M/S. ASARIA LALJI VADOR,MUMBAI vs. PR. CIT -7, MUMBAI

O R D E R PER S. RIFAUR RAHMAN (AM)

(A.Y: 2016-17) M/s. Asaria Lalji Vador notice u/s. 263 of the Act and served on the assessee. In response assessee made the following submissions “Claim for deduction based on merits and was otherwise allowable as per law a. The assessee had filed a return of income on 17.10.2016 declaring Total Income at Rs. 13,61,55,860/comprising of business income, capital gains and other sources. The total income was computed as per the provisions of the Income Tax Act. In computing the capital gains the cost of the shares transferred and the full value of consideration was correctly disclosed by the assessee. b. The gains were computed as per the provisions of S.45 to 55 including S. 54EC and rules and there are no errors in such computation found either by the AO or by your honour in the notice. c. Kindly note that the calculation of capital gains under consideration was made as per the regular provisions of the Act. For removal of doubts, the facts in brief and the basis thereof is explained hereunder, i. The assessee purchased 960 shares of Anant Developers Pvt. Ltd. for a total consideration of Rs. 12,96,00,000/-. ii. The payment against the said purchase of shares was made through banking channel. iii. The said shares were lying in the Demat of the assessee for the whole period in which it was held by the assessee. iv. The indexed cost of such shares for the assessment year 2016-17 comes to Rs. 22,414/-. v. The 960 shares under consideration were sold on 25.05.2015 to Pallava Developers Pvt. Ltd. for total consideration of Rs. 12,96,00,000/which resulted in a indexed capital gain of Rs. 12,45,77,586/-. vi. Bank statements highlighting the amount received from Pallava Developers Pvt. Ltd. were submitted before the AO along with Demat slip transferring shares to Pallava Developers Pvt. Ltd. vii. The assessee invested an amount of Rs. 50,00,000 in NHAI bonds to claim deduction u/s. 54EC of the Act.

(A.Y: 2016-17) M/s. Asaria Lalji Vador viii. The learned AO based on the provisions of the Act and the Rules based on the provisions of the Act and the Rules had taken a view that the claim of the "| assessee was allowable in law. d. ‘Full value of Consideration’ was determines after the due negotiation and taking into consideration the various factors, commercial and otherwise effecting the value of shares of the company based on the underlying assets and the abilities of the company. The value so determined was the final value agreed upon by the parties and such value was duly recorded in writing in the share purchase agreement dt. 25.04.2015 (Ann XIV) (Clause 3.1 Pg. 8) which therefore became the value that is adopted by me in computing the capital gains in accordance with the Income Tax Act, 19617. i. I respectfully submit that the term ‘Full Value Consideration’ referred to in S. 48 is the value that is the amount determined by the parties to the transfer. Once the said value becomes final, such agreed value alone represents the full value consideration for the purposes of computing Capital Gains. No other value can be substituted unless otherwise provided by the express provisions of Income Tax Act, 1961. Kindly note that there are no provisions in the Income Tax Act that provides for substituting the fictional value for computing capital gains on the Shares of the company in place of the agreement value. ii. It is settled position in law that the amount actually received by me as per the agreement would constitute the full value consideration and that is the value adopted by the Ld. AO after due inquiry into the facts of the case and consideration of the law on the subject. The AO has computed the capital gains as per the provisions of law and there are no two views about the adoption of full value consideration by the AO. iii. The term ‘Full Value of Consideration’ is neither the market value not any other value in the context of the shares. It is the full value consideration in my case represents the price that was bargained for by me with the purchaser of shares. Adequacy or otherwise of the price cannot be questioned unless there are material facts to indicate that | had received something more than the agreement value which had remained to be accounted and taxed. There is no material on records what so ever to even suggest the receipt of such consideration. iv. May I in this context respectfully invite the attention to the established position in law on the subject of full value of consideration;

(A.Y: 2016-17) M/s. Asaria Lalji Vador v. The SC in the case of George Henderson and Co. Ltd., 66 ITR 622 held as under; The expression ‘full value of the consideration’ cannot be construed as the market value but as price bargained for by the parties to the sale. vi. The same SC again reiterated the position in the case of Gillanders Arbuthnot & Co., 87 ITR 407 confirming that in the case of sales, all that one has to see is what is the consideration bargained for. vii. Once again the SC in the case of K P Varghese, 131 ITR 597 held as under; ‘A fair and reasonable construction of section 52(2) would be to read into it a condition that it would apply only where the consideration for the transfer is understated or, in other words, the assessee has actually received a larger consideration for the transfer than what is declared in the instrument of transfer and it would have no application in case of a bona fide transaction where the full value of the consideration for the transfer is correctly declared by the assessee. Therefore, section 52(2) had no application to present case and the ITO could have no reason to believe that any part of the income of the assessee had escaped assessment so as to justify the issue of a notice under section 148’. viii. Kindly note that the provisions of S. 52(2) which permitted substitution of the value has been dropped long and were even otherwise not applicable and even when they were applicable as the court held could be applied only when there was no possession of the AO some material to hold that a part of the consideration through received was not declared. ix. Lastly, recently the Delhi HC in the case of Smt. Nilofer I. Singh., 176 Taxman 252 held that for the purposes of S. 48 the full value of consideration is only the consideration referred to in the sale deed as the sale price of the asset transferred and not the market value. x. I respectfully submit that this settled position in Law has been reiterated and accepted, in the context of computation of capital gain, on transfer of shares of the company many number of cases including the following recent cases  Celenty Power L.L.P, 174 1TD 433 (Mum)  R.K.B.K. Fiscal Services Ltd., 19 taxmann.com 351 (Kol)

(A.Y: 2016-17) M/s. Asaria Lalji Vador f. Your kind attention is invited to provision of S. 50CA which are introduced by Finance Act, 2017 w.e.f AY 2018-19 i. 50CA. Special provision for full value of consideration for transfer of share other than quoted share.—Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in such manner as may be prescribed, the value so determined shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer. ii. These provisions do not apply to the Assessment Year under consideration. S. 50CA has introduced a deeming fiction for the 1st time for substituting the rule value for the agreement value in determining the full value of consideration u/s. 48 in computing the capital gains. The said provision is made effective from 01.4.2018 and was brought in specifically for adoption of a rule value where such value was higher than the agreed value. iii. I therefore submit that up to A.Y. 2017-18 the law did not permit any Substitution and permitted no option but to adopt the agreed value as the full value consideration till such time. In fact S. 50CA has been inserted specifically to provide for such substitution as is clarified by  The notes to clauses, 391 ITR 113 (st.), and  The Memorandum explaining the provisions of the Finance Bill, 391 ITR 165 (st.) g. It is respectfully submitted without prejudice to the fact that in the assessee’s Case the view adopted was the only possible view and no other view was Possible, that even where different view was possible and the AO has adopted the one which also was possible, no revision of its order was possible. The assessee has relied his case on the following case laws which are listed as under. i. Metallizing Equipment v. Jt. CIT (2005) 96 TTJ 827 (Jodh) (Trib) ii. Laj Exports, 142 ITD 306 (Cha) iii. Patkai Coal Products (P.) Ltd. 356 ITR 258 (Gau). iv. Malabar Industrial Co. Ltd. v. CIT, 243 ITR 83 (SC) v. CIT v. Max India Ltd., 295 ITR 282 (SC) vi. Grasim Industries Ltd. V. CIT, 321 ITR 92

(A.Y: 2016-17) M/s. Asaria Lalji Vador vii. Sutures India Pvt. Ltd. v. CIT 431 ITR 432 (Kar.) viii. Delhi Tribunal Special Bench in the case of Salora International Ltd. v. Ad. CIT [2005] 2 SOT 705 (Delhi)(Trib.)] ix. PCIT vs. V. Dhana Reddy & Co. — [2018] 100 taxmann.com (SC) x. CIT vs. International Society For Krishna Consciousness - [2020] 117 taxmann.com 799 (Kar) h. Where the assessee has adopted the only view permissible in law and the AO has accepted the same, the order of the AO does not become erroneous and prejudicial to the interest of the revenue. i. It is further humbly submitted that the exercise of jurisdiction to revise is contingent upon the Assessment Order being erroneous and simultaneously prejudicial to the interest of revenue. When the Assessing Officer takes the only permissible view in law and which the Commissioner does not agree with and which is alleged to result in a loss of revenue, it cannot be treated as erroneous order prejudicial to the interest of revenue, unless the view taken by the Assessing Officer is completely unsustainable in law. The Assessee begs to rely upon the above cited decisions to humbly submit that the Ld. A.O. after due examination of facts taken a particular view of the matter. The said view of the Ld. AO is in line with the established law with regards to computation of capital gains on sale of equity shares. The view taken by the Ld. AO therefore cannot be said to be erroneous.”

(A.Y: 2016-17) M/s. Asaria Lalji Vador ITR 129 (Mad.) and CIT v. Pushpa Devi [1987] 164 ITR 639 (Pat.) and accordingly, he set aside the order passed u/s. 143(3) of the Act and directed the Assessing Officer to pass afresh Assessment Order considering the issues raised in the notice issued u/s. 263 of the Act and directed to give proper opportunity of being heard to the assessee in accordance with law.

1. INVALID REVISION U/s. 263 a. The Ld. PCIT erred in law and facts of the case in initiating revisionary proceedings u/s. 263 and thereafter in passing an order u/s 263 dt. 26.03.2021 ignoring that; i. the order passed by the Ld. A.0. u/s 143(3) dt. 11.04.2018 was neither erroneous nor prejudicial to the interest of the revenue in as much as the Ld. A.O. had adopted the view in Law which was the only possible view permissible on due application of mind after making proper inquiries to his satisfaction before passing the assessment order and the ld. PCIT further erred in stating that no inquiry was made by AO and in applying Explanation 2 to s. 263 without putting your appellant to the notice that he is seeking to hold the error as erroneous by applying the fiction of Explanation 2. ii. there was no error committed in law in as much as the capital gains on transfer of shares was computed in accordance with the provisions of s. 48 and that the claim for exemption u/s. 54EC was made on re-investment of the part of capital gains within the prescribed time and the details of capital gains and the exemption were specifically called for by the AO and were furnished by your appellant and were examined by the AO. b. Your appellant submits that; (A.Y: 2016-17) M/s. Asaria Lalji Vador i. the Ld. PCIT had falsely alleged that the AO had not made any inquiry into the computation of capital gains on transfer of shares and re-investment of part of capital gains in Bonds eligible for exemption u/s. 54EC and that the relief was allowed without inquiring into the claim. ii. the Ld. A.O. had completed the assessment for A.Y. 2016-17 after detailed inquiry and appreciation of the facts, evidences and the law relating to the capital gains on transfer of shares (including for AY 2015-16) and re-investment of part of capital gains in Bonds eligible for exemption u/s. 54EC. The correctness of capital gains on transfer of shares and the claim u/s 54EC for exemption was allowed by the A.O only after due consideration of the fact and of the law of allowability of such claim and in that view of the matter the order could not have been termed as erroneous or prejudicial to the interest of the revenue. The capital gains on transfer of shares and the claim u/s 54EC was in any case allowable as per the provisions of law and the order passed by the A.O did not require any revision u/s 263. The said order was passed by the A.O. u/s 143(3) on 11.04.2018. iii. The appellant had made complete disclosure of the facts. iv. there was no error committed in law in as much as the capital gains on transfer of shares and the claim u/s 54 EC was in accordance with law, and v. the order sought to be revised is neither prejudicial to the interest of the revenue nor is it erroneous in any manner. c. Your appellant pleads that such an order of PCIT be held to be bad in law and be quashed.

2. SERIOUS VIOLATION OF NATURAL JUSTICE The Ld. PCIT erred in law and on facts in completing the a. revisionary proceedings in a complete haste and without giving sufficient time and opportunity and erred in law in ignoring all the evidences and proofs and documents available on records and further erred in treating the order passed by AO as erroneous and prejudicial to the interest of the revenue and setting aside the same without bringing any material of whatsoever nature on record.

(A.Y: 2016-17) M/s. Asaria Lalji Vador b. Your appellant submits that proper procedure as required by law was not followed before passing of order u/s 263. c. Your appellant pleads that an assessment made in violation of the provisions of natural justice be quashed.

3. COMPUTATION OF CAPITAL GAINS AS PER LAW a. Without prejudice the Ld. PCIT erred in law and on facts in setting aside the assessment order by not appreciating that your appellant on merits had computed capital gains on transfer of shares which was as per the provisions of law and was also allowable on merits of the case. b. Your appellant submits that Long Term Capital Gains on sale of shares was computed in accordance with the provisions of s. 45 r.w.s. 48 was eligible for claim as per law. c. Your appellant pleads that the computation of Long Term Capital Gains of Rs. 12,45,77,586 on sale of shares by the appellant and accepted by the AO be not disturbed and be allowed.

4. CLAIM FOR EXEMPTION U/S 54EC . a. Without prejudice the Ld. PCIT erred in law and on facts In setting aside the assessment order by not appreciating that your appellant on merits was eligible for exemption u/s. 54EC which claim was as per the provisions of law and was also allowable on merits of the case. b. Your appellant submits that he had earned Long Term Capital Gains on sale of shares which was eligible for exemption u/s. 54EC and part of the capital gain was re-invested by purchasing Bonds eligible for exemption u/s. 54EC within the time permissible u/s 54EC of the Act and was eligible for claim as per law. c. Your appellant pleads that the exemption u/s 54EC claimed by the appellant and accepted by the AO be not disturbed and be allowed.”

(A.Y: 2016-17) M/s. Asaria Lalji Vador Sr. Page No. No of PARTICULARS of PB PB ASARIA LALJI VADOR - A.Y.: 2015-16 [24] 1st submission with Annexures - letter dt. 14.02.17 166 - 168 [25] 2nd submission with Annexures - letter dt. 20. 11.17 169 - 170 [26] 3rd submission with Annexures - letter dt. 30. 11.17 171-173 [27] Notice u/s. 142(1) dt. 31.01.17 174-176 [28] Computation of income 177-183 [29] Assessment order u/s. 143(3) dt. 22.12.17 184-186 MANJULA VADOR - A.Y.: 2015-16 [30] 2nd submission with Annexures - letter dt. 15.02.17 187 - 188 [31] 3rd submission with Annexures - letter dt. 14.08.17 189-190 [32] 4th submission with Annexures - letter dt. 17.11.17 191 [33] Notice u/s. 143(2) dt. 26.07.2016 192-193 [34] Notice u/s. 142(1) dt. 10.02.2017 194-195 [35] Notice u/s. 142(1) dt. 25.07.2017 196-197 [36] Notice u/s. 142(l)di. 14.11.2017 198-199 [37] Computation of income 200-202 [38] Assessment order u/s. 143(3) dt. 20.12.17 203-207

NITINVADOR-A.Y.: 2015-16 [39] 2nd submission with Annexures - letter dt. 14.08.17 208-209 [40] 3rd submission with Annexures - letter dt. 17.11.17 210-211 [41] Notice u/s. 143(2) dt. 25.07.2016 212-213 [42] Notice u/s. 143(2) dt. 07.10.2017 214-217 [43] Computation of income 214-217 [44] Assessment order u/s. 143(3) dt. 20.12.17 224 - 228

BHARAT N NARSANA - A.Y.: 2015-16 [45] 2nd submission with Annexures - letter dt. 16.02.17 229-231 [46] 3rd submission with Annexures - letter dt. 12.10.17 232-233 [47] 4th submission with Annexures - letter dt. 18.11.17 234 [48] Notice u/s. 143(2) dt. 09.08.2016 235-236 [49] Notice u/s. 142(1) dt. 25.07.2017 237-239 [50] Notice u/s. 142(1) dt. 31.01.2017 240-242 [51] Computation of income 243 - 246 [52] Assessment order u/s. 143(3) dt. 22.12.17 247-251

AJAYN NARSANA- A. Y.: 2015-16 [53] 2nd submission with Annexures - letter dt. 16.02.17 252-254 [54] 3rd submission with Annexures - letter dt. 12.10.17 255-256 [55] 4th submission with Annexures - letter dt. 18.11.17 257

(A.Y: 2016-17) M/s. Asaria Lalji Vador Sr. Page No. No of PARTICULARS of PB PB [56] Notice u/s. 143(2) dt. 09.08.2016 258-259 [57] Notice u/s. 142(1) dt. 31.01.2017 260-263 [58] Notice u/s. 142(1) dt. 25.07.17 264-267 [59] Computation of income 268-271 [60] Assessment order u/s. 143(3) dt. 22.12.17 272 - 276

(A.Y: 2016-17) M/s. Asaria Lalji Vador and Assessing Officer has called for all the information relevant to these transactions and assessee has submitted all the documents relevant for these transactions. He further submitted that since the similar transactions was carried on in A.Y. 2015-16 assessee also brought to the notice of the Assessing Officer all the information relating to the A.Y.2015- 16 as well. Since the Assessing Officer is same in both the Assessment Years he has verified all the information and appreciated the facts in present assessment year and accepted the documents and explanation offered by the assessee. Further he brought to our notice Page No. 124 of the Paper Book relating to the shares purchase agreement and he brought to our notice assessment records and submissions made before the Assessing Officer relating to A.Y. 2015-16 and A.Y. 2016-17 and he submitted that the Assessing Officer has appreciated the submissions made by the assessee which are similar to the previous assessment year and he accepted the same explanation and completed the assessment. Therefore, Assessing Officer has applied his mind and passed the Assessment Order. Now, Ld. Pr.CIT again set-aside the orders based on his opinion that verification was not carried by the Assessing Officer.

(A.Y: 2016-17) M/s. Asaria Lalji Vador assessee but also by other members of the family as well, and the Assessing Officer has verified the same issues in the case of other family members and accepted the return of income filed by them. Now we observed that Ld. Pr.CIT after considering the information available on record came to the conclusion that Assessing Officer has collected all the information and however, not carried out verification of the same. Afterwards issued notice u/s.263 and called for submissions. After considering the submissions Ld. Pr.CIT came to the conclusion that assessment passed u/s. 143(3) of the Act is erroneous as well as prejudicial to the interest of the Revenue and he set-aside the order without bringing on record how the order passed by the Assessing Officer is prejudicial to the interest of the Revenue. Various courts have held that in order to invoke provisions of section 263 of the Act twin conditions has to be fulfilled i.e., not only erroneous but also has to be prejudicial to the interest of the Revenue. In the given case Ld. Pr.CIT has never found/quantified the prejudicial to the interest of the Revenue. In our considered view, he cannot invoke the provisions of section 263(1) when the Assessing Officer has made the enquiry and formed an opinion. The facts on record indicate that the issue involved are similar to the facts in the previous assessment year and also in the case of other family

(A.Y: 2016-17) M/s. Asaria Lalji Vador members. Ld. Pr.CIT has not brought nothing on record to show that Assessing Officer actually has passed the order without making any enquiry or verification. However, we found from the record that Assessing Officer has verified the transactions in the present assessment year as well as in the previous assessment year i.e. A.Y.2015-16. He reached the conclusion based on the verification he carried on in the previous assessment year and case of the other family members. Therefore, in our considered view the Ld. Pr.CIT cannot invoke provisions of section 263 of the Act as well as Explanation 2 to section 263 of the Act in the present case when the Assessing Officer has made verification and also formed his opinion. Therefore, he can invoke only when absolutely no verification was carried on by the AO. Accordingly, we set aside the order passed u/s. 263 of the Act.

Order pronounced on 12.01.2022 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.