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Facts
The assessee sold a capital asset (land) to its 100% subsidiary and declared Long-Term Capital Gains. The AO disallowed the cost of stamp duty and cost of improvement. The CIT(A) deleted these disallowances. The Revenue appealed against the CIT(A)'s order. The assessee also filed a cross-objection arguing the transaction was not a taxable transfer under Section 47(iv) of the Income Tax Act.
Held
The Tribunal held that the transaction of sale of land to a 100% subsidiary is not a transfer under Section 47(iv) of the Income Tax Act and hence not taxable. The Tribunal allowed the cross-objection of the assessee and directed the AO to exclude the capital gains from taxable income and refund the taxes paid.
Key Issues
Whether the sale of a capital asset to a wholly-owned subsidiary is a taxable transfer under Section 45 of the Income Tax Act, considering the exclusion provided under Section 47(iv) of the Act.
Sections Cited
143(3), 45, 47(iv), 240(b), 244A, 254
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘G’: NEW DELHI
Before: SHRI YOGESH KUMAR US & SHRI BRAJESH KUMAR SINGH
ORDER PER BRAJESH KUMAR SINGH, AM,
This appeal by the Revenue is directed against the order of the Ld.
CIT(A)-8, New Delhi dated 15.11.2019, in Appeal No.10372/2018-19 arising out of assessment order passed u/s 143(3)of the Income Tax Act, 1961 (hereinafter ‘the Act’) dated 30.12.2018 pertaining to Assessment Year 2016-17.
2. Brief facts of the case:-The assessee is a limited company and is engaged in the business of infrastructure developer, promoter, builder, colonizers and to lay out, develop, construction of any building or building scheme. During the year under consideration, the AO noted that the assessee company had sold land bearing Khasra No. 32 situated at Fatehabad, Village Bundhera, Tehsil & district Agra held as capital asset for an amount of Rs.35,58,00,000/- to M/s. Bloom Inn Pvt. Limited. The assessee had declared Long-term Capital Gains of Rs. 12,97,20,752/- on sale of the saidlandchargeable to tax u/s 45 of the Act in its return of income filed by it on 29.09.2016 for the AY 2016-17. The assessee had claimed two expenses being the claim in respect of cost of stamp duty paid (Rs.2,49,26,200/-) by the assessee and the claim of cost improvement (Rs.12,97,20,753/-), on the said land in its computation of capital gains which was disallowed by the AO. In appeal, the said two disallowances made by the AO were deleted by the Ld. CIT(A). Against the above deletion, the department has filed the following ground of appeal.
“Onthe facts andcircumstances of the case and in law, the Ld. CIT(A) has erred in deleting additionofRs.2,49,26,200/- made on account of cost of stamp dutypaidwithoutappreciating the facts that the assessee has made an arrangement with itsrelated party and the Ld.CIT(A) also erred in deleting the disallowance of Rs. 12,97,20,753/- made by the AO on account of cost of improvement without appreciating the facts that the said amount was paid on account of interest on the funds raised from 2009 to Feb, 2015 should not be treated as cost of improvement.”
3. During the course of appellate proceedings, the assessee filed an application under Rule-27 of the ITAT Rules, 1963, and a cross objection on 22.11.2024 on the ground that the capital asset being the land bearing Khasra no.32 situated at Fatehabad, Village-Bundhera, Tehsil District- Agra was sold to its 100% subsidiary M/s Bloom Inn Private Ltd. and was therefore, not taxable in view of provisions of section 47(iv) of the Act and was inadvertently offered to tax by the assessee in its return of income filed on 29.09.2016 for AY 2016-17.
4. The said application under Rule-27 ITAT Rules, 1963 and the Cross Objection filed by the assessee are reproduced as under:-
SUB: APPLICATION UNDER RULE 27 OF APPELLATE TRIBUNAL RULES, 1963 May it please your honours 1. That applicant is a limited company and is engaged in the business of infrastructure developer, promoter, builder, and colonizer and to layout, develop, construction of any building or building scheme.
That during the financial year 2015-16, the applicant has transferred the land bearing Khasra No. 32 situated at Fatehabad, Village Bundhera, Tehsil & district Agra held as capital asset for an amount of Rs. 35,58,00,000/- to its 100% Indian Subsidiary company M/s Bloom Inn Pvt. Limited. The transfer made by an assessee to its 100% Indian Subsidiary company is specifically excluded and is not be considered as transfer for the purpose of section 45 in view of the provisions of section 47 (iv) of the Income Tax Act. The relevant extract of the section is reproduced hereunder: Transactions not regarded as transfer.
Nothing contained in section 45 shall apply to the following transfers:- xxxxx xxxxx xxxxx (iv) any transfer of a capital asset by a company to its subsidiary company, if- (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the subsidiary company is an Indian company; 3. That the applicant inadvertently declared the Long term capital gain of Rs. 12,97,20,752/- on sale of capital asset held by it to its 100% Indian subsidiary companychargeable to tax under section 45 in the return of income filed by the assessee on 29.09.2016 for the AY 2016-17 4. That the fact that the capital asset was sold to M/s Bloom Inn Pvt. Limited which is a related party of the assessee company was before the assessing officer as is evident from Pg. 3 of the assessment order.
5. That the above sale made by the assessee to its 100% Indian Subsidiary do not fall within the meaning of transfer as per the provisions of section 47(iv) of the Act and hence not chargeable to tax.
6. That the assessing officer while doing the assessment under section 143(3) has disallowed the indexedcost of acquisition/ improvement to the tune of Rs.15,46,46,953/- and recomputed the long term capital gain at Rs. 28,43,67,705/- as against the long term capital gain of Rs. 12,97,20,752/- declared by the assessee.
7. That aggrieved by the order passed by the AO, the applicant filed an appeal before theCIT(A) and learned CIT(A) has deleted the addition made by the AO and allowed the indexed cost of acquisition/improvement claimed by the assessee.
8. That revenue has filed the appeal before this Hon'ble Tribunal against the order passed by the CIT(A) deletingthe additions made by the AO bearing 611/Del/2020.
9. That the said appeal is pending for adjudication as on date. 10. That it is a well settled law that AO is duty bound to assessee the correct income of the assessee. If due to ignorance the assessee has declared the income which is not chargeable to tax, the AO is duty bound to correct the same and compute the tax as per the provisions of the Act. 11. In the present case, applicant has declared the income and paid the tax which otherwise is not chargeable to tax. This issue though not raised before the CIT(A) but is germane to the main issue and no investigation of facts is required since all the facts were before AO as well as CIT(A) as is evident from Pg. 3 of the assessment order.
12. That the assessee intends to defend the order of CIT(A) on the ground that the transaction of sale by the assessee to its 100% Indian subsidiary company per se is not chargeable to tax as the same does not fall within the meaning of transfer in view of the specific exclusion under clause (iv) of section 47 of the Act. Accordingly, the assessee prays for admission of following grounds of appeals under Rule 27 of ITATRules.
1. On the facts and circumstances of the case, the sale of land bearing Khasra No. 32 situated at Fatehabad, Village Bundhera, Tehsil & district Agra made by the assessee to its 100% Indian subsidiary company is not a transfer in view of the provisions of clause (iv) to section 47 of the Income Tax Act andaccordingly, AO was not justified in treating the same as transfer and taxing the same under section 45 of the Act
2. On the facts and circumstances of the case, the Income Tax Authorities are duty bound to assess the correct income of the assessee as per the provisions of the Income Tax Act and as such the learned AO and the CIT(A) have gone wrong in charging tax on the sale of capital asset by the assessee to its 100% Indian Subsidiary company.
3. On the facts and circumstances of the case, the sale of land bearing Khasra No. 32 situated at Fatehabad, Village Bundhera, Tehsil & district Agra made by the assessee to its 100% Indian subsidiary company is not chargeable to tax under section 45 of the Act in view of the provisions of section 47(iv) of the Income Tax Act.
13. The above ground raised by the assessee is purely a legal issue and is connected to the issue before your honours and thus, it is prayed before your honours that these grounds may kindly be adjudicated by the Bench under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963.”
5. The Grounds of Cross Objection filed by the assessee are as under:-
1. On the facts and circumstances of the case, the sale of land bearing Khara No. 32 situated at Fatehabad, Village Bundhera, Tehsil & district Agra made by the assessee to its 100% Indian subsidiary company is not a 'transfer' in view of the provisions of clause (iv) to section 47 of the Income Tax Act and accordingly, AO was not justified in treating the same as transfer and taxing the same under section 45 of the Act 2. On the facts and circumstances of the case, the Income Tax Authorities are duty bound toassess the correct income of the assessee as per the provisions of the Income Tax Act and as such the learned AO and the CIT(A) have gone wrong in charging tax on the sale ofcapital asset by the assessee to its 100% Indian Subsidiary company.
On the facts and circumstances of the case, the sale of land bearing Khara No. 32 situatedat Fatehabad, Village Bundhera, Tehsil & district Agra made by the assessee to its 100%Indian subsidiary company is not chargeable to tax under section 45 of the Act in view ofthe provisions of section 47(iv) of the Income Tax Act.
5.1. However, there is a delay of 1726 days in filing the above Cross objection by the assessee. In this regard, the assessee filed Condonation petition which is reproduced as under:-
Sub: Request for condonation of delay in filing of cross objections before Hon'ble ITAT MAY IT PLEASE YOUR HONOURS 1. This application is filed by the applicant seeking the condonation of delay in the filing of cross objections before the Hon'ble Tribunal in relation to the appeal filed by the revenue ( CIT(A), which had deleted the additions made by the Assessing Officer (AO).
2. The aforementioned appeal ( 04.12.2024.
3. That it is submitted that the previous counsel appointed by the applicant had been seeking adjournments on multiple occasions without providing the applicant with proper updates on the progress of the case, including the necessity to file cross objections in response to the revenue's appeal.
4. That In light of the lack of progress and communication, the management of the applicant company decided to appoint a senior counsel for this matter to ensure effective representation.
5. That the applicant approached Senior Counsel Mr. Ved Jain, who thoroughly reviewed the case and advised that the sale of land bearing Khasra No. 32, situated atFatehabad, Village Bundhera, Tehsil & District Agra, made by the applicant to its 100% Indian subsidiary, does not qualify as a 'transfer' under Section 47(iv) of the Income Tax Act. Thus, the AO was not justified in treating it as a transfer and taxing it under Section 45 of the Act.
6. That during the consultation, the Senior Counsel inquired about the filing status of any cross objections against the revenue's appeal. It was then brought to his attention that no cross objections had been filed, as the previous counsel had not informed the applicant about the necessity or requirement to do so.
7. That upon receiving this information, the Senior Counsel promptly advised the applicant to file the cross objections along with an application for condonation of delay before the Hon'ble Tribunal. Consequently, the applicant took immediate steps to file the cross objections.
8. That the cross objections were filed on 21.11.2024 resulting in a delay of 1726 days in their submission. This delay occurred due to the lack of communication and the failure of the previous counsel to keep the applicant properly informed.
9. That In view of the above-mentioned facts, it is humbly submitted that the delay in filing the cross objection was unintentional and beyond the control of the applicant.
10. Accordingly, it is respectfully prayed before Your Honour that the delay in filing the cross objections be condoned, and the cross objections be heard on its merits.” 5.2. The above facts were also supported by an affidavit dated 21.11.2024 filed by Shri Sachin Agarwal, Managing Director of the assessee company.
5.3. The facts stated in the condonation petition has been carefully perused. On its perusal, we find that the explanation of the assessee for the delay in filing the Cross Objection in the given facts of the case arebona fide and reasonable. Therefore, the delay of 1726 days in filing the cross objection is condoned.
6. During the hearing before us, the assessee reiterated the above fact of inadvertently offering the above capital gains and submitted that the AO is obligated to assess the correct income relying upon Board Circular No.14 XL-35, dated 11.04.1955. It was further submitted that tax collection must align with legal liability, ensuring that no undue tax burden is imposed on the assessee. In this regard, the assessee requested to allow the application filed under Rule-27 of the ITAT Rules, 1963 and the Cross objection filed by the assessee. In this regard, the assessee filed a written submission, which is reproduced as under:-
“1. This is an appeal filed by the revenue against the orders passed by CIT(A) deleting the disallowances made by AO in the assessment order passed u/s 143(3) of the Act. Brief facts of the case 2. The assessee is a limited company and is engaged in the business of infrastructure developer, promoter, builder. colonizers and to lay out, develop, construction of any building or building scheme 3. During the year under consideration, the assessee company has transferred the land bearing Khasra No. 32 situated at Fatehabad, Village Bundhera, Tehsil & district Agra held as capital asset for an amount of Rs. 35,58,00,000/- to its 100% Indian subsidiary company M/s. Bloom Inn Pvt. Limited. The transfer made by an assessee to its 100% Indian Subsidiary company is specifically excluded and is not be considered as transfer for the purpose of section 45 in view of the provisions of section 47(iv) of the Income Tax Act.
4. The assessee inadvertently declared the Long-term capital gain of Rs. 12,97,20,752/- on sale of capital asset held by it to its 100% Indian subsidiary company chargeable to tax u/s 45 of the Act in the return of income filed by the assessee on 29.09.2016 for the AY 2016-17.
5. The fact that the capital asset was sold to M/s Bloom Inn Pvt. Limited which is a related party of the assessee company (100% Indian subsidiary company) was before the assessing officer as is evident from the- CO No.118/Del/2024 Note No. 28 of the audited financial statements of the assessee, listing subsidiary companies, specifically mentions M/s Bloom Inn Pvt. Limited at point 27. (PB Page 22). Note no. 1 (Share Capital) to the audited financial statements of M/s Bloom In Pvt. Limited on PB pg. no. 363, wherein it was specifically mentioned that "100% shares are hold by Spring Infradev Limited Note No. 21 to the audited financial statements of M/s Bloom Inn Pvt. Limited includes a list of related parties and relationships, showing Spring Infradev Limited as the sole holding company. (PB page 368). List of shareholders of M/s Bloom Inn Pvt. Limited showing 2099999 shares are held by Spring Infradev Limited and 1 share held by Mrs. Shikha Agarwal as a nominee of Spring Infradev Limited, on PB pg. no. 370 Extracts of MGT-7 of M/s Bloom Inn Pvt. Limited clearly showing Spring Infradev Limited as Holding Company, on PB pg. no.
Additionally, the AO, in the assessment order (Page 3), himself acknowledged that the capital asset was sold to M/s Bloom Inn Pvt. Limited, a related party of the assessee. The AO while doing the assessment under section 143(3) has disallowed the indexed cost of acquisition/ improvement to the tune of Rs. 15,46,46,953/- and recomputed the long-term capital gain at Rs. 28,43,67,705/- as against the long-term capital gain of Rs. 12,97,20,752/- declared by the assessee. That aggrieved by the order passed by the AO, the applicant filed an appeal before the CIT(A) and learned CIT (A) has deleted the addition made by the AO and allowed the indexed cost of acquisition/improvement claimed by the assessee. That revenue has filed the appeal before this Hon'ble Tribunal against the order passed by the CIT(A) deleting the additions made by the AO bearing 611/DEL/2020. In response, the assessee filed cross objections bearing CO 118/DEL/2024 on the ground that the transaction of sale by the assessee to its 100% Indian subsidiary company per se is not chargeable to tax as the same does not fall within the meaning of transfer in view of the specific exclusion under clause (iv) of section 47 of the Act. Sale of Capital Asset to 100% Indian subsidiary company is not a 'transfer' in view of section 47(iv) of Income Tax Act and accordingly not chargeable to tax u/s 45 of the Act
10. During the relevant year, the assessee had sold a land at Khasra No. 32, Mauza Budhera Tehsil and District Agra to M/s Bloom Inn Pvt. Ltd., its wholly owned subsidiary, on 01.01.2016 for an amount of Rs. 35,58,00,000/-. Copy of the relevant sale deed is annexed at PB Pg. no. 320-353.
11. Your Honors in this regard, kind attention needs to be drawn towards the provisions of Section 47(iv) of the Act as reproduced hereunder: - "47. Nothing contained in section 45 shall apply to the following transfers: (i) ………… (ii) ………… (iii) ………… (iv) any transfer of a capital asset by a company to its subsidiary company, if— (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the subsidiary company is an Indian company;"
From the above following points are to be noted: o Section 47(iv) of the Act provides that, provisions 45 of the Act do not apply certain specified transfers o In terms of Section 47(iv) of the Act, if there is a transfer of a capital asset by a company to its 100% Indian subsidiary company, then, transfer of such capital asset shall not be chargeable to tax under the head capital gain in terms of provisions of section 45 of the Act o This is subject to the condition that subsidiary company is an a) Indian company and b) the holding company along with its nominees, held the whole of the share capital of the subsidiary company- 13. Your Honors, due regard need to be given to the facts of the present case: - i. The assessee is an Indian company who sold its land which is a capital asset in accordance with Section 2(14) of the Act during the year under consideration. ii. The land was sold to M/s Bloom Inn Pvt. Ltd. which is also an Indian company. iii. The assessee, along with its nominees, as on the date of transfer held whole of the share capital of M/s Bloom Inn Pvt. Ltd. iv. Accordingly, M/s Bloom Inn Pvt. Ltd. is a wholly owned subsidiary of the assessee company.
14. Having said that, your honours would appreciate that when the conditions of section 47(iv) of the Act are satisfied, the capital gain or loss arising on transfer of a capital asset by the holding to its subsidiary company, would not be chargeable to tax under the head 'capital gains'”.
7. The assessee also relied upon the following case laws in support of its contention.
i. PCIT vs Ansal Properties and Infrastructure Ltd. [2023] 152 taxmann.com 49 (Del.) ii. CIT vs Coats Of India Ltd. [2009] 176 Taxman 438 (Calcutta) iii. CIT vs Mother Dairy Fruits & Veg (P.) Ltd. 2011 (1) TMI 66-ITAT Delhi iv. Greaves Leasing Finance Ltd. vs ITO [2012] 24 taxmann.com 343 (Mum. Trib.) v. Navdeep Investment (P.) Ltd. vs ITO [1994] 50 ITD 342(AHD Trib.)
8. The AO submitted a report vide letter dated 17/20.01.2025 on the grounds of Cross Objection of the filed by the assessee in which he agreed with the contention of the assessee that in view of the section 45 and 47 of the Income Tax Act, 1961 and documents available on records, it is observed that the assessee M/s Samast Vikas Limited formerly known as M/s Spring Infradev Ltd. is an Indian company which is holding 100 percent of share of its subsidiary company M/s Bloom Inn Private Limited and therefore impugned transaction is covered by it, thereby accepting that the said capital gains of Rs.12,97,20,252/- offered under the head Capital Gains was not taxable. The relevant extract of the letter is reproduced as under:
Sub: Assessee Cross Objection bearing CO No. 118/2024 in Departmental Appeal bearing A.Y. 2016-17, in the case of M/s Samast Vikas Limited (Formerly knowns as M/s Spring Infradev Ltd.)-PAN: AAJCS9939C -reg. Please refer to the above.
2. In this connection, vide your letter dated 06.12.2024 in the above-mentioned case it is requested to provide a factual report on the grounds of cross-objection raised by the assessee, along with comments of the undersigned to facilitate the case of the Department.
3. The assessment proceedings under section 143(3) of the Income Tax Act, 1961 was completed at the assessed income of Rs. 33,79,96,690/- after making addition of Rs. 15,46,46,953/- on account of disallowance on Long Term Capital Gain and addition of Rs. 18,20,156/- on account of interest on refund. Aggrieved with the order of the assessing officer, the assessee has filed appeal before the Ld. CIT(A)-8, New Delhi. Accordingly, the Ld. CIT(A)-8, New Delhi vide its order dated 15.11.2019 had deleted the addition of Rs.15,46,46,953/- which was made on account of Long Term Capital Gain.
4. Aggrieved with the order of the Ld. CIT(A)-8, New Delhi the revenue had appeal before the Hon'ble ITAT, G- Bench, New Delhi in the case of M/s Samast Vikas Limited formerly known as Spring Infradev Limited for the assessment year 2016-17.
5. During the appellate proceeding, the assessee has filed cross objection on the issue of sale of land bearing Khasra No. 32, Mauza Budhera Tehsil, Agra during the financial year 2015-16 to M/s Bloom Inn Private Limited at sale consideration of Rs. 35,58,00,000/- on 01.01.2016.
4. In the said cross objection filed by the assessee before the Hon'ble ITAT, G-Bench, New Delhi has contended that the buyer of the above-mentioned property i.e. M/s Bloom Inn Private Limited is a wholly owned Indian subsidiary company of the assessee or seller i.e. M/s Samast Vikas Limited.
Further the assessee had also submitted that the sale of the property does not cover under the transfer within the meaning of section 47 (iv) of the Income Tax Act, 1961.
It is noteworthy to mention here that above said issue is an absolutely new facts presented before the Hon'ble ITAT which was neither raised during the assessment proceedings before the assessing officer nor the appellate proceedings before the Ld. CIT(Appeal). The said issue is infact contrary to the stand already made in ITR filed by the assessee, where he himself declared and claimed LTCG arouse from the impugned sale of immovable property. Therefore, the same should not be entertained at this stage and may kindly be admitted under rule 29 of Hon'ble ITAT only if it is specifically allowed by the Hon'ble ITAT vide its specific order 6. Notwithstanding to above, on perusal of the audit report of the buyer i.e. M/s Bloom Inn Private Limited for the assessment year 2016-17, the company had disclosed its Related Parties in notes to account at Sr. No. 21, wherein M/s Spring Infradev Ltd. presently known as M/s Samast Vikas Limited is its holding company. 6.1 Further, on perusal of the annual return form of M/s Bloom Inn Private Limited with the Ministry of Corporate Affairs(MCA), it is observed that the buyer of the above- mentioned property i.e. M/s Bloom Inn Private is 100% subsidiary company of M/s Spring Infradev Ltd. presently known as M/s Samast Vikas Limited.
7. The Capital Gains under section 45 of the Income Tax Act, 1961 does not apply on the transfer of capital assets to subsidiary or holding company. The transactions not regard as transfer duly covered under section 47 of the Act. The relevant portion of the section 47 of the Act is as reproduced below:- 47……. ……… (iv) any transfer of a capital asset by a company to its subsidiarycompany if - (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the holding company is an Indian company;
8. In view of the section 45 and 47 of the Income Tax Act, 1961 and documents available on records, it is observed that the assessee M/s Samast Vikas Limited formerly known as M/s Spring Infradev Ltd. is an Indian company which is holding 100 percent of share of its subsidiary company M/s Bloom Inn Private Limited and therefore impugned transaction is covered by it.
9. Further, it is also stated that that the assessee i.e. assessee M/s Samast Vikas Limited ( Seller) had sold a land during the year under consideration at the amount of Rs. 35,58,00,000/ - to its subsidiary M/s Bloom Inn Private Limited(Buyer) and claimed long term capital gain of Rs. 28,43,67,705/- inits ITR. In the mentioned LTCG, the assessee had taken claim of deduction on the stamp duty payment of Rs. 2,49,26,200/- which was paid by assessee being the seller and not by the buyer. 9.1 On the issue of claim of deduction of Rs. 12,97,20,753/- on the expenses made as interest paid to M/s Century Tracon Private Limited. Since, the claim of interest paid by the assessee had not come within the category of expenditure incurred by the assessee company for making any additions to the capital asset therefore, the same had been disallowed and added to the total income of the assessee. On the issue of stamp duty of Rs. 2,49,26,200/-, there was no basis of claiming the cost of stamp duty paid on behalf of the buyer as its cost of improvement or the cost of transfer of the property. The stamp duty is payable by the buyer and not the seller. Therefore, the same was also disallowed and added back to the income of the assessee.
10. Furthermore, it is also stated that any assessment is done on the basis of ITR filed along with material facts provided by assessee and information gathered by the AO. In this case, assessee has himself declared LTCG on impugned transaction and therefore any act contrary to declaration made in ITR should not be entertained. 10.1 Further, it is also stated that as In Goetze (India) Ltd. v. CIT (2006) 204CTR (SC) 182 : (2006) 284 ITR 323 (SC), the Supreme Court held that the assessee can make a claim for deduction or otherwise, which has not been claimed in the return, only by filing a revised return within the time allowed. Moreover, section 240(b) of IT Act, 1961 also expresses similar intent wherein it stipulates that refund due, if any, on basis of appeal, will depends only on any tax
paid in excess of tax chargeable on returned income by assessee. 11. Considering the above facts the appeal of the assessee may be decided on merits of self-declaration in ITR made by assessee and objectivity of addition made in assessment by AO by relying on basis of declaration made by assessee in its ITR. 12. This issues with the prior approval of the Pr. CIT(Central)-1, New Delhi.
The Ld. CIT(DR) relied upon the grounds of appeal filed by the Department, the written submission dated 09.07.2024 filed by the then CIT (DR) and the aforesaid letter dated 17/20.01.2025 filed by the AO i.e. DCIT, Central Circle-06, New Delhi.
We have heard both the parties and perused the materials available on record. The short point in this case is whether the capital gains of Rs.12,97,20,752/- offered to tax by the assessee in its return of income filed on 29.09.2016 for AY 2016-17, which ought not to have been declared by the assessee since the capital asset being the land bearing Khasra no.32 situated at Fatehabad, Village-Bundhera, Tehsil and District-Agra, sold to its 100% subsidiary M/s Bloom Inn Private Ltd. was not taxable u/s 45 of the Act in view of provisions of section 47(iv) of the Act, can now be claimed as non taxable by the assessee by filing an application dated 22.11.2024 under Rule-27 of Appellate Tribunal Rules 1963 and Cross Objection filed by the assessee on 22.11.2024. In this regard, the AO in his report dated 17/20.01.2025 as discussed abovealso agreed with the facts stated by the assessee and admits that the assessee M/s Samast Vikas Limited (formerly known as M/s Spring Infradev ltd.) is an Indian Company, which is holding 100% of shares of its subsidiary company M/s Bloom Inn Pvt. Ltd. and therefore impugned transaction is covered by the provisions of section 47(iv) of the Act. The relevant findings of the AO in para no.6 to 8 of the said report are reproduced once again for ready reference:-
Notwithstanding to above, on perusal of the audit report of the buyer i.e. M/s Bloom Inn Private Limited for the assessment year 2016-17, the company had disclosed its Related Parties in notes to account at Sr. No. 21, wherein M/s Spring Infradev Ltd. presently known as M/s Samast Vikas Limited is its holding company. 6.1 Further, on perusal of the annual return form of M/s Bloom Inn Private Limited with the Ministry of Corporate Affairs(MCA), it is observed that the buyer of the above- mentioned property i.e. M/s Bloom Inn Private is 100% subsidiary company of M/s Spring Infradev Ltd. presently known as M/s Samast Vikas Limited.
The Capital Gains under section 45 of the Income Tax Act, 1961 does not apply on the transfer of capital assets to subsidiary or holding company. The transactions not regard as transfer duly covered under section 47 of the Act. The relevant portion of the section 47 of the Act is as reproduced below:- 47……. ……… (iv) any transfer of a capital asset by a company to its subsidiary company if - (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the holding company is an Indian company;
In view of the section 45 and 47 of the Income Tax Act, 1961 and documents available on records, it is observed that the assessee M/s Samast Vikas Limited formerly known as M/s Spring Infradev Ltd. is an Indian company which is holding 100 percent of share of its subsidiary company M/s Bloom Inn Private Limited and therefore impugned transaction is covered by it.
11. Therefore, the facts and the legal position are undisputed in this case that the capital gains amounting to Rs.12,97,20,753/- on the sale of the land being the land bearing Khasra no.32 situated at Fatehabad, Village-Bundhera, Tehsil District-Agra to its 100% subsidiary M/s Bloom Inn Private Ltd. was not taxable in view of provisions of section 47(iv) of the Act and was wrongly offered to tax by the assessee in its return of income filed on 29.09.2016 for AY 2016-17.
12. In this regard, the AO has raised two fold objections. Firstly, according to the AO, the new claim of the assessee is an absolutely new fact presented before the Tribunal, which was neither raised during the assessment proceedings before the AO nor in the appellate proceedings before the Ld. CIT(A). According to the AO, this issue is in fact contrary to the stand already made in the ITR filed by the assessee where the assessee itself declared and claimed that long term capital gains arose from the impugned sale of the immovable property. It was therefore submitted that the same should not be entertained at this stage and may be admitted under Rule-29 of ITAT Rules, 1963 only if it is specifically allowed by the Tribunal vide its specific order. In this regard, Rule-29 of the ITAT Rules, 1963 is reproduced as under:-
“29. The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.”
12.1 As noted above that the assessee in its written submission before us and reproduced above stated the fact that the capital asset sold to M/s Bloom Inn Pvt. Ltd. was a related party of the assessee company (100% Indian subsidiary company) was before the AO during the assessment proceedings which was evident from the following facts:-
Note No. 28 of the audited financial statements of the assessee, listing subsidiary companies, specifically mentions M/s Bloom Inn Pvt. Limited at point 27. (PB Page 22). Note no. 1 (Share Capital) to the audited financial statements of M/s Bloom In Pvt. Limited on PB pg. no. 363, wherein it was specifically mentioned that "100% shares are hold by Spring Infradev Limited Note No. 21 to the audited financial statements of M/s Bloom Inn Pvt. Limited includes a list of related parties and relationships, showing Spring Infradev Limited as the sole holding company. (PB page 368). List of shareholders of M/s Bloom Inn Pvt. Limited showing 2099999 shares are held by Spring Infradev Limited and 1 share held by Mrs. Shikha Agarwal as a nominee of Spring Infradev Limited, on PB pg. no.370 Extracts of MGT-7 of M/s Bloom Inn Pvt. Limited clearly showing Spring Infradev Limited as Holding Company, on PB pg. no. 372.
12.2. It has also been certified by the assessee in the paper book filed before us that the above documents were filed before the AO as well as before the ld. CIT(A).
12.3. It was further submitted that additionally, the AO, in the assessment order (Page 3), himself acknowledged that the capital asset was sold to M/s Bloom Inn Pvt. Limited, a related party of the assessee.
12.4. We have verified the above submissions of the assessee and found it to be correct. Therefore, in the present case, no new evidence or any additional evidence have been filed by the assessee before the Tribunal and therefore Rule-29 of the ITAT Rules, 1963 is not attracted in the case of the assessee. Therefore, we reject the above contention of the Department.
13. The second objection of the AO is that as held by the Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC), wherein the Hon’ble Supreme Court held that the assessee can make a claim for deduction or otherwise, which has not been claimed in the return, only by filing a revised return within the time allowed. The AO further stated that since the assessee has not filed a revised return for claiming the capital gains of Rs.12,97,20,252/- as non-taxable and therefore the said claim of the assessee should not be allowed.
13.1 We have carefully considered the above objection of the AO but do not agree with the same. The Hon’ble Apex Court in the case of NTPC vs CIT [1998] 229 ITR 383(SC) has held that the purpose of assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. The Hon’ble Court further observed that it did not see any reason to restrict the power of the Tribunal u/s 254 only to decide the ground which arises from the order of Commissioner of Income Tax (Appeals) and held that both the assessee as well as the Department have a right to file an appeal/cross objections before the Tribunal. The relevant discussion of the Hon’ble Apex Court in the cited case is reproduced under:-
“Under section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier."
13.2. Further, the Hon’ble Apex Court in the case of Goetze (India)
Ltd. (supra) also observed that the restriction on the AO to not accept any new claim without filing a revised return is limited to the power of the assessing authority and does not impinge on the power of the Tribunal u/s 254 of the Act to accept any new claim. The relevant extract of the judgment is as follows.
"This appellant's appeal before the Commissioner of Income- tax (Appeals) was allowed. However, the order of the further appeal of the Department before the Income-tax Appellate Tribunal was allowed. The appellant has approached this court and has submitted that the Tribunal was wrong in upholding the Assessing Officer's order. He has relied upon the decision of this court in National Thermal Power Company Ltd. v. CIT [1998) 229 ITR 383, to contend that it was open to the assessee to raise the points of law even before the Appellate Tribunal. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs" 13.3. Further, the Hon’ble Supreme Court in the case of Wipro Finance Ltd. vs Commissioner of Income Tax, 2022(4) 694, dated 12.04.2022 has held that Tribunal’s power u/s 254 of the Act remain broad and unrestricted in entertaining fresh claim for the first time, even if, in consistent with assessee’s original return. It also did not accept the Department’s reliance on Goetze (India) Ltd. vs CIT (supra) and clarified that limitation on raising new claims applies only to the AO and not to the Tribunal. The relevant discussion of the Hon’ble Apex Court is reproduced as under:-
"10. The learned ASG appearing for the department had faintly argued that since the appellant in its return had taken a conscious explicit plea with regard to the part of the claim being ascribable to capital expenditure and partly to revenue expenditure, it was not open for the appellant to plead for the first time before the ITAT that the entire claim must be treated as revenue expenditure. Further, it was not open to the ITAT to entertain such fresh claim for the first time. This submission needs to be stated to be rejected. In the first place, the ITAT was conscious about the fact that this claim was set up by the appellant for the first time before it, and was clearly inconsistent and contrary to the stand taken in the return filed by the appellant for the concerned assessment year including the notings made by the officials of the appellant. Yet, the ITAT entertained the claim as permissible, even though for the first time before the ITAT, in appeal under Section 254 of the 1961 Act, by relying on the dictum of this Court in National Thermal Power Co. Ltd. supra at footnote No.
Further, the ITAT has also expressly recorded the no objection given by the representative of the department, allowing the appellant to set up the fresh claim to treat the amount declared as capital expenditure in the returns (as originally filed), as revenue expenditure. As a result, the objection now taken by the department cannot be countenanced.
Learned ASG had placed reliance on the decision of this Court in Goetze (India) Ltd. vs.Commissioner of Income Tax [2006] 284 ITR 323 in support of the objection pressed before us that it is not open to entertain fresh claim before the ITAT. According to him, the decision in National Thermal Power Co. Ltd. supra at footnote No. 4 merely permits raising of a new ground concerning the claim already mentioned in the returns and not an inconsistent or contrary plea or a new claim.We are not impressed by this argument. For, the observations in the decision in Goetze (India) Ltd. supra at footnote No. 10 itself make it amply clear that such limitation would apply to the "assessing authority, but not impinge upon the plenary powers of the ITAT bestowed under Section 254 of the Act. In other words, this decision is of no avail to the department.
In view of the above, this appeal ought to succeed. The impugned judgment and order of the High Court needs to be set aside and instead, the decision of the ITAT dated 3.6.2004 in favour of the appellant on the two questions examined by the High Court in the impugned judgment, needs to be affirmed and restored. We order accordingly."
13.4. In view of the above facts, we hereby reject this objection of the AO, as the Hon’ble Apex Court in the aforesaid decisions has held that the power of the Tribunal u/s 254 of the Act allows the Tribunal to entertain a fresh claim raised for the first time before the Tribunal and the power of the Tribunal is not curtailed in the manner as contested by the AO. As discussed above, all the facts relating to the claims made by the assessee that the capital gains of Rs.12,97,20,752/- offered to tax by the assessee in its return of income filed on 29.09.2016 for AY 2016-17 was not taxable in view of the facts as discussed above was already on records of the AO, which has not been contested by the AO. We, therefore, after careful consideration, accept the grounds of cross objection filed by the assessee in claiming that thecapital asset being the land bearing Khasra no.32 situated at Fatehabad, Village-Bundhera, Tehsil District-Agra sold to its 100% subsidiary M/s Bloom Inn Private Ltd. was not taxable in view of provisions of section 47(iv) of the Act and was wrongly offered to tax by the assessee in its return of income filed on 29.09.2016 for AY 2016-17.
The CBDT vide Circular no.14 XL-35 dated 11.04.1995states that the Department should draw the attention of the assessee to any relief to which they appeared to be clearly entitled but which they have omitted to claim for some reason or other. The said Circular of the CBDT is reproduced as under:-
“3. Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him.This attitude would, in the long run, benefit them indicate that some refund or relief is due to him.This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers should (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;
(b) freely advise them when approached by them so to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs."
14.1. As discussed above, the capital asset being the land bearing Khasra no.32 situated at Fatehabad, Village-Bundhera, Tehsil District-Agra sold to its 100% subsidiary M/s Bloom Inn Private Ltd. was not taxable in view of provisions of section 47(iv) of the Act and was therefore, wrongly offered to tax by the assessee in its return of income filed on 29.09.2016 for AY 2016-17 and was therefore clearly entitled to this relief in view of the Board Circular i.e. while computing the total income of the assessee, the same should not have been held as a taxable income u/s 45 of the Act as was done by the AO in the assessment order dated 30.12.2018. On similar facts, the Hon’ble Delhi High Court in the case of CIT (International Taxation) v. Heidrick and Struggles Inc. [2024] 461 ITR 33 (Delhi) held that the Revenue can seek to levy tax only on income which falls within the ambit of the Act. It further held that merely because the assessee placed the income under a wrong head, cannot possibly make it amenable to imposition of tax. In this cited case, the assessee had wrongly offered an amount of Rs.2,84,40,475/- received from Heidrick and Struggles Pvt. Ltd. as income from other sources, which according to the assessee was not taxable, in view of the provisions of India US Tax Treaty as the services rendered by the assessee do not specify the ‘make available clause of India US Tax Treaty’. The same was not accepted by the AO and the application u/s 154 of the Act of the assessee was rejected by the AO and the appeal against the said rejection was also dismissed by the ld. CIT(A). On further appeal, the co-ordinate bench of the Tribunal allowed the appeal of the assessee relying upon Circular No. 14 of 1955 dated April 11, 1955 of the CBDT and the order of the Kolkata Tribunal in the case of Madhabi Nag Bankura v. ACIT (ITA No. 512/Kol/2015) (Kolkata) and of the Hon’ble Delhi High Court in the case of CIT v. Bharat General Reinsurance Co. Ltd.[1971] 81 ITR 303 (Del.)
14.2. Aggrieved with the said order, the department filed an appeal before the Hon’ble Delhi High Court which dismissed the appeal of the department and upheld the findings of the co-ordinate bench of the Tribunal. The relevant extract of the findings of the Hon’ble Delhi Court are reproduced as under:
“14. What emerges from a reading of the impugned order is the following:
(i) It is not the case of the appellant-Revenue that the subject income, i. e., the income received by the respondent-assessee for the services rendered to an Indian company, i.e., HSIPL, was taxable.
(ii) The benefit of article 12 of the India-USA Double Taxation Avoidance Agreement (in short, "Indo-USA DTAA") was available to the respondent-assessee.
(iii) The rectification had been ordered by the Centralized Processing Centre with respect to two other group companies, i. e., Heidrick and Struggles Pvt. Ltd., Singapore, Heidrick and Struggles Pvt. Ltd., UK, in similar circumstance, via order dated February 27, 2020 and January 30, 2020, respectively.
(iv) The Central Board of Direct Taxes Circular No. 14 of 1955 dated April 11, 1955 was applicable in the instant case, which, inter alia, casts a duty on the officers of the appellant-Revenue to draw the attention of the assessee towards any relief that may be available to them, which the asses-see may have inadvertently omitted to claim.
15. Having regard to the aforesaid, we are of the view that the Tribunal has taken a just view in consonance with the provisions of the Act and the aforementioned circular issued by the Central Board of Direct Taxes. Undoubtedly, the appellant-Revenue can seek to levy tax only on income which falls within the ambit of the Act. Merely because the respondent-d assessee placed the income under a wrong head, cannot possibly make it amenable to imposition of tax.
16. According to us, no substantial question of law arises for our consideration.
17. The appeal is, accordingly, closed.”
14.3. The facts in the case of the present assessee is similar to the facts of the cited case of the Hon’ble Delhi High Court. In view of the above discussion and respectfully following the decision in the above cited case, we, therefore, hold accordingly and direct the AO to exclude the capital gains of Rs.12,97,20,252/- in the taxable income of the assessee as offered u/s 45 of the Act assessee in the return of income filed on 26.09.2016 for AY 2016-17 and recompute the total income of the assessee accordingly. We further direct the AO that after excluding the above amount from the taxable income of the assessee to refund the taxes paid by the assessee on the aforesaid capital gains of Rs.12,97,20,752/- after due verification.The grounds of Cross Objection filed by the assessee are allowed.
In this regard, the AO vide letter dated 17/20.01.2022 in para 10.1 referring to the provisions of section 240(b) of the Act stated that no interest u/s 244A will be allowable to the assessee and only the tax paid on capital gains to the assessee will be allowed in case the claim of the assessee is accepted by the Tribunal. The same has been carefully considered with the provisions of section 240(b) of the Act. In our considered view the provisions of section 240(b) of the Act will not be applicable in this case for the reason that the assessment in this case has not been annulled by our thisorder and further the refund has not arisen on account of tax paid in excess of the tax chargeable on the total income returned by the assessee. By virtue of this order, in this case, the assessee will be entitled to refund of the taxes paid by it on the capital gains of Rs.12,97,20,752/- which we have held to be not taxable u/s 45 of the Act under the head capital gains. In view of the provisions of section 244A(2) of the Act, the delay for the determination of this refund to the assessee in this case is attributable to the assessee in as much as that the assessee declared wrongly the capital gains of Rs.12,97,20,252/- on the transfer of the said land in its return of income filed on 29.09.2016 for AY 2016-17 and filed for correcting the same by way of Rule-27 application under ITAT Rules, 1963 and Cross Objection only on 22.11.2024. Therefore, the assessee will not be entitledfor interest u/s 244A of the Act for the period w.e.f. 01.04.2016 to the date of determination of the refund by the AO in passing the appeal effect order pursuant to this order after necessary verification by the AO. However, we also direct that the AO shall give the appeal effect within due time as per Board Instructions for giving appeal effect and for any delay, thereafter the assessee will be entitled for interest u/s 244A of the Act on the said refunded tax from the period which is mandated by the Board for giving the appeal effect to this order, till the date on which the refund is granted to the assessee. The ld. AR also fairly agreed and submitted that the assessee will not be entitled for any interest u/s 244A of the Act on the above amount
In view of the fact that the Cross Objection filed by the assessee has been allowed, the application under Rule-27 made by the assessee becomes academic and is not adjudicated.
Similarly, in view of the Cross Objection of the assesse being allowed,the Departmental grounds of appeal filed by the Revenue become infructuous and are therefore dismissed.
Order pronounced in the open court on May, 2025.