TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 764
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....edabad Royal Garden Hotel Private Limited and treating the same as short term gains of Rs. 5,55,22,760/- on transfer in immovable property held by the said company. 2. Ld. CIT(A) has erred on facts and in law in holding that there was no genuine transfer of shares of M/s Ahmedabad Royal Garden Hotel Pvt. Ltd. and the same was sale of immovable property and has further erred in holding that the sale of share was a colorable device to claim long term capital gain on transfer of shares to escape taxation of short term capital gains on transfer of the immovable property and thereby to reduce tax liability. 3. Ld. CIT(A) has erred on facts and in law in ignoring the incontrovertible fact that the shares were transferred at Fair Market Value in accordance with the prevailing income tax law for the same and due capital gains on the same was worked out in accordance with the provisions of chapter IV-E of the Act. 4. Ld. CIT (A) has erred on facts and in law in ignoring the glaring inconsistency and contradiction by the AO in treating the share transfer as a device when he had himself treated investment in shares as genuine during the preceding year and even made disallowance u/s 14A ....
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.... under consideration i.e. A.Y 2012-13 for Rs. 34 crores only after claiming the indexation cost of the shares which has resulted in long term capital loss of Rs. 6,52,89,716/- only. 4.1 However, the AO during the assessment proceedings found that there was only one asset being immovable property available in the company namely M/s ARGHPL. Accordingly, the AO was of the view that the assessee has transferred the immovable property in the garb of transferring the shares as discussed above. According to the AO the shares held by the assessee in the company was for a period of less than 36 months and therefore the same needs to be calculated as short term capital gain without providing the benefit of cost of indexation. As such the assessee to escape from the tax liability has used the colourable device by declaring long term capital loss instead of short term capital gain on the sale of property. Consequently, the AO sought clarification from the assessee vide letter dated 11/03/2014 by proposing to tax the short term capital gain of Rs. 5,55,22,760/- for transferring the land to the Friends Group. 4.2 The assessee in response to such show cause notice vide letter dated 11/04/2014 c....
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.... before us. 7. The learned AR before us submitted that the assessee in the present case has admittedly transferred the shares of the company. As such there was no transfer of immovable property belonging to the company. It was further contended that the shareholders being different and distinct identity of the company cannot be categorized as the owner of the immovable property belonging to the company. The Ld. AR in support of his contention relied on the order of judgment of Karnataka High Court in the case of Bhoruka Engineering Inds. Ltd. Vs D.C.I.T reported in 356 ITR 25. 8. On the contrary, the learned DR vehemently supported the order of the authorities below. 9. We have heard the rival contentions of both the parties and perused the materials available on record. The assessee in the present case has acquired 249980 equity shares of the company namely M/s ARGHPL in the previous year 2008-09 for an amount of Rs. 28,44,77,240/- only. As a result of purchases of the shares, M/s ARGHPL became the subsidiary of the assessee company. The assessee in the year under consideration has sold all the shares for an amount of Rs. 34 crores. The assessee on the sale of shares has shown ....
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....dance of tax. If the facts of the case so indicate authorities are within their jurisdiction to ignore the device and look through the transaction to find out the true nature of the transaction and ascertain as to what was the real intention of the parties for carrying out the transaction the way they have carried out and why it has been presented the way it has been done? 9.4 A colourable device is not an instrument or a specific document but it is whole set of series of transaction which create a different impression when they are looked at their form alone or seen from result they create, but when it is looked through and the substance of the transaction is brought into limelight and such substance of the transaction clearly indicates an intention of tax evasion as well as manipulation, dodging, or even fraud, such device has to be ignored and the effect coming out of the substance has to be applied for working out taxable income. 9.5 However, the tax planning, on the other hand is held not illegal or illegitimate or impermissible, but it is the task of the Court to ascertain the legal nature of the transaction and while doing so, entire transaction has to be looked at as a wh....
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.... period of holding for 34 months cannot be a criteria/reason to hold the transaction in dispute as colourable device. The assessee could have easily postpone the transaction by two months in order to avoid the possible hassle of the income tax proceedings. 9.8 In the present case, the assessee has not adopted the colourable device by hiding the truth or by carrying out the transaction in order to give the appearance of genuine transaction. Hence, we do not find any reason to uphold the finding of the authorities below. 9.9 Moving further we also find that, as per companies Act shareholder and company both are two separate legal person capable of holding property of any kind in their own name. The land in question was held by M/s ARGHPL and not by the shareholder i.e. Assessee company. By being shareholder, the assessee cannot be said to be the owner of the land held by impugned company for the reason that a company is perpetual succession not affected by incoming and outgoing of its shareholder. Therefore, to our understanding what can be transferred by the assessee being shareholder is only the shares, held by it. Thus the transfer of share by the assessee cannot be equated with....
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....expenses cannot be allowed. Following the ratio of the judgment mentioned supra, interest paid on borrowed capital is allowable as deduction u/s. 36(l){iii) only when the borrowed funds were utilized for the purpose of business. The Appellant Company has not been able to establish the commercial expediency of the alleged transaction. The Appellant has not been able to justify the business purpose of the said transaction and the ultimate utilization of the said amount. The Appellant had submitted during the assessment proceedings that Reserves were already utilized in so many projects of the appellant company. As on 31/03/2012, projects under development was to the tune of Rs. 227.95 crores. The appellant company was not having any idle funds available. The cash and cash equivalent of Rs, 12.03 crores mainly consist of fixed deposits with banks against which over draft limits were already utilized. Current assets of this 20.73 crores is in fact utilization of funds. Therefore, as the Appellant itself, there is no idle fund available with the Appellant. The AO has correctly pointed out that if this fund were not given as interest free advance, the same could have been utilized fo....
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.... securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee and no disallowance was warranted u/s 14A." 16.3 Similarly, we also find support from the judgment of Hon'ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the headnote reads as under : "If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A". 16.4 In view of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of such interest free loans and advances as discussed above. Hence the ground of appeal of the assessee is allowed. 16.5 In the result the appeal of the assessee is allowed. 17. Now coming to the Revenue's appeal bearing in ITA No. 1568/AHD/2019 for A.Y.2012-13. 18. The only issue raised by the Revenue is that the learned CIT (A) erred in allowing the deduction claimed by the assessee under section 80-IB (10) of the Act for an amount of Rs. 32,13,73,570/- though the conditions specif....
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.... Besides the above, the assessee also explained that the ATTCO has approached to the assessee in the financial year 2007-08 for booking the flats for its Gulf-based customers in 'Venus Parkland'. For this purpose ATTCO has made block booking of 5 flats after depositing a sum of Rs.1 crore in the financial year 2007- 08. Accordingly, there was made a brokerage agreement of it with ATTCO in the month of May 2011 with respect to purchase of the flats in Venus Parkland, a residential project of the assessee. In this connection the assessee has credited the account of ATTCO for the sum of Rs. 3,47,495/- on account of brokerage in the year under consideration. 19.4 Based on the above, the auditor of the assessee advised that M/s ATTCO has become the deemed associated enterprises of the assessee for furnishing the guarantee as discussed above in pursuance to the provisions of section 92A(2)(d) of the Act. Thus the transaction of brokerage was to be benchmarked to justify the arm length price. Accordingly, the auditor of the assessee advised to submit transfer pricing study as per section 92E of the Act in form 3CEB with respect to its international transactions carried out with the ATTCO....
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....of income within the due date for the reasons as detailed below: i. M/s SIPL is a sister concern of the assessee which has given advance for booking of the showrooms/shops in K Mall. As such, the transaction of giving the advance to the assessee was not in the nature of loan. Therefore, there is no question of furnishing any bank guarantee from the 3rd party. Similarly, the assessee has also received advances from the other parties for booking the showrooms/shops in K Mall but there was no question of furnishing any guarantee with those parties. Likewise, it was an irony that the sister concern of the assessee requires the guarantee from the third-party based in a country outside India and having no connection of whatsoever with it. Equally, the tripartite guarantee agreement was not notarized or registered and therefore it has no enforceability in the eyes of law. ii. There was contradiction with respect to the brokerage expenses. In the statement furnished by director of assessee company namely Shri Rajesh Vaswani it was stated that the commission expenses were incurred in connection with the booking of the shops/ showrooms in K-Mall whereas in the submission it was stated th....
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....view of the above, the AO on merit concluded that the project of the assessee has not been completed within the time provided under section 80- IB (10) of the Act. Therefore the assessee cannot be allowed the deduction claimed for Rs. 32,13,73,570/- under section 80-IB(10) of the Act and accordingly the same was added to the total income of the assessee. 21. Aggrieved assessee preferred an appeal to the learned CIT (A). 22. The assessee before the learned CIT (A) made submissions as detailed under: A. On technical issue i.e. return filed within the time limit provided (i) It has paid all the tax liability in the form of advance tax, tax deducted at source and self-assessment tax before June 2012. It got its books of account audited under Companies Act and under section 44AB of the Act and also got report under from 10CCB before 30th September 2012. Thus it has no reason to file return after 30th September 2012. As such, being a law abiding assessee, it acted upon the advice of the auditor who is a qualified and expert professional. The Auditor advised that the guarantee deed entered with ATTCO and further booking of flats and brokerage agreement and consequent commission expen....
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....UDA and certified that the project was completed before 31st March 2012. Thus there was no fault at the end of it (the assessee). (iv) The AO's observation that construction expenses like cement and steel purchase are incurred in subsequent year is misplaced as it has incurred cost on such materials for more than 20 crores with respect to 860 units whereas in subsequent year only an expense of Rs. 7 lakh was incurred for some petty work and repair of playground area and road etc. (v) The report of the inspector of AUDA is very general. In the report nowhere, it was mentioned which blocks are completed and which one are not completed. It also did not mention what amount of work is pending. In the report of the inspector, it was nowhere stated that BU permission will not be granted. 23. The learned CIT (A) after considering the assessee's submission was pleased to delete the addition on both counts i.e. technical viz-a-viz on merit by observing as under: It is noted that in the case of the appellant company, the ATTCO International has given guarantee of more than 10% of borrowings of the Appellant Company, therefore as per provisions of section 92(A)(2](d) it is deemed to be ....
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....C, Dubai and the copy of the Report u/s. 92E was also submitted to the Income tax department on 29-11- 2012. The AO has observed that brokerage is shown as outstanding against ATTCO international and no Flats were sold by AATCO International in Venus Parkland. The Appellant has contended that the brokerage has been credited to the account of ATTCO international and the same was subsequently paid. Further, it is evident from the ledger account that flats were sold/booked in the Project Venus Parkland through AATCO International and the observation of the AO is erroneous and contrary to the facts on records to that extent. The AO has not considered deed of guarantee and brokerage agreement because they were not registered and not notarised, and therefore according to the AO, they had no legal validity. The AO has held that the deed are not enforceable in court of law and thus, it cannot be held that "ATTCO International has given guarantee is respect of 10% of borrowings of the assessee company and thus, it cannot be held "ATTCO International" is associated enterprise of assessee company within the meaning of Sec.92 (A)(D) of the Act. However, it is noted that that both agreement....
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....47 held inter-alia as under : ! "There is no dispute as to the fact that the certificate produced by the petitioner of its Chartered Accountant was not disputed by the respondents by bringing on record any opinion of another qualified person so as to displace the opinion of the professional expert. In fact, the petitioner supported the Certificate of the Chartered Accountant by a further letter tendered after Notification No.41/2001, dated 21-9-2001 wherein the Chartered Accountant had specifically stated that they had followed the contents of the Accounting Standards (A.S.10) while issuing the original certificate. The opinion rendered by the competent expert has not been dislodged by the respondents in any manner whatsoever and the opinion expressed by the Deputy Commissioner would remain merely an opinion in the face of the certificate issued by an expert." The facts of the instant case are squarely covered by the binding ratio of judgement of the jurisdictional High Court quoted supra. In the instant case, the deed of guarantee as well as agreement for brokerage are governed by the relevant provisions of section 92 as certified in the report in Form No. SCEBby the Charter....
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....he binding ratio decidendi of the Hon'bie Jurisdiction High Court, it is held that the Appellant is entitled for deduction u/s. 80-18(10) of the Act despite the fact that the Appellant could not receive building completion certificate for the project on or before last date of 31/03/2012 from the competent authority. The delay on the part of competent authority in issuing building completion certificate cannot be attributed to the Appellant for denying deduction u/s. SO-IB(IO) of the Act. It is held that there was no default on the part of the appellant company and the delay cannot be attributed the appellant company. The appellant company had applied for BU for entire project and paid prescribed fees also on 25/01/2O12 well prescribed time-limit of 31/03/2012 and the appellant company also obtained BU Permission by AMC for its entire project based on the BU Application dated 25/01/2O12 certifying completion date as on 25/01/2012. This is further substantiated by copy of Municipal tax for AY 2012-13 for all blocks of the project evidencing completion of the project. I do not see any reason to deny the claim of the assesses for deduction u/s. 80IB(10) of the Act. Where the appe....
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....ed on 29.09.12; Form 10CCB for deduction u/s 80-18(10) was obtained on 29.09.12; (Note: All the above events took place before 30.09.12) The Statutory Auditor, during the course of statutory audit, pointed out that assessee had entered into "international transactions" during the year in question and hence. Audit Report prescribed u/s 92E was to be obtained. Thus, assessee was advised to obtained Audit Report in Form 3CEB. At this stage, the following facts as well as statutory provisions may be kept in mind so as to appreciate the controversy in the correct perspective: Since ATTCO guaranteed more than 10% of total borrowings of the assessee, it was an "Associated Enterprise " ("AE") - S.92A(2)(d) & Pg.l60ofP/B). Since ATTCO is a non-resident and AE of assessee, above referred transactions are "international transactions " - S.92B(1). Since assessee had entered into "international transactions", it was supposed to obtain Audit Report in Form 3CEB - S.92E. Since assessee was supposed to obtain Audit Report in Form 3CEB, "due-date" for filing return of income was 30.1L12 - Clause "aa" of Explanation 2 to 8.139(1). Assessee obtained Audit Report in Form 3CEB on 27.11.....
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....ount having the commercial effect of a borrowing; and (ii) The expressions, "allottee " and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016); In view of the above, the "booking deposit" given by SIPL to assessee shall be treated as "borrowing". Further, "customer advance" is to be treated as "borrowings" is also accepted by Hon'ble Supreme Court in the case of "Pioneer Urban Land and Infrastructure Limited & Others vs. Union of India-(2019) 8 SCC 416" As regards Ground # 4 of revenue's appeal that "Deed of guarantee" and "Brokerage agreement" are neither registered nor notarized, it is submitted that both such documents are "signed" as well as "stamped" and hence, as per S.IO of Indian Contract Act, 1972, the same are valid and can be challenged in the Court of law (Pgs.76 of CIT(A)'s order). As regards Ground # 5 of revenue's appeal that block booking of 5 flats was made by Narsingh Khanchandani and hence, deduction u/s 80-IB(10) is not permissible in view of clause (f), it is submitted that such booking was cancelled and am....
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....w.r.t. 360 units; BU permission charges are Rs. 100 for each case and for entire project; Assessee, vide letter dated 11.04.14 (Pgs.100-101 of AO), submitted the following documentary evidences after getting a copy of AUDA's reply: Assessee had applied for the BU permission for the entire project on 25.01.12 (Exb. XIII); AUDA asked assessee to pay BU permission charges for entire project in writing specifying working for 98,500 Sq. Mtrs. (E\b. XIV); Assessee paid BU permission fees for entire project on 25.01.12 by account payee cheque and receipt was issued by AUDA (Exb. XV); Entire housing project was completed before 31.03.12 for which Engineer's certificate was furnished (Exb. XVI); Statement of flats sold in April to June 2012 with conveyance deeds of 10 Hats for which BU permission was not there (Exb. XI7}!); Possession letters issued to members duly signed by members for * blocks for which BU permission was not there (Exb. XVIII); Electricity bills issued by Torrent Power Ltd. of different units for which BU permission was not there (Exb. XIX); Thus, it was submitted that BU permission was merely a procedural aspect and that the construction of th....
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....transfer of record. Under such circumstances, BU permission application made by assessee was pending for quite some time. Eventually, BU permission was granted by AMC on the basis of original application dated 25.01.12 pending before AUDA (Pg.83 of CIT(A) 's order). Following are some of the vital aspects: AMC granted BU permission based on application made he/ore AUDA; No additional fees for BU permission were collected by AMC; No separate inspection was carried out by AMC; No penalty has been levied for use of units without BU; In view of the above, project was completed before 31.03.12 but mere BU permission (pending application) was not issued for few units. In view of documentary evidences placed on record (Pg.89 of CIT(A) 's order), following aspects are clear (Para 8.12, Fg.94 of ClT(A)'s order): AO has not rejected either the Engineer's certificate w.r.t. completion of project before 31,03.12; AO has also not rejected the factum of handing over possession of flats to members before 31.03.12; Thus, it becomes clear that - Entire project was completed before 31.03.12; & Application for BU permission wax pending before A UDA; It is a set....
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....f minor repairs & maintenance, club house road, children play area activities, etc. and not for any construction (which was over by 3 1 .03.12) (Pg.86 of CIT(A)'s order). In view of the above. Id. CIT(A) has rightly held that assessee is eligible for the claim of deduction u/s 80-16(10). 26.1 Both the learned DR and the AR vehemently supported the order of the authorities below as favourable to them. 27. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the deduction claimed by the assessee under section 80-IB (10) of the Act for Rs. 32,13,73,570/ was denied by the AO for 2 reasons. Firstly, the assessee failed to file the income tax return within the due date as provided under section 139(1) of the Act. Therefore there was the contravention of the provisions of section 80AC of the Act. Secondly, the residential project of the assessee namely 'Venus Parkland' was not completed within the due date as provided under section 80-IB(10) of the Act. 27.1 However, the learned CIT (A) was pleased to delete the addition made by the AO for the reasons which have been elaborated in the pr....
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....ing the return got extended up-to 30th November 2012. Admittedly, the assessee has submitted TP report in form 3CEB under section 92E of the Act dated 28th November 2012. Thus the intention of Assessee cannot be doubted. 27.5 Going further we also find learned CIT (A) has given clear finding that by virtue of guarantee deed entered between assessee, ATTCO and SIPL, the advance given by SPIL were converted into secured short term loan. Thus guarantee with respect to such short term loan of Rs. 11.34 constitute more than 10% of total borrowing of the assessee. Hence the ATTCO became the AE of the assessee by virtue of provision of section 92A(2)(d) of the Act. The Learned CIT(A) also given finding that the assessee through ATTCO sold flats in 'Venus Parkland' project, thus the assessee was liable to pay commission as per brokerage agreement entered by the assessee which was ultimately paid to the ATTCO after deducting withholding tax. 27.6 From the above it is inferred that there was relationship of AE created between assessee and ATTCO and further entered into international transaction by crediting brokerage commission in the name of ATTCO. Thus as per the provision of section 92E....