DCIT, New Delhi v. M/s. IAG Promoters & developers Pvt. Ltd, New Delhi

ITA 3556/DEL/2009 | 2005-2006
Pronouncement Date: 06-04-2010 | Result: Dismissed

Appeal Details

RSA Number 355620114 RSA 2009
Assessee PAN AAACI7995R
Bench Delhi
Appeal Number ITA 3556/DEL/2009
Duration Of Justice 7 month(s) 24 day(s)
Appellant DCIT, New Delhi
Respondent M/s. IAG Promoters & developers Pvt. Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 06-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted I
Tribunal Order Date 06-04-2010
Date Of Final Hearing 06-04-2010
Next Hearing Date 06-04-2010
Assessment Year 2005-2006
Appeal Filed On 13-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I BEFORE HONBLE PRESIDENT SHRI VIMAL GANDHI AND SHRI A.K.GARODIA ACCOUNTANT MEMBER ITA NO. 3556/DEL/09 ASSTT.YEAR: 2005-06 DY. C.I.T. VS M/S IAG PROMOTERS & DEVELOPERS CENT.CIR. 23 PVT.LTD. M/S-11 MIDDLE CIRCLE NEW DELHI. CONNAUGHT PLACE NEW DELHI. AND I.T.A.NO. 3168/DEL/09 ASSTT.YEAR; 2005-06 M/S IAG PROMOTRS & DEVELOPERS VS DY. C.I.T PVT.LTD. NEW DELHI. CENT.CIR. 23 NEW DELHI. (PAN: AAACI7995R) (APPELLANT) (RESPONDENT) ASSESSEE BY: SH.TARANDEEP SINGH & SH.AMITOJ ANEJA CA DEPARTMENT BY: MR. MOHSIN ALAM MS ANUSHA KHURANA DR O R D E R PER VIMAL GANDHI PRESIDENT THESE CROSS APPEALS ONE BY THE ASSESSEE AND THE OT HER BY THE REVENUE ARE ARISING OUT OF THE ORDER OF CIT (APPEALS) DATED 05.05.2009 FOR THE ASSESSMENT YEAR 2005-06. THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.3556D/09 AND ITA NO. 3168/DEL/09 2 2. THE REVENUE IN THEIR APPEAL HAS CHALLENGED DELET ION OF ALLEGED SUPPRESSION OF SALE CONSIDERATION OF PROPERTY SOLD BY THE ASSESSEE AND SITUATED AT B-15 INNER CIRCLE CONNAUGHT CIRCUS N EW DELHI. THE SAID PROPERTY COMPRISING OF 8 128 SQ.FT. ACCORDING TO T HE ASSESSEE WAS SOLD FOR RS 1 72 97 461/- ON 29.11.2004 HAVING PURCHASED TH E SAME VIDE DEED DATED 26.3.2003 FOR A SUM OF RS 1.50 CRORES. ACCORDING TO THE ASSESSING OFFICER THE ANNUAL LETTING VALUE OF THE PROPERTY WAS RS 84 15 000/-. THE ASSESSING OFFICER WAS NOT PREPARED TO ACCEPT THAT SUCH A PROP ERTY COULD BE SOLD AT TWICE THE ANNUAL RENTAL INCOME OF THE PROPERTY. HE HELD THAT THE SALE CONSIDERATION WAS UNDERSTATED. HE ASKED THE ASSESSE E TO JUSTIFY THE MARKET PRICE OF THE PROPERTY SOLD. ASSESSEE MADE DETAILED SUBMISSIONS WHICH ARE NOTED BY THE A.O IN PARAS 3.1 AND 3.2 OF THE ASSESS MENT ORDER. HAVING REGARD TO RENT OF THE PROPERTY THE A.O. DETERMINED FAIR M ARKET VALUE OF THE PROPERTY AT RS 10 34 90 275/- BY APPLYING RENT CAPITALIZATIO N METHOD AND MULTIPLE OF 12.5 TIMES UNDER SCHEDULE II TO THE W.T. ACT. THE D IFFERENCE BETWEEN THE CONSIDERATION SHOWN AND FAIR MARKET VALUE AMOUNTING TO RS 8 57 61 699/- WAS TAKEN AS BUSINESS GAIN AND SUBJECTED TO TAX IN THE ASSESSMENT ORDER. 3. THE ASSESSEE IMPUGNED ABOVE ASSESSMENT IN APPEAL BEFORE THE CIT (APPEALS) AND CONTENDED THAT ADDITION OF RS 8 57 61 699/- WAS MADE ON SURMISES AND CONJECTURES. THERE WAS NO LEGAL JUSTIF ICATION TO WORK SALE PRICE BY APPLYING RULE 3 OF SCHEDULE II TO THE WEALTH-TAX ACT AND IGNORE THE VALUATION REPORT SUBMITTED ON BEHALF OF THE A.O. IT WAS FURTHER CONTENDED THAT THERE WAS NO JUSTIFICATION TO RETAIN PURCHASE PRICE AT RS 1.50 CRORES AND CHANGE THE SALE PRICE WITH REMARKS THAT ASSESSEE M IGHT HAVE PAID ON MONEY IN THE PURCHASE OF THE PROPERTY. IT WAS ALSO CONTENDED THAT PROVISION OF SECTION 142A AND OF SCHEDULE TO THE WEALTH-TAX A CT HAD NO APPLICATION IN ITA NO.3556D/09 AND ITA NO. 3168/DEL/09 3 THIS CASE. THERE WAS NO LEGAL JUSTIFICATION TO SUBS TITUTE SALE CONSIDERATION WITH FAIR MARKET VALUE OF THE PROPERTY. THE ASSESSE E ALSO PLACED RELIANCE ON CERTAIN DECISIONS NOTED BY THE LEARNED CIT (APPEALS ) IN PARA 2.2 OF THE IMPUGNED ORDER WHILE ASSAILING THE ADDITION. THE AP PELLANT ALSO SUBMITTED THAT ADDITION MADE WAS TOTALLY UNSUSTAINABLE IN THE LIGHT OF DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF C.B.GAUTAM VS. UNION OF INDIA 199 ITR 530 AND THAT OF K.P.VERGHESE VS. ITO 131 ITR 597. 3.1 THE LEARNED CIT (APPEALS) HAS ALSO NOTED THE RE ASONS ADVANCED BY THE ASSESSING OFFICER TO JUSTIFY ADDITION IN QUESTION. 3.2 AFTER CONSIDERING RIVAL CLAIM OF THE PARTIES IN THE LIGHT OF FACTS AND CIRCUMSTANCES OF THE CASE CIT (APPEALS) HELD THAT PROVISIONS OF SECTION 142A WERE NOT APPLICABLE IN THIS CASE AS AFORESAID PROVISIONS COULD BE INVOKED ONLY FOR PURPOSE OF ASSESSMENT. HE FURTHE R HELD THAT ASSUMED SALE CONSIDERATION ON THE BASIS OF RENT CAPITALIZATION METHOD WAS NOT LEGALLY JUSTIFIED AS IT WAS BASED ON SURMISES AND CONJECTUR ES. IT WAS FURTHER HELD THAT A.O WAS NOT JUSTIFIED IN PICKING SALE OF THE PROPER TY FOR ADJUSTMENT OF ON MONEY WHILE LEAVING PURCHASE OF SAME PROPERTY UNTO UCHED. THE LD. CIT (APPEALS) HAS FURTHER OBSERVED THAT INCOME-TAX CAN BE LEVIED ON REAL INCOME AND NOT ON NOTIONAL INCOME. THE LEARNED CIT (APPEAL S) RELIED UPON DECISION OF K.P.VERGHESE (SUPRA) AND THAT OF CIT VS. SHOORJI VALLABHDAS & CO. 46 ITR 144 (SC). HE HELD THAT IT WAS FOR THE A.O TO ADDUCE EVIDENCE SUPPORTING HIS CONCLUSION THAT ASSESSEE APPELLANT H AD RECEIVED MORE THAN THE STATED CONSIDERATION. THIS HAS NOT BEEN DONE. HE HE LD THAT DVOS VALUATION SHOULD NOT BE SUBSTITUTED IN PLACE OF SALE CONSIDER ATION. THE LEARNED CIT (APPEALS) ALSO REFERRED TO PROVISION OF SECTION 50C WHILE DELETING ADDITION ITA NO.3556D/09 AND ITA NO. 3168/DEL/09 4 MADE IN QUESTION. THE ADDITION MADE WAS HELD TO BE UNJUSTIFIED AND ACCORDINGLY DELETED. 4. THE REVENUE IS AGGRIEVED AND HAS BROUGHT THE ISS UE IN APPEAL BEFORE THE APPELLATE TRIBUNAL. WE HAVE HEARD BOTH THE PART IES. DURING THE COURSE OF HEARING OF THE APPEALS OUR ATTENTION WAS DRAWN TO DECISION OF ITAT B BENCH IN THE CASE OF ACIT VS. EXCELLENT LAND DEVEL OPERS (P) LTD. DATED 11.12.2009 WHERE IDENTICAL ADDITION MADE ON SALE OF IMMOVEABLE PROPERTY WAS HELD TO BE NOT SUSTAINABLE AND APPEAL OF THE RE VENUE WAS DISMISSED. IN TAKING ABOVE VIEW THE APPELLATE TRIBUNAL GAVE THE FOLLOWING REASONS: (I) THAT PROFIT ON SALE OF STOCK (AS IS THE CASE HERE A LSO) IS ASSESSABLE U/S 28 OF THE ACT. SUCH PROFIT WAS TO BE COMPUTED U /S 145(1) IN ACCORDANCE WITH SYSTEM OF ACCOUNTING REGULARLY EMPL OYED BY THE ASSESSEE. THE ASSESSEE ADMITTEDLY WAS FOLLOWING MER CANTILE SYSTEM OF ACCOUNTING. ON SALE OF STOCK INCOME ACCRUES AS PER SALE DEED EXECUTED BY THE ASSESSEE AND THE SAME (CONSIDERATIO N) WAS DULY DECLARED IN THE SALE DEED. (II) THERE IS NO PROVISION IN SECTION 28 TO TAKE ACCRUED CONSIDERATION AS MARKET VALUE. THE ASSESSING OFFICER NEITHER EXAMINE D THE PURCHASER NOR HAS INDEPENDENTLY FOUND OUT WHETHER A SSESSEE RECEIVED ANY CONSIDERATION OVER AND ABOVE THE STAT ED CONSIDERATION. WEALTH-TAX RULES WERE (WRONGLY?) APP LIED. THE ASSESSMENT WAS BASED ON SUSPICION AND ON OPINION TH AT PROPERTY WAS UNDER VALUED. THERE IS NO MATERIAL TO PRESUME T HAT ANY ON ITA NO.3556D/09 AND ITA NO. 3168/DEL/09 5 MONEY WAS RECEIVED BY THE ASSESSEE OR THAT ANYTHING OVER AND ABOVE THE STATED CONSIDERATION ACCRUED TO THE ASSES SEE. (III) WHEN ASSET SOLD BY THE ASSESSEE WAS A CAPITAL ASSET INCOME FROM WHICH IS CHARGEABLE AS CAPITAL GAIN PRIOR TO INSERT ION OF SECTION 50C THERE WAS NO PROVISION TO SUBSTITUTE FAIR MARK ET VALUE FOR CONSIDERATION ACCRUING AS A RESULT OF TRANSFER FOR THE PURPOSES OF CAPITAL GAIN U/S 48. REVENUE COULD NOT SUBSTITUTE A CTUAL STATED CONSIDERATION WITH FAIR MARKET VALUE. (IV) THAT DEEMED PROVISION OF SECTION 50C WAS APPLICABLE ONLY IN CASES OF CAPITAL GAIN AND SAME CANNOT BE IMPORTED TO COMP UTE PROFITS OR GAINS OF BUSINESS OR PROFESSION GOVERNED BY SECTIO N 28 OF THE ACT. THE BENCH FOR ARRIVING AT ABOVE VIEW RELIED UPON T HE FOLLOWING DECISIONS: A) CIT VS. GULSHAN KUMAR 257 ITR 703 (DEL) B) CIT VS. SUSHILA MITTAL & ORS 250 ITR 531 (DEL) C) DEV KUMAR JAIN VS. ITO & ANR 309 ITR 240 (DEL) D) CIT VS. SMT. NILOFER I SINGH 309 ITR 233 (DEL) AN D E) HANEMP PROPERTIES (P) LTD. VS. ACIT 101 ITD 19(DEL) 4.1 THE BENCH FURTHER HELD THAT PROVISIONS OF SECTI ON 50C 55A OR SECTION 142A OF THE ACT HAD NO APPLICATION IN THIS CASE. AC CORDINGLY DELETION OF ADDITION MADE IN THE STATED SALE CONSIDERATION WAS UPHELD. 4.2 DURING THE COURSE OF HEARING BOTH THE PARTIES ACCEPTED THAT FACTS AND CIRCUMSTANCES INVOLVED IN BOTH THE CASES ARE IDENTI CAL AND DECISION GIVEN BY THE BENCH DATED 11.12.2009 IS BINDING ON US. CONSIS TENT WITH THE ABOVE DECISION WE UPHOLD ORDER OF CIT (APPEALS) DELETING ADDITION IN QUESTION. ITA NO.3556D/09 AND ITA NO. 3168/DEL/09 6 5. IN ITS APPEAL THE ASSESSEE HAS CHALLENGED ADDIT ION OF RS 1 73 262/- MADE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE INCOM E-TAX ACT. THE LEARNED CIT (APPEALS) WHILE UPHOLDING THE AFORESAID ADDITIO N HAS REMARKED AS UNDER: (B) IN SO FAR AS THE APPELLANT RECEIVED RS 4.50 CR ORES FROM COUNTRY WIDE PROMOTERS P.LTD. AND THE AO PROCEEDED TO HOLD THAT THE APPELLANT IS LIABLE TO TAX AS DEEMED DIVIDEND AN AM OUNT OF RS 1 73 262 BEING THE ACCUMULATED PROFITS OF THE CONCE RNED COMPANY THERE IS NO ERROR IN CONSIDERING THE ACCUMULATED PR OFITS OF COUNTRY WIDE PROMOTERS AS ON 31.3.2005 WHICH INCIDENTALLY WAS RS 1 73 261. THE VIEW THAT THE ENTIRE ACCUMULATED RESERVES OF CO UNTRY WIDE PROMOTERS HAS BEEN CONSIDERED AS DEEMED DIVIDEND IN CASE OF ANOTHER COMPANY I.E. FRAGRANCE CONSTRUCTIONS P.LTD. AND HEN CE COULD NOT BE TAXED AGAIN IN THE HANDS OF THE APPELLANT IS UNTENA BLE IN LAW SINCE SUCH A CONSTRUCTION IS NOT PERMISSIBLE WITHIN CLAUS E (III) OF SECTION 2(22)(E). THE AO WAS JUSTIFIED IN INCLUDING AN AMOU NT OF RS 1 73 262 AS DEEMED DIVIDEND UNDER SECTION 2(22)(E). 6. SHRI TARANDEEP SINGH LEARNED COUNSEL FOR THE AS SESSEE DID NOT DISPUTE THAT SUM OF RS 1 73 262/- WAS LOAN OR ADVANCE WHICH COULD BE TREATED AS DEEMED DIVIDEND AS UNDERSTOOD UNDER PROVISION OF SE CTION 2(22)(E) OF INCOME-TAX ACT. HE ARGUED THAT THIS ACCUMULATED PRO FIT OF COUNTRY WIDE PROMOTERS LTD ALREADY STOOD ASSESSED IN THE HANDS O F ANOTHER CONCERN M/S FRAGRANCE CONSTRUCTION P.LTD. U/S 2(22)(E) AS PER A SSESSMENT ORDER DATED 24.12.2007 BY THE ASSESSING OFFICER WARD 11(3) NE W DELHI. A COPY OF ABOVE ASSESSMENT ORDER IS AVAILABLE AT PAGE 17 OF T HE PAPER BOOK. HE CONTENDED THAT ABOVE SAID ACCUMULATED PROFIT WAS RE QUIRED TO BE TAKEN INTO ACCOUNT FOR COMPUTING DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME-TAX ACT. THE PROFIT OF RS 1 73 262/- HAVING BEEN CONSIDERED IN THE HANDS OF M/S FRAGRANCE CONSTRUCTIONS P.LTD. COULD N OT BE CONSIDERED AGAIN ITA NO.3556D/09 AND ITA NO. 3168/DEL/09 7 IN THE HANDS OF THE ASSESSEE. PROFIT OR ACCUMULATED PROFIT IS ONE FIGURE. IN SUPPORT OF HIS SUBMISSION LEARNED COUNSEL PLACED R ELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. G.NARASIMHAN (DECD.) AND OTHERS 236 ITR 327 WHEREIN AS PER HEAD NOTE IT HAS BEEN OBSERVED AS UNDER: ANY LEGAL FICTION WILL HAVE TO BE CARRIED TO ITS L OGICAL CONCLUSION. IF THE PAYMENT UNDER SECTION 2(22)(E) OF THE INCOME TA X ACT 1961 IS TREATED AS A DEEMED DIVIDEND AND IS REQUIRED TO BE SO TREATED TO THE EXTENT THAT THE COMPANY POSSESSES ACCUMULATED PROFI TS THE LOGICAL CONCLUSION IS THAT THIS PAYMENT MUST BE CONSIDERED AS ADJUSTED AGAINST THE COMPANYS ACCUMULATED PROFITS TO THE EX TENT THAT IT IS TREATED AS DEEMED DIVIDEND WHILE CALCULATING ACCUMU LATED PROFITS OF THE COMPANY. WHENEVER ACCUMULATED PROFITS OF THE CO MPANY ARE REQUIRED TO BE DETERMINED SUCH AN ADJUSTMENT WILL HAVE TO BE MADE. UNDER SECTION 2(22) ONLY THE DISTRIBUTION OF THE AC CUMULATED PROFITS CAN BE DEEMED TO BE DIVIDEND IN THE HANDS OF THE SH AREHOLDERS. BY USING THE EXPRESSION WHETHER CAPITALIZED OR NOT THE LEGISLATIVE INTENT CLEARLY IS THAT THE PROFITS WHICH ARE DEEMED TO BE DIVIDEND WOULD BE THOSE WHICH ARE CAPABLE OF BEING ACCUMULATED AND WH ICH WOULD ALSO BE CAPABLE OF BEING CAPITALIZED. THIS WOULD CLEARLY EXCLUDE RETURN OF A PART OF THE CAPITAL BY THE COMPANY FROM SECTION 2(2 2) AS THE SAME CANNOT BE REGARDED AS PROFITS CAPABLE OF BEING CAPI TALIZED THE RETURN BEING OF THE CAPITAL ITSELF. THUS THE AMOUNT DISTRI BUTED BY A COMPANY ON REDUCTION OF ITS SHARE CAPITAL HAS TWO COMPONENT S DISTRIBUTION ATTRIBUTABLE TO ACCUMULATED PROFITS AND DISTRIBUTIO N ATTRIBUTABLE TO CAPITAL (EXCEPT CAPITALIZED PROFITS). TO THE EXTENT OF THE ACCUMULATED PROFITS WHETHER SUCH ACCUMULATED PROFITS ARE CAPITA LIZED OR NOT THE RETURN TO THE SHAREHOLDERS ON THE REDUCTION OF HIS SHARE CAPITAL IS A RETURN OF SUCH ACCUMULATED PROFITS. THIS PART WOULD BE TAXABLE AS DIVIDEND. THE BALANCE MAY BE SUBJECT TO TAX AS CAPI TAL GAINS IF THEY ACCRUE. 7. HAVING REGARD TO AFORESAID DECISION BOTH THE PA RTIES FAIRLY AGREED THAT THE MATTER IS REQUIRED TO BE RE-EXAMINED BY THE ASS ESSING OFFICER ON APPLICATION OF SECTION 2(22)(E) OF THE INCOME-TAX A CT. THIS COURSE IS BEING ITA NO.3556D/09 AND ITA NO. 3168/DEL/09 8 ADOPTED AS INFORMATION WAS NOT MADE AVAILABLE WHETH ER ORDER DATED 24.12.2007 IN THE CASE OF M/S FRAGRANCE CONSTRUCTIO N P.LTD. IS FINAL OR HAS BEEN MODIFIED ON APPEAL AND SECONDLY THIS QUESTION IS BEING RAISED BEFORE US FOR THE FIRST TIME AND REVENUE AUTHORITIES HAD NO O CCASION TO CONSIDER THE MATTER. ACCORDINGLY IMPUGNED ORDER RELATING TO ADDI TION U/S 2(22)(E) OF RS 1 73 262/- IS SET ASIDE AND RESTORED TO THE FILE OF ASSESSING OFFICER. LET THE ASSESSING OFFICER PASS A FRESH ORDER IN THE LIGHT OF OUR ABOVE OBSERVATION AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED WHEREAS APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN OPEN COURT DURING THE COURSE OF HEARI NG ON 06.04.2010. SD/- SD/- (A.K.GARODIA) (VIMAL GANDHI) ACCOUNTANT MEMBER PRESIDENT DATED: 06.04.2010 DRS COPY OF ORDER FORWARDED TO: 1. DY. CIT CENT.CIR.23 NEW DELHI. 2. M/S IAG PROMOTERS & DEVELOPERS P.LTD. M/S-11 MIDD LE CIRCLE CONNAUGHT PLACE NEW DELHI. 3. CIT 4. CIT(A) XV NEW DELHI. 5. DR DY.REGISTRAR ITAT