ACIT Circle-9 (1), New Delhi V. Softnet Traders & Consultants Pvt. Ltd, New Delhi

ITA 3071/DEL/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55630 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 16-09-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 07-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PANJAJ TOPARANIMS USHA DALAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Fair market value
• Section: 50C; 131; 69; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI PRAMOD KUMAR, AM & SHRI VIJAY PAL RAO , JM ITA NO.3070 & 3071/ DEL/2008 (ASST YEAR 2003-04 & 05-06) THE ASST COMMR OF INCOME TAX 9(1), NEW DELHI VS SOFTNET TRADERS & CONSULTANTS P LTD C/O MR VASUDEVA & CO CA B-41 PANCHSHEEL ENCLAVE NEW DELHI 17 (APPELLANT) (RESPONDENT) PAN NO. AAGCS6694H ASSESSEE BY SHRI PANJAJ TOPARANI/MS USHA DALAL REVENUE BY SHRI VINOD JOSHI/ SHB JAYA KUMAR DT.OF HEARING 27.09.2011 DT OF PRONOUNCEMENT 25 TH OCT 2011 PER VIJAY PAL RAO, JM THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 3.7.3008 AND 4.7.2008 OF THE CIT(A) FOR THE A Y 2003-04 AND 2005-06 RESPECTIVELY. 2 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN T HESE APPEALS: FOR ASSESSMENT YEAR 2003-04: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 17,39, 43,000/- MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESSE E WITHIN THE MEANING OF SECTION 28(1)(IV) OF THE I T ACT. II) ON THE FACTS AND IN THE CIRCUMSTANCES THE CASED LD CIT(A) HAS ERRED ON FACTS IN HOLDING THAT SHRI ASHISH P DEORA WAS APPOI NTED AS DIRECTOR ON 3.5.2005 AND THE OBSERVATION OF THE ASSESSING OFFICER THAT SHRI ASHISH P DEORA WAS A DIRECTOR IN JUNE 2002 IS NOT CORRECT. FOR ASSESSMENT YEAR 2005-06: I) THE LD CIT(A) ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION OF RS. 40,45,80,000/- MADE BY THE ASSESSING OFFICER O N ACCOUNT OF LONG TERM 2 CAPITAL GAIN ON TRANSFER OF SHARES TO M/S RELIANCE IN FOCOM LTD BY THE ASSESSEE COMPANY WITHOUT APPRECIATING THE FACT THAT SINCE THE SHARE WERE NOT LISTED IN THE BSE OR NSE ON THE DATE OF SALE, TH E VALUE OF SHARES AS ON 14.4.,05 HAS BEEN DETERMINED ON THE BASIS OF ITS R ATE OF INCREASE IN THE VALUE FROM 16.9.02 TO 16.3.06 ON WHICH DATE THE SHARES WER E FIRST LISTED IN THE STOCK EXCHANGE. II) THE CIT(A) HAS ERRED ON FACTS IN HOLDING THAT SH RI ASHISH P DEORA WAS APPOINTED AS DIRECTOR ON 3.5.2005 AND THE OBSERVATIO N OF THE AO THAT SHRI ASHISH P DEORA WAS A DIRECTOR IN JUNE 2002 IS NOT COR RECT. 3 WE HAVE HEARD THE LD DR AS WELL AS LD AR OF THE A SSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE FACTS ARE COMMON AS IN THE CASE OF SHRI ASHISH P DEORO IN ITA NO.442/MUM/2007 AND REPRODUCED AS UNDE R: 4 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CAME TO KNOW THAT 1 CRORE SHARES OF M/S RELIANCE INFOCOMM LTD (RIC) WERE ALLOTTED @ RS. 1/- PER SHARE) TO THREE COMPANIES AS PER THE DETAIL S BELOW: NAME OF THE COMPANY NO.OF SHARES ALLOTTED DT OF ALLOTMENT M/S FAIREVER TRADERS & CONSULTANTS P LTD 3,400,000 16.09.2002 M/S SOFT-NET TRADERS & CONSULTANTS P LTD 3,300,000 16.09.2002 M/S PRENA AUTO PVT LTD 3,300,000 16.09.2002 4.1 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE S HRI ASHISH P DEORO IS THE DIRECTOR IN ALL THE THREE COMPANIES. A STATEMENT O F THE ASSESSEE WAS RECORDED U/S 131 OF THE I T ACT BY THE ADIT ON 24.8.2005 IN CONN ECTION WITH THE ALLOTMENT OF 1 CRORE SHARES OF RIC TO THE THREE COMPANIES. THE ASSESSIN G OFFICER HAS REPRODUCED CERTAIN CONTENTS OF THE STATEMENT OF SHRI ASHISH P DEORO A ND PARTICULARLY NOTED THAT THE ASSESSEE WAS GIVEN THE JOB BY THE RELIANCE GROUP OF OBTAINING THE RIGHT OF WAY TO LAY FIBRE CABLE INSIDE THE COMMERCIAL BUILDINGS/COO PERATIVE SOCIETIES AND TO OBTAIN PERMISSION FROM THE SOCIETIES TO PROVIDE BROADBAND SERVICES. AS AN INCENTIVE TO ACHIEVE THE STEEP TASK OF OBTAINING RIGHT OF WAY A ND BUILDING PERMISSION OF 50000 3 BUILDING AT A HEAVILY NEGOTIATED PRICE AND WITHIN T HE STIPULATED TIME, HE WAS TO RECEIVE 1 CRORE SHARES OF M/S RIC. SINCE THE RIC H AS ALLOTTED 32.02 CRORES OF SHARES OF THE FACE VALUE OF RS.1/- PER SHARE TO M/S RELIANCE COMMUNICATION INFRASTRUCTURE LTD (RCIL) AT A PREMIUM OF RS. 52.71 PER SHARES VIDE DE CISION TAKEN IN THE BOARD MEETING ON 2.11.2002, THE ASSESSING OFFICER ASKED THE ASSES SEE AS TO WHY THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE SHARES WERE ALLOTTED TO M/S RIC AND THE PRICE AT WHICH ALLOTTED TO THE ASSESSEE SHOULD NOT BE TAXED IN HIS HANDS U/S 28(IV) OF THE ACT AS A RESULT OF BENEFIT ARISING FROM HIS BUSINESS. 4.2 THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFF ICER THAT NO BENEFIT OR PERQUISITE ACCRUED OR WAS RECEIVED BY THE ASSESSEE OR HIS NOMINEE AND HOLDING OF ONE CRORE SHARES OF RIC BY THE THREE COMPANIES WAS PURELY AN INTERIM ARRANGEMENT AND THE SAID SHARES HAD TO BE RETURNED TO THE TRANS FEROR GANESH INFRASTRUCTURE CAPITAL FUND(GICF). IT WAS CONTENDED THAT THE ASSE SSEE DID NOT RECEIVE ANY BENEFIT FROM THE EXERCISE OF HIS PROFESSION OR THERE WAS NO VESTING OF THE PROPERTY BY INVOKING PROVISIONS OF SEC. 28(IV) OF THE ACT R.W.S 2(24) (VD). APART FROM THE ABOVE, THE ASSESSEE HAS ALSO SUBMITTED THAT RIC WAS SUFF ERING LOSSES, IT WAS NOT PAYING ANY DIVIDEND AND ITS SHARES WERE UNLISTED. THE FARE MA RKET VALUE OF THE SHARES IN QUESTION AT THE RELEVANT POINT OF TIME WAS AT FACE VALUE. IT WAS SUBMITTED THAT THE ASSESSEE HAD NO BUSINESS CONNECTION WITH GICF WHO HAD TRANSF ERRED THE SHARES OF RIC TO THE THREE COMPANIES. FINALLY, IT WAS STATED THAT THE S HARES ARE TO BE TRANSFERRED TO THE COMPANIES ONLY ON COMPLETION OF THE PROJECT AND SIN CE THE PROJECT COULD NOT BE COMPLETED; THEREFORE, THE SHARES WERE RETURNED TO T HE TRANSFEROR AND NO BENEFIT ACCRUED OR RECEIVED BY THE ASSESSEE OR HIS NOMINEE. 4.3 THE ASSESSING OFFICER DID NOT ACCEPT THE CONTEN TION OF THE ASSESSEE AND TREATED THE DIFFERENCE OF RS. 52.71 PER SHARE AS TH E BENEFIT ARISING ON TRANSFER OF 4 THESE 1 CRORE SHARES AT PAR AND TAXED ON SUBSTANTIV E BASIS IN THE HANDS OF THE ASSESSEE. AT THE SAME TIME, THE ASSESSING OFFICER WAS OF THE VIEW THAT IT WILL BE TAXED ON PROTECTIVE BASIS IN THE HANDS OF THE THREE RECIPIENTS COMPANIES. 4.4 ON APPEAL, THE CIT(A) DELETED THE ADDITION AFTE R TAKING THE NOTE OF THE FACT THAT TRANSFER OF 1 CRORE SHARES OF RIC BY GANESH T RUST WERE SUBSEQUENTLY RETRANSFERRED ON NON-FULFILMENT OF THE CONDITIONS BY THE ASSESSEE TO THE GANESH TRUST. 5. VIDE EVEN DATE ORDER IN THE CASE OF SHRI ASHISH P DEORO IN ITA NO.442/MUM/2007 WE HAVE HELD THAT TRANSACTION OF TR ANSFER WAS NOT COMPLETED FOR WANT OF FULFILMENT OF CONDITIONS OF THE TRANSFER. T HE RELEVANT PART OF THE ORDER IS REPRODUCED HERE UNDER; 6 WE HAVE CONSIDERED THE RIVAL CONTENTION AND RELEV ANT MATERIAL ON RECORD. IT IS PERTINENT TO NOTE THAT 1 CRORE SHARES O F RIC WERE ALLOTTED TO THREE COMPANIES NAMELY (I) M/S FAIREVER TRADERS & CONSULTANT S P LTD(II) M/S SOFT-NET TRADERS & CONSULTANTS P LTD AND (III) M/S PRENA AUTO PVT LTD, ON FACE VALUE OF RS. 1/- AT PART SUBJECT TO THE CONDITION THAT THE ASSESSEE HAS TO EXECUTE THE JOB OF LAYING OF OPTIC FIBRE CABLE BY ACHIEVING THE TARGET OF AT LEAST 50000 BUILDINGS WITHIN THE STIPULATED PERIOD. IT MAY NO TE THAT THE ASSESSEE FAILED TO FULFIL THE SAID CONDITION AND FINALLY 1 CRORE SHARES WERE RETURN BACK. THERE IS NO DISPUTE ABOUT THE FACT THAT THE SHARES WERE GIVEN BY ONE M/S GANESH INFRASTRUCTURE CAPITAL FUND AND ALSO RETURNED BY THE ASSESSEE TO GANESH TRUST. THUS, THERE WAS NO FINAL TRANSFER OF THESE SH ARES EITHER IN THE NAME OF THE ASSESSEE OF IN THE NAME OF THE COMPANIES IN WHICH T HE ASSESSEE IS A DIRECTOR BECAUSE TRANSFER WAS ON CONDITIONAL BASIS AND THE A SSESSEE FAILED TO COMPLY WITH THE CONDITIONS, THE SHARES COULD NOT BE TRANSFER RED BUT ONCE THE TRANSACTION OF TRANSFER WAS NOT THERE AND ULTIMATELY THE SHARES WERE RETURNED BACK AT THE SAME PRICE THEN, NO BENEFIT WHATSOEVER NEITHER ACCRUED NOR RECEIVED BY THE ASSESSEE OR THE COMPANIES IN WHICH TH E ASSESSEE IS A DIRECTOR. THEREFORE, ON THESE FACT ITSELF IT CAN SA FELY SAID THAT THE CONDITIONS AS POSTULATE U/S 28(IV) ARE NOT FULFILLED AND THEREFO RE, PROVISIONS OF SEC. 28(IV) CANNOT BE INVOKED IN THE HANDS OF THE ASSESSEE. 5 6.1 MOREOVER, IN THE CASE OF M/S KAIZEN COMMERCIAL P LTD (SUPRA) IDENTICAL ISSUE WAS CAME BEFORE THE TRIBUNAL AND AFTER CONSID ERING THE RELEVANT FACTS, THE TRIBUNAL HAS HELD IN PARA 6 AND 7 AS UNDER: 6 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. WHILE MAKING THE ADDITION OF TH E PREMIUM OF RS. 14/- PER SHARE, THE ASSESSING OFFICER HAS TAKEN INTO CONSIDERATION THE DIRECTORS REPORT. THE SPECIAL COUNSEL HAS ALSO RELI ED UPON THE DIRECTORS REPORT WHICH TALKS ABOUT THE ALLOTMENT OF THE BASIC T ELEPHONE SERVICES IN 16 OUT OF 18 CIRCLES APPLIED BY RICL. IT IS PERT INENT TO NOTE THAT THE DIRECTORS REPORT IS DATED 16.8.2001, WHICH IS CONSE QUENT TO THE GRANT OF LICENSE TO RICL FOR OPERATING THE BASIC TELEPHONE SE RVICES ON 20.7.2001. THUS, IT IS CLEAR THAT THE DIRECTORS REPORT REFERS TO THE EVENTS CONSEQUENT TO THE ALLOTMENT OF THE SHARES ON 2.4.2001 AND PARTIC ULARLY THE DEVELOPMENTS OF THE GRANT OF LICENSE OF 16 TELEPHON E CIRCLES. UNDISPUTEDLY, ONCE THE LICENSE FOR OPERATING THE BA SIC TELEPHONE SERVICE IN 16 CIRCLES WAS GRANTED WHICH COVER THE M AJORITY OF THE STATES OF THE COUNTRY; HENCE, WAS AN IMPORTANT DEVELOPMENT AND CERTAINLY IT HAS A POSITIVE EFFECT ON THE VALUE OF THE SHARES OF RICL. THEREFORE, REFERENCE OF GRANT OF LICENSE IN THE DIRECTORS REPORT CANNOT SUPPORT THE ACTION OF THE ASSESSING OFFICER TO PRESUME THE VALUE OF THE SHARE OF RCIL AT RS. 15/- PER SHARE ON THE DATE OF ALLOTMENT I.E. 2.4.2001. 6.1 AS POINTED OUT BY THE SR COUNSEL FOR THE ASSESSEE THAT PRIOR TO 2.4.2001, RCIL HAVE ALREADY ISSUED THE SHARES THROUGH ALLOTMENT AT PAR I.E. RS. 1/- EACH IN THE MONTH OF JAN AND FEB 2001. ON BOTH THES E OCCASIONS, THE SHARES WERE ALLOTTED AT RS. 1/- PER SHARE. SIMILARLY ON 2.4.2001, 65 CRORES SHARES WERE AGAIN ALLOTTED BY RCIL TO SEVEN ALLOTTES AS PER THE DETAILS OF THE ALLOTMENT REPRODUCED BY THE ASSESSING OFFICE R AT PAGE 2 OF HIS ORDER AS UNDER: NAME OF THE ASSESSEE NO.OF HARES ALLOTTED (IN CRORES) RELIANCE INDUSTRIES LTD 6.50 RELIANCE COMMN INFRASTRUCTURE LTD 20.50 OTHER BODIES CORPORATE: GREENWICH CAPITAL P LTD 1.16 WARBURG CAPITAL P LTD 1.17 PERIGEE TRADING P LTD 1.17 KAIZN COMMERCIAL LTD 3.00 GANESH INFRASTRUCTURE CAPITAL FUND 31.50 TOTAL 65.00 6 6.2 THE ASSESSING OFFICER, WHILE ESTIMATING THE PRE MIUM HAS TAKEN INTO ACCOUNT THE SHARES ALLOTTED BY RCIL ON 2.11.202, 9.9 .2003 AND 11.11.2002. THE ASSESSING OFFICER HAS REPRODUCED THE DETAILS IN THE ASSESSMENT ORDER WHICH WE HAVE REPRODUCED IN THIS ORDER IN THE FOREGOING PARAGRAPH NO.5.1. THUS, IT IS EVENT THAT T HE ASSESSING OFFICER HAS TAKEN INTO ACCOUNT THE ALLOTMENT PRICE OF THE SH ARES OF RCIL ON 2.11.2002, 9.9.2003. IT IS TO BE NOTED THAT WHEN TH E RCIL WAS ALLOTTED THE LICENSE FOR OPERATING THE BASIC TELEPHONE SERVICES AND ALSO STARTED THE WORK FOR PROVIDING THE SERVICES, THE ALLOTMENT IN NOV 2002 AND SEPT 2003 WAS SUBSEQUENT TO THE SAID DEVELOPMENT AND THE REFORE, THE APPRECIATION OF THE VALUE OF THE SHARES A NATURAL CONS EQUENCE OF GRANT OF LICENSE AND WORK EXECUTED BY RCIL FOR PROVID ING THE SERVICE. THEREFORE, THE FUTURE EVENT ON DEVELOPMENT OF GRANT OF LICENSE CANNOT BE A BASIS FOR VALUING THE SHARES ON THE DATE WHEN NO SUCH ALLOTMENT WAS IN SIGHT. MOREOVER, WHEN NET WORTH OF RCIL WAS N EGATIVE AS ON 31.3.2001, THEN THE VALUATION OF THE SHARES ON 2.4.2 001 CANNOT BE SUPPOSED TO HIGHER THEN WHAT WAS IN THE MONTH OF JAN AND FEB 2001. HENCE, IN OUR CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS MISGUIDED HIMSELF BY TAKING INTO ACCOUNT THE APPREC IATION OF THE SHARES OF RCIL ON ACCOUNT OF ALLOTMENT OF LICENSE AN D WORK DONE BY RCIL FOR PROVIDING THE BASIC TELEPHONE SERVICES IN PU RSUANT TO THE LICENSE WHILE WORKING OUT THE VALUATION PRIOR TO ALL THESE DEVELOPMENT. 6.3 FURTHER, WHEN THE ASSESSEE WAS NOT HAVING ANY DI RECT BUSINESS RELATION OR HAVING ANY BUSINESS OR CARRIED OUT ANY BUS INESS WITH RCIL EITHER IN THE PAST OR DURING THE YEAR IN QUESTION OR IN SUBSEQUENT YEAR THEN IT CANNOT BE SAID THAT THERE EXIST ANY BUSINES S OR PROFESSION RELATIONSHIP BETWEEN THE ASSESSEE AND RCIL. RCIL AND OTHER RELIANCE GROUP OF COMPANIES ARE INDEPENDENT ENTITIES AND EVE N FOR TAXATION PURPOSES, THEY ARE SEPARATE AND INDEPENDENT PERSONS; THEREFORE, ANY BUSINESS OR PROFESSIONAL RELATIONSHIP OF THE ASSESSEE WITH THE RIL COULD NOT AUTOMATICALLY CREATE ANY BUSINESS OR PROFESSION AL RELATIONSHIP BETWEEN THE ASSESSEE AND RCIL. THEREFORE, PROVISIONS OF SECTION 28(IV) CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE. 7 IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT TH E VALUE ESTIMATED BY THE ASSESSING OFFICER OF THE SHARES OF RCIL ON 2.4.2 001 @ RS. 15/- PER SHARE IS HIGHLY UNREALISTIC, ARBITRARY AND WITHOUT ANY ACCEPTABLE BASIS BUT ON THE BASIS OF SOME FUTURE EVENTS, WHICH COULD NOT INFLUENCE THE VALUE OF THE SHARES PRIOR TO THE DATE OF SUCH DEVELOP MENT. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY I N THE ORDER OF THE LD CIT(A). 7 WE FURTHER NOTE THAT THE TRIBUNAL IN THE CASE OF N RUPEE FINANCE & MANAGEMENT P LTD (SUPRA), HAS ALSO TAKEN SIMILAR VIEW IN PARAS 8.1 TO 8,05 AS UNDER: 8.1 THE FIRST ISSUE IS WHETHER THE MOU IN QUESTION CAN BE CONSIDERED AS FAMILY ARRANGEMENT OR NOT. THE SECOND ISSUE IS WHETH ER THE FAMILY ARRANGEMENT IS A MAKE-BELIEF AND SHAM TRANSACTION. THE THIRD ISSUE IS 7 WHETHER THE DIFFERENCE BETWEEN THE MARKET VALUE OF THE SHARES AND THE PURCHASE PRICE CAN BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE COMPANY UNDER S. 69. THE FOURTH ISSUE IS AS TO WHET HER THE DIFFERENCE IN QUESTION REFERRED TO ABOVE, CAN BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE COMPANY UNDER S. 28(IV). 8.2 WE TAKE UP THIRD AND FOURTH ISSUES FIRST. SEC. 69 READS AS FOLLOWS : '69. WHERE IN THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR THE ASSESSEE HAS MADE INVESTMENTS WH ICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, MAINT AINED BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVEST MENTS OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINI ON OF THE AO, SATISFACTORY, THE VALUE OF THE INVESTMENTS MAY BE DE EMED TO BE THE INCOME OF THE ASSESSEE OF SUCH FINANCIAL YEAR.' THE UNDISPUTED FACTS IN THIS CASE ARE THAT THE ASSES SEE COMPANY HAS PURCHASED CERTAIN SHARES AT A PRICE WHICH IS BELOW THE MARKET VALUE. THERE IS NO DISPUTE OF THE FACT THAT THE PRICE PAID F OR THE SHARES BY THE ASSESSEE COMPANY WERE THE COST INCURRED BY THE PURCHA SER. IT IS ALSO NOT DISPUTED THAT ALL THESE INVESTMENTS WERE RECORDE D IN THE BOOKS OF ACCOUNT. UNDER S. 69 ONLY SUCH VALUE OF THE INVESTM ENTS MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR THE FINA NCIAL YEAR, IF THEY ARE NOT RECORDED IN THE BOOKS OF ACCOUNT. THUS S. 69 IS NOT APPLICABLE IN THIS CASE. THE FIRST APPELLATE AUTHORITY POSSIBL Y REALISING THIS DIFFICULTY HAS CHOSEN TO INVOKE S. 28(IV) AND NOT TO GIVE A DE CISIVE FINDING AS TO WHETHER S. 69 IS APPLICABLE OR NOT. WE HAVE TO MENTI ON HERE THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE COMPA NY HAS PAID CERTAIN AMOUNT IN EXCESS OF WHAT IS RECORDED IN THE BOOKS OF ACCOUNT FOR THE PURCHASE OF THE SHARES. THERE IS NOT EVEN AN AL LEGATION MUCH LESS ANY EVIDENCE THAT THE APPARENT CONSIDERATION IS NOT THE REAL CONSIDERATION. THE ONLY GROUSE OF THE REVENUE AUTHORI TIES HAVE IS THAT THE ASSESSEE COMPANY HAS PURCHASED THE SHARES AT A P RICE WHICH MUCH LESSER THAN THE MARKET PRICE. THIS, AS ALREADY ST ATED IS NOT A DISPUTED FACT. THUS ON THESE FACTS WE HOLD THAT NO ADDITION IS SUSTAINABLE UNDER S. 69. 8.3 THIS BRINGS US TO WHETHER THE DIFFERENCE IN QUEST ION CAN BE CONSIDERED AS INCOME UNDER S. 28 (IV) ? THE SECTION R EADS AS FOLLOWS : '28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INC OME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PRO FESSION, (IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION.' 8 CIRCULAR EXPLAINING THE PROVISIONS OF NEW S. 28(IV) A T CL. 82 STATES AS FOLLOWS : 'ASSESSMENT OF THE VALUE OF ANY BENEFIT OR PERQUISITE ARISING FROM BUSINESS OR EXERCISE OF A PROFESSION, AS INCOME FROM BUSINESS OR PROFESSION. 82. A NEW CL. (IV) HAS BEEN INSERTED IN S. 28, W.E. F. 1ST APRIL, 1964, BY S. 7 OF THE FINANCE ACT, 1964, UNDER WHICH THE V ALUE OF ANY BENEFIT OR PERQUISITE (WHETHER CONVERTIBLE IN MONEY O R NOT) ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION WILL BE CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. A CORRESPONDING AMENDMENT HAS BEEN M ADE TO S. 2 (24), INCLUDING THE VALUE OF SUCH BENEFIT OR PE RQUISITE IN THE DEFINITION OF THE TERM INCOME VIDE NEW SUB-CL. (V A) INSERTED IN S. 2(24) BY S. 4(C)(I) OF THE FINANCE ACT, 1964. 83. THE EFFECT OF THE ABOVE-MENTIONED AMENDMENT IS THAT IN RESPECT OF AN ASSESSMENT FOR THE ASST. YR. 1964-65 A ND SUBSEQUENT YEARS, THE VALUE OF ANY BENEFIT OR AMENIT Y, IN CASH OR KIND, ARISING TO AN ASSESSEE FROM HIS BUSINESS OR T HE EXERCISE OF HIS PROFESSION, E.G., THE VALUE OF RENT FREE RESIDENTI AL ACCOMMODATION SECURED BY AN ASSESSEE FROM A COMPANY IN CONSIDERATION OF THE PROFESSIONAL SERVICES AS A LAWYE R RENDERED BY HIM TO THAT COMPANY, WILL BE ASSESSABLE IN THE H ANDS OF THE ASSESSEE AS HIS INCOME UNDER THE HEAD PROFITS AND G AINS OF BUSINESS OR PROFESSION.' THE CONDITION OF INVOKING S. 28(IV) IS THAT THE CHA RGEABLE INCOME OF THE ASSESSEE SHOULD ARISE FROM THE BUSINESS OR IN THE EXERCISE OF PROFESSION. THERE MUST BE A NEXUS BETWEEN THE BUSINESS OF THE ASSESSEE AND THE BENEFI T THE ASSESSEE DERIVED. THE ASSESSEE IN THIS CASE PURCHAS ED CERTAIN SHARES AT A CERTAIN PRICE AND WAS REQUIRED TO HOLD THESE SHARES FOR A PERIOD OF THREE YEARS. IT IS NOT I N DISPUTE THAT THIS WAS AN INVESTMENT MADE BY THE ASSESSEE COMPANY HENCE IRRESPECTIVE OF THE FACT AS TO WHETHER THESE INVESTMENTS WERE MADE IN PURSUANCE OF THE MOU OR NOT, WE ARE OF THE CONSIDERATION OPINION THAT SUCH INVESTMENTS CANNOT BE SAID TO BE A BENEFIT ARISEN OU T OF THE BUSINESS OF THE ASSESSEE. MOREOVER THE ASSESSEE IS THE PURCHASER OF THE SHARES AND THERE IS NO EVENT THAT HAS TAKEN PLACE DURING THE CURRENT ACCOUNTING YEAR WHICH CAN BE SAID TO HAVE RESULTED IN ANY INCOME BEING ACCRUED OR ARISEN TO THE ASSESSEE COMPANY DURING THE YEAR. IF AT ALL THE ASSESSEE TRANSFERS THE SHARES, TH EN THE 9 BENEFIT OF PROFIT IN QUESTION CAN BE BROUGHT TO TAX IN THOSE PARTICULAR YEARS. IN ALL THE CASE LAWS RELIED U PON BY THE REVENUE HAVE BEEN DISCUSSED BY US WHILE NARRATIN G THEIR ARGUMENTS AND IN THESE CASES THE TAX HAS BEEN LEVIED ON THE TRANSFEROR AND NOT THE TRANSFEREE. THE E FFECT OF THIS SECTION HAS BEEN EXPLAINED BY THE CBDT IN T HE ABOVE CITED CIRCULAR AND FROM THIS IT IS CLEAR THAT, WHEN AN ASSESSEE PURCHASES GOODS OR ASSETS AT A PRICE LOWE R THAN THE MARKET PRICE, UNDER WHATEVER CIRCUMSTANCES, THE SAME CANNOT BE BROUGHT TO TAX UNDER S. 28(IV). T HE SECTION COVERS FRINGE BENEFITS THAT ARE AVAILED IN AD DITION TO CONSIDERATION EARNED IN CARRYING OUT A PROFESSION O R WHILE DOING BUSINESS. A BENEFIT THAT IS PASSED ON B Y ONE PARTY TO ANOTHER, IN ADDITION TO COST OR SALE PRICE, IS COVERED IN THIS PROVISO. THIS IS CLEAR FROM THE EXAMP LE QUOTED. IN OUR HUMBLE OPINION, THIS SECTION CANNOT BE INVOKED UNDER THE PRESENT FACTS AND CIRCUMSTANCES. 8.4 BE IT AS IT MAY THE CO-ORDINATE BENCH OF THE TRI BUNAL (F-BENCH, MUMBAI) IN THE CASE OF HELIOS FOOD IMPROVERS (P) LTD . (SUPRA) HELD THAT S. 28 IS A CHARGING SECTION AND TAKES INTO ACCOUNT T HE RECEIPTS OF SPECIFIED CATEGORIES OF ALL INCOMES AS WELL AS THE RE CEIPTS WHICH COULD BE GENERALLY CONSTRUED AS INCOME IN THE ORDINARY SENS E. BUT THE FACT REMAINS THAT ALL THE RECEIPTS MENTIONED IN S. 28 ARE I NHERENTLY OF INCOME NATURE EXCEPT IN CASE OF RECEIPT UNDER A GIVEN AMOUNT OF INSURANCE POLICY. IT ALSO STATES THAT S. 28(IV) REFER S TO ANY BENEFIT OR PERQUISITE AND THIS MEANS THAT SUCH BENEFIT OR PERQU ISITE SHOULD BE IN THE NATURE OF INCOME FROM THE VERY BEGINNING OR IT MU ST HAVE CHARACTERISTICS OF INCOME BEFORE IT BECOMES CHARGEA BLE AT A LATER STAGE IF THE ORIGINAL TRANSACTION IS COMPLETED AS DES IGNED. THE BENCH FURTHER OBSERVED THAT THE WORDS BENEFIT OR PERQUISI TE HAVE BEEN USED IN THE SAID SECTION AND HAVE TO BE READ TOGETH ER AND WOULD DRAW COLOUR FROM EACH OTHER. NORMALLY THE TERM PERQUIS ITES DENOTES MEETING OUT OF AN OBLIGATION OF ONE PERSON BY ANOTH ER PERSON EITHER DIRECTLY OR INDIRECTLY OR PROVISION OF SOME FACILITY OR AMENITY BY ONE PERSON TO ANOTHER PERSON OR FROM THE VERY BEGINNING THE PERSON PROVIDING SUCH FACILITY OR CONCESSION KNOWS THAT WH ATEVER IS BEING DONE IS IRRETRIEVABLE TO HIM, AS IT HAS BEEN GRANTED TO A PERSON AS A PRIVILEGE OR RIGHT OF THAT PERSON. THUS, IT WAS CONCLU DED THAT THE WORD BENEFIT HAS TO BE INTERPRETED IN THE SAME MANNER, T HAT IS, AT THE TIME OF EXECUTION OF THE BUSINESS TRANSACTION ONE PARTY SHOULD GIVE TO THE OTHER PARTY AN IRRETRIEVABLE BENEFIT OR ADVANTAGE, AS AN OBLIGATION OR FACILITY OR A CONCESSION. IN OUR OPINION, ONLY IF THE SELLER HAD INCURRED AN EXPENSE OR A LIABILITY OR HAD PROVIDED A FACILITY TO T HE PURCHASER, THEN THE VALUE IN CASH OF SUCH EXPENSES OR BENEFIT OR PER QUISITE SHALL BE 10 TREATED AS INCOME. IN THIS CASE, THE SELLER HAS NOT INCURRED ANY EXPENSES OR LIABILITY OR HAS PROVIDED A FACILITY. IT SOLD ITS SHARES AT A REDUCED PRICE. 8.5 APPLYING THESE PROPOSITIONS TO THE CASE ON HAND, THE PURCHASE OF SHARES AT A PARTICULAR PRICE WHICH IS BELOW THE MARKET PRICE AS AN INVESTMENT IS NOT INCOME BY ANY STRETCH OF IMAGINATI ON. IT CANNOT ALSO BE DEEMED AS INCOME UNDER S. 28(IV) AS IT IS NEITHE R BENEFIT NOR PERQUISITE THAT HAS ARISEN TO THE ASSESSEE FROM THE BUSINESS OR IN THE EXERCISE OF A PROFESSION. THE HONBLE GUJARAT HIGH COU RT IN THE CASE OF CIT VS. BHAVNAGAR BONE & FERTILISER CO. LTD. (1987) 5 9 CTR (GUJ) 116 : (1987) 166 ITR 316 (GUJ) HAS UPHELD THE TRIBUNALS F INDING THAT THERE MUST BE A NEXUS BETWEEN THE BUSINESS OF THE ASSESSE E AND THE BENEFIT WHICH THE ASSESSEE HAS DERIVED FOR THE PURPOSE OF ATTRA CTING PROVISIONS OF S. 28(IV). AT P. 320 IT HAS OBSERVED AS FOLLOWS : 'AFTER REFERRING TO VARIOUS DECISIONS, THE TRIBUNAL OBSERVED, THESE DECISIONS MAKE IT ABUNDANTLY CLEAR THAT THE B ENEFIT RECEIVED OR RECEIVABLE BY A PERSON MUST BE ONE WHICH HAS INTIMATE CONNECTION WITH BUSINESS AND EVEN IF SUCH BENEFIT IS DERIVED BY WAY OF BOUNTY, NEVERTHELESS IT WOULD BE TAXABLE, IF ACCRUES TO IT OR IF RECEIVED BY IT IN THE COURSE OF B USINESS OR EMPLOYMENT OF OFFICE.' IN THIS CASE THE REVENUE HAS NOT DEMONSTRATED WHAT I S THE BUSINESS CONNECTION OR THE BUSINESS DONE BETWEEN THE SELLER A ND THE PURCHASER OF THE SHARES. NO CASE HAS BEEN MADE OUT THAT PRIVILE GE OR BENEFIT OR CONCESSION HAS BEEN PASSED ON BY THE SELLER TO THE B UYER AS PART AND PARCEL OF A BUSINESS TRANSACTION. A BENEFIT HAS BEEN ASSESSED BY THE CIT(A). MERE PURCHASE OF SHARES BY WAY OF INVESTMENT C ANNOT BE CONSIDERED AS BUSINESS OF THE COMPANY THOUGH THE OBJ ECTS OF THE COMPANY ENABLE IT TO INVEST AS WELL AS DEAL IN SHARE S. AS ALREADY STATED THERE IS NO EVENT WHICH CAN BE SAID TO HAVE RESULTED IN ACCRUAL OF INCOME TO THE ASSESSEE. THUS ON THIS FACTUAL MATRIX , MERE PURCHASE OF SHARES, AS AN INVESTMENT, WITH THE LOCK-IN-PERIOD OF HOLDING, FOR A CONSIDERATION WHICH IS LESS THAN THE MARKET VALUE, CA NNOT BE BROUGHT TO TAX, AS A BENEFIT OR PERQUISITE UNDER S. 28(IV) OF THE ACT. THE ASSESSEE HAS NOT IN THIS CASE, SECURED ANY BENEFIT OR PERQUISI TE IN CONSIDERATION OF A BUSINESS TRANSACTION UNDERTAKEN WITH THE SELLERS OF THE SHARES. THUS THIS ISSUE IS DECIDED IN FAVOUR OF THE REVENUE AND A GAINST THE ASSESSEE. 11 8 IN VIEW OF THE ABOVE DISCUSSION AND THE ORDER OF T HE COORDINATE BENCH OF THE TRIBUNAL, WE DO NOT FIND ANY MERIT IN THE APP EAL OF THE REVENUE AND ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A). AS VIEWED BY US IN THE CONNECTED CASE (SUPRA) THAT NO ADDITION CAN BE MADE UNDER SECTION 28(IV) THEN THE ADDITION MADE ON PROT ECTED BASIS IN THE HAND OF THE ASSESEE IS NOT SUSTAINABLE AND ACCORDINGLY WE UPHOL D THE ORDER OF THE CIT(A). 6. FOR A.Y. 2005-06 THE AO WORKED OUT THE CAPITAL G AIN ON NOTIONAL BASIS BECAUSE IN VIEW OF THE AO THE ASSESSE SHOULD HAVE R E-TRANSFERRED THE SHARE AT THE MARKET VALUE. WHILE DECIDING THE APPEAL FOR THE ASS ESSMENT YEAR 2003-04, WE HAVE ALREADY HELD THAT TRANSFER OF SHARES IN THE NAME OF THE COMPANY WAS NOT COMPLETED AND THE SHARES WERE FINALLY RETURNED TO G ANESH INFRASTRUCTURE FUND AS THE CONDITIONS OF EXECUTION OF THE PROJECT WAS NOT FULF ILLED; THEREFORE, THE RETURN OF SHARES WOULD NOT RESULT ANY CAPITAL GAIN. 7. WE FURTHER WE NOTE THAT IN THE CASE OF RUPEE FI NANCE & MANAGEMENT P LTD, THE TRIBUNAL IN PARA 13.1 HAS HELD AS UNDER: 13.1 AS ALREADY HELD IN THE ORDER OF RUPEE FINANCE & MANAGEMENT (P) LTD. THERE IS NO ALLEGATION MUCH LESS, ANY EVIDENCE TO S HOW THAT THESE ASSESSEES BEFORE US HAVE RECEIVED MONIES IN EXCESS OF AMOUNTS OF SALE CONSIDERATION RECORDED AND DISCLOSED IN THE TRANSACTION FOR THE SALE OF SHARES. THE FIRST APPELLATE AUTHORITY HAS RIGHTLY NOTED THAT UNDER S. 4 8 THE STARTING POINT FOR COMPUTATION OF CAPITAL GAINS IS THE AMOUNT OF FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF A TRANSFER OF THE CAPITAL ASSET. THE HONBLE SUPREME COURT IN THE CASE OF K.P. VARGHESE (SUPRA) HE LD THAT SUB-S. (2) OF S. 52 CAN BE INVOKED ONLY WHEN THE FULL VALUE OF THE CONS IDERATION IS RECEIVED IN RESPECT OF A TRANSFER IS SHOWN AT A LESSER FIGURE THA N THAT WHICH IS ACTUALLY RECEIVED BY THE ASSESSEE. IT FURTHER LAID DOWN THAT T HE BURDEN OF PROVING SUCH UNDERSTATEMENT OF CONSIDERATION IS ON THE REVENUE AN D THAT THE SUB-SECTION HAS NO APPLICATION IN THE CASE OF A BONA FIDE TRANS ACTION, WHERE THE TRUE CONSIDERATION RECEIVED BY THE ASSESSEE HAS BEEN DECL ARED OR DISCLOSED BY HIM. SEC. 50C, HAS COME INTO THE STATUTE ONLY W.E.F . 1ST APRIL, 2003 BY FINANCE ACT, 2002 AND IS NOT APPLICABLE TO THE IMPUGNED ASS ESSMENT YEARS. HENCE, FOR THE PERIOD PRIOR TO THE INSERTION OF S. 50C NO ADDIT ION CAN BE MADE BY INVOKING THE RATIO OF THIS SECTION. THE FIRST APPEL LATE AUTHORITY AT P. 21 OF HIS 12 ORDER HAS RIGHTLY OBSERVED THAT, WHAT IN FACT NEVER AC CRUED OR WAS NEVER RECEIVED CANNOT BE COMPUTED AS CAPITAL GAIN. HE RELI ED ON THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SMT. NAND INI NOPANY (1998) 148 CTR (CAL) 522 : (1998) 230 ITR 679 (CAL). HE RIGHTLY HEL D THAT IT IS MANIFEST THAT THE CONSIDERATION FOR THE TRANSFER OF CAPITAL ASSET IS WHA T THE TRANSFEROR RECEIVES, IN LIEU OF ASSETS HE PARTS WITH, I.E., MONEY OR MONIES WORTH AND THAT THE EXPRESSION FULL CONSIDERATION CANNOT BE CONSTRUED A S HAVING REFERENCE TO THE MARKET VALUE OF THE ASSETS TRANSFERRED BUT REFERS TO THE PRICE BARGAINED FOR BY THE PARTIES AND IT CANNOT REFER TO THE ADEQUACY O F THE CONSIDERATION. HE ALSO RIGHTLY OBSERVED THAT THE LEGISLATURE HAS USED T HE WORDS FULL VALUE OF THE CONSIDERATION AND NOT FMV OF THE ASSETS TRANSFERRE D. HE RECORDED THAT THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS RECEIVED MORE THAN WHAT HAS BEEN DISCLOSED IN THE BOO KS AND UNDER THESE CIRCUMSTANCES THE DIFFERENCE CANNOT BE BROUGHT TO T AX UNDER THE HEAD CAPITAL GAINS. WE FULLY AGREE WITH THESE FINDINGS AND THE APPEALS FILED BY THE REVENUE FAIL. 6 WHEN THERE WAS NO TRANSFER AND THE PREMIUM ESTIMA TED BY THE ASSESSING OFFICER AT THE TIME ORIGINAL TRANSFER IS BASED ON T HE SOME FUTURE DEVELOPMENT AND EVENTS THEN, THERE IS NO QUESTION OF EITHER ANY BEN EFIT U/S 28(IV) OR ANY CAPITAL GAINS ON RETRANSFER OF THE SHARES. ACCORDINGLY, THE APPEA LS FILED BY THE REVENUE ARE DISMISSED. 7 IN THE RESULT, THE APPEALS FILED BY THE REVENUE A RE DISMISSED. ORDER PRONOUNCED ON THE 25 TH , DAY OF OCT 2011. SD/- SD/- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 25 TH , OCT 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI