DABUR INVEST CORP,NEW DELHI vs. PRCIT-16, NEW DELHI

PER N.K. BILLAIYA, ACCOUNTANT MEMBER,

These two appeals by the assessee are preferred against two separate orders of the PCIT-16, New Delhi dated 06.02.2018 framed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] pertaining to A.Ys 2013-14 and 2014-15. Since the underlying facts in issues are identical in both these appeals and pertain to same assessee, they were heard together and are being disposed of by this common order for the sake of convenience and brevity.

“6.1 If at any time : 6.1.1 the company requires further financing in terms of its Five Year Business Plan and Annual Business Plan presented to and approved by the Board. 6.1.2 The solvency ratio of the Company falls below 120 % of the statutory minimum solvency ratio ( or such other level or range as the Board may agree) (the “Desired solvency Ratio”). 6.1.3 the Board of the Company resolves that further financing is required. 6.1.4 the Appointed Actuary notifies the Board that, in his opinion the Company’s financial resources are insufficient to satisfy its working capital requirements; or 6.1.5 the Company is required by Applicable Law to increase its issues share capital; the Company shall, prior to raising finance through any source to meet such requirement including that by way of loans from shareholders, call on each shareholder to provide forthwith sufficient capital to the Company by way of subscription for further shares in the proportion that the total amount of paid up share capital held by that shareholder bears to the total amount of paid up share capital of the company (the “specified Proportion”) and the shareholders shall subscribe for such additional shares in accordance with Clause 6.4 below. However, if an Annual Business plan for a year requires capital contribution by Dabur in excess of the amount (“Permitted Amount”) which is aggregate of :

(a) The amount required to be contributed by Dabur in that year in terms of the Five Year Business Plan, and (b) 30 percent of the amount set out in (a) above.

the call by the Company for further subscription by the shareholders pursuant to this Clause 6.1 shall be subject to approval of the aforesaid Annual Business Plan by both shareholders.

6.2 Notwithstanding anything stated in Clause 6.1 above and elsewhere in this Agreement, the total financial commitment of Dabur towards the Company shall not exceed Rs.237 Crores which constitutes 74% of Rs.320 Crores, the proposed total paid up equity share capital of the Company.

6.2.1 [Not Used] 6.2.2 [Not Used] Provided further, Dabur’s obligation to discharge its commitment under this Clause 6.1 is subject to CUIH, prior to Dabur making such subscription, replacing the then exiting CUIH Option. Price Guarantee, if required, with a fresh irrevocable and revolving letter of credit from the New Delhi Branch of an international bank of good repute, procured at its own expense, in the form and substance set out in schedule 10A to secure the Option Price that would be payable by CUIH for the total number of shares which will be held by Dabur

pursuant to Dabur subscribing to the requisite number of Shares set out in the Subscription Request including the shares already held by Dabur prior to such investment.

6.3 Notwithstanding anything contained in this Agreement, if funds are required by the Company after Dabur has completely discharged its commitment under Clause 6.2 above, Dabur shall have the option to contribute towards such additional funding in proportion to its then existing shareholding in the Company. If Dabur chooses not to exercise its option to contribute further, the Company may arrange such additional funding in the manner to be determined by it. It is however expressly agreed that the manner to be determined by it. It is however expressly agreed that such raising of funds shall not issue any fresh equity shares (or any instrument potentially convertible into equity) to CUIH. Dabur and to any Third Party in contravention of this provision. It is further agreed that such raising of funds by the Company shall not require either of the shareholders to assume any financial obligations in respect of such funds.

6.4 Whenever the Company requests the shareholders to subscribe for shares in accordance with clause 6.1, the following procedure shall be applicable :- (a) the Company shall issue a subscription request (“Subscription Request”) in the form and substance set out in Schedule 5 and copy it to each of the Shareholders;

(b) the Subscription Request for any year shall be issued by the Company between November 1-15; (c) the Shareholders shall be obliged to subscribe to the requisite number of Shares set out in the Subscription Request in accordance with Clause 6.5 below, no later than January 15 of the subsequent year (“ Payment Date”). (d) the Company shall be entitled to issue the Subscription Request at any time other than the period set out in paragraph (b) above, provided the same has been consented to by both shareholders; (e) if a Subscription Request has been issued in terms of paragraph (d) above, the shareholder shall be obliged to subscribe to the requisite number of shares set out in the subscription Request within seventy five (75) days from the date of such Subscription Request.

6.5 Subject to Clauses 6.2, 6.4 and other terms of this Agreement, each Shareholder shall on or before the Payment Date pay in full for the Shares to be issued to it by way of cheque/ bank draft/ pay order or wire transfer to the credit of the Company at such bank in India as the Company shall designate in the Subscription Request is issued in terms of Clause 6.4 (e), the company, acting through its Chief Executive Officer, shall be entitled to invoke the Dabur Guarantee to the extent of the amount payable provided CUIH has subscribed to the shares as per the Subscription Request.

In the event the Company invokes the Dabur Guarantee, it shall within thirty (30) days issue to Dabur the appropriate number of fully paid up Shares at par value for which such payment has been received by the company from the Bank. The company shall deliver to Dabur, share certificate (s)

evidencing valid title to the shares so issued free from any liens or third party pre-emptive rights. The Company shall further furnish to Dabur and the Bank evidence that all necessary corporate formalities (including registration in the register of members of the Company) in connection with the issue of such shares have been completed.

6.6 Shares issue under this Clause 6 shall rank pari passu in all respects with the existing shares in the company.

6.7 Upon each subscription and payment by a shareholder for Shares under this clause 6, the company shall;

6.7.1 Issue to such shareholder the appropriate number of fully paid up shares at par value for which such payment is made and shall deliver to such shareholder, a share certificate evidencing valid title to the shares so issues free from any liens or third party pre-emptive rights;

6.7.2 furnish to each shareholder evidence that all necessary corporate formalities (including registration in the register of members of the company) in connection with the issue of such shares have been completed; and

6.7.3 Issue a letter signed by its Chief Executive Officer to the bank that has furnished the Dabur Guarantee with a copy to Dabur confirming that ;

(a) Dabur has discharged its payment obligation in terms of clause 6.5; and (b) Dabur Guarantee can be replaced with a fresh irrecoverable and revolving letter of credit for an amount which is the difference of the amount secured by the existing Dabur Guarantee and the amount contributed by the Dabur to the

6.8 Notwithstanding the terms of Clause 6.1 but subject to Clause 6.9, the shareholders shall not be required to subscribe for shares unless both shareholders are obliged to subscribe for and are issued with the appropriate number of shares as specified in the Subscription Request at the same time.

6.9 CUIH shall not be under an obligation to subscribe for additional shares to the extent that it is prevented by the Applicable Law from doing so. For the avoidance of doubt, CUIH shall always hold a minimum of 26% of the total equity share capital of the company, subject to Applicable Law.

6.10 In the event the Applicable Law Percentage is changed to allow CUIH to hold more than 26% of the total equity share capital of the company, and in the event that the company at that particular point of time requires further financing, CUIH shall be obliged first to increase its shareholding in the paid-up capital of the company to the Revised Applicable Law Percentage by purchasing the required number of Shares from Dabur in accordance with the terms of this Agreement. After such subscribing by CUIH, the shareholders shall provide any further financing subject to clause 6.2, in proportion to their new shareholding ratio in the company. “

shall be obliged to increase its shares holdings in the paid up capital of the company to the revised applicable law percentage by purchasing the required number of shares from Dabur Invest Corp in accordance with the terms of the agreement.

“11. Board of Directors

11.1 Unless otherwise agreed by the shareholders, the number of directors of the company shall be ten (10).

11.2 Darbur shall be entitled to nominate a maximum of six (6) of the ten (10) directors and CUIH shall nominate a maximum of four (4) directors.

11.3 The Chairman shall be nominated by annual rotation between the shareholders and shall not have a casting vote. Dabur will nominate the Chairman in the first year.

11.4 The Chief Executive Officer of the Company shall be nominated by CUIH (from one of the four (4) directors nominated by it) in consultation with Dabur and shall be appointed by the Board.

11.5 The Shareholders shall exercise their respective votes to appoint and reappoint, and procure the Company to appoint and re-appoint, the

persons nominated by the respective Shareholders as directors of the Company from time to time in the ratio provided for in Clause 11.2 above.

11.6 Each Shareholder shall be entitled from time to time to nominate directors or their alternate directors on the Board nominated by it and each Shareholder shall so act as to procure that such nominee of the other is appointed on the Board. It is agreed that in the event of resignation by a director from the Board, the Shareholder who has appointed such director shall nominate a new director within thirty (30) days of such resignation

11.7 The removal of any director from the Board shall be in accordance with Clause 13.24.

11.8 As and when CUlH’s shareholding in the Company goes up pursuant to a change in the Applicable Law Percentage. CUIH shaft be entitled to nominate such additional number of directors on the Board as IROA shall approve. “

“15. Transfer of Affiliated Companies.

15.1 A Shareholder (the “Transferring Party35} may at any lime transfer any of its Shares to one or more of its Affiliates provided: 15.1.1 subject to Clause 15.1.5 below, the Transferring Party shall remain jointly and severally liable with the transferee for the obligations of the Transferring Party and shall also be able to exercise the rights under this Agreement in respect of each Share transferred and the Transferring Party shall be constituted as the sole Power of Attorney holder on behalf of the transferee party to deal with the Company without interference from the transferee party ; 15.1.2 the Affiliate shall accede to this Agreement by execution of a Deed of Adherence in the form set out in Schedule 7 and shall accede or execute such other documents to which the Transferring Party is a party; 15 1.3 the transfer complies with the Articles and the Applicable Law'; 15 14 the Transferring Party shall procure that such Affiliate transfers back to the Transferring Party any Shares held by such Affiliate prior to it ceasing to be an Affiliate of the Transferring Party. 15. 1.5 notwithstanding the transfer by Dabur of its Shares to one or more Affiliates, CUIH agrees that Dabur shall always retain the rights to invoke the CUIH Option Price Guarantee and/ or the CUIH Subscription Price Guarantee in accordance with the terms of this Agreement on behalf of such Affiliates.

However, no such Affiliates shall have the right to invoke either the CUIH Option Price Guarantee and/ or the CUIH Subscription Price Guarantee.

15.2 Any transfer of Shares in accordance with this Clause 15 shall be effected by the Transferring Party transferring such Shares as beneficial owner free and dear of all security interests other than those imposed by this Agreement or the Articles together with all rights attaching thereto on or after the date of such transfer

The Shareholders shall procure that the Company shall not register any 15.3 transfer of Shares made in breach of this Clause 15. Dabur undertakes that during the term of this Agreement it will not sell 15.4 or transfer the Dabur Shares to any company which is not an Affiliate of Dabur and that there will not be any new shareholding in any Affiliate holding Shares pursuant to a transfer under Clause 15.1 or in Dabur by any person other than an Indian National if the effect of so doing would be to prevent CUIH from maximising its shareholding in the Company and render the Company in breach of Applicable Law percentage.

“16. Transfer of Dabur Shares and Share Option

16.1 In consideration of the terms of this Agreement and payment by CUIH of the Option Price, Dabur hereby grants to CUIH.

(a) the right during the Ten Year Period to require Dabur to sell only to CUIH shareholding in the Company to the maximum Revised Applicable Law Percentage; and (b) the right after the Ten Year Period to require Dabur to sell to CUIH or its nominee such number of Dabur Shares as would be required to take CUIH shareholding in the Company to the maximum Revised Applicable Law Percentage. The rights conferred by this Clause to CUIH shall be exercisable on each occasion (if more than once) when CUIH’s shareholding in the Company is lower than the Revised Applicable Law Percentage. In consideration of the terms of this Agreement CUIH hereby grants to Dabur- the right during the Ten Year Period to require CUIH to purchase (a) from Dabur such number of Shares held by Dabur as maybe required to take CU(H Shareholding in the Company to the maximum Revised Applicable Law Percentage; and the right after the Ten Year Period to require CUIH by itself for (b) through its nominee to purchase from Dabur such number of Dabur Shares as would be required to take CUIH shareholding in the Company to the maximum Revised Applicable Law Percentage.

The rights conferred by this Clause to Dabur shall be exercisable on each occasion (if more than once) when CUIH’s shareholding in the Company is lower than the Revised Applicable Law/ Percentage.

The rights available to CUIH and Dabur under this Clause shall be exercised in accordance with the procedures set out in Schedule 6, 16.2 During the term of this Agreement and on each Option Price Payment Date, CUIH will pay to Dabur the Option Price on the total number of Shares held by Dabur at such Option Price Payment Date, failing which Dabur shall be entitled to invoke the CUIH Option Price Guarantee to recover such amount. The above Option Price shall be paid on each Option Price Payment Date to Dabur until: (a) all Shares held by Dabur other than the Retained Shares are sold and Dabur has received sale proceeds for such shares in terms of this Agreement: or

Dabur accepts the Retention Offer made by CUIH as per (b) Clause 16.9.2.4 on all the Dabur Shares. [Not Used] 16.3 [Not Used] 16.4 [Not Used] 16.5 The sale consideration received by Dabur pursuant to the exercise of 16.6 the CUIH Option or the Dabur Option, shall always be the Market Value per each Share sold by Dabur provided that:- 16.6.1 in the event that the Market Value is lower than the Subscription /Price, CUIH shall also pay the difference between the Subscription Price and the Market Value to Dabur simultaneous with the sale of Dabur Shares. Dabur shall be entitled to retain the Option

Price received on such Dabur Shares. (see illustration A(1) in Schedule 9}; 16.6.2 if the Market Value is higher than the Subscription Price, Dabur shall repay the Option Price (to be calculated in accordance with Schedule 3) pertaining to such Dabur Shares within thirty (30) days from the receipt of the Market Value. Provided however, if as a result of repayment of the Option Price, the Net Sate Proceeds (i.e., the difference between the gross sate receipts per Dabur Share and such Option Price which shall be calculated as per the formula set out in Schedule 3) become less than the Subscription Price, only such part of the Option Price shall be repaid so as to ensure that the Net Sale Proceeds per Dabur Share are not less than the Subscription Price (see illustrations A(2)(a), (b) & (c) in Schedule 9) in the event that the Market Value is equal to the Subscription Price, 16.6.3 Dabur shall retain the Option Price received on such Dabur Shares (see illustration A(3) in Schedule 9);

{Not Used] 16.7 Divestment During the Ten Year Period 16.8 Subject to the Applicable Law and the terms of this 16.8.1 Agreement, neither Shareholder shall sell, transfer, alienate or otherwise dispose of any Share or any interest in any Share to any third party during the Ten Year Period.

(Not Used] 16.8.2 16.8.3 If at any point during the Ten Year Period, the Applicable Law requires either Shareholder to engage in a process which. requires

divestment of any Shares, then the Shareholders will cooperate in such process notwithstanding anything to the contrary in this Agreement, if such provision of the Applicable Law requires such a process to be undertaken by a specified time then the process shall be commenced within six months before that time but not earlier In the event, Dabur has to divest its shareholding in the Company

16.8.3.1 If the Market Value realised by Dabur is higher than She Subscription Price plus the Option Price received on such Shares. Dabur shall within thirty (30) days of receiving the Market Value, repay to CUSH the total Option Price (to be calculated in accordance with Schedule 3), paid till date on such Dabur Shares (see illustration 8(1) in Schedule 9) ; If the Market Value is higher than the Subscription Price 16.8.3.2 but lower than the Subscription Price plus the Option Price (to be calculated in accordance with Schedule 3), paid till date on such Shares, Dabur shall repay CUIH, within thirty (30) days of receiving the Market Value, an amount equal to the difference between the Market Value and the Subscription Price (see illustration B{2) in Schedule 9); 16.8.3.3 If the Market Value is equal to the Subscription Price plus (he Option Price received on such Shares, then Dabur shall repay CUIH the total Option Price (to be calculated in accordance with Schedule 3), paid till dale on such Dabur Shares within thirty {30) days of receiving the Market Value (see illustration 8(3) in Schedule 9); 16.8.3.4 If the Market Value is lower than the Subscription Price, CUIH shall pay to Dabur the difference between the Market Value and the

Subscription Price simultaneous with Dabur offering its Shares as a part of the divestment process. Dabur shall retain the Option Price received by it on such Shares, (see illustration B{4) in Schedule 9). In the event, CUIH fails to pay the difference between the Market Value and the Subscription Price to Dabur as aforesaid, Dabur shall be entitled to invoke the CUIH Subscription Price Guarantee to the extent of the amount which is equal to such difference.

Divestment After the Ten Year Period After the expiry of the Ten 16.9 Year Period, the following provisions shall apply in relation to the Dabur Shares:-

16.9.1 CUIH shall continue to pay the Option Price on the Dabur Shares.

16.9.2 The CUIH Option shall continue in lull force and effect and CUIH shall have the following rights:- 16.9.2.1 CUIH may give notice (“Sale Notice") as per Schedule 6A that it requires the sale of some or all Dabur Shares to CUIH (subject to Applicable Law).

If CUIH requires Dabur to sell the Dabur Shares to CUIH, Dabur shall sell such Shares at Market Value and the provisions of Clause 16.6 shall apply to such sale/purchase transaction.

16.9.2.2 CUIH may give a Sale Notice that it requires the safe of some or all of the Dabur Shares to a thud party identified by CUIH (subject to

Applicable Law). Dabur shall be obliged to sell such number of Dabur Shares as specified in the Sale Notice at Market Value provided that If : the Market Value to be paid by the third party is tower (a) than the Subscription Price, CUIH shall pay the difference in the Subscription Price and the Market Value to Dabur simultaneous with the sale of Dabur Shares. Dabur shall be entitled to retain the Option Price received on such Dabur Shares (see illustration D(1) in Schedule 9); the Market Value is higher than the Subscription Price, (b) Dabur shall repay to CUIH the Option Price (to be calculated in accordance with Schedule 3). pertaining to such shares within thirty (30) days of receiving the Market Value . Provided however, if as a result of repayment of the Option Price, the Net Sale Proceeds per share received by Dabur become less than the Subscription Price, only such part of the Option Price shall be repaid so as to maintain the Net Sale Proceeds per Dabur Share at Subscription Price (see illustration D(2)(a)&(b) in Schedule9);

If the Market Value is equal to the Subscription Price, (c) Dabur shall repay the Option Price received on such Dabur Shares (see illustration D(3)in Schedule 9)

The sale/ purchase transaction envisaged under this Clause 16.9.2.2 shall be effect in accordance with the procedures set out in Schedule 6B1.

16.9.2.3. Notwithstanding anything contained in Clause 13.3, CUIH may give a Sale Notice that it requires Dabur to divest to public some or all the Dabur Shares. Dabur shall be obliged to sell the number of Dabur Shares specified in the Sale Notice. In the event of divestment by Dabur of the Dabur Shares If :- (a) the Market Value realized by Dabur is higher than the Subscription Price plus the Option price received on such Shares, Dabur shall repay to CUIH within thirty (30) days of receiving the Market Value, the total Option Price ( to be calculated in accordance with Schedule 3), paid till date on such Dabur Shares( see illustration C(1) in Schedule 9); (b) If the Market Value is higher than the Subscription Price but lower than the Subscription Price plus the Option Price ( to be calculated in accordance with Schedule 3), paid till date on such Shares, Dabur shall repay to CUIH within thirty (30) days of receiving the Market Value, an amount equal to the difference between the Market Value and the Subscription Price ( see illustration C (2) in Schedule 9); (c) If the Market Value is equal to the Subscription Price plus the Option received on such Shares, then Dabur shall repay to CUIH within thirty (30) days of receiving the Market Value, the total Option Price ( to be calculated in accordance with Schedule 3), paid till date on such Dabur shares ( see illustration C(3) in Schedule 9);

If the Market value is lower than the (d) subscription Price, CUIH shall pay to Dabur the difference between the Market Value and the Subscription Price simultaneous with the sale of Dabur Shares offered as a part of the divestment process. Dabur shall be entitled to

retain the Option Price received by ii on such Shares (see illustration 0(4) in Schedule S). In the event, CUIH fails to discharge its payment obligation under this Clause 16.9.2.3, Dabur shall be entitled to invoke the CUIH Subscription Price Guarantee for the amount which is equal to the difference between the Subscription Price paid for Dabur Shares and the Market Value received The divestment by Dabur envisaged under this Clause 16.9.2.3 shall be effected in accordance with the procedures set out in Schedule 6B2 16.9.2.4 CUIH may. at its discretion, offer (“Retention Offer”) Dabur for Dabur to return the Option Price received by it on some or all of the Dabur Shares specified in the Retention Offer. If Dabur accepts the Retention Offer, Dabur shall indicate such acceptance by way of a notice to CUIH within fifteen (15) days of receipt of the Retention Offer. Further, subject to Approvals, Dabur shall, within thirty (30) days of its acceptance, repay the total Option Price received by Dabur till date on the Dabur Shares indicated in the Retention Offer The amount of Option Price to be repaid shall be computed in accordance with the formula set out in Schedule 3. The Shares on which the Option Price is repaid by Dabur to CUIH so terms of this Clause 16.9,2.4 shall

thereafter be treated as Retained Shares for purposes of this Agreement.

16.9.3 For the avoidance of doubt, CUIH shall have the right to exercise any and all of the rights enumerated above in Clause individually or concurrently, from time to time.

16.9.4 If the Sale Notice requires Dabur to effect a divestment of the Dabur Shares to public in terms of Clause 16.9.2.3, the Company shall use its best endeavors to effect such an offering within six months of issue of the Sale Notice and the Shareholders shall cooperate with the Company in this regard. 16.9.5 [Not Used] 16.9.6 Provisions applicable to Retained Shares The following provisions shall apply in relation to the Retained Shares and Shares which are treated as Retained Shares pursuant to Clause 16.9.2.4:

16.9.6.2 The CUIH Option shall cease in respect of the Retained Shares; CUIH shall cease to pay the Option Price on the 16.9.6.3 Retained Shares after the Ten Year Period; 16.9.6.4 CUIH shall have pre-emptive rights over the Retained Shares in terms of Clause 16.9.7; CUIH shall not be obliged to guarantee Dabur a 16.9.6.5 minimum of Subscription Price on the Retained Shares and the CUIH Subscription Price Guarantee to that extent snail cease forthwith; and 16.9.6.6 any Third Party who purchases the Retained Shares shall not be bound by any of the obligations undertaken by Dabur under this Agreement. 16.9.7 If Dabur intends to transfer the Retained Shares to any third party, it shall offer all suet) Shares, in the first instance, to CUIH in the manner set out in Schedule 8. For the avoidance of doubt, CUIH shall retain pre-emptive 16.9.8 rights for all times over the Retained Shares, regardless of the fact that CUIH does not pay Option Price in respect of the Retained Shares. 16.9.9 If requested by Dabur, CUIH shall take all steps so as to allow any prospective purchaser of the Retained Shares to undertake a due diligence exercise as to the affairs of the Company.

“16. Repayment of Option Price by Dabur to CUIH

Dabur shall repay to CUIH the Option Price under this Agreement only under the following circumstances: If the Market Value received by Dabur for Dabur Shares (a) sold pursuant to Clauses 16.6, 16.9.2.1 or 16.9.2.2 is higher than the Subscription Price, Dabur shall repay the Option Price (to be calculated in accordance with Schedule 3), pertaining to such Dabur Shares within thirty (30) days of receiving the Market Value Provided however, if as a result of repayment of the Option Price, the Net Sale Proceeds per share received by Dabur pursuant to the aforesaid clauses become less than the Subscription Price, only such part of the Option Price shall be repaid so as to maintain the Net Sale Proceeds per share at Subscription Price If the Market Value received by Dabur for Dabur Shares (b) offered as a part of its divestment pursuant to Clauses 16.8.3 or 16.S.2.3 is higher than the Subscription Price, Dabur shall repay the Option Price pertaining to such shares within thirty (30) days of receiving the Market Value (to be calculated in accordance with Schedule 3). Provided however, if as a result of repayment of the Option Price, the Net Sale Proceeds per share received by Dabur pursuant to the aforesaid clause become less than

the Subscription Price, only such part of the Option Price shall be repaid so as to maintain the Net Sale Proceeds per share at Subscription Price. If the shareholding of CUIH is divested in terms of Clause (c) 17.2 after the Ten Year Period and Dabur, pursuant to the exercise of its tag- along right under Clause 17.2.5, sells its Shares, Dabur shall repay CUIH the Option Price received by it (to be calculated in accordance with Schedule 3). Such repayment shall be in accordance with Clause 17.2.5 (b) Dabur shall repay the Option Price (to be calculated in accordance with Schedule 3) on Retained Shares in terms of Clause 16.9.6.”

which CUIH may receive in respect of its entire shareholding in the Company from one or more Third Parties. Within thirty (30) days of receipt of the CUIH Offer Notice, Dabur 17.1.2 shall issue a written notice to CUIH indicating its intention to either: (a) Acquire the CUIH Shares; or (b) Require that CUIH ensures that any prospective purchasers) of CUIH Shares also purchases the Shares held by Dabur in full either directly or through a nominee simultaneous with the purchase of CUIH Shares on identical terms and conditions. (c) Continue to be a shareholder in the Company while allowing CUIH to sell the CUIH Shares to one or more Third Parties In the event Dabur intends to acquire CUIH Shares under Clause 17.1.3 17.1.2(a) above, Dabur shall, itself or through any nominated party, pay CUIH the price set out in Clause 17.1.1 against delivery by CUIH of the relevant share certificates/title documents and duly executed transfer documents. The Shareholders “shall complete the sale/purchase transaction within thirty (30) days of notice by Dabur in terms of Clause 17.1.2. The time limits set out in this Clause shall be extended by a period equal to the time taken by the regulatory authorities for granting any Approvals. In the event Dabur exercises its option in accordance with Clause 17.1.4 17.1.2(b), and the price per share offered by the prospective purchasers) to Dabur for its Shares is iowei than the Subscription Price, CUIH shall pay to Dabur the difference between the Subscription Price and the price offered by such purchaser(s) simultaneous with the transfer of its Shares to such

purcnaser(s). The sale of the CUIH Shares and the sale of the Shares held by Dabur shall take place simultaneously and both Dabur and CUIH undertake to each other that in the event that the sale of the other Shareholder's (i.e., CUIH/Dabur, as the case maybe) Shares does not proceed to completion for whatever reason, neither of them shall sell, transfer, alienate or otherwise dispose of any of their respective Shares. In the event Dabur fails to issue a notice in terms of Clause 17.1,5 17.1.2 within 30 days of receipt of CUIH Offer Notice, it shall be deemed that Dabur has expressed its intention in terms of Clause 17.1 2(c), and CUIH shall be free to sell its shareholding to any third party lf:- 17.1.6 Dabur has expressed its intention in terms of (a) Clause 17.1.2(c), but CUIH is unable to divest its entire shareholding in the Company within one (1) year of the CUIH Offer Notice; or Dabur has expressed its intention in terms of (b) Clause 17.1.2(b), but CUIH is unable to complete the sale of the Shares held by Dabur within one (1) year of the CUIH Offer Notice. Then, within one (1) year of the date of the notice issued by Dabur under Clause 17.1.2, or such extended period of time as agreed by the Shareholders mutually, the Shareholders shali cooperate with each other to wind up Ihe Company subject to Applicable Law. The provisions of Clause 20.1 shall apply in relation to such winding up. {Not Used] 17.1.7

If at any time during the Ten Year Period CUIH sells, 17.1.8 alienates, and/or transfers any of the CUIH Shares without complying with the procedure set out in this Clause 17.1, Dabur shall be entitled to invoke the CUIH Subscription Price Guarantee. If Dabur exercises its option in accordance with Clause 17.1.9 17.1.2(b) above, it shall within fifteen (15) days of exercising such option, provide CUIH with a power of attorney which shall be substantially in the form set out in Schedule 12. Subject to Applicable Law the power of attorney giver, by Dabur shall allow the attorney, to execute the required share transfer forms and sale & purchase agreement on behalf of Dabur. Should Dabur fall to provide the said power of attorney, the option exercised by Dabur pursuant to Clause 17.1.2(b) shall stand cancelled and it shall be deemed that Dabur has expressed its intention in terms of Clause 17.1.2(c) and CUIH shall be free to sell its shareholding to any Third Party. For the avoidance of doubt it is understood by both the Shareholders 17.1,10 that

(a) there shall be no obligation on Dabur to assume any responsibility and/or liability in terms of giving any representations/ warranties regarding any matter concerning the Company and the attorney shall not do any act which is to the contrary; (b) the attorney on behalf ot Dabur shall however give representations/ warranties regarding Dabur's title and ownership of the Dabur Shares

For the avoidance of doubt, it is understood by the Shareholders 17.1.11 that in case of CUIH transferring its shareholding under Clause 17.1 above, the Option Price received by Dabur in respect of its Shares shall be retained by Dabur.

Transfer of CUIH Shares - After the Ten Year Period 17.2 If at any time after the Ten Year Period, CUIH decides to sell, transfer, alienate or otherwise dispose off, all and not less than alt, of CUIH Shares to any Third Party, it shall offer ail such Shares, to the first instance, to Dabur .or to any Third Party nominated by Dabur and the procedure in Clauses 17.2.1 to Clause 17.2.5 shall apply.

CUIH shall give a notice (’Offer Notice’) to Dabur stating: 17.2.1 The number of CUIH Shares to be transferred; 17.2.1.1 The price of each CUIH Share; 17.2.1.2 The other terms and conditions on which 17.2.1.3 CUIH proposes to sell the CUIH Shares; and

The identity of the proposed purchaser. If no 17.2.1.4 purchaser is identified, the Offer Notice shall clearly indicate the said fact.

Dabur shall have the right to accept an offer made pursuant 17.2,2 to Clause 17.2.1 by giving a written acceptance to the Offer Notice which shall be given within thirty (30) days of receipt of the Offer Notice by Dabur. If Dabur accepts the offer, it shall complete the transfer by paying for such Shares, within thirty (30) days of the date of its acceptance, against delivery by CUIH of the relevant share certificates/title documents and duly executed transfer documents The

time limits set out in this Clause shall be extended by a period equal to the time taken for obtaining any approvals pursuant to Clause 17.2.3 Should the approval of any Government or regulatory authority 17.2.3 be required by Dabur or the Third Party nominated by it for acquiring the CUIH Shares, Dabur shall make or procure an application to be made therefore within thirty (30) days of the date of notification of acceptance and pay or procure the payment of the price for the shares within thirty (30) days of the receipt or such approvals. If for any reason whatsoever such approval is not received within ninety (90) days of making the application, CUIH shall be at liberty to withdraw the offer. For the avoidance of doubt, if CUIH desires to transfer the CUIH Shares at any lime after withdrawing the offer, as aforesaid, the provisions of Clause 17 2 shall apply to such transfer. If Dabur- 17.2.4 (a) declines CUIH's offer as set out in the Offer Notice and allows CUIH to sell its Shares to any Third Party (where the Offer Notice does not have the name of the proposed purchaser); or (b) Fails to respond to the Offer Notice within the time emit specified in Clause 17.2 2; or Having accepted CUIH's offer in terms of the Offer Notice (a) fails to pay the purchase price within the time limit stated in Clause 17.2.2; or Does not exercise its rights under Clause 17.2.5 within the (b) time limit stated in Clause 17.2.5. CUIH may then sell the CUIH Shares in respect of which the offer is made to any Third Party but at the price which is not lower than

the price set out in the Offer Notice and upon the same terms offered to Dabur. In addition to the right of Dabur to accept or refuse CUIH's 17.2.5 offer in terms of the Offer Notice, Dabur shall also have the option to require that CUIH ensures that the third party whose name is set out in the Offer Notice (or a party nominated by such party) purchases the Dabur Shares at the price and other terms and conditions as specified in the Offer Notice simultaneously with the purchase of the CUIH Shares. If Dabur intends to exercise this option, it shall give a written acceptance to CUIH in this regard within thirty (30) days of receipt of the Offer Notice by Dabur. CUIH shall then ensure that the said third party completes the purchase of Dabur Shares simultaneously with the purchase of its own Shares if the sale proceeds agreed to be paid by the proposed purchaser to Dabur is: lower than the Subscription Price, CUIH shat! (a) pay the difference in the Subscription Price and such sale proceeds to Dabur simultaneous with the sale of Dabur Shares Dabur shall be entitled to retain the Option Price received on such Dabur Shares (see illustration E(1) in Schedule 9); higher than the Subscription Price, Dabur (b) shall repay to CUIH the Option Price (to be calculated in accordance with Schedule 3), within thirty (30} days of the receipt of the sale proceeds. Provided however, if as a result

of repayment of the Option Price, the Net Sale Proceeds per share received by Dabur become less than the Subscription Price, only such part of the Option Price shall be repaid so as to maintain the Net Sale Proceeds per Dabur Share at Subscription Price; (see illustration E{2)(a)& (b) in Schedule 9)

equal to the Subscription Price, Dabur strati (c) retain the Option Price received on such Gabur Shares (see illustration E{3) in Schedules).

The sale of the CUIH Shares and the sale of the Dabur Shares shall take place simultaneously and both Dabur and CUIH undertake to each other that in the event that the sale of the other Shareholder’s (i.e., CUIH/Dabur, as the case maybe) Shares does not proceed to completion for whatever reason, neither of them shall sell, transfer, alienate or otherwise dispose of any of their respective Shares.

If Dabur exercises its option in accordance with Clause 17.2.5 above, it shall within fifteen (15) days of exercising such option, provide CUIH with a power of attorney which shall be substantially in the form-set out in Schedule 12. Subject to Applicable Law the power of attorney given by Dabur shall allow the attorney the ability to execute the required

share transfer forms and sale & purchase agreement on behalf of Dabur”

“17. Transfer of Shares by Dabur 17.A1 Transfer of Shares by Dabur – During the Ten year Period. Subject to Applicable Law, Dabur shall not transfer its shares to any Third Party during the Ten Year Period except in accordance with clause 16 of this Agreement. 17.A.2 Transfer of Dabur Shares – After the Ten Year Period. Dabur shall not transfer the Dabur Shares to any Third party during the Ten Year except in accordance with Clause 16 of this Agreement. 17.A.3 In the event Dabur sells, alienates and / or transfers its Shares to any Third Party during the Ten Year Period or the Dabur Shares after the Ten Year Period in breach of provisions of Clauses 17.A.1. or 17. A. 2 above, as the case may be, the following provisions shall apply :- (a) the Company shall not register any such transfer, (b) the CUIH Option Price Guarantee and the CUIH subscription Price Guarantee shall cease with immediate effect. (c) Any transfer so effected by Dabur in favour of a Third

Party other than CUIH shall not affect the CUIH Option qua the shares and further CUIH shall be at liberty to take all such steps to have the transfer effected in its name or in the name of its nominee (s) in terms of clause 17A.1 and 17A.2.”

“RESERVE BANK OF INDIA EXCHANGE CONTROL DEPARTMENT CENTRAL OFFICE BUILDING MUMBAI-400001.

M/s. Dabur Invest Corporation Off Punjabi Bhawan, 10, Rouse Avenue New Delhi -110002

Dear Sirs, Acceptance of Option price from M/s. Commercial Union International Holdings Ltd. (CUIH) Please refer to the correspondence resting with your letter dated 2nd April 2002 on the captioned subject. We hereby permit Dabur-GGU to receive refundable Option price and to refund the amounts so received in terms of the JV Agreement dated 7th August 20uf. Yours faithfully,

(M.R.Rangachari) Deputy General Manager

RESERVE BANK OF INDIA EXCHANGE CONTROL DEPARTMENT CENTRAL OFFICE BUILDING MUMBAI-400001.

Ref. No. EC. 6030/1001-02.01.01/2001-02 17th April 2002 M/s. Dabur invest Corporation, Off Punjabi Bhawan, 10, Rouse Avenue,

37 New Deihi 110 002. Dear Sirs, Acceptance of Option price from M/s. Commercial Union International Holdings Ltd. (CUIH) Please refer to the correspondence resting with our letter dated 15th April 2002 on the captioned subject. We hereby amend para 2 of our above letter dated 15th April 2002 to read as under: "We hereby permit Dabur Invest Corporation to receive refundable Option price from CUIH and to refund the amounts so received in terms of the JV Agreement dated 7th August 2001."

Yours faithfully,

(M. R. Rangachari) Deputy General Manager

dated 18.03.2016 by the Under Secretary to the Government of India read as under: “Government of India Ministry of Finance Department of Economic Affairs FIPB ------- North Block, New Delhi Dated 18.03.2016 To, Aviva Life Insurance Company India Limited (C/o Khaitan Legal Associates) 1st Floor Century Bhavan 771 Dr. Annie Besant Road Worli Mumbai – 400030 Subject : Application for foreign collaboration (Registration No.3796 and Proposal No.170/FC/2015 dated 23.10.2015)

Sir, I am directed to refer to the above mentioned application and to convey approval of Government to the above captured proposal.

Club Sector 43 Gurgaon 122003 2 Item(s) of manufacture/ The company is activity covered by the engaged in Insurance foreign collaboration services 3. Location/ Proposed Mumbai Maharashtra. Location

The approval is to increase the foreign shareholding in M/s. Aviva Life Insurance Company India Limited from 26% to 49% by Aviva International Holdings Limited, UK by way of transfer of 23% shareholding currently held by Dabur Investment Corp.

All remittances by the foreign collaboration shall be made as per the exchange rates prevailing on the day of remittance.

The transfer / issue /pricing of the shares be as per RBI / SEBI guidelines as applicable.

The approval is subject to the following conditions :- a. Compliance with the provisions of the Insurance Act, 1938 and the condition that Companies bringing in FDI shall obtain necessary license undertaking Insurance activities. b. Compliance with para 6.2.18.7.2 of the FDI Policy 2015 c. Compliance with the Indian Insurance Companies (Foreign Investment) d. The taxation of dividend, future capital gains on alienation of shares by the foreign investor, interest income and income of any other nature shall be examined by the field formation in

accordance with the provisions of Income – tax Act, 1961 and DTAA applicable to the facts of the case. e. Claim of any tax relief under the Income Tax act or the relevant DTAA will be examined independently by the tax authorities to determine the eligibility and extent of such relied and the approval of FIPB by itself will not amount to any recognition of eligibility of giving such relief. f. FIPB approval by itself does not provide any immunity from tax investigations to determine whether specific or general anti avoidance Rules apply. g. The far market value of various payments services, assets shares etc., determined in accordance with FIPB guidelines shall be examined by the tax authorities under the tax laws and rules in force and may be varied accordingly for tax purposes. 9. The agreement shall be subject to compliance with Indian Laws. The approval will also be subject to compliance with the relevant provisions of the sectoral conditions/ guidelines, and the FDI Policy as amended from time to time. 10. You shall submit quarterly compliance report of the conditionalities contained in the approval letter, duly certified by your Auditors. This report should be submitted to FIPB Secretariat, Ministry of Corporate Affairs ( MCA) and the Department of Industrial Policy & Promotion (DIPP). MCA and DIPP will scrutinise the certificate and bring to the notice of FIPB any violation of the conditionalities also on a quarterly basis, which is available at fipb.gov.in.

a. Where there is an increase in the amount of foreign equity without a change in the foreign equity percentage approved, as per clause 4 supra. b. Where there is an increase in the foreign equity percentage beyond what is approved as per clause 4 supra and the activity is permissible on the automatic route under the extant FDI policy.

iv. Insurance Regulatory and Development Authority of India (IRDA)

a) Acknowledge and confirm the acceptance of the terms and conditions mentioned in this letter immediately on receipt of this approval. b) Furnish the information as per the questionnaire on 1st January & 1st July every year till the receipt of total approved foreign equity and commencement of commercial production to the Administrative Ministry / ies concerned and also to the FIPB Unit.

Yours faithfully

(Ashish Sharma) Under Secretary to the Govt. of India

“Ref. N o. 112.1/1/F&A- Life/ALIC-Restr/213/2016

Mr. Trevor Bull Chief Executive Officer Aviva Life Insurance Co. Ltd. Aviva Tower, Sector Road, Opp. Golf Course, OLE Phase V, Sector - 43, Gurgaon -122003 Dear Sir, Re: Application for approval for transfer of shares to increase the foreign investment from 26% to 49% in Aviva Life Insurance Co. Ltd. Please refer to your application dated 23rd November, 2015 and the correspondence resting with the Authority on the captioned subject. We are pleased to inform you that the Authority hereby grants 1. approval under Section 6A of the Insurance Act, 1938 for the following:- i) Increase in foreign equity participation by Aviva International Holding Ltd. (AIHL) in Aviva Life Insurance Co. Ltd from the existing 26% to 49% through transfer of 461127000 shares from Dabur Invest Corp. to AIHL for a total consideration of Rs. 940 crores. The approval is subject to the conditions as indicated below:- 2. i) Your company shall file the amended Articles of Association to bring them in line with the amended JV agreement between promoters/ shareholders within a period of 30 days from the date of approval of the Authority.

Your company shall comply with the pricing guidelines issued ii) by the RBI as applicable to the transaction of transfer of shares; Your company shall ensure compliance with the conditions iii) stated in the letter F.No.018(2016)/170(2015) dated 18th March, 2016 of FIPB, Department of Economic Affairs. Your company shall comply with the Insurance iv) Act/Rules/Regulations, orders, circulars etc. and any other Rules/Regulations as applicable from- time-to-time.

Your company and its shareholders shall ensure that the v) solvency margin as stipulated by the Authority from time to time is maintained.

vi) The company shall ensure that the joint venture partner vi) complies with all requirements as regards taxation laws for the Indian jurisdiction as may be applicable. The Board of the company shall ensure compliance with the requirements of "Indian Owned & Controlled" at all times.”

A.Y. 2005-06

A.Y 2006-07

A.Y 2008-09

A.Y 2011-12.

“ II Notes TO THE ACCOUNTS

money to be adjusted against further reduction of shareholding in M/s Aviva Life Insurance Co. Pvt. Ltd. by Dabur Invest Corp. in favour of Commercial Union International Holdings Limited, U.K. at a price to be determined at the time of transfer of shares . The revenue if any will be accounted for in the years of Transfer of shares. The firm has paid Rs. 23.75 Lacs during the year as 4. professional charges for insurance venture has been capitalized and included in the cost of the investment being long term investment in equity shares of M/S Aviva Life Insurance Co. Pvt Ltd. As per accounting polices adopted by the firm. The Professional charges of Rs. 48.18 Lacs has been 5. accounted for as revenue expenses as in the opinion of management the same is revenue nature and not related to investment venture.”

A.Y 2013-14 [year under consideration]

“OFFICE OF THE INCOME TAX OFFICER WARD 46 (5) ROOM NO.205, DRUM SHAPE BUILDING I.P. ESTATE NEW DELHI -110002 NOTICE UNDER SECTION 142 (1) OF THE INCOME TAX ACT, 1961 No. ITO/Ward 46 (5) / scrutiny / 2015-16 Dated 20.11.2015

PAN – AADFD2529G

M/s. Dabur Invest Corp. 4th Floor, Punjabi Bhawan 10- Rouse Avenue New Delhi -110002

Sir, You are requested to furnish the following details for the A. Y. 2013-14

You are hereby required to attend my office either in person or by a authorized representative in writing on 03.12.2015.

(VINOD KUMAR) INCOME TAX OFFICER WARD 46 (5), NEW DELHI “

A.Y 2014-15 [year under consideration ]

“II NOTES TO THE ACCOUNTS 1. The firm has entered in to Join Venture (M/s. Aviva Insurance Co. Pvt. Ltd.) with Commercial Union International Holding Limited England & Wales.

to be adjusted against further reduction of shareholding in M/s. Aviva Life Insurance Co. Pvt. Ltd. By Dabur Invest Corp. in favour of Commercial Union International Holding Limited, U. K. at a price to be determined at the time of transfer of shares. The revenue if any will be accounted for in the years of Transfer of shares.

“OFFICE OF THE Pr COMMISSIONER OF INCOME TAX, DELHI 16 ROOM NO. 101, DRUM SHAPED BUILDING,I P ESTATE, NEW DELHI -11 0002 F. No. PC IT-16/Revision/2017-18/329 Dated: 12.06.2017 PAN: AAD F 1)26 2 9 G To M/s Dabur invest Corp. 4th Floor, Punjabi Bhawan, 10, Rouse Avenue, New Delhi-110002 Dear Sir, Sub:- Notice u/s 263 of the I.T. Act.1961 for the A.Y.2013-14- reg- The assessment records in your case for the A.Y. 2013-14 were called for by the undersigned and examined. On examination of the assessment records it is found that the assessment order passed by the assessing

officer for the A.Y. 2013-14 in your case dated 09.02.2016 is erroneous in so far as it is prejudicial to the interest of revenue. The AO failed to make enquiries or verification which should have been made with regard to option money amounting to Rs. 246.84 crores received by you during the year which is shown under the head current liabilities as per schedule 4 of the balance sheet.

As per point No. 3 to the notes on accounts in schedule 8 of the balance sheet you have received Rs. 1581.81 crores which includes Rs. 246.84 crores during the year from Commercial Union International Holdings Ltd. as option money. The option money has to be adjusted against further reduction of share holding in M/s Aviva Life Insurance Co. Pvt. Ltd. by your firm in. favour of Commercial Union International Holdings Ltd. U.K. at a price to be determined at the time of transfer of shares. As per point No. 1 to the notes on accounts you have entered into a joint venture with Commercial Union International Holdings Ltd. in the name of is M/s Aviva Life Insurance Co. Pvt. Ltd. The AO examined the taxability of the option money received by you. In this regard, you are requested to furnish the following information:-

you from Commercial Union International Holdings Ltd. U.K.

agreement which will hold the field.

Since no enquiry or verification which should have been made has been made by the AO, the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue. Please state why the assessment order passed by the AO should not be cancelled/modified u/s 263 of the IT Act 1961. You arc hereby required to file the reply to the above queries on 27th lunc. 2017 at 11:00 A.M. (Suresh Kumar Mittal) Pr. Commissioner of Income Tax Delhi-16, New Delhi

(SURESH KUMAR MITTAL) Pr. Commissioner of Income Tax Delhi-16, New Delhi”

(i) The PCIT held the assessee as a financer and a dummy stake holder, vying to get maximum guaranteed return on money applied. According to him, the option money on granting of first rights of stake purchase to CUIH and accretion in shares as composite income arising out of JV agreement, clearly fall under the head ‘business income’.

(ii) The ld. PCIT was of the opinion that he Assessing Officer has not raised any query related to the nature of business capitalised by the assessee and whether the assessee was justified in capitalising such expenses. The PCIT further observed that the Assessing Officer did not gather any details of option

money received and did not examine its nature whether it was an advance or a taxable receipt.

(iii) Neither copy of JV agreement, nor working of such amount of option money was furnished.

(iv) Surprisingly, thereafter, the PCIT referred to the assessment order for assessment year 2015-16 and extracted the entire assessment order in the body of his order.

The ld. PCIT continued harping on the option money received by the assessee and was of the firm belief that option money received by the assessee year after year at a fixed rate of 20% is the income of the assessee for each year and there is no explanation furnished by the assessee for retaining the option money. According to the PCIT, recurring annual payment @ 20% of investment by CUIH is not restricted by any other condition of JV agreement and no part of option money received was refunded or refundable, thereby the assessee deliberately avoided payment of taxes on option price, which was due every year in the past 15 years with the sole intention to mislead the department by way of wrong notes to accounts and by wrongly

showing such income firstly as liability, and then as capital receipt, which was, in fact, revenue receipt.

(v) In the assessment order, there is no discussion regarding the question as to whether the amount of income shown by the assessee was being claimed to be exempt or whether the entire amount was exempt. The PCIT concluded by holding that the assessment order has been framed without application of mind.

“Option Price calculation as per formula given in schedule 3 and illustrations given in schedule 9 of JV Agreement: -

As per formula given in schedule 3 and Illustrations given in schedule 9 the option price to be repaid (OPR) works out as under for market value adopted for assessee at Rs.20.38/- per share and for other hypothetical market values of Rs.0/-, Rs.10/- and Rs.100/- per share of shares of "Aviva Life Insurance Co. Pvt. Ltd.": -

S.No. Particulars and Situation Situation Situation Situation contingencies in exit A B C D option (Hypothetical) (Assessee's (Hypothetical) (Hypothetical) case) 1. Subscription price 10 10 10 10 (SP) (Total 1483626000 shares) 2. Option Price (OP) 16.71 16.71 16.71 16.71 received per share by assessee from AY 2003-04 to AY 17-18 (2480.48 crore 1,48,36,26,000) 3. Market value (MV) 100 20.38 10 0 of 23% stake sale (46,11,27,000 shares) MV < SP + 4. Situation MV > SP + OP OP MV = SP MV < SP 5. How much assessee Rs.16.71 per Rs.16.71 Rs.16.71 per Rs.16.71 per (DIC) has received share on 74% per share share on 74% share on 74% from CUIH stake + on 74% stake + stake + Rs. 100 per stake (i.e. Rs.10 per Rs.0 per share on 23% Rs.2480.48 share on 23% share on 23% stake cr.) + stake stake Rs.20.38 per share on 23% stake (i.e. What will be Rs.16.71 per Rs.10.38 per Dabur will Dabur will 6. Rs. 940 cr.) refund from DIC share on 23% share on retain OP retain entire to CUIH Or stake will be 23% stake t’Arin, OP. Payment from w&mded- RB will be + CUIH to Dabur (MV > SP + icfcitrefeaf Dabur will OP) fed RE also receive (Rs.478.64 from CUIH cr.) MV < SP Rs.10 per + OP share i.e. SP Therefore, MV-SP Or 20.38-10 Or 10.38 will be refunded OP is retained

OP of 74% What is retained OP of 74% OP on 74% OP on 74% 7. stake + stake + [MV retained + retained + by Dabur (MV-OP) of — (MV - SP)] Reed. MV on Reed. SP on 23% stake = 23% stake = 74% stake = 23% 23% 2480.48 cr. OP of 74% 1,48,36,26,000 = 2941.60 cr. = 2941.60 cr. + stake + SP of share (100-16.71) x 23% stake 23% stake 46,11,27,000 =2480.48 cr. Sold = = 6321.20 cr. + 46,11,27,000 (> 2480.48 [940 cr. cr.) = - (940 - Dabur will 461.12 cr.)] retain option = 2941.60 cr. price & [OP on 74% market value retained + 1/ in excess of reed. SP on option price 23%] on 23% which is already received.

After going through aforestated table we can observe that: - (1) Assessee Dabur Invest Corp. (DIC) has applied Rs. 1483,62,60,000/- in 1,48,36,26,000 shares of Aviva Life Insurance Co. P. Ltd., which is 74% stake in that company and 26% allowed to FDI is held by CUIH.

2) As per schedule 1 and clause 16.6.1 and 16.6.2 of JV Agreement assessee is getting return of 20% annually on such money applied in shares, in name of option price money.

(3) Total amount received till AY 2017-18 as option price is Rs.2480.48 crore.

(4) Whatever may be "Market Price" of "Aviva" shares, as per the table, money retained by PIC is always more than "Option price" received i.e. option price received is Rs.2480.48 crore and money

retained in these 4 different market values is Rs.6321.20 crore (when Rs.100/- MV per share) and Rs.2941.60 crore in rest of three cases is same whether market value of shares is 0 or 10 or 20.38 per share. This means option price is never refunded. (5) This means there is guaranteed minimum return of Rs.2914.60 crore to PIC from CUIH on such money applied, irrespective of market value of shares, even when market value is zero. This fix return on share investment is not per say return on shares but more like fix interest return on money applied, thus making its nature akin to financial transaction. (6) Since it is a financial transaction, income arising therefrom is business income for which a detailed note is separately enclosed. Both "Option Price" received every year at 20% rate and amount received on divestment are business receipts and refund given from share consideration received or interest expenses towards borrowed capital which are used for purchase of such shares are business expenses, but assessee has wrongly capitalized them and wrongly claimed indexation on them. (7) Assessee has also claimed some unrelated expenses paid as non- compete fees to Indusind Bank for not competing with "Aviva" in insurance business. This does not fall in business purposes of assessee and not allowable u/s 37. (8) Assessee has thus not paid taxes on "Option Price Money" received of Rs.2480.48 crore nor it paid any taxes on share sale receipt of Rs.940 crore in either AYJLQQ3-04 to AY 2016-17 or in year of divestment

in AY 2017-18 by claiming them as capital receipts ;and claiming various unrelated expenses and claiming huge indexation on them. (9) Not only that the option price received on 51% stake i.e. Rs.1470 crore in not offered to tax in any year and as per assessee it is not taxable till change of FDI policy and divestment of 51% even if it means non-taxing the same till perpetuity.

“The assessee following the accrual method of accounting for finalizing its accounts as well as reporting income - being in fact legally obliged to do so, the said concept, i.e., accrual, a fundamental accounting assumption - so that the accounts cannot be considered as reflecting a true and fair state of affairs until the same is adopted, was examined in light of the judicial precedents and Accounting Standards, since legally mandated. Only to find a complete harmony between the two, i.e., as judicially explained and as defined in accountancy, the commercial principles of which would even otherwise hold in the absence of anything to the contrary under the statute. The question to examine is if the right to receive the return (or income) on the shares had accrued to the assessee during the relevant year. The same flowing from the shareholder's agreement entered into by it with a parent (foreign) company of the investee-company, a resident, the said agreement stands examined in detail, even as no dispute or doubt with regard to

the scope or meaning of its provisions is available on record, i.e., only with a view to ascertain the nature of the rights accruing to or vesting in the assessee per the same. The Agreement was found to unequivocally and unambiguously convey the right to receive the return on its investment (in shares) to ITA No28 3 2/ Mum/2 012 (A.Y . 2 008 -09 ) Mahindra Telecommunications Investment Private Limited vs. ITO the assessee-company and, further, that income therefore accrued to it in the same manner and to the same extent as the increase in the value of its' share holding in the investee-company, at a defined rate per unit of time over the holding period, which was further fixed at a minimum of three years or such lower time) as occasioned by the elimination of the Indian Government regulation on foreign equity holding levels. This is as the assessee had an irrevocable right to transfer, and the parent company (AT&T) an irrevocable right to acquire the assessee's shareholding in its Indian subsidiary (AT&T India) either to itself or through its affiliates (which have right to first refusal), at a predetermined price, called option price, which shall continue to increase with time, i.e., at the defined rate (11% p.a.), to be compounded annually, so that the agreed return shall continue to obtain, resulting in a continuous growth in option price over time. The transfer of shares in the manner afore-said, including the price determined there-under, is made the essence of the agreement, so that any contravention thereof constitutes a breach thereof, which may result in its termination. The assessee-company, which has no right to management, cannot sell, assign, transfer or otherwise dispose of its' shares (or interest therein) in any manner, or

otherwise encumber the same in any manner. The assessee's investment in shares, has to be considered in conjunction with the said agreement, being in fact itself only pursuant thereto, i.e., having regard to the reality and the entirety of the facts and circumstances of the case. The same, as evident, is qualitatively very different from the shareholding of, or the rights as a shareholder of, AT&T. The provision of 'call option fee' and 'compounding' in the Agreement are considered consistent with investment in shares proper. It is the substance that is to prevail over form. The arrangement is accordingly found to be the only a manner of investment, akin to a financing arrangement, yielding return income) as a function of time. No doubt or uncertainty with regard to the realization or the ultimate collection of the income - by way of option price on transfer of shares, obtaining (i.e., reckoned in a realistic manner), the income (by way of return on investments in shares) is found to have accrued by way of inflow of or giving rise to a receivable. The arrangement is in fact ITA No28 3 2/ Mum/ 2012 (A.Y. 2008 -09 ) Mahindra Telecommunications Investment Private Limited vs. ITO.

AT & T not requiring any financer, but entering the arrangement all the same only to comply with the GOI policy as to a cap on the foreign equity participation in the telecom sector for the time being, not even a financing arrangement. The agreement and the rights accruing thereby was further examined from the stand point of and in the light of a provision of the compound rate of return (on annualized basis - so that the same increases

in geometric progression with time); discounting for net present value, only to find further endorsement of the said view and, further, of not impacting the valuation (of the right to receive) or the accrual of the income in any manner. Even de hors the character of the arrangement as a financing arrangement or any other, the nature of the investment would not be of much consequence as long as there is accrual of income in the facts and circumstances of the case, i.e., by way of right to receive - a receivable, resulting in a debt, realizable even if in future.

The right to receive, if construed as a right to receive in praesenti, it may be appreciated, would obliterate the difference between the 'right to receive' and 'due for payment'. Or, in fact, between 'accrual' and 'receipt', used in contradistinction, even as explained in Ashokbhai Chimanbhai (supra). It is only the realizability of the right accrued that is postponed to a later, defined date, signified as the due date, which is at convenient or agreed dates of time. It is only because the debt has arisen and accrued that it becomes liable to be realized, even if at a later date. That, in fact, forms the fundamental or the quintessential difference between cash and accrual systems of accounting, legally recognized and judicially well explained. It would, as such, be incorrect to say that the right (to receive) that vests in the assessee with a passage of time is not a legally enforceable right. It is, further, only when the said right to receive culminates under the terms of the agreement into a realizable right, i.e., which is by a defined date and for a definite sum, that it can be said to mature for

payment in favour of the recipient of income. It is only upon this that, where not (being) received, despite the compliances with the stipulations made in its respect by the assessee, that the right can be legally enforced by it. Of-course, whether the income at a definitive rate has been earned and, accordingly, accrued, is itself a subject matter of dispute, i.e., under IT A No2832/ Mum/ 2012 (A.Y. 2008-09 ) Mahindra Telecommunications Investment Private Limited vs. ITO the terms ofthe arrangement/contract, the same can be subject to judicial determination. How, then, it is wondered, has the income not accrued or arisen to or, correspondingly, the right to receive not vested in, the assessee - a question which, being a mixed question of fact and law, has to considered on a realistic assessment and consideration of the entirety of the facts and circumstances of the case, with we observing no dispute as regards facts. The fact that the income is realizable as a part of the sale price of shares, i.e., an investment by the assessee, a investment company, as a part of and in regular course of its business, to fetch return, i.e., along with redemption or liquidation of the investment, as only representing the form in which the income, imbedded in the increased share value, is realized. The same is only a manner of realization of the income, since accrued, as is the case (in other common day examples of with interest on (cum) debentures or Bank FDR, et. al. and, thus, by itself of little moment. Could it be material, one may ask, if the interest of Debenture or FDR stands to be received, over fne tenure of the investment, separately, or along with redemption of the investment? The increase in the share price

to the defined extent would arise irrespective of the performance of the company during the holding period or its' intrinsic value (net worth) at the time of transfer of shares. Would it therefore matter even if (say) some management rights were also attached to the shareholding - which we observe as not. In our view - not. The investment is in a private company, shares in which are severely restricted for transfer, making it highly illiquid, i.e., but for the arrangement, in pursuance to which only in fact the investment in shares stands made.

That is. considerable uncertainty would otherwise exist as to the realizability of the income. The income being also in agreement with the matching principle of accountancy, also judicially approved, is thus found to accrue from year to year, i.e., on time basis and, thus, for the relevant year. The same, further, is only by wav of business income, i.e., as assessed, on which we again observe no dispute; rather, the two returns ensuing on investment, i.e.. by wav of call option fee (returned and assessed as business income) and the annualized return (over the holding period), found to be para materia, forming part of an integrated revenue ITA No28 3 2/ Mu m/ 2 0 12 ( A . Y . 200 8 -09 ) Mahindra Telecommunications Investment Private Limited vs. ITO model and, further, only in the nature of interest income as defined both in the accountancy as well as by statute. There is no law that interest could be assessed only as 'income from other sources', partake as it does its' character from the underlying transaction from which it arises ^IT vs.

Govinda Choudhury [19931 203 ITR 881 (SC)). The case law cited stands also considered, only to find the same to be in agreement with the view expressed herein, confirming the stand of the Revenue, being essentially a question of fact, to be determined on an appreciation of the facts of the case, with the law being well settled. ”

Annua 5. l recurring income can be either income comprising interest part or it can be interest plus capital. In the present case, there is no return of capital (Subscription price from A.Y. 2003-04 to 2016- 17). Therefore, amount of option price receipt is only interest income and so, taxable as revenue receipt. Reliance is placed on the decision in case of Addl. CIT vs. Syndicate bank dated 08- 02-1979 1986 159 ITR 474 KAR. Busine 6. ss of assessee:- As per partnership deed of this assessee, investment in shares & mutual funds is business of assessee. Hence sale of investment and making of fresh investments was directly connected in the carrying on of the said firm's business & profits made by the said firm on sale of shares was assessable to income tax as held by Hon’ble Apex Court in the case of Sardar Inder Singh & Sons Ltd vs. CIT (SCI 1953 AIR 453. 7. Purchase of shares from borrowed funds:- Assessee has purchased of ‘Aviva shares’ from funds borrowed from NBFC’s & sister concerns and such funds are borrowed on interest. Hence, return on sale of such investment will be an adventure in nature of trade as

held by Hon’ble Apex Court in the case of Dalhousie Investment Trust vs. CIT (SC) 1968 AIR 791. 8. Long holding of shares is not assesee’s choice:- As per assesee’s JV agreement clause 16.6.1, shares of Aviva held by assessee, will be sold to CUIH as & when Govt policy on FDI changes. Had it changed in A.Y. 2003-04 itself, assessee was duty bound to sale the same in that year. So long holding of shares was not assesee’s choice but due to dependence on change in Govt policy of FDI.

Case where issue involved was either not examined or not properly examined A table is given below which shows that the issue of option price money received every year was ~c~. at all examined or not properly examined. It may be mentioned that in most of the years from AY 1003-04 to AY 2017-18, issue was not scrutinized, but where ever it was scrutinized, either no queries »ere raised or no relevant queries or insufficient queries were raised. 'able is given below:-

Name of Case- M/s Dabur Invest Corp. Reply of Assessee S. Year of Query Whether Applicable Case Laws N Scrutin Raised case of no 0. y on the query or Assess issue of insufficient m option query ent u/s price 143(3) No 1. Mala bar Industrial Co. Ltd v. 1 2014- No reply given No query (AY) query CIT [2000] 109 Taxman 66/243 15 asked ITR 83 (Supreme Court) 2. Rajmandir Estates Pvt Ltd Vs PCIT (2017) 245 Taxman 127 (SC), 3. Shree Manjunathesware Packing Products & Camphor Works vs CIT (1998) 231 ITR 53 (SC) 4. CIT t/s Harsh J Punjabi [2012] 27 Taxmann.com 175 (Delhi)/[2012] 345 ITR 451 (Delhi) 5. Shankar Tradex Pvt Ltd Vs PCIT (ITA No. 2999/Del/2017) Ledger account of 1. Malabar Industrial Co. Ltd v. 2 2013- Option Price 14 Insufficient CIT [2000] 109 Taxman received given Vide Query 66/243 ITR 83 (Supreme notice equivalent to Court) u/s non-enquiry 142(1) as per 2. Adi. CIT v. Gee Vee dated judgment of Enterprises [1975] 99 ITR 375 20/11/2 Bombay High (Del) 0 Court in case 15, a of Jeevan 3. Jeevan Investment and single Investment Finance Pvt Ltd l/s CIT City 1 point and Mumbai [2017] 88

71 Taxmann.com 552 (Bombay) query Finance Pvt "Details Ltd of and Delhi 4. CIT Vs Harsh J Punjabi Option High Court in [2012] 27 Taxmann.com 175 Price case of CIT (Delhi) /[2012] 345 ITR 451 and Vs Harsh J (Delhi) TDS Punjabi Deducte [2012] 345 d " ITR 451 5. DIT Vs Jyoti Foundation [2013] 38 Taxman.com 180 raised. (Delhi) No (Delhi) follow 6. ITO Vs DG Housing Projects up Ltd [2012] 343 ITR 329/20 queries taxmann.com 587/[2013] 212 Taxman 132 (Del) 7. CIT Vs. Maithan International (High Court of Calcutta) 3 2011-12 No No query Ledger of option 8. Shankar Tradex Pvt Ltd Vs 1. Mala bar Industrial Co. Ltd v. queries price received is PCIT (ITA No. 2999/Del/2017) CIT [2000] 109 Taxman 66/243 asked attached ITR 83 (Supreme Court) Rajmandir 2. Estates Pvt Ltd Vs PCIT (2017) 245 Taxman 127 (SC), Shree 3. Manjunathesware Packing Products & Camphor Works vs CIT (1998) 231 ITR 53 (SC) 4. CIT Vs Harsh J Punjabi [2012] 27 Taxmann.com 175 (Delhi) /[2012] 345 ITR 451 (Delhi) 5. CIT V. Sheshasayee paper and Boards Ltd [2000] 108 Taxman 464/242 ITR 490 (Mad.) 6. Shankar Tradex Pvt Ltd Vs PCIT (ITA No. 2999/Del/2017) 4 2008- Regarding option Insufficient 1. Malabar Industrial Co. Ltd v. 09 money, it is to Query- CIT [2000] 109 Taxman 66/243 mention that Option Nature of ITR 83 (Supreme Court) Money is the annual receipt not 2. Adi. CIT v. Gee Vee premium received in examined Enterprises [1975] 99 ITR 375 lieu of giving them, whether i.e. Aviva capital or (Del) revenue,

Corporation, the note to 3. Jeevan Investment and option of buying as accounts not Finance Pvt Ltd Vs CIT City 1 and when law examined for Mumbai [2017] 88 permits, our stake correctness. Taxmann.com 552 (Bombay) in that company at the then prevailing 4. DIT Vs Jyoti Foundation market price and [2013] 38 Taxman.com 180 then this option (Delhi) money amount 5. ITO Vs DG Housing Projects received by us will Ltd [2012] 343 ITR 329/20 be refunded back to them. Copy of taxmann.com 587/[2013] 212 agreement for Taxman 132 (Del) option money and 6. CIT \/s. Maithan copy of bank International (High Court of statements of the Calcutta) assessee company wherein the option 7. Shankar Tradex Pvt Ltd Vs money has been PCIT (ITA No. 2999/Del/2017) deposited and its utilization for 5 2005- Insufficient As per the JV 1. Malabar Industrial Co. Ltd v. 06 payment of loans Query Agreement dated CIT [2000] 109 Taxman for the period 7th Aug 2001, a copy 66/243 ITR 83 (Supreme under consideration of which is enclosed Court) are enclosed. herewith, the money 2. Adi. CIT v. Gee Vee received is subject Enterprises [1975] 99 ITR 375 to various (Del) conditions and the sum is liable for 3. Jeevan Investment and repayment Finance Pvt Ltd Vs CIT City 1 Mumbai [2017] 88 Taxmann.com 552 (Bombay) 4. DIT Vs Jyoti Foundation [2013] 38 Taxman.com 180 (Delhi) 5. ITO Vs DG Housing Projects Ltd [2012] 343 ITR 329/20 taxmann.com 587/[2013] 212 Taxman 132 (Del) 6. CIT Vs. Maithan International (High Court of Calcutta) 7. Shankar Tradex Pvt Ltd Vs PCIT (ITA No. 2999/D el/2017)

Case laws regarding Section 263 of the act when assessment is originally made without or insufficient enquiry:

1."Where the assessing officer had accepted entry...without making any enquiry, the exercise of jurisdiction by the commissioner u/s 263(1) would be justified." Malabar Industrial Co. Ltd v. CIT [2000] 109 Taxman 66/243 ITR 83 (Supreme Court). Similar judgments in cases of:

a. Rajmandir Estates Pvt Ltd Vs PCIT (2017) 245 Taxman 127 (SC) b. Shree Manjunathesware Packing Products & Camphor Works vs CIT (1998) 231 ITR 53 (SC) c. Detailed discussion of Malabar Industrial Co. Ltd v. CIT [2000] 109 Taxman 66/243 ITR 83 (Supreme Court): The hon'ble apex court therein laid down a four-way test for invocation of a provision.

Succinctly put, these are: (a) incorrect assumption of facts; (b) incorrect application of law; (c) without applying the principles of natural justice; and (d) without application of mind. ITAT Mumbai in case of Horizon Investment Co. Ltd beautifully summarized the applicability of this judgment in case of non- application of mind (leading to insufficient or no enquiries): "We shall, for the reason that the present case involves the application of section 263 on ground (d) above, dwell on this aspect in some detail. An order, as explained in Malabar Industrial Company Ltd. (supra), is in such a case subject to revision under section 263 not for the reason that some error may be found upon enquiry, but because of non- application of mind per se. Decades earlier, the

Hon’ble Delhi high court, per its landmark decision in Addl. CIT v. Gee Vee Enterprises [1975] 99 ITR 375 (Del), relying on two celebrated decisions by the apex court [reported at 67 ITR 84 and 88 ITR 323], explained that an assessing authority is both an adjudicator and investigator. That is, he is, besides adjudication, also charged with the responsibility of probing the matter and unearthing facts. As such, where he fails to make proper enquiry, i.e., as warranted by the facts and circumstances of the case, his order is rendered erroneous in-so-far as it is prejudicial to the interest of the Revenue. What, then, is required is an examination of the facts of the case to arrive at a finding of fact as to an application or otherwise of mind by the assessing authority in the matter, making inquiry as warranted, while framing the assessment. "Merely asking a question which goes to the root of the matter and not carrying it further is a case of non-enquiry, if the query is not otherwise satisfied while responding to another query...Assessing officer after having asked a pertinent question of the method of valuing unlisted shares didn't pursue that line of enquiry. This was a case of non-enquiry and not inadequate enquiry. Therefore the order of the assessing officer was certainly erroneous and prejudicial to the revenue." Jeevan Investment and Finance Pvt Ltd Vs CIT City 1 Mumbai [2017] 88 Taxmann.com 552 (Bombay) “In the present case, therefore, there was failure on the part of the assessing officer to conduct necessary and required enquiries. Failure to conduct the said enquiries makes the assessment order erroneous and prejudicial to the interests of the revenue. The commissioner rightly exercised his revisionary power u/s 263 of the act" CIT Vs Harsh J Punjabi [2012] 27 Taxmann.com 175 (Delhi) /[2012] 345 ITR 451 (Delhi) "The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income Tax Officer should have made further inquiries before accepting the

statements made by the assessee in his return." Adi. CIT v. Gee Vee Enterprises [1975] 99 ITR 375 (Del) "The assessing officer though reopened the assessment proceedings did not make any enquiry and there is no mention of the same in the assessment order itself which proved that the order is passed without making enquiries or verifications which should have been made by the assessing officer. Thus it is prejudicial to the interest of revenue and there is loss of revenue": Shankar Tradex Pvt Ltd Vs PCIT (ITA No. 2999/Del/2017)

"Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of revenue. In case of insufficient inquiries, inquiry should be conducted by commissioner or director himself to record the finding that the assessment order was erroneous" PIT Vs Jyoti Foundation [20131 38 Taxman.com 180 (Delhi). Similar ratio in case of ITO Vs DG Housing Projects Ltd [2012] 343 ITR 329/20 taxmann.com 587/[2013] 212 Taxman

Consistency Principle

Without prejudice to the above, if a clearly incorrect view was taken in earlier years, it can't be argued in the

subsequent year that the same incorrect approach should be repeated, as held in the case of CIT Vs V.MR.P. Firm (1965) 56 ITR 67 (SC) and also in CWT vs Meattles (P) Ltd (1984) 156 ITR 569 (Del).

“Apparent is not real : -

• As per clause 11.4 of JV Agreement, CEO of the company "Aviva" will always be from CUIH and never from Dabur. • Assessee was asked to explain why they have up their right for ever and why day-to-day control of "Aviva" was given in hands of CUIH, despite holding majority stake of 74%. • Assessee could not give a plausible reply to this query. They simply said that they are duly represented in Management by their directors. • Than they were asked whether management ever reversed decision of CEO and to submit copy of Board Meeting. They failed to submit any such "Minutes of Board Meeting". • CUIH is running and controlling the company "Aviva" despite holding minority stake, which is against Government Policy on FDI and against larger public interest. Govt, did not allow 100% FDI in insurance sector because huge premiums are collected in insurance policies and their control in FDI may lead to misuse/diversion of funds outside India. • Therefore, apparent is not real. Reliance is placed on decisions in case of Durga Prasad More, Sumati Dayal and Mcdowells.”

order of the PCIT framed u/s 263 of the Act clearly shows that the PCIT assumed jurisdiction on the strength of the assessment order for assessment year 2015-16, when the Assessing Officer took a different view on the same set of transactions which the assessee continued to follow since the year 2001.

is from CUIH. In our considered opinion, the PCIT cannot, and should not decide how an assessee should do its business. It is the prerogative of the Board of Directors to appoint its MD/CEO to run day-to-day functioning of the business. Any adverse view drawn by the PCIT in respect of composition of Board of Directors is baseless and not at all relevant.

relevant for assessment year 2017-18 when the actual transfer took place. We do not find any merit in applying those allegations in assessment year 2013-14 and 2014-15 to make the assessment orders framed u/s 143(3) of the Act as erroneous and prejudicial to the interest of the revenue. Reliance placed on the judgment of the Tribunal in the case of Mahendra Telecommunication Investment Pvt. Ltd Vs. ITO 180 TTJ 434 is premature as the same is not applicable for the year under consideration.

is only a presumption and surmise of the PCIT contrary to the facts of the case in hand.

“There is no doubt that when a businessman disposes of his capital for whatever reason unless it is a part of his circulating capital, the receipt is capital and not income which is taxable. Distinction between revenue and capital in the law of Income- tax is fundamental. Tax is ordinarily not levied on capital profits. It is levied on income. It is well settled that sale of stake in trade or circulating capital or rendering services in the course of trading results in a trading receipt, sale of assets uses

as fixed capital enable him to carry on his business results in capital receipt.”

“In determining whether this payment amounts to a return for loss of a capital asset or is income, profits or gains liable to income-tax, one must have regard to the nature and quality of the payment. If the payment was not

received to compensate for a loss of profits of business the receipt in the hands of the appellant cannot properly be described as income, profits or gains as commonly understood. To constitute income, profits or gains, there must be a source from which the particular receipt has arisen, and a connection must exist between the quality of the receipt and the source. If the payment is by another person it must be found out why that payment has been made. It is not the motive of the person who pays that is relevant. More relevance attaches to the nature of the receipt in the hands of the person who receives it though in trying to find' out the quality of the receipt one may have to examine the motive out of which the payment was made. It may also be stated as a general rule that the fact that the amount involved was large or that it was periodic in character have no decisive bearing upon the matter. A payment may even be described as 'pay', 'remuneration' etc. but that does not determine its quality, though the name by which it has been called may be relevant in determining its true nature, because this gives an indication of how the person who paid the money and the person who received it viewed it in the first instance. The periodicity of the payment does not make the payment a recurring income because periodicity may be the result of convenience and not necessarily the result of the establishment of a source expected to be productive over a certain period. These general principles have been settled firmly by this Court in a large number of cases. See for

example : The Commissioner of Income-tax v. Vazir Sultan, 8& Sons, Godrej 8s Co. v. Commissioner of Income-tax, Commissioner of Income-tax v. Jairam Valji, Senairam Doongarmall Vs CIT”.

merely on the basis of finding that the succeeding officer in subsequent year, i.e. 2015-16, has taken a different view from the earlier officers. In our considered opinion, for the purpose of section 263 of the Act, the PCIT has to independently examine and prove that the orders passed by the Assessing Officer for A.Ys 2013-14 and 2014- 15 are erroneous and prejudicial to the interest of the Revenue.

ingenuity is exhausted'. To do so, is '. . .to divide one argument into two and to multiply the litigation'. 12.2 We respectfully concur with the principle adopted by the Division Bench of Madhya Pradesh High Court respect of the provisions of section 263 of the Act.”

“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above,

the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. (supra), law on this aspect was discussed in the following manner:

"........From a reading of sub-s. (1) of section, it is clear that the power of suo motu revision can be exercised by the CIT only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the ITO is 'erroneous insofar as it is prejudicial to the interests of the Revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-s. (1). The consideration of the CIT as to whether

an order is erroneous insofar as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the CIT acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The CIT cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induces repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. [see Parashuram Pottery Works Co. Ltd. vs. ITO 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC) at p. 10]. ............... From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the CIT simply because, according to him, the order should have been written more elaborately This section does not visualise a case of substitution of the judgment of the CIT for that of the ITO, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The CIT, on perusal of the records, may be of the opinion that the

estimate made by the officer concerned was on the lower side and left to the CIT he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the CIT with power to reexamine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. ...............

There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. ...............

We may now examine the facts of the present case in the light of the powers of the CIT set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard.........."

furnished his explanation vide letter dt. 26th Sept., 2002. This fact is even taken note of by the CIT himself in para 3 of his order dt. 3rd Nov., 2004. This order also reproduces the reply of the respondent in para 3 of the order in the following manner: "

The tools and dyes have a very short life and can produce upto maximum 1 lakh permissible shorts and have to be replaced thereafter to retain the accuracy. Most of the parts manufactured are for the automobile industries which have to work on complete accuracy at high speed for a longer period. Since it is an ongoing procedure, a company had produced 10,75,000 sets whose selling rates is inclusive of the reimbursement of the dyes cost. The purchase orders indicating the costing include the reimbursement of dyes cost are being produced before your Honour. Since the sale rate includes the reimbursement of dye cost and to have the matching effect, the cost of the dyes has been claimed as a revenue expenditure."

“63. We find the Hon'ble Delhi High Court in the case of Vikas Polymer reported in 341 ITR 537 has held as under:

“We are thus of the opinion that the provisions of s. 263 of the Act, when read as a composite whole make it incumbent upon the CIT before exercising revisional powers to : (i) call for and examine the record, and (ii) give the assessee an opportunity of being heard and thereafter to make or cause to be made such enquiry as he deems necessary. It is only on fulfilment of these twin conditions that the CIT may pass an order exercising his power of revision. Minutely examined, the provisions of the section envisage that the CIT may call for the records and if he prima facie considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose.

Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the AO called for interference and revision. In the instant case, for example, the CIT has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the CIT that the AO had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners who were I.T. assessees and the unsecured loan taken from M/s Stutee Chit & Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee.”

The order is pronounced in the open court on 11.03.2019.

Sd /- Sd/- [SUCHITRA KAMBLE] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 11th March, 2019

VL/