TMI Blog2021 (11) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... ituation, the M/s ARGHPL would continue to hold the land and, the assessee company would pay long term capital gain on transfer of share after claiming indexed cost of acquisition as the holding period of shares by assessee was for more than 12 month by virtue of proviso to section 2(42A) of the Act read with section 2(29A) of the Act. Thus, the assessee chooses one option out of two legally permissible options which it deem most tax effective or viable option. There was no inserting of any device and, therefore, it could not be said that any colourable device was used to reduce the tax liability. Entire basis of holding the transaction on hand as colourable device was that M/s ARGHPL was holding only one assets which is land, thus what was held by the assessee by virtue of purchase of shares was land which was transferred after holding period of 34 month which was less than 36 months for qualifying as long term capital assets. In other words, had these shares been transferred 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 criteri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be any disallowance on account of interest expenses under the provisions of section 36(1)(iii) of the Act - 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. Deduction u/s 80-IB (10) denied - return not filed within the time limit provided - conditions specified therein were not fulfilled - availability of extended period of due date for filing return of income - project of the assessee was not approved/completed within the time prescribed under the provisions of section 80 IB (10) - DR submitted that the return of income was filed by the assessee beyond the due date as specified under the provisions of section 139(1) of the Act which is in contravention to the provisions of section 80AC of the Act - HELD THAT:- There is no dispute to the fact that the assessee was to file the return of income on our before 30 November 2012 in the event if it was to file TP report in form 3CEB for having international transactions with its associated enterprise. Admittedly, the assessee has filed form 3CEB for having internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ahmed, Accountant Member For the Assessee : Shri Tushar Hemani, Sr. Advocate with Shri Parimal Sinh B. Parmar, And Shri Vijay Govani, A.Rs For the Revenue : Shri Ritesh Parmar, CIT.D.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned cross appeals have been filed at the instance of the Assessee and the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-1, Ahmedabad, dated 31/07/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as the Act ) relevant to the Assessment Year 2012-2013. 2. The Assessee has raised the following grounds of appeal: 1. Ld. CIT (A) has erred on facts and in law in confirming the action of the AO in rejecting the appellant's claim of long term capital loss of ₹ 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 ₹ 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 Roya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on law and without dealing with various case laws referred and relied by the appellant. 10. The appellant craves for liberty to add fresh grounds of appeal and also to amend, alter, modify any of the grounds of appeal. 3. The first inter connected issues raised by the assessee in ground nos. 1 to 5 is that the Ld. CIT(A) erred in rejecting the claim of long term capital loss of ₹ 6,52,89,716/- on the sale of shares by treating the same as short term capital gain of ₹ 5,55,22,760/- on transfer of immovable property. 4. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of Construction and Development of Real Estate. The assessee was holding 2,49,980 shares of company namely M/s Ahmedabad Royal Garden Hotels Private Limited (for short ARGHPL) which were acquired in the earlier year i.e. A.Y 2008-09 for ₹ 28,44,77,240.00 only. The assessee sold these shares during the year under consideration i.e. A.Y 2012-13 for ₹ 34 crores only after claiming the indexation cost of the shares which has resulted in long term capital loss of ₹ 6,52,89,716/- only. 4.1 However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares of M/s. Ahmedabad Royal Garden Hotel Pvl. Lid and the same was sale of immovable property being land to Friends Group and the sale of shares is held to be a colourable device to claim long term capital gain tax on transfer of shares to escape taxation of Short Term Capital Gains on the transfer of the immovable property being land having held by the Appellant for a period of less than 36 months and it \vas clearly a colourable device to evade the payment of the legitimate and due tax and the same thus cannot be allowed. The entirety of circumstances surrounding the alleged sale of shares by the Appellant., when viewed in the context of human probabilities, lead to the inference that the sales transactions of shares were only to reduce the tax liability. In substance, it was sale of immovable property resulting in short term capital gain. This ground of appeal is accordingly dismissed 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the AO denied the benefit of indexation claimed by the assessee on the sale of shares by treating the same as transfer of land and computed the short-term capital gain of ₹ 5,55,22,760/- which was added to the total income of the assessee. The view taken by the AO was also subsequently confirmed by the learned CIT (A). 9.2 Now the issue arises for our adjudication whether the assessee has adopted the colourable device by transferring the land in the garb of transfer of shares in the given facts and circumstances. 9.3 The concept and meaning of colourable device refers to the transactions which appear to be authentic on the face but in actuality they are false. It refers to something false, fake or fictitious that purports to be genuine, someone who leads you to believe something that is not true. From the concept of colourable device it is apparent that wherever the parties to the transaction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld pay long term capital gain on transfer of share after claiming indexed cost of acquisition as the holding period of shares by assessee was for more than 12 month by virtue of proviso to section 2(42A) of the Act read with section 2(29A) of the Act. Thus, the assessee choses one option out of two legally permissible options which it deem most tax effective or viable option. There was no inserting of any device and, therefore, it could not be said that any colourable device was used to reduce the tax liability. 9.7 Furthermore, we find that the entire basis of holding the transaction on hand as colourable device was that M/s ARGHPL was holding only one assets which is land, thus what was held by the assessee by virtue of purchase of shares was land which was transferred after holding period of 34 month which was less than 36 months for qualifying as long term capital assets. In other words, had these shares been transferred 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 col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income of the assessee. 12. Aggrieved assessee preferred an appeal to the Ld.CIT(A) who confirmed the order of the AO by observing as under: I have duly considered the order of the AO and the submission filed by the Appellant Company in this regard. Ratio decidencli laid down by Hon ble Supreme Court in the case of S. A. Builders Ltd. is square!) applicable in this ease. For allowance of interest expenditure u/s 36(lj(iii) of the Act, what needs to be seen is the commercial expediency, business purpose and the utilization of the impugned fund which was advanced. It is not disputed that the Appellant is having mixed fund. It was held in the case of 5.A. BUILDERS LTD. VS. COMMISSIONER OF INCOME-TAX (APPEALS) ANR 288 1TR 1 JSC) as under: Interest on borrowed funds cannot be disallowed if the assessee has advanced interest free loan to a sister-concern as a measure of commercial expediency; what is to be seen is business 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawn that the assessee had not utilized borrowed fund in making such interest free loan and advances. Thus there cannot be any disallowance on account of interest expenses under the provisions of section 36(1)(iii) of the Act. 16.1 In holding so we draw support and guidance from the judgment of Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under:- The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal . 16.2 Similarly, we also rely on the judgment of the Hon ble Bombay High Court in the case of CIT vs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 2012. As per the assessee, it has entered into the international transaction with its AE namely ATTCO International based in Dubai. 19.2 It was explained by the assessee that it has taken the advance for booking of the shops/ showrooms in K-Mall for ₹ 11,34,51,000.00 crores from its sister concern namely M/s Sunderdeep Infrastructure Private Limited (for short SIPL) in the financial year 2007-08. Subsequently, Shri Narsingh T Khanchandani a key person of ATTCO International (for short ATTCO) approached to the assessee for booking the shops/showrooms in K-Mall for the customers based in Gulf. The assessee agreed to provide the showrooms/shops to Shri Narsingh T Khanchandani subject to the condition that ATTCO furnishes the guarantee to the tune of ₹15 crores with respect to the advance given by SIPL. On fulfilling this condition, it was possible for booking the showroom in K-mall for the proposed buyers based in Gulf. Shri Narsing K T Khanchandani agreed 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 ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 2011 to AUDA for obtaining the permission. Likewise, the assessee obtained the permission for another 240 units from AUDA dated 20th March 2012. Thus, the assessee was able to obtain permission aggregating to 480 units before the due date of completion of the project. However, for the balance 360 units, the permission was not granted by the AUDA before the due date of completion of the project on account of procedural lapse on the part of the AUDA. As such the assessee from its side has completed all the formalities including the payment of fees to AUDA. 19.7 Furthermore, the jurisdiction of the location was transferred from AUDA to AMC with effect from 1 April 2012. As such there was some confusion with respect to the records to be transferred from AUDA to AMC which has resulted delay in obtaining the completion certificate from the authority. Likewise, there was also some issue that which of the authority will issue the completion certificate i.e. AUDA or AMC. 19.8 It was also submitted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot eligible for deduction under section 80-IB (10) of the Act. 20.2 The AO with respect to the issue on merit, observed that AUDA in response to the notice issued under section 133(6) of the Act has categorically stated that BU permission was granted to the assessee only for 480 units and for the balance 360 units, no permission was granted for the reason that these units were not completed during the relevant time. Likewise, it was also submitted by AUDA vide letter dated 8th January 2014 that there is no application pending for approval of the assessee. 20.3 Similarly, the inspector of AUDA in his report dated 2nd February 2012 has clearly stated that the construction work was still undergoing for remaining units of the project namely Venus Parkland. Thus, the project of the assessee was not completed at the time of inspection. 20.4 Likewise, the AMC in response to the notice issued under section 133(6) of the Act has submitted that only 480 units which got BU permission were provided the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet. (iv) The brokerage/ commission to ATTCO was paid at a later stage after deducting withholding tax which was deposited to the department. B. On merit: (i) The AO for holding that the project was not completed before 31st March 2012 has relied only on the fact that BU permission for 360 unit was pending. As such the AO ignored the other documentary evidences such as detailed below: (a) Certificate from engineer that project was completed before 31st March 2012. (b) Copy of conveyance deed with respect to unit where BU permission was pending but the same were sold before 31st March 2012 as well conveyance deed made during April to June 2012 along with possession letter. (c) Copy of electricity bills of units where BU permission was pending which are evidencing that the buyers are living in those units. (d) Copy of application for BU permission submitted to AUDA along with copy of challans showing fee paid for entire project. (ii) AUDA in reply 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.10 The AO has further stated that no separate Books of Account were maintained for the residential housing project Venus Parkland which is a mandatory requirement for claim of deduction u/s 80IB(10) of the Act. It is noted that it is an erroneous observation by the AO, since, the residential housing project in the name of Venus Parkland was with another group company Venus Real Estates Pvt. Ltd., which got merged / amalgamated with Venus Infrastructure Developers Pvt. Ltd., in pursuance of the order of Hon'ble Gujarat High Court dated 22/12/2011 and therefore, the Books of Accounts of Venus Real Estates Pvt. Ltd. for the accounting year 2011-12, which was maintained separately, was consolidated with the accounts of Venus Infrastructure Developers Pvt. Ltd for A.Y. 2012-13 in view of the order of Hon'ble High Court of Gujarat. The AO has also observed that no evidence was recovered from the office premises of the Appellant Company during 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aaryan Collection - Shop No. 105 321030/- 2. Addon Retials Private Limited -Shop No. 115 102000/- 3. Anand Children Wear 73400/- 4. Bermer Coleman co.ltd. 110664/- 5. Celebrity fashions ltd. -Shop No. 113 194750/- 6. DCM Benneton India 157200/- 7. Deepkala collection - franchise PEPE Shop No. Ill 92250/- 8. Lord's Footwear 183105/- 9. Major Brands (India) Private Limited 100000/- 10. Provogue India limited 125686/- 11. Shoppers's stop limited 6084450/- 12. SIPL (K Mall Advance) 113 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Chartered Accountant was not disputed by the AO by bringing on record any opinion of another qualified person so as to displace the opinion of the professional expert. Therefore, as held by the Hon'ble Jurisdictional High Court, opinion expressed by the Deputy Commissioner would remain merely an opinion in the face of the certificate issued by an expert. Respectfully following the binding Ratio decidendi in the case of MANGAL TEXTILE MILLS PVT. Ltd. quoted supra, it is held that the Appellant Company was subjected to Transfer Pricing Audit as per provisions of section 92(E) of the Act. Where Transfer Pricing audit report was obtained by the Appellant Company, as per provisions of section 92E of the Act, the statutory time limit (due date) for filing return of income by the Company for F.Y, 2011-2012, relevant to A.Y. 2012-2013 is 30.11.2012. Considering the aforesaid reasons, the disallowance of claim of deduction u/s.80IB(10) of the Act is not sustainable on the technical ground that the return of income for A.Y. 2012-13, filed by the appellant company on 28.11.2012, was beyond the due date for filing the return of income as per section 139(1) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect and applied for Building use permission/completion certificate within prescribed time-limit, it would be entitled to deduction under section 80-IB(10) notwithstanding fact that it could not receive permission for its entire project within prescribed time limit. Accordingly, this ground of Appeal is Allowed. 24. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 25. The learned DR before us submitted that the project of the assessee was not approved/completed within the time prescribed under the provisions of section 80 IB (10) of the Act. Likewise, the learned DR submitted that the return of income was filed by the assessee beyond the due date as specified under the provisions of section 139(1) of the Act which is in contravention to the provisions of section 80AC of the Act. 26. On the other hand, the learned AR before us filed a paper book running from pages 1 to 501 which is reproduced as under: Assessee claimed deduction of'₹ 32,13,73,570/- u/s 80-IB(IO) in respect of a residential project namely Venus Parkland developed by the assessee. AO denied deduction u/s 80-18(10) on the following two counts: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee obtained Audit Report in Form 3CEB on 27.11.12 (Pg.19 of AO) and filed the return of income on 28.11.12 (Pg.19 of AO) (i.e. within the due date prescribed for furnishing return of income). Assessee obtained opinions of two experts (Pgs.64-66 of AO) both of whom were of the opinion that the assessee had entered into international transactions and hence, due date of furnishing return of income for the year in question was 30.11.12. AO was of the view that ATTCO was not an Associate Enterprise . Thus, there was no international transaction entered into by the assessee. Accordingly, due date for filing return of income was 30.09.12 whereas assesssee had filed return of income on 28.11.12. Hence, in view of S.80AC, deduction u/s 80-113(10) cannot he allowed. AO failed to appreciate that deed of guarantee and brokerage agreement are governed by relevant provisions of S.92 (discussed above) as certified in Audit Report in Form 3CEB by a Chartered Accountant who is a competent expert . The said Form 3CEB was not dislodged by AO in any manner whatsoever by bringing on record opinion of any other expert . Under such circumstances, contents of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd hence, deduction u/s 80-IB(10) is not permissible in view of clause (f), it is submitted that such booking was cancelled and amount was returned to him on 22.12.11 without interest (Pg.63 of Asst. Order 73 of CIT(A)'s order). Thus, there is no violation of clause (Qof S.80-16(10) as there was no actual allotment As regards AO's observation that commission was payable to ATTCO despite the fact that no fact in Venus Parkland has been sold to foreign buyer through ATTCO, it is submitted that flats were sold / booked in Venus Parkland through ATTCO (as is evident from ledgers) and hence, such an observation of AO was contrary to the facts (Pg.76 of CIT(A)'s order). As regards AO's allegation that assessee had received 12.38 crores as deposits from 12 other parties for K-Mall and no party had taken guarantee, it is submitted that such an observation is factually incorrect. Total unsecured loan of the assessee were ₹ 12.47 crore including ₹ 11.34 crore received from SIPL; Other twelve parties had given aggregate sum of mere ₹ 1.13 crore (12.47-11.34); Break-up of 1.13 crores appears on Pg.77 of CIT(A)'s order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U 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 the project was completed before the specified date (31.03.12); Flats, for which BU permission was not issued by AUDA, were also sold to members possession was given. In fact, in AUDA's letter dated 24.10.13 to AO, it is specified that application was for 22 blocks out of which, BU permission was granted in respect of 12 blocks and in respect of 10 blocks, BU permission was pending {Pg.71of AO). Pursuant to assessee's application dated 25.01.12, an Inspecting Officer of AUDA went for inspection on 02.02.12 and furnished its Inspection Report (Pgs.l02-104of AO). It is categorically mentioned in the said report that In all these 6 block, furnishing work has been completed (Pg.104 of AO); AO incorrectly interpreted the said report so as to erroneously conclude that project was incomplete as on 31.03.12; Running English translation of Inspector's report is also incorr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )'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 settled legal position where construction of the entire housing project has been completed and assessee has applied for BU permission within the prescribed time limit, assessee will be eligible for deduction u/s 80~IB(10) notwithstanding the fact that assessee could not receive BU permission for the entire project within prescribed time limit. Reliance is placed on: CIT vs. Tarnctar Corporation - (2012) 362 rTR 174 (Gujarat) (Annexure B ); ITO vs. Saket Corporation - (2015) 234 Taxman 435 (Gujarat) (Annexure C ); CIT vs. Hindustan Samuh Awas Ltd. - (2015) 377 ITR 150 (Bombay) (Annexure D ); PCIT vs. Ambcy Developer P. Ltd. - (2018) 399 ITR 216 (P H) (Annexure E ); In view of (he above, deduction u/s 80-IB(10) cannot be denied to the assessee espec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 preceding paragraph. Therefore for the sake of brevity and convenience, we are not inclined to repeat the same. 27.2 Now the 1st issue arises for our adjudication, whether the assessee has furnished the return of income beyond the due date in the given facts and circumstances and consequently ineligible for deduction under section 80-IB(10) of the Act. There is no dispute to the fact that the assessee was to file the return of income on our before 30 November 2012 in the event if it was to file TP report in form 3CEB for having international transactions with its associated enterprise. Admittedly, the assessee has filed form 3CEB for having international transactions with the AE. These transactions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso 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, the assessee was required to get TP report in form 3CEB. Accordingly it enjoy the extended period of due date for filing return of income. 27.7 At the time of hearing, the learned DR has not brought anything on record contrary to the finding of the learned CIT (A). Accordingly, we do not find any infirmity in the order of the learned CIT (A). 27.8 Coming to the merit of case we note that the AO has disallowed the deduction claimed by the assessee for the reason that it has not got the BU permission for entire project up-to 31st March 2012. Accordingly, the AO concluded that the project was not completed within the period prescribed under the provision of section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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