASSESSEE AT THE COST TO THE PREVIOUS OWNER. 7.1 LD. DR CONCLUDED HIS ARGUMENT BY SUBMITTING THA T THE ASSESSEE WAS NOT ENTITLED TO TAKE THE PERIOD OF HOLDING OF THE P REVIOUS OWNER AND HENCE THE GAIN ARISING ON THE SALE OF SHARES WAS IN FACT SHORT TERM CAPITAL GAIN AND NOT LONG TERM CAPITAL GAIN AS CLAIMED BY THE ASSESS EE. 8. THE ARGUMENTS ADVANCED BY LD. SR. COUNSEL OF THE ASSESSEE AS PER THE SYNOPSIS OF ARGUMENTS ARE AS UNDER:- I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 7 A) WHETHER THE TRANSFER OF SHARES WAS A GIFT? I. IT IS SUBMITTED THAT THERE IS NO REQUIREMENT THAT A GIFT CAN BE ONLY OUT OF NATURAL LOVE AND AFFECTION: 1. SINCE GIFT HAS NOT BEEN DEFINED UNDER THE ACT, ITS MEANING AS PER THE TRANSFER OF PROPERTY ACT, 1882 BECOMES RELE VANT. S.122 OF THE TRANSFER OF PROPERTY ACT, 1882 DEFINES GIFT THUS: 122 ' GIFT' DEFINED.-' GIFT' IS THE TRANSFER OF CER TAIN EXISTING MOVEABLE OR IMMOVEABLE PROPERTY MADE VOLUNTARILY AND WITHOUT CONSIDERATION, BY ONE PERSON, CALLED THE DONOR, TO ANOTHER, CALLED THE DONEE, AND ACCEPTED BY OR ON BEHALF OF THE DONEE. FROM THE ABOVE DEFINITION IT IS CLEAR THAT THERE IS NO REQUIREMENT IN LAW FOR THE EXISTENCE OF NATURAL LOVE AND AFFECTION BETWEEN THE DONOR AND THE DONEE. ALL THAT IS NECESSARY IS THAT THE TR ANSFER BE MADE VOLUNTARILY AND WITHOUT CONSIDERATION. 2. QUESTION THEN ARISES AS WHAT IS THE MEANING OF ' 'CONSIDERATION' AS UNDERSTOOD IN S.122 OF THE TRANSFER OF PROPERTY ACT , 1882. CAN NATURAL LOVE AND AFFECTION BE REGARDED AS CONSIDERA TION? THE SUPREME COURT IN THE CASE OF KM.SONIA BHATIA VS . STATE OF UP (AIR 1981 SC 1274) HELD THAT THE CONSIDERATION IS N OT TO BE CONFUSED WITH MOTIVE. IT OBSERVED THUS: '19. ... IT HAS BEEN RIGHTLY POINTED OUT IN ONE OF THE BOOKS REFERRED TO ABOVE THAT WE SHOULD NOT TRY TO CONFUSE THE MOTIVE OR THE PURPOSE OF MAKING A GIFT WITH THE CONSIDERATION WHICH IS THE S UBJECT MATTER OF THE GIFT. LOVE, AFFECTION, SPIRITUAL BENEFIT AND MANY O THER FACTORS MAY ENTER IN THE INTENTION OF THE DONOR TO MAKE A GIFT BUT THESE FILIAL CONSIDERATIONS CANNOT BE CALLED OR HELD TO BE LEGAL CONSIDERATIONS AS UNDERSTOOD BY LAW. IT IS MANIFEST, THEREFORE, THAT THE PASSING OF MONETARY CONSIDERATION IS COMPLETELY FOREIGN TO THE CONCEPT OF A GIFT HAVING REGARD TO THE NATURE, CHARACTER AND THE CIRC UMSTANCES UNDER WHICH SUCH A TRANSFER TAKES PLACE. FURTHERMORE, WHEN THE LEGISLATURE HAS USED THE WORD 'TRANSFER' IT AT ONCE INVOKES THE PROVISIONS OF THE TRANSFER OF PROP ERTY ACT. ' THE HON'BLE COURT THEREAFTER CITED WITH APPROVAL TH E FOLLOWING FINDINGS OF THE SAHAY, J.: '21 ... 'NOW, SECTION 122, T.P. ACT DEFINES 'GIFT' AS A TRA NSFER OF CERTAIN EXISTING MOVABLE OR IMMOVABLE PROPERTY MADE VOLUNTA RILY AND WITHOUT CONSIDERATION, BY ONE PERSON, CALLED THE DONOR, TO ANOTHER, CALLED THE DONEE, AND ACCEPTED BY OR ON BEHALF OF THE DONEE. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 8 TO MY MIND CONSIDERATION IN SECTION 122, T.P ACT, M EANS VALUABLE CONSIDERATION AND NOT CONSIDERATION IN THE SHAPE OF CONFERRING SPIRITUAL BENEFIT TO THE DONOR. IF VALUABLE CONSIDE RATION BE NOT THE CONSIDERATION REFERRED TO IN SECTION 122, I FAIL TO UNDERSTAND HOW ANY GIFT CAN BE MADE WITHOUT CONSIDERATION AT ALL. THE RE MUST BE SOME SORT OF CONSIDERATION IN EVERY GIFT, FOR INSTANCE, A CONSIDERATION OF AN EXPECTATION OF SPIRITUAL OR MORAL BENEFIT OR CONSID ERATION OF LOVE AND AFFECTION. SUCH CONSIDERATIONS ARE NOT CONTEMPLATED IN SECTION 122. THE CONSIDERATION THERE, CONTEMPLATED MUST BE VALUA BLE CONSIDERATION, THAT IS CONSIDERATION EITHER OF MONE Y OR OF MONEY'S WORTH.' ' (EMPHASIS SUPPLIED) FROM THE ABOVE AND INSOFAR AS THE DONEE IS CONCERNE D, IT FOLLOWS THAT FOR THE TRANSFER TO BE REGARDED AS A GIFT IN THE HA NDS OF THE DONEE, NO CONSIDERATION, IN MONEY OR MONIES WORTH MUST HAVE B EEN PAID BY OR ON BEHALF OF THE DONEE. IN THE PRESENT CASE IT CANN OT BE DISPUTED THAT NO CONSIDERATION IN MONIES OR MONIES WORTH HAS BEEN PAID BY THE ASSESSEE COMPANY. II. INSOFAR AS THE CONTENTION OF THE LEARNED DR THA T THE TRANSFER IS NOT VOLUNTARY SINCE IT IS EFFECTED PURSUANT TO THE FAMILY ARRANGEMENT, IT IS SUBMITTED THAT IF THE LEARNED DRS CONTENTION IS TO BE ACCEPTED THEN NO TRANSFER EFFECTED PURSUANT TO AN AGREEMENT TO TR ANSFER CAN BE REGARDED AS VOLUNTARY. IT IS UNDISPUTED THAT THE BR OTHER EXECUTED THE FAMILY ARRANGEMENT VOLUNTARILY AND OF THEIR OWN FRE E WILL, IN THAT, IT IS NOBODY'S CASE THAT ANY OF THE BROTHERS HAVE BEEN FO RCED INTO SIGNING THE FAMILY ARRANGEMENT. ONCE THAT IS SO, THE TRANSF ER OF SHARES TO THE ASSESSEE -COMPANY IS ONLY IN CONTINUATION AND TO GI VE EFFECT TO THE FAMILY ARRANGEMENT. HENCE TO SAY THAT THE TRANSFER IS NOT VOLUNTARY SINCE ITS PURSUANT TO A FAMILY ARRANGEMENT IS TO BE STATED ONLY TO BE REJECTED. III RELIANCE HAS BEEN PLACED BY THE LEARNED DR ON THE CASE OF CWT VS. HH VIJAYABA, DOWGER MAHARANI SAHEB OF BHAVNAGAR PALACE (111 ITR 784) TO SAY THAT THE TRANSFER FAMILY ARRAN GEMENT ARE EXECUTED FOR GOOD CONSIDERATION. THIS DECISION IS W HOLLY DISTINGUISHABLE FOR THE REASON EXPLAINED HEREINAFTE R: A. THE ISSUE RAISED FOR THE CONSIDERATION OF THE AP EX COURT WAS WHETHER THE OBLIGATION OF A MOTHER (THE APPELLANT) UNDER A FAMILY ARRANGEMENT TO PAY RS TO SON A' IN THE EVENT SON 'B FAILED TO MAKE THAT PAYMENT TO SON 'A FROM THE ESTATE OF THE FATHER WHICH DEVOLVED I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 9 UPON SON 'A' UNDER SUCH CONDITION, COULD BE ALLOWED AS A DEDUCTION IN COMPUTING THE WEALTH OF THE MOTHER. B. THE CONTENTION OF THE REVENUE WAS THAT THE MOTHE RS AGREEMENT TO PAY BEING WITHOUT ANY CONSIDERATION WAS NOT AN ENFO RCEABLE CONTRACT AND HENCE COULD NOT CONSTITUTE A DEBT SUCH AS WAS D EDUCTIBLE UNDER WHILE COMPUTING THE ASSESSABLE WEALTH OF THE MOTHER . C. IT WAS THE ABOVE ARGUMENT THAT COMMITMENTS UNDE R A FAMILY ARRANGEMENTS ARE NOT BINDING WAS REJECTED BY THE AP EX COURT STATING BY OBSERVING THUS: '5 .,. TAKING THE TOTALITY OF THE FACT AS FOUND BY THE TRIBUNAL AND MENTIONED IN THE IMPUGNED JUDGMENT OF THE HIGH COUR T IT WAS A CASE OF FAMILY SETTLEMENT OR FAMILY ARRANGEMENT WHICH IS BINDING ON THE PARTIES CONCERNED. THE ASSESSEE AGREED TO PURCHASE PEACE FOR THE FAMILY, AND TO PAY TO HER SON THE AMOUNT WHICH FELL SHORT OF RS. 50,00,000/- IF HER ELDER SON DID NOT PAY ANY PORTIO N THEREOF. IT IS WELL ESTABLISHED THAT SUCH A CONSIDERATION IS A GOOD CON SIDERATION WHICH BRINGS, ABOUT AN ENFORCEABLE AGREEMENT BETWEEN THE PARTIES. SECTION 25 OF THE CONTRACT ACT DOES NOT HIT THIS. ' THE QUESTION THEREFORE WAS WHETHER THE ARRANGEMENT COULD BE REGARDED UNENFORCEABLE FOR WANT OF CONSIDERATION IN VIEW OF S.25 OF THE INDIAN CONTRACT ACT, 1872 WHICH PROVIDES THAT A CONTRACT WITHOUT CONSIDERATION IS UNENFORCEABLE. IT WAS THEREFORE TH E MEANING OF WORD 'CONSIDERATION' FOR THE PURPOSES OF SECTION 25 OF T HE INDIAN CONTRACT ACT, 1872 THAT THE COURT WAS CONCERNED WITH AND IT WAS IN THAT CONTEXT THAT THE COURT HELD THAT FAMILY ARRANGEMENTS CANNOT BE REGARDED AS BEING WITHOUT CONSIDERATION SO AS TO RENDER THEM AS UNENFORCEABLE. THE COURT WAS NOT CONCERNED WITH THE NATURE OF THE TRANSFER HAD THE MOTHER PAID THE MONIES TO THE SON UNDER THE ARRANGE MENT; I.E. WHETHER OR NOT SUCH PAYMENT WOULD CONSTITUTE GIFT B Y THE MOTHER TO THE SON UNDER SECTION 122 OF THE TRANSFER OF PROPERTY A CT. D. IN PRESENT CASE, THERE IS NO DISPUTE THAT THE FAMIL Y ARRANGEMENT BETWEEN THE BROTHERS IS BINDING AND ENFORCEABLE . THE QUESTION IN THE PRESENT CASE IS WHETHER THE TRANSFER OF SHARES WAS GIFT UNDER SECTION 122 OF THE TRANSFER OF PROPERTY ACT, 1882. AS STATE D EARLIER THE APEX COURT HAS IN KM.SONIA BHATIA VS. STATE OF UP (AIR 1 981 SC 1274) HELD THAT CONSIDERATION AS REFERRED TO IN SECTION 1 22 MUST BE CONSIDERATION IN MONEY OR MONIES WORTH. HENCE THE DECISION IN THE CASE RELIED UPON BY THE LEARNED DR IS COMPLETELY DI STINGUISHABLE BOTH ON FACTS AND IN LAW. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 10 B) INSOFAR AS THE CONTENTION OF THE LEARNED DR THAT THE SHARES HAVE IN FACT BEEN PURCHASED BY THE ASSESSEE AT A DI SCOUNTED PRICE AT THE PRICE RECORDED IN THE BOOKS OF ACCOUNTS. THIS C ONTENTION IS FACTUALLY INCORRECT. THE FALLOWING FINDING OF THE C IT(A) REMAINS UNASSAILED AND IN ANY EVENT IS NOT SHOWN TO BE INCO RRECT IN ANY MANNER: THE FAMILY ARRANGEMENT HAS BEEN ENTERED INTO BETWEEN THE PARENTS, THE THREE BROTHER S THEIR WIVES AND CHILDREN. THE REARRANGEMENT HAS BEEN MAINLY IN THE FORM OF TRANSFER WITHOUT CONSIDERATION OF ALMOST ALL THE SHARES HELD IN DIFFERENT COMPANIES BY THE VARIOUS -FAMILY MEMBERS TO THE APP ELLANT COMPANY WHERE IN THE SHARES OF THE THREE BROTHERS ARE EQUAL . ALL THE FAMILY MEMBERS WHO HAVE TRANSFERRED THE SHARES BY WAY OF G IFT HAVE REFLECTED THE TRANSACTION AS SUCH AS A GIFT IN THEI R INDIVIDUAL ACCOUNTS AS WELL AS IN THE RETURN OF INCOME FILED WITH THEIR ASSESSING OFFICER. THE COMPANY, VIDE RESOLUTION DATED 31.03.2001 & 13. 02.2002 ACCEPTED AND RECEIVED THE GIFTS AND THE COPY OF ACK NOWLEDGEMENT OF GIFT HAS BEEN SUBMITTED TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THIS FACTS HAS NOT BEEN DISPUTED THE AO EITHER DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS OR IN THE REMA ND REPORT SUBMITTED TO THIS OFFICE. THE APPELLANT HAS RECORDED THE TRANSACTION AS A GIF T AND HAS CREDITED THE SALE PROCEEDS OF SHARES RECEIVED AS GIFT TO CAP ITAL RESERVE ACCOUNT AND ARGUED THAT GIFTS CANNOT BE PROFIT. THE AO HAS OBSERVED THAT THE ACCOUNTING OF THE SHARES @ RS. 1/- PER GIFT TRANSAC TION SHOULD BE TAKEN AS A SALE CONSIDERATION. I AM NOT AGREEMENT W ITH THE OBSERVATION OF THE AO THE VALUE ADAPTED BY COMPANY @ RS. 1/- PER GIFT IS ONLY A NATIONAL VALUE FOR ACCOUNTING PURPOS E. IT IS IMPORTANT TO NOTE THAT THIS AMOUNT HAS NEITHER BEEN PAID NOR SHOWN AS PAYABLE TO ANY OF THE DONORS IN THE FINAL ACCOUNTS. THE AO HAS NOT DISPUTED THESE FACTS IN THE REMAND REPORT. (EMPHASIS SUPPLIED - REPRODUCED FROM PAGE NO. 16 & 17 OF THE CIT(A) ORDER) ADDITIONAL ARGUMENTS BY THE COMPANY 1. THE APEX COURT IN THE CASE OF B C SRINIVASA SHET TY 128 ITR 294 (SC) I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 11 IF THE COST OF ACQUISITION IS NOT CAPABLE OF BEING DETERMINED IN MONETARY TERMS, THE SAME HAS TO BE CONSIDERED AS NO N ASCERTAINABLE AND IN THAT CASE THE COMPUTATION PROVISIONS FAILS A ND THERE CANNOT BE A CHARGE OF CAPITAL GAINS. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT ASSESSEE IS AN INVESTMENT HOLDING COMPANY IN WHICH THE THREE BROTHERS NAMELY, MR. YUNUS G. BILAKHIA, MR. ANJUM G. BILAKHI A & MR JAKIR G. BILAKHKIA HAD EQUAL INTEREST AND SHARE HOLDING. ON 16 TH FEB, 2001, THE VARIOUS MEMBERS OF THE BILAKHIA FAMILY ENTERED INTO A DEED OF FAMILY ARRANGEMENT WITH A VIEW TO CONSOLIDATE AND EQUALIZE VALUES OF THE ASSETS HELD BY EACH OF THE PARTIES. NAME AND RELATIONSHIP OF THE FAMILY MEMBERS WHO WERE PARTIES TO THE FAMILY ARRANGEMENT ARE AS U NDER:- MR. GM BILAKHIA MR S. JG BILAKHIA MR. G. YUNUS BILAKHIA (SON) MR. ANJUM G. BILAKHIA (SON) MR. JAKIR G. BILAKHIA (SON) HANIFA A. BILAKHIA (WIFE) ANIMA J. BILAKHIA (WIFE) RASHIDA Y. BILAKHIA (WIFE) SHAHIN Y. BILAKHIA(DAUGHT) AZHAR A. BILAKHIA (SON) AKSHA J. BILAKHIA (DAU GHT ER) SHAHID Y. BILAKHIA (SON) AMRIN A. BILAKHIA(DAUGH T) SHAHBAZ Y. BILAKHIA ( SON) I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 12 IN PURSUANCE TO THIS FAMILY ARRANGEMENT, THE FAMIL Y MEMBERS TRANSFERRED THE SHARES OF NESTLE INDIA LTD AND HINDUSTAN LEVER LTD (HLL) HELD BY THEM AS INVESTMENT TO ASSESSEE -COMPANY WHICH WAS CLAIMED B Y ASSESSEE-COMPANY A GIFT. THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASS ESSEE COMPANY AS TO WHY THIS TRANSFER OF SHARES EFFECTED BY THE MEMBERS OF BILAKHIA FAMILY TO THE ASSESSEE-COMPANY BE TREATED AS GIFT. IT WAS ALSO A SKED AS TO WHY THE PERIOD OF HOLDING SHALL NOT BE COUNTED FROM THE DATE OF AC QUISITION OF THE SHARES BY THE ASSESSEE-COMPANY. THE ASSSESSEE COMPANYS CONT ENTION BEFORE THE AO WAS THAT SHARES RECEIVED FROM THE FAMILY MEMBERS WE RE GIFTS AND FOR MAKING THIS SUBMISSION RELIANCE WAS PLACED ON THE DECISION OF APEX COURT IN THE CASE OF KALE AND OTHERS VS. DY. DIRECTOR OF CONSOLI DATION AND OTHER AND THEREFORE HOLDING PERIOD OF THE SHARES BE ACCORDING LY CALCULATED IN ACCORDANCE WITH THE PROVISIONS OF EXPLANATION 1(B) OF SECTION 2(42A) OF THE ACT. THE AO HOWEVER DID NOT AGREE WITH THE ASSESSE E-COMPANY AND RELYING ON THE SAME DECISION OF HONBLE APEX COURT HELD THA T THE FAMILY ARRANGEMENT WAS AN AGREEMENT WITH CONSIDERATION AND THEREFORE CONSIDERED THE RECEIPT OF SHARES BY THE ASSESSEE-COMPANY AS A PURCHASE OF SHARES AT A PRICE WHICH WAS THE COST OF THE SHARES OF THE PREVI OUS OWNER. ACCORDINGLY THE AO DID NOT CONSIDER THE HOLDING PERIOD OF THE A LLEGED DONERS AND CONSIDERED ONLY THE HOLDING PERIOD BY THE ASSESSEE- COMPANY TO DETERMINE THE NATURE OF CAPITAL GAIN EARNED BY THE ASSESSEE-C OMPANY DURING THE YEAR UNDER APPEAL. THEREBY ASSESSMENT WAS COMPLETED TRE ATING THE GAINS AS SHORT TERM CAPITAL GAIN AND THE ENTIRE CONSIDERATION OF R S. 4,68,072/- (GAINS RS. 16,44,776- LOSSES RS. 11,76,704/-) WAS ACCORDINGLY TREATED AS SHORT TERM CAPITAL GAIN. LD. CIT(A) HOWEVER AGREED WITH THE A SSESSEE-COMPANY AND HELD THAT SHARES RECEIVED WERE GIFTS THEREFORE COST OF PREVIOUS OWNER AND I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 13 HOLDING PERIOD OF PREVIOUS OWNER WAS AVAILABLE TO T HE ASSESSEE-COMPANY, AND THUS THE ADDITION MADE BY AO WAS DELETED. 10. THE ISSUE BEFORE US IS WHETHER THE TRANSFER OF THE SHARES OF NESTLE INDIA LTD AND HINDUSTAN LEVER LTD HELD BY THE MEMBE RS OF BILAKHIA FAMILY AS INVESTMENT BY THEM TO THE ASSESSEE-COMPANY AS PE R FAMILY ARRANGEMENT DATED 16-02-2001 CLAIMED TO HAVE BEEN TRANSFERRED W ITHOUT ANY MONETARY CONSIDERATION CAN BE HELD TO BE GIFT OR NOT? 10.1 AS PER TRANSFER OF PROPERTY ACT 1882 SECTION 1 22 GIFT HAS BEEN DEFINED AS UNDER:- GIFT AS A TRANSFER OF CERTAIN EXISTING MOVING OR I MMOVABLE PROPERTY MADE VOLUNTARILY AND WITHOUT CONSIDERATION BY ONE P ERSON, CALLED THE DONER, TO ANOTHER, CALLED THE DONEE AND ACCEPTED OR ON BEHALF OF THE DONEE. IT IS CLEAR FROM THE ABOVE THAT ANY TRANSFER OF AN Y MOVEABLE OR IMMOVABLE PROPERTY CAN BE TREATED AS GIFT ONLY IF THE SAME IS MADE VOLUNTARILY AND WITHOUT ANY CONSIDERATION. THE REVENUES CONTENTIO N IS THAT SINCE THIS TRANSFER OF SHARES BY THE FAMILY MEMBERS TO THE ASS ESSEE-COMPANY HAS BEEN MADE IN PURSUANCE OF A FAMILY AGREEMENT, THE SAME C ANNOT BE CALLED VOLUNTARY OR WITHOUT CONSIDERATION. FOR MAKING THI S SUBMISSION RELIANCE WAS PLACED ON THE DECISION OF SUPREME COURT IN THE CASE OF CWT VS. HH VIJAYABA, DOWGNER MAHARANI SAHEB OF BHAVNAGAR PALAC E (117 ITR 784) WHEREIN IT WAS HELD AS UNDER:- 5 . TAKING THE TOTALITY OF THE FACTS AS FOUND BY THE TRIBUNAL AND MENTIONED IN THE IMPUGNED JUDGMENT OF THE HIGH COURT IT WAS A CASE OF FAMILY SETTLEMENT OR FAMILY ARRANGEMENT WHICH IS BINDING O N THE PARTIES CONCERNED. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 14 THE ASSESSEE AGREED TO PURCHASE PEACE FOR THE FAMIL Y, AND TO PAY TO HER SON THE AMOUNT WHICH FELL SHORT OF RS. 50,00,000/- IF H ER ELDER SON DID NOT PAY ANY PORTION THEREOF. IT IS, WELL ESTABLISHED THAT SUCH A CONSIDERATION IS A GOOD CONSIDERATION WHICH BRINGS, ABOUT AN ENFORCEAB LE AGREEMENT BETWEEN THE PARTIES. SECTION 25 OF THE CONTRACT ACT DOES NO T HIT THIS. ' IT IS CLEAR FROM THE ABOVE THAT HONBLE APEX COURT HELD THAT FAMILY ARRANGEMENT CANNOT BE REGARDED AS BEING WITHOUT CON SIDERATION SO AS TO RENDER THEM UNENFORCEABLE. SINCE IT IS AN ADMITTED POSITION THAT FAMILY ARRANGEMENT IN THE PRESENT CASE IS ENFORCEABLE AND BINDING , THE ASSESSEE CANNOT TAKE THE PLEA THAT TRANSFER OF SHARES BY THE FAMILY MEMBERS TO THE ASSESSEE IN PURSUANCE TO THE FAMILY ARRANGEMENT WAS WITHOUT CONSIDERATION. 11. THE NEXT QUESTION ARISES WHETHER THIS CONSIDERA TION CAN BE MEASURED IN MONEY OR MONIES WORTH OR NOT. TO ANSWER THIS QU ESTION WE WILL HAVE TO EXAMINE THE VARIOUS CLAUSES OF THE FAMILY ARRANGEME NT DATED 16-02-2001. THE MAIN CLAUSES OF WHICH ARE AS UNDER:- '5. THE VARIOUS BUSINESS AND COMPANIES OF THE PART IES HERETO ARE UNDER THE CONTROL AND JOINT MANAGEMENT OF THE THREE -BROTHERS VIZ. YUNUS, ANJUM AND ZAKIR 6. TO AVOID ANY FUTURE DISPUTES, DIFFERENCES AND DISAG REEMENTS WHICH MAY AFFECT THE PEACE, HARMONY, HONOUR, AND PR ESTIGE OF THE FAMILY OR THE PARTIES AS ALSO AFFECT THE VARIOUS BU SINESS AND ASSETS AND WITH A VIEW TO ALWAYS REMAIN A JOINT CLOSE KNIT FAMILY , THE PARTIES HAVE AGREED THAT EACH OF THE THREE BROTHER: NAMELY YUNUS, ANJUM AND ZAKIR SHOULD HAVE EQUAL RIGHTS AND OWNER SHIP IN THE VARIOUS BUSINESS AND ASSETS EXCEPT WHEN SPECIFICALL Y PROVIDED OTHERWISE. 7. YUNUS, ANJUM AND ZAKIR HAVE EQUAL SHAREHOLDING IN BILAKHIA HOLDINGS P LIMITED ('BHL ') EACH OF YUNUS, ANJUM A ND ZAKIR SHALL CREATE A SEPARATE TRUST AND TRANSFER TO SUCH TRUST AND TRANSFER TO SUCH I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 15 TRUST THEIR SHAREHOLDING IN BHL SO THAT THE EXISTIN G SHARE CAPITAL OF BHL SHALL BE HELD BY THE INDIVIDUAL TRUSTS SO CREAT ED. 8. PURSUANT TO THE ARRANGEMENT ARRIVED AT BETWEEN THE PARTIES AND WITH A VIEW TO CONSOLIDATE THEIR RESPECTIVE ASS ETS, INVESTMENTS AND INTERESTS IN THE FAMILY BUSINESS AND ASSETS, THE PA RTIES HERETO HAVE AGREED THAT BHL SHALL HE THE MAIN HOLDING COMPANY W HICH SHALL HOLD ALL INVESTMENTS IN OTHER COMPANIES AND BUSINESS PRE SENT AND FUTURE. 9. THE PARTIES HERE TO HOLD DISPROPORTIONATE AND U NEQUAL SHARES AND SECURITIES IN THE COMPANIES SPECIFIED IN ANNEXU RE 'A' HERE TO. THE DETAILS OF THE SHAREHOLDING OF THE PARTIES IN THE S HARES AND SECURITIES OF THE COMPANIES SPECIFIED IN ANNEXURE 'A. ' HERE TO ARE SPECIFIED IN ANNEXURE 'B-L' TO ''B-12' RESPECTIVELY. 10. WITH A VIEW TO CONSOLIDATE AND EQUALIZE THE HO LDINGS BETWEEN THE RESPECTIVE FAMILIES OF YUNUS, ANJUM AND ZAKIR , IT HAS BEEN AGREED BY AND BETWEEN ALL THE PARTIES HERETO THAT EACH PAR TY WILL GIFT AND TRANSFER TO BHL ALL THE SHARES AND SECURITIES HELD BY SUCH PARTY IN THE COMPANIES SPECIFIED IN ANNEXURE 'A ' HERETO. 11. YUNUS, ANJUM, AND ZAKIR WILL JOINTLY FUND SEPAR ATELY FAMILY MAINTENANCE TRUSTS TO BE CREATED BY EACH OF YUNUS, ANJUM AND ZAKIR FOR THE MAINTENANCE AND BENEFIT OF THE RESPECTIVE F AMILIES OF YUNUS, ANJUM AND ZAKIR. 12. IN ADDITION, YUNUS, ANJUM AND ZAKIR WILL JOINT LY FUND SEPARATE TRUSTS FOR EACH OF THE CHILDREN OF YUNUS, ANJUM AN D ZAKIR WHERE BY CERTAIN AMOUNT WILL BE SETTLED FOR BENEFIT OF EACH CHILD. 13. THE OTHER INVESTMENTS HELD BY THE PARTIES HERE TO I.E. THE ASSETS OTHER THAN THE SHARES AND SECURITIES OF THE COMPANI ES SPECIFIED IN ANNEXURE 'A' HERETO ARE SPECIFIED IN ANNEXURE 'C-1' , 'C-2', 'C-3' AND 'C-4' RESPECTIVELY. WITH A VIEW TO CONSOLIDATE AND EQUALIZE THE VALUES OF THE ASSETS HELD BY EACH OF THE PARTIES HE REIN AND SPECIFIED IN ANNEXURE C-1 TO C-4 HERETO THE PARTIES WILL GIFT TO BHL ALL THE ASSETS HELD BY EACH PARTY IN THE COMPANIES SPECIFIE D IN ANNEXURE C- L TO C-4. ' (EMPHASIS PROVIDED) ' I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 16 IT IS CLEAR FROM THE ABOVE THAT FAMILY ARRANGEMENT WAS TO EQUALIZE THE HOLDINGS BETWEEN THE RESPECTIVE FAMILIES OF THREE B ROTHERS. THEREFORE, IT CANNOT BE SAID THAT CONSIDERATION FOR TRANSFER OF S HARES CANNOT BE MEASURED IN TERMS OF MONEY OR MONIES WORTH. THE EQUALIZATIO N OF WEALTH HAS ONLY MONETARY CONNOTATION. IT IS ALSO PERTINENT TO MEN TION THAT ASSESSEE-COMPANY IN ITS SYNOPSIS OF ARGUMENT HAS EMPHASIZED ON THE F ACT THAT BILAKHIA FAMILY WAS A CLOSELY KNIT FAMILY AND WAS LIVING IN PEACE A ND TO AVOID ANY FUTURE DISPUTE THIS FAMILY ARRANGEMENT WAS SIGNED AND ACTE D UPON. TO AVOID DISPUTES CANNOT BE SAID TO BE WITHOUT MONETARY CONS IDERATION AS IT IS COMMON KNOWLEDGE THAT FAMILY DISPUTES RUIN THE FAMI LY FINANCIALLY. THE FAMILY DISPUTES ARE BEING SETTLED IN MONETARY TERMS BY RESORTING TO ARBITRATION AND IN CASE SUCH SETTLEMENTS IS NOT DONE, MATTER TRAVELS TO THE COURT AND THE FAMILY SUFFERS HEAVILY NOT ONLY MENTA LLY BUT ALSO FINANCIALLY. THERE IS A PROVERB ACCORDING TO WHICH IT IS SAID TH AT A PERSON WHO WINS A CASE ACTUALLY LOOSES IT AS BY THE TIME MATTER IS SE TTLED IN HIS FAVOUR HE IS ALREADY A RUINED PERSON. THUS, IN THIS CASE IT CANN OT BE SAID THAT THE CONSIDERATION FOR TRANSFER OF SHARES WAS NOT FOR MO NETARY CONSIDERATION. NOW COMING TO THE ASPECT WHETHER THIS ACT OF TRANSF ER OF SHARES WAS VOLUNTARY OR NOT. SINCE THIS TRANSFER WAS IN PURS UANCE OF FAMILY ARRANGEMENT, THE SAME WAS NOT VOLUNTARY AS THE FAMI LY ARRANGEMENT WAS ENFORCEABLE AND BINDING ON THE PARTIES. THE ARGUME NT MADE ON BEHALF OF THE ASSESSEE THAT SINCE THE FAMILY ARRANGEMENT WAS VOLU NTARY THE SUBSEQUENT ACTION OF THE PARTIES TO THE ARRANGEMENT WAS ALSO B E CONSIDERED VOLUNTARY AND FOR MAKING THIS SUBMISSION IT WAS SUBMITTED THA T IF LD. DRS CONTENTION IS ACCEPTED THEN NO TRANSFER EFFECTED PURSUANT TO A N AGREEMENT BE REGARDED AS VOLUNTARY. WE FIND THIS ARGUMENT ADVANCED BY ASSSE SSEE DEVOID OF ANY I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 17 MERIT BECAUSE IF THIS ARGUMENT OF THE ASSESSEE IS A CCEPTED THEN WHAT WAS THE NEED OF SIGNING ENFORCEABLE BINDING FAMILY AGREEMEN T IN THE FIRST PLACE. WE FURTHER FIND THAT IN THE MITRAS LEGAL AND COMMERCI AL DICTIONARY WORD VOLUNTARY IS DEFINED AS UNDER:- FREE CHOICE; DONE WITH FREE WILL; WITHOUT ANY COMP ULSION, OBLIGATION OR VALUABLE CONSIDERATION. FREELY, WITHOUT COMPULS ION, NOT UNDER ANY OBLIGATION. A-G V ELLIS (1895) QB 466: 64 LJ QB 813 SINCE TRANSFER OF SHARES WAS FOR EQUALIZATION OF WE ALTH OF THE FAMILY MEMBERS WHICH HAD MONETARY CONNOTATION, THE SAME C ANNOT BE SAID TO BE VOLUNTARY. IN THE LIGHT OF THE ABOVE FACTS AND C IRCUMSTANCES OF THE CASE, THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF KRI SONIA BHATIA VS. STATE OF U.P. (AIR 1981 SC 1274) IS OF NO HELP TO THE ASS ESSEE RATHER IT SUPPORTS THE CASE OF REVENUE. 12. IN VIEW OF OUR ABOVE DISCUSSION, WE HAVE NO HES ITATION IN HOLDING THAT TRANSFER OF SHARES OF NESTLE INDIA LTD AND HINDUSTA N LEVER LTD HELD AS INVESTMENT BY MEMBERS OF BILAKHIA FAMILY TO THE AS SESSEE-COMPANY AS PER FAMILY ARRANGEMENT DATED 16-02-2001 CLAIMED TO HAVE BEEN TRANSFERRED WITHOUT ANY MONETARY CONSIDERATION CANNOT BE HELD T O BE A GIFT AND THEREFORE ORDER PASSED BY LD. CIT(A) HOLDING THE TRANSFER OF SHARES AS GIFT IS HEREBY REVERSED AND THAT OF AO IS RESTORED. 13. GROUND NO. 1 TO 5 OF THE REVENUES APPEAL ARE A LLOWED. 14. GROUND NO. 6 RELATES TO GIFTS RECEIVED FROM TH E FAMILY MEMBERS TO THE TUNE OF RS. 14 CRORES AND RS. 17,11,839/- RECEIVED ON ACCOUNT OF THE ASSIGNMENT OF THE RIGHT TO RECEIVE BACK THE LOANS A ND ADVANCES GIVEN TO THIRD I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 18 PARTIES BY THE DIRECTORS OF THE ASSESSEE-COMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO OBSERVED THAT CERTAIN SUM S TO THE TUNE OF RS. 14 CRORES AND RS. 17,11,839/- WERE RECEIVED BY THE ASS ESSEE FROM THE DIRECTORS AS GIFTS AND ON ACCOUNT OF ASSIGNMENT OF THE RIGHT TO RECEIVE BACK THE LOANS GIVEN TO THIRD PARTIES BY THE DIRECTORS OF THE ASSE SSEE-COMPANY. THE DIRECTORS IN THE EARLIER YEARS HAVE GIVEN CERTAIN LOANS AND T HE RIGHT TO RECEIVE THE LOANS WERE ASSIGNED TO THE COMPANY AS A GIFT WITHOUT CONS IDERATION TO THE ASSESSEE- COMPANY. THE ASSESSEE-COMPANY CREDITED THE AMOUNT TO THE CAPITAL RESERVE ACCOUNT AND CONTENDED THAT THE RECEIPT HAS NO RELAT ION WITH ITS INVESTMENT ACTIVITIES. THE AO DID NOT ACCEPT THE CONTENTION O F THE ASSESSEE AND CONCLUDED THAT TRANSFER OF ASSIGNMENT OF RIGHT CANN OT BE TREATED AS GIFT IN THE ABSENCE TWO FACTORS I.E. VOLUNTARY AND WITHOUT CONS IDERATION. IT WAS FURTHER OBSERVED THAT ASSESSEE-COMPANY BEING INVESTMENT COM PANY RECEIVED LOANS AND ADVANCES IN THE REGULAR COURSE OF CARRYING ITS BUSINESS. THE AMOUNTS WERE TREATED AS LOANS AND ADVANCES AT THE POINT OF TIME WHEN IT WAS RECEIVED. HOWEVER THE AMOUNT CHANGED ITS CHARACTER WHEN IT BE CAME THE ASSESSEES OWN MONEY. THE ASSESSEE-COMPANY ITSELF HAS TREATED THE MONEY AS ITS OWN MONEY AND TAKEN THE AMOUNT TO THE CAPITAL RESERVE, THEREFORE, THE FULL AMOUNT WAS TREATED AS INCOME OF THE ASSESSEE BY THE AO WHI LE FINALIZING THE ASSESSMENT UNDER REGULAR PROVISIONS AND UNDER SPECI AL PROVISIONS OF SECTION 115JB OF THE ACT. THE LD. CIT(A) FOLLOWING HIS FIN DINGS IN RESPECT OF THE SHARES RECEIVED FROM THE BILAKHIA FAMILY MEMBERS TR EATING THEM GIFT IN THE HANDS OF THE COMPANY TREATED THESE AMOUNTS ALSO AS GIFT AND NOT TAXABLE IN THE HANDS OF THE ASSESSEE-COMPANY. ACCORDINGLY THE ADDITION MADE BY THE AO ON ACCOUNT THAT THESE RECEIPTS CONSTRUED INCOME/ PROFIT FOR THE PURPOSE OF COMPUTING INCOME UNDER THE REGULAR PROVISIONS OF TH E ACT AND BOOK PROFIT I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 19 U/S. 1115JB RESPECTIVELY WAS DIRECTED TO BE DELETED . SINCE LD. CIT(A)S FINDING IN RESPECT OF SHARES HAS BEEN REVERSED BY U S AND SINCE THERE IS NO DISPUTE ABOUT THE FACT THAT GIFT OF RS. 14 CRORES B Y THE FAMILY MEMBERS TO THE ASSESSEE-COMPANY AND RS. 17,11,839/- RECEIVED BY T HE COMPANY ON ACCOUNT OF THE ASSIGNMENT OF THE RIGHT TO RECEIVE BACK LOAN S AND ADVANCES GIVEN TO THIRD PARTY BY THE DIRECTORS OF THE ASSESSEE-COMPAN Y, TO EQUALIZE THE WEALTH OF THREE BROTHERS OF THE FAMILY AS PER THE UNDERSTA NDING REACHED BY WAY OF FAMILY AGREEMENT, THIS TOTAL SUM OF RS. 14,17,11, 839/- CANNOT BE TREATED AS GIFT IN THE HANDS OF THE ASSSESSEE-COMPANY FOR THE REASONS GIVEN BY US WHILE HOLDING THAT TRANSFER OF SHARES BY THE FAMILY MEMBE RS TO THE ASSSESSEE- COMPANY WAS NOT A GIFT IN THE HANDS OF THE ASSESSEE -COMPANY. IN VIEW OF THIS THE ORDER PASSED BY LD. CIT(A) IS REVERSED AND THAT OF AO IS RESTORED BACK. THIS GROUND OF THE REVENUE IS ALSO ALLOWED. 15. IN THE RESULT, REVENUES APPEAL IS ALLOWED. NOW COMING TO ASSESSEES APPEAL IN ITA NO. 1035/AHD /2009 FOR A.Y. 2002-03 16. ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF ASSESSMENT IS CONTRARY TO THE FAC TS AND PREJUDICIAL TO THE ASSESSEE. 2. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES O F THE CASE AND LAW, THE ADDITIONS MADE BY THE LEARNED ASSESSING OF FICER AND CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ARE CONTRARY TO LAW AND BASED ON ERRONEOUS UNDERSTANDIN G OF THE FACTS. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 20 3. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES O F THE CASE AND LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFI CER IN RE-OPENING THE ASSESSMENT WITHOUT RECORDING PROPER REASONS OR BRINGING ON RECORD NEW FACTS NOT DISCLOSED BY THE APPELLANT IN ITS RETURN OF INCOME WHICH CAN LEAD TO A PROPER INFERENCE / REASON TO BE LIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THE ACTION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS AND L AW AND DESERVES TO BE DELETED. 4. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES O F THE CASE AND LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN CONFIRMING THE ACTION OF THE EARNED ASSESSING OFFIC ER IN MAKING THE RE-ASSESSMENT UNDER THE REGULAR PROVISIONS OF THE A CT AFTER ISSUING NOTICE U/S.148 OF THE ACT FOR RE-COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT. THE ACTION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS AND LAW AND DESE RVES TO BE DELETED. 5. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES O F THE CASE AND LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFI CER IN RE- COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT WIT HOUT JURISDICTION AND CONTRARY TO THE DECISION OF HONORABLE SUPREME C OURT IN THE CASE OF APOLLO TYRES LTD V/S DEPUTY CIT [2002] REPORTED IN 255 ITR 0273. THE ACTION THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) IS CONTRARY TO THE FACTS AND LAW AND DESERVES TO BE DE LETED. 6. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES O F THE CASE AND LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADD ITION MADE BY THE LD. AO TO THE TUNE OF RS. 45,58,654/- BEING SURPLUS ON SALE OF SHARES RECEIVED AS GIFT TO THE BOOK PROFIT FOR TAXATION U/ S. 115JB. THE ACTION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS AND LAW AND DESERVES TO BE DELETED. 17. GROUND NO. 1& 2 ARE GENERAL AND DO NOT REQUIRE ANY ADJUDICATION ON OUR PART. GROUND NO. 3 AND 4 RELATE TO RE-OPENING OF THE ASSESSMENT BY AO U/S. 147 OF THE ACT. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 21 18. BRIEF FACTS OF THE CASE IN RESPECT TO THIS GROU ND ARE THAT ASSESSEE- COMPANY FILED ITS RETURN OF INCOME FOR THE YEAR UND ER APPEAL ON 28-10-2002 DECLARING TOTAL INCOME OF RS. 89,960/- UNDER THE RE GULAR PROVISIONS OF THE ACT. ASSESSMENT WAS COMPLETED U/S. 143(3) ON 16-02 -2005 ACCEPTING THE INCOME RETURNED BY THE ASSESSEE COMPANY. SUBSEQUEN TLY ON PERUSAL OF THE CASE FILE, AO NOTICED THAT ASSESSEE COMPANY HAD CRE DITED A SUM OF RS. 45,58,654/- DIRECTLY TO ITS CAPITAL RESERVE BEING P ROFIT ON SALE OF SHARES RECEIVED AS GIFT. THIS PROFIT ON SALE OF SHARES WA S NOT ROUTED THROUGH PROFIT AND LOSS ACCOUNT OF THE COMPANY AND HENCE THIS PROF IT WAS NOT CONSIDERED FOR CALCULATION OF BOOK PROFIT U/S. 115JB OF THE ACT BY THE ASSESSEE COMPANY. ACCORDINGLY, THE ASSESSMENT WAS RE-OPENED U/S. 143( 3) R.W.S. 147 OF THE ACT ON THE GROUND THAT INCOME TO THE EXTENT OF RS. 45,5 8,654/- CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTIO N 147 FOR WHICH A NOTICE U/S. 148 OF THE ACT WAS ISSUED ON 13-03-2007 WHICH WAS SERVED UPON THE ASSESSEE COMPANY ON 15-03-2007. IN RESPONSE TO THIS NOTICE, ASSESSEE COMPANY VIDE LETTER DATED 16-03-2007 SUBMITTED THAT THE RETURN OF INCOME FILED ORIGINALLY ON 28-10-2002 MAY BE TREATED AS TH E RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S. 148. THEREAFTER, FOLLOWING REASONS FOR RE-OPENING OF ASSESSMENT WERE COMMUNICATED TO THE ASSESSEE-COMPAN Y. SUBSEQUENTLY, IT WAS NOTICED THAT THE ASSESSEE IN ITS NOTES TO THE ACCOUNTS HAS MENTIONED THAT DURING THE YEAR THE CO MPANY HAS RECEIVED 18901000 EQUITY SHARES OF RS. 10/- EACH OF ITS GROUP AND SUBSIDIARY COMPANIES AS GIFT FROM PROMOTERS AND REL ATIVES PURSUANT TO A FAMILY ARRANGEMENT. THESE SHARES ARE ACCOUNTED F OR AND DISCLOSED AT RE. 1/- PER GIFT. (EMPHASIS SUPPLIED). THESE SHARES IN COMPANIES OTHER THEN GROUP COMPANIE S RECEIVED WITH OUT CONSIDERATION PURSUANT TO THE FAMILY ARRANGEMEN T OF THE I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 22 PROMOTERS OF THE COMPANY HAVE BEEN ACCOUNTED AT THE COST TO THE ORIGINAL OWNER AND THE PROFITS AND GAINS ARISING OU T OF SALE OF SUCH SHARES HAVE BEEN TREATED AS CAPITAL RECEIPTS AND CR EDITED TO THE CAPITAL RESERVE ACCOUNT.' AND THUS THE COMPANY HAS CREDITED A SUM OF RS.45,58 ,654 DIRECTLY TO ITS CAPITAL RESERVE BEING PROFIT ON SALE OF SHARES RECEIVED AS GIFT. THIS SUM WAS NOT ROUTED THROUGH THE P&.L A/C OF THE COMP ANY AND HENCE THIS WAS NOT CONSIDERED FOR CALCULATION OF BOOK PRO FIT U/S 115 JB. HOWEVER, THE TREATMENT GIVEN BY THE COMPANY IS PATE NTLY WRONG AND IS NOT IN ACCORDANCE WITH THE GENERALLY ACCEPTED ACCOU NTING PRINCIPLES. ASSESSEE IS INVOLVED IN INVESTMENT ACTIVITIES. HENC E ANY GAIN OR LOSS ON SALE OF SECURITIES/ SHARES WILL BE TREATED AS NO RMAL INCOME ACCRUING TO THE COMPANY AND SHOULD BE CREDITED TO P ROFIT AND LOSS ACCOUNT. ASSESSEE COMPANY HAS CREDITED GAIN ON SALE OF SHARES DIRECTLY TO CAPITAL RESERVE ACCOUNT. AS PER THE GEN ERALLY ACCEPTED ACCOUNTING PRINCIPLES ONLY THOSE ITEMS ARE CREDITED TO THE CAPITAL RESERVE WHICH IS NOT IN THE NORMAL COURSE OF ACTIVI TIES OF THE ASSESSEE. TO INVEST IN SHARES AND EARN INCOME ON SALE IS NOT AN UNUSUAL ITEM OR ANY EXTRAORDINARY ITEM WHICH HAS HAPPENED FOR THE F IRST AND LAST TIME TO THE ASSESSEE COMPANY. EVEN EXTRA ORDINARY ITEMS ARE ROUTED THROUGH PROFIT AND LOSS ACCOUNT BY THE COMPANIES, T HOUGH AS A SEPARATE DISCLOSURE. FURTHER, IF, FOR THE SAKE OF ARGUMENT, IT IS ACCEPT ED THAT RECEIVING GIFT FROM PROMOTERS/DIRECTORS OF THE COMPANY IS A TRANSA CTION OF CAPITAL NATURE, THEN ONLY GIFTS HAVE TO BE CREDITED TO THE CAPITAL RESERVE. IN THIS CASE RE. L/- PER GIFT. ONCE SHARES ARE RECEIVE D AS GIFT, IT BECOMES NORMAL INVESTMENTS FOR THE COMPANY AND IT IS INCLUD ED IN THE COMMON POOL OF INVESTMENTS OF THE COMPANY. SUBSEQUENTLY WH EN THESE SHARES ARE SOLD IT SHOULD BE TREATED AS NORMAL TRANSACTION OF THE COMPANY AND THE SAME ACCOUNTING TREATMENT SHOULD BE GIVEN T O THESE TRANSACTIONS. RECEIVING OF GIFT MAY BE A TRANSACTIO N OF SPECIAL NATURE AND CAPITAL RESERVE MAY ARISE ON THAT TRANSACTION B UT ANY SUBSEQUENT EVENT RELATED TO THAT GIFT SHOULD BE TREATED AS NOR MAL INCOME. FOR THE SAME TRANSACTION CAPITAL RESERVE CANNOT ARISE AT TW O EVENTS. FIRSTLY, WHEN THE SHARES ARE RECEIVED AS GIFT AND SUBSEQUENT LY WHEN THESE SHARES ARE SOLD TO OTHERS. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 23 IN VIEW OF THIS FACT, I HAVE REASON TO BELIEVE THAT INCOME TO THE EXTENT OF RS. 45,58,654/- HAS ESCAPED ASSESSMENT WITHIN TH E MEANING OF SECTION 147 OF THE I.T. ACT. 19. ASSESSEE-COMPANY RAISED ITS OBJECTIONS AGAINST RE-OPENING OF ASSESSMENT WHICH WERE DISPOSED OFF BY A SPEAKING OR DER AND THE SAME WAS MADE PART OF THE ASSESSMENT ORDER BY THE AO AS ANNE XURE-A 20. THE ARGUMENTS OF THE ASSESSEE IN RESPECT OF VAL IDITY OF REOPENING OF THE ASSESSMENT HAVE BEEN SUMMARIZED BY LD. CIT(A) A S UNDER:- (I) THAT IN THE ORDER DISPOSING OFF THE OBJ ECTIONS ON REOPENING OF THE ASSESSMENT, THE AO HAD HELD THAT THE INCOME EAR NED ON SALE OF SHARES HAD NOT BEEN BROUGHT TO TAX AS PER THE PROVI SIONS OF SECTION 115JB OF THE ACT. HOWEVER THE AO HAD NOT MENTIONED THAT IT WAS THE SALE PROCEEDS OF THE GIFT GIVEN BY THE DIRECTORS AN D ACCORDINGLY HE WRONGLY ASSUMED IT TO BE INCOME. HENCE THE ASSUMPTI ON THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT WAS NOT CO RRECT. (II) THAT THERE WAS A CHANGE IN OPINION WHICH THE AO HAD FORMED EARLIER WHILE FRAMING THE ORDER FOR A.Y. 2002-03. (III) THAT THE AO RECOMPUTED THE BOOK PROFIT WH ICH HAD BEEN CERTIFIED BY THE STATUTORY AUDITOR AS BEING IN COMP LIANCE WITH SCHEDULE VI OF THE COMPANIES ACT, WITHOUT ANY AUDIT QUALIFICATION. THE APPELLANT COMPANY ALSO STATED THAT THE AO WRONG LY ASSUMED THE NOTES TO THE ACCOUNTS AS AN AUDIT QUALIFICATION AND ACCORDINGLY THE REOPENING OF THE ASSESSMENT TO RE-COMPUTE THE BOOK PROFIT U/S. 115JB WAS CONTRARY TO THE RATIO LAID DOWN BY THE APEX COU RT IN THE CASE OF APOLLO TYRES LTD. (IV) THAT THE NOTICE U/S. 148 WAS ISSUED BY THE AO TO RE-COMPUTE THE BOOK PROFIT U/S 115JB AND NO NOTICE WAS ISSUED TO R E-COMPUTE THE INCOME UNDER THE REGULAR PROVISIONS OF THE ACT AND ACCORDINGLY I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 24 REASSESSMENT FRAMED DETERMINING THE TOTAL INCOME UN DER THE REGULAR PROVISIONS WAS WITHOUT JURISDICTION . 21. AFTER TAKING INTO CONSIDERATION THESE SUBMISSIO NS OF THE ASSESSEE, LD. CIT(A) CONFIRMED THE ACTION OF AO BY OBSERVING AS U NDER:- I HAVE CONSIDERED THE SUBMISSIONS. THE APPELLANT COMPANY IS TRYING TO STATE THAT THE PROFIT ON SALE OF GIFTS WAS NOT I NCOME AND THEREFORE THE REOPENING WAS BAD. HOWEVER, I DO NOT AGREE WITH THE APPELLANT COMPANY SINCE AS PER THE ACCOUNTING STANDARDS AND E VEN AS PER SCHEDULE VI OF THE COMPANIES ACT, 1956, THE SALE PR OCEEDS OF ANY ITEM HAS TO BE CREDITED IN THE PROFIT AND LOSS ACCOUNT A ND THE FACTS AS TO WHETHER THE SAME IS PURCHASED BY THE APPELLANT OR I S RECEIVED AS A GIFT WOULD BE IRRELEVANT IN DETERMINING THE PROFIT FROM THE SAID SALES PROCEEDS. IN THIS CASE THE APPELLANT COMPANY HAS NO T CREDITED THE SALES PROCEEDS OF THE SHARES IN THE PROFIT AND LOSS ACCOUNT BUT HAS DIRECTLY TAKEN THE SAME TO THE CAPITAL RESERVE ACCO UNT WHICH IS PATENTLY WRONG AND NOT IN ACCORDANCE WITH THE ACCEP TED ACCOUNTING PRINCIPLES AS ALSO SCHEDULE VI OF THE COMPANIES ACT , 1956. HENCE THIS IS PRIMA-FACIE CASE OF INCOME ESCAPING ASSESSMENT A ND THUS THE REOPENING OF ASSESSMENT IS JUSTIFIED AND HELD TO BE IN ORDER. FURTHER, UNDER THE INCOME TAX ACT, THE PRINCIPLES O F RES- JUDICATA ARE NOT APPLICABLE AND EVERY YEAR IS AN IN DEPENDENT YEAR. IN THE YEAR UNDER CONSIDERATION, IN THE ASSESSMENT THE AO HAS NOT NOTICED THE NON COMPLIANCE OF SCHEDULE VI WHILE FRA MING THE ASSESSMENT ORDER AND SUBSEQUENT NOTICE OF THE SAME DO NOT AMOUNTS TO CHANGE OF OPINION AND HENCE THERE IS NO QUESTION OF ANY CHANGE IN OPINION BY THE AO IN THE YEAR UNDER APPEAL. 22. FURTHER AGGRIEVED NOW THE ASSESSEE IS IN APPEAL BEFORE US. 23. AT THE TIME OF HEARING LEARNED COUNSEL OF THE A SSESSEE CHALLENGED THE REOPENING OF THE ASSESSMENT ON TWO GROUNDS: (I) THE REOPENING IS BASED ON CHANGE OF OPINION AND HENCE INVALID IN LAW. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 25 (II) NO INCOME HAS ESCAPED ASSESSMENT. IN RESPECT OF ITS FIRST GROUND OF CHANGE OF OPINION ASSESSEE COMPANY HAS SUMMARIZED ITS SUBMISSION AS UNDER:- A. DISCLOSURES MADE BY THE APPELLANT COMPANY ALONG WITH THE COMPUTATION OF INCOME: I. P4- WORKING OF LONG-TERM CAPITAL GAINS ON SALE OF G IFTED UNITS/ SHARES. II. P10- FORM 29B, COMPUTATION U/S 115JB ALONGWITH AUDITORS REPORT III. P-14 R/W P 16-BS SHOWING THE BREAK-UP OF RESERVES WHICH INCLUDES SURPLUS ON SALE OF SHARES IV. P15- P & L A/C DISCLOSING GAIN/ LOSS ON SALE OF SHA RES OTHER THAN THOSE GIFTED V. P24- NOTES TO ACCOUNTS DISCLOSING THE FACTUM OF GIF T AND THE ACCOUNTING TREATMENT OF GAINS ON SALE OF GIFTED SHARES. B. QUESTIONS & ANSWERS DURING ORIGINAL ASSESSMENT NOTICE DATED 18.8.04- P29, AO SPECIFICALLY ENQUIRES INTO CAPITAL GAINS ON SALE OF SHARES. II AE RESPONSE DATED 14.12.04- 1. P-46- GIVES DETAILS OF GAINS ON SALE OF SHARES WHIC H WAS CREDITED TO P& L A/C 2. P48- GIVES DETAILS OF GAINS ON SALE OF GIFTED SHARE S CREDITED TO CAPITAL RESERVE. 3. P92 & P 93- COMPUTATION OF GAINS UNDER THE ACT ON S ALE OF GIFTED SHARES. C. FOLLOWING DECISIONS WERE RELIED UPON BY THE APPE LLANT IN SUPPORT: I. PARIXIT INDUSTRIES [207 TAXMAN 140 (GUJ)] II TELCO DADJEE (MUMBAI TRIBUNAL F BENCH) & (3 RD MEMBER) III CIT VS MYSORE PAPER MILLS LTD. (322 ITR 428 K ER) IV HV TRANSMISSIONS (MUMBAI TRIBUNAL H BENCH) V CIT VS. ORIENT CRAFT LTD (2013 354 ITR 536 DELH I) I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 26 AND IN RESPECT OF NO INCOME HAS ESCAPED ASSESSMENT ASSESSEES SUBMISSION IS AS UNDER:- A. THE LOSS UNDER MAT AS RETURNED IS RS. 53,33,307 (P 2) AND HENCE ORIGINAL ASSESSMENT CONCLUDED ON THE BASIS OF INCOM E OF RS. 89,960/- RETURNED UNDER NORMAL PROVISION B. AS PER REASONS RECORDED RS. 45,58,654 IS REQUIRED T O BE ADDED TO MAT COMPUTED (P117) C. EVEN IF THE ABOVE IS CARRIED OUT- THE LOSS RETURNED UNDER MAT WILL STAND REDUCED TO 7,74,553 AND ONCE AGAIN THE INCOME RETURNED UNDER NORMAL COMPUTATION WOULD PREVAIL VIZ. RS. 89, 960. D. HENCE THERE IS NO ESCAPEMENT OF TAX AND THE REASSES SMENT OUGHT TO BE QUASHED ON THIS COUNT ALONE. LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF LO WER AUTHORITIES. 24. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT SHARES OF NESTLE INDIA LTD AND HLL WHICH WERE TRAN SFERRED TO THE ASSESSEE- COMPANY UNDER THE FAMILY AGREEMENT WERE SOLD DURING THE YEAR. THE AO INITIATED PROCEEDINGS FOR RE-OPENING AS HE FOUND SU BSEQUENT TO PASSING ORDER U/S. 143(3) THAT ASSESSEE-COMPANY HAD TAKEN CAPITAL GAIN ON SALE OF THESE SHARES TO CAPITAL RESERVE ACCOUNT AND HAD NOT ROUTE D IT THROUGH THE PROFIT AND LOSS ACCOUNT AND TO THAT EXTENT INCOME U/S. 115JB O F THE ACT ESCAPED ASSESSMENT. IT IS CLEAR EVEN FROM THE SUBMISSIONS OF THE ASSESSEE WHICH WE HAVE REPRODUCED ABOVE THAT DURING THE ORIGINAL ASSE SSMENT PROCEEDINGS NO QUERY WAS RAISED BY THE AO IN THIS RESPECT. THEREF ORE, IT CANNOT BE SAID THAT THERE WAS CHANGE OF OPINION ON THE PART OF THE AO I N THIS CASE. THEREFORE, CASE LAWS RELIED BY ASSESSEE-COMPANY ARE NOT APPLIC ABLE TO THE FACTS OF THIS CASE. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 27 24.1 IN THE CASE OF PARIXIT INDUSTRIES LTD VS. ACI T ASSESSEE COMPANY WAS ENGAGED IN MANUFACTURING AND SUPPLY OF DIFFERENT TY PES OF IRRIGATION PRODUCTS AND IN SOME CASES ASSESSEE HAD WORKED AS C ONTRACTOR. ASSESSEE COMPANY CLAIMED DEDUCTION U/S. 80-IA WHICH WAS ALL OWED BY THE AO AFTER CONSIDERING ASSESSEES REPLY TO DETAILED QUESTIONN AIRE. LATER ON, AO ISSUED NOTICE U/S. 147 ON THE GROUND THAT ASSESSEE WAS A C ONTRACTOR OR SUPPLIER OF IRRIGATION PRODUCTS AND COULD NOT BE CALLED A DEVE LOPER OF ANY NEW INFRASTRUCTURE FACILITIES SO AS TO BE ELIGIBLE FOR DEDUCTION U/S. 80-IA. ASSESSEE FILED OBJECTIONS POINTING OUT THAT THE NOT ICE FOR RE-OPENING WAS BASED ON MERE CHANGE OF OPINION BECAUSE THE BENEFIT U/S. 80-IA WAS ALLOWED AFTER THE RELEVANT POINTS UNDERWENT THE PROCESS OF INQUIRY AND ASSESSMENT DURING THE PROCEEDINGS U/S. 143(3). ON THESE FACTS HONBLE JURISDICTIONAL HIGH COURT HELD THAT IT WAS A CASE OF SECOND THOUGH T ON SIMILAR MATERIAL BY THE AO AND THEREFORE ORDER PASSED BY HIM WAS LIABLE TO BE QUASHED. BUT AS WE HAVE ALREADY OBSERVED THAT IN THIS CASE NO QUERY ADMITTEDLY WAS EVER RAISED BY THE AO IN RESPECT OF THE FACT THAT ASSESS EE HAD TAKEN CAPITAL GAIN ON SALE OF SHARES TO CAPITAL RESERVE ACCOUNT AND HAD N OT ROUTED IT THROUGH PROFIT AND LOSS ACCOUNT AND TO THIS EXTENT INCOME U/S. 115 JB HAS ESCAPED ASSESSMENT. THEREFORE RATIO OF GUJARAT HIGH COURT IN THE CASE OF PARIXIT INDUSTRIES PVT. LTD IS NOT APPLICABLE TO THE FACTS OF THIS CASE. 24.2 ASSESSEE ALSO PLACED RELIANCE ON THE DECISION DATED 12 TH MAY, 2010 OF THIRD MEMBER IN THE CASE OF TELCO DADAJEE VS. DCIT FOR THE PROPOSITION THAT PROCEEDINGS INITIATED BY THE AO U/S. 147 WERE LIABLE TO BE QUASHED, WHERE THERE WAS NO FRESH MATERIAL AVAILABLE WITH TH E AO AND THE ASSESSMENT HAD BEEN COMPLETED ORIGINALLY U/S. 143(1). ASSESSE E FURTHER RELIED ON A I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 28 DECISION OF SPECIAL BENCH ITAT DELHI IN THE CASE OF DCIT VS. PADAM PRAKASH (HUF) TO SUBMIT THAT DECISION IN THIRD MEMB ER CASE IS ENTITLED TO AS MUCH WEIGHT AND RESPECT AS A DECISION OF A SPECIAL BENCH AND IT SHOULD BE FOLLOWED AND APPLIED BY REGULAR BENCHES AND SAME CA NNOT BE DISREGARDED BY THEM. IN THE CASE OF TELCO DADAJEE RETURNED FILED BY THE ASSESSEE ON 31-11- 1998 WAS ACCEPTED U/S. 143(1). IN THE RETURN, THE ASSESSEE HAD CLAIMED DEDUCTION FOR PAYMENT OF NON COMPETE FEE AT RS. 75 LACS WHICH INCLUDED PAYMENT OF RS. 15 LACS TO A DIRECTOR. THE ASSESSEE HAD ALSO CLAIMED DEPRECIATION OF RS. 1,41,858 ON LEASED PREMISES. THE AO ISSUED NOTICE U/S. 148 ON THE GROUND THAT THESE WERE NOT ALLOWABLE EXP ENSES AND INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. HE ACCOR DINGLY DISALLOWED BOTH THE ITEMS IN THE REASSESSMENT ORDER. LD. JUDICIAL MEMBER HAS TAKEN THE VIEW THAT THERE WAS NO FRESH MATERIAL TO SUPPORT THE FOR MATION OF THE BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. T HE BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND OTHER DETAILS WERE FILED WITH THE RETURN OF INCOME AND IT WAS NOT PERMISSIBLE FOR THE AO AFTER A GAP OF FIVE YEARS AND IN THE ABSENCE OF ANY FRESH TANGIBLE MATERIAL TO COME TO THE CONCL USION THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. LD. ACCO UNTANT MEMBER TOOK THE VIEW DISSENTING FROM THE LD. JUDICIAL MEMBER THAT T HE CASE IS COVERED BY THE JUDGMENT OF SUPREME COURT IN THE CASE OF ACIT VS. R AJESH JHAVEI STOCK BROKER PVT LTD. HE OPINED THAT IN A CASE WHERE RET URN U/S. 143(1) WAS MERELY PROCESSED AND NO ASSESSMENT WAS MADE U/S. 14 3(3), IF THE AO FORMS THE BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPE D ASSESSMENT ON THE BASIS OF MATERIAL AVAILABLE IN THE RETURN ITSELF IT IS NO T A CASE OF MERE CHANGE OF OPINION. THE REOPENING IN SUCH AS A CASE WOULD BE VALID. THE THIRD MEMBER IN HIS ORDER AGREED WITH THE LD. JM AND OBSE RVED AS UNDER:- I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 29 11. WHAT THE ASSESSEE CONTENDED BEFORE ME AND WHIC H CONTENTION HAD FOUND FAVOUR WITH THE LEARNED JUDICIAL MEMBER I S THAT THERE WAS NO SUCH TANGIBLE MATERIAL BEFORE THE AO FROM WHICH HE CAN ENTERTAIN THE BELIEF THAT THE ALLOWANCE OF THE NON COMPETE FE ES AND THE DEPRECIATION RESULTED IN ESCAPEMENT OF INCOME CHARG EABLE TO TAX. IN THE REASSESSMENT ORDER THE ASSESSING OFFICER HAS ST ATED IN PARAGRAPH 3.2.3 THAT AFTER THE RETURN WAS PROCESSED, IT WAS N OTICED THAT THE ASSESSEE HAD UNDERSTATED ITS INCOME BY CLAIMING THE AFORESAID TWO ITEMS OF EXPENDITURE. HE HAS NOT REFERRED TO ANY T ANGIBLE MATERIAL BEFORE HIM, IN TERMS OF THE JUDGMENT OF THE SUPREME COURT IN CIT VS. KELVINATOR OF INDIA LTD (SUPRA), ON THE BASIS OF WH ICH HE ENTERTAINED PRIMA FACIE BELIEF THAT INCOME CHARGEABLE TO TAX HA S ESCAPED ASSESSMENT. THOUGH IT IS NOT POSSIBLE TO CHALLENGE THE ACTION OF THE ASSESSING OFFICER ON THE GROUND OF CHANGE OF OPINIO N BECAUSE IN THE PRESENT CASE THE RETURN WAS EARLIER MERELY PROCESSE D UNDER SECTION 143(1) HIS ACTION CAN BE CHALLENGED ON THE BASIS OF THE LAW DECLARED BY THE SUPREME COURT IN THE AFORESAID JUDGMENT. TH E LD. JUDICIAL MEMBER HAS HELD IN PARAGRAPH 13 THAT THERE WAS NO M ATERIAL BEFORE THE ASSESSING OFFICER FOR SUCH A BELIEF. THE LD. A CCOUNTANT MEMBER HAS NOT DISPUTED THAT THERE WAS NO TANGIBLE MATERIA L BEFORE THE ASSESSING OFFICER ON THE BASIS OF WHICH HE CAN REOP EN THE ASSESSMENT. HE HAS, HOWEVER HELD THAT IT IS NOT NECESSARY FOR T HE ASSESSING OFFICER TO HAVE SOME TANGIBLE MATERIAL BEFORE HIM TO ISSUE NOTICE UNDER SECTION 148 IN A CASE WHERE THE RETURN WAS ORIGINAL LY PROCESSED UNDER SECTION 143(1). WITH RESPECT, I AM UNABLE TO SUBSC RIBE TO THIS VIEW FOR THE REASONS STATED IN THE EARLIER PARAGRAPHS. IN M Y HUMBLE OPINION, ON A PROPER UNDERSTANDING OF THE JUDGMENTS OF THE S UPREME COURT BOTH IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK B ROKERS P LTD (SUPRA) AND CIT VS. KELVINATOR OF INDIA LTD (SUPRA) , IT IS STILL OPEN TO AN ASSESSEE TO CHALLENGE THE NOTICE UNDER SECTION 1 48, IN A CASE WHERE THE RETURN WAS EARLIER PROCESSED UNDER SECTION 143( 1), ON THE GROUND THAT THE THERE WAS NO TANGIBLE MATERIAL BEFORE THE AO TO ENABLE HIM TO ENTERTAIN A PRIMA FACIE BELIEF THAT INCOME CHARGEAB LE TO TAX HAS ESCAPED ASSESSMENT. I MAY ALSO ADD THAT NEITHER BE FORE THE LEARNED MEMBERS WHO HEARD THE APPEAL ORIGINALLY NOR BEFORE ME DID THE DEPARTMENT PRODUCE ANY TANGIBLE MATERIAL ON THE BAS IS OF WHICH THE REASONS WERE RECORDED TO DEMONSTRATE THAT THERE WAS A LIVE LINK OR NEXUS BETWEEN THEM AND THE REQUISITE BELIEF. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 30 24.3 IT IS CLEAR THAT LD. THIRD MEMBER AGREED WITH THE LD. JUDICIAL MEMBER IN THIS CASE ONLY TO HOLD THAT THERE WAS NO TANGIBL E MATERIAL BEFORE THE AO TO ENABLE HIM TO ENTERTAIN PRIMA FACIE BELIEF THAT INC OME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, THEREFORE 147 PROCEEDINGS WERE QUASHED AND IT WAS NOT QUASHED ON THE GROUND THAT THERE WAS CHANGE OF OPIN ION ON THE PART OF THE AO FOR WHICH THE ASSESSEE HAS PLACED RELIANCE ON TH IS DECISION HENCE NOT APPLICABLE TO THE FACTS OF THIS CASE. NOW COMING T O THE DECISION OF SPECIAL BENCH IN THE CASE OF DCIT VS. PADMA PRAKASH RELIED BY THE ASSESSEE FOR THE PROPOSITION THAT THIRD MEMBER CASES WERE ENTITLED T O AS MUCH WEIGHT AND RESPECT AS A DECISION OF SPECIAL BENCH AND IT SHOUL D BE FOLLOWED BY REGULAR BENCHES, WE FIND THAT THIRD MEMBER IN THE CASE OF T ELCO DADAJEE SITTING WITH ANOTHER MEMBER IN THE CASE OF ACIT VS. KANGA & CO. VIDE ITS ORDER 14 TH MAY, 2010 I.E. SUBSEQUENT TO THE ORDER PASSED BY H IM IN TELCO DADAJEE I.E. ON 12 TH MAY, 2010 DID NOT FOLLOW HIS OWN ORDER AND ON A SI MILAR FACTS REOPENING OF THE ASSESSMENT AFTER PROCESSING THE RE TURN U/S. 143(1) WAS HELD TO BE VALID BY FOLLOWING THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS PVT. LTD. IT WILL BE PERTINENT TO MENTION THE FOLLOWING OBSERVATION OF THE BENCH IN THAT CASE ABO UT THE TANGIBILITY OF THE MATERIAL:- 10. COMING TO THE SUBMISSION OF SHRI PARDIWALA THA T THERE WAS NO TANGIBLE MATERIAL AND THAT THE AO JUST RELOOKED AT THE RETURN OF INCOME AND RECORDED REASONS FOR REOPENING AND THERE IS NO NEW FACT, WE REFER TO THE JUDGMENT OF THE SUPREME COURT IN TH E CASE OF ACIT VS. RAJESH JHAVERI STOCK: BROKERS P LTD. 291 ITR 500 WHEREIN UNDER SIMILAR CIRCUMSTANCES THE AO FIRST PROCESSED THE RE TURN OF INCOME U/S 143(1) AND THEREAFTER ISSUED NOTICE U/S 148 OF THE ACT, ON THE GROUND THAT THE CLAIM FOR BAD DEBTS HAS EXPLAINED WAS NOT ACCEPTABLE. IN THAT CASE ALSO THERE WAS NO FRESH MATERIAL EXCEPT THE CL AIMS OF THE ASSESSEE MADE IN THE RETURN OF INCOME WHICH WAS EARLIER PROC ESSED U/S 143(1). I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 31 TANGIBLE MATERIAL, IN OUR HUMBLE OPINION, CANNOT BE HELD AS THAT WHICH IS COLLECTED BY THE AO FROM SOURCES OTHER THA N, WHAT IS PRESENT IN THE RETURN OF INCOME ITSELF. WHEN RETURN WAS PRO CESSED U/S 143(1), AS HELD BY THE HON'BLC SUPREME IN THE CASE OF RAJE SH JHAVERI SLOCK BROKERS P. LTD, (SUPRA), IT CANNOT BE SAID THAT THE AO HAS LOOKED INTO TILL ALL THE ASPECTS CONTAINED IN RETURN OF INCOME. WHEN HE HAS NOT LOOKED INTO THE RETURN OF INCOME, QUESTION OF RELOO KING AND COINING TO A NEW CONCLUSION DOES NOT ARISE. IN CASES WHERE, TH E RETURNS ARE PROCESSED U/S 143(1), AND WHERE AT A LATER DATE, TH E AO NOTICES CERTAIN WRONG CLAIMS ETC. IN THE RETURN OF INCOME, AND FORMS A PRIMA FACIE OPINION THAT INCOME HAS ESCAPED ASSESSMENT, H E IS AUTHORIZED TO RECORD REASONS AND REOPENING OF THE ASSESSMENT U/S 147. IN VIEW OF THE ABOVE, WE HAVE NO HESITATION IN HOLD ING THAT RATIO AS LAID DOWN IN THE CASE OF TELCO DADAJEE IS NOT APPLICABLE TO THE FACTS OF THIS CASE IN VIEW OF THE DECISION OF M/S. RAJESH JHAVERI STOC K BROKERS P. LTD WHICH WAS FOLLOWED BY THE MUMBAI BENCH IN THE CASE OF KAN GA & CO. 24.4 AS FAR AS DECISION OF KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MAYUR PAPER MILLS REPORTED IN 322 ITR 424 RELIED BY THE ASSESSEE, WE FIND THAT REOPENING OF ASSESSMENT U/S. 147 WAS NOT THE I SSUE BEFORE THE COURT, THEREFORE THE SAME IS NOT RELEVANT. 24.5 AS FAR AS DECISION OF MUMBAI TRIBUNAL IN THE C ASE OF HV TRANSMISSIONS LTD IS CONCERNED, THE SAME WAS PASSED BY THE BENCH BY FOLLOWING THE THIRD MEMBER CASE IN THE CASE OF TELC O DADAJEE. WE HAVE ALREADY DECIDED IN THE EARLIER PARA AS TO WHY THE T HIRD MEMBER CASE IS NOT APPLICABLE TO THE FACTS OF THIS CASE. THEREFORE, T HIS ORDER IS ALSO NOT APPLICABLE TO THE FACTS OF THIS CASE. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 32 24.6 SO FAR AS JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT CRAFT LTD IS CONCERNED, WE FIND THAT IN THAT CASE A SSESSEE COMPANY FILED RETURN OF INCOME FOR ASSESSMENT YEAR 2002-03 ON 31 OCTOBER, 2002 DECLARING THE TOTAL INCOME OF RS. 4,45,35,395/-. THE RETURN WAS PROCESSED U/S. 143(1) ON 27 TH FEBRUARY, 2003 ACCEPTING THE RETURN INCOME. INCLU DED IN THE RETURN WAS A CLAIM OF RS. 8,74,20,642/- U/S. 80HHC AND RS . 13,35,65,316/- U/S. 10B. ASSESSEE WAS A 100% EXPORT ORIENTED UNDERTAKI NG AND WAS ENTITLED TO SUBSTANTIATE AMOUNTS AS DUTY DRAWBACK, DEPB, PREMI UM ON DEPB AND SALE OF QUOTA. THESE WERE ALL DECLARED IN PROFIT AND LO SS ACCOUNT AND THE COMPUTATION OF INCOME. ON AUGUST, 2005 A NOTICE U/ S. 148 OF THE ACT WAS ISSUED REOPENING THE ASSESSMENT ON THE GROUND THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. ACCORDING TO THE REASONS R ECORDED U/S. 147(2) FOR RE-OPENING THE ASSESSMENT, THE ASSESSEE WAS WRONG I N TREATING THE PROCEEDS OF SALE OF QUOTA AS PART OF THE EXPORT TURN-OVER FO R CLAIMING DEDUCTION U/S. 80HHC. IT WAS ALSO THE OPINION OF THE AO THAT THE SALE PROCEEDS OF THE QUOTA CANNOT BE CONSIDERED AS EXPORT TURN-OVER BUT REPRESENTED BUSINESS INCOME COVERED U/S. 28(IV) AND HAD TO BE REDUCED TO THE EXTENT OF 90% FROM THE BUSINESS INCOME AS PROVIDED BY EXPLANATION (BAA ) TO SECTION 80HHC. NOT DOING SO RESULTED IN EXCESS ALLOWANCE OF THE DE DUCTION U/S. 80HHC AND CONSEQUENTLY IN ESCAPEMENT OF INCOME CHARGEABLE TO TAX. IN RESPONSE TO NOTICE U/S. 148 ASSESSEE FILED A RETURN DECLARING T OTAL INCOME AS THE SAME FIGURE AS IN THE ORIGINAL RETURN OF INCOME AND QU ESTIONED THE JURISDICTION OF THE AO TO RE-OPEN THE ASSESSMENT. THE AO DEALT WIT H THE ASSESSEES OBJECTIONS TO THE ISSUE OF NOTICE U/S. 148 AND HELD THAT ASSESSEES CASE WAS COVERED BY CLAUSE (C) OF EXPLANATION 2 BELOW SECTIO N 147, WHICH PROVIDES THAT CLAIMING EXCESS DEDUCTION WOULD AMOUNT TO A CA SE OF INCOME ESCAPING I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 33 ASSESSMENT. THE MATTER REACHED THE HONBLE HIGH C OURT WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW. WAS THE TRIBUNAL RIGHT IN LAW IN HOLDING THAT IN THE ABSENCE OF TANGIBLE MATERIAL AVAILABLE WITH THE AO TO FORM THE REQUISIT E BELIEF REGARDING ESCAPEMENT OF INCOME, THE RE-OPENING OF THE ASSESSM ENT MADE U/S. 143(1) IS BAD IN LAW. THE HONBLE HIGH COURT ANSWERED THIS Q UESTION IN THE AFFIRMATIVE IN FAVOUR OF ASSESSEE AND AGAINST THE R EVENUE BY OBSERVING AS UNDER:- 13. HAVING REGARD TO THE JUDICIAL INTERPRETATION P LACED UPON THE EXPRESSION REASON TO BELIEVE, AND THE CONTINUED U SE OF THAT EXPRESSION RIGHT FROM 1948 TILL DATE, WE HAVE TO UN DERSTAND THE MEANING OF THE EXPRESSION IN EXACTLY THE SAME MANNE R IN WHICH IT HAS BEEN UNDERSTOOD BY THE COURTS. THE ASSUMPTION OF T HE REVENUE THAT SOMEHOW THE WORDS REASON TO BELIEVE HAVE TO BE UN DERSTOOD IN A LIBERAL MANNER WHERE THE FINALITY OF AN INTIMATION UNDER SECTION 143(1) IS SOUGHT TO BE DISTURBED IS ERRONEOUS AND M ISCONCEIVED. AS POINTED OUT EARLIER, THERE IS NO WARRANT FOR SUCH A N ASSUMPTION BECAUSE OF THE LANGUAGE EMPLOYED IN SECTION 147; IT MAKES NO DISTINCTION BETWEEN AN ORDER PASSED UNDER SECTION 1 43(3) AND THE INTIMATION ISSUED UNDER SECTION 143(1). THEREFORE IT IS NOT PERMISSIBLE TO ADOPT DIFFERENT STANDARDS WHILE INTERPRETING THE WORD REASON TO BELIEVE VIS--VIS SECTION 143(1) AND SECTION 143(3 ). WE ARE UNABLE TO APPRECIATE WHAT PERMITS THE REVENUE TO ASSUME TH AT SOMEHOW THE SAME RIGOROUS STANDARDS WHICH ARE APPLICABLE IN THE INTERPRETATION OF THE EXPRESSION WHEN IT IS APPLIED TO THE REOPENING OF AN ASSESSMENT EARLIER MADE UNDER SECTION 143(3) CANNOT APPLY WHER E ONLY AN INTIMATION WAS ISSUED EARLIER UNDER SECTION 143(1). IT WOULD IN EFFECT PLACE AN ASSESSEE IN WHOSE CASE THE RETURN WAS PROC ESSED UNDER SECTION 143(1) IN A MORE VULNERABLE POSITION THAN A N ASSESSEE IN WHOSE CASE THERE WAS A FULL-FLEDGED SCRUTINY ASSESS MENT MADE UNDER SECTION 143(3). WHETHER THE RETURN IS PUT TO SCRUTI NY OR IS ACCEPTED WITHOUT DEMUR IS NOT A MATTER WHICH IS WITHIN THE C ONTROL OF ASSESSEE; HE HAS NO CHOICE IN THE MATTER. THE OTHER CON SEQUE NCE, WHICH IS SOMEWHAT GRAVER, WOULD BE THAT THE ENTIRE RIGOROUS PROCEDURE INVOLVED IN REOPENING AN ASSESSMENT AND THE BURDEN OF PROVING VALID I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 34 REASONS TO BELIEVE COULD BE CIRCUMVENTED BY FIRST A CCEPTING THE RETURN UNDER SECTION 143(1) AND THEREAFTER ISSUE NOTICES T O REOPEN THE ASSESSMENT. AN INTERPRETATION WHICH MAKES A DISTINC TION BETWEEN THE MEANING AND CONTENT OF THE EXPRESSION 'REASON TO BE LIEVE IN CASES WHERE ASSESSMENTS WERE FRAMED EARLIER UNDER SECTION 143(3) AND CASES WHERE MERE INTIMATIONS WERE ISSUED EARLIER UN DER SECTION 143(1) MAY WELL LEAD TO SUCH AN UNINTENDED MISCHIEF . IT WOULD BE DISCRIMINATORY TOO. AN INTERPRETATION THAT LEADS TO ABSURD RESULTS OR MISCHIEF IS TO BE ESCHEWED. 14. CERTAIN OBSERVATION MADE IN THE DECISION OF RA JESH JHAVERI (SUPRA) ARE SOUGHT TO BE RELIED UPON BY THE REVENUE TO POINT OUT THE DIFFERENCE BETWEEN AN ''ASSESSMENT' AND AN ''INTIMA TION'. THE CONTEXT IN WHICH THOSE OBSERVATIONS WERE MADE HAS TO BE KEP T IN MIND. THEY WERE MADE TO POINT OUT THAT WHERE AN 'INTIMATION' I S ISSUED UNDER SECTION 143(1) THERE IS NO OPPORTUNITY TO THE ASSES SING AUTHORITY TO FORM AN OPINION AND THEREFORE WHEN ITS FINALITY I S SOUGHT TO BE DISTURBED BY ISSUING A NOTICE UNDER SECTION 148, TH E PROCEEDING CANNOT BE CHALLENGED ON THE GROUND OF 'CHANGE OF OP INION'. IT WAS NOT OPINED BY THE SUPREME COURT THAT THE STRICT REQ UIREMENTS OF SECTION 147 CAN BE COMPROMISED. ON THE CONTRARY, FR OM THE OBSERVATIONS (QUOTED BY US EARLIER) IT WOULD APPEAR CLEAR THAT THE COURT REITERATED THAT 'SO LONG AS THE INGREDIENTS O F SECTION 147 ARE FULFILLED' AN INTIMATION ISSUED UNDER SECTION 143(L ) CAN BE SUBJECTED TO PROCEEDINGS FOR REOPENING. THE COURT ALSO EMPHASISE D THAT THE ONLY REQUIREMENT FOR DISTURBING THE FINALITY OF AN INTIM ATION IS THAT THAT ASSESSING OFFICER SHOULD HAVE 'REASON TO BELIEVE' T HAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN OUR OP INION, THE SAID EXPRESSION SHOULD APPLY TO AN INTIMATION IN THE SAM E MANNER AND SUBJECT TO THE INTERPRETATION AS IT WOULD HAVE APPL IED TO AN ASSESSMENT MADE UNDER SECTION 143(3). THE ARGUMENT OF THE REVE NUE THAT AN INTIMATION CANNOT BE EQUATED TO AN ASSESSMENT, RELY ING UPON CERTAIN OBSERVATIONS OF THE SUPREME COURT IN RAJESH JHAVERI (SUPRA) WOULD ALSO APPEAR TO BE SELF-DEFEATING, BECAUSE IF AN 'IN TIMATION' IS NOT AN 'ASSESSMENT'' THEN IT CAN NEVER BE SUBJECTED TO SEC TION 147 PROCEEDINGS, FOR, THAT SECTION COVERS ONLY AN 'ASSE SSMENT AND WE WONDER IF THE REVENUE WOULD BE PREPARED TO CONCEDE THAT POSITION. IT IS, NOBODY'S CASE THAT AN 'INTIMATION' CANNOT BE SU BJECTED TO SECTION 147 PROCEEDING; ALL THAT IS CONTENDED BY THE ASSESS EE, AND QUITE I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 35 RIGHTLY, IS THAT IF THE REVENUE WANTS TO INVOKE SEC TION 147 IT SHOULD PLAY BY THE RULES OF THAT SECTION AND CANNOT BOG DO WN. IN OTHER WORDS, THE EXPRESSION REASON TO BELIEVE' CANNOT HAVE TWO DIFFERENT STANDA RDS OR SETS OF MEANING:, ONE APPLICABLE WHERE THE ASSES SMENT WAS EARLIER MADE UNDER SECTION 143(3) AND ANOTHER APPLICABLE WH ERE AN INTIMATION WAS EARLIER ISSUED UNDER SECTION 143(1) . IT FOLLOWS THAT IT IS OPEN TO THE ASSESSEE TO CONTEND THAT NOTWITHSTAN DING THAT THE ARGUMENT OF ''CHANGE OF OPINION' IS NOT AVAILABLE T O HIM, IT WOULD STILL BE OPEN TO HIM TO CONTEST THE REOPENING ON THE GROU ND THAT THERE WAS EITHER NO REASON TO BELIEVE OR THAT THE ALLEGED REA SON TO BELIEVE IS NOT RELEVANT FOR THE FORMATION OF THE BELIEF THAT INCOM E CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, IN DOING SO, IT IS FURTHER OPEN TO THE ASSESSEE TO CHALLENGE THE REASONS RECORDED UNDER SECTION 148 (2) ON THE GROUND THAT THEY DO NOT MEET THE STANDARDS SET IN THE VARI OUS JUDICIAL PRONOUNCEMENTS. 14. IN THE PRESENT CASE THE REASONS DISCLOSE THAT THE ASSESSING OFFICER REACHED THE BELIEF THAT THERE WAS ESCAPEMEN T OF INCOME 'ON GOING THROUGH THE RETURN OF INCOME' FILED BY THE AS SESSEE AFTER HE ACCEPTED THE RETURN UNDER SECTION 143(1) WITHOUT SC RUTINY, AND NOTHING MORE. THIS IS NOTHING BUT A REVIEW OF THE E ARLIER PROCEEDINGS AND AN ABUSE OF POWER BY THE ASSESSING OFFICER, BOT H STRONGLY DEPRECATED BY THE SUPREME COURT IN CIT VS. KELVINA TOR (SUPRA). THE REASONS RECORDED BY THE ASSESSING OFFICER IN THE PR ESENT CASE DO CONFIRM OUR APPREHENSION ABOUT THE HARM THAT A LESS STRICT INTERPRETATION OF THE WORDS REASON TO BELIEVE VIS --VIS AN INTIMATION ISSUED UNDER SECTION 143(1) CAN CAUSE TO THE TAX RE GIME. THERE IS NO WHISPER IN THE REASONS RECORDED, OF ANY TANGIBLE MA TERIAL WHICH CAME TO THE POSSESSION OF THE ASSESSING OFFICER SUBSEQUE NT TO THE ISSUE OF THE INTIMATION. IT REFLECTS AN ARBITRARY EXERCISE OF T HE POWER CONFERRED UNDER SECTION 147. 15. FOR THE ABOVE REASONS, WE ANSWER THE SUBSTANTIA L QUESTION OF LAW FRAMED BY US IN THE AFFIRMATIVE, IN FAVOUR OF T HE ASSESSEE AND AGAINST THE REVENUE. THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. THERE SHALL BE NO ORDER AS TO COSTS. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 36 THE RATIO OF THIS JUDGMENT IS NOT APPLICABLE TO THE FACTS OF THIS CASE AS THERE WAS VALID MATERIAL AND REASON TO BELIEVE THAT INCOM E HAS ESCAPED ASSESSMENT IN THE CASE BEFORE US. DURING THE ORIGINAL ASSESSM ENT PROCEEDINGS U/S. 143(3) ADMITTEDLY THERE WAS NO APPLICATION OF MIND ON THE PART OF AO ON THE FACT THAT CAPITAL GAIN ON SALE OF SHARES HAD NOT BE EN ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT AND THE SAME HAD BEEN CREDITED TO CAPITAL RESERVE DIRECTLY THEREBY TO THAT EXTENT INCOME U/S. 115JB OF THE ACT HAD ESCAPED ASSESSMENT. AS DURING THE ASSESSMENT PROCEEDINGS NEITHER ANY QU ERY WAS RAISED BY THE AO NOR ANY SUBMISSION WAS MADE ON BEHALF OF THE AS SESSEE. THIS VIEW OF OURS GETS SUPPORT FROM THE JUDGMENT OF MUMBAI HIGH COURT IN THE CASE OF EXPORT CREDIT WARRANTY CORPORATION OF INDIA VS. ACI T WHEREIN WITHIN 4 YEARS AFTER COMPLETION OF ASSESSMENT U/S. 143(3), T HE AO ISSUED NOTICE U/S. 148 SEEKING TO REOPEN THE ASSESSMENT STATING FIVE G ROUNDS WHICH FORMED HIS REASONS TO BELIEVE THAT INCOME HAD ESCAPED ASSESSME NT. THE ARGUMENTS BEFORE THE COURT WERE THAT NOTICE WAS ISSUED WITHOU T JURISDICTION AS THERE WAS COMPLETE DISCLOSURE ON THE PART OF THE ASSESSEE OF MATERIAL FACTS DURING THE COURSE OF ASSESSMENT AND THERE WAS ABSENCE OF FRESH OR TANGIBLE MATERIAL ON THE BASIS OF WHICH ASSESSMENT COULD BE RE-OPENED. THE FACT THAT AO HAD RELIED UPON THE NOTES FORMING PART OF THE ACCOUNTS WAS INDICATIVE OF THE FACT THAT THAT THERE WAS NO FAILURE ON THE PART OF THE A SSESSEE TO DISCLOSE MATERIAL FACTS. THE ARGUMENT OF THE REVENUE ON THE OTHER HA ND WAS THAT NOTICE WAS ISSUED AS DURING ASSESSMENT PROCEEDINGS NO QUERY WA S RAISED BY THE AO IN RESPECT OF FIVE POINTS WITH REFERENCE TO WHICH ASSE SSMENT WAS SOUGHT TO BE REOPENED NOR WERE THEY REFERRED TO IN THE ASSESSMEN T ORDER. THEREFORE, IT WAS NOT A CASE OF REVIEW OF EARLIER FINDING OR CHAN GE OF OPINION AND THEREFORE THERE WAS A COMPLETE FAILURE ON THE PART OF THE AO TO APPLY HIS I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 37 MIND TO THE FIVE POINTS WHEN THE ORIGINAL ORDER OF ASSESSMENT WAS PASSED. ON THESE FACTS AND SUBMISSIONS OF BOTH THE PARTIES HONBLE BOMBAY HIGH COURT HELD AS UNDER:- 10. THE SALIENT ASPECT OF THE CASE THAT MERITS EMP HASIS IS THAT THE ORDER OF ASSESSMENT THAT WAS PASSED BY ASSESSING OF FICER UNDER SECTION 143(3) IS COMPLETELY SILENT IN RESPECT OF E ACH ONE OF THE FIVE POINTS ON THE BASIS OF WHICH THE ASSESSMENT IS SOUG HT TO BE REOPENED. THERE IS MERIT IN THE CONTENTION WHICH HAS BEEN URG ED ON BEHALF OF THE REVENUE THAT NO QUERY HAD BEEN RAISED DURING THE CO URSE OF THE ASSESSMENT AND THE ASSESSMENT ORDER WOULD EX-FACIE DISCLOSE THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND AT ALL T O ANY OF THE POINTS ON THE BASIS OF WHICH THE ASSESSMENT IS NOW SOUGHT TO BE REOPENED. THAT THERE EXISTS TANGIBLE MATERIAL FOR THE ASSESSI NG OFFICER TO REOPEN THE ASSESSMENT IN THE PRESENT CASE IS EVIDENT FROM THE RECORD. FOR INSTANCE, AS WE HAVE NOTED EARLIER, IN RESPECT OF O NE OF THE GROUNDS. GROUND (II), THE REASONS WHICH HAVE BEEN DISCLOSED TO THE ASSESSEE WOULD INDICATE THAT RELIANCE HAS BEEN PLACED ON PAR AGRAPH 6.1 OF THE NOTES FORMING PART OF THE ACCOUNTS IN SCHEDULE 17. PARAGRAPH 6,1 POSITS THAT AN AMOUNT OF RS.27.96 CRORES IS THE EST IMATED AMOUNT OF RECOVERY EXPECTED OUT OF THE CLAIMS PAID OR PAYABLE BY THE ASSESSEE WHICH HAD BEEN RECOGNIZED ON AN INDIVIDUAL ASSESSME NT/ESTIMATE BASIS ON THE BASIS OF THE ACCOUNTING PRACTICE FOLLO WED BY THE ASSESSEE. DURING THE YEAR IN QUESTION, THERE WAS A CHANGE IN ACCOUNTING POLICY AS A RESULT OF WHICH THE PROVISION FOR ESTIMATED RE COVERY IN RESPECT OF CLAIMS PAID AND OUTSTANDING FOR RECOVERY FOR A PERI OD OF THREE YEARS OR MORE AS ON THE BALANCE-SHEET DATE BEEN ESTIMATED AT RS.100/- FOR EACH CLAIM IN SUBSTITUTION OF THE INDIVIDUAL ASSESS MENT/ESTIMATE MADE EARLIER. THE ASSESSEE HAS STATED THAT THE CHANGE I N POLICY HAS THE EFFECT OF THE EXISTING PROVISION FOR ESTIMATED RECO VERY BEING WRITTEN OFF BY ABOUT RS.20 CRORES TO THE REVENUE ACCOUNT AND RE DUCING THE PROFIT OF THE ACCOUNTING YEAR CONSEQUENTLY. EVIDENTLY THE ASSESSING OFFICER HAD NOT CONSIDERED PARAGRAPH 6.1 OF THE NOTES FORMI NG PART OF THE ACCOUNTS. AT THIS STAGE : IT WOULD BE NECESSARY FOR THE COURT TO RECORD THAT WE HAVE NOT BEEN CALLED UPON TO DECIDE AS TO W HETHER ANY ADDITION TO THE INCOME WOULD HAVE TO BE MADE ON THA T GROUND SINCE THAT IS A MATTER WHICH HAS TO BE DECIDED AFTER THE ASSESSMENT OPENED. ALL THAT IS RELEVANT AT THIS STAGE IS WHETHER THERE IS REASON TO BELIEVE I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 38 ON THE PART OF ASSESSING OFFICER THAT INCOME HAD ES CAPED ASSESSMENT. THE ANSWER IS IN THE AFFIRMATIVE. IT WOULD NOT BE A PPROPRIATE FOR THIS COURT TO PREEMPT AN ENQUIRY WHATSOEVER BY THE ASSES SING OFFICER, ONCE A TANGIBLE BASIS HAS BEEN DISCLOSED FOR REOPEN ING, THE ASSESSMENT. SIMILARLY, IN RESPECT OF THE REVISION O F PAY SCALES, ASSESSING OFFICER HAS SOUGHT TO REOPEN THE ASSESSME NT ON THE GROUND THAT THE LIABILITY HAD NOT CRYSTALLIZED BEFORE THE BALANCE-SHEET DATE. HERE AGAIN, IT IS APPARENT THAT THERE HAS BEEN NO A PPLICATION OF MIND TO THE RELEVANT FACTS BY THE ASSESSING OFFICER DURI NG THE COURSE OF THE ASSESSMENT PROCEEDINGS. AS REGARDS THE FIRST GROUND , ON THE BASIS OF WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED, IT H AS BEEN SOUGHT TO BE URGED THAT UNDER SECTION 44 READ WITH RULE 5(A), IT WOULD NOT BE OPEN TO THE ASSESSING OFFICER TO MAKE AN INCOME ADD ITION. MOREOVER, IT HAS BEEN URGED THAT IN THE PAST, THE SAME PRACTI CE HAD BEEN ACCEPTED BY THE REVENUE. THESE ARE MATTERS WHICH ON MERITS WILL BE CONSIDERED BY THE ASSESSING OFFICER AND IT WOULD BE INAPPROPRIATE FOR THIS COURT TO EXPRESS ANY OPINION ON THE MERITS OF ISSUE. MOREOVER, ONCE THE COURT HAS COME TO THE CONCLUSION THAT EVEN A SINGLE GROUND ON THE BASIS OF WHICH THE ASSESSMENT IS SOUGHT TO B E REOPENED IS VALID AND WITHIN JURISDICTION, THE NOTICE FOR REOPENING O F THE ASSESSMENT WOULD HAVE TO BE UPHELD. CONSEQUENTLY, WE CLARIFY THAT THOUGH SUBMISSIONS HAVE BEEN URGED ON THE MERITS OF EACH O F THE GROUNDS, WE KEEP ALL RIGHTS AND CONTENTIONS OF THE PARTIES OPEN TO BE URGED BEFORE THE ASSESSING OFFICER, ONCE THE ASSESSMENT IS REOPE NED IN EXERCISE OF THE POWER CONFERRED BY SECTION 147. THE ASSESSING OFFICER HAS ACTED WITHIN JURISDICTION IN REOPENING THE ASSESSMENT. IN VIEW OF THE ABOVE, WE SEE NO MERIT IN THE ARGUM ENT ADVANCED ON BEHALF OF THE ASSESSEE THAT IN THIS CASE THERE WAS CHANGE OF OPINION ON THE PART OF THE AO WHILE RE-OPENING THE ASSESSMENT OF THE ASSESSEE. 25. NOW COMING TO THE ANOTHER GROUND ON WHICH THE R EOPENING HAS BEEN CHALLENGED THAT THERE WAS NO ESCAPEMENT OF INCOME. IN THIS CASE, WE FIND FROM ASSESSEES OWN ADMISSION WHICH IS CLEAR FROM T HE SUBMISSION OF THE ASSESSEE WHICH WE HAVE REPRODUCED ABOVE THAT IF AS PER REASONS RECORDED RS. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 39 45,58,654/- WHICH REQUIRED TO BE ADDED TO MAT COMPU TATION THE LOSS RETURNED UNDER MAT WILL STAND REDUCED TO RS. 7,74,5 53/- FROM RS. 53,33,307/- WHICH CLEARLY SHOWS THAT THERE WAS ESCA PEMENT OF INCOME TO THE EXTENT OF RS. 45,58,654/-. THE ASSESSEE IN HIS SUB MISSION HAS STATED THAT NO INCOME HAS ESCAPED ASSESSMENT WHILE IN THE LAST LIN E IT IS MENTIONED THAT THERE IS NO ESCAPEMENT OF TAX WHICH MEANS HE ALSO A DMITTED ESCAPEMENT OF INCOME. THE PROVISIONS OF THE ACT ARE CLEAR THAT REOPENING OF ASSESSMENT IS PERMISSIBLE IF THERE IS ESCAPEMENT OF INCOME AND FO R DOING SO IT IS NOT NECESSARY THAT THERE SHOULD ALSO BE ESCAPEMENT OF T AX WHICH IN CERTAIN CIRCUMSTANCES AS IN THE CASE OF ASSESSEE THERE IS E SCAPEMENT OF INCOME WHILE THERE IS NO ESCAPEMENT OF TAX. THUS BOTH GROUNDS O N WHICH RE-OPENING OF ASSESSMENT WAS CHALLENGED BY THE ASSESSEE ARE DEVOI D OF MERIT. 26. IN VIEW OF THE ABOVE, THE ORDER PASSED BY LD. C IT(A) UPHOLDING THE ACTION OF AO IN REOPENING OF ASSESSMENT IS HEREBY UPHELD. GROUND NO. 3 & 4 OF ASSESSEES APPEAL ARE DISMISSED. 27. GROUND NO. 5 & 6 RELATE TO ADJUSTMENT TO BOOK P ROFIT U/S. 115JB OF THE ACT. THE AO DURING THE ASSESSMENT PROCEEDINGS MADE AN ADDITION OF RS. 45,58,654/- BEING SURPLUS TO SALE OF SHARES TO THE BOOK PROFIT FOR TAXATION U/S. 115JB WHICH HAS BEEN CONFIRMED BY LD.CIT(A). BEFOR E US RELIANCE WAS PLACED ON THE FOLLOWING SUBMISSION:- 1. THE AO HAS NO AUTHORITY TO ADJUST BOOK PROFITS ONCE THE ACCOUNTS ARE AUDITED AND ACCEPTED BY THE GENERAL BO DY, SAVE AND EXCEPT SUCH ADJUSTMENT AS ARE PROVIDED FOR IN EXPLANATION TO SECTION 115JB. RELIANCE WAS PLACED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF THE APOLLO TYRES VS. CIT (255 ITR 273), WHERE THE S UPREME COURT HAD I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 40 HELD THAT WHILE DETERMINING THE BOOK PROFIT UNDER S ECTION 115JB, THE ASSESSING OFFICER COULD NOT RE-COMPUTE THE PROFIT A ND LOSS ACCOUNT BY EXCLUDING THE PROVISIONS MADE FOR ARREARS OR DEPREC IATION. THE DECISION OF THE APEX COURT HAS BEEN FOLLOWED IN THE FOLLOWIN G OTHER DECISIONS:- A. MALAYALA MANORAMA CO. LTD VS. CIT [2008] 300 ITR 25 1 (SC) B. CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD [2008] 305 ITR 409 (SC), C. CIT-I VS. VIJAYASHREE FINANCE AND INVESTMENT CO. PV T. LTD 2 DTR 38 [216 CTR (MADRA) 191], D. CIT VS. RUBAMIN P. LTD [2009] 312 ITR 18 (GUJ), E. CIT VS. KOVAI MARUTHI PAPER AND BOARD P. LTD [2007] 294 57 (MAD), F. CIT VS. ADBHUT TRADING CO. P. LTD [2011] 338 ITR 94 (BOM), AND G. CIT VS. AKSHAY TEXTILES TRADING AND AGENCIES P. LTD [2008] 304 ITR (BOM) 2. PROCEEDS ON SALE OF GIFTED SHARES CANNOT BE CRED ITED TO P &L A/C A. SHARES RECEIVED AS GIFT DO NOT CONSTITUTE INVE STMENT AND HENCE GAINS ON SALE OF THE AFORESAID SHARES ARE NOT REQUI RED TO BE ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT. LEARNED SR. C OUNSEL SUBMITTED THAT SINCE THE GIFT CANNOT BE EQUATED WITH INVESTME NT, THE APPELLANT IS JUSTIFY IN CREDITING THE SALE PROCEEDS OF THE GIFTE D SHARES DIRECTLY TO CAPITAL ACCOUNT WITHOUT ROUTING THROUGH PROFIT AND LOSS ACCOUNT. HE THEREFORE SUBMITTED THAT THE SAID CREDIT SHOULD NOT BE TAKEN INTO ACCOUNT FOR PURPOSES OF CALCULATION OF PROFITS UNDE R SECTION 115JB AND THE PROVISIONS OF SECTION 115JB IS NOT APPLICAB LE IN SUCH SITUATION. B. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: I. CIT VS. INSANYAT TRUST (173 ITR 248) II. 203/349 (GUJ) III. 209/390 (GUJ) IV. 209/865 (GUJ) V. 252/610 (GUJ) VI. 258/712 (GUJ) 3. ADOPTING NOTES TO ACCOUNTS DOES NOT AMOUNT TO QU ALIFICATION. RELIANCE IS PLACED ON PARAGRAPH 3.9 AND IN PARTICUL AR 3.12 OF THE ICAIS GUIDELINES SPECIFY THE MANNER OF QUALIFICATI ON-ADOPTION OF NOTES OF ACCOUNTS (AS CONTAINED IN PARA 4.6 AT PG. 11 OF THE PAPER BOOK) CANNOT AMOUNT TO A QUALIFICATION. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 41 4. THE DECISION IN THE CASE OF VEEKAYLAL (BOM)-249 ITR 597 RELIED UPON BY THE AO IS NO LONGER GOOD LAW IN VIEW OF THE LATER DECISIONS OF THE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER O F INCOME-TAX VS. ADBHUT TRADING CO. P. LTD. [2011] 338 ITR 94 (B OM) AND COMMISSIONER OF INCOME-TAX VS. AKSHAY TEXTILES TRAD ING AND AGENCIES P. LTD [2008] 304 ITR 401 (BOM) WHICH HAVE HELD THAT IN VIEW OF THE DECISION OF APOLLO TYRES VS. CIT (2555 ITR 273). SINCE IN REVENUES APPEAL WE HAVE HELD THAT SHARES RECEIVED BY THE ASSESSEE- COMPANY WERE NOT GIFTS IN THE HANDS OF ASSESSEE-COM PANY, THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE-COMPANY THAT SHA RES RECEIVED AS GIFT DO NOT CONSTITUTE INVESTMENT AND HENCE GAIN ON SALE OF THESE SHARES WERE NOT REQUIRED TO BE ROUTED THROUGH PROFIT AND LOSS ACCOU NT FALLS FLAT ( CASE LAWS IN SUPPORT OF THIS ARGUMENT ARE THEREFORE NOT APPLICAB LE TO THE FACTS OF THIS CASE), THE ASSESSEE WAS NOT JUSTIFIED IN CREDITING THE SAL E PROCEEDS OF THE SHARES DIRECTLY TO CAPITAL RESERVE ACCOUNT WITHOUT ROUTING THROUGH PROFIT AND LOSS ACCOUNT. WE ARE THEREFORE OF THE CONSIDERED OPINION THAT AO HAS RIGHTLY TAKEN THESE CREDITS FOR THE PURPOSE OF ADJU STMENT TO BOOK PROFIT U/S. 115JB OF THE ACT. THE ORDER PASSED BY LD. CIT(A) C ONFIRMING THE ACTION OF AO IS HEREBY UPHELD. GROUND NO. 5 & 6 OF ASSESSEE S APPEAL ARE ALSO DISMISSED. 28. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. 29. IN THE COMBINED RESULT, REVENUES APPEAL IS ALL OWED AND ASSESSEES APPEAL IS DISMISSED. NOW COMING TO OTHER CROSS APPEALS FOR THE ASSESSMEN T YEARS 2001-02, 2003-04, 2004-05 AND 2006-07. I.T.A NOS. 981-985 & 1034-1038/AHD/2009 A.Y. 200 1-02 TO 2004-05 & 06-07 ACIT VS. BILAKHIA HOLDINGS P. LTD 42 30. SINCE THE LD. CIT(A) HAS FOLLOWED HIS ORDER FOR ASSESSMENT YEAR 2002-03 IN REST OF THE ASSESSMENT YEARS GROUNDS OF WHICH BEING SIMILAR, FOLLOWING OUR ORDER FOR ASSESSMENT YEAR 2002-03, WE HEREBY DISMISS APPEALS FILED BY THE ASSESSEE FOR ASSESSMENT YEARS 2001-02, 2003-04, 2004-05 AND 2006-07 AND ALLOW APPEALS FILED BY THE REVENUE FOR THESE YEARS.. 31. IN THE COMBINED RESULT, APPEALS FILED BY THE RE VENUE ARE ALLOWED AND THAT OF ASSESSSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (T.R. MEENA) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 30 /05/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,