NERKA CHEMICALS P. LTD,GUJRAT vs. ASST CIT CEN CIR 38, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH “B”, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MAMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 4423/Mum/2014(Assessment Year- 2009-10) ITA No. 4585/Mum/2015(Assessment Year- 2010-11) ITA No. 4850/Mum/2016(Assessment Year- 2011-12) Nerka Chemical Private Limited, Deputy Commissioner of Income 50-51, B-11, GIDC Estate, Vapi, tax, Central Circle-6(3), District Valsad, Gujarat, Aayakar Bhavan, Vs. PIN - 396195 M.K. Road, Mumbai-400020. PAN: AAACN9337Q (Appellant) (Respondent)

Assessee by Sh. P.J. Pardiwala Sr. Advocate with : Sh. Jos Sinhgwi Advocate Sh.Kirit Kamdar-CA Revenue by : Sh. Girish Dave Special Counsel/ Advocate with Sh. Suman Kumar Sr. DR also assisted by Ms. Kadamabri Advocate Date of hearing : 29.06.2018 Date of Pronouncement : 31.08.2018 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This group of three appeals by assessee under section 253 of Income tax Act are directed against the separate orders of Commissioner (Appeals)- 54, Mumbai for assessment year 2009-10, 2010-11 and 2011-12. The assessee has raised one common ground of appeal in all assessment years, on disallowance under section14A, thus on the request of parties all appeals were clubbed together, heard and are decided by common order for

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited

avoiding conflicting decision and for the sake of convenience. With the consent of party the appeal for assessment year 2010-11 was treated as lead case. The assessee in the appeal for assessment year 2010- 11, has raised following grounds of appeal;

“1. Disallowance under section 14A of the Act: Rs.9.59.194/- 1.1 On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) ['CIT(A)1] erred in confirming the disallowance made by the Assessing Officer ('AO') under section 14A of the Income-tax Act, 1961 ('Act') to the extent of Rs.9,59,194/-. 1.2 On the facts and in the circumstances of the case and in law, the Commissioner of Income - tax (Appeals) erred in upholding the disallowance under section 14A of the Act without establishing any nexus between the administrative expenses and earning of tax free income. 1.3 On the facts and in the circumstances of the case and in law, the Commissioner of Income - tax (Appeals) erred in making an ad hoc disallowance of 50% of the administrative expenses presuming it to be relatable to earning exempt income. 1.4 On the fact and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that investments made by the appellant were strategic investments made in group companies for holding controlling stake and not to earn dividend income which is only incidental. 1.5 Without prejudice to the above grounds of appeal and in the alternative, the Commissioner of Income-tax (Appeals) erred in ignoring the fact that investments in domestic companies ought not to be included for the purpose of computing disallowance under section 14A of the Act since dividend from domestic companies is not exempt from tax in view of Section 115-O/115R of the Act.

1.6 Without prejudice to the above grounds of appeal and in the alternative, the Commissioner of Income-tax (Appeals) erred in not appreciating that no adjustment can be made to the book profits computed under section 115JB in respect of disallowance made under section 14A as per Rule 8D. 2. Taxability of receipt of shares without consideration: Rs.1464.54.53.232/- Under normal provisions: Taxed as business income : 2.1 On the facts and in the circumstances of the case and in law, the CIT(A) erred in not - treating the receipt by the appellant of 8,73,01,770 shares of United Phosphorus Ltd (UPL) and 1,08,11,620 shares of Uniphos Enterprises Ltd (DEL) without consideration as a capital receipt not chargeable to tax. 2

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2.2 On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the receipt of 8,73,01,770 shares of UPL and 1,08,11,620 shares of UEL, without consideration, by the appellant is a benefit in the ordinary course of its business and is taxable under section 28(iv) of the Act. Taxed as income from other sources under section 56(1): 2.3 On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO in alternatively taxing an amount of Rs.1464,54,53,232/- being the market value of shares of UPL and UEL received by the appellant without consideration as 'Income from Other Sources' under section 56(1) of the Act. 2.4 On the facts and in the circumstances of the case and in law, the CIT(A) erred in making various observations, comments and issuing directions which are beyond the powers of the CIT(A) and in giving findings wholly irrelevant to the issues in appeal. 2.5 Without prejudice to the above grounds of appeal, the CIT(A) having observed that the provisions of section 2(22)(a) of the Act are applicable in the hands of the donors erred in confirming the taxation of the receipt of shares under section 28(iv) or alternatively under section 56(1) of the Act in the hands of the appellant. 2.6 On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in making various observations which are factually incorrect and contrary to the facts available on record which the Appellant craves leave to elucidate at the time of hearing, leading to a perverse finding that Appellant is liable to tax in respect of market value of shares of UPL and UEL received as gift. Taxability under section 2(22)(a) of the Act: 2.7 On the facts and in the circumstances of the case and in law, CIT(A) erred in holding that the market value of the shares of UPL Limited ('UPL') and Uniphos Enterprises Limited ('UEL') gifted by Demuric Holdings Pvt Ltd (DHPL) to the appellant ought to be taxed as deemed dividend under section 2(22)(a) of the Act without appreciating the fact that the appellant is not a shareholder of DHPL. 2.8 On the facts and in the circumstances of the case and in law, the CIT(A) erred in not issuing a show cause notice and consequently violating the principles of natural justice by not providing an adequate and reasonable opportunity of being heard. Under section 11SJB: 3

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Receipt of shares without consideration added to book profits under section 115JB of the Act: Rs.1464,54,53,232/- 2.9 On the facts and in the circumstances of the case and in law, the CIT(A) erred in enhancing the book profits by directing the AO to add an amount of Rs.1464,54,53,232/- being the market value of shares of listed companies received by way of gift from various individuals/entities while computing the book profits under section 115JB of the Act. 2.10 On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the appellant had complied with the Parts II and III of Schedule VI of the Companies Act and followed the mandatory accounting standards and accordingly, no adjustment ought to be made in respect of the market value of shares while computing the book profits. 2.11 Without prejudice to the above grounds of appeal, the addition to book profits ought to be restricted to the amount at which the shares were reflected in the books of the appellant. Gift of UPL and UEL shares is a colourable device : 2.12 On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO in holding the aforesaid transaction as a colourable device to avoid tax by applying the decision of the Supreme Court in the case of McDowell & Co Ltd (154 ITR 148) 2.13 The CIT(A) further erred in making the following observations: (i) it is indisputable that through concerted and coordinated action, the Shroff family/Group entered into a web of transactions of transfer of shares of UPL and UEL held in individual capacity/through firms/companies/trusts to the appellant so as to enable them to raise their controlling interest in UPL and UEL;

(ii) by this dubious methodology, the persons who transferred their shares in UPL and UEL to the appellant have reassumed power over the assets and management of the companies in which they earlier had control;

(iii) the transfer of shares made by the partnership firms/trusts is not in consonance with the terms of respective Partnership Deeds and Trust Deed and the whole exercise was nothing but a sham or a colourable device to transfer the said shares to the appellant for the ultimate benefit of the Shroff family

2.14 Without prejudice to the above grounds of appeal, on the facts and circumstances of the case and in law, it is submitted that taxing the market 4

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited value of shares of UPL and UEL transferred by way of gift to the appellant amounting to Rs. 1464,54,53,232/- as business income under section 28(iv) or income from other sources under section 56(1) or deemed dividend under section 2(22)(a) of the Act will amount to double taxation since the same amount has held to be taxable in the hands of the shareholders of DHPL as deemed dividend under section 2(22)(a) of the Act in respect of indirect disguised distribution of accumulated profits by the donor companies to their shareholders/members of Shroff family; 3. Non-consideration of claim made in the revised return of income: Rs.10,17,230/- 3.1 On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO in computing income under the head Profits and gains from Business or Profession on the basis of the original return of income instead of the revised return of income wherein interest expenditure amounting to Rs.10,17,230/- disallowed in the assessment order passed for AY 2009-10 was excluded from the total income for AY 2010-11.

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited Commissioner (Appeals) the action of assessing officer was confirmed. The ld Commissioner (Appeals) the Commissioner (Appeals) further held that the market value of shares of UPL and UEL gifted by various donors be taxed as deemed dividend under section 2(22)(a) of the Act in the hands of assessee and that transfer of shares are colorable device. The ld. Commissioner (Appeals) further added the market value of shares to the book profit under section 115 JB and thereby enhances the book profit and directed assessing officer accordingly. Therefore, aggrieved by the order of Commissioner (Appeals) the assessee has filed present appeal before us raising the basically three grounds of appeal as referred above. 3. We have heard learned Counsel Shri PJ Pardiwala Senior Advocate assisted by Mr. Jos Sinhgwi Advocate for assessee and learned Special Counsel Shri Girish Dave Advocate assisted by Shri Suman Kumar learned Joint Commissioner of income tax (Sr. DR) and Ms Kadambri Advocate for the revenue at length and carefully perused the material available on record. We have also gone through various documents and the case law relied by the parties. 4. Ground No.1 relates to the disallowance under section 14A. The ld. Sr. Counsel for the assessee submits that no interest expenditure was incurred by assessee for the purpose of investment in share generating exempt income. No fresh investment was made by the assessee during the relevant financial year. The assessee voluntary disallowed a sum of Rs. 34,215/- pertaining to demat charges. During the assessment proceedings the assessee submitted written note on the expenses attributed for earning exempt income, wherein the assessee has explained the fact. The ld. Sr. Counsel further submits that investments were made in group companies for strategic purpose on which no other expenses or administrative expenses were incurred. In alternative it was submitted that that only those 6

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited investment which yielded exempt income during the relevant financial year ought to have been considered for the purpose of disallowance under section 14A. The assessing officer erred in including investment in the companies which are liable to pay dividend distribution tax in accordance with section 115O of the Act. The provisions of sub-section (2) and (3) of section14A cannot be imported to clause (f) to the Explanation to section 115JB and no adjustment can be made to the Book profit in respect of disallowance under section 14A computed by invoking Rule8D. 5. On the contrary the ld. Special Counsel for revenue submits late the assessing officer has made the disallowance in accordance with the Rule8D which is applicable for the assessment year under consideration. The assessee has not made any disallowance on account of administrative expenses in the working of disallowance under section 14A. In the profit and loss account the assessee has shown employee cost of Rs. 10,40,346/- and administrative and others expenses of Rs. 8,78,041/-. Therefore, the disallowance on account of administrative expenses was warranted. 6. We have considered the rival submission of the parties and perused the record carefully. During the assessment the assessing officer noted that assessee has shown to have earned dividend income of Rs. 97,90,245/-and also share of profit from partnership of Rs. 2,41,092/-, both the income were claimed as exempt income. The assessee had voluntarily made disallowance under section 14A of Rs. 34,215/-. The assessing officer was not satisfied with the disallowance made by assessee. Accordingly, the assessee was asked to explain as to why expenditure should not be disallowed by invoking the provisions of Rule 8D. The assessee furnished its reply, in the reply the assessee contended that no interest expenditure had been incurred for the purpose of investment in shares generating exempt income. However, the assessing officer was not satisfied with the working of 7

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited disallowance under section 14A read with Rule 8D furnished by assessee. For the reasons that the assessee had not considered all investment as appearing in the balance-sheet. The assessing officer invoked the provision of Rule 8D. The assessing officer worked out the disallowance under Rule8D Rs. 18,61,105/-, which consist of Demat charges of Rs. 34,215/- under Rule 8D(2)(i) and administrative expenses of Rs. 18,26,890/- under Rule 8D(2)(iii). As the assessee voluntary disallowed demat charges in the computation of income, the assessing officer granted set off of voluntary disallowance and thereby calculated/ worked out additional disallowance of Rs. 18,26,890/-. We have noted that the assessing officer has not disputed the disallowance of direct expenses as provided under Rule 8D(2)(i) and the interest expenses under Rule 8D(2)(ii). The dispute is with regard to administrative expenses only as prescribed under Rule 8D(2)(iii). We have noted that the assessee has claimed investment in its group companies for strategic purpose on which no other expenses or administrative expenses were allegedly incurred. We have further noted that recently the Hon’ble Apex Court in Maxopp Investment Ltd. Vs Commissioner of Income-tax [2018] 91 taxmann.com 154 (SC) held that in cases, where shares are held as stock-in-trade, main purpose is to trade in those shares and earn profits therefrom, in the process, certain dividend is also earned, though incidentally, which is also an income. This triggers applicability of section 14A which is based on theory of apportionment of expenditure between taxable and non-taxable income. Therefore, to that extent, expenditure incurred in acquiring those shares will have to be apportioned. We may also refer that Special Bench of Delhi Tribunal in ACIT Vs. Vireet Investment Pvt. Ltd.[2017] 82taxman.com 415(Delhi- Trib)(SB) held that computation under Clause-(f) of Explanation-1 to section 115JB(2) of the Act is to be made without resorting to computation as contemplated under section14A r.w. Rule 8D of the 8

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited Act. Therefore, considering the decision of Hon’ble Apex Court in Maxopp Investment Ltd (supra) and Special Bench of Delhi Tribunal in Vireet Investment Pvt. Ltd (supra) this ground of appeal is restored to the file of Assessing Officer to decide the issue afresh. While deciding this ground of appeal the assessing officer shall consider the decision of Hon’ble Apex Court in Maxopp Investment Ltd. (supra) and the decision of Special Bench of Delhi Tribunal in Vireet Investment Pvt. Ltd (supra) or other decisions as may be relied by assessee and pass the order in accordance with laws. Needless to say that Assessing Officer shall grant adequate opportunity before passing the order. In the result, the Ground No. 1 of the assessee’s appeal is allowed for statistical purpose. 7. Ground No. 2 relates to treating the receipt of shares of United Phosphorus Ltd (UPL) and Uniphos Enterprises Ltd (UEL) received as a gift in treating as taxable income under the head “Business income” and as “Income from other sources”. The learned Sr. Counsel for the assessee summits that the assessee is a wholly owned subsidiary of Demuric Holding Private Limited (“DHPL”). All the shares of DHPL are held by various members of the Shroff family and enterprises of the Shroff group. The members of the Shroff group are the promoters of and have a substantial shareholding in United Phosphorus Limited (“UPL”) and Uniphos Enterprises Limited (“UEL”) which are companies whose shares are listed on recognized stock exchanges in India. Assessee Company was set up to manufacture Chemical products and trade in industrial salts, Chemicals and other products and during the relevant previous year was engaged in the business of trading in industrial salts, chemicals and other products and during the previous financial year related with this assessment year under consideration, the assessee received 87301770 shares of United Phosphorus Ltd (UPL) and 10811620 Shares of Uniphos Enterprises Ltd (UEL) by way of gift from 9

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited various group entities including individuals. No consideration was paid by the assessee for acquiring the share in the books of assessee. Therefore, no adjustment in respect of said receipt by way of gift while computing total income as well as book profit under section 115JB was made. Both the companies are listed on the recognised Stock Exchange in India. The said shares of UPL and UEL were received by the assessee company in the process of restructuring the group organisation to maximise focus on various business areas and to strengthen the organisation with the growth aspiration and other activities of the group. The promoters of the group have decided to restructure and consolidate and regroup its holding in sister concern in one company. Therefore, the shares of UPL and UEL were received by assessee as a gift in the process of restructuring/reorganising and consolidation of the group. The revenue authorities has no occasion to tax the receipt in the form of share of a listed company received by way of gift as income under the Act, the act of receiving gift of shares did not tantamount to income. The assessee company has received shares of listed company without any consideration in the hands of recipient and therefore, the question of taxing of receipt of share of UPL and UEL as a gift in the hands of the assessee does not arise. The gift of share in the hand of donee is a Capital Receipt and accordingly not taxable Receipt. The transaction of gift of shares cannot be taxed as income as it is not included in the extended meaning of income and cannot be regarded as income in a general meaning. The receipt of shares being capital receipt would not be taxable in the hand of assessee under section 56(1) of the Act. The capital receipt unless specifically provided under the Act is not taxable in the hand of recipient. The provisions of section 47(iii) specifically provides that any transfer of capital asset under gift or will or an irrevocable trust will not be regarded as a transfer for the purpose of Capital Gain tax. 10

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited 8. It is submitted that the Gift- tax Act, has already been repealed, there was no tax on gifts either on the donor or on the donee in any form under the Income-tax Act or any other Act. The taxability of gifts remained outside the tax net for a long time until section 56(2) came into force. Therefore, the receipt of share by way of gift is not taxable either under section 45 or under section 56(1) and hence, cannot be taxed under the head “income from other sources”. As there is no explicit provision for taxing receipt of share of a listed company by way of gift, the same would not be chargeable to tax at all. 9. The ld Counsel further summits that the receipt of share is also not taxable as a business income of assessee under section 28(iv) of the Act as the business of the assessee is manufacturing of chemical products and trading in industrial salts, chemicals and other products. There is no dispute about the nature and business activities of the assessee. The assessee has not received the gift of shares in its business activities. The shares were gifted by the family members of promoters of the assessee company. The shares were transferred after payment of requisite stamp duty. 10. On the taxability under section 2(22(a) of the Act, the ld Counsel for assessee submits that the addition in respect of deemed dividend under section 2(22)(a) of the Act is based on a wrong appreciation of facts. It was submitted that assessee is not a shareholder of DHPL and, accordingly, the question of taxing the receipt of gift from DHPL as deemed dividend under section 2(22)(a) does not arise. The fact that assessee is not a shareholder of DHPL was shown to us by drawing our attention to the investment schedule forming part of the Audited accounts of assessee for the year ended 31 March 2006 (page No.134 of PB). Further, even the investment schedule forming part of the audited accounts of assessee for the year ended 31 March 2010 does not show any investment in DHPL during FY 2009-10 11

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited and FY 2008-09. It is submitted that in the Related Party disclosure forming part of the audited accounts of assessee for the year ended 31 March 2010 (page 123 of PB), evidences that DHPL is the holding company of assessee. In view of the above, it is submitted that assessee is not a shareholder of DHPL. Accordingly, the basis of invoking the provisions of section 2(22)( a) of the Act, in respect of gift of shares by DHPL to assessee without consideration, fails. 11. For receipt of share without consideration added to the book profit under section 115JB, it was submitted that the assessee company had complied with the requirements of Parts II and III of Schedule VI of the Companies Act and followed the mandatory accounting standards. Accordingly, no adjustment ought to be made in respect of the market value of shares while computing the book profits. 12. In support of this submission the ld counsel relied on the decision of KDA Enterprises Pvt Ltd (supra) and the decision of Mumbai High Court in CIT Vs Bisleri Sales Ltd [377 ITR 144(Bom)]and in ITO Vs Bhagwan Industries ltd (ITA No. 6665/M/2008). the decision of Parimisetti Seetharamamma vs CIT(57 ITR 532), decision of Hon’ble Bombay High Court in assessee’s own case i.e. Nerka Chemicals Pvt. Ltd. 371 ITR 280, Hon’ble Gujarat High Court in Prakriya Pharmacham (Spl.Civil Application No. 20492 of 2015), decision of Tribunal in DP World (P.) Ltd. Vs DCIT 140 ITD 694 (Mumbai), Rupee Finance Management (P) Ltd Vs ACIT (SOT 174) (Mum), DCIT Vs Manish Chedha (29 SOT 138). Against the contention of the revenue that Gift of UPL and UEL shares is colourable devise it was submitted that the aforesaid issue had come up for adjudication before the Tribunal in the case of the appeals filed by the donor entities. The Tribunal while deciding the appeals has consistently taken a view that the said transaction of gift of shares by various donors to assessee to consolidate the 12

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited holdings is a genuine transaction and not a colourable device. Reliance was placed on the Tribunal order passed in the case of the individual donors Jaidev Shroff Vs ACIT and other donors (ITA No. 4660/Mum/2015), Ultima Search Vs ACIT (ITA No. 4646/M/2015) and Bloom Packaging (ITA No. 4663/M/2015). 13. On the other hand, the ld. Special Counsel for the Revenue submitted that whole Gamut of transaction of transfer of share by way of gift by the related entity is a colourable device. The ld. DR submits that there was two tranches in which share of UPL and UEL were allegedly gifted by various group entity. In first tranche on 18.09.2009 Demuric Holdings Pvt. Ltd. gifted 5,84,42,700 shares to assessee and 2nd tranche on 26.02.2010 various other entities of group of assessee gifted 2,88,59,070 shares to assessee. Therefore, total 8,73,01,770 shares were gifted to the assessee. The assessee got the share by way of transfer deed dated 26.02.2010 wherein 45036344 share in UPL and 450565 share of UEL by Shri Jai R. Shroff and Sandra R. Shroff, however, the said transfer deed does not bear the signature of Jai R. Shroff, where the share were gifted jointly by the two persons. Such transfer is not a valid transfer in the eyes of law. 14. It was further submitted that assessee entered into a pre-ordained series of transaction with a particualr motive disguised as to streamline the group holding which is not the real motive. There are numebr of lapses in the transfer deed in respect of certain doners, copy of which are placed on record in the form of paper-books. The ld. Special Counsel pointed out that in case of donor companeis the amendments were made to validate the gifts of share to assessee. The Memorandum of Associationa and Article of Assocation were amended to enable them to receive and for making gift. All amendemnts were made in Memorandum of Assocaition and Article of Assocaition around the same time when the game of gift of share took 13

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited place. The ld. Special Ccounsel for revenue also pointed out in case of donor firm some retired partners had signed the transfer agreement while the other partners have not signed the said docuemtns. In case of doner trust only one trustee had signed the agreement and not the other trustee, which is in violation of the law. In supprot of his submission, the ld. Special Counsel for the Revenue relied upon the decision of Supreme Court in case John Tinson & Co. Pvt. Ltd. V/s Surjeet Malhan [(1997) 9 SCC 651]. The ld. special Counsel relied upon the department Paper Book (Vol-1) page no. 197-198 that transfer agreement dated 26.02.2010 shows shares jointly held by two persons i.e. Sandra R. Shroff and Jaideo R. Shroff, however, the agreement is signed by Sandra R. Shroff only. The ld. DR submits that perusal of books of account of assessee for three Financial Year i.e. FY 2008-09, 2009-10 & 2010-11, filed by the Department wherein in Schedule- B, Reserve & Surplus scheduled to the balance-sheet as on 31.03.2010 in FY 2008-09, the capital reserve shows the receipt of gift of 3600 share at Rs. 68,400/- as per the valuation report and similar receipt of share in FY 2009-10, is shown at a nominal value of Rs. 100/-. The ld. Special Counsel for revenue raised the question as to why there was a difference in treatment of similar receipt. The ld. Special counsel further submits in the Notes of account in respect of share it is shown without consideration. The gift of share received in FY 2008-09 has been recorded as per valuation report at Rs. 100/- without any reasonable basis. 15. On the nomenclature of documents, the ld. DR submits that document can be determined on the nature of document and intention of the parties has to be seen. In support of his submission, the ld. DR relied upon the decision of Mahant Ramdhanpuri V/s Banke Bihari Sharan & Ors. AIR 1958 SC 941, DLF Universal & Ors V/s Director Town & Country Planning, Haryana (2010) 14 SCC 1. 14

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited 16. It was submitted that it is within the domain of Assessing Officer to decide the genuineness of transaction and relied upon the decision of Hon’ble Madras High Court in case of ITO V/s K. Jayaram 161 ITR 557. The gift by one company to another company is not valid and ld. DR relied upon the decision of ACIT V/s Bilakhia Holdings (49 taxman.com 91) (Ahd Trib.), B.A. Mohota Textile Traders (P.) Ltd. V/s. DCIT (82 taxmann.com 397 (Bom). It was further submitted that amendment in Memorandum of Association and Article of Association of donor companies was made in order to validate the gift to the assessee. The assessee entered into gamut of transaction which was shown as re-organization of the group but the real motive was something different. The apparent was not real. 17. The ld. Special Counsel further submits that the Bombay High Court while hearing the stay application of assessee (reported vide 371 ITR 280) opined that there are series of issues to be considered and needs further investigation. The decision of Gujarat High Court in Prakriya Pharmacham (supra) was decided in the light of section 45 and was a case of validity of re-opening and the facts of that case are not applicbale in the present case. Further, the orders of Tribunal in Bloom Packaging and Unifos International Ltd. does not decide the isuse on merit. The ld. DR further submtis that the Hon’ble Supreme Court in case of Padma Sundara Rao & Ors V/s State of Tamil Nadu & Ors (2002) 3 SCC 533 held that decision should not be relied upon without considering whether the facts of the case are identical. In case of KDA Enterprises (supra) the issue for consideration was taxability of the gift of right to receive dividend income and therfore, fact are differet and cannot be relied. 18. In support of addition under section 28(iv) the ld. Special Counsel submits that section 28(iv) be read with the provision of section 2(24)(vd) and relied upon the decision of CIT vs. Calcutta Knitwears (362 ITR 673) (SC), 15

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited it was submitted that provision of section section 28(iv) should be tested on touchstone of six conditions viz (i) benefits should arise from the business, (ii) the world business is of wide import and must be construed in a broad rather than a restriced meaning, the entire trnasaction ought to be treated as busienss transaction and relied on decision in Mazgaon Dock Ltd. vs. CIT 34 ITR 368 (SC) (iii) the vlaue of beneift received shall be income of the receipient for which the ld. DR relied upon the decision of Delhi High Corut in CIT vs. Shivraj Gupta 372 ITR 337 (iv) the benefit should be non- monetary, (v) there should be direct nexus between the benefit received and the business of the assessee and (vi) and there should be absence or inadequate consideration for benefit received. 19. In rejoinder submsision, the ld. Sr. Counsel for the assessee in reply to the obejction of ld. Special Counsel for Revenue that while hearing the stay application of assessee (Nerka Chameical v/s UOI (371 280), the Hon’ble Bombay High Court observed that thare are serious issues to be considered. The ld. counsel submitted that High Court has clearly held that assessee has more than prima facie strong case on merit and serious issues are requried to be considered in respect of granting stay and accordingly stay was granted. The High Court further observed that benefit arising to assessee is not a benefit arising from the busienss of the assessee and it goes to say that the reliance placed on the decision of Tribunal in case of DP Word vs. DCIT (supra) is well founded and the assessee has just more than strong prima facie case. In reply to the submssion of ld. DR that Gujarat High Court in case of Prakriya Pharmacham (supra) was decided in light of section 45 and was a case of validity of reopening. The ld. Sr. Counsel for assessee submits that Hon’ble Gujarat High Court has made relevant observation regarding taxability of gift transaction wherein it was held that without any consideration, gift shall be an exempt transfer under section 47(iii) and 16

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited section 48 would not apply. For submission related to the order of Tribunal in Bloom Packagingn and Uniphos International Ltd was not decided the issue on merits. The ld. Sr. Counsel replied that the submission is factually incorrect. In the order passed by the Tribunal in the case of Bloom Packaging (ITA No. 4663/Mum/2015) and Uniphos International (ITA No. 4676/ Mum/2015), the gift transaction which was treated as deemed dividend under section 2(22)(a) of the Act in the hands of the members of Shroff family and brought to tax under section 115-O of the Act in the hands of Bloom Packaging and Uniphos International by the CIT(A) was deleted. 20. For submission of ld. Special Counsel that order of Tribunal in case Ultima was based on different fact, it was submitted that in the case of Ultima Search vs ACIT (ITA No. 4646/Mum/2015), the addition made under section 45(4) read with section 48 of the Act was deleted by Tribunal. Further, the addition in respect of 28(iv) in respect of the alleged benefit received by the partners of Ultima in the course of business was also deleted by the Tribunal. For the submission related with the decision of Padma Sundara Rao (supra) it was submitted that observation and finding of the said decision are not only relevant but also binding to some extent. In reply to the decision of KDA Enterprises (supra) that the issue in that case were taxability of gift of the right to receive dividend income and that fact were different and cannot be relied, the ld. Sr. Counsel for assessee replied that the said decision the right to receive dividend, which is undoubtedly a capital asset was transferred. Accordingly, it was held that the receipt of a capital asset is the antithesis of income and is out of the purview of tax under the provisions of the Act. On the reliance of decision in Parimisetti Seetharamamma (supra), the ld. Sr. counsel submits that whatever is received by a person cannot be regarded as income liable to tax and mere 17

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited rejection of an assessee’s explanation is not sufficient to enable the Revenue to tax the receipt as where any receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision. 21. For the procedure lapses in execution of transfer deed in case of certain donors on the basis of transfer deed placed in the paper book that the amendments in Memorandum of Association and Article of Association, companies were altered to include receiving and making gifts, were done around the same time when funds were invested in Timberlane and that in certain cases retired partners had signed a transfer agreement and other partners have not signed the said document. It was submitted by ld. Sr. Counsel that if transfer agreement has not been executed by the authorised signatory, there can be two possibilities viz., the transaction may be treated as void or voidable at the option of the aggrieved party. Further, if the transaction is held to be void, then there is no transfer of shares and, accordingly, the question of its taxability under section 56(1) or section 28(iv) of the Act would not arise. Secondly, no objection has been taken by any of the concerned parties seeking to annul the transaction till date in respect of the alleged defaults and thus, the said transactions have to be treated as validly executed. 22. For the reliance on decision in case of John Tinson & Co Pvt Ltd Vs Surjit Malhan (supra) relied upon by the DR, it is submitted that the facts of the said decision does not apply to the present case. In the aforementioned decision the transferor did not have authority to transfer the shares since the ownership did not lie with the transferor. The sequitur of the decision as laid down by the Supreme Court was that there is no transfer at all and if that were so, then, there is no income chargeable to tax. Application under Rule 29 of Income Tax (Appellate Tribunal) Rules 18

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited 23. The ld. Special Counsel for the Revenue submits that the Revenue has filed an application Rule 29 of Income-Tax (Appellate Tribunal) Rules for admission of additional evidence. The ld Special Counsel for the revenue argued that the application under Rule 29 be decided first, before deciding the issue related with the taxability of gift of shares. 24. We have perused the contents of the application under Rule 29 of Income- tax (Appellate Tribunal) Rules. In the application for additional evidence, the Revenue has pleaded that main issue involved in the appeal involve the receipt of share of two companies by way of gift from sixteen different entities of the group. The two companies, whose shares were received in gift, are listed companies. The market value of the gifted share is Rs. 1464,54,53,232/-, which has been accounted for by the recipient in its books of account at a nominal value of Rs. 100/-. The assessee has claimed the gift of share as exempt being capital receipt and rational for this transaction is claimed to be the process of restructuring of the group to maximise focus in various business area. The Revenue has treated the transaction as colourable devise. It is further pleaded in the application that subsequent to the assessment order passed under section 143(3) on 30.03.2013. A search under section 132 was conducted on United Phosphorus Group of Companies on 19.03.2014. After search in the appraisal report, the DDIT (Inv) made certain reference to a Singapore based company, M/s Timberlane Pte. Ltd., this came to light that during the course of search that Shri Jaidev Shroff, global CEO of UPL Group has set up M/s Timberlane Ptd. Ltd. It was found in the search that during FY 2009-10 a total of 460620 equity share of face value of Rs. 10/- each of DHPL were issued to M/s Timberlane at a premium of Rs. 4150/- per share for a total consideration of Rs. 191,65,98,365/-. During FY 2010-11 DHPL again received fund from M/s Timberlane on account of right issue of face value 19

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited of Rs. 10 each at a security premium of Rs. 240/- per share. Thus, total investment by M/s Timberlane in DHPL during two years aggregate to Rs. 325,14,80,000/- by way of infusion of capital in DHPL. That during post search proceedings, the DDIT (Inv) required DHPL to furnish details regarding source of fund invested by M/s Timberlane. The assessee shown their inability on the pretext that M/s Timberlane is incorporated in Singapore and have its independent Board of Directors and that UPL has no control over the affair of said company. Further, in the course of penalty proceeding under section 271(1)(c) in case of assessee for AY 2010-11, it came to the notice that loan of Rs. 212 Crore were guaranteed by M/s Timberlane. The loan of Rs. 106 Crore were taken by assessee and its holding company, DHPL from Credit Suisse Finance (I) Pvt. Ltd. The Revenue authorities had obtained the copy of loan agreement, bank statement between the different entities, perusal of which reveals that M/s Timberlane could exercise put option to acquire all share which were pledged against grant of loan. Therefore, on the above referred fact, the Revenue intends to file the additional evidence which consist of Stand-by Facility Agreement dated 04.08.2017 and the other documents filed in the form of set of Paper Book No. I, II &III. 25. The ld. Special Counsel for the Revenue further submits that the Revenue has threefold prayer for admission of additional evidence. The ld. Special Counsel filed a written prayer dated 16.02.2018 wherein it is prayed that (i) the additional evidence filed by Revenue be admitted and matter may be remanded back to the Assessing Officer to conduct necessary further enquiry within a period of two months or more, (ii) additional evidence further required by the Revenue like bank transaction and share purchase agreement with M/s Timberlane Pte. Ltd., Singapore acquiring 48% share in DHPL may be called by the Tribunal, or (iii) additional evidence may be 20

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited admitted by Tribunal and further allow two months further time in order to enable the Revenue to collect evidence from Bank at Singapore/India, share purchase agreement and then decide the appeal on merit. The ld. Special Counsel for the Revenue argued on similar line as per the contention of his application and further relied upon the decision of (i) New Delhi Television Ltd. (83 Taxmann.com 282), (ii) Khairunnissa Ebrahim (201 ITR 903),(iii)Jansampark Advertising (375 ITR 373) (Del HC),(iv) Maruti Udyog (161 CTR 81) (Del HC) and (v) Union of India vs Ibrahim Uddin (2012) 8 SCC 148. 26. On the other hand the ld. Sr. Counsel for the assessee objected for the admission of the additional evidence, it was submitted that it is not open to the Revenue to make an application for admission of additional evidence. The scope of Rule 29 postulates that additional evidence can be admitted under two circumstances. The first circumstances is when the party seeking to adduce additional evidence asserts and establishes that the income tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence. Therefore, such an application can only be at the instance of the assessee. The second circumstance is when the Tribunal finds it necessary for the documents to be produced to enable it to pass orders. This would suggest that there is no right of either party to seek admission for the additional evidence and this power can only be exercised by the Tribunal if the circumstances so warrant. It was submitted that none of the evidence sought to be adduced by the revenue need be admitted. The ld Counsel further submits that another circumstance which must be kept in mind, if the Revenue is permitted to adduce additional evidence at this stage to either cure an error in the assessment as framed or to make out an entirely new case, then, it would tantamount to giving the tax authorities a power which the Act does not contemplate they have. If there is an error in 21

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited assessment order as framed, the same may be cured either by a rectification of the order in exercise of the powers under section 154 or by a reassessment in exercise of the powers vested with Assessing Officer in section 147 or by way of a revision in exercise of the powers vested in a Commissioner of Income-tax under section 263. Each of these provisions requires certain jurisdictional conditions to be fulfilled and the exercise of power under each of the provisions is subject to a time limit within which it can be exercised. By permitting the prayers of the Revenue to lead additional evidence and enable a further enquiry to be conducted not only would the Tribunal set at naught the jurisdictional conditions postulated in the aforesaid sections but would also be giving a go-by to the limitation that has been provided for under the Act. The reliance was placed on the decision of Special Bench of the Tribunal in the case of D.H.L Operations B.V.(13 SOT 581) (Mum SB) wherein the Tribunal rejected the application of the Revenue for seeking to admit an additional ground for these very same reasons. If the Revenue’s application is at all accepted, it would tantamount to permitting the Revenue to do something indirectly which they are precluded from doing directly. The ld. Sr. Counsel also relied on the decision in CIT Vs Kamal C Mahboobani (214ITR 15) (Bom), CIT Vs Rao Raja Hanumant Singh 252 ITR 528(Raj). The ld. Sr. Counsel prayed that the additional evidence filed by the revenue at this stage in the form of various paper books are not relevant for deciding the issue before this Tribunal. 27. We have considered the rival submissions of the parties and have gone through the various documents sought to be relied as additional evidence and the decisions relied by the ld. representatives. We have also deliberated on the judicial pronouncement cited the ld. Special Counsel for the revenue and the ld Senior Counsel for the assessee during the course of hearing 22

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited before us. For appreciation of Rule 29 we may refer the provision thereof, which is as under: “29. Production of additional evidence before the Tribunal.- The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them, or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.” 28. A careful reading of first limb of Rule 29 makes it clear that the Tribunal shall not admit additional evidence and thus, neither party can lead additional evidence. However, it provides that additional evidence may be admitted if the Tribunal requires any document to be produced to enable it to pass an order or for any other substantial cause. The second limb of Rule 29 provides that only the assessee can furnish additional evidence provided it is established that his case has been decided without giving sufficient opportunity by the authorities below and that too, when the Tribunal is satisfied on this and after recording of the reasons to be recorded in writing. Therefore, in our view, the aforesaid rule, the Revenue is not allowed to furnish any fresh evidence in an appeal filed by the assessee unless it is so required by the Tribunal. Thus, the admission of the additional evidence is the discretion of the Tribunal. No doubt the Tribunal is required to exercise its discretion with sound reasoning, guided by various judicial pronouncements. 29. The Jurisdictional High Court in CIT Vs Kamal C Mehboobbani (214 ITR 15) (Bom) held as under:

“7. --------------, we are of the opinion that rule 29 does not confer any right on the parties as such to produce any additional evidence either 23

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited oral or documentary before the Tribunal. On the other hand, such a right has specifically been taken away by prohibiting the production of the additional evidence by the parties. The power has been vested only in the Tribunal to require production of any document or evidence if it is of the opinion that it is necessary to do so to enable it to pass order or for any other substantial cause. For doing this also, the Tribunal has to record reasons. In the present case, the Tribunal has not issued any such direction. On the other hand, it has stated that it is not satisfied that any such direction should be issued. In that view of the matter, we do not find any infirmity in the order of the Tribunal (sic-refusing) to entertain the additional evidence sought to be produced by the Revenue at the time of hearing of the appeal.” 30. The Hon’ble Rajasthan High Court in CIT Vs Rao Raja Hanut Singh (252 ITR 528) (Raj) held as under:

“Production of additional evidence at the appellate stage is not matter of right to the litigating party but within the discretion of the Court which is to be exercised judiciously…… Secondly, even if it be a question of law, if answer is evident or is settled by the decisions of the Supreme Court, such question need not be referred to the Court for its opinion. There is no dispute about the fact that litigant cannot claim as a matter of right to lead additional evidence before appellate authority and the power of the Tribunal in the matter of taking additional evidence on record is circumscribed by the rule. Exercise of such power to permit a party to produce additional evidence before the Tribunal is absolutely within the discretion of the Tribunal and cannot be claimed as a matter of right. There is statutory mandate that parties are not entitled to produce additional evidence, oral or documentary, before the Tribunal. The discretion of the Tribunal to take the additional evidence required to be produced by the parties on record is circumscribed by the condition that if the Tribunal requires said evidence to be produced before it to enable it to pass orders or for any substantial cause.” 31. The case law relied by ld DR for the revenue are not directly on the admission of additional evidence and are differentiable on the factual matrix of the present case. The case law in New Delhi Television Ltd. Vs ACIT (83 taxmann.com 282) relied by ld Special Counsel, has been reversed by Hon’ble Delhi High Court. Further in case of CIT Vs Khairunnissa Ebrahim (201 ITR 903) (Ker), this decision dealt with admission of additional 24

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited ground before the appellate authority and not additional evidence. The said decision upheld the admission of additional ground by the Tribunal without any discretion and in a duty bound manner. The case law in CIT vs Jansampark Advertising (375 ITR 373) (Del) the facts of this case are not applicable to the facts of the present case. The question before the High Court was whether the Tribunal was correct in allowing the appeal of the assessee in respect of addition made on account of unexplained credit under section 68 of the Act. The observations of the Court were enumerated in Para 42. The observations of the Court are reproduced as under:

“42. The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section 148 issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a “further inquiry” in exercise of the power under Section 250(4). This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld.” 32. In the aforesaid case as the addition was made on account of unexplained credits under section 68 of the Act. The material furnished by the assessee during the course of reassessment proceedings was not properly scrutinized by the AO. Further, the CIT (A) and Tribunal decided the case without examining the information submitted before them by the assessee. In this context, it was held by the High Court that the CIT (A) and Tribunal ought to have made further enquiry into the transaction entered into by the assessee if deemed necessary. Accordingly, the High Court remanded the

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited matter back to the CIT(A) to examine the material submitted by the assessee and decide the matter in light of the said material. Accordingly, it was not a case of admission of any additional evidence but it was restored back directing an enquiry to be made on the material that was already before the lower authorities. The decision in Maruti Udyog Vs ITAT (supra) deals with admission of additional ground and not additional evidence. The two are governed by different independent principles and accordingly, the aforesaid decision has no applicability in the present case. 33. In Union of India Vs Ibrahim Uddin (supra), the Hon’ble Supreme Court has observed in para 49 of the judgement that the true test, in deciding application is, whether the appellate court is able to pronounce judgement on the materials before it without taking into consideration the additional evidence sought to be adduced. Further in para 50 it was held that the power so conferred (for admission of additional evidence) upon the Court by the code ought to be very sparingly exercised, and one requirement at least of any new evidence to be adduced should be that it should have a direct and important bearing on a main issue in the case. 34. We have further noted that the documents filed by way of additional evidence are related with loan transaction entered between the assessee and DHPL with Credit Suisse and investment of funds by Timberlane in DHPL. The subscription of shares by Timberlane in DHPL is irrelevant for the issue under consideration before Tribunal. In case any inquiry was required to be made in that aspect, then it ought to be made in the assessment of DHPL and not in case of assessee’s assessment. Further, we observe that the loan taken by DHPL and assessee, and the capital infusion by Timberlane in DHPL are in no way related to the gift transactions. The said loan transactions were completed before the gifts of shares were transferred / gifted. We are in agreement with the submission of ld. Sr. Counsel for 26

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited assessee that by allowing the prayer of revenue to lead additional evidence and unable a further enquiry would tantamount to provide the revenue an opportunity of re-opening of the case which is not permissible under the garb of prayer for seeking admission of additional evidence, when the revenue has not filed any appeal, cross objection or exercise power conferred under section 147, 154 or 263 on various authorities under the Act. 35. In view of the discussion of various case law relied by the parties, we are of the view that the additional evidence is necessarily not required by the Tribunal to arrive at a conclusion in respect of the issue before Tribunal. Considering the nature of the documents and the prayer made in the application under Rule 29, we do not find any substances in the application of the revenue to allow them to file the additional evidence as the said additional evidence has no relevance with the fact in issue before the Tribunal. Moreover, there is no dispute about the transfer of share by way of Gift and about the identity of the donor and volumes of the shares. The assessee besides the other issues has raised issues only on the taxability of the shares under various provisions of Act. Therefore, the application filed by the revenue under Rule 29 is dismissed 36. Now we shall proceed to discuss Ground No.2 relates to validity of taxability of gifted shares to Assessee Company, under various sections of Income-tax Act. We have considered the rival submissions of the ld Counsels of the parties. We have also deliberated on various judicial pronouncement referred by the lower authorities in their orders as well as various decisions cited and relied by the parties during the course of hearing in context of factual matrix of the case. 37. The Assessing Officer while passing the assessment order treated the transfer of share as taxable receipt holding that assessee is a beneficiary in 27

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited the ordinary course of its business and the receipt of share is taxable under section 28(iv). The Assessing Officer alternatively treated the market value of shares received by assessee without consideration as income from other sources under section 56(1). The ld. CIT(A) besides confirming the addition under section 28(iv) and 56(1), held that transaction of transfer of share to assessee is covered within the purview of section 2(22)(a), holding it that distribution of share by DHPL of accumulated substantial capital asset to the assessee, who is one of its shareholder along with family member of Shroff family. 38. The Income Tax Act does not define the term 'Gift'. Gift is defined under section 122 of the Transfer of Property Act - 1882, which reads as under:

'122. "Gift" defined - "Gift" is the transfer of certain existing moveable or immoveable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee.' Further section 5 of the Transfer of Property Act defines the term "Transfer of Property" as under: '5. "Transfer of Property" defined - In the following sections "transfer of property" means an act by which a living person conveys property, in present or in future, to one or more other living person or to himself and one or more other living persons; and "to transfer property" is to perform such act.' In this section "living person" includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals ." Section 122 of the Transfer of Property Act provides for making of a gift and permits transfer of moveable or immovable property but without any consideration. The shares or interest in a company is a moveable asset as per the Companies Act. Further as per section 5 of the Transfer of Property Act, a company is a living person, competent to transfer a property and

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited therefore the Transfer of Property Act permits a company to be a transferor (donor). In DP World (P) Ltd vs. DCIT (140 ITD 694) (Mum) the coordinate bench of Tribunal while considering the taxability of the Gift held that when, the assessee received three residential flats by way of gift of shares of the concerned housing society from its sister concern and in absence of any specific provision taxing a gift as a deemed business income, provisions of section 28(iv) cannot be applied. Not every receipt is taxable under head ‘Income from other Sources’ but only those which can be shown as ‘income’ can be brought to tax under this head, if it does not fall directly under other heads of income specified in section 14. Thus, the transaction was held to be nothing but a gift and thus a non taxable capital receipt. 39. Further, the Coordinate bench of Tribunal in DCIT Vs KDA Enterprises (supra) held section 2(24) defines 'income'. The definition of 'income' provided in section 2(24) although an inclusive definition, but it specifically provides the income which are intended to be taxed under the provisions of the Act. Even the income in the nature of capital gains as per section 45, and gifts received as per section 56(2)(v), (vi), (vii) etc. are included in the definition of income. Thus under the Act only the receipts which are in the nature of 'income' are subjected to tax. Any other receipts which are not in the nature of 'income' are not liable to tax under the provisions of the Act. Section 5 provides for scope of total income chargeable to tax in India on the basis of receipt, accrual and deemed to be received and accrued in India. In view of above, the charging section of the Act specifically provides for taxation of 'income' of an assessee. For a receipt to be taxable under the provisions of the Act it must necessarily be in the nature of an income or its taxability should have been specifically provided by the statute. Under the Act, what is subjected to tax is only the 'income' of the assessee and not 29

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited each and every receipt of the assessee, where the other receipts not in the nature of income are intended to tax, the legislature has specifically made provisions for taxability of such receipts in the statute itself like section 45, section 56(v), 56(vi), 56(vii) etc. It was also held that as per the provisions of law prevailing during the year under consideration, the gift received by one corporate body from another corporate bodies do not come under the ambit of income as contemplated under section 2(24) or any other provisions of the Act. While referring and following the decision in DP World (P) Ltd (supra) it was further held that companies are competent to make and receive gifts and natural love and affection are not necessary requirement. It was held that the only requirement for company is to make gifts as per respective Memorandum and Article of association, which authorize the company for the same. Applying the proposition of law laid down in the above decision to the facts of the instant case, it is found that the assessee and the donor companies are authorized in this regard for receiving and making gifts respectively by their Memorandum and Articles of association. 40. The Hon’ble jurisctional High Court in assessee’s own case (Nerka Chemicals Vs Union of India 371 ITR 280) while hearing the writ petition against the refusal of stay of recovery held that the assessee has more than just a strong prima facie case in this regard. The title given to a document is not determinative of its true character. The purport of the document must be ascertained on a consideration of the contents thereof. The respondents do not deny that no consideration in the terms of money or money(s) worth was paid by the assessee to the transferors. The High Court further referred the decision of Mumbai Tribunal in DP world Ltd Vs DCIT and held that the receipt of gift has been held as not taxable under section 28(iv) as well as 56(1)/56(2) of the Act. 30

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited 41. Now, first, we shall examine the taxability of the gift of shares by making addition under section 2(22) (a). The section 2(22)(a) in the statute book is as under: Section 2(22) “dividend” includes (a) Any distribution by a company of accumulated profit, whether capitalized or not if such contribution entails the relief by company to its shareholder of all or any part of asset of the company 42. In our view, in order to fall within clause (a) of section 2(22), two conditions must be satisfied; (i) it must be a distribution of accumulated profits, whether capitalized or not; and (ii) it must be such as entails the release of all or any of assets of the company. The two conditions are manifestly cumulative and it is only if both conditions are satisfied, a distribution can be said to be dividend within the meaning of the section. We have noted that the assessee is not a shareholder of DHPL and therefore, the taxing of receipt of gift from DHPL is not sustainable. Even while making submission ld. counsel for assessee invited our attention to the investment schedule of assessee-company as on 31.03.2008 which shows that assessee is not a shareholder of DHPL (Page No. 134 of PB). In the related party disclosure as well, which is forming part of audited account of assessee for the year ended on 31.03.2010 shows that DHPL is the holding company of assessee (Page No. 132 of PB). Therefore, invoking the provision of section 2(22) (a) in respect of gift of share by DHPL to NCPL without consideration is unsustainable. 43. So far as the taxability of gifted shares under section 28(iv) of the Act is concerned, we are of the view that the provision of section 28(iv) can be invoked to bring to tax the amount or benefit, if the three conditions are fulfilled; viz (i) the assessee has to receive a benefit or a perquisite; (ii) the benefit or perquisite must be in a form other than cash; (iii) such receipt must arise from the carrying on of the business. Admittedly in the present 31

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited case the assessee has received the shares in gift and, therefore, conditions (i) and (ii) above is fulfilled but the third condition is not satisfied. We have already noted that the business of the Appellant is trading in chemicals. 44. In Circular No.20D dated 7th July 1964 CBDT clarified that;

“Assessment of the value of any benefit or perquisite arising from business or exercise of a profession, as income from business or profession. 82. A new clause (iv) has been inserted in section 28, with effect from 1-4- 1964, by section 7 of the Finance Act, 1964, under which the value of any benefit or perquisite (whether convertible in money or not) arising from business or the exercise of a profession will be chargeable to tax under the head "Profits and gains of business or profession. 83. The effect of the above-mentioned amendment is that in respect of an assessment for the assessment year 1964-65 and subsequent years, the value of any benefit or amenity, in cash or kind, arising to an assessee from his business or the exercise of his profession, e.g., the value of rent-free residential accommodation secured by an assessee from a company in consideration of the professional services as a lawyer rendered by him to that company , will be assessable in the hands of the assessee as his income under the head “Profit and gains of business or profession”. 45. Further the coordinate bench in Rupee Finance Management (P) Ltd Vs ACIT (supra) held that when as a part of memorandum of understanding between group companies, certain shares of a group company were transferred to assessee at cost, and the purchase was by way of investment only and it was not a case of revenue that there was any business connection or business done between seller and purchaser or that any privilege or benefit or concession had been passed by seller to assessee. Therefore, mere purchase of shares as an investment with lock-in period of holding, for a consideration which is less than market value, cannot be brought to tax as a benefit or perquisite under section 28(iv). 46. In DCIT Vs Manish M Chheda (29SOT 138 Mum) it was held

“17.----- one of the condition necessary for applicability of s. 28(iv) is the 32

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited benefit or perquisite sought to be taxed must be arising in the course of business carried on. In the case of Smt. Chetanaben B. Sheth (Minor) (supra), Hon’ble Gujarat High Court has held that amount received by an assessee partner of a firm towards valuation of goodwill and assets of a firm at the time of retirement from the firm does not attract provisions of s. 28(iv) of the Act, since, the same cannot be said to be a perquisite arising from the business and that even otherwise it would not partake the character of income. Besides the above, we are of the view that the increase in capital of partner as a result of revaluation of assets of the firm has no nexus with the business of the firm and, therefore, cannot be brought within the ambit of s. 28(iv) of the Act. We, therefore, hold that provisions of s. 28(iv) cannot be applied to bring the sum in question to tax in the hands of the partners of the firm.” 47. With the aforesaid discussion, we are of the view that the revenue has failed to demonstrate that the receipt of share by way of gift is in the nature of income and benefit or perquisite arising in the course of assessee’s business and that the receipt of gift of share is taxable under section 28(iv). The assessee is not having have any business transactions of any nature whatsoever with the donors from whom the shares of UPL and UEL were received. In absence of such transactions the provisions of section 28(iv) is not applicable and the finding of ld. CIT(A) in seeking to bring to tax the value of the shares so received in terms of section 28(iv) is also not sustainable. 48. Sections 2(18)(b) and 56(2)(viia) of the Act (as on statue book during the relevant period) read as under :—

'2. Definitions. - In this Act, unless the context otherwise requires,— (18) "company in which the public are substantially interested"—a company is said to be a company in which the public are substantially interested— (a)** ** **

(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :—

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(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ; (B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by— (i) the Government, or

(ii) a corporation established by a Central, State or Provincial Act, or

(iii) any company to which this clause applies or any subsidiary company of such company [if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.

Explanation.—In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words "not less than fifty per cent", the words "not less than forty per cent" had been substituted; ‘Section’- 56. Income from other sources - (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income- tax under the head "Income from other sources", namely :— ** ** **

"(viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,— 34

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(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:

Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation.—For the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);' 49. Now we deem it appropriate to refer the legislative history of section 56 and the amendments made to the said provisions from time to time in order to widen its ambit and cover transfer of specific assets by certain persons without consideration or for inadequate consideration. sub section 2 clause (v) was inserted w.e.f. 1 April 2005 to tax the receipt of any sum of money exceeding Rs.25,000 without consideration by any individual or HUF subject to certain exclusions. sub section 2 clause (vi) was inserted w.e.f. 1 April 2007 to tax the receipt of any sum of money exceeding Rs.50,000 without consideration by any individual or HUF subject to certain exclusions. sub section 2 clause (vii) was inserted w.e.f. 1 October 2009 to tax the receipt of money or any property whose value exceeds Rs. 50,000 without consideration or for inadequate consideration by any individual or HUF subject to certain exclusions. sub section 2 clause (viia) was inserted w.e.f. 1 June 2010 to tax the receipt of shares of a closely held company whose value exceeds Rs 50,000 without consideration or for inadequate consideration by any firm or company subject to certain exclusions. sub section 2 clause (viib) was inserted w.e.f. 1 April 2013 to tax the excess of consideration over the fair value where the receipt of consideration for issue of shares by a private company exceeds the face value of shares issued subject to certain exclusions. 35

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited sub section 2 clause (x) was inserted w.e.f. 1 April 2017 to tax the receipt of money or any property whose value exceeds Rs. 50,000 without consideration or for inadequate consideration by any person subject to certain exclusions. 50. As we have seen that corresponding amendments were made to the definition of income in section 2(24) to cover the aforesaid receipts as income i.e. insertion of clauses (xiii), (xiv), (xv), (xvi), (xvii) and (xviia) in section 2(24) of the Act. In view of the above, history, the intention of the legislature has been to cover a particular transaction in the tax net; the law has been suitably amended. The fact that the gift of shares of a company in which the public is substantially interested between two companies was not covered under the provisions of section 56 until the introduction of sub- section (2)(x), the said transaction ought not to be taxed under section 56 of the Act. We may also note that in Explanatory Notes to the provisions of Finance Act 2010 issued by CBDT in its Circular No. 1/2011 dated 06.04.2011, explained the applicability and the intention of the legislation of introducing section 56(2) (viia) as under ;

“13.2. These are anti – abuse provisions which are applicable only if an individual or an HUF is the recipient. Therefore, transfer of shares of a company to a firm or a company, instead of an individual or an HUF, without consideration or at a price lower than the fair market value was not attracted by the anti-abuse provision. In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, section 56 was amended to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested).” (emphasis supplied) 51. Thus it is clear that the section 56(2)(viia) has been introduced as an anti- abuse provision for preventing the practice of transferring unlisted shares at prices much below their fair market value or without any consideration. It is pertinent to mention that after amendment to section 56(2)(viia), only the

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited transfer of shares of unlisted company without consideration or for inadequate consideration is deemed to be income chargeable to tax. It is not in dispute that the assessee has received gift of shares of UPL and UEL being listed company, which cannot be treated as income chargeable to tax. In the present case the shares were gifted even prior to the proposal made in the Finance Act 2010 w.e.f. 01.06.2010. We are in agreement with the submission of ld. Sr. Counsel for the assessee that the Gift –tax Act,1958 has been repealed and there is no tax on the Gift either on the donor or on the donee in any form under Income tax Act or any other Act. The contention of the ld. Sr Counsel so far as it relates to repealing the Gift –tax Act was not disputed by the Revenue. Further it is the contention of the ld. Sr Counsel for the assessee that the taxability of gift remained outside the tax net for a long time until section 56(2) was brought on statue book for bringing to tax gift received by individual and by Hindu Undivided Family (HUF) under certain circumstances from 1st April 2005. 52. In our considered view, by virtue of the introduction of the section 56(2)(viia) the transfer of shares of unlisted company either for inadequate consideration or without consideration is deemed to be income chargeable to tax as income from other sources which was otherwise not taxable under the Act. It is important to note here that after the amendment to section 56(2)(viia) of the Act, only the transfer of shares of an unlisted company without consideration or for inadequate consideration is deemed to be income chargeable to tax and not the transfer of shares of listed company. In the present case the assessee has received gift of shares of UPL and UEL being listed Companies, and therefore, the same cannot be treated as income chargeable to tax. In the present case the shares were gifted even prior to the aforesaid proposal made vide the Finance Bill, 2010 applicable w.e.f

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited 01.06.2010, therefore, no addition can be made in the assessment year 2010- 11, relevant to F.Y.2009-10 under consideration. 53. At the cost of repetition, we observe that there is no question of taxing a receipt in the form of shares of a listed company received by way of a gift under the Act since the said receipt does not tantamount to income as the term is defined. Further, there was also no provision under the Act at the relevant time for taxing the transfer of shares of a listed Company received without any consideration in the hands of the recipient and, accordingly, the question of taxing the gift of shares of UPL and UEL as income in the hands of the Company does not arise.

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited values of the assets held by each of the parties. The question before the Tribunal was whether the transfer of shares of Nestle Ltd. and Hindustan Lever Ltd. held by members of the family to the assessee company as per the family arrangement claimed to have been transferred without any monetary consideration can be held to be a gift or not? The Tribunal referred to the definition of ‘gift’ as defined in the Transfer of Property Act, 1882; that "Gift is a transfer of certain existing moving or immovable property made voluntarily and without consideration by one person, called the donor, to another, called the donee and accepted or on behalf of the donee." As the issue was equalization of wealth which was made in pursuance of a family arrangement, it was held that the transfer could not be called voluntary and without consideration and therefore not a valid gift. The facts of the said decision are not applicable to the present case. Further, in the said case the receipt of gift was credited to the Profit and Loss account and not to Capital Reserve. However, the gift of share in the present case is shown as Capital receipt. Further, Hon’ble Bombay High Court in B.A. Mohata (supra) dealt with a family dispute and an arrangement to resolve such dispute. The transfer of property was done pursuant to a family arrangement. This decision does not lay down the proposition that a Company cannot make a gift. They only state that a company cannot be part of a family arrangement. Accordingly, the facts of the aforesaid case are not applicable to the facts of the present case. Hence, Ground No.2 of the appeal is allowed. 57. Ground No 3 relates to deduction in respect of interest expenditure amounting to Rs.10,17,230/-. The ld. Counsel for the assessee submits that initially the assessee filed its return of income for assessment year 2010-11 on 22nd September 2010 declaring total income at Rs.1,64,58,763/-under normal provisions and book profit under section 115 JB at Rs. 39

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited 2,09,66,801//. Subsequently, a revised return of income was filed on 28/03/2012 declaring total income of Rs.1,54,41,530/- declaring same book profit after setting off of brought forward losses of Rs.44,18,221/-. In the revised return interest of Rs10,17,230/- was disallowed in the assessment year 2009-10 has been excluded as it amounts to double taxation of the same amount in AY2009-10 and 2010-11. The assessing officer not considered the revised return of income and passed the assessment order under section 143(3) on the basis of original return of income. The ld CIT (A) has also dismissed the claim of the assessee holding that the assessee is in appeal for AY 2009-10, it could only be allowed if assessee had accepted the action of assessing officer in AY 2009-10 and not challenged the same in further appeal. The ld. Counsel prayed for issuing the necessary direction to assessing officer to verify the facts, if there is double disallowance of the same interest in both the assessment year i.e. in AY 2009-10 and 2010-11 and pass the order afresh. 58. On the other hand the ld. Special Counsel relied on the order of the authorities below. 59. We have considered the rival submissions of the parties and have gone through the orders of authorities below. We have noted that the assessing officer has passed assessment order on the basis of original return of income, thereby not considered the claim of interest expenses of Rs.10.17,230/-. However, the ld CIT(A) dismissed the ground of appeal the claim of the assessee holding that the assessee is in appeal for AY 2009-10, it could only be allowed if assessee had accepted the action of assessing officer in AY 2009-10 and not challenged the same in further appeal. We have noted that in assessee’s appeal for AY 2009-10, the assessee has not raised similar ground of appeal related with the same disallowance of interest. In our considered view the assessee can raise this issue only in the 40

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year, under consideration as the assessee the corresponding interest expenditure has been offered by the assessee during the previous year related with AY 2010-11. Therefore, we find convincible force in the submission of ld. Sr. Counsel for assessee. Thus, this ground of appeal is restored to the file of assessing officer and direct the assessing officer to verify the fact and pass the order in accordance with law. In the result this ground of appeal is allowed for statistical purpose. 60. In the result, appeal of the assessee is partly allowed. ITA 4850/Mum/2016 for A.Y. 2011-12 The grounds of appeal raised in this appeal read as under:

“1. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in confirming the disallowance made by the Assessing Officer under section 14A of the Income-tax Act, 1961 ('Act') as per Rule 8D of the Income-tax Rules, 1962 amounting to Rs.14,84,896/-. 2. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in confirming the action of the AO in the following respects while computing the average value of investments for the purpose of computing the disallowance under section 14A as per rule 8D(2)(ii)of the Income Tax Rules: a) In not excluding the investments made in group companies for holding controlling stake which are strategic in nature and does not require day-to- day monitoring by the appellant; b) In not appreciating that only the investments which have yielded exempt income ought to be included; c) In not excluding investments which are capable of yielding taxable income. 3. Without prejudice to the above grounds of appeal and in the alternative, the Commissioner of Income-tax (Appeals) erred in ignoring the fact that investments in domestic companies/ mutual funds ought not to be included for the purpose of computing disallowance under section 14A of the Act since dividend from domestic companies/ mutual funds is not exempt from tax in view of Section 115-O/115R of the Act. 4. On the facts and in the circumstances of the case and in law, the appellant submits that the provisions of Rule 8D are not applicable for computing the

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited disallowance in respect of expenditure relatable to exempt income while computing the book profits under section 115JB of the Act.”

“1. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) ['CIT(A)'] erred in upholding the action of the Assessing Officer ('AO') in disallowing a sum of Rs.50,89,507/- under section 14A read with Rule 8D. 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not excluding investments in companies which yielded dividend wherein such dividend has suffered tax under the provisions of section 115-O. 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating that investment in subsidiary/ associate company is done on account of business expediency in order to promote business and profits of the Group Companies and not to earn dividend income. 4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO in not allowing deduction in respect of employees' contribution to provident fund paid before the date of filing the return of income but beyond the due date under the respective law. 5. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO in not allowing deduction in respect of interest expenditure amounting to Rs.10,17,230/- inadvertently disallowed in the return of income.”

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited 63. Ground No. 1 to 3 relates to disallowance under section 14A. We have noted that these identical to the grounds of appeal in appeal for assessment year 2010-11, which we have restored to the file of assessing officer for deciding afresh, therefore, considering the principles of consistency these grounds of appeals are also restored to the file of assessing officer with similar direction. In the result all the grounds of appeal in these appeals are allowed for statistical purpose. 64. Ground No. 4 relates to disallowance of contribution of Employees Provident Funds (EPF). The ld. Counsel for the assessee submits that the assessee had deposited the contribution of EPF after its due date; however, it was paid before the due date of filing the return of income. Therefore, no disallowance is justified in such circumstances. 65. On the other hand the ld. Special Counsel relied on the order of authorities below. 66. We have considered the rival submissions of the parties and have seen the orders of the authorities below. We have noted that during the assessment proceeding the assessee filed revised computation of income vide its application dated 27.07.2011 and claimed deduction of Rs. 4820/- on account contribution of EFP paid beyond due date but before filing due date of return. The assessing officer not accepted the claim of assessee by taking his view that the assessee has not filed revise return of income, therefore, he has no jurisdiction to entertain such claim. Before the ld CIT(A) the assessee relied on the decision of Bombay High Court in CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. (ITA No. 3908 of 2010) and urged that the assessee is entitled to amend the return by making additional claim for deduction other than by revised return. The ld CIT(A) rejected the claim of the assessee holding that it was rightly rejected by assessing officer as the same was deposited beyond the due date as per clause (va) of sub-section(1) 43

ITA No.4423/M/2015,4585/M/2015&4850/M/2016 Nerka Chemicals Private Limited of section 36. The facts related with this issue are not in dispute that the contribution of the EPF was deposited after due date; but before the filing of the return of income. 67. The CBDT vide its circular No. 22/2015 dated 17.12.2015 clarified that the first proviso, being curative in nature, is retrospectively applicable w.e.f. 01.04.1988. It was further clarified that in case contribution of EPF is paid on or before due date of return of income under section 139(1) no disallowance can be made. Therefore, by invoking the power vested with appellate authority, we admit the additional claim of the assessee and direct the assessing officer to verify the facts and delete the disallowance under section 43B, if the contribution of EPF was deposited before filing the return of income under section 139(1). In the result this ground of appeal is allowed for statistical purpose. 68. Ground No. 5 relates to deduction of interest expenditure of Rs. 10,17.230/-. We have noted that the similar relief is claimed by the assessee in appeal for AY 2010-11, which we have restored to the file of assessing officer for fresh adjudication. Considering the facts that the assessee can hesitate this claim only in the year in which the income corresponding to the interest expenditure is offered for tax. Therefore, this ground of appeal has become infructuous and dismissed accordingly. 69. In the result the appeal for AY 2009-10 is partly allowed. Order pronounced in the open court on 31.08.2018. Sd/- Sd/- R.C. SHARMA PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 31.08.2018 SK

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Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4.The concerned CIT 5. DR “B” Bench, ITAT, Mumbai 6. Guard File BY ORDER, Dy./Asst. Registrar ITAT, Mumbai