//FIT FOR PUBLICATION//

Sd/-LP Sd/-BS
A.M. J.M.

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCHES “F” : DELHI

BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER

AND
SHRI L.P. SAHU, ACCOUNTANT MEMBER

ITA.No.2691/Del./2018
Assessment Year 2012-2013

M/s. M3M India Holdings

(Formerly M/s. Krishna The DCIT,
Flexi Solution), C-13, vs. Central Circle-II,
Sushant Lok-I, Gurgaon.
Haryana – 122 002. Faridabad.
PAN AATFM5860D
(Appellant) (Respondent)

Shri Ajay Vohra, Sr.Advocate.

Shri Rohit Jain, And
For Assessee :
Shri Bharath Janartharan
Advocates.
For Revenue : Smt. Paramita Tripathi, CIT-D.R.

Date of Hearing : 07.02.2019

Date of Pronouncement : 15.03.2019

ORDER

PER BHAVNESH SAINI, J.M.

This appeal by assessee has been directed against

the order of Learned CIT(A)-3, Gurgaon, Dated 10th March,

2018, for the assessment year 2012-2013, on the following

grounds :
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Holdings, Gurgaon.

1.0. “That on the facts and circumstances of the case

and in law, the CIT(A) erred in upholding the

validity of the assessment order dated 31.01.2014

framed under section 153B(l)(b) of the Income-tax

Act, 1961 (‘the Act’), without appreciating that the

same is without jurisdiction, illegal and bad in

law.

1.1. That the CIT(A) erred on facts and in law in not

appreciating that since no search was conducted

in the case of the appellant, the assessment

completed under section 153B(l)(b) of the Act, is

without jurisdiction, illegal and bad in law.

1.2. That the CIT(A) erred on facts and in law in not

appreciating that the assessment having been

completed without issuance and service of valid

notice under section 143(2) of the Act, is illegal and

bad in law.

1.3. That the CIT(A) erred on facts and in law in not

appreciating that since proper sanction, as

required under section 153D of the Act, was not

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received, the assessment order is illegal and bad

in law.

Without prejudice

2.0. That the CIT(A) erred on facts and in law in

confirming the action of the assessing officer in

making an addition of Rs.6,00,00,000 while

computing taxable capital gains on transfer of

shares in M/s. RS Infrastructure Pvt. Ltd., (in short

“RS Infra”).

3.0. That the CIT(A) erred on facts and circumstances

of the case and in law in confirming the action of

the assessing officer in disallowing short-term

capital loss of Rs.155,75,00.000 arising on sale of

debentures of M/s. Arch Propbuild Pvt. Ltd.,, on

mere surmises and conjectures.

3.1. That the CIT(A) erred on facts and in law in

holding that the appellant failed to discharge its

onus of establishing the genuineness of

transaction of purchase and sale of debentures,

resulting in short-term capital loss.

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4.0. That the CIT(A) erred on facts and in law in

confirming the action of the assessing officer in

levying interest under section 234B of the Act.”

2. We have heard the Learned Representatives of

both the parties and perused the material available on

record.

3. The facts of the case are that search under

section 132(1)(A) of the Income Tax Act, 1961, in the case of

the assessee, the residential as well as office premises of

M/s. M3M India Limited, 1221-A, Devika Tower, 12th Floor,

6, Nehru Place, New Delhi, was conducted on 30th June,

2011. The assessee firm has earned income from long term

capital gain. In accordance with the provisions of Section

153A Income Tax Act, 1961, a notice was issued and served

upon the assessee, requiring the assessee to file return of

income for the assessment year under appeal i.e., 2012-

2013. In response to the said notice, assessee filed its

return of income, declaring income of Rs.353,03,79,100/-

on 21st March, 2013. Notices under section 143(2) and

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142(1) along with a questionnaire were issued to the

assessee on 22nd May, 2013, again notices under section

143(2) and 142(1) along with supplementary questionnaire

were issued to the assessee on 21st October, 2013. The

assessee attended the assessment proceedings. On

examination of the seized documents, it was found that

M/s. M3M India Holdings, the assessee, had entered into an

agreement with M/s. Lowe Realty Pvt. Ltd., to sell 8,00,000

shares of M/s. R.S. Infrastructure Pvt. Ltd.,, a concern of

M3M Group, for a total consideration of Rs.526 crores. The

assessee is a partnership firm, having Shri Basant Bansal,

Shri Roop Bansal, Smt. Abha Bansal, Shri Pankaj Bansal

and M/s. RSSG Builders Pvt. Ltd., as partners. The said

firm was having 7,99,000 shares of another Group

Company M/s. R.S. Infrastructure Pvt. Ltd., was having

about 18 acres of land in Golf Course Extension Road,

Gurgaon with Commercial CLU.

3.1. During the course of search and seizure action at

Corporate Office of M/s. M3M India Limited at Gurgaon on

30th June, 2011, papers regarding some high value RTGS

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transactions were found and seized. The papers seized from

pages 75, 76, 83, 85, 86 and 87 of Annexure-A12. Page-75

show remittance of Rs.58.5 crores from assessee firm to

Smt. Abha Bansal. Page-76 shows the remittance of Rs.58.5

crores from the assessee firm to Shri Pankaj Bansal. Page-

83 shows cheque of Rs.239 crore for RTGS withdrawal.

Page-85 shows remittance of Rs.61 crores from assessee to

Shri Basant Bansal. Page-86 shows remittance of Rs.61

crore from assessee to Shri Roop Kumar Bansal. Page-87

shows handwritten rough working relating to the above

transactions. The scanned image of page-87 is reproduced

in the assessment order. On the basis of the transactions

recorded on pages-75, 76, 85 and 86 above, these rough

notings on page-87 can be thus interpreted by the assessing

officer that the above amounts paid to the partners of the

assessee firm. Rs.239 crores cheque was for RTGS

withdrawal, which is the sum total of the remittances to the

Bansal family members as mentioned above.

Rs.4,99,93,550/- and 5CR, out of consideration of Rs.244

crores received by assessee firm, Rs.239 crore was

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distributed amongst Bansal family members. The difference

of Rs.5 crore remained with the assessee. Shri Roop Kumar

Bansal, partner of the assessee firm was confronted with

these transactions, whose statement was recorded under

section 132(4) of the Income Tax Act, 1961 and the relevant

para of his statement is reproduced in the assessment

order, asking the explanation on these seized papers, to

which, he has replied that the same will be explained later

on. The rough notings on page-87 of Annexure-A12 were

further corroborated by transactions recorded on page-112

of Annexure-A13, which shows distribution of Rs.240 crores

among Bansal family members. Scanned images are

reproduced in the assessment order. The Assessing officer

noted that against the amount of Rs.240 crores, “advance

against shares” is mentioned. Below this phrase, there is an

arrow which indicates towards “R.S. Infra” which obviously

is M/s. R.S. Infrastructure Pvt. Ltd.,. The assessing officer

noted that Rs.60 crore each to 4 persons is mentioned and

below the table “Tax on Closure of Transaction” is

mentioned. The exact decoding of this sentence is discussed

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by the assessing officer in the assessment order. The

assessing officer noted that while vacating the restraint

place under section 132(3) of the Income Tax Act at C13,

Sushant Lok, Phase-1, Gurgaon on 25th July, 2011, copies

of trial balance of assessee as on 25th June, 2011 and 31st

March, 2011 were found and seized as pages 3 and 4 of

Annexure-AA1. The scanned images of the trial balance as

above, are reproduced in the assessment order. The

assessing officer further noted that the trial balance shows

investment of Rs.8.32 crores in the shares of M/s. R.S.

Infrastructure Pvt. Ltd.,. These two papers have been signed

by Shri Suresh Chawla, V.P. Taxation of M/s. M3M Group.

There is a handwritten entry in the trial balance dated 25th

June, 2011 which says “out of 8 lakh shares transferred

4,88,000”. The ‘Advance Received’ column shows a figure of

Rs.243.99 crores where a handwritten entry mentions the

word “Lowe”. There is a further handwritten entry below the

table, which says, “After advance received from Lowe

Reality”. Further, during the course of search on 25th July,

2011, a copy of Bank Statement of assessee i.e., M/s. M3M

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India Holdings with Kotak Mahindra Bank was found, which

was seized as page-11 of Annexure-AA1. It shows deposit of

Rs.243.99 crores, against which, “advance for shares

transferred” is mentioned. The scanned image of this bank

statement is reproduced in the assessment order.

3.2. On perusal of the financial statements of M/s.

R.S. Infrastructure Pvt. Ltd.,, it was seen that the company

was involved in business of land trading. A comparison of

its financial particulars is reproduced in the assessment

order. It was further seen that as on 31st March, 2010, there

were 8 lakh issued shares, out of which, M/s. Krishna Flexi

Solutions (now the assessee) had 7,99,999 shares, while

Shri Roop Kumar Bansal had the ownership of one share.

On the basis of these discussion, the assessing officer noted

that it is apparent that assessee company on 25th June,

2011 had transferred 4,88,000 shares, out of total 8 lakh

shares of M/s. R.S. Infrastructure Pvt. Ltd., to ‘Lowe

Reality’, against which, it had amongst the Bansal family

members as mentioned in the assessment order. This

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amount of Rs. 243.99 crores had been shown as advance

from M/s. Lowe Reality Pvt. Ltd., in the trial balance.

3.3. During the course of statement of Shri Roop

Kumar Bansal recorded under section 132(4) on 25th July

2011 at Sushant Lok, Gurgaon, he was shown page-112 of

Annexure-A13 seized from Corporate Office of M/s.M3M

India Limited at Tower-B, 6th Floor, Paras Twin Tower,

Golfcourse Road, Sector 54, Gurgaon, which shows rough

working relating to the transactions referred to in para 3.2

of the Order. He replied that papers showed a transaction of

Rs.240 crores (approx.) received as advance against shares

of M/s. R.S. Infrastructure Pvt. Ltd.,. The advance was

received by Assessee Firm from M/s. Lowe Realty Pvt. Ltd.

This amount was distributed amongst its partners, Sri

Basant Bansal, Shri Roop Kumar Bansal, Smt. Abha Bansal

and Shri Pankaj Bansal. Shri Roop Kumar Bansal was

further examined to give the details of the transactions. It

was explained by him that these transactions took place in

June, 2011 when M/s. Lowe Reality Pvt. Ltd., and the

assessee Firm had entered into an agreement dated 22nd

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June 2011 for sale and purchase of 8 lakh shares of M/s.

R.S. Infrastructure Pvt. Ltd., for total cancellation of Rs.526

crores. It was stated by him that assessee-firm, out of

7,99,999 shares, had transferred 4,88,000 shares on 24th

June 2011 through D-Mat Account to M/s. Lowe Reality

Pvt. Ltd., against part consideration of Rs.243.99 crores

received on 24th June 2011. Shri Bansal produced copy of

the share purchase agreement, according to which, the

balance shares are to be transferred to M/s. Lowe Realty

Pvt. Ltd., within 90 days of the Agreement date or any other

subsequent date, which can be extended by M/s. Lowe

Reality Pvt. Ltd.,, at its discretion and the balance

consideration will be paid by M/s. Lowe Realty Pvt. Ltd., at

that subsequent date. The relevant portion of his statement

is reproduced in the assessment order.

3.4. The copy of the share purchase agreement

amongst Assessee (Promoters), M/s. R.S. Infrastructure Pvt.

Ltd., (Company) and M/s. Lowe Realty Pvt. Ltd., (Party)

furnished by the assessee, forms pages 12-32 of Annexure-

AA1 seized from the O/o. M3M Group at Sushant Lok,

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Gurgaon on 25th July, 2011. As on the date of agreement

i.e., 22nd June, 2011, assessee was owner of 7,99,999

shares of the company M/s. R.S. Infrastructure Pvt. Ltd. As

per this agreement, M/s. Lowe Realty Pvt. Ltd.,, agreed to

purchase from assessee and assessee agreed to sell and

transfer to M/s. Lowe Realty Pvt. Ltd., 100% of its equity

shares held in M/s. R.S. Infrastructure Pvt. Ltd., on the

terms and conditions as per the agreement. In consideration

of the sale and transfer of 7,99,999 shares to M/s. Lowe

Realty Pvt. Ltd., would pay to the Promoter i.e., assessee, an

amount of Rs.6575/- per equity share, as purchase price

aggregating to Rs.526 crores. Further, as per the agreement,

the purchase consideration was to be paid by M/s. Lowe

Realty Pvt. Ltd., to the assessee in two installments. It was

stipulated that M/s. Lowe Realty Pvt. Ltd., would pay to the

assessee, an amount of Rs.244 crore as part of the purchase

consideration on the agreement date. Accordingly, Rs.244

crores was paid by M/s. Lowe Realty Pvt. Ltd., on 22nd

June, 2011. Further, it was stipulated that vide clause 2.3.2

that on the closing date, M/s. Lowe Realty Pvt. Ltd., would
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pay to the assessee, an amount of Rs.282 crores with the

transfer of remaining 3,11,999 shares. The closing date was

defined in the Agreement as a period of 90 days from the

agreement date or any other date, as may be extended by

M/s. Lowe Realty Pvt. Ltd., at its sole discretion. The

assessee transferred 4,88,000 shares to M/s. Lowe Realty

Pvt. Ltd., through D-Mat account on 24th June, 2011.

3.5. The assessing officer reproduced the relevant

clause of the share purchase agreement in the assessment

order and noted that the amount of Rs.244 crores received

by the assessee-firm from M/s. Lowe Realty Pvt. Ltd., on

account of transfer of shares of M/s. R.S. Infrastructure

Pvt. Ltd., has been treated as advance against shares. This

fact was further evident from the balance sheet as on 31st

March, 2011 and 25th June, 2011 as number of shares on

investment account in M/s. R.S. Infrastructure Pvt. Ltd.,

has been shown to be same at Rs.8,32,57,520/-. Shri Roop

Kumar Bansal was also asked to explain the nature of

treatment given in the books of account to the above

transactions. He has explained that transaction has been

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treated as “Advance against Shares”. The assessing officer,

then, confronted to Shri Roop Kumar Bansal why the so-

called advanced of the shares, may not be considered as

transfer of shares under section 2(47) of the Income Tax Act,

1961 since 4,88,000 shares had already been transferred to

M/s. Lowe Realty Pvt. Ltd., against which, part

consideration of Rs.244 crores had been received by the

assessee-firm. Shri Roop Kumar Bansal replied that as the

assessee had received only part consideration, therefore,

transaction has been shown as Advance because, the

transaction will be closed on transfer of all the shares and

on receipt of full consideration on the closure date.

However, on being confronted with provisions of Section

2(47) of the Income Tax Act, 1961, he admitted that the

amount of Rs.244 crores is in the nature of income on

account of receipts against 4,88,000 shares. The relevant

portion of his statement is reproduced in the assessment

order. The assessing officer, therefore, noted that in this

case the total sale consideration for 4,88,000 shares works

to Rs.320.86 crores, out of which, Rs.244 crores has been

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received. Therefore, as per the provisions of the Act, amount

of Rs.320.86 crores is in the nature of full sale

consideration for taxability on transfer of shares. Shri Roop

Kumar Bansal was confronted on this issue, who after

consulting his Financial Experts, (V.P. Finance and Head

Taxation) and other Partners, admitted that capital gain on

the above transaction is to be computed by taking 320.86

crores as full sale value. His statement is noted in the

assessment order. The Assessing Officer also noted that as

per share purchase agreement, the closing date is defined

i.e., within a period of 90 days from the Agreement date or

any other date, as may be extended by M/s. Lowe Realty

Pvt. Ltd.,, at its sole discretion. The transfer of 3,11,999

number of remaining shares shall take place simultaneously

on receiving of cheques for remaining consideration. The

Assessing Officer, therefore, noted that transfer of 4,88,000

shares constitutes a complete transfer for sale, on which,

capital gain arise. Shri Roop Kumar Bansal agreed for

payment of tax on capital gains and voluntarily made

disclosure under section 132(4) of the Income-Tax Act of

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Rs.314 crores for financial year 2011-2012 on behalf of the

assessee-firm, after consulting the other partners of the

firm. The computation of undisclosed income of Rs.314

crores is mentioned at page 19 of the assessment order. The

assessee has submitted letter dated 26th July 2011

confirming the disclosure of income of Rs.314 crores duly

signed by Shri Basant Bansal and Shri Roop Kumar Bansal.

3.6. The assessing officer issued further notice to the

assessee on the issue of transfer of balance shares of M/s.

R.S. Infrastructure Pvt. Ltd., and it was brought to the

notice of assessee that as per the Agreement, 8 lakhs shares

of M/s. R.S. Infrastructure Pvt. Ltd., were to be transferred

to M/s. Lowe Infra and Wellness Pvt. Ltd., [earlier known as

M/s. Lowe Realty Pvt. Ltd.,] for Rs.526 crores, out of which,

4,88,000 shares were transferred. Therefore, assessee

should explain whether the remaining shares have been

transferred and remaining consideration has been received

by assessee ? The assessee filed reply before the assessing

officer which is reproduced in the assessment order, in

which, the assessee briefly explained that as per the

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Agreement, the total shares were to be transferred for an

aggregate consideration of Rs.526 crores, but, later on,

considering the market conditions, the assessee through its

partners and M/s. Lowe Reality Pvt. Ltd.,, mutually agreed

to amend the share price from Rs.6575 per share to

Rs.6500/-. The amendment to the Agreement was

accordingly made in writing and the sale consideration was

changed to Rs.520 crores as against the initial

consideration of Rs.526 crores. The second installment of

the amount have been received. The relevant documents

filed before assessing officer. The assessing officer, however,

did not accept the contention of the assessee and noted that

initially the sale price of the valuation of the share under

transfer was Rs.526 crores, which is subsequently revised

to Rs.520 crores. However, assessee cannot change the

terms of the Agreement. Therefore, assessee has

understated the sale consideration by Rs.6 crores.

Therefore, assessing officer, made the addition of Rs.6

crores on account of sale of shares to M/s. Lowe Reality Pvt.

Ltd.
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3.7. The assessing officer, thereafter, discussed the

issue of short term capital loss. The Assessing Officer noted

that assessee has shown short term capital loss amounting

to Rs.155.75 crores [ i.e., cost of acquisition at Rs.175.25

crores (-) Sale Consideration received of Rs.19.50 crores ].

Thus, the short term capital loss was declared to Rs.155.75

crores. The Assessing Officer asked for the details on the

same. However, no details were provided by the assessee.

The assessing officer, therefore, issued show cause notice to

the assessee as to why the short term capital loss, be not

treated as non-genuine, in the absence of supporting details

/evidences. The assessee filed reply before assessing officer,

in which, the assessee briefly submitted that in assessment

year under appeal in the month of September/October,

2011, 05 companies [referred to as Seller] approached the

assessee-firm with a business proposition, whereby they

were agreeable to sell Compulsory Convertible Debentures

[CCDs ] of a Private Limited Company to the Assessee-Firm

and the offer was to sell CCDs at the price at which they

were bought these debentures during financial year

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2009-2010 without charging any premium. It was a good

business proposition for the assessee firm and these CCDs

were bought from the sellers and entire consideration was

discharged. However, due to one of the qualification in

Debenture Subscription Agreement, the assessee firm could

not get CCDs transferred in its favour, further after based

on legal opinion, these CCDs were sold by the firm at loss.

As the assessee firm held the CCDs for a period of less than

one year, the said capital asset was in the nature of short

term capital asset and thus, loss arising from sale of these

CCDs was in the nature of short term capital loss. The

assessing officer, however, noted that reply of the assessee

is evasive and general without any documentary evidence/

supporting documents. The assessee was, therefore,

directed to furnish following documents to justify the short

term capital loss. (1) Name and Address of the five

companies who have agreed to sell CCD of a private

company (2) Copies of the agreements entered into with

these 05 companies referred to as sellers (3) Proof of

payment made by the assessee firm, source of the payment

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and copy of the accounts thereon (4) Produce copies and

original of CCD issued by the Companies (5) Under what

circumstances and reason that these CCDs could not be

transferred in the name of assessee firm (6) Produce copies

of the legal opinion received that the CCDs cannot be

transferred as claimed by the assessee.

3.8. The assessee filed reply before assessing officer

which is reproduced in the assessment order in which the

assessee has provided names and address of the companies

who had agreed to sell CCDs of a Private Company to the

assessee namely (1) Social Realtors Private Limited (2)

Shaan Realcon Pvt. Ltd., (3) Marconi Infratech Pvt. Ltd., (4)

Royal Multiplex Pvt. Ltd., and (5) Aashrya Developers Pvt.

Ltd., in a sum of Rs.175.25 crores. It was explained that the

assessee firm paid sale consideration through RTGS, which

is supported by the Bank statement, copy of which is filed.

The assessee also filed copy of the CCDs purchased for

perusal of the assessing officer. It was explained that when

the seller have handed over original CCD Certificate to the

assessee firm, assessee became owner of the CCDs on the

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even date. To complete the procedural requirement, the

assessee firm approached M/s. Arch Propbuild Pvt. Ltd.,

[“Arch”] for registration of CCDs in Debenture Register of

M/s. Arch. However, M/s. Arch vide letter dated 16th

December, 2011 refused the request of the assessee firm

and stated that CCDs cannot be a transfer in the name of

the firm due to non-compliance of DSA. The letter of M/s.

Arch was also filed before assessing officer along with

complete details. The assessing officer asked the assessee to

produce books of account. The assessing officer noted that

the books of account and other details were not produced

before him. The assessee filed further reply before assessing

officer, in which, similar facts were explained. The assessee

further explained that when M/s. Arch refused to register

CCDs in the name of assessee firm due to non compliance

of DSA, the assessee firm took-up the matter with the

Seller. However, no assistance was accorded by them on

this issue. As per condition of DSA, any dispute between the

parties of the said Agreement, should be decided by the

Arbitrator as per Arbitration and Conciliation Act, 1996. The

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assessee firm invoked the Dispute Resolution Clause of DSA

and asked M/s. Arch to appoint Arbitrator to resolve the

matter. The arbitration proceedings were accordingly

initiated. However, the Arbitrator gave its Award against the

assessee firm and held that assessee firm was aware of

conditions of the DSA and thus, the assessee firm is

responsible and liable for the losses, which it had suffered

in the transactions. The Arbitrator also denied any claim

made by the assessee firm in this regard. The Arbitration

Award was pronounced in the Month of March, 2012. The

assessee firm was advised by its Legal Counsel that their

claim in this regard is not a strong proposition and chances

of winning this case in the Court is very remote. Therefore,

as per advice of the Legal Advisor, the assessee firm decided

to sell the shares and suffered loss. The assessee entered

into an agreement to sell with M/s. Zealous Financial

Services Private Limited (“M/s. Zealous”) on 30th March,

2012 and agreed to transfer the CCDs for a consideration of

Rs.19.50 crores. M/s. Zealous paid advance of Rs.1.50 crore

and Rs.2.90 crore and balance consideration was paid as

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agreed. The assessee firm agreed to file an appeal in the

Court against the Seller and M/s. Arch, whereby, M/s.

Zealous would be made as interested party in such appeal.

M/s. Zealous agreed to meet all legal cost and charges in

this respect. It was further decided that in case this appeal

is decided in favour of M/s. Zealous then, M/s. Zealous will

share 15% of compensation so received with the assessee

firm. It was, therefore, explained that assessee firm in this

way has suffered losses at Rs.155.75 crores. The assessee

further explained that the partners of the assessee firm are

Promoters of M/s. M3M India Limited which is an operating

entity of M3M Group and has considerable value. It was

further submitted that M/s. Arch has invested in CCDs of

M/s. Popular Infracon Pvt. Ltd., [Now M/s. M3M Holding

Pvt. Ltd.,] which is the holding Company of M/s. M3M India

Limited. Thus, due to this chain of holding, conversion of

the aforesaid CCDs will result in achieving considerable

stake in the Promoter. Hence, in case, some third party

acquires the CCDs and later on due to conversion of these

CCD’s acquires stake of the Companies as explained above,

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it will lead to dilution of stake of the Promoters in M/s. M3M

India Limited. This in future might create nuisance value to

the Promoters and may create inflexibility in the Group,

delay in decision making or deadlock situation. Thus, to

reduce this risk, the above Partners of the Firm were

interested in acquiring the CCD’s in consideration.

3.9. The assessing officer noted that the explanation

given by the assessee for purchase of Debentures of M/s.

Prithvi Realcon Pvt. Ltd., [now M/s. Arch Propbuild Pvt.

Ltd.] is that in Financial Years 2009-2010 and 2010-2011

M/s. Popular Infracon Pvt. Ltd., [Now known as M/s. M3M

India Holdings Pvt. Ltd., (-) Assessee] which is a Holding

Company of M/s. M3M India Limited, of which, the partners

of the assessee firm are promoters, received advances

against subscription of debentures of the company M/s.

Arch for the above consideration. M/s. Arch received the

consideration from the above 05 parties (Seller). The

assessing officer on perusal of the balance sheet and ITR of

M/s. Arch noticed that Company is not doing any business

and does not have any income and the only asset is the
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Holdings, Gurgaon.

advance of Rs.175 crores received as advance for

subscription of debentures as given in the chart reproduced

at pages 30 and 31 of the assessment order. The assessing

officer on the basis of the reply filed, has conducted

enquiries in order to verify the genuineness of the

transaction entered into by the assessee firm and the above

05 companies for sale of CCDs. The assessing officer noted

that the facts and circumstances clearly establish that

transaction between the assessee firm and the seller is not

genuine transaction entered into between independent

parties, but, is a sham/coloured transaction entered into

between the parties. Assessing Officer noted that there are

common Directors in M/s. M3M India Pvt. Ltd., assessee-

firm and the Seller. The copies of the balance sheet of the

assessee firm and sellers are reproduced in the assessment

order in support of these findings. The assessing officer also

noted on examination of the Bank statements of the seller

company that their bank account are linked through Finacle

CUMM to accounts@m3m india.com which is the E-mail

account of M3M India. The assessing officer, therefore,

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ITA.No.2691/Del./2018 M3M India
Holdings, Gurgaon.

noted that bank account of the seller companies are

operated by M3M Group. It was also noted that the seller

companies have a common address and summons under

section 131 were issued and it was discovered that it was

small office in highly congested area and found the premises

locked. Details of Common Directors and Addresses are

noted in the assessment order. None of the persons

attended the proceedings under section 131 of the Income

Tax Act. The assessing officer further noted that details of

sale consideration received from M/s. Zealous which have

been filed, but, no evidence regarding payment of balance

amount have been produced. On perusal of the Debenture

Certificates of all the five sellers, it was noted that it does

not contain details like common seal and details of

memorandum of transfer of CCDs mentioned overleaf. The

assessee was asked to produce original CCDs. However,

copies are filed only. The assessing officer, therefore, noted

that the above facts would prove that the entire transaction

entered into between buyer and seller are non-genuine and

sham transaction. The assessing officer relied upon decision

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ITA.No.2691/Del./2018 M3M India
Holdings, Gurgaon.

of the Supreme Court in the case of McDowell & Co., vs.

C.T.O. and disallowed the short term capital loss of Rs.155.

75 crores and assessed the income at Rs.514.78 crores in

assessment order under section 153B(1)(b) dated 31st

January 2014. The assessing officer also noted in the

assessment order that the assessment order is passed with

the statutory approval of the Addl. CIT, Range, Chandigarh

communicated by letter dated 31st January 2014 in

accordance with section 153D of the Income Tax Act, 1961.

4. The assessee challenged the assessment order on

legal as well as factual grounds before Ld. CIT(A). However,

appeal of assessee has been dismissed on the same

reasoning as given by the assessing officer. The assessee is,

thus, in appeal before the Tribunal on the following

Grounds reproduced above.

5. We have heard the Learned Representatives of

both the parties and perused the material available on

record. The Grounds of Appeal are decided as under.

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ITA.No.2691/Del./2018 M3M India
Holdings, Gurgaon.

Ground Nos.1.0 and 1.1 :

6. Learned Counsel for the Assessee submitted that

no search under section 132 of the Income Tax Act was

conducted in the case of the assessee and no panchanama

have been drawn. Therefore no assessment order could be

passed under section 153B(1)(b) of the Income Tax Act. The

assessing officer has no jurisdiction to pass the order.

7. The Learned Departmental Representative was,

therefore, directed to produce if there is any warrant of

authorisation or panchanama executed in the case of the

assessee vide order dated 13th September 2018. The Ld.

D.R. in pursuance of directions above, filed a written reply

and produced the warrant of authorisation under section

132(1) and panchanama in the name of the assessee firm to

search the premises of the assessee at C13 Sushant Lok,

Phase-1, Gurgaon. Copy of the reply of the Ld. D.R. along

with a warrant of authorisation and panchanama have been

provided to the Learned Counsel for the Assessee. Ld. D.R,

therefore, contended that search action under section 132 of

the Income-Tax Act was carried-out in the business

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ITA.No.2691/Del./2018 M3M India
Holdings, Gurgaon.

premises of the assessee and residential premises of the

partners of the assessee firm. Learned Counsel for the

Assessee, in view of these evidences on record, could not

contribute anything. These material on record clearly

establish that assessee was subjected to search action

under section 132 of the Income-Tax Act, 1961 in

pursuance of valid warrant of authorisation under section

132 of the Income Tax Act and during the course of search

panchanama was also drawn in respect of the premises

searched of the assessee firm. The assessing officer,

therefore, rightly proceeded to pass the assessment order

under section 153B(1) of the Income Tax Act, having

jurisdiction over the case of the assessee. Therefore, this

ground of appeal of assessee has no merit. The same is

accordingly dismissed. In the result, Ground Nos. 1.0 and

1.1 of the appeal of Assessee are dismissed.

Ground No.1.2 :

8. On Ground No.1.2, Learned Counsel for the

Assessee submitted that assessment order has been passed

without service of a valid notice under section 143(2) of the

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Holdings, Gurgaon.

Income Tax Act, 1961, within the period of limitation.

Therefore, assessment order is illegal and bad in Law.

9. The Learned Departmental Representative,

however, contended that in this case original return of

income was filed on 30th September 2012 and that the

assessee filed return in response to notice under section

153A of the Income-Tax Act on 21st March 2013. The Ld.

D.R. further submitted that notices under section 143(2)

and 142(1) were issued to the assessee on 22nd May 2013.

Therefore, notice under section 143(2) have been issued and

served upon the assessee within the period of limitation.

The Ld. D.R. also contended that there is no need to issue

notice under section 143(2) in proceedings under section

153A of the Income Tax Act, 1961.

10. After considering the rival submissions, we are of

the view that the issue is covered against the assessee by

Judgment of Honorable Delhi High Court in the case of

Ashok Chadda vs. ITO (2011) 337 ITR 399 (Del.) in which it

was held that “in proceedings under section 153A of the

Income Tax Act, there is requirement to issue notice under

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Holdings, Gurgaon.

section 143(2) of the Income Tax Act”. Learned Counsel for

the Assessee did not dispute this legal proposition. It may

also be added here that the assessee in response to notice

under section 153A dated 28th December 2012, filed the

return of income on 21st March 2013 and A.O. issued

notice under section 143(2) and 142(1) on dated 22nd May,

2013. In response thereto, the assessee and their Counsel

appeared before assessing officer. Therefore, notice under

section 143(2) have been issued and served upon assessee

within the period of limitation, though, it was not required

as per the above Judgment. Therefore, the contention of

Learned Counsel for the Assessee has no merit. The same is

accordingly dismissed. In the result Ground No.1.2 of

appeal of assessee is dismissed.

Ground No.1.3 :

11. On Ground No.1.3, Learned Counsel for the

Assessee submitted that no proper sanction as required

under section 153D have been received, therefore,

assessment order is illegal and bad in Law. Learned Counsel

for the Assessee referred to page 46 of the assessment order

 32
ITA.No.2691/Del./2018 M3M India
Holdings, Gurgaon.

and submitted that Addl. CIT, Central Range, Chandigarh

communicated the sanction under section 153D to the A.O.

on 31st January 2014 and the assessing officer on the same

day i.e., 31st January 2014 passed the assessment order.

He has referred to page-48 of the paper book, which is copy

of Fax message dated 5th February 2014 in connection with

the communication of sanction/approval of Addl. CIT. PB-

31 is the reply filed before A.O. by assessee on 29th

January 2014. PB-469 is the reply to the RTI application

filed by assessee dated 6th June 2018, in which no specific

reply have been given by the Department as to by which

mode the assessment record was forwarded by A.O. to Addl.

CIT as no such record available and how the

sanction/approval was communicated to the assessing

officer. PB-46 is letter of the assessing officer to the Addl.

CIT, Central Range, Chandigarh dated 30th January 2014

sending the draft assessment order for approval in terms of

section 153D of the Income Tax Act. PB-47 is approval of

the Addl. CIT, Chandigarh dated 31st January 2014 without

mentioning if he has seen the assessment record. Learned

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Holdings, Gurgaon.

Counsel for the Assessee submitted that letter dated 23rd

January 2019 was given to the assessing officer, in which it

was brought to his notice that after inspection of the

assessment record conducted on 25th October 2018, it was

noted that while inspecting the assessment file, assessee

has not found any original copy of statutory approval under

section 153D of the Income Tax Act, 1961, except the copy

of the approval only. The assessee, therefore, requested that

original approval under section 153D may kindly be made

available to him. He has submitted that till date no reply

have been conveyed to the assessee. He has, therefore,

submitted that in this case no approval have been conveyed

to the assessing officer before passing the assessment order.

He has submitted that in section 153D the word used is

‘Shall’ which indicates that this provision is mandatory

which is to be complied before passing the assessment

order. In the present case, no such approval have been

found on record. On inspection of the record, it was found

the approval was received by the assessing officer for the

first time by Fax on 5th February 2014 [PB 48]. There is no

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Holdings, Gurgaon.

other documentary evidence available on record. It is,

therefore, clear that approval/sanction of the Addl. CIT was

received after passing of the assessment order. Therefore,

assessment order is illegal and bad in Law. The assessing

officer was not in possession of the valid sanction/approval

of Competent Authority before passing the assessment

order. Learned Counsel for the Assessee submitted that the

Tribunal can in fact call for production of the assessment

record for itself to determine whether the satisfaction was

received, before passing the assessment order by the

Assessing Officer ? Reliance was placed upon the Judgment

of the Allahabad High Court in the case of S K Gupta and

Co. vs ITO 246 ITR 560 (All.). He has submitted that to the

same effect there is another Judgment of the Allahabad

High Court in the case of M.D. Overseas Ltd., vs., DGIT 333

ITR 407 (All.) He has, therefore, submitted that the approval

in this case though not conveyed to the Assessing officer on

time, but, is also given in a mechanical manner. Learned

Counsel for the Assessee relied upon Judgment of the

Honorable Bombay High Court in the case of Pr. CIT vs Smt.

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Holdings, Gurgaon.

Shreelekha Damani in Income Tax Appeal No. 668 of 2016

dated 27th November 2018. He has submitted that the draft

assessment order was sent from Faridabad to Chandigarh

on 30th January 2014 and it is not clarified as to how it

was sent, whether through messenger or courier or any

other valid mode. Therefore, no time was left to consider the

assessment record. Since last reply is filed on 29th January

2014, therefore, there was no application of mind by the

assessing officer or the Addl. CIT to pass the assessment

order within the time. Learned Counsel for the Assessee also

relied upon order of ITAT, Jodhpur Bench in the case of

Smt. Indira Bansal vs., ACIT (2018) 192 TTJ 968 (Jodh.).

Learned Counsel for the Assessee, in the circumstances,

submitted that since last reply was filed on 29th January

2014, which contains more than 500 pages, therefore, it is

highly improbable that assessing officer who is stationed at

Faridabad, would have sum-up the entire assessment file,

containing voluminous submissions and drafted assessment

order containing not less than 46 pages and sent it to the

Addl. CIT at Chandigarh on 30th January 2014. The

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Holdings, Gurgaon.

Department has filed vague reply to the RTI application. It is

difficult to believe that within a span of a single day,

assessment record would have reached to the Addl. CIT, at

Chandigarh. It is highly unbelievable that Addl. CIT would

have perused the voluminous assessment record and

material on record on the same day and granted approval

on the same day on 31st January 2014 and transmitted

back the record from Chandigarh to Faridabad on the same

day on 31st January 2014 for passing of the final

assessment order. It was, therefore, submitted that sanction

granted by Addl. CIT to draft assessment order was devoid

of any application of mind without considering material on

record and without adopting prescribed procedure. It was,

therefore, submitted that the said statutory function of

granting sanction was exercised casually and not in a

proper manner by due application of mind. Therefore,

assessment order is null and void and liable to be quashed.

12. On the other hand, Learned Departmental

Representative relied upon the orders of the authorities

below and referred to PB-47 approval granted by Addl. CIT

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Holdings, Gurgaon.

on 31st January 2014. She has submitted that the Addl.

CIT, Chandigarh after going through the assessment record,

correctly granted approval to the draft assessment order.

She has submitted that Addl. CIT does not say that he has

not gone through the material on record and also did not

apply his mind before grant of approval in the matter. Ld.

D.R, therefore, submitted that this ground of appeal of

assessee may be dismissed.

13. We have considered the rival submissions. It is

not in dispute that search and seizure action was taken in

the case of the assessee on 30th January 2011. Therefore,

assessing officer rightly proceeded against the assessee firm

under section 153A of the Income Tax Act, 1961. The

assessing officer also rightly passed the assessment order

under section 153B(1)(b) of the Income Tax Act, 1961.

Further, Section 153D of the Income Tax Act provides that

“no order of assessment or reassessment shall be passed by

the assessing officer below the rank of Joint Commissioner in

respect of each assessment year referred to in clause (b) of

sub-section (1) of Section 153A or assessment year referred to

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Holdings, Gurgaon.

in clause (b) of sub-section (1) of Section 153B except with the

prior approval of Joint Commissioner.” Therefore, for passing

the impugned assessment order, the assessing officer who is

in the rank of DCIT shall have to obtain prior approval of

JCIT. The Learned Counsel for the Assessee referred to PB-

31, which is last reply filed before assessing officer on 29th

January 2014. The assessing officer written a letter to the

Addl. CIT, Chandigarh on 30th January 2014 sending a

draft assessment order for his consideration and approval in

terms of Section 153D of the Income Tax Act, copy of which

is filed at page 46 of the PB. The assessing officer is

stationed at Faridabad. However, the Addl. CIT is stationed

at Chandigarh. The Addl. CIT, Chandigarh granted approval

under section 153D of the Income Tax Act on 31st January

2014, copy of which is, filed at page 47 of the paper book

and the same reads as under :

“No.Addl.CIT/Central/Chd./2013-14/616.

Office of the
Addl. Commissioner of Income Tax,
Range Central, Chandigarh.

Dated the 31st January, 2014.

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ITA.No.2691/Del./2018 M3M India
Holdings, Gurgaon.

To
Shri Tatung Padi
Dy. Commissioner of Income Tax,
Central Circle-II,
Faridabad.

Sub: Approval u/s.153D of the I.T. Act, 1961, in the

case of M/s. M3M India Holdings, Formerly
M/s.Krishna Flexi Solution, C-13, Sushant Lok-
I, Gurgaon for the A.Y. 2012-2013 – regarding.

Please refer to the Draft Assessment Order U/s.

153B(1)(b) of the I.T. Act, 1961, referred for approval

u/s.153D of the I.T. Act, 1961, dated 30.01.2014.

The approval u/s. 153D of the I.T. Act, 1961, is

accorded for the Assessment Year 2012-13.

Sd/-RAJEEV KUMAR,
Addl.Commissioner of Income Tax,
Range (Central), Chandigarh.
Encl: As Above.”

13.1. The Addl. CIT, Chandigarh did not mention in the

approval, if he has gone through the assessment record or

whether assessment record have been produced before him

before granting approval in the matter. The assessee filed

RTI application to the Revenue Department, copy of reply is

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ITA.No.2691/Del./2018 M3M India
Holdings, Gurgaon.

filed at page 469 of the PB, in which it was explained that

letter of the Assessing Officer, Faridabad dated 30th

January 2014 was forwarded to the Addl. CIT, Chandigarh

on 30th January 2014. No reply was given to assessee as to

when the letter of the assessing officer was received by Addl.

CIT, Chandigarh. It was also intimated that no such record

is available in the office of Assessing Officer regarding mode

by which assessment record along with the letter of the

assessing officer dated 30th January 2014 were forwarded

to the Addl. CIT, Chandigarh. No details/explanation were

furnished as to on which date the assessment record was

received by the Addl. CIT, Chandigarh. The assessee, on

inspection of the record, intimated the assessing officer that

no original approval under section 153D is available on

record. Learned Counsel for the Assessee referred to PB 48,

which is Fax message received on 5th February 2014,

communicating the approval of Addl. CIT to the assessing

officer. This Fax message is not legible. The Hon’ble Bombay

High Court in the case of Pr. CIT vs. Smt. Shreelekha

Damani (supra), held as under

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ITA.No.2691/Del./2018 M3M India
Holdings, Gurgaon.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 668 OF 2016

The Pr. Commissioner of Income Tax ..Appellant

v/s.
Smt. Shreelekha Damani. ..Respondent.
Mr. A.R. Malhotra a/w Mr. N.A. Kazi for the appellant
Mr. Jehangir Mistri, Senior Counsel a/w Mr. Atul Jasani for
the respondent
CORAM : AKIL KURESHI &
M.S. SANKLECHA, J.J.
DATED : 27th NOVEMBER, 2018.
P.C.

1. This appeal is filed by the Revenue challenging the

judgment of Income Tax Appellate Tribunal ("the

Tribunal" for short) dated 19th August, 2015.

2. Following question was argued before us for our

consideration

"Whether on the facts and circumstances of the case

and in law, the Tribunal was justified in holding

that there was no 'application of mind' on the part

of the Authority granting approval ?

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Holdings, Gurgaon.

3. Brief facts are that the Tribunal by the impugned

judgment set aside the order of the Assessing Officer

passed under Section 153A of the Income Tax Act, 1961

("the Act" for short) for Assessment Year 2007-08. This

was on the ground that the mandatory statutory

requirement of obtaining an approval of the concerned

authority as flowing from Section 153D of the Act, before

passing the order of assessment, was not complied with.

4. This was not a case where no approval was

granted at all. However, the Tribunal was of the opinion

that the approval granted by the Additional

Commissioner of Income Tax was without application of

mind and, therefore, not a valid approval in the eye of

law. The Tribunal reproduced the observations made by

the Additional CIT while granting approval and came to

the conclusion that the same suffered from lack of

application of mind. The Tribunal referred to various

judgments of the Supreme Court and the High Courts in

support of its conclusion that the approval whenever

required under the law, must be preceded by application

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Holdings, Gurgaon.

of mind and consideration of relevant factors before the

same can be granted. The approval should not be an

empty ritual and must be based on consideration of

relevant material on record.

5. The learned Counsel for the Revenue submitted

that the question of legality of the approval was raised

by the assessee for the first time before the Tribunal. He

further submitted that the Additional CIT had granted

the approval. The Tribunal committed an error in holding

that the same is invalid.

6. Having heard the learned Counsel for the both

sides and having perused the documents on record, we

have no hesitation in upholding the decision of the

Tribunal. The Additional CIT while granting an approval

for passing the order of assessment, had made following

remarks

'To,
The DCIT(OSD)-l
Mumbai
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ITA.No.2691/Del./2018 M3M India
Holdings, Gurgaon.

Subject : Approval u/s 153D of draft order u/s 143(3)

r.w.s. 153A in the case of Smt. Shreelekha Nandan

Damani for A.Y. 2007-08 reg.

Ref: No. DCIT (OSD)-l/CR-7/Appr/2010-ll dt.

31.12.2010

As per this office letter dated 20.12.2010, the

Assessing Officers were asked to submit the draft

orders for approval u/s 153D on or before 24.12.2010.

However, this draft order has been submitted on

31.12.2010. Hence there is no much time left to analise

the issue of draft order on merit. Therefore, the draft

order is being approved as it is submitted.

Approval to the above said draft order is granted

u/s 153D of the I.T. Act, 1961."

7. In plain terms, the Additional CIT recorded that the

draft order for approval under Section 153D of the Act

was submitted only on 31st December, 2010. Hence,

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Holdings, Gurgaon.

there was not enough time left to analyze the issues of

draft order on merit. Therefore, the order was approved

as it was submitted. Clearly, therefore, the Additional

CIT for want of time could not examine the issues arising

out of the draft order. His action of granting the approval

was thus, a mere mechanical exercise accepting the

draft order as it is without any independent application

of mind on his part. The Tribunal is, therefore, perfectly

justified in coming to the conclusion that the approval

was invalid in eye of law. We are conscious that the

statute does not provide for any format in which the

approval must be granted or the approval granted must

be recorded. Nevertheless, when the Additional CIT

while granting the approval recorded that he did not

have enough time to analyze the issues arising out of

the draft order, clearly this was a case in which the

higher Authority had granted the approval without

consideration of relevant issues. Question of validity of

the approval goes to the root of the matter and could

have been raised at any time. In the result, no question

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Holdings, Gurgaon.

of law arises.

8. Accordingly, the Tax Appeal is dismissed.”

13.2. The ITAT, Jodhpur Branch in the case of Smt.

Indira Bansal vs., ACIT (supra), held as under:

“Conclusion : Jt. CIT having granted the approval

under s. 153D on the very same day on which the

forwarding letter seeking approval was received in

his office, and circumstances indicate that this

exercise was carried out by the Jt. CIT in a

mechanical manner without proper application of

mind and even without going through the records

as the same were in Jodhpur while the Jt. CIT was

at Udaipur, therefore, the approval granted by him

cannot be sustained. Impugned assessments are

annulled.”

14. Considering the facts of the case in the light of

above discussion, it is clear that assessee filed last reply

before assessing officer at Faridabad on 29th January 2014

and according to Learned Counsel for the Assessee, it

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Holdings, Gurgaon.

contained more than 500 pages. Therefore, it is difficult for

the Assessing Officer at Faridabad to go through these

voluminous papers and prepare a draft order on 30th

January 2014, so that the draft order could be transmitted

to the Addl. CIT at Chandigarh on same day. In reply to RTI

application, the assessing officer has reported that no

record of mode of dispatch of assessment record to the Addl.

CIT is available with the Assessing Officer. Similarly, no

record is available as to how the draft order and assessment

record have been received by Addl. CIT at Chandigarh. The

Addl. CIT, Chandigarh did not mention in his approval

dated 31st January 2014 (supra), if he has gone through the

assessment record or that assessment record was produced

before him. Since no details are available on record about

the mode, through which, assessment record was

transmitted by the assessing officer at Faridabad to Addl.

CIT in Chandigarh and vice-versa by Addl. CIT, Chandigarh

to Assessing Officer at Faridabad on the very next day

would lead to suspicion, in explanation of A.O. if any, valid

draft order was transmitted to the Addl. CIT within the time
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Holdings, Gurgaon.

or if the Addl. CIT has communicated the approval under

section 153D to the Assessing Officer at Faridabad on 31st

January 2014. These facts would clearly show that the

action of the Addl. CIT, Chandigarh granting approval in

this case was, thus, a mere mechanical exercise, accepting

the draft order as it is, without any independent application

of mind on his part. Nothing has been clarified during the

course of hearing to the effect that if Addl. CIT has gone

through the assessment record, before accepting the draft

assessment order. Thus, there was no application of mind

on the part of the Addl. CIT before granting approval. The

Addl. CIT, Chandigarh has merely gone through the draft

assessment order as per PB-47. Therefore, the contention of

Learned Counsel for the Assessee is justified that the

approval was granted in a most mechanical manner without

application of mind and such approval was intimated to

assessing officer only on 5th February 2014, after passing of

the assessment order on 31st January 2014. The above

decisions are clearly applicable to the facts and

circumstances of the case. In view of the above discussion,

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Holdings, Gurgaon.

we are of the view that no valid approval/sanction have

been granted by the Addl. CIT, Chandigarh before passing

the assessment order in the matter. The requirement of

Section 153D of I.T. Act, 1961, are not satisfied in this case.

We accordingly hold that entire assessment order is vitiated

and is null and void. We, accordingly, set aside the orders of

the authorities below and quash the assessment order in

the matter. Resultantly all additions stand deleted. In the

result, Ground No.1.3 of the appeal of Assessee is allowed.

15. The Other grounds are left with academic

discussion. However, the same are decided in brief as

under.

Ground No.2 :

16. On Ground No.2, the assessee challenged the

addition of Rs.6 crores. Learned Counsel for the Assessee

referred to PB-49 which is Share Purchase Agreement dated

22nd June 2011, which refers to [PB-59] regarding closing

period of 90 days from the date of Agreement. PB-66

provides clause19 regarding Amendment and clause 19.1

reads “This agreement may not be changed, and any of the

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terms, covenants, representatives, warranties and conditions

cannot be waived, except pursuant to an Instrument in

writing signed by M/s Lowe and Promoters or in the case of a

waiver by the Party, waiving compliance”. Learned Counsel

for the Assessee submitted that parties can change their

terms and conditions of the agreement. He has submitted

that due to market conditions, the consideration of Rs.526

crores was reduced Rs.520 crores and Addendum to the

Agreement in writing was executed on 20th January 2012

[PB-70]. Learned Counsel for the Assessee submitted that

Section 62 of the Indian Contract Act, 1872 allows

alteration in the agreements. He has referred to PB-72

which is ledger account. PB-73 Bank Statement. PB-76

summons issued under section 131 by the assessing officer

to M/s Lowe. PB-77 is reply under section 131 of the

Income Tax Act, confirming the consideration paid to the

assessee to the tune of Rs.520 crores. PB-79 and 80 are the

Bank statements. PB-81 is Certificate of a Chartered

Accountant. Learned Counsel for the Assessee submitted

that while applying Section 48, actual value of the

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consideration received shall have to be considered at Rs.520

crores. The assessee has received this consideration only.

He has submitted that the expression used in the Section

“full value of consideration” cannot be construed as the

market value, but, as the price bargained for by the parties

to the Sale. In support of his contention, he has relied upon

Judgment of the Hon’ble Supreme Court in the case of CIT

vs George Henderson and Co. Ltd. 66 ITR 622 (SC),

Judgment of the Delhi High Court in the case of CIT vs.,

Smt Nilofer I. Singh 309 ITR 233 (Del.) and Judgment of

Delhi High Court in the case of CIT vs Shakuntala Devi 316

ITR 46 (Del.). Learned Counsel for the Assessee, therefore,

submitted that addition is wholly unjustified.

17. On the other hand, Learned Departmental

Representative relied upon the Orders of the authorities

below and submitted that Addendum to the Agreement was

executed after the search.

18. We have considered the rival submissions. It is

not in dispute that the assessee was owner of the impugned

shares of M/s. R.S. Infrastructure Pvt. Ltd. The assessee

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agreed to sell the shares to M/s. Lowe Realty Pvt. Ltd., for a

consideration of Rs.526 crores through the initial

Agreement, but, later on its conditions were amended

through Addendum to the Agreement and total

consideration was reduced to Rs.520 crores. The

observations of the authorities below had been that such

consideration could not be changed. Section 62 of the

Indian Contract Act, 1872 provides “effect of novation

recession and alteration of contract – If the parties to contract

- - agree to substitute a new contract for it, or to rescind or

alter it, the original contract need not be performed.” The

above Section of Contract Act approves the action of the

assessee and the purchaser in altering the terms of the

contract. The assessee has executed fresh agreement in the

nature of Addendum to the Main Agreement, through

which, the consideration was reduced from Rs.526 crores to

Rs.520 crores. The contention of assessee is supported by

Bank statement of the assessee and the purchaser. No

evidence has been brought on record of understated price of

shares or more consideration received by the assessee. No

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evidence, in fact, comes on record, if assessee received Rs.6

crores from the purchaser. Change in the Terms of the

Agreement is permissible in Law. Therefore, in the absence

of any evidence or material and record, it is difficult to

believe that assessee received Rs.6 crores from the

purchaser of the shares. Thus, there was no justification for

the authorities below to make the addition of Rs.6 crores in

the hands of the assessee. We, accordingly, set aside the

Orders of the authorities below and delete the addition of

Rs.6 crores. Ground No.2 of appeal of assessee is allowed.

Ground No.3 :

19. On Ground No.3, Learned Counsel for the

Assessee, reiterated the submissions made before the

authorities below and submitted that assessee suffered

short capital losses, therefore, it should have been allowed

in favour of the assessee. PB-82-111 is Debenture

Subscription Agreement, through which, the above Sellers

had subscribed to CCDs of M/s. Arch. In September/

October, 2011, the Sellers were agreeable to sell the CCDs

of M/s. Arch to the assessee firm at the price at which they

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were purchased without charging any premium. As per

terms of the debenture subscription agreement, approval of

80% of shareholders of M/s. Arch was required for transfer

of CCDs. PB-182 to 185A are the letters dated 02.11.2011,

are the applications for NOC for transfer of CCDs by the

Seller written to M/s. Arch. PB186-190 are the letters dated

08.11.2011 written by M/s. Arch informing the Seller that

informal approval for transfer was granted. PB 191-195 are

the letters dated 11.11.2011 whereby Seller informed the

assessee firm that in principle approval was provided for

transfer of CCDs by M/s. Arch. The assessee relying upon

these representations, accepted the transfer of CCDs as

genuine and agreed to purchase CCDs from the Seller. PB

201-225 is the MOU dated 15.11.2011 for purchase of

CCDs. PB 226-227 are the transfer of consideration through

banking channel by the assessee. PB 230-339 are the

execution of the share transfer forms for transfer of the

original CCD Certificates dated 03.12.2011. PB 228-229 are

the letter dated 05.12.2011, whereby assessee firm

approached M/s. Arch for registration of the CCDs in the

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Debenture Register of M/s. Arch. PB 240 is the letter dated

16.12.2011, through which, M/s. Arch refused the request

of the assessee firm for transfer of CCDs due to non-

compliance of Terms of DSA. PB 241-244 are the letters for

initiation of arbitration proceedings to determine whether

M/s. Arch has violated any obligation for not transferring

the CCDs in question and whether assessee was entitled to

any compensation with respect to the same. PB 249-262 is

the Arbitration Award dated 27.03.2012 whereby the

Arbitrator gave the Award against the assessee firm on the

basis that it was aware of the conditions of DSA and thus, it

was responsible and liable for the losses which it had

suffered. Learned Counsel for the Assessee, therefore,

submitted that in these compelling circumstances, the

assessee transferred the CCDs at the lesser price and

suffered the losses. The assessee transferred the CCDs to

M/s. Zealous vide Agreement to Sell Dated 30.12.2012 [PB

388-397] for a sum of Rs.19.57 crores. The consideration

was received through banking channel PB 424-426. Thus,

the assessee suffered the short term losses. Learned

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Counsel for the Assessee submitted that the above

documentary evidences on record clearly supports the

explanation of assessee that assessee has suffered genuine

loss out of the above transaction. The evidence produced on

record have not been doubted by the authorities below. PB

426A-438 are the assessment order in the case of M/s. Arch

Propbuild Pvt. Ltd., under section 153A of the I.T. Act dated

28.03.2014 for A.Ys. 2010-2011, 2011-2012 and 2012-

2013, in which, transactions have been accepted. PB 439-

450 are assessment order in the case of Seller M/s. Shaan

Realcon Pvt. Ltd., for A.Ys. 2010-2011, 2011-2012 and

2012-2013, in which, transactions have been accepted.

Similarly, PB-451 to 463 are the assessment orders in the

case of the Seller M/s. Social Realtor Pvt. Ltd., under

section 153A dated 29.03.2014 for A.Ys. 2010-2011, 2011-

2012 and 2012-2013, in which, similar transactions have

been accepted. PB 464-468 are the summons issued to the

Seller companies and M/s. Arch in the assessment

proceedings of M/s. Popular Infracon Pvt. Ltd., and not in

the assessment proceedings of the assessee. In response to

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the summons, parties have filed their confirmations along

with supporting documents. No Inspector Report was filed

that the Offices of the Sellers of CCDs were not found. The

authorities below have ignored the documentary evidences

on record which clearly prove that transaction was genuine.

Learned Counsel for the Assessee submitted that it is well

settled Law that a transaction can be said to be a sham

transaction, if the same is not completed as per norms

prevalent in a particular business. Once the transaction was

done as per legal norms, then the same cannot be termed as

sham transaction and relied upon decisions of the Hon’ble

Supreme Court in the cases of Union of India vs., Azadi

Bachao Andolan 263 ITR 706 (SC) and Vodafone

International Holdings BV vs., Union of India 341 ITR 1

(SC). Learned Counsel for the Assessee submitted that

merely because the transaction is entered into between

Group concerns, it cannot be considered to be sham

transaction and relied upon decision of Delhi High Court in

the case of CIT vs. Gillette Diversified Operations Pvt. Ltd.,

324 ITR 226 (Del.) and decision of Gujarat High Court in the
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Holdings, Gurgaon.

case of CIT vs. Special Paints Ltd., 356 ITR 404 (Guj.). He

has also relied upon the Order of ITAT, Delhi F-Bench, in

the case of ACIT, CC-12, New Delhi vs. M/s. R.J.

Corporation Ltd., New Delhi in ITA.No.3661/Del/2014,

Dated 01.10.2018, in which it was held that “the Learned

CIT(A) rightly came to the finding that the assessee company

has genuinely entered into purchase and sale of shares and

if any, loss have been suffered by the assessee company,

A.O. cannot treat the same as non-genuine due to extraneous

consideration or irrelevant reasons in the assessment order.”

20. On the other hand, Learned D.R. relied upon the

Orders of the authorities below and submitted that that no

details were filed before A.O. The Directors are common in

various Group Concerns. The assessee was aware of holding

of shares and the fact that CCDs cannot be transferred

without the approval of 80% of the shareholders. Therefore,

the burden of proof was upon the assessee to prove that it

was a genuine transaction. The Learned D.R. relied upon

the Order of ITAT, Delhi Bench in the case of Shri Hersh W.

Chadha, New Delhi vs. DDIT, Circle-1(1), International

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Holdings, Gurgaon.

Taxation, New Delhi, Dated 31st December, 2010, Judgment

of Punjab & Haryana High Court in the case of Som Nath

Maini vs. CIT 306 ITR 414 (P&H) and Order of ITAT,

Chandigarh Bench in the case of ACIT, Range-VI, Ludhiana

vs. Som Nath Maini (2006) 7 SOT 202 (Chd.). The Learned

D.R. submitted that it was a colourable devise and A.O. has

correctly applied the test of human probability for deciding

whether transaction was genuine or not.

21. Learned Counsel for the Assessee in the rejoinder

submitted that this issue was raised by the A.O. on

29.01.2014 [PB-32 reply] in which the assessee requested to

the A.O. that in case he is not satisfied with the evidences

on record, he can made enquiries directly from the parties.

However, A.O. has not made any enquiry. He has submitted

that since CCDs were already sold and originals were

handedover to the buyer, therefore, original could not be

produced before A.O. Therefore, such circumstances cannot

be read in evidence against the assessee.

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22. We have considered the rival submissions. The

facts noted above have not been disputed by the parties that

the assessee company purchased CCDs of M/s. Arch from

05 parties. The Sellers were owner of the CCDs. Since the

CCDs were purchased without charging any premium and

that the Seller have written to M/s. Arch to provide NOC

and M/s. Arch informed Sellers about the informal approval

for transfer of CCDs, therefore, the assessee under the

bonafide belief, purchased the CCDs. There was some

condition for transfer of CCDs that approval of 80% of the

shareholder was required. Therefore, assessee accepted the

offer to purchase the CCDs because of assurance given by

M/s. Arch through Seller for transfer of CCDs. The assessee

paid sale consideration to the Sellers through Banking

channel which is not in dispute. The transfer of CCDs to the

assessee through the Agreement/MOU and sale

consideration paid by assessee have not been doubted by

the authorities below. Later on, when the assessee

approached M/s. Arch for transfer of CCDs in the

Debenture Register, M/s. Arch informed the assessee about

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their refusal to register the CCDs in the name of assessee

due to non-compliance of terms of DSA. Since, there was a

dispute between the parties with regard to transfer of CCDs,

therefore, assessee adopted the Arbitration Proceedings as

per the MOU and the Arbitrator was appointed by the

concerned parties, who has, however, passed the Arbitration

Award against the assessee and held that assessee shall

have to bear the loss suffered in the transaction. The

assessee obtained a legal opinion and assessee was

informed that there are bleak chances for getting relief from

the Court. Therefore, assessee had no option, except to sale

shares to M/s. Zealous Financial Services Pvt. Ltd., at a

lower price. It is well settled Law that Arbitration Award is

Decree of the Court and is executable as it is. Therefore,

when the matter is decided by the Arbitrator against the

assessee and Award is given against the assessee, it would

amount to Decree of the Court, through which it is decided

that assessee is not entitled for any relief. These facts

clearly show that assessee entered into the bonafide

genuine transaction to purchase CCDs and only because of

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one of the condition was not satisfied for transfer of CCDs,

therefore, assessee had to sell the shares at a lower price.

Therefore, assessee suffered short term capital loss of

Rs.155.75 crores in this regard. The documentary evidences

on record have not been doubted by the authorities below.

The parties are genuine and assessed to tax and all

transactions are carried-out through the Banking channel.

The assessee could not have produce the original CCDs

before A.O. because the same were given to the purchaser

M/s. Zealous at the time of sale of CCDs by the assessee.

Merely because transaction was carried-out within the

Group concerns, by itself, is no ground to reject the

explanation of assessee. Considering the totality of the facts

and circumstances, we are of the view that assessee has

entered into genuine transaction which is supported by

documentary evidences, which have not been doubted by

the authorities below. Therefore, the rule of preponderance

of probability would not apply to the facts and

circumstances of the case. Therefore, there was no

justification for the authorities below to reject the claim of

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assessee of short term capital loss. We, accordingly, set

aside the orders of the authorities below and delete the

entire addition. In the result, Ground No.3 of the appeal of

assessee is allowed.

Ground No.4 :

23. On Ground No.4, assessee challenged the levy of

interest under section 234B of the I.T. Act, which is

mandatory and consequential and no further arguments

have been made on the same. Therefore, Ground No.4 of

appeal of Assessee is dismissed.

24. In the result, appeal of Assessee Partly Allowed.

Order pronounced in the open Court.

Sd/- Sd/-
(L.P. SAHU) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER

Delhi, Dated 15th March, 2019.

VBP/-
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Holdings, Gurgaon.

Copy to

1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT ‘F’ Bench, Delhi
6. Guard File.

// BY Order //

Assistant Registrar : ITAT Delhi Benches :

Delhi.