Income Tax Appellate Tribunal - Mumbai
Sun Shine Realtors P. Ltd, Mumbai vs Department Of Income Tax on 4 December, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" BENCH, MUMBAI
BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND
SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
ITA no. 1233/Mum./2010
(Assessment Year : 2005-06)
Dy. Commissioner of Income Tax
Circle-8(3), Aayakar Bhavan
101, M.K. Road, Mumbai 400 020 ....................... Appellant
v/s
Sun Shine Realtors Pvt. Ltd.
Chandra Villa, Nehru Road
Vile Parle (E), Mumbai 400 057
PAN - AADCM6213B ................... Respondent
Revenue by : Mrs. Mithali Sridharan
Assessee by : Mr. Vijay Mehta
Date of Hearing - 28.12.2011 Date of Order - 13.01.2012
ORDER
PER J. SUDHAKAR REDDY, A.M.
This appeal preferred by the Revenue, is directed against the impugned order dated 4th December 2009, passed by the Commissioner (Appeals)-XVIII, Mumbai, for assessment year 2005-06.
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O. to allow the expenses u/s.37 without appreciating the facts of the case that the income is of the nature of capital gain and the A.O. had correctly taxed the same as capital gain.
2 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the accrued income of Rs.2,31,47,564/- as notional income and excluding it from tax net, without appreciating the facts of the case."
Facts in brief:-
2. The assessee is a company and is engaged in the business of undertaking real estate development and construction It filed its return of income for the assessment year 2005-06 on 28th September 2005, declaring total income of ` 6,32,86,190. The assessee purchased land at Lonawala and commenced construction during the year 2004-05.
3. As a part of its business, real estate dealings, development and construction, the assessee company associated along with another well-
known developer Naman for the purpose of joint bidders and allotment of plots of land at MMRDA. The Naman Group, through its concern Shree Naman Developer Ltd. (for short "NDL") and the assessee Sun Shine Realtors Pvt. Ltd. (for short "SRL") bid for three plots of land at MMRDA. Both the parties made applications to MMRDA as joint bidders in January 2004. Both the parties made initial deposits as required for bidding of plots. On 28th May 2004, MMRDA accepted the applications and in principle agreed to allot the plots which were three in numbers. In terms of the commitment given by the joint applicants as well as the requirements of MMRDA regulations SRL and NDL formed Special Purpose Vehicles (for short "SPV"), which were three companies. Each plot was agreed to be allotted by MMRDA to each of the SPVs. The names of SPVs were (i) Naman KBC Construction Pvt. Ltd. ("NCPL"); (ii) Naman BKC Realtors Pvt. Ltd. ("NRPL") and (iii) Naman BKC Properties Pvt. Ltd. ("NPPL"). All these three companies were floated around May 2004 and plots were allotted by MMRDA on 27th August 2004. The plot numbers were C-30, C-31 and C-32. As per the conditions mentioned in the letter of allotment, the joint venture partners had to pay 50% of the lease premium within the month of allotment while the balance were payable within a period of two months. The details of the assessee's stake in each of the SPVs is as follows:-
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ITA no.1233/Mum./2010
Plot no. SPV % of stake % of stake by Area of Plot
by assessee Naman Dev. (sq.mtrs.)
C-30 Naman BKC 90% 10% 4556
Construction
Pvt. Ltd. (NCPL)
C-31 Naman BKC 30% 70% 3443
Realtors Pvt.
Ltd. (NRPL)
C-32 Naman BKC 10% 90% 3443
Properties Pvt.
Ltd. (NPPL)
4. SRL and NDL executed joint venture agreement in respect of each of the SPV entity. As per the joint venture agreement, (i) both SRL and NDL had an obligation of contributing proportionately, premium amounts as well as construction cost in the event of the concerned joint venture company, decided to undertake development of the project; (ii) neither SRL nor NDL can offer its share holdings in the SPV for sale to any other persons, without the consent in writing of the other shareholder; (iii) in the event of the majority partner in the SPV deciding to exit from the project, thEn the majority partner could compel the minority partner to exit in favour of a new purchaser; (iv) if a minority share holder IN THE SPV is not desirous of meeting its obligation under the agreement, then it is required to offer its minority shareholding, to the majority shareholder at par, in case the majority shareholder was willing to undertake the development of the project. As is evident from the table given above, the assessee is a majority shareholder in NCPL and is minority shareholder in NRPL and NPPL.
5. The facts of the first issue before us are brought out by the Assessing Officer at Para-3.2/Page-3, of the assessment order. The same is extracted for ready reference:-
"3.2 As against the main object the circumstances which led to the receipt of gain of Rs.7.65 crores on sale of shares are described in brief as follow:
During the year the assessee formed a joint venture company namely Naman BKC Construction P Ltd alongwith another company Shree Naman Developers Ltd. The assessee company held 90,000 equity shares valued at Rs.9,00,000/- in the paid up capital of Naman BKC Construction P Ltd and the balance 10,000 shares valued at Rs.1,00,000/- were held by Shree Naman Developers Ltd. The joint venture company, Naman BKC Construction P Ltd was allotted a plot of 4 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 land admeasuring 4556.17 sq.metres situated at G Block Bandra Kurla Complex, Mumbai-400 051 by the Mumbai Metro Region Development Authority(MMRDA) on lease for a period of 80 years on payment of deposit of Rs.7,00,000/-. After allotment of the plot on 26.08.04, further premium of Rs.41,08,50,000/-was payable to MMRDA by Naman BKC Construction P Ltd. However instead of paying the premium and acquiring the allotted plot the assessee and Shree Naman Developers Ltd sold their respective shares holding to K Raheja Corporation P Ltd by way of an agreement for sale of shares made on 23.09.04. The assessee company received consideration Rs.860 per share from K. Raheja Corporation P Ltd. The total consideration received on this transaction is of Rs.7,74,00,000/-which as reduced by Rs.9,00,000 (cost of shares) resulted in gain of Rs.7,65,00,000/which has been credited to the profit and loss account as above. During the relevant financial year, the assessee also advanced loans on which the interest income earned by the assessee has been credited to the profit and loss account. In effect, the assessee has treated the income from the sale of the shares representing right to acquire the plot of MMRDA alongwith the attached development rights and the interest income earned by the assessee as business income.
3.3 Hence vide letter dated 20.0 1.2006 the then AO DCIT Range 8(3), Mumbai issued a show cause notice to the assessee as to why the income from sale of shares should not be treated as capital gains and interest should not be assessed under the head income from other sources as under:
"On verification of the audit report at para no.8, it is mentioned that you are engaged in the business of construction of building and developments, sales and delaying in real estate whereas in the profit and loss account you have shown sale of shares and net gain thereon at Rs.7.65 crores and interest on loan at Rs.16,09,563/- and debited various expenditure under various heads treating the same as business expenditure and business income.
Show cause why the income on account of shares should not be assessed as income from capital gains and interest under the head income from other sources."
6. Subsequently, after considering the contentions of the assessee, the assessing officer held that the assessee has not earned profit out of any regular activity which may be termed as "business". He observed that for the assessment year 2004-05, no income had been declared by the assessee in view of the fact that construction activity of the assessee has not commenced. According to the Assessing Officer, the assessee participated in a formation of a joint venture of a company by acquiring 90% share of the company and the assessee's right to acquire the plot of land are represented 5 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 by the assessee's shares in the joint venture company. He held that the profit accrued out of the sale of shares, is capital gains and not business income.
7. Coming to the second issue, the facts are brought out at Paras-4.1 and 4.2, of the assessment order, which is extracted as follows:-
"4.1 In addition to the aforesaid plot no. C-3D, the assessee had entered into 2 other agreements with Shree Naman Developers Ltd. for formation of 2 other joint venture companies for bidding plot no.C- 3 1 and C-32 at the same location in Bandra Kurla Complex. The holdings in these companies were transferred by the assessee company to associate companies of Shree Naman Developers Ltd after allotment of the plots at face value, unlike in the case of sale of its shares of M/s. Naman BKC Construction(P) Ltd(Plot No.C-30) to K Raheja Corporation P Ltd . Therefore, the assessee was asked to clarify this difference in pricing of its shares in the 3 joint venture companies by issue of letter dated 05.12.2007 as under:-
It is seen from the details furnished by you during the assessment proceedings, that you had entered into agreements with M/s.Naman Developers Ltd for forming 3 different companies which respectively bid for three plots of MMRDA and your shares in the said companies were transferred to other companies after allotment of the respective plots. The relevant details are tabulated as under:
Area / JV Company No.of shares Purchaser and
Plot No. Amount held by consideration
payable to Assessee/ received (Rs.)
MMRDA(Rs.) Face Value (` )
C-30 4556.16 Naman BKC 90,000(90%) K Raheja
sq. metres Constructions 9,00,000 Corporation
41,08,50,000 PLtd P Ltd
Rs.7,74,00,000/- @
` 860 per share
C-31 3443.04 Naman BKC 30,000(30%) SS Infrastructure(P)
sq. metres Realtors P 30,00,000 Ltd
32,32,08,000 Ltd 30,00,000 @Rs.10/-
per share
C-32 3443.04 Naman BKC 1,000(10%) SS Buildcon (P) Ltd.
Sq.mtrs Properties P. 10,000 10,000 @ ` 10 per
Ltd. share
28,00,08,000
In this connection, you are requested to furnish the following details/explanations:
6 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010
a) Why was no premium charged on sale of shares held by you in M/s.Naman BKC Realtors (F) Ltd and M/s.Naman BKC Properties (F) Ltd. which held the rights to purchase and develop plots no. C-32 and C-33 respectively, although the transaction of sale of shares held by you in M/s.Naman BKC Constructions P Ltd on the same date was done at a premium of Rs. 860 per share as against face value of Rs. 10 per share.
4.2 The assessee replied vide letter dated 14.12.2007 as under:
"As submitted to your honour 3,00,000 shares of Naman BKC Realtors Put Ltd (NRPL) and 1000 shares of Naman BKC Properties Put Ltd (NPPL) have been transferred by us to SS Infrastructure P Ltd(SSIFL) and S S Buildcori P Ltd (SSBPL)at par value. In this regard we have already furnished copies of shareholders agreements dated 17th September 2004 as are applicable to NRPL and NPPL, We draw your particular attention to the clause no.11 from the shareholders agreement dated 17th September, 2004 as relevant to NRPL.
In the event of default in providing timely funds to the company(NRPL) for the purpose specified herein by Sunshine for any reason whatsoever then Naman shall have first option to takeover/acquire all the equity share holding of Sunshine in the said Company(NRPL)in the name of its nominee and Naman shall make good the shortfall in funds and in which event Sunshine shall be entitled to fixed lump sum of Rs.30,00,000(Rupees thirty lacs only) from Naman or its nominees in lieu of having agreed to transfer its shareholding in the company and which lump sum amount shall be in full and final settlement of all claims/demands/rights/interest/share of sunshine.
Vide letter dated 22.09, of the assessee had expressed its inability to contribute its commitment of Rs. 10.18 crores to NRPL. As a result the call option of SNMDL. was triggered and the assessee were required to and has accordingly thereupon transferred shares in NRPL at par value to SSIPL. Copy of the letter dated 22.09.04 is furnished to you on 13.12.2007. Copy is enclosed once again at page(3) of this letter.
Similar provision is applicable in respect of NPPL. Refer clause no.11 of shareholders agreement relevant to NPPL. (Copy of letter dated 22.09.O4 vide which the assessee expressed its inability to contribute its commitment to NPPL is enclosed herewith at page 3) SSIPL and SSBPL are assessed to tax under AAICS1 653A AND AAICS1 655 G respectively should your honour require we can make available SSIPL AND SSBPL'.s confirmation confirming acquisition of shares as aforesaid".
8. The reply of the assessee was considered and numerated, brought out at Para-4.4, of the assessment order, which is extracted as follows:-
"4.4 The main arguments of the assessee can be summarized as under:
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ITA no.1233/Mum./2010
(i) Plot no.C-30 had a locational advantage over C-31 and C-32 and, therefore, had better marketability. This contention is not correct to the extent that better marketability of C-30 would not mean that transfer of right to acquire plot nos.C-31 and C-32 would not result in any profit at all. Moreover, as explained later this aspect has been taken into account into computation of full value of consideration i.e. actual consideration received by computing it on the basis of respective premium amounts payable to MMRDA for the three plots which have factored in the relative locational advantage/disadvantage.
(ii) There was a clause in the respective joint venture agreements which provided for withdrawal by the assessee without making any profit/loss on its share, if it was unable to contribute its share of investment. This argument is not acceptable as the said clause and the letters given by the assessee to Shree Naman Developers Ltd are self serving pieces of evidence in support of its claim. It has been held by the Hon'ble Supreme Court in the case of CIT Vs Durga Prasad More reported in 82 ITR 540 that in a case where the party relies on self serving recitals in a document, it is for that party to establish the truth of these rentals and the Assessing Officer can look beyond such self serving documents. It was also held in the case of Sumati Dayal Vs CIT reported in 214 ITR 81 by the Hon'ble Supreme Court held that conclusion arrived at after considering the surrounding circumstances and applying the test of human probabilities was correct in the income-tax proceedings. The assessee's explanation is not ' acceptable as it is clear from the transactions carried out with K Raheja Corporation P Ltd that the plots of land namely C--30, C-3 1 & C-32 commanded premium over and above the price charged by the MMRDA for the above plots. The assessee's contention that it had to withdraw from the proposed plan of developing plot nos C-31 & C-32 because of lack of funds is not acceptable because it is a known fact that the plot of land was easily saleable at a higher price. Further, funds were also readily available with the assessee from the consideration of Rs.7.74 crores paid by M/s. K Raheja Corporation P Ltd and preference share capital of Rs.5.65 crores raised later during the year. Therefore, the contention of the assessee that the shares had to be transferred in view of its inability to meet the cost cannot be accepted.
(iii) The assessee received approximately 50% of the total gains made of plots No.C-30, C-31 and C-32. While in the first place, this contention contradicts the assessee's other contentions, this contention is also not factually correct as can be readily appreciated from the respective plot areas and share holding tabulated above."
9. The Assessing Officer rejected the same and computed short term capital gain by holding as follows:-
"4.6 In view of the above facts and established proposition of law the actual consideration i.e. the full value of consideration received was much more than the apparent consideration in respect of the assessee company's share in the joint venture companies which were allotted 8 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 rights of plot No.C-31 and C32. The actual consideration received can be reasonably computed as follows:
Amount payable to MMRDA for Plot no.C-30 = Rs.41,08,50,000/-
Consideration paid by K Raheja Corporation P Ltd @Rs.860 per share (for entire plot i.e.1,00,000 Shares in Naman BKC Constructions P Ltd) = Rs. 8,60,00,000/-
Ratio of consideration received to
amount payable to MMRDA = 8600
41085
= 1720
8217"
10. Alternatively, the Assessing Officer held that the amount of ` 2,31,47,564, is to be assessed under the head "Business Income", in case the appellate authorities come to a conclusion that the income in question from sale of shares in joint venture companies is income assessable under the head "Profit & Gains of Business".
11. Aggrieved, the assessee carried the matter in appeal before the first appellate authority, wherein the Commissioner (Appeals) upheld the contentions of the assessee that the income in question is to be assessed to tax under the head "Income From Business".
12. Insofar as the second issue is concerned, the Commissioner (Appeals) held that no notional income can be brought to tax. She held that it is legally well settled that what is to be taxed under the Act, is income which is accrued or received. She observed that the Assessing Officer has not brought any material on record that the assessee had received any additional amount over and above the amount recorded in the books of account. She relied on a number of case laws and upheld the contentions of the assessee.
Aggrieved, the Revenue is in appeal before the Tribunal.
13. Learned Departmental Representative, Mrs. Malathi Sridharan, representing the Revenue, took this bench through the facts of the case and submitted that she is not strongly disputing the findings of the Commissioner (Appeals) that the income in question is assessable under the head "Income From Business". Nevertheless, she submitted that the reason given by the 9 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 Commissioner (Appeals) for coming to a conclusion that the income in question is to be assessed under the head "Income From Business", is factually incorrect. She referred to the joint venture agreements and argued that the findings of the Commissioner (Appeals) that chronology of the events clearly indicate that the assessee had no intention to construct buildings on any of the plots allotted by the MMRD, was factually incorrect. She pointed out that the very purpose of entering into a joint venture forming SPVs and getting the plot from MMRDA was to develop and construct on the property. She specifically drew the attention of the bench to clause 7 of the joint venture agreement.
14. Coming to ground no.2, the learned Departmental Representative strongly disputed the conclusions drawn by the Commissioner (Appeals). She submitted that all the three plots were allotted to the SPVs at the same time and were located at the same place. She expressed surprise as to how the shares in SPVs, NRPL and NPPL which got allotted Plots no.C-31 and C-32, were transferred at face value and whereas the shares in NCPL which got allotted as Plot no.C-30, was transferred to K. Raheja Corp. Pvt. Ltd. at a huge premium. She referred to Para-4.1 of the assessment order and the reply of the assessee at Para-4.2 and conclusion drawn by the Assessing Officer at Para-4.5 and 4.6 of the assessment order and relied on the same. She submitted that in the joint venture agreement in the case of NCPL, there was no clause on sale of minority shareholding at par value and whereas in the joint venture agreement in the case of NRPL and NNPL, this clause was surprisingly included. Thus, she submitted that these are self-serving documents. She vehemently contended that there is no logical reason to have such a variation in the clauses in three SPVs. On a query from the Bench as to whether SRL and NDL are sister concerns or concerns of the same group. The learned Departmental Representative submitted that these two groups are not related concern. She relied on the decision of "E" Bench of the Tribunal in ITA no.614/Bom./1987, in ITO v/s Mont Blanc Properties and Industries Pvt. Ltd., order dated 20th April 1994, and submitted that the bench has taken into account all the prevailing circumstances and upheld the additions made on the basis of market price. She also relied on the judgment 10 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 of Hon'ble Jurisdictional High Court in Mont Blanc Properties & Industries Pvt. Ltd. v/s ITO, 240 ITR 154 (Bom.) and argued that the decision of the Tribunal has been upheld by the High Court.
15. Learned Counsel, Mr. Vijay Mehta, representing the assessee, submitted that the business of the assessee is that of real estate and construction. In pursuance of its object, it has started efforts to get allotted plots from MMRDA. For this purpose, he submitted that the assessee had collaborated and got associated with Naman group and the efforts of both the parties fructified in the allotment of plots on 24th August 2004. He pointed out that three joint ventures SPVs were allotted plots of land on 24th August 2004, and the shares were allotted on 19th September 2004 and five days thereafter i.e., on 23rd September 2004, the assessee has sold the shares to K. Raheja Corp. Pvt. Ltd. He submitted that the entire process clearly demonstrates that what was earned was income from business and not income under the head "Capital Gains". He contended that the value of shares allotted to the assessee company at par on 19th September 2004, was the same, as the value of shares sold on 23rd September 2004, as there was no great development within a period of five days. He submitted that the culmination of assets over a period of time resulted in the assessee's earning profits. He pointed out that the expenditure claimed was minimal.
16. On ground no.2, the learned Counsel submitted that nowhere in the assessment order, there is a finding that the assessee company has received or was to receive any amount in excess than what is recorded in the books of account. Thus, he submitted that when there is not even an allegation in the assessment order that the assessee has received or is entitled to an amount greater than which is recorded in the books of account, then there is no accrual of income and the addition in question cannot be made. He submitted that the addition of notional income cannot be permitted. For this purpose, he relied on the following case laws.
• Ani Anu Developers Pvt. Ltd. v/s ITO, ITA no.6074/Mum./2006, order dated 22nd January 2009, 11 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 • Rupee Finance & Management Pvt. Ltd. v/s ACIT, (2008) 22 SOT 174 (Mum.);
• India Finance and Construction Co. P. Ltd. v/s DCIT, 200 ITR 710 (Bom.) • CIT v/s Smt. Nandini Nopany, 230 ITR 679 (Cal.).
17. On the second issue, the learned Counsel argued that from the joint venture agreement between the parties it is clear and when Naman wanted to develop the property, the assessee as minority shareholder in two companies i.e., NRPL and NNPL, had to surrender his shares at par if the assessee does not fulfill the conditions of the agreement. He pointed out that Naman group and the assessee group were not related parties and the agreements were at Arm's Length. He submitted that purchase of all the three plots were a single activity for the assessee though it was devised and structured through three different SPVs and that a holistic view has to be taken and the entire venture has resulted in huge profits to the assessee which was offered to tax. He relied on the order of the Commissioner (Appeals) and supported the same.
18. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record, as well as the case laws cited before us, we hold as follows:-
19. Coming to the first issue as to whether the income derived from sale made to K. Raheja Corp. P. Ltd., is to be assessed under the head "Income From Business" or under the head "Income From Capital Gains", we observe that the learned Departmental Representative has not disputed the conclusions drawn by the Commissioner (Appeals). Learned Departmental Representative was only aggrieved by certain factual inaccuracies in the order passed by the Commissioner (Appeals) but has not disputed the conclusions drawn.
20. In any event, we find that the assessee is in the business of real estate and has, in the previous, undertaken activity of construction of bungalow in Lonawala. It is not in dispute that the assessee is a builder and developer as 12 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 well as a dealer in real estate. The assessee along with the Naman group ventured jointly to bid for the allotment of plots of land at MMRDA. The joint bidding was successful and three plots were allotted. The modus-operandi adopted by the joint bidders was to float three SPVs in the form of companies and to obtain the allotment of land in the name of these companies. Shares were allotted to them in these companies and within five days of allotment, the assessee along with its joint bidders i.e., Naman group sold their shares in SPVs entity NCPL to K. Raheja Corp. Pvt. Ltd. From the above facts, it is clear that what was undertaken by the assessee was a business activity and not an investment in a capital asset. As the Revenue has not strongly disputed the findings of the Commissioner (Appeals), and the conclusions drawn by her on this aspect, we do not elaborate further on this issue. Suffice it to say, we uphold the conclusion of the Commissioner (Appeals) and dismiss ground no.1, raised by the Revenue.
21. Coming to ground no.2, which is on the issue of taxability of notional income, we find that the undisputed facts are that the assessee and Naman Group are not related parties. The terms and conditions of the business between these two entities are documented by way of agreements. The assessee company is minority shareholder in NRPL & NPPL and whereas it is majority shareholder in NCPL. Clause-11 of the agreement between the assessee and NDL for Plots no.C-31 and C-32, relatable to NRPL and NPPL respectively, which reads as follows:-
"11. In the event of default in providing timely funds to the company for the purpose specified herein by Sunshine for any reasons whatsoever, then Naman shall have first option to takeover / acquire all the equity share holding of Sunshine in the said company in the name of its nominee and Naman shall make good the shortfall in funds and in which event Sunshine shall be entitled to fixed lump sum of ` 30,00,000 (Rupees Thirty Lacs only) from Naman or its nominees in lieu of having agreed to transfer its shareholding in the company and which lump sum amount shall be in full and final settlement of all claims / demand rights / interest / share of Sunshine. Consequently, the parties hereto waive all the requirements / procedures prescribed under Articles of Association of the Company for transfer of the shares."
22. The sale has taken place in terms of this agreement. The Assessing Officer has notionally calculated the profits which the assessee, according to 13 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 the Assessing Officer, ought to have earned in the sale of these shares and brought the same to tax. No enquiries whatsoever were done with either Naman group or the assessee group. There is no investigation or material brought on record to suggest that the price for which the shares in the NRPL and NPPL were sold, was higher than what was recorded in the books of account. There is not even an allegation that unaccounted money has passed. On these facts, we examine the legal position of the following case laws relied upon by the assessee.
• Rupee Finance & Management Pvt. Ltd. v/s ACIT, (2008) 22 SOT 174 (Mum.);
There is no allegation much less, any evidence to show that these assessees had received monies in excess of amounts of sale consideration recorded and disclosed in the transaction for the sale of shares. The first appellate authority had rightly noted that under section 48 the starting point for computation of capital gains is the amount of full value of consideration received or accruing as a result of a transfer of the capital asset. The first appellate authority had rightly observed that what in fact never accrued or was never received cannot be computed as capital gain. He rightly held that it is manifest that the consideration for the transfer of capital asset is what the transfer receives in lieu of assets he parts with, i.e., money or monies worth and expression full consideration cannot be construed as having reference to the market value of the assets transferred but refers to the price bargained for by the parties and it cannot refer to the adequacy of the consideration. He also rightly observed that the legislature has used the words "full value of the consideration" and not "fair market value of the assets transferred". He recorded that the Assessing Officer has not brought on record any material to show that the assessee has received more than what has been disclosed in the books and under these circumstances the difference cannot be brought to tax under the head "Capital gains". The Tribunal fully agreed with these findings and the appeals filed by the revenue failed.
• India Finance and Construction Co. P. Ltd. v/s DCIT, 200 ITR 710 (Bom.);
The law does not oblige a trader to make the marimum profit that he can, out of his trading transactions. Income which accrues to a trader is taxable in his hands. Income which he could have but has not earned is not made taxable as income accrued to him.
• CIT v/s Smt. Nandini Nopany, 230 ITR 679 (Cal.).
Held, that the genuineness of the transaction of sale and purchase of shares between the assessee and V Go. had not been doubted by the 14 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 Department. This was not a case where any understatement of value or misstatement of value of the shares sold was made by the assessee. This was a case where the assessee had sold the shares at a value admittedly lower titan the market price. There was no evidence direct or inferential, nor was there any finding by any income-tax authority that the assessee received the difference between the book value and market value of shares sold. Therefore, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) in deleting the addition of Rs.7,57,076 on account of transfer of shares made by the assessee to V Co.
23. Coming to the decision relied upon by the learned Departmental Representative in Mont Blanc (supra), we find that the facts are entirely different. The assessee, in that case, had admitted to have received in receiving black money in respect of sale of flat in the building "Grand Paradi". There is no such admission or material in this case. It was also found that in the earlier years, flats were sold in the higher rates and in the later rates, the flats were sold at a lower rate. Based on these admissions and evidences, the Tribunal came to that conclusion. In the present case, there is no enquiry or investigation whatsoever and not even a finding that a price grater than what was mentioned in the books of account was charged by the assessee or paid by Naman group. The addition has been made just because in the opinion of the Assessing Officer, the fair market value is higher than the sale price.
24. Coming to the decision in Mont Blanc (supra), the issue before the High Court was entirely different. The question was maintainability of a Writ Petition against an order of the Tribunal refusing to recall the earlier order under section 256(2) of the Act. This is not a judgment upholding the order passed by the Tribunal.
25. Coming the decision of the Tribunal in Ani Anu Developers Pvt. Ltd., wherein, one of us (A.M) is a party, it was held as follows:-
"8. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record and the orders of authorities below as well as the case laws cited we hold as follows.
8.1 The undisputed fact is that the assessee has not charged any rent from Balaji International School. it is not a case of suppression of 15 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 income. The other undisputed fact is that the school itself has commenced its activity from the impugned assessment year 2002-03. When the assessee has not charged or earned any income during the impugned assessment year, in our considered opinion, it is not right on the part of the authorities to assume a particular income and then bring it to charge on the ground that certain income has accrued or arisen in the case of the assessee. Under sections 22 & 23 of the Income-tax Act when income is assessed under the head Income from house property", the Act specifically provides for deeming of income No such parallel provision is available when income is assessed under other heads The Honbie Gauhati High Court in the case of Keshrichand Jaisukhlal vs CIT (supra), on page ' the reported decision has observed as follows:
'There is no finding of fact to the effect that actually the loan had been granted to the managing director or any other person on interest, or that interest had actually been collected and the collection of the interest was not reflected in the accounts. The finding of the Income- tax Officer Is that the assessee ought to have collected interest. In other words. the view of the Income-tax Officer, which has been accepted by the Tribunal, was that the assessee, as a good business concern, should not have granted interest-free loan, or should have insisted on payment of interest. If the assessee had not bargained for. interest, or had not collected interest, we fail to see how the income- tax authorities can fix a notional interest as due, or collected by the assessee. Our attention has not been invited to any provision of the Income-tax Act empowering the income-tax authorities to include in the income interest which was not due or not collected ln this view, we answer question No.(ii) in the negative, that is, in favour of the assessee and against the Revenue."
8.2 The Honble "D" Bench of the Delhi Tribunal in the case of HCL Employees & Investment Co Ltd v/s ACIT (supra) Held as follows:
"The law brings to tax income which the assessee has earned but not the income which the assessee could have earned. It is for the revenue to place on record evidence that anything over and above the stated consideration is received if the revenue seeks to tax the difference between the sale consideration and the market price. In the absence of such evidence, no addition can be sustained as held by the Supreme court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 / 7 Taxman 13 (SC)."
8.3 The Hon'ble Gauhati High Court in the case of Highway Construction 199 TR 702 (Gauh.) have taken the view that no income can be brought to tax on notional basis. In the case on hand, as no rental income has accrued or arisen to the assessee during the assessing year and as the assessing office has not brought on record any evidence to show that the assessee has actually earned certain income which was not disclosed to the revenue, in our considered opinion, the revenue is in error in bringing to tax deemed income from rent under the head "income from business or profession"
8.4 Coming to the principles in the case of Mcdowell & Co (supra) we find that M/s Balaji International School has not earned any income 16 Sun Shine Realtors Pvt. Ltd.
ITA no.1233/Mum./2010 either for the financia year ended 31-03-2003 or 2004 and thus the question of diverting taxable income to non taxable entities simply does not arise. Tax cannot be levied on income on the ground that the assessee ought to have earned this income. In view of the above discussion we allow ground 1 of the assessee and delete the addition in question.
26. Applying the propositions laid down in the case laws cited above to the facts of the present case, we uphold the following findings of the Commissioner (Appeals).
"7.8 It is legally well settled that what is to be taxed under the Act, is the income which is accrued or received. No notional income can be brought to tax. Similarly, the income which the assessee could have received but not received is also not taxable in absence of any material brought on record by the A.O. that additional amount is received over and above the amount recorded in the books of account.
7.9 In view of the above discussion, the addition made by the A.O on account of short term capital gain of ` 2,31,47,564, is purely notional neither accrued nor received by appellant and not in accordance with the judicial precedents and the same is deleted."
27. Thus, the ground raised by the Revenue is dismissed.
28. In the result, Revenue's appeal is dismissed.
Order pronounced in the open Court on 13th January 2012 Sd/- Sd/-
B.R. MITTAL J. SUDHAKAR REDDY
JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, DATED: 13th January 2012
Copy to:
(1) The Assessee;
(2) The Respondent;
(3) The CIT(A), Mumbai, concerned;
(4) The CIT, Mumbai City concerned;
(5) The DR, "E" Bench, ITAT, Mumbai.
TRUE COPY
BY ORDER
Pradeep J. Chowdhury ASSISTANT REGISTRAR
Sr. Private Secretary ITAT, MUMBAI BENCHES, MUMBAI