DCIT - CC-6(4), MUMBAI vs. INDIABULLS REAL ESTATE LIMITED, MUMBAI

The present appeal is delayed by 130 days. At the time of the hearing, the learned Departmental Representative (“learned DR”) by referring to the authorisation memo submitted that the copy of the impugned order was received on 16/12/2021, and the last date for filing of appeal, in this case, was Indiabulls Real Estate Ltd. ITA no.1432/Mum./2022 14/02/2022. By placing reliance upon the order dated 10/01/2022, passed by the Hon'ble Supreme Court, in M.A. no.21 of 2022, in M.A. no.665 of 2021, in Suo-Motu Writ Petition (Civil) no.3 of 2020, the learned DR submitted that the limitation period for filing the appeal was extended upto 29/05/2022, and the Revenue filed the present appeal on 27/05/2022. Thus it was prayed that the present appeal be heard on merits. The learned Authorised Representative (“learned AR”) did not raise any objection against the prayer for condonation of delay. In view of the above, since the present appeal has been filed within the extended time granted by the Hon’ble Supreme Court during the Covid period, therefore there is no delay in filing the present appeal and we proceed to decide the same on merits.

The Applicant craves to leave, to add to amend and/or to alter any of the ground of appeal, if need be. The appellant craves leave to amend or alter any grounds or add a new ground, which may be necessary.”

The only grievance of the Revenue is against the recomputation of capital gains by considering the lower value of consideration for the sale of equity shares than the consideration initially agreed among the parties. Page | 2

The brief facts of the case pertaining to this issue are: The assessee is a company engaged in the business of real estate projects, advisory, construction, and development of real estate projects. For the year under consideration, the assessee filed its return of income on 29/09/2009, declaring total income at Rs. 22,98,44,928. In its return of income, the assessee also offered the capital gains on the transfer of shares of its wholly-owned subsidiary, i.e. Shivalik Land Development Ltd, considering the full value of consideration at Rs.10 crore. The return of income filed by the assessee was selected for scrutiny. Vide assessment order dated 26/12/2011, passed under section 143(3) of the Act, the income of the assessee was determined at Rs.27,28,75,510, after making disallowance under section 14A of the Act. In its appeal before the learned CIT(A), the assessee raised an additional ground of appeal relating to a recomputation of capital gains on the sale of shares of its wholly-owned subsidiary by revising the sale consideration from Rs.10 crore to Rs.25 lakh, on the basis that the parties have entered into Settlement Deed and Supplementary Share Purchase Agreement, whereby the total consideration of the sale of shares of the wholly-owned subsidiary company was reduced to Rs.25 lakh. The learned CIT(A) vide order dated 27/01/2014, rejected the request of the assessee to admit the additional ground of appeal. In further appeal, the Co–ordinate Bench of the Tribunal vide order dated 28/08/2017, set aside the matter on this issue to the file of the Assessing Officer (“AO”) to verify the genuineness of the claim of the assessee that sale consideration has been reduced from Rs. 10 crore to Rs. 25 lakh and decide this issue de novo.

Pursuant to the directions of the Tribunal, the AO vide order dated 27/12/2018 passed under section 143(3) r/w section 254 of the Act did not agree with the submissions of the assessee that the sale consideration of shares of the subsidiary company has been reduced from Rs.10 crore to Rs.25 lakh, by observing as under:-

The learned CIT(A), vide impugned order, after taking into consideration various legal as well as criminal cases, the Settlement Deed and Supplementary Share Purchase Agreement entered among the parties, allowed the appeal filed by the assessee and held that the transfer of shares of the subsidiary company was settled at Rs.25 lakh and accordingly directed the AO to compute the capital gains by taking the total sales consideration of Rs.25 lakh. Being aggrieved, the Revenue is in appeal before us.

During the hearing, the learned DR submitted that the learned CIT(A) has not examined how the sales consideration of Rs.10 crore was reduced to Rs.25 lakh. The learned DR further submitted that the learned CIT(A) did not appreciate that the post facto event cannot reduce the sales consideration.

On the contrary, the learned AR by referring to the various documents, forming part of the paper book, such as initial Share Purchase Agreement, Settlement Deed, Supplementary Share Purchase Agreement, Mortgage Deed, proceedings under section 138 of the Negotiable Instrument Act, the order passed in the Civil Suit by the learned Civil Judge, Gurgaon, submitted that the parties mutually agreed to resolve and settle various legal and criminal disputes, which started after the parties came to know certain facts after the execution of the initial Share Purchase Agreement. It was further submitted that the parties also mutually agreed to revise the sale consideration of shares from Rs.10 crore to Rs.25 lakh. The learned AR further submitted the receipt of Rs.25 lakh as sale consideration of shares is nothing but a bonus to the assessee, since the title of the land, kept as a mortgage for part unpaid sale consideration, was found to be not clear and covered by the injunction order passed by the Hon’ble Debt Recovery Tribunal. As regards the loan of Rs.30 crore given by the assessee, the learned AR submitted that the same was returned substantially by Shivalik Land Development Ltd. on 08/12/2008, to the assessee.

We have considered the rival submissions and perused the material available on record. In the present case, on 28/07/2006, the assessee acquired 50,000 shares of Rs.10 each, being 100% share capital of Shivalik Page | 5

From the perusal of the Share Purchase Agreement dated 04/12/2008, forming part of the paper book from pages 1-8, it is evident that for the purchase of shares of Shivalik Land Development Ltd. from the assessee, M/s Virasat Agro Foods Private Limited had agreed to make payment of Rs.10 crore in two trenches, (i) demand draft Rs.25 lakh dated 05/12/2008, was handed over at the time of signing of the agreement, and (ii) undated cheque of Rs.9.75 crore. It was also agreed that the assessee shall be entitled to encash the undated cheque of Rs.9.75 crore on the 30th day from the Letter of Intent issued by the Competent Authority or 31/07/2009, whichever is earlier. After the transfer of shares of Shivalik Land Development Ltd., M/s Virasat Agro Foods Private Limited purchased subject land from M/s Padmini Technologies Ltd and entered into sale deed for said land. Vide Mortgage Deed dated 12/12/2008, forming part of the paper book from pages 110-114, Shivalik Land Development Ltd. agreed to mortgage the land, admeasuring 11.30 acres situated at Kherki Dhaula, Tehsil Sohna, District Gurgaon, to the assessee as a security for the payment of the balance consideration of Rs.9.75 crore by M/s Virasat Agro Foods Private Limited in terms of the aforesaid Share Purchase Agreement. It was also agreed that in the event of failure of M/s Virasat Agro Foods Private Limited to pay the balance consideration in terms of the Share Purchase Agreement for any reason whatsoever, the assessee will become entitled to have the mortgaged land sold in the manner, as it may deem fit.

Subsequently, it came to the knowledge of M/s Virasat Agro Foods Private Limited that the title of the aforesaid land was not clear and several litigations were going against M/s Padmini Technologies Ltd. Further, M/s

The undated cheque of Rs.9.75 crore was presented by the assessee after the agreed date of 31/07/2009, however, the same was returned unpaid due to insufficient funds. Being aggrieved, the assessee filed a complaint under section 138 of the Negotiable Instrument Act before the Hon’ble Chief Judicial Magistrate, Gurgaon.

On 01/02/2012, M/s Virasat Agro Foods Private Limited entered into a Settlement Deed with the assessee to mutually resolve the following disputes amongst them:-

From the perusal of the aforesaid Settlement Deed, forming part of the paper book from pages 9-13, it is evident that the parties also agreed that the consideration for the purchase of shares shall stand revised from Rs.10 crore to Rs.25 lakh and in this regard shall execute a Supplementary Share Purchase Agreement to modify the terms and conditions of initial Share Purchase Agreement. It was also agreed that the assessee shall provide the original title deed of the scheduled land to M/s Virasat Agro Foods Private Limited and cancel the Mortgage Deed dated 12/12/2008, by executing the date of discharge, release, and cancellation of the mortgage. Pursuant thereto, the parties entered into the Supplementary Share Purchase Agreement, whereby the sale consideration for shares of Shivalik Land Development Ltd. was revised to Rs.25 lakh from Rs.10 crore.

As per the assessee, due to the aforesaid circumstances, it raised additional ground before the learned CIT(A), in 1st round of proceedings, for the computation of the capital gains on the sale of shares by considering the Page | 9

However, from the perusal of the aforesaid sequence of events as supported by documents forming part of the paper book, we are of the considered opinion that there is no basis of aforesaid allegations of the AO. As noted above, the assessee with the support of the aforesaid documents has duly explained as to how the sale consideration of shares was reduced from Rs.10 crore to Rs.25 lakh. As regards the allegation of the AO as to why the Indiabulls Real Estate Ltd. ITA no.1432/Mum./2022 undated cheque of Rs. 9.75 crore was not presented by 31/07/2009, we find that the same itself is contradictory to clause 3.3 of the Share Purchase Agreement dated 04/12/2008, which reads as under:-

As per the assessee, since LOI was not issued by the authorities, therefore as per the aforesaid clause the assessee could have encashed the cheque on 31/07/2009. However, as noted above the said cheque was returned unpaid due to insufficient funds, and therefore the assessee initiated proceedings under section 138 of the Negotiable Instrument Act. Nothing has been brought on record by the Revenue to show that the valuation of shares of Shivalik Land Development Ltd. is Rs.10 crore and therefore the computation of capital gains in the hands of the assessee should be done accordingly. As noted from the documents available on record, the parties agreed to a consideration of Rs.10 crore on the basis of circumstances as existing on 04/12/2008. However, subsequently, when the title of the subject land itself was found to be not clear and shrouded by litigation, the purchaser not only initiated the legal action against the seller of the land but also, on the other hand, entered into a Settlement Deed to close the transaction of sale of shares of Shivalik Land Development Ltd at Rs.25 lakh, which was already paid to the assessee. No other allegation has been made by the Revenue in the present case. Further, the Revenue has not doubted any leg of the transaction, and their plea is only limited to the revaluation of shares. There is also nothing to prove that the entire consideration of Rs.10 crore was received by the Page | 11

In the result, the appeal by the Revenue is dismissed. Order pronounced in the open Court on 31/03/2023