ALPEX HOLDINGS P.LTD, MUMBAI V. PR CIT 6, MUMBAI

ITA 3319/MUM/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1344 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 11-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MEENA
• Assessee Lawyers: RONAK D DOSHI
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Cost of acquisition; Fair market value; Valuation report; Scheme of amalgamation
• Section: 143(3); 50C; 142(1); 56; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) ALPEX HOLDINGS PVT. LTD., PIRAMAL TOWER, GANPATRAO KADAM MARG, LOWER PAREL (WEST), MUMBAI 400 013 PAN:AAACN 7738H ...... APPE LLANT VS. THE PR. COMMISSIONER OF INCOME TAX -6, ROOM NO.501, 5 TH FLOOR, AAYKAR BHAVAN,M.K.ROAD, MUMBAI- 400 020 .... RESPOND ENT APPELLANT BY : SHRI RONAK D. DOSHI RESPONDENT BY : SHRI R.P. MEENA DATE OF HEARING : 20/09/2016 DATE OF PRONOUNCEMENT : 29/12/2016 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTAI NING TO ASSESSMENT YEAR 2011-12 IS DIRECTED AGAINST AN ORDER PASSED BY PCIT-6, MUMBAI DATED 22/03/2016 UNDER SECTION 263 OF THE INCOME TAX ACT , 1961 ( IN SHORT THE ACT), WHEREBY THE ASSESSMENT ORDER PASSED BY THE A SSESSING OFFICER UNDER SECTION 143(3) OF THE ACT, DATED 19/02/2014 HAS BEEN HELD TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT . 2. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- 2 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) GROUND I -INVOKING PROVISIONS OF SECTION 263 OF TH E INCOME-TAX ACT, 1961 ('THE ACT'): 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX - 6, MUMBAI ('THE PR. CI T') ERRED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT AND THEREBY RE VISING THE ORDER PASSED BY THE INCOME TAX OFFICER 6(1)(2), MUMBAI ('THE AO') U/S. 143(3) OF THE ACT DATED FEBRUARY 19,2014 ('THE ORDER') ON THE ALLEGED GROUND THAT TH E ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD T HAT: (A) THE AO HAS EXAMINED THE ISSUE BASED ON DETAILS FILED BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND TAK EN A CORRECT VIEW BY NOT MAKING ADJUSTMENT IN RESPECT OF ISSUE SOUGHT TO BE REVISED; (B) NEITHER THE AO NOR THE CIT HAS THE POWER TO SUB STITUTE THE FULL VALUE OF SALE CONSIDERATION FOR TRANSFER OF SHARES IN THE FA CTS OF THE PRESENT CASE; (C) SINCE THE APPELLANT HAS NOT CLAIMED ANY CAPITA L LOSS ON ACCOUNT OF SALE OF PREFERENCE SHARES, QUESTION OF ORDER BEING PREJUDIC IAL TO THE INTEREST OF REVENUE DOES NOT ARISE; (D) IN ABSENCE OF ORDER BEING ERRONEOUS AND ALSO PR EJUDICIAL TO THE INTEREST OF THE REVENUE, ORDER U/S.143(3) OF THE ACT COULD NOT BE REVISED ON MERE HYPOTHETICAL/NOTIONAL ASSUMPTIONS/PRESUMPTIONS. 3. THE APPELLANT PRAYS THAT IT BE HELD THAT THE ASS ESSMENT ORDER PASSED BY THE AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST O F THE REVENUE AND ACCORDINGLY THE ACTION OF THE PR. CIT IN INVOKING PROVISIONS OF SEC TION 263 OF THE ACT AND REVISING THE ORDER BE HELD AB-INITIO AND/ OR OTHERWISE VOID AND BAD-IN-LAW. GROUND II:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE PR. CIT ERRED IN GIVING FOLLOWING DIRECTIONS TO THE AO: A) TO CALL FOR NAMES OF ALL BENEFICIARIES IN THE TR USTS AND THE SHAREHOLDERS AND DIRECTORS IN THE TWO PRIVATE LIMITED COMPANIES BEIN G CORPORATE TRUSTEES; B) TO CALL FOR ALL DETAILS SUBMITTED BEFORE THE VAL UER FOR DETERMINING THE VALUATION OF PREFERENCE SHARES; C) TO EXAMINE THE SAID ISSUE FROM THE POINT OF AVOI DANCE OF PAYMENT OF DIVIDEND DISTRIBUTION TAX; D) TO MAKE A REFERENCE U/S. 142A OF THE ACT, TO ARR IVE AT THE FAIR MARKET VALUE OF THE PREFERENCE SHARES; E) TO PASS ON THE DETAILS, REGARDING CORRECT AND AP PROPRIATE VALUE OF PREFERENCE SHARES TO THE AO OF PIRAMAL INTERNATIONA L PVT. LTD. FOR TAKING REMEDIAL ACTION AS PER LAW. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD T HAT, SUCH DIRECTIONS ARE UNTENABLE, ULTRAVIRES, BEYOND THE JURISDICTION AND OTHERWISE B AD IN LAW. 3 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) 3. THE APPELLANT THEREFORE PRAYS THAT THE DIRECTIO N OF THE PR. CIT IN THIS REGARDS SHOULD BE QUASHED. GROUND III: THE APPELLANT CRAVES LEAVE TO ADD TO, A MEND AND! OR ALTER ALL OR ANY OF THE ABOVE GROUNDS. 3. AS THE AFORESAID GROUNDS OF APPEAL REVEAL, TH E PRIMARY GRIEVANCE OF THE ASSESSEE IS THAT THE PRINCIPAL COMMISSIONER OF INCOME TAX (IN SHORT THE PCIT) HAS ERRED IN INVOKING THE PROVISIONS OF SEC TION 263 OF THE ACT IN ORDER TO HOLD THE ASSESSMENT ORDER DATED 19/2/2014(SUPRA) AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT. THOUGH VARIOUS CONTENTIONS HAVE BEEN RAISED BY THE APPELLANT BEFORE US IN SUPPORT OF THE ABOVE STATED GROUNDS OF APPEAL, BUT A PRELIMINARY PERTINENT POINT HAS BEEN RAISED, WHICH IS TO EFFECT THAT THE MANDATORY PRE- CONDITIONS PRESCRIBED IN SECTION 263 OF THE ACT ARE NOT FULFILLED IN THE PRESENT CASE AND, THEREFORE, THE ACTION OF THE PCIT IS BERE FT OF REQUISITE JURISDICTION. AT THE THRESHOLD, WE PROCEED TO DISCUSS THE AFORESA ID PRELIMINARY POINT MADE OUT BY THE APPELLANT AND IN THIS CONTEXT THE RELEVA NT FACTS CAN BE UNDERSTOOD AS FOLLOWS. 3.1 THE APPELLANT IS A COMPANY INCORPORATED UNDER T HE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF FINANCE AND INVESTMENT ACTIVITY. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IT FILED A RETURN OF INCOME ON 30/09/2011 DECLARING NIL INC OME AND IN THE ASSESSMENT FINALIZED UNDER SECTION 143(3) OF THE ACT DATED 19/ 2/2014(SUPRA), THE RETURNED INCOME HAS BEEN ACCEPTED. DURING THE YEAR UNDER CO NSIDERATION, ASSESSEE HAD SOLD 1310 PREFERENCE SHARES OF M/S.PHL HOLDINGS PV T.LTD. ( IN SHORT PHLH LTD.) TO M/S. PIRAMAL INTERNATIONAL PVT. LTD. ( IN SHORT PIPL) ON 16/08/2010 FOR A TOTAL CONSIDERATION OF RS.18.92 CRORES AND LONG TERM CAPITAL LOSS ON SUCH SALE 4 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) WAS DETERMINED AT RS.150.12 CRORES. IT EMERGES FRO M RECORD THAT THE LONG TERM CAPITAL LOSS SO DETERMINED BY THE ASSESSEE WAS NOT DISTURBED BY THE ASSESSING OFFICER AND IT IS ALSO CLEAR THAT IN THE RETURN OF INCOME FILED, ASSESSEE NEITHER CLAIMED ANY ADJUSTMENT AGAINST SUCH LOSS NO R IT WAS CARRIED FORWARD FOR SET-OFF IN FUTURE YEARS. IN THE CONTEXT OF SUC H TRANSACTION, THE PCIT HAS INVOKED HIS REVISIONARY JURISDICTION CONTAINED IN S ECTION 263 OF THE ACT. THE INVOKING OF SECTION 263 OF THE ACT BY THE PCIT IS FOUNDED ON TWO FACTORS, NAMELY, THAT ASSESSING OFFICER HAS NOT MADE RELEVAN T AND MEANINGFUL ENQUIRIES; AND, THAT THE ASSESSING OFFICER ACTED IN A MECHANICAL FASHION WITHOUT APPLICATION OF MIND AND ACCEPTED THE INCORR ECT FIGURE OF LOSS ARISING ON THE SALE OF PREFERENCE SHARES OF PHLH LTD. ON THE AFORESAID TWO GROUNDS, THE PCIT HELD THE ASSESSMENT ORDER DATED 19/02/2014(SUP RA) TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND SET -ASIDE THE SAME WITH A DIRECTION THAT IT BE RE-FRAMED. WHILE SETTING-ASID E THE ASSESSMENT FOR RE- FRAMING ,THE PCIT GAVE CERTAIN DIRECTIONS TO THE A SSESSING OFFICER WHICH CAN BE SUMMARIZED AS FOLLOWS:- TO CALL FOR THE DETAILS SUB MITTED BEFORE THE VALUER FOR DETERMINING THE VALUATION OF PREFERENCE SHARES AND ALSO THE NAMES OF THE BENEFICIARIES IN THE TRUST AND THE SHAREHOLDERS; TO EXAMINE THE TRANSACTION FROM THE POINT OF VIEW OF AVOIDANCE OF PAYMENT OF DIVIDEND DISTRIBUTION TAX; TO MAKE REFERENCE UNDER SECTION 142A OF THE ACT FOR ARRIVING AT THE FAIR-MARKET VALUE OF THE SHARES FOR THE PURPOSE OF DIVIDEND DIS TRIBUTION TAX EVADED BY THE COMPANY WHEN IT TRANSFERRED THE PREFERENCE SHARES T O PIPL, A GROUP-CONCERN; AND, TO PASS ON THE DETAILS OF CORRECT AND APPROP RIATE VALUATION OF PREFERENCE SHARES TO THE ASSESSING AUTHORITY OF PIPL FOR TAKI NG REMEDIAL ACTION OF BRINGING TO TAX THE DIFFERENCE BETWEEN FAIR-MARKET VALUE OF SHARES VIS--VIS THE VALUE DETERMINED BY THE VALUER. 5 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) 3.2 THE PRELIMINARY POINT RAISED BY THE APPELLANT I S THAT SINCE THE LONG TERM CAPITAL LOSS COMPUTED ON SALE OF SHARES OF P HLH LTD. TO PIPL, WAS NEITHER CLAIMED IN THE RETURN AND NOR CARRIED FOR WARD FOR SET-OFF IN FUTURE YEARS, THERE WAS NO OCCASION FOR ANY PREJUDICE HAVI NG BEEN CAUSED TO THE REVENUE BY THE IMPUGNED ASSESSMENT ORDER. IT HAS B EEN POINTED OUT BY THE LD. REPRESENTATIVE FOR THE ASSESSEE THAT UNDER THES E CIRCUMSTANCES, EVEN IF, THERE IS ANY REVISION IN THE AMOUNT OF LONG TERM CA PITAL LOSS DETERMINED BY THE ASSESSEE, IT WOULD NOT EFFECT THE ULTIMATE TAX LIAB ILITY OF THE ASSESSEE AS THE LOSS HAS NOT BEEN CARRIED FORWARD FOR SET-OFF. THE REFORE, ACCORDING TO THE APPELLANT, IN THE ABSENCE OF THERE BEING ANY LOSS O F REVENUE, THE REVISION OF THE ASSESSMENT ORDER IS NOT JUSTIFIED HAVING REGARD TO THE PRE-REQUISITES CONTAINED IN SECTION 263(1) OF THE ACT. IN THIS CONTEXT, REL IANCE HAS BEEN PLACED ON THE FOLLOWING DECISIONS:- 1. MALBAR INDUSTRIES CO. LTD. V. CIT 243 ITR 83 ( SC) 2. CIT V.. GABRIEL INDIA LTD. - 203 ITR 108(BOM) 3. CIT V. D.G. GOPALA GOWDA 354 ITR 501(KAR) 4. CIT V. SMT. MINALBEN S. PARIKH, 215 ITR 81(GUJ) 5. CIT V. G.R. THANGAMALIGAI [2003] 259 ITR 129 (MAD.) 4. ON THE OTHER HAND, ON THIS ASPECT, LD.CIT-DR APP EARING FOR THE REVENUE HAS MERELY RELIED UPON THE ORDER OF THE PCIT IN SUP PORT OF THE CASE OF THE REVENUE. 5. IN THE CONTEXT OF THE PRELIMINARY POINT MADE BY THE APPELLANT, IT HAS TO BE APPRECIATED THAT THE PHRASEOLOGY OF SECTION 263( 1) OF THE ACT ITSELF SHOWS 6 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) THAT IN ORDER TO INVOKE SECTION 263 OF THE ACT, TWO CONDITIONS NEED TO BE SATISFIED, NAMELY, THAT THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND, THAT IT IS PREJUDICIAL TO THE INTER ESTS OF THE REVENUE. IT IS A WELL SETTLED PROPOSITION THAT BOTH THE ABOVE CONDITIONS HAVE TO BE CUMULATIVELY SATISFIED, MEANING THEREBY THAT, EVEN IF, ONE OF TH E CONDITION IS NOT FULFILLED, THE INVOKING OF SECTION 263 OF THE ACT WOULD HAVE T O FAIL. BEFORE US, THE PRELIMINARY POINT EMPHASIZED BY THE APPELLANT IS T HAT THERE IS NO LOSS OF REVENUE ON ACCOUNT OF THE ASSESSING OFFICER HAVING ACCEPTED THE COMPUTATION OF LONG TERM CAPITAL LOSS ON SALE OF PREFERENCE SHA RES OF PHLH LTD. TO PIPL AS COMPUTED BY THE ASSESSEE. AT THIS STAGE, WE MAY BR ING-OUT IN SLIGHT DETAIL THE MANNER IN WHICH THE LONG TERM CAPITAL LOSS OF RS. 150.12 CRORES HAS BEEN COMPUTED. ON 31/05/2008, ASSESSEE HAD PURCHASED 13 10 PREFERENCE SHARES OF PHLH LTD. FROM ALPEX INTERNATIONAL PVT. LTD., A WHO LLY OWNED SUBSIDIARY OF THE ASSESSEE, FOR A TOTAL CONSIDERATION OF RS.145.00 CR ORES, WHICH WAS THE BOOK VALUE OF SUCH SHARES IN THE ACCOUNT BOOKS OF ALPEX INTERNATIONAL PVT. LTD. AT THE TIME OF TRANSFER. M/S. ALPEX INTERNATIONAL PVT. LTD. ACQUIRED THE SHARES ON 29/08/2007 FOR A CONSIDERATION OF RS.131.00 CRORES AND THE BOOK VALUE ON THE DATE OF TRANSFER TO THE ASSESSEE COMPANY STOOD AT RS.145.06 CRORES DUE TO A DEBIT OF RS.14.06 CRORES ON ACCOUNT OF INTEREST COST. ON THE DATE OF TRANSFER OF SHARES TO THE ASSESSEE COMPANY I.E. 31/05/2008, THERE WAS NO CAPITAL GAIN TAX IN THE HANDS OF M/S. ALPEX INTERNATIONAL PVT. L TD. ON ACCOUNT OF SECTION 47(V) OF THE ACT. NOW, ASSESSEE SOLD THE SHARES TO PIPL ON 16/08/2010 AND THE COST OF ACQUISITION WAS ADOPTED AT RS.131.00 CRORES , WHICH WAS THE COST OF ACQUISITION TO THE PREVIOUS OWNER OF THE CAPITAL AS SET AND THE INDEXED COST OF ACQUISITION WAS WORKED OUT AT RS.169.04 CRORES. SI NCE THE SALE CONSIDERATION RECEIVED FROM PIPL WAS RS.18.92 CRORES, THE LONG TE RM CAPITAL LOSS WAS 7 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) COMPUTED AT RS.150.12 CRORES. IN THE RETURN OF INC OME FILED, THE AFORESAID LOSS HAS NEITHER BEEN ADJUSTED AGAINST ANY INCOME AND NO R IT HAS BEEN CARRIED FORWARD FOR SET-OFF IN THE FUTURE YEARS. AS PER T HE APPELLANT, EVEN IF, THERE IS A VARIATION IN THE AMOUNT OF LONG TERM CAPITAL LOSS, IT WOULD CERTAINLY NOT BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE WITHI N THE MEANING OF SECTION 263 OF THE ACT BECAUSE IT WOULD NOT RESULT IN ANY LOSS OF TAX. THE PROPOSITION BEING CANVASSED BY THE ASSESSEE IS QUITE JUSTIFIED AND IN FACT, THE HONBLE SUPREME COURT IN THE CASE MALABAR INDUSTRIAL CO.(SUPRA) HEL D THAT IF DUE TO AN ERRONEOUS ORDER OF THE ASSESSING OFFICER THE DEPARTMENT IS LO SING TAX LAWFULLY PAYABLE BY A PERSON, IT WOULD CERTAINLY AMOUNT TO AN ORDER WHI CH IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE PURPOSES OF SECTIO N 263 OF THE ACT. WE MAY EXAMINE THE APPLICABILITY OF SUCH PROPOSITION IN T HE CONTEXT OF THE FACTS BEFORE US. 6. IN PARA 6.2 OF HIS ORDER, EVEN THE PCIT HAS NOT ICED THAT .......... THOUGH THE SAID LOSS HAS NOT BEEN SET OFF AND CARRIED FORW ARD IN THE RETURN OF INCOME, THE IMPACT OF IT OTHERWISE, IF THE SHARES HAD BEEN DETERMINED PROPERLY AN APPROPRIATELY RESULTING INTO GAIN. THE AFORESAID OBSERVATION OF THE CIT SHOWS THAT HE WAS QUITE AWARE THAT THE CONDITION OF THE A SSESSMENT BEING PREJUDICIAL TO THE INTERESTS OF THE REVENUE WAS REQUIRED TO BE ESTABLISHED BEFORE INVOKING SECTION 263 OF THE ACT. IN THE ENTIRE DISCUSSION C ONTAINED IN PARAS 6.3 TO 6.16 OF HIS ORDER, THE PCIT HAS BROUGHT OUT THAT THE VA LUATION MADE OF THE PREFERENCE SHARES WAS INCORRECT AND FURTHER THAT TH E ASSESSING OFFICER DID NOT MAKE ANY ENQUIRY REGARDING THE SALE OF PREFERENCE S HARE FROM ONE COMPANY TO ANOTHER COMPANY OF THE SAME GROUP. NOTABLY, THE VA LUATION REPORT BEING REFERRED TO BY THE PCIT WAS THE VALUATION REPORT OB TAINED BY THE PURCHASER OF 8 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) THE SHARES I.E. PIPL WHICH WAS OBTAINED BY IT FOR T HE PURPOSES OF SECTION 56 OF THE ACT R.W. RULE -11UA OF THE INCOME TAX RULES, 1 962. BE THAT AS IT MAY, WHETHER OR NOT THE VALUATION REPORT OBTAINED BY PIP L, IS CORRECT OR NOT DOES NOT DISTRACT FROM THE FACT THAT IN THE HANDS OF THE ASSESSEE SELLER, THERE IS NO DISPUTE SO FAR AS THE DETERMINATION OF LONG TERM CA PITAL LOSS IS CONCERNED. TO PUT IT DIFFERENTLY, IT IS TO BE APPRECIATED THAT AN Y GAIN OR LOSS ARISING FROM THE TRANSFER OF CAPITAL ASSET IS REQUIRED TO BE COMPUTE D BY CONSIDERING THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF ASSET, WHICH IN THE PRESENT CASE HAS NOT BEEN FOUND TO BE OTHER THAN THE AMOUNT STATED BY THE ASSESSEE. EVEN IF, IT IS MADE OUT THAT THE SHARES HAVE BEEN SOLD BY THE ASSESSEE FOR A CONSIDERATION, WHIC H IS NOT IN CONFORMITY WITH THE FAIR-MARKET VALUE OF THE SHARES, THERE IS NO ME CHANISM AVAILABLE UNDER THE ACT TO SUBSTITUTE THE FULL VALUE OF CONSIDERATION A S DISCLOSED BY THE ASSESSEE BY ANY OTHER VALUE, FOR THE PURPOSES OF COMPUTATION OF CAPITAL GAINS. IN FACT, THERE IS NOT EVEN A CHARGE, MUCH LESS ANY FINDING BY THE PCIT THAT THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING TO THE ASSESSEE IS IN EXCESS OF THE STATED SALE CONSIDERATION, WHICH HAS BEEN CONSIDERE D FOR THE PURPOSES OF COMPUTING LONG TERM CAPITAL LOSS. CHAPTER IV OF T HE ACT DEALING WITH COMPUTATION OF INCOME FROM CAPITAL GAINS DOES NO T CONTAIN ANY EXPRESS PROVISION, WHICH EMPOWERS THE ASSESSING OFFICER T O SUBSTITUTE THE FULL VALUE OF CONSIDERATION AS DECLARED BY THE ASSESSEE EXCEPT UNDER THE CIRCUMSTANCES CONTAINED IN 50C OF THE ACT, WHICH IN ANY CASE, DEA L WITH TRANSFER OF CAPITAL ASSET BEING LAND OR BUILDINGS OR BOTH, WHICH IS NOT THE CASE HEREIN. THE AFORESAID PROPOSITION DOES NOT REQUIRE ANY FURTHER ELABORATION AND IN-FACT THE SAME IS FULLY SUPPORTED BY THE JUDGMENTS OF THE HONBLE SUPREME C OURT IN THE CASE OF K.P. VARGHESE V. ITO, 131 ITR 597 (SC), CIT V. GEORGE HENDERSON AND CO. 9 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) LTD., , 66 ITR 622,(SC) AND CIT V. GILLANDERS ARBUT HNOT & CO., 87 ITR 407(SC) . THEREFORE, EVEN IF, FOR THE SAKE OF ARGUMENT, THE S TAND OF THE PCIT IS ACCEPTED THAT THE CORRECT VALUE OF PREFERENCE SHARES HAS N OT BEEN MADE AND THE CORRECT VALUE WOULD HAVE BEEN HIGHER THAN THE STAT ED SALE CONSIDERATION, EVEN THEN, THE RESULTANT SURPLUS COULD NOT HAVE BEEN BRO UGHT TO TAX AS PER THE SCHEME OF COMPUTATION OF CAPITAL GAINS CONTAINED IN CHAPTER IV OF THE ACT, QUA THE INSTANT TRANSACTION OF SALE OF PREFERENCE S HARES TO PIPL. THUS, THE PCIT HAS FAILED TO ESTABLISH ANY TAX IMPACT QUA THE ERRO R NOTED BY HIM. 7. ANOTHER ASPECT OF THE IMPACT ON TAXES WHICH HAS BEEN SOUGHT TO BE MADE OUT BY THE PCIT IS TO THE EFFECT THAT BY NOT S ELLING THE PREFERENCE SHARES AT HIGHER VALUES, THE ASSESSEE HAS AVOIDED EARNI NG OF HIGHER PROFITS WHICH WOULD HAVE LEAD TO HIGHER ACCUMULATED PROFITS WHIC H IN TURN WOULD HAVE ENABLED THE ASSESSEE TO DECLARE DIVIDENDS THEREBY R ESULTING IN PAYMENT OF DIVIDEND DISTRIBUTION TAX. IN OUR CONSIDERED OPINI ON, THE AFORESAID PERCEIVED LOSS ON ACCOUNT OF DIVIDEND DISTRIBUTION TAX MADE O UT BY THE PCIT IS PURELY HYPOTHETICAL AND IS PURELY IN THE REALM OF IMPOND ERABLENESS. FIRST OF ALL, WE HAVE ALREADY OBSERVED THAT THERE IS NO CASE MAKE OUT BY THE PCIT THAT ANY CONSIDERATION HAS BEEN RECEIVED OR ACCRUED TO THE A SSESSEE OVER AND ABOVE THE STATED CONSIDERATION. SECONDLY, EVEN IF, IT IS ASSUMED THAT THE VALUATION OF PREFERENCE SHARES IS HIGHER THAN THE STATED CONSIDE RATION AND IF THE TRANSFER WAS MADE AT A HIGHER FIGURE, YET THE PRESENCE OF R ESULTANT PROFIT (OF COURSE UNDER HYPOTHETICAL CONSIDERATION) WOULD NOT AUTOMA TICALLY RESULT IN DISTRIBUTION OF DIVIDEND SO AS TO GENERATE DIVIDEND DISTRIBUTION TAX, BECAUSE DISTRIBUTION OF DIVIDEND IS AN ACT PURELY WITHIN TH E DOMAIN AND DISCRETION OF THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY. IN SUM AND SUBSTANCE, IN OUR 10 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) VIEW, THE POINT MADE OUT BY THE PCIT IS FAR FETCHED AND IS COMPLETELY BASED ON CONJECTURES AND SURMISES. 8. IN VIEW OF THE AFORESAID DISCUSSION, IN OUR VIEW , NO CASE HAS BEEN MADE OUT BY THE PCIT TO DEMONSTRATE THAT THERE WAS ANY P REJUDICE CAUSED TO THE REVENUE OR IN OTHER WORDS, THAT THERE WAS ANY LOSS OF TAXES BY THE ACTION OF THE ASSESSING OFFICER IN ACCEPTING THE COMPUTATION OF LONG TERM CAPITAL LOSS AS MADE BY THE ASSESSEE. FACTUALLY SPEAKING, THE LONG TERM CAPITAL LOSS COMPUTED BY THE ASSESSEE HAS NEITHER BEEN CLAIMED IN THE RET URN OF INCOME AND NOR IT HAS BEEN CARRIED FORWARD FOR SET-OFF AGAINST ANY IN COME IN THE FUTURE YEARS. THEREFORE, ANY VARIATION IN THE COMPUTATION OF SUCH LONG TERM CAPITAL LOSS ACCEPTED IN THE ASSESSMENT ORDER WOULD NOT IMPACT T HE TAX LIABILITY IN THE HANDS OF THE ASSESSEE AND, THUS, ONE OF THE PRE-CON DITIONS CONTAINED IN SECTION 263(1) OF THE ACT IS NOT FULFILLED, NAMELY, THE RE QUIREMENT OF THE ORDER BEING PREJUDICIAL TO THE INTERESTS OF THE REVENUE . THUS, ON THIS POINT ITSELF WE ARE INCLINED TO UPHOLD THE PLEA OF THE ASSESSEE THAT TH E ACTION OF THE PCIT IS BEREFT OF THE REQUISITE JURISDICTION. 9. BEFORE PARTING, WE MAY ALSO TOUCH UPON ANOTHER P ERTINENT POINT WHICH ALSO EMERGES WITH RESPECT TO THE STAND OF THE PCIT THAT THE ASSESSING OFFICER HAS NOT MADE RELEVANT AND MEANINGFUL ENQUIRIES QUA THE COMPUTATION OF THE IMPUGNED LONG TERM CAPITAL LOSS WHILE FINALIZING T HE ASSESSMENT. IN THIS CONTEXT, AT THE TIME OF HEARING, THE LD. REPRESENTA TIVE FOR THE ASSESSEE HAS EXHAUSTIVELY REFERRED TO THE PAPER BOOK FILED TO PO INT OUT THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAD RA ISED QUERIES IN CONNECTION WITH THE TRANSACTION OF SALE OF PREFERENCE SHARES O F PIPL AND, THEREFORE, IT 11 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) COULD NOT BE SAID THAT THE REQUISITE ENQUIRIES WERE NOT MADE BY THE ASSESSING OFFICER. ALTHOUGH, OUR ATTENTION HAS BEEN DRAWN TO VARIOUS COMMUNICATIONS IN THIS REGARD, COPIES OF WHICH HAVE BEEN PLACED IN TH E PAPER BOOK, BUT WE MAY REFER TO A COMMUNICATION DATED 31/01/2014 ADDRESSED TO THE ASSESSING OFFICER, COPY OF WHICH HAS BEEN PLACED AT PAGES 97 TO 123 OF THE PAPER BOOK, WHICH WAS IN RESPONSE TO A NOTICE ISSUED BY THE AS SESSING OFFICER UNDER SECTION 142(1) OF THE ACT DATED 14/12/2013. IN TH E SAID COMMUNICATION ASSESSEE EXPLAINED THE NATURE OF TRANSACTION AS UND ER:- PIRAMAL POLYMER ISSUED 1310 PREFERENCE SHARES TO ALPEX INTERNATION IN FY 2007-08 AT A PREMIUM OF RS.9.90 LAKH AS DISCLOSED IN FORM 2 ATTACHED HEREWITH. PIRAMAL POLYMER THEREAFTER MERGED WITH PHL HOLDINGS. SO AS PER SCHEME OF AMALGAMATION, ALPEX INTERNATIONAL GETS PREFERENCE SHARES OF PHL H OLDING OF SAME COST. ALPEX INTERNATIONAL TRANSFERRED THESE SHARES TO ALP EX HOLDINGS, ITS 100% HOLDING COMPANY ON 31.05.2008. NO CAPITAL GAIN WAS CHARGEA BLE TO TAX UNDER SECTION 47(V) READ WITH SECTION 45 OF THE INCOME-TAX ACT TO ALPEX INTERNATIONAL. THUS, THE COST OF THESE 1310 PREFERENCE SHARES TO ALPEX HOLDINGS IS R S.131 CRORES. THE CAPITAL LOSS OUT OF THIS TRANSACTION IS NOT CLA IMED/CARRIED FORWARD IN THE COMPUTATION OF INCOME, AS ALREADY SUBMITTED VIDE SU BMISSIONS DATED 20.01.2014. THE ASSESSEE ALSO ENCLOSED THE FOLLOWING DOCUMENTS: - (A) COPY OF VALUATION REPORT DATED 16.08.2010 BY M. MAL PANI & CO., CHARTERED ACCOUNTANTS SHOWING VALUATION OF ONE PREF ERENCE SHARE AT RS.144,377.35. (B) COPY OF FORM NO.2,, RETURN OF ALLOTMENT UNDER COMPA NIES ACT, OF PIRAMAL POLYMERS LTD. AND COPY OF BOMBAY HIGH COURT APPROVED SCHEME OF AMALGAMATION OF PIRAMAL POLYMERS LTD. WITH PHL HOLD INGS PVT. LTD. (EARLIER KNOWN AS NPIL HOLDINGS PVT. LTD.) DATED 23.11.2007 TO JUSTIFY THE COST OF 1310 PREFERENCE SHARES. 12 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) 10. SUBSEQUENTLY, VIDE A NOTICE UNDER SECTION 14 2(1) OF THE ACT DATED 04/02/2013, THE ASSESSING OFFICER RAISED THE FOLLOW ING QUERY IN THE CONTEXT OF THE VALUATION REPORT SUBMITTED BY THE ASSESSEE:- 5. VALUATION REPORT OF SHRI MANISH MALPANI, CIT(A) OF M/S. MALPANI & CO., IS VERY CRYPTIC, SUBJECTIVE AND DOES NOT PROVIDE ANY SCIENT IFIC BASIS AS TO WHO THE FAIR VALUE OF PREFERENCE SHARES OF M/S. PHL HOLDING LTD. HELD BY YOU HAS BEEN ARRIVED AT. EXPLANATION AS TO WHY IN ABSENCE OF AN AUTHENTIC AN D OBJECTIVE ASSUMPTIONS AND CONJECTURES NOT BE REJECTED? IN RESPONSE, VIDE COMMUNICATION DATED 12/02/2014, A COPY OF WHICH IS PLACED AT PAGES 125 TO 126 OF THE PAPER BOOK, ASSESSEE MAD E A DETAILED REPLY. 11. BY REFERRING TO THE ABOVE, WE ARE ONLY TRYING TO EMPHASIZE THAT THE ASSESSING OFFICER MADE ENQUIRIES WITH RESPECT TO TH E TRANSACTION OF SALE OF SHARES TO PIPL NOT ONLY WITH REGARD TO THE MANNER O F SALE BUT ALSO WITH RESPECT TO THE VALUE AT WHICH THE TRANSACTION WAS UNDERTA KEN. IN FACT, SPECIFIC QUERIES HAVE ALSO BEEN RAISED BY THE ASSESSING OFFICER WITH RESPECT TO THE SHARE HOLDING PATTERN OF THE GROUP CONCERNS. ALL SUCH EN QUIRIES AND VERIFICATION EXERCISE CARRIED OUT BY THE ASSESSING OFFICER DOES NOT FIND A MENTION IN THE ASSESSMENT ORDER. THE MOOT POINT IS, CAN THE ABSEN CE OF DISCUSSION IN THE ASSESSMENT ORDER BE ENOUGH TO HOLD THAT THE ASSESSM ENT ORDER HAS BEEN PASSED WITHOUT MAKING THE RELEVANT ENQUIRIES. OBVI OUSLY, IT IS NOT THE ASSESSMENT ORDER ALONE WHICH IS REQUIRED TO BE EXAM INED BUT THE ENTIRE RECORD OF THE ASSESSMENT PROCEEDINGS OUGHT TO BE EXAMINE D TO FIND OUT AS TO WHETHER OR NOT AN ISSUE HAS BEEN APPROPRIATELY CON SIDERED BY THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. ON TH IS ASPECT, WE ARE CLEARLY SUPPORTED BY THE RATIO OF THE JUDGMENT OF THE HON'B LE BOMBAY HIGH COURT IN THE CASE OF GABRIEL INDIA LTD.(SUPRA). THUS, ON TH IS ASPECT ALSO, WE FIND THAT THE PCIT HAS ERRED IN HOLDING THAT THE ASSESSING OFFICE R HAS NOT MADE RELEVANT AND 13 ITA NO.3319/MUM/2016 (ASSESSMENT YEAR 2011-12) MEANINGFUL ENQUIRIES AND PASSED THE ASSESSMENT ORDE R WITHOUT APPLICATION OF MIND. AS A MATTER OF FACT, HAVING REGARD TO THE EN TIRE CONSPECTUS OF FACTS AND THE MATERIAL ON RECORD, IN OUR CONSIDERED OPINION, THE INSTANT IS A CASE WHERE THE PCIT HAS SOUGHT TO SUBSTITUTE HIS VIEW FOR THAT OF THE ASSESSING OFFICER WITHOUT THERE BEING ANY MATERIAL TO ESTABLISH THAT THE ASSESSMENT ORDER HAS CAUSED ANY PREJUDICE TO THE INTERESTS OF THE REVENU E IN THE EYES OF LAW. OSTENSIBLY, SUCH A COURSE OF ACTION BY THE PCIT IS IMPERMISSIBLE IN LAW. 13. IN VIEW OF AFORESAID DISCUSSION, WE HEREBY SET- ASIDE THE ORDER OF THE PCIT AND THE ASSESSMENT ORDER DATED 19/02/2014 (SUP RA) IS HEREBY RESTORED. THUS, ASSESSEE SUCCEEDS IN ITS APPEAL. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 29/12/2016 SD/- SD/- ( RAM LAL NEGI) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 29/12/2016 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI