DCIT - 12(3), MUMBAI V. Sri. ASHISH P. DEORA, MUMBAI

ITA 442/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55647 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 27-09-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 15-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PANJAJ TOPARANIMS USHA DALAL
• Section: 131; 69; 28

Judgement Text

1 SHRI ASHISH P DEORO IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI PRAMOD KUMAR, AM & SHRI VIJAY PAL RAO , JM ITA NO.442/MUM/2007 (ASST YEAR 2003-04) THE DY COMMR OF INCOME TAX 12(3), MUMBAI VS SHRI ASHISH P DEORO AB-01 NEELAM CENTRE HIND CYCLE ROAD, WORLI MUMBAI 400 030 (APPELLANT) (RESPONDENT) PAN NO. AEEPD3765R ASSESSEE BY SHRI PANJAJ TOPARANI/MS USHA DALAL REVENUE BY SHRI VINOD JOSHI DT.OF HEARING 27.09.2011 DT OF PRONOUNCEMENT 25 . 10.2011 PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 18.10.2006 OF THE CIT(A) FOR THE AY 2003-04. 2 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN T HIS APPEAL: 1.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING TO DELETE THE ADDITION OF RS. 52.71 CRORES MADE U/S 28(IV) OF THE I T ACT ON TRANSFER OF SHARES OF M/S RE LIANCE INFOCOM LTD. 1(B) WHILE DOING SO, LD CIT(A) HAS FAILED TO APPREC IATE THE FOLLOWING MATERIAL FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER: I) THE ASSESSEE WAS TO PROVIDE BROADBAND CONNECTION S OF M/S RELIANCE INFOCOM LTD TO COVER A MINIMUM OF 50000 BUILDINGS F OR WHICH THE ASSESSEE QUOTED MINIMUM REMUNERATION @ 15,000/- PER CONNECTION, WHICH WAS FINALLY AGREED TO RS. 3000/- PER CONNECTI ON AND IN LIEU OF THIS, THE ASSESSEE WAS ALLOTTED ONE CORE EQUITY SHA RES OF M/S RELIANCE INFOCOM LTD AT THE FACE VALUE OF RS. 1/- EACH AT PA R TO COMPENSATE THE ASSESSEE FOR THE LOW COMPENSATION PAYABLE TO THE ASSESSEE BY M/S RELIANCE INFOCOM LTD. 2 SHRI ASHISH P DEORO II)A THE ALLOTMENT OF SHARES AT A PREMIUM OF R. 52. ,71 PER SHARE HAS TAKEN PLACE WITHIN TWO MONTHS OF TRANSFER OF ONE CRORE SHARES OF M/S RELIANCE INFOCOM LTD AT THE FACE VALUE OF RS 1/- PE R SHARE TO THE COMPANIES CONTROLLED BY THE ASSESSEE. THIS BENEFIT WAS DERIVED WHILE THE ASSESSEE DOING HIS BUSINESS AND THEREFORE, IT WA S RIGHTLY TAXED UNDER THE PROVISIONS OF SEC. 28(1)(IV) OF THE I T ACT. III) THE THREE COMPANIES WERE FLOATED/ACQUIRED AT THE ASSESSEES INSTANCE BY HIS FRIEND SHRI AMOD AGARWAL AND THE AS SESSEE HIMSELF HAS ADMITTED IN THE STATEMENT RECORDED ON 24.8.2005 THAT THE ENTIRE BUSINESS OF THE THREE COMPANIES WAS CONTROLLED BY HI M AND THE ENTIRE BUSINESS OF THE THREE COMPANIES WAS STRICTLY CARRIED OUT UNDER HIS INSTRUCTION ONLY. IV) THE SHARES OF M/S RELIANCE INFOCOM LTD WERE ACQU IRED IN THE NAME OF THREE COMPANIES TO RETAIN THE SEPARATE IDENTITY FO R INVESTMENT PURPOSE. V) THE TRANSFER OF SHARES OF M/S RELIANCE INFOCOM LT D TO THE THREE COMPANIES HAD BEEN DONE BY M/S GANESH INFRASTRUCTURE CAPITAL FUND (GANESH TRUST) AT THE INSTRUCTION OF THE ASSESSEE AS ADMITTED BY THE TRUSTEE OF GANESH TRUST IN HIS STATEMENT RECORDED U/ S 131 OF THE I T ACT. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) O N THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORE D. 3 HOWEVER, THE ONLY ISSUE ARISES FOR OUR CONSIDERAT ION AND ADJUDICATION FROM THE GROUNDS RAISED BY THE REVENUE IS WHETHER IN THE FAC TS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) IS JUSTIFIED IN DELETING THE ADDIT ION OF RS. 52.71 CRORES BY THE ASSESSING OFFICER MADE U/S 28(IV) OF THE I T ACT. 4 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CAME TO KNOW THAT 1 CRORE SHARES OF M/S RELIANCE INFOCOMM LTD (RIC) WERE ALLOTTED @ RS. 1/- PER SHARE) TO THREE COMPANIES AS PER THE DETAIL S BELOW: NAME OF THE COMPANY NO.OF SHARES ALLOTTED DT OF ALLOTMENT M/S FAIREVER TRADERS & CONSULTANTS P LTD 3,400,000 16.09.2002 M/S SOFT-NET TRADERS & CONSULTANTS P LTD 3,300,000 16.09.2002 M/S PRENA AUTO PVT LTD 3,300,000 16.09.2002 3 SHRI ASHISH P DEORO 4.1 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE S HRI ASHISH P DEORO IS THE DIRECTOR IN ALL THE THREE COMPANIES. A STATEMENT O F THE ASSESSEE WAS RECORDED U/S 131 OF THE I T ACT BY THE ADIT ON 24.8.2005 IN CONN ECTION WITH THE ALLOTMENT OF 1 CRORE SHARES OF RIC TO THE THREE COMPANIES. THE ASSESSIN G OFFICER HAS REPRODUCED CERTAIN CONTENTS OF THE STATEMENT OF SHRI ASHISH P DEORO A ND PARTICULARLY NOTED THAT THE ASSESSEE WAS GIVEN THE JOB BY THE RELIANCE GROUP OF OBTAINING THE RIGHT OF WAY TO LAY FIBRE CABLE INSIDE THE COMMERCIAL BUILDINGS/COO PERATIVE SOCIETIES AND TO OBTAIN PERMISSION FROM THE SOCIETIES TO PROVIDE BROADBAND SERVICES. AS AN INCENTIVE TO ACHIEVE THE STEEP TASK OF OBTAINING RIGHT OF WAY A ND BUILDING PERMISSION OF 50000 BUILDING AT A HEAVILY NEGOTIATED PRICE AND WITHIN T HE STIPULATED TIME, HE WAS TO RECEIVE 1 CRORE SHARES OF M/S RIC. SINCE THE RIC H AS ALLOTTED 32.02 CRORES OF SHARES OF THE FACE VALUE OF RS.1/- PER SHARE TO M/S RELIANCE COMMUNICATION INFRASTRUCTURE LTD (RCIL) AT A PREMIUM OF RS. 52.71 PER SHARES VIDE DE CISION TAKEN IN THE BOARD MEETING ON 2.11.2002, THE ASSESSING OFFICER ASKED THE ASSES SEE AS TO WHY THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE SHARES WERE ALLOTTED TO M/S RIC AND THE PRICE AT WHICH ALLOTTED TO THE ASSESSEE SHOULD NOT BE TAXED IN HIS HANDS U/S 28(IV) OF THE ACT AS A RESULT OF BENEFIT ARISING FROM HIS BUSINESS. 4.2 THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFF ICER THAT NO BENEFIT OR PERQUISITE ACCRUED OR WAS RECEIVED BY THE ASSESSEE OR HIS NOMINEE AND HOLDING OF ONE CRORE SHARES OF RIC BY THE THREE COMPANIES WAS PURELY AN INTERIM ARRANGEMENT AND THE SAID SHARES HAD TO BE RETURNED TO THE TRANS FEROR GANESH INFRASTRUCTURE CAPITAL FUND(GICF). IT WAS CONTENDED THAT THE ASSE SSEE DID NOT RECEIVE ANY BENEFIT FROM THE EXERCISE OF HIS PROFESSION OR THERE WAS NO VESTING OF THE PROPERTY BY INVOKING PROVISIONS OF SEC. 28(IV) OF THE ACT R.W.S 2(24) (VD). APART FROM THE ABOVE, THE ASSESSEE HAS ALSO SUBMITTED THAT RIC WAS SUFF ERING LOSSES, IT WAS NOT PAYING ANY DIVIDEND AND ITS SHARES WERE UNLISTED. THE FARE MA RKET VALUE OF THE SHARES IN QUESTION 4 SHRI ASHISH P DEORO AT THE RELEVANT POINT OF TIME WAS AT FACE VALUE. IT WAS SUBMITTED THAT THE ASSESSEE HAD NO BUSINESS CONNECTION WITH GICF WHO HAD TRANSF ERRED THE SHARES OF RIC TO THE THREE COMPANIES. FINALLY, IT WAS STATED THAT THE S HARES ARE TO BE TRANSFERRED TO THE COMPANIES ONLY ON COMPLETION OF THE PROJECT AND SIN CE THE PROJECT COULD NOT BE COMPLETED; THEREFORE, THE SHARES WERE RETURNED TO T HE TRANSFEROR AND NO BENEFIT ACCRUED OR RECEIVED BY THE ASSESSEE OR HIS NOMINEE. 4.3 THE ASSESSING OFFICER DID NOT ACCEPT THE CONTEN TION OF THE ASSESSEE AND TREATED THE DIFFERENCE OF RS. 52.71 PER SHARE AS TH E BENEFIT ARISING ON TRANSFER OF THESE 1 CRORE SHARES AT PAR AND TAXED ON SUBSTANTIV E BASIS IN THE HANDS OF THE ASSESSEE. AT THE SAME TIME, THE ASSESSING OFFICER WAS OF THE VIEW THAT IT WILL BE TAXED ON PROTECTIVE BASIS IN THE HANDS OF THE THREE RECIPIENTS COMPANIES. 4.4 ON APPEAL, THE CIT(A) DELETED THE ADDITION AFTE R TAKING THE NOTE OF THE FACT THAT TRANSFER OF 1 CRORE SHARES OF RIC BY GANESH T RUST WERE SUBSEQUENTLY RETRANSFERRED ON NON-FULFILMENT OF THE CONDITIONS BY THE ASSESSEE TO THE GANESH TRUST. 5 BEFORE US, THE LD DR HAS SUBMITTED THAT THE SHARE S OF RIC WERE ALLOTTED TO THE COMPANIES OF THE ASSESSEE BEING PART OF COMPENSATIO N FOR THE WORK OF LAYING OF OPTIC FIBRE CABLES. INITIALLY A CONSOLIDATED DEMAND OF COMPENSATION OF RS. 15,000/- PER BUILDING WAS MADE BY THE ASSESSEE; BUT THE DEAL FOR LAYING THESE CABLES WAS FINALLY NEGOTIATED AT A PRICE OF RS. 300 0/- PER BUILDING. IN LIEU OF THE COMPENSATION RECEIVED BY THE ASSESSEE FOR THE SERVI CES RENDERED, THE RIC AGREED TO TRANSFER 1 CRORE SHARES OF M/S RIC AT A VALUE OF RS. 1/- PER SHARE TO THE ASSESSEE. THE CONDITION FOR TRANSFERRING THESE SHARES WAS THA T THE ASSESSEE SHOULD ACHIEVE A TARGET OF 50000 BUILDINGS FOR LAYING THE OPTIC FIBR E CABLES. IF THIS TARGET WAS NOT MET, 5 SHRI ASHISH P DEORO THE SHARES HAD TO BE RETURNED. THUS, THE LD DR HA S SUBMITTED THAT THE ALLOTMENT OF THE SHARES AT PAR WAS IN ACCORDANCE WITH THE TERMS OF BUSINESS OF THE ASSESSEE FOR LAYING DOWN OPTIC FIBRE CABLES. HE HAS FURTHER SUB MITTED THAT THESE SHARES WERE NOT TRANSFERRED DIRECTLY BY RIC BUT THROUGH A TRUST NAM ED M/S GANESH INFRASTRUCTURE CAPITAL FUND (GICF) AND IN THE NAMES OF THREE COMPA NIES IN WHICH THE ASSESSEE IS A DIRECTOR. 5.1 DUE TO NON COMPLETION OF TARGET OF 50000 BUILDI NGS FOR LAYING THE OPTIC FIBRE CABLES THESE 1 CRORE SHARES WERE SOLD BACK TO GICF AT A PRICE OF RS. 1/- PER SHARE. THE LD DR HAS SUBMITTED THAT THE SUBSEQUENT RETRANS FER OF THE SHARES IS IMMATERIAL FOR THE PURPOSE OF ASSESSMENT U/S 28(IV) OF THE I T ACT. THE TRANSACTION OF ALLOTMENT OF THE SHARES TO THE ASSESSEE IS RELEVANT. HE HAS HEAV ILY RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE SHARES WER E TRANSFERRED TO THE COMPANIES OF THE ASSESSEE ON 16.9.2002 WHEREAS IN NOV 2002, T HE SHARES OF RIC WERE ALLOTTED TO RELIANCE COMMUNICATION INFRASTRUCTURE LTD AT A PRE MIUM OF RS. 52.71 PER SHARE WHICH CLEARLY SHOWS THAT THE ASSESSEE GOT BENEFIT O F PREMIUM BECAUSE THE SHARES WERE ALLOTTED TO THE ASSESSEE AT FACE VALUE. 5..2 ON THE OTHER HAND, THE LD AR OF THE ASSESSEE H AS SUBMITTED THAT THE SHARES WERE NOT TRANSFERRED IN THE NAME OF THE ASSESSEE OR THE COMPANIES IN WHICH THE ASSESSEE IS A DIRECTOR BUT IT WAS GIVEN ON A CONDIT ION THAT IF THE ASSESSEE ACHIEVE THE TARGET OF 50000 BUILDINGS OF LAYING OF OPTIC FIBRE CABLE, THESE SHARES WERE TO BE TRANSFERRED, FAILING WHICH THESE WERE RETURNED BACK TO GANESH TRUST. WHEN THE SHARES WERE FINALLY RETURNED TO THE GANESH INFRASTRUCTURE CAPITAL FUND AND NO TRANSFER TOOK PLACE IN THE NAME OF THE ASSESSEE OR IN THE COMPANY IN WHICH THE ASSESSEE IS A DIRECTOR THEN, THERE IS NO QUESTION OF BENEFIT BY W AY OF ALLOTMENT OF THESE SHARES. HE HAS FURTHER CONTENDED THAT THE RIC WAS INCURRING CO NSISTENT LOSS AND THERE WAS NO 6 SHRI ASHISH P DEORO DIVIDEND FOR THE LAST SO MANY YEARS; THEREFORE, MAR KET VALUE OF THE SHARES WAS NOT MORE THAN THE FACE VALUE. HE HAS FURTHER CONTENDED THAT THE ASSESSING OFFICER HAS TAKEN INTO ACCOUNT THE FUTURE PRICE WHICH MAY BE BE CAUSE OF THE DEVELOPMENT AFTER ALLOTMENT OF SHARES. THE ASSESSING OFFICER H AS NOT POINTED OUT ANY DEFECT IN ALLOTMENT OR IN THE BOOKS OF ACCOUNT AND BALANCE SH EET TO SHOW THAT THE MARKET VALUE OF THE SHARES WAS MORE THAN THE FACE VALUE. HE HAS RELIED UPON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF RUPEE FINANCE & MANAGEMENT P LTD VS ACIT REPORTED IN 22 SOT 174 AS WELL AS THE DECISION DATED 10 TH JUNE 2011 OF THE TRIBUNAL IN THE CASE OF M/S KAIZEN COMMERCIAL PVT LTD IN ITA NO.5974/MUM/2005 AND SUBMITTED THAT IN THE IDENTICA L FACTS AND CIRCUMSTANCES, THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE AS SESSEE. 6 WE HAVE CONSIDERED THE RIVAL CONTENTION AND RELEV ANT MATERIAL ON RECORD. IT IS PERTINENT TO NOTE THAT 1 CRORE SHARES OF RIC WER E GIVEN TO THREE COMPANIES NAMELY (I) M/S FAIREVER TRADERS & CONSULTANTS P LTD, (II) M/S SOFT-NET TRADERS & CONSULTANTS P LTD AND (III) M/S PRENA AUTO PVT LTD, ON FACE VALUE OF RS. 1/- AT PART SUBJECT TO THE CONDITION THAT THE ASSESSEE HAS TO EXECUTE THE JO B OF LAYING OF OPTIC FIBRE CABLE BY ACHIEVING THE TARGET OF AT LEAST 50000 BUILDINGS W ITHIN THE STIPULATED PERIOD. IT MAY BE NOTED THAT FINALLY THE ASSESSEE FAILED TO FULFIL THE SAID CONDITION AND 1 CRORE SHARES WERE RETURNED BACK. THERE IS NO DISPUTE ABOUT THE F ACT THAT THE SHARES WERE GIVEN BY ONE M/S GANESH INFRASTRUCTURE CAPITAL FUND AND ALSO RETURNED BY THE ASSESSEE TO GANESH TRUST. THUS, THERE WAS NO FINAL TRANSFER OF THESE SHARES EITHER IN THE NAME OF THE ASSESSEE OF IN THE NAME OF THE COMPANIES IN WH ICH THE ASSESSEE IS A DIRECTOR. UNDISPUTEDLY THE TRANSFER OF SHARES WAS ON CONDITIO NAL BASIS AND THE ASSESSEE FAILED TO COMPLY WITH THE CONDITIONS AND CONSEQUENTLY THE SHARES COULD NOT BE TRANSFERRED. WHEN THE TRANSACTION OF TRANSFER COULD NOT MATERIAL ISE AND ULTIMATELY THE SHARES WERE RETURNED BACK WITHOUT CHARGING ANY PRICE THEN, NO BENEFIT WHATSOEVER EITHER 7 SHRI ASHISH P DEORO ACCRUED OR RECEIVED BY THE ASSESSEE OR THE COMPANIE S IN WHICH THE ASSESSEE IS A DIRECTOR. THEREFORE, ON THESE FACT ITSELF IT CAN SAFELY BE SAID THAT THE ENTIRE EXERCISE OF RECEIVING AND RETURN OF THE SHARE DID NOT FRUCT IFY AND THE CONDITIONS AS POSTULATE U/S 28(IV) ARE NOT FULFILLED. HENCE, THE PROVISIONS OF SEC. 28(IV) CANNOT BE INVOKED IN THE HANDS OF THE ASSESSEE. 6.1 MOREOVER, IN THE CASE OF M/S KAIZEN COMMERCIAL P LTD (SUPRA) IDENTICAL ISSUE CAME BEFORE THE TRIBUNAL AND AFTER CONSIDERING THE RELEVANT FACTS, THE TRIBUNAL HAS HELD IN PARA 6 AND 7 AS UNDER: 6 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD. WHILE MAKING THE ADDITION OF THE PREMIUM OF RS. 14/- PER SHARE, THE ASSESSING OFFICER HAS TAKEN INTO CONSIDERA TION THE DIRECTORS REPORT. THE SPECIAL COUNSEL HAS ALSO RELIED UPON THE DIRECTOR S REPORT WHICH TALKS ABOUT THE ALLOTMENT OF THE BASIC TELEPHONE SERVICES IN 16 OUT OF 18 CIRCLES APPLIED BY RICL. IT IS PERTINENT TO NOTE THAT THE D IRECTORS REPORT IS DATED 16.8.2001, WHICH IS CONSEQUENT TO THE GRANT OF LICEN SE TO RICL FOR OPERATING THE BASIC TELEPHONE SERVICES ON 20.7.2001. THUS, IT IS CLEAR THAT THE DIRECTORS REPORT REFERS TO THE EVENTS CONSEQUENT TO THE ALLOTME NT OF THE SHARES ON 2.4.2001 AND PARTICULARLY THE DEVELOPMENTS OF THE GRA NT OF LICENSE OF 16 TELEPHONE CIRCLES. UNDISPUTEDLY, ONCE THE LICENSE FO R OPERATING THE BASIC TELEPHONE SERVICE IN 16 CIRCLES WAS GRANTED WHICH C OVER THE MAJORITY OF THE STATES OF THE COUNTRY; HENCE, WAS AN IMPORTANT DEVELO PMENT AND CERTAINLY IT HAS A POSITIVE EFFECT ON THE VALUE OF THE SHARES OF RICL. THEREFORE, REFERENCE OF GRANT OF LICENSE IN THE DIRECTORS REPORT CANNOT S UPPORT THE ACTION OF THE ASSESSING OFFICER TO PRESUME THE VALUE OF THE SHARE O F RCIL AT RS. 15/- PER SHARE ON THE DATE OF ALLOTMENT I.E. 2.4.2001. 6.1 AS POINTED OUT BY THE SR COUNSEL FOR THE ASSESSEE THAT PRIOR TO 2.4.2001, RCIL HAVE ALREADY ISSUED THE SHARES THROUGH ALLOTMENT AT PAR I.E. RS. 1/- EACH IN THE MONTH OF JAN AND FEB 2001. ON BOTH THESE OCCASIONS, THE SHARES WERE ALLOTT ED AT RS. 1/- PER SHARE. SIMILARLY ON 2.4.2001, 65 CRORES SHARES WERE AGAIN ALL OTTED BY RCIL TO SEVEN ALLOTTES AS PER THE DETAILS OF THE ALLOTMENT REPROD UCED BY THE ASSESSING OFFICER AT PAGE 2 OF HIS ORDER AS UNDER: NAME OF THE ASSESSEE NO.OF HARES ALLOTTED (IN CRORES) RELIANCE INDUSTRIES LTD 6.50 RELIANCE COMMN INFRASTRUCTURE LTD 20.50 OTHER BODIES CORPORATE: GREENWICH CAPITAL P LTD 1.16 8 SHRI ASHISH P DEORO WARBURG CAPITAL P LTD 1.17 PERIGEE TRADING P LTD 1.17 KAIZN COMMERCIAL LTD 3.00 GANESH INFRASTRUCTURE CAPITAL FUND 31.50 TOTAL 65.00 6.2 THE ASSESSING OFFICER, WHILE ESTIMATING THE PREM IUM HAS TAKEN INTO ACCOUNT THE SHARES ALLOTTED BY RCIL ON 2.11.202, 9. 9.2003 AND 11.11.2002. THE ASSESSING OFFICER HAS REPRODUCED THE DETAILS IN THE A SSESSMENT ORDER WHICH WE HAVE REPRODUCED IN THIS ORDER IN THE FOREGOING PARAG RAPH NO.5.1. THUS, IT IS EVENT THAT THE ASSESSING OFFICER HAS TAKEN INTO ACCO UNT THE ALLOTMENT PRICE OF THE SHARES OF RCIL ON 2.11.2002, 9.9.2003. IT IS TO BE NOTED THAT WHEN THE RCIL WAS ALLOTTED THE LICENSE FOR OPERATING THE BASIC TE LEPHONE SERVICES AND ALSO STARTED THE WORK FOR PROVIDING THE SERVICES, THE ALLO TMENT IN NOV 2002 AND SEPT 2003 WAS SUBSEQUENT TO THE SAID DEVELOPMENT AND THE REFORE, THE APPRECIATION OF THE VALUE OF THE SHARES A NATURAL CONS EQUENCE OF GRANT OF LICENSE AND WORK EXECUTED BY RCIL FOR PROVIDING THE SE RVICE. THEREFORE, THE FUTURE EVENT ON DEVELOPMENT OF GRANT OF LICENSE CANN OT BE A BASIS FOR VALUING THE SHARES ON THE DATE WHEN NO SUCH ALLOTMENT WAS I N SIGHT. MOREOVER, WHEN NET WORTH OF RCIL WAS NEGATIVE AS ON 31.3.2001, THEN THE VALUATION OF THE SHARES ON 2.4.2001 CANNOT BE SUPPOSED TO HIGHER THEN WHAT WAS IN THE MONTH OF JAN AND FEB 2001. HENCE, IN OUR CONSIDERED OPINIO N THAT THE ASSESSING OFFICER HAS MISGUIDED HIMSELF BY TAKING INTO ACCOUNT THE APPRECIATION OF THE SHARES OF RCIL ON ACCOUNT OF ALLOTMENT OF LICENSE AN D WORK DONE BY RCIL FOR PROVIDING THE BASIC TELEPHONE SERVICES IN PURSUANT T O THE LICENSE WHILE WORKING OUT THE VALUATION PRIOR TO ALL THESE DEVELOPME NT. 6.3 FURTHER, WHEN THE ASSESSEE WAS NOT HAVING ANY DI RECT BUSINESS RELATION OR HAVING ANY BUSINESS OR CARRIED OUT ANY BUSINESS WITH RCIL EITHER IN THE PAST OR DURING THE YEAR IN QUESTION OR IN SUBSEQUENT YEAR THEN IT CANNOT BE SAID THAT THERE EXIST ANY BUSINESS OR PROFESSION RELATIONSHIP BETWEEN THE ASSESSEE AND RCIL. RCIL AND OTHER RELIANCE GROUP OF COMPANIES ARE INDEPENDENT ENTITIES AND EVEN FOR TAXATION PURPOSES, THEY ARE SEPARATE AN D INDEPENDENT PERSONS;THEREFORE, ANY BUSINESS OR PROFESSIONAL RELATIO NSHIP OF THE ASSESSEE WITH THE RIL COULD NOT AUTOMATICALLY CREATE ANY BUSI NESS OR PROFESSIONAL RELATIONSHIP BETWEEN THE ASSESSEE AND RCIL. THEREFORE, PROVISIONS OF SECTION 28(IV) CANNOT BE APPLIED IN THE CASE OF THE ASSESSE E. 7 IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT TH E VALUE ESTIMATED BY THE ASSESSING OFFICER OF THE SHARES OF RCIL ON 2.4.2001 @ RS. 15/- PER SHARE IS HIGHLY UNREALISTIC, ARBITRARY AND WITHOUT ANY ACCEPTABLE B ASIS BUT ON THE BASIS OF SOME FUTURE EVENTS, WHICH COULD NOT INFLUENCE THE VA LUE OF THE SHARES PRIOR TO THE DATE OF SUCH DEVELOPMENT. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD CIT(A). 9 SHRI ASHISH P DEORO 7 WE FURTHER NOTE THAT THE TRIBUNAL IN THE CASE OF RUPEE FINANCE & MANAGEMENT P LTD (SUPRA), HAS ALSO TAKEN SIMILAR VI EW IN PARAS 8.1 TO 8.5 AS UNDER: 8.1 THE FIRST ISSUE IS WHETHER THE MOU IN QUESTION CAN BE CONSIDERED AS FAMILY ARRANGEMENT OR NOT. THE SECOND ISSUE IS WHETHER THE FAMILY ARRANGEMENT IS A MAKE-BELIEF AND SHAM TRANSACTION. THE THIRD ISSUE I S WHETHER THE DIFFERENCE BETWEEN THE MARKET VALUE OF THE SHARES AND THE PURCHA SE PRICE CAN BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE COMPANY UNDER S. 69. THE FOURTH ISSUE IS AS TO WHETHER THE DIFFERENCE IN QUESTION REF ERRED TO ABOVE, CAN BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE COMPANY UNDER S. 28(IV). 8.2 WE TAKE UP THIRD AND FOURTH ISSUES FIRST. SEC. 69 READS AS FOLLOWS : '69. WHERE IN THE FINANCIAL YEAR IMMEDIATELY PRECEDIN G THE ASSESSMENT YEAR THE ASSESSEE HAS MADE INVESTMENTS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, MAINTAINED BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NA TURE AND SOURCE OF THE INVESTMENTS OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE AO, SATISFACTORY, THE VALUE OF THE INVESTMEN TS MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE OF SUCH FINANCIAL YEAR.' THE UNDISPUTED FACTS IN THIS CASE ARE THAT THE ASSES SEE COMPANY HAS PURCHASED CERTAIN SHARES AT A PRICE WHICH IS BELOW TH E MARKET VALUE. THERE IS NO DISPUTE OF THE FACT THAT THE PRICE PAID FOR THE SH ARES BY THE ASSESSEE COMPANY WAS THE COST INCURRED BY THE PURCHASER. IT I S ALSO NOT DISPUTED THAT ALL THESE INVESTMENTS WERE RECORDED IN THE BOOKS OF A CCOUNT. UNDER S. 69 ONLY SUCH VALUE OF THE INVESTMENTS MAY BE DEEMED TO BE T HE INCOME OF THE ASSESSEE FOR THE FINANCIAL YEAR, IF THEY ARE NOT REC ORDED IN THE BOOKS OF ACCOUNT. THUS S. 69 IS NOT APPLICABLE IN THIS CASE. THE FIRST APPELLATE AUTHORITY POSSIBLY REALISING THIS DIFFICULTY HAS CHOSEN TO INV OKE S. 28(IV) AND NOT TO GIVE A DECISIVE FINDING AS TO WHETHER S. 69 IS APPLICABLE OR NOT. WE HAVE TO MENTION HERE THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE COMPANY HAS PAID CERTAIN AMOUNT IN EXCESS OF WHAT IS RECORDED IN THE BOOKS OF ACCOUNT FOR THE PURCHASE OF THE SHARES. THERE IS NOT EVEN AN ALLEG ATION MUCH LESS ANY EVIDENCE THAT THE APPARENT CONSIDERATION IS NOT THE REAL CONSIDERATION. THE ONLY GROUSE OF THE REVENUE AUTHORITIES HAVE IS THAT THE ASSESSEE COMPANY HAS PURCHASED THE SHARES AT A PRICE WHICH MUCH LESSER THAN THE MARKET PRICE. THIS, AS ALREADY STATED IS NOT A DISPUTED FACT. THU S ON THESE FACTS WE HOLD THAT NO ADDITION IS SUSTAINABLE UNDER S. 69. 8.3 THIS BRINGS US TO WHETHER THE DIFFERENCE IN QUEST ION CAN BE CONSIDERED AS INCOME UNDER S. 28 (IV) ? THE SECTION READS AS FOLLO WS : '28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO IN COME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, 10 SHRI ASHISH P DEORO (IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHE R CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERC ISE OF A PROFESSION.' CIRCULAR EXPLAINING THE PROVISIONS OF NEW S. 28(IV) AT CL. 82 STATES AS FOLLOWS : 'ASSESSMENT OF THE VALUE OF ANY BENEFIT OR PERQUISI TE ARISING FROM BUSINESS OR EXERCISE OF A PROFESSION, AS INCOME FROM BUSINESS OR PROFESSION. 82. A NEW CL. (IV) HAS BEEN INSERTED IN S. 28, W.E. F. 1ST APRIL, 1964, BY S. 7 OF THE FINANCE ACT, 1964, UNDER WHICH THE VALUE OF ANY BENEFIT OR PERQUISITE (WHETHER CONVERTIBLE IN MONEY OR NOT) AR ISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION WILL BE CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. A CORRESPONDING AMENDMENT HAS BEEN MADE TO S. 2 (24), INCLUDING THE VALUE OF SUCH BENEFIT OR PERQUISITE IN THE DEFINITION OF THE TERM INCOME VIDE NEW SUB-CL. (VA) INSERTED IN S. 2(24) BY S. 4(C)(I) OF THE FINANCE ACT, 1964. 83. THE EFFECT OF THE ABOVE-MENTIONED AMENDMENT IS THAT IN RESPECT OF AN ASSESSMENT FOR THE ASST. YR. 1964-65 AND SUBSEQ UENT YEARS, THE VALUE OF ANY BENEFIT OR AMENITY, IN CASH OR KIND, AR ISING TO AN ASSESSEE FROM HIS BUSINESS OR THE EXERCISE OF HIS PROFESSION, E.G., THE VALUE OF RENT FREE RESIDENTIAL ACCOMMODATION SECURED BY AN ASSESSEE FROM A COMPANY IN CONSIDERATION OF THE PROFESSIONAL SERVICE S AS A LAWYER RENDERED BY HIM TO THAT COMPANY, WILL BE ASSESSABLE I N THE HANDS OF THE ASSESSEE AS HIS INCOME UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION.' THE CONDITION OF INVOKING S. 28(IV) IS THAT THE CHA RGEABLE INCOME OF THE ASSESSEE SHOULD ARISE FROM THE BUSINESS OR IN THE EXERCISE OF PROFESSION. THERE MUST BE A NEXUS BETWEEN THE BU SINESS OF THE ASSESSEE AND THE BENEFIT THE ASSESSEE DERIVED. T HE ASSESSEE IN THIS CASE PURCHASED CERTAIN SHARES AT A CERTAIN PRI CE AND WAS REQUIRED TO HOLD THESE SHARES FOR A PERIOD OF THREE YEAR S. IT IS NOT IN DISPUTE THAT THIS WAS AN INVESTMENT MADE BY THE ASSESSEE COMPANY HENCE IRRESPECTIVE OF THE FACT AS TO WHETHER THESE INVESTMENTS WERE MADE IN PURSUANCE OF THE MOU OR NOT, WE ARE OF THE CONSIDERATION OPINION THAT SUCH INVESTMENTS C ANNOT BE SAID TO BE A BENEFIT ARISEN OUT OF THE BUSINESS OF T HE ASSESSEE. MOREOVER THE ASSESSEE IS THE PURCHASER OF THE SHARES A ND THERE IS NO EVENT THAT HAS TAKEN PLACE DURING THE CURRENT A CCOUNTING YEAR WHICH CAN BE SAID TO HAVE RESULTED IN ANY INCOME BEING ACCRUED OR ARISEN TO THE ASSESSEE COMPANY DURING THE Y EAR. IF AT ALL THE ASSESSEE TRANSFERS THE SHARES, THEN THE BE NEFIT OF PROFIT IN QUESTION CAN BE BROUGHT TO TAX IN THOSE PARTICULA R YEARS. IN ALL 11 SHRI ASHISH P DEORO THE CASE LAWS RELIED UPON BY THE REVENUE HAVE BEEN D ISCUSSED BY US WHILE NARRATING THEIR ARGUMENTS AND IN THESE CAS ES THE TAX HAS BEEN LEVIED ON THE TRANSFEROR AND NOT THE TRANSFER EE. THE EFFECT OF THIS SECTION HAS BEEN EXPLAINED BY THE CB DT IN THE ABOVE CITED CIRCULAR AND FROM THIS IT IS CLEAR THAT, WHEN AN ASSESSEE PURCHASES GOODS OR ASSETS AT A PRICE LOWER TH AN THE MARKET PRICE, UNDER WHATEVER CIRCUMSTANCES, THE SAME C ANNOT BE BROUGHT TO TAX UNDER S. 28(IV). THE SECTION COVER S FRINGE BENEFITS THAT ARE AVAILED IN ADDITION TO CONSIDERATI ON EARNED IN CARRYING OUT A PROFESSION OR WHILE DOING BUSINESS. A BENEFIT THAT IS PASSED ON BY ONE PARTY TO ANOTHER, IN ADDITION T O COST OR SALE PRICE, IS COVERED IN THIS PROVISO. THIS IS CLEAR FROM T HE EXAMPLE QUOTED. IN OUR HUMBLE OPINION, THIS SECTION CANNOT B E INVOKED UNDER THE PRESENT FACTS AND CIRCUMSTANCES. 8.4 BE IT AS IT MAY THE CO-ORDINATE BENCH OF THE TRI BUNAL (F-BENCH, MUMBAI) IN THE CASE OF HELIOS FOOD IMPROVERS (P) LTD. (SUPRA) HE LD THAT S. 28 IS A CHARGING SECTION AND TAKES INTO ACCOUNT THE RECEIPTS OF SPEC IFIED CATEGORIES OF ALL INCOMES AS WELL AS THE RECEIPTS WHICH COULD BE GENER ALLY CONSTRUED AS INCOME IN THE ORDINARY SENSE. BUT THE FACT REMAINS TH AT ALL THE RECEIPTS MENTIONED IN S. 28 ARE INHERENTLY OF INCOME NATURE E XCEPT IN CASE OF RECEIPT UNDER A GIVEN AMOUNT OF INSURANCE POLICY. IT ALSO ST ATES THAT S. 28(IV) REFERS TO ANY BENEFIT OR PERQUISITE AND THIS MEANS THAT SUCH BE NEFIT OR PERQUISITE SHOULD BE IN THE NATURE OF INCOME FROM THE VERY BEGINNING O R IT MUST HAVE CHARACTERISTICS OF INCOME BEFORE IT BECOMES CHARGEAB LE AT A LATER STAGE IF THE ORIGINAL TRANSACTION IS COMPLETED AS DESIGNED. THE BENCH FURTHER OBSERVED THAT THE WORDS BENEFIT OR PERQUISITE HAVE BEEN US ED IN THE SAID SECTION AND HAVE TO BE READ TOGETHER AND WOULD DRAW COLOUR FRO M EACH OTHER. NORMALLY THE TERM PERQUISITES DENOTES MEETING OUT OF AN OBLIGATION OF ONE PERSON BY ANOTHER PERSON EITHER DIRECTLY OR INDIRECTLY O R PROVISION OF SOME FACILITY OR AMENITY BY ONE PERSON TO ANOTHER PERSON OR FROM THE VERY BEGINNING THE PERSON PROVIDING SUCH FACILITY OR CON CESSION KNOWS THAT WHATEVER IS BEING DONE IS IRRETRIEVABLE TO HIM, AS IT HAS BEEN GRANTED TO A PERSON AS A PRIVILEGE OR RIGHT OF THAT PERSON. THUS, IT WAS CONCLUDED THAT THE WORD BENEFIT HAS TO BE INTERPRETED IN THE SAME MANN ER, THAT IS, AT THE TIME OF EXECUTION OF THE BUSINESS TRANSACTION ONE PARTY SHOULD GIVE TO THE OTHER PARTY AN IRRETRIEVABLE BENEFIT OR ADVANTAGE, AS AN OBLI GATION OR FACILITY OR A CONCESSION. IN OUR OPINION, ONLY IF THE SELLER HAD IN CURRED AN EXPENSE OR A LIABILITY OR HAD PROVIDED A FACILITY TO THE PURCHAS ER, THEN THE VALUE IN CASH OF SUCH EXPENSES OR BENEFIT OR PERQUISITE SHALL BE TREATE D AS INCOME. IN THIS CASE, THE SELLER HAS NOT INCURRED ANY EXPENSES OR LIABILITY OR HAS PROVIDED A FACILITY. IT SOLD ITS SHARES AT A REDUCED PRICE. 12 SHRI ASHISH P DEORO 8.5 APPLYING THESE PROPOSITIONS TO THE CASE ON HAND , THE PURCHASE OF SHARES AT A PARTICULAR PRICE WHICH IS BELOW THE MARKET PRICE AS AN INVESTMENT IS NOT INCOME BY ANY STRETCH OF IMAGINATION. IT CANNOT ALSO BE DEEMED AS INCOME UNDER S. 28(IV) AS IT IS NEITHER BENEFIT NOR PERQUISITE THAT HAS ARISEN TO THE ASSESSEE FROM THE BUSINESS OR IN THE EXERCISE OF A PRO FESSION. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. BHAVNAGAR B ONE & FERTILISER CO. LTD. (1987) 59 CTR (GUJ) 116 : (1987) 166 ITR 316 (GUJ) HAS UPHELD THE TRIBUNALS FINDING THAT THERE MUST BE A NEXUS BETWEEN THE BUSI NESS OF THE ASSESSEE AND THE BENEFIT WHICH THE ASSESSEE HAS DERIVED FOR THE P URPOSE OF ATTRACTING PROVISIONS OF S. 28(IV). AT P. 320 IT HAS OBSERVED AS FOLLOWS : 'AFTER REFERRING TO VARIOUS DECISIONS, THE TRIBUNAL OBS ERVED, THESE DECISIONS MAKE IT ABUNDANTLY CLEAR THAT THE BENEFIT RECEIVED OR RECEIVABLE BY A PERSON MUST BE ONE WHICH HAS INTIMAT E CONNECTION WITH BUSINESS AND EVEN IF SUCH BENEFIT IS DERIVED BY WAY OF BOUNTY, NEVERTHELESS IT WOULD BE TAXABLE, IF ACCRUES TO IT O R IF RECEIVED BY IT IN THE COURSE OF BUSINESS OR EMPLOYMENT OF OFFICE.' IN THIS CASE THE REVENUE HAS NOT DEMONSTRATED WHAT I S THE BUSINESS CONNECTION OR THE BUSINESS DONE BETWEEN THE SELLER AN D THE PURCHASER OF THE SHARES. NO CASE HAS BEEN MADE OUT THAT PRIVILEGE OR B ENEFIT OR CONCESSION HAS BEEN PASSED ON BY THE SELLER TO THE BUYER AS PA RT AND PARCEL OF A BUSINESS TRANSACTION. A BENEFIT HAS BEEN ASSESSED B Y THE CIT(A). MERE PURCHASE OF SHARES BY WAY OF INVESTMENT CANNOT BE CO NSIDERED AS BUSINESS OF THE COMPANY THOUGH THE OBJECTS OF THE COMPANY ENABL E IT TO INVEST AS WELL AS DEAL IN SHARES. AS ALREADY STATED THERE IS NO EVEN T WHICH CAN BE SAID TO HAVE RESULTED IN ACCRUAL OF INCOME TO THE ASSESSEE. THUS ON THIS FACTUAL MATRIX, MERE PURCHASE OF SHARES, AS AN INVESTMENT, WITH THE LOCK-IN-PERIOD OF HOLDING, FOR A CONSIDERATION WHICH IS LESS THAN THE MARKET VAL UE, CANNOT BE BROUGHT TO TAX, AS A BENEFIT OR PERQUISITE UNDER S. 28(IV) OF T HE ACT. THE ASSESSEE HAS NOT IN THIS CASE, SECURED ANY BENEFIT OR PERQUISITE IN CONSID ERATION OF A BUSINESS TRANSACTION UNDERTAKEN WITH THE SELLERS OF THE SHARE S. THUS THIS ISSUE IS DECIDED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 8 IN VIEW OF THE ABOVE DISCUSSION AND THE ORDERS OF THE COORDINATE BENCHES OF THE TRIBUNAL, WE DO NOT FIND ANY MERIT IN THE APPEA L OF THE REVENUE AND ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A). 13 SHRI ASHISH P DEORO 9 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 25 TH , DAY OF OCT 2011. SD/ SD/ ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 25 TH , OCT 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI