VICTORY REALTECH PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

1. On the facts of the case and as per law, The Ld. CIT(A) erred in upholding the initiation of proceedings u's 147 of the Act without judicially appreciating the facts of the case and the law. 1.1 That the Ld. CIT (A) erred in holding that the appellant did not make full and true disclosure of facts on the plea that the income tax return was not taken up for scrutiny and no Order was passed u/s 143(3) of the Act. The Victory Realtech P. Ltd. Ld. CIT(A) did not appreciate that the fact that the appellant filed Income Tax Return u/s 139(1) and the return was processed u/s 143(1) of the Act. The selection of the case under scrutiny is the prerogative of the Income Tax Department. The reason for not putting the case under scrutiny cannot be the ground for alleging that the appellant did not make full and true disclosure of facts which entitled the Revenue Officer for initiating the proceeding u/s 147 of the Act.

2. The Ld. CIT(A) erred on facts and law in upholding the Order dated 28.03.2013 passed by the Assessing Officer wherein the objections filed by the appellant, challenging the initiation of proceedings u/s147 of the Act were rejected arbitrarily. Without prejudice to ground no 1 and 2 3. On the facts of the case and as per law, the Lid CITIA) erred in upholding the arbitrary order of the Ld. Assessing Officer in disallowing Short Term Capital Loss of Rs 27,92,30,441/-, incurred in sale of commercial FSI in Sirsa Project & sale of 4659 shares of Mansarover Heritage Inn Private Limited, merely on his whims and fancy. The Ld. CIT (A) erred in upholding the Order of the Assessing Officer who challenged the business prudence of the appellant without any cogent material and disallowed Short Term Capital Loss merely on suspicion 4. That the Orders of the Assessing Officer &CIT (A) is highly arbitrarily, capricious unwarranted and are not based on the facts of the case & as per law and consequently therefore not sustainable as per law.

5. On the facts of the case and as per law, the Order passed by the Ld. CIT(A) in upholding the Order passed by the Assessing Officer who disallowed the actual capital loss of Rs.27,94,97,000/- merely on whimsical grounds without pursuing the bonafide explanation and evidences produced by the appellant. The Order of the Ld. CIT (A) and the Assessing Officer is totally perverse and arbitrarily and hence not sustainable in the law 6. That levying the interest u/s 234B & 234C is not in accordance with the law.

7. That the appellant craves leave to add, amend or alter any of the grounds of the appeal.” 2 Victory Realtech P. Ltd.

3.1 During the relevant year, the assessee had sold 50,00,000 shares of M/s Era Infra Engineering Limited for consideration of Rs.70,42,30,441/- through Motilal Owal Securities Ltd. and derived Short Term Capital Gains (‘STCG’) of Rs.27,92,30,441/-. However, this STCG got set off against the STCL of Rs.27,94,97,000/-. The remaining STCL of Rs.2,66,559/- was carried forward by the assessee. The STCL of Rs.27,94,97,000/- arose from purchases & sales of commercial FSI in Sirsa Project and shares of M/s Mansarover Heritage Inn Pvt. Ltd. The Assessing Officer (‘AO’) examined/ investigated all transactions resulting STCL. During the assessment, the assessee was show-caused to explain the genuineness of all transactions resulting STCL and the basis of valuation of both assets (FSI and shares) at the time of the purchase & sale thereof. As per the assessee, it purchased 4659 shares of M/s Mansarover Heritage Inn Put. Ltd. from M/s Complete Engineers Put. Ltd. for Rs.28,88,58,000/- on 13.05.2009 @ Rs.62,000/- per Victory Realtech P. Ltd. share at prevailing market rate at that time. Later on, due to sluggishness in real estate market, the assessee sold those shares for Rs.13,51,11,000/- to Mr. Rajesh Chaudhary as the assessee was not finding any buyer, for those shares, in the market. As a result, the assessee suffered the STCL of Rs.15,37,47,000/-. The assessee had not received any sale consideration from Mr. Rajesh Chaudhary till the finalization of the assessment. Mr. Rajesh Chaudhary sold those shares to M/s Era Landmarks Ltd. for Rs.13,51,11,000/-.

3.2 Further, the assessee also purchased commercial FSI in Sirsa Project for Rs.18,57,50,000/- on 18.04.2009 from M/s Goglet Infotech Pvt. Ltd. @ of Rs.66,000/- sq. ft. at prevailing market rate at that time. Later on, due to sluggishness in real estate market, the assessee sold commercial FSI in Sirsa Project for Rs.6,00,00,000/- to Mr. Subhash Chaudhary as the assessee was not finding any buyer, for the commercial FSI in Sirsa Project, in the market. As a result, the assessee suffered the STCL of Rs.12,57,50,000/-. The assessee had not received any sale consideration from Mr. Subhash Chaudhary till the finalization of the assessment. Mr. Subhash Chaudhary sold the commercial FSI in Sirsa Project to M/s Big Ben Developers Pvt. Ltd. for Rs.6,00,00,000/-.

3.3 The AO was not satisfied with the explanations of the assessee that the STCL of Rs.27,94,97,000/- was genuine. Hence, he observing as under completed the assessment: 4 Victory Realtech P. Ltd. “4.2 The submission made by the assessee is not found satisfactory. The assessee has used some vague phrases such as "based on market value prevailing", “sluggishness in real estate markets", "bad market conditions", "with proper business sense after considering market conditions prevailing etc. but has not provided any concrete basis of valuation of the FSI and the shares and the reasons for the drastic diminution in their values within a period of 4 months. With regard to the valuation of shares, the assessee has submitted that the value of shares was based on the market value prevailing at that time. It is important to note that the company M/s Mansarover Heritage Inn Pvt. Ltd. is an unlisted company and its shares donot have market value. The value which would be relevant would be the book value of shares. Therefore, the assessee was asked "to provide the book value of the shares of. M/s Mansarover Heritage Inn Pvt. Ltd. both at the time of sale and purchase of shares." The assessee has submitted that there is no change in the book value of shares at the time of purchase and sale. As per the balance sheet of M/s Mansarover Heritage Inn Pvt. Ltd. the book value of the shares as on 31.03.2010 and as on 31.03.2009 is negative. The assessee has failed to provide any basis of how the shares were valued at Rs.62,000/- per share at the time of purchase and Rs.29,000/- per share at the time of sale. Similarly, the assessee has not provided any basis for the valuation of FSI. 4.3 From the above, it can be clearly seen that the assessee has not been able to satisfactorily explain the basis of valuation of FSI and the shares and the reasons for the drastic diminution thereof. Infact, there was no basis of selling the shares which were bought for Rs.28,88,58,000/- to Sh. Rajesh Chaudhary for Rs.13,51,11,000/- within a span of 4 months. Similarly, there was no basis of selling the FSI which was bought for Rs.18,57,50,000/- to Shri Subhash Chaudhary for Rs.6,00,00,000/ within a span of 4 months. There was no basis of valuation that how the price of both the transactions determined and what was the hurry to enter into such a transaction that would result into a loss of Rs.27,94,97,000/- and for which no payment has been received till 31.03.2011. The whole chain of transactions was entered into just to set off of the capital gains arising on Victory Realtech P. Ltd. the shares of M/s Era Infra Engg. Ltd. This is evident from the perusal of the chain of transactions. The first transaction regarding the FSI was entered into buy the assessee with M/s Goglet Infotech Pvt. Ltd. which is a group concern of M/s Era Group. Then subsequently the FSI was sold to Sh. Subhash Chaudhary. The assessee has submitted that it could not find a prospective buyer who could purchase this development right. Since, the funds of the company were blocked and there was no hope for immediate recovery of real estate market, the company decided to sell these development rights to Sh. Subhash Chaudhary who had shown his willingness to purchase these rights for total consideration of Rs.6,00,00,000/-. The contention of the assessee is wrong. No funds of the assessee were blocked. Infact no payment was made by the assessee to M/s Goglet Infrastructure Pvt. at the time of transaction. The payment of this transaction was made by the assessee on 06.10.2009 after the payment was received from M/s Moti Lal Oswal Securities Ltd. on 5/10/09. The assessee has not provided any evidence/information regarding the circumstances that required immediate funds. It is pertinent to note that the assessee has not undertaken any business during the year or afterwards that would indicate the requirement of the funds. Further the assessee has tried to show that it was a distress sale due to recession in the real estate market. It should be noted that there was no drastic meltdown in the real estate sector during that time that would have eroded the value of assets by such an extent within a period of 4 months. The assessee has further submitted that Sh. Subhash Chaudhary did not make any pay1nent and kept for asking more time. The submissions of the assessee are contradictory. On one hand the assessee is saying that due to lack of prospective buyers, the FSI was sold to Sh. Subhash Chaudhary as he had shown willingness to buy the same, on the other hand it is submitting that Sh. Subhash Chaudhary kept on asking for more time to make the payments, It is very strange that a company in in such a great need of funds would sell its assets at huge loss to a person without inquiring into his financial credentials. Willingness of the buyer means that he should have had ready funds to purchase and willingness of the seller to sell at such a reduced value means the seller is satisfied of 6 Victory Realtech P. Ltd. the capacity of the buyer to pay immediately. Notice u/s 133(6) was sent to Sh. Subhash Chaudhary and information was called for to determine the genuineness of the transaction. From the perusal of the ITR of Sh. Subhash Chaudhary, it is seen that he is a person of no financial worth. Sh. Subhash Chaudhary subsequently transferred his rights in favour of M/s Big Ben Developers Pvt. Ltd., another group company of M/s Era Group at the same sale consideration of Rs.6,00,00,000/-. The payment to the assessee from M/s Era Buildwell Pvt. Ltd. is still outstanding till date. This further shows that the assessee was in no need of funds and the explanation of the funds being blocked has been manufactured by the assessee to provide a cloak of genuineness to this sham transaction. Therefore, in light of the above circumstances, it is clear that this transaction is a sham transaction and was just entered to set off the short term capital gains to reduce the tax liability. Similarly, the transaction regarding the shares was entered into by the assessee with M/s Complete Engineers Pvt. Ltd. Then subsequently the shares were sold to Sh. Rajesh Chaudhary. The assessee has submitted that it could not find a prospective buyer who could purchase the shares and the market condition was not good. Since, the funds of the company were blocked and there was no hope for immediate recovery of real estate market, the company decided to sell these shares to Sh. Rajesh Chaudhary who had shown his willingness to purchase these rights for total consideration of Rs.13,51,1 1,000/- . The contention of the assessee is wrong. No funds of the assessee were blocked. Infact no payment was made by the assessee to M/s Complete Engineers Pvt. Ltd. at the time of transaction. The payment of this transaction was made by the assessee on 06.10.2009 after the payment was received from M/s Moti Lal Oswal Securities Ltd on 05/10/09 Ltd. The assessee has not provided any evidence/information regarding the circumstances that required immediate funds. It is pertinent to note that the assessee has not undertaken any business during the year or afterwards that would indicate the requirement of the funds. Further the assessee has tried to show that it was a distress sale due to recession in the real estate market. It should be noted that there was no drastic meltdown in the real estate sector during Victory Realtech P. Ltd. that time that would have eroded the value of assets by such an extent within a period of 4 months. The assessee has further submitted that Sh. Rajesh Chaudhary did not make any payment and kept on asking for more time. The submissions of the assessee are contradictory. On one hand the assessee is saying that due to lack of prospective buyers, the FSI was sold to Sh. Rajesh Chaudhary as he had shown willingness to buy the same, on the other hand it is submitting that Sh. Rajesh Chaudhary kept on asking for more time to make the payments. It is very strange that a company in such a great need of funds would sell its assets at huge loss to a person without inquiring into his financial credentials. Willingness of the buyer means that he should have had ready funds to purchase and willingness of the seller to sell at such a reduced value means the seller is satisfied of the capacity of the buyer to pay immediately. Notice u/s 133(6) was sent to Sh. Rajesh Chaudhary and information was called for to determine the genuineness of the transaction. From the perusal of the ITR of Sh. Rajesh Chaudhary, it is seen that he is a person of no financial worth. Sh. Rajesh Chaudhary subsequently transferred his rights in favour of M/s Era Landmarks Ltd., another group company of M/s Era Group at the same sale consideration of Rs.13,51,11,000/- , The payment to the assessee from M/s Era Landmarks Ltd. is still outstanding till date. This further shows that the assessee was in no need of funds and the explanation of the funds being blocked has been manufactured by the assessee to provide a cloak of genuineness to this sham transaction. Therefore, in light of the above circumstances, it is clear that this transaction is a sham transaction and was just entered to set off the short term capital gains to reduce the tax liability. 4.4 Hence the assessee cannot be given credit for the short term capital loss of Rs.27,94,97,000/-. During the year, the assessee has earned capital gains of Rs.27,92,30,441/-, which have been set off against the capital losses and the resultant capital losses of Rs.2,66,559/- have been carried forward. As discussed above, the assessee is not being given the credit of the losses. Hence Rs.27,92,30,441/- is added to the income of the assessee and loss of Rs.2,66,559/- is not allowed to be carried forward.” [Emphasis supplied.] 8 “11 I have considered the facts of the case, written submissions of the appellant, including the various case laws relied upon by the appellant and the findings given by the Assess1ng Officer on this issue. On considering the facts of the case, I find that the transactions in respect of the sale of commercial FSI in Sirsa Project and sale of shares of M/s Mansarover Heritage Inn Pvt. Ltd, were arrangements made by the appellant between these parties to reduce its tax burden. It is pertinent to note that the appellant M/s Victory Realtech Pvt. Ltd M/s Goglet Infotech Pvt. Ltd, and M/s Big Ben Developers Pvt. Ltd. are all Era group companies and they used Sh Subhash Chaudhary in respect of transaction of commercial FSI in Sirsa Project and Sh. Rajesh Chaudhary in respect of transaction of sale of shares of M/s Mansarover Heritage Inn Pvt. Ltd. as conduit to give the colour of genuineness in the veil of sale of a FSI under the garb of Development Rights Sale Agreements and sale of shares under the garb of Share Purchase Agreement just to reduce the tax burden of the appellant on account of capital gain which was earned by the appellant during the year sale of shares. What is more important to note is that, the ultimate ownership of the FSI project and the shares remained with the group companies only. The appellant made this cooked up story Just to adjust its entire short term capital gain with the sham transactions of a short term capital loss purported to have been suffered on the said bogus transactions. The writing of the Development Right Sale Agreements and Share Purchase Agreement on non-judicial paper was to use the same as colorable device to give genuineness to the otherwise bogus sale transactions. These agreements were neither registered nor stamped by the notary and therefore, have no evidentiary value as such. Thus, these documents were motivated an afterthought just to create an evidence in order to reduce the tax liability of the appellant on account of income from short term capital gain on sale of shares. 11.1 Further, on perusal of the record, I find that the appellant did not file any evidence to substantiate the circumstances which compelled it to compromise on such deals on which he claimed to have suffered a huge 9 Victory Realtech P. Ltd. loss of Rs.27,94,97,000/-. This is unbelievable as no real estate developer would enter into a deal which would result in such a huge loss. The appellant is not new in the business of real estate, land, development and related activities. It is also surprising that in none of the agreements there was an element of monetary consideration paid as "advance", which is a part of total deal. No basis was given as to how the valuation of the FSI project and shares sold was done. In the course of the assessment proceedings, the Assessing Officer had called for the furnishing of information u/s 133(6) of the I.T. Act, 1961 from the said Sh. Rajesh Chaudhary and Sh. Subhash Chaudhary, to determine the genuineness of the transaction and on perusal of their ITRs he found that they were persons of no financial capability to enter into such deal. The fact that M/s Big Ben Developers Pvt and Ltd to whom said Sh. Subhash Chaudhary had transferred his rights in the FSI project M/s Era Landmarks Ltd. to whom Sh. Rajesh Chaudhary had transferred his rights in shares had not made any payment to the appellant till the time of completion of the assessment. Even the appellant had not made any payment to the companies from whom he had purchased the Development Right in Sirsa project and shares. This itself shows that there was also no scarcity of funds which compelled the appellant to sell its project and shares at a throw away price and suffered a huge loss to the tune of Rs.27,94,97,000/-. 11.11 In view of the above discussion I am of the view that the Assessing Officer has rightly held that the transactions entered into by the appellant under Development Right Sale Agreement and Share Purchase Agreement were sham transactions used as a device to give colour of genuineness to a fictitious transaction. Therefore, considering these facts of the case, I hold that the Assessing Officer was justified in disallowing the short term capital loss of Rs.12,57,50,000/- on sale of development right in commercial project in Sirsa and Rs.15,37,47,000/- on sale of shares of Mansarover Heritage Inn Pvt. Ltd. which the appellant set off against the long term capital gain of Rs.27,92,30,441/- from sale of shares of M/s Era Intra Enginemen Ltd. another company of Era group of company. Accordingly, the impugned order of the Assessing Officer is confirmed and the grounds of appeal of the appellant on this issue are dismissed.”

Victory Realtech P. Ltd. [Emphasis supplied.] 4. At the outset, the Ld. Counsel did not press the issue of reopening of the assessment raised vide ground numbered 1, 1.1 and 2. Consequentially, these grounds stand dismissed.

Order pronounced in open Court on 21.07.2025.