2020 (12) TMI 780 - AT - Income Tax

Deemed capital gains by invoking the provisions of section 50D - capital gain arising from the said transfer of flats - Whether only document evidencing the transfer in the form of self-made affidavit did not indicate any consideration for transfer, the consideration received or accruing as a result of transfer of the rights of the two flats was not ascertainable and could not be determined? - HELD THAT - As observed that even though the consideration for transfer of two flats received or accruing to the assessee was not mentioned in the affidavit filed by the assessee evidencing the said transfer, copies of accounts of the concerned transferees were produced by the assessee to show the consideration for transfer of the two flats as agreed between the parties. We, therefore, do not agree with the contention of the revenue that there was no evidence produced by the assessee-company to show the consideration received or accruing as a result of the transfer of the two flats. As matter of fact, the said consideration so agreed was taken into consideration by the assessee-company for computing the capital gain arising from the transfer which was duly declared in its return of income and as rightly contended by assessee, there was no justification on the part of the authorities below to doubt or dispute the said consideration as claimed to be mutually agreed by the assessee-company to arrive at the conclusion that the consideration received or accruing as a result of the transfer of the two flats was not ascertainable or could not be determined without even making any inquiry whatsoever with the concerned transferees. Provisions of section 50D are not applicable in this case and the impugned addition made by the Assessing Officer and confirmed by the ld. CIT(Appeals) by invoking the said provision is not sustainable. We accordingly delete the same and allow Ground No. 1 of the appeal. Disallowance u/s 14A - disallowance so made cannot be added while computing the book profit of the assessee-company under section 115JB - HELD THAT - Since this issue is squarely covered by the various judicial pronouncements including the decision of Special Bench of this Tribunal in the case of ACIT vs.- Vireet Investment (P) Limited 2017 (6) TMI 1124 - ITAT DELHI we direct the Assessing Officer to delete the addition made on account of disallowance under section 14A while computing the book profit of the assessee-company under section 115JB - Ground No. 2 of the assessee is accordingly allowed.

Summary

Issues Involved:

1. Addition of ?34,75,731/- on account of deemed capital gains by invoking the provisions of Section 50D of the Income Tax Act, 1961.
2. Disallowance of ?80,717/- under Section 14A of the Income Tax Act, 1961, and its inclusion while computing book profit under Section 115JB.

Issue-Wise Detailed Analysis:

1. Addition of ?34,75,731/- on Account of Deemed Capital Gains by Invoking Section 50D:

The primary issue in Ground No. 1 revolves around the addition of ?34,75,731/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] due to deemed capital gains by invoking Section 50D of the Income Tax Act, 1961. The assessee, a company engaged in investment in securities, lending, and sale of property, had transferred the rights to purchase two flats to third parties before taking possession. The AO invoked Section 50D, arguing that the consideration for the transfer was not ascertainable from the self-made affidavits provided by the assessee, which did not mention any consideration. The AO adopted the fair market value from the "Magic Bricks" website to compute the capital gains.

The assessee contended that the consideration for the flats was ascertainable from the accounts of the transferees and had been declared in its return of income. The CIT(A) upheld the AO's decision, stating that there was no cogent material evidence to support the assessee's claim.

Upon appeal, the Tribunal noted that the assessee had produced copies of accounts of the transferees showing the agreed sale consideration for the flats. The Tribunal found that the authorities below had erred in invoking Section 50D without making any inquiry with the transferees. The Tribunal concluded that the provisions of Section 50D were not applicable in this case and deleted the addition of ?34,75,731/-.

2. Disallowance of ?80,717/- Under Section 14A and Its Inclusion While Computing Book Profit Under Section 115JB:

The second issue in Ground No. 2 pertains to the disallowance of ?80,717/- under Section 14A of the Income Tax Act, 1961, and its inclusion while computing the book profit under Section 115JB. The assessee sought relief, arguing that the disallowance under Section 14A should not be added while computing the book profit under Section 115JB.

The Tribunal noted that this issue is covered by various judicial pronouncements, including the decision of the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment (P) Limited. The Tribunal directed the AO to delete the addition made on account of disallowance under Section 14A while computing the book profit under Section 115JB.

Conclusion:

The appeal of the assessee was allowed, with the Tribunal deleting the addition of ?34,75,731/- made under Section 50D and directing the AO to exclude the disallowance of ?80,717/- under Section 14A from the computation of book profit under Section 115JB. The order was pronounced in the open Court on December 18, 2020.