DCIT, CIRCLE- 10(1), NEW DELHI vs. GLOXINIA INFRASTRUCTURE PVT. LTD., NEW DELHI

The appeal has been preferred by the Revenue against the order dated 27.02.2018 passed by the Commissioner of Income Tax (Appeals)-42, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal No. 136/17-18/ CIT (A)-42 arising out of an appeal before it against the order dated 27.02.2015 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the CIT, Circle-10(1), New Delhi (hereinafter referred as the Ld. AO).

“3.1 On being asked to explain the short term capital loss, the assessee vide its letter dated 16.10.2014 made following submission :- During the F.Y. 2010-11, Indiabulls Power Ltd. proposed to allot 6,00,00,000/- share warrant to the assessee, which upon conversion, would have entitled the assessee to acquire an equal No. of equity shares of the company of face value of Rs.10/- each at the conversion price of Rs.29/- per share. As a term of the offer, the assessee was required to pay Rs.7.25/- per warrant (25% of conversion price of Rs.29/-) amounting to Rs.43.50 crores as upfront at the time of allotment of share warrant and the balance was payable at the time of exercise of option i.e. within eighteen months from the date of allotment. Considering the market price of share at the time of grant of option and estimating the future profit, the assessee accepted the proposal and paid the upfront money to the company on November 30, 2010. Copy of the bank statement, reflecting the payment of warrant money paid and the copy of share warrant certificate is attached herewith as per annexure. However, in the year under consideration, considering the market conditions and to safeguard its future interest, the assessee opted not to make further payment and accordingly conveyed its unwillingness to Indiabulls Power Ltd. vide letter

ITA 3309.Del.2018 3 dated 18.11.2011. Consequently, the amount paid by the assessee was forfeited by IPL and same has been claimed under the head "Capital gain" as short term capital loss”

3.1 Ld. CIT(A) however, deleted the addition primarily for consideration that on 17.10.2012 reconstructing scheme of Rattan India Power Ltd (RIPL), which was earlier known as M/s. Indiabulls Power Ltd. (now.) was ordered by Hon’ble High Court and as per the terms of the scheme warrants issued by RIPL would be converted into partly paid shares of the company and the holder was liable to pay 1% of the balance amounts within 2 days from the effective date of scheme dated 27.11.2011. Ld. CIT(A) appreciated that if the assessee had to continue its right in the warrants it was required to pay additional amount of the Rs. 1.3 crore immediately. Ld. CIT(A) accepted the plea of the assessee that the market share price was Rs. 8.57 for fully paid of shares, therefore the appellant company was not in position to ITA 3309.Del.2018 4 sell the partly paid shares even after paying 1.30 crores. Thus, he did not sustain the findings of AO that the assessee could have earned Rs. 12,85,50,000/- by first converting shares into partly paid shares after paying sum of Rs. 1.30 crores and thereafter selling the same at the rate of Rs. 8.57 per share.

“1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in ignoring the fact that Assessee itself has given its consent to the scheme of merger and amalgamation of five companies and later on took the excuse of scheme for surrending Rs.43.50 crores to M/s India bulls Power Ltd.?.

2. Whether on the facts and circumstances of the case & in law, the Ld. C1T(A) has erred in allowing the assessee to use colorable device to transfer the money amongst its associate/group concern by way of surrender of the partly paid up warrants and claiming the corresponding loss? 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.43,50,00,000/- ignoring the finding of the assessing officer that the share transaction with Indiabulls Power Limited (Now Rattan India Pvt Ltd) was a sham transaction and a colorable device to pass on the amount to Indiabulls Power Limited? 4. The appellant craves leave, to add, alter or amend any ground of appeal

raised above at the time of the hearing.”

5. Heard and perused the record.

6. Ld. DR submitted that AO had given a thorough examination of the sequence of events and how artificial capital loss was created in the hands of assessee with unjust enrichment of IPL. It was submitted that Ld. CIT(A) failed to appreciate the factual findings. Ld. DR submitted that there is a ITA 3309.Del.2018 5 difference between forfeiture of shares and surrender. It was submitted that surrender of warrants cannot be considered to give rise to capital loss.

6.1 On the other hand , Ld. AR brought to the notice of the Bench the fact that Ld. AO had observed in para 7.1 of the assessment order that apart from the present company three other companies M/s. Azalea Infrastructure Pvt. Ltd., Jarul Infrastructure Pvt. Ltd. & Alona Infrastructure Pvt. Ltd. had invested in the same manner and suffered the losses. Relying order dated 08.01.2021 in case of M/s. Alona Infrastructure Pvt. Ltd., and the order dated 23.06.2022 in the case of M/s Jarul Infrastructure Pvt. Ltd. ITA No. 3514/Del/2019 he submitted that the issue has been examined and the appeals of Revenue stood dismissed.

6.2 He pointed out that in the case of M/s. Jarul Infrastructure Pvt. Ltd. the Bench has also taken into consideration the order dated 28.01.2021 in the case of Azalea Infrastructure Pvt. Ltd.

ITA 3309.Del.2018 6 “9. So far as the issue for taxation in the hands of the assessee is squarely covered in favour of the assessee by the decision of honourable Delhi High Court in 329 ITR 356 in case of CIT versus Chand Ratan Bagri, wherein the addition was made in the hands of the assessee on protective basis and the addition was made on substantive basis in the hands of the company who forfeited the shares. In paragraph number 2 there was also an allegation of tax evasion tactic prohibited by law employed by the assessee. It is also the allegation in the impugned case. In paragraph number 12 - 14 clearly clinches the issue in favour of the assessee. The honourable High Court held that the issue as to whether the forfeiture of the convertible warrant amount to a transfer within the meaning of Section 2 (47) of the said act has now been made clear by the Supreme Court in the case of Grace Collis (supra) as also by the Karnataka High Court in BPLSanyo finance Ltd (supra) and the honourable High Court also followed the same. In paragraph number 14 the honourable High Court held that forfeiture of the convertible warrant has resulted in extinguishment of the right of the assessee to obtain a share in the issuer company.

10. In view of this, the ground number 1 of the appeal raised by the learned assessing officer, and so appeal, is dismissed.”

ITA 3309.Del.2018 7 Assessing Officer has wondered why instead of getting the share warrants forfeited assessee did not sell these shares. It was informed that as per the agreement there was no clause of selling the shares. As subsequent movement in prices have duly corroborated that the share prices fell and the assessee’s decision not to pay the balance amount was not at all unjustified. The prime emphasis of the assessing officer at the end is that the exercise was meant to bring capital receipt in the hands of Indiabulls Power Pvt. Ltd. and thwart examination from the perspective of section 68. This line of reasoning is wholly unsustainable. Firstly assessing officer is not at all seized with the assessment of Indiabulls Power Pvt. Ltd. as to how the capital receipt in his hand is to be examined from the perspective of section 68. Morevoer, even if assessee had contributed the balance amount that would still be a capital contribution. Moreover, even for exempt capital receipt, there is no law that such credits are outside purview of section 68. Hence, Assessing Officer’s surmise also is without any basis whatsoever. Moreover, the amendment in section 68 providing for examination of source of source for share application money, share capital, and share premium, or any such amount was brought in by Finance Act, 2012 w.e.f. 01.04.2013 is not applicable in this case.”

ITA 3309.Del.2018 8

Order pronounced in the open court on 20th July, 2023.