STATEMENT OF FACTS

I. BACKGROUND

Singhania Private Limited (SPL), having three directors and shareholders Asha, Lata and

Hafiz (collectively, ‘the assessees’) is a manufacturer of steel products and has been in the

business for the past few decades. SPL has been earning huge profits for the past 8 years and

dividend has been distributed at the rate of 60% of the net profit. In the past three years, net

profit and dividend distributed has declined. In the board meeting called to declare dividend

for 2018-19, Hafiz informed the board that he wished to reduce his exposure and involvement

with SPL taking into account the cyclic nature of the steel business and the downward trend

in profitability. He proposes a buy back scheme, instead of declaring dividend for the said

period and in a subsequent meeting the resolution for buy back was passed. All relevant

provisions of the Companies Act were adhered to. SPL also discharged its tax liability under

S 115 QA of the Income Tax Act. The shareholders were exempted under S 10(34A).

II. PROCEEDINGS BEFORE THE ASSESSING OFFICER (AO)

In the AY 2020-21 the AO, noting the activities of SPL initiated scrutiny assessments and

issues notice under S 143(2) and under Rule 10UB(1) proposing to invoke GAAR

proceedings against the assessees. The AO stated that the buy back scheme was solely for

obtaining a tax benefit and sought explanation from the assessees as to why it should not be

declared as an IAA and GAAR invoked. The assessees responded by contending that the AO

had failed to give reasons and basis for invoking GAAR, that the buy-back was to achieve

strategic and commercial objectives and was in full compliance with the provisions of the

companies Act and that considering the CBDT Circular No 7 of 2017, that GAAR will not

interplay with the taxpayers right to choose the method of implementing a transaction and
claimed benefit of the grandfathering rule under Rule 10U(1)(d). These objections were not

disposed of by the AO.

III. PROCEEDINGS BEFORE THE PRINCIPAL COMMISSIONER OF INCOME

TAX (PCIT)

The AO proceeded to make a reference to the PCIT under S 144BA(1) and notice under

144BA(2) was issued to the assessees wherein reason and basis for considering the

arrangement as an IAA were stated. The PCIT questioned the involvement of Asha and Lata

in the buyback scheme and also relied on the minutes of the meetings held by SPL and their

financial statements. The PCIT clarified that the assessees could not claim the benefit of the

grandfathering provisions. The asseessees raised similar objections to the ones they had

raised before the AO.

IV. DIRECTIONS OF THE APPROVING PANEL (AP)

The PCIT, not being satisfied with the explanation adduced by the assessees, referred the

matter to the AP under S 144BA(4) of the Act. The AP directed that the considerations

received by Asha, Lata and Hafiz had to be considered as dividend distributed by SPL and

taxed accordingly, bringing in S 115BBDA and that SPL would be liable to pay the

difference between the tax paid on buyback and the tax payable on distribution of dividend.

The assessees, aggrieved by the same, approaches the High Court to decide on the same and

quash the entire GAAR proceedings including the AP’s directions.

 PRAYER

In the light of the facts stated, issues raised, arguments advanced and authorities cited, the

Petitioners most humbly pray that this Hon’ble Court may be pleased to adjudge, hold and

declare that:

1. The arrangement entered into by the assessees was a buyback scheme and was

solely for commercial and strategic purposes.

2. The actions of the tax authorities were not justified in fact or in law.

3. The entire GAAR proceedings be quashed and the directions of the Approving

Panel be set aside.

And pass any other order which the Court may deem fit in the ends of equity, justice,

expediency and good conscience in favor of the Petitioners.

ALL OF WHICH IS RESPECTFULLY SUBMITTED

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COUNSELS FOR THE PETITIONERS

 PRAYER

In the light of the facts stated, issues raised, arguments advanced and authorities cited, the

Respondents most humbly pray that this Hon’ble Court may be pleased to adjudge, hold and

declare that:

1. The arrangement entered into by the assessees in the guise of a buyback scheme

was solely for attaining tax benefit.

2. The actions of the tax authorities were justified in fact and in law.

3. The entire GAAR proceedings be upheld and the directions of the Approving Panel

be enforced.

And pass any other order which the Court may deem fit in the ends of equity, justice,

expediency and good conscience in favor of the Respondents.

ALL OF WHICH IS RESPECTFULLY SUBMITTED

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COUNSELS FOR THE RESPONDENTS