ITO, NEW DELHI vs. M/S SAMSUNG ESTATES PVT. LTD.,, NEW DELHI

Appellant by Sh. S.S. Rana, CIT(DR) Respondent by S/sh. Ranjan Chopra & Vinod Garg, CA Date of hearing 10.08.2017 Date of pronouncement 15.09.2017 ORDER PER O.P. KANT, A.M.:

This appeal by the Revenue is directed against order dated 16/10/2009 of the Commissioner of Income Tax (Appeals)-X, New Delhi [in short ‘the CIT-(A)’] for assessment year 2006-07, raising following grounds:

1. Learned Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs.17,47,79,500/- made by the AO as income from undisclosed sources u/s. 68 of the I.T. Act.

2. Learned Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs.69,10,002/- made by the AO u/s 2(24)(iv) of the Income Tax act.

at any time before or during the hearing of this appeal.

2. The facts in brief of the case are that the assessee filed return of income on 14/11/2006 declaring total income of Rs.1,75,850/-. The case was selected for scrutiny and notice under section 143(2) of the Income- tax Act, 1961 (in short “The Act”) was issued and complied with. In the assessment completed under section 143(3) of the Act on 18/12/2008, the Assessing Officer made following the additions to the returned income:

1 Income from undisclosed sources under section 68 Rs.17,47,79,500/- of the Act. 2 Addition for benefit received on purchase of shares Rs. 69,10,002/- under section 2(24)(iv) of the Act Total Rs. 1,81,689,502 2.1 On further appeal, the Ld. CIT-(A) deleted both the additions. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.

3. In ground No. 1, the Revenue has challenged deletion of addition of Rs.17,47,79,500/-. The facts in respect of issue in dispute are that during the year under consideration the assessee sold agricultural land measuring 12 “bighas” and 10 “biswas” for a sum of Rs.78,12,500/- by the registered sale deed dated 21/12/2005 to M/s. Anant Raj Industries Ltd. This land was purchased by the assessee from the previous owner(s) for Rs.10,50,000/- vide two sale deeds, both registered on 09/07/1997. The Assessing Officer asked the assessee to furnish the valuation report by registered valuer, however, the assessee did not comply. The Assessing Officer carried out enquiries with local real estate dealers and internet research and noted that in relevant financial year the rate of land was between Rs.8,070/- to Rs.10,765/- per square meter, so he estimated averages land rate of Rs.9000/- per square metre. The Assessing Officer converted the area of the land equivalent to 20,288 square metres and after multiplying the average land rate of Rs. 9000 per square metre, he calculated the fair market price of the land at Rs.18,25,92,000/-. The difference of Rs.17,47,79,500/- between the fair market price (Rs.18,25,92,000/-) and the sale price claimed by the assessee (Rs.78,12,500/-) was treated by the Assessing Officer as undisclosed income as per the provisions of section 68 of the Act. The Ld. CIT-(A) deleted the addition with following observations:

“8. I have considered the submissions made by the Ld AR and also the comments of the AO as per his remand report and the assessment order. In the remand report, the AO has admitted the factual mistake as pointed out by the Ld. AR as regards the actual area of the land sold which comes to 10,538 sq. meter as against 20,288 sq. meter adopted by the AO in the assessment order. Also the AO has not disputed in the remand report the prevailing minimum price of agricultural land fixed by Land and Building Department of NCT, Delhi at Rs. 17,58,400/- per acre (Rs. 167 per sq. meter) as against the actual sale price of the appellant of Rs. 30,00,000/- per acre (Rs. 741 per sq. meter). Neither in the assessment order nor in the remand report has the AO mentioned any basis for applying the rate of Rs. 9,000/- per sq. meter for the purposes of calculation of prevailing market price of the agricultural land at the time of sale by the assessee. It is seen that the sale deed of the subject agricultural land has been duly registered and the Stamp duty has been paid as per the sale consideration disclosed in the sale deed. Gist of case law relied upon was also filed including, 131 ITR 547 (SC), 200 ITR 567 (SC), 262 ITR (KER.) and 309 ITR 233 (Del.) which has been considered.

The AO has not brought anything on record to justify his adoption of the rate @Rs.9000/- per metre.

3.1 Before us, learned CIT(DR) relied on the order of the Assessing Officer and submitted that action of the Assessing Officer was justified. 3.2 On the other hand, the Ld. counsel of the assessee filed two paper books containing pages from 1 to 72 and 1 to 116 and relied on the finding of the Ld. CIT-(A) on the issue in dispute. 3.3 We have heard the rival submission and perused the relevant material on record. We find that in the remand proceeding, the Assessing Officer has already accepted the factual mistake as regard to the area of the land in question, which is actually 10,535.11 square metres as against 20,288 square meters adopted in the assessment order. We do not find any reason for agitating the entire amount of addition on the issue in dispute by the Revenue, though partly accepted by the Assessing Officer as incorrect amount. 3.4 Further, we find that in terms of section 48 of the Act for computing the capital gain on sale of a capital asset from the “full value of the consideration” received or accruing as a result of the transfer of the capital asset following amounts are deducted: a) the cost of acquisition of the asset and b) cost of improvement if any to the asset and c) expenditure incurred wholly and exclusively in connection with transfer of the asset. 3.5 However, section 50C of the Act has provided that in case of capital assets being land or building or both, if the full value of consideration received or accruing is less than the value adopted or assessed [or assessable w.e.f 01/10/2009] by stamp valuation authority for the purpose of payment of stamp duty, then the value so adopted or assessed [or assessable w.e.f. 01/10/2009] shall for the purpose of section 48 be deemed to be the full value consideration received or accruing a result of such transfer. 3.6 We find that in the instant case the assessee has already declared the full value consideration received of Rs. 30,00,000/- per acre (Rs.741 per square metre) as against the price of agricultural land of Rs.17,58,400 per acre (Rs.167 per square metre) fixed by the Land and Building Department of NCT Delhi (which is stamp valuation authority in respect of the land in question), and thus the provisions of section 50C of the Act are not applicable in the case of the assessee. In our opinion, since section 50C of the Act is not applicable, only full value of consideration received by the assessee could be considered for computation of capital gain under section 48 of the Act. As far as sale of land and building or both is concerned , there is no provision other than section 50C of the Act under which the Assessing Officer can replace the full value of consideration with fair market value of the property. In view of above, the finding of the Ld. CIT-(A) on the issue in dispute is well reasoned and no interference on our part is required. Accordingly, we uphold the same and ground of the appeal is dismissed.

4. In ground No. 2, the Revenue has challenged deletion of addition of Rs.69,10,002/- made by the Assessing Officer. 4.1 The facts in respect of issue in dispute are that the assessee purchased 6,97,980 shares of M/s Siddartha Utility Private Limited (SUPL) from “Apar Builders Private Limited” on 18/10/2005 for a sum of Rs.69,798 i.e. the rate of Rs. 0.10 per share. The Assessing Officer observed that both M/s Apar Builders and the assessee company had the same registered office and under the same management. He further observed that as per balance sheet of M/s Siddartha Utility Private Limited as on 31/03/2006, there were investment, totalling to Rs.3,68,49,886 in blue-chip shares. According to the Assessing Officer, the assessee company received benefit or perquisites in the transaction and accordingly he adopted the purchase value of the shares at Rs. 10.0 per share and added the difference of Rs. (Rs. 69, 79,800 – Rs. 69,798) = 69, 10, 002/-as income under section 2(24)(iv) of the Act. The learned CIT-(A) deleted the addition with following observations:

“16. I have considered the submissions made by the learned AR, the papers available in the paper books and also the remand report of the Assessing Officer. 16.1 As seen from the facts of the case on record and also the submissions of the learned AR, provisions of section 2(24)(iv) of the Act are not applicable because:

(i) Purchase of shares is by the assessee company and not by any director or shareholder of the transferor company. (ii) Neither the company nor its Directors and/or shareholders have any substantial interest in JP Ventures Ltd. as required under the provisions of section 2(24)(iv) of the Act. (iii) Deemed value of purchase cannot be equated with or termed as benefit / perquisite as per provisions of section 2(24)(iv) of the Act. (iv) AO has not given any basis of substantial interest of assessee company in the transferor company which is the precondition for application of section 2(24)(iv). It is seen that the assessee is also not a Director or share holder of J.P. Ventures Ltd. i.e., transferor company.” 16.2 Also I am of the view that the AO has not given any basis of taking the face value of shares purchased at its face value of Rs. 10/ as against the actual price bargained and paid at Rs. 0.10 per share. The value of a share of SUPL as per Wealth Tax Act and as per the working filed by the appellant, is a deep negative or zero. Moreover the said company is stated to have large losses. It is seen that the AO in his remand report has also not disputed the figures of the Balance Sheet adopted by the appellant. 16.3 In the light of the above facts and circumstances, the addition of Rs. 69,10,002/- as made by the AO deserves to be deleted.”

4.2 Before us, the Ld. CIT(DR) supporting the order of the Assessing Officer relied on following pronouncements:

“1. CIT Vs Gurdial Singh f19981 100 Taxman 507 (Delhi) In the above case, the company did not charge interest from its two directors on debit balances standing in their names. Hon’ble Delhi High Court held that directors having derived benefit of interest from company were assessable on said interest income under section 2(24)(iv). 2. CIT Vs Tara Singh M9981 233 ITR 669 (Delhi)/n9991 152 CTR 111 (Delhi).

Assessee was director of a company. There stood certain debit balance in books of company against assessee. ITO formed an opinion that assessee should be deemed to have derived benefit from company assessable to tax within meaning of section 2(24)(iv) and value of such benefit was added income of assessee. However, Tribunal deleted said addition. It was held that Tribunal was not correct in holding that no income within meaning of section 2(24)(iv) was assessable in hands of assessee 3. Addl. CIT Vs Late A.K. Lakshmi M9781 113 ITR 368 (Madras) In the above case, assessee was shareholder and director of company. No interest was charged by company on overdrawings by assessee whereas company was paying interest on its borrowings. Hon’ble Madras High Court held that interest chargeable to overdrawings by assessee was benefit that had been'-'' accrued to assessee without cost attracting definition of ‘perquisite’ under section 17(2) and falling under section 17(2)(iii)(a).

4.3 On the contrary, the Ld. counsel relied on the order of the Ld. CIT- (A). He further referred to page 89 of the paper book and submitted that out of 10,000 shares of the assessee company 9,998 shares were held by Smt. Nandita Gaur and only one each shares were held by Sh Jayprakash Gaur and Sh. Suneel Gaur. He further referred to page 90 of the paper book and submitted that Nandita Gaur was not holding any shares in M/s Jaypee Ventures Ltd. (i.e. the Apar Builders Private Limited, now merged with M/s. Jaypee Ventures Ltd.). According to the Ld. counsel, the condition of section 2(24)(iv) of the Act are not satisfied in the above case and, therefore, the learned CIT-(A) has rightly deleted the addition. 4.4 We have heard the rival submission and perused the relevant material on record. For adjudicating the issue in dispute, It is relevant to reproduce section 2 (24)(iv) of the Act as under:

“2(24)(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid ; 4.5 A plain reading of the above provision makes it clear that for the value of any benefit or perquisite obtained from a company to be income of the assessee, the recipient must be either director or a person having substantial interest in that company or any relative of the director or such person.

4.6 We find that the Revenue has not been able to rebut the factual finding on the issue in dispute that purchase of shares is by the assessee company and who is neither director nor shareholder of the transferor company and thus the decisions cited by the learned CIT(DR) are not applicable over the facts of the instant case. The Assessing Officer has not given any basis of substantial interest of the assessee company in the transferor company, which is a precondition for application of section 2(24)(iv) of the Act. In our considered opinion, once the condition of section 2(24)(iv) of the Act is not satisfied, the Assessing Officer cannot arbitrarily make valuation of the shares purchased by the assessee and treat the same as benefit or perquisite liable as income of the assessee in terms of section 2(24)(iv) of the Act. We are of the view that order of the Ld. CIT-(A) on the issue in dispute is well reasoned and no interference on our part is required. Accordingly, we uphold the same and dismiss ground No. 2 of the appeal.