PER L.P. SAHU, AM The different Assessees have filed their respective appeals and Revenue has filed the Cross 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 Rs.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 bye- laws, regulations etc.
2. It is contended that the consideration of Rs. 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 Rs. 11,84,72,772/- has not accrued to the appellant.
4. The determination of income from transfer of development rights by ignoring the land development expenses of Rs.4,39,51,811/- is wrong. Such land development expenses are fully allowable while determining the profit arising from transfer of development rights.
5. The lower authorities have erred in disallowing a sum of Rs.26,00,000/- u/s 40A(3) of the Act. Such conclusions are opposed to evidences on record.
6. It is contended that the impugned payment of Rs.26,00,000/- being repayment of an existing monetary obligation cannot be subjected to disallowance u/s 40A(3) of the Act.
7. The transaction of Rs.26,00,000/- being undertaken for the purposes of the development of the project with other consortium member companies, the provisions of section 40A(3) are not applicable at all.
8. The transaction of Rs.26,00,000/- not having been claimed as an expenditure under the provisions of Chapter IV- D of the Act, the invocation of provisions of section 40A(3) are wrong.
9. The lower authorities have erred in holding that the sum of Rs.53,03,584/- has accrued to the appellant as interest on Fully Convertible Debentures. Such conclusions are opposed to the Terms of issue of debentures.
10. The enhancement of income of the appellant by a sum of Rs.65,81,171/- by the Commissioner of Income Tax (Appeals) is wrong and is without jurisdiction.
11. It is contended that the Commissioner of Income Tax (Appeals) has no jurisdiction to enhance the income of the appellant by determining/ discovering new sources of income.
12. It is contended that the provisions of section 2(22)(e) of the Act are not applicable to the impugned sum of Rs.65,81,171/-.
13. 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.
14. The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing.
3. The following grounds have been raised in ITA No. 3617/Del/2014 in the case of Saamag Infrastructure. Ltd.:-
1. The lower authorities have erred in holding that the sum of Rs.21,73,57,638/- 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 bye- laws, regulations etc.
2. It is contended that the consideration of Rs.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 Rs.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 Rs.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 Rs.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 Rs.5,00,000/- by the Commissioner of Income Tax (Appeals) is wrong and is without jurisdiction.
7. It is contended that the Commissioner of Income Tax (Appeals) 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 Rs.5,00,000/-.
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.
4. The following grounds have been raised in ITA No. 3618/Del/2014 in the case of Saamag Developers Pvt. Ltd.:-
1. The lower authorities have erred in holding that the sum of Rs.26,52,03,099/- 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 bye- laws, regulations etc.
2. It is contended that the consideration of Rs.26,52,03,099/- 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 Rs.26,52,03,099/- has not accrued to the appellant.
4. The determination of income from transfer of development rights by ignoring the land development expenses of Rs.2,55,00,099/- 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 Rs.1,32,93,832/- 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 Rs.79,87,000/- by the Commissioner of Income Tax (Appeals) is wrong and is without jurisdiction.
7. It is contended that the Commissioner of Income Tax (Appeals) 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 Rs.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 Rs.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 bye- laws, regulations etc.
2. It is contended that the consideration of Rs.21,50,19,995/- 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 Rs.21,50,19,995/- has not accrued to the appellant.
4. The determination of income from transfer of development rights by ignoring the land development expenses of Rs.5,29,98,579/- 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 Rs.95,17,922/- has accrued to the appellant as interest on Fully Convertible Debentures. Such conclusions are opposed to the Terms of issue of debentures.
6. The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing.
6. The following grounds have been raised in ITA No. 3655/Del/2014 in the case of Saamag Construction Ltd.:-
1. The lower authorities have erred in holding that the sum of Rs.12,22,07,796/- 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 bye- laws, regulations etc.
2. It is contended that the consideration of Rs.12,22,07,796/- 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 Rs.12,22,07,796/- has not accrued to the appellant.
4. The determination of income from transfer of development rights by ignoring the land development expenses of Rs.4,04,99,688/- is wrong. Such land development expenses are fully allowable while determining the profits arising from transfer of development rights.
5. The determination of income from transfer of development rights by ignoring the legal and documentation expenses of Rs.1,46,02,000/- is wrong. Such legal and documentation expenses are fully allowable while determining the profits arising from transfer of development rights.
6. The determination of income from transfer of development rights by ignoring the loss incurred on wrong registries of land of Rs.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 Rs.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 Rs.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 Rs.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 Rs.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 appellant by a sum of Rs.1,64,74,410/- by the Commissioner of Income Tax (Appeals) is wrong and is without jurisdiction.
12. It is contended that the Commissioner of Income Tax (Appeals) has no jurisdiction to enhance the income of the appellant by determining/ discovering new sources of income.
13. It is contended that the provisions of section 2(22)(e) of the Act are not applicable to the impugned sum of Rs.1,64,74,410/-.
14. It is contended that in the absence of accumulated profits, the addition of Rs.1,64,74,410/- under section 2(22)(e) of the Act is wrong and is opposed to evidences on records.
15. 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.
16. The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing.
7. The following grounds have been raised in ITA No. 3559/Del/2017 (AY 2012-13) in the case of Saamag Construction Ltd.:-
1. The lower authorities have erred in holding that the sum of Rs.49,85,998/- on account of transfer of development rights in the underlying land is 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.
2. It is contended that the consideration of Rs.49,85,998/- on account of transfer of development rights 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 Rs.49,85,998/- has not accrued to the appellant. The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing.
8. The following grounds have been raised in ITA No. 3689/Del/2014 (AY 2008-09) in the Revenues Appeal title DCIT vs. Pyramid Realtors Pvt. Ltd.:-
1. That the CIT(A) erred in law and on facts of the case in deleting the addition of Rs. 27,15,597/- made by AO on account of unexplained expenditure u/s. 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 Rs. 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 Registration Act, there could be no transfer exigible to tax by reference to Section 2(47)(v) of the Income-tax Act, 1961 read with Section 53A of the Transfer of Property Act, 1882 and consequently the addition of Rs.11,84,72,772/- being the profits alleged to have accrued to the appellant under the stipulated transaction, is arbitrary, unjust and bad in law. 9.1 At the threshold, Ld. Counsel of the assessee stated that the aforesaid additional ground is a legal ground based on the principle enunciated by the Honble Supreme Court in the case of CIT vs. Balbir Singh Maini in Civil Appeal No. 15619/2019 dated 4th October 2017 reported in 398 ITR 531 wherein, the Honble Supreme Court held that in the case of immovable property, after the year 2001, the delivery of possession of the immovable property in terms of an agreement cannot be treated as a transfer in terms of Section 2(47)(v) of the IT Act unless the very agreement is registered with the Registration authorities because from the year 2001 on account of the amendment made under the Registration Act, 1908, every agreement contemplated u/s 53A of the Transfer of Property Act is required to be mandatorily registered. In the absence of registration, the agreement shall have no effect in law for the purposes of section 53A of the Transfer of Property Act, 1882. 9.2 He further stated that in the case of Balbir Singh Maini, there was a joint development agreement in respect of the immovable property which was not registered under the Registration Act, but the Revenue authorities had determined the tax liability on the ground that because under the joint development agreement, the possession of the land has been given to the developer, hence the tax liability arose in the year of agreement, but on such facts the Honble Supreme Court held that because on or after the commencement of Amendment Act, 2001, which inserted the provisions of section 17A of the Registration Act, even the agreements contemplated u/s 53A is mandatorily required to be registered under the Registration Act and in the absence of registration, the joint development agreement cannot be considered as a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 and accordingly no tax liability arises merely on the delivery of possession. The appellant stated that because the relevant facts relating to the additional 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 IT Act as also observed by the Special Auditors. Though according to the assessees, on the date of agreement, land was not an approved land in the absence of necessary permission from competent authorities for development of land and accordingly the profits in relation to the development rights together with land would be accrued in the years as and when the approvals were made by the competent authorities. The assessee stated that in the Assessment Years 2010-11, 2013-14 and 2014-15, such profits have been shown and offered for assessment. 9.5 In our view, the aforesaid ground appears to be a legal ground only and has been raised based on the judgments of the Honble Supreme Court in the case of Balbir Singh Maini (Supra) and the related facts, i.e. the shareholders agreement dated 18th May 2007 have already been considered by the lower authorities and is available on record. We, therefore, admit the aforesaid ground. Even otherwise also, the assessees are fully entitled to argue the issue from a different angle as also held by the Honble Supreme Court in the case of Mahalakshmi Textile in 66 ITR
710. Grounds No. 1 to 3/Additional Ground in all appeals Chargeability and accruability of value of development rights together with land.
10. The facts in all appeals are common and identical, hence for the sake of convenience we are dealing with the facts of M/s Saga Developers Pvt. Ltd. The brief facts of the case are that the assessees are in the business of real estate development along with other group companies and were in the process of development of integrated township at Village Shahpur Bameta, Ghaziabad. 10.1 For the development of integrated township, the assessee along with other group companies in association with others had entered into a consortium agreement dated 20th January 2006 between: Saamag Construction Ltd. Saamag Developers Pvt. Ltd. Saga Developers Pvt. Ltd. Pyramid Realtors Pvt. Ltd. Saamag Realtors Pvt. Ltd. Manhatten Trading Co. Ltd. Safal Engineers & Associates SBC India Ltd. Simplex Infrastructure Ltd. Under the consortium agreement, the lead member was named as Saamag Construction Ltd. (SCL) for submitting the proposal to the Government of Uttar Pradesh for selection of private developers for development of integrated township. 10.2 On 10th February 2006, a registration 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 land and made SPV for the purpose. As per agreement, after signing the same the name of SPV would have to be changed to SARE SAAMAG REALTY PVT. LTD. The other parties of the Saamag group hold 36.2246 acres of land on the date of the agreement. 10.6 The salient features of the relevant clauses of the shareholders agreement are reproduced as under:- Clause 2.5 The loan facility of Rs.25 crores granted by Punjab National Bank and Indian Overseas Bank, on mortgage of land, be transferred in favour of SPV and also performance guarantee of Rs.4,75,00,000/- provided by GDA. 2.6 In case Saamag fails to obtain permission to transfer the loan facility in favour of SPV, then Saamag shall repay the whole amount and obtain a No Dues Certificate at its own cost and then SARE shall infuse the withheld amount as per clause 2.7. 3.1 The authorized capital of SPV shall be Rs.240 crores. 3.1.2 It is agreed that the development right together with the land in respect of 36.2246 acres of land owned by members of Construction Development Project Agreement together with the land has been valued at Rs.103,45,74,870/- vested in SPV. The SPV shall pay to the parties of the first part: Rs.62,07,44,920/- in cash being 60% of the land & development rights; AND Equity shares and fully convertible debentures of Rs.10/- (at face value) to the parties of the first part which shall be in proportion to the land area they owned respectively, multiplied by the agreed floor space index rate of Rs.595/- per sq ft of the project area and which collectively shall value Rs.41,38,29,950/- being a sum equivalent to 40% of total amount of Rs.103,45,74,870/- at which consideration the land and development right shall vest. Project area has been defined in definition given in clause 1(ff) of the agreement and means and includes the entire piece of contiguous land of 72.9 acres having a total FSI area of 34,94,371 sq ft, i.e. on FSI area of 47,933.76 sq ft per acre for calculation purposes. 3.1.9 It was agreed that the balance land of 26.231774 acres required by SPV for execution of project of 72.9 acres shall be purchased by SPV in its own name. However, it shall be the responsibility of SCL to arrange and facilitate the same @ Rs.595/- per sq ft. In case the price of land is more than the amount over and above Rs.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 @ Rs.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 Saamag towards the capital of SPV shall remain in lock in period till the Saamag has undertaken all the statutory and other compliances and obtained all the necessary approvals, sanctions, permissions etc. from the appropriate Government authorities required by the SPV to undertake the development and construction of the project and final sale of units. Clause 8.2 Responsibilities and Obligations of Saamag: 8.2.1 Saamag agrees and undertakes that the execution of the project by SPV is the responsibility and obligation of Saamag and such responsibility and obligation includes but is not limited to those stated in this agreement and Saamag shall be exclusively responsible for the project from the beginning till its completion. 8.2.2 Saamag shall issue separate and individual irrevocable power of attorneys pertaining to their respective share in the project area, in favour of the SPV in order to facilitate and develop, construct, transfer or create charge of the project area by the SPV. 8.2.3 Saamag shall undertake all statutory compliances and shall further apply, obtain seek all the necessary sanctions, permits, approvals, permissions which may be required by the SPV for the completion of the project from the Government or any or all of its agencies, departments including but not limited to Uttar Pradesh Public Works Department, Uttar Pradesh Jal Nigam, Uttar Pradesh Power Corporation Limited etc. It is hereby agreed that the completion of the project under the terms of the agreement refers to entire gamut of activities which shall include but not be limited to the construction, development, marketing, sale promotion and sale etc. of the project. All expenses except those payable as statutory fee or technical consultants for obtaining the project related approvals shall be borne by Saamag. 8.2.4 Saamag further agrees and undertakes that Saamag shall obtain the approvals, sanctions required for the commencement and effective completion of the project within a period of six months from the date of execution of this agreement or such other further extended period mutually agreed by the parties. Any failure of Saamag, either individually or collectively, to obtain the aforesaid sanctions, approvals, permits, licenses, etc. shall result in the reduction/dilution of voting rights of Saamag by 10% and profit share by 5% and the same 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 attorneys 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 negligence in contravention of this agreement by SCL, and/or on the part of its officers, directors, employees and agents, (c) as a consequence of the third party claims against or legal dues or any nature on SCL in connection with the subject matter of this agreement, or (d) infringement of intellectual property of SPV caused by SCL. 10.7 The aforesaid shareholders agreement was the main agreement and after that, further agreements were also made between the parties as and when the appellants acquired the land and such agreements in the year under consideration were dated 29th September 2007 and 19th October 2007. Whatever the sale considerations had been fixed under the shareholders agreement, the appellants had credited the same to the advance account in its books because they were of the view that keeping into consideration the overall terms of the contract, the agreement was in respect of the transfer of development rights together with land and because on the date of agreement, the stipulated land was not approved by GDA for development purposes in terms of UP Urban Planning & Development Act, 1973, no development rights can be said to have accrued to the appellants. This sale consideration has been appropriated by the appellant in subsequent years as and when the GDA had granted the approval. The assessees stated that the approval has been granted by GDA not in one go but in piecemeal basis and accordingly as and when GDA granted the approval for the development of the land, the proportionate sale consideration have been appropriated and the profits have been disclosed by the appellants in subsequent years, viz. 2010-11, 2013-14 and 2014-15. However, the AO was of the view that because as per clause 3.1.2 of the shareholders agreement the appellants land and development rights in collusion thereto have been got valued at Rs. 103.45 crores, which have been paid 60% in cash and 40% in terms of equity shares and fully convertible debentures and land vested in SPV, he inferred that because of possession of land has been given to SPV, hence it amounts to transfer in terms of section 2(47)(v) of the IT Act, as also observed by the Special Auditors so appointed and then the AO computed the profits on transfer of such development rights together with land in Assessment Year 2008-09 because the shareholders agreement has been made on 18th May 2007. 10.8 The AOs 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 Honble 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 contract and not with reference to only of few terms or with just one of the rights flowing therefrom as held by the Supreme Court in the case of State of Orissa vs. Titagarh Paper Mills Co. Ltd. in [1985] 60 STC 213. Mr. Rastogi stated that the Honble Supreme Court in the case of Titagarh Paper Mills (supra) observed that a chameleon may change it colour according to its surrounding, but a document is not a chameleon to change its meaning according to purpose of the statute with reference to which it falls to be interpreted. 10.10.1 Ld. Counsel of the assesee further stated that in the instant case, the AO has not considered the very shareholders agreement as a whole but only considered clause No. 3.1.2 of the agreement and ignored the other clauses of the agreement containing the various obligations, liabilities of the assessees flowing from the other clauses of the contract as well as also ignored the various prohibitive and penal clauses flowing from the contract which have to be faced by the appellants on account of any breach of the terms of the contract. The AO also fails to take into cognizance the clause 4.2.2 containing prohibition of withdrawals of the amount in consideration within the lock in period till all the approvals and sanctions including completion certificate are received from the concerned authorities. The aforesaid shareholders agreement is a composite contract and indefeasible contract. 10.10.2 Ld. Counsel of the assessee further stated that having regard to the various clauses of the shareholders agreement, it was clear that under the agreement, it was the obligation of the consortium parties to provide fully developed land along with the approvals and permissions from the concerned statutory authority, i.e. GDA, and in case they fail to provide FSI, then they will be liable for penal consequences also. So unless and until the approval is granted and properly sanctioned by GDA, it cannot be imagined that any development rights have been accrued to the appellants. In the absence of such approval, no amount can be said to be due to the appellants without the development rights which can be said to have accrued only as and when the approval is granted by the concerned authorities. 10.10.3 Ld. Counsel of the assessee also stated that in the absence of an approval granted by GDA, no development rights can be said to have accrued 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 Honble 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 Transfer of Property Act and held that after the commencement of Amendment Act, 2001, in the absence of registration of such documents with the Registration Authorities, these documents cannot be considered to be a document of the nature referred to in section 53A of the Transfer of Property Act and in such situation the allowing of any possession to the transferee is immaterial. 10.10.5 Ld. Counsel of the assessee pointed out that the provision of section 2(47)(v) of the IT Act has been brought to the Statute Book by the Finance Act, 1987 with effect from 1st April 1988 and prior to that it has been consistently held by various High Court and the Supreme Court including the Jurisdictional High Court that the taxability in respect of transaction relating to immovable property accrued or arisen in the year in which the sale deed has been registered irrespective of allowing of the possession of the property at an earlier date. Such law was held in the following cases: Alapati Venkata Ramaya vs. CIT 57 ITR 185 (SC) CIT vs. Meatles Ltd. 84 ITR 37 (SC) CIT vs. Hindustan Cold Storage & Refrigeration Pvt. Ltd.
103 ITR 455 (Del) Ghansham Dass Krishan Chander vs. CIT 121 ITR 121 (AP) Ld. Counsel of the assessee further stated that now after amendment made in the Registration Act by the Amendment Act, 2001 by way of insertion of Section 17(1A) of the Registration Act, same position again prevails and such law has been declared by the Honble Supreme Court in the case of Balbir Singh Maini (supra). 10.11 On the contrary, Ld. CIT (DR) stated that during the course of search conducted in the above group of cases on 29.01.2009, Mr. Dinesh Pandey admitted to have surrendered undisclosed income of Rs.81.13 crore and accordingly the addition as made by the AO deserves to be made and for this purpose he relied upon 234 Taxman 771 Kishore Kumar vs. CIT and also 351 ITR 143 Bhagirath Agarwal vs. CIT. Ld. CIT(DR) further stated that during the course of search, a profit & loss account was seized which has been reproduced at page 28 of the assessment order, wherein the assessee himself has worked out the profit on sale of land and development rights which clearly shows that the assessee has admitted the profitability on transfer of such development rights and land. Now the assessee cannot take the plea that there is no income on transfer 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 Year 2008-09 wherein the shareholders agreement has been made. 10.13 However, in rejoinder Ld. Counsel of the Assessee stated that as far as the surrender alleged to have been made during the course of search, it was made under pressure and under some ignorance and misconception of law and that is why later on the assessee had retracted from the same looking into the legal positions, which came to his notice about the year of accruality of income on transfer of development rights and land. Ld. Counsel of the assessee also stated that even the AO has not proceeded based on the surrender so made but he proceeded independently and at this moment the Revenue cannot justify its case based on the alleged surrender. 10.14 Ld. Counsel of the assessee further stated that as far as the registration with GDA is concerned, the same cannot amount to registration as contemplated u/s 17(1A) of the Registration Act, 1908, meant for compulsory registration of transfer of immovable property governed by the Transfer of Property Act with the Registration Authorities. The registration with GDA of the consortium parties has no relevance for the purpose of determination of the year of taxability. So much so, the AO is not fastening any liability on the basis of the said consortium agreement but he is fastening the liability based on the shareholders agreement dated 18th May 2007 which has no connection with the registration with GDA. The Honble Supreme Court in the case of Balbir Singh Maini has considered such joint development agreement in relation to the land in terms of section 2(47)(v) of the IT Act for the purpose of levy of tax.
11. We have both the parties and perused the relevant records. We are of the view that the whole issue relates to the interpretation of the provisions of section 2(47)(v) of the IT Act which defines the transfer required to be considered under the law for the purpose of levy of tax. For the sake of clarity, we are reproducing Section 2(47)(v) of the IT Act as under: 2(47)(v) Any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (4 of 1882). 11.1 After perusing Section 2(47)(v) of the IT Act, we find that it deals with such transaction which involves the allowing of the possession of the property. After perusing the records, we find that recently, the Honble 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 Honble 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 the said section 53A of the Transfer of Property Act. The Honble Supreme Court, after considering the provision of section 2(47)(v) of the IT Act read with section 53A of the Transfer of Property Act and section 17(1A) of the Registration Act at pages 548-549 observed as under:
20. The effect of the aforesaid amendment is that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of Section 53A. In short, there is no agreement in the eyes of law which can be enforced under Section 53A of the Transfer of Property Act. This being the case, we are of the view that the High Court was right in stating that in order to qualify as a "transfer" of a capital asset under Section 2(47)(v) of the Act, there must be a "contract" which can be enforced in law under Section 53A of the Transfer of Property Act. A reading of Section 17(1A) and Section
49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of, for the purpose specified in Section 53A. The ITAT was not correct in referring to the expression "of the nature referred to in Section 53A" in Section 2(47)(v) in order to arrive at the opposite conclusion. This expression was used by the legislature ever since sub-section (v) was inserted by the Finance Act of 1987 w.e.f. 01.04.1988. All that is meant by this expression is to refer to the ingredients of applicability of Section 53A to the contracts mentioned therein. It is only where the contract contains all the six features mentioned in Shrimant Shamrao Suryavanshi (supra), that the Section applies, and this is what is meant by the expression "of the nature referred to in Section 53A". This expression cannot be stretched to refer to an amendment that was made years later in 2001, so as to then say that though registration of a contract is required by the Amendment Act of 2001, yet the aforesaid expression "of the nature referred to in Section 53A" would somehow refer only to the nature of contract mentioned in Section 53A, which would then in turn not require registration. As has been stated above, there is no contract in the eye of law in force under Section 53A after 2001 unless the said contract is registered. This being the case, and it being clear that the said JDA was never 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 the Honble Supreme Court, the provisions of section 2(47)(v) of the IT Act are not applicable to the transactions embodied in the shareholders agreement dated 18th May 2007 as well other agreements dated 29th September 2007 and 19th October 2007 because all agreements are unregistered agreements and accordingly no liability of tax can be fastened on the appellant merely on the basis that the possession of the land has been handed over by the appellant. Under the law, the appellant continues to be the owner of the land and has at no stage purported to transfer the rights taken to ownership to the SPV. 11.3 In the case of Balbir Singh Maini (supra), the Honble Supreme Court, even after declaring that in the absence of registration of the joint development agreement u/s 17(1A) of the Registration Act, the provision of section 2(47)(v) of the IT Act is not applicable even if the possession has been handed over, has also examined the issue with reference to sections 4 and 5 of the IT Act on the point of accruality of income. The Honble Supreme Court at pages 550-552 of the Report observed as under:
24. The matter can also be viewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must "arise" on the assumption that there is transfer of a capital asset. This income must have been received or have "accrued" under Section 48 as a result of the transfer of the capital asset.
25. This Court in E.D. Sassoon & Co. Ltd. v. CIT AIR 1954 SC 470 at 343 held: "It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro; See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [(1946) 1 AER 532 at p. 539], and Webb v. Stenton, Garnishees [11 QBD 518 at p. 522 and 527]. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him."
26. This Court, in Commissioner Of Income Tax v. Excel Industries Limited . [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 might, in certain circumstances, have been made in the books of account." The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC
451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered the dictionary meaning of the word "accrue" and held that income can be said to accrue when it becomes due. It was then observed that: (page 340) ". the date of payment does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately." This Court further held, and in our opinion more importantly, that income accrues when there "arises a corresponding liability of the other party from whom the income becomes due to pay that amount". 11.4 It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 11.5 As far as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is, therefore, not the income of the assessee. 11.6 In view of the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction 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 of the Income Tax Act. 11.7 In the present case also, on careful consideration of the shareholders agreement, it is clear that 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. 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 view of the facts and circumstances of the case as explained above, the ground raised by the assessees relating to taxation of profits on transfer of development rights together with land is allowed. Ground No. 4 of all appeals relates to admissibility of land development expenses.
12. The Ld. Counsel of the assesses stated that the adjudication of this ground also arises out of construction of the said shareholders agreement dated 18th May 2007. The assessees counsel stated that after development agreement was entered by the lead member, Saamag Construction Ltd., with GDA on 23rd February 2007 for the development of integrated township over 72.90 acres of land located at Village Shahpur Bameta, Ghaziabad for which huge finances were required for the development of the integrated township, the consortium parties, i.e. the assessees, entered into a share-holders agreement with a financial partner M/s SARE Cyprus SPV3 Ltd. As per the shareholders agreement, the object of the transfer of the land was fully developed and approved land as is clear from the various terms and conditions embodied in the agreement. 12.1 One of the conditions as contained in clause 8.2.8 of the agreement that all the expenses payable towards leveling of land, land filling etc. shall be borne by the consortium parties and under this obligation the appellant had to incur the expenses in relation to the leveling and land filling of the land in desirable conditions and for this purpose whatever expenses have been incurred, they were debited under the work in progress (WIP) account and have been duly shown in asset side of the balance sheet. However, because the AO was of the view that the profits in relation to the development rights together with land have been accrued on the date of shareholders agreement as the possession has been handed over on the date of agreement. Therefore, for working out the profits in relation to the price of development rights together with land, the AO has also considered the land development expenses. However, the AO did not reduce the cost of land development expenses as incurred by the appellant from the consideration of development rights together with land because he was of the view that:
(i) the party to whom the payments have been made is a bogus party as the summons issued were returned unserved by the Postal authorities with the ground 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 appellants were under obligation to provide overall developed land in all respects including leveling and land filling etc. and the expenses for the leveling and land filling had to be borne by the assessees. 12.3 As far as the disallowance of such expenditure by the AO merely on the ground that such expenditure have been incurred by the appellants after the transfer of land, it is submitted by the assessee that though the appellants had not transferred the development rights together with land on the date of shareholders agreement due to non-availability of the approvals/permissions from the competent authorities, but otherwise the agreement was in respect of the fully developed land and the consortium parties were under obligation to provide leveled land and the expenses in relation to the leveling and land filling etc. had to be borne by the appellants. Therefore, if it is held that the profits in relation to the transfer of development rights and land are being taxed in the Assessment Year 2008-09, then such expenses as incurred by the consortium parties are required to be reduced out of the consideration fixed for development rights together with land and because the appellants were under obligation to bear such expenses and the same deserve to be deducted for the determination of profits, and for this purpose the assessees counsel relied upon the Honble Supreme Court judgment in the case of Calcutta Co. Ltd. vs. CIT in 37 ITR 1. 12.4 On the contrary, Ld. CIT (DR), relied upon the order of AO and Ld. CIT (A). 12.5 After hearing both the parties and perusing the relevant records, we agree with the contention of assesses counsel that such land filling expenses incurred by the appellants in terms of clause 8.2.8 of the shareholders agreement are to be deducted from the consideration fixed for the development rights together with land because as per the agreement they had to bear such expenses as also held by the Honble Supreme Court in the case of Calcutta Co. Ltd. (supra). But 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 agreement dated 18th May 2007 cannot be taxed in Assessment Year 2008-09 in the absence of registration u/s 17(1A) of the Registration Act, 1908. Hence it is not necessary to decide the issues involving 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 Rs.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 also the various obligations had also been fixed which includes the timely acquisition of the balance land, getting approvals and sanctions from the competent statutory authorities for the development of land as well as the specified project area required for the development of the integrated township. All the expenses in relation thereto had to be borne by the appellants. The failure to comply with such obligations would result into breach of the terms of the agreement and the appellants had to face the penal consequences also. 13.2 Under the shareholders agreement, it was further provided that till the assessees obtained the approval from the competent authorities with regard to the development of the land as well as the completion certificate and till final release made, no amount could be withdrawn by the assesses. 13.3 The assessees counsel stated that looking into the terms and conditions of the shareholders agreement, it is clear that the agreement was an executory agreement involving delivery of the approved land in all respects to the SPV and till the approval is granted by the competent authorities and obligations are fulfilled, no rights can be said to have accrued to the assessees for the appropriation of the amount. In other words, such rights and obligations as accrued to the assessees under shareholders agreement were totally linked with the lands owned by the appellants. In view of such rights and obligations, the assessees credited the interest accrued on debentures, which were issued against the advance price of the land in terms of agreement in work in progress account, thereby reducing the cost of work in progress (WIP) as required to be incurred in relation to the approved developed land. This accounting policy resulted into the reduction of WIP expenses and increase in corresponding profits of the appellants as and when the profits in relation to the transaction are factually chargeable to tax in subsequent years and offered by the appellants after the approval by the competent authorities and legally a revenue neutral exercise. For this purpose, the appellants relied upon the judgment of the Supreme Court in the case of CIT vs. UP State Industrial Development Corporation in 225 ITR 703. 13.4 The Ld. CIT (DR), though relied upon the order of the AO and Ld. CIT(A) and stated that the accrual of interest in respect of the debentures 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 is made and the profits have been offered by the assessees. 13.6 In the case of UP State Industrial Development Corporation (supra), the said assessee used to underwrite the public issue of shares of various companies against which it was entitled to receive underwrite commission and in case the public issues are not subscribed, then it had to subscribe the shares of companies. The said assessee did not credit the commission to profit & loss account but used to reduce cost of the shares. The Tribunal held that such practice is in consonance with the accounting policy, and the High Court and the Honble Supreme Court affirmed the finding of the Tribunal. Therefore, the additions in dispute are deleted. Grounds No. 10 to 13 in ITA No. 3582/Del/2014: Grounds No. 6 to 9 in ITA No. 3617/Del/2014: Grounds No. 6 to 9 in ITA No. 3618/Del/2014: Grounds No. 11 to 15 in ITA No. 3655/Del/2014:
14. The aforesaid grounds relate to the issue with regard to the deemed dividend. The assesses are the group companies and are in the business of real estate development and were in the process of execution of various real estate projects including an integrated township at Village Shahpur Bameta, Ghaziabad. All the group companies maintained current account with each other and transferred the money as and when needed to each other. During the year under consideration also, the assessee had transferred certain money to other group companies and similarly the other group companies had also transferred certain money to the appellant from time to time as and when need arose. 14.1 The AO was of the view that because the assessee had made advances to its sister concerns and the shareholders are common shareholders, hence whatever advance has been made by the assessee to other concerns having common shareholders, the same has to be assessed as deemed dividend u/s 2(22)(e) of the IT Act and then made the additions on protective basis in the hands of payer company, i.e. the assessee. 14.2 However, on appeal the Ld. CIT(A) accepted the assessees arguments that as far as deemed dividend as contemplated u/s 2(22)(e) of the Act is concerned, the same cannot be considered in the hands of payer company and then deleted the additions as made by the AO. 14.2.1 However, looking into the accounts, the Ld. CIT (A) noticed that the assessee-company had received 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 assessee- companies 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 the provision of section 2(22)(e) of the IT Act.
(iii) The provision of section 2(22)(e) of the IT Act is a deeming provision. Hence the deeming provision should be construed strictly and be confined and limited to the purpose for which they are created and should not be extended beyond their legitimate field as held by the Supreme Court in the case of CIT vs. Vadilal Lalubhai in 86 ITR 2 and 181 ITR 1 (Kerala), CIT vs. P.V. John.
(iv) In the case of CIT vs. Sarathy Mudaliar in 83 ITR 170, the Honble Supreme Court 14.3.1 In the case of CIT vs. Sarathi Mudaliar in 83 ITR 170, the Honble Supreme Court, while considering the provision of Section 2(6A)(e) of the Indian Income-tax Act, 1922 (which is parimateria to Section 2(22)(e) of the IT Act), observed as under: Sec 2(6a)(2) gives an artificial definition of dividend. It does not take in dividend actually declared or received. The dividend taken note of by that provision is a deemed dividend and not a real dividend. The loan granted to a shareholder has to be returned to the company. It does not become the income of the shareholder. For certain purposes, the Legislature has deemed such a loan as dividend. Hence, sec. 2(6A)(e) must necessarily receive a strict construction . (p. 173). 14.3.2 The Honble Supreme Court, while considering the provision of Section 2(6A)(e) of the Indian Income-tax Act, 1922, which is parimateria to the provisions of Section 2(22)(e) of the IT Act, in the case of Navneet Lal C. Javeri vs. K.K. Sen, AAC in 56 ITR 198 at pages 207-208 of the Report had judicially noticed the purpose and the object of the insertion of such provision under the IT Act in the following words: In dealing with Mr. Pathaks argument in the present case, let us recall the relevant facts. The companies to which the impugned section applies are companies in which at least 75 per cent of the voting power lies in the hands of persons other than the public, and that means that the companies are controlled by a group of persons allied together and having the same interest. In the case of such companies, the controlling group can do what it likes with the management of the company, its affairs and its profits within the limits of the Companies Act. It is for this group to determine whether the profits made by the company should be distributed as dividends or not. The declaration of 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. Similarly, section 12(1B) provides that if a controlled company adopts the device of making a loan or advance to one of its shareholders, such shareholders will be deemed to have received the said amount of the accumulated profits and would be liable to pay tax on the basis that he has received the said loan by way of dividend. It is clear that when such a device is adopted by a controlled company, the controlling group consisting of shareholders have deliberately decided to adopt the device of making a loan or advance. Such an arrangement is intended to evade the application of section 23A. The loan may carry interest and the said interest may be received by the company; but the main object underlying the loan is to avoid payment of tax. 14.3.3 It has been consistently held by the various High Courts and the Tribunals that the business transactions are not covered by the provision of Section 2(22)(e) of the Act. The payments under business transaction are outside the purview of the provision of Section 2(22)(e) of the Act.
177 ITR 393 (Bom), CIT vs. Nagindas M. Kapadia
173 Taxman 407 (Del), Ambassador Travels vs. (2005) 1 SOT 142 (Mum), Seamist Properties Ltd. vs. ITO (2007) 11 SOT 302 (Mum), M.S. Securities Ltd. vs. DCIT ITA No. 3036/Del/2005, Delhi Tribunal Bench order dated 9th May 2008 in the case of Creative Dyeing & Printing Pvt. Ltd. vs. ITO which has been affirmed by Delhi High Court reported in 318 ITR 476 (Del). 14.3.4 Under the provisions of section 2(22)(e) of the IT Act, the legislature has uses the expression by way of advances or loans which shows that it is not all the payments received from the sister company was to be treated as deemed dividend but only the payments which bear the characteristics of loans and advances are to be considered under the provisions of Section 2(22)(e) of the IT Act. Under the law, all the loans and advances are debts, but all debts are not loans and advances as contemplated u/s 2(22)(e) of the IT Act. 14.3.5 Under the Income-tax Act, the term loans and advances has not been defined. Hence, it has to be understood in commercial sense and in the manner in which the Court has interpreted the same. The expression loan was under consideration before the various Honble High Courts and the Honble Supreme Court of India. 14.3.6 In the case of Baidya Nath Plastic Industries (P) Ltd. & Others vs. K.L. Anand, Income Tax Officer in 230 ITR 522, the Honble 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 Honble 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 Honble 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. 14.3.9 In the case of Durga Prasad Mandelias vs. Registrar of Companies (1987) 61 Companies Case 479, the Bombay High Court held as under: There can be no controversy that in a transaction of a deposit of money or a loan, a relationship of a debtor and credit must come into existence., The terms deposit and loan may not be mutually exclusive, but nonetheless in each case what must be considered is the intention of the parties and the circumstances. In the present case, barring the assertion of the respondent that the moneys advanced by the company to the Associated Cement Companies Ltd. constitute a loan and offend section 370 of the Companies Act, there is nothing else to show that these moneys have been advanced as a loan. In the context of the statutory provisions, the word loan may be used in the sense of a loan not amounting to a deposit. The word loan in section 370 must now be construed as dealing with loans not amounting to deposits, because, otherwise, if deposit of moneys with corporate bodies were to be treated as loans, then deposits with scheduled banks would also fall within the ambit of section 370 of the Companies Act. Therefore, moneys given by the company to other bodies corporate is a loan within the meaning of section 370 of the Companies Act must be negatived. Therefore, the petitioners would well be entitled to the relief. 14.3.10 The expression loans & advances has also been used in the Interest Tax Act. Under the Interest Tax Act, the tax is leviable on interest. The interest has been defined under Interest Tax Act under section 2(7) of the Act in following words: (7) interest means interest on loans and advances made in India and includes (a) commitment charges on unutilized portion of any credit sanctioned for being availed of in India; and (b) discount on promissory notes and bills of exchange drawn or mode in India; but does not include
(i) any amount chargeable to income-tax, under the Income Tax Act, under the head Interest on Securities;
(ii) discount on treasury bills; (and)
(iii) interest on any term loan sanctioned before the 18th day of June 1980 where the agreement under which such loan has been sanctioned provides for the repayment thereof during a period of not less than three years. Explanation. For the purposes of this sub-clause, 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 Ltd. vs. S.K. Bhardwaj
87 ITD 11 (Del) PN Bank vs. DCIT
115 ITD 218 (Ahd) (SB) Gujarat Gas Finance Service Ltd. v. Assistant Commissioner of Income Tax. [2006]5 SOT 918 (Delhi)(SB) Housing & Urban Development Corporation Ltd. vs. JCIT 14.3.12 In the case of Creative Dyeing & Printing Pvt. Ltd. in ITA No. 3036/ Del/2005, the Delhi Bench, ITAT vide order dated 9.5.2008 has held that if the amount received by the recipient company as investment from the payer company, then such amount will not be a loan and advance as contemplated u/s 2(22)(e) of the IT Act. The order of the Delhi Bench of the ITAT in case of Creative Dyeing & Printing Pvt. Ltd. has also been upheld by the Delhi High Court in CIT vs. Creative Dyeing & Printing Pvt. Ltd. in 318 ITR 476. 14.3.13 Section 2(22)(e) of the IT Act only considers those amounts which are having the characteristic of loans and advances. In the instant case, a transaction between the group concerns is not having a character of loans and advances but these are the current accounts. The transactions in current accounts are also outside the purview of section 2(22)(e) of the IT Act as held in the following cases:
28 SOT 383 (Mum Trib) Bombay Oil Industries Ltd. vs. DCIT
367 ITR 78 (P&H) CIT vs. Suraj Dev Dada
167 ITD 100 (Mum Trib) Ravindra R. Fotedar vs. ACIT IT Appeal Nos. 958 & 959 of 2015 dated 21.12.2015 DCIT vs. Schutz Dishman Biotech (P) Ltd. (Guj) 14.3.14 Under the provisions of section 2(22)(e) of the IT Act, the expression used is company in either case possesses accumulated profits. In the case of Bhim Singh Jaipur vs. ACIT in ITA No. 89/JP/2008 as well as in the case of Madhuwanti Singh Jaipur vs. ACIT in ITA No. 88/JP/2008 reported in 42 Taxword 132, it has been held by the Tribunal, after considering the judgment of Delhi High Court in the case of R. Dalmia vs. CIT in 133 ITR 169, the expression possess means that there must be physical availability of the accumulated profits capable of disbursement and in case if the investment made by the payer company in their assets are already more than the accumulated profits shown in balance sheet, then it cannot be said that payer company possesses accumulated profits. In the instant case, all the payer companies are having investment in the real estate more than their accumulated profits 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 Honble 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 Oil Industries Ltd. vs. DCIT reported in 28 SOT 383 and Ravindra R. Fotedar vs. ACIT in 167 ITD 100. 14.5.2 Keeping into consideration such position of law, we hold that the additions as made by the CIT (Appeals) in terms of section 2(22)(e) of the IT Act are not correct because such amounts received cannot be considered as loans and advances. Even otherwise also, the payer companies had already made their investment in capital field more than the accumulated profits and in that situation it cannot be considered that those companies were having physical possession of accumulated profits capable of being disbursed. Therefore, the additions in dispute stand deleted. Grounds No. 5 to 8 in ITA No. 3582/Del/2014:
15. There were certain transactions between the assessee and its group concern M/s Saamag Construction Ltd. The Special Auditors, after noticing such transactions, had inferred that it amounts to cash payment u/s 40A(3) of the IT Act and advised to make the addition of Rs.26 lakhs. The AO on such advice made the addition of Rs.26 lakhs u/s 40A(3) of the IT Act. 15.1 Ld. Counsel of the assessee stated that the assessee and the other company were involved in the business of real estate development at Village Shahpur Bameta, Ghaziabad and for this purpose there were requirements of funds for acquisition of land and other business purposes. During the course of business, monies were transacted between the group companies depending upon the exigencies of the business. The amount of Rs.26 lakhs represents repayment of monies by the assesse to M/s Saamag Construction Ltd. against its existing credit balance in the books of the appellant and not for any expenditure incurred. Even the Special Auditor himself has observed that these transactions are on account of repayment of monies to Saamag Construction Ltd. and accordingly he pleaded that the addition so made by the AO and sustained by Ld. CIT (A) deserves to be deleted because they had not appreciated the actual facts in proper perspective. On the other hand, the CIT (DR), relied upon the orders of the authorities below.
16. On hearing both the parties and perused the relevant records, we are of the view that the provision of section 40A(3) of the IT Act is applicable when any expenditure has been incurred and claimed by way of debiting to the profit & loss account. In the present case, the assessee had not claimed the expenditure of Rs.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 Rs.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 Rs.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 Rs.1,46,02,000/- under the head Legal and Documentation Expense to increase the share capital of SVP from Rs.10 lakhs to Rs.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 profits, as accrued from the transfer of development rights together with land, the cost of the land as well as the WIP has to be taken into account. The AO noted that the expenses incurred in relation to the increase in share capital is a capital expenditure as held by the Honble Supreme Court in the case of Punjab State Industrial Development Ltd. vs. CIT in
225 ITR 792 as well as in the case of Brook Bond India Ltd. vs. CIT in 225 ITR 798 and accordingly the same cannot be allowed as deduction out of the profits accrued on account of transfer of development rights together with land. Accordingly, the AO disallowed the same though the appellant has not specifically claimed the same by way of debiting to the profit & loss account. 17.1 Ld. Counsel of the assessee stated that the assessee had not claimed such expenditure in its profit & loss account and because the profits from the transfer of development rights together with land have to be accrued and determined in the year in which the approval is received by the appellant from the competent authorities, therefore if any disallowance has to be made, that has to be made in subsequent years while computing the profits from development rights together with land as and when it has to be determined, but he stated that such expenses had not been incurred for the increase in authorized share capital of the company but have been incurred for the increase in the authorized share capital of the SPV in terms of shareholders agreement dated 18th May 2007 but had to be borne by the appellant and were incurred on account of commercial expediency as certain other benefits have also been given to the appellant under the agreement. 17.2 On the contrary, Ld. CIT(DR) stated that this ground requires adjudication only in those circumstances if it is held that the profits on development rights together with land are taxable in the year under appeal. However, he stated that on merits such expenditure is a capital expenditure as held by the Supreme Court in the case of Punjab Industrial Corporation Ltd. (supra). 17.3 After hearing both the parties and perusing the records, 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 (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 Rs.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 Rs.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 measuring 10.39618 acres. As per the shareholders agreement dated 18th May 2007, the said SRPL was converted into Special Purpose Vehicle (SPV) and later the name changed to SARE Saamag Realty Pvt. Ltd. after the introduction of the other financial partner M/s SARE Cyprus SPV3 Ltd. 18.1 The assessee states that all receipts are not income, it is only those receipts which have the characteristic of income is chargeable to tax as held by Supreme Court in the case of Parimisetti Seetharamamma vs. CIT in 57 ITR 532. The assessees counsel stated that no doubt in the shareholders agreement it is shown as settlement of debt in favour of the assessee, but in fact it represents the revaluation of land owned by SRPL itself but recovered from SARE while settling the rights and liabilities in relation to the land owned by SRPL, which have been ultimately made SPV, forming part of overall land of the integrated township measuring 72.9 acres, i.e. FSI of 34,94,371 sq ft at the time of joining f the agreement. Such mechanism was adopted because of the reason that under the shareholders agreement, the SRPL, the group company, was made SPV and this land of 10.39618 acres of land has been debited at cost in the books of SRPL and once the SARE would join the SRPL, it would be benefited without any efforts. To prove this fact, the assessee filed a chart showing how the figure of settlement of debts with reference to the development rights together with land owned by SRPL has been worked out. It has been worked out on the same price which has been valued in relation to other land owning group companies in terms of clause 3.1.2 of the shareholders agreement dated 18th May 2007. 18.2 On the basis of such facts, the assessee contended that in the shareholders agreement, though it has been given the colour and nomenclature as the settlement of debts, but in fact it is a capital receipt not liable to tax as the land remained in SRPL. 18.2.1 Ld. Counsel of the assessee further stated that even otherwise also, this amount is not taxable in the year under appeal. He stated that as per the shareholders agreement, it was the ultimate liability of Saamag Construction ltd. who was made a lead member for the consortium agreement to obtain the approval and licence etc., to provide 34,94,371 sq ft FSI area, which is clear from clause 3.1.10 of the shareholders agreement, which contains the penal 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 Rs.5,68,31,602/- of Saamag Construction Ltd. be settled at Rs.29,65,05,370. Such agreed amount of alleged development rights together with land of 10.39618 acres has been agreed to be paid not in the form of cash but in the form of shares and fully convertible debentures. 18.2.2 In order to secure SARE, it was further agreed that such amount will also be subjected to prohibitive clause contained in clause 4.2.2 of the shareholders agreement which prohibits the withdrawal of the amount which reads as under: 4.2.2 It is agreed that the contribution of the parties of the first part and DP towards the capital of the SPV, shall, individually and jointly, remain in lock in period till the time Saamag has undertaken all the statutory and other compliances and obtained all the necessary approvals, sanctions, permissions etc. from the appropriate Government, governmental bodies and agencies required by the SPV to undertake the development and construction of the project and final sale of the units without need and as part of the project to the prospective buyers, to the satisfaction of SARE. 18.2.3 On the basis of the terms and conditions contained in clause 4.2.2 of the agreement, the appellant states that till such conditions as contained in clause 4.2.2 are completed on the part of the appellant and that too till the satisfaction of SARE, no debt can be said to have accrued to the appellant with this amount and because the appellant has no control over the amount, no income can be said to have accrued to the appellant. The appellant states that such an amount is under the control of SPV of which the SARE has become part of that. The assessee states that under the law, real income can be assessed to tax as held by the Honble Supreme Court in the case of Poona Electric Supply Co. Ltd. vs. CIT in 57 ITR 521. 18.2.4 The assessees counsel stated that even the entries made in the books of account do not fasten any liability on the assessee unless the right to receive the amount under the law accrued to the assessee and for this purpose the appellant relied upon the case of Godhra Electricity Co. Ltd. vs. CIT in 225 ITR 746 (SC) and the appellant pleaded that such amount of settlement of debts would be finally taxable in the year as and when all the liabilities and obligations, as contained in various clauses of the agreement, are completed and that too, with the satisfaction of SARE. In the alternative, the appellant states that in case the Honble Court holds the taxability of settlement of debts against the appellant, 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 Rs.1,46,02,000/- and loss on wrong registry amounting to Rs.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 the total FSI area of 32,94,371 sq ft has no relevance for determination of the dispute. 18.4 After hearing both the parties and perusing the records, and after considering the chart provided by the assessees counsel for arrival of the figure of settlement debt, it is clear that this issue also relates to the development rights together with land owned by SRPL, which has been made SPV under the agreement. To our mind, basically it amounts to revaluation of the assets owned by SRPL in order to settle the amount recoverable from SARE, who has become a financial partner in SRPL at a later date by virtue of shareholders agreement, though under the law the difference between the revaluation and actual cost is not chargeable to tax, but the problem arises when this amount has been agreed to be paid to the assessee because of the amount provided by the assessee to SRPL for purchase of the stipulated lands as well as to bear all the expenses to be incurred in getting the approval and sanction of the land required from the competent authorities to develop the integrated township. Now the question arises whether it is a capital receipt in the hands of the appellant or a revenue receipt. If it is a revenue receipt, then in which year it is taxable. If we look from the angle of the revaluation of the assets, which appears to be correct as per the calculation provided by the assessee because no prudent businessman would settle the debt of Rs.5,67,31,000/- provided in the years 2005 to 2007 at a hefty figure of Rs.29,65,05,370/- because the rate of interest prevalent in those very years ranges from 10% to 15% and not more than that. However, even otherwise also, as held above in respect of transfer of development rights together with land, the same cannot be taxed in the year under appeal due to the prohibitive clause contained in 4.2.2 of the shareholders agreement and so much so even the said fund was not under control of the appellant for its disposal till all the formalities are completed, and that too, to the satisfaction of SARE. 18.4.1 Recently the Honble Supreme Court in the case of CIT vs. Modipon Ltd. in [2017] 87 taxmann.com 275 had examined the theory of control and held that if an amount is not under the control of the person concerned, but in the control of third party and without the permission of that very party, the assessee cannot withdraw 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 year under appeal and out of the balance amount of so-called settlement of debt whatever amount the appellant has incurred on legal expenses of Rs.1,46,02,000/- for increase in authorized capital of SRPL and loss on wrong registry expenses Rs.1,43,64,501/- incurred in relation to the land of SRPL be excluded and the residual amount be treated as capital receipt not liable for tax. However, such amount of Rs.1,46,02,000/- legal and documentation expenses and wrong registry expenses Rs.1,43,64,501/- will not form part of WIP as claimed by the appellant against development rights together with land as discussed above. As a result, this ground is partly allowed. 18.5 In the result, all the Assessees Appeals are partly allowed. Revenues Appeal in the case of DCIT VS. PYRAMID REALTORS PVT. LTD. in ITA NO. 3689/DEL/2014 (AY 2008-09)
19. Facts narrated by the Revenue authorities are not disputed here, being identical and similar to the aforesaid cases as discussed above in Assessees Appeal. Therefore, the same are not being repeated here for the sake of brevity. With regard to ground no. 1 relating to upholding the addition of Rs. 27,15,597/- made by the AO on account of unexplained expenditure u/s. 69C of the Act ignoring the fact that the disallowance was made on the basis of seized material is concerned, we find that during the course of search which took place on 29th January 2009, certain seized papers were found placed at Pages B1/A5, 69, 72 and 73. On the top of the papers seized, the expression mentioned is "as on 18th September 2005". On perusal of the papers, it appears that these relate to purchase and sale of land wherein the name of sellers as well as the amount and other expenses are mentioned. The amount consisted of in the form of cheque amount as well as the cash amount. The Special Auditor and the Assessing Officer considered that certain items pertain to the assessee under appeal and the items which have been considered in the hands of the assessee are at serials No.8, 19 and 24. On the basis of papers, the Auditors observed and followed by the Assessing Officer that the amount appears to have been paid in cash have not been found recorded in the books of account of the assessee and then thereafter the addition ofRs.27,15,597 /- was made. We note that assessee is in the business of real estate development and 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 material on record or gave a finding with cogent evidence contrary to that of the assessee. AO has not brought any independent corroborative material suggesting that the assessee has purchased such land and has made the payment as recorded in seized papers. Hence, in the absence of any such action by the AO. In view of above, Ld. CIT(A) has rightly deleted the addition in dispute, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the ground no. 1 raised by the Revenue. 19.1 Apropos ground no. 2 relating to upholding the addition of Rs. 7,59,73,060/- made by the AO on account of deemed dividend u/s. 2(22)(e) of the Income Tax Act, 1961 is concerned, we find that during the course of appellate proceedings, the assessees AR filed copies of appeal orders passed by the predecessor of the Ld. CIT(A) in the cases of M/s Saamag Construction Ltd., M/s Ssamag Infrastructure Ltd. and M/s Pyramid Realtors Pvt. Ltd., in respect of assessment years 2007-08, 2009-10 and 2009-10 respectively, the earlier Ld. CIT(A) had deleted the addition made by the AO u/s. 2(22)(e) of the Act on the identical issue as in the case of the assessee company during the year under consideration. Therefore, the present Ld. CIT(A) by respectfully following the orders of the earlier Ld. CIT(A), on the identical facts in the cases of the companies Saamag Group, deleted rightly the addition of Rs. 7,59,73,060/- made by the AO u/s. 2(22)(e) of the Act on protective basis in the case of the assessee, which does not need any interference on our part, hence, we reject the ground no. 2 raised by the Revenue. In the result, the Revenue appeal is dismissed.
20. In the result, all the 06 Appeals of the assessee are partly allowed and Revenues Appeal is dismissed, in the aforesaid manner.
21. Order pronounced on 12/01/2018. Sd/- Sd/- [H.S. SIDHU] [L.P. SAHU] JUDICIAL MEMBER ACCOUNTANT MEMBER SR BHATNAGAR Date: 12/01/2018. Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY By Order, Assistant Registrar, ITAT, Delhi Benches
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