The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench deleted an addition made by the AO under the head capital gain to the tune of Rs.16.67 Crores.
The assessee, M/s. Himalaya Darshan Developers (Gujarat) Pvt. Ltd. has been engaged in the finance business. The assessee was the owner of 2 plots bearing number 548 and 549 admeasuring 33,612 Sq. mtrs. which were purchased for a consideration of Rs. 1,45,30,560/- only.
The assessee subsequently entered into a Banakhat for the sale of both the plots to M/s SJ Securities Limited (SJSL) at a consideration of Rs. 2,02,08,750/-. Accordingly, the assessee in its income tax return declared short term capital gain of Rs. 37,18,594/- only in the year under consideration with respect to both the sale of plots.
The AO sought clarification from the assessee proposing the entire transaction between the assessee and SJSL as a colorable device used by the assessee for transferring the capital gain on the sale of land to the SJSL which was subsequently set off against the loss on the sale of commodities.
The AO further observed that the circle value of both the plots of land stands at Rs. 18,58,56,000/- at the rate of 5500 per Sq. Mtr., whereas the assessee has transferred the same at much lower value (i.e. Rs. 2,02,08,750/-) than the value declared for the purpose of Stamp duty. Accordingly, the AO proposed to take the sale consideration equal to the value declared for the purpose of stamp duty i.e. Rs. 18,58,56,000/- for working out the capital gain as provided under the provision of section 50C of the Act.
The AO was of the view that the stamp value should be taken as the sale consideration for the purpose of working out the capital gain as provided under the provisions of section 50C of the Act. Thus the AO made an addition of 16,67,49,036/- to the total income of the assessee.
However, the CIT(A) after considering the fact in totality deleted the addition made by the AO.
The department contended that the assessee has carried out the transaction for the sale of the lands in dispute by adopting the colourable device through SJSL and diverted its income under the head capital gain. The department vehemently supported the order of the AO.
On the other hand, the assessee urged that there was no incriminating document found during the search belonging to the assessee and therefore the assessment framed under section 153C of the Act in itself is invalid. The regular assessment was framed under section 143(3) of the Act wherein all the details for the sale of the properties were duly disclosed which were admitted by the AO.
The assessee also contended that the AO has not afforded the opportunity of the cross-examination to the assessee of the statements recorded during the search proceedings despite repeated requests were made by the assessee.
The coram headed by the Vice President Rajpal Yadav noted that the right of the assessee got extinguished by virtue of agreement to sale with respect to the property in dispute. After entering into the agreement of sale a right in personam has been created in favour of the buyer and the assessee was bound to execute the conveyance deed as per the direction of the buyer i.e. SJSL, therefore such agreement of sale should be treated as the date of transfer of the property.
The ITAT held that the proceedings initiated under section 153C of the Act without having any incriminating materials belonging to the assessee which have bearing on its income is not sustainable.
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