M/s. Vama Sundari Investment (Delhi) (P) Ltd., New Delhi V. PrCIT-9, New Delhi

ITA 2252/DEL/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1360 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 02-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHI
• Keywords: Capital asset; Opportunity of being heard; Deemed to accrue or arise in india; Cost of acquisition; Fair market value; Valuation report; Scheme of amalgamation; Assessment record; Capital receipt
• Section: 143(3); 142(1); 115JB; 263; 10; 11

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH F, NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 2252/DEL./2018 ASSESSMENT YEAR: 2013-14 M/S. VAMA SUNDARI INVESTMENT (DELHI)(P) LTD., 44, FRIENDS COLONY (EAST), NEW DELHI. PAN AACCV8937E (APPELLANT) VS. PR. C.I.T. 9, NEW DELHI (RESPONDENT) APPELLANT BY SH. AJAY VOHRA, SR. ADVOCATE SH. ROHIT JAIN, ADVOCATE MS. DEEPASHREE RAO, CA SH. VIBHU GUPTA, CA RESPONDENT BY SMT. PARAMITA TRIPATHI, CIT/DR ORDER PER L.P. SAHU, A.M.: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE REVISIONARY ORDER PASSED BY THE CIT-9, NEW DELHI DATED 26.02.2018 U/S . 263 OF THE INCOME-TAX ACT, 1961. FOLLOWING GROUNDS HAVE BEEN RAISED BY TH E ASSESSEE : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE IMPUGNED ORDER DATED 26.02.2018 PASSED BY THE PRINCIPAL COMMISSION ER OF INCOME-TAX (PCIT), UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (THE ACT) IS WITHOUT JURISDICTION, ILLEGAL, BAD IN LAW AND VOID-AB-INITIO. DATE OF HEARING 13.09.2018 DATE OF PRONOUNCEMENT 29 .11.2018 ITA NO. 2252/DEL/2018 2 2. THAT THE PCIT ERRED ON FACTS AND IN LAW IN EXERC ISING REVISIONARY POWERS UNDER SECTION 263 OF THE ACT WITHOUT SATISFYING THE TWIN CONDITIONS OF THE ASSESSMENT ORDER BEING: (A) ERRONEOUS; AND (B) PREJUDICIAL TO THE INT ERESTS OF REVENUE AND CONSEQUENTLY, THE IMPUGNED ORDER IS ILLEGAL AND BAD IN LAW. 3. THAT THE PCIT ERRED ON FACTS AND IN LAW IN FAILI NG TO APPRECIATE THAT THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE, TO WARRANT EXERCISE OF RE VISIONARY JURISDICTION UNDER SECTION 263 OF THE ACT. 3.1 THAT THE PCIT ERRED IN ALLEGING THAT THE ASSESS ING OFFICER FAILED TO EXAMINE THE TAX IMPLICATIONS OF THE SCHEME OF AMALGAMATION, PAR TICULARLY THE ISSUE OF TAXABILITY OF LONG- TERM CAPITAL GAINS ON SALE OF SHARES IN TERMS OF PROVISO TO SECTION 10(38) FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 11 5JB OF THE ACT. 3.2 THAT THE PCIT FAILED TO APPRECIATE THAT THE ASS ESSMENT ORDER DATED 02.01.2016 HAD BEEN PASSED AFTER DUE AND ADEQUATE INQUIRIES/ IN VESTIGATION AND APPLICATION OF MIND IN RESPECT OF THE AFORESAID ISSUE OF TAXABILITY OF GAINS ON TRANSFER OF SHARES FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT UNDER SECTI ON 115JB OF THE ACT. 3.3 THAT THE PCIT ERRED IN OBSERVING/ HOLDING THAT THERE WAS NO NEED/JUSTIFICATION FOR AMALGAMATION OF THE THREE COMPANIES (INCLUDING THE APPELLANT) AND THE ENTIRE SCHEME WAS DESIGNED FOR THE SOLE PURPOSE OF EVADING TAX ARISING ON SALE OF SHARES OF M/S. HCL TECHNOLOGIES LIMITED (HCLT) UNDER MAT IN TERMS OF SECTION 115JB OF THE ACT. 3.4 THAT THE PCIT ERRED IN HOLDING THAT THE AMOUNT CREDITED TO SECURITIES PREMIUM ACCOUNT SHOULD BE TREATED AS REVALUATION RESERVE T O BE ADDED TO BOOK PROFIT UNDER CLAUSE (J) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT, WITHOUT APPRECIATING THAT THE ACCOUNTING TREATMENT WAS STRICTLY IN ACCORDANCE WIT H THE BINDING DIRECTIONS OF HIGH COURT AND PROVISIONS OF ACCOUNTING STANDARD (AS) -1 4. 3.5 THAT THE PCIT ERRED IN OBSERVING THAT THE ASSES SEE HAD DELIBERATELY CONCEALED CRUCIAL AND MATERIAL FACTS BEFORE THE HIGH COURT AT THE TIME OF SANCTION OF SCHEME OF AMALGAMATION WITH THE MALAFIDE INTENTION OF EVADING TAXES. 3.6 THAT THE PCIT ERRED IN HOLDING THAT THE ORDER O F HIGH COURT APPROVING THE SCHEME OF AMALGAMATION WAS NOT BINDING ON THE REVENU E AND WHERE AMALGAMATION WAS USED AS A FACADE FOR TAX EVASION, THE REVENUE W OULD PROBE INTO THE TRANSACTION. 3.7 THAT THE PCIT ERRED IN HOLDING THAT THE ASSESSE E ADOPTED PURCHASE METHOD AS AGAINST POOLING OF INTEREST METHOD FOR THE PURPOS E OF AMALGAMATION, WHICH WAS WITHOUT ANY JUSTIFICATION AND SOLELY FOR THE PURPOS E OF REVALUING SHARES OF HCLT IN ITS FINANCIAL STATEMENTS. ITA NO. 2252/DEL/2018 3 3.8 THAT THE PCIT FAILED TO APPRECIATE THE OBSERVAT IONS OF THE STATUTORY AUDITOR AD FURTHER THAT IN THE ABSENCE OF ANY QUALIFICATION BY THE STATUTORY AUDITORS, IT WAS NOT PERMISSIBLE TO REWRITE THE ACCOUNTS OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT BY TREATING T HE AMOUNT OF SECURITIES PREMIUM AS REVALUATION RESERVE. 3.9 THAT THE PCIT ERRED IN HOLDING THAT THE ASSESSI NG OFFICER FAILED TO MAKE NECESSARY ENQUIRIES AND PASSED THE ORDER IN CASUAL/ HURRIED MANNER, WHICH COULD BE SUBJECTED TO REVISIONARY JURISDICTION IN TERMS OF E XPLANATION 2 TO SECTION 263 OF THE ACT. 4. THAT THE PCIT ERRED ON FACTS AND IN LAW IN HOLDI NG THAT ASSESSMENT ORDER TO BE ERRONEOUS INSOFAR AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, AND IN REMITTING THE MATTER BACK TO THE ASSESSING OFFICER ON THE ISSUE OF TAXABILITY OF GAINS ARISING ON TRANSFER OF SHARES UNDER THE PROVISIONS OF SECTION 115 JB OF THE ACT. 2. THE ASSESSMENT IN THIS CASE WAS MADE BY THE AO U /S. 143(3) OF THE ACT ON 02.01.2016, WHEREBY THE AO HAD ACCEPTED THE INCO ME RETURNED BY THE ASSESSEE. THE ASSESSMENT ORDER SO FRAMED BY THE AO READS AS UNDER : RETURN DECLARING AN INCOME OF RS.47,31,20,060/- WA S FILED ELECTRONICALLY ON 29-09-2013. THE CASE WAS TAKEN UP IN SCRUTINY THROUGH CASS AND NOTICE U/S 143(2) WAS ISS UED ON 03- 09-2014 AND SERVED UPON THE ASSESSEE. THEREAFTER, NO TICES U/S 142(1) ALONG WITH QUESTIONNAIRE WAS ISSUED AND DULY SERVED UPON THE ASSESSEE WHEREIN CERTAIN SPECIFIC DETAILS WERE CALLED FOR. DURING THE YEAR, THE ASSESSEE COMPANY WAS ENGAGED I N THE BUSINESS OF INVESTMENTS AND TO INTER ALIA BUY, INVE ST, UNDERWRITE, ACQUIRE SHARES/OTHER SECURITIES FOR LON G TERM. HOWEVER/THE ASSESSEE COMPANY HAS AMALGAMATED WITH M /S SLOCUM INVESTMENTS (DELHI) PVT LTD. AND SHIKIRAN IN VESTMENT (DELHI) PVT. LTD. VIDE HIGH COURT ORDER DATED 31S'J ANUARY 2013. IN RESPONSE TO THESE NOTICES, MR. NILESH AGGARWAL, C.A./A.R. OF THE ASSESSEE ATTENDED FROM TIME TO TIME AND FILED T HE ITA NO. 2252/DEL/2018 4 NECESSARY DETAILS WHICH HAVE BEEN EXAMINED AND PLAC ED ON RECORD. AFTER DISCUSSION THE RETURNED INCOME OF THE ASSESSEE IS ACCEPTED. ASSESSED AT AN INCOME OF RS. 47,31,20,060/- ISSUE NECESSARY FORMS. CHARGE INTEREST U/S 234A;234B, 234C AND 234D , IF ANY, AS PER ACT. COMPUTATION OF TAX AND INTEREST IS AS P ER ITNS 150 ENCLOSED WITH THE ASSESSMENT ORDER. [ UNDERLINE AND HIGHLIGHT SUPPLIED BY US] 3. THE BRIEF FACTS OF THE CASE, AS BROUGHT OUT IN P ARA 2.1 TO 3 OF THE IMPUGNED ORDER BY LD. CIT ARE AS UNDER : 2.1. FROM THE PERUSAL OF THE ASSESSMENT RECORDS, I T WAS SEEN THAT THE ASSESSEE HAD SOLD 1 CRORE SHARES OF M/S HCL TEC HNOLOGIES LTD ( HEREINAFTER REFERRED TO AS M/S HCL TECH.) ON 04-05- 2012 AT THE RATE OF RS.500 PER SHARE APPROX. AND THE NET VALUE REALIZED WAS RS.498 CRORES APPROX.. THE PURCHASE COST OF THESE SHARES IS SHOWN AS RS. 6.50 CRORES AND THE DIFFERENCE OF RS. 491.70 CRORES APPX. IS CLAIME D/ TREATED AS EXEMPT U/S 10(38) OF THE ACT. HOWEVER, THE ASSESSEE COMPANY HA S RE-VALUED THE SHARES OF M/S HCL TECHNOLOGIES LTD. ON 01.04.2012 A ND ON THE BASIS OF VALUATION REPORTS FROM M/S ICICI SECURITIES, M/S SB I CAPITAL AND M/S. SSPA COMPANY, THE SHARE WAS RE-VALUED AT RS.790 PER SHAR E. IN NORMAL COURSE THE LONG TERM CAPITAL GAIN OF RS.491.68 CRORES AS P ER THE PROVISO TO SECTION 10(38) OF THE ACT SHOULD HAVE BEEN OFFERED BY THE ASSESSEE FOR MAT U/S. 115JB OF THE ACT. HOWEVER, THE ASSESSEE IN THE BOOKS OF ACCOUNT CHANGED THE COST OF THESE SHARES TO RS. 790 PER SHA RE. THE ASSESSEE STATED THAT THIS WAS DONE IN ORDER TO RESTATE THE B OOK (FAIR VALUE) OF THE SHARES AT ITS FAIR MARKET VALUE AND ACCORDINGLY SHOWN THE LONG TERM CAPITAL LOSS OF RS. 291.82 CRORES . THUS THE AO HAS FAILED TO CONSIDER THE APPLICABILITY OF PROVISO TO SECTION 10 (38) AND SECTION 115JB OF THE ACT AND ACCORDINGLY HAS NOT QUESTIONED/INQUI RED ABOUT THE ASSESSEES CLAIM FOR NOT OFFERING ITS LTCG FOR MAT PURPOSE U/S 115JB OF THE ACT. FURTHER, THE AO HAS FAILED TO EXAMINE/VERI FY THE IMPACT/REPERCUSSION OF AMALGAMATION SCHEME FROM THE TAXATION ANGLE. 2.1. FROM THE ASSESSMENT RECORDS, IT IS SEEN THAT T HE ASSESSEE HAS NOT PAID ANY TAX EITHER AT THE TIME OF AMALGAMATION OR AT TH E TIME OF DISPOSAL OF 1 CRORE SHARES OF M/S HCL TECHNOLOGIES LTD., ACCORDIN GLY THE ASSESSMENT PASSED BY THE AO HAS BECOME ERRONEOUS SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. ITA NO. 2252/DEL/2018 5 3. ACCORDINGLY, A SHOW CAUSE NOTICE U/S 263 OF THE INCOME TAX ACT. 1961 FOR A.Y. 2013-14 WAS ISSUED TO THE ASSESSEE ON 27-0 9-2017 ON THE ISSUES DISCUSSED ABOVE. IN RESPONSE THE ASSESSEE FROM TIME TO TIME FURNISHED THE WRITTEN SUBMISSIONS AND ALSO ORALLY DISCUSSED THE C ASE WITH THE UNDERSIGNED. DURING THE PRESENT PROCEEDINGS U/S 263 , SOME FURTHER INQUIRIES WERE MADE WHICH WERE ALSO REPLIED BY THE ASSESSEE. DURING TH E PROCEEDINGS U/S 263, THE COPY OF THE AMALGAMATION SCHEME, COPIES OF VARIOUS ORDERS PASSED BY THE HONBLE HIGH COURT WERE REQUESTED/RECEIVED FROM THE OFFICE OF REGISTRAR, PU NJAB AND HARYANA HIGH COURT . [ UNDERLINE AND HIGHLIGHT SUPPLIED BY US] 4. THEREAFTER, THE LEARNED CIT-9, NEW DELHI, EXERCI SING HIS POWERS U/S. 263, AFTER CONSIDERING DETAILED SUBMISSIONS OF THE ASSESSEE, ASSESSMENT ORDER PASSED BY AO AND ALL THE MATERIAL AVAILABLE ON RECO RD, REVISED THE ABOVE ASSESSMENT ORDER BASED ON INDEPENDENT INQUIRIES HOL DING IT ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE AND D IRECTED THE AO TO FRAME THE ASSESSMENT ORDER AFRESH IN THE LIGHT OF OBSERVATION S MADE IN THE IMPUGNED ORDER. THE OBSERVATIONS AND FINDINGS REACHED BY THE LD. CIT IN THE IMPUGNED ORDER READ AS UNDER : 9. FROM THE ASSESSEES SUBMISSIONS, THE FOLLOWING OBSERVATIONS ARE RELEVANT: (A) DETAILS OF FILING ITRS BY M/S SLOCUM AND M/S SH IVKIRAN FOR A.Y. 2013-14 - THE ASSESSEES SUBMISSION HAS BEEN CONSIDERED AND T HE SAME IS FOUND FACTUALLY CORRECT EXCEPT ON THE ISSUE THAT THE IMPORTANT BUSI NESS TRANSACTIONS FALLING BETWEEN APPOINTED-DATE AND EFFECTIVE-DATE AND ITS T AX IMPLICATIONS WERE NEVER BROUGHT TO THE NOTICE OF THE HONBLE COURT. (B) IT IS TRUE THAT SOME OF THE DETAILS REGARDING T HE BOOK VALUE AND FAIR VALUE OF THE ASSETS ACQUIRED BY THE ASSESSEE ON AMALGAMATION WERE PROVIDED TO THE AO IN THE COURSE OF ASSESSMENT; HOWEVER THE AO TOTALLY MI SSED THE ISSUE OF APPLICABILITY OF MAT PROVISIONS ON LTCG ARISING ON SALE OF SHARES . FURTHER, THE AO ALSO DID NOT ITA NO. 2252/DEL/2018 6 EXAMINE THE REAL INTENT/PURPOSE AND THE EFFECT OF T HE SCHEME OF AMALGAMATION(SOA) PARTICULARLY FROM THE TAXATION A NGLE. (C) AS WOULD BE DISCUSSED LATER THERE WAS NO NEED/ JUSTIFICATION OF THE AMALGAMATION OF THE THREE COMPANIES IN THIS CASE AN D THE ENTIRE SCHEME WAS DESIGNED BY THE ASSESSEE FOR THE SOLE PURPOSE OF NO T PAYING THE DUE TAX ON THE LTCG WHICH ATTRACTED MAT U/S. 115JB. (D) SECTIONS 391 TO 394 OF THE COMPANIES ACT DESCRI BE THE PROCEDURE TO BE FOLLOWED IN RECONSTRUCTION/AMALGAMATION OF COMPANIE S. IT NOWHERE DISCUSSES THE PURCHASE METHOD. AS WOULD BE DISCUSSED IN DETAIL LATER, THE SOA WAS DESIGNED BY THE ASSESSEE AND THE FACTS AND THE CIRCUMSTANCES OF THE THREE COMPANIES INDICATE THAT IF THERE WAS ANY NEED OF AMALGAMATION THEN THIS AMALGAMATION SHOULD FALL IN THE CATEGORY OF POOLING OF INTEREST METHOD. HOWEVER, THE ASSESSEE DELIBERATELY AND WITHOUT JUSTIFICATION, CONSIDERED THIS AMALGAMATION IN THE NATURE OF PURCHASE. (E) IT IS TRUE THAT THE PARA 12 OF AS-14 PERMITS TH E TRANSFEREE COMPANY TO RECORD THE ASSETS AND LIABILITIES OF THE AMALGAMATING COMP ANIES AT FAIR VALUE, IF THE SITUATION SO REQUIRES. (F) THE SOA WAS DRAFTED BY ASSESSEE AND THE SAME(DI TTO) WAS APPROVED BY THE HONBLE COURT. HOWEVER, IN THE APPLICATION BEFORE T HE HONBLE COURT, THE IMPORTANT TRANSACTIONS BETWEEN THE APPOINTED DATE AND THE EFFECTIVE DATE AND ITS IMPACT ON TAXATION WAS NOT BROUGHT TO THE N OTICE OF THE HONBLE COURT, AND IN FACT CAN BE SAID TO HAVE BEEN DELIBERATELY CONCE ALED (G) THE ASSESSEE HAS SUBMITTED THAT THE SECURITY P REMIUM ACCOUNT THAT HAS BEEN CREDITED IS DUE TO THE RECOGNITION OF THE FAIR VALUE OF THESE ASSETS & LIABILITIES AND NOT DUE TO ANY REVALUATION OF THE ASSETS . HERE IT IS RELEVANT TO MENTION THAT THE AUDITOR OF THE ASSESSEE COMPANY IN THE NOTES T O THE FINANCIAL STATEMENT FOR THE YEAR ENDING MARCH 31, 2013 OBSER VED THAT: AS PER THE ACCOUNTING STANDARD 14 (AS 14), ACCOUNT ING FOR AMALGAMATION, PRESCRIBED UNDER COMPANY RULE, 2006 (ACCOUNTING STA NDARD) HAS MODIFIED BY THE CENTRAL GOVERNMENT VIDE ITS NOTIFICATION DATED 07-12-2006. AS EXCESS VALUE OF NET ASSETS OVER THE AMOUNT OF CONSIDERATIO N PAID SHOULD BE CREDITED TO CAPITAL RESERVES AND NOT TO SECURITY PREMIUM. THUS EVEN THE STATUTORY AUDITOR HAS POINTED OUT THE DEVIATION DELIBERATELY ADOPTED BY THE ASSESSEE WHICH RESULTED IN THE CREAT ION OF SECURITY PREMIUM RESERVE INSTEAD OF THE CAPITAL RESERVE ACCOUNT. FUR THER, THE SECURITY PREMIUM RESERVE IS CREATED WHEN SOMEONE SUBSCRIBES TO THE E QUITY SHARES OF THE ASSESSEE AT PREMIUM, WHICH IS ABSOLUTELY NOT THE PRESENT CAS E HERE. ITA NO. 2252/DEL/2018 7 (H) THE ASSESSEE SUBMITTED THAT THE SECURITY PREMI UM ACCOUNT IS NOT IN THE NATURE OF REVALUATION RESERVE : THE ASSESSEE HAS RECORDED THE FAIR VALUE OF VARIOUS ASSETS AND LIABILITIES OF THE AMALGAMATING COMPANY AS COST OF THE ACQUISITION IN ACCORDANCE WITH SOA AND IN COMPLIANCE OF THE ACCOUNTING STANDARD-14(AS 14). IT IS RELEVANT TO MENTION THERE THAT THIS PROCEDURE AND ITS IMPACT IS MORE OR LESS SIMILAR TO THE REVALUATION OF ASSETS AND CREATION OF REVALUATION RESERVE. AS STAT ED EARLIER, EARLIER M/S SLOCUM HAD ALL THE ASSETS AND SUBSTANTIAL SHARE CAPITAL. A MONGST SLOCUMS ASSETS THE MAIN/MAJOR PORTION COMPRISED OF SHARES OF M/S HCL T ECH. HELD AS LONG TERM INVESTMENTS. AFTER AMALGAMATION THESE SHARES BECAME THE PROPERTY OF THE ASSESSEE COMPANY. HOWEVER IN THE PROCESS, THE ASSES SEE COMPANY CONVENIENTLY CHANGED THE COST/ CARRYING AMOUNT OF THESE SHARES A ND RECORDED THE SAME AT THEIR FAIR MARKET VALUE SO AS TO EVADE THE PAYMENT OF LTC G {ITS TAXABILITY UNDER MAT PROVISION) ON THE SALE OF THESE SHARES. (I) THE ASSESSEE FURTHER SUBMITTED THAT THE REVALUA TION IS NOT PERMITTED FOR THE INVESTMENT. IT IS RELEVANT TO MENTION HERE THAT ON THE ONE HAND THE ASSESSEE TAKES THE PLEA THAT AS-13 DOES NOT PERMIT THE ASSESSEE CO MPANY TO RE-STATE THE VALUE OF ITS LONG TERM INVESTMENT AT A VALUE HIGHER THAN THE COST AND THE ASSESSEE HIMSELF WAS FOLLOWING AS-13. ON THE OTHER HAND IN THE GARB OF AMALGAMATION AND FOLLOWING AS 14, THE ASSESSEE HIMSELF HAS RE-VALUED THIS LONG TERM INVESTMENT (SHARES OF M/S HCL TECH.) AT THEIR FAIR MARKET VALU E. HOWEVER INSTEAD OF USING THE WORD REVALUATION, THE WORD RESTATED BOOK VALUE IS U SED. HOWEVER THE EFFECT OF BOTH THE TRANSACTIONS IS SAME. (J) THE ASSESSEE HAS FURTHER SUBMITTED THAT THE HIG H COURT ORDER IS BINDING AND SECURITY PREMIUM ACCOUNT HAS BEEN RIGHTLY CREDI TED : THE ASSESSEES SUBMISSION IS NOT CORRECT AS SECTION 391(2) OF THE COMPANIES ACT STATES THAT THE APPROVED AMALGAMATION WOULD BE BIND ING ON ALL THE CREDITORS, ALL THE MEMBERS(SHAREHOLDERS), AND ALSO ON THE COMPANY. THUS THIS SECTION NOWHERE SUGGESTS THAT THE APPROVED AMALGAMATION IS BINDING ON ALL THE GOVERNMENT AUTHORITIES. FURTHER, THE PROVISO TO SECTION 391(2) OF THE COMPANIES ACT STATES THAT NO ORDER SANCTIONING ANY COMPROMISE/ARRANGEMEN TS SHALL BE MADE BY THE TRIBUNAL UNLESS THE TRIBUNAL IS SATISFIED THAT THE COMPANY OR THE APPLICANT HAS DISCLOSED TO THE TRIBUNAL BY AFFIDAVIT ALL MATERIAL FACTS RELATING TO THE COMPANY SUCH AS THE LATEST FINANCIAL POSITION OF THE COMPAN Y, THE LATEST AUDITOR REPORT ON THE ACCOUNTS OF THE COMPANY. (K) IT IS VERY MUCH RELEVANT TO MENTION HERE THAT T HE APPLICATION IN THE HONBLE HIGH COURT WAS SUBMITTED BY THE ASSESSEE ON 19-09-2 012. HOWEVER, ONLY PROVISIONAL UNAUDITED ACCOUNTS FOR FY 2011-12 WERE SUBMITTED BEFORE THE ITA NO. 2252/DEL/2018 8 HONBLE COURT. IT IS APPARENT THAT THE ASSESSEE DEL IBERATELY DID NOT SUBMIT PROVISIONAL ACCOUNTS OF THE PERIOD BEGINNING 01-04- 2012 TO 30 TH JUNE 2012 OR UPTO 15TH SEPTEMBER 2012 AND IN THE PROCESS HID TH E VERY CRUCIAL/MATERIAL FACT OF HAVING SOLD 1 CRORES SHARES OF M/S HCL TECH. FOR RS. 500 CRORES ON 04- 05-2012 ITSELF FROM THE HONBLE COURT. THUS IT IS APPARENT THAT AS PER THIS PROVISO THE ASSESSEE WAS SUPPOSED TO PLACE ALL MATERIAL FACTS B EFORE THE HONBLE HIGH COURT. FURTHER, AS STATED EARLIER, THE DIFFERENCE ARISING FROM RECORDING THE ACQUIRED ASSETS AT FAIR VALUE IN THE BALANCE SHEET OF THE AS SESSEE WAS WRONGLY CREDITED BY THE ASSESSEE TO SECURITY PREMIUM ACCOUNT AND THIS F ACT WAS DULY HIGHLIGHTED BY THE AUDITOR OF THE ASSESSEE IN NOTES TO THE ACCOUNT . (I) THE FOLLOWING FACTS ARE OBSERVED ABOUT THE REAS ONS SUBMITTED BY THE ASSESSEE FOR CREDITING THE DIFFERENCE IN THE VALUES OF ASSETS ARISING OF AMALGAMATION TO SECURITY PREMIUM ACCOUNT AND NOT CA PITAL RESERVES :- I. AS STATED EARLIER ALSO, THE SCHEME WAS DRAFTED B Y THE ASSESSEE AND WAS TAILOR MADE FOR THE PURPOSE OF AVOIDING THE DUE PAYMENT OF FAIR TAXES ONLY. II. AS DISCUSSED SEPARATELY, THE ASSESSEE COMPANY H AS STRONG FINANCIALS AND IS SUPPORTING ITS ASSOCIATE CONCERNS ON ITS OWN AND TH ERE IS NO NEED FOR THE COMPANY TO TAKE ANY LOAN FROM THE BANKERS AND IN FA CT NO SUCH LOANS HAVE BEEN TAKEN BY THE ASSESSEE COMPANY, SO THE DISCUSSION OF NET WORTH IS IRRELEVANT HERE. III. THE ASSESSEE HAS TRIED TO MISLEAD THE DEPARTME NT BY CREDITING THE DIFFERENCE TO SECURITY PREMIUM AS SECURITY PREMIUM RESERVE IS CREATED ONLY WHEN ASSESSEES EQUITY SHARES ARE ISSUED ON PREMIUM. IV. THE ISSUE OF LEVERAGING THE BALANCE SHEET IN TH E EYES OF BANKERS AND FINANCIAL INSTITUTION IS JUST AN EYEWASH AS THE ASSESSEE COMP ANY HAS STRONG FINANCIAL AND INFACT IT IS SUPPORTING THE OTHER ASSOCIATE CONCERN S AND NO LOANS ARE TAKEN FROM THE BANKS. (M) THE ASSESSEE HAS REPEATEDLY EMPHASIZED THE FACT OF DUE DISCLOSURE IN THE FINANCIAL STATEMENTS AS REQUIRED BY AS 14. AS STATE D EARLIER, THE AUDITOR HAS MADE DISSENTING COMMENT AND HAS HIGHLIGHTED THE DEVIATIO N FROM AS-14 DONE BY THE ASSESSEE AS BY CREDITING SECURITY PREMIUM RESERVES INSTEAD OF CAPITAL RESERVES. BUT THE DISCLOSURE OF WRONG DOING DOES NOT TAKE AWA Y THE NATURAL CONSEQUENCES OF ATTEMPT OF THE ASSESSEE TO EVADE TAXES BY DEVIAT ING FROM THE MANDATORY AS-14. (N) THE ASSESSEE HAS REPEATEDLY SUBMITTED THAT ACCO UNTING TREATMENT APPROVED BY THE COURT IS BINDING AND IT HAS COMPLIED WITH TH E ACCOUNTING TREATMENT AS PRESCRIBED BY ICAI/GOVT. AS DISCUSSED EARLIER, APPR OVED AMALGAMATION SCHEME IS BINDING ON CREDITORS AND SHAREHOLDERS AND IT IS NOT BINDING ON DEPARTMENT. ITA NO. 2252/DEL/2018 9 FURTHER, ON THE PROPOSED SOA, NO COMMENTS WERE EITH ER SOUGHT OR RECEIVED FROM THE DEPARTMENT. IT IS AGAIN SUBMITTED THAT CERTAIN VERY IMPORTANT FACTS WERE HIDDEN FROM THE HONBLE COURT. IN BRIEF THE APPROVE D SOA IS NOT BINDING ON THE INCOME TAX DEPARTMENT AS THE TAXATION ANGLE HAS TO BE EXAMINED BY THE DEPARTMENT IN ITS PROPER PERSPECTIVE. (O) REGARDING THE COMPANYS SUBMISSION ABOUT AUDITO R HAVING NOT HIGHLIGHTED THE FACT OF DEVIATION FROM AS-14 IN THICK ITALIAN T YPE, IT IS NOTED THAT THERE WAS NO NEED FOR THE AUDITOR TO HIGHLIGHT THE DEVIATION IN THICK TYPE AND IN ITALICS AS THE SAME IS REQUIRED IN THE CASE WHERE THE DEVIATION AD VERSELY AFFECTS THE FUNCTIONING OF THE COMPANY. HERE IT IS RELEVANT TO MENTION THAT THERE ARE ONLY THREE COMMON SHAREHOLDERS IN THE THREE COMPANIES AND THE DEVIATI ON FROM AS~ 14DID NOT ADVERSELY AFFECT THE FUNCTIONING OF THESE COMPANIES IN NORMAL SENSE BUT ONLY THE FAIR TAXATION OF THE CAPITAL GAINS WAS AVOIDED. (P) AS DISCUSSED EARLIER, THE ASSESSEE IN THE GARB OF APPROVED CLAUSES OF SOA AND FOLLOWING AS-14 HAS IN FACT DONE THE REVALUATION OF THE SHARES OF M/S HCL TECH.(HELD AS LONG TERM INVESTMENT) IN ITS FINANCIA L STATEMENTS. HOWEVER, THE ASSESSEE HAS VERY CLEVERLY INSTEAD OF USING TERM R EVALUATION', HAS USED THE TERM RESTATED VALUE/FMV FOR CHANGING THE CARRYING COST O F THESE SHARES. THUS, APPLICABILITY OF CLAUSE (J) IN EXPLANATION 1 TO SEC TION 115JB NEEDS TO BE CONSIDERED IN THE ASSESSEES CASE. (Q). AS DISCUSSED EARLIER ALSO, THE SOA HAS BEEN CL EVERLY DRAFTED BY THE ASSESSEE WITH A MALAFIDE INTENT OF EVADING FAIR TAXES ON LTC G AND THE SAME SCHEME (WITHOUT ANY MODIFICATION) HAS BEEN APPROVED BY THE HONBLE HIGH COURT. WHEN WE DIG DEEP THEN THE ASSESSEES WHOLE SCHEME AND IT S MALA-FIDE INTENTION FOR NON- PAYMENT/EVASION OF DUE FAIR TAXES BECOMES VERY MUCH APPARENT. (R) AS STATED EARLIER, THERE ARE ONLY THREE COMMON SHAREHOLDERS IN ALL THE THREE COMPANIES, THE ROC USUALLY DOES NOT EXAMINE THE SOA FROM THE ANGLE OF ITS IMPACT ON TAXABILITY AND ALSO CONSIDERING THE FACT THAT THE DELIBERATE HIDING OF TRANSACTION OF SALE OF 1 CR. SHARES OF M/S HCL TECH . WHICH TOOK PLACE ON 04- 05- 2012 FROM THE HONBLE COURT AS WELL AS FROM THE ROC , THE ACCOUNTS CANNOT BE TREATED AS SACROSANCT FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB. (S) AS FAR AS THE CASE OF APOLLO TYRES IS CONCERN ED, THE SAME HAS BEEN CONSIDERED IN VARIOUS DECISIONS OF HONBLE COURTS A ND ITATS WHEREBY IT HAS BEEN HELD THAT AO CAN MODIFY THE HOOK PROFIT IN THE CAS E OF DEVIATION FROM BASIC ACCOUNTING CONVENTIONS. FURTHER, THE JUDGEMENT IN T HE CASE OF APOLLO TYRES HAS BEEN DELIVERED WITH REFERENCE TO SECTION 115JA AND NOT FOR SECTION 115JB. ITA NO. 2252/DEL/2018 10 (T) AS DISCUSSED EARLIER, THE ASSESSEE HAS WRONGLY TREATED THE DIFFERENCE IN THE VALUE OF SHARES AS SECURITY PREMIUM WHILE INFACT IT IS IN THE NATURE OF REVALUATION RESERVE. (U). IT IS TRUE THAT THE CLAUSE (J) WAS INSERTED WI TH THE INTENTION TO PLUG THE CASES WHERE ON DISPOSAL/RETIREMENT OF RE-VALUED ASSETS, T HE CORRESPONDING UNTAXED INCREASE IN THE VALUE CREDITED TO REVALUATION RESER VES ESCAPED MAT. IN THIS CASE ALSO, THE ASSESSEE HAS FIRST CREDITED THE DIFFERENC E IN VALUE TO SECURITY PREMIUM ACCOUNT INSTEAD OF CAPITAL RESERVES/REVALUATION R ESERVE AND THEN HAS NOT OFFERED THE AMOUNT PERTAINING TO SOLD SHARES FOR CA LCULATION OF BOOK PROFIT. (V) THE ARGUMENT OF THE ASSESSEE CLAIMING THAT AMAL GAMATION WAS NOT MADE WITH THE PURPOSE OF EVADING MAT : THE SUBMISSIONS OF THE ASSESSEE CLAIMING THAT AMALG AMATION WAS NOT MADE/DONE WITH THE PURPOSE OF EVADING TAXES/MAT ON CAPITAL GA INS ON THE SALE OF SHARES ARE NOT ACCEPTABLE DUE TO FOLLOWING REASONS : I. IT IS A FACT THAT THE STATUTORY AUDITOR HAS CLEA RLY AND UNAMBIGUOUSLY POINTED OUT THE ASSESSEES DEVIATION FROM ASM IN THE TREATM ENT OF INCREASE IN THE VALUE OF ACQUIRED ASSETS DUE TO VALUATION AT FAIR VALUE. SO THE ASSESSEES SUBMISSION THAT THE AUDITOR HAS NOT QUALIFIED THE AUDIT REPORT OR H AS NOT MADE ANY ADVERSE REMARKS HAS NO SIGNIFICANCE. II. THE ASSESSEES EXCUSE/EXPLANATION OF TREATING T HE INCREASE IN VALUATION AS SECURITY PREMIUM RESERVES INSTEAD OF CAPITAL RESERV ES TO LEVERAGE THE BALANCE SHEET IS AGAIN AN EYEWASH ONLY, AS THERE WAS NO NEE D OR JUSTIFICATION OF THE LEVERAGING OF THE BALANCE SHEET AS THE COMPANY HAD STRONG FINANCIALS, WAS SUPPORTING ITS ASSOCIATE CONCERNS AND THERE WAS NO NEED OF TAKING ANY LOAN FROM THE BANKS AND NO SUCH LOAN WAS ACTUALLY TAKEN FROM THE BANKS. III. SEVERAL MOTIVES/PURPOSES WERE CITED BY THE ASS ESSEE AT THE TIME OF SUBMISSION OF PROPOSED SOA BEFORE THE HONBLE HIGH COURT. HOWEVER, FROM THE SUBMISSIONS OF THE ASSESSEE AS DISCUSSED IN DETAIL SEPARATELY IN THIS ORDER, IT IS APPARENT/CLEAR THAT NONE OF THE STATED OBJECTIVE S WERE FULFILLED AS A RESULT OF THE AMALGAMATION AND ACTUALLY THERE WAS NO NEED AT ALL FOR THE AMALGAMATION OF THE THREE COMPANIES. (W) STATUTORY RECOGNITION OF SOA APPROVED BY THE H IGH COURT: THE ASSESSEE FURTHER SUBMITTED THAT THE SCHEME HAS BEEN APPROVED BY THE HONBLE HIGH COURT AND THEREFORE CANNOT BE REGARDED AS A TAX EVASION EXERCISE. AS DISCUSSED EARLIER, THE SCHEME WAS DRAFTED BY THE ASSESSEE COMPANY AND THE SAME WAS (IN DITTO) APPROVED BY THE HON HIGH COURT (WITHOUT ANY MODIFICATION). ITA NO. 2252/DEL/2018 11 THE C LB /ROC GAVE ITS REPORT IN THE ROUTINE MANNER THAT THE AFFAIRS OF THE COMPANY HAVE NOT BEEN CONDUCTED IN THE MANNER PREJU DICIAL TO THE INTEREST OF THE MEMBERS. THE FACT IS THAT CERTAIN VERY CRUCIAL & MA TERIAL FACTS WERE HIDDEN FROM THE HONBLE COURT AS WELL AS FROM THE ROC AND AS DI SCUSSED EARLIER THE SCHEME WAS DRAFTED WITH THE ONLY MOTIVE OF NOT PAYING/EVAD ING THE DUE TAXES. AS STATED EARLIER, THE SCHEME IS BINDING ON CREDITORS AND SHA REHOLDERS AND IT DOES NOT BAR THE DEPARTMENT FROM EXAMINING THE SCHEME FROM THE I NCOME TAX ANGLE. 10. A FEW POINTS ABOUT THE SCHEME OF AMALGAMATION A ND THE CONTEXT WOULD HELP IN BETTER APPRECIATION OF THE FACTS. FURTHER, THE R ELEVANCE OF THE HONBLE APEX COURTS PATH BREAKING DECISION IN THE CASE OF MCDOWELLS IN THE PRESENT CASE CAN ALSO BE APPRECIATED. I. IN THE PRESENT CASE, CHRONOLOGICAL EVENTS LEADIN G TO AMALGAMATION ARE AS UNDER :- A 01 - 04 - 2012 APPOINTED DATE FOR AMALGAMATION (THIS DATE WAS PROP OSED BY THE AMALGAMATING/ AMALGAMATED COMPANIES IN THE SOA SUBMITTED TO HIGH COURT ON 19-09-2012) B. 04 - 05 - 2012 1 CRORE SHARES OF HCL TECH. SOLD BY M/S SLOCUM FOR RS.500 CRORES, RESULTING INTO LTCG OF RS. 491.70 CRORES. A T THIS JUNCTURE, THERE WAS NO WHISPER OF AMALGAMATION.' HO WEVER, THE MAT LIABILITY ON ACCOUNT OF LTCG OF RS. 491.70 CR HAD ALREADY CRYSTALLIZED/ARISEN AT THIS VERY JUNCTURE. C. 30 - 08 - 2012 THE MEETING OF BOARD OF DIRECTORS OF THE THREE COMP ANIES WAS HELD. THE RESOLUTIONS FOR AMALGAMATION OF THREE COMPANIES PASSED. D. 19.09.2012 APPLICATION OF AMALGAMATION OF THREE COMPANIES SUBM ITTED IN PUNJAB & HARYANA HIGH COURT. E. 31.01.2013 SOA APPROVED BY HONBLE PUNJAB & HARYANA HIGH COURT F. 12.02.2013 LETTER OF ENGAGEMENT ISSUED FOR THE VALUATION OF HC L TECHNOLOGY SHARE AS ON 01-04.2012 G. 20.03.2013 REPORT SUBMITTED BY M/S. ICICI CAPITAL,VALUING THE HCL TECH. SHARES AT RS.791 PER SHARE (FOR VALUATION PURPOSE FINANCIAL STATEMENTS OF DECEMBER 2012 CONSIDERED ). H. 22.03.2013 EFFECTIVE DATE OF AMALGAMATION ITA NO. 2252/DEL/2018 12 II. COMMON 3 PROMOTER SHAREHOLDERS IN AMALGAMATING/AMAL GAMATED COMPANIES : M/S SLOCUM INVESTMENTS (DELHI) PVT LTD, M/S SHIV K IRAN INVESTMENT (DELHI) PVT LTD AND M/S VAMA SUNDARI ARE ASSOCIATE/ GROUP COMPANIES OF HCL GROUP. THERE ARE ONLY THREE SHAREHOLDERS (MR SHIV N ADAR, MRS KIRAN NADAR AND MS RASHMI NADAR MALOHOTRA) IN THE ABOVE THREE COMPA NIES. THUS, PUBLIC IS NOT INTERESTED IN THE AFFAIRS OF THESE COMPANIES. III. NO NEED FOR AMALGAMATION : THERE WAS NO NEED OF AMALGAMATION IN THIS CASE. EARLIER, BEFORE AMALGAMATION M/S SLOCUM WAS H OLDING ALL THE MAJOR ASSETS/ INVESTMENTS AND WAS ENGAGED IN THE PURCHASE/SALE OF SHARES/MFS ETC, (LONG TERM INVESTMENTS). THERE WERE NO MAJOR ASSETS/ INVE STMENTS IN M/S SHIVKIRAN OR IN M/S VAMA SUNDARI. EVEN THE SHARE CAPITAL OF T HESE TWO COMPANIES WAS A MEAGER RS.1.00 LAC EACH. AFTER AMALGAMATION, ALL AS SETS AND LIABILITIES HAVE BEEN TRANSFERRED TO M/S VAMA SUNDARI (RESULTANT/AMALGAMA TED COMPANY) AND NOW M/S VAMA SUNDARI IS ENGAGED/DOING THE SAME BUSINESS , AS WAS BEING DONE EARLIER BY M/S SLOCUM. IV. IT WAS ONLY AFTER 4 MONTHS (OR SO) FROM THE DAT E ON WHICH THE HCL TECH SHARES WERE SOLD (04-05-2012) (AND THE TAX LIABILIT Y AROSE), THAT THIS SCHEME OF AMALGAMATION (SOA) WAS ENVISAGED AND PROPOSED, FOR WHICH THERE WAS ABSOLUTELY NO NEED/JUSTIFICATION. V. ALL MATERIAL FACTS SUCH AS LATEST FINANCIAL POSITIO N OF THE COMPANIES NOT DISCLOSED TO THE HONBLE COURT & ROC : WHILE SUBMITTING THE SOA BEFORE THE HONBLE HIGH COURT ON 19-09-2012, THE APPOINTED DAT E WAS PROPOSED AS 01.04.2012. HOWEVER, WITH THE AMALGAMATION APPLICAT ION, ONLY AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDING 31.03.2011(FY 2010-1 1) AND UNAUDITED PROVISIONAL ACCOUNTS FOR YEAR ENDING ON 31.03.2012{ FY 2011-12) WERE SUBMITTED TO THE COURT. IT IS REALLY SIGNIFICANT TO HIGHLIGHT HERE THAT T HE APPLICANT CONVENIENTLY/DELIBERATELY DID NOT SUBMIT THE PROVIS IONAL ACCOUNTS OF THESE COMPANIES FOR THE PERIOD 01-04-2012 TO 30-08-2012. THE APPLICANT COULD AND SHOULD HAVE INFORMED THE HONBLE COURT ABOUT THE IM PORTANT FINANCIAL TRANSACTIONS HAVING TAKEN PLACE IN THE INTERIM PERI OD AND ITS TAX IMPLICATIONS. THE SALE OF 1 CR. SHARES OF FOR RS.500 CRORES APPX. WAS DEFINITELY AN IMPORTANT FINANCIAL TRANSACTION CARRYING SIGNIFICANT TAX IMPLICATION WH ICH SHOULD HAVE BEEN BROUGHT IN THE KNOWLEDGE OF THE HONBLE COURT CONSIDERING T HE SOA PROPOSED BY THE ASSESSEE COMPANY. VI. THE SALE OF SHARES ON 04-05-2012 NOT BROUGHT TO THE KNOWLEDGE OF HONBLE HIGH COURT AND THEREFORE NOT CONSIDERED BY THE HONBLE HIGH COURT : AS DETAILED ABOVE, THE SALE OF SHARES TOOK PLACE ON 04-05-2012 AND SOA WAS SUBMITTED TO THE COURT ON 19-09-2012 AND APPOINTED DATE WAS THEN PROPOSED AS ITA NO. 2252/DEL/2018 13 FOR 01-04-2012. THE EVENT OF SALE OF SHARES AND ITS ENORMOUS TAX IMPLICATION WAS NOT SUBMITTED BEFORE THE HONBLE COURT, SO THIS ISS UE WAS WOULD/COULD NOT BE CONSIDERED BY THE HON'BLE COURT. FURTHER, THE SCHEM E MIGHT HAVE BEEN PUBLISHED IN THE NEWSPAPERS, BUT IN THOSE DAYS, COMMENTS OF T HE INCOME TAX DEPTT. WERE NOT REQUIRED TO BE SOUGHT BY THE HONBLE COURT, UNL IKE THE PRESENT DAY SCENARIO, WHEN THE COMMENTS OF THE DEPARTMENT ARE SOUGHT BY T HE COURTS BEFORE THE APPROVAL OF SOAS. 11. SOA APPROVED BY THE HONBLE HIGH COURT NOT BINDING ON THE DEPARTMENT: THE ASSESSEE COMPANY, TO AVOID THE PAYMENT OF DUE T AXES, THEN SUBMITTED THE SOA BEFORE THE PUNJAB & HARYANA HIGH COURT AND GOT IT APPROVED FROM THE COURT. THEN, THE ASSESSEE HAS TAKEN THE PL EA THAT THE SOA HAS BEEN APPROVED BY THE HONBLE HIGH COURT AND IS BINDING O N THE DEPARTMENT; THE SCHEME WAS APPROVED BY THE SHAREHOLDERS OF THE THRE E COMPANIES; THE ACCOUNTS FOR FY 2012-13 HAVE BEEN GOT AUDITED; THE SHAREHOLD ERS HAVE APPROVED THE ACCOUNTS IN AGM AND THAT FINALLY THE ACCOUNTS WERE ALSO APPROVED BY THE ROC. THE COMPANY HAS ARGUED THAT AS PER THE APEX COURTS DECISION IN THE CASE OF APOLLO TYRES, THE AO HAD NO AUTHORITY TO QUESTION /MODIFY THE HOOK PROFIT. FURTHER, THEY HAD FOLLOWED THE PURCHASE METHOD OF ACCOUNTING FOR AMALGAMATION, AS THEY HAD TO FOLLOW AS-14, ACCORDIN GLY TO WHICH THEY RESTATED THE VALUE OF INVESTMENTS AT THEIR FMV AND IN THE PR OCESS, THERE WAS LONG TERM CAPITAL LOSS, SO THERE WAS NO QUESTION OF INCLUDIN G LTCG FOR CALCULATING THE HOOK PROFIT. THE SUBMISSIONS OF THE ASSESSEE ARE NOT ACCEPTABLE DUE TO FOLLOWING REASONS 11A. THE SOA IS BINDING ON CREDITORS AND SHAREHOLDE RS BUT IT CAN NOT BE SAID TO BE BINDING ON THE INCOME TAX DEPARTMENT AS THE ISSUE O F TAXABILITY OF LTCG ON THE SALE OF SHARES WAS NOT BROUGHT TO THE KNOWLEDGE OF THE HONHLE COURT WHICH NEITHER CONSIDERED NOR ISSUED ANY DIRECTION ON THE TAXATION ANGLE RELATED TO THE AMALGAMATION. 11B. THOUGH THE SOA WAS APPROVED BY THE SHAREHOLDER S, YET IT IS AN IMPORTANT FACT THAT ALL THE THREE COMPANIES ARE CLOSELY HELD PRIVA TE COMPANIES AND THERE ARE ONLY 3 COMMON FAMILY MEMBER SHAREHOLDERS IN THESE C OMPANIES WHO HAPPEN TO BE PROMOTERS, SO THEIR APPROVAL WAS A MERE FORMALIT Y. 11C. THE ACCOUNTS OF THE COMPANIES ARE ALWAYS AUDIT ED AND EVEN THEN THE ASSESSING OFFICERS ALWAYS EXAMINE THE ACCOUNTS OF T HE COMPANIES FROM TAXATION ANGLE. 11D.AS FAR AS ROC IS CONCERNED, IT ROUTINELY CONSID ERS THE ACCOUNTS OF THE COMPANIES AND THEY ARE NOT EXPECTED TO EXAMINE THE TAXABILITY PART OF A PARTICULAR TRANSACTION. [SUMER BUILDERS PVT. LTD. VS. DCIT, CENTRAL CIRCLE - XXXVI (MUMBAI) (ITA NO. 2512, 2513 AND 2514/MUM/2009} ITA NO. 2252/DEL/2018 14 11E. THE APEX COURTS DECISION IN APOLLO TYRES CA SE HAS BEEN CONSIDERED BY HONBLE COURTS AND ITATS AND IN MANY CASES AND IT HA S BEEN HELD THAT AO CAN EXAMINE THE BOOKS OF ACCOUNTS AND CAN MODIFY/ALTER THE BOOK PROFIT IN CASES OF DEVIATION FROM THE STANDARD ACCOUNTING PRACTICES. S OME OF THESE JUDGMENTS ARE MENTIONED BELOW: I) DCIT VS. BOMBAY DIAMOND CO, (1TAT MUMBAI) 2009/T IOL/ 760/ITAT-MUM II) CIT VS. VEEKAY LAL INVESTMENTS 249 ITR 597 (BOM .) III) RAIN COMMODITIES VS. DCIT (SPECIAL BENCH - B ITAT HYDERABAD) III) (2016) 76 TAXMAN, COM 360 (BANGALORE - TRIBUNAL) 11F. THE JUDGMENT OF HON TIE APEX COURT IN APOLLO TYRES CASE WAS PASSED IN THE CONTEXT OF SECTION 115 JA AND NOT IN RESPECT OF SEC TION 115JB 12. ANALYSIS OF THE METHOD OF THE AMALGAMATION ADOPTED BY THE ASSESSEE : 12A. THE AMALGAMATIONS ARE OF TWO TYPES : ONE TYPE IS AMALGAMATION IN THE NATURE OF MERGER, IN WHICH ALL THE ASSETS & LIABILITIES OF TRANSFEROR COMPANY BECOME THE ASSETS AND LIABILITIES OF THE TRANSFEREE COMPANY AFTER AMALGAMATION. THE SHAREHOL DERS HOLDING > 90% OF THE FACE VALUE OF THE EQUITY SHARES OF THE TRANSFEROR C OMPANY BECOME EQUITY SHAREHOLDERS OF THE TRANSFEREE COMPANY BY VIRTUE OF AMALGAMATION. THE CONSIDERATION FOR AMALGAMATION RECEIVABLE BY THOSE EQUITY SHAREHOLDERS OF THE TRANSFEROR COMPANY IS DISCHARGED BY THE TRANSFEREE COMPANY WHOLLY BY THE ISSUE OF EQUITY SHARES IN THE TRANSFEREE COMPANY. THE BUS INESS OF THE TRANSFEROR COMPANY IS INTENDED TO BE CARRIED ON BY THE TRANSFE REE COMPANY. NO ADJUSTMENT IS INTENDED TO BE MADE TO THE BOOK VALUES OF THE AS SETS AND LIABILITIES OF THE TRANSFEROR COMPANY, WHEN THEY ARE INCORPORATED IN T HE FINANCIAL STATEMENTS OF THE TRANSFEREE COMPANY EXCEPT TO ENSURE UNIFORMITY OF ACCOUNTING POLICIES. 12B. THE AMALGAMATION IN THE NATURE OF PURCHASE IS ONE WHICH DOES NOT SATISFY THE CONDITIONS RELATED WITH THE AMALGAMATION IN THE NATURE OF MERGER. FIRST OF ALL (AS WOULD BE DISCUSSED IN DETAIL LATER IN THIS ORDER), THERE WAS NO NEED OF AMALGAMATION IN THE PRESENT CASE. SECONDLY, IN N ORMAL COURSE, THE PRESENT CASE FITS INTO THE CATEGORY OF AMALGAMATION IN THE NATU RE OF MERGER, AS THE ASSETS & LIABILITIES OF M/S SLOCUM BECAME ASSETS & LIABILITI ES OF M/S VAMA SUNDARI {THE ASSESSEE) AND AFTER AMALGAMATION, THE BUSINESS OF M /S SLOCUM IS BEING CARRIED ON BY M/S VAMA SUNDARI. AS PER AS 14, IN SUCH CASES, N O ADJUSTMENT IN THE BOOK VALUE OF ASSETS & LIABILITIES IS DONE. ITA NO. 2252/DEL/2018 15 12C. IN THE AMALGAMATION IN THE NATURE OF PURCHASE , GENERALLY ONE COMPANY ACQUIRES ANOTHER COMPANY. IN SUCH CASES, THE SHAREH OLDERS OF THE ACQUIRED COMPANY NORMALLY DO NOT CONTINUE TO HAVE A PROPORTI ONATE SHARE IN THE EQUITY OF THE COMBINED COMPANY AND/OR THE BUSINESS OF THE ACQ UIRED COMPANY IS NOT INTENDED TO THE CONTINUED. FURTHER, GENERALLY IN RE AL BUSINESS SCENARIO, A LARGE COMPANY ACQUIRES A SMALL COMPANY OR A LISTED COMPAN Y ACQUIRES/MAY ACQUIRE A BIG PRIVATE LIMITED COMPANY. THUS, IN A NORMAL BUSI NESS SCENARIO, EVEN IF AMALGAMATION (FOR THE SAKE OF THE ARGUMENT) WAS NEE DED IN THIS EASE, THEN IT WOULD SQUARELY FALL IN THE CATEGORY OF AMALGAMATIO N IN THE NATURE OF MERGER AND ACCORDINGLY AS PER AS 14, THERE WAS NO NEED/JUS TIFICATION, FOR RESTATING THE BOOK VALUE OF THE INVESTMENT(SHARES) OF THE TRANSFE ROR COMPANY. 12D. IN THE POOLING OF INTEREST METHOD(IN THE NAT URE OF MERGER), THE ASSETS, LIABILITIES AND RESERVES OF THE TRANSFEROR COMPANY ARE RECORDED BY THE TRANSFEROR COMPANY AT THEIR EXISTING CARRYING AMOUNTS. EVEN IN PURCHASE METHOD, TRANSFEREE COMPANY HAS THE OPTION TO DO ACCOUNTING FOR THE AMALGAMATION EITHER BY TAKING THE ASSETS & LIABILITIES AT THEIR EXISTIN G CARRYING AMOUNTS OR BY ALLOCATING THE CONSIDERATION TO INDIVIDUAL IDENTIFI ABLE ASSETS AND LIABILITIES OF THE TRANSFEROR COMPANY ON THE BASIS OF THEIR FAIR VALUE S AT THE DATE OF AMALGAMATION. THUS THE ASSESSEES CONTENTION THAT IT WAS OBLIGATO RY {AS PER AS'14) ON THEIR PART TO RESTATE THE VALUE OF ASSETS(INVESTMENTS) AT THEI R FMV IS FAR FROM TRUTH. 13. OBJECTIVES OF AMALGAMATION QUOTED BY THE ASSESS EE : WHILE SUBMITTING THE SOA TO THE COURT, THE ASSESSEE SUBMITTED THE FOLLOWING AS OBJECTIVES OF AMALGAMATION : STREAMLINE THE TREASURY OPERATIONS BY CONSOLIDAT ING THE INVESTMENT COMPANIES. REDUCE NUMBER OF MULTIPLE ENTRIES IN THE GROUP. REDUCE ADMINISTRATIVE COST AND REGULATORY COMPLI ANCE. GETTING LEVERAGE (GETTING BETTER DEAL) IN LOANS TO BE TAKEN. 13A. THE DETAILS IN RESPECT OF ACHIEVEMENT OF ABOVE OBJE CTIVES AFTER AMALGAMATION WERE SOUGHT FROM THE ASSESSEE VIDE OFF ICE LETTER DATED 12- 01-2018. IN RESPONSE, THE ASSESSEE SUBMITTED A DETA ILED REPLY VIDE LETTER DATED 29-01-2018 13B. THE ASSESSEE SUBMITTED THAT IT IS NOT OPEN TO THE REVENUE TO QUESTION THE COMMERCIAL WISDOM OF THE ASSESSEE TO UNDERTAKE ANY RESTRUCTURING EXERCISE IN ACCORDANCE WITH THE REGULATORY MECHANISM. THE ASSES SEES SUBMISSION IS NOT ACCEPTABLE, AS THE ASSESSEE IS SUPPOSED TO STATE TH AT HOW AND HOW FAR THE OBJECTIVES OF AMALGAMATION HAVE BEEN ACHIEVED BY TH EM. HERE THE DEPARTMENT HAS NOT QUESTIONED THE BUSINESS MODEL OF THE ASSESS EE OR THE EXPENDITURE ITA NO. 2252/DEL/2018 16 INCURRED BY THE ASSESSEE. IT IS BEING TRIED TO FIND OUT, WHETHER THERE WAS ANY NEED/ JUSTIFICATION FOR CARRYING THE EXERCISE OF AM ALGAMATION OTHER THAN THE MOTIVE OF NOT PAYING THE DUE FAIR TAXES ON THE HUGE LTCG, WHICH AROSE ON 04- 05- 2012 ITSELF. IN THIS CONTEXT, THE CASE LAWS SUBMITT ED BY THE ASSESSEE LOSE MUCH OF THEIR RELEVANCE. 13C. THE ASSESSEE IN ITS REPLY IN PARA (X) OF ITS L ETTER DATED 29-01-2018 HAS CONCEDED THAT THERE NEED NOT ALWAYS BE DIRECT CORRELATION BEHIND P ARTICULAR TRANSACTION AND THE IMMEDIATE GAINS THAT MAY FOLLOW AS A RESULT OF UNDERTAKING A TRANSACTION. FURTHER THERE ARE AND CAN BE NO SET GUI DELINES/ PARAMETERS, LEAVE APART REQUIREMENT, SO AS TO COMPARE/EVALUATE THE MI LESTONES ACHIEVED BY THE AMALGAMATED COMPANY VIS-A-VIS THE OBJECTS OF AMALGA MATION. 13D.SIMILARLY IN PARA (XI) OF ITS LETTER ALSO THE A SSESSEES REPLY ECHOES THE SIMILAR SENTIMENT/ADMISSION. THEN IN PARA (XII), THE ASSESS EE SUBMITS THAT THE EXPLANATION WITH RESPECT TO THE OBJECTIVES FOR AMAL GAMATION OF AMALGAMATING COMPANIES WITH THE ASSESSEE COMPANY SHOULD BE EXAMI NED FROM THE POINT OF VIEW OF VARIOUS STAKEHOLDERS AND NOT FROM THE NARROW PRI SM OF TAX SAVING. HERE, THERE ARE TWO IMPORTANT STAKEHOLDERS, ON THE ONE HAND THE RE ARE THREE COMMON SHAREHOLDERS (FAMILY MEMBER PROMOTERS OF HCL GROUP) IN THESE COMPANIES AND ON THE OTHER HAND, THERE IS INCOME TAX DEPARTMENT. IT IS THE PRIME DUTY OF THE DEPARTMENT TO EXAMINE ANY BUSINESS TRANSACTION/SCHE ME FROM THE TAXATION ANGLE AND IF NEEDED, TO EXAMINE/INVESTIGATE THE MATTER TO ITS LOGICAL END FOR ARRIVING AT THE TRUTH. 13E. THE ASSESSEE HAS STATED THAT THE TAX AUTHORITI ES CANNOT EXAMINE THE ASSESSEES CASE AS THE AMALGAMATION HAS BEEN APPROV ED BY THE HONBLE COURT. SUCH A VIEW OF THE ASSESSEE IS NARROW. IF AMALGAMAT ION IS USED AS A TOOL OF TAX EVASION, THEN THE TAX AUTHORITIES CAN LOOK INTO THE EVASION. IN THIS PARTICULAR CASE, AS IS EVIDENT, THE AMALGAMATION WAS USED AS A FACAD E FOR TAX EVASION. THE MOMENT AMALGAMATION BECOMES A TOOL OF TAX EVASION, THE ASS ESSEE CANNOT TAKE SHELTER BEHIND JUDICIARY AND PROHIBIT THE REVENUE FROM EXAM INING THE EVASION. REFERENCE IS INVITED TO THE DECISION OF HONBLE GUJ ARAT HIGH COURT IN WOOD POLYMERS LTD (1977) 109 ITR 77 WHEREIN IT HAS BEEN STATED : IT MUST BE CONFESSED THAT IT IS OPEN TO A PARTY TO SO ARRANGE ITS AFFAIRS SO AS TO REDUCE ITS TAX LIABILITY. THE ASSESSEE OR PART Y CAN ARRANGE ITS AFFAIRS SO THAT HE OR IT MAY NOT INCUR ANY TAX LIABILITY. BU T IT MUST BE WITHIN THE POWER OF THE PARTY TO ARRANGE ITS AFFAIRS. IF THE P ARTY SEEKS ASSISTANCE OF THE COURT ONLY TO REDUCE TAX LIABILITY, THE COURT SH OULD BE THE LAST INSTRUMENT TO GRANT SUCH ASSISTANCE OR JUDICIAL PRO CESS TO DEFEAT THIS LIABILITY, OR EVEN TO AVOID TAX LIABILITY ITA NO. 2252/DEL/2018 17 THUS THE COURTS HAVE MADE UP ITS MIND THAT IT WOULD NOT SANCTION ANY SCHEME WHOSE ONLY AIM IS TO AVOID/MINIMIZE TAX LIABILITY. IT IS TO BE NOTED THAT THE POWER OF AMALGAMATION IS THE ADMINISTRATIVE POWER OF THE HONBLE HIGH COURT. THIS POWER HAS BEEN GRANTED BY THE COMPANIES ACT TO ENSU RE THAT THE INTEREST OF THE CREDITORS AND SHARE HOLDERS (MINORITY SHARE HOLDERS ) ARE PROTECTED. THE AMALGAMATION ORDER OF THE JUDICIARY IS THEREFORE NO T IN THE NATURE OF JUDICIAL ORDER OF THE HIGH COURT. THE JUDICIAL ORDERS ARE BI NDING ON THE EXECUTIVE WITHIN THE JURISDICTION OF THE HIGH COURT. 13F. THE ASSESSEE HAS ALSO SUBMITTED A FEW CASE LAW S TO EMPHASIZE THAT THE ASSESSEE CAN MANAGE HIS AFFAIRS IN A MANNER SO AS T O AVOID PAYMENT OF TAX, IT HAS BEEN FURTHER SUBMITTED THAT THE FACT THAT THE MOTIVE FOR A TRANSACTION MAY BE TO AVOID TAX DOES NOT INVALIDATE IT UNLESS A PARTICULA R ENACTMENT SO PROVIDES. IT IS RELEVANT TO MENTION HERE THAT NO COURT OR ANY GOVER NMENT STATUTE ADVISES NON- PAYMENT OF DUE FAIR TAXES, ONCE THE TAXABLE INCOME UNDER THE PROVISIONS OF INCOME TAX ARISES OR CRYSTALISES. IN THIS PARTICULA R CASE, THE ASSESSEE HAS TRIED TO EVADE PAYMENT OF TAXES BY REVALUING ITS ASSETS COST . THE LAW DOES NOT ALLOW THE ASSESSEE IN ANY MANNER WHATSOEVER TO AVOID PAYING T HE TAXES JUST BECAUSE AMALGAMATION WAS ORDERED BY THE HON'BLE COURT. IN S UBSEQUENT PARAGRAPHS IT WILL BE CLEAR THAT THE ASSESSEE HAS NOT DISCLOSED T HE MATERIAL FACTS BEFORE THE COURT. NO INTEREST OF THE SHARE HOLDER WAS SOUGHT T O BE PROTECTED IN THE AMALGAMATION SCHEME. THE ONLY GAIN OF THE ASSESSEE IN THE ENTIRE AMALGAMATION WAS TAX EVASION, AND BY AVOIDING DUE TAXES THE PUBL IC INTEREST WAS CERTAINLY HARMED. 13G. ACTUAL/REAL FACTS ABOUT ADVANTAGES RESULTING FROM T HE AMALGAMATION AS PER THE ASSESSEE COMPANY : I. THE ASSESSEE, IN THE LAST PORTION OF ITS LETTER DATED 29-01-2018 DETAILED THE ADVANTAGES RESULTING FROM THE AMALGAMATION. THE ASS ESSEE SUBMITTED THAT DUE TO AMALGAMATION, 3 ENTITIES WERE REDUCED TO ONE. HERE THE ASSESSEE ALSO SUBMITTED THAT THERE ARE 11 ASSOCIATE CONCERNS BUT DID NOT TE LL ABOUT THE GROUP COMPANIES OF HCL GROUP. IT IS NOTED THAT THERE WERE NO EMPLOYEES IN THESE 3 COMPANIES AND THE CONSULTANCY/LEGAL EXPENSES RELATED TO SOA WOULD DEFINITELY OUTWEIGH THE REDUCTION IN ADMINISTRATIVE COST AND REGULATORY COM PLIANCES. THE ASSESSEE ALSO FAILED TO SPECIFY OR QUANTIFY THE CONCRETE MONETARY ADVANTAGE LIKE SAVING IN EXPENDITURE/EXPENSES DUE TO THE AMALGAMATION. II. THE ASSESSEE HAS FURTHER STATED THAT AFTER AMA LGAMATION, THERE IS CENTRALIZED AND COMMON TREASURY OPERATIONS FOR ALL THE 3 ENTITI ES. IT IS RELEVANT TO MENTION HERE THAT PRIOR TO AMALGAMATION, THE TREASURY OPERA TIONS WERE CARRIED BY M/S SLOCUM ONLY AND AFTER AMALGAMATION THE SAME FUNCTIO NS/ OPERATIONS WERE CARRIED ON BY M/S VAMA SUNDARI. ITA NO. 2252/DEL/2018 18 III. IT HAS ALSO BEEN SUBMITTED BY THE ASSESSEE THA T THE AMALGAMATION ENABLES THE ASSESSEE, IF REQUIRED, TO RAISE FINANCE AT BETTER T ERMS. THE ASSESSEES REPLY IS VERY VAGUE AND EVASIVE. AS DISCUSSED EARLIER, DUE TO AMA LGAMATION, THERE WAS NO MARKED CHANGE IN ASSESSEES CAPITAL OR ASSET STRUCT URE. THE ASSESSEE ITSELF HAS ADMITTED THAT, CONSIDERING SUFFICIENT AVAILABILITY OF WORKING CAPITAL, THERE WAS NO SUCH BUSINESS REQUIREMENT OF BORROWING FUNDS FROM T HE MARKET. IV. LASTLY THE ASSESSEE SUBMITTED THAT IT HAS AVAIL ED CREDIT OF RS. 11.25 CRORES FROM NOIDA AUTHORITY AT 11% INTEREST. HERE THE ASSE SSEE DID NOT SUBMIT HOW THIS TRANSACTION WAS RELATED WITH THE AMALGAMATION AND W HETHER IT COULD AVAIL CONCESSIONAL/PREFERRED CREDIT FROM THE NOIDA AUTHOR ITY DUE TO AMALGAMATION. THE ASSESSEE ALSO ADMITTED THAT THERE WERE/IS NO EM PLOYEES ON THE PAYROLL OF THE SAID THREE COMPANIES. 14. CONSIDERING THE ABOVE DISCUSSED FACTS, IT IS CR YSTAL CLEAR THAT THE REAL AND ONLY MOTIVE FOR THE WHOLE EXERCISE OF AMALGAMATION WAS T O AVOID THE PAYMENT OF DUE TAXES ON HUGE LTCG ARISING ON THE SALE OF 1 CR. SHA RES OF M/S HCL TECH, SHARES. IN MANY CASES, THE APEX COURT (PARTICULARLY IN THE CASE OF MCDOWELL) HAS HELD THAT IN APPROPRIATE CASES, THE DEPARTMENT CAN LIFT THE C ORPORATE VEIL AND EXAMINE THE REAL DESIGN/ - IMPLICATIONS OF THE SCHEME SUBMITTED / EFFECTED BY THE ASSESSEE. 15. NOW COMING TO THE LEGAL AND FACTUAL MATRIX OF THE T RANSACTION IN THE LIGHT OF THE RELEVANT LAWS UNDER THE INCOME TAX ACT . 1961 :- I. SUB-SECTION 5 OF SECTION 115 JB ; SUB-SECTION. 5 OF SECTION 115 JB PROVIDES THAT SAVE AS OTHERWISE PROVIDED IN THIS SECTION OR OTHER PROVISION OF THIS ACT SHALL APPLY TO EVERY ASSESSEE, BEING ASSESSEE COMPANY MEN TIONED IN THIS SECTION', THUS CLEARLY PROVISO TO SECTION 10(38) OF THE ACT IS ALS O APPLICABLE WHILE CALCULATING THE BOOK PROFIT OF A COMPANY. THE PROVISIONS OF SECTION 115JB ARE STATUS SPECIFIC. IF THE LTCG ON SALE OF STT PAID SHARE TRANSACTIONS ACC RUES TO ANY COMPANY, IN THAT CASE THOUGH AS PER THE NORMAL PROVISIONS OF THE ACT , THE TAX LIABILITY IS NIL OWING TO THE PROVISIONS OF SECTION 10(38), BUT THE COMPAN Y HAS TO PAY MAT ON THE GAIN. THE LAW DOES NOT EXEMPT ANY COMPANY FROM NOT PAYING TAX UNDER MAT ON LTCG U/S. 10(38). THE SITUATION LIKE AMALGAMATION AND DE MERGER HAS NOT FOUND A PLACE IN EXCEPTIONS TO SECTION 115JB. THUS, THE MAT LIABI LITY CANNOT BE EXTINGUISHED FOR A COMPANY UNDER ANY SCHEME OF AMALGAMATION. II. INCOME BY WAY OF LTCG OF A COMPANY HAS TO BE TAKEN INTO ACCOUNT IN COMPUTING THE BOOK PROFIT AND TAX PAYABLE U/S 115JB : SECTION 10(38) OF THE INCOME TAX ACT. 1961 WHICH PR OVIDES FOR EXEMPTION OF LTCG IS AS UNDER :- ITA NO. 2252/DEL/2018 19 (38) ANY INCOME ARISING FROM THE TRANSFER OF A LONG -TERM CAPITAL ASSET, BEING AN EQUITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY OR IENTED FUND [OR A UNIT OF A BUSINESS TRUST] WHERE- (A) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR UNI T IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF THE FINANCE (NO. 2 ] ACT, 2004 COMES INTO FORCE; AND (B) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TR ANSACTION TAX VIDER THAT CHAPTER: PROVIDED THAT THE INCOME BY WAY OF LONG TERM CAPITA L GAIN OF A COMPANY SHALL BE TAKEN INTO ACCOUNT IN COMPUTING THE BOOK P ROFIT AND INCOME -TAX PAYABLE UNDER SECTION 115JB FROM THE ABOVE PROVISO IT IS CLEAR THAT THE INCOME BY WAY OF LTCG OF A COMPANY SHALL BE TAKEN INTO ACCOUNT IN COMPUTING THE BOOK P ROFIT AND TAX PAYABLE UNDER SECTION 115JB. THE WORD INCOME BY WAY OF LONG TERM CAPITAL GAIN AS USED IN THE ABOVE SECTION IS OF QUITE SIGNIFICANCE. SUCH INCOME CAN ONLY BE AS C OMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 48 OF THE ACT. THIS ASPEC T HAS BEEN CONSIDERED BY THE BANGLORE BENCH OF ITAT IN THE CASE OF KARNATAKA STATE INDUSTRIAL INFRASTRUCTURE DEVELOPERS CO. LTD. V DCIT (2016) 76 TAXMANN.COM 360{BANG-TRIB) WHERE IT HAS BEEN HELD THAT AMOUNT O F PROFIT ELIGIBLE U/S 10(38) SHOULD ALONE BE CONSIDERED FOR THE PURPOSE O F TAX LIABILITY U/S 115JB OF THE ACT. III. ACCOUNTING STANDARD AS-13 FOR ACCOUNTING FOR INVEST MENTS AND ITS VIOLATION BY THE ASSESSEE : PARA 17 OF AS-13 (ACCOUNTING FOR INVESTMENTS) PROVI DES AS UNDER 17. LONG-TERM INVESTMENTS ARE USUALLY CARRIED AT CO ST. HOWEVER, WHEN THERE IS A DECLINE, OTHER THAN TEMPORARY, IN THE VALUE OF A LO NG TERM INVESTMENT, THE CARRYING AMOUNT IS REDUCED TO RECOGNISE THE DECLINE. INDICAT ORS OF THE VALUE OF AN INVESTMENT ARE OBTAINED BY REFERENCE TO ITS MARKET VALUE, THE I NVESTEE'S ASSETS AND RESULTS AND THE EXPECTED CASH FLOWS FROM THE INVESTMENT. THE TY PE AND EXTENT OF THE INVESTOR'S STAKE IN THE INVESTEE ARE ALSO TAKEN INTO ACCOUNT. RESTRICTIONS ON DISTRIBUTIONS BY THE INVESTEE OR ON DISPOSAL BY THE INVESTOR MAY AFFECT THE VALUE ATTRIBUTED TO THE INVESTMENT. FROM THE ABOVE, IT IS APPARENT THAT INVESTMENTS ARE TO BE CARRIED AT COST. IF THERE IS DECLINE IN VALUE, THE SAME NEEDS TO BE PROVIDED. HOWEVER, IF THE FAIR VALUE/MARKET PRICE IS HIGHER, SUCH HIGHER VALUE CAN NOT BE ACCOUNTED FOR. THE PRINCIPAL OF CONSERVATIVE ACCOUNTANCY IS FOLLOWED. ITA NO. 2252/DEL/2018 20 FAIR VALUE IS DIFFERENT FROM COST. FAIR VALUE AS DEFINED IN PARA 3.5 OF AS-13 IS AS UNDER 3.5 FAIR VALUE IS THE AMOUNT FOR WHICH AN ASSET COU LD BE EXCHANGED BETWEEN A KNOWLEDGEABLE, WITTING BUYER AND A KNOWLEDGEABLE, WITT ING SELLER IN AN ARM'S LENGTH TRANSACTION. UNDER APPROPRIATE CIRCUMSTANCES , MARKET VALUE OR NET REALISABLE VALUE PROVIDES AN EVIDENCE OF FAIR VALUE . FROM THE ABOVE, IT IS EVIDENT THAT COST AND FAIR VALUE ARE DIFFERENT THINGS AND AS PER THE ACCOUNTING STANDARD INVESTMENTS ARE TO B E CARRIED, AT COST AND NOT AT FAIR VALUE (UNLESS THERE IS DECLINE IN VALUE AS C OMPARED TO COST). THE FACT THAT THE ASSESSEE IS CARRYING THE INVESTMENTS AT PAIR V ALUE AND NOT AT COST IS UNDISPUTED AND HAS BEEN ADMITTED BY THE ASSESSEE CO MPANY ITSELF. HOWEVER, THE AFORESAID TREATMENT OF STATING THE INV ESTMENT AT FAIR MARKET VALUE IS CONTRARY TO ASSESSEE COMPANYS OWN ACCOUNTING PO LICY STATED IN PARA C OF NOTE NO.1 OF ITS FINANCIAL STATEMENTS WHEREIN IT HAS BEE N STATED THAT :- LONG TERM INVESTMENTS ARE CARRIED AT COST AND PROVI SION IS MADE TO RECOGNIZE ANY DECLINE OTHER THAN TEMPORARY FURTHER AS PER PARA 21 OF AS-13, ON DISPOSAL OF INV ESTMENTS, THE DIFFERENT BETWEEN THE CARRYING AMOUNT AND THE DISPOSAL PROCEE DS, NET OF EXPENSES, IS RECOGNIZED IN THE PROFIT AND LOSS STATEMENT. THUS, THE COMBINED EFFECT OF PARAS 17 AND 21 OF AS-13 IS THAT DIFFERENCE OF SALE PROCEED S OF INVESTMENT AND COST THEREOF HAS TO BE RECOGNIZED IN THE P & L A/E, THUS , THE ASSESSEE HAS NOT EVEN FOLLOWED THE ACCOUNTING TREATMENT REQUIRED TO BE FO LLOWED AS PER AS-13. IF THE ASSESSEE HAD CORRECTLY FOLLOWED THE ACCOUNTING TREA TMENT AS PER AS-13, THEN DIFFERENCE OF 'SALE PROCEEDS OF INVESTMENT AND CO ST THEREOF (AND NOT THE FAIR MARKET VALUE) WOULD HAVE BEEN RECOGNIZED IN THE PRO FIT & LOSS A/C. IV. ADOPTION OF DIFFERENT COSTS OF ACQUISITION BY THE ASSESSEE FOR THE PURPOSE OF COMPUTING CAPITAL GAINS U/S 10(38) AND BOOK PROFIT U/S 115JB : IN TERMS OF PROVISION OF SUB-SECTION(E) OF CLAUSE (III) OF SUB- SECTION (1) OF SECTION 49 OF THE ACT, THE COST OF INVESTMENT (SHARE) WHICH IS TO BE CONSIDERED AS COST TO THE PREVIOUS OWNER I.E. AMALGAMATING COMPANY. THE COST OF ANY ASSET CANNOT BE DIFFERENT FOR DIFFERENT PURPOSE. WHILE COMPUTING BOOK PROFIT AND CAPITAL GAIN U/S 10(38), THE ASSESSEE IS ADOPTING DIFFERENT COSTS OF ACQUISITION. THE CLAI M OF ASSESSEE APPEARS TO BE THAT COST OF ACQUISITION IN TERMS OF PROVISION OF SECTIO N 49(3) (I.E. COST TO THE PREVIOUS OWNER) IS APPLICABLE ONLY FOR THE PURPOSE OF COMPU TATION OF CAPITAL GAIN. IF WE GO BY THIS LOGIC, THE EXEMPTION FROM DEFINITION OF THE WORD TRANSFER AS PROVIDED ITA NO. 2252/DEL/2018 21 IN SUB-SECTION (VI) OF SECTION 47 WILL ALSO APPLY O NLY IN RESPECT OF COMPUTATION OF CAPITAL GAIN AND NOT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT. AS PER THIS ARGUMENT, THE ENTIRE APPRECIATION RECORDED IN THE B OOKS OF ACCOUNTS AS ON APRIL 1 2012 POST AMALGAMATION, WOULD BECOME TAXABLE FOR TH E PURPOSE OF COMPUTATION OF BOOK PROFIT* U/ S 115JB. V. CLAUSE (J) OF EXPLANATION 1 TO SECTION 115JB NOT AP PLIED BY THE ASSESSEE WHILE COMPUTING BOOK PROFIT : AS PER CLAUSE (J) OF EXPLANATION 1 TO SECTION 115JB , THE FOLLOWING IS TO BE ADDED TO BOOK PROFIT. (J) THE AMOUNT STANDING IN REVALUATION RESERVE RELA TING TO REVALUED ASSET ON THE RETIREMENT OR DISPOSAL OF SUCH ASSET. THE ADOPTION OF FAIR MARKET VALUE OF THE INVESTMENT S AS ON APRIL V 2012 IS NOTHING BUT REVALUATION OF THE INVESTMENTS. MERELY, THE CREDIT OF INCREASE IN VALUE TO SECURITIES PREMIUM ACCOUNT* AND NOT TO THE REV ALUATION RESERVE (AS PRESCRIBED BY AS-14) WOULD NOT ALTER THE TRUE CHARA CTER AND SUBSTANCE OF THE EVENT. THE REVALUATION* IS NOT CONFINED TO ONLY L AND 8S BUILDINGS BUT CAN BE IN RESPECT OF ANY ASSET AND INVESTMENT IN SHARES IS ON E OF THEM. THE SIMILAR ISSUE WAS CONSIDERED BY THE ITAT, MUMBA I IN THE CASE OF M/S SUMER BUILDERS PVT. LTD. VS. DOT CENTRAL CIRCLE-36, MUMBA I (ITA NOS. 2512, 13 & 14/ MUM/2009)'. IN THIS CASE, THE ASSESSEE HAD SOLD SHA RES AT A PROFIT OF RS,30.80 LACS. THE AO NOTICED THAT ASSESSEE HAS NOT ROUTED THESE T RANSACTIONS THROUGH P 8S L ACCOUNT AND HAD DIRECTLY CREDITED THE PROFIT TO CAP ITAL RESERVE ACCOUNT. THE ASSESSEE ARGUED THAT THIS AMOUNT DOES NOT REPRESENT REGULAR RECEIPT AND AS PER THE ACCOUNTING METHOD FOLLOWED BY THEM SUCH RECEIPT ON SALE OF INVESTMENTS WERE DIRECTLY CARRIED TO THE BALANCE SHEET, THAT HI S BOOKS WERE SUBJECT TO STATUTORY AUDIT AND PROFIT & LOSS A/C WERE DULY CER TIFIED BY THE AUDITORS AND SO THE AO HAD NO JURISDICTION TO GO BEHIND THE NET PRO FIT SHOWN IN THE PROFIT 8S LOSS A/C EXCEPT TO THE EXTENT PROVIDED UNDER EXPLANATION 2 SUB-SECTION (2) OF SECTION 115JB. THE ASSESSEE HAD FURTHER SUBMITTED THAT ITS ACCOUNTS WERE APPROVED IN THE AGM, THE PROFIT & LOSS A/C AND BALANCE SHEET WERE F ILED BEFORE THE ROC. THE ITAT IN THIS CASE OF M/S SUMER BUILDERS PVT LT D. VS. DCIT CENTRAL CIRCLE- 36 DULY CONSIDERED THE JUDGEMENTS IN THE CASES OF APO LLO TYRES, AKSHAY TEXTILE AND NJ JOSS AND CO. AND HELD THAT: NOW, WHO IS GOING TO CHECK THIS ASPECT? OBVIOUSLY, T HE REGISTRAR OF COMPANIES IS NOT CONCERNED WITH THESE ASPECTS WHETHER ACCOUNTS ADOPT ED FOR THE PREVIOUS YEAR ARE SAME OR NOT BECAUSE THE REGISTRAR OF COMPANIES AT BES T IS CONCERNED WHETHER THE ACCOUNTS ADOPTED AND LAID BEFORE THE ANNUAL GENERAL MEETING ARE IN ACCORDANCE ITA NO. 2252/DEL/2018 22 WITH THE REQUIREMENTS OF PART II AND PART III OF SC HEDULE VI OF THE COMPANIES ACT, 1956. THEREFORE, IN VIEW OF THESE ENLARGED REQUIREM ENTS, WE ARE OF THE VIEW THAT AO HAS POWERS TO GO BEHIND THE ACCOUNTS AND SEE WHETHE R SAME HAVE BEEN PREPARED IN ACCORDANCE WITH THE REQUIREMENTS OF PART IT AND PAR T III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. IN THE CASE OF CIT VS. VEE KAY LAI CO. PUT. LTD' I T WAS OBSERVED THAT THE IMPORTANT THING IS TO BE NOTED THAT WHILE CALCULATING THE TOT AL INCOME UNDER THE ACT, THE ASSESSEE IS REQUIRED TO TAKE INTO ACCOUNT INCOME BY WAY OF CAPITAL GAINS U/S 45 OF THE I.T. ACT. IN THE CIRCUMSTANCES, ONE FAILS TO UN DERSTAND AS TO HOW IN COMPUTING THE BOOK PROFIT UNDER THE COMPANY ACT, THE ASSESSEE COMPANY CANNOT CONSIDER CAPITAL GAINS FOR THE PURPOSE OF COMPUTING BOOK PRO FIT U/S 115J OF THE ACT. VII. THE CLAUSE 2 OF PART II OF SCHEDULE VI OF THE COMPANIES ACT MAKES IT CLEAR THAT PROFIT FROM INVESTMENTS WERE REQUIRED TO BE CREDITE D TO THE REVENUE ACCOUNT APART FROM ABOVE EVEN AS PER ACCOUNTING STANDARDS 1 3 WHICH DEALS WITH ACCOUNTING FOR INVESTMENT RECOMMENDED WHILE PARA-34 REPRODUCED AS UNDER : 34, DISPOSAL OF INVESTMENTS ON DISPOSAL OF AN INVESTMENT, THE DIFFERENCE BETWEEN THE CARRYING AMOUNT AND NET DISPOSAL PROCEEDS SHOULD BE CHARGED OR CREDITED TO T HE PROFIT AND LOSS STATEMENT. THUS PARA 34 OF THE AS-13 MAKES IT CLEAR THAT PROFI TS FROM INVESTMENT HAVE TO BE CREDITED TO THE PROFIT AND LOSS ACCOUNT. AS OBSERV ED EARLIER SECTION 115JB MANDATE THAT ANNUAL ACCOUNTS MUST BE PREPARED IN AC CORDANCE WITH THE ACCOUNTING POLICIES AND ACCOUNTING STANDARDS WHICH HAVE BEEN FOLLOWED FOR PREPARING ACCOUNTS WHICH WERE LAID BEFORE THE COMPA NY FOR ANNUAL GENERAL MEETING. VIII. IN THE LAST, IT WAS OBSERVED BY THE HONBLE I TAT MUMBAI IN THE CASE OF SUMER BUILDERS THAT IN THIS CASE THE ASSESSEE HAD EARNED CERTAIN PROFIT ON SALE OF SHARES AND ON SOME INDUSTRIAL UNITS WHICH HAVE NOT BEEN CR EDITED TO THE P&L ACCOUNT, WHICH IS CONTRARY TO THE SIGNIFICANT ACCOUNTING POL ICY OF THE ASSESSEE ITSELF AS WELL AS AGAINST THE REQUIREMENTS OF AS 13 AND REQUIREMEN TS OF PART 28G PART 3 OF SCHEDULE 6 OF THE COMPANYS ACT. THEREFORE THE AO H AS RIGHTLY BROUGHT THESE ITEMS TO TAXATION UNDER THE MAT PROVISION OF SECTIO N 115JB. 16. ASSESSMENT ORDER DATED 02-01-2016 PASSED BY THE A.O . IS ERRONEOUS SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE : A. THE ORDER PASSED BY THE AO IS ERRONEOUS SO FAR A S IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. THE A.O HAS PASSED THE ORDER I N A CASUAL AND HURRIED MANNER. THE ASSESSMENT ORDER PASSED IS OF LESS THAN HALF A PAGE. IN THE ASSESSMENT ORDER, NO ISSUE IS DISCUSSED AND THE RETURNED INCOME OF TH E ASSESSEE IS ACCEPTED. THOUGH ITA NO. 2252/DEL/2018 23 THE FACT OF AMALGAMATION IS MENTIONED IN THE ASSESS MENT ORDER, YET SEVERAL ISSUES PARTICULARLY THE TAX IMPLICATION OF AMALGAMATION IS NOT AT ALL DISCUSSED. FURTHER, THE ISSUE OF APPLICABILITY OF SECTION 10(38)S PROV ISO RELATING TO THE INCLUSION OF CAPITAL GAIN IN THE HOOK PROFITS U/S 115JB IS NOT EXAMINED AT ALL. THOUGH VARIOUS DETAILS WERE INDEED CALLED BY THE AO, YET THE CORE ISSUE OF TAX IMPLICATION OF THE AMALGAMATION, PARTICULARLY THE TREATMENT TO THE LTC G IS NOT AT ALL TOUCHED/ EXAMINED BY THE AO. THUS THE ASSESSMENT ORDER DATED 02-01-2016 PASSED BY THE AO IS DEFINITELY ERRONEOUS. B. FURTHER, THE ASSESSMENT ORDER PASSED BY THE AO IS SIMULTANEOUSLY PREJUDICIAL TO THE INTEREST OF REVENUE. AS DISCUSSE D SEPARATELY, 1 CRORE SHARES OF HCL TECHNOLOGY LTD(HEREIN AFTER REFERRED TO AS HCL TECH.) ARE SOLD ON 04-05- 2012 AND RESULTANT LTCG OF RS.491.70 CRORES APPROX. AROSE WHICH WERE CLAIMED AS EXEMPT UNDER SECTION 10(38) OF THE ACT. HOWEVER, WHILE CALCULATING THE LTCG FOR MAT PURPOSE, THE ASSESSEE CHANGED THE HISTORICA L COST OF HCL TECH. SHARES FROM RS.6.50 TO RS.790.00 PER SHARE EACH IN THE GAR B OF RESTATING THE VALUE OF INVESTMENT (OF SHARES) AT FAIR MARKET VALUE. IN THI S MANNER, THE ASSESSEE INSTEAD OF SHOWING THE LTCG AT RS.491.70 CR, SHOWED RS.292 CR. LONG TERM CAPITAL LOSS AND CONSEQUENTLY DID NOT PAY MAT ON LTCG OF RS.491. 70 CR. ACCORDINGLY THERE WAS HUGE LOSS TO THE REVENUE ON ACCOUNT OF NON-PAYM ENT OF MAT ON LTCG OF RS.491.70 CRORES. THUS, THE ASSESSMENT ORDER PASSED BY THE AO IS PREJUDICIAL TO THE INTEREST OF REVENUE. FURTHER, AS PER EXPLANATIO N 2 TO SECTION 263(1) (W.E.F. 01- 06-2015), AN ORDER PASSED BY THE AO SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IF IN THE OPINION OF THE CIT/PR. CIT, THE ASSESSMENT ORDER IS PASSED BY THE AO : (I) WITHOUT MAKING ENQUIRIES OR VERIFICATION, WHIC H SHOULD HAVE BEEN MADE; (II) ALLOWING ANY RELIEF WITHOUT INQUIRING INTO TH E CLAIM; C. THUS, W.E.F. 01-06-2015, THE OPINION OF THE CIT /PR.CIT WHO IS USUALLY THE REVIEWING OFFICER OF THE WORK DONE BY THE AOS, HAS BECOME MORE RELEVANT/IMPORTANT. HOWEVER, THE OPINION AT THIS ST AGE SHOULD BE PRIMA-FACIE REASONABLE AND LOGICAL. IF AN ORDER PASSED BY THE A O IS SET ASIDE AND THE AO IS DIRECTED TO DO THE ORDER AFRESH, THEN NORMALLY NO P REJUDICE /INJUSTICE IS CAUSED TO THE ASSESSEE, AS DURING THE FRESH ASSESSMENT PROCEE DINGS, DUE OPPORTUNITY OF BEING HEARD AND REPRESENTING THE CASE IS ALLOWED TO THE ASSESSEE. FURTHER, IF THE ORDER IS SET ASIDE, THEFT THE DEMAND RAISED VIDE TH E ORIGINAL ASSESSMENT ORDER ALSO NO LONGER REMAINS ENFORCEABLE ON THE ISSUE, WHICH I S SET-ASIDE BY CIT/PCIT. D. CONSIDERING THE FACTS DISCUSSED ABOVE, IT IS CLE ARLY A FIT CASE FOR INVOKING SECTION 263 PROCEEDINGS. 17. APPLICABILITY OF PROVISO TO SECTION 10(38) OF T HE INCOME TAX ACT. 1961: ITA NO. 2252/DEL/2018 24 IF NON-PAYMENT OF TAX DUE UNDER MAT PROVISIONS IS A LLOWED, AS HAS BEEN DONE ATTEMPTED BY THE ASSESSEE COMPANY AND ALLOWED IN TH E ASSESSMENT ORDER, THEN MOST OF THE COMPANIES IN SUCH SITUATIONS WOULD FOLL OW THIS QUESTIONABLE ROUTE TO AVOID TAXES AND WILL NOT PAY TAXES. THEN, EVERY SUC H COMPANY WOULD AMALGAMATE IN ONE OF ITS SISTER CONCERNS, WILL REVALUE/ RESTAT E ITS ASSETS INCLUDING INVESTMENTS AT FAIR MARKET VALUE (FMV) AND IN THE PROCESS WOULD AVOID PAYMENT OF DUE TAXES. IN SUCH SITUATION, THE PROVISO TO SECTION 10(38) WO ULD BECOME INFRUCTUOUS/INEFFECTIVE. HOWEVER, PRESENTLY IN THE CASES OF AMALGAMATION, TH E COMMENTS OF THE INCOME TAX DEPARTMENT ARE ALSO SOUGHT, AND THE DEPARTMENT OPPOSES SUCH FRAUDULENT SCHEMES, WHICH ARE DESIGNED TO AVOID PAYMENT OF DUE TAXES. FURTHER, WITH THE PROPOSED INTRODUCTION OF GAAR PROVISIONS, SUCH FRAU DULENT SCHEMES COULD BE TACKLED. 18. FURTHER THE FOLLOWING POINTS ARE ALSO RELEVANT IN T HE PRESENT CASE : A) SALE OF SHARES : AS DISCUSSED EARLIER, THE ASSES SEE ON 04-05-2012 SOLD 1 CRORE SHARES OF M/S HCL TECH. FOR RS.500 CR APPX. AND IN THIS WAY, PART OF ITS LONG TERM INVESTMENT IS CONVERTED INTO CASH ON 04-05-2012, FU RTHER, THE TAX LIABILITY ALSO ARISES ON ACCOUNT OF THIS TRANSACTION ON 04-05-2012 ITSELF WHEREAS THE SOA WAS SUBMITTED BEFORE THE HONBLE HIGH COURT AS LATE AS ON 19-09- 2012. EVEN THE FIRST ACTION TOWARDS AMALGAMATION WAS STARTED AS LATE AS ON 30-08-2012 BY TAKING APPROVAL THE SCHEME BY THE SHAREHOLDERS OF THE THRE E COMPANIES. AS SATED EARLIER, ALL THESE MATERIAL FACTS WERE DELIBERATELY HIDDEN F ROM THE HONBLE COURT AS WELL AS FROM THE ROC, THUS THE ASSESSEE HAS VIOLATED THE PR OVISO TO SECTION 391(2) OF THE COMPANIES ACT. B) IF SUCH TYPE OF INGENIOUSLY DESIGNED COURSES OF ACTIONS/ TRANSACTIONS/STANDS TAKEN BY THE ASSESSEE ARE ACCEPTED & ALLOWED THEN T HE PROVISO TO SECTION 10(38) OF THE ACT WOULD LOSE ITS RELEVANCE AS IN MOST OF S UCH CASES, THE COMPANY WOULD DRAFT SIMILAR AMALGAMATION SCHEMES TO AVOID PAYMENT S OF DUE TAX UNDER MAT PROVISION C) AS DISCUSSED EARLIER, THE STATUTORY AUDITOR HAS POI NTED OUT THE DEVIATION BY THE ASSESSEE FROM AS 14 IN RESPECT OF CREATION OF SECURITY PREMIUM RESERVE BY THE ASSESSEE INSTEAD OF CREATION OF CAPITAL RESERVE . THE CAPITAL RESERVES ARE THE RESERVES CREATED OUT OF TH E PROFIT EARNED NOT IN THE NORMAL COURSE OF BUSINESS AND IN THE PROCESS CAPITA L EMPLOYED IN THE BUSINESS IS INCREASED PERMANENTLY. THE CAPITAL RESERVES ARE NOT AVAILABLE FOR THE PAYMENT OF DIVIDENDS, HOWEVER LIABILITIES AND LOSSES OF CAPITA L NATURE CAN BE MET FROM THESE. THE PRESENT CASE ALSO FALLS IN THE CATEGORY OF CREA TION OF CAPITAL RESERVES. THUS THE CAPITAL RESERVES ARE THOSE RESERVES WHICH ARE N OT CREATED OUT OF OPERATING PROFIT. IN OTHER WORDS, THESE RESERVES ARE CREATED OUT OF CAPITAL PROFITS. FOR ITA NO. 2252/DEL/2018 25 EXAMPLE PROFIT ON SALE OF CAPITAL ASSET OR REVALUAT ION OF FIXED ASSETS IS CAPITAL PROFITS WHICH ARE GENERALLY NOT AVAILABLE FOR DISTR IBUTION AMONG THE SHAREHOLDERS OF THE COMPANY. THE SECURITY PREMIUM RESERVES AND R EVALUATION RESERVES ARE ALSO TYPE OF CAPITAL RESERVES ONLY. SECURITY PREMIU M RESERVE IS ONLY CREATED WHEN THE SHARES ARE ISSUED ON PREMIUM. IN BROAD TER MS THE ASSETS ALSO INCLUDE INVESTMENTS AND THE ASSESSEES CASE IN A REAL SENSE MAY BROADLY FALL IN THE CATEGORY OF REVALUATION RESERVE. D) FURTHER, LOGICALLY SPEAKING, HISTORICAL COST CA NNOT BE CHANGED IN THE GARB OF FOLLOWING SOME SCHEME OR ACCOUNTING STANDARDS. THE ACQUISITION COST REMAINS THE SAME AND IT CANNOT BE CHANGED FOR DIFFERENT PURPOSE S. HERE IT IS A INCONTROVERTIBLE FACT THAT THE SHARES OF M/S HCL TECH. WERE ACQUIRED /HELD BY M/S SLOCUM AT THE COST OF RS.6.50 PER SHARE. THE ASSESSEE HIMSELF HAS CALCULATED THE LTCG FOR INCOME TAX PURPOSE ON THIS BASIS ONLY. HOWEVER, FOR CALCULATING THE HOOK PROFIT, THE ASSESSEE HAS CONVENIENTLY CHANGED THIS COST OF RS.6.50 TO RS.79Q.00 PER SHARE IN THE GARB OF FOLLOWING SOA/AS14, BUT CURIOUSLY, I T HAS NOT FOLLOWED AS 14 IN TOTO AND NOT CREDITED THE DIFFERENCE TO CAPITAL RESERVE AS MANDATED BY AS 14. THIS IS A BLATANT ATTEMPT TO EVADE INCOME TAX. E) LET US CONSIDER A SCENARIO WHEREIN NO AMALGAMAT ION WAS DONE. IF THAT BE SO, THEN THE AMALGAMATING COMPANIES WERE LIABLE TO PAY TAX (MINIMUM ALTERNATE TAX U/S 115JB OF THE INCOME TAX ACT. 1961). IN COMPUTIN G THE BOOK PROFIT U/S 115JB, THE LTCG U/S 10(38) IS TO BE ADDED TO THE BOOK PROF IT. IF THE ASSESSEE CHOOSES TO NOT ROUTE THE TRANSACTION THROUGH THE P&L ACCOUNT, EVEN IN THAT CASE THE ASSESSEE IS LIABLE TO PAY MINIMUM ALTERNATE TAX ( VEEKAYLAL VS. DCIT- BOMBAY HIGH COURT). F) AS PER ACCOUNTANCY, THE DIFFERENCE IN HISTORICA L COST AND THE SALE PRICE IS THE AMOUNT OF PROFIT ACCRUING ON ACCOUNT OF SALE OF INV ESTMENT. THIS IS THE AMOUNT WHICH IS TO BE CREDITED TO THE P&L ACCOUNT OF THE A SSESSEE. NORMALLY ALL ASSESSEES FOLLOW THIS BASIC RULE OF ACCOUNTANCY. BUT IN THE P RESENT CASE, THE ASSESSEE HAS INCREASED THE COST OF ACQUISITION IN AN ARTIFICIAL MANNER. THE DIFFERENCE BETWEEN HISTORICAL COST AND THE MARKET COST (DUE TO REVALUA TION) HAS NOT BEEN CREDITED TO THE P&L ACCOUNT OF THE ASSESSEE OR OF ANY AMALGAMAT ING COMPANY. IN THIS WAY, THE ASSESSEE HAS EVADED TAX. THE ASSESSEE HAS ONLY CRED ITED THE AMOUNT OF DIFFERENCE BETWEEN THE SALE PRICE AND THE REVALUED PRICE OF TH E INVESTMENT(SHARES OF M/S HCL TECH.). G) IT IS AN ESTABLISHED PRINCIPLE THAT IN CASE OF CONFLICT BETWEEN ACCOUNTING STANDARD/ ACCOUNTING POLICY AND THE PROVISION OF LA W, THE LATER WOULD PREVAIL OVER THE FORMER. THE ACCOUNTANCY CANNOT EXTINGUISH THE T AX LIABILITY OF ANY ASSESSEE. AT THE MOST THE LIABILITY TO PAY TAXES EITHER GETS PRE PONED OR POSTPONED BUT IT NEVER GETS EXTINGUISHED. ITA NO. 2252/DEL/2018 26 H) LET US CONSIDER A SITUATION WHEREIN THE ASSESSEE HAD ADOPTED THE ACCOUNTING AS PER THE POOLING OF INTEREST METHOD. IN THAT CASE , THE INVESTMENTS WOULD HAVE BEEN STATED AT THE HISTORICAL COST IN THE BOOKS OF THE AMALGAMATED ENTITY. BY THAT METHOD THE ASSESSEE WAS LIABLE TO PAY MAT U/S. 115J B ON THE TOTAL AMOUNT OF LONG TERM CAPITAL GAIN OF RS.491.70 CRORES. BY REVALUING(RESTATING) THE HISTORICAL COST AND TAK ING THE REVALUED COST AS THE COST OF ACQUISITION BY THE AMALGAMATED ENTITY, THE ASSES SEE HAS SOUGHT TO EXTINGUISH THE ENTIRE TAX LIABILITY U/S 115JB. NEITHER THE AMA LGAMATING ENTITIES NOR THE AMALGAMATED ENTITY HAS PAID ANY TAX ON THE AMOUNT O F ACTUAL GAIN (DIFFERENCE BETWEEN THE HISTORICAL COST AND THE SALE PRICE). NO METHOD OF ACCOUNTING CAN ALLOW THE NON PAYMENT OF TAXES. LAW IS EQUITABLE AN D APPLIES TO DIFFERENT ENTITIES. IN THE PRESENT CASE, THE ASSESSEE CLAIMS A DIFFEREN TIAL TREATMENT THAN THE OTHERS ON ACCOUNT OF AMALGAMATION AND ON ACCOUNT OF CHOOSI NG OF PURCHASE PRICE METHOD (FOR AMALGAMATION). (I) THE ASSESSEE DID NOT SUBMIT A REPORT, WHICH IT WAS REQUIRED TO SUBMIT U/S 115JB(4) OF THE ACT. 19. FIT CASE FOR INVOKING THE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT. 1961 : A. CONSIDERING THE FACTS DISCUSSED ABOVE IN DETAIL, IT IS FOUND TO BE A FIT CASE FOR INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. AS DISCUSSED EARLIER, THE AO WHILE PASSING THE ORIGINAL ASSESSMENT ORDER DATED 0 2-01-2016 HAS FAILED TO EXAMINE THE AMALGAMATION SCHEME FROM THE TAXATION A NGLE AND PARTICULARLY THE ISSUE OF TAXING/TAXATION OF LTCG EARNED BY THE ASSE SSEE ON SALE OF SHARES OF HCL TECH. FOR MAT PURPOSES. FURTHER, IN THE PROCESS OF THE COMPUTATION OF TAX DUE ON THE LTCG OF RS.491.70 CRORES WHICH SHOULD HAVE BEEN CONSIDERED FOR BOOK PROFIT WHILE CALCULATING THE MAT LIABILITY HAS NOT BEEN DONE IN THIS CASE. THUS THE ASSESSMENT ORDER PASSED BY THE AO ON 12-01-2016 IS SIMULTANEOUSLY ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF R EVENUE. FURTHER AS PER THE EXPLANATION 2 TO SECTION 263(1), EFFECTIVE FROM 1 ST JUNE, 2015, AN ORDER PASSED BY THE AO IS DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE IF IN THE OPINION OF THE PR. CIT/CIT(A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES/VERIFICATION WHICH SHOULD HAVE BEEN MADE (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQUIRING INTO THE CLAI M. B. THUS, IN THE OPINION OF THE UNDERSIGNED, THE AS SESSMENT ORDER DATED 02-01- 2016 WAS PASSED BY THE AO ALLOWING THE RELIEF FROM THE MAT PROVISION WITHOUT INQUIRING INTO THE CLAIM OF LTCG OF THE ASSESSEE. A CCORDINGLY, THE UNDERSIGNED HAS NO CHOICE BUT TO SET-ASIDE THE ASSESSMENT ORDER DAT ED 02-01-2016 PASSED BY THE AO ON THE ISSUE DISCUSSED ABOVE. ITA NO. 2252/DEL/2018 27 C. RELIANCE IS ALSO PLACED UPON THE FOLLOWING DECI SIONS WITH REGARD TO VALIDITY OF PROCEEDINGS U/S 263 OF THE ACT: I) HONBLE SUPREME COURT IN THE CASE OF DENIEL MERCHAN TS PVT. LTD. VS. ITO (APPEAL NO. 2396/20171 DATED 29.11.2017. IN THIS GROUP OF CASES, HONBLE SUPREME COURT HAS D ISMISSED SLPS IN CASES WHERE AO DID NOT MAKE ANY PROPER INQUIRY WHILE MAKING THE ASSESSMENT AND ACCEPTING THE EXPLANATION OF THE ASSESSEE(S) INSOFAR AS RECEI PT OF SHARE APPLICATION MONEY IS CONCERNED. ON THAT BASIS THE COMMISSIONER OF INCOME TAX HAD, AFTER SETTING ASIDE THE ORDER OF THE ASSESSING OFFICER, SIMPLY DIRECTED THE ASSESSING OFFICER TO CARRY THOROUGH AND DETAILED INQUIRY. II) MALABAR INDUSTRIAL CO. LTD. VS C1T F20001 109 TAXMAN 66 1SC17120001 243 ITR 83 (SC)/R20001 159 CTR 1 (SC) ( COPY ENCLOSED) WHERE HON'BLE SUPREME COURT HELD THAT WHERE ASSESSI NG OFFICER HAD ACCEPTED ENTRY IN STATEMENT OF ACCOUNT FILED BY ASSESSEE, IN ABSENCE OF ANY SUPPORTING MATERIAL WITHOUT MAKING ANY ENQUIRY, EXERCISE OF JU RISDICTION BY COMMISSIONER UNDER SECTION 263(1) WAS JUSTIFIED. III) RAIMANDIR ESTATES (P) LTD VS PCIT [20171 77 TA XMANN.COM 285 (SC)/(2017) 245 TAXMAN 127 (SC) HONBLE SUPREME COURT HAS DISMISSED SLP AGAINST HIG H COURT'S RULING THAT WHERE ASSESSEE WITH A SMALL AMOUNT OF AUTHORISED SHARE CA PITAL, RAISED HUGE SUM ON ACCOUNT OF PREMIUM, EXERCISE OF REVISIONARY POWERS BY COMMISSIONER OPINING THAT THIS COULD BE A CASE OF MONEY LAUNDERING WAS J USTIFIED. 20. IN VIEW OF THE FACTS DISCUSSED ABOVE, THE UNDER SIGNED SETS ASIDE THE ASSESSMENT ORDER DATED 02-01-2016 PASSED BY THE AO ON THE ISSUES DISCUSSED ABOVE AND DIRECTS THE AO TO PASS THE ASSESSMENT ORD ER AFRESH AFTER ALLOWING THE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5. AGGRIEVED FROM THE ABOVE REVISION ORDER, THE ASS ESSEE HAS COME UP IN THIS APPEAL BEFORE US. 6. DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE, APART FROM MAKING ORAL ARGUMENTS, ALSO FILED A DETAILED WRITTE N SYNOPSIS, WHICH READS AS UNDER : ITA NO. 2252/DEL/2018 28 2. M/S. SLOCUM INVESTMENTS (DELHI) PRIVATE LIMIT ED AND M/S. SHIV KIRAN INVESTMENTS (DELHI) PRIVATE LIMITED (IN SHORT AMALGAMATING COMPANIES ) STOOD MERGED/ AMALGAMATED WITH THE ASSESSEE-COMPANY , PURSUANT TO SCHEME OF AMALGAMATION UNDER SECTIONS 391-394 OF THE COMPA NIES ACT, 1956 (COMPANIES ACT ), W.E.F. THE APPOINTED DATE OF 1.4.2012 BY WAY OF PURCHASE, WHICH WAS APPROVED BY THE HONBLE PUNJAB AND HARYAN A HIGH COURT VIDE ORDER DATED 31ST JANUARY 2013 AND FILED WITH THE REGISTRAR OF COMPANIES ( ROC ) ON 22ND MARCH, 2013, BEING THE EFFECTIVE DATE. [R EFER PAGES 60 TO 101 OF THE PAPER BOOK], 3. IN TERMS OF THE SCHEME, THE BUSINESS OF THE AMAL GAMATING COMPANIES CARRIED ON BY THE AMALGAMATING COMPANIES FOR AND ON BEHALF OF APPELLANT (THE AMALGAMATED COMPANY) STOOD LEGALLY VESTED IN THE AP PELLANT, W.E.F. 1ST APRIL, 2012. THE MAIN OBJECTIVE OF AMALGAMATION WAS TO CON SOLIDATE THREE INVESTMENT COMPANIES, REDUCE NUMBER OF ENTITIES IN THE GROUP, AND REDUCE ADMINISTRATIVE COSTS AND REGULATORY COMPLIANCES, CE NTRALIZED TREASURY OPERATIONS AND IMPROVED CAPITAL STRUCTURE. EFFECT OF AMALGAMATION 4. AS PER THE MANDATE OF THE SCHEME OF AMALGAMATIO N DULY APPROVED/ SANCTIONED BY THE HON'BLE PUNJAB & HARYANA HIGH COURT AND ACCOUNTING STANDARD -14 (' AS-14') ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAT): (A) THE ASSETS, INCLUDING INVESTMENTS IN HCL TECH WERE RECORDED AT FAIR VALUES (WHICH WAS DETERMINED BY THE THREE INDEPENDE NT VALUERS), BY FOLLOWING PURCHASE METHOD, AS PART OF THE SCHEME OF AMALGAMAT ION [REFER PARA 6.1]; (B) THE DIFFERENCE BETWEEN THE FAIR VALUE OF THE NE T ASSETS OF THE AMALGAMATING COMPANIES ACQUIRED PURSUANT TO MERGER, WAS CREDITED TO SECURITIES PREMIUM ACCOUNT [REFER PARA 6.4 ], 5. DURING THE RELEVANT PREVIOUS YEAR, 1 CRORE SHAR ES OF HCL TECH WERE SOLD AT RECOGNIZED STOCK EXCHANGE FOR TOTAL CONSIDERATIO N OF RS.498,17,63,996 AFTER PAYMENT OF SECURITIES TRANSACTION TAX (IN SHORT ST T) THEREON. 6. UNDER THE NORMAL PROVISIONS OF THE ACT, LONG-TE RM CAPITAL GAINS OF RS.491.67.63,996 (BEING THE DIFFERENCE BETWEEN SALE C ONSIDERATION OF RS.498,17,63,996 AND ORIGINAL PURCHASE COST OF RS.6 ,50,00,000 IN THE HANDS OF THE AMALGAMATING COMPANY) WAS CLAIMED BY THE APPELL ANT AS EXEMPT FROM TAX UNDER SECTION 10(38) OF THE ACT. 7. IN THE BOOKS OF ACCOUNT, SINCE SHARES WERE TRAN SFERRED TO AND STOOD VESTED IN THE APPELLANT PURSUANT TO THE SCHEME, AT FAIR VALUE, (WHICH WAS ITA NO. 2252/DEL/2018 29 DETERMINED AT RS.790 PER SHARE), THE RESULTANT BOOK LOSS OF RS.291,82,36,004, WAS SHOWN AS PART OF LOSS ON DISPOSAL OF INVESTMEN TS - (NET) IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31SL MARCH. 2013. T O BE READ WITH NOTE NO.25 FORMING PART OF THE AUDITED ACCOUNTS. FOR THE PURPO SE OF COMPUTING DEEMED INCOME UNDER SECTION 115JB OF THE ACT, NET PROFIT/ LOSS AS PER AUDITED PROFIT AND LOSS ACCOUNT, WHICH INCLUDED THE AFORESAID BOOK LOSS ON SALE OF EQUITY SHARES WAS CONSIDERED, AND THE SPECIFIED UPWARD/ DO WNWARD ADJUSTMENTS, AS PRESCRIBED IN EXPLANATION 1 THERETO WERE MADE. REVISIONARY ORDER OF PR.CIT 8. IN THE IMPUGNED ORDER, THE PR.CIT HAS REVISED T HE ASSESSMENT ORDER DATED 02.01.2016 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143( 3) ON THE ALLEGED GROUND THAT THE SAME WAS ERRONEOUS IN SO FA R AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, INASMUCH AS THE ASSESSING OFFICER HAD ALLOWED RELIEF UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT IN RESPECT OF LONG-TERM CAPITAL GAINS EARNED ON SALE OF SHARES OF HCL TECHNOLOGIES LTD (IN SHORT HCL TECH) HELD BY THE APPELLANT WITHOUT MAKING NECESSARY/PROP ER ENQUIRY. 9. IN THE IMPUGNED ORDER, THE PR.CIT HAS ALLEGED T HAT: I) THE APPELLANT HAD, IN PURSUANCE OF THE MERGER, INCORRECTLY CREDITED THE SECURITIES PREMIUM ACCOUNT AS AGAINST REVALUATION R ESERVE FOR COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THIS F ACT HAS ALSO BEEN HIGHLIGHTED BY THE STATUTORY AUDITOR IN THE AUDITED FINANCIAL S TATEMENTS; II) THE SCHEME OF AMALGAMATION WAS IMPLEMENTED BY THE APPELLANT WITH THE PRIMARY INTENT OF EVADING PAYMENT OF TAX ON BO OK PROFIT AND THAT THE SCHEME OF AMALGAMATION SANCTIONED BY THE HIGH COURT IS NOT BINDING ON THE INCOME TAX AUTHORITIES AND ACCORDINGLY, BOOKS OF ACC OUNT OF THE APPELLANT ARE TO BE RE-DRAWN FOR THE PURPOSES OF COMPUTING BOOK PR OFIT UNDER SECTION 115JB OF THE ACT; III) APPLICABILITY OF PROVISO TO SECTION 10(38) OF THE ACT IN THE CASE OF THE APPELLANT, HAS NOT BEEN CONSIDERED. 10. THE PR.CIT HAS, ACCORDINGLY, SET-ASIDE THE ASS ESSMENT ORDER DATED 02.01.2016, PASSED UNDER SECTION 143(3) TO EXAMINE THE ISSUE OF TAXABILITY OF LONG TERM CAPITAL GAINS ON SALE OF SHARES OF HCL TE CH UNDER THE PROVISIONS OF SECTION 115JB READ WITH PROVISO TO SECTION 10(38) O F THE ACT. TWIN CONDITIONS TO INVOKE JURISDICTION UNDER SECTIO N 263 OF THE ACT NOT SATISFIED 11. THE AFORESAID ORDER OF THE PR.CIT EXERCISING R EVISIONARY JURISDICTION UNDER SECTION 263 OF THE ACT IS ILLEGAL AND BAD IN L AW SINCE THE PRE-REQUISITE ITA NO. 2252/DEL/2018 30 TWIN CONDITIONS FOR INVOKING JURISDICTION UNDER THE SAID SECTION HAVE NOT BEEN FULFILLED IN AS MUCH AS THE ASSESSMENT ORDER DATED 02.01.2016, IS: (A) NEITHER ERRONEOUS; NOR (B) PREJUDICIAL TO THE INTERESTS OF THE REVENUE, AS BRIEFLY SET OUT HEREUNDER: 12. RELIANCE, IN THIS REGARD, IS PLACED ON THE FOL LOWING DECISIONS: - MALABAR INDUSTRIAL CO. LTD. V. CIT: 243 ITR 83 -CIT VS. MAX INDIA LIMITED: 268 ITR 128 (P&H) [AFFO RMED IN 295 ITR 282 (SC)] - CIT V KWALITY STEEL SUPPLIERS COMPLEX: 395 ITR 1 (SC) - CIT VS. AMITABH BACHCHAN: 384 ITR 200 (SC) - CIT V. HINDUSTAN LEVER LTD: 343 ITR 161 (BOM.) - CIT V. VIKAS POLYMERS: 341 ITR 537 (DEL.) - CIT V. SUNBEAM AUTO LTD.: 332 ITR 167 (DEL) -CIT VS. DEVELOPMENT CREDIT BANK LTD: 323 ITR 206 ( BOM.) - VIMGI INVESTMENT (P) LIMITED: 290 ITR 505 (DEL) - HARI IRON TRADING CO. VS. CIT: 263 ITR 437 (P&H) - CIT VS. GABRIEL INDIA LIMITED: 203 ITR 108 (BOM). 13. IN THE PRESENT CASE, THE AFORESAID TWIN CONDIT IONS ARE NOT MET SINCE: (A) DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSI NG OFFICER CONDUCTED EXTENSIVE/ NECESSARY ENQUIRIES REGARDING THE ISSUE OF TRANSFER OF SHARES OF HCL TECH ACQUIRED AS PART OF AMALGAMATION; (B) THERE IS NO ERROR WHATSOEVER, IN THE ORIGINAL ASSESSMENT ORDER ACCEPTING THE RETURN OF INCOME FILED BY THE ASSESSEE, MORE PA RTICULARLY ON THE ISSUE OF GAIN/ LOSS ON SALE OF SHARES IN HCL TECH; (C) THE VIEW TAKEN BY THE ASSESSING OFFICER ACCEPT ING THE RETURN OF THE ASSESSEE IS, IN ANY CASE, PLAUSIBLE VIEW' IN THE EYE S OF LAW. RE (A): ASSESSMENT U/S 143(3) AFTER EXTENSIVE ENQUI RIES 14. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTIO N 143(3) OF THE ACT, THE ASSESSING OFFICER, AFTER TAKING NOTE OF VARIOUS DIS CLOSURES, CONDUCTED NECESSARY ENQUIRIES ON THE ISSUE OF SALE OF 1 CRORE SHARES IN HCL TECH AT RECOGNIZED STOCK EXCHANGE FOR TOTAL CONSIDERATION OF RS.498,17,63,99 6 AFTER PAYMENT OF STT. 15. FIRST AND FOREMOST, IT IS PERTINENT TO NOTE TH AT THE FOLLOWING DISCLOSURES WERE MADE IN THE RETURN AND THE ASSESSMENT PROCEED INGS IN RESPECT OF THE AFORESAID CLAIM, AS WOULD BE EVIDENT FROM THE FOLLOWING: A) IN THE INCOME-TAX RETURN FOR RELEVANT ASSESSMENT YEAR IN FORM ITR 6, AMALGAMATION OF THE TWO COMPANIES WITH THE APPELLAN T WAS DULY DISCLOSED UNDER THE HEAD BUSINESS ORGANIZATION - REFER PAGE 4 TO 30 OF THE PAPER BOOK; B) IN THE STATEMENT OF TAXABLE INCOME FILED DURING ASSESSMENT READ ALONG WITH LETTER DATED 04.08.2015, THE DETAILS OF BOOK LO SS ON SALE OF INVESTMENTS ITA NO. 2252/DEL/2018 31 AND THE AMOUNT CLAIMED AS EXEMPT UNDER THE NORMAL P ROVISIONS OF THE ACT WAS SEPARATELY DISCLOSED- REFER PAGES 1- 2 AND PAGES 249-251 OF THE PAPER BOOK; C) THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR E NDED 31ST MARCH, 2013, THE YEAR UNDER CONSIDERATION, CONTAINED FOLLOWING S EPARATE DISCLOSURES REFER PAGE 31 TO 49 OF THE PAPER BOOK: I) VIDE NOTE NO.8 CONTAINING DETAILS OF 'INVESTMEN T', IT WAS CLEARLY STATED VIDE SEPARATE NOTE APPENDED THERETO, '2) INVESTMENT S ACQUIRED DUE TO SCHEME OF AMALGAMATION ARE STATED AT FAIR MARKET VALUE AS ON 1ST APRIL, 2012 - - REFER PAGE 43 OF THE PAPER BOOK; II) VIDE NOTE NO. 17 OF NOTES TO THE FINANCIAL STA TEMENTS, ELABORATE NOTE ON THE SCHEME OF AMALGAMATION AND ACCOUNTING TREATMENT WAS GIVEN - REFER PAGE 46 TO 47A OF THE PAPER BOOK; III) LOSS ON SALE OF INVESTMENTS (NET) AMOUNTING T O RS.283.48 CRORES WAS SHOWN AS SEPARATE LINE ITEM IN THE PROFIT AND LOSS ACCOUNT - REFER PAGE 36 OF THE PAPER BOOK; IV) VIDE NOTE NO.25 OF NOTES TO THE FINANCIAL STAT EMENTS [REFER PAGE 48 OF THE PAPERBOOK], IT WAS CLEARLY STATED AS UNDER: 25. INVESTMENTS ACQUIRED DUE TO THE SCHEME OF AMAL GAMATION ARE STATED AT FAIR MARKET VALUE AS ON APRIL 1, 2012. LOSS ON DISP OSAL OF INVESTMENTS REPRESENTS SALE OF INVESTMENTS AT A VALUE LOWER THA N FAIR MARKET VALUE AS ON APRIL I. 2012 . 16. IT MAY BE PERTINENT TO NOTE IN THIS REGARD THAT NOTES TO ACCOUNTS ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS AND HAVE TO BE READ AS SUCH. [REFER: CIT VS. SAIN PROCESSING & WVG. MILLS (P) LTD.: 325 ITR 565; SAK INDUSTRIES VS. DCIT: WP NO. 1884/2012 (DEL)] 17. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER, CONDUCTED EXTENSIVE/ NECESSARY ENQUIRIES ON THE AFORESAID ISS UE OF SALE OF SHARES IN HCL TECH AS EXPLAINED HEREUNDER: 17.1 VIDE QUESTIONNAIRE DATED 24.06.2015 [REFER PAGES 240 TO 241 OF PAPERBOOK], THE ASSESSING OFFICER SPECIFICALLY DIREC TED THE APPELLANT TO, INTER ALIA, FURNISH THE FOLLOWING DETAILS: A) VIDE QUESTION NO.5, THE APPELLANT WAS DIRECTED TO PROVIDE THE DETAILS OF AMALGAMATION OR DEMERGER CARRIED OUT DURING THE YEA R; B) VIDE QUESTION NO.11, THE APPELLANT WAS DIRECTED TO PROVIDE DETAILS OF INVESTMENTS IN EQUITY SHARES AS SHOWN IN NOTE NO.8 TO THE AUDITED FINANCIAL STATEMENTS, WHICH REFERRED TO INVESTMENT IN EQUITY SHARES OF HCL TECH; C) VIDE QUESTION NO. 12 THE APPELLANT WAS DIRECTED TO PROVIDE DETAILS OF LOSS ON DISPOSAL OF INVESTMENTS OF RS.283.48 CRORES , PARTICULARLY WITH REFERENCE TO NOTE NO.5 OF THE NOTES TO THE AUDITED FINANCIAL STATEMENTS. THE APPELLANT WAS ALSO DIRECTED TO PROVIDE DETAILS OF FAIR MARKET VALUE OF INVESTMENTS AND ALSO TO STATE HOW THE SAME HAD BEEN CALCULATED. ITA NO. 2252/DEL/2018 32 17.2 IN RESPONSE TO THE AFORESAID QUESTIONNAIRE AN D FURTHER ENQUIRIES/ INFORMATION SOUGHT BY THE ASSESSING OFFICER FROM TI ME TO TIME DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT SUBM ITTED THE FOLLOWING DETAILS/ INFORMATION:- A) VIDE LETTER DATED 26.05.2015, THE APPELLANT SUB MITTED COPY OF RETURN OF INCOME AND ALSO THE COMPUTATION OF INCOME FOR THE R ELEVANT YEAR - [REFER PAGE 242 OF PAPERBOOK ]; B) VIDE LETTER DATED 30.06.2015, THE APPELLANT SUBM ITTED THE DETAILS OF AMALGAMATION AND FURNISHED COPIES OF THE SCHEME ALO NG WITH COPY OF THE ORDER OF THE HIGH COURT SANCTIONING THE SCHEME - [ REFER PAGES 243 TO 244 OF PAPERBOOK]; C) VIDE LETTER DATED 27.07.2015, THE APPELLANT SUBM ITTED DETAILS OF INVESTMENTS IN EQUITY SHARES, WHICH CONTAINED, INTE R ALIA, THE DETAILS OF EQUITY SHARES IN HCL TECH ACQUIRED AS PART OF AMALGAMATION AND ALSO THE DETAILS OF LOSS OF RS.291.82 CRORES ON SALE OF INVESTMENTS DUR ING THE RELEVANT YEAR - [REFER PAGES 245 TO 248 OF PAPERBOOK]; D) VIDE LETTER DATED 04.08.2015, THE APPELLANT FUR THER SUBMITTED DETAILS OF LOSS ON DISPOSAL OF INVESTMENTS OF RS.283.48 CRORES ALONG WITH DETAILS OF PURCHASE AND SALE OF INVESTMENTS. THE DETAILS SO FI LED INCLUDED DETAILS OF LONG TERM CAPITAL GAINS AS PER NORMAL PROVISIONS AND ALSO DETAILS OF LOSS ON SALE OF SHARES AS PER BOOKS OF ACCOUNT - [REFER PAGES 249 TO 251 OF PAPERBOOK]; E) VIDE LETTER DATED 20.11.2015, THE APPELLANT AGA IN FURNISHED COPY OF THE ORDER OF THE HIGH COURT APPROVING THE AMALGAMATION AND ALSO THE BALANCE SHEET OF THE AMALGAMATING ENTITIES, AS WAS DIRECTED TO BE FILED BY THE ASSESSING OFFICER DURING THE COURSE OF LAST HEARING - [REFER PAGES 252 TO 299 OF PAPERBOOK], F) VIDE LETTER DATED 26.11.2015 [REFER PAGES 300 T O 302 OF PAPERBOOK], THE APPELLANT, AS DIRECTED BY THE ASSESSING OFFICER , FURNISHED THE FOLLOWING: BOOK VALUE OF ASSETS TRANSFERRED ON MERGER VIDE ANN EXURE A THERETO; FAIR MARKET VALUE OF THE ABOVE ASSETS RECORDED IN TH E BOOKS ON AMALGAMATION VIDE ANNEXURE B THERETO; G) VIDE LETTER DATED 02.12.2015 [REFER PAGES 303 TO 377 OF PAPERBOOK], WITH REFERENCE TO THE LAST HEARING AND THE SPECIFIC DIRECTION GIVEN BY THE ASSESSING OFFICER, THE APPELLANT SUBMITTED AS UNDER: 1. ACTUAL COST PER SHARE OF HCL TECHNOLOGIES LIMIT ED: RS.6.5 PER SHARE. 2. DATE OF ACQUISITION: SHARES OF HCL TECHNOLOGIES LTD. WERE ACQUIRED DURING THE PERIOD FROM 1995 TO 1999. 3. MARKET PRICE AS ON 01.04.2012 (APPOINTED DATE O F MERGER): WE WOULD LIKE TO INFORM YOUR HONOUR THAT STOCK MARKET WAS CL OSED ON 1.4.2012. THEREFORE THE PRICE AS ON 2.4.2012 WAS RS. 501.25 P ER SHARE. 4. WE WOULD LIKE TO BRING TO YOUR HONOURS ATTENTION T HAT AS PER THE SCHEME OF MERGER, ALL THE ASSETS OF TRANSFEROR COMP ANIES SHALL BE RECORDED BY THE TRANSFEREE CORNY ANY AT THEIR RESPE CTIVE FAIR VALUES. ITA NO. 2252/DEL/2018 33 THEREFORE, THE ASSESSEE COMPANY HAS APPOINTED THREE REPUTED, COMPETENT, QUALIFIED VALUERS AND WHO ARE EXPERT IN THIS FIELD AND HAS OBTAINED THE VALUATION REPORT FROM THE FOLLOWING: I) ICICI SECURITIES LIMITED II) SBI CAPITAL MARKETS LIMITED III) SSPA & CO. CHARTERED ACCOUNTANTS' 18. ON PERUSAL OF THE AFORESAID, IT WILL BE APPRECIA TED THAT THE ASSESSING OFFICER MADE EXTENSIVE/ NECESSARY ENQUIRIES REGARDI NG ISSUE OF TRANSFER OF SHARES OF HCL TECH ACQUIRED AS PART OF AMALGAMATION BEFORE ACCEPTING GAINS/ LOSS ON TRANSFER OF SHARES IN HCL TECH, AS DETERMIN ED WHILE COMPUTING INCOME UNDER THE NORMAL PROVISIONS AS WELL AS UNDER SECTION 115JB OF THE ACT. 19. IT IS OF UTMOST IMPORTANCE TO NOTE THAT COMPLETE D ETAILS OF BOOK VALUE AND FAIR VALUE OF ASSETS/INVESTMENTS, ALON GWITH SUPPORTING VALUATION REPORTS ETC WERE REPEATEDLY CALLED FOR BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS TO UNDO UBTEDLY EXAMINE/VERIFY THE IMPACT OF SUCH VALUATION IN THE BOOKS OF ACCOUNT OF THE APPELLANT, WHICH HAD RESULTED IN LOSS ON SALE OF INVESTMENT FOR THE PURPOSES OF SECTION 115JB OF THE ACT. IT MAY BE APP RECIATED THAT THE REVALUATION OF ASSETS/INVESTMENTS (ESPECIALLY SHARE S IN HCL TECH) HAD NO TAX IMPLICATION UNDER THE NORMAL PROVISIONS OF T HE ACT (SINCE ACTUAL COST OF SHARES/INVESTMENT WAS CONSIDERED FOR THE PU RPOSE OF COMPUTING CAPITAL GAINS) AND THE EXTENSIVE ENQUIRIES UNDERTAK EN BY THE ASSESSING OFFICER WAS PURELY TO EXAMINE THE IMPACT OF SUCH RE STATEMENT AT FAIR VALUE FOR THE PURPOSE OF DETERMINING BOOK PROFIT IN TERMS OF SECTION 115JB OF THE ACT. 20. IT IS SUBMITTED THAT ONCE ALL THE RELEVANT DETA ILS/ DOCUMENTS ARE AVAILABLE ON RECORD AND THE ISSUE IS SPECIFICALLY R AISED AND CONSIDERED BY THE ASSESSING OFFICER, IN SUCH CIRCUMSTANCES, IT IS NOT OPEN TO THE CIT TO EXERCISE REVISIONARY JURISDICTION, UNLESS THE ASSESSING OFFI CER IS FOUND TO HAVE FAILED TO MAKE INQUIRIES/ VERIFICATION, WHICH SHOULD HAVE BEEN MADE AS PER LAW BUT WERE NOT MADE; SIMPLY BECAUSE THE CIT DIFFERS WITH T HE MANNER OF THE INQUIRIES/ INVESTIGATION, REVISIONARY JURISDICTION CANNOT BE EXERCISED. 21. KIND ATTENTION IN THIS REGARD IS INVITED TO TH E FOLLOWING DECISIONS: - HARI IRON TRADING CO. VS. CIT: 263 ITR 437 (P&H HC) - CIT VS. EICHER LIMITED: 294 ITR 310 (DEL HC) - AF FORMED BY THE SUPREME COURT IN THE CASE REPORTED AS CIT VS. KELVINATOR OF INDIA LTD.: 320 ITR 561 - CIT VS. ANIL KUMAR SHARMA: 335 ITR 83 (DEL) - CIT V. GOYAL PRIVATE FAMILY SPECIFIC TRUST: 171 I TR 698 (ALL) ITA NO. 2252/DEL/2018 34 - CIT V. SUNBEAM AUTO LTD.: 332 ITR 167 (DEL) - CIT V. VIKAS POLYMERS: 341 ITR 537 (DEL.) - CIT VS. VODAFONE ESSAR: 212 TAXMAN 184 (DEL.) - CIT VS. DEVELOPMENT CREDIT BANK LTD: 323 ITR 206 (BOM.) - CIT V. HINDUSTAN LEVER LTD: 343 ITR 161 (BOM.) 22. FOR THIS REASON ALONE, AND WITHOUT ANYTHING MORE, THE IMPUGNED ORDER PASSED BY THE CIT UNDER SECTION 263 OF THE AC T IS, IT IS SUBMITTED, WITHOUT JURISDICTION, ILLEGAL AND BAD IN LAW . RE (B): ORDER NOT ERRONEOUS MUCH LESS PREJUDICIAL T O THE INTERESTS OF REVENUE. 23. IT IS SUBMITTED THAT THE ASSESSMENT ORDER WAS N OT ERRONEOUS MUCH LESS PREJUDICIAL TO THE INTERESTS OF REVENUE FOR THE FOL LOWING REASONS: A) ACCOUNTING TREATMENT OF RECORDING THE SHARES HC L TECH AT ITS FAIR MARKET VALUE, ACCEPTED BY THE ASSESSING OFFICER, IS STRICT LY IN ACCORDANCE WITH THE FOLLOWING: -SCHEME OF AMALGAMATION MANDATING RECOGNITION OF VA RIOUS ASSETS AND THE LIABILITIES OF THE AMALGAMATING COMPANIES AT ITS FAI R VALUE; -ORDER OF THE HONBLE HIGH COURT APPROVING THE SCHEM E OF AMALGAMATION; -AS-14 ON ACCOUNTING FOR AMALGAMATION ISSUED BY I CA1. PERMITTING RECOGNITION OF ASSETS AT ITS FAIR VALUE, MORE PARTI CULARLY IN A COURT APPROVED SCHEME OF AMALGAMATION; -RELEVANT PROVISIONS OF THE COMPANIES ACT; -AUDITED ACCOUNTS DULY APPROVED BY THE STATUTORY AU DITORS, MEMBERS IN THE ANNUAL GENERAL MEETING AND THE REGISTRAR OF COMPANI ES. B) IT MAY BE NOTED THAT THE OBJECT OF MAT PROVISION IS TO BRING OUT THE REAL PROFITS' OF THE COMPANIES WHICH IS AVAILABLE FOR DIS TRIBUTION AS DIVIDEND, BASED ON THE PROFITS DECLARED BY SUCH COMPANIES IN ITS OW N BOOKS OF ACCOUNT. THE LEGISLATIVE INTENTION BEHIND INTRODUCTION OF SECTION 115J OF THE ACT [REFER CBDT CIRCULAR NO. 495 DATED 22.09.1987: 168 ITR (ST) 87 @PG. 110], CAN BE GAUGED FROM THE SPEECH DELIVERED BY THE THEN FINANCE MINIS TER AND THE MEMORANDUM EXPLAINING PROVISIONS OF THE FINANCE BILL. 1987. RE LEVANT EXTRACTS OF WHICH IS RE- PRODUCED AS UNDER: BUDGET SPEECH OF THE FINANCE MINISTER: . 80. IT IS ONLY FAIR AND PROPER THAT THE PROSPEROUS SHOULD PAY AT LEAST SOME TAX. THE PHENOMENON OF SO-CALLED ZERO-TAX HIGHLY PROFI TABLE COMPANIES DESERVES ATTENTION. IN 1983, A NEW SECTION 80VVA WAS INSERTE D IN THE ACT SO THAT ALL PROFITABLE COMPANIES PAY SOME TAX. THIS DOES NOT SE EM TO HAVE HELPED AND IS BEING WITHDRAWN. 1 NOW PROPOSE TO INTRODUCE A PROVIS ION WHEREBY EVERY COMPANY WILL TO HAVE TO PAY A MINIMUM CORPORATE TA X ON THE PROFITS DECLARED BY IT IN ITS OWN ACCOUNTS. UNDER THIS NEW PROVISION, A COMPANY WILL ITA NO. 2252/DEL/2018 35 PAY TAX ON AT LEAST 30% OF ITS BOOK PROFIT. IN OTHE R WORDS, A DOMESTIC VIDELY HELD COMPANY WILL PAY TAX OF AT LEAST 15% OF ITS BO OK PROFIT. THIS MEASURE WILL YIELD A REVENUE GAIN OF APPROXIMATELY RS. 75 CRORES . MEMORANDUM EXPLAINING PROVISIONS OF THE FINANCE BIL L, 1987: NEW PROVISION TO LEVY MINIMUM TAX ON BOOK PROFITS OF CERTAIN COMPANIES 37. UNDER THE EXISTING PROVISIONS OF THE INCOME-TAX ACT, CERTAIN DEDUCTIONS ARE ALLOWED IN THE COMPUTATION O F PROFITS AND GAINS OF BUSINESS OR PROFESSION. VARIOUS DEDUCTIONS ARE ALSO ALLOWED UNDER CHAPTER VI-A OF THE INCOME-TAX ACT IN COMPUTING TOT AL INCOME. AS A RESULT OF THESE CONCESSIONS, CERTAIN COMPANIES MAKING HUGE PROFITS, ARE MANAGING THEIR AFFAIRS IN SUCH A WAY AS TO AVOID PA YMENT OF INCOME-TAX. WITH A VIEW TO MAKING THE TAX SYSTEM MORE PROGRESSI VE, A NEW CHAPTER XIIB IS PROPOSED TO BE INSERTED IN THE INCOME-TAX ACT. UNDER THE PROPOSED AMENDMENT, IN THE CASE O F ANY C OMPANY WHOSE TOTAL INCOME AS COMPUTED UNDER THE OTHER PROVISIONS OF TH E INCOME-TAX ACT IN RESPECT OF ANY PREVIOUS YEAR IS LESS THAN 30 PER CE NT OF ITS BOOK PROFIT, THE TOTAL INCOME OF SUCH TAXPAYER CHARGEABLE TO TAX SHALL BE D EEMED TO BE THE AMOUNT EQUAL TO 30 PER CENT OF SUCH BOOK PROFIT. (EMPHAS IS SUPPLIED) C) IT IS SETTLED LAW THAT THE PROFIT AND LOSS ACCOU NT PREPARED IN COMPLIANCE WITH THE REQUIREMENTS OF PARTS II & III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 AND ALSO THE ACCOUNTING STANDARDS ISSUED BY TH E ICAI. AS LAID BEFORE THE MEMBERS IN THE ANNUAL GENERAL MEETING, IS REGARDED A S SACROSANCT FOR COMPUTING DEEMED INCOME UNDER SECTION 1 15JB OF THE ACT AND CAN ONLY BE SUBJECTED TO THE UPWARD AND DOWNWARD ADJUSTMENTS SP ECIFIED IN EXPLANATION 1 TO THAT SECTION. THE ASSESSING OFFICER WAS BOUND T HEREFORE TO ACCEPT THE BOOK PROFIT, AS COMPUTED IN ACCORDANCE WITH THE SELF-CON TAINED SCHEME AS CONTAINED IN SECTION 115JB OF THE ACT. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS: - APOLLO TYRES LTD. VS. CIT: 255 ITR 273 (SC) - MALAYALA MANORAMA CO. LTD. VS. CIT: 216 CTR 102 (SC) - CIT VS. HCL COMNET SYSTEMS & SERVICES LTD: 305 IT R 409 (SC) - CIT VS. SONA WOOLLEN MILLS P. LTD.: 300 ITR 202 (P&H) - KINETIC MOTOR CO. LTD: 262 ITR 340 (BOM) - CIT VS. RUBAMIN (P) LTD: 218 CTR 162 (GUJ) - DCIT VS. FARMSON PHARMACEUTICALS GUJARAT LTD: 241 CTR 568 (GUJ) ITA NO. 2252/DEL/2018 36 24. IT IS FURTHER SUBMITTED THAT ONCE A DEDICATED G UIDANCE NOTE IS ISSUED BY THE ICAI. THE SAME WILL HAVE PRIMACY OVER ALL OTHER INSTRUCTIONS APPLICABLE GENERALLY.[REFER CAIRN INDIA LTD VS. DCIT: 87 TAXMA NN.COM 28 (DEL)] 25. IT IS, THUS, RESPECTFULLY SUBMITTED THAT THERE WAS NO ERROR IN THE ASSESSMENT ORDER ACCEPTING THE INCOME-TAX RETURN FI LED BY THE APPELLANT FOR THE RELEVANT ASSESSMENT YEAR IN RESPECT OF THE TRANSACTION OF SALE OF SHARES OF M/S HCL TECH, W HEREIN INCOME UNDER THE N ORMAL PROVISION AS WELL AS DEEMED INCOME UNDER SECTION 115-JB WAS COMP UTED STRICTLY IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. REBUTTAL TO FINDINGS OF PR.CIT 26. THE SPECIFIC ALLEGATIONS/ FINDINGS OF THE PR.C IT IN THE IMPUGNED ORDER ARE REBUTTED AS UNDER: RE (I): SECURITIES PREMIUM IS NOT REVALUATION RESER VE 26.1 WITH REGARD TO THE ALLEGATION THAT IN PURSUANC E OF THE MERGER, THE APPELLANT INCORRECTLY CREDITED THE SECURITIES PREMI UM ACCOUNT AS AGAINST REVALUATION RESERVE FOR THE PURPOSE OF COMPUTING BO OK PROFIT UNDER SECTION 115.1 B OF THE ACT. IT IS BRIEFLY SUBMITTED AS UNDER: A) FIRST AND FOREMOST, THE APPELLANT HAD NOT, AS A MATTER OF FACT, REVALUED ANY OF ITS EXISTING ASSETS. REVALUATION REFERS TO R EVALUATION OF EXISTING ASSET ALREADY HELD BY THE ASSESSEE. PERTINENTLY, REVALUAT ION RESERVE CAN NEVER BE CREATED IN RESPECT OF INVESTMENTS ALREADY HELD BY T HE ASSESSEE AS THE SAME WOULD BE VIOLATIVE MANDATORY ACCOUNTING STANDARDS [R EFER: AS-13 ON ACCOUNTING FOR INVESTMENTS]. B) THE APPELLANT ONLY RECORDED THE FAIR VALUES OF VARIOUS ASSETS AND LIABILITIES OF THE TRANSFEROR/ AMALGAMATING COMPANIE S IN ACCORDANCE WITH THE SPECIFIC DIRECTIONS OF COURT- APPROVED SCHEME OF AM ALGAMATION (UNDER CLAUSE 6.4 OF THE SCHEME OF AMALGAMATION) AND THE PROVISIO NS OF AS-14, WHICH RESULTED IN CREATION OF SECURITIES PREMIUM IN THE BO OKS OF ACCOUNT OF THE ASSESSEE UPON THE SCHEME BECOMING EFFECTIVE; C) THE SCHEME OF AMALGAMATION SPECIFICALLY PROVIDE D FOR CREDITING THE DIFFERENCE TO SECURITIES PREMIUM ACCOUNT IN ORDER T O LEVERAGE THE FINANCIAL POSITION OF THE ASSESSEE, WHICH IS TREATED AS PART OF NET-WORTH OF THE COMPANY, UNLIKE CAPITAL RESERVE, WHICH IS DISCOUNTED BY BANKE RS/ FINANCIAL INSTITUTIONS; D) VIDE NOTE 17 OF THE NOTES TO AUDITED FINANCIAL STATEMENT FOR THE YEAR ENDED MARCH 31, 2013 THE STATUTORY AUDITOR ONLY DIS CLOSED THE RELEVANT DETAIL/ ITA NO. 2252/DEL/2018 37 DEVIATION OF THE ACCOUNTING TREATMENT APPROVED BY T HE COURT VIS-A-VIS AS-14 AND HAS NEITHER QUALIFIED NOR PROVIDED ANY ADVERSE REMARKS IN RELATION THERETO. HAD THE INTENTION OF THE AUDITOR BEEN TO HI GHLIGHT THE SAME AS QUALIFICATION OR AN ADVERSE REMARK, THE SAME WOULD HAVE BEEN REPORTED IN THICK TYPE AND IN ITALICS, AS PER THE MANDATORY REQ UIREMENT OF SECTION 227(3)(E) OF THE COMPANIES ACT; E) SECURITIES PREMIUM IS AKIN TO CAPITAL RESERVE S O MUCH SO THAT BOTH OF THEM ARE NOT FREELY AVAILABLE FOR DISTRIBUTION AS DIV IDEND, UNLIKE GENERAL RESERVE. HOWEVER, CLEAR AND UNAMBIGUOUS GUIDANCE IS PROVIDED IN SECTION 78 OF THE COMPANIES ACT FOR UTILIZATION OF SECURITIES PR EMIUM, AS COMPARED TO CAPITAL RESERVE IN RESPECT WHEREOF THERE IS NO SP ECIFIC GUIDANCE; F) IT IS WELL SETTLED THAT WHERE A COURT/ TRIBUNAL MAKES AN ORDER SANCTIONING AN ACCOUNTING TREATMENT IN TERMS OF ANY SCHEME FILED UNDER THE COMPANIES ACT, THEN, THE SAID ACCOUNTING TREATMENT IS NOT ONLY BINDING BUT WOULD ALSO BE REGARDED AS IN ACCORDANCE WITH THE PRO VISIONS OF THE COMPANIES ACT. THE POSITION IS WELL SETTLED AND DULY RECOGNIZ ED BY ICAI. [REFER: HINDALCO INDUSTRIES LIMITED: 151 COMP CASES 446 (BOM) AND WE STERN ALLIANCE POWER LIMITED: COMPANY PETITION NO. 12 OF 2011 PASS ED VIDE ORDER DATED 22ND MARCH, 2011 (GUJ)]; G) EVEN IF THE DIFFERENCE ARISING ON AMALGAMATION WAS, WITHOUT PREJUDICE TO THE ABOVE, CREDITED BY THE ASSESSEE TO CAPITAL RE SERVE INSTEAD OF SECURITIES PREMIUM ACCOUNT, THERE WOULD NOT HAVE BEEN ANY CHANG E IN MAT LIABILITY UNDER SECTION 115JB OF THE ACT SINCE SECURITIES PR EMIUM RESERVES AND CAPITAL RESERVES, BEING BALANCE SHEET ITEMS, ARE OF SIMILAR NATURE AND ARE FALL WITHIN THE CLASSES OF RESERVES UNDER THE COMPANIES ACT. REQUIRING NO ADJUSTMENT TO SECTION 115JB OF THE ACT, LEAVE APART UNDER CLAUSE (J) THERETO; H) EVEN OTHERWISE, FOR THE PURPOSE OF SECTION 115J B OF THE ACT, TREATMENT ACCORDED IN THE BOOKS IN ACCORDANCE WITH THE TERMS O F THE SCHEME SANCTIONED BY THE HIGH COURT AND THE PROVISIONS OF SECTIONS 21 0/211 OF THE COMPANIES ACT READ WITH APPLICABLE MANDATORY ACCOUNTING STANDARD ISSUED BY ICAI, AND ALSO CERTIFIED BY THE STATUTORY AUDITORS, THE MEMBERS IN THE ANNUAL GENERAL MEETING AND THE ROC, IS BINDING [REFER: APOLLO TYRES LTD. V. CIT: 255 ITR 273 (SC)|; I) MOREOVER, SINCE SECURITIES PREMIUM WAS NOT CREAT ED BY DEBIT TO THE PROFIT AND LOSS ACCOUNT, EVEN PROVISIONS OF EXPLANA TION 1(B) TO SECTION 115JB OF THE ACT, REQUIRING UPWARD ADJUSTMENT IS, PER SE, NO T ATTRACTED [REFER BISLERI SALES LTD [2016] 66 TAXMANN.COM 364 (BOMBAY), NATION AL HYDROELECTRIC POWER CORPN. LTD. V. CIT: [2010] 320 ITR 374 (SC) ] ; ITA NO. 2252/DEL/2018 38 J) RELIANCE IN THIS REGARD IS PLACED ON THE DECISIO N OF THE MUMBAI TRIBUNAL IN ITO V. UNITED ESTATE PVT. LTD.:51 SOT 61 WHEREIN IT IS HELD THAT WHERE UNDER THE COURT APPROVED SCHEME, THE ASSESSEE HAS RECORDE D THE ASSETS AT FAIR VALUE AND TRANSFERRED THE INCREASE IN VALUE OF ASSETS TO GENERAL RESERVE, THE AMOUNT WOULD NOT BE SUBJECT TO MAT. K) REFERENCE CAN ALSO BE MADE TO THE DECISIONS WHER EIN THE DIFFERENCE ARISING ON AMALGAMATION HAS BEEN HELD TO BE CAPITAL RECEIPT N OT LIABLE TO TAX, NOTWITHSTANDING THE NOMENCLATURE PROVIDED TO THE SA ME IN THE SCHEME OF AMALGAMATION: - CIT VS. STADS LTD.: 61 TAXMANN.COM 33 (MAD) - ITO VS SHREYANS INVESTMENTS (P.) LTD. : 31 TAXMAN N.COM 11 (KOL TRIB) - ITO VS. KYAL DEVELOPERS (P.) LTD. : 42 TAXMANN.CO M 70 (KOL TRI) - RICHVIK ENTERPRISES PRIVATE VS. DIT : L.T.A. NO. 389/KOL/ 2012 (KOL). IT WILL THUS KINDLY BE APPRECIATED THAT LOOKED FROM WHATEVER ANGLE, CREDITING THE DIFFERENCE ARISING ON AMALGAMATION TO CAPITAL R ESERVE, INSTEAD OF SECURITIES PREMIUM, WAS NEITHER CONTRARY TO ANY PROVISION NOR WOULD HAVE HAD ANY IMPACT ON THE BOOK PROFIT OF THE APPELLANT. RE (II): AMALGAMATION WITH THE PURPOSE OF EVADING M AT AND SCHEME NOT BINDING 26.2 THE ALLEGATION OF THE PR.CIT THAT THE ENTIRE E XERCISE SHOULD BE REGARDED AS BEING UNDERTAKEN FOR THE PURPOSE OF EVADING MAT, IS PRESUMPTIVE AND ERRONEOUS. IT IS SUBMITTED THAT: A) IT HAS NOT BEEN APPRECIATED THAT AMALGAMATION B Y WAY OF PURCHASE, WHICH PERMITS RECOGNITION OF ASSETS/ LIABILITIES OF AMALGAMATING COMPANIES AT FAIR VALUE, IS A WELL- RECOGNIZED ACCOUNTING PRINCI PLE, WHICH CANNOT SIMPLY BE PRESUMED TO BE TAX AVOIDANCE MEASURE; B) THE ENTIRE ACCOUNTING, IT IS REITERATED, WAS FU LLY IN ACCORDANCE WITH THE TERMS OF THE SCHEME OF AMALGAMATION APPROVED BY HIG H COURT AND IS IN COMPLIANCE WITH THE RELEVANT PROVISIONS OF THE COMP ANIES ACT AND APPLICABLE ACCOUNTING STANDARDS; C) ONCE THE SCHEME OF AMALGAMATION IS APPROVED BY THE COURT AFTER FOLLOWING DUE PROCESS OF LAW, IT CANNOT BE SAID THAT THE SOLE PURPOSE OF THE SCHEME OF ARRANGEMENT WAS ONLY TO AVOID TAX. INDEED , IT IS A SETTLED LAW THAT THE ARRANGEMENT, ONCE APPROVED BY THE COMPANY COURT , GETS STATUTORY RECOGNITION. RELIANCE IN THIS REGARD IS PLACED ON F OLLOWING DECISIONS: - SADANAND S. VARDE V. STATE OF MAHARASHTRA: 247 ITR 609 (BOM) ITA NO. 2252/DEL/2018 39 - WOOD POLYMER LTD., IN RE: 109 ITR 177 (GUJ HC) - VODAFONE ESSAR GUJARAT LTD. V. DIT: 35 TAXMANN.COM 397 (GUJ HC)- AFFORMED BY SC IN 66 TAXMANN.COM 374 - ACIT V. TVS MOTORS CO. LTD.: 8 TAXMANN.COM 288 (C HN) - PURBANCHAL POWER CO. LTD. VS. DIT IN L.T.A NO.201 /KOL/20100 (KOL 1TAT) D) THE SCHEME OF AMALGAMATION WAS UNDERTAKEN BY TH E APPELLANT FOR ACHIEVING THE OBJECTIVES OF LEVERAGING THE BALANCE S HEET, CONSOLIDATION OF ITS INVESTMENT COMPANIES SO AS TO STREAMLINE ITS TREASU RY OPERATIONS AND AVOID MULTIPLE ENTITIES; IN THE PROCESS, IF ANY TAX ADVAN TAGE HAS ARISEN, IT CANNOT BE SAID THAT THE ENTIRE ARRANGEMENT WAS FOR TAX EVASIO N; E) EVEN OTHERWISE, THE COURTS HAVE TIME AND AGAIN ACCEPTED THAT AN ASSESSEE IS FREE TO UNDERTAKE TRANSACTIONS IN A MAN NER MOST CONDUCIVE / ADVANTAGEOUS TO THE ASSESSEE. IT IS SETTLED LAW THA T THE REVENUE CANNOT STEP INTO THE SHOES OF THE BUSINESSMAN AND DETERMINE AS TO HOW THE BUSINESS OUGHT TO HAVE BEEN CARRIED ON BY THE BUSINESSMAN. EQUALLY, THERE IS NO BAR UNDER THE ACT PROHIBITING AN ASSESSEE TO UNDERTAKE TRANSACTION S MORE EFFICIENTLY AND EFFECTIVELY [REFER: EASTERN INVESTMENT LTD. VS. ITO 20 ITR 1 (SC); UNION OF INDIA AND ANOTHER VS. AZADI BACHAO ANDOLAN AND ANOT HER: 263 ITR 706 (SC); F) IT MAY FURTHER BE PERTINENT TO NOTE THAT PURSUAN T TO THE SCHEME OF AMALGAMATION AND THE MANDATE OF THE COURT, ALL ASSETS AND LIABILITIES (WHICH INCLUDED ASSETS/INVESTMENT OTHER THAN SHARES OJ HCL TECH) OF THE AMALGAMATING COMPANIES WERE VALUED AT FAIR VALUE. I N THE IMPUGNED ORDER, THE PR.CIT HAS ACCEPTED THE FAIR VALUES OF ALL OTHER ASSETS/INVESTMENTS OF THE AMALGAMATING COMPANIES, BUT HAS MERELY CHERRY PICKED AND DRAWN ADVERSE INFERENCE AGAINST THE VALUATION OF SHARES OF HCL TE CH ALONE. IT MAY BE APPRECIATED THAT IN THE RELEVANT PREVIOUS YEAR, THE APPELLANT HAD ALSO, TRANSFERRED/SOLD OTHER INVESTMENTS (VIZ., MUTUAL FU NDS ETC), OTHER THAN SHARES OF HCL TECH, WHICH, TOO WAS CLAIMED AS EXEMPT UNDER THE NORMAL PROVISIONS OF THE ACT IN TERMS OF SECTION 10(38) OF THE ACT AND T HE TREATMENT ON SALE OF SUCH INVESTMENTS IN THE 'BOOKS OF ACCOUNT OF THE APPELLA NT WAS AKIN TO THAT OF SHARES OF HCL TECH, WHICH HAS CLEARLY BEEN ACCEPTED BY THE PR.CIT. [REFER PAGE 250-251 AND 301-302 OF THE PAPERBOOK] G) FURTHER, DONATION OF 8,385 SHARES OF HCL TECH T O SSN TRUST DURING THE RELEVANT YEAR, DEBITED TO THE PROFIT AND LOSS ACCOUN T, COMPUTED BY ADOPTING FAIR VALUE OF RS.790 PER SHARE, WHICH HAS BEEN TAKE N INTO ACCOUNT WHILE COMPUTING THE PROFIT FOR THE YEAR (THE STARTING POI NT FOR COMPUTATION OF BOOK PROFIT) HAS ALSO NOT BEEN DISPUTED BY THE PR.CIT. [R EFER PAGE 45 AND 48 OF THE PAPERBOOK] ITA NO. 2252/DEL/2018 40 H) THUS, THE ACTION OF THE PR.CIT IN CONSIDERING T HE TRANSACTIONS UNDERTAKEN PURSUANT TO THE SCHEME ON PIECEMEAL BASIS AND DRAWING ADVERSE INFERENCE ONLY AGAINST TRANSACTION(S) IN RESPECT OF SHARES OF HCL TECH IS LEGALLY FLAWED. RE (III): APPLICABILITY OF PROVISO TO SECTION 10(38 ) OF THE ACT 26.3 INSOFAR AS RELIANCE PLACED BY THE PR.CIT ON TH E PROVISO CONTAINED IN SECTION 10(38) OF THE ACT, IT IS RESPECTFULLY SUBMIT TED AS UNDER: (A) COMPUTATION OF 'BOOK PROFITS HAS TO BE STRICTLY IN TERMS OF SECTION 115JB OF THE ACT WHICH IS A COMPLETE CODE IN ITSELF AND N O VARIATION CAN BE MADE FROM THE SAID PROVISIONS; (B) PROVISO TO SECTION 10(38) ONLY CARVES OUT AN E XCEPTION TO THE EFFECT THAT GAINS, IF ANY, AS PER BOOKS OF ACCOUNT ON TRANSFER O F SHARES WHICH ARE OTHERWISE EXEMPT UNDER THAT SECTION, SHALL BE CONSIDERED FOR T HE PURPOSES OF SECTION 115JB OF THE ACT; (C) SPECIFIC RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DHARMAYUG INVESTMENTS LTD V ACIT: 69 SOT 433, WHEREIN IT HAS BEEN HELD THAT WHILE COMPUTING BOOK PROFIT, INCOME CREDITED TO THE PROFIT & LOSS ACCOUNT WHICH IS OTHE RWISE EXEMPT UNDER SECTION 10(38) OF THE ACT WILL NOT BE REDUCED. (D) IN THE INSTANT CASE, IT MAY BE APPRECIATED THAT THERE WAS BOOK LOSS OF RS.291.82 CRORES ON SALE OF SHARES OF HCL TECH, WHI CH WAS RIGHTLY CONSIDERED FOR THE PURPOSE OF DETERMINING THE BOOK PROFIT; (E) THE PROVISIONS OF SECTION 115JB HAVE AN OVERRI DING EFFECT UPON OTHER PROVISIONS OF THE ACT AND CONSEQUENTLY, METHOD OF C OMPUTATION OF BOOK PROFIT PROVIDED IN THE EXPLANATION IS MANDATORY AND OVERRI DES NORMAL PROVISIONS OF COMPUTATION OF PROFIT/ GAIN/ LOSS UNDER ANY HEAD OF THE INCOME. RE: EXPLANATION 2 TO SECTION 263 RELIED UPON BY PR. CIT 27. RELIANCE PLACED BY THE PR.CIT UPON EXPLANATION 2 TO SECTION 263 OF THE ACT TO HOLD THAT NON CONDUCT OF PROPER ENQUIRY BY T HE ASSESSING OFFICER RENDERS THE ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, IS, IT IS SUBMITTED, TOTALLY MISPLACED SINCE: (A) EXTENSIVE ENQUIRIES WERE, AS A MATTER OF FACT, CONDUCTED BY THE ASSESSING OFFICER; ITA NO. 2252/DEL/2018 41 (B) EVEN OTHERWISE, WITHOUT PREJUDICE TO AFORESAID , THE AMENDED PROVISIONS OF SECTION 263 (INSERTED W.E.F. 1-6-2015) CANNOT BE READ TO PROVIDE UNFETTERED POWERS TO THE CIT TO SET ASIDE AN ASSESSMENT ORDER, ON A PALTRY GROUND OF INSUFFICIENT ENQUIRY BEING CONDUCTED BY THE ASSESSIN G OFFICER, AT HIS WHIMS AND FANCIES. EVEN AFTER INSERTION OF THE AFORESAID EXPL ANATION, THE CIT, WOULD NEED TO POINT OUT: - SPECIFIC FAILURE ON THE PART OF THE ASSESSING OFF ICER IN NOT CONDUCTING RELEVANT ENQUIRIES; - HOW SUCH SPECIFIC QUERY WAS CRITICAL FOR DECISION ON AN ISSUE; - HOW ENQUIRIES OR VERIFICATION CONDUCTED BY THE AS SESSING OFFICER WERE NOT ENQUIRIES OR VERIFICATION THAT WOULD HAVE BEEN CARRI ED OUT BY A PRUDENT OFFICER. RELIANCE IN THIS REGARD IS PLACED IS PLACED ON THE FOLLOWING DECISIONS: - PR. CIT VS. INDIAN FARMERS & FERTILIZERS CO-OPERATI VE LTD.: ITA NO. 597/2017 (DEL HC) - NARAYAN TATU RANE V. ITO: 70 TAXMANN.COM 227 (MUM TRIB) - AMIRA ENTERPRISES LTD VS PCIT IN ITA NO 3206/DEL/20 17 (DEL. TRIB) - TORRENT PHARMACEUTICALS LTD VS. DCIT: ITA NO.164 OF 2018 (AHD. TRIB) - SHRI NARASIMHA REDDY PEECHU V. ITO: ITA NO. 932 O F 2017 (HYD. TRIB) 28. EVEN OTHERWISE, IN THE CASE OF THE APPELLANT, THE TRANSACTION IN QUESTION WAS, AS ELABORATED SUPRA, ANALYZED BY THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS AND AFTER SUCH EXTENSIVE VERIFICATION O F RECORDS THE ASSESSING OFFICER HAD ACCEPTED THE RETURNED INCOME OF THE APP ELLANT. 29. IN SUCH CIRCUMSTANCES, IT COULD NOT BE SAID THA T THE ASSESSMENT WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE MERELY BECAUSE THE CIT WAS OF THE OPINION THAT SOME MORE ENQUIRIES NEEDED TO BE CONDUCTED. REFERENCE MAY BE MADE THE FOLLOWING CASES: - CIT VS. DLF LTD.: 350 ITR 555 (DEL) - CIT VS. SUNBEAM AUTO LTD: 332 ITR 167 (DEL) - CIT V. INTERNATIONAL TRAVEL HOUSE: 344 ITR 554 ( DEL) - CIT VS. VIKAS POLYMERS: 341 ITR 537 (DEL) - GULMOHAR FINANCES LIMITED: 170 TAXMAN 483 (DEL.) - FAB INDIA OVERSEAS VS. CIT: 244 CTR 380 (DEL.) - CIT VS. VODAFONE ESSAR: 212 TAXMAN 184 (DEL.) - CIT V. RATLAM COAL ASH CO: 171 ITR 141 (MP) - CIT VS. GANPAT RAM BISHONOI: 152 TAXMAN 242 (RAJ .) - CIT VS. MEHROTRA BROTHERS : 270 ITR 157 (MP) - CIT VS. ASSOCIATED FOOD PROFITS (P) LTD. : 280 I TR 377 (MP) - CIT VS. DEVELOPMENT CREDIT BANK LTD: 323 ITR 206 (BOM.) - GAIL INDIA LIMITED VS. CIT: ITA NO.2577/DEL/2004 (DEL ITAT) ITA NO. 2252/DEL/2018 42 30. IN THAT VIEW OF THE MATTER, IT IS RESPECTFULLY SUB MITTED THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER AC CEPTING GAINS/ LOSS ON TRANSFER OF SHARES IN HCL TECH VIDE ASSESSMENT O RDER DATED 02.01.2016, BEING IN CONFORMITY WITH THE PROVISIONS OF THE ACT, CANNOT, BY ANY STRETCH OF ARGUMENT, BE REGARDED AS ERRONEOUS , MUCH LESS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. RE (C ) : PLAUSIBLE VIEW IN LAW NOT ERRONEOUS 31. MOREOVER, ON PERUSAL OF THE ABOVE, IT IS SUBMIT TED APART FROM THE FACT THAT THERE WAS NO ERROR WHATSOEVER, IN THE ORIGINAL ASSESSMENT ORDER, THE VIEW ADOPTED BY THE APPELLANT AS ACCEPTED BY THE ASSESSI NG OFFICER WAS, IN ANY CASE, A PLAUSIBLE VIEW IN LAW AND THEREFORE, FOR THIS REAS ON, TOO, NO INTERFERENCE WAS CALLED FOR IN TERMS OF SECTION 263 OF THE ACT. 32. IT HAS CONSISTENTLY BEEN HELD BY THE COURTS THA T IF THE ASSESSING OFFICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW WH ICH HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASS ESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE , THE EXERCISE OF REVISIONARY POWER UNDER SECTION 263 OF THE ACT WOUL D BE WITHOUT JURISDICTION [REFER MALABAR INDUSTRIAL (SUPRA), MAX INDIA (SUPRA ), CIT VS KWALITY STEEL SUPPLIERS COMPLEX (SUPRA)]. SUMMARY/ CONCLUSION/ PRAYER 33. FOR THE AFORESAID CUMULATIVE REASONS, IT IS TH E RESPECTFUL SUBMISSION OF THE APPELLANT THAT THE IMPUGNED ORDER UNDER SECTION 263 OF THE ACT IS WITHOUT JURISDICTION AND BAD IN LAW. SINCE THE PRE-REQUISITE TWIN CONDITIONS FOR INVOKING JURISDICTION UNDER THE SAID SECTION HAVE NOT BEEN FU LFILLED IN AS MUCH AS THE ASSESSMENT ORDER DATED 02.01.2016, IS NEITHER ERRON EOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 34. THE IMPUGNED ORDER PASSED BY THE PR.CIT IS, TH US, LIABLE TO BE QUASHED/ REVERSED. 7. APART FROM THE ABOVE SUBMISSIONS, THE LD. AR ALS O RELIED ON THE DECISION OF DELHI TRIBUNAL IN THE CASE OF CAIRN INDIA LTD. V . DCIT (2017) 87 TAXMANN.COM 28 (DELHI-TRIB). ITA NO. 2252/DEL/2018 43 8. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF LD. CIT. SHE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS PASSED A C RYPTIC ORDER WITHOUT CONSIDERING THE PROVISIONS OF SECTION 115JB REGARDI NG EXEMPTION CLAIMED BY THE ASSESSEE U/S. 10(38) OF THE IT ACT. SHE ALSO C ONTENDED THAT THE AO DID NOT ISSUE ANY QUESTIONNAIRE TO THE ASSESSEE REGARDING A PPLICABILITY OF MAT PROVISIONS AND THE ASSESSEE ALSO DID NOT SUBMIT FOR M NO. 29B (SEE RULE 40B) AT THE STAGE OF ASSESSMENT PROCEEDINGS AS WELL AS R EVISION PROCEEDINGS, WHICH IS MANDATORY IN THE CASE OF A COMPANY FOR COMPUTATI ON OF BOOK PROFIT AND THE ASSESSING OFFICER HAS ALSO NOT SEEN TO THE QUALIFIC ATION MADE THE AUDITOR OF THE CO. IN HIS AUDIT REPORT REGARDING ON NOTES TO FINAN CIAL STATEMENTS AS PER ACCOUNTING STANDARD 14 ACCOUNTING FOR AMALGAMATIONS , PRESCRIBED UNDER COMPANIES ( ACCOUNTING STANDARD) RULES, 2006 AS NOT IFIED BY THE CENTRAL GOVERNMENT VIDE ITS NOTIFICATION DATED DECEMBER 7, 2006, ANY EXCESS OF VALUE OF NET ASSETS OVER THE AMOUNT OF CONSIDERATION PAID SHOULD BE CREDITED TO CAPITAL RESERVE AND NOT TO SECURITIES PREMIUM. SHE ALSO SUBMITTED THAT IT IS NOT ONLY THE LACK OF ENQUIRY, BUT ALSO NON-CONSIDER ATION OF RELEVANT PROVISIONS OF IT ACT ON THE PART OF ASSESSING OFFICER WHICH M AKE THE ASSESSMENT ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. IT IS ALSO SUBMITTED THAT THE ASSESSEE HAS NOT COMPLIED WITH T HE DIRECTIONS OF HONBLE HIGH COURT ON AMALGAMATION SCHEME PARA 6.5. APART F ROM ABOVE, THE ASSESSEE DID NOT BRING CORRECT FACTS BEFORE THE HONBLE HIGH COURT REGARDING SALE OF SHARES OF HCL TECH. LTD. THE CASE LAWS RELIED BY TH E ASSESSEE ARE NOT APPLICABLE AS THE ASSESSEE HAS FAILED TO COMPLY WIT H THE PROVISIONS OF SECTION 115JB (4) OF THE IT ACT. SHE, THEREFORE, URGED FOR SUSTENANCE OF THE IMPUGNED ORDER U/S. 263 OF THE IT ACT. ITA NO. 2252/DEL/2018 44 9. AFTER HEARING BOTH THE SIDES AND PERUSING THE EN TIRE MATERIAL AVAILABLE ON RECORD, WE FIND NO JUSTIFICATION TO INTERFERE WI TH THE IMPUGNED ORDER. THE ASSESSMENT ORDER UNDER SECTION 143 (3) WAS PASSED O N 02/1/2016 FOR ASSESSMENT YEAR 2013 14 BY THE ASSESSING OFFICER. THIS ORDER IS SUBJECT MATTER OF REVISION BY THE COMMISSIONER OF INCOME TA X, DELHI - 9 VIDE HIS ORDER DATED 26/2/2018 UNDER SECTION 263 OF THE INCOME TAX ACT, 1961. THE LEARNED COMMISSIONER HAS HELD THAT THE ORDER IS ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF THE REVENUE. SO FAR AS IT HAS NOT CONS IDERED THE APPLICABILITY OF THE PROVISIONS OF SECTION 115 JB OF THE ACT WITH RESPEC T TO THE CAPITAL GAIN EARNED BY THE ASSESSEE ON SALE OF THE SHARES. 10. ACCORDING TO THE PROVISIONS OF SECTION 263 OF T HE INCOME TAX ACT, 1961, IF ON EXAMINATION OF THE RECORD BY THE LEARNED COMM ISSIONER, IT IS FOUND THAT THE ORDER OF THE LEARNED ASSESSING OFFICER IS ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE THEN THE LEARNED COMMISSION ER HAS BEEN GRANTED POWER TO REMOVE SUCH ERROR HIMSELF OR TO DIRECT TH E LEARNED ASSESSING OFFICER TO REMOVE THE ERROR WHICH ARE PREJUDICIAL TO THE IN TEREST OF THE REVENUE. 11. THE BRIEF FACTS SHOW THAT ASSESSEE IS A COMPANY , AFTER AMALGAMATION OF M/S SLOCUM INVESTMENTS (DELHI) PRIVATE LTD, AND SHI V KIRAN INVESTMENT (DELHI) PRIVATE LIMITED WITH THE ASSESSEE COMPANY B Y THE ORDER OF THE HONBLE PUNJAB AND HARYANA HIGH COURT DATED 31/1/2013 WITH THE EFFECTIVE DATE OF 1/4/2012. IT WAS FOUND THAT ASSESSEE HAS SOLD 1,00 ,00,000 SHARES OF M/S HCL TECHNOLOGIES LTD ON 4/5/2012 AT THE RATE OF RS. 500 /- PER SHARE. ITA NO. 2252/DEL/2018 45 APPROXIMATELY AND THE NET VALUE REALIZED WAS RS. 49 8.00 CRORES. THE SHARES WERE ORIGINALLY PURCHASED BY M/S SLOCUM INVESTMENTS (DELHI) PRIVATE LTD AT THE PURCHASE COST OF THE SHARES IN RS. 65,000,000. SUBSEQUENTLY, ON AMALGAMATION THE SHARES HELD BY M/S SLOCUM INVESTME NTS DELHI PVT. LTD. WERE TRANSFERRED IN THE BOOKS OF ACCOUNTS OF THE ASSESSE E AS PER THE SCHEME OF THE AMALGAMATION AT THE FAIR MARKET VALUE. THE FAIR MA RKET VALUE OF THOSE SHARES WAS DETERMINED BY THE ASSESSEE AT RS. 790/- PER SH ARE. ACCORDINGLY, THE SHARES WERE RECORDED IN THE BOOKS OF THE ASSESSEE C OMPANY AT FAIR MARKET VALUE AS INVESTMENT AT RS. 790.00 CRORES. THE FAI R MARKET VALUE OF THE INVESTMENT BASED ON THE VALUATION REPORT OBTAINED B Y THE ASSESSEE FROM THREE DIFFERENT VALUERS WAS RS. 798/- PER SHARE. AS THE SHARES WERE SOLD BY THE ASSESSEE AT RS. 4981763996/, THE ASSESSEE INCURRED RESULTANT BOOK LOSS OF RS. 2918236004/ AND SAME WAS SHOWN AS LOSS ON DISPOSAL OF INVESTMENT IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31 ST OF MARCH 2013. SUCH DISCLOSURE WAS ALSO MADE IN NOTE NUMBER 25 OF THE A UDITED ACCOUNTS. FOR THE PURPOSE OF THE COMPUTATION OF THE BOOK PROFIT THE A SSESSEE CLAIMED THE LOSS ON THE SALE OF SHARES IS CONSIDERED UNDER SECTION 115 JB OF THE INCOME TAX ACT, 1961. 12. THE LEARNED COMMISSIONER OF INCOME TAX ON EXAMI NATION OF THE RECORDS WAS OF THE VIEW THAT THE CAPITAL GAIN EARNED BY THE ASSESSEE ON THE SALE OF 1,00,00,000 EQUITY SHARES OF HCL TECHNOLOGIES LTD H AS NOT BEEN OFFERED FOR THE BOOK PROFIT TAX UNDER SECTION 115 JB OF THE INCOME TAX ACT. 1961. THEREFORE, IT WAS HELD THAT THE ASSESSMENT ORDER PASSED UNDER SECTION 143 (3) DATED ITA NO. 2252/DEL/2018 46 02/01/2016 BY THE LEARNED ASSESSING OFFICER IS ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 13. WE ARE OF THE OPINION THAT THERE IS NO INFIRMIT Y IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX IN HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER IS ERRONEOU S AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AS:- A) DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FORM N O 29B ( SEE RULE 40B) FOR COMPUTING BOOK PROFITS OF THE COMPANY U/S 115JB OF THE INCOME TAX ACT. 1961 WAS NOT FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. NO SUCH FORM WAS FILED BY THE ASSESSEE BEF ORE THE COMMISSIONER ALSO. ACCORDING TO RULE 40B OF THE INCOME TAX RUL ES 1962, FORM NO. 29B IS THE REPORT OF AN ACCOUNTANT, WHICH IS REQUIR ED TO BE FURNISHED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME UNDER SUB-SECTION (4) OF SECTION 115JB OF THE INCOME TAX ACT. 1961. ACCORDI NG TO THAT FORM, THE ACCOUNTANT IS REQUIRED TO CERTIFY THAT THE BOOK PRO FIT HAS BEEN COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THAT SECTION. THE TAX PAYABLE UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 IN RESPEC T OF THE ASSESSMENT YEAR IS ALSO REQUIRED TO BE CERTIFIED WHICH IS REQU IRED TO BE DETERMINED ON THE BASIS OF THE DETAILS PROVIDED IN ANNEXURE AP PENDED TO THAT FORM. THE ACCOUNTANT IS ALSO REQUIRED TO CERTIFY THAT SUC H STATEMENT AND THE PARTICULARS GIVEN IN THE ANNEXURE ARE TRUE AND CORR ECT. UNDISPUTEDLY NO SUCH FORM WAS FILED BY THE ASSESSEE BEFORE THE ASSE SSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ON PERUSAL O F THE ASSESSMENT ORDER ALSO IT WAS FOUND THAT THE LEARNED ASSESSING OFFICER HAS ASSESSED ITA NO. 2252/DEL/2018 47 INCOME OF RS. 47,31,20,060/, ACCORDING TO THE NORM AL COMPUTATION OF INCOME AND IN FACT, IT IS THE RETURNED INCOME OF TH E ASSESSEE ONLY. THERE IS NO REFERENCE OF ANY COMPUTATION MADE BY THE LEAR NED ASSESSING OFFICER UNDER SECTION 115JB OF THE INCOME TAX ACT. 1961. THEREFORE, IT IS APPARENT THAT THE LEARNED ASSESSING OFFICER HAS NOT APPLIED HIS MIND TO THE PROVISIONS OF SECTION 115JB OF THE INCOME TAX A CT. 1961 FOR COMPUTATION OF THE BOOK PROFIT. B) THIS IS ALSO EVIDENT FROM THE FACT THAT THE LEARNED ASSESSING OFFICER HAS NOT RAISED ANY QUERY TO THE ASSESSEE ON THE ASP ECT OF TAXABILITY OF THE BOOK PROFIT UNDER SECTION 115JB OF THE INCOME T AX ACT, 1961. THOUGH ASSESSEE HAS CLAIMED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CONDUCTED EXTENS IVE AND NECESSARY ENQUIRIES ON THE AFORESAID ISSUE OF THE SALE OF SHA RES IN HCL TECHNOLOGY. NOW WE WOULD EXAMINE WHETHER ANY EXAMINATION HAS BE EN MADE BY THE LEARNED ASSESSING OFFICER WITH RESPECT TO THE COMPU TATION OF BOOK PROFIT UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 WIT H RESPECT TO THE PROFITS OR LOSS ARISING ON SALE OF SHARES OF THIS C OMPANY. THE 1 ST CONTENTION RAISED BY THE ASSESSEE IS THAT VIDE QUES TIONNAIRE DATED 24/06/2015, THE ASSESSING OFFICER, ESPECIALLY DIREC TED THE APPELLANT TO FURNISH THE INFORMATION WITH RESPECT TO DETAILS OF AMALGAMATION OR DEMERGER CARRIED OUT DURING THE YEAR AND VIDE QUEST ION NO. 11, THE APPELLANT WAS DIRECTED TO PROVIDE DETAILS OF INVEST MENT IN EQUITY SHARES AS SHOWN IN NOTE NO. 8 TO THE AUDITED FINANCIAL STA TEMENTS, WHICH REFERRED TO INVESTMENT IN EQUITY SHARES OF HCL TECH NOLOGIES. VIDE QUESTIONNAIRE NO. 12, THE APPELLANT WAS DIRECTED TO PROVIDE DETAILS OF ITA NO. 2252/DEL/2018 48 LOSS ON DISPOSAL OF INVESTMENT OF RS. 283.48 CRORES PARTICULARLY WITH REFERENCE TO NOTE NO. 25 OF THE NOTES TO THE AUDITE D FINANCIAL STATEMENTS. THIS CLAIM OF THE ASSESSEE, ON BEING EXAMINED, WE F IND THAT VIDE LETTER DATED 26/5/2015 ASSESSEE HAD SUBMITTED THE COPY OF RETURN OF INCOME ALONG WITH THE COMPUTATION OF THE TOTAL INCOME FOR THE RELEVANT YEAR. ADMITTEDLY ALONG WITH THIS RETURN, THE ASSESSEE HAS NOT SUBMITTED FORM NO. 29B OF THE INCOME TAX ACT, 1961, FOR THE PURPOS E OF THE COMPUTATION OF THE BOOK PROFIT. THEREFORE, THERE WAS NO OCCASI ON WITH RESPECT TO THIS REPLY TO VERIFY WITH THE COMPUTATION OF THE BOOK PR OFIT WITH THE ASSESSING OFFICER. THE 2 ND SUBMISSION WAS MADE BY THE ASSESSEE ON 30/6/2015 WHEN THE DETAILS OF THE AMALGAMATION AND THE COPIES OF THE SCHEME ALONG WITH THE COPY OF THE ORDER OF THE HIGH COURT SANCTIONING THE SCHEME WAS FURNISHED. EVEN IN THESE DETAILS, T HERE WAS NO REFERENCE OF COMPUTATION OF THE BOOK PROFIT UNDER SECTION 115 JB OF THE INCOME TAX ACT, 1961. THEREFORE, THE SUBMISSION ALSO DOES NOT DEAL WITH ANY OF THE ISSUE COVERED WITH THE CAPITAL GAIN OR LOSS ON ACCOUNT OF THE SHARES. THE ASSESSEE VIDE LETTER DATED 27/7/2015, SUBMITTED THE DETAILS OF INVESTMENT IN EQUITY SHARES WHICH, INTER ALIA CONTA INED THE DETAILS OF EQUITY SHARES IN HCL TECHNOLOGY ACQUIRED AS PART OF AMALGAMATION AND ALSO THE DETAILS OF LOSS OF RS. 291.82 CRORES ON SA LE OF INVESTMENT DURING THE RELEVANT YEAR. ON CAREFUL EXAMINATION OF THIS LETTER, IT WAS FOUND THAT THERE IS NO REFERENCE OF THE COMPUTATION OF TH E BOOK PROFIT UNDER SECTION 115 JB OF THE INCOME TAX ACT, 1961 OR RESUL TANT IMPACT ON SUCH COMPUTATION OF THE PROFIT OR LOSS ON SALE OF THE SH ARES. FURTHER, VIDE LETTER DATED 04/08/2015, THE ASSESSEE CONTENDS THAT IT HAS SUBMITTED ITA NO. 2252/DEL/2018 49 THE DETAILS OF LOSS ON DISPOSAL OF INVESTMENT OF RS . 283.48 CRORES ALONG WITH THE DETAILS OF PURCHASE AND SALE OF THE INVEST MENTS. THE DETAILS SO FILED INCLUDED DETAILS OF LONG TERM CAPITAL GAINS A S PER THE NORMAL PROVISION AND ALSO THE DETAILS OF LOSS ON SALE OF S HARES AS PER BOOKS OF ACCOUNTS. SUCH LETTER WAS FOUND AT PAGE NO. 249 TO 251 OF THE PAPER BOOK SUBMITTED BY THE ASSESSEE. AT SERIAL NUMBER 2 1 OF THE PAPER BOOK INDEX IT IS STATED COPY OF REPLY DATED 04.08.2015 FILED BEFORE THE ASSESSING OFFICER PROVIDING DETAILS OF PROFIT/LOSS ON INVESTMENTS SOLD AS PER NORMAL PROVISIONS OF THE ACT AND IN TERMS OF SECTIO N 115 JB OF THE ACT. ON CAREFUL PERUSAL OF THE PAGE NUMBER 249 251 OF THE PAPER BOOK, IT IS FOUND THAT THE ASSESSEE HAS MADE THE PART COMPLIANC E VIDE SERIAL NUMBER 12 OF THE NOTICE UNDER SECTION 142 (1) DATED 8 TH MAY 2015 AND SUBMITTED THE DETAILS OF LOSS ON DISPOSAL OF INVEST MENT OF RS. 2834863000/ ALONG WITH THE PROOF OF PURCHASE AND T HE SALE OF INVESTMENT. THE ASSESSEE FURTHER SUBMITTED THAT TH E LOSS OF RS. 2834863000 APPEARING IN THE PROFIT AND LOSS ACCOUNT HAS BEEN REVERSED IN THE COMPUTATION OF INCOME AND NO TAX BENEFIT HAS BEEN CLAIMED BY THE ASSESSEE COMPANY. THE DETAILS OF LOSS ON DISPOSAL OF THE INVESTMENT IS ENCLOSED AS PER ANNEXURE A . THEREFORE, IT IS APPAR ENT THAT ASSESSEE HAS NOT SUBMITTED ANYTHING WITH RESPECT TO THE COMPUTAT ION OF BOOK PROFIT WITH RESPECT TO THE PROFIT OR GAIN OR LOSS ARISING ON SALE OF THOSE SHARES. IN FACT, ASSESSEE HAS STATED THAT NO TAX BENEFIT HA S BEEN CLAIMED BY THE ASSESSEE COMPANY THOUGH IN THE BOOK PROFIT, IT HAS REDUCED THE LOSS OF RS. 2834863000/ FROM THE BOOK PROFIT. THEREFORE, TO THAT EXTENT THE ASSESSEE HAS DEFINITELY CLAIMED THE TAX BENEFIT. W E REST THAT ISSUE THEIR ITA NO. 2252/DEL/2018 50 ONLY BUT HOWEVER, WE STATE THAT THERE IS NO REFEREN CE OF ANY COMPUTATION OF BOOK PROFIT UNDER SECTION 115 JB OF THE INCOME TAX ACT, 1961. THE NEXT CLAIM OF THE ASSESSEE IS THAT VIDE LETTER DATED 20/11/2015, THE APPELLANT HAS FURNISHED THE COPY OF THE ORDER OF THE HIGH COURT APPROVING THE AMALGAMATION AND ALSO THE BALANCE SHEET OF AMALGAMATING ENTITIES. ON CAREFUL PERUSAL OF THE L ETTER PLACED AT PAGE NO. 252 TO 299 OF THE PAPER BOOK, WE FIND THAT THER E IS NO REFERENCE IN THESE DOCUMENTS WITH RESPECT TO THE COMPUTATION OF THE BOOK PROFIT FOR THE YEAR. THE NEXT CLAIM OF THE ASSESSEE IS THAT V IDE LETTER DATED 26/11/2015, IT HAS SUBMITTED THE BOOK VALUE OF ASSE TS TRANSFERRED ON MERGER VIDE ANNEXURE A AND THE FAIR MARKET VALUE OF THE ABOVE ASSETS RECORDED IN THE BOOKS ON AMALGAMATION VIDE ANNEXURE B THERE TO. ADMITTEDLY THESE DETAILS HAVE BEEN SUBMITTED AND PL ACED AT PAGE NUMBER 300 TO 302 OF THE PAPER BOOK. VIDE PAGE NUM BER 301, THE ASSESSEE HAS SHOWN THE INVESTMENT IN HCL TECH LTD O F RS. 114,30,05,45,285/ WHICH IS THE BOOK VALUE OF THE ASSETS. VIDE PAGE NUMBER 302, THE ASSESSEE HAS SHOWN THE VARIOUS INVE STMENTS WHERE THE FAIR MARKET VALUE OF INVESTMENT IN HCL TECHNOLOGIES LTD HAS BEEN SHOWN AT RS. 254,35,89,59,930/. BUT THE QUESTION BEFORE US IS WHETHER THE ASSESSEE HAS DISCLOSED THE CAPITAL GAIN OR CAPITAL LOSS DURING THE YEAR WHICH HAS BEEN EXAMINED BY THE LEARNED ASSESSING OF FICER FOR THE PURPOSE OF COMPUTATION OF THE BOOK PROFIT OR NOT. BOTH THE STATEMENT SUBMITTED BY THE ASSESSEE DOES NOT CLARIFY ABOUT AN Y CAPITAL GAIN OR CAPITAL LOSS ARISING IN THE HANDS OF THE ASSESSEE O N SALE OF ONE CRORE SHARES OF HCL TECHNOLOGIES LTD. THE NEXT LETTER, W HICH HAS BEEN STATED ITA NO. 2252/DEL/2018 51 TO BE SUBMITTED BY THE ASSESSEE IS DATED 02/12/2015 WHERE ASSESSEE SUBMITTED THAT THE ACTUAL COST OF THE SHARES OF HCL TECHNOLOGIES LTD IS RS. 6.5 PER SHARE ON THE DATE OF ACQUISITION, WHICH IS FROM 1995 TO 1999. AS ON THE APPOINTED DATE I.E. 1/4/2012, THIS IS TH E DATE ON WHICH THE FAIR MARKET VALUE OF THE ONE CRORE SHARES OF HCL LTD WER E TO BE DETERMINED. IT WAS STATED THAT THE STOCK MARKET WAS CLOSED. T HEREFORE, THE MARKET VALUE (QUOTED PRICE) ON THE RECOGNIZED STOCK EXCHAN GE AS ON 02/04/2012 WAS RS. 501.25 PER SHARE. THE ASSESSEE FURTHER SUBMITTED THAT AS ON THE APPOINTED DATE AS PER THE SCHEME OF THE MERGER, ALL THE ASSETS OF TRANSFEROR COMPANY SHALL BE RECORDED BY T HE TRANSFEREE COMPANY AT THEIR RESPECTIVE FAIR VALUE AND THE FAIR VALUE OF THE SHARE WAS DETERMINED AT RS. 798/- PER SHARE (THOUGH ITS Q UOTED PRICE AT STOCK EXCHANGE WAS ONLY RS. 501.25 PER SHARE) BY THREE DI FFERENT AGENCIES, NAMELY ICICI SECURITIES LTD, SBI CAPITAL MARKETS LT D AND SSPA & COMPANY, CHARTERED ACCOUNTANTS. UNDOUBTEDLY, THES E DOCUMENTS ARE PLACED AT PAGE NUMBER 303- 377 OF THE PAPER BOOK. HOWEVER NONE OF THESE DOCUMENTS SHOW THAT HOW IT HAS IMPACTED THE C OMPUTATION OF THE BOOK PROFIT UNDER SECTION 115 JB OF THE INCOME TAX ACT. 1961. EVEN OTHERWISE SURPRISINGLY, THE ASSESSING OFFICER HAS N OT RAISED THE QUERY AS TO HOW THE MARKET VALUE AT RECOGNISED STOCK EXCHANG E OF THE SHARES OF THE COMPANY IS QUOTED AT RS. 501.25 PER SHARE AND H OW THE VALUE IS DETERMINED BY THESE VALUERS AT RS. 798 PER SHARES A S THE FAIR MARKET VALUE. BASED ON THE ABOVE FINDING IT IS APPARENT T HAT THE LEARNED ASSESSING OFFICER HAS NOT LOOKED AT THE COMPUTATION OF THE BOOK PROFIT UNDER SECTION 115 JB OF THE INCOME TAX ACT. 1961. THEREFORE ACCORDING ITA NO. 2252/DEL/2018 52 TO US, IT IS NOT THE CASE OF INADEQUATE ENQUIRY BUT ABSENCE OF ENQUIRY WITH RESPECT TO THE COMPUTATION OF BOOK PROFIT UNDE R SECTION 115 JB OF THE INCOME TAX ACT. 1961. IN VIEW OF THIS WE REJEC T THE ARGUMENT OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THERE IS AN EXTENSIVE INQUIRIES MADE BY THE LEARNED ASSESSING OFFICER UNDER SECTION 143 (3) OF THE INCOME TAX ACT. 1961. ACCORDING TO US THE LEARNED ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY WITH RESPECT TO THE COMPUTATIO N OF THE BOOK PROFIT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IT IS A CLEAR CASE OF LACK OF ENQUIRY. C) AN INTERESTING ARGUMENT HAS ALSO BEEN RAISED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE REVALUATION OF A SSETS/INVESTMENT IS IN THE SHARES OF HCL TECHNOLOGIES LTD WHICH HAD NO TAX IMPLICATION UNDER THE NORMAL PROVISIONS OF THE ACT AND THE EXTE NSIVE INQUIRIES UNDERTAKEN BY THE ASSESSING OFFICER WAS PURELY TO E XAMINE THE IMPACT OF SUCH THREE STATEMENTS AT FAIR VALUE FOR THE PURPOSE OF DETERMINING THE BOOK PROFIT IN TERMS OF SECTION 115 JB OF THE ACT. THIS ARGUMENT THOUGH LOOKS ATTRACTIVE BUT STRAIGHTWAY REQUIRES TO BE REJ ECTED IN ABSENCE OF FORM NO. 29B SUBMITTED BY THE ASSESSEE BEFORE ANY O F THE LOWER AUTHORITIES. UNLESS SUCH FORM DULY CERTIFIED BY TH E ACCOUNTANT ABOUT ITS CORRECTNESS IS SUBMITTED BEFORE THE ASSESSING OFFIC ER, IT IS VERY DIFFICULT TO SAY WHETHER THERE IS ANY TAX IMPLICATION ON THE BOOK PROFIT OR NOT. HOWEVER, WE WOULD LIKE TO SHOW THAT THERE IS AN IMP ACT ON THE TAX LIABILITY OF THE ASSESSEE. THE SHARES OF THE COMPA NY HAS BEEN VALUED AS ON 01/04/2012 BY THE 3 VALUERS AT RS. 798 PER SHARE BY FOLLOWING DIFFERENT METHODS, WHEREAS THE QUOTED PRICE OF THE SHARE ON THE ITA NO. 2252/DEL/2018 53 EXCHANGES WAS ONLY RS. 501.25 PER SHARE. THE VALUE RS HAVE REJECTED THE FAIR MARKET VALUE OF THE SHARE AS TRADED PRICE HOLD ING THAT THE ASSESSEE IS HOLDING A CONTROLLING INTEREST IN THE COMPANY. T HEREFORE, THERE HAS TO BE A PREMIUM OVER THE MARKET VALUE OF THE SHARE. C ONSEQUENTLY, THE SHARES HAVE BEEN VALUED AT RS. 798 PER SHARE, COMPA RED TO THE TRADED PRICE OF RS. 501.25 PER SHARE IN THE STOCK EXCHANGE . THE SHARES HAVE BEEN SOLD DURING THE YEAR ITSELF AT THE MARKET RATE ON THE RECOGNIZED STOCK EXCHANGE AND THE COMPANY DID NOT GET ANY PREM IUM OF THAT CONTROLLING INTEREST. BY ENHANCING THE VALUE OF TH E CONTROLLING INTEREST OF THE SHARES AS ON 01/04/2012 AT RS. 798 PER SHARE INSTEAD OF RS. 501.25 PER SHARE, THE SALES OF THE SHARES AND THE F AIR MARKET VALUE OF THE SHARES WOULD HAVE BEEN ALMOST EQUAL. THEREBY THE B OOK LOSS SHOWN BY THE ASSESSEE WOULD HAVE BEEN THE BOOK PROFIT UNDER SECTION 115 JB OF THE ACT. EVEN OTHERWISE WE ARE NOT ON THE COMPUTAT ION OF THE INCOME BUT WE ARE ON THE ISSUE WHETHER THE LEARNED ASSESSI NG OFFICER HAS AT ALL LOOKED INTO THE COMPUTATION OF THE BOOK PROFIT UNDE R SECTION 115 JB OF THE ACT OR NOT. THE ANSWER IS CLEAR CUT NO. D) THE NEXT CONTENTION OF THE LEARNED AUTHORISED REPRE SENTATIVE IS THAT THAT ORDER IS NOT ERRONEOUS MUCH LESS PREJUDIC IAL TO THE INTEREST OF THE REVENUE. IT WAS STATED THAT THE ACCOUNTING TRE ATMENT OF RECORDING THE SHARES OF THE COMPANY ARE AT ITS FAIR MARKET VA LUE ACCEPTED BY THE ASSESSING OFFICER, WHICH IS STRICTLY IN ACCORDANCE WITH THE LAW. IT WAS FURTHER STATED THAT THE OBJECT OF MINIMUM ALTERNATE TAX PROVISION IS TO BRING OUT THE REAL PROFITS OF THE COMPANIES WHICH I S AVAILABLE FOR ITA NO. 2252/DEL/2018 54 DISTRIBUTION AS DIVIDEND BASED ON THE PROFITS DECLA RED BY SUCH COMPANIES AND ITS BOOKS OF ACCOUNT. IT WAS FURTHER STATED THAT THE PROFIT AND LOSS ACCOUNT PREPARED IN COMPLIANCE WITH THE RE QUIREMENTS OF THE COMPANIES ACT, 1956 AND IN ACCORDANCE WITH THE ACCO UNTING STANDARD ISSUED BY THE ICAI, AS LAID DOWN BEFORE THE MEMBERS IN THE ANNUAL GENERAL MEETING THAT NORMAL PROFIT SHOULD BE REGARD ED AS SACROSANCT FOR COMPUTING THE DEEMED INCOME UNDER SECTION 115 JB OF THE ACT AND CAN ONLY BE SUBJECTED TO THE UPWARD AND DOWNWARD ADJUST MENT SPECIFIED IN THAT SECTION. THERE IS NO QUARREL ON THIS ISSUE BE CAUSE THESE ARE THE ISSUES OF THE PRINCIPLES OF TAXATION. THE SIMPLE I SSUE INVOLVED IN THIS APPEAL IS WHETHER THE COMPUTATION OF THE BOOK PROFI T HAS BEEN VERIFIED BY THE LEARNED ASSESSING OFFICER OR NOT. WHETHER T HE ASSESSEE HAS SUBMITTED ANY DETAIL WHICH SHOWS THAT LEARNED ASSES SING OFFICER HAS APPLIED HIS MIND TO THE COMPUTATION OF THE BOOK PRO FIT OR NOT. FOR BOTH THE QUESTIONS THE ANSWER IS IN NEGATIVE. E) THOUGH THE LEARNED PRINCIPAL CIT HAS ALSO LOOKED IN TO THE COMPUTATION ASPECT OF THE CAPITAL GAIN AND CREDITIN G OF THE EXCESS OF THE FAIR MARKET VALUE OF THE ASSET OVER THE LIABILITIES OF THE AMALGAMATED COMPANY CREDITED TO SECURITIES PREMIUM ACCOUNT OR A GAINST THE REVALUATION RESERVE FOR THE PURPOSE OF THE COMPUTAT ION OF THE BOOK PROFIT UNDER SECTION 115 JB OF THE ACT AS WELL, AS HAS ALSO BEEN STATED THAT AMALGAMATION IS WITH THE PURPOSE OF EVADING MI NIMUM ALTERNATE TAX AND THE SCHEME IS NOT BINDING ON THE REVENUE. THESE ASPECTS ARE REQUIRED TO BE VERIFIED AT THE TIME OF COMPUTATION OF THE BOOK PROFIT UNDER SECTION 115 JB OF THE INCOME TAX ACT, 1961. THEREFORE SAME ARE ITA NO. 2252/DEL/2018 55 NOT REQUIRED TO BE DEALT WITH AT THE MOMENT OF FIND ING OUT WHETHER THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, WHICH ARE NOT SO RELEVANT. F) THE PRINCIPAL CIT HAS ALSO RELIED UPON THE EXPLANAT ION 2 OF SECTION 263 INSERTED WITH EFFECT FROM 1/6/2015 TO SAY THAT THE LEARNED ASSESSING OFFICER HAS NOT MADE ENQUIRIES, WHICH SHO ULD HAVE BEEN MADE BY HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE LEARNED AUTHORISED REPRESENTATIVE HAS STRONGLY OBJECTED AND STATED THAT WHEN EXTENSIVE INQUIRIES WERE CONDUCTED BY THE ASSESSING OFFICER, THE EXPLANATION 2 DOES NOT APPLY TO THE FACTS OF THE CA SE. IN THE PRESENT CASE, THE LEARNED ASSESSING OFFICER HAS NOT EVEN EXAMINED THE COMPUTATION OF THE BOOK PROFIT UNDER SECTION 115 JB OF THE INCOME TAX ACT, 1961. NO FORM NO. 29B HAS BEEN FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER OR BEFORE THE PRINCIPAL COMMISSIONER OF INCOME TAX, WHICH ITSELF SPEAKS THAT THE LEARNED ASSESSING OFFICER HAS NOT CONDUCTE D ANY ENQUIRY WITH RESPECT TO THE COMPUTATION OF BOOK PROFIT UNDER SEC TION 115 JB OF THE INCOME TAX ACT, 1961. EVEN OTHERWISE BEFORE US, TH E LEARNED AUTHORISED REPRESENTATIVE COULD NOT SHOW WHAT IS THE EXTENSIVE ENQUIRY THE LEARNED ASSESSING OFFICER HAS CONDUCTED WITH RESPECT TO THE COMPUTATION OF THE BOOK PROFIT UNDER SECTION 115 JB OF THE ACT. EVEN BEFORE US FORM NO. 29B WAS NOT FILED. IN PRESENCE OF THESE PECULIAR F ACTS AND CIRCUMSTANCES OF THE CASE IN HAND, THE DECISIONS RELIED BY THE AS SESSEE DO NOT RENDER ANY HELP TO IT AND THE SAME ARE DISTINGUISHABLE ON FACTS. THEREFORE, WE CONCUR WITH THE VIEWS OF THE LEARNED PRINCIPAL COMM ISSIONER OF INCOME TAX THAT ACCORDING TO THE EXPLANATION (2) OF SECTIO N 263 OF THE INCOME ITA NO. 2252/DEL/2018 56 TAX ACT, 1961, THE ORDER PASSED BY THE LEARNED ASSE SSING OFFICER IS ERRONEOUS SO FAR AS IT IS PREJUDICIAL TO THE INTERE ST OF THE REVENUE. 14. IN VIEW OF THIS, WE CONFIRM THE FINDING OF THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX IN HOLDING THAT THE ORDE R PASSED BY THE LEARNED ASSESSING OFFICER UNDER SECTION 143 (3) ON 2/1/2016 IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE TO THE E XTENT THAT THE LEARNED ASSESSING OFFICER HAS NOT EXAMINED THE COMPUTATION OF THE BOOK PROFIT UNDER SECTION 115 JB OF THE INCOME TAX ACT, 1961. ACCORD INGLY, THE ORDER OF THE PRINCIPAL COMMISSIONER PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 ON 26/2/2018 IS UPHELD. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2018. SD/- SD/- (BHAVNESH SAINI) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 TH NOVEMBER, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI