Commissioner Of Income Tax v. Sunaero Limited ….Respondentthrough Dr. Rakesh Gupta With Ms. Rani Kiyala, Advs

IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA No. 562 of 2008 % Reserved on: 24[th ]May,2012 Date of Decision: 1[st] June, 2012 Commissioner of Income Tax ....Petitioner ThroughMr. N.P. Sahni, Sr. Standing Counsel with Mr. Ruchesh Sinha, Advocate. ThroughMr. N.P. Sahni, Sr. Standing Counsel with Mr. Ruchesh Sinha, Advocate. Versus Sunaero Limited ….RespondentThrough Dr. Rakesh Gupta with Ms. Rani Kiyala, Advs. CORAM: HON’BLEMR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V. EASWAR SANJIV KHANNA, J. Revenue in this appeal under Section 260A of the Income Tax Act, 1961 (Act, for short) impugns order dated 26[th] October, 2007, passed by the Income Tax Appellate Tribunal (tribunal, for short) in the case of Sunaero Limited, the respondent assessee. The appeal arises from the block assessment order for the period 1[st] April, 1990 to 21[st]November, 2000, as the respondent assessee was subject to search and seizure operation on 21[st] November, 2000. 2. We are required to decide the following substantial questions of law, which were framed vide order dated 11[th] November, 2011:- law, which were framed vide order dated 11[th] November, 2011:- “(i) Whether the Income Tax Appellate Tribunal was right in deleting the addition of Rs.21 crores made by ITA 562/2008 Page 1 of 38 the Assessing Officer under Section 45 read with Section 47(v) of the Income Tax Act, 1961? (ii) Whether the impugned order passed by the Income Tax Appellate Tribunal is perverse?” 3. Sunair Hotels Ltd. was granted the rights to develop a hotel at Bangla Sahib Road by the New Delhi Municipal Corporation (NDMC) in 1970. However, due to some differences that developed between the two, the development rights were cancelled. Sunair Hotels Ltd. incorporated another group company, the respondent assessee herein, and vide letter dated 16[th] September 1993, wrote to the NDMC to substitute its name with that of the respondent assessee. During the pendency of this request, in the year 1993- 94, Sunair Hotels Ltd. transferred its development rights to the respondent assessee for NIL consideration. However, the NDMC refused to transfer the licensee rights in the name of the respondent assessee. During the year 1994- 95, the respondent assessee transferred the hotel development rights back to Sunair Hotels Ltd. for a consideration of 21 crores. 4. The respondent assessee in the return filed for the assessment year 1995-96, had shown capital gain of Rs.21 crores on transfer of hotel development rights to Sunair Hotels Ltd., but the same was claimed to be exempt from capital gains tax under Section 47(v) of the Act. 4A. Section 47(v) of the Act reads as under:- ITA 562/2008 Page 2 of 38 “47. Transactions not regarded as transfer.—Nothing contained in Section 45 shall apply to the following —transfers: xxxx (v) any transfer of a capital asset by a subsidiary —company to the holding company, if (a) the whole of the share capital of the subsidiary company is held by the holding company, and (b) the holding company is an Indian company: Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in-trade;” 5. A reading of the said provision shows that it applies when a wholly owned subsidiary transfers its capital assets for consideration to the holding company. Consideration received by the wholly owned subsidiary company in such cases is not liable to capital gains tax. A subsidiary company has been defined in Section 4 of the Companies Act, 1956 (Companies Act, for short) as:- “4. Meaning of “holding company” and “subsidiary”.— (1) For the purposes of this Act, a company shall” subject to the provisions of sub-section (3), be deemed —to be a subsidiary of another if, but only if, Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in-trade;” 5. A reading of the said provision shows that it applies when a wholly owned subsidiary transfers its capital assets for consideration to the holding company. Consideration received by the wholly owned subsidiary company in such cases is not liable to capital gains tax. A subsidiary company has been defined in Section 4 of the Companies Act, 1956 (Companies Act, for short) as:- “4. Meaning of “holding company” and “subsidiary”.— (1) For the purposes of this Act, a company shall” subject to the provisions of sub-section (3), be deemed —to be a subsidiary of another if, but only if, (a) that other controls the composition of its Board of directors; or —(b) that other (i) where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company; Page 3 of 38 (ii) where the first-mentioned company, is any other company, holds more than half in nominal value of its equity share capital; or] (c) the first mentioned company is a subsidiary of any company which is that other's subsidiary. Illustration Company B is a subsidiary of Company A, and Company C is a subsidiary of Company B. Company C is a subsidiary of Company A, by virtue of clause (c) above. If Company D is a subsidiary of Company C, Company D will be a subsidiary of Company B and consequently also of Company A, by virtue of clause (c) above; and so on. (2) For the purposes of sub-section (1), the composition of a company's Board of directors shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purposes of this provision that other company shall be deemed to have power to appoint to a directorship with respect to which any of —the following conditions is satisfied, that is to say (a) that a person cannot be appointed thereto without the exercise in his favour by that other company of such a power as aforesaid; (b) that a person's appointment thereto follows necessarily from his appointment as director2 [* * *] or manager of, or to any other office or employment in, that other company; or (c) that the directorship is held by an individual nominated by that other company or a subsidiary thereof. (3) In determining whether one company, is a —subsidiary of another (a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it; Page 4 of 38 (b) subject to the provisions of clauses (c) and (d), any —shares held or power exercisable (i) by any person as a nominee for that other company (except where that other is concerned only in a fiduciary capacity); or (ii) by, or by a nominee for, a subsidiary of that other company, not being a subsidiary which is concerned only in a fiduciary capacity; shall be treated as held or exercisable by that other company; (c) any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first-mentioned company or of a trust deed for securing any issue of such debentures shall be disregarded; (a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it; Page 4 of 38 (b) subject to the provisions of clauses (c) and (d), any —shares held or power exercisable (i) by any person as a nominee for that other company (except where that other is concerned only in a fiduciary capacity); or (ii) by, or by a nominee for, a subsidiary of that other company, not being a subsidiary which is concerned only in a fiduciary capacity; shall be treated as held or exercisable by that other company; (c) any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first-mentioned company or of a trust deed for securing any issue of such debentures shall be disregarded; (d) any shares held or power exercisable by, or by a nominee for, that other or its subsidiary [not being held or exercisable as mentioned in clause (c)] shall be treated as not held or exercisable by that other, if the ordinary business of that other or its subsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business. (4) For the purposes of this Act, a company shall be deemed to be the holding company of another if, but only if, that other is its subsidiary. (5) In this section, the expression “company” includes any body-corporate, and the expression “equity share capital” has the same meaning as in sub-section (2) of Section 85. (6) In the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding company of the body corporate under the law of such country shall be deemed to be a subsidiary or holding company of the body corporate within the meaning and for the purposes of this Act also, whether the requirements of this section are fulfilled or not. Page 5 of 38 (7) A private company, being a subsidiary of a body corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act to be a subsidiary of a public company if the entire share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India.” 6. The Assessing Officer in the block assessment order dated 29[th ]November, 2002, held that the assessee was not a wholly owned subsidiary of Sunair Hotels Ltd. He observed that during the course of search operations, material/documents seized contradicted the claim of the respondent assessee, that it was a wholly owned subsidiary of Sunair Hotels Ltd. It was in fact a wrong claim. The respondent assessee had seven registered individuals as shareholders and Sunair Hotels Ltd. was not a holder of even a single share. 7. During the course of block assessment proceedings, the respondent assessee claimed that it was wholly owned subsidiary of Sunair Hotels Limited and that the seven shareholders were nominees of Sunair Hotels Limited and not shareholders in their individual right. The entire expenditure for incorporation of the company, as well as investment in the subscribed share capital of Rs.7,000/-, was made by the holding company in the names of the seven shareholders. The Assessing Officer rejected the said contention observing that material unearthed during the search operation under Section 132 of the Act, and ITA 562/2008 Page 6 of 38 7. During the course of block assessment proceedings, the respondent assessee claimed that it was wholly owned subsidiary of Sunair Hotels Limited and that the seven shareholders were nominees of Sunair Hotels Limited and not shareholders in their individual right. The entire expenditure for incorporation of the company, as well as investment in the subscribed share capital of Rs.7,000/-, was made by the holding company in the names of the seven shareholders. The Assessing Officer rejected the said contention observing that material unearthed during the search operation under Section 132 of the Act, and ITA 562/2008 Page 6 of 38 during the post search investigation, elucidated that the respondent asssessee was not a wholly owned subsidiary of Sunair Hotels Limited as claimed. He specifically examined and rejected the two contentions of the respondent being (i) that the shareholders were nominees of Sunair Hotels Limited and were not shareholders in their individual capacity and (ii) that the entire investment in the share capital of Rs. 7,000/- was made by Sunair Hotels Limited, i.e. the holding company, recording the following reasons:- (i) Share Certificate of 100 shares of Rs.10/- each, allotted on 23[rd ]October, 1993, were in the names of the individual shareholders. The share certificates do not show that the shareholders were nominees of Sunair Hotels Limited. (ii) The Memorandum and Articles of Association submitted by the respondent assessee, along with the reply dated 29[th] August, 2002 did not state that the respondent assessee was a wholly owned subsidiary of Sunair Hotels Ltd. and that the shares were subscribed by Sunair Hotels Limited. (iii) No declaration was made under Section 187C of the Companies Act, that the seven shareholders were nominees of Sunair Hotels Limited. It is obligatory to file a declaration in the prescribed form under Section 187C of the Companies Act. ITA 562/2008 Page 7 of 38 (iv) Prescribed forms under Section 187C of the Companies Act were filed with the Registrar of Companies in January 2000 i.e. six and half years after incorporation of the respondent assessee. These forms purportedly signed and dated on 25[th ]October, 1993, were forged and fabricated as per the Assessing Officer. The said forms were purchased from Jain Book Agency (Sales), Connaught Place, New Delhi and as per the statement of Nabhi Kumar Jain and Meenakshi Mathur of Jain Book Agency, dated 28[th] February, 2001 these forms were printed and sold after May-June, 1998. The statement made by Nabhi Kumar Jain and Meenakshi Mathur have been quoted in the assessment order. (v) Two shareholders, i.e Robin Gupta and Radhika Prasad Dubey, in their statements had clearly stated that they had not signed the forms under Section 187C of the Companies Act. The statements of Robin Gupta and Radhika Prasad Dubey have been quoted in the assessment order. their statements had clearly stated that they had not signed the forms under Section 187C of the Companies Act. The statements of Robin Gupta and Radhika Prasad Dubey have been quoted in the assessment order. (vi) The Government Examiner of Questioned Documents had affirmed that the forms submitted under Section 187C were not signed by Robin Gupta and Radhika Prasad Dubey. affirmed that the forms submitted under Section 187C were not signed by Robin Gupta and Radhika Prasad Dubey. (vii) Robin Gupta had denied that he was a nominee of Sunair Hotels Limited and stated that he was a shareholder in his individual capacity. (viii) Radhika Prasad Dubey in his statement stated that he had worked with V.K. Bindal & Company, Chartered Accountant and had signed the Limited and stated that he was a shareholder in his individual capacity. (viii) Radhika Prasad Dubey in his statement stated that he had worked with V.K. Bindal & Company, Chartered Accountant and had signed the ITA 562/2008 Page 8 of 38 (vii) Robin Gupta had denied that he was a nominee of Sunair Hotels Limited and stated that he was a shareholder in his individual capacity. (viii) Radhika Prasad Dubey in his statement stated that he had worked with V.K. Bindal & Company, Chartered Accountant and had signed the Limited and stated that he was a shareholder in his individual capacity. (viii) Radhika Prasad Dubey in his statement stated that he had worked with V.K. Bindal & Company, Chartered Accountant and had signed the ITA 562/2008 Page 8 of 38 Memorandum and Articles of Association but had no association with Sunair Hotels Limited. He had ascribed his signature on the Memorandum etc. on the asking of Vinod Bindal. (ix) The inspection report of Mr. J.N. Tikku, Deputy Director (Inspection) dated 22[nd] November, 2000 under Section 209A of the Companies Act states that there were several irregularities/violations with regard to the issue of shares etc. (x) The minutes of Board of Directors of the respondent assessee seized at the time of search show extensive use of fluid to change the dates of the meetings. Robin Gupta had categorically denied his attending the Board meeting on 23[rd ]October, 1993 in which it was recorded that the individual shareholders were nominees of Sunair Hotels Limited. Minutes of the meeting of Board of Directors, seized as Annexure A-31 show that they have been written on the same date using the same pen and in the same writing. Annexure 31 was a false and forged document created by the respondent assessee to support the claim that it was a wholly owned subsidiary of Sunair Hotels Limited. (xi) Sunair Hotels Limited had made a request to NDMC on 16[th]September, 1993 to substitute and transfer the license to the respondent assessee but the respondent assessee was incorporated subsequently on 22[nd] October, 1993. Page 9 of 38 (xii) Incurring of expenditure at the time of incorporation does not make the company, which incurs the expenditure, the holding company and the company incorporated a subsidiary. It certainly does not make the incorporated company, a wholly owned subsidiary. 8. Accordingly, it was held by the Assessing Officer that the respondent assessee was not a wholly owned subsidiary of Sunair Hotels Limited. Consequently, the entire amount of Rs.21 crores received by the respondent assessee was taxable and the benefit under Section 47(v) was not available. 9. The aforesaid findings made by the Assessing Officer and the denial of benefit under Section 47(v) of the Act was reversed by the first appellate authority. The Commissioner of Income Tax (Appeals) held that the statement of Robin Gupta was not reliable. Statement of Radhika Prasad Dubey was to the effect that he was acting as a dummy Director and was not a de facto Director. This was not sufficient and the Assessing Officer should have had made further enquiries. In these circumstances, it was necessary to find out and ascertain who had actually made investment in the share capital of the respondent assessee. This would determine the real ownership of the respondent assessee. The payment of share capital was made by cheque and the copy of the receipt issued by the Registrar of Companies had been filed. This aspect was not controverted and denied by the Assessing Officer, while ITA 562/2008 Page 10 of 38 ITA 562/2008 Page 10 of 38 denying benefit under Section 47(v) of the Act. Section 187C of the Companies Act is a procedural provision and the requirement of the Companies Act cannot be imported and considered for examining whether conditions under Section 47(v) of the Act were fulfilled or not. As far as forgery of signatures and discrepancy in the minutes books was concerned, it was for the authorities under the Companies Act to take notice and action. However, having regard to the provisions of Section 47(v), this aspect was immaterial. Investment in the shares was made by the holding company, Sunair Hotels Ltd., and this position was reflected in the books of both the respondent assessee and Sunair Hotels Limited. Robin Gupta had not stated that he had made payment for 100 shares out of his own funds and had not shown or claimed ownership of shares in his balance-sheet. Addition of Rs.21 crores was treated as unwarranted and the same was deleted. 10. Appeal filed by the Revenue, has been dismissed by the impugned order dated 26[th] October, 2007. We deem it appropriate to reproduce the entire reasoning given by the tribunal, as a question of perversity has been raised. Paragraphs 8 to 14 of the order passed by the tribunal read as under:- “8. We have considered the rival submissions of both the parties, perused the record and carefully gone through the impugned order of the tax authorities below. Page 11 of 38 9. In the instant case the ld. DR for the Revenue except placing reliance on the reasoning given in the order of AO was not able to controvert the factual observations made in the order of CIT(A) and the findings recorded on the basis of the conclusions drawn on the factual observations made by the CIT(A). 10. On the other hand the ld. AR for the assessee first reiterated submissions made before the CIT(A) and thereafter relying on the reasoning given in the order of CIT(A) submitted that the CIT(A) rightly deleted the impugned addition of Rs.21 crores made by the AO. 11. The first point required to be resolved by us is whether on the basis of statement of Shri Robin Gupta recorded on 8-3-2001 the AO was justified in concluding that Shri Robin Gupta held the shares in his own name and not as a nominee because except bald oral statement, he has not been able to substantiate the claim of investment in the shares in his personal capacity by providing any document/evidence when the case of the assessee is that the source of the investment in the share capital of Sunaero Ltd. is from the funds given by the Sunair Hotels Ltd. The payment towards the share capial was made through cheque and copy of the receipts issued by registrar of companies supports the claim of the assessee. The AO has not controverted this aspect of the assessee u/s 47(v) of the Act it is necessary that the holding company should hold the whole of the share capital of the subsidiary company and should also be an India Company. The assessee, in view of the payment towards share capital having been made by Sunair Hotels Ltd., has been able to show that these conditions have been met in the case of the assessee and therefore the assessee is entitled to the benefit allowed u/s 47(v) of the Act. Page 12 of 38 Page 12 of 38 12. The undisputed facts in this case are that the assessee company M/s Sunaero Ltd. was incorporated on 22-10-93 with 7 subscribers to its share capital. During the year 1994-95 M/s Sunaero Ltd. transferred the hotel development rights back to M/s Sunair Hotels Ltd. for a consideration of Rs.21 crores. This amount was declared to be the profits in the annual financial statement of M/s Sunaero Ltd. for the year ending 31.3.95. However, this amount was claimed to be exempt from Capital Gains Tax u/s 47(v) of the I.T. Act in the return of its income filed for A.Y. 1995-96. Whereas, under the section any capital gains arising out of transfer of capital assets from a wholly subsidiary company to its holding company is not liable to gain tax. As discussed hereinabove, the assessee from the above mentioned evidence was able to show that the holding company was holding the whole of the share capital of the subsidiary company and the payments towards the share capital of the assessee too was made by M/s Sunair Hotels Ltd. The AO without examining other six subscribers to the share capital, simply on the basis of the statement of Shri Robin Gupta has tried to establish that the shars of the company were held in the name of the 7 subscribers and not as nominee. On analyzing the statement of Shri Robin Gupta we find firstly that Shri Robin Gupta states that the signatures appearing on form no. 1 prescribed under Rule3(1) of sec. 187C were not his. It is however to be noticed that in his statement Shri Robin Gupta has further stated that he was unable to recall the mode of payment of the share capital. Further, that the day to day affairs of the company were being looked by Shri S.P. Gupta, an another subscriber. We have already mentioned hereinabove that the AO has not made any enquiries from the other remaining sharesholders of the assessee company, so, in these facts the only satisfactory basis for arriving at a decision regarding capital gain u/s 47(v) could not be the examination of the other subscribers who could actually disclose as to Page 13 of 38 whether they had made the investment in the share capital of the assessee company. Only on this basis the real ownership of the shares in question could have been ascertained by the AO, but, in the instant case the AO has failed to do so by bringing on record any cogent evidence. 13. Now coming to the other point whether the assessee company has fulfilled the condition laid down in sec. 187C of the Companies Act and the effect thereof. In this regard we find that Income Tax Act, 1961 does not contain any reference to sec. 187C of the purpose of considering the taxability of capital gains u/s 74(v) (sic.) of the Act otherwise too it is simply a procedural section for the purpose of disclosure of benami holding of shares. So far as the alleged violation of Companies Act in terms of late submission of declaration u/s 187, forgery or mismatch or signatures and discrepancies in recording in minute books are concerned, it is for the concerned authorities under the relevant enactments to take note of and to take such punitive action as may be deemed fit. However, as regards the provisions of sec. 47(v) of I.T. Act it is clear from the facts of the instant case that investment in the shars of the assessee company has been made by M/s Sunair Hotels Ltd. which is reflected in the balance sheets of both the companies. Regarding the statement of Shri Robin Gupta we have already analyzed hereinabove that his statement is not worth placing any reliance as he failed to establish from cogent evidence that in the fact he made the payment of 100 shares out of his own funds because he neither furnished any detailed of such payment nor the same was shown by him in his balance sheet indicating the ownership of the same. 14. For the reasons stated above we are of the opinion that in the existing facts and circumstances, the assessee has been able to establish that the capital gains of Rs.21 Page 14 of 38 14. For the reasons stated above we are of the opinion that in the existing facts and circumstances, the assessee has been able to establish that the capital gains of Rs.21 Page 14 of 38 croresarising out of transfer of the capital assets from a wholly-owned subsidiary company to its holding company was not liable to capital gains tax as per the provisions of sec. 47(v) of Income Tax Act, 1961. Accordingly, the order of CIT(A) in this regard is upheld and grounds of appeals taken by the Revenue are rejected.” –11. Before us, the Revenue has filed three paper books, Paper Book ––I, Paper Book II and Paper Book III. The respondent assessee has also filed a paper book. We are only entitled to refer and have examined the documents filed and available to the tribunal, when we examine the question of perversity. Of course, the orders passed by the Assessing Officer and the CIT(A) can be referred to. 12. In order to decide the issue in question, we would like to point out the contentions raised on behalf of the Revenue, which are as under:- the contentions raised on behalf of the Revenue, which are as under:- (i) Sunair Hotels Limited was not a shareholder of the respondent assessee. It does not hold even a single share. The seven shareholders were individuals. assessee. It does not hold even a single share. The seven shareholders were individuals. (ii) As per Section 49 of the Companies Act, all investments made by a company should be held in its own name. Sub-section (3) stipulates that a company may hold shares in the subsidiary company in its own name or in the name of its nominee, in so far as it is necessary to do so to ensure that the number of members of the subsidiary is not reduced to less than 7 (seven), in the case of public limited company, and in the case of private company the number should not fall below 2 (two). ITA 562/2008 Page 15 of 38 (iii) There is a difference between a subsidiary company and a wholly owned subsidiary company. In the case of wholly owned subsidiary company, the entire shareholding must be held by the holding company or its nominees. This is not necessary in the case of a subsidiary company. (See Sections 4 and 49 of the Companies Act) (iv) Respondent assessee was not set up or incorporated as a wholly owned subsidiary company of Sunair Hotels Limited. In the Memorandum of Understanding dated 17[th ]June, 1993 or in subsequent correspondence with NDMC, it was not alleged or stated that the respondent assessee was a wholly owned subsidiary company. The letter indicated that the formation of separate company was for the purpose of a joint venture or as a subsidiary but it cannot be said that the respondent assessee was incorporated as a wholly owned subsidiary. (v) The letter/correspondence exchange with the Secretariat for Industrial Approvals, Ministry of Industry of Foreign Investment and Technologies dated 30.9.1994 were self-serving documents and do not establish the claim and do not constitute an admission or a proof that the respondent assessee was a wholly owned subsidiary. (vi) There is no contemporaneous record to show that the seven shareholders were nominees of Sunair Hotels Limited or that the investment towards share capital was made exclusively or only by Sunair Hotels Limited. ITA 562/2008 Page 16 of 38 (vii) Members and Directors of the respondent assessee and Sunair Hotels Limited were not the same. (viii) Share certificates were issued in the various individuals’ names and do not mention that the shareholders/ members were nominees of Sunair Hotels Ltd. (ix) Statements of Robin Gupta, Radhika Prasad Dubey and the Director and Manager of Jain Book Depot and the forgery and the report of the Government Examiner of Questioned Documents, have been ignored and not given due credence. (x) The declaration under Section 187C was not filed in time, and in at least two cases, signatures were forged on the form filed with the Registrar of Companies. ITA 562/2008 Page 16 of 38 (vii) Members and Directors of the respondent assessee and Sunair Hotels Limited were not the same. (viii) Share certificates were issued in the various individuals’ names and do not mention that the shareholders/ members were nominees of Sunair Hotels Ltd. (ix) Statements of Robin Gupta, Radhika Prasad Dubey and the Director and Manager of Jain Book Depot and the forgery and the report of the Government Examiner of Questioned Documents, have been ignored and not given due credence. (x) The declaration under Section 187C was not filed in time, and in at least two cases, signatures were forged on the form filed with the Registrar of Companies. The reports and findings made by the Department of Company Affairs have been ignored. (xi) On the date when the shares were issued, the respondent assessee did not have a bank account and the payments were made in cash. There is nothing to show that the payments towards share application money were made by Sunair Hotels Limited. The ledger account of the respondent assessee in the books of Sunair Hotels Limited, relied upon, does not support the contention that the Sunair Hotels Ltd. had made payment for the shares. Page 17 of 38 13. Learned counsel for the respondent assessee has submitted and raised the following contentions:- (i) Appeal under Section 260A is maintainable only on substantial questions of law. Findings of facts cannot be re-appreciated. In the present case, there are concurrent findings of both, CIT(Appeal) and the tribunal in favour of the assessee. Reliance is placed on Janardhana Rao (M) vs. Joint CIT, (2005) 273 ITR 50 (SC), CIT vs. P. Mohankala, (2007) 291 ITR 278 (SC) and other decisions on similar lines of the Delhi High Court. (ii) No evidence relating to undisclosed income was found during search and, therefore, block assessment proceedings are void. Block assessment proceedings are not a substitute for regular assessment proceedings. [See Commission of Income Tax vs. Ravi Kant Jain, (2001) 250 ITR 141 (Del); CIT vs. V.B. Aggarwal, (2008) 296 ITR 750 (Del), CIT vs. Pramod Kumar Gupta, (2010) 320 ITR 408 (Del); CIT vs. Balaji Wire Private Limited, (2008) 304 ITR 393 (Delhi); N.R. Paper and Board Limited & ors. vs. DCIT, (1998) 234 ITR 733 (Guj.); Caltradeco Steel Sales (P) Ltd. vs. DCIT (2000) 243 ITR 643 (Cal.); CIT vs. Md. Rizwan (2009) 316 ITR 317 (Patna).] (iii) In the regular assessment order under Section 143(3) in the case of assessee relating to the assessment year 1995-96, the Assessing Officer had held that factually no transaction had taken place between Sunair ITA 562/2008 Page 18 of 38 Hotels Limited to transfer the hotel development rights in favour of the respondent assessee and then by the respondent assessee in favour of Sunair Hotels Limited. He had held that these transactions were infructuous and had to be ignored. He had accordingly recast the balance-sheet. The said assessment order has become final and binding and, therefore, there is no question of capital gain on transfer of the hotel development rights by the respondent assessee in favour of Sunair Hotels Limited. Applicability of Section 47(v) is of academic interest and inconsequential. (iv) The findings recorded by the Assessing Officer in the assessment order under Section 143(3) for the assessment year 1995-96 dated 9[th ]February, 1998, could not have been examined in the block assessment proceedings. This aspect was specifically raised by the respondent assessee in the appeal before the CIT (Appeals) and accepted by the Assessing Officer in the remand report. (v) The respondent assessee is entitled to raise this issue and question before the High Court as one of the facets of the issue or a part of the subject matter of the appeal. (See CIT vs. Indian Molasses Co. (P) Ltd. (1970) 78 ITR 474 (SC), Sundarama and Co. (P) Ltd. vs. CIT (1967) 66 ITR 604 (SC), Raja Sharda Narain Singh vs. CIT (1968) 68 ITR 209 (SC). ITA 562/2008 (iv) The findings recorded by the Assessing Officer in the assessment order under Section 143(3) for the assessment year 1995-96 dated 9[th ]February, 1998, could not have been examined in the block assessment proceedings. This aspect was specifically raised by the respondent assessee in the appeal before the CIT (Appeals) and accepted by the Assessing Officer in the remand report. (v) The respondent assessee is entitled to raise this issue and question before the High Court as one of the facets of the issue or a part of the subject matter of the appeal. (See CIT vs. Indian Molasses Co. (P) Ltd. (1970) 78 ITR 474 (SC), Sundarama and Co. (P) Ltd. vs. CIT (1967) 66 ITR 604 (SC), Raja Sharda Narain Singh vs. CIT (1968) 68 ITR 209 (SC). ITA 562/2008 Page 19 of 38 (vi) Correspondence of Sunair Hotels Limited with NDMC in the letters dated 12[th ]August, 1993 and 16[th ]September, 1993, shows that Sunair Hotels Ltd. wanted to incorporate its subsidiary. The agreement dated 17[th ]June, 1993, between Sunair Hotels Ltd. and Aeroflot also discloses the intention to create a subsidiary. Letters dated 2[nd ]May, 1995 and 31[st] May, 1995 written by Sunair Hotels Ltd. and the assessee to Ministry of Industries affirms and admits that the respondent assessee was a wholly owned subsidiary of Sunair Hotels Ltd. (vii) Ministry of Industry’s letter dated 27[th ]June, 1995, acknowledges that Sunair Hotels Ltd. was the holding company of the respondent assessee. This was also acknowledged in the Ministry of Industry’s letter dated 24[th] May, 1995. Internal note of Law Department of NDMC also records that the respondent assessee was to be established as a subsidiary of Sunair Hotels Ltd. (viii) The entire fund for establishment and incorporation of the respondent assessee was provided/incurred by Sunair Hotels Ltd. Share application money of Rs.7,000/- was also recorded and shown in the balance sheet and books of accounts of Sunair Hotels Ltd. (ix) In the balance sheet of Sunair Hotels Ltd. as on 31[st ]March, 1995 and 31[st] March, 1994, the assessee was shown as a wholly owned subsidiary. These balance-sheets were filed with the Registrar of Companies in 1995. ITA 562/2008 Page 20 of 38 (x) The register of members records that the seven shareholders were nominees of the holding company i.e. Sunair Hotels Ltd. (xi) The respondent assessee and the holding company were operating from the same premises. The transaction of Rs.21 crores was duly disclosed in the balance sheet/ computation of assessable income for the assessment year 1995-96. (xii) Statement of Robin Gupta was not credible and an afterthought. There were differences between Robin Gupta and other shareholders. Robin Gupta is related to S.P. Gupta and because of differences, their relationship had taken an ugly turn. He had wrongly answered and claimed that he was not a nominee of Sunair Hotels Ltd. Robin Gupta had executed a power of attorney in favour of V.K. Bindal. Being a well educated person holding degree in MBA (Finance), he was aware of the papers signed by him. Robin Gupta had not disclosed and declared the shares, held by him in the respondent assessee, in the balance-sheet and documents filed with his income tax returns. He was not the de facto shareholder and Sunair Hotels Ltd. was the beneficial and the de facto shareholder. (xiii) Even otherwise, there were gaps between statements of Robin Gupta on different aspects and his claims/assertions are not substantiated by facts. Page 21 of 38 (xiv) Robin Gupta did not recall and explain the source of payment of Rs.1000/- for subscribing to the shares of the respondent assessee. (xv) Sunaero Ltd. had furnished and given replies to the Department of Company Affairs, Economic Offences Wing, Crime Cell, Delhi and they were satisfied and no further action has been taken. (xiii) Even otherwise, there were gaps between statements of Robin Gupta on different aspects and his claims/assertions are not substantiated by facts. Page 21 of 38 (xiv) Robin Gupta did not recall and explain the source of payment of Rs.1000/- for subscribing to the shares of the respondent assessee. (xv) Sunaero Ltd. had furnished and given replies to the Department of Company Affairs, Economic Offences Wing, Crime Cell, Delhi and they were satisfied and no further action has been taken. (xvi) Law does not require that the Articles and Memorandum of Association of the subsidiary or holding company should mention/record beneficial ownership or whether the company in question is a wholly owned subsidiary. (xvii) Opinion of Government Examiner of Questioned Document, Simla is debatable and not a fair and clear opinion. The opinion rendered by them relate to signature of Radhika Prasad Dubey and as regards Robin Gupta, they had asked for more specimen signatures. (xviii) Section 187C of the Companies Act requires filing of forms but this is for the purpose of reporting. This is a formality and does not affect the rights of the beneficial shareholder. (xix) The delay in filing the forms has been condoned. The forms purchased from Jain Book Agency were filled up on the basis of earlier declarations taken on plain paper dated 23[rd ]October, 1993. Thus, the aforesaid date was mentioned on the forms. This aspect, therefore, does not negate the respondent assessee’s claim that it was a wholly owned subsidiary. ITA 562/2008 Page 22 of 38 (xx) Statement of Radhika Prasad Dubey does not support the department’s case. 14. At the very outset, we may record that several issues and contentions raised by the appellant/Revenue and the respondent/assessee have not been recorded or dealt with by the CIT(Appeals) or the tribunal. These remain unnoticed and have not been adverted to, considered and evaluated. The tribunal has also not dealt with various legal issues and contentions raised by both sides. A reading of the order passed by the tribunal shows that same is cryptic as also factually wrong and incorrect on factual conclusions/findings recorded. 15. We have quoted Section 47(v) of the Act. To claim benefit under the said Section respondent assessee must be a wholly owned subsidiary of the holding company. Merely because the respondent assessee was a subsidiary of Sunair Hotels Ltd., benefit under Section 47(v) cannot be claimed. The requirement is more stringent. 16. In paragraph 11 of the order, it is stated that the Assessing Officer was not justified in concluding that Robin Gupta was holding shares in his own name and not as a nominee because of the bald oral statement, as there was no other material/evidence. He has not been able to substantiate the claim that investment in the shares was in his personal capacity. He did not prove and establish the said fact from any document/ evidence, when the case of the respondent assessee was that ITA 562/2008 Page 23 of 38 the source and payment in fact was made by Sunair Hotels Ltd. For the sake of convenience, we are reproducing paragraph 11 once again:- 16. In paragraph 11 of the order, it is stated that the Assessing Officer was not justified in concluding that Robin Gupta was holding shares in his own name and not as a nominee because of the bald oral statement, as there was no other material/evidence. He has not been able to substantiate the claim that investment in the shares was in his personal capacity. He did not prove and establish the said fact from any document/ evidence, when the case of the respondent assessee was that ITA 562/2008 Page 23 of 38 the source and payment in fact was made by Sunair Hotels Ltd. For the sake of convenience, we are reproducing paragraph 11 once again:- “11. The first point required to be resolved by us is whether on the basis of statement of Shri Robin Gupta recorded on 8-3-2001 the AO was justified in concluding that Shri Robin Gupta held the shares in his own name and not as a nominee because except bald oral statement, he has not been able to substantiate the claim of investment in the shares in his personal capacity by providing any document/evidence when the case of the assessee is that the source of the investment in the share capital of Sunaero Ltd. is from the funds given by the Sunair Hotels Ltd. The payment towards the share capial was made through cheque and copy of the receipts issued by registrar of companies supports the claim of the assessee. The AO has not controverted this aspect of the assessee u/s 47(v) of the Act it is necessary that the holding company should hold the whole of the share capital of the subsidiary company and should also be an India Company. The assessee, in view of the payment towards share capital having been made by Sunair Hotels Ltd., has been able to show that these conditions have been met in the case of the assessee and therefore the assessee is entitled to the benefit allowed u/s 47(v) of the Act.” 17. We have examined the said reasoning but find that it is substantially, and for a large part, factually incorrect and wrong. The respondent assessee has placed on record a copy of the ledger account of respondent assessee in the books of Sunair Hotels Limited. The same, as per the date mentioned thereon, was printed on 23[rd] December, 1994 and the ledger account reads:- ITA 562/2008 Page 24 of 38 “--------------------------------------------------------------------------------------------------------------------------------------- L E D G E R AS ON ………. 23/12/94TIME 14.54.49 Pg. No. 29 Voucher Date Narration Bill Bill Cheque Cheque No. No. Dt. No. Date Debit Credit Balance 65 15/10/93 DD FVR ROC P&H FOR SUN AERO LTD. 38020.00 38020.00 66 17/10/93 PRDF CGHS TO VKB & CO. FR REGIN OF SUNAERO LTD. 19480.00 57500.00 83 30/11/93 CHQ PD FR MOA PTG FR SUN AERO THRU TRANSASTA 832037 30/11/93 17500.00 75000.00 149 31/03/94 RECT FR ALLOT. OF 700 SH @ 10/- SUN AERO LTD. 7000.00 68000.00” ITA 562/2008 Page 24 of 38 “--------------------------------------------------------------------------------------------------------------------------------------- L E D G E R AS ON ………. 23/12/94TIME 14.54.49 Pg. No. 29 Voucher Date Narration Bill Bill Cheque Cheque No. No. Dt. No. Date Debit Credit Balance 65 15/10/93 DD FVR ROC P&H FOR SUN AERO LTD. 38020.00 38020.00 66 17/10/93 PRDF CGHS TO VKB & CO. FR REGIN OF SUNAERO LTD. 19480.00 57500.00 83 30/11/93 CHQ PD FR MOA PTG FR SUN AERO THRU TRANSASTA 832037 30/11/93 17500.00 75000.00 149 31/03/94 RECT FR ALLOT. OF 700 SH @ 10/- SUN AERO LTD. 7000.00 68000.00” 18. The said ledger account would reveal that on 15[th] & 17[th] October, 1993, two debit entries of Rs.38,020/- and Rs.19480/- were made as payments forwarded to the Registrar of Company for registration of the respondent assessee. The next entry of Rs.17,500/- is made on 30[th]November, 1993, as Cheque paid on behalf of the respondent assessee. The aforesaid payments would only show that the respondent assessee was liable to pay Rs. 75,000/- to Sunair Hotels Ltd. who had made the said payments or had provided funds or was a creditor. The last entry o