ACIT, NON-CORPORATE CIRCLE 7(1), CHENNAI, CHENNAI vs. LATE SHRI MAHAVEER BHANDARI, LEGAL HEIR- SMT. LALITHA BHANDARI, CHENNAI
आयकर अपीलȣय अͬधकरण,‘सी’ Ûयायपीठ,चेÛनई
IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI
Įी मनु कुमार ͬगǐर,ÛयाǓयक सदèय एवं Įी एस.आर.रघुनाथा, लेखा सदèय के सम¢
BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER
आयकर अपील सं./ITA No.: 2785/CHNY/2024
िनधाᭅरण वषᭅ/Assessment Year : 2016-17
The Asst. Commissioner of Income Tax,
Non-Corporate Circle 7(1),
Chennai – 600 002. PAN: AADPB 877A
(अपीलाथᱮ/Appellant)
(Ĥ×यथȸ/Respondent)
अपीलाथᱮ कᳱ ओर से/Appellant by : Ms. Anitha, Addl.CIT
ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri Ajith Kumar Chordia, CA
(Through Virtual Mode)
सुनवाई कᳱ तारीख/Date of Hearing : 18.07.2025
घोषणा कᳱ तारीख/Date of Pronouncement : 15.10.2025
आदेश /O R D E R
PER MANU KUMAR GIRI, JM:
This appeal filed by the Revenue is directed against the order of the Ld. Commissioner of Income Tax(Appeals), National Faceless
Appeal Centre (NFAC), Delhi [hereinafter the “Ld.CIT(A)”] dated
12.07.2024 arising out of the order dated 30.12.2018 passed by the Assistant Commissioner of Income Tax, Non Corporate Circle 9(1),
Chennai (hereinafter referred to as the "AO") passed u/s.143(3) of ITA. No:2785/Chny/2024
the Income-tax Act, 1961 (hereinafter "the Act') for the Assessment
Year 2016-17 (hereinafter the"AY").
The Registry has noted a delay of 37 days in the filing of the appeal. Considering the reasons stated in the condonation petition and the affidavit filed by the Department, and finding the explanation satisfactory, the delay is condoned. Accordingly, the appeal is admitted for adjudication.
Grounds of appeal Ground No. 1 -The order of the learned CIT(A) is contrary to the facts and circumstances of the case. Ground No. 2 - The learned CIT(A) ought not to have deleted the entire assessment order for the reason that the AO has not provided opportunity for cross examination, while that is a curable defect that would not vitiate the entire assessment. Ground No. 3 - The learned CIT(A) failed to appreciate that the provision of opportunity to examine does not arise in the case on hand, as the documents relied on are very much available in public domain. Ground No. 4 - The learned CIT(A) erred in passing the order of appeal, without discussing the merits of the case. Ground No. 5 - Without prejudice to the above, the learned CIT(A) ought to have upheld the addition on account of section 56(2)(vii) of Rs. 7,85,10,196/- as it was correctly computed based on the Fair Market Value as on the date of transfer. Ground No. 6 - The learned CIT(A) has erred in deleting the addition of Rs.99,39,998/- on account of non-Compete fees u/s 28(va) of the Act as it was based on the valuation report of Duff & Phelps owing to absence of separate non-compete valuation clause and relying on the Hon’ble Madras High Court decision in the case of CIT vs. Chemech Laboratories Ltd wherein it was held that where consideration is paid for all aspects of a transaction (with non-compete convenants), some portion of the consideration is to be attributed towards non-compete convenants, even in the absence of an express provision in the transaction agreements. ITA. No:2785/Chny/2024
Ground No.7 - For those and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.
Undisputed facts of the case as narrated by the ld.CIT(A) are as under: The assessee, Mahaveer Bhandari filed return of Income for the AY 2016-17 on 28/11/2016, declaring a total income of Rs.17,40,10,730/- which was processed under section 143(1) of the Income Tax Act, 1961 (“the Act”). Later the AO completed the assessment by assessing the total income at Rs. 26,24,60,920/- by adding an amount of Rs.7,85,10,196/- being difference on account of LTCG and amount of Rs. 99,39,998/- u/s.28(va) of the Income Tax Act, 1961 to the total income of the appellant. Being aggrieved by the same the assessee preferred the instant appeal. The AO stated that the case was selected for scrutiny under CASS on the issue that whether Sales turnover/receipts has been correctly offered for tax and capital gains/loss is genuine and has been correctly shown in the return of income. Smt. Lalitha Bhandari (AABPL7053K) along with her husband, Shri Mahaveer Bhandari (AADPB8777A) and son, Shri Naveen Bhandari (AABPN7974M) were shareholders in a private Limited Company named Universal Power Systems Pvt Ltd (UPSPL). The total shares of the UPSPL was 1000 shares of which Shri Mahaveer Bhandari was holding 499 shares, Smt. Lalitha Bhandari was holding 500 shares and 1 share was held by their son Shri Naveen Bhandari. The Promoters entered into a Sales purchase agreement (SPA) with Eros International Media Ltd (EIML), where the cash consideration was fixed at 35 crores, with an option to take share consideration instead of cash consideration. The Promoters have during the year on 24.02.2015, exercised an option to take share consideration, where shares of Eros International Media Ltd (EIML) was allotted. The promoters were allotted 900970 shares out ITA. No:2785/Chny/2024
of which appellant was allotted 4,47,782 of EIML shares on 1.8.2015, which was valued at Rs.17,39,50,059. The appellant in his computation of income has offered LTCG as Rs.17,33,79,982. EIML
Shares was defined in the SPA, as up to 950,000 equity share of EIML of face value INR 10/- each, to be allotted to the Promoters as consideration for purchase by EIML of the sale shares, with a value in accordance with the Valuation Certificate. On 12.2.2015, Ladderup
Corporate Advisory Pvt. Ltd valued UPSPL at Rs 35 crores as on 31st
Jan 2015. No valuation was made for the Non compete and non solicitation clause of the SPA. On 13.2.2015 the stock exchanges were informed of the Boards approval for the acquisition of 100% stake of UPSPL. The EIML Board passed a resolution on 26. 3. 2015 approving the issue and allotment of upto 950000 shares to the promoters against acquisition of the 100% shares in UPSPL. Here the explanatory statement speaks of the share exchange ratio to be on the basis of the valuation report prepared by Ladderup Corporate
Advisiory Pvt Ltd. Another certificate from M/s Walker Chandok & co
LLP, certifying that the proposed preferential issue of shares was being made in accordance with the requirement contained in chapter
VII of the SEBI ICDR Regulations was available. On 28.07.2018 an amendment agreement was executed, where it is mentioned that the promoters exercised their option to accept share consideration and 900970 shares was to be allotted to the promoters and further cash of Rs. 185/- to Mahaveer Bhandari. On 1.8.2015 EIML board passed a resolution that the shares for UPSPL was acquired against issue of 900970 equity share of EIML at Rs. 388.47 each inclusive of face value of Rs.10. The AO further stated that the annual report for 16-17 of EIML the Notes mentioned as on 1 August 2015, the company was allotted
900970 equity shares to the shareholders of UPSPL at a premium of Rs.586 per share in exchange for the entire shareholding of UPSPL.
Shares so purchased have been classified as noncurrent investment.
ITA. No:2785/Chny/2024
From the above it was very evident that on the date of transfer of shares the fair value of the shares was Rs.586 while appellant restricted to the sale consideration to Rs.35 crores, which incidentally was the cash consideration determined in the SPA. The share consideration was not determined and neither was the swap ratio, then determined. Notice under section 133(6) was issued to EMIL to produce the valuation report to justify the revision of the asset value to Rs.76.79 crs. EMIL produced a valuation report of American
Appraisal India Pvt. Ltd., a division of DUFF & PHELPS (D&P) submitted by Vinay Gupta. The appellant objected to the proposal of determining the Full Value of transaction at Rs. 528.3 million.
Appellant has referred to the Annual Report of 2015-16 but no reference has been made to the Annual Report of 2016-17. EMIL has revised the securities premium account as on 31.3.2016 by Rs.17.80
crs as fair value adjustment in the annual report of 16-17. Since there is no actual flow of cash, and being an exchange of share, the Full
Value of consideration has to be the Fair market value of the shares as on date of transfer. Hence the Full value of consideration is adopted @Rs.586 per share and LTCG is therefore determined by adopting the full value of consideration at Rs.586 per share, which results in the addition of Rs.8,84,50,194/-.
The AO iterated that the benefit derived in the form of capital gains from the sale of shares of the Company held is already offered for taxation. Further, one of the promoters also had been employed in the Company subsequent to 2015, the amount of consideration / value of benefits received on account of employment enjoyed through the Company was also offered for taxation under the head ‘income from salaries’ during the relevant Assessment Years. Such income has been offered to tax at the maximum marginal rate applicable to individuals
(subject to the slab rates applicable to the individuals). It is to be noted that Mr. Naveen Bhandari, the above said promoter had received Rs.2.41 Crores during FY 2015-16 revenues / benefits from ITA. No:2785/Chny/2024
the Company. The appellant claim that other than capital gain the only other benefit, that the promoters derived, was on account of salary paid to Shri Naveen Bhandari. And no other shareholder took any other benefit. It is categorically clear that the remuneration is a separate and distinct benefit element of the SPA. Moreover, the appellant and his wife were not actively involved in the operations of the company. The idea and the product of the company was the brain child of Mr.Naveen Bhandari and his employment and continuation in the company was required to download the technology, to the new management. With regard to the existence of the non-competition agreement, the appellant’s claim that no separate agreement exist is correct to the extent that there is no separate agreement, but there does exist the clauses pertaining to non compete and non solicitations in the SPA, clause (9) of SPA which of course has not been separately valued. With regards to the taxability of the amount of non compete fees, though there is no separate valuation mentioned in the agreement some portion of the sales consideration should be allocated towards no compete fees. Hence an amount of Rs.2 crores based on valuation made by D&P is attributable to no compete fees and taxable as business receipts u/s 28(va) of the Act. Proportionate value to appellant comes to Rs.99,39,998/-. Consequently, the LTCG will stand reduced by Rs.99,39,998 and be treated as Business income. The FMV of the EIML shares under Rule 11UA works out to Rs. 582 per share. If the appellant’s argument that the full value of consideration of the shares was at Rs.388.47 per share, then the provision of section 56(vii) will be attracted because the fair market value as determined under Rule 11UA, exceeds the consideration declared by appellant. In this case the Fair market value works out to Rs. 26,06,09,124 as against the consideration of Rs.17,39,50,059 offered by appellant.
Hence the difference Rs.8,66,59,065 was charged under section 56(vii) of the Income Tax Act under the head income from other sources.
ITA. No:2785/Chny/2024
The appellant in his submissions stated that in exchange of transfer by way of sale of UPSPL shares to EMIL and pursuant to the share purchase agreement dated 24.02.2015, EMIL had approached their
Board of Directors, shareholders, stock exchanges (NSE and BSE),
SEBI and the Government of India (FIPB division) for necessary approvals. While EMIL’s shareholders approval which is relevant for the purpose of SEBI (ICDR) Regulations was received on 26.03.2015, the Government of India (FIPB division) granted its approval only on 20.07.2015. Due to this delay in the receipt of the Government approval, the process of allotment of shares to them and the relatives was completed only on 01.08.2015, yet within 15 (fifteen) days from the date of receipt of the regulatory approval as required under the SEBI (ICDR) Regulations. SPA between the parties clearly specifies the agreed consideration by the parties as Rs. 35 Crores. Preamble C of the amendment to the SPA between the parties entered on 28.07.2015 provided for payment of Rs. 185 (One Hundred and Eighty
Five only) by way of cheque to Mr. Mahaveer Bhandari. This payment of Rs. 185 was done to ensure that the consideration of Rs. 35 Crores is paid in full, and as such there was no amendment to the purchase consideration. The value of investment recorded in the books of accounts of the Buyer i.e., EMIL for FY 2015-16 in Schedule “14. Non- current Investments” is Rs. 35 Crores. The transaction was also certified by SEBI registered Category – I Merchant Banker (valuation expert), stock exchanges with the “Relevant Date” of determining the share price as 24.02.2015. FY 2016-17 was the transition year and therefore, EMIL was required to adopt Ind-AS and make revaluation as against Indian GAAP which followed different principles. EMIL has restated its value of investment which is purely an accounting treatment and book entry adjustment recorded in their books of accounts under Ind-AS.
ITA. No:2785/Chny/2024
The ld. CIT(A) findings are as under: I have gone through all the submissions and documents furnished by the appellant. Income Tax Appellate Tribunal – Ahmedabad in the case of Mohan Polyfab Pvt. Ltd.,, Ahmedabad vs The Ito, Ward- 2(1)(4),, Ahmedabad on 12 February, 2020 held that:
IN THE INCOME TAX APPELLATE TRIBUNAL, "SMC" BENCH,
AHMEDABAD
BEFORE
SHRI
RAJPAL
YADAV,
VICE-
PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT
MEMBER नधा रण वष / Asstt. Year: 2009-2010 Mohan Polyfab
P.Ltd.
ITO,
Ward-2(1)(4)
C/o.
Advocate 512, Time Square-1Opp:
Ram Baug Bungalow Thaltej Shila Road Thaltej, Ahmedabad
PAN : AABCM 0389 G (Applicant) (Responent) Assessee by :
Shri Ketan Shah, and Shri Aman Shah, AR Revenue by :
Shri Dilipkumar, Sr.DR सन ◌ुवाई क तार ख/ Date of Hearing :
27/01/2020 घोषणा क तार ख / Date of Pronouncement:
12/02/2020 आदेश /O R D E R PER RAJPAL YADAV, VICE-
PRESIDENT Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-2, Ahmedabad dated 19.12.2017
passed for the Asstt.Year 2009-10. 2. The ld.counsel for the assessee at the very outset submitted that though the issue of reopening is involved in the present appeal, but the assessee does not want to press this issue, therefore, the finding of the ld.CIT(A) to the extent of upholding of reopening of the assessment, is confirmed. On merit, the grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.28,03,000/-.
Brief facts of the case are that the assessee has filed its return of income on 21.9.2009 declaring total income at NIL. The AO has observed that an information vide letter dated 4.3.2016 was received from DCIT, Cent.Cir.4(3), ITA. No:2785/Chny/2024
Mumbai exhibiting the fact that during the investigation in the case of Satish Saraf group statements of key persons of the group, Shri Vishal Bhubani, Shri Rahul Jhunjhunwala and Shri Satish Saraf were recorded. In these statements, they have admitted that they were engaged directly or indirectly in providing accommodation entries in various forms like bogus unsecured loans, bogus share capital, bogus sales and purchase etc. and charged commission thereon at the rate of 0.10% to 0.30% depending on the nature of entry. According to the AO, the assessee was found to be one of the beneficiaries whereby it has taken entries in the form of bogus commission expenditure from such paper company viz. M/s.Sunlight Agency P.Ltd. On the strength of this information, reasons were recorded and notice under section 148 dated 22.3.2016 was issued to the assessee. In response to the notice received under section 148, the assessee has filed a letter contending therein that return filed originally be treated as filed in response to this notice. Notice under section 143(2) was issued, and thereafter the ld.AO has passed reassessment order dated
23.12.2016 under section 143(3) r.w.s. 147 of the Act. The ld.AO has made an addition of Rs.28,03,000/-. Appeal to the CIT(A) did not bring any relief to the assessee. The ld.CIT(A) has confirmed this addition by recording the following finding:
"2.3. I have carefully considered the facts of the case, assessment order and submission of the appellant.
The AO has made the disallowance of bogus commission of Rs.28,03,000/- on the basis of investigation carried out in the case of Shri Satish
Saraf Group, where Shri Rahul Jhunjunwla has admitted that he was indulged in providing accommodation entries to various companies through his paper company M/s. Sunlight Agency Pvt. Ltd.
4. The appellant company has claimed commission of Rs.28,03,000/-paid to M/s. Sunlight Agency Pvt. Ltd. for the sale made to M/s. Sajjan India Limited, Mumbai. The AO in the assessment order has noted that M/s.Sunlight Agency Pvt. Ltd. is a paper company ITA. No:2785/Chny/2024 3(1)(2), Baroda [2017] 81 Taxmann.com 308 has observed on such type of transaction as under:-
"8. As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis- a-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realities. It will, therefore, be useful to understand as to how the shell entries, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions - to give it colour of a normal business entity used as a vehicle for various financial manoeuvers. A shell entity, by itself, it not an illegal entity but it is their act of abatement, of, and being part of, financial manoeuvring to legitimize illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business - its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets its apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly
ITA. No:2785/Chny/2024
of the financial world, as many other evils. Even a layman, much less a Member of this specialized
Tribunal, cannot be oblivious of these ground realities."
5. It is noticed that M/s. Sunlight Agency Pvt. Ltd. has been engaged in providing accommodation entry and has been used to launder unaccounted money. The above company is shell company and its name have recently been struck off from