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Facts
The assessee sold shares of UEM India Pvt. Ltd. to Toshiba Corporation and declared long-term capital gains. The AO reopened the assessment, treating the sale of shares as a sale of underlying assets and proposed an addition. The dispute involved the recharacterization of the transaction and the valuation of shares.
Held
The Tribunal held that the reassessment proceedings were initiated on a valid change of opinion based on information received from DIT(System) and not merely on borrowed satisfaction. However, it found that the AO erred in recharacterizing the transaction from a sale of shares to a sale of assets and in invoking Section 50 of the Income Tax Act.
Key Issues
Whether reassessment proceedings were validly initiated on a change of opinion? Whether the transaction was a sale of shares or sale of underlying assets? Whether Section 50 and Section 50CA were applicable for computation of capital gains?
Sections Cited
143(3), 147, 148, 144C, 151, 234A, 234B, 234C, 271(1)(c), 142A, 50, 50CA, 48, 11UA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: SH. C.N. PRASAD & SH. NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
These three appeals by the three different assessees are directed against the order of the Dispute Resolution Panel-2 (in short “DRP-2”), vide order dated 20.04.2023 pertaining to A.Y. 2016-17 arises out of the assessment orders dated 23.05.2023 of the Income–tax Act, 1961 [hereinafter referred as ‘the Act’].
2. Since common issues are involved in the captioned appeals they were heard together and are disposed of by this common order for the sake of convenience and brevity. It was agreed by all the party that the Page 3 of 37 equally applicable to the other case also as the facts are pari materia.
2.1. The assessee Sangita Kshetry has raised the following grounds of appeal in her appeal ITA No.1876/Del/2023:
1. That, in view of the facts and circumstances of the case and in law, the final assessment order passed by the Assessing Officer ("AO") dated 23.05.2023, the directions issued by the Dispute Resolution Panel ("DRP") dated 20.04.2023 and the draft assessment order dated 24.09.2022 passed under the provisions of the Income Tax Act, 1961 ("the Act") for Assessment Year ("AY") 2016-17 and also the addition made therein is illegal, bad in law, without jurisdiction and void ab-initio. The addition/disallowance made is erroneous, unjustified and illegal.
That, in view of the facts and in the circumstances of the case and in law, the order passed by the AO, the directions of the DRP and the draft assessment order are illegal, bad in law, without jurisdiction as the mandatory procedure and process of law as prescribed under the Act has not been followed. Challenging Section 148 proceedings 3. That in view of the facts and circumstances of the case and in law, the notice dated 31.03.2021 issued under Section 148 of the Act is illegal, bad in law, without jurisdiction, time-barred, and liable to be quashed. 4. That in view of the facts and circumstances of the case and in law, the reassessment proceedings are illegal and bad in law as the issue and the transaction has already been examined in detail during the original scrutiny assessment and all documents are filed and the returned income stood accepted for the relevant AY and as such the Page 4 of 37 AY2016-17 Sangita Kshetry &Oths Vs ACIT Circle – Int. Tax. 2 (1)(2) New Delhi entire proceedings are a clear case of 'change of opinion' which is not permitted in law.
5. That, in view of the facts and circumstances of the case and in law, no reassessment proceedings are permitted in law without there being any new/tangible material on record and as such, the same is not available in the present case. It is only an attempt to review/re- examine and re-appreciate the documents already on record, which is not permitted.
That in view of the facts and circumstances of the case and in law, the issuance of notice under Section 148 and reassessment proceedings are illegal and bad in law as there is a clear violation of the mandatory and binding Circular/Instruction dated 04.03.2021 as modified on 12.03.2021. Thus, the proceedings and the subsequent actions/orders are illegal and liable to be quashed.
7. That in view of the facts and circumstances of the case and in law, the entire reassessment proceedings are void as the approval under Section 151 of the Act is illegal, bad in law, mechanical and without application of mind. The approval is not in accordance with law. Violation of Circular No. 19/2019 8. That in view of the facts and circumstances of the case and in law, the notices/orders/directions are illegal, bad in law and without jurisdiction in particular the DRP directions, as the same have been issued in violation of the Central Board of Direct Taxes' (CBDT) Circular No. 19 of 2019 dated 14.08.2019. Hence, the notices and the corresponding directions and assessment orders are liable to be quashed. Reference to DVO illegal 9. That in view of the facts and circumstances of the case and in law, the AO has erred on facts. and in law, in making a reference to the Valuation Officer. The reference is not warranted on the facts of the present case. Hence, the reference is illegal and thus the corresponding proceedings and also the impugned orders including the final assessment order is barred by limitation.
Page 5 of 37 AY2016-17 Sangita Kshetry &Oths Vs ACIT Circle – Int. Tax. 2 (1)(2) New Delhi 10. That in view of the facts and circumstances of the case and in law, the AO had no jurisdiction to refer the matter to the DVO as Section 142A is not applicable in the facts of the present case. Furthermore, admittedly till date there is no report submitted by the DVO and thus the proceedings are time barred. In any case, in the absence of the report of the DVO, the addition made in the assessment order and the proceedings are also illegal. On merits also, no addition is called for 11. That, in view of the facts and circumstances of the case and in law, the AO/DRP has erroneously considered the Assessee and Toshiba to be 'related parties for the purpose of the Act. The same is factually incorrect.
That, in view of the facts and circumstances of the case and in law, the AO/DRP failed to appreciate that the sale price of the shares was determined using the formula defined in the Shareholding Agreement ('SHA') (entered between unrelated parties) after exercising the put option and not the Discounted Cash Flow (DCF) methodology which the AO has challenged.
13. That, in view of the facts and circumstances of the case and in law, while the AO has on one hand challenged the Valuation report/DCF methodology applied by the Assessee on the other erroneously/mistakenly taken the 'Total Capitalised Value' Rs. 484.13 crores (arrived at in the same valuation report itself) as the value of underlying assets purported to be sold. Hence, the AO's approach in itself is erroneous, self-contradictory and suffering from mistake apparent on the face of the record.
14. That in view of the facts and circumstances of the case and in law, the AO/DRP has erred in not appreciating that this is a case of long- term capital gains arising on sale of capital asset and AO/DRP has erred in summarily and arbitrarily rejecting the valuation report. The AO/DRP has also erred in computing short term capital gains by wrongly taking the full value of the consideration and reducing cost of Page 6 of 37 AY2016-17 Sangita Kshetry &Oths Vs ACIT Circle – Int. Tax. 2 (1)(2) New Delhi acquisition. This action of the AO/DRP is illegal and not in accordance with law.
15. That in view of the facts and circumstances of the case and in law, the AO/DRP has erred in not appreciating that the Assessee sold its share in UEM India Pvt. Ltd. to Toshiba Corporation, during the year under consideration. The entire share in the nature of investment was sold by the Assessee and not the underlying assets as contended by the AO/DRP and hence Section 50 is not applicable. The AO/DRP has erred in not appreciating the transaction and has grossly erred in recharacterizing it.
16. That, in view of the facts and circumstances of the case and in law, the AO/DRP has erred in not appreciating that the deeming provisions under Chapter IV are not applicable which allow AO to determine the Fair Market Value ('FMV') of unquoted shares for the purpose of computation of capital gains.
17. That in view of the facts and circumstances of the case and in law, the AO/DRP has erred in not appreciating that the Assessee is not liable to tax as short-term capital gain as this is not a case of sale of underlying assets owned by the Company. The Assessee has not transferred depreciable assets and has never claimed depreciation as well. The Assessee was not the owner of such assets and was not even entitled to claim depreciation.
18. That, even otherwise, the holding period, the full value of consideration and cost of acquisition are all wrongly considered and illegally computed by the AO/DRP. The capital gains so computed by the AO/DRP is not in accordance with law. Other grounds 19. That in the view of facts and circumstances of the case and in law, the documents, explanations filed by the Assessee and the material available on record has not been properly considered and judicially interpreted and has been wrongly ignored. The addition made, thus is based on surmises and conjectures and therefore, illegal, bad in law and unjust.
Page 7 of 37 AY2016-17 Sangita Kshetry &Oths Vs ACIT Circle – Int. Tax. 2 (1)(2) New Delhi 20. That in view of the facts and circumstances of the case and in law, the AO/DRP has erred on facts and in law in making the addition without giving adequate and reasonable opportunity and to enable the Assessee to represent the case properly.
21. That in view of the facts and circumstances of the case and in law, the AO/NFAC has erred on facts and in law, in charging interest under Section 234A, 234B, 234C of the Act. The interest has been also wrongly worked out. The AO has also erred on facts and in law in initiating the penalty proceedings under Section 271(1)(c) of the Act. The Assessee craves leave to add to, alter, amend and/or withdraw any ground or grounds appeal either before or during the course of hearing appeal. Synopsis
The representatives of both the sides were heard at length, the case records carefully perused and we have duly considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules.
Brief facts of the case is that the assessee Mrs. Sangita Kshetry is a senior citizen and is a tax resident of the United States of America. The assessee, during the previous year 2015-16, relevant to Assessment Year 2016-17, sold 5,74,418 shares held by her in M/s UEM India Pvt. Ltd. for a total consideration of Rs. 14,25,24,594.16, at a price of Rs. 248.12 per share, to Toshiba Corporation, a tax resident of Japan, and declared long
Page 8 of 37 income for the A.Y. 2016-17 on 30.07.2016 declaring a total income of Rs.
12,53,57,250/- and claimed TDS credit of Rs. 150,20,164/- and Advance tax of Rs. 60,000. The AO passed an assessment order u/s 143(3) on 22/12/2018 accepting the returned income.
Subsequently, the case was reopened u/s 147 of the Income Tax Act, 1961 on the basis of information received from the ITO (No), O/o The CIT(IT)-3, New Delhi that the assesses had income of Rs. 14,25,24,594/- (i.e 5,74,418 shares at Rs. 248.12 per share) from sale of shares of UEM India Private Limited, which had escaped assessment. Notice u/s 148 of the Income Tax Act dated 31.03.2021 was issued and served. The reasons recorded stated that the transaction of sale shares to M/s Toshiba Corporation for a total consideration of Rs. 14,25,24,594.16/- pertains to sale of asset and that the Assessee has not offered income to tax in AY 2016-17, by virtue of claiming the short-term sale capital gain on sale of depreciable assets, as long-term capital gain on sale of shares.
6. The Ld. AO passed a draft assessment order dated 24.09.2022 under Section 144C of the Act proposing an addition of Rs. 29,06,24,775/- to the Page 9 of 37 dated 14.10.2022 before Dispute Resolution Panel ("DRP")-2, New Delhi.
The DRP dismissed the grounds of objections filed by the Assessee vide directions dated 20.04.2023 observing that the basis taken by the Ld. AO for determining the nature of the capital gain is neither clear nor self- explanatory. Accordingly, the AO was, inter alia, directed to factually and legally verify the Assessee's contention as submitted vide summary dated 23.02.2023 and pass a speaking and reasoned order.
Pursuant to directions issued by the DRP, the AO passed order dated 23.05.2023 under Section 147 r.w.s 144C of the Act concluding that the Assessee under the garb of share transaction, has transacted the underlying assets of the company UEM and determined the capital gains by substituting the full value of consideration received by the Assessee (i.e., Rs. 14,25,24,594.16/) with the total capitalized value of tangible assets of the Company (i.e., Rs. 484,13,00,000/-) for computing the short-term capital gains. Accordingly, the AO computed the Short Term Capital Gains at Rs. 29,06,24,755/- and added the same to the total income of the Assessee.
Ground 1 and 2 and 19 are general. Ground 3 to 8 are in respect to validity of proceedings u/s 148. The ld counsel of the assessee vehemently argued that re-Assessment Proceedings were illegal, bad in law, and void ab initio The ld AR challenged the re-opening primarily on the following grounds- a. Reassessment is merely based on 'Change of Opinion' b. Approval under Section 151 is mechanical in law. c. Reassessment is in violation of Circular/Instruction dated 04.03.2021 as modified on 12.03.2021.
The ld AR elaborating on its argument that the reassessment is merely based on 'Change of Opinion', stated that the issue of sale of shares and capital gains arising therefrom has already been examined in detail during the original scrutiny assessment and all the relevant documents were filed pursuant to which no adverse inference was drawn against the Assessee. As such, it is the case of the Assessee that the entire proceedings are a clear case of 'change of opinion' which is not permissible in law.
Page 11 of 37 action/order. It is trite law that no notice u/s 148 of the Act can be subsequently issued with respect to the same issue which stood examined and accepted by the Ld. AO during the course of the original assessment proceedings as the same would amount to change of opinion which is impermissible in the eyes of law. The Ld AR relied on the following decisions:
1. CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 2. Jindal Photo Films Ltd., [1998] 234 ITR 170 (Delhi) 3. CIT v. Usha International [2012] 348 ITR 485 (Del) [FB] 4. Asian Paints Ltd. v. DCIT, [2009] 308 ITR 195 (Borm.)
12. The ld. AR further argued that the Approval under Section 151 is based on borrowed satisfaction, without independent application of mind and is mechanical in law and relied on the judgement of CIT vs. SPL'S Siddhartha Ltd. 345 ITR 223(Del).
The ld. AR further submitted that the Reassessment is in violation of Circular/Instruction dated 04.03.2021 as modified on 12.03.2021 (Ground 6). It is submitted that paragraph 2 of the said Instruction clearly states that no other category of cases except as stated in paragraph 1 of the said Instruction "shall be" considered for taking action under Section 148 of the Page 12 of 37 case of the Assessee does not fall in the categories stipulated by the CBDT in its aforesaid Instruction and therefore, the issuance of the impugned notice in the present case is illegal, bad in law and without jurisdiction.
Grounds No. 11 to 18 are in respect of merits of the case. The ld AR argued that the addition made, on merits of the case, is also illegal for the following reasons- a. The Assessee and Toshiba has erroneously been considered as related parties. b. The sale price of shares was pursuant to the formula as defined in the Shareholding Agreement and not the DCF methodology/Valuation report as the AO has challenged. The AO has erred in ignoring this vital aspect. c. The AO has disputed the Valuation Report/DCF Methodology, at the same time has placed reliance on the "Total Capitalised Value' as the value of underlying assets to be sold from the same report. d. The AO/DRP erred in arbitrarily rejecting the valuation report and computing short term capital gains by computing the full value of consideration and reducing cost of acquisition.
Page 13 of 37 and not sale of underlying assets. f. Chapter IV of the Act i.e. deeming provision allowing the AO to calculate FMV of unquoted shares for computation of capital gains is not applicable. g. The AO/DRP has erred in not appreciating that Assessee is not liable to tax as short-term capital gain as this is not a sale of underlying assets owned by the Company. h. The holding period, the full value consideration and the cost of acquisition are all wrongly considered and illegally computed by the AO/DRP.
The ld. AR, on merits, argued that the sale of shares cannot be treated as sale of underlying assets in view of the facts of the instant case. (Ground 15 and 17). The AR submitted that the Assessee is not directly or indirectly related to Toshiba Corporation and has no relation other than being shareholders of M/s UEM India Pvt Ltd. The ld AR further argued that the Ld. AO has grossly erred in referring to the valuation of shares at Rs. 234.91/- provided in the Valuation Report submitted by the assessee since the report was solely intended for internally evaluating the Page 14 of 37 Ltd. Further, the aforementioned price has no bearing on the instant transaction as the price at which the shares were to be transacted was determined as per the formula laid down in Schedule 6 of SSA read with 'Put option exercise’ notice dated 01.07.2015. The Ld. AO cannot seek to replace his price/value with the actual price/value without any evidence for the same.
The ld. AR drew our attention towards the SHA dated 26.12.2013 which contained a "put option" (exercisable at the behest of the Assessee) to sell the shares held by the Assessee to Toshiba Corporation at a price determinable pursuant to a formula set out in Schedule 6 of the SHA. It is pertinent to mention that the instant transaction was undertaken pursuant to Put option exercise' notice dated 01.07.2015 and the price per share i.e., Rs. 248.12/- was arrived at after applying the formula set out in Schedule 6 of the SSA.
The ld. AR argued that it is a settled position of law that the shareholder of a company has no interest in the property of the company.
Reliance in this regard is placed on the decision of Hon'ble Supreme Court
Page 15 of 37 the Hon'ble Apex Court for the proposition that "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”.
It was further submitted that the SHA read along with 'Put option exercise' notice dated 01.07.2015, shows that the transaction is for sale of shares held by the Assessee whereas, the Ld. AO has sought to adopt "look through approach" holding that the transaction is not for "sale of shares" but for "sale of underlying assets", completely disregarding the substance of the transaction as here what has been transferred by the Assessee are the shares of M/s UEM India Pvt. Ltd. held by her and not the assets of the company. For disregarding an apparent transaction there has to be some information or material on record to digress from "looking at" the transactions and sans any material, such a recharacterization of transaction by "look through" approach is purely hypothetical, based on surmise and presumption which cannot be permitted. Reliance in this regard was placed on the judgment of Hon'ble Supreme Court in the case
Page 16 of 37 (2012) 341 ITR 1 (SC).
Therefore, it was submitted that the Ld. AO has grossly erred in recharacterizing the transaction of sale of shares and treating it as a transaction of sale of assets. It is also submitted that the Ld. AO has grossly erred in disregarding the true nature of the transaction and recharacterizing the transaction of "sale of shares" to "sale of assets" in absence of any statutory provision in the Act. In order to re-characterize a transaction from sale of shares to sale of assets, there has to be machinery provision under the Act. In absence of any clear statutory provision, it cannot be left entirely to surmises and conjectures of the Ld. AO. Given that a document or transaction is genuine, the tax authorities cannot question the same. The Ld. AO cannot therefore, disregard a valid contract between two third parties and altogether change the nature of this transaction from sale of shares to sale of assets.
It is further submitted that the Ld. AO has in fact opted the figure of 484.13 crores from the valuation report as is clear from para 9 of his order for the purposes of computing the full value of consideration. It is the Page 17 of 37 recharacterizing the nature of the transaction under scrutiny, but has grossly erred in ascertaining the full value of consideration at Rs. 484.13 cr. The value of Rs. 484.13 cr. is actually the value of the company in perpetuity on the basis of projected cash flow. Using such future value for ascertaining the full value of consideration has no basis in law. Further, the Ld. AO's approach is riddled with inconsistencies in as much as on one hand, the Ld. AO erroneously ignores that the valuation of shares at the time of disposal was arrived at pursuant to a predetermined formula contained within the SHA and places reliance on a valuation report which had nothing to do with the instant transaction. On the other hand, the Ld. AO himself discredits the valuation report for lacking commercial reasonableness but goes on to adopt values from the very same valuation report for the purposes of calculating the full value of consideration qua the alleged transaction of sale of assets. Further, without prejudice to the above, it is not pointed out by Ld. AO how the valuation of shares valued by Chartered Accountant qualified as an accountant u/r 11UA as per the DCF method is incorrect. No reason has been pointed out why the valuation as in FY 2015-16 cannot be adopted and thus the Ld. AO has erred in adopting the said approach. It may be seen that the calculation of Page 18 of 37 2020-21 which has been erroneously taken by the Ld. AO as 484.13 crores.
The total capitalised value that is considered by the AO as the sale consideration, is in fact the value for the purpose of calculation of value in perpetuity and not the value of the assets of the company and thus the Ld. AO has erred in taking the same. It can be inferred that Ld. AO finally relied on the valuation report submitted by the valuer but either mistakenly or under misconception adopted the figures projected for the FY 2020-21 as against value per share worked out for the FY 2015-16. The Ld. AO has not pointed out any reasons why he adopted the figures for FY 2020-21 as against the figures to be adopted for the FY 2015-16. As against the estimated price per share at Rs. 234.91 per share the agreed price with Toshiba Corporation was Rs. 248.12 per share.
Thus, it is submitted that the substance of transaction is that the Assessee has transferred the shares she held in UEM India Pvt. Ltd. The company UEM India Pvt. Ltd. continued to hold the asset which were in its balance sheet before transfer of the shares and after transfer of the shares. No underlying assets of UEM India Pvt. Ltd. were owned by the assessee nor they were under transfer. The value of Rs. 484.13 cr. is Page 19 of 37 cash flow. Using such future value for ascertaining the full value of consideration has no basis in law.
The ld. AR further argued that Section 50 for computation of capital gains in case of depreciable assets is not applicable to the present proceedings as this section is applicable in cases where depreciable assets in the block of assets are transferred. Shares do not fall in the block of assets and are not depreciable assets and no depreciation is allowed on them. The shares are only investments and capital assets and not stock in trade of the assessee. For invoking section 50, twin condition must be satisfied, i.e., capital asset should fall in the block of asset and depreciation should have been actually allowed in that block. Reliance is placed on Dr. (Mrs.) Sudha S. Trivedi v ITO [2009] 31 SOT 38 (Mumbai); Narotamdas Bhan v ACIT [2007] 15 SOT 629 (MUM.); Raj Wonlen Industries. ACIT [2012] 20 taxmann.com 267 (Delhi); Shree Changdeo Sugar Mills Lid. . JCIT [2011] 44 SOT 479 (Mum.).
The ld. AR submitted that also, without prejudice and without accepting the contention of the Ld. AO, if it is presumed that assets are Page 20 of 37 and therefore section 50 cannot be invoked. The reliance is placed on following authorities ACIT Raka Food Products [2006] 151 Тастап 237 (Madras); CIT r. Equinox Solution (P.) Ltd. [2017] 80 taxmann.com 277 (SC); CIT r Coimbatore Lodge [2010] 328 ITR 69 (Madras); CIT ECE Industries Lid. [2012] 25 taxmann.com 113 (Delhi); Coromandel Fertilisers Lid. DCIT (2004) 90 ITD 344 (HYD.); DCIT I.C.I. (India) Ltd. [2008] 23 SOT 58 (Kolkata); Novartis India Ltd. e DCIT [2014] 45 taxmann.com 341 (Mumbai - Trib.); Salera International lid. r. JCTT (2003) 1 SOT 671 (DELHI); Sankeya Chemicals (P.) Lid. r. ACIT (2006) 8 SOT 50 (MUM.)
The ld. AR further stated that Section 50CA is not applicable to the present proceedings as where unquoted equity shares are transferred prior to 01-04-2018, the apparent sale consideration cannot be substituted by Fair Market Value by invoking the valuation prescribed u/s 50CA read with Rule 11UA. Since, the shares in the present case were transferred in FY 2015-16 the provisions of section 50CA cannot be invoked to determine the FMV for taking it as full value of consideration for the computation of capital gains u/s 48. This view is also supported by the decision of ITAT
Page 21 of 37 BANGALORE.
It is submitted that the reference to Departmental Valuation Officer (DVO) is bad in law. (Ground No. 9 and 10). It is stated that despite the illegal reference to DVO, no valuation report has been received till date.
Further, the AO had made a reference to the VO for valuation of shares and took the benefit of the extension of limitation by six months, as allowed under clause (v) of Explanation 1 to Section 153 of the Act.
However, the VO did not send the valuation report within six months which violated Section 142A of the Act. The Assessee hereby humbly submits that the violation of Section 142A would also annul the extension of limitation (prescribed under clause (v) of Explanation 1 Section 153) which was availed on the basis of reference to Valuation officer.
The ld. AR relied on several judgements to buttress his submissions on the issue of bar in substitution of full value of consideration with FMV sans evidence as follows: i) Arjun Malhotra v. CIT (2018) '92 tasmann.com 338 (Delhi). ii) NarimanPoint Building Services Trading (P.) Lid. v. CIT [2012] 26 taxmann.com 16 (Mum.) iii) Singhal Credit Management Itd. v. ACIT (2012] 19 taxmann.com 49 iv) CIT. Sriram Investments [2017] 77 taxmann.com 113 (Madras).
Page 22 of 37 AY2016-17 Sangita Kshetry &Oths Vs ACIT Circle – Int. Tax. 2 (1)(2) New Delhi v) CIT. Arens Developers Engg. [2012] 21 taxmann.com 526 (Delhi) vi) Euro RSCG Advertising (P.) Ltd. v. ACIT [2012] 23 taxmann.com 187 (Mumbai). vii) SIL Employees Welfare Trust v. CIT (2012) 27 taxmann.com 214 (Mum.).
Per contra, the ld. DR vehemently relied on the orders of the AO.
We have heard the rival submissions and have carefully perused the materials on record. On the issue of valid assumption of jurisdiction u/s 147, we find that the assessee case was initially picked up for scrutiny under limited scrutiny under CASS to examine whether capital gain/loss is genuine and has been correctly shown in the return of income. During the original assessment proceedings, the AO had examined the issue of sale of shares and capital gains arising therefrom in detail and all the relevant documents were filed. The AO, pursuant to examination of the replies/documents drew no adverse inference against the Assessee.
We further find that the proceedings under section 148 was initiated on the basis of information from the systems according to which the sale of shares was actually sale of asset and should have been taxed as short- term capital gain on sale of depreciable assets and not as long-term gain on sale of shares as claimed by the assessee. On the basis of this information received, the AO formulated a prima facie belief that the transaction pertained to sale of depreciable assets involving Short Term Page 23 of 37 on change of opinion. However, the hon’ble Delhi High Court in the case of Kelvinator (supra) laid a caveat to this proposition that where the reason to believe is based on an information received after the assessment is made, the same may not be a change of opinion’ as under:
“41. We, however, may hasten to add that if "reason to believe" of the assessing Officer if founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under Section 147 read with Section 148 of the Act.”
Further, we find that the hon’ble Delhi Court, deliberating on the issue of section 147 in the case Experion Developers Pvt Ltd Vs ACIT 422 ITR 355(Del), referred to various decisions on the subject and held as under:
“In Commissioner of Income Tax v Usha International, [2012] 348 ITR 485 (Delhi), the principle of "change of opinion" was discussed extensively: 16. Here we must draw a distinction between erroneous application/interpretation/understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of "change of opinion" will not apply. The reason is that "opinion" is formed on facts. "Opinion" formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of "change of opinion". Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression 'material facts' means
Page 24 of 37 AY2016-17 Sangita Kshetry &Oths Vs ACIT Circle – Int. Tax. 2 (1)(2) New Delhi those facts which if taken into account would have an adverse affect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment.”
We therefore do not find any force in the argument of the assessee that the case against the Assessee is built on the foundation of 'change of opinion' as the reason to believe for reassessment proceedings was formed on the basis of valid information received from the DIT(System) which had the potential to adversely affect the assessee with higher tax. In view of the same, the reason to believe of the AO can not be faulted.
As far as approval u/s 151 is concerned, we find that the approval has been granted by the Addl. CIT with the following reasons:
“I have gone through the reasons recorded by the Assessing Officer and the material on record, in the case of Sangita Kshetry, PAN: AEYP5792D. As per the reasons recorded by the Assessing Officer, the assessee had received income from sale of shares of UEM India Private Limited (now known as Toshiba Water Solutions Private Limited) for a total sale consideration amounting to Rs.14,25,24,594/-(i.e. 574418 shares at Rs. 248.12 per share), the assessee has not offered his income to tax in AY 2016-17 by claiming the short term capital gain on sale of depreciable assets as long term capital gain on sale of shares. On the basis of above information, I record my satisfaction u/s 151(2), on the reasons recorded by the Assessing officer, that income to the extent of Rs. 14,25,24,594/- has escaped assessment in the case of Sangita Kshetry. In view of above, I am satisfied that it is a fit case for reopening by issue of notice u/s 148 of the I.T. Act for the AY 2016-17”.
Page 25 of 37 approval by the Addl. CIT, we are of the opinion that the approval under Section 151 is granted by an independent analysis and appreciation of facts of the case. The approval is based on assessment of the information and the reasons recorded by the AO and therefore is not based on borrowed satisfaction nor can it be said mechanical. The facts of the case of CIT vs. SPL'S Siddhartha decided by the hon’ble Delhi Court in the case Ltd 345 ITR 223(Del) is clearly distinguishable. Our view is fortified by the hon’ble Delhi High Court where in the case of Experion Developers Pvt Ltd Vs ACIT (supra), the issue of approval was deliberated at length as follows:
42. Further, it is the case of the petitioner that there was no independent application of mind by the sanctioning authorities for according approval. Whilst it is the settled position in law that the sanctioning authority is required to apply his mind and the grant of approval must not be made in a mechanical manner, however, as noted by the Division Bench of the Calcutta High Court in Prem Chand Shaw (Jaiswal) v Assistant Commissioner, Circle-38, Kolkata [2016] 67 taxmann.com 339 (Calcutta), W.P.(C) 11302/2019 & W.P.(C) 11303/2019 Page 40 of 47 www.taxguru.in the mere fact that the sanctioning authority did not record his satisfaction in so many words would not render invalid the sanction granted under section 151(2) when the reasons on the basis of which sanction was sought could not be assailed and even an appellate authority is not required to give reasons when it agrees with the finding unless statute or rules so requires. The decision in United Electrical Co. Pvt. Ltd. (supra), as relied upon by the petitioner is distinguishable from the present case, as in the said case, there was no material on record to provide foundation for Assessing Officer's reasons to believe. Therefore, it was held that the recording of the satisfaction by the AO was unjustified and without independent application of mind. However, there is no requirement to provide elaborate reasoning to Page 26 of 37 AY2016-17 Sangita Kshetry &Oths Vs ACIT Circle – Int. Tax. 2 (1)(2) New Delhi arrive at a finding of approval when the Principal Commissioner is satisfied with the reasons recorded by the AO. Similarly, in Virbhadra Singh v Deputy Commissioner, Circle Shimla [2017] 88 taxmann.com 888 (Himachal Pradesh) where the competent authority was in agreement with the reasons assigned by the Assessing Officer, so placed before him, which came to be considered and sanction accorded with proper application of mind, by recording "I am satisfied that it is a fit case for issuance of notice u/s 148, the issuance of notice under section 147/148 was held to be valid.”
As far as the objection relates to reassessment being in violation of Circular/Instruction dated 04.03.2021 as modified on 12.03.2021 (Ground 6) is concerned, we find that the said Circular provides for considering potential cases for issuance of notice u/s 148 where the reports of DIT(Investigation); Directorate of Intelligence and Criminal Investigation as flagged by DIT(System) are available with the AO. In the instant case, the AO had the information emanating from the DIT(System) and hence was well within his right to assume jurisdiction on the instant case and issue impugned notice u/s 148. The grounds of appeal no 3 to 7 are, therefore, dismissed.
On the merits of the case, we find from the facts that UEM India Private Limited ('UEM'), whose shares transfer is under dispute with regard to its valuation, was incorporated in 1981 by Mr. Krishan M. Kshetry and father of Mrs. Sangita Kshetry. As in 2010, the 51% of shares of UEM was Page 27 of 37 by Promoters shareholders i.e., Krishan M. Kshetry, Sangita, Nina and Hersh (through inheritance) and Subhash and Usha Sapra (sister and brother-in-law of Sangita who owned 0.97% of the shares. (In 2014, Mrs. Sangita Kshetry bought 0.97% of Usha and Subhash Sapras shares).
On December 26, 2013, IVF Trustee Company Private Limited, Mr. Krishan M. Kshetry, Mrs. Sangita Kshetry, Ms. Nina Kshetry, and Mr. Harsh Vardhan Kshetry, Toshiba Corporation and UEM India Private Limited executed a shareholding agreement (SHA) for the sale of UEM shares to Toshiba Corporation, an unrelated Japanese concern/third party at the time of the agreement's execution. It is pertinent to note at this stage that the AO has failed to establish any direct or indirect relation of the Assessee with Toshiba Corporation. Further, as per the SHA, Toshiba Corporation acquired the shares of UEM in following tranches: i) Toshiba Corporation subscribed for 2,442,917 Equity Shares in the capital of the Company which constituted 26% of the issued share in the Company at the price of Rs. 474 per share. ii) The other 74% stake in UEM, held by the promoter group (23%) and IVF Trustee Company (51%), was to be sold in two tranches.
Page 28 of 37 IVFA sold 41% to Toshiba Corporation, bringing Toshiba's shareholding to 80%. iv) In 2018, in the second tranche, 10% owned by IVF and the other 10% owned by Mr. Krishan M. Kshetry transferred the remaining 20% to Toshiba.
The SHA dated 26.12.2013 provided the Assessee with a Put Option which allowed the Assessee to require Toshiba Corporation to purchase the shares at a price determined by a formula in Schedule 6 of the Shareholder's Agreement. The instant transaction of sale of shares was undertaken pursuant to Put option exercise' notice dated 01.07.2015 and the price per share i.e., Rs. 248.12/- was arrived at after applying the formula set out in Schedule 6 of the SHA.
As far as the transaction of the UEM shares are concerned, we find that the assessee acquired 5,74,418 shares of UEM before 14.02.2014. Out of the above, 2,67,800 shares were allotted in 1995-1998; 2,67,800 shares allotted as bonus shares on 01-03-2004; 4416 shares received from Mr. K.M. Kshetry on 19.02.2014 and 34,402 shares purchased from Mr. Subash Sapra and Mrs. Usha Sapra on 19.02.2014. The 5,74,418 shares were sold
Page 29 of 37 agreement dated 26.12.2013 with them. The holding period of shares ranging from 15 to 18 years to more than 18 months, the assessee declared Long Term Capital gain on sale of 5,35,600 shares and Long Term capital Loss on 38,818 shares.
Under these factual circumstances, we find that for the purpose of calculating Capital Gain, the AO has invoked the provisions of section 50 of the I.T. Act treating the sale of shares of UEM as sale of underlying asset of the company itself. We are of the considered view that the provisions of Section 50 of the Act is inapplicable since there has been sale of shares of UEM and not sale of underlying assets of UEM. The AO has nowhere alleged that the assessee did not hold the shares of UEM Shares as investments and capital assets. We are of the opinion that for invoking section 50, twin condition must be satisfied, i.e., capital asset should fall in the block of asset and depreciation should have been actually allowed in that block and the said depreciable assets in the block of assets are transferred. We have seen from the above narration that the shares in question do not fall in the block of assets nor they are depreciable assets where depreciation has been allowed on them. There is no sale of assets of the company UEM
Page 30 of 37 balance sheet before transfer of the shares and after transfer of the shares. Further, the assessee never owned the underlying assets of UEM India Pvt Ltd nor the assessee transferred the assets of the UEM. Therefore the sale of shares by assessee do not fall under the mischief of deeming provisions of section 50 of the Act.
As discussed above, we find that the AO has recharacterised the nature of transaction of "sale of shares" to "sale of assets" without any foundation or enabling statutory provision of the Act. When the genuineness and validity of document/contract/transaction between two unrelated parties has not been controverted, the AO cannot disregard the same and invoke deeming provisions such as section 50 of the Act to alter the nature of the transaction from sale of shares to sale of assets and consider the Long Term Capital Gain as short-term capital gain. We are of the opinion that the AO cannot reject the sale price of the shares as agreed upon between parties, unless there is evidence of payment over and above the agreed price.
Page 31 of 37 to the AO was on the basis of Discounted Cash Flow (DCF) methodology u/r 11UA where the value of shares was arrived at Rs. 234.91 for the period of FY 2015-16. This valuation report, based on DCF methodology, was solely intended for internal evaluation of the fair market value (FMV) of the shares by the management of M/s UEM India Pvt Ltd and was obtained only to satisfy the FEMA requirement which was applicable on the assessee being a non-resident. We are also inclined to agree with the assessee submission that the aforementioned price of Rs 234.91 has no bearing on the instant transaction as the price of Rs. 248.12 (price at which the shares were sold) was determined as per the formula laid down in Schedule 6 of SHA read with 'Put option exercise’ notice dated 01.07.2015.
We find that the AO has adopted "look through approach" holding that the transaction is not for "sale of shares" but for "sale of underlying assets", and disregarded the substance of the transaction which is transfer of shares of M/s UEM India Pvt Ltd held by assessee and not the assets of the company without having any evidence or cogent material or information on record. In fact, the AO determination of the full value of consideration at Rs. 484.13 cr., which is actually the value of the company
Page 32 of 37 assets) as in FY 2020-21, has no basis in law. We therefore hold that the AO has wrongly adopted the total capitalised value of the company for perpetuity of 484.13 crore as in FY 2020-21 as against value per share worked out for the FY 2015-16.
We further find that for determining the full value of sale consideration in cases of transfer of unquoted shares of a company, the AO could have invoked the enabling provisions of Section 50CA read with Rule 11UA for determining the Fair Market Value (FMV) of the shares and substitute the same with the sales consideration adopted by the assessee.
Section 50CA provides that where consideration received or accruing as a result of transfer of a capital assets being unquoted shares of a company, is less than the fair market value determined in the manner as prescribed in Rule 11 UA, then the value so determined shall, for the purpose of section 48, be deemed to be full value of consideration received or accrued as a result of such transfer. There is however legal difficulties in invoking the deeming fiction of section 50CA in the present proceedings, as the unquoted equity shares of UEM, were transferred in FY 2015-16 prior to 01-04-2018. The hon’ble Delhi Court in the case of PCIT
Page 33 of 37 held that the provisions of section 50CA cannot be invoked for period before 01.04.2018 to determine the FMV for taking it as full value of consideration for the computation of capital gains u/s 48. Similar law was laid down in the decision pronounced by Hon’ble Delhi High Court in case of Principal Commissioner of Income-tax v. Minda SM Technocast (P.)
Ltd. [2023] 155 taxmann.com 548 (Delhi). We are therefore of the considered view that the full value of consideration received on transfer of shares cannot be substituted either by fair market value or by any other manner, at least in the concerned assessment year AY 2015-16 before us.
We on the basis of discussion above, have therefore, no hesitation to hold that the AO’s invocation of section 50 of the Act to consider the ‘sale of shares’ as ‘sale of asset’ for calculating short term capita gain, is invalid and not supported by any legal provisions. We therefore direct the AO to delete the additions made as Short Term Capital Gain. The grounds of appeal at 12 to 18 are allowed.
43. As the ground no 8 was not pressed, the same is dismissed as not pressed. Ground no 20 regarding natural justice is dismissed as the AO/DRP have given sufficient opportunities to the assessee to present her
Page 34 of 37 case. Ground no 21 regarding charging of interest u/s 234A, 234B and 234C is consequential and initiation of penalty u/s 271(1)(c) is premature.
The ground no 9 and 10 regarding challenge to the DVO reference is not adjudicated upon as the relief on the merits of the case has been granted. Further, as the DVO report on the valuation of shares were neither received nor utilized by the AO, the same is rendered as academic.
In view of the allowance of the assessee’s appeal, the Stay application no 387/Del/2023 in [ITA No.1876/Del/2023)] for Assessment Year: 2016-17, is also disposed off in accordance with the appeal. pari materia with that of Sangita Kshetry in ITA 1876/Del/2023, the decision given in the case of Sangita Kshetry would equally apply on the cases of Hersh Vardhan Kshetry and Nina Kshetry.
Page 35 of 37 are partly allowed.
Order pronounced in the open court on 19.05.2025.