TaxTMI 
TaxTMI 
2021 (11) TMI 764
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....ss of Rs. 6,52,89,716/- on sale of shares of M/s Ahmedabad 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....
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....uired in the earlier year i.e. A.Y 2008-09 for Rs. 28,44,77,240.00 only. The assessee sold these shares during the year 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 transferr....
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....ssed and the action of the AO in this regard is upheld. 6. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal 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. ....
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....nsaction adopt a colourable device, they conceal the true nature of the transaction and purport to show it differently with ostensible intention of avoidance 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 imperm....
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....ferred by the assessee after the expiry of 36 months, then the transaction would have been accepted as genuine by the revenue. However to our understanding, the 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 under....
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....usiness purpose" and what the sister-concern did with the money advanced". On going through facts of the case the appellant company has not proveit's commercial expediency therefore this 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, ....
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..... HDFC Bank Ltd reported in 366 ITR 505 (Bom). The relevant extract of the order is reproduced below:- "Where assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free 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. 15....
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....reed to furnish the guarantee. Therefore, a tripartite agreement was signed among the assessee, SIPL and ATTCO dated 04th April 2011 for furnishing the guarantee. Thus guarantee given by the ATTCO for Rs. 11.34 crores was more than 10% of total borrowing of the assessee. 19.3 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 t....
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....ted that the assessee has transferred and handed over the possession of the property for few of the units of its project Venus Parkland before the due date of completion of the project. 20. However, the AO was dissatisfied with the contention of the assessee that it has filed the return 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....
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....he water connection. 20.5 The permission for the installation of the lift in respect of 10 blocks was given to the assessee after 31 March 2012. 20.6 The assessee is still incurring the expenses towards the building material in the financial year 2012-13 which is evident from the copy of the ledgers. 20.7 In 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. Th....
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....ly to notice under section 133(6)/131 has stated that application was made for entire project but permission was issued for only 480 unit. Thus it proves that it has made application. (iii) BU permission was delayed due to the reason that there was the issue with regard to jurisdiction between AUDA and AMC from April 2012. However the AMC issued BU permission based on the application made before AUDA 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 wi....
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....ring the course of survey U/S.133A of the Act on 23/10/2013 in respect of transaction entered into with ATTCO International. It was submitted by the Appellant that the Deed of Guarantee and other Agreements were available in the computer back up taken during the course of survey proceedings and in the Audit Report u/s.92E of the I.T Act, 1961 on 27-11 -2012, the Deed of Guarantee and brokerage transaction entered into with VIDPL & ATTCO International, LLC, 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 ....
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....e & Developers Private Limited as well as deed of guarantee entered into between Venus Infrastructure & Developers Private Limited, ATTCO international and M/s. Sunderdeep Infrastructure Private limited cannot be doubted as it is a commercial transaction with a third party and ATTCO International LLC is an associated enterprise only in pursuance of deeming provisions of section 92A(2}(d) of the Income-tax Act, 1961. 7.11 The Hon'ble jurisdictional High Court in the case of MANGAL TEXTILE MILLS PVT. LTD. dated 25.02.2002 reported at 2002 (81) ECC 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. ....
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.... The Hon'ble Jurisdictional High Court of Gujarat in the case of ITO vs. Saket Corporation (supra), held that where the assessee had completed construction of its entire housing project and applied for building use permission/completion certificate within prescribed time-limit, it would be entitled to deduction u/s. 80-fB(10) of the Act notwithstanding fact that it could not receive permission for its entire project. In the present case also the assessee completed the construction of project and also applied for BU permission within prescribed time limit on 25/01/2012 therefore, respectfully following the 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 c....
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....stion: Deed of guarantee" was executed between assessee, Sunderdeep Infrastructure Pvt. Ltd. ("SIPL") and "ATTCO International LLC, Dubai" ("ATTCO") whereby loan of Rs.l 1,34,51,OOO/- taken by assessee from S1PL was guaranteed by A TTCO - Pg.160 of P/B. Assessee had incurred expenses of Rs. 3,47,495/- in the form of "commission" to "ATTCO" pursuant to "brokerage agreement" entered into between assessee and ATTCO - Pgs.174 & 181 of P/B. Some of the vital facts are as follows (Pg.68, Para 7,2 of CIT(A)'s order): Self-assessment tax of Rs. 7,00,00,000/- was paid on 31.05.12; Statutory Audit Report was obtained on 29.09.12; Tax Audit Report was obtained 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....
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....ssee could not be termed as "borrowing" since it was in the nature of "booking deposit", kind attention of Hon'ble Bench is invited lo clause (f) of sub-section (8) of section 5 of "The Insolvency and bankruptcy Code, 2016" defining the term "financial debt" and so also the Explanation thereto. The same reads as follows: S.5(8) - "fin uncial debt" means a debt along with interest, if any. which is disbursed against the consideration for the time value of money and includes - xxxx... (f) any amount raised under any other transaction, including any forward sale OIL purchase agreement having the commercial effect of a Borrowing. Explanation. - For the purpose of this sub-clause, - (i) Any amount raised from an allottee under a real estate project shall be deemed to be an amount 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....
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....on. The same be held so now. Merits: Completion of project before 31.03.12 On merits, AO denied deduction u/s 80-IB(10) on the alleged count that the housing project was not completed on or before 31.03.12 (i.e. five years from the end of FY 06-07 - since approval of project was granted on 30.03.07). While holding so, AO had been carried away by the following facts: In respect of certain units, the "Building Use" ("BU") permission was not received before 31.03.12; Even as per the Inspector's report pursuant to inspection carried out on 02.02.12, project was incomplete as on 31.03.12. (Pg.104 of AO) BU permission & AUDA's Inspector's report: AO called for details from AUDA u/s 133(6) in response to which, AUDA staled as follows vide letter dated 21.01.14 (Pg.99 of AO): BU permission was applied for and issued w.r.t. 480 units; BU permission was neither applied nor issued 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 A....
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....s any query, it shall communicate the same to the developer concerned who, in turn, snail have to do the needful in the prescribed time frame. It is submitted that after the inspection was carried out by AUDA on 02.02.12, no communication was received from AUDA which implies that even AUDA was of the view that project was completed or else, it would have raised query in terms of GDCR (Pgs.84-85 of ClT(A)'s order & Pgs.130-133 of P/B). To summarize- Assessee applied for BU per mis ft ion for "entire project" on 25.01.12. Inspection \vas carried out by A UDA but no query was raised ever; BU permission was issued by AUDA only for 480 units by 31.03.12; As regard's balance 380 units - Construction wax completed by 31.03.12; BU permission application was pending with AUDA', At this stage, it is clarified that record was transferred from AUDA to AMC and hence, there was an issue as to who will issue BU permission in a case where application for BU was made along with payment of prescribed fees lo AUDA and the same pending on the date of transfer of record. Under such circumstances, BU permission applicati....
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....nd" was within another group company "Venus Real Estate P. Ltd." ("VH.EPL") which got merged with assessee pursuant to order of Hon'ble High Court of Gujarat dated 22.12.11 and therefore, books_ of VREPL (which were maintained separately), were consolidated with the accounts of assessee. Thus, there is no violation, as alleged by AO (Pg.75 of CIT(A)'s order). As regards certain lifts being certified as fit for use after 31.03.12, it is submitted that during the course of survey itself it was clarified that lifts were not as per requirements and there was some dispute with the lift installer. After settlement of such dispute, lifts were approved after 31.03.12 so as to avail the benefit of warranty period. Assessee had placed on record ledgers from which it was clear that majority payments were made during the year and only Rs. 1 0,58,400/- was paid subsequently (Pg.86 of CIT(A)'s order). As regards water connection permission, it is submitted that water was already being supplied on site through borewell (Pg.86 of CIT(A)'s order). As regards expenses in relation to cement purchase, steel purchase, etc., it is submitted that the entire proj....
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....ard we place our reliance on the judgment of Hon'ble Gujarat High Court in the case of Mangal Textile Mills Private Ltd vs. Union of India reported in 2002 taxmann.com 1665 wherein it was held as under: "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 export." 27.3 Likewise, the assessee has also furnished the opinion of the expert consultant which was not doubted by the AO. In these opinions, it was advised to comply the transfer pricing provisions for having international transactions as discussed above. 27.4 We are also conscious to the fact that assessee has paid all tax due in the form of advance tax and self-assessment tax before 30th September 2012. Its books of account got audited under Companies Act. The Tax Audit report under section 44AB of the Act and audit in form 10CCB for claiming deduction under section 80- IB were obtained before 30th September 2012 except getting TP report in form 3CEB. Thus there was not any reason preventing the assessee to file return of inc....