DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, HUBBALLI, HUBBALLI vs. SRI LINGARAJU GOWDARA MALLIKARJUNAPPA, CHITRADURGA

Per Laxmi Prasad Sahu, Accountant Member These two appeals filed by the Revenue against two separate Orders passed by CIT(A) vide Order DIN:ITBA/APL/M/250/2024- 25/1065244703(1) DATED 30.05.2024 AND DIN:ITBA/APL/M/250/2024- 25/1065139947(1) DATED 27.05.2024. The grounds taken by the Revenue are common except the figures mentioned. Since the issues are common in nature, for the sake of convenience and brevity, we are taking appeal in ITA No.1463/Bang/2024 and the decision taken in ITA No.1463/Bang/2024 shall apply mutatis mutandis to appeal in ITA No.1464/Bang/2024. 2. Briefly stated, the facts of the case are that assessee is an individual and one of the Directors of M/s. Shailendra Techno Park (P) Ltd., Bangalore. Assessee filed return of income on 31.10.2018 declaring total income of Rs.9,50,020/-. A search action under section 132 of the Act was initiated in the case of the assessee on 18.05.2017 at the residential premises of the assessee. Consequent to search action under section 132 of the Act on 18.05.2017 being the previous year relevant to the Assessment Year 2018- 19, the provisions of section 153B of the Act were applicable in the case of the assessee and the case was selected for scrutiny and notice under section 143(2) of the Act was issued to the assessee on 23.09.2019 and other statutory notices were issued to the assessee. The authorized representative of the assessee appeared and attended the case and filed submissions as called for. The AO disputed only on the share transactions on the transfer of shares of M/s. Shailendra Techno Park (P) Ltd. vide agreement dated 18.01.2017. From the documents found, it was noticed that M/s. Shailendra Techno Park (P) Ltd., is a private limited company in which Shri. Somasekhar Reddy, Smt. G. Vijaya and Shri. G. Veerasekhar Reddy were the shareholders upto Financial Year 2016-17. The said company owns land and building at Whitefield Industrial Area, Krishnarajapuram, Bengaluru East, Bengaluru. The shares of the said company were purchased from Shri Somasekhar Reddy and others by the assessee along with Shri. G. M. Prasanna Kumar, Shri. G. S. Anith Kumar and Smt. Shiela Prasanna Kumar. During the course of search in the office premises of GEM International (P) Ltd., and GEM Laboratories (P) Ltd., at No.22, Pamadi towers Gandhinagar, Bangalore, a file marked as A/GEML/03/T4 was found and seized, which at Page Nos. 12 to 17 contains a share purchase agreement about the aforesaid purchase of shares with others for a sum of Rs.28 crores and the assessee had purchased 28.5% of the total shares. It was noticed that for arriving the fair market value for which the shares are to be transferred, it was seen that a valuation of the land and building was done from a Government Approved Valuer and the document was marked as A/GEML/01/T4 shows that the property at plot No.116, AT: EPIP 1st Stage, Whitefield, Industrial Area, Krishnarajapuram Hobali, Bengaluru-East, Bengaluru, belonged to M/s. Shailendra Techno Park Pvt. Ltd., was valued at Rs.28,04,24,000/-. The valuation report is dated 10.05.2017 by Engineer D Nagaraja, BE (Civil), Approved Valuer. As per the valuation report, the commercial building was valued at Rs.15,95,19,000/- and site (Land) was valued at Rs.12,09,05,190/- resultantly the total value was arrived at Rs.28,04,24,000/-. The land which has been transferred is of 4,055/- sq.mtrs and the fair market of the land which has been transferred amounting to Rs.20,15,33,500/- as against Rs.12,09,190/- which has been determined by the valuer in the valuation report. Accordingly, there is under valuation to the extent of Rs.8,06,28,310/- and consequently the new shareholder of the company Shri. G. S. Anith Kumar, Shri. G. M. Prasanna Kumar, Shri. G. M. Lingaraju and Smt. Sheila Prasanna Kumar have received property from erstwhile shareholders of M/s. Shaileendra Techno Park (P) Ltd., Bangalore, for a consideration which is less than the fair market value by an amount of Rs.8,06,28,310/- which is more than 50,000/-. Therefore, the provisions of section 56(2)(x) of the Act are attracted. The share of the assessee is 28.% Accordingly, as per provisions of section 56(2)(x) of the Act, the assessee has received Rs.2,29,09,768/- the value of the property without consideration as per provisions of section 56(2)(x) of the Act. In this regard, a show cause notice was issued to the assessee and assessee has filed detailed written submissions which is reflecting in the Assessment Order. As per the detailed written submissions, the AO noted that the valuer has adopted the value of the land as per the guidance value of the Sub-Registrar and has allowed a further rebate @40% on the value of the land. It is the claim by the assessee that the rebate is on account of the fact that the land is being used for commercial purpose and not for residential purpose and this argument of the assessee was rejected by the AO. The AO further observed that although the property transferred is the shares of the company, the underlying assets transferred are the land and building and the value of the shares are dependent upon the underlying assets. Accordingly, the land transferred is for a value which is less than its guidance value fixed by the State Government authorities and the assessee's share is Rs.2,29,09,768/- and the same was added under section 56(2)(x) of the Act and the AO assessed income after adding two other additions and assessed at Rs.2,44,83,286/-.