In a recent decision, the Income Tax Appellate Tribunal ( ITAT ) of New Delhi ruled that a mere transfer of shares among shareholders does not justify revaluing a company’s property for taxation purposes.
The case is between the assessee, Shimmer Developers, a company in the real estate sector and the revenue, with the Tribunal addressing whether an alleged undervaluation of shares, based on the assessee-company’s property holdings, could warrant a significant income addition for the company itself.
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The matter began when tax authorities conducted a search and seizure operation on the premises of a business group with connections to the company in question. During the search, it was discovered that the assessee-company owned a prime property in New Delhi. In the financial year 2010-11, shares of the assessee-company were transferred among shareholders at a rate of Rs. 55 per share, which the authorities argued was significantly below the property’s fair market value. This prompted the Assessing Officer (AO) to reopen the assessee’s assessment for the 2011-12 financial year under Section 147 of the Income Tax Act (ITA), resulting in the addition of Rs. 150 crore to the company’s declared income on the grounds of alleged undisclosed income.
Challenging the AO’s decision, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the property in question had not been sold or transferred by the company itself. Instead, the shareholders merely transferred ownership of shares. The CIT(A) sided with the company, finding that the AO’s assertion of property transfer was legally flawed. According to the CIT(A), only shares had changed hands, while the property remained in the ownership of the company, which retained full control over the asset. Additionally, the CIT(A) noted that the Rs. 150 crore income addition was speculative, as it was based on assumptions rather than an official property valuation report.
Aggrieved, the Revenue appealed against this decision before the ITAT.
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During the Tribunal hearing, legal representatives for the assessee contended that under tax law, a transfer of shares is distinct from a transfer of company-owned assets. They argued that the property’s value, even if significant, did not alter the fact that no transfer of ownership had occurred at the company level. The defense also highlighted the inapplicability of Section 68 of the tax legislature in this context, noting that there was no unexplained credit of Rs. 150 crore in the company’s books, which is a prerequisite for invoking Section 68.
After considering all submissions, the ITAT bench of Mr Pradip Kumar Kedia and Mr Anuhav Sharma upheld the CIT(A)’s decision, observing that the AO had acted without proper jurisdiction in reopening the assessment. The Tribunal reaffirmed that a transfer of shares does not constitute a property transfer by the company, thus rendering the income addition baseless.
In result, the appeal was dismissed.
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