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

Whether, in the facts and circumstances of the case, the authorities, including the learned AO and CIT(A), failed to consider the entirety of the transaction in their assessment. 10.Whether, in the facts and circumstances of the case, the authorities, including the learned AO and CIT(A), failed to give due consideration to the valuation report and fairness opinion obtained from reputable valuers. Furthermore, the acquisition price was determined based on the share entitlement ratio approved by the Hon'ble National Company Law Tribunal, Mumbai, as per the composite scheme of arrangements and amalgamations.

The Appellant respectfully prays that the addition made by the AO under section 56(2)(x) of INR 3,36,27,20,872/- be deleted, and the returned loss of INR 43,99,76,081/- be accepted.

The Appellant prays that the addition made by the AO u/s. 56(2)(x) of Rs. 3,36,27,20,872/- may be deleted and the returned loss of Rs. 43,99,76,081/- be accepted. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble Income- tax Appellate Tribunal to decide this appeal according to the law. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the Appellant requests that the appeal be allowed as prayed.” Brief facts of the case are as under:

It was noted that, this email had an attachment containing tax working regarding the proposed purchase and sale of shares of PSCL and FOL within the promoter entities. The said working was prepared by M/s. Price Water Coopers pers (PwC). When confronted, the CFO stated that this email was forwarded by him to Shri Jinesh Rambhia, an employee of Fairbridge Capital Pvt. Ltd. which is also acting as Liasoning office of Fairfax in India. It was stated that, this working was done by PwC in 2019 who were advisor for the said transactions. It was stated that, these working were made for estimating the tax burden on the proposed transactions of purchase and sale of shares of PSCL and FOL within the promoter entities. 2.3 The Ld.AO noted that, the assessee purchased shares of PSCL through an off-market transaction and since these shares were purchased for a consideration lower than the FMV as on the date of transfer, a query was raised as to why, the provisions of section 56(2)(x) of the Act were not applicable to the assessee, especially when M/s. PwC had opined that tax under said section shall be payable. In response to this, the CFO stated that, they did not agree with the opinion of M/s. PwC that the provisions of section 56(2)(x) are applicable in the present case. It was however A.Y. 2022-23 Vivira Investment And Trading Private Limited stated that if any tax u/s. 56(2)(x) is payable, same shall be paid by the company. 2.4 Subsequent to the survey, the assessee company filed original return of income on 30.09.2022 declaring loss of Rs.43,99,76,081/-. Although the assessee company did not offer any income u/s. 56(2)(x) of the Act, however, it paid self- assessment tax of Rs. 78,11,02,130/- on 30.09.2022 and the same was claimed as refund while filing the return of income. The said return was selected for scrutiny and a notice u/s. 143(2) of the Act was issued on 10.02.2023. 2.5 During the assessment proceedings, the Ld.AO issued show-cause notice to the assessee company asking it to explain the difference between the consideration paid @Rs.653.29 per share and the market value @Rs.873 (lowest on the date of purchase) should not be treated as income as per the provisions of section 56(2)(x) of the Act. In the show cause notice, the Ld.AO computed the amount of difference at Rs.336,27,20,872/-. In response to this, the assessee filed a detailed submission dated 22.09.2023 which has been reproduced by the Ld.AO at page 3 to 8 of the assessment order. The said explanation was not accepted by the Ld.AO for the following reasons:- i. The sale consideration was paid by the assessee company @Rs.653.29 per equity share of PSCL which was much lower than the FMV of Rs.915 per share as determined by M/s. GMJ and Co. on 22.04.2021. The said valuation report was impounded during the survey and has been scanned at page 10 to 14 of the assessment order.

The Ld.AO thus computed the deemed income u/s.56(2)(x) at Rs.336,27,20,872/- being the difference in the aggregate FMV of the shares acquired by the assessee and the consideration paid.

The Ld.CIT(A) upheld the addition made by the Ld.AO Aggrieved by the order of the Ld.CIT(A) the assessee is in appeal before this Tribunal.

The Ld.AR submitted that, M/s. PSCL earlier known as Fairchem Speciality Ltd. i.e. FSL had two promoter groups namely, Privi promoters and Fairfax promoters. In 2019, both the promoters decided to part their ways and with this intent share purchase agreement and an option agreement dated 22.05.2019, were signed under which it was decided that – a) Privi Promoters to sell their whole stakes in Fairchem Organics Ltd. to Fairfax promoters. b) Fairfax to provide call option to the Privi promoters in relation to HE TAX DEPARTME their 9.84% stake in FSL. 5.1 The Ld.AR submitted that, the negotiations for acquiring the stakes in PSCL were initiated in 2019 and final settlement happened on 29.04.2021. It was submitted that, the negotiation price was determined based on quoted price at NSE in the month of February, 2021, which were ranging in the band of Rs.543- 600. The Ld.AR submitted that, in the meantime, the prices on share market rallied resulting in higher prices on 29.04.2021. 5.2 The Ld.AR submitted that, the deal could not get materialized to ongoing COVID pandemic. Further as per the decision of Hon’ble Supreme Court regarding extension of time limitation due to COVID pandemic reported in 438 ITR 296, all dates were extended, and thus on the basis of above decision of A.Y. 2022-23 Vivira Investment And Trading Private Limited Hon'ble Supreme Court, the option agreement dated 22.05.2019 was active on 22.04.2021. 5.3 The Ld.AR submitted that, the valuation report gives two valuations i.e. Rs.641 and Rs.915 per equity share. As the price of Rs.915 was higher, the valuer took the higher price as mentioned in the valuation report itself. He submitted that, the Ld.AO did not give any consideration to the valuation at Rs.641 per equity share which was lower than the consideration price mentioned in the agreement dated 22.04.2021. 5.4 The Ld.AR submitted that, the provisions of section 56(2)(x) are anti-abuse provisions and have to be construed in a manner to achieve the intended purpose. He submitted that, these provisions should not be made applicable to bonafide transactions, as in the present case. It is submitted that, the consideration price was higher than the average price of quoted price on NSE in last 26 weeks which was worked out at Rs.641 by the valuer, therefore, there was no intention to evade any tax. He also relied on the decision of Hon'ble Supreme Court in the case of K. P. Varghese vs. ITO reported in (1981) 131 ITR 597 (SC). 5.5 The Ld.AR submitted that, business deals are done on the basis of negotiations considering various factors, and that market rate may be one of the factors which may determine the price at which the ultimate deal takes place. He submitted that, some deals may go through in a very short time, whereas others may take place after prolong negotiations, does not mean that, the deal was struck for avoidance of any tax. He submitted that, merely because an agreement is entered into at a price lower than the market rate, does not mean that, the deal was in order A.Y. 2022-23 Vivira Investment And Trading Private Limited to avoid to evade tax. He emphasised that genuine cases like the present case are not intended to be hit by the provisions of section 56(2)(x) of the Act. 5.6 On the contrary, the Ld.DR relied on the orders passed by the authorities below.

It is an undisputed fact that the assessee purchased 1,53,05,270 number of equity shares of PSCL on 29.04.2021, through 'off-market' transaction, under an agreement entered into with FIH, Mauritius. The purchase price of these shares was Rs.653.29 per share which was lower than the lowest price of shares of PSCL at NSE on 29.04.2021 which was Rs.873 per share. The assessing officer accordingly applied the provisions of section 56(2)(x) of the Act and made addition of Rs. 336,27,20,872/-. The Ld.AR has taken various contentions to argue that the provisions of section 56(2)(x) should not be made applicable to the present case. 6.1 The Ld.AR submitted that, the assessee seeks to adduce additional evidence under Rule 29 to substantiate the price agreed between the parties to the agreement dated 22/04/2021, and that it was a bonafide transaction. 6.2 It is noted that evidence plays an important role in decision- making and adjudicating proceedings. Considering the facts and circumstances of the present case, the assessee should not suffer for the non-filing of material information. It is submitted that the identical issue is pending before the Ld.CIT(A) in case of other A.Y. 2022-23 Vivira Investment And Trading Private Limited promoters in respect of the same transaction. As the issue revolves around the price to be considered for valuation of the shares, and applicability of provisions of section 56(2)(x), which is an anti-abuse provision: under such circumstances it is necessary to verify the additional evidence filed by the assessee.