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2021 (11) TMI 764 - AT - Income TaxGain/loss on sale of shares - legal nature of the transaction - period of holding - what was held by the assessee by virtue of purchase of shares was land - Treatment to share holding - CIT(A) rejecting the claim of long term capital loss on the sale of shares by treating the same as short term capital gain on transfer of immovable property - whether the assessee has adopted the colourable device by transferring the land in the garb of transfer of shares? - HELD THAT - The assessee in the present case had two legal courses open to dispose of the land held by M/s ARGHPL. One was to directly sale the land and pay the capital gains tax in the hands of M/s ARGHPL either as long term or short term depending upon period of holding of land by impugned company i.e. more than 36 month or less as the case may be in accordance with the provisions provided under section 2(29A) and 2(42A) of the Act. In the other case by selling the shares of M/s ARGHPL so that control over the company as a whole was transferred. In the latter situation, 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 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. 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. 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 transfer of land which is not held by it. Throughout the period the assessee has treated the said shareholdings as investment in shares and not in land. The assessee was subject to disallowances under section 14A of the Act for the expenses incurred to earn dividend from such investment. Therefore to our mind principle of consistency should be followed. As such the revenue cannot change the stand as per its will. Thus in view of above stated discussion we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Disallowance on account of diversion of interest bearing fund - assessment proceedings found that the assessee on one hand bearing interest expenses and on the other hand it has made interest free advances - AO worked out the amount of interest attributable on such advances of ₹ 9,90,000/- by taking the rate of interest @ 12% of the interest free advances - HELD THAT - Admittedly, the own fund of the assessee exceeds the amount of interest free loans and advances shown in the balance sheet as on 31/03/2012. Therefore an inference can be 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 - 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 international transactions with the AE. These transactions include the guarantee furnished by the AE as well as the brokerage agreement with the AE. This fact of filing the form 3CEB report has not been controverted by the AO. The chartered accountant being the expert of his field, his advice cannot be faulted by the AO without bringing any cogent material on record. Therefore, the opinion of the chartered accountant should be admitted. 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 ₹ 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. 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 a s 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. 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 - We find that the learned CIT(A) has given flawless finding that after resolution of dispute of jurisdiction over issuance of BU permission, the AMC has issued such permission for remaining units to the assessee and certified that the project was completed before due date i.e. 31st March 2012. These permission are placed. This fact was not controverted by the revenue before us - there remains no ambiguity with respect to completion of project within the prescribed time limit. Hence we do not find any reason to interfere in the finding of the learned CIT (A) given on merit. Thus the grounds of Revenue s appeal are dismissed.
Issues Involved:
1. Rejection of long-term capital loss claim and treatment as short-term capital gain. 2. Disallowance of interest expenses due to alleged diversion of interest-bearing funds. 3. Denial of deduction under section 80-IB(10) for not filing the return within the due date and incomplete project. Issue-wise Detailed Analysis: 1. Rejection of Long-term Capital Loss Claim and Treatment as Short-term Capital Gain: The Assessee claimed a long-term capital loss of ?6,52,89,716 on the sale of shares of M/s Ahmedabad Royal Garden Hotel Pvt. Ltd., which the AO treated as a short-term capital gain of ?5,55,22,760 on the transfer of immovable property. The AO concluded that the transfer of shares was a colorable device to escape taxation on short-term capital gains. The CIT(A) upheld this view, stating that the sale of shares was a method to evade tax and was essentially a sale of immovable property. The Tribunal, however, disagreed with the AO and CIT(A), stating that the assessee had two legal options for disposing of the land: directly selling the land or selling the shares of the company holding the land. The Tribunal found that the assessee chose a legally permissible option and did not use a colorable device. They emphasized that the company and its shareholders are separate legal entities, and the transfer of shares cannot be equated with the transfer of land. Consequently, the Tribunal directed the AO to delete the addition made and allowed the assessee's appeal on this ground. 2. Disallowance of Interest Expenses Due to Alleged Diversion of Interest-bearing Funds: The AO disallowed ?9,90,000 of interest expenses, arguing that the assessee made interest-free advances while bearing interest expenses. The CIT(A) upheld this disallowance, stating that the assessee had not proved the commercial expediency of the interest-free advances. The Tribunal overturned this decision, noting that the assessee's own funds exceeded the amount of interest-free loans and advances. They cited judgments from the Bombay High Court and Gujarat High Court, which establish that if interest-free funds are sufficient to cover the advances, it is presumed that the advances were made from those funds. Therefore, the Tribunal allowed the assessee's appeal on this ground as well. 3. Denial of Deduction under Section 80-IB(10) for Not Filing the Return Within the Due Date and Incomplete Project: The AO denied the deduction claimed under section 80-IB(10) amounting to ?32,13,73,570, citing two reasons: the return was not filed within the due date, and the project was not completed within the stipulated time. The Tribunal found that the assessee had filed the return within the extended due date applicable for entities required to submit a transfer pricing report (Form 3CEB). The Tribunal accepted the expert opinion of the Chartered Accountant, which was not contested by the AO, that the transactions with ATTCO International LLC, Dubai, constituted international transactions, thus extending the due date for filing the return. On the issue of project completion, the Tribunal noted that the assessee had applied for the Building Use (BU) permission for the entire project before the due date, and the delay in obtaining the permission was due to jurisdictional issues between AUDA and AMC. The Tribunal cited various judgments to support the view that if the construction is completed and the application for BU permission is made within the stipulated time, the deduction cannot be denied merely because the permission was received later. Consequently, the Tribunal upheld the CIT(A)'s decision to allow the deduction under section 80-IB(10) and dismissed the Revenue's appeal on this ground. Conclusion: The Tribunal allowed the assessee's appeal regarding the rejection of long-term capital loss and disallowance of interest expenses, while dismissing the Revenue's appeal concerning the deduction under section 80-IB(10).
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