YOUNG INDIAN,NEW DELHI vs. ACIT(E), NEW DELHI

appellant/assessee against the impugned order dated 06.12.2018, passed by the ld. CIT(Appeals)-40, Delhi for the quantum of assessment passed under section 143 (3)/147 of the Income-tax Act, 1961 (for short ‘the Act’) for the assessment year 2011-12.

2. Assessee has challenged the impugned order as well as the assessment order by taking the following grounds of appeal :-

“GROUND NO.1: ORDER PASSED WIHTOUT JURISDICTION

1. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) - 40, New Delhi ["the CIT(A)"] erred in holding that the Asst. Commissioner of Income Tax (E), Circle 1 (1) ("the AO") had requisite jurisdiction over the Appellant and that the order passed by him u/s. 143(3) r.w.s. 147 was valid.

2. On the facts and in the circumstances of the case, after the Appellant surrendered its registration u/s. 12A/12AA of the Act, the AO did not have the jurisdiction to assess the Appellant.

3. The Appellant prays that the order passed by the AO be held to be illegal as lacking the jurisdiction for the same under the Act.

WITHOUT PREJUDICE TO GROUND NO.1 GROUND NO. II: REOPENING OF ASSESSMENT BAD IN LAW

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the re-opening of the assessment u/s. 147 of the Act.

2. The Appellant prays that the re-assessment u/s 147 be held to be void ab initio and/or otherwise bad-in-Iaw.

WITHOUT PREJUDICE TO GROUND NO. I & II GROUND NO. III: THE ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the principles of natural justice were not violated during the reassessment proceedings.

2. The Appellant prays that the order be held as illegal having been passed in contravention of the principles of natural justice which are applicable to all the income-tax proceedings and mandate that the assessee be given a fair opportunity of hearing before making any addition/disallowance.

WITHOUT PREJUDICE TO GROUNDS NO. I, II AND III GROUND NO. IV: NON ADMISSION OF ADDITIONAL EVIDENCES FILED BY THE APPELLANT

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not admitting the additional evidences filed by the Appellant during the appellate proceedings and thereby, not considering the said additional evidences while passing the Appellate Order.

2. The Appellant prays that it be held that the additional evidence filed by the Appellant were admissible and the Ld. CIT (A) ought to have considered the same while passing the Appellate order.

WITHOUT PREJUDICE TO GROUNDS NO. I, II, III and IV GROUND NO. V: TAXING THE PURPORTED FAIR MARKET VALUE (UFMV") OF THE IMMOVABLE PROPERTIES, OWNED BY THE ASSOCATED JOURNAL LIMITED (UAJL"), U/S. SECTION 28(iv) OF THE ACT:

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of taxing u/s. 28(iv) of the Act the purported Fair market Value ('FMV') of the immovable properties owned by Associated Journal Limited ('AJL') in the hands of the Appellant allegedly as a benefit or perquisite arising in the course of the business of the Appellant.

2. The Appellant prays that the addition of Rs.413,40,55,980/- u/s. 28(iv) of the purported FMV of the immovable properties of AJL be deleted.

3. Without prejudice to the above, even if section 28(iv) of the Act is held to be correctly invoked, even in that case, the Appellant prays that in absence of any method prescribed under the Act to compute the value of the purported benefit or perquisite for the purpose of section 28(iv) the same ought to be computed in accordance with the method prescribed under Rule 11UA.

WITHOUT PREJUDICE TO GROUNDS NO. I TO V GROUND NO. VI: IGNORING PROVISIONS OF SECTION 56(2)(viia) THAT SPECIFICALLY DEAL WITH RECEIPT OF SHARES

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the AO was right in overlooking the specific provisions of section 56(2)(viia), which are applicable to receipt of shares of a company in which public are not substantially interested ('closely held companies').

2. She erred in disregarding that when the anti-abuse provisions of section 56(2)(viia) and rules framed thereunder have been made applicable only to closely held companies by the Legislature, the Appellant, which is a company in which public are substantially interested, cannot be treated worse than such closely held companies, by indirectly invoking provisions of section 28(iv).

3. The Appellant prays that it be held that as there is a specific section 56(2)(viia) that governs the taxation of receipts of shares of a company, the AO could not have invoked Section 28(iv) of the Act in respect of such transaction.

WITHOUT PREJUDICE TO GROUNDS NO. I TO VI GROUND NO. VII: REFERENCE TO THE DEPARTMENTAL VALUATION OFFICER ("DVO") BEYOND THE SCOPE OF SECTION 142A OF THE ACT:

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of making reference to the Departmental Valuation Officer ('OVO') u/s. 142A of the Act for the purported determination of the FMV of the immovable properties owned by AJL.

2. The Appellant prays that the said reference and consequential determination of the purported FMV be held to be illegal.

WITHOUT PREJUDICE TO GROUNDS NO. I TO VII GROUND NO. VIII: COMPUTING THE PURPORTED FMV BEYOND THE VALUE COMPUTED BY THE DVO:

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO in adopting Rs. 132,94,44,4801- as the purported FMV of the land at Bandra (East) Mumbai, ignoring the value of Rs.30,08,82,0001- computed by the DVO.

2. The Appellant prays that the AO has no power to adopt the FMV of the said Bandra (East) property at a value that is beyond the value determined by the DVO.

WITHOUT PREJUDICE TO GROUNDS NO. I TO VIII GROUND NO. IX: VALUES COMPUTED BY THE DVOs ARE ERRONEOUS AND CANNOT BE RELIED ON:

1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the methods adopted by the various DVOs/AO, while valuing the immovable properties of AJL are not riddled with any inconsistencies and errors and, therefore, valid.

2. The Appellant prays that the valuations of the immovable properties of AJL determined by the DVOs/AO be struck down as being incorrect and in violation of the principles of valuation.

WITHOUT PREJUDICE TO GROUNDS NO. I, II, III AND IV GROUND NO. X: ADDITION OF RS. 1,00,00,000/- RECEIVED FROM DOTEX MERCHANDISE PVT. LTD. AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of treating the loan of Rs.1,00,00,000/- received from Dotex Merchandise Pvt. Ltd. (“Dotex") as unexplained cash credit and taxing the same u/s. 68.

2. The Appellant prays that the addition of Rs.1,00,00,000/- towards purported unexplained cash credit be deleted.

WITHOUT PREJUDICE TO GROUNDS NO. I, II III AND IV GROUND NO. XI: DISALLOWANCE OF INTEREST OF RS.1,72,603/- PAID ON LOAN TAKEN FROM DOTEX

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of disallowing interest expense of Rs.1,72,603/- paid on the loan taken from Dotex by treating it as interest on unexplained advance taken.

2. The Appellant prays that the interest expense of Rs.1,72,603/- incurred on the loan taken from Dotex be allowed as a deduction.

WITHOUT PREJUDICE TO GROUNDS NO. I, II III AND IV GROUND NO. XII: TREATMENT OF THE TRANSACTION OF ASSIGNMENT OF LOAN BY AJL TO THE APPELLANT AS A FRAUDULENT TRANSACTION

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the assignment of loan taken by AJL from the All India Congress Committee ("AICC") to the Appellant as a fraudulent transaction of purchase of a non- existent loan.

2. The Appellant prays that the assignment of loan by AJL to the Appellant carried out be held to be a genuine transaction.

WITHOUT PREJUDICE TO GROUNDS NO. I, II, III AND IV GROUND NO.XIII : DISALLOWANCE OF RS.50,00,000/- PAID FOR ASSIGNMENT OF LOAN FROM AJL AS AN EXPENSE INCURRED TOWARDS THE OBJECTS

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of not granting deduction of Rs.50,00,000/- paid by the Appellant for assignment of the loan from AJL as an expense incurred on the objects of the Appellant on the ground that the Appellant had paid the said amount to purchase a non-existent loan.

2. The Appellant prays that the said payment of Rs.50,00,000/- be treated as an expense incurred on the objects of the Appellant.

WITHOUT PREJUDICE TO GROUNDS NO. I, II, III AND IV GROUND NO. XIV: ADDITION OF RS.1,00,000/- AS AN UNEXPLAINED EXPENDITURE UIS 69C OF THE ACT TOWARDS RAISING OF THE LOAN FROM DOTEX

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of making a notional addition of Rs.1,00,000/- towards the purported commission paid to take the so-called accommodation entry from Dotex.

2. The Appellant prays that the addition of Rs.1,00,000/- made towards purported commission paid by the Appellant be deleted.

WITHOUT PREJUDICE TO GROUNDS NO. I TO XIV GROUND NO. XV: DENYING EXEMPTION UIS 11 TO THE ASSESSED INCOME

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of not granting exemption u/s. 11 of the Act to the total assessed income.

2. The Appellant prays that the AO be directed to allow exemption u/s 11 of the Act to income assessed under the Act.

WITHOUT PREJUDICE TO GROUNDS NO. I, II, III AND IV GROUND NO. XVI: LEVY OF INTEREST OF RS.111,49,93,917/- UIS 234B OF THE ACT

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of charging interest u/s. 234B of the Act.

2. The Appellant prays that in the facts and in the circumstances of the case, such interest was not chargeable.

3. Before we deal with the various issues and contentions raised in the grounds of appeal by the assessee as well as the contentions of the Revenue, it would be relevant to discuss the relevant background of the case of the controversy involved in this appeal in brief.

BACKGROUND OF THE CASE

4. The appellant, Young Indian (YI), was incorporated and registered as a company on 23.11.2010 when licence was granted u/s 25 of the Companies Act, 1956. As per the Memorandum of Association dated 14.10.2010, it was subscribed by two Directors, namely, Suman Dubey having 550 equity shares and Satyan Gangaram Pitroda (Sam Pitroda) with 550 equity shares.

Appellant company was incorporated with authorized capital of 5000 shares of Rs.100 each valued at Rs.5,00,000/- and the paid-up capital was 1100 shares of Rs.100/- each of Rs.1,10,000/-. The main object of the appellant company was as under :-

“(1) To inculcate in the mind of India’s youth commitment to the ideal of a democratic and secular society for its entire populace without any distinction as to religion, caste or creed and to awaken India’s youth to participate in activities that may promote the foregoing objective in any manner whatsoever including, without limitation, participating in all democratic activities through open and transparent electoral process, so as to conform to the ideals of the founding fathers of India, Mahatma Gandhi and Pandit ji, Jawahar Lal Nehru.

(2) No object of the company will be carried out without obtaining prior approval/no objection certificate from the concern competent authority wherever required and/or prescribed.”

5. Immediately after its incorporation, both the Directors transferred the shares to Mr. Oscar Fernandes, Mrs. Sonia Gandhi, Shri Rahul Gandhi and Shri Moti Lal Vohra. Later on, Shri Rahul Gandhi was appointed as Director of Young Indian to acquire 1900 shares. The assessee company disclosed the list of shareholders and directors of Young Indian during the relevant assessment year as under :-

Name Position in YI & No. of shares held Mrs. Sonia Gandhi Director since 22.01.2011 1900 shares (36%) Shri Rahul Gandhi Director since 22.01.2011 1900 shares (36%) Shri Moti Lal Vora Director since 22.01.2011 600 shares Shri Oscar Fernandes Director since 22.01.2011 600 shares Shri Satyan Director since 23.11.2010 Gangaram Pitroda

Held 550 shares but transferred (Sam Pitroda) it to Shri Oscar Fernandes Shri Suman Dubey Director since 23.01.2010 Held 550 shares but transferred it to Mrs. Sonia Gandhi. 6. Later on, the appellant company applied for registration u/s 12A read with section 12AA of the Act on 31.03.2010 before DIT Exemptions Delhi. The appellant was granted registration u/s 12AA by Director of Income-tax (Exemption) vide order dated 09.05.2011, i.e., w.e.f AY 2011-12, subject to various terms and conditions. On the basis of said registration granted to the assessee under section 12A, the assessee claimed exemption of income u/ss 11 & 12 for the AYs 2011-12 to 2016-17. Later on, ld. CIT (E) cancelled the registration granted to the assessee u/s 12A vide order dated 26.10.2017 right from the date of inception i.e., from AY 2011-12 onwards. The cancellation of the registration was subject matter of challenge before this Tribunal in ITA No.7751/Del/2017. After detailed analysis and discussion and after taking note of all the contentions raised by both the parties, the order of ld. CIT (E) cancelling the registration was upheld by the Tribunal on the ground that; firstly, no genuine activities were carried out by the assessee either in furtherance of its objects or otherwise which can be held to be charitable purpose; and secondly, the assessee itself had surrendered the registration vide its letter dated 21.03.2016 and between that period also, no worthwhile purported charitable activities were carried out by the appellant company. Thus, as on date, the registration u/s 12A/12AA of the appellant stands cancelled and no benefit of exemption u/ss 11 & 12 is available to the appellant company nor it is anymore recognised as Charitable entity under the Income Tax Act.

8. The business of publication of newspaper was suspended on various occasions due to certain financial difficulties and certain labour problem etc. In the year 2008, precisely from 02.04.2008, the business of publication of newspaper was closed/ suspended and all the employees of the AJL were given VRS w.e.f.

02.04.2008. After the publication of the newspaper was suspended or ceased to exist, income of AJL was mainly from exploitation of various properties held by it in different parts of the country. Earlier, the AJL was allotted certain immovable properties located in Delhi, Patna, Lucknow, Punchkula and Mumbai at a nominal price by respective Government of States where the cities are located. The properties were allotted for carrying out newspaper business and publication of newspaper in different languages. However, it was also allowed to let out these properties on rent to feed or cater to its publication business and these properties were commercially used for earning of rental income which has always been shown as part of business income and continued to do so post closure of the newspaper business. The office of AJL was shifted from Lucknow to Delhi on 01.09.2010 at its Delhi property situated at 5A, Herald House, Bahadurshah Zafar Marg, New Delhi.

9. In this chain of events, an important fact factor is that, All India Congress Committee (AICC) which is an Apex Body of Indian National Congress, a national party, had advanced loans to AJL from time to time; and as on 31.03.2010, there was outstanding loan of Rs.88,86,68,976/- and further loan of Rs.1,35,00,000/- was received during the period 01.04.2010 to 16.12.2010 aggregating to Rs.90.21 crores. On 16.12.2010, AICC who had given the loan to AJL over the period of time transferred the entire loan of Rs.90.21 crores due from AJL in favour of appellant company, Young Indian, for a consideration of Rs.50,00,000/-. In other words, AICC assigned the loan outstanding in the books of AJL at Rs.50,00,000/- to appellant.

Ergo, YI purchased asset in form of loan of Rs.90.21 crores from AICC which was due from AJL to AICC for paltry sum of Rs. 50 Lakhs. The loan assigned to the appellant was converted into shares of AJL and AJL allotted 9,02,16,899 equity shares to Young Indian in lieu of aforesaid loan amount and consequently the authorised share capital of AJL was increased to Rs.10 crores from 1 crore. In this manner, almost 99.99% shares of AJL were transferred to Young Indian.

10. Since Young Indian did not had funds to pay the consideration of Rs.50,00,000/- to AICC, it decided to take loan of Rs.1 crore from M/s. Dotex Merchandise Pvt. Limited, Kolkata (hereinafter referred to as Dotex). Out of the said amount, Rs.50,00,000/- was paid to AICC on 01.03.2011. However, prior to the payment of Rs.50,00,000/- to AICC, AJL had already allotted entire shareholding of Young Indian in lieu of loan of Rs.90.21 crores. In order to understand chain of events right from inception of Young Indian u/s 25 of the Companies Act till 31.03.2011, it would be relevant to summarize it in the following manner as culled out from the assessment order as well as ITAT order in case of appellant dated 15.11.2019 in :-

Dates Documents Event

13.08.2010 Application made for incorporation of YI as Section 25 Company 01.09.2010 Resolution passed Registered office of AJL shifted by board of from Lucknow to Delhi at 5A directors of AJL for Herald House, Bahadur Shah change of address Zafar Marg, New Delhi to of office. provide easy and efficient control and management to the Directors. 14.10.2010 Objects of Young Main object was Indian were ITA No.1251/Del./2019 incorporated “To inculcate in the mind of India's Youth ..............” 18.11.2010 Grant of license To promote object in • u/s. 25 of the terms of Section 25(1)(a) Companies Act, 1956 23.11.2010 Incorporation of Authorised capital of Rs. • Young Indian 5,00,000 being 500 shares of Rs 100/- each as on 31.03.2011 Address of Registered • office was at the same property of AJL, i.e., 5A Herald House, since inception.

23.11.2010 Commencement of He held 550 shares in YI, which directorship of Mr. were later on, were transferred Sam Pitroda to Mr. Oscar Fernandes. He was Director of AJL since 21.12.2010 23.11.2010 Commencement of He held 550 shares in YI directorship of Mr. which were later on transferred Suman Dubey to Mrs. Sonia Gandhi He was Director of AJL since 21.12.2010 First Managing • Mr. Rahul Gandhi appointed 13.12.2010 Committee Meeting as director of YI 13.12.2010 Commencement of • 1900 shares held for 36% directorship of Mr. stake in YI

ITA No.1251/Del./2019

Rahul Gandhi Transfer of Loan by Within 25 days of incorporation of Rs 90 Crores By of Young Indian 16.12.2010 AICC to AJL assigned to YI by Journal Entry Mr. Suman Dubey and Mr. Sam • Initially directors of YI, were Pitroda appointed appointed as director of AJL 21.12.2010 directors of AJL in before allotment of shares; Extra Ordinary General meeting 28.12.2010 Assignment of At the time, YI had no • Loan through letter funds to pay Rs. 50 lakhs to to Young Indian AICC , therefore it obtained a loan of Rs. 1 crore from M/s. Dotex Merchandise Pvt. Ltd., Kolkata Assignment Deed was • executed Letter by Mr. That the loan has been • Motilal Vora, as assigned by AICC to YI 28.12.2010 Treasurer of AICC Mr. Motilal Vora was • to AJL Director of AJL since 2002 A.Y. 2011- Loans advanced by Rs. 88,86,68,976 till • 12 AICC to AJL 31.03.2010 (as claimed) Rs. 1,35,000 during • 01.04.2010 to 16.12.2010

ITA No.1251/Del./2019

Total Loan by AICC to AJL • is Rs 90 Crores.

AY 2011-12 List of Mr. Suman Dubey and • shareholders and Mr. Sam Pitroda - Founder directors Members with 550 Shares each Rs. 53,21,290 spent • towards objects including RS 50 lakhs paid to AICC towards acquisition of loan of Rs 90 Crores and only Rs. 200 as income from subscription 21.01.2011 EGM of AJL • Approving fresh issue of 9.021 crore shares 22.01.2011 Commencement of Holds 1900 shares 36% • directorship of stake in YI Mrs. Sonia Gandhi 22.01.2011 Commencement of Held 600 shares in YI directorship of Mr. Chairman and MD of AJL • Moti Lal Vora since 22.03.2001 22.01.2011 Commencement of Held 600 shares held in YI directorship of Mr. Director in AJL since • Oscar Fernandes 17.06.2010 14.02.2011 Bank Account of YI • After issue of PAN by IT opened authorities 15.02.2011 Loan from Dotex Loan of Rs 1 crore was taken Merchandise (P) from this company to pay Ltd., Kolkata AICC Rs. 50 Lakhs for assignment of loan in AJL.

ITA No.1251/Del./2019

Confirmation letter dated • 24.12.2010 26.02.2011 Allotments of 9,02,16,898 shares issued • shares in AJL to in lieu of assignment of loan of YI Rs. 90 Crore by increasing its authorized share capital to 10 crores from 1 crore. Mrs Sonia Gandhi, Mr. • Rahul Gandhi and Ms. Priyanka Gandhi purchased additional shares to gain full control of AJL 01.03.2011 Payment of Rs. 50 Payment of Rs 50 lakhs was Lakhs to AICC for disclosed as an expenditure for loan assignment the object enshrined in MOA of YI

11. Before us, ld. Special Counsel, Shri G.C. Srivastava, on similar lines has summarised various steps which has also been discussed in the impugned assessment order alleging it to be predetermined sham steps, which though are repetition are reproduced as under :-

S.NO. PARTICULARS STEP-1 As a first step, AICC claimed that it had advanced a loan of Rs. 90 crores to AJL on several occasions in the past.

ITA No.1251/Del./2019

This loan had accumulated to Rs. 90,21,68,980/-. The books of account of AJL from 01.04.2010 to 31.03.2011 showed an outstanding debt of Rs. 88,86,68,976/-and it ultimately became Rs.90,21,68,980/-.

After the closure of the publication business, Sh. Oscar Fernandes was appointed as the director of AJL on 17.06.2010. On 13.08.2010, an application was made for the incorporation of a charitable non-profit company i.e., a company under Section 25 of the Companies Act, in the name of the Appellant. The application was filed in Form IA with the competent statutory authority. On 18.11.2010, the Appellant was granted the license under Section 25 of the Companies Act, and ultimately, the Appellant was incorporated on 23.11.2010 with Sh. Suman Dubey and Sh. Sam Pitroda as its founding Directors. In the meantime, the registered office of AJL had already been moved from Lucknow to Delhi from 01.09.2010. The Appellant started its office at Herald Office, Bahadur Shah Zafar Marg, New Delhi, which was the property of AJL, without any agreement to that effect or any payment of rent to AJL. The Appellant had an authorized share capital of 5,000 shares of Rs. 100/- each, valued at Rs. 5,00,000/- and the paid-up share capital of the Appellant was 1100 shares of Rs. 100/- each valued at Rs. 1,10,000/-. The ITA No.1251/Del./2019

Appellant at that point of time had only two shareholders i.e., - (a) Sh. Sam Pitroda holding 550 shares valued at Rs. 100/- each; and (b) Sh. Suman Dubey holding 5000 shares valued at Rs. 100/- each. On 13.12.2010, the first Managing Committee Meeting of Young India took place and Sh. Rahul Gandhi was appointed as its director, (namely a non-shareholder director) and Sh. Motilal Vora and Sh. Oscar Fernandes as ordinary members. Within five days thereafter, i.e., on 18.12.2010, the loan of Rs. 90 crores and odd outstanding in the books of INC as recoverable from AJL for the period between 2002 to 2011 was assigned to the Appellant without entering into any deed of assignment. Three days thereafter, on 21.12.2010, a board of AJL called for an extraordinary general meeting (“EGM”), which was subsequently held on 24.12.2010, and on the said date, the loan of Rs. 1 crore was received by the Appellant through cheque from another company based in Kolkata being M/s Dotex Merchandise Pvt. Ltd (“Dotex”). It is interesting to note that on the date when the cheque was received, the Appellant did not even have a bank account where such a cheque could be deposited. On 28.12.2010 (about 10 days after the assignment of the loan), a formal deed of assignment was executed by AICC assigning the loan of Rs. 90 crores in favour of the Appellant. It may be mentioned that though the loan of Rs.90 crores was assigned for a paltry sum of Rs. 50 lakhs, yet the Appellant did not have the capacity to pay

ITA No.1251/Del./2019 even that 50 lakhs to AICC and that is the reason why the plea of having received a loan of Rs. 1 crore from Dotex was raised. Soon thereafter, on 21.01.2011, an EGM of AJL was held ‘approving’ fresh issue of Rs. 9.021 crore shares to the Appellant and on 22.01.2011 i.e., on the very next day the second Managing Committee Meeting of Young India was held in which Smt. Sonia Gandhi, Mr. Motilal Vora and Mr. Oscar Fernandes were appointed as directors and the 550 shares of the existing shareholders of the Appellant i.e., Sh. Suman Dubey and Sh. Sam Pitroda were transferred to Smt. Sonia Gandhi and Mr. Oscar Fernandes. On the same day i.e., 22.01.2011, a fresh allotment of the shares of the Appellant were made in the following manner:- (a) 1900 shares having paid-up value of Rs. 1,90,000/- to Sh. Rahul Gandhi; (b) 1350 shares with a paid-up amount of Rs.1,35,000/- in the name of Smt. Sonia Gandhi; (c) 600 shares with a paid-up value of Rs. 60,000 in the name of Sh. Motilal Vora; and (d) 50 shares with a paid-up value of Rs. 5,000 in the name of Sh. Oscar Fernandes. A bank account was opened by the Appellant with Citibank on 14.02.2011 and the cheque dated 24.12.2010 issued by Dotex for Rs. 1 crore was deposited in the bank account of the Appellant on the said day and on 26.02.2011, the Appellant issued a cheque of Rs. 50 lakhs to AICC as consideration for assignment of Rs. 90

ITA No.1251/Del./2019 crores debt payable by AJL to AICC. On the same day i.e., 26.02.2011, AJL allotted 9,02,16,899 equity shares to the Appellant in pursuance to the AGM Meeting decision held on 21.01.2011 and the AJL board meeting on 26.02.2011 and thereafter the Appellant applied for exemption under Section 12A on 29.03.2011 and on 09.05.2011, the Income Tax Authorities granted the exemption with effect from A.Y. 2011-12.

STEP-2 As discussed above, the Appellant (which was newly incorporated by Sh. Suman Dubey and Sh. Sam Pitroda) had no assets or funds of its own except those allegedly transferred by AICC i.e., the funds of Rs. 90.21 crores which was camouflaged as sale of alleged loan of Rs. 90.21 crores for a meager sum of Rs. 50 lakhs and Rs. 1 crore was arranged by the Appellant through Dotex which was a company engaged in providing hawala transactions, by laundering of Appellant’s own money). This loan of Rs. 1 crore was also flagged as suspicious transaction in the Suspicious Transactions Report (“STR”) by Financial Intelligence Unit (“FIU”), India. The amount of loan entry of Rs. 90.21 crore was fixed in order to ensure that the amount was just sufficient to allot 99% share of AJL to the Appellant.

STEP-3 It is pertinent to note that the Appellant which was registered under Section 25 of the Companies Act for charitable purpose, had no business or income of its own

ITA No.1251/Del./2019 and had not carried out any activities for the object of the company in FY 2010-11, 2011-12 and subsequent years.

It had only carried out one adventure in the nature of trade leading to the takeover of AJL with the only intention to obtain benefit from business assets of AJL represented by its immovable properties, which was otherwise not possible without sale of these properties to the Appellant at Fair Market Value (“FMV”) which was several times more than the price at which such properties were purchased by AJL.

STEP-4 Even before the transaction of purchase of loan of Rs. 90.21 crore could be completed by making payment of Rs. 50 lakhs to AICC, AJL swiftly increased its authorized capital from 1 crore ordinary shares having face value of Rs. 10 to 10 crore ordinary shares having face value of Rs. 10 and allotted 9.021 crore shares being 99% of total paid-up capital to the Appellant on the basis of incomplete and undated share application form and without complying with the provisions of Companies Act. It may be appreciated that no price was paid by the Appellant for the acquisition of these shares. It was only by sail/ exchange/ extinguishment of the liabilities which AJL had that the consideration for the sale of these shares was adjusted in the books of AJL. STEP-5 The takeover of AJL was complete within 3 months from the date of incorporation of the Appellant. In fact, after taking over AJL, the Appellant started enjoying the benefits embodied in the business/commercial assets of ITA No.1251/Del./2019

AJL. STEP-6 The Appellant citing its object for incorporation, obtained registration under Section 12A of the Act. This entitled the Appellant to claim exemption on its income so that the value of all benefits arising from the transaction leading to the takeover of AJL gets exempted.

STEP-7 In order to fulfil its objective of acquiring 100% shares of AJL, Sh. Rahul Gandhi (one of the majority shareholders of the Appellant) along with Smt. Priyanka Gandhi Vadra purchased additional shares amounting to 47,513 and 2,62,411 through Ratan Deep Trust and Janhit Nidhi Trust respectively, without complying provisions of the Companies Act. STEP-8 The Appellant did not disclose the transaction of purchase of alleged loan of Rs. 90.21 crores at a paltry sum of Rs. 50 lakhs, in its Profit and Loss Account. This was camouflaged as expenditure on the object of the Appellant. In fact, the value of 9,021 crore shares of AJL was also not disclosed in the audited balance sheet on the ground of insignificant investment. It is submitted that the reason for the above-referred accounting treatment was to hide the real transaction from regulatory authorities and Income Tax Department. STEP-9 As discussed above, after the takeover of AJL by the Appellant, Sh. Suman Dubey and Sh. Sam Pitroda who

ITA No.1251/Del./2019 founded the Appellant company (as per the MOA), exited as a shareholder of the Appellant by transferring their share to Smt. Sonia Gandhi and Sh. Oscar Fernandes. This resulted in the transfer and control of the Appellant in the hands of Smt. Sonia Gandhi and Sh. Rahul Gandhi, both majority shareholders, having shareholding of 38% each and their close associates Sh. Motilal Vora and Sh. Oscar Fernandes each having 12% shares of the Appellant. It is submitted that later on, the Appellant has in its annual report and its application for registration under Section 12A, disclosed the names of Smt. Sonia Gandhi and Sh. Rahul Gandhi as founding members of the Appellant, by changing names of the actual founding members as disclosed in the MOA. These facts clearly prove that Sh. Suman Dubey and Sh. Sam Pitroda were only name lenders and in reality, it was Smt. Sonia Gandhi and Sh. Rahul Gandhi, the majority shareholders of the Appellant who were the actual founding members of the Appellant, as disclosed in the annual report for FY. 2010-11.

12. Further, based on these chronology of events and the nature of association of key persons with AICC, AJL and Young Indian have been enumerated in the following manner :-

NAME POSITION IN POSITION IN POSITION IN YI & NO.

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INC AJL OF SHARES HELD Smt. Sonia President of - Director since Gandhi INC 22.01.2011 holding 1900 shares (which includes 1,350 freshly allotted shares of YI on 22.01.2011 and the 550 transferred shares of Sh. Suman Dubey) constituting 38%. Sh. Rahul Then General - Director since Gandhi Secretary 13.12.2010 holding 1900 shares constituting 38%. Sh. Motilal Treasurer of Chairman Director since Vora INC and 22.01.2011 holding Managing 600 shares Director constituting 12%. since 22.03.2002. Sh. Oscar Long standing Director Director since Fernandes office bearer, since 22.01.2011 holding presently the 17.06.2010. 600 shares (which General includes 50 freshly Secretary. allotted shares of YI on 22.01.2011 and the 550 transferred

ITA No.1251/Del./2019 shares of Sh. Sam Pitroda) constituting 12%. Sh. Satyan Close Director Director since Gangaram associate of since 23.11.2010. Had Pitroda (Sam Sh. Sonia 21.12.2010. previously held 550 Pitroda) Gandhi and shares but Sh. Rahul transferred it to Sh. Gandhi. Oscar Fernandes on 22.01.2011. Sh. Suman Close Director Director since Dubey associate of since 23.11.2010. Had Sh. Sonia 21.12.2010. previously held 550 Gandhi and shares but Sh. Rahul transferred it to Smt. Gandhi Sonia Gandhi on and Press 22.01.2011. Advisor to Former Prime Minister

13. The aforesaid background has been narrated herein- before as preface to understand the genesis of the controversies which are involved in this appeal and shall also have a vital bearing on adjudication of the issues which are being subject matter of appeal hereinafter in the forth-coming paras.

INITIATION OF PROCEEDINGS U/S 148 OF THE ACT

“1. Details of information received through Tax Evasion Petition and Directorate of Investigation. New Delhi

Information has been received from the Investigation Wing, that a Tax Evasion Petition (TEP) was received in the Investigation Wing, in which it had been alleged that Young Indian, hereinafter referred to as "the Yl" a Section 25 Company, assessed to tax in this charge, purchased an interest free loan of Rs. 90 Crores (approx.) of Indian National Congress/ All India Congress Committee hereinafter referred to as "the AICC" alleged to be given to M/s Associated Journal Private Limited, (here-in-after referred to as "AJL”) by making payment of only Rs. 50 lakh to the AICC. It was also informed that the Yi was founded in the month of Nov. 2010, just 23 days prior to assignment of the above loan, with a nominal capital of Rs. 5 Lakh. The Young Indian did not even have any funds of its own for purchase of alleged loan of Rs. 90 Crore of the AICC. Accordingly, YI took an interest bearing loan of Rs. 1.00 Crore from M/s Dotex Merchandise Private Limited of RPG Group of Kolkata. A survey u/s 133A of the I.T. Act was conducted on M/sDotex Merchandise Pvt. Ltd. During survey, it was found that M/sDotex Merchandise Pvt. Limited was originally incorporated by persons engaged in providing accommodation entries and subsequently the company was purchased by R P Goenka Group from the entry operators. Immediately after the Deed of Assignment of loan by the AICC to the Young Indian, on 16.12.2010, the said loan was converted into equity by the AJL, on 26.02.2011 (even when the YI had not paid Rs. 50 Lacs to the AICC in lieu of assignment of loan of Rs. 90 Crore), resulting in holding of 99% of the total issued capital of the AJL by Young Indian. As such, in reality the AJL has become a subsidiary of Young Indian.

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The Investigation Wing has further informed that though the Deed of Assignment is dated 28.12.2010, the AJL made Journal entries of transfer of loan to the YI in its Books of Accounts, as early as 16.12.2010. Even though the payment of Rs. 50 Lakhs, in lieu of Assignment of loan of Rs. 90,21,68,980/ , was made by the YI to the AICC, only on 01.03.2011, whereas the AJL had issued shares to the YI in lieu of the said loan amount, much earlier, in the month of Feb. 2011. It has been pointed out by the Investigation wing that the assigning of loan owed by M/s AJL to M/s Young Indian by the AICC is an adventure in the nature of trade, as defined u/s. 2(13) of the I.T. Act. The Investigation Wing has further conveyed that high ranking Office bearers of the AICC are also Directors of Young Indian and that of the AJL.

S.No. Event Date Remarks 1 Date of Incorporation 23.11.2010 u/s. 25 of Companies of Y.I. Act, 1956 2 Date, of Deed of 28.12.2010 12 days after the date of Assignment of loan by Journal entry made the AICC to YI 3 Date of Journal entry 16.12.2010 12 days prior to Deed of made by AJL. Assignment regarding transfer of loan to YI 4 Payment of Rs. 50 01.03.2011 Transfer of Loan as per Lakhs by YI in lieu of Deed of Assignment took the assignment of loan place on 16.12.2010. of Rs. 90,21,68,980/- 5 Date of issue of shares 26.02.2011 Shares were allotted by AJL to YI in lieu of even before getting the loan payment of Rs. 50 Lakhs from Y.I. 6 Date of loan taken by 15.02.2011 This indicates that on YI from M/s Dotex the date of assignment Merchandise Pvt. Ltd. of loan by the AICC, the out of which payment Young Indian did not of Rs. 50 Lakhs was have the funds. made for purchase of loan

The Investigation Wing further concluded that AJL allotted the shares of the company to Young Indian in lieu of recently purchased asset i.e. Rs. 90 Crore at the rate of face value of Rs. 10/- per share.lt has also been informed that investment in shares of a business entity, making it a subsidiary through an adventure in the nature of trade by ITA No.1251/Del./2019 taking over a loan of Rs. 90.21 Crores for a sum of Rs. 50 Lakhs had resulted in takeover of assets of the AJL fair market value which would need to be ascertained. Subsequent to the information received from the Investigation Wing, further facts were collect from the available assessment records and inquiries were also made to ascertain real nature of the transaction.

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The AJL is an Indian company limited by shares. The company was earlier engaged in publishing National Herald, Nav Jeevan and Qaumi Awaz Newspaper. However, business of publication of newspaper ceased to exist w.e.f. 02.04.2008 and all the employees of the company took VRS w.e.f. 02.04.2008. Since then only, business of the company which owns immovable property of more than Rs. 2000 crores is earning income from Real Estate i.e. the company is engaged in purchase, construction and renting out its property. Sh. Motilal Vora, MP and Oscar Fernandes MP, office bearer of the AICC are also Managing Director and Director of the company, The details of important property of the AJL are summarized as under:

1. Lease Hold Land Address Delhi 5-A, Bahadur Shah Zafar Marg, New Delhi-02

Patna Village Phulwari, Patna

2. Free Hold Land Lucknow 1, Bishweswhwar Nath Road, Lucknow Panchkula C-17, Sec-6, Panchkula

Mumbai S.No.340, Part Aliyavar Marg, Bandra, East Mumbai.

3. Building Delhi 5-A, Bahadur Shah Zafar Marg, New Delhi-02

Lucknow 1, Bishweswhwar Nath Road, Lucknow

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Dotex Merchandise Pvt. Ltd. M/s Dotex Merchandise Pvt. Ltd., Kolkata was originally incorporated by persons engaged in providing accommodation entries. Subsequently, the company was purchased by RPG Group from the entry Operators.

It may be seen from brief detail of parties involved that office bearer of the AICC, Directors of the YI and the AJL are common persons which had helped these entities in carrying out transactions among these entities with great speed even without following a logical sequence of transactions as a prudent business man which prima facie lead to irresistible conclusion that these transactions are pre determinate, pre-planned and stage managed.

3. Non Cooperation of Parties to the transaction during enquiry

The Investigation Wing sought information u/s 133(6) of the I T. Act, from the AJL as well as from the Yl, followed by summons u/s. 131 of the I.T. Act. However, only part information was provided and no compliance was made by both the entities viz. the AJL as well as the Yl, by taking the plea of irrelevance for the purpose of the I. T. Act and by ascribing ulterior motive behind seeking the information. On 15.12.2014, a show-cause notice u/s. 272A of the I.T. Act, was also issued by the Addl. DIT (Investigation), Unit-IV, New Delhi, and penalty u/s. 272A of the I.T. Act, was imposed on 05.02.2015, on both the YL and the AJL for not complying with the terms and conditions of the summons.

After receipt of the above information, further verification and inquiries were conducted from this Office with reference to allegations, made in the TEP and observations of the Investigation Wing

Notice u/s. 133(6) of the I.T. Act, was issued from the Office of the undersigned on 14.07.2015 to the YI requesting the assessee to provide information regarding the details of the above transaction. The assessee was requested to provide the requisite information by 22.07.2015. The notice was duly served on the assessee on 14.07.2015. In response, the assessee (Young Indian) vide its letter dated 21.07.2015, preferred not to file the requisite information and took a stand that information u/s 133(6) of the I.T. Act could be sought only for the purpose of the Act, which means that proceedings are required to be pending with the department to seek information u/s. 133(6) of the I.T. Act. The undersigned vide letter dated 27.07.2015, informed the assessee that "pendency of proceedings" is not a pre-requisite for seeking information

ITA No.1251/Del./2019 u/s 133(6) of the I.T. Act. The assessee was also informed about the decisions of Courts including the decision of the ,Hon’ble Supreme Court in the case of Kathi Roor Service Cooperative Bank Ltd. Vs. CIT & cithers, in Civil appeal No. 7460 of 2013 arising out of SLP (C No. 3976) of 2010 dated 27,08.2013, vide which it was held by the Apex Court that an Income Tax authority below the rank of Director or Commissioner can exercise the power of 133(6) of the I T. Act, in respect of any enquiry in a case, where no proceedings is pending, only with the prior approval of the Director or the Commissioner. The above observation of the Apex Court was in pursuance to an amendment made by the Finance Act (Act 22 of 1995), which has been explained by the CBDT in Circular No. 717dated 14.08.1995. The assessee was again requested to provide the required details/ clarifications/ documents, as asked for vide letter dated 14.07.2015, by 31.07.2015. This letter was also duly served upon the assessee on 27.07.2015.

The assessee this time filed its reply in Dak on 27,07.2015, reiterating its stand that no proceedings are pending in this case and it should be informed, how information called for, is required for the purpose of the Act. Another letter dated 31.07.2015 was again filed by the assessee in the Dak with a request to provide the assessee with a copy of approval of the CIT referred to in the earlier communication. It was further requested that copy of an application to GIT seeking his approval be also provided. This office vide letter dated 03.08.2015, informed the assessee that prior approval of Cl'l (E), New Delhi, for seeking information u/s 133(6) of the I.T. Act, was duly conveyed to the undersigned vide letter No. CIT (E)/ Vi/ 2015-16/ 598 dated 14.07.2015. It was again clarified that the required information is being sought in connection with an inquiry in the In response, the assessee vide its letter dated 07.08.2015, again requested to be provided with copy of authorization received by the undersigned from the CIT(F) as well as copy of the application made by the undersigned for the said authorization. The assessee vide its letter dated 10.08.2015, requested for grant of an inspection of records. However, the A/R of the Yl did not provide information sought u/s. 133(6) of the I.T. Act. During these proceedings, it was clarified to the assessee several times that necessary permission of the CIT (E) had been obtained before issue of the first notice u/s 133(6) of the I.T. Act, dated 14.07.2015. On 10 Aug. 2015, Sh. Sandeep Anand, CA/ AR attended on behalf of the assessee along with the above mentioned letter dated 10.08.2015. He was shown the copy of approval conveyed by the CIT (E) and was again requested to provide the required details/ documents. However, the assessee vide its letter dated 11.08.2015, again insisted for complete inspection of the file and to allow it to make copies of the documents, which are deemed important in its case. Sh. Sandeep Kumar, Office Clerk of the assessee company, who came to deliver this letter, was again informed that the assessee is bound by the decision of the ITA No.1251/Del./2019

Hon’ble Supreme Court as well as the amendment made in the !.T. Act, to provide the required information/ clarification.

It is pertinent to mention here that in this case, notice u/s 133(6) of the I.T. Act, was Issued to obtain only those information, which was in knowledge of the assessee, and was not available with the Income Tax Department. Instead of submitting the .requisite details, the AR of the assessee requested for inspection of records, which were not required in the above referred context, i.e. information which was not available with the department was requested u/s 133(6) of the Act. It appears that the Yf instead of complying with the terms & condition of Section 133(6) of the Income Tax Act, has created a legal facade, to with-hold the information available with the assessee, It has not been explained by the A/R that when the information sought u/s 133(6) of the I.T. Act, is not available with the department, how come the inspection of the records of the department will facilitate in providing the requisite information as per the terms & conditions of the Income Tax Act.

The above discussion proves that the assessee has been afforded number of opportunities to clarify and submit details in respect of the transactions involving acquisition of loan/ shares of AJL. However, the assessee did not submit the requisite information during several opportunities allowed to it. It is pertinent to mention here that the assessee has adopted similar modus-operandi to with-hold information before the Investigation Wing, despite the fact that penalty u/s 272A was levied on the assessee for non- compliance of notice issued u/s 131 of the Income Tax Act.

4. Summary of findings

It is evident from above that due to the non-cooperation of the AICC and the Yl no information could be collected from these parties. Accordingly, all the available information on records with the Income Tax Department, as sent by Investigation Directorate of Income Tax and available in the public domain were examined. The result of these enquiries has been summarized as under: Indian National Congress/AICC:

It has been claimed by the AICC (as reported by the Investigation Wing) that they have advanced loan of Rs. 90.21 Crore at different points of time till F.Y. 2010-11 to the AJL. A careful perusal of the 72nd Annual Report 2010 of AJL revealed that the company had disclosed loan of Rs.89.71 Crore, as on 31.03.2010 (which included unsecured loan of Rs. 89.67 crores) and the nature of which was explained in schedule-X of the report, which records as under:

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"Advances/Security Deposits receipt from the parties in earlier years relating to construction activity on company’s land at Lucknow and Mumbai has been grouped under "other liabilities ’’ and ‘‘unsecured loans” and no provision of interest have been made on their own. ”

[Copy of the relevant part of schedule X of the report is enclosed as Annexure A to the reason recorded]

It is evident from the above narration that the loan of Rs.90.21 Crore from the AICC was not disclosed in the Annual Report of the company, because as per the report, loan (including unsecured loan) only included Advances, loan and Security Deposits for construction activities from parties and from others, not from the AICC. In this context, notices u/s 133(6) of the I. T. Act, were issued to the AICC on 14.07.2015 and 27,07.2015 after taking approval from the competent authority to obtain evidence relating to time mode, manner of advancing loans and nature of fund out of which these loans were advanced, However, no clarification or evidence was submitted to prove that the alleged loan of Rs. 90.21 Crore was actually advanced by the AICC to the AJL, accordingly, at this point of time it is not possible to confirm the claim of the AICC, that it had actually given loan of Rs 90 Crore to the AJL. However, this issue will be examined during reassessment proceedings in case of the YI. This information has been also passed on to the AO of the AJL, who has been requested to make necessary inquiries n this regard, u/s. 68 of the I.T. Act. In view of above, herein after, I intend to use the term "alleged loan of Rs. 90.21 Crore".

As discussed above, the unsecured loan of Rs. 87.67 crore was disclosed in the balance sheet of the AJL as on 31st March 2010 and notes to the account (Annexure X) did not disclose the AICC as creditors. Even amount of the unsecured loan of Rs.90.21 does not tally with amount of unsecured loan as per balance sheet of the AJL. Another important issue is about quantum of loan of Rs 90.21 crore which was coincidentally just sufficient for allotment of 9.021 crore shares of the AJL to the YI which accounted for 99% of share capital of the AJL allowing takeover of the AJL by the YI.

Since, the AICC claimed advancing loan of Rs. 90.21 crore to the AJL a, engaged in real estate business since year 2008, the issue whether political party can advance interest free loan to a real estate company under its stated object is being separately in the case of the Indian National Congress u/s 13A of the Act.

The YI

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All the rights over the above referred to alleged loan, has been sold by the AICC to a newly incorporated company, the YI, i.e. within 23 days of its incorporation (Date of incorporation 23.11.2010 and date of sale of alleged loan of Rs. 90.21 crore on 16.12.2010) at paltry sum of Rs. 50 lakh. At the time of assignment of loan, The YI did not have any money to make payment of even Rs. 50 Lakhs only (authorized capital of Rs.5 Lakh was available.) and it could allegedly arranged the money to make, payment of Rs. 50 only in this month of Feb. 2011 only (after two and a half months from the date of assignment of the alleged loan to the YI) by taking a loan of Rs. 1 crore from Dotex Merchandise Pvt. Ltd on 15.02.2011.

It has been reported by the Investigation Wing that the AICC assigned the alleged loan of Rs. 90.21 crore to the YI for a paltry sum of Rs. 50 Lakhs, for the reason that the AICC was not sure if the AJL would be in position to return the loan. However, the above claim of the AICC is not tenable for following reasons: a. The AJL has several properties in prime location at Delhi, Mumbai, Lucknow, Patna and Panchkula worth several hundred Crores. Accordingly, the only logical conclusion is that the AJL was financially sound enough to return the loan of Rs. 90.21 crore to the AICC. b. In the Notes to Accounts for the financial year 2010-11 of AJL,. in para-1, it :s been mentioned that "however, (he Management is of the view that the operation of the company will be started soon and the operation of the company is such that there are fair chances of turnaround, to make the financial position of the company sound, "[refer Annexure B to the reason] It is pertinent to mention here that office bearer of AICC and the AJL were common people and if Chairman of the AJL Mr. MotiLal Vora was confident about sound financial position of the AJL, how could he was not hopeful of recovery of loan of Rs. 90.21 crore to the AJL as treasurer of the AICC. No explanation on above reasons for treating loan as bad has forth come from the AICC in response to notice u/s 133(6) of the Act. The other intriguing facts in this case are that the alleged assignment deed dated 28.12.2010 was not filed before the AO in response to the notice u/s 133(6) of the Act dated 14.07.2015, but a copy of the letter dated 28.12.2010 from Shri Motilal Vora (Treasurer) to the Board of Directors, AJL was filed, however, the assignment of the loan by the AICC to the YI was not acknowledged and confirmed by the AJL, (copy enclosed as Annexure C). Even if the alleged date of assignment of the loan of Rs. 90.21 crore to the YI was 28.12.2010, the date of actual payment of Rs. 50 Lakhs by the YI to the AICC was on 01.03.2011. It may be seen from the sequence of events that the loan was allegedly assigned on 28.12.2010 by the AICC to the YI and the ITA No.1251/Del./2019 benefit of assignment of loan culminated taking over the AJL by YI by allotment of shares by AJL to YI on 26.02.1010 on the basis of incomplete share application form. However, the payment for alleged assignment of loan was made only on 01.03.2011, whereas the takeover of the AJL by YI through allotment of shares (99% of paid up capital) got completed on 26.02.2011.

Since, the YI did not have any fund at the time of alleged purchase of loan of Rs. 90.21 crore it claimed taking loan of Rs. 1 crore from M.s Dotex Merchandise Pvt. Ltd. The Financial Intelligence Unit (FIU), Department of Revenue, Ministry of Finance has reported loan transactions of Rs. 1 crore between YI and M/s Dotex Merchandise (P) Ltd as Suspicious Transaction Report (STR) vide reference No. 1000040468. However, the genuineness of the loan transaction of Rs. 1 Crore by the YI from M/s Dotex Merchandise Pvt. Ltd. could not be verified due to lack of evidence on case record. Accordingly, a notice u/s 133(6) of the I.T. Act, was issued to YI, after taking prior permission of the competent authority. However, the source and the genuineness of the loan was not filed by the YI.

A careful scrutiny of return of income of the YI for AY 2011-12 and 2012-13 revealed that the YI had not incurred any expenditure on the object of the company (Youth Commitment to the ideal of democratic and secular society). However, the YI claimed expenditure of Rs. 50,00,000/- for purchase of loan of the AICC to the AJL as expenditure on the object of the company. Since, primary motive of incurring expenditure of Rs.50,00,000/-to acquire real estate company i.e. the AJL, the claim the YI that expenditure of Rs, 50 lakh was incurred on “Youth Commitment to the ideal of democratic and secular society” is incorrect. It was further noticed that no expenditure was incurred by the YI on its object in next financial year F.Y. 2011-12.

The YI is a registered entity u/s 12A which makes it entitle to tax exemption on income u/s 11 and 12 of the Act. However, takeover of a real estate company by the YI by incurring expenditure of Rs. 50 lakhs is not covered within stated object of the YI.A report in this regards have been sent to Commissioner of Income Tax (Exemption) separately for consideration u/s 12A of the Act. It is to mention here that a communication in regard is being sent to Ministry of Corporate Affairs informing about violation of stated object by the YI a company u/s 25 of the Companies Act incurring expenditure of Rs.50,00,000 on acquisition of real estate company.

AJL

As discussed above, the AICC had claimed making advance of an interest free loan amounting to Rs. 90.21 crore to the YI and the AICC

ITA No.1251/Del./2019 later assigned the entire loan, to the YI for a consideration of Rs. 50 Lakhs only vide a Deed of Assignment dated 28.12.2010, copy of which was not produced in response to notice u/s 133(6) of the Act and a letter dated 28.12.2016 (refer Annexure was filed in which the AJL did not a:ce or confirm assignment of the alleged loan of Rs. 90:21 crore to the YI. Thereafter, the AJL converted the aforesaid loan of Rs. 90.21 crore in to -ordinary shares at face value of 10 per share on 26.02.2011 and allotted e shares to the YI on the basis of incomplete share application form which neither mention amount remitted nor had details of payment, etc. (a copy enclosed as Annexure D). In order to ascertain the factual position certain enquiries were conducted which included calling for information/records from the office of DCIT, Circle-6, Lucknow (Assessing Officer of the AJL). Information received from AO revealed that Young India received 9,02,16,898 ordinary shares of the AJL, which forms almost 99% of total share of the AJL. However, perusal of the Balance Sheet for the relevant Financial Year i.e. for the year ending 31st March 2011, revealed that M/s The YI has not shown allotment 9.21 shares of the AJL in the Balance Sheet and investments were disclosed at NIL value in Schedule 4. It has further been noticed that the YI a payment of Rs 50 Lakhs for purchase of the alleged loan of Rs. 90.21 crore to acquire assets of the AJL, a company engaged in the real estate business however, the transaction was also incorrectly recorded in the P&L A/c of the YI as expenditure on the object of the company. It is evident from above that real purpose of buying alleged loan at paltry sum of Rs. 50,00,000/- by the YI was to acquire property and real estate of the AJL by taking over the company and not to serve prescribed object of the YI.

It is important to note here that most of properties owned by the AJL have been sold/leased to it by the Central and State Governments at meager sum for the purpose of publication of newspaper. However, the activity of publication of newspaper has ceased to exist since 2008 and existing buildings were put to commercial use and the AJL also started construction of properties on vacant land for commercial use. The AO of the AJL has been requested separately to examine actual use of these properties and inform Central and State Governments about closure of publication business of the AJL and misuse of terms and conditions of sale/ lease of property i.e. for the purchase other than publication of newspaper.

Due to non-cooperation of all the entities to the transaction, it is not possible to ascertain the fair market value of the assets of owned by the AJL now controlled by the YI which was real target of the transaction. In view of non-cooperation by the parties to transactions, I have no option but to examine the issue of fair market value of ITA No.1251/Del./2019 properties on the basis of information available in public domain. One of the prime properties of the AJL is located at Bahadur Shah Zafar Marg, New Delhi. The property is a six storey commercial building. The market value of these properties would help in determining the FMV of properties of the AJL on the date takeover by the YI. Considering the fact that tree value of Veal estate transactions are not revealed in public domain, the fair market value of properties of the AJL is expected to be much higher than quoted market rate at time of takeover of the AJL by the YI. Since most of properties were allotted by Central and State Government at paltry amount for publication of newspaper an object which ceased to exist since 2008 the book value of these properties in balance sheet will not represent FMV. The correct fair market value of various properties located in Delhi, Patna, Lucknow, Panchkula and Mumbai, shall be ascertained during the reassessment proceedings in order to compute the FMV of properties transferred to the Yi on 26.02.2011 by the takeover of the AJL which will enable me to compute income of for taxation. The AJL also earns rental income of Rs. 6.02 Crore per annum from letting out of some of the properties. Besides, the AJL is also engaged in construction of commercial building at Panchkula and at Mumbai. It is pertinent to mention here that a petition has been filed in this case before Metropolitan Court in Delhi along with evidences wherein the petitioner had estimated fair market value of properties of the AJL of more than Rs. 1600 crore (the value of the property at Bahadur Shah Zafar Marg along with few other properties was estimated at Rs. 1600 crore by the petitioner. The Metropolitan Magistrate taking cognizance of prima facie evidence has admitted the case and issued summons to the parties in the last week of June2015. The fact suggests that fair market value of the property leased or owned by the AJL worth of few thousand crore. M/s Dotex Merchandise Pvt. Ltd. : Enquiries were made in respect of loan transaction between YI and M/s Dotex Merchandise Pvt. Ltd. which has revealed following important facts: • It is an undisputed fact that Mr. Sunil Bhandari and Mr. Sunil Sanganeria were not only directors of M/s Dotex Merchandise Pvt. Ltd. but were directors of 50 other Kolkata based companies. Many of these companies have been found engaged in the business of providing accommodation entries as noticed during course of survey by Income Tax Department • The business of providing accommodation entries stipulates issue of cheques by these companies in lieu of cash payments of equivalent amount by the beneficiary (in this case M/s Young

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Indian). These companies also charge commission for issuing cheques which varies from 1% to 5% of the cheque amount. The cheque payment is then shown as loan by these companies in the books of A/c of the beneficiary who never return back the loan for simple reason that loan represent the laundered money of the beneficiary. • M/s Young Indian had claimed taking loan of Rs. 1 crore from M/s Dotex Merchandise Pvt. Ltd. on 15.02.201.1 which was not returned back till date. The amount of 1 crore in this case represents own laundered money of M/s Young Indian for following reasons:

- M/s Dotex Merchandise Pvt. Ltd., a company known to be engaged in business of providing accommodation entries had claimed giving loan of Rs. 1 crore to M/s Young Indian.

- Directors of M/s Dotex Merchandise Pvt. Ltd. were directors of 50 other companies engaged in similar business where as provisions of the Companies Act and stipulate whole time director only in one company. ;

- The loan of Rs. 1 crore was given to M/s Young Indian, a newly incorporated company with a small capital base of only Rs. 5 lakh without any guarantee. M/s. Young Indian made a provision for payment of interest of Rs. 1,72,603 on this loan in its Balance sheet for the year ending on 31.03.2011. Apparently, no TDS has been applied on such payment. Perusal of Return of Young Indian filed with ROC for F.Y. 2013 14 shows unsecured loan of Rs. 1 crore M/s Dotex Merchandise Pvt. L.td. is standing as it is and it has not been repaid. As per Note-6 of Balance sheet of Young Indian for the year ending on 31.03.2014, even provision for interest to be paid on unsecured loan has not been made for the FY.2013-14. This shows unsecured loan of Rs 1 crore is an accommodation entry which has neither been repaid nor any interest paid on it. - The alleged loan of Rs. 1 crore was interost free loan. No prudent businessman will give the loan to any unrelated party without expecting any return of such investment. - Copies of bank A/c of companies engaged in business of accommodation entries typically contains deposits of cash and issue of cheque of equivalent amount. This is being ascertained in this case.

- No reasonable explanation for not demanding return of the loan of Rs 1 crore by M/s Dotex Merchandise Pvt. Ltd. and non-returning

ITA No.1251/Del./2019 of the loan by M/s Young Indian has forth come. Information from the Registrar of Companies : The information were also collected from the Registrar of Company which revealed that prior to assignment of loan, there were series of appointment of Directors in the AJL and YI who were either office bearer of AICC or close associates of President of AICC as per the following details:

AJL : • Mr. Oscar Fernandes was appointed as Director on 17.06.2010 • Mr. Suman Dubey was appointed as Director on 21:12.2010 • Mr. Satyam Gangaram Pitroda @ Sam Pitroda on 21.12.2010 • It is pertinent to mention here that Mr. MotilalVora was Managing Director of AJL since 22.03.2002. YI : • Mr. Suman Dubey was appointed as Director on 23.11.2010 • Mr. Sam Pitroda was appointed as Director on 23.11.2010 • Mr. Rahul Gandhi was appointed as Director on 22.01.2011 • Mrs. Sonia Gandhi was appointed as Director on 22.01.2011 • Mr. MotilalVora, Managing Director of AJL was appointed as Director on 22.01.2011 • Mr. Oscar Fernandes was appointed as Director on 22.01.2011

A careful analysis of timing and sequence of appointment of Directors in AJL and early proves that the claim of assignment of alleged loan to YI by the AICC for allotment of shares of AJL was one of the several artificially inserted steps in a predetermined scheme of taken over of the AJL by the YI.

the AJL as well as of the Yl who have participated in the transactions are as under: • Mrs. Sonia Gandhi, M.P. - AICC, YI and AJL • Sh. Rahul Gandhi, M.P. - AICC, YI and AJL • Sh. MotiLalVora, M.P. - AICC, YI and AJL • Sh. Oscar Fernandes, M.P. - AICC, YI and AJL • All the transactions like purchase of loan of Rs. 90.21 crore of the AICC to the AJL by the YI, taking loan of Rs. 1 crore by the YI from M/s Dotex Merchandise Pvt. Ltd., increase of authorized capital of the AJL from 1 crore share to 10 crore shares and allotment of shares of the AJL to Yl occurred within short period of two month. • All the above referred to transactions took place within two and half month from date of incorporation of the YI. • The AICC sold its loan of Rs, 90.21 crore to the AJL to the YI within 20 days from date of incorporation of the YI even when deed of assignment of loan was not signed by both the parties and the YI did not have its own fund to buy the loan for Rs. 50,00,000/-. • The YI claimed raising loan of Rs. 1 crore from M/s Dot ex Merchandise Pvt. Ltd., a company having history of providing accommodation entry however the claim was not proved and the enquiry made have revealed that loan of Rs. 1 crore was prima faded own laundered money of the YI as discussed earlier. It is pertinent to mention here that the loan transaction was reported in Suspicious Transaction Report of FIU, India. • The sequence of these transactions carried on by entities to transactions are not as per normal commercial practices. For example in this case the AICC claimed selling loan of Rs.90.21 crore to the YI in month of December 2010 even when assignment of loan was not acknowledged and confirmed by the AJL but the YI paid sale consideration to the AICC only in month of March 2011 at the time when the AJL was already taken over the YI by allotment of 99% of paid share capital of the AJL. • No reasonable explanation for selling good loan of Rs.90.21 crore to the YI at meager amount of Rs.50,00,000/- has forth come. However the amount of Rs.90.21 crore was pre-mediated amount essential for YI taking over the AJL by allotment of 9.021 shares of the AJL (99% of paid share capital) in order to full takeover of the AJL.

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• The end result of the these transactions was takeover of the AJL a real estate company having properties of several hundred crore by the YI by making meager investment of Rs. 50,00,000/-. However, such takeover of a real estate company having assets worth of more than Rs. 1600 crore the value which was taken cognizance by Metropolitan Court of Delhi at the price of Rs. 50,00,000/- is unheard of. • The YI is company registered u/s 25 of the Companies Act 1956, accordingly, takeover of the AJL, a real estate company was not a prescribed purpose of the YI. • The takeover of the AJL by the YI has resulted actually in acquisition of all the immovable properties of the AJL along with right to enjoy huge rental income of several crore from some of the properties. • Since more than 75% shares of the YI are held by Srnt. Sonia Gandhi, MP and Shri Rahul Gandhi, MP they were real beneficiary of the transaction. • The YI did not disclosed purchase of loan of Rs. 90.21 crore in the P&L A/C for FY 2010-11. However, expenditure of Rs. 50 lakh was disclosed for purpose of “Youth Commitment to the ideal of democratic and secular society” whereas the expenditure was not incurred for the disclosed purpose but was incurred for the purpose of takeover of the AJL, a real estate company. The value of investment in the 9.021 crore shares of the AJL was also not disclosed in balance sheet of the YI for FY 2010-11 on the ground that net value of investment was negative. • The celerity at which properties of the AJL at prime location of India, were acquired by the YI by making meager investment of Rs, 50,00,000/- through takeover of the AJL was possible due to common Office Bearers of these parties who were in charge of management of all these parties to transactions. This proves that all the three entities were same and one in realty but on the paper these three are distinct and different legal entities. • The purchase of loan of Rs. 90.21 crore at paltry sum of Rs.50 lakh by the YI resulted into takeover of the AJL with following benefits to the YI within short period of two months: o Fair market value of immovable properties of the AJL in reality transferred to the YL. o Right in benefit of accretion in value of above referred

ITA No.1251/Del./2019 immovable properties in future years transferred to the Yl. o Regular annual income from business of construction of non- commercial properties. o Regular annual rental income of several crore from letting out of existing building.

Since investment of Rs. 50 lakh was made with profit motive as discussed above the transaction was adventure in nature of trade u/s 2(13) of the Act and value of above referred to benefit represent profit and gains to the YI u/s 28(iv) of the Act for FY 2010-11. 6. Summary of Escapement of Income

6.1 It is evident from the enquiry u/s 133(1) of the Act as sequel to the information received from the Investigation Wing and other sources that following undisputed sequence of events of this deal has taken place in taking over of the AJL by the YI: • Shri Suman Dubey, Shri Satyam Gangaram Pitroda and Mr. Oscar Fernandes, found members of M/s Young Indian became directors of the AJL on 21.12.2010 and 17.06.2010 respectively along with Mr. Motilal Vora, Chairman of M/s AJL all close associates of Smt. Sonia Gandhi. • A resolution was passed on 01.09.2010 to shift registered office of the AJL to Delhi from Lucknow to Delhi. • M/s Young Indian, a section 25 company was incorporated on 23.11.2010 with founder members namely Sh. Suman Dubey and Sh. Satyam Gangaram Pitroda who later transferred their shares to Mrs. Sonia Gandhi, Rahul Gandhi, MotiLalVora and Oscar Fernandes having office address of 5A, Bahadur Shah ZafarMarg, New Delhi (a properly owned by the AJL) with share capital of Rs. 5 lakh.

• The alleged loan of Rs. 90 crore was transferred by the AICC to M/s Young Indian on 16.12.2010 (within 25 days from date of incorporation) however the alleged loan was assigned though a letter dated 28,12.2010 to M/s Young Indian. • At the time when loan of Rs. 90 crores was assigned to M/s Young Indian for Rs. 50 lakh it had no fund to make payment of Rs.50 lakh. Later, it took loan of Rs. 1 crore from M/s Dotex Merchandise Pvt. Ltd. on 15.02.2011 i.e. three months from the date of assignment of loan of Rs. 90 to A/l/s Young Indian. M/s

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AJL allotted 90,21,68,980 shares to M/s Young India on 26.02.2011 in lieu of assignment of loan of Rs. 90 crore to M/s. Young Indian. • M/s Young Indian paid Rs. 50 lakh to AICC on 01.03.2011 for loan of Rs. 90 crore which was assigned to it on 16.12.2010. • M/s Young Indian did not disclose the transaction of loan of Rs. 90 crore at paltry sum of Rs. 50 lakh in its P&L A/c. The same was camouflaged as expenditure on prescribed object of the M/s Young Indian. • The Young Indian citing object of the company obtained registration u/s 12A of the Income-tax Act on 09.05.2011 so that value of all benefit from real estate business of the AJL get tax exemption. • In order to achieve object of taking over 100 percent shares of the AJL by M/s. Young Indian and Smt. Sonia Gandhi, MP and Sh. Rahul Gandhi, MP, Shri Rahul Gandhi and Smt. Priyanka Gandhi Vadhera also purchased addition 47,513 and 26,244 shares of the AJL through Rattan Deep Trust and Janhit Nidhi Trust respectively.

The above referred to sequence of events have been summarized in the following table for the sake of clarity:

Sr. Date Details of Event Prima Facie purpose/ No. remark of Step 1 02.04.2008 Business of Purpose was to use publication of property of M/s newspaper closed and Associated Journals VRS was offered to all Limited (the AJL) employees and the worth of several same was accepted on thousand crore for 02.04.2008 other commercial purpose. 2 17.06.2010 Oscar Fernandes, a To facilitate takeover close associate of Smt. of the AJL by M/s Sonia Gandhi and Sh. Young Indian (the YI). Rahul Gandhi and Member of M/s Indian

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National Congress (the AICC) appointed as Director of AJL. 3 01.09.2010 Resolution was To facilitate takeover passed by the Board and to provide easy of Directors to shift the and efficient control Registered Office of by Smt. Sonia Gandhi the AJL from Lucknow and Sh. Rahul to Delhi Gandhi. 4 23.11.2010 YI, a section 25 It is evident from company, was address of registered incorporated with Mr. office of the YI that Suman Dubey, Mr. since its Satyam Gangaram incorporation, it had Pitroda with paltry started treating capital of Rs. 5 lacs property of the AJL as having registered its own. office at 5A, Bahadur Shah Zafar Marg, New Delhi, a property of AJL 5 13.12.2010 Rahul Gandhi was Just three days appointed as Director before assignment of of the Yl. alleged loan of Rs. 90 to the YI by the AICC for paltry sum of Rs. 50 lacs. 6 16.12.2010 AICC claimed It is not known how a assigning its alleged loan could be loan of Rs. 90 crore assigned earlier to with the AJL to the YI assignment deed for paltry sum of Rs. dated 28.12.2010 50 lacs vide and when the Yl had assignment deed capital of only Rs. 5 dated 28.12.2010. lacs i.e. no capacity to pay even paltry sum of Rs.50 lacs. 7 21.12.2010 Mr. Suman Dubey and Appoint of the Mr. Sam Pitroda, Director of YI as Director of the Yl were Director of AJL before also appointed allotment of the share Director of the AJL. of the AJL to the YI defies all the established norms. However, this step

ITA No.1251/Del./2019 provided total control of the AJL to trusted man of Smt. Sonia Gandhi and Sh. Rahul Gandhi (Mr. Oscar Fernandes, Mr. Suman Dubey and Mr. Sam Pitroda as director and Mr. Motilal Vora as MD of the AJL. 8 28.12.2010 It was stated that loan It is not known that was assigned by why loan was assignment deed transferred on dated 28.12.2010. 16.12.2010 much however, no such before the date of deed was furnished assignment deed? before the AO and The letter dated only a copy of letter 28.12.2010 proposing dated 28.12.2010 was assignment of loan filed assigning loan of was not even Rs. 90 crore. acknowledged by the AJL as token of acceptance of such transfer. 9 22.01.2011 Mrs. Sonia Gandhi, of Control of the AJL was MotilalVora and Mr. transferred to the YJ Oscar Fernandes were by way of common appointed as Director director before of YI allotment of shares. 10 15.02.2011 YI claimed receiving the When the alleged loan loan of Rs. 1 crore was assigned to the Yl from M/s Dotex it had no money to Merchandise Pvt. Ltd. pay consideration Rs. to make payment of 50 lacs for assignment Rs. 50 lacs to the of such loan and AICC surprisingly, it claimed taking loan of Rs 1 crore after three months from the date of assignment of loan of Rs.90 crore to it. 11 26.02.2011 AJL allotted of Allotment of shares 90,21,68,980 shares which constitute 99% to the Yl in lieu of of shares of the AJL

ITA No.1251/Del./2019 assignment of alleged completed takeover of loan of Rs. 90 crore to the AJL by the YI the YI for Rs.50 lacs. 12 01.03.2011 The YI paid Rs. 50 No prudent lacs to the AICC for management will assignment of loan of assign the loan of Rs. 90 crore on Rs.90 crore for a 16.12.2010. paltry sum of Rs.50 lacs that too was received after a gap of more than 3 months from the date of assignment

If one take note of the above referred to illogical sequence of events (e.g. step 8 should precede step 6, step 10 should precede step 6, step 12 should follow step 6 simultaneously, etc.) and the celerity at which these transactions were made by common office bearers of the AJL, the YI and the AICC then conclusion is simple to guess that Mrs. Sonia Gandhi and Mr. Rahul Gandhi along with their trustworthy associates have taken over property of more than Rs. 2000 crore for a paltry sum of Rs. 50 lacs. 6.2 Income from investment of Rs. 50 lakh

It is evident from findings as recorded in para-5 that above referred to transactions/ arrangements were not real and genuine and were sham transactions. A pre-mediated scheme was devised to obtain control over immovable properties of the AJL worth of several hundred crore by person who have incorporated Yl. The scheme consisted of following eight steps to takeover immovable properties of the AJL without paying any taxes on benefits accrued to the Yl and its majority shareholders. Step 1:

It is evident from above referred to findings that as a first step the registered office of AJL was shifted from Lucknow to Delhi and a new company, the Yl was incorporated wholly owned by some important persons (Smt. Sonia Gandhi, Sh. Rahul Gandhi, Sh. MotilalVora, Sh. Oscar Fernandes) who were also Office bearers of AICC of Indian National Congress and Chairman and Directors of the AJL (Sh. MotilalVora, Chairman and Sh. Oscar Fernandes, Director). Step 2:

The newly incorporated company had no assets of its own except

ITA No.1251/Del./2019 those transferred by the AICC of Indian National Congress i.e. fund of Rs. 90.21 crore which was camouflaged as sale of loan of Rs 90.21 for meager sum of Rs. 50 lakh and Rs. 1 crorewas arranged through M/s Dotex Merchandise Pvt. Ltd,, (prima facie by laundering of own money of Yl) a company with dubious antecedents and the loan of Rs. 1 crore was also flagged- as suspicious transaction in the STR by FIU, India. The amount of loan of Rs. 90.21 crore was fixed in order to insure that the amount is just sufficient to allot 99% of share of the AJL to the Yl.

Step 3:

The YI, which was registered p/s 25 of the Companies Act, 1956 for charitable purpose has no business or income of its and had not carried out any activities for the object of the company in FY 2010-11 and FY 2011-12. It has carried out only adventure which was in nature of trade to takeover real estate business of the AJL to its benefit. Step 4: The alleged sale of loan of Rs. 90.21 crore to the Yl was not proved through document because assignment of loan was not acknowledged and confirmed by the AJL. In this context, it is important to highlight the quantum of alleged loan of Rs. 90.21 was also a pre- fixed amount which was just sufficient to allot 99 percent shares of the AJL to the Yl. Even before transaction of purchase of loan of Rs. 90.21 crore could be complete by making payment of Rs. 50 lakh to the AICC, on 01.03.2011 the AJL increased its authorized capital from 1 crore ordinary share having (face value of Rs. 10) to 10 crore ordinary share (face value of Rs. 10) and allotted 9.021 crore shares (99% of total paid up capital) to the YI on 26.02.2011 on the basis of incomplete and undated share application form. Step 5:

The takeover of the AJL was complete within three months from the date of incorporation. After taking over all the immovable properties of the AJL in control, the YI shifted to Herald House, Bahadur Shah Zafar Marg, New Delhi, one of prime properties of the AJL worth of several hundred crore without paying any compensation for use of space to the AJL i.e. in reality the YI used the properly on the name of the AJL as its own property. Step 6:

The YI citing the object of the company obtained registration u/s 12 A of the Act which entitled it to exemption on its income on 09.05.2011 so that value of all benefit from real estate business of the AJL get tax exemption.

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Step 7: In order to achieve object of holding 100 percent share of the AJL by the Yl and :s majority shareholders and their relative like Sh. Rahul Gandhi and Smt. Priyanka Gandhi Vadhera have purchased additional 47,513 and 2,62,411 shares through Rattan Deep Trust and Janhit Nidhi Trust respectively. Step 8:

The YI did not disclose the transaction of purchase of loan of Rs. 90.21 at the paltry sum of Rs. 50 lakh in P&L A/c the same was camouflaged as expenditure on project of the YI. The value of 9.021 crore shares was also not disclosed in the balance jet on the ground of insignificant investment. The reason for above referred to accounting treatment was to hide real transaction.

For the purpose of deciding true character of above referred to pre-determined scheme involving eight steps I have taken note of aforementioned peculiar facts of this case. The AJL even though continues to remain a legal entity with a right to hold properties. The true character of the above transactions has to be judged by looking at reality after removing or piercing the veil of these two companies and the AICC, as the above referred to circumstances of the case justify such an exercise. The real purpose of the loan from Indian National Congress and allotment of the share to the YI by the AJL in reality was only to transfer immovable properties of the AJL to the YI along with full right over rental income and business income from real estate business of the AJL at paltry sum of Rs.50 lakh without having paid any taxes. The above referred to artificially inserted; steps have no business purpose except for evading taxes on income earned by the Yl on the takeover of immovable properties of the AJL.

In order to hide in above referred to pre-mediated scheme of tax evasion, the YI resorted to unfair reporting of its financials like non- reporting of value of 9,021 crore shares of the AJL in its balance sheet on the ground of insignificant investment. How come full takeover of a company having property of worth of Rs. 1600 crore or more could be an insignificant investment? The answer stare at one’s face that actual reason for suppressing the transaction in P & L A/c and balance sheet was a conscious efforts to avoid detection of real transaction leading to payment of tax.

In view of above, I have reasons to believe that income of the YI u/s 28(iv) r.w.s 2(13) had escaped assessment for AY 2011-12. At this point of time, cost of investment of Rs. 50 lakh by the YI is known,

ITA No.1251/Del./2019 however, Fair Market Value (FMV) of properties of the AJL as on 26.02.2011 are not available due to non-cooperation by parties to transactions. Even though Metropolitan Court, Delhi has taken cognize of FMV of properties of the AJL above Rs. 1600 crore, the exact FMV of the all properties on the name of the AJL in India is not known at the time of recording of reasons accordingly, the quantum of income u/s 28(iv) i.e., value of benefit accrued to the YI from these assets minus cost of investment of Rs. 50 could be not computed with the precision which shall be determined during reassessment proceeding.

6.3 Unexplained loan of Rs. 1 Crore from M/s. Dotex Merchandise Pvt. Ltd.

The YI claimed taking a loan of Rs. 1 Crore from M/s Dotex Merchandise Pvt. Ltd., Kolkata, a company known for providing bogus entries. The transaction is also notified in the STR of FIU India. The YI did not furnish any evidence of genuineness of the loan. Prima facie, it appears that the amount (Rs. 1 Crore) which appears to be money- laundering of own money of YI as discussed earlier is an unexplained credit, as the source of which has not been explained properly. The amount is required to be taxed u/s. 68 of I.T. Act. In view of these facts, I have reason to believe that income of Rs. 1 crore has escaped assessment for AY 2011-12.

6.4 Expenditure of Rs.50 lakh by the YI outside the Aims and Objects:

As discussed above, the YI has paid an amount of Rs. 50 Lakhs to the AICC for acquiring the alleged loan from the AJL. Since making payments for acquiring loan to takeover a real estate company do not form part of application of income for charitable purposes. I have reason to believe that such expenditure is to be disallowed and added back to the income of the YI for AY 2011-12. I have therefore reason to believe that income amounting to Rs.50,00,000/- has also escaped assessment. 6.4 Violation of terms and conditions of 12A: The YI has made payment of Rs. 50 lakhs to purchase of alleged loan of Rs.90.21 crore from the AICC, resulting ultimately in taking over of 99% share capital of AJL a company engaged in real estate business. This activity is outside the aims and objects of the Memorandum of Association of the YI. In this regard, a report is being sent to the CIT (E).

7. Prior to 1989 section 147 provided for two grounds to reopen concluded assessments: • On basis of information received by the Assessing Officer

ITA No.1251/Del./2019 assessment could be reopened. This had to be within four years. • Where facts material for. assessment are not disclosed in the course of assessment, whether within or beyond four years.

Supervening these two requirements in the alternative, the initial condition is that the Assessing Officer has reason to believe that there is escapement of income. The first requirement regarding information is now dropped by 1989 amendment and therefore for reopening of assessment within a period of 4 years from the end of the assessment year the only requirement is “reason to believe”. For a period beyond 4 years in cases where an original assessment was made u/s 143(3), further requirement is the non-disclosure of material facts necessary for assessment by the assessee. However, in cases where no scrutiny assessment has been made even beyond period of 4 years but before 6 years the only requirement is "reason to believe”.

In this case a return of income was filed for the year under consideration but no security assessment u/s 143(3) of the Act was made accordingly, in this case, the only requirement to initiate proceeding u/s 147 is reason to believe as recorded above. Since the assessee has filed return of income for the year but no scrutiny assessment was made clause (b) of explanation 2 to section147 is applicable and this is a deemed to be a case where income chargeable to tax has escaped assessment. On the basis of the reasons recorded above, I have reason to believe that income chargeable to tax as noted above has escaped assessment for Assessment Year 2011-12 and it is fit case to issue notice u/s. 148 of the Act.

In this case the four years but not more than six years have elapsed from the end of the assessment year under consideration and Income chargeable to tax which has escaped assessment is more than Rs. 1 lakh necessary sanction to issue notice u/s 148 of the Act has been obtained from the Commissioner of income Tax (Exemption), Delhi vide letter No. F. No. CIT (E)/u/s151(1)/2016-17/1809 dated 10.01.2017 under amended provisions of section 151 of the Act w.e.f. 01.06.2015.”

Sr.No. Particulars Amount (Rs.) 1. Benefit/perquisite computed 413,40,55,980/- u/s. 28(iv) in respect of the purported Fair Market Value (“FMV”) of the immovable properties owned by AJL.

2. Unexplained cash credit u/s 1,00,00,000/- 68 computed in respect of loan from Dotex Merchandise Pvt. Ltd. (“Dotex”)

3. Disallowance of interest paid 1,72,603/- on loan taken from Dotex

4. Unexplained expenditure 1,00,000/- added u/s. 69C towards purported commission paid to raise the loan from Dotex

5. Expenditure not treated as 50,00,000/- spent on the objects of the Appellant

GROUND-WISE DISCUSSION AS RAISED BY THE APPELLANT IN THE VARIOUS GROUNDS OF APPEAL INCORPORATED (SUPRA)

GROUND NO.1

Despite noting this fact, AO continued with the reassessment proceedings u/s 147 even though assessee had surrendered its registration in March 2016, therefore, present ACIT (E) did not had jurisdiction over the assessee. According to him, the issue was also raised before the AO who has rejected this contention.

Thus, entire assessment order and the reassessment proceedings are bad in law. In support, he relied upon the judgment of Hon’ble Delhi High Court in the case of CIT vs. S.S. Ahluwalia 46 taxman.com 169 (copy of which has been placed in the Legal Paper Book-I) wherein Hon’ble Court held that in case assessee has shifted his residence or place of his business or work etc., AO of place where assessee has shifted or otherwise, will have the jurisdiction and it is not necessary that in such case, an order u/s 127 is required to be passed. He further relied upon the judgment of Hon’ble Rajasthan High Court in case of CIT vs. Poonam Chand Surana 221 Taxman 151, wherein it was held that a notice u/s 148 issued by the Income-tax authorities, who has no jurisdiction over the assessee at the time when the said notice was issued, is bad in law and void. He also relied upon the following decisions:-

(i) S.N. Bhargava v. ITO (147 ITD 306)(Agra - Trib.) (ii) Anant Concrete Products Pvt. Ltd. vs. ITO (ITA.No.1632/Del./2017) (iii) DCIT vs. Shri Ram Agarwal (ITA No.756 & 757/LKW/2011)

“Needless to say, this is without prejudice to all our rights and contentions in the matter including that your aforesaid notice u/s. 148 of the Act is ab initio or otherwise void, illegal and inoperative”

He further pointed out that the Appellant had in its first reply dated 9.2.2017 to the notice issued u/s. 148 dated 10.1.2017 stated as under:

“May we hasten to mention that this is without prejudice to all our rights and contentions in the matter to challenge even your aforesaid notice u/s. 148 of the Act being ab initio or otherwise void, illegal and inoperative.”

Hence, the Appellant had placed its objection on record in its first reply itself, which was within 30 days of issue of the notice. It is submitted that limitation u/s 153(3)(a) is not applicable in the present case.

The registration was granted as early as in 2011 and since then, the jurisdiction had been with the Deputy Commissioner of Income Tax (the A.O.) in the Directorate of Exemption, New Delhi.

The Appellant also filed its return of income with the said Directorate and no challenge to the jurisdiction arose at this stage. It was only at a later stage when certain enquiries began against the Appellant, that it started building up case to create defense. The registration was later found to have been obtained by mis-representation of facts as held by the Hon’ble ITAT in Young Indian v. CIT (Exemption), New Delhi, wherein the cancellation was upheld.

21.1 In the backdrop of the facts and circumstances of the case, it needs to be appreciated that the jurisdiction over the Appellant was exercised by virtue of the provisions contained in Section 120 of the Act, more particularly, sub-Section (3) thereof.

It is submitted that it is not a case of territorial jurisdiction based on residence or place of business, but it is a case of jurisdiction assumed on the basis of registration granted by the Revenue on the application of the Appellant-Assessee, which brings them into a class of assessees or class of cases.

21.2 The registration has been subsequently cancelled and the assessment relevant to those years for which the Appellant had already claimed exemption was re-opened and relevant proceedings were commenced. To suggest that the cancellation of registration or the notice under Section 148 denying the exemption and assessing the income in the facts of the case did not fall in the jurisdiction of the A.O. in the Directorate of Exemption is simply ridiculous.

21.3 In this regard, it is imperative to note that an act of surrender of registration is not permissible under the law for the reason that the registration granted was not any kind of award or some gratuitous action on the part of the government which could be rejected by the recipient or surrendered after the receipt.

The order of cancellation of registration is a statutory order passed on the basis of certain facts leading to the breach of the conditions of registration and such breach cannot be undone by voluntary surrender of registration. The cancellation of registration has to be followed in accordance with the statute. It would not be out of place to mention that even such surrender was not bonafide as it was post enquiries conducted by the Revenue and the materials found which clearly showed that the Appellant was not entitled for registration at all.

21.4 As regards the judicial precedents referred to by the Appellant, in this context, he submitted that those cases discuss territorial jurisdiction and not jurisdiction based on a class of persons or a class of cases. The Appellant did not challenge the jurisdiction of the A.O. assumed under Section 120 of the Act, read with relevant notifications in this regard. The Appellant is seeking to derive the benefit of the objections raised against the notice under Section 148 and those objections challenge the notice being void, illegal and inoperative for reasons which are subject-matter of Ground No. 2 of this appeal. However, there is no challenge to the jurisdiction with reference to Sections 120 or 124 or even 127 of the Act. Mere challenge of notice issued under Section 148 in general terms will not necessarily mean that this was a challenge of jurisdiction when no objection to that effect was raised. The nature of the challenge against notice under Section 148 has been elaborated by the A.O. in Para 3.1 of his order of assessment. He thus submitted that it was for the first time in a writ petition before the Hon’ble High Court that the Appellant took the ground of territorial jurisdiction. However, the said writ petition was dismissed as withdrawn.

In view of the above, the contentions raised in Ground No.1 are not tenable.

DECISION ON GROUND NO.1

Once company has been recognized as a charitable institution by grant of registration u/s 12A, then such registration can be cancelled only by an authority under the law and not by voluntary act of the assessee. The act of suo motto surrender of registration is neither permissible under the law nor is dependent upon the voluntary act of the assessee. Even if the assessee had filed letter surrendering its registration, it has no consequence till competent authority acts upon it and accepts the surrender letter and passes the order of cancellation. The order of cancellation of registration is a statutory order which is based on the foundation of certain facts coming on record during the breach of conditions for which registration was granted and such a breach cannot be reckoned from voluntary surrender of registration. The entire process has to be followed in accordance with the statute. Merely because the assessee had filed a letter on 21.03.2016 surrendering its registration u/s 12A or giving its benefit of section 11, does not mean that from the date of the letter, the jurisdiction of the AO automatically got changed. As stated above, at the time of issuance of notice u/s 148, the ACIT or DCIT, Circle Exemption, New Delhi had the valid jurisdiction not only to initiate the proceedings u/s 148 but also pass the assessment order.

GROUND NO.2

“In this case the four years but not more than six years have elapsed from the end of the assessment year under consideration and income chargeable to tax which has escaped assessment is more than Rs. 1 lakh necessary sanction to issue notice u/s. 148 of the Act has been obtained from the Commissioner of Income Tax (Exemption), Delhi vide letter on F. No. CIT(E)u/s151(1)(2016-17/1809 dated 10.01.2017 under amended provisions of section 151 of the Act w.e.f. 01.06.2015.”

26.1 From the above, it would be observed that in the present case, the reasons that were sent for approval by the AO to the CIT (E) were neither signed nor dated or at the most, the same were signed as ‘draft’. Such unsigned or draft reasons cannot be regarded as the final reasons recorded by the AO.

Hence, what the AO sent to the CIT(E) for approval is (the reasons at pages 5-30 and 53-76) only a ‘proposal’ and not a recording of belief of the AO that income has escaped assessment. The reasons were recorded by the AO only on 10.1.2018 ‘after’ seeking approval from the CIT (E), which is not permissible in law. Accordingly, it has been submitted that, since none of the three reasons have been validity in law, all of them are invalid and accordingly, reopening based on the same ought to be held as void. As regards the first two reasons at pages 5-30 and 53-76 of the Revenue PB, it was submitted that where reasons are typed on a plain paper, which is neither signed or dated or the same are signed as draft, the same cannot be regarded as ‘recording of satisfaction’ and the same is invalid. Accordingly, the first two reasons at pages 5-30 and 53-76, which are not signed or signed as a ‘draft’ are not valid reasons.

3.6 Prahalad Singh vs. ITO (ITA No. 3375/DEL/2O17) (pages 3-12 of LPB V): The relevant extract of the decision reads as under: “7. It can be seen from the above that this document is not signed by the AO. The Hon'ble Punjab and Haryana High Court in the case of Atlas Cycle Industries Ltd Vs. CIT reported at 180 ITR 0319 has held that: “the impugned reopening is bad in law for the reason that the reasons recorded is without any signature of the AO as is clear from the copy of reasons recorded supplied to the assessee in response to RTI application. In such a situation, present is a case where notice u/s 148 has been issued without recording reason

8. A similar view was taken by the Hon'ble Calcutta High Court in the case of B.K. Gooyee Vs. CIT [1966] 62 ITR 109 [Cal] wherein on identical facts, the Hon'ble High Court has held that :

“A notice under Section 22(2) of the Act which initiates the assessment proceeding requires a signature. Service of valid notice is pre condition to the jurisdiction of the ITO. Non signing of a notice does not come within the formula of an obvious clerical mistake. There cannot be any waiver by the assessee of an irregularity of an unsigned notice.”

9. The Hon'ble Madhya Pradesh High Court in the case of Umashankar Mishrareported in [1982] 136 ITR 330 has held that:

“Section 282 of the Act provides that a notice under the Act may be served on the person named therein as if it were a summons issued by a court under the Code of Civil Procedure, 1908. Sub- rule (3) of Rule 1 of order 5, CPC, provides that every summons shall be signed by the judge or such officer, as he appoints. In view of this provision, it must be held that the notice to show cause why penalty should not be levied issued by the ITO should have been signed by the ITO and the omission to do so invalidated the notice.”

10. The judgment of the Hon'ble High Court of Calcutta in the case of B.K. Gooyee [supra] was relied upon and the Hon'ble Madhya Pradesh High Court further held that:

“The provisions of section 292B of the Act intended to ensure that an inconsequential technicality does not defeat justice. But, the signing of a notice under Section 271(1)(a) of the Act is not merely an inconsequential technicality. It is a requirement of the provisions of Order 5, Rule 1(3) of the CPC, which are applicable by virtue of Section 282 of the Act. Under the circumstances, the provisions of Section 292B of the Act would not be attracted in the instant case and the Tribunal in our opinion, was not right in holding that the notice issued under Section 271(1)(a) of the Act was a valid notice in the eye of law.”

11. On the strength of these judgments of the Hon'ble High Courts, the reopening of assessment is quashed.” 3.7 The foregoing decision has been affirmed by Punjab and Haryana High court vide order dated 27.02.2020. (pages 13 and 14 of LPB -V) wherein it was held as under: “We find that the order of the Tribunal is correct. The mere fact that reasons exist on the file cannot sanctify them and the only way to ascertain whether the requirements under Section 147 of the Act have been met out would be at the very least that the assessing officer sign the same. Without signatures, the document becomes anonymous piece of paper to which no credence can be given. The action under Section 147 of the Act is quasi-judicial action and if it is permitted that such action can be done as anonymously, it would have very serious consequences in other cases also. If the Court accepts such pieces of paper who can tomorrow stop an assessee from substituting a signed paper with another unsigned paper? 6. Moreover the reasons are undated, hence do not establish that they were recorded prior to issuance of notice. 7. In the circumstances, the appeal is dismissed.” 3.8 ACIT vs. Kartik Patel (I.T.A. No. 1682/DEL/2016) (pages 15 to 59 of LPB -V): The relevant extract of the decision reads as under: “Besides, on the satisfaction note, both X1 & X2, the name of the searched company M/s Sheela Foam Pvt Ltd is noted on top, meaning thereby that the satisfaction was recorded in the case

of SFPL on 28.08.2013 when notice u/s. 153A was issued to SFPL, but there is no satisfaction recorded in the case of the appellants (Kartik Patel Group family members). In this view of the matter, and in terms of the AO’s reply that “the undersigned is unable to explain the unsigned/undated copies of satisfaction notes as claimed by the assessee”, the satisfaction enclosed with the AO’s letter F.No.DCIT/CC- 11/2013-14/1634 dt. 06.01.2014 sent to the assessee cannot be considered as valid satisfaction of the AO. We further note that since the AO has mentioned in his reply dt. 14.01.2016 that “The assessment records as available in this office were sent as desired by your goodself, it is necessary to mention that the assessment folders of all the five cases of the group was sent back to the AO on 06.01.2016 and the AO’s reply is dt. 14.01.2016. 3.9 Vijayalakshmi Oil Industries v. ITO [1985] (155 ITR 748)(Kar.) (Pages 60-62 of LPB-V): The relevant extract of the decision reads as under: “9. But, Sri Srinivasan strenuously contends that in a contemporaneous 'notes' recorded on the very same day, the ITO had found that he had received information as to a fact on driage under section 147(b) and, therefore, the notice issued by him under section 148 should be sustained as one really made under section 147(b) as was done by me in T.M. Kousali v. Sixth ITO [Writ Petition No. 4850 of 1978, etc., decided on 14/15-3-1984].

9. Sri Prasad contends that the 'notes' written by the ITO cannot be construed as recording his reasons under section 148(2) and cannot be relied on by this Court to sustain the notice issued by the ITO.

12. In Kousali’s case (supra) , on which strong reliance is placed by Sri Srinivasan, this Court sustained the notice on an examination of the very reasons recorded by the ITO in that case and not on any 'notes' prepared by the ITO. But, that is not the position in the present case. Hence, the true ratio in Kousa’s case (supra) does not bear on the point and assist Sri Srinivasan.

13. When once I hold that the 'notes' had to be excluded, it follows that there are no reasons recorded by the ITO to justify the reopening of the concluded assessment under section 147(b). From this it follows that the notice cannot be sustained either under section 147(a) or (b) and is liable to be quashed.”

3.10 B.K. Gooyee v. CIT (62 ITR 109) (Cal) (Pages 67-74 of LPB-V):

The relevant extract of the decision reads as under:

“It is now necessary to consider whether the legislature or the Rules made under the Act require that the notice under section 34(1) must not only be in writing but also bear the signature of the Income-tax Officer.....Therefore, in my opinion, on a consideration of the second part of section 63(1), read with Order 5, rules 1 and 10, the signature on a notice is not only necessary but an integral part of the notice.”

3.11 Mahendra C. Gala vs. ACIT (ITA No.6590/Mum/2013) (Pages 75-78 of LPB-V):

The relevant extract of the decision reads as under:

“Before us, Authorised Representative (AR) stated that the assessee was provided an unsigned and undated reasons, that the assessee had objected the re-opening, that the objections were not dealt by the AO, that FAA had not considered the factors relevant for deciding the appeal. He referred to page no.29 of the paper book. He relied upon the cases of German Remedies Ltd. (287 ITR 494), GKN Driveshaft (India) Ltd. (259 ITR 19). Departmental Representative (DR) supported the order of the FAA. ... ... We find that in the reasons supplied to the assessee, at the time of issuing unsigned reasons the AO had not mentioned anything as what was the basis of arriving at the conclusion of escapement of income, that also in the reasons recorded he had not mentioned that the escapement of income was due to failure of the assessee to disclose truly and fully the material facts, that the assessee had raised objection to re-open the matter, that the AO did not deal with the objections and passed the order, that the FAA called for report from the AO, that the reasons mentioned in the report and submitted to the FAA were different from the reasons supplied to the assessee, that the AO himself admitted that the assessee was supplied only gist and same was unsigned, that the AO had not annexed the statements of Guptas while submitting the report to the FAA- though he had mentioned that same are annexed, that the FAA ignored the basic issue raised by the assessee with regard to the jurisdiction. Considering the various factors-like supplying unsigned reasons, existence f two different sets of reasons for issuing 148 notice, not adjudicating objections raised by the assessee, reopening of assessment after a very long period, relying on the statements of third party that were not confronted to the assessee etc.- we are of the opinion, that the notice u/s.148 had been issued without the jurisdictional foundation u/s .147 being available to the AO and that the notice and the subsequent proceedings were without jurisdiction. Holding the assessment invalid, we reverse the order of the FAA. Effective ground of appeal is decided in favour of the assessee.”

3.12 Sri Pinnamaraju Venkatapathi Raju vs. JCIT (I.T.A. No. 132/Vizag/2016) (Vishakapatnam) (Pages 79-85 of LPB-V): The relevant extract of the decision reads as under:

“In the instant case, on verification of the assessment record, it is noticed that the A.O. typed the reasons but not signed the order sheet, thus there are no reasons recorded for reopening of assessment as required u/s 148 of the Act. The A.O. neither complied with the statutory requirement of recording the reasons for issue of notice nor complied with the law laid down by the Hon’ble Supreme Court in the case of reassessment proceedings. Therefore, the notice issued u/s 148 is bad in law accordingly same is quashed and the consequent assessment order made u/s 147 r.w.s. 143 (3) is annulled and the appeal of the assessee is allowed.” 3.13 Sri Sesha Sai Township P. Ltd. vs. ACIT (I.T.A.Nos.301 & 302 / Viz / 2015) (Vishakapatnam). (Pages 86-104 of LPB-V): The relevant extract of the decision reads as under: “17. We have heard both the parties and perused the material placed on record. From the perusal of the order sheet both for the A.Y. 2007-08 and 2008-09, it is evident that though the reasons for issue of notice u/s 153C was typed on plain paper, it was not signed by the officer who has recorded the satisfaction and it was also undated. Similarly, the direction for issue of notice u/s 153C was also remained unsigned and undated. The order sheet is a manually maintained record and not a digital document which does not require signature. An order or endorsement required to be dated and duly signed by the officer who is recording the reasons being satisfied that the case is fit case for taking action u/s 153C. An order, without having signature of the person, who recorded the satisfaction or issued the direction for taking action loses its relevance and to be treated as invalid. An order without signature is not an order for execution or for implementation. In the case of the assessee, there was no signature of the AO who recorded the reasons for issue notice and for direction for issue of notice u/s 153C. Therefore, it is to be construed that no reasons were recorded by the AO as required u/s 153C of the Act. As per section 153C it is mandatory on the part of the AO to record satisfaction for issue of notice u/s 153C.”

3.14 Without prejudice, if reasons are dated 9.1.2017 are the valid reasons, then the said reasons were not provided to the Appellant (as what was provided to the Appellant was reasons dated 10.1.2017) and therefore, reassessment proceedings are bad in law and without jurisdiction. In this regard, reliance is placed on the following decisions:

S.No. Case law/proposition Page No. 1 CIT v. IDBI Ltd. [2016] 76 1-4 of taxmann.com 227 (Bombay) LPB IV 2 CIT v. Videsh Sanchar Nigam 5 of LPB Ltd.[2012] 340 ITR 66 (Bombay) IV

3 PCIT v. Jagat Talkies Distributors 6-12 of [2017] 85 taxmann.com 189 LPB IV (Delhi)

3.15 As regards the third reason on pages 77-100 of the Revenue PB, it is submitted that the said reasons were recorded after seeking approval from the CIT(E) due to which even these reasons are invalid. It is submitted that the due process of law, as laid down in section 151 of the Act is as under:

“151. (1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.”

S.No. Case Law Page No. 1 PCIT v. Meenakshi Overseas (P) 108-117 of LPB-V Ltd (395 ITR 677)(Del) 2 CIT v. Shankardas B Pahajani 122-124 of LPB-V (93 taxmann.com 248)(Bom HC) 3 PCIT v. Shodiman Investments (P) 125-129 of LPB-V Ltd (93 taxmann.com 153)(Bom HC)

S.No. Case Law Page No. 1 Signature Hotels Pvt. Ltd. Vs. ITO 62-67 of LPB-I (338 ITR 51) (Del.) 2 Adani Ports and SEZ Ltd Vs. ACIT 68-71 of LPB-I (35 taxmann.com 338)(Guj.) 3 CIT Vs. S. Goyanka Lime & 72-73 of LPB-I Chemicals Ltd. (2015) 56 taxmann.com 390 (MP) 4 CIT Vs. S. Goyanka Lime & Chemical 74 of LPB-I Ltd. (2015) 64 taxmann.com 313 (SC) 5 Shri Tushar R. Jagtap vs. ACIT (ITA 75-98 of LPB-I Nos.725 to 728/PUN/2015)

Under the provisions of the Act, in a case where the Commissioner does not grant approval to the reasons recorded, it does not mean that the reasons itself disappear and that the belief which the AO had formed becomes non-existent. Where approval is not provided by the Commissioner, then the reopening would not take place, however, the action of the AO of recording the reasons would not efface or disappear as if it never existed. Accordingly, he submitted that in the present case, admittedly the AO has finalized his opinion and recorded the reasons only after obtaining the approval from the CIT(E), which vitiates the entire process and makes the reopening bad-in-law.

Counsel for the assessee submitted that the reasons recorded would necessarily require to be signed and unless the document is signed, the same is not reckoned as “recorded”. Here the grievance of the appellant is not that the reasons sent to the CIT (E) is not signed but that the reasons are not recorded by the AO before seeking approval, because the language of section 148 (2) clearly states that AO shall record his reasons and section 151 requires Commissioner’s sanction on the reasons so recorded.

Here, in this case, no reasons have been recorded by the AO on which CIT(E) has granted his approval. No cognizance can be taken of an unsigned document while according his approval. A draft unsigned reason is in fact as good as no reason at all.

Insofar as the contention of the Department that all the three reasons are one and the same in all respects and accordingly, it does not matter whether it was signed or not since ultimately the same was signed by the AO. In this regard, he submitted that whether or not the reasons remain same or not is irrelevant, because fact of the matter is that the AO did not form any belief that any income has escaped assessment before the CIT (E)’s approval, and the belief was formed and reason was recorded only subsequently.

He pointed out certain factual inaccuracy which, according to him, is incorrect which have been enumerated by him in the following paras:-

“3.36 The AO has recorded on page number 11 of the reasons for reopening dated January10, 2017 as follows: “In order to ascertain factual position certain inquiries were conducted, which included calling for information/records from the office of the DCIT, Circle 6, Lucknow. Information received from AO revealed that Young Indian received 9,02,16,898 ordinary shares of AJL which forms almost 99% of the total share capital of AJL. However, a perusal of the balance sheet for the relevant financial year i.e. for the year ending 31 st march 2011 revealed that M/s. YI has not shown 9.02 crore shares of AJL in the Balance sheet and investments were disclosed at Nil value in schedule 4.”

3.37 It is submitted that the above statement in the reasons is factually incorrect. The aforementioned information on the shares acquired along with the number of shares was duly reflected in Schedule 4 as also in Note 1 of Schedule 7 of the audited Balance Sheet of the Appellant for the year ended March 31, 2011 (Page 56 of the PB-I). The said Note read as under:

“In pursuit of its objects, the Company acquired loan of Rs. 90,21,68,980 by The Associated Journals Ltd. (“the said Company”), presently engaged in achieving a recast of its activities so as to have its main object congruent to the main object of the Company, for a consideration of Rs. 50 lacs. As a part of restructuring exercise of the said Company, the said loan was converted into 9,02,16,898 Ordinary shares of Rs. 10 each fully paid. Since said acquisition of treated as application on the objects of the Company (and accordingly, treated in the financial statements of the Company), the same has not been reflected as 26 AS investment in shares. Besides, even if the shares were to be treated as an asset (“investment”), having regard to the fact that the net worth of the said company is negative, recognizing the entire cost as “diminution in value” would result in an equivalent charge to the Income & Expenditure Account.”

3.38 As would be observed, notes to accounts in the financial statements of the Appellant for the year ended on March 31, 2011 gave complete details of the transaction of acquisition of a loan and conversion of same into equity shares, in respect of which the Ld. AO has sought to reopen the assessment of the Appellant. It is humbly submitted that there is no new information that the AO has come across for the purpose of reopening. The reasoning of the AO that the said transaction was revealed due to certain investigations/inquiries is misleading and erroneous. It is humbly submitted that if the foregoing note was not given in the financial statements of the Appellant, the said transaction may probably not have been picked up at all.

3.39 Therefore, the Appellant most humbly submits that there being no new tangible material before the AO to evidence the alleged escapement of income, re-opening is bad-in-law.

3.40 It is further submitted that even though the original assessment was made u/s. 143(1) of the Act, the law is now settled that even in such cases, the reopening cannot be done in absence of any new material. In this regard, reliance is placed on the following decisions:

3.41 Pr. CIT v. Tupperware India (P.) Ltd. [2016] (236 Taxman 494) (Pages 106-111 of LPB-I), wherein after discussing many judgments on this issue, it has been held that even in the case of original assessment order having been passed u/s. 143(1), it is mandatory for the AO to have in its possession, fresh tangible material before reopening of the case.

3.42 Similarly, in the case of CIT vs. Orient Craft Ltd. (354 ITR 536) (Del) (Pages 112 -120 of LPB-I), it was observed by Hon'ble Delhi High Court that since there was no new tangible material which came to possession of AO subsequent to issue of intimation, therefore, it was an arbitrary exercise of power conferred u/s. 147. Thus, reopening was held to be invalid on this ground itself.

Hence, it is clear that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon mere change of opinion.”

3.43 In view of the foregoing, the Appellant prays that the reopening of assessment is bad-in-law.

3.44 The Ld. DR has stated that the reopening was based on new material as the Appellant had failed to disclosed that the consideration paid by the Appellant was only Rs. 50 lakhs. In this regard, it is submitted that the said statement of the Ld. DR is factually incorrect as the Appellant had made full disclosure of this transaction in its return of income. In AY 2011-12, physical returns were filed and the Appellant along with the return has filed even its financial statements, and Note 1 to the financial statements give complete detail of the transaction in question. (Please see pages 30 to 56 of the PB-1). As would be observed at Page 56, in Note 1, it is clearly mentioned that the loan/shares were acquired for a consideration of Rs. 50 lakhs. Further, at page 54, Schedule 4, the investment in shares of AJL is disclosed at Nil. Further, at page 53, Rs.50 lakhs has been shown as expenditure towards Youth Commitment to ideal of democratic and secular society. Further, the loan of Rs. 1 crore taken by the Appellant is also disclosed at page 54. Accordingly, it is submitted that the entire transaction was disclosed by the Appellant and accordingly, in absence of any new material, the reopening done by the AO is bad in law.”

“3.47 With respect to the alleged benefit from acquisition of loan given to AJL. • It is stated that the financial statements of the Appellant for FY 2010-11, did not disclose the shares of AJL acquired by the Appellant (Page 172 of the PB-II). The said statement gives false information since as stated earlier, the entire transaction of acquisition was disclosed in the notes to accounts of the financials of the Appellant for the said year. (Please see page 56 of the PB).

./2019 • It is stated in the reasons that, business of publication of newspaper of AJL was closed w.e.f. 02.04.2008.” (Page 178 of the PB-I). The statement that the business ceased to exist is completely false and untrue. The newspaper publication business of AJL was only temporarily suspended and in fact, in the last couple of years, the said business had revived. The Appellant has provided the copies of the masthead of the newspapers recently published by it at pages 757-793 of the PB– II. • It is stated at several places that AJL is a real estate company. (For instance at Page 176, 178, 182, 13 of PB I). This is a wrong statement. In view of the fact that the news paper business was under suspension, AJL had to survive and meet its expenses. This was being done by way of renting out and commercially exploiting its real estate assets, being its assets that have been used for publishing business for several decades. Moreover, this is a widely accepted normal business practice amongst newspaper companies. Such renting does not make AJL a “real estate company” as sought to be depicted by the ld. AO. 3.48 With respect to loan taken from Dotex: • It is stated in the reasons that, M/s. Young Indian made a provision for payment of interest of Rs.1,72,603/- on this loan in its Balance Sheet for the year ending on 31.03.2011. Apparently, no TDS has been applied on such payment. (Page 174 of the PB - I)

This statement is factually incorrect. YI has duly deducted tax from the amount of interest. (Please see pages 250-252of the PB - I) • It is further stated that, “A perusal of the Return of Young Indian filed with ROC for F.Y. 2013-14 shows unsecured loan of Rs. 1 crore M/s. Dotex Merchandise Pvt. Ltd. is standing as it is and has not been repaid.” (Page 174 of the PB- II)

This statement is also a half truth. The loan has been repaid in FY 2015-16, well before the date of the impugned Assessment Order. This is evident from the balance sheet of the company for the year ended March 31, 2016, which was part of the assessing officer’s records when the reasons for reopening were recorded. (please see page 154 of PB-I for the Balance Sheet of YI as on March 31, 2016). • It is also stated that, “as per Note 6 of the Balance Sheet of Young Indian for the year ending on 31.03.2014, even provision for interest to be paid on unsecured loan has not been made for F.Y. 2013-14.” (Page 174 of the PB - II).

This statement is incorrect as it can be seen from Note 12 that interest is duly accrued during the year. (Please see page 146 of PB-I). The AO has referred to the wrong Note which refers to ‘interest accrued but not due’ instead of considering Note 12 which provides the details on interest expense incurred during the year.”

In support, he relied upon the following decisions :-

(i) Hon’ble Madhya Pradesh High Court in CIT vs. Man Mohan Das (218 ITR 730) (pages126-127 of LPB-I) (ii) Bhupindra Food and Malt Industries vs. CIT (229 ITR 496)(HP) (pages 128-129 of LPB-I), (iii) Hon’ble Delhi High Court in Shipra Srivastava v. ACIT (184 Taxman 210) (pages 121-125 of LPB-I),

“3.53 REOPENING UNDER SECTION 147 OF THE ACT CANNOT BE MADE FOR ROVING ENQUIRIES: 3.54 The Appellant humbly submits that in the garb of the reassessment proceedings, the AO has made roving enquiries in respect of its affairs. Attention is invited to the following judicial pronouncements to showcase that roving enquiry cannot be made under section 147: • The Hon’ble Delhi High Court in the case of Le Passage to India Tours & Travels (P.) Ltd. vs. Additional Commissioner of income-tax (232 Taxmann 277) (pages 130-133 of LPB-I) held that an assessment cannot be merely reopened to verify genuineness of expenses as that would amount to an impermissible fishing or roving enquiry without any tangible material to show escapement of income. • The Punjab and Haryana High Court, in Vipan Khanna v. CIT (122 TAXMAN 1) (pages 134-140 of LPB-I) has held that letter issued by Assessing Officer calling for information on several other points tantamounted to making fishing enquiries on concluded matters, which was not permissible under law.

./2019 • Similar view has been held by the Delhi High Court in Shipra Srivastava v. ACIT (supra) and Madhya Pradesh High Court in Arjun Singh V. ADIT (246 ITR 363)(MP) (Pages 141-169 of LPB- I). 3.55 REOPENING MERELY BASED ON AN INVESTIGATION REPORT IS BAD IN LAW: 3.56 From the perusal of reasons recorded, it is clear that the AO has merely referred to various findings from an investigation report to form a belief that income has escaped assessment. Further, the copy of said reports have not been provided to us. The Appellants requests that the same be made available to us. 3.57 In this regard, reliance is placed on the following decisions wherein it is held that reopening merely on information received from the investigation wing or other sources is invalid. • The Hon’ble Delhi High Court in the case of Sarthak Securities Pvt. Ltd. Vs. ITO (329 ITR 110) (Del.) (Pages 170-177 of LPB-I) has held that reopening is invalid in case where the AO has relied only on the information received from investigation wing or other sources and did not independently apply his mind to that information. • Further, in the case of Signature Hotels Pvt. Ltd. Vs. ITO (338 ITR 51) (Del.) (Pages 62-67 of LPB-I), the Hon’ble Delhi High Court quashed the reopening of assessment on the ground that AO did not independently apply his mind to the information received from the Director of Income Tax (Inv.). ./2019 • The decision of Sarthak Securities & Signature Hotels (supra) has been followed in the case of Unique Metal Industries Vs. ITO (ITA No. 1372/Del/2015) (Del.) (Pages 178-215 of LPB-I) where the Hon’ble Delhi Tribunal has held that reopening of the assessment only on the basis of information without independent application of mind is invalid and liable to be quashed. • Therefore, in view of the above judicial pronouncements, the reopening of assessment is bad in law and deserve to be annulled.

3.58 In view of the foregoing grounds, the Appellant humbly prays that the reassessment conducted by the AO was bad in law and accordingly the assessment order passed under section 147 of the Act ought to be held as void ab initio.”

Arguments on behalf of Revenue

“In this case the four years but not more than six years have lapsed from the end of the assessment year under consideration and income chargeable to tax which has escaped assessment is more than Rs.1 lakh necessary sanction to issue notice u/s 148 of the Act has been obtained from the Commissioner of Income

Tax (Exemption), Delhi vide letter on F. No. _____________ under amended provisions of section 151 of the Act w.e.f. 01.06.2015."

40. It was further submitted by him that the A.O. was careful enough to sign these reasons as a draft. However, these were draft only to the extent that a certain paragraph was added with necessary space left blank to incorporate the factum of approval.

If the approval did not come for any reason, the entire exercise of recording the reasons would obviously be dropped. However, if the competent authority approved the proposal for reopening, the letter number and date of the sanction order would then be incorporated in the reasons and then the final reasons would be signed for being communicated to the Appellant.

41. He stated that the reasons were communicated by the A.O. together with the notice under Section 148 as a matter of abundant caution. In this factual backdrop, it is strange for the Appellant to raise such arguments as to suggest that there were three reasons or that these reasons were tentative and the final reason was signed without any sanction under Section 151 of the Act, etc.

Therefore, it is not correct to challenge the notice on the ground that it lacks the signature of the A.O. There is no need to discuss individual cases which deal with different factual situation.

Therefore, the submission of the Appellant that the sanction was given in a mechanical manner is wholly untenable.

DECISION ON VALIDITY OF REOPENING U/S 147/148 AS RAISED IN GROUND NO.2

49. In the paper book filed by the Revenue, we find that there is a letter dated 09.01.2017 written by ACIT (E), Circle 1(1), New Delhi to CIT (E) sending proposal for reopening u/s 147 wherein he has enclosed the prescribed proforma for initiating the proceedings u/s 147/148 along with reasons running into 24 pages. The last paragraph of the said reasons mentioned as under :-

“In this case the four years but not more than six years have elapsed from the end of the assessment year under consideration and income chargeable to tax which has escaped assessment is more than Rs.1 lakh necessary sanction to issue notice u/s 148 of the Act has been obtained from the Commissioner of Income Tax (Exemption), Delhi vide letter on F.No.____________ under amended provisions of section 151 of the Act w.e.f. 01.06.2015.

(Saket Singh) Asstt. Commissioner of Income Tax Circle 1 (1), Exemptions, New Delhi.”

ITA No.1251/Del./2019

51. Thereafter, the copy of reasons which were given to the appellant/assessee, scanned copy of last page of the reasons is as under :-

Now from the perusal of the reasons annexed while seeking approval from the CIT (E), we find that the AO (ACIT, Circle 1(1), Delhi) as incorporated above, has appended his signature and put the date 09.01.2017 and has mentioned as ‘draft’. It has not been disputed by the appellant that the reasons which were sent for approval to the CIT (E) and the reasons which were supplied to the assessee are different, albeit they are verbatim the same except for mentioning of sanction letter number. The contention of the ld. Senior Counsel for the assessee before us is that, since AO while seeking approval of JCIT and CIT (E) has mentioned it as a ‘draft’ (which is also evident from scanned copy incorporated above), therefore, in his opinion, it is unsigned and tentative reasons and, therefore, it is not a reasons recorded at all in the eyes of law because only duly signed reasons recorded can be sent for approval.

He has clearly put his signature with the date which shows that the reasons were recorded on 09.01.2017. Mentioning of the word ‘draft’ does not lead to inference that it is either unsigned or it is tentative. It is a draft sent to JCIT and CIT (E) for their approval which higher authorities have duly given on being satisfied with the reasons recorded by the AO.

57. The next line of argument of the ld. Sr. Counsel for the assessee is that, approval has been given by the ld. CIT (E) in a mechanical manner. Again, what is required under the law is that JCIT or CIT or any other authorities mentioned in section 151 has to be satisfied on the ‘reasons recorded’ by the AO that it is a fit case for issuance of notice u/s 148. The satisfaction of the CIT depends upon whether the reasons recorded are in accordance with law and AO had any reason to believe that any income chargeable to tax has escaped assessment. If the reason recorded itself has no substratum to stand on its own, i.e., not in accordance with law or on based on some incorrect facts and dehors the material on which reason to believe has been entertained, and then if the ld. JCIT or ld. CIT have merely granted approval without having considering the reasons, facts and information contained in the reasons, then it can be said that approval has been granted in a very mechanical manner.

Here in this case, not only the JCIT but also the CIT (E) have recorded their approval in a very detailed manner. The approval /

ITA No.1251/Del./2019 satisfaction of the ld. CIT (E) for the sake of ready reference is reproduced as under: -

“ I have carefully examined the proposal of the Assessing Officer (AO), and the reasons recorded by the Assessing Officer for initiating action u/s 147 of the Income Tax Act,1961 in the case of Young Indian for the A.Y.2011-12 and recommendation of JCIT. It is seen that Young Indian (YI) purchased an interest free loan of Rs. 90 Crores (approx.) from Indian National Congress/ All India Congress Committee (AICC) alleged to have been given to MIs Associated Journal Limited by making payment of only Rs. 50 lakh to the AICC, in contravention to its objects. YI was founded in the month of Nov. 2010, just 23 days prior to assignment of the above loan, with a nominal capital of Rs. 5 Lakh. The Young Indian did not even have any funds of its own for purchase of alleged loan of Rs. 90 Crore of the AICC YI took an interest bearing loan of Rs 100 Crore from M/s Dotex Merchandise Private Limited of Kolkata. A survey u/s 133A of the I. T. Act, conducted on M/s Dotex Merchandise Pvt. Ltd. revealed that M/s Dotex Merchandise Pvt. Limited was engaged in providing accommodation entries. Subsequent enquiries made in respect of loan transaction between YI and M/s Dotex Merchandise Pvt. Ltd. reinforces this finding. It has been revealed that the loan of Rs. 1 crore was given to MIs Young Indian, a newly incorporated company with a small capital base of only Rs. 5 lakh without any guarantee. M/s. Young Indian made a provision for payment of interest of Rs. 1,72,603 on this loan in its Balance sheet for the year

ITA No.1251/Del./2019 ending on 31.03.2011. Apparently no TDS has been applied on such payment. Perusal of Return of Young Indian filed with ROC for F.Y. 2013-14 shows unsecured 10C'ln of Rs. 1 crore M/s Dotex Merchandise Pvt. Ltd. is standing as it is and it has not been repaid. As per Balance sheet of Young Indian for the year ending on 31.03.2014, even provision for interest to be paid on unsecured loan has not been made for the F.Y.2013-14. All the facts mentioned above and in the note of the Assessing Officer shows unsecured loan of Rs. 1 cr. an accommodation entry which has neither been repaid nor any interest paid on it. No prudent businessman will give the loan to any unrelated party without expecting any return of such investment. Immediately after the assignment of loan by the AICC to the Young Indian, on 16.12.2010, the said loan was converted into equity by the AJL, on 26.02.2011, resulting in holding of 99% of the total issued capital of the AJL by Young Indian. AJL allotted the shares to Young Indian 'in lieu of recently purchased asset i.e., Rs. 90 Crore (purchased for a sum of Rs. 50 Lakhs} which has resulted in takeover of assets of the AJL, fair market value which would need to be ascertained. AO has formed his belief that income amounting to Rs. 1 crore on account of unexplained cash credits and other income in the nature of benefit or perquisite, whether convertible in to money or not, arising from the business or exercise of a profession, on account of allotment of Shares of Associated Journal Limited, valuation of which is to be made, has escaped assessment in the hands of Young Indian.

I am satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of notice u/s 148. Sd/- (RAMESHWAR SINGH) Commissioner of Income Tax (Exemptions) New Delhi. 10.1.2017”

58. After considering the aforesaid satisfaction of the CIT (E) accompanied with the detailed reasons recorded by the AO as incorporated (supra), it cannot be held prima facie that there was no application of mind or that the approval has been given in a mechanical manner. Ld. CIT (E) has given his detailed reasons as to why he was satisfied with the proposal of the AO. Accordingly, the contention raised by the ld. Sr. Counsel is rejected. The judgments which have been relied upon by him clearly not applicable on the facts of the present case and, therefore, we do not find it imperative to discuss these case laws.

60. What is required to test the ‘reasons recorded’ by the Assessing Officer, which is the foundation for acquiring jurisdiction of reopening the case are that; firstly, was there any tangible material coming on record; and secondly, whether there was any prima facie ‘reason to believe’ that income chargeable to tax has escaped assessment. Here in this case, the AO in his ‘reasons recorded’ has given the entire chain of events and also gave details of information received through Tax Evasion Petition and then information received by Director of Investigation after detailed enquiry conducted by the Investigation Wing; Secondly, he has given sequence of events as to how the appellant company was formed and the manner in which the entire shares of AJL was acquired for a paltry sum of Rs.50,00,000/- by assigning of loan of Rs.90.21 crores by AICC to appellant company. He has also noted about the non-cooperation of the assessee and the other parties during the enquiry conducted by the Investigation Wing and also the summary of findings given by the Director of Investigation. Thereafter, he has applied his own mind and analysed the entire material coming before him to come to his prima facie reason to believe.

61. Another objection which has been raised by the appellant before us is that there are certain erroneous observations in the reasons recorded with regard to alleged benefit from acquisition of loan given to AJL in respect of loan taken from Dotex wherein it has been stated that in the financial statement, AO has mentioned that in the financial statements for FY 2010-11, the appellant did not disclose the shares of AJL which was incorrect because entire transaction was noted in the notes to accounts and secondly, the observation that business of publication of newspaper of AJL was closed w.e.f. 02.04.2008 which fact is not correct as it is temporarily suspended. Insofar as this objection of the appellant is concerned, even though it has been mentioned in the financial statement that the appellant company has been allotted shares of AJL, however nowhere entire factum of acquisition of shares and the manner in which the whole transaction was undertaken has not been mentioned. Merely describing description of shares does not lead to inference that the manner in which these shares were acquired was also beyond doubt. The reasons to believe of the AO were based on various circumstances in which transaction was undertaken and he has also described various steps to which entire process has undergone for acquiring shares. Thus, it cannot be said that there is completely false assumption of facts by the AO.

62. Insofar as whether publication of newspaper of AJL was closed w.e.f. 02.04.2008 or was temporarily suspended, is a matter of inferences which can be drawn from the facts and material on record. Here it is a matter of fact that, neither at the time of seeking registration not it has been found subsequently till the cancellation of registration by the CIT (E) in the year 2017, the publication business of AJL even had started. Whether it was a temporary suspension or publication of the newspaper was closed w.e.f. 02.04.2008, it is not a primary factor to quash the reasons recorded by the AO, because the fact of the matter was that there was no publication of newspaper for a substantial long time at least till the time of recording of the reasons. Though assessee had tried to demonstrate that certain process was initiated indicating to revive the publication business but there was no substantial restarting of publication of newspaper. Thus, it cannot be held that AO has recorded any wrong finding of fact in the reasons recorded.

63. Insofar as the loan taken from the Dotex, it has been pointed out that AO in his reason recorded that Young Indian have made a provision for payment of interest of Rs.1,72,603/- on this loan in its balance sheet for the year ending 31.03.2011 and no TDS has been deducted on such payment. This fact was stated that it is factually incorrect as Young Indian has duly deducted tax on this amount. Second fact mentioned in the reasons recorded that from the perusal of return of Young Indian filed with ROC for FY 2013-14, it shows that unsecured loan of Rs.1 crore from Dotex is pending and has not been repaid which, according to the appellant, is not fully correct as the same was repaid in AY 2016-17. Here again, we do not find any wrong assumption of fact by the AO, because provisions were made for the interest and TDS may have been deducted but those informations have not been mentioned and not brought on record that TDS deducted was actually paid on the due date. Otherwise also, the main reason to believe in respect of loan taken from Dotex was that based on certain information and material that the loan taken from Dotex itself was a doubtful credit entry based on certain survey operation carried out in the case of Dotex earlier. The AO has given elaborate reasons about the loan from the Dotex in the reasons to believe. Even if one fact that AO has observed that no TDS has been deduced that does not mean that entire limb of entertaining reasons to believe doubting the genuineness of the loan gets vitiated. Further, AO in the reasons recorded have noted that loan was to be repaid within one year and till FY 2013-14, the unsecured loan had not been repaid. It may have been repaid in subsequent year but that does not mean that the AO has recorded the wrong fact on perusal of the return filed with ROC for FY 2013-14, because in FY 2013-14 the loan was actually not repaid.

65. We have also perused the annual report of the company and the information which was sought u/s 133 (6) of the parties to the transaction and also about the loan taken from Dotex which are as per the certificate and enquiry conducted on the said company, it was found that earlier it was involved in providing hawala entries. Whether this information can lead to any conclusive finding or not is not relevant but what is required at the time of recording the reasons and entertaining reasons to believe is, whether prima facie based on such information or material coming on record, AO had bonafide reasons to believe that income chargeable to tax has escaped assessment. At the time of recording the reasons, AO does not have to prove the escapement of income only his prima facie reason to believe.

From a bare perusal of AO’s detailed reasons running into 24 pages, there is sufficient material to hold that AO had prima facie reasons to believe especially, the manner in which appellant has taken over the properties of AJL through whatever scheme and how the entity AICC, AJL and Young Indian had common control or management to device such alleged scheme and how the assessee has got benefit by getting the entire shareholding and underlying assets of AJL by merely paying paltry sum of Rs.50,00,000/-. This itself shows strong prima facie reasons to believe for any prudent person that there is definitely escapement of income. It is not a case that it was merely a pretext taken by the Assessing Officer for making roving and fishing enquiry without any basis or material on record. AO has duly applied his mind after incorporating various material and information coming on record and after independently examining the same, he has recorded the reasons. We do not find any infirmity or illegality either in the recording of the reasons or assuming jurisdiction or reopening the case u/s 147 or issuance of notice u/s 148. Thus, we do not find any substantial merit in the contention raised by the appellant before us nor do any of the judgments cited and relied upon before us have any application on the present facts. We reiterate that the AO has to have only prima facie reasons to believe based on tangible material or information which, here in this case, there was sufficient material to entertain reasons to believe that entire transaction right from the incorporation of the appellant company till acquiring of 99.999% of shares of AJL and getting control of huge assets of AJL merely for a sum of Rs.50,00,000/-. At least, this factum itself is sufficient to clothe the AO in entertaining reasons to believe and acquiring the jurisdiction u/s 148. We further notice that very recently, Hon’ble Supreme Court in the case of DCIT (Central Circle) Vs M/s M R Shah Logistics Pvt Ltd order dtd 28th March 2022, held that reopening of the assessment u/s 147 is valid if there is tangible material for the same and the sufficiency of such material cannot be subject to judicial review. Accordingly, ground no.2 raised by the appellant is dismissed.

GROUNDS NO.3 & 4

66. In Ground No.3 appellant has challenged that the assessment order passed is in violation of principles of natural justice; and in ground no.4, the appellant has objected for non- admission of additional evidences filed by the appellant before the ld. CIT (A) and admission of additional evidences filed before this Tribunal.

“4.3 Reliance on Tax Evasion Petition, Suspicious Transaction Report and Survey/inspections reports without providing the copy of the same to the Appellant thereby denying the opportunity to the Appellant to rebut the same.

4.3.1 In the assessment order, the AO has relied on the following documents as the basis for various allegations made by him, without providing the same to the Appellant for its explanation hence, denying proper opportunity:

ITA No.1251/Del./2019 o Tax Evasion Petition (Para 6 of the order) o Report received from investigation wing of Income Tax Department (Para 6 of the order) o Survey report u/s. 133A of Act of M/s Dotex Merchandise Pvt. Ltd. (Para 6 of the order) o Suspicious Transaction Report (STR) vide reference No. 1000040468 of the Financial Intelligence Unit (FIU), Department of Revenue, Ministry of Finance, (Para 8.6 of the order). 4.4 In respect of Dotex loan: 4.4.1 Statements/allegations/inferences made by the AO in the assessment order for which no show cause notice has been issued and which were made for the first time directly in the assessment order: Reference Statements/allegations/ Remarks of order inferences made in the order Page 31 Certain diagrammes are Related document was and 32 relied upon for showing never shared with YI to Dotex as one of the hawala provide its companies submission. Further, no show-cause notice was issued mentioning this fact. Para 20.1 Various inferences have Said inferences were not Para 20.2 been drawn with respect to put to YI for explanation. the documents submitted by In the final show cause YI during reassessment notice, only allegation is proceedings in relation to that only confirmation Dotex. has been filed and that ITA No.1251/Del./2019 in the confirmation filed, name and address of the person issuing it is not mentioned. (page 367 of PB). All other allegations mentioned in these paras of the order was never put before YI. Para 8.11 During the course of The AO has made the assessment proceedings the said observation without assessee had only filed a considering copy of confirmation of loan Appellant’s submission by M/s.Dotex Merchandise dated June 7, 2017 (Pg Pvt. Ltd. along with a claim 244-253), June 13, 2017 that loan was (Pg 254-278), August 9, taken through banking 2017 (Pg 340 – 351) and channel and it was claimed December 15, 2017 (Pg that these evidences were 370-378), wherein the sufficient to discharge its Appellant had submitted onus u/s 68 of the Act. various documents like loan agreement, TDS statements, bank statement, ledger, etc.

4.4.2 Statements/allegations/inferences made in the assessment order for which no show cause notice has been issued or no/improper opportunity has been provided: Reference Statements/allegations/ Remarks of order inferences made in the order Para 6, M/s. Dotex Merchandise Pvt. These are loose 7.4, 8.10, Ltd., Kolkata was statements and no proof

ITA No.1251/Del./2019

18 incorporated by persons has been given engaged in providing by AO to support this. accommodation entries. Survey report not has been shared with YI. A survey u/s 133A of the I.T. Further, even the show Act was conducted on M/s. cause notice does not Dotex Merchandise Pvt. Ltd. specifically During survey, it was found mention this aspect. that M/s. Dotex Merchandise Pvt. Limited was original incorporated by persons engaged in providing accommodation entries.

Para 6.2 The Financial Intelligence The FIU report was not (page 9), Unit (FIU), Department of shared with YI. Further, Para 8.6, Revenue, Ministry of no show Para 10 Finance, had reported loan cause notice was issued (page 43), transactions of Rs. 1 crore mentioning this fact. Para 11 between assessee and M/s (page 45) Dotex Merchandise (P) Ltd as Suspicious Transaction Report (STR) vide reference No. 1000040468. Para 8.10 M/s. Young Indian had Details provided during (Pg 32), claimed taking loan of Rs.1 reassessment clearly 20.1 (Pg crore from M/s. Dotex on show that loan was 89) 15.02.2011 which has not repaid much earlier. Also been returned back till interest is being paid investigation against the regularly after deducting assessee on this issue was TDS. After details called

ITA No.1251/Del./2019 completed and no interest for were provided, no was paid on such loan till show cause notice was investigation had reached issued alleging these finality. facts, which could have been easily explained Para 8.10 M/s. Young Indian made a from the details already (Pg 32) provision for payment of interest of Rs. 1,72,603 (less filed. than agreed interest rate of 14% per annum) on this loan in its Balance Sheet for the year ending on 31.03.2011. No TDS has been made on such alleged payment during year under consideration. Perusal of Return of Young Indian filed with ROC for F.Y. 2013-14 has showed unsecured loan of Rs. 1 crore from M/s Dotex Merchandise Pvt. Ltd. was standing as it was not repaid. Non-return of alleged loan within stipulated period of one year and non- payment of interest @ 14% per annum were in contravention to the terms and conditions of the alleged loan. However, surprisingly, even after violation of terms and conditions of the agreement, no action was ITA No.1251/Del./2019 taken by the lender. In reality, the alleged loan of Rs. 1 crore was interest free loan till investigation started by the Income Tax Department in the year 2012. The paltry sum of TDS was made following enquiry by the Income Tax Department.

Para 8.10 No reasonable explanation In the reply dated June (Page 33) for not demanding return of 7, 2017 (Page 244 of PB the loan of Rs. 1 crore by I) the Appellant has Dotex and non-returning of mentioned that the loan the loan by YI within was renewed from time stipulated period of one year to time and was repaid has comeforth. on April 24, 2015. After his submission, the AO has not asked for any question during reassessment regarding the extension of loan. Para 8.10 Copies of bank A/c of There is no specific (Page 33) companies controlled by reference to bank above referred assessee had account of Dotex in proved that these companies the assessment order. were engaged in business of Inference has been accommodation entries drawn by the AO from a typically contains deposits of general statement. No cash and issue of cheque of finding has been given

ITA No.1251/Del./2019 equivalent amount. for Dotex specifically and no show cause notice was issued by reference to any document in respect of such statements

4.5 In respect of allegation Rs. 90.21 crore loan was a paper entry: 4.5.1 Statements/allegations/inferences made in the assessment order for which no show cause notice has been issued or no/improper opportunity has been provided:

Reference Statements/allegations/ Remarks of order inferences made in the order Para 8.2, In absence of any evidence Elaborate discussion has para 15.1 that the AICC had actually been made in the order to 15.9 advanced loan of Rs. 90.21 on why loan was bogus crore to the AJL and keeping at para 15.1 to 15.9. No in view the fact that questionnaire has been quantum of the loan was issued to show cause tailor made to allot 99% that this loan is not a shares of the AJL to the paper entry. In the final assessee, I am of considered show-cause notice, the view that alleged loan of Rs. Appellant has not been 90.21 crore was not actually asked to explain the a loan but was only a paper reconciliation of the entry and an artificially amount with the books of inserted step as part of a AJL or show-cause that ITA No.1251/Del./2019 scheme of takeover of the due to said reason it AJL by the assessee for a should not be treated as song i.e. without making any paper entry. Similarly, payment. Notice dated 21.3.2017 does not specifically Para 8.2 Another dimension of this raise this query. Hence, entry of unproven loan relate to a question whether a YI had no opportunity to political party could even provide its explanation. advance interest free loan to Pointed question on AO’s a real estate company under inference that AJL books did not show the loan its stated object may be was never raised examined separately in the through any show cause case of INC by concerned authority notice. Para 8.9 Reference made to letter of No show cause notice for (page 28) AICC to AJL which has not explaining this. been acknowledged by AJL

4.6 In respect of conclusion that the entire transaction was fraudulent transaction: 4.6.1 Statements/allegations/inferences made in the assessment order for which no show cause notice has been issued and which were made for the first time directly in the assessment order:

Reference Statements/allegations/ Remarks of order inferences made in the order Page 35, Allegation that provisions of No such allegation made para 9(8) section 81(1A) r.w.s. 67 of in any show cause companies act not complied notice

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Para 8.7, It was also mentioned in the This is a wrong page 27-28 notes to account that the statement. Details were of the order main object of the AJL was submitted vide in process of recasting so as submission dated to match to the object of the 21/6/17 (Page 279 – assessee company. The 287 of PB) from which it issue whether the object of is clear that the objects the AJL which was engaged of AJL were recasted to in the real estate business match with the was actually recasted to Appellant in September match the object of the 2011 itself. assessee company has also been examined and it was found that the object of the AJL was never recasted to match with the object of the assessee during, AY 2011- 12 to 2016- 17.

4.6.2 Statements/allegations/inferences made in the assessment order for which no show cause notice has been issued or no/improper opportunity has been provided:

Reference Statements/allegations/ Remarks of order inferences made in the order Page 37 In order to achieve the object No such allegation made para 9(13) of taking over nearly 100 in any show cause percent shares of the AJL notice. (more than 99% of Assessment order refers shareholding) by the to certain shareholding

ITA No.1251/Del./2019 assessee, its directors, statements for arriving namely Shri Rahul Gandhi at this conclusion. The and Mrs. Priyanka Gandhi same was not presented Vadhera also purchased to the Appellant for its additional 47,513 and explanation. Further, 2,62,411 this statement is shares of the AJL through factually wrong since no Rattan Deep Trust and additional shares were Janhit Nidhi Trust subscribed by the these respectively trusts. AJL has always been a public company, with more than 1000 shareholders. The sample list of shareholders has been attached by AO as Exhibit 11 and 12 at pages 38 and 39 of the assessment order. The two main shareholders of AJL were Janhit Nidhi Trust (28.16%) and Rattan deep Trust (5.10%) held these shares since 1950s/70s. Further, these two trusts are public charitable trusts. Janhit Nidhi Trust was established in 1950s. Various

ITA No.1251/Del./2019 prestigious persons have been Trustees of the this trust from time to time. Janhit Nidhi Trust acquired 262411 (28.16%) prior to 1978 i.e. before PGV became trustee of the said trust. Though PGV was trustee in FY 2010-11 and FY 2011-12 along with Rameshwar Thakur, she resigned from said trusts as a trustee of this Trust in November 2013. Ratan Deep Trust is a public trust that was established in 1970s. Various prestigious persons have been Trustees of this trust from time to time. Ratan Deep Trust acquired 47513 (5.10%) during the period 1977 to 1978 i.e. before RG became trustee of the said trust. Though RG was trustee in FY 2010- 11 and FY 2011-12

ITA No.1251/Del./2019 along with Rameshwar Thakur, he resigned from said trusts as a trustee of this Trust in November 2013. Para 8.4, It is alleged that loan of Rs. No show cause notice 8.5 90.21 crores was assigned issued as to why loan for mere Rs. 50 crores even was assigned for mere though AJL could repay the Rs. 50 lacs same for various stated reasons. Para 8.9 However, perusal of the No show cause notice page 30 of Balance Sheet of the issued for this the order, assessee for the relevant allegation. Page 37 Financial Year i.e. for the para9(10) year ending 31 st March 2011 has revealed that the assessee had not disclosed value of 9.021 crore shares of the AJL in the Balance Sheet and investments were disclosed at NIL value in Schedule 4 (Refer Exhibit 23). However, the transaction was also incorrectly recorded in the P&L A/c of the assessee as expenditure on the object of the company (Refer Exhibit 4). Para 16, Reference has been made No show cause notice

ITA No.1251/Del./2019 page 71 of that YI has started enjoying provides any the order. using property of AJL since opportunity to explain its registered office is at this aspect. Herald House

4.7 In respect of valuation of FMV of AJL properties: 4.7.1 Statements/allegations/inferences made in the assessment order for which no show cause notice has been issued and which were made for the first time directly in the assessment order :

Reference Statements/allegations/ Remarks of order inferences made in the order Para 12.5 Total FMV of AJL properties In the final show cause determined at Rs. 413.40 notice, the FMV was crores directly in the order. stated to be Rs.359.56 crores and not Rs.413.40 crores. No show cause notice for this increase in FMV has been provided and the same is coming out directly from assessment order. Para The AO has increased the As regards valuation of 12.10 value of Mumbai Property Mumbai Property, the AO from Rs. 79.10 crores as had ignored DVOs determined during valuation and increased assessment to Rs.132.94 the value of the crores property from approx. Rs.

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30 crores to Rs. 79.10 crores. YI challenged said valuation by the AO vide submission dated 27.11.2017. However, the AO further increased the value of said property from Rs.79.10 crores to Rs. 132.94 crores directly in the assessment order, without even providing any opportunity to YI to provide its submission in respect thereof.

Para It is evident from the DVO report also states 12.17 valuation report that the that ‘unauthorized DVO has rejected the claim encroachment appears to on the ground that there was have taken place in no evidence of the plot...’ Page 416 of PB encroachment. During the course of assessment proceedings, the assessee did not file any evidence in support of the objection. Para The Appellant had brought The responses of DVO 12.12, out errors and was never provided to YI. 12.13, inconsistencies in the report YI came to know about 12.15 of the DVO. The objections these responses directly were raised before the from assessment order

Appellant vide various letters. The AO directly dealt with these objections in the assessment order.

(i) Suraj Mall Mohta and Co. v. A.V. Visvanatha Sastri [1954] 26 ITR 1 (SC) (ii) Dhakeshwari Cotton Mills v. CIT [1954](26 ITR 775)(SC) (iii) Gargi Din Jwala Prasad v. CIT [1974] 96 ITR 97 (Allahabad) (iv) Additional ITO v. Ponkunnam Traders [1976] 102 ITR 366 (Kerala)

The other entry shows that dates and replies were filed before the Hon’ble High Court and they do not constitute the particulars provided to the assessee in person. Only one questionnaire dated 21.03.2017 was issued by the AO to which appellant had replied in full, however AO has made various incorrect inferences from the replies so filed without putting so inference to the appellant for his clarification. For instances, appellant provided all the documents and details of loan taken from Dotex in response to questionnaire dated 21.03.2017, however AO has made various incorrect inferences which appellant came to know in the assessment order.

(i) Shahrukh Khan vs DCIT (13 SOT 61)(TMum);

(ii) Sh. Rizwan Saifi vs. ITO (I.T.A. No. 1860/Del/2010) (iii) Urban Infra Nigam (1519/kol/2018) dated 28.2.2019.

Sr.No. Page No. of Para No. of CIT Additional evidences and remand CIT (A) Order (A) order report discussed by CIT (A) 1 Pg. 171 – 5.4.7-5.4.8 1. Ledger account of Loan given 172 to AJL in the books of AICC (Pgs. 725-735 of FPB)

2. Statement of utilization of loan given to AJL (Pgs. 736-738 of FPB) 2 Pg. 173 5.4.10 –5.4.11 Order dated November 6, 2012 of the Election Commission of India (Pgs.709-712 of FPB) 3 Pg.173-174 5.4.12 – Assessment order of Associated 5.4.12.1 Journals Ltd. for AY 11- 12 (Pgs. 739-742 of FPB)

ITA No.1251/Del./2019 4 Pg. 174 5.4.15 Copies of the masthead of various newspapers published by AJL .(Pgs. 757-793) 5 Pg.179 5.4.24 1. Opinion of Registered Valuers, Kishore Karamsey & Co. dated July 28, 2018 for Mumbai property (Pgs. 798-803 of FPB).

2. Opinion of registered valuers, GAA Advisory dated September 6, 2018 for New Delhi property (Pgs. 895-925 of FPB)

3. Opinion of registered valuers, GAA Advisory dated September 6, 2018 for Patna property (Pgs. 926-947 of FPB)

4. Opinion of registered valuers, GAA Advisory dated September 6, 2018 for Panchkula property (Pgs. 948-966 of FPB)

5. Opinion of registered valuers, GAA Advisory dated September 6, 2018 for Lucknow property (Pgs. 967-996 of FPB) 6 Page 183- 5.5.5-5.5.17 Various details submitted in 187 respect of loan taken from M/s

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Dotex:

2. Annual accounts of CEAT Ltd. for Financial Year 2010-11 (Pgs. 555-687 of FPB)

3. Balance Sheet of Dotex as at March 31, 2011 (Pgs. 688-708 of FPB)

4. Notarized copy of promissory Note issued by the Applicant to Dotex (Pg. 713 of FPB)

5. Notarized copy of various communications between the Applicant and Dotex extending the term of the loan from time to time (Pgs. 714 to 724 of FPB)

(i) Smt. Prabhavati S. Shah vs. CIT (231 ITR 1) (Bom) (HC) (ii) CIT VS. Virgin Securities and Credits (P.) Ltd. 332 ITR 396 (Del.) (iii) CIT vs. K Ravindranathan Nair (265 ITR 217)(Ker.) (iv) Jai Prakash Tyagi vs. ITO (72 taxmann.com 183) (Delhi, ITAT) (v) ACIT vs. SMT. Prem Anand (I.T.A. No. 3514/DEL/2014) (vi) Seagram Manufacturing Pvt. Ltd. Vs. ACIT (ITA NO. 4534/Del/2004) (Delhi Trib.)

Sr.No. Description of Page Remarks document Nos. Copies of : 1 Annual 498- In the assessment order, the accounts of 554 AO has alleged that the RPG company was controlled by Lifesciences persons who were engaged in Ltd. for the activity of accommodating Financial entries. Year 2010-11 At Para 8.10, Page 30 of the 2 Annual 555- order, the AO has relied on accounts of 687 some internal investigation report in relation to Dotex and CEAT Ltd. for stated that ‘it is undisputed Financial fact that Mr. Sunil Bhandari Year 2010-11 and Mr. Sunil Sanganeria were not only directors of MIs 3 Balance Sheet of 688- Dotex Merchandise Pvt. Ltd. Dotex as at 708 but were directors of 50 other March 31,2011 Kolkata based companies. Many of these companies have been found engaged in the business of providing accommodation entries as notice during the course of survey by the Income Tax Department'. At page 33 of the order, he further states that the copies of bank account of companies controlled by above referred assessee had proved that these companies were engaged in business of accommodation entries typically contains deposit of cash and issue of cheque of equivalent amount. In neither the questionnaire dated March 21, 2017 (starting at Page 203 of PB I) nor the SCN starting at Page 366 of PB I), these facts have been put to the assessee for explanation. Further, these documents also have been provided to the assessee for explanation. The questionnaire asked the assessee to submit certain documents, all of which were submitted by the assessee. These very allegations are made directly in the assessment order. Accordingly, these documents are being submitted to controvert the said allegations.

4 Order dated 709- Elaborate discussion has been November 6, 712 made in the assessment order 2012 filed of the on why loan given by AICC to Election AJL of Ts. 90.21 crores was Commission of bogus (Pls refer Paras 15.1 to India 15.9 and Para 8.2 of the assessment order). However, no questionnaire has been issued to the Appellant to show cause that this loan is not a paper entry. Please see notice dated March 21, 2017 at page 203 of the PB-1. Even the final SCN on Dec 8, 2017(Pg 366 to PB), does not mention various allegations based on which AO has the loan to be a paper entry. For ego pointed question on AO's inference that AJL books did not show the loan was never raised through any show cause notice, though extensive reliance has been placed on this alleged fact in the assessment order. Hence, YI had no opportunity to provide its explanation. Hence, this along with documents at Sr. No.7, and 9 are being submitted to controvert this argument of the AO that the loan was a paper entry.

5 Notarized copy 713 This document is now filed of promissory pursuant to AO's remarks Note issued by appearing in the assessment the Applicant to order (Para 20.1) that the Dotex promissory note was not filed during assessment proceedings. The Appellant had filed all the documents that were called for in questionnaire dated March 21, 2017. The documents submitted included all the main documents such agreement copy, bank statements, TDS documents etc. and yet, based on the allegation that promissory note was not submitted {which was not called for either in questionnaire or in SCN), it has been held by AO that assessee has not discharged its onus. Accordingly, the Appellant craves leave to now submit the promissory note.

6 Notarized copy 714- The AO has alleged at Page 33 of various 724 of the order that non- communications repayment of loan within one between the year amounted to violation of Applicant and terms of loan. Dotex extending the term of the The Appellant had filed all the loan from time documents that were called of time for in questionnaire dated March 21, 2017. The AO never asked a query on why repayment did not happen within a year and therefore, extension letters were not submitted. However, since adverse view has been taken due to this reason, extension letters are now being submitted to show that there has not been any violation of terms of loan.

7 Notarized copy 725- Please refer the remark at Sr. of ledger 735 No.4 above account of Loan given to AJL in the books of AICC together with relevant correspondence 8 Notarized copy 736- of statement of 738 utilization of loan given to AJL together with relevant correspondence 9 Assessment 739- order of 742 Associated Journals Ltd. for AY 11-12 10 Notarised copy 743- At Para 3.3 of the remand of Form 20B 756 report to pt additional (form for filing evidence application (at Page annual return 1027 of PB II, 3rd bullet point), by a company the AO has alleged that the having a share letters of the Appellant dated capital with the 20.04.2012 and 20.12.2012 registrar) filed sent to Dotex, which were by Young Indian signed by Shri. Suman Dubey with the ROC for are not genuine for the FY 2012-13 purported reason that Shri Suman Dubey was neither shareholder nor was holding any position in the Appellant after 31.03.2012. The said evidence is being submitted to substantiate that Shri. Suman Dubey was indeed a director of the Appellant for FY 2012- 13.

11 Copies of the 757- The AO has at various places masthead of 793 in the assessment order various alleged that AJL is a real newspapers estate company. The valuation published by of properties of AJL has also AJL been done on this assumption. However, nothing of this sort is mentioned in the questionnaire dated March 21, 2017. Accordingly, this evidence along with evidence at Sr. No. 20 is being produced to show that AJL cannot be regarded as real estate company. This fact is crucial for the purpose of determining the method of valuation of shares of AJL.

12 AJL letter to 794 The Appellant has taken a S.K. Kapoor & plea before the AO, the CIT(A) Co. Auditor as well as the Hon'ble ITAT requesting 11UA that the provisions of section valuation 56(2)(viia) cannot be ignored certificate and that in presence of this 13 Valuation of 795 specific provision, section shares of AJL as 28(iv) cannot be invoked. per approach Please refer page 381, para 5 under Rule of the PB I for the reply filed 11UA pre before the AO, Ground No. V issuance of in GOA before CIT(A) and shares to Young Ground No VI of GOA before Indian Hon'ble ITAT. Further, it is 14 Valuation of 796 also the contention of the Appellant that even for the shares of AJL as purpose of section 28(iv), the per approach under Rule valuation method to be 11UA post adopted should be as specified issuance of in Rule shares to Young 11UA. Accordingly, these evidences along with evidence Indian at Sr. No. 21 and 22 have 15 S.K. Kapoor & Co., Auditor been filed by the Appellant. letter to AJL informing that 11UA valuation certificate will provide on August 8, 2018 16 Opinion of 798- The DVO Valuation reports Registered 803 are fraught with various valuers, Kishore errors. The same being Karamsey & Co. technical documents, the dated July 28, assessee itself was not 2018 competent enough to fully analyse the same. Accordingly, based on its limited knowledge, it provided its reply and brought out various obvious errors. Even the said replies of the Appellant were ignored during assessment. Later through SCN Dated 8th December, 2017, the assessee was informed that this entire property valuation is proposed to be added to the income of the assessee. Due to paucity of time, the Appellant could not engage technical experts to examine these reports. Further, for the Mumbai property, the AO has done the valuation directly in the assessment order without providing any opportunity to the Appellant. Now, the Appellant has engaged independent valuation experts to analyse the valuation done by the department and from their reports it is clear that the DVO/AO reports are not at all reliable and have many errors. Accordingly, it is submitted that these reports are very relevant for the issue under consideration.

This evidence along with evidence at Sr. No. 23, 24, 25 and 26 are to support this contention of the assessee.

17 Dotex 804- The AO has in his second Merchandise 805 remand report dated May 21, Private Ltd. 2018, at Para 3.3 (Page 1027 letter to Young of the PB II, second bullet Indian with point) alleged that the Envelope Appellant has not provided any proof that the correspondences between it and Dotex to extend the term of the loan was actually exchanged between the parties. This evidence is being provided to prove the fact of actual exchange of the letter which is clear from the envelope of the letter.

18 AJL letter dated 806 While valuing the Mumbai February 15, Property of AJL, the AO had 2017 to Deputy ignored the valuation report of Director Town the DVO, and himself valued Planning, the property at Rs. 79.10 Mumbai crores (please see Page 357 of PB I). Further, without even 19 Deputy Director 807 indicating to the assessee in Town Planning, Mumbai Letter any manner, in the to AJL dated assessment order, the AO February 27, suddenly increased this value to Rs.132.94 crores! (Pls refer 2017 in pages 52 to 56 of the response to AJL letter assessment order, para 12.8 onwards). At page 52 of the assessment order, it is noticed that the property zone for the Mumbai property has been taken as 29/167, whereas on appointing the independent valuer, it was realized that the said property belonged to the zone 29/166 and not 29/167, which significantly impacts the valuation of the property. Accordingly, this evidence is being submitted substantiate this fact.

20 Copies of 808- Please refer to comments at various reports, 869 Sr. No. 11 above. photographs which substantiate that AJL is in Newspaper Business. 21 Valuation of 870- Please refer to comments at shares of AJL as 881 Sr. No. 12-15 above. per Rule 11UA pre-issuance of shares along with the Audited Financial Statements 22 Valuation of 882- shares of AJL as 894 per Rule 11UA post-issuance of shares along with the Audited Financial Statements 23 Opinion of 895- Please refer to comment at Sr. registered 925 No. 16 above. valuers, GAA Advisory dated September 6, 2018 bringing out various errors in the approach adopted by the AO/DVO in valuation of the immovable property owned by AJL in New Delhi 24 Opinion of 948- registered 966 valuers, GAA Advisory dated September 6, 2018 bringing out various errors in the approach adopted by the AO/DVO in valuation of the immovable property owned by AJL in Patna 25 Opinion of 948- registered 966 valuers, GAA Advisory dated September 6, 2018 bringing out various errors in the approach adopted by the AO/DVO in valuation of the immovable property owned by AJL in Punchkula 26 Opinion of 967- registered 996 valuers, GAA

Advisory dated September 6, 2018 bringing out various errors in the approach adopted by the AO/DVO in valuation of the immovable property owned by AJL in New Lucknow

203, PB-I). Attention of Hon’ble Bench was drawn to Paras 5 to 9 to show in what great detail the questions were raised and evidence was sought. • Pages 219, 236 and 239 of PB-I indicate the time sought by the Appellant, the fact of writ being filed in the High Court and getting dismissed and the reminder letters issued by AO. • The Appellant filed partial replies on 07.06.2017 (Pg. 244,

PB-I) and 13.06.2017 (Pg.254, PB-I). The AO shared copies of valuation reports of the DVOs and pointed out to the Appellant their non-cooperation before different valuation authorities (Pg.356-358 of PB-I). • Finally, after consideration of the available material on record, the AO gave final show cause notice asking why the additions to the total income be not made (Pg.366 of PB-I). • The Appellant filed replies on 15.12.2018 and 18.12.2018

(Pg.370 and 379 of PB-I).

83. Mr. Srivastava pointed out that the Revenue has submitted a copy of letter dated 16.03.2018 of the CIT(A) to the A.O., where he calls for remand report on two counts (one, on the admissibility of additional evidence and two, on the merits of the additional evidence).

Decision on additional evidences

“We have heard both the parties at length on the issue of admission of additional evidences containing 26 documents filed by the assessee. On the perusal of the documents filed, it seems that all these evidences were filed before the ld. CIT (A), on which remand report was also sought from the AO who has given his comments. However, ld. CIT (A) has rejected the said additional evidences and refused to admit the same. Accordingly, the assessee has filed same very evidences as additional evidences under Rule 29 of Income Tax (Appellate Tribunal) Rules along with the petition. After considering the entire gamut of issues involved, we feel that the parties should be allowed to argue the issues based on material placed on record as well as additional evidences. After hearing both the parties, we propose that in our final order, we will decide the relevancy of such additional evidences vis-à-vis the issues involved. At this stage, we are permitting the appellant-assessee as well as the respondent-revenue to argue the appeal based on all

ITA No.1251/Del./2019 the 26 documents filed as additional evidences before us. The hearing will continue on 08.12.2021 in afternoon.”

Sr. Description of document Reference in Page no. No. existing record 1 Copy of Perpetual Lease Deed dated Page 1377 of Pages 1481- 10.1.1967 for allotment of New Delhi PB IV, Para 3 1492 of PB V property 2 Copy of Lease Deed dated April 18, Page 1415 of Pages 1493- 1988 for allotment of Patna Property PB IV 1516 of PB V 3 Copy of re-allotment letter dated Page 1439 of Pages 1517-

ITA No.1251/Del./2019

28.9.2005 for allotment of Panchkula PB IV 1520 of PB V 4 Letters exchanged with Relating to Pages 1521- Archaeological Survey of India for observations 1527 of PB V observations Lucknow property along of registered with photographs of inauguration of valuer at page the building on the said property 1455, para 5 5 Allotment letters for Mumbai Property Relating to Pages 1528- observations 1541 of PB V of registered valuer at page 801 of PB II 6 Order dated May 30, 2017 of the Relating to Pages 1542- Municipal Corporation of observations 1543 of PB V Greater Mumbai of registered valuer at page 798-799 of PB-II 7 Ready Reckoner rates of Mumbai for Public Pages 1544 of 2016 Documents PB V 8 Ready Reckoner rates of Mumbai for Public Pages 1545 of 2013 Documents PB V

Insofar as various objections and references filed with regard to valuation part, the appellant has filed specific objections before us which are based on and emanating from Registered Valuer’s report, and the finding and observations of the AO and are otherwise relevant, we shall deal it comprehensively and then it may not be relevant to counter each and every part of valuer’s report as same has been summarized by the appellant in the written submissions filed before us. So far as documents relating to Dotex, annual accounts of RPG Lifesciences Ltd. etc. mentioned at sl.no.1, 2, 3, 5, 6, 7, 8 & 10, the same will be discussed and considered for deciding the issue. The assessment order of AJL for AY 2011-12 appearing at Sl.No.9 technically cannot be reckoned as additional evidences therefore, the same is also taken into cognizance. In any case, both the parties have made the detailed submissions and also filed their written submissions on all the points which was raised and argued before us on various dates of hearing. With these observations, we proceed to decide the issues as raised in grounds no.5, 6 & 12, grounds no.7, 8 & 9 and other grounds.

GROUNDS NO.5, 6 & 12

According to the AO, the profits and gains from the business in the form of benefits to the appellant having value of Rs.413.41 crores had accrued to the appellant in terms of section 28 (iv) of the Act during the year under consideration. Assessing Officer has also categorically stated that it is not a case of hypothetical income but it is the quantification of benefit as derived to the appellant in the year under consideration from the business transaction of takeover of AJL and determined through process of valuation. The AO held that the benefit arose from an “advantage in the nature of trade” which translated into non- monetary benefits in the form of immovable properties of AJL which were together valued at Rs.413.41 crores. Assessing Officer was of the opinion that all the properties of AJL were commercial assets and that the nature of benefits flowing from these properties constituting commercial assets were revenue in nature. Accordingly, he held that benefit from the adventure constituted profits and gains from the business within the meaning of section 28 (iv) and would thus be regarded as income chargeable to tax.

“16.1 It is amply clear from the above uncontroverted facts that sole purpose of transaction leading to acquisition of shares of the AJL was to derive several types of benefit from underlying business properties of the AJL. The impugned transaction was intended to maximize profit and to earn income as reflected in several benefits embodied in the business assets of the AJL by making paltry investment of Rs. 50 lacs to AICC and not to AJL that too through a fraudulent transaction which was facilitated by the common director of the assessee and target company i.e. the AJL. In this context, it would be appropriate to examine that sub-section (13) of section 2, clause (Ili) to sub-section (24) of section 2 and clause (iv) of section 28 of the Act. For the sake of convenience, the relevant provisions are extracted below:

….. 16.4 Any adventure or concern in nature of trade, commerce or manufacture: The expression used “any adventure or concern in the nature of trade, commerce or manufacture" is allied to transaction that constitute trade or business but may not be trade or business itself. It is characterized by some of the essential features that make up trade or business but not by all of them. The Supreme Court in cases of Venkataswami Naidu & Co. vs. CIT 35 ITR 594 has set out various tests to determine whether a transaction comes within this expression or not and whether a particular activity amounts to such an adventure is a question which must be decided on its own facts and circumstances and no firm law or legal test is possible. In this context, the relevant part of the judgement of Hon'ble Supreme Court in case of Venkataswami Naidu & Co. vs. CIT (supra) is extracted below: "This question has been the subject-matter of several judicial decisions; and in dealing with it all the judges appear to be agreed that no principle can be evolved which would govern the decision of all cases in which the character of the impugned transaction falls to be considered. When section 2, sub-section (4) refers to an adventure in the nature of trade it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterized by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade. Sometimes it is said that a single plunge in the waters of trade may partake of the character of an adventure in the nature of trade. This statement may be true; but in its application due regard must be shown to the requirement that the single plunge must be in the waters of trade. In other words, at least some of the essential features of trade must be present in the isolated or single transaction. As we have already observed it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the border fine that cause difficulty." 16.5 Hon'ble Supreme Court in its later decision in case of CIT vs. Sutlej Cotton Mills Supply Agency ltd. (1975) 100 ITR 706 examining the term 'adventure in nature of trade' has held that it is not necessary to constitute trade there should be a series of transactions both of purchases and sales. The fact of a single transaction of sale or purchase outside the assessee's line of business may constitute an 'adventure in nature of trade'. Neither repetition nor continuity of similar transactions is necessary to constitute a transaction as adventure in the nature of trade. In this context, Hon'ble Apex Court has analysed its earlier decision in case of Venkataswami Naidu & Co. vs. CIT (supra) as under: "The principles underlying the distinction between a capital sale and an adventure in the nature of trade were examined by this court in G. Venkatswami Naidu & Co. v. Commissioner of Income-tax**, where this court said that the character of a transaction cannot be determined solely on the application of any abstract rule, principle or test but must depend upon all the facts and circumstances of the case. Ultimately, it is a matter of first impression with the court whether a particular transaction is in the nature of trade or not. It has been said that a single plunge may be enough provided it is shown to the satisfaction of the court that the plunge is made in the waters of the trade; but mere purchase/ sale of shares-if that is all that is involved in the plunge- may fall short of anything in the nature of trade. Whether it Is in the nature of trade will depend on the facts and circumstances. " [Extracted from the judgement in case of CIT vs. Sutlej Cotton Mills Supply Agency Ltd.] 16.6 Whether meaning of term 'business' is wider than 'trade'? Hon'ble Orissa High Court in the case of CIT vs. M.P. Bazaz and other (1993) 200 ITR 131 examining the meaning of the word 'business' has analysed several decisions of Hon'ble Apex Court and has held that the word 'business' is a word of large and indefinite import. It is something which occupies the attention and labour of a person for the purpose of earning the profit. Section 2(13) uses the term 'include' which makes the definition of 'business' extensive and broad. As discussed above, the word 'business' has more extensive meaning than the word 'trade’……..” ….. 16.8 The courts have also held that the term business is a word of very vide connotation any by no means determinate in its scope and has to be concerned with reference to each particular kind of activity and occupation of the person concerned. The frequency or repetition of activity though at times a decisive factor, is by no means, and infallible test and a transaction though repeated may not amount to a trade or an adventure in nature of trade. Conversely, a single transaction may constitute business under the definition of that word in section 2(13). It is not essential to constitute a trade that there should a series of transactions, both of purchase and of sale. In other words, neither repetition nor continuity of similar transactions is necessary to constitute a transaction and adventure in nature of trade. Hon'ble Supreme Court in case of Venkatswami Naidu & Co. vs. CFT, 35 ITR 594 has clarified that an isolated transaction can satisfy the description of an adventure in nature of trade; a single plunge in the waters of trade may partake of the character of a trade depending upon facts of that case. The courts have also clarified that an activity carried on under strict statutory control may nevertheless be business. 16.9 Whether benefit accrued to the assessee could be taxed as profit & gain of business & profession? Section 28 provides that several categories of income shall be chargeable to income tax under the head profit and gain of business or profession which include profit and gain of any business or profession which was carried on by the assessee at any time during the previous year, any compensation or other payment subject to certain conditions, income derived by trade, professional or similar activities from specific services performed for its members, profit on sale of license granted, cash assistance, duty drawback in lieu of export, any profit on transfer of DEPB and DFRC, any interest, salary, interest, bonus, commission or remuneration due to or received by the partner of a firm and any sum whether received or receivable in cash or kind as stipulated under clause (va), (vi), (vii) and the value of any benefit or perquisite whether convertible into money or not, arising from the business or exercise of a profession as stipulated in clause (iv). In this case, the assessee has received quantifiable benefit arising from the business transaction, accordingly, it would be appropriate to examine the relevant provisions which is extracted below for the sake of clarity: "28. The following income shall be chargeable to income-tax under the head 'Profits and gains of business or profession',- xxxxxxxxxxxx (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession"

Clause (iv) was inserted in section 28 w.e.f. 01.04.1964 and a corresponding amendment made in section 2(24) to include the value of such benefit or perquisite in the definition of the term 'income'. It is pertinent to mention here that sub-section (24) of section 2 which defines the term 'income' has specifically included the value of any benefit or perquisite taxable under clause (iv) of section 28 as income under the Act. For the sake of clarity, the relevant provisions of section 2(24) of the Act are reproduced as under: "(24) 'income' includes- xxxxxxxxxxxx (vd) the value of any benefit or perquisite taxable under clause (iv) of section 28;" 16.10 It is amply clear from above referred to legal analysis that Hon'ble High Courts and Supreme Court have laid down several tests to determine whether an activity or activities are in nature of business or not. These principles may be briefly summarized as under: • The word 'business' is of wide importance and in fiscal statutes, it must be construed in a broad rather a restricted sense. [Mazagaon Dock Ltd. vs. CIT (1958) 34 ITR 368, 376 (SC)) • 'Business' is an activity capable of producing a profit which can be taxed. [CIT vs Lahore Electric Supply Co. Ltd. (1966) 60 ITR 1, 5 (SC)] ./2019 • The word 'business' is a word of large and indefinite importance. It is same thing which occupies the attention and labour of a person for purchase of earning profit. • The word 'business' has more extensive meaning than the word 'trade'. • The activity/ activities which constitute carrying on business need not necessarily consists of activities by way of trade, commerce or manufacture or activities in the exercise of a profession of vocation. • The activity/ activities in order to constitute a business need not necessarily be concerned with several individual or concern. • A single and isolated transaction outside the assessee's line of business has been held to be falling within definition of business as being 'adventure in nature of trade'. The question, therefore, whether a particular source of income is business or not must be decided according to our ordinary notion as to what a business is. • Neither repetition nor continuity of similar transactions is necessary to constitute a transaction as adventure in nature of trade. • The frequency or repetition of activity though at times a decisive factor, is by no means and infallible test and a transaction though repeated may net amount to a trade or an adventure in nature of trade. Conversely, a single transaction may constitute business under the definition of the word in section 2(14) of the Act. ./2019 • The value or benefit whether convertible in not money or not arising from the business or exercise of profession as stipulated in clause (iv) of section 28 is also profit and gains of business. Significant facts and circumstances of the case having bearing on characterization of benefit arising out of business transaction of taking over properties of the AJL through its takeover? 17. It is evident from the facts of the case that in this case, purchase of 99% shares of the AJL by the assessee was not an ordinary transaction of investment but the transaction involving several steps (as many as 9 steps) was an adventure in nature of trade. The transaction was part of a well devised scheme involving series of steps with the intention to earn significant benefit as embodied in business assets of the AJL. The scheme had included: • Change in key management personnel of the AJL by appointing founder of the assessee as Director of the AJL prior to incorporation of the assessee company. • Business operation of the assessee at the business premises which was posh property of the AJL without even paying any rent for using the property. • Transfer of non-existent loan of Rs. 90.21 crore at ridiculously low price of Rs. 50 lac by way of a fraudulent transaction and the impugned sale proceed was paid after a gap of more than 2 months after allotment of 99% shares of AJL through use of non-existent loan of Rs. 90.21 crore.

• The unexplained celerity at which share capital of the AJL was increased and shares were allotted to assessee company. 17.1 The assessee undertook a series of steps over a period of time to be precise from 02.04.2008 to 01.03.2011 and these steps had culminated during the year under consideration to achieve a pre-meditated objective of taking over of the AJL in order to get several valuable benefits from business assets of the AJL having fair market value of Rs. 413.41crore as well as to derive the value from these properties. These intermediary steps on paper were artificially inserted in the well devised scheme led to take over of the AJL by allotment of 99% shares of the AJL without even getting the real estate properties transferred in the name of the assessee but the transaction resulted in accrual of all the benefits from value of the real estate business and properties to the assessee. The transactions were devised and carried out represented an adventure in the nature of trade and would squarely fall within the definition of the term 'business' as appearing in section 2{13} of the Act. This is evident from the following facts and circumstances: • The office bearers of AICC and AJL were common and some of these office bearers later on incorporated the assessee company and had become the members of the assessee by acquiring shares. As early as in the beginning of the year 2008 it was decided to close down the business of printing and publishing newspaper by the AJL with the oblique purpose to make commercial use of the business assets of the AJL

(commercial property located in posh areas of Delhi, Patna, Panchkula, Mumbai, Lucknow) acquired by it from Central/ State Governments for publishing newspaper at ridiculously low price. The commercial use of these properties had enhanced its potential and value by way of enhanced fair market value. Since, acquisition of these properties to derive benefits embodied in these property by the assessee was only possible by way of purchase of these properties by making payment of hundreds of crore to the AJL alongwith payment of substantial capital gain tax by the AJL, a scheme was devised to obtain all the benefits embodied in these business assets of the AJL by way of allotment of 99% shares of the AJL leading to takeover of the AJL by the assessee and without disturbing legal ownership of the AJL over these very high value business assets and without paying any taxes on account of income in form of benefits. • As a part of the scheme some of the office bearers of the AICC and founder member & director of the assessee were appointed as directors of the AJL starting from 17.06.2010 till 21.12.2010 so that they can prepare a ground work for easy takeover of AJL to achieve the ultimate target of obtaining of benefits embodied in these properties. This conclusion is based on appointment of Mr. Oscar Fernandes, Mr. Suman Dubey, Mr. Satyan Gangaram Pitroda prior to incorporation of the assessee and with the help of these persons and active support of Shri Motilal Vora who is an office bearer/ managing director/ director of all the three entities to the transaction also passed a board resolution for shifting the registered office of the AJL from Lucknow to Delhi on 01.09.2010 so that control over the real estate business and property of the AJL becomes easy for the assessee.

• The most crucial part of the scheme revolves around assignment of non-existing loan of Rs.90.21 crore and that too for a paltry sum of Rs. 50 lacs to the assessee. As discussed above, this fraudulent transaction as several other dubious features including transfer of unproved loan of Rs. 90.21 crore at paltry sum of Rs. 50 lacs to the assessee at the time when it did not have even fund to pay paltry sum of Rs. 50 lacs, transfer of loan before the assignment deed for such alleged transfer, non-confirmation of such loan by the AJL receipt of so called consideration of Rs. 50 lacs after a gap of more than 3 months from the transaction, etc. • The celerity at which the authorized capital of the AJL was increased from 10 lac shares to 10 crore shares and the allotment of more than 9 crore shares having face value of Rs. 90.21 crore without complying provisions of the Companies Act as discussed in above para 9{8} of this order is amazing particularly even when the share application forms were not properly filled up. • The intention and undue haste in obtaining several benefits as embodied in business assets of the AJL by way of takeover of the AJL is evident from the fact that right from the day of incorporation of the assessee company, it was using one of the posh properties of the AJL i.e. Herald House as its registered office by acquiring a floor without any payment of rent. It is also evident from the report of the valuer as extracted earlier in this order that commercial properties of AJL were under custody and control of the assessee company and employees of the assessee company have prohibited entry of valuer in the premises.

It is amply clear from the analysis of above steps that even though the transaction of getting benefit from properties of the AJL by takeover of the AJL was one transaction, however, it has involved several steps, some real and some fraudulent, with the real and distinct intent of the transaction to obtain benefit from the impugned properties of the AJL and the right to enjoy benefit of the property from the day of incorporation of the assessee company during the year under consideration. The assessee has derived a distinct benefit from this adventure leading to allotment of 99% shares of the AJL. The nature of benefits may be summarized as under: • Benefit of underlying value of shares of the AJL. • Benefit of right to enjoy the business assets of the AJL. • Benefit of income from real estate business of the AJL. • Benefit of rental income of several crores from letting out of business assets of the AJL.

17.2 The one way to quantify value of such benefits as accrued to the assessee is to ascertain fair market value of the properties used in the real estate business as commercial assets. The fair market value of these business properties on date of takeover of their business properties will capture some of the benefits accrued to the assessee during year under consideration. As discussed above, the fair market value of these commercial assets used in real estate business is of Rs. 413.41crore which represents value of benefit accrued to the assessee during year under consideration. Even though the benefit of Rs. 413.41crore is in the form of fair market value of immovable properties used as business assets, it does not alter the nature of income which is revenue in nature. 17.3 Since, the assessee has taken control and management of AJL by allotment of its 99% of shares AJL during year under consideration and the assessee had not carried out any activity during the year except for the transaction of taking over AJL which was in nature of adventure in trade, a" the benefits embodied in the business assets having fair market value of Rs. 413.41 crore has accrued to the assessee during year under consideration. The assessee has actually started enjoying business income by in-locking benefit accrued to it during year under consideration by occupying and using their business assets for real estate business and having full control over even entry and exit in the premises of the business assets. Whether the assessee holds the share simpliciter or has the right to direct enjoyment of benefit arising from business assets of the AJL. 17.4 It has been contended by the assessee that it is a section 25 company and object of the company was to promote democratic values as laid down by Mahatma Gandhi and Pandit Nehru and holding property of the AJL was not the purpose of the assessee company in subscribing 99% of the shares of AJL. It is pertinent to mention here that the assessee company was granted registration u/s 12A by the Commission of Income Tax (Exemptions) subject to various conditions and ITA No.1251/Del./2019 registration of the association u/s 25 of the Companies Act, 1956 was also subject to several conditions as discussed earlier in this order. Further, during the course of assessment proceedings it was revealed that the assessee company had not carried out any activities in furtherance of above referred to object. It is a matter of record that only expenditure incurred by the assessee company during year under consideration was to purchase a non-existent loan of Rs. 90.21 crore through a fraudulent transaction and in subsequent assessment years the only expenditure incurred by the assessee company was to create provision for interest expenditure allegedly meant to pay interest on loan of Rs. 1 crore taken from a hawala entry operator in Kolkata. For the sake of clarity, the nature of expenditure incurred by the assessee is tabulated in following table:

AY 2011-12 AY 2012-13 AY 2013-14 AY 2014-15 Expenditure on - - - - object Expenditure on 50,00,000 - - - purchase of non-existent loan of Rs.90.21 crore Provision of 1,72,603 14,00,000 14,00,000 14,00,000 interest on loan of Rs.1 crore taken from hawala entry operator located in Kolkata Other expenses 1,48,687 2,57,459 2,50,061 2,57,468 (professional fees, legal expense, audit fee, preliminary expenses written off, etc.) Total 53,21,390 16,57,459 16,50,061 16,57,468

It is evident from the details of the above referred to expenditure as extracted from audited P&L A/c for the relevant years that the assessee had not incurred any expenditure on its object except for expenditure on purchase of non-existent loan of Rs. 90.21 crore leading to takeover of the AJL and provision of interest on alleged loan of Rs. 1 crore taken from hawala entry operator of Kolkata. The other expenditure is admittedly incurred on fee for auditor, preliminary expenditure, written off, etc. and this expenditure cannot be held to be for the purpose of the object of the company. In view of the above, the claim of the assessee that the assessee company was carrying out its stated object is factually incorrect and the assessee company as proved above had never engaged in the activities of promoting democratic values by incurring expenditure. ……………. It is evident from above findings that the assessee was not engaged in the activities as prescribed its object as well as u/s 25 of the Companies Act. It is a matter of record as discussed earlier that AJL after closing business of publishing of newspaper w.e.f. 02.04.2008 was engaged in real estate business. After the completion of the investigation and issue of a notice u/s 148 for the year under consideration the AJL has claimed relaunching National Herald on 12.06.2017 (after a gap of six years from the impugned transaction) without even putting in place requisite infrastructure of publication of newspaper just to camouflage its real estate business and to create a legal facade. It is also proved beyond doubt that only activity during year under consideration was first to acquire AJL by way of allotment of 99% of the shares and the purpose was not to hold the shares but to enjoy the benefit of properties or business assets as explained earlier. Even in subsequent years, the only activities performed by the assessee company was to enjoy benefit of business assets of the AJL. In this factual backdrop and taking into a/c the celerity at which the 99% shares of AJL were acquired through a series of artificially inserted steps including fraudulent transactions, the argument that acquisition of shares of a company cannot be imputed to mean that the shareholder has acquired the business assets is wholly untenable. It is not the acquisition of shares simpliciter. In this case, the impugned transaction to transfer the enjoyment of several benefits embodied in the business assets of the AJL without getting the assets of the AJL transferred to the assessee. Whether benefit accrued to the assessee in real terms? 17.5 It is evident from above discussion that during year under consideration that business transaction of the takeover of the AJL resulted in several benefits to the assessee embodied in the business assets of the AJL on the date of completion of business transaction during year under consideration.

Accordingly, the profits and gain from business in form of benefits to assessee having value of Rs.413.41 crore u/s 28(iv) has accrued to the assessee during year under consideration and is taxable as income from profit and gains from business. It is to clarify here that it is not a case of hypothetical income but in this case quantification of benefit as derived and accrued to the assessee during year under consideration from the business transaction of takeover of the AJL has already been determined and the assessee had already started enjoying the benefit by possessing and using these commercial assets during year under consideration. Whether benefit accrued to assessee is in nature of Revenue? 17.6 The benefit of the "adventure in the nature of trade" translated into money terms in the form of fair market values of the properties of the AJL referred to above comes to Rs.413.41 crore.lt is pertinent to mention here that all the properties of the AJL were commercial assets of the real estate business of the AJL and substantial business income has been generated from commercial use of these properties by way of sale or let out of the property, accordingly, the nature of benefit flowing from these properties which do not represent capital assets but constitute commercial assets was revenue in nature. It is to clarify here that the business assets of the AJL have remained in the legal ownership of AJL only but enjoyment of several types of benefit embodied in these commercial assets stands transferred to the assessee. The decision with regard to mode, manner and extent of exploitation of these business assets of the AJL rests with the assessee. Such benefit from the adventure constitutes profits and gains of the business within the meaning of section 28(iv) of the Act and would be regarded as income chargeable to tax under the provisions of the Act as the benefit in the form of fair market value of the properties of Rs. 413.41 crore arising to the assessee from the adventure in the nature of trade of takeover the assets of AJL by way of allotment of its 99% shares following several steps including a fraudulent transaction. 17.7 In view of above discussions, income of the assessee for the year under consideration u/s 28(iv) has been computed at Rs. 413.41 crore i.e. FMV of business assets of the AJL which best represents the value of several benefits arising to the assessee from the transaction. (Addition of Rs.413.41 crore)”

ARGUMENTS ON BEHALF OF THE APPELLANT

“To inculcate in the mind of India’s youth commitment to ideal of a democratic and secular society for its entire populace without any distinction as to religion, caste or creed and to awaken India’s youth to participate in activities that may promote the foregoing objective in any manner whatsoever including, without limitation, participating in all democratic activities through open and transparent electoral process, so as to conform to the ideals of the founding fathers of India, Mahatma Gandhi and Pandit Jawaharlal Nehru.”

"68. ...In so far as reliance placed by the ld. Special Counsel for the Revenue on the judgment of Single Judge of Hon'ble High Court in the case of Associate Journal Ltd. which was upheld by the Division Bench in LPA No. 10/2019, wherein there is an observation that only when relevant authorities initiated inspection, the AJL decided to resume his press activities so as to save the lease of the properties from being cancelled by the Government. In this regard, he submitted that way back on 23.01.2014; AJL had filed a letter to Registrar for News Papers of India, copy of which has been placed at page 267 of the paper book-1 filed by the assessee, which clearly indicated the intention to resume the newspaper activities. Such an allegation made by the ld. Special Counsel that the decision of printing was an afterthought gets demolished for the reason that this inspection of LDO had occurred only in September 2016. He also pointed out following dates and events occurred prior to first notice of inspection by the LDO: • On 15.10.2012, AJL applied for registration of establishment employing Contractor labour for construction of building for newspaper/press in Panchkula. See copy of the same at Page 523 to 525 of AE-PB II. • On 31.10.2012, Registration Certificate issued by Dy. Labour Commissioner, Ambala in respect of construction of building for newspaper/press in Panchkula. See copy of the same at Page 526 to 528 of AE-PBII. • AJL has sanctioned plans for construction of printing press at Panchkula property dated 26.11.2012 is at Page 529 to 532 of AE - PB II. The same clearly shows the area pertaining to Press is demarcated on those plans; • AJL's plans for construction of printing press at Mumbai property was sanctioned by the relevant Authorities in 2013 and 2016. A copy of the 57 sanctioned plans is set out at page 533 to 538 of AE - PB II. The same clearly shows the area pertaining to Press is demarcated on those plans; • On February 22, 2013, the Board of Directors of AJL noted in its meeting that the publication of National Herald would be considered on web-site. A copy of the said minutes is enclosed at page 539 of AE — PB II. • On September 12, 2014, the internet/web domain name www.nationalherald.com was registered. The necessary registration proof is enclosed at page 540 of AE -PB II. (However, since the actual commencement took time, the said approval expired and a new approval of domain name was taken on 03.11.2016). • In the February 24, 2016 Board Meeting, the rough estimates of monthly expenditure for publishing the newspapers was discussed. The extracts from the minutes of the said meeting are enclosed at pg. 541 of AE -PB II. • On July 10, 2016, Zee News writes a report titled "Eight years after it was shut down, Congress re-launch National Herald news paper". Please see at Pg. 542 of AE-PB II. • In August 2016, the Editor-in-chief was appointed. In fact, the news report of Zee News (cited above) clearly cites AJL as informing in its July 10, 2016 news report, inter alia, "we are now close to finalising the editor's name for operations to start..." • “37....He submitted that, in fact, the publication had later on re- commenced, which is evident from the following facts, placed in the paper book of additional evidences: • On 23/01/2014, AJL wrote to the Registrar of Newspapers for India (RNI) informing it of its intent to restart publication of the newspapers. Please see page 267 of the AB - PB I; • On 26/09/2016, a resolution was passed by the Board of Directors of AJL to resume the publications of newspapers. Please see page 266 of the AB -PB I; • On 14/11/2016, AJL launched National Herald Website. Please see pages204 to 213 of the AB - PB I; ./2019 • On 15/11/2016, an agreement was entered between AJL and Press Trust of India for Wire News Services. Please see pages 245-249 of the AB - PB I; • On 12/06/2017, AJL launched the Commemorative Edition of National Herald (Publication) in print in Bangalore. Please see pages 133-153 of the AB - PB I for the copies of various reports and photographs of said launch; • On 23/06/2017, AJL obtained Registration Certificate for National Herald Newspaper from the Registrar Office of Newspapers for India, Ministry of Information and Broadcasting. Please see pages 239-240 of the AB - PB I; • On 01/07/2017, AJL launched Commemorative Edition of National Herald (Publication) in print in New Delhi. Please see pages 154-185 of the AB – PB I for the copies of various reports and photographs of said launch; • On 12/08/2017, AJL launched Qaumi Awaz Website in Urdu. Please see pages 215- 229 of the AB - PB I; • On 29/08/2017, AJL launched Navjivan Website in Hindi. Please see pages 230-238 of the AB-PB I; • On 24/11/2017, AJL obtained revised Registration Certificate for National Herald Newspaper from Registrar Office of Newspapers for India, Ministry of Information and Broadcasting. Please see page 241 of the AB-PB I; • On 20/2/2018 and 11/01/2019, AJL obtained Registration Certificate of Sunday Navjivan with Registrar Office of Newspapers for India, Ministry of Information and Broadcasting. Please see pages 242-244 of the AB - PB I; • On 10/12/2018, AJL launched Commemorative Edition of Navjivan newspapers (Publication) in print in Chandigarh. Please see pages 186-203 of the AB - PB I for the copies of various reports and photographs of said launch.”

“5.31 Allegation 1: The AO has alleged that the loan of Rs. 90.21 crores given by AICC to AJL was nonexistent, bogus loan and deliberately created as a step to acquire the shares of AJL by the Appellant. He states that the loan of Rs. 90.21 crore was not actually a loan but was only a paper entry and an artificially inserted step as part of a scheme of takeover of the AJL by the assessee for a song i.e. without making any payment (Para 8.2 of the assessment order). While arriving at this conclusion, he makes following observations: a. The Annual Reports of AJL for 2010 shows loan of Rs. 89.71 crore as on 31.3.2010 (which included unsecured loan of Rs.

89.67 crores) and the nature of which was explained in schedule-X of the report, which records as under: "Advances/ Security Deposits receipt from the parties in earlier years relating to construction activity on company's land at Lucknow and Mumbai has been grouped under "other liabilities" and "unsecured loans" and no provision of interest have been made on their own.” Based on foregoing note, the AO concluded that the loan of Rs. 90.21 crore from the AICC was not disclosed in the Annual Report of the AJL because as per the report, loan (including unsecured loan) only included advances and security deposits for construction activities from parties and from others and the claim of the AICC that total loan of Rs. 88.71 crore was advanced from only one party i.e. name of the AICC was not mentioned. In this regard, it is humbly submitted that the foregoing conclusion of the AO based on the afore-quoted note in the Annual Accounts of AJL is totally illogical and irrational. As noted by the AO himself (at page 21 of the assessment order), AICC in its reply to notices issued to it had stated that as on March 31, 2010 it had advanced loan of Rs. 88.86 crores to AJL. Further, as noted by the AO, the annual reports of AJL for year ended March 31, 2010 showed total unsecured loan of Rs. 89.67 crores. (para 8.1 at page 20 of the assessment order). Hence, the total amount of unsecured 63 loan reported in the books of AJL was more than the amount of loan given by AICC to AJL as on that date. The AO has come to the conclusion that AJL has not disclosed the loan given by AICC merely on the basis that the name of AICC is not separately mentioned in the Annual Accounts of AJL. It is submitted that there is no requirement under the Companies Act that the name of the lenders have to be separately mentioned on the face of the financial statements prepared by a company. The details of lenders appear in the ledger accounts maintained by the company and not on the face of the balance sheet. Accordingly, it is submitted that the reasoning given by the AO for concluding that the loan was not disclosed in the annual accounts of AJL is totally baseless. The AO has relied on the note in schedule X of the annual accounts of AJL, which states that the unsecured loan includes the amount taken in earlier years for its construction activities. Again, it is humbly submitted that said note in no manner results into conclusion that loan from AICC has not been disclosed by AJL. Indeed, the amount of unsecured loan disclosed in balance sheet of AJL exceeded the amount of loan given by AICC. Hence, said total amount of unsecured loan could have included the amount borrowed for construction activity. It fails any logical reasoning as to how said fact could result in the conclusion that the loan was not disclosed in the books of AJL. Further, if the AO had any doubt about the disclosure of the loan, he should have asked the Appellant to clarify the same. However, no such opportunity was provided to the Appellant. Accordingly, it is submitted that the foregoing reasoning given by the AO ought to be disregarded. b. The AO has further observed that the amount of the unsecured loan of Rs. 88.86 crore or Rs. 90.21 crore did not tally with amount of unsecured loan as per balance sheet of the AJL.

It is again reiterated that the AO has merely tried to confuse the facts by making such statements. As noted by the AO himself, the annual reports of AJL for year ended March 31, 2010 showed total unsecured loan of Rs. 89.67 crores whereas the amount of loan given by AICC to AJL upto March 31, 2010 was Rs. 88.86 crores. Hence, the logical conclusion that arrives is that the unsecured loan of Rs. 89.67 crores included the loan taken from AICC. Indeed, if one sees the annual accounts of AJL for FY 2010-11, it would be observed that since the loan received from AICC was converted into equity shares, the amount of unsecured loan appearing in the balance sheet is Rs. 0.81 crores, which is the difference between Rs. 89.67 and Rs. 88.86 crores (Please see page 483 of PB I). Further, since AICC had loaned a sum of Rs. 1.35 crores in FY 2010-11, the question of aggregate sum of Rs. 90.21 crore appearing in annual accounts of AJL for FY 2009-10 cannot at all arise. Accordingly, it is submitted that the AO has merely made loose remarks in the assessment order without properly applying his mind. Further, if the AO had any doubt about the figures not tallying, he should have asked the Appellant to clarify the same. However, no such 64 opportunity was provided to the Appellant. Accordingly, it is submitted that the said reason given by the AO is totally incorrect. c. The AO has further alleged that the quantum of loan of Rs. 90.21 crore was coincidentally just sufficient for allotment of 9.021 crore shares of the AJL to the assessee which accounted for 99% of share capital of the AJL which would allow complete takeover of the AJL by the assessee. It is humbly submitted that again the foregoing reasoning of the AO is completely without any proof and incomprehensible. Firstly, it is submitted that the foregoing statement of the AO is without an iota of any proof of any nature and only a figment of his imagination. Secondly, even if it is assumed that the loan was a bogus entry with the intention to acquire ‘99%’ shareholding in AJL, it defies any logic why an odd figure of Rs. 90.21 crores was made up by the Appellant so as to acquire 98.79% of AJL. The total share capital of AJL before and after conversion of the loan was Rs. 1.09 crores and Rs. 91.31 crores, respectively. There isn’t any indication as to how this conclusion has been arrived by the AO except that he was under a preconceived notion that the entire transaction was sham and bogus. It is humbly submitted that such baseless remarks cannot be given any heed. d. The AO further states that AICC in its reply to notices issued u/s. 133(6)/ 142(1) of the Act, did not provide any evidence to prove time period as well as mode of advancing the alleged loan of Rs. 90.21 crore to AJL. By referring to the replies given by AICC, the AO concludes that during the course of assessment proceedings, the assessee or AICC had not furnished any evidence disclosing the date and mode of advancing loans totalling to Rs. 90.21 crore to the AJL. It is humbly submitted that the proceedings between the income tax department and AICC cannot have any relevance in the assessment proceedings of the Appellant. It is submitted that the AO has not asked the Appellant to submit any evidence in respect of date and mode of advancing the loans. Indeed, since the said loan was not advanced by the Appellant, it could not even produce such evidences, since the same was not in its possession. Accordingly, it is submitted that if AICC did not, for any reason submit the evidences, the same cannot have the impact on the assessment of the Appellant. Besides, it is submitted that the fact the loan was actually given by the AICC to AJL is clear from the loan assignment deed submitted by the Appellant to the AO (Please see pages 550 to 556 of the PB-II). Also, AICC has in fact confirmed to the AO that the loan was given by it to AJL (please see AICC reply as reproduced at page 21 of the assessment order). However, despite these evidences, the AO chose to believe that the loan was only a paper entry and an artificial step created to acquire 99% shareholding in AJL. 5.32 Though the foregoing conclusion of the AO is unjustified, to further substantiate its point, the Appellant would like to point out the following: 5.32.1 In the year 2012, in respect of loan given by AICC to AJL, a petition was filed before the Election Commission of India by a political rival of AICC seeking derecognition of AICC under section 16A of Election Symbols (Reservation and Allotment Order), 1968 on the ground that the party loaned more than Rs. 90 crores to AJL in violation of the guidelines and rules for registration as well as recognition of political parties. The Election Commission of India dismissed said petition holding that there is no direction or instruction of the Election Commission regulating the manner in which the party may spend the funds raised by them and that section 29B/C of the Representation of People Act, 1951 provide for the manner in which the political parties may raise funds and that there is no provision whatsoever in the Act prescribing the manner in which the political parties may use those funds. The copy of said order of the Election Commission is attached at page 709 of PB II. It is humbly submitted that the said order clearly validates the authenticity of the loan provided by AICC to AJL. 5.32.2 Further, to meet the foregoing baseless allegations of the AO, the Appellant has also approached both AICC and AJL (Page 725 and 736 of PB-II) and obtained the ledger details of AICC showing loan given to AJL since FY 2002-03, confirming the loan given by AICC to AJL (Page 726 to 735 of PB-II) and the details of utilisation of loan by AJL (Page 737 to 738 of PB- II). It is submitted that prior to the year 2002, AJL was going through financial distress and hence required funds for running the publications. National Herald and other publications of AJL, in accordance with the Objects of AJL, were being run in accordance with the policy and principles of the Indian National Congress. AICC started advancing loans to AJL to help them in their financial hardship. AICC started advancing the said loan from 07.04.2002 in fractions of Rs. 2.0 lakhs to Rs. 12 crores apart from nominal amounts for meeting expenses. The said amounts over a period from the year 2002 to the year 2011 aggregated to Rs. 90,21,68,980/-. It is further pertinent to point out that Rs. 90,20,22,785/- of the amount advanced to AJL were by way of cheques. The said fact may be observed from a bare perusal of the extract of loan account of AJL in the books of AICC as attached above. AJL utilized the amounts advanced by AICC inter alia for meeting its expenses of running the publications including paying employees’ salaries, VRS, PF, ESI, statutory dues and taxes and building and maintaining its newspaper offices as is clear from the usage details obtained from AJL, as mentioned above (Page 738 of PB II). Hence, it is apparent that the loans were given by AICC to AJL over a number of years since 2002 and it is not a one time transaction, which can be summarily disregarded as has been done by the AO. 5.32.3 Also, it may be kindly noted that the income tax department itself has in the assessment of AJL for AY 2011-12 examined the details of loan advanced by the AICC to AJL and in the assessment order mentioned that ‘examination of details filed by the assessee reveals that in earlier years, AICC had given interest free loans in various transactions from time to time to the assessee company amounting to Rs. 90,21,68,980/- .’ Further, it was held there that since the loan was discharged by conversion into equity shares and not by account paying cheque, section 269T of the Act was contravened. The copy of said assessment order is attached at page 739 of PB-II. 5.33 In view of the foregoing evidence, the Appellant humbly submits that the first reason of the AO to make addition u/s. 28(iv) that the loan was a paper entry ought to be totally disregarded. 5.34 In fact, the allegation that the loan was non-existent does not survive now in view of stand taken by the Revenue in section 12AA cancellation proceedings and the reliance on Delhi High Court decision in LPA 10/2019 and CM No. 566 & 649/2019. Allegation 2: The loan of Rs. 90.21 crores could have 5.35 been repaid by AJL and there was no reason to assign the same for Rs. 50 lacs. (Para 8.4 of assessment order) 5.36 The AO has further alleged that there was no logic that loan of Rs. 90.21 crores was assigned to the Appellant for a consideration of Rs. 50 lacs. He alleges that the reason of the Appellant that AICC assigned the loan of Rs. 90.21 crore to the Appellant for a paltry sum of Rs. 50 Lacs because AICC was not sure if the AJL would be in position to return the loan is not correct. 5.37 In this regard, it is submitted that the logic for assignment of the loan by AICC to the Appellant for a sum of Rs. 50 lakhs has been explained in detail in the deed of assignment of loan, which is on record before the AO (Page 291 of PB-I). As would be observed from the recitals of the deed,

AICC has recognised therein that the Appellant is incorporated with the objects of inculcating in the mind of India’s youth, commitment to the ideal of a democratic and secular society for its entire populace without any distinction as to religion, caste or creed and to awaken India’s youth to participate in activities that may promote the foregoing activities. It further states that AICC endorses and supports the above objects of the Appellant, which AICC has steadfastly advocated. Hence, to support these objects and also keeping in mind that AJL is not presently in position to repay the loan, it has agreed to assign the loan for Rs. 50 lacs. In fact, para 2.1 of the deed states that the loan assigned to the Appellant for monetary consideration of Rs. 50 lakhs and for other good and valuable consideration as set out in Recital E. (Page 293 of PB I). 5.38 Accordingly, it is at the outset, submitted that the Appellant never claimed that AICC has assigned the loan to AJL solely because it thought it could never be repaid. The background behind this transaction has already been explained at the start of this submission. 5.39 Nevertheless, it is further submitted that the reasons given by AO to state that AJL was in the position to repay the loan are also not logical and lack rational thinking. The said reasons are as under: a. The AO states that since AJL has several properties in prime locations worth several hundred crores, the only logical conclusion could be that AJL was financially sound enough to return the loan of Rs. 90.21 crores to the AICC.

In this regard, it is submitted that this conclusion of the AO that AJL was financially sound enough to repay the loan by virtue of owning several properties is factually incorrect. A bare perusal of the lease or allotment conditions of the properties of the company in Mumbai, Delhi, Panchkula and Patna (with the exception of the Lucknow property) clearly shows that these are leases or allotments with several restrictive covenants and are, therefore, not freely marketable properties. Thus, the assumption of the AO that the properties could defray the loan liability is incorrect. The detailed submission bringing out various restrictive covenants attached to the properties is explained the submission relating to valuation of the properties. Moreover, even though AJL owned real estate properties, it was never the intention of the company to liquidate these assets, which were acquired by it for its publication business and which was temporarily suspended due to lack of funds to run the activity. The Company remained fully committed to fulfilling its objects of publishing newspapers and ending the temporary suspension of publication. This fact is further substantiated that the Company resumed newspaper publication and is running a healthy and active newspaper publishing business. The company was formed to undertake publication business to promote and adhere to policies and principles of Indian National Congress. Hence, even AICC never intended for AJL to liquidate and repay its loan. The publication business of AJL was only suspended due to operational issues. However, it was never the intention to liquidate the company.

Further, at that time period, these properties did not even fetch any substantial rent since they were not in the state to be let out. In fact, out of five properties of the 68 company, only properties at Lucknow and Delhi had old constructed buildings, which were rented out at nominal value. Properties at Panchkula and Mumbai were barren lands. Further, property at Patna was in adverse possession of jhuggi jhopdi. Further, since the company had faced financial losses in its publication business and was troubled with labour issues, payment of their compensation, etc., the company had taken loans from AICC, who supported its objects. However, due to such high loans in its books and suspension of its business, it was difficult for the company to turn around and revive its financial position. As is clear from the balance sheet of the company for the year ended March 31, 2011, the reserves of the company were negative Rs. 72.5 crores. It was only after the loan of AICC was cleared by the foregoing transaction that the company was in the position to make a fresh start. It started renovation and construction of its properties so as to let them out and improve its financial position with the long-term view to first stabilise its financial position and then revive its publication business. It would be observed from the financial statements of the company for later years that even though some of the properties of the company have started fetching rent, still the reserves of the company are still in negative. As a year ended March 31, 2015, its reserves was negative Rs. 61 crores. It is submitted that for valuing the company, its practical realities need to be considered and conclusions cannot be arrived at based on conjectures and surmises. Where the commercial and practical reality was that the properties were hit by restrictive covenants and that the company never intended to sell its real estate assets at that time, to ascribe value to them as if they could be sold and concluding that the company had substantial value lacks commercial substance. It is reiterated that the company has been trying to revive its financial position and its publication business. In fact, in FY 2016-17, the company had already restarted its digital publication business and in the following financial year revived its traditional print newspaper business thus ending the brief “temporary suspension”. Thus, this process has revived a financially distressed Company and today enabled it to be a healthy going concern newspaper and digital publishing business run in the public interest. The detailed submission on the aspect that the publication business has recommenced in provided later in this submission. b. The AO has also alleged that even though AICC thought that the loan was not repayable, in the Notes to Accounts of AJL for FY 2010-11, in para-1, it is mentioned that the management is of the view that the operation of the company have fair chances of turnaround. He then concludes that since AICC and AJL have common management, if they were of the view that operation of the company would start and the financial position would improve, then how could they think that loan could not be repaid.

In this regard, it is again reiterated that what is mentioned in the loan assignment deed is that the loan could not be repaid at that time. Clearly, as stated earlier, the company always intended to revive its business and believed that the financial position of the company would turnaround. However, the same cannot happen overnight. The foregoing note referred to by the AO is the one where it is mentioned that the accounts of the company have been prepared on a going concern basis since it believes that its business would revive. This in fact supports the foregoing statement of the Appellant that the company never intended to liquidate and sell its assets. Accordingly, it is submitted that the foregoing reasoning of the AO also lacks the understanding of the complete picture. c. The AO has further alleged that if AICC believed that its loan was not repayable, then why did it advance fresh loan of Rs. 1.35 crores to AJL in FY 2010-11. It is submitted that as stated earlier, AICC always supported the objects of AJL and the loan was advanced to support AJL. The said loan of Rs. 1.35 crores was advanced by AICC to support AJL (a portion of which was used to meet the statutory fees payable to ROC and another portion was used to pay to a former tenant pursuant to a court order). The loan was assigned to the Appellant, whose objects were also congruent to that of AJL. 5.40 In view of the foregoing, it is submitted that the said allegation of the AO does not hold any merit.

5.41 Allegation 3: The Appellant had no means to pay even Rs. 50 lakhs (Para 8.3, 9(6) of the assessment order). 5.42 The AO has further alleged at several places that at the time of assignment of loan, the Appellant did not have any money to make payment of the consideration of Rs. 50 Lacs. 5.43 In this regard, it is submitted that the foregoing observation of the AO is factually incorrect. As was submitted to the AO vide submissions dated June 7, 2017, the Appellant had on December 24, 2010 entered into an arrangement with Dotex, an RPG group company to take loan of Rs. 1 crore. In fact, a cheque dated December 24, 2010 of Rs. 1 crore was already handed over to the Appellant by Dotex on same day. The deed through which loan was provided and the fact that cheque was handed over is at page 246 of PB I. The same could not be encashed by the Appellant because the bank account of the company was not yet opened. As compared to this, the deed of assignment was entered into between the Appellant and AICC on December 28, 2010. Accordingly, it is submitted that the allegation of the AO that AICC assigned the loan to the Appellant even though the Appellant was not in the position to pay the consideration is incorrect. Besides, since the Appellant was a newly formed company in the year 2010-11, nonavailability of fund in the very beginning may not be so material, especially when the liability was ultimately discharged. 5.44 The AO alleges that during the course of assessment proceeding, the Appellant could not explain any plausible reason for undue hurry in the sale of the loan of Rs. 90.21 crore to the Appellant on credit when it did not have sufficient fund to pay the consideration. The Appellant humbly submits that it had already arranged for a loan to pay the consideration and that the cheque was already issued to the Appellant by Dotex before the assignment of loan. 5.45 Allegation 4: AJL business was closed in 2008 as a part to take over the assets of AJL 5.46 In this regard, at the outset it is submitted that AJL’s business was not closed in 2008 but was only temporarily suspended, which was necessary due to the huge financial losses faced the company, the labour troubles and strikes, etc. which have been discussed in detail above. 5.47 The said fact is also noted in the ITAT decision in Appellant’s case in 12AA registration cancellation matter, wherein at Para 37 it is noted that the business of AJL was temporarily closed and that this fact was also reported by various newspapers. The relevant extract of para 37 of the order (Page 82 of Revenue PB I) is as under: “The AJL started publishing newspapers, i.e., National Herald in English, Navjivan in Hindi and Qaumi Awaz in Urdu, which served as the voice of the freedom movement. It was also argued that from time to time, publication business of AJL was suspended and again it was revived. In the year 2008, since AJL started facing financial, operational and labour troubles, the company had to again temporarily suspend its publication business. In support, events leading to temporary suspension of publication business in 2008 were also submitted. These were stated to on account of labour unrest and strikes, printing machinery had become obsolete and there was dip in the circulation of its newspapers and most of its buildings were sealed due to non-payment of labour dues. Not only that, a fire had broken out in its Lucknow premises, which destroyed the printing press. Owing to the said trouble and continuous losses, the publication was temporarily suspended. The publication business was temporarily suspended, is clear from the fact that on 31.03.2008, AJL informed United News of India (UNI) about the temporary suspension of publication business. Even third party newspapers had published that there was temporary suspension of publication business by AJL. Thus, there was no closure of business or business itself had ceased to exist, rather it was only a temporary suspension. He submitted that, in fact, the publication had later on re-commenced..” (emphasis supplied) 5.48 In fact, the fact that the publication activity was only temporarily suspended is proved beyond doubt as the publication activity was in fact restarted as demonstrated above. 5.49 Besides, the contention of the AO that business of AJL was closed in 2008 as a step to take over its assets by the Appellant is totally baseless as the Appellant was not even in picture during that year. It is undisputed that the Appellant was incorporated only in 2010. Hence, the entire basis of this allegation fails.

5.50 Allegation 5: AJL is in real estate business (several places in the order). 5.51 The AO has stated at several places that AJL was engaged in real estate business after closure of the publication business. In this regard, it is submitted that firstly the publication business was never closed. Because the publication business was running into losses and the company had suffered huge losses, the said business was only temporarily suspended and has since resumed. Secondly, even during the period of temporary suspension, AJL never engaged in any trade of its real estate properties. Some of these said properties were only given on rent, which is in accordance permitted usage of the properties under the lease deed/allotment letters under which same were allotted to AJL. 5.52 It is submitted that all along, a portion of the built-up properties were rented out by AJL since inception, which is a normal practice in the newspaper business, a capital intensive business, and which is permissible in standard newspaper leases and allotments of immoveable property for newspaper user. Accordingly, even after 2008, the renting activity of AJL continued, which was essential for it stabilise its financial position and be able to recommence resume newspaper and digital publication. As stated earlier, AJL had losses of about Rs. 72 crores as at March 31, 2011 (Page 470-497 of PB I). Hence, continuing to rent out the properties was a necessary step to enable it is stabilize its financial position so as to be able to restart its business activity. In fact, in the year 2016-17 and 2017-18, the digital and print publication activities of AJL respectively have recommenced and the company is fully committed to continue to conduct its publication activities to their fullest potential. 5.53 Hence, it is submitted that such renting does not make AJL a “real estate company” as sought to be depicted by the ld. AO. 5.54 In this regard, it is further submitted that the issue whether AJL is a real estate company or not is now settled by the decision of the Hon’ble Delhi Tribunal in Young Indian vs. CIT(E)[2019] 111 taxmann.com 235 (Delhi - Trib.) where at Para 105 (Page 108-109 of Revenue PB I), it has been held that the proposition that AJL is a real estate company may not be technically correct. 5.55 The Ld. DR has during the hearing stated that even though AJL may not be in ‘real estate business’, it cannot be denied that it was engaged in commercial activity of renting out its properties. In this regard, may we invite attention to Paras 39 to 42 of the ITAT decision in Young Indian vs. CIT(E)[2019] 111 taxmann.com 235 (Delhi - Trib.) (Page where at Para 105 (Page 83-85 of Revenue PB I), where the genesis of the renting activity of AJL has been explained in detail and it has been demonstrated through various charts and documents that renting out of properties is part and parcel of newspaper business which is required to supplement to costs/loss associated with this industry. The said paras read as under:

"The ld. counsel further submitted that the allegation of the ld. CIT (E) that AJL is Real Estate Company is absolutely incorrect. It was pointed out that in public interest, State Governments, as a policy, had allotted lands/buildings to various entities engaged in the newspaper business to partly use it for running newspaper business and partly to rent it out. The same is done by the Government to ensure independence of the press. The newspaper publishing business, being capital intensive in nature, is primarily a loss making business. In fact, the price at which newspapers are sold is very nominal so that it can reach to masses and generally, the cost of publishing a newspaper is higher than the price at which the same is sold. Therefore, in order to promote press and ensure its freedom, the Government allots lands/buildings to various entities engaged in the newspaper business so that they can recoup their losses from publication business and survive by commercially exploiting the said allotted lands/buildings by renting out the same. The lease deed allotting the said lands/buildings specifically permits the lessees to use the property for renting out. Indeed, said practice of renting out the properties by newspaper business is permissible in standard newspaper leases and allotments of immovable property for newspaper user. The aforesaid facts are matter of public knowledge and policy. In support, reliance was placed on the judgment of Hon'ble Supreme Court in the case of Govt. of AP v. Maharshi Publishers Pvt.

Ltd. (Civil appeal 7152-7157 of 2002), wherein Hon'ble Supreme Court has observed as under: "Another contention urged before the Division Bench of the High Court and reiterated before us, is that there were no contracts signed by complying with the formalities under Article 299 of the Constitution and therefore, the Government was not obliged to honour its commitments. This contention has rightly been repelled by the Division Bench of the High Court by pointing out that the sale of the land was not a result of any commercial transaction by the State Government, but pursuant to its declared socio-economic policy reflected in the scheme of allotment of land to give incentives to Newspaper Concerns and Educational Institutions. The High Court rightly held that this was an executive act falling within the province of Article 162 and not within the ambit of Article 299 of the Constitution."

Bahadur Shah Zafar Marg, New Delhi for the purpose of carrying out newspaper publication. As per terms of allotment, AJL was allowed to let out part of the building to be constructed on the same. In the year 1983, Government of Maharashtra allotted a property to AJL in Mumbai for the purpose of carrying out publication of daily newspapers and establishing a Nehru Library cum Research Institute. Similarly, allotment was made by the Government of Bihar in Patna and Government of Haryana in Panchkula. Apart from that, AJL also owns freehold land in Lucknow purchased in the year 1975. Thus, allotment of land by the Government for publication business cannot be held that AJL had acquired the properties for any kind of Real Estate Business. Certain Annexure were filed by the assessee to show that the construction of the Delhi property was completed in the year 1967 and the same has been given on rent since year 1990. It was pointed out the Patna property is an encroached land on which no construction activity has been undertaken ever. Property in Lucknow is a freehold land comprising of two parts, Nehru Bhawan and Nehru Manzil. Construction of Nehru Bhawan was completed in the year 1984 and newspaper activity was conducted there from. However, a fire broke out in the year 2002 destroying the printing press, after which the building was repaired in the FY 2007-08 and given on rent to a charitable organization. In case of Nehru Manzil, construction had started in the year 1988, but was never completed due to financial constraints. In case of Panchkula property, the construction has been completed in 2013, from where newspaper activity is being conducted. In case of Mumbai property, the construction is still in process, which after completion would be used for newspaper activity, for establishing a Nehru Library cum Research Institute and be partly let out as per the permissible terms of allotment. Hence, it was submitted that CIT (E)'s observations that AJL started constructions after year 2008 is also untrue. It was submitted that there was temporary suspension of publication business in the year 2008, and to further strengthen and improve liquidity and to improve the financial position of the company, AJL substantially renovated two properties, namely Delhi and Lucknow, in order to earn higher rents from these immovable properties so as to be able to use the proceeds to resume newspaper and digital publication. It started renovation and construction of its properties so as to let them out and improve its financial position with the long- term view to first stabilize its financial position and then revive its publication business. Ld. Counsel pointed out that, in the years 2016-17 and 2017-18, the digital and print publication activities of AJL respectively have recommenced and the company is fully committed to continue to conduct its publication activities to their fullest potential. In FY 2016-17, the company had restarted its digital publication business and in the following financial year revived its traditional print newspaper business, thus ending the brief "temporary suspension". Thus, renting of the properties has revived the financially distressed position of AJL and today it is a healthy going concern newspaper and digital publishing business run in the public interest. Thus, said activity cannot be said to be real estate business.

42. Regarding allegation of ld. CIT (E) that AJL had some properties which goes to show that it is a real estate company, for which reference was made by him to the notes on account of AJL as on 31.03.2009, wherein it was stated that the company has taken booking amount for sale of shops and floors from intended purchasers in Lucknow and has paid amount for buy-back of shops. Ld. Counsel submitted that the word "buy-back" has been loosely used in the said note because it represents repayment of the booking amount taken from the intended purchasers. In order to construct Nehru Manzil property at Lucknow, in the year 1988, AJL had raised fund by taking amounts in the form of booking amount towards shops that would have been sold in the constructed property. However, since AJL was unable to complete the construction due to financial constraints, it suspended the construction and gradually refunded the booking amount to the parties. Not a single property has been sold and all the properties remain in dilapidated conditions even today. In any case, the transaction, which has taken place in the year 1988, for which the booking amount was received, has no relevance for the period when the publication business was temporarily suspended. The fact that Lucknow property was never sold is also evident from the accounts of AJL for various years. Thus, when the assessee has not earned income from any sale of property then it can never be treated as Real Estate Company since 2011-12. AJL never stated in its account or its ITR that its income is from Real Estate business.” 5.56 In this regard, attached herewith is the list of certain properties of major newspaper companies in Delhi along with the list of the tenants for various such companies at page 1614- 1616 of PB VI. Thus, it was submitted that practice of allotment of land to newspaper companies and such newspaper companies using the same for renting purpose is part and parcel of the publication activity and is not so uncommon. 5.57 It is accordingly submitted that the mere because AJL was renting out two of its properties does not mean that it was now engaged in the commercial renting business. The nature of activity of an assessee ought to be seen in the business realities of the assessee. In AJL’s case, since the renting activity was part and parcel of the newspaper activity, the same cannot be looked upon as a separate commercial activity undertaken by AJL. 5.58 Allegation 6: The objects of AJL was never recasted before 2016 5.59 The AO has stated that though it was mentioned in the notes to account of the Appellant that the main object of the AJL was in process of recasting so as to match to the object of the Appellant, ‘the issue whether the object of the AJL which was engaged in the real estate business was actually recasted to match the object of the Appellant has also been examined and it was found that the object of the AJL was never recasted to match with the object of the assessee during, AY 2011-12 to 2016-17.’ 5.60 It appears that the AO is confused between the two sets of amendment that had taken place in the MoA of AJL. As has been categorically pointed out by the Appellant to the AO vide submissions dated June 21, 2017 (page 279 to 287 of PB I), the main objects of AJL were amended in 2011 itself to include the following object in clause (u) and the copy of the Memorandum amended upto 13.9.2011 (relevant page at page 287 of PB I), was also submitted to the AO: “To inculcate in the mind of India’s youth commitment to ideal of a democratic and secular society for its entire populace without any distinction as to religion, caste or creed and to awaken India’s youth to participate in activities that may promote the foregoing objective in any manner whatsoever including, without limitation, participating in all democratic activities through open and transparent electoral process, so as to conform to the ideals of the founding fathers of India, Mahatma Gandhi and Pandit Jawaharlal Nehru”. 5.61 Further, in 2016, the MoA of AJL was further amended to align its MoA to that of a not for profit company (Section 8 company). The said MoA is at Page 89 of the PB-I. Please refer Clauses V(i), (ii), (iii) and Clause X of the MoA AJL, which clearly show that the surplus, if any, in the company cannot be distributed to the shareholders either as dividend or on winding up of the company. 5.62 It is accordingly submitted that the AO is incorrect in alleging that the objects of AJL was not aligned till 2016 which is substantiated from the documents on record. 5.63 During the hearing, the Ld. DR has further argued that the 2016 amendment is not relevant since after said amendment, actual licence u/s. 8 of the Companies Act was not obtained as AJL did not take any steps in respect thereof and that in any case, it is an event which is in the future as far as AY 2011-12 is concerned. 5.64 In this regard, it is submitted that after the 2016 amendment, all the necessary forms were filed before ROC by AJL for making it a section 8 company and therefore, all steps were taken by AJL. However, the same could not fructify due to certain technical problems. In this regard, reference is drawn to Para 81 of the decision in Young Indian vs. CIT(E)[2019] 111 taxmann.com 235 (Delhi - Trib.) (Page 99 of Revenue PB I), where it is noted as under: “81. In so far as, the allegation of the ld. DR that AJL has not filed necessary forms with the ROC to take interest in converting into non-profit entity, reference was made to Form MGT-14 to allege that there is no SRN number mentioned on the said form and therefore, this is evidence created by the assessee. In this regard, he submitted that an extra ordinary meeting of shareholders of AJL was held on 21.01.2016 for which the notice was sent to all the shareholders on 19.12.2015. The meeting was, thereafter, convened and resolution was passed to convert the company into non-profit company. Form MGT-14 was filed with the ROC on 19.02.2016 under "SRN C79224572". Post filing of said form, on 25.02.2016 an email was received from MCA asking for re-submission with certain remarks and in response thereto said form was resubmitted on 10.03.2016 and along with said re-submitted form, the appellant enclosed the letter dated 10.03.2016 explaining why the remarks in the MCA's email have fallacies. Thereafter, nothing has been heard from ROC and there is still stalemate. In any case, once the amended MoA has been approved by the shareholders then the same was binding on all the shareholders, which is binding and effective on the company whether or not license is granted. 5.65 As regards the allegation that this amendment of MoA in 2016 is not relevant, it is submitted that the said amendment is very much relevant as it shows the intention of the Appellant and AJL and also, it is no one’s contention that from 2011 to 2016, any dividend has been declared by AJL. In fact, till today, no dividend or any other benefit of any sought has been obtained by the Appellant or its promoters through AJL. 5.66 Further, in any case, there should be no disputed that the MoA of AJL was also amended in 2011 itself where the objects of AJL were amended to specifically included the same object as that of the Appellant.

5.67 Allegation 7: Allotment of shares by AJL was in violation of the provisions of the Companies Act, 1956 as alleged by AO at Para 9(8), Page 35-36 of the order. 5.68 At the outset, it is submitted that this is wholly irrelevant and unsubstantiated allegation because firstly, the Income-tax Act is not concerned with compliance of procedural requirements of another stature and secondly, if according to Revenue, for want of compliance of such procedural requirement, the allotment is illegal, the whole levy of tax on that basis must fail. 5.69 Further, these compliances are for AJL and not the Appellant. Hence, documents relating to the same were not with the Appellant. Accordingly, in absence of any specific requirement to submit the same by the AO, the Appellant had no reason to call for said documents and submit the same to the AO. Such presumptions of non-compliance based on mere vague allegations shows the mala fide of the AO in the matter. If required, the Appellant would be happy to arrange for said documents. 5.70 Allegation 8: The acquisition of loan/shares was not disclosed in the Balance Sheet of the Appellant 5.71 The AO has also alleged that the acquisition of the loan/shares of AJL was not disclosed in the Balance Sheet of the Appellant for the relevant Financial Year ended on March 31, 2011. He states that the same was camouflaged as expenditure on prescribed object of the Appellant. He accordingly concludes that the reason for above referred accounting treatment was to hide the real transaction from regulatory authorities and Income Tax Department. 5.72 In this regard, it is submitted that the Appellant has in fact given full disclosure of the said transaction in its financial statements in its notes to accounts. Please see page 56 of PB-I. As would be observed therefrom, the said note clearly discloses the acquisition of loan by the Appellant for Rs. 50 lacs and conversion thereof into equity shares of AJL. It further provides the reason for showing Rs. 50 lacs as an expenditure instead of investments. In fact, the AO himself at various places in the assessment order refers to the said note. Accordingly, it is submitted that even this allegation of the AO and the conclusion drawn therefrom is unwarranted. 5.73 Allegation 9: Loan taken by the Appellant from Dotex is a paper entry 5.74 The AO has further alleged that the loan taken by the Appellant from Dotex was a paper entry. Appellant’s reply to various observations of the AO is this regard is dealt with in Ground X. Based on the submissions, the Appellant humbly submits that even this allegation of the AO is completely untrue and it is proved beyond doubt that the Appellant had in fact taken loan of Rs. 1 Crore from Dotex, an RPG Group Company, through a normal and bonafide banking transaction. 7 5.75 Allegation 10: In order to achieve object of taking over 100 percent shares of AJL Smt. Sonia Gandhi (SG), MP, Shri

Rahul Gandhi (RG), and Smt. Priyanka Gandhi Vadhera (PGV) also purchased addition 47,513 and 2,62,411 shares of AJL through Rattan Deep Trust and Janhit Nidhi Trust, respectively (Page 6, Bullet 10 of assessment order and several other places) 5.76 In relation to the foregoing allegations, a clarification was also sought from the Hon’ble Tribunal as to whether the Appellant and AJL have same shareholders and directors. 5.77 In this regard, it is submitted that the directors of AJL and the Appellant were common, as is clear from the assessment order (Page 33 of AO order) as well as the CIT(A) order (page 175 of the order, para 5.4.18); however, the shareholders are not same. AJL has always been a public company, with more than 1000 shareholders. The sample list of shareholders has been attached by AO as Exhibit 11 and 12 at pages 38 and 39 of the assessment order. The two main shareholders of AJL were Janhit Nidhi Trust (28.16%) and Rattan deep Trust (5.10%). These two trusts are also public charitable trusts which held the shares of AJL since in 1950/70s. Janhit Nidhi Trust was established in 1950s. Various prestigious persons have been Trustees of the this trust from time to time. Janhit Nidhi Trust acquired 262411 (28.16%) prior to 1978 i.e. before PGV became trustee of the said trust. Though PGV was trustee in FY 2010-11 and FY 2011-12 along with Rameshwar Thakur, she resigned as a trustee of this Trust in November 2013. Ratan Deep Trust is also a public trust that was established in 1970s. Various prestigious persons have been Trustees of this trust from time to time. Ratan Deep Trust acquired 47513 (5.10%) during the period 1977 to 1978 i.e. before RG became trustee of the said trust. Though RG was trustee in FY 2010-11 and FY 2011-12 along with Rameshwar Thakur, he resigned as a trustee of this Trust in November 2013. Even after change in the Trustees, these charitable trusts continue to hold the shares of AJL. 5.78 At page 42 of Assessment Order, the AO states the aforesaid Trusts ‘acquired’ shares in FY 2011-12. Similar finding is at pages 37, 39 and 45 of the assessment order. CIT(A) has also referred to this finding at page 177 of the CIT(A) order, 1st para of the page. However, the AO has simply relied on Annual ROC return filed by AJL of one year and not seen ROC returns of the preceding and the subsequent years. If one sees the same, it would be realised, there has not been any fresh acquisition of shares of AJL in any of these years. These are old shares of AJL held by the two public charitable trusts since decades and still continue to hold the same. 5.79 Hence, RG, SG and PGV have never held any shares in AJL in their individual capacity. 5.80 Allegation 11: The steps undertaken for acquiring the shares of AJL are in illogical sequence of events and the conclusion is simple that Mrs. Sonia Gandhi and Mr. Rahul Gandhi along with their trustworthy associates have taken over the assets of AJL. (Para 3 – the Table and the para at the end of table at pages 5- 9 of the assessment order and several other places.)

5.81 The AO also ultimately observed that there are various illogical steps undertaken such as payment of Rs. 50 lakhs happened after the conversion of loan, etc. and ultimately concluded that all these steps were taken so that Mrs. Sonia Gandhi and Mr. Rahul Gandhi along with their trustworthy associates could take over the assets of AJL. 5.82 In this regard, it is firstly submitted that there is nothing incorrect in the sequence of the events as referred to by the AO. It is not necessary that the Appellant should have immediately paid the consideration of Rs. 50 Lakhs to AICC on the date of assignment of loan itself. It is a normal practice to allow credit period for payment of dues. That by itself has no relevance to decide the genuineness of the transaction. As regards the allegation that the entry in the books was on 16.12.2010 even though the deed of assignment of the loan was 28.12.2020, it is submitted that the date of journal entry was 18.10.2010 and not 16.10.2010 as stated by the AO and the same was a mere clerical error. 5.83 The AO also states that the letter dated 28.12.2020 from Motilal Vora to the BOD of AJL informing about assignment of loan, was not acknowledged by AJL. (Para 8.5 of assessment order). In this regard, it would be appreciated that by conduct it is clear that AJL acknowledged the assignment and if there is no assignment then the whole controversy of addition under section 28(iv) becomes non-issue. Similarly, the AO has pointed out other such nuts and bolts issues and then ultimately, based on these observations, the conclusion he arrived at is that ‘Mrs.

Sonia Gandhi and Mr. Rahul Gandhi along with their trustworthy associates have taken over the assets of AJL’ and that this is a fraudulent transaction. 5.84 In this regard, as explained in detail above, the assignment of loan and conversion thereafter into equity shares of AJL followed by conversion of AJL into a non-profit organization are all different steps in the process of enabling the assessee to achieve its objectives of reaching out to the youths of India in pursuance of its charitable objectives through the platform of AJL by reviving AJL's publication activities. If one looks at this bigger picture, the quick succession of the events taking place can be appreciated. These are transactions outside the realm of business or trade. Viewed from this stand point, the issues raised by the ld. AO reduces to nullity. 5.85 Further, it is undisputed that the Appellant, even though its registration u/s. 12AA has cancelled (though the matter is presently sub-judice), it continues to be a charity as per its MoA and as per the licence u/s. 25 granted to it, which is still valid licence. In this regard, attention is invited to the Licence u/s. 25 of the Companies Act, 1956 issued to the Appellant, at page 59 of PB-I. As would be observed therefrom, the conditions provided in the licence itself provides that the income of the company can be used only for the objects of the company and cannot be distributed as dividend or in any other manner (Clause 2 of the licence). Further, as per clause 4, no member shall be appointed to any office under the company which is remunerated by the salary, fees, or in any other manner.

Further, as per clause 7 of the licence, the company cannot even alter its MoA and AoA, except with the prior approval of the Central Government. In fact, the conditions provided in the licence are also replicated in the MoA of the Appellant at clauses XII(1), (2), (3), (4) and (5) (page 65 of the PB-I). Also, clause V of the MoA too states that no change or alternation can be made to be MoA or AoA without prior approval of the Central Government. (page 64 of the PB-I). 5.86 Hence, it is submitted that even though as on today, the registration u/s. 12A stands cancelled, it is undisputed that the Appellant was and continues to a charitable organisation and all the restrictions applicable to a charitable company is applicable to it. When seen in this light, it would be realised that all the allegations made by the AO about common office bearers, ultimate benefit, etc. obtained by the promoters of the Appellant has no relevance at all, since at the end of the day, any income of the Appellant can be used for no other purpose except for its objects and it cannot be diverted for the benefit of any other person or for any ulterior purpose in any manner whatsoever. Even today, under no circumstance, the alleged benefit of assets of AJL can percolate to any members of the Appellant company. In fact, the AO has not even made any attempt to show that any personal benefit is being taken by the Appellant or any of its members or that the MoA of Appellant has ever been sought to be amended in so many years since 2011.

5.87 Besides, even the shareholders of AJL had passed a unanimous resolution on January 21, 2016 to get the company registered under section 8 of the Companies Act, 2013, the effect of which is that even AJL is prohibited from declaring dividend or distributing or paying any amount to its members. Please see the amended MOA of AJL at page 89 of PB-I. 5.88 Hence, the allegation of the AO that the alleged illogical steps makes the entire transaction a fraudulent transaction or an adventure in the nature of trade is incorrect. 5.89 Allegation 12: Through all the foregoing allegations the AO has ultimately concluded that the Appellant has benefitted from the assets of AJL taken over by the Appellant. (Various places of the assessment order). Further, the Ld. DR has stated that the corporate veil of AJL has already been lifted by the Delhi High Court and therefore, benefit has arisen to the Appellant. 5.90 The Appellant humbly submits that despite the elaborate discussion and accusations of the AO with respect to the transaction in question, there is no basis to arrive at the foregoing conclusion that by acquiring the loan from AICC and conversion thereof into shares of AJL, the Appellant has itself acquired the ‘assets’ of AJL. In the entire assessment order, the AO has not demonstrated any benefit which the Appellant has actually received by acquisition of shares of AJL. He has merely alleged that by acquiring the shares of AJL, the Appellant has taken over the assets of AJL. However, no facts have been put forward to prove the same except that the registered office of the Appellant is at one of the rooms of various properties of AJL, for which no rent is being paid. 5.91 It is submitted that AJL has permitted the Appellant company to use a portion of one room on the ground floor of Herald House as its registered office vide letter dated 15.1.2011. Please see page 468-469 of PB-I for the request made by the Appellant and letter given by AJL, respectively. By merely allowing the Appellant to use a portion of a room in one of its properties as registered office, the Appellant cannot be said to become the owner/beneficiary of even that one room, let alone all the properties of AJL. It is submitted that the Appellant does not have any ownership rights in the room allowed to be used by it as its registered office. It cannot sell, sub-let, mortgage, lease, etc. said room. It is submitted that in the present case, the Appellant cannot by any manner be regarded to have any ownership interest therein. AJL has permitted the Appellant to use a small portion of the room without rent only because the Appellant is a charitable institute, furthering same objects as that of AJL. Besides, the said room is being used as the registered office of the Appellant, which is more of a post- office arrangement. The insignificance of the said arrangement is apparent from the fact that when the Land & Development officer visited the Delhi Office of AJL, it did not even find the Appellant’s presence at the said place. In this regard, reference is drawn to the decision of the Delhi High Court in the case of AJL vs. Land & Development Office (LPA 10/2019 & CM Nos. 566/2019 & 649/2019), wherein at Para 7 (Pages 158-159 of Revenue PB-II dated 17.01.2022), it is stated that the L&DO officer inspected the premises of Delhi Property of AJL and in its inspection report made the following notings: “The floor wise report is as under:- (A) Basement: The basement was lying more or less vacant. Some scrap materials and an old printing machine, not in working condition, were found lying there. However, front side mezzanine in Basement is being used by Akash Gift Gallery in an area of 84 sq.ft. This comes under misuse category. (B) Ground Floor: The floor is rented out to Passport Seva Kendra. Apart from this, unauthorised pucca construction used as panel room in rear in an area measuring 1010.03 sq.ft. (C) First Floor: The floor is rented out to Passport Seva Kendra. (D) Second and Third Floor: The floors are rented out to Tata Consultancy Services. (E) Fourth Floor: The floor is being used by the Lessee for its office. Photographs taken at the premises are also enclosed.” 5.92 As would be observed, in the detailed floor by floor listing made by the L&DO, the presence of the Appellant was not even found at the Delhi Property of AJL. 5.93 The AO has also alleged that from the extract of the report of the DVO, extracted at page 49 of the order, it is clear that the properties of AJL were under custody and control of the Appellant and that the employees of the Appellant prohibited the DVO from entering the premises of AJL. It is submitted that even this allegation of the AO is grossly incorrect. From the perusal of the said extract of the report of the DVO referred by the AO, it cannot at all be concluded that the Appellant was in custody or control of the properties of AJL. In fact, as is evident from the extract, the Appellant had in its reply dated 31.8.2017 intimated to the DVO that any attempt on the Appellant’s part to allow DVO to entered the property of AJL may be viewed by the owner as an act of trespass. (Please see page 49 of the Assessment Order). The Appellant fails to understand that if AJL did not permit DVO to enter its properties, how would that lead to the conclusion that the Appellant was in control of the properties of AJL. 5.94 In any case, apart from the foregoing instance, the AO or the Revenue has not pointed out any instance of any benefit which the Appellant has derived by acquiring shares of AJL. 5.95 It is humbly submitted that by acquiring the shares of AJL, the Appellant has not acquired any right over the assets of AJL. In fact, by acquiring the shares of AJL, it was never intended to make any gain. Clearly, the Appellant being a section 25 company, any alleged gain which the company could have derived could never be distributed as dividend by the Appellant. Hence, there could be no motive to undertake such transaction to derive any benefit or gain. This is, indeed, fully borne out of the fact that the shareholders of AJL had passed a unanimous resolution on January 21, 2016 to get the company registered under section 8 of the Companies Act, 2013, the effect of which is that even AJL is prohibited from declaring dividend or distributing or paying any amount to its members. Also, as discussed in detail in Ground VIII, the properties of AJL itself are subject to various restrictive covenants and the company is not allowed to sell or dispose off its assets, which were received with the purpose of utilization in publishing business. 5.96 It is submitted that with the foregoing restrictions on usage of assets of AJL, the conclusion arrived at by the AO that by acquiring shares of AJL, the Appellant has 84 acquired the assets of AJL is completely barbarous. In fact, if one looks at all these past years since acquisition of the shares of AJL, no benefit, monetary or otherwise has been received by the Appellant since its incorporation in November 2010 till date. 5.97 The rationale behind entering into the said transaction has already been explained in detail above. It is reiterated again that the Appellant is a Section 25 company founded on Gandhian and Nehruvian ideology and since the objects of AJL were similar, its shares were acquired by the Appellant to further its objects. The shares were not acquired for any commercial motive as alleged by the AO. 5.98 Besides, it is trite law that by acquiring the shares of a company, the shareholder does not become the owner of the assets of the company. In this regard, reliance is placed on the decision of the Supreme Court in Mrs. Bacha F. Guzdar vs. CIT (27 ITR 1)(SC)(Page 11-16 of LPB VII), wherein it has been held as under:

“a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word “assets” in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them” 5.99 Similar view has also been held in the following decisions: • Rustom Cawasjee Cooper v. Union of India [1970] 1 SCC 248; • Carew & Co. Limited vs. Union of India (46 CC 121) (SC). 5.100 It is accordingly submitted by merely acquiring the shares of AJL, the Appellant has not become the owner of the assets of AJL. 5.101 The Appellant submits that regardless of various untrue and misconceived allegations levelled by the AO with regards to the manner of acquiring the shares of AJL by the Appellant, the ultimate conclusion that the Appellant has become the owner of the assets of AJL, or that it has taken over the assets of AJL is completely baseless, illogical and factually incorrect.

5.102 During the hearing, the Ld. DR has relied on the Delhi High Court decision in the case of The Associated Journals Limited vs. Land & Development Office (LPA 10/2019 & CM Nos. 566/2019 & 649/2019) (Page 154 of Revenue PB-II dated 17.01.2022) to state that the Delhi High Court has in the corollary proceedings lifted the corporate veil of AJL and held that the Delhi Property of AJL is transferred to the Appellant on acquisition of shares of AJL by the Appellant. By relying on this finding, the Ld. DR has contended that there can be no dispute that the benefit has arisen to the Appellant. 5.103 In this regard, the Appellant wishes to submit as under:

5.103.1 Firstly, the decision of the Delhi High Court is a matter of further challenge and interim protection has been granted to AJL. In view of the interim order of the SC, the HC decision cannot be relied upon. In this regard, reference is drawn to Para 67 of the ITAT decision in Young Indian v. CIT [2019] 111 taxmann.com 235 (Delhi - Trib. ) (Page 94 of Revenue PB I) wherein the said contention of the Appellant has been noted in detail. 5.103.2 Further, the proceedings before the Delhi High Court cannot be regarded as a ‘collateral proceedings’ as contented by the Ld. DR. The two proceedings are not intertwined. The case before the Delhi High Court was in respect of alleged breach of lease deed for the Delhi Property of AJL (i.e. just one property of AJL) whereas in the present case, the issue is about addition under the Income-tax Act of fair market value of all the properties of AJL on alleged ground that on acquisition of around 99% shareholding of AJL, the Appellant has become beneficial owner of AJL. Clearly, the two proceedings are in different contexts and accordingly, the same cannot be regarded as a collateral proceeding. 5.103.3 Also, in the matter before the Delhi High Court, heavy reliance has been placed by the respondent in that case on the present impugned order passed u/s. 148 which is the subject matter of challenge under this appeal. In this regard, reference is drawn to Para 34-35 of the Delhi High Court decision (page 179-182 of the Revenue PB II), the relevant extract of which reads as under: "34. Learned Solicitor General invited our attention to certain facts which he pointed out are reflected in the proceedings held before this Court in certain tax matters involving shareholders of the appellant company and the Income Tax authorities and argued that a company named and styled Young India Ltd…… …It was when all these transactions came to light that a notice was issued by the Income Tax Department to Young India and thereafter, notices to the individual shareholders of Young India with regard to re-opening of assessment of tax. Sh.Tushar Mehta argued that this Court should take note of these transactions, apply the principle of “lifting of the corporate veil” and then considered the question of as to who is the actual beneficiary of all these transactions, whether the premises in question still continues to be in the ownership of AJL and what is the effect of all these transactions.”

As would be observed, the entire facts based on which the Respondent in that case has argued that the corporate veil should be lifted in based on the finding given by the AO in the present matter. After placing heavy reliance on this order, it has been before the Delhi High Court that the corporate veil of AJL should be lifted. It is submitted that now if while deciding the present appeal, reliance is placed on the finding in the Delhi High Court, without appreciating the facts under which the shares were acquired by the Appellant (which has been demonstrated in detail above), it would amount to deciding the validity of the present impugned order by relying on the impugned order itself, which would amount to gross injustice to the Appellant. It should not happen that the Appellant does not get the chance to give its view and place its facts on record and get justice. It is accordingly submitted that the finding of Delhi High Court cannot be referred to in the present case and the facts need to be decided afresh based on the documents on record. This is circuitous in nature amounting to deciding the merits of findings of AO based on his findings itself. This is not permissible in law. In fact, various findings of the AO are completely incorrect and baseless as already pointed out.”: 5.103.4 Further, in the case before the Delhi High Court, the Court was concerned with the language of clause III(13) of the lease deed for the Delhi Property, and it was in the context of the word ‘transfer’ used in this clause that the Delhi High Court has lifted the corporate veil of AJL. The whole argument of lifting the corporate veil in the case before the Hon'ble High

Court is to buttress the point that by acquiring the shares of AJL, the Appellant has acquired the properties of AJL and such acquisition amounts to "transfer" of the property by AJL, though not by way of sale or mortgage or gift, but "otherwise". This is interpretation of clause III(13) of the lease deed. However, for the language in the said lease deed, the question of invoking the principles of lifting of corporate veil would not have arisen even before the Hon'ble High Court. The issue in the present case is under the provisions of Income tax Act, 1961 and there is no similar language in the Act as in the lease deed interpreted by the Hon'ble High Court. Accordingly, it is submitted that the reliance on the Delhi High Court order for arguing lifting of corporate veil is completely misplaced. It is submitted that same test cannot be applied for Income-tax act for lifting of corporate veil, since even after this assessment both entities are being treated as separate entities and AJL continues to be taxed on its income. Under the Income Tax Act, lifting of veil can be done only in respect of cases where there is tax evasion and not case like this and it is no one allegation that the Appellant has carried out any tax evasion. 5.103.5 Besides, the Income-tax Department till today has never lifted the corporate veil of AJL for any of the income-tax matters. For the same, the relevant questions are: i. as to who is being taxed under the provisions of the Income tax Act, 1961 on the rental income, AJL or the Appellant; ii. to who is being granted depreciation on the buildings in computation of income under the provisions of Income tax Act, 1961, AJL or the Appellant; iii. to who could be charged to tax on capital gains if the property is sold (though it is not permissible under the provisions of the lease); AJL or the Appellant? The answer to all these questions he submitted is obvious, viz. “AJL” and not the Appellant. Under such circumstances, the proposition argued by the Ld. DR that Appellant and AJL are one and the same and that by acquiring the shares of AJL, the Appellant has acquired the properties of AJL is unstateable for income tax purposes. Even today, both assessees are assessed separately. AJL’s income/loss for any of the years has not been clubbed in the hands of the Appellant. If the arguments of the Id DR are right, then, every case of 99% or 100% subsidiary will have to be a case of lifting of corporate veil! Wherever there are common, directors or shareholders would be a case of lifting of corporate veil! Wherever the acquisition of shares by the holding company has happened at a price that is considered below market price by the tax Department would be a case of lifting of corporate veil. Besides, as noted in Para 83 of the Delhi ITAT decision in 12AA cancellation matter of the Appellant (Page 100 of the Revenue PB I), the AJL board as on 31.3.17 has following directors who are NOT in any way connected with YI: - - Mr. Deepender Singh Hooda; - Mr. Dipakbhai Ratilal Babaria.

5.103.6 Also, if indeed, corporate veil is lifted for the income-tax purpose, then the question which arises is as to whether say tomorrow, the Delhi High Court decision relied by the Ld. DR is upheld by the Supreme Court and the lease of Delhi Property of AJL stands cancelled, would the tax department at that stage allow the loss of the Rs 432 crores to the Appellant which is being sought to be taxed in the hands of the Appellant today as its business income? 5.103.7 Similarly, in future, if AJL sells all its properties, would the fair market value of the assets sought to be taxed today in the hands of the Appellant be allowed as cost of acquisition. If the answer is no, it would amount to double taxation of the market value of the properties which is clearly not permissible in law. 5.103.8 Similarly, say tomorrow AJL makes preferential issue of shares to another person as a result of which the Appellant ceases to be a majority shareholder in AJL, then at that stage, the so called benefit obtained by the Appellant would cease to exist. What would be the tax treatment of the alleged benefit which is already sought to be taxed in the hands of the Appellant at this stage. 5.103.9 Also, say, if the Appellant were to allot all the shares to a third party, then if that stage who would pay tax on the alleged ‘benefit’, YI, AJL or the third party since in that case, YI would become a step down subsidiary of the third party.

5.103.10 Besides, even if corporate veil is lifted, the Department has not shown how the Appellant has ‘benefitted’ from it. Only one instance of using an office in Herald House, New Delhi as registered office has been cited. Detailed discussion in respect thereof is already provided at paras 5.90 to 5.92 of this submission. In 2011, Panchkula and Mumbai were unconstructed open piece of land. Patna was 100% encroached by juggi-jhopdi. In Lucknow, Nehru Bhawan was given on rent to a charitable eye hospital and Nehru Manzil is a half constructed dilapidated building. Hence, how was YI benefitting from these properties? 5.103.11 The premise of the Revenue is that the Appellant has become owner of these properties which have been acquired for a paltry consideration of Rs. 50 lakhs. In this regard, it is submitted that bargain purchase of an asset can never be taxed as benefit u/s. 28(iv). If this is accepted, then every case of bargain purchase by a trader would become taxable in his hands at the stage of purchase itself. This is against the settled legal position. 5.103.12 Benefit if any which can be taxed u/s 28(iv) is only the value of usufruct from the property and not the capital value of the property itself. Hence, if at all, the rent benefit for a portion of one room used by the Appellant as registered office can be taxed u/s. 28(iv) and not the capital value of all the assets of AJL in law. 5.103.13 Lastly, if corporate veil is indeed lifted, then lifting of Veil needs to be taken to its logical conclusion. If corporate veil is lifted and all the transaction between YI and AJL needs to be ignored. Then what is being said is that instead of shares the Appellant has acquired the assets of AJL for Rs. 50 lacs. Even in that case, it still remains a case of bargain purchase of real estate and cannot be taxed u/s. 28(iv) / Section 56. 5.104 Accordingly, the Appellant submits that regardless of various untrue and misconceived allegations levelled by the AO with regards to the manner of acquiring the shares of AJL by the Appellant, the ultimate conclusion that the Appellant has become the owner of the assets of AJL, or that it has taken over the assets of AJL is completely baseless, illogical and factually incorrect. In any case, the action of the AO of taxing the fair market value of all the assets of AJL in the hands of the Appellant as benefit u/s. 28(iv) without even demonstrating the benefit is not acceptable in law. 5.105 Legal Propositions: 5.106 In light of the foregoing, various legal submissions of the Appellant are as under: 5.107 Section 28(iv) of the Act reads as under : “28. Profits and gains of business or profession ………… (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; ……………”

5.108 As would be observed, the various limbs of section 28(iv) are (i) there should be ‘business’, (ii) there should be ‘benefit’, (iii) a benefit or perquisite should ‘arise’ (iv) such benefit or perquisite should ‘arise from’ business, (v) the benefit or perquisite may be convertible into money or not; and (vi) such benefit or perquisite must have value. It is submitted that in the present case there is neither any business nor any benefit arisen to the Appellant. 5.109 Section 28(iv) applies only to benefit arising out of ‘business’ which is not existent in the present case. 5.110 The AO has failed to appreciate that the Appellant is a section 25 company. It is not engaged in any business whatsoever. Further, the Appellant is not involved in the business of investment in shares or in immovable properties. 5.111 From the perusal of section 28(iv) reproduced above, it is evident that the section seeks to bring to tax as part of profits and gains of business, the value of any benefit or perquisites arising in the course of business, whether convertible into money or not. It is submitted that since no business is carried on by the Appellant, it cannot be the source of alleged benefit, if any, and accordingly, section 28(iv) of the Act has no application in Appellant’s case. 5.112 In this regard, the Appellant places reliance on the following decisions: 5.113 CIT v. Elscope Ltd (313 ITR 293)(Guj) (Page 49-55 of LPB VII) – In that case, the assessee had acquired four running businesses and paid discounted price for the same. The undertaking acquired included the liability to pay some amount to four investment companies in five annual equal instalments and the assessee-company reworked terms of agreement by mutual consent and commuted liabilities by applying discounting rate of 12 per cent on outstanding amount and credited difference to its capital reserve. The stand of the Revenue was there was a business or an adventure in the nature of trading towards purchase of industrial undertaking and the difference being profits arising on reduction of liabilities was taxable as business income. The High Court, however, rejected the argument of the Revenue by holding as under: “The stand of the revenue that there was business or an adventure in nature of trading towards purchase and sale of industrial undertakings loses sight of this basic issue, namely, that the transaction in question had its genesis in shares issued and outstanding call monies payable for shares issued. Hence, in any view of the matter, even provisions of section 28(iv) of the Act cannot be pressed into service by the revenue in the present case. [Para 13] For invoking section 28(iv) of the Act the pre-requisite conditions are : (a) the benefit / perquisite must arise from the business of an assessee; (b) there must be a nexus or connection between the business of an assessee and the benefit/perquisite sought to be taxed. In the present case, both the conditions are absent. [Para 15] In the aforesaid facts and circumstances of the case, the Tribunal was justified in holding that the profits arising on reduction of liabilities was not trading profits liable to be taxed as business income. [Para 16]” (emphasis provided) 5.114 CIT v. STADS Ltd. (373 ITR 313)(Mad.)(Page 56- of LPB VII): In this case too, the assessee had acquired assets at price less than actual cost. The surplus was treated as amalgamation reserve. Revenue wanted to treat that reserve as business income. However, the High Court rejected the argument of the Revenue and held as under: “11. A plain reading of the above-said provision makes it clear that the amount reflected in the balance sheet of the assessee under the head 'reserves and surplus' cannot be treated as a benefit or perquisite arising from business or exercise of profession. The difference amount post amalgamation was the amalgamation reserve and it could not be said that it is out of normal transaction of the business. The present transaction is capital in nature arose on account of amalgamation of four companies. Hence, we have no hesitation to hold that the manner in which the Revenue wants to treat this amount is not in consonance with Section 28(iv) of the Income Tax Act. 5.115 Similar view has also been taken in Mahindra & Mahindra Ltd. v. CIT (261 ITR 501)(Bom.) affirmed in (404 ITR 1) (SC) (Page 56 of LPB VII). 5.116 It is humbly submitted that the Appellant is not in business of acquisition of loan/shares, hence, the question of benefit arising in the course of any business, let alone arising directly from a business does not arise. In the present case, the subject shares were received pursuant to the conversion of loan into shares and not in lieu of any business transaction carried on between the Appellant and AJL. The receipt of shares arose on account of a non-business related one-off transaction. In view of the same, the aforesaid receipt of shares was not liable to tax under the head “business income” and, accordingly, the action of the AO in bringing to tax income in relation to receipt of above shares is not sustainable on facts and in law. 5.117 Further, the transaction of the Appellant can also not be regarded as an ‘adventure in the nature of trade’ for it to fall u/s. 28(iv). The argument of the Revenue is that the Appellant had through series of steps acquired assets/shares of AJL at less than fair market value which is an adventure in the nature of trade. However, it is settled law that a discounted purchase by itself cannot amount to an adventure in the nature of trade. 5.118 In this regard, reliance is placed on the decision of the Supreme Court in the case of Janki Ram Bahadur Ram v. CIT (57 ITR 21)(SC)(Page 60-66 of LPB VII) wherein it is held that mere discounted purchase cannot mean that the assessee was involved in any adventure in the nature of trade to attract the provisions of section 28 of the Act. The relevant extract of the decision is as under: “A large number of cases were cited at the Bar in support of the respective contentions of the Commissioner and the assessee. Passages from judgments in the same case were often cited claiming support for the respective contentions. No useful purpose would be served by entering upon a detailed analysis and review of the observations made in the light of the relevant facts, for no single fact has decisive significance, and the question whether a transaction is an adventure in the nature of trade must depend upon the collective effect of all the relevant materials brought on the record. But general criteria indicating that certain facts have dominant significance in the context of other facts have been adopted in the decided cases. If, for instance, a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and sub-divided, altered, treated or repaired and sold, or is converted into a different commodity and then sold. Magnitude of the transaction of purchase, the nature of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture : for instance, a man who purchases a large quantity of aeroplane linen and sells it in different lots, and, for the purpose of selling starts an advertising campaign, rents offices, engages an advertising manager, a linen expert and a staff of clerks, maintains account books normally used by a trader, and passes receipts and payments in connection with the linen through a separate banking account: Martin v. Lowry [1926] 11 Tax Cas. 297: a person who carries on a money-lending business purchases very cheaply a vast quantity of toilet paper and within a short time thereafter sells the whole consignment at a considerable profit: ….. Purchase of the property by the appellant was an isolated transaction not related to the business of the appellant. ---- Granting that the appellant made a profitable bargain when he purchased the property, and granting further that the appellant had when he purchased it a desire to sell the property, if a favourable offer was forthcoming, these could not without other circumstances justify an inference that the appellant intended by purchasing the property to start a venture in the nature of trade. … …The property purchased was not such that an inference that a venture in the nature of trade must have been intended by the appellant in respect thereof may be raised.” 5.119 Indeed, if a discounted purchase is regarded as a business adventure resulting in benefit, then in case of every businessman purchasing a stock-in-trade at less than fair market value would be treated as business income in his hands at the time of purchase itself. Clearly interpretations which result in such unintended consequences cannot be upheld. 5.120 Accordingly, it is submitted that since the Appellant is not in the business of acquisition of shares/loan, section 28 itself does not apply to it and accordingly, the question of applying section 28(iv) does not arise.

5.121 The Ld. DR has argued that the activity of the Appellant is an ‘adventure in the nature of trade’ and accordingly, covered u/s. 28(iv). He refers to the chronology of steps undertaken for acquisition of shares of AJL and says that the manner in which through series of steps under a ‘scheme’ the Appellant has acquired shares of AJL with the ‘intention’ to acquire assets of AJL which makes it an adventure in the nature of trade. 5.122 He says that the characteristics such as ‘scheme’ and ‘intention’ make the transaction an adventure in the nature of trade. In support of his contention, he has referred to the following decisions: • CIT v. Kasturi Estate (P.) Ltd., (1966) 62 ITR 578 (Mad) – Para 11 (Pages 7-8 of Revenue PB-II) • G. Venkataswami Naidu and Co. v. CIT, (1959) 35 ITR 594 (SC)- Para 16 (Page 55 of Revenue PB-II) • Khan Bahadur Ahmed Alladin & Sons v. CIT, (1968) 68 ITR 573 (SC)- Para 6 (Page 72-74 of Revenue PB-II) • P.M. Mohammed Meerakhan v. CIT, (1969) 73 ITR 735 (SC)- Para 6 (Page 83 of Revenue PB-II) 5.123 In this regard, it is submitted that it is true, as is clear from the facts stated above, that the various steps taken by the Appellant were to acquire the shares of AJL, however, that by itself does not mean that every ‘scheme’ undertaken is a scheme in the nature of adventure in the nature of trade. The Ld. DR himself has stated that that an ‘adventure’ a commercial or financial risk – a pecuniary venture. However, when the Appellant itself is a section 25 company, the MoA subsequently has been aligned to that of a section 8 company, no dividend has ever been received by the Appellant, AJL at that time was into huge losses, then which commercial venture is the Ld. DR referring to. As stated in clear terms, the intention for acquiring AJL is to use it as a launchpad for achieving its objects. The intention has never been to sell or make any gain from the said shares/assets. In the past so many years, Appellant has demonstrated through various examples how its intention is being achieved and the department has not been able to provide any significant instance demonstrating their allegation that the intention of the Appellant was to take over assets of AJL. It is accordingly submitted that not every ‘scheme’ or ‘design’ becomes an adventure in the nature of trade. In fact, in all the foregoing decisions relied upon by the Ld. DR, the Courts was dealing with the taxability of gain which are arisen to the assessee on ‘sale’ and it is in that context that the courts have decided as to what constitutes adventure in the nature of trade. 5.124 In the case of CIT v. Kasturi Estate (P.) Ltd., (1966) 62 ITR 578 (Mad), the facts (Page 4 of the Revenue PB II) are stated as under: “The assessee, which is a private limited company, received in the accounting year, ended June 30, 1958, corresponding to the assessment year 1959-60, a surplus of Rs. 27,568 on sale of certain plots of land. This sum was charged to income- tax on the view that the sales constituted a venture in the nature of trade.” As would be observed, this was a case where the assessee had sold plot of land. Further, even in Para 11 of the decision (Page 8 of Revenue PB II), which was referred by the Ld. DR, it is stated that “A purchase and sale of land may be of that character but not necessarily so. If a person is systematically engaged in a series of transactions of purchase and sale of lands with a view to make profit out of them, that may indicate that he is occupied in a trading activity.” Similarly, at Para 13 of the decision (Page 9 of Revenue PB II), on the conditions which must be present is mentioned to be ‘the activities which led to the maturing of the assets to be sold”. 5.125 Similarly, in G. Venkataswami Naidu and Co. v. CIT, (1959) 35 ITR 594 (SC), the facts (Page 48 of the Revenue PB II) are stated as under: “The appellant is a firm acting as managing agents of the Janardana Mills Ltd., Coimbatore. It purchased four contiguous plots of land admeasuring 5 acres 26 cents under four sale deeds executed on October 25, 1941, November 15, 1941, June 29, 1942, and November 19, 1942, respectively for a total consideration of Rs 8712-15-6. After about five years these properties were sold by the appellant in two lots to the Janardana Mills Ltd. The first lot was sold on September 1, 1947, and the second on November 10, 1947, the total consideration for the two sales being Rs 52,600.

These two sales realised for the appellant a sum of Rs 43,887-0-6 in excess of the purchase price.” Hence, even in this case, the determinative factor was the sale made by the assessee. That determined what was the intention of the assessee. However, in the Appellant’s case, there has not been any sale since last 10 years. Besides, the Ld. DR has referred to Para 29 of the order (Page 64 of the Revenue PB II), to contend that that the conduct prior to purchase is relevant for determining whether there is an adventure in the nature of trade is such conduct shows design and purpose. However, every design/purpose, every scheme cannot mean it is an adventure in the nature of trade. In that case, it is stated that ‘the appellant was the managing agent of the Janardana Mills and it was first thought that purchasing the plots in its own name and selling them to the mills may invite criticism and so the first purchase was made by the appellant in the name of its benamidar V.G. Raja. Apparently the appellant changed its mind and took the subsequent sale deeds in its own name. The conduct of the appellant in regard to these plots subsequent to their purchase clearly shows that it was not interested in obtaining any return from them.’ Hence, it was this design which was referred to by the Court. However, in the Appellant’s case, what is the design. The allegation is that the Appellant has taken over the assets of AJL. Now, in the year under consideration, even if AJL had handed over the properties to the Appellant without any consideration, there would not have been any tax implication in the hands of Appellant. There was no provision in the Act in the year under consideration where even pure gift of immovable properties to a company could be taxed in the hands of the company. It is submitted that a sum total of zero cannot become an income through any permutation and combination. The term ‘design’ cannot be read to mean that merely because there was some purpose it becomes design. The intention of the Appellant is amply clear from the documents as well as its conducts. The Appellant has not even touched any of the properties since the acquisition of shares. 5.126 Next decision relied by the Ld. DR is the case in Khan Bahadur Ahmed Alladin & Sons v. CIT, (1968) 68 ITR 573 (SC). Even in this case, the Court was concerned with taxability of actual gain earned on sale transaction and not theoretical gain as is sought to taxed in this case. The relevant extract of the decision is as under: “What is the line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts; the question to be determined being — Is the sum of gain that has been made a mere enhancement of value by realising a security or is it a gain made in the operation of business in carrying out a scheme for profit making?” …….. For instance, if a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and sub-divided, altered, treated or repaired and sold or is converted into a different commodity and then sold.” 5.127 Similarly even the decision in P.M. Mohammed Meerakhan v. CIT, (1969) 73 ITR 735 (SC) relied by the Ld. DR, the court was concerned with the case of sale of a large piece of land. 5.128 It is accordingly submitted that contention of the Ld. DR that the transaction in question is an adventure in the nature of trade is not sustainable in law. This holds true whether the transaction is regarded as acquisition of shares of AJL or as acquisition of assets of AJL. Indeed, as stated earlier, the Supreme Court has clearly held in Janki Ram Bahadur Ram v. CIT (57 ITR 21)(SC)(Page 60-66 of LPB VII) that mere discounted purchase of an asset cannot mean that the assessee was involved in adventure in the nature of trade. 5.129 The Ld. DR has further stated that when shares of AJL were allotted in lieu of the loan taken over by Appellant it amounted to exchange of assets and accordingly, the transaction was adventure in the nature of trade. In this regard, it is submitted that there is a fundamental fallacy in the premise of Ld. DR’s argument that the Appellant has exchanged the loan for shares/assets of AJL. The Appellant has not exchanged the loan for shares but has been allotted shares against the loan i.e. in satisfaction of the loan. For an exchange, there should be two assets held by two persons which is bartered by them. If Mr. A holds asset X and Mr. B holds asset

Y and both takeover each other assets, only then would it constitute exchange. Clearly, shares allotted by a company is not the asset of the company but its liability. Further, before shares are allotted, they don’t even exist. Shares come into existence only after allotment. Hence, when company allots shares, it is not exchanging shares against the consideration. AJL never had the shares as an asset for it to transfer in exchange of loan. Further, even the loan is not being transferred by the Appellant to AJL. It is converted into shares. Hence, clearly, there is no exchange in the present case. At this stage, what is happening is that for a sum of money shares are being allotted. In this regard, reliance is placed by the Appellant on the decision of the Supreme Court in Khoday Distilleries Ltd. vs. CIT (307 ITR 312)(SC) (Page 31-39 of LPB VIII) wherein it is held as under: “7. At the outset, we may state that none of the above arguments have been considered by the High Court in its impugned judgment. In the case of Sri Gopal Jalan & Co. (supra) a question arose as to the meaning of the word "allotment". It was held that in Company Law the word "allotment" means appropriation out of previously unappropriated capital of a company, of a certain number of shares, to a person and till such allotment, the shares do not exist as such. It is only on allotment that the shares come into existence and in every case the words "allotment of shares" have been used to indicate the creation of shares by appropriation out of the unappropriated share capital to a particular person.

transaction could be a business transaction, however, what is important is the purpose for which the transaction is undertaken. In the current case, it is clear from the facts that the intention is not to enter into any trade or any business. The intention has been clearly spelt out right from the annual accounts of the Appellant for the year under consideration itself that the said acquisition was for the purpose of objects of the Appellant. It is proved from the facts on record and also the conduct of the Appellant. Further, even if it is assumed that the intention was to acquire assets of AJL for small consideration, even in that case, this is a mere case of acquisition/purchase of shares/assets and such a transaction cannot be taxed as a business transaction under any provision of law. There is no real income at all which has been earned by the Appellant. 5.132 It is accordingly, submitted that section 28(iv) has no role in the present case in absence of any business/adventure in the nature of trade. 5.133 Section 28(iv), there should be a ‘benefit’ which should ‘arise’ to the assessee. 5.134 As per the Revenue, by acquiring the shares of AJL, the Appellant has earned the benefit in the form of assets of AJL and accordingly, the alleged fair market value of all the assets of AJL is taxed as benefit in the hands of the Appellant u/s. 28(iv). 5.135 In this regard, the Appellant humbly submits as under:

5.136 Firstly, what Appellant has acquired is only shares of AJL and not the assets of AJL as alleged by the AO. 5.137 The rationale behind entering into the said transaction has already been explained at Para I of this submission. It is reiterated again that the Appellant is a Section 25 company founded on Gandhian and Nehruvian ideology and since the objects of AJL were similar, its shares were acquired by the Appellant to further its objects. The shares were not acquired for any commercial motive as alleged by the AO. Besides, it is trite law that by acquiring the shares of a company, the shareholder does not become the owner of the assets of the company as has been held in the following decisions: • Rustom Cawasjee Cooper v. Union of India [1970] 1 SCC 248; • Carew & Co. Limited vs. Union of India (46 CC 121) (SC). • Mrs. Bacha F. Guzdar vs. CIT (27 ITR 1)(SC)(Page 11-16 of LPB VII) 5.138 It is accordingly submitted by merely acquiring the shares of AJL, the Appellant has not become the owner of the assets of AJL. 5.139 Without prejudice to the above, even if the Appellant is regarded as the owner of assets of AJL, the benefit, if any, is only in the capital field and cannot be covered under Section 28(iv). 5.140 It is submitted that by acquiring shares of AJL even if it is held that the Appellant has acquired the assets of AJL at a discounted price which is a benefit to the Appellant, it is submitted that the said alleged benefit arising from acquiring assets is a benefit which is in capital field and accordingly, the same cannot be brought to tax. It is submitted that the Appellant has no intention of selling the shares at any profit in future. The purpose of acquisition of these shares has been duly disclosed in the note no. 1 to the audited annual accounts for the year ended March 31, 2011. The said note is self- explanatory and clearly sets out the purpose of spending money towards these shares which is towards pursuing the objects of the Appellant. Accordingly, it is submitted that since the acquisition of shares is in the capital field, the transaction is of a capital nature and hence, the question of charging tax u/s. 28 does not arise. It is a settled legal position that even if there is a gain (in this case, there is none) section 28 of the Act does not apply to receipts of capital nature. In this regard, reliance is placed on the following decisions: 5.141 Mahindra & Mahindra Ltd. Vs. CIT (2003) (261 ITR 501) (Bom) (Page 17-25 of LPB VII), wherein at Para 7, it is held as benefit in capital field is not taxable u/s. 28(iv). The relevant extract is as under: ‘in this case we are concerned with purchase consideration relating to capital asset. The Toolings were in the nature of dies. The assessee was a manufacturer of heavy vehicles and jeeps. It required these dies for expansion. Therefore, the import was that of plant and machinery. The consideration paid was for such import. In the circumstances, Section 28(iv) is not attracted.,

5.142 The foregoing decision is affirmed by the Supreme Court in (404 ITR 1)(Pages 26-32 of LPB VII). Similar view has been taken in the following decisions: • CIT v. Jindal Equipments Leasing & Consultancy Services Ltd. (325 ITR 87)(Delhi)(Page 33 – 36 of LPB VII); • CIT V. Seshasayee Bros. (P.) Ltd. (222 ITR 818)(MAD.); (Page 33 – 36 of LPB VII); • ITO v. Shreyans Investments (P.) Ltd. [2013](141 ITD 672)(Kol.)(Page 33 – 36 of LPB VII). 5.143 Accordingly, the Appellant submits that the alleged benefit, if any, being in a capital field is not taxable u/s. 28(iv). 5.144 Without prejudice to the above, there is no benefit or perquisite within the meaning of section 28(iv) which has been proved by the Revenue. 5.145 In the present case, though the AO has tried to tax the market value of assets of AJL in the hands of the Appellant by stating that it is the benefit to the assessee, the AO has not given any factual information as what benefit has the Appellant enjoyed and how it has arisen to the assessee. 5.146 The detailed submission in respect to the same is provided in reply to Allegation No. 11 above. 5.147 It is accordingly submitted that in the present case, there is no benefit/gain whatsoever that has arisen to the Appellant. Indeed, there can be no tax at the time of purchase even in case of a running business. If purchase gives rise to income u/s. 28(iv), then every case of a purchase at a discount over the listed price or market price would give 100 rise to income irrespective of the sale of the goods purchased. This would be a mockery of the tax law. Tax is payable on real income. A hypothetical income cannot be taxed u/s. 28(iv) even in case of a running business. In the present case, therefore, in the absence of any benefit, and in view of the fact that the transaction is of a mere purchase or acquisition of shares of AJL, the question of taxing u/s. 28(iv) does not arise. 5.148 Without prejudice to the above, for applying the provisions of Section 28(iv), the benefit should ‘arise’ to the assessee. A mere acquisition of shares/assets does not give any benefit which ‘arises’ to the assessee. The benefit, if any, would arise only when the shares/assets are sold. That stage has not arisen. 5.149 As would be observed from the language of section 28(iv) is ‘benefit arising from business’. 5.150 In this regard, attention is invited to ÷the decision of the Andhra Pradesh High Court in the case of CIT vs. K.N.B. Investments P Ltd. (52 taxmann.com 103)(Pages 73-76 of LPB VII) wherein it is held that section 28(iv) can apply only when a benefit has ‘arisen’ to the assessee. The Court explained the difference between ‘accrual’ and ‘arisen’ and concluded that since the legislature has used the word ‘arising’ and not ‘accruing or arising’ in section 28(iv), only such benefit which has already arisen to the assessee would be covered in that section. The relevant extract of the decision is reproduced below:

“11. The second aspect is as to whether the benefit has, in fact, accrued at all to the respondent. There exists a distinction between the "accrual of income", on the one hand, and "arising of income", on the other. While accrual is almost notional in nature, the other is factual. It is too well known that in its complex nature, the Act covers not only the "income" that, in fact, has arisen, but also the one that has accrued.

which would arise only when the shares are sold. It is humbly submitted that even in the present case, even assuming without accepting that the Appellant is in business of purchasing shares, no benefit can be said to have ‘arisen’ to the Appellant. Indeed, as stated earlier, no benefit of any nature can at all be demonstrated to have arisen to the Appellant since acquisition of shares of AJL. Further, even MoA of AJL has been amended (though at a later point in time) which prohibits it to distribute its assets/money as dividend to its shareholders. It is submitted that with such restriction, the question of Appellant being able to enjoy any property/asset of AJL does not arise. Accordingly, the Appellant humbly submits that the addition u/s. 28(iv) is bad in law and ought to be deleted. 5.152 Reliance is also placed on the decision of the Supreme Court in the case of CIT vs. Excel Industries Ltd. (38 taxmann.com 100) (Page 77-83 of LPB VII) where the Apex Court has explained the scope of section 28(iv) and held that only real income can be taxed in that section and future benefit, which may or may not arise is not taxable under section 28(iv). In that case, the assessee who was admittedly in business had received DEPB entitlements/licenses from its export business. The Tax Department sought to tax said entitlements as benefit arising from business. On appeal, the Court held that even though the DEPB entitlement was received by the assessee, its value/benefit would arise to the assessee only when the assessee actually imports goods using such entitlements. It further held that until such imports, the benefit from the entitlements is only hypothetical in nature which cannot be brought to tax under the Act. “It is now well settled that income tax cannot be levied on hypothetical income… Insofar as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, 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 materialise and its money value is therefore not the income of the assessee….Applying the three tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and section 28(iv) would be inapplicable to the facts and circumstances of the case.” 5.153 Similarly, in CIT v. Spunpipe and Construction Co. Ltd. (55 ITR 68)(GUJ.)(pages 67-72 of LPB VII) it is held that mere discounted purchase couldn’t result in any income. In that case, the assessee-company purchased a factory owned by another company as a going concern and the price paid by assessee for assets was lesser than their book value. The Court held that the difference between the book value and price paid cannot be taxed as income in the hands of the assessee as it is not a benefit. The relevant extract of the same is as under: “On the question as framed, it is clear that the difference between the book value of any part of the assets acquired by the assessee and the price paid by the assessee for the same cannot be regarded as revenue profit derived by the assessee. As a matter of fact it is not possible to say that any profit at all is made by the assessee from the purchase of any of the assets. At the highest, what can be said is that assets worth a particular amount are purchased by the assessee for a smaller amount but that does not represent the profit of the assessee. It is, therefore, not right to regard the difference between the value of the assets and the price paid for the same as revenue profit liable to be added to the assessable income of the assessee. The question as framed, however, does not really bring out the point decided by the Tribunal. The word "surplus" is not a correct expression. What is referred to by the Tribunal as surplus is, as we have, already pointed out, the difference between the book value of the assets and the price paid by the assessee for the same. We will, therefore, reframe the question as under: “Whether, on the facts and in the circumstances of the case, the difference between the book value of the assets of the factory acquired by the assessee company as a running concern and the price paid for the same was assessable in whole or in part as revenue profits derived by it during the previous year relevant to the assessment year 1955-56”? Our answer to the question as refrained will be in the negative. The Commissioner will pay to the assessee the costs of the reference. There will be no order on the application.” 5.154 Similar view has also been held in CIT vs. Krishnaram Baldeo Bank (P.) Ltd (144 ITR 600)(MP)(Page 84-88 of LPB VII). 5.155 It is submitted that applying the aforesaid principle to the facts of the Appellant’s case, the alleged benefit on acquisition of the shares/assets of AJL (if any) is only hypothetical in nature until the same is actually sold by the Appellant. Indeed, at the time of sale, said benefit may or may not remain depending on the financial position of AJL at the time of sale. However, there can be no benefit at the time of purchase. For instance, say a dealer in gold purchases gold at less than market value. Would the legislature tax him today or at the time the gold is sold? Surely the answer is at the time when gold is sold. In that case, how is the Appellant being taxed at this stage of acquiring shares/assets of AJL. 5.156 Accordingly, it is submitted that the question of taxing the benefit under section 28(iv) at the time of acquisition of shares does not arise.

5.157 The Ld. DR, at the time of the hearing has tried to distinguish these decisions by stating that the presumption of Appellant that what is acquired is shares of AJL is false. He states that the argument of the Appellant is based on the premise that Revenue’s case is that the Appellant has acquired shares of AJL at lower consideration. He stated that this is a wrong presumption, since the case of the Revenue is that the Appellant has acquired assets of AJL through adventure in the nature of trade. 5.158 In this regard, it is submitted that the ratio of the decisions relied by the Appellant was squarely apply even where it is stated that what the Appellant has acquired is the assets of AJL and not the shares. In either case, the law remains the same that acquiring assets at lower consideration does not result in taxable income unless it is specifically covered under any provision of law. Section 28(iv), from its language is amply clear, that it does not tax notional income but income/benefit which has actually ‘arisen’. 5.159 It is accordingly submitted that these decisions are very much relevant for the issue under consideration. Besides, the basic argument of the Revenue is that there was series of steps and the corporate veil is lifted. Said stand of the department in itself is self contradictory. At one hand, if corporate veil is lifted, one would have to ignore all the intermediary transactions and the effect of the transaction would need to be considered which as per Revenue is that assets of AJL have been acquired for Rs. 50 lakhs. If on the other hand, the series of transaction have to be considered for reaching to the conclusion that benefit is derived, then the transactions ought be looked at the way it is and corporate veil cannot be lifted. The Ld. DR at one breadth says that there are series of transaction and in another second, he says to ignore the form since corporate veil is lifted. It is humbly submitted that the Revenue cannot have both positions. Further, as per the Ld. DR, the Appellant is being taxed because it has derived benefit. Though it is not demonstrated what is the benefit, the benefit, if any could only be the income arising from the property and not the capital value of the property. Hence, the benefit, if at all, would be the rent received by AJL when it comes to the Appellant. 5.160 The Ld. DR has relied on the decisions of Supreme Court in State of Gujarat v. Essar Oil, (2012) 3 SCC 522 (Page113-136 of Revenue PB II) for the meaning of ‘benefit’. In this regard, it is submitted that the said decision has been rendered in the context of restitution of ‘unjust benefit/unjust enrichment’ and no relevance under the Incometax Act. For the purpose of Act, it is settled that a bargain acquisition cannot be regarded as benefit as held in aforestated decisions. Even if the judgement is held to be applicable, in the facts of the case, the only benefit the Appellant availed off was use of part of one small room of Delhi Property, without any rent; a benefit which would not exceed more than a few thousand rupees. 5.161 Further, the Ld. DR has relied on the decision of the Delhi High Court in the case of The Associated Journals Limited vs. Land & Development Office (LPA 10/2019 & CM Nos.

566/2019 & 649/2019) (Page 154 of Revenue PB-II dated 17.01.2022) to state that the Delhi High Court has in the corollary proceedings lifted the corporate veil of AJL and therefore, benefit has arisen to the Appellant. The detailed submission in respect of the same is covered in Appellant’s reply to Allegation 12 above. 5.162 It is accordingly submitted that in absence of any benefit which has arisen to the Appellant, there cannot be any taxation in the hands of the Appellant u/s. 28(iv) of the Act. 5.163 Alternatively, even if it is assumed that the shares of AJL so acquired by the Appellant are its business assets and should be regarded as its stock-in-trade, even in that case, it is submitted that no profit can said to have arisen to the Appellant by mere valuation of said shares. It is a settled accounting principle that stock-in- trade has to be recorded in the books at their cost or market value, whichever is lower. It is not permissible to notionally increase the valuation of stock-in-trade and bring the difference to tax as business income. 5.164 In this regard, reliance is placed on the decision of the Supreme Court in Chainrup Sampatram v. CIT (24 ITR 481)(SC)(Pages 89-93 of LPB VII) wherein it is categorically held that valuation of closing stock cannot be the source of any profit. The relevant extract of the decision reads as under: “Again, it is a misconception to think that any profit "arises out of the valuation of the closing stock" and the situs of its arising or accrual is where the valuation is made. As already stated, valuation of unsold stock at the close of an accounting period is a necessary part of the process of determining the 105 trading results of that period, and can in no sense be regarded as the "source" of such profits. Nor can the place where such valuation is made be regarded as the situs of their accrual. The source of the profits and gains of a business is indubitably the business, and the place of their accrual is where the business is carried on. As such profits can be correctly ascertained according to the method adopted by an assessee only after bringing into the trading account his closing stock wherever it may exist, the whole of the profits must be taken to accrue or arise at the place of carrying on the business. On the finding of the Income- tax authorities that the 582 bars of silver lying at Bikaner had not been really sold but remained part of the unsold stock of the firm's business at the end of the accounting year, the whole of the profits of that year must be taken to have accrued or arisen at Calcutta where the business was carried on, no part of that business having admittedly been transacted at Bikaner. We agree with the High Court that the question referred should be answered in the affirmative though on different grounds. The appeal is accordingly dismissed with costs.” 5.165 Similarly, in CIT vs. Hindustan Zinc Limited (291 ITR 391)(SC) (Pages 94-98 of LPB VII), it is held that as under: “8. In the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481 (SC), it has been held by this Court that valuation of unsold stock at the close of the accounting period was a necessary part of the process of determining the trading results of that period.

It cannot be regarded as a source of profits. Profits can be correctly ascertained only after bringing into the trading account the closing stock wherever it may exist. It was further held that the true purpose of crediting the value of unsold stock is to balance the cost of the goods entered on the other side of the account at the time of their purchase, so that on cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions in which actual sales in the course of the year have taken place and thereby showing the profit or loss actually realized on the years trading. The entry for stock which appears in a trading account is merely intended to cancel the charge for the goods purchased which have not been sold which should necessarily represent the cost of the goods. If it is more or less than the cost, then the effect is to state the profit on the goods actually sold. From this doctrine there is one exception, namely, the adoption of market value at the date of making up of accounts, if that value is less than the cost. This is in anticipation of the loss that may be made on the goods in the following year. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account as no prudent trader would care to show increased profits before actual realization. This theory that the closing stock is to be valued at cost or market price whichever is the lower, is now generally accepted as an established rule of commercial practice and accountancy.

under clause (via) or clause (vic) or clause (vicb) or clause (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 company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);” 5.169 As would be observed, the said section is specifically inserted in the statute to tax receipt of shares by a company for a consideration which is less than its fair market value. Hence, even if acquisition of shares is considered to have resulted in any benefit to the Appellant, the only section under the Act, which could have been applied is section 56(2)(viia), which specifically provides for taxation of difference between the fair market value of shares computed in accordance with Rule 11UA and the consideration paid for acquisition of shares as ‘income from other sources’. However, this section is only applicable to a company in which public are not substantially interested. The Appellant being a section 25 company is regarded as a company in which public are substantially interested under section 2(18)(aa) of the Act and is therefore, not taxable under this section. 5.170 Now, assuming that the Appellant was a company in which public are not substantially interested, in that case, the transaction under question would have been hit by section 56(2)(viia). The Appellant is not hit by said section because it is a section 25 company. In such a case, can Revenue then say you are covered u/s. 28(iv). If Revenue is right, then section 28(iv) would cover every assessee entering into similar transaction, whether a substantially interested company or not which would render the provisions of section 56(2)(viia) otiose. Clearly, such interpretations which render any provision of the Act ineffective cannot be adopted. Infact, section 56(2)(viia) has been replaced by section 56(2)(x) in 2017, where even a section 25 company is covered. Hence, if an identical transaction was to take place after 2017, then clearly the Appellant would have been brought to tax u/s. 56(2)(x) and not section 28(iv)! Further, section 56(2)(viia) is an anti-abuse provision which have been made applicable to only closely held companies. Now, the income sought to be taxed under this section is taxed in the hands of the Appellant u/s. 28(iv), which is a company in which public are substantially interested, it would result in treating the Appellant worse than closely held companies, which is again not impermissible in law. 5.171 It is accordingly, submitted that the stand of the Revenue of taxing something which is already covered under one section by triggering another section, because the charge in the first section fails is fallacious. Besides, it is settled law that when charge is created in one section, then if that charge is exhausted, the same income cannot be brought to tax under any other section. 5.172 In this regard, reliance is placed on the following decisions:

5.173 CIT vs. Smt. T.P. Sidhwa (133 ITR 840)(Bom)(Page 99- 110 of LPB VII) wherein it is held that when a charge is exhausted under a particular head of income, it cannot be brought to charge under any other heads of income. In that case, the assessee had earned rental income, which was chargeable as income from house property. However, due to computation mechanism provided in the Act, no income was chargeable to tax under that section. The tax department therefore sought to tax the rental income under income from other sources. In that context, the High Court held that: “Having thus ascertained the classification of the head of income as "Income from house property" , the rental income received by the assessee must fall under the third head in section 6. The next step was to see whether it could be brought to tax under the corresponding computing section, i.e., section 9. Obviously, the impugned rental income could not be brought to tax under the computing section 9 since the assessee was not the owner during the relevant period. But merely because it could not be brought to tax under the computing section under the head "Income from house property", it would not be permissible to make the income chargeable to tax under section 12, i.e., under the residuary head of income.” ….Once the nature of the income is classified under a particular head; then only one has to look to the corresponding computing section for the purpose of chargeability to tax. Any income from property, which cannot be brought to tax under the computing section 9, will not necessarily fall under the residuary head because if this is done, it may lead to absurd result. For example, it would result in the same property being taxed twice, since while the income from property received by the assessee who was not the owner would be chargeable to tax under section 12, the owner of the property would also be liable to pay tax on income under section 9 in respect of the bona fide annual value of property.” 5.174 Similar view has also been taken in the following decisions: • CIT vs. D. P. Sandu Bros. Chembur (P) Ltd. (273 ITR 1)(SC) (Pages 111-116 of LPB VII) • Girish Bansal vs. UOI (384 ITR 161)(Del)(Pages 117-126 of LPB VII). 5.175 Now, when the Legislature has, in its wisdom, covered the transactions of bargain purchase within the ambit of section 56(2)(vii), that by itself means that the said transaction is not covered under any other section of the Act. Otherwise, there was would have been no reason to enact the said section. Indeed, the case laws relied by the Appellant above [in the case of Spunpipe, K.N.B. Investment, Excel Industries (supra)] above makes it amply clear that bargain purchase by itself does not give right to any taxable income. Hence, but for the specific provisions of section 56, it is submitted that the income sought to be taxed in this case is not taxable at all and the action of the Department taxing the same by invoking section 28(iv) even though the charge u/s. 56 fails results in gross injustice to the Appellant. 5.176 The Ld. DR has during the hearing argued that section 56 is a residual taxing provision and is applicable only when income is not taxable under any other section of the Act. According to him, since the transaction is taxable u/s. 28(iv), there is no need to go to section 56. 5.177 In this regard, kind attention is invited to sub-section (1) of section 56 which reads as under: “56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income- tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.” 5.178 As would be observed, the said sections seeks to tax only such income, which is not included in any other head of income. Therefore, the moment an item is prescribed u/s. 56, it necessary follows that it does not fall under any other head of section 14. The fact that this transaction was covered u/s. 56(2)(vii) in so far as non-charity entities are concerned, and now under section 56(2)(x) for everyone, it clearly shows that such transaction is not covered, inter alia, u/s. 28(iv). Therefore, it is submitted that invoking section 28(iv) in this case is fundamentally fallacious.

5.179 Indeed, if such transactions were covered u/s. 28(iv), then why was legislature required to incorporate it in section 56(2)(vii)/(viia)/(x). The fact that such transactions are covered under these sections itself shows that the transaction is not covered under any other head. Further, if what the Ld. DR is saying is accepted, then in that case, every assessee would be subject to tax u/s. 28(iv) at the time of a discounted purchase and section 56(2)(vii)/(x) will become otise. Please consider the following: Suppose AICC had not charged anything from the Appellant and the loan was gifted to it, there would not have been any tax liability in the hands of Appellant. Further, suppose AJL had handed over all assets to the Appellant for nothing or for Rs. 50 lakhs, even then how would it be taxable but for section 56. It is humbly submitted that the sum total of all non-taxable transactions cannot result in a taxable transaction. 5.180 Alternatively, the assets/shares are to be valued even for section 28(iv) by the formula prescribed under Rule 11UA as it is a prescribed method of valuing shares under the Income Tax Act. In absence of any specific method of valuation prescribed u/s. 28(iv), reference ought to be made to the next closed valuation method prescribed, which in the present case is Rule 11UA prescribed u/s. 56(2)(vii)/(viia). 5.181 For the said proposition, the Appellant places reliance on the following decisions, wherein in the context of the Estate Duty Law, it was held that in absence of any prescribed mode of valuation, the rules of valuation prescribed under the Wealth

Tax law have to be applied even though the same are not prescribed strictly for the estate duty law. i. CED vs. J. Krishna Murthy (96 ITR 87)(Mys)(Pages 127-131 of LPB VII): wherein it is held as under: “There is no rule made under the Act providing for the manner of valuation of unquoted shares. In the absence of rules, valuation for purposes of the Act has got to be made in accordance with well recognised methods of valuation followed in India. The method of valuation prescribed by rule 1D of the Wealth-tax Rules, 1957, being the only statutorily recognised method of valuation of unquoted equity shares in this country, it would not be wrong to adopt that method of valuation for purposes of estate duty also, though the rule as such is inapplicable. The rule can be looked into only for the purposes of knowing the manner of break-up method of valuation which is one of the recognised methods of valuation. ii. Similar view has been held in the following decisions: i. CED vs. R. M. Subhadvala (192 ITR 389) (Bom)(Pages 132- 133 of LPB VII); ii. Jehangir Mahomedli Chagla vs. ACED (155 ITR 637)(Bom)(Pages 134-139 of LPB VII); iii. Madhusudan Dwarkadas Vora vs. Superintendent of Stamps (141 ITR 802)(Bom)(Pages 140-142 of LPB VII); iv. CED vs. G. K. Swaroop (275 ITR 137)(Guj). (Pages 143-145 of LPB VII)

5.182 It is accordingly submitted that even if acquisition of shares is considered to have resulted in any benefit to the Appellant, the valuation of such benefit ought to be done in accordance with Rule 11UA since it is only prescribed rule of valuation of shares under the Act. The Appellant has submitted the Rule 11UA valuation of the shares of AJL both pre-issuance of the shares as well as post issuance of shares by AJL. The same is at Pages 870-881 and pages 882-894 of PB-II, respectively. As would be observed therefrom, the Rule 11UA value of the shares of AJL pre-issuance of shares is a negative value (Page 870 of PB II) and post-issuance of shares is merely Rs. 2 per share (Page 882 of PB II). 5.183 The Ld. DR has argued that since section 56(2)(vii) ipso facto does not apply, the question of applying Rule 11UA for valuation is redundant. In this respect, it is submitted that it is true that section 56(2)(vii) is not applicable in the present case and Rule 11UA has been prescribed for the purpose of the said section. However, it may be appreciated that in the foregoing decisions, Courts have held that for valuation under estate duty law, in absence of any prescribed mode of valuation, the rules of valuation prescribed under the Wealth Tax law have to be applied even though the same are not prescribed strictly for the estate duty law. The ratio emanating from these decisions is that where there is no specific mode prescribed, then one should follow the closest rule prescribed. Now, Rule 11UA has been prescribed under the Income-tax Act itself for valuation of assets under various sections such as 56(2)(vii)/56(2)(x)/50CA.

Hence, considering the foregoing ratio, in absence of any method prescribed for section 28(iv), it is submitted that even for this section Rule 11UA valuation method should certainly be considered. 5.184 Lastly, only real income can be taxed: 5.185 It is submitted that in the transaction under question, the Appellant has not earned any real income. The department has sought to tax a benefit which according to it the Appellant would derive from the assets of AJL. However, as stated earlier, no benefit has been shown to have actually received by the Appellant. The benefit if any could arise to the Appellant only when the assets/shares are actually sold. What is the income which the Appellant has earned? Where is the income which is being enjoyed by the Appellant? Even if it is true that the shares or the assets of AJL are very valuable assets. Has the Appellant really earned any income out of such asset? Can a appreciation in the value of assets held by a person be taxed in his hands unless the same is actually earned/realised by the assets. The perceived appreciation in value today could very well be wiped in future. It is only when such appreciation is realised/encashed that it could result in any income to an assessee. It is accordingly submitted that there is really no income which the Appellant has earned in the present case. 5.186 In this regard, reliance is placed on the following decisions wherein it is categorically held that only real income can be brought to tax. i. E.D. Sassoon & Co. Ltd. vs. CIT (26 ITR 27)(SC)(Pages 146-179 of LPB VII); ii. Godhra Electricity vs. CIT (225 ITR 746)(SC)(Pages 180- 188 of LPB VII); iii. CIT vs. Excel Industries (358 ITR 295)(SC)(Pages 77-83 of LPB VII); iv. CIT vs. Balbir Singh Maini (398 ITR 531)(SC)(Pages 189- 202 of LPB VII). 5.187 The Ld. DR during the hearing has stated that since section 28(iv) is covered within the definition of income u/s. 2(24) of the Act, this argument does not survive. In this regard, it is stated that surely section 28(iv) is covered within the definition of ‘income’. But the question is what is covered u/s. 28(iv). Can a notional income be taxed u/s. 28(iv). Unlike certain deeming sections such as section 56(2)(vii)/(viia), section 50C etc. which provides for taxation of notional income by deeming the fair market value to be the consideration in place of the actual consideration, section 28(iv) does not seek to tax any notional income. It taxes only such benefits which ‘arise’ to the assessee. Hence, this section does not seek to tax a notional income which is being sought to be done in the present case. 5.188 It is accordingly, reiterated that in the facts of the case and as per the law in force, the Appellant has not earned any income at this stage; there is no taxation event and accordingly, the addition made by the Revenue ought to be deleted.

5.189 The Ld. DR has argued that the transaction in question is doubtful in nature and has illegal/invalid steps, and therefore should attract taxation. It is submitted that the Appellant being a section 25 company, there is no public policy involved in the present case since whatever be the income of the Appellant can be used only for charity. Its income cannot be distributed as dividend or be given to its members in any manner. Hence, it is submitted that the Appellant has not done anything immoral. In fact, the department has not even been able to demonstrate any immoral act of the Appellant in relation to the assets of AJL. In any case, even if all the facts are assumed to be against the Appellant and it is assumed that the Appellant has indeed acquired the assets of AJL through a malicious scheme and that the transactions are doubtful in nature or invalid, even in that case, a transaction of acquiring assets by a section 25 company at less than market value was not taxable under the scheme of the Act relevant for AY 2011- 12 and accordingly, even in such a case, the addition made by the AO ought to be deleted. In this regard, reliance is placed on the decision in the case of Dr. T.A. Quereshi vs. CIT(287 ITR 547)(SC)(Pages 40-43 of LPB VIII) wherein the Supreme Court has held that taxation of a transaction needs to be decided based on the tax laws and not based on morality. The relevant extract of the decision is as under: “In our opinion, the High Court has adopted an emotional and moral approach rather than a legal approach. We fully agree with the High Court that the assessee was committing a highly immoral act in illegally manufacturing and selling heroin. However, cases are to be decided by Court on legal principles and not on one's own moral views. Law is different from morality, as the positivist jurists Bentham and Austin pointed out.” 5.190 In view of the foregoing, the Appellant humbly submits that the addition u/s. 28(iv) ought to be deleted.”

ARGUMENTS ON BEHALF OF THE REVENUE

“(13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.”

ITA No.1251/Del./2019

a P. Ramnatha Aiyar’s Commercial or financial risk; A Advanced Law Lexicon pecuniary venture.

(Page 2 of Case Law Compilation on behalf of Revenue for Grounds No. 5, 6 and 12) b Smith Barry v. Cordy, Adventure, in its dictionary (1946) 28 TC 250, 258 meaning implies “a pecuniary (CA) risk, a venture, a speculation, a commercial enterprise etc.

b Estate Investment 22. The word “business” as Co. Ltd. v. CIT, defined in s. 2(4) of the (1980) 121 ITR Indian I.T. Act, 1922, 580,591 “includes any trade, commerce, or manufacture or any adventure of trade, (Pages 22-40 of Case commerce or manufacture”. Law Compilation on When s. 2(4) refers to an behalf of Revenue adventure in the nature of for Grounds No. 5, 6 trade, it clearly suggests that and 12) the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterised by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade.

ITA No.1251/Del./2019

Whether or G. Venkataswami 29. What then are the Naidu and Co. v. relevant facts in the present not a CIT, (1959) 35 ITR case? The property purchased transaction 594 (SC) and resold is land and it would must be conceded in favour of constitute an the appellant that land is The Hon’ble SC had adventure in generally the subject-matter occasion to consider the nature of of investment. It is contended the peculiar facts of by Mr Viswanatha Sastri that trade would a transaction which the four purchases made by was devised as a depend upon the appellant represent scheme to earn various facts nothing more than an profits. and investment and if by resale circumstances some profit was realised that (Pages 48-65 of surrounding cannot impress the Case Law transaction with the character that Compilation on of an adventure in the nature transaction:-a behalf of Revenue of trade. The appellant, for Grounds No. 5, 6 however, is a firm and it was and 12) not a part of its ordinary business to make investment in lands. Besides, when the first purchase was made it is difficult to treat it as a matter of investment. The property was a small piece of 28¼ cents and it could yield no return whatever to the purchaser. It is clear that this purchase was the first step taken by the appellant in ITA No.1251/Del./2019 execution of a well-considered plan to acquire open plots near the mills and the whole basis for the plan was to sell the said lands to the mills at a profit. Just as the conduct of the purchaser subsequent to the purchase of a commodity in improving or converting it so as to make it more readily resaleable is a relevant factor in determining the character of the transaction, so would his conduct prior to the purchase be relevant if it shows a design and a purpose. As and when plots adjoining the mills were available for sale, the appellant carried out his plan and consolidated his holding of the said plots. The appellant is the managing agent of the Janardana Mills and probably it was first thought that purchasing the plots in its own name and selling them to the mills may invite criticism and so the first purchase was made by the appellant in the name of its ITA No.1251/Del./2019 benamidar V.G. Raja. Apparently the appellant changed its mind and took the subsequent sale deeds in its own name. The conduct of the appellant in regard to these plots subsequent to their purchase clearly shows that it was not interested in obtaining any return from them. No doubt the appellant sought to explain its purpose on the ground that it wanted to build tenements for the employees of the mills; but it had taken no steps in that behalf for the whole of the period during which the plots remained in its possession. Besides, it would not be easy to assume in the case of a firm like the appellant that the acquisition of the open plots could involve any pride of possession to the purchaser. It is really not one transaction of purchase and resale. It is a series of four transactions undertaken by the appellant in pursuance of a scheme

ITA No.1251/Del./2019 and it was after the appellant had consolidated its holdings that at a convenient time it sold the lands to the Janardana Mills in two lots. When the tribunal found that, as the managing agent of the mills, the appellant was in a position to influence the mills to purchase its properties its view cannot be challenged as unreasonable. If the property had been purchased by the appellant as a matter of investment it would have tried either to cultivate the land, or to build on it; but the appellant did neither and just allowed the property to remain unutilized except for the net rent of Rs 80 per annum which it received from the house on one of the plots. The reason given by the appellant for the purchase of the properties by the mills has been rejected by the Tribunal; and so when the mills purchased the properties it is not shown that ITA No.1251/Del./2019 the sale was occasioned by any special necessity at the time. In the circumstances of the case the tribunal was obviously right in inferring that the appellant knew that it would be able to sell the lands to the mills whenever it thought it profitable so to do. Thus the appellant purchased the four plots during two years with the sole intention to sell them to the mills at a profit and this intention raises a strong presumption in favour of the view taken by the Tribunal. In regard to the other relevant facts and circumstances in the case, none of them offsets or rebutts the presumption arising from the initial intention; on the other hand, most of them corroborate the said presumption. We must, therefore, hold that the High Court was right in taking the view that, on the facts and circumstances proved in this case, the transaction in question is an adventure in ITA No.1251/Del./2019 the nature of trade. b Janki Ram Bahadur 10. A large number of cases Ram v. were cited at the Bar in Commissioner of support of the respective Income-tax, 1965 contentions of the AIR 1898 Commissioner and the assessee. Passages from judgments in the same case (Pages 66-70 of were often cited claiming Case Law support for the respective Compilation on contentions. No useful behalf of Revenue purpose would be served by for Grounds No. 5, 6 entering upon a detailed and 12) analysis and review of the ITA No.1251/Del./2019 observations made in the light of the relevant facts, for no single fact has decisive significance, and the question whether a transaction is an adventure in the nature of trade must depend upon the collective effect of all the relevant materials brought on the record. But general criteria indicating that certain facts have dominant significance in the context of other facts have been adopted in the decided cases. If, for instance, a transaction is related to the business which is normally carried on by the assessee, though not directly part of it, an intention to launch upon an adventure in the nature of trade may readily be inferred. A similar inference would arise where a commodity is purchased and sub-divided, altered, treated or repaired and sold, or is converted into a different commodity and then sold. Magnitude of the transaction of purchase, the nature of the ITA No.1251/Del./2019 commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture: for instance, a man who purchases a large quantity of aeroplane linen and sells it in different lots, and for the purpose of selling starts an advertising campaign, rents offices, engages an advertising manager, a linen expert and a staff of clerks, maintains account books normally used by a trader, and passes receipts and payments in connection with the linen through a separate banking account: Martin v. Lowry; a person who carries on a money-lending business purchases very cheaply a vast quantity of toilet paper and within a short time thereafter sells the whole consignment at a considerable profit: Rutledge v.Commissioners of Inland Revenue; a person even

ITA No.1251/Del./2019 though he has no special knowledge of the trade in wines and spirits, purchases a large quantity of whisky sells it without taking delivery of it at a considerable profit: Commissioners of Inland Revenue v. Fraser may be presumed having regard to the nature of the commodity and extent of the transaction coupled with the other circumstances, to be carrying on an adventure in the nature of trade. These are cases of commercial commodities... c P.M. Mohammed 6. As we have already said it Meerakhan v. CIT, is not possible to evolve any (1969) single legal test or formula 73 ITR 735 (SC) which can (Pages 78-85 of be applied in determining Case Law whether a transaction is an Compilation on ad venture in the nature of behalf of Revenue trade or not. The for Grounds No. 5, 6 answer to the question must and 12) necessarily depend in each case on the total impression and effect of all relevant factors and circumstances proved therein and which ITA No.1251/Del./2019 determine the character of the transaction...

 An isolated transaction can constitute an adventure in the nature of trade and it need not necessarily be the same activity which the assessee is carrying on as a regular business:- a G. Venkataswami Naidu 15. This question has been the subject- and Co. v. CIT, matter of several judicial decisions; (1959) 35 ITR 594 (SC) and in dealing with it all the Judges appear to be agreed that no principle can be evolved which (Pages 48-65 of Case would govern the decision of all cases Law Compilation on in which the character of the impugned behalf of Revenue for transaction falls to be considered. Grounds No. 5, 6 and When Section 2 sub-section (4) refers to 12) an adventure in the nature of trade it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterised by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade. Sometimes it is said that a single plunge in the waters of trade may partake of the character

ITA No.1251/Del./2019 of an adventure in the nature of trade. This statement may be true; but in its application due regard must be shown to the requirement that the single plunge must be in the waters of trade. In other words, at least some of the essential features of trade must be present in the isolated or single transaction... b Estate Investment Co.

22. The word “business” as defined in Ltd. v. CIT, (1980) 121 s. 2(4) of the Indian I.T. Act, 1922, ITR 580,591 “includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, (Pages 22-40 of Case commerce or manufacture”. When s. Law Compilation on 2(4) refers to an adventure in the behalf of Revenue for nature of trade, it clearly suggests that Grounds No. 5, 6 the transaction cannot properly be and 12) regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterised by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade.

c Narain Swadeshi 15. “Business” as defined in Section ITA No.1251/Del./2019

Weaving Mills v. 2(5) of the Excess Profits Tax Act Commissioner of Excess includes amongst others, any trade, Profits Tax (1954) commerce or manufacture or any 26 ITR 765 adventure in the nature of trade, commerce or manufacture. The first part of this definition of “a business” in (Pages 41-47 of Case the Excess Profits Tax Act is the same Law Compilation on as the definition of a business in behalf of Revenue for Section 2(4) of the Indian Income Tax Grounds No. 5, 6 and Act. 12) Whether a particular activity amount to any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture is always a difficult question to answer. On the one hand it has been pointed out by the Judicial Committee in CIT v. Shaw Wallace & Co. that the words used in that definition are no doubt wide but underlying each of them is the fundamental idea of the continuous exercise of an activity. The word “business” connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. On the other hand, a single and isolated transaction has been held to be conceivably capable of falling within the definition of business as being an adventure in the nature of trade

ITA No.1251/Del./2019 provided the transaction bears clear indicia of trade. The question, therefore, whether a particular source of income is business or not must be decided according to our ordinary notions as to what a business is. The case of CIT v. Shri Lakshmi Silk Mills Ltd. decided by this Court is clearly distinguishable. There, the respondent company which was formed for the purpose of manufacturing silk cloth installed a plant for dying silk yarn as a part of its business. During the relevant chargeable accounting period, owing to difficulty in obtaining silk yarn on account of the war, it could not make any use of this plant and it remained idle for some time. In August 1943, the plant was let out to another company on a monthly rent. The question arose whether the income received by the respondent company in the chargeable accounting period by way of rent was income from business and assessable to excess profits tax. It should be noted that in that case the respondent company was continuing its business of manufacturing silk cloth. Only a part of its business, namely, that of dying silk

ITA No.1251/Del./2019 yarn had to be temporarily stopped owing to the difficulty in obtaining silk yarn on account of the war. In such a situation, this Court held that part of the assets did not cease to be commercial assets of that business since it was temporarily put to different use or let out to another and accordingly the income from the assets would be profits of the business irrespective of the manner in which that asset was exploited by the company. This Court clearly indicated that no general principle could be laid down which would be applicable to all cases and that each case must be decided on its own circumstances according to ordinary common = sense principles...

 Where the purchaser does not have necessary resources to buy something, the transaction may point out to be in the nature of trade: - a P.M. Mohammed Where the purchaser is found not to Meerakhan v. CIT, have resources to buy when he enters (1969) into an agreement to purchase and the 73 ITR 735 (SC) conveyance is agreed to be executable in the name of himself or his nominee, the transaction points to be one in the (Pages 78-85 of Case

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Law Compilation on nature of trade. behalf of Revenue for Grounds No. 5, 6 and 12) b R. Dalmia v. CIT, (1982) Taking over of liability of payment to 137 ITR 665 (Del) shareholders knowing that shareholders could not make (Pages 100-107 of Case claim, the surplus arising was held to Law Compilation be an adventure in the nature of trade. on behalf of Revenue for Grounds No. 5, 6 and 12) c P.D. Ghanekar v. CIT, The decision is in the context of ‘casual (1971) 80 ITR 236 and non-recurring income’. However, it (Bom) lays down certain important propositions. The assignment of right of actionable claim to the assessee (who (Pages 108-112 of Case had prior knowledge of the outcome of Law Compilation on the claim), was seen as a venture behalf of Revenue for undertaken by the assessee. Grounds No. 5, 6 and 12)

 Where the transaction is a part of a well-designed and pre- planned scheme, it could be regarded as an adventure in the nature of trade: - Reference may be drawn to Para 29 of G. Venkataswami Naidu and Co. v. CIT, (1959) 35 ITR 594 (SC) extracted above.

105. He submitted that, the contention of the Appellant that it was only a shareholder of AJL and a shareholder has no rights over the assets of the company has been rejected by the jurisdictional High Court in the case of AJL itself. In fact, the entire transaction was examined by the Hon’ble High Court of Delhi first by a Single Judge and then by a Division Bench and the Hon’ble Court was of a categorial view that looking into the nature of the transaction, it was apparent that the corporate veil has to be lifted in this case. Once the corporate veil is lifted, as held by the Hon’ble High Court, the inevitable conclusion is that the Appellant derives benefit in the form of ownership, control and enjoyment of the commercial properties of AJL.

106. He further submitted that the afore-said is the benefit derived from the Appellant from the adventure in the nature of trade discussed above. The provisions of Section 28(iv) read as under:- “(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of a profession.”

This benefit arises to the Appellant from the adventure in the nature of trade and therefore, it arises from the business of the Appellant. This benefit would, therefore, be chargeable to tax in the year in which the said benefit arises.

a P. Ramnatha Aiyar’s Advantage; profit; gain; interest Advanced Law Lexicon use; whatever contributes to promote prosperity or add (Page 3 of Case Law value to property; includes Compilation on behalf of payment of any kind. Revenue for Grounds No. 5, 6and 12) b State of Gujarat v. Essar 63. ... Now the question is what Oil, (2012) 3 SCC constitutes a benefit. A person 522 confers benefit upon another if he gives to the other possession (Page 113-136 of Case of or some other interest in Law Compilation on money, land, chattels or behalf of Revenue for performs services beneficial to Grounds No. 5, 6 and or at the request of security or 12) advantage. He confers a benefit not only where he adds to the property of another but also where he saves the other from expense or loss. Thus the word “benefit” therefore denotes any form of advantage.

./2019  The cases of Spunpine & Construction Co. Ltd., K.N.B. Investments P. Ltd., Excel Indsutries Ltd. and Krishnaram Baldeo Bank have been referred to for the contention that a mere acquisition of share does not give any benefit unless the shares are sold. As already pointed out, the benefit is not in the form of shares and therefore these cases are wholly inapplicable.

Sassoon, Godhra Electricity, Excel Industries and Balbir Singh Maini to contend that only real income can be taxed. It is submitted that in the facts of this case, what is being taxed is the benefit which has already arisen to the Appellant and therefore, it would represent a real-income and not a notional income.

DECISION

• The Assessee had entered into a fraudulent transaction to enjoy the benefits embodied in the business assets of AJL.

./2019 • The alleged loan of Rs. 90.21 crores was an artificially inserted steps in the form of a paper entry of an amount which was sufficient for allotment of 99% shares of AJL. • The motive to earn income by way of benefit from underlying assets of 99% shares of AJL was so strong that the assessee engaged itself in fraudulent activity. The sole purpose of transaction leading to acquisition of shares was to derive several types of benefits from underlying business properties of AJL. • Legal provisions and case laws in discussed in Para 16.2, wherein the A.O. has arrived at the following conclusions: - o The word 'business' is of wide importance and in fiscal statutes, it must be construed in a broad rather a restricted sense. Mazagaon Dock Ltd vs CIT (1958) 34 ITR 368' 376 (SC) o Business is an activity capable of producing a profit which can be taxed. CIT v. Lahore Electric Supply Co. Ltd., (1966) 60 ITR 1, 5 (SC) o The word business is a word of large and indefinite importance. It is same thing which occupies attention and labour of a person for purchase of earning profit. o The word 'business' has more extensive meaning than the word 'trade'. o The activities which constitute carrying on business need not necessarily consist of activities by way of trade, commerce or manufacture or activities in the exercise of a profession of vocation nor it be concerned with several individual or concern. o A single and isolated transaction outside the assessee's line of business has been held to be falling within the definition of business as being 'adventure in the nature of trade'. o The question therefore whether a particular source of income is business or not must be decided according to out ordinary notion as to what a business is. o The repetition or frequency of activity though at times a decisive factor, is by no means an infallible test. Conversely, a single transaction may constitute business under the definition of the word in Section 2(14). o The value or benefit whether convertible in money or not arising from the business or exercise of profession as stipulated in Section 28(iv) is also profit and gains of business. • Significant facts and circumstances of the case having bearing on characterization of benefits arising out of the business transaction of takeover of properties of AJL:- o The purchase of 99% shares of AJL by assessee was not an ordinary transaction of investment but the transaction involving several steps (as many as 9 steps) as a adventure in the nature of trade. (Para 17) o The transaction was a part of well-devised scheme involving series of steps with the intention to earn significant benefit as embodied in business assets of AJL. o The assessee undertook a series of steps over a period of time and these steps had culminated during the year under consideration to achieve a pre-meditated objective of taking over of AJL in order to get several benefits from business assets of AJL having fair market value of Rs. 413.41 crore as well as to derive the value from these properties. o These intermediary steps on paper were artificially inserted in the ell-devised scheme leading to takeover of AJL by allotment of 99% shares of AJL without even getting the real estate properties transferred in the name of the assessee but the transaction resulted in accrual of benefits from value of real estate business and properties to the assessee. o The transactions were devised and carried out which represented an 'adventure in the nature of trade' and would squarely fall within the definition of the term business as appearing in Section 2(13). o It is amply clear from the analysis of the steps that even though the transaction of getting benefit from properties of AJL by takeover of AJL was one transaction, however, it involved several steps, some real and some fraudulent, with the real and distinct intent of enjoying the benefit of the properties from the day of incorporation of the assessee.

./2019  The assessee enjoyed the following benefits: - Benefit of underlying value of shares of AJL;  Benefit of right to enjoy the business assets of AJL  Benefit of income from real estate business of AJL; and  Benefit of rental income of several crores from letting out of business assets of AJL. o The FMV of these business properties on date of takeover of AJL's business properties captures the benefits accrued to the assessee during the year under consideration. o Even though the benefit of Rs. 413.41 crore is in the form of FMV of immovable properties used as business assets, it does not alter the nature of income which is revenue in nature. o Since the assessee has taken control and management of AJL by allotment of 99% shares of AJL and has not carried out any activity during the year except for the transaction of taking over of AJL which was in the nature of adventure in the nature of trade, all the benefits embodied in the business assets having fair market value of Rs.413.41 crore has accrued to the assessee during year under consideration. o The assessee has actually started enjoying business income by way of benefit accrued to it during year under consideration by occupying and using their business assets for real estate business and having full control over even entry and exit in the premises of the business assets. • Whether the assessee holds the share simplicitor or has the right to direct enjoyment of benefit arising from business assets of AJL: - o The assessee company was granted registration u/s 12A by the Commissioner of Income Tax (Exemptions) subject to various conditions and registration of the association u/s 25 of the Companies Act, 1956 was also subject to several conditions. o During the course of assessment proceedings, it was revealed that the assessee company had not carried out any activities in furtherance of above referred to object. o It is a matter of record that only expenditure incurred by the assessee company during year under consideration was to purchase a non-existent loan of Rs. 90.21 crore through a fraudulent transaction and in subsequent assessment years the only expenditure incurred by the assessee company was to create provision for interest expenditure allegedly meant to pay interest on loan of Rs. 1 crore taken from a hawala entry operator in Kolkata. o The other expenditure is admittedly incurred on fee for auditor, preliminary expenditure, written off, etc. and this expenditure cannot be held to be for the purpose of the object of the company. o In view of the above, the claim of the assessee that the assessee company was carrying out its stated object is factually incorrect and the assessee company as proved above had never engaged in the activities of promoting democratic values by incurring expenditure. o Reference is made to the findings of the CIT(E) dated 26.10.2017- • Whether the assessee holds the share simplicitor or has the right to direct enjoyment of benefit arising from business assets of AJL: - o The profits and gain from business in form of benefits to assessee having value of Rs.413.41 crores under Section 28(iv) has accrued to the assessee during the year under consideration and is taxable as income from profit and gains from business. o It is not a case of hypothetical income, but in this case quantification of benefit as derived and accrued to the assessee has already been determined and the assessee had already started enjoying the benefit of possessing and using these commercial assets during the year under consideration. • Whether the benefit accrued to the assessee is in the nature of Revenue: - o All the properties of AJL were commercial assets of the real estate business of AJL and substantial business income has been generated from commercial use of these properties by way of sale or let out of property. Accordingly, the nature of benefit flowing from these properties (which do not represent capital assets but constitutes commercial assets) was revenue in nature. o It is to clarify that the business assets of AJL have remained in the legal ownership of AJL only, but enjoyment of several types of benefit embodied in these commercial assets stands transferred to the assessee. o The decision with regard to mode, manner and extent of exploitation of these business assets of AJL rests with the assessee. • Conclusion:- o Such benefit from the adventure constitutes profits and gains of the business within the meaning of section 28(iv) of the Act and would be regarded as income chargeable to tax under the provisions of the Act as the benefit in the form of fair market value of the properties of Rs. 413.41 crore arising to the assessee from the adventure in the nature of trade of takeover the assets of AIL by way of allotment of its 99% shares following several steps including a fraudulent transaction. Income of the assessee for the year under consideration o u/s 28(iv) has been computed at Rs.413.41 crore i.e., FMV of business assets of the AJL which best represents the value of several benefits arising to the assessee from the transaction.

“102. Now, what has been canvassed before us is entirely a new argument that the sole aim and objective of acquiring the entire stake holding in AJL was to carry out charitable activities for its objects, i.e., to spread democratic and secular values to the Youths of India through the medium of newspapers

ITA No.1251/Del./2019 published by AJL. Now, in support of such newline plea, voluminous additional evidences have been filed before us on the ground that the ld. CIT (E) has wrongly held that AJL was into the Real Estate business and was carrying out commercial activities of construction and sale of properties. In order to controvert such a finding, assessee has filed hundreds of papers to show that how the publication of newspapers and articles in print media have been recommenced, when most of the documents pertain to post 21.03.2016 when the assessee had written a letter offering for suo moto surrender of registration u/s. 12AA; and some are even post facto cancellation order passed by the ld. CIT (E). Since we have permitted the parties to argue and put forth all their contentions to refer to all the additional evidences, therefore, we are not rejecting the additional evidences. Because, in our opinion they do not strengthen the case of the assessee because the factum of printing and publication of newspaper are post facto events when assessee itself acquiesced to cancellation of registration from March 2016. This is evident from the perusal of the additional evidence paper book; whereby following documents have been furnished:-

Page Sr. No. Description of document Nos. 1-92 The masthead of National Herald Newspapers published 1. by the AJL from 24 September 2017 to 28 July 2019 2. The masthead of Sunday Navjivan Newspapers published 93-132 by the AJL from 14 October 2018 to 28 July 2019

ITA No.1251/Del./2019 a. 154-156 Launch of Commemorative Edition of National Herald (Publication) in New Delhi on 1 July 2017 b. ABP 157-158 c. DNA 159-162 d. Dainik Bhaskar 163 e. Financial Express 164-165 f. Hindustan Times 166-168 g- Mint 169-172 h. Copy of National Herald Commemorative Edition 173-185 5. Copies of various reports, photographs of : Launch of Commemorative Edition of Navjivan a. newspapers (Publication) in Chandigarh on 10 December 186 2018 b. The Tribune 187 c. Indian Express 188 d. Amar Ujala 189 e. Hindustan Times 190 f. Copy of Navjivan Commemorative Edition 191-203 Launch of National Herald Website on 14 November 6. 2016 204-205 a. The Indian Express 206-207 b. The Economic Times 208-209 c. Amar Ujala 210-211 d. BW Business World 212-213 7. Launch of Urdu Website on 12 August 2017 215-225 a. Business Standard 226 b. United News of India 227 c. India Today 228 d. Outlook 229 8. Launch of Navjivan Website on 29 August 2017 230-236 a. United News of India 237-238 9. Registration Certificate of National Herald Newspaper 239-241 with Registrar Office of Newspapers for Indian, Ministry of Information and Broadcasting dated 23 June 2017 and 24 Nov 2017 10. 242-244 Registration Certificate of Sunday Navjivan with Registrar Office of Newspapers for Indian, Ministry of Information and Broadcasting dated 20 Feb 2018, 11 Jan 2019 245-249 Agreement of AJL with Press Trust of India for Wire News 11. Services dated 15 November 2016 12. Certificate issued by Audit Bureau of Circulations 250-254 certifying the number of Newspapers sold by AJL dated 7 September 2018 and 11 March 2019

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103 A bare perusal of the most of the documents, it is quite evident these are post surrender letter of the assessee filed in March 2016 and some are even after the date of passing of the impugned cancellation order. All these documents merely go to show that AJL had recommenced or endeavored to re-start the publication activity from the year 2016- 2017 onwards. As opined above, these documents even if we admit, are not of much significance for the reason that all these activities of printing and publication of articles had started when the assessee itself had given up its registration in March 2016. Prior to this date, it is an admitted fact that publication of newspaper business of AJL was suspended or as stated by the ld. counsel for the assessee, there was temporary lull in the business for the period 2008 to 2016. Neither between the periods 2011 to 2016, any such publication business had started nor has it been brought on record before the ld. DIT (E) either at the time of grant of registration or at the time of its cancellation. As far as the documents, like resolution passed by the board of directors of AJL on 26.09.2016; letter written to Registrar, Newspapers of India dated 23.01.2014; Form No. 23 submitted by AJL to ROC on 29.09.2011 along with amended MoA and Form-14 etc., though indicate that AJL may had some kind of intention to start the publication business, but such an intention was never stated or canvassed before the departmental authorities in the course of cancellation proceedings. It is only when the ld. CIT (E) had made certain allegations in the impugned order that the AJL had carried out some activities of Real Estate, the assessee has taken this plea before us to justify that it intended to carry out the activities by acquiring AJL in furtherance of its main objects. Great deal of arguments have been made by the Ld. Counsel that publication business of AJL was a platform to promote the ideals and objects of YI and press being fourth estate of democracy is a powerful medium to inculcate such ideals. First of all, press will be used as medium to promote the objects of YI was never stated earlier at any stage; nor there is one instance that YI has ever used any other newspaper or media to propagate it’s so called objects or democratic secular ideals. Is it that only AJL can be such medium and no other press company or it is orchestrated defense in wake of various proceedings initiated against it or is it to camouflage the real nature of arrangements? Secondly, these pleadings and documents only go to show that from the year 2107-18 some newspaper articles have been published which assessee is trying to link and align itself to prove its genuineness. All such toll claims and publication of articles are from year 2017 onwards. Thus, these additional evidences do not impinge upon the case of the assessee or in any way strengthen the case of the assessee.”

Had the intention of the appellant company was to promote its so-called charitable objects, then why not its objects were pursued through other agencies and why from an entity (AJL) which was no longer into publication. Nowhere it has been brought on record that YI had used some other agencies for publication and why only the objects could have been pursued publication through AJL only, when it has already ceased/suspended its publication business in 2008 itself. That itself goes to show that it never had an intention to promote its objects through medium of publication or through newspapers etc. For this precise reason, this Tribunal has categorically held that right from day of its inception to grant of registration u/s 12A/12AA, until the cancellation of registration by the ld. CIT (E) in the month of 26.10.2017, such purported objects were never pursued. In this regard, observations of the Tribunal in paras 107, 108 & 109 are reproduced hereunder:

“107. Had the intention of the assessee company being clear and bona fide from the date of its inception, that it wanted to acquire AJL only to carry out its charitable activities, then it should have been stated so and brought on record not only at the time of seeking registration u/s. 12AA, but also at the time of cancellation. The events clearly pointed out that even before incorporation of Young Indian, the registered office was shifted to Delhi and the Directors managing the affairs of the assessee company were taken on Board of AJL. Not only that, Young Indian was permitted to use the property of AJL as its registered office. Further, the manner, in which loan of Rs. 90 crores was assigned by AICC to Young Indian for paltry consideration of Rs. 50 lakhs does not reflect the real intent of the transaction. Not all these facts indicate that the assessee company had any clear conscience or intent for acquiring the AJL to carry out the charitable activities. Not a single such instance have been demonstrated that it had carried out any activity in furtherance of its objects, nor any such thing has been placed before us that it had carried any activity between the years 2011 to 2016 or up to the date of cancellation of registration. Even as noted by the ld. CIT (E) that the Income-tax returns do not indicate that any expenditure has been incurred in furtherance of the objects except for payment of interest on loan borrowed from a Kolkata based company. Once, AJL was not in publication of any kind of newspaper in print or digital form during the entire period, then it can be easily deduced that the intention was never to carry out any charitable activity by acquiring AJL. Even after takeover of AJL, no activity has been done by AJL at least for a period of 5 years. One of the main allegation of the ld. CIT (E) and ld. Special counsel was that, it was in wake of certain enquiries conducted by the Income Tax Department and proceedings of eviction initiated by the Land Development Office, steps were taken by the AJL for renewal of newspaper business; and even the so called resuming the newspaper business post September 2016, is much after the assessee had written to the department surrendering its registration. Thus, the entire contention as raised by the ld. counsel that the newspaper business was started later on, which indicates that AJL was acquired only to promote the ideals enshrined in the objects of Young Indian, belies all such intents and in fact the allegations that some printing work had started post inquiries by the Governmental authorities is convincing and probable.

108 Much emphasis has been laid by the ld. counsel that AJL has converted itself into a Section 8 company under the Companies Act 2013 in January, 2016, i.e., as a non-profit company, to carry out the objects of Young Indian and the objects of AJL were aligned with that of Young Indian. Such a contention is of no consequence for the reason that, firstly, it is an admitted fact that till date, the assessee had not been granted license by ROC as Section 8 Company; and secondly, all these events have neither been stated by the assessee before the ld. CIT (E) and are post 2016. The amendment in MoA of AJL in the year 2011 is again of no consequence because till the year 2016, no such activity has been carried out by Young Indian through AJL. In any case, we are in tandem with the contention of the ld. Special counsel that merely adopting the changes in MoA does not make the company a Section 8 Company or a non- profitable company, because it is always open for the Board of Directors to amend its MoA and become a profitable company at any time and sweet will. Thus, acquisition of AJL to further the objects of the assessee company as purported by the ld. counsel, is not acceptable.

109 Before us, the ld. counsel had also submitted that way back on 23.01.2014, AJL had filed letter to Registrar for Newspapers of India, which indicates the assessee’s intention to resume the publication activities. However, as we have held earlier, such an intention was never brought on record before the departmental authorities or even before the ld. CIT (E) during cancellation proceedings. Even filing of letter to Registrar for Newspaper of India to start the publication business, does not carry much weight, because admittedly, such an intention remained on paper and nothing had started prior to the year 2016-17 by that time the assessee had already forgone its claim for registration u/s. 12AA. Acquiring and construction of various buildings of AJL at Panchkula, Mumbai etc. does not prove that the publication activities were carried out and even if there was some kind of future intent to do so, then also, it does not make AJL a newspaper publication company between 2008 to 2016, because not a single activity was carried out through which it can be inferred that AJL was acquired by YI to use the platform of newspaper publication, albeit entire conduct of the assessee company shows that AJL has been acquired for such nominal amount of Rs. 50 lakhs, to control and have interest in huge immovable assets of AJL throughout the country which were earning huge rental income, which was never the object of YI for which it was granted registration.”

“46. ………………..As far as the assertion made with regard to the transfer of shares of AJL to Young India and the share holdings of Young India and various other issues connected thereto are concerned, they are based on certain facts stated in the show cause notice issued by the Income Tax authorities on 15th June, 2018 and even if show cause notice is ignored, they do form part of the facts stated by co-ordinate Bench of this Court while deciding three writ petitions decided on 10th September, 2019, that is, W.P.(C) No.8482/2018 and other connected matters which were filed by the shareholders of Young India while challenging the action taken by the Income Tax authorities. There is no whisper or serious challenge to these factual aspects by the appellant. They do not say, even orally, that these facts stated and relied upon by the respondents are false, incorrect, fabricated, untrue etc. They only say that certain facts have been stated without filing a counter affidavit. If the facts so stated, cognizance of which have been taken by the writ Court, are based on materials available in proceedings held before the L&DO and by a co- ordinate Bench of this Court in a writ petition, we see no reason as to why we cannot take cognizance or judicial notice of these facts and proceed to consider them for deciding the lis in question, particularly, when there is no specific or categorical denial of them even orally before us at the time of hearing.

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Xxxxxxxxxxxxxxx

48. The first objection of the appellants were to the finding recorded by the learned writ Court in the impugned order passed on 22nd December, 2018 pertaining to there being no press activity in the premises in question, that is, finding in para-17 of the impugned order. The facts that have come on record clearly shows and it is an admitted position if we analyse the show cause notices issued to the appellants on 10th October, 2016 replied to the same on 19th November, 2016, the second show cause notice dated 5th April, 2018, the third show cause notice dated 18th June, 2018 and the fourth show cause notice dated 24th September, 2018 and the series of replies filed by the appellants on 19th November, 2016, 7th April, 2018, 16th July, 2018 and 9th October, 2018 along with the communication made by Sh. Motilal Vora on 26th September, 2018 available at page-406 of the paper book that between the period from the year 2008 to 2016, the appellant themselves admitted that there was no publication of the newspaper from the premises in question or from any other place and it was only after the inspection of the premises was conducted for the first time on 26th September, 2016 that indication was made about commencement of newspaper publication for 2016 - 2017.

preparations are in full swing to resume publication of the newspaper in the current financial year 2016-17. Referring to this letter, the learned Solicitor General had argued that this letter was written only for pre-empting the authorities so that they are not surprised if no printing activities are found in the premises. In fact, Sh.Tushar Mehta is right in contending that this was an attempt by the appellants and, in fact, an admission by them that no printing activity was being carried out in the premises at that point of time. That apart, when we go through the four show cause notices available on record issued on 10th October, 2016, 5th April, 2018, 18th June, 2018 and 24th September, 2018 and the reply filed thereto, we find that various breaches were pointed out in all these show cause notices and they were replied to by the appellant company and the cumulative admitted position that can be made out from the reading of these documents are as under. Xxxxxxxxxxxxxxxx 50. When the premises was inspected on 26th September, 2016, no press activity was being carried out in the area. Press activity and publication of the newspaper was suspended right from the year 2008 and all the employees were granted VRS. After the communication dated 26th September, 2016 was made by Sh. Motilal Vohra digital publication of the English Versions of the newspaper, National Herald commenced from 4th November, 2016.

publication of the newspapers commenced after a gap of eight years as is indicated hereinabove. If this is the factual position, it can very well be concluded that on 26th September, 2016 when the first inspection took place, admittedly, there was no printing of press or publication activity and the digital versions in English commenced publication only on 14th November, 2016, that is, about one and half month after the inspection took place on 26th September, 2016. Even though in the breach notice dated 10th October, 2016, there is no mention of there being no press activity but the admitted position is that when this notice was issued on 10th October, 2016 after inspection on 26th September, 2016 and the admission of Sh.Vohra on 26th September, 2016 that there is no printing activity, three other show cause notices were issued as have been detailed hereinabove and in the final show cause notice issued, that is, 24th September, 2018 before taking the impugned action there is a mention about no press activity being carried out in the premises when the first inspection was ordered on 26th September, 2016. Xxxxxxxxxxxxxxxx

transfer with AJL and the said transfer would not have any effect on the ownership or transfer of the leased premises. To consider this aspect of the matter, we are required to take note of the shareholding pattern of both the companies and the manner in which the transactions have taken place and further in case the lifting of the veil theory is applied, what would be its effect with regard to the issue in question.

ITA No.1251/Del./2019 on 21st December, 2010, a Board Meeting of AJL called for an EGM which was subsequently held on 24th December, 2010 and on the said date a loan of Rs.1 crore was received by Young India from another company M/s Dotex and thereafter on 28th December, 2010 i.e. within a week a formal deed of assignment was executed by AICC assigning the loan of Rs.90 crores in favour of Young India. Immediately thereafter on 21st January, 2011, an EGM of Associated Law Journal was held approving fresh issue of 9.021 crores shares to Young India and on 22nd January, 2011 i.e. on the next day the second Managing Committee of Young India was held in which Smt. Sonia Gandhi, Mr. Motilal Vohra and Mr. Oscar Fernandes were appointed as Directors and the 550 shares of the existing shareholders of Young India - Suman Dubey and Sam Pitroda were transferred to Smt.Sonia Gandhi and Mr.Oscar Fernandes and on the same day fresh allotment of Young India shares were made in the following manner: (a) 1,900 shares having paid up value of Rs.1,90,000/- to Shri Rahul Gandhi, (b) 1,350 shares with a paid up amount of Rs.1,35,000/- in the name of Smt. Sonia Gandhi, (c) 600 shares with a paid up value of Rs.60,000 in the name of Sh. Motilal Vohra and (d) 50 shares with a paid up value of Rs.5,000 in the name of Sh.Oscar Fernandes and after issuance of PAN by the Income Tax Department a bank account was opened by Young India with Citibank on 14th February, 2011 and the cheque issued by M/s Dotex for Rs.1 crore was deposited in the Young India Bank account on the said day and on 26th February, 2011 Young India issued a cheque of Rs.50 lakhs to AICC as consideration for assignment of Rs.90 crore debt payable by ALJ to AICC. On the same day, i.e., 26th February, 2011, ALJ allotted 9,02,16,899 equity shares to Young India in pursuance to the AGM Meeting decision held on 21st January, 2011 and the ALJ Board Meeting on 26th February, 2011 and thereafter Young India applied for exemption under Section 12- A on 29th March, 2011 and on 9th May, 2011 the Income Tax Authorities granted the exemption with effect from the F.Y. 2010-11.

59. Be that as it may, by the aforesaid transaction that had taken place Young India acquired beneficial interest on AJL’s property which on the said date was valued at more than Rs.400 crores on payment of a sum of Rs.50 lakhs to AICC.

ITA No.1251/Del./2019

This, according to the respondent, if viewed in the backdrop of the purpose of transfer lease and the modus operandi adopted is nothing but a devise to transfer the property held on lease from the Government by AJL, Young India which became 99% or rather 100% shareholder of AJL. With these facts, we now propose to examine the judgments relied upon by both the parties to evaluate the legal implication and the principles culled out from these judgments and examine their applicability in the present factual matrix to decide the issue of breach of conditions of the lease on this count.

ITA No.1251/Del./2019 down by the Constitution Bench, then by no stretch of imagination can it be argued that on transfer of shares of AJL to Young India Ltd., there is transfer of ownership or lease or property as contemplated in clause 13(3) of the lease in question. By referring to the judgment in the case of Monsanto Manufacturers (supra) and the terms and conditions of the lease deed which prohibited transfer in the said case and by comparing it to clause XIII(3) of the lease deed in question, we were told that in the absence of there being any specific prohibition permitting transfer of ownership of shares or change in the Article of Memorandum, the finding recorded with regard to transfer of ownership of the property recorded by the learned writ Court and the competent authority is unsustainable. The principles laid down in judgment of the Supreme Court in M/s K.G. Electronics (supra) and by this Court in DDA v. Human Care Medical Charitable Trust were also relied upon to canvass this contention.

ITA No.1251/Del./2019

"19. As already stated, the question for consideration is whether in the given fact situation the transfer of entire shareholding and change of all the Directors of a newly formed company to which lease rights were transferred by a declaration that it was mere change of form of partnership business without any transfer for consideration being involved can be taken as unauthorised transfer of lease which could be declared void."

ITA No.1251/Del./2019

"27. It is thus clear that the doctrine of lifting the veil can be invoked if the public interest so requires or if there is allegation of violation of law by using the device of a corporate entity. In the present case, the corporate entity has been used to conceal the real transaction of transfer of mining lease to a third party for consideration without statutory consent by terming it as two separate transactions--the first of transforming a partnership into a company and the second of sale of entire shareholding to another company. The real transaction is sale of mining lease which is not legally permitted. Thus, the doctrine of lifting the veil has to be applied to give effect to law which is sought to be circumvented. xxx xxxxxx 29. It is also well settled that mining rights are vested in the State and the lessee is strictly bound by the terms of the lease. [Orissa Mining Corpn. Ltd. v. Ministry of Environment and Forests(2013) 6 SCC 476, para 58; State of T.N. v. Hind Stone, (1981) 2 SCC 205, para 1; Monnet Ispat& Energy Ltd. v. Union of India, (2012) 11 SCC 1, para 41; AmritlalNathubhai Shah v. Union of India, (1976) 4 SCC 108; Geomin Minerals & Mktg. (P) Ltd. v. State of Orissa, (2013) 7 SCC 571. Ed.: See also Thressiamma Jacob v. Deptt. of Mining & Geology, (2013) 9 SCC 725 : (2013) 4 SCC (Civ) 559.] Cases of Arun Kumar Agrawal v. Union of India [Arun Kumar Agrawal v. Union of India, (2013) 7 SCC 1] (Vedanta case), Balco Employees' Union v. Union of India [Balco Employees' Union v. Union of India, (2002) 2 SCC 333] (Balco case) and Vodafone International Holdings BV v. Union of India[Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613 : (2012) 3 SCC (Civ) 867] cited by the learned counsel for the respondent have no application to the present case once real transaction is found to be different from the apparent transactions. In fact, the principle of law laid down in Vodafone case [Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613 : (2012) 3 SCC (Civ) 867] that the court can look to the real transaction goes against the respondent."

64. Finally in para 31, it is held by the Hon’ble Supreme Court that while discerning the true nature of the entire transaction, the Court is not to merely see the form of the transaction which is of sale of shares

ITA No.1251/Del./2019 but also the substance which is the private sale of a mining right avoiding legal bar against transfer of sale rights. In fact, the learned Court deals with the issue in para 31 in the following manner:

"31. ....Thus, while discerning the true nature of the entire transaction, the court has not to merely see the form of the transaction which is of sale of shares but also the substance which is the private sale of mining rights avoiding legal bar against transfer of sale rights circumventing the mandatory consent of the competent authority. Consent of competent authority is not a formality and transfer without consent is void. The minerals vest in the State and mining lease can be operated strictly within the statutory framework. There is nothing to rebut the allegation that receipt of Rs 160 crores styled as investment in shares is nothing but sale price of the lease. No precedent has been shown permitting such a private sale of a mining lease for consideration without any corresponding benefit to the public."

ITA No.1251/Del./2019 became the main shareholder with four of its shareholders acquiring the administrative right to administer property of more than 400 Crores. Even though Dr. Singhvi had argued that there is nothing wrong in such a transaction and it is legally permissible, but if we take note of the principles and the doctrine for which the theory of lifting of the corporate veil has received legal recognition, we have no hesitation in holding that the entire transaction of transferring the shares of AJL to Young India was nothing but, as held by the learned writ Court, a clandestine and surreptitious transfer of the lucrative interest in the premises to Young India. In fact, the contention of Dr. Singhvi has to be rejected and rightly so was rejected by the Single Judge even though without applying the principle of lifting of the corporate veil. In case the theory of lifting of the corporate veil, as discussed hereinabove, is applied and the transaction viewed by analyzing as to what was the purpose for such a transaction, the so called innocent or legal and permissible transaction as canvassed before us, in our considered view, is not so simple or straight forward as put before us, but it only indicates the dishonest and fraudulent design behind such a transaction as laid down in various judgments referred to not only in the case of Gotan Lime Stone Khanij Udyog (P) Ltd. (supra) but also in the case of Union Territory of Estate Officer, UT, Chandigarh vs. S.C. Information Technologies, (2016) 12 SCC 582, Skipper Construction (supra), wherein also the theory has been applied after considering the principle laid down in Salomon (supra) and in para 28, in the case of Skipper Construction (supra), the law has been crystallized in the following manner:

"28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people."

[Emphasis in bold is ours]

Regarding transfer of shares/property from AJL to YI and the manner in which entire transaction was done has been frowned upon by the Hon’ble Court by stating that it was a clandestine and surreptitious transfer of the lucrative interest in the premises to Young India. After applying the principle of lifting of the corporate veil, their Lordships have held that “the transaction viewed by analyzing as to what was the purpose for such a transaction, the so called innocent or legal and permissible transaction as canvassed before us, in our considered view, is not so simple or straight forward as put before us, but it only indicates the dishonest and fraudulent design behind such a transaction……”.

114 The aforesaid observations and findings of the Hon’ble jurisdictional High Court clearly have a binding precedence because not only it proves that the conduct of the assessee company right from the incorporation of YI till the application for registration u/s. 12AA before the DIT (E), was not to carry out any charitable activity, but to acquire huge assets of hundreds crores of Rs for a negligible amount. Seeking a status of charitable institution and to get registered under welfare legislation like section 12A/12AA, with such kind of conduct clearly indicates that it is a misuse of law and some kind of colourable device. This is perpetuated by the fact that all these transactions were completely hidden from the Income-tax Department and DIT (E) while seeking the registration u/s. 12AA. If all these things are put in perspective, then the contention of the ld. Special Counsel and ld. CIT (E) is to be believed that it is only when the Investigation Wing and Income-tax Department started making certain investigation and enquiries and also looking to the fact that no genuine activity was carried out for the period of five years, the assessee may have been prompted to surrender its registration u/s. 12AA.

115 There is another angle which ponders us is that, if no activities were carried out by YI towards charitable activity between the period 2011 to 2016, then why so much of clamour that assessee should be recognized as charitable institution qua that period only should have the benefit of registration u/s. 12AA for this period of five years, i.e., from the assessment year 2011-12 to A.Y. 2016-17 and post 21st March 2016, the assessee itself chose to surrender its registration and willingly give up its charity status under the Income Tax Act. If both YI and AJL are non-profitable company, then why such a dispute on cancellation from retrospective date.

116 Before us, the ld. counsel had very strongly objected to refer and rely upon the judgments of Hon’ble Delhi High Court as cited (supra) on the ground that, Hon’ble Supreme Court in SLP No.7345/2019 had stayed the further proceedings pursuant to the High Court order vide order dated 05.04.2019. The relevant directions of the Hon’ble Supreme Court read as under:

“There shall be stay of the further proceedings pursuant to High Court’s order.” Not only that, it has been strongly contended that once the operation of the order has been stayed then either the said judgment should not be taken into cognizance or the matter should be adjourned sine dine till the matter stands decided by the Hon’ble Apex Court. We are unable to accept such a plea raised by the ld. counsel for the assessee for the reason that firstly, the Hon’ble Supreme Court had stayed further proceedings pursuant to High Court’s order, which was Eviction of the property situated at 5A, Bahadur Shah Zafar Marg leased to AJL. Thus, in our opinion, what have been stayed are any further proceedings pursuant to the order of Hon’ble High Court and not the entire finding arrived at by the Hon’ble Court. It is a settled principle of law reiterated by Hon’ble Supreme Court in the case of Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association CSI Cinod Secretariat, Madras (1992) 3 SCC 1, that distinction has to be made between quashing of order and stay of operation of order because quashing of order results in restoration of position as it stood on the date of passing of the order whereas the stay of operation only means that it would not be operative on the date of passing of the stay order, but it does not mean that the said order has been wiped out from existence. The relevant observations read as under: “10. In the instant case, the proceedings before the Board under ss. 15 and 16 of the Act had been terminated by order of the Board dated April 26, 1990 whereby the Board, upon consideration of the facts and material before it, found that the appellant-company had become economically and commercially non-viable due to its huge accumulated losses and liabilities and should be wound up. The appeal filed by the appellant-company under Section 25 of the Act against said order dated January 7, 1991. As a result of these orders, no proceedings under the Act was pending either before the Board or before the Appellate Authority on February 21, 1991 when the Delhi High Court passed the interim order staying the operation of ITA No.1251/Del./2019 the Appellate Authority dated January 7, 1991. The said stay order of the High Court cannot have the effect of reviving the proceedings which had been disposed of by the Appellate Authority by its order dated January 7, 1991. While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the Appellate Authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the Appellate Authority would be restored and it can be said to be pending before the Appellate Authority after the quashing of the order of the Appellate Authority. The same cannot be said with regard to an order staying the operation of the order of the Appellate Authority because in spite of the said order, the order of the Appellate Authority continues to exist in law so long as it exists, it cannot be said that the appeal which has been disposed of by the said order has not been disposed of and is still pending. We are, therefore, of the opinion that the passing of the interim order dated February 21, 1991 by the Delhi High Court staying the operation of the order of the Appellate Authority dated January 7, 1991 does not have the effect of reviving the appeal which had been dismissed by the Appellate Authority by its order dated January 7, 1991 and it cannot be said that after February 21, 1991, the said appeal stood revived and was pending before the Appellate Authority. In that view of the matter, it cannot be said that any proceedings under the Act were pending before the Board or the Appellate Authority on the date of the passing of the order dated August 14, 1991 by the learned Single Judge of the Karnataka High Court for winding up of the company or on November 6, 1991 when the Division Bench passed the order dismissing O.S.A. No. 16 of 1991 filed by the appellant-company against the order of the learned Single Judge dated August 14, 1991. Section 22(1) of the Act could not, therefore, be invoked and there was no impediment in the High Court dealing with the winding up petition filed by the respondents. This is the only question that has been canvassed in Civil Appeal No. 126 to 1992, directed against the order for winding up of the appellant- company. The said appeal, therefore, fails and is liable to be dismissed.” [Emphasis in bold is ours] 117 Thus, it has been clearly held that staying the operation of the order of the Court does not mean that the said order does not exist in law. Hon’ble Bombay High Court in Nilkamal Limited vs. Union Territory of Dadar & Nagar Haveli, in criminal writ petition No. 3794 of 2014, after referring to various judgments including that of Shree Chamundi Mopeds Ltd. (supra) held that even if a decision of the High Court is stayed by the Apex Court, the subordinate courts are bound by the same unless the decision is set aside by the Apex Court. Accordingly, the High Court directed the Magistrate to follow the judgment of High Court unless and until it is set aside by the Hon’ble Apex Court.

118 In view of the aforesaid law, the contention raised by the ld. counsel is hereby rejected. Even otherwise, also here it is not the case that the order of the Hon’ble High Court has become non-operative, albeit the consequences of eviction pursuant to the directions of Hon’ble High Court, has been stayed and not the order. The ld. counsel has also relied upon the judgment of Delhi High Court in the case of Bhushan Steel (supra) and of Calcutta High Court in the case Exide Industries Ltd. (supra) where the order has been stayed by Hon’ble Supreme Court, and in Subsequent judgment, Hon’ble Delhi High Court has not followed the said order. Such a plea and reference does not come to aid for the reason that in the judgment of Delhi High Court (Bhushan Steel) it has been held that the Sales Tax Subsidy is the Revenue receipt and the Hon’ble Supreme Court had admitted the SLP and the entire order was stayed. Here situation and direction are not similar. Further the judgment of Hon’ble Calcutta High Court in Exide Industries Ltd.(supra), wherein the provisions of section 43B(f) was declared unconstitutional where also SLP was filed before the Hon’ble Supreme Court the entire operation of the order was stayed. In any case, once the jurisdictional High Court has passed the judgment which has not been set aside or reversed by Hon’ble Supreme Court, then for lower courts within its jurisdiction constitutes a binding precedence specifically when the judgment has been rendered on similar facts and transaction as held by the Hon’ble Supreme Court in the case of Shree Chamundi Mopeds Ltd. (supra), wherein Hon’ble Supreme Court has clearly held that the order of the Appellate Authority where the operation has been stayed continue to exist in law. We are clearly bound by the observations and findings of the Hon’ble jurisdictional High court.

119 Most of these documents, though submitted at the rejoinder stage, are in nature of clarifications to the submissions made by the ld. DR and the letters written to DDIT in 2014 and certain notices issued by LDO, but none of the documents filed impinge upon our finding in any manner as given above, because none of these documents prove that acquisition of AJL by the assessee company was for carrying out any charitable activities in pursuance of its objects nor any such activity was carried during the relevant period. Accordingly, these additional evidences, as filed by the assessee, though are taken on record, but we do not deem fit to adjudicate on each and every document for the reasons given in the foregoing paragraphs.

120 One of the key contentions raised by the ld. counsel before us is that the ld. CIT(E) does not have the power to cancel the registration from retrospective date and any such cancellation can only be prospective, i.e., from the date of passing of the order and in support of which certain decisions have also been relied upon. From a bare reading of Section 12AA (3) it is seen that, section provides that where a trust or an institution has been granted registration and if subsequently, Pr. CIT or CIT is satisfied that the activities of the trust are not genuine or are not carried out in accordance with the objects of the trust, he may cancel the registration by way of an order in writing. Consequently, if there is violation of any such conditions, then the registration so granted can be cancelled by the CIT. Nowhere, the Statute envisages that the cancellation cannot be retrospective or it has to be necessarily prospective. What it provides that the Commissioner has statutory powers to cancel the registration u/s. 12A/12AA if he finds reason to believe that the activities of the assessee are not in line with its objects or the activities carried out by the assessee are not genuine in nature. If from the date when registration has been granted, the assessee has not carried out any activity in line with its objects or the activities carried out are not genuine, then from that date itself, the registration can be cancelled because it is only when the knowledge of such breach come to the notice of the Commissioner, then he has the power to cancel the registration from the date he notices the infringement. The cancellation of registration, whether with retrospective effect or prospective, depends upon the facts and circumstances of the case and the Commissioner has power to cancel the registration from the time when such breach has occurred. Suppose, if the assessee after grant of registration carries out its activities in accordance with its objects and the activities are also genuine then the assessee is entitled for benefits of section 12AA; and if from a particular period or year, the activities are found to be either non-genuine or not carried out in accordance with its stated objects, then the Commissioner can cancel the registration from the date or period when such non genuineness is found. Hon’ble Madras High Court in the case of Prathyusha Educational Trust (supra) have clearly reiterated this proposition, relevant text of which has been already incorporated above, wherein their Lordships have held that it a misnomer to sate that the order is retrospective or retroactive and the order of the cancellation of registration even passed on subsequent date would take effect from the year when cause of action arose.

121 Here, in this case, as we have gathered from the material facts on record and discussed in detail, the assessee at the time of seeking registration itself has concealed the material facts and not disclosed the entire events of transactions which had undergone from the date of inception of assessee company till the grant of registration and one of the conditions on which the registration has been granted stood violated from the day one and therefore, under these circumstances, the ld. CIT(E) was fully justified in law and on facts in cancelling the registration from the date of granting of registration itself, i.e., from the assessment year 2011-12. Secondly, here in this case it has been found that even after grant of registration u/s. 12AA, no genuine activities have been carried out by the assessee either in furtherance of its objects or otherwise, which can be held to be for charitable purpose because one of the so called purpose of acquiring AJL was not carried out at all. Otherwise, also, we have already discussed and given our categorical findings that till the grant of registration and surrender made by the assessee, no worthwhile activities were carried out by AJL. In fact, what it turns out to be is that, the assessee has acquired AJL, a company that owns property worth hundreds of crores from which the AJL had been enjoying only rental income. Clearly, AJL, which had been earning rental income, cannot be held that its activities were aligned with the objects of the assessee company or through AJL; it was carrying out activities in pursuance of its objects qua that period. Hence, in that sense, the assessee’s activities cannot be held to be genuine. Thus, the cancellation of registration u/s 12AA by the Ld. CIT (E) from A.Y. 2011-12 is upheld.

122 Accordingly, in view of our findings given above, we hold that the ld. CIT (E) was justified in cancelling the registration from the assessment year 2011-12, because none of the activities of the assessee was carried out in accordance with its objects nor its activities can be held to be genuine. Consequently, the appeal of the assessee is dismissed.

123 In the result, the appeal is dismissed.”

From the sequence of events which have been discussed in the earlier part of the order and the finding of fact arrived by this Tribunal on the same set of transactions in the case of assessee as well as the findings of fact and observations of Hon’ble Delhi High Court based on various judicial jurisprudence, it is clearly established that, the corporate entity of AJL stands pierced and in fact what has been acquired by the appellant company is the underlying assets to acquire huge properties by the AJL and to get commercial benefit derived from such properties. It is very difficult to fathom that all these transactions which have been purported to be portrayed within legal framework to show that what is apparent is also real, which has been found to be incorrect.

“108. Much emphasis has been laid by the ld. counsel that AJL has converted itself into a Section 8 company under the Companies Act 2013 in January, 2016, i.e., as a non- profit company, to carry out the objects of Young Indian and the objects of AJL were aligned with that of Young Indian. Such a contention is of no consequence for the reason that, firstly, it is an admitted fact that till date, the assessee had not been granted license by ROC as Section 8 Company; and secondly, all these events have neither been stated by the assessee before the ld. CIT (E) and are post 2016. The amendment in MoA of AJL in the year 2011 is again of no consequence because till the year 2016, no such activity has been carried out by Young Indian through AJL. In any case, we are in tandem with the contention of the ld. Special counsel that merely adopting the changes in MoA does not make the company a Section 8 Company or a non-profitable company, because it is always open for the Board of Directors to amend its MoA and become a profitable company at any time and sweet will. Thus, acquisition of AJL to further the objects of the assessee company as purported by the ld. counsel, is not acceptable.”

133. It has also been contended before us that the judgment of Hon’ble Delhi High Court was neither with regard to income-tax proceedings nor under the Income-tax Act, albeit under the Land Development Act and clause III (xiii) Lease Deed of the transfer.

This contention again is not acceptable because though primary issue may have been related to under the breach of terms of lease; however, Hon’ble High Court has discussed and related the entire transaction which are the same transaction involved in the present matter and the Hon’ble High Court have clearly lifted the corporate veil for these transactions as already noted above.

“28. Profits and gains of business or profession

………… (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; ……………”

The aforesaid section stipulates that there should be benefit or perquisite whether convertible into money or not, arising from business or exercise of a profession. Thus, section 28 seeks to bring to tax income arising from business or profession in all its dimensions. The expression business has been defined in sub- section (13) of section 2 which means as under :-

“(13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.”

Venkataswami Naidu and Co. vs. CIT 35 ITR 594 (SC) and also judgment of Janki Ram Bahadur Ram vs. CIT 1965 AIR 1898.

These judgments explain this concept and lay down the principle that how in such circumstances a venture or transaction can be considered as adventure in the nature of trade or commerce.

itself. Any activity akin to business may be taken to be adventure in the nature of trade. • A single transaction may also constitute adventure in the nature of trade. There need not be regularity or repetitiveness in the activity. • No hard and fast rule can be laid down in this regard as it has to be understood on the facts and circumstances of each case. • The activity alleged/claimed adventure in the nature of trade need not be allied to the already existing activity of the assessee. • In the circumstances and the facts as in the present case, it is the duty of the court to see where ingenuity is expended to avoid taxing and get behind the smoke screen of welfare legislation and discover the true state of affairs.

This clearly shows that the intention of the appellant was to enjoy the benefits by commercial exploitation of these properties and to acquire the benefit of these properties which is nothing but adventure in the nature of trade which can be carried out at some future point of time. It is also very clear from the fact that this was the only activity done swiftly within a period of 3 – 4 months, which appellant had carried out in all these years starting from 2010 till date.

His first limb of argument, that the appellant has acquired shares of AJL and not the assets of the AJL. We have already discussed above that here is not the case of acquisition of shares albeit entire assets of AJL, because nature of transaction undertaken has already been opined upon by the Hon’ble Delhi High Court and by us in the foregoing paragraphs.

Here, it is a case of acquisition of properties in the garb of these transactions which has not only resulted of having these properties immediately after the acquisition of the transaction but also in future whereby exploitation of these properties would lead income in the nature of trade and business. It is a case of valuation of stock-in-trade and, therefore, the judgment of Hon’ble Supreme Court in the case of Chainrup Sampatram v. CIT 24 ITR 481 has no application in the present facts of the case or the judgment of Hon’ble Supreme Court in the case of CIT vs. Hindustan Zinc Ltd. 291 ITR 391.

GROUNDS NO.7, 8 & 9

Sr.No. Property Value as at 26.02.2011 In Rs. i 5A, Herald House, Bahadur Shah 201,83,92,400 Zafar Marg, New Delhi (Delhi property) ii Land at S. No. 340/341, CTS No. 132,94,44,480 608/1A, Bandra (East), Mumbai (Mumbai property) iii Land at Plot Nos. 353, 352 & 360, 5,77,52,700 Thana No. 6 Phulwari, Vill. Mahuli, Patna- 800001 (Patna Property) iv Nehru Bhawan and Nehru Manzil, 40,59,06,400 1, Bisheshwar Nath Road, Kaiserbagh, Lucknow-226018 (Lucknow property) v Land at C-17, Sector 6, Panchkula 32,25,60,000 (Panchkula property) Total 413,40,55,980

“GENERAL CONTENTIONS: a. The benefit, if any, can be computed only with reference to the shares of AJL acquired by the Appellant. Since no specific method has been prescribed under section 28(iv) to value the benefit derived in the form of fair market value of shares acquired by an assessee, the rules prescribed under the same Act, albeit under another provision (Section 56(2)), should be the basis even for determining said benefit. Under section 56(2)(vii)/(viia), Rule 11UA has been prescribed. Value per share of AJL as per Rule 11UA, prior to the transaction of conversion of loan into shares is a negative figure (Rs. - 770.09) (page 870-881 of PB II). Value per share of AJL as per Rule 11UA, post the transaction of conversion of loan into shares is Rs.2.01 per share. Considering said value per share, the total value of the benefit alleged to have been received by the Appellant would amount to Rs. 18.32 crores (Page 882-894 of PB II). Hence, if at all, the value of the shares of AJL ought to be determined in accordance with Rule 11UA.

Sr. Case law Reference Page Nos. No. 1 CED vs. J. Krishna Murthy (96 ITR 127-131 of 87)(Mys) LPB VII 2 CED vs. R. M. Subhadvala (192 ITR 389) 132-133 of (Bom) LPB VII 3 Jehangir Mahomedli Chagla vs. ACED 134-139 of (155 ITR 637)(Bom) LPB VII 4 Madhusudan Dwarkadas Vora vs. 140-142 of Superintendent of Stamps (141 ITR LB VII 802)(Bom) 5 CED vs. G. K. Swaroop (275 ITR 137)(Guj) 143-145 of LPB VII b. Without prejudice to the above, even if the approach adopted by DVO/AO is to be considered, since what has been acquired by the assessee are the shares of AJL, effect has not been given for obvious adjustments for valuation of shares such as: i. Deduction for tax outgo which results in approx. 30% reduction in the value; ii. Deduction of liabilities of the company as on the valuation date. Such as the loan of Rs. 90.21 crores, should have been considered to arrive at the value of the shares acquired by the Appellant. iii. Discount for illiquidity since shares are unlisted, iv. Deduction for cost of Rs. 50 lacs incurred for acquisition of shares, etc. c. Also, even though the valuation reports of registered valuers submitted by the Appellant as additional evidence were not admitted by the CIT(A), the arguments bringing out the inconsistencies in the valuations done by DVO/AO cannot be ignored. However, neither the CIT(A) nor the AO has in its remand report considered any of the arguments of the Appellant in relation to valuation of the properties, which were provided in detail in the written submissions.

Sr.No. Case Law Page Nos. 1 Jagannathan Sailaja Chitta v. ITO 36-46 of [2019] 104 taxmann.com 131 LPB IX (Madras) : It is only after hearing objections of assessee, that Fair Market Value of capital asset as per 'Guidance Value' can be determined by authorities d. Also, all the DVO reports were issued directly without first sharing the draft with the assessee, which is in violation of the principles of section 142A which requires opportunity to be provided to the assessing before issuing the report.

6.7 Without prejudice to above, it is submitted that there are several errors in the valuation as of the properties as done by the AO/DVO. The property wise contention of the Appellant are as under:

6.8 ERRORS IN VALUATION OF THE DELHI PROPERTY: 6.9 The Delhi Property has been valued by the DVO. The DVO report is at pages 400-411 of the PB-I.

6.10 As would be observed, at Page 406 of PB-I, • DVO has used comparable sale instance method to determine the value of the land; • He has considered a sale instance of a residential plot at Tolstoy Marg as on 10.3.2008 and made various adjustments to the same to derive the value of Delhi Property. • Rate of Tolstoy Property as on 10.3.2008 is considered at Rs. 312,724 per Sqm. • He has then increased the value by 21% YOY to arrive at the rate as on 26.2.2011(valuation date) at Rs. 507,020.67 per sqm. • Then he allowed 5% discount to the same for the reason that Tolstoy Marg is more prime than Bahadur Shah Zafar Marg and determined the rate at Rs 481,669.64/ sqm. • He has further used multiplicative factor of 3 to determine the rate for a commercial property. = Rs. 481,669.64 /sqm x 3 = Rs. 14,45000 per sqm. • Accordingly, the value of land was determined at Rs. 194,74,26,500. (Rs. 1445000 x1347.70 sqm)

6.11 At page 408 of PB-I, the value of the built-up area (building) on the land was determined by considering the CPWD Plinth Area Rates Delhi 2007 at Rs. 7,09,65,900.

6.12 Accordingly, the total value of the Delhi Property has accordingly been determined at Rs. 2,01,83,92,400 (194,74,26,500 + 7,09,65,900). – Page 406 of PB I.

6.13 It is submitted that the each of the steps adopted by the DVO and the method of valuation itself is completely erroneous. In this regard, attention is drawn to the observations of the GAA Valuer, Registered Valuers, which is at Page 1377-1378 of PB IV (GAA Report – pages 1371-1401 of PB IV). The said report was also submitted to the CIT(A) and the same was also sent to the AO for his remand report. However, neither the CIT(A) nor the AO has commented on this report. Further, our arguments before AO is at Pages 361- 362 of PB-I and detailed submission for CIT(A) are at pages 1304-1310 (Para 2.1-2.6) of PB-II.

6.14 Contentions:

6.15 DVO ought to have considered circle rate instead of comparable sale instance method, especially in absence of a proper comparable instance:

6.15.1 For the period of valuation (valuation date being 26.2.2011), ready reckoner rates for concerned property were readily available. The rates were notified in February 2011 itself. The same is at pages 1389-1390 of PB IV. As would be observed, circle rates for Delhi were released vide Notification dated 4.2.2011 which falls in the same month as the valuation date. However, the AO has completely ignored this and computed to value of the property by following comparable sale instance method. For that too, he has considered a residential property (as against institutional property) which was sold in 2008 (that is 3 years prior to the valuation date) located at Tolstoy Marg (around 4 Kms away from the Delhi Property) and then made various artificial adjustments to it to determine the rate as at valuation date. It is submitted that when the circle rates were readily available, the DVO should have relied on those rates, instead of computing the rate based on non-comparable sale instance and then adjusting the price artificially such as an escalation of 21% per year. When the circle rate is notified very close to valuation date, same ought to be considered. In fact, while determining the value as on 13.7.2017, the DVO has considered circle rates! However, for 26.2.2011, the DVO has ignored said rates without providing any reason in respect thereof. Not only that, while valuing all other 4 properties of AJL both as at 26.2.2011 as well as 13.7.2017, the DVOs and the AO have considered only the circle rates. Besides, even under the Income Tax Act, under various sections, fair market value of immovable property is determined based on circle rates only (such as section 50C, 56(2), etc.). However, only for this property while valuing it as at 26.2.2011, the DVO has deviated from the consistent method otherwise adopted, and selected comparable sale instance method, even though apparently no comparable sale instance was readily available near the valuation date and in respect of a property similar to this property. Even the road/area in which the comparable property considered by the DVO is situated is different from the road/area in which this property is situated. It is submitted that instead valuing the property in such arbitrary fashion, the DVO ought to have considered the circle rates which are prescribed very close to the valuation date, for the exact location and also provides for an adjustment multiple for institutional properties. Observation of GAA Valuers, registered valuers in this respect is at Page 1378 of PB IV, Para 10.

6.15.2 In this regard, reliance is placed on the decision in Appropriate Authority v. Kailash Suneja [2001] 118 Taxman 295 (SC) (Pages 93-99 of LPB IX) wherein it is held that different methods cannot be arbitrarily applied by the valuation officer.

6.15.3 It is accordingly submitted that the circle rates ought to be considered for valuing the Delhi Property. As would be observed from the ready reckoner (Page 1390 of PB IV), the highest base rate prescribed therein for poshest of locality is Rs. 86,000 per sq. m, as against this, the DVO has considered the base rate of Rs. 507,020.67 per sq. m, which is almost 6 times the rate provided in the ready reckoner.

6.15.4 The Ld. DR has, during the course of the hearing, stated that the DVO had given full opportunity to the Appellant and no such ready-reckoner was made available either before the DVO or the AO. Accordingly, this contention cannot be raised now by the Appellant.

6.15.5 In this regard, it is submitted that the ready reckoner issued by the Government Authorities is a public document and a very basic document which the DVO, being the technical expert on valuation, has to be aware of. In fact, for 2017 valuation, the DVO himself has considered the ready reckoner rates (Page 407 of PB I). However, the DVO has ignored the said rates for the valuation as on 26.2.2011 without providing any reason for the same. Hence, the contention that the said argument cannot be entertained since ready reckoner was not submitted by the Appellant holds no water.

6.15.6 The Ld. DR has justified this arbitrary treatment of the DVO, by stating that Delhi has a peculiar aspect, where people generally do not want to sell the property and only purchase them as and when an opportunity arrives. He states that the people are prepared to pay fancy price for the properties in Delhi. Based on this reasoning, the Ld. DR has attempted to justify DVO’s action of adopting comparable sale method instead of ready reckoner rates. It is submitted that this explanation given by the Ld. DR, as a matter of fact, supports the case of the Appellant inasmuch as, if it is true that these properties are not sold and comparable sale instances are not available, then this would all the more be the reason to ignore alleged comparable sale instance as the correct basis of valuation and to consider the published ready reckoner rates, which were notified in the same month (February 2011) in which the valuation date falls.

6.15.7 The Ld. DR has also stated that the circle rates for this area are very hypothetical for the reasons that there are no sale circumstances. It is submitted that, again, this a loose statement without any basis. The DVO himself has considered circle rates while valuing the property as on 2017. The DVO has not provided any reason for not considering circle rates for 2011 and certainly not made any such comment about the rates being hypothetical in nature. Further, can rates notified by the stamp duty authorities be summarily brushed aside without providing any cogent reason and proof for the same? It is surprising how the Revenue can argue that the stamp duty rates are hypothetical when various provisions of the Act requires consideration of circle rate for valuation under various sections such 50C/56/43CA, etc. If the said argument is taken to its logical conclusion, then all additions made by the Revenue under these sections in case of every assessee should fail.

6.15.8 The Ld. DR has further stated that valuation once done by a technical expert cannot be challenged subsequently, if the same has been done on reasonable basis. In this regard, it is firstly submitted that the AO himself has ignored the DVO’s report in case of the valuation of Mumbai Property and determined the alleged fair market value himself. Hence, when the Department itself does not accept DVO’s report to be a final document, it cannot now, at its convenience, ignore the blatant errors in the reports by stating that DVO being a technical expert, its report cannot be questioned. Secondly, it is submitted that, it is amply clear that in the present case, the DVO has considered a total non- comparable sale – which is non-comparable qua (i) the type of property (residential vs. institutional) (ii) the year of sale (2008 vs. 2011) (iii) the location of the property (Tolstoy Marg vs. Bahadur Shah Zafar Marg) and then made various adjustments to try and make it comparable by applying arbitrary factors. Hence, the valuation done by the DVO cannot be regarded as reasonable especially without providing any reason for ignoring the applicable ready reckoner rates readily available.

6.16 The property has been allotted for newspaper publication business and is therefore, there is usage restriction on the property. Further, it is an institutional property and not a commercial property and therefore, is not readily marketable since the purchaser of the property would also be bind by the usage restrictions for all time to come. Therefore, the DVO should have applied multiplicative factor of 2 and not 3.

6.16.1 It is submitted that to the base rate determined by DVO, he has applied a multiplicative factor of 3 to determine the rate applicable to Delhi Property by stating that this is a commercial property. (Page 406 of PB-I). In this regard, it is submitted that the Delhi Property was allotted by the Land & Development Officer to AJL for specific purpose of using it in its publication activity. Clause III(7) of the Perpetual Lease Deed dated 10.1.1967 specifies the purpose for which the property can be used. (Page 1484-1485 of PB – V). The same reads as under:

“(7) The lessee will not without such consent as aforesaid carry on or permit to be carried on, on the said premises, any business, trade or manufacture which in the opinion of the lessor or such office as he may authorize in his behalf is noisy noxious or offensive, or permit the said premises to be used for any purpose other than the purpose specified below:

(i) basement and the first floor of the building for the press and the offices of the lessee.

(ii) the remaining four floors of the building for letting out to other commercial concerns as office accommodation accepting use as hotels, cinemas and restaurants. Running of a canteen in the building for the bona fide use of the building will, however, not constitute a breach of the covenant.”

6.16.2 Hence, it is clear the entire property cannot be used for general commercial purpose and has a limited market. In fact, even as per the Master Plan of Delhi – 2021, the property is situated in zone classified as public and semi- public areas (Page 1396 of PB IV). Also, in the letter dated October 4, 2011, L&DO itself has mentioned that the property as a press/media plot, which shows that it is a public utility

(Page 1385 of PB IV. Better readable copy is at page 1402 of PB IV). It is accordingly submitted that the multiplicative factor of 3 applied by the DVO by considering the property as a commercial property is incorrect. The observation of GAA Valuers, registered valuers in this respect is at Page 1377 of PB IV (Paras 1, 2 and 7).

6.16.3 In this regard, attention is again invited to the ready reckoner at page 1390 of PB IV. As would be observed therefrom, the multiplicative rate prescribed for properties like this is 2 and not 3.

6.16.4 Further, reference is also drawn to the decision of the Supreme Court in S. N. Wadiyar v. CWT [2015] 62 taxmann.com 289 (SC)(Pages 56-67 of LPB IX), wherein it is held that where there are restrictive clauses in the property which has depressing effect on the value of the asset, impact should be given to such clauses while valuing the property, since a reasonable buyer would pay for the property after considering the impact of such clauses.

6.16.5 Similar view has also been taken in the following decisions: • Ajit J. Mehta v. JCIT [2006] 101 ITD 11 (PUNE) (Pages 68-71 of LPB IX) • AIMS Oxygen (P.) Ltd. v. CWT [2012] 23 taxmann.com 185 (Guj.) (FB) (Pages 72-78 of LPB IX) • CIT v. G. S. Krishnavati Vahuji Maharajkalyanraiji Temple [2003] 131 Taxman 339 (Gujarat) (Pages 79-81 of LPB IX) • Gouri Prasad Goenka & Family (HUF) v. CWT [1993] 203 ITR 700 (Cal) (Pages 82-86 of LPB IX) • CWT v. Smt. Ballabh Kumari [1986] 24 TAXMAN 396 (RAJ)(Pages 87-88 of LPB IX) • CWT v. K. S. Ranganatha Mudaliar [1985] 21 Taxman 360 (Mad.) Pages 89-92 of LPB IX).

6.16.6 Accordingly, it is submitted that the multiplicative factor of 2 ought to be considered.

6.16.7 During the course of the hearing, the Ld. DR has submitted that the land is given ‘for the purpose of construction of building for commercial purposes’ as per the recital of 122 the deed and that the restrictions in the deed are only to the extent that the building shall not be used for running of a cinema or restaurant or any other activity which may be noisy, noxious or offensive. (Page 1485 of PB-V). He has accordingly argued that this is not really any effective restriction on the commercial use of the building.

6.16.8 In this regard, it is submitted that it is true that the property is allowed to be partly leased out by AJL. However, the catch word is ‘partly’. That itself shows that AJL cannot use the entire property in any manner as it likes and that a portion of the property has to be used for the stated purpose, namely the publication business. Further, there are clear restrictions on free transfer of the property by AJL. If these are not in the nature of restrictive clauses, then the entire order of L&DO cancelling the lease ought to fail immediately and the matter pending before the Supreme Court should be rendered in the favour of AJL. The Ld. DR has stated that these restrictive clauses are just enabling clauses and that it can always be changed in future which is a normal routine. It is submitted that this is complete misrepresentation of facts. Besides, even assuming that the permission is allowed in future to do away with the restrictive clauses, it would be subject to payment of some hefty fee, which in fact supports the contention that a discount ought to be provided for such clauses. It is reiterated that such restrictions affect the marketability of the property and reduces the market participants to a limited group of people as any purchaser of property would acquire the land with the attended conditions of using the property partly for publication business. Accordingly, the Appellant prays that a proper discount ought to be provided for such restrictions.

6.16.9 Besides the Ld. DR has not contested that this property was an institutional allotment to AJL and accordingly, in any case, the multiplicative factor of only 2 should apply to this property.

6.17 No impact has been given for the transfer restriction on the property and the condition that 50% of the unearned increase is payable to L&DO on the transfer:

6.17.1 Attention is invited to Clause (III)(13) of the Perpetual Lease Deed dated 10.1.1967 (Page 1487 of PB V), which provides that prior approval is required before transfer, and L&DO shall be entitled to claim 50% of the unearned increase (profit on sale). The said clause reads as under:

“The Lessee shall not be entitled to sub-divide the demised premises or transfer by sale, mortgage, gift or otherwise the said premises or building erected thereon or any part thereof without obtaining the prior approval in writing of the Lessor or such officer or body as the Lessor may authorise in this behalf and all transferees shall be bound by all the covenants and conditions herein contained and be answerable in all respects thereof.

Provided also that the Lessor shall be entitled to claim and recover 50% (fifty) per cent) of the unearned increase i.e. the difference between the market value of the demised premise at the time of assignment or transfer thereof made for the first time after grant of the lease and the premium already paid or the difference between the market value of the said premises at the time of the immediately preceding assignment or transfer of the said Premises. The decision of the Lessor in respect of the amount payable to the Lessee shall be final and binding on the Lessee and his transferees or assigns. The Lessor shall have the pre-emptive right to purchase the said premises after deducting 50% (fifty) percent) of the unearned increase payable to the Lessor as aforesaid.”

6.17.2 As would be observed, under the lease deed, AJL cannot transfer the land without prior permission of the government and even in that case, 50% of the unearned increase would belong to the government. In this regard, the Appellant draws kind attention to the decision of the Supreme Court in CIT vs. P. N. Sikand (107 ITR 922)(SC) (Pages 47-55 of LPB IX), wherein while considering the similar clause in a leasehold property, the Supreme Court held that where there is restrictive covenant on the property, which requires that a % of the unearned increase in the value of the land is to be paid to the lessor, in such a case, the fair market value of the land would have to be reduced by the said % of unearned increase in value of land on basis of hypothetical sale on valuation date. In that case, the assessee had acquired leasehold rights in certain land from the original lessee. Clause 13 of the lease deed provided that the assessee would not be entitled to assign the leasehold interest in the land without obtaining the prior approval in writing of the lessor and 50 per cent of the unearned increase in the value of the land at the time of the assignment would be claimable by the lessor, and moreover, if the lessor so desired, he would have pre-emptive right to purchase the property after deducting 50 per cent of the unearned increase in the value of the land. At the time of its wealth tax assessment, the assessee claimed that the 50 per cent of the unearned increase in the value of the land which was payable to lessor was deductible out of valuation of property. On appeal, the High Court held that the liability to pay 50 per cent of the unearned increase in the value of the land to the lessor at the time of the assignment was a dis- advantage attached to the leasehold interest in the land and, hence, its value was liable to be deducted from the value of the property in arriving at the net wealth of the assessee. On the revenue's appeal to the Supreme Court, it held the issue in favour of the assessee. The relevant extract of the same is as under:

“Clause 13 of the lease deed also provided that whenever an assignment of the leasehold interest was made by the lessee, the assignee would be bound by all the covenants contained in the lease deed and these would indisputably include the covenant in clause(13). Clause (13) would equally bind the assignee and if the assignee in his turn wants to assign his leasehold interest in the land, he would have to obtain the prior approval in writing of the lessor to such assignment and the lessor would be entitled to claim 50 per cent of the unearned increase in the value of the land. The covenant in clause (13) was, therefore, clearly a covenant running with the land and it would bind whatsoever was the holder of the leasehold interest for the time being. It was a constituent part of the rights and liabilities and advantages and disadvantages which went to make up the leasehold interest and it was an incident which was in the nature of burden on the leasehold interest. Plainly and indisputably it had the effect of depressing the value which the leasehold interest would fetch if it were free from this burden or disadvantage. Therefore, when the leasehold interest in the land had to be valued, this burden or disadvantage attaching to the leasehold interest must be duly discounted in estimating the price which the leasehold interest would fetch. To value the leasehold interest on the basis that this burden or disadvantage were to be ignored would be to value an asset different in content and quality from that actually owned by the assessee. The burden or limitation attaching to the leasehold interest in the instant case must, therefore, be taken into account in arriving at the value of the leasehold interest and it could not be valued ignoring the burden or limitation.

6.17.3 Accordingly, it is submitted that whatever value is ultimately arrived for this property, the same ought to be reduced by 50% for the aforesaid conditions in the lease deed. Observation of the GAA Valuers, registered valuers in this respect is at Page 1377 of PB IV (Para 3).

6.17.4 With regards to this contention, the Ld. DR has argued that the said condition under clause III(13) of the lease deed (Page 1487 of PB V) is applicable only at the time of transfer of land whereas in the present case, the valuation is being done for the purpose of determining the value of benefit to the Appellant and not the value at the time of transfer. He has accordingly, argued that the said adjustment is not required. The Ld. DR has stated that while determining the value of a benefit of a property on a given date, considerations of a hypothetical transfers etc. cannot be taken into consideration.

These would amount to notional adjustments, without the stipulated eventuality being in sight.

6.17.5 In this regard, firstly, kind attention is drawn to Para 12 at page 47 of the assessment order, wherein the AO has stated that Appellant has derived benefit u/s. 28(iv) embodied in the assets held by AJL and ‘the value of this benefit can be best represented by Fair Market Value (FMV) of business properties, exploitation whereof is yielding the benefit of these business assets on the date of taking over of the AJL by the assessee’. He has also referred to the definition of the term ‘fair market value’ u/s. 2(22B) of the Act wherein the said term is defined to mean ‘the price that the capital asset would ordinarily fetch on sale in the open marke ton the relevant date’. Accordingly, at para 12.4 of the order, it is stated that a reference was made to the DVO u/s. 142A requesting to estimate the ‘fair market value’ of the properties of AJL.

6.17.6 From the above, it is clear that the case of the Revenue is that the ‘fair market value’ of the properties of AJL is the benefit to the Appellant. It is on the said premise that the entire addition has been made by the AO. It is not a case that a value of any benefit from the property (such as the rent amount) has been sought to be added as benefit accrued to the Appellant. Rather, the fair market value of the properties itself has been deemed as the benefit accrued to the Appellant. If that is the case, it is submitted that all the settled valuation principles applicable while valuing the ‘fair market value’ of a property needs to be complied with even in the present case. Indeed, the definition of ‘fair market value’ itself refers to price which a property would fetch ‘on sale’. Hence, the Ld. DR is completely wrong in contending that the foregoing clause 13 is not relevant since it applies only at the time of transfer. The presumption while valuing the property is in fact the that it is the price it would fetch on sale. Accordingly, any payment which needs to be mandatorily made for effecting the sale has to be allowed as deduction while computing the fair market value.

6.17.7 Indeed, if the argument of the Ld. DR that all hypothetical situations like possible transfers, etc. is to be disregarded while valuing the properties is accepted, then the entire addition itself ought to fail since the addition itself is based on a hypothetical assumption that by acquiring shares a benefit in the form of fair market value of the underlying assets could arise to any assessee even though there is no demonstration whatsoever as to what benefit has really accrued. As stated by DR himself, the properties have not been sold. Then why is the fair market value of these properties being taxed today? However, as they are being taxed, it needs to be taken to its logical conclusion. The department cannot blow hot and cold at the same time.

6.17.8 It is accordingly submitted that following the settled position as laid down by the Supreme Court in P.N. Sikand’s case, deduction ought to be allowed for the 50% unearned increase required to be paid to the L&DO in case of transfer of the property. Indeed, the contention of the Ld. DR is complete contrary to the said decision of the Supreme Court. Even in this case, the Supreme Court was dealing with the case of measuring the value of a leasehold land, which too has a similar clause as in the Delhi Property regarding payment of 50% of unearned increase. This too was not a case of transfer of land by the assessee or a case of computing capital gain, but a case of valuation for the purpose of wealth tax wherein valuation has to be done on year on year basis and not only on transfer. The Supreme Court considering the said clause categorically held that “in determining the value of the leasehold interest of the assessee in the land for the purpose of assessment to wealth- tax, the price which the leasehold interest would fetch in the open market were it not encumbered of affected by the burden or restriction contained in clause (13) of the lease deed, would have to be reduced by 50 per cent of the unearned increase in the value of the land on the basis of the hypothetical sale on the valuation date.”

6.17.9 Hence, the said decision is fully applicable even to the present case and accordingly it is submitted that a discount of 50% ought to be provided in view of clause (III)(13) of the Lease Deed.

6.18 Alternatively, since the land allotment instances are available for such institutional lands, the same should have been considered for comparable instance instead of sake of residential plot.

6.18.1 The observation of GAA Valuers, registered valuers in this respect is at Page 1378 of PB IV, Paras 8 and 9. As would be observed, the instances of similar allotment of lands by the government is available in the public domain. Please see Pages 1387-1388 of PB IV and better readable copy at page 1403 of PB IV for the said rates. Accordingly, it is submitted that even if comparable instance method were to be adopted, the DVO ought to have considered these rates as against the instance of sale of residential plot in Tolstoy Marg. The Ld. DR. has not even objected to the said contention of the Appellant during the course of the hearing.

6.19 Alternatively, DVO has incorrectly chosen ‘comparable sale instance’ method as most appropriate method on the ground that the property was self-occupied, even though the DVO himself has noted that the property was occupied by tenants. If not circle rate, then rent capitalisation method ought to have been considered by the DVO.

6.19.1 It is submitted that the DVO has in its report observed that the property was rented out by AJL to Tata Consultancy Services (P) Limited. Please see Page 1384 of PB IV or Pg. 403 of PB-I, Point 6.4. It is submitted that when it is established that the property is rented, the property ought to be valued by applying rent capitalisation method. In this regard, reliance is placed on the following decisions: • CGT v. Hans Raj [2001] 119 TAXMAN 129 (DEL)(Pages 23 of LPB IX); • Smt. Savita Mohan Nagpal v. CWT [1986] 26 TAXMAN 640 (RAJ.)(Pages 24-28 of LPB IX); • CWT v. Seth Gokuldas Pradeep Kumar [1994] 77 TAXMAN 415 (RAJ.)(Pages 29-31 of LPB IX) • Dr. Miss V. Banka v. WTO [1995] 52 ITD 623 (DELHI)(Pages 32-35 of LPB IX)

6.19.2 Further, observation of GAA Valuers, registered valuers in this regard is at Page 1378 of PB IV, para 12 and 13.

6.19.3 It is accordingly submitted that the DVO is completely wrong in applying comparable sale instance method.

6.20 Sale of property at Tolstoy Marg, New Delhi cannot be considered as comparable for a property situated at Bahadurshah Zafar Marg.

6.20.1 It is submitted that sale of property at Tolstoy Marg, New Delhi cannot be considered as comparable for a property situated at Bahadurshah Zafar Marg. The sale instance considered is that of the year 2008, which is 3 years prior to the date of valuation, which is a huge gap. The sale instance considered by DVO is that of residential plot whereas AJL’s property is an institutional property. Further, the DVO ought to have considered a sale of commercial property/I nstitutional property, if at all, if comparable sale instance method is to be used. The method adopted by DVO is clearly against the principles of valuation. The observations of GAA Valuers, registered valuer in this regard is at Page 1377 of PB IV, para 5.

6.20.2 As regards adjustment for the difference in the location, the Ld. DR has stated that there is no major difference in Tolstoy Marg and Bahadur Shah Zafar Marg and that they are comparable as both are commercial lanes and that they are not very far off.

6.20.3 Firstly, as has been submitted in detail earlier, the Herald House is not a commercial property as generally understood, and it falls in the category of institutional property and it is an institutional land allotted by the government for specified purpose.

6.20.4 Further, if this submission of the Ld. DR is accepted, then it would become permissible for any person to compare the rates of any two commercial properties regardless of where they are situated. We have already seen in the case of Mumbai Property that the rates of property can differ even when they are across each other, as in the case of rate of Zone 29/166 viz-a-viz rate of Zone 29/167 at two sides of western express highway. For instance, the rate of open rate of Zone 29/166 in the year 2011 is 46300 per sqm whereas that of Zone 29/167 is 71200 per sqm which is 1.5 times of the former.

6.20.5 Besides, it is well known that Tolstoy Marg is fully commercialized lane, whereas on Bahadurshah Zafar Marg there are only institutional properties such as Bureau of Indian Standards, Office of Comptroller and Auditor General of India, office of University Grants Commission (India), etc. Also, the Bahadurshah Zafar Marg falls under zone ‘Public and Semi-public areas’ as per the Master plan of Delhi (page 1396 of PB IV). Attention is also invited to the observations of the Registered Valuers at page 1377 of PB IV, wherein it is stated that the plots located on Bahadurshah Zafar Marg, New Delhi are ‘institutional’ in nature and not ‘commercial’. Hence, without prejudice to the contention that the comparable sale instance method adopted by the DVO ought to be discarded, it is submitted that a proper discount ought to be provided for the difference in the location where the two properties are situated.

6.21 DVO has considered YOY inflation rate at 21% p.a. which is unreasonable:

6.21.1 It is submitted that the DVO has after considering purported comparable sale instance of 2008, increased the said rate on year on year basis by applying rate of 21% p.a. to arrive at the rate as on the valuation date 26.2.2011 without provided any basis whatsoever for the same. It is submitted that the rate of 21% p.a. considered by the DVO is too high. The observations of GAA Valuers, registered valuer in this regard is at Page 1377 of PB IV, para 6. Accordingly, the said artificial adjustment by the DVO ought to be struck down. During the hearing, the Ld. DR has not even commented on this contention of the Appellant.

6.22 Impact of penalty along with interest of Rs. 3.54 crores paid by AJL on 21.7.2011 on account of damages and misuse charge on the property to the L&DO has not been considered

6.22.1 It is submitted that AJL had a liability to pay Rs. 3.54 crores to L&DO as penalty on account of damages and misuse charges. The letter of the L&DO acknowledging actual payment of said penalty is attached at Page 1385 of PB IV; Better readable copy is page 1402 of PB IV. The observations of GAA Valuers, registered valuer in this regard is at Page 1378 of PB IV, para 14. It is accordingly submitted that the final value of the property ought to be adjusted for this liability. During the hearing, the Ld. DR has not even commented on this contention of the Appellant.

6.23 Lastly as per Annexure A1 to the DVO report, the built- up area of the ground floor has been considered as 1779.08 sqm which is more than the plot area itself, which is 1347.76 sqm.

6.23.1 In this regard, attention is invited to relevant portion of DVO report at Page 408 of PB-I, wherein it would be observed that the built-up area of the ground floor has been considered as 1779.08 sqm whereas the area of plot itself is 1347.76 sqm. It is submitted that the area of a floor can never be more than the area of the land itself. It is accordingly, submitted that this apparent mistake ought to be corrected while valuing the property. The observations of GAA Valuers, registered valuer in this regard is at Page 1378 of PB IV, para 11.

6.23.2 In this regard, the Ld. DR has referred to page 58 of the assessment order (second bullet point from the top) where it is stated that as per a letter dated 13.7.2017 the property had Mezzanine area and accordingly, that area has been added to Ground floor area for the purpose of valuation. In this regard, it is submitted that firstly, the property in question has no Mezzanine Floor and the basis on which the letter of AO dated 13.7.2017 refers to the same is not clear. The said letter was not shared with the Appellant. Besides, the Appellant submits that the AO has called for the comments of the DVO on the objections raised by the Appellant at the time of assessment. However, these comments were never put to the Appellant and accordingly, the Appellant has not had any chance to reply to these comments. Accordingly, it is submitted that the Ld. DR cannot rely on these comments without considering the actual facts on record.

6.24 In view of the foregoing, it is submitted that the valuation of the Delhi Property is fraught with a number of errors. In fact, the method itself has been wrongly adopted inasmuch as the comparable sale instance method has been arbitrarily applied by the DVO by considering the sale of 2008 of uncomparable property, even though the ready reckoner rates were readily available for the same month as the valuation date. Further, when ready reckoner rates have been considered valuing all other properties of AJL, the DVO had no reason to deviate from the said method only for this property, especially when he himself has considered ready reckoner rates while valuing this property as on 13.7.2017.

6.25 Accordingly, said report of the DVO ought to be ignored and held to be invalid. Indeed, it is submitted that all the foregoing objections formed part of the observation report of the registered valuer submitted to the AO. However, from the remand report submitted by the AO, it is observed that the AO has not made any adverse comment on said objections whatsoever, which clearly shows that even he agrees with said errors in the DVO’s report.

6.26 ERRORS IN VALUATION OF THE MUMBAI PROPERTY

6.27 The Mumbai Property has been valued by the AO. In this regard, please see page 55 of the assessment order. 6.28 The said property was first valued by the DVO at Rs.29.47 crores considering the ready reckoner rates. The DVO original valuation report is at pages 432-446 of PB-I.

6.29 Thereafter, on re-request by the AO, the DVO again valued the property considering comparable sale instance method, however, the value arrived at was close to the first valuation at Rs. 30 crores. The revised valuation report by the DVO is at pages 447-467 of PB-I.

6.30 The AO ignored both the valuation reports of the DVO, and issued notice dated 13.11.2017 to the Appellant revising the value of the property from Rs. 29.47 crores to Rs. 79.10 crores, which is at pages 357-358 of the PB-I.

6.31 However, ultimately, without even issuing any notice, directly in the assessment order, the AO increased the value of the property to Rs. 132.94 crores. In the final valuation, the AO has considered the circle rate of ‘land plus built-up area for shops’ for zone 29/167 at Rs. 1,91,000 per sqm and applied that to the area of land (3478.40 sqm) plus TDR. The final value of Rs. 132.94 crores determined by the AO is at page 55 of the assessment order.

6.32 In this regard, it is submitted that valuation done by the AO is firstly in violation of principles of natural justice and secondly, completely erroneous. In this regard, attention is drawn to the observations of the Kishore Karamsey & Co., Registered Valuer at Pages 798-803 of the PB-II. The said report was also submitted to the CIT(A) and the same was also sent to the AO for his remand report. However, neither the CIT(A) nor the AO has commented on this report. Further, our arguments before AO is at Pages 364 of PB-I and detailed submission for CIT(A) are at pages 1332- 1337 (Para 1.24-1.39) of PB-II.

6.33 Contentions:

6.34 The valuation of Rs. 132.94 crores in violation of principles of natural justice in absence of any show cause notice and is therefore, void.

6.34.1 It is submitted that the Appellant was not provided any notice as to why the Mumbai property of AJL should be valued at Rs. 132.94 crores. The said valuation has been done directly in the assessment order. It is submitted that the said action of the AO is in gross violation of natural justice and accordingly, ought to be struck down as illegal.

6.34.2 The Ld. DR has stated that the Appellant was given proper opportunity for valuation of this property. For this purpose, he has drawn attention to Para 13 of the assessment order which is reproduction of the final show cause notice dated 8.12.2017 issued by the AO. The same is at page 366 of PB I. The Ld. DR has referred to the end of Para A at page 367 wherein it is stated as under:

“The value of the benefit has been determined considering Fair Market Value (FMV) of business assets of AJL in possession and control of the assessee. The FMV of the business assets has been determined at Rs. 310.55 crore by the valuer which is re-computed at Rs. 359.56 crores considering circle rate as prevalent in the area at Mumbai where the property is located.”

6.34.3 Referring to the said Para, the Ld. DR has argued that an opportunity was provided to the Appellant to give its submissions for the value re-computed by the AO. In this regard, the Appellant submits that the re-computed value mentioned in the said notice is Rs. 359.56 crores whereas the value ultimately computed by the AO in the assessment order is Rs. 413.40 crores! (Page 50 of the assessment order). It is submitted that the said difference is due to the change in the value of the Mumbai Property which has been re-computed to Rs. 132.94 crores directly in the assessment order. The AO had issued one notice dated 13.11.2017 for valuing the property at Rs.72 crores. However, the almost two fold increase from Rs. 72 crores to Rs. 132 crores has been done by the AO directly in the assessment order without providing any opportunity whatsoever in this respect. Accordingly, it is submitted that reference of the Ld. DR is completely irrelevant and the contention that opportunity was provided is also completely wrong.

6.34.4 The Appellant again relies on the settled law that any order passed without an opportunity of hearing makes the order void ab initio and accordingly, the valuation done by the AO ought to be ignored/deleted.

6.35 Without prejudice to above, where AO had referred the valuation to DVO, he is bound by said report of the DVO and he cannot ignore the same and proceed with his own valuation. 6.35.1 In this regard, the Appellant places reliance of decision in CWT v. Dr. H. Rahman (189 ITR 307)(All)(Pages 100-101 of LPB IX), where in the context of Wealth Tax Act, it is held that the report of the valuation officer is binding on the AO. Where the AO makes 132 reference to the valuation officer to value immovable properties under section 55A of the Act, said section provides that the provisions of section 16A of the Act would apply even under the Act. Accordingly, it is submitted that the same powers would apply even under the Act.

6.35.2 Without prejudice to the above, despite DVO valuing the property twice, the AO has disregarded the same and himself done the valuation. Hence, CIT(A) should have issued a notice of hearing to the DVO in this matter before deciding the matter. Powers to make reference to the DVO under the Act is derived from the Wealth-tax Act. Section 23(3A)(a) of the Wealth-tax Act specifically requires that where valuation done by the DVO is in dispute, an opportunity of hearing ought to be given to the DVO by the CIT(A).

6.36 Without prejudice to above contentions, 6.37 The circle rate applied by the AO is completely wrong. Property in Mumbai is an open land, however, rate applicable for land ‘plus building built up’ has been applied by the AO. 6.37.1 It is submitted that the AO has incorrectly applied the rate of a land + built up area assuming that this is a constructed property, even though it is undisputed that Mumbai property was an unconstructed open piece of land in 2011. In this regard, attention is invited to the DVO’s report, which are page 442 of PB I, 1 st para, last few lines, the DVO has clearly noted that the construction on the property had started only in 2013.

6.37.2 Yet, the AO has ignored these facts and applied the ITA No.1251/Del./2019 highest rate mentioned in the ready reckoner to value the property. In this regard, attention is invited to the ready reckoner rate for 2011 which is at page 803 of PB II. As would be observed therefrom, the rate specified for zone 29/167 is as under:

Village Descri- Rate of Rate of Land + Building in Rs. per No./Z ption Open Sq.Mtr. Built up One No. land per sq.mtr. 28 Mumbai Residen- Office/ Office/ Indus- Suburb, tial Comm- trial Comm- Taluka Building ercial Area ercial Andheri, above Village floor Bandra-I 29/167 Land : On 71200 118800 150200 191100 132500 North Santacruz – Chembur Link Road on East and South Village boundary/ creek on West Express Highway

6.37.3 The AO has while valuing the land, considered the rate of Rs. 191100 per sq. mtr which is the rate provided for zone 29/167 for rate of land + built up in case of office/commercial built up on ground floor.

6.37.4 However, as stated above, there was no built-up construction of land in 2011. As noted by the DVO itself, the construction on the property was sanctioned itself in 2013 and accordingly, it is for this reason, the DVO considered the rate of 71200 in the above table (which is applicable for open land) while valuing the property. The valuation done by the DVO is at page 444 of the PB I. Further, the observations of Kishore Karamsey & Co., registered valuers in this regard is at page 800 of PB II, 1st para.

6.37.5 It is accordingly submitted that the AO has applied a wrong rate while valuing the property and accordingly, it should be ignored.

6.37.6 The Ld. DR has objected to the foregoing contention by stating that the rates notified by the authorities of Maharashtra, refer to only land with different kinds of usages. This is not a rate of building, but of land only. He has accordingly submitted that the AO was right in ignoring the rate of open land adopted by the DVO.

6.37.7 In this regard, it is submitted that the Ld. DR has grossly misread the circle rates as notified by the Maharashtra Government. In this regard, attention is again invited to the circle rates for the 2011 as notified by the Maharashtra Government at page 803 of PB-II as also circle rates for 2016 and 2013 which are at pages 1544 and 1545 of PB V. As would be observed therefrom, the header of the table is as under :-

………

6.37.8 As is clear from the foregoing table, it is crystal clear that the last four columns of the table apply only for determining “Rate of land + building in Rs. per Sq. Mtr. Built- up” and not just the rate of land.

6.37.9 The Ld. DR has placed on record the Marathi version of the rates at pages 56-82 of the Synopsis filed by it on Grounds 7, 8 and 9. Even in the Marathi version filed by the Ld. DR (page 81-82 of the synopsis for the rates in 2011), it is clear that the last four columns applies to ‘इमारत’ and ‘मजला’ etc. which means building and floors. Clearly, building and floors can come into existence only in case of a constructed property and not for only a land. Hence, clearly, the said columns provide the rate for open land plus constructed area as against just the rate of land.

6.37.10 Indeed, on comparison of the rates mentioned in the English version viz-a-viz the Marathi Version, it would be observed that the same are identical. For instance, at page 1545 of PB V, the rate for Land + Building for Shop/Commercial on Ground Floor for Zone 29/166 is Rs.1,70,200 per sq. mtr. which is the exactly same rate mentioned at Page 73 of the Synopsis filed by the Revenue for तळ मज�ा वरील दुकाने/व् यावसाययक . This undoubtedly means that the heading has to be read in the manner as has been explained in the English version. Accordingly, it is submitted that only the rate for open land can be used to valuing the Mumbai Property.

6.37.11 It is exactly for this settled reason that the Mumbai DVO has considered the rate of open land as against that of a ‘shop/commercial on ground floor’ in the report issued by it (Page 444 of PB I). Further, even as per the report issued by Kishore Karamsey & Co. (Govt. Registered Valuers), only the rate of open land can be considered for valuing a land which admittedly has no constructed property on it on the date of valuation (Page 800 of PB II). The exact observation of the registered valuer is as under:

“It is highly surprising that though the valuation is of open land, the rates adopted in the valuation are that of SHOPS/COMMERCIAL ON GROUND FLOOR, which is highly erroneous, illogical and therefore non-acceptable.”

6.37.12 Attention is also invited to the order dated 30th May 2017 of the Municipal Corporation of Greater Mumbai (page 1542-1543 of PB V), where too, after admitting about wrong classification of the land in incorrect zone, the rate of this land has been reworked by the Authority itself by considering the rates of open land and not that of shop at ground floor. As would be observed in the order, the rate for 2013 has been stated to be Rs. 61200 which is the ‘rate of open land’ as per 2013 ready reckoner (attached at page 1545 of PB V) and the rate for 2016 has been stated by the authority to be Rs. 85200 which is the ‘rate of open land’ as per 2016 ready reckoner (attached at page 1544 of PB V).This itself destroys the argument of learned DR that the rate of shop at ground floor should be adopted.

6.37.13 Also, if the Ld. DR is right that all the columns of the ready reckoner table are applicable only to land based on its usage, then what would be the relevance of the first column which refers only to open land. Certainly, every land would be either residential or commercial or industrial in nature. If the interpretation of Ld. DR is adopted, it would render the first column of the ready reckoner table otiose.

6.37.14 Hence, the Appellant humbly submits that the AO/DR have chosen to read the rates notified by the Maharashtra government, in a complete misguided and imprudent manner which is apparent from the language of the notification itself.

6.37.15 Accordingly, it is submitted that only the rates specified for open land can be considered for valuing the Mumbai Property of AJL being an open piece of land as on 2011.

6.37.16 However, if at all, there is still any confusion about the applicable rate for an open land, the Appellant humbly requests the Hon’ble Tribunal to call for a clarification from the Municipal Authorities in this respect.

6.38 Rate of wrong zone has been considered. The transactions cited are on the other side of the Highway. Rates taken are of premises in BKC which is a premium commercial space. He should have considered entry 29/166 instead he has considered entry 29/167. The ready reckoner wrongly clubbed the property in Zone 29/167.

6.38.1 It is submitted that in the ready reckoner rates of Mumbai for 2011, the property in question has been wrongly clubbed in Zone 29/167 when actually it falls under Zone 29/166.

6.38.2 The said mistake was pointed out by AJL vide Letter dated February 15, 2017 to Deputy Director Town Planning, Mumbai asking for correction of the ready reckoner. The said letter is at page 806 of PB II. Thereafter, the Municipal Corporation of Greater Mumbai has passed an Order dated 30th May 2017 acknowledging that there was wrong classification of zone for the Mumbai property. It stated that the correct zone of the said property is 29/166 and accordingly passed an order refunding the excess premium of Rs. 6.39 crores paid by AJL due to such wrong classification. The said order is at Pages 1542-1543 of PB V. The relevant extract of the order reads as under:

“The Dy. Director of Town Planning [Valuation] has considered the issue and has issued clarification to Architect that the plot bearing CTS No. 608/A of village Bandra falls in zone 29/166 vide their letter dated 27.02.2017. Further, this office has sought the letter issued by M.S.D. Andheri I to the Architect vide at Pd. (C-7).

As the said CTS No. 608/A is now included in zone 29/166, the land rate for the year 2013 comes to Rs.61200/- for year 2016 comes of Rs.85200/- instead of Rs. 115700/- and for the year 2016 of Rs. 143000/- which resulted in excess payment during issue of IOD plan on 20.04.2013 and amended plan certificate on 03.11.2016.”

6.38.3 As is clear, the wrong clubbing of the land in zone 29/167 stands now corrected by the Municipal Corporation of Greater Mumbai. In fact, if one compares the rates of 2016 and 2013 mentioned in the aforequoted para with the ready reckoners of those years (which are at pages 1544 and 1545 of PB V), it would be observed that even though in these reckoners too, the land in question has been clubbed in zone 29/167, the Municipal Corporation has categorically stated that the rate applicable to the land in question would be that of zone 29/166. Further, even here, the rate considered by the Municipal corporation itself is that of an open land and not that of commercial built up as done by the AO.

6.38.4 Further, the observations of Kishore Karamsey & Co., registered valuers in this regard is at page 798 of PB II, 1st bullet.

6.38.5 It is accordingly, mentioned that for valuing this property the rate of open land for zone 29/166 as applicable for 2011 should be considered. As per the ready reckoner of 2011 at page 803 of PB II, the said rate is Rs. 46300 per sqm.

6.38.6 The Ld. DR has objected to this contention and made the following two points, namely:

(i) As on 2011, the Mumbai property was falling in zone 29/167 as per the ready reckoner and the zone was changed only subsequently. (ii) In any case, the different zones would not affect the value of the property since the two zones are at two sides of the same western express highway and therefore, there cannot be much difference in the value of the two zones.

6.38.7 In this regard, the Appellant humbly submits as under:

6.38.8 The Appellant has already placed on record the documents which undisputedly showthat the land in question was wrongly clubbed in the ready reckoner in zone 29/167 as against 29/166 in all these years. It is for this reason that the Municipal Corporation of Greater Mumbai vide order dated 30 th May 2017 (page 1542-1543 of PB V) in fact refunded a sum of Rs. 6.39 crores to AJL which was paid in excess by AJL due to ‘wrong classification’ of land. This is not a case of ‘change’ in classification as the Ld. DR has tried to portray but a clear case of ‘wrong’ classification.

6.38.9 In this regard, attention is reinvited to the Order dated 30 th May 2017 of the Municipal Corporation of Greater Mumbai wherein the Authority has acknowledged that there was wrong classification of zone for the Mumbai property. It is categorically stated in the order that the correct zone of the said property is 29/166. The said order is at Pages 1542- 1543 of PB V. It is stated therein as under:

“The Dy. Director Town Planning [Valuation] has considered the issue and has issued clarification to Architect that the plot bearing CTS No. 608/A of village Bandra falls in zone 29/166 vide their letter dated 27.02.2017.”

6.38.10Based on this, the Municipal corporation has in fact recomputed the rates for the years 2013 and 2016 based on zone 29/166 even though plot 608 was still clubbed in zone 29/167 of the ready reckoners issued for 2013 (please see page 1545 of PB V for English version as well as page 73 of the synopsis filed by the Revenue for Marathi version) and 2016 (please see page 1544 of PB V for English version as well as page 63 of the synopsis filed by the Revenue for Marathi version). As would be observed therefrom, plot 608 is still appearing in zone 29/167 in these reckoners. Yet, the authority have themselves computed the value of this property as per zone 29/166 in the order dated 30.5.2017 attached at page 1542-1543 of PB V.

6.38.11The Ld. DR has implied that the plot CTS no. 608/1A has been subsequently specifically included in zone 29/166 since 2017 (Page 58 of Revenue’s Synopsis) and therefore, this classification was not there in earlier years. However, it may please also be noted that not just CTS No. 608/1A but also CTS No. 608 has been shown in zone 29/166 in the ready reckoner of 2017 (Page 58 of Revenue’s synopsis) whereas in the earlier ready reckoners for 2011-2016, the same was include in zone 29/167 (Pages 63, 66, 70, 73, 78 and 82 of Revenue’s synopsis), which was a wrong classification. In 2017, the Municipal Corporation of Greater Mumbai vide order dated 30th May 2017 (page 1542-1543 of PB V) admitted that this was a wrong classification and since in 2017 this mistake had already come to light subsequent ready reckoners have correctly shown the classification of the plots. Clearly, there was no reason to continue with the wrong classification once the mistake was discovered.

6.38.12Hence, it is submitted that this is not the case that the zone of the Mumbai property has changed subsequently. It is a case where the property was classified in a wrong zone which has been acknowledged and corrected by the relevant authorities subsequently.

6.38.13In fact, it is undisputed fact here, that the land in question is on the opposite side of zone 29/167 as is clear from the map pointed by the Ld. DR himself in his synopsis. It is unimaginable that the land could suddenly shift its place from one area to another for it to classify under another zone as suggested by the Ld. DR. In this regard, attention is also invited to the report issued by Kishore Karamsey & Co. (Govt. Registered Valuers) at page 798 of PB II where after physical inspection of the property, they have pointed out that zone 29/167 covers properties that are surrounded

On North by Santacruz-Chembur Link Road; On East and On South by Village boundary/creek; On West by Express Highway Whereas, the property in question is surrounded On North by road connecting Khar Sub-way to Santacruz-Chembur Link Road; On South by Village boundary; On West by railway; On East by Western Express Highway. Which are the boundaries for zone 29/166.

6.38.14 Hence, it is clear that the said property always was part of zone 29/166 and mere wrong classification of the property should not lead to wrong valuation of the property. 6.38.15Further, even assuming that the zone was not corrected even today by the Municipal Authorities, can that have any impact of the valuation of the land in the real sense? Merely because the land is clubbed in the wrong zone, if AJL were to sell the land it would certainly not fetch any higher value. No purchaser would be ready to pay a higher value merely because of incorrect classification. It is accordingly, submitted that the valuation of the land cannot be done based on wrong classification.

6.38.16 Further, as regards the remark of the Ld. DR that there should not be any major difference in values ascribed to both the zones since they fall on either side of the same western express highway, it is submitted that the stamp duty authorities themselves have ascribed different values to the two zones being fully aware of the exact location of these two zones. As per the stamp duty authorities, the rate for zone 29/167 is almost double the rate for zone 29/166. For instance, in 2011, the rate for open land in zone 29/166 is Rs. 46300 per sqm whereas rate of open land in zone 29/167 is Rs. 71200 per sqm which is 1.6 times the rate for zone 29/166 (Page 803 of PB II/page 80-82 of Synopsis filed by the Revenue). Similarly, in 2011, rate for Shops in ground floor for zone 29/166 is Rs.128700 per sqm whereas rate of open land in zone 29/167 is Rs. 191100 per sqm which is again 1.5 times the rate for zone 29/166. Apparently, the said difference in rate has been maintained even in 2017 as per the ready reckoner rate filed by the Ld. DR (at pages 58- 59 of the synopsis) where the rate for open land in zone 29/166 is 92400 per sqm whereas rate of open land in zone 29/167 is 169000 per sqm which is 1.8 times the rate for zone 29/166.

6.38.17 Based on these rates on record, it is submitted that the Ld. DR’s remark about the value of the two zone should be same should be ignored as irrelevant. Certainly, it cannot be anyone’s case, much less the Income-tax Department that why stamp authorities have consistently prescribed different rates for zones, which accordingly, to the department are close enough. If such arguments are allowed, then it could lead to disastrous results in all additions made u/s. 50C. Certainly this cannot be the intention of the law.

6.38.18 Further, the Ld. DR has remarked that it is well know that Bandra Kurla Complex (BKC) is a posh commercial area and has implied that the Mumbai property should be valued in line with the BKC. In this regard, attention is drawn to photograph of the locality of the Mumbai property (pages 1617-1620 of PB VI), wherefrom it would be the Mumbai property is surrounded by structures such as bus depot, BMC sewage treatment plant, etc. and BKC is on the opposite side of the highway. As per google maps, BKC is approximately 4 kms away from the Mumbai property.

6.38.19 It is accordingly submitted that such remarks of the Ld. DR ought to be discarded.

6.39 Area of the plot is 3478.4 sq mtr. The AO has applied the ready reckoner rate to the land without considering mandatory 15% deduction applicable to open lands of more than 2000 sqm, which was even considered by DVO. This is a mandatory deduction applicable under the Maharashtra Valuation guidelines for open land with more than 2000 sqm.

6.39.1 It is submitted that under the Maharashtra valuation guidelines, while valuing an open plot of land of more than 2000 sqm, a mandatory deduction of 15% is to be given to the ready reckoner rates. The said guideline has been considered by the DVO in both 140 his reports. In this regard, reference is drawn to page 444 of PB I, where the DVO has stated as under:

“As per the guideline for valuation contained in the Ready Reckoner, Government of Maharashtra, the property is having a potential of usage of Transfer of Development Right (TDR) to be valued at 40% extra. Moreover, as per the same guidelines, the property having area more than 2000 sqm is to be valued at 15% less than the Ready Reckoner rates. The rate and factors is considered for the valuation herein.”

6.39.2 Accordingly, while valuing the property, the DVO has reduced the rate of 71200 applicable to open land in zone 29/167 by 15% and considered the rate of Rs. 60520 per sqm (0.85 x 71200). The same treatment has been given by the DVO even in his revised report (page 465 of PB I).

6.39.3 However, the AO has completely ignored this mandatory adjustment by stating that the deduction was without any basis in case of land for commercial complex (page 55 of the assessment order).

6.39.4 It is submitted that the said treatment by the AO is against the prescribed guidelines and accordingly, the mandatory deduction of 15% ought to be allowed. The observations of Kishore Karamsey & Co., registered valuers in this regard is at page 799 of PB II, last para.

6.39.5 The Ld. DR has objected to this contention by stating that the mandatory deduction of 15% in case of open land of more than 2000 sqm is not applicable in the present case. For this statement, the Ld. DR has specified that the said deduction is applicable only to such land which has no usage rights. However, the Ld. DR has not provided any basis whatsoever to support this contention. It is submitted that the DVO has clearly stated in his report (page 444) that as per the valuation guidelines, 15% deduction is to be provided when the land has more than 2000 sqm. The said view is also reiterated in the report issued by Kishore Karamsey & Co. (Govt. Registered Valuers) at Page 799 of PB II.

6.39.6 To further substantiate this point, attached herewith is the relevant extract from the Book on ‘Stamp duty Ready Reckoner & Market Value of Properties in Mumbai 2011’ (Page 1547-1548 of PB VI) wherein at page 3 (page 45 of the book) it is stated as under:

“(a) Vast Open Land more than 2000 sq. mt. should be valued at 15% less than R.R. rate

(b) While valuing No-development Zone land 40% of rate applicable for developed land rate for that zones is to be taken. Further, according to area of the land valuation should be done as per vast open land as per point (a) above. Before adopting this method it has to be confirmed that the land is in no- development zone and certified as showing no-development zone land and D.P.Remarks should be obtained from Mumbai Municipal Corporation.”

6.39.7 As would be observed, it is clearly provided under clause (a) of afore-quoted guidelines that vast open land more than 2000 sqm should be valued at 15% that ready reckoner rates. Clause (b) is a separate rule for no-development zone which is not applicable in present case.

6.39.8 Hence, the Appellant submits that the mandatory 15% deduction ought to be allowed in the present case. However, if there is any confusion about the same, the Appellant requests the Hon’ble Tribunal to call for a clarification from the relevant authorities about the applicability of this deduction to the property in question.

6.40 The property has been allotted for newspaper publication business and is therefore, there is usage restriction on the property. The property is an institutional allotment, with various usage restriction and not commercial in nature. No adjustment has been provided for the same.

6.40.1 Kind attention is drawn to the allotment letters for the land which clearly states that the land is being provided for the purpose of publication of daily newspaper and for establishing Nehru Library. (Pages 1528-1541 of PB V relevant @ Page 1528 and Page 1531).

6.40.2 Attention is also drawn to clause 4 of the said letters, wherein it is mentioned that the building to be constructed shall be exclusively used for the purpose for which it is granted and the grantee shall credit to Government 50% of the net income derived by it by way of commercial user of the land. Clause 5 further provides that the land shall not be transferred/mortgaged except with previous sanction of the government (Pages 1534 and 1537 of PB V).

6.40.3 The foregoing clauses clearly show that the property in question is not a commercial property as treated by the AO. It is an institutional plot of land with various restriction usage and accordingly, has limited market. The courts have consistently held that where there are restrictive clauses in the property which has depressing effect on the value of the asset, impact should be given to such clauses while valuing the property, obtained several licences for starting its press activity, such as Factory permit from the Municipal Corporation of Greater Mumbai to start printing press (Page 1549 – 1552 of PB VI), Approval from the Registrar of Newspaper of India (Page 1553- 1554 of PB VI), storage licence from the Licence department of the Municipal Corporation of Greater Mumbai for storage of various printing material in the building (Page 1555- 1562 of PB VI); fire safety compliance certificate from Mumbai Fire Brigade (Page 1563- 1565 of PB VI), etc.

6.40.9 Accordingly, AJL inaugurated the newspaper publication activity and Nehru Library and Research Centre on November 14, 2021. The pictures for inauguration are at pages 1566- 1578 of PB VI. Further, the copy of the masthead of the first newspaper published on November 14, 2021 is at page 1579 of PB. Accordingly, it is submitted that today, the ground and the first floor of the building is used for the publication activity. The photos of the office and press activity is at pages 1580-1595 of PB VI. And, the second floor of the building is being used by AJL as the Nehru Library and Research Centre. The photographs of the library and research centre is at pages 1596-1606 of PB VI.

6.40.10It is accordingly submitted that the property is being used by AJL for the purpose for which it was allotted to it and in accordance with the conditions of the allotment deed. Indeed, the Nehru Library being a public place can be inspected by the tax department at any time, during the working hours. Further, if necessary, the Appellant can try and request AJL to allow inspection of its office during normal working hours, if so desired by the Hon’ble Tribunal.

6.40.11Further, AJL has been permitted in September 2020 to rent out a portion of the property to other lessees in accordance with the applicable bye laws on payment of annual lease permission fee. In this regard, attached herewith is the order dated 10.9.2020 of the Collector, Mumbai Suburban District read with Corrigendum dated 9.10.2020 (Page 1607-1609 of PB VI, English translation at pages 1609A-1609B) whereby AJL has been permitted to lease out 3841.08 sqm for which AJL is liable to pay annual lease permission fee of Rs. 38,76,094/- before 10th of September of each year. The said fee has already been paid by AJL for the year 2021, the proof of which is attached at pages 1610-1613 of PB VI.

6.40.12Hence, as would be observed, there has not been any change in the usage of the property and the restrictive clauses of using a part of the property for printing activity and for library is still applicable. In fact, the rent from the leased portion is also being utilised by AJL only for the its newspaper purpose and not for any other purpose. Further, it is submitted that renting out the balance of the newspaper property along with carrying on newspaper publication is a standard practice in case of all newspaper 144 companies. As has been pointed out earlier, every newspaper company are allotted land by the government, which is used partly for newspaper and partly rented out to meet the cost of printing viz- a-viz the price at which newspaper are sold. It is reiterated that in public interest, State Governments, as a policy, have allotted lands/buildings to various entities engaged in the newspaper business to partly use it for running newspaper business and partly to rent it out. The same is done by the Government to ensure independence of the press. The news paper publishing business, being capital intensive in nature, is primarily a loss making business. In fact, the price at which newspapers are sold is very nominal so that it can reach to masses and generally, the cost of publishing a newspaper is higher than the price at which the same is sold. Therefore, in order to promote press and ensure its freedom, the Government allots lands/buildings to various entities engaged in the newspaper business so that they can recoup their losses from publication business and survive by commercially exploiting the said allotted lands/buildings by renting out the same. The lease deed allotting the said lands/buildings specifically permits the lessees to use the property for renting out. Indeed, said practice of renting out the properties by newspaper business is permissible in standard newspaper leases and allotments of immovable property for newspaper user. The aforesaid facts are matter of public knowledge and policy. In support, reliance was placed on the judgment of Hon’ble Supreme Court in the case of Govt. of AP v. Maharshi Publishers Pvt. Ltd.(Civil appeal 7152-7157 of 2002)(Page 1621-1624 of PB VI).

6.40.13 In this regard, attached herewith is the list of certain properties of major newspaper companies in Delhi along with the list of the tenants for various such companies at page 1614-1616 of PB VI. Thus, it was submitted that practice of allotment of land to newspaper companies and such newspaper companies using the same for renting purpose is part and parcel of the publication activity and is not so uncommon.

6.40.14 In any which case, the Ld. DR has argued that since the property has been used for commercial purpose firstly, the rate adopted by the AO is correct and secondly, no adjustment should be made for restriction usage.

6.40.15 In this regard, it is submitted that the Ld. DR is wrong in both the counts. As regards the rate, as submitted in detail above, the rate adopted by the AO is completely inapplicable since applies only in case of a constructed property which is undisputedly not there in 2011.

6.40.16 Secondly, as regards the second contention of the Ld. DR that the land has no restriction usage as it is put to commercial use, it is on the contrary very clear that the land in fact has various usage restrictions. The Appellant has already pointed out various restriction usage attached to the land under the allotment letters and accordingly, based on various decisions cited, the said restrictions merit a discount to the value of the property since such restrictions affect the marketability of the property and reduces the market participants to a limited group of people as any purchaser of land would acquire the land with the attended conditions of using the land partly for publication business and for maintaining and running a Nehru Library and Research centre.

6.40.17 Further, the Ld. DR has stated that even newspaper activity of AJL cannot be regarded as charitable activity. Firstly, it is submitted that for the valuation of property containing restriction usage, the question is not whether these activities are charitable or not. The question is that the land is subject to certain specified usages as against a free land, which can be put to any commercial usage. A free land could be purchased for any purpose, be a service company or a trading company or any other legal activity, as compared to the property in question, which even after transfer has to be used in a certain specified manner only. Hence, a free land would clearly have better marketability as compared to land in question.

6.40.18 Hence, whether or not publication activity is a commercial activity is not relevant. What is relevant is that the property in question undisputedly has usage conditions attached to it which warrants a proper discount.

6.40.19 Besides, it is submitted that the Ld. DR is wrong in saying that newspaper activity is not a charitable activity. The activity of AJL may not be eligible for section 11 exemption since it has not applied for 12AA registration, however, it cannot be denied that the activity of publishing newspaper is a part of general purpose utility and 146 therefore, charitable in nature. In this regard, attention is invited to the decision of the Privy Council in the case of The Trustees of the 'Tribune' In re (7 ITR 415) (Page 1625-1628 of PB VI).

6.40.20 Accordingly, it is submitted that even in this case, considering the objects of AJL since inception, the activity of AJL is surely in nature of advancement of general public utility, irrespective of whether it claims or is eligible for exemption u/s. 11 of the Act.

6.40.21 The Ld. DR has further stated that the usage can always be changed with government permission and therefore, this is not relevant. The issue is not whether the usage can or cannot be changed. The issue is that with this usage what is the value of the land. Further, it would be appreciated that even using the usage conditions are permitted to be changed, the same cannot happen without payment of additional fee, which in fact supports the Appellant’s contention that such restrictions warrant a discount.

6.40.22 Accordingly, it is submitted that the restrictive covenants need to be factored in while valuing the land.

6.41 No impact has been given for the transfer restriction on the property and the condition that a percentage of premium is payable to the government on transfer:

6.41.1 Kind attention is drawn to Clause 8 of the allotment letters for land, which state that no land or building constructed thereon shall at any time be diverted, temporarily or permanently, without the previous consent in writing of the State Government. Further, the State Government shall be at liberty to grant such permission subject to the condition requiring payment of premium, as the State Government in its absolute discretion deems fit. (Page 1535 and 1538 of PB V).

6.41.2 As would be observed, AJL is not permitted to transfer the land without prior permission of the government and even in that case, certain premium would be payable to the government. In this regard, the Appellant draws attention to the decision of the Supreme Court in CIT vs. P. N. Sikand (107 ITR 922)(SC) (Pages 47-55 of LPB IX), wherein while considering the similar clause, the Supreme Court held that where there is restrictive covenant on the property, which requires that a % of the unearned increase in the value of the land is to be paid to the lessor, in such a case, the fair market value of the land would have to be reduced by the said % of unearned increase in value of land on basis of hypothetical sale on valuation date.

6.41.3 Accordingly, it is submitted that a suitable discount ought to be provided for such transfer restrictions of the land.

6.41.4 As regards this contention, the Ld. DR has reiterated that the property in question is now being used for commercial purpose and therefore, this issue is not relevant. He further says that the allotment letter does not provide a complete bar but only requires AJL to obtain permission, and therefore, this is an enabling provision as against a restrictive provision.

6.41.5 In this regard, reference is again drawn to clause 8 at page 1535/1538 of PB V which clearly states that the government can charge a premium as it thinks fit in its absolute discretion. Though the quantum is not stated in this case like in the case of Delhi and Patna property, it is submitted that the Supreme Court has clearly stated in CIT vs. P.N. Sikand (107 ITR 922)(SC) (Pages 47-55 of LPB IX) that where there is restrictive covenant on the property, which requires that a % of the unearned increase in the value of the land is to be paid to the lessor, in such a case, the fair market value of the land would have to be reduced by the said % of unearned increase in value of land on basis of hypothetical sale on valuation date.

6.1.1 It is accordingly submitted that the contention of the Ld. DR is to be ignored. The Ld. DR has further stated that the Appellant has not provided any proof of payment of such premium. In this regard, it is submitted that it is no one’s case that the Appellant has sold the property, hence, the question of it paying any premium at this stage does not arise. Besides, as submitted above, the Appellant indeed is required to pay annual fee of Rs. 38.76 lacs annually for the permission recently received to give portion of the property on lease.

6.42 No deduction has been given by the AO for the cost of additional FSI.

6.42.1 It is submitted that in both the DVO reports, cost of acquisition of additional TDR has been allowed as deduction, which has been ignored by the AO (Page 444 and 465 of PB I).

6.42.2 It is submitted that the said treatment of the AO is wrong, since if additional FSI is considered while valuing the property, corresponding deduction for acquiring such FSI ought to be provided. Even the Ld. DR has not objected to the said contention of the Appellant.

6.43 In view of the foregoing, it is submitted that the valuation of the Mumbai Property is firstly, in violation of principles of natural justice and secondly, fraught with a number of errors which are apparent errors clear from the records. Accordingly, said valuation ought to be ignored and held to be invalid. Indeed, it is submitted that these foregoing objections formed part of the observation report of the registered valuer which was submitted to the AO for his comments. However, from the remand report submitted by the AO, it is observed that the AO has not made any adverse comment on said objections whatsoever, which clearly shows that even he agrees with said errors.

6.44 ERRORS IN VALUATION OF THE PATNA PROPERTY

6.45 The Patna Property has been valued by the DVO. The DVO report is at pages 412-431 of PB – I.

6.46 As would be observed, at Page 420: DVO has considered circle rate of the land at Rs.750,000 per decimal or Rs.18536.83 per sqm, added 5% on account of prime location of land and 10% on account of plot being situated at two side roads and accordingly arrived at the rate of Rs. 21,300 per sqm. Accordingly, the value of land is arrived at 2711.394 Sqm. (0.67 acre) x Rs. 21,300 = Rs. 5.77 crores.

6.47 It is submitted that the valuation done by the DVO has various errors. In this regard, attention is drawn to the observations of the GAA Valuer, Registered Valuers, which is at Pages 1409-1410 of PB (GAA Report – pages 1404-1425 of PB IV). The said report was also submitted to the CIT(A) and the same was also sent to the AO for his remand report. However, neither the CIT(A) nor the AO has commented on this report. Further, our arguments before AO is at Page 362 of PB-I, para 3, 1st row of the Table referring to Land (Patna). The detailed submission for CIT(A) are at pages 1310--1314 (Para 3.1-3.6) of PB-II.

6.48 Contentions:

6.49 No discount has been provided even though the property was under 100% encroachment as on the valuation date:

6.49.1 It is submitted that the Patna property is 100% encroached by the slum dwellers’ Jhuggi/Jhopdis since atleast 2007. The DVO himself has acknowledged said fact in his report. At page 4 of the report, under the head ‘Any Special Observations’, the DVO has mentioned that ‘unauthorised encroachment appears to have taken place in the plot’. (Page 416 of PB I, last para). However, the DVO has still not provided any adjustment for the same while arriving at the value of the property on the pretext that the bona fides of the encroachment could not be verified.

6.49.2 In this regard, attention is invited to Pages 1417 and 1418 of PB IV (better copies at 1426-1428 of PB IV), wherein attached are the copies of letters dated September 19, 2007 written by AJL to the Governor of Bihar and the Chief Minister of Bihar, respectively requesting appropriate actions for removal of encroachments on said land

6.49.3 Attention is also invited to Page 1416 of PB IV, which contains an aerial photograph showing the encroachments on said land.

6.49.4 Further, attention is also invited to Page 1409 of PB IV, where at Para 5, GAA Valuers, registered valuers on inspection of the property have observed as under:

“As on date of site visit, it was observed that the property has 100% encroachment and not even 1 Sqm of land is in possession of AJL”.

6.49.5 Also relevant are paras 6 and 8 of page 1409.

6.49.6 It is submitted that where 100% of the property in question is under encroachment, it severely hampers the value of the property. Such a property commands no value in the open market, since encroachments would need to cleared before the property can be used for any purpose, which entails long drawn litigation. Proper adjustments need to be made to derive circle rate on account of non-availability of un encumbered, free, vacant and peaceful possession of the land as on date of valuation.

6.49.7 In this regard, reliance is placed on the following decisions, wherein it is held that in case of encroachment attached to a property, circle rate cannot be applied and there need to be adjustment for such encroachment. • Sir Mohd. Yusuf Trust vs. ACIT (ITA No. 2243/Mum/2015)(MumT) (Page 120-136 of LPB IX); • Smt. D. Anitha vs. ITO (68 SOT 266)(HydT)(Page 137-144 of LPB IX).

6.49.8 Accordingly, it is submitted that the correct value of said property cannot be arrived at without making foregoing adjustments.

6.49.9 The Ld. DR has objected to this contention by stating that since there is no evidence for the same, no adjustment can be provided for the same. However, the DVO himself has acknowledged the encroachment. Further, the Appellant has before the CIT(A) as well as before the Hon’ble ITAT produced the photographs of encroachment (Page 1416 of PB IV) as well as proof that encroachment existed even in 2011 (Pages

1417 and 1418 of PB IV. Better copies at 1426-1428 of PB IV). It is accordingly, submitted that a proper discount ought to be provided for the said encroachment. It is not a case where two or more people are sleeping on pavement, as has been explained by the Ld. DR but a case of complete encroachment through small residential constructions (juggi jhopdis) by slum dwellers.

6.50 The property is an institutional allotment and not commercial in nature with limited marketability. It can be used only for newspaper publishing and not for any other purpose. However, no adjustment has been provided for the same.

6.50.1 It is submitted that the plot was allotted to AJL by the Bihar Government for a specific use i.e. for newspaper publishing work only. This is clear from the terms of sanction by the Patna Nagar Nigam dated October 27, 2016. Please see page 1412-1413 of PB IV. As would be observed from the first clause therein, it is specifically provided that the land parcel cannot be used for any other purpose than defined, i.e. paper publishing. Further, the second last clause of the letter clearly provides that the land parcel, under no circumstances, can be used for industrial or commercial purpose and has only defined use of newspaper publishing.

6.50.2 Even as per clause 6 of the Lease deed dated April 18, 1988, the said land could not be used for any purpose other than paper publishing and there were restrictions on carrying on any trade or business on the said land. Relevant extract of the deed is at page 1415 of PB IV. Entire lease deed is at pages 1493-1516 of PB V. Clause 6 is at page 1499.

6.50.3 Attention is also invited to the Recital of the Lease Deed which states that the land is allotted for the purpose of publication of National Herald Qaumi Awaz and Navjivan papers. Please see Page 1494 of PB V.

6.50.4 Indeed, as per the Master Plan of Patna- 2031, the said land parcel falls under institutional zone. Please see page 1414 of PB IV.

6.50.5 From the foregoing, it is humbly submitted that there can be no doubt that the Patna property is an institutional property and not a commercial property.

6.50.6 However, the DVO has completely ignored said factor while arriving at the value of the land. No adjustment has been made by the DVO in respect of the same while arriving the value of the property. It is submitted that appropriate discount on the commercial circle rate should have been applied by the DVO to arrive at the fair market value. Alternatively, the DVO should have considered the allotment rates for the year 2011 for institutional land parcels instead of the circle rates.

6.50.7 Reliance in this regard, is placed on the following decisions: • S. N. Wadiyar v. CWT [2015] 62 taxmann.com 289 (SC)(Pages 56-67 of LPB IX); • Ajit J. Mehta v. JCIT [2006] 101 ITD 11 (PUNE) (Pages 68-71 of LPB IX); • AIMS Oxygen (P.) Ltd. v. CWT [2012] 23 taxmann.com 185 (Guj.) (FB) (Pages 72-78 of LPB IX); • CIT v. G. S. Krishnavati Vahuji Maharajkalyanraiji Temple [2003] 131 Taxman 339(Gujarat) (Pages 79-81 of LPB IX); • Gouri Prasad Goenka & Family (HUF) v. CWT [1993] 203 ITR 700 (Cal) (Pages 82-86of LPB IX); • CWT v. Smt. Ballabh Kumari [1986] 24 TAXMAN 396 (RAJ) (Pages 87-88 of LPB IX); • CWT v. K. S. Ranganatha Mudaliar [1985] 21 Taxman 360 (Mad.)(Pages 89-92 of LPB IX). 6.50.8 Further, the observations of GAA Valuers, registered valuers in this regard is at page 1409 of PB IV, Para 1, 2, 3, 4.

6.50.9 It is accordingly submitted that suitable discount ought to be provided for such user restrictions of the land. 6.50.10As regards this contention, the Ld. DR has reiterated the same arguments as in case of other properties. However, it is submitted that there is clear restriction that the property can only be used for publication (clause 6 – page 1499 of PB V) and that a transfer fee of 25% is payable on transfer(clause 16 – page 1504 of PB V). Hence, it is submitted both the clauses ought to be taken into account.

6.51 Restrictive covenants on the marketability of the property ignored while arriving at the value.

6.51.1 Further, the DVO has ignored that the plot has limited marketability with restrictive market participants. In this regard, kind attention is invited to Clause 16 of Lease Deed dated 18.4.1988 which states that AJL shall not transfer the land except with previous consent of collector, which shall be contingent upon transfer fee of 25%. (Pages 1493–1516 of additional evidence PB V. Relevant clause 16 is at page 1504).

6.51.2 It is submitted that when the land was allotted for specific purpose of newspaper publishing and was restricted to be used for any other trade or business, the marketability of the property is seriously affected. Such restrictive covenants affect the marketability of the plot by not permitting open market sale and restricting any gain from sale of land parcel to the allottee. Unlike openly marketable properties, wherein number of market participants participates to establish the rate, in case of subject property, rate is affected by factors such as effect of the restrictive clauses, regular permissions/sanctions from the government, etc. Appropriate adjustments on the derived market rate ought to have been provided by the DVO for the same, which has been completely ignored by the DVO.

6.51.3 In this regard, reliance is placed on the decision of the Supreme Court in CIT vs. P. N. Sikand (107 ITR 922)(SC)(Pages 47-55 of LPB IX).

6.51.4 Further, observation of GAA Valuers, Registered Valuers in this regard is at Page 1409 of PB IV, Paras 2 and 4.

6.51.5 It is accordingly, submitted that proper discount ought to be provided for such transfer restrictions.

6.52 The land was allotted on 18.4.1988 for a period of 30 years. Hence, as on 2011, only 7 years of lease was pending. In fact, as on today also, the said lease has not been renewed by the relevant authority.

6.52.1 Kind attention is invited to the Lease Deed dated 18.4.1988 at Pages 1493-1516 of PB V, wherein at Page 1495 it is stated that the lease is provided for a period of 30 years only commencing from April 18, 1988. Hence, as on 26.2.2011, only 7 years of lease was left for AJL.

6.52.2 Even today, the said lease which expired in 2018 has not yet been renewed though applied by AJL. 6.52.3 In any case, as on 2011, only 7 years of lease was left, for which no adjustment has been provided by the DVO. It is submitted that the said factor calls for an adjustment while valuing the property.

6.52.4 It would be absurd to value a leasehold land with restrictive covenants and with only 7 years of lease as equivalent to a free hold land.

6.53 Wrong circle rate adopted. The correct circle rate if 720000/decimal and not 750000/decimal.

6.53.1 From Annexure C of the DVO report, it is observed that the DVO has considered Circle Rate of Rs. 7,50,000/decimal or Rs. 18,536.83/Sqm. (Page 420 of PB I). However, as per ready reckoner rate for the period April 2011 to March 2012 (valuation date being 26.2.2011), it would be observed that the applicable circle rate was Rs.7,20,000/decimal or Rs.17,791/Sqm. (Please see page 1420 of PB IV. Better copy at Page 1429). It is submitted that said error should be rectified for arriving at the value of the property. The Ld. DR has not even objected to this contention of the Appellant.

6.53.2 Observation of GAA Valuers, Registered Valuers in this regard is at Page 1409 of PB IV, Para 7.

6.54 In view of the foregoing, the Appellant humbly submits that the method adopted by the DVO in valuation of the Patna Property is fraught with various mistakes/errors. Accordingly, said report of the DVO ought to be ignored and held to be invalid. Indeed, it is submitted that all the foregoing objections formed part of the observation report of the registered valuer submitted to the AO. However, from the remand report submitted by the AO, it is observed that the AO has not made any adverse comment on said objections whatsoever, which clearly shows that even he agrees with said errors in the DVO’s report.

6.55 ERRORS IN VALUATION OF THE LUCKNOW PROPERTY

6.56 The said property has two separate independent built- up structures built on a plot of land. One building is known as Nehru Manzil, which is a poorly maintained dilapidated structure comprising multiple shops. The other building is Nehru Bhawan, known as Indira Gandhi Eye Hospital and Research Centre which is given on lease to Rajiv Gandhi Charitable Trust.

6.57 The Lucknow Property has been valued by the DVO. The DVO report is at pages 412-431 of PB – I.

6.58 As would be observed, at Page 418, • DVO has considered circle rate of the land for computation of value. He has considered circle rate as at 1.8.2010 and 5.8.2013 and worked out an average. He has further added 10% for prime location and 10% for two side road., thereby arriving at circle rate of Rs. 30,000 per sqm. • Accordingly, the value of land is arrived at 6469.33 sqm x Rs. 30,000 = Rs. 19,40,79,900/-.

./2019 • Further, the value of Nehru Bhawan and Nehru Manzil – two building on the plot has been determined using CPWD Plinth Area rates of Delhi 2007 (page 415, para 7.1) • Also, For Nehru Bhawan, depreciation has been computed from 2007 (Page 422) and the value has been determined at Rs. 13,45,57,383/- whereas for Nehru Manzil, it is computed from 1998 (Page 425) and the value has been determined at Rs. 7,72,69,100. • Accordingly, value of Lucknow property is determined at Rs. 40,59,06,400/- (19,40,79,900 + 13,45,57,383 + 7,72,69,100).

6.59 It is submitted that the valuation done by the DVO has various errors. In this regard, attention is drawn to the observations of the GAA Valuer, Registered Valuers, which is at Pages 1454-1455 of PB IV (GAA Report – pages 1449-1478 of PB IV). The said report was also submitted to the CIT(A) and the same was also sent to the AO for his remand report. However, neither the CIT(A) nor the AO has commented on this report. Further, our arguments before AO is at Page 362 of PB-I, para 2.4.1. The detailed submission for CIT(A) are at pages 1314—1320A (Para 4.1-4.6) of PB-II.

6.60 Contentions:

6.61 As regards the valuation of the land:

6.62 Circle rates have been arbitrarily considered by the DVO even though circle rates of 2011 were available.

6.62.1 It is submitted that the DVO has considered the circle rates of 2010 and 2013 and then arrived at the circle rate of 2011, even though the circle rate of 2011 was directly available. (Please see Page 1460-1461 of PB IV). Further, from Annexure A of the DVO report (Page 418 of PB I), it would be observed that the DVO has considered the circle rate of ‘Kaiser Bagh Circle’ as available on the valuation date. Further, from the address of the property in question, it is clear that the same is also situated at Kaiserbagh. It is accordingly, submitted that the circle rate provided in reckoner directly applies to the land and there is no requirement to make any adjustment with regards to location of the property. However, the DVO still has increased the circle rate by 10% on the ground that the property is located in prime location. He has further increased the value by another 10% on the ground that the property has two sides roads. It is submitted that these adjustments are not at called forand the DVO has merely arbitrarily increased the value by making such adjustments.

6.62.2 The observation of GAA Valuers, Registered Valuers in this regard is at Page 1455 of PB IV, Para 1. 6.63 Adjustment to derive circle rate for the land on account of partly tenanted, has been ignored while determining the fair market value. As noted by the DVO, Nehru Bhawan on the land was given on rent to Rajiv Gandhi Charitable Trust, which runs an eye hospital.

6.63.1 It is humbly submitted that DVO himself has noted that the Nehru Bhawan was given on rent. At Page 3 of the Report, Para 6.4,(Page 415 of PB I), he has noted that Rajiv Gandhi Charitable Trust was tenant of the property. However, for the purpose of adopting the circle rate of the land, the DVO has ignored said fact. At para 6.6 and 6.7, he states that the details of rent from the property is not relevant. Further, at para 7.2, he states that the most appropriate method is adopted on the basis that the property is self occupied.

6.63.2 It is submitted that when the property has been partly tenanted, it is against the valuation principles to ignore said factor and value the property as if it is self occupied. Existence of tenants impacts the value of land. Accordingly, it is submitted that the basis of valuation of the land adopted by the DVO is wrong.

6.63.3 The observation of GAA Valuers, Registered Valuers in this regard is at Page 1455 ofPB IV, Para 2 and Page 1456 of PB IV, Para 11(a)

6.64 Adjustment to derive circle rate for the land on account of partly sold has been ignored while determining the fair market value. 9 shops in Nehru Manzil were sold as on the valuation date.

6.64.1 It is submitted that a portion of Nehru Manzil was sold by the company and the same was not in possession of the company. In this regard, attention is invited to page 1453 of PB IV, wherein in description of the Nehru Manzil Property, it is stated that nine shops out of 210 shops were sold and were not in the possessions the company and were locked. Also please see page 1465 of PB IV for the diagramme depicting he shops not in possession of AJL. It is submitted that when a portion of the property is sold, it creates negative lien on the same which impacts its marketability. Accordingly, proper adjustment ought to be provided while computing the market value of the land.

6.64.2 In this regard, the observation of GAA Valuers, Registered Valuers is at Page 1455 of PB IV, Para 3 and Page 1456 of PB IV, Para 11(b).

6.65 Adjustment to derive circle rate on account of Limitation on utilization of available FSI on the land has been ignored while determining the fair market value.

6.65.1 As per the sanctioned plan, the FAR at the time of sanctioning was 300, however, it had been reduced to 200 as per amendment in building bye-laws in the year 2011. Please see pages 1472 and 1473 of PB IV. The said factor has not been considered by the DVO in his valuation.

6.65.2 The observations of GAA Valuers, Registered Valuers in this regard is at Page 1456 of PB IV, Paras 10 and 11(d).

6.66 Proper adjustment due to half constructed, poorly maintained, dilapidated structure should be provided while computing the value of land since it is creates marketability of the land.

6.66.1 As discussed in detail later, one of the buildings on the property, Nehru Manzil, was half constructed and in dilapidated state. Presence of such a property on the land creates negativity and affects the marketability of the property. Accordingly, appropriate adjustment should be provided to take the impact of the same on the value of the land.

6.66.2 Observation of GAA Valuers, Registered Valuers in this regard is at Page 1456 of PB IV, Para 11(e). 6.67 It is submitted that the DVO has not factored in any of the foregoing adjustment while valuing the land which makes the valuation unreliable and incorrect.

6.68 As regards valuation of Nehru Manzil:

6.68.1 It is submitted that various adjustments due to specific factors of the building has not been considered by the DVO while arriving at its value. In this regard, attention is invited to page 1453 of PB IV, wherein description of the Nehru Manzil Property has been given. As would be observed therefrom, • the property is a dilapidated structure; • The building is not equipped with necessary MEP (Mechanical, Electrical, and Plumbing) services; • Only three floors (lower ground floor, upper ground floor and first floor) exists in the building whereas as per the sanction plan, approval was obtained for basement, ground floor and 14 upper storey structure; • There are total of 210 nos. of shops divided on the ground floors. The first floor of the structure is a vacant hall with no partitions. • Portion of the property was sold. Accordingly, nine shops are not in the possessions the company and were locked. Please see page 307 of the additional evidence paper book IV. • Since the construction of the building was stopped in 1986-87 and the same could not be completed, completion certificate was never obtained for the property.

6.68.2 It is submitted that the DVO has not property considered any of the foregoing factors, while computing the value of Nehru Manzil. The same is discussed as under:

6.69 Improper adjustment for incomplete structure. Even though only RCC structure was complete, DVO has computed the value of complete structure. The DVO has provided discount of only 22%, which is very low. As per the GAA Valuers, it should be atleast 40%.

6.69.1 The DVO adopted the rate for a fully constructed building for the structure which is just half constructed and dilapidated. Further, in the computation the DVO has also loaded a factor for electrical installations. In case of the given structure where no electrical installation work is carried out loading such hypothetical cost is erroneous.

6.69.2 From Annexure A2.1 of the DVO report (Page 426 of PB I), it is observed that the DVO has applied a discount of 22% for unfinished work on the property. It is submitted that the discount applied by the DVO is grossly understated. As is clear, only RCC superstructure of the property was constructed, which too was in dilapidated condition. The said structure was not equipped with necessary MEP (Mechanical, Electrical, and Plumbing) services. The building had inferior finishing. Please see pages 1457-1458 of PB IV for the photographs of the property. Even the completion certificate from the local authority is not obtained for the same, which has adverse impact on marketability. When compared to the sanctioned plan, only 40% of the cost was incurred to build this structure, which too is in bad state. Hence, considering these factors, it is submitted that 22% discount provided by the DVO is incorrect. Also, by adding the load for electrical installations the DVO has hypothetically added 78% towards electrical fittings which are non-existent.

6.69.3 Observation of GAA Valuers, Registered Valuers in this regard are at Page 1455 of PB IV, Paras 8 and 9.

6.70 No adjustment provided in respect of sold portion of the property

6.70.1 Besides, DVO report fails to capture the portion of the property, which is sold. As stated earlier, 9 shops in the building were sold by the company. These sold portions is neither occupied nor in possession of the company. This creates a negative lien, which reduces the market value drastically. Hence, a discount ought to have been provided for the same. Besides, even the area considered by the DVO should be reduced by the area of sold shops.

6.70.2 The Diagramme of shops not in possession of AJL is at page 1465 of PB IV.

6.70.3 Further, the observation of GAA Valuers, Registered Valuers is at Page 1455 of PB IV, Para 3 and page 1456 of PB IV, para 11(b).

6.71 Depreciation has been wrongly considered from the year 1997-98 even though the building was constructed in the year 1987-88

6.71.1 Attention is invited to Annexure A2 of the DVO report (Page 425 of PB ), wherein it is observed that the DVO has considered depreciation on the building for the period 1998 to 2011 on the basis that the building was constructed in 1997- 98. In this regard, it is submitted that the incomplete structure of the building was constructed by the year 1986- 87, after which the construction of the property was stalled. Accordingly, depreciation ought to be provided from that year.

6.71.2 In this regard, the observation of GAA Valuers, Registered Valuers is at Page 1455 of PB IV, Para 4.

6.72 DVO has considered Delhi rates of 1992 for computation of construction cost and not Lucknow:

6.72.1 Attention is invited to Annexure A2 of the DVO Report (pages 415 of PB I, para 7.1, and page 425 of PB I, top of the table), from where it is clear that the DVO has used Delhi

Schedule of Rates published in year 1992 to derive the cost of construction of the structure built in year 1986-1987. No basis whatsoever has been given for the same.

6.72.2 In this regard, the observation of GAA Valuers, Registered Valuers is at Page 1455 of PB IV, Para 7.

6.73 For the Basement, excessive rate has been applied. The plinth area rate taken by the DVO (Rs. 3586.8 per sqm) is arbitrary and high since the correct rate is Rs. 2920 per sqm 6.73.1 As is clear from Annexure A2.1 of the DVO report (Page 426 of PB I), though for the lower and upper ground floor (mentioned as ground floor and first floor in the report), the DVO has considered the rate of Rs. 2920 per sqm, for the basement, he has considered rate of 4020 sqm, which is incorrect. In this regard, attention is invited to page 1470 of PB IV, wherein provided is the extract of the plinth are rates as on 01-1992. As would be observed, the rate applicable in only Rs. 2920 per sqm.

6.73.2 Further, the observation of GAA Valuers, Registered Valuers is at Page 1455 of PB IV, Para 8.

6.74 It is submitted that the DVO has not factored in any of the foregoing adjustment while valuing the land which makes the valuation unreliable and incorrect.

6.75 As regards valuation of Nehru Bhawan:

6.76 No adjustment has been provided for the property being rented out.

6.76.1 It is humbly submitted that DVO himself has noted that the Nehru Bhawan was given on rent. At Page 3 of the Report, Para 6.4,(Page 415 of PB I), he has noted that Rajiv Gandhi Charitable Trust was tenant of the property. However, while valuing the building, the DVO has ignored said fact. At para 6.6 and 6.7, he states that the details of rent from the property is not relevant. Further, at para 7.2, he states that the most appropriate method is adopted on the basis that the property is self occupied (Page 416 of PB I

6.76.2 It is submitted that when it is established that the property is rent, the property ought to be valued by applying rent capitalisation method. In this regard, reliance is placed on the following decisions: • CGT v. Hans Raj [2001] 119 TAXMAN 129 (DEL)(Pages 23 of LPB IX); • Smt. Savita Mohan Nagpal v. CWT [1986] 26 TAXMAN 640 (RAJ.)(Pages 24-28 of LPB IX); • CWT v. Seth Gokuldas Pradeep Kumar [1994] 77 TAXMAN 415 (RAJ.)(Pages 29-31 of LPB IX) • Dr. Miss V. Banka v. WTO [1995] 52 ITD 623 (DELHI)(Pages 32-35 of LPB IX).

6.76.3 The observation of GAA Valuers, Registered Valuers in this regard is at Page 1455 of PB IV, Para 2.

6.77 Depreciation has been wrongly considered from the year 2007 even though the building was constructed in the year 1981.

6.77.1 Attention is invited to Annexure A1 of the DVO report (Page 422 of PB I), wherein it is observed that the DVO has considered depreciation on the building for the period 2007 to 2011 on the basis that the building was constructed in 2006-07. In this regard, it is submitted that the completion of said building was completed in the year 1981.

6.77.2 In this regard, attention is drawn to the inauguration photograph at pages 126 and 1527 of PB V from which it is clear that the property was inaugurated n 15.4.1981. Further supporting documents are at pages 1521 to 1525 of PB V.

6.77.3 Further, the observation of GAA Valuers, Registered Valuers in this regard is at Page 1455 of PB IV, Para 5.

6.77.4 Accordingly, it is submitted that depreciation ought to be provided from the year 1981.

6.78 DVO has considered Delhi rates of 1992 for computation of construction cost and not Lucknow:

Sr.No. Remarks Reference Page Nos. 1 Observation of GAA Valuers, Page 1455 of PB Registered Valuers IV, Para 7

2 Treatment by DVO Pages 415 of PB I, para 7.1, and pages 422 of PB I, top of the table.

6.78.1 Attention is invited to Annexure A1 of the DVO Report, from where it is clear that the DVO has utilized Delhi Schedule of Rates published in year 2007 to derive the cost of construction of the structure built in year 1981 (Pages 422 of PB I, top of the table). This is also mentioned at pages 415 of PB I, para 7.1. However, no basis whatsoever has been given for the same.

6.78.2 With respect to all the foregoing contentions, the Ld. DR has reiterated that since the Appellant had not raised these objections before the AO or the DVO and not allowed physical inspection, the same cannot be raised at this stage. In this regard, the Appellant reiterates its submissions, namely: a. The Appellant has no right to give or deny physical inspection of the properties of AJL; b. The subsequent valuation reports from Registered Valuers have been obtained by AJL and not the Appellant; c. These reports were given to AO for his remand report on merits. The AO has not given any adverse comments on the errors pointed out in the report. d. For the errors which the Appellant had pointed out during assessment, the AO obtained comments of the DVO, which were never shared with the Appellant. Hence, the Appellant did not even have any opportunity to rebut to the comments of the DVO based on which all the objections have been dismissed by the AO. e. As regards the impact of physical inspection, it is submitted that it has no bearing for the purpose of valuing the land especially since inspection happened in 2017 and the valuation date is in 2011 and circle rates have been adopted for valuation. Further, merely because inspection could not be done, it cannot validate the errors in the valuation. f. It is accordingly submitted that the valuation ought to be revised and corrected for the errors committed by the DVO/AO.

6.78.3 It is submitted that the Appellant has now substantiated the errors pointed out, such as date of construction of the properties, the dilapidated condition of the property, etc. through various evidence and accordingly, the same ought to be considered.

6.79 Besides, the objections with respect to the method of valuation, such as ignoring the rent capitalisation method, considering Delhi rates instead of Lucknow rates, also ought to be considered.

6.80 In view of the foregoing, the Appellant humbly submits that the method adopted by the DVO in valuation of the Lucknow Property is fraught with various mistakes/errors. Accordingly, said report of the DVO ought to be ignored and held to be invalid. Indeed, it is submitted that all the foregoing objections formed part of the observation report of the registered valuer submitted to the AO. However, from the remand report submitted by the AO, it is observed that the AO has not made any adverse comment on said objections whatsoever, which clearly shows that even he agrees with said errors in the DVO’s report.

6.81 ERRORS IN VALUATION OF THE PANCHKULA PROPERTY:

6.82 The Panchkula Property has been valued by the DVO. The DVO report is at pages 386- 399 of PB – I.

6.83 The DVO has computed the value by applying circle rate of Rs. 96,000 to the land. (Page 391 of PB I). Accordingly, the value has been arrived at Rs. 32.25 crores (Rs. 96000 x 3360 sqm).

6.84 It is submitted that the valuation done by the DVO has various errors. In this regard, attention is drawn to the observations of the GAA Valuer, Registered Valuers, which is at Page 1435 of PB IV (GAA Report - Pages 1430-1448 of PB IV). The said report was also submitted to the CIT(A) and the same was also sent to the AO for his remand report. However, neither the CIT(A) nor the AO has commented on this report. Further, our arguments before AO is at Page 362 of PB-I, para 2.3. The detailed submission for CIT(A) are at pages 1338—1340 (Para 1.40-1.47) of PB-II.

6.85 Contentions:

6.86 No basis for adopting Rs. 96,000 as the land rate. Even considering the circle rates for year 2010-11, the rate considered by the DVO at Rs 96000/sqm is very high. 6.86.1 As stated earlier, the DVO has considered rate of Rs.96,000/sqm to derive the value of the land. However, in the report no basis has been provided for the same. As per the circle rate table for Panchkula for the year 2010-11 (please see page 1444 of PB IV), the rate for Sector 6 (in which the land was situated) for year 2010-11 was Rs. 47000/sqm. Accordingly, it is submitted that the rate adopted by the DVO ought to be ignored.

6.86.2 The observation of GAA Valuers, Registered Valuers in this regard is at page 1435 of PB IV, Paras 3 and 6.

6.86.3 The Ld. DR. has referred to the DVO’s comment at page 59 of assessment order, Para 12.13, where it is stated that the contention of the Appellant that the rate is Rs. 15000 sqm and not Rs. 96000 sqm. is without any basis and evidence and therefore, to be rejected. However, the Ld. DR has failed to notice that the Appellant has not raised this contention now. As per contention raised at paras (c) and (f) at pages 21-22 of LPB IX, the Appellant’s contention is that the circle rate of the land in question for the relevant year is Rs. 47000 sqm (evidenced by ready reckoner at Page 1444 of PBI V) and that the rate of 96000 adopted by the DVO is without any basis and as per ready reckoner (Page 1435 of PB IV, para 3). The Ld. DR has not objected to this contention and accordingly, it is submitted that the same ought to be accepted.

6.87 The land is an institutional land allotted only for the publication activity and had several restrictive covenants, for which discount ought to have been provided.

6.87.1 It is submitted that as per terms and conditions of re- allotment letter dated 28th September 2005 issued by HUDA, clause 14, the plot cannot be used for any purpose other than for which it has been allotted (Please see Page 1439 of PB IV. The complete document is at pages 1517-1520 of PB V.)

6.87.2 Further, as per letter dated 30.10.1992 issued by Estate Officer, HUDA, the specific use of the building so erected on the plot shall be used for Hindi Daily Nav-Jeevan newspapers (Please see Page 1440 of PB IV).

6.87.3 Further, the plot falls in institutional zone as per Revised Master Plan of Panchkula, where it is classified under ‘major institution’ (Please see page 1441 of PB IV).

6.87.4 It is submitted that with such restrictive covenants attached to the land, the normal rates cannot be adopted for valuation of the land. Such land valuation would suffer heavy discounting due to its highly restricted user and the same ought to be provided since such covenants restrict the marketability of the land to limited market participants. The courts have consistently held that where there are restrictive clauses in the property which has depressing effect on the value of the asset, impact should be given to such clauses while valuing the property, since a reasonable buyer would pay for the property after considering the impact of such clauses. Reliance in this regard, is placed on the following decisions: • S. N. Wadiyar v. CWT [2015] 62 taxmann.com 289 (SC)(Pages 56-67 of LPB IX); • Ajit J. Mehta v. JCIT [2006] 101 ITD 11 (PUNE) (Pages 68-71 of LPB IX); • AIMS Oxygen (P.) Ltd. v. CWT [2012] 23 taxmann.com 185 (Guj.) (FB) (Pages 72-78 of LPB IX); • CIT v. G. S. Krishnavati Vahuji Maharajkalyanraiji Temple [2003] 131 Taxman 339 (Gujarat) (Pages 79-81 of LPB IX); • Gouri Prasad Goenka & Family (HUF) v. CWT [1993] 203 ITR 700 (Cal) (Pages 82-86 of LPB IX); • CWT v. Smt. Ballabh Kumari [1986] 24 TAXMAN 396 (RAJ) (Pages 87-88 of LPB IX); • CWT v. K. S. Ranganatha Mudaliar [1985] 21 Taxman 360 (Mad.)(Pages 89-92 of LPB IX). 6.87.5 Further, the observations of GAA Valuers, registered valuers in this regard is at Page 1435 of PB IV, paras 1, 2, 3.

6.87.6 The Ld. DR has by referring to clause 14 of the reallotment letter (Page 1439 of PB IV/Page 1519 of PB V) stated that this is not a restrictive clause and only enabling clause. It is submitted that this is wrong interpretation of the clause and the Appellant reiterates the submissions made earlier in this respect. Further, the Ld. DR has ignored the letter by Estate Officer, HUDA dated 30.10.1992 at Page 1440 of PB IV where the purpose for allotment of land is clearly mentioned to be erection of building for Hindi Daily Nav- Jeevan Newspaper.

6.87.7 It is accordingly submitted that suitable discount ought to be provided for such user restrictions of the land.

6.88 When the rate at which the land was allotted to AJL is compared with the prevailing market rates for residential and commercial property, it would be observed that the allotment rate is upto 97% less than the prevailing rate for commercial property, which clearly shows that normal circle rate cannot be considered for these types of property.

6.88.1 It is submitted that the land parcel was re-allotted by HUDA to AJL at a premium of Rs.59,39,200/- in year 2005 with amount of Rs. 2,73,000/- already in custody of HUDA by earlier allotment dated 16th December 1981. Thus, the derived allotment land rate for the said property is Rs. 1,850/Sqm, which is 74% less than the collector rate of Rs. 7000/Sqm for residential plots in year 2005 and 97.43% less than the collector rate of Rs. 76000/sqm for commercial plots of nearest sectors notified in year 2005.

6.88.2 Copy of re-allotment letter dated 28.9.2005 showing the allotment price at Rs. 59.39 lacs in the year 2005 is at Page 1517 of PB V.

6.88.3 Further, the rates for residential and commercial properties in the year 2005 is at Page 1443 of PB IV.

6.88.4 Further, the observations of GAA Valuers, registered valuers in this regard is at Page 1435 of PB IV, paras 4 and 5.

6.88.5 Therefore, even if one were to adopt the rate of residential or commercial property, as the land that is valued is an institutional plot, the same should suffer a discount of 74% or 97.43% respectively as the case may be depending on the rate adopted. Hence, appropriate discount should be adopted on commercial or residential circle rate if the same formed the basis for valuation. It is submitted that the Ld. DR has not even objected to this contention.

6.89 In view of the foregoing, the Appellant humbly submits that the method adopted by the DVO in valuation of the Panchkula Property is fraught with various mistakes/errors. Accordingly, said report of the DVO ought to be ignored and held to be invalid. Indeed, it is submitted that all the foregoing objections formed part of the observation report of the registered valuer submitted to the AO. However, from the remand report submitted by the AO, it is observed that the AO has not made any adverse comment on said objections whatsoever, which clearly shows that even he agrees with said errors in the DVO’s report.

6.90 The Appellant humbly submits that considering various inconsistencies, fallacies and errors in the valuation of the benefit u/s. 28(iv) adopted by the DVO/AO, the valuation as adopted by the AO ought to be held invalid.

6.91 During the course of the hearing, the Ld. DR has stated that since the Appellant had not cooperated with the AO/DVO during the valuation of the properties, the Appellant cannot now raise the foregoing objections now. He has argued that objections, if any, can be raised only at the stage of valuation and not thereafter and the same is not permissible in law.

6.92 In this regard, it is firstly submitted that the Appellant has no right to allow or deny inspection for properties of which it is not an owner. Hence, it was not in the hands of the Appellant to permit any inspection. The Ld. DR is completely wrong in saying that the attitude of the Appellant was ‘how dare you enter our property’. On the contrary, all the Appellant stated was that it has no authority to permit any person to enter the properties. In any case, tax can be levied only on correct income and if the alleged income as perceived by the department has been computed in an incorrect manner, which is apparent from various documents on records now, ignoring such errors in valuation would lead to gross injustice to the Appellant and unjust enrichment of the Revenue, which can never be permissible in law.

6.93 Also, since valuation of the properties is to be done as on 26.2.2011 and not current status, and also the same have been done based on circle rates, it is submitted that nothing significant turns on the physical inspection of properties. Besides, most of the objections of the Appellant with respect to this property is with respect to the valuation of the ‘land’ and not the building. Out of the total value of Rs. 413.40 crores determined by the AO/DVO, value determined for land is Rs.385.12 crores which constitutes around 93% of the total value. The bifurcation of the values determined for land and building is as under: (Rs. in crores) Property Land Building Total Value Delhi 194.75 7.09 201.84 Mumbai 132.94 Nil 132.94 Patna 5.78 Nil 5.78 Lucknow 19.40 21.18 40.59 Panchkula 32.25 Nil 32.25 Total 385.12 28.27 413.40

6.94 As far as land of Delhi is concerned, the DVO has arbitrarily applied comparable sale instance method by considering a completely uncomparable property. Physical inspection of the land has no bearing whatsoever on this step of the DVO. Even if physical inspection is not allowed, it does not enable the DVO to ascribed arbitrary value to the property even though details required for valuation, such as ready reckoner rates, were readily available. Patna, Mumbai and Panchkula properties too were admittedly open pieces of land in 2011. Patna property still is an open land which is fully encroached. In fact since this property is encroached by various slum dwellers, it was as open to inspection to the DVO as anyone else. Even in case of Lucknow, most of the contentions of the Appellant are with regards to the valuation of land and not the building. It is respectfully submitted that this argument of the Ld. DR ought to be discarded and the errors pointed out in the valuation ought to be considered

6.95 Besides, after receiving the assessment order with the inflated values for the properties, the Appellant has, with the help of AJL and the reports obtained by AJL for its properties from Registered Valuers, analysed the DVO/AO reports and raised objections. Further, all these reports were submitted by the Appellant even before the Hon’ble CIT(A) as additional evidence, which was in turn sent to the AO for his remand report on the merits of the same. Hence, the AO was provided proper opportunity to consider these reports and provide its comments. However, in the remand report, the AO has not given any adverse comments on this report which shows that it has accepted the errors pointed out in the same. Even during the assessment, the Appellant had pointed out various errors in the valuations adopted, all of which have been dismissed by the AO as either not relevant or unsubstantiated. The AO infact obtained comments of the DVO on such objections raised by the Appellant, which were never shared with the Appellant. Solely based on said comments, the AO has dismissed the arguments raised during assessment. Hence, the Appellant did not even have any opportunity to rebut to the comments of the DVO based on which all the objections have been dismissed by the AO. It is accordingly, submitted that the Appellant had no other option but to file additional evidences before the appellate authorities to support its objections. In any case, these objections and evidences are clearly relevant for the purpose of the valuation and which were even placed before the AO for his remand report on merits. It is accordingly submitted that the valuation ought to be revised and corrected for the errors committed by the DVO/AO. Without prejudice to above, if necessary, the Appellant humbly requests that the matter be remanded back to the AO/DVO for considering all the evidences now on record and recompute the fair market value of the properties.”

ARGUMENTS ON BEHALF OF THE REVENUE

Hence, for arriving at the value of the benefit in terms of Section 28(iv), it is not the value of the shares which is relevant, but the value of the properties which come under the control and for the enjoyment of the Appellant. The contentions to the contrary are not tenable in the given facts.

A very critical aspect of the matter needs to be highlighted here.

The DVO gave a number of opportunities to the Appellant to allow physical inspection of the properties so that proper valuation could be done. However, the Appellant taking one or the other pretext did not allow physical inspection of the property. It’s subsidiary company, i.e., AJL also did not allow any physical inspection. The DVO brought these facts to the notice of the Appellant, however no attempts were made to allow the statutory authority to discharge its official functions in a proper manner. After the valuation was done and the matter came in appeal, the Appellant came forward with a lot of additional evidence before CIT(A) which could have been filed before the DVO if the Assessee had chosen to cooperate, but was not done.

Further, when A.O. makes certain observations in the order of assessment or the CIT (A) makes certain observations, in the light of such non-cooperation, the Assessee cannot be permitted to go on raising one or the other objection or leading one or the other evidence. This fact situation permeates through the valuation of all the properties involved i.e., the properties situated in New Delhi, Mumbai, Panchkula, Lucknow and Patna.

S.No. Property Situated at Submissions • a Mumbai The Appellant has referred to the decision of CWT v. Dr. H. (It may be noted Rahman, 189 ITR 307 (All) to that the current contend that the report of the photos and valuation officer is binding on the A.O. and therefore the a video of the A.O. present property of could not have departed in AJL the present case from the situated in Mumbai value of adopted by the DVO. was shown to the It is Hon’ble Bench) submitted that the reference to the DVO in this case was made under Section 142A of the Act and therefore the valuation report, unlike the Wealth Tax Act is only advisory in nature and not binding on the A.O. Reference in this regard may be made to the decision in the case of M/s MFAR Hotels Ltd., Cochin v. The ACIT, Cochin, Cochin /2017. • The Appellant contends that the property in Mumbai is an open piece of land and therefore the rate which is applied for a commercial building is wholly incorrect. It was also submitted that the construction on the said plot of land started only in February 2013 and as on 2011, it was an open land only. In this regard, it is submitted that the rates notified by the authorities of Maharashtra, refer to only land with different kinds of usages. This is not a rate of building, but of land only. In a land and building method, the cost of construction is separately determined. Therefore, this contention of the Appellant has no force. • The Appellant has stated that the A.O. has taken rate of a different zone. It may be pointed out that as on 2011, the property was falling in zone 29/167. There was no demarcation like ‘8 or 8A’ as has been done now. In any event, it makes no difference to the value of property for the reason that the property, even after correction, remains very close to the western expressway and even comes closer to Bandra railway station. This would yield a higher value. There is no merit in suggesting that the land will have a lower value for the reason that at a much later point of time, an amendment was made to indicate that the land falls in zone 29/166 and not in zone 29/167. • The Appellant has pointed out that a mandatory deduction of 15% to the rate applied ought to have been given. It may be brought to the notice of the Hon’ble Bench that the 15% mandated deduction is available for such open land which have not been assigned any usage rights. In this case, the property was already given usage rights and therefore the Appellant would not be entitled to such deduction. • The Appellant has further contended that the property was allotted to them for specific purpose and therefore, it cannot be put to any other use. This would substantially bring down the value of the property. According to the Appellant, these restrictive clauses have depressing effect on the value of the property. Reference is made to a number of decisions referred to on Page 12 of LP-

IX. It is submitted that the Appellant had discontinued the activity of publication of newspaper in 2008. Thereafter, the property was not used for the purpose for which it was allotted. AJL itself was using the property for non-institutional purposes and had given the property a commercial character. The usage of the property could be changed by the Appellant or the prospective buyers with the permission of the relevant authorities. The property is in fact being used for commercial purposes as on date, despite the discontinuance of publication business in 2008. • The Appellant states that no adjustment has been given by the A.O. for transfer restriction on the property and the fact that a percentage of premium is payable to the government. Reliance is placed on the decision of the Hon’ble SC in the case of P.N. Sikand. It is submitted that the restrictive clause on Page 1535 of LP-V puts only a condition that the property would not be put for any other use without the consent of the state government. It doesn’t say that it cannot be put to any other use. As a matter of fact, the land has been put to commercial use post the date of valuation. So, as regards the payment of 50% of net income to the government, it has to be kept in mind that no evidence has been led before the A.O. to show that any such payment was due or has been made to the state government after the closure of the publication business in 2008, till the valuation date or thereafter when constructions were made on the said land and the land was put to commercial use. Thus, the clauses in the agreement which merely confer a certain enabling right on the lessors, which may or may not be acted upon, does not ipso facto give right to deductions to the value of the land. • Lastly, the objection of the Appellant that the additions were made without giving any show-cause notice with regard to the final value adopted by the A.O. In this regard, this objection appears to be incorrect. Attention is drawn to Para 13 of the assessment order where the A.O. has extracted the show-cause notice and it is clearly mentioned that the FMV as determined by the valuer was recomputed considering circle rate as prevalent in the area at Mumbai where the property is located. Attention is also invited to show-cause notice dated 13.11.2017 followed by 21.11.2017. Their reply was duly considered by the A.O. • b. Delhi The Appellant has stated that the A.O. has committed an error in not giving deduction for 50% of the unearned increase payable to L&DO on the transfer. It is submitted that the land is given ‘for the purpose of construction of building for commercial purposes.’ There are restrictions only to the extent that the building shall not be used for running of a cinema or restaurant or any other activity which may be noisy, noxious or offensive. (Reference may be made to Page 1485 of LP- V). Therefore, this is not really any effective restriction on the commercial use of the building. As regards the provision relating to payment of 50% of unearned increase, it is submitted that the same is payable only at the time of transfer of the rights. (Reference may be made to Page 1487 of LP-V). This is a payment stipulated in the event of a specific eventuality i.e., the transfer of the leasehold rights. In the present case, no such transfer has happened since the grant of rights to AJL as early as in 1967. These restrictions on the transfer of rights are unascertainable in nature and are dependent on future policies of the government from time to time as well as conduct of the Assessee. While determining the value of a benefit of a property on a given date, considerations of a hypothetical transfers etc. cannot be taken into consideration. These would amount to notional adjustments, without the stipulated eventuality being in sight. • A subtle distinction has to be kept in view, with regard to the determination of FMV of a property to arrive at the value of benefit arising to the Assessee, as a result of an adventure in the nature of trade. The value here is not being determined for the purposes of determination of capital gains or determination of actual amount of investment in the property etc. • The Appellant has stated that it has been allotted the property for newspaper publication business and it is not readily marketable. It is also contended that the usage restriction should have been suitably adjusted. It is submitted that the preamble to the perpetual lease itself stipulates that the building has been constructed for commercial purposes. There are in fact no restrictions on the use of the property except to a very limited extent as pointed out above. The observation of the Appellant that there are restrictions on sale of the property is also not tenable because the only restriction is that the property cannot be sold without the permission of the Lessor. It is reiterated that the FMV is being determined to arrive at the value of benefit coming to the enjoyment of the Appellant and not a notional benefit that they would derive from selling the property. Looking to the nature of restrictions placed on the usage of property, the A.O. has rightly denied any adjustment for the same and for the same reason i.e., the peculiar facts of this case, the decisions referred to at Page 6 of LP-IX are not applicable. • The Appellant has also objected to the fact that rates of 2008 were adopted with a 21% increase every year. They have also claimed that ready- reckoner for the year was available and therefore, the same should have been taken. The DVO had given full opportunity to the Appellant and no such ready-reckoner was made available either before the DVO or the AO. • The Appellant has objected to comparable sale instances taken by the DVO. The DVO has clearly stated in his report that there are no clear available sale instances in that area and therefore the rate for the nearby area has been taken and suitable adjustment has been made thereto. • As regards the difference in the area, this aspect was already raised before the DVO and the DVO has pointed out that since physical inspection of the property was not allowed, the area of mezzanine floor was added to the ground floor. When the building is being used for commercial purposes, the area of mezzanine floor will also have a commercial floor, may be with some differential. • c. Lucknow The Appellant has contended that the DVO should have provided adjustment for the property being rented out and some portion of the property having been already sold. It is submitted that none of these objections were raised before the AO or the DVO. Besides, the DVO has not adopted rent-capitalization method for valuing the property. He has gone by the land and building method. The value of land and building does not change in the given circumstances. • The limitation of utilization of the property has already been dealt with while dealing with other properties and is not being repeated herein for the sake of brevity. • The other objection of the Appellant is that there were certain encroachments on the property which has not been considered. According to DVO, these so-called encroachments had no significant bearing on the valuation as the bona fides of these claims was not open for verification. The Appellant during the course of proceedings before the A.O., also did not lead any evidence to suggest that these could have had any bearing on the final value of the property. • d. Patna The limitation of utilization of the property has already been dealt with while dealing with other properties and is not being repeated herein for the sake of brevity. • The other objection of the Appellant is that there were certain encroachments on the property which has not been considered. According to DVO, no such encroachments existed on the property • e. Panchkula The Appellant has contended that the rate adopted by the DVO is very high. In this regard it is submitted that this objection has already been considered by the DVO/AO. The land rate is based on the rate notified by the district authorities. • The limitation of utilization of the property has already been dealt with while dealing with other properties and is not being repeated herein for the sake of brevity.

DECISION ON GROUNDS NO.7, 8 & 9 WITH RESPECT TO VALUATION OF PROPERTIES

DELHI PROPERTY (5A, HERALD HOUSE, BAHADURSHAH ZAFAR MARG, NEW DELHI.)

This was confronted to the appellant by the AO. The appellant has filed its objections which have been noted in page 57 of the assessment order in the following manner:- • The Value of Rs. 14,45,000/- per square meter is a gross exaggeration based on a 3* Multiple applied to a property on Tolstoy Marg which itself is in far better location and commercially far more valuable than the property being valued.

• DVO has taken Rs. 4,81,669.64 per square meter assuming that this is a residential property and has used a multiplication factor of 3* for commercial use. Instead of using this approach, the DVO should take comparable commercial properties in that area.

• Plot No.5 Tolstoy Marg is at a distance of approx. 4 km. from the property being valued and is a significantly more commercially attractive locality with higher far than the property being valued. Therefore, not comparable.

• Tolstoy Marg building transaction took place on 10.03.2008 that is 35 months prior to the date of valuation of this property. This period (2008-2011) is inflated by DVO at the rate of 21% per annum which is exorbitant and not in line with market inflation which is much less, i.e. closer to 5% per annum.

• Plot size (land area) as given in Para 5.1 and in Annexure B is = 1347.696 square meters. The constructed Area on the Ground Floor 1779.08 square meters as given in Annexure Ai and used for calculation purposes by DVO is factually incorrect as it is physically impossible for the Ground Floor to have 32% higher area than the plot size itself. This is clearly erroneous.

• The cost of construction are factually incorrect. As per Govt. of Delhi Gazette Notification No. F.l(281)/Regn. Br./HQDiv.com/09/45 dated 4, February 2011 the cost of construction for "A" category properties is Rs. 14,960 per square meter multiplied by factor for the building completed in the years 1960-69 that is 0.6 which would come Rs. 8,976 per square meter. The values taken by DVO are wrongly exaggerated and inflated and are 2.5-3* the relevant value.

• DVO Report omits the reports in public domain on the Restrictive Clauses which are reported to apply to this property. • Electrical installation, Water Supply and Sanitary Installation rates vary according to DVO report and are lower for basement and higher for ground floor and upper floors. This is clearly erroneous.

• As per Revenue Department, Govt. of NCT of Delhi notifications, minimum land Rates of commercial lands are adopted 3 times of residential land rates.

• No comparable sale instance is available in this office for a commercial property in that area.

• The property under reference is located on Bahadur Shah Jafar Marg, which is a very wide road and very close to ITO Chauraha, one of the most prominent places in Delhi. The Tolstoy Marg is much narrower than Bahadur Shah Zafar Marg.

• CBDT guidelines provides for 18% to 24% per annum increase. Accordingly, 21% per annum has been adopted.

• As per the information contained in your letter dtd. 13.07.2017, Megganine Floor Area was 7376.22 Sqft and the Ground Floor Area was 11773.69 Sqft. The Assessee did not permit inspection. Under the circumstances, Megganine floor area was added to the Ground floor area and valuation report was prepared accordingly.

• The calculations given by the Assessee are based on the minimum rate of construction for stamp duty purposes. The valuation report however is based upon the CPWO plinth area rates.

• The basements are normally used for parking and/ or storage purposes. Hence as per practice, lower rates of Electric Installation, Water supply & Sanitary Installation etc. are adopted for basements than upper floors. A normal practice has been adopted in valuation report, in absence of the property inspection.

• It is not clear as to how part tenancy impacts the FMV of the property.”

177.1 It is very interesting to note here that, nowhere either in the written submissions nor in the course of hearing or as a matter of fact in the registered valuer’s report, has the appellant come out with, what should be the value of the said property, according to them. Instead of that, they have sought to point out various objections and infirmities in the DVO’s valuation report rather than giving what would be FMV of such property according to them. At least, the appellant should have come up with certain proper valuation benchmark and to compare so as to determine the FMV of the said property with suitable justification rather than merely pointing out various objections and defects in the DVO’s report.

per comparable sales instance method etc. In the absence of any value shown by the appellant, it is very difficult to either accept various objections raised by the assessee on DVO’s report or to accept contention that the circle rate alone should have been adopted, which in Delhi for most of the zones are not determinative of actual market rate which are manifold higher.

P.N. Sikand, 107 ITR 922 (SC) where it was held that where there is a restrictive covenant on the property, the fair market value of the land would have to be reduced by the unearned increase stipulated in the lease deed.

In the facts of this case which are very peculiar, there is no transfer of ownership. By a devise, which is colourable in nature, the Appellant has taken over complete control over AJL and after piercing the corporate veil, one may find that the Appellant is in complete control and enjoyment of this property. The legal ownership may still vest with AJL hence it is not a case where in considering the value of the benefit flowing to the Appellant, there is any case for deduction of 50% of unearned increase being payable, if at all, to L&DO.

Sikand (supra) would not be applicable. In the case of P.N.

Sikand (supra) the Hon’ble Supreme Court was examining the value for wealth tax purposes where the ownership vested with the assessee. In the present case, legal ownership vests with AJL but control and enjoyment comes at a benefit to the Appellant.

We are of the view that the Appellant cannot get any benefit from the aforesaid decision. The contentions made in this regard are therefore rejected.

The nature of property is commercial. The DVO has already given a discount of 5% for these factors. Under these circumstances, we do not find any merit in these contentions and these are accordingly rejected.

Bahadurshah Zafar Marg also which is near to ITO and has big commercial establishments having high commercial value, therefore, the value of Bahadurshah Zafar Marg at any day would never be much lower than the Tolstoy Marg.

PATNA PROPERTY

192.1 Here in this case, property was allotted to the AJL for publication of newspaper which itself has a commercial purpose, however, the activity of the newspaper publication of the AJL was discontinued in April 2008 itself, therefore, the property was, in fact, not being used for the purpose for which it was allotted.

Therefore, it is for this reason, commercial rate has been applied.

However, insofar as the objection of the appellant that property was encroached and therefore, some deduction should have been given. Since it would be purely an estimate, therefore, we think it would be proper if 15% deduction is allowed on the rate determined at Rs.5,77,52.700/- for the encroachment as well as to take into account that it was leasehold land which though has been extended from time to time until this date the property is still under the ownership of AJL. Accordingly, the valuation of the property for Patna is determined at Rs.4,90,89,795/-.

The appellant gets relief to that extent.

PANCHKULA PROPERTY

Now, before us, it has been stated that in the relevant year, circle rate was Rs.47,000/- per sq. mtr. Another contention has been that it is an institutional property with usage restrictions.

Thus, the land was purely available for commercial usage and purposes and the DVO has applied circle rate for commercial purposes along with CPWD plinth area rate. Thus, we do not find any infirmity in the valuation done by the DVO and accordingly, we uphold the valuation of Rs.32,25,60,000/- in respect of Panchkula property. The contention with regard to restrictive use of the property is not tenable for the reasons given herein above.

VALAUTION OF NEHRU BHAWAN AND NEHRU MANZIL OF LUCKNOW PROPERTY

87. Thus, the AO is directed to compute the valuation as done by the DVO subject to following deductions :-

(i) Allow proportionate deduction for shops which stood sold prior to the date of valuation;

(ii) Instead of giving deduction of 22% as done by the DVO on partly constructed building, give deduction of 30%; and (iii) Depreciation should be allowed from AY 1986-87.

MUMBAI PROPERTY

Table - 8 Date of Valuation : 26.02.2011 S. Description Value (in Rs.) No 1 Total area of land (in sqm) 3,478.40 (A) 2 FSI Permissible in the locality 1.00 3 Permissible FSI on the plot (in 3,478.40 (B) sqm) 4 Less RG @ 15% 521.76 (C) 5 Permissible FSI on the plot (in 2,956.64 D)= (B)-(C) sqm) 6 TDR Potential 1 on (A)(in sqm) 3,478.40 (E) 7 Total FRI including TDR 6,435.04 (F)=(D)+ (E) available for commercial development (in sqm) 8 Derived FSI (land rate) (in 69,440.00 (G)

Rs./sqm), based on sale instances 9 Value of Plot (in Rs.0 446,849,578 (H)=(F)X(G) 10 Deduct for : (i) Cost of acquisition of TDR 145,967,578 (I) (3478.40 x 3900 x 10.76) (in Rs.) 11 Fair Market Value of the land 300,881,600 (J)= (H) – (I) as on 26.02.2011 FMV 30,08,82,000

Type of Land Circle Rate – in Circle Rate – in Rs. per sqm as Rs. per sqm as on 26.02.2011 on 13.07.2017 Open land (not falling in 71,200/- 1,69,000/- following categories Land for residential complex 1,18,800/- 2,89,900/- Land for office 1,50,200/- 3,10,900/- Land for commercial 1,91,100/- 3,76,700/- complex/ shop etc. Land located in industrial 1,32,500/- 2,89,900/- area

Total FSI of the land 6,956.8 sq.mtr. (15% deduction of FSI as allowed by the DVO Mumbai was rejected for the reason that such deduction was without any basis in case of land for commercial complex)

The circle rate for the land for commercial Rs.1,91,100/- per sq.mtr. Complexes as on 26.02.2011 The circle rate for the land for commercial Rs.3,76,700/- per sq.mtr. Complexes as on 13.07.2017 Total FMV of the plot (6,956.80x1,91,100) Rs.132,94,44,480/- per sq.mtr as on 26.02.2011 Total FMV of the plot (6,956.80x1,91,100) Rs.262,06,26,560/-per sq.mtr as on 13.07.2017 Accordingly, Assessing Officer has computed the FMV of Mumbai property at Rs.132,94,44,480/-.

He also drew our attention to the circle rates for the 2011 as notified by the Maharashtra Government and also the circle rates for 2016 and 2013.

During the course of hearing, certain photographs were also shown by the Revenue through video presentation that as on date, there is huge building standing on the said plot of land named as “AJL House” with two storey basement and nine storied building which has been rented to JSW Steel and other commercial entities by AJL. The total constructed area as on date is 1,01,920 sq. mtr. as per the information given by the AJL itself which is in the public domain. What is relevant is to note that the said land had always had a huge commercial value and later on, the AJL did made a huge commercial office complex which has been given on rent to big corporate houses. This shows that property had a huge commercial potential even for land usage on the date of valuation.

The AO has taken rate of Rs.1,91,100/- per sq.mtr. being the rate for land and building of the construction at the ground floor for commercial purpose use. One thing which is glaring and unfathomable to our prudence that, for open plot the value is shown at Rs. 66,000/- per sq. mtr and for construction of ground floor for commercial shop is. Rs.1,91,100/- per sq. mtr. It means the cost of construction is almost 3 times the land value which by any standard is unacceptable in normal circumstances in real estate. It is a matter of fact in prime locations the value of land is far more than the cost of construction. What is relevant to note here that the rate of open land has not been defined as per its usage or commercial potentiality. It has been mentioned as “open land”. This can be for either residential, institutional, schools, commercial or for many other usage. The value of the land is determined by its usage and its commercial potential. Here it is an undisputed that AJL’s land was for commercial purpose and in a very high potential commercial area. In fact, later on AJL has constructed a huge commercial 10 storied building and has given it on rent to big commercial establishments and corporate and one such portion has been given to JSW Steels. So even if it was an open land in the year 2011, then also on that day the land had huge commercial value and potentiality, therefore, it cannot be valued as just open land for any use as determined by DVO.

This also gets strengthen by the fact that in year 2013, AJL got permission to construct and build huge commercial building, which means that land had potentiality of high commercial value even in the year 2011. This factor has not been considered at all nor when at the time of inspection it was clearly visual that already a huge commercial building of 10 storied was on a verge of finishing which itself go to show that land was of high value.

Valuation is otherwise always an exercise of fair estimate taking into consideration the marketability of the property and potential of the property, area, usage and market demand especially in very high commercial zones where the property is situated. Thus, we are not agreeable to DVO’s valuation and AO was justified in rejecting the valuation of the DVO.

Calculation of cost of Construction Sl.No. Description Ground Floor of Floor Height 3.35 M 1 2 3 Floor Height 3.35

1 RCC Framed structure of floor 23500 height 3.35 Mtrs

(A) 23500 2 Add for services (a) Internal Electrical 2938 Installations @12.5% of (A).)

(b) Internal water supply & 940 sanitary Installations@ 4% (A). (c) External Services connections 1175 5% of (A). 3 Fire Fighting and alarm (d) Sprinkler with automatic 1250 alarm system 4 Total DPA Rates as on 29803 01.10.2012

Area of land including FSI = 6956 Sqm Assuming ground coverage 60% for proposed building, area of ground floor construction for commercial spaces = 4173.6 Sqm

S.No. Description Qty. Unit Rate Amount (in (in Rs.) Rs.) (A) Building (a) Ground Floor 4173 .600 Sqm. 29803 124383714 of Floor Height

3.35 M

Cost of construction at ground floor in 2012 = Rs.12,43,83,714 (Twelve Crore Fourty Three Lakhs Eighty Three Thousand Seven Hundred Fourteen)

Thus, cost of construction comes to Rs.12,43,83,714/-, say Rs. 12,50,00,000/-

However, we find that AO rejected this contention of the DVO looking to the fact that land in question was for commercial purposes and at a very high commercial value on which later on, huge commercial complex was built up running into 10 storied, therefore, such ad hoc deduction would not be applicable here. It may also be pointed out that while working out the cost of construction above, we have taken the area of the land @ 60% only for the reason that certain part of land may have to be left open for common facilities and activities. This deduction itself takes care of the objection.

(i) Delhi Property, 5A, Herald House, Bahadurshah Zafar Marg,

New Delhi, is valued at Rs.201.84 crores; (ii) Patna property is valued at Rs.4,90,89,795/-; (iii) Panchkula property is valued at Rs.32,25,60,000/-; (iv) Lucknow property is valued subject to our directions given to the AO; and (v) Mumbai property is valued at Rs. 120,44,44,480/- Accordingly, the aforesaid additions are confirmed.

GROUND NO.10

A careful scrutiny of the confirmation of creditors has revealed following important facts : • The letter dated 24.12.2010 did not bear address of creditors and even name of authorized signatory was not mentioned. The lender company gives a confirmation on a plain paper and does not seem to possess a letter head of its own. • Even PAN of the creditors was not mentioned in the letter. • The letter did not even bear the address of the assessee. • The advance of Rs. 1 crore was given only for the period of one year and loan was to be returned on 23.12.2011. However, the loan was repaid only in FY 2015-16 when the investigation proceedings were continuing and the assessee was confronted with the facts that M/s Dotex Merchandise Pvt. Ltd. was a paper company engaged in providing hawala entries. • The loan was subject to demand Promissory Note. However, no evidence that the assessee had actually issued demand promissory note was filed during the course of assessment proceedings. • As per confirmation, loan was given on 24.12.2010 by cheque, however, it is evident from the bank statement that the loan was credit 0 an a/c of the assessee only on 15.02.2011 and during the course of assessment proceeding the assessee had failed to explain if the loan was given as per confirmation through cheque on 24.12.2010 why it took 51 days to reach the assessee?

“It is evident from the audited P&L A/c and balance sheet as on 31.03.2011 that the assessee had claimed deduction of interest of Rs. 1,72,603/- in P&L A/c. However, the amount of Rs.1,72,603/- was disclosed as '''interest accrued" but not due on inter corporate loan under "Schedule 6 Current Liabilities & Provisions" of the balance sheet. During the course of assessment proceedings, no evidence that interest of Rs. 1,72,603/- actually paid to the creditors was filed except for an evidence of TDS of Rs. 17,260/- on 19.03.2012. It is pertinent to mention here that as per the copy of the confirmation, the assessee had agreed to pay interest @ 14% per annum to creditors. Accordingly, the interest of Rs. 3,50,000/- for the period from 24.12.2010 to 31.03.2.11 was required to be paid after deducting TDS of Rs. 35,000/- and as against the same the unproved claim of interest payment of Rs. 1,72,603/- was made along with claim of TDS of Rs. 17,260/-. In this context, scanned copy of balance sheet for the year under consideration is placed below.”

At no point of time, the appellant had furnished any evidence to prove the source of income and advance of loan of Rs.1 crore on 24.12.2010. Then he has referred to various case laws and judgments of Hon’ble Delhi High Court and has given his conclusion and analyzed in para 20.7 & 20.8. Accordingly, he has treated entire sum of Rs.1 crore as unexplained cash credit u/s 68.

Sr.No. Documents/Details Page No. i. Name, Address, PAN Page 244 of PB I ii. Company Identification Number, email id, Page 248, phone number, fax number of the lender. 247 of PB I iii. Letter from Dotex dated December 24, Page 246 2010 giving the said loan, which provides of PB I all the details of the loan such as date of taking loan, mode of payment, terms and conditions for taking loan and repayment thereof, etc iv. Confirmatory letter from Dotex dated May Page 247 2, 2011, confirming the balance of loan and of PB I outstanding interest as at March 31, 2011. v. Letter dated April 25, 2015 from Dotex Page 248 acknowledging the repayment and full settlement of the loan by the Appellant. of PB I vi. Copy of loan account as reflected in the Page 249 books of the Appellant of PB I vii. Form 16A issued in respect of TDS Pages deducted on the interest, Form 27A, 250-253 Quarterly statement of TDS and proof of of PB I deposit of TDS deducted for interest accrued for the year under consideration i.e. FY 2010-11. viii. Details of year wise interest accrued and Page 256- paid by the Appellant since inception till 261 of PB the date of repayment, along with the bank I statement showing payment of interest ix. Bank Statement showing the transaction of Page 277 loan of Rs. 1 Crore on 15.2.2011. of PB I x. Form 16A for all years Pages 262-274 of PB I xi. Notarized copy of promissory Note issued Page 713 by the Applicant to Dotex of PB II xii. Various communications between the Pages 714 Appellant and Dotex extending the term of to 724 of the loan from time to time. PB II xiii. Dotex Merchandise Private Ltd. Letter to Page 804- Young Indian with Envelope 805 of PB II

While coming to this conclusion, various allegations have been made by the AO, which have also been relied by the Ld. DR. The said allegations and the Appellant’s reply thereto has been illustrated before us in the following manner:

AO’s allegation Appellant’s reply The letter dated 24.12.2010 There is no legal requirement from Dotex (page 246 of PB I) that the letter issued by the did not bear the address and lender should mentioned the PAN of the creditor (Appellant) address and PAN of the and that the name of the borrower. The PAN and authorised signatory was not address of the lender has mentioned in the letter – page anyways been provided to the 89, para 20.1 of the AO. The subsequent letters assessment order submitted in the same reply in fact bears the address and other details of the lender. The confirmation letter of Dotex Confirmation letter is at page is on plain paper and does not 247 of PB I. It clearly bears seem to possess a letter head letterhead. of its own. (Page 91 of the assessment order) Even though the loan was for The Appellant had during the only 1 year, the loan was reassessment proceedings, in repaid only in FY 2015-16, its reply dated June 7, 2017 when the investigation clearly stated that even though proceedings were continuing the loan was initially taken and the Assessee was was one year, the term of the confronted with the facts that loan was extended from time to Dotex was a paper company time (Page 244 of PB I). Hence, engaged in hawala entries. the allegation of the AO that (Page 91 of the assessment repayment of loan in FY 2015- order) 16 was in violation of the terms of the loan is without any basis. In fact, even though the principal amount of the The AO has further alleged that loan was repaid by the the Appellant has claimed Appellant in FY 2015-16, the taking loan of Rs. 1 crore from Appellant had been timely Dotex on 15.02.2011 which has paying the lender the interest not returned back till on the loan. The chart of investigation against the payment of interest by the assessee on this issue was Appellant to the lender was completed and no interest was paid on such loan till also submitted to the AO vide letter dated June 13, 2017. investigation had reached (Page 254 of PB). Hence, with finality. (Para 8.10, Page 30 of this understanding between the order). the Appellant and the lender, the question of the lender taking any adverse action He also states that non- against the Appellant on repayment of loan and interest violation of terms of the loan were violation of terms of loan, does not arise. Various for which surprisingly no action communications between the was taken by the lender. (Page Appellant and Dotex extending

33 of the order). the term of the loan from time to time has been submitted during CIT(A) proceedings (Page 714 to 724 of PB II). The AO has stated that the Hence, the hypothesis of the Appellant has not paid any AO that the Appellant had interest on loan until completion repaid the loan only when it of investigation against it and was confronted about the that no reasonable explanation transaction is a misbelief and was given for not repaying unproved allegation. within one year as was initially agreed between the parties. He indicates that such non- payment amounts to violation of terms of loan for which the lender should have taken actions. (Page 33 of the order). The loan was subject to The Appellant had issued the demand promissory note. demand promissory note to the However, no evidence that the lender in accordance with the assessee had actually issued terms of the loan. The AO demand promissory note was never asked the Appellant to filed during the course of submit said promissory note assessment proceedings. (Page during the reassessment 91 of the assessment order) proceedings. Hence, the question of the Appellant submitting the same to the AO did not arise. Copy of the same is provided as additional evidence to CIT(A). Page 713 of PB II As per confirmation, the loan The AO has not asked this was given on 24.12.2010 by specific query to the Appellant cheque, however, it is evident during the reassessment from the bank statement that proceedings. Accordingly, the the loan was credited to the question of the Appellant giving bank account of the assessee any explanation in this respect only on 15.02.2011 and during does not arise. The Appellant the course of assessment was incorporated only in AY proceedings the assessee had 2011-12 on November 23, failed to explain if the loan was 2010. Accordingly, the bank given as per confirmation account of the Appellant could through cheque on 24.10.2010 not be opened before February why it took 51 days to reach 2011. It is for this reason that the assessee? (Page 91 of the the cheque could be encashed assessment order) only on February 15, 2011. This is also clear from the bank statement already submitted to the AO vide submission dated June 13, 2017. TDS on interest for AY 2011-12 The Appellant had deposited was paid in FY 2015-16 (Para said TDS in FY 2011-12 itself 20.2 page 91 of the assessment along with interest. (Page 250- order 253). Said documents were available even with the AO. Interest on loan was also not Bank statements showing all paid by the Appellant. No proof payments of interest since of payment of interest has been inception was provided to the submitted by the AO vide letter dated June 13, Appellant(Para 20.2 page 91 of 2017. Page 256- 261 of PB I. the assessment order) Hence, this statement of the AO is incorrect. Interest amount for AY 2011-12 The loan of Rs. 1 crore was @ 14% should be Rs. 3,50,000, received by the Appellant on as against which ‘the unproved 15.2.2011. Accordingly, claim of interest payment of Rs. interest for the period 1,72,603 has been made by the 15.2.2011 to 31.3.2011 (45 assessee’. (Para 20.2 page 91 days) on Rs. 1 Crore at 14% works out to be Rs. 1,72,603/- of the assessment order) (1,00,00,000*14%*45/365), which is the amount accrued as interest payable for AY 2011-12. TDS was also deducted on the same and the sum was paid through banking channel. (Page 256 read with page 257 and 250 of PB I) For AY 2012-13 and AY 2013- From the details submitted 14, the balance sheet disclosed (vide letter dated June 13, amount of ‘interest accrued but 2017) it is clear that out of Rs. not due on inter corporate loan’ 14,00,000/- for both the years, at Rs. 1,55,343/-, where the the Appellant had paid interest interest claimed in profit and of Rs. 11,04,657/- vide loss account is Rs. 14,00,000/-. cheques dated 25.03.2012 and (page 92 of the assessment 20.12.2012, respectively and order, last para) accordingly, it is for this reason that only balance amount of Rs. 1,55,343/- was appearing as outstanding in the books of the Appellant for these two years. Only part evidence of TDS were The Appellant has filed the filed and no evidence regarding bank statements evidencing payment of interest to the payment of interest for all the creditor. (Page 93 of the order, years (Page 256 to 261 of PB first para) I). Also form 16A issued by the Appellant have been submitted to the AO. (Page 262 to 274 of PB I). Hence, this is statement is untrue. The assessee did not file The Appellant has filed the confirmation of the creditors confirmation from Dotex that it had actually received the regarding repayment of loan interest. along with interest (Page 248 of PB I). Further, the bank statements furnished by the Appellant are sufficient proof to indicate that the interest 177 3 Mr. R. P. Goenka, the founder of the RPG group, was a member of the Rajya Sabha for many years. was actually paid by the Appellant. In fact, from the perusal of the bank statements, it would be noted that the entries itself disclose Dotex as the payee. The Appellant has not paid The allegation of the AO is interest for the year under baseless and incorrect. As per consideration, but as soon as AO, the investigation against the investigation started the Appellant had started on against the assessee on 1.11.2012. As against this, as 1.11.2012, it had deducted per the details provided to the TDS on some amounts and AO, which is backed by the ultimately returned the loan evidentiary documents, just to cover its track. (Page 93 interest for AY 2011-12 was of the order, 2nd para) paid by the Appellant on 25.03.2012 (Page 256 of PB I), which is way before the initiation of investigation. Also, TDS on said amount was deducted and deposited with the Department on 19.3.2012 along with applicable interest aggregating to Rs. 19,849(Page 253 of PB I). The loan was in fact interest As explained above, the said free loan till investigation allegation is based on only started by the Income Tax conjecture and surmises and is Department in the year 2012 without any basis. (Page 33 of the order) The AO has observed that the The Appellant is a section 25 loan of Rs. 1 crore was given to company with charitable a newly incorporated company objects Further, the lender with a small capital base of Rs. company, Dotex is a part of 5 lac, without any guarantee. RPG group of companies, a (Para 8.10, page 30 of the reputed business house. order) Hence, it is not surprising that the RPG3 group with a view to support the objects of the Appellant agreed to advance loan to the Appellant. Indeed, in terms of letter dated 24.12.2010, the Appellant has provided on demand promissory note to the lender as a reassurance towards repayment of loan. The AO has relied on some Firstly, the Appellant has not purported internal investigation been provided a copy of any report in relation to Dotex and such investigation report stated that ‘it is undisputed alleging foregoing points for its fact that Mr. Sunil Bhandari consideration and and Mr. Sunil Sanganeria were submissions. It is settled law not only directors of M/s Dotex that the information gathered Merchandise Pvt. Ltd. but were behind the back of the directors of 50 other Kolkata assessee cannot be used based companies. Many of against him unless and until these companies have been an opportunity of rebutting the found engaged in the business same is given to the assessee. of providing accommodation See: PCIT vs. Laxman entries as notice during the Industrial Resources Limited course of survey by the Income (397 ITR 106)(Del)(Page 151- Tax Department’. (Para 8.10, 155 of LPB X). Page 30 of the order). At page 33 of the order, he further states that the copies of bank In fact, even the Hon’ble CIT(A) account of companies controlled has not alleged that Dotex is a by above referred assessee had paper company and not relied proved that these companies on any such investigation were engaged in business of report in the appellate order, accommodation entries and rightly so, since in typically contains deposit of absence of said report on cash and issue of cheque of record and without providing equivalent amount. the same to the Appellant was its comment, the same cannot be relied by the Revenue. Further, for the year under consideration Dotex is RPG group company and accordingly, the allegations of the AO based on the premise that said company belonged to persons who were involved in providing accommodation entries is completely misleading. The facts relied by the AO is contrary to the facts placed on record by the Appellant. The AO has applied the general reports relating to certain group of companies to Dotex. He has referred to the bank accounts of certain companies controlled by abovementioned individuals to conclude that even Dotex was engaged in the same activity, without providing any factual proof that even Dotex was engaged in said activities. It is humbly submitted that merely because some companies have been found to be engaged in accommodating entries activity does not automatically lead to the conclusion that even Dotex was engaged in said activities, much less does it prove that the loan taken by the Appellant fell is that category. From the assessment order, it not clear that said report also gave any specific findings in respect of Dotex. The AO has merely cursorily referred to said report to say that similar companies have been found to be engaged in accommodating entries activity. Further, even the STR report was not shared with the Appellant. It has now been filed by the Ld. DR. However, on perusal of the same, nothing turns even from the STR report.

(i) Ranchood Juvabhai Nakhava 21 taxmann.com 159 (Guj.) (ii) Dwarkadhish Investment Pvt. Ltd. (330 ITR 298)(Del.) (iii) CIT vs Value Capital Services (P) Ltd (307 ITR 334) (Del) (iv) CIT v. Kamdhenu Steel and Alloys Ltd (361 ITR 220)(Del), SLP dismissed vide order dated 17.09.2012 (SLP No. CC 15640/ 2012) (v) CIT v. Gangeshwari Metals (P) Ltd. (361 ITR 10)(Del) (vi) ACIT v. Shyam Indus Power Solutions (P.) Ltd. (90 taxmann.com 424)(DelhiT) (vii) CIT v. Pragati Co-operative Bank Ltd. 278 ITR 170 (Gujarat

(i) Suraj Mall Mohta and Co. v. A.V. Visvanatha Sastri [1954](26 ITR 1)(SC) (ii) Dhakeshwari Cotton Mills v. CIT [1954](26 ITR 775, 783) (SC) (iii) PCIT vs. Laxman Industrial Resources Limited (397 ITR 106)(Del

“7.28 During the hearing, the Ld. DR has relied on the order of the AO and stated that since as per the investigation report, Dotex is a paper company, the addition made by the AO should be upheld. However, it would be appreciated that after the order of the Hon’ble CIT(A), the order of the AO is now merged with that of the appellate order and on perusal thereof, it would be noted that the whole theory of Dotex being a paper company finds no place in the order of CIT(A) and rightly so, as the investigation report is not even on record. The Hon’ble CIT(A) has dealt with the issue as to whether the Appellant has discharged its onus; however, it makes no reference to any investigation report nor does it go into the issue as to whether Dotex is a paper company or not. At para 5.5.14, the Hon’ble CIT(A) mentions that Dotex is a dummy company, but the said statement is based on the financial statements of Dotex and not the allegations of certain entry operators managing the company, etc. as alleged by the AO. Accordingly, it is submitted that the entire allegation of Dotex being a paper company no more survives in the present case.

7.29 The Ld. DR has referred to a decision of the Kolkata ITAT in case of DCIT vs. Dotex Merchadise Pvt. Ltd. (I.T.A. No. 1602/Kol/2016) to support his contention that Dotex is a paper company. He has referred to the reasons recorded by the AO in that case, which is reproduced at Para 6 of the order to state that even in Dotex’s own case, the reasons recorded mentions it to be a paper company. The Ld. DR has further mentioned that the AR in that case has relied on the said reasons. In this regard, it is firstly submitted that the Ld. DR has erred in passing the reasons recorded in the said decision as facts. The said decision cannot be relied upon by the Ld. DR, since the facts mentioned in the reasons recorded by the AO for reopening of the assessment, are at best, only allegations and the same have not even been subject to any verification since the reassessment itself was quashed by the ITAT. Hence, the reasons mentioned in the said decision are wholly irrelevant as one cannot rely upon reasons recorded which have not even culminated into assessment.

7.30 The Ld. DR has also erred in stating that the AR in that case has relied on the reasons recorded. As is clear from the starting line of Para 6, the AR in that case has relied on the order of the CIT(A) who has quashed the reassessment and not the reasons recorded by the AO. It is accordingly submitted that reliance of the Ld. DR on the said decision is entirely misplaced.

7.31 Be that as it may, the Appellant also submits that the alleged facts mentioned in these reasons (para 6 of the ITAT order) are that:

(i) Dotex was registered as paper/shell company by an entry operator named Shri Binod Kumar Jaiswal. (ii) In 2005, this company was purchased by one Shri Uday Shankar Mahawar, another entry operator. (iii) In March, 2010, Shri Mahawar sold this company to the RPG group and Shri Rajendra Jha and Shri Sunil Bhandari who are the employee of the RPG Group become the directors of M/s. Dotex Merchandise Pvt Ltd. (iv) Even Shri R. P. Goenka himself was the director of this company from 12/10/2011 to 28/03/2013. 7.32 As against the above, the allegations of the AO in the present case, at page 88 of the assessment order, para 18 is that Dotex was one of more than 50 paper companies floated, controlled and used by Mr. Sunil Bhandari and Mr. Sunil Sanganeria to provide accommodation entries.

7.33 On comparison of the two allegations, it is clear that allegations of the AO in this case are different from the allegations which were made by the AO in Dotex’s case. Different persons have been identified by both the AOs as the persons who floated and controlled the company. Mr. Sunil Bhandari is alleged to be an entry operator by the AO, whereas in the Dotex’s reasons, he is mentioned to be an employee of RPG Group. These discrepancies and contrary allegations, clearly show that the allegations based on which the AO has treated Dotex as paper company in the present case, especially without providing the copy of the investigation report to the Appellant, cannot have any validity.

7.34 Besides, in the reasons quoted in Dotex’s order, it is also mentioned that RPG Group acquired this company in March 2010. As against this, the Appellant has taken the loan from Dotex in December 2010 and the cheque was enchased in February 2011. Hence, it is submitted even if the company was a paper company in earlier years, it is clear that at the time the Appellant took loan from this company it was an RPG Group company. It is submitted that RPG, being a well wisher of the Appellant, has agreed to provide this loan to the Appellant. In fact, the reasons in Dotex’s order even state that Mr. RPG himself for the director of this company from 2011 to 2013. It would be appreciated that even during this period, the loan taken by the Appellant was subsisting and renewed time and again by Dotex. It is submitted that regardless of the past of the Company, which too is not substantiated, it is clear that for the years under question, this company did not belong to any entry operators. It belonged to the RPG Group, in which even Mr. RPG became a director. Accordingly, it is submitted that the entire basis on which the section 68 addition has been made by the AO is untenable.

7.35 The learned DR has further stated that from the letters of Dotex, it is not clear as to who is the signatory signing the documents, which creates doubt about the veracity of the documents. In this regard, if the identity of the signatory was an important basis for the AO to verify the documents, the AO ought to have sought the said information from Dotex before summarily discarding the same. It is certainly not in the hands of the Appellant to provide that information. Besides, it is not clear as to how just that information could change the view of the AO when the Appellant has already provided everything it could in respect of the loan transaction. What advantage would the Department get if it got the name of the signatory. The Appellant has cited above plethora of decisions where it is settled that after the details are already provided by the assessee, the Department should have enquired with the lender. Without actually undertaking the said process, the AO is not justified in making additions based on mere conjectures and surmises.

7.36 The Ld. DR has further pointed out that from the Balance Sheet of Dotex, it is clear that it has only interest income, which shows that it was not engaged in the any business. It is submitted that the said argument is untenable. There is no general rule that every company which interest company automatically becomes a paper company. If such conclusions are drawn, then all the banks and finance companies would be looked at as paper/shell companies. In fact, from the Financials of Dotex, it is clear that it has earned taxable income and it is a tax paying company.

7.37 The Ld. DR has further stated that merely because the payments were made and received in cheque/banking channels is not enough for determining the genuineness of the loan. It is submitted that in the present case, the Appellant has not only shown that the payments have been made through banking channels but has also produced all the documents on record which demonstrate the identity, genuineness of loan and credit worthiness of the lender. However, the AO has completely ignored all the evidence.

7.38 The Ld. DR. has for this proposition relied on the decision of the Supreme Court in PCIT vs. NRA Iron and Steel Pvt. Ltd (2019)(15 SCC 529). However, in the said decision, it would be observed that the AO had made independent and detailed enquiry, including survey of the investors to verify the credit worthiness of the parties and based thereon arrived at the conclusion that they were non-existent or lacked credit worthiness (Para 11 of the order). However, in the present case, it is clear that the AO has not made any enquiry whatsoever. Hence, without taking proper steps, the AO cannot now discard the evidences filed by the Appellant by stating that merely because the payments are made through banking channel, it is not sufficient evidence.

7.39 The Ld. DR has further stated that even if RPG Group had taken over the company, it does not matter. In this regard, it is submitted that the said fact matters because it directly discredits and contradicts the allegation of the AO that the Company was owned by two entry operators. The company may or may not have been owned by entry operators in the earlier years; however, it is clearly on record that for the year in which loan was taken by the Appellant, this was an RPG group company and not a company belonging to the two operators referred to by the AO. In any case, even if these facts do not matter, it is not clear as to what more could the Appellant have provided to the AO to convince him that this is a genuine loan.

7.40 The Appellant has met each and every allegation of the AO with respect to the documents filed by it. As pointed out above, all the allegations of the AO about it not deducting TDS, or not paying interest, on making payments only after investigation started etc. are factually incorrect. None of these facts have been controverted by the Ld. DR and the only argument is that Dotex is a paper company, which too is not supported by any document.

7.41 It is accordingly submitted that the addition made by the AO u/s. 68 is completely baseless and ought to be deleted. In view of the foregoing, the Appellant humbly submits that the addition u/s. 68 ought to be deleted.”

GROUND NO.11

REVENUE’S CONTENTIONS

S.No. Evidence produced by Observations of the JAO the Appellant/Claim of the Appellant • A careful scrutiny of the a. A copy of letter confirmation of creditors addressed to the has revealed the Appellant without following important even mentioning factors: - address of the • The letter dated Appellant, that it had 24.12.2010 neither advanced a loan of Rs. bore the address of the 1 crore for a period of creditors nor the name of the authorized one year on interest at signatory was 14% per annum, mentioned. The lender through banking company gave channels. confirmation on a plain paper and did not possess a letter head of its own. • Even the PAN of the creditor was not mentioned in the letter. • The letter did not even bear the address of the Appellant. • The advance of Rs. 1 crore was given only for a period of one year and loan was to be returned on 23.12.2011. However, the loan was repaid only in F.Y. 2015-16 when the investigation proceedings were continuing and the Appellant was confronted with the facts that Dotex was a paper company engaged in providing hawala entries. • The loan was subject to demand Promissory Note. However, no evidence that the Appellant had actually issued demand promissory note was filed during the course of assessment proceedings. • As per confirmation, loan was given on 24.12.2010 by cheque, however, it was evident from the bank statement that the loan was credited to the bank account of the Appellant only on 15.02.2011 and during the course of assessment proceeding the Appellant had failed to that explain if the loan was given as per confirmation through cheque on 24.12.2010, why it took 51 days to reach the Appellant. • In view of the above peculiar facts of the case emerging from the confirmation letter, the claim of the Appellant that the creditors had confirmed advancing loan of Rs. 1 crore stood rejected due to lack of genuineness. • On examination of this b. Claim that it had paid claim of the Appellant interest at the rate of with reference to the 14% per annum of audited Profit and Loss alleged loan to the Account and Balance creditors which was Sheet, the following evident from the fact important findings came that: - to light: - • It was evident from the • It had deducted and audited Profit and Loss paid TDS of Rs. Account and Balance 17,260 on interest Sheet as on during F.Y. 2015- 31.03.2011 that the 16. Appellant had claimed • The interest was deduction of interest of paid till the loan Rs. 1,72,603/- in was returned to the Profit and Loss creditors on Account. However, the 24.05.2015 (F.Y. amount of Rs. 2016-17). 1,72,603/- was disclosed as ‘Interest

Accrued’ but not due on inter-corporate loan under ‘Schedule 6- Current Liabilities and Provisions’ of the balance sheet. During the course of assessment proceedings, no evidence that interest of Rs. 1,72,603/- actually paid to the creditors was filed except for evidence of TDS of Rs. 17,260/- on 19.03.2012. It was pertinent to note that as per the copy of the confirmation, the Appellant had agreed to pay interest at 14% per annum to the creditors. Accordingly, the interest of Rs. 3,50,000/- for the period from 24.12.2010 to 31.03.2011 was required to be paid after deducting TDS of Rs. 35,000/- and as against the same unproved claim of interest payment of Rs. 1,72,603/- was made along with claim of TDS of Rs. 17,260/-. • Scrutiny of audited Profit and Loss Account and Balance Sheet for A.Y. 2012-13 and 2013- 14 revealed that the Appellant had disclosed” Interest accrued but not due on inter corporate loan” of Rs. 1,55,343/- , however, interest of Rs. 14,00,000/- was claimed as deduction in Profit and Loss Account. • The only part of evidence of some of the TDS were filed and no evidence regarding payment of interest to the creditors were filed. The Appellant did not file confirmation of the creditors that it had actually received the interest. • It was thus amply clear from the evidence as filed by the Appellant that in contravention to the terms and conditions of the alleged confirmation, the Appellant had not paid interest at 14% per annum during the year under consideration but as soon as investigation started against the Appellant on 01.11.2012, it deducted TDS on some amounts and ultimately returned the loan just to cover its track. However, no evidence that interest was actually received by the creditors was filed. • The investigation started c. The claim that latter against the Appellant on return of impugned 01.11.2012 by filing a loan (taken on petition before the 24.12,2010) during Metropolitan Magistrate F.Y. 2015-16 was and all the act whether sufficient to prove the deduction of TDS on genuineness of the interest on loan or loan transaction. return of loan after a gap of 5 years to a shell company located in Kolkata were events as sequel to the investigation. During the course of the assessment proceedings, the Appellant did not furnish any evidence to prove that the creditors had explained source of income to advance a loan of Rs. 1 crore on 24.12.2010 which was a crucial evidence in discharging the onus of the Appellant under Section 68 of the Act.

“Information has been received from the Director of Income Tax (Investigation), Kolkata that a survey operation u/s 133A of the Income Tax Act, 1961 was conducted in the case of Dotex Merchandise Pvt Ltd, and Uday Shankar Mahawar on 22/08/2014 at 12, Ho Chi Minh Sarani, Kolkata-71. It has been gathered through statements and findings of the survey proceedings and post survey investigation that Shri U. S. Mahawar is a bogus entry operator, who provides entry accommodation in the form of bogus billing, bogus unsecured loan, bogus share capital in lieu of commission. He also used to form shell companies and used to sell them after raising huge bogus share capital in them. For doing all these activities he earns cash commission from clients. In his statement recorded during the course of survey, Shri U. S. Mahawar stated that the Dotex Merchandise Pvt. Ltd. Was registered in 1994 as paper/shell company by an entry operator named Shri Binod Kumar Jaiswal. Initial capital was only Rs. 5 Lakh with 4,95,200 shares of face value Rs. 1 issue at par. In 2005 this company was purchased by one Shri Uday Shankar Mahawar, another entry operator. In 2005, further 3,56,000 shares of face value Rs. 10/- were issued at a premium of Rs. 90/- per share and on paper Rs. 3.56 crore was raised. This was again only on paper as the subscribers were only other paper companies of Shri Mahawar and the subscription was through circular transactions. In March, 2010 again 12,08,000 shares of FV Rs. 10 were issued at a premium of Rs. 240/- per share and nearly Rs. 31 Crore was raised by the same modus operandi. After this issue the net worth of the company became Rs. 34.52 Crores. Thereafter, in March, 2010 Shri Mahawar sold this company to the RPG group and Shri Rajendra Jha and Shri Sunil Bhandari who are the employee of the RPG Group become the directors of M/s. Dotex Merchandise Pvt. Ltd. It is also found that from 12/10/2011 to 28/03/2013 Shri R. P. Goenka himself was the director of this company. After RPG group purchased this company, entire shareholding was bought back by two companies of RPG namely, Solty Commercial Pvt Ltd and Ritushri Vanijya Pvt Ltd. As expected after the purchase by Sanjeev RPG group, the investment worth Rs. 34 Crores in paper companies shown in the balance sheet of M/s. Dotex Merchandise Pvt Ltd, were sold on paper to the paper companies of Shri Mahawar and sale proceeds was credited in the bank account of Dotex Merchandise Pvt Ltd. As is clear from the statement of Shri Mahawar that the source of the sale proceed is cash provided by Sanjeev RPG Group to Shri Mahawar, who has routed it through different layers of paper companies and cheques have finally gone from paper companies of Shri Mahawar to Dotex Merchandise Pvt Ltd. Thus there is reason to believe that the income of the assessee company amounting to Rs.34 crores has escaped assessment for the assessment year 2010-11. Proceedings u/s 147 is initiated, issue notice u/s 148 for the assessment year 2010-11.”

companies of Sh. Mahawar and sale proceeds were credited in the bank of Dotex. • Sh. Mahawar stated that source of sale proceeds is cash provided by Mr. Sanjeev of RPG Group to Sh. Mahawar who routed it through different layers of paper companies.

The appellant has not been able to discharge the onus that the nature of transaction and mode and manner in which it has been executed and the surrounding circumstances do not establish that Dotex has creditworthiness and transaction was genuine and following facts need to be taken into consideration while adjudicating this issue :- • The Appellant company had just been incorporated and had a meagre share capital of Rs. 5 lakhs. • It is not the case that the creditor was known to the Appellant company or was a part of its group. • Dotex is not into financing or money-lending business. It has no source of income nor any business operations and still the suggestion is that they gave a loan of Rs. 1 crore to the Appellant without any corresponding security, particularly when the money was being advanced to a Section 25 company which had no activity whatsoever, except raising this loan. • It doesn’t stand to reason as to how a Section 25 company, incorporated in Delhi, within a few days of its incorporation, approaches a company located in another part of the company for a loan of Rs. 1 crore and the said company agrees to give the loan without any security or any risk mitigating factor. • This loan continued for a period of 5 years without any voice being raised by Dotex at any time for re-payment of the said loan. • The A.O. has categorically observed that while TDS was deducted, there is no proof that any payment was made to the creditor i.e., Dotex. If no amount was paid, but only tax was deducted, this clearly shows that it is a make-believe affair. TDS then remains only a creation for establishing the genuineness of the loan which was not otherwise genuine. • It is very interesting to note that Dotex gives a cheque on 24.12.2010 when the Appellant did not even have a bank account. The cheque was encashed only in the month of February, 2011. The date of the cheque of December, 2010 becomes important because that was the point of time when the receivables in the books of AICC were assigned to the Appellant. • There is no entry of interest in the ledger account of the Appellant.

• The mere fact that payment was made by cheque, by no means can be held to be conclusive. Reference in this regard is placed on the decision of Income-Tax Officer, Ward 1, Division 1, Ernakulam v. Diza Holdings (P.) Ltd., (2002) 255 ITR 573- Para 7.

DECISION ON GROUNDS NO.10, 11 & 14

 Thirdly, Assessing Officer should confront all the information and material gathered and communicated by the Investigation wing including STR report to the appellant; and; enquiry and lead all such evidence as they consider necessary to establish the credentials and the genuineness of the transaction in support of their explanation given before us.

GROUND NO.13

GROUND NO.14

GROUND NO.15

GROUND NO.16

Order was pronounced in open court on 31st day of March, 2022.