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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI
Before: HON’BLE N.K. BILLAIYA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, ITO, Ward 11 (3), New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeal sought to set aside the impugned order dated 16.06.2017 passed by the Commissioner of Income-tax (Appeals)-4, New Delhi qua assessment year 2008-09 on the grounds inter alia that :-
“Whether on the facts & Circumstances of case, the ld. CIT(A) was correct in quashing the reopening of the assessment u/s 148 of the LT. Act by stating that the action should have been taken u/s 153(C) of the Act by holding that transaction of sweat equity shares allotted to the assessee at NIL consideration recorded in the books and observed during the post search investigation would fall within the meaning of word "belongs to", as provided us 153C of the Act.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee filed return of income on 25.07.2009 at the income of Rs.1,09,750/-. M/s. Rockland Hospital Ltd. group of company was searched under section 132 of the Income-tax Act, 1961 (for short ‘the Act’) on 06.09.2011, in which assessee is neither an employee nor Director. However, assessee was issued 3,50,000 sweat equity shares of Rs.10 each with premium of Rs.190 per share without any consideration.
AO initiated the reassessment proceedings on the basis of information and copy of sweat equity share agreement dated 28.01.2008 that the assessee has received 3,50,000 sweat equity shares of Rs.10 each at the premium of Rs.190 per share during Financial Year 2007-08 without any consideration which the assessee had not offered as part of his taxable income. AO proceeded to hold that sweat equity shares was covered under the provisions of Fringe Benefit Fax (FBT) and TILL AY 2009-10, FBT @ 30% was payable on the value of sweat equity allotted by the company to its Director or employees. It is also brought on record by the AO that vide sweat equity agreement, the equity shares were issued to three persons including the assessee, namely, Shalabh Upadhyay, Sushil Kumar Sharma (assessee) & Mrs. Ritu Sharma, who are relatives of the Director of M/s. Rockland Hospital Ltd.. AO reached the conclusion that assessee has derived benefit of Rs.7,00,00,000/- in the form of equity shares without any consideration on account of his relation with Shri Aditya Kumar Bhandari which is income of the assessee and consequently made addition thereof to the total income of the assessee.
4, Assessee carried the matter before the ld. CIT (A) by way of filing an appeal who has annulled the reopening and thereby quashed the assessment order by allowing the appeal. Feeling aggrieved by the order passed by the ld. CIT (A), the Revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Undisputedly, 3,50,000 sweat equity shares of Rs.10 each with premium of Rs.190 per share were issued to the assessee by M/s. Rockland Hospital Ltd. in accordance with the agreement dated 28.01.2008. It is also not in dispute that during search operation conducted u/s 132 of the Act in M/s. Rockland Hospital Ltd. group of cases, no incriminating material was seized rather AO initiated the reopening on the basis of information and copy of sweat equity share agreement dated 28.01.2008. It is also not in dispute that assessee is neither an employee nor a Director of M/s.
Rockland Hospital Ltd. and his wife is only a housewife. It is also not in dispute that as per sweat equity share agreement, there is a lock-in period of three years and these shares would vest in the assessee only after lock-in period. It is also not in dispute that in case of Rajat Shubra Chatterjee who was also allottee of 1000 shares of Rs.10 each at the premium of Rs.190 each by M/s.
Rockland Hospital Ltd., the coordinate Bench of the Tribunal in vide order dated 20.05.2016 quashed the reassessment initiated on the basis of incriminating material found during search in the case of third party, namely, M/s. Rockland Hospital Ltd. in which provisions contained u/s 153C were applicable and not the provisions contained under section 147/148 of the Act.
In the backdrop of the aforesaid facts and circumstances of the case, we are of the considered view that the ld. CIT (A) has rightly annulled the assessment order by returning following findings :-
“9. The appellant has relied on the decision of Hon'ble ITAT, Delhi in the case of Rajat Shubra Chatterjee order dt. 20th May, 2016, Sh. Rajat Shubra Chatterjee, who was a Doctor and was allotted 1,000 shares of Rs.10 each at a premium of Rs. 190 each. The quantum of addition involved was only Rs. 2,00,000/-. The other additions relied upon by the appellant are the decisions of other CIT, Appeals. The Hon'ble ITAT in the above decision held that since the reassessment was initiated on the basis of incriminating material found during search in the case of third party i.e. M/ s Rockland Hospital Limited, the provisions of 153C were applicable in this case and not the provisions of section 147/148 for this reason. The reassessment was quashed and proceedings u/s 147/148 were treated as void-ab-initio. The quantum involved in the said case and also in the decisions of CIT (A) in other cases were much smaller and, therefore, there is a possibility that these decisions have not been contested by the Revenue further. From a perusal of number of shares allotted, reproduced in assessment order, it is noticed that the shares allotted to the appellant and his spouse are of large higher value. The appellant's wife is only a housewife as confirmed in her statement on oath in her case, while appellant is also neither an employee nor a director. Therefore, the sections under which additions were made in the cases of employees/ directors etc. were different from the addition in the case of the appellant, where the addition has been made u/s 2(24)(iv). The assessment order states that the issue of shares was detected in post search investigation. However, from a perusal of the order of Hon'ble ITAT (supra), it is noticed that the evidence was found during the search. Since, nothing contrary has been brought on record by AO, it is presumed that the agreement with appellant was found during search only and not subsequently. Therefore, respectfully following the decision of Hon'ble ITAT (supra), the assessment order is annulled and Ground no. 2 of the appeal is allowed.”
When undisputedly the reopening has been initiated u/s 147/148 of the Act on the basis of same third party document belonging to M/s. Rockland Hospital Ltd., the same is void ab initio because in any case the reopening was to be initiated it could have been initiated u/s 153C of the Act. Ld. CIT (A) has rightly quashed the assessment by following the order passed by the coordinate Bench of the Tribunal in case of Rajat Shubra Chatterjee in which reassessment was initiated on the basis of same third party incriminating material.
Furthermore, ld. AR for the assessee also placed on record order passed by the coordinate Bench of the Tribunal in & CO No.166/Del/2018 in case of Shri Umesh Upadhyay order dated 19.03.2019, discussed by the AO in para 7.8 of the assessment order, in which reassessment was initiated on the basis of same third party incriminating material qua issuance of 100,000 equity shares with face value of Rs.10 having premium of Rs.190 per share as sweat equity shares by M/s. Rockland Hospital Ltd. whereby quashing of reassessment by ld. CIT (A) was upheld.
It is also undisputed fact that Hon’ble Delhi High Court vide order dated 26.02.2010 in a company petition no.399/2009 in the matter of The Companies Act, 1956 and Petition u/s 101 of the Companies Act, 1956 and M/s. Rockland Hospital Ltd. directed that all the “sweat equity shares” including subject matter of the present appeal were ordered to be returned and entry was reversed and the assessee quitted the association of the assessee on 07.02.2011 being an essential condition under the “sweat equity share agreement” to derive the benefit thereunder. It is also matter of fact that Board of Directors of M/s. Rockland Hospital Ltd. has passed a Resolution and thereby accepted the surrender of shares by the assessee.
Ld. CIT (A) has even decided the issue on merits also in favour of the assessee on the ground that as per clause in the “sweat equity share agreement” whereby assessee will get full right to dispose off the shares only after three years lock in period, meaning thereby shares would vest in assessee only in AY 2011-12 or AY 2016-17 (where approval of the Board was received for transfer of the shares to the Trust).
11. In view of what has been discussed in the preceding paras, ld. CIT (A) has rightly quashed the assessment initiated on the basis of third party incriminating material u/s 147/148 of the Act.
So, finding no illegality or perversity in the impugned order, appeal filed by the Revenue is hereby dismissed. Order pronounced in open court on this 30th day of June, 2021.