2020 (12) TMI 78 - AT - Income Tax

Addition of short term capital gain - Non-adjustment of adavance received with the sale consideration of property - lifting of corporate veil - transfer of the appellant's property in terms of the Memorandum of Understanding MOU - Whether none of the conditions mentioned u/s. 2 47 v of the Act were attracted especially since the MOU was an unregistered document and no possession of the said property was delivered by the appellant to M/s. Synergia Consultants Pvt. Ltd., during the year pursuant to the said unregistered MOU ? - HELD THAT - Assessee has been submitting that there was a loan transaction amounting to ₹ 3,50,00,000/- between assessee and M/s Synergy Consultants Pvt. Ltd. Subsequently, ₹ 3,50,00,000/- was shown as advance towards purchase of land by an agreement dated 15/06/2009 entered into between assessee and M/s Synergy Consultants Pvt. Ltd. Towards proposed sale of 4156 sft. built up area on the 1st floor of No.34, Embassy Diamanate, Vithal Malya Road (hereinafter referred to as said property). Admitedly, asessee, is also the owner of said property and is 50% Director in M/s Synergy Consultants Pvt. Ltd. A transaction of loan or proposed sale does not depend merely on the terms of the document, but has got to be judged from the intention of the parties and all the circumstances of the case. As per the MOU dated 15/06/2009, the sale was to take place by December, 2012, however, admittedly, the same has not materialised till date. During the period ₹ 3,50,00,000/- was received, out of total consideration of ₹ 4,50,00,000/- from M/s Synergy Consultants Pvt. Ltd. It is unbelievable that, the advance received was adjusted towards cost of said property in a proposed sale, which has not been materialised till date. This argument does not hold waters in the eyes of law. In our view, this is an arranged transaction which cannot be ignored. In a matter of such description, the authorities are entitled to pierce the veil of corporate entity and look at the reality of the transaction. We therefore remand this issue to Ld.AO to consider it afresh in accordance with law. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:

1. Addition of ?3,73,78,654 as capital gains.
2. Disallowance of ?25,000 under Section 40(a)(ia) of the Act.
3. Disallowance of traveling expenses amounting to ?52,07,186.
4. Disallowance of depreciation amounting to ?7,62,135.
5. Levy of interest under Section 234-B of the Act.

Detailed Analysis:

1. Addition of ?3,73,78,654 as Capital Gains:

The primary issue revolves around the addition of ?3,73,78,654 as capital gains on the alleged transfer of the appellant's property to M/s. Synergia Consultants Pvt. Ltd., based on an unregistered Memorandum of Understanding (MOU) dated 15/06/2009. The appellant argued that the MOU did not lead to a transfer as defined under Section 2(47)(v) of the Act because it was unregistered and no possession was delivered. The Assessing Officer (AO) noted that the appellant received substantial advances and that M/s. Synergia Consultants Pvt. Ltd. was in possession of the property, thus considering it a transfer under Section 2(47) read with Section 53A of the Transfer of Property Act, 1882. The CIT(A) upheld the AO's view, emphasizing that the nature of the transaction was a transfer of a capital asset despite the absence of a registered sale deed. The Tribunal remanded the issue back to the AO for fresh consideration, noting that the transaction appeared to be an arranged one to circumvent taxability.

2. Disallowance of ?25,000 under Section 40(a)(ia) of the Act:

The AO disallowed ?25,000 for non-deduction of TDS on consultancy/professional charges paid to Al Amin College of Pharmacy. The CIT(A) upheld this disallowance, noting that the payment constituted consultancy/professional charges and was liable for TDS deduction. The Tribunal did not provide further relief on this point, effectively agreeing with the CIT(A)'s decision.

3. Disallowance of Traveling Expenses Amounting to ?52,07,186:

The appellant raised this issue for the first time before the Tribunal, having not contested it before the CIT(A). The Tribunal dismissed this ground, stating that it did not arise from the impugned order and thus was not inclined to adjudicate on it.

4. Disallowance of Depreciation Amounting to ?7,62,135:

Similar to the traveling expenses, this issue was not raised before the CIT(A) and was brought up for the first time before the Tribunal. The Tribunal dismissed this ground as well, citing the same reason that it did not arise from the impugned order.

5. Levy of Interest under Section 234-B of the Act:

The appellant contested the levy of interest under Section 234-B, arguing for its cancellation. However, the Tribunal did not explicitly address this issue in the detailed analysis provided.

Conclusion:

The Tribunal remanded the issue of capital gains back to the AO for fresh consideration, upheld the disallowance under Section 40(a)(ia), and dismissed the grounds related to traveling expenses and depreciation as they were not raised before the CIT(A). The appeal was partly allowed for statistical purposes.