9911796707
TMI Blog2022 (12) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... ny and a subsidiary of M/s Shoppers Stop Ltd, chose to participate in this proposed development, enhanced the bankability of the project. It was also pointed out to us that, the option price agreed in 2010 was commensurate with the prevailing market value for stamp duty purposes and therefore it was not a case that the option to acquire twenty (20) flats was given to related party, HRPL at understated values. On the issue of loans of Rs.135.23 crores advanced by the assessee to its sister concerns, it is noted that they were given in the course of business and were interest bearing, and on which the assessee had derived interest income to tune of Rs.25.67 crores. On the other hand, the interest-free deposits with embedded option received from HRPL were not only interest-free but also did not entail any cash outflow. On conspectus of these facts, we agree with the finding of the Ld. CIT(A) in holding the option agreement between the assessee and HRPL to be commercially expedient and thus acceptable. Understandably, until the construction work began, there was little need of funds by the assessee. It was only when the certificate for commencement of construction was received on 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts. Assessee had brought forward losses to the tune of Rs.156 crores from earlier years. Hence, even taking into account the addition of Rs.98 crores made by the AO, there were sufficient losses available with the assessee to set-off such addition and also carry forward remaining losses to future years, and hence it did not result in creation of any tax liability upon the assessee. Although, we agree with the Ld. CIT(A) that, this fact alone cannot be a decisive factor to decide the acceptability of the option agreement, but having regard to the overall facts and circumstances of the case as already discussed in the foregoing, this fact pointed out by the Ld. AR does have persuasive value. Addition made by the AO is held to be unjustified both on facts and in law. Accordingly, the Ground No. 1 of the appeal of the assessee is allowed and the Ground No. 1 of the appeal of Revenue is dismissed. Disallowance u/s 14A - assessee had made suo-moto disallowance - CIT(A) allowed the appeal of the assessee by holding that the disallowance u/s 14A was to be restricted to the extent of exempt income, by following the decision of State Bank of Patiala [ 2018 (11) TMI 1565 - SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of real estate development, constructing residential commercial buildings and trading in shares. Further, the assessee has earned income by way of house property income, business income and income from other sources during the year under consideration. On 30.11.2017, a search and seizure action u/s 132 of the Act was carried out upon the K Raheja Group including the assessee. This relevant year is therefore the year of search in the case of the assessee. In the course of search, statement of one Mr. M. Jasrapuria was recorded u/s 132(4) of the Act. In the course of his deposition, he was asked to explain as to why 60% of the revenue on sale of flats from the residential project Artesia had not been recognized in the books of accounts, to which he had stated that these sales did not fulfill the criteria laid down in Guidance Note No. 23 issued by the Institute of Chartered Accountants of India ( ICAI ). He accordingly, sought time to furnish the working of revenues to be recognized on the basis of factual data. In the course of post search enquiries, the assessee had submitted an estimated working on 30.01.2018 regarding the projected costs expected to be incurred and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60.46% % of area Sold For determining Revenue Recognition (D/A) 25.03% Sale Amount on Revenue Recognition (E x F) 3,99,42,15,153 Cost on Revenue Recognition (G x D x F) 3,54,94,77,576 Gross Profit 44,47,37,577 Less: ICDS Impact (7,17,56,213) Profit Offered in COI of the year 37,29,81,364 5. When enquired by the AO as to why the initial working submitted on 30.01.2018 (before the Investigation Authorities) should not be considered, the assessee explained that it was an estimated working prepared prior to close of the year and therefore it should be ignored. Appreciating the said submission, the AO did not take cognizance of the initial estimated working furnished on 30.01.2018. 6. The AO thereafter noted that the assessee had entered into option agreement for sale of twenty (20) flats in the project Artesia with its group entity, M/s Hypercity Retail Pvt Ltd ( HRPL ), in terms of which, HRPL was given an opti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Land Cost 2,87,35,80,265 Construction Cost 8,15,84,99,634 Borrowing Cost 3,15,02,43,446 Total Estimated Project Cost 14,18,23,23,345 Actual Carpet Area (Sq.ft) 1,58,126 Sales Value 8,35,01,89,684 Percentage of completion of Work % of completion of work 60.46% % of Area sold for determining Revenue Recgn. 25.03% Sale Amount on Revenue Recognition 5,04,85,29,551 Cost on Revenue Recognition 3,54,94,77,576 Gross Profit 1,49,90,51,975 Less: Offered in COI 44,47,37,577 Balance 1,05,43,14,398 Less: ICD Impact (7,17,56,213) Balance to be offered to tax 98,25, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Stop Limited which is a company listed on stock exchange and has its own independent Board and hence the AO could not have ignored the separate legal corporate structure while dealing with the transaction. 5.14 The above contention is examined. In the assessment order, the AO has proceeded to treat Hypercity as a pass through entity by treating the option agreements as a sham and has accordingly treated the entire turnover as the turnover of the appellant. In my view, the transaction between the two parties here is a transaction between two related parties as majority stake in both these entities are owned by the same promoters and hence while the transaction cannot be denied, there is an onus on the appellant to demonstrate the arm s length nature of the transaction. It has already been held earlier that transactions of such option assignment arrangement are a market reality and are undertaken to meet fund requirements as well as transfer risks. Hence, to this extent, the AO s action has not been held as correct. But, the claim of the assessee that the AO could not examine the transaction value in light of either commercial expediency or independent legal/corporate structu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction at lower than market price. Hence, the understatement of consideration in the hands of the appellant on account of such lower consideration in the option agreement would be liable to be treated as additional turnover which should have accrued to the appellant. . 5.26 On this issue, the assessee has placed considerable stress on the fact that the option price is higher than the ready reckoner prices of the Municipal Corporation and hence, are justifiable. In my view, the ready reckoner prices do not provide any basis for determining market value of flats sold by the appellant. The flats sold by the appellant are luxury flats with very high-end amenities. In its submission which is reproduced at page 7 (para 3 of the assessee s submission), the assessee itself describes the project as iconic, designed by international designers and one of the finest lifestyle projects undertaken by the appellant. The prices of these flats in subsequent years clearly indicate that the prices of these flats are much higher than the ready reckoner prices. During the course of hearing, the appellant was asked to explain whether its own prices were linked to ready reckoner prices. No s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of real estate in Mumbai were more or less constant. It is noted that one of the flats under this agreement has been transferred to a third party in March 2011. It is also noted that the assessee had hardly received any significant option advance till such time. In my view, such third party transfer price represents a good representative market value in respect of the appellant s flats. The value at which this flat has been transferred needs to be adopted as a market value for determining the option price in respect of all the 20 flats for which agreement was entered into by the two parties. 11. Pegging the benchmark option price at Rs.30,522/-, the Ld. CIT(A) recomputed the arm s length revenues of the assessee from the sale of these twenty (20) flats and accordingly re-worked the income of the assessee for AY 2018-19. The relevant working is found at Para 5.33 of the appellate order, which for the sake of convenience, is reproduced below: 5.33 Based on the above computation, the income of the assessee for the AY 2018-19 is computed as below: Particulars Amount as on 31.03.2018 Total Carpet Area Sq. ft (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e option prices agreed therein. The case of the Revenue is that, this agreement was a sham transaction, which was only meant to divert profits from the assessee to HRPL. The Ld. DR Smt Neelam Shukla appearing on behalf of the Revenue filed a written submission in support of the same. According to her, the assessee was unable to demonstrate the need and urgency for entering into the option agreement with HRPL at such low option prices. The Ld. DR discussing the terms of the agreement has claimed that they were vague and that there was no rationale or basis for arriving at the option price. The Ld. DR has cited two instances, which according to him, revealed that HRPL had made substantial gains from which it could be inferred that the option price agreed upon by the assessee was on the lower side. On the other hand, the Ld. AR Shri Vijay Mehta appearing for the assessee vehemently contended that the agreement between the assessee and HRPL was acceptable and a commercially prudent business transaction, which is a regular occurrence in the real estate business. He submitted that the entire approach of the Revenue was flawed as it suffered from hind-sight bias and that the Revenue had f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e flat will be Rs.7,20,00,000/-(Rupees seven crore twenty lacs only) subject to the variation, if any, (due to variation in the carpet area) in proportion to the variation in the aforesaid tentative carpet area with the carpet area determined on the receipt of final approvals from the statutory authorities ( Option Price ). The developer has agreed to be bound on the exercise of the option by the Option holder, to agree to sell the flat to the Option Holder for the consideration and on the terms stated herein and will be set out by the Developer in the standard Agreement for Sale of the flats in the building. 15. By letter dated 30th December 2010, the assessee and HRPL had acknowledged the revision in the projected carpet area of the flat and consequent revision of option price, which was captured in Clause (D) of the Supplemental Agreement dated 4th March 2014. The relevant Clause reads as follows: By letter dated 30th December, 2010 [ said Letter ] the Parties inter alia recorded the revised terms and conditions as agreed on that date, as also the then protected carpet area of the said 4 BHK Flat No. 1901 on the 19th Floor (the flat remaining the same, but with the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpiry of 3 months from the aforesaid date of intimation of commencement of work; (e) Rs.80,00,000/- to be deposited on expiry of 6 months from the aforesaid date of intimation of commencement of work; (f) Rs.80,00,000/- to be deposited on expiry of 9 months from the aforesaid date of intimation of commencement of work; (g) Rs.80,00,000/- to be deposited on expiry of 12 months from the aforesaid date of intimation of commencement of work; (h) Rs.80,00,000/- to be deposited on expiry of 15 months from the aforesaid date of intimation of commencement of work; (i) Rs.80,00,000/- to be deposited on expiry of 18 months from the aforesaid date of intimation of commencement of work; (j) Rs.80,00,000/- to be deposited on expiry of 21 months from the aforesaid date of intimation of commencement of work; (k) The balance amount of Rs.80,00,000/-, ( subject to variation in the option price of the flat as mentioned in clause 7 above) to be deposited upon the intimation of completion of the building. 17. The above terms of payment were also revised in the Supplementary Deed dated 04.03.2014, which were as follows: 7. The Option Holder has agreed that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid within the time as provided hereinabove. On the Option Holder exercising the option to acquire the proposed Apartment, the Option Deposit shall stand adjusted towards the earnest money (equivalent to 20% of the agreed Fixed Price) and towards on account payment for acquiring the proposed Apartment at the time of execution of the Agreement. 18. From the above, it is thus noted that HRPL had placed refundable deposits with the assessee to obtain an option to purchase the proposed flat, which would be constructed by the assessee, at a pre-determined option price. It is further observed from Clause (19) of the Original Agreement that the assessee was entitled to create charge on the plot of land and/or the building (including the proposed flat whose option was granted) and that the option holder could not object to the same. It was only when the option was sought to be exercised and the Agreement for Sale would be executed, that the assessee was required to vacate the charge in relation to the said flat. The relevant Clause (19) is as follows: Title Sanctions 19. The Option Holder has inspected and been given a copy of the Title Certificate dated 6th May, 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the project got delayed or mired in litigation or it did not turn out to be successful, then the Bank/FI would have the lien over the proposed development to recover their respective dues and the status of HRPL would be that of an unsecured creditor . 20. Clause (28) of the Original Agreement read with Clause (19) of the Supplemental Agreement also makes it clear that this document grants a pure and irrevocable option given to HRPL and that it is not an Agreement for Sale. By placing interest-free unsecured deposits with the assessee, HRPL was only able to secure the right to exercise the option to acquire the flat at a later date. Clause (29) of the original agreement provided HRPL with the right of assignment of option. In terms of the said clause, the option holder, after expiry of 12 months from the date of the agreement, was entitled to assign and transfer its rights and benefits under this option agreement in favour of a third party, subject to fulfillment of all obligations by the third party. 21. As noted earlier, the project Artesia had not received approvals/clearances from the Municipal Corporation on the date of the option agreement. Accordingly, Clause (22) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready reproduced above], in which a mutually agreeable compensation may be paid by the assessee. The relevant Clause (18) read as under: 18. On expiry or termination of this Option MOU, the Option Holder shall have no claims or rights of any nature in relation to the proposed Apartment or against the Developer, save and except for refund of the Option Deposit paid to the Developer (in the event provided in Clause 17(c) and (d) of this Option MOU and mutually agreeable compensation [ Compensation ] which shall be in keeping with the reasonable market price as on the date of termination); subject to the Option Holder having complied with the obligation of making payments as set out in this Option MOU without any delay or default). It is hereby clarified that the said Compensation shall become payable as aforesaid only in the event of termination under Clause 17(c) or (d) above, and not otherwise. No interest shall be payable on any deposits in event of termination under Clause 17(a) and (b) above. Such refund of deposit (and Compensation, if any), subject to deduction of tax at source, if applicable as per rules, shall be payable only against a confirmation letter from the Opti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed development. If the proposed development got completed and the flat prices increased, then HRPL would make profit from sale/assignment of such options. In case the project got delayed or mired in litigation or that the expected sale prices did not commensurate with option price, it would result in surrender of option by HRPL, with only recourse to obtain refund of principal deposit from the assessee. 25. In view of the above facts, the first aspect which requires our consideration is, whether the terms and conditions of the above option agreement entered into by and between the assessee and HRPL is commercially prudent and thus acceptable. In this regard, the Ld. AR pointed out that, such option agreements were a common phenomenon in the real estate industry. He submitted that, the real estate business requires an enormous amount of capital to carry on the projects, has high gestation periods and requires substantial working capital. He also submitted that the customers prefer to buy ready-to-move in projects rather than under-construction projects to avoid risks of delayed completion, regulatory issues, escalation costs, etc. The real estate developers are, however, keen to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in which the entity is in the given time. The claim of the assessee that the option arrangements have been entered into to avail the much needed low cost capital by the assessee warrants examination if the assessee actually needed it and if so did the transaction actually provided the capital to the assessee as per arrangement. 3.2 A perusal of the balance sheet of the assessee indicates that the assessee was itself flush with money and that itself has provided about Rs. 135.23 crs of loan to Pvt. Companies in which Director is a Director or Member and a further loan of Rs.10.56 crs to Public Company in which Director is a Director [refer Schedule J to the Balance sheet for the year ending 31st March 2010 vide pge.09 of the Paper Book(PB) submitted on 09/09/2022] No other loans except for Overdraft from banks is seen from the same. As can be seen from balance sheet there are no major loan liability of assessee but in fact assessee has traditionally been in practice of advancing huge sums of loans to the concerns where directors are co-directors or have substantial interest in those concerns. Thus urgent need for low cost fund necessitating forfeit of substantial future p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 crores in FY 2017-18. Hence, we find force in the argument of the Ld. AR that, this fund-flow position demonstrated the assessee s need to raise low cost funds and mitigate additional interest burden. We also agree with the Ld. AR that this option agreement was a commercially expedient transaction as it enabled the assessee to obtain interim funding in the form of interest-free deposits with embedded option, for its project without interest/cost and it also indirectly secured the commitment from HRPL to buy twenty (20) flats in their proposed development, whose construction had not even commenced by then, and whose sales/bookings until then was sluggish (assessee had only obtained two other bookings until FY 2010-11). Further, the fact that HRPL, a reputed company and a subsidiary of M/s Shoppers Stop Ltd, chose to participate in this proposed development, enhanced the bankability of the project. It was also pointed out to us that, the option price agreed in 2010 was commensurate with the prevailing market value for stamp duty purposes and therefore it was not a case that the option to acquire twenty (20) flats was given to related party, HRPL at understated values. On the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , on the premise that, it is the assessee s prerogative to decide the manner in which it wants to run its business and the Department cannot replace the wisdom of the assessee. The Revenue cannot decide or dictate as to how an assessee should conduct its business or maximize its profits. It is by now well settled in law that, the Revenue cannot step into the shoes of the businessman for determining reasonableness and business expediency. Hence, the Ld. DR could not have questioned the necessity, purpose and manner of raising of funds by the assessee, in the form of option deposits from HRPL, as it was outside the domain and jurisdiction of the Revenue. The reliance placed by the Ld. AR of the assessee on the following decisions is found to be justified. 32. The Hon'ble Delhi High court in the case of CIT vs Dalmia Cement (P) Ltd (254 ITR 377) has observed as under:- 7. It is to be noted that, in the present case, the question that has been raised by the revenue is not one relating to the expenditure being not for the purposes of the business. It is the question of an appropriate amount which would have been paid as commission. In fact, the Assessing Officer himself ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 34. The Hon'ble Supreme Court in the case of CIT Vs Rajan Nanda (349 ITR 8) , has observed as under: - 25. After giving our due and thoughtful consideration to the submissions of the parties of both sides, we feel that the assessee has been able to make out a case in its favour and order of the Tribunal does not call for any interference. We are persuaded by the following reasons in support of this view of ours: (i) to (v) ** ** ** (vi) Once the legal provisions and the outlook of Department itself based on such legal provisions permit the assessee to have the tax planning of this nature, and the course of action taken by the assessee is permissible under law, the argument of colourable device cannot be advanced by the Revenue. When expenditure of this nature is treated 'business expenditure' per se by the Department itself, there cannot be any question of raising the issue of want of business expediency. The learned counsel for the respondent is right in his submission that the Department could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices agreed in the option agreement was abysmally low. This according to her was evident from the fact that the loss of revenues to the assessee by awarding options to HRPL, did not commensurate with the cost of option deposits, had the same been raised by the assessee from the market by way of regular borrowings. She thus questioned the benchmarking exercise carried out by the Ld. CIT(A), as according to her, the Ld. CIT(A) had missed the critical factors that the reward to HRPL ought to have been in proportion to capital contributed and risks assumed. According to her, HRPL had earned a return of Rs.175.15 crores on its investment/deposit of Rs.104 crores, which showed that the option prices in the option agreement was highly skewed in favour of HRPL. The Ld. DR submitted that such low option prices were agreed upon with the sole purpose to divert profits from the books of the assessee. The relevant submissions made by the Ld. DR in this regard, is as follows: 4. Be that as it may, a perusal of the arrangement reveals that the transaction has been made on the basis of very vague terms on lump-sum basis with no basis for arriving at the price determined in each of the flat ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This is 308% return on the initial deposit of the actual amount of Rs.6.83 crs agreed as investment. The business under consideration is not gambling business and no other business offers such return elsewhere in the market leave alone in real estate market. As regards the risk, as has been stated by the CIT appeal and undisputedly also, the agreed rates are abysmally low by any market standard especially in case of a reputed builder as assessee. 5. From the sample option agreement (flat 1901) provided by the assessee, it is seen that as per option agreement terms at section 8(page 37 of the submission) the timeline for deposit of various amounts is given. As per the same, substantial amounts should have been paid by HRIPL between the period of initial agreement in March 2010 and the date of supplemental agreement that is March 2014 i.e.04 years. The schedule of payments as per pt.08 of the sample option agreement vide 37-38 of the PB is as below: SI. No. Amount Agreed time of payment 1 25,00,000 At the time of the execution of option agreement 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s between independent parties in the open market. 5 The option agreement entered by assessee with its associate concern by virtue of absence of any basis or uniformity with regards to financial terms of option agreement cannot be considered as valid market practice. These option agreements are custom-made, unique to the assessee and associate Enterprises not practice with any third-party in its business transaction. The fact that for a pittance, assessee has gifted profit to its sister concern to the tune of 300 to 400% of its initial corpus amount clearly indicate that it is not a normal business practice but a deliberate carefully conceived tax planning strategy on a long-term basis. 6 The fact that each of option agreement entered into by assessee with its associate concern is as per market condition has to be examined individually for each of the flats. Generalizing amount on the basis of one flat will not help in arriving at the same, because in none of the proceedings so far is it clearly emanating as to what is the amount of actual sale consideration received with regard to each of the flat and the amounts lent with reference to each of the flats to consider if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value, which it ultimately did in later years. The Ld. AR thus submitted that at that material time in 2010, had it been any other unrelated party, similar option agreement would have been negotiated with reference to the prevailing ready reckoner rates, which was in fact the benchmark for arriving at the option price of HRPL. The Ld. AR submitted that, it was only because the risk undertaken by HRPL in 2010 got significantly rewarded in the later years that the Revenue was now questioning the pricing of option in hindsight. Had the project got delayed or stuck in regulatory issues/litigation or the project would have yielded lower sales price, then the Revenue would not have questioned the option pricing. He argued that all these external factors could not have been accurately predicted in 2010 and therefore this line of reasoning given by the Revenue to hold that the agreement had been executed with the intent to divert profits, was not tenable both on facts as well as in law. Assailing the benchmarking exercise carried out by Ld. CIT(A) and also the Ld. DR in his written submissions, the Ld. AR first contended that this benchmarking exercise did not have any sanction of law. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise. The difference in the rate is in the range of Rs. 6,000 to Rs. 10,000 per sqft and at the same time the difference in the floors is 6 to 13 floors. One more crucial reason of the rate difference is that Hypercity had booked 20 flats at one time and thus was eligible for a bulk discount whereas the transaction with the third party was only of 1 flat each. Once it is established that the rate at which the flats are sold to Hypercity at the comparable rate at which it was sold to third parties, all allegations and arguments become completely irrelevant and academic in nature. Rebuttals to written submissions of Ld. DR : 4. Paragraph no. 4 to 4.2 lumpsum price charged to Hypercity and huge profit made by Hypercity The assessee has agreed to sale its flats at lumpsum price to Hypercity as well as all its other customers. These are negotiated prices after long discussions with the customers and keeping in mind the market conditions.The difference between the prices of 2 flats is because of the difference in the floor. In fact, this observation of the Department shows the hypersensitivity of Department in examining the minutest pricing difference. Its needs to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement was entered into. It is also a known fact that the year 2010 fell within the global recession period and therefore the prevailing market conditions in that year could not be compared with later years. We thus note that, in the year 2010, when the funds were contributed by HRPL in pursuance to the option agreement entered into with the assessee, in the form of unsecured interest-free security deposit, it carried significant risk. As noted earlier, the termination of option agreement ordinarily only entailed refund of principal without any interest or compensation. Even if the agreement was terminated due to default by Developer, then also the compensation payable was not definitive but subject to mutually agreeable terms. Hence, had the proposed development not turned out as successful as it did, and had things gone south, i.e. the markets would not have revived after the recession seen by the realty sector, the project was further delayed or the assessee-developer defaulted or that the expected sales were not achieved, then HRPL was not only faced with the risk of loss of reward on the capital but it risked losing the capital itself. We thus agree with the Ld. AR that, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssigned one of the Flat No. 1401 to an unrelated party in the next financial year succeeding the year of option agreement. The Ld. DR, on the other hand has claimed that the prices at which HRPL assigned/sold its respective options to third parties in later years should be taken as the arm s length price for the options granted in FY 2009-10 and consequent thereto, the entire revenues derived by HRPL should be assessed in the hands of the assessee. We however do not countenance this benchmarking exercise of both the Ld. CIT(A) as well as the Ld. DR, for the primary reason that this so-called benchmarking analysis undertaken by them is not backed by any provision of law. It is not the case of the Revenue that, the transaction between the assessee and HRPL qualifies as specified domestic transaction under Section 92B of the Act, so as to undertake a qualitative transfer pricing analysis. It is also not the case of the Revenue that, the transaction is hit by the rigors of Section 40A(2) of the Act which would then empower the AO to look at the reasonableness of the expenditure/payment. Instead, according to us, the only relevant provision in this factual context, was Section 50C/43C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Flat No. 1401 assigned/sold by HRPL to an unrelated party to benchmark the option price of all twenty (20) flats. According to the Ld. CIT(A), HRPL had acquired the option for Flat No. 1401 for a price of Rs.27,429/sq. ft. which was sold to a third party for Rs.30,522/-/sq. ft. in FY 2011-12. This sale price of Rs.30,522/-/sq. ft. was held to represent suitable arm s length price for benchmarking the price of all twenty (20) flats, whose option to buy was acquired by HRPL from the assessee in FY 2009-10. Ex-facie, it is noted that, there was a timing difference between the date of option agreement and date of sale/assignment of option for Flat No. 1401 by HRPL (which was more than a year), and therefore, according to us, it is to be ascertained as to whether this timing difference had any material bearing on the arm s length pricing of the option. Before us, the assessee has placed the complete details of flats sold in the project Artesia . Perusal of the same reveals that the flats in the same project had been sold in 2012 2013 in the price range of Rs.42,000- 45,000/sq. ft., whereas similar flats were sold in 2015 for price as high as Rs.72,900/sq. ft. We thus note that, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue has neither disputed nor questioned these option agreements entered into by the assessee with other third parties, whose terms and conditions are noted to be similar to that of the option agreement between the assessee and HRPL. From the details placed before us, it is noted that, the option deposits received from all third parties taken together upto FY 2011-12 were in fact lower (Rs.5.54 crores) in comparison to HRPL (Rs.11 crores). Hence, when similar option agreements entered into under uncontrolled circumstances with unrelated parties have not been doubted, then according to us, the suspicion raised by the Revenue on the option agreement between assessee and HRPL, just because HRPL is an entity associated to the assessee which derived substantial return on the option deposits from this arrangement, is held to be factually perverse. For this, we may gainfully refer to the following observations made by the Hon ble jurisdictional Bombay High Court in the case of CIT Vs Mehta (P) Ltd (220 CTR 148): 5. As regards the contention of the revenue that the three concerns/ companies were under the control and management of the same group of persons and, therefore, warra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a point of time when even the requisite clearance/approval from local authority was pending. Hence, the price negotiated by HRPL for twenty (20) flats could not be compared with a single flat sold to an unrelated party. It was also demonstrated by the assessee that the prices varied depending upon the floor-level of the flat. For instance, the flat at 5th floor was sold to unrelated party at Rs.37,832/sq. ft. in 2017, whereas flat at 28th floor was sold in 2015 at a price of Rs.72,903/sq. ft. Hence, the pricing of flats at different floors could not be compared. It is also noted that, HRPL was only an investor, whose ultimate motive was to sell/assign these options to willing customers at a profit. Hence, unlike other customers of the assessee, who are part of the assessee s Business to Customer (B2C) market, HRPL was a customer of the assessee s Business to Business (B2B) market, wherein the assessee was required to not only allow adequate margin to HRPL to meet its own sales, marketing distribution costs but also derive profits from selling/assigning the options. It is also noted that, HRPL is a subsidiary of a publicly listed company, M/s Shoppers Stop Ltd, which has an inde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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