SAMEER GEHLAUT,LONDON vs. DCIT, MUMBAI

1. On such assumption, the AO came to the conclusion that the assessee has\nbeen benefitted by Rs.510 Crores arising from exercise of a profession by misusing\nhis position to grant huge loans from IBHFL to entities of RADAG & Shri Harish\nFabiani Group and in turn received investments in the garb of subscription of OCDs\nor CCDs.\n4.2.\nThe AO was of the firm belief that the benefit accrued to the assessee in the\nform of investments amounting to Rs.510 Crores in the entities owned/controlled\nby him, qualifies to be benefit arising from the exercise of profession under the\nprovisions of Section 28(iv) of the Act liable to be taxed in the hands of the assessee.\nAccordingly, the addition of Rs.510 Crores were made by the AO under the head\nincome from business and profession.\n4.3.\nThe assessee agitated the matter before the ld. CIT(A) and on the facts\nmentioned by the AO in his assessment order, the ld. CIT(A) in his wisdom, set\naside the assessment. The relevant findings of the ld. CIT(A) read as under:-\n“I, therefore, remit the matter back to the AO to frame denovo assessment by making further\ninquiry in the following areas among other things which the AO himself may require.\n1. The AO shall examine the dates of subscription of loans by INDIABULLS group\nto ADAG Group and Fabiani Group.\n2. The AO shall examine as to who the directors of ADAG group and Fabiani\ngroup are subscribing to OCD to appellant controlled company by examining\nthe directors by issuing summons and recording their statements under the\napplicable law particularly when ADAG group and Fabiani group were in need\nof funds and borrowed from INDIA BULLS.\n3. The AO shall examine as to who the directors of appellant group are receiving\nOCD.\n4. The AO shall examine the directors of ADAG group and Fabiani group\nsubscribing to OCD to appellant controlled company.\n5.\nThe AO shall also examine as to need and business interst therein for ADAG\ngroup and Fabiani group to subscribe the OCD to appellant controlled company.\n6. The AO shall also examine as to source of funds by companies controlled by\nADAG group and Fabiani Group to subscribe the OCD to appellant controlled\ncompany.\n7. The AO shall also examine the end use of funds by the companies receiving\nOCD.\n8. The AO shall also examine as to whether any board resolution was passed either\nfor receiving OCD or subscribing to OCD.\nBased on examination in the above line apart from other inquiries which the AO\nmay think so for assessment.\nAs discussed above the assessment order for A.Y. 2017-18 was passed by the AO u/s\n144 r.w.s.147 of the Act. Therefore, as per the proviso to Section 251(1)(a) of the Act, the\nassessment order u/s 144 r.w.s.147 dated 16/03/2022 is set aside to the file of the AO for\nmaking fresh assessment order, after conducting further inquiries as mentioned in Para 8\nand any further inquiry, if necessary.”\n5.\nWe have given a thoughtful consideration to the orders of the authorities\nbelow and in particular, the directions issued by the ld. CIT(A) while setting aside\nthe assessment. In our considered opinion, the ld. CIT(A) erred in giving directions\nto the AO while setting aside the assessment, firstly, for the following reasons:-\n“42. Section 251 of the Act as it amended by Finance Act No. 2 at 2024 w.e.f.\n1.10.2024 reads as under:\n\"Powers of the Joint Commissioner (Appeals) or the] (Commissioner (Appeals)] 251\n(1) In disposing of an appeal, the Commissioner (Appeals) shall have the following\npowers-\na) in an appeal against an order of assessment, he may confirm, reduce, enhance\nor annual the assessment\nProvided that where such appeal is against an order of assessment made\nunder Section 144, he may set aside the assessment and refer the case back to\nthe Assessing Officer for making afresh assessment;\"\n43.\nThat in Finance Bill' 2022 an amendment had proposed in section 251 of the\nAct reported in 465 ITR 55 at page 114 (St.) provides as under:\n\"77 Amendment of section 251.- In section 251 of the Income Tax Act, in\nsub-section (1), in clause (a), the following proviso shall be inserted with\neffect from the 1st day of October, 2024, namely:-\nProvided that where such appeal is against an order of assessment made\nunder section 144, he may set aside the assessment and refer the case back to\nthe Assessing Officer for making a fresh assessment.\"\n44.\nFurther notes on clauses to the Finance Bill' 2024 in this respect as reported\nin 465 ITR 152 at page 203 (St.) reads as under:\n"Clause 77 of the Bill seeks to amend section 251 of the Income-tax Act\nrelating to powers of the Joint Commissioner (Appeals) or the Commissioner\n(Appeals).\nSub-section (1) of the said section provides that Commissioner (Appeals)\nshall have, inter alia, the powers to confirm, reduce, enhance or annul the\nassessment, in the case of an appeal against an order of assessment; or\nconfirm, cancel, or vary to enhance or reduce, the penalty order, in the case\nof an appeal against an order imposing a penalty while disposing of such\nappeal.\nIt is proposed to amend the said sub-section by inserting a proviso in clause\n(a) of subsection (1) thereof to provide that where an appeal is against an\norder of assessment under section 144, the Commissioner (Appeals) shall\nhave the power to set aside such assessment made under Section 144, and refer\nthe case back to the Assessing Officer for making a fresh assessment.\nThis amendment will take effect from 1st October, 2024.*\n45.\nAlso memorandum explaining the Finance Bill' 2024viz-a-viz the above\namendment reported in 465 ITR 213 at pages 268-269 (St.) reads as under:\n\"Powers of the Commissioner (Appeals)\nThe existing provisions of section 251 of the Act specify the powers of the\nJoint Commissioner (Appeals) or the Commissioner (Appeals). Further, sub-\nsection (1) of the said section provides that Commissioner (Appeals) shall\nhave, inter-alia, the following powers in disposing of an\na) He may confirm, reduce, enhance or annul the assessment, in the case of\nan appeal against an order of assessment\nb) He may confirm, cancel, or vary to enhance or reduce, the penalty order, in the case\nof an appeal against an order imposing a penalty.\n2. Further, sub-section (4) of section 250 of the Act prescribes that\nCommissioner (Appeals) may seek the report from the Assessing Officer after\nmaking further inquiry, before disposing any appeal.\n3. It has been found that in the best judgement cases, taxpayers remain\nnonresponsive to the letters or notices issued by the Faceless Assessing\nOfficer. However, they directly file the appeal to Commissioner (Appeals)\nagainst the relevant assessment order.\n4.\nConsidering the huge pendency of appeals and disputed tax demands\nat the Commissioner (Appeals) stage, it is proposed that the cases where\nassessment order was passed as best judgement case under section 144 of the\nAct, Commissioner (Appeals) shall be empowered to set aside the assessment\nand refer the case back to the Assessing Officer for making a fresh assessment.\nFurther, it is proposed to make consequential amendment in section 153(3)\nof the Act in order to provide the time limit for disposal of cases which are set\naside by the Commissioner (Appeals).\n5.\nThis amendment will take effect from the 1st day of October, 2024. It\nwill be applicable to appellate orders passed by the Commissioner (Appeals)\non or after 01.10.2024.\"\nThe aforementioned amendment has to be read along with the earlier\nprovisions as they stood prior to amendment by Finance Act, 2001 w.e.f. 01/06/2001:-\n“46. It may be stated here that section 251(1)(a) of the Act as its stood prior to\namendment by Finance Act 2001 w.e.f. 1.6.2001 reads as under:\na) in an appeal against an order of assessment, he may confirm, reduce\nenhance or annual the assessment Provided that where such appeal is\nagainst an order of assessment made under section 144, he may set aside\nthe assessment and refer the case back to the Assessing Officer for making\nafresh assessment in accordance with the directions given by the\nAppellate Assistant Commissioner and after making such further inquiry\nas may be necessary; and the Assessing Officer shall thereupon proceed\nto make such fresh assessment and determine, where necessary, the\namount of tax payable on the basis of such fresh assessment\" at the end\"\n47.\nThe scope and effect of the amendment was explained by the board in Circular\nNo. 14 dated 12.12.2001 reported in 252 ITR 65 (St.) reads as under:\n\"78. Powers of the Commissioner (Appeals) not to include powers to set aside\nthe assessment.\n78.1 Under the existing provision contained in subsection (1) of section 251\nof the Income-tax Act, in an appeal filed before a Commissioner (Appeals)\nagainst an order of assessment, the Commissioner (Appeals) may confirm,\nreduce, enhance or annul the assessment, or he may set aside the assessment\nand refer the case back to the Assessing Officer for making a fresh assessment\nin accordance with the directions given by him, after making such further\nenquiry as may be necessary. With a view to help bringing about an early\nfinalisation to the assessment and to avoid prolonging the process of\nlitigation, the Act has amended section 251 so as to provide that, in an appeal\nfiled before the Commissioner (Appeals), against an order of assessment, the\nCommissioner (Appeals) may not set aside the assessment and refer the case\nback to the Assessing Officer for making fresh assessment. The Commissioner\n(Appeals) continues to have the powers under section 250 of making further\ninquiry, or directing the Assessing Officer to make further inquiry and report\nthe result of the same to him, which can be made use of in appeals needing\nfurther enquiry or gathering of additional facts or evidence.\n78.2 This amendment will take effect from 1st June, 2001 [Section 83]\"\n6.\nA simple comparison of the amended provision would show that the ld.\nCIT(A) can simply set aside the assessment if he wishes to but cannot give any\ndirections as is clear from the aforementioned provisions and the relevant clauses\nof the Finance Bill and also from the memorandum explaining the Finance Bill.\n6.1.\nSecondly, this is not the case where the AO has made addition u/s 68 of the\nAct as unexplained cash credit and the onus is upon the assessee to prove the\nidentity, genuineness of the transactions and creditworthiness of the lenders.\n6.2.\nThirdly, when the facts have been captured by the AO and also by the ld.\nCIT(A) and these facts have never been disputed by the assessee, there was no need\nto set aside the assessment because the only issue which needs to be decided is the\napplicability of the provisions of Section 28(iv) of the Act. For this proposition, we\ndraw support from the decision of the Hon'ble High Court of Delhi in the case of\nCIT vs. Sony Mobile Communications [2019] 104 CCH 0355 Del HC. The relevant\nobservations of the Hon'ble High Court read as under:-\n“11. The Revenue's only argument is that for determining the comparables, ITAT\nrelied on the TP analysis conducted by the PO and that such an exercise was based\non application of the "bright line" test, which has since been discarded. The allied\nsubmission is that the ITAT should have remitted the entire matter for fresh\nconsideration by the TPO.\n12. Having gone through the entire record, the court is of the opinion that the\nrevenue's arguments are insubstantial and unmerited. There is no per se rule that in\nevery case, the ITAT had to necessarily remit each matter. Given that the materials\nin the form of reports and documents were available with the ITAT, that the tribunal\nitself carried out the analysis, based on the record, of the facts which were disclosed\nbefore the TPO, does not result in any credence to the revenues complaint that it was\nnot given sufficient opportunity. This court notices that the matters were re-\nexamined by the ITAT itself in Sony Ericsson, and in view of the further\ncircumstance that the remit was pending for 3 years, the revenue's arguments have\nno force.\"\n7.\nAs mentioned elsewhere, the quarrel revolves around the applicability of the\nprovisions of Section 28(iv) of the Act, which reads as under:-\n“(iv) the value of any benefit or perquisite, whether convertible into money or not,\narising from business or the exercise of a profession shall be chargeable to income-tax\nunder the head “profits and gains of business or profession.”\n8.\nIn our considered opinion, this provision is not applicable on the facts of the\ncase inasmuch as the assessee is having income from salary, dividend and other\nincome during the year. These facts have been captured by the AO in the reasons\nrecorded for reopening the assessment. Thus, neither the assessee has any business\nnor he is engaged in the profession. The decision of the Hon'ble Supreme Court in\nthe case of CIT vs. Mahindra and Mahindra Ltd. Reported in 404 ITR 1, squarely\napplies to the facts of the case wherein, the Hon'ble Supreme Court in the context\nof Section 28(iv) of the Act has held as under:-\n“10. The term "loan" generally refers to borrowing something, especially a sum of\ncash that is to be paid back along with the interest decided mutually by the parties.\nIn other terms, the debtor is under a liability to pay back the principal amount along\nwith the agreed rate of interest within a stipulated time.\n11. It is a well-settled principle that creditor or his successor may exercise their\n\"Right of Waiver\" unilaterally to absolve the debtor from his liability to repay. After\nsuch exercise, the debtor is deemed to be absolved from the liability of repayment of\nloan subject to the conditions of waiver. The waiver may be a partly waiver i.e.,\nwaiver of part of the principal or interest repayable, or a complete waiver of both the\nloan as well as interest amounts. Hence, waiver of loan by the creditor results in the\ndebtor having extra cash in his hand. It is receipt in the hands of the debtor/assessee.\nThe short but cogent issue in the instant case arises whether waiver of loan by the\ncreditor is taxable as a perquisite under Section 28 (iv) of the IT Act or taxable as a\nremission of liability under Section 41 (1) of the IT Act.\n12. The first issue is the applicability of Section 28 (iv) of the IT Act in the present\ncase. Before moving further, we deem it apposite to reproduce the relevant provision\nherein below:-\n'28. Profits and gains of business or profession. – The following income shall be\nchargeable to income-tax under the head \"Profits and gains of business\nprofession\", -\n**\n**\n**\n(iv) the value of any benefit or perquisite, whether convertible into money or not,\narising from business or the exercise of a profession;\n**\n**\n**1\n13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that\nfor the applicability of the said provision, the income which can be taxed\nshall arise from the business or profession. Also, in order to invoke the\nprovision of Section 28 (iv) of the IT Act, the benefit which is received has to\nbe in some other form rather than in the shape of money. In the present case, it\nis a matter of record that the amount of Rs.57,74,064/- is having received as cash\nreceipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv)\nof the IT Act which says any benefit or perquisite arising from the business shall be\nin the form of benefit or perquisite other than in the shape of money, is not satisfied\nin the present case. Hence, in our view, in no circumstances, it can be said that the\namount of Rs 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the\nIT Act.\"\n[Emphasis supplied]\n9.\nMost importantly, the loan transaction between IBHFL and the corporate\nentities of RADAG and Shri Harish Fabiani Group are the transactions between\nbody corporate being separate legal entities and the investment in the OCDs/CCDs\nby the other entities of RADAG and Shri Harish Fabiani Group in the entities\nalleged to be controlled by the assessee, are again transactions between distinct legal\nentities and it is a settled law that a body corporate is a separate and distinct legal\nentity from its shareholders. For this proposition, we draw support from the\ndecision of the Hon'ble Supreme Court in the case of Mrs. Bacha F Guzdar v. CIT\n[1955] 27 ITR 1 (SC), wherein the Hon'ble Supreme Court interalia held as under:-\n\"It was argued by Mr. Kolah on the strength of an observation made by Lord\nAnderson in Commissioners of Inland Revenue v. Forrest [1924] 8 Tax Cas.704 at\n710that an investor buys in the first place a share of the assets of the industrial\nconcern proportionate to the number of shares he has purchased and also buys the\nright to participate in any profits which the company may make in the future. That\na shareholder acquires a right to participate in the profits of the company may be\nreadily conceded but it is not possible to accept the contention that the shareholder\nacquires any interest in the assets of the company. The use of the word \"assets\" in\nthe passage quoted above cannot be exploited to warrant the inference that a\nshareholder, on investing money in the purchase of shares, becomes entitled to the\nassets of the company and has any share in the property of the company. A\nshareholder has got no interest in the property of the company though he has\nundoubtedly a right to participate in the profits if and when the company decides to\ndivide them. It is true that the shareholders of the company have the sole determining\nvoice in administering the affairs of the company and are entitled, as provided by the\narticles; of association, to declare that dividends should be, distributed out of the\nprofits of the company to the shareholders but the interest of the shareholder either\nindividually or collectively does not amount to more than a right to participate in the\nprofits of the company. The company is a juristic person and is distinct from the\nshareholders. It is the company which owns the property and not the shareholders.\"\n10.\nFrom the above decision of the Hon'ble Supreme Court, it is clear that Section\n28(iv) of the Act applies only if the benefit is arising in some other form other than\nthe shape of money and that too such benefit must arise from the business and on\nthe facts discussed hereinabove, there is no benefit which has arisen in some other\nform other than shape of money in the exercise of business so as to attract Section\n28(iv) of the Act.\n11.\nConsidering the facts of the case in totality in light of the decisions of the\nHon'ble Supreme Court (supra), we direct the AO to delete the impugned addition\nof Rs.510 Crores.\n12.\nSince we have directed to delete the addition, other issues raised by the\nassessee are left open.\n13.\nIn the result, appeal of the assessee is partly allowed.\nOrder pronounced in the Court on 5th August, 2025 at Mumbai.\nSd/-\n(ANIKESH BANERJEE)\nJUDICIAL MEMBER\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\nMumbai, Dated 05/08/2025\n*SC SPS\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\n \n12\nआदेश की प्रतिलिपि अग्रेषित/