DY. C.I.T. CIR-.4, NAGPUR vs. M/S FARGO FINVEST PVT. LTD., NAGPUR

On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the artificial loss on sale of shares of Rs.2,84,45,520/- without appreciating that the loss is artificially created, t0 set off_ profit on sale of shares of Purti Power sugar Ltd. (PPSL): 2. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition of share premium of ITA No:- 426/Nag 2016 A.T.2010-11 Rs.3,27,60,000/- without appreciating that the share premium amount is liable to held as a profit earned within the meaning of section 28(iv) of the IT: Act. Any other ground that may be raised at the time of hearing: 3 The brief facts of the case are that the assessee filed its return of income for the A.Y. 2010-11 0n15.10.2010 declaring total income to the tune of Rs.1,17,930/-. The return was processed uls 143(1) of the IT: Act, 1961. The case was reopened for scrutiny U/s 147 of the LT: Act; 1961. The case was reopened on the following grounds - the assessee has earned profit of Rs.2.86 crores on the sale of shares of Purti Power & Sugar Limited (PPSL) during the financial year 2009-10. In the same year; the assessee made share transaction of other companies worth Rs.18.16 crores which ultimately resulted into loss of Rs.2.84 crores which was adjusted against the profit earned on the sale of shares of PPSL The Auditor in the audit report of the assessee company at para no_ 4 of report dated 26.09.2010 has stated that the 'transaction Of investment in share (Rs.12,33,42,000) and sale of share investment (Rs. 12,34,96,480) were not supported by adequate evidence like share transfer certificate, ROC filing etc thus they could not be verified Thus it is seen that there are no proper documentary evidences like share transfer certificate, ROC filing etc. to prove the genuineness of the transaction. Hence, they could not be verified The loss was booked in a span of 1 to 1.5 months: Further the assessee company received share application money on uge premium. There is also no justification for the huge premium charged @ Rs.90/- per share considering the fact that no significant business activity were carried out by the company: The assessee received Rs.3.27 crores towards equity share premium during the year under consideration. The auditor in his audit report has mentioned that authorized capital of the company has been raised from Rs.1 lacs to Rs: 40 lacs and necessary approval and compliance with the ROC is underway: It is therefore clear that the assessee has claimed the sale of share without ROC approvallcompliance and hence the transactions appeared to be 497} 2 600S 3 ) 0 ITA: No.426/Nag/2016 A.Y. 2010-11 colorable and artificially designed in such a manner t0 enable the company to set off the profit on sale of PPSL, shares held by it against the SO-called loss booked on Sale of shares of other companies: In view of the above and the details available on record. [ have reasons to believe that the income of Rs.6.11 crores chargeable tax has escaped assessment in these transactions with the meaning of section 147 of the IT: Act, 1961. 4 Thereafter, notice Ws 148 of the I.T. Act; 1961 was issued to the assessee on 16.04.2013 which was served upon the assessee on 18.04.2013 . Notice u/s 142(1) was also issued and served upon the assessee_ The assessee raised the objections against the issuance of notice u/s 148 of the LT. Act, 1961 which were dismissed, therefore, Awr notice uls 143(1) & 1421) were again issued and served upon the assessee. The assessee received the huge profit on sale of PPSL shares 3 ) and against the profit the loss was booked of Rs.2,84,45,520/- After the setting off the said loss, the profit has been shown very low: The Assessing Officer was of the view that the loss to the tune of Rs.2,84,45,520/- was artificially created to set off profit on sale of shares ,therefore, the said loss was declined and profit from PPCL was added back to the income of the assessee. The assessee also received the share premium to the tune of Rs.3,27,60,000/- On seen the record, It was found that the assessee was not doing anything to attract the investors which may fatch the huge premium. The notice was given and after considering the reply, the share premium to the tune of Rs.3,27,60,000/- was added to the income of the assessee_ Total 3 ITA. No.426/Nag/2016 A.Y. 2010-11 income of the assessee was assessed t0 the tune of Rs.6,13,23,450/- Feeling aggrieved, the assessee filed an appeals before the Commissioner of' Income Tax Appeal who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before US. ISSUE NQ.Jk 5 Under this issue the revenue has challenged the deletion of the artificial loss on sale of shares of Rs.2,84,45,520/ The assessee was holding investment on equity-shares of Purti Power & Sugar Limited amounting to Rs.6,50,00,000/- During the assessment year; the assessee sold the share of Purti Power & Sugar Ltd. and earned the 4aaPps profit of Rs.2,86,00,000/-. The assessee also purchased the share of 1 ) some companies in which the assessee suffered the loss to the tune of Rs.2,84,45,520/-. The assessee set-off the said loss against the income upon the sale of shares of Rs.2,86,00,000/-. Assessing Officer was of the view that the said loss was the artificial loss created by Assessee for setting of the same against the income of the assessee on account of sale of shares of shares of PPSL; therefore, the same was not allowed to be set-off against the income arising from the PPSL: Before going further we deemed it necessary to advert the finding of the CIT(A) on record to see this fact in which circumstances the CITCA) has allowed the claim of the assessee. "Ihave gone through the assessment order passed by the A.O. grounds of appeal, the submission made by the appellant, 5 ITA. No.426/Nag/2016 A.Y.2010-11 remand report submitted by A.O. and the reply to the remand report submitted by the Ao. The appellant has submitted that the books of account of the appellant company were checked by the auditor; that the appellant had produced necessary evidences in shape of purchases and sale invoices; copies of resolution of Board of Directors; relevant bank statements aS well aS confirmations received from the concerned parties: Further the appellant has submitted that the AO has not pointed out any single query or doubt on any of the documents or any of the parties involved in the transaction: The appellant has stated that the identity of the parties and the genuigneness of transactions have been established beyond doubt. Further that the parties had deputed their principal officer/director to appear before the AO alongwith documentary evidences in support of share transactions The appellant has also stated that the AO has failed to bring on record any cogent and clenching evidence against the assessee and has heavily relied on the stories of the Investigation Wing without verification of evidences produced during the course of assessment. 5.4 These comments Of the appellant were sent to the AO in remand proceedings The AO in his remand report has not disputed these facts. However; the AO has argued that the appellant has not submitted share application forms; share certificate, contract notes etc: The AO has also stated that the appellant has not submitted share transfer certificate and ROC approval. Further; the AO. has stated in his report the auditor comments regarding non verification of supporting documents: 5.5. 1 find that in one of the appellant's group case Mls: Gondavana Engineering Pvt. Ltd. for A.Y.20 10-li similar issue bad come up before the Commissioner of Income tax (Appeal), Nagpur: The matter has been adjudicated for A.Y.2010-11 by CITIAppeaJJ-1, Nagpur vide order dated 01i02D14. In that case also the appellant had earned profit on sale of shares of PPSL and had incurred loss on sale of-shares of other companies: The evidence that has been submitted by the appellant before the A.O. during the course of assessment proceedings similar to the evidences that was produced before the A.O. while finalizing the said assessment of MIs. Gondwana Engineering Pvt. Ltd Other facts %f the case are also similar: The matter has been decided by CET(A)-1 by making the following comments: 1 have carefully considered the facts of the case and the written submissions of 2 5 KaxAPS 8 )) ITA. No.426/Nag/2016 A.Y. 2010-11 the appellant find merit in the submissions made. it is seen that the disallowance has been made by the Ld. AO on account of' the following grounds; The appellant was unable to produce the share transfer forms to evidence that the said transaction had actually been entered by the appellant ii) Till date no money has been received by the appellant in respect of sale consideration of the sale shares: iii) No expenses have been paid by the appellant to any consultant aS claimed by the appellant 5.1 With regard t0 the inability of the appellant to produce the share transfer forms; same has been validly explained by the appellant during the course of appellate and remand proceeding: As per the prevalent custom in the shares were generally transferred alongwith sale Blank Transfer Forms and only the person who wanted to ultimately transfer the shares in their own name, would lodge the Share Certificates alongwith share Transfer Forms with the Company and till then there can be a number, of transfers in respect of the said shares: it is evident that the appellant purchased the said shares and sold them 0)50 in 0 short time and since the appellant did not intend to ultimately transfer This fact of shares being transferred alongwith necessary Blank Transfer Forms 2s also established from the Copies of Forms attached by the Ld, A.O. alongwith his Remand Report, wherein the Share Transfer Forms Dated 2011012009, were Revalidated by the Purchasers of those shares on 19,101/2010 and again or 2210312010 for subsequent transfers Also, the absence of photo copies and share transfer form cannot become a ground for disallowance of loss incurred in the share transfer US various other evidences have been submitted by the appellant during the course of assessment and remand proceedings to conclusively establish the fact that it had entered into the actual transaction of the par- chase and sale of said purchase. Confirmations in this regard have been given by the appellant from the parties from whom the said shares have been purchased by the appellant. The appellant had purchased the said shares from Best infratech Pvt. Ltd.and Bright Rca icon Pvt. Ltd. and the said confirmations were before the Id. A 0 during remand proceedings and he has not given a finding that the same are eihter bogus, false Or fabricated. Rather he has not A0A ) 020 ITA No.426/Nag/2016 A.Y. 2010-11 commented on the confirmations at all confirmations is (sample copy of the reproduced in para $ below). appellant later on if all normal channels exhausted of recovery There is also that are recovery proceedings the are initiated, appellate may lose the remaining a/sO. of the sole consideration In heavily case the appellant has flied copies confirmations of the parties from whom of the the purchased of shares had been made and also of the party to whom the sale of the said shares was mode which duly acknowledge the fact that the sold party has to pay the said amount to the appellant: 5.4 The shares which have been sold during the year wider tonsideration have been purchased by the appellant from AS Besr Infratech Pvt. Ltd No.869, Sector-19 Dwarka, New Delhi 110 075.The text of the confirmation filed by the appellant . This is aS under to certify that we had sold the shares of following companies to Mls Gondwana Engineering Private Ltd: 5.6 However in the current appeal the AO has treated this loss in a slightly different way: In the case of Mls Gondwana P. Engineering Ltd. based on similar facts the loss was considered as bogus loss by the AO while finalizing the assessment The matter has been decided in favour of the appellant gondwana by CIT(A)-2 in case of Ms Engineering P Ltd for A.Y. 2010-11 decided vide order No. CIT(A)-1/153/13-14. [ agree with the finding predecessor that of my considering the facts of the case and evidencey produced the losses incurred cannot be treated aS AO has bogus loss. The disallowed this loss and made Rs.2, 84, an addition 45,520/- as of a benefit enjoyed by the appellant within meaning the of Sec;28(iv) of the LT: Act. By no stretch of - a loss incurred 'imagination, during the course of trading in share transaction can be added aS a benefit within the meaning IT Act, of Sec.28(iv) of the 1961. Hon 'ble High Court of Madras in the Iskraemeco Regent Ltd. case of Vs: CIT(2OH) 331 ITR 317 has held that Sec.28 (iv) does not apply to any transactions which involves money: Further ITAT; Chennai Bench in case of Semiconductor Ltd. decided vide 35 Spel Taxman. Sec.28(iv) com 304 has held that can be invoked only when benefit or perquisite received is only in kind and not in cash. 5.7 Further I find that based on similar facts and the loss on circumstances; trading in shares has been held predecessor to be genuine by my in case of MIs: Gondwana Engineering P. A.Y 2010-11, Ltd. for As discussed the AO has not brought anything on '023 ) ITA. No. 426/Nag/2016 A.Y. 2010-11 record t0 treat the loss on share trading GS non- genuine The disallowance of loss of Rs.2,84,45,520/- has been made mainly on the basis of conjuncture and surmises: In his assessment order, the AO has not stated anything with respect t0 the confirmations filed by the appellant and other evidences filed during the course of assessment proceedings: Further treating the amount as 4 benefit us 28(iv) can ( be justified by any stretch of imagination. Accordingly; the AO is directed t0 delete the addition of Rs.2,84,45,520/- made us 28(iv). This ground is accordingly allowed 6. On appraisal of the above said finding; we noticed that the CIT(A) has considered the books of accounts the appellant and necessary evidence in shape of purchase and sale invoices, copies of resolution of Board of Directors, relevant bank statements and confirmations received from the parties. The Assessing Officer (PPELLA, nowhere doubted the genuineness of the transaction: The Principal 2 Officer and Director were appeared before the AO along with 2 MoN necessary documents in support of share transaction: The CIT(A) for the A.Y. 2010-11 decided the matter of controversy in favour of the appellant group case Mls Gondwana Engineering Pvt: Ltd. in which the claim of the loss of the shares was allowed against the profit of the shares of other companies The case was similar in nature having identical facts. The finding of the said case has been produced above while reproducing the finding of the CIT(A) There is no need to repeat the same. Nothing came into notice the finding of the CIT(A) in the case of' Mls Gondwana Engineering Pvt: Ltd. appellant group case has been reversed or veried during the appeal. 8 ITA. No.426/Nag/2016 A.Y. 2010-11 Since, the matter of controversy has been adjudicated on the basis of the finding of the appellant group case M/s Gondwana Engineering Pvt: Ltd. for the A.Y 2010-11 in which the similar matter of controversy has been decided in favour of assessee, therefore, we are of the view that CIT(A) has decided the matter of controversary judiciously and correctly which is not liable to be interfere with at this appellate stage. Therefore, this issue is decided in favour of the assessee against the revenue. ISSUE NQ 2k PELI 3 7 . Under this issue the revenue has challenged the deletion of the #aan} 9 addition of share premium of Rs.3,27,60,000/-_ The Ld. 'woba Representative of the department has argued that the claim of the assessee was wrongly allowed, therefore, the finding of the CIT(A) is wrong against law and facts and is liable to be set aside. However; on the other hand the Ld; Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further it is necessary advert the finding of the CIT(A) on record 6.3" I have gone through the assessment order passed by the A.0,, grounds of appeal, the submissions made by the appellant, remand report submitted by the A.O. and the reply to the remand report submitted by the appellant. [ find that in another group concern of the appellant MIs Gondwana Engineering Pvt: Ltd. for A.Y.2010-13. also this issue of share premium had come up in adjudication before the CIT(A)-LT; Nagpur. The only difference being that the addition was made u/s.68 on account of share premium being undisclosed income of the appellant. The 10 ITA. No.- 426/Nag/2016 A.Y. 2010-11 CIT(A)11 had completed the appellate following comments: proceedings by making [have carefully considered the submissions facts %f the case and the written of" the appellant. submission I find substantial force made by the appellant in the production of Director With regard to the issue of the Ld. AU aS % his Shrimaya Builtech Pvt Ltd before desired by him; it is the Ld clarified, the AU at several occasions that appellant before Ltd is not a group MIs Shrimaya Builtech Pvt. Shrimaya Builtech Pvt. Pmpany and that therefore the Director of Ltd were Ms the Ld. 440 can make not under their control and that Director of independent efforts to ensure attendancenof company if he s0 desires: Ld It is AO, during however the cow-Se seen that the of assessment proceedings, has aS well aS remand not made any efforts to summon the the scud company: No letter /s 133(6) has Director of the said company been sent by the AO to at the address mentioned provided t0 the Ld. in Form No. 18 440,In any case, sufficient evidences have furnished by the appellant to the Ld been and AU creditworthiness t0 establish the of the identity said party and genuineness of the transactions: t0 establish the The Ld independent enquiries AO could have with also made with its MIs Shrimaya Builtech Pvt. Ltd jurisdictional AU to come to a considered or regard to the genuineness %f the conclusion with documents Turn t0 the various claims and with reqard of the appellant. evidence being in the absence of contrary brought on record; the assert of the required t0 be accepted appellant are It is also important t0 take evidences that note have of the been voluminous submitted by the appellant course of during the the identity, asseedtent, appellatefremand proceedings to establisk entereehinto byenitworthiness and genuineness 0f the {aesactioh by the appellant with Ms Shrimaya Builtech To establish the identity of the said Pvt. Ltd- provided PAN, copies of Income Tax€Reipany the, appellant had Returns filed by the appellant with RO; and Form No. 18 of audited financial The appellant has also filed Jill set statements financial. of the The said corn for investment schedule the said statement attached with the financial clearly shows the investment made by that the appellant company alongwith the company in company in other investment made by the said companies: availability The said evidences establish the of with the said company and its creditworthinessh appellant has also submitted confirmations The letters from the Said RPELLA ) 10 ITA: No.426/Nag/2016 A.Ya 2010-11 party alongwith hank statement of the said company: The hank statement of the appellant company aS well aS of MIs Shrimaya Builtech Pvt Ltd. clearly establish the fact that share application money has been received by the appellant through RTGS from the bank account of the said company and thus genuineness of the transaction is also established. In the face of such overwhelming evidences there was no basis what S0 ever-for the AO to come to the conclusion that the share application money received by the appellant from the said MIs Shrimava,Suiltech Pvt. LN. were unexplained 8.2 As a matter of fact conclusive evidence was brought on record by the appellant to rebut the specific query raised by the Ld. 40 that it was the assesses own money which was being routed back as share application through MIc Shrimaya Builtech Pvt, Ltd. It was explained by the appellant that just because the name is mentioned in the bunk statement of MIs Shrimaya Builtech P. Ltd. the Ld AlL had assumed that funds have been received from the appellant company only though it was evidentfrorn ("he bank statement itself that the cheque of Rs: 50 lacs had actuallv bounced and that therefore the said company had issued another cheque and the appellant had borne the cheque return charges also Subsequently the appellant had also clarified the fact that the an amount of Rs: 45 lacs assumed by the Ld AU to be paid by the appellant and received by Mls Shrimaya Builtech Pvt. Ltd was in fact received by MIs Shrimaya Builtech Pvt. Ltd. from India Itd The appellant had in this regard furnished evidences including honk certificate issued by the Indusind Bank that the said amount of Rs: 45,00,000/- was paid to MIs Shrimaya Builtech Pvt Ltd. by Mlc Chintamani 19 India ltd. The said certificate conclusively establishes the above facts: The appellant thus clearly established the fact that the appellant had not mode payment to M/s Shrimayo Builtech Pvt. Ltd, which was returned t0 them in the form of share application money aS assumed by the Ld. AlL 83 it is important t0 note that of such clear evidence-furnished by the appellant, the Ld AlL in his final remand report has not rebutted the above assertion of the appellant in any manner: The Id. AlL has mode the above assertions in the assessment order as well in his first remand report, but after person of the above evidences; he has chosen to remain silent on the issue in the final remand report. Thus it is evident that the appellant has not made any payment t0 MIs. Shrimaya Builtech Pvt Ltd which is returned % 11 ANdE ) 02 ITA: No.426/Nag/2016 A.Y. 2010-11 by them in the form of Share Application Money as presumed by the Ld. 4. 0. It may be mentioned that once the appellant clarified the fact that the said amount of Rs.45,00,0007- credited in the account of A-Hs: Shrimaya Builtech Pvt. Ltd, was not paid by the appellant, he has not required to give any further evidence in this regard 4S heis not expected t0 the in possession of the bank statements or books of accounts of either MIs: Shimaya Builtech Pvt. Ltd. O1" of the party which paid the said 45 lacs to it But the appellant still made use of its good offices with the It is also important t0 note that the Id. AO called for the bank statements of MIs Shrimaya Builtech Pvt Ltd, from the bank directly and there are various entri8s in the said hank Statement wherein the address 101. East High Court road Nagpur , has been stated and the 14. AO has cast the onus of explaining each such entry in the bunk account of M/s Shrimnya Builtech Pvt. Ltd on the appellant Such shifting of Onus is totally Incorrect and improper: AS Stilted above, the appellant has token move the said MIs Shrimaya Builtech ['Vt Ltd. which has been validly explained The appellant (loose not have access t0 the bank statement Or the balance sheet of the said party Co aS t0 explain each and every hank entry aS appeared in bank statement of MIs Shrimaya Builtech Pvt. Ltd The Ld AO on the other hand, was very well in power SO as t0 make whatever enquiries he desires to get to the root of the matter. The appellant cannot be expected to explain each and every entry in a third party hank statement merely because the other companies are also operating from the same address: In this context it is U/so important t0 take note of the fact that the Lil. AO is having jurisdiction over the various other companies which ore operator from the said address and to that extent it would he relatively easy for him to carry out enquires and investigation in respect of entries in their hank account and to also verify whether the said transactions; which seem questionable [0 the Id: 440, are properly reflected in the hooks of account of the said corn assessee 8,5 Also the reliance placed by the W. AO on the decision of the Hon'ble Delhi Hiqh Court on the case of CII vs: Globus Securities & Finance Ltd: (supra) is misplaced. In the said case two persons who were controlling three companies and who had given their shore application money had admitted before the Director of income-tax (mv that they are engaged in the business of providing accommodation entries through tlurious companies 2m 12 RPPEL , ) 13 ITA. No.+26/Nag/2016 A.Y. 2010-11 controlled by them: The relevant portion of the judgement reproduced hereunder. is The assessment. order records that Ms Parivartan Financial Capital and Services Pvt; Ltd was controlled by Shri Hari Om Bonsai and Mlce Sober Associates Pvt. Ltd. and MIs Shri Loosing Niwas & Finance Ltd were controlled by Shri who Mahesh in their Garg; statements before Director of Income investigations Tax had admitted that they were business engaged in the of proceeding accommodation entry through various companies controlled by them. 86 This aspect was one of the key reasons; which led eventual final t0 the finding of the Hon'ble Delhi High Court in the of the appellant there is case no such evidence that there providing accommodation waS any of at any point in the chain of movement of funds: No confessional statement by any party has been brought on record by the by the Ld AD in the assessment order to establish the fact that accommodation entries were provided by the at any point company in the movement of fund. 8.7 The appellant has also properly explained and justified the charging %f share premium of Rs 9001- per than-c for purchase shares: It is a that of fact the appellant's investment in other companies is t0 the tune of Rs75.97 crores The appellant had also worked out the book value of its share and it was calculated at Rs6o61- per share: The above faces were brought to the of the Ld AO in remand proceedings but hghas thokeowledge rebut the same. not In t0 light of the above facts; the charging of premium of Rs: 9001- seems justified 8.8 Considering the above totality of facts and clear evidences furnished by the appellant t0 establish the identity creditworthiness and ofthe creditors and the genuineness of the transaction; the addition made by the Ld AO of Rs: 10080000/- is hereby deleted This ground is therefore allowed 6.4, Hon'ble ITAT; Bombay (e-bench) in case of Green Infra Ltd vS: ITO decided vide ITA No.7762/Mum/2012 ~(145 {TD 240) has looked at the issue of receipt of share premium. In the case of Green Infra Ltd the AO had made addition Ws, 56 0f the LT: Act Income aS from Other Sources: In that case also; the appellant had received share premium to the tune of Rs.490/- per share from its subscribers; The AX): came t0 the conclusion that this kind share premium of was not justified taking into account 'the business operation of the appellant: Accordingly, the AO treated this share 13 J4 ITA. No.426/Nag/2016 A.Y. 2010-[1 premium GS income from other sources and taxed the Same Ws,56(1) of the Income tax Act, 1961. 'The tribunal has concluded that the receipt related to share capital of any company is capital in nature and therefore cannot be taxed ii/s.56(1). As per sec.68, initial onus was on the assessee to prove identity, genuineness of transaction and capacity of depositor: The tribunal held that no evidence Was found by which the AO could conclude that entire transaction was sham. Accordingly; the issue was decided in the favour of the assessee. 6.5 [ find that the during the course of assessment proceeding the appellant has submitted the address; PAN, copies of audited Balance Sheet, Copies of ITR, copies of resolution of Board of Directors authorizing the said investment, copy of bank statements; the appellant has also submitted that parties who had invested in shares of appellant company at a premium have confirmed the transaction of shares during the course of assessment proceedings Accordingly; the appellant has submitted that the assessee company has established identity and creditworthiness of the entities aS well as proved the bona fides and genuineness of transactions beyond doubt: This submission of the appellant was sent t0 the A.O: for comments and the A.O. in remand proceedings has not disputed this assertion of the appellant Accordingly; considering the ratio of the case decided by my predecessor in the case of Gondwana Engineering Pvt. Ltd: decided vide order No.CIT(A) treated aS income either u/s.68 or Ws.56 in case of the appellant J also find that an amendment has been brought in the Income tax Act and Sec.56(2) (viib) and has been inserted by the Finance Act, 2012 w.e f 1.4.2013. The current assessment will not be effected by this provision. 6. 6. However; in the present case the A.0. has brought this amount t0 tax not W/s.68 O1" W/s.56(1) but he has brought the amount t0 tax ]Is: 28iv) of the Income tax Act I find that Ld ITAT, Mumbai in the case of Sofinet Traders & Consultants Vs: Department of income tax decided vide ITA N03070& 3071 /Del/2008 (E-Bench) has considered the similar question with similar ground of appeal. On the facts and in the circumstances of the case the Ld.CIT erred in Jaw and on facts in deleting the addition of Rs: 17,39,43,000/- made by the Assessing Officer to the total of the assessee witlit? Themeaning of section 29(1) of the L T: Act. The bench has decided the issue in the following manner: 14 APPi ) 15 ITA. No.426/Nag/2016 A.Y. 2010-11 "This brings 1S t0 whether the difference in question can be considered as income. The section reads follows: The following income shall be chargeable to income-tax under the head profit and gains of business or profession (iv) the value of any benefit or perquisite, whet her convertible; into money O1" not arising from business Or" the exercise of a profession Circular explanation the provisions of news 28(lv) at ci, 82 states asftillol4's: "Assessment of the value of any benefit or perquisite arising from business O1* exercise of a profession, S income from business or profession: 8. 2. A new ci. (iv) has been inserted in € 28, w.e f . Ist April, 1964, by $- 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 bead 'Profits and gains of business or profession' A corresponding amendment has been made t0 section 2 (24), including the value of such benefit or perquisite in the definition of the term 'income vide new sub-cl.(va) inserted in S 2(24) by $ 4(c) (i) of the Finance Act 1964. 83. The erect of the ~mentioned is that in respect of an assessment for the asst. yr. 1964- 65 and subsequent years; the value of any benefit or amenity; in Cash or; kind, arising t0 an assesses firm his business Or; the exercise of his profession, e.g, the value of rent free residential accommodation secured by on assessee from a company in consideration of the profit services as a rendered by him to that company; will he assessable in the hands of the cease as his income under the head 'Profits and .gains of business or profession The condition of invoking s 28(t') is that the chargeable income oftlic assessee should arise from the business or in the exercise of profession: There must be 4 nexus between the business of the assessee and the benefit the assesse derived. The assessee in this case purchased certain shares at a certain price and was required to hold these shares for a period of three. It is not in dispute that this was an investment made by the assessee company hence irrespective of the fact aS to whether these investments were mode in pursuance of tie Mo U Or" nol, we are of the consideration opinion that such investments cannot be said t0 be a benefit arisen out of the assessee: Moreover the assessee is the purchaser, of the shares and there is no event that has taken place daring the current accounting year which can be said t0 have resulted in any 404 47 15 APP CllaT ) I6 ITA. No. 426/Nag/2016 A.Y. 2010-11 income being year: If aecrued or arisen to the at all the assessee the assessee company question can be shores, duty the brought to tax in then the benefit case laws those, of profit in relied upon by the while Revenue harticular years: In all the narrating have their arguments been been levied and discussed by uS on the in these transferor not the cases the tax section has has been explained transferee. The ejfi3ct circular and fr'om this in the GBDT of this it is clear in the goods that, when above cited or , assets at a price an lower than assessee purchases whatever circumstances;pthe same the market price, S. 28(iv) . cannot be under The section cover brought addition tinge to tax under to consideration earned benefits that are availedc while doing in carrying in business, benefit that is out a another; profession in passed on or addition to cost or by proviso_ one This sale price, party to is clear from the is covered example quoted in this opinion; this section cannon In be invoked wider our Circumstances; humble 0 8.4 Be the present facts and it as it 3 may Mumbai the case {he co-ordinate Bench of the of Food Tribunal is a Improvers (I? Ld (F-8cnch, charging section and (supra) held takes into that specified S. 29 ) categories of all account 8 could incomes aS the receipts be , generally well as the of construed aS receipts mentioned in $ 128 income which are in inherently the of that of income all the receipt under a given amount of nature except in 28(iv) Insurance case refers to any benefit or policy: it benefit also Or perquisite, and this states perquisite should be in the means very that nature such beginning or it must have of income becomes characteristics of from the chargeable at a later income completed as stage before it designed The if the original transactiore Ybenefit or 'perquisite' Bench further observed thcr is be 'e been read used in the Said the words together and would drat; Section and have to Normally the term colour perquisites from denotes each meeting other of one person by anothes out person either of an provision of some obligation facility directly or amenity or person indirectly or form by one or the very person facility beginning t0 Or the person another concession irretrievable knows that providing such t0 him, whatever aS it has is been being privilege done or granted to is word right of that person: Z'hu; a person it was OS benefit' has a to be concluded the time of execution interpreted in the same that the the business manner, that give to the other transaction is, at party an irretrievable one party should benefit or advantage, aS an 16 17 ITA. No.426/Nag/2016 A.Y. 2010-11 obligation O1 facility or a concession: In our" opinion, only if the seller had incurred an expense Or" 4 liability O1" had provided & facility to the purchaser; then the value in cash of such expenses or benefit or perquisite shall he treated as income. In this case, the seller has not incurred any or liability or has providedIt sold its shores at & reduced price. 7.5 Applying these propositions to the case on hand, the purchase of shares at a particular price which is below the market price 4S on investment is not income by any stretch of imagination, it cannot also be deemed 4S income under S 28(iv aS it is neither benefit nor perquisite that has arisen t0 the assessee from the business or in the exercise of a profession. The Hon 'ble Gujarat High Court in the case of CIT vs Bhavnagar Bone & Fertiliser Co. Ltd: (1987) 59 CTR (Guj 116 (7987) 166 ITR 316 (Guj has upheld the finding that there must be a nexus between the business of the assessee and the benefit which the assessee has derived for the purpose of attracting provisions of $ 28(iv) . At p 320 it has observed as follow: In this case the Revenue has not demonstrated what is the business connection O1" the business done between the seller and the purchaser of the No case has been mode out that privilege or" benefit or conclusion has been passed on by the seller t0 the buyer as part and parcel of a business transaction: 44 benefit has been assessed by the CIT(A): Mere purchase of shares by way of investment cannot be considered as business 0/* the company the objects of title company enable it to invest aS well aS deal in shares: As already stated there is no event which can be said to have resulted in accrual of income to the assesse on this factual matrix; mere purchase of shares; aS an investment, with the lock- in-period of holding for ci consideration which is less than the market value, cannot be brought t0 tax, aS a benefit: or perquisite wider s 28(hi) of the Act The assessee has not in this case, secured any benefit or" perquisite in consideration of a bt4VWeSS transacting undertaken with the sellers of the shares: Thus this issue is decided in yours of the and against the assessee_ 8 In view of the above discussion and the order of the coordinate Bench of the Tribunal, we do not find any merit in the appeal of the revenue and accordingly uphold the order CIT(A). 6. 7. Again [ find that ITAT; Mumbai in the case of DP World (P) Ltd Vs; DCIT 140 ITI) 694 has Stated that in 4 case where assessee received three residential flats from its sister concern, APEl; 3 0 3teqd )) 17 [8 ITA. No.426/Nag/2016 A.Y. 2010-41 UK based company; which the assessee explained as transaction of gift of shares and agreement of capital receipt not chargeable to tax; Considering the facts of the case the Hon'ble Tribunal held that provision of Sec.28(iv) could not he applied to the assesses case 6, Lalso find that similar issue has been decided in favour of the appellant by Hyderabad Tribunal in case of MJs.KN.13.Investments (1) Ltd. The matter has also been decided in favour of the appellant in appeal before Hon 'ble High Court of Andhra Pradesh decided vide 367 ITR 616 by making following comment 7 Sec 28 of the 4 bring the pfoJit5 and of business or under the purview of income tax: The profits and gains of different kinds about dozen are enlisted under different clauses: The Income Tax officer invoked section 28(iv) of the Act against the B The expression value of any benefit" is made part of the definition of%, income under section 2(24) of the Act. It reads: "The value of any benefit or perquisite taxable under clause (Iv) of Section 23" 9 In a wav it iS a circular phenomenon, in that the definition refers the changing section relies upon the definition; under the Act, The only way t0 extricate this appears to b, referring to the together ingredients added under section 28(iv) of the Act. After adopting the expression value of any benefit or perquisites the provision proceeds to qualify the same by the words, convertible into money or not, arising from business or the exercise of a profession.

The benefit, which is sought to be taxed, in the instant case, is the different between the market price, on the one hand, and the allotted price of 0 shore, on the Other. It has already been mentioned that, according to the income tax Officer; the market price was Rs: 455 per share, whereas it was allotted to the respondents at Rs.90 per share, on allotment. Even if all' the subsidiary contentions advanced by the respondents in this behalf are rejected, remains that there is a clear bar for a block period of three years prohibiting the sole of shares: It is axiomatic that the benefit can be said t0 have arisen t0 an individual, and any person in his place, 'would have got the differential price, by selling the shares: Irrespective of the willingness Or other-wise of the person holding such ( share, if the bar operates, it is difficult to imagine that the sale of the shares would Luke place or, that it would vield the differential price. Though we said this with some amount of precession, the Tribunal elaborated the some in detail and took the RELLA 0051 ) Jm 18 19 ITA: No.426/Nag/2016 A.Y. 2010-11 view that as long aS the bar operated, the question of cmv benefit in the form of differential price, accruing to the respondents, does not arise. We are in agreement with the conclusion arrived at by the Tribunal, ii. The second aspect is as t0 whether the benefit has; in fact, accrued at all to the respondent. There exists 4 distinction between the "accrual of income on the one hand, and "arising of income on the other: While accrual is almost notional in nature, the other is factual. Itis too well known that in its complex nature, the covers not onlv the "income that, in fact, has arisen, but also the one that has accrued 12. When Parliament has consciously chosen to restrict the taxation of' benefit only when it has arisen, it is not permissible to tax the benefits by treating them as "accruals A close scrutiny of the concept of "arising from business: Secondly; section 28(iv) does not apply to benefits in cash or money (see (1981) 130 ITR 168 (Guj) _ 10. For this reason, we are not going into the question as to whether the second requisite is fulfilled or not. In the present case, the Tribunal has held that the waiverlwritten off part of principal amount of loan by JSPL does not constitute income at the hands of the assessee: On the facts of this case and particularly having regard to the nature of business only; it will constitute capital receipts: 11 . We thus answer the question in favour of the assessee and against the Revenue. As consequence, we dismiss this appeal: 6. 11. Also in the case of Fortune Oceanic Products Ltd Vs. Department of Income Tax decided vide ITA No. 2414/Del/2011 similar issue has been decided by ITAT Delhi Bench in favour of appellant. 6. 12. These judicial pronouncements clearly show that share premium received by the appellant is a transaction in the nature of sale and purchase of shares hence is a transaction which is capital in nature and can t be added us 28(iv) of the IT Act aS a benefit within the meaning of that section: Accordingly the AO is directed to delete the addition of Rs.3,27,60,000/- on account of share premium aS profit enjoyed within the meaning of section 28(iv) of the IT, Act, 1961. This ground is accordingly allowed 4 19 )) 20 ITA. No.426/Nag/2016 A.Y. 2010-14 8 On appraisal of the above said finding; we noticed that the CIT(A) has decided the matter of controversy on the basis of the finding of the Hon ble high court of Delhi in the case of' Jindal Equipments Leasing & Consultancy Services Ltd. Vs. CIT in 325 ITR 87 (Delhi) and on the basis of the decision Hon 'ble ITAT Delhi Bench in the case of Fortune Oceanic Products Ltd: Vs: Department of Income tax ITA: No.2414/Del/20ml. No ELL distinguishable material or law have been produced before F uS_ 3 Therefore, we are of the view that the CIT(A) has decided the matter ) Mojn of controversy judiciously and correctly which is liable to be interfere with at this appellate stage. 9 In the result, appeal of the revenue is hereby ordered to be dismissed. Order pronounced in the open court on 15.09 .201 - (P.K: BANSAL) (AMARJIT SINGH) VICE PRESIDENT frridDated 15.09.2017 JUDICIAL MEMBER vP singh axgufffyerlf alCopy ofthe Order forwarded_to : 1 ailcireff/ The Appellant Yayeff/ The Respondent 2 20 21 ITA: No.426/N2g/2016 A.Y. 2010-H1 H1yarargaa(ardiat) / The CIT(A) 314<ryd/ CIT 5. faypfyufaffu, 31yoradfleflyafedrur, DR, ITAT, Nagpur L6; TTSwT& IGuard file. ELLAT H1aRIIJR/ BY ORDER; ) rrifdaufa / // / 24 3uRTorofdT RTE(U;b/AssitRegistrar) Assistant Registrar 311yorenifyeifuraRUH FATSNNGPUR Income Tax Appellate Tribunal TrTYr ~rrita / Nagpur Bench (Ll(2 21