Case Law Details

Case Name : Mrs. Neelu Analjit Singh Vs The Addl. Commissioner of Income tax (ITAT Delhi)
Appeal Number : ITA No. 2172/Del/2018
Date of Judgement/Order : 19/12/2019
Related Assessment Year : 2014-15
Courts : All ITAT (7336) ITAT Delhi (1719)

Mrs. Neelu Analjit Singh Vs Addl. CIT (ITAT Delhi)

The issue under consideration is Unlisted shares sold after holding for 23 months considered as Long Term Capital Gains or Short Term Capital Gains?

In the present case, assessee purchased unlisted company’s shares in financial year 2012-13 and sold in the assessment year 2014-15, she computed the indexed cost of acquisition of those shares. AO reached at the conclusion that assessee had shown above shares as ‘long-term capital asset’ whereas they were held for less than 36 months and therefore they are ‘short-term capital assets’. Therefore, according to the provisions of section 2(42A) AO held that sale of shares of an unlisted company, if held for less than 36 months, the asset is not a ‘long-term capital asset’ but a ‘short-term capital asset’.

ITAT states that the CBDT circular clearly clinches the issue and clarifies that, firstly, the benefit of shorter period of holding of 12 months to qualify as long term capital asset to unlisted shares has been removed prospectively from A.Y. 2015-16 and not for the earlier years; and secondly, the benefit of short period for holding of unlisted shares would be available only when such shares are transferred during the period beginning on 01.04.2014 and ending on 10.07.2014. Post 11.07.2014 the benefits of shorter period of unlisted shares could not be applicable. In the present case, the shares have been transferred prior to 31.03.2014, therefore, the newly amended Act would not be applicable at all and the assessee will get the benefit of shorter period, i.e., period of less than 36 months as given in section 2(42A) read with proviso thereto as per the relevant provision existed for the A.Y. 2014-15. Thus, ITAT hold that the AO as well as Ld.CIT (A) are not justified in law in re-characterizing/re-classifying the ‘long term capital gain’ to ‘short term capital gain’ shown by the asessee. Accordingly, the gain on transfer of SBPL’s share would be taxable as ‘long term capital gains’ and not short term capital gains and resultantly, the appeal filed by assessee is allowed.

FULL TEXT OF THE ITAT JUDGEMENT

1. This is an appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-23, New Delhi [ The ld CIT A] dated 16.03.20 18 for the Assessment Year 20 14-15.

2. The assessee has raised the following grounds of appeal:-

1. That the order of the Ld. CIT (A) is grossly bad in law and deserves to be set aside, to the extent prejudicial to the interest of the Appellant.

2. That the order of the Ld. CIT(A) is also bad in law since he failed to follow the norms of judicial propriety/discipline by not following the order of the Appellate Tribunal in the Appellants husbands (Mr. Analjit Singh in ITA No. 4737/Del./2017 dated 1.12.2017) case, in respect of the same transaction.

3. That the CIT(A) also erred in resorting to cherry picking of the conclusions of the ITAT, which is not permissible and reflects a predetermined mind towards the conclusions drawn in the said order.

Long term Vs. Short term capital gains

4. That the CIT(A) grossly erred in not following the decision of the Appellate Tribunal in the Appellants husbands case where the Tribunal had returned a finding of the said gains to be treated as long term capital gains, the transaction being the same.

5. That the CIT(A) erred on facts and in law in treating the gains arising from sale of unlisted shares of M/s. Scorpio Beverages Pvt. Ltd. as short term capital gain, instead of long term capital gain returned by the Appellant.

6. That the CIT(A) erred in law in observing that for unlisted shares to qualify as a long term capital asset, the period of holding was 36 months and not 12 months as per the first proviso to section 2(42A) of the Income Tax Act, 1961 (Act) (as applicable during the year under consideration), read with section 2(29A) of the Act.

7. That the CIT(A) grossly erred in law in holding that the shorter period of 12 months to qualify as long term capital assetwas only applicable to unlisted shares sold during the period 01.04.2014 to 10.07.2014, in terms of second proviso to Section 2(42A), which was inserted by the Finance (No.2) Act, 2014 with effect from 01.04.2015.

8. That the CIT(A) grossly erred in law and on facts in treating the gains as Short Term Capital Gains on the premise that these shares were a part of design to hold interest in Hutchison/Vodafone group and transferring them at their will and hence, they should not get the benefit of Long Term Capital gains (LTCG) before 36 months.

On share valuation

9. That the CIT(A) erred on facts and in law in re-computing the amount of capital gain arising from sale of shares of M/s Scorpio Beverages Pvt. (SBPL) by substituting actual sales consideration of INR 243,39,62,000 with an alleged/notional fair market value of shares by adopting the price per share at INR 131.86 as determined by the Tribunal in the Appellants husbands case.

10. That, without prejudice to the grounds on merits, the CIT(A) erred in law in rejecting the application under Rule 46A of the Income Tax Rules, 1962 (the Rules) for additional evidence while holding that there was no sufficient cause which prevented the Appellant from production of the said documents before the AO.

11. That the CIT(A) erred in confirming the action of the AO in substituting the actual sale price with a notional/alleged consideration based on a fair market value of such shares while following the ITAT order in the Appellants husbands case.

12. That the CIT(A) grossly erred in law in not appreciating that the provisions of section 45 (in part .E of Chapter IV of the Act – taxation of capital gains) is the charging section and for the period under consideration the said provisions did not provide any mandate to the AO to replace/substitute the actual sale consideration with any alleged fair market value.

13. That the CIT(A) grossly erred in law in not appreciating that the provisions of subsection (1A) to (4) of section 45 itself provide for situations where the AO is permitted to adopt the fair market value for computation of capital gains under the said provisions and there being no statutory mandate the AO was precluded from substituting the actual sale consideration with any notional consideration.

14. That the CIT(A) failed to appreciate that the only provision which empowered the AO to adopt a fair market value was contained in section 52 of the Act which had since been repealed in 1988.

15. That the CIT(A) grossly erred in law in failing to appreciate that the term “accruing” as contained in section 48 of the Act, which is a computational provision, could not be relied upon to impose a tax liability when the charging section itself, being section 45 of the Act, did not impose such charge of tax.

16. That the CIT(A) also failed miserably to appreciate the legal position that the term “received or accruing” in section 48 of the Act was only to cover situations where only part of the sale consideration is received in the assessment year and had to be read in conjunction with the mandate of section 45 which provides that the “income shall be deemed to be the income of the previous year in which the transfer took place”.

17. That the CIT(A) also erred in not following the jurisdictional High Court judgments, violating the principal of judicial discipline, where the High Court has categorically held that the AO has no power to substitute the actual sale consideration with any notional consideration, there being no express mandate in the statute for the relevant period.

18. That the CIT(A) grossly erred in law following the valuation determined by the ITAT in the Appellants husbands case, which was flawed since the ITAT had relied upon the provisions of Rule 11 UA of the Income Tax Rules, 1962, which rule is applicable only to section 56 of the Act and section 56 is not applicable to items covered in part A to .E in chapter 4 of the Act and as such excludes income in the nature of capital gainscovered in part .E of Chapter 4.

19. That, without prejudice, the CIT(A) also failed to appreciate/failed to consider that the alleged “fair market value” determined by the Tribunal on the basis of computation provided by the Revenue in the Appellants husbands case was incorrect as the said computation did not capture correctly the assets and liabilities from the balance sheets of various intermediary Companies as required by Rule 11 UA of the

20. That, without prejudice, the CIT(A) also failed to appreciate/failed to consider that the alleged “fair market value” determined by the Tribunal on the basis of computation provided by the revenue in the Appellants husbands case was flawed as the said computation did not conform to the provisions of Rule 11 UA of the Rules.

Capitalisation of interest costs

21. That the CIT(A) erred on facts and in law in not allowing the capitalisation of interest cost of INR 10,09,02,358/-, as part of the cost of acquisition/actual cost while calculating capital gains on sale of shares of SBPL.

22. That the CIT(A) erred on facts and in law in observing that there was no direct nexus between the interest bearing borrowed funds and investment in shares of SBPL.

Disallowance of brought forward long term capital loss

23. That the CIT(A) grossly erred in confirming the disallowance of INR 24,98,22,064 crores being a long term capital loss arising out of a mistake by the accountant when such actual loss was to be restricted to INR 2,49,82,206 brought forward from AY 201 1-12.

24. That CIT (A) grossly erred on facts and in law that the accountant while computing the capital gain/loss from the sale of shares of Mohair Investments and Boom Investments had on account of an inadvertent/clerical error added an extra Oin both the purchase and sale considerations and which had the effect of enhancing the capital loss which was unintentional and immediately upon realising the error the Appellant brought it to the attention of the AO.

25. That the CIT(A) erred in concluding that the loss pertained to AY 2010- 11 and the AO could not have allowed such loss since that year was not before him.

26. That the order of the CIT(A) is also silent about the claim of brought forward long term capital loss of Rs. 1,53,36,932/- for AY 2011-12.

Business income

27. Without prejudice, the CIT(A) erred in dismissing the ground of the Appellant agitating the treatment of exempt income earned by the Appellant as partnership profits as “income from business or profession”.

Allowance of capital loss

  1. That the CIT(A) erred in upholding the addition of inclusion of capital gain/losses on sale of capital assets other than shares of Scorpio Beverages Pvt Ltd at Rs. 20,59,509/-as against the claimed loss of Rs. 1,96,38,666/- while allowing minimal relief.”

Disallowance of TPS and advance tax

  1. That the CIT(A) erred on facts in not allowing the credit of tax deducted at source amounting to Rs. 11,06,907/- and advance tax amounting to Rs. 48,16,27,800/-.

Brought forward capital loss

30. That the CIT(A) erred in not adjudicating on the ground relating to set off of brought forward capital losses of the assessment years 2010-11 and 2011-12.”

3. Assessee, appellant is an individual who filed her return of income declaring income of INR 177,13,61,480/– on 3 1/7/2014. The AO recorded the facts at para number 2 of his order that assessee is wife of Mr. Anlajit Singh who is the founder and chairperson of Max India Ltd. She has earned income from salary from New Delhi house services Ltd, capital gains on sale of shares, share of profits in partnership firm and interest from her savings bank accounts.

4. During the year assessee has claimed income from capital gains on sale of shares of INR 202,09,06,647/- bifurcated into short-term capital gain of INR 12,89,00,542/– and the long-term capital gain of Rs . 189, 20, 06, 105/–. Assessee has sold 38235290 shares of Scorpio beverages private limited, having purchase cost of INR 382352900/–. As the assessee purchased the above shares in financial year 2012 – 13 and sold in the assessment year 2014 – 15, she computed the indexed cost of acquisition of those shares at INR 421395978/-. These shares were sold on 21/3/2014 for INR 42433898344/– and thus assessee claimed long-term capital gain of INR 1911644771/–. This transaction was examined by the learned Additional Commissioner of Income Tax, Special Range – 9, New Delhi (the learned AO). He reached at the conclusion that assessee has shown above shares as long-term capital asset‘ where as they were held for less than 36 months and therefore they are ‗ Short term capital Assets.‘ Therefore according to the provisions of section 2 (42A) of The Income Tax Act, ld AO held that sale of shares of an unlisted company, if held for less than 36 months, the asset is not a long term capital asset‘ but a short-term capital asset‘. Therefore, he issued a show cause notice on 26/12/2016 asking the assessee as to why the sale of shares of Messer Scorpio beverages private limited is not to be treated as short-term capital gain in light of holding period of 23 months, which is less than 36 months.

5. The assessee submitted her reply on 22/12/2016. She stated that provisions of section 2 (29A) read with provisions of section 2 (42A) of The Income Tax Act as applicable for assessment year 2014 – 15, provides that the shares of the company , whether listed or unlisted, will be treated as a long-term capital asset, if the period of holding is more than 12 months. She further stated that in case of unlisted equity shares transferred on or after 11/07/2014, the period of holding to qualify it as long-term capital asset was increased to 36 months by the Finance (No. 2) Act, 2014. It was later on reduced to 24 months by The Finance Act, 2016 with effect from assessment year 2017 – 18. Thus, it was claimed that as the above shares were sold by the assessee on 21/03/2014 the period of holding was more than 12 months, shares are Long term capital assets‘ and accordingly, the capital gain on transfer of those shares is claimed as long-term capital gain.

6. The learned assessing officer rejected the contentions of the assessee and held that in case of unlisted companies Equity shares, if held for less than 36 months, then it is a short-term capital asset. The learned AO relied heavily on provisions of section 2 (42A) of the act. The AO held that there is no need to go to explanatory statement when the provisions of law are abundantly and absolutely clear. However assessee relied on explanatory statement to Finance Bill 2014 wherein it is mentioned that in case of the shares of an unlisted company, which is transferred during the period beginning on 1st April, 2014 and ending on 10th July, 2014, period of holding for its qualification as a short-term capital asset‘ shall be not more than 12 months. The AO was further of the view that even otherwise the explanatory statement merely reiterates what has been said in the 2nd proviso to section 2 (42A) of the act. Therefore, AO treated shares of Scorpio beverages P Ltd as short-term capital asset and computed the short-term capital gain accordingly. Assessee submitted before the assessing officer that she has borrowed loan for making investment in the shares of Scorpio beverages private limited. Interest of INR 37317628/– has been incurred as expenses during the financial year 2012 – 13 and interest of INR 63584730/– has been incurred in financial year 2013 – 14. Therefore, such interest cost is to be granted as deduction as the cost of acquisition/improvement of the above shares u/s 48 of The Income Tax Act. The AO denied the deduction holding that it is not an expenditure incurred wholly and exclusively in connection with the transfer of the asset and it is not a cost of acquisition or cost of improvement of those shares. He further held that shares are not a qualifying asset‘ according to the Accounting Standard. He further challenged the nexus of borrowed funds with the investment made by the assessee for claim of investment as cost of acquisition and therefore he denied the capitalization of interest of INR 100902358/– for computing the cost of acquisition/improvement of those shares. Further, the AO noted that assessee has sold these shares at the rate of INR 63.65 per share and assessee was asked to submit the valuation of these shares. Assessee submitted the valuation by Kotak Mahindra capital company limited dated 19/3/20 14, which was undertaken by the purchaser M/s CGP India investment Ltd, who is another shareholder of Scorpio beverages Ltd holding 49% shares in that company. Assessee was holding 41-percentage share in that company. AO noted that from 2006 – 2014 the shares of this company has undergone extreme movements. He noted that the shares were originally issued at a face value of INR 10 per share in 2006. The rights shares were also issued in financial year 2012 – 13 at INR 10/- per share. These shares are sold by the assessee at the rate of INR 63.65 per share. The AO noted that above shares have been valued by the valuer on account of valuation of Vodafone India Ltd and one of its subsidiary Indus Towers limited. On the combined valuation of these two companies, valuer arrived at a conclusion of the valuation of Vodafone India Ltd at INR 56448.30 crores. He further challenged that the valuer who originally started its valuation process on the discounted cash free flow method, however, in the end, it adopted the net asset value approach. Thus, AO held that such a valuation was conducted adopting a hybrid method to suit the requirement of the parties concerned. He further noted several discrepancies in the valuation report with respect to the estimate of revenue growth as well as increase in the direct cost. Thus, AO held that the valuation made by the Kotak Mahindra capital private limited is incorrect. Therefore, the AO held that a Scorpio beverage private Ltd is one of the holding companies of Vodafone India Ltd and its only activity is holding the shares of Vodafone India Ltd. Therefore, value of the shares of Scorpio beverages private limited has to be derived from the valuation of Vodafone India limited. He noted that the valuer has arrived at INR 5 6448.30 crores as the valuation of Vodafone India Ltd and Scorpio beverages private limited holds 9.65% shares in Vodafone Ltd, hence the valuation of Vodafone India Ltd held by Scorpio beverages private limited is at INR 5447.26 crores. As the assessee has held 10% shares in this company, thus, valuation of the shares sold by the assessee in Scorpio beverages Ltd comes to INR 544.72 crores and thereby the valuation per share is at INR 142.70. Therefore he considered the sale consideration received/accrued to the assessee for 38235290 equity shares amounting to INR 5456 175883/– and deducted the cost of acquisition as shown by the assessee of INR 3802352900/– and computed consequent short-term capital gain of INR 5073822983/–.

Further, as assessee has sold some other shares of two different companies and claimed long term capital loss of Rs. 24.98 crores, AO found that the actual long-term capital loss is of only INR 2.49 crores , therefore, he denied the carry forward of such losses. Consequently he passed an assessment order u/s 143 (3) of The Income Tax Act, 1961 on 31/12/2016 determining the total income of the assessee at INR 521,97,60,070/– against the returned income of INR 177,13, 61, 480/–.

7. The assessee aggrieved with the order of the learned Assessing Officer preferred an appeal before The Commissioner of Income Tax (Appeals) – 23, New Delhi. The assessee filed an application for admission of additional evidences on 31/08/2017 which is dealt with in para number 4.1 at page number 32 onwards of the order, wherein assessee requested for admission of following documents as under:-

a. framework agreement dated 05/07/2007

b. 4th supplement to the framework agreement dated 7th of August 2012

c. FIPB approval dated 20/02/20 14

d. email dated 14/11/2013 from Department of revenue seeking certain clarifications as part of deliberations for FIPB approval regarding purchase price for shares of Scorpio beverages private limited

e. Letter dated 19/11/2013 addressed by the assessee in response to above mail.

8. As per para number 4.2 of the order of the learned CIT – A, as per letter dated 3/10/2017, he sent the application under rule 46A to the assessing officer for his comments. The AO sent his letter dated 26/9/2017 submitting his comments objecting to the admission of those evidences. The AO further dealt with them which are reproduced by the CIT – A at page number 34 – 43 of his order. The assessee was also given an opportunity to submit rejoinder. Assessee submitted such rejoinder on 10/10/2017, which is reproduced at page number 43 – 53 of his order. The learned CIT – A as per para number 4.9 – 4.11 of his order rejected the application under rule 46A for admission of additional evidences for the reason that assesseee has enough opportunity before lower authorities.

9. Thereafter the learned CIT – A provided a copy of the framework agreement of 2006 dated 1/3/2006 to the authorised representative of the assessee and asked as to why the above document may not be relied upon to determine the actual consideration for the transfer of shares of Scorpio beverages Ltd. Appellant submitted such reply on 23/11/2007 raising several grounds, which are reproduced at page number 56 – 61 of his order. The learned CIT – A rejected the main contention of the assessee that the framework document dated 1/3/2006 was replaced by the framework document dated 5/7/2007 as the framework document dated 5/7/2007 nowhere states that it replaces the earlier framework document. Assessee submitted that the identical issue has been considered by the coordinate bench in case of Sri Analjit Singh in ITA number 4737/Del/2017 dated 1/12/2017 and therefore it applies to the fact of the present case, as there is no change in the facts and circumstances of the case that binds ITAT. The learned CIT – A, in para number 9.1 has held that the ratio laid down by honourable Supreme Court in case of Ms. Tarulata Shyam V CIT [1977] 108 ITR 345 (SC) has not been brought to the attention of the coordinate bench. Thus, he did not agree with ITAT that whether the impugned assets transferred are a long-term capital assets or short-term capital assets. According to him, it is not a simple case of investing in shares of a company for earning dividend or for appreciation in value of such share due to profit earned by the said company. However, these shares were just part of design to hold the interest of Hutchison group, which later on sold its stake to Vodafone group and transferring the shares as per the requirement. Therefore, he held that the case would not get benefit of ‘long-term capital gain‘ before 36 months. Accordingly, he dismissed the claim of the assessee that shares held by the assessee, which were transferred during the year, are not ‘long-term capital asset‘ but is ‘short-term capital asset‘.

10. With respect to the full value of consideration received or accruing to the assessee, for the computation of the capital gain on sale of shares for INR 2433962000/–, but considered by the AO at INR 5 456175883/–, he followed order of the coordinate bench in case of Mr. Analjit Singh, wherein as per para number 58 – 65 of that order the sale value of the share was taken at INR 131.86 per share. Therefore, the learned CIT – A directed the AO to compute the short-term capital gain on sale of the shares by considering the sale consideration at INR 131.86 per share of Scorpio beverages Ltd for computation of the capital gain. Thus, to that extent, he followed the order of the coordinate bench.

11. Regarding the claim of the assessee of granting payment of interest as cost of acquisition on the funds borrowed used for acquisition of the above transferred shares, he referred to para number 77 – 82 of the order of the coordinate bench in case of husband of the assessee and upheld the action of the assessing officer in disallowing the claim. Thus, he held that interest cannot be considered as either the cost of acquisition or cost of improvement in those shares and therefore, it cannot be reduced while working out the capital gain in the hands of the assessee on sale of sales of Scorpio beverages Ltd.

12. With respect to the claim of the assessee for brought forward loss of Rs. 98 crores he confirmed that it could not be allowed to be brought forward/carried forward as appellant could not justify the above sum.

13. The assessee further claimed that credit of tax Deducted at source of Rs. 1106907/– and advance tax payment of INR 4 86027800/– was also not allowed by him holding that assessee neither describe the details of such tax deduction at source and advance tax paid nor furnished any evidence for the payment of the same. However, he directed the AO to examine the claim of the appellant as per credit shown in form number 26AS or evidences of such tax payments and grant credit to the assessee. Thus, appeal of the assessee was partly allowed by him as per order dated 16/3/2018.

14. Assessee aggrieved with the order of the learned CIT – A preferred this appeal before us raising several grounds of appeal.

15. On 12/03/2019, The learned authorised representative submitted that ground number 2 of the appeal clearly says that in respect of similar transaction, coordinate bench in case of the husband of the assessee in ITA number 4737/Del/2017 dated 1/12/2017 [Analjit Singh V PCIT], has decided this issue. That decision covers the whole transaction with respect to the sale of shares of Scorpio beverages Ltd including [1] characterization of the asset held as short-term capital assets or long-term capital assets , [2] sale consideration received or accrued or arise for the purpose of computation of capital gain and [3] cost of acquisition of those shares including interest capitalization. He submitted that the learned CIT – A failed to follow the same and cherry picked the conclusions of the coordinate bench with a predetermined mind. He therefore submitted that the whole issue is squarely covered by the decision of the coordinate bench in the case of the husband of the assessee. He further submitted that appeal of husband of the assessee before the honourable Delhi High Court has been admitted in ITA 380/ 2018 and therefore until decision of the honourable Delhi High Court is available, this appeal should be kept in abeyance.

16. Further, on 17/04/2019, the learned authorised representative further submitted that working given by revenue of the valuation of shares of Scorpio beverages private limited u/r 11UA of the Rules suffers from many infirmities/inaccuracies/errors. He submitted that in miscellaneous application proceedings an effort was made to correct certain apparent errors. However, miscellaneous application was rejected by the coordinate bench. He submitted that against dismissal of that petition was challenged and pending before the honourable Delhi High Court. He submitted that if apparent mistakes in above referred computation are corrected, value per share is significantly reduced. For submitting valuation report by a merchant Banker, he requested for another 4 weeks time. However, he submitted that assessee has filed an application under rule 29 of The Income Tax Appellate Tribunal Rules, 1962 in connection with ground number 8 – 18 relating to the calculation of the fair market value of the shares, which may be considered. He referred to application stating that appellant seeks, without prejudice to its other grounds of appeal, to file the computation determining the fair market value of shares in terms of rule 11 UA of Income Tax Rules along with supporting balance sheets of the respective intermediary Pvt Ltd companies. He further referred to the case of Analjit Singh, where coordinate bench has reached the conclusion, on the issue of long-term capital asset vs short-term capital asset and treatment of the capital gain on transfer thereof. It was decided in favour of assessee holding that the gain was indeed long-term in nature as the assets transferred were ‘long-term capital asset‘. On the issue of whether the sale consideration is only relevant factor for determining capital gains, coordinate bench held that as per section 45 read with section 48 of the act , capital gain has to be computed in respect of the ‘full value of the consideration received or accrued‘. The coordinate bench accepted that only consideration agreed between the parties and not any hypothetical fair market value would be taken into consideration for computing capital gains. However, tribunal held that on reading of the agreement for transfer of shares, the consideration accrued to assessee on transfer of shares of Scorpio beverages P Ltd, was the fair market value of the shares computed in terms of rule 11 UA of the IT rules. In coming to the aforesaid conclusion, coordinate bench held that the fair market value of the shares computed in the manner of aforesaid ‘accrued‘ to the transferor Assessee. The coordinate bench, while holding so, directed LD AO to compute the quantum of capital gain by adopting ‘fair market value of shares‘ at INR 131.86 per share on the basis of working submitted by the revenue during the course of hearing. He further submitted that in the case of husband of the assessee, coordinate bench having concluded the applicability of rule 11 UA of The Income Tax Rules, directed the revenue to file a computation of determining the fair market value of those shares as per para number 62 – 63 of the order. Computation submitted by AO contained several errors. AO did not take correct value of the assets, liability of intermediary companies was not properly recorded, and preference share capital was not considered as liability. This resulted in an incorrect valuation of INR 131.86 per share adopted without any further verification. He stated that even coordinate bench also did not examine whether the computation meets the norms specified by the said rule or not. Therefore appellant‘s husband moved a Miscellaneous Application which was rejected by order dated 19/3/20 18 on various grounds but predominantly on the ground that such computation had not been objected to by the assessee during the course of hearing and if miscellaneous application is allowed it would amount to review. Therefore, he submitted that since the issues involved in the present appeal are identical as decided by coordinate bench in its order dated 1/12/2017 in case of Mr. Analjit Singh, the applicability of rule 11 UA of the rule becomes a binding precedent. He submitted that now assessee is filing the correct computation in the present appeal so that it may be verified as deemed appropriate. For verification of the above computation, which is at annexure A along, with the copies of the audited balance sheet of the intermediary companies as on 31/3/2013 marked as annexure B. He submitted that there also did not arise any occasion prior to this proceedings, for the appellant to submit such computation, and such necessity has arisen only because of the order of the coordinate bench of the tribunal in the case of the appellant‘s husband. He submitted that given the computational errors made in the case, it is necessary to submit the present computation for consideration of the coordinate bench. He further stated that in the case of appellant‘s husband the coordinate bench rejected the verification of the computation merely on the ground that the AR of Mr. Anlajit Singh did not raise any objection to such computation. However, in the present appeal, which is yet to be adjudicated, to avoid irreparable injury to the assessee, these additional evidences are prayed for admission. He referred to rule 29 of the ITAT rules and stated that coordinate bench has an inherent power to require any document to be produced or any witness to be examined for pronouncing its judgment for substantial cause, while adjudicating the issue. He further relied upon the decision of the honourable Supreme Court in case of Arjun Singh vs Kartar Singh AIR 1951 Supreme Court 193 and decision of the honourable Gujarat High Court in Pari Mangaldas Girdhardas V CIT 1977 CTR 0647 (Guj). He further referred to the decision of the coordinate bench in Electra Jaipur Private Limited vs. Inspecting Assistant Commissioner (1988) 26 ITD 236. Thus he submitted that the above evidence now sought to be adduced as an additional evidence by the appellant are relevant to issue under consideration and would assist coordinate bench in adjudicating on the issue in appeal as well as quantification of the gain and therefore they must be admitted.

17. During the course of hearing, it was felt by the appellant that merely filing the balance sheet will not suffice, therefore to support the additional evidences, she filed a valuation report of category 1 merchant banker 3Dimension capital services Ltd, dated 9th may 2019 submitting the fair valuation of shares of Scorpio beverages Ltd at INR 9.934 per share and also valuation report by DBMS and Associates, chartered accountants, dated 10thMay 2019 considering the per sale value of Scorpio beverages private limited at INR 70.59 per share.

18. On the merits of the issue, he submitted that when the coordinate bench decided the issue, decision of the honourable Delhi High Court in case of Arjun Malhotra V CIT [ 403 ITR 354(Delhi)] was not available. In that decision it has been held that assessing officer could not have substituted the actual sale consideration‘ received by the assessee with another figure stating that this was the fair market value‘. Thus, he submitted that issue is now squarely covered in favour of the assessee and the sale price cannot be substituted by fair market value. Thus, whether the impugned asset is a short-term capital asset or long-term capital asset, he relied upon the decision of the coordinate bench submitting that it is a long-term capital asset. For determining the full value of sale consideration, he relied upon the decision of the honourable Delhi High Court.

19. Even otherwise, without prejudice, subject to admission of additional evidences, he submitted that the valuation of the share has to be taken according to rule 11 UA of The Income Tax Rules 1962; therefore, it has to be correctly valued. He submitted that the additional evidence submitted before the bench shows the correct valuation of those shares. He extensively referred to the rule 11 UA of The Income Tax Rules 1962 and submitted that when the equity shares are to be valued of a particular company, the preference share capital is to be considered as a liability, otherwise the valuation of equity shares cannot be made, if they are not excluded. He further referred to discrepancies in valuation of AO with respect to each item and tried to substantiate with the balance sheets.

20. The learned departmental representative vehemently opposed the submission of the assessee by letter dated 21/5/2019. Firstly, it referred the facts of the case and then the issue involved therein. It was further stated that in the case of Sri Analjit Singh, issue has been decided that capital gain should be treated as a long-term capital gain‘ and restricted the sales consideration at fair market value of share at INR 131.86 per share. It was stated that the issue with regard to the computation of fair market value of shares of Scorpio beverages Ltd has been decided by the coordinate bench and the issue with regard to the treatment of capital gain from short-term capital gain to long-term capital gain is a debatable one and pending adjudication before the Honourable Delhi High Court. It was further submitted that revenue has also challenged the above decision of the coordinate bench in ITA number 819/2018 before the Honourable Delhi High Court. It was further submitted that though the assessee has a liberty to file additional evidences under rule 29 of The Income Tax Appellate Tribunal Rules, however, it is important to note that what has prevented the assessee to file the same earlier before the assessing officer or before the 1st appellate authority. During the course of assessment proceedings, the assessee submitted the valuation of shares of Scorpio beverages private limited by Kotak Mahindra Capital Company limited, which was undertaken by the valuer on behalf of purchaser of the shares. Thus, it was the interested party and such valuation report cannot be considered. Therefore, it was submitted the same has rightly been rejected by the learned assessing officer. Even otherwise, the learned assessing officer has found serious errors in the report of the valuer. Even otherwise, it was submitted that Scorpio beverages private Ltd is one of the holding company of Vodafone India Ltd and hence, the shares of this company determines its value form the valuation of Vodaphone Limited, cannot be valued at INR 63.65 per share. It was further stated that assessee has earlier also made an attempt for consideration of fair market value by filing of a miscellaneous application before the coordinate bench in case of Husband of the assessee, which was turned down by the coordinate bench stating that the issue was not pressed by the Counsel of the assessee during the appellate proceedings. Hence, it could not be considered in MA now. Therefore, it was submitted that when assessee has accepted FMV noted at Rs 131.86 per shares in the case of the husband of the appellant, on the identical issue, therefore, for this reason alone also it could not be agitated now. Even otherwise, it was submitted that the additional evidences could not be accepted for the reason that it were not filed before the assessing officer or before the first appellate authority and they did not have any occasion to examine these additional evidences with regard to its genuineness and correctness. Even the coordinate bench in case of the husband of the appellant has not provided an opportunity to the assessing officer and accordingly the opportunity for examination of the valuation by the Department must be provided to the assessing officer. It was further stated that the issue regarding calculation of fair market value is not a legal issue and being a factual issue, it must be dealt with by the assessing officer only since it requires a detailed investigation/ examination, keeping in view all the assets and liabilities of each entity separately. The fair market value cannot be vetted or undertaken simply based on certain papers filed by the assessee. The documents and auditor‘s report filed by the assessee are to be tested on the actual confirmation from the party to whom these details are pertaining and subsequently the same is confronted to the assessee for a submission or justification. Therefore, it was submitted that the coordinate bench firstly should not consider the additional evidence filed by the assessee.

21. It was further contended that Piramal Healthcare Limited was also holding 97 percent in shares of Vodafone India Ltd and after undertaking an independent valuation of fair market value of shares of Vodafone India Ltd, stake of that company was transferred to Premi Metals Limited, a Mauritius-based foreign company at INR 8900.44 crores in March 2014. Based on this valuation, 100 % fair market value of shares of Vodafone India Ltd comes to INR 811,343,700,000 whereas the FMV of the shares of Vodafone India Ltd has been valued by the Kotak Mahindra capital company limited at INR 56448.30 only which is not accepted by the assessee based on the additional evidences filed by the assessee. All these facts clearly shows that the assessee is not accepting the valuation of other independent valuer and trying to make all efforts to accept the valuation submitted by her only.

22. The learned DR, without prejudice to the above issue submitted that it is pertinent to mention here that there are no mention of what procedure was followed, as to how the valuation is done by the valuer in the additional evidence submitted, except copy of the balance sheet, profit and loss account and auditor‘s report along with schedules and annexure. In the absence of any footnotes or explanation for calculating the fair market value of shares it is not possible for the learned assessing officer to examine its correctness or genuineness. Thus, it was submitted that the since matter regarding valuation of fair market value is not accepted by either of the parties, it is prayed to restore the matter back to the file of the assessing officer for fresh adjudication only with respect to valuation aspect, with a direction to undertake the valuation of the fair market value afresh from the independent valuer.

23. Further, on 31/5/2019, the learned CIT DR objected to the valuation report by a merchant banker submitting that assessee, on her own, has engaged 3Dimension capital services Ltd to prepare a valuation report based on the information provided by her. It was submitted that this merchant banker is not of international repute, as the name of this company is not coming up on the information retrieved online. It was stated that the according to the terms and conditions of Framework agreement, for valuation of fair market value of shares must be done by a merchant banker of international reputation. It was further stated that as decided by the coordinate bench in case of husband of the assessee and rejection of the miscellaneous application, the matter stands finally adjudicated and now it cannot be disturbed. She further relied upon the decision of the honourable Supreme Court in case of Radhasamoi Satsang vs Commissioner of income tax [1992] 60 Taxman 248 (SC)/[1992] 193 ITR 321 (SC)/[1991] 100 CTR 267 (SC) submitting that parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case by relying on the full bench decision of the honourable Madras High Court [ 4 ITC 226] . She referred to para number 11 and 12 of the order of the honourable Supreme Court. Ld AR stated, without prejudice to above contentions of the revenue, in case the plea of the assessee is accepted, the matter may kindly be restored back to the file of the learned assessing officer for obtaining a fresh valuation report from an independent valuer of international repute, so that the fair market value of the same can be examined for its correctness and in the alternative the price determined by the coordinate bench in case of Sri Analjit Singh should be followed.

24. The assessee submitted rejoinder to the replies of the learned CIT DR. It was submitted that the computation submitted by the revenue was later found to contain several errors in the case of the husband of the assessee and therefore the correct value of assets and liabilities of the intermediary companies had not been properly recorded. This resulted in incorrect valuation of INR 131.86 per share, which was adopted, as it is, by the coordinate bench, without any further verification. The coordinate bench also did not verify/examine the computation; whether it met, the norms specified by the rule 11 UA of The Income Tax Rules. It was stated that when the present appeal came for hearing before the coordinate bench, on the first instances, issue of correct computation of valuation , which had been filed by way of a miscellaneous application in case of husband of the assessee, where the value of the share was worked out at INR 73.54 per share. Further, on the claim of the revenue is that the balance sheet et cetera of this intermediary companies were not filed during the course of assessment and appellate proceedings, it was submitted that the end goal of the assessee by bringing the said evidence on record is that the correct value can be determined. The need for such additional evidences arises because during the proceedings in the case of appellant‘s husband, no opportunity was given for such a correction. With respect to the claim of the revenue, about the value of Vodafone India Ltd, it was submitted that assessee and her husband has not sold the shares of Vodafone India Ltd but of Scorpio beverages Ltd. This company is many level above the chain of the intermediary companies and if the value of the shares of Scorpio beverages private limited were computed, it would work out to INR 57.50 per share while the appellant has sold the shares of that company at an average price of INR 63.65 per share. Therefore the argument of the learned assessing officer/CIT DR is of no significance. It was further stated by filing the additional evidences; the intention of the assessee is to request the coordinate bench to get on record the correct computation in the present appeal so that it may be verified by the assessing officer. It was stated that this is also the request of the revenue. In the end, it was submitted that present appeal is yet to be adjudicated and the conclusion of the coordinate bench of the tribunal in the decision of the appellant‘s husband are likely to influence the present case also, therefore, to avoid irreparable injury to the assessee, additional evidences submitted by way of this application, complies with the law and therefore should be admitted.

25. Subsequently during the course of hearing, the learned CIT DR submitted a letter dated 4/6/2019, stating that the facts of the case is squarely covered by the findings of the coordinate bench in case of husband of the assessee in ITA number 4737/Del/2018 dated 1/12/2070. Despite this fact, the assessee has filed the additional evidences under rule 29 of the ITAT rules 1963 challenging the valuation of the shares of Scorpio beverages private limited, which was actually the value of transfer of shares of Vodafone India Ltd. The revenue strongly argued that these additional evidences should not at all be entertained. Further, it was submitted that a special Counsel has been appointed in the present case; therefore, he should be heard. The coordinate bench, after considering the request of CIT DR, adjourned matter further as it was informed that Mr. Zoiab Hussain , senior standing counsel has been appointed to argue the case on behalf of the revenue.

26. Subsequently, the learned senior standing counsel Mr. Zoaib Hussain appeared and submitted a compilation of judicial precedents containing six judgments of honourable Supreme Court and high courts.

a. He 1st referred to the decision of the learned assessing officer as well as the learned CIT – A for the reason that why the order of coordinate bench in case of the husband of the appellant partially should not be applied.

b. He referred to the decision of the honourable Supreme Court in case of Srimati Tarulata Shyam & Others V Commissioner of income tax (1977) 3 SCC 305. He referred to paragraph number 35 of that decision and stated that there appears to be no justification to depart from the normal rule of construction according to which the intention of the legislature is primarily to be gathered from the words used in the statute. He submitted that one has to look in taxing act merely at what is clearly sale. There is no room for any intend meant. There is no equity about the tax. There is no presumption as to tax. Nothing is to be read in and nothing is to be implied. One can only look fairly at the language used. He therefore stated that once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hearts it may appear to the judicial mind. He referred to section 2 (42A) of the act, and submitted that in its plain meaning the equity shares of a unlisted company can only become long term assets if held for more than 36 months.

c. He further referred to the decision of the honourable Supreme Court in case of CIT vs Asoka Chimanbhai 56 ITR 42 wherein in para number 6 it is held that under the income tax act income is taxable when it accrues, arises or is received or when it is by fixation deemed to accrue, arise or is deemed to be received. He submitted that receipt is not the only test of chargeability of tax if income accrues or arises it may become liable to tax. He submitted that the word accruing and arising are used to contradistinction the word receive.

d. He further referred to the decision of the honourable Supreme Court in 18 ITR 47 to CIT vs Ahmadbhai Umarbhai & co wherein at para number 35 it is held that strictly speaking the word accrue is not synonymous with arise the former, noting idea of growth or accumulation and the letter of the growth or accumulation with tangible shape so as to be receivable. He further stated that there is a distinction in the dictionary meaning of these words, but throughout the act they seem to did not the same idea or ideas very similar and the difference only lies in this that one is more appropriate when applied to a particular case.

e. He therefore submitted that what has accrued to the assessee is on sale of the shares of Scorpio beverages limited is the value derived from Vodaphone India Limited. Therefore, there is no infirmity in the valuation adopted by the ITAT. He submitted that it is the correct income accruing to the assessee.

f. To support his contentions he referred to the decision of the honourable Bombay High Court in CIT vs Shakuntala Kantilal 190 ITR 56 to submit that legislature while using the expression full value of consideration as contemplated both additions to as well as deductions from the appellant value. What it means is the real and effective consideration. He further referred to the decision of the honourable Supreme Court in the E D Sassoon and Co Ltd, Bombay vs. The Commissioner of income tax [ AIR 1954 SC 470 ] to further the case of the revenue that income may accrue to an assessee without actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received a letter on its being ascertained. The basic concept is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. According to him, unless and until there is created in favour of the assessee as a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.

g. He further referred to the decision of the honourable Kerala High Court in Abdul Rahiman vs the District collector [2009 (4) KLT 485] wherein the decision of the honourable Supreme Court in official liquidator vs Dayanand and others (2008) 10 SSC 1 was quoted. He extensively referred to para number 90 and 91 of that decision thereby impressing upon the fact that as issue has already been decided by the coordinate bench in case of the husband of the appellant, judicial discipline requires that that decision be followed in this case. He submitted that the rules that have been laid down by the coordinate bench in case of husband of the appellant should be In a case, if the bench has a different view, the matter should be referred to the larger bench.

h. He further submitted that share purchase agreement which is the 1st agreement have never been rescinded by the assessee. He further referred to the new agreement and stated that it speaks about subject to the framework agreement therefore claim of the assessee that the framework agreement has been rescinded is devoid of any merit he referred to the framework agreement which is placed at page number 352 – 375 of the paper book of the assessee and specifically submitted para number 4.4, 4.6 in schedule 1 of that agreement to substantiate his claim.

i. He further referred to the agreement dated 5/7/2000 to place at page number 376 of the paper book, which speaks at para number 4.6 about the transfer price and schedule 1 being the determination of the transfer price. He therefore submitted that there is no infirmity in the order of the learned CIT – A partially agreed with the order of the coordinate bench. He further stated that the valuation adopted by the valuer of Vodaphone Ltd has shown the valuation of that company. The assessee is a shareholder in Scorpio beverages private limited, which derives its valuation, only from the valuation of Vodaphone Ltd, therefore, the valuation adopted in the order of the coordinate bench now cannot be disturbed.

j. In the end, he submitted that additional evidences submitted by the assessee cannot be admitted and the decision rendered by the coordinate bench binds us,

i. with respect to the characterization of the asset i.e. whether it is a long-term capital asset or a short-term capital asset,

ii. full value of consideration for computation of capital gain accrued or received by the assessee determined at INR 131.86 per share in that decision and

iii. Not allowing the interest cost deductible item for computation of capital gains.

27. In rejoinder, the learned authorised representative referred to para number 10 of the order of the coordinate bench in miscellaneous application number 742/Del/2017 dated 19/3/20 18, wherein the revenue has objected to submission of a fresh paper book containing set of financial statements of intermediary companies and prayer of the assessee that rectification of computation be done including reduction of Preference shares capital of 5 intermediary companies from their net asset value for calculating Equity share value of Scorpio beverages private limited. He then referred to para number 12 of that order wherein the finding of the coordinate bench was given. He further referred to para number 13, wherein the coordinate bench directed the department to file the calculation in accordance with rule 11 UA so that the correct sale value price of unquoted shares could be worked out. Thereafter , he referred to paragraph number 64 – 65 of the order of the coordinate bench in ITA number 4737/Del/2017 wherein it is mentioned that learned counsel of that assessee has not disputed the figure of INR 131.86 per share but has challenged the entire valuation set out there in on the ground that the actual consideration received has to be accepted. He then referred to paragraph number 14 of that order wherein the coordinate bench once again reiterated that the share value of Scorpio beverages private limited should be taken at INR 131.86 per share, which as directed by the tribunal to the Department, was to be worked out in accordance with rule 11 UA of the income tax rules where same was confronted to the assessee but assessee continued to harp upon that it is actual sale consideration should be accepted. In absence of any rebuttal by the assessee, the working given by the Department was accepted, as there was no apparent error pointed out. He further stated that in the miscellaneous application various errors were pointed out. He submitted that in the present case the assessee since the beginning harping upon the fact, that there is an error in the computation of fair market value of shares under rule 11 UA of The Income Tax Rules. He stated that immediately after filing of the appeal, assessee has filed the balance sheets of the intermediary companies to point out the error. He further submitted that during the course of hearing also the assessee is showing apparent error. He further referred to rule 11 UA of The Income Tax Rules for valuation of equity shares. He submitted that in that rule what the liabilities are not to be taken are specifically mentioned. He submitted that when the equity shares are to be valued which are unquoted, only the equity share value recorded in the balance sheet and relevant reserves and surpluses are only left to the added or deducted. He submitted that it proves that preference shares are different from equity shares and while valuing equity shares, if the preferential capital is also excluded then it gives the value of equity shares plus preference shares. He submitted that for the purpose of valuation of equity shares only specified items mentioned in rule 11 UA (1) (c) (b) is to be seen. He further took us to that rule to state that there is an apparent error in the valuation made by the revenue. He therefore submitted that as assessee is contending since the date the appeal, first taken up for hearing to correct the above computational error, additional evidences were submitted.

28. With respect to the adjustment of Preference share capital of five step down companies , he referred to

a. Audited balance sheet of JK finholding (India) private limited as at 31st of March 2013 and referred to note number 3 wherein non-cumulative redeemable nonconvertible preference shares of INR 100,000 each amounting to INR 8 709, 000, 000/– were outstanding as on 3 1/03/2013.

b. He further referred to the audited accounts of SMMS investments private limited for the year ended on 31st of March 2013 and referred to note number 3 where 1183005,000 Preference shares as of INR 10/– each of 0.0001% cumulative redeemable preference shares of series I,II and III were outstanding amounting to Rs. 11830050, 000/–.

c. He further referred to the balance sheet of Telecom Investments India Private Limited for the year ended on 31stof March 2013 and referred note number 3 where 6924 noncumulative, redeemable, nonconvertible preference shares of INR 1,000,000 each were outstanding amounting to INR 6924000, 000/–.

d. He further referred to the annual accounts of MV healthcare services private limited for the year ended on 31stof March 2013 wherein in the disclosure of class of share capital the outstanding preference shares were amounting to INR 2 1640,00,000/–.

e. He further referred to annual account of Plustech mercantile company private limited as at 31/03/2013 where 1351 preferential shares were issued and the outstanding value is Rs. 135,10,00,000 is outstanding.

Therefore, he submitted that non-deduction of the above preferential capital while working out the price of equity shares of those companies cannot be taken. He further referred to page number 8 of the detailed working of the value of shares of Scorpio beverages private limited. He submitted that as per the order of the coordinate bench the value of the shares was determined at INR 131.86 per share. However, while working out the above preference share capital has not at all been adjusted. He therefore submitted that it is a glaring error in the computation of the value of shares of Scorpio beverages private limited.

29. He further submitted that there are certain factual errors while taking the figures from the annual accounts of those companies. He took us at page number 8 wherein a comparative chart has been prepared comparing the value adopted by the revenue at INR 131.86 per share with respect to different scenarios. He submitted that if the preference share capital is not taken in computation correctly, there are such a glaring factual errors that if those are rectified based on the audited annual accounts of those companies the value per share comes to INR 106.25 per share. He referred to column number C wherein he submitted that if the factual error of not taking the correct figure is not rectified but if the preference share capital is reduced the valuation per share will come to INR 101.11 per share. He referred to column number D to state that if the figures are correctly taken from the annual accounts and rule 11 UA is applied by reducing the preference share capital for purpose of valuation of equity share capital of those companies, then the price per share of Scorpio beverages private limited comes to INR 70.59 per share. He thus submitted that even if the valuation is taken as per Rule 11 UA of the IT rules 1962, the correct FMV comes to Rs 70.59 per share only. He therefore submitted that these are only the factual errors in the computation given by the revenue, which needs to be verified and corrected, and principally it needs to be held that preference share capital cannot be included in the above valuation. He submitted that even if these additional evidences are not admitted, the revenue must to compute the correct amount of value per share of Scorpio beverages private limited by taking the actual figures from the audited annual accounts of those intermediary companies and apply the provisions of rule 11 UA correctly. For this simple reason, the assessee, without prejudiced of its contention on any other ground of the appeal, submits that such correct valuation should be adopted.

30. On the other issues as per ground number 2 to 20, he submitted that the issue of long-term vs short-term capital gain has already been decided by the coordinate bench in the appellant‘s husband case holding that the assets transferred by the assessee in the form of shares of Scorpio beverages private limited are long-term capital asset and therefore gain arising therefore is chargeable as long-term capital gain. With respect to share valuation, he submitted that the issue squarely covered against the assessee by the decision of the coordinate bench in above decision, however he submitted that if the additional evidences were admitted suggesting the correction in the valuation thus ground number 2 – 20 of the appeal covers those issues.

31. On the issue of interest capitalization as per ground number 21 – 22, he submitted that this issue is also covered against the assessee by the decision of the coordinate bench in case of husband of the appellant.

32. We have carefully considered the rival contention and perused the orders of the lower authorities. We have also considered the decision of the coordinate bench in the case of husband of the appellant wherein the issue with respect to

a. characterization of shares held by assessee in Scorpio beverages private limited whether long-term capital asset or a short-term capital asset,

b. full value of the consideration received and accruing to the assessee and

c. capitalization of the interest costs has been decided by the coordinate bench.

33. It is important to note that identical issue has been decided by the coordinate bench, therefore we are duty bound to follow the same, if the issue is decided by the bench after examination of the facts. We are also conscious about the fact that both the parties have challenged the same before the Honourable Delhi high court.

34. Now we 1st come to the issue of admission of the additional evidences submitted by the assessee. For admission of additional evidences Hon Gujarat High court in PARI MANGALDAS GIRDHARDAS vs. COMMISSIONER OF INCOME TAX (1977) 45 CCH 0380 GujHC(1977) 1977 CTR 0647 (Guj) has laid down certain parameters in para no 48 as under :-

48. The principles, which emerge from the decided cases are, as earlier stated, applicable even in relation to the exercise of power under the first part of r. 29 and accordingly, in the context of exercise of such power, the following principles should be borne in mind :

(1) The discretion given to the Tribunal to receive and admit additional evidence is not an arbitrary one but is a judicial one circumscribed by the limitations specified in r. 29;

(2) The Tribunal has the power to allow additional evidence if it requires such evidence to enable it to pass orders, that is to say, when it finds that there is any lacuna or defect which needs to be filed up so that it could pronounce an order;

(3) The Tribunal has the power to allow additional evidence also if it requires such evidence for any other substantial cause, that is to say, even in cases where the Tribunal finds that it is able to pronounce judgment on the state of the record as it is, it may still allow additional evidence to be brought on record if it considers that in the interest of justice something which remains obscure should be filled up so that it can pronounce its order in a more satisfactory manner

(4) Such requirement in either case arise ordinarily unless some inherent lacuna or defect becomes apparent on a examination of the evidence and, therefore, the legitimate occasion for the exercise of discretion under r. 29 is not before the appeal is heard but when on an examination of evidence as it stands, some inherent lacuna or defect becomes apparent;

(5) Such defect may be pointed out by a party or a party may move the Tribunal to supply the defect or the Tribunal itself may act suo motu in the matter;

(6) if the additional evidence is allowed to be adduced contrary to the principles governing the reception of evidence, it would be a case of improper exercise of discretion and the additional evidence so brought on record will have to be ignored; and

(7) a fortiori, if the decision not to allow additional evidence is arrived at unreasonably or capriciously or by ignoring relevant facts and adopting an un-judicial approach, then the exercise of discretion would, in law, be wrongful and improper

35. On the above set of principles, We have carefully perused the application of the assessee, which requests for admission of the various balance sheets of intermediary companies whose valuation is to be made for determining the full value of the consideration accruing or arising to the assessee for taxability of long-term capital gain on sale of shares of Scorpio beverages private limited. In the case of the husband of the assessee, the above evidences were not admitted by the court for the reason that it was during the course of hearing those evidences were not produced but submitted in the miscellaneous application. Further, the coordinate bench has noted that assessee did not challenge during hearing of appeal the valuation made of INR 131.86 per share being fair market value of the shares of Scorpio beverages private limited. In the present case, since the 1st hearing, assessee is challenging the fair market value of those shares and submitting that they have been incorrectly valued by plotting the wrong figures from the balance sheet of the intermediary companies as well as computing the fair market value of those shares incorrectly by not adjusting the book value of the preference share capital for valuation of the equity share capital as per mandate of Rule 11 UA of the IT Rues. Further, the copies of the balance sheet submitted by the assessee are available in public domain from the website of Ministry of corporate affairs. Even the ld AO has worked out the valuation from those balance sheets only. Therefore so far as the balance sheet of intermediary companies are concerned they are admitted because without admitting them and examining them it is not possible for anyone to work out the valuation of the shares transferred by the assessee. It is not the claim of the revenue that AO provided these balance sheets to the ITAT in case of Mr. Analjit Singh. It is the claim of the AR that nobody verified the computation submitted by ld AO, without these balance sheets on record even now nobody would be able to say anything about correctness of the valuation of those shares u/r 1 1UA of The IT Rules. Further, conceptually the valuation is to be done as per the dictate of the coordinate bench in case of the assessee‘s husband according to rule 11 UA of The Income Tax Rules. The rule 11 UA speaks about the book value‘ of the assets and liabilities for working out the valuation of the unquoted shares, Book values can only be found from the annual audited accounts of those companies, therefore it is mandatory to admit the above evidences so far as the balance sheet of the subsidiary companies are concerned. Hence, we admit the annual accounts/balance sheets of the intermediary companies submitted by the assessee.

36. The next additional evidence submitted by the assessee is the valuation report submitted by the assessee of SEBI registered category 1 merchant banker 3Dimension capital services Ltd dated 09/05/2019. According to such report, the fair valuation per share is INR 9.93. The assessee has also submitted as additional evidence the certificate [ valuation report] of the chartered accountant dated 10th may 2019, which has valued the sale price of INR 70.59 per share. Both the above evidences submitted by the assessee are contradictory and does not show the reason how the valuations have been carried out. With the certificates, no balance sheets or source of information obtained by them was mentioned. The only source of information stated in the certificate of merchant banker is certified true copy of the audited financial statement and notes on accounts of Scorpio beverages private limited; however, there is no reference of the financial results of the five intermediary companies, which is mandatory for the purpose of valuation as per the order of the coordinate bench. In view of this, the certificate issued by the merchant banker is not admitted and deserves to be rejected as additional evidence as it is no evidence. It does not help also in adjudication of the issue involved. Further, the certificate issued by the chartered accountant is also not accompanied by the various authenticated balance sheets of the intermediary companies whose figures have been incorporated in the certificate. Furthermore the scope of work and data relied upon by the chartered accountant is merely the working submitted by the income tax department in case of Mr. Analjit Singh. Further, in the conclusion, they have verified the valuation sheets however, there is no mention of what valuation sheets have been verified by them. The corrected valuation sheets enclosed with the certificate is merely the arithmetical exercise. Hence, the certificate issued by the chartered accountant is also not admitted as additional evidence. For rejecting the above two certificates of merchant banker and chartered accountant, we are also of the view that there was no application for admitting such evidences in case of husband of the assessee where the valuation has been arrived at by the coordinate bench. Another reason is that assessee during the course of hearing before us has stated so many different figures of valuation at different places, therefore these certificates have lost their evidentiary values as all those certificates of experts have been obtained by the assessee without proper supporting. Thus, only the balance sheets, which have been found from the website of MCA, uploaded by those companies, are only the reliable evidences, which are required to be admitted. Hence, both the certificates of valuation are rejected as additional evidence.

37. In view of this, the application of the assessee for admission of the additional evidences is partly allowed admitting the Annual accounts of the intermediary companies and rejecting the valuation certificate issued by the merchant banker and the chartered accountant.

38. Now we come to the merits of the issue. The first issue is with respect to characterizing the assets being shares of the Scorpio beverages private limited i.e. whether they are long-term capital asset or short-term capital This issue has been considered by the coordinate bench in the case of the husband of the appellant as under :-

E. Issue relating to gain arising from sale of unlisted shares to be taxed as long-term capital gain or short term capital gain

83. In the return of income, the assessee has declared income of Rs. 825,12,22,942/- under the head ‘long term capital gains’ in respect of following shares sold during the year under consideration:—

Name of script Date of purchase Date of sale Period of Holding Capital gain/loss Rs.
Vana Hotels Pvt. Ltd. 13.07.2012 16.12.2013 17 months (9,190)
Vana Lifestyles Pvt. Ltd. 13.07.2012 16.12.2013 17 months (9,190)
Vana Resorts and Hotels Pvt. Ltd. 13.07.2012 16.12.2013 17 months (9,190)
Vana Retreats Pvt. Ltd. 13.07.2012 16.12.2013 17 months (9,190) –
Scorpio Beverages Pvt. Ltd. 0 1.04.2012 21.03.2014 23 months 8251,259,702
Capital Gain 825, 12,22,94

The AO, required the assessee to explain as to why the sale of shares of SBPL should not be taxed as short term capital gain in view of the provision of section 2(42A), as the period of holding is less than 36 months and being unlisted shares why it should not be treated as short term capital gain. In response, the assessee submitted that the assessee had acquired the shares of SBPL on 23.02.2006 (4100 original equity shares and right shares of 15,67,64,689 on 09.08.2012) and these shares have been sold by the assessee on 21.03.2014. Since the period of holding was more than 12 months, therefore, the capital gain was offered to tax as long term capital gain. The provision of section 2 (42A) as applicable for the AY 2014-15 provides that share of a company, whether listed or unlisted will be treated as ?long term capital asset? if the period held is more than 12 months. The exception was only curved out for unlisted shares sold on or after 1.07.20 14, from where the period for holding for unlisted shares to qualify as long term was increased to 36 months by the Finance (No. 2) Act, 2014, which again later on was reduced to 24 months by the Finance Act, 2016. However, the AO held that the proviso of sub-section 42A of section (2) clearly specifies that for the purpose of considering assets as ?short term capital asset?, the period of holding is 12 months instead of 36 months, which is only in respect of following:

Share or security listed in recognized stock
exchange in India;
Unit Trust of India;
Unit of a mutual fund under clause 23D of section 10; and
Zero coupon Bond.

In no other cases, the period of holding is 12 months. The 2nd proviso to section 2(42A) makes it very clear that for treating the assets as short term period, holding must be less than 36 months and not 12 months; and only period of holding for listed companies can be considered as 12 months instead of 36 months, if the particular share is transferred during the period beginning on 01.04.2014 and ending on 10.07.2014. After referring to these provisions, he re-characterized the long term capital gain and short term capital gain.

84. CIT (A) too upheld the action of the AO, observing that shorter period of holding of 12 months qua the unlisted shares instead of 36 months was applicable only in respect of shares transferred during the period beginning on 01.04.2014 and ending on 10.07.20 14 in terms of newly inserted 2nd proviso to section 2(42A) brought in the Statute by Finance (No. 2) Act, 2014, w.e.f 01.04.2015, i.e., AY 2015-16. Ld.CIT (A) held that since the impugned transaction of the transfer of unlisted shares of SBPL took place before 01.04.2014 and not between 01.04.2014 to 10.07.2014, therefore, the benefit of the newly inserted 2nd proviso to section 2(42A) was not available to the assessee.

Arguments on behalf of the Assessee:

85. Before us, Ld. Sr. Counsel, Mr. Vohra after inviting our attention to the provisions of section 2(42A) as was applicable to the year under appeal, i.e., in the AY 2014-15, submitted that it is an unambiguous from the plain reading of the section that the shorter period of holding of 12 months is applicable to the shares either listed or unlisted held in a company. There was no such distinction under the Statute for determining period of holding for the listed or unlisted shares. The condition of listing on a recognized stock exchange is applicable only to the category of security other than shares of a company. If the intention of the legislature was to provide the benefit of shorter period of 12 months only on listed shares then considering the meaning of the word securityas defined in section 2(h) of the Securities Contract Act, 1956, includes shares in a company and there was no necessity to carve out separate category share held in a company. To clarify this legal position, he took us to the legislative history of the amendments carried out from time to time in section 2(42A). First of all, we drew our attention to the amendment by the Finance Act, 1987, wherein shorter period of holding of 12 months in certain exception cases was inserted in section 2(42A) of the Act, whereby a proviso was added clearly specifying that in the case of share held in a company, 36 months was substituted with the period of 12 months. He also drew our attention to Finance Bill, 1987, and memorandum explaining the amendment and notes on clauses thereto. He also referred to the relevant portion of the speech of the then Finance Minister, wherein it was clarified that period of 36 months have been proposed to be reduced to holding period of 12 months for the shares. In the amendment brought by the Finance Act, 1994, the proviso to section 2(42A) was further amended to include the category of other securities listed in a recognized stock exchange in India which was applicable to the AY 2014-15, including the assessment year under consideration. The aforesaid inclusion was to the extent of benefit of shorter holding period for a new category of financial instrument, i.e., in security other than shares in a company. The condition of listed in a recognized stock exchange was applicable only to the new category and not to the earlier category to the share held in a company. To clarify the purpose in the legislature he again drew our attention to Memorandum explaining the amendments made by the Finance Bill, 1994 and notes on clauses thereto. From the extracts of memorandum and notes on clauses, he submitted that it clarifies that the purport of the amendment in proviso to section 2(42A) was to extent to the benefit of shorter period of holding of 12 months to all other financial instruments/securities which are listed on stock exchange in order to provide level playing field in investment in shares of a company whether listed or unlisted. Coming to the amendment brought by the Finance (No. 2) Act, 2014, whereby the provisions of section 2(42A) were further amended and the words shares held in a company were removed from first proviso w.e.f. 01.04.2015, thereby taking away the benefit of shorter period of holding of 12 months available to unlisted shares to qualify as long term capital assets. Simultaneously, 2nd proviso was inserted to provide that unlisted shares sold during the period 01.04.2014 to 10.07.20 14 would enjoy the benefit of shorter period of holding of 12 months to qualify as long term capital assets. The said amendment itself goes to prove that the benefit of shorter period of 12 months was available to unlisted shares prior to the said amendment and if the contention of the AO is to be accepted then there was no necessity for the legislature to introduce the aforesaid amendment. He again made reference to explanatory notes to the amendments and the CBDT Circular No. 1/2015 dated 21.01.2015, wherein the purpose of bringing the said provisions brought w.e.f. 01.04.2015 has been clearly spelt out. Thus, he submitted that considering the facts that all unlisted shares sold during the year were held by the assessee for the period of 12 months, then surplus arising from sale thereof were taxable as long term capital gains.

Arguments on behalf of the Revenue:

86. On the other hand, Special Counsel, Mr. G.C. Srivastava referring to the provision of section 2(42A), submitted that capital assets shall be regarded as ” short term capital assetsif it is held for a period of not more than 36 months immediately preceding the date of transfer. The proviso to the said section carves out exception of the rules set out in the main provision which provides that in the case of;

a share held in a company or any other security listed in a recognized stock exchange in India or;

(ii) a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963; or

(iii) a zero coupon bond;

The capital asset would be regarded as a short term capital asset, if it is held for a period of not more than 12 months. He then drew our attention to the meaning of the section 2(H) of the securities as defined securities, contracts (regulations) Act, 1956 which reads as under:”

(h)securities ” include —

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

The definition is very wide enough to include not only shares but all other marketable Securities of a company or other body corporates. He emphasized that” Shares and Securitiesare not two distinct items. The latter includes the former.

87. He further submitted that the proviso to section 2(42A), when read in the above backdrop, leaves no room for any doubt that the sharesor any other security have got to be listed in a recognized stock exchange to become entitled to the exception (in effect a lower holding period) contained in the proviso. The use of the expression or any other security necessarily puts the shares and other securities as a class and these have got to be listed to enjoy the benefit of the proviso. The words ” any other”  put the two-shares and other securities-in the same basket. One cannot be read  independent of the other. The contention put forth by the assessee cannot flow from the language employed in the proviso. If the legislative intent were to treat the shares as a different class from other securities, the only way such an intent could be expressed was either to add a second proviso carving out an exception to the first proviso or to use the expression securities (other than shares) in the proviso itself as has been done in the proviso while carving out similar exception for units by the subsequent amendment made by the Finance Act of 2014. The law as amended reads ‘a security (other than a unit)’. This could be the only way the provisions would have been drafted had the legislative intent been the same as the appellant is seeking to canvass. This contention becomes significant in view of the fact that the law as enacted, imports the definition of securities as contained in the Securities Contracts Regulation Act by virtue of Explanation 2 to the provision. It would really be a wholly untenable proposition to suggest that the qualification of being listed in a stock exchange will apply to all securities other than shares. Such an intention of the lawmakers would necessarily have to be stated in express terms and cannot be inferred more so when the definition of the Security stands imported by virtue of the aforesaid Explanation. The entire thrust of the argument of the Ld. Sr. Counsel is that in earlier years, shares (listed or unlisted) enjoyed a lower holding period to fall in the exception and the law as introduced w.e.f. 0 1.04.1995 cannot be read otherwise. He submitted that any reference to earlier enactments or the subsequent amendments is irrelevant and wholly out of context for the reason that:

there is no ambiguity in the language employed in the proviso;

the listing requirement for being entitled to the exception contained in the proviso was introduced for the first time w.e.f. 01.04.1995 and once this condition was brought in, it was applicable to all kinds of securities of a company as defined in Securities Contracts Regulation Act unless stated otherwise in express terms;

it would be absurd to assume that the legislature intended all securities other than shares of a company to undergo the rigors of being listed but not the shares of a company.

88. The reliance of the Ld. Sr. Counsel on certain sentences appearing in the Explanatory Memorandum to the subsequent amendments to section 2(42A) is incorrect for the reason that:—

the Memorandum does not seek to explain the provisions as applicable to the year under appeal;

absent any ambiguity in the language employed in the applicable statute, such reliance is unnecessary and uncalled for;

such a Memorandum cannot assign a meaning to a statutory provision which does not expressly flow from the said provision. (In this case, it runs contrary to the provision)

He submitted that, it is a well-accepted rule of interpretation that the use of a comma or the absence of it cannot alter an otherwise clear and unambiguous meaning flowing from the provision. He further submitted that both kinds of securities, shares of a company and securities other than shares of a company have to be listed in a recognized Stock exchange to fall within the exception contained in the proviso. The use of the expressions “any” and “other” leave no room for doubt in this regard. Subsequent amendments to the provision only support the case of Revenue. Thus, he submitted that the AO was fully justified in treating the right shares as short term capital asset and applying the prescribed rate of tax accordingly.

DECISION

89. We have heard the rival submissions, perused the relevant finding given in the impugned order as well as the relevant provisions as referred to by the parties. From the facts as narrated above, it is not in dispute that the period of holding of unlisted shares, i.e., ‘rights shares’ of SBPL is more than 12 months and less than 36 months (23 months). The assessee had offered the gains arising from sale of such shares as ‘long term capital gain’ which has been re-characterized/re-classified as short term capital gains by the Revenue authorities. At this stage, it would be quite relevant to refer to the relevant provisions under the Act. First of all, Sub-section (29A) of Section 2, defines ‘long term capital asset’ to mean a capital assets which is not a short term capital assets. The expression “short term capital asset has been defined in sub-section (42A) of section 2 which at the relevant time, i.e. upto A.Y. 2014-15 read as under:—

(42A) “short-term capital asset means a capital held by an assessee for not more than thirty-six months immediately preceding the date of its transfer:

Provided that in the case of a share held in a company or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or unit of a Mutual Fund specified under clause (23D) of section 10 or a zero coupon bond, the provisions of this clause shall have effect as if for the words thirty-six months, the words twelve months had been substituted.’ From the plain reading of the aforesaid section, it is clear that ?short term capital asset? has been defined to mean a capital asset held by the assessee for not more than 36 months immediately preceding the date of its transfer. The proviso thereto carves out an exception of such period of holding; firstly, in the case of a share held in a company; or secondly, in other securities listed in recognized stock exchange in India; or thirdly, Unit Trust of India established under the Unit Trust of India Act, 1963; or fourthly, unit of mutual fund specified under clause (23D) of section (10); or lastly, Zero Coupon Bond; and only for these categories of capital assets, the period of holding of 36 months have been substituted for 12 months. In other words, the capital assets enlisted in proviso shall be reckoned as short term capital assets if such asset are held by an assessee for not more than 12 months. So far as the term used shares held in a company are concerned, there is no category mentioned as listed or unlisted shares, albeit the condition for being listed in recognized stock exchange in India is for any other security. The expression listed in a recognized stock exchange in India is only used for the category of any other security and not for the category of share held in a company. When for the first time, the condition for the period of holding was curtailed from 36 months to 12 months by the Finance Act, 1987 it was only for share held in a company. This is clear from the following provision as then existed post amendment w.e.f. 01.04.1988:—

(42A) short-term capital asset means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer:

Provided that in the case of a share held in a company, the provisions of this clause shall have effect as if for the words thirty-six months, the words twelve months had been substituted.”

Here no such condition was placed in the aforesaid proviso for shares to be listed on a recognized stock exchange for taking the benefit of the reduced period of holding. When amendment by the Finance Act, 1994 was brought in the statute, so far as the category share held in a company, was concerned, the same was not disturbed, albeit, new category was included like’any other security listed in recognized stock exchange in India’. The said provision was amended to extend the benefit of shorter holding period, to a new category of securities other than shares in a company. Under this provision, the condition of listed in a recognized stock exchange was applicable only to the new category and not to the earlier category of shares held in a company. This has been clarified by Memorandum explaining the provision in the Finance Bill which read as under:—

Period of holding in the case of securities and units of Mutual Funds Long-term capital assets enjoy certain tax concessions vis-a-vis short-term capital assets. The Income-tax Act defines long-term capital assets as those assets which are not short-term. Short-term capital assets are those capital assets which are held for a period of up to 36 months. However, the Finance Act, 1987, through an amendment to the provisions of section 2 (4 2A), reduced the maximum period of holding in respect of company shares from 36 months to 12 months for being treated as short-term capital assets.

There are many financial instruments, other than company shares, through which the investors are entering the capital market. The units of the Unit Trust of India and Mutual Funds specified under section 10(23D) of the Income-tax Act are the instruments through which the small investors are increasingly getting the benefit of investment in the capital market. In order to provide such units and all the securities traded in the recognised stock exchanges a level playing field with company shares, it is proposed to amend the provisions of section 2(42A) so that the maximum holding period for which such instruments are to be considered as short-term will be 12 months in place of the present 36 months. In other words, such assets are proposed to be considered long-term capital assets if they are held for more than 12 months. The expression”securities will have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.

The proposed amendment will take effect from 1st April, 1995, and will, accordingly, apply in relation to assessment year 1995-96 and sub-sequent years.

[Emphasis added is ours]

The aforesaid memorandum clearly makes a distinction that there are many financial instruments other than the company shares through which the investor are entering the capital market. In order to provide such units and all the securities traded in recognized stock exchange; a level playing field with the company’s share is proposed to be amended. Thus, the said memorandum clearly makes a distinction between the company shares and other than company shares.

90. Now coming to the amendment by Finance (No. 2) Act, 2014, 1st & 2nd proviso as amended reads as under:—

‘Short-term capital asset” means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer:

Provided that in the case of a security (other than a unit) listed in a recognized stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust’ of India Act, 1963 (52 of1963) or a unit of an-equity oriented fund or a zero coupon bond], the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twelve months” had been substituted:

Provided further that in case of a share of a company (not being a share listed in a recognised stock exchange) or a unit of a Mutual Fund specified under clause (23D) of section 10, which is-transferred during the period beginning on the 1st day of April, 2014 and ending on the 10th day of July, ~ 2014, the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twelve months” had been substituted:’ [Emphasis added is ours]

The aforesaid provision which has been brought in the Statute w.e.f. 01.04.2015 applicable from the A.Y. 2015-16 has now removed the exception for the unlisted shares from the benefit of shorter period, because in the 1st Proviso, the benefit of period is now only limited to security listed in recognized stock exchange in India and to other financial instruments. In this manner the Legislature has clearly withdrawn the benefit of shorter period of less than 36 months for the unlisted shares. But, the 2nd proviso makes it very clear that the unlisted shares of a company or unit of mutual fund will enjoy the benefit of shorter period only when the shares are transferred during the period between 01.04.2014 to 10.07.2014.The CBDT Circular while providing the explanatory notes to the amendments has clarified the said amendment in the following manner:—

5.2. “The shorter period of holding of not more than twelve months for consideration as short-term capital asset was introduced for encouraging investment on stock market where prices of the securities are market determined. However, all shares whether listed or unlisted have enjoyed the benefit of short period of holding and even any investment in shares of private limited companies enjoyed long-term capital gains on its transfer after twelve months. Accordingly, clause (42A) of section 2 of the Income-tax Act has been amended so as to provide that an unlisted security and a unit of a mutual fund (other than an equity oriented mutual fund) shall be a short-term capital asset if it is held for not more than thirty-six months. However, in the case of share of an unlisted company or a unit of a Mutual Fund specified under clause (23D) of section 10 of the Income-tax Act, which is transferred during the period beginning on 1st April, 2014 and ending on 10th July, 2014, the period of holding for its-qualification as short-term capital asset shall be not-more than twelve months.”

Thus, the aforesaid circular clearly clinches the issue and clarifies that, firstly, the benefit of shorter period of holding of 12 months to qualify as long term capital asset to unlisted shares has been removed prospectively from A.Y. 2015-16 and not for the earlier years; and secondly, the benefit of short period for holding of unlisted shares would be available only when such shares are transferred during the period beginning on 01.04.2014 and ending on 10.07.20 14. Post 11.07.2014 the benefits of shorter period of unlisted shares could not be applicable.

91. Here in this case, the shares have been transferred prior to 31.03.2014, therefore, the newly amended Act would not be applicable at all and the assessee will get the benefit of shorter period, i.e., period of less than 36 months as given in section 2(42A) read with proviso thereto as per the relevant provision existed for the A.Y. 2014-15. Thus, we hold that the AO as well as Ld.CIT (A) are not justified in law in re-characterizing/re-classifying the ‘long term capital gain’ to ‘short term capital gain’ shown by the asessee. Accordingly, the gain on transfer of SBPL’s share would be taxable as ‘long term capital gains’ and not short term capital gains and resultantly, Ground No. 1 as raised by the assessee is allowed.

39. Therefore, respectfully following the decision of the coordinate bench in the case of Mr. Analjit Singh, we also hold that the gain on transfer of shares of Scorpio beverages P Ltd would be taxable as long-term capital gains‘ and not short-term capital gains‘ as assessee has held those shares for more than 12 months. Thus, ground number 4 – 8 of the appeal of the assessee is allowed to above extent.

40. Now we come to ground number 9 – 20 of the appeal of the assessee with respect to sales consideration received accrued to the assessee. The coordinate bench in case of the husband of the appellant has decided the whole issue as under:-

58. We will now dwell upon the core issue raised by the parties, that is, whether the sale consideration of Rs. 1241.32 crores can be said to have been “accrued” to the assessee in the facts and circumstances of the case as discussed in detail herein above, within the expression used in section Section 48 envisages that income must have been received or have accrued under section 48 as result of the transfer of a capital asset. The income may be said to have been ‘accrued’ if the assessee acquires the right to receive the income from the contractual obligation or as per any other legal obligation. It is sine-qua-non that the assessee must have acquired the right to receive the income and there is corresponding debt owed to him by somebody. The concept of accrual of income have been well-settled by the Hon’ble Supreme Court in the case of E.D. Sasoon & Co. Ltd. (supra) and CIT v. Shoorjee Vallabhdas & Co. [1962] 46 ITR 144 (SC). The principle as discussed in these judgments have been upheld and reiterated time and again by the Hon’ble Supreme Court in catena of decisions including that of Excel industries (supra) and Balbir Singh Maini (supra) as relied upon by Mr. Ajay Vohra. There cannot be any iota of doubt that the word “accrued” in section 48 means there has to be a right to receive the income arising from contractual obligation between the parties and such a right has to be with a corresponding liability of the other party from whom the income becomes due to pay that amount. Thus, one party has the right and the other party has liability to pay, but such right and liability has to originate from the understanding of all the terms and conditions of the contracting parties and the contractual obligation qua the transactions for which income can be said to be accrued to one party with the corresponding liability to pay on the other.

59. Here in this case, as discussed in detail, it is not a simple case of sale and purchase of shares emanating from Sale and Purchase Agreement dated 12.03.20 14.The rights and obligations of the parties for this particular transaction goes way back to the year 2006 and more particularly the year 2007,when the parties have entered into the Framework Agreement on 05.07.2007. The AS had held the shares of the Indian company HEL and then later on in VIL for the benefit of Hutch/Vodafone solely with the aim to beat the foreign equity cap for which the assessee was paid ?call option fee? for holding the shares with stipulation that shares would be ultimately transferred to Hutch/ Vodafone through their step down subsidiaries and “put option” would be exercised as when the cap is lifted at a pre-agreed price. The Framework Agreement of 2006 which is the precursor to the framework agreement of 2007, the stipulation for the value of consideration/transfer price was based on fair market value of issued share capital of HEL and such value of shares was determined at 0.23% of the value of shares of HEL. Later on when this framework agreement was superseded and re-entered between the parties on 05.07.2007, again the basis of transfer price for the entire share value of SBPL was linked with the fair market value of entire issued share capital of HEL (later on VIL). How it is linked with the fair market value of HEL, we have already discussed in the forgoing paragraphs. Succinctly, put the Scheduel- 1 which was for the determination mechanism of the transfer price of the SBPL’s shares, has fixed the transfer price in the year 2007 at US $ 266.25 million which converted into INR was Rs. 1088.43 crores. This transfer price of US $ 266.25 million was based on some illustrative working given in Schedule-2 which was though was to come into operation when the condition of the 2nd clause was to be fulfilled, i.e., the fair market value of issued share capital of HEL exceeds US $ 25 billion and then the SBPL value was again to be re-valued. This illustrative working, proceeds with the fair market value of HEL at that time at US $ 25 billion and with some hypothetical working and assumption of liabilities, a transfer price of US $ 266.25 million was arrived and the same figure has been incorporated in Schedule-1. Though, we have already observed that the amount of US $ 266.25 million may not be based on correct working or does not have any proper basis, but it clearly indicates that such a transfer price was to be computed after taking into account the fair market price/ value of equity capital of HEL, later on substituted with VIL. In all the subsequent Framework Agreements and Supplement Agreement, including the Share Purchase Agreement, the parties unequivocally have agreed that the transfer price has to be determined in accordance with the Framework Agreement and that to be of 05.07.2007. Nowhere the parties have rescinded or given go-by to said framework agreement. Albeit the parties have time and again have reiterated that the transfer price for SBPL?s shares is to be determined in accordance with the Framework Agreement of 2007, which in turn was based on the working of fair market value of HEL/VIL. Once there is binding contractual obligation as acquiesced by the parties’ agreement after agreement, then it cannot be held that such a binding contractual obligation amongst the parties has simply withered away without any agreed clause of rescinding or abrogating the earlier obligation. In fact there is unanimity permeating through all the agreements on such transfer price which is to be determined on the basis of fair market value of VIL and, therefore, it is binding on the parties. Thus, as per the binding agreement, the accrued price consideration for the transfer of the SBPL shares has to be determined on the basis of fair market value of VIL which here in this case has been pegged at Rs.56,448 crores as determined by the Kotak Mahindra by adopting DCF method and also accepted by the AO. Accordingly, we hold that in terms of section 48, what is accrued to the assessee on the transfer of the unquoted shares of SBPL, is that, which is determinable on the basis of the fair market value of VIL. On this reasoning, the arguments put forth by the Ld. Sr. Counsel that the consideration accrued to the assessee is only as per the share purchase agreement dated 12.03.2014 is not acceptable.

60. Once we have held that the accrued sale consideration of SBPL shares is linked with the fair market value of VIL, then we have to see as to what should be the valuation of SBPL shares. The assessee before the Revenue authorities and also before us, has strongly contended that the independent valuer Kotak who has valued the shares of SBPL at Rs.5.40 per share is the key to benchmark the price on which assessee has sold the shares under put option clause. First of all, on the bare perusal of the said ‘Valuation Report’ which has been placed in the Paper Book before us by the Ld. Sr. Counsel at page 85 to 190, it is seen that the equity value of VIL has been worked out by adopting DCF method in the following manner:—

Valuation Construct, as on February 28, 2014

Details INR in Million
Enterprise Value of VIL (A) 900,899
Enterprise value of Indus 432,701
Less: Net Debt of Indus (as on February 28, 2014) 67,909
Equity Value of Indus(B) 364,792
Consolidated Enterprise Value (A+42%B) 1,054,112
Less: Net Debt of VIL (as on February 28,2014) 489,629
Equity Value of VIL (C) 564,483

61. This value of VIL has not been disturbed by the AO even though in the year 2007, the value of HEL was indicated at US $ 25 billion which was at then more than Rs. 1 lakh crores. Since, the AO has accepted this valuation, therefore, we are not opining anything on this point. In the valuation report while determining the share value of SBPL, the valuer has adopted hybrid method, i.e., DCF method for VIL and net asset value method (NAV) for intermediary companies which does not finds any support under the Rule 1 1UA of the Act. From the perusal of the Annexure 8 of the said valuation report, we find that the working of the various liabilities is not based on actual ascertainment of liability albeit the figures of liabilities have been given by the companies, which is unauthenticated and uncorroborated. This is evident from the remark given in the valuation report at page 1 which for sake of reference is reproduced hereunder:—

“It is clarified that CGP has provided us with the historical financials of the companies in the Hold Co chain and SBP, and further, CGP has confirmed that since the companies in the Hold Co chain and SBP do not have any business operations, there are no projections/ forecasts available for the companies in the Hold Co chain and SBP. It is clarified that we have assumed and relied upon, without independent verification, the accuracy and completeness of the information/projections/forecasts provided to us, whether in oral or written form, or used by us and we assume no responsibility and make no representations with respect to the accuracy or completeness of any such information provided by VIL or CGP. We have assumed that VIL and CGP have furnished all information concerning the financial statement and assets and liabilities of VIL group, Indus, till earnings before interest and taxes, and all other cash flow items relevant for valuation. We clarify that in respect of VIL and Indus, we have not been provided with financial projections below earnings before interest and taxes or the balance sheet. Further, we have not been provided with financial projections for the companies in the Holdco chain and SBP. We have assumed that there is no material information or material change in the business and operations of VIL group, Indus, companies in the Hold Co chain and SBP post February 28, 2014 that would impact the valuation in this Report, and we assume no risk of any material adverse change having any impact on the businesses of VIL group. Indus, companies in the Hold Co chain and SBP.”

The said disclaimer of Kotak Mahindra itself diminishes the various figures of liabilities which have been taken into consideration while valuing the shares of SBPL. In any case, the liability of the intermediary companies which can be reduced for the purpose of valuation has to be seen with reference to Rule 1 1UA(2)(a), wherein following liabilities have stated to be not to be included:—

[2](a) the fair market value of unquoted equity shares =(A-L) × (PV),

(PE)

where,

A =book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance- sheet as asset including the un-amortised amount of deferred expenditure which does not represent the value of any asset;

  • = book value of liabilities shown in the balance-sheet, but not
    including the following amounts, namely:—

(i) the paid-up capital in respect of equity shares;

(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;

(iii) reserves and surplus, by whatever name called, even if the resulting
figure is negative, other than those set apart towards depreciation;

(iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

PE = total amount of paid up equity share capital as shown in the balance-sheet;

PV = the paid up value of such equity shares.

62. Section 1 1UA(2) also envisages that the fair market value of the unquoted shares can be determined as per discounted cash free flow method, i.e., DCF but here the valuer seems to have adopted NAV method and he has reduced even those liabilities which are not permissible under 1 1UA. Accordingly, we hold that the valuation done by the Kotak Mahindra Capital and the value of SBPL’s shares is not in accordance with Rules as given in Rule 1 1UA which is specific for valuing the unquoted shares. The reason for not following the value of Kotak for SBPL shares is that, the Valuer has adopted NAV for valuing the intermediary companies; and if NAV method is to be adopted, then he can reduced liabilities as envisaged under Rule 1 1UA and not any other liabilities suggested by the companies without being authenticated by the companies or independently examined by the Valuer. Only liability which can be excluded while examining the book value is the liability shown in the balance sheet.

63. When at the time of hearing, Ld. Sr. Counsel, Mr. Ajay Vohra pointed out that while taking the percentage of shares of the holding of VIL with the SBPL, has wrongly been taken at 9.65 % which in fact should be 8.90%. On this factual clarification, Ld. Special Counsel, Mr. G.C. Srivastava admitted that indirect stake of SBPL in VIL was 8.9% and if the stake of the assessee in VIL on pass through basis is taken, then it will come to 3.65 12% being 41% of 8.905% and not 3.95% as considered by the AO. Based on this clarification of exact percentage of shareholding at the time of hearing, we directed the concerned AO and the Addl. CIT who were present at the time of hearing to give a proper working of the value of SBPL’s share, firstly, by taking the fair market value equity of VIL at Rs.56,448.30 crores; secondly, to consider the actual liabilities as shown in the balance sheet of the intermediary companies as on 3 1.03.2013 (because the sale/transfer of shares took place on 12.03.2014, i.e., prior to 31.03.2014); and lastly, to give the actual value of SBPL’s shares based on this calculation after taking into consideration the correct holding of SBPL in VIL at 8.9055% and assessee’s stake which was 3.65 12 %. Based on these guidelines, the AO has filed the following calculation which is reproduced hereunder:—

Name of the Company
Share- holding in the immediate step down subsidiary in the chain
Details
Value as per Kotak Mahindra (in INR million)
VIL valuation as per Kotak DCF valuation of VIL and taking balance sheets of Intermediary companies (in INR million)
De scription of Basis of Cal culation
Profit/ (Loss)
Nature of Revenue
VIL
564,483
564,483
Omega
5.11%
Value of 5.1108% equity stake in VIL
28,850
28,850
Add: Value of Net Assets (Liabilities) excluding in VIL
502
486
Assets – Liabilities – Market Value of Investment in VIL + Income Tax
28.07
Investment Activities
Equity value of Omega
29,352
29,335
SMMS
61.60%
Value of 61.60% equity stake in Omega
18,081
18,071
Add: Value of Net Assets (Liabilities) excluding in Omega
-23,318
4,559
Assets – Liabilities – Market Value of Investment in Omega + Income Tax + Provisions
131.62
Investment Activities
Equity value of SMMS
-5,237
22,630
UMT
6.07%
Value of 6.0672% equity stake in VIL
34,248
34,248
Add: Value of Net Assets (Liabilities) excluding in VIL
-3,725
-3,265
Assets – Liabilities – Market Value of Investment in VIL +
Income Tax + Provisions
-166.53
Investment Activities
Equity value of UMT
30,523
30,983
UMTI
100%
Value of 100% equity stake in UMT
30,523
30,983
Add: Value of Net Assets (Liabilities) excluding in UMT
-4,470
-4,463
Assets – Liabilities – Market Value of Investment in UMT + Income Tax
-32.16
NBFC
Equity value of UMTI
26,053
26,520
JKF
0.5 1%
Value of 0.5 126% equity stake in VIL
2,894
2,894
100%
Add: Value of 100% equity stake in UMTI
26,053
26,520
Add: Value of Net Assets (Liabilities) excluding in VIL & UMTI
-18,012
4,687
Assets – Liabilities – Market Value of Investment in UMTI & VIL + Income Tax
0.91
NBFC
Equity value of JKF
10,935
34,101
TII
12.96%
Value of 12.9583% equity stake in VIL
73,147
73,147
100%
Add: Value of 100% equity stake in JKF
10,935
34,101
100%
Add: Value of 100% equity stake in SMMS
22,630
Add: Value of Net Assets (Liabilities) excluding in VIL, JKF & SMMS
-37,700
302
Assets – Liabilities – Market Value of Investment in JKF, SMMS & VIL + Income Tax
-133.63
NBFC
Equity value of TII
46,382
130,179
NADAL
23.97%
Value of 23.97% equity stake in TII
11,118
31,204
Add: Value of Net Assets (Liabilities) excluding in TII
-4,873
-4,881
Assets – Liabilities – Market Value of Investment in TII + Income Tax
-23.03
Investment Activities
Equity value of NADAL
6,245
26,323
PLUSTE CH
100%
Value of 100% equity stake in Nadal Add: Value of Net Assets
(Liabilities) excluding in Nadal
6,245-3,014
26,323 10
Assets – Liabilities – Market Value of Investment in NADAL + Income Tax
-17.1
Investment Activities
Equity value of Plustech
3,231
26,333
AGM
100%
Value of 100% equity stake in Plustech
3,231
26,333
Add: Value of Net Assets (Liabilities) excluding in Plus tech
10
10
Assets – Liabilities – Market Value of Investment in PLUSTECH + Income Tax
-20.15
Investme nt
Activities
Equity value of AGM
3,241
26,343
NDC
51%
Value of 51% equity stake in AGM
1,653
13,435
27.03%
Add: Value of 27.03% equity stake in TII
12,537
35,187
Add: Value of Net Assets (Liabilities) excluding in AGM & TII
-8,494
2,820
Assets – Liabilities – Market Value of Investment in AGM & TII
258.3
Equity value of NDC
5,696
51,442
MVH
100%
Value of 100% equity stake in NDC
5,696
51,442
Add: Value of Net Assets (Liabilities) excluding in NDC
-3,634
847
Assets – Liabilities – Market Value of Investment in NDC
-12.99
Investment Activities
Equity value of MVH
2,062
52,289
SBP
100%
Value of 100% equity stake in MVH
2,062
52,289
Add: Value of Net Assets (Liabilities) excluding in MVH
3
4
Assets – Liabilities – Market Value of Investment in MVH
-1.45
Investment Activities
Equity value of SBP
2,065
52,293
Total SBP shares
382,362,900
SBP valuation per share
5.4
131.86

AO had taken the value at Rs. 142.7 per share in the assessment order. But after taking the correct share of the assessee on SBPL as directed by us, the value will come to Rs. 131.86 per share by taking the 3.65 12% share of assessee in VIL.

64. Based on this calculation, the SBPL value has been arrived at 131.86. So far calculation for arriving at this price in terms of our guidelines, Ld. Sr. Counsel has not disputed this figure, albeit he has challenged the entire valuation set out herein on the ground that the actual consideration received has to be accepted, which we have discussed in detail that is not tenable. Accordingly, we hold that the value of shares for which the sale consideration said to have been accrued to the assessee has to be worked out at Rs. 131.86 per share. Thus, the AO is directed to compute the capital gain by taking the sale consideration by adopting the per share value of SBPL at Rs. 131.86.

65. In view of the finding given above, following conclusions are drawn on the issues/ questions we have framed for the purpose of our adjudication:—

Firstly, the sale value of SBPL as shown by the assessee is not in consonance with the contractual obligations entered by the parties under various Framework Agreements wherein it has been repeatedly envisaged that the value of SBPL was linked with the FMV of HEL/VIL and therefore, the share value as determined accordingly would get enhanced accordingly.

Secondly, the sale consideration received by the assessee as per the Sale Purchase agreement of 12.03.2014 cannot be reckoned as “accrued” to the assessee in terms of section 48 of the Act, because herein this case it is not a case of simple sale and purchase transaction, albeit rights and obligation of the parties as per the agreements for transfer of shares was in exercise of call/put option, for which transfer price of the shares was determinable on FMV of the share value of VIL. What has been accrued to the assessee is the price of the shares which was to be determined as per the mechanism provided in the Framework Agreements, which stipulated FMV of VIL.

Thirdly, section 50D as invoked by Ld. CIT (A) would not be applicable on the facts and circumstances of the case; and if at all it could have been brought to tax in the hands of the transferor under the deeming fiction of Section 50CA or Section 56(2) (x), then same are not applicable for the year under consideration as these provisions are applicable from the A.Y. 20 17-18.

Lastly, the value of the SBPL shares as per FMV of VIL would be Rs. 131.86 per share as determined above; and accordingly, AO is directed to compute the capital gain taking the sale value of SBPL at Rs. 131.86 per share.

41. On careful consideration of the facts before us, which are identical to the facts in the case of the husband of the assessee, we fully agree with 1st three findings given by the coordinate bench. Thus in the case of assessee also we respectfully following the same , hold so.

42. In case of last finding where bench has held that, the value of the shares of Scorpio beverages private limited as per FMV of Vodafone India Ltd would be INR 131.86 per share and accordingly AO was directed to compute the capital gain taking the above price as actual sale consideration accrued to the assessee, we do not find any reason to differentiate from that finding also, however so far as the value of INR 131.86 per share is determined by the learned assessing officer by adopting rule 11 UA of the income tax rules 1962 suffers from at least one basic fallacy. The learned assessing officer while valuing the shares of SMMS investments private limited has considered the value of net assets less liabilities excluding investment in OMEGA Pvt Ltd at INR 4 559 millions. To this the learned assessing officer made an addition of 61.60 percentage of holding of this company into Omega Pvt Ltd amounting to INR 1807 millions thus, equity value of SMMS private limited was worked out at Rs. 22630 million. Now we appreciate the balance sheet, which is used by the assessing officer for valuation of the above shares, which is placed at page number 126 of the paper book, submitted by the assessee. According to that this company has non-current investments specified at note number 8 amounting to INR 1 0700217772/– . The total of the balance sheet on the asset side is INR 1 519 1805985/–.

From this sum the above non-current investment of INR 1 0700217772/– is reduced as invested in Omega Private Limited. Total assets excluding the investment in Omega private limited is of INR 4491588213/–. From the above sum the current liabilities shown in the balance sheet of the assessee of INR 6 33416 is further required to be reduced, which gives the net asset value of total shareholding of this company at Rs. 4490954797/–. This value is pertaining to two different types of share capital issued by that company. The assessee has issued equity shares amounting to INR 4389099920/– divided into 438909992 equity shares of face value of INR 10 each and further 1183005000 preference shares of INR 10/- each being cumulative redeemable preference shares of 3 different series amounting to Rs. 11830050000/–. Now the assessing officer is required to value the equity share capital. To value the equity share capital, all other items of the balance sheet other than equity capital and free reserve, are required to be considered in the net asset value of those equity shares. As per valuation methodology of rule 11 UA of the income tax rules 1962, while working out the total liabilities for valuation of unquoted equity shares following mathematical formula is to be applied.

book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:—

(i) the paid-up capital in respect of equity shares;

(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;

(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;

(iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

If the above formulae is applied, it is apparent that ld AO has not adjusted preference share capital also where he is required to only not include in total liabilities, the paid up equity share capital. Therefore, it is apparent that only sum of the paid-up Equity share capital is not required to be included in the book value of the liabilities shown in the balance sheet. Therefore, natural corollary is that paid-up capital in respect of preference shares issued by the company is required to be taken in the total liability of that company. The commonsense also says that if we want to value the equity shares then all other items of the balance-sheet excluding the paid-up share capital of equity shares and reserves and surplus are required to be added up for working out the total liability of the company for valuation of equity shares. In the present case, the preference shares are non-convertible, non-cumulative preference shares, which are redeemable. Thus, the company has a liability to pay the above preference share capital to the preference shareholders before anything is paid to equity shareholders. Even otherwise in the balance sheet of the company the equity share capital can be valued only by including the paid up equity share capital and free reserves which can be distributed to the equity shareholders. The learned assessing officer while valuing equity shares of SMMS investments private limited has picked up the figure of share capital from the face of the balance sheet without looking at note no. 3 , where the complete description about the equity share capital and preference share capital is provided. Thus, while valuing the shares of SMMS investments private limited, it is a mistake in the computation made by the learned assessing officer by not including the preference shares of Rs. 11830 million in the total liability of the company. This is the mandate of Rule 11 UA of income tax rules 1962 to consider while valuing Equity shares of an unlisted entity, to include preference share capital in total liability of the company and to exclude only Paid up Value of equity share capital issued and free reserve. This sum of liability is required to be reduced from the total assets of the company, then only the net book value assets representing book value of equity shares of that company can be derived. Therefore thus it is apparent that the learned assessing officer has taken the composite figure of share capital erroneously which included the equity share capital and preferential capital both along with the free reserves and surplus of that company. Similar is the case with respect to

a. Jaykay Finholding (India) Pvt Ltd wherein the preferential capital of INR 8709 Million ,

b. in Telecom Investment India Pvt Ltd where in preference share capital of INR 6924 million,

c. in case of Plustech Pvt Ltd Preference share capital of Rs. 1351 Million and

d. in case of MV healthcare private limited preference share capital of INR 2 164 million,

While working out value of equity shares has not been included in the liability. This is also incorrect for the another reason that in the net asset value working of Telecom Investments India Private Limited from non-current investment, the investment in preference shares in MV healthcare services private limited and Plustech private limited of INR 1 374 million and INR 8 61 million has been included in the total assets. Therefore, on one side, preference share capital invested has been considered in the investment in total asset of that company whereas preferential capital issued by the company has not been included in the liability. This resulted in to including that value twice in the valuation of equity shares of that company. Therefore, there is an apparent misinterpretation of the financial statements of the subsidiaries. Therefore, the learned assessing officer is directed to correct the valuation of above five companies by including the value of preference share capital issued by these companies in the total liabilities. Such total liability is to be reduced from total assets of those companies to derive at the value of equity shares. Further, the Assessing Officer is also directed to verify all other figures from the audited balance sheets of all these companies as submitted by assessee and correct it, if it is found that they have been wrongly plotted, compute the value accordingly. Assessee is directed to put before AO such errors and which shall be rectified, if found in order.

44. The assessee has further relied up on ARJUN MALHOTRA & ANR. vs. COMMISSIONER OF INCOME TAX & ANR. 2018) 166 DTR 0235 (Del), (2018) 304 CTR 0454 (Del), (2018) 403 ITR 0354 (Delhi), (2018) 255 TAXMAN 0399 (Delhi) and submitted that actual consideration cannot be disturbed by Fair Market value for computation of Capital gain. On care full appreciation of the full facts of the issue before honourable Delhi high court which was a case of mere transfer of shares where as the present case before us is the transfer of the underlying business of Vodaphone limited by transfer of multiple shares held by the companies. The issue before honourable Delhi high court was merely an understatement of consideration on the date of transaction compared to the quoted prices of shares of NIIT limited. The coordinate bench in case of Mr. Analjit Singh has also dealt with the issue of accrual of sale consideration as under :-

58. We will now dwell upon the core issue raised by the parties, that is, whether the sale consideration of Rs. 1241.32 crores can be said to have been “accrued” to the assessee in the facts and circumstances of the case as discussed in detail herein above, within the expression used in section 48. Section 48 envisages that income must have been received or have accrued under section 48 as result of the transfer of a capital asset. The income may be said to have been accrued’ if the assessee acquires the right to receive the income from the contractual obligation or as per any other legal obligation. It is sine-qua-non that the assessee must have acquired the right to receive the income and there is corresponding debt owed to him by somebody. The concept of accrual of income have been well-settled by the Hon’ble Supreme Court in the case of E.D. Sasoon & Co. Ltd. vs. CIT (supra) and CIT vs. Shoorjee Vallabhdas & Co. [1962] 46 ITR 144. The principle as discussed in these judgments have been upheld and reiterated time and again by the Hon’ble Supreme Court in catena of decisions including that of CIT vs. Excel industries reported (supra) and CIT vs. Balbir Singh Maini(supra) as relied upon by Mr. Ajay Vohra. There cannot be any iota of doubt that the word accrued in section 48 means there has to be a right to receive the income arising from contractual obligation between the parties and such a right has to be with a corresponding liability of the other party from whom the income becomes due to pay that amount. Thus, one party has the right and the other party has liability to pay, but such right and liability has to originate from the understanding of all the terms and conditions of the contracting parties and the contractual obligation qua the transactions for which income can be said to be accrued to one party with the corresponding liability to pay on the other.

59. Here in this case, as discussed in detail, it is not a simple case of sale and purchase of shares emanating from Sale and Purchase Agreement dated 12.03.2014. The rights and obligations of the parties for this particular transaction goes way back to the year 2006 and more particularly the year 2007, when the parties have entered into the Framework Agreement on 05.07.2007. The AS had held the shares of the Indian company HEL and then later on in VIL for the benefit of Hutch/Vodafone solely with the aim to beat the foreign equity cap for which the assessee was paid call option fee’ for holding the shares with stipulation that shares would be ultimately transferred to Hutch/ Vodafone through their step down subsidiaries and put option” would be exercised as when the cap is lifted at a pre-agreed price. The Framework Agreement of 2006 which is the precursor to the framework agreement of 2007, the stipulation for the value of consideration/transfer price was based on fair market value of issued share capital of HEL and such value of shares was determined at 0.23% of the value of shares of HEL. Later on when this framework agreement was superseded and re-entered between the parties on 05.07.2007, again the basis of transfer price for the entire share value of SBPL was linked with the fair market value of entire issued share capital of HEL (later on VIL). How it is linked with the fair market value of HEL, we have already discussed in the forgoing paragraphs. Succinctly, put the Scheduel- 1 which was for the determination mechanism of the transfer price of the SBPL’s shares, has fixed the transfer price in the year 2007 at US $ 266.25 million which converted into INR was Rs. 1088.43 crores. This transfer price of US $ 266.25 million was based on some illustrative working given in Schedule-2 which was though was to come into operation when the condition of the 2nd clause was to be fulfilled, i.e., the fair market value of issued share capital of HEL exceeds US $ 25 billion and then the SBPL value was again to be re-valued. This illustrative working, proceeds with the fair market value of HEL at that time at US $ 25 billion and with some hypothetical working and assumption of liabilities, a transfer price of US $ 266.25 million was arrived and the same figure has been incorporated in Schedule-1. Though, we have already observed that the amount of US $ 266.25 million may not be based on correct working or does not have any proper basis, but it clearly indicates that such a transfer price was to be computed after taking into account the fair market price/ value of equity capital of HEL, later on substituted with VIL. In all the subsequent Framework Agreements and Supplement Agreement, including the Share Purchase Agreement, the parties unequivocally have agreed that the transfer price has to be determined in accordance with the Framework Agreement and that to be of 05.07.2007. Nowhere the parties have rescinded or given go-by to said framework agreement. Albeit the parties have time and again have reiterated that the transfer price for SBPL’s shares is to be determined in accordance with the Framework Agreement of 2007, which in turn was based on the working of fair market value of HEL/VIL. Once there is binding contractual obligation as acquiesced by the parties’ agreement after agreement, then it cannot be held that such a binding contractual obligation amongst the parties has simply withered away without any agreed clause of rescinding or abrogating the earlier obligation. In fact there is unanimity permeating through all the agreements on such transfer price which is to be determined on the basis of fair market value of VIL and, therefore, it is binding on the parties. Thus, as per the binding agreement, the accrued price consideration for the transfer of the SBPL shares has to be determined on the basis of fair market value of VIL which here in this case has been pegged at Rs.56,448 crores as determined by the Kotak Mahindra by adopting DCF method and also accepted by the AO. Accordingly, we hold that in terms of section 48, what is accrued to the assessee on the transfer of the unquoted shares of SBPL, is that, which is determinable on the basis of the fair market value of VIL. On this reasoning, the arguments put forth by the Ld. Sr. Counsel that the consideration accrued to the assessee is only as per the share purchase agreement dated 12.03.2014 is not acceptable.

Hence, reliance on the decision of the Honourable Delhi High court is misplaced. Accordingly, grounds Nos. 9 to 20 are disposed off accordingly.

45. Coming to ground number 21 – 22 of appeal With respect to capitalization of interest expenditure, coordinate bench has dealt with this issue in case of husband of appellant as under :-

77. We have heard the rival submissions and considered the entire gamut of facts placed before us and the provision of law and decisions referred to at the time of hearing. As discussed in our earlier part of the order, the assessee had subscribed to 15,67,64,689 ‘right shares’ of SBPL on 09.08.2012, i.e., in the F.Y. 2012-13, in terms of 4th Supplement Agreement. The said right shares were financed directly out of the loan borrowed from Capricon Health Services Pvt. Ltd. on which interest aggregating Rs. 39,95,01,050/-(i.e., Rs. 13,88,26,342 in F.Y. 2012-13 & Rs. 26,06,74,708/- in F.Y. 2013-14), was paid from the date of acquisition till the date of transfer of such shares on 12.03.2014. The assessee had claimed the interest expenditure incurred on such borrowing which has been capitalized as part of the cost of acquisition of such ‘right shares’ for the purpose of computing capital gain arising on transfer of such shares. The Assessing Officer first of all denied the cost of acquisition in view of the provisions contained in section 55(2) and held that meaning of cost of acquisition and cost of improvement as appearing in section 48 & 49 has been restricted by the scope of section 55(2)(b).

One of the major limb of the arguments of Mr. Ajay Vohra was that interest incurred for acquisition of ‘right shares’ has to be allowed as cost of acquisition while computing the capital gain in accordance with section 45(1) r.w.s 48. His entire arguments revolved on the proposition that under the scheme of the Act, there is distinction between different class of assets and how the capitalization of interest for cost of acquisition of asset or allowbility of interest has been recognized under the various provisions of the Act, like for stock-in-trade; assets used for the purpose of business; and capital assets held as investment and not used for the purpose of business. Here in this case, it cannot be doubted that interest expenditure incurred in respect of the funds borrowed were directly utilized and had a proximate nexus to the acquisition of right shares and also the principal loan amount is liable to be included as part of cost of acquisition of such assets. The submissions made by the parties in this regard and reliance placed on catena of decisions has already been discussed in detail herein above. Before us, Mr. Srivastava, Ld. Special Counsel for the Revenue has vehemently contended that in view of the specific provision contained in section 55(2)(aa) read with sub-clause (iii) thereto, only the amount actually paid for acquiring of such asset could be allowed, i.e., the amount paid for acquiring of ‘right shares’ and not the interest thereupon. Thus, all the decisions relied upon by the Mr. Vohra will have no bearing on the facts of the present case and in the light of the specific provisions u/s. 55(2) of the Act. In wake of this specific  contention, we will first examine, whether within the scope of section 55(2), interest can be allowed as cost of acquisition of ‘right shares’ or not.

78. U/s. 45, the capital gains rising on transfer of a capital assets has to be computed as per section 48 by reducing from “full value of consideration” received on transfer, aggregate of the following amounts; firstly, the expenditure incurred wholly and exclusively in connection with such transfer; and secondly, the cost of acquisition of the assets and the cost of any improvement thereto. Section 49 illustrates various costs with reference to certain modes of acquisition. Whereas, section 55 defines the scope of the terms “adjusted”, “cost of improvement” and “cost of acquisition” for the purpose of sections 48 & 49. Sub-section (2) of section 55 enlists as to what should be the “cost of acquisition in certain cases.”

Clause (aa) of section 55(2) which is relevant for our purpose is reproduced hereunder:—

55(2) For the purposes of sections 48 and 49, “cost of acquisition”,—

(a) xxxxxxxxxxxxxxxxxx

(aa) in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee—

becomes entitled to subscribe to any additional financial asset; or

is allotted any additional financial asset without any payment,

then, subject to the provisions of sub-clauses (i) and (ii) of clause (b),—

xxxxxxxxxxxx

xxxxxxxxxxxx

in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset ;

in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee.

(b) xxxxxxxxxxxxxxxxxx

From a plain reading of the aforesaid provision, it can be seen that the cost of acquisition in the case of”additional financial assets like bonus shares, right shares, etc., firstly, where the assessee becomes entitled to subscribe any such additional financial assets; or secondly, is allotted any additional financial asset without any payment; then, in the first case, the cost of acquisition of such financial assets (herein this case right shares) would be the amount actually paid for acquiring such asset; and in second case, the cost of acquisition would be nil. Since, here the assessee had subscribed the right shares on the basis of said entitlement (i.e., by virtue of holding the capital asset in the form of shares in SBPL), therefore, the assessee?s case fall in first category, that is, the amount actually paid by him for acquiring such assets. In other words the actual amount paid for acquiring the right shares. In case the financial assets is allotted to the assessee without any payment then it has to be reckoned as NIL. Here as stated above, the assessee was entitled to subscribe to right shares for a payment of Rs. 300 crores and such an amount has actually been paid by the assessee. In the present case, ostensibly, sub-clause (iii) would be applicable, because the financial assets has not been allotted to the assessee without any payment in which case the cost of acquisition would have to be taken as NIL. The said clause makes it evidently clear that cost of acquisition would be the amount actually paid by the assessee for acquiring such assets (i.e., right shares). The word means as appearing in sub-clause (iii) cannot be reckoned as inclusive, i.e., other than amount actually paid which could be other costs like interest etc. which is also be treated as part of acquisition. Here the word “means” has to be constituted as exhaustive, i.e., the amount actually paid for acquiring such assets and no any other payment or cost incurred for acquiring such assets. Whence the cost of acquisition with regard to the additional financial assets, i.e., right shares has been strictly circumscribed to the amount actually paid for acquiring such shares, then it is not open to include any other costs like interest expenditure incurred or accrued on loan taken for acquiring the right shares. Had there been the intention of the legislature to allow any additional cost to such kind of additional financial assets, then there was no requirement to insert part A in clause (aa) and sub-clause (iii) which specifically confines the cost of acquisition to mean actual amount paid. Thus, we are in complete agreement with the contention of the Ld. Special Counsel, Mr. G.C. Srivastava that under the scope and provision of Section 55(2)(aa) read with sub clause (iii) thereto, incase of right shares the cost of interest expenditure cannot be allowed as deduction as cost of acquisition for computing the capital gain on sale of right shares.

79. Before us, Ld. Sr. Counsel Mr. Vohra after referring to the Memorandum explaining the provision of Finance Bill, 1994 through which section 55(2) was proposed to be inserted, had submitted that the intention of the legislature was only to prescribe uniform method for computing the basic cost of acquisition of bonus/right shares and not to restrict to only the actual cost paid. We are unable to agree with such an argument, because the said Memorandum explains the background on which the said provision was brought in the statute. For the sake of ready-reference the said Memorandum is reproduced hereunder:—

“Rationalisation of capital gain arising from transfer of right shares and rights renouncements

The Income Tax Act prescribes broad provisions on computation of income under the head “Capital gains”. Specific methods of computing the cost of the asset have been provided only in respect of certain types of assets. There is no specific provision dealing with determination of the cost of financial instruments such as right shares, right entitlement, etc. In the absence of any such provisions, courts have laid down certain methods for determining the cost which are not strictly in accordance with commercial principles.

For the purpose of avoiding complicated calculations, the Finance Bill proposes to introduce a simple and unambiguous set of provisions for computation of the cost of acquisition of financial assets, including shares, where there is an entitlement to subscribe to additional financial assets on rights shares. The Bill proposes to deem the cost o f rights entitlement in the hands o f the original shareholders as nil. Of course, the cost of the rights share acquired by the original shareholder is the price actually paid by him to the company for acquiring the rights share: But where the rights renounce acquires the rights share, the-cost of the rights share is equal to the cost incurred by him for purchasing the rights entitlement plus the price paid by him to the company for – acquiring the rights share.

The amount realized by the original shareholder by selling his rights entitlement will be short term-capital gains in his hands (as the cost is taken as nil). The period of holding of the rights entitlement will be reckoned from the date of offer made by the company to the date of renouncement.

The said memorandum merely clarifies that earlier there was no specific provision dealing with the determination of the cost of the financial instrument such as right shares, right entitlement, etc. and in absence of any such provisions, the Courts have laid down certain methods for determining the cost. For avoiding such kind of situation, the Finance Bill proposed to introduce the computation of cost of acquisition which have been acquired without cost, then in that case, cost of acquisition has to be taken on NIL and where the assessee becomes entitled to such financial assets like right issue, then the cost of acquisition will be the amount actually paid. This has been clarified also by the notes and clauses of the Finance Bill and also by the CBDT Circular No. 684 dated 10.06.1994. The relevant clause18 of the Notes and clauses on sub-section (2) of section 55 of the income Tax Act, 1961 is reproduced hereunder:—

It is also proposed to insert a new clause (aa) for the purpose of defining the cost of acquisition of a share or any other security (referred to as  financial asset in the section), and of the right to renounce the entitlement, in those cases where the assessee becomes entitled to subscribe to additional financial assets on the basis of rights issue. The cost of acquisition in such cases will be as follows:-

in the case of the original financial asset, on the basis of which the assessee becomes entitled to a rights issue, cost of acquisition will be the amount actually paid for acquiring such financial asset;

in the case of right to renounce the entitlement, when such right is actually renounced by the assessee in favour of any other person, the cost of acquisition shall be taken to be nil in the case of such assessee;

in the case of financial asset subscribed to by the assessee on the basis of his entitlement, i.e., rights issue, the cost of acquisition shall be the amount actually paid by him for acquiring such asset ;

in the case of additional financial asset purchased by the person in whose favour the right to subscribe to such additional financial asset has been renounced, the cost of acquisition shall be the aggregate of the amount of the purchase, price paid by such person for purchasing such right and the amount paid by him to the company, or institution, as the case may be, for acquiring such financial assets . . . . . .

This amendment will take effect from 1st April, 1995, and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.”

The aforesaid notes and clauses spells out the purpose of intention of the legislature for defining the cost of acquisition in the case of additional financial assets like right issues etc. Thus, the reliance placed by the Sr. Counsel on the aforesaid memorandum and notes and clauses are of no avail and does not support the case of assessee.

80. Thus, in our opinion in case of the assessee who has subscribed to ?right shares? by paying the actual amount of Rs. 300 crores, then by virtue of specific provision contained in section 55(2), only amount to be allowed as cost of acquisition would be Rs. 300 crores; and no other cost, like interest expenditure incurred on loan taken for purchase of ?right shares? could be allowed as deduction as cost of acquisition, while computing the capital gain on transfer of such shares. None of the judgments including that of Mithilesh Kumari (supra) relied upon by the Ld. Sr. Counsel will be applicable here as in none of the cases the issue pertained to cost of acquisition qua the right shares in light of specific section 55(2).

81. So far as the other arguments placed by both the parties as to whether the cost of interest can be capitalized for the purpose of cost of acquisition while computing the transfer of shares or not, we are not entering into semantics of such arguments, because here in the present case, the cost of acquisition is purely on acquisition of right shares and as discussed in the foregoing paragraphs, only amount actually paid would be allowed and no such interest can be allowed as cost of acquisition in the case of rights shares in terms of section 55(2). All such arguments placed by the parties have been rendered academic in view of our finding given above. Accordingly, we hold that the AO was justified in not allowing the cost of interests expenditure capitalized from the acquisition of ‘right shares’ at the time of transfer.”

Therefore respectfully following the decision of the coordinate bench we dismiss ground number 21 and 22 of the appeal and confirm the orders of the lower authorities in not allowing the capitalization of interest cost of INR 1 00902358/– as part of the cost of acquisition while calculating capital gain on sale of shares of Scorpio beverages private limited.

46. Ground number 23 – 25 of the appeal of the assessee is with respect to the allowance of brought forward long-term capital loss of INR 24982206/– brought forward from assessment year 2011 – 12. Above loss was inadvertently claimed by the assessee at INR 2 49822064. Even in the grounds of appeal mentioned the assessee in ground number 23 has mentioned an astronomical figure, which is not the correct fact. Despite this assessee may be granted the brought forward long-term capital loss of INR 2 4982206/– if found in accordance with the law. Similar is the ground number 26 of the appeal where the claim of the assessee is about set off the brought forward long-term capital loss of INR 15336932/– for assessment year 2011 – 12. Assessee is directed to file requisite details before the assessing officer and the AO may examine the same and grant set off of the brought forward long-term capital losses, if found in accordance with the law. Accordingly, ground numbers 23 – 26 of the appeal are allowed with above direction.

47. There is no arguments placed by the learned authorised representative with respect to ground number 27, 28 and 30 of the appeal and therefore same are dismissed

48. Ground number 29 is with respect to the grant of credit for tax deduction at source of Rs. 1106907 and advance tax of INR 48 1627800/–. The learned CIT – A has correctly held that if the above amount has been shown in form number 26AS, then AO is directed to grant the credit for tax deduction at source and advance tax paid. No infirmity can be found in such a direction given by the learned CIT – A. Assessee is further directed to submit the requisite details before the learned assessing officer about the tax deduction at source as well as the advance tax paid and reconcile the same with form number 26AS. AO may verify the same and grant credit for the same in accordance with the law. Accordingly, ground number 29 of the appeal of the assessee is allowed with above direction.

49. In the result, appeal filed by the assessee is partly allowed with above directions.

Order pronounced in the open court on 19/12/2019.

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