9911796707
TMI Blog2012 (11) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... state development and construction It filed its return of income for the assessment year 2005-06 on 28th September 2005, declaring total income of Rs. 6,32,86,190. The assessee purchased land at Lonawala and commenced construction during the year 2004-05. 3. As a part of its business, real estate dealings, development and construction, the assessee company associated along with another wellknown developer Naman for the purpose of joint bidders and allotment of plots of land at MMRDA. The Naman Group, through its concern Shree Naman Developer Ltd. (for short "NDL") and the assessee Sun Shine Realtors Pvt. Ltd. (for short "SRL") bid for three plots of land at MMRDA. Both the parties made applications to MMRDA as joint bidders in January 2004. Both the parties made initial deposits as required for bidding of plots. On 28th May 2004, MMRDA accepted the applications and in principle agreed to allot the plots which were three in numbers. In terms of the commitment given by the joint applicants as well as the requirements of MMRDA regulations SRL and NDL formed Special Purpose Vehicles (for short "SPV"), which were three companies. Each plot was agreed to be allotted by MMRDA to each of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... longwith another company Shree Naman Developers Ltd. The assessee company held 90,000 equity shares valued at Rs.9,00,000/- in the paid up capital of Naman BKC Construction P Ltd and the balance 10,000 shares valued at Rs.1,00,000/- were held by Shree Naman Developers Ltd. The joint venture company, Naman BKC Construction P Ltd was allotted a plot of land admeasuring 4556.17 sq.metres situated at G Block Bandra Kurla Complex, Mumbai-400 051 by the Mumbai Metro Region Development Authority(MMRDA) on lease for a period of 80 years on payment of deposit of Rs.7,00,000/-. After allotment of the plot on 26.08.04, further premium of Rs.41,08,50,000/-was payable to MMRDA by Naman BKC Construction P Ltd. However instead of paying the premium and acquiring the allotted plot the assessee and Shree Naman Developers Ltd sold their respective shares holding to K Raheja Corporation P Ltd by way of an agreement for sale of shares made on 23.09.04. The assessee company received consideration Rs.860 per share from K. Raheja Corporation P Ltd. The total consideration received on this transaction is of Rs.7,74,00,000/-which as reduced by Rs.9,00,000 (cost of shares) resulted in gain of Rs.7,65,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint venture companies for bidding plot no.C- 3 1 and C-32 at the same location in Bandra Kurla Complex. The holdings in these companies were transferred by the assessee company to associate companies of Shree Naman Developers Ltd after allotment of the plots at face value, unlike in the case of sale of its shares of M/s. Naman BKC Construction(P) Ltd(Plot No.C-30) to K Raheja Corporation P Ltd . Therefore, the assessee was asked to clarify this difference in pricing of its shares in the 3 joint venture companies by issue of letter dated 05.12.2007 as under:- It is seen from the details furnished by you during the assessment proceedings, that you had entered into agreements with M/s.Naman Developers Ltd for forming 3 different companies which respectively bid for three plots of MMRDA and your shares in the said companies were transferred to other companies after allotment of the respective plots. The relevant details are tabulated as under: Plot No. Area / Amount payable to MMRDA(Rs.) JV Company No.of shares held by Assessee/ Face Value (Rs. ) Purchaser and consideration received (Rs.) C-30 4556.16 sq. metres 41,08,50,000 Naman BKC Constructions PLtd 90,000(90%) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue to SSIPL. Copy of the letter dated 22.09.04 is furnished to you on 13.12.2007. Copy is enclosed once again at page(3) of this letter. Similar provision is applicable in respect of NPPL. Refer clause no.11 of shareholders agreement relevant to NPPL. (Copy of letter dated 22.09.O4 vide which the assessee expressed its inability to contribute its commitment to NPPL is enclosed herewith at page 3) SSIPL and SSBPL are assessed to tax under AAICS1 653A AND AAICS1 655 G respectively should your honour require we can make available SSIPL AND SSBPL'.s confirmation confirming acquisition of shares as aforesaid". 8. The reply of the assessee was considered and numerated, brought out at Para-4.4, of the assessment order, which is extracted as follows:- "4.4 The main arguments of the assessee can be summarized as under: (i) Plot no.C-30 had a locational advantage over C-31 and C-32 and, therefore, had better marketability. This contention is not correct to the extent that better marketability of C-30 would not mean that transfer of right to acquire plot nos.C-31 and C-32 would not result in any profit at all. Moreover, as explained later this aspect has been taken into account i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share holding tabulated above." 9. The Assessing Officer rejected the same and computed short term capital gain by holding as follows:- "4.6 In view of the above facts and established proposition of law the actual consideration i.e. the full value of consideration received was much more than the apparent consideration in respect of the assessee company's share in the joint venture companies which were allotted rights of plot No.C-31 and C32. The actual consideration received can be reasonably computed as follows: Amount payable to MMRDA for Plot no.C-30 = Rs.41,08,50,000/- Consideration paid by K Raheja Corporation P Ltd @Rs.860 per share (for entire plot i.e.1,00,000 Shares in Naman BKC Constructions P Ltd) = Rs. 8,60,00,000/- Ratio of consideration received to amount payable to MMRDA = 8600 41085 = 1720 8217 10. Alternatively, the Assessing Officer held that the amount of Rs. 2,31,47,564, is to be assessed under the head "Business Income", in case the appellate authorities come to a conclusion that the income in question from sale of shares in joint venture companies is income assessable under the head "Profit & Gains of Business". 11. Aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... huge premium. She referred to Para-4.1 of the assessment order and the reply of the assessee at Para-4.2 and conclusion drawn by the Assessing Officer at Para-4.5 and 4.6 of the assessment order and relied on the same. She submitted that in the joint venture agreement in the case of NCPL, there was no clause on sale of minority shareholding at par value and whereas in the joint venture agreement in the case of NRPL and NNPL, this clause was surprisingly included. Thus, she submitted that these are self-serving documents. She vehemently contended that there is no logical reason to have such a variation in the clauses in three SPVs. On a query from the Bench as to whether SRL and NDL are sister concerns or concerns of the same group. The learned Departmental Representative submitted that these two groups are not related concern. She relied on the decision of "E" Bench of the Tribunal in ITA no.614/Bom./1987, in ITO v/s Mont Blanc Properties and Industries Pvt. Ltd., order dated 20th April 1994, and submitted that the bench has taken into account all the prevailing circumstances and upheld the additions made on the basis of market price. She also relied on the judgment of Hon'ble Jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Counsel argued that from the joint venture agreement between the parties it is clear and when Naman wanted to develop the property, the assessee as minority shareholder in two companies i.e., NRPL and NNPL, had to surrender his shares at par if the assessee does not fulfill the conditions of the agreement. He pointed out that Naman group and the assessee group were not related parties and the agreements were at Arm's Length. He submitted that purchase of all the three plots were a single activity for the assessee though it was devised and structured through three different SPVs and that a holistic view has to be taken and the entire venture has resulted in huge profits to the assessee which was offered to tax. He relied on the order of the Commissioner (Appeals) and supported the same. 18. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record, as well as the case laws cited before us, we hold as follows:- 19. Coming to the first issue as to whether the income derived from sale made to K. Raheja Corp. P. Ltd., is to be assessed under the head "Income From Business" or under the head "Income F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its nominee and Naman shall make good the shortfall in funds and in which event Sunshine shall be entitled to fixed lump sum of Rs. 30,00,000 (Rupees Thirty Lacs only) from Naman or its nominees in lieu of having agreed to transfer its shareholding in the company and which lump sum amount shall be in full and final settlement of all claims / demand rights / interest / share of Sunshine. Consequently, the parties hereto waive all the requirements / procedures prescribed under Articles of Association of the Company for transfer of the shares." 22. The sale has taken place in terms of this agreement. The Assessing Officer has notionally calculated the profits which the assessee, according to the Assessing Officer, ought to have earned in the sale of these shares and brought the same to tax. No enquiries whatsoever were done with either Naman group or the assessee group. There is no investigation or material brought on record to suggest that the price for which the shares in the NRPL and NPPL were sold, was higher than what was recorded in the books of account. There is not even an allegation that unaccounted money has passed. On these facts, we examine the legal position of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was no evidence direct or inferential, nor was there any finding by any income-tax authority that the assessee received the difference between the book value and market value of shares sold. Therefore, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) in deleting the addition of Rs.7,57,076 on account of transfer of shares made by the assessee to V Co. 23. Coming to the decision relied upon by the learned Departmental Representative in Mont Blanc (supra), we find that the facts are entirely different. The assessee, in that case, had admitted to have received in receiving black money in respect of sale of flat in the building "Grand Paradi". There is no such admission or material in this case. It was also found that in the earlier years, flats were sold in the higher rates and in the later rates, the flats were sold at a lower rate. Based on these admissions and evidences, the Tribunal came to that conclusion. In the present case, there is no enquiry or investigation whatsoever and not even a finding that a price grater than what was mentioned in the books of account was charged by the assessee or paid by Naman group. The addition ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . interest, or had not collected interest, we fail to see how the incometax authorities can fix a notional interest as due, or collected by the assessee. Our attention has not been invited to any provision of the Income-tax Act empowering the income-tax authorities to include in the income interest which was not due or not collected ln this view, we answer question No.(ii) in the negative, that is, in favour of the assessee and against the Revenue." 8.2 The Honble "D" Bench of the Delhi Tribunal in the case of HCL Employees & Investment Co Ltd v/s ACIT (supra) Held as follows: "The law brings to tax income which the assessee has earned but not the income which the assessee could have earned. It is for the revenue to place on record evidence that anything over and above the stated consideration is received if the revenue seeks to tax the difference between the sale consideration and the market price. In the absence of such evidence, no addition can be sustained as held by the Supreme court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597." 8.3 The Hon'ble Gauhati High Court in the case of Highway Construction 199 TR 702 (Gauh.) have taken the view that no income can be brou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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