TATVA GLOABAL ENVIRONMENT LTD, MUMBAI V. ITO 9(3)(3), MUMBAI

ITA 4012/MUM/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3673 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 13-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMIT PRATAP SINGH
• Assessee Lawyers: AVIN JAIN ARS
• Keywords: Gift; Depreciation; Income from undisclosed sources; Earning of tax free income; Fair market value; Valuation report; Commercial expediency; Revised return; Rule 8D; Capital Gains
• Section: 143(3); 56(2); 14A; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI PAWAN SINGH JUDICIAL MEMBER & SHRI RAJESH KUMAR ACCOUNTANT MEMBER ITA NO. 4012/MUM/2016 (ASSESSMENT YEAR: 2011-12) TATVA GLOBAL ENVIRONMENT LTD (NOW KNOWN AS TATVA GLOBAL ENVIRONMENT PVT LTD) UNIPHOS HOUSE, C D MARG, OPP MADHU PARK, KHAR (W) MUMBAI 400 052 PAN : AAICS1718A VS ITO-9(3)(3), AAYAKAR BHAWAN, M.K. ROAD, MUMBAI APPELLANT RESPONDEDNT ITA NO. 4016/MUM/2016 (ASSESSMENT YEAR : 2011-12) DCIT, CENT.CIR.6(3), MUMBAI VS TATVA GLOBAL ENVIRONMENT LTD (NOW KNOWN AS TATVA GLOBAL ENVIRONMENT PVT LTD) UNIPHOS HOUSE, C D MARG, OPP MADHU PARK, KHAR (W) MUMBAI 400 052 PAN : AAICS1718A APPELLANT RESPONDEDNT ASSESSEE BY SHRI KIRIT KAMDAR & AVIN JAIN ARS REVENUE BY SHRI AMIT PRATAP SINGH SR DR DATE OF HEARING 30-09-2019 DATE OF PRONOUNCEMENT 01-11-2019 O R D E R PER PAWAN SINGH, JUDICIAL MEMBER: 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX [CIT(A)]-21, MUMBAI DATED 16-032016 WHIC H ARISES FROM ASSESSMENT ORDER DATED 24-03-2014 PASSED UNDER SECT ION (U/S) 143(3) FOR AY 2011-12. 2. THE ASSESSEE, IN ITS APPEAL, HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 2 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14AAS PER RULE 8D OF THE INCOME-TAX RULES TO THE EXTENT OF RS.2,25 ,86,1387-. 1.2 IN DOING SO, THE COMMISSIONER OF INCOME-TAX ( APPEALS) ERRED IN THE FOLLOWING RESPECTS: (A) IN NOT FOLLOWING THE APPELLATE ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL IN THE APPELLANT'S OWN CASE FOR ASSESSMENT YEARS 2009- 10 AND 2010-11; (B) IN NOT APPRECIATING THE FACT THAT INVESTMEN T IN SUBSIDIARIES/ ASSOCIATE COMPANIES WERE MADE OUT OF COMMERCIAL EXPEDIENCY AN D NOT TO EARN DIVIDEND INCOME 1.3 WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APP EAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN THE FOLLOWING RESP ECTS WHILE COMPUTING THE AVERAGE VALUE OF INVESTMENTS FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D(2)(II )OF THE INCOME TAX RULES: A. IN NOT EXCLUDING THE INVESTMENTS WHICH ARE CAPAB LE OF YIELDING TAXABLE INCOME; B. IN THE NOT EXCLUDING THE INVESTMENT IN COMPANIES WHICH HAVE INCURRED LOSSES AND CANNOT YIELD ANY DIVIDEND; C. IN NOT APPRECIATING THE FACT THAT ONLY THE INVES TMENTS WHICH HAVE YIELDED EXEMPT INCOME OUGHT TO BE INCLUDED. 1.4 WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APP EAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN INCLUDING INVESTME NTS IN COMPANIES WHICH ARE LIABLE TO PAY DOT UNDER SECTION 115O WITH OUT APPRECIATING THE FACT THAT DIVIDEND RECEIVED BY THE APPELLANT THOUGH EXEMPT UNDER SECTION 10(34) OF THE ACT HAS ALREADY SUFFERED TAX UNDER SE CTION 115O OF THE ACT; 1.5 WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APP EAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT APPRECIATING T HE FACT THAT DISALLOWANCE UNDER SECTION 14A OUGHT TO BE RESTRICT ED TO THE AMOUNT OF EXEMPT INCOME EARNED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFI RMING THE ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 3 DISALLOWANCE OF RS. 10.80.750/- MADE BY THE ASSESSI NG OFFICER UNDER SECTION 56(2)(VIIA) AS PER RULE 11UA OF THE INCOME TAX RULES IN RESPECT OF INVESTMENT IN SHARES OF ENVIRO TECHNOLOGY LIMITED. THE APPELLANT HEREBY RESERVES THE RIGHT TO ADD TO, ALTER OR AMPLIFY THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TI ME OF APPEAL, SO AS TO ENABLE THE HONORABLE TRIBUNAL TO DECIDE THE APPEAL IN ACCORDANCE WITH LAW. 3. THE REVENUE, IN ITS CROSS APPEAL, HAS RAISED THE FO LLOWING GROUNDS OF APPEAL:- 1. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW LD. CIT(A) WAS RIGHT IN HOLDING THAT NETTING OFF THE IN TEREST EXPENSES SHOULD HAVE BEEN CONSIDERED WHILE DISALLOWANCE U / S. T4A R.W.RULE 8D WITHOUT CONSIDERING THE FACT THAT THERE IS NO SUCH PROVISIO N WITH REGARD TO DETERMINING EXPENDITURE IN RELATION TO THE EXEMPT I NCOME AS PER RULE 8D OF THE I.T.RULE? 2. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW LD. CIT(A) HAS ERRED IN GRANTING RELIEF TO THE ASSESSEE U/S.56(2)(VIIA) OF THE INCOME TAX ACT, 1961, IGNORING THE CLARIFICATION IN THE CBDT CIRCULAR NO.01/2011 DATED 06.04.2011, CONFIRMING THAT THE SA ID PROVISIONS AS APPLICABLE FROM 01.06.2010 AND ASSESSEE COMPANY'S C ASE IS FULLY COVERED UNDER THE PROVISIONS AS THE AGGREGATE FAIR MARKET V ALUE OF THE SHARES EXCEEDS RUPEES FIFTY THOUSAND AND EXCLUSION AS PER THE SUBSEQUENT PROVISO DO NOT APPLY.' 4. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF OPERATION OF POLLUTION CONTROL EQUIPMEN TS, PLANTS, DETAILED DESIGN AND ENGINEERING OF POLLUTION CONTROL EQUIPME NT, INVESTMENT & FINANCING. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR (AY) 2011-12 ON 30-09-2011 DECLARING NIL INCOME. S UBSEQUENTLY, THE ASSESSEE FILED REVISED RETURN OF INCOME ON 30-10-20 11 DECLARING LOSS OF RS.1.45 CRORES. THE CASE WAS SELECTED FOR SCRUTINY . DURING THE ASSESSMENT, THE ASSESSING OFFICER (AO) NOTED THAT T HE ASSESSEE HAS SHOWN DIVIDEND OF RS.1,17,04,737/- FROM THREE OF ITS SUBS IDIARY WHICH WAS ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 4 CLAIMED AS EXEMPT U/S 10(34) OF THE ACT. THE ASSES SEE MADE SUO MOTO DISALLOWANCE OF RS.1,04,40,709/- U/S 14A. THE AO N OT ACCEPTED THE SUO MOTO DISALLOWANCE OFFERED BY THE ASSESSEE. THE AO ASKE D THE ASSESSEE TO JUSTIFY THE WORKING OF SUO MOTO DISALLOWANCE U/S 14A. THE ASSESSEE FILED ITS REPLY DATED 15-01-2014. IN THE REPLY, TH E ASSESSEE STATED THAT DURING THE RELEVANT PERIOD, THE ASSESSEE RECEIVED D IVIDEND FROM ITS SUBSIDIARY AGGREGATING TO RS.1,17,04,737/-. THE AS SESSEE FURTHER STATED THAT THE INVESTMENT, WHICH ARE NOT CAPABLE OF YIELD ING INCOME SHOULD BE EXCLUDED AND ACCORDINGLY THAT INVESTMENT WHICH YIEL DED INCOME SHOULD BE CONSIDERED WHILE COMPUTING THE AVERAGE VALUE OF INVESTMENT FOR DISALLOWANCE U/S 14A. THE ASSESSEE HAS MADE INVESTM ENT IN 11 SUBSIDIARY COMPANIES OUT OF WHICH 6 ARE LOSS MAKING COMPANIES AND COULD NOT DECLARE ANY DIVIDEND, THUS THOSE INVESTME NTS WHEREIN NO INCOME IS YIELDED, BE EXCLUDED WHILE CONSIDERING TH E AVERAGE VALUE OF INVESTMENT. ABOUT THE INTEREST DISALLOWANCE, THE A SSESSEE STATED THAT IF ANY DISALLOWANCE HAS TO BE MADE U/S 14A READ WITH R ULE 8D, THEN THE SAME OUGHT TO BE MADE ONLY IN RESPECT OF NET INTERE ST BY TAKING INTO CONSIDERATION ONLY THE INVESTMENT WHICH YIELDED INC OME DURING THE YEAR. THE CONTENTION / REPLY OF ASSESSEE WAS NOT ACCEPTED BY AO. THE AO INVOKED THE PROVISIONS OF RULE 8D AND DISALLOWED RS .2,76,75,760/- UNDER RULE 8D(2)(II) AND RS.41,06,584/- UNDER RULE 8D(2)(III). THE AO FURTHER NOTED THAT THE ASSESSEE MADE INVESTMENT IN SHARES IN GROUP ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 5 COMPANIES BY WAY OF SUBSCRIBING FRESH ISSUE OF SHAR E AND DIRECT PURCHASE FROM THIRD PARTIES. THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER TREATED THE DIFFERENCE OF CONSIDERATION PAID AND THE FAIR MARKET VALUE OF THE SHARES AS PER RULE 11UA AS COMPUTED BY HIM AS INCOME FROM OTHER SOURCES IN THE FOLLOWING MANNER: NAME OF COMPANY NO. OF SHARES CONSIDERATION PAID PER SHARE RULE 11 UA VALUE AS PER ASSESSEE RULE 11 UA AS PER AO DIFFERENCE AS PER AO DIFFERENCE AS PER ASSESSEE ENVIRO TECHNOLOGY LTD(PURCHASE FROM SIDDHI DYCHEM PLTD) 25,000 10 53.23 88.15 195387 100750 SHIVALIK SOLID-WASTE MANAGEMENT LTD(FRESH ISSUE) 2,50,000 10 9.21 11.34 335000 (197500) COIMBATORE INTEGRATED WASTE MANAGEMENT. LTD(FRESH ISSUE) 6,50,000 10 2.87 87.72 50518437 (4634500) TOTAL 52807024 (3751250) 5. THE AO CONSIDERING THE DIFFERENCE BETWEEN THE CONSI DERATION PAID AND FAIR MARKET VALUE OF THE SHARES AS PER RULE 11UA AN D MADE ADDITION OF RS.5,28,07,024/-. 6. ON APPEAL BEFORE CIT(A), THE CIT(A) HELD THAT THE A O CONSIDERED THE ENTIRE INTEREST EXPENSES OF RS. 319.60 LAKHS FOR MA KING INTEREST DISALLOWANCE, HOWEVER THE NET INTEREST SHOULD HAVE BEEN CONSIDERED AFTER REDUCING THE INTEREST INCOME OF RS. RS. 58.77 LAKHS. THE OTHER ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 6 DISALLOWANCES UNDER RULE 8D(III) WAS UPHELD. THE O THER ADDITION U/S 56(2)(VIIA) WAS RESTRICTED TO RS.10,58,250/-. THE L D CIT(A) DELETED THE ADDITIONS ON ACCOUNT OF INVESTMENT IN SHIVALIK SOLI D WASTE MANAGEMENT LTD AND COIMBATORE INTEGRATED WASTE MANAGEMENT LTD, HOWEVER THE ADDITIONS ON ACCOUNT OF INVESTMENT IN ENVIRO TECHNO LOGY LTD WAS RESTRICTED TO THE EXTENT OF DIFFERENCE OF FAIR MARK ET VALUE OF SHARE AS PER RULE 11UA. THUS, AGGRIEVED BY THE ORDER OF CIT(A) B OTH THE PARTIES HAVE FILED THEIR CROSS APPEALS BY RAISING THEIR RES PECTIVE GROUNDS OF APPEAL. 7. WE HAVE HEARD THE SUBMISSIONS OF LD. AUTHORISED REP RESENTATIVE (AR) OF THE ASSESSEE AND THE LD. DEPARTMENTAL REPRESENTATIV E (DR) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROU ND NO. 1 IN ASSESSEES APPEAL AND REVENUES APPEAL ARE INTERCONNECTED. TH E LD. AR OF THE ASSESSEE SUBMITS THAT THE GROUND RAISED BY ASSESSEE IN ASSESSEES APPEAL IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2009-10 AND 2010-11 IN ITA NO.2173 / MUM/ 2013 AND ITA NO.470/MUM/2014. THE LD.AR, IN HIS FAIRNES S SUBMITS THAT THE DECISION OF THE TRIBUNAL DATED 10-09-2015 IS PRIOR TO THE DECISION OF HONBLE SUPREME COURT IN CASE OF MAXXOP INVESTMENTS VS CIT 91 TAXMANN.COM 154 (SC). THE LD.AR SUBMITS THAT THE A SSESSEE INVESTED IN SHARE OF GROUP COMPANIES TO ACQUIRE CONTROLLING INTEREST IN THE GROUP COMPANIES; HOWEVER, IN THE PRESENT CASE, THE SUBSID IARY / ASSOCIATE ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 7 COMPANIES HAS TO BE FORMED AS SEPARATE SPECIAL PURP OSE VEHICLES (SVPS) BASIS FOR THE REQUIREMENT OF TENDER DOCUMENTS. THE LD.AR FURTHER SUBMITS THAT FROM THE P&L ACCOUNT AT PAGE 39 OF PAP ER BOOK IT CAN BE SEEN THAT ASSESSEE HAS INCURRED PERSONAL EXPENSES A ND ADMINISTRATIVE AND OTHER EXPENSES AGGREGATING TO R.4,10,13,917/- WHERE AS IT HAS RECOVERED AN AMOUNT OF RS.4,10,00,000/- AS BUSINESS OF AUXILI ARY SERVICES FROM THESE SPVS. THUS, THE ENTIRE EXPENSES OTHER THAN I NTEREST AND DEPRECIATION HAVE BEEN RECOVERED. ACCORDINGLY, THE RE IS NO QUESTION OF MAKING ANY DISALLOWANCE U/S 14A IN RESPECT OF THESE EXPENSES. 8. IN RESPECT OF GROUND OF APPEAL RAISED BY THE REVEN UE WITH REGARD TO THE NETTING OF INTEREST EXPENSES, THE LD.AR SUBMITS THA T IF DISALLOWANCE IS TO BE MADE U/S 14A, THEN THE SAME OUGHT TO BE MADE IN RESPECT OF NET INTEREST BY TAKING INTO CONSIDERATION ONLY 3 INVEST MENTS, WHICH YIELDED DIVIDEND INCOME. IN SUPPORT OF HIS SUBMISSION, THE LD.AR RELIED UPON THE DECISION OF SPECIAL BENCH OF DELHI BENCH OF TRI BUNAL IN ACIT VS VIREET INVESTMENTS P LTD (2017) 58 ITR(T) 313 (DEL SB) AND PIRAMAL ENTERPRISES VS ACIT (2018) 97 TAXMANN.COM 352 (MUM) . 9. THE LD.AR FURTHER SUBMITTED THAT IN ANTICIPATION OF SUBMISSION OF REVENUE THAT DISALLOWANCE U/S 14A CANNOT BE LOWER T HAN THE RETURNED INCOME, THE LD.AR MADE HIS RELIANCE ON THE DECISION OF TRIBUNAL IN CASE OF SAJJAN INDIA LTD VS ACIT (2018) 89 TAXMANN.COM 2 1 (MUM) AND ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 8 SUBMITTED THAT THERE CAN BE NO DISALLOWANCE OF ADMI NISTRATIVE OR OTHERWISE AS THEY HAVE BEEN FULLY COVERED. 10. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE, ON T HE DISALLOWANCE U/R 8D(2)(III) RELIED UPON THE ORDER OF AO AS WELL AS C IT(A). ON THE DISALLOWANCE RESTRICTED U/R 8D(2)(II), THE LD. DR R ELIED UPON THE ORDER OF THE AO. ON DISALLOWANCE U/R 8D(2(III) THE LD. DR FURTHER SUBMITS THAT HONBLE SUPREME COURT IN MAXXOP INVESTMENTS VS CIT (SUPRA), HAS CLEARLY HELD THAT INVESTMENT IN SUBSIDIARY WOULD TR IGGER THE DISALLOWANCE U/S 14A. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE A LSO DELIBERATED ON VARIOUS CASE LAWS RELIED UPON BY LD. REPRESENTATIVE S OF THE PARTIES AND THE LOWER AUTHORITIES. THE AO, WHILE PASSING THE A SSESSMENT ORDER MADE THE DISALLOWANCE IN THE FOLLOWING MANNER:- WORKING OF DISALLOWANCE U/S 14A R.W.S. 8D PARTICULARS AMOUNT (RS.) AMOUNT (RS.) I. DIRECT EXPENDITURE RELATING TO EXEMPT INCOME AS PER ASSESSEES OWN SUBMISSIONS 0 II. AMOUNT COMPUTED AS PER RULE 8D(2)(II) [A X B / C] 2,76,75,760 A= INTEREST EXPENSES 3,19,60,489 B= AVERAGE INVESTMENT 82,13,16,840 C= AVERAGE TOTAL ASSET 94,84,72,169 III. 0.5% OF AVERAGE INVESTMENT (0.5% X RS.82,13,16,840/-) 41,06,584 TOTAL DISALLOWANCE AS PER RULE 8D (I+II+III) RS.3,17,82,344/- ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 9 12. BEFORE THE LD.CIT(A) THE ASSESSEE MADE ELABORATE SU BMISSIONS WRITTEN AND ORAL. ON CONSIDERING SUCH SUBMISSIONS, THE LD C IT(A) NOTED THAT THE AUDITED ACCOUNTS FURNISHED BY ASSESSEE SHOWS THAT T HE INCOME EARNED FROM BUSINESS OF AUXILIARY SERVICES IS RS.4.10 CROR ES AND OTHER INCOME OF RS.1.75 CRORES TOTALLING RS.5.85 CRORES AS PER SCHE DULE 11 AND OTHER INCOME COMPRISED OF DIVIDEND AND TRADE INVESTMENT O F RS.1,17,04,737 AND THE INTEREST ON INCOME DEPOSITS OF RS.58.77 LAK HS. THE EXPENSES CLAIMED ON PERSONAL EXPENSES OF RS.3,06,954, DEPREC IATION OF RS.15,454/-, ADMINISTRATIVE EXPENSES OF RS.4,07,06, 963/- AND INTEREST AND FINANCE COST OF RS.3,19,63,567 RESULTING LOSS OF RS .1,44,10,511. THE EXPENSES MAINLY CONSISTS OF ADMINISTRATIVE EXPENSES , LEGAL AND PROFESSIONAL CHARGES OF RS.23,02,695/- AND MANAGEME NT FEES OF RS.3,75,02,000/-. THE LD.CIT(A) ALSO NOTED THAT IN VESTMENT WAS INCREASED FROM RS. 67.64 CRORES TO RS.103.26 CRORES DURING THE CURRENT YEAR. FURTHER, FROM THE FUND FLOW STATEMENT, THE F ACTS FOR THE YEAR UNDER CONSIDERATION WERE CONSIDERED TO BE DIFFERENT FROM EARLIER YEARS. AFTER CONSIDERING THE FACTS, FUND FLOW STATEMENT AND THE INVESTMENT MADE DURING THE YEAR AND THE INTEREST EXPENDITURE, THE L D.CIT(A) CONCLUDED THAT THE ASSESSING OFFICER HAS CONSIDERED THE ENTIR E INTEREST EXPENDITURE FOR DISALLOWANCE U/R 8D(2)(II). THE LD. CIT(A) GRA NTED RELIEF TO THE ASSESSEE THAT INTEREST EXPENSES FOR THE PURPOSE OF RULE 8 D(II) SHOULD BE ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 10 CONSIDERED NET OF INTEREST INCOME RECEIVED DURING T HE YEAR AND DIRECTED THE AO ACCORDINGLY. 13. BEFORE US, THE LD.AR OF THE ASSESSEE VEHEMENTLY SUB MITTED THAT AS PER THE DECISION OF SPECIAL BENCH OF DELHI TRIBUNAL IN VIREET INVESTMENTS P LTD (SUPRA), ONLY THOSE INVESTMENTS WHICH YIELDED T HE EXEMPT INCOME SHOULD BE CONSIDERED FOR DISALLOWANCE U/R 8D(2)(II) & (III). HE VEHEMENTLY RELIED UPON THE DECISION OF SAJJAN INDIA LTD VS ACIT (SUPRA) AND THE SPECIAL BENCH OF DELHI TRIBUNAL IN VIREET I NVESTMENTS P LTD (SUPRA). CONSIDERING THE FACT THAT THE LOWER AUTHOR ITY HAS CONSIDERED ALL INVESTMENTS MADE BY ASSESSEE FOR CALCULATING AVERAG E INVESTMENT FOR DISALLOWANCE U/R 8D(2)(III), THE SPECIAL BENCH OF D ELHI TRIBUNAL IN VIREET INVESTMENTS P LTD (SUPRA) HELD THAT ONLY THO SE INVESTMENTS WHICH YIELDED EXEMPT INCOME SHOULD BE CONSIDERED FOR DISA LLOWANCE U/R 8D(2)(III), WE RESTORE THIS PART OF GROUND TO THE F ILE OF AO TO MAKE FRESH COMPUTATION OF AVERAGE INVESTMENTS BY TAKING INTO C ONSIDERATION ONLY THOSE INVESTMENTS WHICH YIELDED THE EXEMPT INCOME. INSOFAR AS DISALLOWANCE U/R 8D(2)(II) IS CONCERNED, THE LD.AR FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE DISALLOWANCE IN RESPECT OF NET INTEREST HAS TO BE MADE BY TAKING INTO CONSIDERATION ONLY 3 INVESTM ENTS WHICH YIELDED DIVIDEND INCOME DURING THE YEAR. WE HAVE NOTED THA T THE ASSESSEE HAS RAISED THIS PLEA, FOR THE FIRST TIME BEFORE US AND HAS STRONGLY RELIED UPON THE DECISION OF MUMBAI TRIBUNAL IN SAJJAN INDIA LTD VS ACIT (SUPRA) ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 11 WHEREIN IT WAS HELD THAT MANDATE OF ACT IS TO TAX R EAL INCOME AND TAX CAN ONLY BE LEVIED UNDER AUTHORITY OF LAW. EVEN IF DIS ALLOWANCE FALL BELOW DISALLOWANCE U/S 14A OFFERED BY ASSESSEE IN THE RET URN OF INCOME, REVENUE CANNOT CHARGE TAX ON INCOME, WHICH NEVER WA S INCOME OF ASSESSEE CHARGEABLE TO TAX. THEREFORE, WE DEEM IT APPROPRIATE TO RESTORE THIS PART OF DISALLOWANCE U/R 8D(2)(II) TO THE FILE OF THE AO TO EXAMINE THE ISSUE AFRESH IN THE LIGHT OF ABOVE REFERRED DEC ISION AND PASS THE ORDER AFRESH IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THA T BEFORE PASSING THE ORDER / MAKING DISALLOWANCE U/R 8D(2)(II) AND (III) , THE AO SHALL GRANT OPPORTUNITY TO THE ASSESSEE. 14. IN THE RESULT, GROUND OF APPEAL RAISED BY ASSESSEE IS ALLOWED AND THE CORRESPONDING GROUND OF APPEAL RAISED BY REVENUE HA S BECOME INFRUCTUOUS. 15. GROUND NO.2 IN BOTH THE APPEALS RELATES TO DISALLOW ANCE U/S 56(2)(VIIA). THE ASSESSING OFFICER TREATED THE INVESTMENT IN SHA RES AS INCOME UNDER SECTION 56(2) (VIIA) OF RS.5,28,07,024/-. ON APPEAL THE CIT(A), RESTRICTED THE ADDITION TO RS.10,58,250/- AND REMAINING ADDITI ON WAS DELETED. THE ASSESSEE HAS CHALLENGED THE ACTION OF AO IN UPHOLDI NG TO THE EXTENT OF RS. 10,58,250/- AND THE REVENUE HAS CHALLENGED DELE TING THE ADDITION OF RS. 5,17,26,274/-. THE LD. AR OF THE ASSESSEE SUB MITS THAT DURING THE PREVIOUS YEAR THE ASSESSEE MADE INVESTMENT IN THE S HARES OF 3 GROUP COMPANIES BY SUBSCRIBING TO FRESH ISSUE OF SHARES A ND DIRECT PURCHASE ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 12 FROM THIRD PARTIES; VIZ (I) SHIVALIK SOLID WASTE MA NAGEMENT LTD (FRESH ISSUE), COIMBATORE INTEGRATED WASTE MANAGEMENT PRIV ATE LIMITED (FRESH ISSUE) AND ENVIRO TECHNOLOGY LTD (DIRECT PURCHASE). THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER TREATED THE DIFFERENCE OF CONSIDERATION PAID AND THE FAIR MARKET VALUE OF THE SHARES AS PER RULE 11UA AS COMPUTED BY HIM AS INCOME FROM OTHER SOURCE S. DURING THE ASSESSMENT THE ASSESSEE FURNISHED THE WORKING OF TH E VALUATION OF SHARES. THE AO REJECTED THE WORKING OF ASSESSEE ON THE GROU ND THAT THE SAME WAS NOT SUPPORTED BY VALUATION REPORT AND WAS NOT A S PER RULE 11UA AND REPLACED THE SAME BY FAIR MARKET VALUE OF THE SHARE S WITHOUT PROVIDING THE WORKING OF SUCH FAIR MARKET VALUE. THE LD. CIT( A) ALLOWED PART RELIEF TO THE ASSESSEE AND ADDITION HAS BEEN UPHELD IN RESPECT OF SHARE OF ENVIRO TECHNOLOGIES LTD AS AFTER CONSIDERING FAIR M ARKET VALUE UNDER RULE 11UA AT RS.53.23 LAKHS WHICH WAS SUBMITTED BY ASSESSEE ON THE GROUND THAT THE AO FAILED TO FURNISH HIS WORKING OF FAIR MARKET VALUE AS PER RULE 11UA DESPITE PROVIDING OPPORTUNITY BY CIT( A) DURING APPELLATE STAGE. THE WORKING OF FAIR MARKET VALUE PROVIDED BY ASSESSEE DURING THE ASSESSMENT PROCEEDINGS AS WELL AS APPELL ATE PROCEEDINGS IS AKIN TO BOOK VALUE AS PER RULE 11UA. 16. THE LD.AR FOR THE ASSESSEE RELIED UPON THE EXPLANAT ORY NOTE TO THE FINANCE ACT, 2010 AND CIRCULAR NO.1 OF 2011 DATED 0 6-04-2011. THE LD.AR FOR THE ASSESSEE FURTHER SUBMITS THAT AS PER EXPLANATORY NOTES TO ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 13 THE FINANCE ACT 2010, THERE HAS TO BE TRANSFER OF S HARES FROM ONE PERSON TO ANOTHER. IN ORDER TO TRANSFER TO TAKE PLACE, TH E SHARE MUST BE IN EXISTENCE TO BE RECEIVED BY THE RECIPIENT FROM THE GIVER. IN CASE OF FRESH ALLOTMENT OF SHARES, THE SHARES ARE NOT POSSESSED B Y THE COMPANY. THEY DID NOT COME INTO EXISTENCE UNTIL THERE IS ALLOTMEN T BY COMPANY IN FAVOUR OF SHAREHOLDER. THE PROVISIONS OF SECTION 56 (2)(VIIA) ARE ATTRACTED ONLY WHERE ANY PERSON TRANSFER TO ANOTHER PERSON SH ARE OF A COMPANY WHEREIN PUBLIC ARE NOT SUBSTANTIALLY INTERESTED, F OR NO CONSIDERATION OR FOR CONSIDERATION WHICH IS LOWER THAN THE FAIR MARK ET VALUE OF SUCH SHARES. A RECEIPT OF SHARE OTHERWISE THAN BY WAY O F TRANSFER DOES NOT FALL WITHIN THE AMBIT OF SECTION 56(2)(VIIA). IT WAS FU RTHER SUBMITTED THAT IN TERMS OF VALUATION RULES AS WELL, PROPERTY RECEIVED IS REQUIRED TO BE VALUED AS ON THE VALUATION DATE WHICH IS THE DATE O N WHICH PROPERTY IS RECEIVED. IT IS THE VALUE OF THE SHARE WHICH IS BE ING TREATED OR TRANSACTED WHICH IS RELEVANT. THIS PRE-SUPPOSES THE EXISTENCE OF SHAREHOLDER. THE ASSESSEE HAS SUBSCRIBED THE FRESH ISSUE OF SHARES I N CASE OF INVESTMENT MADE IN SHIVALIK SOLID WASTE MANAGEMENT PVT LTD AND COIMBATORE INTEGRATED WASTE MANAGEMENT PVT LTD. ACCORDINGLY I T WAS SUBMITTED THAT THE SHARE DID NOT EXIST AT ANY TIME PRIOR TO T HE SAID SUBSCRIPTION. THE RIGHTS IN SHARE ACQUIRED WERE CREATED BY VIRTUE OF SAID TRANSACTION. THERE WERE NEITHER SHAREHOLDERS NOR RIGHT IN THE FORM OF SHARES EXISTING PRIOR TO AFORESAID SUBSCRIPTION OF SHARES. ACCORDINGLY, THE AFORESAID PROVISION ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 14 OUGHT NOT TO BE APPLIED IN CASE OF INVESTMENT MADE IN SHARE OF SHIVALIK SOLID WASTE MANAGEMENT PVT LTD AND COIMBATORE INTEG RATED WASTE MANAGEMENT PVT LTD. 17. FOR THE PURCHASE OF SHARE OF ENVIRO TECHNOLOGY LTD (ETL), THE LD. AR FOR ASSESSEE SUBMITS THAT ETL IS A COMPANY ENGAGED IN DEVELOPING, OPERATING AND MAINTAINING A COMMON EFFLUENT TREATME NT PLANT WHICH IS SET UP FOR THE TREATMENT OF EFFLUENTS GENERATED BY CHEMICAL INDUSTRIES IN AND AROUND ANKLESHWAR. THE ANKLESHWAR ENVIRONMENTAL PRESERVATION SOCIETY, ROTARY POLLUTION CONTROL CELL CARRIED OUT DETAILED STUDY AND DISCUSSIONS AT VARIOUS FORUMS TO ADDRESS THE ISSUE OF TREATMENT OF EFFLUENT GENERATED BY CHEMICAL INDUSTRIES IN ANKLESHWAR, ONE OF THE LARGEST CHEMICAL INDUSTRIAL ZONES OF ASIA. ACCORDINGLY, IT WAS DECIDED TO GO AHEAD WITH COMMON EFFLUENT TREATMENT PLANT EXCLUSIV ELY FOR SMALL SCALE INDUSTRIES. ACCORDINGLY, ETL WAS PROMOTED AFTER TAK ING INTO CONSIDERATION OF SUCCESS AND FAILURE OF COMMON EFFL UENT TREATMENT PLANT. ETL IS A CLOSELY HELD COMPANY AND ITS SHARES ARE NO T FREELY TRANSFERRABLE. ITS SHARES DID NOT HAVE A READY MARKET FOR SALE OR TRADING. THE SALE OF SUCH SHARE BY SIDHI SAMRAT DYECHEM PVT LTD WAS A MO DE OF EXIT FROM AFORESAID ARRANGEMENT DUE TO CERTAIN FINANCIAL DIFF ICULTIES BEING FACED BY SIDHI SAMRAT DYECHEM PVT LTD. IN ABSENCE OF READY MARKET, THE TRANSFER OF SHARES AT A FACE VALUE WAS JUSTIFIED. THE LD.AR SUBMITS THAT THE ADDITION MADE U/S 56(2)(VIIA) ON THE BASIS OF FAIR MARKET VALUE CALCULATED ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 15 AS PER RULE 11UA OUGHT NOT TO BE MADE AS THE AFORES AID SHARES WERE NOT FREELY TRANSFERABLE AND DID NOT HAVE A READY MARKET . 18. WITHOUT PREJUDICE TO HIS SUBMISSION, THE LD.AR SUBM ITS THAT PROVISION OF SECTION 56(2)(VIIA) ARE ANTI ABUSE PROVISION AND INTENDED TO PREVENT THE PRACTICE OF RECEIVING PROPERTY WITHOUT CONSIDER ATION OR FOR INADEQUATE CONSIDERATION. SUCH PROVISION SHOULD NOT BE APPLIE D TO A BONAFIDE TRANSACTION AND IN ABSENCE OF ANY IMPUTATION OR ANY CONSIDERATION OVER AND ABOVE STATED CONSIDERATION BEING PASSED. IN SU PPORT OF HIS SUBMISSION, THE LD.AR OF THE ASSESSEE RELIED UPON T HE DECISION OF MUMBAI TRIBUNAL IN ACIT VS SUBODH MENON IN ITA 676/ MUM/2015. THE LD. AR FOR ASSESSEE SUBMITS THAT TRANSACTION OF ACQUISITION OF SHARES BY THE ASSESSEE IS A BONAFIDE TRANSACTION AND ACCOR DINGLY, THE PROVISION OF SECTION 56(2)(VIIA) BEING IN THE NATURE OF ANTI ABUSIVE PROVISION OUGHT NOT TO BE APPLIED IN THE SAID TRANSACTION. 19. ON THE OTHER HAND THE LD. DR FOR THE REVENUE ON SUP PORTED THE ORDER OF THE ASSESSING OFFICER. 20. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE ASSESSMENT THE ASSESSING OFFICER NOTED THAT ASSESSEE COMPANY MADE INVESTMENT IN GROUP COMPANIES BY PURCHASING SHARES, AT LESSER PRI CE THAN THE FAIR MARKET VALUE. THE ASSESSING OFFICER ISSUED SHOW CAU SE NOTICE TO THE ASSESSEE AS TO WHY THE DIFFERENCE REPRESENTING THE WHOLE VALUE OF A SET ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 16 RECEIVED BY ASSESSEE COMPANY WITHOUT CONSIDERATION OR AT THE CONSIDERATION BELOW THE MARKET RATE SHOULD NOT BE T AXED AS INCOME UNDER SECTION 56(2)(VIIA) OF THE ACT. THE ASSESSEE FILED A DETAILED REPLY, WHICH HAS BEEN REFERRED BY ASSESSING OFFICER IN PARA 4.4 OF HIS ORDER. THE ASSESSING OFFICER COMPUTED THE ADDITION OF 5,28,07,024/- BY INVOKING THE PROVISION OF RULE 11 UA (AS PER THE TABULATED F IGURE IN PARA- 4 SUPRA ). DURING THE FIRST APPELLATE STAGE THE ASSESSEE URGED THAT SECTION 56(2) (VIIA) OUGHT NOT TO BE INVOKED IN CASE OF ASS ESSEE, SINCE THE SECTION APPLY ONLY IF ANY PERSON RECEIVED FROM ANY PERSON S HARE OF A COMPANY WHERE THE PUBLIC IS NOT SUBSTANTIALLY INTERESTED, F OR LOW CONSIDERATION OR CONSIDERATION LESS THAN THE FAIR MARKET VALUE OF SH ARES RECEIVED. AND IN CASE OF FRESH ALLOTMENT OF SHARES, THE SHARES ARE N OT BY JUST BY THE COMPANY, THEY DO NOT COME INTO EXISTENCE UNTIL THER E IS ALLOTMENT BY THE COMPANY AND FAIR OF SHAREHOLDER. THE PURCHASE OF SH ARES IN SHIVALIK SOLID-WASTE MANAGEMENT LTD AND COIMBATORE INTEGRATE D WASTE MANAGEMENT PRIVATE LIMITED WERE THE FRESH ISSUE OF CAPITAL. THE ASSESSEE ALSO FURNISHED THE FAIR MARKET VALUE OF SH ARES AS PER RULE 11 UA. THE LEARNED CIT(A) HAS EXTRACTED THE DETAILS O F WRITTEN SUBMISSION IN PARA 6.4 OF HIS ORDER. 21. IN ALTERNATIVE AND WITHOUT PREJUDICE SUBMISSION OF THE ASSESSEE FURNISHED THE FAIR MARKET VALUE OF THE INVESTMENT AS PER RULE 11UA AND AS PER AO IN THE FOLLOWING MANNER; ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 17 SR. NO. INVESTMENT PURCHASED FROM VALUATION AS PER ASSESSEE RS. VA LUATION AS PER AO RS. 1 SHIVALIK SOLID WASTE MANAGEMENT LTD. DIRECT 9.21 11.34 2 COIMBATORE INTEGRATED WASTE MANAGEMENT PRIVATE LTD DIRECT 2.87 87.72 3 ENVIRO TECHNOLOGY LTD THIRD PARTY 53.23 88.15 22. THE ASSESSEE FURTHER EXPLAINED THAT FAIR MARKET VAL UE OF SHARE OF ENVIRO TECHNOLOGY LTD AS PER RULE 11 UA IS RS. 52.23/- IN CONTRAST TO 88.15/- AS STATED IN SHOW CAUSE NOTICE BY ASSESSING OFFICER AND ACCORDINGLY THE DIFFERENCE OF 42.23/-AND FOR TRANSFER OF 25,000 SHARE, THE AGGRE GATE VALUE OF 10,58,250/- OUGHT TO BE RESTRICTED, IF ANY. THE LD CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE PASSED T HE FOLLOWING ORDER ; 6.5. I HAVE CONSIDERED THE SUBMISSIONS CAREFULLY. SAYS THE APPELLANT HAS CONTENDED THAT THE BASIS OF WORKING OF FMV BY ASSES SING OFFICER WAS NOT MADE AVAILABLE TO APPELLANT, VIDE THIS OFFICE LETTER DAT ED 15.01.2016, THE ASSESSING OFFICER WAS ASKED TO FURNISH THE SAME TO THE APPELL ANT AS WELL AS TO THIS OFFICE BY 21.1.2016. A REMINDER WAS ISSUED ON 8.0 2.2016 C ALLING FOR THE SAME BY 16.0 2.2016. TILL DATE THE ASSESSING OFFICER HAS NO T SUBMITTED THE SAME. 6.6. THE SECTION 56 (2)(VIIA) CLEARLY APPLIES TO TH IS CASE IS THE APPELLANT COMPANY HAS RECEIVED SHARES OF OTHER COMPANIES, AND THE APPELLANT AND THE OTHER COMPANIES WHOSE SHARES ARE RECEIVED ARE PRIVA TE LIMITED COMPANIES IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED. THE DEFI NITION OF FMV HAS TO BE TAKEN AS PER EXPLANATION (B) TO SECTION 56(2)(VII). THE VALUE HAS TO BE AS PER METHOD PRESCRIBED WHICH IS RULE 11U AND 11 UA. 6.7. I AM UNABLE TO ACCEPT THE CONTENTION THAT SECT ION 56 DOES NOT APPLY TO FRESH ISSUE OF SHARES. NO SUCH EXCEPTION HAS BEEN CARVED OUT. WHETHER IT IS BY WAY OF PURCHASE, GIFT, TRANSFER OR ALLOTMENT AFTER 1.06.20 10, THE FACT REMAINS THAT SHARES ARE RECEIVED. IT IS IRRELEVANT HOW THE SHARES COME TO BE RECEIVED. IT IS OFTEN SEEN THAT AN EXISTING COMPANY ISSUES SHARES AT A PREMIUM WHERE IT IS JUSTIFIED ON THE ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 18 BASIS OF FMV. ISSUING SHARES AT PAR IN SUCH CASES T O PREFERRED PERSONS SUCH AS CLOSE ASSOCIATE OR EVEN PARENT COMPANY IS CLEARLY I N THE NATURE OF GIFT AND IS COVERED BY THIS SECTION. SIMILARLY, THE MOTIVE IN A CQUIRING SHARES IS AGAIN IRRELEVANT AND THERE IS NO NEED TO LOOK AT MALAFIDE REGIONS OR MENS-REA FOR SUCH RECEIPT OF SHARE AS HAS BEEN ARGUED BY THE APPELLAN T. NO SUCH MENTION IS THERE ON THE STATUE AND THE PLAIN WORD OF THE STATUE HAS BEEN CONSIDERED WHILE IT IS BEING INTERPRETED. WORDS OR INTENTION CANNOT BE SUP PLIED WHEN THE LAW IS EXPLICIT AND THERE IS NO AMBIGUITY. 6.8. THE NEXT ISSUE IS TO WHETHER THE SHARES ARE RE CEIVED WITHOUT CONSIDERATION OR AT A CONSIDERATION WHICH IS LESS BY OVER RS. 50, 000/-OF ITS FMV. THE FMV HAS TO BE DETERMINED AS PER RULES. THE RELEVANT RUL E WAS RULE 11 UA(1)@(B) BEFORE ITS AMENDMENT W.E.F. 29.11 .2012. THE APPELL ANT HAS GIVEN ITS WORKING OF FMV. THE ASSESSING OFFICER HAS NOT FURNISHED HIS WORKING EVEN WHEN CALLED FOR IN THE REMAND REPORT. HE HAS ALSO NOT SHOWN HOW THE WORKING OF APPELLANT IS NOT AS PER RULES. THE WORKING OF FMV WHICH IS AK IN TO BOOK VALUE AS PER THE RULES WAS SUBMITTED IN THE ASSESSMENT PROCEEDING AN D ALSO IN APPELLATE PROCEEDINGS. IN ALL THE THREE CASES CONSIDERED BY T HE ASSESSING OFFICER, THE SHARES WERE ACQUIRED AT 10 PER SHARE. AS PER THE WORKING IT IS ONLY SHARES OF ENVIRO TECHNOLOGY LTD THAT HAS BEEN RECEIVED AT PRI CE LOWER THAN FMV OF 53.23 PER SHARES. THE FMV IS LOWER THAN RS.10/- IN THE OTHER TWO CASES. THE AMOUNT TO BE ADDED AS PER SECTION 56(2)(VIIA) IS (5 3.23-10) X 25,000 = RS 1080750/-LIST THE ADDITION IS TO BE RESTRICTED TO 10,80,750/-AND THE APPELLANT GET THE RELIEF OF 5,17,26,274/- THE GROUND OF APPEAL NO. 3 IS PARTLY ALLOWED AS ABOVE. 23. SO FAR AS THE ISSUE RAISED BY THE REVENUE IN ITS A PPEAL, WITH REGARD TO DELETING THE ADDITION OF DIFFERENCE OF ALLEGED FMV OF SHIVALIK SOLID WASTE MANAGEMENT AND COIMBATORE INTEGRATED WASTE MA NAGEMENT PVT LTD IS CONCERNED, WE HAVE NOTED THAT THE ASSESSING OFFICER DURING THE ASSESSMENT NOT PROVIDED THE VALUATION (FMV) ARRIVED BY HIM TO THE ASSESSEE. DURING THE FIRST APPELLATE STAGE THE ASSE SSEE FURNISHED THE ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 19 WORKING OF THE FMV OF THE SHARES OF THESE TWO ENTIT IES, HOWEVER, THE AO DESPITE GRANTING OPPORTUNITY TO FILE HIS REMAND REP ORT, NOT CONTROVERTED THE SAID VALUATION. THE VALUATION FURNISHED BY THE ASSESSEE IS IN ACCORDANCE WITH RULE 11UA IS ALSO NOT DISPUTED BY A O. THE VALUES OF SHARES AS PER VALUATION FURNISHED BY ASSESSEE ARE L ESS THAN THE CONSIDERATION PAID BY THE ASSESSEE FOR ACQUISITION OF SHARES. THE LD. DR FOR THE REVENUE FAILED TO BRING ANY FACT OR EVIDENC E TO OUR NOTICE TO TAKE OTHER VIEW. THUS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD. CIT (A) IN DELETING THE ADDITION QUA THE ACQUISITIO N OF SHARES OF SHIVALIK SOLID WASTE MANAGEMENT AND COIMBATORE INTEGRATED WA STE MANAGEMENT PVT LTD., WHICH WE AFFIRM. IN THE RESULT GROUND NO.2 IN REVENUES APPEAL IS DISMISSED. 24. NOW ADVERTING TO THE ISSUE IN THE APPEAL OF THE ASS ESSEE ON ACCOUNT OF ADDITION IN RESPECT OF PURCHASE OF SHARES OF ETL. T HE LD CIT(A) SUSTAINED THE ADDITION OF DIFFERENCE OF FMV AS PER RULE 11UA. THE LD. AR FOR THE ASSESSEE VEHEMENTLY ARGUED THAT ETL IS A CLOSELY HELD COMPANY AND ITS SHARES ARE NOT READILY AVAILABLE IN THE MARKET FOR SALE OR TRADING AND THAT THE SALE BY SIDHI SAMRAT DYCHEM PV T LTD WAS A MODE OF EXIT FROM THE AGREEMENT DUE TO CERTAIN FINANCIAL DI FFICULTIES FACED BY SIDHI SAMRAT DYCHEM PVT LTD. NO SUCH EVIDENCE IN TH E FORM OF CORRESPONDENCE OR ANY COMMUNICATION IS BROUGHT ON R ECORD BY THE ASSESSEE THAT SIDHI SAMRAT DYCHEM PVT LTD WAS FACIN G FINANCIAL ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 20 DIFFICULTIES, WHICH MAY JUSTIFY THE ACTION/ TRANSAC TION WITH ASSESSEE. HENCE, WE DO NOT FIND MERIT IN THE SUBMISSIONS OF T HE LD. AR FOR THE ASSESSEE. 25. SO FAR AS ALTERNATIVE SUBMISSION OF THE LD AR FOR T HE ASSESSEE THAT PROVISIONS OF SECTION 56(VIIA) ARE ANTI ABUSE AND I NTENDED TO PREVENT THE PRACTICE OR RECEIVING PROPERTY WITHOUT CONSIDERATIO N OR FOR INADEQUATE CONSIDERATION, ARE CONCERNED, THE LD AR HAS STRONGL Y RELIED ON THE CIRCULAR NO. 01/2011 DATED 6 TH APRIL 2011 ISSUED BY CENTRAL BOARD OF DIRECT TAX (CBDT) AND THE DECISION OF TRIBUNAL IN A CIT VS SUBHODH MENON ( SUPRA ). THE THROUGHOUT THE PROCEEDINGS TOOK THE STAND TH AT THE ASSESSEE THAT THE TRANSACTION WITH ETL IS BONAFIDE TRANSACTION. WE ARE ALSO OF THE VIEW THAT IN ABSENCE OF ANY IMPUTATION OF ANY CONSIDERATION OVER AND ABOVE CONSIDERATION WAS PASSED, THE ADDITI ON IS NOT JUSTIFIED. THE ASSESSING OFFICER HAS NOT MADE ANY INVESTIGATIO N FROM ETL. WE HAVE NOTED THAT THE COORDINATE BENCH OF TRIBUNAL IN ACIT VS SUBHODH MENON ( SUPRA ), WHILE REFEREEING THE CBDT CIRCULAR NO. 01/2011 H ELD: 17 . WE FURTHER OBSERVE THAT PROVISIONS OF SECTION 56( 2)(VII) DOES NOT APPLY TO BONA FIDE BUSINESS TRANSACTION. AS EXPLAINED HEREINABOVE, SH ARES WERE ISSUED BY THE COMPANY TO COMPLY WITH A COVENANT IN THE LOA N AGREEMENT WITH STATE BANK OF INDIA WHICH REQUIRED THE PROMOTERS TO INCRE ASE THE TOTAL NET WORTH OF THE COMPANY TO RS. 150 CRORES BY 31 MARCH, 2010. TH EREFORE, THE SHARES WERE ISSUED BY THE COMPANY FOR A BONA FIDE REASON AND AS A MATTER OF BUSINESS EXIGENCY. CIRCULAR NO.1/2011 DATED 6 APRIL, 2011 IS SUED BY THE CBDT EXPLAINING THE PROVISION OF SECTION 56(2)(VII) SPEC IFICALLY STATES THAT THE SECTION WAS INSERTED AS A COUNTER EVASION MECHANISM TO PREVENT MONEY ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 21 LAUNDERING OF UNACCOUNTED INCOME. IN PARAGRAPH 13.4 THEREOF WHERE IT IS STATED THAT 'THE INTENTION WAS NOT TO TAX TRANSACTI ONS CARRIED OUT IN THE NORMAL COURSE OF BUSINESS OR TRADE, THE PROFIT OF WHICH AR E TAXABLE UNDER THE SPECIFIC HEAD OF INCOME'. 18 . IN THE INSTANT CASE, THE TRANSACTION OF ISSUE OF SHARES WAS CARRIED OUT TO COMPLY WITH A COVENANT IN THE LOAN AGREEMENT WITH T HE BANK TO FUND THE ACQUISITION OF THE BUSINESS BY THE SUBSIDIARY IN US A, THEREFORE, SUCH A BONA FIDE BUSINESS TRANSACTION CANNOT BE TAXED UNDER SECTION 56(2)(VII) OF THE ACT ESPECIALLY WHEN THERE IS NOT EVEN A WHISPER ABOUT M ONEY LAUNDERING BY THE AO IN THE ASSESSMENT ORDER. FURTHER, WE OBSERVE THA T THE CONSIDERATION FOR THE SHARES WAS RECEIVED THROUGH BANKING CHANNEL. THIS O BJECT BEHIND INTRODUCTION OF SECTION 56(2)(VII) SHOULD BE BORNE IN MIND. IN T HIS REGARD, RELIANCE MAY BE PLACED ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF K P VARGHESE V. ITO [1981] 7 TAXMAN 13/131 ITR 597 WHEREIN THE APEX COU RT AT PAGE 609 IN THE CONTEXT OF SECTION 52(2) OF THE ACT HELD AS UNDER: 'THE OBJECT AND PURPOSE OF SUB-SECTION (2), AS EXPL ICATED FROM THE SPEECH OF THE FINANCE MINISTER, WAS NOT TO STRIKE AT HONES T AND BONA FIDE TRANSACTIONS WHERE THE CONSIDERATION FOR THE TRANSF ER WAS CORRECTLY DISCLOSED BY THE ASSESSEE BUT TO BRING WITHIN THE N ET OF TAXATION THOSE TRANSACTIONS WHERE THE CONSIDERATION IN RESPECT OF THE TRANSFER WAS SHOWN AT A LESSER FIGURE THAN THAT ACTUALLY RECEIVED BY T HE ASSESSEE, SO THAT THEY DO NOT ESCAPE THE CHARGE OF TAX ON CAPITAL GAINS BY UNDERSTATEMENT OF THE CONSIDERATION. THIS WAS REAL OBJECT AND PURPOSE OF THE ENACTMENT OF SUB- SECTION (2) AND THE INTERPRETATION OF THIS SUB-SECT ION MUST FALL IN LINE WITH THE ADVANCEMENT OF THAT OBJECT AND PURPOSE. WE MUST , THEREFORE, ACCEPT AS THE UNDERLYING ASSUMPTION OF SUB-SECTION (2) THAT T HERE IS UNDERSTATEMENT OF CONSIDERATION IN RESPECT OF THE TRANSFER AND SUB -SECTION (2) APPLIES ONLY WHERE THE ACTUAL CONSIDERATION RECEIVED BY THE ASSE SSEE IS NOT DISCLOSED AND THE CONSIDERATION DECLARED IN RESPECT OF THE TR ANSFER IS SHOWN AT A LESSER FIGURE THAN THAT ACTUALLY RECEIVED.' 19 . IN VIEW OF THE ABOVE, THE PROVISIONS OF SECTION 5 6(2)(VII)CANNOT BE APPLIED TO TRANSACTION UNDER CONSIDERATION. 26. IN VIEW OF THE AFORESAID DISCUSSIONS, AS WE HAVE AL READY NOTED THAT IN ABSENCE OF ANY IMPUTATION OF ANY CONSIDERATION OVER AND ABOVE ITAS 4012 & 4016/MUM/2016 TATVA GLOBAL ENVIROMENT LIMITED 22 CONSIDERATION WAS PASSED, THE ADDITION IS NOT JUSTI FIED. THE ASSESSING OFFICER HAS NOT MADE ANY INVESTIGATION FROM ETL NOR BROUGHT ANY ADVERSE MATERIAL ON RECORD AGAINST THE ASSESSEE. HE NCE, WE ACCEPT THIS SUBMISSION OF THE LD. AR FOR THE ASSESSEE AND ALLOW THE GROUND OF APPEAL RAISED BY THE ASSESSEE. 27. RESULTANTLY THE GROUND NO. 2 IN APPEAL OF REVENUE IS DISMISSED AND THE GROUND NO. 2 IN APPEAL OF ASSESSEE IS ALLOWED. 28. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01-11-2019 . SD/- SD/- (RAJESH KUMAR) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIALMEMBER MUMBAI, DT : 1 ST NOVEMBER, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI