DCIT CC 2(4), MUMBAI V. CONCORD ENVIRO SYSTEMS P. LTD, MUMBAI

ITA 3897/MUM/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9527 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 29-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Keywords: Unexplained cash credit; Transfer pricing; Double taxation relief; Share purchase agreement; Opportunity of being heard; Source of fund; Deemed to accrue or arise in india; Cost of acquisition; Fair market value; Valuation report; Assessment record; Sham transactions; Set aside
• Section: 271(1)(c); 56(2); 69B; 201; 13; 68

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI PAVANKUMAR GADALE ( JM) I.T.A. NO. 3897/MUM/2017 (ASSESSMENT YEAR 2010-11) DCIT-CC-2(4) ROOM NO. 802 8 TH FLOOR OLD CGO ANNEX BLDG M.K. ROAD MUMBAI-400 020. VS. M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 101, HDIL TOWER ANANT KANEKAR MARG BANDDRA EAST MUMBAI-400 051. PAN : AAACC8962C (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI PERCY PARDIWALA DEPARTMENT BY SHRI V. SREEKAR DATE OF HEARING 05.05.2021 DATE OF PRONOUNCEMENT 26.07.2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT(A) DATED 20.3.2017 AND PERTAINS TO ASSESSMENT YEAR 201 0-11. 2. GROUNDS OF APPEAL READ AS UNDER :- I. ' ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN DELETING THE ADDITIONS MADE U/S 68 OF RS 40,20,04,99 7/-ON ACCOUNT OF DIFFERENCE IN SHARE PREMIUM RECEIVED AND THE FAIR V ALUE OF EQUITY SHARES AS PER THE REPORT OF THE REGISTERED VALUER NOT TAKING INTO CONSIDERATION THE FACT THAT THE ASSESSEE FAILED TO FORWARD ANY COGENT REASONS A S TO WHY THE SHARES WERE ALLOCATED AT SUCH A HUGE PREMIUM VIS-A-VIS THE VALUATION REPORT AS OBTAINED BY THE ASSESSEE ITSELF FROM THE REGISTERED VA LUER' II. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD CIT(A) ERRED IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER AS PER TH E PROVISIONS OF SEC 56(2) OF RS 26,42,73,393/- TOWARDS THE DIFFERENCE IN THE FAI R MARKET VALUE OF SHARES OF ROCHEM SEPARATION SYSTEMS (INDIA) PRIVATE LIMITED STATING THAT CLAUSE (VII) OF SEC 56(2) CANNOT BE APPLIED RETROSPE CTIVELY, NOT TAKING INTO CONSIDERATION THE FACT THAT SECTION 56(1) CLEARLY AND UN AMBIGUOUSLY PROVIDES THAT INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED F ROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AND ACCORDINGLY THE ASSESSING OFFICER C ORRECTLY TAXED THE M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 2 BENEFIT ACCRUED TO THE ASSESSEE BY BUYING THE SHARES A T LESSER PRICE THAN THAT OF FAIR MARKET VALUE.' III. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD CIT(A) ERRED IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER A S PER THE PROVISIONS OF SEC 56(2) OF RS 26,42,73,393/- TOWARDS THE DIFFERENC E IN THE FAIR MARKET VALUE OF SHARES OF ROCHEM SEPARATION SYSTEMS (INDIA) PRIVA TE LIMITED STATING THAT CLAUSE (VII) OF SEC 56(2) CANNOT BE APPLIED RETROSPE CTIVELY, NOT TAKING INTO CONSIDERATION THE FACT THAT THE AMENDMENT MADE TO SEC 56(2) ADDING CLAUSE (VII) IS CURATIVE IN NATURE AND SHOULD APPLY TO ALL PENDING ASSESSMENTS.' III. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND AND / OR TO ALTER ANY OF THE GROUNDS OF APPEAL, IF NEED BE. IV. THE APPELLANT, THEREFORE, PRAYS THAT ON GROUNDS STA TED ABOVE, THE ORDER OF LEARNED CIT(A)-48, MUMBAI MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. APROPOS ADDITION UNDER SECTION 68 OF THE ACT. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE-COMPANY I S A PRIVATE COMPANY. DURING THE YEAR UNDER CONSIDERATION, ASSESSEES COM PANY RECEIVED FUNDS FROM M/S. INDIA WASTE WATER TREATMENT COMPANY (I.W.W.T.C ) A PRIVATE EQUITY FIRM BASED IN MAURITIUS, FOR THIS ASSESSEE HAS ISSUED 30 EQUITY SHARES OF RS. 100 EACH AND RS. 4,20,000/- CCPS OF RS.1,000 EACH TO TH E SAID PARTY. THE EQUITY SHARE WERE ISSUED AT A PREMIUM OF RS.63,233 PER SHA RE. THE CCPS WERE ISSUED AT PAR VALUE OF RS.1000 PER SHARE. THE CCPS WERE SU BSEQUENTLY CONVERTED INTO EQUITY SHARES DURING THE SUBSEQUENT ASSESSMENT YEAR AY 2011-12 AT A PREMIUM OF RS. 37,991.78 PER SHARE. THUS, THE ASSES SEE HAS RECEIVED A SUM OF RS. 42.19 CRORE FROM IWWTC, MAURITIUS DURING THE YE AR UNDER CONSIDERATION IN THIS REGARD AO OBSERVED THAT AS PER THE DETAILS FUR NISHED BY THE ASSESSEE ITSELF, IT IS SEEN THAT THE VALUATION OF EQUITY SHARE WAS G OT DONE BY IT THROUGH A COMPETENT VALUER FOR THE PURPOSE OF FILING IT BEFOR E RESERVE BANK OF INDIA FOR OBTAINING PERMISSION FOR ISSUE OF SHARES TO A NON R ESIDENT I.E. IWWTC. THE SAID VALUATION REPORT, PREPARED BY M/S KALYANIWALA & MIS TRY, CA SUGGESTED THE FAIR MARKET VALUE OF THE EQUITY SHARES AT RS. 1806.75, A S ON 31-03-2009, AS PER THE VALUATION GUIDELINES TAKING THE AVERAGE OF NAV AT R S. 1200.19 AND THE PECV VALUE AT RS.2,413.32 PER SHARE. AS REGARDS THE VALU ATION OF CCPS, THE VALUER M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 3 CONSIDERED IT AS APPROPRIATE TO WORK OUT THE HIGHES T POSSIBLE VALUE OF CCPS AND ACCORDINGLY, ARRIVED AT THE FAIR VALUE OF RS.47 .24 PER CCPS. 4. THE AO FOUND THESE TRANSACTIONS TO BE SUSPICIOU S, HE HELD AS UNDER:- IT IS FURTHER SEEN THAT 0.01% DIVIDEND IS PAYABLE ON SUBSCRIPTION PRICE OF CCPS PRIOR TO ANY REDEMPTION OR CONVERSION (AT RS.0.1 PER CCPS PER ANNUM) IN ACCORDANCE WITH THE TERMS OF ISSUE OF CCPS AND IT DO ES NOT INDICATE THAT CONSIDERATION OF A HIGHER SHARE VALUE PER CCPS WOUL D BE APPROPRIATE. IN THE FACTUAL BACKGROUND THE GENUINENESS OF TRANSACTION IS UNDER QUESTION AS IT IS NEITHER ACCEPTABLE NOR BELIEVABLE THAT ANY INVESTOR WOU LD MAKE SUCH KIND OF INVESTMENT WHEREIN THE SUBSCRIPTION PRICES ARE SHOWN TO BE 35.05 TIMES AND 21.17 TIMES OF THE FAIR VALUES ARRIVED AT IN THE CASE O F EQUITY SHARES AND CCPS RESPECTIVELY. THE TRANSACTION AS SHOWN ABOVE ARE NOT NATURAL ONES AND WHEN PUT TO TEST ON HUMAN PROBABILITY THE GENUINENESS OF THE TRANSACTION STANDS DISPROVED. THE ASSESSEE HAS COME UP WITH VARIOUS MA KE BELIEVE THEORIES TO JUSTIFY ITS STAND, HOWEVER, IT HAS MISERABLY FAILED TO LEAD ANY EVIDENCE TO JUSTIFY HUGE PREMIUM, WHICH IS MANY TIMES HIGHER THAN THE VAL UE ARRIVED AT BY VARIOUS APPLICABLE METHODS, RECEIVED BY IT FROM ITS F OREIGN INVESTOR. AS PER THE PROVISIONS OF THE SECTION 68 OF THE IT ACT, THE ASS ESSEE IS REQUIRED TO EXPLAIN THE NATURE AND SOURCE OF ANY CREDIT ENTRY APPEARING IN ITS BOOKS OF ACCOUNTS . IT MEANS EXPLAINING THE SOURCE ALONE IS NOT ENOUGH. NA TURE SHOULD ALSO BE EXPLAINED AND IT IS THEN ONLY THAT THE GENUINENESS O F THE TRANSACTION CAN BE BELIEVED TO BE TRUE. FURTHER AS PER THE PROVISIONS OF TH IS SECTION, IF THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT SATISFACTORY, THEN THE AMOUNT MAY BE CHARGED TO INCOME TAX. THEREFORE, IF THE ASSESSEE EXPL AINS THAT AMOUNT RECEIVED IS SHARE PREMIUM, BUT THERE IS ABSOLUTELY NO JUSTIFIC ATION FOR THE QUANTUM OF PREMIUM, THEN IT CAN SAFELY HELD THAT NATURE OF PREMIU M IS NOT PROVED AND THE CASE GETS COVERED BY SECTION 68 OF THE I.T. ACT. IN THIS CONNECTION RELIANCE IS PLACED ON THE HON'BLE SUPREME COURT DECISION IN THE CA SE OF SHREELEKHA BANERJEE (1963) AS REPORTED IN 49 ITR 112, WHEREIN I T IS HELD THAT ADDITION FOR UNEXPLAINED CASH CREDIT IS JUSTIFIED SIMPLY IF ASSESSEE FAILS TO OFFER AN EXPLANATION OR THE EXPLANATION OFFERED BY ASSESS EE IS NOT FOUND TO BE SATISFACTORY BY THE A.O. IN THIS CONNECTION FURTHER RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISIONS OF HON'BLE ITAT DELHI: ZARS TRADING PVT. LTD. (201O) ITA NO. 3284/DEL/2009 DATED 26.06.2010 KUSHARA REAL ESATE PVT. LTD. ITA NO. 4247/DEL/2OO9 ( 201O). IN BOTH THESE CASES THE MATTER WAS RESTORED BACK TO TH E FILE OF THE A.O. BY HON'BLE TRIBUNAL TO DECIDE ABOUT THE REASONABLENESS OF THE SHARE PREMIUM TAKEN BY THE ASSESSEE COMPANY. THIS IMPLIEDLY HOLDS V IEW THAT THE QUANTUM OF PREMIUM IS UNREASONABLE, ADDITION CAN BE MADE U/S 68 OF THE ACT. THE ASSESSEE HAS PLACED RELIANCE ON VARIOUS JUDICIAL PR ONOUNCEMENTS, HOWEVER, IT IS SEEN THAT THE CASES RELIED UPON ARE NOT RELEVANT TO THE F ACTS OF THIS CASE. IN VIEW OF THE ABOVE IT IS HELD THAT THOUGH THE ASSESSEE HAS GI VEN EXPLANATION WITH M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 4 REGARD TO SOURCE OF CREDIT ENTRY IN ITS BOOKS OF ACCOU NTS, HOWEVER ITS EXPLANATION WITH REGARD TO HUGE SHARE PREMIUM TAKEN BY IT IS NOT SATISFACTORILY EXPLAINED. AS STATED ABOVE THE ASSESSEE HAS TAKEN SHAR E PREMIUM ON EQUITY SHARES AT 35.05 TIMES HIGHER THAN ITS FAIR VALUE. SI MILARLY IN RESPECT OF CCPS THE SUBSCRIPTION IS TAKEN AT 21.17 TIMES HIGHER THAN ITS FAIR VALUE. IT IS PERTINENT TO MENTION FAIR VALUE BEING TALKED ABOUT HER E ARE THE ONE WHICH ASSESSEE ITSELF HAS RELIED UPON WHILE SUBMITTING DOCU MENTS TO RESERVE BANK OF INDIA FOR SUBSCRIPTION OF SHARE CAPITAL. IN VIEW OF THE FACTS AS DISCUSSED ABOVE THE CONTENTIO N OF THE ASSESSEE WITH REGARD TO ACCEPTING SHARE PREMIUM AT A MUCH HIGHER RA TE THAN ITS FAIR VALUE/BOOK VALUE IS NOT ACCEPTABLE AS THE SAME IS WITH OUT ANY PROPER EXPLANATION OR EVIDENCE. THEREFORE, THE HIGHER SHARE PREMIUM CLAIMED TO BE TAKEN BY THE ASSESSEE, AS WORKED AS UNDER, IS REQUIR ED TO BE ADDED TO ITS TOTAL INCOME U/S 68 OF THE I.T. ACT AS THE ASSESSEE HAS FA ILED TO SATISFACTORILY EXPLAIN THE NATURE OF SUCH TRANSACTION. PARTICULARS NO.OF UNITS FAIR VALUE RS. PREMIUM TAKEN RS. DIFFERENCE RS. (4-3) HIGHER PREMIUM TAKEN RS. (5X2) 1 2 3 4 5 6 EQUITY SHARE 30 1806.75 63,333.33 61,526.58 18,45,797 CCPS 4,20,000 47.24 1000.00 952.76 40,01,59,200 TOTAL 40,20,04,997 THUS IN VIEW OF THE FACTS AS DISCUSSED ABOVE AN ADDI TION OF RS.40,20,04,997/-, AS WORKED OUT ABOVE, IS MADE TO THE TOTAL INCOME OF THE ASSESSEE COMPANY U/S 68 OF THE ACT AS THE ASSESSEE HAS FAILED TO SATISFACTORILY EXPLAIN THE NATURE OF CREDIT TRANSACTIONS APPEARING IN ITS BOOKS OF ACCOUNTS AND THE REASONABLENESS OF THE QUANTUM OF PREMIUM ON EQUITY SHARE AND CCPS TAKEN BY IT. PENALTY PROCEEDINGS U/S 271(L)(C) ARE INITIATED SEPARATELY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME THEREBY LEADING TO CONCEALMENT OF INCOMES. 5. AGAINST THE ABOVE ORDER ASSESSEES APPEAL BEFOR E THE LD.CIT(A). LD.CIT(A) GRANTED RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: - UPON ASSESSEES APPEAL LEARNED CIT(A) NOTED THAT TH IS ISSUE THOUGH THE ASSESSING OFFICER USED THE TERM PREMIUM BUT EFFECTIVE LY THE DIFFERENCE BETWEEN THE ISSUE PRICE AS PER AGREEMENT AND CERTIFIE D VALUATION OBTAINED BY ASSESSEE ITSELF, WHICH HAS BEEN CONSIDERED AS UNEXPL AINED CASH CREDIT UNDER SECTION 68 OF THE ACT. HE REFERRED THAT INFORMATION W AS SOUGHT FROM THE RELEVANT TAX AUTHORITY IN MAURITIUS UNDER THE EXCHANGE OF INFORMATION PRACTICE OF INDO MAURITIUS DTAA IN ORDER TO VERIFY THE GENUINE OF TRANSACTION. M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 5 HE DID NOT GO THROUGH OR EXAMINE THE INFORMATION OBTAINE D. HE CHOSE TO REFER ASSESSING OFFICERS OBSERVATION IN OFFICE NOTE WHIC H WAS SAID TO INFIRMITY PART OF ASSESSMENT RECORDS. HE PROCEEDED TO ACCEPT ASSESSEE S SUBMISSION. HIS ORDER IN THIS REGARD READ AS UNDER :- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND THE CONTENTION OF THE LEARNED AR OF THE APPELLANT A ND ALSO GONE THROUGH THE FACTS AND RECORDS. IT IS SEEN FROM THE RECOR D THAT THE APPELLANT HAS ISSUED 30 EQUITY SHARES OF RS.100 EACH AND 420,000 CCPS OF RS. 1,000 EACH TO M/S INDIA WASTE WATER TREA TMENT COMPANY, A PRIVATE EQUITY FIRM LOCATED IN MAURITIUS . THE EQUITY SHARES ARE ISSUED AT A PREMIUM OF RS.63,233 PER SHAR E. THE CCPS ARE ISSUED AT PAR VALUE OF RS.1000 PER SHARE. THE CCPS W ERE SUBSEQUENTLY CONVERTED INTO EQUITY SHARES DURING THE SUBSEQUENT YEAR (I.E. AY 2011-12) AT A PREMIUM OF RS.37,991.78 PER SHARE. THE APPELLANT HAD RECEIVED AN AMOUNT OF RS.42.19 CRORE F ROM IWWTC, MAURITIUS DURING THE YEAR UNDER CONSIDERATION. AFTER CONDUCTING INQUIRIES RELATING TO RECEIPT OF THIS AMOUNT AGAINST SHARE CAPITAL CONSISTING OF EQUITY AS WELL AS PREFER ENCE, THE AO WAS OF THE VIEW THAT BOTH THESE SHARES WERE ISSUED AT A PRICE WHICH WAS MUCH HIGHER THAN ITS VALUATION MADE BY THE COMPETENT VA LUER I.E. M/S. KALYANIWALA & MISTRY, CA. THE VALUATION REPORT WHICH WAS OBTAINED FROM THEM FOR THE PURPOSE OF STATUTORY COMPLIAN CE CERTIFIED THE VALUE OF EQUITY SHARES TO BE RS. 1,806.75 AS ON 3 1 ST MARCH, 2009. THE VALUE OF CCPS WAS ARRIVED AT RS.47.24 PER CCPS. THUS, THE AO OBSERVED THAT THE SUBSCRIPTION PRICES ARE SHOWN TO BE 3 5.05 TIMES AND 21.17 TIMES OF THE FAIR VALUES ARRIVED AT IN THE CASE OF EQUITY SHARES AND CCPS RESPECTIVELY. THE AO HELD THAT THE APPELLANT WAS REQUIRED TO EXPLAIN THE NATURE AND SOURCE OF ANY CREDIT ENTRY APP EARING IN ITS BOOKS OF ACCOUNTS. ACCORDING TO THE AO, THE APPELLANT HAS FAILED TO JUSTIFY THE ISSUE PRICE OF SHARES RECEIVED IN EXCESS OF THE CERTIFIED VALUATION AND HENCE TREATED THE DIFFERENCE AS INCOME OF THE APPELLANT UNDER THE PROVISIONS OF SECTION 68. THOUGH AO HAS U SED THE TERM PREMIUM FOR BOTH I.E. EQUITY SHARES AND CCPS, IT IS EFFECTIVELY THE DIFFERENCE BETWEEN THE ISSUE PRICE AS PER AGREEMENT A ND CERTIFIED VALUATION OBTAINED BY THE APPELLANT ITSELF WHICH HAS B EEN CONSIDERED AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT. IT IS SEEN FROM THE RECORDS THAT THE INFORMATION WAS SOU GHT FROM THE RELEVANT TAX AUTHORITIES IN MAURITIUS UNDER EXCHANGE OF INFORMATION ARTICLE OF INDO-MAURITIUS DTAA IN ORDER TO VERIFY THE GENUINENESS OF THE TRANSACTION. THE REQUIRED INFORMATION WAS RECEIVED ON THE BASIS OF WHICH THE AO HAS OBSERVED AS UNDER IN THE OFFICE NOTE WHICH FORMS PART OF THE ASSESSMENT RECORDS: '3. DURING THE YEAR UNDER CONSIDERATION, THERE WAS AN INCREASE OF RS. 42. 19 CRORE IN THE CAPITAL OF THE ASSESSEE COMPANY AND THE ENTIRE FUND WAS RECEIVED FROM M/S. INDIA WASTE WATER TREATMENT COMPANY (I.W.W.T.C.) MAURITIUS. IN ORDER TO VERIFY THE GENU INENESS OF THE TRANSACTION THE MATTER WAS REFERRED TO F.T. & T.R., NEW DELHI FOR M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 6 VERIFICATION OF THE SOURCE OF FUNDS INVESTED BY I.W .W. T. C. MAURITIUS. THE REQUIRED INFORMATION WAS RECEIVED FROM THE BOAR D VIDE LETTERS F.NO. 504/177/2013-FTNTR -IV/1527 DATED 30.12.2013. ON V ERIFICATION OF THE SAME IT IS SEEN THAT THE ENTIRE AMOUNT WAS FUND ED TO I.W.W.T.C. BY ITS HOLDING COMPANY AT MAURITIUS NAMELY N.P.E.INDIA HOLDINGS P.C.C., MAURITIUS (NPE). IT WAS FURTHER REPORTED THAT M/S. N.P.E. MAURITIUS IS A SUBSIDIARY OF AND IS FUNDED BY MESSRS NATIXIS PVT E QUITY INTERNATIONAL WHICH IS INCORPORATED IN FRANCE. THEREFORE, FOR FUR THER VERIFICATION THE MATTER WAS ALSO REFERRED TO F.T. & T.R. NEW DELHI F OR EXCHANGE OF INFORMATION IN THE CASE OF MESSRS NATIXIS PVT EQUIT Y INTERNATIONAL, FRANCE. THE REPLY FROM F.T & T.R., NEW DELHI IN RES PECT OF MESSRS NATIXIS PVT LTD EQUITY INTERNATIONAL, FRANCE IS NOT YET RECEIVED TILL THE FINALIZATION OF THIS ORDER. HOWEVER, ON THE BASIS O F INFORMATION RECEIVED FROM THE MAURITIUS REVENUE AUTHORITIES IN THE CASE OF I.W.W.T.C. AND N.P.E. INDIA HOLDINGS P.C.C. MAURITIUS, IT IS SEEN THAT THERE IS NO EVIDENCE TO SUGGEST THAT THE FUND RECEIVED BY THE A SSESSEE COMPANY IS ROUTED THROUGH INDIA OR IT BELONGS TO ASSESSEE COMP ANY AND IT HAS BEEN CHANNELIZED BACK TO IT THROUGH IWWTC, MAURITIU S. IT IS FURTHER REPORTED THAT THE DIRECTORS OF THE ASSESSEE COMPANY ARE IN NO WAY CONNECTED TO OR RELATED TO WITH M/S. I.W.W.T.C. OR N.P.E. AND THEY HAVE NOT ENTERED INTO ANY SEPARATE TRANSACTION WITH THES E MAURITIUS BASED COMPANIES. LOOKING TO THE DETAILED REPORTS RECEIVED FROM THE MAURITIUS REVENUE AUTHORITIES, NO ADVERSE VIEW IS BEING TAKEN IN THE CASE OF ASSESSEE COMPANY SO FAR AS THE SOURCE OF SHARE CAPI TAL FUND RECEIVED OF RS. 42.19 CRORE IS CONCERNED. SINCE THE ASSESSMENT IS GETTING TIME BARED ON 31.03.2014 THE SAME IS BEING FINALIZED ACCORDING LY AS STATED ABOVE. HOWEVER, THE INFORMATION IS YET TO BE RECEIVED FROM F.T. & T.R. NEW DELHI IN RESPECT OF REFERENCE MADE IN THE CASE OF N ATIXIS PVT EQUITY INTERNATIONAL, FRANCE. IF THERE ARE ANY ADVERSE FIN DINGS IN THE REPORT OF THE F.T & T.R. NEW DELHI WHEN IT IS RECEIVED LATER ON, THE CASE MAY BE REOPENED ACCORDINGLY FOR TAKING APPROPRIATE REMEDIA L ACTION FOR THE SAME.' THUS, IT IS CRYSTAL CLEAR THAT HE AO HAS NOT DOUBTED THE SOURCE OF THE IMPUGNED AMOUNT OF RS.42.19 CRORE RECEIVED BY THE APP ELLANT AT ALL. THE AO WAS ONCE AGAIN REQUESTED TO OFFER HIS COMMENT IN VIEW OF THE REQUIRED INFORMATION RECEIVED THROUGH EXCHANGE OF INFORMATION AS WELL AS ON THE OBSERVATIONS MADE IN THE OFFICE NOTE AS MENTIONED ABOV E. THE AO SUBMITTED ITS REPLY VIDE LETTER DATED 3.3.2017 WHEREIN HE MEN TIONED AS FOLLOWS: VIDE YOUR PARAGRAPH 4 OF YOUR GOODSELVE'S LETTER UN DER REFERENCE IT HAS BEEN MENTIONED OFFICE NOTE APPEARS IN CONTRAVENTION TO THE FINDINGS GIVEN IN THE ASSESSMENT ORDER WHERE IN THE BEEN MAD E U/S. 68 OF THE I. T. ACT. IN THIS REGARD, IT IS SUBMITTED THAT AS MEN TIONED IN EARLIER PARAGRAPHS THE ADDITION IN THIS CASE IS NOT MADE ON ACCOUNT OF SOURCE OF FUNDS BUT ON ACCOUNT OF ASSESSEE'S FAILURE TO EXPLA IN SATISFACTORILY THE NATURE OF FUNDS. THEREFORE, THERE IS NO CONTRADICTI ON AS CONSTRUED BY YOUR GOODSELVES.' IT MAY BE NOTED THAT THE AO HAS ALSO RECEIVED THE INFO RMATION ABOUT NATIXIS PRIVATE EQUITY INTERNATIONAL, FRANCE WHICH WAS PENDI NG AT THE TIME OF M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 7 CONCLUDING THE ASSESSMENT PROCEEDINGS VIDE LETTER DATE D 18.7.2014 AND NO ADVERSE OBSERVATIONS HAVE BEEN MADE IMPACTING THE ISS UE UNDER CONSIDERATION. THE ONLY ISSUE WHICH REQUIRES TO BE CONSIDERED IS WH ETHER THE APPELLANT HAS BEEN ABLE TO EXPLAIN THE NATURE OF FUNDS RECEIVED BY IT OR NOT. THE ONLY BASIS ON WHICH THE AO IS OF THE VIEW THAT IT WAS NOT IN THE NA TURE OF SHARE CAPITAL IS THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE SHARES W ERE ISSUED BY THE APPELLANT AND THE CERTIFIED VALUATION OF THE SAME SHARES OBTAINED BY THE APPELLANT ITSELF. I AM UNABLE TO AGREE WITH THE AO'S CONTENTION THAT MERE SUCH A DIFFERENCE CAN LEAD TO REJECTION OF THE APPELL ANT'S EXPLANATION REGARDING 'NATURE' OF THE AMOUNT RECEIVED BY IT. HAVI NG ACCEPTED PART OF THE AMOUNT TO BE IN THE NATURE OF SHARE CAPITAL, PART OF THE SAME AMOUNT RECEIVED FROM THE SAME PERSON CANNOT BE DOUBTED MER ELY BECAUSE THE PRICING OF THAT TRANSACTION IS NOT ACCEPTABLE TO THE AO. IT IS AN UNDISPUTED FACT THAT THE APPELLANT COMPANY HAS RECEIVED THE AMOUNT OF RS.42.19 CRORES FROM AN INVESTOR FOR ISSUING 26% STAKE IN THE COMPANY. M/S INDIA WASTE WATER TREATMENT COMPANY WHO HAS INVEST ED THIS AMOUNT IS A REGISTERED COMPANY IN MAURITIUS WITH REGISTRATION NU MBER C090980 ESTABLISHED ON 13 OCTOBER 2009 AS A WHOLLY OWNED SUB SIDIARY OF NPE INDIA HOLDINGS PCC, MAURITIUS WHICH IS IN TURN HELD BY NATI XIS PRIVATE EQUITY INTERNATIONAL ('NPEI'), FRANCE. IT HAS BEEN STATED B Y THE APPELLANT THAT NPEI IS INCORPORATED IN FRANCE AND IS THE PRIVATE EQUITY INVESTMENT ARM OF NATIXIS (4 TH LARGEST FRENCH BANK LISTED ON THE PARIS STOCK EXCHANG E) DEDICATED TO INTERNATIONAL INVESTMENTS. IT IS ALSO UNDISPUTED THAT THE AMOUNT OF RS.42.19 CRORE HAS BEEN RECEIVED THROUGH FOREIGN REMITTANCE MADE BY IWWTC WHICH IS IN TURN FUNDED BY ITS IMMEDIATE HOLDING COMPANY. THE APPELLANT HAS ALSO P ROVIDED THE CURRENT STATUS OF SHARES WHICH WERE ALLOTTED TO IWWTC. IT IS NOTI CED THAT IWWTC SOLD 11,056 SHARES WHICH IT WAS OWNING IN THE APPELLANT CO MPANY TO ANOTHER MAURITIUS ENTITY NAMED AF HOLDINGS ON 7.8.2015 AT AN AGGREGATE PRICE OF RS.58 CRORES. CESSARY DOCUMENTS HAVE BEEN SUBMITTED B Y THE APPELLANT IN THIS REGARD. THUS, THE SAME NUMBER OF SHARES FOR WHIC H THE APPELLANT RECEIVED RS.42.10 CRORE FETCHED AN AMOUNT OF RS.58 CRORES FOR THE INVESTOR AFTER A PERIOD OF MORE THAN FIVE YEARS. THERE IS NOT AN IOTA OF EVIDENCES ON RECORD WHICH SUG GEST THAT THE APPELLANT HAD DISGUISED ITS OWN UNDISCLOSED INCOME UNDER THE GARB OF SHARE CAPITAL RECEIVED FROM IWWTC. THE AO HAS FAILED IN BRINGING ANYTHING ON RECORD TO DISBELIEVE THE EXPLANATION FURNISHED BY THE APPELLANT REGARDING THE 'NATURE' OF THE AMOUNT UNDER CONSIDERATION. THE VALUE AT WHICH THE SHARES CAN BE ISSUED IS THE PREROGATIVE OF THE ASSESSEE. NO ADVERSE INFERENCE CAN BE DRAWN AGAINST THE APPELLANT MERELY BECAUSE IT HAS BEEN ABLE TO NEGOTIATE A BETTER PRICE WITH THE INVESTOR FOR ALLOTMENT OF ITS SHARES. REGARDING THE VALUATION OF SHARES AS OBTAINED BY THE APPELLANT, IT HAS BEEN STATED THAT IT WAS OBTAINED ONLY FOR THE PURPOSE OF STAT UTORY REQUIREMENT AS ENFORCED BY RBI AND IT WAS NOT THE BASIS OF NEGOTIATIN G THE PRICE OF SHARES BETWEEN THE APPELLANT AND THE INVESTOR. FURTHER, SUCH VALUATION HAS BEEN M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 8 MADE PURELY ON THE BASIS OF THE BOOK VALUES OF THE ASS ETS OF THE APPELLANT COMPANY AS ON 31 ST MARCH, 2009 AND WITHOUT CONSIDERING THE REAL MARKET PRICES OF ITS ASSETS WHICH INCLUDE SHARES OF ITS VARI OUS GROUP COMPANIES. THE NECESSARY PROVISIONS UNDER WHICH THE DIFFERENCE BETWEEN THE PRICE AT WHICH SHARES HAVE BEEN ISSUED AND THEIR FAIR MARKET VALUE CAN BE TAXED ARE FOUND IN CLAUSE (VIIB) OF SECTION 56(2) WHICH IS EFF ECTIVE FROM 1 ST APRIL. 2013 AND NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION. IN THIS REGARD, THE FOLLOWING OBSERVATIONS MADE BY BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES (P.) LTD.VS.UNION OF INDIA 369 ITR 5 11 ARE USEFUL: '41. WE ALSO FIND MERIT IN THE SUBMISSION ON BEHALF OF THE PETITIONERS THAT W.E.F. 1 APRIL 2013, THE DEFINITION OF INCOME UNDER SECTION 2(24)(XVI) OF THE ACT INCLUDES WITHIN ITS SCOPE THE PROVISIONS OF SECTION 56(2) (VII-B) OF THE ACT, THIS INDICATES THE INTENT OF THE PARL IAMENT TO TAX ISSUE OF SHARES TO A RESIDENT, WHEN THE ISSUE PRICE IS ABOVE ITS FAIR MARKET VALUE. IN THE INSTANT CASE, THE REVENUE'S CASE IS THAT THE ISSUE PRICE OF EQUITY SHARE IS BELOW THE FAIR MARKET VALUE OF THE SHARES ISSUED TO A NON- RESIDENT. THUS PARLIAMENT HAS CONSCIOUSLY NOT BROUG HT TO TAX AMOUNTS RECEIVED FROM A NON-RESIDENT FOR ISSUE OF SHARES, A S IT WOULD DISCOURAGE CAPITAL INFLOW FROM ABROAD. THE REVENUE HAS NOT BEE N ABLE TO MEET THE ABOVE SUBMISSION BUT HAVE IN THEIR WRITTEN SUBMISSI ON ONLY SUBMITTED THAT THE ABOVE PROVISIONS WOULD HAVE NO APPLICATION TO THE PRESENT FACTS. IT HAS BEEN SPECIFICALLY OBSERVED BY THE COURT THAT THE SAID PROVISIONS ARE MADE APPLICABLE ONLY IN CASE OF ISSUE OF SHARES TO A RESIDENT. IT IS THE CONSCIOUS DECISION OF THE PARLIAMENT TO NOT TO APPLY THE SIMILAR PROVISIONS IN CASE OF ISSUE OF SHARES TO A NON-RESIDENT AS IT WOULD DISCOURAGE CAPITAL INFLOW FROM ABROAD. RELYING ON THIS DECISION, I AM OF THE VI EW THAT NO INCOME CAN BE CHARGED IN THE HANDS OF THE APPELLANT IN RESPECT OF RAI SING OF SHARE CAPITAL FROM A NON-RESIDENT MORE PARTICULARLY WHEN THE IDENTI TY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION HAVE BEEN ESTABLIS HED BY THE APPELLANT AND NOT DISPUTED. IN VIEW OF THE FOREGOING, I FIND THAT THE AO WAS NOT JUSTIFIED IN MAKING AN ADDITION UNDER SECTION 68 OF THE ACT. THEREFORE, THE A O IS DIRECTED TO DELETE THE ADDITION OF RS.40,20,04,997/- MADE U/S. 68. THIS GROUND OF APPEAL IS THUS ALLOWED. 6. AGAINST THIS ORDER REVENUE IS IN APPEAL BEFORE US. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT AS EVI DENT FROM, THE ASSESEE HAS RECEIVED FUNDS FROM IWWTC, MAURITIUS. THIS MAURITIU S COMPANY ENTIRE FUND RECEIVED FUNDS FROM N.P.E INDIA HOLDINGS P.C.C., MA URITIUS(NPE), FURTHER M/S. N.P.E MAURITIUS IS A SUBSIDIARY OF AND IS FUNDED BY MESSRS NATIXIS PVT EQUITY INTERNATIONAL WHICH IS INCORPORATED IN FRANCE. THE ABOVE INFORMATION IS COMING OUT OF THE ORDER OF THE LD.CIT(A) WHEN HE MENTIONS THIS WAS FOUND WHEN THE M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 9 GENUINENESS OF THE TRANSACTIONS WAS REFERRED TO F.T . & T.R. NEW DELHI FOR VERIFICATION OF THE SOURCE OF FUNDS INVESTED BY IWW TC. THERE IS NO WHISPER WHATSOEVER ABOUT THIS ASPECT IN THE ORDER OF THE AO . LD.CIT(A) HAS NOTED ABOUT THIS INFORMATION OBTAINED, BUT HAS CHOSEN NOT TO VE RIFY THE SAME HIMSELF, HE HAS CHOSEN TO REFERRED TO THE NOTES OF THE AO ON TH IS ISSUE, WHICH WAS SAID TO BE FORMING PART OF A ASSESSMENT RECORDS. THERE IS N O REFERENCE WHATSOEVER TO THE ACTUAL INFORMATION RECEIVED FROM RESOURCES. LD. CIT(A) BY REFERRING TO THE NOTE SHEET OF THE AO OBSERVED THAT AO HAS NO DOUBT OF TRANSACTION FROM IWWTC AND N.P.E INDIA. HOWEVER, IN THIS REGARD TO L D.CIT(A) WAS VERY WELL AWARE THAT FUNDS TO N.P.E. INDIA HOLDINGS, MAURITI US WERE FROM NATIXIS PVT EQUITY INTERNATIONAL FRANCE HERE ALSO THE LD.CIT(A) DID NOT REFER TO THE INFORMATION OBTAINED ABOUT THIS FRENCH COMPANY. RAT HER, HE REFERRED THAT AO HAS RECEIVED INFORMATION ABOUT THIS COMPANY, WHICH WAS PENDING AT THE TIME OF CONCLUDING OF ASSESSMENT PROCEEDINGS AND NO ADVE RSE OBSERVATION HAS BEEN MADE IMPACTING THE ISSUE UNDER CONSIDERATION. HERE THERE IS NO DETAIL AS TO WHERE THE ASSESSING OFFICER MADE SUCH OBSERVATIONS, WHEN THE INFORMATION BY WAY OF A LETTER DATED 17.7.2014 WAS RECEIVED, WHILE THE ASSESSING OFFICERS ORDER IS DATED 18.3.2014. THERE IS NO MENTION AS TO WHAT INFORMATION ABOUT THE FRENCH COMPANY WAS RECEIVED. 7. FROM THE AFORESAID IT IS EVIDENT THAT ASSESSIN G OFFICER HAS PASSED THE ORDER WITHOUT ANY REFERENCE, WHATSOEVER TO THE ENQU IRY CONDUCTED ABOUT THE SOURCE OF FUND FROM OVERSEAS CONCERN. LEARNED CIT(A ) REFERS TO THE INQUIRY REPORT FROM MAURITIUS AND FRANCE. BUT LEARNED CIT(A ) INSTEAD OF GOING THROUGH VITAL DOCUMENTS HIMSELF PROCEEDED TO PLACE HIS RELI ANCE ON THE OBSERVATIONS OF THE ASSESSING OFFICER NOT IN ASSESSMENT ORDER NOR I N ANY REMAND REPORT, BUT IN SOME OFFICE NOTES. IN OUR CONSIDERED OPINION, THI S IS A COMPLETE DERELICTION OF DUTY ON THE PART OF LD.CIT(A). IT IS SETTLED LAW TH AT THE POWERS OF CIT(A) ARE COTERMINOUS WITH THAT AO. IT HAS BEEN HELD IN THE S UPREME COURT DECISION IN KAPURCHAND SHRIMAL THAT IT IS THE DUTY OF THE APPEL LATE AUTHORITY TO CORRECT THE ERRORS IN THE ORDER OF THE AUTHORITY BELOW. HERE, W E FIND THAT LD.CIT(A) BY NOT EXAMINING THE DOCUMENTS OBTAINED UNDER THE EXCHANGE OF INFORMATION M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 10 MECHANISM REGARDING THE SOURCE OF FUNDS OF THE LAYE RED TRANSACTIONS HAS COMPLETELY MISLED HIMSELF. THERE IS NO CASE THAT AN Y REMAND REPORT WAS OBTAINED. WHEN THE ISSUE IS NOT DEALT WITH IN ASSES SING OFFICERS ORDER AND IT IS ALSO NOT THE CASE THAT ANY REMAND REPORT WAS OBTAIN ED, WE ARE AMAZED AT THE OPAQUE OBSERVATION, LEARNED CIT(A) IS MAKING. 8. FURTHERMORE, WE FIND THAT ASSESSEES OWN VALUA TION BY A APPROVAL VALUER SHOWED SIGNIFICANTLY LOWER VALUE FOR THE SHARES ISS UED AS COMPARED TO THAT TRANSACTED. IN THIS REGARD, THE CLAIM OF THE ASSESS EE DULY ACCEPTED BY THE LD.CIT(A) IS THAT THIS WAS ONLY FOR THE PURPOSE OF FILING BEFORE RBI FOR OBTAINING PERMISSION FOR ISSUE OF SHARES TO A NON RESIDENTS. 9. IN THIS REGARD, WE NOTE THAT NO PARTY CAN BE PE RMITTED TO APPROBATE AND REPROBATE I.E. CANNOT TAKE SHIFTING STANDS ON THE S AME TRANSACTIONS. THIS VIEW HAS BEEN DULY REITERATED BY THE HONBLE SUPREME COU RT IN THE CASE OF SUZUKI PARASRAMPURIA SUITINGS PVT. LTD. VS. OFFICIAL LIQUI DATOR OF MAHINDRA PETRO CHEMICAL LTD. CIVIL APPEAL NO. 10322/2017 DATED 08/ 10/2018. THERE IS NO COGENT EXPLANATION WHATSOEVER THAT WHEN THE VALUE O F SHARES WHICH WAS CERTIFIED AND VALUED AND GIVEN TO RBI ARE MUCH LOWE R, HOW CAN THE SHARES BE ISSUED AT HUGELY HIGHER VALUE. THIS FURTHER ACCENTU ATES THE OPAQUE NATURE OF THE LAYERED TRANSACTION SHIFTING THE ONUS ON THE AS SESSEE TO DISCHARGE THE ONUS CAST UPON IT. MERELY STATING THAT ACTUAL VALUATION MADE BY THE VALUER IS LOW BUT THE NEGOTIATED VALUE IS MUCH HIGHER CAN BY NO STRET CH OF IMAGINATION BE A COGENT EXPLANATION. 10. FURTHERMORE, WE FIND THAT LD. COUNSEL OF THE ASSESEE HAS CONTESTED THAT AO HAS ACCEPTED PART OF THE TRANSACTION AND IS DOUB TING THE REST, WHICH IS NOT SUSTAINABLE. IN THIS REGARD, WE NOTE THAT AN ERROR ON THE PART OF THE AO CANNOT BE FATAL TO THE CASE OF THE REVENUE. WHICH IS MORE SO, WHEN LD.CIT(A) HAS CHOSEN NOT TO EXAMINE THE ISSUE HIMSELF PROPERLY AN D IN THIS REGARD ALSO WE FIND SUPPORT FROM THE AFORESAID DECISION OF HONBLE SUPREME COURT IN THE CASE OF KAPURCHAND SHRIMAL (SUPRA) I.E. IT IS THE DUTY O F THE APPELLATE AUTHORITY TO M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 11 CORRECT THE ERRORS IN THE ORDERS OF THE AUTHORITIES BELOW. IF, THE AO MISTAKENLY AGREES FOR A PART OF THE AMOUNT TO BE CLAIMED, THE SAME ANALOGY CANNOT EXPLAIN THE REST OF THE SAME, WHEN THE UNEXPLAINED NATURE IS PALPABLY EVIDENT. FURTHER, IT HAS BEEN PLEADED ON BEHALF OF THE ASSES SEE THAT ISSUE OF SHARE PREMIUM COULD NOT HAVE BEEN EXAMINED IN THE IMPUGNE D ASSESSMENT YEAR. WE NOTE THAT THIS IS NOT AT ALL ISSUE OF PREMIUM SIMPL ISITER, IT IS ISSUE OF DIFFERENCE BETWEEN THE VALUATION OF SHARES DONE BY THE APPROVE D VALUER HIMSELF OF THE ASSESSEE WHICH WAS SUBMITTED TO RBI AND THE VALUE O F TRANSACTION. HENCE, THE FACTS ARE DIFFERENT TO THE CASE LAWS RELIED UPON BY THE ASSESSEES COUNSEL. 11. TO SUMMARIZE LD.CIT(A) HAS ERRED INASMUCH AS , HE HAS NOT EXAMINED THE INFORMATION OBTAINED ABOUT THE VARIOUS OFFSHOR E COMPANIES OF MAURITIUS AND FRANCE FROM WHOM THE INFORMATION WAS OBTAINED A ND FROM WHERE THE SOURCE IS LAYERED. SECONDLY, THERE IS NO COGENT EXP LANATION OF DIFFERENCE BETWEEN THE VALUES AS GIVEN TO THE RBI AND THAT GIV EN TO INCOME TAX AUTHORITIES ON THE TOUCHSTONE OF THE LEGAL MAXIM OF APPROBATE AND REPROBATE AS REFERRED BY HON'BLE SUPREME COURT IN THE CASE OF SUZUKI PARASRAMPURIA SUITINGS PVT. LTD. (SUPRA). FURTHER THE ISSUE IN SU BSTANCE HERE IS NOT ADDITION UNDER SECTION 56 BUT ADDITION UNDER SECTION 68. IN THIS VIEW OF THE MATTER ALSO THE CASE LAWS REFERRED BY LEARNED COUNSEL OF THE AS SESSEE ARE NOT APPLICABLE. FURTHERMORE THE DECISION OF GREEN INFRA OF HON'BLE BOMBAY HIGH COURT WAS NOT DEALING WITH LAYERED REMITTANCE FROM SOURCE ABR OAD. MOREOVER THE ISSUE HERE CLEARLY IS ASSESSEE APPLYING OPAQUE DEVICE WHI CH COMES UNDER THE KEN OF EXPOSITION OF HON'BLE SUPREME COURT DECISION IN MC DOWELL & CO. LTD. (SUPRA) WITH THE ABOVE OBSERVATION, WE REMIT THE ISSUE TO T HE FILE OF LEARNED CIT(A) FOR FRESH ADJUDICATION. NEEDLESS TO ADD, ASSESSEE SHOUL D BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. APROPOS SECOND ISSUE : 12. ON THIS ISSUE THE ASSESSING OFFICER NOTED THAT ON VERIFICATION OF DETAILS FURNISHED IN THE COURSE OF ASSESSMENT PROCEEDINGS I T IS SEEN THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS, INTER-ALIA, PURCHASED M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 12 39,999 EQUITY SHARES OF ROCHEM SEPERATION SYSTEMS ( I) PVT. LTD. (HEREINAFTER REFERRED AS 'RSSIPL') FOR A TOTAL CONSIDERATION OF RS.4,81,20,000/- AT AN AVERAGE RATE OF RS.1203/- PER SHARE. HOWEVER, IT IS ASCERTAINED FROM THE CASE RECORDS OF M/S RSSIPL AND THE DIRECTORS AND OTHER R ELATED PERSONS OF THE GROUP THAT BOOK VALUE, EXCLUSIVE OF GOOD WILL, OF T HE EQUITY SHARES OF RSSPIL WAS RS.6,875/- PER SHARE ON THE DATE OF SUCH TRANSF ER OF SHARES. IN VIEW OF THE ABOVE VIDE ORDER SHEET NOTING DATED 11.02.2013 THE ASSESSEE WAS REQUESTED TO EXPLAIN AS TO WHY NOT THE PURCHASE TRANSACTION OF E QUITY SHARE FROM THE RELATED PARTIES BE CONSIDERED AS SHAM TRANSACTIONS AND IT W AS REQUESTED TO EXPLAIN THE BONAFIDE OF THE SAME IF THE SAID TRANSACTION HAVE B EEN CLAIMED TO BE NATURAL ONE AND NOT IN THE CATEGORY OF COLOURABLE DEVISE. T HE ASSESSEE WAS ALSO ASKED TO EXPLAIN THE ULTIMATE MOTIVE OF THE DIRECTORS IN ENTRY INTO SUCH TRANSACTIONS RESULTING INTO UNDUE BENEFIT PASSING INTO THE HANDS OF THE COMPANY WITHOUT PAYING LEGITIMATE TAXES THEREON. 13. THE ASSESSEE IN RESPONSE TO THE SAME STATED THA T THERE IS NO PROVISION IN LAW WHEREIN THE DECLARED VALUE OF PURCHASE CONSIDER ATION OF AN ASSET CAN BE ENHANCED UNLESS THERE IS AN EVIDENCE OF PAYMENT OF ANY SUCH CONSIDERATION OUTSIDE THE BOOKS OF ACCOUNT. FAIR MARKET VALUE CO ULD NOT BE PUT IN THE PLACE OF COST OF ACQUISITION DURING THE RELEVANT PERIOD A S THE CONCEPT OF ARMS LENGTH PRICE IN SUCH TRANSACTION WAS MISSING FROM THE STAT UTE. THAT THE LAW ALSO DID NOT PROHIBIT TO ACQUIRE ANY PROPERTY AT A CONSIDERA TION WHICH WAS LOWER THAN THE FAIR MARKET VALUE. THAT THE SHARES IN ROCHEM SE PARATION SYSTEMS (INDIA) PVT. LTD. HAVE BEEN TRANSFERRED IN THE NAME OF THE ASSESSEE BY THE TRANSFERORS DUE TO WHICH THE SAID COMPANY HAS BECOME A SUBSIDIA RY COMPANY OF THE ASSESSEE BY VIRTUE OF A SCHEME WHEREBY FOREIGN EQUI TY SHAREHOLDERS ALSO JOINED THE ASSESSEE. FURTHER SUBMISSION OF THE ASSESSEE AR E THAT THE AMENDMENT IN THE ACT TO COVER BY WAY OF A DEEMED INCOME ON PURCH ASES OF SHARES BY A COMPANY WHERE PURCHASE CONSIDERATION WAS LOWER THAN THE MARKET VALUE HAS BEEN BROUGHT IN THE STATUTE W.E.F. 01.06.2010 I.E. FROM THE PERIOD RELEVANT TO THE A.Y. 2011-12 AND WAS NOT APPLICABLE IN THE RELE VANT PERIOD. THE ASSESSEE M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 13 COMPANY SUBMITTED THAT IT PURCHASED THE SHARE OF M/ S ROCHEM SEPARATION SYSTEMS (INDIA) PRIVATE LIMITED FORM THE FOLLOWING PERSONS: PARTICULARS NO. OF SHARES AMOUNT (RS.) PRERAK GAEL 10,000 1,20,00,000/- PREYAS GOEL 10,000 1,20,00,000/- PUSHPA GOEL 18,000 2,16,00,000/- NAMRATA GOEL 1,000 12, 00, 000 /- NIDHI GOEL 1,000 12, 00, 000/- TOTAL 40,000 ONE SHARE IS HELD BY MR. PRAYAS GOEL AS NOMINEE. 14. FROM THE ABOVE THE ASSESSING OFFICER OBSERVED T HAT THE ASSESSEE ITSELF HAS ADMITTED THAT THE SHARE TRANSACTIONS ARE NOT DO NE AT ARMS LENGTH PRICE I.E. THE BOOK VALUE OF SHARE PRICE WHICH WAS SHOWN IN TH E BOOKS OF RSSIPL. HE ALSO NOTED THAT THE ASSESSEE-COMPANY AND RSSIPL ARE CONT ROLLED BY THE ASSOCIATED ENTERPRISE AS DEFINED IN SECTION 92A(1). THE ASSESS EE IN THIS REGARD REITERATED THAT PRICE HAS BEEN MUTUALLY AGREED UPON. IN THIS R EGARD THE ASSESSING OFFICER REFERRED TO THE PROVISIONS OF SECTION 56(1) AND 56( 2) OF THE ACT. HE WAS OF THE OPINION THAT THE ASSESSEE IS TAXABLE IN THIS REGARD . HE FURTHER REGARDED THE TRANSACTIONS AS SHAM AND THAT THE ASSESSEE WAS APPL YING SUBTERFUGES. THE ASSESSING OFFICER REFERRED TO THE DECISION OF HON'B LE SUPREME COURT IN THE CASE OF MCDOWELL AND CO. LTD. VS. CTO (154 ITR 148). HE FINALLY CONCLUDED AS UNDER :- IN VIEW OF THE FACTS AS DISCUSSED ABOVE THE CONTENTI ON OF THE ASSESSEE AS MADE OUT IN THIS ISSUE ARE REJECTED IN THE MANNER AS D ISCUSSED ABOVE AND THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE OF THE SHAR ES PURCHASED DURING THE YEAR AND THE VALUE OF ITS PURCHASE CONSIDERATION AS DE CLARED BY THE ASSESSEE IS REQUIRED TO BE ADDED TO THE TOTAL INCOME OF THE ASSESS EE U/S 56(1) OF THE I.T. ACT. HERE IT WOULD BE PERTINENT TO MENTION THAT THE F AIR MARKET VALUE OF THE SHARES PURCHASED BY THE ASSESSEE COMPANY WAS INIT IALLY WORKED OUT AT RS.6875/-, AS ON 31.03.2009, AND COMMUNICATED TO THE ASSESSEE IN EARLIER SHOW CAUSE LETTER / ORDER SHEET NOTING. HOWEVER, THE SAME WAS NOT CORRECT AS IT WAS NOT WORKED OUT ON THE BASIS OF THE PRESCRIBED FO RMULAE APPLICABLE FOR CALCULATING IT. THEREFORE, IN THE COURSE OF ASSESSME NT HEARING ON 10.03.2014 THE A.R. OF THE ASSESSEE COMPANY WAS ASKED TO WORK OU T THE FAIR MARKET VALUE OF THE SHARES OF RSSIPL AS ON 31.3.2009. SHRI GAURAV BANSAL, CA WHO WAS PRESENT FOR HEARING ON 10.03.2014 WORKED OUT THE F AIR MARKET VALUE OF M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 14 THE EQUITY SHARE OF RSSIPL AS ON 31.03.2009 AT RS.706 7/- PER SHARE. THE FAIR MARKET VALUE IS WORKED OUT AS UNDER: I) SHARE CAPITAL OF RSSIPL AS ON 31.03.2009 RS. 40,00,000/- II) RESERVE AND SURPLUS .. RS. 27,86,82,024/- TOTAL RS. 28,26,82,024/- THEREFORE, RS.28,26,82,024/- DIVIDED BY 40,000 SHAR ES = RS.7067/- PER SHARE. THE FAIR MARKET VALUE OF RS.7067/- PER SHARE AS ON 31.03.2009 IS ALSO CONFIRMED ON ORDER SHEET NOTING BY THE A.R. OF THE ASSE SSEE IN THE COURSE OF HEARING ON 10.03.2014. HOWEVER, AS THE TRANSACTION R ELATING TO THE PURCHASE OF SHARES BY THE ASSESSEE COMPANY HAS TAKEN PLACE ON 24.08.2009, AS PER THE SHARE PURCHASE AGREEMENT, THE NET PROFIT GENERATED BY M/S RSSIPL FROM 01.04.2009 TO 23.08.2009 ALSO REQUIRES TO BE ADDED TO THE FAIR MARKET VALUE OF THE SHARES CALCULATED AS ABOVE. IN THE ABSENCE OF ANY DETAILS HAVING BEEN FURNISHED BY THE ASSESSEE THE NET PROFIT OF M/S RSSIPL AS ON 23.08.2009 IS WORKED OUT ON PROPORTIONATE BASIS AS UNDER: PARTICULARS AMOUNT RS. PROFIT EARNED BY M/S RSSIPL DURING F.Y. 2009-10 AND 7,47,80,711/- TRANSFERRED TO ITS RESERVES AND SURPLUS THEREFORE PROPORTIONATE PROFIT FOR 145 DAYS TILL 2,97,07,405/- 23.08.2008 IS 7,47,80,71 1/- X 145 /365 SO RS. 2,97,07, 405/- DIVIDED BY 40,000 SHARES : - 743/- PER SHARE SO THE PROPORTIONATE PROFIT OF RS.743/- EARNED PER SHA RE BY M/S RSSIPL 01.04.2009 TO 23.08.2009 ALSO REQUIRES TO BE ADDED TO THE FAIR MARKET VALUE EQUITY SHARE OF RS.7067/- WORKED OUT AS ON 31.03.200 9. THEREFORE, THE FAIR MARKET VALUE OF THE EQUITY SHARE OF M/S RSSIPL AS ON 23.08.2009 IS WORKED OUT AT RS.7810/- PER SHARE. THE DIFFERENCE BETWEEN TH E FAIR MARKET VALUE, WHICH IS RS.7810/- AS ON THE DATE OF TRANSACTION AND TH E PURCHASE CONSIDERATION OF RS.1,203/- FOR EACH SHARE AS SHOWN BY THE ASSESSEE IN RESPECT OF 39,999 SHARES WORKS OUT TO RS.26,42,73,393/ - AND THE SAME IS THEREFORE ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS DI SCUSSED ABOVE. PENALTY PROCEEDINGS U/S 271(1)(C) ARE INITIATED SEP ARATELY FOR FURNISHING IN ACCURATE PARTICULARS OF INCOME THEREBY LEADING TO CONC EALMENT OF INCOME. 15. UPON ASSESSEES APPEAL LEARNED CIT(A) HELD THAT PROVISIONS OF SECTION 56(2) ARE NOT APPLICABLE FOR THE CURRENT ASSESSMENT YEAR. HE FURTHER HELD THAT TRANSACTION IS CAPITAL AND HENCE IT IS OUTSIDE THE SCOPE OF ADDITION IN THIS REGARD HE REFERRED TO THE DECISION OF HON'BLE BOMBA Y HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES (P) LTD. VS. UOI (50 TAXMAN N.COM 300). HE CONCLUDED AS UNDER :- IN THIS CASE, HON'BLE JURISDICTIONAL HIGH COURT WAS C ONCERNED WITH THE TAXABILITY OF THE DIFFERENCE BETWEEN THE PRICE AT WHIC H SHARES WERE ISSUED AND M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 15 ITS FAIR MARKET VALUE. THE SAME PRINCIPLES F SHOULD EVEN APPLY IN CASE OF DIFFERENCE BETWEEN THE PRICE AT WHICH SHARES HAVE BEE N PURCHASED AND THEIR FAIR MARKET VALUE. IN VIEW OF THE FOREGOING, I FIND THAT THE LEARNED AO WAS NOT JUSTIFIED IN MAKING AN ADDITION UNDER SECTION 56(1) OF THE ACT. T HEREFORE THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.26,42,73,393/- MADE U/S. 56 OF THE ACT. THIS GROUND OF APPEAL IS THUS ALLOWED. 16. AGAINST THIS ORDER REVENUE IS IN APPEAL BEFOR E US. 17. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED TH E RECORD. ON THIS ISSUE, WE NOTE THAT ASSESSEE HAS PURCHASED SHARES OF RSSIP L A PRIVATE LIMITED COMPANY FOR A PURCHASE CONSIDERATION OF RS. 4,81,20 ,000/- FROM FIVE PERSONS AT AN AVERAGE RATE OF RS.1,203/- PER SHARE. HOWEVER , THE AO HAS FOUND THAT ACTUAL VALUE OF SHARES WAS MUCH HIGHER AS THE SAME WAS APPROXIMATELY RS.6,875/-. THE AO WAS OF THE OPINION THAT THE TRAN SACTION IS SHAM AND NOT NATURAL ONE. IN EXPLANATION TO THIS ASSESSEE CLAIME D THAT THERE IS NO PROVISION OF LAW WHEREIN THE DECLARED VALUE OF PURCHASE CONSI DERATION OF AN ASSET CAN BE ENHANCED, UNLESS THERE IS AN EVIDENCE OF PAYMENT OF ANY SUCH CONSIDERATION OUTSIDE THE BOOKS. FURTHER, IT WAS PLEADED THAT THE NECESSARY PROVISION WAS NOT EXISTING IN THE STATUTE BOOKS TO TAX SUCH AMOUN TS. THE LD.CIT(A) HAS AGGRIEVED WITH THE VIEW OF THE ASSESSEE THAT THE SA ID SUM IS NOT TAXABLE U/S. 56. HE REFERRED TO THE DECISION OF HONBLE BOMBAY H IGH COURT IN VODAFONE INDIA SERVICES PVT. LTD. (SUPRA) AND FOUND THAT THE PRINCIPLES ARE SAME. 18. UPON CAREFUL CONSIDERATION, WE NOTE THAT EV EN ASSESSEE HAS ACCEPTED THAT THE VALUE GIVEN FOR THE SHARES PURCHASE IS MUC H LOWER THAN THE ACTUAL VALUE THEREOF. IT IS SETTLED LAW THAT PUTTING A WRO NG SECTION IS NOT FATAL TO THE ASSESSMENT. WE NOTE THAT SECTION 69B OF THE I.T. AC T DEALS WITH THE AMOUNT OF INVESTMENTS AS UNDER:- WHERE IN ANY FINANCIAL YEAR THE ASSESSEE HAS MADE I NVESTMENTS OR IS FOUND TO BE THE OWNER OF ANY BULLION, JEWELLERY OR OTHER VAL UABLE ARTICLE, THE ASSESSING OFFICER FINDS THAT THE AMOUNT EXPENDED ON M AKING SUCH INVESTMENTS OR IN ACQUIRING SUCH BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE EXCEEDS THE AMOUNT RECORDED IN THIS BEHALF IN THE BOO KS OF ACCOUNT MAINTAINED BY THE ASSESSEE FOR ANY SOURCE OF INCOME, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT SUCH EXCESS AMOUNT OR THE EXPLANAT ION OFFERED BY HIM M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 16 IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISF ACTORY, THE EXCESS AMOUNT MAY BE DEEMED TO BE INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR. 19. WE FIND THAT THE ABOVE SECTION APPLIES ON ALL FOURS ON THE PRESENT TRANSACTION. THE ASSESSEE HAD MADE INVESTMENTS IN T HE SHARES OF THE COMPANY. THE AO HAS APPLIED THE RATIO FROM THE SUP REME COURT DECISION IN THE MCDOWELL & COMPANY LTD. (SUPRA) THAT THE VALUE OF THE SHARES ARE MUCH HIGHER THAN WHAT IS RECORDED BY THE ASSESSEE IN ITS BOOKS. THE ASSESSEE DOES NOT DISPUTE THAT THE VALUE IS HIGHER. HENCE, ASSESS EE IS ADMITTEDLY USING OPAQUE COLOURABLE DEVICE AND SUBTERFUGE. THE BRAYER EXPLANATION GIVEN BY THE ASSESSEE THAT THOUGH, IT IS ADMITTED THAT THE VALUE IS MUCH HIGH, THERE IS NO PROVISION IN THE STATUTORY BOOKS TO TAX SUCH IS TOT ALLY UNTENABLE, IN VIEW OF THE SANGUINE PROVISIONS OF THE ACT REFERRED ABOVE. THE REFERENCE TO THE PROVISIONS OF SECTION 56 IN THIS REGARD IS TOTALLY IRRELEVANT. WE MAY GAINFULLY REFER TO THE CONCERN SECTION 56(VIIA) AS UNDER: ( VIIA ) WHERE A FIRM OR A COMPANY NOT BEING A COMPANY IN W HICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON OR PERSONS, ON OR AFTER THE 1ST DAY OF JUNE, 2010[BUT BE FORE THE 1 ST DAY OF APRIL, 2017], ANY PROPERTY, BEING SHARES OF A COMPANY NOT B EING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, ( I ) WITHOUT CONSIDERATION, THE AGGREGATE FAIR MARKET VAL UE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE WHOLE OF THE AGGREGATE FAI R MARKET VALUE OF SUCH PROPERTY; ( II ) FOR A CONSIDERATION WHICH IS LESS THAN THE AGGREGA TE FAIR MARKET VALUE OF THE PROPERTY BY AN AMOUNT EXCEEDING FIFTY THOUSAND RU PEES, THE AGGREGATE FAIR MARKET VALUE OF SUCH PROPERTY AS EXCEEDS SUCH CONSIDERATION : PROVIDED THAT THIS CLAUSE SHALL NOT APPLY TO ANY SUCH P ROPERTY RECEIVED BY WAY OF A TRANSACTION NOT REGARDED AS TRANSFER UNDER C LAUSE ( VIA ) OR CLAUSE ( VIC ) OR CLAUSE ( VICB ) OR CLAUSE ( VID ) OR CLAUSE ( VII ) OF SECTION 47 . EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, FAIR MARKET VALUE OF A PROPERTY, BEING SHARES OF A COMPANY NOT BEING A COMP ANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, SHALL HAVE THE M EANING ASSIGNED TO IT IN THE EXPLANATION TO CLAUSE ( VII );] 20. THE ABOVE FALL UNDER THE HEAD INCOME FROM OTHER SOURCES. THERE IS NOTHING MENTIONED IN THE ACT, WHICH PROSCRIBES THE APPLICATION OF SECTION 69B M/S. CONCORD ENVIRO SYSTEMS PVT. LTD. 17 IS CASES SUCH AS THE PRESENT ONE. IN THIS VIEW OF T HE MATTER IN OUR CONSIDERED OPINION HERE AS NOTED ABOVE SINCE THERE IS USE OF O PAQUE COLOURABLE DEVICE THE REFERENCE TO ITAT DECISION IN RUPEE FINANCE AND MAN AGEMENT (120 ITD 539) DOES NOT FRUCTIFY THE ASSESSEES CASE. THUS, LD.CIT (A) HAS ERRED IN ALLOWING THE ASSESSEES APPEAL DESPITE THE FACT THAT THE ASSESSE ES INVESTMENT FALLS UNDER PROVISIONS OF SECTION 69B. THE DECISION OF HONBLE BOMBAY HIGH COURT IN VODAFONE INDIA SERVICES P. LTD. (SUPRA) IS NOT AT A LL APPLICABLE ON THE FACTS OF THE PRESENT CASE. IN THIS REGARD, WE NOTE THAT THER E IS SOME LACK OF CLARITY REGARDING THE VALUATION ASPECT OF THE SHARES AS THE AO HAS STARTED WITH A FIGURE OF RS. 6,875/- AND FINALLY CONSIDERED THE VA LUE AT RS. 7,067/-. MOREOVER, VALUATION ASPECT WAS NEVER EXAMINED BY LEARNED CIT( A). HENCE, THE VALUATION ASPECT NEEDS TO BE EXAMINED BY THE FIRST APPELLATE AUTHORITY. SINCE WE HAVE REMITTED THE FIRST ISSUE TO THE FILE OF LD.CIT(A), WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE ALSO TO THE FILE OF LD.CIT(A). LD.CIT(A ) IS DIRECTED TO CONSIDER THIS ISSUE ALSO AFRESH. IN REMITTING THE MATTER ON THIS ISSUE ALSO WE DRAW SUPPORT FROM HON'BLE APEX COURT IN THE CASE OF KAPURCHAND S RIMAL (SUPRA). 21. IN THE RESULT, APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 26.7.2021. SD/- SD/- (PAVANKUMAR GADALE) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; DATED : 26/07/2021 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI