Mahipinder Singh Sandhu, Chandigarh V. ACIT, Chandigarh

ITA 650/CHANDI/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5114 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Share purchase agreement; Audit objection; Reason to believe
• Section: 147

Judgement Text

ITA NO. 650/CHD/2017-MAHIPINDER SINGH SANDHU 1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 650/CHD/2017 ASSESSMENT YEAR: 2008-09 SH. MAHIPINDER SINGH SANDHU, VS. THE ACIT, CIRCLE 2(1), # 1206, SEC 18C, CHANDIGARH CHANDIGARH PAN NO. ACEPS9958B (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ASHOK GOYAL RESPONDENT BY : SMT. CHANDERKANTA DATE OF HEARING : 15.12.2017 DATE OF PRONOUNCEMENT : 14.03.2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, [HER EINAFTER REFERRED TO AS CIT(A)] CHANDIGARH DATED 22.02.2017. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF LD. ASSESSING OFFICER U/S 147/148 READ WITH SECTION 143 OF THE INCOME-TAX ACT, 1961 IN THE ABSENCE OF ESCAPEMENT O F INCOME DURING ASSESSMENT YEAR 2008-09. ITA NO. 650/CHD/2017-MAHIPINDER SINGH SANDHU 2 2. THAT THERE WAS NO REASON TO BELIEVE WITH ASSESSI NG OFFICER OR ANY OTHER COGENT MATERIAL ON RECORD THAT THE INC OME OF THE ASSESSEE HAD ESCAPED ASSESSMENT . 3. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ADDIT ION OF RS. 40,28,748/- IN THE IMPUGNED ORDER FOR ASSESSMEN T YEAR 2008-09 OF THE LD. ASSESSING OFFICER THEREBY CONFIR MING DOUBLE TAXATION OF INCOME DULY OFFERED TO TAX BY TH E APPELLANT IN ASSESSMENT YEAR 2010-11 4. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN INTERPRETING THE DEEMING PROVISIONS OF SECTION 45 OF THE INCOME TAX ACT WITH OUT PROPTER APPRECIATION OF THE FACTS OF THE APPELLANT S CASE. 5. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. ASSESSING OFFICER HAS ERRED IN INITIAT ING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 2. FIRST WE TAKE UP THE ISSUE ON MERITS AS RAISED V IDE GROUNDS NO.3 & 4. THE BRIEF FACTS OF THE CASE ARE THAT THE CASE OF TH E ASSESSEE WAS PROCESSED U/S 143(1) AT THE RETURNED INCOME OF RS. 5,27,15,24 0/-. THE ASSESSING OFFICER DISCOVERED THAT THE ASSESSEE HAS SOLD HIS MAJORITY SHAREHOLDING IN TELECOM (P) LTD DURING THE FINANCIAL YEAR 2007-08 RELEVANT TO ASSESSMENT YEAR 2008- 09 AND THUS WAS LIABLE TO CAPITAL GAINS TAX BUT THE ASSESSEE HAD NOT DISCLOSED PART OF THE CAPITAL GAIN IN THE YEAR OF TRANSFER. T HE LONG TERM CAPITAL GAINS, HOWEVER, WERE SHOWN IN ASSESSMENT YEAR 2010-11. AFT ER DULY RECORDING REASONS IN WRITING THE ASSESSING OFFICER REOPENED T HE CASE UNDER SECTION 147 OF THE INCOME TAX ACT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS REPRODUCED THE REASONS RECORDED. ITA NO. 650/CHD/2017-MAHIPINDER SINGH SANDHU 3 AS OBSERVED ABOVE, IN THE ASSESSMENT YEAR 2010-11, THE ASSESSEE DECLARED INCOME OF RS. 40,28,748/- ON ACCOUNT OF REMAINING P ART OF LONG TERM CAPITAL GAINS WITH RESPECT TO THE SHARES SOLD IN F.Y. 2007- 08 AND CLAIMED THEM TO BE EXEMPT U/S 54EC BY MAKING INVESTMENT IN BONDS OF RU RAL ELECTRICIAN CORPORATION LTD. AS THE TRANSFERS OF SHARES TOOK PL ACE IN ASSESSMENT YEAR 2008-09, THE ASSESSING OFFICER WAS OF THE VIEW THAT THEY SHOULD HAVE BEEN TAXED IN THAT YEAR. FURTHER THAT FOR CLAIMING EXEM PTION US 54EC, THE INVESTMENT HAD TO BE MADE WITHIN 6 MONTHS OF THE DA TE OF TRANSFER BUT WAS MADE IN FINANCIAL YEAR 2009-10. THE ASSESSING OFFIC ER, THEREFORE, SHOW CAUSED THE ASSESSEE IN THIS RESPECT. 3. THE ASSESSEE EXPLAINED THAT THE TOTAL PURCHASE CONSIDERATION FOR SHAREHOLDING AS SET OUT IN CLAUSE 3.1 OF THE SHARE PURCHASE AGREEMENT (SPA) WAS SETTLED AT RS.206,678,314/-, OUT OF WHICH A SUM OF RS. 18,000,000/- WAS DEPOSITED IN AN ESCROW ACCOUNT BY THE TRANSFEREE. HENCE ON THE DATE OF TRANSFER, SHAREHOLDERS RECEIVED RS.1 88,678,314/- AND REMAINING AMOUNT OF RS. 18,000,000/- WAS KEPT IN AN ESCROW ACCOUNT IN THE BANK UNDER THE NAME AND STYLE OF XCEL TCIS BALAN CE ACCOUNT. THE ABOVE AMOUNT KEPT IN ESCROW ACCOUNT WAS FULLY RECOV ERABLE BY THE TRANSFEREE BY RAISING A CLAIM AGAINST THE REPRESENTATION AND W ARRANTIES OF THE TRANSFEROR AND IN SUCH A CASE ASSESSEE WOULD NOT HAVE RECEIVED ANY MONEY. FURTHER, THE ESCROW AGENT COULD NOT RELEASE ANY CONSIDERATION TO THE ASSESSEE TILL THE DISPUTE BETWEEN ASSESSEE AND TRANSFEREE WAS SETTLED . THERE WAS AN ACTUAL DISPUTE RAISED BY THE TRANSFEREE AGAINST THE ESCROW BALANCE AND THE SAME WAS FINALLY SETTLED BY WAY OF ARBITRATION BEFORE TH E HON'BLE PUNJAB & HARYANA HIGH COURT VIDE ORDER DATED FEBRUARY 02, 20 10 IN C.M. NO.2127- CH OF 2010 IN ARBITRATION CASE NO.150 OF 2008 HE F URTHER EXPLAINED THAT ITA NO. 650/CHD/2017-MAHIPINDER SINGH SANDHU 4 IN THE PRESENT CASE, HOWEVER, THE VERY ACCRUAL OF R ECEIPT OF RS. 40,28,748/- WAS ON FEBRUARY 02, 21010 WHEN THE SAME WAS AWARDED TO THE ASSESSEE BY THE HON'BLE PUNJAB & HARYANA HIGH COURT. THE ASSESSING OFFICER, HOWEVER, OBSERVED THAT THE C APITAL GAINS WERE TO BE TAXED IN THE YEAR IN WHICH THE SHARES WERE TRANSFER RED. THE DELAY IN RECEIPT OF CONSIDERATION HAD NO BEARING ON THE YEAR OF TAXA BILITY OF THE AMOUNT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE AMOUNT WHICH WAS KEPT IN AN ESCROW ACCOUNT AND RECEIVED LATER FORMED PART OF TH E INCOME FROM CAPITAL GAINS OF THE ASSESSEE IN THE YEAR OF THE SHARE TRAN SFER. THE ASSESSING OFFICER ALSO DENIED THE CLAIM OF EXEMPTION CLAIMED U/S 54EC TO THE ASSESSEE AS THE INVESTMENT IN EC BONDS WAS NOT MADE WITHIN 6 MONTHS FROM THE DATE OF TRANSFER. 4. BEING AGGRIEVED BY THE ABOVE ORDER OF THE ASSESS ING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) NOT ONLY CHALLENGING THE LEGALITY OF THE REOPENING OF THE ASSESSMENT BUT ALS O THE ADDITIONS MADE BY THE ASSESSING OFFICER ON MERITS. THE LD. CIT(A), HO WEVER, UPHELD THE ORDER OF THE ASSESSING OFFICER. 5. BEFORE US, THE LD. AR OF THE ASSESSEE HAS REITER ATED HIS SUBMISSIONS AS WERE MADE BEFORE THE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT THE LOWER AUTHORITIES HAVE WRONGLY OBSERVED THAT REMAINING PA RT OF THE AMOUNT OF RS. 40,28,748/- HAD ACCRUED TO THE ASSESSEE IN AY 2008- 09. HE HAS FURTHER SUBMITTED THAT, IN FACT, THE AMOUNT WAS LYING IN TH E ESCROW ACCOUNT AND THE ASSESSEE HAD NOT GOT THE RIGHT TO RECEIVE THE SAID AMOUNT. THE TRANSFEREE HAD EQUAL RIGHT ON THE AMOUNT AND IN FACT AS PER THE TE RMS OF THE AGREEMENT IN RESPECT OF FUTURE LITIGATIONS, THE AMOUNT WAS DIREC TLY TRANSFERABLE TO THE ITA NO. 650/CHD/2017-MAHIPINDER SINGH SANDHU 5 TRANSFEREE. IN FACT, A DISPUTE OCCURRED BETWEEN THE PARTIES ABOUT THE AMOUNT OF RS. 18,000,000/- DEPOSITED IN ESCROW ACCOUNT WHI CH WAS SETTLED BY WAY OF COMPROMISE BEFORE THE HON'BLE HIGH COURT VIDE WH ICH TRANSFEREE GOT RS. 40 LAKHS OUT OF THAT AMOUNT AND THE BALANCE AMOUNT OF RS. 14,000,000/- ALONG WITH ACCRUED INTEREST WAS DISTRIBUTED TO THE SHAREH OLDERS IN THE PROPOSITION OF THEIR SHAREHOLDING. HENCE, THE ASSESSEE GOT HIS SHARE UPON THE ABOVE FINALIZATION OF THE DISPUTE. THAT BEFORE THAT, THE ASSESSEE HAD NOT GOT ANY RIGHT TO RECEIVE THE SAID AMOUNT AND, HENCE, IT CAN NOT BE SAID THAT THE AMOUNT HAD ACCRUED TO THE ASSESSEE IN AY 2008-09. THAT, EV EN, THERE WAS NEITHER ANY CERTAINTY ABOUT THE TIME NOR ABOUT THE QUANTUM OF AMOUNT RECEIVABLE BY THE ASSESSEE. UNDER THESE CIRCUMSTANCES, IT COULD N OT BE SAID THAT THE ABOVE AMOUNT HAD ACCRUED TO THE ASSESSEE IN THE ASSESSMEN T YEAR UNDER CONSIDERATION. MR. GOYAL, THE LD. COUNSEL FOR THE ASSESSEE, HAS FURTHER SUBMITTED THAT ON THE SETTLEMENT OF THE DISPUTE, TH E AMOUNT ACCRUED TO THE ASSESSEE ONLY ON 2.2.2010 AND THE SAME WAS OFFERED FOR TAXATION IN THE ASSESSMENT YEAR 2010-11 ACCORDINGLY. THE LD. COUNSE L HAS FURTHER SUBMITTED THAT WHEN THE ASSESSEE IN FACT HAD NOT RECEIVED THE SAID AMOUNT, IT CANNOT BE EXPECTED FROM THE ASSESSEE OF THE INVESTMENT OF THE SAID AMOUNT IN THE RURAL ELECTRIFICATION CORPORATION LTD. BONDS TO CLAIM THE BENEFIT U/S 54EC OF THE ACT. THE AMOUNT WAS INVESTED IN THE RURAL ELECTRIFI CATION CORPORATION LTD. BONDS WHEN THE SAME WAS RECEIVED AND, THEREFORE, TH E DEDUCTION U/S 54EC WAS RIGHTLY CLAIMED BY THE ASSESSEE. THE LD. COUNSE L FOR THE ASSESSEE HAS ALSO RELIED ON THE FOLLOWING DECISIONS:- I) CIT VS. HEMEL RAJU SHETE [(2016) 136 DTR 417 (BOM)] II) E.D. SASSOON & CO LTD VS. CIT [(1954) 26 ITR 27 (S C)] III) R. DALMIA VS. CIT [(1982) 133 ITR 179 (DELHI) ITA NO. 650/CHD/2017-MAHIPINDER SINGH SANDHU 6 5. THE LD. DR, ON THE OTHER HAND, HAS RELIED ON THE FINDINGS OF THE LOWER AUTHORITIES. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND HAVE ALSO GONE THROUGH THE RECOR D. WE FIND FORCE IN THE CONTENTION RAISED BY THE LD. COUNSEL FOR THE ASSESS EE. ADMITTEDLY, A SUM OF RS. 18,000,000/- WAS DEPOSITED IN THE ESCROW ACCOUN T. BOTH THE TRANSFEROR AND TRANSFEREE HAD COMMON RIGHTS OVER THE SAID AMOU NT AS THE SAID AMOUNT WAS DEPOSITED IN THE ESCROW ACCOUNT AS A SECURITY I N RESPECT OF FUTURE LIABILITIES OF THE COMPANY / TRANSFEROR. THERE WAS NO CERTAINTY ABOUT THE QUANTUM OF AMOUNT LIKELY TO BE RECEIVED BY TRANSFER OR OR TRANSFEREE OUT OF THE SAID AMOUNT DEPOSITED IN ESCROW ACCOUNT. EVEN THERE WAS NO CERTAINTY OF THE TIME OF RELEASE OF THE SAID AMOUNT OR THE PA RT OF THE AMOUNT TO EITHER OF THE PARTIES AS A DISPUTE BETWEEN THE PARTIES HAD OCCURRED AND LIGATION WAS GOING ON. IN THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ASSESSEE HAD GOT A VESTED RIGHT TO RECEIVE THE AMOUNT IN QUESTION. I T WAS ONLY AT THE END OF THE LITIGATION THAT THE RIGHTS AND LIABILITIES OF T HE TRANSFEROR AND TRANSFEREE WERE ASCERTAINED AND THERE UPON THE SHARE OF THE AS SESSEE WAS PASSED ON TO THE ASSESSEE FOR WHICH THE ASSESSEE OFFERED CAPITAL GAINS IN THE IMMEDIATE ASSESSMENT YEAR 2010-11. THE HON'BLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. HEMEL RAJU SHETE (SUPRA) WHILE RELYING UP ON THE DECISION OF THE HON'BLE SUPREME COURT IN E.D. SASSOON & CO LTD VS. CIT (SUPRA) HAS OBSERVED THAT WHEN THE TAXPAYER DID NOT HAVE THE VE STED RIGHT TO RECEIVE A PARTICULAR AMOUNT, IT CANNOT BE SAID THAT THE SAID AMOUNT HAS ACCRUED TO THE TAX PAYER. THE HON'BLE DELHI HIGH COURT IN THE CASE OF R. DALMIA VS. CIT ITA NO. 650/CHD/2017-MAHIPINDER SINGH SANDHU 7 (SUPRA) HAS HELD THAT THE CAPITAL GAINS WOULD ACCRU E ONLY TO AN ASSESSEE WHEN THEY ARE ASCERTAINED. 7. WE ALSO FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE AMOUNT WAS INVESTED IN RURAL ELECTRIFICATI ON CORPORATION LTD. BONDS ON RECEIPT OF THE SAME AND IN THE YEAR OF THE TAXAB ILITY OF THE CAPITAL GAINS. WE , THEREFORE, HOLD THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 54EC AS THE AMOUNT WAS INVESTED BY THE ASSESSEE IN THE RURAL ELECTRIFICATION CORPORATION LTD. BONDS IN THE YEAR OF RECEIPT WHICH WAS ALSO THE YEAR OF TAXABILITY OF THE CAPITAL GAINS SO RECI VED. IN VIEW OF THIS, THE ORDER OF THE LOWER AUTHORITIES ON THIS ISSUE IS SET ASIDE AND THE ADDITIONS MADE INTO THE ACCOUNT OF THE ASSESSEE ARE HEREBY OR DERED TO BE DELETED. 8. THE ASSESSEE HAS ALSO AGITATED THE REOPENING OF THE ASSESSMENT VIDE GROUNDS NO.1 & 2. ADMITTEDLY, THE ASSESSEE DID NOT OFFER THE AMOUNT OF RS.40,28,748/- FOR TAXATION IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09. WHEREAS AS PER THE AGREEMENT, THE ASSESSEE HAD TRANSFERRED HIS SHAREHOLDING IN THE COMPANY. THE ASSESSING OFFICER GOT THE KNOWLEDGE OF THE RECEIPT OF ADDITIONAL AMOUNT OF RS. 40,28,748/- ON THE BASIS OF THE AUDIT OBJECTIONS RAISED BY THE AUDIT PARTY FOR ASSESSMENT YEAR 2010-11. THEREFORE, THE FACTUM OF THE SAID RECEIPT OF THE ADDITIONAL CO NSIDERATION IN RELATION TO THE TRANSFER OF SHARES CAME FOR THE FIRST TIME INTO THE KNOWLEDGE OF THE ASSESSING OFFICER PURSUANT TO THE SAID AUDIT OBJECT IONS. SINCE, AS PER THE ASSESSING OFFICER, THE TRANSFER HAD TAKEN PLACE IN THE FINANCIAL YEAR 2007-08 RELEVANT TO ASSESSMENT YEAR 2008-09 AND HE WAS OF T HE VIEW THAT THE SAID AMOUNT WAS LIABLE FOR TAXATION IN THE YEAR 2008-09, HENCE, HE WAS OF THE GENUINE AND REASONABLE BELIEF THAT THE INCOME OF TH E ASSESSEE FOR ASSESSMENT YEAR 2008-09 HAD ESCAPED ASSESSMENT. WHETHER THE SA ID AMOUNT HAD ACTUALLY ITA NO. 650/CHD/2017-MAHIPINDER SINGH SANDHU 8 ACCRUED TO THE ASSESSEE OR NOT WAS A MATTER OF EVID ENCE / DISCUSSION AND DELIBERATION WHICH COULD HAVE BEEN DONE DURING THE ASSESSMENT PROCEEDINGS. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ACTION OF THE ASSESSING OFFICER SO FAR AS THE REOPENING OF THE AS SESSMENT IS CONCERNED. GROUND NO.1 & 2 OF THE ASSESSEES APPEALS ARE, THER EFORE, DISMISSED. 9. IN GROUND NOS. 5 & 6 IS AGAINST THE INITIATION O F LEVY OF PENALTY U/S 271(1)(C), WHICH IS CONSEQUENTIAL IN NATURE AND DOE S NOT REQUIRE ANY ADJUDICATION AT THIS STAGE. 10. GROUND NO.6 IS GENERAL IN NATURE AND NEEDS NO A DJUDICATION. 11. IN VIEW OF OUR OBSERVATIONS MADE ABOVE, THE APP EAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.03.2018 SD/- SD/- (DR. B.R.R. KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14.03.2018 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR