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Income Tax Appellate Tribunal, DELHI BENCH ‘B’: NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI VIMAL KUMAR
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal preferred by the Revenue is directed against the order of the ld. Commissioner of Income-tax (Appeals)-27, New Delhi [for short ‘ld. CIT (A)] dated 27.10.2023 for Assessment Year 2021-22.
The brief facts are, the Govt. of Himachal Pradesh allotted 90MW hydroelectric project in Lahul Spiti, Himachal Pradesh to M/S Hindustan Power Project Pvt. Ltd. (HPPPL) in 2009. HPPPL paid Rs.18 cr as Govt. of Himachal Pradesh at the time of award of contract. HPPL promoted a company for implementing this project, namely, M/s Miyar Hydro Electric Power Co. Ltd. (MHEPCL) in 2011. HPPPL made the investment in MHEPCL in the form of equity shares and compulsorily convertible preference shares (CCPS) as under:
(i) 50,000 equity shares amounting to Rs. 500,000/- (ii) 6,34,860 CCPS amounting to Rs. 63,48,60,000/-
HPPPL sold the shares to Peridot Power Venture Limited (PPVL), a group company, at cost. Subsequently, PPVL sold the shares of MHEPCL to M/s Hindustan Clean Energy Limited (HCEL), a group company, vide agreement dated 31.07.2018 (PG 69, PB) at cost. Thereafter, HCEL sold 49% of equity and 100% CCPS to an outsider, M/s. Devarsi Constructions Pvt. Ltd. (DCPL), at the nominal value of Rs.100/- only on the basis of valuation report dated 30.06.2020 (PG 91, PB) wherein the NAV of each share was determined at Rs -1.49 i.e. Nil. The transactions can be better explained with the following chart:
At the time of hearing, Ld. Departmental Representative (DR) of the Revenue brought to our notice brief facts relating to the issue involved as discussed above and also brought to our notice the findings of Ld CIT(A) and relied heavily on the assessment order. He emphasized that HCEL purchased the shares from M/s Peridot Power Venture Limited (PPVL) on 31.07.2018, inspite of the fact that MHEPCL, vide letter dated 14.06.2018, wrote a letter to the Directorate of Energy, Government of Himachal Pradesh showing their unwillingness to complete the project because of major impediment to set up the project (Para ‘8a’ of the assessment order). He argued that it was illogical to buy the shares when the setting of project was doubtful. He further drew our attention to para ‘8h’ of the assessment order which indicated that PPVL has not declared any capital loss/gain during the year.
On the other hand, ld. Authorised Representative (AR) of the Assessee submitted that investing in MHEPCL was a calculated investment decision. However, not all investments lead to profits. There are always high risks involved in acquisitions. Similarly, the decision to acquire MHEPCL was not fruitful. It is a common phenomenon that acquisitions many times do not result in the way acquirer hoped. It is also common practice in share market that shares of loss making company trade at high premium. The most interesting example is that of Paytm. Paytm (One97 Communication Company Ltd.) came out with IPO at Rs.2,150/- per share on 18.11.2021 inspite of the fact that the company was running in heavy losses (Rs.2,325 crores). Most of the renowned financial analysts recommended the purchase of this share and accordingly it was oversubscribed by 1.89 times. This share only saw southward journey and was trading at Rs.852/- per share on 16.05.2025. The highest and lowest price during the last 52 weeks was Rs. 1,063/- and Rs. 331/- respectively. The share price never reached even the initial price of 2,150/-, not to talk about any premium over the issue price. This clearly shows that it is the perception of the investor which make him to invest even in a loss making company.
He further emphasised that inspite of the letter dated 14.06.2018, the acquisition was made on 31.07.2018 because the company was of the firm view that the problems relating to the project can be sorted out. Moreover, MHEPCL had in its possession two valuable assets i.e., the Land and the permission to undergo with the Hydel Project thereon.
Therefore, with the said letter, pending decision of the Government and negotiations still going on the viability of the project with the state Government, the decision to acquire the Investment held by Peridot Power Ventures Limited was taken by the assessee company on 31.07.2018. Moreover, it is worthwhile to consider that the cost of land acquired on 30.07.2013 at Rs.10.55 cr by MHEPCL must have increased manifold by this time (31.07.2018). Not only this, even the upfront fees premium, if project is taken in July 2018 could have been much more than Rs. 18 cr. Otherwise also the interest on Rs. 18 cr from 30.07.2013 to 31.07.2018 could have been much more. However, the Directorate of Energy, Government of Himachal Pradesh, vide letter dated 18.09.2019, had passed the termination order, cancelling the sanction of the government project to the MHEPCL. The Govt. neither refunded the upfront fees of Rs.18 crores plus interest nor reimbursed the cost of land acquired for this specific purpose for which litigation is going on in the High Court. Since the hydel project was stalled and the fact that the assessee company significantly lacked the technological and infrastructural facility to undertake any future projects, it decided to sell off the projects to the next market player in the energy sector in the relevant assessment year 2021-22. The land acquired for the purpose of setting up the project was earmarked for a particular purpose and could
Therefore, he pointed out that the net worth of the company had significantly plummeted over the period of holding. Thus, the company took a well-planned decision to cut-off its losses at the right time. The company found a potential buyer and grabbed the opportunity. The company undertook the valuation of the investment in MHEPCL as on 28.02.2021. The value of the investment was Rs.(9,49,43,411.42/-). Thus, the value per share was Rs.(-)1.49/- (PG 91, PB). Being a negative valuation and the hydel projects being stalled for an unforeseeable future, the company decided to sell the significant portion of the investment for a nominal price of Rs 100/- and claimed a long term capital loss of Rs.68,27,37,775/-.
He finally submitted that the termination of the Project by the Government of Himachal Pradesh and its subsequent after effects have not been denied by the AO. In fact, AO has not disputed the valuation of shares which indicated the valuation at Rs.(-)1.49/- per share. Therefore, once the purchase price has been accepted in the year of acquisition and valuation and sale consideration has been accepted by the AO, then calculation of the capital gain/loss cannot be questioned. Therefore, the
Considered the rival submissions and material placed on record. We have gone through the assessment order, the order of the ld. CIT (A), synopsis as well as relevant papers in the Paper Book filed by the Ld. AR of the company, submissions made by both the parties. The ld. CIT (A) has passed a detailed order considering all the arguments put before him by the ld. AR of the assessee and the findings of the AO in the assessment order. Ld. CIT (A) has reproduced the ownership of shares and he reproduced the relevant Balance Sheet of MHEPCL for AY 2018-19 at page 16 of his order. Subsequently, the shares were transferred from M/s. Hindustan Power Products Ltd. to M/s. Peridot Power Ventures Ltd. between April 2018 to June 2018. Further on 31.03.2018, the shareholding of MHEPCL was transferred from M/s. Peridot Power Ventures Ltd. to assessee. Ld. CIT (A) has observed from the Balance Sheet of MHEPCL for AY 2019-20 and the same was reproduced at page 17 of his order. Ld. CIT (A) has extracted the share purchase agreement dated 31.07.2018 at pages 18 to 25 of his order. From the extracted share purchase agreement, he has observed and adjudicated the issues under consideration in the following paragraphs :-
It is seen from the above that the AO has not disputed the valuation of equity shares at Rs.(-)1.49 per share, though the same has been reproduced on page no.6 of the assessment order. It was emphasized by the ld. AR that the value of each equity share was nil being negative NAV. He further pointed out that the ld. DR has not objected to the sale price of the shares but has raised question on the purchase price. Since the purchase price was at cost, there could not be any objection to the same. Moreover, purchases were made in AY 2019-20, while the assessment was being framed for AY 2021-22. Once the purchase price was accepted by the Revenue in the AY 2019-20, the same cannot be disputed in AY 2021-22. Therefore, we agree with the ld. CIT(A) to his finding in para ‘vii’ on page 26 of the appellate order which is as under:
vii. From the above discussion, it is observed that the process of purchase of shares of MHEPCL by the appellant company from M/s Peridot Power Ventures Limited was completed on 31.07.2018 i.e. during AY 2019-20. Therefore, whether the purchase consideration was adequate or excessive or whether transaction was genuine or sham, could have been examined only in the assessment for the AY 2019-20. In my opinion, the purchase consideration or genuineness of purchase can not be decided in the assessment for AY 2021- 22 particularly when the same has been accepted/not disturbed in AY 2019-20 & 2020-21.
Further, the termination of the Project by the Government of Himachal Pradesh and its subsequent after effects has not been denied by AO. The argument of the ld. DR that M/s Peridot has not declared any capital gain/loss during the year does not have any force because M/s Peridot purchased the shares at cost and sold the same at cost and hence, there is neither any capital gain nor any capital loss. It is also a fact that in share market the shares are priced considering various factors like future potential, importance of the sector, demand and supply situation, international sentiments, domestic sentiments, govt. policies, international tariffs, anti-dumping duty etc. We agree with the submission of the ld. AR that the company may have firm belief that the problems relating to the project can be sorted out for the benefit of the group/company itself. Further, we observe that MHEPCL had in its possession two valuable assets i.e., the Land and the permission to undergo with the Hydel Project thereon. Therefore, the above said letter of MHEPCL, pending decision of the Government and negotiations still going on the viability of the project with the state Government, the decision to acquire the Investment held by PPVL was taken by the company on 31.07.2018.
Further we observe that the value of each shares on the basis of Net Assets Value method is Rs. (-) 1.49 per share with the negative net worth of Rs.9.49 crores. It is the management decision to dispose off the company with whatever they could recover from the outside company, who will handle the loss making company, it is relevant to note that the unrecovered the receivables were also linked to the above transaction and recovered the best price available at that point of time. In view of the Ld. CIT(A), we agree with his conclusions and hence hold that he has rightly came to the decision to delete the disallowance of long term capital loss. Accordingly, ground nos.1, 2 and 4 are hereby dismissed.
The other issue is regarding deletion of addition of Rs.1,43,55,000/- u/s 68 of the Income Tax Act, 1961 (for short ‘the Act’) as per ground no.3.
The brief facts on this are that on 30.06.2020 assignment agreement was signed with DCPL to assign the unsecured loan of Rs.8,84,64,346/- to be received from MHEPCL by the company (PG 200, PB). The assignment was against a payment of Rs.1,43,55,000/-. The AO has treated this amount as income from undisclosed sources u/s 68 of the Act.
The ld. DR relied on the finding of the AO and invited our attention to para 8.2 of the assessment order wherein the AO given his finding for addition u/s 68 as under :-
It is hard to believe that M/s Devarsi Constructions Private Limited has undergone the said transaction just to self-inflict/manufacture a loss of amount of Rs. 1,43,55,000/- within the period of 4 days followed by sale of such shares. It is safe to say, the amount of Rs. 1,43,55,000/- is assessees’ unexplained income which has been routed into the books of assessee company through this sham transaction. From the above discussion it is clear that neither M/s Devarsi Constructions P Ltd has creditworthiness nor the transaction is genuine. Thus, as the complete transaction between the assessee and M/s Devarsi Constructions Private Limited is sham, therefore, this amount of Rs. 1,43,55,000/- is unexplained credit in the books of the assessee and is added back to the income of the assessee u/s 68 of the Act
On the other hand, ld. AR submitted that sale of shares and assignment of unsecured loans are two separate transactions which the AO has mixed up. The shares were sold to DCPL vide agreement dated 30.06.2020 (PG 80 PB). Vide the assignment agreement, though signed on the same day but separately (PG 200 PB), the loan was assigned to DCPL. Both the transactions were totally independent. It is a common practice that bad loans are sold in the market at heavy discounts. All the banks and financial institutions are doing it very frequently.
The ld. AR, further, emphasized that the observation of the AO that it is hard to believe that DCPL has under taken the said transaction just to self-inflict/manufacture a loss of amount of Rs.1,43,55,000/- within the period of 4 days followed by sale of such shares is also not correct. Even when the shares of MHEPCL were sold by DCPL to M/s Amrav Power & Mining Private Limited, the right of DCPL to recover unsecured loan of Rs.8,84,64,346/-from M/s MHEPCL has not got extinguished. Moreover, transfer of shares by the assessee company to DCPL and then by DCPL to M/s Amrav Power & Mining Private Limited is independent from assignment of recovery of unsecured loans of Rs.8,84,64,346/- from M/s MHEPCL by the company to DCPL. Moreover, the DCPL is not a related concern as far as the transaction between DCPL and Amrav is concerned because both of them are outsiders and not the group companies. It must be the business prudence of Amrav to buy such shares.
.3876/DEL/2023 18. Further, we considered the assessment order, the appellate order of the Further, we considered the assessment order, the appellate order of the Further, we considered the assessment order, the appellate order of the CIT(A), submissions of both parties. CIT(A), submissions of both parties. The ld. CIT (A A) has passed a detailed order consider detailed order considering all the arguments before him made by the Ld. ing all the arguments before him made by the Ld. AR of the company and the findings of the Ld. AO in the assessment AR of the company and the findings of the Ld. AO in the assessment AR of the company and the findings of the Ld. AO in the assessment order. The relevant extract from the appellate order is as under :- order. The relevant extract from the appellate order is as under order. The relevant extract from the appellate order is as under
We observe that it has been admitted by the Ld. AO himself that M/s it has been admitted by the Ld. AO himself that M/s it has been admitted by the Ld. AO himself that M/s Devarsi Construction Private Lim Devarsi Construction Private Limited has made the payment of ited has made the payment of Rs.1,43,55,000/- to the company through proper banking channel. The to the company through proper banking channel. The to the company through proper banking channel. The AO, in para 8.2 of the assessment order, has mentioned that AO, in para 8.2 of the assessment order, has mentioned that AO, in para 8.2 of the assessment order, has mentioned that Rs.1,30,00,000/- was received in the bank on 26.03.2021 and the balance was received in the bank on 26.03.2021 and the balance was received in the bank on 26.03.2021 and the balance on 30.03.2021. This is similar transactions like the banks have been on 30.03.2021. This is similar transactions like the banks have been on 30.03.2021. This is similar transactions like the banks have been selling their NPAs to the entities whose business is to buy bad loans and selling their NPAs to the entities whose business is to buy bad loans and selling their NPAs to the entities whose business is to buy bad loans and recover the same partly or fully. Therefore, there is n recover the same partly or fully. Therefore, there is nothing unusual in the othing unusual in the company selling unrecoverable bad loan at discoun company selling unrecoverable bad loan at discount. The l t. The ld. CIT(A) has given detailed reasons for deleting the addition of Rs.1,43,55,000/-. given detailed reasons for deleting the addition of Rs.1,43,55,000/ given detailed reasons for deleting the addition of Rs.1,43,55,000/ 20. In view of the above facts and detailed findings of ld. CIT(A), we do not see any reason to disturb the same and hold that he has rightly deleted the addition of Rs.1,43,55,000/- u/s 68 of the Act. Accordingly, ground no.3 is hereby dismissed. In the result, the appeal of the Department is hereby dismissed. 21.
Order pronounced in the open court on this 15th day of October, 2025.