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TMI Blog2018 (1) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... saction of development envisaged in the JDA fell through. In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought to tax under Section 45 read with Section 48. The consortium parties were under obligation to provide the developed land along with necessary approvals and permissions from the concerned competent authorities, i.e. GDA, having a total FSI area of 34,94,371 sq ft, i.e. an FSI area of 47,933.76 sq ft per acre of land and in case they failed to provide such FSI, then they would be liable for penal consequences and so much so the consortium parties could not withdraw their amounts fixed under the agreement. In this way, unless and until the approvals and permissions are granted by GDA, it cannot be said that any income accrued to the appellants.- Decided in favour of assessee. Admissibility of land development expenses - Held that:- Because we have already held while adjudicating the ground nos. 1 to 3 above that such development rights together with land in relation to the stipulated land under shareholders agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in dispute is deleted. Allowability of Legal & Documentation Expense - Held that:- We agree with the view of the Ld. CIT(DR) that basically the admissibility or inadmissibility of the expenditure so incurred has to be seen only in those years in which the profits and gains from transfer of development rights together with land as contemplated under the shareholders agreement dated 18th May 2007 would be considered and because we are holding, in view of the judgment of the Supreme Court in the case of Pr. CIT vs. Balbir Singh Maini (2017 (10) TMI 323 - SUPREME COURT OF INDIA), that on account of the non-registration of the shareholders agreement dated 18th May 2007, the provisions of section 2(47)(v) of the IT Act cannot be applied and transactions cannot be considered as transfer for the purpose of levy of income-tax. Therefore, no specific addition on this issue is called for because even the assessee had not claimed the same by way of debiting to the profit & loss account. This ground has become infructuous. Addition on account of settlement of debts - Held that:- So-called settlement of debts is the combination of revaluation of land owned by SRPL, which have been made SPV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal which emanate from the respective orders of the Ld. CIT(A), New Delhi. Since the grounds raised in the Appeals are common and identical, hence, the same were heard together and are being disposed of by this common order for the sake of convenience. 2. The following grounds have been raised in ITA No. 3582/Del/2014 in the case of Saga Developers Pvt. Ltd.:- 1. The lower authorities have erred in holding that the sum of ₹ 11,84,72,772/- received on account of transfer of development rights in the underlying land as taxable in the captioned assessment year. Such conclusions are opposed to evidences on record, the various agreements on record and the relevant byelaws, regulations etc. 2. It is contended that the consideration of ₹ 11,84,72,772/- has not accrued to the appellant in the year under consideration. 3. The act of transferring development rights in the land being subject to various obligations on the part of the appellant, procuring regulatory approvals from various authorities etc., it is contended that the consideration of ₹ 11,84,72,772/- has not accrued to the appellant. 4. The determination of income from transfer of dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned assessment year. Such conclusions are opposed to evidences on record, the various agreements on record and the relevant byelaws, regulations etc. 2. It is contended that the consideration of ₹ 21,73,57,638/- has not accrued to the appellant in the year under consideration. 3. The act of transferring development rights in the land being subject to various obligations on the part of the appellant, procuring regulatory approvals from various authorities etc., it is contended that the consideration of ₹ 21,73,57,638/- has not accrued to the appellant. 4. The determination of income from transfer of development rights by ignoring the land development expenses of ₹ 2,77,20,842/- is wrong. Such land development expenses are fully allowable while determining the profits arising from transfer of development rights. 5. The lower authorities have erred in holding that the sum of ₹ 1,17,89,636/- has accrued to the appellant as interest on Fully Convertible Debentures. Such conclusions are opposed to the Terms of issue of debentures. 6. The enhancement of income of the appellant by a sum of ₹ 5,00,000/- by the Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) has no jurisdiction to enhance the income of the appellant by determining/ discovering new sources of income. 8. It is contended that the provisions of section 2(22)(e) of the Act are not applicable to the impugned sum of ₹ 79,87,000/-. 9. It is contended that the transaction of providing monies and availing monies from/with other member companies having being undertaken during the course of development of residential project, the provisions of section 2(22)(e) of the Act are not applicable at all. 10. The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing. 5. The following grounds have been raised in ITA No. 3638/Del/2014 in the case of Pyramid Realtors Pvt. Ltd. vs ACIT :- 1. The lower authorities have erred in holding that the sum of ₹ 21,50,19,995/- received on account of transfer of development rights in the underlying land as taxable in the captioned assessment year. Such conclusions are opposed to evidences on record, the various agreements on record and the relevant byelaws, regulations etc. 2. It is contended that the consideration of ₹ 21,50,19,995/- has not accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of development rights. 6. The determination of income from transfer of development rights by ignoring the loss incurred on wrong registries of land of ₹ 1,43,64,501/- is wrong. Such loss incurred on wrong registries of land is fully allowable while determining the profits arising from transfer of development rights. 7. It is contended that sum of ₹ 1,43,64,501/- is allowable as Business Loss under the provisions of Chapter IV-D of the Act. 8. The lower authorities have erred in holding that the sum of ₹ 23,96,73,768/- received on account of settlement of debts as taxable in the captioned assessment year. Such conclusions are opposed to evidences on record, the various agreements on record and the relevant bye-laws, regulations etc. 9. It is contended that the consideration of ₹ 23,96,73,768/- has not accrued to the appellant in the year under consideration. 10. The lower authorities have erred in holding that the sum of ₹ 2,35,05,066/- has accrued to the appellant as interest on Fully Convertible Debentures. Such conclusions are opposed to the Terms of issue of debentures. 11. The enhancement of income of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69C of the Income Tax Act, 1961 ignoring the fact that the disallowance was made on the basis of seized material. 2. That the CIT(A) erred in law and facts of the case in deleting the addition of ₹ 7,59,73,060/- made by AO on account of deemed dividend u/s. 2(22)(e) of the Income Tax Act, 1961. 3. That the Ld. CIT(A) erred in law and facts as well in not invoking the provisions of section 250(4) of the Income Tax Act, which empowers Ld. CIT(A) to conduct further enquiry on the aforesaid issues involved in this case. 4(a) The order of the CIT(A) is erroneous and not tenable in law and on facts. ( b) The appellant craves leave to add, alter or amend any / all of the grounds of appeal before or during the course of the hearing of the appeal. 9. In the aforesaid Appeals, all the assessees have also filed the following common additional ground of appeal, except the difference in figure. For the sake of convenience, we are reproducing herewith the following additional ground in respect of ITA No. 3582/Del/2014 (AY 2008-09) in the case of Saga Developers Pvt. Ltd.- That in the absence of registration of shareholders agreement under the Registrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional ground are already on record and the Assessing Officer himself has levied the tax on the basis of shareholders agreement itself, hence the additional ground as raised by the appellants deserves to be entertained because it is a legal ground. 9.3 On the other hand, the Ld. CIT (DR), Mr. S.S. Rana, opposed to admit the additional ground because the assessees have not raised this issue before the lower authorities. Hence the assessees now cannot raise these issues before the ITAT. 9.4 After hearing rival submissions, we are of the considered view that the basic issues in all the above appeals are taxation of profits arisen on handing over of possession of development rights together with land in terms of the shareholders agreement dated 18th May 2007. On the basis of the said shareholders agreement, the AO inferred that because the stipulated sale considerations have been received by the appellants and development rights together with land would vest in SPV (Special Purpose Vehicle), that tantamount to delivery of the possession of the land and the same amounts to transfer for the purpose of levy of tax in terms of the definition of transfer given u/s 2(47)(v) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration was granted by Ghaziabad Development Authority (GDA) to Saamag Construction Ltd. as private developer under category B . 10.3 On 29th May 2006, a licence was granted by GDA for the development of integrated township at Village Shahpur Bameta where the group companies owned certain lands. 10.4 Later on, on 23rd February 2007 a development agreement was entered into by the lead member Saamag Construction Ltd. with GDA for the development of integrated township over 72.90 acres of land located at Shahpur Bameta. It was further provided under the agreement that GDA will provide assistance in acquisition of the land other than the land owned by the consortium parties which requires to complete the land for integrated township, i.e. 72.9 acres. Keeping in view the consideration the huge finances required for the development of the integrated township, the consortium parties entered into a shareholders agreement with a financial partner M/s SARE [Cyprus] SPV3 Ltd. on 18th May 2007. 10.5 Under the shareholders agreement, one of the group companies, M/s Saamag Realtors Pvt. Ltd., was a confirming party to the shareholders agreement, which also holds 10.39 acres of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 595/- per sq ft, it shall be borne by Saamag. Time limit for acquiring land: i) Acquisition of 9 acres within five months. ii) Remaining 17.23177 acres within eight months. 3.1.10 i) In case Saamag acquired the land but fails to achieve sanction for the agreed project FAR of 34,94,371 sq ft, then Saamag shall pay a penalty to SARE @ ₹ 635/- per sq ft of such shortfall. ii) In case Saamag fails to acquire the remaining land and also fails to obtain the sanction of the prorata project FAR, then SARE shall have the right to obtain from Saamag its equity and convertible debt at par so that SARE could achieve its investment objective. In such case, Saamag shall be liable to pay to SARE a penalty amounting to 10% of the extra equity infused by SARE in the SPV. 3.1.11 In the event, Saamag is not able to obtain any statutory approval, permission, sanction including but not limited to completion certificate or approval of building plan due to failure to acquire land or otherwise and such failure on the part of SCL results in a loss to the SPV. M/s Saamag shall be liable to compensate SPV and SARE. 4.2.2 The capital contribution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall continue to remain reduced till the time Saamag obtains all such necessary sanctions required for the completion of the project. 8.2.6 Saamag agrees that it shall jointly and severally, together with Directors of all Saamag companies being party of the first part indemnify the SPV and SARE for any or all present and future claims that may arise with respect to or which are connected to the area/land for which the development rights have been vested in the SPV. 8.2.8 All charges payable towards leveling of land, land-filling etc., approval of township scheme, master plan approval or any FAR relates fees will be paid by SCL. 8.2.21 The SCL hereby undertakes to indemnify and keep the SPV and its affiliates and officers, directors, employees, agents and advisors harmless from and against any losses, damages, liabilities, suits, proceedings, actions, costs or expenses (including reasonable attorney s fees and other dispute resolution costs) that may be incurred, suffered or instituted (a) as a result of non-compliance with or breach of the undertakings and representations made by the SCL in this agreement, (b) as a result of any act of omission or commission or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.8 The AO s order has been affirmed by Ld. CIT (A) who also holds that in the case of immovable property, the profitability arises when the possession has been handed over. 10.9 During the hearing, Ld. Counsel of the Assessees objected to the action of the lower authorities. He stated that when the terms and conditions have been mentioned in a document, then a taxing statute has to be applied in accordance with the legal rights of the parties to the transactions as accrued under the agreement as held by the Hon ble Supreme Court in the case of CIT vs. Motor General Stores Pvt. Ltd. in 66 ITR 692. He, however, stated that the nomenclature and description given to a contract is not determinative of the real nature of the document or of the transaction thereof. These have to be determined from overall terms of the documents and all the rights and liabilities as well as results flowing therefrom and not by picking and choosing certain clauses as done by the AO. He further stated that in order to ascertain the true nature and meaning of several clauses of the contract, the words of each clause must be so interpreted as to bring them into harmony with the other clauses of the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the land and so the rights of the appellant also and in the absence thereof it cannot be imagined that the appellants have acquired a right to receive the income. He further stated that the very shareholders agreement on the basis whereof the AO is fastening the liability is not registered u/s 17(1A) of the Registration Act, 1908 and accordingly cannot be considered to be a document in the nature contemplated u/s 53A of the Transfer of Property Act because section 17(1A) of the Registration Act states that if such document is not registered, then it shall have no effect in the eyes of law for the purpose of section 53A of the Transfer of Property Act. 10.10.4 Ld. Counsel of the assessee stated that such provisions of the law have been judicially noticed and considered by the Supreme Court in the case of CIT vs. Balbir Singh Maini in 398 ITR 531. In the case of Balbir Singh Maini, the Hon ble Supreme Court, while construing the provision of section 2(47)(v) of the IT Act with reference to the effect of section 17(1A) of the Registration Act which was inserted by the Amendment Act of 2001 which made compulsory the registration of the documents contemplated u/s 53A of the Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such development rights and land. 10.12 Ld. CIT(DR) further pointed out that clauses 5.1 and 5.2 of the Construction Development Project Agreement clearly states that the land owning companies agreed to vest in SPVs on irrevocable basis and the members of the consortium transferred the development rights including the land and delivered the vacant and physical possession of the land to the SPV. Mr. Rana further stated that the consortium agreement was registered with GDA on 10th February 2006 and the licence has also been granted by GDA and hence the appellant cannot state that it is not registered agreement. Mr. Rana further stated that in the case of CIT vs. Dr. T.K. Dayalu in 202 Taxman 531, the Karnataka High Court and also the Bombay High Court in the case of Chaturbhuj Dwarka Dass Kapadia vs. CIT in 260 ITR 491, it has been held by the Courts that in the case of joint development agreements, if the assessee has given the possession and has received a non-refundable advance, then it amounts to transfer u/s 2(47)(v) of the Act and tax has to be levied in the year in which such agreement has been made and accordingly the AO has correctly levied the tax in the Assessment Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the possession of the property. After perusing the records, we find that recently, the Hon ble Supreme Court has also considered the provision of section 2(47)(v) of the IT Act in the case of CIT vs. Balbir Singh Maini in 398 ITR 531 (Supra) while construing a joint development agreement in relation to the land in which the possession of the land was also delivered to the developer. We further find that the Hon ble Supreme Court held that prior to the year 2001, the contract referred to in section 53A of the Transfer of Property Act does not require any registration and if the possession of the property has been handed over under a transaction, then it would amount to transfer for the purpose of levy of tax. But after the amendment to the Registration Act, 1908 by way of Amendment Act, 2001, a provision of section 17(1A) has been introduced. Section 17(1A) of the Registration Act states that such agreement wherein the possession of the immovable property is already given, then such agreement is required to be compulsorily registered and if such documents are not registered on or after commencement of the Amendment Act, 2001, then they shall have no legal effect for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r registered, since the JDA has no efficacy in the eye of law, obviously no transfer can be said to have taken place under the aforesaid document. Since we are deciding this case on this legal ground, it is unnecessary for us to go into the other questions decided by the High Court, namely, whether under the JDA possession was or was not taken; whether only a licence was granted to develop the property; and whether the developers were or were not ready and willing to carry out their part of the bargain. Since we are of the view that sub-clause (v) of Section 2(47) of the Act is not attracted on the facts of this case, we need not go into any other factual question. 11.2 We note that in the present case, the very shareholders agreement dated 18th May 2007 is admittedly not registered u/s 17(1A) of the Registration Act, 1908 which is the condition precedent to give effect to the provision of section 53A of the Transfer of Property Act. The Department has also not brought any evidence contrary to the fact. The registration with GDA is not the registration as contemplated u/s 17(1A) of the Registration Act, 1908. Therefore, in view of the above facts and the law as laid down by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him. 26. This Court, in CIT v. Excel Industries [2013] 358 ITR 295/219 Taxman 379/38 taxmann.com 100 (SC) at 463-464 referred to various judgments on the expression accrues , and then held: First of all, it is now well settled that income tax cannot be levied on hypothetical income. In CIT v. Shoorji Vallabhdas and Co. [CIT v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC)] it was held as follows: (page 148) Income tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties were under obligation to provide the developed land along with necessary approvals and permissions from the concerned competent authorities, i.e. GDA, having a total FSI area of 34,94,371 sq ft, i.e. an FSI area of 47,933.76 sq ft per acre of land and in case they failed to provide such FSI, then they would be liable for penal consequences and so much so the consortium parties could not withdraw their amounts fixed under the agreement. In this way, unless and until the approvals and permissions are granted by GDA, it cannot be said that any income accrued to the appellants. 11.8 It was brought to our notice that such approvals have been granted by GDA in subsequent years and that too in piecemeal manner. As and when GDA had granted the approvals, the appellants have appropriated the proportionate amount out of the advance so received under the shareholders agreement and offered the same for tax. The assesses counsel pointed out that such offer had been made in Assessment Years 2010-11, 2013-14 and 2014-15. The assessments for the Assessment Years 2013-14 and 2014-15 have been made under scrutiny assessment and the Department has also accepted the same. 11.9 Keeping in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that no such company exists at the given address; (ii) Mr. Dinesh Pandey in the statement recorded by Investigation Wing to question No. 15 alleged to have admitted that the expenses have been booked in the name of bogus parties; (iii) expenditure incurred after the transfer of land would be disallowed because after the transfer of land, there was no obligation to incur expenditure to develop the said already transferred land; and (iv) there was no financial term either on the shareholders agreement or in the development agreement. 12.2 The assessee states that the payments to the parties have been made through account payee cheques. Mr. Dinesh Pandey in his statement recorded by the Investigation Wing has never stated that the parties to whom the payments have been made were bogus parties and on the contrary Mr. Dinesh Pandey stated that land development expenses are genuine. Because the summons have been returned back, that does not mean that the parties are bogus. The AO may adopt other means for the purpose of investigation and enquiries as held by the Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. in 159 ITR 78 (SC). As per clause 8.2.8, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olving computation of profits and because this ground relates to the computation of profits, therefore we are not adjudicating upon the issue and this ground has become infructuous and dismissed as such. Ground No. 9 relating to FCD Interest in ITA No. 3582/Del/2014: Ground No. 5 relating to FCD Interest in ITA No. 3617/Del/2014: Ground No. 5 relating to FCD Interest in ITA No. 3618/Del/2014: Ground No. 5 relating to FCD Interest in ITA No. 3638/Del/2014: Ground No. 10 relating to FCD Interest in ITA No. 3655/Del/2014: 13. The Ld. Counsel of the assesses stated that as per the shareholders agreement, which was entered into by the assessees for the development of an integrated township. The assessees were owning the lands and the value of development rights together with land were valued at ₹ 103,45,74,870/- in terms of clause 3.1.2 of the agreement. As per the terms of clause 3.1.2, 40% of the price so fixed was to be paid to the appellants in the form of shares and convertible debentures in proportion to their land holdings. 13.1 Under the shareholders agreement, not only the rights of the land owner parties were determined but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es has no concern with the taxability of profits arising on transfer of development rights and land, it should be seen independently because the interest has been accrued on the fully convertible debentures, the interest thereon deserves to be taxed irrespective of the fact whether the development rights together with land have been transferred or not. 13.5 After hearing both the parties and perusing the records, we find no doubt that the debentures have been allotted by the SPV as part of the sale consideration of development rights together with land in terms of the shareholders agreement dated 18th May 2007, but because there were various obligations which had to be carried out by the assessees, more particularly obtaining of approvals and permissions and because till all the conditions are completed, the appellants could not withdraw any amount from the SPV. Hence we are of the view that the accrual of interest on FCD is also linked with the transfer of development rights together with land and accordingly it is correctly credited to the WIP account. Basically, it is a revenue neutral exercise because ultimately it will increase the profits in the year as and when approval i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived amounts from various group companies which have to be considered as deemed dividend u/s 2(22)(e) of the IT Act and then enhanced the income of the aforesaid assesseecompanies by an amount which had been received. 14.3 The assessee has come forward in the present appeals against the action of the Ld. CIT(A) wherein he has enhanced the income of the assessee with an amount which had been received from other group companies. The assessee objected to the action of Ld. CIT(A) on the following grounds: (i) No opportunity has been granted by the CIT (Appeals) before enhancing the income, hence the enhancement so made by CIT (Appeals) is against the law and in violation of natural justice. (ii) It is a settled rule of law that unless and until the assessee falls within the ambit of charging section by clear words, he cannot be taxed by implications. Hence the charging section has to be construed strictly and for this purpose the appellant relied on the CWT vs. Eliss Bridge Gymkhana in 229 ITR 1. The appellant states that the addition as made by the CIT (Appeals) is not only against the very purpose of provision of section 2(22)(e) of the IT Act but is also not covered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f dividend is entirely within the discretion of this group. When the legislature realized that though money was reasonably available with the company in the form of profits, those in charge of the company deliberately refused to distribute it as dividends to the shareholders, but adopted the device of advancing the said accumulated profits by way of loan or advance to one of its shareholders, it was plain that the object of such a loan or advance was to evade the payment of tax on accumulated profits under section 23A. It will be remembered that an advance or loan which falls within the mischief of the impugned section is advance or loan made by a company which does not normally deal in money-lending, and it is made with the full knowledge of the provisions contained in the impugned section. The object of keeping accumulated profits without distributing them obviously is to take the benefit of the lower rate of super-tax prescribed for companies. This object was defeated by section 23A which provides that in the case of undistributed profits, tax would be levied on the shareholders on the basis that the accumulated profits will be deemed to have been distributed against them. Simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Baidya Nath Plastic Industries (P) Ltd. Others vs. K.L. Anand, Income Tax Officer in 230 ITR 522, the Hon ble Delhi High Court, which is a Jurisdictional High Court, held that there is a distinction between the loan and deposit. In the case of loan, it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement, whereas, in the case of depositor to go to the depositee and make a demand for it. 14.3.7 In the case of Bombay Steam Navigation Co. Pvt. Ltd. vs. CIT in 56 ITR 52, the Hon ble Supreme Court held that a loan of money undoubtedly results in a debt, but every debt does not involve a loan. Liability to pay a debt may arise from diverse sources, and a loan is only one of such sources. Every creditor who is entitled to receive a debt cannot be regarded as a lender. 14.3.8 In the case of CIT, Lucknow vs. Bazpur Co-operative Sugar Factory Ltd. in 177 ITR 469, the Hon ble Supreme Court further stated that for the purpose of loan there must be relationship of borrower and lender in the given transaction and if there is no relationship of borrower or lender then the amount received cannot be considered as loan. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term loan means a loan which is not repayable on demand; ( iv) interest on any deferred credit (that is to say, credit on the terms that the payment is to be deferred) sanctioned by a scheduled bank in connection with the export of capital plant and machinery outside India; ( v) interest on any loan in foreign currency sanctioned by any corporation or bank referred to in sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) of clause (9) for the import of capital plant and machinery from a country outside India. 14.3.11 The question arises before the Courts, whether the interest on debentures and Govt. Securities are liable to Interest tax or not. The Courts have consistently held that the debenture and the Govt. Securities do not bear the characteristics of loans and advances but they are the mode of investment. Hence, the interest received on debentures and Government Securities are not liable to tax under Interest Tax Act though they carry the interests thereon. To support his view, he relied upon following cases laws:- 259 ITR 312 (Bom), CIT vs. United Western Bank Ltd. 259 ITR 295 (Bom), Discount Finance House of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts shown in the balance sheet. 14.4 The Ld. CIT (DR) justified the action of the CIT(A) and stated that the additions as made are in accordance with law because payer companies are having sufficient accumulated profits and the shareholders are common. 14.5 After hearing both the parties and perusing the relevant records, it reveals that they are in the form of current and inter banking accounts and contain both types of entries i.e. giving and taking the amount and appear to be a current account and cannot be considered as loans and advances as contemplated u/s 2(22)(e) of the IT Act. 14.5.1 We find that the Hon ble Gujarat High Court in the case of DCIT vs. Shutz Dishman Biotech Pvt. Ltd, Tax Appeals No. 958 and 959 of 2015 dated 21st December 2015 held that if the accounts are inter banking accounts maintained by the parties, then they are not covered under the provision of section 2(22)(e) of the IT Act and no additions can be made as deemed dividend u/s 2(22)(e) of the IT Act. Similar propositions have also been made by the Punjab Haryana High Court in the case of CIT vs. Suraj Dev Dada in 367 ITR 78 as well as the Mumbai Bench of the Tribunal in the case of Bombay O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, the assessee had not claimed the expenditure of ₹ 26 lakhs because the same has not been debited in the profit loss account. Moreover, the repayment of debt is not covered u/s 40A(3) of the IT Act because the amount of ₹ 26 lakhs was paid by the appellant to Saamag Construction Ltd. as repayment of the debt, hence the addition in dispute is deleted. I.T.A. No. 3655/Del/2014 Ground No. 5 Legal Documentation Expense ₹ 1,46,02,000/-. 17. As per the facts of the case, as is clear from the assessment order, the appellant had incurred the expense amounting to ₹ 1,46,02,000/- under the head Legal and Documentation Expense to increase the share capital of SVP from ₹ 10 lakhs to ₹ 240 crore as per the terms and conditions of the shareholders agreement dated 18th May 2007 and the same was to be borne by the appellant but debited under the head Work in Progress (WIP). The AO was of the view that because the development rights together with land under the shareholders agreement dated 18th May 2007 have to be determined on account of the delivery of the possession of the land, hence for the purpose of determination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contemplated under the shareholders agreement dated 18th May 2007 would be considered and because we are holding, in view of the judgment of the Supreme Court in the case of Pr. CIT vs. Balbir Singh Maini (supra), that on account of the non-registration of the shareholders agreement dated 18th May 2007, the provisions of section 2(47)(v) of the IT Act cannot be applied and transactions cannot be considered as transfer for the purpose of levy of income-tax. Therefore, no specific addition on this issue is called for because even the assessee had not claimed the same by way of debiting to the profit loss account. This ground has become infructuous. Grounds No. 8 and 9 in ITA No. 3655/Del/2014 Addition on account of settlement of debts ₹ 23,96,73,768/-. 18. This issue also relates to the construction of very shareholders agreement dated 18th May 2007. The facts of the case are that the assessee had provided funds aggregating to ₹ 5,68,31,602/- from time to time to M/s Saamag Realtors Pvt. Ltd. (SRPL) for purchase of land meant for integrated township at Village Shahpur Bameta, Ghaziabad. With the help of these funds, the said SRPL had purchased land measu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enal consequences on account of failure to obtain the desired permission and sanction. As per the shareholders agreement also, all the expenses relating to approvals and sanctions etc. have also to be borne by Saamag Construction Ltd. Hence while settling the rights and liabilities with SARE at the time of joining of the agreement, it has been agreed amongst the parties that the value of development rights together with land owned by SPV, M/s Saamag Realty Pvt. Ltd., which was also part of the overall land of the integrated township measuring 72.9 acres, i.e. FSI of 34,94,371 sq ft be also valued at the same price at which the development rights together with land of 36.2746 acres has been made and because the funds for the acquisition of land of 10.39618 acres was provided by the appellant, i.e. M/s Saamag Construction Ltd. and also of the related expenses for the approval and sanction of the land and other obligations have to be borne by M/s Saamag Construction Ltd. Hence it was agreed that the debt of ₹ 5,68,31,602/- of Saamag Construction Ltd. be settled at ₹ 29,65,05,370. Such agreed amount of alleged development rights together with land of 10.39618 acres has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant, then the amount incurred by the appellant in relation to the land owned by Saamag Realtors Pvt. Ltd., i.e. legal and documentation expenses of ₹ 1,46,02,000/- and loss on wrong registry amounting to ₹ 1,43,64,501/- be deducted from the settlement amount because such expenses, which were actually related to the land owned by SRPL but had to be incurred by the appellant on account of commercial expediency as per the terms and conditions contained in the shareholders agreement. 18.3 The Ld. CIT (DR), though relied upon the orders of the authorities below, but he contended that the transactions relating to the settlement of debt in terms of clause 3.1.7 are totally independent from the transfer of development rights together with land as described under the shareholders agreement dated 18th May 2007. It has to be seen independently because it actually relates to the amounts advanced by the appellant from time to time to SRPL though admittedly utilized by SRPL for the purpose of land acquisition which was also part of the overall land measuring 72.9 acres required for the development of integrated township. The provision made is under the agreement for providing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw the amount, then it cannot be taxed in the hands of the assessee. In the instant case also, if the same principle is applied, it is clear that the appellant has no control over the enjoyment of the said fund. It has also been reported that till today on account of various constraints, the project has not been completed and accordingly the said amount is still in the hands of SARE Saamag Realtors Pvt. Ltd. (SPV). 18.4.2 Therefore, taking into consideration the overall facts of the case as well as the terms and conditions of the shareholders agreement and the manner in which the figure of settlement debt has been arrived at, we are of the view that the so-called settlement of debts is the combination of revaluation of land owned by SRPL, which have been made SPV under shareholders agreement, coupled with the chargeable interest on the amount advanced by appellant to SRPL plus the expenses required to be incurred and borne by the appellant under shareholders agreement. Therefore, in the interest of justice, we direct the AO to calculate the interest on the amount of advance made by the appellant to SRPL from the date of its advancement @ 14% per annum and tax the same in the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in connection thereto so many brokers and persons visited the assessee's business premises having proposals about the availability of land and the proposed value thereof and terms of payment also. It reveals that these papers have been left by such brokers/persons. However, the fact remains that the transactions based on which the Auditor and the Assessing Officer have inferred and made the payment have not been materialized at all. The assessee has not purchased such land from the proposed sellers at all. No doubt, the Auditor and the Assessing Officer have restricted the addition only in respect of the figures mentioned under the head Money given in cash but even the cheque amount, which has been mentioned in the papers, has not been recorded in the books of account but there is no comment by the Assessing Officer or the Special Auditor. When the assessee has not purchased any land from the persons mentioned in the papers, no addition can be made on the basis of such papers. The Assessing Officer has not made any independent inquiry from such personsand in the absence thereof no addition can be made. We further note that the Assessing Officer did not bring any adverse mate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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