Ms. Monica Benjamin, JSC and Ms. Easha, JSC v. Naresh K Trehan

1. This is an application seeking condonation of delay of 1563 days in filing the present appeal.

2. We find no credible reasons for condoning the delay.

3. However, we note that the present appeal has been pending before this Court since 2011. In the given circumstances, we consider it relevant to briefly examine the controversy as raised by the Revenue.

4. The Revenue has filed the above captioned appeal under Section 260A of the Income Tax Act, 1961 [the Act] impugning an order dated 25.01.2007 passed by the learned Income Tax Appellate Tribunal [ITAT] in ITA No. 4679/Del/2005, in respect of Assessment Year [AY] 2001-02. The respondent [Assessee] had filed his return of income for the previous year relevant to the AY 2001-2002, which was processed under Section 143(1) of the Act. Thereafter, the return was selected for scrutiny, and the assessment proceedings culminated into an assessment order dated 28.02.2003. In terms of the said assessment order, the Assessee’s return of income was accepted.

5. Thereafter, a notice dated 19.07.2004 was issued under Section 148 of the Act for the reason that the Assessee had acquired ten per cent shares of M/s Escorts Heart Institute & Research Centre Limited [EHIRCL] for a consideration of ₹20,00,000/-. The Assessing Officer [AO] noticed that the book value of the outstanding equity shares of EHIRCL was ₹110,14,12,937/-. On the aforesaid basis, the Assessee’s shareholding was valued at ₹11,01,41,293/-, representing ten per cent of the said value. According to the AO, the intrinsic value of the shares reflected the Assessee’s income that had escaped assessment. It is stated that additions were made in the assessment order of M/s Escorts Limited, which held eighty per cent of the outstanding equity share capital of EHIRCL.

6. The reassessment proceedings culminated in an order passed under Section 148/143(3) of the Act, whereby the Assessee’s income was assessed at ₹16,61,19,930/-. This included an addition of ₹10,80,00,000/- on account of the value of the ten per cent shares of EHIRCL. The AO calculated the intrinsic value of the said shares at the rate of ₹550/- per share, whereas the Assessee had reflected the value of shares at ₹10/- per share.

7. The Assessee appealed the said decision before the Commissioner of Income Tax (Appeals)-XXVIII, New Delhi [CIT(A)]. However, the learned CIT(A) not only upheld the addition made by the AO but also enhanced the same by ₹3,90,00,000/- on the basis that the book value of the shares in question was ₹745/- and not ₹550/- per share. This led the Assessee to file an appeal before the learned ITAT, which was partly allowed by the impugned order.

8. The learned ITAT rejected the Assessee’s challenge to the reopening of the assessment; however, accepted the challenge on merits of the addition. It was the Assessee’s case that he had received the shares in exchange of his interest in Escort Heart Institute and Research Centre (a not for profit organisation) and therefore, there could be no profit at the time of acquisition of the shares. Consequently, the value of the shares could not be added as a perquisite.

9. The learned ITAT held that the provisions of Section 2(24)(iv) of the Act were inapplicable, and therefore, the difference between the intrinsic value of the shares and the amount paid by the Assessee for acquiring the shares could not be taxed as perquisites.

10. The Revenue has appealed the said decision before this Court.

11. The Assessee has, during the course of the proceedings, filed an additional affidavit confirming that the shares in question were sold during the Financial Year 2007-08 and that the income from gains was duly surrendered to tax. The Assessee also produced a statement of computation of income for AY 2008-09, which indicates that the Assessee had surrendered the long term capital gains from the sale of the said shares to tax. The Assessee’s return for AY 2008-09 was selected for scrutiny. The said proceedings culminated in the assessment order dated 30.12.2010 passed under Section 143(3) of the Act. The Assessee’s computation of long term capital gains was accepted by the Assessing Officer [AO] and the gains from the shares were brought to tax. Thus, we find that the Revenue, having accepted the cost of acquisition of shares at ₹10/- and having taxed the gains arising therefrom, cannot now take a stand that the cost of the shares in the hands of the Assessee was required to be computed based on their intrinsic value. This clearly militates against accepting that the cost of acquisition of the shares as ₹10/- in the subsequent assessment years.

12. In view of the above, we do not consider that any substantial question of law arises for consideration of this court.

13. The appeal is accordingly dismissed.

VIBHU BAKHRU, J TEJAS KARIA, J MAY 20, 2025 Click here to check corrigendum, if any