IN THE ITAT, MUMBAI 'G' BENCH
PRAMOD KUMAR & MAHAVIR SINGH, V.P.
Grasim Industries Ltd. v. Dy. CIT
SA No. 226 (Mum) of 2020 & ITA No. 1935 (Mum) of 2020
18 December, 2020
In favour of assessee
Applicant by: J.D. Mistry, Sr. Advocate, Madhur Agarwal & Jayesh Ganatra.
Respondent by: Anand Mohan, Abhady Damle & Praveen Shekhar.
Pramod Kumar, V.P.
By way of this stay application, the assessee applicant has sought a stay on collection/recovery of tax and interest demands aggregating to Rs. 3,786.34 crores, no part of which has been paid by the assessee so far, in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2018-19.
2. Let us first take a quick look at some material facts, as culled out from material on record, before we proceed to take up the issues raised in this stay application. The assessee before us is a widely held public listed company. On 11-8-2016, the Board of Directors of the assessee company approved a 'composite scheme of arrangements' between the assessee company, Aditya Birla Nuvo Ltd (ABNL), and Aditya Birla Capital Limited (ABCL)- which was earlier known as Aditya Birla Financial Services Ltd (ABFSL). Under this scheme, the ABNL was to merge with the assessee company, and, subsequently, the financial services business (FSB) was to be demerged to ABCL. This composite scheme of arrangement was approved by the National Company Law Tribunal on 1-6-2017, and, under the said scheme, the merger became effective from 1-7-2017, and the FSB demerger to ABCL became effective from 4-7-2017. Prior to this merger, ABCL was a subsidiary of ABNL, but as the ABNL itself merged into the assessee company, it became a subsidiary of the assessee company. Prior to the merger, ABNL held 9.77% shares of one Aditya Birla Finance Limited (ABFL) and the remaining 90.23% shares therein were held by ABCL. When the demerger of the financial services business took place, these 9.77% shares were also transferred to ABCL. The assessing officer probed this composite scheme of the arrangement, collected the information under section 133(6), and, for the detailed reasons set out in the assessment order, concluded that the demerger was not in accordance with the provisions of Section 2(19AA) of the Income-tax Act, 1961, that it was merely a transfer of combination of certain assets and liabilities having a net book value of Rs. 1,721.61 crores which did not constitute business activity. The assessing officer was further of the view that as a consideration for this combination of assets and liabilities, with a book value of Rs. 1,721.61 crores, the ABCL had issued 92,02,66,915 shares to the shareholders of the assessee company under the guise of consideration for demerger. The assessing officer further computed fair market value of these shares at Rs. 261.20 per share, and the consideration for the transfer of the said combination of assets and liabilities, with a book value of Rs. 1,721.61 crores, thus worked out to Rs. 24037,37,18,918- wrongly stated to be Rs. 24037,37,27,600 in the stay application (i.e., 24,037.37 crores). The assessing officer was further of the view that what has been paid to the shareholders of the assessee company, as excessive consideration in the garb of consideration of demerger, is taxable as deemed dividend under section 2(22)(e) of the Act, and, as a corollary thereto, the assessee had a liability to pay dividend distribution tax of Rs. 4893,44,40,243 (Rs 4,893.44 crores) which he has failed to discharge. The assessee was held to be an assessee in default under section 115 Q of the Act. The assessing officer further raised a demand for interest, beyond the 14 days from the record date) under section 115P, which, at that point in time, worked out to Rs. 978,68,88,044 (Rs 978.68 crores). It was in this backdrop that a demand of Rs. 5872,13,28,292 (Rs 5,872.13 crores) was raised on the assessee. Aggrieved, the assessee carried the matter in appeal before the Commissioner (Appeals), but without much success. While the learned Commissioner (Appeals) upheld the demand in principle, he modified the quantum of valuation of shares @ Rs. 145.40 per share, as against the valuation @ Rs. 261.20 per share. The demand recomputed, in the proceedings giving effect to the appellate order of the Commissioner (Appeals) and inclusive of interest under section 115P, is stated to be at Rs. 3786,34,91,500 (i.e. Rs. 3,786.34 crores). The assessee is still not satisfied and is in further appeal before us.