DCIT., Circle-1(1), Hyderabad V. M/s Alpha Villas Private Limited, Secunderabad

ITA 1413/HYD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2537 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 25-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Opportunity of being heard; Cost of acquisition; Speculation loss; Capital receipt; Reassessment proceedings
• Section: 143(3); 50C; 68

Judgement Text

ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 1 OF 18 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1413/HYD/2014 (ASSESSMENT YEAR: 2008-09) DCIT, CIRCLE 1 ( 1 ) HYDERABAD VS M/S. ALPHA VILLAS PVT LTD SECUNDERABAD PAN: AAFCA 8949 L (APPELLANT) (RESPONDENT) ITA NO.1424/HYD/2014 (ASSESSMENT YEAR: 2008-09) DCIT, CIRCLE 1 ( 1 ) HYDERABAD VS M/S. ALPHA AVENUES PVT.LTD SECUNDERABAD PAN: AAFCA 8948 M (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI J. SIRI KUMAR, DR FOR ASSESSEE : SHRI K.A. SAI PRASAD O R D E R PER SMT. P. MADHAVI DEVI, J.M. BOTH ARE REVENUES APPEALS FOR THE A.Y 2008-09 AGAINST SEPARATE ORDERS OF THE CIT (A)-V HYDERABAD, DATED 31.03.2014 RESPECTIVELY. BOTH THESE APPEALS WERE INITIALLY FILED ON 25.8.2014 AND 27.8.2014 RESPECTIVELY. THE PR. CITS AUTHORIZATION FOR FILING OF BOTH THE APPEALS IS DATED 21.8.2014, BUT HOWEVER, THE AUTHORIZATION WAS GENERAL WITHOUT SPECIFICALLY MENTIONING THE GROUNDS OF APPEAL AUTHORIZED BY HIM TO BE FILED BEFORE THE DATE OF HEARING: 16.11 . 2017 DATE OF PRONOUNCEMENT: 14 . 0 2 .201 8 ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 2 OF 18 TRIBUNAL. THEREAFTER, THE REVENUE HAS FILED THE REVISED GROUNDS OF APPEAL IN BOTH THE APPEALS ALONG WITH THE PR. CITS AUTHORIZATION FOR THE FILING OF THE SAID GROUNDS OF APPEAL. THEREFORE, THE REVISED GROUNDS OF APPEAL FILED ON 18.10.2016 IN BOTH THE APPEALS ONLY ARE BEING CONSIDERED FOR FINAL ADJUDICATION OF THE RESPECTIVE APPEALS. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN BOTH THE APPEALS ARE THE SAME EXCEPT FOR THE QUANTUM. THEREFORE, BOTH THE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON AND CONSOLIDATED ORDER. FOR THE SAKE OF CLARITY AND READY REFERENCE, THE GROUNDS OF APPEAL IN THE CASE OF ALPHA VILLAS (P) LTD ARE REPRODUCED HEREUNDER: 1. IN THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.14,99,99,760/- MADE U/S 68 OF THE INCOME TAX ACT, 1961. 2. IN THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THE SURPLUS OF RS.17,74,29,315/- ON SALE OF LAND AS CAPITAL GAINS AS AGAINST THE SAME HELD AS PROFITS AND GAINS FROM BUSINESS BY THE ASSESSING OFFICER. 3. IN THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO SET OF LOSS OF RS.82,54,651/- ON SALE OF SHARES AGAINST THE PROFIT ON SALE OF LAND HELD BY HIM AS CAPITAL GAINS REJECTING THE DECISION OF THE ASSESSING OFFICER THAT THE SAME CANNOT BE SET OFF AGAINST PROFITS AND GAINS FROM BUSINESS AND EVEN OTHERWISE THE SAME CANNOT BE SET OFF AS IT REPRESENTED SPECULATION LOSS IN TERMS OF THE EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT. ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 3 OF 18 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY M/S. ALPHA VILLAS PVT. LTD FILED ITS E-RETURN OF INCOME ON 30.09.2008 DECLARING AN INCOME OF RS.16,25,42,950 FOR THE A.Y 2008-09. THE RETURN WAS INITIALLY ACCEPTED U/S 143(1) ON 21.9.2009, BUT SUBSEQUENTLY IT WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, VARIOUS DETAILS CALLED FOR BY THE AO WERE FILED BY THE ASSESSEE. ON PERUSAL OF THE SAME, THE AO OBSERVED THAT THE ASSESSEE WAS IN THE BUSINESS OF REAL ESTATE AND SHARE INVESTMENTS AND HAD ADMITTED THE INCOME WHICH CONSISTED OF LOSS FROM BUSINESS OF RS.1,04,029, SHORT TERM CAPITAL GAIN ON SALE OF LAND OF RS.16,91,74,664 AND THE INCOME FROM OTHER SOURCES OF RS.5,97,316 AND AFTER CLAIMING DEDUCTION OF RS.71,25,000 U/S 80G, THE NET TAXABLE INCOME WAS DECLARED AT RS.16,25,42,950. 4. SIMILARLY, BRIEF FACTS IN THE CASE OF ALPHA AVENUES LTD ARE THAT IT FILED ITS E-RETURN OF INCOME ON 30.09.2008 DECLARING AN INCOME OF RS.16,24,79,847 FOR THE A.Y 2008-09. THE RETURN WAS INITIALLY ACCEPTED U/S 143(1) ON 21.09.2009 AND SUBSEQUENTLY SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE WHICH WAS IN THE BUSINESS OF REAL ESTATE AND INVESTMENTS IN SHARES, ADMITTED BUSINESS LOSS OF RS.10,25,403, SHORT TERM CAPITAL GAIN OF RS.16,85,00,897, INCOME FROM OTHER SOURCES OF RS.6,29,359 AND AFTER CLAIMING DEDUCTION OF RS.56,25,000 U/S 80G, THE NET TAXABLE INCOME WAS ARRIVED AT RS.16,24,79,850. ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 4 OF 18 5. WHILE EXAMINING THE ACCEPTABILITY OF SHORT TERM CAPITAL GAINS ON SALE OF LAND IN THE HANDS OF BOTH THE ABOVE ASSESSEES, THE AO OBSERVED THAT THEY PURCHASED 4.10 ACRES OF LAND EACH SITUATED AT PET BASHEERABAD VILLAGE, QUTUBULLAPUR MANDAL & MUNICIPALITY FROM M/S. MATRIX LABORATORIES LTD FOR A CONSIDERATION OF RS.2,51,85,185 EACH ON 24.8.2006 AND WITHIN A PERIOD OF SEVEN MONTHS FROM THE DATE OF PURCHASE I.E. ON 18.4.2007, BOTH THE COMPANIES HAVE SOLD AWAY THE SAID LAND FOR A CONSIDERATION OF RS.21,25,00,000 EACH TO M/S. ADITYA HOUSING & INFRASTRUCTURE DEV. CORPORATION PVT. LTD. HE ALSO OBSERVED THAT BOTH THE ASSESSEES HAVE CLAIMED THAT AN AMOUNT OF RS.50.00 LAKHS HAS BEEN SPENT TOWARDS LEVELLING OF LAND ETC., AND THEREFORE, BY INCLUDING THE DEVELOPMENT EXPENDITURE AND COST OF REGISTRATION AT THE TIME OF PURCHASE, THE COST OF ACQUISITION WAS ARRIVED BY EACH OF THE ASSESSEES AT RS.3,50,70,685. 6. THE AO OBSERVED THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE AND THEREFORE, PROFIT ON THE SALE OF LAND IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS AND NOT UNDER THE HEAD CAPITAL GAIN. THEREFORE, SHOW CAUSE NOTICES WERE ISSUED TO THE ASSESSEES. THE ASSESSEES, VIDE LETTERS DATED 8.11.2010, EXPLAINED THAT THE LAND WAS REFLECTED AS A FIXED ASSET IN THEIR RETURNS OF INCOME FILED FOR THE A.YS 2006-07 AND 2007-08 AS IT WAS THE INTENTION OF THE ASSESSEES TO HOLD IT FOR A LONG PERIOD OF TIME, BUT DUE TO UNPRECEDENTED BOOM IN REAL ESTATE MARKET IN HYDERABAD AND SURROUNDING AREAS, THE LANDS WERE OFFERED TO BE PURCHASED AT A GOOD PRICE AND HENCE THE ASSESSEES HAVE SOLD THE SAME AND THE PROFIT ARISING FROM SUCH A TRANSACTION HAS CORRECTLY BEEN OFFERED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. THE AO, HOWEVER, ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 5 OF 18 OBSERVED THAT THE OBJECT OF THE ASSESSEE COMPANIES WAS TO DEAL IN REAL ESTATE BUSINESS AND THEREFORE, THE SALE OF LAND FOR PROFIT WITHIN A PERIOD OF 7 MONTHS IS NOTHING BUT BUSINESS TRANSACTION AND THE INCOME SHOULD BE TREATED AS BUSINESS INCOME. HE THEREFORE, TREATED THE ENTIRE INCOME AS INCOME FROM BUSINESS. 7. THE AO ALSO CONSIDERED THAT THE ASSESSEES HAVE CLAIMED SHORT TERM CAPITAL LOSS ON SALE OF SHARES AT RS.82,54,651 AND RS.89,28,418 RESPECTIVELY TO BE SET OFF AGAINST THE SHORT TERM CAPITAL GAIN FROM SALE OF LAND. SINCE THE AO HAS HELD THE PROFIT FROM SALE OF LAND TO BE BUSINESS INCOME, HE HELD THAT THE SHORT TERM CAPITAL LOSS CANNOT BE SET OFF FROM THE SAID BUSINESS INCOME. FURTHER, HE ALSO HELD THAT AS PER EXPLANATION TO SECTION 73 OF THE ACT, THE LOSS ON SALE OF SHARES PARTAKES THE CHARACTER OF SPECULATIVE LOSS AND THEREFORE, IT CANNOT BE SET OFF AGAINST ANY OTHER SOURCE OF INCOME EXCEPT THE SPECULATIVE INCOME. THEREFORE, HE DECLINED TO GIVE SET OFF OF THE SHORT TERM CAPITAL LOSS FROM THE INCOME FROM SALE OF LAND. 8. AGGRIEVED, THE ASSESSEES PREFERRED RESPECTIVE APPEALS TO THE CIT (A) STATING THAT THE LAND WAS ACTUALLY PURCHASED ON 30.09.2005 FROM M/S. MATRIX LABORATORIES LTD BY MAKING THE PAYMENT AND POSSESSION OF THE SAME WAS TAKEN IMMEDIATELY, AND ONLY THE REGISTRATION OF THE PROPERTY WAS DONE ON 24.08.2006 AND THEREFORE, THE ASSET WAS TREATED BY THE ASSESSEE AS TRANSFERRED ON 30.09.2005 AS PROVIDED U/S 2(47)(V) OF THE I.T. ACT. IT WAS ALSO SUBMITTED THAT THE PROPERTY WAS SHOWN AS A FIXED ASSET IN THE BALANCE SHEET OF THE COMPANY FILED ALONG WITH THE RETURNS OF ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 6 OF 18 INCOME FILED FOR THE A.YS 2006-07 AND 2007-08 AND THAT THE ASSESSEE COMPANY HAS ALSO PAID WEALTH TAX ON THIS PROPERTY. IT WAS SUBMITTED THAT AN URBAN LAND FOR BOTH THE A.YS ,IF TREATED AS STOCK-IN-TRADE, IS EXEMPT FROM WEALTH TAX FOR A PERIOD OF FIVE YEARS FROM THE DATE OF ACQUISITION AS PER CLAUSE (B) OF EXPLANATION 1 TO SECTION 2(E)(A) OF THE WEALTH TAX ACT, 1967 AND THE FACT THAT THE ASSESSEE HAS PAID WEALTH TAX PROVES THAT THE LAND WAS NOT TREATED AS STOCK-IN-TRADE. IT WAS THEREFORE, SUBMITTED THAT THE AO IS NOT CORRECT IN TREATING THE PROPERTY AS STOCK-IN-TRADE AND THE PROFIT ON SALE THEREOF AS BUSINESS INCOME. 9. THE CIT (A) ACCEPTED THE CONTENTION OF THE ASSESSEE. HE CONSIDERED THE BALANCE SHEET AND WEALTH TAX RETURNS OF THE ASSESSEE TO HOLD THAT THESE DOCUMENTS AMPLY PROVE THAT THE ASSESSEE HAD THE INTENTION TO HOLD THE LAND AS A CAPITAL ASSET AND THAT THE AO HAS NOT RECORDED ANY REASONS FOR NOT ACCEPTING THEM. HE ALSO ACCEPTED THAT THE LAND WAS TRANSFERRED W.E.F. 30.09.2005, TO COME TO THE CONCLUSION THAT THE LAND WAS HELD BY THE ASSESSEE FOR 19 MONTHS AS AGAINST THE AOS OBSERVATION THAT IT WAS HELD ONLY FOR A PERIOD FOR 7 MONTHS. THUS, HE HELD THAT THE LAND IS A CAPITAL ASSET IN THE HANDS OF THE ASSESSEE AND THEREFORE, DIRECTED THE AO TO ACCEPT THE COMPUTATION OF SHORT TERM CAPITAL GAINS ADMITTED BY THE ASSESSEE. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 10. THE LEARNED DR STRONGLY RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE ASSESSEE BEING IN THE BUSINESS OF REAL ESTATE, HAS PURCHASED LAND FROM M/S. MATRIX LABORATORIES LTD ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 7 OF 18 AND IMMEDIATELY THEREAFTER WITHIN A SHORT SPAN OF SEVEN MONTHS, HAS SOLD THE SAME FOR A HUGE MARGIN AND HENCE IT HAS RIGHTLY BEEN TREATED AS BUSINESS INCOME BY THE A.O. 11. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, DREW OUR ATTENTION TO THE CONTENTIONS OF THE ASSESSEE THAT THE LAND WAS PURCHASED DURING THE YEAR 2005 BY PAYMENT OF THE ENTIRE SALE CONSIDERATION AND TAKING OVER OF THE POSSESSION OF THE PROPERTY. IT IS SUBMITTED THAT ONLY THE REGISTRATION OF THE SALE DEED HAS TAKEN PLACE IN 2006. HE ALSO DREW OUR ATTENTION TO THE RECITALS IN THE SALE DEED ABOUT THE PAYMENT OF THE TOTAL CONSIDERATION AND HANDING OVER OF THE POSSESSION IN THE YEAR 2005 AND THAT THE SALE DEED IS BEING EXECUTED IN 2006. HE SUBMITTED THAT THE ASSESSEE HAS ALL LONG BEEN TREATING THE ASSET AS A FIXED ASSET IN ITS BOOKS OF ACCOUNT AS IS EVIDENT FROM THE BALANCE SHEET FILED ALONG WITH THE RETURNS OF INCOME FOR THE A.YS 2006-07 AND 2007-08 AND FURTHER THAT THE FACT OF THE PURCHASE OF THE PROPERTY IN 2005 HAS ALSO BEEN TAKEN NOTE OF BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. MATRIX LABORATORIES LTD WHEREIN THE SAID COMPANY HAS OFFERED THE CAPITAL GAINS TO TAX IN THE RELEVANT A.Y. HE FILED A COPY OF THE ORDER OF THE TRIBUNAL BEFORE US. HE ALSO SUBMITTED THAT THE ASSESSEE HAS FILED THE WEALTH TAX RETURNS SHOWING THE SAID LAND AS URBAN LAND AND HAS PAID THE WEALTH TAX AND THE SAME HAS BEEN ACCEPTED BY THE REVENUE AUTHORITIES. THEREFORE, ACCORDING TO HIM, THE CIT (A) HAS RIGHTLY TREATED THE INCOME FROM SALE OF LAND AS SHORT TERM CAPITAL GAIN. ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 8 OF 18 12. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE BASIC QUESTION BEFORE US IS WHETHER THE LAND IS A FIXED ASSET AS CLAIMED BY THE ASSESSEE OR IS IT STOCK-IN- TRADE AS HELD BY THE AO. THE ASSESSEE HAS RELIED UPON ITS BALANCE SHEETS FOR THE A.YS 2006-07 & 2007-08 AND ALSO THE WEALTH TAX RETURNS TO SUPPORT ITS CLAIM THAT THE LAND WAS PURCHASED IN THE YEAR 2005. WE HAVE PERUSED THE COPY OF THE REGISTERED SALE DEED DATED 24.08.2006. THE RELEVANT RECITALS IN THE SALE DEED ARE AS UNDER: NOW THIS DEED OF SALE WITNESSES AS FOLLOWS: 1) THAT IN PURSUANCE OF THE ABOVE OFFER AND IN ACCEPTANCE OF CONSIDERATION THE VENDEE HAS ALREADY PAID THE ENTIRE SUM OF RS.2,51,85,185 (RUPEES TWO CRORES FIFTY ONE LAKHS EIGHTY FIVE THOUSAND ONE HUNDRED AND EIGHTY FIVE ONLY) TO THE VENDOR TOWARDS THE FULL AND FINAL SETTLEMENT OF THE SAME. THAT THE VENDOR HEREBY ACKNOWLEDGE THE RECEIPT OF THE SAID SUM AND RELEASE THE VENDEE FROM ANY FUTURE LIABILITY OF PAYMENT IN THIS TRANSACTION. THAT THE VENDOR ALSO HEREBY DECLARE AND TRANSFER THE SAID LAND BY THE ABSOLUTE SALE TO THE VENDEE TO HAVE AND TO HOLD THE SAME ABSOLUTELY FOREVER TOGETHER WITH ALL THE RIGHTS, TITLE, LIENS, EASEMENTS, ADVANTAGES AND APPURTENANCES PERTAINING IN WHICH THE VENDOR IS HAVING IN RESPECT OF THE SAID LAND. 2) THAT THE VENDOR HAS ALREADY HANDED OVER THE VACANT AND PEACEFUL PHYSICAL POSSESSION OF THE SAID LAND TO THE VENDEE DATED 30.09.2005 AND ASSURE TO KEEP INDEMNIFIED FROM ALL THE LOSSES, COSTS, EXPENSES, DAMAGES AND WHATEVER MAY BE THE VENDEE SHALL BE PUT INTO REASON OF ANY DEFECT IN THE TITLE OF THE SAID LAND HEREBY CONVEYED. ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 9 OF 18 13. FROM THE ABOVE RECITALS, IT APPEARS THAT IN TERMS OF SECTION 2(47)(V) OF THE ACT, THE TRANSFER HAS TAKEN PLACE. FURTHER, FROM THE COPY OF THE BALANCE SHEET AS ON 31.3.2006 AT PAGE 35 OF THE PAPER BOOK, THE GROSS BLOCK OF FIXED ASSETS IS SHOWN AT RS.2,51,85,185 WHICH IS THE SALE CONSIDERATION PAID FOR PURCHASE OF THE PROPERTY. FROM THE COPIES OF WEALTH TAX RETURNS FOR THE A.Y 2006-07 & 2007-08 AT PAGES 55 TO 59 AND 60 TO 64 RESPECTIVELY, IT IS SEEN THAT THE ASSESSEE HAS SHOWN THIS ASSET AS A TAXABLE ASSET. FROM THE BALANCE SHEET FOR THE RELEVANT A.Y, THE ASSET AS ON 31.03.2007 IS SHOWN AT RS.30,070,685 AND AS ON 31.3.2008 AT NIL. THERE IS NO SCHEDULE FOR THE FIXED ASSETS. FURTHER, FROM THE ORDER OF ITAT IN ITA NO.2123/HYD/2011 IN THE CASE OF MYLAN LABORATORIES (FORMERLY KNOWN AS MATRIX LABORATORIES LTD), IT IS SEEN THAT THE TRIBUNAL HAS CONSIDERED THE ISSUE OF APPLICATION OF SECTION 50C TO THE SALE OF THE ABOVE PROPERTY AND ANOTHER PROPERTY BY MATRIX TO THE ASSESSEES HEREIN FOR THE A.Y 2007-08 AND AT PARAS 18 TO 18.3 (AT PAGES 149 TO 151 OF THE PAPER BOOK FILED IN THE CASE OF ALPHA AVENUES PVT. LTD) IT WAS HELD AS UNDER: 18. BRIEF FACTS RELATING TO THIS GROUND ARE THAT ASSESSEE HAS SOLD A PROPERTY BY ENTERING INTO AGREEMENT OF SALE WITH THREE PARTIES IN JUNE/SEPT. 2005 RELEVANT FOR THE AY.2006-07. THE COMPANY OFFERED CAPITAL GAINS AS SHORT TERM CAPITAL GAIN OF RS.1,52,66,486/- (SALE PRICE - COST PRICE) AS THE POSSESSION WAS HANDED OVER. THE PROPERTY HOWEVER, WAS REGISTERED ON 24-08-2006 RELEVANT FOR IMPUGNED ASSESSMENT YEAR, AO INVOKING THE PROVISIONS OF SECTION50C CONSIDERED THE REGISTRATION VALUE AND REWORKED OUT THE CAPITAL GAINS BY BRING THE DIFFERENCE TO CAPITAL GAINS AT RS. 8,55,50,992/-. THE DRP DID NOT INTERFERE AS THE PROCEEDINGS FOR AY. 2006-07 WERE REOPENED AND ARE PENDING. ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 10 OF 18 18.1 LD. COUNSEL PLACED ON RECORD THE ORDER U/S. 143(3) R.W.S. 147 IN AY. 2006-07 WHERE IN AO DID NOT MAKE ANY VARIATION EXCEPT STATING THAT THE ISSUE WAS DEALT WITH IN AY. 2007-08. HE PLACED HIS ARGUMENTS AS CONTENDED BEFORE DRP/AO. 18.2 AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE ORDERS ON RECORD. WE CANNOT APPROVE THE ACTION OF AO IN BRINGING TO TAX IN TWO YEARS FOR THE FOLLOWING REASONS: (A) ASSESSING OFFICER HAS NOT DISPUTED THE FACT THAT PROPERTY WAS HANDED OVER IN SEPT. 2005. BY VIRTUE OF THE DECISION OF JURISDICTIONAL HIGH COURT, IN THE CASE OF POTLA NAGESWARA RAO VS. DCIT [365 ITR 249 (AP)], THE CAPITAL GAIN IS ATTRACTED THE MOMENT THE PROPERTY WAS HANDED OVER, THE SALE CONSIDERATION WAS ALSO RECEIVED. SO THE CAPITAL GAIN IS CORRECTLY OFFERED BY ASSESSEE IN AY. 2006-07 ITSELF. (B) PROVISIONS OF SECTION 50C CAN BE INVOKED BUT WHAT AO DID WAS TO BRINGING TO TAX ONLY THE DIFFERENCE IN SRO PRICE AND SALE PRICE TO TAX. HE IS BOUND TO CALCULATE THE CAPITAL GAINS. HE DID NOT BRING THE CAPITAL GAIN OFFERED IN AY. 2006-07 TO THIS YEAR. THERE CANNOT BE COMPUTATION OF CAPITAL GAINS IN TWO ASSESSMENT YEARS ON SALE OF ONE PROPERTY. THE ACTION OF AO IS NOT ACCORDING TO THE PROVISIONS OF THE ACT. (C) AO SHOULD HAVE CONSIDERED THAT THE GAINS BECOME LONG TERM CAPITAL GAIN AS THE SAME WAS PURCHASED IN APRIL, 2003 AND ACCORDING TO AO SOLD ON 24-08-2006. BUT THE SAME WAS BROUGHT TO TAX AS SHORT TERM CAPITAL GAIN. EVEN THE DRP FAILED TO CONSIDER THE SAME WHEN ASSESSEE POINTED OUT. NO DIRECTION WAS GIVEN TO AO TO TREAT IT AS LONG TERM CAPITAL GAIN. (D) DRP DID NOT INTERFERE WITH THE ORDER ON THE REASON THAT PROCEEDINGS FOR AY. 2006-07 WERE PENDING. THE ORDER OF AO IN THE REASSESSMENT PROCEEDINGS INDICATE THAT AO DID NOT REDUCE THE CAPITAL GAINS OFFERED IN THIS YEAR. THIS INDICATES THAT THE ACTION OF ASSESSEE IN OFFERING SHORT TERM CAPITAL GAIN WAS ACCEPTED. (E) EVEN THOUGH, THE PROVISIONS OF SECTION 50C WAS AMENDED TO CLARIFY THAT THE SRO VALUE AS ON DATE OF AGREEMENT OF SALE HAS TO BE CONSIDERED THAT NEED NOT BE CONSIDERED HERE AS AO ON FACTS ACCEPTED CAPITAL GAIN IN AY. 2006-07 ITSELF. ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 11 OF 18 18.3 FOR THE REASONS STATED ABOVE, THE ACTION OF AO IN BRINGING TO TAX THE DIFFERENCE ALONE CANNOT BE APPROVED. ACCORDINGLY, THE ADDITION MADE IS SET ASIDE. GROUNDS ARE ALLOWED. 14. THUS, THE VENDOR M/S. MATRIX LABORATORIES HAD OFFERED THE STCG ON THE BASIS OF RECEIPT OF SALE CONSIDERATION AND HANDING OVER OF THE POSSESSION IN THE FINANCIAL YEAR 2005-06 IN THE A.Y 2006-07, BUT THE AO HAD BROUGHT IT TO TAX IN A.Y 2007-08 ON THE GROUND THAT THE PROPERTY WAS REGISTERED ON 24.08.2006 RELEVANT TO THE A.Y 2007-08. THE TRIBUNAL HAS CLEARLY ACCEPTED THAT THERE WAS TRANSFER OF THE PROPERTY IN A.Y 2005-06 RELEVANT TO A.Y 2006-07. FROM ALL THE ABOVE FACTS, THE FINDING OF THE AO THAT THE ASSESSEE HAS HELD THE LAND FOR A SHORT PERIOD OF SEVEN MONTHS IS NOT ACCEPTABLE. HOWEVER, EVEN IF IT IS HELD THAT THE LAND IS HELD FOR 19 MONTHS, THE GAIN IS STILL SHORT TERM CAPITAL GAINS ONLY. THE FACT THAT THE ASSESSEE HAS HELD IT AS A CAPITAL ASSET IN ITS BOOKS AND HAS PAID THE WEALTH TAX OVER IT, CLEARLY PROVE THAT IT WAS NOT HELD AS STOCK-IN-TRADE BUT WAS HELD AS A CAPITAL ASSET AND THE GAIN THEREFORE IS SHORT TERM CAPITAL GAIN AS OFFERED BY THE ASSESSEE. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE CIT (A) ON THIS ISSUE IN BOTH THE CASES. THE GROUNDS OF APPEAL ON THIS ISSUE ARE THEREFORE, REJECTED. 15. THE LEARNED DR HAD ARGUED THAT EVEN IF THE ABOVE INCOME IS TREATED AS STCG, THE SET OFF OF STCL AGAINST THIS SHORT TERM CAPITAL GAIN IS NOT ALLOWABLE, BECAUSE ACCORDING TO HIM, LOSS ON SALE OF SHARES IS A SPECULATION LOSS AND CAN BE ALLOWED ONLY ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 12 OF 18 AGAINST SPECULATION INCOME IN TERMS OF THE EXPLANATION TO SECTION 73 OF THE I.T. ACT. 16. THE LEARNED COUNSEL FOR THE ASSESSEE HAD SUBMITTED THAT IF THE INCOME FROM SALE OF LAND IS TREATED AS SHORT TERM CAPITAL GAIN, THE ONLY OTHER INCOME WAS BUSINESS LOSS AND IN THE ABSENCE OF BUSINESS INCOME, EXPLANATION TO SECTION 73 WOULD NOT BE APPLICABLE AND THEREFORE, THE LOSS ON SHARES IS TO BE SET OFF AGAINST THE SHORT TERM CAPITAL GAIN. 17. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT SECTION 73 DEALS WITH THE LOSS IN SPECULATIVE BUSINESS AND EXPLANATION THERETO PROVIDES THAT WHERE ANY PART OF THE BUSINESS OF A COMPANY (OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS' INTEREST ON SECURITIES', ' INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND ' INCOME FROM OTHER SOURCES') OR A COMPANY (THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING) OR THE GRANTING OF LOANS & ADVANCES CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSE OF SECTION 73, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES'. ADMITTEDLY, THE GROSS TOTAL INCOME OF THE ASSESSEE CONSISTS MAINLY OF SHORT TERM CAPITAL GAIN AND DOES NOT CONSIST OF INCOME FROM PURCHASE AND SALE OF SHARES. THEREFORE, THE EXPLANATION TO SECTION 73 IS NOT APPLICABLE AND THE CAPITAL LOSS ON SALE OF SHARES CANNOT BE CONSIDERED AS SPECULATIVE LOSS AND IS TO BE SET OFF FROM THE ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 13 OF 18 SHORT TERM CAPITAL GAIN. THUS, GROUNDS OF APPEAL NO.2 & 3 ARE DISMISSED. 18. AS REGARDS GROUND NO.1, BRIEF FACTS ARE THAT THE AO OBSERVED THAT THERE WAS INCREASE IN SHARE CAPITAL OF THE ASSESSEE BY RS.3,49,16,662 AND HAS RECEIVED THE PREMIUM OF RS.14,58,33,100. THE ASSESSEE WAS ASKED TO PROVE THE GENUINENESS OF THE SAME AND THE ASSESSEE FURNISHED THE REQUIRED DETAILS. ON PERUSAL OF THE DETAILS FURNISHED BY THE ASSESSEE, THE AO OBSERVED THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.14,99,99,760 FROM ONE M/S. CORNER STONE PROPERTIES & INVEST. PVT. LTD TOWARDS ALLOTMENT OF 4,16,666 SHARES OF THE COMPANY @ RS.360/PER SHARE (I.E. WITH A PREMIUM OF RS.350/- PER SHARE OF RS.10/-) ON 03.03.2008 WHEREAS JUST TWO DAYS PRIOR THERETO I.E ON 01.03.2008 RS. 30,75,000/- SHARES OF THE COMPANY WERE ALLOTTED TO ONE OF THE DIRECTOR MR. N. PRAKASH AT THE RATE OF RS.10/- PER SHARE I.E. WITHOUT ANY PREMIUM. THE ISSUE OF GENUINENESS OF THE FRESH SHARE CAPITAL RECEIVED WITH HUGE PREMIUM WAS EXAMINED BY THE ADDL. CIT U/S 144A OF THE ACT AND IT WAS HELD THAT THE RECEIPT OF PREMIUM FROM M/S. CORNER STONE PROPERTIES & INVESTMENTS PVT. LTD IS NOT A CAPITAL RECEIPT AND IS TO BE TAXED AS INCOME U/S 68 OF THE ACT AND IS TO BE BROUGHT IT TO TAX. THE AO PASSED THE ORDERS IN ACCORDANCE WITH THE DIRECTIONS OF THE ADDL. CIT U/S 144A OF THE ACT. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WHO ALLOWED THE SAME. AGAINST THE RELIEF GRANTED BY THE CIT (A), THE REVENUE IS IN APPEAL BEFORE US. ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 14 OF 18 19. WE FIND THAT THE ADDL. CIT U/S 144A OF THE ACT HAD DIRECTED THE AO, (AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD) TO TREAT THE SHARE CAPITAL AND SHARE PREMIUM RECEIVED FROM M/S. CORNER STONE PROPERTIES & INVEST. PVT. LTD AS INCOME U/S 68 OF THE ACT AND CONSEQUENT TO THE SAID DIRECTION, THE AO HAS BROUGHT IT TO TAX U/S 68 OF THE ACT. IT IS THEREFORE, PERTINENT TO GO INTO THE DIRECTIONS OF THE ADDL. CIT U/S 144A OF THE ACT (THE COPY OF WHICH IS FILED AT PAGES 74 TO 87 OF THE PAPER BOOK FILED BY THE REVENUE). 20. THE PROCEEDINGS U/S 144A WERE INITIATED TO EXAMINE WHETHER THE SUM OF RS.14.99 CRORES SHOWN AS SHARE CAPITAL AND PREMIUM RECEIVED BY THE ASSESSEE FROM M/S CORNERSTONE PROPERTIES INVESTMENTS (P) LTD, BANGALORE IS A CAPITAL RECEIPT OR IS TAXABLE AS ASSESSEES INCOME FOR THE RELEVANT ASSESSMENT YEAR. THE ADDL. CIT OBSERVED THAT DURING THE FINANCIAL YEAR 2007-08, BOTH THE ASSESSEES I.E. ALPHA VILLAS P LTD (AVPL) AND ALPHA AVENUES P LTD (AAPL) HAVE RECEIVED RS.14.99 CRORES AS SHARE CAPITAL AND SHARE PREMIUM, WHILE M/S. GILCHRIST INVESTMENTS P LTD HAD RECEIVED RS.20.00 CRORES FROM M/S. CORNERSTONE PROPERTIES & INVESTMENTS (P) LTD. HE OBSERVED THAT THE ASSESSEE HAD ALLOTTED SHARES TO CPIPL ON 3.3.2008 @ RS.3.60 PER SHARE, WHEREAS TWO DAYS PRIOR THERETO I.E. ON 1.3.2008, THE ASSESSEE HAD ALLOTTED 30,75,000 SHARES AT FACE VALUE OF RS. 10/- TO SHRI N. PRAKASH, THE PROMOTER AND DIRECTOR OF THE ASSESSEE COMPANY. HE ALSO OBSERVED THAT THE MONEY RECEIVED FROM CPIPL WAS IMMEDIATELY INVESTED AS SHARE CAPITAL IN JAGATI PUBLICATIONS (P) LTD (JPPL) FOR ALLOTMENT OF 4,16,666 SHARES OF JPPL AT A PREMIUM ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 15 OF 18 OF RS.350/PER SHARE AND IDENTICAL TRANSACTIONS WERE DONE BY AAPL AS WELL. 21. THE ADDL.CIT OBSERVED THAT THE IMMEDIATE SOURCE FOR CPIPL FOR INVESTMENT IN THE ASSESSEE COMPANIES WAS THE SHARE CAPITAL RECEIVED BY IT FROM WALDEN PROPERTIES PVT LTD., (WPPL) ON VARIOUS DATES STARTING FROM 31.07.2007 TO 9.10.2007 AND THAT THE WPPL HAD STATED THAT ITS SOURCE FOR SUCH INVESTMENT IS THE SALE PROCEEDS FROM CUSTOMERS AND SURPLUS FUND FROM ITS CANCELLATION OF FDRS. THE AO OBSERVED FROM THE BOOKS OF ACCOUNT OF WPPL FOR THE FINANCIAL YEAR 2006-07 AND 2007-08, THAT IT WAS IN HEAVY NEED OF FUNDS FOR ITS OPERATIONS FOR FINANCIAL YEAR 2007-08 AND HAD SECURED LOANS. THE CORRESPONDENCE BETWEEN THE WPPL AND CPIPL WAS ALSO FURNISHED BEFORE THE A.O BY MR. B. SUBHASH OF WPPL ON 29.11.2010. FROM THE SEQUENCE OF EVENTS, THE AO OBSERVED THAT THE WPPL HAD EVINCED INTEREST IN ACQUIRING 50% STAKE IN CPIPL AT RS.60 CRORES AND HAD ALSO STATED THAT ITS OPERATIONAL TEAM AND SUPERVISORY TEAM WOULD PARTICIPATE IN THE PROJECT AT BANGALORE, BUT THE CPIPL DID NOT AGREE FOR PARTICIPATION OF THE OPERATIONAL TEAM AND MANAGEMENT TEAM FROM WPPL FROM THE DAY-TO-DAY, BUT AGREED FOR A PERIODICAL OVERVIEW. HE OBSERVED THAT ON 26.06.2007 WPPL AGREED TO THE PROPOSAL OF CPIPL WITHOUT ANY DUE DILIGENCE AND HAS PAID MONEY TO CPIPL WHICH WAS IMMEDIATELY INVESTED IN THE ASSESSEE COMPANIES. HE OBSERVED THAT THE CPIPL DID NOT INFORM WPPL, THE NAMES OF THE COMPANIES IN WHICH INVESTMENTS WERE GOING TO BE MADE NOR HAD WPPL ASKED FOR THE NAMES BUT WERE INFORMED ORALLY, ONLY AT A LATER STAGE. OBSERVING THAT THE CPIPL HAD INVESTED IN THE ASSESSEE COMPANIES, WHICH IN TURN INVESTED IN JPPL, THE ADDITIONAL CIT WAS OF THE OPINION THAT WPPL ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 16 OF 18 BEING A GROUP CONCERN OF INDU GROUP, IN WHICH SHRI N. PRAKASH AND HIS BROTHER ARE ALSO THE DIRECTORS, ADOPTED THE ASSESSEE AS CONDUIT TO INVEST IN JPPL, AND THAT SUCH TRANSFER OF FUNDS IS FOR THE LIAISON SERVICES RENDERED BY THE PROMOTERS OF THE ASSESSEE COMPANY AT THE HIGHEST LEVEL OF THE STATE GOVERNMENT AND HENCE DIRECTED TO TREAT THE SHARE PREMIUM AS THE INCOME OF THE ASSESSEE. HE ALSO ARRIVED AT THE NET WORTH OF THE ASSESSEE COMPANY TO HOLD THAT THE PAYMENT OF PREMIUM @ RS. 350/- PER SHARE IS NOT JUSTIFIED. THE AO FOLLOWED THE DIRECTIONS OF THE ADD. CIT. 22. ON THE OTHER HAND, WE FIND THAT THE CIT (A) HAS DELETED THE ADDITION BY OBSERVING THAT SHRI N. PRASAD IS NOT AN ACTIVE DIRECTOR IN ALL THESE COMPANIES, INCLUDING THE APPELLANT COMPANY AND THAT IF THE RECEIPTS WERE FOR LIAISON SERVICES PROVIDED BY SHRI N. PRASAD TO INDU GROUP, THEN SUCH INCOME IN NORMAL COURSE WOULD HAVE ACCRUED TO HIM AND SHOULD BE CONSIDERED AS INCOME IN HIS INDIVIDUAL HANDS AND THAT THE PAYMENT TO THE ASSESSEE COMPANY IS A MERE APPLICATION OF INCOME ACCRUED IN THE HANDS OF THE SERVICE PROVIDER I.E. SHRI NIMMAGADDA PRASAD. AGAINST THE RELIEF GRANTED BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 23. THE UNDISPUTED FACTS ARE THAT WPPL AND INDU GROUP ARE RELATED PARTIES AND WPPL HAD INVESTED IN SHARE CAPITAL OF CPIPL, WHICH IN TURN, HAD INVESTED IN THE ASSESSEES BEFORE US AND THE ASSESSEES, IN TURN HAVE INVESTED THE SAID AMOUNT IN RCL AND JPPL. THE AMOUNT INVESTED BY CPIPL IN THE ASSESSEES I.E AAPL AND APPL IS 14.99 CRORES EACH, WHICH HAS IN TURN, HAS BEEN INVESTED BY THE ASSESSEES INTO JPPL AND RCL. THUS, IT IS CLEAR THAT THE ASSESSEES ARE THE CONDUITS FOR THE INVESTMENT OF SHARE ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 17 OF 18 CAPITAL IN RCL AND JPPL, AND THE NUMBER OF SHARE AND THE PREMIUM PAID BY THE CPIPL TO THE ASSESSEES AND BY THE ASSESSEES TO RCL AND JPPL IS ALSO THE SAME. THUS, IT IS CLEAR THAT THE ASSESSEES HAVE NOT EARNED OR RETAINED ANY INCOME TO TREAT IT AS THEIR INCOME U/S 68 OF THE IT ACT. 24. FURTHER, WE ALSO FIND THAT THE AMENDMENT TO SEC. 56(VIIB) OF THE IT ACT HAS COME INTO THE STATUTE W.E.F 1.04.2013 AND PRIOR TO SUCH AN AMENDMENT, THERE WAS NO PROVISION TO TAX THE SHARE PREMIUM AS THE INCOME OF THE ASSESSEE. FOR THIS REASON ALSO, THE SHARE PREMIUM CANNOT BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. 25. FURTHER, WE ALSO FIND THAT THE HONBLE BOMBAY HIGH COURT, IN ITS RECENT DECISION IN THE CASE OF M/S APEAK INFOTECH, NAGPUR AND OTHERS IN ITA NOS. 26 OF 2017 TO 31 OF 2017, DATED 08.06.2017, HAS HELD THAT THE SHARE PREMIUM IS A CAPITAL RECEIPT LIKE SHARE CAPITAL AND THEREFORE IS NOT TAXABLE. 26. IN THE CASE BEFORE US ALSO, THE SHARE PREMIUM HAS BEEN BROUGHT TO TAX AS THE INCOME OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE ABOVE CASE (CITED SUPRA), WE HOLD THAT THE SHARE PREMIUM, EVEN IT IS IN EXCESS OF THE VALUE OF THE NET WORTH OF THE ASSESSEE, CAN ONLY BE TREATED AS CAPITAL RECEIPT AND CANNOT BE BROUGHT TO TAX. THOUGH, WE DO NOT AGREE WITH THE FINDINGS OF THE CIT(A), THAT IT IS THE INCOME OF THE INDIVIDUAL SHRI N. PRASAD, AND HAS TO BE BROUGHT TO TAX IN HIS HANDS, FOR THE REASONS GIVEN ABOVE, WE HOLD THAT THE SHARE PREMIUM CANNOT BE BROUGHT TO TAX IN THE HANDS OF ITA NOS 1413 AND 1424 OF 2014 ALPHA VILLAS P LTD SECUNDERABAD. PAGE 18 OF 18 THE ASSESSEES BEFORE US. THUS, THE GROUNDS OF THE APPEAL OF THE REVENUE ON THIS ISSUE ARE REJECTED 27. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH FEBRUARY, 2018. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 14 TH FEBRUARY, 2018. VINODAN/SPS COPY TO: 1 DCIT, CIRCLE 1(1) 8 TH FLOOR, C BLOCK, IT TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 2 M/S. ALPHA VILLAS PVT. LTD. FLAT NO.202, D-19, GAYATRI ARCADE, VIKRAMPURI, SECUNDERABAD 3 4 M/S. ALPHA AVENUES PVT. LTD. FLAT NO.202, D-19, GAYATRI ARCADE, VIKRAMPURI, SECUNDERABAD CIT (A)-V HYDERABAD 5 CIT 1, HYDERABAD 6 THE DR, ITAT HYDERABAD 7 GUARD FILE