VIVIRA INVESTMENT AND TRADING PRIVATE LIMITED ,MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE -4, THANE

ITA 5448/MUM/2024

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The case involves Vivira Investment And Trading Private Limited, which appealed against the order of the Assistant Commissioner of Income Tax and the Commissioner of Income Tax (Appeals) for the assessment year 2022-23. The primary contention was regarding the assessment of income under section 56(2)(x) of the Income-tax Act, 1961, where the assessee argued that the income assessed was incorrect and that the provisions of section 56(2)(x) should not apply to their transactions. The Tribunal considered the arguments and evidence presented, including a valuation report and the circumstances of the share transactions, and decided to remand the case for further examination of the additional evidence.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 706132 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2022-2023
• Other Referred Cases: K. P. Varghese vs. ITO
• Laws Referred To: Income-tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R.A. DHYANI
• Assessee Lawyers: NISHANT THAKKAR; GRANTING PROPER OPPORTUNITY OF
• Keywords: Opportunity of being heard; Additional evidence; Fair market value; Valuation report; Deemed to accrue or arise in india; Share purchase agreement; Bogus
• Section: 143(3); 133A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) AND SMT. RENU JAUHRI (ACCOUNTANT MEMBER) I.T.A. No. 5448/Mum/2024 Assessment Year: 2022-23 Vivira Investment And Trading Private Limited Privi House, A-71, TTC Industrial Area, Thane Belapur Road, Kopar Khairane, Navi Mumbai-400710 PAN:AAACV1482E Vs. Assistant Commissioner of Income Tax Office of the Asst. Commissioner of Income Tax, Central Circle-4 Thane A-Wing, 6th Floor, Ashar IT Park, Road No.16Z, Wagle Ind. Estate, Thane(W) 400604 (Appellant) (Respondent) Appellant by Shri Nishant Thakkar & Shri Hitesh Thakkar Respondent by Mr. R. A. Dhyani, CIT D.R. Date of Hearing 25.06.2025 Date of Pronouncement 30.06.2025 ORDER Per: Smt. Beena Pillai, J.M.: The present appeal filed by the assessee arises out of order dated 26/08/2024 passed by CIT(A), Pune-11 for assessment year 2022-23 on following grounds of appeal : 2 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited “ Based on the facts and circumstances of the case, Vivira Investment and Trading Private Limited (hereinafter referred to as the 'Appellant') respectfully craves leave to prefer an appeal against the order passed under Section 143(3) and 253 of the Income-tax Act, 1961 (the Act) by the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) ('CIT(A)') on the following grounds, which are independent and without prejudice to each other: 1. Whether, in the facts and circumstances of the case, the learned AO and CIT(A) were justified in assessing the income of the appellant at INR 2,92,27,44,790/- instead of accepting the returned loss of INR 43,99,76,081/-, by making an addition of INR 3,36,27,20,872/- under section 56(2)(x). 2. The learned AO and CIT(A) failed to appreciate that the appellant had correctly reported their income, and no additions, disallowances, or adjustments were necessary to the returned income. 3. Whether, in the facts and circumstances of the case, the provisions of section 56(2)(x) of the Act, when read with Rules 11U/11UA of the Income Tax Rules, 1962 ('Rules') would be applicable. 4. Whether, in the facts and circumstances of the case, section 56(2)(x) of the Act, read with the Rules 11U/11UA of the Rules, applies to genuine transactions entered by the Appellant considering the legislative intent behind the introduction of section 56(2)(x) of the Act. 5. Whether, in the facts and circumstances of the case, the learned AO and CIT(A) were correct in treating the difference between the acquisition price and the quoted market price as \"income from other sources\" under section 56(2)(x) of the Act, along with Rule 11UA of the Rules. 6. Whether, in the facts and circumstances of the case, the authorities, including the learned AO and CIT(A), failed to consider the legislative intent behind the introduction of section 56(2)(x), which was designed to address transactions involving unaccounted money and bogus transactions. 7. Whether in the facts and circumstances of the case, the authorities, the learned AO and CIT(A) has failed to properly consider the transaction in its entirety. 3 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited 8. Whether in the facts and circumstances of the case, the authorities, the learned AO and CIT(A) has falled to valuation report and fairness of opinion obtained from values of repute. Further, the acquisition price is determined based on the share entitlement ratio approved by the Hon'ble National Company Law Tribunal, Mumbai vide a composite scheme of arrangements and amalgamations. 9. Whether, in the facts and circumstances of the case, the authorities, including the learned AO and CIT(A), failed to consider the entirety of the transaction in their assessment. 10.Whether, in the facts and circumstances of the case, the authorities, including the learned AO and CIT(A), failed to give due consideration to the valuation report and fairness opinion obtained from reputable valuers. Furthermore, the acquisition price was determined based on the share entitlement ratio approved by the Hon'ble National Company Law Tribunal, Mumbai, as per the composite scheme of arrangements and amalgamations. 11. The Appellant respectfully prays that the addition made by the AO under section 56(2)(x) of INR 3,36,27,20,872/- be deleted, and the returned loss of INR 43,99,76,081/- be accepted. 12. The Appellant prays that the addition made by the AO u/s. 56(2)(x) of Rs. 3,36,27,20,872/- may be deleted and the returned loss of Rs. 43,99,76,081/- be accepted. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble Income- tax Appellate Tribunal to decide this appeal according to the law. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the Appellant requests that the appeal be allowed as prayed.” Brief facts of the case are as under: 2. The assessee is a company and is engaged in the business of making investments and trading of chemicals. The assessee is a part of Privy Group which is engaged in chemical business. A survey action u/s. 133A of the Act was conducted on assessee on 06.06.2022 wherein it was found that the assessee entered into 4 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited an agreement on 22.04.2021 for purchasing 1,53,05,270 equity shares of M/s. Privi Speciality Chemicals Ltd. (PSCL) from M/s. FIH Mauritius Investments Ltd. (FIH) on 22.04.2021. It was found that, as per this agreement, the assessee was required to pay consideration @ Rs.653.29 per share of PSCL. The said transaction was completed on 29.04.2021 and the assessee acquired 1,53,05,270 equity shares of PSCL by paying Rs.999,87,79,838/-. 2.1 During the survey operation, valuation report prepared by M/s. GMJ & Co. dated 22.04.2021 was also found. It was observed that, the valuer valued the FMV of equity shares of PSCL at Rs.915 per share. There was difference in the sale consideration per share paid by the assessee, and the FMV of equity shares of PSCL. Statement of the CFO of PSCL was recorded who looked after assessee’s finance during the survey. The CFO in his statement, admitted that, shares of PSCL were purchased by the assessee at a price lower than the FMV as determined by the valuer as on 22.04.2021 (the date of agreement). The CFO also informed that, the consideration was paid to FIH, Mauritius on 29.04.2021 and the transaction was completed on the same date. As the shares of PSCL are listed on NSE, the assessing officer found that the lowest price of shares of PSCL on NSE on 29.04.2021 was Rs.873. The CFO was thus asked to state the basis of consideration price at Rs.653.29 per share. In response to this, the CFO stated that the consideration price was as per the share purchase agreement dated 22.04.2021. 5 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited 2.2 It was also found that, during survey operation, an email was forwarded by the CFO on 19.04.2021 to Shri Sumit Maheswari, Shri Jinesh Rambhia, Shri Mahesh Babbani, Shri R. S. Rajan and Shri Sanjeev Patil. A print out of said email was taken by the survey team and same was impounded at page 1 to 8 of bundle no. 2. It was noted that, this email had an attachment containing tax working regarding the proposed purchase and sale of shares of PSCL and FOL within the promoter entities. The said working was prepared by M/s. Price Water Coopers pers (PwC). When confronted, the CFO stated that this email was forwarded by him to Shri Jinesh Rambhia, an employee of Fairbridge Capital Pvt. Ltd. which is also acting as Liasoning office of Fairfax in India. It was stated that, this working was done by PwC in 2019 who were advisor for the said transactions. It was stated that, these working were made for estimating the tax burden on the proposed transactions of purchase and sale of shares of PSCL and FOL within the promoter entities. 2.3 The Ld.AO noted that, the assessee purchased shares of PSCL through an off-market transaction and since these shares were purchased for a consideration lower than the FMV as on the date of transfer, a query was raised as to why, the provisions of section 56(2)(x) of the Act were not applicable to the assessee, especially when M/s. PwC had opined that tax under said section shall be payable. In response to this, the CFO stated that, they did not agree with the opinion of M/s. PwC that the provisions of section 56(2)(x) are applicable in the present case. It was however 6 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited stated that if any tax u/s. 56(2)(x) is payable, same shall be paid by the company. 2.4 Subsequent to the survey, the assessee company filed original return of income on 30.09.2022 declaring loss of Rs.43,99,76,081/-. Although the assessee company did not offer any income u/s. 56(2)(x) of the Act, however, it paid self- assessment tax of Rs. 78,11,02,130/- on 30.09.2022 and the same was claimed as refund while filing the return of income. The said return was selected for scrutiny and a notice u/s. 143(2) of the Act was issued on 10.02.2023. 2.5 During the assessment proceedings, the Ld.AO issued show-cause notice to the assessee company asking it to explain the difference between the consideration paid @Rs.653.29 per share and the market value @Rs.873 (lowest on the date of purchase) should not be treated as income as per the provisions of section 56(2)(x) of the Act. In the show cause notice, the Ld.AO computed the amount of difference at Rs.336,27,20,872/-. In response to this, the assessee filed a detailed submission dated 22.09.2023 which has been reproduced by the Ld.AO at page 3 to 8 of the assessment order. The said explanation was not accepted by the Ld.AO for the following reasons:- i. The sale consideration was paid by the assessee company @Rs.653.29 per equity share of PSCL which was much lower than the FMV of Rs.915 per share as determined by M/s. GMJ and Co. on 22.04.2021. The said valuation report was impounded during the survey and has been scanned at page 10 to 14 of the assessment order. 7 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited ii. As per rule 11UA(1)(c)(a)(ii) of Income Tax Rules, 1962, the FMV of shares of a listed company shall be the lowest price quoted on any recognized stock exchange on the valuation date. Since the shares were purchased on 29.04.2021 through an off-market transaction and the consideration was paid on the same date, the said date has been considered as valuation date. The lowest traded price of shares of PSCL at NSE on 29.04.2021 was Rs.873 per share. iii. Shri Narayan lyer was asked to offer his comments for not adhering to the valuation report prepared by M/s. GMJ and Co. or the method of valuation prescribed in rule 11UA(1)(c)(a)(ii) of Income Tax Rules, however he could not offer any satisfactory explanation. iv. An email communication made by Shri Narayan lyer with Shri Sumit Maheswari and Shri Jinesh Rambhia of FIH Mauritus regarding the tax implication on purchase and sales of shares of M/s. PSCL and another entity M/s. FairchemOrganic Ltd. This email contained an attachment namely 'tax working Privi-Adi transaction' which was an excel sheet prepared by M/s. PWC. This sheet includes tax working as per section 56(2)(x) of the Act on the purchase of shares of M/s. PSCL. Shri lyer had stated that PwC was one of the advisory accounting firms of the group and the said firm had opined that the provisions of section 56(2)(x) shall be applicable on the purchase of shares of PSCL. The said tax working has also been scanned by the AO in the assessment order. 8 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited V. The assessee had paid self-assessment tax of Rs.78,11,02,130/-on 30.09.2022 at the time of filing ITR and the said amount was claimed as refund in the ITR filed on the same date. This fact suggests that the assessee has considered the provisions of section 56(2)(x) at the time of computing the tax liability. 2.6 Before the Ld.AO, the assessee stated that the negotiations for the transactions of purchasing shares of PSCL started much earlier in 2021 and an option agreement was executed between the two promoter groups of PSCL on 22.05.2019, and that the final settlement happened on 29.04.2021. The consideration was decided on the basis of value of company on 22.05.2019 when the promoters decided to part ways in each other's company. The FMV of shares of PSCL went up in 2 years and the said value should not be considered. This submissions of the assessee was rejected by the Ld.AO by observing as under:- i. The option agreement dt. 22.05.2019 entered between Privi promoters and FIH Mauritius Investments Ltd is not a precursor event which leads to transaction dt. 29.04.2021 and the tax matter under investigation. On the contrary, the 'call option' provided by FIH to Privi promoters for PSCL shares (erstwhile FSL) was only for 9.84% equity shares and not for entire shareholding sold by FIH to Privi promoters. ii. The 'option agreement was supposed to be in force from 31.03.2020 till 30.09.2020. The transaction took place much later date on 29.04.2021. Hence, the defence put forward by the CFO that the transaction 9 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited entered on 22.05.2019 is finally settled on 29.04.2021is factually incorrect and has no relevancy to the transaction dt, 29.04.2021. iii. The argument of CFO that the value of shares of company has been arrived as per the Net Worth of each company and then the value of shares has been arrived and the promoters has agreed to swap the shares as per valuation report obtained from a Registered Valuer is contrary to the facts emerge from the company documents itself. The important clause in the 'option agreement' dt. 22.05.2019 is the clause 4.1.3 which refers to valuation reports to be obtained from merchant banker registered with SEBI determining the valuation of the FSL equity shares as required under the Income-tax Rules, 1962, in relation to FSL equity shares. The valuation report referred by CFO of Shri Haridas Bhat, CA of GMJ & Co. dt. 22.04.2021, the Fair Value arrived is Rs. 915 per share whereas transaction took place at Rs.653.29 per share. Hence, the submission made by the CFO is contrary to the facts emerged from the documents and cannot be relied upon. iv. No legal basis on non-applicability of provisions of section 56(2)(x) has been provided till date. 3. The Ld.AO thus computed the deemed income u/s.56(2)(x) at Rs.336,27,20,872/- being the difference in the aggregate FMV of the shares acquired by the assessee and the consideration paid. 10 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited Aggrieved by the order of the Ld.AO assessee preferred appeal before the Ld.CIT(A). 4. The Ld.CIT(A) upheld the addition made by the Ld.AO Aggrieved by the order of the Ld.CIT(A) the assessee is in appeal before this Tribunal. 5. The Ld.AR submitted that, M/s. PSCL earlier known as Fairchem Speciality Ltd. i.e. FSL had two promoter groups namely, Privi promoters and Fairfax promoters. In 2019, both the promoters decided to part their ways and with this intent share purchase agreement and an option agreement dated 22.05.2019, were signed under which it was decided that – a) Privi Promoters to sell their whole stakes in Fairchem Organics Ltd. to Fairfax promoters. b) Fairfax to provide call option to the Privi promoters in relation to HE TAX DEPARTME their 9.84% stake in FSL. 5.1 The Ld.AR submitted that, the negotiations for acquiring the stakes in PSCL were initiated in 2019 and final settlement happened on 29.04.2021. It was submitted that, the negotiation price was determined based on quoted price at NSE in the month of February, 2021, which were ranging in the band of Rs.543- 600. The Ld.AR submitted that, in the meantime, the prices on share market rallied resulting in higher prices on 29.04.2021. 5.2 The Ld.AR submitted that, the deal could not get materialized to ongoing COVID pandemic. Further as per the decision of Hon’ble Supreme Court regarding extension of time limitation due to COVID pandemic reported in 438 ITR 296, all dates were extended, and thus on the basis of above decision of 11 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited Hon'ble Supreme Court, the option agreement dated 22.05.2019 was active on 22.04.2021. 5.3 The Ld.AR submitted that, the valuation report gives two valuations i.e. Rs.641 and Rs.915 per equity share. As the price of Rs.915 was higher, the valuer took the higher price as mentioned in the valuation report itself. He submitted that, the Ld.AO did not give any consideration to the valuation at Rs.641 per equity share which was lower than the consideration price mentioned in the agreement dated 22.04.2021. 5.4 The Ld.AR submitted that, the provisions of section 56(2)(x) are anti-abuse provisions and have to be construed in a manner to achieve the intended purpose. He submitted that, these provisions should not be made applicable to bonafide transactions, as in the present case. It is submitted that, the consideration price was higher than the average price of quoted price on NSE in last 26 weeks which was worked out at Rs.641 by the valuer, therefore, there was no intention to evade any tax. He also relied on the decision of Hon'ble Supreme Court in the case of K. P. Varghese vs. ITO reported in (1981) 131 ITR 597 (SC). 5.5 The Ld.AR submitted that, business deals are done on the basis of negotiations considering various factors, and that market rate may be one of the factors which may determine the price at which the ultimate deal takes place. He submitted that, some deals may go through in a very short time, whereas others may take place after prolong negotiations, does not mean that, the deal was struck for avoidance of any tax. He submitted that, merely because an agreement is entered into at a price lower than the market rate, does not mean that, the deal was in order 12 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited to avoid to evade tax. He emphasised that genuine cases like the present case are not intended to be hit by the provisions of section 56(2)(x) of the Act. 5.6 On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advance by both sides in the light of record placed before us. 6. It is an undisputed fact that the assessee purchased 1,53,05,270 number of equity shares of PSCL on 29.04.2021, through 'off-market' transaction, under an agreement entered into with FIH, Mauritius. The purchase price of these shares was Rs.653.29 per share which was lower than the lowest price of shares of PSCL at NSE on 29.04.2021 which was Rs.873 per share. The assessing officer accordingly applied the provisions of section 56(2)(x) of the Act and made addition of Rs. 336,27,20,872/-. The Ld.AR has taken various contentions to argue that the provisions of section 56(2)(x) should not be made applicable to the present case. 6.1 The Ld.AR submitted that, the assessee seeks to adduce additional evidence under Rule 29 to substantiate the price agreed between the parties to the agreement dated 22/04/2021, and that it was a bonafide transaction. 6.2 It is noted that evidence plays an important role in decision- making and adjudicating proceedings. Considering the facts and circumstances of the present case, the assessee should not suffer for the non-filing of material information. It is submitted that the identical issue is pending before the Ld.CIT(A) in case of other 13 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited promoters in respect of the same transaction. As the issue revolves around the price to be considered for valuation of the shares, and applicability of provisions of section 56(2)(x), which is an anti-abuse provision: under such circumstances it is necessary to verify the additional evidence filed by the assessee. We therefore allow the application under Rule 29 filed by the assessee dated 26/04/2025 under Rule 29 of ITAT Rules. 6.3 Accordingly, to meet the ends of justice, the disputed issue, along with the additional evidence, is remanded to the file of the Ld.CIT(A) to decide afresh on merit, having regard to the evidences filed by the assessee by granting proper opportunity of being heard to the assessee. The Ld.CIT(A) is directed to carry out necessary verification on the issue in accordance with law and to pass a detailed order on merits. Accordingly the grounds raised by the assessee stands partly allowed. In the result the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 30/06/2025 Sd/- Sd/- (RENU JAUHRI) (BEENA PILLAI) Accountant Member Judicial Member Mumbai: Dated: 30/06/2025 Poonam Mirashi, Stenographer Copy of the order forwarded to: (1)The Appellant 14 ITA No.5448/Mum/2024; A.Y. 2022-23 Vivira Investment And Trading Private Limited (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai "