RAVI BADRINARAIN GOYAL,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE (22)1, MUMBAI

per section 144B(1)(xii)(b) of the Act, the assessment unit is obliged to issue SCN

giving the appellant an opportunity of being heard, if it proposes any addition

prejudicial to the interest of the assessee. However, the assessment unit did not

issue any SCN in respect of the addition of Rs. 258 Cr. made u/s 68 of the Act. The

Ld. AR submitted that if SCN as required or a draft assessment order u/s 144B of the

Act is not issued as per the provisions of Section 144B of the Act, then the

assessment order passed is considered as bad in law. He relied on the decision of

Hon’ble Supreme Court in the case of GKN Driveshaft (India) Limited reported in 259

ITR 19(2003) (SC) and the decision of Hon’ble Bombay High Court in case of Teerth

Developers and Teerth Realities JV (2024) 169 taxmann.com 94 (Bom) and Golden

Tobacco Ltd. v. NFAC, 442 ITR 294 (Bom).

7.1 Regarding increase in the ALV to Rs.10,00,000/- per month from Rs.5,00,000/-

offered by the assessee, the Ld. AR submitted that the BMC changed the basis of charging property tax to capital value of the property The capital value of the

property at about Rs.7 Cr. was not considered by AO and he enhanced the ALV

without giving any basis. The CIT(A) confirmed the addition on the ground that the

appellant did not file any documents to substantiate ALV of Rs. 5,00,000/- per month

during the appellate proceedings.

7.2 Regarding disallowance of STCL of Rs.400.21 Cr. set off against the LTCG on

sale of listed shares of Rs.636.23 Cr., the Ld. AR submitted that the appellant earned

LTCG of Rs.589.12 Cr. on sale of equity shares of AGS and sale of property. He

incurred aggregate STCL of Rs 400.21 on sale of non-convertible redeemable

preference shares (NCRPS) of Vineha Enterprises Private Limited (VEPL), unquoted

equity shares of AGS and unquoted equity shares of Wow Food Brands Private

Limited (WOW). The appellant claimed set off of STCL of Rs.400.21 Cr. against the

net LTCG of Rs.589.12 Cr. and shown LTCG of Rs. 188.91 Cr. in the ROI filed. He stated

that the appellant had submitted all relevant documents including various

agreements to substantiate the STCL of Rs.400.21 Cr. The AO denied the set off of

STCL of Rs.400.21 Cr. against the LTCG of Rs.589.12 Cr. on the ground that, in his

opinion, the STCL is premediated and it is only to reduce the tax burden on account

of LTCG. The CIT(A) upheld the same and also stated that there is only circular

transaction. The Ld. AR has filed chronology of events and copies of various

agreements, Draft Red Herring prospectus (DRHP) filed with SEBI, copy of Escrow Bank account held with HDFC bank and submission made before the Assessment

Unit and NFAC, to prove the genuineness of the purchase of CCPS of VEPL from AGS.

The Ld. AR submitted that the assessee purchased it for the successful IPO of AGS.

The appellant offered his holding 3,87,18,057 equity shares of FV of Rs.10/- for sale

at Rs.175/- per share aggregating to Rs.650 Cr. The appellant unlocked the value of

the said shares by offering it for Rs.175/- per share in IPO. The purpose of the IPO is

to make offer for sale of the promoters' shareholding in AGS. The appellant

guaranteed AGS to buy CCPS of VEPL for Rs.650 Cr. out of the sale proceeds of the

shares offered for sale in IPO for AGS to pay NCD of Rs.550 Cr. These facts were

clearly mentioned in the DRHP. In DRHP, the issue price and number of shares to be

offered for sale in IPO were not given. However, the DRHP gives an idea to the

investor about the company coming out with IPO and purpose of the IPO and

utilisation of fund etc. The facts stated in DRHP that the appellant intended to buy

CCPS of VEPL from AGS and AGS in turn, used the said fund to redeem the NCD of

Rs.550 Cr., had very positive impact on the pricing of the shares offered in IPO and

subscription to the IPO. The IPO, in fact, got subscribed 8 times. The appellant

received Rs.650 Cr. from sale of shares and same is paid to AGS as per the share

purchase agreement with AGS to buy CCPS of VEPL entered before filing DRHP with

SEBI. As a result of the above, AGS has disinvested CCPS of VEPL of Rs.650 Cr. and

redeemed NCD of Rs. 550 Cr.

7.4 The appellant sold his long-term capital assets being AGS shares with capital

gain earned thereon. The appellant had CCPS of VEPL of Rs.650 Cr. post IPO. The

CCPS was held as short-term capital assets. There is unrealised loss in CCPS as the

FMV of the same as at 22.01.2022 was Rs. 400 Cr. VEPL converted CCPS into NCRPS

to be redeemed at par at the end of six years from the date of subscription instead

of having it converted into 1 equity share of FV of Rs. 10 each for 12,565 CCPS of

Rs.10 each. The FMV of NCRPS as on 23.03.2022 was Rs. 258 Cr. The appellant

incurred the loss in respect of sale of NCRPS by selling the same to Anupama Goyal

Family Trust for Rs. 258 Cr. The said NCRPS were transferred in the demat account of

Anupama Goyal Family Trust. The amount was received from the said trust in the

subsequent year. As a result, the appellant incurred STCL on sale of NCRPS of VEPL

of Rs.391 Cr. The Ld. AR submitted that the statute allows for the set off of STCL

against the LTCG and accordingly, the appellant legitimately set off the STCL against

the LTCG. The appellant in the process earned the LTCG in respect of AGS of Rs.244

Cr. [Rs.636 Cr. (-) Rs.391 Cr.].

7.5 Regarding addition of Rs.258.46 Cr. u/s 68 of the Act, being sales value of the

NCRPS of VEPL, equity shares of VEPL and WOW, the Ld. AR submitted that the

appellant received the sales proceeds on sale of the abovementioned assets. He

submitted that addition u/s 68 of the Act is normally made in respect of alleged

bogus purchase, loans borrowed from accommodation entry provider or when the borrower fails to substantiate the identity, genuineness and creditworthiness of the

lender. The provisions are also applied where the share application money is

received by the company from the subscriber and it fails to substantiate identity,

genuineness and creditworthiness of the share applicant or subscribers of the

shares. However, in the case of the appellant, the addition is made on account of the

sale proceeds of the investments held by him, which were sold to family trust and

other family members and hence, it is not the case of unexplained cash credit. The

AO also made the addition of Rs.258.46 Cr. u/s 68 without giving show cause or

without issuing any notice u/s 142(1) calling for the details in this respect. The CIT(A)

upheld the addition in a mechanical manner, which is not justified either on merit it

on jurisdiction.

7.6 Regarding addition of Rs. 12.68 Cr. on account of difference in the capital gain

as per the capital account and computation of capital gain as per statement of total

income, the Ld. AR submitted that the capital gain of Rs.649.21 Cr. was credited to

capital account and as per the statement of total income, capital gain is computed

at Rs. 636.23 Cr. The AO made the addition of Rs. 12.98 Cr. on account of the

difference. The CIT(A) upheld the addition. In this regard, the Ld. AR submitted that

the LTCG was computed after considering indexed cost of acquisition and other

expenses. The difference is fully explained through reconciliation.

authorities and during the hearing on 18.05.2026, he has submitted a copy of

notification dated 01/4/2014 in respect of section 53 of the Companies Act 1956

regarding prohibition on issue of shares on discount. He submitted that the STCL was

premeditated only with a view to reduce the liability of LTCG earned by the assessee.

He submitted that the assessee was given adequate and reasonable opportunity of

being heard. The assessee was also allowed video conferencing with the AO on

19.03.2024. Hence there was no violation of principles of natural justice.

8.1 Regarding the increase in ALV, the CIT-DR submitted that it is based on FMV.

He relied on the decision in case of ITAT in ITA No.2735/Mum/2022 wherein rate of

return @8.5% of the investment is considered as the ALV of the property.

8.2 He submitted that the benefit of indexation not available w.e.f. 31.03.2018

because the company was not a listed company. He submitted that the AO and CIT(A)

have passed proper orders after considering the totality of facts and circumstances

of the case. He requested to uphold the order of CIT(A) and dismissed appeal of the

assessee.

have also deliberated on the decisions relied upon by the both parties. Grounds No.

1 and 6 pertain to non-issue of show-cause notice (SCN) u/s 144B (1) of the Act and

violation of the principles of the natural justice. During the previous year relevant to 15 the AY under consideration, the appellant had claimed STCL of Rs.400,21,11,204/-

on the sale of unquoted shares. The details of the STCL of Rs.400,21,11,204/- are as

under:

(Amount in Rs.) Capital loss on sale of Vineha RPS Sale Consideration 258,20,41,583 Less: Cost of acquisition of RPS of Vineha (650,00,00,000) (391,79,58,417) Capital loss on sale of shares of AGS Sale Consideration 8,99,718 Less: Cost of acquisition of shares of AGS (2,99,90,600) (2,90,90,882) Capital loss on sale of shares of WOW Sale Consideration 17,03,229 Less: Cost of acquisition of shares of WOW (5,67,74,300) (5,50,71,071) TOTAL (400,21,11,204)

9.1 The AO, during the assessment proceedings, observed that the appellant was

not able to provide the documentary evidences for verification of name, address,

PAN of the buyers of the share of unquoted shares with supporting documents,

evidence of creditworthiness and genuineness of the buyers, profit and loss account

& balance sheet, TAR, ITR of the buyer. Bank statement of the buyer reflecting debit

entries, copy of ROC information in respect of the company regarding holding of the

shares, RBI approval for share purchase deal with buyers, copy of share transfer form

(Form No SH-4), stamp duty receipt for transfer of shares , copy of register of transfer

of shares, certificate of registration of buyers in India, confirmation letter from

buyers along with bank statements reflecting the transaction etc. to prove the

identity and creditworthiness of the buyers and genuineness of the transactions

were also not submitted. Accordingly, the AO treated the sale of consideration of Rs.

258,46,44,530/- received by the appellant from the sale of unquoted shares

mentioned in the above table as unexplained. The CIT(A) has held that the appellant

failed to discharge the burden cast on him to prove the genuineness of the

transaction and hence, he upheld the addition made by the AO. As regards the

appellant’s ground of non-issue of the SCN for making addition, the CIT(A) has

observed that the appellant has not brought on record any evidence for non-issue

of the SCN and that the AO had, in fact, issued SCN to the appellant vide DIN No

ITBA/AST/F/143(3)(SCN)/2023-24/10621231261(1) dated 06.03.2024. The CIT (A)

has, accordingly, dismissed the ground in this regard.

9.2 The Ld. AR has argued that the specific SCN for disallowance of Rs.258,

46,44,530/- was not at all issued to the appellant. On the other hand, the CIT (DR)

has pleaded that if the SCN is given in respect of disallowance of set off of STCL of

Rs.400.21 Cr., then there is no need for issuing a separate SCN for making addition

of Rs.258.46 Cr. u/s 68 of the Act. He also argued that once the opportunity for VC

hearing was given to the appellant during the assessment proceedings, then there

is no need to issue SCN for making the addition of Rs. 258.46 Cr. He referred to page

21 and 23 of the assessment order to substantiate that disallowance of STCL of

Rs.400.21 Cr. and addition of Rs.258.46 Cr. u/s 68 of the Act are at the same place of

the assessment order and hence, did not require separate SCN for making addition

of Rs. 258.46 Cr. u/s 68 of the Act.

9.3 We have heard both sides and perused the materials on record. We have also

deliberated on the decisions relied upon by the Ld. AR. We have also carefully

perused the SCN issued to the appellant vide DIN No. ITBA/AST/F/143(3)(SCN)/20

23-24/10621231261(1) dated 06.03.2024, which has been relied upon the CIT (A).

The same is extracted at pages 5-8 of the assessment order. On perusal, it is observed

that para 2 of the notice deals with the “Variations proposed”. Further, para 2.4 deals

with “Reason for variation”, wherein the following variations were proposed:

Para Variation proposed 2.4(a) During the year under consideration the assessee has squared up large amount of loans however neither furnished creditworthiness of the person to whom loan taken/squared up not documentary evidence like ITR, Ledger details with the parties, bank statement, confirmation from the said persons etc. In view of this, you are hereby show caused as to why these loans amounting to Rs 5,04,72,109/- taken during the year shall not be treated as unexplained and added to the total income of assessee and initiate penalty proceedings accordingly. 2.4(b) During the year it is observed that your capital account has been increased by Rs 649, 21, 80, 873/- on account of addition of LTCGs. However, as per the capital gains receipt shown under computation of income is Rs 636, 23,16,862/-. Hence you are hereby show caused as to why the difference shall not be treated as income of the assessee and added back to the total income of the assessee and initiate penalty proceedings u/s 270A for under reporting in consequence of mis–reporting of income. 2.4(c) It is seen from the submission that the assessee has two residential house property, the first flat was used by him for his own residence and another house at Ahuja was sold during the year. The assessee has considered the deemed ALV at the rate of Rs 5,00,000/- per month for six months. However, taking into account the location of the property and other factor , ALV is considered at Rs 10,00,000/- per month. Hence ALV for six months comes to Rs 60,00,000/-. The assessee has disclosed the ALV of the property at Rs 30,00,000/-. Considering the facts, income from house property is proposed to be recomputed as under: Rent from deemed let out residential flat at

Ahuja for six months 60,00,000/- Less: Deductions u/s 24 @ 30% of 42,00,000/- 18,00,000/- Less: Interest paid to bank 1,37,15,208/- Income from house property (-) 95,15,208/- 2.4 (d) During the course of assessment proceedings, the assessee has claimed STCL as submitted is reproduced for clarity: Computation of Capital Loss on sale of Vineha RPS Sale Consideration 258,20,41,583 Less: Cost of acquisition of RPS of Vineha (650,00,00,000) (391,79,58,417)

Calculation of Capital Loss on sale of shares of AGS Sundyne Technologies P Ltd Sale Consideration 8,99,718 Less: Cost of acquisition of shares of AGS 2,99,90,600 (2,90,90,882) Sundyne Technologies P Ltd

Computation of Capital Loss on sale of shares of WOW Foods P Ltd Sale Consideration 17,03,229 Less: Cost of acquisition of shares of WOW (5,67,74,300) (5,50,71,071) Foods P Ltd TOTAL (400,21,11,204) The assessee has not furnished any documentary evidence of cost of acquisition, valuation report and other supporting documents. Under the circumstances, STCL to the extent of Rs 4,00,21,11,204/- is proposed to be disallowed. Penalty u/s 270A of the Act is proposed to be initiated for under reporting of income in consequence of mis-reporting.

9.4 From the above, it could be clearly noticed that none of the four variations

proposed in paras 2.4(a), 2.4(b),2.4(c) and 2.4(d) in the SCN issued to the appellant

deals with the issue of addition u/s 68 of the Act of Rs 258, 46,44,530/- towards the

sale consideration received from sale of the shares of the three companies. This

issue has not at all been raised in this SCN dated 06.03.2024.

9.5 As per the provisions of section 144B(1)(xii)(b) of the Act, SCN is required to

be issued stating the variation prejudicial to the interest of the assessee proposed

to be made to the income of the assessee and calling upon him to submit as to why

the proposed variation should not be made and serve such SCN on assessee through

NFAC.

9.6 The argument of the CIT (DR) that once the opportunity for VC hearing was

given to the assessee, there is no need for issue of SCN for making the impugned addition, is not tenable. The VC hearing is for further clarifications on the issues of

proposed variation to the income of the assess mentioned in the SCN. The VC

hearing does not replace the requirement of issuing the SCN for any new addition.

Hence, no addition can be made in the assessment order without the issue of SCN

for the said addition. In this regard, the Ld. AR has relied upon various judicial

pronouncements wherein the Hon’ble courts and the ITATs have held that if the SCN

is not issued before making addition in the assessment order, then the assessment

order passed becomes bad in law. The Hon’ble jurisdictional Bombay High Court in

the case of Teerth Developers and Teerth Realties (supra) held that where faceless

AO passed an assessment order making certain additions to the income of the

assessee without issuing any SCN- cum-draft assessment order to the assessee as

per requirement of provisions of section 144B of the Act, impugned assessment

order was manifestly illegal and a nullity in the eyes of law, hence, deserved to be

quashed.

9.7 The above decision of the Hon’ble Court makes it abundantly clear that as

per the provisions of section 144B of the Act, it was incumbent on the part of AO, to

issue to the assessee a SCN in case any variation prejudicial to the interest of the

assessee was to be proposed. The principles of natural justice are statutorily

recognized in the provisions of section 144B of the Act. Any non-adherence to the

mandatory requirement of the statutory provisions and such principles as recognized by it, would render the assessment order patently illegal. The action of

the AO, which is contrary to the mandate of the statutory provisions or in breach of

the principles of natural justice, would be rendered illegal and invalid. It needs no

elaboration that when an order under a statute is to be passed which would entail

civil consequences, causing a prejudice to the person against whom it is being

passed, such order would be required to be passed in strict adherence to the

principles of natural justice i.e., after issuance of a SCN and allowing an opportunity

of being heard. The Hon’ble Bombay High Court in the case of Golden Tobacco

Company (supra) has also taken a similar view and quashed the final assessment

order where no SCN was issued on the subject addition.

9.8 Considering the facts of the case and the binding decisions of the Hon’ble

Bombay High Court, we are of the considered view that as per the provisions of

section 144B(1)(xii)(b) of the Act, the AO was statutorily required to issue SCN to the

assessee in case of any proposed variation prejudicial to the interest of the assessee.

As no SCN was issued to the assessee on the impugned variation for making addition

u/s 68 of the Act, the said addition by the AO was in breach of the statutory

requirement u/s 144B(1) of the Act as well as the principles of natural justice. In view

of the above, the AO is directed to delete the addition made u/s 68 of the Act in

respect of the sale consideration received from sale of shares of AGS, VEPL and

WOW. Be that as it may, the addition is also not liable to be sustained on merit, which would be clear when the relevant ground is taken up for consideration in this

order. Accordingly, the grounds no 1 and 6 are allowed.

against LTCGs of Rs. 589.12 Cr. The STCL was computed on sale of shares of VEPL,

AGS and WOW, as mentioned in table at para 9 above. The AO has disallowed the

loss after observing the assessee had not submitted the documentary evidences for

verification of name, address, PAN of the buyer of the with supporting documents,

evidence of creditworthiness and genuineness of the buyers, profit & loss account

and balance sheet, TAR, ITR of the buyers, bank statement of the buyers, copy of

ROC information, RBI approval for share purchase deal with buyers, copy of Form No

SH-4, stamp duty receipt for transfer of shares, copy of register of transfer of shares,

certificate of registration of buyers in India, confirmation letter from buyers along

with bank statements reflecting the transaction, etc. to prove the identity of the

buyers of unquoted shares, genuineness of transactions and creditworthiness of the

buyers. The AO held that the valuation reports submitted by the appellant in respect

of acquisition and sale of unquoted shares cannot be relied upon and rejected the

same. The AO observed that the appellant had intentionally shown STCL by claiming

higher cost of acquisition of these unquoted shares and hence, he disallowed the

loss.

10.1 The CIT(A), after considering the submissions of the appellant concluded that

appellant showed loss in a predetermined manner to set off the STCL against the

LTCG earned on the shares of AGS. He has also held that the appellant has not

produced any documentary evidence of Anupama Goyal family Trust, such as

transfer of shares, bank statement etc. and has accordingly, confirmed the action of

the AO.

10.2 The Ld. AR has submitted that all details had been given to the AO and CIT(A).

However, they have not considered the details and evidences and disallowed the

impugned STCL. The details submitted to the lower authorities were as under:

1 Submission dated 14.02.2025 made before the National Faceless Appeal Centre, Delhi. a. Vineha Enterprises Private Limited (VEPL) CCPS Subscription Agreement (Annexure 2) b. Share Purchase Agreement with AGS dated 16.08.2021 (Annexure 3) c. Share Escrow Agreement with AGS and Link Intime India Private Limited dated 29.11.2021 (Annexure 4) d. Objects of the Offer provided in the red herring prospectus of AGS filed with the SEBI (Annexure 5) e. Valuation of CCPS of Vineha Enterprises Private Limited (VEPL) dated 22.01.2022 (Annexure 6) f. Bank statement of escrow account reflecting receipt of consideration for sale of shares under Offer for sale and discharge of consideration for purchase of CCPS from AGS (Annexure 7) g. Copy of my demat statement reflecting credit of CCPS of VEPL (Annexure 8) h. Board resolution dated March 23, 2022 of VEPL (Annexure 9 and 10) i. Valuation report of Non – Convertible Redeemable Preference Shares (NCRPS) of VEPL (Annexure 11) j. Transaction statement HDFC Securities Limited reflecting debit of CCPS, credit of NCRPS and subsequent debit of NCRPS (Annexure 12) k. Acknowledgement of exemption application filed by Anupama Goyal Family Trust (Annexure 13) l. Copy of resolution passed by the Board of Directors and members of AGS Sundyne. (Annexure 14 and 15) m. Copy of resolution passed by the Board of Directors and members of Wow Foods. (Annexure 16 and 17) n. Copy of valuation working for sale of shares as per Rule 11UA for AGS Sundyne. (Annexure 27) 23 o. Copy of valuation working for sale of shares as per Rule 11UA for Wow Foods. (Annexure 28) p. Bank statement reflecting the transaction of credit of funds (Annexure 29 and 30) q. Balance Sheets of Mr. Kiran Goyal for sale of shares of AGS Sundyne and Ms. Neha Goyal for sale of shares of Wow Foods. (Annexure 31)

2 Submission dated 21.05.2025 made before the National Faceless Appeal Centre, Delhi.

3 Submission dated 26.11.2025 made before the National Faceless Appeal Centre, Delhi. a. Share Purchase Agreement with AGS Transact Technologies Limited dated 16.08.2021 (Annexure 3) b. Objects of the Offer provided in the red herring prospectus of AGS filed with the SEBI (Annexure 4) c. Board resolution dated March 23, 2022 of VEPL. (Annexure 5 and 6) d. Valuation report of Non – Convertible Redeemable Preference Shares (NCRPS) of VEPL(Annexure 7) e. Valuation report of Compulsorily Convertible Preference Shares (CCPS) of VEPL. (Annexure 8) f. Share Escrow Agreement with AGS Transact Technologies Limited and Link Intime India Private Limited dated 29.11.2021. (Annexure 9) g. CCPS Cash Escrow Agreement agreement with HDFC Bank Limited. (Annexure 10) h. Copy of resolution passed by the Board of Directors and members of AGS Sundyne. (Annexure 11 and 12) i. Copy of resolution passed by the Board of Directors and members of Wow Foods. (Annexure 13 and 14) j. Copy of valuation working for sale of shares as per Rule 11UA for AGS Sundyne. (Annexure 15) k. Copy of valuation working for sale of shares as per Rule 11UA for Wow Foods. (Annexure 16) l. Delivery Instruction Slip for transfer of shares. (Annexure 17) m. Share transfer deed in Form SH-4 – AGS Sundye Technologies Private Limited. (Annexure 18) n. Share transfer deed in Form SH-4 – WOW Foods Brands Private Limited. (Annexure 19) o. Bank statement for payment of consideration. (Annexure 20, 21 and 22)

10.3 The Ld. AR has also submitted the details of chronological events for

commercial expediency of appellant of buying CCPS of VEPL from AGS. He has also

referred to the share subscription agreement entered into between VEPL and AGS,

share purchase agreement between appellant and AGS followed by share Escrow

agreement with AGS and Link Intime India Private Limited to substantiate as to why

the appellant was buying CCPS of VEPL from AGS for successful IPO subscription and listing of shares of AGS offered for sale by the appellant in IPO. The Ld. AR also

referred to the Demat statements, HDFC Escrow bank account, and bank statements

of the appellant in order to substantiate the sale of the aforementioned CCPS of

VEPL, which was later on converted into NCRPS. It was submitted that none of the

transactions of the sale are made below the valuation of shares as per the Rule

11UA. The valuation report given by the Merchant Banker/CA were also referred to.

The Ld. AR has stated that the AO has not brought on record anything to challenge

the valuation of the NCRPS of VEPL, shares of AGS and WOW in the assessment order

and has duly accepted the same. He submitted that the appellant has earned LTCG

of Rs. 244 Cr., has offered LTCG of Rs.189 Cr. and paid tax thereon. He further

submitted that the appellant has not evaded the tax by creating STCL and the

appellant has legitimately claimed set off of STCL against LTCG as per the provision

of section 71 of the Act.

10.4 The Ld. AR has relied upon the decisions of the Hon’ble Supreme Court in case

of Vodafone International Holdings BV vs Union of India (2012) 341 ITR 1 and Union

of India v. Azadi Bachao Andolan (2003) 263 ITR 706 and submitted that legitimate

tax planning cannot be ignored only because it has the effect of reducing the tax

liability of the assessee.

10.5 On the other hand, the Ld. CIT (DR) raised issue on the valuation of CCPS and

NCRPS of VEPL and further argued that CCPS was valued at Rs. 175/-. He argued that the Draft Red Herring Prospectus (“DRHP”) filed with SEBI contains the IPO price

ranging from Rs 166/- to 175/- per share and therefore, according to him, the entire

STCL incurred by having purchased CCPS of VEPL for Rs 650 Cr. as per SPA is

premeditated scheme for evading the taxes on the LTCG earned. The CIT (DR) argued

that the transaction was a premeditated scheme to evade tax by a devise of creating

STCL.

10.6 We have heard rival submissions and perused the materials placed on the

record. The sequence of occurrences arranged in the exact order they happened in

time, as submitted by the appellant, is as follows:

Date Event 01.04.2021 Subscription of CCPS of Vineha Enterprises Private Limited (VEPL) by AGS Transact Technologies Limited (AGS) for 650 Cr. at FV of Rs 10 each. VEPL uses this amount to Rs.450 Cr. and other general corporate purpose. 16.08.2021 Ravi Goyal (assessee) had entered into a share purchase agreement (SPA) with AGS, to guarantee an exit to AGS, to purchase the CCPS of VEPL for a consideration of Rs. 650 Cr. (i.e. cost of shares for AGS) or the fair market value of CCPS of VEPL determined by an Independent CA, whichever is higher. The agreement was to be put into effect when AGS received the listing and trading approval for the IPO from the stock exchanges which was a condition precedent in the agreement. ( Coupon rate 0.01% per annum and conversion 12565 CCPS converted into one share of VEPL.) AGS was to utilise the amount received from Ravi Goyal for redemption of NCDs of Rs 550 Cr.

The Share Purchase Agreement dated 16.08.2021 incorporated some pre-closing obligations as follows: a. At least 2 days prior to the filing of updated red herring prospectus, AGS and Ravi Goyal shall appoint a CCPS escrow agent and shall enter into a CCPS Escrow Agreement. (Agreement dated 29 November 2021) b. The seller shall submit the Delivery Instruction Slip corresponding to the sale of securities, to the CCPS Escrow Agent. (Delivery Instruction slip for sale of CCPS dated 31 March 2022) c. The Purchaser and the CCPS Cash escrow Agent shall have executed the CCPS Cash Escrow Agreement, and the CCPS Cash escrow Account shall have opened.

d. Seller shall provide have provided to the purchaser an independent valuation report prepared by an Independent Chartered Accountant. (Valuation report dated 22 January 2022) 18.08.2021 Draft Red Herring prospectus filed with SEBI. It does not mention the issue price since the same was not decided by the merchant banker. 22.01.2022 Accordingly, when during FY 2021-22, when AGS went for an IPO, the above agreement was triggered, and Mr. Ravi Goyal purchased the CCPS at 650 Cr. as the FMV as per valuation report was lower DRHP dated 18.08.2021 is enclosed herewith. Prospectus dated 22.01.2022 (giving details of offer price and number of shares offered) Merchant banker i.e. Banker to offer at Pg 77 of Prospectus 22.01.2022 Valuation of VEPL as at 22.01.2022 at Rs. 400 Cr. 28.01.2022 Sales proceeds of offer of sale of 38718857 shares @175 per share AGS held by Ravi Goyal sold by way of offer for sale in IPO amounting to Rs. 650 Cr. deposited in HDFC escrow account. 29.01.2022 Amount of INR 650 Cr. after deducting TDS transferred from in HDFC ESCROW ACCOUNT to AGS for purchase of CCPS of VEPL 31.01.2022 Listing of shares of AGS on NSE and BSE Copy of demat statement reflecting credit of CCPS of VEPL into demat account of Ravi Goyal 23.03.2022 Board of Directors of VEPL had resolved to modify the terms of CCPS as per section 48 of the Companies Act, 2013 and convert the CCPS to Non-Convertible Redeemable Preference Shares (‘NCRPS’) with a coupon of 0.01% and having tenure of 6 years from the date of allotment) 31.03.2022 Later as part of succession planning the NCRPS were sold to the Anupama Goyal family trust for a consideration of INR 258.20 Cr., being the fair market value of the NCRPS as on the date of transfer. This led to loss on sale of NCRPS. Demat account on page 297. Transaction statement issued by Depository Participant i.e. HDFC Securities Limited reflecting debit of CCPS, credit of NCRPS and subsequent debit of NCRPS as a result of sale

10.7 The above chronology of events has not been controverted by the revenue

by placing any evidence on record. It can be observed that the AGS went for an IPO

on 22.01.2022 but the agreements to which effect were given were already entered

into on 16.08.2021, much prior to the issue of the IPO. All the agreements have been

placed on record and relevant data has been filed with the regulatory authorities like

SEBI with all the supporting disclosures.

10.8 The Ld. CIT (DR) has also raised an issue regarding the valuation of CCPS and

NCRPS of VEPL and argued that CCPS was valued at Rs. 175/-. This is factually

incorrect. The CCPS of VEPL was valued on the basis of NAV and since VEPL was

holding 42% of shares in AGS, the said price of AGS of Rs. 175/- was taken for

computing value of CCPS of VEPL on NAV basis. This fact is ascertainable from the

valuation report of CCPS.

10.9 The Ld. CIT (DR) also argued that the Draft Red Herring Prospectus (“DRHP”)

filed with SEBI contains the IPO price ranging from Rs 166/- to 175/- per share and

therefore, according to him, the entire STCL incurred by having purchased CCPS of

VEPL for Rs 650 Cr. as per SPA is premeditated scheme for evading the taxes on the

LTCG earned. This is factually not correct. Under the regulatory framework

prescribed by the SEBI and the provisions governing public issues, a DRHP is merely

a preliminary offer document filed for obtaining regulatory observations and inviting

investor awareness. The very nature of a DRHP is that it does not contain the final

issue price and number of shares offered in the IPO. In the DRHP, in the objects of

the offer, the entire facts of purchase of CCPS of VEPL by the appellant from AGS,

utilization of the amounts received towards sale of CCPS of VEPL by AGS for

redeeming the NCRPS and having CCPS Escrow agreement are given, thereby

substantiating its full disclosure before the launch of IPO. The IPO was also

subscribed by 8 times. This substantiates that the facts given in the DRHP carries huge weightage for the success of IPO. The price and the number of shares offered

are given in the final prospectus filed with SEBI at the time the IPO.

10.10 During the course of the hearing, the Ld. CIT (DR) raised an issue that when

the shares were having the value substantially lower than the Face Value on the date

of conversion of loan into the shares, why the shares were not issued at a discount

as per the provisions of Section 53(2A) of the Companies Act, 2013.

10.11 In this regard the provisions of Section 53 of the Companies Act, 2013 are

reproduced below for ready reference and clarity:

“53. Prohibition on issue of shares at discount. 1) Except as provided in section 54, a company shall not issue shares at a discount. (2) Any share issued by a company at a discounted price discount shall be void. (2A) Notwithstanding anything contained in sub-sections (1) and (2), a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.”

10.12 A plain reading of the aforesaid provision makes it abundantly clear that

Section 53 generally prohibits issuance of shares at a discount, except in the limited

circumstances specifically carved out under sub-section (2A). In the present case,

the exception provided under Section 53(2A) is not applicable.

10.13 The commercial expediency of guaranteeing AGS to buy CCPS of VEPL for Rs.

650 Cr. for successful subscription to IPO has already been placed on record, which has not been disputed by the Revenue. It may be noted that NCRRPS is to be

redeemed after the period of 6 years at par. The appellant sold the same at its

discounted present value instead of holding it for 6 years and getting it redeemed at

par. The family trust will pay the LTCG tax as and when the NCRPS is redeemed at

par. The lower price at which the NCRPS was acquired will be the cost of acquisition

by the family trust, which, on redemption will be liable for higher LTCG.

10.14 Regarding the STCL incurred in respect of shares of AGS and WOW sold to the

existing shareholders of the companies, the shares were allotted by converting the

loan given to these companies by the appellant.

10.15 Considering the facts discussed above, it is evident that the occurrences of

the events are duly supported by the relevant documents. The assessee has duly

made relevant disclosures with regulatory authorities. Thus, facts emanating from

the above chronology establishes that the impugned STCL is not in violation in any

law in force and was not generated out of any activity prohibited by law.

10.16 The Ld. AR has relied upon the decisions of the Hon’ble Supreme Court in case

of Vodafone International Holdings (supra) and Azadi Bachao Andolan (surpa). The

Hon’ble Supreme Court in case of Vodafone International Holdings (Supra) has held

that while ascertaining the legal nature of a transaction the court has to look at the

entire transaction as a whole and not adopt a dissecting approach. All tax planning

is not illegal or illegitimate or impermissible. Whether a transaction is used 30 principally as a colourable device for the distribution of earnings, profits and gains,

is determined by a review of all the facts and circumstances surrounding the

transaction. There is a conceptual difference between a pre-ordained transaction

which is created for tax avoidance purposes, on the one hand, and a transaction

which evidences investment to participate in India. The corporate business purpose

of a transaction is evidence of the fact that the transaction is not undertaken as a

colourable or artificial device. The stronger the evidence of a device, the stronger

the corporate business purpose must exist to overcome the evidence of a device.

Regarding the piercing the corporate veil, it was observed that when it comes to

taxation of a holding structure, at the threshold, the burden is on the Revenue to

allege and establish abuse, in the sense of tax avoidance in the creation and/or use

of such structures. In the application of a judicial anti-avoidance rule, the Revenue

may invoke the "substance over form" principle or "piercing the corporate veil" test

only after it is able to establish on the basis of the facts and circumstances

surrounding the transaction that the transaction in question is a sham or tax

avoidant.

10.17 The Hon’ble Supreme Court in case of Azadi Bacho Andolan (supra) approved

the judgement of Hon’ble Madras High Court in case of M.V. Valliappan vs. CIT (1988)

170 ITR 238 (Mad.) which concluded that the decision in McDowell's Co. Ltd.'s case

(supra) cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is

perfectly permissible under law, which has the effect of reducing the tax burden of

the assessee, must be looked upon with disfavor. The Hon’ble Court has thus,

validated the legitimacy of tax planning by affirming that planning within the

framework of law is permissible.

10.18 Therefore, considering the factual matrix of the case and the precedents cited

supra, we are of the considered opinion that the set off of STCL against LTCG on sale

of shares of AGS is liable to be allowed. The order of CIT(A) is, accordingly, set aside

and this ground is allowed.

consideration received on transfer of NCRPS of VEPL and unlisted equity shares. The

AO had held the assessee has not been able to produce the documentary evidences

in respect of the cost acquisition of unlisted shares and holding period and hence,

added Rs 258,46,44,530/- u/s 68 of the Act. The CIT(A) has dismissed the ground by

observing that the appellant was not able to prove the genuineness of the

transaction.

11.1 Before the CIT(A), the appellant had submitted the various documents in

respect of cost of acquisition of the unlisted shares of WOW, AGS and NCRPS of

VEPL. The details submitted by the Ld. AR in support of his contention have already

been enlisted earlier in this order. Further, the chronology of the events has also been detailed in this order. The Ld. AR has also submitted that that provisions of

section 68 of the Act, are not applicable to the sale consideration of NCRPS of VEPL

and the equity shares of AGS and WOW.

11.2 On the other hand, the Ld. CIT(DR) has relied upon the orders of the lower

authority.

The issue of addition u/s 68 of the Act has already been decided in favour of the

appellant while deciding grounds No. 1 and 6 on jurisdictional issues. The set off of

STCL against LTCG on sale of shares of AGS has been discussed in detail in the para

10 to 10.18 of this order while deciding the Ground No. 3. As this issue arises out of

the issue of STCL of Rs. 400.21 Cr., which has been allowed after considering the

factual matrix and precedents in the aforesaid paras of this order, we are of the

considered opinion that separate addition towards cost of acquisition of the shares

involved in the impugned STCL u/s 68 of the Act is not warranted. Accordingly, the

order of CIT(A) on this issue is set aside and the ground is allowed.

month. The assessee had computed the deemed ALV of house property at Ahuja at

the rate of Rs.5,00,000/- per month for six months. The AO, taking into account the

location of the property and other factors, computed the deemed ALV at the rate of

Rs.10,00,000/- per month for six months. The CIT(A) upheld the action of the AO.

13.1 The Ld. AR submitted that the AO had computed the deemed ALV at the rate

of Rs.10,00,000/- per month for six months without giving reasons for adopting the

rate of Rs.10,00,000/- per month. The Ld. AR submitted that the municipal valuation

is at the rate of Rs.2,00,000/- per month and as against this, the assessee has

adopted the rate of Rs.5,00,000/-, which is reasonable.

13.2 On the other hand, the Ld. CIT (DR) referred to the assessment order passed

in case of the appellant for the A.Y. 2020-21, wherein the rate adopted was of

Rs.8,00,000/- per month. He relied on the order of the coordinate bench in case

of Modern Abodes Pvt. Ltd. v. ITO, vide ITA No. 2735/Mum/2022 (A.Y. 2014-15) dated

03.04.2023.

13.3 We have heard both parties and perused the materials on record. We have

also carefully gone through the orders relied upon by the Ld. CIT-DR. In assessee’s

own case for AY 2020-21, the AO has adopted the rate of Rs.8,00,000/- per month

after taking into consideration location of the property and other factors and also

the comparable rates fetched by the similar properties located in the area. We find

the said order to be well reasoned based on the relevant facts and circumstances of

the case. The order in case of Modern Abode Pvt. Ltd. (supra) is not applicable

because the ITAT has held that no addition on account of deemed rental income can

be made in the AY 2014-15 in respect of various flats kept as stock-in-trade. The facts

of the case are distinguishable. However, considering that the subject AY is 2022-23, we direct the AO to compute the deemed ALV by escalating the rate @ 7% year-on-

year. Accordingly, the AO is directed to adopt deemed ALV at Rs.9,15,920/- per

month. This ground is partly allowed.

AO treated difference of Rs 12,98,64,011/- between the capital gains disclosed in the

return of income and as reflected in the capital account of the balance sheet as

unexplained cash credit u/s 68 of the Act. The CIT(A) has upheld the addition of the

AO. Before the CIT(A), the appellant has made his submissions with the documentary

evidences. The main contention of the appellant was that the difference was due to

indexation of cost of acquisition of shares of AGS and timing differences in

recognition of related expenses.

14.1 The Ld. AR submitted the shares of AGS were acquired during the FY 2005-06

for a consideration of 3,00,25,930/- and same were indexed considering the cost

inflation index of FY 2005-06 and FY 2017-18, giving indexed cost of acquisition at Rs

6,98,03,871/- and the same has been claimed in the return of income. It was also

submitted that the STT paid of Rs 1.35 Cr. has not been considered as an expense

incurred in connection in transfer of capital asset while computing the capital gains

in the ITR whereas the same has been considered as expense in the books of

account. He also submitted that in books of account for the FY 2021-22, expenses to

the tune of Rs 12.39 Cr., net of GST, has been claimed pertaining to the fees charged 35 by the Book Running Lead Managers (viz HDFC Bank Ltd, ICICI Bank Ltd and JM

Financial Ltd.) for the IPO of AGS on the basis of invoices received from the

concerned parties. Certain invoices were received in the FY 2022-23 and same were

considered in the FY 2022-23. However, while computing capital gains on shares of

AGS, the entire expense of Rs. 22.75 Cr. was considered as expenses incurred in

connection with the transfer of shares since the entire fees paid to Lead Managers

was for the purpose of sale of these shares. This has resulted in the difference of Rs

10.35 Cr. (Rs 22.75- Rs12.39). The Ld. AR has given the working of the difference in

the amounts of LTCG as under:

Particulars Amount in Rs Cr. LTCG as per books 649.21 Less: Increase on cost of acquisition due to indexation as per the (3.98) provisions of section 55(2)(ac) of the Act Add: STT expenses not included in transfer expenses while 1.35 considering capital gains in the return of income Less: Timing difference in accounting BRLM fess in the books of (10.35) account (entire fees included while computing capital gains in return of income) LTCG as per return of income 636.25

14.2 The Ld. CIT-DR submitted that the appellant has not substantiated the

expenses claimed while computing LTCG on sale of AGS TTL shares. However, on

perusal of the assessment order and the order of the CIT(A), it is evident that neither

the AO nor CIT(A) has doubted the genuineness of the expenses claimed. The Ld. AR

of appellant has submitted the bills for the expenses claimed, which had also been

submitted during the assessment and appeal proceedings.

14.3 We have heard both parties and perused the materials on record. On going

through the details and submissions, it is evident that difference added by AO has

been duly explained by the Ld. AR. However, we find that neither AO nor the CIT(A)

has verified the details and the amounts involved. Therefore, in the interest of

justice, the matter is remanded to AO for the purpose of verification of the expenses.

He shall allow the expenses thereafter as per law. The AO is also directed to allow

adequate and reasonable opportunity of being heard to the assessee. Accordingly,

the ground is allowed for statistical purpose.

Order is pronounced on 06.07.2026.

Sd/- Sd/- (SANDEEP GOSAIN) (BIJYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER

*Aniket Chand; Sr. PS MUMBAI Date: 06.07.2026 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, MUMBAI 6. Guard File By Order

Assistant Registrar ITAT, MUMBAI