Appeal Details
Counselvise Citation
[2021] 107 COUNSELVISE.COM (IT) 6254 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 7 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-01-2021
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
E
Assessment Year
2012-2013
Appeal Filed On
23-05-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.3759/M/2017 ASSESSMENT YEAR: 2012-13 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.), 40-B, RIDGE ROAD, MALABAR HILL, MUMBAI 400 006 PAN: AABCE 7257R VS. PRCIT 6, AAYAKAR BHAVAN, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI NISHANT THAKKAR, A.R. & SHRI HITEN CHANDE, A.R. REVENUE BY : SHRI R. MANJUNATHA SWAMY, D.R. DATE OF HEARING : 23.10.2020 DATE OF PRONOUNCEMENT : 08.01.2021 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 24.03.2017 OF THE PRINCIPAL COMMISSIONER OF INCOME TAX [HEREINAFTER REFERRED TO AS THE PCIT] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVES TMENTS IN SECURITIES OF LISTED AND UNLISTED COMPANIES AND PRO VIDING FINANCIAL ADVISORY SERVICES INCLUDING CORPORATE FIN ANCE SERVICES ETC. DURING THE YEAR THE ASSESSMENT WAS FRAMED IN T HIS CASE U/S 143(3) OF THE ACT VIDE ORDER DATED 30.03.2015.THERE AFTER THE LD PCIT EXAMINED AND PERUSED THE ASSESSMENT RECORDS AN D CAME TO THE CONCLUSION THAT THE ASSESSMENT FRAMED BY THE AO IS ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 2 ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AS THE AO HAS FAILED TO CARRY OUT ENQUIRIES INTO THE FACTS AND CIRCUMSTANCES OF THE CASE WHICH HAS RESULTED INTO A SSESSMENT NOT BEING MADE OF CORRECT INCOME. THERE HAVE BEEN A NUMBER OF MERGERS AND AMALGAMATION BEFORE THE ASSESSEE FINALL Y BECAME THE OWNERS OF EQUITY SHARES OF VODAFONE ESSAR LTD ( HEREINAFTER CALLED AS VEL).ACCORDING TO LD. PCIT M/S ESSAR TELE HOLDINGS LTD (HEREINAFTER CALLED AS ETHL) ORIGINALLY HELD SHARES IN VEL SINCE 2005. OTHER GROUP COMPANIES WHICH ARE REFERRED TO I N THE ARE ORDER ARE ETHL COMMUNICATIONS HOLDINGS LTD. (HEREI NAFTER CALLED AS ECHL), ESSAR TELECOMMUNICATIONS HOLDINGS PRIVATE LIMITED (HEREINAFTER CALLED AS ETHPL), ETHL TELECOM HOLDINGS INDIA PRIVATE LIMITED (HEREINAFTER CALLED AS ETHIPL ),INDIA SECURITIES LTD (HEREAFTER CALLED AS ISL). IN VIEW O F THE ABOVE, A NOTICE U/S 263 OF THE ACT DATED 17.06.2015 WAS ISSU ED TO THE ASSESSEE AS TO WHY THE ABOVE ASSESSMENT ORDER SHOUL D NOT BE SET ASIDE U/S. 263 OF THE ACT, FOR THE VARIOUS REAS ONS WHICH ARE EXTRACTED BELOW FOR THE SAKE OF CONVENIENCE AND REA DY REFERENCE: 'IF IS OBSERVED FROM THE PERUSAL OF THE RECORDS THA T WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) ON 30.03.2015 [DATE IS ERRONEOUSLY WRITTEN US 30.03.2012 IN THE ORDER], THE ASSESSING OFFICER HAS FAILED TO CARRY O UT ENQUIRIES AS WARRANTED BY THE FACTS AND CIRCUMSTANCES OF THE CASE AND THAT THE AS SESSMENT HAS BEEN COMPLETED WITHOUT EXAMINING ALL THE ASPECTS WHICH WERE REQUIR ED TO BE LOOKED INTO FOR ARRIVING AT THE CORRECT TAXABLE INCOME EARNED BY TH E ASSESSES. IT IS FOUND THAT EVEN THOUGH THERE WERE CLEAR INDICATIONS THAT SOMETHING WAS AMISS YET THE AO DID NOT CAUSE THE NECESSARY VERIFICATION ON INTER SE TRANSF ER OF ASSETS AND LIABILITIES OF THE GROUP COMPANIES RESULTING IN SUBSTANTIAL LOSSES AND HAS FAILED TO CALL FOR THE, BASIC DOCUMENTARY EVIDENCE TO EXAMINE THE TRUE NATURE AND SUBSTANCE OF THE TRANSACTION. AS DISCUSSED BELOW IN DETAIL IT WOULD BE APPARENT THAT THE ASSESSING- OFFICER FAILED TO CARRY OUT RELEVANT AND MEANINGFUL INQUIRIES WHICH WERE 'WARRANTED BY THE FACTS OF THE CASE WHICH HAS RESULTED IN PASS ING OF AN ASSESSMENT ORDER WHICH IS ERRONEOUS ON FACTS AND LAW AND PREJUDICIAL TO TH E INTERESTS OF REVENUE. 2. THE ASSESSEE COMPANY, M/S. ESSAR CAPITAL LTD [EC L] WAS INCORPORATED ON 15.02.2007. THE ENTIRE-ISSUED AND PAID UP CAPITAL O F RS.5,00,000 COMPRISING OF 50000 EQUITY SHARES OF RS.10 EACH URNS HELD BY ESSA R SATVISION LIMITED DURING THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 3 RELEVANT PERIOD. THE ASSESSES COMPANY, ECL WAS THE HOLDING COMPANY OF INDIA SECURITIES LTD [ISL] AND ESSAR SECURITIES LTD [ESL] , 3. FOR THE AY.2012-13, THE ASSESSEE COMPANY HAD RET URNED BUSINESS LOSS OF RS.57,01,325/- AND SHORT TERM CAPITAL LOSS (STCL) O F 215,24 A. THE ASSESSEE HAD ALSO REPORTED INCOME FROM OTHER SOURCES AT RS.4S.4S CR. THE STCL WAS MAINLY ON ACCOUNT OF THE SALE OF VODAFONE ESSAR LTD [VEL] SHA RES HELD BY ETHL COMMUNICATION HOLDINGS LTD [ECHL] AND ACQUIRED BY THE ASSESSEE EC L AFTER A SERIES OF MERGERS AND AMALGAMATIONS. THERE WERE FOUR AMALGAMATIONS INVOLV ING GROUP COMPANIES AS A RESULT OF WHICH THE SHARES OF VEL HAD COME TO BE TH E PROPERTY OF ECL. THEY WERE - (I) AMALGAMATION OF ETHL TELECOM HOLDINGS INDIA PRI VATE LIMITED [ETHIPL] WITH ESSAR-TELEHOLDINGS LTD [ETHL] W.E.F 01.01.2010 VIDE COURT ORDER DATED 16.07.2010. (II) AMALGAMATION OF ESSAR TELECOMMUNICATIONS HOLDI NGS PRIVATE LTD [ETI- IPL] WITH INDIA SECURITIES LTD [ISL] W.E.F 01.04.20 10 VIDE COURT ORDER DATED 21.04.2011. (III) AMALGAMATION OF ETHPL COMMUNICATIONS HO LDINGS LTD IECHL] WITH THE INDIA SECURITIES LTD [ISL] W.E.F 01.04.2010 VID E COURT ORDER DATED 13.02.2012. (IV) AMALGAMATION OF INDIA SECURITIES LTD [I SL] WITH ESSAR CAPITAL LID [ECL] W.E.F. 01.04.2011 AS PER COURT ORDER DATED 11.01.20 13. 4. ONE OF THE RATIONALES FOR THE AMALGAMATION OF ET HPL WITH ISL WAS THAT THE AMALGAMATING AIMS AT UNLOCKING THE VALUE AND MARKET ASSESSMENT OF THE TELECOM ASSETS OF THE COMPANY. SIMILARLY, THE RATIONALE PUT -FORTH FOR AMALGAMATING ECHL WITH ISL WAS TO FACILITATE DIRECT CONTROL OVER ASSE TS OF ECHL IN THE HANDS OF ISL. IT IS SEEN THAT THE ONLY MAJOR TELECOM ASSET (EXCLUDING I F WE CONSIDER INTER GROUP OCDS AND INVESTMENTS IN SHARES OF GROUP CONCERNS AS MAJO R ASSET), WAS THE 10.97% STAKE IN VODAFONE ESSAR LTD [VSL] HELD BY THE GROUP ONSHO RE. THE BACKGROUND INFORMATION ON THE AMALGAMATING COMPANIES REVEALS THE FOLLOWING . 5. THE ESSAR GROUP ENTITIES WERE HOLDING 33% STAKE THROUGH OFFSHORE AND ONSHORE COMPANIES IN HUTCHISON ESSAR LTD [HEL] WHICH LATER ON BECAME VODAFONE ESSAR LTD [VEL]. THE ONSHORE HOLDING WAS THROUGH ESSAR TELEHO LDINGS LTD [ETHL], WHICH HAD 10.97% STAKE IN VODAFONE ESSAR LTD [VEL], IN THE NA TURE OF EQUITY SHARES NUMBERING 4,54,25,323 WITH BOOK VALUE OF RS.1260,58,89,865 AS ON 31.03.2007. THESE, SHARES WERE ACQUIRED THROUGH SWAPPING OF 10(23C) COMPANIES ' SHARES WITH HUTCHISON MAX TELECOM LTD [HMTL] FIND OTHERS IN THE PRECEDING YEA RS. DURING THE RELEVANT PERIOD, ETHL WAS A SUBSIDIARY OF KRONER INVESTMENTS LIMITED , ANOTHER ESSAR GROUP ENTITY. 6. THERE WAS AN AGREEMENT [REFERRED TO AS 'PUT OPTI ON AGREEMENT'} ENTERED INTO BY ESSAR GROUP WITH VODAFONE ESSAR LIMITED. [VEL] O N 15.03.2007, TO SELL THE ENTIRE 33% STAKE FOR AN AGREED AMOUNT OF $5 BILLION. ACCOR DING TO THE GROUP, THE ONSHORE HOLDING OF 10.97% HELD BY ETHL WAS TO BE SOLD TO VE L OR ITS NOMINEES FOR $1200 MILLION [INDIAN RUPEE EQUIVALENT OF RS.6000 CR APPR OXIMATELY] BETWEEN MAY,2010 TO MAY, 2011. 7. ON 07.10.2007, ETHL INCORPORATED A WHOLLY OWNED SUBSIDIARY, ETHL COMMUNICATIONS HOLDINGS PRIVATE LTD [/ECHL] WITH A NOMINAL CAPITAL OF RS. LAKH, ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 4 COMPRISING OF 10,000 EQUITY SHARES OF RS.10 EACH. T HE SHAREHOLDING WAS INCREASED TO 1,19,000 SHARES WITH A PREMIUM OF RS.98.10 LAKH, [THE TOTAL INVESTMENT BY ETHL IN ECHL WAS RS.1.01 CR. ETHL CLAIMED HINT ON 28.03. 2008, IT HAD TRANSFERRED THE STAKE OF 10.97% IN VEL, BEING THE EQUITY SHARES NUM BERING 4,54,25,328 FOR RS.1260,58,89,865 TO ECHL, AND CLAIMED LONG TERM CA PITAL LOSS THEREON AFTER INDEXATION. THOUGH THE 'PUT OPTION' WAS STILL SUBSI STING AS ON THE DATE OF TRANSFER, THE CONSIDERATION FOR WHICH IT WAS TRANSFERRED TO T HE SUBSIDIARY COMPANY WAS QUITE INADEQUATE ( ASSETS WORTH RS.6000 CRORES BEING TRAN SFERRED FOR RS. 1260 CRORES, WHICH WAS ALSO SHOWN AS PAYMENT THROUGH ISSUE OF FC DS. SINCE EC! II DID NOT HAVE ANY SOURCE OF FUNDS TO PAY FOR THIS IMPUGNED TRANSF ER OF VEL SHARES, IN LIEU OF PAYMENT FOR THE VEL SHARES, ECHL ISSUED FCDS TO ETH L FOR RS.1260 CR.) 8. IN THE MEANWHILE, ETHL INCORPORATED ANOTHER SUBS IDIARY COMPANY UNDER ITS FOLD (100%SUBSIDIARY), NAMELY ESSAR TELECOMMUNICATIONS H OLDINGS P LTD [ETHPL ON 10.03.2003 WITH A NOMINAL CAPITAL OF RS.1 LAKH. ETH L FURTHER INVESTED IN 1,31,000 SHARES OF ETHPL ON 09.04.2008 A! A PREMIUM OF'RS.90 PER SHARE. THE TOTAL INVESTMENT BY ETHL IN ETHPL WAS RS.L.32 CR. THEREAF TER, ETHL CLAIMED TO HAVE TRANSFERRED ITS SHAREHOLDING IN ECHL TO ETHPL FOR A MEASLY SUM OF RS.1.19 CR, AND THUS HAD INDIRECTLY PASSED ON THE SHARES OF VEL WOR TH $1200 BILLION AS PER THE PUT. OPTION AGREEMENT FOR RS. 1.19 CRORES. ETHL HAD ALSO GIVEN LOAN OF RS.1262.95 CR ON 30.04.2008 TO ETHPL AS OCDS. ETHPL IN TURN INVESTED THE FUNDS AS EQUITY SHARES, IN ECHL AT A PREMIUM OF RS. 1407.82 CR. ECHL USED THES E FUNDS TO REPAY THE NCDS OF ETHL FOR RS.1260 CR. THE ILLUSORY CYCLE IONS COMPLE TE. THAT IS, THE MONEY FOR REPAYING OCDS OF ETHL HAD COME FROM ETHL. ECHL, THU S, BECAME THE WHOLLY OWNED SUBSIDIARY OF ETHPL. 9. IN THE BOOKS OF ECHL AS ON 31.03.2009, THE VALUE OF PUT OPTION ON VEL WAS ACCOUNTED FOR UNDER 'LOANS AND ADVANCES' AT ITS FAI R VALUE, CALCULATED AT RS.5915.32 CR BY TAKING THE NET DISCOUNTED PRESENT VALUE BASED ON LIBOR IN THE PLACE OF INVESTMENT IN VEL SHARES. THE DIFFERENCE B EHVE.CN THE BOOK VALUE OF VEL [RS.1260 CR] AND THE FAIR VALUE OF PUT OPTION ON VE L [RS.5915.32 CR] WAS TAKEN TO CAPITAL RESERVE [RS.3599.99 CR] NET OF DEFERRED TAX LIABILITY OF RS.1054.76 CR. HOWEVER, IN THE NEXT YEAR, THE VALUE OF VEL SHARES WAS REFLECTED IN THE BALANCE SHEET AS INVESTMENTS OF VALUE RS.5915.32 IN THE PLA CE OF PUT OPTION RECOGNIZED UNDER LOANS AND ADVANCES EARLIER. THE AUDIT NOTE ST ATES THAT THE VALUE OF PUT OPTION HAS BEEN TAKEN AS NIL. THUS, THE BOOK VALUE OF VEL SHARES WERE INCREASED FROM RS.1260 CR TO RS.5915.32 CR AND THE DIFFERENCE WAS CREDITED TO CAPITAL RESERVE AND DEFERRED TAX LIABILITY. 10. ANOTHER COMPANY, INCORPORATED ON 16.04.2008 AS BHARGAVA REALTIES PRIVATE LIMITED AND LATER ON RENAMED AS ETHL TELECOM HOLDIN GS INDIA PRIVATE LIMITED [ETHIPL], WAS ACQUIRED BY ETHL AS ON 31.03-2009 NS A 'WHOLLY OWNED SUBSIDIARY. ETHL TRANSFERRED THE ENTIRE SHARES OF ETHPL, NUMBER ING 141000 COSTING RS.1.32 CR TO ETHIPL FOR RS.1.41 CR ON 20.03.2009. IT HAD ALSO TRANSFERRED THE ENTIRE SHARES OF ECHL, NUMBERING 1119000 COSTING RS.1,10 CR TO ETHPL FOR A SUM OF RS.L.19 CR. THUS, FOR A MEAGER SUMS OFRS.2.60 CR,[ RS. 1.41 CR+ RS. 1 .19 CR] BOTH ETHPL AND ECHL WHICH WAS HOLDING VODAFONE SHARES ALSO BECAME THE I MMEDIATE AND STEP DOWN SUBSIDIARIES RESPECTIVELY OF ETHIPL AS ON 31.03.200 9. ASSETS WORTH AT LEAST RS.6000CR (SHARES OF VEL ALONE WOULD HAVE FETCHED R S.6000 CR BECAME PROPERTY OF 'ETHIPL. IT WAS NOTICED THAT ETHIPL INVESTED N FUR THER SUN: OFRS.14 CR IN ACQUIRING ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 5 FURTHER EQUITY SHARES NUMBERING 1400000 IN ETHPL AT N PREMIUM OF RS.90 PA-SHARE. ON 25.03.2009, OCDS OF ETHPL EARLIER HELD BY ETHL [ RS.1262 CR] AND ESSAR INVESTMENTS LTD [RS.300 CR] WERE ALSO TRANSFERRED T O ETHIPL AT COST, FUNDS WERE PROVIDED BY ESSAR HOLDINGS LTD [EHL]AND OTHERS TO E THIPL AS OCDS FOR RS.1566.49 CR TO ACQUIRE THE OCDS OF ETHPL. ETHIPL WAS AMALGAMATE D WITH ETHL AS PER COURT ORDER DATED 16.07.2010 W.E.F. 01.01.2010. 10.1 THE RESULTANT SURPLUS OF RS 3198 CR, WHICH WAS MAINLY ON ACCOUNT OF REVALUING EQUITY SHARES OF ETHPL HAS BEEN TAKEN TO CAPITAL RE SERVE. SIMPLY PUT, THOUGH EQUITY SHARES WERE ALMOST ENTIRELY TRANSFERRED EARL IER BY ETHL ONLY AT BOOK VALUE TO ETHIPL, ON AMALGAMATION, THE SAME ASSETS WERE REVAL UED AND TAKEN BACK IN THE BOOKS OF ETHL AT A HIGHER VALUE. ETHIPL SURVIVED AS A COMPANY FOR EXACTLY TWO YEARS AND THERE WERE NO BUSINESS ACTIVITIES AND THE ONLY ROLE IT PLAYED WAS TO INCRE ASE THE COST OF INVESTMENT IN THE BOOKS OF ETHL BY REVALUATION OF THE ASSETS OFRS.319 8 CR. BY MAKING ADDITIONAL INVESTMENT OF RS.14 CRORES. 10.2 ON MERGING OF ETHIPL WITH ETHL, ITS ERSTWHILE SUBSIDIARIES ETHPL AND ECHL ONCE AGAIN BECAME ITS SUBSIDIARY AND STEP DOWN SUBS IDIARY RESPECTIVELY OF ETHL. AS STATED ABOVE, THE COST OF INVESTMENT FOR ETHL THROU GH THIS STRATAGEM IONS INCREASED BY RS.3198 CRORES ONLY WHEN ADDITIONAL IN VESTMENT HAS BEEN MADE OF RS.14 CRORES. 10.2.1. THOUGH OUT OF 15,41,000 SHARES OF ETHPL NOW ACQUIRED BY ETHL, 1,41,000 SHARES WERE THE SAME THAT WERE TRANSFERRED TO ETHIP L, EARLIER ON 20.03.2009, TO ETHIPL FOR RS.1.41 CR . THE REMAINING SHARES NUMBER ING 14,00,000 WERE ACQUIRED BY ETHIPL ITSELF FOR RS.14 CR IN MARCH, 2009 ONLY. THE SHARES (15,41,000 SHARES) HAVE BEEN REVALUED AT SUCH ASTRONOMICAL FIGURES OF RS.32 3S.94 CR US ON 01.01.2010. 10.3 SINCE THERE WAS NO BUSINESS ACTIVITY OR INVEST MENT ACTIVITY BY ETHIPL OTHER THAN TRANSFERS MENTIONED ABOVE, THERE IS NEITHER AN Y BASIS NOR ANY JUSTIFICATION, FOR SUCH UNREASONABLE VALUATION ADOPTED UNDER THE GUISE OF ACCOUNTING FOR AMALGAMATION BUT FOR PURPOSELY JACKING UP THE COST OF INVESTMENT IN ETHPL IN THE BOOKS OF ETHL. 11. IT IS IN THIS BACK DROP THAT THE TWO AMALGAMATI ONS INVOLVING ETHPL AND ECHL TOOK PLACE, WITH ISL, THE SUBSIDIARY OF THE ASSESSE E COMPANY. FIRSTLY, ESSAR TELECOMMUNICATIONS HOLDINGS PRIVATE LTD [ETHPL], NO W THE SUBSIDIARY OF ESSAR TELEHOLDINGS LTD I ETHL] WAS AMALGAMATED WITH ISL W .E.F 01.04.2010 AS PER THE COURT ORDER DATED 21.04.2011 AND THUS ECHL NOW BECA ME THE DIRECT SUBSIDIARY OF ISL. AS ON THE APPOINTED DATE, 01.04.2010, ETHL DID NOT HAVE ANY OTHER ASSETS IN ITS BALANCE SHEET EXCEPT THE INVESTMENT OF RS.1565 CR I N ECHL AT A PREMIUM OF RS.1407.82 CR WHICH WAS FUNDED BY THE OCDS OF ETHIP L SINCE MERGED WITH ETHL. THUS IN EFFECT, THE VEL SHARES HELD BY ECHL WAS THE ONLY TANGIBLE ASSET WHICH HAD BEEN INDIRECTLY ACQUIRED BY ISL THROUGH THIS AMALGA MATION. NORMALLY FOR THE PURPOSES OF ARRIVING AT THE CONSIDERATION PAYABLE I N LIEU OF NET ASSETS OF THE AMALGAMATING COMPANY, THE FAIR VALUE OF VEL SHARES HELD BY ECHL OUGHT TO HAVE BEEN THE BENCH MARK. 12. THOUGH IT WAS STATED THAT THE AMALGAMATION IS A CCOUNTED FOR UNDER PURCHASE METHOD AS PER AS 14, THE INVESTMENT IN ECHL IN THE BOOKS OF ETHPL WAS NOT TAKEN ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 6 AT ITS FAIR VALUE, RESULTING IN A DEFICIT OF RS.371 .36 CR WHICH WAS ACCOUNTED AS GOODWILL IN THE BOOKS OF ISL. 13. IN LIEU OF SHARES HELD BY ETHL IN ETHPL, ISL IS SUED 330 EQUITY SHARES OF RS.1 EACH FOR EVERY SHARE OF ETHPL AND IN ADDITION TO THAT ON E 0.01% NON CUMULATIVE PREFERENCE SHARES OF RS.2000 EACH WAS ISSUED. ALLOT MENTS WERE DONE ON 3 RD JUNE, 2011. ETHL HAD 15,41,000 EQUITY SHARES OF ETHPL AS ON 31. 03.2010 AND AS PER THE FORMULA IT RECEIVED 505,529,670 EQUITY SHARES OF IS L HAVING A MARKET VALUE OF RS.3051,17,80,200 [508,529,670 X RS.60] WHICH IT SO LD TO ECL AT ALMOST THE SAME RATE. IN ADDITION TO THIS, ETHL ALSO RECEIVED 15,41 ,000 PREFERENCE SHARES OF RS.2000 EACH HAVING A TOTAL VALUE OF RS.30820,00,000/-. THU S, ETHL RECEIVED SHARES WORTH RS.3359 CR [RS. 305 CR + RS. 34 CR ] IN LIEU OF THE 10.97% STAKE IN VEL HELD BY IT INDIRECTLY. IT IS ALSO RELEVANT TO MENTION HERE THA T ETHPL HAD TRANSFERRED THE SAME (VEL SHARES) EARLIER FOR RS.1260 CR TO ECHL AND HAD ALSO CLAIMED ARTIFICIAL LOSS FOR THIS TRANSACTION.. AS DISCUSSED ABOVE, ETHL HAD SUCCEEDED IN INCREASIN G THE COST OF- INVESTMENT IN ETHPL IN ITS BOOKS BY RS.3198 CR. PRIOR TO THE AM ALGAMATION ESSAR CAPITAL LTD [ECL] WAS THE HOLDING COMPANY OF ISL WITH 74.2% HOLDING, AS A RESULT OF AMALGAMATION, ECL'S HOLDING CAME DOWN TO 16.91% WHEREAS ETHL BECA ME THE HOLDING COMPANY OF ISL AS ON 30.06.2011 WITH58%. HOWEVER, LATER ON E THL TRANSFERRED THE SHARES OF ISL TO ECL MAKING IT THE HOLDING COMPANY OF ISL AGA IN. 14. {DURING FY.2009-10, THE BUSINESS OF INVESTMENT OF ISL WAS DEMERGED INTO ESSAR SECURITIES LTD [ESL] AS ON 31.03.2008, A 100% SUBSI DIARY OF ESSAR INVESTMENTS LTD [EIL], WHICH INTER ON BECAME THE SUBSIDIARY OF ECL} . IT WAS NOTICED THAT ISL ISSUED ON 18,03.2010 , 2000 00 NAN CUMULATIVE COMPULSORILY CONVERTIBLE PREFERENCE SHARES [CCPS] HAVING FACE VA LUE OF RS.2000 EACH AT A PREMIUM OF RS.16,000 PER SHARE TO TWO MAURITIUS BAS ED FLLS, NAMELY, PRIME INDIA INVESTMENT FUND LIMITED AND INDIA MASTER FUND LIMIT ED. TOTAL OF RS.360 CR [CCPS FACE VALUE RS.40 CR + PREMIUM RS.320 CR] WAS THUS M INED THROUGH ISSUE OF CCPS. THE FUNDS WERE STATED TO BE RAISED FOR DEPLOYING IN THE DEBT SECURITIES OF GROUP COMPANIES. EACH CCPS WAS TO BE AUTOMATICALLY AND CO MPULSORILY CONVERTED IN TO EQUITY SHARES OF RS. 1 EACH, AT THE END OF 18 MONTH S FROM DALE OF ALLOTMENT. HOLDER OF CCPS ALSO HAD AN OPTION TO CONVERT THE CCPS INTO EQUITY SHARES AT ANY TIME AFTER 90 DAYS FROM DATE OF ALLOTMENT BY GIVING A WRITTEN NOTICE. THE RELEVANT DATE TO ASCERTAIN THE MINIMUM PRICE FOR ALLOTMENT OF EQUITY SHARES BEFORE EXPIRY OF 18 MONTHS SHALL BE A DAY 30 DAYS PRIOR TO THE DATE ON WHICH THE HOLDERS OF CCPS BECOME ENTITLED TO APPLY FOR THE EQUITY SHARES, I.E . 30 DAYS PRIOR TO THE RECEIPT OF NOTICE TO EXERCISE THE OPTION THE ALLOTMENT OF EQUI TY SHARES UPON CONVERSION OR EXERCISE OF OPTION BY THE HOLDER SHALL NOT BE AT A PRICE LESS THAN RS.5 PER EQUITY SHARE OF RS.1 EACH. THE LOCK IN PERIOD IN ANY CASE, EVEN AFTER EXERCISING CONVERSION OPTION, IS ONE YEAR FROM THE DATE OF ALLOTMENT OF C CPS. AS PER ASSESSEE'S SUBMISSION, THE OPTION WAS EXERCISED BY THE CCPS HO LDERS ON JUNE 17, 2010 AND JUNE 18, 2010 RESPECTIVELY AND THAT THE CONVERSION WAS CARRIED OUT SIMULTANEOUSLY WITH THE AMALGAMATION OF ESSAR TELECOMMUNICATION HO LDINGS PRIVATE LIMITED [ETHPL] WITH ISL W.E.F.01.04.2010 AS PER THE ORDER OF THE HIGH COURT DATED 21.04.2011. THE SHARES OF ISL WERE SPLIT INTO RS.1 PER SHARE W.E.F. 11.03.2010. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 7 15. ON AMALGAMATION OF M/S. ESSAR TELECOMMUNICATION HOLDINGS LTD [ETHPL]WITH ISL W.E.F.01.04.2010 VIDE THE ORDER OF THE HON'BLE HIGH COURT OF BOMBAY DATED 21.04.2011 THE TWO FIIS (AS PART OF THE AMALGAMATIO N SCHEME), WERE ISSUED 16,77,00,000 EQUITY SHARES OF RS.1 EACH OF ISL. AS MENTIONED EARLIER, THE OPTION WAS EXERCISED ON 17.06.2010 AND 18.06.2010 RESPECTIVELY AND HENCE THE RELEVANT DATE FOR RATE OF CONVERSION IS 17.05.2010 AND 18.05.2010 . THE SHARES WERE BEING TRADED IN BSE DURING THE RELEVANT DATES AND THE AVERAGE PR ICE WORKS OUT TO RS.23.78 AND RS,22.28 ONLY ON THE RESPECTIVE DATES AS SEEN FROM THE DATA BELOW. 16. AS PER THE TERMS OF ISSUE OF CCPS, THE NUMBER O F EQUITY SHARES TO BE ISSUED ON CONVERSION EVEN IF THE COMBINED AVERAGE PRICE OF RS .23 PER SHARE [RS.23.78+RS.22.28F2] ON RELEVANT DATES IS TAKEN, ' MILL BE 1,73,91,304 ONLY [RS 40 CR DIVIDED BY RS.23] WHEREAS THE ACTUAL NUMBER OF EQUI TY SHARES OF ISL ISSUED TO THE TWO FIIS WAS 16,77,00,000 AND THIS EXCESS ALLOTMENT OF 15,03,08,696 [16,77,00,000 - 1,73,91,3041 SHARES OF ISL WAS DONE AS PART OF THE AMALGAMATION OF ETHL WITH ISL WITHOUT REVEALING THE FACT THAT NS PER THE TERMS OF ISSUE OF CCPS, AND UNDER THE FDI NORMS, THE CONVERSION RATE HAS TO BE AS PER THE -PR E DETERMINED RATE AT THE TIME OF FDI ITSELF AND THAT IT CANNOT BE ALTERED. THE EXCES S CONSIDERATION PASSED ON TO THE TWO FIIS BY WAY OF THIS WRONGFUL ALLOTMENT OF EXCES S SHARES ISL SHARES (TO THE EXTENT OF 15,03,08,696 ) WHICH WERE OVER AND ABOVE THE PER MISSIBLE NUMBERS AMOUNTS TO RS.345,71,00,008 [15,03,08,696 ENTITY SHARES OFRS.1 EACH OF ISL X RS.23 PER SHARE]. THESE SHARES WHICH WERE SUBSEQUENTLY PURCHASED BY E SSAR CAPITAL LTD [ECL] FROM MARCH 26-28, 2012 AT THE RATE OFRS.61.68 PER SHARE THROUGH EXIT OFFER. ECL HAD ALSO FIXED AN EXIT PRICE OF RS 62 PER SHARE OF ISL. THE TOTAL AMOUNT PAID TO THE TWO FIIS WAS RS.1037,04,30,000/-FOR 16.77 CR EQUITY SHARES O F ISL. HAD THE CONVERSION BEEN RIGHTLY DONE AS PER THE TERMS OF ISSUE, THE PERMISS IBLE PAYOUT FROM ECL TO THE TWO FIIS ON EXIT OFFER WOULD HAVE BEEN RS. 107,82,60,84 8/- [1,73,91,304 X RS.62] ONLY, AND THE EXCESS PAYOUT TO THE FUS ON THEIR INVESTMEN T IN CCPS OF ISL, ON CONVERSION INTO EQUITY SHARES, WORKS OUT TO RS.929,21,69,152/- [RS.1037,04,30,000 - RS. 107,82,60,848] IT IS ALSO PERTINENT TO NOTE THAT ISL HAD SUBSEQUEN TLY AMALGAMATED WITH ECL. W.E.F. 01.04.2011 AS -PER THE COURT ORDER DATED 11.01.2013 , THE ASSESSING OFFICER HAS NEITHER RAISED ANY QUERIES NOR CAUSED ANY NECESSARY VERIFICATION OF THE ISSUE. THE BASIS AND JUSTIFICATION FOR CONVERTING THE CCPS INT O HIGHER NUMBER OF EQUITY SHARES OF ISL, IN DEAR VIOLATION OF THE TERMS OF ISSUE AND ALSO THE FDI NORMS IONS NOT 17.05.2010 18.05.2010 OPEN PRICE 23.20 21.95 HIGH PRICE 24.50 22.60 LOW PRICE 23.05 22.95 LAST PRICE 23.10 21.95 VOLUME 142127.00 262447.00 AVERAGE PRICE 23.78 22.28 ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 8 ENQUIRED INTO BY THE AO. IT IS PERTINENT TO MENTION THAT THE INVESTMENT BY THESE TWO FUS IN ISL WAS ALSO A SUBJECT MATTER OF INVESTI GATION BY SEBI AT THE RELEVANT PERIOD AND WAS STILL PENDING FINAL ADJUDICATION. TH E AO, WITHOUT EVEN RAISING THE BASIC QUERY AS TO THE VALUATION METHOD AND DETERMIN ATION OF CONVERSION RATE HAS SIMPLY COMPLETED THE ASSESSMENT WITHOUT ANY INVESTI GATION ON MS PART AND ALSO WITHOUT ASCERTAINING THE OUTCOME OF SEBI INVESTIGAT ION THUS RENDERING THE ORDER NOT ONLY ERRONEOUS BUT ALSO CLEARLY PREJUDICIAL TO THE INTERESTS OF REVENUE. 17. THE OTHER COMPANY, ETHL COMMUNICATIONS HOLDINGS LTD [ECHL] WAS ALSO AMALGAMATED WITH ISL W.E.F.01.04.2010 VIDE THE HIGH COURT'S ORDER DATED '13THFEBRUARY, 2012. THE ONLY OUTCOME OF THIS AMALG AMATION IS THE TRANSFER OF 10.97% VODAFONE ESSAR SHARES FROM ESSAR TELEHOLDING S LTD [ETH], THE HOLDING COMPANY OF ESSAR TELECOMMUNICATION HOLDINGS LTD [ET HPL] TO ETHL COMMUNICATION HOLDINGS LTD (ECHL] AT THE FIRST STAGE AND FURTHER ON TO INDIA SECURITIES LTD [ISL] WHICH WAS ULTIMATELY TRANSFERRED TO ESSAR CAPITAL L TD [ECL] WHICH HAD IN TURN ACCOUNTED FOR THE SALE OF THESE SHARES FOR RS.6000 CR. THE AO HAS FAILED TO EXAMINE THE FACT THAT THE SHARES OF VODAFONE ESSAR (33%) HE LD BY THE GROUP WERE BACKED BY THE PUT OPTION AS CLAIMED BY THE GROUP WHICH WAS RE PORTEDLY ENTERED INTO WITH VODAFONE INC ON 15.03.2007 FOR $ 5 BILLION AND THAT THE SHARES WERE REVALUED BY ETHL COMMUNICATIONS HOLDINGS LTD, RESULTING IN A CA PITAL RESERVE OF OVER RS.3000 CR ON WHICH NO TAXES HAVE BEEN OFFERED IN THE HANDS OF ANY ONE. DETAILS OF AMALGAMATION, VALUATION OF NET WORTH, SWAP RATIO, J USTIFICATION FOR SETTLEMENT OF SHAREHOLDERS' ACCOUNT WITH MULTIPLE ALLOTMENTS OF E QUITY SHARES, DEBENTURES ETC, OBJECTIONS RAISED BY THE AUDITORS BEFORE THE HON'BL E HIGH COURT ON THE ANOMALIES IN VALUATION AND DISCLOSURE STANDARDS OF SCHEME OF AMA LGAMATION WERE NOT LOOKED INTO. CHAIN OF TRANSACTIONS LEADING TO THE TRANSFER OF SHARES OF VODAFONE. ESSAR TO ISL AND EVENTUALLY TO ECL VIS A VIS THE PUT OPTION CLAIMED WAS NEITHER EXAMINED NOR CONSIDERED BY THE AO. 18. AS PER INFORMATION AVAILABLE ON RECORD, IT IS S EEN THAT ETHL COMMUNICATION HOLDINGS LTD [ECHL], HAD IN FACT SOLD THE SHARES OF VEL EVEN BEFORE ITS AMALGAMATION WITH ISL WAS FINALLY APPROVED BY THE C OURT ON 13.02.2012. IT IS SEEN THAT AS PER SALE MID PURCHASE AGREEMENT DATED 10LH AUGUST, 2011, ECHL HAD TRANSFERRED 2,27,12,664 SHARES OF VEL TO PIRAMAL HE ALTHCARE LTD ON 18.08.2011 FOR A CONSIDERATION RS.2855,52,49,000/-, THE BALANCE VEL SHARES NUMBERING 2,27,12,664 WERE SOLD ON 08.02.2012 FOR A CONSIDERATION OF RS.3 007,10,75,000/- AS PER THE SECOND SALE AND PURCHASE AGREEMENT DATED 03.02.2012 BETWEEN ECHL AND PIRAMAL HEALTHCARE LTD. IT IS QUITE EVIDENT THAT THE-STATED PURPOSE FOR WHICH THE AMALGAMATION OF ECHL WITH ISL WAS SOUGHT TO BE CARR IED OUT HAD ALREADY BEEN NULLIFIED SINCE AFTER THE SALE OF VEL SHARES BY ECH L, THERE WERE NO OTHER TELECOM ASSETS EXCEPT THE OCDS AND FCDS. THE ONLY REAL PURP OSE THAT THESE AMALGAMATIONS HAD SERVED POST FACTO OF VEL STAKE SALE IS TO MANIP ULATE THE ACCOUNTING TREATMENTS SO AS TO EVADE PAYMENT OF TAXES THEREON BY ANY OF T HE ENTITIES CONCERNED. 19. IN THIS REGARD, IT IS PERTINENT TO NOTE THAT IS L IONS MERGED WITH ECL W.E.F 01.04.2011 NS PER COURT ORDER DATED11.01.2013 ONLY BY WHICH TIME THERE WERE NEITHER TINY SHARES OF VEL WITH THE, GROUP NOR WAS THERE ANY OTHER BUSINESS ASSETS OF THE LIKE. THOUGH IT WAS ECHL THAT ACTUALLY SOLD THE SHARES, THE ACCOUNTING FOR ACTUAL SALE WAS DONE ONLY IN THE HANDS OF ECL POST AMALGAMATION.ECL HAD, IN FACT ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 9 CLAIMED THAT THE MERGER OF ISL WITH ITSELF DOES NOT FALL WITHIN THE DEFINITION OF AMALGAMATION U/S.2(1B) SINCE THE STIPULATION THAT N OT LESS THAN 75% OF THE SHAREHOLDERS OF THE AMALGAMATING COMPANY [OTHER THA N THE. AMALGAMATED COMPANY, WHO IS ALSO A SHAREHOLDER! SHOULD CONTINUE TO BE THE SHAREHOLDERS OF THE RESULTING COMPANY POST MERGER. IT IS SEEN THAT ECL WAS HOLDING 74% OF SHARES IN ISL EVEN AS ON 32.03.2012 BY WHICH TIME THE ENTIRE STAK E SHARES OF VEL HAD BEEN SOLD BY ECHL. SUBSEQUENT TO THE ACTUAL SALE OF SHARES, E CL STARTED TO ACQUIRE MOST OF THE REMAINING 25% SHAREHOLDINGS OF ISL, INCLUDING 20% H ELD BY THE TWO FIIS. THE COURT SANCTION ITSELF CAME ON '11.01.2013 ALMOST A YEAR A FTER THE SHARES OF VEL WERE FULLY SOLD OUT BY ECL ON 03.02.2012. THE COMPANY PETITION SEEKING AMALGAMATION OF ISL WITH ECL ITSELF IONS MOVED ONLY IN THE YEAR 2012, M UCH AFTER THE SALE OF VEL SHARES BY ECHL. THUS, IT URNS EVIDENT BEYOND ANY DOUBTS TH AT THE ENTIRE PROCESS WAS A VERY CONSCIOUS AND CALIBRATED ATTEMPT AT EVADING TAXES U NDER THE GUISE OF COURT SANCTIONED SCHEME OF AMALGAMATION. STILL THE AO, KN OWING THAT ISL HAD ALREADY MERGED WITH ECL DID NOT CAUSE NECESSARY INVESTIGATI ONS INTO THE MATTER AS WARRANTED BY THE FACTS ON RECORD BUT SIMPLY CONCLUD ED THE ASSESSMENT WITHOUT APPLICATION OF MIND. 20. HAVING CLAIMED THAT THE MERGER OF ISL WITH ECL IS NOT IN THE NATURE OF AMALGAMATION U/S.2(1B) OF THE INCOME TAX ACT, IT WA S FURTHER CLAIMED BY ECL THAT THE TRANSACTION IS IN THE NATURE, OF TRANSFER OF AN UNDERTAKING AS A GOING CONCERN AND CLAIMED THE COST OF ACQUISITION OF ISL SHARES A T. RS. 6138.02 CR AND OUT OF THIS, IT APPORTIONED RS.6077,07 CR ON PROPORTIONATE BASIS AS THE COST OF VEL SHARES TAKEN IN ITS BOOKS POST MERGER. AFTER CLAIMING INDEXATION, E CL CLAIMED SHORT TERM CAPITAL LOSS OF RS.2.14.44 CR ON SALE OF VEL SHARES. PERUSA L OF THE 'WORKINGS FILED BY ECL SHOWS THAT WHILE ARRIVING AT THE TOTAL COST OF RS.6 138.02 CR, IT HAD INCLUDED NOT ONLY THE COST OF ACQUIRING 100% SHARES OF ISL BUT ALSO T HE. COST OF ACQUISITION OF 15,41,000 PREFERENCE. SHARES IN ISL ACQUIRED FROM E THL AT RS.291.09 CR. AS MENTIONED EARLIER, ETHL WAS ALLOTTED THESE PREFEREN CE SHARES IN LIEU OF THE AMALGAMATION OF ETHPL WITH ISL THE PREFERENCE SHARE S WERE OF RS.2000 EACH AND THEIR TOTAL VALUE IS RS.308.20 CR WHICH HAS BEEN TR ANSFERRED TO ECL FOR RS.291.09 CR. THOUGH, THE CONTROL OVER THE OWNERSHIP OF ISL WAS C OMPLETE BY THE ACQUISITION OF NIL THE AVAILABLE EQUITY SHARES ( I.E. EQUITY SHARE S OF ISL AVAILABLE WITH ECL PRIOR TO MERGER ALONGWITH EQUITY SHARES OFFERED BY ERSTWHILE SHARE-HOLDERS OF ISL WHO DID NOT ACCEPT SHARES OF ECL IN LIEU OF ISL SHARES). EC L IN/ACT HAD TRIED TO INFLATE COST OF ACQUISITION OF ISL BY INCLUDING VALUE ATTRIBUTED TO PREFERENCE-SHARES WHICH HAVE NO DIRECT BEARING ON THE OWNERSHIP OF ISL AND ACQUISIT ION OF 14,11,42,277 OCDS ISSUED TO ISL BY ETHL BY ATTRIBUTING VALUE OFRS.1411.42 CR . THERE IS NO DOUBT THAT PREFERENCE X- SHARES & DEBENTURES ARE 'LIABILITY' T O BE DISCHARGED BY ACQUIRER AND CANNOT BE TREATED AS 'ASSETS'. BOTH THESE (PREFERENCE SHARES &DEBENTURES) LIABILIT IES WERE ERRONEOUSLY ALSO SOUGHT TO BE INCLUDED A$ PART OF THE TOTAL COST OF ACQUIRING THE COMPANY ISL AS A GOING CONCERN. THIS ERRONEOUS CLAIM OF ECL HAS NOT BEEN EXAMINED BY THE AO AND WITHOUT ANY RELEVANT ENQUIRY ON THIS ASPECT, THE AO HAD SIMPLY ACCEPTED THE CONTENTIONS OF THE ASSESSES AND PROCEEDED TO CONCLU DE THE ASSESSMENT. THIS WRONGFUL ACCEPTANCE OF ACCOUNTING TREATMENT CLAIMED , BY ASSESSES AS 'COST OF ACQUISITION' OF ISL HAS RESULTING IN PASSING OF THE ASSESSMENT ORDER AN ERRONEOUS ORDER WHICH IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 10 21. THERE WAS ALSO ANOTHER TRANSACTION RESULTING IN S'TCL. IT WAS CLAIMED BY THE ASSESSES CERTAIN IMMOVABLE ASSETS WERE TRANSFERRED RESULTING IN A LOSS OF RS. 80.28 LAKH. THE SAID PROPERLY WAS ALSO CLAIMED TO HAVE BE EN ACQUIRED ON AMALGAMATION OF ISL AND HENCE THE COST WAS SOUGHT TO BE APPORTIONED . IT IS PERTINENT TO NOTE THAT THE BASIC DOCUMENTS AS TO THE DATE OF ACQUISITION, COST OF ACQUISITION AND DALE OF SALE WITH COPY OF SALE DEED WERE NEITHER CALLED FOR BY THE AO NOR FILED BY THE ASSESSEE ON ITS OWN. THE PROPERTY IN QUESTION BEING AN IMMOVABLE ASSET, THE APPLICABILITY OF SECTION 50C OUGHT TO HAVE BEEN EXA MINED BY THE AO WHICH HE FAILED TO DO. EVEN WITHOUT THE BASIC DOCUMENTARY PROOF OF THE COST OR CONSIDERATION, THE AO HAD SIMPLY ACCEPTED THE CONTENTIONS OF THE ASSES SEE WITHOUT ANY ENQUIRY AND APPLICATION OF MIND. 22. UNDER THE HEAD 'OTHER SOURCES', ASSESSEE HAD CL AIMED CERTAIN EXPENDITURES WHICH HAVE BEEN ALLOWED BY THE AO WITHOUT CONSIDERI NG AS TO WHETHER THE- SAID EXPENDITURES FALL WITHIN THE PURVIEW OF SECTION 54 OR NOT WHICH IS NOT IN ACCORDANCE WITH THE DECISION OF THE APEX COURT IN THE CASE OF DR. V.P. GOPINATH VS CIT 248 ITR 449. 23. AS POINTED OUT IN THE PRECEDING PARAGRAPHS, THE AO FAILED TO APPRECIATE THE 'REAL' TRANSACTIONS AND INSTEAD OF EXAMINING 'SUBST ANCE' OF THE TRANSACTIONS GOT LOST IN THEIR 'FORM' AND SIMPLY ACCEPTED THE CONTEN TIONS OF THE ASSESSEE WITHOUT VERIFYING THE FACTUAL MATRIX INVOLVED. THE AO FAILE D TO CONSIDER THE RATIO OF DECISIONS OF DURGA PRASAD MORE, SUMATI DAYAL AND SRI MEENAKSH I MILLS LTD. THE AO FAILED TO VERIFY AS TO WHY THE VARIOUS SCHEMES OF ARRANGEMENT S WERE SOUGHT TO BE CARRIED OUT POST FACTO TRANSFER OF THE VERY TELECOM ASSET [ VEL] WHICH WAS SOUGHT TO BE CONTROLLED. THE AO DID NOT CAUSE ANY RELEVANT ENQUI RIES ON THE CHAIN OF EVENT LEADING UP TO THE MERGER OF ASSESSEE WITH ECL AND E NDED UP PASSING THE ORDER WITHOUT EVEN CAUSING THE BASIC VERIFICATION WHETHER THE RELATED PARTY TRANSACTIONS ARE REAL AND IF YES WHETHER THEY PASS THE TEST AS A RMS-LENGTH TRANSACTIONS, MORE SO, IN THE FACE, OF TELL TALE SIGNS AS DISCUSSED SUPRA. THE FAILURE OF THE AO TO SEE REAL TRANSACTION AND TO CARRY OUT RELEVANT AND MEANINGFU L ENQUIRIES AS WARRANTED BY THE FACTS AND CIRCUMSTANCES OF THE CASE ASPECTS HAS MAD E THE ASSESSMENT ORDER AN ERRONEOUS ORDER WHICH IS ALSO PREJUDICIAL TO THE IN TEREST OF THE REVENUE. HIS FAILURE TO ISSUE THE STATUTORY NOTICE U/S. 143(2) IN THE AP PROPRIATE NAME HAS FURTHER RENDERED HIS ORDER BAD IN LAW. 24. THE ASSESSING OFFICER'S ACCEPTANCE OF THE CLAIM OF ASSESSEE IN A MECHANICAL AND ROUTINE, FASHION, WITHOUT ANY RELEVANT ENQUIRY OR V ERIFICATION OF BASIC FACTS, TRUE INTENT AND SUBSTANCE OVER FORM OF THE PRIMA FACIE P RE MEDITATED TRANSACTIONS RENDERS THE ASSESSMENT BEING 'ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF THE REVENUE'. THIS ALSO EMERGES FROM THE RATIO OF THE D ECISIONS SUCH AS MALABAR INDUSTRIAL CO. LTD. VS C1T 243 ITR 83(30, CIT VS MA X INDIA LTD. 295 ITR 282(SC), CIT VS MANGAL CASTINGS 303 ITR 23CP&H), CIT V. KOHINOOR TO BACCO PRODUCTS(P)LTD.[1998] 234 ITR 557, CIT V. MAHAVAR TRADER S[1996J 220 ITR 167(MP), DUGGAL &CO.V. CIT [996] 220 ITR 456, CIT VS MEPCO INDUSTRIES LTD 294 ITR 121 (MAD,), MEMTTROLLER FLOUR MILLS LTD VS CIT[2013J 35 TATMAN.COM 1S3(AIL) , BHARTI HEXACOM LTD V CIT [2013] 33 TAXMAN.COM.210(DELHI-TR.), CIT V RKBK FIS CAL SERVICE (P) LTD [2013] 32 TAXMAN.COM.L53(CAL)/ M.I. OVERSEAS LTD V DIT (INT. TAX) [2012] 28 TAXMAN.COM. 279 ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 11 (UTTARAKHAND), BHARAT OVERSEAS BANK LTD V CIT [2012 ] 26 TAXMAN.COM 330(CHENNAI), CIT V HARSH J. PUNJABI 345 ITR 451(DE L), CIT V INFOSIS TECHN. LTD 17 TAXMAN.COM 203 & SRIPAN LAND DEV.(P) LTD V CIT[2011 ] TAXMAN.COM 429(MUM ITAT). 25. THIS FAILURE OF THE ASSESSING OFFICER TO MAKE R ELEVANT AND MEANINGFUL INQUIRY AS WARRANTED BY THE FACTS OF THE PRESENT CASE AND ALLO WING WITHOUT CAUSING NECESSARY ENQUIRIES THE VARIOUS CHURNS OF THE ASSESSES TANTAM OUNT TO ASSESSMENT ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE IN TERMS OF SEC.263 OF THE ACT. I, THEREFORE, INTEND TO SET-ASIDE THE ASSESSMENT OR DER PASSED BY THE AO U/S. 143(3) ON 30.03.2015 (WRONGLY MENTIONED AS 30.03,2012 IN T HE ORDER). IF YOU HAVE ANY OBJECTION TO THIS PROPOSED ACTION, YOU ARE REQUESTE D TO SEND YOUR OBJECTIONS WITHIN THREE -WEEKS OF RECEIPT OF THIS LETTER, FAILING WHI CH UNDERSIGNED WOULD BE FREE TO TAKE APPROPRIATE ACTION AS PER PROVISIONS OF THE LA W. IF YOU INTEND TO AVAIL A PERSONAL HEARING, THEN YOU MAY ATTEND THIS OFFICE O N 06.07.2015 AT 12.30 PM '. 3. THEREAFTER ANOTHER SUPPLEMENTARY NOTICE TO THE A BOVE NOTICE WAS ISSUED TO THE ASSESSEE ON 26.06.2015 U/S. 263 O F THE ACT WHICH IS ALSO EXTRACTED AS FOLLOWS FOR THE SAKE REA DY REFERENCE: '1. ESSAR GROUP WAS HOLDING 33% STAKE, IN HUTCHISON ESSAR LTD [HEL] WHICH WAS LATER ON RENAMED AS VODAFONE ESSAR LTD [VEL]. ESSAR GROUP HE LD 10.97% STAKE IN VEL, 'ON SHORE' THROUGH ESSAR TELEHOLDINGS LTD [ETHL] AN INDIAN ENT ITY AND THE BALANCE 22.03% WAS HELD 'OFF-SHORE', 15.85% THROUGH ESSAR TELECOM INVESTMEN TS LTD [ETIL], AN INDIAN COMPANY AND 6.19% THROUGH ESSAR COM LTD [E.COM] A MAURITIUS COM PANY. BOTH ETIL AND E-COM. WERE SUBSIDIARIES OF ESSAR COMMUNICATION LID, A MAURITIU S COMPANY OWNED BY THE PROMOTERS' FAMILY. 2. AS PER REPORTS, VODAFONE HAD AGREED TO BUY THE E NTIRE 33% STAKE FROM ESSAR GROUP INITIALLY FOR $ 5 BILLION IN 2007, WHICH WAS LATER, ON REVISED TO $5,460 BILLION, ACCORDING TO THE SUBMISSIONS ON RECORD, ESSAR GROUP HAS REPORTED LY SOLD ITS 11% [10.97% PRECISELY] SLAKE IN VEL FOR $1.26 BILLION[INR EQUIVALENT OF 5862 CR] DURING THE -PERIOD AUGUST 2011 TO FEBRUARY 2012 TO PIRAMAL GROUP COMPANIES, AS NOMINE ES OF VODAFONE. IT IS FURTHER REPORTED THAT PIRAMAL GROUP HAS IN TURN SOLD THE 10.97% STAK E IN VEL TO VODAFONE FOR RS.8900 CR IN APRIL, 2014. FOR THE OFFSHORE HOLDING OF22.03% IN V EL BY THE MAURITIUS BASED ENTITIES OF ESSAR GROUP, VODAFONE HAS REPORTEDLY PAID $ 4.2 BIL LION IN JUNE, 2011. THE SEQUENCE OF BACK GROUND EVENTS AND TRANSACTIONS LEADING UP TO THE ST AKE SALE ARE AS -UNDER. 3. ESSAR GROUP ENTITIES ENTERED THE TELECOM SECTOR IN THE YEAR 1996-97 WHEN THEY ACQUIRED STERLING CELLULAR AND AIRCEL DIGILINK FROM ITS PROM OTER SHRI. C. SIVASANKARAN. IN THE YEAR 1999-2000, ESSAR GROUP ENTERED INTO A JV WITH HUTCH ISON AND WERE HAVING TELECOM LICENCES FOR VARIOUS TELECOM CIRCLES ACROSS THE COUNTRY THRO UGH NUMBER OF THEIR ENTITIES. ON FEBRUARY 1, 2005, HUTCHISON TELECOMMUNICATIONS INTE RNATIONAL LIMITED (HTIL), THE HOLDING COMPANY FOR HUTCHISON GROUP CONSOLIDATED ITS OPERAT IONS IN THE COUNTRY, INTO A SINGLE HOLDING ENTITY THROUGH SHARE-SWAP AGREEMENTS. ACCOR DINGLY OTHER ENTITIES INCLUDING ESSAR, KOTAK MAHINDRA, HINDU] A GROUPS WENT IN FOR A SWAP DEAL AND TRANSFERRED THEIR SHARES HI THEIR COMPANIES TO HUTCHISON MAX TELECOM LTD (HMTL) IN RETURN FOR THE ISSUE OF NEW SHARES IN HMTL, WITH A FACE VALUE OF RS 10 EACH, AT A PREMIUM OF RS 237.99. POST THE SHARES SWAP ARRANGEMENT ESSAR GROUP INCREASED ITS STAKE IN THE NEW CONSOLIDATED ENTITY, HMTL, TO 33% BY BUYING OUT THE STAKES HELD HI/ MAX INDIA AND OTHERS. THE SHAREHOLDING BY THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 12 HUTCHISON GROUP ALSO ROSE TO 67%. 'THEREAFTER, HUTC HISON MAX TELECOM LTD [HMTL]WAS RENAMED AS HUTCHISON ESSAR LTD [HELJ. IT IS ALSO PE RTINENT TO MENTION THAT THE ACQUISITION OF BPL MOBILE BY HFL AND SPECTRUM ALLOCATION TO LOOP T ELECOM DURING THIS PERIOD IS A SUBJECT MATTER OF INVESTIGATION BY OTHER REGULATORY AGENCIE S. 4. SUBSTANTIAL PAIL OF ESSAR GROUP'S STAKE IN HEL W AS INITIALLY HELD BY ESSAR TELECOMMUNICATIONS LTD [ETHL], WHICH WAS INDIRECTLY OWNED BY SUIT. MANJU RUIN. AS PER FACTS ON FILE, IT IS SEEN THAT ETHL HAD REQUIRED HE L SHARES FROM THE OTHER GROUP CONCERNS AND ALSO FROM MAX GROUP AT A SUBSTANTIALLY HIGHER R ATE OF RS.610 PER SHARE DURING THE YEAR 2005 06. OUT OF THESE, 4,16,41,985 SHARES REPRESENT ING10.05% OF TOTAL STAKE IN HEL AND ACQUIRED FOR RS, 1350.11 CR WERE TRANSFERRED FOR A SUM OF RS.1032,79 CR ON 17.01.2006 TO ESSAR TELECOM INVESTMENTS LTD [ETIL], THE INDIAN SU BSIDIARY OF ESSAR COMMUNICATION LTD, MAURITIUS THEREBY INCURRING HUGE LOSSES [RS.317.44 CR] WHICH WERE CLAIMED AND ALLOWED IN AY.2006-07 IN THE HANDS OF ETHL. THUS THE HOLDING O F HEL STAKE BY THE ESSAR GROUP COMPANIES WAS SHIFTED TO THE OFF-SHORE ENTITIES BAS ED AT MAURITIUS (22.03%) AND THE ON- SHORE ENTITY, ETHL AND ITS STAKE SCALED DOWN TO 10. 97% AND THE BOOK VALUE AS ON 31.03.2006 WAS RS.1260 CR. AS PER MCA DATA, ETIL IS REPORTEDLY UNDER LIQUIDATION AND THE ANNUAL RETURNS FOR THE YEAR 2006-07 ONWARDS ARE NOT FILED. 5. LATER ON IN THE YEAR 2007, VODAFONE GROUP ACQUIR ED THE 67% STAKE IN HEL FROM HUTCHISON, AND RENAMED THE COMPANY AS VODAFONE ESSA R LTD [VEL]. SINCE ESSAR GROUP WAS OPPOSING THE DEAL CONTESTING THAT IT HAD THE RIGHT OF FIRST REFUSAL, HUTCHISON PAID $ 415 MILLION TO ESSAR GROUP UNDER A SETTLEME.NL AGREEMEN T IN 2007, THUS PAVING THE WAY FOR THE SUCCESSFUL COMPLETION OF STAKE SALE BY HUTCHISON TO VODAFONE. EVEN THIS AMOUNT WAS PAID TO AN OFF-SHORE ENTITY OF ESSAR GROUP AT. MAURITIUS AND WAS THUS CLAIMED AS NOT TAXABLE IN INDIA. SINCE, ETHL URNS THE COMPANY THAT HAD CLAIME D THE RIGHT OF FIRST REFUSAL AND HAD FURTHER INITIATED THE DISPUTE LEADING TO ITS SETTLE MENT BY HUTCHISON, THE SUM OF $415 MILLION WAS SOUGHT TO BE TAXED IN THE HANDS OF ETHL. TAX DE MAND HAS BEEN RAISED IN THE CASE OF ETHL ON THIS COUNT IN AY.2008-09 AND AY.2010-T1 TRE ATING THE SUM OF $415 AS BUSINESS RECEIPT. IN FIRST APPEAL, IT WAS HELD AS IN THE NAT URE OF CAPITAL GAINS AND ETHL HAS BEEN ALLOWED TO SET IT OFF AGAINST THE BROUGHT FORWARD C APITAL LOSSES OF EARLIER YEARS. THE MATTER HAS NOT YET REACHED FINALITY. 6. IN ADDITION TO THIS, AS PART OF THE SETTLEMENT P ROCESS, ESSAR GROUP COMPANIES THEMSELVES ENTERED INTO AN AGREEMENT WITH VODAFONE ON 15.03.20 07, WHEREBY THE 33% STRIKE IN VEL HELD BY ESSAR GROUP WAS TO BE ACQUIRED BY VODAFONE FOR A SUM OF $ 5 BILLION, WHICH WAS LATER ON REVISED TO $ 5.46 BILLION AND THE OPTION W AS EXERCISABLE BY ESSAR GROUP DURING THE PERIOD, FROM MAY, 2010 TO MAY, 2011, AS PER THIS AG REEMENT, CALLED 'PUT OPTION', ETHL HAD THE RIGHT TO SELL ITS 11% STAKE IN VEL TO VODAFONE INC. AT THE PRE AGREED CONSIDERATION OF $ 1.26 BILLION. THIS CONSIDERATION FOR 'ON-SHORE HOLD ING' OF 10.97% IONS SURPRISINGLY MUCH LESS CONSIDERING THE PRICE AGREED UPON FOR 33% STAKE SAL E, SINCE THE PROPORTIONATE SALE CONSIDERATION OUGHT TO HAVE BEEN TAKEN AT $ 1.82 BI LLION. NEITHER ANY REASONS NOR BASIS WERE ADDUCED FOR ARRIVING AT SUCH A REDUCED SALE CO NSIDERATION FOR THE 'ON-SHORE HOLDING' BY ESSAR GROUP. THE AGREEMENT WAS REVISED ON 24.08. 2007 AND RESTATED ON 22.09.2009 WHEREBY SOME OF THE ENTITIES OF ESSAR GROUP WERE SU BSTITUTED. 7. AFTER THE SIGNING OF THE 'PUT OPTION' AGREEMENT ON 15.03.2007, AND HAVING FIRMED UP THE SALE PRICE AND THE PERIOD OF EXECUTING THE SALE TRANSACTION AS WELL, CERTAIN SERIES OF TRANSACTIONS WERE CARRIED OUT WITHIN THE ESSAR GROU P SOLELY WITH THE OBJECT OF AVOIDING PAYMENT OF TAXES THEREON. SINCE THE SHARES OF VEL W ERE NOT LISTED AND ANY GAINS RESULTING FROM THE STAKE SALE THEREOF OUGHT TO SUFFER TAXES T HEREON, ETHL VENTURED UPON THE TAX AVOIDANCE MANEUVERINGS BY CREATING THREE WHOLLY OWN ED SUBSIDIARIES, ETRL COMMUNICATION HOLDINGS P LTD [ECHL], ESSAR TELECOMM UNICATION HOLDINGS P LTD [ETHPL] ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 13 AND ETHL TELECOM HOLDINGS INDIA PRIVATE LIMITED (ET HPL) THROUGH WHOM, THE SHARES OF VEL WERE ULTIMATELY VESTED WITH A LISTED COMPANY OF THE GROUP, INDIA SECURITIES LTD [ISL] BY REVERSE MERGER. ULTIMATELY, ISL ITSELF WAS AMALGAMA TED WITH ITS HOLDING COMPANY ESSAR CAPITAL LTD [ECL] WITH RETROSPECTIVE EFFECT AFTER E CL HAD ACQUIRED MINORITY STAKES THROUGH 'EXIT OFFER'. BY SHEER MANIPULATIVE TRANSACTIONS DE VOID OF ANY COMMERCIAL MOTIVE OR SUBSTANCE, THE ENTIRE 'ONSHORE HOLDING' OF VEL WAS LIQUIDATED FOR RS.5820 CR WITHOUT PAYING ANY TAXES AND. MORE INTRIGUINGLY CLAIMING LO SSES IN THE HANDS OF THE ENTITIES ALONG THE CHAIN AS THE DETAILED FACTS WOULD SHOW. THE MAI N PLAYER IN THE SERIES OF TRANSACTIONS IS ESSAR TELEHOLDINGS LTD [ETRL]. 8. ETHL WAS INCORPORATED ON 11.02.1981 UNDER THE NA ME OF M/S. STELING ELECTRONICS PRIVATE LTD WHICH AFTER NAME CHANGES OVER THE PERIOD AS STE RLING COMPUTERS LTD WAS FINALLY RENAMED AS ESSAR TELEHOLDINGS LIMITED [ETHL] UNDER CHANGED OWNERSHIP. THE BUSINESS OF ETHL AS PER THE MAIN OBJECTS CLAUSE OF MEMORANDUM O F ASSOCIATION WAS TO DEAL IN TELEVISION SETS MID ELECTRONIC, ELECTRICAL GOODS, T ELECOMMUNICATION INSTRUMENTS AND COMPUTER SOFTWARE. HOWEVER, THERE WAS NO ENABLING C LAUSE US PER MO A UNDER EITHER MAIN OBJECTS OR ANCILLARY OBJECTS OR OTHER OBJECTS EMPOW ERING THE COMPANY TO INVEST IN SHARES AND SECURITIES OF OTHER COMPANIES. IT WAS ONLY ON 3 0.11.2010, THAT BY A SPECIAL RESOLUTION, A NEW CLAUSE [CLAUSE 4] WAS INSERTED IN PART C OF M O A UNDER 'OTHER OBJECTS' AUTHORIZING THE COMPANY TO INVEST, PURCHASE, ACQUIRE AND HOLD A NY SHARES, STOCKS, DEBENTURES, DEBENTURE STOCK, BONDS, MORTGAGES, OBLIGATIONS AND SECURITIES OF ANY KIND ISSUED- BY ANYBODY CORPORATE. IN SUCH A CASE, IT IS NOT CLEAR AS TO HOW THE COMPANY WAS HOLDING INVESTMENTS IN SHARES SO FAR. IT HAD ENDED UP WITH ALMOST 22% OF HEL SHARES DURING THE YEAR 2005-06 OUT OF WHICH 10.05% STAKE WAS TRANSFER RED TO THE 'OFF-SHORE' COMPANIES THROUGH ETIL AS MENTIONED EARLIER AT A LOSS OF RS.3 17.44 CR WHICH HAS BEEN SET OFF. ON THE BALANCE 10.97% HELD BY ETHL, THE PUT OPTION AGREEME NT WAS ENTERED INTO ON 15.03.2007 US DISCUSSED EARLIER. 9. ON 28.0S.2007, THE 'PUT OPTION' AGREEMENT WAS RE VISED AND IN THE PLACE OF ETHL, THE NAME OF ETHL COMMUNICATIONS HOLDINGS PRIVATE LTD [E CHL] WAS INCLUDED AS THE 'ONSHORE ENTITY' PURPORTEDLY HOLDING VEL SHARES. PERUSAL OF FACTS ON RECORD REVEALS THAT ECHL WAS INCORPORATED ON 07.10.2007 ONLY, AS A WHOLLY OWNED SUBSIDIARY OF ETHL WITH A NOMINAL CAPITAL OF RS.1 LAKH. THE TOTAL INVESTMENT BY ETHL IN ECHL WAS RS.1.10 CR. ETHL CLAIMED THAT ON 28.03.2008, IT HAD TRANSFERRED THE STAKE OF 10.9 7% IN VEL, BEING THE EQUITY SHARES NUMBERING 4,54,25,328 TO ECHL FOR RS.1260,58,89,865 . ETHL CLAIMED THE COST OF ACQUISITION OF VEL SHARES AS RS.1541 CR THOUGH THE BOOK COST WA S RS.1260 CR ONLY. THIS WAS DONE BY CLAIMING THAT THE SAME LOT OF HMTL SHARES [SINCE RE NAMED AS HEL/VEL] WHICH WERE PURCHASED AT RS.610 PER SHARE AND ALREADY TRANSFERR ED DURING FY.2005-06 TO ETIL WERE NOW TRANSFERRED TO ECHL THOUGH THE ACTUAL LOTS AVAILABL E WERE OF A LESSER COST. AFTER INDEXATION OF THE INFLATED PURCHASE COST, ETHL HAD WRONGLY CLA IMED A FURTHER LOSS OFRS.340 CR IN AY.2008-09 ALSO ON THIS COUNT. THOUGH THE TRANSFER WAS FROM THE HOLDING COMPANY TO ITS WHOLLY OWNED SUBSIDIARY AND. HENCE EXEMPT U/S.47(IV ), ETHL HAD TREATED THE SAME AS A TAXABLE EVENT AND CLAIMED THE LOSSES. FURTHER, US T HE 'PUT OPTION' FOR $1.26 BILLION WAS STILL SUBSISTING AS ON THE DATE OF TRANSFER, THE CONSIDER ATION OF RS.1260 CR FOR WHICH IT WAS TRANSFERRED TO THE SUBSIDIARY COMPANY WAS EVIDENTLY INADEQUATE, SINCE ECHL DID NOT HAVE ANY SOURCE OF FUNDS TO PAY FOR THIS IMPUGNED TRANSF ER OF VEL SHARES, IN LIEU OF PAYMENT FOR THE VEL SHARES, ECHL ISSUED FCDS TO ETHL FOR RS.126 0 CR. THUS, THERE WAS NO TRANSFER OF FUNDS ON THE PURPORTED SHARE TRANSFER FROM, ETHL TO ITS SUBSIDIARY. ECHL ON ITS PART DID NOT HAVE ANY OTHER BUSINESS ACTIVITIES AND THERE WERE N O OTHER BUSINESS ASSETS EITHER. THE ONLY PURPOSE FOR 'WHICH ECHL WAS BROUGHT INTO EXISTENCE WAS UNDISPUTEDLY TO HOLD THE 10.97% 'ON-SHORE' STAKE SHARES OF VEL ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 14 10. THEREAFTER, ETHL BROUGHT ANOTHER SUBSIDIARY COM PANY UNDER ITS FOLD, NAMELY ESSAR TELECOMMUNICATIONS HOLDINGS P LTD [ETHPL] WHICH WAS INCORPORATED ON 10.03,2008 WITH A NOMINAL CAPITAL OF RS.L LAKH. THE TOTAL INVESTMENT BY ETHL IN ETHPL WAS RS.L.32 CR. ETHL THEN CLAIMED TO HAVE TRANSFERRED THE SHARES OF ITS FIRST SUBSIDIARY ECHL TO ETHPL, FOR RS.1.19 CR, AND OFFERED A GAIN OF RS.9 LAKH THEREON. THUS, ECHL, WHICH HAD BEEN VESTED WITH THE VEL SHARES COVERED BY A PUT OPTION OF$ 1.26 BILLION, H AS BEEN PASSED ON TO ETHPL FOR A MEASLY SUM OF RS.1.19 CR. AS PER SECTION 155(78), WHEN THE CONDITIONS OF A TRANSACTION COVERED U/S.47 ARE VIOLATED SUBSEQUENTLY, THEN THE TRANSACT ION HAS TO BE TREATED AS A TAXABLE TRANSFER. IN THIS CASE, ONCE ECHL CEASED TO BE THE SUBSIDIARY OF ETHL, THEN THE EARLIER TRANSFER OF VEL SHARES BY ETHL TO ECHL OUGHT TO HAV E BEEN CONSIDERED AS A TAXABLE, EVENT, AND FOR THE PURPOSES OF COMPUTATION OF CAPITAL GAIN S THEREON, THE VALUATION OF ECHL SHARES OUGHT TO HAVE BEEN DONE AFTER DULY CONSIDERING THE VALUE OF VEL SINCE VESTED WITH IT. EVEN IF THE IMPUGNED TRANSFER OF VEL SHARES TO ECHL AND SUBSEQUENT SALE OF ECHL SHARES TO ETHPL WERE TO BE CONSIDERED AS GENUINE COMMERCIAL T RANSACTIONS, THEN ALSO THE TAXABLE INCOME OUGHT TO HAVE BEEN CALCULATED AS PER UNO. IN STEAD, BY RETURNING A MEAGRE SUM OF RS.9 LAKH AS CAPITAL GAINS, THE SHARES OF VEL WERE TRANSFERRED SO ECHL AND THE CONTROL OVER ECHL ITSELF WAS TRANSFERRED TO ETHPL BY ETHL -WITHO UT PAYING THE APPROPRIATE, CAPITA! GAINS THEREON. 11. FURTHER, ENTRIES WERE PASSED THROUGH THE BANK A CCOUNTS OF ETHL, ETHPL MID ECHL ON THE SAME DAY TO SHOW AS IF ETHL HAD GIVEN LOAN OF R S.1262.95 CR AND ANOTHER COMPANY ESSAR INVESTMENTS LTD [EIL] RS.300 CR TO ETHPL AS O CD ON 30.04.2008 WHICH WAS IN TURN INVENTED BY ETHPL IN THE SHARE CAPITAL OF ECHL AT A PREMIUM OF RS.14.Q7.S2 CR. THIS IONS IN TURN SHOWN US HAVING BEEN USED BY ECHL TO REDEEM TH E NCD FOR RS.1260 CR ISSUED BY IT EARLIER TO ETHL IN LIEU OF CONSIDERATION FOR TRANSF ER OF VEL SHARES. IN SHORT, THE MONEY FOR REPAYING NCDS OF ETHL HAD COME FROM ITSELF. ECHL, T HUS, BECAME THE WHOLLY OWNED SUBSIDIARY OF ETHPL AND NCD ISSUED TO ETHL STOOD SU BSTITUTED BY SHARE PREMIUM IN THE BALANCE SHEET OF ECHL. 12. AS ON 31.05.2009, IN THE BALANCE SHED OF ECHL, THE VALUE OF PUT OPTION OF VEL WAS ACCOUNTED FOR UNDER 'LOANS AND ADVANCES' AT ITS FAI R VALUE, CALCULATED AT RS.5915.32 CR BY TAKING THE NET DISCOUNTED PRESENT VALUE BASED ON LI BOR IN THE PLACE OF INVESTMENT IN VEL SHARES EARLIER ACCOUNTED FOR AT RS.1260 CR. THE DIF FERENCE BETWEEN THE BOOK VALUE OF VEL [RS.1260 CR] AND THE FAIR VALUE OF PUT OPTION ON VE L [RS.5915.32 CR] WAS TAKEN TO CAPITAL RESERVE [RS.3599.99 CR] NET OF DEFERRED TAX LIABILI TY OF RS.1054.76 CR. HOWEVER, IN THE NEXT YEAR, AS ON 31.03,2010, IN PLACE OF 'LOANS AND ADVA NCES - PUT OPTION' THE VALUE OF VEL SHARES WAS REFLECTED ONCE AGAIN IN THE BALANCE SHEE T US 'INVESTMENTS' SHOWING THE VALUE AS RS.5915.32. THE AUDIT NOTE STATES THAT THE VALUE OF PUT OPTION HAS BEEN TAKEN AS 'NIL'. THUS, THE BOOK VALUE OF VEL SHARES WERE INCREASED F ROM RS 1260 CR TO RS 5915 .32 CR BY THESE ACCOUNTING ENTRIES WHICH ARE UNTENABLE AND TH E DIFFERENCE WAS CREDITED TO CAPITAL RESERVE AND DEFERRED TAX LIABILITY. 13. DURING THE SAME PERIOD, ETHL ACQUIRED A THIRD S UBSIDIARY, ETHL TELE.COM HOLDINGS INDIA PRIVATE LIMITED [ETHIPL], 'WHICH WAS INCORPORATED O N 16.04.2008 NS BHARGAVA REALTIES PRIVATE LIMITED AND LATER ON RENAMED AS ETHIPL. ON 20.03.2009, ETHL CLAIMED TO HAVE TRANSFERRED ITS INVESTMENT IN THE SHARES OF ETHPL, COSTING RS.1.32 CR TO ETHIPL FOR RS. 1.41 CR, AND OFFERED A SUM OF RS.9 LAKH AS CAPITAL GAINS . NO BASIS OF VALUATION WAS ADDUCED AND REASONS FOR NOT CONSIDERING THE INVESTMENT IN VEL H ELD BY ECHL -WERE ALSO NOT EXPLAINED. THUS, FOR A MEAGRE SUM OF RS.2.60 CR [RS.1.19CR FOR ECHL AND RS.1.41 CR FOR ETHPL], THE 'ON SHORE' HOLDING OF10.97% IN VEL HELD BY ECHL WITH A PUT OPTION OF $ 1.26 BILLION [NET DISCOUNTED VALUE OF RS.5915.32 CR WAS PLACED AT THE DISPOSAL OF ETHIPL THROUGH IK1. IMMEDIATE SUBSIDIARY ETHPL. AS IN THE EARLIER INSTA NCE, THE TRANSFER OF ECHL SHARES TO ETHPL HAS NOW BECOME A TAXABLE TRANSFER U/S. 155(7B ), AND THE CAPITAL GAINS OUGHT TO HAVE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 15 BEEN COMPUTED AFTER DULY CONSIDERING THE VALUE OF V EL PUT OPTION HAD INDIRECTLY BY ETHPL THROUGH ECHL. INSTEAD, BY RETURNING A MEAGRE SUM OF RS.9 LAKH AS CAPITAL GAINS, THE SHARES OF VEL, ALONG WITH THE CONTROL OVER ECHL AND ITS HO LDING COMPANY ETHPL 'WAS ALSO TRANSFERRED TO THE THIRD SUBSIDIARY ETHIPL, ON 25,0 3.2009, OCDS OF ETHPL HELD BY ETHL [RS.1262 CR] AND ESSAR INVESTMENTS LTD [EIL] [RS.30 0 CR] WERE ALSO TRANSFERRED TO ETHIPL AT COST. FUNDS WERE PROVIDED BY ESSAR HOLDINGS LTD [EH L] AND OTHERS TO ETHIPL NS OCDS FOR RS.1566.49 CR. ECHL AND ETHPL CEASED TO BE THE SUBS IDIARIES OF ETHL 14. THE THIRD SUBSIDIARY, ETHIPL INVESTED A FURTHER SUM OF RE.14 CR IN EQUITY SHARES IN ETHPL FOR WHICH FUNDS WERE PROVIDED BY EIL. THEREAFTER, E THIPL WAS AMALGAMATED WITH ETHL US PER COURT ORDER DATED 16.07.2010 W.E.F. 01.01.2010, THUS BRINGING THE CONTROL OVER ETHPL AND ECHL BACK TO ETHL. THOUGH THE AMALGAMATION WAS CLAIMED TO HAVE BEEN ACCOUNTED FOR UNDER 'PURCHASE METHOD' AS PER AS 14 [RECORDING THE ASSETS AND LIABILITIES AT FAIR VALUE), IT IS SEEN THAT THE INVESTMENT BY ETHIPL IN ETHPL, COM PRISING OF EQUITY SHARE CAPITAL OF RS.15.41 CR WAS REVALUED AT RS.3238.94 CR IN THE BO OKS OF ETHL. THE RESULTANT SURPLUS OF RS.3198 CR, WHICH WAS MAINLY ON ACCOUNT OF REVALUIN G EQUITY SHARES OF ETHPL HAS BEEN TAKEN TO CAPITAL RESERVE. SIMPLY PUT, THOUGH EQUITY SHARES OF ETHPL WERE TRANSFERRED EARLIER BY ETHL TO ETHIPL AT BOOK VALUE, ON AMALGAM ATION, THE SAME ASSETS WERE REVALUED AND TAKEN BACK IN THE BOOKS OF ETHL AT A HIGHER VAL UE. THERE WERE NO CHANGES IN THE ASSETS OF ETHPL AND THEE ONLY ASSET REMAINED THE HOLDING O F ECHL WITH VEL STAKE SHARES THEREIN. THOUGH OUT OF 15,41,000 SHARES OF ETHPL NOW ACQUIRE D BY ETHL, 1,41,000 SHARES WERE THE SAME THAT WERE TRANSFERRED EARLIER ON.20.03/2009 TO ETHIPL, FOR RS.1.41 CR AND THE FURTHER SHARES NUMBERING 14,00,000 WERE ACQUIRED BY ETHIPL ITSELF FORRS.14 CR IN MARCH, 2009 ONLY, THE SHARES HAVE BEEN REVALUED AT SUCH ASTRONO MICAL FIGURES AS ON 01.01.2010. THUS, IT IS EVIDENT THAT ETHIPL URNS CREATED FOR THE SPECIFI C PURPOSE OF REVALUING THE SHARES OF ETHPL IN THE BOOKS OF ETHL AND IT SURVIVED AS A COM PANY FOR EXACTLY TWO YEARS WITH NO BUSINESS ACTIVITIES AND THE ONLY ROLE IT PLAYED WAS TO INCREASE THE COST OF INVESTMENT OF ETHPL SHARES IN THE BOOKS OF ETHL. ONCE ETHIPL MERG ED WITH ETHL, ITS ERSTWHILE SUBSIDIARIES ETHPL AND ECHL ONCE AGAIN BECAME ETHL' S SUBSIDIARY AND STEP DOWN SUBSIDIARY RESPECTIVELY WHEREAS THE COST OF INVESTM ENT FOR ETHL IN THEM HAD BEEN INCREASED IN BOOKS. SINCE THERE WAS NO BUSINESS ACT IVITY OR INVESTMENT ACTIVITY OTHER THAN THESE IN THE HANDS OF ETHPL, THERE IS NEITHER ANY B ASIS NOR ANY JUSTIFICATION FOR SUCH UNREASONABLE VALUATION ADOPTED UNDER THE GUISE OF A CCOUNTING FOR AMALGAMATION EXCEPT FOR THE DELIBERATE-PURPOSE OF JACKING UP THE COST O F INVESTMENT IN ETHPL IN THE BOOKS OF ETHL WITHOUT SUFFERING ANY TAX. 15. HAVING BROUGHT BACK THE HOLDING OF ETHPL AND EC HL UNDER ITS FOLD AT A REVALUED FIGURE, I:LIE CONTROL OVER THEM ALONG WITH THE STAKE HOLDIN G OF 10.97% IN VEL URNS SOUGHT TO BE TRANSFERRED BY ETHL TO A LISTED ENTITY OF THE GROUP , INDIA SECURITIES LTD [ISL]. ESSAR CAPITAL LTD [ECL] WAS THE HOLDING COMPANY OF ISL, A SCHEME OF ARRANGEMENT WAS PLACED BEFORE THE HON'BLE HIGH COURT, CHENNAI SEEKING TO AMALGAMATE E THPL WITH ISL. ONE OF THE RATIONALES PUT FORTH BEFORE THE HON'BLE HIGH, COURT AIMS THAT THE AMALGAMATION OF ETHPL WITH ISL AIMS AT UNLOCKING THE VALUE AND MARKET ASSESSMENT O F THE TELECOM ASSETS OF THE COMPANY. THE ONLY ASSET WHICH ETHPL HAD WAS THE SHARES OF EC HL AND THE ONLY TELECOM ASSET HELD IF ANY WAS THE STAKE OF 10.97% IN VEL HELD B\J ITS SUB SIDIARY ECHL. IF AT ALL THE INTENTION WAS TO UNLOCK THE TELECOM ASSET, THEN ECHL OUGHT TO HAVE B EEN MERGED DIRECTLY WITH ISL INSTEAD OF ETHPL. HOWEVER, ISL GOT ETHPL AMALGAMATED WITH ITSE LF FIRST AND THEN ECHL LATER ON, BOTH W.E.F 01.04.2010. WHEN THE SCHEME OF AMALGAMATION O F ETHPL WITH ISL WAS UNDER THE CONSIDERATION OF THE HON'BLE HIGH COURT, VODAFONE. SOUGHT TO RAISE OBJECTIONS MAINLY ON THE ISSUE OF VALUATION OF SHARES OF ETHPL VODAFONE ALSO RAISED THE ISSUE OF UNNATURAL PRICE INCREASE IN THE SHARES OF ISL DURING THE PERIOD SUG GESTING INSIDER TRADING AND MARKET MANIPULATION. ENQUIRIES WERE STILL PENDING BEFORE S EBL IT IS SEEN THAT SHE DEPARTMENT ALSO BROUGHT TO THE NOTICE OF THE HON'BLE HIGH COURT ABO UT THE TAX DEMAND RAISED IN THE CASE OF ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 16 ETHL AND FURTHER SOUGHT AN OPPORTUNITY TO RAISE ITS OBJECTIONS. THE INDEPENDENT AUDITORS APPOINTED FOR THE PURPOSE OF VERIFYING THE FAIR VAL UATION AND SWAP RATIO ALSO RAISED OBJECTIONS ON THE. BASIS AND METHOD OF ACCOUNTING A S WELL AS VALUATION ADOPTED. SERIOUS CONCERNS ABOUT THE TRANSPARENCY AND ADEQUACY OF DIS CLOSURE WERE ALSO RAISED BY THEM, HOWEVER, IT IS SEEN FROM THE ORDER OF THE HON'BLE H IGH COURT APPROVING THE SCHEME THAT THESE OBJECTIONS WERE NOT CONSIDERED RELEVANT AND T HE REVENUE WAS ALSO NOT GRANTED ANY FURTHER OPPORTUNITY TO PLACE ITS OBJECTIONS AND. IT S EARLIER OBJECTION ON GROUNDS OF RECOVERY OF TAX DEMAND IN THE HANDS OF ETHL WAS ALSO REJECTE D AS NOT MAINTAINABLE. THOUGH AMALGAMATION OF ETHPL WITH ISL WAS SOLELY FOR THE P URPOSES OF FACILITATING THE SWAPPING OF VEL SHARES WITH THAT OF ISL WITHOUT PAYMENT OF TAXE S, THE ISSUE WAS NEVER RAISED BEFORE THE HON'BLE HIGH COURT AS A TAX AVOIDANCE MEASURE AND T HE PUT OPTION IN FORCE WAS ALSO NOT TAKEN INK) RECKONING. THE IMPUGNED AMALGAMATION WAS NOT CONSIDERED IN THE BACKGROUND OF THE EARLIER MANEUVERS CARRIED OUT BY THE ENTITIE S CONCERNED. MOREOVER, THERE WAS ALSO THE ISSUE OF CONVERSION OF CCPS ISSUED TO TWO FIIS BY ISL RAISED BY THE INDEPENDENT AUDITORS BUT NOT CONSIDERED. ETHPL WAS THUS AMALGAMATED WITH ISL W.E.F 01.04.2010 AS PER THE COURT ORDER DATED 21.04.2011 AND ECHL NOW BECAME TH E DIRECT SUBSIDIARY OF ISL 16. AS ON THE APPOINTED DATE, 01.04.2010, ETHPL DID NOT HAVE ANY OTHER ASSETS IN ITS BALANCE SHEET EXCEPT THE INVESTMENT OF RS.1565 CR I N ECHL AT A PREMIUM OF RS.1407.82 CR WHICH WAS FUNDED BY ETHL THUS IN EFFECT, THE VEL SH ARES HELD BY ECHL WAS THE ONLY TANGIBLE ASSET, WHICH HAD BEEN INDIRECTLY ACQUIRED BY ISL THROUGH THIS AMALGAMATION. FOR THE PURPOSES OF ARRIVING AT THE CONSIDERATION PAYAB LE IN LIEU OF NET ASSETS OF THE AMALGAMATING COMPANY, THE FAIR VALUE OF VEL SHARES HELD BY EC! IL OUGHT TO HAVE BEEN CONSIDERED. THOUGH IT WAS STATED THAT THE AMALGAMAT ION IS ACCOUNTED FOR UNDER PURCHASE METHOD AS PER AS 14, THE INVESTMENT IN ECHL IN THE BOOKS OF ETHPL WAS NOT TAKEN AT ITS FAIR VALUE, RESULTING IN A DEFICIT OF RS.37L.36 CR, WHIC H URNS ACCOUNTED AS GOOD WILL IN THE BOOKS OF ISL. ETHL AS THE HOLDING COMPANY OF ETHPL, WAS I SSUED 330 EQUITY SHARES OF RS.1 EACH OF ISL AND ONE 0.01% NON CUMULATIVE PREFERENCE SHARES OF RS.2000 EACH FOR EVERY SHARE OF ETHPL IT HELD. ALLOTMENTS WERE DONE ON 3RD JUNE, 20 21 ETHL HAD 35,42/000 EQUITY SHARES OF ETHPL AS ON 31.03.2010 AND AS PER THE FORMULA IT RECEIVED 508,529,670 EQUITY SHARES OF ISL HAVING A MARKET VALUE OFRS.3051,17,80,200 [508, 529,670 X RS.60). IN ADDITION TO THIS, ETHL ALSO RECEIVED 15,41,000 PREFERENCE SHARES OF R S.2000 EACH HAVING A TOTAL VALUE OF RS.308,20,00,000/-. THUS, ETHL RECEIVED SHARES OF I SL [EQUITY AND PREFERENCE! WORTH RS.3358.37 CR ON 03.06.2011 WHICH WAS NOTHING BUT T HE CONSIDERATION FOR THE 10.97% STAKE IN VEL HELD INDIRECTLY THROUGH ETHPL AND ECHL. THIS 'CONSIDERATION WAS MUCH LESS THAN THE DISCOUNTED NET PRESENT VALUE OF VEL STAKE RECOGNIZE D AT RS.5268 CR IN THE BOOKS OF ECHL. CLEARLY, THERE WAS AN UNDER 'VALUATION OF ECHL SHAR ES BY RS.2000 CR IN THIS PROCESS. THOUGH SUCH SWAPPING IS N TAXABLE TRANSFER HAD IT BEEN DON E DIRECTLY FROM ETHL TO ISL, THE ENTIRE SEQUENCE OF TRANSACTIONS INCLUDING CREATION OF THRE E-SUBSIDIARIES AND THE AMALGAMATION OF ETHPL WITH 15L HAVE BEEN DONE WITH THE SOLE PURPOSE -OF AVOIDANCE OF TAX AND NOWHERE IN THE WHOLE SEQUENCE OF EVENTS ANY COMMERCIAL SUBSTAN CE WAS PRESENT. IMMEDIATELY AFTER THE ALLOTMENT OF ISL SHARES, ETHL HAD SOLD 12,71,32 ,500 SHARES OF ISL TO ECL THROUGH OFF MARKET TRANSACTION AND HAS RETURNED A TAXABLE GAIN OF RS.723.12 CR, REST OF THE EQUITY SHARES OF ISL WERE SOLD TO ECL BY BULK TRANSFERS DU RING THE PERIOD 25'' AUGUST 2011 TO 03RD OCTOBER 2011. THE RESULTANT GAIN CALCULATED AT RS.2 283,91 CR IS CLAIMED AS EXEMPT U/S.10(38). FOR THE PURPOSES OF COMPUTING CAPITAL G AINS, COST AND PERIOD OF HOLDING WERE TAKEN AS THAT OF ACQUIRING ETHPL SHARES, I.E., RS.1 5.41 CR ONLY. SINCE THE SHARES OF ISL ARE LISTED, LONG TERM CAPITAL GAINS ON ITS SALE BY ETHL TO ECL WERE CLAIMED AS EXEMPT U/S.10(38). THE CAPITAL GAINS ON OFF-MARKET TRANSFER WAS SOUGHT TO BE SET OFF AGAINST CARRY FORWARD LOSSES. THUS, EFFECTIVELY, NO TAXES HAVE BEEN PAID BY ETHL WHICH ORIGINALLY HELD THE SHARES OF VEL, THOUGH II HAD EVENTUALLY TRANSFERRED THE EN TIRE HOLDING WITH A PUT OPTION OF $1.26 BILLION TO SSL. ECHL THUS BECAME THE DIRECT SUBSIDI ARY OF ISL. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 17 17. IT IS PERTINENT TO NOTE THAT BY THIS TIME, ECHL HAD ALREADY TRANSFERRED PART OF THE VEL STAKE TO PIRAMAL GROUP, AS NOMINEES OF VODAFONE. AS PER SALE AND PURCHASE AGREEMENT DATED 10THAUGUST, 2011, ECHL HAD TRANSFERRED 2,27,1 2,664 SHARES OF VEL TO PIRAMAL HEALTHCARE LTD ON 18.08.2011 FOR A CONSIDERATION RS .2855,52,49,000/-. THE BALANCE VEL SHARES NUMBERING 2,27,12,664 WERE SOLD ON 08.02.201 2 FOR A CONSIDERATION OF RS.3007,10,75,000/- AS PER THE SECOND SALE AND PURC HASE AGREEMENT DATED 03.02.2012 BETWEEN ECHL AND PIRAMAL HEALTHCARE LTD. THUS, THE ENTIRE 10.97% ON-SHORE HOLDING IN VEL WAS SOLD TO PIRAMAL GROUP FOR RS.5862.62 CR. BUT FO R THE ABOVE STATED TAX AVOIDANCE TRANSACTIONS, THE DIRECT SALE OF VEL SHARES BY ETHL OR FOR THAT MATTER ECHL TO PIRAMAL WOULD, HAVE RES-TILTED IN A SUBSTANTIAL INCOME WHIC H IS TAXABLE IN THE HANDS OF ETHL OR ECHL AS THE CASE MAY BE. THE ACTUAL SOLE OF VEL SHARES W AS FROM ECHL TO PIRAMAL GROUP IN FY.2011-12 WHICH IS CLEARLY A TAXABLE TRANSACTION. BY RESORTING TO THE POST FACTO AMALGAMATION OF ECHL WITH ISL AND; IN TURN ISL WITH ECL, THE TUXES PAYABLE THEREON, HAVE BEEN SUCCESSFULLY EVADED AS CAN BE SEEN FROM THE FA CTS DISCUSSED IN THE FOREGOING AND ALSO IN THE FOLLOWING -PARAGRAPHS, 18. THERE WAS A FURTHER MANOEUVRE CARRIED OUT AS PA RT OF THE AMALGAMATION OF ETHPL WITH ISL WHICH HAD SERIOUS IMPLICATIONS INCLUDING VIOLAT ION OF FDI NORMS. DURING FY.2009-10, 200000 NON CUMULATIVE COMPULSORILY CONVERTIBLE PREF ERENCE SHARES [CCPS/ HAVING FACE VALUE OF RS.2000 EACH WERE ISSUED BY ISL AT A PREMI UM OF RS.L8,000 PER SHARE ON 18.03.2010 TO TWO MAURITIUS BASED FIIS, NAMELY, PRI ME INDIA INVESTMENT FUND LIMITED AND INDIA. MASTER FUND LIMITED, TOTAL OF RS.400 CR (CCP S FACE VALUE RS.40 CR + PREMIUM RS.360 CRS WAS THUS RAISED THROUGH ISSUE OF CCPS. THE FUND S WERE STATED TO BE FOR DEPLOYING IN THE DEBT SECURITIES OF GROUP COMPANIES. EACH CCPS WAS T O BE AUTOMATICALLY AND COMPULSORILY CONVERTED IN TO EQUITY SHARES OF RS.1 EACH OF ISL A T THE END OF 18 MONTHS FROM DATE OF ALLOTMENT. HOLDER OF CCPS ALSO HAD AN OPTION TO CON VERT THE CCPS INTO EQUITY SHARES AT ANY TIME AFTER 90 DAYS FROM DATE OF ALLOTMENT BY GIVING A WRITTEN NOTICE. THE RELEVANT DATE TO ASCERTAIN THE MINIMUM PRICE FOR ALLOTMENT OF EQUITY SHARES BEFORE EXPIRY OF 18 MONTHS SHALL BE A DAY 30 DAYS PRIOR TO THE DATE ON WHICH T HE HOLDERS OF CCPS BECOME ENTITLED TO APPLY FOR THE EQUITY SHARES, I.E. 30 DAYS PRIOR TO THE RECEIPT OF NOTICE TO EXERCISE THE OPTION. THE ALLOTMENT OF EQUITY SHARES UPON CONVERSION OR E XERCISE OF OPTION BY THE HOLDER SHALL NOT BE AT A PRICE LESS THAN RS.5 PER EQUITY SHARE O F RS.1 EACH. THE LOCK IN PERIOD IN ANY CASE, EVEN AFTER EXERCISING CONVERSION OPTION, IS ONE YEA R FROM THE DATE OF ALLOTMENT OF CCPS. ASPER THESE TERMS, THE FI IS -WOULD GET EQUITY SHAR ES OF ISL WITH MARKET VALUE OF RS.40 CR ONLY, FOR THE INVESTMENT OF RS.400 CR MADE BY THEM IN CCPS. EVEN AFTER SUCH CONVERSION, THE PITS COULD NOT SELL THE SHARES OF ISL FOR ONE Y EAR THEREAFTER. IT IS PERTINENT TO NOTE THAT ISL WAS NOT A SUBSTANTIALLY PROFIT MILKING ENTITY A ND THE EPS PER SHARE AS ON 31.03.2009'WAS HARDLY RS.2.50 PER SHARE OF FV RS.10 DURING THE EN TIRE FINANCIAL YEAR 2008-2009, THE NUMBER OF SHARES OF ISL TRADED THROUGH BSE WAS 9,92 ,527 ONLY AT AN AVERAGE PRICE OF RS.20. IN FY 2009- 10, TOTAL OF 70,66,275 SHARES WERE TRAD ED AT AN AVERAGE PRICE OF RS.43. [SOURCE BSE ARCHIVES] IT IS HIGHLY UNLIKELY AND UNBELIEVABL E THAT ANY FII WOULD COME FORWARD AND INVEST IN THE CCPS OF NOT SO FREQUENTLY TRADED SHAR ES OF A LESSER KNOWN ENTITY TIKE ISL AT HUGE PREMIUM OF RS.18,000 PER PREFERENCE SHARE HAVI NG FACE VALUE OF RS.2000 TO BE CONVERTED INTO EQUITY SHARES OF ISL HAVING MARKET V ALUE EQUIVALENT TO RS.40 CR, THAT TOO TO BE LOCKED UP FOR ONE MORE YEAR IN RETURN FOR THEIR INVESTMENT OF RS.400 CR. IT WAS AMPLY CLEAR THAT THE SAID FITS WERE PART OF THE LARGER SC HEME OF MANIPULATIVE TRANSACTIONS SET IN MOTION BY THE GROUP TO LIQUIDATE ITS VEL STAKES WIT HOUT HAVING TO PAY FOR THE GAIN AS PROVED BY THE FOIL OWING. THE SHARE PRICES OF ISL WITH FAC E VALUE OF RS.10 EACH NEVER CROSSED OVER RS.20 PER SHARE TILL NOVEMBER 2007. HOWEVER, DURING THE PERIOD DECEMBER 2007 TO MARCH 2010, THE SHARE PRICES WENT UP TO RS.143. THERE WAS A STOCK SPLIT AND ISL SHARES WERE DIVIDED INTO RS.1 EACH FROM THE EARLIER STOCK OF RS .10 EACH ON 11.03.2010 AND THE SHARE PRICES THEREAFTER ROSE FROM RS.14 TO RS.64 AND THEN GOT DELISTED. CONSIDERING THE VOLUME OF ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 18 SHARES TRADED, THE PRICE MOVEMENT IS TOTALLY INEXPL ICABLE. IT IS IN THIS BACK DROP THAT THE INVESTMENT BY THESE TWO FIIS CAME UNDER THE SCRUTIN Y OF SEBI. 19 AS PER INFORMATION ON FILE, THE OPTION WAS EXERC ISED BY THE TWO PUS FOR CONVERTING THE CCPS INTO EQUITY SHARES OF ISL ON JUNE 17, 2010 AND JUNE 18, 2010 RESPECTIVELY. THE SHARES OF ISL WERE BEING TRADED IN BSE DURING THE RELEVANT DATES AND THE AVERAGE PRICE WORKS OUT TO RS.23.78 AND RS.22.28 ONLY PER SHARE OF RS.1 EAC H ON THE RESPECTIVE DATES AS SEEN FROM THE DATA. AS PER THE TERMS OF ISSUE OF CCPS, THE NU MBER OF EQUITY SHARES TO BE ISSUED ON CONVERSION EVEN IF THE COMBINED AVERAGE PRICE OF RS .23 PER SHARE [RS.23.78+RS.22.28/2] ON RELEVANT DATES WILL BE 1,73,91,304 ONLY [RS.40 CR D IVIDED BY RS.23].THOUGH THE ISSUE OF CCPS AND THEIR CONVERSION WAS ALREADY OVER, STILL THE CO NVERSION WAS SOUGHT TO BE INCLUDED AS PART OF THE SCHEME OF AMALGAMATION OF ETHPL WITH IS L WHICH HAD NO CONNECTION WHATSOEVER. IT WAS PROPOSED THAT THE CCPS SHALL BE CONVERTED INTO 16,77,00,000 EQUITY SHARES OF ISL NO BASIS OF VALUATION WAS GIVEN NOR A NY MENTION US TO THE TERMS AND CONDITIONS OF ISSUE OF CCPS OR THE FDI NORMS THEREO N. THOUGH OBJECTIONS WERE RAISED BY THE INDEPENDENT AUDITORS ABOUT THIS DISPARITY AND LACK OF TRANSPARENCY, THE SCHEME WAS APPROVED AND AS A RESULT 16,77,00,000 EQUITY SHARES OF ISL WERE ISSUED TO THE TWO FIIS ON 03.06.2011. THIS EXCESS ALLOTMENT OF 15,03,08,696 [ 16,77,00,000 - 1,73,91,3041 SHARES OF ISL WAS DONE AS PART OF THE AMALGAMATION OF ETHL WI TH ISL WITHOUT REVEALING THE FACT THAT AS PER THE TERMS OF ISSUE OF CCPS, AND -UNDER THE F DI NORMS, THE CONVERSION RATE HAS TO BE AS PER THE PRE DETERMINED RATE AT THE TIME OF FDI I TSELF AND THAT IT CANNOT BE ALTERED. THE EXCESS CONSIDERATION PASSED ON TO THE TWO FIIS BY W AY OF ALLOTMENT OF 15,03,08,696 SHARES ISL SHARES OVER AND ABOVE THE PERMISSIBLE NUMBERS A MOUNTS LO RS.345,71,00F008 [15,03,03,636 EQUITY SHARES OF RS.1 EACH OF ISL X R S.23 PER SHARE]. THESE SHARES WERE SUBSEQUENTLY PURCHASED BY ESSAR CAPITAL LTD [ECL] F ROM THE FIIS CONCERNED DURING THE PERIOD MARCH 26-28, 2012 AT THE RATE OF RS.61.68 PE R SHARE THROUGH 'EXIT OFFER'. THE TOTAL AMOUNT PAID TO THE TWO FIIS IONS RS.1037,04,30,000/ - FOR 16.77 CR EQUITY SHARES OF ISL. HAD THE CONVERSION BEEN RIGHTLY DONE AS PER THE TERMS O F ISSUE OF CCPS, THE PERMISSIBLE PAYOUT FROM ECL TO THE TWO FIIS ON EXIT OFFER WOULD HAVE B EEN RS. 107,82,60,848/-11,73,91,304 X RS.62] ONLY, AND THE EXCESS PAYOUT TO THE FIIS ON T HEIR INVESTMENT IN CCPS OF ISL, ON CONVERSION INTO EQUITY SHARES, WORKS OUT TO RS.929, 21,69,152/- [RS.1037,04,30,000 - RS. 107,82,60,848]. THIS EXCESS PAYMENT MADE TO THE FII S WAS LATER ON SUCCESSFULLY CLAIMED AS COST OF ACQUIRING ISL AS A GOING CONCERN BY ECL AND HENCE THE GAINS ON SALE OF VEL SHARES TO PIRAMAL WAS REDUCED TO A LOSS US A RESULT. 20. HAVING GOT ETHPL AMALGAMATED WITH ITSELF, ISL S OUGHT TO AMALGAMATE ECHL ALSO WITH ITSELF AND SUCCEEDED IN GETTING THE SCHEME APP ROVED BY THE HONBLE HIGH COURT W.E.F. 01.04.2010 VIDE COURT ORDER DATED 13.02.2012. BY T HIS TIME, THE ENTIRE STAKE IN VEL HAD BEEN SOLD BY ECHL DIRECTLY TO PIRAMAL. THE RATIONA LE PUT FORTH FOR AMALGAMATING ECHL WITH ISL WAS TO FACILITATE DIRECT CONTROL OVER ASSETS OF ECHL IN THE HANDS OF ISL. AS THE ONLY MAJOR TELECOM ASSET OTHER THAN INTER GROUP OCDS AND INVES TMENTS IN SHARES OF GROUP CONCERNS, TONS THE 10.97% STAKE IN VODAFONE ESSAR LTD [VSL] H ELD BY THE GROUP ONSHORE AND HAD ALREADY BEEN SOLD OUT TO PIRAMAL GROUP BY ECHL, IT IS QUITE EVIDENT THAT THE STATED PURPOSE FOR WHICH THE AMALGAMATION OF ECHL WITH ISL WAS SOU GHT TO BE CARRIED OUT HAD ALREADY BEEN NULLIFIED SINCE AFTER THE SALE OF VEL SHARES B Y ECHL, THERE WERE NO OTHER TELECOM ASSETS EXCEPT THE OCDS AND FCDS OF THE GROUP CONCER NS. THE ONLY REAL PURPOSE THAT THESE AMALGAMATIONS HAD SERVED POST FACTO OF VEL STAKE SA LE IS TO MANIPULATE THE ACCOUNTING TREATMENTS SO AS TO EVADE PAYMENT OF TAXES THEREON BY ANY OF THE ENTITIES CONCERNED. IT IS EVIDENT THAT THE SANCTION OF THE HON'BLE HIGH COURT HAS BEEN OBTAINED WITHOUT DISCLOSING TRULY AND FULLY ALL MATERIAL FACTS RELEVANT TO THE STATED PURPOSE OF AMALGAMATION. DETAILS OF AMALGAMATION, VALUATION OF NET WORTH, SWAP RATIO, J USTIFICATION FOR SETTLEMENT OF SHAREHOLDERS' ACCOUNT WITH MULTIPLE ALLOTMENTS OF E QUITY SHARES, DEBENTURES ETC, OBJECTIONS ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 19 RAISED B\J THE AUDITORS BEFORE THE HON'BLE HIGH COU RT ON THE ANOMALIES IN VALUATION AND DISCLOSURE STANDARDS OF SCHEME OF AMALGAMATION OF E THPL WITH ISL WERE NOT LOOKED INTO. 21. ECL HAD ALREADY ACQUIRED THE SHARES OF ISL ALLO TTED TO ETHL ON AMALGAMATION OF ETHPL WITH ISL AND NO TAXES HAVE BEEN PAID THEREON BY ETH L. THE SHARES OF ISL ISSUED IN EXCESS OF THE PERMISSIBLE-CONVERSION RATE TO THE TWO FLLS HAV E ALSO BEEN PURCHASED BY ECL BY WAY OF EXIT OFFER IN MARCH, 2012, THUS ACQUIRING 97% OF SH ARES IN ISL NOW, ISL WAS ALSO MERGED WITH ECL W.E.F 01.04,2011 AS PER COURT ORDER DATED 11.01.2013 BY WHICH TIME THERE WAS NEITHER ANY SHARES OF VEL WITH THE GROUP NOR WAS TH ERE ANY OTHER BUSINESS ASSETS OF THE LIKE. THOUGH IT WAS ECHL THAT ACTUALLY SOLD THE SHA RES, THE ACCOUNTING FOR ACTUAL SALE WAS DONE ONLY IN THE HANDS OF ECL POST AMALGAMATION. EC L HAD, IN FACT CLAIMED THAT THE MERGER OF ISL WITH ITSELF DOES NOT FALL WITHIN THE DEFINIT ION OF AMALGAMATION U/S.2(1B) SINCE THE STIPULATION THAT NOT LESS THAN 75% OF THE SHAREHOLD ERS OF THE AMALGAMATING COMPANY [OTHER THAN THE AMALGAMATED COMPANY, WHO IS ALSO A SHAREHO LDER] SHOULD CONTINUE TO BE THE SHAREHOLDERS OF THE RESULTING COMPANY POST MERGER H AS NOT BEEN MET IN THIS CASE. IT FURTHER CLAIMED THAT ISL WAS ACQUIRED AS N GOING CONCERN AN D HENCE COST OF ACQUISITION IN ITS HANDS INCLUDES PAYMENTS -MADE TO THE TWO FIIS AND. ETHL. THUS, ON THE STAKE SALE OF 10.97% VEL SHARES TO PIRAMAL FOR RS.5862.62 CR, NO TAXES WERE PAID BY ECL ALSO IN WHOSE HANDS THE TRANSACTION IS FINALLY ACCOUNTED FOR. 22. IT IS SEEN THAT ECL WAS HOLDING 74% OF SHARES I N ISL EVEN AS ON 31.03.2012 BY WHICH TIME THE ENTIRE STAKE SHARES OF VEL HAD BEEN SOLD BY ECH L. SUBSEQUENT TO THE ACTUAL SALE OF VEL SHARES BY ECHL TO PIRAMAL GROUP, ECL STARTED TO ACQ UIRE MOST OF THE REMAINING 25% SHAREHOLDINGS OF ISL, INCLUDING 20% HELD BY THE TWO FLLS. THE COURT SANCTION ITSELF CAME ON 11.01.2013 ALMOST A YEAR AFTER THE, SHARES OF VEL W ERE FULLY SOLD OUT BY ECHL ON 03.02.2012. THE COMPANY PETITION SEEKING AMALGAMATI ON OF ISL WITH ECL ITSELF WAS MOVED ONLY IN THE YEAR 2012, MUCH AFTER THE SALE OF VEL S HARES BY ECHL. THUS, IT WAS EVIDENT BEYOND ANY DOUBTS THAT THE ENTIRE PROCESS WAS A VER Y CONSCIOUS AND CALIBRATED ATTEMPT AT EVADING TAXES UNDER THE GUISE OF COURT SANCTIONED S CHEME OF AMALGAMATION. NOT ONLY THAT, THE SANCTION OF THE COURT FOR THE AMALGAMATION OF E THPL WITH ISL HAS BEEN GROSSLY MISUSED TO DIRECTLY VIOLATE THE FDI NORMS AS WELL. IT IS PE RTINENT TO MENTION THAT THE INVESTMENT BY THESE TWO FLLS IN ISL IONS ALSO A SUBJECT-MATTER OF INVESTIGATION BY SEB1 AT THE RELEVANT PERIOD AND IS STILL PENDING FINAL ADJUDICATION. IN SHORT, THE ENTIRE EXERCISE HAS NOT ONLY RESULTED IN EVADING TAXES PAYABLE ON THE STAKE SALE OF VEL SHARES BUT HAS ALSO BEEN USED TO CLAIM ARTIFICIAL LOSSES ARID TO REMIT FUNDS OUTSIDE THE COUNTRY IN TOTAL VIOLATION OF FDI NORMS.' 4. IN RESPONSE TO THE ABOVE NOTICES, SHRI SHREYAS V. PARIKH & SHRI VARTIK R. CHOKSI, CHARTERED ACCOUNTANTS FROM M/ S. G. K. CHOKSI & CO., AUTHORIZED REPRESENTATIVES OF THE ASS ESSES, APPEARED BEFORE THE LD. PCIT AND DISCUSSED THE CASE BESIDES FILING THE WRITTEN SUBMISSIONS. THEIR SUBMISSIONS, FILED DURING THE COURSE OF PROCEEDINGS BEFORE PCIT ON 06.03.2017 , ARE REPRODUCED AS UNDER FOR THE SAKE OF READY REFERENCE : 1.1ESSARRCAPITAL LTD ('ECL' OR 'THE ASSESSEE') IS ENGAGED IN THE. BUSINESS OF INVESTMENT IN THE SECURITIES OF LISTED AND UNLISTED COMPANIES. IN ADDITION TO THIS, IT ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 20 IS ALSO ENGAGED IN THE BUSINESS OF PROVIDING FINANC IAL ADVISORY SERVICES -INCLUDING AMONG OTHER CORPORATE FINANCE SERVICES ETC. 1.2 ECL HAD FILED ITS RETURN OF INCOME FOR A.Y. 201 2-13 ON 21.05.2013 REPORTING AN INCOME OF RS 47,95,19,021/- 1.3 THE ASSESSMENT PROCEEDINGS OF ECL FOR TH E YEAR UNDER CONSIDERATION WERE INITIATED BY THE DEPUTY COMMISSIONER OF INCOME-TAX. 5(2), MUMBAI BY ISSUING NOTICE U/S 143(2) OF THE ACT ON 08.09.2014 PURSUANT TO WHICH THE ASSESSEE APPEARED BEFORE THE ASSESSING OFFICER CAO') AND MAD E DETAILED SUBMISSIONS IN RESPECT OF INFORMATION CALLED, FOR. THE FOLLOWING D ETAILS WERE INTER-CILIA CALLED FOR VIDE NOTICES DATED 19 FEBRUARY 2015 AND 25 FEBRUARY 2015 (COPY ENCLOSED AS ANNEXURE B) AND SUBMITTED BY THE ASSESSEE DURING AS SESSMENT PROCEEDINGS VIDE REPLIES DATED: I) 18.10.2013 (COPY ENCLOSED AS ANNEX-TIRE C) ACKNOWLEDGEMENT OF INCOME TAX RETURN OF THE ASSESSE E FOR THE SUBJECT AY COMPUTATION OF INCOME OF THE ASSESSEE FOR THE SUBJE CT AY NOTES TO RETURN OF INCOME OF THE ASSESSEE FOR THE S UBJECT A Y WITH ANNEXURES THERETO AUDITED FINANCIAL STATEMENTS OF THE ASSESSEE FOR TH E SUBJECT AY TAX AUDIT REPORT US 44AB OF THE ASSESSEE FOR THE SU BJECT AY II) 04.03.2015 (COPY ENCLOSED AS ANNEXURE D) DETAILS OF OFFICES OF THE ASSESSEE NATURE OF BUSINESS OF THE ASSESSEE DETAILS OF SHAREHOLDING OF THE ASSESSEE DETAILS OF INTEREST & FINANCE CHARGES FOR THE SUBJE CT AY EXPLANATION AS TO WHY DISALLOWANCE U/S 14A OF THE A CT R.W. RULE SD IONS NOT WARRANTED DETAILS OF TRADE PAYABLES FOR SERVICES FOR THE SUBJ ECT AY DETAILS OF LOANS & ADVANCES FROM RELATED PARTIES FO R THE SUBJECT AY DETAILS OF TRADE RECEIVABLES FOR THE SUBJECT A Y DETAILS OF LOANS & ADVANCES TO RELATED PARTIES FOR THE SUBJECT AY DETAILS OF ICDS GIVEN FOR THE SUBJECT AY DETAILS OF CAPITAL LOSS ON SALE OF VODAFONE. ESSAR LTD ('VEL') SHARES DETAILS OF CAPITAL LOSS ON SALE OF 6!H FLOOR OF BUI LDING (LAXMI TOWER) DETAILS OF CONSULTANCY INCOME FOR THE SUBJECT AY DETAILS OF MISC. EXPENSES FOR THE SUBJECT AY DETAILS OF OFFICE EXPENSES FOR THE SUBJECT AY DETAILS OF ADVERTISING EXPENSES FOR THE SUBJECT AY DETAILS OF BALANCES WRITTEN OFF FOR THE SUBJECT AY EXPLANATION WHY INTEREST ON DELAYED PAYMENT OF TAXE S SHOULD BE ALLOWED AS DEDUCTION III) 09.03.2015 (COPY ENCLOSED AS ANNEXURE E ) ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 21 MEMORANDUM OF UNDERSTANDING BETWEEN ESSAR TELEHOLDI NGS LTD (ETHL) AND ETHL COMMUNICATIONS HOLDINGS LTD (ECHL)FOR PURCHASE OF VEL SHARES INCOME TAX RETURNS OF ESSAR TELECOMMUNICATIONS HOLD INGS PVT LTD (ETHPL) AND ECHL FOR AY 09-W AND AY1Q-U . INCOME TAX RETURN OF INDIA SECURITIES LTD (ISL) F OR AY 09-10, AY 10-11 AND AY11-12 EXPLANATION IN RELATION TO COST OF ACQUISITION OF V EL SHARES FOR THE ASSESSEE. IV) 14.03.2015 (COPY ENCLOSED AS ANNEXURE F) DETAILS OF LONG TERM BORROWINGS BY ISSUE OF DEBENTU RES DETAILS OF TRADE PAYABLES DETAILS OF PURCHASE OF LSL SHARES THROUGH STOCK EXC HANGE AND RELATED CONTRACT NOTES DETAILS OF TRADE PAYABLES FOR INVESTMENT IN 1SL FINANCIAL STATEMENTS OF ETHPL AND ECHL FOR FY 08-09 AND FY 09-10 FINANCIAL STATEMENTS & TAX AUDIT REPORTS OF LSL FOR FY 08-09, FY 09-10 & FY 10-11 EXPLANATION AS TO WHY DISALLOWANCE U/S 14A OF THE A CT R.W. RULE 3D WAS NOT. WARRANTED V) 19.03.2015 (COPY ENCLOSED AS ANNEXURE G) EXPLANATION AS TO WHY DISALLOWANCE U/S 14A OF T HE ACT R.W. RULE 8D IONS NOT WARRANTED, WITH RULE 8D WORKING ON A WITHOUT PR EJUDICE, BASIS. CONFIRMATION FOR DEBENTURES ISSUED DETAILS OF PAYMENTS MADE FOR INVESTMENT IN ISL DETAILED FACTUAL AND LEGAL SUBMISSIONS IN RELATION TO COST OF ACQUISITION OF VEL SHARES VI) 20.03.2015 (COPY ENCLOSED AS ANNEXURE H) HISTORICAL SHARE PRICE OF LSL FOR FYS 2009-10 TO 20 11-12 SHAREHOLDING PATTERNS OF ETHL, ECHL AND ECL AS ON 0 1.04.2011 DETAILED SUBMISSIONS ON NEXUS OF INTEREST EXPENDITU RE AND INTEREST INCOME BANK STATEMENT EVIDENCING PROCEEDS FROM DEBENTURES AND [CDS EXPLANATION AS TO HOW THE AMALGAMATION OF ISL 'WITH ECL WAS AS PER AS 14 - ACCOUNT ING FOR AMALGAMATION HIGH COURT ORDER AND APPROVED SCHEME FOR AMALGAMATI ON OF ISL WITH ECL DETAILED FACTUAL AND LEGAL SUBMISSIONS ON COST OF A CQUISITION OF VEL SHARES VII) 24.03.2015 (COPY ENCLOSED AS ANNEXURE I) COPY OF SALE AGREEMENT OF LAXMI TOWER PROPERTY. E XPLANATION THAT THE SALE WAS AT A VALUE HIGHER THAN STAMP DUTY VALUE THAT SECTIO N 50C OF THE ACT WAS NOT APPLICABLE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 22 DETAILED NOTE AND DOCUMENTS IN RELATION TO COST O F ACQUISITION OF INVESTMENTS (EQUITY SHARES, PREFERENCE SHARES AND DEBENTURES) M ADE BY ECL IN ISL VIII) 26.03.2015 (COPY ENCLOSED AS ANNEXURE J ) DETAILED FACTUAL AND LEGAL EXPLANATION AS TO HOW TH E COST OF ACQUISITION INCURRED BY THE ASSESSEE FOR ACQUIRING ISL IS RELEVANT DETAILED EXPLANATION AS TO HOW THE RECORDING OF VEL SHARES AT FAIR VALUE MID CORRESPONDING RECORDING OF RESERVE IN ECHL/1SL IS NOT RELEVANT SHAREHOLDING PATTERN OF ISL AND ETHL AS ON 01.04.2011 (UPTO THE ULTIMATE SHAREHOLDER) DETAILS OF LEGAL & PROFESSIONAL EXPENSES FOR THE SU BJECT, YEAR DETAILS OF CENVAT CREDIT, RECEIVABLE WRITTEN OFF IX) 27.03.2015 (COPY ENCLOSED AS ANNEXURE K) INVOICES OF EXPENSES INCURRED IN RELATION TO ACQUIS ITION OF ISL SHARES DETAILS OF RECEIPT OF SALE CONSIDERATION FOR SALE O F VEL SHARES ALONG WITH THE RELEVANT BANK STATEMENT OF ECHL DETAILS OF COST OF ACQUISITION INCURRED BY ECL TO A CQUIRE ISL AND EVIDENCE O THEREOF INVOICES OF ADVERTISING EXPENSES DETAILS OF COURT APPROVED APPOINTED DATE OF AMALGAM ATION OF ISL WITH THE ASSESSEE ALONG WITH LEGAL SUBMISSIONS IN THIS REGA RD. CHALLAN EVIDENCING THE PAYMENT OF SELF ASSESSMENT T AX 1.4 THE AO PASSED THE ASSESSMENT ORDER DATED 31.3 .2015 (COPY ENCLOSED AS ANNEXURE L) WHEREBY THE TOTAL INCOME OF THE ASSESSE E WAS ASSESSED AT RS. 53,81,31,030/- BY MAKING THE FOLLOWING ADJUSTMENTS: A) REDUCTION OF CAPITAL LOSS OF RS. 220. 15 CRS. BEING THE PROPORTIONATE COST OF ACQUISITION DISALLOWED FOR VEL SHARES SOLD. B) REDUCTION OF CAPITAL LOSS RS. 0,56 CRS. BEING THE P ROPORTIONATE COST OF ACQUISITION DISALLOWED FOR SALE OF BUILDING AT MUMB AI. C) ADDITION OF RS. 21,82,733/ U/S 14 A R.W.R 8D OF THE . ACT, D) ADDITION OF RS. 43,465/- BEING THE INTEREST ON DELA YED PAYMENT OF TAXES. E) ADJUSTMENT IN RESPECT OF INCOME FROM OTHER SOURCES 2. NOTICE UNDER SECTION 263 2.1 YOUR HONOUR HAS ISSUED NOTICE, UNDER SECTION 26 3 OF THE ACT ON 17 JUNE 2015 PROPOSING TO SET ASIDE THE ASSESSMENT ORDER PASSED BY THE AO UNDER SECTION 143(3) ON 30 MARCH 2015. AT THE OUTSET, WE OBJECT TO THE A SSUMPTION OF JURISDICTION U/S. 263 AS THE ORDER OF THE AO IS NEITHER ERRONEOUS NOR PRE JUDICIAL TO THE INTEREST OF THE REVENUE. IN THIS REGARD, OUR OBJECTIONS TO EACH OF THE GROUNDS RAISED BY YOUR HONOUR IN THE IMPUGNED NOTICE ARE AS FOLLOWS: ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 23 2.2 VIDE PARA-1 OF YOUR ABOVE CAPTIONED NOTICE, I/O UR HONOUR HAS ALLEGED THAT THE ASSESSING OFFICER HAS FAILED TO CARRY OUT ENQUIRIES AS WAN-ANTED AND THE ASSESSMENT HAS BEEN COMPLETED WITHOUT EXAMINING AIL THE ASPECT S WHICH WERE REQUIRED TO BE LOOKED INTO FOR ARRIVING AT THE CORRECT TAXABLE INC OME CARRIED BY THE ASSESSEE. IT HAS BEEN ALLEGED THAT THE ASSESSING OFFICER DID. NOT CA USE THE NECESSARY VERIFICATION ON INTER-SE TRANSFER OF ASSETS AND LIABILITIES OF GROU P COMPANIES RESULTING IN SUBSTANTIAL LOSSES AND FAILED TO CALL FOR THE BASIC DOCUMENT AN / EVIDENCE TO EXAMINE THE TRUE NATURE AND THE SUBSTANCE OF THE TRANSACTION. 2.3 AS REGARDS THE ALLEGATION OF YOUR HONOURS THAT THE ASSESSING OFFICER HAS FAILED TO MAKE ENQUIRING INTO THE ASPECTS REQUIRED TO BE LOOKED INTO FOR ARRIVING AT THE CORRECT TAXABLE INCOME EARNED BY THE ASSESSEE, YOUR HONOUR'S ATTENTION IS INVITED TO THE QUESTIONNAIRES ISSUED IN/ THE AO TO THE ASSE SSEE COMPANY CALLING FOR DETAILS IN RELATIONS OF VARIOUS ASPECTS IMPACTING THE TAXABLE INCOME OF THE YEAR UNDER CONSIDERATION. IN THIS REGARD, DETAILED SUBMISSIONS WERE MADE BY THE ASSESSEE COMPANY FROM TIME TO TIME AS INDICATED AT PARA 1 AB OVE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY HAD CLAIM LOSS OF RS. 214.44 CRORES ON SALE OF 4,54,25,328 EQUITY SHARES OF VEL SHARES. THE SAID S HARES WERE SOLD BY ECHL AND THE ACCOUNTING FOR SALE WAS DONE IN THE HANDS OF ECL PO ST AMALGAMATION. A NOTE TO THIS EFFECT WAS ALSO APPENDED TO RETURN OF INCOME FILED BY THE ASSESSEE-COMPANY. THE ASSESSING OFFICER ISSUED A QUESTIONNAIRE DATED FEBR UARY 19, 2015 TO EXAMINE THE ABOVE TRANSACTIONS (ENCLOSED AS ANNEXURE-B), WHEREI N THE ASSESSEE-COMPANY WAS ASKED TO SUBMIT THE DETAILS OF CAPITAL GAIN/LOSS ON SALE OF SHARES OF VEL ALONG WITH COST OF ACQUISITION ETC WITH DOCUMENTARY EVIDENCES. REFERENCE MAY BE MODE AT THIS JUNCTURE TO THE SUBMI SSIONS MADE BY THE ASSESSEE VIDE LETTER DATED 04.03.2015 AS STATED ABOVE. THE A SSESSEE SUBMITTED ENTIRE LIST OF INVESTMENTS SOLD BY IT DURING THE YEAR UNDER CONSID ERATION. THE COPY OF THE SAID SUBMISSION IS ATTACHED HEREWITH VIDE ANNEXURE-D. TH E ASSESSEE HAD ALSO SUBMITTED DETAILS OF CAPITAL LOSS ON SALES OF VEL SHARES ALON G WITH COST OF ACQUISITION OF VEL SHARES AND NOTE TO THE RETURN OF INCOME, WHERE IT H AS EXPLAINED THE COMPUTATION OF CAPITAL LOSS IN THE HANDS OF ASSESSEE-COMPANY. THE SAME REPRODUCED HERE UNDER FOR READY REFERENCE: STATEMENT OF SHORT TERM CAPITAL LOSS ON SALE OF VEL SHARES PARTICULARS RS. CRORES SALES PROCEEDS ON SALE OF 4,54,25,328 VEL SHARES 58 62.63 LESS: COST OF ACQUISITION OF VEL SHARES (DETAILS OF THE COST WERE SUBMITTED TO AO) 6077.77 SHORT TERM CAPITAL LOSS ON SALE OF VEL SHARES (214. 44) IT WAS ALSO EXPLAINED THAT VEL SHARES WERE SOLD BY ECHL TO PIRAMAL HEALTHCARE LIMITED ('PIRAMAL') ON AUGUST 18, 2011 AND FEBRUARY 08,2012 FOR RS. 5682.63 CRORES, ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 24 VIDE AGREEMENTS DATED AUGUST 10, 2011 AND FEBRUARY 03, 2012 ENTERED INTO BY ECHL MID PIRAMAL. THE CONSIDERATION ON SALE OF VEL SHARE S OF RS 5862.63 CRORES (WHICH ALSO INCLUDES ADDITIONAL CONSIDERATION OFRS.235.47 CRORE S) COMPRISED OF THE FOLLOWING: RS. 2855.52 CR RECEIVED ON AUGUST. 18,2011 FOR 2,27 ,12,664 EQUITY SHARES; AND RS. 3007.11 CR RECEIVED ON FEBRUARY 08, 2012 FOR 2, 27,12,664 EQUITY SHARES ONE OF THE ALLEGATIONS OF YOUR HONOUR IS THAT THE A O HAS FAILED TO VERIFY INTER SE TRANSFER OF ASSETS BETWEEN GROUP COMPANIES RESULTIN G IN SUBSTANTIAL TOSSES AND FOILED TO CALL BASIC DOCUMENTARY EVIDENCE REQUIRED TO EXAM INE, THE TRUE NATURE AND SUBSTANCE OF THE TRANSACTION. IN THIS REGARD, IT IS RESPECTFU LLY SUBMITTED THAT THE FOLLOWING EVENTS TOOK PLACE IN THE SUBJECT YEAR RESULTING IN INTER S E TRANSFER OF ASSETS AND LIABILITIES: INVESTMENTS IN ISL BY THE ASSESSEE AMALGAMATION OF ISL WITH THE ASSESSEE THE ASSESSEE-COMPANY ALSO STATED THAT. ECHL WAS MER GED WITH INDIA SECURITIES LTD ('ISL') WITH EFFECT FROM APRIL 01, 2010 AND FURTHER , ISL WAS MERGED, WITH ASSESSEE- COMPANY 'WITH EFFECT FROM APRIL 01, 2011. THE EFFEC T TO THE SAID MERGER HAS BEEN GIVEN IN THE FINANCIAL STATEMENTS OF THE ASSESSEE-C OMPANY FOR THE FINANCIAL YEAR ENDED MARCH 31, 2012. THE COPIES OF ORDERS PASSED B Y THE HON'BLE HIGH COURT APPROVING THE AFORESAID MERGERS WERE SUBMITTED BIT ASSESSEE-COMPANY (A FACT ACKNOWLEDGED BY ASSESSING OFFICER IN HIS ORDER). AC CORDINGLY, THE ASSESSEE HAS INCLUDED THE CAPITAL LOSS ON SALE OF VEL SHARES IN ITS COMPUTATION OF TAXABLE, INCOME WHICH HAS BEEN STATED, IN THE ASSESSMENT ORDER AS W ELL. THUS, TIT THE OUTSET, IT CANNOT BE ALLEGED THAT THE AO HAS NOT MADE PROPER INCIUIRI .ES IN TO THE FACTS OF THE CASE, INSOFAR AS THE COMPUTATION OF THE CAPITAL GAIN AND OTHER PERTINENT TRANSACTIONS IS CONCERNED. 3. ENQUIRIES MADE BY THE ASSESSING OFFICER IN R ESPECT OF INVESTMENTS IN ISL BY THE ASSESSEE. 3.1 DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE HAD ACQUIRED EQUITY SHARES, PREFERENCE SHAM; AND. DEBENTURES OF ISL INT ER AIM FROM ETHL. ECL ACQUIRED SHARES OF ISL FROM THIRD PARTY INVESTORS (PUBLIC) A S ALSO ETHL. PART OF THE ISL SHARE ACQUISITION FROM ETHL WAS THROUGH OFF MARKET TRANSA CTION AND PARTLY THROUGH BULK TRANSFERS ON THE STOCK MARKET. WHITE THE GAIN ON MA RKET TRANSFERS LUCRE CLAIMED AS EXEMPT UNDER SECTION 10(38), GAINS IN RESPECT OF OF F MARKET SALE WERE DULL/ CONSIDERED IN. THE COMPUTATION OF INCOME BY ETHL 3.2 THE DETAILS OF ACQUISITION OF THE SAID INVESTME NTS WERE FURNISHED DURING THE COURSE, OF THE ASSESSMENT PROCEEDINGS. SUPPORT M TH IS REGARD MAY BE MADE TO THE FOLLOWING SUBMISSIONS WHICH WERE MADE TO THE ASSESS ING OFFICER IN THIS CONTEXT: SUBMISSION DATED I8 OCTOBER 2013, WHEREIN THE ASSES SED COMPANY PROVIDED NOTES TO RETURN OF INCOME AND FINANCIAL STATEMENTS OF COMPAN Y, WHEREIN THE INVESTMENTS ARE REFLECTED. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 25 SUBMISSION DATED 14 MARCH 2015, WHEREIN THE ASSESSE E COMPANY FURNISHED DETAILS OF PURCHASE OF ISL SHARES THROUGH STOCK EXCHANGE AND R ELATED CONTRACT NOTES. SUBMISSION DATED 19 MARCH 2015, GIVING DETAIL S OF PAYMENTS MADE TO PUBLIC SHAREHOLDERS. SUBMISSION DATED 24 MARCH 2015, GIVING DETAILED NOT E AND DOCUMENTS IN RELATION TO COST OF ACQUISITION OF INVESTMENTS (EQUITY SHARES, PREFERENCE SHARES AND DEBENTURES)MADE BY ECL IN ISL SUBMISSION DATED. 27 MARCH 2015, GIVING DETAILS OF PAYMENT/ DISCHARGE OF CONSIDERATION FOR ACQUISITION OF INVESTMENTS (EQUIT Y SHARES, PREFERENCE SHARES AND DEBENTURES) MADE BY ECL IN ISL 3.3 FURTHER, AFTER SEVERAL ROUNDS OF DISCUSSION DUR ING THE HEARINGS AND UPON SCRUTINY OF THE COST OF ACQUISITION OF INVESTMENTS IN ISL, T HE AO DISALLOWED PART OF THE COST OF ACQUISITION WHICH DEMONSTRATES THAT THE AO APPLIED HIS MIND WHILE PASSING THE ASSESSMENT ORDER. 3.4 ON PERUSAL OF THE ABOVE, YOUR HONOUR WOULD APPR ECIATE THAT THE OBSERVATION THAT THE AO HAS FAILED TO VERIFY DETAILS OF INVESTMENTS MADE BY ECL WHICH IN TURN RESULTED IN INTER SE TRANSFER OF ASSETS BETWEEN GROUP COMPAN IES IS MISPLACED. 4. ENQUIRIES MADE BY THE ASSESSING OFFICER IN RESP ECT OF MERGER OF ISL WITH THE ASSESSEE 4.1 DURING THE YEAR UNDER CONSIDERATION, ISL MERGE D WITH THE ASSESSEE- COMPANY VIDE A COURT APPROVED MERGER ORDER WITH APP OINTED DATE OF 1 APRIL 2011. PURSUANT TO THE SAID MERGER ALL THE ASSETS AND LIAB ILITIES OF ISL BECAME THE ASSETS AND LIABILITIES OF THE. ASSESSEE-COMPANY. POST-MERGER, EQUITY, PREFERENCE AND DEBENTURE HOLDING OF ECL IN ISL AGGREGATING INR 6138 CR STOOD EXTINGUISHED. 4.2 IT MAY BE NOTED THAT THE AO HAD CALLED FOR VAR IOUS DETAILS IN RESPECT OF THE CAP HONED MERGER AND ACCORDINGLY HE WAS AWARE OF TH E MERGER SCHEME, AND HAD EXAMINED, VARIOUS ASPECTS RELATED THERETO AND APPLI ED HIS MIND TO THE SAME. SUPPORT IN THIS REGARD MAY BE MADE TO THE FOLLOWING SUBMISS IONS WHICH WERE MADE TO THE ASSESSING OFFICER IN THE CONTEXT OF THE PROPOSED ME RGER: SUBMISSION DATED 18 OCTOBER 2013, WHEREIN THE ASSES SEE COMPANY PROVIDED RETURN OF INCOME, NOTES TO RETURN OF INCOME AND FINANCIAL STATEMENTS OF COMPANY, WHEREIN THE DETAILS OF AMALGAMATION OF ISL WITH ASSESSEE AR E APPROPRIATELY DISCLOSED. SUBMISSION DATED 09 MARCH 2015, WHEREIN THE ASSESSE E COMPANY HAS FURNISHED THE BASIS OF COST OF ACQUISITION OF VEL SHARES. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 26 SUBMISSION DATED 19 MARCH 2015, GIVING DETAILED FAC TUAL AND LEGAL SUBMISSIONS IN RELATION TO COST OF ACQUISITION OF VEL SHARES AND D ETAILS OF PAYMENT MADE TO SHAREHOLDERS OF ISL SUBMISSION DATED 20 MARCH 2015, WHEREIN THE ASSESSE E COMPANY HAS SUBMITTED EXPLANATION AS TO HOW THE AMALGAMATION OF ISL WITH ECL WAS AS PER AS 14. - ACCOUNTING FOR AMALGAMATION, THE HIGH COURT ORDER A ND APPROVED SCHEME FOR AMALGAMATION OF ISL WITH ECL AND DETAILED FACTUAL A ND LEGAL SUBMISSIONS ON COST OF ACQUISITION OF VEL SHARES. SUBMISSION DATED 26 MARCH 2015, GIVING DETAILED FAC TUAL AND LEGAL EXPLANATION AS TO HOW THE COST OF ACQUISITION INCURRED BY THE ASSESSE E FOR ACQUIRING ISL IS RELEVANT AND DETAILED EXPLANATION AS TO HOW THE RECORDING OF VEL SHARES AT FAIR VALUE AND CORRESPONDING RECORDING OF RESERVE IN ECHL/ISL IS N OT RELEVANT 4.3 IT MAY ALSO BE NOTED THAT THE ASSESSING OFFICER HAD RAISED QUERIES RELATING _TO COMPUTATION OF BASIS OF VALUATION OF COST OF ACQUIS ITION ARRIVED AT RS. 6077.07 CRORES (AS AGAINST PURCHASE PRICE OF RS. 1260.59 CRORES BY ECHL) A NOTICE WAS ALSO ISSUED ON FEBRUARY 25, 2015 ASKING FOR SUCH DETAILS ALONG WIT H SPECIFIC QUERY AS TO WHY THE COST OF THE ACQUISITION OF SHARES OF VEL SHOULD NOT BE R S. 1260.59 CR AS AGAINST RS.6077.77 CR IN LIGHT OF PROVISIONS OF SECTION 49('L) (HI) (E ) OF THE. ACT. THE ASSESSEE VIDE ITS REPLY DATED MARCH 09, 2015 MADE DETAILED SUBMISSION FOLLO WED BY LETTER DATED MARCH 19, 2015 AND MARCH 20, 2015, SUBMITTED THAT SINCE THE A MALGAMATION DID NOT FALL WITHIN THE MEANING OF AMALGAMATION AS DEFINED UNDER SECTIO N 2(1B) OF THE ACT, THE PROVISIONS OF SECTION 49(L)(III)(E) OF THE ACT TIRE NOT APPLICABLE. THE COPY OF NOTICE DATED FEBRUARY 25, 2015 AND REPLIES OF DATED MARCH 09, 19 AND 20, 2015 OF THE ASSESSEE-COMPANY IS ENCLOSED AS ANNEXURE B, E, G AN D H RESPECTIVELY. 4.4 IT WAS STATED TO THE ASSESSING OFFICER T HAT, THE MERGER OF ISL WITH ECL WAS NOT AMALGAMATION AS DEFINED UNDER SECTION 2(1B) OF THE ACT. IT WAS EXPLAINED VIDE SUBMISSION DATED MARCH '19, 2015, CLAUSE (HI) OF SE CTION 2(1B) OF THE ACT REQUIRED THAT THE SHAREHOLDERS HOLDING NOT LESS THAN THREE-F OURTH IN THE VALUE OF THE SHARES OF THE AMALGAMATING COMPANY (OTHER THAN SHARES ALREADY HELD BY THE AMALGAMATED COMPANY) BECOMES THE SHAREHOLDERS OF THE AMALGAMATE D COMPANY BY VIRTUE, OF THE AMALGAMATION. IT WAS EXPLAINED THAT IN THE INSTANT CASE, OUT OF T OTAL VALUE OF SHARES (FACE VALUE) OF ISL OF RS. 87,57,96,310, THE SHARES OF VALUE OF RS. 84,76,76,4937- WERE HELD BY ECL (IE THE AMALGAMATED COMPANY) AND THE BALANCE SHARES OF VALUE OF RS. 2,31,19,817/- WERE HELD BY PUBLIC SHAREHOLDERS. AS REQUIRED BY SE CTION 2(1B) OF THE ACT, IN ORDER TO FALL WITHIN THE MEANING OF THE TERM 'AMALGAMATION' IN THE FACTS OF THE CASE, THE PUBLIC SHAREHOLDERS HOLDING AT LEAST THREE-FOURTH OF THE V ALUE OF SHARES [I.E. AT LEAST SHARES OF FACE VALUE RS. 2,10,89,863/- BEING THREE-FOURTH OF THE FACE VALUE OF SHARES HELD BY THE PUBLIC SHAREHOLDERS OF RS. 2,81,19,817/- OUGHT TO HAVE BECOME THE SHAREHOLDERS OF THE AMALGAMATED COMPANY BY VIRTUE BY THE AMALGAM ATION. IN THE INSTANT CASE, PUBLIC SHAREHOLDERS HOLDING SHARES OF FACE VALUE OF ONLY RS. 1,92,2.8,280 (I.E LESS THAN RS. 2,10,89,863 BEING THREE-FOURTH) AGREED TO RECEI VE SHARES OF THE AMALGAMATED COMPANY UNDER THE SCHEME OF AMALGAMATION AND THE BA LANCE SHAREHOLDERS, (BEING ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 27 SHAREHOLDERS HOLDING 31.57% OF THE FACE VALUE OF PU BLIC HOLDING) OPTED FOR CASH PAYMENT. 4.5 IN LIGHT OF THE ABOVE, IT URNS EXPLAINED THAT THE AMALGAMATION OF ISL INTO ECL DID NOT FULFILL THE CONDITION SPECIFIED IN CLAUSE ( HI) OF SECTION 2(1B) OF THE ACT AND THEREFORE DOES NOT FALL WITHIN THE MEANING OF 'AMAL GAMATION' AS PER SECTION 2(1 B) OF THE ACT, CONSEQUENTLY, THE PROVISION OF SECTION 47( VI) AND SECTION 49(L)(III)(E) ARE NOT APPLICABLE IN THE PRESENT CASE. 4.6 WORKING OF COST OF ACQUISITION OF SHARES , DETAILS IN RESPECT OF THE SHARES SOLD WAS ALSO FILED DURING THE COURSE OF ASSESSMENT. DET AILS OF COST OF ACQUISITION OF INVESTMENT IN EQUITY SHARE, OPTIONALLY CONVERTIBLE DEBENTURES AND PREFERENCE SHARES OF ISL AMOUNTED TO RS. 6138.02 CRORES AND DOCUMENTA RY EVIDENCES THEREOF, WERE FILED VIDE REPLY DATED MARCH 24, 2015 AND MARCH 27, 2025 MARKED AS ANNEXURE-I AND K. 4.7 FURTHER, AFTER CONSIDERING THE VARIOUS SUBMISSI ONS STATED ABOVE, AND AFTER SEVERAL ROUNDS OF DISCUSSION DURING THE HEARINGS, T HE AO POST APPLYING MIND PASSED THE ASSESSMENT ORDER. 4.8 ON PERUSAL OF THE ABOVE, YOUR HONOUR WOULD APPR ECIATE THAT THE OBSERVATION THAT THE AO HAS FAILED TO VERIFY INTER SE TRANSFER OF ASSETS BETWEEN GROUP COMPANIES IS MISPLACED. 4.9 FURTHER, IN PARA 20 OF THE NOTICE, YOUR HONOUR HAS ALLEGED THAT ECL HAS CLAIMED SHORT TERM CAPITAL LOSS ON SALE OF VEL SHAR ES AFTER CLAIMING INDEXATION. IN THIS REGARD IT IS SUBMITTED THAT NO INDEXATION WAS CLAIM ED IN RESPECT OF THE COST, AS CAN BE SEEN FROM THE COMPUTATION OF TOTAL INCOME FILED DUR ING THE ASSESSMENT PROCEEDINGS. 4.10 YOUR HONOUR HAS ALSO ALLEGED THAT THE PET ITION AND SANCTION FOR AMALGAMATION OF 1SL WITH ECL WAS SUBSEQUENT TO THE SALE OF V'EL SHARES BY ECHL, -WHICH WAS ACCOUNTED IN THE BOOKS OF ECL POST AMALGAMATION. IN THIS REGARD, IT IS SUBMITTED THAT THE AMALGAMATION WAS UNDERTAKEN FOR THE FOLLOWING R EASONS, AS REPRODUCED FROM THE AMALGAMATION SCHEME (PROVIDED TO THE AO VIDE SUBMIS SIONS DATED 18 OCTOBER 2013): 'THE TRANSFEROR COMPANY IS ENGAGED IN INVESTMENT AC TIVITIES AND PROVIDING FOREX ADVISORY SERVICES MID BUSINESS START UP CONSULTANCY SERVICES. THE TRANSFEREE COMPANY IS ALSO ENGAGED IN INVESTMENT ACTIVITIES AND THE BU SINESS OF PROVIDING FINANCIAL ADVISORY SERVICES INCLUDING CORPORATE FINANCIAL SER VICES, MERGER AND ACQUISITION ADVISORY SERVICES, INVESTMENT ADVISORY SERVICES, BU SINESS SERVICES AND OTHER KINDS OF FINANCIAL AND BUSINESS ACTIVITIES. THE TRANSFEROR COMPANY IS A SUBSIDIARY COMPANY OF T HE TRANSFEREE COMPANY, AS ON JUNE. 25, 2012, THE PROMOTERS OF THE TRANSFEROR COM PANY HAVE SUCCESSFULLY COMPLETED N VOLUNTARY DELI STING OFFER TO DELIST TH E SHARES OF THE TRANSFEROR COMPANY FROM THE BSE LIMITED (HEREINAFTER REFERRED TO AS TH E 'BSE'). CONSEQUENTLY AS ON JUNE 25, 2012, 95.95% OF THE EQUITY SHARE CAPITAL OF THE TRANSFEROR COMPANY IS HELD BY THE TRANSFEREE COMPANY. THE FOCUS AND ACTIVITIES OF BOTH THE TRANSFEREE COM PANY AND THE TRANSFEROR COMPANY COMPLEMENT EACH OTHER AND AS SUCH, THE CONS OLIDATION OF THEIR EFFORTS AND ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 28 RESOURCES WOULD LEAD TO A SIMPLIFIED CORPORATE STRU CTURE FOCUSED ON CAPITALIZING UPON STRATEGIC INVESTMENT OPPORTUNITIES AND PROVIDING A CONCENTRATED MANAGEMENT FOCUS FOR THE DEVELOPMENT OF THE BUSINESS OF THE TRANSFER OR COMPANY AND. THE TRANSFEREE COMPANY. 4.11 AS MAY BE SEEN FROM THE ABOVE, THE RATION ALE OF THE MERGER WAS CONSOLIDATION OF EFFORTS AND RESOURCES OF THE COMPA NIES, SIMPLIFYING THE CORPORATE STRUCTURE AND PROVIDING A CONCENTRATED MANAGEMENT F OCUS FOR THE DEVELOPMENT OF THEIR BUSINESSES. FURTHER, THE MERGER WAS ALSO UNDE RTAKEN TO RATIONALIZE THE HOLDING STRUCTURE AND REDUCE COMPLIANCE/ ADMINISTRATIVE COS TS. THE SALES OF VEL SHARES TO PIRAMAL GROUP WAS IN AUGUST 2011 AND FEBRUARY 2012, WHEREAS THE MERGER WAS SANCTIONED BY THE HIGH COURT AS TAKING EFFECT FROM 01.04.2011 AND IT WAS MERELY A CONSEQUENCE THEREOF THAT THE SALE WAS RECORDED BY E CL. 5. OBJECTIONS WITH RESPECT TO MERGER OF ETHPL WITH ISL 5.1 YOUR HONOUR HAS ALLEGED THAT THE ACCOUNTING TR EATMENT ON AMALGAMATION OF ETHPL WITH ISL WAS AS PER 'PURCHASE METHOD' BUT DID NOT TAKE OVER THE INVESTMENT IN ECHL STANDING IN BOOKS OF ETHPL AT IT S FAIR VALUE. 5.2 IT IS SUBMITTED THAT SINCE ME, ABOVE ACCOUNTING TREATMENT WAS NOT MADE IN THE BOOKS OF THE ASSESSEE, IT IS NOT RELEVANT FOR THE C OMPUTATION OF THE ASSESSEE'S TOTAL INCOME. 5.3 FURTHER, THE UP-POINTED DATE, OF THE SAID MERGE R WAS NOT DURING FY 2011-12, AND HENCE, IT IS RESPECTFULLY SUBMITTED, THAT THE SAME WOULD NOT BE RELEVANT TO THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION (AY2012 -13). 5.4 WITHOUT PREJUDICE, IN THIS REGARD WE SUBMIT THA T THE ACCOUNTING TREATMENT IN THE BOOKS OF THAT ASSESSEE WAS IN ACCORDANCE WITH THE C OURT APPROVED MERGER SCHEME, THE RELEVANT EXTRACT OF' WHICH IS REPRODUCED AS UND ER: '9.1 THE TRANSFEREE COMPANY SHALL RECORD ALL THE AS SETS AND LIABILITIES PERTAINING TO THE UNDERTAKING TRANSFERRED TO AND VESTED IN THE TR ANSFEREE COMPANY PURSUANT TO THIS SCHEME, AT THEIR RESPECTIVE BOOK VALUES I.E. A T THE SAME VALUES AS APPEARING IN THE BOOKS OF TRANSFEROR COMPANY ON THE CLOSE OF BUS INESS ON ONE DAY PRIOR TO THE APPOINTED DATE. 9.2 THE EXCESS OR DEFICIT, IF ANY, REMAINING AFTER RECORDING THE AFORESAID ENTRIES SHALL BE CREDITED BY THE TRANSFEREE COMPANY TO CAPITAL RE SERVE ACCOUNT OR DEBITED TO GOODWILL ACCOUNT, AS THE CASE MAY BE. GOODWILL, IF ANY, SHALL BE DEALT WITH IN ACCORDANCE WITH THE ACCOUNTING STANDARD, AS-14.' 5.5 ON PERUSAL OF THE ABOVE YOUR HONOUR WILL APPRECIATE THAT ALL THE ASSETS AND LIABILITIES WERE TAKEN OVER BY THE ASSESSEE AS PER THE SCHEME AS APPROVED BY THE HIGH COURT. THEREFORE, WE RESPECTFULLY SUBMIT THAT THE A CCOUNTING TREATMENT IN THE BOOKS OF ASSESSEE WAS AS PER THE COURT APPROVED MERGER SC HEME AND AS PER VALUATION PARAMETERS AS CERTIFIED BY AN INDEPENDENT CHARTERED ACCOUNTANT. IT IS A SETTLED ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 29 POSITION THAT THE SCHEME OF AMALGAMATION APPROVED B Y THE HIGH COURT CANNOT BE CHALLENGED EXCEPT IN HIGHER JUDICIAL HIERARCHY. FUR THER NS A MATTER OF PUBLIC POLICY ONCE THE SCHEME IS APPROVED/SANCTIONED NO AUTHORITY SHOULD BE ALLOWED TO TINKER WITH THE SCHEME. 5.6 ALSO, IT IS SUBMITTED THAT IN TERMS OF A CCOUNTING STANDARD H IN RELATION TO ACCOUNTING FOR AMALGAMATIONS, THE ASSETS AND LIABIL ITIES MAY BE RECORDED AT BOOK VALUES UNDER THE PURCHASE-METHOD. THE RELEVANT EXTR ACT FROM THE STANDARD IS REPRODUCED BELOW FOR YOUR HONOUR'S READY REFERENCE: '12. UNDER THE PURCHASE METHOD, THE TRANSFEREE COMP ANY ACCOUNTS FOR THE AMALGAMATION EITHER BY INCORPORATING THE ASSETS AND LIABILITIES AT THEIR EXISTING EARN/ING AMOUNTS OR BY ALLOCATING THE CONSIDERATION TO INDIVIDUAL IDENTIFIABLE ASSETS AND LIABILITIES OF THE TRANSFEROR COMPANY ON THE BA SIS OF THEIR FAIR VALUES AT THE DATE OF AMALGAMATION. THE IDENTIFIABLE ASSETS AND LIABILITI ES MAY INCLUDE ASSETS AND LIABILITIES NOT RECORDED IN THE FINANCIAL STATEMENTS OF THE TRA NSFEROR COMPANY.' 5.7 THEREFORE THE ALLEGATION MADE BY YOUR GOOD SELF THAT THE ACCOUNTING TREATMENT OF RECORDING INVESTMENT OF ECHL IN THE BOOKS OF ECL AT ITS BOOK VALUE AND NOT FAIR VALUE IS MISPLACED AND MISCONCEIVED. 6. OBJECTIONS WITH RESPECT TO CONSIDERATION RECEIVE D BY ETHL ON MERGE-}' OF ETLIPL - WITH ISL( A.Y. 2011-12) 6.1. YOUR HONOUR HAS ALLEGED THAT ETHL HAS RECEIVED SHARES WORTH RS 3,359 CRORES (EQUITY SHARES OF RS 3051 CRORES AND PREFERENCE SHA RES OF RS 308.2 CRORES) IN LIEU OF THE 10.97% STAKE IN VEL HELD BY IT INDIRECTLY THOUG H ETHL HAD TRANSFERRED THE SAME EARLIER FOR RS 1,260 CRORES TO ECHK AND CLAIMED LOS S. 6.2. IN THIS REGARD, WE RESPECTFULLY SUBMIT, THAT T HE APPOINTED DATE OF THE AMALGAMATION WAS NOT IN THE YEAR UNDER CONSIDERATIO N (AY 2012-13). FURTHER, THE CONSIDERATION WAS NOT RECEIVED BY THE ASSESSEE AND HENCE HAD NO BEARING ON ITS TAXABLE INCOME. WITHOUT PREJUDICE, WE RESPECTFULLY SUBMIT THAT ETHL RECEIVED THE SAID SHARES IN TERMS OF THE COURT APPROVED MERGER SCHEME, WHICH SP ECIFIED THAT 330 EQUITY SHARES AND 1 PREFERENCE SHARE OF ISL TO BE ALLOTTED TO THE SHAREHOLDER OF ETHPL (I.E. THE ASSESSES) FOR EACH EQUITY SHARE HELD IN ETHPL IN CO NSIDERATION OF THE TRANSFER OF AND VESTING OF THE. UNDERTAKING OF ETHPL IN ISL 6.3. FURTHER THE SHARES WERE ISSUED TO ETHL I N TERMS OF THE VALUATION REPORT ISSUED B\J A FIRM OF CHARTERED ACCOUNTANTS WHICH WA S PROVIDED TO AND DULY VERIFIED BY THE AO. ACCORDINGLY, IT IS RESPECTFULLY SUBMITTE D THAT ALLEGATION OF YOUR HONOUR THAT SHARES WERE ISSUED TO ETHL IN LIEU OF 10.97% S TAKE IN VEL IS UNWARRANTED. 6,4. YOUR HONOUR HAS ALSO ALLEGED THAT SHARES WORTH RS 3,359 CRORES RECEIVED BY ETHL IONS LESS THAN THE DISCOUNTED NET PRESENT VALU E OF THE VEL SHARES RECOGNISED AT RS 5,268 CRORES IN THE BOOKS OF ECHL AND THAT THERE WAS AN UNDERVALUATION OF ECHL SHARES BY RS 2,000 CRORES IN THIS PROCESS. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 30 6.5 IN THIS REGARD, WE RESPECTFULLY REITERATE THAT THE APPOINTED DATE OF THE AMALGAMATION WAS NOT IN THE YEAR UNDER CONSIDERATIO N (AY 2012-13). FURTHER, THE CONSIDERATION WAS NOT RECEIVED BY THE ASSESSEE AND HENCE, HAD NO BEARING ON ITS TAXABLE INCOME. 6.6 WITHOUT PREJUDICE TO THE. SAME AND THE FACT THA T THE SUMP RATIO WAS AS PER VALUATION IN/ AN INDEPENDENT CHARTERED ACCOUNTANT, IT IS SUBMITTED THAT THE MERGER OF ETHPL WITH ISL WAS A TAX NEUTRAL MERGER AND DID NOT RESULT IN A TAXABLE TRANSFER BY VIRTUE OF SECTION 47(VII) OF THE ACT. 6.7 IN VIEW OF THE ABOVE, IT IS RESPECTFULLY SUBMIT TED THAT THIS ALLEGATION TOO IS MISCONCEIVED AND NOT RELEVANT. 7. ENQUIRIES MADE BY THE ASSESSING OFFICER IN RESPE CT OF MERGER OF ECHL WITH ISL: 7.1 YOUR HONOUR HAS ALSO REFERRED TO THE MER GER OF ECHL WITH THE ISL AND MADE THE FOLLOWING ALLEGATIONS: A) THAT DETAILS OF AMALGAMATION, VALUATION OF NET W ORTH, SWAP RATIO, OBJECTIONS RAISED BEFORE HIGH COURT ON ANOMALIES IN VALUATION AND DIS CLOSURE STANDARDS OF SCHEME OF AMALGAMATION WERE NOT LOOKED INTO BY THE ASSESSING OFFICER. B) THAT THE CHAIN OF EVENTS LEADING TO TRANSFER OF SHARES OF VODAFONE ESSAR TO ISL AND EVENTUALLY ECL VIS-A-VIS THE PUT OPTION CLAIMED, WA S NEITHER EXAMINED, NOR CONSIDERED BY THE ASSESSING OFFICER. C) SOLE PURPOSE OF THE MERGER IS TO MANIPULATE THE ACCOUNTING TREATMENT AND ENTITY IN WHOSE HANDS CAPITAL GAINS ARISING OF SALE OF SHA RES IS OFFERED TO TAX. 7.2 THE APPOINTED DATE OF THE SAID MERGER WAS NOT D URING FY 2011-12, AND HENCE IT IS RESPECTFULLY SUBMITTED, THAT THE SAME W OULD NOT BE RELEVANT TO THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION(AY 2012 -13). 7.3 WITHOUT PREJUDICE, AT THE VERY OUTSET IT MAY B E NOTED THAT THE ABOVE ALLEGATIONS LEVELED BY YOUR HONOUR IN THE CONTEXT O F THE MAJOR ARE MISPLACED. THE MERGER OF ECHL WITH ISL BEING A TAX NEUTRAL MERGER, THE QUESTION OF IMPACTING TAXABLE INCOME ITSELF DOES NOT ARISE. 7.4 FURTHER, IT IS RESPECTFULLY SUBMITTED THAT THE ASSESSEE HAD FILED COPY OF AUDITED PRE.-MERGER FINANCIAL STATEMENTS OF ECHL DU RING THE COURSE OF ASSESSMENT PROCEEDINGS AS ALSO ISL'S POST-MERGER OF MANDATE. I SL HAD REVISED ITS RETURN OF INCOME IN LIGHT OF THE FACT THAT ECHL GOT MERGED WI TH ISL W.E.F. P' APRIL 2010. THE HIGH COURT OF BOMBAY APPROVED THE SCHEME, SANCTIONI NG THE MERGER ON 13;F?FEBRUARY 2012. ACCORDINGLY THE RETURN IONS REV ISED AFTER THE SCHEME -WAS SANCTIONED BY THE HIGH COURT. THE FINANCIAL STATEME NTS OF THE COMPANY WERE FINALIZED ON 'IST DECEMBER 2011. ACCORDINGLY ON THE DATE OF FINALIZATION OF FINANCIAL STATEMENTS THE MERGER SCHEME OF ECHL WITH ISL WAS P ENDING. IN LIGHT OF THE ABOVE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 31 FACTS THE MANAGEMENT HAD INSERTED THE FOLLOWING NOT ES TO THE NOTES TO ACCOUNTS FORMING PART OF SCHEDULE-13 OF THE AUDITED FINANCIA L STATEMENTS: ' 6) DURING THE YEAR THE COMPANY HAS ENTERED INTO S CHEME OF ARRANGEMENT IN ME NATURE OF AMALGAMATION OF ETHL COMMUNICATIONS HOLDI NGS LIMITED WITH THE COMPANY PENDING APPROVAL FROM THE HONOURABLE HIGH C OURT JURIDICATE AT MADRAS AND MUMBAI THE EFFECT OF THE SAID SCHEME IS NOT GIVEN I N THESE ACCOUNTS.' 7.5 ON PERUSAL OF THE ABOVE NOTES TO ACCOUNT IT MAY BE NOTED THAT THE EFFECT OF AMALGAMATION OF ECHL WITH THE ASSESSEE COMPANY COUL D NOT BE GIVEN IN ABSENCE OF APPROVAL OF HON'BLE BOMBAY AS WELL AS MADRAS PIC., THE ASSESSING OFFICER CALLED FOR 'PRE MERGER FINANCIAL STATEMENTS OF ISL AND ECHL' T O COMPARE THEM WITH THE POST- MERGER FINANCIAL STATEMENTS. THE ASSESSEE COMPANY H AD PROVIDED THE DETAILS SOUGHT. THE ASSESSING OFFICER HAD ANALYZED THE FINANCIAL ST ATEMENTS OF MERGED ENTITY NS WELL AS POSITION OF ECHL AND THE ASSESSEE ON STANDALONE BASIS I.E. PRE-MERGER. ACCORDINGLY THE ALLEGATION MADE THAT THE ASSESSING OFFICER HAS NOT VERIFIED THE FACTS PERTAINING TO THE ABOVE MERGER IS INCORRECT. 7.6 YOUR HONOUR HAS ALSO ALLEGED THAT THE ASSESSEE- COMPANY HAS NOT FILED THE DETAILS OF AMALGAMATION, VALUATION OF NET WORTH, SW AP RATIO IN RESPECT OF THE MERGER OF ECHL WITH ISL, IT IS HUMBLY SUBMITTED THAT THIS ALLEGATION OF YOUR HONOUR IS INCORRECT IN THE LIGHT OF THE FACT THAT THE ASSESSE E-COMPANY HAD VIDE LETTER DATED 18 OCTOBER 2013 FILED BEFORE THE ASSESSING OFFICER THE COURT APPROVED SCHEME OF MERGER. FURTHER, THE MERGER BEING A MERGER OF A WHO LLY OWNED SUBSIDIARY OF ISL I.E. ECHL WITH ISL, THERE IONS NO DETERMINATION OF CONSI DERATION AND/OR ISSUANCE OF SHARES. ACCORDINGLY, IT IS HUMBLY SUBMITTED THAT TH E ALLEGATIONS OF YOUR HONOURS THAT VALUATION, SWAP RATIO, JUSTIFICATION FOR SETTLEMENT OF TRANSFEROR ACCOUNT WITH MULTIPLE ALLOTMENT OF SHARES/ DEBENTURES IS COMPLETELY MISPL ACED. THIS FACT CAN ALSO BE NOTED BY REFERRING TO CLAUSE NO.6 OF THE AFORESAID SCHEME , WHICH REFERS TO CANCELLATION OF EQUITY SHARES OF ECHL IN THE HANDS OF ISL, WHICH RE ADS AS UNDER: '6, CANCELLATION OF EQUITY SHARES 6.1 ECHL IS A WHOLLY OWNED SUBSIDIARY OF ISL AND IS L HOLDS THE ENTIRE PAID-UP SHARE CAPITAL OF ECHL. 6.2 AS PART OF THE SCHEME, UPON THE SCHEME COMING I NTO EFFECT, ALL THE SHARES OF ECHL HELD BY ISL ALONG WITH ITS NOMINEE(S ), IF ANY, ON THE EFFECTIVE DATE, SHALL BE CANCELLED AND EXTINGUISHED WITHOUT A NY FURTHER ACT OR DEED. NO SHARES OR CONSIDERATION SHALL BE ISSUED F PAID B Y THE TRANSFEREE COMPANY PURSUANT TO THE AMALGAMATION OF THE TRANSFEROR COMP ANY, WHICH IS A WHOLLY OWNED, SUBSIDIARY OF THE TRANSFEREE COMPANY.' 7.7 ON PERUSAL OF THE ABOVE HIGH COURT ORDERS APPR OVING THE SCHEME OF AMALGAMATION, IT MAY ALSO BE NOTED THAT THE ALLEGAT ION MADE BY YOUR HONOUR THAT OBJECTIONS RAISED BEFORE THE HIGH COURT ON ANOMALIE S IN THE VALUATION AND DISCLOSURE STANDARDS OF THE SCHEME OF AMALGAMATION WERE NOT LO OKED INTO IS ALSO COMPLETELY ERRONEOUS AND INCORRECT. NO SUCH ANOMALIES I OBJECT IONS WERE RAISED BEFORE THE HIGH ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 32 COURT BY ANY AUTHORITIES AGAINST THE ABOVE MERGER. THIS IS EVIDENT FROM THE COURT ORDERS PLACED ON RECORD BEFORE THE ASSESSING OFFICE R VIDE LETTER DATED IS OCTOBER 2013. FURTHER, YOUR GOOD SELF HAS MADE REFERENCE TH AT NOT PROVIDING ANY DETAILS JUSTIFY SETTLEMENT FOR TRANSFERORS' ACCOUNT WITH MU LTIPLE ALLOTMENTS OF EQUITY SHARES/DEBENTURES AND OTHER FINANCIAL INSTRUMENTS. IN THIS RESPECT, IT MAY KINDLY BE NOTED THAT ON ACCOUNT OF THE MERGER OF WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE WITH THE ASSESSEE, THE ONLY EVENT TOOK PLACE IS CANCELLA TION OF SHARES OF ECHL. THEREFORE, THERE WAS NO SUCH EVENT WHICH, RESULTED INTO SETTLE MENT OF TRANSFERORS' (ECHL) ACCOUNT WITH MULTIPLE ALLOTMENTS OF EQUITY SHARES/D EBENTURES/OTHER FINANCIAL INSTRUMENTS. 7.8 VIDE PAI'N-16 OF THE ABOVE NOTICE, YOUR HONOUR HAS ALLEGED THAT THE SHARES OF VEL WERE SOLD E.VRN BEFORE THE AMALGAMATION OF ECHL WIT H ISL WAS FINALLY APPROVED, BY THE MADRAS HIGH COURT ON 13,2.2012 AND THAT THE SOL E PURPOSE OF THE MERGER WAS TO MANIPULATE, THE ACCOUNTING TREATMENT AND THE ENTITY IN WHOSE HANDS THE INCOME WOULD BE OFFERED TO TAX. IN THIS RESPECT, WE RESPEC TFULLY SUBMIT THAT THE SCHEME OF MERGER WAS FILED ON 17 JUNE 2011 WITH APPOINTED DAT E 1/04/2010. ON THE DATE OF FILING THE SCHEME, ECHL WAS HOLDING SHARES OF VEL A ND THE RATIONAL OF THE MERGER WAS TO DISPENSE WITH THE LAYERED STRUCTURE, FACILITATE HOLDING OF VEL SHARES DIRECTLY BY ISL AND DISCOVER THE MARKET VALUE, OF VEL SHARES THROUG H ISL, A LISTED ENTITY. SINCE, THE SCHEME WAS APPROVED, ON N INTER DATE, 13.2,2012, AN D DURING THE INTERVENING PERIOD THE VEL SHARES WERE, SOLD, IT CANNOT BE SAID THAT T HE VERY PURPOSE OF AMALGAMATION IS NULLIFIED. 7.9 FURTHER, THE ALLEGATION OF YOUR HONOUR THAT THE PURPOSE OF THE MERGER OF ECHL WITH THE ASSESSEE WAS TO MANIPULATE THE ACCOUNTING TREATMENT IS MISPLACED. IN THIS REGARD, IT IS HUMBLY SUBMITTED THAT THE MERGER OF E CHL WITH THE ASSESSEE WAS DULY SANCTIONED BY THE HIGH COURT. IT IS RESPECTFULLY SU BMITTED, THAT THE ASSESSING OFFICER IS NOT IN ERROR IF HE HAS CORRECTLY ABIDED AND FOLL OWED THE DIRECTIONS OF AN APPROVED COURT SCHEME. THE SCHEME ONCE SANCTIONED BY THE. CO URT HAS STATUTORY LEGAL BINDING. RELIANCE IN THIS REGARD, MAY BE PLACED ON THE JURIS DICTIONAL HIGH COURT RULING OF SADANAND VARDE V STATE OF MAHARASHTRA (247 ITR 609) AND APEX COURT RULING OF MARSHALL &SONS (223 ITR 809). 8. INVESTMENTS BY WAY OF NON-CUMULATIVE COMPULSORIL Y CONVERTIBLE PREFERENCE SHARES (CCPS) IN ISL AND ITS SUBSEQUENT CONVERSION INTO EQUITY SHARES. 8.1 VIDE, PARA 14 TO 16 OF THE ABOVE CAPTIONED NOTI CE YOUR HONOUR HAS ALLEGED THAT EXCESS SHARES OF ISL WERE ALLOTTED TO THE FIIS. IT HAS ALSO BEEN ALLEGED THAT THE ALLOTMENT WAS MADE OVER AND ABOVE THE PERMISSIBLE L IMITS NS STIPULATED UNDER THE FDI REGULATIONS WITHOUT STATING THE BASIS AND JUSTI FICATION, FOR CONVERTING THE CCPS INTO HIGHER NUMBER OF EQUITY SHARES OF ISL WHICH WA S IN CLEAR VIOLATION OF THE TERMS OF ISSUE AND ALSO THE FDI NORMS. IT IS ALSO ALLEGED TH AT THE AO HAS COMPLETED THE ASSESSMENT WITHOUT RAISING THE QUERY AS TO VALUATIO N METHOD AND. DETERMINATION OF CONVERSION RATE AND ALSO WITHOUT ASCERTAINING THE O UTCOME OF SEBI INVESTIGATION. 8.2 IN THIS REGARD, IT IS HUMBLY SUBMITTED THAT INF USION OF CCPS AND CONVERSION OF CCPS INTO EQUITY SHARES DOES NOT RESULT INTO ANY TA XABLE INCOME FOR ISL EITHER IN THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 33 YEAR IN WHICH CCPS WERE ALLOTTED OR IN THE YEAR IN WHICH THEY WERE CONVERTED INTO EQUITY SHARES. 8.3 THE ISSUE OF CCPS WAS IN FY 2009-10 AND THE CON VERSION OPTIONS WERE EXERCISED DURING FY 2010-11. HENCE, IT IS RESPECTFULLY SUBMIT TED THAT THE SAME WOULD NOT BE RELEVANT TO THE ASSESSMENT FOR THE YEAR UNDER CONSI DERATION (AY 2012-13). 8.4 WITHOUT PREJUDICE, IT IS SUBMITTED THAT THE ALL OTMENT OF 16,77,00,000 SHARES WAS AS PER CHAPTER VII, 'PREFERENTIAL ISSUE' OF T HE SEEI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS. THE RELEVAN T EXTRACT WHICH DEALS WITH PRICING OF EQUITY SHARES IS REPRODUCED AS-UNDER: 'IF THE EQUITY SHARES OF THE ISSUER HAVE BEEN LISTE D ON A RECOGNIZED STOCK EXCHANGE FOR A PERIOD OF SIX MONTHS OR MORE US ON THE RELEVA NT DATE, THE EQUITY SHARES SHALL BE ALLOTTED AT A PRICE NOT LESS THAN HIGHER OF THE FOL LOWING: (A) THE AVERAGE OF THE WEEKLY HIGH AND LOW OF THE CLOSING PRICES OF THE RELATED EQUITY SHARES QUOTED ON THE RECOGNIZED STOCK EXCHAN GE DURING THE SIX MONTHS PRECEDING THE RELEVANT (B) THE AVERAGE OF THE WEEKLY HIGH AND LOW OF CLOSI NG PRICES OF THE RELATED EQUITY SHARES QUOTED ON RECOGNIZED STOCK EXCHANGE DURING T HE TWO WEEKS PRECEDING THE RELEVANT DATE,' 8.5 ASPER THE ABOVE GUIDELINES, THE PRICES COMPUTED ARE AS FOLLOWS NAME OF THE HOLDER DATE OF EXERCIS E OF OPTION AVERAG E PRICE AS PER CLAUSE (A) AVERAG E PRICE AS PER CLAUSE (B) CONVERSIO N PRICE, HIGHER OF (1) OR (2) (1) (2) (3) (4) (5) PASSAGE TO INDIA MASTER FUNDS LIMITED 17-06- 2010 21.31/- 10.91 21.31 PRIME INDIA INVESTMEN T FUND LIMITED 18-06- 2010 21.59/- 10.91 21.59 ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 34 8.6 THEREFORE AS PER ABOVE, THE NUMBER OF SHARES TO BE ALLOTTED TO CCPS HOLDERS IS AS FOLLOWS: NAME OF THE HOLDER NO. OF CCPS HELD ISS UE PRI CE CONVE RSION PRICE NO. OF EQUI TY SHAR ES TO BE ALLO TTED PER CCP S TOTAL EQUITY SHARES ALLOTTED (2) * (5) (1) (2) (3) (4) (5) (6) PASSAG E TO INDIA MASTER FUNDS LIMITE D 1,00, 000 18, 00 0 21.31 844 8,44,00, 000 PRIME INDIA INVEST MENT FUND LIMITE D 1,00, 000 18, 00 0 21.59 833 8,33,00, 000 16,77,0 0,000 8.7 THE CONVERSION OF CCPS INTO 16,77,00,000 EQUITY SHARES WAS IN ACCORDANCE WITH THE COURT APPROVED SCHEME OF AMALGAMATION OF ETHPL WITH ISL, WHICH FACT WAS STATED IN SCHEDULE 1 MID NOTE 4 OF THE AUDITED FINA NCIAL STATEMENTS FOR THE YEAR UNDER CONSIDERATION, FURNISHED TO THE AO VIDE SUBMI SSIONS DATED 14 MARCH 2015. A COPY OF THE COURT APPROVED SCHEME WAS ALSO FURNISHE D TO THE AO VIDE SUBMISSION DATED 18 OCTOBER 2013. IN VIEW OF THE ALLOTMENT BEI NG IN ACCORDANCE WITH THE COURT APPROVED MERGER SCHEME, IT IS RESPECTFULLY SUBMITTE D THAT YOUR HONOUR HAS ERRED IN ALLEGING THAT EXCESS EQUITY SHARES WERE ALLOTTED UP ON CONVERSION. THE AO HAS GONE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 35 BY THE COURT ORDER AND ACCORDINGLY CANNOT BE SAID T O HAVE COMMITTED ANY ERROR IN ACCEPTING THE NUMBER OF SHARES ISSUED UPON CONVERSI ON OF THE CCPS. 8.8 AS REGARDS YOUR HONOUR'S ALLEGATION THAT THE AO COMPLETED THE ASSESSMENT WITHOUT ASCERTAINING THE OUTCOME OF SEBI INVESTIGAT ION, IT IS RESPECTFULLY SUBMITTED THAT THE AO MAY NOT EVEN HAVE BEEN AWARE OF THE INV ESTIGATION. EVEN IF HE WAS AWARE OF THE SAME, THE SAME WAS NOT A PROCEEDING PE RTAINING TO INCOME-TAX LAW AND HE WOULD NOT HAVE REQUIRED ASCERTAINING THE OUT COME THEREOF, ESPECIALLY IN LIGHT OF THE. MATTER ALREADY HAVING BEEN APPROVED B Y THE COURT. 8.9 THE PAYMENT OF FIIS BY ECL ON ACQUISITION OF EQUITY SHARES FROM ETHL IS AS FOLLOWS: NAME OF FII DATE OF PAYMENT NO. OF EQUITY SHARES RATE AMOUNT PAID ( IN RS) (1) (2) (3) (4) (5) PASSAGE TO INDIA MASTER FUNDS LIMITED 18-06- 2012 8,44,00,000 61.68 5,20,58,30,000 PRIME INDIA INVESTMENT FUND LIMITED 18-06- 2012 8,33,00,000 62.00 5,16,46,00,000 10,37,04,30,000 8.10IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT ECL WAS THE PURCHASER OF SHARES ACTUALLY HELD BY THE FILS AND HENCE CANNOT BE CONSI DERED TO HAVE MADE ANY EXCESS PAYMENT TO THEM ON ACCOUNT OF EXCESS NUMBER OF SHAR ES ACQUIRED. IN VIEW OF THE ALLOTMENT BEING IN ACCORDANCE WITH THE COURT APPROV ED MERGER SCHEME AND ECL MERELY PURCHASING THE SHARES ALLOTTED, IT IS RESPEC TFULLY SUBMITTED THAT YOUR HONOUR HAS ERRED IN ALLEGING THAT EXCESS PAYOUT WAS MADE B Y ECL TO THE FIIS. 9 CASE LAWS RELIED UPON ON NON-APPLICABILITY OF SEC TION 263 :- 9.1 IT IS SUBMITTED THAT THE PROVISIONS OF SECTION 263 CAN BE INVOKED ONLY WHEN THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS SLATED IN THE AFOREMENTIONED PAR AS, THE ASSESSEE HAD CLAIMED COST IN ACCORDANCE WITH LEGAL PROVISIONS AND THAT T HE SAME WAS ALLOWED BY THE ASSESSING OFFICER AFTER APPLICATION OF MIND AND AFT ER MAKING ADEQUATE ENQUIRIES. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 36 IN THIS REGARD, THE ASSESSEE WOULD LIKE TO RELY ON THE FOLLOWING JUDICIAL PRECEDENTS. I) MALABAR INDUSTRIAL CO. LTD. VS. CIT 243 ITR 83 (SC) IN THIS CASE, THEIR LORDSHIP OF HONBLE APEX COURT HELD AS UNDER: 'A BARE READING OF SECTION 263(1) MAKES IT- CLEAR T HAT THE PRE-REQUISITE TO EXERCISE OF JURISDICTION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE /TO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE IN TERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS , NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS ; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT - IF THE ORDER OF THE 1TO IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE' - RECOURSE CANNOT BE HA D TO SECTION 263(1). THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASS ESSING OFFICER; IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION 'WILL BE ATT RACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATIS FY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS P ASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATIO N OF MIND. THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REV ENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A SSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSI NG OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EX AMPLE, WHEN AN /TO ADOPTS ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW ' WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY T HE ITO IS UNSUSTAINABLE IN LAW.' '...FOR AN ORDER OF THE ASSESSING OFFICER TO BE INT ERFERED WITH IN EXERCISE OF REVISIONAL POWERS, THE COMMISSIONER HAS TO THE FIND IN THE FIRST INSTANCE THAT THE ORDER IS ERRONEOUS AND, SECONDLY, THE ORDER IS PREJ UDICIAL TO THE INTERESTS OF THE REVENUE. 'HIE TWIN CONDITIONS HAVE TO BE FULFILLED BEFORE THE COMMISSIONER CAN EXERCISE JURISDICTION UNDER SECTION 263. [PARA 24] IN THE INSTANT CASE, THE ASSESSING OFFICER, AFTER M AKING DUE INQUIRIES, ADOPTED ONE VIEW AND GRANTED PARTIAL RELIEF UNDER SECTION 80-1. THE COMMISSIONER TOOK A DIFFERENT VIEW OF THE MATTER, HOWEVER, THAT WOULD N OT HAVE BEEN SUFFICIENT TO - PERMIT THE COMMISSIONER TO EXERCISE POWERS UNDER SE CTION 263, BECAUSE WHEN TWO VIEWS ARE POSSIBLE AND THE COMMISSIONER DOES NOT AG REE WITH THE VIEW TAKEN, BY THE ASSESSING OFFICER, THE ASSESSMENT ORDER CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. THAT WAS NOT THE P OSITION IN THE INSTANT CASE. IN FACT, EVEN THE PARTIAL DENIAL OF RELIEF UNDER SECTION 80- 1 HAD BEEN FOUND TO BE INCORRECT BY THE APPELLATE AUTHORITY. THEREFORE, EXISTENCE OF TWO VIEWS STOOD ESTABLISHED. IN THE AFORESAID CIRCUMSTANCES, THE COMMISSIONER COULD NOT HAVE EXERCISED JURISDICTION UNDER SECTION 263 AS PER SETTLED LEGAL POSITION. [PARA 25] ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 37 THE TRIBUNAL HAD COMMITTED AN ERROR IN UPHOLDING TH E EXERCISE OF POWERS UNDER SECTION 263 BY THE COMMISSIONER TO BE VALID IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHEN NOT ONLY THERE WAS A PROHIBITION AS STIP ULATED BY THE EXPLANATION (C) OF SECTION 263 BUT EVEN THE TWIN REQUIREMENTS, VIZ., P RE-CONDITIONS FOR EXERCISE OF JURISDICTION, UNDER SECTION 263 WERE NOT FULFILLED. (IN) CIT VS. SUNBEAM AUTO LTD., 332 ITR 167 (DEL. ). 'THE SUBMISSION OF THE REVENUE WAS THAT WHILE PASSI NG THE ASSESSMENT ORDER, THE OFFICER DID NOT CONSIDER THE ASPECT SPECIFICALLY WH ETHER THE EXPENDITURE IN QUESTION WAS REVENUE OR CAPITAL EXPENDITURE. THAT ARGUMENT P REDICATED ON THE ASSESSMENT ORDER, WHICH, APPARENTLY DID NOT GIVE ANY REASON WH ILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER, THAT, BY ITSELF, WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER H AD NOT APPLIED HIS MIND TO THE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE P RINCIPLE THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIVE DETAILED REASONS IN. RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE , ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY'. IF THER E WAS ANY INQUIRY, EVEN INADEQUATE, THAT WOULD NOT, BY ITSELF, GIVE OCCASION TO THE COM MISSIONER TO PASS ORDERS UNDER SECTION 263 MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF 'LACK OF INQUIRY' THAT SUCH A COURSE OF ACTION W OULD BE OPEN. [PARA 12] IN THE INSTANT CASE, THE ASSESSING OFFICER HAD CALL ED FOR EXPLANATION ON ITEMS IN QUESTION FROM THE ASSESSEE AND THE ASSESSEE HAD FUR NISHED HIS EXPLANATION. SAID FACT WAS EVEN TAKEN NOTE OF BY THE COMMISSIONER HIM SELF IN HIS ORDER. [PARA 13] THAT CLEARLY SHOWED THAT THE ASSESSING OFFICER HAD UNDERTAKEN THE EXERCISE OF EXAMINING AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REPLACEMENT OF DYES AND TOOLS WAS TO BE TREATED AS REVENUE EXPENDITURE OR NOT. IT APPEARED THAT SINCE THE ASSESSING OFFICER WAS SATIS FIED WITH THE ASSESSEE'S EXPLANATION, HE ACCEPTED THE SAME. [PARA 141 EVEN THE COMMISSIONER CONCEDED, THE POSITION THAT T HE ASSESSING OFFICER MADE THE INQUIRIES, ELICITED REPLIES AND THEREAFTER PASSED T HE ASSESSMENT ORDER. THE GRIEVANCE OF THE COMMISSIONER WAS THAT THE ASSESSIN G OFFICER SHOULD HAVE MADE FURTHER INQUIRIES RATHER THAN ACCEPTING THE ASSESSE E'S EXPLANATION. THEREFORE, IT COULD NOT BE SAID THAT IT WAS A CASE OF 'LACK OF IN QUIRY'. [PARA 15] CIT VS. GABRIAL INDIA LTD. [1993] 203 1TR 108 (BOM. ). IN THIS CASE, THE JURISDICTIONS! HIGH COURT HELD AS UNDER ;- '............TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REVISION UNDER THIS SUB-SECTION, VIZ., (I) THE ORDER IS ERRONEOUS; (II) BY VIRTUE OF THE ORDER BEING ERRONEOUS PREJUDICE HAS B EEN CAUSED TO THE INTERESTS OF THE REVENUE. IT HAS, THEREFORE, TO BE CONSIDERED FI RSTLY AS TO WHEN AN ORDER CAN BE SAID TO BE ERRONEOUS. WE FIND THAT THE EXPRESSIONS 'ERRONEOUS', 'ERRONEOUS ASSESSMENT' AND 'ERRONEOUS JUDGMENT' HAVE BEEN DEFI NED IN BLACK'S LAW ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 38 DICTIONARY. ACCORDING TO THE DEFINITION, 'ERRONEOUS ' MEANS 'INVOLVING ERROR; DEVIATING FROM THE LAW', 'ERRONEOUS ASSESSMENT' REF ERS TO AN ASSESSMENT THAT DEVIATES FROM THE LAW AND IS A DEFECT THAT IS THERE FORE INVALID AND IS A DEFECT THAT IS JURISDICTIONAL IN ITS NATURE, AND DOES NOT REFER TO THE JUDGMENT OF THE ASSESSING OFFICER IN FIXING THE AMOUNT OF VALUATION OF THE PR OPERTY. SIMILARLY, ERRONEOUS JUDGMENT MEANS ONE RENDERED ACCORDING TO COURSE A ND PRACTICE OF COURT, BUT CONTRARY TO LAW, UPON MISTAKEN VIEW OF LAW, OR UPON ERRONEOUS APPLICATION OF LEGAL PRINCIPLES. 12. FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME-TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE, ACCOR DING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY THIS SECTION DOE S NOT VISUALISE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FO R THAT OF THE INCOME-TAX OFFICER, WHO PASSED THE ORDER UNLESS THE DECISION I S HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE INCOME-TAX OFFICER WHIL E MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATE HIMSELF. 'THE C OMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMAT E MADE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEFT TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED B Y THE INCOME-TAX OFFICER. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EX AMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE INCOME-TAX OFFICER HAS EXERCISED THE QUASI-JUDICIAL POWER VEST ED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT CONCLUSION AND SUCH A CONCLUSION CAN NOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATIS FIED WITH THE CONCLUSION. IT MAY BE SAID IN SUCH A CASE THAT IN THE OPINION OF T HE COMMISSIONER THE ORDER IN QUESTION IS PREJUDICIAL TO THE INTERESTS OF THE REV ENUE, BUT THAT IN ITSELF WILL NOT BE ENOUGH TO VEST THE COMMISSIONER WITH THE POWER OF S UO-MOTU REVISION BECAUSE THE FIRST REQUIREMENT, VIZ., THAT THE ORDER IS ERRONEOU S, IS ABSENT.' .. 'THE ITO IN THIS CASE HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN A DETAILED EXPLANATION IN THAT REGARD BY A LETTER IN WRITING. ALL THESE WERE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM IONS ALLOWED BY THE ITO ON BEING SATISFIE D WITH THE EXPLANATION OF THE ASSESSEE. THIS DECISION OF THE ITO COULD NOT BE HEL D TO BE 'ERRONEOUS' SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE D ISCUSSION IN THAT REGARD. MOREOVER, IN THE INSTANT CASE, THE COMMISSIONER HIM SELF, EVEN AFTER INITIATING PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE, COULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF THE ASSESSEE WAS ERRONEOUS AND THAT THE EXPENDITURE WAS NOT REVENUE EXPENDITURE BUT AN EXPENDITURE OF CAPITAL N ATURE. HE SIMPLY ASKED THE ITO TO RE-EXAMINE THE MATTER. THAT WAS NOT PERMISSIBLE. HENCE, THE PROVISIONS OF SECTION 263 -WERE NOT APPLICABLE TO THE INSTANT CAS E AND, THEREFORE, THE COMMISSIONER URNS NOT JUSTIFIED IN SETTING ASIDE TH E ASSESSMENT ORDER.' ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 39 (V) RAYON SILK MILLS VS. CIT [1.9961 221 ITR 155 (GUI.) 'SECTION 263, READ WITH SECTION 2(47), OF THE INCOM E-TAX ACT, 1961 - REVISION - OF ORDERS PREJUDICIAL TO INTEREST OF REVENUE - ASSESSM ENT YEAR 1974-75 - WHETHER IT IS ESSENTIAL CONDITION FOR EXERCISE OF POWER UNDER SEC TION 263 THAT COMMISSIONER MUST FIND THAT ERROR WHICH IS FOUND IN ORDER OF ITO IS PREJUDICIAL TO INTERESTS OF REVENUE AND THAT CONCLUSION OF COMMISSIONER THAT OR DER IS PREJUDICIAL TO INTERESTS OF REVENUE IS NOT A MATTER OF SUBJECTIVE SATISFACTI ON OF COMMISSIONER - HELD, YES - ASSESSEE-FIRM WAS DISSOLVED ON 23-2-1974 LEAVING PR IVATE, LIMITED COMPANY WHICH WAS A PARTNER INFIRM AS SOLE PROPRIETOR THEREOF- GO ODWILL ACCOUNT WAS CREATED BY DEBITING GOODWILL ACCOUNT AND CREDITING OLD PARTNER S, CAPITAL ACCOUNTS - ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) - COMMISSIONER R EVISED ASSESSMENTS BY INVOKING PROVISIONS OF SECTION 263 ON GROUND THAT I TO FAILED TO TAX GOODWILL SO CREDITED - WHETHER CONVERSION OF PARTNERSHIP ASSETS INTO PERSONAL ASSETS ON DISSOLUTION DID NOT RESULT IN TRANSFER OF CAPITA! A SSET FOR CONSIDERATION FOR PURPOSE OF LEVY OF CAPITAL GAINS, AND, THEREFORE, ORDER OF ITO OF NOT LEVYING TAX COULD NOT BE SAID TO BE PREJUDICIAL TO INTEREST OF REVENUE - HEL D, YES -- WHETHER, FURTHER, REVENUE AUTHORITIES HAD FALLEN INTO ERROR BY NOT NOTICING R ELEVANT FACT AS TO WHEN BUSINESS OF FIRM BECAME BUSINESS OF COMPANY AND CONSEQUENTLY, I T FAILED TO APPRECIATE THAT EVEN THAT HAD NO BEARING AS FAR AS RELEVANT ASSESSM ENT YEAR WAS CONCERNED - HELD, YES.' VI) CIT VS. VIKAS POLYMERS 236 CTR 476 (DELHI HIGH COURT) ',....,IF AN INCOME-TAX OFFICER ACTING IN ACCORDANC E WITH LAW MAKES A CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS 'ERRONEOU S' BY THE COMMISSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTEN DIFFERENTLY OR MORE ELABORATELY. THE SECTION DOES NOT VISUALIZE TH E SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME-TAX OFFI CER, WHO PASSED THE ORDER UNLESS THE DECISION IS NOT IN ACCORDANCE WITH LAW.. ...,' VII) CITVS ANIL KUMAR SHARMA (335 ITR 83) THE DELHI HIGH COURT HELD THAT WHERE THERE WAS NO ' LACK OF ENQUIRY' BY AO EVEN IF IT COULD HE SAID TO BE INADEQUATE, PROCEEDINGS UNDER S ECTION 263 OF THE ACT WAS NOT VALID SINCE 'THE AO HAD APPLIED HIS MIND TO COMPLET E DETAILS FILED B\/ THE ASSESSEE. (VIII) RAMAKANT SINPH VS CIT (140 T7Y41) THE PATNA TRIBUNAL HELD, THAT ENQUIRY WAS MADE BY T HE AO ON ALL THE POINTS RAISED BY THE COMMISSIONER OF INCOME-TAX AND EVEN IF SUCH ENQUIRY WAS INADEQUATE IN THE OPINION OF THE LEARNED COMMISSIONER OF INCOME-TAX, THIS DOES NOT GIVE POWER TO HIM TO PASS AN ORDER, UNDER SECTION 263 MERELY BECA USE HE HAS DIFFERENT OPINION IN THE MATTER. IX) VODAFONE ESSAR SOUTH LTD. VS. CIT (141 TTJ 84) THE DELHI TRIBUNAL HELD THAT IN CASES WHERE AO ENQU IRED ON ALL THE ISSUES AND ASSESSES RESPONDED BY GIVING THE DETAILED REPLIED, IT CANNOT BE SAID THERE WAS LACK OF ENQUIRY ON THE PART OF THE AO ON THE GROUND THAT ASSESSMENT ORDER DOES NOT GIVE REASON FOR ALLOWING THE EXPENDITURE AND AO DID NOT MAKE FURTHER ENQUIRY. FURTHER, IT WAS HELD THAT THERE IS DUE ENQUIRY BY THE ASSESS ING OFFICER, THOUGH IT HAS BEEN ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 40 CONSIDERED TO BE INADEQUATE BY THE CIT, RECOURSE UN DER SECTION 263 OF THE ACT CANNOT BE MADE. 9.2 ON PERUSAL OF THE ABOVE JUDICIAL PRONOUNCEMENT S IT IS EVIDENT THAT BEFORE YOUR HONOUR CAN EXERCISE HIS JURISDICTION U/S.263, HE HAS TO BE SATISFIED WITH TWIN CONDITIONS, VIZ. (I) THE ORDER OF THE ASSESSING OFF ICER SOUGHT TO BE REVISED IS ERRONEOUS AND (II) IT IS -PREJUDICIAL TO THE INTERE ST, OF THE REVENUE. IN CASE ANY ONE OF THEM IS ABSENT NO RECOURSE TO REVISION U/S.263 CAN BE TAKEN. IN THE PRESENT CASE, YOUR HONOUR IS PROPOSING TO HOLD THE ASSESSMENT ORD ER TO BE ERRONEOUS MAINLY ON THE GROUND THAT THE ASSESSING OFFICER HAS FAILED TO CARRY OUT ENQUIRIES AS WARRANTED BY THE FACTS AND CIRCUMSTANCES AND HAS NOT LOOKED I NTO ALL THE ASPECTS WHICH WERE REQUIRED TO BE LOOKED INTO FOR ARRIVING AT THE CORR ECT TAXABLE INCOME. SINCE DETAILED INQUIRIES WERE MADE BY THE ASSESSING OFFICER INTER ALIA IN RESPECT OF MERGER OF ISL WITH ECL, CAPITAL LOSS CLAIMED BY ECL ON SALE OF VE L SHARES AND INVESTMENTS BY ECL IN ISL, IN RESPONSE TO THE SAME, DETAILED RESPONSES WERE ALSO MADE BY THE ASSESSES. POST CONSIDERATION OF THE FACTS SUBMITTED TO HIM, T HE ASSESSING OFFICER HAS PASSED THE ORDER AFTER DUE APPLICATION OF MIND AND AFTER M AKING DISALLOWANCES. ACCORDINGLY, THE REMARKS MADE BY YOUR HONOUR THAT T HE ASSESSING OFFICER DID NOT EXAMINE THE ENTIRE ISSUE IS COMPLETELY MISCONCEIVED AND MISPLACED. 9.3 YOUR HONOUR MAY ALSO NOTE THAT SEVERAL FACTS RE FERRED IN THE NOTICE AS WELL AS THE BACK GROUND NOTE ARE PERTAINING TO ALTOGETHE R DIFFERENT ASSESSEES OR IN RESPECT OF A DIFFERENT, ASSESSMENT YEAR. YOUR HONOU R HAS FURTHER MADE REFERENCE TO EVENTS OCCURRING PRIOR TO THE YEAR UNDER CONSIDERAT ION OR RECORDS WHICH PERTAIN TO THE SUBSEQUENT YEARS. FURTHER THE RECORDS RELIED UP ON PERTAIN TO THE PROCEEDINGS OTHER SOME OTHER PERSON, WHICH DO NOT FORM PARTS OF THE RECORDS IN RELATION TO THE. PROCEEDINGS UNDER THE ACT, IN CASE OF THE ASSESSEE. THUS THE ASSESSES, WITH IMMENSE RESPECT SUBMITS, THAT THE NOTICE, INSOFAR A S FAILS TO DEAL WITH SUCH, ISSUES IS VAGUE AND DESERVES TO BE QUASHED. 9.4 WITHOUT PREJUDICE TO THE FACT THAT MANY EVENTS REFERRED IN THE BACK GROUND NOTE AS WELL AS THE MAIN NOTICE DOES NOT AFFECT THE COMPUTATION OF TAX LIABILITY OF THE ASSESSEE IN ANY MANNER, THE ASSESSEE WOULD LIKE TO RAISE OBJECTIONS ON MERITS AS WELL WHICH ARE AS FOLLOWS: 10. OBJECTIONS IN RESPECT OF SALE OF VEL SHARES AT RS. 1,260 CRORES BY ETHL TO ECHL: 10.1 YOUR HONOUR HAS STATED THAT THE VEL SHARES WER E TRANSFERRED BY ETHL FOR RS.1260 CRORES EVEN THOUGH THE 'PUT OPTION AGREEMEN T' WAS SUBSISTING ON THE DATE OF TRANSFER, IN THIS REGARD, WE RESPECTFULLY S UBMIT THAT ABOVE SALE WAS NOT MADE BY THE ASSESSES AND HENCE WAS NOT RELEVANT TO THE ASSESSMENT IN ITS CASE OR ITS TOTAL INCOME. FURTHER, THE ABOVE SOLE WAS MADE IN F.Y. 2007-08. 10.2 WITHOUT PREJUDICE TO THE ABOVE, WE SUBMIT THAT THE TRANSFER OF VEL SHARES WAS DONE BETWEEN. ETHL AND ECHL TIT A NEGOTIATED PR ICE OF RS. 1260 CRORES. THE TRANSFER IONS MADE TO ECHL, N THEN WHOLLY OWNED SUB SIDIARY OF ETHL WITH INTENT TO RAISE, FINANCE, AS ETHL BEING HIGHLY LEVERAGED WAS UNABLE TO RAISE THE FUNDS. ON ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 41 TRANSFER OF VEL SHARES TO ECHL, ECHL WAS SUCCESSFUL IN RAISING FINANCE BY WAY OF DEBENTURE ISSUE IN MARKET BY PLEDGING IMMOVABLE AND MOVABLE PROPERTY OF THE COMPANY, INCLUDING VEL SHARES. FURTHER, ETHL HAS CO NSIDERED THE ENTIRE SALES CONSIDERATION RECEIVED BY IT ON TRANSFER OF VEL SHA RES WHILE COMPUTING ITS CAPITAL LOSS WHICH HAS BEEN ACCEPTED IN ITS ASSESSMENT. 10.3 FURTHER, YOUR KIND ATTENTION IS INVITED TO SEC TION 48 OF ACT, WHICH READ AS FOLLOWS: MODE OF COMPUTATION - THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF CAPITAL ASS ET...' 10.4 IT IS APPARENT FROM A PLAIN READING OF AB OVE, THAT THE 'FULL VALUE OF CONSIDERATION' SHOULD BE THE AMOUNT WHICH WAS ACTUA LLY ACCRUED OR WAS RECEIVED BY THE SELLER AS CONSIDERATION FOR THE SALE OF CAPI TAL ASSET. FULL VALUE OF CONSIDERATION CANNOT INCLUDE ANY AMOUNT WHICH HAS N EVER ACCRUED OR HAS NEVER BEEN RECEIVED BY THE SELLER. THE FULL VALUE OF CONS IDERATION DOES NOT MEAN MARKET VALUE OF THAT ASSET WHICH IS TRANSFERRED. IT IS THE PRICE BARGAINED FOR AND AGREED TO BETWEEN THE PARTIES TO THE ARRANGEMENT (IE THE ACTU AL PRICE AT WHICH THE SHARES WERE SOLD). IN THIS REGARD, WE PLACE RELIANCE, ON F OLLOWING JUDGMENTS WHICH SUPPORT THE AFORESAID TRANSFER: CIT V GEORGE HENDERSON & CO LTD (66 ITR 622) (SC) GIT V GILLANDERS ARBUTHNOT & CO (87 ITR 407) (SC) K.P. VARGHESE V. /TO [19811131 ITR 597 (SC) CIT V. SHIVAKAMI COMPANY P. LTD. [1986] 159 ITR 71 (SC) CITV. P. SURYANARYANA [1973] 88 ITR 321 (MAD) CIT V.SMT. NANDINI NOPANY [1998] 230 ITR 679 (CAL) CITV. G.C. SEN GUPTA [1996] 220 ITR 254 (GAU) 10.5 FURTHER, IN THIS REGARD, YOUR HONOURS ATTENTI ON IS INVITED TO THE RECTIFICATION ORDER PASSED BY THE ASSESSING OFFICER FOR AY 2008-0 9, WHEREIN THE AO HAS RECOMPUTED THE CAPITAL LOSS ON SALE OF VEL SHARES. A COPY OF THE RECTIFICATION ORDER U/S. 154 OF THE ACT IS ATTACHED AT ANNEXURE M. 10.6 YOUR HONOUR HAS FURTHER ALLEGED THAT ALTHOUGH THE TRANSFER WAS FROM A HOLDING COMPANY TO ITS WOS, EXEMPTION UNDER SECTION 47(IV) HAS NOT BEEN CLAIMED. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT E THL NOT REMAINING PARENT OF ECHL FOR A PERIOD OF 8 YEARS POST THE DATE OF TRANSFER, THE EXEMPTION WAS NOT AVAILABLE TO ETHL AND HENCE NOT CLAIMED. 10.7 THE ALLEGATION OF YOUR HONOUR THAT ECHL H AS NO BUSINESS / ACTIVITY IS MISPLACED. ECHL HAD ISSUED LISTED DEBENTURES TO UNR ELATED PARTIES TO THE TUNE OF RS 3707 CRORES, AND HAS MADE INVESTMENTS OF AROUND 400 0 CRORES IN SHARES / DEBENTURES OF GROUP COMPANIES; FREEHOLD LAND AND FI XED DEPOSITS IN RESPECT OF WHICH THE COMPANY HAS ALSO EARNED INCOME.. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 42 11. OBJECTION IN RESPECT OF TRANSFER OF ECHL SHARES FOR RS. 1.19 CRORES BY ETHL TO ETHPL 11.1 YOUR HONOUR HAS STATED THAT ETHL HAS TRAN SFERRED ITS 100% STAKE IN ECHL TO ETHPL FOR N SUM OF RS. 1.19 CRORES ON 30 APRIL 2008 , WHICH WAS HOLDING VEL SHARES WORTH USD 1200 MILLION. IN THIS REGARD, WE RESPECTF ULLY SUBMIT THAT ABOVE TRANSFER WAS NOT BY THE ASSESSEE AND /S HENCE NOT RELEVANT F OR THE ASSESSMENT OF ITS TOTAL INCOME. FURTHER, THE TRANSFER WAS MADE IN FY 2008-0 9. HENCE, IT IS RESPECTFULLY SUBMITTED THAT IN OUR VIEW THE SAME WOULD NOT BE RE LEVANT TO THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION. ADDITIONALLY THE COMP UTATION OF CAPITAL GAINS ON TRANSFER IONS ACCEPTED BY THE TAX AUTHORITIES IN TH E ASSESSMENT OF AY 2009-10. FURTHER, WE RESPECTFULLY SUBMIT THAT THE SUBMISSION S MADE IN RELATION TO POINT NO. 10 ABOVE WOULD BE APPLICABLE HERE AS WELL. 12. OBJECTION IN RESPECT OF ACCOUNTING TREAT MENT OF VEL SHARES BY ECHL IN F.Y. 2009-10. 12.1 YOUR HONOUR HAS STATED THAT BOOK VALUE O F VEL SHARES HAS INCREASED FROM RS. 1260 CRORES TO RS. 5915.32 CRORES BY CHANGE IN ACCOUNTING TREATMENT AND THE DIFFERENCE HAS BEEN TRANSFERRED TO CAPITAL RESERVE AND DEFERRED TAX LIABILITY. IN THIS CONNECTION, WE RESPECTFULLY SUBMIT THAT ACCOUNTING TREATMENT IONS DONE BY ECHL IN ACCORDANCE WITH ACCOUNTING STANDARD 30 ISSUED BI/ T HE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, IN THIS REGARD, WE RESPECTFUL LY SUBMIT THAT ABOVE ACCOUNTING TREATMENT WAS NOT MADE IN THE BOOKS OF THE ASSESSEE AND HENCE WAS NOT RELEVANT TO THE ASSESSMENT IN ITS CASE OR ITS TOTAL INCOME. FURTHER, THE SAME PERTAINED TO FYS 2008-09 AND 2009-10 AND HENCE, IT IS RESPECTFULLY S UBMITTED THAT THE SAME WOULD NOT BE RELEVANT TO THE ASSESSMENT FOR THE YEAR UNDE R CONSIDERATION. 12.2 WITHOUT PREJUDICE TO ABOVE, WE SUBMIT THA T THE ACCOUNTING WAS DONE IN LINE WITH THE ACCOUNTING TREATMENT PROVIDED UNDER AS-30 AT THE TIME WHEN OPTIONS ARE WRITTEN AND AT THE TIME WHEN THE OPTIONS ARE EXERCI SED. THE ACCOUNTING FOR PUT OPTIONS WRITTEN WAS DONE IN YEAR ENDED 31 MARCH 200 9 AND ACCOUNTING FOR PUT OPTIONS EXERCISED WAS DONE IN YEAR ENDED 31 MARCH 2 010. TO JUSTIFY THE SAME, WE INVITE YOUR KIND ATTENTION TO THE NOTE NO. B(I) TO ACCOUNTS OF FINANCIAL STATEMENTS FOR PERIOD ENDED 31MARCH 2009, WHICH READS AS FOLLO WS: (A) THE COMPANYS INVESTMENT IN VODAFONE ESSAR LIMI TED IS COVERED BY AN ONSHORE UNDERWRITTEN PUT OPTION (PUT OPTION), WHI CH IS EXERCISABLE DURING MAY 2010 TO MAY 2011FOR USD 1200 MILLION. (B) THE BOARD OF DIRECTORS OF THE COMPANY AS WEL L AS THE ULTIMATE HOLDING COMPANY, GIRISHAN INVESTMENTS LTD., HAVE DECIDED TO OPT FOR EXERCISE THE SAID PUT OPTION IN RESPECT OF THE SAID INVESTMENT AND ACCORD INGLY, THE DISCOUNTED VALUE OF THE PUT OPTION HAS BEEN CLASSIFIED AS 'ADVANCE RECO VERABLE IN CASH OR KIND FOR VALUE TO BE RECEIVED'. (C) IN THE ABSENCE OF AM/ SPECIFIC GUIDANCE UN DER THE PREVAILING ACCOUNTING STANDARDS ON ACCOUNTING OF OPTION, THE VALUE OF SAI D PUT OPTION HAS BEEN ARRIVED AT ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 43 BY TAKING REFERENCE FROM PROPOSED ACCOUNTING STANDA RD 30 'FINANCIAL INSTRUMENTS - RECOGNITION AND MEASUREMENT'. (D) THE SAID PUT OPTION HAS BEEN ACCOUNTED IN BOOKS OF ACCOUNTS AT ITS FAIR VALUE (NET DISCOUNTED PRESENT VALUE APPLYING 1 YEAR LIBOR) OF RS. 5,915.21 CRORES. THE RESULTANT UNREALIZED IMPACT, NET DEFERRED TAX, HAS BEEN ADJUSTED IN CAPITAL, RESERVE. HENCE, FOR THE YEAR ENDED 31 MARCH 2009, ECHL HAD A CCOUNTED THE SAID PUT OPTIONS IN ACCORDANCE WITH AS-30, AS A RESULT OF WH ICH INVESTMENTS IN VEL SHARES WAS CANCELLED AND THE FAIR VALUE OF PUT OPTIONS WAS SHOWN UNDER THE HEAD 'LOANS AND ADVANCES' AT ITS FAIR VALUE. THE DIFFERENCE ARI SING ON THE SAME WAS CREDITED TO CAPITAL RESERVE, NET OF DEFERRED TAX LIABILITY. HOW EVER, FOR THE YEAR ENDING 31 MARCH 2010, THE SAME WERE TREATED AS 'AVAILABLE FOR SALE FINANCIAL ASSET', AS PRESCRIBED UNDER AS-30, WHEN THE SAID PUT OPTIONS W ERE EXERCISABLE. FOLLOWING NOTE APPEARS IN THE BALANCE SHEET FOR YEAR ENDING 3 1 MARCH 2010 ON THE TREATMENT OF THE SAME: (A) THE COMPANY'S INVESTMENT IN 4,54,25,328 EQUITY SHARES OF VODAFONE ESSAR LTD IS COVERED BY AN ONSHORE UNDERWRITTEN PUT OPTIO N ('PUT OPTION'), WHICH IS EXERCISABLE DURING MAY, 2010 TO MAY, 2011 FOR USD 1 ,200 MILLION. (B) THE 'AVAILABLE FOR SALE FINANCIAL ASSET ' UNDER THE HEAD 'INVESTMENTS' CLASSIFIED BY EARLY ADOPTION OF ACCOUNTING STANDARD 30 'FINANCIAL INSTRUMENTS - RECOGNITION AND MEASUREMENT' HAVE BEEN VALUED AT TH EIR FAIR VALUE (INCLUDING INVESTMENT IN VODAFONE ESSAR LIMITED AT RUPEE EQUIV ALENT TO USD 1200 MILLION DISCOUNTED 1 YEAR UBOR OF 1.9719% P.A.) AND PUT OPT ION HAS BEEN VALUED AT ITS FAIR VALUE OF NIL BASED ON ITS VALUATION FROM INDEPENDEN T VALUER. 12.4 THEREFORE, FOR THE YEARS ENDING 31 MARCH 2009 AND 31 MARCH 2010, ECHL HAD ACCOUNTED THE PUT OPTIONS AS PER THE ACCOUNTING TREATMENT PRESCRIBED UNDER AS-30. IT IS RESPECTFULLY SUBMITTED THAT THE SAID A CCOUNTING TREATMENT WAS TO GIVE TRUE AND FAIR VIEW OF ITS FINANCIAL POSITION, WHICH WAS DONE BY EARLY ADOPTION OF AS- 30. 13. OBJECTION IN RESPECT OF TRANSFER OF ETHP L SHARES FOR RS. 1.41 CRORES BY ETHL TO ETHIPL 13.1 YOUR HONOUR HAS STATED THAT ETHL HAS TRAN SFERRED ITS 100% STAKE IN ETHPL TO ETHIPL FOR A SUM OF RS. 1.41 CRORES. 13.2 IN THIS REGARD, WE RESPECTFULLY SUBMIT TH AT ABOVE TRANSFER WAS NOT BY THE ASSESSEE AND IS HENCE NOT RELEVANT TO THE ASSESSMEN T OF ITS TOTAL INCOME. FURTHER, THE TRANSFER WAS MADE IN FY 2008-09. HENCE, IT IS R ESPECTFULLY SUBMITTED THAT THE SAME WOULD NOT BE RELEVANT TO THE ASSESSMENT FOR TH E YEAR UNDER CONSIDERATION. ADDITIONALLY THE COMPUTATION OF CAPITAL GAINS ON TR ANSFER WAS ACCEPTED BY THE TAX AUTHORITIES IN THE ASSESSMENT OF AY 2009-10. FURTHE R, WE RESPECTFULLY SUBMIT THAT THE SUBMISSIONS MADE IN RELATION TO POINT NO. 10 AB OVE WOULD BE APPLICABLE HERE AS WELL. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 44 14. OBJECTION IN RESPECT OF AMALGAMATION OF ETHIPL WITH ETHL: 14.1 YOUR HONOUR HAS STATED THAT THE ACCOUNTIN G TREATMENT ON AMALGAMATION OF ETHIPL WITH ETHL WAS AS PER 'PURCHASE METHOD', WHER EIN ALL ITEMS IN THE BALANCE SHEET WERE TAKEN OVER ALMOST AT BOOK VALUE, EXCEPT EQUITY SHARES OF ETHPL OF RS. 15.41 CRORES WHICH WAS REVALUED AT RS. 3,238.94 CRO RES, 14.2 IN THIS REGARD, WE RESPECTFULLY SUBMIT T HAT ABOVE ACCOUNTING TREATMENT WAS NOT MADE, IN THE BOOKS OF THE ASSESSEE AND IS HENCE NOT RELEVANT TO THE ASSESSMENT OF ITS TOTAL INCOME. FURTHER, THE SAME PERTAINED TO FY 2009-10. HENCE, IT IS RESPECTFULLY SUBMITTED THAT IN OUR VIEW THE SAME WO ULD NOT BE RELEVANT TO THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION. 14.3 WITHOUT PREJUDICE TO ABOVE, WE SUBMIT THAT THE ACCOUNTING TREATMENT IN THE BOOKS OF ETHL WAS IN 'ACCORDANCE WITH THE COURT AP PROVED MERGER SCHEME, THE RELEVANT EXTRACT OF WHICH IS REPRODUCED AS UNDER: '8.1THE TRANSFEREE COMPANY SHALL RECORD ALL THE ASS ETS AND LIABILITIES PERTAINING TO THE UNDERTAKING TRANSFERRED TO AND VESTED IN THE TR ANSFEREE COMPANY PURSUANT TO THIS SCHEME., AT THEIR RESPECTIVE FAIR MARKET VALUE S I.E. ON THE DOSE OF BUSINESS ON ONE DAY PRIOR TO THE APPOINTED DATE 8.2THE BOARD SHALL ASCERTAIN THE FAIR MARKET VALUE OF ALL ASSETS AND LIABILITIES OF THE TRANSFEROR COMPANY, BY OBTAINING A REPORT FROM A CA TEGORY I MERCHANT BANKER AND A CHARTERED ACCOUNTANTS HAVING AN EXPERIENCE OF NO T LESS THAN 15 YEAR. 14.4 ALSO, AS PER THE VALUATION REPORT ISSUED BY AN INDEPENDENT FIRM OF CHARTERED ACCOUNTANTS, THE FAIL-VALUE OF INVESTMENTS IN ETHPL BY ETHJPL WAS ASCERTAINED AT RS. 3,238.94 CRORES, WHEREAS THE FAIR VALUE OF OTHE R ITEMS, WHICH INCLUDED INTER ALIA, BALANCE WITH BANK, SUNDRY CREDITORS IONS EQUAL TO T HEIR RESPECTIVE BOOK VALUES. THEREFORE, WE RESPECTFULLY SUBMIT, THAT THE ACCOUNT ING TREATMENT IN THE BOOKS OF ETHL WAS AS PER THE COURT APPROVED MERGER SCHEME. 15. OBJECTION IN RESPECT OF BUSINESS ACTIVIT Y OF ETHIPL AND THE ROLE OF COMPANY: 15.1 YOUR HONOUR HAS ALLEGED THAT ETHIPL DID NOT CO NDUCT ANY BUSINESS ACTIVITIES AND THAT THE ONLY ROLE IT PLAYED WAS TO INCREASE TH E COST OF INVESTMENT IN THE BOOKS OF ETHL 15.2 IN THIS REGARD, WE RESPECTFULLY SUBMIT TH AT THE BUSINESS ACTIVITIES CONDUCTED BY ETH1PL ARE NOT RELEVANT FOR ASSESSING THE TOTAL INCOME. FURTHER, ETHIPL DID NOT EXIST DURING AY 2010-11. HENCE, IT IS RESPECTFULLY SUBMITTED THAT IN OUR VIEW THE SAME WOULD NOT BE RELEVANT TO THE ASSESSMENT FOR TH E YEAR UNDER CONSIDERATION. 15.3 WITHOUT PREJUDICE TO THE ABOVE, IT IS RESPECTF ULLY SUBMITTED THAT ETHIPL WAS INCORPORATED TO MAKE STRATEGIC INVESTMENTS IN TELEC OM ASSETS. AS A PART OF ITS INVESTMENT STRATEGY, IT HAD MADE INVESTMENT TO THE TUNE OF RS 1567 CRORES IN SHARES AND DEBENTURES OF ETHPL. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 45 15.4 THEREFORE, IT IS WRONGLY ALLEGED THAT THERE WA S NO BUSINESS ACTIVITY IN ETHIPL AND THE ROLE ETHIPL PLAYED WAS TO INCREASE THE COST OF INVESTMENT IN ETHPL IN BOOKS OF ETHL. 16 OBJECTION AGAINST THE CALCULATION OF COS T OF ACQUISITION OF ISL SHARES: 16.1 YOUR HONOUR HAS ALLEGED THAT WHILE ARRIVI NG AT THE COST OF ACQUISITION OF RS. 6,138.02 CRORES, THE ASSESSEE COMPANY HAS INFLATED THE COST BY INCLUDING THE COST OF LIABILITIES BEING PREFERENCE SHARES AND DEBENTURES OF ISL. FURTHER, YOUR HONOUR HAS ALSO ALLEGED THAT THIS CLAIM OF ECL HAS NOT BEEN EX AMINED BY THE AO AND HE ACCEPTED THE SAME WITHOUT ANY RELEVANT ENQUIRY ON T HIS ASPECT. 16.2 IN THIS REGARD, IT IS SUBMITTED THAT YOU R HONOUR HAS ERRED IN CONSIDERING THAT ECL INCLUDED THE VALUE OF LIABILITIES WHILE AR RIVING AT COST OF ACQUISITION. THE VALUE INCLUDED BY IT WAS THE COST THAT IT INCURRED IN ACQUIRING INVESTMENTS IN ISL, VIZ. EQUITY SHARES, PREFERENCE, SHARES AND DEBENTURES TH EREIN. 'THE SAID INVESTMENTS WERE ASSETS (AND NOT LIABILITIES) FROM THE PERSPECT IVE OF ECL. ACCORDINGLY, IT IS RESPECTFULLY SUBMITTED THAT YOUR HONOUR'S ALLEGATIO N IS MISCONCEIVED. 16.3 IT MAY BE NOTED THAT DURING THE COURSE O F THE ASSESSMENT PROCEEDINGS OF ECL FOR THE SUBJECT AY, THE AO HAD RAISED SPECIFIC QUERIES RELATED TO THE COMPONENTS OF COST OF RS 6138.02 CRORES AND. HAD AP PLIED HIS MIND TO THE SAME. SUPPORT IN THIS REGARD MAY BE MADE TO THE FOLLOWING SUBMISSIONS WHICH WERE MADE TO THE ASSESSING OFFICER IN THIS CONTEXT: SUBMISSION DATED 18 OCTOBER 2023, WHEREIN THE ASSES SEE COMPANY PROVIDED ITS RETURN OF INCOME, COMPUTATION OF TOTAL INCOME, NOTES TO RETURN OF INCOME AND FINANCIAL STATEMENTS OF COMPANY, WHER EIN THE DETAILS OF COST WERE PROVIDED. SUBMISSION DATED 04 MARCH 2015, WHEREIN THE ASSESSE E COMPANY HAS PROVIDED DETAILS OF COST OF ACQUISITION AND CAPITAL GAIN ON SALE OF VEL SHARES. SUBMISSION DATED 09 MARCH 2015, WHEREIN THE ASSESSE E COMPANY HAS FURNISHED THE BASIS OF COST OF ACQUISITION OF VEL S HARES. SUBMISSION DATED 14 MARCH 2015, WHEREIN THE ASSESSE E COMPANY FURNISHED DETAILS OF PURCHASE OF ISL SHARES THROUGH STOCK EXC HANGE AND RELATED CONTRACT NOTES AND DENTILS OF AMALGAMATIONS IN THE SUBJECT AY SUBMISSION DATED 19 MARCH 2015, GIVING DETAILED FAC TUAL AND LEGAL SUBMISSIONS IN RELATION TO COST OF ACQUISITION OF V EL SHARES AND DETAILS OF PAYMENT MADE TO SHAREHOLDERS OF ISL SUBMISSION DATED 24 MARCH 2015, GIVING DETAILED NOT E AND DOCUMENTS IN RELATION TO COST OF ACQUISITION OF THE INVESTMENTS ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 46 SUBMISSION DATED 27 MARCH 2015, GIVING EVIDENCE OF PAYMENT OF COST OF ACQUISITION, 16.4 ON PERUSAL OF THE ABOVE, YOUR GOODSELF WI LL BE ABLE TO APPRECIATE THAT THE ASSESSEE HAD SUBMITTED ALL THE NECESSARY DETAILS TO THE ASSESSING OFFICER IN ORDER TO VERIFY THE COMPUTATION OF STCL ON TRANSFER OF SHARE S OF VEL TO PIRAMAL. THE ASSESSING OFFICER EVEN CALLED THE REASONS THAT WHY THE COST OF THE SHARES OF VEL ACQUIRED BY THE ASSESSEE-COMPANY SHOULD NOT BE TAKE N AS THE COST OF SUCH SHAMS IN THE HANDS OF PREVIOUS OWNER I.E. ECHL IN LIGHT OF S ECTION 49(1)(III)(E). IN RESPONSE TO SUCH QUERIES, DETAILED SUBMISSIONS WERE FILED BY TH E APPELLANT-COMPANY -WHICH ARE DISCUSSED IN THE FOREGOING PARAGRAPH OF THIS SUBMIS SIONS. THE COST OF ACQUISITION OF THE ASSETS OF THE COMPANY WHICH MERGED INTO AMALGAM ATED COMPANY CAN EITHER BE COST OF ACQUISITION OF PREVIOUS OWNER IN LIGHT OF S ECTION 49(L)(III)(E) OR WHEN THE PROVISIONS OF THE SAID SECTION DO NOT APPLY, THE AC TUAL COST INCURRED IN/ THE ASSESSEE. WHILE EXAMINING VARIOUS ASPECTS RELATED T O THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER ALSO EXAMINED THIS CRUCIAL FACET THOROUGHLY. THE ASSESSING OFFICER SATISFIED HIMSEL F THAT SINCE THE AMALGAMATION OF ISL, WITH ECL WAS NOT IN THE NATURE OF AMALGAMATION AS DEFINED UNDER SECTION 2(1B) OF THE ACT, SUCH COST AS PER THE SAID SECTION (I.E. COST TO PREVIOUS OWNER) CANNOT BE THE COST OF ACQUISITION IN THE HAND OF ECL. 16.5 IN THE PRESENT CASE, THE VALUE OF ASSETS GIVEN UP BY THE ECL FOR THE PURPOSE OF OBTAINING THE ASSETS OF ISL SHALL CONSTITUTE THE VALUE OF THE ASSETS ACQUIRED FROM ISL IN THE. HANDS OF THE ECL FOR THIS PURPOSE THE V ALUE OF THE ASSETS GIVEN UP BY THE ECL FOR THE PURPOSE OF ACQUIRING THE ASSETS' OF ISL SHALL BE THE COST OF ACQUISITION OF THE EQUITY SHARES, PREFERENCE SHARES AND DEBENTURES WHICH GOT EXTINGUISHED AS WELL THE AMOUNTS PAID BY THE ECL TO THE PUBLIC SHAREHOLD ERS AND COST OF SHARES OF THE ECL COMPANY ALLOTTED TO OUTSIDE SHAREHOLDERS AS PAR T OF THE SCHEME. 16.6 THIS RATIO WAS APPLIED BY THE APEX. COURT IN THE CASE OF MISS DHUN DADABHOY KAPADIA V C1T (63 ITR 651)(SC). THE DECISI ON OF THE RAJASTHAN HIGH COURT IN THE CASE OF CIT V MAHINDRA &CO LTD (326 ITR 465) ALSO SUPPORTS THE VIEW OF THE ASSESSEE. APPLYING THE RATIO OF THE COURT IN THESE DECISIONS, A CONCOMITANT OF THE ASSETS ACQUIRED FROM ISL IS THE EXTINGUISHMENT OF T HE EQUITY SHARES, PREFERENCE SHARES AND DEBENTURES IN ISL, AMOUNTS PAID BY THE E CL TO THE PUBLIC SHAREHOLDERS AND COST OF SHARES ALLOTTED BY ECL TO OUTSIDE SHARE HOLDERS AS PART OF THE SCHEME, WHICH SHOULD ALSO BE TAKEN INTO ACCOUNT. THUS THE C OST OF ACQUISITION OF ASSETS TAKEN OVER FROM ISL SHOULD BE THE COST OF THE EQUIT Y SHARES, PREFERENCE SHARES AND DEBENTURES HELD IN ISL HELD IN ECL AS WELL AS PAYME NT MADE TO THE PUBLIC SHAREHOLDERS AND COST OF SHARES ALLOTTED BY ECL LO OUTSIDE SHAREHOLDERS AS PART OF THE SCHEME AS A RESULT OF WHICH ASSETS OF ISL GOT V ESTED WITH THE ECL. THIS AGGREGATE COST OF ACQUISITION OF THE ASSETS OF ISL HAS TO BE APPORTIONED AMONGST THE INDIVIDUAL ASSETS IN AN APPROPRIATE MANNER. 16.7 AS REGARDS COST OF ACQUISITION OF VEL SHA RES IN THE HANDS OF ECL, AS SUBMITTED EARLIER, THE SAME HAS BEEN CALCULATED AT RS. 6,077.07 CRS, BEING THE PROPORTIONATE ACTUAL COST INCURRED BY ECL FOR ACQUI RING THE INVESTMENTS IN ISL (EQUITY SHARES, PREFERENCE SHARES AND DEBENTURES) A MOUNTING TO RS 6138 CRS WHICH IS ASCERTAINED AS UNDERSTOOD IN ORDINARY COMMERCIAL PARLANCE AND IN ACCORDANCE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 47 WITH THE PRINCIPLES OF ACCOUNTANCY WHICH IS ALSO SU PPORTED BY APEX COURT DECISION IN THE CASE CHELLAPALLI SUGARS LTD.(98 ITR 167) 16.8 IN VIEW OF THE ABOVE, THE COST INCURRED BY ECL TO ACQUIRE ISL SHARES (I.E. THE CONSIDERATION DISCHARGED TO THE PUBLIC SHAREHOLDERS OF ISL ON AMALGAMATION AND THE VALUE OF ASSETS GIVEN UP BY ECL) HAS BEEN CONSI DERED FOR DETERMINING THE COST OF ACQUISITION OF VEL SHARES IN THE HANDS OF THE EC L 16.9 THUS THIS FACET WAS ALSO THOROUGHLY EXAMI NED BY THE ASSESSING OFFICER. ACCORDINGLY IT CAN BE EASILY CONCLUDED THAT THE AO WAS AWARE OF THE ALL THE ASPECTS AS TO COST IN THE HANDS OF THE ASSESSEE COMPANY AND AFTER PROPER EXAMINATION OF THE FACTS AND LAWS, THE AO ADOPTED THE LEGALLY VALI D VIEW. THE LAW IS TRITE AS DISCUSSED IN FOREGOING PARAGRAPHS THAT IF THE AO TA KES ONE OF THE VIEW POSSIBLE UNDER LAW, REVISION PROCEEDINGS CANNOT BE INVOKED T O ASK HIM TO TAKE TINY ALTERNATIVE VIEW. 16.10 ON PERUSAL OF THE ASSESSMENT ORDER ESPECIALLY PARA 5 TO 5.10 FROM PAGE 11 TO 25 OF THE IMPUGNED ORDER, IT MAY BE NOTED THAT T HE ASSESSING OFFICER HAD DURING THE COURSE OF ASSESSMENT PROCEEDINGS VERIFIED ALL T HE ABOVE ISSUES BEFORE PASSING ASSESSMENT ORDER. 16.11AFTER VERIFICATION OF THE ABOVE FACTS THE ASSE SSING OFFICER HAS ALSO MADE ADJUSTMENTS TO THE COMPUTATION OF LOSS MADE BY THE ASSESSEE IN ITS RETURN OF INCOME. THE ASSESSING OFFICER HAS DISALLOWED TOTAL COST OF RS. 221.73 CRORES WITH THE OBSERVATION THAT COST WAS UNASCERTAINABLE, TILL THE END OF THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, AN D THE SAME BEING COMMITTED AND INCURRED BY THE COMPANY IN THE SUBSEQUENT YEAR AND HENCE NOT RELATED TO ASSESSMENT YEAR UNDER CONSIDERATION. THE RELEVANT P ART OF THE FINDINGS OF THE ASSESSING OFFICER IS REPRODUCED HEREUNDER FOR THE Y OUR HONOUR'S READY REFERENCE: '5.8 FURTHER VIDE SUBMISSION DATED 24 MARCH 2015 AN D 27 MARCH 2015, THE ASSESSEE SUBMITTED THE DETAILS OF COST OF ACQUISITI ON OF INVESTMENT OF IN EQUITY SHARES, OPTIONALLY CONVERTIBLE DEBENTURES AN D PREFERENCE SHARES OF INDIA SECURITIES LIMITED AMOUNTING TO RS. 6,138.02 CRORES AND DOCUMENTARY EVIDENCE THEREOF AND PAYMENT DETAILS, FROM THE PERU SAL OF DETAILS AND DOCUMENTARY EVIDENCE SUBMITTED BY THE ASSESSEE COMP ANY, IT IS NOTICED THAT OUT OF RS. 6138.02 CRORES, COS! OF ACQUISITION CLAIMED, BY THE ASSESSEE, RS. 45.62 CRORES IONS PAID TO SHAREHOLDERS OF INDIA SECURITIES LIMITED UNDER EXIT OFFER. DURING THE RELEVANT FINANCIAL YEAR, THE RE WAS NO CERTAINTY WITH REGARD TO HOW MANY SHAREHOLDERS WILL OPT FOR THE EX IT OFFER, SIMILARLY, RS, 56.83 CRORES TONS PAID TO SHAREHOLDERS OF INDIA SEC URITIES LIMITED WHO OPTED TO RECEIVE CASH, RS. 0.11 CRORES WAS PAID TO FRACTI ONAL SHAREHOLDERS AND RS. 119.18 CRORES BEING CONSIDERATION IN THE FORM OF EQ UITY SHARES OF THE ASSESSEE COMPANY ISSUED TO SHAREHOLDERS OF INDIA SE CURITIES LTD PURSUANT 'TO MERGER OF INDIA SECURITIES LTD. WITH ASSESSEE COMPA NY. THEREFORE, THE TOTAL COST OF RS. 221.73 CRORES WAS UNASCERTAINABLE AT TH E END OF THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATIO N AND THE SAME COMMITTED AND INCURRED BY THE COMPANY IN THE SUBSEQ UENT FINANCIAL YEAR AND HENCE NOT RELATED TO ASSESSMENT YEAR UNDER CONS IDERATION. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 48 5.9 AFTER GOING THE VARIOUS FACTUAL ARID LEGAL SUBM ISSIONS MADE BY THE ASSESSEE COMPANY AS IS SEEN THAT THE DURING THE YEA R UNDER ASSESSMENT THE ASSESSES COMPANY RECEIVED THE IMMOVABLE PROPERTIES, SHARES OF VODAFONE ESSAR LTD AND NET CURRENT ASSETS PURSUANT TO AMALGA MATION OF INDIA SECURITIES LTD WITH IT W.E.F 1/4/2011. PRIOR TO THI S ETHL COMMUNICATION HOLDINGS LTD WAS MERGED WITH INDIA SECURITIES LTD W .E.F 1/4/2010. PURSUANT LO ABOVE MADRAS HIGH COURTS ORDERS ASSESSEE COMPANY BECAME THE OWNER OF THE ABOVE ASSETS. IT WAS EXPLAINED THAT AMALGAMA TION BETWEEN ISL AND ASSESSEE COMPANY DID NOT SATISFY THE CONDITIONS OF SECTION 2(1B)(III) OF THE INCOME TAX ACT 1961 AND CONSEQUENTLY THE, PROVISION S OF SECTION 47(VI) AND SECTION 49(1)(III)E IS NOT APPLICABLE IN THE CASE O F ASSESSEE COMPANY. AS PER SECTION 2(LB)(III), SHAREHOLDERS HOLDING THREE FOUR TH IN VALUE IN AMALGAMATING COMPANY SHOULD BECOME TIN; SHAREHOLDERS OF AMALGAMA TED COMPANY. IN THE CASE UNDER CONSIDERATION 68.43% IN VALUE BECAME THE SHAREHOLDERS OF THE ASSESSEE COMPANY AND. REMAINING SHAREHOLDERS OPTED FOR CASH PAYMENT PURSUANT TO ABOVE MERGER SCHEME. IN VIEW OF THIS, A MALGAMATION BETWEEN ISL AND ASSESSEE COMPANY DID NOT SATISFY THE CONDIT IONS OF SECTION 2(1B)(IU) OF THE INCOME TAX ACT 1961 AND THEREFORE PROVISIONS OF SECTION 47(VI) AND SECTION 49(L)(III)E IS NOT APPLICABLE TO THE ASSESS EE COMPANY. 5.10 I HAVE ALSO GONE THROUGH VARIOUS CASE LAWS AND SUBMISSIONS MADE BY THE ASSESSEE US MENTIONED IN THE PREVIOUS PARAGRAPH S AND MORE PARTICULARLY SUPREME COURT DECISION IN THE CASE OF CHALLAPALLI S UGARS LTD (SUPRA) WHERE IT WAS HELD THAT THE COST OF ACQUISITION SHOULD BE COM PUTED ON THE BASIS OF COMMERCIAL UNDERSTANDING AND PRINCIPLES OF ACCOUNTA NCY AND RAJASTHAN HIGH COURT DECISION IN CASE OF MAHINDRA & CO. LTD W HERE IN IT WAS HELD THAT CONSIDERATION PAID, BY THE AMALGAMATED COMPANY MOUL D BECOME THE COST OF ACQUISITION FOR THE ASSETS RECEIVED ON MERGER, H OWEVER, AS DISCUSSED ABOVE OUT OF TOTAL COST OF ACQUISITION OF RS. 6138, 02 CLAIMED BY THE ASSESSEE COMPANY, RS. 221.73 CRORES IN COMMITTED AND INCURRE D ONLY SUBSEQUENT TO THE RELEVANT ASSESSMENT YEAR AND THEREFORE THE SAME IS DISALLOWED AND ACCORDINGLY BASED ON THE FACTS AND ABOVE CASE LAWS THE PROPORTIONATE COST OF ACQUISITION OF RS. 5856.92 CRORES FOR VEL SHARES SOLD AND RS. 14.99 CRORES FOR SALE OF BUILDING AT MUMBAI IS HEREBY ALLOWED AN D BALANCE PROPORTIONATE COST OF ACQUISITION OF RS. 220.15 CRORES FOR VEL SH ARES SOLD AND RS. 0.56 CRORES FOR SALE OF BUILDING AT MUMBAI IS DISALLOWED ' 16.12 FURTHER, YOUR GOODSELF HAS OBSERVED THAT: AO KNOWING THAT ISL HAS ALREADY MERGED WITH ECL DID NOT CAUSE, NECESSARY INVESTIGAT IONS INTO THE MATTER IS MID HAS SIMPLY CONCLUDED THE MATTER. AT THE COST OF REPETIT ION, IT MAY BE NOTED THAT ENTIRE DETAILS FOR VERIFICATION OF TRANSFER OF SHARES OF V EL WAS VERIFIED BY AO. HE ALSO SOUGHT EXPLANATIONS AS TO WHY THE COST OF PREVIOUS OWNER SHOULD NOT BE TAKEN AS COST OF ACQUISITION OF VEL AND AFTER VERIFYING ALL THE DOCUMENTS AND ORDERS OF HONBLE HIGH COURTS SANCTIONING THE MERGERS AND AMA LGAMATIONS WAS SATISFIED, WITH THE EXPLANATIONS PROVIDED BY THE ASSESSEE-COMPANY, EXCEPT OF THE COST WHICH WAS PARTIALLY DISALLOWED DUE TO UNCERTAINTY OF PAYMENT OF SUCH COST IN THE YEAR UNDER CONSIDERATION. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 49 16.13 ON PERUSAL OF THE ABOVE, YOUR HONOUR WOULD AP PRECIATE THAT THE ALLEGATIONS IN REGARD TO THE COST OF ACQUISITION AND EXAMINATIO N THEREOF BY THE AO ARE MISPLACED. 17 OBJECTION AGAINST SALE OF IMMOVABLE PROPE RTY, LAXMI TOWER: 17.1VIDEPARA 22 OF NOTICE, YOUR GOODSELF HAS ALLEGE D THAT IN RESPECT OF TRANSFER OF IMMOVABLE PROPERTY (IE SALE OF BUILDING LAXMI TOWER S), THE AO NEITHER CALLED FOR NOR DID THE ASSESSEE COMPANY VOLUNTARILY SUBMIT DOCUMEN TARY EVIDENCE WHICH PROVIDES GUIDANCE IN RESPECT OF DATE OF ACQUISITION, COST OF ACQUISITION, COPY OF THE SALE DEED, ACCORDINGLY, IT IS ALLEGED THAT THE ASSESSING OFFIC ER HAS ACCEPTED THE CONTENTION OF ASSESSEE WITHOUT ANY ENQUIRY AND APPLICATION OF MIN D. FURTHER, THE AO HAS FAILED TO EXAMINE THE APPLICABILITY OF SECTION 50 C. 17.2 IN THIS REGARD, IT IS RESPECTFULLY SUBMIT TED THAT THE COMPUTATION OF CAPITAL GAINS ON SALE OF LAX MI TOWERS, WHICH PROVIDED DETA ILS OF COST OF ACQUISITION AND COPY OF THE SALE AGREEMENT OF LAXMI TOWER WHICH IND ICATED THAT THE SALE CONSIDERATION OF THE PROPERTY BEING RS. 15 CRORES A S ALSO THE STAMP DUTY VALUATION OF RS, 9,31,44,1021- WAS SUBMITTED VIDE SUBMISSION DATED 4 MARCH 2015. SINCE, THE ACTUAL SALES CONSIDERATION IS HIGHER THAT THE STAMP DUTY VALUATION, SECTION 50 C IS NOT ATTRACTED IN THE. ABOVE SALE. 17.3 IN LIGHT OF THE ABOVE, IT IS RESPECTFULLY SUBMITTED THAT THE ASSESSING OFFICER HAS VERIFIED AT LENGTH ALL THE DETAILS IN RESPECT O F SHORT TERM CAPITAL LOSS ARISING ON SALE OF LAXMI TOWERS AND ON THIS GROUND THE ORDER O F THE ASSESSING OFFICER CANNOT BE TERMED AS ERRONEOUS MUCH LESS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 18 OBJECTION AGAINST ALLOWANCE OF INTEREST EXPENDITURE INCURRED FOR EARNING INTEREST INCOME ON ICD'S: 18.1 VIDE PARA 22 OF NOTICE, YOUR GOODSELF HAS ALLEGED THAT THE ASSESSEE COMPANY HAS CLAIMED CERTAIN. EXPENDITURE WHICH HAS BEEN ALL OWED BY THE AO WITHOUT CONSIDERING IF SUCH EXPENDITURE FALLS WITHIN PURVIE W OF SECTION 57 AND WHICH IS NOT IN ACCORDANCE WITH DECISION OF THE APEX COURT IN CA SE OF DR. V.P. GOPINATH VS CIT (248 ITR 449). 18.2 DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD GIVEN INTER CORPORATE DEPOSITS OF JNR 2,703 CRORES ON WHICH IT HAD EARNED INTEREST INCOME AMOUNTING TO R.S.2,118,358,285. THE INTER-CORPORATE DEPOSITS WERE MADE OUT OF PROCEEDS FROM ISSUANCE OF INTEREST BEARING DEBENTUR ES OF INR 2,750 CRORES TO-YES BANK AND AXIS BANK IN RESPECT OF WHICH IT HAS INCUR RED INTEREST EXPENSES OF RS. 163,38,8S,762/-. DETAILS OF INTEREST EXPENSES WERE SUBMITTED VIDE SUB-MISSION DATED 4 MARCH 2015. DETAILS OF INTEREST INCOME, SOU RCE OF FUNDS PLACED IN ICDS AND CORRESPONDING INTEREST EXPENSES WERE SUBMITTED VIDE SUBMISSION DATED. 9 MARCH 2015 FURTHER, THE FLOW OF INTER CORPORATE DEPOSITS AND COPY OF THE BANK STATEMENT EVIDENCING THE AFORESAID RECEIPT OF DEBENTURES PROC EEDS AND INTER-CORPORATE DEPOSIT WAS ALSO SUBMITTED VIDE SUBMISSION DATED 20 MARCH 2015. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 50 18.3 AS STATED EARLIER, THAT THE INTER-CORPORA TE DEPOSITS WERE GIVEN FROM THE PROCEEDS FROM ISSUANCE, FROM ISSUE OF DEBENTURES AN D ACCORDINGLY THE INTEREST PAID ON THE SAME HAS BEEN TAKEN AS DEDUCTION WHILE COMPU TING INTEREST INCOME ON INTER-CORPORATE DEPOSITS AS PER CLAUSE (IN) OF SECT ION 57 OF THE ACT-FURTHER RELIANCE PLACED BY YOUR HONOUR ON THE RULING OF THE APEX COU RT IN DR. V.P. GOPINATH VS CIT (SUPRA) IS NOT RELEVANT AS THE QUESTION BEFORE THE COURT WAS WHETHER THE ASSESSEE IS TO BE ASSESSED ON THE GROSS INTEREST RECEIVED ON FD S OR ON THE NET INTEREST POST REDUCTION OF INTEREST-PAID ON LOANS TAKEN ON THE ST RENGTH OF THE FDS. 18.4 IT IS PERTINENT TO NOTE THAT IN THE ABOVE JUDG MENT, THE ASSESSEE HAD MADE THE FIXED DEPOSIT OUT OF SURPLUS MONEY AND NO BORRO WINGS WERE MADE FOR THE INVESTMENT IN FIXED DEPOSIT. FURTHER, IN THE SAID CASE, THE ASSESSEE TOOK THE LOAN AGAINST THE SAID FIXED DEPOSIT AND OFFERED THE NET INTEREST AS TAXABLE INCOME (INTEREST INCOME ON FD LESS INTEREST PAID ON LOAN T AKEN AGAINST FD). IT IS RESPECTFULLY SUBMITTED THAT IN THE SAID JUDGMENT TH E ISSUE BEFORE THE HON'BLE SUPREME COURT WAS NOT THE DEDUCTION U/S 57(III) OF THE. ACT AND HENCE RELIANCE ON THE RULING IS MISPLACED, 18.5 THE RELEVANT EXCERPTS OF SECTION 57 (HI) ARE R EPRODUCED AS UNDER:- 'ANY EXPENDITURE (NOT BEING IN THE NATURE OF CAPITA L EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME.' 18.6 THE ASSESSEE HAS INCURRED INTEREST EXPENSES WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INCOME. IN VIEW OF THE PLAIN READING OF SECTION 57(III) OF THE ACT, THE ASSESSEE IS ENTITLED FOR DEDUCTION OF INTEREST EXPENSES AGAINST THE INTEREST -INCOME. 18.7 FURTHER, WE WOULD LIKE TO DRAW KIND ATTENTION OF YOUR GOODSELF TO THE LANDMARK JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY (115 JTR 519). WHICH PROVIDES THAT DEDUCTION SHOULD ALLOWED IF THERE IS DIRECT NEXUS OF EXPENDITURE INCURRED FOR EARNING IN COME. 19. RELYING ON THE FACTUAL POSITION GIVEN HEREIN AN D ABOVE, WE SUBMIT THAT THE REVISIONARY PROCEEDINGS INITIATED ARE INVALID IN LA W ON VARIOUS GROUNDS. THEREFORE, WE REQUEST YOUR HONOUR TO DROP THE SAME. IN ADDITION TO THE ABOVE, WE RESERVE THE RIGHT TO F URNISH ADDITIONAL WRITTEN SUBMISSIONS ON OTHER MATTERS ARISING FROM THE CAPTI ONED NOTICE AND SUPPLEMENTARY TO NOTICE. 5. THE LD PCIT, AFTER CONSIDERING AND REJECTING THE ARGUMENTS AND WRITTEN SUBMISSIONS OF THE AUTHORIZED REPRESENTATIVES OF TH E ASSESSEE, SET ASIDE THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT BY TR EATING THE SAME AS ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 51 ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE BY OBSERVING AND HOLDING AS UNDER:- 4. I HAVE DULY CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE. AS PER THE BACKGROUND NOTE TO THE NOTICE U/S 263 OF THE ACT AN D THE SUBMISSIONS AND DETAILS FILED BY THE ASSESSEE, THE BASIC FACTS OF THE CASE ARE AS FOLLOWS: (1) ESSAR GROUP WAS HOLDING 33% STAKE IN HUTCH ISON ESSAR LTD. (HEL) WHICH WAS LATER ON RENAMED AS VODAFONE ESSAR LTD. (VEL) T HROUGH ESSAR TELEHOLDING LTD. (ETHL) AN INDIAN ENTITY. (2) ON 17/01/2006, ETHL TRANSFERRED 215.85% SHARES OF HEL (PRESENTLY KNOWN AS 'VEL') FOR A SUM OF RS. 1032.79 CRS WHICH WAS ORIGINALLY ACQUIRED FOR RS. 1350.11 CR TO ESSAR TELECOM INVESTMENTS LTD . (ETIL), THE INDIAN SUBSIDIARY OF ESSAR COMMUNICATION LTD., MAURITIUS A ND 6.19% OF SHARES THROUGH ESSAR COM LTD. (E-COM)- A MAURITIUS BASED C OMPANY. BOTH ETIL AND E-COM WERE SUBSIDIARIES OF ESSAR COMMUNICATION LTD. A MAURITIUS BASED COMPANY OWNED BY THE PROMOTERS' FAMILY, THEREBY INC URRING HUGE LOSSES (RS. 317.44 CR) WHICH WERE CLAIMED AS CARRY FORWARD LOSSES IN THE HANDS OF ETHL. THUS, 22.03% OF ETHL HOLDING OF HEL (PRESENTL Y KNOWN AS 'VEL') STAKE BY THE ABOVE ESSAR GROUP COMPANY WAS SHIFTED TO THE OFF-SHORE ENTITIES BASED AT MAURITIUS (22.03%) AND THE ON-SHORE ENTITY , ETHL HAD ITS STAKE SCALED DOWN TO 10.97%. THE BOOK VALUE OF THE SAID 10.97% OF SHARES OF VEL AS ON 31/03/2006 WAS RS 1260 CR. (3) VODAFONE AGREED TO BUY ENTIRE STAKE OF 33% HELD BY THE ESSAR GROUP IN VEL FOR THE AMOUNT AS UNDER:- A. ONSHORE HOLDING BY ESSAR -10.97%-$ 1.26 BILLIO N B. OFFSHORE HOLDING BY ESSAR-22.03%-$ 4.26 BILLIO N $ 5.46 BILLION (4) LATER ON, ESSAR GROUP ENTERED INTO A 'PUT OPTIO N' AGREEMENT WITH VODAFONE ON 15/03/2007, WHEREBY 33% STAKE IN VEL HE LD BY ESSAR GROUP WAS TO BE ACQUIRED BY VODAFONE FOR A SUM OF $ 5.46 BILLION. AS PER THIS AGREEMENT ETHL, HAD THE RIGHT TO SELL ITS 10.97% ST AKE IN VEL TO VODAFONE AT THE PRE AGREED CONSIDERATION OF $ 1.26 BILLION (EQU IVALENT TO 1NR 5862 CR.). THIS CONSIDERATION FOR 'ON-SHORE HOLDING OF 1.0.97% WAS SURPRISINGLY MUCH LESS CONSIDERING THE PRICE AGREED UPON FOR 33%) STA KE SALE SINCE THE PROPORTIONATE SALE CONSIDERATION OUGHT TO HAVE BEEN TAKEN AT $ 1.82 BILLION INSTEAD OF $ 1.26 BILLION. NEITHER ANY REASON NOR B ASIS WAS ADDUCED FOR ARRIVING AT SUCH A REDUCED SALE CONSIDERATION FOR T HE 'ON-SHORE HOLDING' BY ESSAR GROUP. THE DIFFERENCE IN US $ 1.82 BILLION AN D US $ 1.26 BILLION WAS TAKEN AS CONSIDERATION FOR TRANSFER OF OFF-SHORE HO LDING IN VEL WHICH WAS NOT CHARGEABLE TO TAX IN INDIA IN ACCORDANCE WITH INDO- MAURITIUS DTAA. THUS, THE CONSIDERATION TO THE EXTENT OF US $ 0.56 BILLIO N WENT UNTAXED AS A RESULT OF THE SCHEME DEVISED BY THE ASSESSEE. (5) AFTER THE SIGNING OF THE 'PUT OPTION' AGREEMEN T ON 15/03/2007 AND HAVING FIRMED UP THE SALE PRICE AND THE PERIOD OF E XECUTING THE SALE TRANSACTION AS WELL, SERIES OF TRANSACTIONS WERE CA RRIED OUT WITHIN THE ESSAR GROUP SOLELY WITH THE OBJECT OF EVADING PAYMENT OF TAXES THEREON. SINCE THE SHARES OF VEL WERE NOT LISTED AND ANY GAINS RESULTI NG FROM THE 'STAKE SALE' THEREOF OUGHT TO SUFFER TAXES, ETHL COMMUNICATION H OLDINGS P LTD. (ECHL), ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 52 ESSAR TELECOMMUNICATION HOLDINGS P LTD. (ETHPL) AND ETHL TELCOM HOLDINGS INDIA PRIVATE LIMITED (ETHIPL) THROUGH WHOM THE SHA RES OF VEL WERE ULTIMATELY VESTED WITH A LISTED COMPANY OF THE GROU P, INDIA SECURITIES LTD. (ISL) BY WAY OF 'REVERSE MERGER' WAS STRATEGIZED BY THE ESSAR GROUP TO EVADE TAXES. ULTIMATELY, ISL ITSELF WAS AMALGAMATED WITH ITS HOLDING COMPANY ESSAR CAPITAL LTD. (ECL) WITH RETROSPECTIVE EFFECT BY VIR TUE OF BOMBAY HIGH COURT ORDER AFTER ECL HAD ACQUIRED MINORITY STAKES IN ISL THROUGH 'EXIT OFFER'. BY SHEER MANIPULATIVE TRANSACTIONS DEVOID OF ANY COMME RCIAL MOTIVE OR SUBSTANCE, THE ENTIRE 'ON-SHORE HOLDING' OF VEL WAS LIQUIDATED FOR RS. 5862.62 CR WITHOUT PAYING ANY TAXES AND MORE INTRIG UINGLY CLAIMING LOSSES IN THE HANDS OF THE ENTITIES ALONG THE CHAIN AS THE DE TAILED FACTS WOULD SHOW. ETHL HAS INCORPORATED SERIES OF COMPANIES TO INFLAT E THE COST OF SHARES OF VEL AND SPECIFICALLY TO AVOID LONG TERM CAPITAL GAI N, TAX AS WELL AS MAT. AFTER VERIFICATION OF FINANCIAL REPORT OF THE COMPANY AS PER MUMBAI CHARTERED ACCOUNTANTS (MCA) DATA, IT CAN BE SEEN THAT THESE A RE MERELY SHELL COMPANIES AND ARE CREATED TO INFLATE THE COST OF IN VESTMENT IN VEL THEREBY TO EVADE CAPITAL GAIN TAX AND MAT ON THE PUT OPTION AGREEMENT ENTERED. THE FINANCIAL REPORT OF THE ETHPL AND ETHIPL WERE N OT ON THE RECORDS BEFORE THE AO. 6. THE FACTS, WHICH SHOW THAT IT IS A CASE OF TAX E VASION WHICH THE AO HAS NOT LOOKED INTO AND EXAMINED IN THE ASSE SSMENT ORDER FOR WHICH REASONS THE ORDER IS FOUND ERRONEOU S AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND SOUGHT TO BE REVISED, ARE AS FOLLOWS:- 1. THE MAIN PLAYER IN THE SERIES OF TRANSAC TIONS CARRIED OUT FOR THE ABOVE PURPOSES (EVASION OF TAXES ON THE SALE OF SHA RES OF VEL LTD BY THE ESSAR GROUP) IS ESSAR TELEHOLDINGS LTD. (ETHL). ETH L WAS INCORPORATED ON 11/02/1981. THE BUSINESS OF ETHL AS PER THE MAIN OB JECTS CLAUSE OF MEMORANDUM OF ASSOCIATION (MOA) WAS TO DEAL IN TELE VISION SETS AND ELECTRONICS, ELECTRICAL GOODS, TELECOMMUNICATION IN STRUMENTS AND COMPUTER SOFTWARE. HOWEVER, THERE WAS NO ENABLING CLAUSE AS PER MOA EITHER UNDER MAIN OBJECTS OR ANCILLARY OBJECTS OR OTHER OBJECTS EMPOWERING THE COMPANY TO INVEST IN SHARES AND SECURITIES OF OTHER COMPANIES. IT WAS ONLY ON 30/11/2010, THAT IS AFTER THE DATE OF TUT OPTION ' AGREEMENT DATED 15/03/2007 REVISED ON 28/08/2007 BY A SPECIAL RESOL UTION, A NEW CLAUSE WAS ADDED IN MOA UNDER 'OTHER OBJECTS' AUTHORIZING THE COMPANY TO INVEST, PURCHASE, ACQUIRE AND HOLD ANY SHARES, STOC KS DEBENTURES, DEBENTURE STOCK, BONDS, MORTGAGES, OBLIGATIONS AND SECURITIES OF ANY KIND ISSUED BY ANYBODY CORPORATE. 2. THE FOLLOWING SERIES OF CHANNEL DEVISED BY THE ESSAR GROUP WOULD FURTHER THROW LIGHT ON THE STRATEGY OF THE GROUP TO EVADE PAYMENT OF TAXES ON SALE OF 10.97% STAKE IN VEL TO VODAFONE. 2.1 CHANNEL NO. 1:- FORMATION OF SHELL COMPANY NO. 1 - ECHL: ON 2/08/2007, THE 'PUT OPTION' AGREEMENT WAS REVISED A ND IN PLACE OF ETHL, ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 53 THE NAME OF ECHL WAS INCLUDED AS THE 'ON-SHORE ENTI TY' PURPORTEDLY HOLDING VEL SHARES. THEN, ECHL WAS INCORPORATED ON 07/10/2007, AS A WHOLLY OWNED SUBSIDIARY OF ETHL WITH A NOMINAL CAPI TAL OF RS. 1 LAKH. THUS, EVEN BEFORE ECHL WAS INCORPORATED, AN AGREEMENT WAS EXECUTED WHEREBY THE 'PUT OPTION' WAS VESTED IN A NON-EXISTENT ENTIT Y AT THE TIME WHEN THE AGREEMENT WAS ENTERED INTO. THE TOTAL INVESTMENT OF ETHL IN ECHL WAS RS. 1.10 CR. FROM PERUSAL OF ASSESSEE'S SUBMISSION IT I S UNDERSTOOD THAT ON 28/03/2008, ETHL TRANSFERRED THE STAKE OF 10.97% IN VEL, THAT IS THE EQUITY SHARES OF VEL NUMBERING 4,54,25,328 TO ECHL FOR RS. 1260.58 CR. HOWEVER, ETHL CLAIMED INDEXED COST OF ACQUISITION OF VEL SHA RES AT RS. 1541 CR. THOUGH THE 'BOOK COST' WAS RS. 1260.58 CR. ONLY AND AFTER INDEXATION OF THE INFLATED PURCHASE COST, ETHL WRONGLY CLAIMED FURTHE R LOSS OF RS. 340 CR. IN A.Y. 2008-09 ALSO ON THIS ACCOUNT BECAUSE THE SAID TRANSFER BEING FROM THE HOLDING COMPANY TO ITS WHOLLY OWNED SUBSIDIARY, IT WAS EXEMPT U/S. 47(IV) OF THE ACT. HOWEVER, ETHL HAS TREATED THE SAME AS A TA XABLE EVENT AND CLAIMED THE LOSSES IN THE RETURN WHICH IS INEXPLICABLE. FUR THER, SINCE ECHL DID NOT HAVE ANY SOURCE OF FUNDS TO PAY FOR THIS IMPUGNED T RANSFER OF VEL SHARES, IN LIEU OF PAYMENT FOR THE VEL SHARES, IT ISSUED FCDS TO ETHL FOR RS. 1260 CR. THUS, THERE WAS NO TRANSFER OF FUNDS ON THE PURPORT ED TRANSFER OF SHARES FROM ETHL TO ITS SUBSIDIARY. ECHL ON ITS PART DID N OT HAVE ANY OTHER BUSINESS ACTIVITIES AND THERE WERE NO OTHER BUSINESS ASSETS EITHER. THE ONLY PURPOSE FOR WHICH ECHL WAS BROUGHT INTO EXISTENCE WAS UNDIS PUTEDLY TO HOLD 10.97% 'ON-SHORE' STAKE SHARES OF VEL AND INFLATE THE COST OF SHARES OF VEL IN ECHL WITH A VIEW TO EVADE CAPITAL GAINS TAX AND MAT AS I S EVIDENT FROM CHANNEL NO. 2 DEVISED BY THE ESSAR GROUP. 2.2 CHANNEL NO. 2:- FORMATION OF SHELL COMPANY NO. 2 - ETHPL: ETHL INCORPORATED ANOTHER WHOLLY OWNED SUBSIDIARY COMPAN Y - ETHPL ON 10/03/2008 WITH A NOMINAL CAPITAL OF RS. 1 LAKH. TH E TOTAL INVESTMENT OF ETHL IN ETHPL WAS RS. 1.32 CR. ETHL THEN TRANSFERRE D THE SHARES OF ITS FIRST- SUBSIDIARY ECHL TO ETHPL, FOR RS. 1.19 CR. AND OFFE RED A GAIN OF RS. 9 LAKH THEREON. THUS, ECHL, WHICH HAD BEEN VESTED WITH THE VEL SHARES COVERED BY A 'PUT OPTION' OF $ 1.26 BILLION (EQUIVALENT TO 1NR 5862 CR.), WAS PASSED ONTO ETHPL FOR A MEASLY SUM OF RS. 1.19 CR. AS PER SECTI ON 155(7B) OF THE IT ACT, WHEN THE CONDITIONS OF A TRANSACTION COVERED U/S. 4 .7 ARE SUBSEQUENTLY VIOLATED, THEN THE TRANSACTION HAS TO BE TREATED AS A TAXABLE TRANSFER. IN THIS CASE, ONCE ECHL CEASED TO BE THE SUBSIDIARY OF ETHL , THE TRANSFER OF VEL SHARES EARLIER BY ETHL TO ECHL OUGHT TO HAVE BEEN C ONSIDERED AS A TAXABLE EVENT AND FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS THEREON, THE VALUATION OF ECHL SHARES OUGHT TO HAVE BEEN DONE AF TER DULY CONSIDERING THE VALUE OF VEL SINCE VESTED WITH IT. INSTEAD, BY RETU RNING A MEAGRE SUM OF RS. 9 LAKH AS CAPITAL GAINS, THE SHARES OF VEL WERE TRANS FERRED TO ECHL AND THE CONTROL OVER ECHL ITSELF WAS TRANSFERRED TO ETHPL B Y ETHL WITHOUT PAYING THE APPROPRIATE CAPITAL GAINS TAX THEREON. THUS, EC HL HAD ALREADY STRATEGIZED THAT IT WAS GOING TO INCORPORATE ETHPL AND TRANSFER SHARES OF ECHPL TO ETHPL, WHICH WILL ENABLE THEM TO CLAIM LOS S ON SALE OF VEL SHARES. THUS, VARIOUS STEPS TAKEN BY THE ESSAR GROUP DEMONS TRATE THE TAX EVASION MOTIVE. 2.2.1. FURTHER, ENTRIES WERE PASSED THROUGH THE BAN K ACCOUNTS OF ETHL, ETHPL AND ECHL ON A SINGLE DAY TO SHOW AS IF ETHL H AD GIVEN LOAN OF RS. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 54 1262.95 CRS AND ANOTHER COMPANY ESSAR INVESTMENTS L TD. (E1L) HAD GIVEN LOAN OF RS. 300 CRS TO ETHPL AS OPTIONAL CONVERTIBL E DEBENTURE (OCD) ON 30/04/2008 WHICH IN TURN WAS INVESTED BY ETHPL IN T HE SHARE CAPITAL OF ECHL AT A PREMIUM OF RS. 1407.82 CR. THIS IN TURN W AS USED BY ECHL TO REDEEM THE NON CONVERTIBLE DEBENTURE (NCD) FOR RS. 1260 CR. ISSUED BY IT EARLIER TO ETHL IN LIEU OF CONSIDERATION FOR TRANSF ER OF VEL SHARES WORTH RS. 1260 CRS. ECHL, THUS, BECAME THE WHOLLY OWNED SUBSI DIARY OF ETHPL AND NCD ISSUED TO ETHL STOOD SUBSTITUTED BY SHARE PREMI UM AMOUNT OF RS. 1260 CRS IN THE BALANCE SHEET OF ECHL. IN SHORT, THE MON EY FOR REPAYING NCDS OF ETHL, THAT IS RS. 1260 CRS HAS COME FROM ETHL ITSEL F. 2.2.2. ALSO, AS AT 31/03/2009, IN THE BALANCE SHEET OF ECHL, THE VALUE OF 'PUT OPTION' OF VEL WAS ACCOUNTED FOR UNDER 'LOANS AND A DVANCES' AT ITS FAIR VALUE, CALCULATED AT RS. 5915.32 CR. BY TAKING THE NET DISCOUNTED PRESENT VALUE BASED ON LIBOR IN THE PLACE OF INVESTMENT IN VEL SHARES EARLIER ACCOUNTED FOR RS. 1260 CR. IN THE NEXT YEAR, I.E. A S AT 31/03/2010, IN PLACE OF 'LOANS AND ADVANCES - PUT OPTION' THE VALUE OF VEL SHARES HAS BEEN REFLECTED ONCE AGAIN IN THE BALANCE SHEET AS 'INVES TMENTS' SHOWING THE VALUE AT RS. 5915.32 CRS. THE AUDIT NOTE STATES THA T THE VALUE OF TUT OPTION' HAS BEEN TAKEN AS 'NIL'. THUS, THE BOOK VALUE OF VE L SHARES WAS INCREASED FROM RS. 1260 CR. TO RS. 5915.32 CR. BY THESE ACCOU NTING ENTRIES WHICH IS UNTENABLE AND THE DIFFERENCE WAS CREDITED TO CAPITA L RESERVE AND DEFERRED TAX LIABILITY. THE TRANSACTIONS WERE THUS ROUTED TO EVADE TAX ON ACCOUNT OF MAT LIABILITY AND CAPITAL GAINS TAX SET TO ARISE ON TRANSFER OF VEL SHARES BY VIRTUE OF TUT OPTION' AGREEMENT DATED 15/03/2007. 2.3 CHANNEL NO. 3: FORMATION OF SHELL COMPANY NO. 3 ETHIPL ON 16/04/2008, BHARGAVA REALITIES PVT LTD WAS INCOR PORATED, LATER ON RENAMED BY ESSAR GROUP AS ETHL TELECOM HOLDINGS IND IA PRIVATE LIMITED (ETHIPL) WHICH BECAME THIRD SUBSIDIARY OF ETHL. ON 20/03/2009, ETHL TRANSFERRED ITS INVESTMENT IN THE SHARES OF ETHPL, COSTING RS. 1.32 CR. TO ETHIPL FOR RS. 1.41 CR., AND OFFERED A SUM OF RS. 9 LAKH AS CAPITAL GAINS. HOWEVER, NEITHER ANY BASIS FOR THIS VALUATION WAS A DDUCED NOR REASONS GIVEN FOR NOT CONSIDERING THE INVESTMENT IN VEL HELD BY E CHL FOR THE PURPOSE OF VALUATION. THUS, FOR A MEAGER SUM OF RS. 2.60 CR. ( RS. 1.19 CR. FOR ECHL AND RS,. 1.41 CR. FOR ETHPL), THE 'ON-SHORE' HOLDING OF 10.97% IN VEL HELD BY ECHL WITH A TUT OPTION' OF $ 1.26 BILLION (NET DISC OUNTED VALUE OF RS. 5915.32 CR.) WAS PLACED AT THE DISPOSAL OF ETHIPL T HROUGH THE IMMEDIATE SUBSIDIARY ETHPL. ON 25/03/2009, OCDS OF ETHPL HELD BY ETHL (RS. 1262 CR.) AND ESSAR INVESTMENTS LTD. (EIL) (RS. 300 CR.) WERE ALSO TRANSFERRED TO ETHIPL AT COST. FUNDS WERE PROVIDED BY ESSAR HOLDINGS LTD. (EHL) AND OTHERS TO ETHIPL AS OCDS FOR RS. 1566.49 CR. AND ECHL AND ETH PL CEASED TO BE THE SUBSIDIARIES OF ETHL W.E.F 01.01.2010 VIDE BOMBAY H IGH COURT'S ORDER 16.07.2010. ETHIPL INVESTED FURTHER SUM OF RS. 14 C R. IN EQUITY SHARES OF ETHPL. HOWEVER, NO DETAILS IN RESPECT OF THE SAID A MALGAMATION WERE CALLED FOR BY THE AO DURING THE ASSESSMENT PROCEEDINGS. TH ERE WAS NO ENQUIRY MADE BY THE AO IN RESPECT OF THE SAID AMALGAMATION. IF ALL THE AMALGAMATIONS AS REFERRED TO IN EARLIER PARAS OF TH IS ORDER ARE CONSIDERED IN A HOLISTIC MANNER IT CAN BE DERIVED THAT THE SAID S CHEME WAS DEVISED BY THE ESSAR GROUP TO EVADE PAYMENT OF TAX ON SALE OF SHAR ES IN VEL UNDER NORMAL COMPUTATION AS WELL AS UNDER MAT. THEREFORE, LACK O F ANY ENQUIRY MADE IN ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 55 RESPECT OF THE AMALGAMATION AS REFERRED TO IN THE E ARLIER PART OF THE PARA MAKES THE ORDER ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 2.4 CHANNEL NO. 4: AMALGAMATION OF ETHIPL WITH ETHL ETHIPL WAS AMALGAMATED WITH ETHL AS PER COURT'S ORD ER DATED 16/07/2010 W.E.F. 01/01/2010, THUS BRINGING THE CONTROL OVER E THPL AND ECHL BACK TO ETHL. THOUGH THE AMALGAMATION WAS CLAIMED TO HAVE B EEN ACCOUNTED FOR UNDER THE ''PURCHASE METHOD' AS PER AS 14 (RECORDIN G THE ASSETS AND LIABILITIES AT FAIR VALUE), IT IS SEEN THAT THE INV ESTMENT BY ETHIPL IN ETHPL, COMPRISING OF EQUITY SHARE CAPITAL OF RS. 15.41 CR. WAS REVALUED AT RS. 3238.94 CR. IN THE BOOKS OF ETHL WHEREAS, ALL OTHER ITEMS IN THE BALANCE SHEET WERE TAKEN AT BOOK VALUE ONLY WITH NO SIGNIFI CANT CHANGES. THE RESULTANT SURPLUS OF RS. 3198 CR., WHICH WAS MAINLY ON ACCOUNT OF REVALUATION OF EQUITY SHARES OF ETHPL HAS BEEN TAKEN TO CAPITAL RESERVE. SIMPLY PUT, THOUGH EQUITY SHARES OF ETHPL WERE TRANSFERRED EARL IER BY ETHL TO ETHIPL AT BOOK VALUE, ON AMALGAMATION, THE SAME ASSETS WERE R EVALUED AND TAKEN BACK IN THE BOOKS OF ETHL AT A HIGHER VALUE. THERE WERE NO CHANGES IN THE ASSETS OF ETHPL AND THE ONLY ASSET THAT REMAINED WA S THE HOLDING OF SHARES OF ECHL WITH VEL STAKE SHARES THEREIN. THOUGH OUT O F 15,41,000 SHARES OF ETHPL ACQUIRED BY ETHL NOW, 1,41,000 SHARES WERE TH E SAME THAT WERE TRANSFERRED EARLIER ON 20/03/2009 TO ETHIPL, FOR RS . 1.41 CR. IN MARCH, 2009 ONLY, THESE SHARES HAVE BEEN REVALUED AT ASTRONOMIC AL FIGURES AS ON 01/01/2010. THUS, IT IS EVIDENT THAT ETHIPL WAS CRE ATED FOR THE SPECIFIC PURPOSE OF REVALUING THE SHARES OF ETHPL IN THE BOO KS OF ETHL WHICH SURVIVED AS A COMPANY FOR EXACTLY TWO YEARS WITH NO BUSINESS ACTIVITIES AND THE ONLY ROLE IT PLAYED WAS TO INCREASE THE COST OF INVESTMENT OF ETHPL SHARES IN THE BOOKS OF ETHL. ONCE ETHIPL MERGED WIT H ETHL, ITS ERSTWHILE SUBSIDIARIES ETHPL AND ECHL AGAIN BECAME ETHL'S SUB SIDIARY AND STEP DOWN SUBSIDIARY RESPECTIVELY WHEREAS, THE COST OF INVEST MENT FOR ETHL IN THEM HAD BEEN INCREASED IN THE BOOKS. THERE IS NEITHER A NY BASIS NOR ANY JUSTIFICATION FOR SUCH UNREASONABLE VALUATION ADOPT ED UNDER THE GUISE OF ACCOUNTING FOR AMALGAMATION EXCEPT FOR THE DELIBERA TE PURPOSE OF JACKING UP THE COST OF INVESTMENT IN ETHPL IN THE BOOKS OF ETHL WITHOUT SUFFERING ANY TAX. NO DETAILS IN RESPECT OF THE SAID AMALGAMA TIONS WERE CALLED FOR BY THE AO DURING THE COURSE OF ORIGINAL ASSESSMENT PRO CEEDINGS. THERE WAS ALSO NO ENQUIRY MADE BY THE AO IN RESPECT OF THE SA ID AMALGAMATION. IF ALL THE AMALGAMATIONS AS ARE REFERRED TO IN EARLIER PAR AS OF THIS ORDER ARE CONSIDERED IN A HOLISTIC MANNER IT CAN BE DERIVED T HAT THE ABOVE SCHEME WAS DEVISED BY THE ESSAR GROUP TO EVADE PAYMENT OF TAX ON SALE OF SHARES IN VEL UNDER NORMAL COMPUTATION AS WELL AS UNDER MAT. THER EFORE, LACK OF ENQUIRY CONDUCTED BY THE AO IN RESPECT OF THE AMALGAMATION AS REFERRED TO IN EARLIER PART OF THE PARA MAKES THE ORDER ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 2.5 CHANNEL NO. 5: REVERSE MERGER - AMALGAMAT ION OF ETHPL WITH ISL VIDE HIGH COURT'S ORDER DTD. 21/04/2011 AFTER HAVING BROUGHT BACK THE HOLDING OF ETHPL AND ECHL UNDER ITS FOLD AT A REVALUED FIGURE, ETHL DEVISED A STRATEGY TO TRANSFE R THE CONTROL OVER THEM ALONG WITH THE STAKE HOLDING OF 10.97% IN VEL TO A LISTED ENTITY OF THE GROUP, INDIA SECURITIES LTD. (ISL). ESSAR CAPITAL LTD. (EC L) BEING THE HOLDING COMPANY ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 56 OF ISL, THE SHARES OF ISL BEING A LISTED COMPANY EQ UITY SHARES OF WHICH ARE THINLY TRADED WAS ALREADY AN ESSAR GROUP COMPANY. T HEREAFTER, A SCHEME OF ARRANGEMENT WAS PLACED BEFORE THE HON'BLE HIGH COUR T AT CHENNAI SEEKING TO AMALGAMATE ETHPL WITH ISL. ONE OF THE RATIONALES PUT-FORTH BEFORE THE HON'BLE HIGH COURT WAS THAT THE AMALGAMATION OF ETH PL WITH ISL AIMS AT UNLOCKING THE VALUE AND MARKET ASSESSMENT OF THE TE LECOM ASSETS OF THE COMPANY. HOWEVER, THE ONLY ASSET WHICH ETHPL HAD WA S THE SHARES OF ECHL AND THE ONLY TELECOM ASSET HELD IF ANY WAS THE STAK E OF 10.97% IN VEL HELD BY ITS SUBSIDIARY ECHL. IF AT ALL THE INTENTION OF THIS AMALGAMATION WAS TO UNLOCK THE TELECOM ASSET, THEN ECHL OUGHT TO HAVE B EEN MERGED DIRECTLY WITH ISL INSTEAD OF ETHPL. HOWEVER, ISL GOT ETHPL A MALGAMATED WITH ITSELF FIRST AND THEN ECHL LATER ON, BOTH W.E.F. 01/04/201 0. WHEN THE SCHEME OF AMALGAMATION OF ETHPL WITH ISL WAS UNDER CONSIDERAT ION BEFORE THE HON'BLE HIGH COURT, VODAFONE SOUGHT TO RAISE OBJECT IONS MAINLY ON THE ISSUE OF VALUATION OF SHARES OF ETHPL. VODAFONE ALSO RAIS ED THE ISSUE OF UNNATURAL PRICE INCREASE IN THE SHARES OF ISL DURING THE PERI OD SUGGESTING INSIDER TRADING AND MARKET MANIPULATION. ON 14.01.2010, THE SHARE PRICE OF ISL, AS ALLEGED BY VODAFONE IN ITS WRITTEN COMPLAINT BEFORE THE SEBI WAS RS.6.25 ONLY. HOWEVER, ON 17.01.2011, THE SHARE PRICE OF IS L WAS INCREASED BY MORE THAN 11 TIMES TO RS.69.05. ALSO ENQUIRIES WERE THEN PENDING BEFORE THE SEBI. IT IS SEEN THAT THE DEPARTMENT ALSO BROUGHT T O THE NOTICE OF THE HON'BLE HIGH COURT THE TAX DEMAND RAISED IN THE CAS E OF ETHL AND FURTHER SOUGHT AN OPPORTUNITY TO RAISE ITS OBJECTIONS. THE INDEPENDENT AUDITORS APPOINTED FOR THE PURPOSE OF VERIFYING THE FAIR VAL UATION AND SWAP RATIO ALSO RAISED OBJECTIONS ON THE BASIS AND METHOD OF ACCOUN TING AS WELL AS VALUATION ADOPTED. SERIOUS CONCERNS ABOUT THE TRANSPARENCY AN D ADEQUACY OF DISCLOSURE WERE ALSO RAISED BY THEM. HOWEVER, IT IS SEEN FROM THE ORDER OF THE HON'BLE HIGH COURT APPROVING THE SCHEME THAT TH ESE OBJECTIONS WERE NOT CONSIDERED RELEVANT AND THE REVENUE WAS ALSO NO T GRANTED ANY FURTHER OPPORTUNITY TO PLACE ITS OBJECTIONS AND ITS EARLIER OBJECTION ON GROUNDS OF RECOVERY OF TAX DEMAND IN THE HANDS OF ETHL WAS ALS O REJECTED AS NOT MAINTAINABLE. THOUGH AMALGAMATION OF ETHPL WITH ISL WAS SOLELY FOR THE PURPOSE OF FACILITATING SWAPPING OF VEL SHARES WITH THAT OF ISL WITHOUT PAYMENT OF TAXES, THIS ISSUE WAS NEVER RAISED BEFOR E THE HON'BLE HIGH COURT AS A TAX EVASION CASE AND THE 'PUT OPTION' IN FORCE WAS ALSO NOT RECKONED. THUS, THE EARLIER MANOEUVRES CARRIED OUT BY ESSAR G ROUP THROUGH SHELL COMPANIES WERE NOT CORRECTLY PLACED BY THE ESSAR GR OUP BEFORE THE HON'BLE HIGH COURT. MOREOVER, THERE WAS ALSO THE ISSUE OF C ONVERSION OF COMPULSORY CONVERTIBLE PREFERENCE SHARES (CCPS) ISSUED TO TWO FIIS BY ISL RAISED BY THE INDEPENDENT AUDITORS, BUT NOT CONSIDERED AS THE SAM E WERE NOT BOUGHT BEFORE THE COURT BY ESSAR GROUP. ETHPL WAS THUS AMA LGAMATED WITH ISL W.E.F. 01/04/2010 AS PER THE MADRAS HIGH COURT'S OR DER DATED 21/04/2011 AND ECHL BECAME THE DIRECT SUBSIDIARY OF ISL WHICH WAS THE PURPOSE OF THE ESSAR GROUP AS LATER ON SALE OF VEL SHARES AS PER T HE 'PUT OPTION' AGREEMENT HAS TAKEN PLACE IN ISL AND LTCG CLAIMED EXEMPT U/S. 10(38) OF THE ACT/ AS DISCUSSED IN THE NEXT CHANNEL. 2.6 CHANNEL NO. 6: SALE OF 10.97% OF VEL SHAR ES UNDER PUT OPTION' AGREEMENT THROUGH ISL AND EXEMPTION OF LTCG CLAIMED U/S 10(38) OF THE ACT ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 57 & EVASION OF MAT PROVISIONS BY INCREASING COST OF V EL SHARES IN THE BOOKS OF ISL AS ON THE APPOINTED DATE, 01/04/2010, ETHPL DID NOT HAVE ANY OTHER ASSETS IN ITS BALANCE SHEET EXCEPT THE INVESTMENT OF RS. 1 565 CR. IN ECHL AT A PREMIUM OF RS. 1407.82 CR. WHICH WAS FUNDED BY ETHL . THUS, IN EFFECT, THE VEL SHARES HELD BY ECHL WAS THE ONLY TANGIBLE ASSET WHICH HAD BEEN INDIRECTLY ACQUIRED BY ISL THROUGH THIS AMALGAMATIO N. FOR THE PURPOSE OF ARRIVING AT THE CONSIDERATION PAYABLE IN LIEU OF NE T ASSETS OF THE AMALGAMATING COMPANY, THE FAIR VALUE OF VEL SHARES HELD BY ECHL OUGHT TO HAVE BEEN CONSIDERED. THOUGH IT WAS STATED THAT THE AMALGAMATION IS ACCOUNTED FOR UNDER THE PURCHASE METHOD AS PER AS 1 4, THE INVESTMENT IN ECHL IN THE BOOKS OF ETHPL WAS NOT TAKEN AT ITS FAI R VALUE, RESULTING IN A DEFICIT OF RS. 371.36 CR., WHICH WAS ACCOUNTED AS ' GOODWILL' IN THE BOOKS OF ISL. ETHL AS THE HOLDING COMPANY OF ETHPL, WAS ISSU ED 330 EQUITY SHARES OF RS. 1 EACH OF ISL AND ONE 0.01% NON CUMULATIVE PREF ERENCE SHARES OF RS. 2000 EACH FOR EVERY SHARE OF ETHPL IT HELD. ALLOTME NTS WERE DONE ON 3RT! JUNE, 2011. ETHL HAD 15,41,000 EQUITY SHARES OF ETH PL AS ON 31/03/2010 AND AS PER THE FORMULA IT RECEIVED 508529670 EQUITY SHARES OF ISL HAVING A MARKET VALUE OF RS. 30511780200 (508529670 X RS.60) . IN ADDITION TO THIS, ETHL ALSO RECEIVED 1541000 PREFERENCE SHARES OF RS. 2000 EACH HAVING A TOTAL VALUE OF RS. 3082000000/-. THUS, ETHL RECEIVE D SHARES OF ISL (EQUITY AND PREFERENCE) WORTH RS. 3358.37 CR. ON 03/06/2011 WHICH WAS NOTHING BUT CONSIDERATION FOR 10.97% STAKE IN VEL HELD INDI RECTLY THROUGH ETHPL AND ECHL. THIS CONSIDERATION WAS MUCH LESS THAN THE DIS COUNTED NET PRESENT VALUE OF VEL STAKE RECOGNIZED AT RS. 5268 CR. IN TH E BOOKS OF ECHL. CLEARLY, THERE WAS UNDER VALUATION OF ECHL SHARES BY RS. 200 0 CR. IN THIS PROCESS. THOUGH SUCH SWAPPING IS A TAXABLE TRANSFER HAD IT B EEN DONE DIRECTLY FROM ETHL TO ISL, THE ENTIRE SEQUENCE OF TRANSACTIONS IN CLUDING CREATION OF THREE SUBSIDIARIES AND THE AMALGAMATION OF ETHPL WITH ISL HAS BEEN CARRIED OUT WITH THE SOLE PURPOSE OF EVASION OF TAX AND NOWHERE IN THE WHOLE SEQUENCE OF EVENTS ANY COMMERCIAL SUBSTANCE IS FOUND PRESENT . IMMEDIATELY AFTER THE ALLOTMENT OF ISL SHARES, ETHL HAS SOLD 12,71,32,500 SHARES OF ISL TO ECL THROUGH OFF MARKET TRANSACTION AND HAS RETURNED A T AXABLE GAIN OF RS. 723.12 CR BUT SET IT OFF AGAINST BROUGHT FORWARD LONG TERM CAPITAL LOSSES CREATED EARLIER. THE REMAINING OF THE EQUITY SHARES OF ISL WAS SOLD TO ECL BY BULK TRANSFERS DURING THE PERIOD 25TH AUGUST 2011 TO 3RD OCTOBER 2011. THE RESULTANT GAIN CALCULATED AT RS. 2283.91 CR. HAS BE EN CLAIMED AS EXEMPT U/S. 10(38) OF THE ACT. FOR THE PURPOSES OF COMPUTING CA PITAL GAINS, COST AND PERIOD OF HOLDING WERE TAKEN AS THAT OF ACQUIRING E THPL SHARES, I.E. AT RS.14.41 CR. ONLY. SINCE THE SHARES OF ISL ARE LIST ED, LONG TERM CAPITAL GAIN ON ITS SALE BY ETHL TO ECL WAS CLAIMED EXEMPT U/S. 10( 38) OF THE ACT. THE CAPITAL GAINS ON OFF-MARKET TRANSFER WAS SOUGHT TO BE SET OFF AGAINST BROUGHT FORWARD LOSSES. IN EFFECT, TO THE EXTENT OF LONG TE RM CAPITAL LOSS AVAILABLE, EGHL TRANSFERRED THE SHARES OF ISL OFF MARKET AND C LAIMED SET OFF OF AVAILABLE LOSSES AND THE REST OF THE SHARES WERE TR ANSFERRED THROUGH MARKET, BY VIRTUE OF WHICH THE ENTIRE GAIN WAS CLAIMED AS E XEMPT U/S. 10(38) OF THE ACT. THUS, EFFECTIVELY, NO TAX HAS BEEN PAID BY ETH L WHICH ORIGINALLY HELD THE SHARES OF VEL, THOUGH IT EVENTUALLY TRANSFERRED THE ENTIRE HOLDING WITH A 'PUT OPTION' OF $1.26 BILLION TO ISL. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 58 2.6.1. AFTER HAVING GOT ETHPL AMALGAMATED WITH ITSE LF, ISL SOUGHT TO AMALGAMATE ECHL ALSO WITH ITSELF AND SUCCEEDED IN G ETTING THE SCHEME APPROVED BY THE HON'BLE HIGH COURT AT CHENNAI W.E.F . 01/04/2010 VIDE COURT'S ORDER DATED 13/02/2012. BY THIS TIME, THE E NTIRE STAKE IN VEL HAD BEEN SOLD BY ECHL DIRECTLY TO PIRAMAL HEALTH CARE L TD. THE RATIONALE PUT FORTH FOR AMALGAMATING ECHL WITH ISL WAS TO FACILIT ATE DIRECT CONTROL OVER ASSETS OF ECHL IN THE HANDS OF ISL. AS THE ONLY MAJ OR TELECOM ASSET HELD BY THE ISL OTHER THAN INTER GROUP OCDS AND INVESTMENTS IN SHARES OF GROUP CONCERNS, WAS 10.97% STAKE IN VODAFONE ESSAR LTD. ( VSL) HELD BY THE GROUP ONSHORE ALREADY SOLD TO PIRAMAL GROUP BY ECHL, IT I S QUITE EVIDENT THAT THE STATED PURPOSE FOR WHICH THE AMALGAMATION OF ECHL W ITH ISL WAS SOUGHT TO BE CARRIED OUT HAD ALREADY BEEN NULLIFIED SINCE AFT ER THE SALE OF VEL SHARES BY ECHL, THERE WERE NO OTHER TELECOM ASSETS EXCEPT THE OCDS AND FCDS OF THE GROUP CONCERNS. THE ONLY REAL PURPOSE THAT THES E AMALGAMATIONS HAD SERVED POST FACTO VEL STAKE SALE IS TO MANIPULATE T HE ACCOUNTING TREATMENTS SO AS TO EVADE PAYMENT OF TAXES THEREON BY ANY OF T HE ENTITIES CONCERNED. IT IS EVIDENT THAT THE SANCTION OF THE HON'BLE HIGH CO URTS HAS BEEN OBTAINED WITHOUT DISCLOSING TRULY AND FULLY AL] MATERIAL FAC TS RELEVANT TO THE STATED PURPOSE OF AMALGAMATION AND DETAILS OF AMALGAMATION , VALUATION OF NET WORTH, SWAP RATIO, JUSTIFICATION FOR SETTLEMENT OF SHAREHOLDERS' ACCOUNT WITH MULTIPLE ALLOTMENTS OF EQUITY SHARES, DEBENTURES ET C., OBJECTIONS RAISED BY THE AUDITORS BEFORE THE HON'BLE HIGH COURT ON THE A NOMALIES IN VALUATION AND DISCLOSURE STANDARDS OF SCHEME OF AMALGAMATION OF ETHPL WITH- ISL WHICH WERE NEVER LOOKED INTO. 2.7 CHANNEL NO. 7: MERGER OF ISL WITH ECL AND THE C OST OF VEL TAKEN AT RS. 6000CR AS AGAINST COST OF RS. 1260 CR BEING THE COST OF ACQUISITION ECL HAD ALREADY ACQUIRED THE SHARES OF ISL ALLOTTED TO ETHL ON AMALGAMATION OF ETHPL WITH ISL AND DECLARED IN THE RETURN OF INCOME FILED BY ETHL. THE SHARES OF ISL ISSUED ON EXCESS OF THE PERMISSIBLE CONVERSION RATE TO THE TWO FIIS HAVE ALSO BEEN PURCHASED BY EC L BY WAY OF EXIT OFFER IN MARCH, 2012, THUS ACQUIRING 97% OF SHARES IN ISL. I SL ALSO MERGED WITH ECL W.E.F. 01/04/2011 AS PER COURT ORDER DATED 11/01/20 13 BY WHICH TIME THERE WAS NEITHER ANY SHARES OF VEL WITH THE GROUP NOR WA S THERE ANY OTHER BUSINESS ASSETS OF THE LIKE. THOUGH IT WAS ECHL THA T ACTUALLY SOLD THE SHARES, THE ACCOUNTING FOR OF THE ACTUAL SALE WAS DONE ONLY IN THE HANDS OF ECL POST AMALGAMATION. THE ASSESSEE IN ITS SUBMISSION DATED 06/03/2017HASCONTENDED THAT AMALGAMATION OF ISL WIT H ECL WAS NOT FALLING WITHIN THE DEFINITION OF THE TERM 'AMALGAMATION' AS GIVEN U/S. 2(1B) OF THE INCOME TAX ACT, 1961. THEREFORE, IT IS ARGUED THAT PROVISION OF SECTION 47(VI) AND SECTION 49 WOULD NOT APPLY TO THE FACTS OF THE CASE. ACCORDINGLY, THE ASSESSEE DID NOT CONSIDER THE COST OF ACQUISITION O F THE SHARES IN THE HANDS OF ECHL AS WELL AS ISL AS THE COST OF ACQUISITION W HILE CALCULATING THE CAPITAL GAIN ON SALE OF SHARES OF VEL. THE ASSESSEE HAS, TH US, CONTENDED THAT COST OF RS. 6077.07CR. IS JUSTIFIED IN THE LIGHT OF PROVISI ONS OF SECTION 49(1)(III)(E) OF THE ACT. THE ABOVE CONTENTION WAS ALSO RAISED BEFOR E THE AO DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. THEREFO RE, IT HAS BEEN ARGUED BY THE ASSESSEE THAT THE AO HAS ALREADY APPLIED HIS MI ND TO THE ASPECT OF COST OF ACQUISITION OF SHARES OF VEL. HOWEVER, IN THE AB OVE SUBMISSION, THE ASSESSEE HAS AGREED THAT PROVISION OF SECTION 47(VI ) IS NOT APPLICABLE. IF THIS ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 59 IS THE CASE THEN THE TRANSFER OF ASSETS IN THE SCHE ME OF AMALGAMATION WOULD BE TAXABLE IN THE HANDS OF THE AMALGAMATING COMPANY . IF IT IS NOT TAXED, THE DIFFERENCE BETWEEN THE ORIGINAL COST OF ACQUISI TION, I.E. RS. 1260 CR. AND THE REVISED COST OF ACQUISITION THAT IS RS. 6000 CR . WOULD GO UNTAXED WHICH IS NOT PERMISSIBLE. THE SAID DIFFERENCE WOULD BE TAX ABLE IN THE HANDS OF THE AMALGAMATED COMPANY, I.E. ECL IN ACCORDANCE WITH TH E PROVISION OF SECTION 170 OF THE ACT. THIS ASPECT OF THE MATTER HAS NOT B EEN CONSIDERED BY THE AO IN THE ASSESSMENT PROCEEDINGS. THUS, CAPITAL GAINS IN THE HANDS OF AMALGAMATING COMPANY AS A RESULT IN TRANSFER OF ASS ETS DURING THE COURSE OF AMALGAMATION, WAS SOMETHING WHICH WAS NOT ENQUIRED INTO OR GONE INTO BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THIS MAKES THE ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. THIS ALSO DEMONSTRATES THAT THE ABOVE TAX EVASION SCHEME WAS DEVISED SO THAT THE ULTIMATE COST OF ACQUISITION OF VEL SHARES COULD BE TAKEN AT RS. 6000 CR. INSTEAD OF THE ACTUAL COST OF RS. 1260 CR. THIS PLA NNING OF THE ASSESSEE IS NOTHING BUT, FOR THE PURPOSE OF TAX WHICH IS IMPERM ISSIBLE IN THE LIGHT OF JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF M C'DOWELLS. (1985) 154 ITR 148 (SC). 3. THE ASSESSMENT ORDER IS ALSO FOUND ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE REASON THAT AS SEE N FROM THE EVENTS, ON 23.03.2015 THE AO MADE A REQUEST FOR INFORMATION UN DER THE PROVISION 'EXCHANGE OF INFORMATION' ARTICLE OF INDO-MAURITIUS DTAA IN THE CASE OF ISL FOR FOREIGN ENTITY ETHL COMMUNICATIONS (MAURITIUS) LTD, MAURITIUS TO THE JS (FT&TR) CBDT, NEW DELHI IN THE PRESCRIBED PROFORMA. IN TURN, JS (FT & TR) - II, CBDT WROTE TO THE MAURITIAN COMPETENT AUTHORITY ON 26.03.2015 REQUESTING FOR THE INFORMATION UNDER THE PRESCRIBED PROFORMA. THE INFORMATION ABOUT MAKING THIS REQUEST WAS RECEIVED BY THE PR. CIT ON 26.03.2015 WHICH WAS CONVEYED TO THE ADDL. C1T AND DCIT, MUMBAI. IN THIS REGARD, CLAUSE (VII) OF EXPLANATION 1 TO SECTION 15 3 OF THE IT ACT/ 1961 PROVIDES AS FOLLOWS: 'THE PERIOD COMMENCING FROM THE DATE ON WHICH A REF ERENCE OR FIRST OF THE REFERENCES FOR EXCHANGE OF INFORMATION IS MA DE BY AN AUTHORITY COMPETENT UNDER THE AGREEMENT REFERRED TO IN SECTION 90 OR SECTION 90A AND ENDING WITH THE DATE ON WHICH TH E INFORMATION REQUESTED IS LAST RECEIVED BY THE PRINCIPAL COMMISS IONER OR COMMISSIONER OR A PERIOD OF ONE YEAR ... SHALL BE E XCLUDED' IN COMPUTATION OF THE LIMITATION PERIOD. 3.1 THE FIRST PROVISO TO THE ABOVE CLAUSE, THEREFOR E, MENTIONS THAT WHERE IMMEDIATELY AFTER THE EXCLUSION OF THE AFORESAID TI ME OR PERIOD, THE PERIOD OF LIMITATION AVAILABLE TO THE ASSESSING OFFICER FO R MAKING AN ORDER OF ASSESSMENT IS LESS THAN SIXTY DAYS, THE PERIOD OF L IMITATION SHALL BE EXTENDED TO SIXTY DAYS. HOWEVER, IN SPITE OF RECEIVING THE C OMMUNICATION THAT THE INDIAN COMPETENT AUTHORITY HAS MADE A REFERENCE FOR EXCHANGE OF INFORMATION TO THE MAURITIAN COMPETENT AUTHORITY UN DER THE INDIA MAURITIUS DTAA, THE AO DID NOT AVAIL OF THE BENEFIT OF EXCLUSION OF TIME PERIOD AND EXTENSION OF PERIOD OF LIMITATION FOR CO MPLETING OF THE ASSESSMENT ORDER AS PROVIDED UNDER CLAUSE (VIII) OF EXPLANATION 1 TO SECTION 153 AND MADE THE ASSESSMENT ORDER ON 30.03.2015 ITS ELF AND DID NOT WAIT FOR THE INFORMATION ALSO. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 60 4. IN SO TAR THE VARIOUS CASE LAWS AND DECISIONS RE LIED UPON BY THE ASSESSEE IN ITS SUBMISSIONS REPRODUCED ABOVE ARE CO NCERNED/ RELIANCE IS PLACED ON DECISIONS GIVEN BELOW TO SUPPORT THE CONT ENTION THAT REVISION U/S 263 OF THE ACT OUGHT TO BE MADE AS ORDER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 4.1 KILLICK NIXON LTD V. DCIT (BOM HC) (ITA N O. 5518 OF 2010) PARA 14 - WE FIND THAT THE TRIBUNAL HAS CONSIDERED THE EVIDENCE OF PURCHASE AND SALE OF SHARES TO BOOK LONG TERM AND SHORT TERM LOSSES AND TAKING ALL THE EVIDENCE TOGETHER INCLUDING THE SURROUNDING CIRCUMS TANCES REACHED A FINDING THAT THE PURCHASE AND SALE OF SHARES IS NOT GENUINE. SO FAR AS TIRE DECISION OF THE SUPREME COURT IN VODAFONE INTERNATI ONAL (DATED 20 JANUARY 2012) IS CONCERNED/ THE COURT CONSIDERED ITS DECISI ONS IN THE MATTERS OF MCDOWELL REPORTED IN (1985) 3 SCC 230, AZADI BACHAO REPORTED IN (2004) 10 SCC 1 AND THE MATHURAM AGARWAL REPORTED IN (1999) 8 SCC 667 AND CONCLUDED THAT WHERE THE TRANSACTION IS NOT GENUINE BUT A COLOURABLE DEVICE THERE COULD BE NO QUESTION OF TAX PLANNING. THE SUP REME COURT IN THE AFORESAID CASE AFTER CONSIDERING THE AFORESAID TWO DECISIONS CONCLUDED AS FOLLOWS: 'THE MAJORITY JUDGMENT IN MCDOWELL HELD THAT 'TAX P LANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF L AW' (PARA-45). IN THE LATTER PART OF PARA 45, IT HELD THAT 'COLOURABLE DEVICE CA NNOT BE A PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE THE BELIEF TH AT IT IS HONOURABLE TO AVOID PAYMENT OF TAX BY RESORTING TO DUBIOUS METHOD S'. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES WITHOUT RESORTING TO SUBTERFUGES. THE ABOVE OBSERVATIONS SHOULD BE READ WITH PARA 46 WHERE THE MAJORITY HOLDS 'ON THIS ASPECT ONE OF US CHINAPPA REDDY J. HAS PROPOSED A S EPARATE OPINION WITH WHICH WE AGREE'. THE WORDS 'THIS ASPECT' EXPRESS TH E MAJORITY'S AGREEMENT WITH THE JUDGMENT OF REDDY, J. ONLY IN RELATION TO TAX EVASION THROUGH THE USE OF COLOURABLE DEVICES AND BY RESORTING TO DUBIO US METHODS AND SUBTERFUGES. THUS, IT CANNOT BE SAID THAT ALL TAX P LANNING IS ILLEGAL/ ILLEGITIMATE/ IMPERMISSIBLE. MOREOVER, REDDY. J HIM SELF SAYS THAT HE AGREES WITH THE MAJORITY. IN THE JUDGMENT OF REDDY. J THER E ARE REPEATED REFERENCES TO SCHEMES AND DEVICES IN CONTRADISTINCTION TO 'LEG ITIMATE AVOIDANCE OF TAX LIABILITY (PARAS 7-10, 17 AND 18). IN OUR VIEW, ALT HOUGH CHINNAPPA REDDY, J. MAKES A NUMBER OF OBSERVATIONS REGARDING THE NEED T O DEPART FROM THE 'WESTMINSTER' AND TAX AVOIDANCE- THESE ARE CLEARLY ONLY IN THE CONTEXT OF ARTIFICIAL AND COLOURABLE DEVICES. READING MCDOWELL , IN THE MANNER INDICATED HEREINABOVE, IN CASES OF TREATY SHOPPING AND/OR TAX AVOIDANCE/ THERE IS NO CONFLICT BETWEEN MCDOWELL AND AZADI BACHAO OR BETWE EN MCDOWELL AND MATHURAM AGARWAL.' PARA 15- THE AFORESAID OBSERVATIONS OF THE SUPREME COURT MAKES IT VERY CLEAR THAT A COLOURABLE DEVICE CANNOT BE A PART OF TAX PLANNING. THEREFORE WHERE A TRANSACTION IS SHAM AND NOT GENUINE AS IN T HE PRESENT CASE THEN IT CANNOT BE CONSIDERED TO BE A PART OF TAX PLANNING O R LEGITIMATE AVOIDANCE OF TAX LIABILITY. THE SUPREME COURT IN FACT CONCLUDED THAT THERE IS NO CONFLICT BETWEEN ITS DECISIONS IN THE MATTER OF MCDOWELL (SU PRA), AZADI BACHAO (SUPRA) AND MATHURAM AGARWAL (SUPRA). IN THE PRESEN T CASE THE PURCHASE AND SALE OF SHARES/ SO AS TO TAKE LONG TERM AND SHO RT TERM CAPITAL LOSS WAS FOUND AS A MATTER OF FACT BY ALL THE THREE AUTHORIT IES TO BE A SHAM. THEREFORE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 61 AUTHORITIES CAME TO A FINDING THAT THE SAME WAS NOT GENUINE. SO FAR AS THE QUESTION NOS.(II), (III) (IV) AND (V) ARE CONCERNED , WE HOLD THAT THESE ARE PURE QUESTIONS OF FACTS AND AS THERE ARE CONCURRENT FIND ING OF THE AUTHORITIES BELOW, NO QUESTION OF LAW ARISES FOR THIS COURT TO INTERFERE. THE HON'BLE BOMBAY HIGH COURT IN THE ABOVE CASE WAS DEALING WIT H A SIMILAR SITUATION AND, THEREFORE, THE SAID JUDGEMENT IS CLEARLY APPLI CABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. THE FACTS OF THE PRESENT CASE AS ELABORATED IN THE ABOVE PARAGRAPHS ALSO DEMONSTRATE THE COLOURABLE DE VICES ADOPTED BY THE ESSAR GROUP WHICH ASPECT OF THE MATTER WAS COMPLETE LY NOT ENQUIRED INTO BY THE ASSESSING OFFICER IN THE MANNER AS STATED ABOVE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THIS CLEARLY MAKES THE ORDE R ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 4.2 CIT V. AMITABH BACHCHAN (2016) 384 ITR 20 0 (SO PARA 19, 20 - THE CIT TOOK THE VIEW THAT NOTWITHSTA NDING THE WITHDRAWAL OF THE CLAIM BY THE ASSESSEE, IN VIEW OF THE EARLIER S TAND TAKEN THAT THE SAID EXPENSES WERE INCURRED FOR SECURITY PURPOSES OF THE ASSESSEE, THE ASSESSING OFFICER OUGHT TO HAVE PROCEEDED WITH THE MATTER AS THE ASSESSEE WAS FOLLOWING THE CASH SYSTEM OF ACCOUNTING AND THE FIL ING OF THE RE-REVISED RETURN, PRIMA FACIE, INDICATED THAT THE ADDITIONAL EXPENSES CLAIMED HAD BEEN INCURRED. WITHDRAWAL OF CLAIM BY ASSESSEE CAN BE FO R VARIETY OF REASONS AND THIS DOES NOT MEAN THAT ASSESSING OFFICER SHOULD AB ANDON ENQUIRIES REGARDING SOURCES FOR INCURRING EXPENSES, ASSESSEE FOLLOWS CASH SYSTEM OF ACCOUNTING AND THE CLAIM REGARDING ADDITIONAL EXPEN SES WAS MADE THROUGH DULY VERIFIED REVISED RETURN. THE CLAIM WAS PRESSED DURING ASSESSMENT PROCEEDINGS CARRIED ON BY A.O. AFTER FILING REVISED RETURN AND IT WAS SPECIALLY STATED IN LETTER DATED 13.02.2004 THAT EXPENSES WER E FOR SECURITY PURPOSES AND THAT PAYMENTS HAVE BEEN MADE OUT OF CASH BALANC ES AVAILABLE ETC. UNDER THE CIRCUMSTANCES, THE ASSESSING OFFICER WAS EXPECTED TO EXAMINE THE MATTER FURTHER TO ARRIVE AT A DEFINITE FINDING WHETHER ASSESSEE INCURRED EXPENSES OR NOT AND IN CASE, ACTUALLY INCURRED, THE N WHAT WERE SOURCES FOR INCURRING THESE EXPENSES. ASSESSING OFFICER WAS SAT ISFIED ON WITHDRAWAL OF THE CLAIM AND IN MY VIEW, HIS FAILURE TO DECIDE THE MATTER REGARDING ACTUAL INCURRING OF ADDITIONAL EXPENSES AND SOURCES THEREO F RESULTED INTO ERRONEOUS ORDER WHICH IS PREJUDICIAL TO THE INTERES T OF REVENUE.' PARA 21 - THERE CAN BE NO DOUBT THAT SO LONG AS THE VIEW TAKEN BY THE ASSESSING OFFICER IS A POSSIBLE VIEW THE SAME OUGHT NOT TO BE INTERFERED WITH BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT ME RELY ON THE GROUND THAT THERE IS ANOTHER POSSIBLE VIEW OF THE MATTER. PERMITTING EXERCISE OF REVISIONAL POWER IN A SITUATION WHERE TWO VIEWS ARE POSSIBLE WOULD REALLY AMOUNT TO CONFERRING SOME KIND OF AN APPELLATE POWE R IN THE REVISIONAL AUTHORITY. THIS IS A COURSE OF ACTION THAT MUST BE DESISTED FROM. HOWEVER, THE ABOVE IS NOT THE SITUATION IN THE PRESENT CASE IN VIEW OF THE REASONS STATED BY THE LEARNED C.I.T. ON THE BASIS OF WHICH THE SAID AUTHORITY FELT THAT THE MATTER NEEDED FURTHER INVESTIGATION, A VIEW WIT H WHICH WE WHOLLY AGREE. MAKING A CLAIM WHICH WOULD PRIMA FACIE DISCLOSE THA T THE EXPENSES IN RESPECT OF WHICH DEDUCTION HAS BEEN CLAIMED HAS BEE N INCURRED AND THEREAFTER ABANDONING/WITHDRAWING THE SAME GIVES RI SE TO THE NECESSITY OF FURTHER ENQUIRY IN THE INTEREST OF THE REVENUE. THE NOTICE ISSUED UNDER SECTION 69-COF THE ACT COULD NOT HAVE BEEN SIMPLY D ROPPED ON THE GROUND ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 62 THAT THE CLAIM HAS BEEN WITHDRAWN. WE, THEREFORE, A RE OF THE OPINION THAT THE LEARNED C.I.T. WAS PERFECTLY JUSTIFIED IN COMIN G TO HIS CONCLUSIONS INSOFAR AS THE ISSUE NO.(III) IS CONCERNED AND IN PASSING T HE IMPUGNED ORDER ON THAT BASIS. THE LEARNED TRIBUNAL AS WELL AS THE HIGH COU RT, THEREFORE, OUGHT NOT TO HAVE INTERFERED WITH THE SAID CONCLUSION. 4.3 IT IS POINTED OUT IN MCDOWELL & CO, LTD. V . COMMERCIAL TAX OFFICER (1985) 154 ITR 148, THE SUPREME COURT HELD THAT IT IS UP TO THE COURT TO TAKE STOCK TO DETERMINE THE NATURE OF THE NEW AND SOPHIS TICATED LEGAL DEVICES TO AVOID TAX AND CONSIDER THE SITUATION CREATED B THE DEVICES COULD BE RELATED TO THE EXISTING LEGISLATION WITH THE AID OF 'EMERGI NG' TECHNIQUES OF INTERPRETATION AND WHERE IT WAS HELD THE TECHNIQUE WAS COLORABLE AND DUBIOUS THAT A THE COURT IS ENTITLED TO LIFT THE MA SK OF CORPORATE ENTITY, IF THE CONCEPT IS USED FOR TAX EVASION, OR TO CIRCUMVENT T AX OBLIGATION, OR TO PERPETUATE OF FRAUD. HOWEVER, IF TAX PLANNING MAY B E LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF THE LAW. COLORABLE DEVIC ES CANNOT BE PART OF TAX PLANNING. 4.4 THE JUDGEMENT OF THE BOMBAY HIGH COURT IN ADITYA BIRLA NUVO VS. DDIT (2011-TII-26-HC-MUM-INTL) MUST HAVE SENT A CHI LL DOWN THE SPINE OF FOREIGN INVESTORS HOPING TO ESCAPE TAX IN INDIA BY ROUTING THEIR INVESTMENTS THROUGH MAURITIUS. AT&T USA SET UP A 100% SUBSIDIAR Y IN MAURITIUS, FUNDED IT WITH ENOUGH CAPITAL AND GOT IT TO INVEST IN THE SHARES OF IDEA CELLULAR. SO WHAT IF AT&T MAURITIUS WAS A DUMMY COMPANY WITH NO OPERATIONS WORTH ITS NAME. IT HAD THE 'PRECIOUS' TAX RESIDENCY CERTIFICA TE FROM THE MAURITIUS TAX AUTHORITIES AND THAT IS ALL THAT WAS REQUIRED TO WI SH AWAY ALL TAX HEADACHES AS PER THE CBDT'S CIRCULAR NOS 682 & 789 DATED 30.3 .1994 AND 30.4.2000 AND THE JUDGEMENT OF THE SUPREME COURT IN UOI VS. A ZADI BACHAO ANDOLAN 263 ITR 706. ADITYA BIRLA NUVO OBTAINED CERTIFICATE FROM THE ASSESSING OFFICER REGARDING THE REMITTANCE COULD BE MADE WITH OUT DEDUCTION OF TAX AT SOURCE. HOWEVER, LATER IT WAS FOUND THAT ORIGINAL A GREEMENT BETWEEN ADITYA BIRLA NUVO AND THE AT&T USA AND IT IS PROVIDED THAT AT&T USA WOULD 'NOMINATE' AT&T MAURITIUS AS ITS 'PERMITTED TRANSFE REE'' TO HOLD THE SHARES OF IDEA CELLULAR. IT IS CLEAR THAT AT&T MAURITIUS I S NOT BENEFICIAL OWNER AND IT IS EVIDENT THAT THE PAYMENTS MADE 'BY AT&T MAURITIU STO THE JVC WAS OBVIOUSLY FOR AND ON BEHALF OF AT&T USA, BECAUSE, U NDER THE JVA, THE OBLIGATION TO SUBSCRIBE AND OWN THE SHARES OF THE J VC WAS ON AT&T USA. FURTHER, THE COURT OBSERVED 'IT COULD NOT CLAIM TO BE AN INNOCENT PURCHASER UNAWARE OF THE CIRCUMSTANCES IN WHICH THE SHARES WE RE ISSUED IN THE NAME OF AT&T MAURITIUS'. ADITYA BIRLA NUVO ALSO SUFFERED THE IGNOMINY OF BEING TOLD THAT IT HAD 'KNOWINGLY MADE INCORRECT REPRESEN TATIONS' TO THE AC) TO OBTAIN THE S. 195(2) CERTIFICATE. THE COURT THUNDER ED THAT ADITYA BIRLA NUVO HAD NOT ONLY 'FAILED TO DISCLOSE THE 'MATERIAL FACT S' BUT HAD ALSO 'WRONGLY REPRESENTED THE FACTS' TO THE AO. 'HAVING WRONGLY R EPRESENTED TO THE AO, IT IS NOT OPEN TO INDIAN RAYON TO CONTEND THAT THE AO IS PRECLUDED FROM TAKING CORRECTIVE STEPS AS IS PERMISSIBLE IN LAW' THE COUR T ADDED. 4.5 IN CIT V. SRI MEENAKSHI MILLS LTD. [1967] 63 ITR 609 (SC), THE JUDICIAL APPROACH TO SUCH PROBLEMS WAS STATED AS FOLLOWS (P. 616): 'IT IS TRUE THAT FROM THE JURISTIC POINT OF VIEW, T HE COMPANY IS A LEGAL PERSONALITY ENTIRELY DISTINCT FROM ITS MEMBERS AND THE COMPANY IS CAPABLE OF ENJOYING RIGHTS AND BEING SUBJECTED TO DUTIES WH ICH ARE NOT THE SAME AS ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 63 THOSE ENJOYED OR BORNE BY ITS MEMBERS. BUT IN CERTA IN EXCEPTIONAL CASES THE COURT IS ENTITLED TO LIFT THE VEIL OF CORPORATE ENT ITY AND TO PAY REGARD TO THE ECONOMIC REALITIES BEHIND THE LEGAL FACADE.' 4.6 FIRE STONE TYRE AND RUBBER CO. V. LLEWELL IN (1957) 1 W.L.R. 464 IT IS THE DUTY OF THE COURT, IN EVERY CASE WHERE IN GENUITY IS EXPENDED TO AVOID TAXING AND WELFARE LEGISLATIONS, TO GET BEHIN D THE SMOKE-SCREEN AND DISCOVER THE TRUE STATE OF AFFAIRS. THE COURT IS NO T TO BE SATISFIED WITH FORM AND LEAVE WELL ALONE THE SUBSTANCE OF A TRANSACTION . 6. THE DISCUSSION MADE IN THE PRECEDING PARA S CAN BE SUMMED UP IN SHORT THAT THE ASSESSEE HAS CREATED A NUMBER OF SHELL COMPANIE S AND MAZE OF TRANSACTIONS AND DEVISED THE STRATEGY OF AMALGAMATION OF CLOSELY HELD COMPANIES THROUGH COURTS WITH SINISTER DESIGN TO EVADE TAXES ON THE T RANSFER OF 10.97% STAKE OF VEL SHARES HELD BY THE INDIAN ENTITY OF THE GROUP TO VO DAFONE FOR US $ 1.26 BILLION (EQUIVALENT TO INR 5862 CR), THE COST PRICE OF WHIC H IN THE BOOKS WAS RS 1260 CR. AND THEREBY DENIED THE REVENUE ITS RIGHTFUL SHARE OF TA XES IN THE FORM OF LONG TERM CAPITAL GAIN TAX THAT ACCRUED ON IT. 7. I HAVE ALSO SIMULTANEOUSLY INITIATED PROCEEDING S U/S. 263 OF THE ACT IN THE CASE OF ETHL IN A.Y. 2012-13 AND ISL (MERGED WITH E CL) IN A.Y. 2011-12 IN ORDER TO PLUG ANY LOOPHOLE IN THE PROCEEDINGS TO TAX THE LON G TERM CAPITAL GAIN ARISING TO THE ESSAR GROUP ON TRANSFER OF SHARES HELD IN VEL T O THE PIRAMAL GROUP AND DIRECTIONS ARE SIMULTANEOUSLY BEING GIVEN TO THE AS SESSING OFFICER IN ALL THE THREE CASES, VIDE ORDER U/S. 263 OF THE ACT, TO MAKE REQU ISITE ENQUIRIES IN THE ABOVE CASES AND GIVE A FINDING OF FACT AS TO THE REAL PURPOSE F OR WHICH THESE COMPANIES WERE CREATED AND THE EXACT MOTIVE OF TRANSACTIONS CARRIE D OUT IN THE SAID COMPANIES. FURTHER, IF AS PER THE SUBMISSION OF THE ASSESSEE C OMPANY ITSELF, THE AMALGAMATION OF ISL WITH THE ECL IS NOT SATISFYING THE CONDITION S OF SECTION 2(1B) OF THE ACT, THE NATURAL CONSEQUENCE OF THE SAME WILL BE NON-APPLICA BILITY OF PROVISION OF SECTION 47(VI) OF THE ACT, WHICH WILL ENTAIL TAXABILITY IN THE HANDS OF AMALGAMATING COMPANY, I.E. ISL (MERGED WITH ECL), IN RESPECT OF ASSETS TR ANSFERRED IN THE SCHEME OF AMALGAMATION TO THE ASSESSEE. ALL THESE ASPECTS WER E NOT CONSIDERED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS. FURTHER, THE COST OF ACQUISITION OF VEL SHARES IN THE HANDS OF ISL (MERG ED WITH ECL) IS RS.12.60 CRORE AND AFTER MERGER OF ISL WITH ECL, THE COST OF ACQUISITI ON OF THE ASSETS TAKEN BY ECL IS AT RS.6077 CRORE WHEREAS, IN THE HANDS OF ISL THE TRAN SFER OF SHARES HAS BEEN SHOWN AT RS. 1260 CRORE- THUS, EFFECTIVELY, IN BOTH COMPANIE S ASSESSEE HAS EVADED TAX ON RS.4817 CRORE (RS.6077 CR - RS.1260 CR). THEREFORE, I DIRECT THE ASSESSING OFFICER TO VERIFY THE TRANSACTION IN DETAIL. 8. I, ACCORDINGLY, SET ASIDE THE IMPUGNED ASSESSME NT ORDER AS IT IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THE AO IS DIRECTED TO RE-DO THE ASSESSMENT IN THE LIGHT OF THE OBSERVATION MADE ABO VE, VIZ. TO VERIFY THE TRANSACTIONS MADE BY THE ASSESSEE TO EVADE TAX AS N OTED IN THE ORDER AFTER CALLING FOR ALL THE RELEVANT DOCUMENTS IN THIS REGARD AND P ROVIDING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. THE LD COUNSEL OF THE ASSESSEE VEHEMENTLY SUBMI TTED BEFORE THE BENCH THAT THE ASSESSMENT FRAMED BY THE AO U/S 143(3) OF ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 64 THE ACT DATED 30.03.2015 IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE THE EXERC ISE OF REVISIONAL JURISDICTION U/S 263 OF THE ACT BY THE P CIT HAS WRONGLY AND INVALIDLY ASSUMED. THE LD AR SUBMITTED THAT THE TAXABILITY OF CAPITAL GAINS OF SALE OF SHARES OF VEL IN THE HANDS OF THE ASSESSEE ECL (NOW KNOWN AS VAJRESH CONSULTANTS L TD.) HAS BEEN DONE CORRECTLY AND ACCEPTED BY THE AO IN THE A SSESSMENT PROCEEDINGS. THE LD AR SUBMITTED THAT WHILE TAXING THE GAINS IN THE HANDS OF ASSESSEE, THE AO HAD ALLOWED COST OF R S. 5,857 CRORES FROM THE SALES CONSIDERATION RECEIVED FOR TH E TRANSFER OF SHARES OF VEL. THE LD. PCIT HAS INVOKED REVISIONARY POWERS UNDER SECTION 263 OF THE ACT TO SET-ASIDE THE ORDE R OF THE AO BY HOLDING THAT THE AO HAS NOT ENQUIRED INTO CERTAIN I NTERVENING EVENTS AND CIRCUMSTANCES. ACCORDING TO LD. AR, ETHL ORIGINALLY HELD SHARES IN VEL SINCE 2005. ETHL , OWING TO ITS INABILITY TO MONETISE VEL SHARES ON ACCOUNT OF SEVERAL REASONS SU CH AS IT BEING HIGHLY LEVERAGED ETC., DECIDED TO UNDERTAKE CERTAIN CORPORATE RE-ORGANISATIONAL STEPS WHEREBY IT WOULD TRANSFER THE VEL SHARES TO ITS SUBSIDIARY AT COST AND THEREAFTER DISTANCE ITSELF FROM THE SUBSIDIARIES BY AT LEAST TWO LAYERS SO THA T LENDERS WOULD LEND AGAINST THE VALUE OF VEL SHARES, UNFETTE RED BY THE DEFECTS IN ETHL'S CREDITWORTHINESS. ACCORDINGLY, ET HL TRANSFERRED VEL SHARES TO ECHL AT BOOK COST OF RS. 1 ,260 CRORES IN AY 2008-09. ETHL THEREAFTER INCORPORATED A SUBSI DIARY ETHPL AND ACQUIRED ETHIPL AND PLACED THEM BETWEEN I TSELF AND ECHL. OWING TO THE ABOVE RE-ORGANISATION, IN AY 201 0-11, ECHL WAS FINALLY ABLE TO RAISE FUNDS OF RS. 3,707/- CROR ES BY ISSUE OF DEBENTURES WHICH WERE SUBSCRIBED BY THE PUBLIC AND WERE LISTED. IN THE MEANWHILE, ECHL HAD EXECUTED A PUT-OPTION AG REEMENT ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 65 WHERE UNDER IT ACQUIRED THE OPTION TO SELL THE VEL SHARES AT USD 1.2 BN OR AT MARKET VALUE. SINCE ISL WAS A LIST ED COMPANY, IT WAS DECIDED TO MERGE ECHL WITH ISL SO THAT THE M ARKET WORTH OF VEL'S SHARES GOT REFLECTED IN THE SHARE PRICE OF ISL'S SHARES. SINCE ECHL HAD ISSUED PUBLIC DEBENTURES, MERGING OF ECHL WITH ISL WOULD HAVE BEEN A CUMBERSOME PROCESS IN TE RMS OF OBTAINING APPROVALS AND SANCTIONS. IT WAS THEREFORE DECIDED TO MERGE ETHPL WITH ISL, THEREBY EFFECTIVELY MOVING VEL 'S SHARES (THROUGH ECHL UNDER ISL AND TO ASCERTAIN THE MARKET VALUE OF VEL SHARES. UPON THE SANCTION OF THE HON'BLE MADRAS AND BOMBAY HIGH COURTS, ECHL WAS MERGED WITH ISL W.E.F. 1 APRIL 2010, I.E. WITH EFFECT FROM AY 2011-12. VEL SHARES ACCORDINGLY BECAME THE PROPERTY OF ISL FROM 1 ST APRIL 2010, I.E. FROM AY 2011-12. 7.1. IN AY 2012-13 VEL SHARES WERE SOLD TO PIRAMAL HEALTHCARE LTD FOR RS.5,863/- CRORES. SINCE AFTER SALE OF VEL SHARES, THE REMAINDER BUSINESS OF ISL ONLY COMPRISED THAT OF IT S PARENT ECL, IT WAS DECIDED TO MERGE ISL WITH ECL IN AY 2012- 13.ACCORDINGLY, UPON THE SANCTION OF THE HON'BLE MA DRAS HIGH COURT, ISL WAS MERGED WITH ECL W.E.F. 1 APRIL 2011, I.E. WITH EFFECT FROM AY 2012-13. IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MARSHALL SONS &CO. IND IA LTD. VS. ITO (223 ITR 809) WHEREIN IT HAS BEEN HELD THAT AMA LGAMATION TAKES EFFECT FROM THE DATE OF SPECIFIED IN THE SCHE ME OF AMALGAMATION AND ALL THE ACTS OF THE SUBSIDIARY SHA LL BE DONE ON BEHALF OF THE HOLDING COMPANY. ACCORDINGLY, (I) VEL SHARES BECAME THE PROPERTY OF ECL FROM 1ST APRIL 2011, (II ) HENCE, THOUGH VEL SHARES WERE SOLD BY ECHL FIRST ON BEHALF OF ISL, ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 66 THEY FINALLY CAME TO BE REGARDED AS BEING SOLD ON B EHALF OF ECL OWING TO THE MERGERS SANCTIONED BY THE HON'BLE MADR AS AND BOMBAY HIGH COURTS OF ECHL WITH ISL AND THEREAFTER THE HON'BLE MADRAS COURT OF ISL WITH ECL AND (III) THE CONSIDERATION ON SALE OF VEL SHARES WAS REGARDED AS HAVING BEEN EARNED/ACCRUED IN THE HANDS OF ECL AND THE GAINS TH EREOF BECAME TAXABLE IN THE HANDS OF ECL. SINCE ECL BECAM E ENTITLED TO THE CONSIDERATION ON SALE OF VEL'S SHARES OWING T O ITS HOLDING IN ISL, THE COST OF INVESTMENT IN ISL RS.6,077/- CR ORES WAS CLAIMED AS A PROPORTIONATE COST OF THE VEL SHARES. T HIS WAS IN LINE WITH THE DECISIONS OF CHALLAPALLI SUGARS LTD V S CIT (98 ITR 167} (SC) AND CIT VS MAHINDRA & CO (326 ITR 465)(RA J). 7.2. THE LD AR SUBMITTED THAT THE AO AFTER ENQUIRIN G INTO THE ENTIRE SEQUENCE OF EVENTS AS TO HOW ASSESSEE CAME T O HOLD VEL'S SHARES, IN PRINCIPLE, ACCEPTED THE SUBMISSION OF TH E ASSESSEE AS TO ITS CLAIM OF COST HOWEVER DENIED SO MUCH OF THE COST TO THE TUNE OF RS. 220 CRORES THAT WAS INCURRED AFTER 31 MARCH 2012. THE LD AR SUBMITTED THAT AFTER THE PASSING OF THE A SSESSMENT ORDER BY THE AO, THE PCIT INVOKED POWERS AND JURISD ICTION UNDER SECTION 263 OF THE ACT FOR THE REASONS WHICH ARE SU MMARIZED BELOW UNDER THREE BROAD CATEGORIES: I. THE AO FAILED TO ENQUIRE INTO THE TRUE PURPOSE OF I NCORPORATION AND AMALGAMATION OF VARIOUS COMPANIES IN THE CHAIN OF H OLDING. II. THE AO FAILED TO CONSIDER TAXABILITY OF THE TRANSFE R OF ASSETS OF AMALGAMATING COMPANY (VIZ. ISL) IN THE HANDS OF ASS ESSEE UNDER SECTION 170 AND PARTICULARLY SINCE SECTION 47(VI) DID NOT PROTE CT THE TRANSFER OWING TO THE NON-TAX COMPLIANT NATURE OF THE AMALGAMATION OF ISL WITH ECL. III. THE AO FAILED TO AWAIT THE OUTCOME OF THE ENQUIRIES MADE IN THE CASE OF ISL UNDER THE EXCHANGE OF INFORMATION PROVISIONS OF THE DOUBLE TAX AVOIDANCE AGREEMENT. 7.3. THE LD AR SUBMITTED THAT FIRST REASON FOR EXER CISING THE JURISDICTION BY THE LD. PCIT IS THAT THE AO FAILED TO ENQUIRE INTO ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 67 THE TRUE PURPOSE OF INCORPORATION AND AMALGAMATION OF VARIOUS COMPANIES IN THE CHAIN OF HOLDING IS FACTUALLY INC ORRECT . THE OBSERVATIONS OF THE PCIT ARE THAT THE AO HAS NOT E NQUIRED INTO THE INCORPORATION AND AMALGAMATIONS ARE AGAINST THE FACTS ON RECORDS AS THE AO HAS CONDUCTED DETAILED ENQUIRY AS IS EVIDENT FROM THE FOLLOWING FACTS: A) SOON AFTER FILING OF THE RETURN OF INCOME, ECL FILE D NOTES TO THE RETURN OF INCOME VIDE LETTER DATED 18 OCTOBER 2013 ALONGWITH THE VARIOUS AMALGAMATION ORDERS OF RESPECTIVE HON'BLE HIGH COURT (P95 1 @ 124). B) VIDE NOTICE DATED 25 FEBRUARY 2015 (P94) THE AO CAL LED UPON ECL TO EXPLAIN AND SUBSTANTIATE ITS CLAIM OF COST ON SALE OF VEL'S SHARES AND TO UNDERSTAND THE HOLDING STRUCTURE CALLED FOR THE BALANCE SHEETS OF ETHPL, ECHL AND ISL. C) ECL VIDE LETTER DATED 14 MARCH 2015 (P372) AND 19 M ARCH 2015 (P616) FILED ALL DETAILS CALLED FOR, SUCH AS THE FINANCIALS ETC. OF THE VARIOUS COMPANIES AND EXPLAINED THE BASIS OF ITS CLAIM OF COST D) ECL THEREAFTER VIDE LETTER DATED 24 MARCH 2015 (P65 5 @ 658) SUBMITTED THE FOLLOWING: I. DETAILS OF THE ORIGINAL ACQUISITION OF VEL SHARES B Y ETHL II. EXPLAINED HOW ECHL CAME TO ACQUIRE VEL SHARES FROM ETHL III. EXPLANATION AS TO HOW ECHL REVALUED VEL'S SHARES IN ITS BOOKS IV. ETHPL WAS THE PARENT OF ECHL V. ETHPL MERGED WITH ISL, THEREBY MIGRATING ECHL UNDER ISL VI. MERGER OF ECHL WITH ISL VII. MERGER OF ISL WITH ECL VIII. HOW THEREFORE ECL ARRIVED AT THE COST OF VEL SHARES IX. EVIDENCE OF INCURRENCE OF COST FOR PURCHASE OF ISL SHARES AND DEBENTURES WAS ALSO FILED. THE LD. A.R., THEREFORE, SUBMITTED THAT THE ASSESSI NG OFFICER IS FULLY AWARE OF ALL EVENTS SURROUNDING THE HOLDING O F VEL SHARES AND THE BASIS OF CLAIM OF COST CLAIMED AGAINST SAID SALE OF VELS SHARES BY THE ASSESSEE. 7.4. THE LD AR STRONGLY REFUTED AND QUASHED THE ALLEGATION BY LD. PCIT THAT THE AO SHOULD HAVE ENQUIRED INTO THE FORMATIONS AND AMALGAMATIONS OF THE VARIOUS COMPANIES IN THE C HAIN OF HOLDING TO INVESTIGATE THEM FOR IMPERMISSIBLE TAX A VOIDANCE AS ALL OF THEM HAVING BEEN UNDERTAKEN WITH THE SOLE MO TIVE TO ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 68 OBTAIN A TAX ADVANTAGE. THE LD. A.R. SUBMITTED THA T THE ALLEGATIONS OF THE PCIT THAT THE FORMATIONS AND AMA LGAMATIONS OF THE VARIOUS COMPANIES HAVE BEEN UNDERTAKEN WITH THE SOLE MOTIVE TO OBTAIN A TAX ADVANTAGE, IS WHOLLY INCORRE CT AND ENTIRELY BASED ON LOOSE IMAGINATION. EACH OF THE ALLEGATION AGAINST EACH OF THE STEPS UNDERTAKEN HAVE BEEN EXPLAINED IN DET AIL IN THE CHART HANDED OVER DURING THE HEARING. IT IS SUBMITT ED THAT NONE OF THE STEPS SET OUT IN THE CHART UNDERTAKEN WERE F OR ACHIEVING A TAX ADVANTAGE. AS EXPLAINED, IT IS EVIDENT FROM THE CHART THAT NONE OF THE STEPS FROM 1 TO 19 HAVE ANY BEARING ON THE TAX COST OF VEL'S SHARES AS THE TAX COST OF VEL'S SHARES REMA INED UNALTERED AND UNCHANGED AT RS.1,260/- CRORES. IT IS ONLY ON ACCOUNT OF THE NON-TAX NEUTRAL MERGER OF ISL WITH E CL (STEP 20) THAT ECL, AS PER LAW, IS REQUIRED TO TAKE THE COST IT HAS SUFFERED FOR ACQUISITION OF ITS HOLDING IN ISL, WHICH HOLDIN G IS WHAT HAS ENTITLED ASSESSEE TO THE CONSIDERATION OF RS. 5,863 /- CRORES ON SALE OF VEL'S SHARES. APART FROM THE FACT THAT THE A MALGAMATION OF ISL WITH ASSESSEE HAS BEEN APPROVED BY THE HON'B LE COURT AND HENCE CANNOT BE DOUBTED, THE PCIT, UNLIKE WITH RESPECT TO OTHER STEPS, HAS NOT EVEN DOUBTED {ALBEIT IMPERMISS IBLY) THE GENUINENESS OF THE NON-TAX NEUTRAL NATURE OF MERGER OF ISL WITH ECL. THIS IS PRIMARILY SO BECAUSE THE NON-TAX NEUTR ALITY OF THE MERGER IS NOT OWING TO ANY ACT ON PART OF ASSESSEE, BUT BECAUSE OF A CHOICE EXERCISED BY OUTSIDE SHAREHOLDERS OF IS L IN OPTING TO GET CASH RATHER THAN SHARES IN THE ASSESSEE COMPANY UPON AMALGAMATION. THE LD. A.R., THEREFORE, SUBMITTED TH AT THE FINDING OF THE LD. PCIT THAT THE AMALGAMATIONS AND FORMATIONS OF THE VARIOUS COMPANIES IS FOR SECURING TAX ADVANT AGE IS INCORRECT. THE LD. A.R. ALSO SUBMITTED THAT EACH OF THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 69 AMALGAMATIONS HAVE BEEN COURT APPROVED AND THEREFOR E NEITHER THE LD. PCIT NOR THE AO HAVE ANY JURISDICTION TO QU ESTION THEM, AND MORE SO, IN PROCEEDINGS UNDER SECTION 263 OF TH E ACT. THE LD AR PLACED RELIANCE ON THE FOLLOWING DECISIONS IN SU PPORT OF HIS ARGUMENTS : I. RELIANCE MONEY INF LTD VS PCIT (2017) 88 TAXMA NN.COM 871 {MUMBAI TRIB) II. ELECTROCAST SALES INDIA LTD VS DOT (2018) 170 ITD0507 (KOLKATATRIB) III. DCITVS INDUS FILA LTD (2013}32TAXMANN.COM 38 2 (BANGALORE TRIB) 7.5 IN OTHER WORDS, IT WAS SUBMITTED THAT ONCE THE AO ASCERTAINED THAT ALL THE AMALGAMATIONS WERE COURT A PPROVED WHICH HE UNDISPUTEDLY DID, THERE IS NO REQUIREMENT IN LAW TO MAKE ANY FURTHER ENQUIRIES IN THE MATTER BY THE TAX AUTHORITIES BUT TO APPLY THE RATIO OF THE BINDING DECISIONS IN THE CASES OF MARSHALL SONS & CO. INDIA LTD. VS. ITO (223 ITR 8091 (50, CHALLAPALLI SUGARS LTD VS CIT (98 ITR 167) (SO AND CIT VS MAHINDRA & CO (326 ITR 465)(.RAJ). IT WAS THEREFORE IMPERMISSIBLE FOR THE LD. PCIT TO INVOKE JURISDICTI ON UNDER SECTION 263 OF THE ACT FOR AN ENQUIRY WHICH IN LAW THE AO WAS NOT SUPPOSED AND REQUIRED TO MAKE. RELIANCE WAS PLA CED ON THE DECISIONS OF SOCIEDADE DE FOMENTO INDUSTRIAL PVT. LTD, VS CIT (ITA NO. 96 TO 98/PNJ/2009). 7.6. HENCE, IT WAS SUBMITTED THAT THE LD. PCIT WAS THEREFORE WRONG IN HOLDING THAT THE ASSESSMENT ORDER WAS ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE REAS ONS THAT THE AO NOT HAVING ENQUIRED INTO WHETHER THE AMALGAMATIONS SUFFERED FROM THE VICE OF IMPERMISSIBLE TAX AVOIDANCE. 7.7. THE LD AR FURTHER CONTENDED THAT WITHOUT PREJU DICE TO THE FOREGOING AND IN ANY VIEW OF THE MATTER, ASSUMING W ITHOUT ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 70 ACCEPTING, THAT THE AO DID NOT ENQUIRE INTO CERTAIN ASPECTS AS ALLEGED BY THE LD. PCIT, IT COULD, AT THE HIGHEST A MOUNT TO INSUFFICIENT/INADEQUATE ENQUIRY ON PART OF THE AO. IT IS SETTLED LAW THAT POWER UNDER SECTION 263 OF THE ACT CAN BE INVOKED ONLY IN THE CASE OF A 'LACK OF ENQUIRY' AND NOT TO REMED Y A CASE OF 'INSUFFICIENT ENQUIRY'. THE LD AR RELIED ON THE FOL LOWING DECISIONS IN DEFENSE OF HIS ARGUMENTS: CLT VS SUNBEAM AUTO LTD. (332 ITR 167) (DEL HC) CIT VS SHREEPATI HOLDINGS (ITA NO,1879 OF 2013) (BO M HC) CIT VS NIRAV MODI (390 ITR 292) (BOM HC) {SLP DISMI SSED IN 77 TAXMANN.COM15) 7.8. THE LD AR ARGUED THAT AFTER ASCERTAINING THAT ALL AMALGAMATIONS WERE COURT APPROVED, THE AO IN NOT B EING ANY FURTHER INFLUENCED BY THE AMALGAMATIONS OF THE VARI OUS COMPANIES IN THE CHAIN OF HOLDING, FOR THE PURPOSES OF DECIDING AND ALLOWING THE CLAIM OF COST OF RS.5,857/- CRORES AGAINST THE SALE CONSIDERATION OF RS.5,863/- CRORES TO ECL [AS SUPPORTED BY THE DECISIONS OF CHALLAPALLI SUGARSLTD VS. CIT (SUP RA) AND CIT VS MAHINDRA & CO. (SUPRA)], HAS FORMED CONSIDERED VIEW . SUCH A VIEW IS CLEARLY A 'POSSIBLE VIEW' AND CANNOT BE DIS TURBED UNDER SECTION 263 OF THE ACT. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS TO SUPPORT THE SUBMISSION THAT A 'POSSIBL E VIEW' CANNOT BE REVISED UNDER SECTION 263 OF THE ACT: I. MALABAR INDUSTRIAL CO LTD VS. CIT (243 ITR 83) (SC) II. CIT VS. GABRIEL INDIA LTD (203 ITR 108) (BOM) IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE ASS ESSING OFFICER HAS TAKEN A POSSIBLE VIEW IN ALLOWING THE COST OF R S.5,857/- CRORES AND THEREFORE, THE ASSESSMENT ORDER CANNOT B E TERMED AS ERRONEOUS. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 71 7.9. ON THE SECOND REASON GIVEN BY PCIT FOR INVOKIN G THE PROVISIONS OF SECTION 263 OF THE ACT THAT THE AO F AILED TO CONSIDER TAXABILITY OF THE TRANSFER OF ASSETS OF AM ALGAMATING COMPANY (VIZ. ISL) IN THE HANDS OF ECL UNDER SECTIO N 170 AND PARTICULARLY SINCE SECTION 47(VI) DID NOT PROTECT T HE TRANSFER OWING TO THE NON-TAX COMPLIANT NATURE OF THE AMALGA MATION OF ISL WITH ASSESSEE, THE LD AR SUBMITTED THAT NON-CO NSIDERATION BY AO OF TAXABILITY ON TRANSFER OF ASSETS OF ISL IN THE HANDS OF ECL, CAN NEVER BE A REASON TO HOLD THAT THE ASSESSM ENT ORDER, IN SO FAR AS IT ALLOWS THE COST OF RS.5,857/- CRORE S AGAINST THE SALE CONSIDERATION OF VEL SHARES IN THE HANDS OF ECL , IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. STRICTLY WITHOUT PREJUDICE TO THE FOREGOING, AND ONLY FOR TH E SAKE OF ARGUMENT, IT WAS SUBMITTED THAT EVEN IF IT IS ASSUM ED THAT THERE COULD ARISE A TAX LIABILITY IN THE HANDS OF ISL ON TRANSFER OF ITS ASSETS TO ASSESSEE ON ISL'S AMALGAMATION WITH ECL, AND HENCE THE AO OUGHT TO HAVE BEEN LOOKED INTO THE SAME, THE HIGHEST THAT THE PCIT COULD HAVE ORDERED THE AO TO DO IN EX ERCISE OF HIS POWERS UNDER SECTION 263 OF THE ACT, WAS TO DIRECT THE AO TO ADJUDICATE ON IT; BUT IN NO VIEW OF THE MATTER COUL D THE PCIT IN EXERCISE OF POWERS UNDER SECTION 263 OF THE ACT, FO R THIS REASON, SET-ASIDE THE FINDING OF THE AO IN ALLOWING THE COS T OF RS.5,857/- CRORES AGAINST THE SALE CONSIDERATION OF VEL SHARES IN THE HANDS OF ECL. IN VIEW OF THE ABOVE, IT WAS ARGUED THAT T HE FINDING OF THE LD. PCIT THAT THE ASSESSMENT ORDER IN SO FAR AS IT ALLOWS COST OF RS.5,857/- CRORES AGAINST SALE CONSIDERATION OF VEL SHARES, IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE, IS UNLAWFUL. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 72 7.10. WITHOUT PREJUDICE TO THE FORGOING, THE LD. A. R. ALSO ARGUED THAT THE REASON IS CONTRARY TO SETTLED LAW AND ELEM ENTARY PRINCIPLES OF TAXATION, THAT AN AMALGAMATING COMPAN Y UPON AMALGAMATION CANNOT BE SUBJECTED TO ANY TAX SINCE I T RECEIVES NO CONSIDERATION ON AMALGAMATION, WHETHER OR NOT TH E EXEMPTION UNDER SECTION 47(VI) OF THE ACT WAS AVAIL ABLE. RELIANCE IS PLACED ON THE FOLLOWING IN THIS REGARD: KANGA &PALKHIVALA'S THE LAW AND PRACTICE OF INC OME TAX (10TH EDITION VOL.1PG 1207) SAMPATH LYENGAR'S LAW OF INCOME TAX (11TH EDIT ION VOL. 3 PG-5254) CIT V. B. C. SRINIVASA SHETTY (128ITR 294) (SC ) IN THE CASE OF CIT V. B. C. SRINIVASA SHETTY IT HAS BEEN HELD THAT WHERE THE MACHINERY PROVISION OF SECTION 48 BREAK, CONSEQUENTLY SO DOES THE CHARGE UNDER SECTION 45. ACCORDINGLY, S INCE THE AMALGAMATING COMPANY RECEIVED NO-CONSIDERATION, ON THE TRANSFER OF ITS ASSETS, THE CHARGE UNDER SECTION 45 FAILS. IN VIEW OF THE ABOVE, CONSIDERING ISL RECEIVED NO C ONSIDERATION FOR THE TRANSFER OF ITS ASSETS TO ECL, THEREFORE TH E MACHINERY PROVISION OF SECTION 48 OF THE ACT BREAKS AND CONSE QUENTLY SO DOES THE CHARGE UNDER SECTION 45 OF THE ACT. THUS THE LD AR ARGUED THAT REASONING OF THE PCIT THAT THE ASSESSM ENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE SINCE THE APPLICABILITY OF SECTION 170 AND SECTION 47(VI) OF THE ACT WITH RESPECT TO THE TAXABILITY OF TRANSFER OF ASSETS OF ISL TO ECL ON AMALGAMATION OF ISL WITH ECL HAS NOT BEEN CONSIDERE D BY THE ASSESSING OFFICER, IS EX FACIE CONTRARY TO LAW. 7.11. IT WAS ALSO SUBMITTED THAT IN ANY VIEW OF THE MATTER, IN NOT BRINGING TO TAX ANY GAINS ON THE AMALGAMATION OF IS L WITH ECL, ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 73 THE AO HAS ADOPTED A POSSIBLE VIEW WHICH IS SUPPORT ED BY THE AFORESAID DECISIONS. SUCH A VIEW IS CLEARLY A 'POS SIBLE VIEW' AND CANNOT DISTURBED UNDER SECTION 263 OF THE ACT AND I S SUPPORTED BY THE DECISION OF APEX COURT IN MALABAR INDUSTRIES CO LTD VS CIT (SUPRA) AND CIT VS GABRIEL INDIA LTD (SUPRA). 7.12. THE APPLICABILITY OF SECTION 170 DESPITE NON- AVAILABILITY OF SECTION 47(VI) IS CLEARLY A POSSIBLE VIEW AND CANNO T BE INTERFERED WITH BY INVOKING PROVISIONS OF S.263 OF THE ACT. 7.13. ARGUING ON THE THIRD REASON CITED BY THE PCIT FOR INVOKING PROVISIONS OF SECTION 263 OF THE ACT WHEREIN HE CONCLUDED THAT THE AO HAS FAILED TO AWAIT THE OUTCOME OF THE ENQUI RIES MADE IN THE CASE OF ISL UNDER THE EXCHANGE OF INFORMATION P ROVISIONS OF THE DOUBLE TAX AVOIDANCE AGREEMENT. 7.14. THE COUNSEL OF THE ASSESSEE SUBMITTED THAT T HE LD. PCIT HIMSELF RECORDED THE FINDING OF FACT THAT ENQUIRIES BY FOREIGN TAX AND TAX RESEARCH DIVISION (FT&TR) OF THE CENTRAL BO ARD OF DIRECT TAXES WERE MADE IN THE ASSESSMENT PROCEEDING S OF ISL AND NOT IN THE ASSESSMENT OF ASSESSEE AND THEREFORE THE ASSESSMENT IN QUESTION CAN NOT BE SAID TO BE ERRONE OUS. SECONDLY, THE REFERENCE IN ANY CASE DID NOT PERTAIN TO THE YEAR UNDER CONSIDERATION AS THE SAME WERE MADE IN PROCEE DINGS FOR AY 2011-12. LASTLY, IT IS SUBMITTED THAT THE PCIT H AD NOT RAISED THIS ISSUE IN THE SHOW CAUSE NOTICES DATED 17 JUNE 2015 AND 26 JUNE 2015 ISSUED UNDER SECTION 263 OF THE ACT NOR W AS IT PUT TO THE APPELLANT DURING THE COURSE OF THE HEARINGS, TH EREFORE, THE APPELLANT WAS NOT GIVEN AN OPPORTUNITY OF BEING HEA RD ON THIS ISSUE AND HENCE THIS ISSUE CANNOT BE CONSIDERED FOR THE PURPOSE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 74 OF DECIDING THE VALIDITY OF ORDER PASSED UNDER SECT ION 263 OF THE ACT. IN THIS REGARD, THE APPELLANT RELIED ON THE D ECISION DAMODAR VALLEY CORPORATION VS. DCIT (160 ITD 78). T HE LD AR ARGUED THAT THIS REASON IS THEREFORE FACTUALLY INCO RRECT AND ALSO FOR THE SAME HAVING NOT BEEN PUT TO THE ASSESSEE DU RING THE COURSE OF REVISION PROCEEDINGS, IT CAN NOT BE COUNT ENANCED IN DECIDING THE VALIDITY OF JURISDICTION UNDER SECTION 263. 7.15. THE LD AR ALSO PRESENTED BEFORE THE BENCH THE GENERAL PROPOSITIONS ON INVALIDITY AND ILLEGALITY OF EXERC ISE OF JURISDICTION U/S 263 OF THE ACT. THE LD COUNSEL OF THE ASSESSEE SUBMITTED THAT THE PCIT IN THE ORDER PASSED UNDER SECTION 263 OF THE ACT HAS REMANDED THE MATTER BACK TO THE AO FOR MAKING D E NOVO ASSESSMENT. THIS ITSELF SHOWS THAT THE PCIT HAS NO T CONCLUDED THE ORDER OF THE AO ALLOWING COST OF RS.5,857/- CRO RES IS ERRONEOUS. BECAUSE, IF THE PCIT WAS OF THE OPINION THAT THE AO WAS INCORRECT, THEN A FINDING OUGHT TO HAVE BEEN GI VEN IN THE ORDER UNDER SECTION 263 OF THE ACT TO THIS EFFECT. HOWEVER, THE PCIT HAS SIMPLY REMANDED THE MATTER BACK TO THE AO FOR CONSIDERING THE MATTER AFRESH. THEREFORE, IT IS SUB MITTED THAT THE ORDER PASSED BY THE PCIT UNDER SECTION 263 OF THE A CT REMANDING THE MATTER BACK IS WITHOUT JURISDICTION A ND INCORRECT. IN THIS REGARD THE APPELLANT RELIES ON THE FOLLOWIN G JUDICIAL PRONOUNCEMENT: B. IIO VS. DG HOUSING PROJECTS (343 ITR 329) C. VARDHAMAN INDUSTRIES LTD. VS. DCIT (82 TAXMANN.CO M 118) AFFIRMED BY P&H HIGH COURT IN CIT VS.VARDHMAN INDUSTRIES (396 ITR 34) IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE ORD ER PASSED BY THE ASSESSING OFFICER CANNOT BE TERMED AS ERRONEOUS AS THE PCIT ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 75 HIMSELF HAS NOT FOUND THE COST OF RS.5,857 TO BE IN CORRECT. THE LD AR FINALLY PRAYED THAT IN VIEW OF PRESENT FACTS AND CIRCUMSTANCES AND THE RATIO LAID DOWN BY VARIOUS JU DICIAL FORUMS, THE EXERCISE OF JURISDICTION BY THE LD. PCI T IS INVALID AND THE PROCEEDINGS U/S 263 OF THE ACT AND CONSEQUENT O RDER PASSED UNDER SECTION 263 OF THE ACT MAY KINDLY BE QUASHED. 8. PER CONTRA THE LD DR PLACED HEAVY RELIANCE ON T HE ORDER U/S. 263 OF THE ACT. THE REASONS/BASIS FOR DECISION /AC TION U/S. 263 OF THE ACT STARTING FROM PAGE 42 AND PARA 4 ONWARDS SUB PARA 1 TO 5 OF PAGE NO. 42 & 43 OF THE ORDER, PAGE 44 AND PARA 5 SUB PARA 1 TO 2 AND 2.1 TO 2.2 AND 2.2.1 TO 2.2 SUB PAR A AND SUB PARA 2.3, 2.4, 2.5, 2.6, 2.6.1, 2.7, 3, 3.1, 4, 4.1 SUB PARA 4.2, 4.3, 4,4, 4.5, 4.6 AND MAIN PARA 6,7 AND 8 OF THE P R. CIT'S ORDER U/S. 263 OF THE INCOME TAX ACT, 1961FROM PAGE NO. 4 2 (PARA 4) TO 60. IN ADDITION TO THE ABOVE, THE LD. DR SUBMITT ED LEGAL AND FACTUAL POSITION AND SYNOPSIS OF ARGUMENTS ALONG WI TH THE RELEVANT CASE LAWS PERTINENT TO THIS CASE TO SUPPOR T & STRENGTHEN DEPARTMENT'S ARGUMENT. 8.1. THE LD DR SUBMITTED THAT THE AO HAS FAILED TO INQUIRE INTO TRUE AND REAL PURPOSE OF INCORPORATION OF WEB AND L AYERS OF COMPANIES JUST TO SECURE UNDUE TAX ADVANTAGES BY CL AIMING HUGE COSTS OF SHARE OF VEL WITHOUT PROPER JUSTIFICAT IONS. HE ALSO OVERLOOKED PROVISIONS OF SECTION 170 AND 47[VI] OF THE ACT. THE AO ALSO FAILED TO MAKE PROPER INQUIRY WHICH WAS REQ UIRED TO BE MADE IN RESPECT OF ISL VIS A VIS ASSESSEE, SO FAR A S DTAA IS CONCERNED. LACK OF INQUIRY IS NOW ALSO COUPLED WITH INSUFFICIENCY OF INQUIRY AFTER AMENDED SECTION 263 W E F 1-6-15, WHICH THE AO ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 76 OUGHT TO HAVE UNDERTAKEN AS MENTIONED IN THE ORDER U/S 263 OF THE ACT. 8.2. THE LD. D.R. ARGUED THAT MERE APPROVAL OF COUR TS TO AMALGAMATION SCHEMES BY ITSELF DOES NOT SATISFY THE TEST THAT THE AO HAD VERIFIED ALL OTHER FACTS IN THOSE SCHEMES OR THAT ONCE THE SCHEME OF MERGER IS APPROVED BY THE HIGH COURT, THE AO IS ABSOLVED OF THE DUTY TO ENQUIRE AND INVESTIGATE THE TAX EVASION ANGLE. THE APPROVAL OF MERGER BY THE COURT IS A BRO ADLY A SCHEME IN WHICH THE VARIOUS STAKE HOLDERS ARE INFOR MED AND THEIR OBJECTIONS ARE CONSIDERED BY THE COURT BEFORE APPROVING THE SCHEME. THE HIGH COURT DOES NOT GO INTO THE ISSUE O F TAX IMPLICATIONS WHICH MAY BE THERE OWING TO THE AMALGA MATION AND MERGER. MOREOVER, AFTER 1-6-2015, THE POWERS U/S 26 3 OF THE ACT HAVE BEEN LARGELY ENHANCED AND THIS CASE SQUARELY F ALLS UNDER THE SAME. HENCE, THE CASE LAWS PERTAINING PRE-AMEND MENT ERA HAVE NO BINDING FORCE NOW. 8.3. THE LD DR. SUBMITTED THAT ONCE, NOTICE U/S 263 OF THE ACT IS ISSUED, IT IS NOT NECESSARY THAT ALL THE CONTENTION S MUST BE MADE THEREIN SO LONG AS THE ISSUE UNDER NOTICE REMAINS S AME. IT IS SUBMITTED THAT MERE 'OPINION' OF THE COMMISSIONER I S SUFFICIENT IN ITSELF TO RENDER AN ORDER FIT FOR REVISION. THE EXPRESSION 'OPINION' HAS BEEN DEFINED BY THE SUPREME COURT IN THE CASE OF DOLAGOVINDA PARICA VS. NIMAICHARAN MISHRA IN AIR 195 9 SC 914 (RELIED UPON BY THE DELHI HIGH COURT IN VLS FINA NCE VS. CIT IN 246 ITR 707), TO MEAN - JUDGMENT OF BELIEF, THAT IS, A BELIEF OR A CONVICTION RESULTING FROM WHAT ONE THINKS ON A PA RTICULAR QUESTION. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 77 8.4. IT IS FURTHER SUBMITTED THAT SINCE THE ASSESSI NG OFFICER HAD NOT MADE INQUIRY REGARDING THE COST OF SHARES ATTRI BUTABLE OF VEL IN THE ASSESSMENT PROCEEDING, THE EXERCISE OF RE VISIONARY JURISDICTION BY THE LD. PR.CIT WAS JUSTIFIED. MOREO VER, RELIANCE IS ALSO PLACED ON THE FOLLOWING CASE LAWS TO SUPPORT T HE CONTENTIONS THAT THE ACTION OF THE LD. PR.CIT IN IN VOKING THE PROVISIONS OF SECTION 263 OF THE ACT WAS JUSTIFIED; - A] MALABAR INDUSTRIAL CO. LTD. VS. CIT SUPREME COUR T 2000, 109 TAXMAN 66 B] CIT VS. ASHOK LOGANI, DELHI HIGH COURT, 2011, 11 TAXMANN.COM 208 C] SURYA JYOTI SOFTWARE PVT. LTD. VS. PCIT, ITAT DELHI, 2017, ITA NO. 2158/DEL/2017 D] SURYA FINANCIAL SERVICES LTD. VS. PCIT, ITAT DEL HI 2018, 2018-TIOL-74-ITAT-DEL 8.5. WHILE DISTINGUISHING THE CASE LAWS REFERRED BY THE ASSESSEE, THE LD DR SUBMITTED THAT MANY CASE LAWS WHICH ARE BASICALLY RELATED TO THE MERITS OF THE CASE RATHER THAN REVIS ION U/S 263 OF THE ACT. HENCE THEY ARE INAPPLICABLE AND NEED TO BE REJECTED. 8.6. THE LD DR REFERRED TO THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF M/S INDUS BEST HOSPITALITY & R EALTORS PVT LTD. IN ITA NO. 3125/MUM/2017 VIDE ORDER DATED 19.0 1.2018 WHEREIN IT HAS BEEN HELD THAT EXPLANATION 2 TO SEC TION 263 OF THE ACT INTRODUCED BY FINANCE ACT, 2015 IS RETROSPE CTIVE IN NATURE. 8.7. ON THE ASPECT OF SHOW CAUSE NOTICE THAT A PART ICULAR REASONS CITED BY THE PCIT WAS NOT MENTIONED IN THE SHOW CAUSE NOTICE AND NOT CONFRONTED TO THE ASSESSEE DURING TH E REVISIONAL PROCEEDINGS , THE LD DR SUBMITTED THAT THE RULING IN CIT VS. AMITABH BACHCHAN (2016 SCC ONLINE SC 484) IS DECISI VE AND ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 78 FULLY COVERS THE CASE IN FAVOR OF THE REVENUE AS IT UPHOLDS THE POWER OF THE COMMISSIONER TO CONSIDER ALL ASPECTS W HICH WERE THE SUBJECT MATTER OF THE AO'S ORDER, IF IN HIS OPI NION, THEY ARE ERRONEOUS. THE SUPREME COURT HELD THAT: 'REVERTING TO THE SPECIFIC PROVISIONS OF SECTION 263 OF THE ACT WHAT HAS TO BE SEEN IS THAT A SATISFACTION THAT AN ORDER PASSED BY THE AUTHORITY UNDER THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE I NTEREST OF THE REVENUE IS THE BASIC PRE-CONDITION FOR EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT. BOTH ARE TWIN CONDITI ONS THAT HAVE TO BE CONJOINTLY PRESENT. ONCE SUCH SATISFACTION IS REACHED, JURISDICTION TO EXERCISE THE POWER WOULD BE AVAILAB LE SUBJECT TO OBSERVANCE OF THE PRINCIPLES OF NATURAL JUSTICE WHI CH IS IMPLICIT IN THE REQUIREMENT CAST BY THE SECTION TO GIVE THE ASSESSEE AN OPPORTUNITY OF BEING HEARD.' 8.8. THERE ARE CERTAIN DECISIONS, WHICH ARE IN FAVO UR OF THE REVENUE AND ONE SUCH DECISION IS ARVEE INTERNATIONA L VS ADDL. CIT (2006) 8 SOT 452 (MUM. TRIB.), WHEREIN, THE ASS ESSMENT WAS FRAMED WITHOUT APPLICATION OF MIND. IT WAS HELD THAT MERE ALLEGATION THAT ASSESSING OFFICER HAS TAKEN A VIEW IN THE MATTER WILL NOT PUT THE MATTER BEYOND THE PURVIEW OF SECTI ON 263 OF THE ACT UNLESS THE VIEW SO TAKEN BY THE ASSESSING OFFIC ER IS A JUDICIAL VIEW BASED ON PROPER ENQUIRY CONSIDERING A LL LEGAL ASPECTS. THE LD DR SUBMITTED THAT IN THE CASE OF HO RIZON INVESTMENT COMPANY LTD. VS CIT (ITA NO. 1593/MUM/20 13), IT WAS CLEAR THAT IF THERE WAS A LACK/ABSENCE OF ENQUI RY BY THE ASSESSING OFFICER THE JURISDICTION WAS HELD TO BE V ALIDLY ASSUMED. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 79 8.9. THE HON'BLE CALCUTTA HIGH COURT IN RAJMANDIR E STATE PVT. LTD. VS PR. CIT (2016) 70 TAXMAN.COM 124 (CALC.) OR DER DATED 13/05/2016 LAID A RATIO WHICH SUPPORTS THE CASE OF THE REVENUE. THE HON'BLE APEX COURT IN RAJMANDIR ESTATE S PVT. LTD. (2017) 77 TAXMAN.COM 285 (SC), HAS HELD THAT WHERE THERE WAS LACK OF REQUISITE ENQUIRY INTO INCREASE OF SHARE CA PITAL AND NON- APPLICATION OF MIND, THE COMMISSIONER WAS JUSTIFIE D IN INVOKING THE REVISIONAL JURISDICTION. WHETHER SPECIAL LEAVE PETITION FILED AGAINST IMPUGNED ORDER WAS TO BE DISMISSED - HELD, YES [PARA 2] [IN FAVOUR OF REVENUE]' 8.10. THE MUMBAI BENCH OF THE ITAT THROUGH AN ELABO RATE ORDER IN THE CASE OF MADHURIMA INTERNATIONAL (P.) LTD. V. PR. CIT [2017] 49 CCH 0217 (MUM. -TRIB.) HELD THAT WHERE THE ASSES SMENT ORDER IS PASSED BY THE ASSESSING ORDER WITHOUT MAKI NG INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE, THEN I T IS HIT BY THE EXPLANATION 2 TO SECTION 263 OF THE ACT WHICH D EEMS THE ORDER TO BE ERRONEOUS, INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AND, THEREFORE, 'THE PRINCIPAL COMMISSIO NER OF INCOME-TAX HAS RIGHTLY INVOKED THE PROVISIONS OF SE CTION 263 OF THE ACT.' 8.11. THE LD. D.R. SUBMITTED ADMITTEDLY THAT WHILE ALLOWING COST OF SHARES WHILE COMPILING LTCG, AN INCORRECT ASSUMP TION OF FACT OR AN INCORRECT APPLICATION OF LAW WOULD SATISFY TH E REQUIREMENT OF ORDER BEING ERRONEOUS U/S, 263 OF THE ACT. THE O BJECT OF THE PROVISION IS TO RAISE REVENUE FOR THE STATE AND SEC TION 263 IS ENABLING PROVISION CONFERRING JURISDICTION UPON THE COMMISSIONER TO REVISE THE ORDER WHICH IS ERRONEOUS AND PREJUDICIAL. THE PROVISION IS INTENDED TO PLUG THE LEAKAGE OF THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 80 REVENUE BY THE ERRONEOUS AND PREJUDICIAL ORDER. THE ID. ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT MADE NO DISCUSSION WITH THE CLAIM OF THE ASSESSEE AND SIMPL Y FRAMED THE ASSESSMENT IN A SLIP SHOT MANNER. SUCH AN APPROACH OF THE LD. ASSESSING OFFICER CANNOT BE APPRECIATED. THUS, IT I S CLEAR THAT THE ASSESSMENT ORDER WAS PASSED WITHOUT VERIFICATIO N, APPLICATION OF MIND, CONSEQUENTLY, IT IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREF ORE, THE REVISIONAL JURISDICTION WAS RIGHTLY INVOKED. THE VI EW IS ALSO FORTIFIED BY THE DECISION IN INDIAN TEXTILE VS CIT (157 ITR 112) (MAD.), GEE VEE ENTERPRISES VS ADDL. CIT (99 ITR 37 5)(DEL), THALIBAI F JAIN VS ITO 101 ITR 1 (KARN.) AND CIT VS HPFC 186 TAXMAN 105 (HP), CIT VS PUSHPA DEVI 164 ITR 639 (PA TNA). 8.12. THE HON'BLE GUJARAT HIGH COURT IN CIT VS M. M.KHAMBATBALA 198 ITR 144 (GUJ.) EVEN WENT TO THE E XTENT THAT REVISIONAL POWERS CAN BE EXERCISED EVEN IF THE ISSU E IS DEBATABLE. 8.13. THE SUPPORT IS ALSO DERIVED FROM THE RATIO LA ID DOWN IN BHARGWA ENGINEERING CORPORATION VS CIT (1996) 134 T AXATION 493, 494 (AIL), CIT VS DIGVIJAY TRADERS (1997) 137 CTR (MP) 224, CIT VS REGIONAL AGRO INDUSTRIAL DEVELOPMENT COOPERA TIVE SOCIETY LTD. (1998) 143 TAXATION 293 (KERALA), CIT VS AGANV AL ENTERPRISES (1998) 100 TAXMAN 360 (ALL.) AND CIT VS KAILASH APARTMENT PVT. LTD. (200) 243 ITR 795 (DEL.). TOTAL ITY OF FACTS, CLEARLY INDICATES THAT THE ASSESSMENT ORDER HAS BEE N FRAMED WITHOUT FULL ENQUIRIES, THEREFORE, THE ID. COMMISSI ONER JUSTIFIABLY INVOKED REVISIONAL JURISDICTION. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 81 8.14. THE LD DR SUBMITTED THAT THE HON'BLE APEX COU RT IN CIT VS AMITABH BACCHAN [384 ITR 200(SC)] HELD THAT , 'AS B Y THE ORDER PASSED TODAY IN THE CIVIL APPEAL ARISING OUT OF SPE CIAL LEAVE PETITION (CIVIL) NO. 11621 OF 2009 WE HAVE RESTORED THE SUO MOTTO REVISIONAL ORDER DATED 20TH MARCH, 2006 PASSED BY T HE LEARNED C.I.T., WE ALLOW THIS APPEAL FILED BY THE REVENUE A ND SET ASIDE THE ORDER DATED 11THJANUARY, 2010 PASSED BY THE LEA RNED TRIBUNAL AND THE ORDER DATED 29TH FEBRUARY, 2012 PA SSED BY THE HIGH COURT REFERRED TO ABOVE. HOWEVER, WE HAVE TO A DD THAT AS THE RE-ASSESSMENT ORDER DATED 29TH DECEMBER, 2006 H AD NOT BEEN TESTED ON MERITS, THE ASSESSEE WOULD BE FREE T O DO SO, IF HE IS SO INCLINED AND SO ADVISED. SIMILAR VIEW IS ALSO HELD IN THE CASE OF ANIL KAPOOR FILM CO. PVT LTD. VS PR. CIT (IT AT MUMBAI) 5015/MUM/2018. RELIANCE IS ALSO PLACED ON THE FOLLO WING CASE LAWS:- (A) ARVEE INTERNATIONAL VS. ADDL CIT (2006)(101 ITD 495)(MUM) (B) ADANI AGRO (P) LTD VS. DCIT (2013)(32 TAXMANN.C OM 356)(GUJ) (C) RAJMANDIR ESTATES (P) LTD VS. PR. CIT (386 ITR 162)(CAL) (D) RAJMANDIR ESTATES (P) LTD VS, PR. CIT (77 TAXMA NN.COM 285)(SC) 8.15. THE LD. D.R ALSO SUBMITTED THAT THE EXPLANAT ION 2 TO SEC. 263 OF THE ACT ALSO DEEMS THE ASSESSMENT ORDER AS E RRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE, IF THE SAME IS PASSED WITHOUT MAKING NECESSARY ENQUIRIES. 9. IN THE REJOINDER, THE LD AR SUBMITTED THAT THE A LLEGATION THAT THE AO HAS FAILED TO ENQUIRE INTO INCORPORATIONS AN D AMALGAMATIONS OF VARIOUS ENTITIES IS FACTUALLY INC ORRECT WHICH IS EVIDENT FROM THE SEQUENCE OF PROCEEDINGS NAMELY (I) THE AO ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 82 ISSUED SHOW CAUSE NOTICE DATED 25 FEBRUARY 2015 (PG . 29 OF COMPILATION) REQUIRING THE ASSESSEE TO JUSTIFY THE COST OF 6077.07 CRORE AND FURNISH DOCUMENTARY EVIDENCE WITH REGARD TO STRUCTURE, COST INCURRED, ETC (II)THE ASSESSEE VIDE LETTER DATED 14 MARCH 2015 {PG.372,373 OF PAPERBOOK) GAVE THE DETAI LS RELATING TO ECHL, ETHPL AND ISL I.E. DETAILS OF THE GROUP ST RUCTURE AND VIDE LETTER DATED 24 MARCH 2015 (PG.30-36 OF COMPIL ATION) GAVE EXPLANATION REGARDING THE VARIOUS AMALGAMATIONS BY VIRTUE OF WHICH THE SHARES OF VEL MOVED FROM ECHL TO ISL AND F INALLY TO THE ASSESSEE, (III) THE ASSESSEE VIDE LETTER DATED 19 MARCH 2015 (PG. 616-622 OF PAPERBOOK) EXPLAINED WHY THE PROVIS IONS OF SECTION 49(L)(III)(E), WHICH PRESCRIBES THE COST OF ACQUISITION IN THE HANDS OF ISL TO BE TAKEN AS COST OF ACQUISITION OF THE ASSESSEE, DOES NOT APPLY IN THE INSTANT CASE AND (IV) THE ASS ESSEE VIDE LETTER DATED 24 MARCH 2015 (PG.30-36 OF COMPILATION ) AND 26 MARCH 2015 (PG.37-42 OF COMPILATION) EXPLAINED THE OF COST OF ACQUISITION IN THE HANDS OF THE ASSESSEE, SINCE THE COST OF THE PREVIOUS OWNER IS NOT TO BE TAKEN, AND ALSO FURNISH ED THE DETAILED WORKING OF HOW THE COST OF VEL SHARES WAS A RRIVED AT RS. 6,077.07 CRORE BY THE ASSESSEE. THE ABOVE WAS SPECIFICALLY POINTED OUT BY THE APPELLANT ASSESSEE DURING THE CO URSE OF ITS ORAL ARGUMENTS AND HAS BEEN SET OUT IN PARAGRAPHS 1 TO 3 IN ITS WRITTEN SUBMISSION DATED 13 MARCH 2020 (PAGES 5 TO 7 OF THE COMPILATION). NONE OF THESE SUBMISSIONS HAVE BEEN C ONTROVERTED BY THE DR. THEREFORE, THE CONTENTION OF THE LEARNED DR THAT AO HAS NOT ENQUIRED INTO THE INCORPORATIONS AND AMALGA MATIONS IS INCORRECT AND CONTRARY TO EVIDENCE ON RECORD. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 83 9.1. IN PARA 2 OF THE WRITTEN REPLY, THE LEARNED DR HAS ARGUED THAT 'MERE APPROVAL OF COURTS' TO AMALGAMATIONS BY ITSELF DOES NOT ABSOLVE THE AO FROM MAKING FURTHER ENQUIRIES AS TO THE EXISTENCE OF SOME TAX AVOIDANCE SCHEME. AS EXPLAI NED IN THE SUBMISSION DATED 13 MARCH 2020 {PARA 2.B. ON PG. 6 OF COMPILATION), THE ARGUMENT IS CONTRARY TO THE SETTL ED POSITION OF LAW LAID DOWN BY THE TRIBUNAL. PARTICULAR REFERENCE IS MADE TO THE DECISION IN RELIANCE MONEY INF LTD. VS CIT (183 TTJ 636) (PARA 20 PG. 58 OF COMPILATION) THAT ONCE THE AMALG AMATION HAS BEEN APPROVED BY THE HIGH COURT THE POWERS OF UNDER SECTION 263 CANNOT BE INVOKED BY CIT FOR QUESTIONING THE EF FECT OF ORDERS OF COURTS SANCTIONING AMALGAMATIONS ON ALLEGED GROU NDS OF TAX AVOIDANCE. WITHOUT PREJUDICE TO ABOVE, NEITHER THE CIT NOR THE DR HAVE SPELT OUT WHAT IS THE TAX ADVANTAGE RECEIVE D BY THE ASSESSEE ON ACCOUNT OF THE INCORPORATIONS AND AMALG AMATIONS. THE TAX COST OF VEL'S SHARES OF RS.1,260 CRORES HAS REMAINED RS. 1,260 CRORES I.E. THE PRICE AT WHICH THE SHARES WERE ACQUIRED. THAT TAX COST OF THE SHARES HAS NEVER CHANGED. THE CIT HAS HIMSELF IN HIS ORDER UNDER CHALLENGE AT PARA 7 PG. 60 (6 LINES ABOVE PARA 8) OBSERVED AND ADMITTED THAT THE TAX-CO ST IN THE HANDS OF ISL IS SHOWN AT RS.1,260 CRORES. IN OTHER WORDS, IF ISL WERE TO SELL THE SHARES OF VEL IT WOULD HAVE BEEN A LLOWED A COST OF RS. 1,260 CRORES. THEREFORE, UNTIL THE MERGER OF ISL WITH THE APPELLANT ASSESSEE, THERE HAS BEEN NO CHANGE IN THE TAX-COST AND THEREFORE THE PRIOR INCORPORATIONS/AMALGAMATION S HAVE, ADMITTEDLY, HAD NO IMPACT ON THE TAX COST. AS EXP LAINED DURING THE COURSE OF THE HEARING AND AS SET-OUT HEREINAFTE R, IT IS ONLY ON ACCOUNT OF THE NON-TAX COMPLIANT AMALGAMATION OF IS L WITH THE ASSESSEE THAT IN VIEW OF THE NON-APPLICABILITY OF S ECTION ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 84 49{L)(III}(E), THE COST OF ISL SHARES TO THE APPELL ANT ASSESSEE WAS NOT REQUIRED TO BE CONSIDERED AS COST OF ACQUISITIO N UNDER SECTION 48, FOR THE PURPOSES OF COMPUTING CAPITAL G AINS ARISING FROM THE SALE OF VEL SHARES WHICH WERE SUBJECTED TO TAX IN THE HANDS OF THE APPELLANT ASSESSEE. THE NON-TAX COMPLI ANT NATURE OF AMALGAMATION OF ISL WITH THE APPELLANT ASSESSEE HAS NOT AND INDEED COULD NOT HAVE BEEN QUESTIONED BY THE LD. PC IT OR BY THE DR, INTER ALIA FOR ONE OBVIOUS REASON - IT IS ONLY BECAUSE OF THE AMALGAMATION THAT THE GAINS ARE BEING TAXED IN THE HANDS OF THE ASSESSEE. ON THE ONE HAND TAXING THE GAINS IN THE H ANDS OF THE ASSESSEE AND ON THE OTHER TO DENY COST OF THE GAINS TO THE ASSESSEE IS WHOLLY UNLAWFUL. 9.2. THE JUDGMENTS RELIED ON BY THE LEARNED DR I N PARA 16 OF HIS WRITTEN REPLY ARE IN INAPPLICABLE TO THE FACTS OF THE INSTANT CASE AND ARE SEPARATELY DEALT WITH AS UNDER: I. IN THE CASE OF DIGVIJAY TRADERS VS. CIT (92 TAXMAN6)(MP}PARA -16 OF DR'S SUBMISSION PG.258 OF COMPILATION, THE REVISION JURISDICTION EXERCISED BY THE CIT UNDER SECTION 263 OF THE ACT WAS REJECTED ON THE GR OUND THAT THE ASSESSING OFFICER HAD CONSIDERED THE MATER IAL SEIZED UNDER SECTION 132(5) OF THE ACT FOR THE PURP OSE OF MAKING ASSESSMENT UNDER SECTION 147 OF THE ACT AND AFTER MAKING FURTHER ENQUIRY INTO THE MATTER IN FACT ASSE SSED A HIGHER AMOUNT THAN THE ONE DISCLOSED BY THE ASSESSE E. THEREFORE, THE HIGH COURT HELD THAT SINCE THE ASSES SING OFFICER HAD CONSIDERED SEIZED MATERIAL AND EXAMINED THE SAME DURING THE COURSE OF THE ASSESSMENT, THE EXERC ISE POWER UNDER SECTION 263 WAS BAD IN LAW (PARA 11). ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 85 THE RATIO LAID DOWN IN THIS JUDGMENT IS SQUARELY AP PLICABLE TO THE FACTS OF THE CASE AS IN THE INSTANT CASE ALS O THE ASSESSING OFFICER HAD ENQUIRED INTO THE COST OF VEL SHARES AN D AFTER APPLYING HIS MIND HAD DISALLOWED THE PART OF THE CO ST. THEREFORE, THE CIT CANNOT INVOKE JURISDICTION UNDER SECTION 26 3 OF THE ACT. IN THE CASE OF CIT VS. REGIONAL AGRO INDUSTRIAL DEV ELOPMENT CO- OP. SOCIETY LTD. (112TAXMANL93)(KER.)PARA -16 OF DR 'S SUBMISSION PG.258 OF COMPILATION, IT WAS SUBMITTED THAT THIS JUDGMENT DOES NOT DEAL WITH THE PROVISIONS OF SECTI ON 263 OF THE ACT AND THE QUESTION RAISED BEFORE THE HIGH COURT W AS REGARDING THE DEDUCTION UNDER SECTION 80P OF THE ACT. II. IN THE CASE OF CIT VS. AGRAWAL ENTERPRISE (100 TAXMAN 360) (ALL.)PARA -16 OF DR'S SUBMISSION PG.258 OF COMPILATION, IT WAS SUBMITTED THAT THIS JUDGMENT DO ES NOT DEAL WITH THE PROVISIONS OF SECTION 263 OF THE ACT AND HIGH COURT HAS DEALT WITH THE ISSUE OF THE DEDUCTION REG ARDING LIABILITIES UNDER SECTION 37(1) OF THE ACT. III. IN THE CASE OF CIT VS. KAILASH APARTMENT (243 ITR795)(DEL.) PARA -16 OF DR'S SUBMISSION PG.258 OF COMPILATION, IT WAS SUBMITTED THAT THIS JUDGMENT DO ES NOT DEAL WITH THE PROVISIONS OF SECTION 263 OF THE ACT AND THE HIGH COURT HAS CONSIDERED THE ALLOWABILITY OF EXPEN SES UNDER SECTION 37(1) OF THE ACT. IT WAS, THEREFORE, SUBMITTED BY THE LD. A.R. THAT T HE LD. PCIT WAS WRONG IN HOLDING THAT THE ASSESSING OFFICER HAS NOT ENQUIRED INTO THE AMALGAMATIONS AND INCORPORATIONS OF VARIOU S ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 86 COMPANIES. THE LD. PCIT AND DR HAVE FAILED TO APPR ECIATE THAT THE ASSESSING OFFICER HAD NO JURISDICTION TO CHALLE NGE THE AMALGAMATION APPROVED BY HIGH COURT THEREFORE, THE AMALGAMATION IS BINDING ON THE REVENUE. IN ANY CASE , THE VARIOUS AMALGAMATIONS HAD NO ROLE TO PLAY IN SO FAR AS THE COST OF VEL SHARES IN THE HANDS OF THE ASSESSEE IS CONCE RNED AS THE COST HAS INCREASED ONLY ON ACCOUNT OF NON-TAX COMPL IANT AMALGAMATION OF ISL WITH THE ASSESSEE AS ACCEPTED B Y THE LD. PCIT HIMSELF IN ITS ORDER. 9.3. ON THE INADEQUATE/INSUFFICIENT ENQUIRIES TO IN VOKE POWERS S.263 AND INSERTION OF EXPLANATION 2 TO S.263 OF TH E ACT, THE LD AR SUBMITTED THAT THE PCIT HAS NOT, AND RIGHTLY S O, IN HIS ORDER UNDER CHALLENGE PLACE ANY RELIANCE ON EXPLANA TION 2 INSERTED BY THE FINANCE ACT, 2015. IT IS THEREFORE NOT OPEN TO THE DR TO TRAVEL BEYOND THE ORDER OF THE LD. PCIT. WITH OUT PREJUDICE TO THE FOREGOING, THE LD AR OF THE APPELLANT ASSESS EE SUBMITTED THAT THE ARGUMENT OF THE LEARNED DR IS INCORRECT AS THE VARIOUS TRIBUNAL DECISIONS HAVE TAKEN A VIEW THAT THE INSER TION OF EXPLANATION - 2 DOES NOT EXPAND THE SCOPE OF JURISD ICTION UNDER SECTION 263 OF THE ACT AND THE POWER REVISION CANNO T BE INVOKED WHEN THE AO HAS ENQUIRED INTO THE MATTER. IN THIS R EGARD, THE APPELLANT RELIES ON THE FOLLOWING DECISION OF THE T RIBUNAL: I. TORRENT PHARMACEUTICAL V. DCIT (PARA 9 PG.285) (173 ITD 130) (AHD.) II. NARAYAN TATU V. ITO {PARA 19 PG.297} (70 TAXMANN.COM 277) (MUM.) III. RALLIS INDIA LTD. V. DCIT (PARA 9 PG.312) (1 TA NO. 3564/M/16) (MUM.) ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 87 9.4. WITHOUT PREJUDICE TO THE FOREGOING, IT WAS SUB MITTED THAT EXPLANATION -2 TO SECTION 263 OF THE ACT HAVING BEE N INSERTED W.E.F. 1.6.2015 HAS NO APPLICATION TO ASSESSMENT YE AR 2012-13. IN THIS REGARD THE FOLLOWING DECISIONS ARE RELIED U PON WHEREIN THE TRIBUNAL HAS HELD THAT THE PROVISIONS OF EXPLANATIO N - 2 ARE PROSPECTIVE IN NATURE AND DOES NOT APPLY TO A.Y. 20 12-13: I. INDUS BEST HOSPITALITY & REALTORS PVT. LTD. V. CIT (PARA 23 PG. 329) (ITA NO.3125/M/17) II. RELIANCE MONEY INFRASTRUCTURE LTD. V. CIT (PARA 2 PG. 384) (ITA NO.3259/M/17) 9.5. THE JUDGMENTS RELIED ON BY THE LEARNED DR IN PARA 5, 8,10,11,12,13,18,19 AND 20 ARE DISTINGUISHABLE ON F ACTS AS UNDER: I. DOLGOBINDAPARICHA VS. NIMAICHARANMISRA {AIR 1959 SC 914); VLS FINANCE LTD. VS. CIT (246 ITR 707) (DEL.) PARA - 5 OF DR'S SUBMISSION PG.255 OF COMPILATION. DOLGOBINDAPARICHA (SUPRA) DOES NOT DEAL WITH THE PROVISIONS OF SECTION 263 OF THE ACT AND WAS CONCER NED WITH THE PROVISIONS OF INDIAN EVIDENCE ACT, 1872 TH EREFORE, THIS JUDGMENTS IS NOT RELEVANT DECIDE THE ISSUE AT HAND. II.VLS FINANCE (SUPRA) DO NOT DEAL WITH THE PROVISI ONS OF SECTION 263 OF THE ACT AND WAS CONCERNED WITH THE INTERPRETATION OF PROVISIONS OF SECTION 281B OF THE ACT WHICH EMPOWERS THE ASSESSING OFFICER TO ATTACH PROP ERTIES OF AN ASSESSEE TO PROTECT THE INTEREST OF THE REVEN UE. IN THAT CONTEXT THE MEANING OF THE WORD 'OPINION' W AS CONSIDERED BY THE HIGH COURT SINCE THE PROVISIONS O F SECTION 263 ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 88 ARE MATERIALLY DIFFERENT FROM THE PROVISIONS OF SEC TION 281B. THIS CASE LAW IS NOT RELEVANT TO DECIDE THE ISSUE. SECONDLY, THE WORD 'OPINION' IS USED IN EXPLANATION - 2 TO SECTION 263 WHICH AS SUBMITTED BY THE APPELLANT IN PARA - 2 OF THE REJOINDER DOES NOT APPLY TO A.Y. 2012-13. THERE FORE, THIS JUDGMENT IS NOT RELEVANT TO ADJUDICATE THE INSTANT CASE. III. INDUS BEST HOSPITALITY & RELATORS PVT. LTD. (ITA NO . 3125/M/17); PARA - 8 OF DR'S SUBMISSION PG.256 OF COMPILATION IN THIS CASE, THE REVISION ORDER PASSED BY THE CIT WAS REVERSED SINCE THE ASSESSING OFFICER HAD ENQUIRED INTO THE D EDUCTION OF RS. 50.6 LAKH CLAIMED BY THE ASSESSEE FOR SUPPLY OF MATERIAL AND AFTER APPLYING HIS MIND THE AO HAD ALLOWED THE SAME . THEREFORE, THE TRIBUNAL HELD THAT THE CIT CANNOT REVISE THE AS SESSMENT ORDER WHEN THE AO HAD ALLOWED THE PAYMENT AFTER ENQ UIRING INTO THE MATTER. IT IS SUBMITTED THAT THE RATIO LAID DOWN BY THIS OR DER IS SQUARELY APPLICABLE TO FACTS OF THE CASE SINCE, IN THE INSTA NT CASE ALSO, THE AO HAD ENQUIRED INTO THE MATTER AND AFTER APPLYING HIS MIND HAD ALLOWED THE COST OF RS. 5,857 CRORE TOWARDS VEL SHARES AND DISALLOWED THE COST OF RS. 220 CRORE. THEREFORE, TH E CIT CANNOT INVOKE REVISION JURISDICTION UNDER SECTION 263 OF T HE ACT. FURTHER, THE LEARNED DR HAS WRONGLY STATED THAT THI S ORDER OF THE TRIBUNAL HOLDS EXPLANATION -2 TO SECTION 263 AS RET ROSPECTIVE IN NATURE. ON THE CONTRARY, THE TRIBUNAL IN THIS CASE WAS CONCERNED WITH A.Y. 2012-13 AND IN PARA 23 HAS HELD THAT THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 89 PROVISIONS OF EXPLANATION - 2 ARE PROSPECTIVE IN NA TURE AND DOES NOT APPLY TO A.Y. 2012-13. IV. ARVEE INTERNATIONAL VS. ADDL. CIT (8 SOT452) (MUM.) PARA -10 OF DR'S SUBMISSION PG.256 OF COMPILATION. IN THIS CASE, THE REVISION ORDER PASSED BY THE CIT WAS UPHELD SINCE THE ASSESSING OFFICER HAD ALLOWED THE LOSS OF RS. 13,90,096 ON TRANSFER OF IMPORT ENTITLEMENTS IN A.Y.1998-99 WITHOUT MAKING ANY ENQUIRY AS, ON ALLOTMENT OF THE SAME IMPORT ENTITLEMENTS IN A.Y. 1996-97 THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 73.01 LAKHS UNDER SECTION 80HHC OF THE ACT THE ASSESSMENT ORDER WAS HELD AS ERRONEOUS AS THE LOSS WAS ALLOWED WITHOUT MAKING ANY ENQUIRY IN THE MATTER (PARA 17). SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES AND AFTER APPLY ING HIS MIND HAD DISALLOWED PART OF THE COST, THE RATIO LAID DOW N BY THIS ORDER IS NOT APPLICABLE TO THE FACTS OF THE CASE. V. HORIZON INVESTMENT COMPANY LTD. VS. CIT (ITA NO. 1593/M/13) PARA -11 OF DR'S SUBMISSION PG.257 OF COMPILATION IN THIS CASE, THE JURISDICTION EXERCISED UNDER SECT ION 263 WAS UPHELD ON THE GROUND THAT THE ASSESSING OFFICER HAD ALLOWED THE EXPENSES ON ACCOUNT OF REPAIRS TO THE LESSEE ASSESS EE WITHOUT ENQUIRING INTO THE MATTER, AS THE AGREEMENT BETWEEN THE PARTIES PROVIDED THAT THE REPAIR EXPENSES WERE TO BE BORNE BY THE LESSOR. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 90 SINCE THE REPAIR EXPENSES WERE ALLOWED WITHOUT ANY ENQUIRY AND WITHOUT ANY APPLICATION OF MIND THE ORDER PASSED UN DER SECTION 263 WAS UPHELD BY THE TRIBUNAL (PARA 3.4). SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES, AND AFTER APPL YING HIS MIND HAD DISALLOWED PART OF THE COST THE RATIO LAID DOWN BY THIS ORDER IS NOT APPLICABLE TO THE INSTANT CASE. VI. RAJMANDIR ESTATE PVT. LTD. VS. CIT (386 ITR 162)PAR A - 12 OF DR'S SUBMISSION PG.257 OF COMPILATION. IN THI S CASE, THE JURISDICTION INVOKED UNDER SECTION 263 WA S UPHELD BY THE HIGH COURT AS THE ASSESSEE WAS ALLEGE D TO BE INVOLVED IN THE MONEY LAUNDERING OF FUNDS AND DURING THE YEAR HAD RECEIVED SHARE CAPITAL AT HUGE PREMIUM OF RS. 390/SHARE; THE ASSESSING OFFICER WITHOUT ENQUIRING INTO THE GENUINENESS OF THE SHARE CAPITAL RECEIVED BY THE ASSESSEE AT A HUGE PREMIUM AND WITHOUT APPLYING HIS MIND COMPLETED THE ASSESSMENT. AS THE ASSESSMENT WAS COMPLETED WITHOUT MAKING ANY INVESTIGATION AND THERE WAS COMPLETE NON-APPLICATION OF MIND, THE HIGH COURT UPHELD THE ORDER PASSED UNDER SECTION 263 OF THE AC T (PARA 28). SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES AND AFTER APPLY ING HIS MIND HAS DISALLOWED PART OF THE COST, THE RATIO LAID DOW N BY THIS ORDER IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 91 VII. MADHURIMA INTERNATIONAL (P.) LTD. VS. CIT (ITA NO. 421/M/17) IN THIS CASE, THE REVISION UNDER SECTION 263 OF THE ACT WAS UPHELD BY THE TRIBUNAL AS THE ASSESSING OFFICER HAD HOT ENQUIRED INTO VALUATION REPORT PREPARED FOR THE PURPOSE OF S ECTION 56(2)(VIIB) OF THE ACT AND HAD ALSO IGNORED THEPROV ISIONS OF EXPLANATION TO SECTION 56 AND RULE 11UA RELATED TO COMPUTATION OF FAIR MARKET VALUE, THEREFORE, THE ASSESSMENT ORD ER WAS HELD AS ERRONEOUS (PG.27,28,29). SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES AND AFTER APPLY ING HIS MIND HAS DISALLOWED PART OF THE COST, AND IN FACT THE VI EW TAKEN BY THE AO IS SUPPORTED BY THE SC IN CHALLAPALLI SUGARS (SU PRA), DHUN DADABHOY (SUPRA) AND MAHINDRA AND CO. (SUPRA) THERE FORE, THE ASSESSMENT ORDER IN THE INSTANT CASE CANNOT BE TERM ED AS ERRONEOUS. VIII. ANIL KAPOOR FILM CO. PVT. LTD. VS. CIT(ITANO.5015/M/18) PARA -18 OF DR'S SUBMISSION PG.259 OF COMPILATION. IN THIS CASE, THE REVISION EXERCISED UNDER SECTION 263 WAS UPHELD AS THE ASSESSING OFFICER HAD NOT ENQUIRED INTO THE LOAN RECEIVED OF RS. 2 CRORE FROM MR. ANUBHAV VINIMAY, TH E ASSESSING OFFICER DID NOT EXAMINE THE GENUINENESS O F THE TRANSACTION OR CREDIT WORTHINESS OF THE LENDER THEREFORE, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF JUSTICE. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 92 SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES, AND AFTER APPL YING HIS MIND HAD DISALLOWED PART OF THE COST THE RATIO LAID DOWN BY THIS ORDER IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. IX. TATA CONSULTANCY SERVICES LTD. VS. CIT (ITANO. 2794/M/18) PARA -19 OF DR'S SUBMISSION PG.259 OF COMPILATION. IN THIS CASE, THE REVISION EXERCISED U NDER SECTION 263 WAS UPHELD AS THE ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE WAS CONTRARY TO THE ACCOUNTING STANDARD - 11 ISSUED BY ICAI AND ALSO CONTRARY TO THE JUDGMENT OF THE SUPREME COURT IN WOODWARD GOVERNOR INDIA PVT. LTD. (312 ITR 254) AND THEREFORE, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS BEING CONTRARY TO T HE ACCOUNTING STANDARD AND THE JUDGMENT OF SUPREME COURT (PG.22AND23). SINCE, IN THE INSTANT CASE, THE VIEW TAKEN BY THE A SSESSING OFFICER IS A POSSIBLE VIEW SUPPORTED BY THE JUDGMEN TS OF SC IN CHALLAPALLI SUGARS (SUPRA), DHUNDADATAHOY (SUPRA) A ND MAHINDRA AND CO. (SUPRA). THE RATIO LAID DOWN IN TH E AFORESAID ORDER RELIED UPON BY THE LD DR IS NOT APPLICABLE TO THE INSTANT CASE. 9.6. THEREFORE, IT WAS SUBMITTED THAT THE POSITION IN LAW, WITH RESPECT TO AN ASSESSMENT ORDER FOR AY 2012-13, EVEN AFTER INSERTION OF EXPLANATION 2 IS THAT REVISION JURI SDICTION UNDER SECTION 263 OF THE ACT CANNOT BE INVOKED FOR INADEQ UATE INQUIRY I.E. WHEN THE ASSESSING OFFICER HAS ENQUIRED INTO T HE MATTER AND ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 93 LD. PCIT IS OF THE OPINION THAT FURTHER ENQUIRIES S HOULD HAVE BEEN MADE. IN THIS REGARD, RELIANCE WAS PLACED ON F OLLOWING JUDGMENTS OF THE HIGH COURT: I. CIT VS. NIRAV MODI (390 ITR 292) (BOM.) (PARA 9 PG.166), SLP DISMISSED REPORTED IN 77 TAXMANN.COM 15 (SC) II. CIT V. SHREEPATI HOLDING & FINANCE PVT. LTD. (ITXA NO. 1879 OF 2013) (PARA 7PG. 158) III. CIT V. SUNBEAM AUTO LTD. (332 ITR 167} (DEL. ) (PARA 17 PG. 150) IT IS THEREFORE SUBMITTED THAT EXPLANATION 2 HAS NO APPLICATION TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND IN A NY CASE EXPLANATION 2 DOES NOT ALTER THE SCOPE OF THE POWER S UNDER SECTION 263 AS ALLEGED. HENCE, THE LAW AS DECLARED BY THE BOMBAY AND DELHI HIGH COURT CONTINUES TO BE GOOD LA W AND THAT POWERS UNDER SECTION 263 CANNOT BE INVOKED FOR INAD EQUATE ENQUIRY. 9.7. ON THE AO NOT MAKING ANY ENQUIRY REGARDING COS T OF SHARES, THE LD DR IN PARA 6, 14 AND 15 OF THE WRITTEN REPLY (PG. 255 AND 257 OF COMPILATION) HAS ARGUED THAT THE JURISDICTIO N INVOKED BY PCIT UNDER SECTION 263 IS CORRECT AS THE ASSESSING OFFICER HAD NOT ENQUIRED INTO THE COST OF ACQUISITION OF VEL SHA RES CLAIMED BY THE ASSESSEE AND HAD FRAMED THE ASSESSMENT IN A SLIPSHOD MANNER WITHOUT VERIFICATION 'AND APPLICATION OF MIN D. THEREFORE, THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE REJOINDER, THE LD AR SUBMITTED THAT THE AO HAS FAILED TO ENQUIRE INTO THE COST ALLOWABLE AGAINST SALE PROCEEDS OF VEL SHARES IS FAC TUALLY INCORRECT AS DEMONSTRATED IN THE APPELLANT ASSESSEE 'S WRITTEN SUBMISSIONS DATED 19 MARCH 2020 (PG. 616-622 OF THE PAPER BOOK) EXPLAINED WHY THE PROVISIONS OF SECTION 49(L) (III)(E), THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 94 REASON WHY THE COST OF ACQUISITION OF ISL SHARES IN THE HANDS OF THE APPELLANT ASSESSEE BE TAKEN AS COST FOR THE PUR POSES OF COMPUTING CAPITAL GAINS ON SALE OF VEL'S SHARES. T HE ASSESSEE VIDE LETTER DATED 24 MARCH 2015 (PG. 30-36 OF COMPI LATION) AND 26 MARCH 2015 (PG. 37-42 OF COMPILATION) EXPLAINED THE OF COST OF ACQUISITION IN THE HANDS OF THE APPELLANT ASSESS EE, FURNISHING THE DETAILED WORKING (WITH EVIDENCE) OF HOW THE COS T OF VEL SHARES WAS ARRIVED AT RS. 6,077.07 CRORE BY THE ASS ESSEE. THE AO AFTER APPLYING HIS MIND DISALLOWED THE COST OF R S. 220.15 CRORE CLAIMED BY THE ASSESSEE BEING COST INCURRED B Y THE ASSESSEE IN PAYING SHAREHOLDERS OF ISL AFTER THE CL OSE OF THE PREVIOUS YEAR I.E. AFTER 31 MARCH 2012 (ITEM 3,4 5 AND 6 ON PG. 34,35 OF COMPILATION).THE LD. A.R. SUBMITTED THAT T HE VIEW TAKEN BY THE ASSESSING OFFICER TO TAKE THE COST OF INVESTMENTS MADE BY ASSESSEE IN ISL FOR THE PURPOSE OF COMPUTIN G COST OF ACQUISITION OF VEL SHARES WAS SUPPORTED BY THE FOLL OWING DECISIONS AND WERE EXPLAINED BY THE LD A.R. AS UNDE R: I. CHALLAPALLI SUGARS LTD, VS. CIT (98 ITR167): IN THIS CASE, THE APPELLANT WAS CARRYING ON THE BUS INESS OF MANUFACTURE AND SALE OF SUGAR. THE COMPANY COMMENCE D THE PRODUCTION ON 22 JANUARY 1958. THE COMPANY HAD BORR OWED MONEY FOR INSTALLATION OF MACHINERY AND PLANT. BEFO RE THE COMMENCEMENT OF PRODUCTION, THE COMPANY HAD PAID IN TEREST OF RS. 2,38,614 ON BORROWED FUNDS. THE COMPANY CLAIMED THAT THE INTEREST SHOULD BE CONSIDERED AS PART OF THE COST A ND CLAIMED DEPRECIATION ON THE SAME. THE SUPREME COURT UPHELD THE CLAIM OF THE ASSESSEE OBSERVING AS UNDER: IT WOULD APPEAR FROM THE ABOVE THAT THE ACCEPTED AC COUNTANCY RULE FOR DETERMINING THE COST AFFIXED ASSETS IS TO INCLUDE ALL EXPENDITU RE NECESSARY TO BRING SUCH ASSETS ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 95 INTO EXISTENCE AND TO PUT THEM IN WORKING CONDITION . IN CASE MONEY IS BORROWED BY A NEWLY STARTED COMPANY WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT, THE INTEREST INCURRED BEFORE THE COMMENCEMEN T OF PRODUCTION ON SUCH BORROWED MONEY CAN BE CAPITALISED AND ADDED TO THE COST OF THE FIXED ASSETS WHICH HAVE BEEN CREATED AS A RESULT OF SUCH EXPENDITURE. THE ABOVE RULE OF ACCOUNTANCY SHOULD, IN OUR VIEW, BE ADOPTED FOR DETERMINING THE ACTUAL COST OF THE ASSETS IN THE ABSENCE OF ANY STATUTORY DEFINITION OR OTHER INDICA TION TO THE CONTRARY. II. DHUN DADABHOY KAPADIA VS. CIT (63 ITR 651) (P G.391- PG.394 OF COMPILATION): IN THIS CASE, THE APPELLANT WAS HOLDING 710 EQUITY SHARES IN TATA IRON & STEEL COMPANY LTD. AND BECAME ENTITLED TO SU BSCRIBE RIGHT SHARES OF 710. HOWEVER, THE ASSESSEE DID NOT SUBSCRIBE TO THE RIGHT SHARES AND SOLD THE ENTITLEMENT IN THE OP EN MARKET AT RS. 45,262 AND CLAIMED THE DEDUCTION OF RS. 37,630 WHICH WAS FALL IN THE MARKET VALUE OF EXISTING 710 SHARES IMM EDIATELY AFTER ALLOTMENT OF RIGHT SHARES, AS COST OF ACQUISITION O F THE ENTITLEMENT SOLD BY HER. IN THIS REGARD, SUPREME CO URT HELD IN FAVOUR OF THE ASSESSEE OBSERVING AS UNDER: (PG. 394 ) 'THE HIGH COURT, IN DEALING WITH THIS QUESTION, HAD EXPRESSED THE VIEW THAT PRINCIPLES OF ACCOUNTANCY APPLICABLE TO VALUATION O F SUCH RIGHT TO RECEIVE NEW SHARES ISSUED BY A COMPANY ARE NOT APPLICABLE WHEN COMPUTATION HAS TO BE MADE FOR PURPOSES OF TAXATION; BUT WE ARE UNABLE TO ACCE PT THIS PROPOSITION. IN WORKING OUT CAPITAL GAIN OR LOSS, THE PRINCIPLES THAT HAVE TO BE APPLIED ARE THOSE WHICH ARE A PART OF THE COMMERCIAL PRACTICE OR WHICH AN ORDINAR Y MAN OF BUSINESS WILL RESORT TO WHEN MAKING COMPUTATION FOR HIS BUSINESS PURPOSES. THE PRINCIPLES OF ACCOUNTING INDICATED BY US ABOVE ARE CLEARLY THE PRINCIPLE THA T MUST BE APPLIED IN ORDER TO FIND OUT THE NET CAPITAL GAIN OR LOSS ARISING OUT OF A T RANSACTION OF THE NATURE WITH WHICH WE ARE CONCERNED......' 9.8. THE LD. A.R. ALSO SUBMITTED THAT THE VIEW TA KEN BY THE ASSESSING OFFICER TO TAKE PROPORTIONATE COST, I.E. DIVIDE THE COST OF ISL SHARES BETWEEN THE VALUE OF VEL SHARES AND OT HER ASSETS OF ISL WHICH BECAME THE PROPERTY OF THE APPELLANT A SSESSEE ON AMALGAMATION WAS SUPPORTED BY THE DECISION IN THE C ASE OF CIT ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 96 VS. MAHINDRA & CO. LTD. (326 ITR 465) (RAJ.) (PG.20 -28 OF COMPILATION) AND WAS EXPLAINED AS UNDER: IN THIS CASE, THE APPELLANT RECEIVED THE SHARES OF BARANGORE JUTE FACTORY ON ACCOUNT OF AMALGAMATION. THE APPELLANT HAD PAID CON SIDERATION OF RS. 33,333 TO THE SHAREHOLDERS OF AMALGAMATING COMPANY FOR ASSETS WORTH RS. 1,39,330 RECEIVED ON ACCOUNT OF AMALGAMATION OF WHICH SHARES WAS ONE OF THE ASSETS. LATER ON, THE SHARES WERE SOLD BY THE ASSESSEE FOR AN AMOUNT OF R S. 21,000 AND SINCE THE COST OF SHARES IN THE HANDS OF AMALGAMATING COMPANY WAS RS. 54,450, THE ASSESSEE CLAIMED LOSS OF RS. 33,010. THE ASSESSING OFFICER H ELD THAT SINCE THE ASSESSEE HAD PAID AN AMOUNT OF RS. 33,333 THE PROPORTIONATE COST OF SHARES (54,450/1,39,330 * 33,333} COMES TO RS. 13,026 THEREFORE, THE ASSESSEE HAD EARNED A PROFIT OF RS. 7,974. THE RAJASTHAN HIGH COURT APPROVED THE PRINCI PLE OF APPORTIONMENT TO ARRIVE AT THE COST OF SHARES OBSERVING AS UNDER: {PG. 28 O F COMPILATION) 'IN THE PRESENT CASE ALSO, WE FIND THAT VALUE OF 30 0 SHARES OF M/S. BARANAGORE JUTE FACTORY AND EQUITABLE COAL CO. BEFO RE AMALGAMATION WAS INDICATED AS RS. 54,550 AND ITS ENTIRE ASSETS WERE TAKEN OVER FOR RS. 1,39,330. THE ASSESSEE-COMPANY AT THE TIME OF AMALG AMATION OF THE SAID COMPANY, PAID SALE CONSIDERATION OFRS. 33,333 TOWAR DS VALUE OF THE SHARES. THUS, AS PER THE INDICATED PARAMETERS, PROPORTIONAT E VALUE OF 300 SHARES WORKED OUT TO ONLY RS. 13,076 WHICH SHARES AT LATER POINT OF TIME WERE SOLD BY THE ASSESSEE-COMPANY IN THE MARKET FOR RS. 21,00 0. THERE WAS THUS INDEED EARNED PROFIT OF RS. 7,974......' 9.9. IT WAS SUBMITTED THAT IT IS NOT THE CASE OF THE CIT/DR THAT THE REASONING GIVEN BY THE AO IN HIS ORDER TO ARRIV E AT THE COST FOR COMPUTING LTCG ON SALE OF VEL SHARES IN INCORREC T. THE ONLY REASON GIVEN BY THE LD. PCIT AND THAT WHICH IS ARTI CULATED BY THE DR, IS THAT THE AO HAS NOT APPLIED HIS MIND TO THE COMPUTATION OF COST. THIS, AS DEMONSTRATED ABOVE, I S FACTUALLY INCORRECT. 9.10. STRICTLY WITHOUT PREJUDICE TO THE FOREGOING AND WITHOUT PREJUDICE TO THE SUBMISSION OF THE APPELLANT ASSESS EE THAT THE COMPUTATION MADE BY THE AO IS CORRECT IN LAW, THE L D. A.R. SUBMITTED THAT THE VIEW EXPRESSED BY THE AO IN ACCE PTING THE SUBMISSIONS OF THE APPELLANT ASSESSEE IN COMPUTING THE COST FOR ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 97 THE PURPOSES OF ARRIVING AT THE LTCG ON SALE OF VEL SHARES TO BE TAXED IN THE HANDS OF THE APPELLANT ASSESSEE IS POS SIBLE VIEW, TO SAY THE VERY LEAST. IT WAS THEREFORE SUBMITTED THAT THE ON THIS COUNT ALONE, THE INVOCATION OF POWERS BY THE LD. PC IT UNDER SECTION 263, FOR THIS REASON IS UNSUSTAINABLE. RELI ANCE WAS PLACED ON THE DECISION IN THE CASE OF CIT VS. MAX I NDIA LTD. (295 ITR 282) WHEREIN THE HON'BLE APEX COURT HAS OBSERVE D AS UNDER: 'IN OUR VIEW AT THE RELEVANT TIME TWO VIEWS WERE PO SSIBLE ON THE WORD 'PROFITS' IN THE PROVISO TO SECTION 80HHC(3). IT IS TRUE THAT VI DE 2005 AMENDMENT THE LAW HAS BEEN CLARIFIED WITH RETROSPECTIVE EFFECT BY INSERTI ON OF THE WORD 'LOSS IN THE NEW PROVISO. WE EXPRESS NO OPINION ON THE SCOPE OF THE SAID AMENDMENT OF 2005. SUFFICE IT TO STATE THAT IN THIS PARTICULAR CASE WH EN THE ORDER OF THE COMMISSIONER WAS PASSED UNDER SECTION 263 OF THE INCOME-TAX ACT TWO VIEWS ON THE SAID WORD 'PROFITS' EXISTED. IN OUR VIEW THE MATTER IS SQUARE LY COVERED BY THE JUDGMENT OF THIS COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 83 AS ALSO BY THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF RUSSELL PROPERTIES (P.) LTD. V. A. CHOWDHURY, ADDL. CIT[1977] 109 ITR 229 AT 243.' 9.11. THE JUDGMENTS RELIED ON BY THE LEARNED DR I N PARA 6,14 AND 15 OF THE WRITTEN REPLY ARE DISTINGUISHABLE AND ARE SEPARATELY DEALT WITH. IT IS THEREFORE WRONG FOR T HE LD. PCIT AND THE DR TO URGE THAT THE ASSESSING OFFICER HAS NOT E NQUIRED INTO THE COST OF VEL SHARES AND HAS NOT APPLIED HIS MIND TO THE COST CLAIMED BY THE ASSESSEE. THE CASE LAWS RELIED UPON BY THE LD. D.R. ARE DISTINGUISHED AS UNDER: IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT (243ITR83)(SC) PARA - 6 OF DR'S SUBMISSION, THE EXE RCISE OF JURISDICTION UNDER SECTION 263 WAS UPHELD BY THE SC AS THE ASSESSING OFFICER HAD PASSED THE ASSESSMENT ORDER W ITHOUT ANY APPLICATION OF MIND AND WITH CONDUCTING ANY ENQ UIRY REGARDING THE TAXABILITY OF COMPENSATION OF RS.3,66 ,649/-. SINCE THE AO IN THE INSTANT CASE HAS ENQUIRED INTO THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 98 MATTER AND APPLIED HIS MIND TO THE AMOUNT OF COST ALLOWABLE, THE RATIO LAID DOWN BY THIS JUDGMENT IS NOT APPLICABLE TO THE FACTS OF THE CASE. THIS JUDGMENT , IN FACT, SUPPORTS THE CASE OF THE APPELLANT AS SUPREME COURT HAS HELD THAT IS THE ASSESSING OFFICER HAS TAKEN A POSS IBLE VIEW IN THE MATTER THEN THE PROVISIONS OF SECTION 263 CA NNOT BE INVOKED BY CIT. CIT VS. ASHOK LOGANI (347 ITR 22) (DEL.). IN THIS CASE, THE EXERCISE OF JURISDICTION WAS UPHELD BY THE HIGH COU RT ON THE GROUND THAT THE ASSESSEE AT THE TIME OF SEARCH HAD MADE A STATEMENT THAT CASH OF RS. 61.30 LAKHS FOUND WAS HI S UNDISCLOSED INCOME. LATER ON, THE STATEMENT WAS RET RACTED AND INCOME OF ONLY RS. 21 LAKHS WAS OFFERED TO TAX. THE ASSESSING OFFICER ACCEPTED INCOME OF RS. 21 LAKHS W ITHOUT GOING INTO THE DIFFERENCE IN THE INCOME OFFERED BY THE ASSESSEE. SECONDLY, THE HIGH COURT ALSO CAME TO TH E CONCLUSION THAT THE EXPLANATION OFFERED BY THE ASSE SSEE FOR OFFERING INCOME OF RS. 21 LAKHS BEFORE ASSESSING OF FICER WAS DIFFERENT THAN THE ONE FURNISHED BEFORE THE TRIBUNA L WHICH SHOWED THAT THE EXPLANATION OF THE ASSESSEE WAS AN AFTERTHOUGHT (PARA 10). SINCE THE AO IN THE INSTANT CASE HAS ENQUIRED INTO THE MATTER AND IN FACT DISALLOWED PART OF THE COST, THE RATIO LAID DOWN BY THIS JUDGMENT IS NOT APPLICABLE TO THE FACTS OF THE CASE. SURYA JYOTI SOFTWARE PVT. LTD. VS. CIT (ITA NO. 2158/DEL/2017). IN THIS CASE, THE EXERCISE OF JURI SDICTION WAS UPHELD BY THE TRIBUNAL ON THE GROUND THAT THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 99 ASSESSING OFFICER REOPENED THE ASSESSMENT UNDER SEC TION 147 ON THE BASIS THAT THE ASSESSEE HAD RECEIVED ACCOMMODATION ENTRY OF RS. 1 CRORE HOWEVER, AFTER REOPENING THE ASSESSMENT, DID NOT CARRY OUT ANY ENQ UIRY OR VERIFICATION AND PASSED THE REASSESSMENT ORDER WITH OUT MAKING ANY ADDITION IN THIS REGARD. SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES AND DISALLOWED PART OF THE COST, THE RATIO LAID DOWN BY THIS ORDER ISJIOT APPL ICABLE TO THE FACTS OF THE CASE. INDIAN TEXTILES VS. CIT (157 ITR 112} (MAD.)PARA -1 4 OF DR'S SUBMISSION PG.258 OF COMPILATION. IN THIS CAS E, THE ORDER PASSED UNDER SECTION 263 WAS UPHELD BY THE HI GH COURT AS THE ASSESSING OFFICER HAD NOT CONDUCTED AN Y ENQUIRY REGARDING THE DEDUCTION CLAIMED BY THE ASSE SSEE UNDER SECTION 35B WITH RESPECT TO AIR FREIGHT INSUR ANCE, CARRIAGE OF GOODS AND COMMISSION. SINCE THE NO VERI FICATION WAS CARRIED OUT BY THE ASSESSING OFFICER, THE HIGH COURT UPHELD THE INVOCATION OF JURISDICTION UNDER SECTION 263 OF THE ACT (PG.2). SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES AND DISA LLOWED PART OF THE COST, THE RATIO LAID DOWN BY THIS JUDGMENT IS N OT APPLICABLE TO THE FACTS OF THE CASE. GEE VEE ENTERPRISES VS. CIT (99 ITR 375} (DEL.)PARA - 14 OF DR'S SUBMISSION PG.258 OF COMPILATION. IN TH IS CASE, THE EXERCISE OF REVISION JURISDICTION WAS UPHELD BY THE HIGH COURT AS THE ASSESSING OFFICER GRANTED REGISTRATION UNDER ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 100 SECTION 185 OF THE ACT AS A PARTNERSHIP FIRM, WHICH RESULTED INTO SUBSTANTIAL TAX BENEFITS TO THE ASSESSEE, WITH OUT ENQUIRING INTO THE GENUINENESS OF THE PARTNERSHIP F IRM FORMED BY THE ASSESSEE AND OTHER MEMBERS. SINCE, TH E REGISTRATION WAS WITHOUT ENQUIRING INTO THE MATTER, THE HIGH COURT UPHELD THE REVISION UNDER SECTION 263 OF THE ACT (PG.6). SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES AND DISA LLOWED PART OF THE COST, THE RATIO .LAID DOWN BY THIS JUDGMENT IS NOT APPLICABLE TO THE FACTS OF THE CASE. THALIBAI F. JAIN VS. ITO (101 ITR 1) (KAR.)PARA -14 OF DR'S SUBMISSION PG.258 OF COMPILATION. IN THIS CAS E, THE REVISION EXERCISED BY CIT UNDER SECTION 263 WAS UPH ELD AS THE ASSESSING OFFICER ACCEPTED THE UNDISCLOSED INCO ME OF RS. 31,500 OFFERED BY THE ASSESSEE FOR A.Y. 1969-70 TO 1972-73 PURPORTED TO HAVE BEEN EARNED FROM THE BUSI NESS OF MONEY LENDING. THE ASSESSING OFFICER DID NOT CAR RY OUT ANY ENQUIRY REGARDING THE GENUINENESS OF THE CLAIM MADE BY THE ASSESSEE AND BLINDLY ACCEPTED THE RETURN OF INCOME. SINCE THE INCOME OFFERED BY THE ASSESSEE WAS ACCEPT ED WITHOUT CONDUCTING ANY ENQUIRY, THE HIGH COURT UPHE LD THE REVISION ORDER PASSED UNDER SECTION 263 OF THE ACT (PG.3). SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES AND IN FA CT DISALLOWED PART OF THE COST, THE RATIO LAID DOWN BY THIS ORDER IS NOT APPLICABLE TO THE FACTS OF THE CASE. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 101 CIT VS. HIMACHAL PRADESH FINANCE CORPORATION (186 TAXMAN 105) (HP)PARA -14 OF DR'S SUBMISSION PG.258 OF COMPILATION. IN THIS CASE, THE REVISION EXERCISED UNDER SECTION 263 WAS UPHELD BY THE HIGH COURT AS THE ASS ESSING OFFICER HAD ALLOWED THE RELIEF TO THE ASSESSEE REGA RDING INTEREST ON STICKY LOAN WITHOUT ANY MATERIAL ON REC ORD AND HE HAD ALSO NOT CONSIDERED CIRCULAR DATED 6.10,1952 ISSUED BY CBDT AND THEREFORE, THE ASSESSMENT ORDER WAS HELD AS PASSED WITHOUT ANY APPLICATION OF MIND. SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES AND AFTER APPLYING HIS MIND HAS DISALLOWED PART OF THE COST CLAIMED BY THE ASSESSEE, THE RATIO LAID DOWN BY THIS JUDGMENT IS NOT APPLICA BLE TO THE FACTS OF THE CASE. CIT VS. PUSHPA DEVI 164 ITR 639 (164 ITR 639} (PATN A)PARA -14 OF DR'S SUBMISSION PG.258 OF COMPILATION. IN TH IS CASE, THE REVISION UNDER SECTION 263 WAS UPHELD BY THE HI GH COURT AS THE ASSESSING OFFICER ACCEPTED THE UNDISCL OSED INCOME OFFERED BY THE ASSESSEE AS PURPORTED TO HAVE BEEN EARNED FROM MONEY LENDING AND OIL TRADING BUSINESS HOWEVER, HE DID NOT CONDUCT ANY ENQUIRY REGARDING I NITIAL CAPITAL INVESTED, REAL EXTENT OF INCOME AND ITS TRU E OWNERSHIP. THEREFORE, THE ASSESSMENT ORDER WAS HELD AS AMENABLE TO PROVISIONS OF SECTION 263 (PARA 10). SINCE, IN THE INSTANT CASE, THE AO HAS HELD ENQUIRY ON THE ISSUE OF COST OF ACQUISITION OF VEL SHARES AND AFTER APPLYING HIS ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 102 MIND HAS DISALLOWED PART OF THE COST CLAIMED BY THE ASSESSEE, THE RATIO LAID DOWN BY THIS ORDER IS NOT APPLICABLE TO THE FACTS OF THE CASE. CIT VS. MM.KHAMBATWALA (198 ITR 144) (GUJ.) PARA -1 5 OF DR'S SUBMISSION PG.258 OF COMPILATION. THE GUJARAT HIGH COURT REVERSED THE ORDER OF THE TRIBUNAL WHICH HAD HELD THAT TWO VIEWS WERE POSSIBLE ON MERITS OF THE MATTE R THEREFORE, THE CIT COULD NOT INVOKE THE PROVISIONS OF SECTION OF 263 OF THE ACT. THE RELEVANT PORTION OF THE JUDG MENT IS EXTRACTED AS UNDER: 'SO FAR AS THE SECOND QUESTION IS CONCERNED, AS POI NTED OUT ABOVE, THE TRIBUNAL TOOK THE VIEW THAT THE COMMISSIONER COULD NOT HAVE INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT SINCE TWO VIEW S AREPOSSIBLE ON THE QUESTION WHETHER THE ASSESSEE WAS ENTITLED TO WEIGH TED DEDUCTION UNDER SECTION 35B OF THE ACT THIS IS A S TRANGE VIEW TAKEN BY THE TRIBUNAL AND IT IS CONCEDED THAT THIS VIEW TAKEINBYTHETRIBUNAL IS NOT SUPPORTED BY ANY PROVISION OF THE ACTOR ANY_DECISION. THE COMMISSIONER WOULD BE ENTITLED TO REVISE THE ORDER OF THE INCOME-TAX OFFICER IF HE IS OF THE VIEW THAT THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER CAN EXERCISE THE POWER UN DER SECTION 263 EVEN IN A CASE WHERE THE ISSUE IS DEBATABLE......' AS CAN BE OBSERVED FROM ABOVE, THE HIGH COURT REJEC TED THE ARGUMENT THAT PROVISIONS OF SECTION 263 CANNOT BE A PPLIED WHEN TWO VIEWS ARE POSSIBLE IN THE MATTER, FT IS SUBMITT ED THAT THE SUPREME COURT IN CIT VS. MAX INDIA LTD. 295 ITR 282 (SC) HAS HELD THAT THE PROVISIONS- OF SECTION 263 ARE NOT AP PLICABLE WHEN THERE ARE TWO VIEWS POSSIBLE THEREFORE, THE JUDGMEN T OF GUJARAT HIGH COURT IN M.M. KHAMBATWALA IS NOT A GOOD LAW AN D CANNOT BE RELIED UPON. THE RELEVANT PORTION OF MAX INDIA ( SUPRA) IS EXTRACTED AS UNDER: 'IN OUR VIEW AT THE RELEVANT TIME TWO VIEWS WERE PO SSIBLE ONTHE WORD 'PROFITS' IN THE PROVISO TO SECTION 80HHC(3). IT IS TRUE THAT VI DE 2005 AMENDMENT THE LAW HAS BEEN CLARIFIED WITH RETROSPECTIVE EFFECT BY INSERTI ON OF THE WORD LOSS IN THE NEW ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 103 PROVISO. WE EXPRESS NO OPINION ON THE SCOPE OF THE SAID AMENDMENT OF 2005. SUFFICE IT TO STATE THAT IN THIS PARTICULAR CASE WH EN THE ORDER OF THE COMMISSIONER WAS PASSED UNDER SECTION 263 OF THE INCOME-TAX ACT, TWO VIEWS ON THE SAID WORD PROFITS EXISTED. IN OUR VIEW THE MATTER IS SQUAR ELY COVERED BY THE JUDGMENT OF THIS COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 83 AS ALSO BY THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF RUSSEELL PROPERTIES (P) LTD. V. A. CHOWDHURY, ADDL. CIT [1977] 109 ITR 229 AT 243. 9.12. THE LEARNED DR IN PARA 1 OF THE WRITTEN REPL Y HAS ARGUED THAT THE ASSESSING OFFICER HAD NOT EXAMINED THE PRO VISIONS OF SECTION 170 R.W. SECTION 47(VI) OF THE ACT IN THE HANDS OF THE ASSESSEE WHEN THE ISL AMALGAMATED WITH THE ASSESSEE W.E.F. 1 APRIL 2011. IN THE REJOINDER THE LD AR SUBMITTED THAT IT IS RELEVANT TO NOTE THAT THE AO IS FULLY CONSCIOUS OF AND HAS CONSIDERED THE IMPLICATIONS OF SECTION 47(VI) IN HI S ORDER - SEE PG. 18 OF ASSESSMENT ORDER UNDER SECTION 143(3) AND THE REFORE IT IS FACTUALLY INCORRECT FOR THE PCIT/DR TO SUBMIT THAT THE IMPLICATIONS OF SECTION 47(VI) R.W.S.170 HAVE NOT B EEN CONSIDERED BY THE AO. WITHOUT PREJUDICE TO THE ABOVE, THE APP ELLANT ASSESSEE HAS IN THE WRITTEN SUBMISSION DATED 13 MAR CH 2020 IN DETAIL SET OUT WHY THE ALLEGATION THAT THE AO HAS F AILED TO CONSIDER APPLICABILITY OF SECTION 170 R.W. SECTION 47(VI) IS WHOLLY BASELESS. THE LD. A.R. SUBMITTED THAT THE TRANSFER OF ASSETS BY ISL TO THE ASSESSEE UNDER AMALGAMATION IS NOT TAXAB LE AS THE AMALGAMATING COMPANY I.E. ISL DOES NOT RECEIVE ANY CONSIDERATION ON ACCOUNT OF AMALGAMATION AND HENCE THERE IS NO QUESTION OF ANY TAX IN THE HANDS OF ISL UNDER SECTI ON 47(VI) READ WITH SECTION 170 TO BE INVOKED. THIS POSITION IN LA W IS SO CLEARLY SET OUT BY THE COMMENTARY OF KANGA & PALKHIVAIA'S, THE LAW AND PRACTICE OF INCOME TAX (10 TH EDITION VOL. I PG.1209) AND COMMENTARY OF SAMPATH IYENGAR'S LAW OF INCOME TAX ( 11 TH EDITION VOL.3 PG. 5254). THIS POSITION AT LAW IS FU RTHER SUPPORTED ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 104 BY THE JUDGMENT OF SUPREME COURT IN CIT VS. B.C. SR INIVASA SETTY (128 ITR 294), I.E. IT WAS ALSO SUBMITTED THAT WHERE THE MACHINERY PROVISION OF SECTION 48 BREAKS DOWN CONSE QUENTLY, THE CHARGE UNDER SECTION 45 ALSO FAILS. IN THE INST ANT CASE, SINCE THE AMALGAMATING COMPANY RECEIVED NO CONSIDERATION ON THE TRANSFER OF ITS ASSETS, THE CHARGE UNDER SECTION 45 FAILS. WITHOUT PREJUDICE TO ABOVE, IT WAS SUBMITTED THAT, IN ANY C ASE, THE AO HAS TAKEN A POSSIBLE VIEW REGARDING THE APPLICABILI TY OF SECTION 170 READ WITH SECTION 47(VI) OF THE ACT WHICH IS SU PPORTED BY THE AFORESAID JUDGMENTS AND EXPERT COMMENTARY. IT WAS T HEREFORE SUBMITTED THAT ON THIS COUNT ALONE, THE INVOCATION OF POWERS BY THE CIT UNDER SECTION 263, FOR THIS REASON IS UNSUS TAINABLE. RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF CIT VS. MAX INDIA LTD. (295ITR 282) WHERE IN THE HON'BLE APEX C OURT HAS OBSERVED AS UNDER: 'IN OUR VIEW AT THE RELEVANT TIME TWO VIEWS WERE PO SSIBLE ON THE WORD 'PROFITS' IN THE PROVISO TO SECTION 80HHC(3). IT IS TRUE THAT VIDE 2005 AMENDMENT THE LAW HAS BEEN CLARIFIED WITH RETROSPECTIVE EFFECT BY INSERTI ON OF THE WORD 'LOSS' IN THE NEW PROVISO. WE EXPRESS NO OPINION ON THE SCOPE OF THE SAID AMENDMENT OF 2005. SUFFICE IT TO STATE THAT IN THIS PARTICULAR CASE WH EN THE ORDER OF THE COMMISSIONER WAS PASSED UNDERSEETION 263 OF THE INCOME-TAX ACT T WO VIEWS ON THE SAID WORD 'PROFITS' EXISTED. IN OUR VIEW THE MATTER IS SQUARE LY COVERED BY THE JUDGMENT OF THIS COURT IN THE CASE OF MALOBAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 83 AS ALSO BY THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF RUSSELL PROPERTIES (P.) LTD. V. A. CHOWDHURY, ADDL. CIT[1977] 109 ITR 229 AT 243.' THEREFORE, IT WAS SUBMITTED THAT THE CIT IS WRONG I N HOLDING THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE PROVIS IONS OF SECTION 47(VI) OF THE ACT. THE PROVISIONS OF SECTI ON 47(VI) WERE IRRELEVANT AS THERE WAS NO CAPITAL GAIN ARISING IN THE HANDS OF ISL IN THE ABSENCE OF ANY CONSIDERATION RECEIVED BY ISL ON AMALGAMATION. IN ANY CASE, THE ASSESSING OFFICER H AS TAKEN A ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 105 POSSIBLE VIEW REGARDING THE APPLICABILITY OF SECTIO N 47(VI) R.W.S. 170 OF THE ACT. 9.13 THE LD. A.R. SUBMITTED THAT THE LD. PCIT CAN N OT TRAVEL BEYOND THE GROUNDS/REASONS SET OUT IN THE NOTICE. THE LD. A.R. POINTED OUT THAT THE LD. DR HAS IN PARAS 4, 9 AND 1 7 OF THE WRITTEN REPLY (PG. 255, 256, 258 OF COMPILATION) HA S ARGUED THAT REASON GIVEN BY THE CIT IN PARA 3-3.1 PG.54,55 OF H IS ORDER UNDER CHALLENGE VIZ. THAT THE AO OUGHT TO HAVE AWAI TED THE RESPONSE OF FT&TR BEFORE CONCLUDING THE ASSESSMENT, ALTHOUGH NOT MENTIONED IN THE NOTICE, CAN VALIDLY FORM THE B ASIS FOR THE CIT TO INVOKER POWERS UNDER SECTION 263 OF THE ACT. THIS ARGUMENT WAS NOT RAISED DURING THE COURSE OF THE OR AL HEARING AND THEREFORE ITS CONTEXT WAS NOT FULLY CLEAR. IT I S BEING PRESUMED THAT THE SUBMISSION OF THE DR IS IN RESPON SE TO THE ARGUMENT OF THE APPELLANT ASSESSEE IN HIS WRITTEN S UBMISSIONS IN PARA 4,9 AND 17 AT PAGE 255, 256 AND 258 OF COMP ILATION. THE DR SEEKS TO SUPPORT HIS AFOREMENTIONED SUBMISSION B Y PLACING RELIANCE ON THE DECISION OF THE APEX COURT IN THE C ASE OF THE CIT VS. AMITABH BACHCHAN (384 ITR 200) (SC). 9.13.1 IN THE REJOINDER, THE LD. A.R. SUBMITTED AS UNDER: THIS ARGUMENT AND THE READING OF THE DECISION OF TH E APEX COURT IN CASE OF AMITABH BACHCHAN (SUPRA) IS INCORR ECT. THE HON'BLE SUPREME COURT IN THE CASE OF AMITABH BACHCHAN (SUPRA) FOUND ON FACTS THAT THOUGH THE REA SON CITED BY THE CIT IN THE ORDER WAS NOT FOUND IN THE NOTICE, HOWEVER, THE CIT HAD, DURING THE COURSE OF THE PROC EEDINGS UNDER SECTION 263 GIVEN FULL OPPORTUNITY TO THE ASS ESSEE IN RESPECT OF THE ISSUES WHICH WERE NOT RAISED IN THE SCN. THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 106 HON'BLE SUPREME COURT THEREFORE HELD THAT THERE WAS NO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND THER EFORE REVERSED THE ORDER OF THE HON'BLE HIGH COURT ON THA T COUNT (PARA 14 PG. 403 OF COMPILATION). HOWEVER, IN THE INSTANT CASE, THE ISSUE REGARDING T HE REFERENCE MADE BY FT&TR IN THE CASE OF ISL FOR A.Y. 2011- 12 WAS NOT RAISED IN THE SCN NOR WAS IT RAISED DURI NG THE COURSE OF THE PROCEEDING BY THE CIT FOR THE APPELLA NT TO RESPOND TO IT. THIS WAS SPECIFICALLY AVERRED BY THE APPELLANT ASSESSEE IN ITS WRITTEN SUBMISSIONS DATED 13 MARCH 2020 AT PG. 9 OF THE COMPILATION. THE DR HAS NOT DISPUTE D THIS FACTUAL POSITION AND HAS THEREFORE ACCEPTED THE SAM E. IT MUST THEREFORE FOLLOW THAT THE APPELLANT ASSESSEE W AS NOT GIVEN AN OPPORTUNITY OF BEING HEARD ON THIS REASON ISSUE AND HENCE, THIS REASON GIVEN BY THE CIT IN THE ORDE R UNDER SECTION 263 OF THE ACT CANNOT BE CONSIDERED FOR DEC IDING THE VALIDITY OF PROCEEDINGS UNDER SECTION 263. APART FROM THE ABOVE, THE DR HAS ALSO NOT DISPUTED, AND THEREFORE ADMITTED, THAT THE ENQUIRY THROUGH FT&TR WAS WITH RESPECT TO ANOTHER ASSESSEE (VIZ. ISL) AND FOR ANOTHER ASSESSMENT YEAR, VIZ. AY 2011-12 (AS SPECIFICALLY A VERRED BY THE APPELLANT ASSESSEE IN SUBMISSION DATED 13 MARCH 2020 PG. 9 OF COMPILATION). THEREFORE, ON THAT COUNT ALO NE, THIS REASON CANNOT FORM THE BASIS OF INVOKING POWERS UND ER SECTION 263 OF THE ACT. THEREFORE IT WAS SUBMITTED THAT THE REASON GIVEN BY CIT REGARDING REFERENCE MADE THROUGH FT AND TR IN THE C ASE OF ISL CANNOT BE CONSIDERED FOR THE PURPOSE OF DECIDING TH E VALIDITY OF ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 107 THE ORDER UNDER SECTION 263 AS THE APPELLANT ASSESS EE WAS NOT GIVEN AN OPPORTUNITY OF BEING HEARD IN THIS REGARD. 9.14. AT THE END OF THE HEARING, THE LEARNED DR HAD REFERRED TO THE JUDGMENT OF DELHI HIGH COURT IN CASE OF EXPE RION DEVELOPERS (P.) LTD. VS. DCIT (115 TAXMANN.COM 338) . IT WAS SUBMITTED THAT THE ABOVE JUDGMENT DOES NOT DEAL WIT H THE PROVISIONS OF SECTION 263 OF THE ACT AND THE HIGH C OURT WAS CONCERNED WITH THE VALIDITY OF THE REASSESSMENT UND ER SECTION 147 OF THE ACT. THEREFORE, THIS JUDGMENT WAS NOT RE LEVANT TO DECIDE THE ISSUE AT HAND. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS ON RECORDS AS PLACED BEFORE US INCLUDING THE WRITTEN SYNOPSIS BY BOTH THE PARTIES AND REJOINDER BY THE A SSESSEE. THE UNDISPUTED FACTS ARE BEING RE-ITERATED. THE ISSUE R AISED IN THE PRESENT APPEAL IS WHETHER THE REVISIONAL JURISDICTI ON ASSUMED U/S 263 OF THE ACT HAS BEEN VALIDLY EXERCISED. THE WHOLE PROCEEDINGS WERE RESORTED TO OWING TO THE FACT THAT THE CAPITAL GAIN ON SALE OF SHARES OF VODAFONE ESSAR LTD (VEL)IN THE HANDS OF THE ASSESSEE I.E M/S VAJRESH CONSULTANTS LTD. (EA RLIER KNOWN AS ESSAR CAPITAL LTD.) HAS NOT BEEN CORRECTLY ASSES SED AS EXCESSIVE COST OF RS. 5,857/- CR HAS BEEN ALLOWED WHICH RESULTED INTO THE INCOME BEING ASSESSED AT LOWER AM OUNT OF CAPITAL GAIN THEREBY RENDERING THE ORDER OF AO AS E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASS ESSEE HAS ACQUIRED THE SHARES OF VODAFONE ESSAR LTD BY WAY OF A SERIES OF MERGER AND AMALGAMATIONS. ACCORDING TO THE PCIT THE SE AMALGAMATIONS WERE UNDERTAKEN IN ORDER TO CIRCUMVEN T THE REVENUE OF FULLY DUE TAXES WHEREAS THE ASSESSEE CLA IMS THAT ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 108 WHATEVER WAS DUE AS PER LAW HAS BEEN FULLY PAID. TH E SHARES SOLD BY THE ASSESSEE AS HAS BEEN STATED EARLIER HAV E COME INTO THE HANDS OF THE ASSESSEE THROUGH A SERIES OF AMAL GAMATIONS WHICH WERE DULY APPROVED BY THE JURISDICTIONAL HIGH COURTS. INITIALLY THESE SHARES OF VODAFONE ESSAR LTD WERE HE LD BY GROUP COMPANY KNOWN AS M/S ESSAR TELEHOLDINGS LTD. (ETHL) SINCE 2005 .ACCORDING TO THE ASSESSEE THE SAID COMPANY WA S HIGHLY LEVERAGED AND COULD NOT MONETISE THESE SHARES. THER EFORE A SERIES OF AMALGAMATIONS WERE UNDERTAKEN TO DISTANCE THE ORIGINAL HOLDER OF SHARES SO THAT MONEY COULD BE RA ISED AGAINST VALUE OF THESE SHARES. THESE SHARES WERE TRANSFERRE D TO ANOTHER GROUP SUBSIDIARY COMPANY M/S ETHL COMMUNICATION HOL DING LTD(ECHL) AT BOOK COST OF RS. 1,260/- CR IN AY 200 8-09. ETHL THEREAFTER INCORPORATED A SUBSIDIARY COMPANY M/S ES SAR TELECOMMUNICATIONS HOLDINGS PRIVATE LIMITED (ETHPL) AND ACQUIRED ETHL TELECOM HOLDINGS INDIA PRIVATE LIMITE D (ETHIPL) AND PLACED THEM BETWEEN ITSELF AND ECHL. OWING TO T HE ABOVE RE-ORGANISATION, IN AY 2010-11, ECHL WAS FINALLY AB LE TO RAISE FUNDS OF RS.3,707/- CRORES BY ISSUE OF DEBENTURES W HICH WERE SUBSCRIBED BY THE PUBLIC AND WERE LISTED. ECHL HAD A PUT- OPTION AGREEMENT WHERE UNDER IT ACQUIRED THE OPTION TO SELL THE VEL SHARES AT USD 1.2 BN OR AT MARKET VALUE. SINCE I SL WAS A LISTED COMPANY, IT WAS DECIDED TO MERGE ECHL WITH I NDIA SECURITIES LTD. (ISL) SO THAT THE MARKET WORTH OF VE L'S SHARES GOT REFLECTED IN THE SHARE PRICE OF ISL'S SHARES. SINCE ECHL HAD ISSUED PUBLIC DEBENTURES, MERGING OF ECHL WITH ISL WOULD HAVE BEEN A CUMBERSOME PROCESS IN TERMS OF OBTAINING APP ROVALS AND SANCTIONS. IT WAS THEREFORE DECIDED TO MERGE ETHPL WITH ISL, THEREBY EFFECTIVELY MOVING VEL'S SHARES (THROUGH ECH L) UNDER ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 109 ISL AND TO ASCERTAIN THE MARKET VALUE OF VEL SHARES. UPON THE SANCTION OF THE HON'BLE MADRAS AND BOMBAY HIGH COUR TS, ECHL WAS MERGED WITH ISL W.E.F. 1 APRIL 2010, I.E. WITH EFFECT FROM AY 2011-12. VEL SHARES ACCORDINGLY BECAME THE PROPERTY OF ISL FROM 1 ST APRIL 2010, I.E. FROM AY 2011-12.IN AY 2012-13 VEL SHARES WERE SOLD TO PIRAMAL HEALTHCARE LTD FOR RS. 5,863/- CRORES. SINCE AFTER SALE OF VEL SHARES, THE REMAIND ER BUSINESS OF ISL ONLY COMPLEMENTED THAT OF ITS PARENT ECL, IT WA S DECIDED TO MERGE ISL WITH ECL IN AY 2012-13.ACCORDINGLY, UPON THE SANCTION OF THE HON'BLE MADRAS HIGH COURT, ISL WAS MERGED WITH ECL W.E.F. 1 APRIL 2011, I.E. WITH EFFECT FROM AY 2 012-13. WE HAVE PERUSED THE DECISION OF THE HON'BLE SUPREME C OURT IN THE CASE OF MARSHALL SONS &CO. INDIA LTD. VS. ITO (SUPRA ) WHEREIN IT HAS BEEN HELD THAT UPON MERGER THE ASSETS OF THE ME RGING COMPANY WOULD VEST IN THE MERGED COMPANY AND CONSEQ UENTLY THE VEL SHARES BECAME THE PROPERTY OF ECL FROM 1 ST APRIL 2011.THUS THE VEL SHARES SOLD BY ECHL FIRST ON BEH ALF OF ISL, FINALLY CAME TO BE REGARDED AS BEING SOLD ON BEHALF OF ECL OWING TO THE MERGERS SANCTIONED BY THE HON'BLE MADRAS AND BOMBAY HIGH COURTS OF ECHL WITH ISL AND THEREAFTER THE HON 'BLE MADRAS COURT OF ISL WITH ECL. THE CONSIDERATION ON SALE OF VEL SHARES WAS REGARDED AS HAVING BEEN EARNED/ACCRUED IN THE H ANDS OF ASSESSEE AND THE GAINS THEREOF BECAME TAXABLE IN TH E HANDS OF ASSESSEE. SINCE ECL BECAME ENTITLED TO THE CONSIDE RATION ON SALE OF VEL'S SHARES OWING TO ITS HOLDING IN ISL, TH E COST OF INVESTMENT IN ISL RS. 6077 CRORES WAS CLAIMED AS A PROPORTIONATE COST OF THE VEL SHARES IN LINE WITH TH E DECISIONS OF CHALLAPALLI SUGARS LTD VS CIT (SUPRA) AND CIT VS M AHINDRA & CO (RAJ) (SUPRA). THESE FACTS ARE VERY MUCH BEFORE THE AO AT THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 110 TIME OF ASSESSMENT PROCEEDINGS. IN FACT, THE AO HAD VERIFIED SHAREHOLDING STRUCTURE AND COMPLEX OF MERGERS BEFOR E ALLOWING THE COST OF ACQUISITION OF SHARES WHICH IS EVIDENT FROM THE FACT THAT WHILE ALLOWING COST OF ACQUISITION HE HAD DISA LLOWED PART OF COST OF ACQUISITION OF SHARES OF RS. 220 CRORES. 11. IN THIS FACTUAL BACKGROUND, IF WE ANALYSE THE P ROVISIONS OF SECTION 263, WE FIND THAT THE LANGUAGE USED BY T HE LEGISLATURE IN S. 263 IS TO THE EFFECT THAT THE PCIT MAY INTERF ERE IN REVISION, IF HE CONSIDERS THAT THE ORDER PASSED BY THE ITO IS ER RONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE RE VENUE. IT IS QUITE CLEAR THAT TWO THINGS MUST CO-EXIST IN ORDER TO GIV E JURISDICTION TO THE PCIT TO INTERFERE IN REVISION. THE ORDER OF THE ITO IN QUESTION MUST NOT ONLY BE ERRONEOUS BUT ALSO THE ERROR IN TH E ITO'S ORDER MUST BE OF SUCH A KIND THAT IT CAN BE SAID THAT IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN OTHER WORDS, MEREL Y BECAUSE THE AO'S ORDER IS ERRONEOUS, THE CIT CANNOT INTERFERE. AGAIN, MERELY BECAUSE THE ORDER OF THE OFFICER IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THEN AGAIN, THAT IS NOT ENOUGH TO CONF ER JURISDICTION ON THE CIT TO INTERFERE IN REVISION. T HESE TWO ELEMENTS MUST CO-EXIST, WHERE THE ORDER OF THE ITO IS NOT ERRONEOUS, NO ACTION CAN BE TAKEN BY THE CIT UNDER S. 263. THIS IS BECAUSE, THE FIRST OF THE TWO REQUIREMENTS NAMEL Y, (I) THE ORDER IS ERRONEOUS AND (II) THE SAME IS ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IS NOT SATISFIED. SIMILARLY, IF AN ORDER IS ERRONEOUS BUT NOT PREJUDICIAL TO THE INTERESTS OF T HE REVENUE, THEN ALSO THE POWER OF SUO MOTU REVISION CANNOT BE EXERCISED. ANY AND EVERY ERRONEOUS ORDER CANNOT BE THE SUBJECT -MATTER OF REVISION BECAUSE THE SECOND REQUIREMENT ALSO MUST B E FULFILLED. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 111 THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD T O SHOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSE D OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCOR RECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WA S JUST HAS BEEN IMPOSED. 12. THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER P ASSED BY THE AO. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN OR DER OF AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE, FOR EXAMPLE, WHEN AN AO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR W HERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHI CH THE PCIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN LAW. AN ORDER OF ASSE SSMENT PASSED BY THE AO WITHOUT MAKING NECESSARY ENQUIRIES ON CERTAIN IMPORTANT POINTS CONNECTED WITH THE ASSESSMENT WOUL D BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE WHEN THE AO IS EXPECTED TO MAKE AN ENQUIRY OF A PARTICUL AR ITEM OF INCOME AND HE DOES NOT MAKE AN ENQUIRY AS EXPECTED, THAT WOULD BE A GROUND FOR THE PCIT TO INTERFERE WITH TH E ORDER PASSED BY THE AO SINCE SUCH AN ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. WHERE THE AO HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF TH E CREDIT RECEIVED BY THE ASSESSEE WHO HAD GIVEN DETAILED EXP LANATION IN THAT REGARD BY A LETTER IN WRITING AND ALL THESE AR E PART OF THE RECORD OF THE CASE AND THE CLAIM WAS ALLOWED BY THE AO ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE SUCH DECISION OF ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 112 THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUS E IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN TH AT REGARD. 13. IN THIS FACTUAL AND LEGAL BACKGROUND, FROM THE FACTS WE NOTE THAT THE AO HAS ENQUIRED INTO THE ENTIRE SEQ UENCE OF EVENTS AS TO HOW ECL CAME TO HOLD VEL'S SHARES AND T HEREAFTER CLAIM OF COST OF VEL SHARES AFTER DENYING RS. 220 CRORES WHICH WAS INCURRED AFTER 31 MARCH 2012. THE PCIT EXERCISE D AND INVOKED POWERS AND JURISDICTION UNDER SECTION 263 O F THE ACT FOR THE FOLLOWING REASONS NAMELY I) THAT HE AO FAILED T O ENQUIRE INTO THE TRUE PURPOSE OF INCORPORATION AND AMALGAMATION OF VARIOUS COMPANIES IN THE CHAIN OF HOLDING II) THAT THE AO F AILED TO CONSIDER TAXABILITY OF THE TRANSFER OF ASSETS OF AM ALGAMATING COMPANY (VIZ. ISL) IN THE HANDS OF ECL UNDER SECTIO N 170 AND PARTICULARLY SINCE SECTION 47(VI) DID NOT PROTECT T HE TRANSFER OWING TO THE NON-TAX COMPLIANT NATURE OF THE AMALGA MATION OF ISL WITH ECL, III) THAT THE AO FAILED TO AWAIT THE OUTCOME OF THE ENQUIRIES MADE IN THE CASE OF ISL UNDER THE EXCHANG E OF INFORMATION PROVISIONS OF THE DOUBLE TAX AVOIDANCE AGREEMENT. 14. SO FAR AS THE FIRST REASONS FOR INVOKING REVISI ONARY JURISDICTION OF THE AO FOR HAVING FAILED TO ENQUIR E INTO THE TRUE PURPOSE OF INCORPORATION AND AMALGAMATION OF VARIOU S COMPANIES IN THE CHAIN OF HOLDING IS CONCERNED, WE FIND THAT THE SAME IS WITHOUT ANY SUBSTANCE AND MERITS AS THE FAC TS ON RECORDS SPEAKS DIFFERENTLY. THE OBSERVATIONS OF THE PCIT THAT THE AO HAS NOT ENQUIRED INTO THE INCORPORATION AND AMAL GAMATIONS IS AGAINST THE FACTS ON RECORDS AS THE AO HAS DETA ILED ENQUIRY AS IS EVIDENT FROM THE FACTS THAT SOON AFTER FILI NG OF THE RETURN OF INCOME, ECL FILED NOTES TO THE RETURN OF INCOME VID E LETTER DATED ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 113 18 OCTOBER 2013 ALONGWITH THE VARIOUS AMALGAMATION ORDERS OF RESPECTIVE HON'BLE HIGH COURT AS IS EVIDENT FROM TH E FOLLOWING: E) VIDE NOTICE DATED 25 FEBRUARY 2015 (P94) THE AO CAL LED UPON ECL TO EXPLAIN AND SUBSTANTIATE ITS CLAIM OF COST ON SALE OF VEL'S SHARES AND TO UNDERSTAND THE HOLDING STRUCTURE CALLED FOR THE BALANCE SHEETS OF ETHPL, ECHL AND ISL. F) ECL VIDE LETTER DATED 14 MARCH 2015 (P372) AND 19 M ARCH 2015 (P616) FILED ALL DETAILS CALLED FOR, SUCH AS THE FINANCIALS ETC. OF THE VARIOUS COMPANIES AND EXPLAINED THE BASIS OF ITS CLAIM OF COST G) ECL THEREAFTER VIDE LETTER DATED 24 MARCH 2015 (P65 5 TO 658) SUBMITTED THE FOLLOWING: X. DETAILS OF THE ORIGINAL ACQUISITION OF VEL SHARES B Y ETHL XI. EXPLAINED HOW ECHL CAME TO ACQUIRE VEL SHARES FROM ETHL XII. EXPLANATION AS TO HOW ECHL REVALUED VEL'S SHARES IN ITS BOOKS XIII. ETHPL WAS THE PARENT OF ECHL XIV. ETHPL MERGED WITH ISL, THEREBY MIGRATING ECHL UNDER ISL XV. MERGER OF ECHL WITH ISL XVI. MERGER OF ISL WITH ECL XVII. HOW THEREFORE ECL ARRIVED AT THE COST OF VEL SHARES XVIII. EVIDENCE OF INCURRENCE OF COST FOR PURCHASE OF ISL SHARES AND DEBENTURES WAS ALSO FILED. THEREAFTER, IN PARA NO.5.8 TO 5.10 THE AO HAS GIVEN HIS FINDINGS ON ALL EVENTS SURROUNDING THE HOLDING OF VEL SHARES AFTER PROPER APPRECIATION OF FACTS QUA THE COST CLAIMED AGAINST SALE OF VEL SHARES AND HAS DISALLOWED PART OF THE COST OF ACQUI SITION OF VEL SHARES. 15. ON THE BASIS OF THE ABOVE FACTS WE FIND THAT ALLEGATIONS OF THE PCIT THAT THE FORMATIONS AND AMALGAMATIONS OF T HE VARIOUS COMPANIES HAVE BEEN UNDERTAKEN WITH THE SOLE MOTIVE TO OBTAIN A TAX ADVANTAGE, IS WHOLLY INCORRECT AND BASED ON S URMISES AND IMAGINATION. EACH OF THE ALLEGATION AGAINST EACH OF THE STEPS UNDERTAKEN HAVE BEEN EXPLAINED IN DETAIL IN THE CHA RT PLACED BEFORE THE BENCH DURING THE HEARING. WE NOTE THAT NONE OF THE STEPS SET OUT IN THE CHART UNDERTAKEN WERE FOR ACHI EVING A TAX ADVANTAGE. AS EXPLAINED, IT IS EVIDENT FROM THE CHA RT THAT NONE OF THE STEPS FROM 1 TO 19 HAVE ANY BEARING ON THE T AX COST OF ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 114 VEL'S SHARES AS THE TAX COST OF VEL'S SHARES REMAINED UNALTERED AT RS.1,260/- CRORES. IT IS ONLY ON ACCOUNT OF THE NON-TAX NEUTRAL MERGER OF ISL WITH ECL THAT ECL, AS PER LAW, IS RE QUIRED TO TAKE THE COST IT HAS SUFFERED FOR ACQUISITION OF ITS HOL DING IN ISL, WHICH HOLDING IS WHAT HAS ENTITLED ECL TO THE CONSI DERATION OF RS. 5,863 CRORES ON SALE OF VEL'S SHARES. BESIDES TH AT THE AMALGAMATION OF ISL WITH ECL HAS BEEN APPROVED BY T HE HON'BLE COURT AND HENCE CANNOT BE DOUBTED AND HAS NOT EVEN BEEN DOUBTED BY THE LD. PCIT. THIS IS PRIMARILY SO BECA USE THE NON- TAX NEUTRALITY OF THE MERGER IS NOT OWING TO ANY AC T ON PART OF ECL, BUT BECAUSE OF A CHOICE EXERCISED BY OUTSIDE S HAREHOLDERS OF ISL IN OPTING TO GET CASH RATHER THAN SHARES OF ECL UPON AMALGAMATION. THE FINDINGS OF THE PCIT THAT THE AM ALGAMATIONS AND FORMATION OF THE VARIOUS COMPANIES IS FOR SECUR ING TAX ADVANTAGE IS INCORRECT. 16. FURTHER EACH OF THE AMALGAMATIONS HAS BEEN COU RT APPROVED AND THEREFORE WE FIND MERITS IN THE ARGUME NTS OF THE LD. COUNSEL OF THE ASSESSEE THAT NEITHER THE PCIT N OR THE AO HAVE ANY JURISDICTION TO QUESTION THEM, AND MORE SO , IN PROCEEDINGS UNDER SECTION 263. THIS POSITION IS SUP PORTED BY THE THREE DECISIONS OF THE TRIBUNAL NAMELY I) RELIAN CE MONEY INF LTD VS PCIT (SUPRA),II) ELECTROCAST SALES INDIA LTD VS DOT (SUPRA) AND III) DCIT VS INDUS FILA LTD (SUPRA). IN ALL THE SE DECISIONS IT HAS BEEN HELD THAT ONCE THE HIGH COURT HAS APPROVED THE SCHEME OF MERGER AND AMALGAMATION, THEN THE TAX AUT HORITIES HAVE NO JURISDICTION. WE CAN NOT ACCEPT THE THEORY OF PR. CIT THAT ENTIRE ARRANGEMENT OF SCHEME OF AMALGAMATION W AS TO AVOID THE PAYMENT CAPITAL GAIN TAX IN VIEW OF THE DECISIO N OF HONBLE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 115 SUPREME COURT IN THE CASE OF KONARK INVESTMENTS LTD . & ORS. VS. UNION OF INDIA (1999) 97 COMPCAS 52 SC. 17. ONCE THE AO ASCERTAINED THAT ALL THE AMALGAMATI ONS WERE COURT APPROVED WHICH IS UNDISPUTEDLY, THERE NO REQU IREMENT IN LAW TO MAKE ANY FURTHER ENQUIRIES IN THE MATTER BUT TO APPLY THE RATIO OF THE BINDING DECISIONS IN THE CASES OF MARS HALL SONS & CO. INDIA LTD. VS. ITO (SUPRA), CHALLAPALLI SUGARS LTD VS CIT (SUPRA) AND CIT VS MAHINDRA & CO (SUPRA). IT IS THE REFORE IMPERMISSIBLE FOR THE PCIT TO INVOKE JURISDICTION U NDER SECTION 263 FOR AN ENQUIRY WHICH IN LAW THE AO WAS NOT REQU IRED TO MAKE. THIS VIEW IS SUPPORTED BY THE DECISION OF SOC IEDADE DE FOMENTO INDUSTRIAL PVT. LTD. VS. CIT (SUPRA). THE PCIT WAS THEREFORE WRONG IN HOLDING THAT THE ASSESSMENT ORDE R WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E FOR THE REASONS THAT THE AO NOT HAVING ENQUIRED INTO WHETH ER THE AMALGAMATIONS SUFFERED FROM THE VICE OF IMPERMISSIB LE TAX AVOIDANCE. 18. THE SECOND ARGUMENT OF THE ASSESSEE WAS WITHOUT PREJUDICE ARGUMENT THAT IN ANY VIEW OF THE MATTER , ASSUMING WITHOUT ACCEPTING, THAT THE AO DID NOT ENQUIRE INTO CERTAIN ASPECTS AS ALLEGED BY THE PCIT BUT AS NOTED EARLIER ELSEWHERE IN THIS ORDER THAT AO HAS SPECIFICALLY CALLED FOR ALL THE DETAILS OF MERGERS/AMALGAMATIONS AND ALSO EXAMINED THE COST AL LOCATED TO THE SHARES SOLD. IN OUR OPINION, IT MAY BE A CASE O F INSUFFICIENT/INADEQUATE ENQUIRY ON PART OF THE AO. IT IS SETTLED LAW THAT POWER UNDER SECTION 263 CAN BE INVOKED ONL Y IN THE CASE OF A 'LACK OF ENQUIRY' AND NOT TO REMEDY A CAS E OF ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 116 'INSUFFICIENT ENQUIRY'. THE CASE OF THE ASSESSEE IS SUPPORTED BY A SERIES OF DECISIONS. IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. (SUPRA), THE HONBLE DELHI HIGH COURT HAS HELD DISMISSING THE APPEAL, (I) THAT THE ASSES SING OFFICER ALLOWED THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSE E. SUCH DECISION OF THE ASSESSING OFFICER COULD NOT BE HELD TO BE ERRONEOUS SIMPLY BE CAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. THE A SSESSING OFFICER HAD CALLED FOR EXPLANATION ON THE VERY ITEM FROM THE ASSESSEE AND THE ASSESSEE HAD FURNISHED ITS EXPLANATION. THIS FACT WAS CONCEDED BY THE COMMISS IONER HIMSELF IN HIS ORDER. THIS SHOWED THAT THE ASSESSING OFFICER HAD UNDERTAKEN TH E EXERCISE OF EXAMINING AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REPLACEMENT OF DIES AND TOOLS WAS TO BE TREATED AS REVENUE EXPENDITURE OR N OT. THEREFORE, IT COULD NOT BE SAID THAT IT WAS A CASE OF LACK OF INQUIRY. THE AC COUNTING PRACTICE FOLLOWED FOR A NUMBER OF YEARS HAD THE APPROVAL OF THE INCOME-TAX AUTHORITIES. EVEN FOR FUTURE ASSESSMENT YEARS, THE VERY SAME ACCOUNTING PRACTICE WAS ACCEPTED. (II) THAT THE DIES WERE COMPONENTS OF THE MACHINES. THEY NEEDED CONSTANT REPLACEMENT, AS THEIR LIFE WAS NOT MORE THAN A YEAR. THE ASSESSEE ALSO EXPLAINED THAT SINCE THE PARTS WERE MANUFACTURED FOR THE AUTOMOBILE INDUSTRY , WHICH HAD TO WORK ON COMPLETE ACCURACY AT HIGH SPEED FOR A LONGER PERIOD , REPLACEMENT OF THE PARTS AT SHORT INTERVALS BECOMES IMPERATIVE TO RETAIN THE AC CURACY. WITH THE REPLACEMENT OF TOOLS AND DIES NO NEW ASSET COMES INTO EXISTENCE NOR WAS THEIR BENEFIT OF ENDURING NATURE. THEY DID NOT EVEN ENHANCE THE LIF E OF THE EXISTING MACHINE OF WHICH THE TOOLS AND DIES WERE ONLY PARTS. THEREFOR E, THE VIEW TAKEN BY THE ASSESSING OFFICER WAS ONE OF THE POSSIBLE VIEWS AND THE ASSESSMENT ORDER PASSED BY HIM COULD NOT BE HELD TO BE PREJUDICIAL TO THE I NTEREST OF THE REVENUE. THE OPINION OF THE ASSESSING OFFICER IN TREATING THE EX PENDITURE AS REVENUE EXPENDITURE WAS PLAUSIBLE AND THUS THERE WAS NO MATERIAL BEFORE THE COMMISSIONER TO VARY THAT OPINION AND AS FOR FRESH INQUIRY. IN THE CASE OF CIT VS SHREEPATI HOLDINGS (SUPRA), T HE HONBLE BOMBAY HIGH COURT HAS HELD THAT THE REVISIO NARY JURISDICTION UNDER SECTION 263 OF THE ACT CAN NOT B E INVOKED BY THE PCIT IN CASE OF THE INADEQUATE INQUI RY BY THE AO BUT IN CASE WHERE THERE IS A LACK OF ENQUIRY . THE OPERATIVE PART IS REPRODUCED AS UNDER: 6. WE FIND THAT THERE IS NO PRESCRIBED FORMULA UND ER SECTION 88E OF THE ACT TO DETERMINE THE QUANTUM OF THE REBATE THEREUND ER. THEREFORE THE SAME HAS TO BE COMPUTED ON A REASONABLE AND SCIENTI FIC MANNER BY THE ASSESSING OFFICER. FURTHER THE IMPUGNED ORDER HAS PLACED RELIANCE UPON THE ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 117 DECISION OF THIS COURT IN CIT VS. GABRIEL INDIA LTD . WHEREIN THIS COURT HELD THAT THE ORDER CANNOT BE HELD TO BE ERRONEOUS MEREL Y BECAUSE ACCORDING TO THE CIT, THE ORDER SHOULD HAVE BEEN WRITTEN MORE EL ABORATELY OR FOR SUBSTITUTING THE VIEW OF THE ASSESSING OFFICER WITH THAT OF THE CIT. THE COURT HELD THAT MERELY BECAUSE THE CIT HAD A DIFFERENT VI EW FROM THAT REACHED BY THE ASSESSING OFFICER WOULD NOT BY ITSELF MAKE THE VIEW OF THE ASSESSING OFFICER ERRONEOUS. TO BE AN ERRONEOUS ORDER IT MUS T BE IN BREACH OF LAW. IT IS AXIOMATIC THAT JURISDICTION UNDER SECTION 263 O F THE ACT CAN ONLY BE EXERCISED ON CUMULATIVE SATISFACTION OF THE TWIN CO NDITIONS VIZ. OF THE ORDER BEING ERRONEOUS IN LAW AND THE ORDER BEING PREJUDIC IAL TO THE INTEREST OF THE REVENUE. THUS IN THIS CASE, ONE OF THE TWO CONDITI ONS PRECEDENT TO EXERCISE JURISDICTION UNDER SECTION 263 OF THE ACT VIZ. ORD ER BEING ERRONEOUS IN LAW IS NOT SATISFIED. 7. MOREOVER THE CIT IN EXERCISE OF POWERS UNDER SEC TION 263 OF THE ACT DIRECTED THE ASSESSING OFFICER TO REDETERMINE THE R EBATE ALLOWABLE UNDER SECTION 88E OF THE ACT AFTER HOLDING THAT THE SAME NEEDS MORE CAREFUL EXAMINATION ON THE PART OF THE ASSESSING OFFICER. THIS ITSELF INDICATION OF THE FACT THAT THIS IS NOT THE CASE OF LACK OF ENQUIRY, BUT AT THE HIGHEST IT CAN BE A CASE OF INADEQUATE ENQUIRY. IT IS SETTLED POSITION IN LAW THAT INADEQUATE ENQUIRY BY ITSELF WOULD NOT JUSTIFY INVOKING THE JU RISDICTION UNDER SECTION 263 OF THE ACT UNLESS THE ORDER IS ERRONEOUS. IN T HE PRESENT FACTS, THE CIT HAS NOT EXERCISED JURISDICTION UNDER SECTION 263 OF THE ACT ON THE GROUND THAT THE ORDER IS ERRONEOUS. WE FIND THAT THE IMPU GNED ORDER HAS CORRECTLY APPLIED THE PRINCIPLES LAID DOWN BY THIS COURT IN G ABRIEL (I) LTD. (SUPRA). ACCORDINGLY, THE QUESTION AS FORMULATED DOES NOT GI VE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS NOT ENTERTAINED. 8. ACCORDINGLY, APPEAL IS DISMISSED. NO ORDER AS TO COSTS SIMILAR RATIO HAS BEEN LAID DOWN IN THE CASE OF CIT VS NIRAV MODI (SUPRA), BY THE HONBLE BOMBAY HIGH COURT AGAINST W HICH THE SLP STOOD DISMISSED BY THE HONBLE APEX COURT AS RE PORTED IN 77 TAXMANN.COM 15. ON THIS COUNT ALSO THE REVISIONARY JURISDICTION U/S 263 OF THE ACT CAN NOT BE SUSTAINED. 19. WE ALSO FIND MERIT IN ARGUMENTS OF THE COUNSEL OF THE ASSESSEE THAT THE VIEW TAKEN BY THE AO IS ONE OF TH E POSSIBLE VIEWS. THE AO AFTER EXAMINING THE AMALGAMATIONS/ME RGERS WHICH WERE COURT APPROVED ALLOWED THE COST OF SHAR ES AT RS.5,857/- CRORES AGAINST THE SALE CONSIDERATION O F RS. 5,863/- CRORES TO ECL AS SUPPORTED BY THE DECISIONS OF CHAL LAPALLI ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 118 SUGARS LTD VS. CIT (SUPRA) AND CIT VS MAHINDRA & CO . (SUPRA)AND HAS FORMED A CONSIDERED VIEW. SUCH A VI EW IS CLEARLY A 'POSSIBLE VIEW'. IT IS ALSO SEEN FROM THE PAPER BOOK FILED BY THE ASSESSEE THAT THE ASSESSING OFFICER HAD RAISED QUER IES RELATING TO COMPUTATION OF BASIS OF ARRIVING AT THE COST OF ACQ UISITION AT RS.6077.07 CRORES (AS AGAINST PURCHASE PRICE OF RS. 1260.50 CRORES BY ECHL). A NOTICE WAS ALSO ISSUED ON FEBRU ARY 25, 2015 ASKING FOR SUCH DETAILS ALONG WITH SPECIFIC QU ERY AS TO WHY THE COST OF THE ACQUISITION OF SHARES OF VEL SHOULD NOT BE RS.1260.59 CR AS AGAINST RS.6077.77 CR IN THE LIGHT OF PROVISIONS OF SECTION 49(1)(III)(E) OF THE ACT. THE ASSESSEE VIDE ITS REPLY DATED MARCH 09, 2015, SUBMITTED THAT SINCE THE AMAL GAMATION DID NOT FALL WITHIN THE MEANING OF AMALGAMATION A S DEFINED UNDER SECTION 2(1B) OF THE ACT, THE PROVISIONS OF S ECTION 49(1)(III)(E) OF THE ACT ARE NOT APPLICABLE. IT WA S EXPLAINED TO THE AO THAT IN THE INSTANT CASE, OUT OF TOTAL VALUE OF SHARES (FACE VALUE) OF ISL OF RS.87,57,96,310, THE SHARES OF VAL UE OF RS.84,76,493/- WERE HELD BY ECL (I.E. THE AMALGAMAT ED COMPANY) AND THE BALANCE SHARES OF VALUE OF RS.2,81 ,19,817/- WERE HELD BY PUBLIC SHAREHOLDERS. AS REQUIRED BY S ECTION 2(1B) OF THE ACT, IN ORDER TO FALL WITHIN THE MEANING OF THE TERM AMALGAMATION, THE PUBLIC SHAREHOLDERS HOLDING AT LE AST THREE- FOURTH OF THE VALUE OF SHARES OUGHT TO HAVE BECOME THE SHAREHOLDERS OF THE AMALGAMATED COMPANY BY VIRTUE B Y THE AMALGAMATION. IN THE INSTANT CASE, PUBLIC SHAREHOL DERS HOLDING SHARES OF FACE VALUE OF ONLY RS.1,92,28,280 (I.E. L ESS THAN RS.2,10,89,863 BEING THREE-FOURTH) EXERCISED THE OP TION TO RECEIVE SHARES OF THE AMALGAMATED COMPANY UNDER THE SCHEME OF AMALGAMATION AND THE BALANCE SHAREHOLDERS, (BEIN G ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 119 SHAREHOLDERS HOLDING 31.57% OF THE FACE VALUE OF PU BLIC HOLDING) OPTED FOR CASH PAYMENT. IN LIGHT OF THE ABOVE, IT WAS EXPLAINED THAT THE AMALGAMATION OF ISL INTO ECL DID NOT FULFI LL THE CONDITIONS SPECIFIED IN CLAUSE (III) OF SECTION 2(1 B) OF THE ACT AND THEREFORE DOES NOT FALL WITHIN THE MEANING OF AMAL GAMATION AS PER SECTION 2(1B) OF THE ACT. CONSEQUENTLY, THE PR OVISION OF SECTION 47(VI) AND SECTION 49(1)(III)(E) ARE NOT AP PLICABLE IN THE PRESENT CASE. THUS, THE ASSESSEE SUBMITTED THAT SI NCE THE PROVISION OF SECTION 47(VI) AND SECTION 49(1)(III)( E) ARE NOT APPLICABLE IN THE PRESENT CASE, THE COST OF THE ASS ETS (EQUITY SHARES, PREFERENCE SHARES AND DEBENTURES WHICH GOT EXTINGUISHED) GIVEN UP BY THE ECL FOR THE PURPOSE O F ACQUIRING THE ASSETS OF ISL AS WELL THE AMOUNTS PAID BY THE E CL TO THE PUBLIC SHAREHOLDERS AND COST OF SHARES OF THE ECL C OMPANY ALLOTTED TO PUBLIC SHAREHOLDERS AS PART OF THE SCHE ME SHALL BE THE COST OF ACQUISITION OF ASSETS OF ISL VESTED WITH EC L ON MERGER. ACCORDINGLY, THE ASSESSEE CLAIMED RS.6077.07 AS COS T OF ACQUISITION OF VEL SHARES WHILE CALCULATING SHORT TE RM CAPITAL GAINS/LOSS. THUS THE CASE OF THE ASSESSEE FINDS SU PPORT FROM THE DECISIONS OF CHALLAPALLI SUGARS LTD. VS. CIT (S UPRA) AND CIT VS. MAHINDRA & CO. (SUPRA) AND HENCE, THE ASSESSMEN T FRAMED BY THE AO CANNOT BE DISTURBED UNDER SECTION 263 OF THE ACT. IN OUR CONSIDERED VIEW, THE AO WAS AWARE OF ALL THE AS PECTS AS TO COST IN THE HANDS OF THE ASSESSEE AND AFTER PROPER EXAMINATION OF THE FACTS AND LAWS, THE AO ADOPTED THE LEGALLY P LAUSIBLE VIEW SUPPORTED BY LEGAL DICTA LAID BY VARIOUS COURTS AND ACCEPTED THE SUBMISSIONS OF ECL AS TO ITS CLAIM OF COST HOWEVER DENIED SO MUCH OF THE COST THAT WAS INCURRED AFTER 31 MARCH 2 012 VIZ. INR 221 CRORES. THUS IN OUR CONSIDERED VIEW, THE ASSES SMENT ORDER ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 120 CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF THE REVENUE AND REVISION PROCEEDINGS CAN NOT BE INV OKED TO ASK HIM TO TAKE ANY ALTERNATIVE VIEW. THE ASSESSEES CASE IS SUPPORTED BY THE DECISION OF APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO LTD. VS CIT (SUPRA) AND DECISION OF TH E JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GA BRIEL INDIA LTD (SUPRA) WHEREIN A RATIO HAS BEEN LAID THAT A POSSIB LE VIEW BY THE AO CAN NOT BE DISTURBED BY THE AO BY RESORTING TO T HE REVISIONARY JURISDICTION U/S 263 OF THE ACT BY PCIT . IN VIEW OF THIS FACT OF ALLOWING THE COST OF RS 5,857 CRORE AL SO THE ASSESSMENT ORDER CAN NOT BE TERMED AS ERRONEOUS. 20. ON THE SECOND REASONS GIVEN BY PCIT FOR INVOKIN G THE PROVISIONS OF SECTION 263 OF THE ACT THAT THE AO H AS FAILED TO CONSIDER TAXABILITY OF THE TRANSFER OF ASSETS OF AM ALGAMATING COMPANY ISL IN THE HANDS OF ECL UNDER SECTION 170 AND PARTICULARLY SINCE SECTION 47(VI) DID NOT PROTECT T HE TRANSFER OWING TO THE NON-TAX COMPLIANT NATURE OF THE AMALGA MATION OF ISL WITH ECL , WE NOTE THAT NON CONSIDERATION BY TH E AO OF TAXABILITY OF TRANSFER OF ASSETS OF ISL IN THE HAND S OF ECL, CAN NEVER BE A REASON TO HOLD THAT THE ASSESSMENT ORDER , IN SO FAR AS IT ALLOWS THE COST OF RS. 5,857/- CRORES AGAINST TH E SALE CONSIDERATION OF VEL SHARES IN THE HANDS OF ECL AS E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN VIEW OF THE ABOVE, THE FINDINGS OF THE PCIT THAT THE ASSESSMENT ORDER IN SO FAR AS IT ALLOWS COST OF RS. 5,857/- CRORES AGAINST SALE CONSIDERATION OF VEL SHARES IS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF THE REVENUE, IS WRONG AND FALLACIOUS. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 121 21. WE ALSO FIND MERIT IN THE WITHOUT PREJUDICE CON TENTION OF THE COUNSEL OF THE ASSESSEE THAT REASON CITED BY TH E PCIT IS CONTRARY TO SETTLED LAW AND ELEMENTARY PRINCIPLES O F TAXATION, THAT AN AMALGAMATING COMPANY UPON AMALGAMATION CANN OT BE SUBJECTED TO ANY TAX SINCE IT RECEIVES NO CONSIDERA TION ON AMALGAMATION, WHETHER OR NOT THE EXEMPTION UNDER SE CTION 47(VI) WAS AVAILABLE. THE VIEW IS SUPPORTED BY THE DECISION IN THE CASE OF CIT V. B. C. SRINIVASA SHETTY (SUPRA) W HEREIN HE HONBLE APEX COURT HAS HELD THAT WHERE THE MACHINE RY PROVISIONS OF SECTION 48 BREAK, CONSEQUENTLY SO DOE S THE CHARGE UNDER SECTION 45. ACCORDINGLY, SINCE THE AMALGAMATI NG COMPANY RECEIVES NO-CONSIDERATION, ON THE TRANSFER OF ITS A SSETS THE CHARGE UNDER SECTION 45 FAILS. IN VIEW OF THE ABOV E, CONSIDERING ISL RECEIVES NO CONSIDERATION FOR THE TRANSFER OF I TS ASSETS TO ECL, THEREFORE THE MACHINERY PROVISION OF SECTION 4 8 BREAKS AND CONSEQUENTLY SO DOES THE CHARGE UNDER SECTION 45 OF THE ACT. THEREFORE, REASONING OF THE PCIT THAT THE ASSESSMEN T ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE SINCE THE APPLICABILITY OF SECTION 170 AND SECTION 47(VI) WIT H RESPECT TO THE TAXABILITY OF TRANSFER OF ASSETS OF ISL TO ECL ON A MALGAMATION OF ISL WITH ECL HAS NOT BEEN CONSIDERED BY THE ASSESSI NG OFFICER, IS EX FACIE CONTRARY TO LAW. THE AO HAS ADOPTED A P OSSIBLE VIEW WHICH IS SUPPORTED BY THE AFORESAID DECISIONS. SUCH A VIEW IS CLEARLY A 'POSSIBLE VIEW' AND CANNOT BE DISTURBED U NDER SECTION 263 OF THE ACT AS HELD IN THE CASE OF MALABAR INDUSTRIES CO. LTD VS CIT AND CIT VS GABRIEL INIDA LTD. (SUPRA). THUS A PPLICABILITY OF SECTION 170 DESPITE NON-AVAILABILITY OF SECTION 47(VI) IS CLEARLY A POSSIBLE VIEW AND CANNOT BE INTERFERED WITH BY IN VOKING PROVISIONS OF S.263 OF THE ACT. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 122 22. ON THE THIRD REASONS CITED BY THE PCIT FOR INV OKING PROVISIONS OF SECTION 263 OF THE ACT WHEREIN HE CONCLUDED THAT THE AO FAILED TO AWAIT THE OUTCOME OF THE ENQUIRIES MADE IN THE CASE OF ISL UNDER THE EXCHANGE OF INFORMATION PROVI SIONS OF THE DOUBLE TAX AVOIDANCE AGREEMENT, WE OBSERVE THAT TH E PCIT HIMSELF RECORDS THAT ENQUIRIES BY FOREIGN TAX AND T AX RESEARCH DIVISION (FT&TR) OF THE CENTRAL BOARD OF DIRECT TAX ES WERE MADE IN THE ASSESSMENT PROCEEDINGS OF ISL AND NOT IN THE ASSESSMENT OF ECL AND THEREFORE CANNOT BE SAID TO MAKE THE ASS ESSMENT IN QUESTION AS ERRONEOUS. SECONDLY, THE REFERENCE IN A NY CASE DID NOT PERTAIN TO THE YEAR UNDER CONSIDERATION AS THE SAME WERE MADE IN PROCEEDINGS FOR AY 2011-12. WE ALSO NOTE TH AT THE PCIT HAD NOT RAISED THIS ISSUE IN THE SHOW CAUSE NOTICES DATED 17 JUNE 2015 AND 26 JUNE 2015 ISSUED UNDER SECTION 263 OF THE ACT NOR WAS IT PUT TO THE APPELLANT DURING THE COUR SE OF THE HEARINGS, THEREFORE, THE APPELLANT WAS NOT GIVEN AN OPPORTUNITY OF BEING HEARD ON THIS ISSUE AND HENCE THIS ISSUE C ANNOT BE CONSIDERED FOR THE PURPOSE OF DECIDING THE VALIDITY OF ORDER PASSED UNDER SECTION 263 OF THE ACT. IN THIS REGAR D, THE RELIANCE IS PLACED ON THE DECISION OF DAMODAR VALLEY CORPORA TION VS. DCIT (160 ITD 78). THIS REASON IS THEREFORE FACTUAL LY INCORRECT AND ALSO FOR THE SAME HAVING NOT BEEN PUT TO THE AS SESSEE DURING THE COURSE OF REVISION PROCEEDINGS, CANNOT B E COUNTENANCED IN DECIDING THE VALIDITY OF JURISDICTI ON UNDER SECTION 263 OF THE ACT. THEREFORE, IN VIEW OF PRESENT FACTS AND CIRCUMSTAN CES AND THE RATIO LAID DOWN BY VARIOUS JUDICIAL FORUMS, THE EXE RCISE OF JURISDICTION BY THE PCIT IS INVALID AND THE PROCEED INGS U/S 263 ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 123 AND CONSEQUENT ORDER CANNOT BE SUSTAINED AND HAS TO BE QUASHED. 23. SO FAR AS THE ARGUMENTS OF THE LD DR ARE CONCE RNED, WE DO NOT FIND ANY FORCE IN VIEW OF THE FACTS THAT THE CA SE OF THE ASSESSEE IS CLEARLY COVERED BY THE VARIOUS DECISION S OF THE APEX COURT AND JURISDICTIONAL HIGH COURT. THE COUNTER AR GUMENTS OF THE LD DR ON THE THREE REASONS UPON WHICH THE REVIS IONARY JURISDICTION WAS EXERCISED HAVE FAILED TO CONVINCE THE BENCH ON THE GROUND THAT AO HAS NOT EXAMINED THE PURPOSE OF THE MERGERS/AMALGAMATIONS OF VARIOUS GROUP COMPANIES AN D ALSO THE COST OF SHARES OF VEL IN THE HANDS OF ASSESSEE. WE HAVE ALREADY NOTED THAT THE ISSUE WAS EXAMINED IN DETAIL BY THE AO AFTER BEING RAISED BY WAY OF QUESTIONNAIRE AND SPEC IFICALLY REPLIED BY THE ASSESSEE. EVEN THE AMALGAMATION ORDE RS OF MADRAS AND BOMBAY HIGH COURTS WERE DULY FILED BEFOR E THE AO BESIDES FILING THE APPORTIONMENT OF COST OF SHARES OF VEL. WHILE ALLOWING THE COST OF SHARES THE AO SPECIFICALLY DIS ALLOWED THE COST INCURRED AFTER 31.12.2012 .THUS THE AO REJECT ED THE CLAIM OF THE ASSESSEE TO THE TUNE OF RS. 220/- CRORES. WE ALSO DO NOT FIND ANY MERIT ON THE ARGUMENTS OF THE LD DR ON THE ISSUE OF NON EXAMINATION OF APPLICABILITY OF PROVISIONS OF SECTI ON 170 AND 47(VI) OF THE ACT. ON THE ARGUMENTS OF COURT APPROV ED MERGERS/AMALGAMATIONS, WE NOTE THAT COORDINATE BENC HES HAVE HELD THAT ONCE THE SCHEME OF MERGER/AMALGAMATION IS APPROVED BY THE HIGH COURT THEN THE AO HAS NO JURISDICTION T O EXAMINE THE ISSUE AGAIN. ON THE RELIANCE PLACED BY THE LD D R ON MALABAR INDUSTRIES CO. LTD VS. CIT (SUPRA) WE NOTE THAT IN T HAT CASE THE ISSUE WHICH WAS NOT RAISED IN THE NOTICE ISSUED U/S 263 BUT CONFRONTED TO THE ASSESSEE DURING THE COURSE OF PRO CEEDINGS U/S ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 124 263 OF THE ACT. IN THAT CONTEXT THE COURT HELD THAT ONCE THE ISSUE IS CONFRONTED TO THE ASSESSEE DURING THE PROCEEDING S U/S 263 OF THE ACT, THEN IT IS NECESSARY THAT THE SAME NEED NO T TO BE MENTIONED IN THE NOTICE U/S 263. BUT IN THE PRESENT CASE THE PCIT HAS NOT RAISED THE ISSUE OF FAILURE OF THE AO TO AWAIT THE OUTCOME OF THE ENQUIRIES MADE IN THE CASE OF ISL LT D UNDER EXCHANGE OF INFORMATION PROVISIONS OF DOUBLE TAX AV OIDANCE AGREEMENT IN THE NOTICE DATED 17 TH JUNE 2015 AND 26 TH JUNE, 2015 ISSUED U/S 263 OF THE ACT AND ALSO THE ISSUE W AS NOT CONFRONTED TO THE ASSESSEE DURING PROCEEDINGS U/S 2 63 OF THE ACT. SO THE ABOVE DECISION DOES NOT COVER THE POINT RAISED BY THE LD. D.R. BUT IS FAVOURABLE TO THE ASSESSEE ON THE I SSUE OF POSSIBLE VIEW TAKEN BY THE AO AS DISCUSSED ABOVE. 24. WE ALSO FIND THAT THE ARGUMENT OF LD. D.R. REL YING ON EXPLANATION-2 IS INCORRECT. AS VARIOUS TRIBUNAL DE CISIONS HAVE TAKEN A VIEW THAT THE INSERTION OF EXPLANATION -2 D OES NOT EXPAND THE SCOPE OF JURISDICTION UNDER SECTION 263 OF THE ACT AND THE POWER OF REVISION CANNOT BE INVOKED WHEN TH E AO HAS ENQUIRED INTO THE MATTER. THE CASE OF THE ASSESSEE ON THIS LIMB OF THE ARGUMENT IS SUPPORTED BY THE VARIOUS DECISIO NS NAMELY TORRENT PHARMACEUTICAL VS. DCIT, NARAYAN TATU V. IT O AND RALLIS INDIA LTD. V. DCIT (SUPRA). IN ALL THESE DE CISIONS, THE COORDINATE BENCHES HAVE HELD THAT THE EXPLANATION-2 DOES NOT EXPAND THE SCOPE OF JURISDICTION UNDER SECTION 263 OF THE ACT AND POWER OF REVISION CANNOT BE INVOKED. WE ALSO F IND THAT THE EXPLANATION-2 WAS INSERTED W.E.F. 01.06.2015 AND TH EREFORE HAS NO APPLICATION TO THE INSTANT ASSESSMENT YEAR AS HA S BEEN DECIDED BY THE VARIOUS FORUMS DISCUSSED ABOVE. ITA NO.3759/M/2017 M/S. VAJRESH CONSULTANTS LTD. (EARLIER KNOWN AS ESSAR CAPITAL LTD.) 125 25. IN VIEW OF THE FOREGOING FACTS AND CIRCUMSTANCE S AND THE RATIO LAID IN THE VARIOUS DECISIONS AS DISCUSSED A BOVE WE OF THE CONSIDERED VIEW THAT THE REVISIONARY JURISDICTION W AS INVALID AND CAN NOT BE SUSTAINED. ACCORDINGLY WE QUASH THE PROC EEDINGS U/S 263 OF THE ACT. 26. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.01.2021. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 08.01.2021. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.
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