ACIT, NEW DELHI vs. SHRI SANTOSH KUMAR GARG, NEW DELHI

ORDER PER H.S. SIDHU : JM

The Revenue has filed this Appeal against the impugned Order dated 19.2.2013 of the Ld. CIT(A)-XXXI, New Delhi relevant to assessment year 2009-10.

2. The grounds raised in this Appeal read as under:-

“1. The order of Ld. CIT(A) is not correct in law and facts.

the Ld. CIT(A) has erred in law in deleting the addition of Rs. 2,21,09,600/- holding that the provision of section 50C of the I.T. Act, 1961 cannot be invoked in this case when there was a transfer of immovable property in view of the provisions of section 2(47)(vi) of the Income Tax Act, 1961?

3. On the facts and circumstances of the case,

the Ld. CIT(A) has erred in law in not considering the fact that the choice of the assessee in selecting a particular mode of transfer of such assets will not alter or determine the nature or character of the asset.

4. The appellant craves leave to ad, amend any/

all the grounds of appeal before or during the course of hearing of the appeal.”

Subsequently, first notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred as the Act) was issued on 16.7.2010 and duly served upon the assessee. After that, a questionnaire alongwith notice u/s. 143(2) of the Act was issued on 09.8.2010 and required the part details. In response thereto, the A.R. of the assessee filed the details/documents from time to time which have been examined by the AO. After the search operation, vide his letter dated 26.9.2008, the assessee surrendered an amount of Rs.2,50,00,000/- as his additional income for AY 2009-10 on account of cash receivable as on 31.07.2008 and on account of house hold items and expenses amounting to Rs. 25,00,000/-. The AO observed that assessee has included the surrendered amount of Rs.2,50,00,000/- as undisclosed income and the same has been declared under income from other sources. AO on perusing the I.T. return of the assessee has observed that no capital gain was declared by the assessee in the A.Y. 2008-09 on transfer of immovable properties. However, in the next assessment year i.e. A.Y. 2009-10, the assessee has declared a long term capital loss of Rs. 5,58,792/- on transfer of Shares of M/s Raj Refullers and Fire Safety Equipment Private Limited. Since no capital gain was shown by the assessee in A.Y. 2008-09, enquiries were made from the purchasers. The summons u/s 131 of I.T. Act were issued to Sh.

Mahesh Mehta (purchaser) who informed that the said deal did not mature and the amount of Rs. 2,18,00,000/- paid to Sh. Rakesh Kumar Garg and Sh. Santosh Kumar Garg were returned back. It was further observed that another "Share Purchase Agreement" dated 6.11.2008 was entered into between Sh. Rakesh Kumar Garg & Sh. Santosh Kumar Garg (Sellers) and Mrs. Deepti Arora & Sh.

Ramesh Kumar (Purchasers) for transferring the entire Shareholding to purchasers for a consideration of Rs.2,18,00,000/-. This time the deal matured and the capital gains (loss) on the transfer of shares have been declared by the assessee in A.Y. 2009-10. However, the sequence of above events clearly suggest that the purpose of transfer of entire share holding of M/s Raj Refullers and Fire Safety Equipment Private Limited to Mrs. Deepti Arora & Sh. Ramesh Kumar was only for transferring the land belonging to M/s Raj Refullers and Fire Safety Equipment Private Limited. The transfer of shares of Raj Refullers and Fire Safety Equipment Private Limited is merely the mode or the vehicle to transfer the land. Further, the Section 2(47)(vi) of the I.T. Act, 1961 provides that 'transfer' in relation to the capital asset includes:-

Any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

3.1 Accordingly vide letter dated 01.12.2010, the assessee was requested to show cause as to why his claim of capital gains (loss) computed on the basis of sale consideration of shares of M/s Raj Refullers and Fire Safety Equipment Private limited should not be rejected and why capital gains should not be computed by adopting the fair market value of the Land & building as on 6.11.2008, as sale consideration for the property No. 115, Phase 1. Udyog Vihar, Gurgaon. In response to this, vide letter dated 23.12.2010, the assessee has submitted that the assessee was only a shareholder and not the owner of the property owned by the company.

Therefore. it cannot be said that the assessee has transferred the land. AO further observed that in the present case, the transaction was actually for transferring the land and shares were only means of controlling the ownership of the land. Accordingly the Income under the head Capital Gains is chargeable for transfer of land and not for transfer of shares as declared by the assessee. He further noted that it is also a well settled law that corporate veil can be lifted if it is used for avoiding the payment of due taxes. As per the AO, the present case is covered by Section 2(47)(vi) of the I.T. Act. 1961 as sale of the shares of the company has the effect of transferring or enabling the enjoyment of the immovable property. In view of above. it was held by the AO that the Capital gains shall be chargeable as if the land was transferred and not shares. As per provisions of section SOC. in cases where the sale consideration is less than the value at which stamp duty is chargeable by the Sub- Registrar, the capital gains is to be computed by taking the value at which stamp duty is chargeable. To ascertain the fair market value of the property, matter was referred to DVO, Jaipur by the CIT CC- 12 which has not been received. Hence, he decided the sale consideration as per the circle rate prevailing at the time. In one related case of the same group, the circle rate were gathered from the office of Tehsildar, Gurgaon for the F.Y. 2005-06. He has forwarded the chart of circle rates as per which the prevailing circle in the F.Y. 2005-06 for industrial plot at Maruti Industrial Area, Udyog Vihar, Gurgaon was at minimum of Rs. 12,000/- per square yards and the said plot was transferred in the F.Y. 2008-09, therefore, an indexation of 15% is estimated. Hence, for the year under consideration, the circle rate was calculated at minimum of Rs, 13,800/- per square yard. The area of the plot is 4000 square meter. Thus, the fair market value of the said plot was computed to minimum of Rs. 6,60,19,200/-. The assessee had the ownership of 50% of this land, therefore, the sale consideration for the purpose of computation of capital gain in the case of the assessee comes to Rs.3,30,09,600/-. Since, the assessee has already shown an amount of Rs. 1,09,00,000/- on account of this transaction, therefore, the difference amount i.e. Rs. 2,21,09,600/- was being added in the hands of the assessee as long term capital gain, subjective to report of the District Valuation Officer and assessed the income of the assessee at Rs.2,40,28,230/- vide order dated 30.12.2010 passed u/s. 143(3) of the I.T. Act, 1961. Against the aforesaid assessment order, assessee appealed before the Ld. CIT(A)-XXVI, New Delhi, who vide his impugned order dated 19.2.2013 has allowed the appeal of the assessee. Aggrieved with the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.

5. On the contrary, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A).

“SECTION50C

Special provision for full value of consideration in certain cases.

(1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted [or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority'') for the purpose of payment of stamp duty in respect of such transfer, the value so adopted [or assessed or assessable] shall; for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.”

6.1 On perusing the above, it is observed that this the section is applicable for transfer of land or building which is registered with the registering authority by paying stamp duty. Section 50C could be invoked only if the sale consideration received is less than the value adopted by Stamp Valuation Authority of the State Government for the purpose of payment of stamp duty. However, there is no evidence that any stamp duty has been paid towards transfer of the plot of land as held by the AO and that the Stamp Valuation Authority adopted any particular value as sale consideration for payment of stamp duty in the present transaction.

In fact, in this case there is a mere transfer of shares of a company and no stamp duty appears to be payable towards plot of land. In the assessment order also it is nowhere stated that any state government authority has adopted a particular value at the time of payment of stamp duty by the parties to the said share purchase agreement. We further find that Section 50C has undergone amendment with effect from 01/10/2009. The word 'assessed or assessable' has been inserted in place of 'assessed' appearing before that date. If the transaction were to have taken place after 01/10/2009, it would have been possible to take the value which could have been assessable by the stamp valuation authority even in cases where such value has not be assessed or adopted. Since the transaction has taken place on 06/11/2008, the said amendment is not applicable for the current assessment year and therefore the AO cannot adopt on his own the circle rates. The procedure adopted by the AO in determining the capital gain from the said transaction is not tenable under the law as it stood applicable for the current assessment year. We are of the view that section 2(47)(vi) is applicable in the cases where the asset in question is like a group of houses owned by a company and each shareholder is allotted a house for his personal enjoyment similar to what is prevalent in housing cooperative societies. However, there is no necessity to adjudicate on this issue as even if t is assumed that transfer of shares of the said company amounted to transfer of plot of land, in the absence of any evidence of extra amount having been exchanged, no addition can be made invoking section 50C as noted in the previous paragraph. Therefore, addition made by the AO was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) and reject the ground raised by the Revenue.

dismissed.

Order pronounced in the Open Court on 29/09/2017.