VORA FINANCIAL SERVICES PRIVATE LIMITED , MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX 2(3)(1), MUMBAI

ITA 532/MUM/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6709 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 25-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Reopening of assessment; Capital asset; Gift; Income from undisclosed sources; Earning of tax free income; Retrospective amendment; Fair market value; Valuation report; Cancellation of registration
• Section: 14A; 12AA; 148; 56; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 532/MUM/2018 (ASSESSMENT YEAR: 2014-15) M/S. VORA FINANCIAL SERVICES P. LTD. 801/806, 8TH FLOOR, ELITE SQUARE 274, PERIN NARIMAN, ST. BAZAR GATE FORT, MUMBAI 400001 VS. A C I T - 2(3((1) AAYAKAR BHAVAN M.K. ROAD MUMBAI 400020 PAN AAACV1975E APPELLANT RESPONDENT APPELLANT BY: SHRI K. GOPAL & MS. NEHA PARANJPE RESPONDENT BY: SHRI T.A. KHAN DATE OF HEARING: 16.05.2018 DATE OF PRONOUNCEMENT: 29.06.2018 O R D E R PER B.R. BASKARAN, AM THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 13.11.2017 PASSED BY LD CIT(A)-6, MUMBAI AND IT REL ATES TO THE ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDER ED BY LD CIT(A) ON THE FOLLOWING ISSUES:- (A) DISALLOWANCE MADE U/S 14A OF THE ACT. (B) DISALLOWANCE OF EXPENSES CLAIMED U/S 35(1)(III ) OF THE ACT. (C) ADDITION MADE U/S 56(2)(VIIA) OF THE ACT. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF T RADING IN SHARES AND DERIVATIVES. THE FIRST ISSUE RELATES TO THE DISALL OWANCE MADE U/S 14A OF THE ACT. THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.3 1,35,460/- AND CLAIMED THE SAME AS EXEMPT. THE ASSESSEE DID NOT DISALLOW ANY EXPENDITURE IN TERMS OF SEC. 14A OF THE ACT. BEFORE THE AO, THE A SSESSEE SUBMITTED THAT IT ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 2 HAS EARNED DIVIDEND INCOME OF RS.4,735/- OUT OF ITS INVESTMENTS AND THE REMAINING AMOUNT OF RS.31.30 LAKHS WAS RECEIVED FRO M THE SHARES HELD AS STOCK IN TRADE. IT WAS SUBMITTED THAT OUT OF RS.31 .30 LAKHS, DIVIDEND OF RS.31.21 LAKHS WAS RECEIVED FROM A SCRIP NAMED M/S MUTHOOT FINANCE LTD, WHICH WAS KEPT AS STOCK IN TRADE. IT WAS ALSO CONTENDED THAT THE PURPOSE OF TRADING IN SHARES WAS TO EARN PROFITS AN D NOT TO EARN DIVIDEND INCOME. ACCORDINGLY IT WAS SUBMITTED THAT EARNING DIVIDEND INCOME WAS INCIDENTAL AND INDIVISIBLE PART OF TRADING IN SHARE S. ACCORDINGLY THE ASSESSEE CONTENDED THAT THE THERE IS NO REASON TO I NVOKE RULE 8D AND FURTHER NO DISALLOWANCE WAS WARRANTED U/S 14A OF TH E ACT. 4. THE AO WAS NOT CONVINCED WITH THE CONTENTION S OF THE ASSESSEE AND PROCEEDED TO COMPUTE THE DISALLOWANCE AS PER RULE 8 D OF THE ITAT RULES. THE DISALLOWANCE OF DIRECT EXPENSES UNDER RULE 8D(2 )(I) WAS COMPUTED AT RS.8,22,353/- IN PROPORTION TO EXEMPT INCOME TO TOT AL REVENUE FROM OPERATIONS. THE DISALLOWANCE OF INTEREST EXPENSES UNDER RULE 8D(2)(II) WAS COMPUTED AT RS.12,67,410/- IN PROPORTION TO AVERAGE VALUE OF INVESTMENTS TO THE AVERAGE VALUE OF TOTAL ASSETS. THE DISALLOW ANCE OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) WAS COMPUTED AT 0.50 % OF THE AVERAGE VALUE OF INVESTMENTS AT RS.22,77,018/-. ACCORDINGLY THE AO DISALLOWED A SUM OF RS.43,66,781/- U/S 14A OF THE ACT. 5. THE LD CIT(A) DELETED THE INTEREST DISALLOWA NCE MADE UNDER RULE 8D(2)(II) OF I T RULES BY FOLLOWING DECISION RENDER ED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD (366 ITR 50 5), SINCE THE OWN FUNDS AVAILABLE WITH THE ASSESSEE WAS MORE THAN THE VALUE OF INVESTMENTS. WITH REGARD TO DISALLOWANCE MADE UNDER RULE 8D(2)(I II), THE LD CIT(A) DIRECTED THE AO TO COMPUTE THE DISALLOWANCE BY CONS IDERING ONLY THOSE INVESTMENTS WHICH HAVE YIELDED INCOME, WHICH DOES N OT FORM PART OF TOTAL INCOME. THE LD CIT(A) CONFIRMED THE DISALLOWANCE O F DIRECT EXPENSES UNDER RULE 8D(2)(I) AS PER THE WORKINGS MADE BY THE AO. HOWEVER, BY FOLLOWING THE DECISION RENDERED BY HONBLE DELHI HI GH COURT IN THE CASE OF JOINT INVESTMENTS P LTD (ITA NO.117/2015), THE LD C IT(A) DIRECTED THE AO ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 3 TO RESTRICT THE AMOUNT OF DISALLOWANCE TO THE AMOUN T OF EXEMPT INCOME. THE ASSESSEE IS STILL AGGRIEVED. 6. WE HEARD THE PARTIES ON THIS ISSUE AND PERU SED THE RECORD. WE NOTICE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES. OUT OF THE DIVIDEND INCOME OF RS.3 1.35 LAKHS, A SUM OF RS.31.30 LAKHS DIVIDEND INCOME WAS RECEIVED FROM SH ARES HELD AS STOCK IN TRADE. OUT OF THE SAME, A SUM OF RS. 31.21 LAKHS W AS RECEIVED FROM ONE SCRIP NAMED M/S MUTHOOT FINANCE LTD. WE HAVE NOTIC ED THAT THE LD CIT(A) HAS ALREADY DELETED THE DISALLOWANCE OF INTE REST EXPENDITURE, SINCE THE OWN FUNDS AVAILABLE WITH THE ASSESSEE WAS MORE THAN THE VALUE OF INVESTMENTS. THE LD CIT(A) HAS SUSTAINED THE PROPO RTIONATE DISALLOWANCE MADE OUT OF SECURITY TRANSACTION TAX UNDER RULE 8D( 2)(I) AND ALSO THE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES UNDER R ULE 8D(2)(III) OF THE I.T RULES. 7. WE HAVE NOTICED THAT THE ASSESSEE HAS RECEI VED MAJOR PORTION DIVIDEND OF RS.31.21 LAKHS FROM ONE SCRIP. WE NOTIC ED THAT THE AO HAS COMPUTED DISALLOWANCE OF DIRECT EXPENSES (SECURITY TRANSACTION TAX) IN PROPORTION TO EXEMPT INCOME TO TOTAL REVENUE FROM O PERATIONS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE METHODOLOGY ADOP TED BY THE AO, IN OUR VIEW, IS NOT CORRECT. THE SECURITY TRANSACTION TAX RELATING TO THE SHARES, WHICH YIELDED DIVIDEND, SHOULD ALONE HAVE BEEN CONS IDERED. FURTHER, THE SAID EXPENDITURE SHOULD BE ALLOCATED BETWEEN TRADIN G OPERATIONS AND EXEMPT INCOME. IN FACT, WE NOTICE THAT THE LD CIT( A) HAS DIRECTED THE AO TO COMPUTE THE DISALLOWANCE UNDER RULE 8D(2)(III) B Y CONSIDERING ONLY THOSE SCRIPS WHICH HAS YIELDED DIVIDEND. HENCE CON SIDERING THE FACT THAT MAJOR PORTION DIVIDEND INCOME HAS BEEN RECEIVED FRO M SHARES HELD AS STOCK IN TRADE, THAT TOO OUT OF A SINGLE SCRIP, WE ARE OF THE VIEW THAT IT MAY NOT BE APPROPRIATE TO APPLY THE PROVISIONS OF RULE 8D IN T HE INSTANT CASE. ACCORDINGLY WE ARE OF THE VIEW THAT THE REQUIREMENT S OF PROVISIONS OF SEC. 14A SHALL BE MET, IF THE DISALLOWANCE IS MADE AT 5% OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE. ACCORDINGLY WE SET ASIDE T HE ORDER PASSED BY LD ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 4 CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE U/S 14A TO 5% OF THE EXEMPT INCOME EARNED BY THE ASSESSEE. 8. THE NEXT ISSUE CONTESTED IN THIS APPEAL RELA TES TO THE DISALLOWANCE OF DEDUCTION CLAIMED U/S 35(1)(III) OF THE ACT. THE F ACTS RELATING THERETO ARE THAT THE ASSESSEE PAID DONATION OF RS.50.00 LAKHS T O M/S BIOVED RESEARCH SOCIETY, WHICH WAS AN INSTITUTION UNDERTAKING SCIEN TIFIC RESEARCH. SINCE IT WAS APPROVED U/S 35 OF THE ACT, THE DONATION PAID T O IT IS ELIGIBLE FOR WEIGHTED DEDUCTION OF AN AMOUNT EQUAL TO ONE AND TH REE FOURTH TIMES OF AMOUNT DONATED TO IT AS PER THE PROVISIONS OF SEC. 35(1)(II) OF THE ACT. ACCORDINGLY THE ASSESSEE CLAIMED DEDUCTION OF RS.87 ,50,000/- UNDER THE ABOVE SAID SECTION ON THE DONATION OF RS.50.00 LAKH S PAID BY IT. 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE AO ISSUED COMMISSION U/S 131(1)(D) OF THE ACT TO THE ASSISTAN T COMMISSIONER OF INCOME TAX (EXEMPTIONS), LUCKNOW IN ORDER TO VERIFY THE GENUINENESS OF THE DONATION PAID BY THE ASSESSEE. THE ASST. COMMISSIO NER REPORTED THAT THE REVENUE HAS CARRIED OUT SURVEY OPERATIONS IN THE HA NDS OF VARIOUS PERSONS AND IT REVEALED THAT THOSE PERSONS HAVE PAID DONATI ONS TO THESE KINDS OF TRUSTS/SOCIETIES, WHICH WERE SUBSEQUENTLY RETURNED BACK IN CASH AFTER DEDUCTING COMMISSION. THESE DONORS HAVE CLAIMED WE IGHTED DEDUCTION U/S 35(1)(II) OF THE ACT. ACCORDINGLY IT WAS REPOR TED THAT THE DONATIONS ARE, IN FACT, BOGUS IN NATURE. THE ASST. COMMISSIONER A LSO REPORTED THAT THE DONATIONS HAVE BEEN TREATED AS ANONYMOUS DONATIONS IN THE HANDS OF THE TRUST AND FURTHER INCOME HAS BEEN DETERMINED AT RS. 1911.22 LAKHS AS AGAINST NIL INCOME. IN THE ASSESSMENT ORDER PASSED IN THE HANDS OF THE TRUST, IT HAS BEEN OBSERVED THAT THE RESEARCH ACTIV ITIES ARE NOT CARRIED ON. IT WAS FURTHER OBSERVED THAT THE AO HAS MADE SUITAB LE RECOMMENDATION FOR WITHDRAWAL OF APPROVAL GIVEN U/S 35(1)(II) OF THE A CT. 10. BASED ON THE ABOVE REPORT FURNISHED BY THE A SSISTANT COMMISSIONER OF INCOME TAX, LUCKNOW, THE ASSESSING OFFICER CONCL UDED THAT THE ASSESSEE IS ONE OF THE BENEFICIARIES OF THE BOGUS DONATIONS AND ACCORDINGLY DISALLOWED THE CLAIM OF RS.87.50 LAKHS MADE U/S 35( 1)(II) OF THE ACT. ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 5 11. BEFORE LD CIT(A), THE ASSESSEE CONTENDED THAT M/S BIOVED RESEARCH SOCIETY WAS HAVING RECOGNITION U/S 35(1)(II) OF THE ACT, WHEN THE IMPUGNED DONATION WAS GIVEN. IT WAS ALSO CONTENDED THAT THE AO HAS DENIED REJECTION ON THE BASIS OF RECOMMENDATION GIVEN BY T HE AO OF THE ABOVE SAID SOCIETY TO THE LD CIT. ACCORDINGLY IT WAS CONTENDE D THAT THE REJECTION OF CLAIM WAS BASED ON SURMISES AND CONJECTURES. THE L D CIT(A) WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE. H E ALSO NOTICED THAT THE REGISTRATION GRANTED TO THE ABOVE SAID SOCIETY U/S 12AA OF THE ACT HAS BEEN CANCELLED ON 28-02-2017 WITH RETROSPECTIVE EFFECT F ROM 1.4.2010. HENCE THE LD CIT(A) CONFIRMED THE DISALLOWANCE MADE BY TH E AO. 12. THE LD A.R SUBMITTED THAT THE WEIGHTED DEDUC TION U/S 35(1)(II) IS ALLOWED TO DONATIONS GIVEN TO RESEARCH ASSOCIATION, WHICH IS APPROVED IN ACCORDANCE WITH THE GUIDELINES ISSUED IN THIS REGAR D AND WHICH IS NOTIFIED BY THE CENTRAL GOVERNMENT. HE SUBMITTED THAT THE M /S BIOVED RESEARCH SOCIETY HAS BEEN APPROVED AND NOTIFIED, VIDE NOTIFI CATION NO.15/2008 DATED 01-02-2008. IN THIS REGARD, HE INVITED OUR ATTENTI ON TO THE COPY OF NOTIFICATION PLACED AT PAGE 30 OF THE PAPER BOOK. HE SUBMITTED THAT THE ABOVE SAID NOTIFICATION HAS NOT BEEN WITHDRAWN TILL DATE. ACCORDINGLY HE SUBMITTED THAT THERE IS NO VALID REASON FOR REJECTI NG THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 35(1)(II) OF THE ACT. HE SUBMI TTED THAT THE LD CIT(A) HAS PLACED HIS RELIANCE ON THE ORDER PASSED FOR WIT HDRAWAL OF THE REGISTRATION GRANTED U/S 12AA OF THE ACT. HE SUBMI TTED THAT THE PROVISIONS OF SEC. 12AA AND SEC. 35(1)(II) OPERATE ON DIFFEREN T FIELDS AND FURTHER THERE IS NO CONDITION PRESCRIBED IN SEC. 35(1)(II) THAT T HE REGISTRATION OF THE RESEARCH ASSOCIATION U/S 12AA IS THE CONDITION FOR ALLOWING DEDUCTION U/S 35(1)(II) OF THE ACT. 13. THE LD A.R SUBMITTED THAT AN ALMOST IDENTICAL ISSUE WAS CONSIDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF RAMDAS MANEKLAL GANDHI V. UNION OF INDIA (2000)(241 ITR 437). IN THE ABOVE S AID CASE, THE ASSESSEE BEFORE HONBLE HIGH COURT PAID DONATION OF RS.1.00 LAKH FOR RURAL DEVELOPMENT PROGRAMME TO A SOCIETY FOR INTEGRAL DEV ELOPMENT, WHICH WAS APPROVED BY THE PRESCRIBED AUTHORITY AT THAT POINT OF TIME. THE SAID ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 6 PAYMENT WAS ELIGIBLE FOR DEDUCTION U/S 35CCA OF THE ACT AND THE ASSESSEE WAS ACCORDINGLY ALLOWED DEDUCTION. SUBSEQUENTLY THE APPROVAL WAS WITHDRAWN BY THE PRESCRIBED AUTHORITY ON 3.3.1987 W ITH RETROSPECTIVE EFFECT FROM 13.12.1982. THE INCOME TAX OFFICER SOUG HT TO WITHDRAW THE DEDUCTION GRANTED U/S 35CCA OF THE ACT BY REOPENING THE ASSESSMENT. THE ASSESSEE CHALLENGED THE REOPENING OF ASSESSMENT BY FILING WRIT PETITION BEFORE THE HONBLE BOMBAY HIGH COURT. THE HONBLE B OMBAY HIGH COURT HELD THAT THE ASSESSEE IS ENTITLED TO RELY UPON CER TIFICATE GRANTED TO THE INSTITUTION U/S 35CCA FOR CLAIMING DEDUCTION UNDER THAT SECTION, WHICH WAS VALID AND SUBSISTING WHEN DONATION WAS MADE TO IT. ACCORDINGLY THE REOPENING NOTICE WAS QUASHED. HE SUBMITTED THAT TH E CHENNAI BENCH HAS TAKEN AN IDENTICAL VIEW IN THE CASE OF SMT. DEVIYAN I DILIP PATEL IN RESPECT OF DEDUCTION CLAIMED U/S 35(1)(II) OF THE ACT. THE CHENNAI BENCH OF ITAT HAS HELD THAT THE SUBSEQUENT WITHDRAWAL OF EXEMPTIO N WITH RETROSPECTIVE EFFECT WILL NOT AFFECT THE DEDUCTION CLAIMED BY THE DONOR U/S 35(1)(II) OF THE ACT, WHEN THE INSTITUTION WAS ENJOYING APPROVAL WIT HIN THE MEANING OF SEC. 35(1)(II) AS ON THE DATE OF RECEIPT OF DONATION. 14. THE LD A.R SUBMITTED THAT, IN THE ABOVE SAID CASES, THE APPROVAL HAS BEEN REJECTED WITH RETROSPECTIVE EFFECT AND STILL T HE COURT/TRIBUNAL HAS HELD THAT THE DEDUCTION CLAIMED BY THE ASSESSEE SHO ULD NOT BE DENIED. HE SUBMITTED THAT THE ASSESSEE IN THE PRESENT CASE STA NDS ON A BETTER FOOTING, SINCE THE APPROVAL GRANTED TO M/S BIOVED RESEARCH S OCIETY HAS NOT BEEN WITHDRAWN TILL DATE. ACCORDINGLY HE SUBMITTED THAT THE DEDUCTION U/S 35(1)(II) OF THE ACT SHOULD BE ALLOWED TO THE ASSES SEE. 15. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT T HE REVENUE HAS UNEARTHED THE FACT THAT CERTAIN RESEARCH SOCIETIES ARE INDULGING IN THE ACTIVITY OF RECEIVING BOGUS DONATIONS AND RETURNING THEM TO THE DONORS BY WAY OF CASH. HE SUBMITTED THAT M/S BIOVED RESEARCH SOCIETY HAS BEEN IDENTIFIED AS ONE OF SUCH SOCIETIES. HENCE THE DON ATIONS RECEIVED BY IT HAS BEEN ASSESSED AS ITS INCOME AND FURTHER THE AO HAS RECOMMENDED CANCELLATION OF APPROVAL GRANTED U/S 35(1)(II) OF T HE ACT. HE FURTHER SUBMITTED THAT THE REGISTRATION OF THE ABOVE SAID S OCIETY GIVEN U/S 12AA OF ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 7 THE ACT HAS BEEN CANCELLED WITH RETROSPECTIVE EFFEC T. ACCORDINGLY THE LD D.R SUBMITTED THAT THE ASSESSEE HAS OBTAINED ONLY BOGUS DONATION RECEIPTS AND HENCE THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF WEIGHTED DEDUCTION OF RS.87.50 LAKHS CLAIMED U/S 35 (1)(II) OF THE ACT. 16. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSU E AND PERUSED THE RECORD. THE UNDISPUTED FACT REMAINS THAT THE RESEAR CH SOCIETY, VIZ., M/S BIOVED RESEARCH SOCIETY WAS DULY APPROVED U/S 35(1) (II) OF THE ACT AND THE ASSESSEE HAS GIVEN THE IMPUGNED DONATION OF RS.50.0 0 LAKHS, WHEN THE APPROVAL WAS VERY MUCH AVAILABLE. IT IS THE CONTENT ION OF LD A.R THAT THE APPROVAL SO GRANTED HAS NOT BEEN CANCELLED TILL DAT E. THE ASSESSEE HAS GIVEN DONATION DURING THE FINANCIAL YEAR 2013-14.TH E ASSISTANT COMMISSIONER REFERS IN HIS REMAND REPORT ABOUT THE SURVEY CONDUCTED IN THE YEAR 2015 IN THE HANDS OF CERTAIN DONORS. BASED ON THE SURVEY FINDINGS, THE ASSESSMENT IN THE HANDS OF BIOVED RES EARCH SOCIETY HAS BEEN COMPLETED ON 29-03-2016. THESE FACTS SHOW THAT THE ABOVE SAID SOCIETY WAS VERY MUCH HAVING APPROVAL IN THE FINANCIAL YEAR 2013-14. 17. IT IS ALSO AN UNDISPUTED FACT THAT THE REVE NUE DID NOT CARRY ON ANY SURVEY OPERATIONS IN THE HANDS OF THE ASSESSEE. IT IS ALSO NOT CLEAR AS TO WHETHER ANY SURVEY OPERATION WAS CONDUCTED IN THE H ANDS OF BIOVED RESEARCH SOCIETY ALSO. BE THAT AS IT MAY, THE VARI OUS CASE LAWS RELIED UPON BY THE LD A.R WOULD SHOW THAT THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 35(1)(II) CANNOT BE REJECTED ON THE BASIS OF SUBSEQ UENT EVENTS. THE HONBLE BOMBAY HIGH COURT WAS CONSIDERING THE ISSUE OF DEDU CTION CLAIMED U/S 35CCA OF THE ACT IN THE CASE OF RAMDAS MANEKLAL GAN DHI (SUPRA). THE HEAD NOTES OF THE SAID DECISION READS AS UNDER:- SECTION 35CCA OF THE INCOME TAX ACT, 1961 RURAL DEVELOPMENT PROGRAMME, EXPENSES FOR ASSESSMENT YEAR 1985-86 NOTICE ISSUED TO WITHDRAW DEDUCTION ALLOWED UNDER SECTION 35CCA I N RESPECT OF DONATION TO AN INSTITUTION WHOSE APPROVAL WAS WITHD RAWN ON 3-3- 1987 BY PRESCRIBED AUTHORITY WITH RETROSPECTIVE EFF ECT WHETHER IN VIEW OF WELL-SETTLED LAW THAT ASSESSEE IS ENTITLED TO RELY UPON CERTIFICATE GRANTED TO AN INSTITUTION UNDER SECTION 35CCA FOR CLAIMING DEDUCTION UNDER THAT SECTION, WHICH WAS VALID AND S UBSISTING WHEN DONATION WAS MADE TO IT, THERE WAS NO ESCAPEMENT OF INCOME OF ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 8 ASSESSEE ON ACCOUNT OF ALLOWANCE OF SAID DEDUCTION AND, THEREFORE, IMPUGNED NOTICE HAD TO BE QUASHED AND SET ASIDE H ELD, YES. THOUGH THE ABOVE SAID DECISION WAS RENDERED BY HON BLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CONTEXT OF VALIDITY OF RE- OPENING U/S 148 OF THE ACT, YET THE DECISION RENDERED BY HONBLE BOMBAY HI GH COURT MAKES IT CLEAR THAT THE DEDUCTION CAN BE CLAIMED ON THE BASI S OF APPROVAL GRANTED TO THE RESEARCH SOCIETY, WHICH WAS VALID AND SUBSISTIN G WHEN DONATION WAS MADE TO IT. 18. THE CHENNAI BENCH OF TRIBUNAL HAS CONSIDERE D AN IDENTICAL ISSUE IN THE CASE OF SMT. DEVIYANI DILIP PATEL (SUPRA) AND H ELD THAT THE REJECTION OF WEIGHTED DEDUCTION IN RESPECT OF DONATION CANNOT BE DENIED WHEN THE INSTITUTION WAS ENJOYING APPROVAL WITHIN THE MEANIN G OF SEC. 35(1)(II) AS ON DATE OF RECEIPT OF DONATION, NO MATTER THAT THE APP ROVAL WAS CANCELLED SUBSEQUENTLY WITH RETROSPECTIVE EFFECT. IT IS PERT INENT TO NOTE THAT THE CHENNAI BENCH OF TRIBUNAL HAS PLACED ITS RELIANCE O N THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF SEKSARI A BISWAN SUGAR FACTORY LTD VS. INSPECTING ASSISTANT COMMISSIONER ( 1990)(184 ITR 123). IN THE CASE OF SEKASARIA BISWAN SUGAR FACTORY LTD, THE ASSESSMENT WAS RE- OPENED TO WITHDRAW THE DEDUCTION ALLOWED U/S 35CCA OF THE ACT ON THE BASIS OF CANCELLATION OF APPROVAL WITH RETROSPECTIV E EFFECT. THE HONBLE BOMBAY HIGH COURT EXPRESSED THE VIEW THAT THE GIVIN G RETROSPECTIVE EFFECT TO THE CANCELLATION OF APPROVAL WAS NOT VALID. ACC ORDINGLY THE HONBLE BOMBAY HIGH COURT HELD THAT THE NOTICE OF REASSESSM ENT WAS NOT VALID. 19. THE HONBLE CALCUTTA HIGH COURT HAS CONSIDER ED AN IDENTICAL ISSUE IN THE CONTEXT OF SEC. 263 OF THE ACT IN THE CASE OF C IT VS. GENERAL MAGNETS LTD (253 ITR 471). IN THE ABOVE SAID CASE, THE LD CIT SOUGHT TO CANCEL THE DEDUCTION CLAIMED U/S 35CCA OF THE ACT ON THE BASIS OF CANCELLATION OF APPROVAL MADE WITH RETROSPECTIVE EFFECT. THE FOLLOW ING OBSERVATIONS MADE BY THE HONBLE HIGH COURT ARE RELEVANT:- 15. FOR OUR CONSIDERATION IN THIS CASE THE ISSUE I S WHEN THE APPROVAL EXEMPTION TO THE SOCIETY HAS BEEN WITHDRAWN WITH RE TROSPECTIVE EFFECT, CAN THE ORDER OF THE ASSESSING OFFICER BE S AID TO BE ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENUE; OUR ANSWER WILL BE IN THE ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 9 NEGATIVE. WHEN THE ASSESSEE HAS PAID DONATION TO T HE SOCIETY WHICH HELD VALID APPROVAL UNDER SECTION 35CCA OF THE ACT AND THAT HAS NOT BEEN WITHDRAWN NOT ONLY IN THE ACCOUNTING YEAR BUT TILL THE ASSESSMENT WAS MADE. THAT APPROVAL TO SOCIETY WITHD RAWN IN MARCH, 1987, THOUGH WITH RETROSPECTIVE EFFECT, THE BENEFIT UNDER SECTION 35CCA CANNOT BE DENIED. 16. FOR NO FAULT OF THE ASSESSEE, HE SHOULD NOT SU FFER AND ONCE THE APPROVAL IS GIVEN TO THE SOCIETY UNDER SECTION 35CCA AND THE ASSESSEE HAS PAID THE AMOUNT DONATION TO THAT SOCIE TY, HE CANNOT BE DENIED THE DEDUCTION FOR WHICH HE WAS ENTITLED UNDE R THE VALID CERTIFICATE ISSUED BY THE SOCIETY WHICH IS APPROVED BY THE DEPARTMENT ON THE DATE OF PAYMENT TO THAT SOCIETY. 17. ASSUMING BY MISTAKE THE APPROVAL HAS BEEN GIV EN TO THE WRONG SOCIETY. BUT FOR MISTAKE OF THE DEPARTMENT, WHY SH OULD THE ASSESSEE SUFFER? THAT WITHDRAWAL OF APPROVAL TO THE SOCIETY WITH RETROSPECTIVE EFFECT IS ITSELF BAD. NO ASSESSEE SHOULD SUFFER FO R MISTAKE OF THE DEPARTMENT. THE DEPARTMENT HAS THE POWER OF WITHDRA WAL BUT IN SUCH CASES WITHDRAWAL CAN BE ONLY WITH PROSPECTIVE EFFECT. IF THE DONATION TO THE APPROVED SOCIETY IS GENUINE IN THAT CASE WITHDRAWAL WITH RETROSPECTIVE EFFECT DOES NOT AFFECT THE RIGHT OF THE ASSESSEE FOR DEDUCTION OF THE AMOUNT WHICH HAS ACCRUED TO THE AS SESSEE ON THE BASIS OF THE PAYMENT TO AN APPROVED SOCIETY UNDER S ECTION 35CCA OF THE ACT. IDENTICAL VIEW WAS EXPRESSED BY HONBLE CALCUTTA HI GH COURT IN THE CASE OF B.P.AGARWALLA & SONS LTD (1994)(208 ITR 863). 20. IN THE INSTANT CASE, THE ASSESSEE HAS GIVEN THE DONATION OF RS.50.00 LAKHS TO M/S BIOVED RESEARCH SOCIETY. IN THE ASSES SMENT ORDER PASSED BY THE AO IN THE HANDS OF THE ABOVE SAID SOCIETY, HE H AS ONLY RECOMMENDED FOR CANCELLATION OF THE APPROVAL GRANTED U/S 35(1)( II) OF THE ACT. ACCORDING TO LD A.R, THE SAID APPROVAL HAS NOT BEEN CANCELLED TILL DATE. THOUGH THE SURVEY PROCEEDINGS CONDUCTED IN THE HANDS OF CERTAI N DONORS, WHICH REVEALED THAT THE DONATIONS WERE BOGUS IN NATURE, N O SUCH FINDING HAS BEEN GIVEN IN THE HANDS OF THE ASSESSEE HEREIN. HE NCE, WE ARE OF THE VIEW THAT THE GENUINENESS OF PAYMENT OF DONATIONS CANNOT BE DOUBTED IN THE INSTANT CASE, PARTICULAR IN THE ABSENCE OF ANY MATE RIAL TO SUPPORT THE VIEW TAKEN BY THE AO. HENCE WE AGREE WITH THE CONTENTIO NS OF LD A.R THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF WEIG HTED DEDUCTION. WE FURTHER NOTICE THAT THE LD CIT(A) HAS PLACED RELIAN CE ON THE CANCELLATION OF REGISTRATION GRANTED U/S 12AA OF THE ACT TO M/S BIO VED RESEARCH SOCIETY ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 10 WITH RETROSPECTIVE EFFECT. THE REGISTRATION GRANT ED U/S 12AA OF THE ACT AND THE APPROVAL GRANTED U/S 35(1)(II) OF THE ACT OPERA TES ON DIFFERENT FIELD. HENCE WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN PLACING RELIANCE ON THE ORDER OF CANCELLATION OF REGISTRATI ON U/S 12AA OF THE ACT. 21. EVEN IF THE APPROVAL IS CANCELLED SUBSEQUENT LY WITH RETROSPECTIVE EFFECT, VARIOUS CASE LAWS DISCUSSED ABOVE BRING OUT THE RATIO THAT THE WEIGHTED DEDUCTION CLAIMED BY THE ASSESSEE U/S 35(1 )(II) OF THE ACT CANNOT BE DENIED, IF THERE WAS VALID AND SUBSISTING APPROV AL WHEN THE DONATION WAS GIVEN. IN THE INSTANT CASE, IT IS THE CONTENTI ON OF LD A.R THAT THE APPROVAL WAS NOT CANCELLED TILL DATE. BEFORE US, T HE REVENUE DID NOT FURNISH ANY MATERIAL TO REFUTE THE CONTENTIONS OF LD A.R. 22. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THERE IS NO JUSTIFICATION IN REJECTING THE CLAIM OF WEIGHTED DEDUCTION CLAIMED U/S 35(1)(II) OF THE ACT. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE WEIGHT ED DEDUCTION CLAIMED U/S 35(1)(II) OF THE ACT. 23. THE LAST ISSUE URGED BY THE ASSESSEE RELATE S TO THE ADDITION OF RS.82.89 LAKHS MADE U/S 56(2)(VIIA) OF THE ACT. THE FACTS IN BRIEF ARE THAT THE ASSESSEE, DURING THE YEAR UNDER CONSIDERATION, MADE AN OFFER TO EXISTING SHAREHOLDERS FOR BUY BACK OF 25% OF ITS EX ISTING SHARE CAPITAL AT A PRICE OF RS.26/- PER SHARE. THE OFFER WAS OPEN BET WEEN 8 TH MAY, 2013 AND 22 ND MAY, 2013. ONE OF THE DIRECTORS SHRI KASHYAP VORA OFFERED 12,19,075 SHARES UNDER THE BUYBACK SCHEME AND ACCORDINGLY THE ASSESSEE BOUGHT THOSE SHARES PAID A CONSIDERATION OF RS.316.95 LAKH S ON 24.05.2013. THE AO NOTICED THAT THE BOOK VALUE OF SHARES AS ON 31.3 .2013 WAS RS.32.80 PER SHARE, WHEREAS THE ASSESSEE COMPANY HAS BOUGHT BACK THE SHARES AT RS.26/- PER SHARE. 24. THE AO PROPOSED TO INVOKE THE PROVISIONS OF SEC.56(2)(VIIA) OF THE ACT TO THIS TRANSACTION OF BUY BACK. THE SAID PROVISIO NS READ AS UNDER:- 56(2)(VIIA) WHERE A FIRM OR A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 11 FROM ANY PERSON OR PERSONS, ON OR AFTER THE 1ST DAY OF JUNE, 2010, ANY PROPERTY, BEING SHARES OF A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, (I) WITHOUT CONSIDERATION, THE AGGREGATE FAIR MARKE T VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE WHOLE OF THE AGG REGATE FAIR MARKET VALUE OF SUCH PROPERTY; (II) FOR A CONSIDERATION WHICH IS LESS THAN THE AGG REGATE FAIR MARKET VALUE OF THE PROPERTY BY AN AMOUNT EXCEEDING FIFTY THOUSAND RUPEES, THE AGGREGATE FAIR MARKET VALUE OF SUCH PROPERTY AS EXCEEDS SUCH CONSIDERATION: PROVIDED THAT THIS CLAUSE SHALL NOT APPLY TO ANY SU CH PROPERTY RECEIVED BY WAY OF A TRANSACTION NOT REGARDED AS TR ANSFER UNDER CLAUSE (VIA) OR CLAUSE (VIC) OR CLAUSE (VICB) OR CL AUSE (VID) OR CLAUSE (VII) OF SECTION 47. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, FAIR MARKET VALUE OF A PROPERTY, BEING SHARES OF A COMPANY NOT BEING A COM PANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, SHALL HAVE THE MEANING ASSIGNED TO IT IN THE EXPLANATION TO CLAUSE (VII); THE AO NOTICED THAT CONSIDERATION OF RS.316.95 LAKH S HAS BEEN REINVESTED IN THE ASSESSEE COMPANY IN THE FORM OF LOAN. HENCE THE AO TOOK THE VIEW THAT THE ENTIRE EXERCISE WAS CARRIED OUT TO REDUCE THE LIABILITY OF THE COMPANY BY PURCHASING SHARES BELOW THE FAIR MARKET VALUE. ACCORDINGLY THE AO ASSESSED THE DIFFERENCE BETWEEN THE BOOK VAL UE OF SHARES AND PURCHASE PRICE OF SHARES AMOUNTING TO RS.82.89 LAKH S AS INCOME OF THE ASSESSEE U/S 56(2)(VIIA) OF THE ACT. THE LD CIT(A) ALSO CONFIRMED THE SAME. 25. THE LD A.R SUBMITTED THAT THE INCOME TAX ACT WAS AMENDED BY INSERTING A NEW CLAUSE IN SEC. 2(22) OF THE ACT AND ALSO BY INSERTING SEC.46A, CONSEQUENT TO THE INSERTION OF SEC. 77A IN THE COMPANIES ACT, WHICH ALLOWS A COMPANY TO PURCHASE ITS OWN SHARES. AMENDMENT IN SECTION 2(22) PROVIDES THAT THE DIVIDEND DOES NOT I NCLUDE ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES IN ACCORDANCE WITH PROVISIONS OF SEC. 77 OF THE COMPANIES ACT. SECTIO N 46A PROVIDES FOR TAXATION OF CONSIDERATION RECEIVED. ACCORDINGLY TH E LD A.R SUBMITTED THAT THE ABOVE SAID PROVISIONS ONLY DEAL WITH THE CASE O F BUY BACK OF SHARES AND HENCE THE AO WAS NOT CORRECT IN INVOKING THE PROVIS IONS OF SEC. 56(2)(VIIA) OF THE ACT IN THE INSTANT CASE. IN THIS REGARD, TH E LD A.R PLACED RELIANCE ON ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 12 THE MEMORANDUM EXPLAINING THE PROVISIONS IN FINANCE BILL, 1999 AVAILABLE IN (1999) 236 ITR (ST.) 155. 26. HE SUBMITTED THAT THE PROVISIONS OF SEC.56(2) (VII) WERE INTRODUCED AS COUNTER EVASION MECHANISM AS EXPLAINED IN THE MEMOR ANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2010 (2010)(321 ITR (ST.) 110), WHICH IS EXTRACTED BELOW:- B. THE PROVISIONS OF SECTION 56(2)(VII) WERE INTRO DUCED AS A COUNTER EVASION MECHANISM TO PREVENT LAUNDERING OF UNACCOUNTED INCOME UNDER THE GARB OF GIFTS, PARTICULARLY AFTER ABOLITI ON OF THE GIFT TAX ACT. THE PROVISIONS WERE INTENDED TO EXTEND THE TAX NET TO SUCH TRANSACTIONS IN KIND. THE INTENT IS NOT TO TAX THE TRANSACTIONS ENTERED INTO IN THE NORMAL COURSE OF BUSINESS OR TR ADE, THE PROFITS OF WHICH ARE TAXABLE UNDER SPECIFIC HEAD OF INCOME. I T IS, THEREFORE, PROPOSED TO AMEND THE DEFINITION OF PROPERTY SO AS TO PROVIDE THAT SECTION 56(2)(VII) WILL HAVE APPLICATION TO THE PR OPERTY WHICH IS IN THE NATURE OF A CAPITAL ASSET OF THE RECIPIEN T AND THEREFORE WOULD NOT APPLY TO STOCK-IN-TRADE, RAW MATERIAL AND CONSUMABLE STORES OF ANY BUSINESS OF SUCH RECIPIENT. THE LD A.R SUBMITTED THAT THE ABOVE SAID EXPLANATIO NS SQUARELY APPLY TO THE PROVISIONS OF SEC. 56(2)(VIIA) OF THE ACT ALSO. HE SUBMITTED THAT THE PRIMARY CONDITION FOR INVOKING THE PROVISIONS OF SE C. 56(2)(VIIA) WAS THAT THE SHARES SHOULD BECOME A CAPITAL ASSET AND PROP ERTY IN THE HANDS OF RECIPIENT. HE SUBMITTED THAT, IN THE INSTANT CASE, THE ASSESSEE HAS PURCHASED THE SHARES UNDER THE BUYBACK SCHEME AND T HE SAID SHARES HAVE BEEN EXTINGUISHED BY WRITING DOWN THE SHARE CAPITAL . HENCE THOSE SHARES DID NOT BECOME CAPITAL ASSET OF THE ASSESSEE COMPAN Y AND HENCE THE PROVISIONS OF SEC. 56(2)(VIIA) SHOULD NOT HAVE BEEN INVOKED IN THE HANDS OF THE ASSESSEE COMPANY. 27. THE QUESTION OF TAXABILITY OF BONUS SHARES R ECEIVED BY A SHAREHOLDER U/S 56(2)(VII)(C) OF THE ACT CAME TO BE CONSIDERED IN THE CASE OF SUDHIR MENON HUF VS. ACIT (2014)(148 ITD 260) BY THE MUMBA I BENCH OF TRIBUNAL. THE TRIBUNAL HELD THAT THE ADDITIONAL SH ARES WERE ALLOTTED PRO RATA TO THE EXISTING SHAREHOLDERS AND THERE WAS NO SCOPE FOR ANY PROPERTY BEING RECEIVED ON SAID ALLOTMENT OF SHARES AND HENC E PROVISIONS OF SEC. 56(2)(VII)(C) WILL NOT APPLY. THE ABOVE SAID DECIS ION WAS FOLLOWED BY THE ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 13 BANGALORE BENCH OF ITAT IN THE CASE OF DCIT VS. DR. RAJAN PAL (2016)(180 TTJ 714). THE LD A.R SUBMITTED THAT THE ABOVE SAID DECISIONS WERE RENDERED IN THE CONTEXT O TAXABILITY OF BONUS SHARE S, WHICH ENHANCES THE PAID UP CAPITAL, U/S 56(2)(VII)(C) OF THE ACT. HOW EVER, IN THE INSTANT CASE, THE ISSUE INVOLVED IS THE BUY BACK OF SHARES, WHICH REDUCES THE PAID UP CAPITAL. HENCE THE RATIO OF THE ABOVE SAID DECISIO N SHOULD APPLY HERE ALSO. 28. THE LD A.R SUBMITTED THAT THE AO HAS TAKEN THE BOOK VALUE OF SHARES AT RS.32.80 PER SHARE. HE SUBMITTED THAT TH E ASSESSEE ALSO GOT ITS SHARES VALUED AS PER WHICH THE BOOK VALUE OF SHARES AS ON 31.3.2013 WORKS OUT TO RS.25.42 PER SHARE. HE FURTHER SUBMIT TED THAT THE PROVISIONS OF SEC. 56(2)(VIIA) SPEAKS ABOUT FAIR MARKET VALUE OF SHARES, WHICH IS DIFFERENT FROM BOOK VALUE. 29. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT THE ASSESSEE IS RELYING UPON A VALUATION CERTIFICATE OBTAINED RECENTLY AND THE SAME WAS NOT AVAILABLE BEFORE THE AO. ACCORDINGLY HE SUBMITTED THAT THE ABOVE SAID VALUATION REPORT SHOULD BE IGNORED. HE SUBMITTED T HAT THE ASSESSEE HAS PURCHASED SHARES AT RS.26/- PER SHARE, WHILE THE BO OK VALUE AS PER THE COMPUTATION OF AO WAS RS.32.80 SHARES. ACCORDINGLY HE SUBMITTED THAT THE AO HAS RIGHTLY ASSESSED THE DIFFERENCE U/S 56(2 )(VIIA) OF THE ACT. 30. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISS UE AND PERUSED THE RECORD. THE PROVISIONS OF SEC. 56(2)(VIIA) READS TH AT WHERE A FIRM OR A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTAN TIALLY INTERESTED, RECEIVES , IN ANY PREVIOUS YEAR, FROM ANY PERSON OR PERSONS, ON OR AFTER THE 1ST DAY OF JUNE, 2010, ANY PROPERTY, BEING SHARES OF A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED THE WORDS FIRM OR A COMPANY ANY PROPERTY, BEING SHARES OF A COMPANY ARE IMPORTANT HERE. IN THIS REGARD, WE MAY REFER TO THE MEMORANDUM EXPL AINING THE INSERTION OF PROVISIONS OF SEC. 56(2)(VIIA) BY THE FINANCE AC T, 2010, WHICH READS AS UNDER:- UNDER THE EXISTING PROVISIONS OF SECTION 56(2)(VII ), ANY SUM OF MONEY OR ANY PROPERTY IN KIND WHICH IS RECEIVED WITHOUT C ONSIDERATION OR FOR ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 14 INADEQUATE CONSIDERATION (IN EXCESS OF THE PRESCRIB ED LIMIT OF RS. 50,000) BY AN INDIVIDUAL OR AN HUF IS CHARGEABLE TO INCOME-TAX IN THE HANDS OF RECIPIENT UNDER THE HEAD INCOME FROM OTHE R SOURCES. HOWEVER, RECEIPTS FROM RELATIVES OR ON THE OCCASION OF MARRIAGE OR UNDER A WILL ARE OUTSIDE THE SCOPE OF THIS PROVISIO N. THE EXISTING DEFINITION OF PROPERTY FOR THE PURPOSE S OF SECTION 56(2)( VII) INCLUDES IMMOVABLE PROPERTY BEING LAND OR BUILDING OR BOTH, SHARES AND SECURITIES, JEWELLERY, ARCHEOLOGICAL COLLECTION , DRAWINGS, PAINTINGS, SCULPTURE OR ANY WORK OF ART. A. THESE ARE ANTI-ABUSE PROVISIONS WHICH ARE CURRENTL Y APPLICABLE ONLY IF AN INDIVIDUAL OR AN HUF IS THE RECIPIENT. T HEREFORE, TRANSFER OF SHARES OF A COMPANY TO A FIRM OR A COMPANY, INSTEAD OF AN INDIVIDUAL OR AN HUF, WITHOUT CONSIDERATION OR AT A PRICE LOWE R THAN THE FAIR MARKET VALUE DOES NOT ATTRACT THE ANTI-ABUSE PROVIS ION IN ORDER TO PREVENT THE PRACTICE OF TRANSFERRING UN LISTED SHARES AT PRICES MUCH BELOW THEIR FAIR MARKET VALUE, IT IS PR OPOSED TO AMEND SECTION 56 TO ALSO INCLUDE WITHIN ITS AMBIT TRANSAC TIONS UNDERTAKEN IN SHARES OF A COMPANY (NOT BEING A COMPANY IN WHICH P UBLIC ARE SUBSTANTIALLY INTERESTED) EITHER FOR INADEQUATE CON SIDERATION OR WITHOUT CONSIDERATION WHERE THE RECIPIENT IS A FIRM OR A COMPANY (NOT BEING A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY I NTERESTED). 31. A COMBINED READING OF THE PROVISIONS OF SEC. 56 (2)(VIIA) AND THE MEMORANDUM EXPLAINING THE PROVISIONS WOULD SHOW THA T THE PROVISIONS OF SEC. 56(2)(VIIA) WOULD BE ATTRACTED WHEN A FIRM OR COMPANY (NOT BEING A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTE D) RECEIVES A PROPERTY, BEING SHARES IN A COMPANY (NOT BEING A C OMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED). THEREFORE, IT FOLLOWS THE SHARES SHOULD BECOME PROPERTY OF RECIPIENT COMPANY AND I N THAT CASE, IT SHOULD BE SHARES OF ANY OTHER COMPANY AND COULD NOT BE ITS OWN SHARES. BECAUSE OWN SHARES CANNOT BE BECOME PROPERTY OF THE RECIPIE NT COMPANY. 32. ACCORDINGLY WE ARE OF THE VIEW THAT THE PROVI SIONS OF SEC. 56(2)(VIIA) SHOULD BE APPLICABLE ONLY IN CASES WHERE THE RECEIP T OF SHARES BECOME PROPERTY IN THE HANDS OF RECIPIENT AND THE SHARES S HALL BECOME PROPERTY OF THE RECIPIENT ONLY IF IT IS SHARES OF ANY OTHER CO MPANY. IN THE INSTANT CASE, THE ASSESSEE HEREIN HAS PURCHASED ITS OWN SHA RES UNDER BUYBACK SCHEME AND THE SAME HAS BEEN EXTINGUISHED BY REDUCI NG THE CAPITAL AND HENCE THE TESTS OF BECOMING PROPERTY AND ALSO SH ARES OF ANY OTHER COMPANY FAIL IN THIS CASE. ACCORDINGLY WE ARE OF THE VIEW THAT THE TAX ITA NO. 532/MUM/2018 M/S. VORA FINANCIAL SERVICES P. LTD. 15 AUTHORITIES ARE NOT JUSTIFIED IN INVOKING THE PROVI SIONS OF SEC. 56(2)(VIIA) FOR BUYBACK OF OWN SHARES. 33. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION MADE U/S 56(2)(VIIA) OF THE ACT. 34. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE, 2018. SD/ - SD/ - (PAWAN SINGH) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 29 TH JUNE, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -6, MUMBAI 4. THE PR. CIT - 2, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.