Analjit Singh, Delhi V. DCIT, Circle- 16(2), Delhi

ITA 4737/DEL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3011 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 24-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G C SRIVASTAVA SPECIAL; SUVINAJ KUMAR DA
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Gift; Depreciation; Share purchase agreement; Opportunity of cross examination; Rule of consistency; Additional evidence; Cost of acquisition; Wholly owned subsidiary; Tangible material; Fair market value; Third party statement; Valuation report; Capital receipt; Onus to prove
• Section: 143(3); 50C; 56(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P.KANT, ACCOUNTANT MEMBER I.T.A .NO.-4737/DEL/2017 (ASSESSMENT YEAR-2014-15) SHRI ANALJIT SINGH, 15, AURANGZEB ROAD, DELHI-110011. PAN-ABLPS7514D V S . DCIT, CIRCLE-16(2), DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH. AJAY VOHRA, SR. ADV. & SH. GAURAV JAIN, ADV. RESPONDENT BY SH. G.C.SRIVASTAVA, SPECIAL COUNSEL & SH. SUVINAJ KUMAR DASH, ADV. DATE OF HEARING 06.11.2017 DATE OF PRONOUNCEMENT 01 .1 2 .2017 ORDER PER AMIT SHUKLA, JM THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 07.07.2017 PASSED BY LD.CIT(AP PEALS)-6, DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) FOR THE AY 2014-15. IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UP HOLDING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE GAI N ARISING FROM SALE OF UNLISTED SHARES AS 'SHORT TERM CAPITAL GAIN', IN STEAD OF LONG TERM CAPITAL GAINS RETURNED BY THE APPELLANT. I.T.A .NO.-4737/DEL/2017 2 | P A G E 1.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN O BSERVING THAT FOR UNLISTED SHARES TO QUALIFY AS A 'LONG TERM CAPI TAL ASSET', THE PERIOD OF HOLDING WAS 36 MONTHS AND NOT 12 MONTHS A S PER THE FIRST PROVISO TO SECTION 2(42A) (AS APPLICABLE DURI NG THE YEAR UNDER CONSIDERATION), READ WITH SECTION 2(29A) OF THE ACT . 1.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN H OLDING THAT THE SHORTER PERIOD OF 12 MONTHS TO QUALIFY AS 'LONG TER M CAPITAL ASSET' WAS ONLY APPLICABLE TO UNLISTED SHARES SOLD DURING THE PERIOD 01.04.2014 TO 10.07.2014, IN TERMS OF SECOND PROVIS O TO SECTION 2(42A), WHICH WAS INSERTED BY THE FINANCE (NO.2) AC T, 2014 WITH EFFECT FROM 01.04.2015. 2.THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN RE-C OMPUTING THE AMOUNT OF CAPITAL GAIN ARISING FROM SALE OF SHARES OF M/S SCORPIO BEVERAGES PVT. LTD. ('SBPL') BY SUBSTITUTING ACTUAL SALES CONSIDERATION OF RS. 9,97,92,44,200 WITH ALLEGED FA IR MARKET VALUE OF RS. 2233,42,850,070, DETERMINED BY ADOPTING PRIC E PER SHARE OF RS. 142.70. 2.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN C ONFIRMING THE ACTION OF THE ASSESSING OFFICER IN SUBSTITUTING ACT UAL SALE PRICE WITH NOTIONAL/ALLEGED CONSIDERATION, DETERMINED AS PER A LLEGED FAIR PRICE OF RS.142. 70 PER SHARE, INVOKING SECTION 50D OF THE ACT. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN UPH OLDING THE ACTION OF THE ASSESSING OFFICER IN DENYING CAPITALI ZATION OF INTEREST EXPENDITURE AGGREGATING TO RS. 39,95,01,050, AS PAR T OF THE COST OF ACQUISITION/COST OF IMPROVEMENT WHILE CALCULATING C APITAL GAINS ON SALE OF SHARES OF SBPL. 3.1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN O BSERVING THAT THERE WAS NO DIRECT NEXUS BETWEEN THE INTEREST BEAR ING BORROWED FUNDS AND INVESTMENT IN SHARES OF SBPL. I.T.A .NO.-4737/DEL/2017 3 | P A G E 4. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT ADMITTING AND CONSIDERING THE ADDITIONAL EVIDENCE FILED BY TH E APPELLANT IN ACCORDANCE WITH RULE 46A OF THE INCOME TAX RULES, 1 962 (THE RULES) HOLDING THAT THERE WAS NO SUFFICIENT CAUSE WHICH PREVENTED THE APPELLANT FROM PRODUCTION OF THE SAID DOCUMENTS BEFORE THE ASSESSING OFFICER. 2. IN THE AFORESAID GROUNDS, THE ASSESSEE HAS RAISED M AINLY THREE ISSUES; FIRSTLY, THE LD.CIT(A) HAS ERRED IN LAW IN TREATING THE GAI N ARISING FROM SALE OF UNLISTED SHARES AS SHORT TERM CAPITAL GAINS INSTEAD OF LONG TERM CAPITAL GAINS, ON THE GROUND THAT TO Q UALIFY FOR LONG TERM CAPITAL GAIN, THE UNLISTED/UNQUOTED SHARE S SHOULD BE HELD FOR THE PERIOD OF 36 MONTHS AND NOT 12 MONT HS AS PER THE PROVISO TO SECTION 2(42A)OF THE ACT AS WAS APPLICABLE DURIN G THE YEAR UNDER CONSIDERATION; SECONDLY , LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN RE- COMPUTING THE AMOUNT OF CAPITAL GAIN FROM SALE OF S HARES OF M/S SCORPIO BEVERAGES P. LTD. (IN SHORT SBPL) BY SUBS TITUTING THE ACTUAL SALE CONSIDERATION OF RS.9,97,92,44,200/-WIT H ALLEGED FAIR MARKET VALUE OF RS.2,23,34,28,50,070/- CRORES BY AD OPTING PRICE PER SHARE OF RS.142.70; AND LASTLY, LD. CIT (A) HAS ERRED IN LAW IN DENYING THE CAPITAL IZATION OF INTEREST EXPENDITURE AGGREGATING TO RS.39,95,01, 050/- CRORES, AS A PART OF COST OF ACQUISITION WHILE CALCULATING THE CAPITAL GAINS ON SALE OF SHARES OF SBPL. 3. IN THIS ORDER, VARIOUS ACRONYMS HAVE BEEN US ED AT SEVERAL PLACES, THEREFORE, FOR SAKE OF READY REFERENCE, WE ARE ENLI STING THOSE ABBREVIATIONS AT THE BEGINNING ITSELF:- AS: ANALJIT SINGH AND HIS WIFE, MRS. NEELU ANALJIT SINGH; I.T.A .NO.-4737/DEL/2017 4 | P A G E SBPL: SCORPIO BEVERAGES PVT. LTD., A COMPANY OWNED BY ASSESSEE AND HIS WIFE AND LATER ON BY OTHER ENTITIE S. MVH: MV HEALTH CARE SERVICES PVT.LTD., A SUBSIDIARY OF SBPL. NDS: ND CALLUS INFO SERVICES PVT.LTD., A SUBSIDIARY OF MVH. CGP: CGP INVESTMENT LTD.,A MAURITIUS BASED COMPANY AND SUBSIDIARY /AN AFFILIATE OF EARLIER HUTCHISON GROUP AND LATER ON VODAFONE INTERNATIONAL; 3GSPL: 3 GLOBAL SERVICES PVT. LTD., AFFILIATE OF VO DAFONE GROUP TIL: TELECOM INVESTMENTS INDIA PVT. LTD., IN WHICH VODAFONE HAD DIRECT AND INDIRECT INTEREST IN VODAFONE INDIA PVT. LTD. HEL: HUTCHISON ESSAR LTD. VIHL: VODAFONE INTERNATIONAL HOLDINGS PVT. LTD. VIL: VODAFONE INDIA PVT. LIMITED. KOTAK: KOTAK MAHINDRA CAPITAL LTD. (VALUER) DCF: DISCOUNTED CASH FREE FLOW METHOD: NAV: NET ASSET VALUE METHOD FMV: FAIR MARKET VALUE. 4. SINCE THE MAJOR ISSUE RELATES TO THE ADDIT ION MADE ON ACCOUNT OF COMPUTATION OF CAPITAL GAIN BY ENHANCING THE FAIR M ARKET VALUE OF SBPL SHARES AS RAISED VIDE GROUND NO. 2, THEREFORE, WE ARE TAKING UP THIS ISSUE FIRST. BOTH THE PARTIES HAVE MADE THEIR DETAILED SUBMISSIONS DURING THE COURSE OF HEARING. AT THE TIME OF HEARIN G, THE REVENUE HAS FILED A PETITION FOR ADMISSION OF ADDITIONAL EVIDE NCES UNDER RULE 29 OF ITAT RULES, 1963 BY BRINGING ON RECORD; (I) FRAMEWO RK AGREEMENT OF 01.03.2006; (II) WRITE UP ON THE STRUCTURE OF ERSTW HILE HUTCHISON GROUP AND THE DETAILS OF ITS ACQUISITION OF INTERES TS PERTAINING TO INDIAN TELECOMMUNICATION MARKET; AND (III) FINANCIA L STATEMENTS OF SBPL AND ITS STEP DOWN SUBSIDIARIES FOR VARIOUS FIN ANCIAL YEARS. BEFORE WE DEAL WITH THE ADMISSIBILITY OF THE SAID ADDITION AL EVIDENCES, IT WOULD BE RELEVANT TO DEAL WITH THE FACTS AND ISSUE HAS BEEN DISCUSSED BY THE AO AS WELL AS THE LD.CIT(A) IN BRIEF. I.T.A .NO.-4737/DEL/2017 5 | P A G E A. ISSUE RELATING TO ENHANCEMENT OF SALE CONSI DERATION OF SHARES (GROUND NO. 2 & 2.1): 5. THE AO IN THE IMPUGNED ASSESSMENT ORDER H AS NOTED THAT DURING THE RELEVANT PREVIOUS YEAR ENDING ON 31.03.2 014, THE ASSESSEE HAS SOLD15,67,68,689SHARES OF SBPL TO A COMPANY CAL LED, CGP INVESTMENT LTD. (IN SHORT CGP) WHICH WAS AN AFFILIA TE OF VODAFONE INTERNATIONAL HOLDINGS PVT. LTD. (IN SHORT VIHL) HOLDING FOR A TOTAL CONSIDERATION OF RS.9,97,92,44,200/-,RESULTANTLY TH E LONG TERM CAPITAL GAIN OF RS.7,82,92,66,249/- WAS OFFERED TO TAX IN ACCORDANCE WITH THE PROVISION OF SECTION 45 R.W.S. 48. THE AO OBSERVED THAT THE ASSESSEE HAD SOLD THE SHARES @ 63.69 PER SHARE ON T HE BASIS OF HIS CALCULATION WHICH WAS THE AMOUNT OF SALE CONSIDERAT ION DIVIDED BY NUMBER OF SHARES SOLD; AND THEN REQUIRED THE ASSESS EE TO SUBMIT THE BASIS OF VALUATION OF SHARES OF SBPL. IN RESPONSE, THE ASSESSEE SUBMITTED A VALUATION REPORT OF M/S KOTAK MAHINDR A CAPITAL LTD., DATED 19.03.2014, WHEREIN THE VALUATION WAS DONE ON BEHALF OF THE PURCHASER CGP AND THE VALUE OF THE SBPL SHARES WAS ARRIVED AT BY THEM AT RS.5.40 PER SHARES. THE AO OBSERVED THAT TH ERE HAS BEEN A HUGE VARIATION IN THE VALUE OF SHARES PRICE OF SBPL FROM THE YEAR 2006 TO 2014, WHICH WAS EVIDENT FROM THE FACT THAT THE S HARES OF SBPL WERE ORIGINALLY ISSUED AT RS.10 PER SHARE IN YEAR 2006 A ND AFTER ACQUIRING THE SHARES AT THAT VALUE, THE ASSESSEE HAD SOLD 4,9 00 SHARES @ RS. 10.88 LAKHS PER SHARES TOTALING TO RS.533.33 CRORES IN THE FY 2009-10. AGAIN IN THE F.Y. 2012-13, SBPL ISSUED RIGHTS SHAR ES AT PAR VALUE OF RS.10; AND NOW ASSESSEE HAD SOLD ALL THE SHARES (IN CLUDING RIGHTS SHARES) IN MARCH, 2014 SHOWING THE VALUATION OF SHA RES @ RS.63.65.DUE TO THIS HUGE VARIATION IN THE PRICE/VA LUATION OF SHARES, ASSESSING OFFICER THEN VENTURED INTO EXAMINING THE BACKGROUND FACTS OF THE ENTIRE ISSUE LEADING TO ACQUISITION AND SALE OF SHARES. BUT BEFORE THAT, HE LISTED OUT MANY DISCREPANCIES IN THE VALUA TION REPORT OF THE KOTAK MAHINDRA. FIRST OF ALL, HE NOTED THE VALUATIO N OF VODAFONE INDIA I.T.A .NO.-4737/DEL/2017 6 | P A G E PVT. LTD. (IN SHORT VIL) WHICH WAS VALUED AT RS.564 48.03 CRORES. HOWEVER AS FAR AS THIS VALUATION OF ENTIRE EQUITY S HARES OF VIL IS CONCERNED, THE AO HAS NOT ULTIMATELY DISPUTED THIS FIGURE WHICH WAS WORKED OUT ON THE BASIS OF DISCOUNTED CASH FREE FL OW METHOD (DCF).THEREAFTER, HE NOTICED THAT, WHILE DETERMININ G THE SHARE VALUE OF SBPL, THE VALUER FIRST ADOPTED THE DCF METHOD IN DE TERMINING THE VALUE OF VIL BUT LATER ON SWITCHED TO NET ASSET VAL UE METHOD (NAV) WHILE ARRIVING THE VALUE OF SBPL. HE THUS, HELD THA T THE NAV METHOD CANNOT BE THE CORRECT BASIS OF VALUATION OF SBPL SH ARES, BECAUSE THE VALUE OF SBPL SHARES HAVE BEEN ARRIVED AT RS.5.40 P ER SHARE, WHILE THE VALUATION OF VIL WAS RS.56,448.30 CRORES, HE THUS, CAME TO A CONCLUSION THAT THE VALUATION ADOPTED BY THE ASSESS EE FOR THE SBPL SHARES IS NOT BASED ON THE FAIR MARKET PRICE. HE HA S ALSO NOTED THAT SBPLS HOLDING IN VIL WAS 9.65%, WHICH THOUGH HAS B EEN STRONGLY OBJECTED/CONTESTED BY THE ASSESSEE BEFORE US THAT T HE SAME HAS WRONGLY BEEN TAKEN AT 9.65%, BUT INSTEAD IT IS 8.90 %. 6. THE AO, THEREAFTER, TRACES THE BACKGROUND OF TRANSACTION OF ACQUISITION AND SALE OF SHARES OF SBPL WHICH HAS BE EN DISCUSSED BY THE AO AT PAGES 22 TO 26 OF HIS ASSESSMENT ORDER. I N SUM AND SUBSTANCE, THE FACTS AS DISCUSSED BY THE AO ARE THA T ASSESSEE ALONGWITH HIS WIFE, MRS. NEELU ANALJEET SINGH, HELD 100% OF EQUITY SHARES OF SBPL, THE ENTIRE SHARE CAPITAL DIVIDED IN TO 10,000 EQUITY SHARES OF RS.10 EACH. THE SBPL THROUGH ITS STEP DOW N SUBSIDIARIES LIKE, MV HEALTH CARE SERVICES PVT. LTD. (MVH) AND N D CALLUS INFO SERVICES PVT. LTD. (IN SHORT NDS) AND OTHERS DOWN STREAM ENTITIES HELD EQUITY SHARES HUTCHISON ESSAR LTD. (HEL) WHICH WAS SUBSEQUENTLY TAKEN OVER BY VODAFONE INTERNATIONAL HOLDINGS BV AN D WAS RENAMED AS VODAFONE INDIA PVT. LTD. (IN SHORT VIL). THE A SSESSEE IN TERMS OF FRAMEWORK AGREEMENT DATED 05.07.2007 ENTERED INTO B ETWEEN THE AS; SUBSIDIARIES COMPANIES OF THE AS; VODAFONE INTERNAT IONAL HOLDINGS PVT. LTD. [WHICH WAS EARLIER CALLED AS GLOBAL SERVI CES PVT. LTD.] AND I.T.A .NO.-4737/DEL/2017 7 | P A G E VIL. AS PER THE FRAMEWORK AGREEMENT, AS AND WHEN PE RMITTED BY GOVERNMENT OF INDIA ON THE LIMITS IMPOSED ON FOREIG N INVESTMENT IN THE TELECOMMUNICATION SECTOR, THE GSPL SHALL HAVE T HE OPTION TO ACQUIRE THE SHARES OF SBPL FROM THE ASSESSEE FOR WH ICH THE ASSESSEE WAS ENTITLED TO CALL OPTION FEE IN LIEU OF ASSURANC E TO VIL AND VODAFONE INTERNATIONAL HOLDINGS PVT. LTD. AND THE SHARE OF S BPL WOULD BE SOLD ONLY ON THE CONSENT OF VIL. IN THE YEAR 2009, 49% O F THE SBPL HOLDING WERE SOLD TO CGP INDIA INVESTMENT LTD., A MAURITIUS BASED COMPANY AND SUBSIDIARY OF VODAFONE GROUP FOR SUM OF RS.533 CRORES IN THE FY 2009-10. IN THE F.Y. 2012-13, SBPL OFFERED RIGHT S HARES WHICH WAS SUBSCRIBED BY THE ASSESSEE AS WELL AS CGP BEING EXI STING SHAREHOLDERS IN RATIO OF THEIR EXISTING SHAREHOLDING. THE RIGHT SHARES SUBSCRIBED BY THE ASSESSEE WERE AGREED FOR SUM OF RS.300 CRORES. THIS RIGHT SHARES ALONGWITH THE ORIGINAL SHARES OF 5100 SHARES HAVE B EEN SOLD IN THE A.Y. 2014-15 AS PER THE SALE PURCHASE AGREEMENT DAT ED 12.03.2014, WHEREIN THE AGGREGATE CONSIDERATION WAS AGREED AT R S.1241.32 CRORES, WHEREBY CGP HAD PURCHASED ENTIRE 51% STAKE OF THE A SSESSEE IN SBPL. 7. THE ASSESSEE BEFORE THE AO SUBMITTED THAT THE EN TIRE TRANSFER PRICE AS WELL AS THE CALL OPTION FEE WHICH WAS RE CEIVED BY THE ASSESSEE AROSE FROM THE FRAMEWORK AGREEMENT OF 2007 AND IN THE SAID AGREEMENT ITSELF, THE TRANSFER PRICE OF THE ENTIRE SBPL SHARES WERE DETERMINED AT US $266.250 WHICH WAS TO BE CONVERTED ON THE THEN PREVAILING EXCHANGE RATE TO INR AND THE MARKET VALU E OF THE ENTIRE SHARE CAPITAL OF HEL WAS TAKEN AT US $ 25 BILLION A ND INCASE THE PRICE OF THE HEL EXCEEDS US $ 25 BILLION THEN THE VALUATI ON OF THE SBPL SHARES WOULD BE DETERMINED ACCORDINGLY. THUS, IT WA S SUBMITTED THAT THE TRANSFER PRICE OF THE ENTIRE SBPL SHARES WAS $ 266.250, THAT IS, RS.1088 CRORES AS PER THE THEN EXCHANGE RATE. WHEN 49% OF THE SHARES WERE SOLD ON THE BASIS OF SAME TRANSFER PRIC E AT RS.533 CRORES, I.E. 49% OF 1088 CRORES, THEN THE BALANCE SHARE VAL UE WAS RS.555 I.T.A .NO.-4737/DEL/2017 8 | P A G E CRORES ALONGWITH THE VALUE OF RIGHT SHARES AT RS.30 0 CRORES SHARES, AGGREGATING TO RS.855 CRORES. HENCE, WHAT THE ASSES SEE HAD SOLD AT RS.1241.32 CRORES WAS MORE THAN RS.855 CRORES PAYAB LE AS PER THE FRAMEWORK AGREEMENT. THE AO, HOWEVER AFTER DETAILED DISCUSSION HELD THAT THE ASSESSEE HAD INDIRECTLY HELD SHAREHOLDING IN VIL AT 3.95% THROUGH CHAIN OF INTERMEDIARIES FROM SBPL TO VIL AN D THE VALUATION ADOPTED BY THE VALUER OF VIL COMES OUT TO RS.56448. 30 CRORES AND IF THE VALUE OF 3.95 % SHARE HELD BY THE ASSESSEE IS T O BE WORKED OUT, THEN THE SAME COMES TO RS.2233.73 CRORES AND ACCORD INGLY, THE SHARE VALUE COMES TO RS.142.70 PER SHARE. THEREAFTER, HE DISCUSSES HOW THERE HAS BEEN EXTREME MOVEMENT OF SHARE PRICE IN S BPL FROM THE YEARS 2006-2014, THAT IS, IT WAS ORIGINALLY AT RS.1 0 IN THE YEAR 2006 AND WHEN THE ASSESSEE SOLD 4,900 SHARES FOR A SUM O F RS.533.33 CRORES, IT WORKED OUT @ 10.88 PER SHARE. NOW IN THE YEAR 2014, THE ASSESSEE HAS SOLD THE ENTIRE SHARES INCLUDING RIGHT SHARES @ 63.65 WHICH IS NOT CORRECT AND EVEN THE VALUE ADOPTED BY KOTAK MAHINDRA LTD. DETERMINING THE VALUE OF SHARES AT RS.5.40 PER SHARE IS ALSO NOT CORRECT. THUS, HE WORKED OUT THE CAPITAL GIVEN BY T AKING THE CONSIDERATION RECEIVED/ACCRUED TO THE ASSESSEE FROM THE SALE OF SHARES AT RS.2233.37 CRORES BY TAKING THE VALUE PER SHARE AT RS.142.70 AND THEREBY WORKED OUT THE SHORT TERM CAPITAL GAIN OF R S.2075.75 CRORES (WHICH HAS BEEN CONTESTED BY THE ASSESSEE VIDE GROU ND NO. 1, THAT IT IS LONG TERM CAPITAL GAIN AS THE RIGHT SHARES WHICH WERE SOLD WERE HELD FOR MORE THAN 12 MONTHS). 8. FROM THE STAGE OF THE LD. CIT(A), THE SAID SALE CONSIDERATION OF SBPL SHARES DETERMINED AT RS.2233.37 CRORES HAS BEE N UPHELD AND THE LD.CIT(A) HAS FURTHER JUSTIFIED THE ACTION OF T HE ASSESSING OFFICER OF TAKING THE FAIR MARKET VALUE OF THE SBPL SHARES BY INVOKING THE PROVISION OF SECTION 50D OF THE ACT; AND HELD THAT THE AO HAS THE POWER TO SUBSTITUTE ACTUAL CONSIDERATION RECEIVED A T TRANSFER OF SHARES WITH THE FAIR MARKET VALUE BY APPLYING THE PROVISIO N TO SECTION 50D OF I.T.A .NO.-4737/DEL/2017 9 | P A G E THE ACT. IN IMPUGNED APPELLATE ORDER, LD.CIT(A) HAS DEALT WITH THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE FINDING OF THE AO, BUT HAS CONFIRMED THE SAID ACTION ON THE GROUND THAT THE AO WAS JUSTIFIED UNDER THE PROVISIONS OF THE LAW AND IN TE RMS OF SECTION 50D OF THE ACT. APART FROM THAT THERE IS NOT MUCH IMPROVEM ENT IN THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE. B. ADMISSIBILITY OF ADDITIONAL EVIDENCE FILED BY TH E REVENUE VIDE APPLICATION MADE UNDER RULE 29 OF THE ITAT RUL ES, 1963 9. AFTER THE COMPLETION OF THE ARGUMENT MADE BY THE LD. SR. COUNSEL, MR. AJAY VOHRA ON BEHALF OF THE ASSESSEE O N THIS ISSUE, THE REVENUE AT THE STAGE OF COUNTER SUBMISSIONS HAD FIL ED A PETITION FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 29 OF I TAT RULES, 1963, WHICH WE SHALL DISCUSS FIRST, BEFORE DWELLING UPON ARGUMENTS PUT FORTH ON BEHALF OF THE ASSESSEE. IN THE SAID PETITION, TH E REVENUE HAS SOUGHT FOR ADMISSION OF FOLLOWING AS ADDITIONAL EVIDENCE:- A) FRAMEWORK AGREEMENT DATED 1 ST MARCH, 2006 BETWEEN MR. ANALJIT SINGH, SCORPIO BEVERAGES PVT. LTD., MV HEAL THCARE SERVICES PVT. LTD., 3 GLOBAL SERVICES PVT. LTD. (3 GSPL) A ND ND CALLUS INFO SERVICES PVT. LTD. B) A WRITE UP ON THE STRUCTURE OF HUTCHISON GROUP AND THE DETAILS OF ITS ACQUISITION OF INTEREST PERTAINING T O THE INDIAN TELECOMMUNICATIONS MARKET, TITLED HISTORY HUTCHISO N GROUP-INDIA. C) FINANCIAL STATEMENTS OF SCORPIO BEVERAGES PVT. LTD. AND ITS STEP DOWN SUBSIDIARIES, NAMELY, ND CALLUS INFO SERV ICES PVT. LTD., MV HEALTHCARE SERVICES PVT. LTD., TELECOM INVESTMEN TS INDIA PVT. LTD. (TIL) AND JAYKAY FINHOLDING (INDIA) PVT. LTD . THE FINANCIAL STATEMENTS HAVE BEEN DOWNLOADED FROM THE WEBSITE OF MCA, AS FILED BY THE RESPECTIVE COMPANIES. I.T.A .NO.-4737/DEL/2017 10 | P A G E 10. LD. SPL. COUNSEL, SHRI G.C. SRIVASTAVA, VEHEMEN TLY SUBMITTED THAT THESE DOCUMENTS ARE QUITE RELEVANT AND HAS A V ITAL BEARING ON THE ISSUES INVOLVED AS IT NOT ONLY GIVES THE BACKGROUND OF THE NATURE OF AGREEMENTS AND TRANSACTIONS ENTERED BETWEEN THE PAR TIES BUT ALSO PROVIDES THE BASIS FOR DETERMINATION OF VALUATION O F SHARES WHICH IS THE SUBJECT MATTER OF THE DISPUTE. THE ARGUMENT PUT FORTH BY THE SPECIAL COUNSEL ON THESE DOCUMENTS CAN BE SUMMARIZE D IN THE FOLLOWING MANNER:- (I) THIS AGREEMENT IS EXECUTED AMONGST THE ASSESSEE (AS ) AND THE COMPANIES IN WHICH HE HAS DIRECT OR INDIRECT IN TEREST AND 3 GSPL, A COMPANY IN WHICH HEL HAD INDIRECT INTEREST. THE AGREEMENT GRANTS CALL OPTION OR PUT OPTION TO T HE PARTIES AND SEEK TO DETERMINE THE CONSIDERATION PAYABLE FOR THE TRANSFER OF SHARES ON THE EXERCISE OF SUCH CALL/PUT OPTIONS IN FUTURE. (II) THIS AGREEMENT WAS NEVER FILED BEFORE THE TAX AUTH ORITIES BY THE ASSESSEE, THOUGH HE WAS THE MAIN PARTY TO TH IS AGREEMENT. (III) THE ASSESSEE DID FILE FRAMEWORK AGREEMENT OF 2007 AND ITS AMENDMENT LETTERS OF 2010 AND 2011 AND SUPPLEME NTARY AGREEMENT OF 2012 WHICH DEALT WITH THE RIGHTS AND O BLIGATIONS OF DIFFERENT PARTIES TO THE AGREEMENT WITH REGARD TO C ALL/PUT OPTIONS. HOWEVER, THE FRAMEWORK AGREEMENT OF 2006 WHICH FORMS PART OF ADDITIONAL EVIDENCE, WAS THE FIRST DO CUMENT EXECUTED BY THE ASSESSEE IN THE CONTEXT OF CALL/PUT OPTIONS, WHICH WAS NEVER BROUGHT TO THE NOTICE OF THE AUTHOR ITIES BELOW. (IV) THE AGREEMENT SOUGHT TO BE LED BY THE REVENUE AS ADDITIONAL EVIDENCE IS THE EARLIEST OF THE AGREEMEN TS WHICH DEFINES THE RIGHTS AND OBLIGATIONS AND PROVIDE A BA SIS FOR DETERMINATION OF THE SALE CONSIDERATION OF SHARES O N THE EXERCISE OF THE OPTION. A ) FRAMEWORK AGREEMENT OF 2006 : - I.T.A .NO.-4737/DEL/2017 11 | P A G E (V) THE DOCUMENT GOES TO THE ROOT OF THE MATTER INVOLV ED IN GROUND NO. 2 AND IS DIRECTLY RELEVANT TO THE ISSUES CONCERNED. HE SUBMITTED THAT IT IS WORTH TO BE NOTED THAT THE ARR ANGEMENTS OF THE AS WITH HUTCH AND ITS SUBSIDIARIES CONTINUED AS SUCH AFTER THE ACQUISITION OF 67% INTEREST OF HUTCH IN HEL BY VODAFONE. (VI) THUS, THE DOCUMENT AT HAND IS NOT ONLY RELEVANT BUT ITS EXAMINATION AND CONSIDERATION IS ABSOLUTELY NECESSA RY FOR APPRECIATING THE ISSUES INVOLVED IN GROUND NO. 2 OF THE APPEAL. B) HISTORY OF HUTCHISON GROUP IN INDIA:- (I) THIS DOCUMENT GIVES A HISTORICAL PERSPECTIVE OF TH E INVOLVEMENT OF THE ASSESSEE IN TELECOMMUNICATION SE CTOR AND THE JOINT VENTURE OPERATIONS OF THE COMPANIES IN WHICH HE HAD SUBSTANTIAL INTEREST WITH HUTCH IN INDIA. (II) REVENUE SEEKS TO REFER TO THIS DOCUMENT TO GIVE A HISTORICAL BACKGROUND TO THE EVOLUTION OF THE CALL/PUT OPTION RESULTING IN TRANSFER OF SHARES. (III) THE DOCUMENT ALSO EXPLAINS HOW SOME PART OF SHAREHOLDING OF HEL GOT VESTED IN TIL WHICH IS A ST EP DOWN SUBSIDIARY OF THE APPELLANT. THE HOLDING OF TIL IN HEL FORMS THE BASIS OF THE TRANSFER PRICE. (IV) THISWRITE UP WOULD HELP THE HONBLE BENCH IN HAVING A COMPREHENSIVE UNDERSTANDING OF THE BACKGROUND OF TH E ISSUES INVOLVED. C) FINANCIAL STATEMENTS OF SUBSIDIARIES:- (I) THIS PAPER BOOK CONTAINS FINANCIAL STATEMENTS OF SC ORPIO BEVERAGES PVT. LTD. AND ITS STEP DOWN SUBSIDIARIES INCLUDING JAYKAY FINHOLDING INDIA PVT. LTD. (II) ONE OF THE ISSUES INVOLVED IN THE GROUND OF APPEAL NO. 2 IS THE MECHANISM TO WORK OUT THE VALUE OF SHARES OF HE L AND WHETHER OR NOT THE VALUATION OF SHARES DONE BY KOTA K MAHINDRA I.T.A .NO.-4737/DEL/2017 12 | P A G E AND RELIED UPON BY THE APPELLANT BEFORE THE LOWER A UTHORITIES AND THE HONBLE ITAT SHOULD ACCOUNT FOR THE LIABILITIES OF THE STEP DOWN SUBSIDIARIES. THE FINANCIALS AS CONTAINED IN T HE PAPER BOOK CONTAIN COPIES OF THE BALANCE SHEET AND ITS CORRESP ONDING SCHEDULES WHICH GIVE DETAILS OF SUCH LIABILITIES. I N THE EVENT THE LIABILITIES ARE TO BE TAKEN INTO CONSIDERATION, AS URGED BY THE APPELLANT, THE CORRECTNESS OR OTHERWISE OF SUCH LIA BILITIES CAN ONLY EMERGE FROM A READING OF THESE FINANCIALS. (III) THE AMOUNT OF CAPITAL CONTRIBUTED BY THE APPELLANT BY WAY OF RIGHT ISSUE WAS UTILIZED IN ACQUISITION OF FURTH ER SHARES. THE APPELLANT HAS NOT DISCLOSED HOW AND IN WHAT MANNER THE INCREASED SHARE CAPITAL OF SBPL WAS PUT TO USE. THI S DOCUMENT THROWS LIGHT ON THIS ASPECT OF THE ISSUE WHICH WOUL D BE VERY RELEVANT FOR DECIDING THE CORRECTNESS OR OTHERWISE OF THE CONSIDERATION DISCLOSED BY THE APPELLANT. 11. MR. SRIVASTAVA FURTHER SUBMITTED THAT THE FRAM EWORK AGREEMENT OF 2006 AND THE HISTORY OF HUTCHISON GROUP OF INDI A FORMS PART OF THE RECORD OF VODAFONE INTERNATIONAL HOLDINGS WHICH HAS BEEN SUBJECT MATTER OF DISPUTE BEFORE THE HONBLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS BV VS. UOI CA 733/2 012 AND THE DOCUMENTS AT SL. NO.3 HAS BEEN DOWNLOADED FROM THE WEBSITE OF MCA AS FILED BY THE RESPECTIVE COMPANIES WHICH IS IN TH E PUBLIC DOMAIN. HE EMPHASIZED THAT THOUGH THESE DOCUMENTS HAVE NOT BEE N CONSIDERED BY THE AO, BUT IT MERELY SUPPORTS THE CASE MADE BY THE AO AND HAS A HUGE IMPLICATION AND RELEVANCE FOR DETERMINING THE ISSUE RAISED IN GROUND NO.2. HE FURTHER SUBMITTED THAT RULE 29 EMPO WERS THE TRIBUNAL TO ADMIT SUCH DOCUMENTS WHICH WOULD ENABLE THE TRIBUNAL TO PASS THE JUDGMENT ON CORRECT APPRECIATION OF FACTS AND WILL PUT THE ENTIRE CASE IN THE PROPER PERSPECTIVE. BEING A FINA L FACT FINDING AUTHORITY AND IN THE INTERESTS OF JUSTICE TO BOTH T HE PARTIES, THESE I.T.A .NO.-4737/DEL/2017 13 | P A G E DOCUMENTS NEEDS TO BE ADMITTED. HE FURTHER POINTED OUT THAT FRAMEWORK AGREEMENT OF 2006, COMPLETES THE CHAIN OF DIFFERENT FRAMEWORK AGREEMENTS ENTERED INTO BY THE ASSESSEE I N RELATION TO CALL/PUT OPTION, BECAUSE ALL THE AGREEMENTS ENTERED SUBSEQUENTLY FLOW FROM THE FRAMEWORK AGREEMENT OF 2006 ONLY, WHICH IS THE EVIDENT FROM THE FACT THAT THE SUBSCRIPTION OF SHARE CAPITA L OF HEL, THE LOAN FINANCING, THE CALL/ PUT OPTION AND THE STIPULATION OF THE TRANSFER PRICE OF THE SHARES ON THE EXERCISE OF OPTION COMMENCES N OT FROM THE FRAMEWORK AGREEMENT OF 2007 AS RELIED UPON BY THE ASSESSEE ALBEIT BY THE FRAMEWORK AGREEMENT OF 2006 WHICH IS BEING SOUGHT TO BE ADMITTED AS ADDITIONAL EVIDENCE BY THE REVENUE IN O RDER TO PUT THE FACTS IN CORRECT PERSPECTIVE. IN ABSENCE OF THIS DO CUMENT, THE CHAIN OF FRAMEWORK AGREEMENTS WOULD BE INCOMPLETE AND IT WOU LD BE DIFFICULT FOR THE BENCH TO APPRECIATE THE TRUE NATURE OF THE TRANSACTION AND THE CONSIDERATION ACCRUING TO THE ASSESSEE FROM THE VAR IOUS FRAMEWORK AGREEMENTS. IN SUPPORT OF THE ADMISSIBILITY OF ADDI TIONAL EVIDENCE BY THE REVENUE, HE STRONGLY REFERRED AND RELIED UPON T HE JUDGMENT OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF L.G. ELECTRONICS PVT. LTD. (ITA NO.510/DEL/2011) , WHEREIN THE SPECIAL BENCH AFTER REFERRING TO CATENA OF DECISIONS HELD THAT THE ADDI TIONAL EVIDENCE PRODUCED BY THE REVENUE SHOULD BE ENTERTAINED PROVI DED OPPORTUNITY IS GIVEN TO THE OPPOSITE PARTY TO CONTROVERT THE AD DITIONAL EVIDENCE. IN THIS CASE ALSO, THE ADDITIONAL DOCUMENT WAS FILED B EFORE THE TRIBUNAL BEFORE THE COMMENCING OF THE ARGUMENTS OF THE REVEN UE AND AFTER COMPLETION OF THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. THUS, IN THE LIGHT OF THE JUDGMENT OF SPECIAL BENCH WHICH WAS RENDERED ON SIMILAR SET OF FACTS AND CIRCUMSTANCES, THESE ADDITIONAL EVIDENCES SHOULD BE ADMITTED AS IT WOULD ONLY BRING FACTUAL CLARITY TO THE ISSUES INVOLVED AND THERE IS NO ATTEMPT WHATSOE VER ON THE PART OF THE REVENUE TO SET UP ANY NEW CASE FOR THE REVENUEB Y FILING THESE DOCUMENTS. LASTLY, HE PRAYED THAT WHEN THE QUESTION OF SUBSTANTIAL I.T.A .NO.-4737/DEL/2017 14 | P A G E JUSTICE INVOLVED, ALL PROCEDURAL AND TECHNICAL ASPE CTS MUST YIELD IN THE INTERESTS OF JUSTICE. 12. VEHEMENTLY, OPPOSING THE FILING OF SUCH ADD ITIONAL EVIDENCE, MR. AJAY VOHRA HAD FILED DETAILED REJOINDER IN WRITING WHICH FOR THE SAKE OF READY REFERENCE ARE REPRODUCED HEREUNDER:- AT THE OUTSET, BEFORE DEALING WITH SPECIFIC OBJECTI ONS QUA ADMISSION OF EACH OF THE AFORESAID ADDITIONAL EVIDENCES SUBMITTE D BY THE REVENUE, IT MAY BE POINTED OUT THAT ALL THE AFORESAID EVIDENCES HAVE BEEN FURNISHED BY THE REVENUE IN SUPPORT OF COMPUTATION OF ALLEGED FAIR MARKET VALUE OF THE SHARES OF SCORPIO TRANSFERRED BY THE APPELLANT DURING THE YEAR, WHICH WAS SUBSTITUTED BY THE AO IN PLACE OF THE ACT UAL SALE CONSIDERATION, WHILE COMPUTING CAPITAL GAINS UNDER SECTION 45 READ WITH SECTION 48 OF THE ACT. IT IS THE SUBMISSION OF THE APPELLANT THAT IN TERMS OF THE PROVISIONS OF SECTION 45 READ WITH 48, AS AP PLICABLE AT THE RELEVANT TIME, THE ASSESSING OFFICER IS NOT EMPOWER ED TO SUBSTITUTE THE ACTUAL DECLARED SALE CONSIDERATION WITH ANY HYPOTHE TICAL, ARTIFICIAL CONSIDERATION/FAIR MARKET VALUE OF THE CAPITAL ASSE T SUBJECT OF TRANSFER, FOR COMPUTING CAPITAL GAINS UNDER THE SAID SECTION. IN VIEW OF THE AFORESAID LEGAL POSITION, THE ENTIRE DISCUSSION ON JUSTIFYING/COMPUTING THE FAIR MARKET VALUE OF THE SHARES IS PURELY IRREL EVANT AND ACADEMIC. IN THAT VIEW OF THE MATTER, THE IMPUGNED ADDITIONAL EV IDENCES FURNISHED BY THE REVENUE NEEDS TO BE REJECTED AT THE THRESHOLD. WITHOUT PREJUDICE TO THE ABOVE, THE OBJECTIONS OF T HE APPLICANT ASSESSEE AGAINST ADMISSION OF THE SAID EVIDENCES FURNISHED B Y THE RESPONDENT REVENUE TO SUPPORT THE FAIR MARKET VALUE OF THE SHA RES OF SCORPIO ARE AS UNDER: FIRSTLY, IT IS THE SUBMISSION OF THE APPELLANT THAT WHILE THE APPELLANT IS NOT DISPUTING THE RIGHT OF THE RESPONDENT PER SE TO LEAD ADDITIONAL EVIDENCE IN TERMS OF RULE 29 OF THE ITAT RULES IN A N APPEAL FILED BY THE ASSESSEE, THE APPELLANT SEEKS TO SUBMIT THAT SUCH A DDITIONAL EVIDENCES I.T.A .NO.-4737/DEL/2017 15 | P A G E MUST BE RELEVANT TO AND CONFINED TO THE CASE SET UP BY THE ASSESSING OFFICER. IN OTHER WORDS, THE ADDITIONAL EVIDENCE CA N BE PLACED ON RECORD BY THE RESPONDENT REVENUE, ADMITTED WITH THE LEAVE OF HONBLE TRIBUNAL, PROVIDED THE SAME ARE RELEVANT TO THE CON TROVERSY AT HAND AND DO NOT CHANGE THE COMPLEXION OF THE CASE / CASE SET UP BY THE AO. [REFER: MOTIRAM V. CIT: 34 ITR 646 (SC); CIT V. BAB ULAL NIM: 47 ITR 864 (MP)] VIEWED IN THE SAID OVERALL BROAD CONSPECTUS, THE AP PELLANT SEEKS TO PLACE ON RECORD ITS SPECIFIC OBJECTION AGAINST ADMI SSION OF EACH OF THE AFORESAID ADDITIONAL EVIDENCES FOR THE FOLLOWING RE ASONS: (A) RE:FRAMEWORK AGREEMENT DATED 01.03.2006 THE AFORESAID AGREEMENT WAS EXECUTED IN 2006 BETWEE N THE APPELLANT ALONG WITH COMPANIES IN WHICH THE APPELLANT HELD DI RECT AND INDIRECT INTEREST, WITH 3 GLOBAL SERVICES PRIVATE LIMITED ( GSPL) PROVIDING CERTAIN OPTIONS TO GSPL TO ACQUIRE SHAREHOLDING IN THE AFOR ESAID COMPANIES BELONGING TO THE APPELLANT. (THE DETAILED TERMS AND CONDITIONS OF THE SAID AGREEMENT ARE DISCUSSED IN DETAIL INFRA.) THE AFORESAID AGREEMENT HAS BEEN SOUGHT TO BE PRODUCED AS ADDITIONAL EVIDEN CE BY THE REVENUE TO DRAW ANALOGY FROM THE METHODOLOGY FOR DETERMININ G THE SALE CONSIDERATION FOR SHARES ON EXERCISE OF CERTAIN OPT IONS OUTLINED UNDER THE SAID AGREEMENT, WITH THE METHOD FOR DETERMINATI ON OF SALE CONSIDERATION AGREED BETWEEN THE PARTIES UNDER THE IMPUGNED FRAMEWORK AGREEMENT DATED 5.7.2007. IT IS FURTHER A LLEGED THAT THE AFORESAID AGREEMENT GOES TO THE ROOT OF THE MATTER INVOLVED IN GROUND OF APPEAL NO.2 AND WAS NEVER BROUGHT TO THE NOTICE OF THE LOWER AUTHORITIES BY THE APPELLANT. IT IS SUBMITTED THAT THE AFORESAID AGREEMENT HAS NO RELEVANCE WITH THE TRANSACTION UNDER CONSIDERATION AND IS, THEREFORE, NOT REQUIRED TO BE ADMITTED NOR CONSIDERED FOR ADJUDICATING THE IMPUGN ED GROUND OF APPEAL, FOR THE FOLLOWING REASONS: I.T.A .NO.-4737/DEL/2017 16 | P A G E VODAFONE INDIA LIMITED, (VIL), I.E., THE COMPANY ENGAGED IN THE BUSINESS OF PROVIDING TELECOMMUNICATION SERVICES AC ROSS DIFFERENT CIRCLES IN INDIA, PRIOR TO TAKEOVER BY VODAFONE INTERNATION AL IN MAY 2007, WAS HELD BY HUTCHISON GROUP, HONG KONG WITH CERTAIN OTH ER INDIAN PARTNERS AND WAS KNOWN AS HUTCHISON ESSAR LIMITED, (HEL). THE AFORESAID AGREEMENT DATED 01.03.2006 WAS ENTERE D AMONGST THE APPELLANT, SCORPIO [A COMPANY WHOLLY OWNED BY THE A PPELLANT], MV HEALTHCARE SERVICES PRIVATE LIMITED, [A WHOLLY OWNE D SUBSIDIARY OF SCORPIO (HEREINAFTER REFERRED TO AS MVH)], ND CAL LUS INFO SERVICES PRIVATE LIMITED, [A WHOLLY OWNED SUBSIDIARY OF MVH (HEREINAFTER REFERRED TO AS NDC)] AND 3 GLOBAL SERVICES PRIVAT E LIMITED, A COMPANY BELONGING TO HUTCHISON GROUP AT THE RELEVANT TIME ( HEREINAFTER REFERRED TO AS GSPL), PROVIDING FOLLOWING RIGHTS/ OPTIONS TO THE VARIOUS PARTIES: OPTION TO GSPL TO SUBSCRIBE TO FRESH EQUITY SHARES OF NDC, SUBJECT TO A MAXIMUM OF 97% OF THE TOTAL ISSUED AND PAID UP CA PITAL OF NDC (REFER CLAUSE F OF THE PREAMBLE READ WITH CLAUSE 4. 2 AND SCHEDULE I OF THE AGREEMENT); CALL OPTION WITH GSPL TO PURCHASE EQUITY SHARES OF MVH FROM SCORPIO (REFER CLAUSE 0 OF THE PREAMBLE READ WITH CLAUSE 4. 4 OF THE AGREEMENT); PUT OPTION WITH SCORPIO TO SELL EQUITY SHARES OF MV H TO GSPL (REFER CLAUSE H OF THE PREAMBLE READ WITH CLAUSE 4.3 OF TH E AGREEMENT). AKIN TO THE REASONS BEHIND GRANTING SUCH OPTIONS FO R SALE OF SHARES OF COMPANIES BELONGING TO THE APPELLANT UNDER THE IMPU GNED FRAMEWORK AGREEMENT DATED 05.07.2007, VIZ., TRANSFE R OF SHAREHOLDING IN THE DOWN-STREAM OPERATING COMPANIES , I.E., VIL, TO THE FOREIGN JV PARTNER AS AND WHEN FDI REGULATIONS PERMITTED INCREASE IN FOREIGN INVESTMENT IN TELECOMMUNICATION COMPANIES IN INDIA, THE AFORESAID AGREEMENT DATED 01.03.2006 WAS ALSO ENTERED WITH GSPL, BEING A COMPANY THEN BELONGING TO HUTCHI SON GROUP, IN ORDER TO TRANSFER DIRECT AND INDIRECT INTEREST HELD BY THE APPELLANT IN I.T.A .NO.-4737/DEL/2017 17 | P A G E VODAFONE INDIA (THEN KNOWN AS HUTCHISON ESSAR LIMIT ED) TO COMPANIES BELONGING TO HUTCHISON GROUP, SO AS TO IN CREASE THEIR INVESTMENT IN SUCH COMPANY, AS AND WHEN PERMITTED B Y FDI REGULATIONS. IT IS A MATTER OF RECORD THAT THE AFORESAID AGREEME NT WAS NEVER ACTED UPON NOR VARIOUS OPTIONS VESTED WITH DIFFERENT PART IES UNDER THE AFORESAID AGREEMENT WERE EXERCISED, IN AS MUCH AS N EITHER ANY FRESH SHARES WERE ISSUED BY NDC TO GSPL NOR SHARES OF MVH WERE ACQUIRED BY GSPL FROM SCORPIO. BEFORE THE AFORESAID AGREEMEN T COULD HAVE BEEN ACTED UPON OR THE VARIOUS OPTIONS RESTED WITH DIFFE RENT PARTIES THEREIN COULD HAVE BEEN EXERCISED, THE ENTIRE STAKE OF HUTC HISON GROUP IN THE INDIAN TELECOM COMPANY, I.E., HEL WAS ACQUIRED BY V ODAFONE INTERNATIONAL IN MAY, 2007. AS A RESULT OF THE AFOR ESAID ACQUISITION, THE EXISTING OPTION AGREEMENTS ENTERED BY VARIOUS INDIA N PARTNERS, INCLUDING THE APPELLANT, WITH HUTCHISON GROUP WERE RESCINDED AND SUPERSEDED BY NEW AGREEMENTS ENTERED INTO WITH THE VODAFONE GROUP ON FRESH TERMS AND CONDITIONS. IT WAS UNDER THE AFORESAID CIRCUMSTANCES THAT THE A FORESAID AGREEMENT DATED 01.03.2006 WAS RESCINDED AND FRESH AGREEMENT DATED 05.07.2007 WAS ENTERED INTO BETWEEN THE PARTIES (A NALJIT SINGH AND NEELU ANALJIT SINGH), WITH INCLUSION OF VODAFONE INTERNATIONAL HOLDINGS BV AS A CONFIRMING PARTY, ON COMPLETELY FRESH TERMS AND CONDITIONS AGREED BETWEEN THE PARTIES. REFERENCE IN THIS REGA RD CAN BE MADE TO CLAUSE 11.11 OF THE IMPUGNED AGREEMENT DATED 05.07. 2007 WHICH CLEARLY PROVIDED THAT ON EXECUTION OF THE SAID AGRE EMENT ALL EARLIER AGREEMENTS BETWEEN THE PARTIES WOULD STAND SUPERSED ED. THE SAID CLAUSE IS REPRODUCED HEREUNDER FOR READY REFERENCE: 11.11 ENTIRE AGREEMENT THIS AGREEMENT SUPERSEDES ANY PREVIOUS WRITTEN OR O RAL AGREEMENT BETWEEN ANY AND ALL OF THE PARTIES IN RELATION TO T HE MATTERS DEALT WITH IN THIS AGREEMENT WHICH, FOR THE AVOIDANCE OF DOUBT SH ALL BE TERMINATED ON I.T.A .NO.-4737/DEL/2017 18 | P A G E EXECUTION OF THIS AGREEMENT, AND CONTAINS THE WHOLE AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AT THE DATE HEREOF TO THE EXCLUSION OF ANY TERMS IMPLI ED BY LAW WHICH MAY BE EXCLUDED BY CONTRACT. IN THIS SUB-CLAUSES THIS AGREEMENT INCLUDES ALL DOCUMENTS ENTERED INTO PURSUANT TO THIS AGREEME NT. IN THAT VIEW OF THE MATTER, IT WOULD BE APPRECIATED THAT THE AGREEMENT DATED 01.03.2006, BEING ENTERED BETWEEN DIFFERENT S ET OF PARTIES, I.E., DURING THE TENURE OF THE OPERATING COMPANY BEING HE LD BY HUTCHISON GROUP, STOOD RESCINDED AND SUPERSEDED BY THE NEW AG REEMENT DATED 05.07.2007, WHICH WAS ENTERED INTO BETWEEN NEW SET OF PARTIES, WITH INCLUSION OF VODAFONE INTERNATIONAL AFTER ACQUISITI ON OF SHAREHOLDING OF HUTCHISON GROUP IN THE INDIAN TELECOM COMPANY BY VO DAFONE INTERNATIONAL. ACCORDINGLY, THE METHOD OF COMPUTATI ON FOR DETERMINING THE CONSIDERATION FOR TRANSFER OF SHARES AGREED IN THAT AGREEMENT HAS NO RELEVANCE / NEXUS WITH THE METHOD FOR COMPUTING TRA NSFER PRICE AGREED BY THE NEW SET OF PARTIES IN THE IMPUGNED AGREEMENT DATED 05.07.2007. IN THAT VIEW OF THE MATTER, THE FORMER AGREEMENT IS COMPLETELY IRRELEVANT TO THE TRANSACTION UNDER CONSIDERATION AND, THEREFO RE, WAS NEITHER REQUIRED TO BE FURNISHED BY THE APPELLANT BEFORE TH E LOWER AUTHORITIES NOR THE SAME NEEDS TO BE ADMITTED AS EVIDENCE AT TH IS STAGE. IT IS PERTINENT TO POINT OUT THAT THE AO HAS ACCEPT ED THAT THE DISINVESTMENT OF SHARES IN SCORPIO WAS IN TERMS OF THE BINDING AGREEMENT DATED 5.07.2007 READ WITH THE AMENDMENTS THERETO, IN AS THE ASSESSING OFFICER ACCEPTED THE: (I) INITIAL DISINVESTMENT OF 51% SHARES OF SCORPIO IN T HE YEAR 2009 AT THE PROPORTIONATE CONSIDERATION AGREED IN THE AGREE MENT DATED 5.7.2007; (II) NUMBER OF SHARES HELD BY THE APPELLANT IN SCORPIO ( AFTER THE INITIAL DISINVESTMENT AND PURSUANT TO RIGHT ISSUE IN TERMS OF THE AMENDED AGREEMENT DATED 7.8.2012); AND I.T.A .NO.-4737/DEL/2017 19 | P A G E III) OPTION FEE RECEIVED AND OFFERED TO TAX BY TH E APPELLANT IN TERMS OF THE AGREEMENT DATED 5.7.2007 READ WITH THE AMENDMEN TS THERETO. THE AGREEMENT DATED 1.03.2006 SOUGHT TO BE PLACED O N RECORD AS ADDITIONAL EVIDENCE NOT HAVING BEEN CONSIDERED BY T HE AO AND NOT BEING RELEVANT TO THE TRANSACTION, BEING SUBJECT MA TTER OF GROUND NO.2 AND 2.1, DOES NOT, THEREFORE, CALL FOR BEING A DMITTED. (B) RE:WRITE UP ON THE STRUCTURE OF HUTCHISON GROUP IN INDIA AS POINTED OUT BY THE LD. SPECIAL COUNSEL OF THE RE VENUE DURING THE COURSE OF ORAL ARGUMENTS, THE CAPTIONED WRITE UP ON THE STRUCTURE OF HUTCHISON GROUP HAS BEEN DRAWN FROM THE WRITTEN STA TEMENTS FILED BY VODAFONE GROUP IN THEIR SLP FILED BEFORE THE SUPREM E COURT IN THE CASE REPORTED AT 341 ITR 1. EVEN THE PREAMBLE TO THE AFO RESAID WRITE UP CATEGORICALLY PROVIDES THAT THE SAME HAS BEEN PREPA RED ON THE BASIS OF PUBLIC RECORD AND OTHER INFORMATION AVAILABLE IN TH E PUBLIC DOMAIN, WHICH READS AS UNDER:- I. AS FAR AS THE INFORMATION RELATING TO THE STRUCTURE OF HUTCHISON GROUP (AS DEFINED BELOW), AND ITS ACQUISITION OF INTERESTS PE RTAINING TO THE INDIAN TELECOMMUNICATIONS MARKET IS CONCERNED, WE HAVE GAT HERED PARTICULARS FROM PAPERS THAT WERE IN OUR POSSESSION, FROM PUBLI C RECORDS, AND OTHER INFORMATION THAT HAD BEEN GATHERED AT THE TIME OF T HE DUE DILIGENCE PROCESS. II. AT PLACES WHERE THERE WERE GAPS, ENQUIRIES WERE MAD E FROM THE HUTCHISON GROUP. WHILE THE HUTCHISON GROUP WAS UNWI LLING TO PROVIDE ANY FORMAL WRITTEN NOTES, THEIR OFFICIALS DID PROVI DE SOME INFORMATION TO OUR ENGLISH LAWYERS, THROUGH THEIR ENGLISH LAWYERS, THAT HAS ASSISTED US IN DRAWING UP A COMPLETE CHRONOLOGY OF EVENTS. I NFORMATION AS TO THE HUTCHISON GROUPS FIRST ASSOCIATES.VIZ. THE MAX GRO UP HAS ALSO BEEN SIMILARLY DERIVED. THE REVENUE SEEKS TO PLACE ON RECORD THE AFORESAID WRITE UP AS ADDITIONAL EVIDENCE TO GIVE A HISTORICAL BACKGROUND BEHIND (I) EVOLUTION I.T.A .NO.-4737/DEL/2017 20 | P A G E OF THE IMPUGNED CALL/PUT OPTIONS RESULTING IN TRANS FER OF SCORPIO BY THE APPELLANT, AND (II) ACQUISITION OF SHAREHOLDING IN HEL BY TELECOM INVESTMENT INDIA LIMITED (TIL) WHICH ALLEGEDLY FORM S THE BASIS OF THE TRANSFER PRICE FOR THE IMPUGNED TRANSACTION OF SALE OF SHARES. IN THIS REGARD, WITHOUT GOING INTO THE MERITS / CON TENTS OF THE AFORESAID WRITE UP AND RELEVANCE THEREOF WITH THE IMPUGNED TR ANSACTION OF SALE OF SHARES AND COMPUTATION OF FAIR MARKET VALUE THEREOF , IT IS SUBMITTED THAT AFORESAID DOCUMENT DOES NOT CONSTITUTE EVIDENCE T HAT CAN BE RELIED UPON BY THE REVENUE. THE SAME, THEREFORE, DESERVES TO BE REJECTED AND IGNORED FOR THE FOLLOWING REASONS: IN THIS REGARD, ATTENTION IS INVITED TO THE MEANING OF THE TERM EVIDENCE AND ADMISSIBLE, AS DEFINED IN BLACKS LAW DICTION ARY, AS FOLLOWS: EVIDENCE SOMETHING (INCLUDING TESTIMONY, DOCUMENTS, AND TANG IBLE OBJECTS) THAT TENDS TO PROVE OR DISPROVE THE EXISTENCE OF AN ALLEGED FACT. ADMISSIBLE EVIDENCE EVIDENCE THAT IS RELEVANT AND IS OF SUCH A CHARACTE R (E.G., NOT UNFAIRLY PREJUDICIAL, BASED ON HEARSAY, OR PRIVILEG ED) THAT THE COURT SHOULD RECEIVE IT. ON AN ANALYSIS OF THE DICTIONARY MEANING OF THE WOR D EVIDENCE, IT CAN INFERRED THAT EVIDENCE MEANS ANY TANGIBLE MATERIAL ON THE BASIS OF WHICH A FACT IN ISSUE CAN BE PROVED OR DISPROVED. M ERE HEARSAY OR A THIRD PARTY STATEMENT/DOCUMENT, BEING BASED ON MANY POSSIBLE SOURCES OF INACCURACY AND UNTRUSTWORTHINESS, CANNOT BE CONS IDERED AS LEGALLY ADMISSIBLE EVIDENCE. SIMILARLY, A STATEMENT CONTAIN ED OR RECORDED IN ANY BOOK, DOCUMENT OR RECORD WHATEVER, PROOF OF WHI CH IS NOT ADMITTED ON OTHER GROUNDS, ARE DEEMED TO BE IRRELEVANT FOR T HE PURPOSE OF PROVING THE TRUTH OF THE MATTER STATED THEREIN. IN VIEW OF THE ABOVE POSITION, THE AFORESAID WRITE UP, WHICH WAS PREPARED BY A THIRD PARTY, I.E., VODAFONE INTERNATI ONAL HOLDING BV IN THEIR PLEADINGS FILED BEFORE THE SUPREME COURT, DOE S NOT, IN OUR I.T.A .NO.-4737/DEL/2017 21 | P A G E RESPECTFUL SUBMISSION, CONSTITUTE EVIDENCE WHICH CAN BE TAKEN ON RECORD FOR ADJUDICATING THE PRESENT APPEAL OF THE A PPELLANT, CONSIDERING THAT - (I) THE APPELLANT WAS NOT EVEN A PARTY IN TH E LITIGATION BEFORE THE SUPREME COURT; (II) THE PLEADINGS OF VODAFONE DO NO T BIND THE APPELLANT; AND (III) AS PER THE PREAMBLE TO THE AFORESAID WRIT E UP, THE SAME WAS PREPARED ON THE BASIS OF DOCUMENTS/INFORMATION AVAI LABLE IN PUBLIC DOMAIN AND CERTAIN GENERAL ENQUIRIES. RELIANCE, IN THIS REGARD, IS PLACED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF KISHANCHAND CHELA RAM VS. CIT 125ITR 713, WHEREIN, THE COURT WHILE ALLOWING THE APPEAL OF THE ASSESSEE OBSERVED THAT THIRD PARTY DOCUMENT, BASED ON HEARSAY, WAS NO T A LEGALLY VALID AND ADMISSIBLE PIECE OF EVIDENCE. THE RELEVANT OBSE RVATIONS OF THE COURT IN THIS REGARD ARE AS: MOREOVER, THIS LETTER WAS SAID TO HAVE BEEN ADDRES SED BY THE MANAGER OF THE BANK TO THE ITO ON 18-2-1955 IN RELA TION TO A REMITTANCE ALLEGED TO HAVE BEEN SENT ON 16-10- 1946 AND IT IS IMPOSSIBLE TO BELIEVE IN THE ABSENCE OF ANY EVIDENC E TO THAT EFFECT, THAT MANAGER WHO WROTE THIS LETTER ON 18-2-1955 MUS T HAVE BEEN IN-CHARGE OF THE MADRAS OFFICE ON 16-10-1946 SO AS TO HAVE PERSONAL KNOWLEDGE AS TO WHO REMITTED THE AMOUNT OF RS.1,07,350.WHAT THE MANAGER OF THE BANK WROTE IN T HIS LETTER COULD, NOT POSSIBLY BE BASED ON HIS PERSONAL KNOWLE DGE AND_ IT DOES NOT APPEAR FROM THE, LETTER AS TO WHATEVER THE ORIGINAL DOCUMENTS AND PAPERS, FROM WHICH HE GATHERED THE IN FORMATION CONVEYED BY HIM TO THE ITO. THE STATEMENTS CONTAINE D IN THIS LETTER ADDRESSED BY THE MANAGER OF THE BANK TO THE ITO WERE IN THE NATURE OF HEARSAY EVIDENCE AND COULD NOT BE REL IED UPON BY THE REVENUE AUTHORITIES. THE REVENUE AUTHORITIES CO ULD HAVE VERY WELL CALLED UPON THE MANAGER OF THE BANK TO PRODUCE THE DOCUMENTS AND PAPERS ON THE BASIS OF WHICH HE MADE THE STATEMENTS CONTAINED IN HIS LETTER AND CONFRONTED T HE ASSESSEE I.T.A .NO.-4737/DEL/2017 22 | P A G E WITH THOSE DOCUMENTS AND PAPERS BUT INSTEAD OF DOIN G SO, THE REVENUE AUTHORITIES CHOSE TO RELY MERELY ON THE STA TEMENTS CONTAINED IN THE LETTER AND THAT TOO, WITHOUT SHOWI NG THE LETTER TO THE ASSESSEE. THERE IS ALSO ONE OTHER IMPORTANT CIR CUMSTANCE WHICH DESERVES TO BE NOTED. IN THE CASE OF N.S. CHOODAMANI V. CIT 35 ITR 676, THE KERALA HIGH COURT OBSERVED THAT EVIDENCES QUOTED IN THE ASSESSM ENT PROCEEDINGS OF A THIRD PARTY COULD NOT BE CONSIDERED AS LEGALLY AD MISSIBLE EVIDENCE FOR ASSESSMENT OF ANOTHER ASSESSEE AND, THUS, COULD NOT BE RELIED UPON BY THE REVENUE AUTHORITIES TO PROVE OR DISPROVE A FACT IN SUCH ASSESSMENT. THE RELEVANT OBSERVATIONS OF THE COURT ARE AS UNDER :- THEREFORE, IT IS VERY CLEAR THAT CHOODAMANI IYER, WHO GAVE EVIDENCE IN THE PROCEEDINGS RELATING TO HARIHARA IY ER, HAD NO OPPORTUNITY TO STATE WHAT HE HAD TO SAY INDEPENDENT LY NOR HAD HE THE OPPORTUNITY TO CROSS-EXAMINE IYER. APART FROM T HE FACT THAT THE TRIBUNAL IN THIS CASE HAS NOT CONSIDERED THE EXISTE NCE OF AN ASSOCIATION OF PERSONS, FROM THE POINT OF VIEW OF T HE TESTS LAID DOWN BY THE DECISIONS QUOTED ABOVE, THE QUESTION IS WHET HER THERE WAS LEGAL MATERIAL BEFORE IT TO JUSTIFY ITS CONCLUSION. THE FINAL ORDER DATED MAY 1, 1956, OF THE TRIBUNAL DOES NOT GIVE US MUCH ASSISTANCE. IN FACT THE TRIBUNAL HAS DISPOSED OFF T HE OBJECTION REGARDING INFORMATION OBTAINED IN THE OTHER PROCEED INGS VERY SUMMARILY BY SAYING THAT THE COUNSEL WHO APPEARED I N THE PROCEEDINGS WAS FULLY BRIEFED WITH THE PROCEEDINGS IN THE OTHER CASES TOY SO THAT IT CANNOT BE SAID THAT THE ASSESS EE WAS NOT AWARE OF THEM. ONCE AGAIN, WE MAY POINT OUT THAT TH IS IS NOT A CORRECT APPROACH TO THIS OBJECTION. A COUNSEL MAY B E APPEARING IN SEVERAL MATTERS CLOSELY CONNECTED WITH ONE ANOTHER, BUT WHEN THE PARTIES SOUGHT TO BE ARE KNOWLEDGE OF THE COUNSEL C ANNOT, CERTAINLY BE TREATED AS THE KNOWLEDGE OF THE PARTY IN THIS CA SE THERE IS NO I.T.A .NO.-4737/DEL/2017 23 | P A G E DISPUTE THAT CHOODAMANI IYER AS SUCH WAS NOT A PART Y TO ANY THE PREVIOUS PROCEEDINGS. IN FACT, HIS GRIEVANCE IS THA T HIS FAMILY WAS NOT PERMITTED TO CROSS-EXAMINE HARIHARA IYER THE OR IGINAL PROCEEDINGS. APART FROM THE FACT THAT THE STATEMENT S OF HARIHARA IYER RELIED UPON BY THE TRIBUNAL ARE NOT LEGAL EVID ENCE IN THESE PROCEEDINGS THE REFERENCE TO CHOODAMANI IYER CAN RE LATE ONLY TO CHOODANIANI IYER AS REPRESENTING THE N.S.V. FAMILY AND NOT IN HIS INDIVIDUAL CAPACITY FURTHER, THE STATEMENT OF HARIH ARA IYER IS ABSOLUTELY VALUELESS INASMUCH AS CHOODAMANI IYER NE VER GOT AN OPPORTUNITY TO CROSS-EXAMINE HARIHARA IYER. THUS TH E ENTIRE EVIDENCE THAT IS RELIED ON BY THE TRIBUNAL IS THE E VIDENCE ADDUCED IN HARIHARA IYER'S CASE.IT IS ALSO CONTENDED BY THE LEARNED COUNSEL APPEARING FOR THE DEPARTMENT THAT A BUSINESS WHICH WAS ADMITTEDLY BEING CARRIED ON ESCAPES WITHOUT ANYBODY BEING MADE LIABLE TO PAY THE TAX. WE ARE FULLY ALIVE TO THIS S ITUATION, BUT THE QUESTION BEFORE US IS WHETHER THERE IS LEGAL EVIDEN CE TO SUPPORT THE FINDING OF THE TRIBUNAL IN THIS CASE. ALMOST ALL TH E CIRCUMSTANCES POINTED, OUT BY THE TRIBUNAL DURING THE PROCEEDINGS OF HARIHARA IYER AND, IN OUR OPINION THE TRIBUNAL WAS NOT ENTIT LED TO RELY UPON THAT EVIDENCE IN THESE PROCEEDINGS. IN THIS VIEW, T HERE IS NO LEGAL EVIDENCE WHATSOEVER TO SUPPORT THE FINDING OF THE T RIBUNAL. CONSIDERING THE CASES ALSO FROMANOTHER POINT OF VIE W THE CONCLUSIONS ARRIVED BY THE TRIBUNAL ARE BASED UPON EVIDENCE WHICH IS INADMISSIBLE IN THESE PROCEEDINGS. IN THE CASE OF CHIRANJI LAI STEEL ROLLING MILLS VS. CIT: 84 ITR 22 2, THE PUNJAB AND HARYANA HIGH COURT OBSERVED THAT COP Y OF ENTRIES SUPPLIED BY THE SALES TAX DEPARTMENT TO THE INCOME- TAX OFFICER WERE NOT LEGAL AND ADMISSIBLE EVIDENCE ON WHICH THE INCOME-T AX OFFICER COULD ACT FOR IMPOSING EXTRA BURDEN OF INCOME-TAX ON THE ASSE SSEE. RELEVANT OBSERVATIONS OF THE COURT ARE AS UNDER: I.T.A .NO.-4737/DEL/2017 24 | P A G E IT IS EVIDENT FROM HIS STATEMENT THAT SAGAR MAL DI D NOT SUPPORT THE ENTRIES IN UCHANTI BAHI AND NO OTHER MATERIAL W AS BROUGHT ON THE RECORD TO CONNECT THE ENTRIES THE UCHANTI BAHI WITH ANY TRANSACTION BETWEEN THE ASSESSEE-FIRM AND M/S. GOEL IRON STORES. IN OUR OPINION, THE MERE COPY OF THE UCHANTI BAHI S UPPLIED BY THE SALES TAX DEPARTMENT, IN THE CIRCUMSTANCES OF THIS CASE, WAS NOT A LEGAL OR ADMISSIBLE EVIDENCE ON THE BASIS OF WHICH THE ADDITION OFRS. 13,955 COULD BE MADE TO THE INCOME OF THE ASS ESSEE-FIRM FROM UNDISCLOSED SOURCES. LEGAL AND ADMISSIBLE EVID ENCE MEANS EVIDENCE ON WHICH A JUDICIAL MIND CAN ACT BY FORMIN G A BELIEF THAT ITIS TRUE ALTHOUGH THE ASSESSEE DENIES IT. WE AGREE WITH THE COUNSEL FOR THE REVENUE THAT THE PROVISIONS OF THE INDIAN EVIDENCE ACT CANNOT BE RESORTED TO JUDGE THE ADMISSIBILITY O R LEGALITY OF A PARTICULAR PIECE OF EVIDENCE ON WHICH THE INCOME-TA X RELIES FOR THE PURPOSE OF ASSESSMENT. THE INCOME-TAX HAST THE POWE R TO COLLECT EVIDENCE FROM ANY SOURCE BUT IT IS HIS DUTY TO PUT IT TO THE ASSESSEE BEFORE MAKING IT THE BASIS OF HIS ASSESSME NT....... BUT HE HAS NO RIGID TO BURDEN THE ASSESSEE WITH AN EXTRA AMOUNT OF TAX ON VAGUE INFORMATION GIVEN TO HIM WITHOUT HI MSELF VERIFYING ITS TRUTHFULNESS OR RELIABILITY. IN THE PRESET CASE , THE INCOME-TAX OFFICER MADE NO INDEPENDENT ENQUIRIES AND MERELY RE LIED ON THE COPY SUPPLIED BY THE SALES TAX DEPARTMENT. XXX THE SALES TAX DEPARTMENT ALSO DID NOT NOTIFY TO THE INCOME-TAX OFFICER THAT ON THE BASIS OF THAT BAHI THEY HAD MAD E ENQUIRIES FROM OTHER PARTIES WITH WHOM M/S. GOEL IRON STORES HAD DEALINGS AND WHICH WERE MENTIONED IN THAT BAHI. IF ONLY THE TRANSACTIONS RELATING TO THE ASSESSEE WERE MENTIONED IN THAT BAH I, THEN ON THE FACE OF IT WAS UNRELIABLE. THE INCOME-TAX OFFICER G RAVELY ERRED IN RELYING ON THE ENTRIES FROM THE UCHANTI BAHI WITHOU T ASCERTAINING THEIR CORRECTNESS FROM ANY OTHER SOURCE ANDACTED ON A MERE I.T.A .NO.-4737/DEL/2017 25 | P A G E SUSPICION WHICH WAS NOT JUSTIFIED. FOR THESE REASON S, WE HOLD THAT THE EDGY OF ENTRIES FROM THE UCHANTI BAHI SUPPLIED TO THE INCOME- TAX OFFICER BY THE SALES TAX DEPARTMENT WAS NOT LEG AL AND ADMISSIBLE EVIDENCE ON WHICH THE INCOME-TAX OFFICER COULD ACT FAR IMPOSING EXTRA BURDEN OF INCOME-TAX ON THE ASSESSEE . WE ARE FURTHER OF THE OPINION THAT THE APPELLATE ASSISTANT COMMISSIONER TOOK THE CORRECT VIEW OF THE MATTER AND RIGHTLY DEL ETED THE ADDITION OF RS. 13,955 WHICH HAD BEEN MADE BY THE INCOME-TAX OFFICER TO THE INCOME OF THE ASSESSEE. THE INCOME-TAX APPELLAT E TRIBUNAL ERRED IN LAW IN RESTORING THAT DELETION MERELY ON T HE BASIS OF THE COPY OF THE UCHANTI BAHI OF M/S. GOEL IRON STORES S UPPLIED BY THE SALES TAX DEPARTMENT TO THE INCOME-TAX OFFICER, WHI CH COULD NOT BE RELIED UPON FOR THE REASONS ALREADY STATED. TO THE SAME EFFECT IS THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF DR. DEVENDRA D. PATEL : 56 TAXMANN.COM 457 WHEREIN THE HONBLE COURT HELD THAT THIRD PARTY EVIDENCE(S) COULD NOT B E RELIED UPON BY THE REVENUE AUTHORITIES FOR MAKING ADDITION IN CASE OF OTHER ASSESSEE. IN VIEW OF THE ABOVE, CONSIDERING THAT THE WRITTEN NOTE ON THE STRUCTURE OF HUTCHISON GROUP, FOR THE REASONS STATED ABOVE, D OES NOT CONSTITUTE LEGALLY VALID AND/ OR AUTHENTIC EVIDENCE, THE SAME DESERVES TO BE REJECTED AT THE THRESHOLD. (C) RE: FINANCIAL STATEMENTS OF INTERMEDIATE COMPANIES THE REVENUE HAS PLACED ON RECORD AUDITED FINANCIAL STATEMENTS OF SCORPIO AND CERTAIN OTHER STEP DOWN SUBSIDIARY COMP ANIES FOR DIFFERENT FINANCIAL YEAR(S), WHICH AS STATED WERE DOWNLOADED FROM THE WEBSITE OF MINISTRY OF CORPORATE AFFAIRS (MCA). THE REASONS SET OUT FOR ADMISSION AND CONSIDERATION OF THE AFORESAID FINANCIAL STATEM ENTS, AS PER THE RESPONDENT REVENUE, ARE AS UNDER:- A. TO VERIFY THE LIABILITIES OF STEP DOWN SUBSIDIARY C OMPANIES FOR THE PURPOSES OF ARRIVING AT THE VALUE OF SCORPIO; I.T.A .NO.-4737/DEL/2017 26 | P A G E B. TO VERIFY THE UTILIZATION OF FUNDS PROCURED BY SCOR PIO ON RIGHT ISSUE OF SHARES TO THE APPELLANT AND CGP. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED AS UND ER:- THE REVENUE HAS PLACED ON RECORD BALANCE SHEET OF T HE VARIOUS INTERMEDIATE COMPANIES FOR SEVERAL YEARS COMMENCING FROM FINANCIAL YEAR 2004-05 AND GOING UP TO FY 2013-14. AT THE OUT SET, IT IS SUBMITTED THAT CONSIDERING THE SHARES OF SCORPIO WERE SOLD BY THE APPELLANT IN THE MONTH OF MARCH, 2014, THE AUDITED FINANCIAL STATEME NTS OF SCORPIO AND OTHER SUBSIDIARY COMPANIES FOR THE YEARS PRIOR TO F .Y. 2012-13 HAVE NO RELEVANCE FOR COMPUTATION OF THE FAIR MARKET VALUE OF SUCH SHARES ON THE DATE OF TRANSFER. THE SAID SHARES CAN AT BEST BE VA LUED ON THE BASIS OF THE LAST AVAILABLE AUDITED BALANCE SHEET, I.E., FY 2012-13 ONLY AND NOT FOR ANY EARLIER OR SUCCEEDING YEAR(S). ACCORDINGLY, ALL THE BALANCE SHEETS FURNISHED BY THE REVENUE OF SCORPIO AND OTHER INTER MEDIATE COMPANIES FOR THE SAID YEARS ARE IRRELEVANT AND, THEREFORE, T HE REQUEST FOR ADMISSION THEREOF NEEDS TO BE REJECTED AT THE THRES HOLD. THAT APART, SINCE KOTAK HAD ARRIVED AT THE NET ASSE T VALUE OF THE INTERMEDIARIES/ STEP DOWN SUBSIDIARY COMPANIES ON T HE BASIS OF THE BOOKS OF ACCOUNTS OF SUCH COMPANIES AS ON 31.12.201 3 OR 28.02.2014, THE AFORESAID FINANCIAL STATEMENTS ARE, IN ANY CASE , IRRELEVANT. ATTENTION IN THIS REGARD IS INVITED TO THE FOLLOWING EXTRACT FROM THE VALUATION REPORT AT PAGE 90 OF THE PAPER BOOK: V ALUATION METHODOLOGY AND ASSUMPTIONS WE HAVE COMPUTED THE EQUITY VALUATION OF SBP, AND T HE VALUE OF EACH COMPANY IN THE HOLDCO CHAIN, BASED ON THE VALU E OF THE DOWNSTREAM INVESTMENTS OF SBP, OR THE RESPECTIVE CO MPANY IN THE HOLDCO CHAIN, AS THE CASE MAY BE (WHICH, IN EACH SU CH CASE, IS LINKED TO THE VALUE OF VIL), AND ADJUSTING THE SAME FOR THE NET VALUE OF OTHER ASSETS AND LIABILITIES OF SUCH COMPA NY BASED ON THE BOOKS OF ACCOUNTS OF SUCH COMPANY AS ON31 DECEMBER. 2013. EXCEPT THAT IN CASE OF ANY OUTSTANDING PREFERENCE S HARES, THE I.T.A .NO.-4737/DEL/2017 27 | P A G E SAME IS BEEN VALUED AS ON 28 FEBRUARY. 2014 AS PER ITS CONTRACTUAL TERMS . IN VIEW OF THE ABOVE, THE FINANCIAL STATEMENTS OF T HE EARLIER YEAR(S) OR EVEN FOR THE YEAR ENDING 31.03.2014 WILL NOT BE REL EVANT AND / OR DETERMINATIVE OF THE VALUE ADOPTED BY KOTAK FOR SUC H COMPANIES. FURTHER, (WHILE ADOPTING THE BOOK VALUE OF ASSETS A S ON 31.12.2013 OR 28.02.2014, KOTAK HAS REDUCED THE ACCRUED LIABILITY TOWARDS OUTSTANDING PREFERENCE SHARES, SUCH AS, FOR PREMIUM PAYABLE ON REDEMPTION OR CUMULATIVE AMOUNT OF DIVIDEND PAYABLE ON SUCH SHARES ETC., AS PER THE CONTRACTUAL TERMS THEREFOR, ON A R ATIONAL AND SCIENTIFIC BASIS, WHICH WERE NOT INCLUDED IN THE FIGURES DISCL OSED IN THE FINANCIAL STATEMENTS. ACCORDINGLY, FOR THE AFORESAID DUAL REA SONS, ALL THE FINANCIAL STATEMENTS OF VARIOUS INTERMEDIATE COMPANIES SOUGHT TO BE PLACED ON RECORD BY THE REVENUE WOULD NOT BE RELEVANT TO VERI FY THE VALUATION ARRIVED AT BY KOTAK. THAT APART, IT IS THE SUBMISSION OF THE APPELLANT T HAT KOTAK, AN INDEPENDENT AND A WELL REPUTED D CARRIED OUT THE VA LUATION AT THE REQUEST OF THE PURCHASER, ON A RATIONAL AND SCIENTI FIC DETERMINE THE MINIMUM FLOOR PRICE BELOW WHICH SHARES COULD NOT HA VE BEEN ACQUIRED IN-RESIDENT PURCHASER FROM THE APPELLANT, IN TERMS OF THE APPLICABLE FDI REGULATIONS. THE ASSESSING OFFICER AND CIT(A) DID NOT DISPUTE TH E METHODOLOGY OR FIGURES ADOPTED BY KOTAK USING EACH COMPANY, I.E., ALL THE INTERMEDIATE / STEP DOWN SUBSIDIARY COMPANIES AND FACT, THE ASSE SSING OFFICER ADOPTED THE SAME FAIR MARKET VALUE OF VIL AS COMPUT ED BY E ONLY DISPUTE RAISED WAS WHETHER WHILE COMPUTING THE VALU E OF SHARES OF SCORPIO, OUGHT TO BE VALUED ON THE BASIS OF INDIREC T BENEFICIAL INTEREST OF THAT COMPANY IN VIL, OR BY ARRIVING AT THE VALUE OF EACH INTERMEDIATE COMPANY, AFTER SUBSTITUTING THE FAIR MARKET VALUE O F VIL. ACCORDINGLY, THE DISPUTE BETWEEN THE APPELLANT AND REVENUE WAS R ESTRICTED TO THE I.T.A .NO.-4737/DEL/2017 28 | P A G E METHODOLOGY OF VALUATION, WITHOUT ANY DISPUTE TO TH E VALUATION OF EACH INTERMEDIATE COMPANY ARRIVED AT BY KOTAK. ANY DISPU TE TO THE VALUATION OF EACH INTERMEDIATE COMPANY, FOR THE FIRST TIME BE FORE THE TRIBUNAL WOULD, IN OUR RESPECTFUL SUBMISSION, TANTAMOUNT TO THE REVENUE MAKING OUT A COMPLETELY NEW CASE AND / OR RAISING A FRESH PLEA, WHICH AS SUBMITTED ABOVE, IS NOT PERMISSIBLE. AS REGARDS THE OTHER ISSUE RAISED BY THE REVENUE WI TH REGARD TO VERIFYING THE UTILISATION OF FUNDS PROCURED BY SCOR PIO ON RIGHT ISSUE OF SHARES, THE SAME, TOO, IN OUR RESPECTFUL SUBMISSION , IS COMPLETELY IRRELEVANT AND EXTRANEOUS TO THE ISSUE UNDER CONSID ERATION. THE RELEVANCE OF THE SAME HAS NOT BEEN POINTED OUT IN T HE IMPUGNED APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE. T HE UTILISATION OF FUNDS PROCURED BY SCORPIO ON RIGHTS ISSUE HAS, IN OUR RES PECTFUL SUBMISSION, NO BEARING ON THE VALUATION OF SHARES OF SCORPIO OR ANY OF THE INTERMEDIATE COMPANIES. IN THAT VIEW OF THE MATTER, THE REVENUE CANNOT, IN OUR RESPECTFUL SUBMISSION, BE PERMITTED AT THIS BELATED STAGE TO R EFER TO THE BALANCE SHEET OF VARIOUS COMPANIES SO AS TO DISPUTE THE VAL UATION ARRIVED AT BY KOTAK FOR THE VARIOUS COMPANIES, WHICH ISSUE, AS SU BMITTED EARLIER, HAS BEEN RAISED WITHOUT PREJUDICE AND IN THE ALTERNATE TO THE MAIN SUBMISSION, NAMELY, NO POWER WITH THE ASSESSING OFF ICER TO SUBSTITUTE ACTUAL CONSIDERATION WITH ANY OTHER HYPOTHETICAL / NOTIONAL VALUE. PRAYER FOR THE AFORESAID CUMULATIVE REASONS, IT IS SUBMITT ED THAT THE AFORESAID VARIOUS ADDITIONAL EVIDENCED SOUGHT TO BE PLACED BY THE REVENUE FOR THE FIRST TIME BEFORE THE TRIBUNAL DESERVE TO BE REJECT ED AND NOT ADMITTED /TAKEN INTO CONSIDERATION WHILE ADJUDICATING GROUND OF APPEAL NO.2 RAISED BY THE APPELLANT. I.T.A .NO.-4737/DEL/2017 29 | P A G E C. DECISION ON THE ADMISSIBILITY OF ADDITIONAL EVID ENCE FILED BY THE REVENUE:- 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO P ERUSED THE RELEVANT ADDITIONAL EVIDENCES FILED BY THE REVENUE QUA ITS IMPLICATION THEREOF ON THE ISSUES INVOLVED. SO FAR AS THE FRAME WORK AGREEMENT DATED 01.03.2006 IS CONCERNED, IT IS BETWEEN THE AS , SBPL, MVH, 3GSPL AND NDS. 3 GSPL IS A COMPANY IN WHICH HEL HAD INDIRECT INTEREST AND THE SAID AGREEMENTS GRANTS CALL/PUT OP TION TO THE PARTIES WHEREBY, 3 GSPL OR ITS NOMINEE GOT THE RIGHT TO EXE RCISE THE OPTION OF ACQUIRING THE SHARES HELD BY THE ASSESSEE IN HEL TH ROUGH CHAIN OF SUBSIDIARIES FOR A TRANSFER PRICE SET OUT IN SCHEDULE 2 OF THE SAID FRAMEWORK AGREEMENT. THIS WAS THE FIRST AGREEMENT T HROUGH WHICH NOT ONLY THE CALL AND PUT OPTION WAS TO BE EXERCISED BY THE PARTIES WAS ELABORATED, BUT IT ALSO DEFINES THE TRANSFER PRICE OF THE SHARES. WHEN ON 08.05.2007, HUTCHISON GROUP SOLD ITS ENTIRE STAK E TO VODAFONE INTERNATIONAL BV; IT PRECISELY STEPPED INTO THE SHO ES OF HUTCHISON GROUP IN ITS ENTIRETY. THOUGH IN THE FRAMEWORK AGRE EMENT DATED 05.07.2007, VODAFONE INTERNATIONAL HOLDINGS BV HAD ENTERED INTO THIS AGREEMENT AS CONFIRMING PARTY, BUT THE TERMS AND CO NDITIONS OF FRAMEWORK AGREEMENT OF 2006 BY THE LARGE REMAINED THE SAME. ONE IMPORTANT FACT WHICH HAS BEEN HIGHLIGHTED BY MR. VO HRA AND IS ALSO BORNE OUT FROM THE FRAMEWORK AGREEMENT DATED 05.07 .2007 IS THAT, THOUGH THE CONDITIONS, PURPOSE AND TERMS REMAINED B Y AND LARGE THE SAME AS STIPULATED IN FRAMEWORK AGREEMENT OF 2006, BUT THE PARTIES HAVE RESCINDED FROM THE EARLIER AGREEMENT AND HAVE DECIDED TO REFER THE FRAMEWORK AGREEMENT OF 2007 FOR ALL THE FUTURE REFERENCES AND SUBSEQUENT AGREEMENTS. HOWEVER, TO UNDERSTAND THE E NTIRE HISTORICAL BACKGROUND OF THE CALL/PUT OPTIONS AND THE RIGHTS A ND THE OBLIGATIONS OF THE PARTIES AND THE CONCEPT OF TRANSFER PRICE, W E ARE OF THE OPINION THAT FRAMEWORK AGREEMENT OF 01.03.2006 DOES HAVE SO ME BEARING WHICH ALTHOUGH MAY ON ITS OWN MAY NOT BE THE SOLE G UIDING OR I.T.A .NO.-4737/DEL/2017 30 | P A G E DETERMINATIVE FACTOR FOR OUR DECISION, BUT AT THE T HRESHOLD WE CANNOT REJECT THIS DOCUMENT AND HOW MUCH WOULD BE ITS RELE VANCE AND BEARING ON THE CASE SHALL BE DISCUSSED IN DETAIL IN THE LATER PART OF THIS ORDER. ACCORDINGLY, WE ARE ADMITTING THE FRAMEWORK AGREEMENT DATED 01.03.2006 AS SUBMITTED BY THE REVENUE IN APPLICATI ON MADE UNDER RULE 29 FOR THE PURPOSE OF OUR ADJUDICATION AND UND ERSTANDING ALL THE ISSUES INVOLVED HERE IN THIS APPEAL. 14. NOW COMING TO THE WRITE-UP OF THE STRUCTURE HU TCHISON GROUP IN INDIA WHICH HAS BEEN DRAWN FROM THE WRITTEN STATEME NT FILED BY THE VODAFONE BEFORE THE HONBLE SUPREME COURT IN THE CA SE OF VODAFONE INTERNATIONAL HOLDINGS, SINCE REPORTED IN 341 ITR 01, MERELY GIVES THE PREQUEL OF THE VARIOUS ENTITIES AS HOW THEY HAV E BEEN INVOLVED IN THE SHARE HOLDING PATTERN OF HUTCHISON GROUP IN IND IA AND THE PERCENTAGE OF SHAREHOLDING IN HEL WHICH HAS BEEN TA KEN OVER BY THE VODAFONE IN MAY 2007. THOUGH NOTHING MUCH TURNS ARO UND ON THIS WRITE-UP OF THE STRUCTURE AND HAS NO DIRECT BEARING ON THE ADJUDICATION OF THE ISSUES INVOLVED BUT IT MERELY G IVES THE BACKGROUND TO UNDERSTAND HOW VARIOUS ENTITIES WERE INVOLVED IN THE SHARE HOLDING PATTERN BY DIFFERENT ENTITIES INCLUDING THE ASSESSE E IN HEL AND LATER ON VIL AFTER TAKE OVER POST MAY 2007. THUS, IT IS NOT IN THE FORM OF ADDITIONAL EVIDENCE, THEREFORE, WE ARE NOT TAKING A NY MUCH COGNIZANCE OF THIS DOCUMENT FILED BEFORE US AND, THEREFORE, WE ARE REJECTING THE SAID DOCUMENT FOR ADMISSION, EXCEPT THAT SLIGHT REF ERENCE MAY BE MADE IN OUR ORDER ONLY FOR THE PURPOSE OF GIVING TH E PREQUEL OF THE EVENTS. 15. LASTLY, SO FAR AS THE VARIOUS FINANCIAL STA TEMENTS OF INTERMEDIARY COMPANIES ARE CONCERNED, THESE DOCUMENTS HAVE BEEN FILED BY THE REVENUE ONLY IN SUPPORT OF THE VALUATION OF THE SHA RES WHICH HAS BEEN CONSIDERED BY THE INDEPENDENT VALUER KOTAK MAHINDR A CAPITAL FOR THE PURPOSE OF DEMONSTRATING THE CORRECT STATE OF AFFAI RS OF LIABILITY AND I.T.A .NO.-4737/DEL/2017 31 | P A G E INVESTMENT OF VARIOUS CHAINS OF INTERMEDIARY COMPAN IES. BASED ON THESE STATEMENTS, THE REVENUE HAS FILED A CHART SHO WING ASSETS AND LIABILITIES OF VARIOUS INTERMEDIARY COMPANIES AND R ESULTANT VALUATION OF THE SHARES OF VIL. WE PARTLY AGREE WITH THE CONTENT ION OF THE LD. SR. COUNSEL, MR. AJAY VOHRA, THAT ALL THE FINANCIAL STA TEMENTS OF VARIOUS FINANCIAL YEARS HAS NO RELEVANCE, LIKE THE FINANCIA L STATEMENTS FROM THE F.Y.S 2004-05 TILL 2011-12 ARE NOT RELEVANT FOR THE PURPOSE OF OUR ADJUDICATION EXCEPT FOR THE BALANCE SHEET FOR THE F .Y. 2012-13, AS THE TRANSACTION OF SALES TOOK PLACE ON 12 TH OF MARCH 2014. ACCORDINGLY, WE DO NOT FIND ANY REASON TO ADMIT THE FINANCIAL STATE MENT FOR THE EARLIER YEARS AS THEY ARE NOT MUCH RELEVANT, BECAUSE EVEN I F THE VALUATION OF THE SHARES HAS TO BE WORKED OUT, THE RELEVANT BALAN CE SHEET OF THESE INTERMEDIARY COMPANIES WOULD BE FOR THE F.Y. 2012-1 3 AND NOT THE OTHER EARLIER OR SUBSEQUENT YEARS. THUS, WE ARE ADM ITTING THE FINANCIAL STATEMENT/BALANCE SHEET OF INTERMEDIARIES COMPANIES FOR THE F.Y. 2012-13;AND REST OF THE STATEMENTS ARE REJECTED TO BE ADMITTED AS ADDITIONAL EVIDENCE. ACCORDINGLY, WE ARE ADMITTING, FRAMEWORK AGREEMENT OF 2006; AND FINANCIAL STATEMENTS OF INTE RMEDIARY COMPANIES FOR THE F.Y. 2012-13. AFTER ADMITTING PAR TLY THE ADDITIONAL EVIDENCES AS DISCUSSED ABOVE, WE SHALL NOW DEAL WIT H THE SUBMISSIONS MADE BY THE SR. COUNSEL ON BEHALF OF THE ASSESSEE. ARGUMENTS ON BEHALF OF THE ASSESSEE ON THIS ISSUE:- 16. MR. AJAY VOHRA, LD. SR. COUNSEL, FIRST OF ALL NARRATED THE RELEVANT FACTS AND THE BACKGROUND OF THE CASE EMERGING FROM THE RECORD AS SUBMITTED BEFORE THE AO AND LD. CIT (A). HE SUBMITT ED THAT SBPL WAS INCORPORATED UNDER COMPANIES ACT, 1956 ON 02.02.200 6 WITH ENTIRE SHARE CAPITAL DIVIDED INTO 10,000 EQUITY SHARES OF RS.10 EACH, WHICH WAS WHOLLY HELD BY THE ASSESSEE ALONG WITH HIS WIFE I.E. MRS. NEELU ANALJIT SINGH (AS). SBPL THROUGH ITS STEP DOWN SUBS IDIARY COMPANIES, I.E., MVH AND NDC AND OTHER DOWN-STREAM ENTITIE S, HELD EQUITY I.T.A .NO.-4737/DEL/2017 32 | P A G E SHARES IN HUTCHISON ESSAR LIMITED (HEL) WHICH WAS S UBSEQUENTLY RENAMED AS VODAFONE INDIA LIMITED ('VIL). IT WOULD BE PERTINENT TO POINT OUT THAT HEL, A COMPANY ENGAGED IN THE BUSINE SS OF PROVIDING TELECOM SERVICES ACROSS DIFFERENT CIRCLES IN INDIA, WAS ORIGINALLY HELD BY HUTCHISON GROUP, HONG KONG WITH CERTAIN OTHER INDIA N PARTNERS, INCLUDING AS THROUGH SBPL. ON 08.05.2007, HUTCHISON GROUP SOLD ITS ENTIRE STAKE WITH RESPECT TO TELECOM BUSINESS BEING CARRIED ON IN INDIA THROUGH HEL TO VODAFONE INTERNATIONAL HOLDINGS BV A ND CONSEQUENTLY THE NAME OF HEL WAS CHANGED TO VIL.PURSUANT TO THE AFORESAID CHANGE IN SHAREHOLDING OF HEL FROM HUTCHISON TO VOD AFONE GROUP, A FRAMEWORK AGREEMENT WAS ENTERED ON 05.07.2007 AMONG ST THE FOLLOWING: ASSESSEE AND MRS. NEELU ANALJIT SINGH (I.E. AS); SBPL AND TWO SUBSIDIARIES THEREOF, I.E., MVH AND ND C; VODAFONE INTERNATIONAL HOLDINGS B.V. (VODAFONE INT ERNATIONAL); AND 3 GLOBAL SERVICES PRIVATE LIMITED (NOW KNOWN AS VOD AFONE INDIA SERVICES PRIVATE LIMITED), WHICH WAS AN INDIRECT SU BSIDIARY OF VODAFONE INTERNATIONAL [HEREINAFTER REFERRED AS GS PL]. 17. THE ABOVE REFERRED FRAMEWORK AGREEMENT P ROVIDED THAT AS AND WHEN PERMITTED BY APPLICABLE LAW INCLUDING THE LIMITS IMPOSED BY THE GOVERNMENT OF INDIA, ON FOREIGN INVESTMENT IN T HE TELECOMMUNICATION SECTOR, GSPL, OR PERSON(S) NOMINA TED BY GSPL, SHALL HAVE THE OPTION TO ACQUIRE THE SHARES OF SCOR PIO FROM AS. THE RELEVANT CLAUSES OF THE AGREEMENT ARE REPRODUCED HE REUNDER FOR THE SAKE OF READY REFERENCE: ( D) IN CONSIDERATION OF THE GRANT OF THE CALL OPT ION BY AS TO GSPL, GSPL OR AN AFFILIATE SHALL PAY TO AS AN AGGRE GATE AMOUNT OF US$10.2 MILLION PER ANNUM ACCRUING ON A DAILY BASIS (THE 'OPTION PAYMENT). GSPLS OBLIGATION TO PAY AS THE OPTION P AYMENT AS I.T.A .NO.-4737/DEL/2017 33 | P A G E AFORESAID SHALL BE DEEMED TO BE EFFECTIVE FROM 1 MA Y 2007. THE OPTION PAYMENT FOR THE PERIOD FROM 1 MAY 2007 TO 30 APRIL 2008 BE PAID AS SOON AS PRACTICABLE AND ANY CASE THE 20 TH BUSINESS DAY AFTER THE DATE OF THIS AGREEMENT AND THE OPTION PAY MENT FOR EACH TWELVE (12) MONTH PERIOD FROM 1 MAY 2008 SHALL BE P AID IN FOUR EQUAL INSTALLMENTS ARREARS ON 1 AUGUST, 1 NOVEMBER, 1 FEBRUARY AND 1 MAY, COMMENCING 1 NOVEMBER 2008. THE OPTION P AYMENT SHALL BE PAID TO AS UNTIL AS CEASES TO HOLD INDIREC TLY THROUGH HIS INTEREST IN TII, ANY EQUITY SHARES IN HEL OR, IF EA RLIER, 7 MAY 2017. THE OPTION PAYMENT SHALL BE PAID BY GSPL OR A NY OF ITS AFFILIATES BY WIRE TRANSFER TO ASS BANK ACCOUNT IN INDIA DESIGNATED BY AS IN ADVANCE. 4.6 TRANSFER PRICE (A) EXCEPT AS STIPULATED BY CLAUSE 4.6(B) AND CLAU SE 4.7 AND SUBJECT TO THE REQUIREMENTS OF ANY APPLICABLE REGUL ATORY REQUIREMENTS , THE PRICE PAYABLE TO AS FOR THE SHARES TO BE TRANSFERRED ('TRANSFER PRICE) PURSUANT TO THE PUT OPTION OR THE CALL OPTION SHALL BE AS DETERMINED IN ACCORDANCE WITH TH E FORMULA SET OUT IN SCHEDULE 1 ON EACH EXERCISE OF THE RELEVANT OPTION, SUBJECT TO A MAXIMUM OF AN AGGREGATE OF RS.150 BILLION LESS AN Y AMOUNTS PAID OR PAYABLE TO AS PURSUANT TO CLAUSE 4.3 OR CLA USE 4.4 IN CONSIDERATION OF THE GRANT OF THE AFORESAID OPT ION BY AS TO GSPL, AS WAS ENTITLED TO A FIXED OPTION FEE OF USD 10.2 MILLION PER ANNUM (CLAUSE 4.4(D) OF THE SAID AGREEMENT). FURTHE R, CLAUSE 4.6 READ WITH SCHEDULE I OF THE SAID AGREEMENT PROVIDED THAT THE MINIMUM TRANSFER PRICE FOR 100% SHARES OF SCORPIO HELD BY A S WAS FIXED AT INDIAN RUPEES EQUIVALENT OF US$ 26,62,50,000 CONVERTED INTO INDIAN RUPEES AT THE PREVAILING EXCHANGE RATE AS ON THE CO MPLETION DATE PRESCRIBED IN THE AGREEMENT I.E., 08.05.2007, TO BE FURTHER INCREASED BY THE APPROPRIATE PROPORTION, TO BE COMPUTED IN TH E PRESCRIBED I.T.A .NO.-4737/DEL/2017 34 | P A G E MANNER, IF THE FAIR MARKET VALUE OF THE ENTIRE ISSU ED SHARE CAPITAL OF VIL EXCEEDED USD 25 BILLION (TO BE CONVERTED INTO I NDIAN RUPEES AT THE PREVAILING EXCHANGE RATE AS ON THE COMPLETION-DATE I.E. 08.05.2007). THE RELEVANT PORTION OF SCHEDULE I OF THE FRAMEWORK AGREEMENT-DATED 5.7.2007 IS REPRODUCED HEREUNDER FOR READY REFERENC E: SCHEDULE 1 DETERMINATION OF THE TRANSFER PRICE A) FOR THE PURPOSES OF DETERMINING THE TRANSFER PRI CE IN ACCORDANCE WITH CLAUSE. 4.6, THE FOLLOWING FORMULA SHALL BE APPLIED:- (I) THE TRANSFER PRICE SHALL BE AN AMOUNT EQUAL TO THE AGGREGATE OF INDIAN RUPEES EQUIVALENT OF US$266,250,000 (UNITED STATES DOLLARS TWO HUNDRED ARID SIXTY SIX MILLION TWO HUND RED AND FIFTY THOUSAND ONLY), CONVERTED INTO RUPEES AT THE PREVAI LING US$:RS. EXCHANGE RATE PUBLISHED IN THE LONDON EDITION OF TH E FINANCIAL TIMES ON THE BUSINESS DAY IMMEDIATELY PRIOR TO THE COMPLETION DATE PL US (II) WHERE THE FAIR MARKET VALUE OF THE ENTIRE ISSU ED SHARE CAPITAL OF HEL EXCEEDS US$25,000,000,000, THE SBP VALUE, CO NVERTED INTO RS. AT THE PREVAILING US$:RS. EXCHANGE RATE PU BLISHED IN THE LONDON EDITION OF THE FINANCIAL TIMES ON THE BUSINE SS DAY IMMEDIATELY PRIOR TO THE COMPLETION DATE SUCH AGGRE GATE AMOUNT BEING THE TRANSFER PRICE. FOR THE AVOIDANCE OF DOUB T, THE TRANSFER PRICE SHALL NOT IN ANY EVENT BE LESS THAN THE AMOUN T REFERRED TO IN PARAGRAPH (A) (I) ABOVE. FOR THE PURPOSE OF PARAGRAPH (A)(II) OF THIS SCHEDU LE 1, THE SBP VALUE MEANS THE PROPORTION OF SUCH PART OF THE FAIR MARKET EQUITY VALUE OF THE ENTIRE ISSUED SHARE CAPITAL OF HEL WHI CH IS IN EXCESS I.T.A .NO.-4737/DEL/2017 35 | P A G E OF US$25,000,000,000 WHICH IS ATTRIBUTABLE TO THE S BP SHARES(OR MVH SHARES IF THE MCH SHARES ARE PURCHASED PURSUANT TO THE EXERCISE OF THE OPTION IN TERMS OF CLAUSE 4.3(E) OR CLAUSE 4.4(C), AS THE CASE MAYBE) APPLYING THE METHODOLOGY AND ASSUMP TIONS SET OUT IN SCHEDULE 2. FOR THE AVOIDANCE OF DOUBT, IF T HE PUT OPTION IS EXERCISED MORE THAN ONCE, THE SBP VALUE SHALL BE CO MPUTED EACH SUCH TIME, WITH RESPECT TO THE PUT SHARES PROPOSED TO BE TRANSFERRED PURSUANT TO SUCH EXERCISE, BASED ON THE FAIR MARKET VALUE OF THE ENTIRE ISSUED SHARE CAPITAL OF HEL AS ON THE DATE OF THE RELEVANT TRANSFER NOTICE. FOR PURPOSES OF PARAG RAPH (2)(II) OF THIS SCHEDULE 1, THE FAIR MARKET VALUE OF THE SHARE CAPITAL OF- HEL SHALL BE ARRIVED AT AS FOLLOWS: THE FAIR MARKET VALUE OF HEL, IF HEL HAS BEEN LIST ED ON ANY STOCK EXCHANGE, SHALL BE BASED ON THE AVERAGE CLOSI NG PRICE OF SHARES IN HEL ON THE PRINCIPAL STOCK EXCHANGE ON WH ICH ITS SHARES ARE LISTED, TAKEN OVER A PERIOD OF 30 TRADIN G DAYS-(OR- SUCH PERIOD THAT HEL HAS BEEN LISTED FOR IF LESS TH AN 30 TRADING DAYS) IMMEDIATELY PRIOR TO BUT' NOT INCLUDING THE D ATE OF THE TRANSFER NOTICE; IF HEL HAS NOT BEEN LISTED ON A STOCK EXCHANGE, TH EN THE FAIR MARKET VALUE OF HEL SHALL BE SUCH FAIR MARKET VALUE AS MAY BE DETERMINED BY THE LONDON, UK OFFICE OF UBS INVESTME NT BANK AND IF THERE IS NO SUCH OFFICE THEN THE HONG KONG O FFICE OF UBS INVESTMENT BANK AND IF THERE IS NO SUCH OFFICE THEN THE NEW YORK CITY, NEW YORK USA OFFICE OF UBS INVESTMENT BA NK AND IF UBS INVESTMENT BANK DECLINES TO ACT THEN GOLDMAN SA CHS INTERNATIONAL OR FALLING THEM LEHMAN BROTHERS) WHOS E DECISION SHALL BE FINAL AND, FOR WHICH PURPOSE THEY SHALL AC T AS AN EXPERT AND NOT AS AN ARBITRATOR: I.T.A .NO.-4737/DEL/2017 36 | P A G E 18. MR. VOHRA SUBMITTED THAT IT WOULD BE PERT INENT TO NOTE THAT SCHEDULE 2 OF THE FRAMEWORK AGREEMENT DATED 05.07.2007 PRESCR IBED AN ILLUSTRATIVE WORKING OF DETERMINING FMV OF THE S HARES OF SBPL IN THE EVENT THE ENTERPRISE VALUE OF HEL EXCEEDED USD 25 BILLION. IN THE AFORESAID ILLUSTRATIVE WORKING, THE VALUE OF NDC, W HICH WAS 100% HELD BY SBL, WAS WORKED OUT AT USD 266.25 MILLION, WHICH , IT APPEARS, WAS ADOPTED BY THE PARTIES AS CONSIDERATION PAYABLE UND ER CLAUSE (A)(I) OF SCHEDULE-1 OF THE AGREEMENT. ACCORDINGLY, THE TRANS FER PRICE FOR THE 100% SHARE CAPITAL OF SBPL DETERMINED ON THE BASIS OF EXCHANGE RATE OF RS.40.88 PER USD PREVAILING ON 08.05.2007, AGGRE GATED TO RS.1088 CRORES. HE POINTED OUT THAT AS PER THE EXCHANGE RAT E OF RS.40.88 PER USD AS ON 08.05.2007, THE AMOUNT EQUIVALENT TO USD 25 BILLIONS, AGGREGATED TO RS.1,02,200 CRORES. THE OPTION FEE RE CEIVED HAS BEEN OFFERED AND ASSESSED TO TAX AS REVENUE RECEIPT, YEA R AFTER YEAR. IN THE FINANCIAL YEAR 2009-10, THERE WAS CHANGE IN FDI REG ULATIONS RELATING TO SECTORAL CAP, WHICH ENABLED GSPL TO ACQUIRE SOME SH ARES IN SCORPIO AND THEREBY INCREASE ITS INDIRECT SHAREHOLDING IN V IL. ACCORDINGLY, ON 07.04.2009, CGP AND A PERSON NOMINATED BY GSPL AND AS ENTERED INTO AN AGREEMENT RELATING TO TRANSFER OF 4900 SHAR ES OF SBPL, CONSTITUTING 49% STAKE, BY ASSESSEE TO CGP IN ACCOR DANCE WITH THE TERMS AND CONDITIONS AGREED VIDE FRAMEWORK AGREEMEN T DATED 05.07.2007. HAVING REGARD TO THE VALUATION FOR 10.0 % STAKE IN SBPL AT RS. 1088 CRORES AGREED UNDER THE FRAMEWORK AGREEMEN T DATED 05.07.2007; APPELLANT SOLD 4900 SHARES, I.E., 49% S TAKE IN SBPL, TO CGP FOR RS.533 CRORES (I.E., 49% OF RS. 1088 CRORES ). NECESSARY APPLICATIONS WERE FILED BEFORE FIPB, FOR THE AFORES AID DIVESTMENT WHICH WAS APPROVED BY FIPB ON 04.12.2009. PURSUANT TO THE AFORESAID APPROVAL, CONSIDERATION OF RS.533 CRORES WAS PAID B Y CGP AND 4900 SHARES OF SCORPIO WERE TRANSFERRED BY AS TO CGP ON 16.12.2009. HE STRESSED UPON THE FACT THAT LONG TERM CAPITAL GAINS QUA THE AFORESAID TRANSFER OF 4900 SHARES BY THE ASSESSEE FOR LUMPSUM CONSIDERATION OF I.T.A .NO.-4737/DEL/2017 37 | P A G E RS. 533 CRORES WAS DISCLOSED UNDER THE HEAD CAPITA L GAINS IN HIS RETURN OF INCOME, FOR ASSESSMENT YEAR 2010-11, WHIC H WAS ACCEPTED AS SUCH BY THE REVENUE VIDE INTIMATION UNDER SECTION 1 43(1) OF THE ACT. IN THE PREVIOUS YEAR ENDING ON 31.03.2013, SBPL OFF ERED RIGHTS SHARES WHICH WAS SUBSCRIBED BY BOTH, AS AND CGP, B EING EXISTING SHAREHOLDERS, IN FULL, I.E., IN THE RATIO OF THEIR EXISTING SHAREHOLDING. ACCORDINGLY, AS SUBSCRIBED TO 19,44,99,979 SHARES A ND CGP SUBSCRIBED TO 18,73,52,921 SHARES OF SBPL. SINCE AS AND CGP SUBSCRIBED TO THE RIGHT SHARES OFFERED IN FULL, THE PERCENTAGE SHAREHOLDING OF BOTH THE GROUPS CONTINUED TO BE THE SAME, VIZ., 51:49 PRIOR TO THE RIGHTS ISSUE. HE SUBMITTED THAT IT WOU LD BE PERTINENT TO MENTION THAT, OUT OF THE AFORESAID 51% STAKE HELD B Y AS, THE ASSESSEE HELD 41% AND THE REMAINING 10% WAS HELD BY MRS. NEE LU ANALJIT SINGH. IN VIEW OF THE INCREASE IN THE NUMBER OF SHA RES HELD IN SBPL AS A RESULT OF RIGHTS ISSUE, THE FRAMEWORK AGREEMENT D ATED 05.07.2007 WAS AMENDED THROUGH FOURTH SUPPLEMENT DEED DATED 0 7.08.2012, PROVIDING THE MECHANISM FOR SALE OF NEWLY ISSUED RI GHT SHARES BY AS TO GSPL OR ANY PERSON NOMINATED BY GSPL. AS A RESULT O F FRESH SUBSCRIPTION OF SHARES ON RIGHT BASIS, UNDER THE AF ORESAID FOURTH SUPPLEMENT TO THE FRAMEWORK AGREEMENT, IT WAS AGREE D THAT GSPL OR ANY PERSON NOMINATED BY GSPL WOULD PAY ADDITIONAL L UMPSUM CONSIDERATION OF RS.300 CRORES, ON EXERCISE OF OPTI ON BY GSPL AS AND WHEN PERMISSIBLE AS PER THE FD1 REGULATIONS. IN VIE W OF THE TERMS OF ORIGINAL FRAMEWORK AGREEMENT DATED 05.07.2007 READ WITH THE FOURTH SUPPLEMENT THERETO DATED 07.08.2012, THE CONSIDERAT ION RECEIVABLE BY AS FOR 51% STAKE IN SCORPIO (REPRESENTED BY ORIGINA L SHARES AND RIGHTS SHARES) AGGREGATED TO RS.855 CRORES, IN THE FOLLOWING MANNER: FOR ORIGINAL SHARES: RS. 555 CRORES (RS.1088 CRORES - RS.533 CRORES RECEIVED ON 16.12.2009) FOR RIGHTS SHARES:RS. 300 CRORES TOTAL:RS. 855 CRORES I.T.A .NO.-4737/DEL/2017 38 | P A G E IN THE YEAR 2013, THERE WAS FURTHER RELAXATION IN F DI REGULATIONS, WHICH PERMITTED 100% FDI IN THE TELECOM SECTOR. AS A RESULT, CGP DECIDED TO ACQUIRE THE REMAINING ENTIRE 51% STAKE I N SCORPIO HELD BY AS, AT RE-NEGOTIATED LUMPSUM CONSIDERATION OF RS. 1 241.32 CRORES, AS AGAINST LUMPSUM CONSIDERATION OF RS.855 CRORES ORIG INALLY PAYABLE AS PER THE FRAMEWORK AGREEMENT DATED 05.07.2007 READ W ITH THE FOURTH SUPPLEMENT DEED DATED 07.08.2012, IN THE MANNER INC ORPORATED ABOVE. ACCORDINGLY, CGP FILED NECESSARY APPLICATION BEFORE FIPB SEEKING APPROVAL FOR THE AFORESAID ACQUISITION, WHE REIN THE PROPOSED CONSIDERATION OF RS. 1241.32 CRORES, WAS DULY DISCL OSED AND THEREAFTER APPROVED BY FIPB ON 20.02.2014. PURSUANT TO THE AFO RESAID APPROVAL FROM FIPB, AS AND CGP ENTERED INTO SHARE PURCHASE A GREEMENT DATED 12.03.2014, PRESCRIBING THE TERMS AND CONDITIONS FO R TRANSFER OF THE ENTIRE 51% STAKE HELD BY AS IN SBPL TO CGP FOR CONS IDERATION OF RS. 1241.32 CRORES. MR. VOHRA POINTED OUT THAT ALTHOUGH THE LUMPSUM CONSIDERATION RECEIVABLE BY ASSESSEE AS PER THE FRA MEWORK AGREEMENT DATED 05.07.2007 READ WITH FOURTH SUPPLEMENT THERET O DATED 07.08.2012, AGGREGATED TO RS.855 CRORES ONLY, THE P ARTIES MUTUALLY, AGREED FOR ENHANCED CONSIDERATION OF RS. 1241.32 CR ORES, UNDER SHARE PURCHASE AGREEMENT DATED 12.03.2014. THE RELEVANT CLAUSES OF THE SAID AGREEMENT DATED 12.3.2014 AS HIGHLIGHTED BY HI M ARE REPRODUCED HEREUNDER: 2. SALE AND PURCHASE: 2.1 SUBJECT TO THE TERMS AND CONDITIONS HEREIN AND THE TERMS THE FRAMEWORK AGREEMENT, CGP HEREBY UNDERTAKES TO PURCH ASE 195,005,079 SHARES FROM AS (THE SALE SHARES) AND AS HEREBY UNDERTAKES TO SELL TO CGP THE SALE SHARES, FREE AND CLEAR FROM ALL ENCUMBRANCES, ON THE CLOSING DATE FOR A CONSIDERATI ON EQUAL TO THE TRANSFER PRICE. 2.2 IN CONSIDERATION FOR THE SALE SHARES, CGP HEREB Y AGREES TO PAY AS AN AGGREGATE AMOUNT OF RS.12,413,206,200/- ( RUPEES I.T.A .NO.-4737/DEL/2017 39 | P A G E TWELVE BILLION FOUR HUNDRED AND THIRTEEN MILLION TW O HUNDRED AND SIX THOUSAND AND TWO HUNDRED ONLY) (THE PRICE ). 2.3 THE PARTIES ACKNOWLEDGE THAT KOTAK MAHINDRA CAP ITAL COMPANY LIMITED -HAS BEEN REQUESTED TO PREPARE A VA LUATION REPORT RELATING TO THE FAIR MARKET VALUE OF THE ENT IRE - ISSUED SHARE CAPITAL OF V1L PURSUANT TO SCHEDULE 1 TO THE FRAMEW ORK AGREEMENT TO CONFIRM THE TRANSFER PRICE DETERMINED BY THE PARTIES. 19. THE BREAK-UP OF THE AGGREGATE CONSIDERATION OF RS. 1241,32,06,200 BETWEEN THE APPELLANT AND MRS. NEEL U ANALJIT SINGH WAS AS UNDER: ANALJIT SINGH: 41/51 *RS. 1241,32,06,200 = RS.997, 92,44,200. MRS. NEELU ANALJIT SINGH: 10/5L* RS.1241,32,06,200 = RS.243,39,62,000. ACCORDINGLY, THE ACTUAL SALE CONSIDERATION RECEIVED BY THE ASSESSEE ON SALE OF 15,67,68,789 EQUITY SHARES OF S BPL (I.E. 4,100 ORIGINAL SHARES AND 15,67,64,689 RIGHTS SHARES) WAS RS.997,92,44,200 AND THE LONG TERM CAPITAL GAINS ON SALE OF SBPL SHARES AMOUNTING TO RS.7,82,92,66,249 WAS OFFERED TO TAX UNDER SECTION 45 READ WITH SECTION 48 OF THE ACT. 20. AFTER NARRATING THE ENTIRE FACTS AND BACKGROUND OF THE CASE AS ABOVE, MR. VOHRA SUBMITTED THAT THE AO AS WELL AS T HE LD. CIT(A) CANNOT SUBSTITUTE THE ACTUAL SALE CONSIDERATION WIT H NOTIONAL CONSIDERATION OR FAIR MARKET VALUE FOR COMPUTING TH E CAPITAL GAINS ON SALE OF SHARES OF SBPL. HE SUBMITTED THAT IN TERMS OF SECTION 48 WHAT IS CHARGEABLE UNDER THE HEAD CAPITAL GAINS U/S 45 (1) OF THE ACT HAS TO BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF THE CAPITAL ASSETS. THE TERMS USED IN SECTION 48 ARE THE FULL VALUE OF CONSIDERATION I.T.A .NO.-4737/DEL/2017 40 | P A G E RECEIVED OR ACCRUING, WHICH CONNOTES TO THE ACT UAL CONSIDERATION RECEIVED AND THERE IS NO AUTHORITY OR POWER WITH TH E AO TO SUBSTITUTE SUCH ACTUAL CONSIDERATION WITH A NOTIONAL CONSIDERA TION OR ANY FAIR MARKET VALUE. THE COURTS HAVE HELD THAT THE WORD F ULL VALUE OF CONSIDERATION RECEIVED DOES NOT MEAN THE FAIR MAR KET VALUE AND IN SUPPORT, HE RELIED UPON THE FOLLOWING JUDGMENTS, CO MPILATION OF WHICH HAS BEEN FILED SEPARATELY BEFORE US:- CIT V. GEORGE HENDERSON AND CO. LTD. 66 ITR 622 (SC ) (HEAVY RELIANCE WAS PLACED ON THIS DECISION) CIT V. GILLANDERS ARBUTHNOT & CO.: 87 ITR 407 (SC) K. P. VARGHESE V. ITO: 131 ITR 597 (SC) CIT V. SHIVAKAMI CO. P. LTD. 159 ITR 71 (SC) CIT V. NANDININOPANY: 230 ITR 679 (CAL.) CIT V. MS. SUSHILA MITTAL & OTHERS: 250 ITR 531 (DE L.) CIT V. KAMI SINGH 256 ITR 165 (DEL) CIT V. SMT. SUSHILA DEVI 256 ITR 179 (DEL.) CIT V. NILOFER I. SINGH: 309 ITR 233 (DELHI) CIT V. NILOFER I SINGH :309 ITR 233 (DEL.) DEV KUMAR JAIN V. ITO : 309 ITR 240 (DEL.) SANJAY CHAWLA V. ITO: 89 ITD 586 (DEL.) BIGJOS STORES (P) LIMITED V. ACIT: 106 TAXMAN 127 ( DEL.) 21. CLARIFYING THE INTENTION OF LEGISLATURE, MR. V OHRA SUBMITTED THAT, WHEREVER THE LEGISLATURE INTENDED TO SUBSTITUTE THE ACTUAL CONSIDERATION WITH THE FAIR MARKET VALUE, PROVISION TO THE SAID EFFECT HAS BEEN SPECIFICALLY PRESCRIBED IN THE STATUTE, FO R INSTANCE, SECTION 50C PRESCRIBED FOR SUBSTITUTION OF ACTUAL CONSIDERA TION IN CASE OF TRANSFER OF LAND AND/ OR BUILDING WITH CIRCLE RATE WHICH IS ADOPTED FOR THE PURPOSE OF PAYMENT OF STAMP DUTY, IN THE EVENT THE ACTUAL SALE CONSIDERATION IS LESS THAN THE CIRCLE RATE. IN THE CASE OF UNQUOTED SHARES, THE DEEMING PROVISION OF FULL VALUE OF CON SIDERATION HAS BEEN I.T.A .NO.-4737/DEL/2017 41 | P A G E INSERTED BY THE FINANCE ACT, 2017 BY INSERTING SECT ION 50CA W.E.F. 01.04.2018 WHICH PROVIDES FOR SUBSTITUTION OF THE A CTUAL CONSIDERATION WITH THE FAIR MARKET VALUE IN THE CASE OF TRANSFER OF UNLISTED SHARES OF COMPANY FROM 01.04.2018. THERE IS NO SUCH PROVISION BY WHICH FULL VALUE OF CONSIDERATION FOR TRANSFER OF UNLISTED /UN QUOTED SHARES CAN BE ENHANCED BY TAKING THE FAIR MARKET VALUE. THIS P ROVISION CANNOT BE MADE RETROSPECTIVE AS THIS IS A SUBSTANTIAL PROVISI ON BROUGHT IN THE STATUTE FROM A PARTICULAR DATE I.E., FROM A.Y. 2018 -19. 22. FURTHER DWELLING UPON THE MEANING OF THE EXPRES SION ACCRUED IN SECTION 48, HE SUBMITTED THAT HERE THE WORD ACC RUED HAS TO BE CONSTITUTED AS WHAT IS THE AMOUNT RECEIVABLE BY THE TRANSFER OF CAPITAL ASSET BASED ON BINDING AND ENFORCEABLE CORRESPONDIN G OBLIGATION ON THE TRANSFEREE TO MAKE SUCH PAYMENT. THE WORD ACCR UE WOULD ONLY REFER TO REAL AMOUNT AND NOT TO ANY NOTIONAL AMOUNT WHICH CAN BE BROUGHT TO TAX IN THE HANDS OF TRANSFEROR U/S 45 R. W.S 48 OF THE ACT. IN SUPPORT OF HIS CONTENTION, HE STRONGLY REFERRED AND RELIED UPON THE RECENT JUDGMENT OF HONBLE SUPREME COURT IN THE CAS E OF CIT VS. BALBIR SINGH MAINI (CA NO.15619/2017) [SLP NO.35248 /2015, JUDGMENT AND ORDER DATED 04.10.2017]. THE RELEVANT PARAGRAPH OF THE SAID JUDGMENT STRESSED UPON BY HIM READS AS UND ER:- 14. FIRST OF ALL, IT IS NOW WELL SETTLED THAT INCO ME TAX CANNOT BE LEVIED ON HYPOTHETICAL INCOME. IN CIT V. SHOORJI VA LLABHDAS AND CO. [CIT V. SHOORJI VALLABHDAS AND CO., (1962) 46 ITR 1 44 (SC)] IT WAS HELD AS FOLLOWS: (ITR P. 148) ... INCOME TAX IS A LEVY ON INCOME. NO DOUBT, THE INCOME TAX ACT TAKES INTO ACCOUNT TWO PO INTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOKKEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIALISE. WHERE INCOME HAS, IN FACT, BE EN RECEIVED AND I.T.A .NO.-4737/DEL/2017 42 | P A G E IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOU NT. 15. THE ABOVE PASSAGE WAS CITED WITH APPROVAL IN MORVI INDU STRIES LTD. V. CIT [MORVI INDUSTRIES LTD. V. CIT, (1972) 4 SCC 451 : 1974 SCC (TAX) 140 : (1971) 82 ITR 835] IN WHICH THIS COURT ALSO C ONSIDERED THE DICTIONARY MEANING OF THE WORD ACCRUE AND HELD TH AT INCOME CAN BE SAID TO ACCRUE WHEN IT BECOMES DUE. IT WAS THEN OBSERVED THAT: (SCC P. 454, PARA 11) 11. ... THE DATE OF PAYMENT ... DOES NOT AFFECT THE ACCRUAL OF INCOME. THE MOMENT THE INCOME ACCRUE S, THE ASSESSEE GETS VESTED WITH THE RIGHT TO CLAIM THAT AMOUNT EVE N THOUGH IT MAY NOT BE IMMEDIATELY. 16. THIS COURT FURTHER HELD, AND IN OUR OPINION MOR E IMPORTANTLY, THAT INCOME ACCRUES WHEN THERE ARISES A CORRESPONDING L IABILITY OF THE OTHER PARTY FROM WHOM THE INCOME BECOMES DUE TO PAY THAT AMOUNT. 17. IT FOLLOWS FROM THESE DECISIONS THAT INCOME ACC RUES WHEN IT BECOMES DUE BUT IT MUST ALSO BE ACCOMPANIED BY A CO RRESPONDING LIABILITY OF THE OTHER PARTY TO PAY THE AMOUNT. ONL Y THEN CAN IT BE SAID THAT FOR THE PURPOSES OF TAXABILITY THAT THE I NCOME IS NOT HYPOTHETICAL AND IT HAS REALLY ACCRUED TO THE ASSES SEE. 18. INSOFAR AS THE PRESENT CASE IS CONCERNED, EVEN IF IT IS ASS UMED THAT THE ASSESSEE WAS ENTITLED TO THE BENEFITS UNDER THE ADV ANCE LICENSES AS WELL AS UNDER THE DUTY ENTITLEMENT PASSBOOK, THERE WAS NO CORRESPONDING LIABILITY ON THE CUSTOMS AUTHORITIES TO PASS ON THE BENEFIT OF DUTY-FREE IMPORTS TO THE ASSESSEE UNTIL THE GOODS ARE ACTUALLY IMPORTED AND MADE AVAILABLE FOR CLEARANCE. THE BENEFITS REPRESENT, AT BEST, A HYPOTHETICAL INCOME WHICH MAY OR MAY NOT I.T.A .NO.-4737/DEL/2017 43 | P A G E MATERIALIZE AND ITS MONEY VALUE- IS, THEREFORE, NOT THE INCOME OF THE ASSESSEE. 27. IN THE FACTS OF THE PRESENT CASE, IT IS CLEAR T HAT THE INCOME FROM CAPITAL GAIN ON A TRANSACTION WHICH NEVER MATERIALI ZED IS, AT BEST, A HYPOTHETICAL INCOME. IT IS ADMITTED THAT, FOR WANT OF PERMISSIONS, THE ENTIRE TRANSACTION OF DEVELOPMENT ENVISAGED IN THE JDA FELL THROUGH. IN POINT OF FACT, INCOME DID NOT RESULT AT ALL FOR THE AFORESAID REASON. THIS BEING THE CASE, IT IS CLEAR THAT THERE IS NO P ROFIT OR GAIN WHICH ARISES FROM THE TRANSFER OF A CAPITAL ASSET, WHICH COULD BE BROUGHT TO TAX UNDER SECTION 45 READ WITH -SECTION 48 OF THE I NCOME TAX ACT. 28. IN THE PRESENT CASE, THE ASSESSEE DID NOT ACQUI RE ANY RIGHT TO RECEIVE INCOME, INASMUCH AS SUCH ALLEGED RIGHT WAS DEPENDENT UPON THE NECESSARY PERMISSIONS BEING OBTAINED. THIS BEIN G THE CASE, IN THE CIRCUMSTANCES, THERE WAS NO DEBT OWED TO THE AS SESSEES BY THE DEVELOPERS AND THEREFORE, THE ASSESSEES HAVE NOT AC QUIRED ANY RIGHT TO RECEIVE INCOME UNDER THE JDA. THIS BEING SO, NO PROFITS OR GAINS AROSE FROM THE TRANSFER OF A CAPITAL ASSET SO AS TO ATTRACT SECTIONS 45 AND 48 OF THE INCOME TAX ACT. 29. WE ARE, THEREF ORE, OF THE VIEW THAT THE HIGH COURT WAS CORRECT IN ITS CONCLUSION, BUT FOR THE REASONS STATED BY US HEREINABOVE. THE APPEALS ARE DISMISSED WITH NO ORDER AS TO COSTS. 23. MR. AJAY VOHRA, FURTHER SUBMITTED THAT IF ONE GOES AS PER THE SCHEME OF THE ACT, THEN CAPITAL GAINS IS TO BE COMP UTED IN THE HANDS OF THE TRANSFERORS TAKING INTO ACCOUNT THE ACTUAL C ONSIDERATION RECEIVED OR ACCRUING AND NOT ANY HYPOTHETICAL/NOTIO NAL CONSIDERATION/ FAIR MARKET VALUE OF THE ASSET SUBJECT OF TRANSFER. THE DIFFERENCE, IF ANY, BETWEEN THE FAIR MARKET VALUE OF THE ASSET AND THE ACTUAL CONSIDERATION RECEIVED WAS TAXED AS DEEMED GIFT UND ER SECTION 4(1)(A) OF THE GIFT TAX ACT, 1958 IN THE HANDS OF TRANSFERO R, UNTIL REPEAL OF THE SAID ACT WITH EFFECT FROM 01.10.1998. ACCORDINGLY, AFTER ABOLITION OF THE I.T.A .NO.-4737/DEL/2017 44 | P A G E GIFT TAX ACT, THE DIFFERENCE BETWEEN THE FAIR MARKE T VALUE AND ACTUAL CONSIDERATION RECEIVED ON TRANSFER OF THE CAPITAL A SSET WAS NOT SUBJECT TO TAXATION IN THE HANDS OF EITHER THE TRANSFEROR O R THE TRANSFEREE. IN ORDER TO OVERCOME THE AFORESAID LACUNA, SUB-CLAUSES (VII)/(VIIA) WERE INSERTED IN SECTION 56(2) OF THE ACT BY THE FINANCE ACT, 2009 AND 2010, WITH EFFECT FROM 01.10.2009/ 01.06.2010, RESPECTIVE LY, TO DEEM THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE OF THE CAP ITAL ASSET, SUBJECT OF TRANSFER, DETERMINED ON THE BASIS OF PRESCRIBED MET HOD IN RULE 11U/11UA OF THE RULES AND THE ACTUAL CONSIDERATION PAID, THEREFORE, AS INCOME CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES IN THE HANDS OF THE RECIPIENT / TRANSFEREE . REFERENCE IN THIS REGARD HE POINTED OUT THAT CAN BE MADE IN THE MEMOR ANDUM EXPLAINING THE AMENDMENTS MADE BY THE RELEVANT FINA NCE BILL AND THE NOTES ON CLAUSES THERETO. IN VIEW OF THE ABOVE, HE SUBMITTED THAT IT WOULD BE APPRECIATED THAT UNDER THE SCHEME OF THE A CT, THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE OF AN ASSET (IN CASE THE SAME IS HIGHER) AND ACTUAL CONSIDERATION RECEIVED / PAID ON TRANSFE R OF ASSET IS NOT TAXABLE IN THE HANDS OF THE TRANSFEROR, BUT IS TAXA BLE, IN THE HANDS OF THE TRANSFEREE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 56(2)(VII)/(VIIA) OF THE ACT. THE SCOPE AND WIDTH O F THE DEEMING FICTION ENACTED IN SECTIONS 56(2)(VII)/(VIIA) HAS BEEN ENLA RGED BY INSERTION OF SECTION 56(2)(X) IN THE STATUTE BY THE FINANCE ACT, 2017 W.E.F. 1.04.2017 TO PROVIDE FOR TAXATION IN THE HANDS OF T HE TRANSFEREE RECIPIENT, THE DIFFERENCE BETWEEN THE FAIR MARKET V ALUE OF THE PROPERTY AND THE CONSIDERATION PAID THEREFOR. WITH THE INSER TION OF SECTION 56(2)(X), THE EARLIER PROVISIONS OF SECTION 56(2)(V II)/(VIIA) HAVE BEEN MADE INOPERATIVE WITH EFFECT FROM 1.04.2017. HE FUR THER HIGHLIGHTED A POINT THAT A SPECIFIC PROVISION HAS BEEN INTRODUCED IN THE FORM OF SECTION 50CA BY THE FINANCE ACT, 2017 W.E.F. 1.04.2 018 TO BRING TO TAX IN THE HANDS OF THE TRANSFEROR, THE DIFFERENCE BETW EEN THE FAIR MARKET VALUE OF SHARES OF AN UNQUOTED COMPANY AND THE CONS IDERATION I.T.A .NO.-4737/DEL/2017 45 | P A G E RECEIVED THEREFOR. THE SAID SECTION SPECIFICALLY PR OVIDES TO TAX THE TRANSFEREE ON DIFFERENCE BETWEEN THE FAIR MARKET VA LUE OF THE UNQUOTED SHARES AND THE DECLARED CONSIDERATION IN RESPECT OF SHARES TRANSFERRED DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 2018-19 AND ONWARDS. AS A CONSEQUENCE OF INSERTION OF THE ABOVE DEEMING PROVISION FROM ASSESSMENT YEAR 2018-19, THE TRANSFE ROR WOULD BE LIABLE TO TAX UNDER THE HEAD; (I) CAPITAL GAINS W ITH RESPECT TO THE DIFFERENCE BETWEEN THE DECLARED / ACTUAL CONSIDERAT ION RECEIVED AND THE COST OF ACQUISITION; AND (II) INCOME FROM OTHE R SOURCES ON THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE OF SUCH SH ARES AND THE DECLARED CONSIDERATION. THE AFORESAID INSERTION WOU LD FURTHER GO TO SHOW THAT PRIOR TO ASSESSMENT YEAR 2018-19, THERE W AS NO PROVISION IN THE ACT TO BRING TO TAX THE DIFFERENCE, IF ANY, BET WEEN THE FAIR MARKET VALUE OF THE SHARES OF AN UNQUOTED COMPANY, SUBJECT OF TRANSFER, AND THE ACTUAL CONSIDERATION RECEIVED, IN THE HANDS OF THE TRANSFEROR, ALTHOUGH SUCH DIFFERENCE WAS SUBJECT MATTER OF TAXA TION IN THE HANDS OF THE TRANSFEREE IN TERMS OF SECTIONS 56(2)(VII) / (VIIA) /(X) OF THE ACT. ACCORDINGLY, IN THE ABSENCE OF ANY PROVISION PROVID ING THE ASSESSING OFFICER WITH THE POWER OF SUBSTITUTING THE ACTUAL C ONSIDERATION WITH THE FAIR MARKET VALUE, THE ACTION OF THE ASSESSING OFFI CER AND UPHELD BY THE CIT(A) CANNOT BE SUSTAINED, BEING CONTRARY TO LAW. 24. HE FURTHER SUBMITTED THAT THE ASSESSEE HA S COMPUTED LONG TERM CAPITAL GAIN ON SHARES OF SBPL BY TAKING INTO ACCOUNT, THE ACTUAL CONSIDERATION RECEIVED AMOUNTING TO RS.997.92 CRORE S AND IF THE REVENUE ALLEGES THAT THE ASSESSEE RECEIVED IN AMOUN T IN EXCESS OF THE DECLARED CONSIDERATION, THEN ONUS WAS ON THE REVENU E TO DEMONSTRATE WITH TANGIBLE EVIDENCE THAT EXCESS CONSIDERATION HA D ACTUALLY PASSED ON OR HAS BEEN RECEIVED BY THE ASSESSEE. IN SUPPORT OF THIS PROPOSITION, HE REFERRED TO THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF K.P. VARGHESE VS. ITO, 131 ITR 597. HE POINTED OUT THAT IT IS NOT THE DEPARTMENTAL CASE THAT THE ASSESSEE O R HIS WIFE MRS. NEELU I.T.A .NO.-4737/DEL/2017 46 | P A G E ANALJIT SINGH HAD RECEIVED ANYTHING OVER AND ABOVE THE SALE CONSIDERATION OF RS.1241.32 CRORES AS DISCLOSED AND APPROVED BY FIPB. OTHERWISE ALSO, THE HYPOTHETICAL AMOUNT OF RS.2233. 42 CRORES AS DETERMINED BY THE AO CANNOT BE RECKONED AS ACCRUED TO THE ASSESSEE AND TO DEMONSTRATE THAT SUCH RIGHT VESTED IN THE AS SESSEE LIES WHOLLY TO THE REVENUE THAT THERE WAS A CORRESPONDING DEBT OWED BY CGP TO PAY SUCH HIGHER AMOUNT TO THE ASSESSEE. THE REVENUE AUTHORITIES HAVE NOT BEEN ABLE TO JUSTIFY THAT THE AMOUNT OF RS .2233.42 CRORES COULD BE SAID TO HAVE LEGALLY ACCRUED TO THE APPELL ANT UNDER THE AGREEMENT WITH VIL FOR SALE OF SHARES HELD BY THE A PPELLANT IN SCORPIO ON THE BASIS OF ANY OTHER DOCUMENT / EVIDENCE. THE ONUS ON THE REVENUE TO PROVE THAT CONSIDERATION OF RS. 2233.42 CRORES ACCRUED TO THE ASSESSEE IN TERMS OF A LEGALLY BINDING CONTRAC T, ENFORCEABLE AT LAW, HAS CLEARLY NOT BEEN DISCHARGED. THE RATIO EMANATIN G FROM THE RECENT JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS . BALBIR SINGH MAINI & ORS. (SUPRA), IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE IN AS MUCH AS; FIRSTLY, THE ALLEGED FAIR MARKET VALUE OF THE SHARES OF SBPL COMPUTED BY THE REVENUE WAS NOT AGREED TO B E EXCHANGED BETWEEN THE APPELLANT AND CGP UNDER THE TERMS OF TH E AGREEMENT AND, THEREFORE, NO RIGHT TO RECEIVE THE SAME VESTED WITH THE APPELLANT NOR WAS A CORRESPONDING OBLIGATION TO PAY THE SAID AMOU NT FASTENED ON TO THE TRANSFEREE, I.E., CGP, AND SECONDLY, THE ALLEGED FAIR MARKET VALUE REPRESENTS HYPOTHETICAL CONSIDERATION, WHICH ON THE BASIS OF REAL INCOME THEORY CANNOT BE BROUGHT TO TAX AS CAPITAL G AINS IN THE HANDS OF THE TRANSFEROR /ASSESSEE. THUS, IN VIEW OF THE A FORESAID CLEAR DICTUM LAID DOWN BY THE SUPREME COURT IN THE RECENT DECISI ON IN THE CASE OF BALBIR SINGH MAINI & ORS. (SUPRA), THERE IS NO SCOP E FOR THE REVENUE TO CONSIDER THE NOTIONAL FAIR MARKET VALUE OF THE S HARES OF SCORPIO AS ACCRUING TO THE APPELLANT FOR THE PURPOSES OF TAXIN G THE SAME AS CAPITAL GAINS UNDER SECTION 45 READ WITH SECTION 48 OF THE ACT. I.T.A .NO.-4737/DEL/2017 47 | P A G E 25. THE NEXT LIMB OF MR. VOHRAS ARGUMENTS WAS THAT , THE PRINCIPLE OF CONSISTENCY SHOULD HAVE BEEN FOLLOWED BY THE DE PARTMENT, BECAUSE IN THE PRESENT CASE, PART OF THE SHARES OF SBPL, I. E., 49% STAKE OF THE ASSESSEE IN SBPL WAS TRANSFERRED TO CGP AT RS.533 C RORES BEING AMOUNT ARRIVED AS PER THE CLAUSE OF LUMP SUM CONSID ERATION AGREED IN SCHEDULE I OF THE FRAMEWORK AGREEMENT DATED 05.07.2 007, DURING THE AY 2010-11 WHICH WAS OFFERED TO TAX UNDER THE HEAD LONG TERM CAPITAL GAINS WHICH WAS BEEN ACCEPTED BY THE REVEN UE AS SUCH. IN ABSENCE OF ANY CHANGE IN FACTS MORE PARTICULARLY QUA THE AGREEMENT DATED 05.07.2007 AND MODE OF COMPUTATION OF TRANSFE R PRICE CONTAINED IN SCHEDULE 1 THEREOF, THE REVENUE NOW CANNOT BE PERMITTED TO CH ANGE ITS STAND AND ARGUE THAT ACTUAL CONSIDERATION RECEI VED BY THE ASSESSEE ON TRANSFER OF SHARE NEEDS TO BE SUBSTITUTED WITH A LLEGED MARKET FAIR VALUE. IN SUPPORT OF PRINCIPLE OF CONSISTENCY TO BE FOLLOWED, HE RELIED UPON CATENA OF JUDGMENTS WHICH ARE AS UNDER:- RADHASOAMI SATSANG VS. CIT: 193 HR 321 (SC) CIT VS. EXCEL INDUSTRIES LTD.: 358 ITR 295 (SC) DIT(E) VS. APPAREL EXPORT PROMOTION COUNCIL:244 ITR 734 (DEL) CIT VS. NEO POLYPACK (P) LTD.: 245 ITR 492 (DEL.) CIT VS. DALMIA PROMOTERS DEVELOPERS (P) LTD.: 281 I TR 346 (DEL.) DIT VS. ESCORTS CARDIAC DISEASES HOSPITAL: 300 ITR 75 (DEL.) CIT VS. P. KHRISHNA WARRIER: 208 ITR 823 (KER) CIT VS. HARISHCHANDRA GUPTA: 132 ITR 799 (ORI) 26. COMING TO THE ISSUE OF INVOKING OF SECTION 50D FROM FIRST APPELLATE STAGE BY THE LD. CIT (A), MR. VOHRA SUBMI TTED THAT THE SAID SECTION DOES NOT EMPOWER THE ASSESSING OFFICER OR T HE REVENUE AUTHORITIES TO SUBSTITUTE THE ACTUAL CONSIDERATION THAT HAS BEEN PASSED BETWEEN THE PARTIES PURSUANT TO CONTRACT/AGR EEMENT FOR SALE OF CAPITAL ASSETS WITH ANY HYPOTHETICAL OR NOTIONAL CO NSIDERATION OR FAIR MARKET VALUE OF THE ASSETS. HE SUBMITTED THAT THE S AID SECTION HAS NO I.T.A .NO.-4737/DEL/2017 48 | P A G E APPLICATION IN A CASE WHERE TRANSFER OF CAPITAL ASS ETS IS FOR DETERMINATION/ASCERTAINED CONSIDERATION DULY REFLEC TED IN THE AGREEMENT FOR SALE OF THE CAPITAL ASSETS WHICH IS A CTUALLY CHANGED HANDS BETWEEN THE CONTRACTING PARTIES VIZ., TRANSFE ROR OR THE TRANSFEREE. SECTION 50D WOULD BE APPLICABLE IN A TR ANSACTION INVOLVING EXCHANGE OF ASSETS OR MODE OR TRANSFER WHERE THE CO NSIDERATION IS NOT FIXED. BY WAY OF ILLUSTRATIVE REFERENCE, HE REFERRE D TO THE DECISION OF DELHI ITAT BENCH IN THE CASE OF ACIT VS. KB INVESTM ENT AND FINANCE COMPANY LTD. 53 ITD 410, WHEREIN IT WAS HELD THAT I N THE CASE OF EXCHANGE OF CAPITAL ASSETS, NO AMOUNT COULD BE BROU GHT TO TAX U/S 45 ACT, SINCE IT WAS NOT POSSIBLE TO COMPUTE CAPITAL G AINS AND IN ABSENCE OF ANY ENABLING PROVISION PERMITTING THE AO TO SUBS TITUTE THE FMV OF ASSETS AS THE FULL VALUE OF CONSIDERATION. HERE IN THIS CASE, THE SHARES OF SBPL HAVE BEEN TRANSFERRED FOR ASCERTAINED CONSI DERATION CLEARLY SPELT OUT IN THE SHARE PURCHASE AGREEMENT DATED 12 .03.2014 AND IT IS NOT A CASE WHERE THE FULL VALUE OF CONSIDERATION IS EITHER NOT ASCERTAINABLE OR NOT DETERMINABLE. HE SUBMITTED THA T IT WOULD FURTHER BE APPRECIATED THAT IF SECTION 50D IS TO BE APPLIED FOR SUBSTITUTING ACTUAL CONSIDERATION WITH THE FAIR MARKET VALUE IN ANY AND EVERY SITUATION OF TRANSFER OF ALL KINDS OF CAPITAL ASSET , THEN, THE LAW WOULD HAVE PROVIDED FOR THE SAID SECTION TO OVERRIDE SECT ION 48 OF THE ACT, WHICH IS NOT THE CASE. FURTHER, IN THAT EVENT, SECT ION 50D WOULD HAVE PROVIDED FOR AN EXCEPTION IN RESPECT OF TRANSFER OF CAPITAL ASSET, BEING LAND OR BUILDING OR BOTH, FOR WHICH SPECIFIC PROVIS ION IN SECTION 50C OF THE ACT WAS ALREADY ON THE STATUTE PRIOR TO THE FOR MER SECTION BEING INCORPORATED IN THE ACT. IF SECTION 50D OF THE ACT WAS SUFFICIENT TO CAPTURE THE SITUATION AS IN THE PRESENT CASE, THEN THERE WAS NO NECESSITY TO INSERT PROVISION OF SECTION 50CA OF TH E ACT IN THE STATUTE BY THE FINANCE ACT, 2017 W.E.F. 01.04.2018. THE VERY FACT THAT SECTION 50CA HAS BEEN BROUGHT IN THE STATUTE IN THE CASE OF UNLISTED SHARES, IT GOES TO SHOW THAT SECTION 50D DOES NOT EMPOWER THE REVENUE I.T.A .NO.-4737/DEL/2017 49 | P A G E AUTHORITIES TO SUBSTITUTE THE DECLARED/DETERMINED C ONSIDERATION AGREED BETWEEN THE PARTIES WITH THE FAIR MARKET VAL UE OF THE ASSETS SUBJECT TO TRANSFER. THUS, HE SUBMITTED THAT THE SU BSTITUTION OF ACTUAL SALE CONSIDERATION OF RS.1241.32 CRORES WITH HYPOTH ETICAL CONSIDERATION OF RS.2233.42 CRORES IS SANS ANY AUTHORITY OF LAW AND, THEREFORE, CANNOT BE UPHELD AND SAME SHOULD BE DELE TED. 27. AFTER HAVING MADE HIS DETAILED SUBMISSIONS T HAT THE ADDITION MADE BY THE AO BY ENHANCING THE SALE CONSIDERATION FOR THE PURPOSE OF COMPUTING THE CAPITAL GAIN, MR. VOHRA BY WAY OF ALTERNATIVE ARGUMENT AND WITHOUT PREJUDICE TO HIS EARLIER SUBMI SSION, SUBMITTED THAT,IF FMV OF THE CAPITAL ASSETS CAN BE SUBSTITUTE D BY ACTUAL/FULL VALUE OF CONSIDERATION RECEIVED ON TRANSFER THEREOF U/S 45 R.W.S. 48 OF THE ACT, THE ADDITION MADE IN THE ASSESSMENT ORDER IS BASED ON SEVERAL FACTUAL INACCURACY, INCONSISTENCY ETC. WHICH OTHERW ISE CANNOT BE SUSTAINED. HE HIGHLIGHTED THE FOLLOWING DISCREPANCI ES IN THE ORDER OF THE AO AND POINT WISE REBUTTAL OF SUCH OBSERVATIONS AND CONCLUSIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER WH ICH BY AND LARGE HAVE BEEN CONFIRMED BY THE LD. CIT(A):- (I) ALLEGATION OF THE ASSESSING OFFICER: THE ASSESSING OFFICER HAS ALLEGED THAT WHILE 49% OF THE SHARES WERE SOLD AT A VALUE OF RS. 10.88 LAKHS PER SHARE ( RS.533 CRORES/4900 SHARES) IN THE PREVIOUS YEAR RELEVANT T O ASSESSMENT YEAR 2010-11, THE AVERAGE REALIZATION PER SHARE FOR ORIGINAL AND RIGHTS SHARES RECEIVED BY AS ON THE BASIS OF TOTAL LUMPSUM CONSIDERATION OF RS.1241.32 CRORES, WORKED OUT TO R S.63.65 PER SHARE ONLY. REBUTTAL BY THE ASSESSEE: IN COMING TO THE AFORESAID CONCLUSION, THE ASSESSIN G OFFICER HAS ERRED IN IGNORING THE FOURTH SUPPLEMENT DEED DATED I.T.A .NO.-4737/DEL/2017 50 | P A G E 07.08.2012WHEREUNDER IT IS PROVIDED THAT THE RIGH T SHARES SUBSCRIBED BY AS WOULD BE SOLD FOR LUMPSUM CONSIDER ATION OF RS.300 CRORES, AS AND WHEN PERMITTED BY THE FDI REG ULATIONS. ON THAT BASIS, THE RIGHT SHARES SUBSCRIBED IN THE Y EAR 2012 AND SOLD IN MARCH, 2014 RESULTED IN AVERAGE REALIZATION OF RS. 15.38 PER SHARE. THE ORIGINAL 5100 SHARES HAVE BEEN SOLD FOR RS.941.32 CRORES (RS. 1241.32 CRORES - 300 CRORES) GIVING AN AVERAGE REALIZATION OF RS. 18,45,726.71 PER SHARE, WHICH IS MUCH MORE THAN THE PRICE REALIZED WHILE SELLING 49% OF THE SH AREHOLDING IN 2009. THE ALLEGATION LABELED BY THE ASSESSING OFFIC ER IS, THEREFORE, CONTRARY TO RECORD. (II) WRONG WORKING OF INDIRECT INTEREST OF AS/SCORPIO IN VIL BY THE ASSESSING OFFICER: TAKING INTO ACCOUNT THE ENTERPRISE VALUE OF VIL DET ERMINED BY KOTAK VIDE VALUATION REPORT DATED 19.03.2004 AT RS. 56,448 CRORES AND DETERMINING THE ECONOMIC INTEREST OF SCO RPIO IN VIL AT 9.65%, THE ASSESSING OFFICER DETERMINED THE VALUATI ON OF SBPL AT RS.5447.23 CRORES AND ACCORDINGLY, COMPUTED THE FAI R MARKET VALUE OF SHARES OF SBPL AT RS. 142.70 PER SHARE. ON THAT BASIS, THE ASSESSING OFFICER TAKING FAIR MARKET VALUE OF A PPELLANTS SHAREHOLDING IN SCORPIO AT RS.2233.42 CRORES, SUBST ITUTED THE SAME FOR DECLARED CONSIDERATION CRORES WHILE COMPUT ING CAPITAL GAINS. REBUTTAL BY THE ASSESSEE: THE ASSESSING OFFICER ERRED IN TAKING THE INDIRECT INTEREST OF SCORPIO IN VIL AT 9.65% AS AGAINST 8.9055% AS EVIDE NT FROM THE STRUCTURE CHART ANNEXED TO THE CHART OF DATE FILED BY THE APPELLANT. ON THAT BASIS, INDIRECT STAKE OF THE APP ELLANT IN VIL ON PASS THROUGH BASIS WAS 3.6512% (BEING 41% OF 8.9055 % AND NOT 3.95% AS CONSIDERED BY THE ASSESSING OFFICER IN PAR AGRAPH 7.14 I.T.A .NO.-4737/DEL/2017 51 | P A G E ON PAGE 26 OF THE ASSESSMENT ORDER PASSED. THE AFOR ESAID REVISED PERCENTAGE OF ECONOMIC INTEREST CANNOT BE D ISPUTED BY THE SPECIAL COUNSEL OF THE REVENUE ALSO. (III) IGNORING VALUE OF INTERMEDIARY COMPANIES, WHILE COM PUTING FMV OF SCORPIO ADOPTING ENTERPRISE VALUE OF VIL DET ERMINED BY KOTAK: IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER DIRE CTLY APPLIED THE INDIRECT INTEREST OF THE APPELLANT/SCORPIO IN V IL TO ENTERPRISE VALUE OF VIL, I.E., RS. 56448 CRORES, TO COMPUTE TH E FMV OF SCORPIO AT RS. 2233.36 CRORES, THEREBY IGNORING THE VALUE OF INTERMEDIARY COMPANIES. REBUTTAL BY THE ASSESSEE: A. REASONS BEHIND ENGAGEMENT OF KOTAK: AS PER CLAUSES 2.1 AND 2.2 OF THE SHARE PURCHASE AG REEMENT DATED 12.3.2014,THE ENTIRE SHARES HELD BY AS IN SCO RPIO WERE AGREED TO BE SOLD FOR TRANSFER PRICE OF RS. 1241. 32 CRORES, WHICH WAS A MUTUALLY NEGOTIATED AND AGREED CONSIDERATION. CLAUSE 3.2 OF THE SAID AGREEMENT PROVIDED THAT THE PARTIES WOU LD REQUEST KOTAK, A SEBI REGISTERED CATEGORY I MERCHANT BANKER , TO PREPARE A VALUATION REPORT RELATING TO THE FAIR MARKET VALU E OF VIL PURSUANT TO SCHEDULE 1 OF THE FRAMEWORK AGREEMENT D ATED 5.7.2007, TO CONFIRM THE TRANSFER PRICE DETERMINED BY THE PARTIES. FURTHER IT WOULD BE PERTINENT TO POINT OUT AS PER PARAGRAPH 2.2 OF ANNEX - 2 OF CONSOLIDATED FDI POLI CY (EFFECTIVE FROM APRIL 5, 2013), WHICH WAS APPLICABLE DURING TH E PERIOD IN QUESTION, PRICE OF SHARES OF AN UNLISTED INDIAN COM PANY, TRANSFERRED BY RESIDENT TO A NON-RESIDENT, SHALL NO T BE LESS THAN FAIR VALUE DETERMINED BY A SEBI REGISTERED CATEGORY I MERCHANT BANKER OR CHARTERED ACCOUNTANT AS PER THE DISCOUNTE D FREE CASH I.T.A .NO.-4737/DEL/2017 52 | P A G E FLOW (DCF) METHOD. IN ORDER TO DETERMINE WHETHER THE ENTERPRISE VALUATION OF VIL EXCEEDED US $ 25 BILLION, WHICH WO ULD TRIGGER PAYMENT OF ADDITIONAL, CONSIDERATION IN TERMS OF CL AUSE A(II) OF SCHEDULE 1 TO THE FRAMEWORK AGREEMENT DATED 5.7.200 7 AND FURTHER ENSURE THAT THE TRANSFER PRICE AGREED BETWE EN THE PARTIES UNDER THE SHARE PURCHASE AGREEMENT DATED 12.3.2014 DID NOT VIOLATE THE EXTANT PROVISIONS OF FOREIGN EXCHANGE M ANAGEMENT ACT, 1999, CGP HAD ENGAGED KOTAK TO PROVIDE A VALUA TION REPORT. IT NEEDS TO BE EMPHASIZED THAT THE VALUATION ARRIVE D AT BY KOTAK WAS NOT THE BASIS FOR THE CONSIDERATION PAYABLE BY CGP TO AS FOR TRANSFER OF SHARES OF SBPL. THE CONSIDERATION WAS I NDEPENDENTLY NEGOTIATED AND AGREED BETWEEN THE PARTIES, AS SPELT OUT IN CLAUSES 2.1 AND 2.2 OF THE SHARE PURCHASE AGREEMENT DATED 12.3.2014. THE-VALUATION REPORT OBTAINED FROM KOTAK IN TERMS OF CLAUSE 3.2 OF THE SAID AGREEMENT WAS ONLY A CONFIRM ATION THAT THE TRANSFER PRICE AGREED BETWEEN THE PARTIES WAS N OT BELOW THE MINIMUM THRESHOLD IN TERMS OF THE APPLICABLE GOVERN MENT /FOREIGN EXCHANGE REGULATIONS AND ALSO TO DETERMINE WHETHER ANY ADDITIONAL CONSIDERATION WAS PAYABLE IN TERMS O F CLAUSE A (II)OF SCHEDULE 1 OF THE FRAMEWORK AGREEMENT DATED 5.7.2007.THE VALUATION REPORT SUBMITTED BY KOTAK DE TERMINED THE ENTERPRISE VALUE OF VIL AT RS.56448 CRORES, WHI CH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. IN THAT VIEW OF THE MATTER, NO ADDITIONAL CONSIDERATION OVER AND ABOVE THE MUTUALL Y AGREED TRANSFER PRICE WAS PAYABLE BY GSPL/CGP TO AS FOR TR ANSFER OF SHARES OF SBPL IN TERMS OF CLAUSES A (I) AND A (II) OF SCHEDULE 1 OF THE FRAMEWORK AGREEMENT DATED 05.07.2007. THE SAID REPORT ALSO DEMONSTRATES THAT THE CONSIDERATION AGREED BET WEEN THE PARTIES, BEING MORE THAN THE FAIR MARKET VALUE DETE RMINED FOR SHARES OF SCORPIO WAS NOT VIOLATIVE OF APPLICABLE G OVERNMENT REGULATIONS. I.T.A .NO.-4737/DEL/2017 53 | P A G E B. VALUATION METHODOLOGY FOLLOWED BY KOTAK: OUR ATTENTION, IN THIS REGARD, WAS DRAWN TO THE FOLLOWING RELEVANT EXTRACTS OF THE VALUATION REPORT ISSUED BY KOTAK REGARDING THE VALUATION METHODOLOGY FOLLOWED FOR VA LUING DIFFERENT DOWNSTREAM COMPANIES. BACKGROUND CGP, AS A SHAREHOLDER OF SBP, HAS REQUESTED KOTAK M AHINDRA CAPITAL COMPANY LTD. ( KMCC) TO CARRY OUT AN EQUI TY VALUATION OF SBP AS OF FEBRUARY 28, 2014 (VALUATION DATE) A ND PROVIDE THE PRICE PER SHARE OF SBP, IN RELATION TO THE PROP OSED ACQUISITION OF SHARES OF SBP THAT CGP DOES NOT ALRE ADY OWN FROM THE SELLERS. SBP, THROUGH A SERIES OF COMPANIE S IN THE HOLDCO CHAIN, IS AN INDIRECT SHAREHOLDER OF VIL. WE HAVE CARRIED OUT THE EQUITY VALUATION OF VIL USING A SUM OF THE PARTS APPROACH, WHICH INVOLVES VALUATION OF VIL GROUP (WH ICH IS INVOLVED IN PROVIDING TELECOM SERVICES ACROSS ALL T ELECOM CIRCLES IN INDIA) AND THE VALUE OF VILS42% EQUITY STAKE IN INDUS. THE VALUATION OF BOTH VIL GROUP AND INDUS HAS BEEN DONE USING THE DISCOUNTED CASH FLOW METHODOLOGY (DCF) PRIMARIL Y BASED ON THE INFORMATION AND REPRESENTATIONS RECEIVED FRO M CGP AND VIL. THE VALUATION OF VIL SO ARRIVED AT HAS BEEN FA CTORED IN WHILE VALUING EACH OF THE COMPANIES IN THE HOLDCO C HAIN AND SBP CONSIDERING THE NET VALUE OF OTHER ASSETS AND L IABILITIES IN THE RESPECTIVE COMPANIES, TO ARRIVE AT THE VALUE OF SBP. THIS REPORT IS TO BE USED ONLY FOR THE PURPOSE OF WHICH IT IS INTENDED, AND IS NOT TO BE USED OR REFERENCED FOR ANY OTHER P URPOSE. VALUATION METHODOLOGY AND ASSUMPTIONS WE HAVE COMPUTED THE EQUITY VALUATION OF SBP, AND T HE VALUE OF EACH COMPANY IN THE HOLDCO CHAIN, BASED ON THE VALU E OF THE DOWNSTREAM INVESTMENTS OF SBP, OR THE RESPECTIVE CO MPANY IN THE HOLDCO CHAIN, AS THE CASE MAY BE (WHICH, IN EAC H SUCH I.T.A .NO.-4737/DEL/2017 54 | P A G E CASE, IS LINKED TO THE VALUE OF VIL), AND ADJUSTING THE SAME FOR THE NET VALUE OF OTHER ASSETS AND LIABILITIES OF SU CH COMPANY BASED ON THE BOOKS OF ACCOUNTS OF SUCH COMPANY AS O N 31 DECEMBER, 2013, EXCEPT THAT IN CASE OF ANY OUTSTAND ING PREFERENCE SHARES, THE SAME HAS BEEN VALUED AS ON 2 8 FEBRUARY 2014 AS PER ITS CONTRACTUAL TERMS. AS PER THE AFORESAID METHOD, KOTAK HAD AR RIVED AT A FAIR MARKET VALUE OF SHARES OF SCORPIO BY TAKING THE VAL UE/ VALUATION OF UNDERLYING COMPANIES INCLUDING VIL. THE FAIR MAR KET VALUE OF THE MAIN UNDERLYING OPERATING COMPANY, I.E., VIL WA S COMPUTED BY KOTAK ON THE BASIS OF DCF METHOD AT RS.56,448 CR ORES WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. CONSIDE RING THAT THE OTHER INTERMEDIARY COMPANIES BETWEEN SBPL AND VIL W ERE ONLY INVESTMENT COMPANIES, WITHOUT HAVING ANY BUSINESS O PERATIONS, AND NO BUSINESS PROJECTIONS/FORECAST WERE AVAILABLE FOR SUCH COMPANIES, THE SAME WERE VALUED ON THE BASIS OF NET ASSET VALUE (NAV) OF EACH SUCH COMPANY, WHICH WERE ADDED (IN CA SE OF POSITIVE NET ASSETS) OR REDUCED (IN CASE OF NEGATIV E NET ASSETS), AS THE CASE MAY BE, FROM THE FAIR VALUE OF VIL ARRIVED ON THE BASIS OF DCF METHOD AS POINTED ABOVE. IT WOULD FURTHER BE PE RTINENT TO POINT OUT THAT THE NAV OF THE INTERMEDIARIES/STEP D OWN SUBSIDIARY COMPANIES WAS COMPUTED ON THE BASIS OF B OOKS OF ACCOUNT OF SUCH COMPANIES AS ON 31.12.2013 OR 28.02 .2014. FURTHER, WHILE ADOPTING THE BOOK VALUE OF ASSETS AS ON 31.12.2013 OR 28.02.2014, KOTAK REDUCED THE ACCRUED LIABILITY TOWARDS OUTSTANDING PREFERENCE SHARES, SUCH AS, PRE MIUM PAYABLE ON REDEMPTION OR CUMULATIVE AMOUNT OF DIVID END PAYABLE ON SUCH SHARES ETC., AS PER THE CONTRACTUAL TERMS OF ISSUE THEREOF, ON A RATIONAL AND SCIENTIFIC BASIS, WHICH WERE NOT REFLECT IN THE FINANCIAL STATEMENTS. ON THE BASIS O F THE AFORESAID METHOD, KOTAK ARRIVED AT THE FAIR VALUE OF SCORPIO AT RS.2065 I.T.A .NO.-4737/DEL/2017 55 | P A G E CRORES, WHICH RESULTED IN PRICE PER SHARE OF RS.5.4 0. C. VALUATION METHODOLOGY ADOPTED BY KOTAK JUSTIFIED: MR. VOHRA DREW OUR ATTENTION TO THE STRUCTURE CHART ON PAGE 6 OF KOTAKS VALUATION REPORT. ON PERUSAL OF THE SAME, H E SUBMITTED THAT IT WOULD BE SEEN THAT SBPL WAS NOT DIRECTLY HO LDING SHARES IN VIL, BUT HELD ECONOMIC INTEREST THEREIN THROUGH SEVERAL INTERMEDIATE COMPANIES, WHICH HAD INDEPENDENT ASSET S AND LIABILITIES. ALTHOUGH, THE SAID COMPANIES WERE MAIN LY INVESTMENT COMPANIES, HAVING SHAREHOLDING IN SUBSIDIARY COMPAN IES, SUCH INVESTMENTS WERE FINANCED THROUGH THIRD PARTY BORRO WINGS, WHICH IN OUR RESPECTFUL SUBMISSION OUGHT TO BE CONS IDERED WHILE COMPUTING THE VALUE OF HOLDING COMPANIES INCLUDING SBPL. ACCORDINGLY, SINCE SBPL HAD NO DIRECT SHAREHOLDING IN VIL, WHICH WAS HELD THROUGH SEVERAL INTERMEDIATE COMPANI ES, THE VALUATION OF SBPL WAS TO NECESSARILY FACTOR THE NET ASSETS (I.E. ASSETS LESS DEBTS) POSITION OF ALL SUCH INTERMEDIAT E COMPANIES, AS RIGHTLY CARRIED OUT BY THE VALUATION EXPERT, VIZ., KOTAK IN ITS VALUATION REPORT. THUS, HE SUBMITTED THAT THE AFORE SAID METHOD FOLLOWED BY KOTAK IN CONSIDERING THE VALUE OF INTER MEDIARIES COMPANIES IS A UNIVERSALLY ACCEPTABLE METHOD AND WA S ALSO FACTORED IN BY THE PARTIES AT THE TIME OF NEGOTIATI NG THE CONSIDERATION FOR TRANSFER OF SHARES UNDER THE FRAM EWORK AGREEMENTS, IN THE FOLLOWING MANNER:- I. THE ERSTWHILE RULE 12 RELATING TO VALUATION OF UNQU OTED EQUITY SHARES OF AN INVESTMENT COMPANIES CONTAINED UNDER THE WEALTH TAX ACT, 1957 PROVIDED THAT THE VALUE OF SHA RES OF AN INVESTMENT COMPANY SHALL BE COMPUTED BY APPLYING TH E NET ASSETS VALUE METHOD AND THE VALUE OF SHARES HELD BY SUCH INVESTMENT COMPANY SHALL ALSO BE VALUED IN ACCORDAN CE WITH THE SAID METHOD. IN OTHER WORDS, THE AFORESAID VALU ATION RULE PROVIDED FOR COMPUTING FAIR VALUE OF THE SHARES/INV ESTMENTS I.T.A .NO.-4737/DEL/2017 56 | P A G E HELD BY THE HOLDING COMPANY, WHILE COMPUTING THE VA LUE OF SHARES OF SUCH LATER COMPANY; II. SIMILARLY, THE AMENDED RULE 11UA OF THE INCOME TAX RULE, 1962 ALSO PROVIDES THAT THE FAIR MARKET VALUE OF TH E SHARES HELD BY SUCH COMPANY WILL ALSO NEED TO BE CONSIDERE D, WHILE COMPUTING THE FAIR MARKET VALUE OF THE SHARES OF SU CH HOLDING COMPANY; III. SCHEDULE 2 OF THE FRAMEWORK AGREEMENT DATED 05.07.2 007, WHICH PRESCRIBED FOR THE METHOD TO BE FOLLOWED FOR COMPUTING THE FAIR MARKET VALUE /ENTERPRISE VALUE OF THE SHAR ES OF HEL/VIL FOR THE PURPOSES OF CLAUSE (A)(II) OF SCHED ULE 1 TO CHECK WHETHER THE SAID VALUE EXCEEDS USD 25 BILLION ALSO PROVIDED THAT NAV OF INTERMEDIARY COMPANIES WILL NE ED TO BE ADDED AND / OR REDUCED FROM THE ENTERPRISE VALUE OF HEL, FOR ARRIVING AT THE FAIR MARKET VALUE OF THE SHARES OF SCORPIO. IN THAT VIEW OF THE MATTER, THE METHODOLOGY ADOPTED BY KOTAK IN VALUING THE SHARES OF SCORPIO WAS CORRECT AND THE A SSESSING OFFICER ERRED IN DISREGARDING THE SAID METHOD AND A RRIVING AT THE ALLEGED FMV OF SCORPIO BY DIRECTLY APPLYING ITS INDIRECT ECONOMIC INTEREST TO THE ENTERPRISE VALUE OF VIL BY IGNORING THE VALUE OF INTERMEDIARY COMPANIES. 28. COMING TO THE FRAMEWORK AGREEMENT DATED 01.03.2 006 FOR WHICH HE HAS MADE DETAILED OBJECTIONS FOR ITS ADMIS SIBILITY AS DISCUSSED IN THE EARLIER PART OF THE ORDER, HE SUBM ITTED THAT THE SAID FRAMEWORK AGREEMENT HAS BEEN BROUGHT ON RECORD BY T HE REVENUE TO CONTEND THAT THE ASSESSEE SHOULD HAVE RECEIVED CONS IDERATION ON THE BASIS OF FAIR MARKET VALUE OF HEL/VIL, WITHOUT CONS IDERING THE VALUE OF INTERMEDIARY COMPANIES AND FOR THE AFORESAID CONCLU SION, THE REVENUE HAS SOUGHT TO RELY UPON THE METHODOLOGY PRESCRIBED FOR DETERMINATION OF THE SALE CONSIDERATION AGREED BETWEEN THE PARTIE S UNDER THE I.T.A .NO.-4737/DEL/2017 57 | P A G E IMPUGNED FRAMEWORK AGREEMENT DATED 01.302.006. HE S UBMITTED THAT THE RELIANCE ON AGREEMENT DATED 1.03.2006 IS COMPLE TELY MISPLACED FOR THE REASON THAT THE FRAMEWORK AGREEMENT DATED 01.03 .2006 WAS ENTERED AMONGST THE ASSESSEE, SBPL [A COMPANY WHOLL Y OWNED BY THE ASSESSEE]; MVH [A WHOLLY OWNED SUBSIDIARY OF SBPL]; NDC [A WHOLLY OWNED SUBSIDIARY OF MVH] & GSPL (A COMPANY BELONGIN G TO THE HUTCHISON GROUP AT THE RELEVANT TIME]. THE AFORESAI D AGREEMENT HAS NO RELEVANCE WITH THE TRANSACTION UNDER CONSIDERATI ON AS HEL IS NO LONGER THE PARTY AND, THEREFORE, IT IS NEITHER REQU IRED TO BE ADMITTED NOR SHOULD BE CONSIDERED FOR ADJUDICATION OR THE IM PUGNED ISSUED. VIL, I.E., THE COMPANY ENGAGED IN THE BUSINESS OF P ROVIDING TELECOMMUNICATION SERVICES ACROSS DIFFERENT CIRCLES IN INDIA, PRIOR TO TAKEOVER BY VODAFONE INTERNATIONAL IN MAY 2007, WAS HELD BY HUTCHISON GROUP, HONG KONG WITH CERTAIN OTHER INDIA N PARTNERS AND WAS KNOWN AS HUTCHISON ESSAR LIMITED, (HEL). ACCO RDINGLY, IN THE AFORESAID AGREEMENT, VODAFONE INTERNATIONAL HOLDING BV WAS NOT A PARTY, WHICH JOINED AS A CONFIRMING PARTY IN THE LA TER AGREEMENT DATED 05.07.2007. FURTHER, THE CONTOURS AND TERMS AND CON DITIONS OF THE AGREEMENT DATED 01.03.2006 WERE AT SUBSTANTIAL VARI ANCE WITH THE SUBSEQUENT AGREEMENT DATED 05.07.2007. TO HIGHLIGHT THE DIFFERENCE IN THE SUBSTANTIAL CLAUSE OF BOTH THE AGREEMENTS, H E HAS FILED FOLLOWING CHART GIVEN A COMPARISON OF CLAUSES OF THE AGREEMEN T DATED 01.03.2006 AND 05.07.2007:- S.N O. CLAUSES 01.03.2006 05.07.2007 1. PARTIES TO THE AGREEMENT AGREEMENT WAS ENTERED BETWEEN- I. ANALJIT SINGH; AND II. SCORPIO BEVERAGES PVT. LTD.; AND III. MV HEALTHCARE SERVICES PVT. LTD.; AND IV.3 GLOBAL SERVICES PVT. LTD.; AND V. ND CALLUS INFO- SERVICES PVT. LTD AGREEMENT WAS ENTERED BETWEEN- I. ANALJIT SINGH AND NEELU ANALJIT SINGH (' AS ') AND II. SCORPIO BEVERAGES PVT. LTD. AND III. MV. HEALTHCARE SERVICES PVT. LTD. AND IV. 3 GLOBAL SERVICES PVT. LTD. AND V. ND CALLUS INFO SERVICES PVT. LTD. AND VI. VODAFONE INTERNATIONAL HOLDINGS- BV ('CONFIRMING PARTY') I.T.A .NO.-4737/DEL/2017 58 | P A G E 2. RIGHTS OFFERED TO THE PARTIES I. CLAUSE (F): IN CONSIDERATION OF GSPL PROCURING CREDIT SUPPORT, NDC GRANTED GSPL A RIGHT TO SUBSCRIBE FOR EQUITY SHARES OF NDC. II. CLAUSE (G): IN CONSIDERATION OF GSPL PROCURING CREDIT SUPPORT, SBP GRANTED GSPL AN OPTION TO PURCHASE EQUITY SHARES OF MVH. III. CLAUSE (H): IN CONSIDERATION OF SBP GRANTING CALL OPTION, GSPL GRANTED PUT OPTION TO SBP TO REQUIRE GSPL TO PURCHASE EQUITY SHARES OF MVH. IV. CLAUSE 4.2(A): GSPL OR ITS NOMINEE SHALL HAVE THE RIGHT TO SUBSCRIBE FOR A MAXIMUM NO. OF SHARES AT PAR VALUE OF EACH SHARE.(SCHEDULE 1- GSPL HAD THE RIGHT TO SUBSCRIBE 97% OF THE TOTAL ISSUED AND PAID UP EQUITY CAPITAL OF NDC) V. CLAUSE 4.3: GSPL OR ITS NOMINEE COULD SUBSCRIBE TO SUCH SHAREHOLDING WHICH WOULD RESULT IN GSP OR ITS NOMINEE HOLDING MORE THAN 50% OF THE ISSUED SHARE CAPITAL OF NDC. I CLAUSE (F): IN CONSIDERATION OF OPTION PAYMENT AND GSPL PROCURING CREDIT SUPPORT FOR FINANCING OBTAINED BY NDC TO FINANCE ITS ACQUISITION OF TII SHARES, AS GRANTED GSPL AN OPTION TO PURCHASE EQUITY SHARES OF SBP. II. CLAUSE (H): IN CONSIDERATION OF AS GRANTING CALL OPTION, GSPL GRANTED PUT OPTION TO AS TO REQUIRE GSPL TO PURCHASE EQUITY SHARES OF SBP. III. CLAUSE 4.2: DELETED IV. CLAUSE 4.3: AS SHALL HAVE THE RIGHT TO REQUIRE GSPL OR ITS NOMINEE TO PURCHASE ANY OR ALL OF THE SBP SHARES AS AND WHEN PERMITTED TINDER THE APPLICABLE INDIAN LAWS AND REGULATIONS. 3. TRANSFER PRICE AGREED CLAUSE 4.6: SHALL BE DETERMINED AS FOLLOWS:- I. SUCH FMV AS MAY AGREED BETWEEN THE PARTIES, AND IF THE PARTIES FAIL TO REACH AGREEMENT WITHIN 30 DAYS OF THE DATE OF THE TRANSFER NOTICE, THEN; II. TRANSFER PRICE SHALL BE SUCH FMV AS DETERMINED IN ACCORDANCE WITH SCHEDULE 2 CLAUSE 4.6: TRANSFER PRICE SHALL BE DETERMINED IN ACCORDANCE WITH FORMULA SET OUT IN SCHEDULE 1, SUBJECT TO A MAXIMUM OF AN AGGREGATE OF RS.150 BILLION AS REDUCED BY THE AMOUNT PAYABLE TO AS AS OPTION FEE. SCHEDULE 1 I. USD 266,250,000 CONVERTED INTO INR AT THE PREVAILING I.T.A .NO.-4737/DEL/2017 59 | P A G E TO THE AGREEMENT. SCHEDULE 2 FOR THE PURPOSE OF DETERMINING TRANSFER PRICE, THE FOLLOWING FORMULA SHALL BE APPLIED: A) TRANSFER PRICE SHALL BE EQUAL TO THE FMV OF 0.23% OF THE ISSUED SHARE CAPITAL OF HEL. A) FMV OF HEL SHALL BE SUCH FMV AS MAY BE DETERMINED BY HONGKONG OFFICES OF GOLDMAN SACHS, ABN AMRO OR HSBC A) THE ABOVE FORMULA WOULD APPLY REGARDLESS OF THE AMOUNT OF THIRD PARTY DEBT OR OTHER LIABILITIES IN MVH OR ANY OTHER COMPANY IN WHICH MVH HAS AN INTEREST AND IRRESPECTIVE OF THE FACT THAT SBP IS NOT A DIRECT SHAREHOLDER IN HEL. EXCHANGE RATE PUBLISHED IN LONDON EDITION OF FINANCIAL TIMES ON THE BUSINESS DAY IMMEDIATELY PRIOR TO THE COMPLETION DATE. II. WHERE FMV OF THE ENTIRE ISSUED SHARE CAPITAL OF HEL EXCEEDS USD 25,000,000,000 (RS. 102200 - CRORES CONVERTED AT AN EXCHANGE RATE OF RS.40.88), THE SPB VALUE; CONVERTED INTO INR AT THE PREVAILING EXCHANGE RATE PUBLISHED IN LONDON EDITION OF FINANCIAL TIMES ON THE BUSINESS DAY IMMEDIATELY PRIOR TO THE COMPLETION DATE, 29. THUS, HE SUBMITTED THAT CONSIDERING THE TERMS AND CONDITIONS AND ALSO THE PARTIES TO THE AGREEMENT WERE SUBSTANT IAL DIFFERENT, NO PARALLEL CAN BE DRAWN BETWEEN THE TWO AGREEMENTS. I N ANY CASE, IT IS A MATTER OF RECORD THAT, BEFORE THE AFORESAID AGREEME NT COULD HAVE BEEN ACTED UPON OR THE OPTIONS VESTED IN DIFFERENT PARTI ES THEREIN COULD HAVE BEEN EXERCISED, THE ENTIRE STAKE OF HUTCHISON GROUP IN THE INDIAN TELECOM COMPANY, I.E., HEL WAS ACQUIRED BY THE VODA FONE INTERNATIONAL BV IN MAY 2007. AS A RESULT OF THE AF ORESAID ACQUISITION, THE EXISTING OPTION AGREEMENTS ENTERED BY THE VARIO US INDIAN PARTNERS INCLUDING THE ASSESSEE WITH HUTCHISON GROUP WERE RE SCINDED AND SUPERSEDED BY NEW AGREEMENT DATED 05.07.2007 ENTERE D WITH THE VODAFONE GROUP ON FRESH TERMS AND CIRCUMSTANCES. HE DREW OUR SPECIFIC ATTENTION TO CLAUSE NO. 11.11 OF THE FRAME WORK AGREEMENT DATED 05.07.2007 WHICH CLEARLY PROVIDED THAT ON ACQ UISITION OF THE SAID AGREEMENT OF EARLIER AGREEMENTS BETWEEN THE PA RTIES WOULD STAND I.T.A .NO.-4737/DEL/2017 60 | P A G E SUPERSEDED. THUS, THE AGREEMENT DATED 01.03.2006, W HICH WAS ENTERED BETWEEN DIFFERENT SET OF PARTIES AND WITH D IFFERENT TERMS AND CONDITIONS, WHICH, IN ANY CASE, STOOD RESCINDED AND SUPERSEDED BY THE NEW AGREEMENT DATED 05.07.2007, HAD NO RELEVANCE/ N EXUS WITH THE METHOD FOR COMPUTING TRANSFER PRICE AGREED BY THE N EW SET OF PARTIES IN THE FRESH AGREEMENT DATED 05.07.2007. IT IS PERT INENT TO POINT OUT THAT THE ASSESSING OFFICER HAS ALSO ACCEPTED THAT T HE DISINVESTMENT OF SHAREHOLDING IN SBPL WAS IN TERMS OF THE BINDING AN D GOVERNING AGREEMENT DATED 5.07.2007READ WITH THE AMENDMENTS T HERETO AS ALSO APPROVED BY FIPB FROM TIME TO TIME, IN AS MUCH AS T HE ASSESSING OFFICER ACCEPTED THE:- (I) INITIAL DISINVESTMENT OF 51% SHARES OF SCORPIO IN T HE YEAR 2009 AT THE PROPORTIONATE CONSIDERATION AGREED IN T HE AGREEMENT DATED 5.7.2007; (II) NUMBER OF SHARES HELD BY THE APPELLANT IN SCORPIO ( AFTER THE INITIAL DISINVESTMENT AND PURSUANT TO RIGHT ISS UE IN TERMS OF THE AMENDED AGREEMENT DATED 7.8.2012); AND (III) OPTION FEE RECEIVED AND OFFERED TO TAX BY THE APPEL LANT IN TERMS OF THE AGREEMENT DATED 5.7.2007 READ WITH THE AMENDMENTS THERETO. 30. IN VIEW OF THE ABOVE AND ON THE PRINCIPLES OF CONSISTENCY, HE SUBMITTED THAT THE RESPONDENT REVENUE CANNOT BE HEA RD TO CONTEND THAT THE TERMS OF THE AGREEMENT DATED 05.07.2007 NE ED TO BE IGNORED AND SEEK TO DRAW REFERENCE TO THE TERMS OF THE OLD AGREEMENT DATED 01.03.2006, SOUGHT TO BE PLACED ON RECORD AS ADDITI ONAL EVIDENCE, TO CANVASS AN ALTOGETHER NEW CASE FOR THE FIRST TIME B EFORE THE TRIBUNAL. 31. WITHOUT PREJUDICE TO THE AFORESAID ARGUMENTS, MR. AJAY VOHRA SUBMITTED THAT EVEN THE RELEVANT CLAUSE I.E. CLAUSE 4.6 READ WITH SCHEDULE II RELATING TO DETERMINATION OF TRANSFER P RICE CONTAINED IN THE AFORESAID AGREEMENT DATED 1.3.2006, DO NOT SUPPORT THE FRESH PLEA OF I.T.A .NO.-4737/DEL/2017 61 | P A G E THE RESPONDENT REVENUE QUA ACCRUAL OF NOTIONAL FAIR MARKET VALUE AS THE CONSIDERATION FOR TRANSFER OF SHARES OF SBPL FO R THE FOLLOWING REASONS:- A. THE COMPUTATION OF TRANSFER PRICE OF THE SHARES AT 0.23% OF THE FAIR MARKET VALUE OF THE ISSUED SHARE CAPITAL OF HE L AGREED IN THE SCHEDULE II OF THE SAID AGREEMENT WAS SUBJECT TO TE RMS AND CONDITIONS CONTAINED IN CLAUSE 4.6 THEREOF. THE SAI D CLAUSE PROVIDED THAT THE TRANSFER OF RELEVANT SHARES BY AP PELLANT TO GSPL WOULD HAPPEN AT FAIR MARKET VALUE, AS MAY BE AGREED BETWEEN THE PARTIES. IT WAS ONLY WHEN THE PARTIES WOULD FAIL TO REACH AGREEMENT QUA SUCH FAIR MARKET VALUE, THAT THE METHOD OF DETE RMINATION OF FMV STIPULATED IN SCHEDULE II, I.E., 0.23% OF THE F AIR MARKET VALUE OF THE ISSUED SHARE CAPITAL OF HEL, WAS TO BE RESOR TED TO. IN THAT VIEW OF THE MATTER, IT WOULD BE APPRECIATED THAT, E VEN UNDER THE AFORESAID AGREEMENT OF 2006, THE TRANSFER PRICE OF SHARES WAS TO BE DETERMINED AS PER THE MUTUAL AGREEMENT BETWEEN THE PARTIES. THE SAID PRICE WAS NOT TO BE AUTOMATICALLY COMPUTED ON THE BASIS OF THE INTEREST HELD BY APPELLANT IN THE FMV OF HEL. B. FURTHER WITHOUT PREJUDICE TO THE ABOVE, EVEN APPLYI NG THE FORMULA PRESCRIBED IN THE AFORESAID AGREEMENT OF 20 06, I.E., 0.23% OF RS. 56,448 CRORES (BEING FAIR MARKET VALUE OF HE L/VIL ACCEPTED BY THE REVENUE), THE VALUE OF SCORPIO WOULD CALCULA TE TO RS. 129.83 CRORES ONLY, MUCH LESS THAN THE FAIR MARKET VALUE O F SCORPIO DETERMINED AT RS. 2065 CRORES BY KOTAK AND / OR CON SIDERATION OF RS. 1241.32 CRORES ACTUALLY AGREED BETWEEN THE PART IES FOR THE TRANSFER OF 51% SHAREHOLDING OF SCORPIO. 32. FOR THE AFORESAID CUMULATIVE REASONS, MR. VOHR A SUBMITTED THAT THE RESPONDENT REVENUE HAS GROSSLY ERRED IN RELYING UPON THE AGREEMENT DATED 01.03.2006, WHICH IS COMPLETELY IRR ELEVANT FOR THE IMPUGNED TRANSACTION, ADMITTEDLY GOVERNED BY THE FR ESH AGREEMENT DATED 05.07.2007. SO FAR AS THE RELEVANT CLAUSE OF TRANSFER PRICE UNDER AGREEMENT DATED 05.07.2007, THE ASSESSEE HAD GRANTE D CALL OPTION I.T.A .NO.-4737/DEL/2017 62 | P A G E RIGHT TO GSPL TO ACQUIRE SHARES OF SCORPIO. IN CONS IDERATION THEREOF, GSPL HAD AGREED TO PAY AN OPTION FEE OF USD 10.2 MI LLION PER-ANNUM ACCRUING ON A DAILY BASIS UNDER CLAUSE 4.4 (D) OF T HE AGREEMENT. CLAUSE 4.6 OF THE AGREEMENT PROVIDED THAT THE PRICE PAYABLE BY GSPL TO AS ON TRANSFER OF SHARES PURSUANT TO EXERCISE OF OPTION BY GSPL SHALL BE DETERMINED IN ACCORDANCE WITH THE FORMULA SET OUT IN SCHEDULE 1 OF THE AGREEMENT. IN VIEW OF THE ABOVE, THE PRICE FOR TRANSFER OF SHARES WAS TO BE DETERMINED IN ACCORDAN CE WITH SCHEDULE 1 OF THE FRAMEWORK AGREEMENT DATED 05.07.2007, WHICH HAS BEEN REPRODUCED SUPRA. AS PER THE SAID CLAUSE; THE SHARE S WERE TO BE TRANSFERRED BY AS AT A MINIMUM TRANSFER PRICE OF US D 266.25 MILLION (CONVERTED INTO RUPEES AT PREVAILING EXCHANGE RATE ON THE COMPLETION DATE I.E. 08.05.2007). CLAUSE (A) (II) PROVIDED FOR PAYMENT OF ADDITIONAL CONSIDERATION, TO BE COMPUTED AS PER THE PRESCRIBED METHOD, IN THE EVENT THE FAIR MARKET VALUE OF THE ENTIRE ISSUED SH ARE CAPITAL HEL/VIL EXCEEDED USD 25 BILLION, CONVERTED INTO RUPEES AT P REVAILING EXCHANGE RATE AS ON THE COMPLETION DATE I.E. 08.05.2007. IT WOULD BE PERTINENT TO POINT OUT THAT, THE EXCHANGE RATE RAILING AS ON 08. 05.2007 AMOUNTED TO RS.40.88 PER DOLLAR (WHICH HAS NOT BEEN DISPUTED BY THE LD. SPECIAL COUNSEL OF THE REVENUE). ACCORDINGLY, T HE EQUIVALENT FAIR MARKET VALUE OF HEL/VIL AT USD 25 BILLION, AMOUNTED TO RS. 1,02,200 CRORES. IN THE PRESENT CASE, FMV OF HEL/VIL IN THE YEAR OF TRANSFER OF THE IMPUGNED SHARES WAS COMPUTED AT RS.56,448 CRORE S ONLY, AS PER THE VALUATION CARRIED OUT BY KOTAK, WHICH HAS BEEN ACCEPTED BY THE REVENUE. ACCORDINGLY, SINCE THE AFORESAID FMV OF HE L/VIL COMPUTED AT RS.56,448 CRORES, DID NOT EXCEED THE THRESHOLD F MV OF RS. 1,02,200 CRORES AS STIPULATED IN SCHEDULE 1 OF THE FRAMEWORK AGREEMENT, THE AFORESAID CLAUSE (A)(II) RELATING TO COMPUTATION AN D PAYMENT OF ADDITIONAL CONSIDERATION NEVER BECAME APPLICABLE. I N THAT VIEW OF THE MATTER, IN ACCORDANCE WITH THE TERMS OF THE FRAMEWO RK AGREEMENT DATED 05.07.2007, AS WAS ENTITLED TO RECEIVE LUMP S UM CONSIDERATION I.T.A .NO.-4737/DEL/2017 63 | P A G E OF USD 266.25 MILLION ONLY FOR THE ENTIRE SHARES OF SCORPIO HELD AT THAT POINT OF TIME, I.E., PRIOR TO ISSUANCE AND SUBSCRIP TION OF RIGHT SHARES IN 2012. WITH THE ADDITIONAL LUMP SUM CONSIDERATION OF RS. 300 CRORES AGREED TO BE PAID TO THE AS PURSUANT TO FRESH ALLOT MENT OF SHARES ON RIGHT BASIS, THE TOTAL LUMP SUM CONSIDERATION RECEI VABLE BY THE APPELLANT AGGREGATED TO RS.1388 CRORES, I.E. RS.108 8 CRORES (USD 266.25 MILLION X 40.88)] + RS.300 CRORES. ACCORDING LY, NO AMOUNT OVER AND ABOVE THE LUMP SUM AMOUNTS STATED IN THE FRAMEW ORK AGREEMENT DATED 05.07.2007 READ WITH FOURTH SUPPLEMENT THERET O DATED 07.08.2012 ACCRUED TO THE ASSESSEE/AS UNDER THE SAI D AGREEMENTS, WHICH COULD BE BROUGHT TO TAX AS CAPITAL GAINS IN T HE HANDS OF THE ASSESSEE UNDER SECTION 45 READ WITHSECTION48OFTHEAC T. 33. COMING TO THE ACTUAL CONSIDERATION RECEIVED AS PER THE SHARE PURCHASE AGREEMENT DATED 12.03.2014, MR. VOHRA SUBM ITTED THAT ALTHOUGH IN TERMS OF ORIGINAL FRAMEWORK AGREEMENTS WAS ENTITLED TO RECEIVE AGGREGATE CONSIDERATION OF RS.855 CRORES (R S.1088 CRORES - RS.533 CRORES) FROM TRANSFER OF THEIR REMAINING SHA REHOLDING IN SCORPIO TO CGP/GSPL, HOWEVER, THE PARTIES MUTUALLY AGREED TO A REVISED / HIGHER CONSIDERATION OF RS. 1241.32 CRORE S FOR TRANSFER OF SUCH ENTIRE SHAREHOLDING VIDE SHARE PURCHASE AGREEM ENT DATED 12.03.2014. THE FRAMEWORK AGREEMENT DATED 5.7.2007 PROVIDED THE TERMS AND CONDITIONS FOR TRANSFER OF SHARES HELD BY THE APPELLANT IN SBPL, INTER ALIA , BY EXERCISE OF PUT AND CALL OPTION VESTED IN THE RESPECTIVE PARTIES AS ALSO THE CONSIDERATION PAYABL E FOR SUCH TRANSFER. IT WAS ALWAYS OPEN TO THE PARTIES TO MUTUALLY VARY/ ALTER SUCH ORIGINAL TERMS AND CONDITIONS SUBSEQUENTLY. REFERENCE, IN TH IS REGARD, CAN BE MADE SECTION 62 OF THE INDIAN CONTRACT ACT, 1872 WH ICH PERMITS ALTERATION AND SUBSTITUTION OF OLD CONTRACT BY PART IES WITH A NEW CONTRACT WHICH READS AS UNDER: I.T.A .NO.-4737/DEL/2017 64 | P A G E 62. EFFECT OF NOVATION, RESCISSION, AND ALTERATION OF CONTRACT. IF THE PARTIES TO CONTRACT AGREE TO SUBSTITUTE A NEW C ONTRACT FOR IT, OR TO RESCIND OR ALTER IT, THE ORIGINAL CONTRACT NEED NOT BE PERFORMED. HE SUBMITTED THAT IT IS NOT OPEN TO THE REVENUE TO QUESTION THE CONDUCT OF THE PARTIES IN REVISING /NOVATING AN ALR EADY EXECUTED AGREEMENT, WHICH IS A MATTER OF CONTRACT/AGREEMENT BETWEEN THE PARTIES. THE SHARE PURCHASE AGREEMENT DATED 12.3.20 14 WAS ENTERED INTO TO DOCUMENT EXERCISE OF CALL OPTION BY GSPL TO PURCHASE THE SHARES HELD BY AS IN SCORPIO AND TO RECORD THE REVI SED CONSIDERATION PAYABLE FOR SUCH TRANSFER. WHILE IT IS TRUE THAT TH E ESSENCE OF THE FRAMEWORK AGREEMENT DATED 5.7.2007, VIZ., VESTING O F PUT/ CALL OPTION AND TRANSFER OF SHARES PURSUANT THERETO WAS RETAINE D IN THE SHARE PURCHASE AGREEMENT DATED 12.3.2014, THE EXECUTION O F SUCH AN AGREEMENT WAS NECESSARY IN ORDER TO DOCUMENT THE FA CTUM OF TRANSFER OF SHARES CONSEQUENT UPON EXERCISE OF CALL OPTION B Y GSPL AND REVISION IN THE SALE CONSIDERATION PAYABLE BY GSPL. IT CANNOT, THEREFORE, BE SAID THAT THE SHARE PURCHASE AGREEMEN T DATED 12.3.2014 WAS SUPERFLUOUS. WITHOUT PREJUDICE TO THE ABOVE, IF THE SHARE PURCHASE AGREEMENT DATED 12.03.2014 AND THE REVISED HIGHER CONSIDERATION OF RS. 1241.32 CRORES STATED THEREIN WAS SUPERFLUOUS, AS CONTENDED BY THE REVENUE, THEN AS WAS ONLY ENTITLED TO RECEIVE CONSIDERATION OFRS.855 CRORES FOR TRANSFER OF REMAI NING ORIGINAL SHARES AND ENTIRE RIGHT SHARES, AS STIPULATED IN THE ORIGI NAL FRAMEWORK AGREEMENT DATED 5.7.2007 READ WITH THE FOURTH SUPPL EMENT THERETO, WHICH ALONE COULD BE ADOPTED FOR THE PURPOSE OF COM PUTING CAPITAL GAINS ON TRANSFER OF SHARES OF SCORPIO, TO THE DETR IMENT OF THE REVENUE. 34. DURING THE COURSE OF THE HEARING, IT WAS NO TICED FROM THE ARGUMENTS MADE BY THE PARTIES THAT POST FRAMEWORK A GREEMENT DATED 05.07.2007, THERE WERE FURTHER SUPPLEMENTARY AGREEM ENTS DATED I.T.A .NO.-4737/DEL/2017 65 | P A G E 07.04.2009; 10.05.2010; AND 07.08.2012, THROUGH WHI CH SHARES OF OTHER INDIAN PARTNERS OF VODAFONE, VIZ., ASEEM GHOS H, IDFC ETC. WHO INDIRECTLY HELD THE SHARES IN VIL WERE ACQUIRED AND ADDED IN THE CHAIN OF INTERMEDIARY COMPANIES BETWEEN SBPL & VIL. AS PE R THE DIRECTION GIVEN BY THE BENCH, LD. SR. COUNSEL, MR. VOHRA FILE D THE ENTIRE CHAIN OF AGREEMENTS IN FORM OF SUPPLEMENTARY PAPER BOOK D ATED 10.10.2017. THE SUMMARY OF CHANGES IN INDIRECT ECON OMIC INTEREST OF SBPL & VIL FROM TIME TO TIME IS AS UNDER:- DATE: ECONOMICINTEREST OF SBPL INVIL 07.04.2009: 7.58% 10.05.2010: 7.67% (SHARES HELD BY ASEEM GHOSH THROU GH SUBSIDIARY COMPANIES, LIKE,AG MERCANTILE, ETC., ACQUIRED BY NDC BELONGING TO AS) 24.11.2011: 8.91% (SHARES OF SMMS BELONGING TO IDFC ACQUIRED BY INTERMEDIARIES COMPANIES) 35. MR. AJAY VOHRA, SUBMITTED THAT EVEN FROM T HE TERMS OF THESE AGREEMENTS AND THE SUPPLEMENT AGREEMENTS ENTERED BE TWEEN THE ASSESSEE AND OTHER RELATED PARTIES, NOWHERE IT IS B ORNE OUT THAT ADDITIONAL CONSIDERATION OTHER THAN THAT THE STIPUL ATED FRAMEWORK AGREEMENT DATED 05.07.2007 READ WITH 4 TH SUPPLEMENT THERETO WAS AGREED TO BETWEEN THE PARTIES AND RIGHTLY SO, BECAU SE NO ADDITIONAL AMOUNT FOR SUCH ACQUISITION MADE BY THE INTERMEDIAR Y COMPANIES WAS INVESTED EITHER BY THE ASSESSEE OR BY THE SBPL. THE ISSUE OF ANY RECEIVING ADDITIONAL CONSIDERATION IS ALWAYS A MATT ER OF MUTUAL UNDERSTANDING OR CONTRACT BETWEEN THE PARTIES AND I T DOES NOT OPEN TO THE REVENUE TO QUESTION UNLESS THE REVENUE CAN DEMO NSTRATE WITH TANGIBLE EVIDENCE PLACED ON RECORD THAT ARRANGEMENT S LACKS BONAFIDE OR HAS BEEN ENTERED INTO FOR EXTRANEOUS CONSIDERATI ON. HE REFERRED TO THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. DAULAT I.T.A .NO.-4737/DEL/2017 66 | P A G E RAM RAWATMUL (87 ITR 349), WHEREIN HONBLE APEX COU RT HELD THAT THE APPARENT IS REAL UNLESS CONTRARY IS PROVED AND ONUS TO PROVE THE CONTRARY IS ON THE QUESTION WHO ALLEGES THAT APPARE NT IS NOT REAL. THE ASSESSEE WAS ADEQUATELY COMPENSATED FOR THE AFORESA ID ADDITIONAL ACQUISITION OF SHARES IN THE FORM OF PAYMENT OF ADD ITIONAL OPTION FEE OF USD 26,57,000 PER ANNUM, WHICH HAS BEEN OFFERED TO TAX AS REVENUE RECEIPT BY AS, AND WOULD HAVE EARNED HIGHER CONSIDE RATION FROM TRANSFER THEREOF, IN THE EVENT THE ENTERPRISE VALUE / FMV OF SHARES OF VIL EXCEEDED USD 25 BILLION AS PER CLAUSE (A) (II) OF SCHEDULE 1 OF THE FRAMEWORK AGREEMENT DATED 05.07.2007, CONSIDERING T HAT THE ADDITIONAL ACQUISITION OF SHARES OF VIL BY THE INTE RMEDIARY COMPANIES RESULTED IN CORRESPONDING INCREASE IN THE INDIRECT ECONOMIC INTEREST OF SCORPIO IN VIL. IN THE INSTANT CASE, THE ONUS WAS O N THE REVENUE TO PROVE THAT FOR SUCH ADDITIONAL ACQUISITION, THE APP ELLANT WAS LEGALLY ENTITLED TO ANY AMOUNT OVER AND ABOVE THE DECLARED CONSIDERATION IN THE SHARE PURCHASE AGREEMENT DATED 12.3.2014, WITH CORRESPONDING LIABILITY FASTENED ON CGP TO PAY SUCH AN AMOUNT , ALBEIT IN VIOLATION .OF THE APPROVAL GRANTED BY THE FIPB, BY LEADING TANGIB LE EVIDENCE IN THAT REGARD. THE REVENUE HAS MISERABLY FAILED TO DISCHAR GE SUCH BURDEN AND HAS PURELY ON SURMISES, SUSPICIONS AND CONJECTU RES AVERRED THAT FOR COMPUTING CAPITAL GAINS ON SALE OF SHARES OF SB PL SOME HIGHER CONSIDERATION NEEDS TO BE SUBSTITUTED IN PLACE OF THE DECLARED CONSIDERATION, WITHOUT MAKING AN ATTEMPT TO QUANTIF Y SUCH ALLEGED HIGHER CONSIDERATION. 36. THUS, HE CONCLUDED THAT THE ACTUAL/DECLARED CON SIDERATION RECEIVED BY THE ASSESSEE WHICH IS MORE THAN THE FAI R MARKET VALUE SHARES OF SBPL SHOULD REGARDED AS SALE CONSIDERATIO N ON TRANSFER OF SHARES AND NO ADDITION IS WARRANTED AT ALL SPECIFIC ALLY ON THE BASIS OF NOTIONAL CONSIDERATION. I.T.A .NO.-4737/DEL/2017 67 | P A G E ARGUMENTS PUT FORTH BY SPECIAL COUNSEL ON BEHALF OF THE REVENUE:- 37. MR. G.C. SRIVASTAVA, LD. SPL. COUNSEL ON BEHALF OF THE REVENUE, FIRST OF ALL PRESENTED FACTUAL BACKGROUND AND CERTA IN EVENTS AS A PRELUDE TO UNDERSTAND THE FACTUAL MATRIX AND THE CU LMINATION OF THE CONTROVERSY INVOLVED IN THE PRESENT CASE. THE FACTS AND THE BACKGROUND AS SUBMITTED BY HIM IN SUM AND SUBSTANCE ARE AS UNDER:- A) IN 1992, THE HUTCHISON GROUP OF HONG KONG ACQUIRED INTEREST IN THE MOBILE TELECOMMUNICATIONS BUSINESS IN INDIA THROUGH A JOINT VENTURE VEHICLE, HUTCHISON MAX TELE COM LTD. IT WAS A JOINT VENTURE BETWEEN THE HUTCHINSON GROUP AN D THE MAX GROUP WHERE THE ASSESSEE HAD SUBSTANTIAL INTEREST. THE LICENSE FOR MUMBAI CIRCLE WAS AWARDED IN NOVEMBER, 1994 TO HUTCHISON MAX TELECOM LTD. (HMTL). 50% OF THE SHARES IN HMTL WERE HELD BY AN INDIAN COMPANY, MAX TELECOM VENTURE AND 49% B Y HUTCHISON TELECOMMUNICATIONS (INDIA) LTD. MAURITIUS . THERE WERE SEVERAL ACQUISITIONS AND EXPANSIONS FROM 1994 TO 2004 WHEREBY ESSAR GROUP, HINDUJA GROUP, KOTAK GROUP AND THE APPELLANT THROUGH THE COMPANIES WHERE HE HELD SUBST ANTIAL STAKE ACQUIRED VARYING STAKES AT DIFFERENT POINTS O F TIME. BY A PROCESS OF CONSOLIDATION AND REORGANIZATION, HUTCHI SON ESSAR LTD. BECAME THE PRIMARY COMPANY WHERE 67% DIRECT AN D INDIRECT INTEREST WAS HELD BY HUTCHISON GROUP AND 33% INTERE ST WAS HELD BY ESSAR GROUP. B) UNDER THE REGULATIONS OF THE GOVERNMENT OF INDIA A S IT THEN STOOD, FOREIGN EQUITY PARTICIPATION COULD NOT EXCEED 49% OF THE TOTAL CAPITAL. THUS, HUTCHISON GROUP HELD DIREC T INTEREST IN THE INDIAN COMPANY (HEL) TO THE EXTENT OF NEARLY 42 %; 10% INTEREST WAS HELD THROUGH INDIRECT HOLDING COMPANIE S AND THE I.T.A .NO.-4737/DEL/2017 68 | P A G E BALANCE 25% OUT OF THE TOTAL STAKE OF 67% WAS HELD THROUGH THE COMPANIES OWNED AND CONTROLLED BY THE APPELLANT, AS EEM GHOSH, IDFC ETC. THE HOLDING STRUCTURE STANDS RECORDED AND DISCUSSED ELABORATELY IN THE DECISION OF THE HONBLE SC IN TH E CASE OF VODAFONE VS. UOI IN CA NO. 733/2012. THE OWNERSHIP STRUCTURE WAS PLACED BEFORE THE HONBLE BENCH AT TH E TIME OF ORAL HEARING. C) WITH THE VIEW TO BEAT THE EQUITY CAP OF 49%, AN ARRANGEMENT WAS ENTERED INTO BETWEEN THE APPELLANT AND THE HUTCHISON GROUP UNDER WHICH IT WAS AGREED THAT THE APPELLANT WOULD BE PROVIDED THE NECESSARY FINANCES UNDER THE GUARANTEE OF THE HUTCHISON GROUP AND THE MONIES WOULD BE INVESTE D BY THE APPELLANT IN THE EQUITY OF THE INDIAN COMPANY, HEL, WITH A FURTHER STIPULATION THAT THE SHARES SO OWNED BY THE APPELLANT WOULD BE SUBJECT TO CALL/PUT OPTION. IT WAS CONTEMP LATED THAT AS AND WHEN THE FOREIGN EQUITY CAP IS RELAXED, HUTCHIS ON GROUP WOULD EXERCISE THE OPTION AND THE SHARES WOULD BE A CQUIRED FROM THE APPELLANT AT A PREDETERMINED PRICE, A CHART SHO WING THE HOLDING STRUCTURE IS ENCLOSED AS ANNEXURE 1 TO THIS WRITTEN SUBMISSION. D) ON 1 ST MARCH, 2006, A FRAMEWORK AGREEMENT WAS ENTERED INTO AMONGST THE APPELLANT, SCORPIO BEVERAGES PVT. LTD. (SBP), MVH SERVICES LTD. (MVH), 3 GLOBAL SERVICES PVT. LTD . (3GSPL) AND ND CALLUS LTD. SCORPIO BEVERAGES LTD. WAS HELD 100% BY THE APPELLANT AND HIS WIFE. MV HEALTHCARE LTD. WAS A 10 0% SUBSIDIARY OF SBP LTD. AND ND CALLUS WAS AGAIN A 10 0% SUBSIDIARY OF MVH LTD. UNDER THIS FRAMEWORK AGREEME NT, IT WAS AGREED THAT IN CONSIDERATION OF 3GSPL PROVIDING FIN ANCIAL ASSISTANCE FOR ND CALLUS TO SUBSCRIBE TO 38.78% SHA RES IN TIL I.T.A .NO.-4737/DEL/2017 69 | P A G E (WHICH HOLDS DIRECTLY AND INDIRECTLY 19.54% IN HEL) , SCORPIO GRANTED 3GSPL A RIGHT TO SUBSCRIBE TO EQUITY IN ND CALLUS AND/OR TO PURCHASE EQUITY OF MV HEALTHCARE. A CALL/ PUT OPTION WAS GRANTED TO THE PARTIES WHEREBY 3GSPL OR ITS NOM INEE GOT THE RIGHT TO EXERCISE THE OPTION OF ACQUIRING THE SHARE S HELD BY THE APPELLANT IN HEL THROUGH A CHAIN OF SUBSIDIARIES FO R A TRANSFER PRICE SET OUT IN SCHEDULE 2 OF THE SAID FRAMEWORK A GREEMENT. E) SCHEDULE 2 OF THE SAID AGREEMENT DEFINES THE TRA NSFER PRICE OF SHARES, AS AND WHEN THE OPTION IS EXERCISED, AS UNDER: I. THE TRANSFER PRICE SHALL BE EQUAL TO THE FAIR MARKE T VALUE OF 0.23% OF THE ISSUED SHARE CAPITAL OF HEL. II. THE SCHEDULE ALSO PROVIDED IN VERY CLEAR TERMS AS UNDER: FOR THE AVOIDANCE OF DOUBT, THE ABOVE FORMULA WILL APPLY TO THE TRANSFER PRICE REGARDLESS OF THE AMOUNT OF THIR D PARTY DEBT OR OTHER LIABILITIES IN MVH OR ANY OTHER COMPA NY IN WHICH MVH HAS AN INTEREST AND IRRESPECTIVE OF THE F ACT THAT SBP IS NOT A DIRECT SHAREHOLDER IN HEL. THE SCHEDULE ALSO GOES ON TO EXPLAIN THAT THE ABOVE TRANSFER PRICE IS AGREED ON THE ASSUMPTION THAT HEL HAS ON I SSUE 414,086,049 PAID UP AND ISSUED ORDINARY SHARES AND THE TII HAS OR WILL HAVE AFTER COMPLETION OF THE RESTRUCTURING CURRENTLY BEING UNDERTAKEN A DIRECT AND INDIRECT 19.54% BENEFICIAL INTEREST IN HEL. THE SCHEDULE FURTHER GOES ON TO STATE THAT IN THE EVENT THAT IN THE PERIOD BETWEEN THE DATE OF THIS AGREEMENT AN D THE DETERMINATION OF TRANSFER PRICE, THERE OCCURS A CHA NGE IN THE NUMBER OF SHARES ISSUED BY HEL BASED ON A THIRD PAR TY MARKET BASED MECHANISM, THEN THE TRANSFER PRICE FORMULA SH ALL BE SUITABLY ADJUSTED. IF THE BENEFICIAL INTEREST OF TH E APPELLANT IN I.T.A .NO.-4737/DEL/2017 70 | P A G E HEL SUFFERS ANY CHANGE DURING THE PERIOD, A FAIR AN D REASONABLE ADJUSTMENT IN THE PRICE WOULD BE MADE. (F) ON 8 TH MAY, 2007, HUTCHISON GROUP SOLD ITS ENTIRE STAKE T O VODAFONE PIC AND AS OBSERVED BY THE HON'BLE SC IN T HEIR JUDGMENT REFERRED TO ABOVE, VODAFONE STEPPED INTO THE SHOES OF HUTCH IN ALL ITS ENTIRETY.ALL THE ARRANGEMENTS WIT H DIFFERENT PARTIES TO BEAT THE FOREIGN EQUITY CAP WERE KEPT IN TACT AS IT WERE WITH THE ONLY CHANGE THAT HUTCH WAS RELEASED FROM I TS OBLIGATIONS ARISING FROM THE AGREEMENTS WITH DIFFER ENT PARTIES LIKE THE APPELLANT, ASEEM GHOSH, IDFC ETC. AND VODAFONE ENTERED INTO SIMILAR AGREEMENTS WITH THESE PARTIES TO CONTI NUE THE EXISTING ARRANGEMENTS. THUS, WHILE THE APPELLANT FA CILITATED HUTCH TO HOLD A CERTAIN ECONOMIC INTEREST IN THE IN DIAN COMPANY, HEL, HE CONTINUED TO EXTEND SIMILAR FACILI TIES TO VODAFONE WITH SIMILAR CALL/PUT OPTIONS ETC. A NEW F RAMEWORK AGREEMENT WAS ENTERED INTO ON 5 TH OF JULY, 2007, WITH THE SAME PARTIES IN PLACE AND VODAFONE PLC ACTING ONLY AS A CONFIRMING PARTY. (G) MR. SRIVASTAVA EMPHASIZE THE POINT THAT VODAF ONE PAID THE PRICE OF 67% INTEREST IN HEL TO HUTCH GROUP WHICH I NCLUDED THE STAKE HELD BY THE APPELLANT IN THE INDIAN COMPANY. HENCE, IT MAY BE APPRECIATED THAT VODAFONE HAD ACQUIRED THE I NTEREST IN HEL HELD THROUGH THE APPELLANT DIRECTLY FROM HUTCH. THE NEW FRAMEWORK AGREEMENT WAS NECESSARY FALLOUT OF THE TR ANSACTION ALREADY ENTERED INTO BETWEEN VODAFONE AND HUTCH AND THE NEW FRAMEWORK AGREEMENT OF JULY 2007 WAS ENTERED ONLY T O TRANSFER THE ECONOMIC INTEREST HITHERTO HELD BY HUTCH TO VOD AFONE WITH THE ENTIRE ARRANGEMENTS IN SPIRIT REMAINING UNCHANG ED. (H) UNDER 'THE FRAMEWORK AGREEMENT DATED 5 TH JULY, 2007, I.T.A .NO.-4737/DEL/2017 71 | P A G E ENTERED INTO AMONGST THE SAME VERY PARTIES AS WERE PARTIES TO FRAMEWORK AGREEMENT 2006 (VODAFONE JOINING IN ONLY AS A CONFIRMING PARTY, SIMILAR CALL/PUT OPTIONS WERE GRA NTED AND THE TRANSFER PRICE WAS DETERMINED AT: USD 266.25 MILLION CONVERTED INTO INR AT THE PREVAI LING EXCHANGE RATE AS ON COMPLETION DATE, I.E., 8 TH OF MAY, 2007. PLUS WHERE THE FAIR MARKET VALUE OF SHARE CAPITAL OF HEL EXCEEDS USD 25 BILLION, THE PROPORTIONATE VALUE OF SHARES H ELD BY SBP IN HEL DETERMINED IN A MANNER PROVIDED IN SCHED ULE 2. THE ASSESSEE WAS ALSO TO RECEIVE USD 10.2 MILLION P ER ANNUM FOR HOLDING THESE SHARES IN HEL ON BEHALF OF VEL TILL T HE OPTION IS EXERCISED. (I) CGP, A COMPANY IN THE CHAIN OF HOLDING COMPANIE S OF VEL (EARLIER HEL), ACQUIRED 49% IN SBP (AND A SIMILAR S TAKE IN THE COMPANIES HELD THROUGH ASEEM GHOSH) IN NOVEMBER, 20 09 AND THE PRICE PAID WAS IN TERMS OF FRAMEWORK AGREEMENT DATED 5 TH JULY, 2007. THE APPELLANT RECEIVED RS. 533 CRORES W HICH WORKED OUT TO 10.88 LACS PER SHARE. THIS ACQUISITION WAS A CONSEQUENCE OF MODIFICATION OF FDI RULES IN TERMS OF PRESS NOTE NO. 2 0F 2009. (J) ON 18/09/2009, NDC SOLD 11.75% STAKE IN TIL TO CGP SO THAT CGP THEREAFTER HOLDS 49% IN TII AND THE BALANC E 51 % IS HELD INDIRECTLY BY THE APPELLANT AND HIS WIFE. (K) ON 10/0512010, ASEEM GHOSH SOLD 51% STAKE IN AG M TO NDC, I.E., 2.39% IN VIL. FOR THIS ADDITIONAL INTERE ST, THE APPELLANT WAS PAID AN ADDITIONAL OPTION PAYMENT EQU IVALENT TO USD 3,213,000. I.T.A .NO.-4737/DEL/2017 72 | P A G E (L) ON 24/11/2011, IDFC SOLD 100% STAKE IN SMMS TO TII AND HTIL SOLD 7.39% IN OMEGA TO SMMS SO THAT SMMS H ELD 61.6% IN OMEGA. THE EFFECT OF THIS TRANSACTION WAS THAT TII NOW HELD 22.69% IN VIL AND SBPL HELD 8.91 % IN VIL. (M) THE APPELLANT WAS FURTHER GIVEN ADDITIONAL CALL OPTION FEE OF USD 2,657,000 PER ANNUM FOR HOLDING THESE ADDITIONA L SHARES. (N) SBPL ISSUED RIGHT SHARES AND THE APPELLANT SUBS CRIBED TO 19,49,99,979 RIGHT SHARES. HOWEVER, THE APPELLANT'S HOLDING IN SBP REMAINED 51%. IT WAS AGREED THAT 3GSPL WOULD PA Y FURTHER AMOUNTS OF RS. 2,76,00,000 AS A ONETIME PAYMENT AND RS. 5,00,00,000 AS FEE P.A. FOR HOLDING THESE SHARES. I T WAS ALSO AGREED THAT THE TRANSFER PRICE OF THE RIGHT SHARES WOULD BE RS. 300 CRORES. (O) A SHARE PURCHASE AGREEMENT (SPA), DATED 12TH MA RCH, 2014 WAS ENTERED INTO WHICH FOLLOWED THE LIFTING OF THE FOREIGN EQUITY CAP. CGP PURCHASED ENTIRE 51 % STAKE HELD BY THE AP PELLANT IN HELNIL FOR A TOTAL CONSIDERATION OF RS. 12,41,32,06 ,200. THE DETAILS OF THE BASIS FOR ARRIVING AT THIS FIGURE HA VE NOT PROVIDED EXCEPT THAT IN HIS SUBMISSIONS, THE APPELLANT STATE D THAT RS. 300 CRORES REPRESENTS THE VALUE OF RIGHTS SHARES AND TH E BALANCE AMOUNT OF RS. 941.32 CRORES REPRESENTS THAT OF ORIG INAL SHARES. (P) WHILE IT WAS STIPULATED UNDER THE FRAMEWORK AGR EEMENT OF 2006 AS ALSO UNDER THE FRAMEWORK AGREEMENT OF2007 T HAT THE VALUATION OF HEL SHARES AT THE TIME OF EXERCISE OF OPTION AND THE TRANSFER WOULD BE DONE BY VALUERS OF INTERNATIONAL REPUTE SPECIFICALLY NAMED UNDER THESE AGREEMENTS, NO VALUA TION WAS EVER DONE AS STIPULATED IN THESE FRAMEWORK AGREEMEN TS, TO FIND OUT THE CORRECT VALUE OF HEL SHARES AND THE PROPORT IONATE I.T.A .NO.-4737/DEL/2017 73 | P A G E INTEREST OF THE APPELLANT IN THESE SHARES. IF THE P ARTIES TO THE AGREEMENT DID, IN FACT, ADHERE TO THE TERMS OF THE AGREEMENT, SUCH A VALUATION HAS BEEN WITHHELD AND HAS NOT BEEN PLACED BEFORE THE REVENUE. (Q) WHILE THE FRAMEWORK AGREEMENT OF 2007 CLEARLY S TIPULATED A PRICE OF 266.25 MILLION REPRESENTING THE PROPORTION ATE VALUE OF HEL SHARES, TAKING THE TOTAL VALUE OF HEL SHARES AT USD 25BILLION, THE OTHER PART OF THE AGREEMENT OF REVAL UING THE SHARES OF HEL WHEN THE VALUE EXCEEDS 25 BILLION WAS NEVER CARRIED OUT. IT IS INTERESTING TO NOTE THAT THE ENTERPRISE VALUE OF HEL WAS DETERMINED AT 18 BILLION IN FEBRUARY, 2007 AND AT 2 5 BILLION IN JULY, 2007 AFTER THE CONSOLIDATION AND THE COMPANY HAVING BEEN TAKEN OVER BY VODAFONE. THERE HAS BEEN A PHENOMENAL GROWTH IN TELECOM SECTOR IN INDIA IN THESE YEARS AND ACCORDIN GLY THE CUSTOMER BASE AND REVENUES OF THE INDIAN COMPANY DI D ALSO WITNESS SUBSTANTIAL GROWTH. (R) THE BUYER, CGP, GOT A VALUATION DONE BY KOTAK M AHINDRA AND KOTAK WORKED OUT THE TOTAL VALUE OF HELNIL AT RS. 5 64,483 MILLION UNDER DCF METHOD. KOTAK, THEREAFTER PROCEED ED TO VALUE THE SHARES OF SBP AT RS. 540 PER SHARE. KOTAK VALUE D HEL SHARES UNDER DCF METHOD AND THEY ADOPTED NAV METHOD TO VALUE SHARES OF SBP. THE REPORT OF KOTAK OBSERVED A S UNDER: 'IT IS CLARIFIED THAT CGP HAS PROVIDED US WITH THE HISTORICAL FINANCIALS OF THE COMPANIES IN THE HOLDCO CHAIN AND SBP, AND FURTHER, COP HAS CONFIRMED THAT SINCE THE COMPANIES IN THE HOLDCO CHAIN AND SBP DO NOT HAVE ANY BUSINESS OPERA TIONS, THERE ARE NO PROJECTIONS/ FORECASTS AVAILABLE FOR THE COM PANIES IN THE HOLDCO CHAIN AND SBP. IT IS CLARIFIED THAT WE HAVE ASSUMED AND RELIED UPON, WITHOUT INDEPENDENT VERIFICATION, THE ACCURACY AND I.T.A .NO.-4737/DEL/2017 74 | P A G E COMPLETENESS OF THE INFORMATION/ PROJECTIONS/ FOREC ASTS PROVIDED TO US, WHETHER IN ORAL OR WRITTEN FORM, OR USED BY US AND WE ASSUME NO RESPONSIBILITY AND MAKE NO REPRESENTATION S WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF ANY SUCH INFORMATION PROVIDED BY VIL OR CGP. WE HAVE ASSUMED THAT VIL AN D CGP HAVE FURNISHED ALL INFORMATION CONCERNING THE FINANCIAL STATEMENT AND ASSETS AND LIABILITIES OF VIL GROUP, INDUS, TILL EA RNINGS BEFORE INTEREST AND TAXES, AND ALL OTHER CASH FLOW ITEMS R ELEVANT FOR VALUATION. WE CLARIFY THAT IN RESPECT OF VIL AND IN DUS, WE HAVE NOT BEEN PROVIDED WITH FINANCIAL PROJECTIONS BELOW EARN INGS BEFORE INTEREST AND TAXES OR THE BALANCE SHEET. FURTHER, W E HAVE NOT BEEN PROVIDED WITH FINANCIAL PROJECTIONS FOR THE COMPANI ES IN THE HOLDCO CHAIN AND SBP. WE HAVE ASSUMED THAT THERE IS NO MAT ERIAL INFORMATION OR MATERIAL CHANGE IN THE BUSINESS AND OPERATIONS OF VIL GROUP, INDUS, COMPANIES IN THE HOLDCO CHAIN AND SBP POST FEBRUARY 28, 2014 THAT WOULD IMPACT THE VALUATION I N THIS REPORT, AND WE ASSUME NO RISK OF ANY MATERIAL ADVERSE CHANG E HAVING ANY IMPACT ON THE BUSINESSES OF VIL GROUP. INDUS, C OMPANIES IN THE HOLDCO CHAIN AND SBP.'. THUS HE SUBMITTED THAT THE AFORESAID DISCLAIMER OF KOTAK EXPLICITLY BRINGS OUT MATERIAL WEAKNESSES IN THE ASSUMPTIONS A ND THE FINAL VALUE ARRIVED AT BY THEM. 38. AFTER NARRATING THE ENTIRE FACTS IN THE AFORESA ID MANNER, HE FILED A CHART SHOWING CHANGES IN THE INTERESTS AND THE PE RCENTAGE OF THE HOLDING OF THE ASSESSEE IN HEL AND LATER ON IN VIL AT DIFFERENT POINTS OF TIME AND ALSO A CHART SHOWING ACCRUED SALE CONSIDER ATION OF CALL OPTION UNDER DIFFERENT AGREEMENT WHICH HAS QUITE A RELEVANT BEARING ON THE SAID ISSUE THEREFORE, FOR THE SAKE OF READY REFERENCE SAME IS REPRODUCED HEREUNDER:- I.T.A .NO.-4737/DEL/2017 75 | P A G E ACCRUED SALE CONSIDERATION OF CALL OPTIONS SALE CONSIDERATION AS PER DIFFERENT AGREEMENTS: A. AGREEMENTS ENTERED BY PARTIES:- S. NO . AGREEMENT S DATE VALUE OF CONSIDERATION VALUE OF SHARES REMAR KS 1. FRAMEWORK AGREEMENT 2006 01.03.2006 FAIR MARKET VALUE (FMV) OF ISSUED SHARE CAPITAL OF HEL 0.23% OF VALUE OF SHARES OF HEL THE LIABILITY OF INTERMEDIARY COMPANIES NOT TO BE RECOGNIZED FOR WORKING OUT THE TRANSFER PRICE. 2. FRAMEWORK AGREEMENT 2007 05.07.2007 INDIAN RUPEES EQUIVALENT OF US$ 26,62,50,000 + IF FAIRMARKET VALUE OF ISSUED SHARE CAPITAL OF HEL EXCEEDS US$ 25,00,00,00,000 (25 BILLION) THE SBP LTD. VALUE CONVERTED INTO RUPEES AT PREVAILING US$ + CALL OPTION FEE FROM GSPL OF AN AMOUNT OF US$ 10.2 MILLION PER ANNUM ACCRUING ON A DAILY BASIS. 26,62,50,000 X 40.88 ( RATE OF US$ IN JULY, 2007) = RS.10,88,43,00,000/10 ,000 RS.10,88,430.25 PER SHARE (RS.10,88,43,00,000 / 10000 =RS.10,88,430AS PER EXCHANGE RATE @ 40.88 AS PER THE AGREEMENT) + POSSIBLE MARKUP AS A RESULT OF HIGHER VALUE OF VIL + ANNUAL CALL OPTION FEE FROM GSPL US$ 10.2 MIL/ANNUM AT THIS STAGE AS HOLDS THROUGH NDC 38.78% OF TII SHARES WHICH IN TURN, HOLDS 19.54% IN VIL. BASIS OF BASE PRICE OF 26,62,50,000 IS NOT GIVEN. FOR DELIVERING FMV OF VIL SHARES TO WORK OUT THE ADDITIONAL PRICE (IN CASE THE VALUE OF HEL SHARE EXCEEDED 25 BILLION USD), THE VALUATION WAS TO BE DONE BY UBS INVESTMENT OR GOLDMAN SACHS OR LEHMAN BROTHERS (AND NOT ANY INDIVIDUAL BANKER MUCH LESS KOTAK MAHINDRA WHICH WAS INTERESTED PARTY HAVING HELD THE STAKE IN HEL/VIL AT EARLIER POINT OF TIME). ANNUAL CALL OPTION FEE SHOWN AS INCOME FROM OTHER SOURCES IN THE RETURNS OF INCOME FILED. I.T.A .NO.-4737/DEL/2017 76 | P A G E S. NO . AGREEMENT S DATE VALUE OF CONSIDERATION VALUE OF SHARES REMAR KS 3. FRAMEWORK AGREEMENT AS AMENDED 2010 18.08.2010 SH. ANALJIT SINGH SOLD 4,900 SHARES OUT OF 9,000 SHARES OF M/S SBPL TO M/S CGP ON 17.12.2009. AS PER THE FRAMEWORK AGREEMENT 2007 THE AMOUNT FOR SALE OF WHOLE AMOUNT OF 10,000 SHARES IS US$ 266,250,000 (WITH FOREX RATE AT RS.40.88 PER US $ THE AMOUNT IS RS.1088.43 CR.). AS SH. ANALJIT SINGH SOLD ONLY 4,900 HE RECEIVED 49% OF RS.1088 CR. I.E. RS.533.33 CR. (US$ 130,462,500) WHICH IS RS.10.88 LACS PER SHARE AS ON 17.12.2009 . SH. ANALJIT SINGH HAS ALREADY RECEIVED US$ 130,462,500. FOR BALANCE SALE OF SHARES, THE BALANCE AMOUNT OF US$ 135,787,500 WAS TO BE RECEIVED AS THE MINIMUM PRICE OF SHARES. (PRESUMING THE VALUE OF HEL/VIL SHARES HAS NOT CROSSED 25 BILLION THRESHOLD). THEREFORE THE TOTAL CONSIDERATION AT THIS RATE IS 135,787,500 X 40.88 WHICH COMES TO RS.555,09,93000/- + IF MARKET VALUE OF ISSUED SHARE CAPITAL OF HEL EXCEEDS US$ 25,00,00,00,000 THE SBP LTD. VALUE WILL INCLUDE PROPORTIONATE AMOUNT OF SUCH EXCESS AMOUNT CONVERTED INTO RUPEES AT PREVAILING US$ + CALL OPTION FEE FROM GSPL OF AN AMOUNT OF US$ 10.2 MILLION PER ANNUM ACCRUING ON A DAILY BASIS AS PER FRAMEWORK AGREEMENT 2007. + CALL OPTION FEE FROM M/S VISPL (FORMERLY GSPL) OF AN AMOUNT OF US$ 3.2MILLION PER ANNUM ACCRUING ON A DAILY BASIS THE VALUE PER SHARE IS RS555,09,93000/ 5100 = RS.10,88,430/- (5,55,09,93,000 / 5100 =RS.10,88,430 AS PER EXCHANGE RATE @ 40.88 AS PER THE AGREEMENT) + POSSIBLE MARKUP + ANNUAL CALL OPTION FEE FROM GSPL AS PER FRAMEWORK AGREEMENT 2007 -10.2 MIL US$ + ADDITIONAL ANNUAL CALL OPTION FEE FROM VISPL AS PER AMENDED FRAMEWORK AGREEMENT 2010-3.2 MIL US$ NO VALUATION WAS DONE WHEN THE FRAMEWORK AGREEMENT AMENDED IN 2010 NDC ACQUIRES 51% IN AG MERCANTILE BY SPA DATED 10 TH MAY 2010 WHICH HOLDS 23.97% IN TII. THIS SUBSTANTIALLY RAISES THE SHARE OF AS IN HEL/VIL. SALE CONSIDERATION NOT RAISED. ONLY ADDITIONAL CALL OPTION FEE GIVEN. AMENDED FRAMEWORK AGREEMENT NOT MADE AVAILABLE. I.T.A .NO.-4737/DEL/2017 77 | P A G E S. NO . AGREEMENT S DATE VALUE OF CONSIDERATION VALUE OF SHARES REMAR KS 4. FRAMEWORK AGREEMENT AS AMENDED IN 2011 24.11.2011 AS SH. ANALJIT SINGH SOLD ONLY 4,900 HE RECEIVED 49% OF RS.1088 CR. I.E. RS.533.33 CR. (US$ 130,462,500) WHICH IS RS.10.88 LACS PER SHARE AS ON 17.12.2009 . SH. ANALJIT SINGH HAS ALREADY RECEIVED US$ 130,462,500. FOR BALANCE SALE OF SHARES, THE BALANCE AMOUNT OF US$ 135,787,500 WAS TO BE RECEIVED ON SALE OF 5100 SHARES + CALL OPTION FEE FROM GSPL OF AN AMOUNT OF US$ 10.2 MILLION PER ANNUM ACCRUING ON A DAILY BASIS AS PER FRAMEWORK AGREEMENT 2007. + CALL OPTION FEE FROM M/S VISPL (FORMERLY GSPL) OF AN AMOUNT OF US$ 3.2 MILLION PER ANNUM ACCRUING ON A DAILY BASIS AS PER FRAMEWORK AGREEMENT 2010 + FURTHER CALL OPTION FEE FROM M/S VISPL (FORMERLY GSPL) OF AN AMOUNT OF US$ 2.6 MILLION PER ANNUM ACCRUING ON A DAILY BASIS AS PER FRAMEWORK AGREEMENT 2011 THE VALUE PER SHARE IS RS.555,09,93,000/ 5100 = RS.10,88,430/- PER SHARE(5,55,09,93,000 / 5100 =RS.10,88,430 AS PER EXCHANGE RATE @ 40.88 AS PER THE AGREEMENT) + POSSIBLE MARKUP + ANNUAL CALL OPTION FEE FROM GSPL AS PER FRAMEWORK AGREEMENT 2007 + ADDITIONAL ANNUAL CALL OPTION FEE FROM VISPL AS PER AMENDED FRAMEWORK AGREEMENT 2010 + FURTHER ANNUAL CALL OPTION FEE FROM VISPL AS PER AMENDED FRAMEWORK AGREEMENT 2011 NO VALUATION WAS DONE WHEN THE FRAMEWORK AGREEMENT AMENDED IN 2011 SBP FURTHER ACQUIRED 60 LAC SHARES IN SMMS (75% OF SMMS) WHICH HOLDS 61.6 % OF OMEGA, WHICH IN TURN, HOLDS 5.11 % VIL. ONLY ADDITIONAL CALL OPTION FEE WAS PROVIDED FOR NO ADDITIONAL TRANSFER FEE WAS PROVIDED FOR AMENDED FRAMEWORK AGREEMENT NOT MADE AVAILABLE 5. SUPPLEMEN -TARY AGREEMENT DATED 07.08.2012 09.08.2012 ISSUE OF RIGHT SHARES ON 9 TH AUGUST 2012 RIGHT ISSUE WAS MADE AND RIGHT SHARES WERE ALLOTTED AT PAR I.E. RS.10 PER SHARES AS UNDER:- NAME OF SHAREHOLDER NO OF ORIGINAL SHARE HELD NO. OF RIGHTS ISSUE SHARES HELD SH. ANALJIT SINGH 4,100 15,67,64,689 SMT. NEELUANALJIT SINGH 1,000 3,82,35,290 CGP 4,900 18,73,62,921 TOTAL 10,000 38,23,62,900 (A) NO SUBMISSION WAS MADE AS TO HOW 15,67,64,689/- RIGHTS SHARES WERE ISSUED (I) RS.10 PER SHARE (RIGHT SHARE ALLOTTED ) (II) RS.15.3 8 PER SHARE AS PER THESUPPLEMENTARY AGREEMENT IT IS ALREADY DECIDED THAT SH. ANALJIT SINGH WILL RECEIVE RS. 300 CRORES (IRRESPECTIVE OF THE VALUE RIGHT SHARES. SALE PRICE OF RIGHTS SHARES OF FUTURE DATE IS FIXED IN AUGUST, 2012 ITSELF. EVEN AS PER THIS AGREEMENT NO VALUATION WAS DONE TO ARRIVE AT AN AMOUNT OF RS. I.T.A .NO.-4737/DEL/2017 78 | P A G E S. NO . AGREEMENT S DATE VALUE OF CONSIDERATION VALUE OF SHARES REMAR KS AGAINST THE ORIGINAL SHARE OF 4,100. 300 CRORES FOR RIGHTS SHARES. THE AMOUNT OF RS. 300/- HAS NOT BASIS WHATSOEVER. 6. (I) SALE PURCHASE AGREEMENT BETWEEN SH. ANALJIT SINGH AND SMT. NEELU ANALJIT SINGH AND M/S SBP LTD AND M/S CGP INDIA INVESTMENT LTD. 12.03.2014 RS.12,41,32,06,200/- IS THE SALE CONSIDERATION OF BOTH ORIGINAL SHARES AND RIGHT SHARES THE BREAKUP OF THE ABOVE AMOUNT OF RS. 12,413,206,200/- AS IS GIVEN AS BELOW:- MR. ANALJIT SINGH 9,979,244,200 (41/51*12,413,206,20 0) MRSNEELUANALJIT SINGH 2,433,962,000 (10/51*12,413,206,20 0) THE VALUE PER SHARE IS WORKED OUT AS UNDER:- 12,41,32,06,200 / 19,50,05,079 = RS.63.65 THE ASSESSEE HAS NOT PROVIDED ANY VALUATION AS TO HOW THE ASSESSEE HAS REACHED THE FIGURE OF RS.1241.32 CR. RS.1241.32 CR. (300 CR. + 941.32 CR.) AS PER THE SUBMISSION DATED 30.12.2016 THE TOTAL CONSIDERATION RECEIVED IS RS.12,41,32,06,200/-. THE BREAKUP OF THIS AMOUNT IS :- RIGHTS SHARE 300 CR. (@15.38 PER SHARE) ORIGINAL SHARE 941.32 CR. RS.18,45,726/- PER SHARE AS PER THE SUBMISSION DATED 30.12.2016 OF THE ASSESSEE, THE ORIGINAL SHARE I.E. 5100(4100 + 1000) SHARES WERE SOLD AT RS.9,41,32,06,200 /- IN TERMS OF AGREED PRICE. IT IS NOT CLEAR HOW THE AGREED PRICE WAS ARRIVED AT BY BOTH THE PARTIES TO TRANSACTION. FOR ORIGINAL SHARES, THE PRICE WORKS OUT TO BE RS.18,45,726/- (9,41,32,06,200 / 5100) PER SHARE. IT IS WORTH NOTICING THAT ON THE SAME DAY I.E. ON 12.03.2014 AS PER THE SALE PURCHASE AGREEMENT DATED 12.03.2014 THE VALUE OF SHARES OF I.T.A .NO.-4737/DEL/2017 79 | P A G E S. NO . AGREEMENT S DATE VALUE OF CONSIDERATION VALUE OF SHARES REMAR KS M/S SBP LTD. WAS VALUED AT TWO DIFFERENT PRICES I.E. @ RS.15.38 PER SHARE FOR RIGHT ISSUE & @ RS.18,45,726 FOR ORIGIN AL SHARES B . SALE CONSIDERATION DISCLOSED:- S.NO. YEAR ACTUAL RECEIPT PRICE PER SHARE REMARKS 1 17.12.2009 RS.533 CR. RS.10.88 LACS SH. ANALJIT SINGH SOLD 4,900 SHARES OUT OF 9,000 SHARES OF M/S SBPL TO M/S CGP ON 17.12.2009. AS PER THE FRAMEWORK AGREEMENT 2007 THE AMOUNT FOR SALE OF WHOLE AMOUNT OF 10,000 SHARES IS US$ 266,250,000 (WITH FOREX RATE AT RS.40.88 PER US $ THE AMOUNT IS RS.1088.43 CR.). NO EXERCISE DONE FOR FMV OF SHARES OF VIL. AS SH. ANALJIT SINGH SOLD ONLY 4,900 HE RECEIVED 49% OF RS.1088 CR. I.E. RS.533.33 CR. (US$ 130,462,500) WHICH IS RS.10.88 LACS PER SHARE. 2 21.03.2014 RS.997.92 CR. RECEIVED BY SH. ANALJIT SINGH AND TOTAL CONSIDERATION RECEIVED WAS RS.1,241.32 CR. WHICH IS TOTAL CONSIDERATION OF SH. ANALJIT SINGH AND SMT. NEELU ANALJIT SINGH. RS.63.65 TOTAL CONSIDERATION RECEIVED BY SH. ANALJIT SINGH AND SMT. NEELU ANALJIT SINGH ISRS.12,41,32,06,200/-. THE TOTAL SHARES SOLD INCLUDING RIGHT SHARE AND ORIGINAL SHARE IS 19,50,05,079. THEREFORE, THE VALUE PER SHARE IS WORKED OUT AS UNDER:- 12,41,32,06,200 / 19,50,05,079 = RS.63.65 PER SHARE HOWEVER, THE AFORESAID WORKING DOES NOT REFLECT THE ACQUISITION OF AG MERCANTILE SHARES AND SMMS SHARES IN 2010 AND 2011 RESPECTIVELY. I.T.A .NO.-4737/DEL/2017 80 | P A G E C. POINTS RELATED TO VALUATION:- S. N O AGREEME NT / BASIS OF SHARE PRICE YEAR VALUE OF SHARES (RS.) REMARKS VALUATION 1 VALUATION REPORT DATED 19.03.2014 OF KOTAK MAHINDRA CAPITAL COMPANY LTD. (MERCHANT BANKER) 19.03.2014 RS.5.4/- PER SHARE THE BUYER CGP INDIA INVESTMENT LTD. GOT THE VALUATION OF M/S SBP LTD. FROM KOTAK MAHINDRA CAPITAL COMPANY LTD. WHICH VALUED SHARES OF M/S SBP LTD. AT RS.5.4/- PER SHARE BY AHYBRID METHODWHICH IS NOT THE PRESCRIBED METHOD AS PER INCOME TAX ACT/ RULES. IT VALUED VIL BY FOLLOWING DCF METHOD. HOWEVER THEREAFTER, TO ARRIVE THE VALUATION OF M/S SBP LTD. NAV METHOD WAS ADOPTED FOR ALL THE COMPANIES IN THE HOLDING CHAIN AFTER TAKING THE VALUE OF VIL AS PER DCF METHOD. BY THIS METHOD THE VALUATION WAS DONE AT A LOWER PRICE SUCH AS ONLY TO CLAIM THAT THE AGREED PRICE OF ACTUAL TRANSACTION WAS HIGHER THAN THE VALUATION DONE BY A MERCHANT BANKER. VALUATION BY HYBRID METHOD. THEREFORE,IT ARRIVED THE SHARE PRICE OF SBP LTD. BY FOLLOWING A HYBRID METHOD WHICH IS NOT A PRESCRIBED METHOD AS PER THE INCOME TAX ACT / RULES, NOR BY ANY YARDSTICK, A RECOGNIZABLE /CORRECT METHOD OF VALUATION. 39. APART FROM THAT, HE ALSO FILED A CHART SHOWING WORKING OF THE LIABILITIES OF THE SUBSIDIARY COMPANIES FOR COMPUTI NG THE SHARE VALUE OF SBPL. 40. AFTER EXPLAINING THE FACTUAL BACKDROP AND REFER RING TO THE VARIOUS RELEVANT CLAUSES OF THE FRAMEWORK AGREEMENTS SPECIF ICALLY THAT OF 2006 AND 2007, MR. SRIVASTAVA VEHEMENTLY ARGUED THA T THE ADDITION MADE BY THE AO IS NOT ONLY JUSTIFIED ON FACTS BUT A LSO IN LAW. HE SUBMITTED THAT IT IS NOT SIMPLE CASE OF PURCHASE AN D SALE OF A CAPITAL ASSET. IN THE PRESENT CASE, THE APPELLANT HELD THE SHARES IN THE INDIAN COMPANY, HEL/VIL, FOR THE BENEFIT OF HUTCH/VODAFONE PRIMARILY TO BEAT THE FOREIGN EQUITY CAP FOR WHICH THE APPELLANT WAS PAID CALL OPTION I.T.A .NO.-4737/DEL/2017 81 | P A G E FEE FOR HOLDING THE SHARES AND WITH A STIPULATION T HAT THE SHARES WOULD BE TRANSFERRED TO HUTCH/VIL ONCE THE CAP IS LIFTED AT A PRE-AGREED PRICE. IT IS PRECISELY FOR THIS REASON THAT THE DEC ISIONS RELIED UPON BY THE APPELLANT WOULD BE WHOLLY INAPPLICABLE TO FACTS OF THE PRESENT CASE AS THE REVENUE HAS ONLY ADOPTED THE FULL VALUE OF C ONSIDERATION AS AGREED TO IN THE SUCCESSIVE AGREEMENTS BETWEEN THE PARTIES.THE PERUSAL OF BOTH THE FRAMEWORK AGREEMENTS OF 2006 AN D 2007 CLEARLY SHOWS THATTHE TRANSFER PRICE AS AGREED BETWEEN THE PARTIES WAS LINKED TO THE FAIR MARKET VALUE OF SHARES OF HEL/VIL. THIS WAS NOT A HYPOTHETICAL PRICE OR NOTIONAL VALUE WHICH THE AO T OOK INTO ACCOUNT BUT THE PRICE WHICH WAS ORIGINALLY AGREED TO IN 200 6 AND THE SAME BASIS CONTINUED IN 2007 AGREEMENT WITH SOME MODIFIC ATION IN THE MODE OF WORKING IN AS MUCH AS UPTO THE DATE OF THE AGREEMENT A FIXED AMOUNT WAS SET OUT WHICH REPRESENTED THE PROPORTION ATE VALUE OF SHARES HELD BY SBP INHEL/VIL BY TAKING THE ENTERPRI SE VALUE AT USD 25 BILLION AND ANY INCREASE IN THE VALUE OF HEL/VIL BEYOND 25 BILLION WAS TO BE FURTHER ADDED TO THE PRICE AFTER GETTING THE VALUATION DONE BY VALUERS OF INTERNATIONAL REPUTE. THE PROVISIONS OF SECTION 48 CONTEMPLATE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS THE STARTING POINT FOR THE COMPUTATION OF THE AMOUNT OF CAPITAL GAINS. IT IS NOT IN DISPUTE THAT THE FULL VALUE OF CONSIDERATION ACCRUING WOULD REPRESENT THE CONSIDERATION AGREED BETWEEN THE PART IES. IN THIS CASE, THE CONSIDERATION AGREED BETWEEN THE PARTIES WAS AL WAYS LINKED WITH THE FAIR MARKET VALUE OF SHARES OF HEL. THE AO WAS, THEREFORE, FULLY JUSTIFIED IN ADOPTING THE FAIR MARKET VALUE OF HEL SHARES AS THE FULL VALUE OF CONSIDERATION AGREED BETWEEN THE PARTIES. IT IS NOT THE CASE OF REVENUE THAT FULL VALUE OF CONSIDERATION NECESSARIL Y MEANS AND REPRESENTS THE FAIR MARKET VALUE OF THE CAPITAL ASS ET. HOWEVER, THE GIVEN CASE, THE AGREEMENTS DO PROVIDE FOR THE RIGHT S OF THE PARTIES AND THE AMOUNT OF CONSIDERATION THE APPELLANT IS ENTITL ED TO ONCE THE I.T.A .NO.-4737/DEL/2017 82 | P A G E OPTIONS ARE EXERCISED. IT IS SUBMITTED, EVEN AT THE COST OF REPETITION, THAT THE TRANSFER PRICE DETERMINED BETWEEN THE PART IES WAS NONE OTHER THAN THE MARKET VALUE OF PROPORTIONATE SHARES HELD IN HEL. THUS,THE ARGUMENT THAT THE AO EXCEEDED HIS JURISDICTION IN A DOPTING THE FAIR MARKET VALUE OF HEL SHARES AS THE FULL VALUE OF CON SIDERATION IN TERMS OF SECTION 48 IS WHOLLY MISPLACED. 41. SO FAR AS THE HEAVY RELIANCE WAS PLACED BY THE LD. SR. COUNSEL ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CAS E OF GEORGE HUNDERSON COMPANY LTD. (66 ITR 622), HE SUBMITTED T HAT THE ISSUES WAS EXAMINED IN THE CONTEXT OF SECTION 12B OF THE 1 922 ACT, WHERE THE LANGUAGE USED WAS FULL VALUE OF CONSIDERATION FOR WHICH THE SALE OR TRANSFER OF ASSETS IS MADE. IT IS IN THIS CONTEXT, THE HONBLE APEX COURT HELD THAT IN CASE OF SALE, THE FULL VALUE OF CONSID ERATION IS FULL SALE PRICE ACTUALLY PAID. FURTHER THE EXPRESSION FULL V ALUE OF CONSIDERATION CANNOT BE CONSTITUTED AS MARKET PRICE BUT AS THE PR ICE BARGAIN BY THE PARTIES FOR SALE. THERE COULD BE NO DEBATE ON SUCH A PROPOSITION AS LAID DOWN BY THE HONBLE SUPREME COURT. BUT THE LANGUAGE OF SECTION 48 IS ENTIRELY DIFFERENT FROM SECTION 12B OF THE OLD ACT, BECAUSE NOW THE EXPRESSION USED IS THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUI NG AS A RESULT OF TRANSFER OF THE CAPITAL ASSETS. 42. THE WORD ACCRUING WOULD MEAN THE RIGHT TO REC EIVE. HERE IN THIS CASE, THE ASSESSEE HAD A RIGHT TO RECEIVE THE PROPORTIONATE FAIR MARKET VALUE OF HEL SHARES AND THIS RIGHT HAD FLOWN TO HIM IN 2006 WHEN THE LOAN FINANCING WAS MADE AVAILABLE TO HIM A ND UNDER THAT SPECIAL ARRANGEMENT, HE SUBSCRIBED TO THE EQUITY OF HEL TO FACILITATE HUTCH TO HOLD THEIR INTEREST TO THAT EXTENT WITHOUT TRESPASSING THE FOREIGN EQUITY CAP. THE SAME ARRANGEMENT CONTINUED AFTER VODAFONE ACQUIRED THE INTEREST OF HUTCH IN HEL IN ITS ENTIRE TY INCLUDING THE ARRANGEMENTS WITH THE APPELLANT. IN FACT, VODAFONE PAID THE FULL I.T.A .NO.-4737/DEL/2017 83 | P A G E MARKET VALUE OF HEL SHARES FALLING TO THE SHARE OF THE AS TO HUTCH AND ONLY THEREAFTER IT GOT THE OPPORTUNITY TO CONTINUE WITH THE ARRANGEMENTS WITH THE APPELLANT AS IT WERE. FROM TH E SAID JUDGMENT ITSELF, HE POINTED OUT THAT THE HONBLE SUPREME COU RT QUOTING THE FINDING OF THE TRIBUNAL THAT THE ASSESSEE CANNOT SH UT OUT THE ITO FROM FINDING OUT WHAT IS THE FULL VALUE OF THE ASSETS TR ANSFERRED BY MERELY PUTTING A FIGURE ON THE DOCUMENTS OF TRANSFER. IN T HAT CASE, ITO TOOK THE VALUE TO BE MARKET PRICE OF THE SHARE WHICH WAS 620 PER SHARE BUT THE TRANSFER HAS TAKEN PLACE AT RS.136 PER SHARE. T HEIR LORDSHIPS ARE FURTHER QUOTED FROM THE ORDER OF THE TRIBUNAL AT TH E RIGHT OF THE ITO TO DETERMINE THE FULL VALUE OF THE ASSETS IS ALWAYS TH ERE ESPECIALLY IN THE CASE WHERE THE ASSESSEE REFUSED TO KEEP ALL THE INF ORMATION TO THE ITO AND THE VALUE OF THE ASSETS IS GIVEN BY HIM IS SO S USPICIOUSLY FLOW. BASED ON THESE FINDINGS OF THE TRIBUNAL, THE HONBL E SUPREME COURT REACHED TO THE CONCLUSION THAT THE QUESTION REFERRE D TO THE HONBLE HIGH COURT CANNOT BE ANSWERED AS THE CONTRACT WAS O BSCURE. ACCORDINGLY, THE HONBLE COURT DIRECTED THE TRIBUNA L TO REHEAR THE MATTER TO DETERMINE THE UNUSUAL NATURE OF THE TRANS ACTION AND THE CONDUCT OF THE PARTYS CONCERN AND TO FIND OUT WHAT WAS THE ACTUAL PRICE RECEIVED BY THE ASSESSEE. THUS, IT NEEDS TO B E APPRECIATED WHEN A CERTAIN TRANSFER PRICE FOR SHARES UNDER CALL/PUT OPTION WAS AGREED TO BETWEEN THE PARTIES AND THE RIGHTS AND OBLIGATIONS HAD ACCRUED TO THE PARTIES, IT WAS NOT NECESSARY TO ENTER INTO A FRESH SHARE PURCHASE AGREEMENT WHICH PUTS AN ARBITRARY FIGURE OF RS. 300 CRORES FOR RIGHT SHARES AND RS. 941 CRORES FOR ORIGINAL SHARES WITHO UT SPECIFYING ANY BASIS WHATSOEVER HOW THESE FIGURES HAVE BEEN ARRIVE D AT OR WHAT WAS THE REASON FOR THE DEVIATION FROM THE PRICES AGREED TO IN THE FRAMEWORK AGREEMENT OF 2006 AND THAT OF 2007. IF THE MARKET V ALUE OF HEL SHARES WAS THE BASIS OF THE TRANSFER PRICE AGREED TO BETWE EN THE PARTIES, ANY DEPARTURE THERE FROM HAS TO HAVE SOME RATIONAL BASI S AND AN ARBITRARY I.T.A .NO.-4737/DEL/2017 84 | P A G E FIGURE IN THE SALE PURCHASE AGREEMENTS (SPA) CANNOT BE THE BASIS TO SUGGEST THAT THE AMOUNT MENTIONED IN THE SPA ALONE REPRESENTED THE RIGHTS OF THE PARTIES OR TO SUGGEST THAT ONCE THE S PA WAS SIGNED ALL OTHER EARLIER ARRANGEMENTS BECAME A NULLITY. IT IS SUBMITTED THAT THE OPTIONS WERE EXERCISED IN FULL INCLUDING THE RIGHT SHARES. WHEN THE RIGHT SHARES ARE ISSUED, THESE ARE SUBSCRIBED ON TH E BASIS OF THE ENTITLEMENT OF THE EXISTING SHAREHOLDER BUT AFTER T HESE ARE SUBSCRIBED, THESE GET MERGED INTO THE TOTAL EQUITY OF THE COMPA NY. THERE IS NO SEPARATE MARKET PRICE OF RIGHT SHARES AS DISTINCT F ROM ORIGINAL SHARES. THE MARKET PRICE OF RIGHT SHARES WILL ALWAYS BE THE SAME PER SHARE AS THAT OF THE ORIGINAL SHARES. UNDER THE SPA, THE VAL UE OF ORIGINAL SHARES COMES TO RS. 18,45,726 PER SHARE BUT THE VALUE OF R IGHT SHARES COMES TO ONLY RS. 15.38 PER SHARE WHICH IS ABSURD ON THE FACE OF IT.IN THE FIRST PLACE, THE VALUE OF RIGHT SHARES CANNOT BE DI FFERENT FROM THE ORIGINAL SHARES. IN FACT, AT THE POINT OF SALE THER E CAN BE NO SUCH DISTINCTION AS THE RIGHT SHARE OR THE ORIGINAL SHAR E. SECONDLY, THE FRAMEWORK AGREEMENT ITSELF PROVIDED THAT THE OPTION WOULD BE EXERCISED FOR WHOLE OR PART OF THE SHARES HELD IN S BP WHICH, IN TURN, HOLDS IN HEL/VIL. THIS KIND OF BIFURCATION OF THE S HAREHOLDING INTO ORIGINAL SHARES AND RIGHT SHARES IS WHOLLY IMPERMIS SIBLE AND STILL WORSE IS THE ASSIGNMENT OF AN ABSURD VALUE TO THESE SHARES. THUS, THE SHARE PURCHASE AGREEMENT IS CONTRARY TO THE TERMS O F THE FRAMEWORK AGREEMENT AND THERE IS ABSOLUTELY NO EXPLANATION OF SUCH A MAJOR DEPARTURE. THE DOCUMENT (SPA) IS A SUPERFLUOUS ONE FOR THE REASON THAT THE RIGHTS OF THE PARTIES HAD ALREADY BEEN DET ERMINED UNDER THE FRAMEWORK AGREEMENTS. IT WAS CLEARLY PROVIDED IN TH OSE AGREEMENTS THAT ONCE THE OPTION IS EXERCISED, THE SHARES WOULD GET TRANSFERRED UNDER A PROCEDURE SET OUT THEREINAND THE APPELLANT WOULD BE ENTITLED TO RECEIVE THE PRICE AS AGREED EARLIER. IF THE ENTI RE PROCESS OF TRANSFER AND THE CONSIDERATION IS PRE-DETERMINED, THERE WOUL D BE ABSOLUTELY NO I.T.A .NO.-4737/DEL/2017 85 | P A G E OCCASION OR JUSTIFICATION TO ENTER INTO A FRESH SPA UNLESS THERE ARE SOME COMPELLING REASONS FOR THE SAME. THE ASSESSEE HAS NOT BEEN ABLE TO POINT OUT ANY REASON AS TO WHY THE SPA WAS AT AL L REQUIRED TO BE ENTERED INTO AND WHAT WAS THE REASON FOR SUCH A VAS T DEPARTURE FROM THE RIGHTS WHICH HAD ALREADY ACCRUED TO THE APPELLA NT. IN THE ABSENCE OF A VALID EXPLANATION, THE TERMS OF THE SPA HAVE G OT TO BE IGNORED AND THE RIGHTS AS AGREED TO IN THE SUCCESSIVE AGREEMENT S HAVE TO BE THE BASIS FOR ARRIVING AT THE FULL VALUE OF CONSIDERATI ON ACCRUING TO THE APPELLANT. IT IS SUBMITTED THAT CONTRARY TO THE ASS ERTIONS OF THE ASSESSEE, THE TRANSACTION IS NOT AT ARMS LENGTH. I N THE FIRST PLACE, THE TRANSACTION IS NOT BETWEEN UNRELATED PARTIES. AS PO INTED OUT EARLIER, THE APPELLANT HAS BEEN ASSOCIATED WITH THE HUTCH GR OUP SINCE 1992 AND ALSO WITH VODAFONE FROM THE DAY VODAFONE TOOK O VER THE BUSINESS FROM HUTCH. THE ASSESSEE REMAINED THE DIRECTOR OF T HE INDIAN COMPANY FOR A LONG PERIOD OF TIME. THE APPELLANT IS ALSO ASSOCIATED WITH VODAFONE IN A NUMBER OF OTHER BUSINESS VENTURE S. A SUBSCRIPTION AGREEMENT WAS ENTERED INTO ON 07/04/2009 BETWEEN CG P INDIA INVESTMENTS, MALSI ESTATES LTD. AND THE APPELLANT W HICH FORMS PART OF THE REVENUES PAPER BOOK. FURTHER, THE AMENDMENT LE TTER DATED 18/08/2010 RECORDS IN PARA 2 THAT THE ASSESSEE ACKN OWLEDGES THE AMOUNT OF CONSULTATION FEE HAVING BEEN PAID TO HIM. AS POINTED OUT AT THE TIME OF ORAL HEARING, THAT THE REFERENCE TO CON SULTANCY AGREEMENT IN THE FRAMEWORK AGREEMENT OR ITS AMENDMENT LETTER WAS REALLY BAFFLING. THE CLOSE ASSOCIATION OF THE APPELLANT WI TH HUTCH/VODAFONE IN HOLDING THE SHARES AND IN THE OPERATION OF THE C OMPANY IN INDIA IS A MATTER OF RECORD AND THE TRANSACTION CANNOT BE REGA RDED AS HAVING BEEN ENTERED INTO INDEPENDENT THIRD PARTIES. THE AS SESSEE HAD CONTENDED AT THE TIME OF HEARING THAT THE REVENUE O UGHT TO ESTABLISH THAT THE PARTIES HAVE DULY ACKNOWLEDGED THEIR RIGHT S BEFORE SUBSTITUTING ANY PRICE FOR THE DECLARED PRICE. THIS PLEA IS WHOLLY I.T.A .NO.-4737/DEL/2017 86 | P A G E MISPLACED. ONCE THE AGREEMENT BETWEEN THE PARTIES SETS OUT THE TRANSFER PRICE, THE ONUS IS NOT ON THE REVENUE TO E STABLISH THE MODE AND THE MANNER IN WHICH THE OBLIGATIONS HAVE BEEN M UTUALLY DISCHARGED/ SETTLED PARTICULARLY IN CASES OF SUCH C LOSE ASSOCIATION. REVENUE HAS ONLY TO DEMONSTRATE THAT THE RIGHT TO R ECEIVE A CERTAIN CONSIDERATION ACCRUED TO THE APPELLANT.THE MANNER O F DISCHARGE OF THE RIGHT IS IN THE EXCLUSIVE KNOWLEDGE OF THE ASSESSEE . REVENUE HAS NO ONUS TO DEMONSTRATE BEYOND THE ACCRUAL OF THE RIGHT TO THE AMOUNT OF CONSIDERATION. THE ONUS WOULD BE ON THE ASSESSEE TO JUSTIFY THE TRANSFER PRICE WHICH IS IN DEPARTURE OF THE PRICE A CTUALLY AGREED FOR UNDER THE FRAMEWORK AGREEMENT. THE CASE OF CIT V BALBIR SINGH MAINI IN CA NO. 15619/2017 RELIED UPON BY THE APPELLANT, IN FACT, GOES TO SUPPORT THE CASE OF REVENUE BECAUSE IN THE PRESENT CASE THE CONSIDERATION FOR THE CALL/PUT OPTION WAS VERY WELL RECOGNIZED BY BOTH THE PARTIES AND WHAT WAS THE RIGHT OF ONE WAS THE O BLIGATION OF THE OTHER. THE AO DID NOT PROCEED ON ANY HYPOTHETICAL A SSUMPTIONS BUT HIS DETERMINATION OF THE FULL VALUE OF CONSIDERATIO N WAS BASED ON THE TERMS OF THE AGREEMENT. THE CONSIDERATION DID IN FA CT ACCRUE. THE BASIS OF THE TRANSFER PRICE UNDER THE SPA OF 2014 I S OBSCURE AND REMAINS UNSPECIFIED. THE APPELLANT HAS NOT BEEN ABL E TO EXPLAIN HOW THE PRICE OF RS. 300 CRORE FOR RIGHT ISSUE AND RS. 941 CRORE FOR ORIGINAL SHARES WAS DETERMINED WHEN HE HAD THE CLEAR MANDATE / RIGHT TO RECEIVE PROPORTIONATE MARKET VALUE OF HEL SHARES UN DER THE FRAMEWORK AGREEMENT. BESIDES, WHEN THE SHARES WERE SOLD IN 2009, THE APPELLANT RECEIVED THE PRICE AS PER THE FRAMEWO RK AGREEMENT ATLEAST TO THE EXTENT OF THE FIRST PART WHICH GOES ON THE PRESUMPTION THAT THE TOTAL VALUE OF HEL SHARES HAS NOT EXCEEDED USD 25 BILLION BUT THE AMOUNT OF CONSIDERATION INDICATED IN THE SPA IS A COMPLETE DEPARTURE AND IS WHOLLY ARBITRARY. IT IS AN ADMITTE D FACT THAT THERE IS NO WORKING FOR THE PRICE OF RS. 941 CRORES INDICATE D IN THE SPA. THE I.T.A .NO.-4737/DEL/2017 87 | P A G E ARGUMENT THAT A THIRD PARTY CANNOT DECIDE WHAT CONS IDERATION HAS ACCRUED BETWEEN THE PARTIES IS WHOLLY UNTENABLE IN THE FACTS OF THE PRESENT CASE FOR THE REASON THAT REVENUE IS NOT SEE KING TO DECIDE THE AMOUNT OF CONSIDERATION THAT HAS ACCRUED BETWEEN TH E PARTIES. REVENUE IS ONLY GOING BY THE AGREEMENT REACHED BETW EEN THE PARTIES WHICH DECIDE THAT THE FAIR MARKET VALUE OF HEL SHAR ES WOULD REPRESENT PROPORTIONATELY, THE VALUE OF SBP SHARES AS CLEARLY AGREED TO BETWEEN THE PARTIES. THE TRANSFER PRICE AGREED BETWEEN THE PARTIES IS A VESTED RIGHT OF THE APPELLANT AND CANNOT BE GIVEN A COMPLE TE GO BY ONLY ON THE BASIS OF SPA ENTERED INTO A FEW DAYS BEFORE THE TRANSFER PARTICULARLY WHEN THE APPELLANT HAS NO EXPLANATION WHATSOEVER FOR THE DEPARTURE FROM THE EXISTING AGREEMENT WHICH HAD ALR EADY CREATED SUCH RIGHTS IN HIS FAVOUR. 43. COMING TO THE ALTERNATE PLEA OF THE MR. AJAY VOHRA ON VALUATION OF SHARES THAT THE TRANSFER PRICE DECLARE D BY THE ASSESSEE IS MUCH ABOVE THE PRICE DETERMINED BY THE VALUER, MR. SRIVASTVA SUBMITTED THAT KOTAK MAHINDRA IS NOT AN INDEPENDENT VALUER. AS POINTED OUT EARLIER BY HIM WHILE NARRATING THE HIST ORICAL BACKGROUND, KOTAK MAHINDRA INVESTED IN THE SHARES OF THE INDIAN COMPANY, HEL AND WAS CLOSELY ASSOCIATED WITH THE GROUP. THE FRAM EWORK AGREEMENT OF 2006 AS ALSO OF 2007 CLEARLY STIPULATED THAT THE VALUATION OF SHARES WOULD BE DONE BY AGENCIES OF INTERNATIONAL REPUTE A ND THEIR NAMES WERE ALSO AGREED TO BETWEEN THE PARTIES. IT IS DIFF ICULT TO BELIEVE THAT SUCH AN EXERCISE WAS NOT DONE DESPITE A CLEAR STIPU LATION UNDER THE FRAMEWORK AGREEMENT. THIS IS NOT A NORMAL COURSE OF THINGS. EITHER THE VALUATION EXERCISE HAS BEEN DONE AS CONTEMPLATE D IN THE FRAMEWORK AGREEMENTS AND THE RESULTS OF SUCH VALUAT ION ARE NOT BEING MADE AVAILABLE TO THE REVENUE OR THE EXERCISE OF CARRYING OUT A VALUATION HAS BEEN LEFT TO A CLOSELY ASSOCIATED PAR TY LIKE KOTAK MAHINDRA IN COMPLETE VIOLATION OF THE TERMS OF THE FRAMEWORK I.T.A .NO.-4737/DEL/2017 88 | P A G E AGREEMENT OF 2006 AS ALSO OF 2007.THE AO HAS NOT DI SPUTED THE VALUATION OF SHARES OF HEL/VIL AS DONE BY KOTAK. HE HAS NOT GONE INTO THE QUESTION WHETHER THE ENTERPRISE VALUE OF H EL HAD EXCEEDED USD 25 BILLION. HE HAS ONLY ADOPTED THE VALUE OF HE L SHARES AS DETERMINED BY KOTAK AND HAS TAKEN THE SAME AS THE B ASIS FOR DETERMINING THE VALUE OF APPELLANTS INDIRECT HOLDI NG IN HEL. SINCE ASSESSING OFFICER HAS NOT QUESTIONED THE VALUATION OF HEL SHARES, THEREFORE, SAME IS NOT RAISED BY THE REVENUE UNDER THE GIVEN CIRCUMSTANCES. THUS, THERE IS NO DISPUTE AS REGARDS THE VALUE OF HEL SHARES IS CONCERNED. HOWEVER, THE SUBSEQUENT PROCES S OF DETERMINING THE VALUE OF SHARES OF SBPL WAS NOT THE ACT OF AN I NDEPENDENT VALUER. AN INDEPENDENT VALUER WOULD HAVE VALUED THE SHARES OF A HOLDING COMPANY DEPENDING UPON THE INTERNATIONALLY ACCEPTED RULES OF VALUATION. IT WOULD THEN NOT GO BY THE PARAMETERS S ET OUT IN ONE AGREEMENT OR THE OTHER. IT IS IN THIS CONTEXT THAT REVENUE IS SEEKING TO POINT OUT THAT THE VALUATION REPORT OF KOTAK AS REG ARDS THE VALUATION OF SBP SHARES IS NOT AN INDEPENDENT REPORT. IN THE FIR ST PLACE, THE FRAMEWORK AGREEMENT OF 2006 CLEARLY STIPULATES THAT THE LIABILITY OF INTERMEDIARY COMPANIES IS NOT TO BE TAKEN INTO ACCO UNT. SECONDLY, THESE ARE 100% SUBSIDIARIES OF THE APPELLANT. THE L IABILITY OF ONE COMPANY REPRESENTS THE ASSETS OF THE OTHER. THERE A RE NO THIRD PARTY LIABILITIES WHICH NEED TO BE ACCOUNTED FOR. EVEN GO ING BY THE CONTENTION OF THE APPELLANT, REVENUE HAS FILED A CH ART SHOWING THE ACTUAL LIABILITIES APPEARING IN THE ACCOUNTS OF THE SE INTERMEDIARY COMPANIES AND THIS TABLE SHOWS THAT THE VALUE OF CO NSIDERATION ADOPTED BY THE AO IS IN TUNE WITH THE VALUE AS MAY BE FINALLY DETERMINED AFTER ACCOUNTING FOR SUCH LIABILITIES. T HIS CONTENTION IS WITHOUT PREJUDICE TO THE PRIMARY CONTENTION THAT TH E LIABILITIES OF INTERMEDIARY COMPANIES HAVE NOT TO BE TAKEN INTO AC COUNT. MR. SRIVASTAVA HAS FILED SEPARATELY A CHART PROVIDING A WORKING OF THE I.T.A .NO.-4737/DEL/2017 89 | P A G E LIABILITIES OF THE INTERMEDIARY COMPANIES. AS REGAR DS THE SUBMISSION ON BEHALF OF THE ASSESSEE THAT DIFFERENCE ARISES PR IMARILY ON ACCOUNT OF THE AMOUNT SET APART FOR PAYMENT OF DIVIDENDS TO PR EFERENCE SHAREHOLDERS, HE SUBMITTED THAT SUCH A CLAIM IS CLE ARLY INADMISSIBLE IN VIEW OF SUB-RULE 2(II) OF RULE 11UA OF THE IT RU LES. EVEN OTHERWISE, SUCH LIABILITIES CANNOT BE TAKEN INTO ACCOUNT IN AR RIVING AT THE VALUE OF SHARES OF A COMPANY UNDER NAV METHOD. THE VALUATION DONE AS PER THE RULE WORKS OUT TO RS. 136 PER SHARE AND THE AO HAS TAKEN THE VALUE OF RS. 132 PER SHARE ONLY (INITIALLY IT WAS R S. 142.70, WHICH WAS ARRIVED AT AFTER TAKING THE APPELLANTS STAKE IN VI L AT 3.9% INSTEAD OF THE CORRECT STAKE AT 3.65%. THUS, THE VALUATION ADO PTED BY THE AO IS IN CONFORMITY WITH THE FRAMEWORK AGREEMENTS, VALUE OF HEL SHARES AS DETERMINED BY KOTAK AND RULES OF VALUATION PROVIDED FOR UNDER RULE 11UA. 44. LASTLY, ON THE ISSUE OF APPLICABILITY OF SE CTION 50D, HE SUBMITTED THAT THE SAID SECTION PROVIDED THAT FAIR MARKET VALUE OF THE ASSET MAY BE TAKEN AS THE FULL VALUE OF CONSIDERATI ON IF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER IS NOT ASCERTAINABLE OR CANNOT BE DETERMINED. IN THE FACTS OF THE PRESENT CASE, THE CONSIDERATION ACCRUING AS A RESULT OF TRA NSFER OF RIGHT SHARES CANNOT BE DETERMINED INDEPENDENT OF THE ORIGINAL SH ARES AND TO THAT EXTENT THE PROVISIONS OF SECTION 50D WOULD ALSO GET ATTRACTED. THE CONTENTION OF THE ASSESSEE THAT UNDER THE PRESENT R EGIME OF TAXATION, THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE OF THE ASSET AND THE CONSIDERATION RECEIVED IS SUBJECT TO TAX IN THE HAN DS OF THE PURCHASER OF THE ASSET UNDER SECTION 56(2)(X) OR (VIIA) IS MI SPLACED. THESE ARE NOT ALTERNATE BASIS OF TAXATION. FOR THE DIFFERENCE BET WEEN THE ARMS LENGTH VALUE OF CONSIDERATION AND THE ACTUAL CONSIDERATION , THE BUYER IS CHARGED TO TAX UNDER SECTION 56 IRRESPECTIVE OF THE CONSEQUENCES THAT MAY FLOW IN THE HANDS OF THE SELLER. IN VIEW OF THE ABOVE, THE ACTION OF I.T.A .NO.-4737/DEL/2017 90 | P A G E THE AO IN ADOPTING THE PROPORTIONATE MARKET VALUE O F HEL SHARES AS THE FULL VALUE OF CONSIDERATION IN TERMS OF SECTION 48 IS FULLY JUSTIFIED AS THE SAID CONSIDERATION EMANATES FROM THE RIGHTS OF THE PARTIES WHICH GOT DETERMINED AT THE TIME OF GRANT OF THE CA LL/PUT OPTIONS AND HAD A RATIONAL BASIS. THE RELIANCE ON SPA WHICH WAS ENTERED INTO A FEW DAYS BEFORE THE TRANSACTION IN DISREGARD OF THE RIG HTS OF THE PARTIES ALREADY DETERMINED UNDER EARLIER AGREEMENTS AND WIT HOUT HAVING ANY BASIS WHATSOEVER FOR A SIGNIFICANT DEPARTURE THERE FROM IS COMPLETELY MISPLACED, PARTICULARLY IN VIEW OF THE FACT OF THER E BEING A CLOSE RELATIONSHIP BETWEEN THE PARTIES TO THE TRANSACTION . DECISION 45. FROM THE FACTS AND SUBMISSIONS OF THE PARTIE S QUA GROUND NO.2, FOLLOWING ISSUES CAN BE CULLED OUT WHICH REQU IRES OUR ADJUDICATION: FIRSTLY, WHETHER THE ASSESSING OFFICER OR THE LD. CIT(APPEAL S) WERE JUSTIFIED IN ENHANCING THE SALE CONSIDERATION OF SBPL SHARES FROM RS.1241.32 CRORES (ASSESSEES PART OF S ALE CONSIDERATION IS RS.997,92,44,200) TO RS.22,33,42,8 5,070/- AND CONSEQUENTLY, ENHANCING THE AMOUNT OF CAPITAL GAINS DECLARED BY THE ASSESSEE; SECONDLY , FLOWING FROM THE ABOVE ISSUE, WHETHER ON THE FACT S AND CIRCUMSTANCES OF THE CASE ENHANCEMENT OF SUCH SALE CONSIDERATION CAN BE SAID TO HAVE BEEN ACCRUED TO THE ASSESSEE IN TERMS OF SECTION 48 OF THE ACT OR NOT; THIRDLY , WHETHER THE VALUATION OF THE SHARES OF SBPL BY T AKING THE FAIR MARKET VALUE OF VIL SHARES AS ADOPTED BY T HE AO AND BY THE LD.CIT(A) AT RS.142.70 PER SHARE IS JUSTIFIED; I.T.A .NO.-4737/DEL/2017 91 | P A G E FOURTHLY , WHETHER THE PROVISIONS OF SECTION 50D CAN BE INVO KED ON THE FACTS OF THE PRESENT CASE TO JUSTIFY THE ADO PTION OF FAIR MARKET VALUE OF UNQUOTED/UNLISTED SHARES OF SBPL; A ND LASTLY, WHAT SHOULD BE THE VALUE OF SALE CONSIDERATION OF SBPL ON THE FACTS AND CIRCUMSTANCES OF THE CASE? 46. WE HAVE DISCUSSED AT LENGTH, THE FACTS AND BACKGROUND OF THE CASE AS SUBMITTED BY THE PARTIES BEFORE US, HOWEVER FOR THE PURPOSE OF OUR ADJUDICATION; IT WOULD BE PERTINENT TO REITERAT E THE FACTS AND THE BACKGROUND IN A SUCCINCT MANNER. AS A PRELUDE TO TH E EVENTS LEADING TO TRANSACTION OF SHARES, WE FIND IT QUITE RELEVANT TO REFER TO THE HISTORICAL PROSPECTIVE WHICH NEEDS TO BE BRIEFLY IL LUSTRATED. IN THE YEAR 1992, THE HUTCHISON GROUP BASED IN HONG KONG ACQUIR ED INTERESTS IN THE MOBILE TELECOMMUNICATION IN INDIA THROUGH JOINT VENTURE VEHICLE, NAMED AS HUTCHISON MAX TELECOM LTD (IN SHORT HMT L). MAX GROUP VIRTUALLY BELONGED TO THE ASSESSEE. IT WAS A JOINT VENTURE BETWEEN THE HUTCHISON GROUP AND MAX GROUP. 50% OF THE SHARES IN HMTL WERE HELD BY MAX TELECOM VENTURE AND 49% BY HUTCHISON TE LECOM (INDIA) LTD., A MAURITIUS BASED COMPANY. BETWEEN THE YEARS 1994 TO 2004, SEVERAL ACQUISITION AND EXPANSIONS TOOK PLACE, WHER EBY VARIOUS GROUPS LIKE ESSAR, HINDUJA AND KOTAK GROUP THROUGH VARIOUS COMPANIES HELD SUBSTANTIAL STAKE AT DIFFERENT POINTS OF TIME. UNDE R THE REGULATION OF GOVERNMENT OF INDIA AS IT THEN STOOD, THE FOREIGN E QUITY PARTICIPATION IN THE TELECOMMUNICATION INDUSTRY COULD NOT EXCEED 49% OF THE TOTAL CAPITAL. THE HUTCHISON GROUP HELD DIRECT INTEREST I N THE INDIAN COMPANY CALLED AS HUTCHISON ESSAR LTD. (IN SHORT H EL) TO THE EXTENT OF NEARLY 42%; AND 10% OF THE INTERESTS WERE HELD T HROUGH INDIRECT HOLDINGS. THE BALANCE OUT OF THE TOTAL STAKE OF 67% WAS HELD THROUGH THE COMPANIES OWNED AND CONTROLLED BY THE AS AND OT HER ENTITIES. MAJOR SHARE OF HEL WAS HELD BY TELECOM INVESTMENT I NDIA PVT. LTD. THROUGH VARIOUS SUBSIDIARIES AND TIL IN TURN WAS MA JORLY HELD BY CGP I.T.A .NO.-4737/DEL/2017 92 | P A G E INDIA INVESTMENT LTD. WHICH WAS SUBSIDIARY OF HUTCH ISON GROUP. WITH VIEW TO BEAT THE EQUITY CAP OF 49%, AN ARRANGEMENT WAS ENTERED BETWEEN THE AS AND THE HUTCH GROUP IN WHICH IT WAS AGREED AMONGST THE PARTIES THAT THE ASSESSEE WOULD BE PROVIDED NEC ESSARY FINANCES UNDER THE GUARANTEE OF THE HUTCH GROUP AND THE MONE Y WOULD BE INVESTED IN THE EQUITY OF INDIAN COMPANY HEL. WIT H A FURTHER STIPULATION THAT SHARES SO OWNED BY THE AS WOULD BE SUBJECT TO CALL/PUT OPTION. IT WAS CLEARLY CONTEMPLATED THAT, AS AND WHEN FOREIGN EQUITY CAP WOULD BE RELAXED; HUTCH GROUP THROUGH IT S OWN SUBSIDIARIES WOULD ACQUIRE THE SHARES FROM THE ASSE SSEE AT A PRE- DETERMINED PRICE. ON 02.02.2006, SBPL WAS INCORPORA TED WITH THE SHARE CAPITAL DIVIDED INTO 10,000 EQUITY SHARES OF RS.10/-EACH, BEING JOINTLY HELD BY SHRI ANALJIT SINGH & MS. NEELU ANAL JIT SINGH. IN PURSUANCE OF INTENTION OF THE PARTIES, A FRAMEWORK AGREEMENT WAS ENTERED ON 01.03.2006 WHICH HAS BEEN PLACED BEFORE US BY THE REVENUE AT THE TIME OF HEARING. THIS FRAMEWORK AGR EEMENT OF 2006 WAS ENTERED INTO AMONGST THE; I) AS; II) SBPL (A CO MPANY OWNED BY AS; III) MVH (100% SUBSIDIARY OF SBPL); IV) NDS (A 100% SUBSIDIARY OF MVH); V) 3 GLOBAL SERVICES PVT. LTD (A MAURITIUS BA SED COMPANY HELD BY HUTCHISON GROUP). THIS WAS PRECURSOR TO ALL THE AGREEMENTS AND FIRST OF SUCH AGREEMENT WHEREBY THE PARTIES HAVE MU TUALLY ENTERED INTO CONTRACTUAL OBLIGATION FOR CALL OPTION AND PUT OPTION TO BE EXERCISED ON SBPL SHARES ON CERTAIN EVENTS AND ALSO DECIDED THE TRANSFER PRICE OF SUCH SHARES. THE TRANSFER PRICE WAS LINKED TO THE FAIR MARKET VALUE OF HEL SHARES, THAT IS, EQUITY CAPITAL VALUE OF HEL AND IT WAS ALSO DECIDED THAT NO LIABILITIES OF INTERMEDIAR Y COMPANIES WOULD BE REDUCED FROM SUCH VALUATION. AT THIS STAGE OF EN TERING INTO THE AGREEMENT IT WOULD BE RELEVANT TO SEE THE SHAREHOLD ING STRUCTURE/ PATTERN OF THE VARIOUS INTER MEDIARY COMPANIES OF THE AS, CGP, 3 GSPL AND TIL HOLDING DIRECT AND INDIRECT INTEREST IN HEL . I.T.A .NO.-4737/DEL/2017 93 | P A G E ANALJITSINGH & WIFE (AS) SCORPIO BEVERAGES P LTD ( SBP ) MV HEALTHCARE SERVICES P LTD ( MVH ) ND CALLUS INFOSERVICES P LTD ( NDC ) 100% 100% 100% (3%) TELECOM INVESTMENT INDIA P LTD (TII) 38.78% 6.0672% HUTCHISON ESSARLIMITED (HEL) USHAMARTIN TELEMATICS LTD ( UMT ) UMT INVESTMENTS LTD( UMTI ) JAYKAY FINHOLDING INDIA P LTD ( JKF ) 100% 100% 100% 0.5126% 12.9583% 3 GLOBAL SERVICES PVT LTD (GSPL) FINANCED NDC TO ACQUIRE 38.78% STAKE IN TII WITH A RIGHT TO SUBSCRIBE 97% SHARES OF NDC AS PER FRAMEWORK AGREEMENT 2006 (FA 2006), GSPL HAS CALL OPTION TO PURCHASE MVH SHARES AT A TRANSFER PRICE DETERMINED AT FAIR MARKET VALUE GIVEN IN SCHEDULE 2. THE TRANSFER PRICE IS 0.23% OF FAIR MARKETVALUE OFVIL(EARLIER HEL). AFTER GSPL SUBSCRIBES TO NDC SHARES, MVHHAS ONLY3% STAKE IN NDC WHICH IN TURN HAS 38.78% STAKE IN TII. FURTHER, TII HAS 19.54% STAKE IN VIL. THEREFORE, TRANSFER PRICE IS 3% X 38.78% X 19.54%=0.23%OFVIL FINANCE 97% CGP INDIA INVESTMENT LTD (CGP) ASIMGHOSH& SUBSIDIARIES 23.97% 37.25% 01-03-2006 (SBP IN VIL = 3% X 38.78% X 19.54% = 0.23%) 47. UNDER THE FRAMEWORK AGREEMENT OF 01.03.200 6, IT WAS AGREED THAT IN CONSIDERATION OF 3 GSPL PROVIDING FINANCIAL ASSISTANCE FOR NDC TO SUBSCRIBE TO 38.78% OF SHARES IN TIL (WHICH HOLD S DIRECTLY AND INDIRECTLY 19.54% SHARES IN HEL), SBPL GRANTED 3 GS PL, RIGHT TO SUBSCRIBE EQUITY IN NDS AND OR PURCHASE EQUITY IN M VH. A CALL/PUT OPTION WAS GRANTED TO THE PARTIES, WHEREBY 3 GSPL O R ITS NOMINEE GOT THE RIGHT TO EXERCISE OPTION OF ACQUIRING THE SHARE S HELD BY THE AS IN HEL THROUGH CHAIN OF SUBSIDIARY FOR A TRANSFER PRIC E SET OUT THEREIN. CLAUSE 4.6 OF THE SAID AGREEMENT, GAVE THE STIPULAT ION OF TRANSFER PRICE WHICH WAS PAYABLE IN PURSUANCE TO PUT/CALL O PTION WHICH WAS TO BE DETERMINED IN THE FOLLOWING MANNER:- (A) SUCH FAIR MARKET VALUE AS MAY BE AGREED BETWEEN THE PARTIES; AND IF THE PARTIES FAIL TO REACH AGREEMENT WITHIN 3 0 DAYS OF THE DATE OF THE TRANSFER NOTICE, THEN; I.T.A .NO.-4737/DEL/2017 94 | P A G E (B) SUCH FAIR MARKET VALUE AS MAY BE DETERMINED IN ACCORDANCE WITH THE FORMULA SET OUT IN SCHEDULE 2. SCHEDULE 2 OF THE SAID AGREEMENT DEFINED THE TRANSF ER PRICE IN THE FOLLOWING MANNER:- (A) THE TRANSFER PRICE SHALL BE EQUAL TO THE FAIR MARKET VALUE OF 0.23% OF THE ISSUED SHARE CAPITAL OF HEL. (B) THE SCHEDULE ALSO PROVIDED IN VERY CL EAR TERMS AS UNDER: FOR THE AVOIDANCE OF DOUBT, THE ABOVE FORMULA WILL APPLY TO THE TRANSFER PRICE REGARDLESS OF THE AMOUNT OF THIRD PA RTY DEBT OR OTHER LIABILITIES IN MVH OR ANY OTHER COMPANY IN WHICH MV H HAS AN INTEREST AND IRRESPECTIVE OF THE FACT THAT SBP IS N OT A DIRECT SHAREHOLDER IN HEL. THUS, UNDER THE FRAMEWORK AGREEMENT OF 2006, THE V ALUE OF THE SHARE CAPITAL OF SBPL (I.E., TRANSFER PRICE OF SBPL ) WAS AGREED TO 0.23% OF VALUE OF SHARES OF HEL AND THE LIABILITY OF THE INTERMEDIARY COMPANIES WAS NOT TO BE RECOGNIZED FOR THE WORKING OUT OF THE TRANSFER PRICE. 48. LATER ON WHEN HUTCHISON GROUP SOLD ITS EN TIRE STAKE TO VODAFONE INTERNATIONAL, ANOTHER FRAMEWORK AGREEMEN T WAS ENTERED INTO ON 05.07.2007 BETWEEN FOLLOWING PARTIES:- I. MR ANALJIT SINGH AND MRS NEELU ANALJIT SINGH AND II. SCORPIOS BEVERAGES PRIVATE LIMITED AND III. MV HEALTHCARE SERVICES PRIVATE LIMITED AND IV. 3 GLOBAL SERVICES PRIVATE LIMITED AND V. ND CALLUS INFO SERVICES PRIVATE LIMITED AND VI. VODAFONE INTERNATIONAL HOLDINGS B.V. I.T.A .NO.-4737/DEL/2017 95 | P A G E UNDER THIS AGREEMENT ALSO, THE AS WAS GIVEN AN OPTI ON TO SELL THE SHARES OF SBPL IN ANY PART THEREOF (PUT OPTION); OR THE OPTION TO GSPL EITHER DIRECTLY OR THROUGH ANY PERSON NOMINATED BY GSPL TO BUY THE SHARES OF SBPL (CALL OPTION), AS PER AGREED FORMULA AS AND WHEN THE FDI REGULATION PERMITTED IN REGARDS ANY FOREIGN INV ESTMENT IN TELE- COMMUNICATION COMPANY IN INDIA. UNDER THIS AGREEMEN T OF 2007, ONE OF THE CIRCUMSTANCES FOR THE GRANT OF CALL OPTION B Y THE ASSESSEE TO GSPL OR ITS AFFILIATE WAS THAT, THEY WILL PAY THE A S AN AMOUNT AGGREGATING TO US $ 10.2 MILLION PER ANNUM ACCRUING ON DAILY BASIS. CLAUSE 4.6 STIPULATED FOR THE TRANSFER PRICE PURSUA NT TO THE PUT/CALL OPTION AS PER THE FORMULA SET OUT IN SCHEDULE-1 (THE RELEVANT PORTION OF WHICH HAS BEEN REPRODUCED ABOVE). UNDER THE SAID SC HEDULE, THE TRANSFER PRICE WAS DETERMINED, FIRSTLY, AT US $ 26,62,50,000 CONVERTED INTO INR AT THE PREVAILING EXCHANGE RATE AT THE COM PLETION DATE ON 08.05.2007; AND SECONDLY , IT WAS PROVIDED THAT IF THE FAIR MARKET VALUE OF THE ENTIRE ISSUED SHARE CAPITAL OF HEL EXCEEDS U S $ 25 BILLION, THEN PROPORTIONATE SHARES HELD BY SBPL IN HEL WOULD BE D ETERMINED BY THE MANNER PROVIDED IN SCHEDULE-2 . THUS, THE WORKING OF TRANSFER PRICE GIVEN IN SCHEDULE-2 WAS TO COME INTO PLAY WHEN THE FAIR MARKET VALUE OF THE ENTIRE ISSUED SHARE CAPITAL OF HEL EXCEEDS U S $ 25 BILLION, BUT BEFORE THAT, I.E., IF IT DOES NOT EXCEED US $ 25 BI LLION, THEN THE TRANSFER PRICE WAS STIPULATED/DETERMINED AT RS.26,62,50,000/ -. 49. ONE VERY IMPORTANT FACT TO BE SEEN IS TH AT, NOWHERE IN THE SAID SCHEDULE -1 , IT HAS BEEN MENTIONED AS TO HOW THE SUM OF US $ 266.25 MILLION HAS BEEN ARRIVED AT TO DETERMINE THE TRANSFER PRICE OF SBPL SHARES. ANOTHER FACT WHICH IS BORNE OUT FROM T HE SAID SCHEDULE IS THAT, FAIR MARKET VALUE OF THE ENTIRE SHARE CAPI TAL ISSUE OF HEL WAS TAKEN AT US $ 25 BILLION, WHICH IF CONVERTED INTO I NR WITH THE THEN PREVAILING EXCHANGE RATE, IT WOULD HAVE EXCEEDED RS .1 LAKH CRORES. SINCE, THE SECOND STIPULATION NEVER CAME INTO PICTU RE OR PARTIES HAVE I.T.A .NO.-4737/DEL/2017 96 | P A G E NOT REVISITED THIS CLAUSE, THEN IN THAT CASE, US $ 266.25 MILLION WAS RECOGNIZED AS THE TRANSFER PRICE OF ENTIRE SBPL SHA RES. HOWEVER, ON A HIND SIGHT PERUSAL OF THE FAIR MARKET VALUE CALCULA TION AS GIVEN IN SCHEDULE-2, IT IS SEEN THAT AN ILLUSTRATIVE WORKING HAS BEEN G IVEN TO CALCULATE THE EQUITY FAIR MARKET VALUE OF SBPL/NDC/ MVH. THE SAID ILLUSTRATION FOR THE SAKE OF READY-REFERENCE IS REP RODUCED HEREUNDER:- (IN US $ MILLIONS) ITEM AS PER ILLUSTRATIVE EXAMPLE IN SCHEDULE 2 MARKET ENTERPRISE VALUE OF HEL 26,327 LESS: NET DEBT OF HEL (1,327) EQUITY VALUE OF HEL 25,000 LESS: HOLDING COMPANY DISCOUNT 40% (10,000) IMPLIED 100% EQUITY VALUE OF HEL AT TI L LEVEL 15,000 ENTERPRISE VALUE OF TIL (19.54%) 2,931 LESS: INVESTMENT COST OF TIL (419.75) PROFIT ON DISPOSAL 2,511.25 LESS: LONG TERM CAPITAL GAINS TAX ON PROFIT (22.7%) (569.05) POST TAX ENTERPRISE VALUE OF TIL 2,361.95 LESS: NET DEBT OF TIL (160.45) LESS: BOOK VALUE OF PREFERENCE SHARES (570.29) INDICATIVE EQUITY FAIR MARKET VALUE OF TIL 1,631.21 NDC ENTERPRISE VALUE 38.78% 632.58 LESS: LIQUIDITY DISCOUNT ON LOCAL SHARES (27%) (170.51) ENTERPRISE VALUE POST LIQUIDITY DISCOUNT 462.07 LESS: NET DEBT (178.07) LESS: PREFERENCE SHARES (17.75) INDICATIVE NDC EQUITY FAIR MARKET VALUE 266.25 FROM THE AFORESAID ILLUSTRATIVE CALCULATION, IT CAN BE CULLED OUT THAT, THE FAIR MARKET VALUE OF HEL HAS BEEN FIRST A RRIVED AT US $ 26,327 BILLION AND AFTER REDUCING NET DEBT, EQUITY VALUE OF HEL HAS BEEN GIVEN AT US $ 25 BILLION. FROM THIS WORKING ON E THING IS I.T.A .NO.-4737/DEL/2017 97 | P A G E OSTENSIBLY CLEAR THAT THE MARKET VALUE OF HEL HAS B EEN TAKEN FOR THE PURPOSE OF CALCULATION. ANOTHER STRANGE FEATURE WHI CH IS SEEN THAT, SUDDENLY IN THE WORKING, THERE ARE ADHOC DISCOUNTS, LIKE 40% DISCOUNT ON ACCOUNT OF HOLDING COMPANIES FOR WHICH AGAIN NO BASIS HAS BEEN PROVIDED. AT THE END, SOMEHOW THE FAIR MARKET VALUE OF SBPL/NDC/MVH SHARES HAS BEEN WORKED OUT AT US $ 266 .25 MILLION, WHICH INCIDENTALLY HAPPENS TO BE THE SAME FIGURE WH ICH HAS BEEN ADOPTED AS A TRANSFER PRICE OF THE SBPL SHARES IN SCHEDULE-1 AS DISCUSSED ABOVE. IF THE WORKING OF US $ 266.25 MILL ION AS GIVEN IN SCHEDULE-1 IS TO BE RECKONED FROM THE AFORESAID ILLUSTRATIVE WORKING, THEN OSTENSIBLY THE FAIR MARKET VALUE OF EQUITY OF HEL ARE THE FOUNDATION AND THE CRITERIA FOR WORKING/ DETERMININ G THE TRANSFER PRICE WHICH HAS BEEN AGREED BY THE PARTIES TO THE AGREEME NT. ANOTHER IMPORTANT FACT PERMEATING ALL THROUGH THE SUBSEQUEN T AGREEMENTS IS THAT, THIS AMOUNT OF US $ 266.25 MILLION AS TAKEN I N AGREEMENT OF 2007 HAS BEEN ADOPTED AS THE TRANSFER PRICE BY THE PARTIES AND THE ENTIRE CASE OF THE ASSESSEE BEFORE US IS THAT, THIS TRANSFER PRICE IS THE VALUE OF SBPL WHICH IS TO BE ADOPTED AS A TRUE VALU E. WE ARE FINDING IT BIT DIFFICULT TO FATHOM THIS PROPOSITION, FIRSTLY , HOW THIS US $ 266.25 MILLION HAS BEEN ARRIVED AS TRANSFER PRICE IN SCHED ULE-1; AND SECONDLY , IF THIS IS THE TRANSFER PRICE, THEN IT IS SEEN THAT IT HAS BEEN ARRIVED AT BY TAKING THE FAIR MARKET VALUE OF HEL SHARES AS ON MAY 2007 WHICH HAS BEEN TAKEN AT US $ 25 BILLION AFTER REDUCING TH E NET DEBT. NOW, WHETHER THIS PRICE OF US $ 266.25 MILLION IS TO BE RECKONED AS THE FINAL PRICE FOR VALUE OF SBPL SHARES, FOR ALL THE FUTURE CALL/PUT OPTION WHEN EXERCISED? ANSWER IS BIT ELUSIVE AS HOW THE TRANSFE R PRICE OF US $ 266.25 MILLION WHICH IS BASED ON FMV OF HEL SHARES IN 2007 AND TOO WAS ON THE EQUITY CAPITAL VALUATION AT US$ 25 BILLI ON CAN BE THE PRICE FOR ALL FUTURE REFERENCE. BE IT THAT AS MAY BE, ONE THING IS FAIRLY EVIDENT THAT THE TRANSFER PRICE AS PER THIS AGREEMENT ALSO IS BASED ON FMV OF I.T.A .NO.-4737/DEL/2017 98 | P A G E HEL. THIS IS SUBSTRATUM OF THE MATTER THAT THE FMV OF HEL AND LATER ON VIL HAS TO BE RECKONED AS TRANSFER PRICE. 50. IN VIEW OF THE FACTS AS NARRATED ABOVE, F OLLOWING POINTS CAN BE DEDUCED:- THE FRAMEWORK AGREEMENT DATED 01.03.2006 ENVISAGE D FAIR MARKET VALUE OF ISSUED SHARE CAPITAL OF HEL FOR DET ERMINING THE VALUE OF SBPL SHARES. EVEN IF WE AGREE WITH THE CONTENTION OF THE LD. SR. COUNSEL, MR. AJAY VOHRA THAT THE AGREEMENT OF 05.07.2007 ALONE I S TO BE RECKONED, THEN WE FIND THAT IN FRAMEWORK AGREEMENT OF 2007 ALSO, NOT ONLY THE SIMILAR CLAUSE OF CALL/PUT OPTIO N HAS BEEN ENSHRINED BUT ALSO THE DETERMINATION OF TRANSFER PR ICE IS BY AND LARGE BASED ON FAIR MARKET VALUE OF EQUITY SHARE OF HEL. IN THE AGREEMENT OF 2007, THE SBPL VALUE OF US $ 26 6.25 MILLION WAS BASED ON FAIR MARKET VALUE OF HEL. IN TERMS OF INR, THE VALUE OF SBPL SHARES IN THE YEAR 2007 AGGREGATED TO RS.1088 CRORES. SO FAR AS THE OPTION FEE IS CONCERNED, THERE IS NO DISPUTE AND THE ASSESSEE HAS BEEN OFFERING THE SAME AS RETURN OF IN COME AND SAME HAS BEEN TAXED AS REVENUE RECEIPT YEAR AFTER Y EAR. 51. IN THE F.Y. 2009-10, THERE WAS A CHANGE IN FDI REGULATION RELATING TO SECTORAL CAP WHICH ENABLED THE GSPL ACQ UIRE SOME SHARES IN SBPL AND THEREBY INCREASE ITS INDIRECT SHARE HOL DING IN VIL AND ACCORDINGLY, ON 07.04.2009, CGP AND PERSON NOMINATE D BY GSPL ENTERED INTO AN AGREEMENT RELATING TO TRANSFER OF S HARES OF 4900 OF SBPL WHICH CONSTITUTE 49% STAKE BY THE AS TO CGP. T HE VALUE OF 49% SHARES OF SBPL WAS WORKED OUT AT RS.533 CRORES, I.E ., 49% OF RS.1088 CRORES FOR WHICH NECESSARY APPROVAL FROM FIPB WAS S OUGHT AND WAS I.T.A .NO.-4737/DEL/2017 99 | P A G E ALSO GRANTED. POST THIS EVENT, THE SHARE HOLDING ST RUCTURE WAS CHANGED IN THE FOLLOWING MANNER:- ANALJIT SINGH & WIFE (AS) SCORPIO BEVERAGES P LTD ( SBP ) MV HEALTHCARE SERVICES P LTD ( MVH ) ND CALLUS INFOSERVICES P LTD ( NDC ) 51% (41% WITH AS + 10% WITH NAS 100% 100% TELECOM INVESTMENT INDIA P LTD (TII) 38.78% 6.0672% VODAFONE INDIA LIMITED (VIL) USHA MARTIN TELEMATICS LTD ( UMT ) UMT INVESTMENTS LTD( UMTI ) JAYKAYFINHOLDING INDIA P LTD ( JKF ) 100% 100% 100% 0.5126% 12.9583% CGP INDIA INVESTMENT LTD (CGP) ASIMGHOSH 23.97% 37.25% 07-04-2009 AG MERCANTILE CO P LTD (AGM) (EARLIER GOLDSPOT MERCANTILE) PLUSTECHMERCANTILE CO P LTD NADALTRADING CO P LTD (EARLIER CENTRINO TRADING) 100% 51% 100% 49% 49% CGP ACQUIRED 49% EACH IN SBP AND AGM IN NOV 2009 FROM AS AND AG OR 533 CR AND329 CR RESPECTIVELY FA 05-07-2007 PROVIDES VALUE OF SBP AND AGM AT $266.25M AND $164.51M TILL FMV OF VEL IS $ 25 BILLION. EXCHANGE RATE TO BE TAKEN ON 07-05- 2007I.E., RS.40.88PER 1US $ OMEGA TELECOM HOLDINGS P LTD SMMS INVESTMENTS P LTD IDFC HTIL 5.1108% 54.21% 45.79% 100% (SBP IN VIL = 38.78% X 19.54% = 7.58%) AS + NAS = 3.87% AS = 3.11% 52. THE LONG TERM CAPITAL GAIN ON TRANSFER O F SAID SHARES WAS OFFERED FOR TAX IN THE F.Y. 2010-11 BY THE ASSESSEE . IN THE F.Y. 2012- 13, RIGHTS ISSUE OF 28,23,52,900 EQUITY SHARES OF RS.10 EACH AT PAR WAS ISSUED BY SBPL WHICH WAS SUBSCRIBED BY THE EXIS TING SHAREHOLDERS, I.E. AS AND CGP IN FULL. ACCORDINGLY, THE ASSESSEE SUBSCRIBED 19,49,99,979 SHARES AND CGP SUBSCRIBED T O 18,73,52,921 IN THE EXISTING RATIO OF 51:49. IN PURSUANCE OF SUC H ACQUISITION, 4 TH I.T.A .NO.-4737/DEL/2017 100 | P A G E SUPPLEMENT TO THE FRAMEWORK AGREEMENT WAS ENTERED BETWEEN THE AS, SBPL, GSPL AND VARIOUS OTHER COMPANIES TO PROVI DE SIMILAR CALL/PUT OPTION FOR THE SALE OF NEWLY ISSUED RIGHT SHARES BY THE AS TO GSPL AT PRE-AGREED LUMP SUM CONSIDERATION OF RS.300 CRORES. 53. NOW HERE AGAIN, IT IS QUITE PERPLEXING TO N OTE THAT A COMPANY HAVING 10,000 EQUITY SHARES HAD ISSUED RIGHT SHARE S OF APPROXIMATELY 38.24 CRORES AND THE ASSESSEES SUBSCRIPTION OF SUC H SHARES WAS APPROXIMATELY 19.50 CRORES. COUPLED WITH THIS ODDIT Y, THE ENTIRE RIGHT ISSUE SHARES OF 19.50 CRORES HAVE BEEN FIXED AT A P RICE OF RS. 300 CRORES. THIS AGAIN IS WITHOUT ANY WORKING OR BASIS. HOW A COMPANY WITH 10,000 EQUITY SHARES CAN ISSUE A RIGHTS SHARE OF 38.5 CRORES OF SHARES AS THERE HAS TO BE SOME PROPORTION AND VALUE WHICH HAS TO BE DERIVED FROM THE EXISTING EQUITY SHARES. HOWEVER AO HAS NOT RAKED UP THIS ASPECT AND SINCE, THIS IS NOT THE SUBJECT MATT ER OF THE ISSUE OR DISPUTE BEFORE US, I.E., HOW THE RIGHT SHARE HAS BE EN SUBSCRIBED IN SUCH A DISPROPORTIONATE RATIO AND HOW THE VALUE HAS BEEN PEGGED AT RS.300 CRORES, WE ARE NOT ENTERING INTO THE SEMANTI CS OF DECIDING THE SAME, WHICH THOUGH HAS VEHEMENTLY ARGUED BY THE LD. SPL. COUNSEL FOR THE REVENUE BEFORE US. 54. IN THE YEAR 2013, THERE WAS A CHANGE IN FD I REGULATION, WHEREBY 100% FDI WAS ALLOWED IN TELECOM SECTOR AND ACCORDINGLY, APPLICATION DATED 24.10.2013 & 19.11.2013 WERE FILE D BY THE CGP BEFORE FIPB SEEKING APPROVAL FOR THE ACQUISITION OF REMAINING 51% STAKE IN SBPL FOR AN AGREED CONSIDERATION OF RS.124 1 CRORES. ON 20.02.2014, FIPB ACCORDED APPROVAL FOR PURCHASE OF 51% STAKE IN SBPL BY CGP. IN PURSUANCE THEREOF A SHARE PURCHASE AGREEMENT WAS ENTERED BETWEEN THE AS AND CGP ON 12.03.2014, WHERE BY CGP PURCHASED THE ENTIRE 51% STAKE OF THE AS IN SBPL FO R AN AGGREGATE I.T.A .NO.-4737/DEL/2017 101 | P A G E CONSIDERATION OF RS.1241.32 CRORES. THE RELEVANT RE CITALS AS GIVEN IN THE SALE PURCHASE AGREEMENT ARE AS UNDER:- (A) THE COMPANY IS ENGAGED IN THE BUSINESS OF INVESTIN G (BUT NOT TRADING) IN SECURITIES OF TELECOMMUNICATIONS COMPAN IES IN INDIA. (B) PRESENTLY, AS HOLDS 51% OF THE ISSUED EQUITY SHARE CAPITAL OF THE COMPANY AND CGP HOLDS 49% OF THE ISSUED EQUITY SHARE CAPITAL OF THE COMPANY. (C) PURSUANT TO THE FRAMEWORK AGREEMENT (AS DEFINED BEL OW). AS IS ENTITLED TO EXERCISE OPTIONS, SUBJECT TO CERTAIN TERMS AND CONDITIONS SET CUT IN THE FRAMEWORK AGREEMENT TO PU T ANY OR ALL THE SHARES (AS DEFINED BELOW) HELD BY AS AT ANY TIM E TO GSPL (AS DEFINED BELOW) OR ANY PERSON NOMINATED BY GSPL TO THE EXTENT. GSPL OR ANY OF ITS AFFILIATES (AS DEFINED IN THE FRAMEWORK AGREEMENT) BECOMES ELIGIBLE UNDER APPLICA TION INDIAN LAWS TO HOLD SUCH SHARES. (D) PURSUANT TO THE EXERCISE BY AS OF THE PUT OPTIONS D ESCRIBED IN RECITAL (C) ABOVE, AS PROPOSES TO SELL TO CGP, WHIC H HAS BEEN NOMINATED BY GSPL, AND CGP PROPOSES TO PURCHASE FRO M AS< THE SALE SHARES (AS DEFINED BELOW), CONSTITUTING 51 % OF THE TOTAL ISSUED AND PAID UP EQUITY SHARE CAPITAL OF THE COMP ANY ON THE TERMS AND CONDITIONS CONTAINED HEREIN. BY WAY OF A LETTER DATED 20 FEBRUARY 2014, THE FOREIGN INVESTMENT PROM OTION BOARD HAS ISSUED A LETTER, INTER ALIA, GRANTING APP ROVAL TO THE TRANSACTIONS CONTEMPLATED UNDER THIS AGREEMENT. (E) THIS AGREEMENT SETS OUT THE TERMS AND CONDITIONS ON WHICH THE SALE SHARES WILL BEEN PURCHASED BY CGP FROM AS. THE RELEVANT CLAUSE FOR SALE AND PURCHASE ARE AS UN DER:- . 2.1. SUBJECT TO THE TERMS AND CONDITIONS HEREIN AN D THE TERMS OF THE FRAMEWORK AGREEMENT CGP HEREBY UNDERTAKES TO PU RCHASE 195,005,079 SHARES FROM AS (THE SALE SHARES) AND AS HEREBY UNDERTAKES TO SELL TO CGP THE SALE SHARES FREE AND CLEAR FROM AS ENCUMBRANCES, ON THE CLOSING DATE FOR A CONSIDERATI ON EQUAL TO THE TRANSFER PRICE. 2.2. IN CONSIDERATION FOR THE SALE SHARES, CGP HERE BY AGREES TO PAY AS AN AGGREGATE AMOUNT OF RS.12,413,206,200 (RU PEES TWELVE BILLION FOUR HUNDRED AND THIRTEEN MILLION TW O HUNDRED AND SIX THOUSAND AND TWO HUNDRED ONLY) (THE TRANSF ER PRICE). I.T.A .NO.-4737/DEL/2017 102 | P A G E 3. . 3.2. THE PARTIES ACKNOWLEDGE THAT KOTAK MAHINDRA CA PITAL COMPANY LTD. HAS BEEN REQUESTED TO PREPARE A VALUAT ION REPORT RELATING TO THE FAIR MARKET VALUE OF THE ENTIRE ISS UED SHARE CAPITAL OF VIL PURSUANT TO SCHEDULE 1 TO THE FRAMEWORK AGRE EMENT TO CONFIRM THE TRANSFER PRICE DETERMINED BY THE PARTIE S. FROM THE PERUSAL OF THE AFORESAID AGREEMENT IT IS S EEN THAT, THE FRAMEWORK AGREEMENT AS REFERRED IN THE SALE PURCHAS E AGREEMENT IS THE FRAMEWORK AGREEMENT DATED 05.07.2007 AND IT I S IN PURSUANT OF THE SAME FRAMEWORK AGREEMENT THAT PUT OPTION HAS BEEN EXERCISED BY THE AS AND THE ENTIRE SHARE IN SBPL HAS BEEN SOLD T O CGP. SO FAR AS THE CONSIDERATION OF RS.1241.32 CRORES IS CONCERNED , NO WORKING OF THE DETERMINATION OF SALE PRICE OF THE SHARES HAS BEEN MENTIONED. CLAUSE 3.2 AS REPRODUCED ABOVE THOUGH INDICATE THAT KOTAK MAHINDRA HAS BEEN REQUESTED TO PREPARE A VALUATION REPORT RELATI NG TO THE FAIR MARKET VALUE OF THE ENTIRE ISSUED SHARE CAPITAL OF VIL PURSUANT TO SCHEDULE-1 TO THE FRAMEWORK AGREEMENT (I.E. DATED 05.07.2007) TO CONFIRM THE TRANSFER PRICE DETERMINATION BY THE PAR TIES. AS DISCUSSED IN DETAIL HEREIN ABOVE, THE TRANSFER PRICE IN FRAME WORK AGREEMENT DATED 05.07.2007 IN SCHEDULE-1 , THE VALUE OF THE HEL HAS BEEN STATED TO BE US $ 25 BILLION AND THIS IS BORNE OUT FROM TH E FACT THAT SUB- CLAUSE (II) OF CLAUSE (A) PROVIDES THAT THE TRANSFE R PRICE WOULD BE DIFFERENT WHEN THE FAIR MARKET VALUE OF THE ENTIRE ISSUE SHARE CAPITAL OF HEL EXCEEDS US $ 25 BILLION, THEN THERE WOULD BE CH ANGE IN SBPL VALUE. OTHERWISE, THE TRANSFER PRICE OF THE SBPL SH ARES WAS FIXED AT US $ 266.25 MILLION WHICH WAS BASED ON SOME ILLUSTRATI VE WORKING GIVEN IN SCHEDULE-2 BY TAKING THE FAIR MARKET VALUE OF ENTIRE ISSUED S HARE CAPITAL OF HEL AT US $ 25 BILLION. THOUGH, THERE IS ABSOLUTELY NO CLARITY AS TO WHETHER THIS ILLUSTRATIVE WORKING IS THE BASI S ON WHICH TRANSFER PRICE OF US $ 266.25 MILLION HAVE BEEN WORKED OUT, BUT, SINCE THIS TRANSFER PRICE DETERMINED AT THAT TIME WAS CLEARLY LINKED WITH THE FAIR I.T.A .NO.-4737/DEL/2017 103 | P A G E MARKET VALUE OF THE ENTIRE ISSUED SHARE CAPITAL OF HEL, THEREFORE, IT HAS TO BE RECKONED THAT FMV OF HEL AND LATER ON VIL WAS ALWAYS CONSTRUED TO BE THE BASIS OF DETERMINATION OF SBPL SHARES. IN THE SALE PURCHASE AGREEMENT THOUGH THERE IS AN ACKNOWLEDGEM ENT OF THE FACT THAT THE FAIR MARKET VALUE OF THE ENTIRE ISSUED SHA RE CAPITAL OF VIL SHOULD BE TAKEN IN PURSUANT TO SCHEDULE-1 OF THE FRAMEWORK AGREEMENT OF 2007 AND THEN TO CONFIRM THE TRANSFER PRICE DETERMINED BY THE PARTIES, BUT IT SEEMS THAT WHILE ADHERING TO THIS CLAUSE, THE TRANSFER PRICE HAS BEEN AGREED AT RS.1241.32 CRORES WHICH APPARENTLY IS NOT BASED ON THE FRAMEWORK AGREEMENT OF 2007. IN THE VALUATION REPORT OF KOTAK WHICH HAS BEEN PLACED ON RECORD, IT IS SEEN THAT THE FAIR MARKET VALUE OF VIL HAS BEEN COMPUTED AT RS.56 ,448 CRORES AND SBPLS SHARES HAVE BEEN VALUED AT FAR LOWER PRICE, I.E., PER SHARE OF SBPL HAS BEEN VALUED AT RS.5.40. NOW, WHETHER THIS VALUATION REPORT AND THE VALUE OF SBPL IS CORRECT OR NOT WOULD BE A SUBJECT MATTER OF DISCUSSION IN OUR LATER PART OF THE ORDER, HOWEVER, WHAT WE FIND FROM THE PERUSAL OF THE SALE PURCHASE AGREEMENT IS THA T, THE SALE PRICE CONSIDERATION OF THE ENTIRE SBPL SHARES IS NEITHER IN ACCORDANCE WITH THE FRAMEWORK AGREEMENT DATED 05.07.2007; NOR IT IS IN ACCORDANCE WITH THE VALUATION REPORT OF KOTAK. NOWHERE IN THE SAID AGREEMENT, THERE IS ANY CLAUSE THAT ALL THE EARLIER FRAMEWORK AGREEMENTS OR THE AGREEMENTS ENTERED BETWEEN THE PARTIES HAVE BEEN SU PERSEDED OR RESCINDED. ALBEIT IN THE SALE PURCHASE AGREEMENT THERE IS REFERENCE THAT, IT IS IN PURSUANCE OF FRAMEWORK AGREEMENT OF 2007. IN THE EARLIER FRAMEWORK AGREEMENT, IT WAS AGREED AMONGST THE PARTIES THAT ONCE THE OPTION IS EXERCISED, THEN THE SHARES WOULD GET TRANSFERRED UNDER THE PROCEDURE SET OUT THEREIN AND THE ASSESSE E WOULD BE ENTITLED TO RECEIVE THE PRICE ACCORDINGLY. THE ENTI RE PROCESS OF TRANSFER UNDER CONSIDERATION WAS AGREED AS PER THE FORMULA/P ROCEDURE AS LAID DOWN THEREIN, WHICH HAS DISCUSSED ABOVE, WAS BASED/ LINKED WITH FAIR I.T.A .NO.-4737/DEL/2017 104 | P A G E MARKET VALUE OF HEL AND NOW VIL. BASED ON THIS FAIR MARKET VALUE OF VIL, THE VALUE OF SBPL SHARES SHOULD HAVE BEEN WORK ED OUT. 56. BEFORE US, MR. AJAY VOHRA, LD. SR. ADVOCATE HA D VEHEMENTLY ARGUED THAT U/S 45(1) R.W.S 48, WHAT IS CHARGEABLE UNDER HEAD CAPITAL GAIN IS THE FULL VALUE OF THE CONSIDERATION RECEIV ED OR ACCRUING AS A RESULT OF THE TRANSFER. HE SPECIFICALLY DREW OUR AT TENTION TO SECTION 48 OF THE ACT WHICH FOR THE SAKE OF READY-REFERENCE, T HE RELEVANT PORTION IS REPRODUCED HEREUNDER:- 48. THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY:- (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF ANY IMPROVEMENT THERETO. WHAT HAS BEEN ENVISAGED HERE IN THIS SECTION IS TH E FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF CAPITAL ASSET. MR. VOHRA HAD STRONGLY CONTENTED THAT THE F ULL VALUE OF CONSIDERATION DOES NOT REFER TO OR CAN BE SAID TO MEAN FAIR MARKET VALUE. IN SUPPORT STRONG RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NILOFAR I. SINGH REPORTED IN 2009 (309 ITR 323) AND CATENA OF OTHER JUDGMENTS, THE LIST OF WHICH HAS ALREADY BEEN INCORPORATED ABOVE W HILE DEALING WITH THE LD. COUNSELS ARGUMENTS. SO FAR AS THE SAID PRO POSITION OF THE LD. SR. COUNSEL IS CONCERNED, WE ARE IN TANDEM AND AGRE E WITH HIM THAT THE FULL VALUE OF CONSIDERATION DOES NOT REFER TO F AIR MARKET VALUE OF THE ASSETS AND THIS PROPOSITION IS WELL SETTLED FOR WHI CH THERE CANNOT BE I.T.A .NO.-4737/DEL/2017 105 | P A G E MUCH DEBATE. WHEREVER THE LEGISLATURE, INTENDED TO SUBSTITUTE THE ACTUAL/FULL VALUE CONSIDERATION WITH THE FAIR MARKE T VALUE, SPECIFIC DEEMING PROVISIONS HAVE INSERTED IN THE STATUTE, FO R EXAMPLE, SECTION 50CA, 50D ETC. EARLIER, WHEN THERE WAS A DIFFERENCE , IF ANY, BETWEEN THE FAIR MARKET VALUE OF THE ASSETS AND THE ACTUAL CONSIDERATION RECEIVED, THEN THE SAME WAS TAXED AS A DEEMED GIFT U/S 4(I)(A) OF THE GIFT TAX ACT, 1958 IN THE HANDS OF THE TRANSFEROR T ILL THE REPEAL OF THE SAID ACT, W.E.F 01.10.1998. OTHERWISE IN THE INCOME TAX ACT, 1961 EARLIER THERE WAS NO SUCH PROVISION TO TAX, SUCH DI FFERENCE BETWEEN THE FAIR MARKET VALUE AND THE ACTUAL CONSIDERATION RECE IVED ON THE TRANSFER OF A CAPITAL ASSET EITHER IN THE HANDS OF THE TRANS FERORS OR THE TRANSFEREE. TO OVERCOME THIS SITUATION, SUB-CLAUSE (VII) WAS INSERTED IN SECTION 56(2) W.E.F. 01.10.2009 AND SUB-CLAUSE (VII A) W.E.F. 01.06.2010. NOW WHERE THERE IS DIFFERENCE IN THE FAIR MARKET VA LUE OF THE CAPITAL ASSETS THEN IT IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES IN THE HANDS OF RECIPIENT, I.E., THE TRANS FEREE. LATER ON, WHEN THE LEGISLATURE WANTED TO TAX, SUCH DIFFERENCE IN T HE FAIR MARKET VALUE OF THE CAPITAL ASSETS IN THE HANDS OF TRANSFEROR, S ECTION 56(X) HAS BEEN BROUGHT IN THE STATUTE BY THE FINANCE ACT, 2017, W. E.F., 01.04.2017. NOW, AS PER THE NEW PROVISION, THE EARLIER PROVISIO NS OF SECTION 56(2)(VII) & (VIIA) HAD BEEN MADE INOPERATIVE W.E.F 01.04.2017, THAT IS, NOW DIFFERENCE IS TO BE ADDED IN THE HANDS OF THE T RANSFEROR ONLY. APART FROM THAT, A SPECIFIC PROVISIONS HAVE BEEN INTRODUC ED IN THE STATUTE BY INSERTING OF NEW PROVISIONS I.E. SECTION 50CA BY TH E FINANCE ACT, 2017 W.E.F. 01.04.2017 TO BRING THE TAX IN THE CASE OF T HE TRANSFEROR, THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE OF THE UNQ UOTED/UNLISTED SHARES. THUS, SO FAR AS THIS PROPOSITION AS CANVASS ED BY MR. AJAY VOHRA IS CONCERNED WE ARE IN COMPLETE AGREEMENT WIT H HIM THAT, FIRSTLY, THE TERM FULL VALUE CONSIDERATION CANNOT BE RECK ONED AS A FAIR MARKET VALUE; AND SECONDLY, SUCH DEEMING FICTION OF TAXING THE I.T.A .NO.-4737/DEL/2017 106 | P A G E DIFFERENCE ON THE BASIS OF FAIR MARKET VALUE ON THE TRANSFER OF THE CAPITAL ASSETS IN THE HANDS OF THE TRANSFEREE/TRANS FEROR HAVE BEEN BROUGHT BY SPECIFIC PROVISIONS AS DISCUSSED ABOVE. OSTENSIBLY FOR THE A.Y. 2014-15, NEITHER THE PROVISIONS OF SECTION 50C A NOR SECTION 56(2)(X) ARE APPLICABLE IN THIS CASE, THEREFORE, BY INVOKING THESE PROVISIONS, ADDITION CANNOT BE MADE IN THE HANDS OF THE TRANSFERORS, I.E., THE ASSESSEE. 57. BEFORE WE DEAL WITH THE EXPRESSION ACCRUED U SED IN SECTION 48 AND WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE P RESENT CASE, THE SALE CONSIDERATION AS MENTIONED IN THE SHARE PURCHA SE AGREEMENT DATED 12.03.2014 CAN BE SAID TO BE ACCRUED TO THE ASSESSEE OR NOT, WE WILL DEAL IN BRIEF THE INVOKING OF THE PROVISION OF SECTION 50D OF THE ACT FROM THE STAGE OF CIT (A). FOR THE SAKE OF READ Y-REFERENCE, SECTION 50D IS REPRODUCED HEREUNDER:- FAIR MARKET VALUE DEEMED TO BE FULL VALUE OF CONSI DERATION IN CERTAIN CASES. 50D. WHERE THE CONSIDERATION RECEIVED OR ACCRUING A S A RESULT OF THE TRANSFER OF A CAPITAL ASSET BY AN ASSESSEE IS N OT ASCERTAINABLE OR CANNOT BE DETERMINED, THEN, FOR THE PURPOSE OF C OMPUTING INCOME CHARGEABLE TO TAX AS CAPITAL GAINS, THE FAIR MARKET VALUE OF THE SAID ASSET ON THE DATE OF TRANSFER SHALL BE DEE MED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT OF SUCH TRANSFER. THE FINANCE BILL 2012 AND THE MEMORANDUM EXPLAINING THE INSERTION OF SECTION 50D CLARIFIES THE PURPOSE FOR WHICH SAID SECTION HAS BEEN BROUGHT ON THE STATUTE IN THE FOLLOWING MANNER:- CAPITAL GAINS ARE CALCULATED ON TRANSFER OF A CAPI TAL ASSET, AS SALE CONSIDERATION MINUS COST OF ACQUISITION. IN SOME RECENT RULINGS, IT HAS BEEN HELD THAT WHERE THE CONSIDERAT ION IN RESPECT OF I.T.A .NO.-4737/DEL/2017 107 | P A G E TRANSFER OF AN ASSET IS NOT IF DETERMINABLE UNDER T HE EXISTING PROVISIONS OF THE INCOME-TAX ACT, THEN, AS THE MACH INERY PROVISION FAILS, THE ARISING FROM THE TRANSFER OF SUCH ASSETS IS NOT TAXABLE. IT IS, THEREFORE, PROPOSED THAT WHERE IN THE CASE O F A TRANSFER, CONSIDERATION FOR THE TRANSFER OF A CAPITAL ASSET(S ) IS NOT ATTRIBUTABLE OR DETERMINABLE THEN FOR PURPOSE OF CO MPUTING INCOME CHARGEABLE TO TAX AS GAINS, THE FAIR MARKET VALUE O F THE ASSET SHALL BE TAKEN TO BE THE FULL MARKET VALUE OF CONSIDERATI ON. ACCORDINGLY, IT IS PROPOSED TO INSERT A NEW PROVISI ON (SECTION 50D) IN THE INCOME-TAX ACT TO PROVIDE THAT FAIR MARKET V ALUE OF THE ASSET SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATI ON IF ACTUAL CONSIDERATION IS NOT ATTRIBUTABLE OR DETERMINABLE. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST DAY OF APR IL, 2013 AND WILL ACCORDINGLY APPLY TO ASSESSMENT YEAR 2013-14 A ND SUBSEQUENT ASSESSMENT YEARS. FROM THE AFORESAID EXPLANATION GIVEN IN THE MEMORA NDUM TO THE FINANCE BILL, IT CAN BE GAUGED THAT THE SAID PROVIS ION HAS BEEN INTRODUCED WHEN THE CONSIDERATION RECEIVED OR ACCRU ING AS A RESULT OF THE TRANSFER OF A CAPITAL ASSET CANNOT BE ASCERTAIN ED OR CANNOT BE DETERMINED AND IN THAT CASE, THE FAIR MARKET VALUE OF THE SAID ASSET IS DEEM TO BE THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. FOR INVOKING THIS PROVISIO N, THE SITUATION SHOULD BE THAT THE CONSIDERATION IN RESPECT OF TRAN SFER OF AN ASSET IS NOT DETERMINABLE OR ASCERTAINABLE CASE AND IN ABSEN CE OF SUCH DETERMINATION, THE MACHINERY PROVISION FOR COMPUTIN G OF THE CAPITAL GAIN GETS FAILED. HERE IN THIS CASE, IT IS NOT A SI TUATION BECAUSE THE CONSIDERATION HAS BEEN RECEIVED WHICH AS PER THE PA RTIES IS ASCERTAINABLE AND DETERMINABLE. THE REVENUES CASE IS THAT THE SAID CONSIDERATION AS DETERMINED IN THE AGREEMENT HAS TO BE RECKONED AS FAIR MARKET VALUE. THIS SECTION HAS NO APPLICATION IN THE PRESENT I.T.A .NO.-4737/DEL/2017 108 | P A G E SITUATION, OTHERWISE ALSO, IF SECTION 50D COULD HAV E APPLIED FOR SUBSTITUTING THE ACTUAL CONSIDERATION OF THE FAIR M ARKET VALUE IN SITUATION LIKE THAT OF THE ASSESSEE, THEN THERE WAS NO REASON OR OCCASION FOR THE LEGISLATURE TO INTRODUCE SPECIFIC SECTION, VIZ., SECTION 50CA BY FINANCE ACT 2017, W.E.F A.Y. 2017-18. THIS SECTION AS DISCUSSED IN DETAIL HAS BEEN SPECIFICALLY BROUGHT I N THE STATUE TO TAX THE FMV OF UNLISTED SHARES IN THE HANDS OF THE TRAN SFEROR. HOWEVER BEING A SUBSTANTIAL PROVISION THE DEEMING PROVISION ENVISAGED THEREIN CANNOT BE APPLIED RETROSPECTIVELY. ON THIS ASPECT, WITHOUT GOING INTO MUCH DETAIL ANALYSIS, THE ARGUMENTS OF MR. AJAY VOH RA AS NOTED ABOVE ARE UPHELD AS SUCH AND WE HOLD THAT, INVOKING OF TH E PROVISION OF SECTION 50D TO JUSTIFY THE FAIR MARKET VALUE BY THE LD. CIT(A) IS NOT CORRECT AND THE SAME IS REJECTED. 58. WE WILL NOW DWELL UPON THE CORE ISSUE RAISED BY THE PARTIES, THAT IS, WHETHER THE SALE CONSIDERATION OF RS.1241. 32 CRORES CAN BE SAID TO HAVE BEEN ACCRUED TO THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED IN DETAIL HE REIN ABOVE, WITHIN THE EXPRESSION USED IN SECTION 48. SECTION 48 ENVIS AGES THAT INCOME MUST HAVE BEEN RECEIVED OR HAVE ACCRUED UNDER SECTI ON 48 AS RESULT OF THE TRANSFER OF A CAPITAL ASSET. THE INCOME MAY BE SAID TO HAVE BEEN ACCRUED IF THE ASSESSEE ACQUIRES THE RIGHT TO REC EIVE THE INCOME FROM THE CONTRACTUAL OBLIGATION OR AS PER ANY OTHER LEGA L OBLIGATION. IT IS SINE-QUA-NON THAT THE ASSESSEE MUST HAVE ACQUIRED THE RIGHT TO RECEIVE THE INCOME AND THERE IS CORRESPONDING DEBT OWED TO HIM BY SOMEBODY. THE CONCEPT OF ACCRUAL OF INCOME HAVE BEEN WELL-SET TLED BY THE HONBLE SUPREME COURT IN THE CASE OF E.D. SASOON & CO. LTD. VS. CIT (SUPRA) AND CIT VS. SHOORJEE VALLABHDAS & CO. [1962] 46 ITR 144. THE PRINCIPLE AS DISCUSSED IN THESE JUDGMENTS HAVE BEEN UPHELD AND REITERATED TIME AND AGAIN BY THE HONBLE SUPREME CO URT IN CATENA OF DECISIONS INCLUDING THAT OF CIT VS. EXCEL INDUSTRIE S REPORTED (SUPRA) I.T.A .NO.-4737/DEL/2017 109 | P A G E AND CIT VS. BALBIR SINGH MAINI(SUPRA) AS RELIED UPO N BY MR. AJAY VOHRA. THERE CANNOT BE ANY IOTA OF DOUBT THAT THE W ORD ACCRUED IN SECTION 48 MEANS THERE HAS TO BE A RIGHT TO RECEIVE THE INCOME ARISING FROM CONTRACTUAL OBLIGATION BETWEEN THE PARTIES AND SUCH A RIGHT HAS TO BE WITH A CORRESPONDING LIABILITY OF THE OTHER PARTY FROM WHOM THE INCOME BECOMES DUE TO PAY THAT AMOUNT. THUS, ONE PA RTY HAS THE RIGHT AND THE OTHER PARTY HAS LIABILITY TO PAY, BUT SUCH RIGHT AND LIABILITY HAS TO ORIGINATE FROM THE UNDERSTANDING O F ALL THE TERMS AND CONDITIONS OF THE CONTRACTING PARTIES AND THE CONTR ACTUAL OBLIGATION QUA THE TRANSACTIONS FOR WHICH INCOME CAN BE SAID TO BE ACCRUED TO ONE PARTY WITH THE CORRESPONDING LIABILITY TO PAY O N THE OTHER. 59. HERE IN THIS CASE, AS DISCUSSED IN DETAIL , IT IS NOT A SIMPLE CASE OF SALE AND PURCHASE OF SHARES EMANATING FROM SALE AND PURCHASE AGREEMENT DATED 12.03.2014. THE RIGHTS AND OBLIGATI ONS OF THE PARTIES FOR THIS PARTICULAR TRANSACTION GOES WAY BACK TO TH E YEAR 2006 AND MORE PARTICULARLY THE YEAR 2007, WHEN THE PARTIES H AVE ENTERED INTO THE FRAMEWORK AGREEMENT ON 05.07.2007. THE AS HAD H ELD THE SHARES OF THE INDIAN COMPANY HEL AND THEN LATER ON IN VIL FOR THE BENEFIT OF HUTCH/VODAFONE SOLELY WITH THE AIM TO BEAT THE FORE IGN EQUITY CAP FOR WHICH THE ASSESSEE WAS PAID CALL OPTION FEE FOR H OLDING THE SHARES WITH STIPULATION THAT SHARES WOULD BE ULTIMATELY TR ANSFERRED TO HUTCH/VODAFONE THROUGH THEIR STEP DOWN SUBSIDIARIES AND PUT OPTION WOULD BE EXERCISED AS WHEN THE CAP IS LIFTE D AT A PRE-AGREED PRICE. THE FRAMEWORK AGREEMENT OF 2006 WHICH IS THE PRECURSOR TO THE FRAMEWORK AGREEMENT OF 2007, THE STIPULATION FOR TH E VALUE OF CONSIDERATION/TRANSFER PRICE WAS BASED ON FAIR MARK ET VALUE OF ISSUED SHARE CAPITAL OF HEL AND SUCH VALUE OF SHARES WAS D ETERMINED AT 0.23% OF THE VALUE OF SHARES OF HEL. LATER ON WHEN THIS FRAMEWORK AGREEMENT WAS SUPERSEDED AND RE-ENTERED BETWEEN THE PARTIES ON 05.07.2007, AGAIN THE BASIS OF TRANSFER PRICE FOR T HE ENTIRE SHARE VALUE I.T.A .NO.-4737/DEL/2017 110 | P A G E OF SBPL WAS LINKED WITH THE FAIR MARKET VALUE OF EN TIRE ISSUED SHARE CAPITAL OF HEL (LATER ON VIL). HOW IT IS LINKED WIT H THE FAIR MARKET VALUE OF HEL, WE HAVE ALREADY DISCUSSED IN THE FORG OING PARAGRAPHS. SUCCINCTLY, PUT THE SCHEDUEL-1 WHICH WAS FOR THE DETERMINATION MECHANISM OF THE TRANSFER PRICE OF THE SBPLS SHARE S, HAS FIXED THE TRANSFER PRICE IN THE YEAR 2007 AT US $ 266.25 MILL ION WHICH CONVERTED INTO INR WAS RS.1088.43 CRORES. THIS TRANSFER PRICE OF US $ 266.25 MILLION WAS BASED ON SOME ILLUSTRATIVE WORKING GIVE N IN SCHEDULE-2 WHICH WAS THOUGH WAS TO COME INTO OPERATION WHEN TH E CONDITION OF THE 2 ND CLAUSE WAS TO BE FULFILLED, I.E., THE FAIR MARKET VALUE OF ISSUED SHARE CAPITAL OF HEL EXCEEDS US $ 25 BILLION AND TH EN THE SBPL VALUE WAS AGAIN TO BE RE-VALUED. THIS ILLUSTRATIVE WORKIN G, PROCEEDS WITH THE FAIR MARKET VALUE OF HEL AT THAT TIME AT US $ 25 BI LLION AND WITH SOME HYPOTHETICAL WORKING AND ASSUMPTION OF LIABILITIES, A TRANSFER PRICE OF US $ 266.25 MILLION WAS ARRIVED AND THE SAME FIGURE HAS BEEN INCORPORATED IN SCHEDULE-1 . THOUGH, WE HAVE ALREADY OBSERVED THAT THE AMOUNT OF US $ 266.25 MILLION MAY NOT BE BASED ON CORRECT WORKING OR DOES NOT HAVE ANY PROPER BASIS, BUT IT C LEARLY INDICATES THAT SUCH A TRANSFER PRICE WAS TO BE COMPUTED AFTER TAKI NG INTO ACCOUNT THE FAIR MARKET PRICE/ VALUE OF EQUITY CAPITAL OF HEL, LATER ON SUBSTITUTED WITH VIL. IN ALL THE SUBSEQUENT FRAMEWORK AGREEMENT S AND SUPPLEMENT AGREEMENT, INCLUDING THE SHARE PURCHASE AGREEMENT, THE PARTIES UNEQUIVOCALLY HAVE AGREED THAT THE TRANSFER PRICE HAS TO BE DETERMINED IN ACCORDANCE WITH THE FRAMEWORK AGREEME NT AND THAT TO BE OF 05.07.2007. NOWHERE THE PARTIES HAVE RESCINDE D OR GIVEN GO-BY TO SAID FRAMEWORK AGREEMENT. ALBEIT THE PARTIES HAVE TIME AND AGAIN HAVE REITERATED THAT THE TRANSFER PRICE FOR SBPLS SHARES IS TO BE DETERMINED IN ACCORDANCE WITH THE FRAMEWORK AGREEME NT OF 2007, WHICH IN TURN WAS BASED ON THE WORKING OF FAIR MARK ET VALUE OF HEL/VIL. ONCE THERE IS BINDING CONTRACTUAL OBLIGATI ON AS ACQUIESCED I.T.A .NO.-4737/DEL/2017 111 | P A G E BY THE PARTIES AGREEMENT AFTER AGREEMENT, THEN IT CANNOT BE HELD THAT SUCH A BINDING CONTRACTUAL OBLIGATION AMONGST THE P ARTIES HAS SIMPLY WITHERED AWAY WITHOUT ANY AGREED CLAUSE OF RESCINDI NG OR ABROGATING THE EARLIER OBLIGATION. IN FACT THERE IS UNANIMITY PERMEATING THROUGH ALL THE AGREEMENTS ON SUCH TRANSFER PRICE WHICH IS TO BE DETERMINED ON THE BASIS OF FAIR MARKET VALUE OF VIL AND, THEREFOR E, IT IS BINDING ON THE PARTIES. THUS, AS PER THE BINDING AGREEMENT, THE AC CRUED PRICE CONSIDERATION FOR THE TRANSFER OF THE SBPL SHARES H AS TO BE DETERMINED ON THE BASIS OF FAIR MARKET VALUE OF VIL WHICH HERE IN THIS CASE HAS BEEN PEGGED AT RS.56,448 CRORES AS DETERMINED BY TH E KOTAK MAHINDRA BY ADOPTING DCF METHOD AND ALSO ACCEPTED B Y THE AO. ACCORDINGLY, WE HOLD THAT IN TERMS OF SECTION 48, W HAT IS ACCRUED TO THE ASSESSEE ON THE TRANSFER OF THE UNQUOTED SHARES OF SBPL, IS THAT, WHICH IS DETERMINABLE ON THE BASIS OF THE FAIR MARK ET VALUE OF VIL. ON THIS REASONING, THE ARGUMENTS PUT FORTH BY THE LD. SR. COUNSEL THAT THE CONSIDERATION ACCRUED TO THE ASSESSEE IS ONLY A S PER THE SHARE PURCHASE AGREEMENT DATED 12.03.2014 IS NOT ACCEPTAB LE. 60. ONCE WE HAVE HELD THAT THE ACCRUED SALE CONSI DERATION OF SBPL SHARES IS LINKED WITH THE FAIR MARKET VALUE OF VIL, THEN WE HAVE TO SEE AS TO WHAT SHOULD BE THE VALUATION OF SBPL SHARES. THE ASSESSEE BEFORE THE REVENUE AUTHORITIES AND ALSO BEFORE US H AS STRONGLY CONTENDED THAT THE INDEPENDENT VALUER KOTAK WHO HAS VALUED THE SHARES OF SBPL AT RS.5.40 PER SHARE IS THE KEY TO B ENCHMARK THE PRICE ON WHICH ASSESSEE HAS SOLD THE SHARES UNDER PUT OPT ION CLAUSE. FIRST OF ALL, ON THE BARE PERUSAL OF THE SAID VALUATION REPORT WHICH HAS BEEN PLACED IN THE PAPER BOOK BEFORE US BY THE LD. SR. COUNSEL AT PAGE 85 TO 190, IT IS SEEN THAT THE EQUITY VALUE OF VIL HAS BEEN WORKED OUT BY ADOPTING DCF METHOD IN THE FOLLOWING MANNER: - VALUATION CONSTRUCT, AS ON FEBRUARY 28, 2014 I.T.A .NO.-4737/DEL/2017 112 | P A G E DETAILS INR IN M ILLION ENTERPRISE VALUE OF VIL (A) 900,899 ENTERPRISE VALUE OF INDUS 432,701 LESS:NET DEBT OF INDUS (AS ON FEBRUARY 28, 2014) 67,909 EQUITY VALUE OF INDUS(B) 364,792 CONSOLIDATED ENTERPRISE VALUE (A+42%B) 1,054,112 LESS:NET DEBT OF VIL (AS ON FEBRUARY 28,2014) 489,629 EQUITY VALUE OF VIL (C) 564,483 61. THIS VALUE OF VIL HAS NOT BEEN DISTURBED BY THE AO EVEN THOUGH IN THE YEAR 2007, THE VALUE OF HEL WAS INDICATED AT US $ 25 BILLION WHICH WAS AT THEN MORE THAN RS. 1 LAKH CRORES. SINC E, THE AO HAS ACCEPTED THIS VALUATION; THEREFORE, WE ARE NOT OPIN ING ANYTHING ON THIS POINT. IN THE VALUATION REPORT WHILE DETERMINING TH E SHARE VALUE OF SBPL, THE VALUER HAS ADOPTED HYBRID METHOD, I.E., D CF METHOD FOR VIL AND NET ASSET VALUE METHOD (NAV) FOR INTERMEDIARY C OMPANIES WHICH DOES NOT FINDS ANY SUPPORT UNDER THE RULE 11UA OF T HE ACT. FROM THE PERUSAL OF THE ANNEXURE 8 OF THE SAID VALUATION REP ORT, WE FIND THAT THE WORKING OF THE VARIOUS LIABILITIES IS NOT BASED ON ACTUAL ASCERTAINMENT OF LIABILITY ALBEIT THE FIGURES OF LIABILITIES HAVE BEEN GIVEN BY THE COMPANIES, WHICH IS UNAUTHENTICATED AND UNCORROBORA TED. THIS IS EVIDENT FROM THE REMARK GIVEN IN THE VALUATION REPO RT AT PAGE 1 WHICH FOR SAKE OF REFERENCE IS REPRODUCED HEREUNDER:- 'IT IS CLARIFIED THAT CGP HAS PROVIDED US WITH THE HISTORICAL FINANCIALS OF THE COMPANIES IN THE HOLDCO CHAIN AND SBP, AND FURTHER, CGP HAS CONFIRMED THAT SINCE THE COMPANIES IN THE HOLDCO CHAIN AND SBP DO NOT HAVE ANY BUSINESS OPERATIONS, THERE ARE NO PROJECTIONS/ FORECASTS AVAILABLE FOR THE COMPANIES IN THE HOLDCO CHAIN AND SBP. IT IS CLARIFIED THAT WE HAVE ASSUMED AND RELIED UPON, WITHOUT INDEPENDENT VERIFICATION, THE ACCURACY AND COMPLETENESS OF THE INFORMATION/PROJECTIONS/FORECASTS PROVIDED TO U S, WHETHER IN ORAL OR WRITTEN FORM, OR USED BY US AND WE ASSUME NO RES PONSIBILITY AND MAKE NO REPRESENTATIONS WITH RESPECT TO THE ACCURAC Y OR COMPLETENESS OF ANY SUCH INFORMATION PROVIDED BY VI L OR CGP. WE I.T.A .NO.-4737/DEL/2017 113 | P A G E HAVE ASSUMED THAT VIL AND CGP HAVE FURNISHED ALL IN FORMATION CONCERNING THE FINANCIAL STATEMENT AND ASSETS AND L IABILITIES OF VIL GROUP, INDUS, TILL EARNINGS BEFORE INTEREST AND TAX ES, AND ALL OTHER CASH FLOW ITEMS RELEVANT FOR VALUATION. WE CLARIFY THAT IN RESPECT OF VIL AND INDUS, WE HAVE NOT BEEN PROVIDED WITH FINAN CIAL PROJECTIONS BELOW EARNINGS BEFORE INTEREST AND TAXES OR THE BAL ANCE SHEET. FURTHER, WE HAVE NOT BEEN PROVIDED WITH FINANCIAL P ROJECTIONS FOR THE COMPANIES IN THE HOLDCO CHAIN AND SBP. WE HAVE ASSU MED THAT THERE IS NO MATERIAL INFORMATION OR MATERIAL CHANGE IN THE BUSINESS AND OPERATIONS OF VIL GROUP, INDUS, COMPANIES IN TH E HOLDCO CHAIN AND SBP POST FEBRUARY 28, 2014 THAT WOULD IMPACT TH E VALUATION IN THIS REPORT, AND WE ASSUME NO RISK OF ANY MATERIAL ADVERSE CHANGE HAVING ANY IMPACT ON THE BUSINESSES OF VIL GROUP. I NDUS, COMPANIES IN THE HOLDCO CHAIN AND SBP.' THE SAID DISCLAIMER OF KOTAK MAHINDRA ITSELF DIMIN ISHES THE VARIOUS FIGURES OF LIABILITIES WHICH HAVE BEEN TAKE N INTO CONSIDERATION WHILE VALUING THE SHARES OF SBPL. IN ANY CASE, THE LIABILITY OF THE INTERMEDIARY COMPANIES WHICH CAN BE REDUCED FOR THE PURPOSE OF VALUATION HAS TO BE SEEN WITH REFERENCE TO RULE 11U A(2)(A), WHEREIN FOLLOWING LIABILITIES HAVE STATED TO BE NOT TO BE INCLUDED:- [2](A) THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHA RES =(AL) (PV), (PE) WHERE, A =BOOK VALUE OF THE ASSETS IN THE BALANCE-SHEET A S REDUCED BY ANY AMOUNT OF TAX PAID AS DEDUCTION OR COLLECTIO N AT SOURCE OR AS ADVANCE TAX PAYMENT AS REDUCED BY THE AMOUNT OF TAX CLAIMED AS REFUND UNDER THE INCOME-TAX ACT AND ANY AMOUNT S HOWN IN THE BALANCE-SHEET AS ASSET INCLUDING THE UN-AMORTISED A MOUNT OF DEFERRED EXPENDITURE WHICH DOES NOT REPRESENT THE V ALUE OF ANY ASSET; L = BOOK VALUE OF LIABILITIES SHOWN IN THE BALANCE- SHEET, BUT NOT INCLUDING THE FOLLOWING AMOUNTS, NAMELY: (I) THE PAID-UP CAPITAL IN RESPECT OF EQUITY SHARES ; I.T.A .NO.-4737/DEL/2017 114 | P A G E (II) THE AMOUNT SET APART FOR PAYMENT OF DIVIDENDS ON PREFERENCE SHARES AND EQUITY SHARES WHERE SUCH DIVI DENDS HAVE NOT BEEN DECLARED BEFORE THE DATE OF TRANSFER AT A GENERAL BODY MEETING OF THE COMPANY; (III) RESERVES AND SURPLUS, BY WHATEVER NAME CALLED , EVEN IF THE RESULTING FIGURE IS NEGATIVE, OTHER THAN THOSE SET APART TOWARDS DEPRECIATION; (IV) ANY AMOUNT REPRESENTING PROVISION FOR TAXATIO N, OTHER THAN AMOUNT OF TAX PAID AS DEDUCTION OR COLLECTION AT SO URCE OR AS ADVANCE TAX PAYMENT AS REDUCED BY THE AMOUNT OF TAX CLAIMED AS REFUND UNDER THE INCOME-TAX ACT, TO THE EXTENT OF T HE EXCESS OVER THE TAX PAYABLE WITH REFERENCE TO THE BOOK PROFITS IN ACCORDANCE WITH THE LAW APPLICABLE THERETO; (V) ANY AMOUNT REPRESENTING PROVISIONS MADE FOR ME ETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; (VI) ANY AMOUNT REPRESENTING CONTINGENT LIABILITIES OTHER THAN ARREARS OF DIVIDENDS PAYABLE IN RESPECT OF CUMULATI VE PREFERENCE SHARES; PE = TOTAL AMOUNT OF PAID UP EQUITY SHARE CAPITAL A S SHOWN IN THE BALANCE-SHEET; PV = THE PAID UP VALUE OF SUCH EQUITY SHARES. 62. SECTION 11UA(2) ALSO ENVISAGES THAT THE FAIR MA RKET VALUE OF THE UNQUOTED SHARES CAN BE DETERMINED AS PER DISCOUNTED CASH FREE FLOW METHOD, I.E., DCF BUT HERE THE VALUER SEEMS TO HAVE ADOPTED NAV METHOD AND HE HAS REDUCED EVEN THOSE LIABILITIES WH ICH ARE NOT PERMISSIBLE UNDER 11UA. ACCORDINGLY, WE HOLD THAT T HE VALUATION DONE BY THE KOTAK MAHINDRA CAPITAL AND THE VALUE OF SBPL S SHARES IS NOT IN ACCORDANCE WITH RULES AS GIVEN IN RULE 11UA WHIC H IS SPECIFIC FOR I.T.A .NO.-4737/DEL/2017 115 | P A G E VALUING THE UNQUOTED SHARES. THE REASON FOR NOT FOL LOWING THE VALUE OF KOTAK FOR SBPL SHARES IS THAT, THE VALUER HAS ADOPT ED NAV FOR VALUING THE INTERMEDIARY COMPANIES; AND IF NAV METHOD IS TO BE ADOPTED, THEN HE CAN REDUCED LIABILITIES AS ENVISAGED UNDER RULE 11UA AND NOT ANY OTHER LIABILITIES SUGGESTED BY THE COMPANIES WITHOU T BEING AUTHENTICATED BY THE COMPANIES OR INDEPENDENTLY EXA MINED BY THE VALUER. ONLY LIABILITY WHICH CAN BE EXCLUDED WHILE EXAMINING THE BOOK VALUE IS THE LIABILITY SHOWN IN THE BALANCE SHEET. 63. WHEN AT THE TIME OF HEARING, LD. SR. COUNSEL, MR. AJAY VOHRA POINTED OUT THAT WHILE TAKING THE PERCENTAGE OF SHA RES OF THE HOLDING OF VIL WITH THE SBPL, HAS WRONGLY BEEN TAKEN AT 9.65 % WHICH IN FACT SHOULD BE 8.90%. ON THIS FACTUAL CLARIFICATION, LD. SPECIAL COUNSEL, MR. G.C. SRIVASTAVA ADMITTED THAT INDIRECT STAKE OF SBPL IN VIL WAS 8.9% AND IF THE STAKE OF THE ASSESSEE IN VIL ON PAS S THROUGH BASIS IS TAKEN, THEN IT WILL COME TO 3.6512% BEING 41% OF 8. 905% AND NOT 3.95% AS CONSIDERED BY THE AO. BASED ON THIS CLARIF ICATION OF EXACT PERCENTAGE OF SHAREHOLDING AT THE TIME OF HEARING, WE DIRECTED THE CONCERNED AO AND THE ADDL. CIT WHO WERE PRESENT AT THE TIME OF HEARING TO GIVE A PROPER WORKING OF THE VALUE OF SB PLS SHARE, FIRSTLY , BY TAKING THE FAIR MARKET VALUE EQUITY OF VIL AT RS .56,448.30 CRORES; SECONDLY , TO CONSIDER THE ACTUAL LIABILITIES AS SHOWN IN TH E BALANCE SHEET OF THE INTERMEDIARY COMPANIES AS ON 31.03.201 3 (BECAUSE THE SALE/TRANSFER OF SHARES TOOK PLACE ON 12.03.2014, I .E., PRIOR TO 31.03.2014); AND LASTLY, TO GIVE THE ACTUAL VALUE O F SBPLS SHARES BASED ON THIS CALCULATION AFTER TAKING INTO CONSIDE RATION THE CORRECT HOLDING OF SBPL IN VIL AT 8.9055% AND ASSESSEES ST AKE WHICH WAS 3.6512 %. BASED ON THESE GUIDELINES, THE AO HAS FIL ED THE FOLLOWING CALCULATION WHICH IS REPRODUCED HEREUNDER:- I.T.A .NO.-4737/DEL/2017 116 | P A G E NAME OF THE COMPANY SHARE- HOLDING IN THE IMMEDIATE STEP DOWN SUBSIDIARY IN THE CHAIN DETAILS VALUE AS PER KOTAK MAHINDRA(IN INR MILLION) VIL VALUATION AS PER KOTAK DCF VALUATION OF VIL AND TAKINGBALAN CE SHEETS OF INTERMEDIA RY COMPANIES (IN INR MILLION) DESCRIPTION OF BASIS OF CALCULATION PROFIT/ (LOSS) NATURE OF REVENUE VIL 564,483 564,483 OMEGA 5.11% VALUE OF 5.1108% EQUITY STAKE IN VIL 28,850 28,850 ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN VIL 502 486 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN VIL + INCOME TAX 28.07 INVESTME NT ACTIVITIES EQUITY VALUE OF OMEGA 29,352 29,335 SMMS 61.60% VALUE OF 61.60% EQUITY STAKE IN OMEGA 18,081 18,071 ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN OMEGA -23,318 4,559 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN OMEGA + INCOME TAX + PROVISIONS 131.62 INVESTME NT ACTIVITIES EQUITY VALUE OF SMMS -5,237 22,630 UMT 6.07% VALUE OF 6.0672% EQUITY STAKE IN VIL 34,248 34,248 ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN VIL -3,725 -3,265 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN VIL + INCOME TAX + PROVISIONS -166.53 INVESTME NT ACTIVITIES EQUITY VALUE OF UMT 30,523 30,983 UMTI 100% VALUE OF 100% EQUITY STAKE IN UMT 30,523 30,983 ADD: VALUE OF NET ASSETS -4,470 -4,463 ASSETS - LIABILITIES - -32.16 NBFC I.T.A .NO.-4737/DEL/2017 117 | P A G E (LIABILITIES) EXCLUDING IN UMT MARKET VALUE OF INVESTMENT IN UMT + INCOME TAX EQUITY VALUE OF UMTI 26,053 26,520 JKF 0.51% VALUE OF 0.5126% EQUITY STAKE IN VIL 2,894 2,894 100% ADD: VALUE OF 100% EQUITY STAKE IN UMTI 26,053 26,520 ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN VIL & UMTI -18,012 4,687 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN UMTI & VIL + INCOME TAX 0.91 NBFC EQUITY VALUE OF JKF 10,935 34,101 TII 12.96% VALUE OF 12.9583% EQUITY STAKE IN VIL 73,147 73,147 100% ADD: VALUE OF 100% EQUITY STAKE IN JKF 10,935 34,101 100% ADD: VALUE OF 100% EQUITY STAKE IN SMMS - 22,630 ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN VIL, JKF & SMMS -37,700 302 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN JKF, SMMS & VIL + INCOME TAX -133.63 NBFC EQUITY VALUE OF TII 46,382 130,179 NADAL 23.97% VALUE OF 23.97% EQUITY STAKE IN TII 11,118 31,204 ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN TII -4,873 -4,881 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN TII + INCOME TAX -23.03 INVESTME NT ACTIVITIES EQUITY VALUE OF NADAL 6,245 26,323 PLUSTECH 100% VALUE OF 100% EQUITY STAKE IN NADAL 6,245 26,323 I.T.A .NO.-4737/DEL/2017 118 | P A G E ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN NADAL -3,014 10 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN NADAL + INCOME TAX -17.1 INVESTME NT ACTIVITIES EQUITY VALUE OF PLUSTECH 3,231 26,333 AGM 100% VALUE OF 100% EQUITY STAKE IN PLUSTECH 3,231 26,333 ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN PLUS TECH 10 10 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN PLUSTECH + INCOME TAX -20.15 INVESTME NT ACTIVITIES EQUITY VALUE OF AGM 3,241 26,343 NDC 51% VALUE OF 51% EQUITY STAKE IN AGM 1,653 13,435 27.03% ADD: VALUE OF 27.03% EQUITY STAKE IN TII 12,537 35,187 ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN AGM & TII -8,494 2,820 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN AGM & TII 258.3 EQUITY VALUE OF NDC 5,696 51,442 MVH 100% VALUE OF 100% EQUITY STAKE IN NDC 5,696 51,442 ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN NDC -3,634 847 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN NDC -12.99 INVESTME NT ACTIVITIES EQUITY VALUE OF MVH 2,062 52,289 SBP 100% VALUE OF 100% EQUITY STAKE IN MVH 2,062 52,289 ADD: VALUE OF NET ASSETS (LIABILITIES) EXCLUDING IN MVH 3 4 ASSETS - LIABILITIES - MARKET VALUE OF INVESTMENT IN MVH -1.45 INVESTME NT ACTIVITIES EQUITY VALUE OF SBP 2,065 52,293 TOTAL SBP SHARES 382,362,900 SBP VALUATION PER SHARE 5.4 13 1 . 8 6 I.T.A .NO.-4737/DEL/2017 119 | P A G E AO HAD TAKEN THE VALUE AT RS. 142.7 PER SHARE IN THE ASSESSMENT ORDER . BUT AFTER TAKING THE CORRECT SHARE OF THE ASSESSEE ON S BPL AS DIRECTED BY US, THE VALUE WILL COME TO RS.131.86 PER SHARE BY TAKING THE 3.6512% SHARE OF ASSESSEE IN VIL. 64. BASED ON THIS CALCULATION, THE SBPL VALUE HAS B EEN ARRIVED AT RS.131.86. SO FAR CALCULATION FOR ARRIVING AT THIS PRICE IN TERMS OF OUR GUIDELINES, LD. SR. COUNSEL HAS NOT DISPUTED THIS F IGURE , ALBEIT HE HAS CHALLENGED THE ENTIRE VALUATION SET OUT HEREIN ON T HE GROUND THAT THE ACTUAL CONSIDERATION RECEIVED HAS TO BE ACCEPTED, W HICH WE HAVE DISCUSSED IN DETAIL THAT IS NOT TENABLE. ACCORDINGL Y, WE HOLD THAT THE VALUE OF SHARES FOR WHICH THE SALE CONSIDERATION SA ID TO HAVE BEEN ACCRUED TO THE ASSESSEE HAS TO BE WORKED OUT AT RS. 131.86 PER SHARE. THUS, THE AO IS DIRECTED TO COMPUTE THE CAPITAL GAI N BY TAKING THE SALE CONSIDERATION BY ADOPTING THE PER SHARE VALUE OF SB PL AT RS.131.86. 65. IN VIEW OF THE FINDING GIVEN ABOVE, FOLLOW ING CONCLUSIONS ARE DRAWN ON THE ISSUES/QUESTIONS WE HAVE FRAMED FOR TH E PURPOSE OF OUR ADJUDICATION:- FIRSTLY, THE SALE VALUE OF SBPL AS SHOWN BY THE ASSESSEE IS NOT IN CONSONANCE WITH THE CONTRACTUAL OBLIGATIONS ENTERED BY THE PARTIES UNDER VARIOUS FRAMEWORK AGREEMENTS WHEREIN IT HAS BEEN REPEATEDLY ENVISAGED THAT THE VALUE OF SBPL WA S LINKED WITH THE FMV OF HEL/VIL AND THEREFORE, THE SHARE VA LUE AS DETERMINED ACCORDINGLY WOULD GET ENHANCED ACCORDING LY. SECONDLY, THE SALE CONSIDERATION RECEIVED BY THE ASSESSEE AS PER THE SALE PURCHASE AGREEMENT OF 12.03.2014 CANNOT BE RECKONED AS ACCRUED TO THE ASSESSEE IN TERMS OF SECTION 48 OF THE ACT, BECAUSE HEREIN THIS CASE IT IS NOT A CASE OF SIMPLE SALE AND PURCHASE TRANSACTION, ALBEIT RIGHTS AND OBLIGATION OF THE PARTIES AS PER THE AGREEMENTS FOR TRANSFER OF SHARES WAS IN EXERCISE OF I.T.A .NO.-4737/DEL/2017 120 | P A G E CALL/PUT OPTION, FOR WHICH TRANSFER PRICE OF THE SH ARES WAS DETERMINABLE ON FMV OF THE SHARE VALUE OF VIL. WHAT HAS BEEN ACCRUED TO THE ASSESSEE IS THE PRICE OF THE SHARES WHICH WAS TO BE DETERMINED AS PER THE MECHANISM PROVIDED IN THE FRAMEWORK AGREEMENTS, WHICH STIPULATED FMV OF VIL. THIRDLY, SECTION 50D AS INVOKED BY LD. CIT (A) WOULD NOT BE APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE CA SE; AND IF AT ALL IT COULD HAVE BEEN BROUGHT TO TAX IN THE HANDS OF THE TRANSFEROR UNDER THE DEEMING FICTION OF SECTION 50C A OR SECTION 56(2)(X), THEN SAME ARE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AS THESE PROVISIONS ARE APPLICABLE FR OM THE A.Y. 2017-18. LASTLY, THE VALUE OF THE SBPL SHARES AS PER FMV OF VIL WOUL D BE RS. 131.86 PER SHARE AS DETERMINED ABOVE; AND ACCOR DINGLY, AO IS DIRECTED TO COMPUTE THE CAPITAL GAIN TAKING THE SALE VALUE OF SBPL AT RS. 131.86 PER SHARE. D. WHETHER THE INTEREST COST ON LOAN TAKEN FOR PURC HASE OF RIGHTS SHARES IS TO BE ALLOWED FROM THE COST OF ACQ UISITION U/S 48 WHILE COMPUTING THE CAPITAL GAINS. 66. NOW WE WILL COME TO THE ISSUE RAISED VIDE GROUN D NO.3 & 3.1, WHEREIN THE ASSESSEE HAS CHALLENGED THAT LD. CIT(A) HAS ERRED IN LAW IN UPHOLDING THE ACTION OF THE AO IN DENYING THE CA PITALIZATION OF INTEREST EXPENDITURE AGGREGATING TO RS.39,95,01,050 /- AS PART OF COST OF ACQUISITION/COST OF IMPROVEMENT WHILE CALCULATIN G THE CAPITAL GAINS ON SALE OF SHARES OF SBPL. THE ASSESSEE WHILE COMPU TING THE LONG TERM CAPITAL GAIN ON THE SALE OF SHARES HAS REDUCED THE INTEREST EXPENDITURE ON THE LOAN TAKEN FOR ACQUISITION OF RIGHT SHARES. AS DISCUSSED IN THE EARLIER PART OF THE ORDER, THE ASSESSEE HAS SUBSCRI BED TO RS.15,67,64,689/- RIGHT SHARES OF SBPL ON 09.08.201 2 WHICH WAS I.T.A .NO.-4737/DEL/2017 121 | P A G E FINANCED DIRECTLY OUT OF THE LOAN BORROWED FROM CAP RICON HEALTH SERVICES PVT. LTD. ON WHICH INTERESTS AGGREGATING T O RS.39,95,01,050/- (RS.13,88,26,342 IN FY 2012-13 & RS.26,06,74,708/- IN FY 2013-14) WAS PAID FROM THE DATE OF ACQUISITION TILL THE DATE OF TRANSFER OF SUCH SHARES. THE ASSESSEES CLAIM HAS BEEN THAT, SINCE T HE INTEREST EXPENDITURE INCURRED ON SUCH BORROWING HAS A DIRECT NEXUS WITH THE ACQUISITION OF THE SHARES OF THE AFORESAID COMPANY, THEREFORE, SAME WAS CAPITALIZED AS PART OF THE COST OF ACQUISITION OF SUCH SHARES FOR THE PURPOSES OF COMPUTING CAPITAL GAIN ARISING FROM TRA NSFER THEREOF. 67. THE AO FIRST OF ALL, OBSERVED THAT THE MEAN ING OF THE COST OF THE COST OF ACQUISITION AND COST OF IMPROVEMENT AS APPE ARING IN SECTION 48 & 49 HAS BEEN RESTRICTED BY THE SCOPE OF SECTION 55 (2). HE ALSO DISTINGUISHED THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF MITHLESH KUMARI (92 ITR 9) RELIED UPON BY THE ASSES SEE ON THE GROUND THAT IT WAS UNDER THE OLD ACT AND NOW THERE IS CHAN GE IN THE PROVISION. FINALLY, HE HAS DENIED THE SAID CAPITALIZATION OF I NTERESTS ON THE FOLLOWING GROUNDS:- I. THERE WAS NO DIRECT NEXUS BETWEEN THE FUNDS BORROWE D AND INVESTMENT MADE IN THE SHARES OF SBPL. II. INTEREST EXPENDITURE INCURRED AFTER THE DATE OF ACQ UISITION OF SHARES COULD NOT BE CONSIDERED AS PART OF COST OF A CQUISITION OF SHARES OR AS COST OF IMPROVEMENT, TO BE REDUCED WHI LE COMPUTING CAPITAL GAINS UNDER SECTION 48 OF THE ACT. FOR PURP OSE OF ARRIVING AT THE AFORESAID CONCLUSION, THE ASSESSING OFFICER REL IED UPON: (A) ACCOUNTING STANDARD-13 RELATING TO ACCOUNTING FOR INVESTMENTS AND ACCOUNTING STANDARD 16 RELATING TO BORROWING COSTS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNT ANTS OF INDIA (ICAI) TO HOLD THAT BORROWING COST INCURRED IN RELA TION TO A I.T.A .NO.-4737/DEL/2017 122 | P A G E QUALIFYING ASSET SHALL NOT BE CAPITALIZED WHEN SU BSTANTIALLY ALL THE ACTIVITIES NECESSARY TO PREPARE SUCH ASSET FOR ITS INTENDED USE OR SALE ARE COMPLETE. (B) DECISIONS OF COURTS, RENDERED IN THE CONTEXT OF ALLOWABILITY OF INTEREST UNDER SECTION 36(L)(III), WHEREIN IT HAS B EEN HELD THAT INTEREST EXPENDITURE INCURRED IN CONNECTION WITH CONSTRUCTION/PURCHASE OF PLANT IS TO BE CAPITALIZED AS PART OF COST OF FIXED ASSETS ONLY UPTO THE DATE OF CONSTRUC TION AND INTEREST EXPENDITURE INCURRED AFTER THE ASSET IS PU T TO USE IS ALLOWABLE REVENUE, DEDUCTION. LD. CIT(APPEAL)HAS CONFIRMED THE SAID ACTION OF TH E AO, IN HIS DETAILED ORDER. ARGUMENTS ON BEHALF OF THE APPELLANT/ASSESSEE: 68. BEFORE US, MR. AJAY VOHRA, LD. SR. COUNSEL FOR THE ASSESSEE DREW OUT ATTENTION TO THE LOAN AGREEMENT OF 08.08.2012 ENTERED BETWEEN THE ASSESSEE AND THE LENDER, CHSPL AND POINTED OUT THAT THE PREAMBLE ITSELF GOES TO SHOW THAT THE LOAN WAS GRAN TED TO THE BORROWER FOR THE PURPOSE OF SUBSCRIPTION OF THE SECURITIES. THE COPY OF BANK STATEMENT FOR THE RELEVANT PERIOD FOR WHICH AFORESA ID LOAN WAS BORROWED WERE PLACED BEFORE THE AO AND LD. CIT(A), WHICH WILL GO TO SHOW THAT THERE WAS A CLEAR NEXUS OF BORROWING WITH THE INVESTMENT IN SHARES OF SBPL. FROM THE PERUSAL OF THE SAID STATEM ENT, HE POINTED OUT THAT IT CAN BE SEEN THAT THE AMOUNT OF RS.156.7 6 CRORES WHICH WAS BORROWED ON 11.08.2012 HAS BEEN IMMEDIATELY UTILIZE D FOR PAYMENTS TOWARDS INVESTMENT IN SHARES OF SBPL ON THE SAME DA TE. THUS, IT HAS BEEN SUBMITTED THAT THERE WAS A DIRECT NEXUS BETWEE N THE FUND BORROWED AND THE INVESTMENT MADE IN THE SHARES OF S BPL AND, THEREFORE, ENTIRE PREMISE OF THE AO IS BASED ON WRO NG ASSUMPTION OF I.T.A .NO.-4737/DEL/2017 123 | P A G E FACTS. HE SUBMITTED THAT UNDER THE ACT, DISTINCTION HAS BEEN MADE BETWEEN THE ASSETS HELD BY AN ASSESSEE FOR DIFFEREN T PURPOSES, LIKE, STOCK IN TRADE, ASSETS USED FOR THE PURPOSE OF BUSI NESS; AND CAPITAL ASSET HELD AS INVESTMENT AND NOT USED FOR THE PURPO SES OF BUSINESS. THE OBJECTIVE BEHIND CLASSIFICATION OF ASSETS IN TH E AFORESAID CATEGORIES IS THAT THE ACT PROVIDES DIFFERENT PROVISION FOR CO MPUTATION OF INTEREST OF EACH ASSET AND ALSO PROVIDES DIFFERENT TREATMENT QUA THE LIABILITY OF INTEREST EXPENDITURE INCURRED ON BORROWED FUNDS UTI LIZED FOR ACQUIRING SUCH ASSETS. SINCE, IN THE PRESENT CASE, THE SHARES OF SBPL WAS HELD AS CAPITAL ASSETS WHICH HAD NO NEXUS WITH THE BUSIN ESS OF THE ASSESSEE, THE COST OF ACQUISITION FOR THE PURPOSE O F COMPUTING THE CAPITAL GAINS ON TRANSFER THEREOF IS TO BE DETERMIN ED IN TERMS OF SECTION 48. HE SUBMITTED THAT U/S 48 OF THE ACT, WHAT IS TO BE REDUCED IS THE COST OF ACQUISITION/ INDEXED COST OF ACQUISITION AN D COST OF IMPROVEMENT OF THE CAPITAL ASSETS. IN THE ABSENCE O F ANY PROVISION IN THE ACT PROVIDING THE METHOD OF COMPUTATION OF COST FOR THE PURPOSE OF SECTION 48, OTHER THAN SECTIONS 49 & 55 WHICH DEALS WITH THE MODE OF COMPUTATION IN CERTAIN SPECIFIC CASES, THEN THE SAI D EXPRESSION USED IN SECTION 48 SHOULD BE CONSTRUED TO INCLUDE ALL EXPEN SES INCURRED IN RELATION TO ACQUISITION OF CAPITAL ASSETS. INTEREST EXPENDITURE INCURRED IN RESPECT OF FUNDS BORROWED WHICH ARE DIRECTLY UTI LIZED FOR THE UTILIZATION OF ASSETS HAS TO BE ALLOWED AS COST OF ACQUISITION. IN SUPPORT OF THIS CONTENTION, HE STRONGLY RELIED UPON THE JUD GMENTS OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MITHILESH KUMARI (92 ITR 9) & CATENA OF OTHER DECISIONS WHICH ARE AS UNDER:- TRISHUL INVESTMENTS LTD VS. CIT: 305 ITR 434 (MAD.) ACIT V: K S GUPTA: 119-ITR372 (ANDH.) CIT V, MAITHREYIPAI: 152 ITR 247 (KAR.) CIT V. K. RAJA GOPALA RAO: 252 ITR 459 (MADRAS) CIT V. SRI HARIRAM HOTELS (P.) LTD: 188 TAXMAN 170 (KAR.) I.T.A .NO.-4737/DEL/2017 124 | P A G E PRAVEEN GUPTA V. ACIT: 20 TAXMANN.COM 308 (DEL.) S. BALAN ALIA SHANMUGAM V. DCIT: 120 ITD 469 (PUNE) GAYATRI MAHESHWARI VS. ITO: 187 TTJ 33 (JODHPUR) 69. REGARDING APPLICABILITY OF AS-13 & AS-16, HE HA D SUBMITTED THAT, INSOFAR AS THE APPLICABILITY OF AS-13 RELATIN G TO ACCOUNTING FOR INVESTMENTS IS CONCERNED, THE SAID ACCOUNTING STAN DARD ONLY PROVIDES THAT AN INVESTMENT, BE IT CURRENT INVESTMENT OR LON G TERM INVESTMENT, IS TO BE RECORDED AT ITS COST. THE AFORESAID ACCOUN TING STANDARD DOES NOT DEAL WITH INCLUSION/EXCLUSION OF INTEREST EXPEN DITURE INCURRED ON BORROWED FUNDS FROM THE COST OF INVESTMENTS AND, TH EREFORE, THE ASSESSING OFFICER HAS ERRED IN REFERRING TO THE SAI D ACCOUNTING STANDARD. AS REGARDS AS-16, THE SAME IS ALSO NOT AP PLICABLE TO THE FACTS OF THE PRESENT CASE AND HAS BEEN WRONGLY APPL IED BY THE ASSESSING OFFICER. HE SUBMITTED THAT AS-16 IS APPLI CABLE FOR TREATMENT OF BORROWING COSTS INCURRED IN RELATION TO A QUALI FYING ASSET, WHICH HAS BEEN DEFINED AS AN ASSET THAT NECESSARILY TAKES A SUBSTANTIAL PERIOD OF TIME TO GET READY FOR ITS INTENDED USE OR SALE. HAVING REGARD TO THE AFORESAID DEFINITION, AN ASSET WHICH DOES NO T TAKE SUBSTANTIAL PERIOD OF TIME TO GET READY FOR USE OR SALE, AS A N ECESSARY COROLLARY, DOES NOT FALL WITHIN THE MEANING OF QUALIFYING ASSE T. THE AFORESAID VIEW HAS EVEN BEEN CLARIFIED IN PARA 5 OF THE STANDARD, WHICH PROVIDES THAT OTHER, INVESTMENTS AND THOSE INVENTORIES THAT ARE ROUTINELY MANUFACTURED OR OTHERWISE PRODUCED IN LARGE QUANTIT IES ON A REPETITIVE BASIS OVER A SHORT PERIOD OF TIME, ARE NOT QUALIFYI NG ASSETS. ASSETS THAT ARE READY FOR THEIR INTENDED USE OR SALE WHEN ACQUI RED ALSO ARE NOT QUALIFYING ASSETS. THE AFORESAID CLAUSE OF THE ACCOUNTING STANDARD CLEARLY EXCLUDES ASSETS LIKE SHARES WHICH ARE READY FOR INTENDED USE AS SOON AS THE SAME ARE ACQUIRED, FROM THE MEANING OF QUALIFYING ASSETS FOR THE PURPOSE OF APPLYING CONTENT AND TREATMENT O F VARIOUS COST CONTAINED IN THE SAID STANDARD. HENCE, THE ASSESSIN G OFFICER HAS I.T.A .NO.-4737/DEL/2017 125 | P A G E GROSSLY ERRED IN APPLYING THE AFORESAID ACCOUNTING STANDARD TO HOLD THAT THE INTEREST EXPENDITURE INCURRED ON BORROWED FUNDS, AFTER ACQUISITION OF SHARES, CANNOT BE CAPITALIZED AS PAR T OF COST OF ACQUISITION OF SUCH SHARES AND CONSEQUENTLY HOLDING THAT THE APPELLANT HAD FLOUTED THE PROVISIONS OF THE ACCOUNT ING STANDARDS. IN THE ABSENCE OF ANY SPECIFIC ACCOUNTING STANDARD DEA LING WITH THE TREATMENT OF BORROWING COSTS INCURRED IN RELATION T O ACQUISITION OF SHARES, THE COST OF SUCH SHARES HAS TO BE DETERMINE D ON THE BASIS OF NORMAL COMMERCIAL PRINCIPLES DO NOT PROHIBIT AN ASS ESSEE TO CAPITALIZE THE INTEREST EXPENDITURE INCURRED AFTER ACQUISITION OF SHARES AS PART OF COST THEREOF. HE FURTHER SUBMITTED THAT, BE THAT AS IT MAY, EVEN ASSUMING WITHOUT ADMITTING THAT AS-16 IS APPLICABLE AND THE SAME PROHIBITS CAPITALIZATION OF INTEREST EXPENDITURE PO ST ACQUISITION OF SHARES, EVEN THEN, THE SAID STANDARD CANNOT BE APPL IED TO COMPUTE COST OF ACQUISITION OF SHARES FOR THE PURPOSE OF SE CTION 48 OF THE ACT. IT IS A WELL SETTLED LEGAL POSITION THAT ENTRIES IN TH E BOOKS OF ACCOUNT ARE NOT CONCLUSIVE FOR DETERMINATION OF TAX LIABILITY, WHICH HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT. IN SUPPORT HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: KEDARNA TH JUTE MFG. CO. LTD. V. CIT: 82 ITR 363 (SC); SUTLEJ COTTON MILLS L TD. V. CIT: 116 ITR 1 (SC); AND TAPARIA TOOLS LTD. V.JCIT: 372 ITR 605 (S C). ARGUMENTS ON BEHALF OF THE RESPONDENT/ REVENUE 70. ON THE OTHER HAND, SPECIAL COUNSEL OF THE REVEN UE, MR. G.C. SRIVASTAVA SUBMITTED THAT THE ASSESSEE HAD BORROWED THE FUNDS FOR SUBSCRIBING TO THE RIGHT ISSUE AND CLAIM THE INTERE ST PAYABLE ON SUCH BORROWINGS, WHICH HAS BEEN SOUGHT TO BE ADJUSTED AT COST OF ACQUISITION FOR COMPUTING THE CAPITAL GAINS ON TRAN SFER OF SUCH SHARES IN TERMS OF SECTION 48 WHICH HAS BEEN DENIED BY THE AO. HERE IN THIS CASE, HE SUBMITTED THAT IT IS NOT IN DISPUTE THAT T HE FUNDS WERE I.T.A .NO.-4737/DEL/2017 126 | P A G E BORROWED FOR SPECIFIC PURPOSE OF MAKING SUBSCRIPTIO N TO THE RIGHT SHARES ISSUED BY THE COMPANY AND SUCH INTEREST ACC RUED AFTER THE EVENT OF ACQUISITION OF SHARES. THE CLAIM OF INTERE ST IS IN RESPECT OF INTEREST ACCRUING TILL DATE OF TRANSFER OF RIGHT S HARES. HE SUBMITTED THAT IT IS A SETTLED POSITION OF LAW THAT INCOME UN DER DIFFERENT HEADS ARE COMPUTED HAVING REGARD TO THE PROVISIONS GOVERN ING SUCH COMPUTATION AS CONTAINED IN VARIOUS PROVISIONS APPE ARING IN THAT HEAD OF INCOME. THUS, EXPENSES FOR EARNING INCOME FROM S ALARY OR PROPERTY OR FROM BUSINESS OR PROFESSION ARE ALLOWABLE ONLY I F AND TO THE EXTENT THESE ARE DEDUCTIBLE UNDER THE SPECIFIC PROVISIONS GOVERNING SUCH HEADS OF INCOME. IF A CERTAIN EXPENSE IS NOT DEDUCT IBLE BY A SPECIFIC PROVISION, IT WOULD NOT BE TAKEN INTO COMPUTATION O F INCOME. IN THIS BACKDROP, HE SUBMITTED THAT IT NEEDS TO BE APPRECIA TED THAT THE PROVISIONS OF SECTION 48 CONTEMPLATE ONLY THE FOLLO WING DEDUCTIONS FROM THE FULL VALUE OF CONSIDERATION, VIZ., (I) CO ST OF ACQUISITION OF THE CAPITAL ASSET; (II) COST OF IMPROVEMENT OF THE SAID ASSET; AND (III) ANY OTHER EXPENSE INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSES OF TRANSFER OF THE SAID ASSET. THE CLAIM OF THE ASSESS EE WITH REGARD TO THE INTEREST ON BORROWED FUNDS IS ADMITTEDLY NOT A DEDU CTIBLE ITEM UNDER (II) AND (III). THE CLAIM IS THAT THE INTEREST PAYA BLE ON THE BORROWED FUNDS FORMS PART OF THE COST OF ACQUISITION OF THE CAPITAL ASSET. HE SUBMITTED THAT UNDER THE NORMAL MEANING OF THE EXPR ESSION COST OF ACQUISITION, THE COST CAN ONLY INCLUDE THE PRICE P AID FOR ACQUIRING THE ASSET AND IT CANNOT INCLUDE ANY OTHER EXPENSE INCUR RED BY THE APPELLANT POST THE ACQUISITION OF THE ASSET. IT IS OBVIOUS THAT THE INTEREST ACCRUED AFTER THE ACQUISITION OF THE ASSET AND THE PERIOD OF SUCH INTEREST EXTENDS TILL THE DATE OF TRANSFER. TH E AMOUNT OF INTEREST THAT THE ASSESSEE MAY HAVE TO PAY CANNOT, THUS, REP RESENT THE COST OF ACQUISITION. THE COST OF ACQUISITION OF AN ASSET CA NNOT VARY FROM MONTH TO MONTH OR YEAR TO YEAR DEPENDING UPON HOW L ONG THE I.T.A .NO.-4737/DEL/2017 127 | P A G E BORROWED FUNDS HAVE REMAINED OUTSTANDING, NOR THE C OST OF AN ASSET WILL BE ONE IF ACQUIRED OUT OF OWN FUNDS AND WILL B E THE OTHER IF ACQUIRED OUT OF BORROWED FUNDS. SUCH A PROPOSITION DEFIES LOGIC EVEN IN COMMERCIAL TERMS. THE EXPRESSION COST OF ACQUIS ITION HAS BEEN STATUTORILY DEFINED IN SECTION 55(2) IN AN EXHAUSTI VE MANNER. THIS DEFINITION COVERS ONLY CERTAIN KINDS OF ASSETS FOR WHICH A PRECISE AND EXHAUSTIVE DEFINITION WAS CONSIDERED NECESSARY. A B ARE READING OF THE AFORESAID PROVISION BRINGS OUT IN UNAMBIGUOUS TERMS THAT WHERE AN ASSESSEE BECOMES ENTITLED TO SUBSCRIBE TO ANY ADDIT IONAL FINANCIAL ASSETS LIKE RIGHT SHARES OR IS ALLOTTED ANY ADDIT IONAL FINANCIAL ASSET WITHOUT ANY PAYMENT LIKE BONUS SHARES, THE COST IN THE CASE OF THE FORMER MEANS THE AMOUNT ACTUALLY PAID BY HIM FOR AC QUIRING SUCH ASSET AND IN THE CASE OF THE LATTER THE COST SHALL BE TAKEN TO BE NIL. THE USE OF THE EXPRESSION MEANS IN THE SAID CLAUS E RENDERS THE DEFINITION OF THE COST OF ACQUISITION AS EXHAUSTIVE AND NOT INCLUSIVE.THE ARGUMENT OF THE APPELLANT THAT IT ONL Y DEFINES THE BASE PRICE AND NOT THE ADDITIONAL BURDEN OF INTEREST IS DEVOID OF ANY MERIT IN VIEW OF THE EXHAUSTIVE DEFINITION OF THE EXPRESS ION COST OF ACQUISITION GIVEN IN THE ENACTMENT. IN VIEW OF THE SPECIFIC STATUTORY PROVISION GOVERNING THE SCOPE AND AMBIT OF COST OF ACQUISITION, THERE IS NO ROOM FOR ANY DEBATE THAT COST CAN INCLUDE ANY THING OVER AND ABOVE THE AMOUNT ACTUALLY PAID BY HIM FOR ACQUIRIN G SUCH ASSET. THESE AMENDMENTS TO SECTION 55(2) WERE INTRODUCED W .E.F. 01.04.1995. THE AMENDMENTS WERE CARRIED OUT WITH THE SPECIFIC O BJECT OF SETTLING THE ISSUE OF DETERMINATION OF COST OF ACQUISITION O F RIGHT SHARES OR BONUS SHARES. 71. AS REGARDS, RELIANCE PLACED BY THE ASSESSEE ON CERTAIN JUDICIAL PRECEDENTS, HE SUBMITTED THAT IN SO FAR AS THE JUDG MENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MITHILESH K UMARI (92 ITR 9) WHICH HAVE BEEN RELIED UPON IN NUMBER OF SUBSEQUENT DECISIONS, HE I.T.A .NO.-4737/DEL/2017 128 | P A G E POINTED OUT THAT THE SAID CASE WAS RENDERED IN THE CONTEXT OF SECTION 12B(2) OF OLD ACT OF 1922, WHEREIN THE LANGUAGE WAS ENTIRELY DIFFERENT WHICH IS EVIDENT FROM THE FOLLOWING READING OF THE THEN PROVISION, INCOME TAX ACT, 1922:- THE AMOUNT OF A CAPITAL GAIN SHALL BE COMPUTED AFT ER MAKING THE FOLLOWING DEDUCTIONS FROM THE FULL VALUE OF THE CON SIDERATION FOR WHICH THE SALE, EXCHANGE, RELINQUISHMENT OR TRANSFE R OF THE CAPITAL ASSET IS MADE, (I) EXPENDITURE INCURRED SOLELY IN CONNECTION WITH SUC H SALE, EXCHANGE, RELINQUISHMENT OR TRANSFER; (II) THE ACTUAL COST TO THE ASSESSEE OF THE CAPITAL ASSE T,INCLUDING ANY EXPENDITURE OF A CAPITAL NATURE INCURRED AND BO RNE BY HIM IN MAKING ANY ADDITIONS OR ALTERATIONS THERETO, BUT EX CLUDING ANY EXPENDITURE IN RESPECT OF WHICH ANY ALLOWANCE IS AD MISSIBLE UNDER ANY PROVISION OF SECTIONS 8,9,10 AND 12 IT IS SEEN THAT UNDER THE SAID SECTION 12B OF THE 1 922 ACT, THERE WAS A PROVISION WHICH IMPLIED THAT ONLY DEDUCTIONS NOT AD MISSIBLE UNDER SECTIONS 8,9, 10 AND 12 COULD BE ADDED TO THE COST OF CAPITAL ASSET. IT WAS IN THIS BACKDROP,THAT THE COURT CAME TO THE CON CLUSION THAT INTEREST ON BORROWED FUNDS CONSTITUTED COST OF ACQU ISITION. THIS DECISION, HE SUBMITTED THAT IS NO LONGER RELEVANT F OR THE REASON THAT THE LAW AS APPLICABLE W.E.F. 01.04.1995 DEFINES THE EXPRESSION COST OF ACQUISITION IN EXPRESS TERMS AND IN AN EXHAUSTIVE MANNER FOR THE RIGHT SHARES AND BONUS SHARES. IN VIEW OF THE CHANG E IN LAW, THE DECISION IS WHOLLY INAPPLICABLE.REGARDING RELIANCE PLACED ON FURTHER DECISIONS LIKE KS GUPTA (119 ITR 372), MAITHREYI PA I (152 ITR 247), TRISHUL INVESTMENTS (305 ITR 434), RAJA GOPAL RAO ( 252 TTJ 449)ETC., HE SUBMITTED THAT IN NONE OF THESE CASES, THE ISSUE WAS THE DETERMINATION OF THE COST OF ACQUISITION OF RIGHT S HARES OF BONUS.THESE WERE CASES MOSTLY RELATING TO HOUSE PROPERTY, OR OT HER KINDS OF IMMOVABLE PROPERTIES AND IN NOWHERE THE AMENDED PRO VISIONS HAVE BEEN CONSIDERED. IN THE CASES OF MAITHREYI PAI (SUP RA) AND TRISHUL I.T.A .NO.-4737/DEL/2017 129 | P A G E INVESTMENTS (SUPRA), THE CAPITAL ASSET INVOLVED WAS SHARES BUT IN THE CASE OF THE FORMER THE MATTER WAS REMANDED AND THE QUESTION WAS NOT ANSWERED AND IN THE CASE OF THE LATTER, IT WAS AGAI N NOT A CASE OF COST OF RIGHT SHARES WHICH HAS BEEN SPECIFICALLY TAKEN C ARE OF IN THE AMENDED DEFINITION FALLING IN SECTION 55(2) OF THE ACT. IN THIS BACKDROP, HE SUBMITTED THAT ALL THESE CASES REFERRED TO BY TH E LD. SR. COUNSEL DEAL WITH THE COST OF THE ASSETS FOR WHICH COST OF ACQUISITION IS NOT STATUTORILY DEFINED IN THE ACT.THESE CASES THUS, LO SE THEIR RELEVANCE IN VIEW OF THE SPECIFIC NATURE OF ASSETS UNDER DISPUTE IN THE PRESENT CASE. THE COST IN THE PRESENT CASE HAS TO BE GOVERNED BY THE SPECIFIC PROVISIONS OF THE ACT. REGARDING RELIANCE PLACED ON THE JUDGMENT IN THE CASE OF SAHARANPUR ELECTRIC SUPPLY CO. (194 ITR 294 ), IT DEALS WITH THE ACTUAL COST FOR THE PURPOSES OF SECTION 43(1) OF TH E ACT, WHEREAS THE CASE OF ESCORT FARMS REPORTED IN 222 ITR 508 RELIED UPON BY THE APPELLANT REFERS TO COST OF ACQUISITION OF BONUS SH ARES UNDER THE PRE- AMENDED PROVISIONS OF THE ACT. REFERENCE TO MISS DH UN DADABHOI KAPADIA (63 ITR 651) REFERS TO RENUNCIATION OF RIGH TS IN SHARES AND NOW IN WAKE OF THE AMENDMENT IN SECTION 55(2) NEGAT ES THE EFFECT OF THIS DECISION. THE CASE OF NAVEEN JINDAL (320 ITR 7 08) DEALS WITH THE ISSUE OF DEBENTURES GRANTED ON THE RIGHT BASIS BUT THE MATTER RELATES AY 1992- 93, WHICH AGAIN IS PRIOR TO THE AMENDMENT MADE IN SECTION 55(2) OF THE ACT. IN THIS CASE, THE NARROW ISSUE WH ICH AROSE FOR CONSIDERATION OF THE COURT WAS WHETHER THE LOSS SUF FERED BY THE APPELLANT WAS A SHORT TERM CAPITAL LOSS OR A LONG T ERM ONE. THE QUESTION OF COST OF ACQUISITION WAS NEITHER AN ISSU E NOR WAS THE SUBJECT MATTER OF THE DECISION. THERE WAS NO ISSUE OF DEDUCTION OF ANY AMOUNT OF INTEREST AS THE COST OF ACQUISITION. IN T HE CASE OF RAJKUMARI BANGAR (154 ITR 868) REFERRED TO BY THE LD. COUNSEL , THE ISSUE WAS WHETHER IN COMPUTING THE CAPITAL GAINS THE COST OF ORIGINAL SHARES COULD BE SPREAD OVER BONUS SHARES. THE ISSUE OF ANY DEDUCTION OVER I.T.A .NO.-4737/DEL/2017 130 | P A G E AND ABOVE THE ACTUAL COST OF ACQUISITION LIKE INTER EST ON BORROWED FUNDS WAS NEVER AN ISSUE. AS REGARDS DALMIA INVESTM ENT CO. LTD. (52 ITR 567), HERE AGAIN, THE ISSUE WAS WHETHER THE COS T OF THE ORIGINAL SHARES COULD BE SPREAD OVER THE BONUS SHARES. THE I SSUE OF ANY DEDUCTION WITH REGARD TO THE INTEREST ON BORROWED F UNDS WAS NOT AT ALL THERE IN THIS CASE. 72. AFTER DISTINGUISHING JUDGMENTS RELIED UPON BY THE ASSESSEE, MR. SRIVASTAVA ALSO PLACED RELIANCE UPON CERTAIN DECISI ONS LIKE IN THE CASE OF L.N. DALMIA REPORTED IN 207 ITR 89, WHERE THE QU ESTION OF DEDUCTION OF INTEREST WHILE COMPUTING CAPITAL GAINS WAS EXAMINED. IT WAS HELD THAT THE ASSESSEE WAS NOT ENTITLED TO CLAI M THE AMOUNT PAID/PAYABLE AS INTEREST WHILE COMPUTING THE AMOUNT OF CAPITAL GAINS. REFERENCE WAS ALSO MADE BY HIM TO THE DECISION IN T HE CASE OF OCTAVIOUS STEEL & CO. LTD. REPORTED IN 82 TAXMAN 79 , WHERE THE HONBLE HC OF CALCUTTA HELD THAT THE COST OF ACQUIS ITION OF ASSET MUST BE UNDERSTOOD IN ITS COMMON SENSE, I.E., IT MUST RE PRESENT THE EXPENDITURE INCURRED IN ACQUIRING THE ASSET. IT FUR THER HELD THAT CERTAIN EXPENDITURE MADE LATER ON CANNOT TAKE THE P LACE OF THE COST OF ACQUISITION. THE HONBLE COURT WENT ON TO OBSERVE T HAT EXCEPT FOR THE PROVISIONS LIKE SECTION 43A WHERE SPECIAL PROVISION IS MADE FOR DETERMINING THE COST OF ACQUISITION, THE COST OF AC QUISITION WOULD BE THE PRICE PAID FOR ACQUIRING THE ASSET. LASTLY, HE PLACED RELIANCE ON CO- ORDINATE BENCH DECISIONS IN THE CASES OF MACINTOSH FINANCE ESTATES LTD. (12 SOT 324); VIKRAM SADANAND HOSKOTE (18 SOT 130); AND ABAN OFFSHORE LTD. (76 TAXMANN 47) TO RELY ON THE PROPOS ITION THAT INTEREST CANNOT FORM PART OF THE COST OF ACQUISITION. THUS, HE SUBMITTED THAT THE COST OF ACQUISITION CAN INCLUDE ONLY THE AMOUNT ACTUALLY PAID BY THE APPELLANT FOR ACQUIRING THE ASSET IN TERMS OF S PECIFIC MANDATE OF SECTION 55(2) OF THE ACT. NO DEDUCTION FOR INTEREST PAID ON FUNDS BORROWED FOR ACQUIRING THE RIGHT SHARES CAN BE CONS IDERED WHILE I.T.A .NO.-4737/DEL/2017 131 | P A G E COMPUTING THE CAPITAL GAINS. THE AO HAS RIGHTLY REJ ECTED THE CLAIM AND THE ACTION OF THE CIT(A) IN UPHOLDING THE SAID FIND ING DESERVES TO BE SUSTAINED. REJOINDER BY ASSESSEE 73. BY WAY OF REJOINDER, MR. AJAY VOHRA, SUBMITTED THAT IN SO FAR AS THE FIRST CONTENTION OF THE LD. SPECIAL COUNSEL THA T THE INTEREST EXPENDITURE IS INHERENTLY REVENUE IN NATURE AND CAN , THEREFORE, BE ALLOWED AS DEDUCTION ONLY AGAINST THE REVENUE RECEI PTS AND NOT CAPITAL RECEIPTS IS, AGAINST THE SCHEME OF THE ACT. IN THIS REGARD, HE SUBMITTED THAT, IT WOULD BE APPRECIATED THAT THERE IS NO QUAR REL WITH THE PROPOSITION THAT INTEREST EXPENDITURE INCURRED ON B ORROWED FUNDS UTILIZED FOR ACQUISITION OF A CAPITAL ASSET USED FO R PURPOSE OF BUSINESS SHALL BE CAPITALIZED TO THE COST OF CAPITAL ASSET, UPTO THE DATE OF ITS ACQUISITION / PUTTING TO USE OF THE ASSET. REFERENC E IN THIS REGARD CAN BE MADE TO THE PROVISO TO SECTION 36(L)(III) OF THE ACT RELATING TO ALLOWABILITY OF INTEREST EXPENDITURE INCURRED ON AC QUISITION OF CAPITAL ASSET USED FOR PURPOSE OF BUSINESS. IN VIEW OF THE AFORESAID UNDISPUTABLE POSITION WITH REGARD TO CAPITALIZATION OF INTEREST EXPENDITURE UPTO THE DATE OF ACQUISITION / PUTTING TO USE OF THE CAPITAL ASSET, THERE IS NO FORCE IN THE ARGUMENT OF THE RES PONDENT REVENUE THAT INTEREST EXPENDITURE IS INHERENTLY REVENUE IN NATURE AND, THEREFORE, OUGHT TO BE REDUCED ONLY AGAINST THE REV ENUE RECEIPTS AND CANNOT BE CAPITALIZED TO THE COST OF CAPITAL ASSETS . THE REVENUE SOUGHT TO DISTINGUISH THE BINDING JUDGMENT OF THE JURISDIC TIONAL HIGH COURT IN THE CASE OF MITHLESH KUMARI (SUPRA) ON THE GROUND T HAT THE SAME WAS RENDERED IN THE CONTEXT OF ACQUISITION OF LAND AND HAD THUS, NO RELEVANCE TO A CASE OF PAYMENT OF INTEREST FOR ACQU ISITION OF SHARES. HE SUBMITTED THAT THE RATIO LAID DOWN IN THE AFORESAID JUDGMENT APPLIES TO COMPUTATION OF COST OF ACQUISITION OF A CAPITAL ASS ET, BE IT LAND, SHARES I.T.A .NO.-4737/DEL/2017 132 | P A G E OR ANY OTHER ASSET, FOR PURPOSE OF SECTION 48 OF TH E ACT, IN THE DETERMINATION OF CAPITAL GAINS ARISING FROM TRANSFE R OF SUCH 'ASSET. IT IS ILLUSORY TO DRAW SUCH AN ARTIFICIAL DISTINCTION AND CONTEND THAT THE RATIO OF THE SAID JUDGMENT IS LIMITED IN ITS APPLIC ATION TO ACQUISITION OF LAND ALONE. THE ISSUE, THUS, THAT ARISES IS WITH RE GARD TO CAPITALIZATION OF INTEREST EXPENDITURE INCURRED AFTER THE DATE OF ACQUISITION OF A CAPITAL ASSET, WHICH IS NOT A BUSINESS ASSET IN TER MS OF SECTION 48 OF THE ACT, WHICH IN STANDS ANSWERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE VARIOUS COURTS RELIED UPON BY THE ASSESSEE SUPRA, WHEREIN IT HAS BEEN HELD THAT INTEREST EXPENDITURE INCURRED EVEN AFTER THE DATE OF ACQUISITION OF THE CAPITAL ASSET SHALL BE LIABLE TO BE ADDED TO THE COST OF SUCH ASSET FOR PURPOSE OF THE AFORES AID SECTION. THE REVENUE WAS UNABLE TO CONTROVERT THE PROPOSITION OF LAW LAID DOWN IN THE SAID DECISIONS BY POINTING OUT ANY DECISIONS TO THE CONTRARY. FURTHER, THE OTHER CONSEQUENTIAL ARGUMENT OF THE RE SPONDENT REVENUE THAT THE COST OF ACQUISITION OF THE CAPITAL ASSET A S ON THE DATE OF ACQUISITION IS SACROSANCT AND CANNOT BE VARIED SUBS EQUENTLY, IS CONTRARY TO THE LEGAL POSITION LAID DOWN IN THE CAT ENA OF DECISIONS (REFERRED TO BY HIM EARLIER) WHEREIN IT HAS BEEN RE PEATEDLY HELD THAT THE COST OF ACQUISITION OF A CAPITAL ASSET IS NOT SACRO SANCT AND IS CAPABLE OF VARIATION SUBSEQUENTLY. HE AGAIN RE-ITERATED THE RA TIO OF HONBLE SUPREME COURT IN THE CASE OF SHARANPUR ELECTRIC SUP PLY COMPANY LTD. VS CIT AND REFERRED TO JUDGMENT OF HONBLE AL LAHABAD HIGH COURT IN THE CASE OF CIT VS. JINDAL POLYSTER LTD. 248 TAX MANN 321 AND SUBMITTED THAT IN VIEW OF THE LEGAL PROPOSITION AS LAID DOWN IN THESE JUDGMENTS, THE ARGUMENTS OF THE REVENUE AND THE INT EREST BORROWED FUND AFTER THE DATE OF ACQUISITION OF ASSETS CANNOT BE CAPITALIZED OR ADDED TO THE COST OF ASSETS IS CONTRARY TO THE SETT LED LEGAL POSITION AND, THEREFORE, NEEDS TO BE REJECTED. HE FURTHER SUBMITT ED THAT THE REFERENCE OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CAS E OF RAJENDRA I.T.A .NO.-4737/DEL/2017 133 | P A G E PRASAD MOODY (115 ITR 519) BY THE REVENUE DURING TH E COURSE OF ARGUMENT TO CANVASS THAT SHARES BORROWED FROM LOAN AMOUNT CANNOT BE ALLOWED, IS ALSO MISPLACED AS IN THE SAID DECIS ION, THE FINDING OF FACT WAS THAT THE ASSESSEE WAS INVESTED IN SHARES U SING INTEREST BEARING BORROWED FUNDS FOR THE PURPOSE OF EARNING D IVIDEND INCOME THEREFROM AND THE QUESTION BEFORE THE HONBLE SUPRE ME COURT WAS, WHETHER THE INTEREST EXPENDITURE WOULD BE ALLOWABLE AS DEDUCTION U/S 57, AND NO DIVIDEND WAS EARNED BY THE ASSESSEE DURI NG THE RELEVANT YEAR. IT WAS IN THIS CONTEXT, THE HONBLE SUPREME C OURT HELD THAT SINCE SECTION 57 ONLY REQUIRES THAT EXPENDITURE MUST BE W HOLLY AND EXCLUSIVELY INCURRED FOR EARNING INCOME, WITHOUT AN Y FURTHER CONDITION OF INCOME TO BE ACTUALLY OWNED BY THE ASSESSEE AND THE INTEREST PAID ON MONEY BORROWED FOR INVESTMENT IN SHARES TO OWN D IVIDEND INCOME WAS ALLOWABLE DEDUCTION UNDER THE SAID SECTION, NOT WITHSTANDING THE FACT THAT THE SHARE DID NOT YIELD ANY DIVIDEND INCO ME DURING THE RELEVANT YEAR. THE SAID DECISION HAS NO APPLICABILI TY TO THE PRESENT CASE AS THE INVESTMENT IN RIGHT SHARES WAS TO ACQUI RE/RETAIN SHARE HOLDING/CONTROLLING INTEREST IN SBPL AND NOT TO DIV IDEND INCOME, THEREFORE, AND IN FACT NO DIVIDEND INCOME HAS BEEN RECEIVED BY THE ASSESSEE. HE FURTHER DISTINGUISHED THE DECISIONS RE LIED UPON BY THE REVENUE IN THE CASE OF MACINTOSH FINANCE ESTATES LT D. VS. ACIT AND IN THE CASE OF ABAN OFFSHORE LTD. (SUPRA), AND SUBMITT ED THAT THEY ARE CLEARLY DISTINGUISHABLE ON FACTS. LIKEWISE THE RELI ANCE PLACED ON THE DECISION OF KOLKATA HIGH COURT IN THE CASE OF L.N. DALMIA (SUPRA) & CIT VS. OCTAVIOUS STEEL & CO. LTD. ARE AGAIN DISTIN GUISHABLE ON FACTS. FOR MAKING DISTINCTION, HE HAS MADE HIS DETAILED SU BMISSIONS IN HIS WRITTEN SUBMISSIONS FILED BEFORE US. 74. WITHOUT PREJUDICE, MR. AJAY VOHRA SUBMITTE D THAT IF THE HONBLE BENCH IS PLEASED TO UPHOLD THE CONTENTION OF THE RE VENUE THAT INTEREST PAID ON ACQUISITION OF RIGHT SHARES IS TO BE ALLOWE D AS DEDUCTION WHILE I.T.A .NO.-4737/DEL/2017 134 | P A G E COMPUTING THE UNDER THE HEAD INCOME FROM OTHER SOU RCES, THEN SAME HAS TO BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND RESU LTANT LOSS SHOULD BE ALLOWED TO SET OFF AGAINST THE INCOME FROM CAPIT AL GAINS IN TERMS OF SECTION 71; AND FURTHER DIRECTION SHOULD BE ISSUED TO ALLOWED DEDUCTION INCOME INCURRED IN THE EARLIER YEAR 2013- 14 AY. HE ALSO RELIED UPON THE FOLLOWING DECISIONS TO CANVASS THAT THE TRIBUNAL HAS THE POWER TO ISSUE DIRECTION FOR ALLOWANCE FOR INTE REST EXPENDITURE INCURRED DURING THE AY 2013-14 AGAINST THE OPTION F EE EARNED IN THAT YEAR AND DISCUSSED UNDER THE HEAD OTHER SOURCES:- JCIT V. HMA UDYOG LIMITED: ITA NO.2230/DEL/1999 (DEL); AND PERF ECT EQUIPMENTS V. DCIT: 85 ITD 50 (AHM.) 75. LASTLY, WITH REGARD TO THE RELIANCE PLACED ON T HE PROVISIONS OF SECTION 55(2)(AA)(III), HE SUBMITTED THAT IT WOULD BE NECESSARY TO APPRECIATE THE LEGISLATIVE INTENT BEHIND INSERTION OF CLAUSE (AA) TO SECTION 55(2) BY THE FINANCE ACT, 1994 W.E.F. 01.04 .1995, PRESCRIBING THE MODE OF COMPUTATION OF COST OF ACQUISITION IN R ELATION TO CERTAIN ASSETS, I.E., ACQUISITION OF BONUS SHARES AND/OR SH ARES ACQUIRED IN RIGHTS ISSUE. PRIOR TO THE AFORESAID INSERTION, IN THE ABSENCE OF ANY SPECIFIC PROVISION DEALING WITH THE MODE OF COMPUTA TION OF COST OF ACQUISITION OF BONUS/RIGHTS SHARES DISPUTE HAD ARIS EN AS TO WHETHER THE COST OF AFORESAID SHARES NEEDS TO BE COMPUTED A S PER THE ACTUAL PRICE PAID OR ON THE BASIS OF THE AVERAGE COST OF T HE ORIGINAL SHARES, SINCE THE ALLOTMENT OF THE' AFORESAID SHARES, I.E., BONUS/RIGHTS WAS DERIVED FROM THE ORIGINAL SHAREHOLDING. REFERENCE I N THIS REGARD MAY BE MADE TO THE FOLLOWING DECISIONS WHEREIN IT WAS H ELD THAT THE COST OF ACQUISITION OF BONUS/RIGHT SHARES WOULD BE ADOPTED AS AVERAGE COST OF ORIGINAL SHARES AND PRICE PAID, IF ANY, FOR ACQUIRI NG SUCH SHARES, VIZ.,:- I) ESCORTS FARMS (RAMGARH) LTD. V. CIT: 222 ITR 508 (SC); II) MISS I.T.A .NO.-4737/DEL/2017 135 | P A G E DHUN DADABHOY KAPADIA V. CIT: (SUPRA); III) NAVIN J INDAL V. ACIT: 320 ITR 708 (SC); ANDIV) ACIT V. RAJ KUMARI BANGUR: 154 ITR 868 (RAJ). 76. IT WAS IN THE AFORESAID BACKGROUND THAT CLA USE (AA) WAS INSERTED IN SECTION 55(2) BY THE FINANCE ACT, 1994 W.E.F. 01 .04.1995 TO PROVIDE CERTAINTY BY STIPULATING THAT THE COST OF ACQUISITI ON OF BONUS/RIGHT SHARES SHALL BE CONSIDERED AS NIL/ ACTUAL PRICE PAI D FOR ACQUISITION THEREFOR, RESPECTIVELY. HE ALSO INVITED OUR ATTENTI ON TO RELEVANT EXTRACT OF MEMORANDUM EXPLAINING PROVISIONS OF FINANCE BILL 1994 THROUGH WHICH SECTION 55(2) PROPOSED AND SUBMITTED THAT IT WAS BROUGHT IN THE STATUTE TO AVOID COMPUTATION OF THE BONUS OF THE RI GHT SHARES AS PER DIFFERENT METHODS AND THE PURPOSE OF INSERTING THE SAID SECTION WAS TO PRESCRIBE UNIFORM METHOD FOR COMPUTING BASIC COST O F ACQUISITION THEREOF. THE AFORESAID PROVISION DOES NOT PROVIDE T HAT AMOUNT MENTIONED THEREIN WOULD BE REGARDED AS SACROSANCT I N ALL AND EVERY SITUATION. IN OTHER WORDS, SECTION 55(2)(AA) DOES N OT OPERATE AS AN ESTOPPEL TO BAR ENHANCEMENT/MODIFICATION/VARIATION OF THE AFORESAID BASIC COST WITH REGARD TO INTEREST EXPENDITURE INC URRED TO FINANCE SUCH ACQUISITION. THUS, THE ARGUMENT OF THE REVENUE THAT COST ACTUALLY PAID FOR ACQUISITION WOULD, IN ALL CIRCUMS TANCES TO BE REGARDED AS THE COST OF RIGHT SHARES IN TERMS OF SE CTION 55(2)(AA) AND SAME IS NOT OPENED IN ENHANCING/VARIATION IS NOT BA SED ON CORRECT APPRECIATION OF LAW AND, THEREFORE, DESERVES TO BE REJECTED. HE THUS, SUBMITTED THAT THE INTEREST CAPITALIZED UPTO THE DA TE OF TRANSFER HAS TO BE ALLOWED AS COST OF ACQUISITION. DECISION 77. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CON SIDERED THE ENTIRE GAMUT OF FACTS PLACED BEFORE US AND THE PROV ISION OF LAW AND DECISIONS REFERRED TO AT THE TIME OF HEARING. AS DI SCUSSED IN OUR EARLIER I.T.A .NO.-4737/DEL/2017 136 | P A G E PART OF THE ORDER, THE ASSESSEE HAD SUBSCRIBED TO 1 5,67,64,689 RIGHT SHARES OF SBPL ON 09.08.2012, I.E., IN THE F.Y. 20 12-13, IN TERMS OF 4 TH SUPPLEMENT AGREEMENT. THE SAID RIGHT SHARES WERE F INANCED DIRECTLY OUT OF THE LOAN BORROWED FROM CAPRICON HEA LTH SERVICES PVT. LTD. ON WHICH INTEREST AGGREGATING RS. 39,95,01,050 /-(I.E., RS.13,88,26,342 IN F.Y. 2012-13 & RS.26,06,74,708/- IN F.Y. 2013- 14), WAS PAID FROM THE DATE OF ACQUISITION TILL THE DATE OF TRANSFER OF SUCH SHARES ON 12.03.2014. THE ASSESSEE HAD CLAIMED THE INTEREST EXPENDITURE INCURRED ON SUCH BORROWING WHICH HAS BE EN CAPITALIZED AS PART OF THE COST OF ACQUISITION OF SUCH RIGHT SHAR ES FOR THE PURPOSE OF COMPUTING CAPITAL GAIN ARISING ON TRANSFER OF SUCH SHARES. THE ASSESSING OFFICER FIRST OF ALL DENIED THE COST OF A CQUISITION IN VIEW OF THE PROVISIONS CONTAINED IN SECTION 55(2) AND HELD THAT MEANING OF COST OF ACQUISITION AND COST OF IMPROVEMENT AS APPE ARING IN SECTION 48 & 49 HAS BEEN RESTRICTED BY THE SCOPE OF SECTION 55 (2)(B). ONE OF THE MAJOR LIMBS OF THE ARGUMENTS OF MR. AJAY VOHRA WAS THAT INTEREST INCURRED FOR ACQUISITION OF RIGHT SHARES HAS TO B E ALLOWED AS COST OF ACQUISITION WHILE COMPUTING THE CAPITAL GAIN IN ACC ORDANCE WITH SECTION 45(1) R.W.S 48. HIS ENTIRE ARGUMENTS REVOLV ED ON THE PROPOSITION THAT UNDER THE SCHEME OF THE ACT, THERE IS DISTINCTION BETWEEN DIFFERENT CLASS OF ASSETS AND HOW THE CAPIT ALIZATION OF INTEREST FOR COST OF ACQUISITION OF ASSET OR ALLOWABILITY OF INTEREST HAS BEEN RECOGNIZED UNDER THE VARIOUS PROVISIONS OF THE ACT, LIKE FOR STOCK-IN- TRADE; ASSETS USED FOR THE PURPOSE OF BUSINESS; AND CAPITAL ASSETS HELD AS INVESTMENT AND NOT USED FOR THE PURPOSE OF BUSIN ESS. HERE IN THIS CASE, IT CANNOT BE DOUBTED THAT INTEREST EXPENDITUR E INCURRED IN RESPECT OF THE FUNDS BORROWED WERE DIRECTLY UTILIZE D AND HAD A PROXIMATE NEXUS TO THE ACQUISITION OF RIGHT SHARES AND ALSO THE PRINCIPAL LOAN AMOUNT IS LIABLE TO BE INCLUDED AS P ART OF COST OF ACQUISITION OF SUCH ASSETS. THE SUBMISSIONS MADE BY THE PARTIES IN I.T.A .NO.-4737/DEL/2017 137 | P A G E THIS REGARD AND RELIANCE PLACED ON CATENA OF DECISI ONS HAS ALREADY BEEN DISCUSSED IN DETAIL HEREIN ABOVE. BEFORE US, M R. SRIVASTAVA, LD. SPECIAL COUNSEL FOR THE REVENUE HAS VEHEMENTLY CONT ENDED THAT IN VIEW OF THE SPECIFIC PROVISION CONTAINED IN SECTION 55(2)(AA) READ WITH SUB-CLAUSE (III) THERETO, ONLY THE AMOUNT ACTUALLY PAID FOR ACQUIRING OF SUCH ASSET COULD BE ALLOWED, I.E., THE AMOUNT PAID FOR ACQUIRING OF RIGHT SHARES AND NOT THE INTEREST THEREUPON. THUS , ALL THE DECISIONS RELIED UPON BY THE MR. VOHRA WILL HAVE NO BEARING O N THE FACTS OF THE PRESENT CASE AND IN THE LIGHT OF THE SPECIFIC PROVI SIONS U/S 55(2) OF THE ACT. IN WAKE OF THIS SPECIFIC CONTENTION, WE WILL F IRST EXAMINE, WHETHER WITHIN THE SCOPE OF SECTION 55(2), INTEREST CAN BE ALLOWED AS COST OF ACQUISITION OF RIGHT SHARES OR NOT. 78. U/S 45, THE CAPITAL GAINS RISING ON TRANS FER OF A CAPITAL ASSETS HAS TO BE COMPUTED AS PER SECTION 48 BY REDUCING FR OM FULL VALUE OF CONSIDERATION RECEIVED ON TRANSFER, AGGREGATE OF T HE FOLLOWING AMOUNTS; FIRSTLY, THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; AND SECONDLY, THE COST OF ACQUISITION OF THE ASSETS AND THE COST OF ANY IMPROVEMENT THERETO. SECTION 49 ILLUSTRATES VARIOUS COSTS WITH REFERENCE TO CERTAIN MODES OF ACQUISITION. WHEREAS, SECTION 55 DEFINES THE SCOPE OF THE TERMS ADJUSTED, COST OF IMPROVEMENT AND COST OF ACQUISITION FOR THE PURP OSE OF SECTIONS 48 & 49. SUB-SECTION (2) OF SECTION 55 ENLISTS AS TO W HAT SHOULD BE THE COST OF ACQUISITION IN CERTAIN CASES. CLAUSE (AA) OF SECTION 55(2) WHICH IS RELEVANT FOR OUR PURPOSE IS REPRODUCED HEREUNDER :- 55(2) FOR THE PURPOSES OF SECTIONS 48 AND 49, 'COST OF ACQUISITION', (A) XXXXXXXXXXXXXXXXXX (AA) IN A CASE WHERE, BY VIRTUE OF HOLDING A CAPITA L ASSET, BEING A SHARE OR ANY OTHER SECURITY, WITHIN THE MEANING OF CLAUSE (H) OF I.T.A .NO.-4737/DEL/2017 138 | P A G E SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE FINANCIAL ASSET), THE ASSESSEE (A) BECOMES ENTITLED TO SUBSCRIBE TO ANY ADDITIONAL FINANCIAL ASSET; OR (B) IS ALLOTTED ANY ADDITIONAL FINANCIAL ASSET WI THOUT ANY PAYMENT, THEN, SUBJECT TO THE PROVISIONS OF SUB-CLAUSES (I) AND (II) OF CLAUSE (B), (I) XXXXXXXXXXXX (II) XXXXXXXXXXXX (III) IN RELATION TO THE FINANCIAL ASSET, TO WHICH THE ASSESSEE HAS SUBSCRIBED ON THE BASIS OF THE SAID ENTITLEMENT, MEANS THE AMOUNT ACTUALLY PAID BY HIM FOR ACQUIRING SUCH ASSE T ; (IIIA) IN RELATION TO THE FINANCIAL ASSET ALLOTTED TO THE ASSESSEE WITHOUT ANY PAYMENT AND ON THE BASIS OF HOLDING OF ANY OTHER FINANCIAL ASSET, SHALL BE TAKEN TO BE NIL IN THE CA SE OF SUCH ASSESSEE. (B) XXXXXXXXXXXXXXXXXX FROM A PLAIN READING OF THE AFORESAID PROVISION, I T CAN BE SEEN THAT THE COST OF ACQUISITION IN THE CASE OF ADDITI ONAL FINANCIAL ASSETS LIKE BONUS SHARES, RIGHT SHARES, ETC., FIRSTLY, WHERE THE ASSESSEE BECOMES ENTITLED TO SUBSCRIBE ANY SUCH ADDITIONAL F INANCIAL ASSETS; OR SECONDLY, IS ALLOTTED ANY ADDITIONAL FINANCIAL ASSET WITHOUT ANY PAYMENT; THEN, IN THE FIRST CASE, THE COST OF ACQUI SITION OF SUCH FINANCIAL ASSETS (HEREIN THIS CASE RIGHT SHARES) WO ULD BE THE AMOUNT ACTUALLY PAID FOR ACQUIRING SUCH ASSET; AND IN SECO ND CASE, THE COST OF ACQUISITION WOULD BE NIL. SINCE, HERE THE ASSESSEE HAD SUBSCRIBED THE RIGHT SHARES ON THE BASIS OF SAID ENTITLEMENT (I.E. , BY VIRTUE OF HOLDING I.T.A .NO.-4737/DEL/2017 139 | P A G E THE CAPITAL ASSET IN THE FORM OF SHARES IN SBPL), T HEREFORE, THE ASSESSEES CASE FALL IN FIRST CATEGORY, THAT IS, TH E AMOUNT ACTUALLY PAID BY HIM FOR ACQUIRING SUCH ASSETS. IN OTHER WORDS TH E ACTUAL AMOUNT PAID FOR ACQUIRING THE RIGHT SHARES. IN CASE THE FI NANCIAL ASSET IS ALLOTTED TO THE ASSESSEE WITHOUT ANY PAYMENT THEN I T HAS TO BE RECKONED AS NIL. HERE AS STATED ABOVE, THE ASSESSEE WAS ENTITLED TO SUBSCRIBE TO RIGHT SHARES FOR A PAYMENT OF RS.300 C RORES AND SUCH AN AMOUNT HAS ACTUALLY BEEN PAID BY THE ASSESSEE. IN T HE PRESENT CASE, OSTENSIBLY, SUB-CLAUSE (III) WOULD BE APPLICABLE, B ECAUSE THE FINANCIAL ASSETS HAS NOT BEEN ALLOTTED TO THE ASSESSEE WITHOU T ANY PAYMENT IN WHICH CASE THE COST OF ACQUISITION WOULD HAVE TO BE TAKEN AS NIL. THE SAID CLAUSE MAKES IT EVIDENTLY CLEAR THAT COST OF A CQUISITION WOULD BE THE AMOUNT ACTUALLY PAID BY THE ASSESSEE FOR ACQUIRING SUCH ASSETS (I.E., RIGHT SHARES). THE WORD MEANS AS APPEARING IN SUB-CLAUSE (III) CANNOT BE RECKONED AS INCLUSIVE, I.E., OTHER THAN A MOUNT ACTUALLY PAID WHICH COULD BE OTHER COSTS LIKE INTEREST ETC. WHICH IS ALSO BE TREATED AS PART OF ACQUISITION. HERE THE WORD MEANS HAS TO B E CONSTITUTED AS EXHAUSTIVE, I.E., THE AMOUNT ACTUALLY PAID FOR ACQU IRING SUCH ASSETS AND NO ANY OTHER PAYMENT OR COST INCURRED FOR ACQUI RING SUCH ASSETS. WHENCE THE COST OF ACQUISITION WITH REGARD TO THE A DDITIONAL FINANCIAL ASSETS, I.E., RIGHT SHARES HAS BEEN STRICTLY CIRCUM SCRIBED TO THE AMOUNT ACTUALLY PAID FOR ACQUIRING SUCH SHARES, THEN IT IS NOT OPEN TO INCLUDE ANY OTHER COSTS LIKE INTEREST EXPENDITURE INCURRED OR ACCRUED ON LOAN TAKEN FOR ACQUIRING THE RIGHT SHARES. HAD THERE BEE N THE INTENTION OF THE LEGISLATURE TO ALLOW ANY ADDITIONAL COST TO SUC H KIND OF ADDITIONAL FINANCIAL ASSETS, THEN THERE WAS NO REQUIREMENT TO INSERT PART A IN CLAUSE (AA) AND SUB-CLAUSE (III) WHICH SPECIFICALLY CONFINES THE COST OF ACQUISITION TO MEAN ACTUAL AMOUNT PAID. THUS, WE AR E IN COMPLETE AGREEMENT WITH THE CONTENTION OF THE LD. SPECIAL CO UNSEL, MR. G.C. SRIVASTAVA THAT UNDER THE SCOPE AND PROVISION OF SE CTION 55(2)(AA) READ I.T.A .NO.-4737/DEL/2017 140 | P A G E WITH SUB CLAUSE (III) THERETO, IN CASE OF RIGHT SHA RES THE COST OF INTEREST EXPENDITURE CANNOT BE ALLOWED AS DEDUCTION AS COST OF ACQUISITION FOR COMPUTING THE CAPITAL GAIN ON SALE OF RIGHT SHARES. 79. BEFORE US, LD. SR. COUNSEL MR. VOHRA AFTER R EFERRING TO THE MEMORANDUM EXPLAINING THE PROVISION OF FINANCE BILL , 1994 THROUGH WHICH SECTION 55(2) WAS PROPOSED TO BE INSERTED, HA D SUBMITTED THAT THE INTENTION OF THE LEGISLATURE WAS ONLY TO PRESCR IBE UNIFORM METHOD FOR COMPUTING THE BASIC COST OF ACQUISITION OF BONU S/RIGHT SHARES AND NOT TO RESTRICT TO ONLY THE ACTUAL COST PAID. WE AR E UNABLE TO AGREE WITH SUCH AN ARGUMENT, BECAUSE THE SAID MEMORANDUM EXPLA INS THE BACKGROUND ON WHICH THE SAID PROVISION WAS BROUGHT IN THE STATUTE. FOR THE SAKE OF READY-REFERENCE THE SAID MEMORANDUM IS REPRODUCED HEREUNDER:- RATIONALISATION OF CAPITAL GAIN ARISING FROM TRANS FER OF RIGHT SHARES AND RIGHTS RENOUNCEMENTS THE INCOME TAX ACT PRESCRIBES BROAD PROVISIONS ON C OMPUTATION OF INCOME UNDER THE HEAD CAPITAL GAINS. SPECIFIC MET HODS OF COMPUTING THE COST OF THE ASSET HAVE BEEN PROVIDED ONLY IN RESPECT OF CERTAIN TYPES OF ASSETS. THERE IS NO SPECIFIC PR OVISION DEALING WITH DETERMINATION OF THE COST OF FINANCIAL INSTRUM ENTS SUCH AS RIGHT SHARES, RIGHT ENTITLEMENT, ETC. IN THE ABSENC E OF ANY SUCH PROVISIONS, COURTS HAVE LAID DOWN CERTAIN METHODS F OR DETERMINING THE COST WHICH ARE NOT STRICTLY IN ACCORDANCE WITH COMMERCIAL PRINCIPLES. FOR THE PURPOSE OF AVOIDING COMPLICATED CALCULATION S, THE FINANCE BILL PROPOSES TO INTRODUCE A SIMPLE AND UNAMBIGUOUS SET OF PROVISIONS FOR COMPUTATION OF THE COST OF ACQUISITI ON OF FINANCIAL ASSETS, INCLUDING SHARES, WHERE THERE IS AN ENTITLE MENT TO SUBSCRIBE TO ADDITIONAL FINANCIAL ASSETS ON RIGHTS SHARES. THE BILL I.T.A .NO.-4737/DEL/2017 141 | P A G E PROPOSES TO DEEM THE COST O F RIGHTS ENTITLEMENT IN THE HANDS O F THE ORIGINAL SHAREHOLDERS AS NIL. OF COURSE, THE CO ST OF THE RIGHTS SHARE ACQUIRED BY THE ORIGINAL SHAREHOLDER IS THE P RICE ACTUALLY PAID BY HIM TO THE COMPANY FOR ACQUIRING THE RIGHTS SHARE: BUT WHERE THE RIGHTS RENOUNCE ACQUIRES THE RIGHTS SHARE , THE-COST OF THE RIGHTS SHARE IS EQUAL TO THE COST INCURRED BY H IM FOR PURCHASING THE RIGHTS ENTITLEMENT PLUS THE PRICE PAID BY HIM T O THE COMPANY FOR - ACQUIRING THE RIGHTS SHARE. THE AMOUNT REALIZED BY THE ORIGINAL SHAREHOLDER BY SELLING HIS RIGHTS ENTITLEMENT WILL BE SHORT TERM- CAPITAL GAIN S IN HIS HANDS (AS THE COST IS TAKEN AS NIL). THE PERIOD OF HOLDING OF THE RIGHTS ENTITLEMENT WILL BE RECKONED FROM THE DATE OF OFFER MADE BY THE COMPANY TO THE DATE OF RENOUNCEMENT. THE SAID MEMORANDUM MERELY CLARIFIES THAT EARLIER THERE WAS NO SPECIFIC PROVISION DEALING WITH THE DETERMINATION O F THE COST OF THE FINANCIAL INSTRUMENT SUCH AS RIGHT SHARES, RIGHT EN TITLEMENT, ETC. AND IN ABSENCE OF ANY SUCH PROVISIONS, THE COURTS HAVE LAID DOWN CERTAIN METHODS FOR DETERMINING THE COST. FOR AVOIDING SUCH KIND OF SITUATION, THE FINANCE BILL PROPOSED TO INTRODUCE THE COMPUTAT ION OF COST OF ACQUISITION WHICH HAVE BEEN ACQUIRED WITHOUT COST, THEN IN THAT CASE, COST OF ACQUISITION HAS TO BE TAKEN ON NIL AND WHER E THE ASSESSEE BECOMES ENTITLED TO SUCH FINANCIAL ASSETS LIKE RIGH T ISSUE, THEN THE COST OF ACQUISITION WILL BE THE AMOUNT ACTUALLY PAID. TH IS HAS BEEN CLARIFIED ALSO BY THE NOTES AND CLAUSES OF THE FINANCE BILL A ND ALSO BY THE CBDT CIRCULAR NO.684 DATED 10.06.1994. THE RELEVANT CLAU SE18 OF THE NOTES AND CLAUSES ON SUB-SECTION (2) OF SECTION 55 OF THE INCOME TAX ACT, 1961 IS REPRODUCED HEREUNDER:- IT IS ALSO PROPOSED TO INSERT A NEW CLAUSE (AA) FO R THE PURPOSE OF DEFINING THE COST OF ACQUISITION OF A SH ARE OR ANY OTHER I.T.A .NO.-4737/DEL/2017 142 | P A G E SECURITY (REFERRED TO AS FINANCIAL ASSET IN THE S ECTION), AND OF THE RIGHT TO RENOUNCE THE ENTITLEMENT, IN THOSE CASES W HERE THE ASSESSEE BECOMES ENTITLED TO SUBSCRIBE TO ADDITIONA L FINANCIAL ASSETS ON THE BASIS OF RIGHTS ISSUE. THE COST OF AC QUISITION IN SUCH CASES WILL BE AS FOLLOWS:- (I) IN THE CASE OF THE ORIGINAL FINANCIAL ASSET, ON THE BASIS OF WHICH THE ASSESSEE BECOMES ENTITLED TO A RIGHTS ISSUE, COST OF ACQUISITION WILL BE THE AMOUNT ACTUALLY PAID FOR AC QUIRING SUCH FINANCIAL ASSET; (II) IN THE CASE OF RIGHT TO RENOUNCE THE ENTITLEME NT, WHEN SUCH RIGHT IS ACTUALLY RENOUNCED BY THE ASSESSEE IN FAVOUR OF ANY OTHER PERSON, THE COST OF ACQUISITION SHALL BE TAKEN TO B E NIL IN THE CASE OF SUCH ASSESSEE; (III) IN THE CASE OF FINANCIAL ASSET SUBSCRIBED TO BY THE ASSESSEE ON THE BASIS OF HIS ENTITLEMENT, I.E., RIGHTS ISSUE, T HE COST OF ACQUISITION SHALL BE THE AMOUNT ACTUALLY PAID BY HI M FOR ACQUIRING SUCH ASSET ; (IV) IN THE CASE OF ADDITIONAL FINANCIAL ASSET PURC HASED BY THE PERSON IN WHOSE FAVOUR THE RIGHT TO SUBSCRIBE TO SU CH ADDITIONAL FINANCIAL ASSET HAS BEEN RENOUNCED, THE COST OF ACQ UISITION SHALL BE THE AGGREGATE OF THE AMOUNT OF THE PURCHASE, PRI CE PAID BY SUCH PERSON FOR PURCHASING SUCH RIGHT AND THE AMOUN T PAID BY HIM TO THE COMPANY, OR INSTITUTION, AS THE CASE MAY BE, FOR ACQUIRING SUCH FINANCIAL ASSETS..... ' THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 199 5, AND WILL, ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 1 995-96 AND SUBSEQUENT YEARS. I.T.A .NO.-4737/DEL/2017 143 | P A G E THE AFORESAID NOTES AND CLAUSES SPELLS OUT THE PUR POSE OF INTENTION OF THE LEGISLATURE FOR DEFINING THE COST OF ACQUISITION IN THE CASE OF ADDITIONAL FINANCIAL ASSETS LIKE RIGHT ISSU ES ETC. THUS, THE RELIANCE PLACED BY THE SR. COUNSEL ON THE AFORESAID MEMORANDUM AND NOTES AND CLAUSES ARE OF NO AVAIL AND DOES NOT SUPP ORT THE CASE OF ASSESSEE. 80. THUS, IN OUR OPINION IN CASE OF THE ASSESSE E WHO HAS SUBSCRIBED TO RIGHT SHARES BY PAYING THE ACTUAL AMOUNT OF RS . 300 CRORES, THEN BY VIRTUE OF SPECIFIC PROVISION CONTAINED IN SECTIO N 55(2), ONLY AMOUNT TO BE ALLOWED AS COST OF ACQUISITION WOULD BE RS. 3 00 CRORES; AND NO OTHER COST, LIKE INTEREST EXPENDITURE INCURRED ON L OAN TAKEN FOR PURCHASE OF RIGHT SHARES COULD BE ALLOWED AS DEDU CTION AS COST OF ACQUISITION, WHILE COMPUTING THE CAPITAL GAIN ON TR ANSFER OF SUCH SHARES. NONE OF THE JUDGMENTS INCLUDING THAT OF MIT HILESH KUMARI (SUPRA) RELIED UPON BY THE LD. SR. COUNSEL WILL BE APPLICABLE HERE AS IN NONE OF THE CASES THE ISSUE PERTAINED TO COST OF ACQUISITION QUA THE RIGHT SHARES IN LIGHT OF SPECIFIC SECTION 55(2). 81. SO FAR AS THE OTHER ARGUMENTS PLACED BY BOTH THE PARTIES AS TO WHETHER THE COST OF INTEREST CAN BE CAPITALIZED FOR THE PURPOSE OF COST OF ACQUISITION WHILE COMPUTING THE TRANSFER OF SHAR ES OR NOT, WE ARE NOT ENTERING INTO SEMANTICS OF SUCH ARGUMENTS, BECA USE HERE IN THE PRESENT CASE, THE COST OF ACQUISITION IS PURELY ON ACQUISITION OF RIGHT SHARES AND AS DISCUSSED IN THE FOREGOING PARAGRAPHS , ONLY AMOUNT ACTUALLY PAID WOULD BE ALLOWED AND NO SUCH INTEREST CAN BE ALLOWED AS COST OF ACQUISITION IN THE CASE OF RIGHTS SHARES IN TERMS OF SECTION 55(2). ALL SUCH ARGUMENTS PLACED BY THE PARTIES HAV E BEEN RENDERED ACADEMIC IN VIEW OF OUR FINDING GIVEN ABOVE. ACCORD INGLY, WE HOLD THAT THE AO WAS JUSTIFIED IN NOT ALLOWING THE COST OF IN TERESTS EXPENDITURE CAPITALIZED FROM THE ACQUISITION OF RIGHT SHARES AT THE TIME OF TRANSFER. I.T.A .NO.-4737/DEL/2017 144 | P A G E 82. NOW COMING TO THE ALTERNATIVE ARGUMENT PUT FORTH BY THE LD. SR. COUNSEL, MR. AJAY VOHRA BEFORE US THAT, THE INTERES T EXPENDITURE INCURRED ON THE LOAN TAKEN FOR ACQUIRING THE RIGHT SHARES IN SBPL IN THE FY 2012-13, SHOULD BE ALLOWED WHILE COMPUTING T HE INCOME SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES; AND HE ALSO PLEADED THAT DIRECTION SHOULD BE GIVEN THAT SUCH INTEREST SHOULD BE ALLOWED AGAINST INCOME FROM OTHER SOURCES IN THE EARLIER YEAR, I. E., AY 2013-14, FOR WHICH HE HAS RELIED UPON CERTAIN DECISION AS NOTED ABOVE. FIRST OF ALL, IT IS NOTICED THAT, NEITHER THIS ISSUE WAS RAISED B EFORE THE AO,NOR BEFORE THE LD.CIT(A), NOR ANY SUCH GROUND OR ADDITI ONAL GROUND HAS BEEN TAKEN BEFORE US. SECONDLY, EVEN IN THE ORIGINA L PLEADINGS, SUCH AN ARGUMENT WAS NOT TAKEN AND THE SAME HAS BEEN RAI SED ONLY DURING THE COURSE OF REJOINDER SUBMISSIONS. THIS ALTERNATE PLEA HAS BEEN TAKEN ON THE PREMISE THAT THE REVENUE HAS CONTENDED THAT THE INTEREST PAID FOR ACQUISITION OF RIGHT SHARES INCURRED FOR T HE PURPOSE OF EARNING OPTION FEE THERE FROM SHOULD BE DEDUCTED WHILE CO MPUTING THE INCOME UNDER HEAD INCOME FROM OTHER SOURCES. THE PLEA WAS AGAIN BASED ON THE CONDITION THAT IF THIS BENCH IS PLEASE D TO UPHOLD THE CONTENTION OF THE REVENUE THAT THE INTEREST PAID ON ACQUISITION RIGHT SHARES IS TO BE ALLOWED AS DEDUCTION WHILE COMPUTIN G THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES, THEN TH E INTEREST INCURRED FOR THE RELEVANT PREVIOUS YEAR MAY BE ALLO WED AS DEDUCTION UNDER THE HEAD OTHER SOURCE AND RESULTANT LOSS SH OULD BE SET OFF UNDER THE HEAD CAPITAL GAINS IN TERMS OF SECTION 71. SUCH A PREMISE ON WHICH SUCH PLEA HAS BEEN RAISED, FIRST OF ALL, I S NOT ARISING OUT OF THE ARGUMENTS PUT FORTH FROM THE SIDE OF THE REVENU E, AS IT WAS NEVER THE CASE OF THE REVENUE (EVEN IN THEIR EXHAUSTIVE W RITTEN SUBMISSIONS FILED BEFORE US), THAT INTEREST EXPENDITURE CAN BE ALLOWED WHILE COMPUTING THE INCOME FROM INCOME FROM OTHER SOURCE S. IT IS NEITHER THE CASE OF THE REVENUE BEFORE US NOR IT IS THE CAS E OF THE AO OR CIT I.T.A .NO.-4737/DEL/2017 145 | P A G E (A). BEFORE THE AO IN RESPONSE TO THE SHOW CAUSE NO TICE, THE ASSESSEE IN ONE OF HIS PLEA HAD THOUGH SUBMITTED THAT THE AS SESSEE HAS NOT CLAIMED ANY DEDUCTION OF THE ABOVE INTEREST UNDER T HE HEAD INCOME FROM OTHER SOURCES NEITHER IN THE AY 2013-14 NOR I N THE AY 2014-15, BUT NO SUCH CLAIM WAS MADE THAT SUCH AN INTEREST CO ULD BE ALLOWED ALTERNATIVELY FROM INCOME FROM OTHER SOURCES. NOWHE RE, THE AO HAD MENTIONED THAT SUCH INTEREST CAN ONLY BE CLAIMED OR IS ALLOWABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. AT THIS STAGE, IT WOULD BE VERY DIFFICULT TO ENTERTAIN SUCH A PLEA, WHEN IT IS NEITHER EMANATING FROM THE ORDER OF THE AO NOR FROM THE ORDER OF THE LD. CIT(A), NOR ANY GROUND OR ADDITIONAL GROUND HAS BEEN TAKEN BEFORE U S. THE ASSESSEE HAS NOT EVEN SOUGHT ANY PERMISSION OF THIS TRIBUNAL UNDER RULE 11 OF ITAT RULES OR UNDER ANY OTHER RULE TO RAISE SUCH PL EA. IF AT ALL THIS PLEA WAS SOUGHT TO BE RAISED THEN SAME SHOULD HAVE BEEN DONE BY WAY OF ADDITIONAL GROUND OR BY WAY OF ANY APPLICATION O N WHICH RESPONDENT REVENUE WOULD HAVE BEEN GIVEN OPPORTUNITY TO RAISE ANY OBJECTION OR PUT FORTH THEIR ARGUMENT. SUCH A PLEA AT THE RE-JOI NDER STAGE WITHOUT ANY OPPORTUNITY TO THE RESPONDENT, WOULD BE DIFFICU LT TO ENTERTAIN ESPECIALLY WHEN THE FACTS REGARDING TO ADMISSIBILIT Y OF SUCH CLAIM IS NOT ARISING FROM THE IMPUGNED ORDER. ACCORDINGLY, W E REJECT SUCH PLEA TAKEN BY THE LD. SR. COUNSEL FOR THE ASSESSEE AT TH E RE-JOINDER STAGE WITHOUT COMPLYING WITH THE NECESSARY REQUIREMENT OF RULES OR GIVING THE OPPORTUNITY TO THE OTHER PARTY TO REBUT OR PLAC E ITS OBJECTIONS. THUS, GROUND NO.3 & 3.1 ARE DISMISSED. E. ISSUE RELATING TO GAIN ARISING FROM SALE OF UNLI STED SHARES TO BE TAXED AS LONG-TERM CAPITAL GAIN OR SHORT TERM CA PITAL GAIN 83. IN THE RETURN OF INCOME, THE ASSESSEE HAS DECLA RED INCOME OF RS. 825,12,22,942/- UNDER THE HEAD LONG TERM CAPITAL G AINS IN RESPECT OF FOLLOWING SHARES SOLD DURING THE YEAR UNDER CONSIDE RATION:- I.T.A .NO.-4737/DEL/2017 146 | P A G E NAME OF SCRIPT DATE OF PURCHASE DATE OF SALE PERIOD OF HOLDING CAPITAL GAIN/LOSS RS. VANA HOTELS PVT. LTD. 13.07.2012 16.12.2013 17 MONTHS (9,190) VANA LIFESTYLES PVT. LTD. 13.07.2012 16.12,2013 17 MONTHS (9,190) VANA RESORTS AND HOTELS PVT. LTD. 13.07.2012 16.12.2013 17 MONTHS (9,190) VANA RETREATS PVT. LTD. 13.07.2012 16.12.2013 17 MONTHS (9,190) - SCORPIO BEVERAGES PVT. LTD. 01.04.2012 21.03.2014 23 MONTHS 8251,259,702 CAPITAL GAIN 825,12,22,942 THE AO, REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE SALE OF SHARES OF SBPL SHOULD NOT BE TAXED AS SHORT TERM CA PITAL GAIN IN VIEW OF THE PROVISION OF SECTION 2(42A), AS THE PERIOD O F HOLDING IS LESS THAN 36 MONTHS AND BEING UNLISTED SHARES WHY IT SHOULD NOT BE TREATED AS SHORT TERM CAPITAL GAIN. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD ACQUIRED THE SHARES OF SBPL ON 23.02.2 006 (4100 ORIGINAL EQUITY SHARES AND RIGHT SHARES OF 15,67,64 ,689 ON 09.08.2012) AND THESE SHARES HAVE BEEN SOLD BY THE ASSESSEE ON 21.03.2014. SINCE THE PERIOD OF HOLDING WAS MORE TH AN 12 MONTHS, THEREFORE, THE CAPITAL GAIN WAS OFFERED TO TAX AS L ONG TERM CAPITAL GAIN. THE PROVISION OF SECTION 2(42A) AS APPLICABLE FOR T HE AY 2014-15 PROVIDES THAT SHARE OF A COMPANY, WHETHER LISTED OR UNLISTED WILL BE TREATED AS LONG TERM CAPITAL ASSET IF THE PERIOD HELD IS MORE THAN 12 MONTHS. THE EXCEPTION WAS ONLY CURVED OUT FOR UNLIS TED SHARES SOLD ON OR AFTER 1.07.2014, FROM WHERE THE PERIOD FOR HOLDI NG FOR UNLISTED SHARES TO QUALIFY AS LONG TERM WAS INCREASED TO 36 MONTHS BY THE FINANCE (NO.2) ACT, 2014, WHICH AGAIN LATER ON WAS REDUCED TO 24 MONTHS BY THE FINANCE ACT, 2016. HOWEVER, THE AO HE LD THAT THE PROVISO OF SUB-SECTION 42A OF SECTION (2) CLEARLY SPECIFIE S THAT FOR THE PURPOSE OF CONSIDERING ASSETS AS SHORT TERM CAPITA L ASSET, THE PERIOD OF HOLDING IS 12 MONTHS INSTEAD OF 36 MONTHS, WHICH IS ONLY IN RESPECT OF FOLLOWING: I.T.A .NO.-4737/DEL/2017 147 | P A G E (I) SHARE OR SECURITY LISTED IN RECOGNIZED STOCK EXCHAN GE IN INDIA; (II) UNIT TRUST OF INDIA; (III) UNIT OF A MUTUAL FUND UNDER CLAUSE 23D OF SECTION 1 0; AND (IV) ZERO COUPON BOND. IN NO OTHER CASES, THE PERIOD OF HOLDING IS 12 MONT HS. THE 2 ND PROVISO TO SECTION 2(42A) MAKES IT VERY CLEAR THAT FOR TRE ATING THE ASSETS AS SHORT TERM PERIOD, HOLDING MUST BE LESS T HAN 36 MONTHS AND NOT 12 MONTHS; AND ONLY PERIOD OF HOLDING FOR LISTE D COMPANIES CAN BE CONSIDERED AS 12 MONTHS INSTEAD OF 36 MONTHS, IF TH E PARTICULAR SHARE IS TRANSFERRED DURING THE PERIOD BEGINNING ON 01.04 .2014 AND ENDING ON 10.07.2014. AFTER REFERRING TO THESE PROVISIONS, HE RE-CHARACTERIZED THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL G AIN. 84. LD. CIT(A) TOO UPHELD THE ACTION OF THE AO, OBSERVING THAT SHORTER PERIOD OF HOLDING OF 12 MONTHS QUA THE UNLISTED SHARES INSTEAD OF 36 MONTHS WAS APPLICABLE ONLY IN RESPECT OF SHAR ES TRANSFERRED DURING THE PERIOD BEGINNING ON 01.04.2014 AND ENDIN G ON 10.07.2014 IN TERMS OF NEWLY INSERTED 2 ND PROVISO TO SECTION 2(42A) BROUGHT IN THE STATUTE BY FINANCE (NO.2) ACT, 2014, W.E.F 01.04.20 15, I.E., AY 2015- 16. LD.CIT(A) HELD THAT SINCE THE IMPUGNED TRANSACT ION OF THE TRANSFER OF UNLISTED SHARES OF SBPL TOOK PLACE BEFORE 01.04. 2014 AND NOT BETWEEN 01.04.2014 TO 10.07.2014, THEREFORE, THE BE NEFIT OF THE NEWLY INSERTED 2 ND PROVISO TO SECTION 2(42A) WAS NOT AVAILABLE TO THE ASSESSEE. ARGUMENTS ON BEHALF OF THE ASSESSEE: 85. BEFORE US, LD. SR. COUNSEL, MR. VOHRA AFTER INVITING OUR ATTENTION TO THE PROVISIONS OF SECTION 2(42A) AS WAS APPLICAB LE TO THE YEAR UNDER APPEAL, I.E., IN THE AY 2014-15, SUBMITTED THAT IT IS AN UNAMBIGUOUS I.T.A .NO.-4737/DEL/2017 148 | P A G E FROM THE PLAIN READING OF THE SECTION THAT THE SHOR TER PERIOD OF HOLDING OF 12 MONTHS IS APPLICABLE TO THE SHARES EITHER LIS TED OR UNLISTED HELD IN A COMPANY. THERE WAS NO SUCH DISTINCTION UNDER T HE STATUTE FOR DETERMINING PERIOD OF HOLDING FOR THE LISTED OR UNL ISTED SHARES. THE CONDITION OF LISTING ON A RECOGNIZED STOCK EXCHANGE IS APPLICABLE ONLY TO THE CATEGORY OF SECURITY OTHER THAN SHARES OF A COMPANY. IF THE INTENTION OF THE LEGISLATURE WAS TO PROVIDE THE BEN EFIT OF SHORTER PERIOD OF 12 MONTHS ONLY ON LISTED SHARES THEN CONSIDERING THE MEANING OF THE WORD SECURITY AS DEFINED IN SECTION 2(H) OF T HE SECURITIES CONTRACT ACT, 1956, INCLUDES SHARES IN A COMPANY AND THERE W AS NO NECESSITY TO CARVE OUT SEPARATE CATEGORY SHARE HELD IN A COM PANY. TO CLARIFY THIS LEGAL POSITION, HE TOOK US TO THE LEGISLATIVE HISTORY OF THE AMENDMENTS CARRIED OUT FROM TIME TO TIME IN SECTION 2(42A). FIRST OF ALL, WE DREW OUR ATTENTION TO THE AMENDMENT BY THE FINANCE ACT, 1987, WHEREIN SHORTER PERIOD OF HOLDING OF 12 MONT HS IN CERTAIN EXCEPTION CASES WAS INSERTED IN SECTION 2(42A) OF T HE ACT, WHEREBY A PROVISO WAS ADDED CLEARLY SPECIFYING THAT IN THE CASE OF SH ARE HELD IN A COMPANY, 36 MONTHS WAS SUBSTITUTED WITH THE PERIOD OF 12 MONTHS. HE ALSO DREW OUR ATTENTION TO FINANCE BILL, 1987, A ND MEMORANDUM EXPLAINING THE AMENDMENT AND NOTES ON CLAUSES THERE TO. HE ALSO REFERRED TO THE RELEVANT PORTION OF THE SPEECH OF T HE THEN FINANCE MINISTER, WHEREIN IT WAS CLARIFIED THAT PERIOD OF 3 6 MONTHS HAVE BEEN PROPOSED TO BE REDUCED TO HOLDING PERIOD OF 12 MONT HS FOR THE SHARES. IN THE AMENDMENT BROUGHT BY THE FINANCE ACT, 1994, THE PROVISO TO SECTION 2(42A) WAS FURTHER AMENDED TO INCLUDE THE C ATEGORY OF OTHER SECURITIES LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA WHICH WAS APPLICABLE TO THE AY 2014-15, INCLUDING THE ASSESSM ENT YEAR UNDER CONSIDERATION. THE AFORESAID INCLUSION WAS TO THE E XTENT OF BENEFIT OF SHORTER HOLDING PERIOD FOR A NEW CATEGORY OF FINANC IAL INSTRUMENT, I.E., IN SECURITY OTHER THAN SHARES IN A COMPANY. THE CO NDITION OF LISTED IN I.T.A .NO.-4737/DEL/2017 149 | P A G E A RECOGNIZED STOCK EXCHANGE WAS APPLICABLE ONLY TO THE NEW CATEGORY AND NOT TO THE EARLIER CATEGORY TO THE SHARE HELD I N A COMPANY. TO CLARIFY THE PURPOSE IN THE LEGISLATURE HE AGAIN DRE W OUR ATTENTION TO MEMORANDUM EXPLAINING THE AMENDMENTS MADE BY THE FI NANCE BILL, 1994 AND NOTES ON CLAUSES THERETO. FROM THE EXTRACT S OF MEMORANDUM AND NOTES ON CLAUSES, HE SUBMITTED THAT IT CLARIFIE S THAT THE PURPORT OF THE AMENDMENT IN PROVISO TO SECTION 2(42A) WAS TO E XTENT TO THE BENEFIT OF SHORTER PERIOD OF HOLDING OF 12 MONTHS T O ALL OTHER FINANCIAL INSTRUMENTS/SECURITIES WHICH ARE LISTED ON STOCK EX CHANGE IN ORDER TO PROVIDE LEVEL PLAYING FIELD IN INVESTMENT IN SHARES OF A COMPANY WHETHER LISTED OR UNLISTED. COMING TO THE AMENDMENT BROUGHT BY THE FINANCE (NO.2) ACT, 2014, WHEREBY THE PROVISIONS OF SECTION 2(42A) WERE FURTHER AMENDED AND THE WORDS SHARES HELD IN A COMPANY WERE REMOVED FROM FIRST PROVISO W.E.F. 01.04.2015, THEREBY TAKING AWAY THE BENEFIT OF SHORTER PERIOD OF HOLDING OF 12 MONTHS A VAILABLE TO UNLISTED SHARES TO QUALIFY AS LONG TERM CAPITAL ASSETS. SIMU LTANEOUSLY, 2 ND PROVISO WAS INSERTED TO PROVIDE THAT UNLISTED SHARES SOLD DURING THE PERIOD 01.04.2014 TO 10.07.2014 WOULD ENJOY THE BEN EFIT OF SHORTER PERIOD OF HOLDING OF 12 MONTHS TO QUALIFY AS LONG T ERM CAPITAL ASSETS. THE SAID AMENDMENT ITSELF GOES TO PROVE THAT THE BE NEFIT OF SHORTER PERIOD OF 12 MONTHS WAS AVAILABLE TO UNLISTED SHARE S PRIOR TO THE SAID AMENDMENT AND IF THE CONTENTION OF THE AO IS TO BE ACCEPTED THEN THERE WAS NO NECESSITY FOR THE LEGISLATURE TO INTRO DUCE THE AFORESAID AMENDMENT. HE AGAIN MADE REFERENCE TO EXPLANATORY N OTES TO THE AMENDMENTS AND THE CBDT CIRCULAR NO.1/2015 DATED 21 .01.2015, WHEREIN THE PURPOSE OF BRINGING THE SAID PROVISIONS BROUGHT W.E.F. 01.04.2015 HAS BEEN CLEARLY SPELT OUT. THUS, HE SUB MITTED THAT CONSIDERING THE FACTS THAT ALL UNLISTED SHARES SOLD DURING THE YEAR WERE HELD BY THE ASSESSEE FOR THE PERIOD OF 12 MONTHS, T HEN SURPLUS ARISING FROM SALE THEREOF WERE TAXABLE AS LONG TERM CAPITAL GAINS. I.T.A .NO.-4737/DEL/2017 150 | P A G E ARGUMENTS ON BEHALF OF THE REVENUE: 86. ON THE OTHER HAND, SPECIAL COUNSEL, MR. G.C. SR IVASTAVA REFERRING TO THE PROVISION OF SECTION 2(42A), SUBMI TTED THAT CAPITAL ASSETS SHALL BE REGARDED AS SHORT TERM CAPITAL ASS ETS IF IT IS HELD FOR A PERIOD OF NOT MORE THAN 36 MONTHS IMMEDIATELY PRECE DING THE DATE OF TRANSFER. THE PROVISO TO THE SAID SECTION CARVES OUT EXCEPTION OF THE RULES SET OUT IN THE MAIN PROVISION WHICH PROVIDES THAT IN THE CASE OF; A SHARE HELD IN A COMPANY OR ANY OTHER SECURITY LIS TED IN A RECOGNIZED STOCK EXCHANGE IN INDIA OR; (II) A UNIT OF THE UNIT TRUST OF INDIA ESTABLISHED UNDER THE UNIT TRUST OF INDIA ACT, 1963; OR (III) A ZERO COUPON BOND; THE CAPITAL ASSET WOULD BE REGARDED AS A SHORT TERM CAPITAL ASSET, IF IT IS HELD FOR A PERIOD OF NOT MORE THAN12 MONTHS. HE THEN DREW OUR ATTENTION TO THE MEANING OF THE SECTION 2(H) OF THE SECURITIES AS DEFINED SECURITIES, CONTRACTS (REGULATIONS) ACT, 1956 WHI CH READS AS UNDER:- (H)SECURITIES INCLUDE- (I) SHARES, SCRIPS, STOCKS, BONDS, DEBENTURES, DEBE NTURE STOCK OR OTHER MARKETABLE SECURITIES OF A LIKE NATURE IN OR OF ANY INCORPORATED COMPANY OR OTHER BODY CORPORATE; THE DEFINITION IS VERY WIDE ENOUGH TO INCLUDE NOT O NLY SHARES BUT ALL OTHER MARKETABLE SECURITIES OF A COMPANY OR OTHER B ODY CORPORATE. HE EMPHASIZED THAT SHARES AND SECURITIES ARE NOT T WO DISTINCT ITEMS. THE LATTER INCLUDES THE FORMER. 87. HE FURTHER SUBMITTED THAT THE PROVISO TO SECTION 2(42A), WHEN READ IN THE ABOVE BACKDROP, LEAVES NO ROOM FOR ANY DOUBT THAT THE SHARES OR ANY OTHER SECURITY HAVE GOT TO BE LIS TED IN A RECOGNIZED STOCK EXCHANGE TO BECOME ENTITLED TO THE EXCEPTION (IN EFFECT A LOWER I.T.A .NO.-4737/DEL/2017 151 | P A G E HOLDING PERIOD) CONTAINED IN THE PROVISO. THE USE O F THE EXPRESSION OR ANY OTHER SECURITY NECESSARILY PUTS THE SHARES AND OTHER SECURITIES AS A CLASS AND THESE HAVE GOT TO BE LISTED TO ENJOY TH E BENEFIT OF THE PROVISO. THE WORDS ANY OTHER PUT THE TWO-SHARES A ND OTHER SECURITIES- IN THE SAME BASKET. ONE CANNOT BE READ INDEPENDENT OF THE OTHER. THE CONTENTION PUT FORTH BY THE ASSESSEE CANNOT FLOW FR OM THE LANGUAGE EMPLOYED IN THE PROVISO . IF THE LEGISLATIVE INTENT WERE TO TREAT THE SHARES AS A DIFFERENT CLASS FROM OTHER SECURITIES, THE ONLY WAY SUCH AN INTENT COULD BE EXPRESSED WAS EITHER TO ADD A SECOND PROVISO CARVING OUT AN EXCEPTION TO THE FIRST PROVISO OR TO USE THE EXPRESSION SECURITIES (OTHER THAN SHARES)' IN THE PROVISO ITSELF AS HAS BEEN DONE IN THE PROVISO WHILE CARVING OUT SIMILAR EXCEPTION FOR UNITS BY T HE SUBSEQUENT AMENDMENT MADE BY THE FINANCE ACT OF 201 4. THE LAW AS AMENDED READS A SECURITY (OTHER THAN A UNIT). THI S COULD BE THE ONLY WAY THE PROVISIONS WOULD HAVE BEEN DRAFTED HAD THE LEGISLATIVE INTENT BEEN THE SAME AS THE APPELLANT IS SEEKING TO CANVAS S. THIS CONTENTION BECOMES SIGNIFICANT IN VIEW OF THE FACT THAT THE LA W AS ENACTED, IMPORTS THE DEFINITION OF SECURITIES AS CONTAINED IN THE SECURITIES CONTRACTS REGULATION ACT BY VIRTUE OF EXPLANATION 2 TO THE PR OVISION. IT WOULD REALLY BE A WHOLLY UNTENABLE PROPOSITION TO SUGGEST THAT THE QUALIFICATION OF BEING LISTED IN A STOCK EXCHANGE W ILL APPLY TO ALL SECURITIES OTHER THAN SHARES. SUCH AN INTENTION OF THE LAWMAKERS WOULD NECESSARILY HAVE TO BE STATED IN EXPRESS TERM S AND CANNOT BE INFERRED MORE SO WHEN THE DEFINITION OF THE 'SECURI TY' STANDS IMPORTED BY VIRTUE OF THE AFORESAID EXPLANATION. THE ENTIRE THRUST OF THE ARGUMENT OF THE LD. SR. COUNSEL IS THAT IN EARLIER YEARS, SHARES (LISTED OR UNLISTED) ENJOYED A LOWER HOLDING PERIOD TO FALL IN THE EXCEPTION AND THE LAW AS INTRODUCED W.E.F. 01.04.1995 CANNOT BE R EAD OTHERWISE. HE SUBMITTED THAT ANY REFERENCE TO EARLIER ENACTMENTS OR THE SUBSEQUENT I.T.A .NO.-4737/DEL/2017 152 | P A G E AMENDMENTS IS IRRELEVANT AND WHOLLY OUT OF CONTEXT FOR THE REASON THAT: A. THERE IS NO AMBIGUITY IN THE LANGUAGE EMPLOYED I N THE PROVISO; B. THE LISTING REQUIREMENT FOR BEING ENTITLED TO TH E EXCEPTION CONTAINED IN THE PROVISO WAS INTRODUCED FOR THE FIR ST TIME W.E.F. 01.04.1995 AND ONCE THIS CONDITION WAS BROUGHT IN, IT WAS APPLICABLE TO ALL KINDS OF SECURITIES OF A COMPANY AS DEFINED IN SECURITIES CONTRACTS REGULATION ACT UNLESS STATED O THERWISE IN EXPRESS TERMS; C. IT WOULD BE ABSURD TO ASSUME THAT THE LEGISLATUR E INTENDED ALL SECURITIES OTHER THAN SHARES OF A COMPANY TO UNDERG O THE RIGORS OF BEING LISTED BUT NOT THE SHARES OF A COMPANY. 88. THE RELIANCE OF THE LD. SR. COUNSEL ON CERTAIN SENTENCES APPEARING IN THE EXPLANATORY MEMORANDUM TO THE SUBS EQUENT AMENDMENTS TO SECTION 2(42A) IS INCORRECT FOR THE R EASON THAT:- A. THE MEMORANDUM DOES NOT SEEK TO EXPLAIN THE PRO VISIONS AS APPLICABLE TO THE YEAR UNDER APPEAL; B. ABSENT ANY AMBIGUITY IN THE LANGUAGE EMPLOYED I N THE APPLICABLE STATUTE, SUCH RELIANCE IS UNNECESSARY AN D UNCALLED FOR; C. SUCH A MEMORANDUM CANNOT ASSIGN A MEANING TO A STATUTORY PROVISION WHICH DOES NOT EXPRESSLY FLOW FROM THE SA ID PROVISION. (IN THIS CASE, IT RUNS CONTRARY TO THE PROVISION) HE SUBMITTED THAT, IT IS A WELL-ACCEPTED RULE OF IN TERPRETATION THAT THE USE OF A COMMA OR THE ABSENCE OF IT CANNOT ALTER AN OTHERWISE CLEAR AND UNAMBIGUOUS MEANING FLOWING FROM THE PROVISION. HE FURTHER SUBMITTED THAT BOTH KINDS OF SECURITIES, SHARES OF A COMPANY AND SECURITIES OTHER THAN SHARES OF A COMPANY HAVE TO B E LISTED IN A RECOGNIZED STOCK EXCHANGE TO FALL WITHIN THE EXCEPT ION CONTAINED IN THE I.T.A .NO.-4737/DEL/2017 153 | P A G E PROVISO. THE USE OF THE EXPRESSIONS ANY AND OTHE R LEAVES NO ROOM FOR DOUBT IN THIS REGARD. SUBSEQUENT AMENDMENTS TO THE PROVISION ONLY SUPPORT THE CASE OF REVENUE. THUS, HE SUBMITTE D THAT THE AO WAS FULLY JUSTIFIED IN TREATING THE RIGHT SHARES AS SHO RT TERM CAPITAL ASSET AND APPLYING THE PRESCRIBED RATE OF TAX ACCORDINGLY . DECISION 89. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AS WELL AS THE RELEVANT PROVISIONS AS REFERRED TO BY THE PARTIES. FROM THE FACTS AS NA RRATED ABOVE, IT IS NOT IN DISPUTE THAT THE PERIOD OF HOLDING OF UNLIST ED SHARES, I.E., RIGHTS SHARES OF SBPL IS MORE THAN 12 MONTHS AND LESS THA N 36 MONTHS (23 MONTHS). THE ASSESSEE HAD OFFERED THE GAINS ARISING FROM SALE OF SUCH SHARES AS LONG TERM CAPITAL GAIN WHICH HAS BEEN R E-CHARACTERIZED/RE- CLASSIFIED AS SHORT TERM CAPITAL GAINS BY THE REVEN UE AUTHORITIES. AT THIS STAGE, IT WOULD BE QUITE RELEVANT TO REFER TO THE RELEVANT PROVISIONS UNDER THE ACT. FIRST OF ALL, SUB-SECTION (29A) OF S ECTION 2, DEFINES LONG TERM CAPITAL ASSET TO MEAN A CAPITAL ASSETS WHICH IS NOT A SHORT TERM CAPITAL ASSETS. THE EXPRESSION SHORT TERM CAPITAL ASSET HAS BEEN DEFINED IN SUB-SECTION (42A) OF SECTION 2 WHICH AT THE RELEVANT TIME, I.E. UPTO A.Y. 2014-15 READ AS UNDER:- '(42A) 'SHORT-TERM CAPITAL ASSET' MEANS A CAPITAL H ELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMEDI ATELY PRECEDING THE DATE OF ITS TRANSFER: PROVIDED THAT IN THE CASE OF A SHARE HELD IN A COMPANY OR ANY OTHER SECURITY LISTED IN A RECOGNISED STOCK EXCHAN GE IN INDIA OR A UNIT OF THE UNIT TRUST OF INDIA ESTABLISHED UNDER T HE UNIT TRUST OF INDIA ACT, 1963 (52 OF 1963) OR UNIT OF A MUTUAL FU ND SPECIFIED UNDER CLAUSE (23D) OF SECTION 10 OR A ZERO COUPON BOND, THE PROVISIONS OF THIS CLAUSE SHALL HAVE EFFECT AS IF FOR THE WORDS I.T.A .NO.-4737/DEL/2017 154 | P A G E 'THIRTY-SIX MONTHS', THE WORDS TWELVE MONTHS' HAD BEEN SUBSTITUTED . FROM THE PLAIN READING OF THE AFORESAID SECTION, I T IS CLEAR THAT SHORT TERM CAPITAL ASSET HAS BEEN DEFINED TO MEAN A CAPITAL ASSET HELD BY THE ASSESSEE FOR NOT MORE THAN 36 MONTHS IMMEDIA TELY PRECEDING THE DATE OF ITS TRANSFER. THE PROVISO THERETO CARVES OUT AN EXCEPTION OF SUCH PERIOD OF HOLDING; FIRSTLY, IN THE CASE OF A SHARE HELD IN A COMPANY; OR SECONDLY, IN OTHER SECURITIES LISTED IN RECOGNIZED STOCK EXCHANGE IN INDIA; OR THIRDLY, UNIT TRUST OF INDIA ESTABLISHED UNDER THE UNIT TRUST OF INDIA ACT, 1963; OR FOURTHLY, UNIT OF MUTUAL FUND SPECIFIED UNDER CLAUSE (23D) OF SECTION (10); OR LASTLY, ZERO COUPON BOND; AND ONLY FOR THESE CATEGORIES OF CAPITAL ASSE TS, THE PERIOD OF HOLDING OF 36 MONTHS HAVE BEEN SUBSTITUTED FOR 12 M ONTHS. IN OTHER WORDS, THE CAPITAL ASSETS ENLISTED IN PROVISO SHALL BE RECKONED AS SHORT TERM CAPITAL ASSETS IF SUCH ASSET IS HELD BY AN ASS ESSEE FOR NOT MORE THAN 12 MONTHS. SO FAR AS THE TERM USED SHARES HELD IN A COMPANY ARE CONCERNED, THERE IS NO CATEGORY MENTIONED AS LI STED OR UNLISTED SHARES, ALBEIT THE CONDITION FOR BEING LISTED IN RECOGNIZED STOCK EXCHANGE IN INDIA IS FOR ANY OTHER SECURITY . THE EXPRESSION LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA IS ONLY USED FOR THE CATEGORY OF ANY OTHER SECURITY AND NOT FOR THE CATEGORY OF SHARE HELD IN A COMPANY. WHEN FOR THE FIRST TIME, THE CONDITION FOR THE PER IOD OF HOLDING WAS CURTAILED FROM 36 MONTHS TO 12 MONTHS B Y THE FINANCE ACT, 1987 IT WAS ONLY FOR SHARE HELD IN A COMPANY . THIS IS CLEAR FROM THE FOLLOWING PROVISION AS THEN EXISTED POST AMENDM ENT W.E.F. 01.04.1988:- (42A) 'SHORT-TERM CAPITAL ASSET' MEANS A CAPITAL A SSET HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMED IATELY PRECEDING THE DATE OF ITS TRANSFER: I.T.A .NO.-4737/DEL/2017 155 | P A G E PROVIDED THAT IN THE CASE OF A SHARE HELD IN A COMP ANY, THE PROVISIONS OF THIS CLAUSE SHALL HAVE EFFECT AS IF F OR THE WORDS 'THIRTY- SIX MONTHS', THE WORDS 'TWELVE MONTHS' HAD BEEN SUB STITUTED. HERE NO SUCH CONDITION WAS PLACED IN THE AFORESAID PROVISO FOR SHARES TO BE LISTED ON A RECOGNIZED STOCK EXCHANGE FOR TAKING THE BENEFIT OF THE REDUCED PERIOD OF HOLDING. WHEN AMEN DMENT BY THE FINANCE ACT, 1994 WAS BROUGHT IN THE STATUTE, SO FA R AS THE CATEGORY SHARE HELD IN A COMPANY, WAS CONCERNED, THE SAME WAS NOT DISTURBED, ALBEIT , NEW CATEGORY WAS INCLUDED LIKE ANY OTHER SECURIT Y LISTED IN RECOGNIZED STOCK EXCHANGE IN INDIA. THE SAID PROVISION WAS AMENDED TO EXTEND THE BENEFIT OF SHORTER HOLDING PE RIOD, TO A NEW CATEGORY OF SECURITIES OTHER THAN SHARES IN A COMPA NY. UNDER THIS PROVISION, THE CONDITION OF LISTED IN A RECOGNIZED STOCK EXCHANGE WAS APPLICABLE ONLY TO THE NEW CATEGORY AND NOT TO THE EARLIER CATEGORY OF SHARES HELD IN A COMPANY. THIS HAS BEEN CLARIFIED BY MEMORANDUM EXPLAINING THE PROVISION IN THE FINANCE BILL WHICH READ AS UNDER:- 'PERIOD OF HOLDING IN THE CASE OF SECURITIES AND UN ITS OF MUTUAL FUNDS LONG-TERM CAPITAL ASSETS ENJOY CERTAIN TAX CONCESSI ONS VIS-A-VIS SHORT-TERM CAPITAL ASSETS. THE INCOME-TAX ACT DEFIN ES LONG-TERM CAPITAL ASSETS AS THOSE ASSETS WHICH ARE NOT SHORT- TERM. SHORT-TERM CAPITAL ASSETS ARE THOSE CAPITAL ASSETS WHICH ARE H ELD FOR A PERIOD OF UP TO 36 MONTHS. HOWEVER, THE FINANCE ACT, 1987, THROUGH AN AMENDMENT TO THE PROVISIONS OF SECTION 2 (4 2A), RE DUCED THE MAXIMUM PERIOD OF HOLDING IN RESPECT OF COMPANY SHA RES FROM 36 MONTHS TO 12 MONTHS FOR BEING TREATED AS SHORT-TERM CAPITAL ASSETS. THERE ARE MANY FINANCIAL INSTRUMENTS, OTHER THAN CO MPANY SHARES, THROUGH WHICH THE INVESTORS ARE ENTERING THE CAPITA L MARKET. THE UNITS OF THE UNIT TRUST OF INDIA AND MUTUAL FUNDS S PECIFIED UNDER SECTION 10(23D) OF THE INCOME-TAX ACT ARE THE INSTR UMENTS THROUGH WHICH THE SMALL INVESTORS ARE INCREASINGLY GETTING THE BENEFIT OF INVESTMENT IN THE CAPITAL MARKET. IN ORDER TO PROVI DE SUCH UNITS AND ALL THE SECURITIES TRADED IN THE RECOGNISED STOCK E XCHANGES A LEVEL I.T.A .NO.-4737/DEL/2017 156 | P A G E PLAYING FIELD WITH COMPANY SHARES, IT IS PROPOSED T O AMEND THE PROVISIONS OF SECTION 2(42A) SO THAT THE MAXIMUM HO LDING PERIOD FOR WHICH SUCH INSTRUMENTS ARE TO BE CONSIDERED AS SHOR T-TERM WILL BE 12 MONTHS IN PLACE OF THE PRESENT 36 MONTHS . IN OTHER WORDS, SUCH ASSETS ARE PROPOSED TO BE CONSIDERED LONG-TERM CAPI TAL ASSETS IF THEY ARE HELD FOR MORE THAN 12 MONTHS. THE EXPRESSI ON SECURITIES WILL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956. THE' PROPOSED AMENDMENT WILL TAKE EFFECT FROM 1ST A PRIL, 1995, AND WILL, ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 1995-96 AND SUB-SEQUENT YEARS. [EMPHASIS ADDED IS OURS] THE AFORESAID MEMORANDUM CLEARLY MAKES A DISTINCTIO N THAT THERE ARE MANY FINANCIAL INSTRUMENTS OTHER THAN THE COMPANY SHARES THROUGH WHICH THE INVESTOR ARE ENTERING THE CAPITAL MARKET. IN ORDER TO PROVIDE SUCH UNITS AND ALL THE SECURITIES TRADED IN RECOGNIZED STOCK EXCHANGE; A LEVEL PLAYING FIELD WITH THE COMPANYS SHARE IS PROPOSED TO BE AMENDED. THUS, THE SAID MEMORANDUM CLEARLY MAKES A DISTINCTION BETWEEN THE COMPANY SHARES AND OTHER THAN COMPANY S HARES. 90. NOW COMING TO THE AMENDMENT BY FINANCE (NO .2) ACT, 2014, 1 ST & 2 ND PROVISO AS AMENDED READS AS UNDER:- 'SHORT-TERM CAPITAL ASSET' MEANS A CAPITAL ASSET HE LD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMEDI ATELY PRECEDING THE DATE OF ITS TRANSFER: PROVIDED THAT IN THE CASE OF A SECURITY (OTHER THAN A UNIT) LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA OR A UNIT OF THE UNIT TRUST OF INDIA ESTABLISHED UNDER THE UNIT TRUST' OF INDIA ACT, 196 3 (52 OF1963) OR A UNIT OF AN-EQUITY ORIENTED FUND OR A ZERO COUPON BO ND], THE PROVISIONS OF THIS CLAUSE SHALL HAVE EFFECT AS IF FOR THE WORD S 'THIRTY-SIX MONTHS', THE WORDS 'TWELVE MONTHS' HAD BEEN SUBSTITUTED: I.T.A .NO.-4737/DEL/2017 157 | P A G E PROVIDED FURTHER THAT IN CASE OF A SHARE OF A COMPA NY (NOT BEING A SHARE LISTED IN A RECOGNISED STOCK EXCHANGE) OR A UNIT OF A MUTUAL FUND SPECIFIED UNDER CLAUSE (23D) OF SECTION 10, WH ICH IS-TRANSFERRED DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL , 2014 AND ENDING ON THE 10TH DAY OF JULY, ~ 2014, THE PROVISIONS OF THIS CLAUSE SHALL HAVE EFFECT AS IF FOR THE WORDS 'THIRTY-SIX MONTHS' , THE WORDS 'TWELVE MONTHS' HAD BEEN SUBSTITUTED: [EMPHASIS ADDED IS OURS] THE AFORESAID PROVISION WHICH HAS BEEN BROUGHT IN T HE STATUTE W.E.F. 01.04.2015 APPLICABLE FROM THE A.Y. 2015-16 HAS NOW REMOVED THE EXCEPTION FOR THE UNLISTED SHARES FROM THE BENE FIT OF SHORTER PERIOD, BECAUSE IN THE 1 ST PROVISO, THE BENEFIT OF PERIOD IS NOW ONLY LIMITED TO SECURITY LISTED IN RECOGNIZED STOCK EXCH ANGE IN INDIA AND TO OTHER FINANCIAL INSTRUMENTS. IN THIS MANNER THE LEG ISLATURE HAS CLEARLY WITHDRAWN THE BENEFIT OF SHORTER PERIOD OF LESS THA N 36 MONTHS FOR THE UNLISTED SHARES. BUT, THE 2 ND PROVISO MAKES IT VERY CLEAR THAT THE UNLISTED SHARES OF A COMPANY OR UNIT OF MUTUAL FUND WILL ENJOY THE BENEFIT OF SHORTER PERIOD ONLY WHEN THE SHARES ARE TRANSFERRED DURING THE PERIOD BETWEEN 01.04.2014 TO 10.07.2014. THE CB DT CIRCULAR WHILE PROVIDING THE EXPLANATORY NOTES TO THE AMENDM ENTS HAS CLARIFIED THE SAID AMENDMENT IN THE FOLLOWING MANNER:- 5.2. THE SHORTER PERIOD OF HOLDING OF NOT MORE THA N TWELVE MONTHS FOR CONSIDERATION AS SHORT-TERM CAPITAL ASSE T WAS INTRODUCED FOR ENCOURAGING INVESTMENT ON STOCK MARKET WHERE PR ICES OF THE SECURITIES ARE MARKET DETERMINED. HOWEVER, ALL SHAR ES WHETHER LISTED OR UNLISTED HAVE ENJOYED THE BENEFIT OF SHOR T PERIOD OF HOLDING AND EVEN ANY INVESTMENT IN SHARES OF PRIVATE LIMITE D COMPANIES ENJOYED LONG-TERM CAPITAL GAINS ON ITS TRANSFER AFT ER TWELVE MONTHS. ACCORDINGLY, CLAUSE (42A) OF SECTION 2 OF THE INCOM E-TAX ACT HAS BEEN AMENDED SO AS TO PROVIDE THAT AN UNLISTED SECURITY AND A UNIT OF A MUTUAL FUND (OTHER THAN AN EQUITY ORIENTED MUTUAL F UND) SHALL BE A SHORT-TERM CAPITAL ASSET IF IT IS HELD FOR NOT MORE THAN THIRTY-SIX I.T.A .NO.-4737/DEL/2017 158 | P A G E MONTHS. HOWEVER, IN THE CASE OF SHARE OF AN UNLISTE D COMPANY OR A UNIT OF A MUTUAL FUND SPECIFIED UNDER CLAUSE (23D) OF SECTION 10 OF THE INCOME-TAX ACT, WHICH IS TRANSFERRED DURING THE PERIOD BEGINNING ON 1ST APRIL, 2014 AND ENDING ON 10TH JULY, 2014, T HE PERIOD OF HOLDING FOR ITS-QUALIFICATION AS SHORT-TERM CAPITAL ASSET SHALL BE NOT- MORE THAN TWELVE MONTHS. THUS, THE AFORESAID CIRCULAR CLEARLY CLINCHES THE I SSUE AND CLARIFIES THAT, FIRSTLY, THE BENEFIT OF SHORTER PERIOD OF HOLDING OF 12 MONTHS TO QUALIFY AS LONG TERM CAPITAL ASSET TO UNL ISTED SHARES HAS BEEN REMOVED PROSPECTIVELY FROM A.Y. 2015-16 AND NO T FOR THE EARLIER YEARS; AND SECONDLY, THE BENEFIT OF SHORT PERIOD FOR HOLDING OF UNLISTE D SHARES WOULD BE AVAILABLE ONLY WHEN SUCH SHARES ARE TRANSFERRED DURING THE PERIOD BEGINNING ON 01.04.2014 AND ENDIN G ON 10.07.2014. POST 11.07.2014 THE BENEFITS OF SHORTER PERIOD OF U NLISTED SHARES COULD NOT BE APPLICABLE. 91. HERE IN THIS CASE, THE SHARES HAVE BEEN TRAN SFERRED PRIOR TO 31.03.2014, THEREFORE, THE NEWLY AMENDED ACT WOULD NOT BE APPLICABLE AT ALL AND THE ASSESSEE WILL GET THE BENEFIT OF SHO RTER PERIOD, I.E., PERIOD OF LESS THAN 36 MONTHS AS GIVEN IN SECTION 2(42A) R EAD WITH PROVISO THERETO AS PER THE RELEVANT PROVISION EXISTED FOR T HE A.Y. 2014-15. THUS, WE HOLD THAT THE AO AS WELL AS LD. CIT(A) ARE NOT JUSTIFIED IN LAW IN RE-CHARACTERIZING/RE-CLASSIFYING THE LONG TERM CAPITAL GAIN TO SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE. ACCORDING LY, THE GAIN ON TRANSFER OF SBPLS SHARE WOULD BE TAXABLE AS LONG TERM CAPITAL GAINS AND NOT SHORT TERM CAPITAL GAINS AND RESULTANTLY, G ROUND NO.1 AS RAISED BY THE ASSESSEE IS ALLOWED. 92. IN VIEW OF THE FINDING AND REASONING GIVE N ABOVE ON ALL THE THREE ISSUES, GROUND NOS. 1,1.1& 1.2 IS ALLOWED; GR OUND NO. 2 & 2.1 IS PARTLY ALLOWED; GROUND NO. 3 & 3.1 IS DISMISSED; AN D GROUND NO. 4 IS ALSO DISMISSED AS SAME WAS NEITHER ARGUED NOR PRESS ED. I.T.A .NO.-4737/DEL/2017 159 | P A G E IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 01 ST OF DECEMBER, 2017. SD/- SD/- (O.P.KANT) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 01/12/2017 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGI STRAR ITAT NEW DELHI