THE ACIT, CIRCLE-1(2), AHMEDABAD V. NEPTUNE PLASTIC CORPORATION, AHMEDABAD

ITA 1370/AHD/2019

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The case involves the Income Tax Department appealing against the decision of the Commissioner of Income Tax (Appeals)-10, Ahmedabad, which had allowed the appeal of Neptune Plastic Corporation, a partnership firm. The core issue was the treatment of the sale consideration and related expenses of an immovable property sold by Neptune Plastic Corporation. The AO had reopened the assessment under Section 147 of the Income Tax Act, 1961, after discovering that the capital gain from the sale of a property was not disclosed in the return. The AO treated the entire sale consideration as income and disallowed certain expenses claimed by the assessee. The CIT(A) reversed this decision, leading to the Revenue's appeal before the Income Tax Appellate Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473902 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: REVENUE; RIGNESH DAS
• Assessee Lawyers: SAURABH SOPARKAR
• Keywords: Depreciation; Wholly owned subsidiary; Bogus
• Section: 147; 143(3); 201; 101

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 1370/Ahd/2019 (Ǔनधा[रण वष[ / Assessment Year : 2014-15) ACIT Circle-1(2), Ahmedabad बनाम/ Vs. Neptune Plastic Corporation 41, Shrimali Society, Nr. Navrangpura Railway Crossing, Navrangpura, Ahmedabad– 380009, Gujarat èथायी लेखा सं./जीआइआर सं./PAN/GIR No. : AABFN2419F (Appellant) .. (Respondent) अपीलाथȸ ओर से /Appellant by : Shri Rignesh Das, Sr. DR Ĥ×यथȸ कȧ ओर से/Respondent by : Shri Saurabh Soparkar, AR Date of Hearing 26/02/2025 Date of Pronouncement 13/03/2025 O R D E R PER SHRI NARENDRA PRASAD SINHA, AM: This appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-10, Ahmedabad, (in short ‘the CIT(A)’), dated 25.06.2019 for the Assessment Year 2014-15. 2. The brief facts of the case are that the assessee is a partnership firm. The return of income for A.Y. 2014-15 was filed on 30.09.2015 declaring total income of Rs.28,49,263/-. Subsequently, the AO had received an information that the assessee had sold an immovable property for a consideration of ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 2 – Rs.5,04,80,000/- on 28.05.2013 and the capital gain on sale of this property was not disclosed in the return. Therefore, the case was reopened under Section 147 of the Income Tax Act, 1961 (in short ‘the Act’) after recording proper reason. The assessment was completed u/s. 143(3) r.w.s. 147 of the Act on 29.12.2018 at total income of Rs.3,07,97,263/-. 3. Aggrieved with the order of the AO, the assessee had filed an appeal before the First Appellate Authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was allowed. 4. Now, the Revenue is in second appeal before us. The following grounds have been taken in this appeal: “1. The ld. CTT(A) erred in law and in facts by allowing: (4) the expenses claimed by the assessee amounting to (1) Rs 2.39,00,000/- as against the transfer expense and (2) Rs.15,00,000/- made to True Value Nirman Pvt. LaL/TVNPL/ on account of the stamp duty and registration charges for the said property, although there was no obligation for such payment (totaling to Rs. 2,54,00,000/-) claimed against the receipt from sale of [immovable property of Rs. 5,04,30,000-sold to Chemedge Global Private Ltd. (CGPL)] which was earlier purchased from Almond Infrastructure Pvt. Ltd. (AIPL) for a consideration of Rs. 2,50,00,000/-. (b) Rs. 25,48,000/-on account of consequential depreciation claimed by the assessee on the said property which was disallowed by the AO. 2. The ld. CIT(A) erred in law and in facts by not considering that the agreements between the assessee and TVNPL., between TVNPL and Ardor Structure Pit. Lad (ASPL who had received a sum of Rs.2,39,00,000/- from TVNPL allegedly on account of booking right), between ASPL and CGPL relied upon by the assessee were actually made after the execution of the sale deed and not a single document was enforceable by law, thus making the whole series of transactions sham. ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 3 – 3. In doing so:- (a)The ld. CIT(A) erred in relying on the appellant's contention that the exclusive booking rights of the property were given to TVNPL, a wholly owned subsidiary company of AIPL as per the conveyance deed which was not found genuine. (b) The ld. CIT(A) erred in law and in facts by considering that all the parties involved were not related parties to the assessee, contrary to the fact that AIPL is parent company of TVNPL to whom payment of Rs. 2,39,00,000/- was made by the assessee on account of alleged claimed of assisting in finding a buyer of the said property (C) The ld. CIT(A) erred in law and facts by considering the appellant's contention that the said property was initially booked by the ASPL, which allegedly informed TVNPL that it has assigned the rights of the said property in favour of CGPL, its sister concern, although it was categorically brought on record by the AO that once TVNPL had received a fees of Rs. 2,39,00,000/- for release of rights of the property, there was no justification of making payment of Rs.2,04,80,000/- to ASPL once the rights of purchase of the property had been finally acquired by the CGPL from ASPL. (4) It is, therefore, prayed that the order of ld. CIT(A) may be set aside and that of the Assessing Officer be restored.” 5. Shri Rignesh Das, Ld. Sr. DR appearing for Revenue submitted that all the grounds taken by the Revenue are interconnected and pertain to short term capital gain arising on sale of immovable property. The Ld. SR. DR has painstakingly taken us through the assessment order. The facts that are relevant to decide the issues arising in this appeal are as under: (i) The assessee had purchased three immovable properties in the scheme “Neptune Harmony” developed by Almondz Infrastructure Pvt. Ltd. (AIPL), the details of which are as under: Sr. No. Premise No of Neptune Harmony Date of Purchase Consideration Paid (Rs) Registered Purchase Deed No ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 4 – 1 Shop No. 4 on ground floor 28.09.2011 2,50,00,000 10865 of 2011 dated 28.09.2011 2 Shop No. 101 on 1st Floor 28.09.2011 4,50,00,000 10867 of 2011 dated 28.09.2011 3 Shop No 201 on 2nd Floor 02.11.2012 2,56,50,000 6278 of 2012 dated 02.11.2012 Total purchase consideration paid 9,56,50,000 (ii) All these immovable properties were capitalized as work- in-progress in the audited balance sheet of F.Y. 2012-13. (iii) The property being Shop No.4 on ground floor of Neptune Harmony was sold by the assessee during the year on 28.05.2013 for a consideration of Rs.5,04,80,000/- to M/s. Chemedge Global Private Ltd. (CGPL). The assessee had, however, shown the net sale consideration of Rs.2.50 Crores only in its books of accounts, which was reduced from the block of assets, as the gain derived on sale of property was short term capital gain. (iv) The assessee had claimed payment of Rs.2.39 Crores to one M/s. True Value Nirman Pvt. Ltd. (in short ‘True Value’) on account of assistance in finding buyer of the said property. (v) According to the assessee, the exclusive booking right of Neptune Harmony was given to True Value. As a result the assessee could not have sold the property independently. Hence, it has approached True Value to sell Shop No.4 at ground floor. The True Value had found out a prospective buyer M/s. Ardor Structure Pvt. Ltd. (ASPL), who was willing to buy the property for Rs.3 Crores. As per the understanding, the True Value was to retain Rs.35 Lacs as fee towards release of booking rights and ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 5 – the balance Rs.2.65 Crores was to be paid to the assessee which included Rs.2.50 Crores being cost of the property and Rs.15 Lacs towards various other expenses. (vi) Subsequently, ASPL had informed True Value that it had assigned the right of Shop No. 4 of Neptune Harmony in favour of its sister concern M/s. CGPL. Accordingly, True Value was asked to execute the sale deed in favour of CGPL for a consideration of Rs.5,04,80,000/-. The excess consideration of Rs.2,04,80,000/- on execution of this sale deed was to be retained by ASPL. (vii) The contention of the assessee was that it actually received Rs.2.50 Crores only on account of sale consideration and Rs.15 Lacs was received towards reimbursement of expense, which were duly accounted for and disclosed in its return of income. 6. The Ld. Sr. DR explained that all the agreements between the assessee and True Value and between True Value and ASPL were made after the actual sale of property by the assessee and were sham and bogus agreements. He submitted that even if True Value had exclusive booking right of Neptune Harmony, such right could not have been exercised by True Value in respect of the property already acquired by the assessee. Therefore, True Value had no locus standi to enter into any agreement as the booking agent. He further submitted that as per the sale deed executed by the assessee with CGPL, the entire sale consideration of Rs.5,04,80,000/- was received by the assessee only vide RTGS on 17.05.2013. Therefore, the AO had rightly treated the sale consideration of the property at Rs.5,04,80,000/-. The payment ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 6 – of Rs.2.39 Crores to True Value could had to be considered only as commission payment. The Ld. Sr. DR submitted that the AO had rightly disallowed the expense as commission payment of more than 50% of sale consideration was unheard of. He, therefore, strongly supported the disallowance of expenditure of Rs.2.39 Crores and Rs.15 Lacs paid to True Value, which was non-genuine and sham transaction. He further submitted that the AO had rightly treated the sale consideration of property at Rs.5,04,80,000/- and reduced it from WDV of block of assets. Accordingly, the disallowance of depreciation of Rs.25,48,000/- on account of reduction of WDV was also justified. 7. Per contra, Shri Saurabh Soparkar, Ld. Sr. Counsel appearing for the assessee strongly supported the order of the Ld. CIT(A). He submitted that the initial agreement made by the assessee with True Value for sale of property to the prospective buyer i.e. ASPL was for a consideration of Rs.3 Crores only. Subsequently, the buyer had transferred its right to its sister concern CGPL and, therefore, the second jump in the price of the property did not belong to the assessee at all but it belonged to the prospective buyer i.e. ASPL. He further submitted that the payment of Rs.35 Lacs to True Value was rightly held by the Ld. CIT(A) as the cost of transfer. This payment was necessitated in order to sell the property by the assessee. The Ld. Sr. Counsel further submitted that the AO was not correct in making addition of Rs.2.54 Crores on account of disallowance of expense as well as addition of Rs.25,48,000/- in respect of disallowance of depreciation. The Ld. Sr. Counsel explained that the gain arising on the sale of property was short term capital gain and the sale ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 7 – consideration was required to be reduced from the WDV. Accordingly, when the entire sale consideration of Rs.5,04,80,000/- was reduced from WDV and depreciation was disallowed, there was no question of separate addition of Rs.2.54 Crores on account of disallowance of expenses. 8. We have carefully considered the rival submissions. The basic fact that the cost of shops was disclosed as work-in- progress and that only short-term capital gain arose on sale of Shop No.4 on ground floor of Neptune Harmony, is not under dispute. Since, this is a case of short-term capital gain, the entire sale consideration was required to be reduced from the block of assets and the effect of disallowance, if any, was restricted to disallowance of depreciation. The action of the AO in reducing the WDV of stock-in-trade and disallowing the depreciation as well as the disallowance of expenses, both cannot be held as correct. 9. The moot issue to be decided in this appeal is as to what was the actual sale consideration received by the assessee on the sale of shop number 4 on the ground floor of Neptune Harmony. A copy of the purchase deed as well as the sale deed of the property under question has been brought on record in the paper book filed by the assessee. It is found that the Shop No.4 of Neptune Harmony was purchased by the assessee on 28.09.2011 from AIPL for a consideration of Rs.2.50 Crores. The contention of the assessee is that when it wanted to sale this property, it had to approach True Value for the reason that the booking right for sale of property was only with True Value. From the evidences ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 8 – as brought on record, this contention of the assessee is not found correct. The sale deed dated 28.09.2011 for purchase of property was executed directly between AIPL as vendor and Neptune Plastic Corporation, the assessee, as purchaser. We do not find mention of True Value anywhere in the sale deed, as exclusive booking agent of ASPL. Neither True Value was signatory of this document as a booking agent. Further, clause-12 of the sale deed regarding permission of the vendor for sale of property stipulated as under: “(12) After obtaining previous written permission of the Management Body/VENDOR the PURCHASER shall be entitled to transfer/ sell, convey, mortgage, charge or in any way encumber or deal with or dispose of said Property or to assign, underlet or part with its interest under or benefit of this sale or any part thereof in the said Property and such approval shall not be normally denied unless the PURCHASER/occupier has committed breach or default in compliance of the terms and conditions of this sale deed or any other agreements entered into with of the Management Body or its rules resolution etc. as the case may be and if the activities of the transferor or transferee are not suitable to the Building/Management Body.” 10. It is, thus, found that the assessee was required to obtain permission of the management body/vendor for sale of Shop No.4 and there was no stipulation that the permission has to be obtained from True Value as booking agent or that the booking agent was required to be involved in the future sale transactions. Thus, the contention of the assessee that it could not have sold the property without making an agreement with True Value is not found correct. As rightly held by the AO, neither the True Value had exclusive selling right of the property nor any such right could have been exercised in respect of the property already ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 9 – acquired by the assessee. Therefore, the involvement of True Value in the sale transaction of the property by the assessee has to be treated in the capacity of a mere agent only. 11. The assessee has filed a copy of booking agreement dated 1st March, 2012 between True Value and ASPL in respect of Shop No.4 at Ground Floor of Neptune Harmony. It is mentioned in the said agreement that True Value was having absolute right to give booking in the building Neptune Harmony by virtue of an agreement made on 20.03.2011 between True Value and AIPL. Even if it is accepted that True Value had a booking right arrangement, such right was not applicable in respect of the premises already sold by AIPL to third party buyers. On the date of this agreement i.e. on 01.03.2012, the premises of Shop No.4 was owned by the assessee and not by the AIPL. Therefore, the booking agreement made between True Value and AIPL was non- enforceable in respect of this property. In fact, the name of the owner of the shop i.e. the assessee was nowhere appearing nor there was reference of any arrangement between the assessee and True Value for sale of this property in the booking agreement dated 01.03.2012. There was no fiduciary relationship between True Value and the assessee and in the absence of any such relationship True value either explicitly or implicitly couldn’t have agreed to act on behalf of the assessee to sale the property owned by the assessee. It is also mentioned in this agreement that the booking price of Rs.75 Lacs paid on 26.03.2012 by ASPL was received by True Value. Since, the True Value was neither the owner of the property nor power of attorney holder on behalf of the assessee and no reference of any agreement between the True ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 10 – Value and the assessee was appearing in this booking agreement, the payment of Rs.75 Lacs could not have been received by True Value. In the absence of any evidence on record that True Value was an agent of the assessee, the booking agreement dated 1st March, 2012 was not at all enforceable and binding on the assessee. 12. In the sale deed executed between the assessee and CGPL dated 28.05.2013 as well, there is no reference of any role played by True Value in this transaction. The Clause 3 of this sale deed reads as under: “3. The VENDOR and PURCHASER have negotiated for the sale of Shop No.4, admeasuring about 3155 sq.ft. i.e. 293.10 sq.mts.,(Super Built Up area) Showroom on Ground Floor and more particularly described in the Schedule written hereunder (hereinafter referred to as “the said Property”).” Thus, the negotiation for sale of Shop No.4 was made directly between the vendor and the purchaser and no role of True Value was acknowledged in the sale deed. Further, as per the sale deed the entire sale consideration of Rs.5,04,80,000/- was received by the vendor (assessee) directly vide RTGS on 17.05.2013 of Rajkot Nagrik Sahakari Bank Ltd. 13. The assessee had also filed a copy of agreement dated 31.05.2013, as per which the assessee had agreed to return the excess sale consideration of Rs.2,39,80,000/- after deduction of expenses of stamp duty and registration fee of Rs.15 Lacs, to True Value. As rightly pointed out by the AO, this agreement was post the date of execution of sale deed by the assessee. As already ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 11 – discussed earlier, True Value had no booking right in the property already acquired by the assessee and there was no question of any payment to True Value for release of its right. Even if there was an oral understanding between the assessee and True Value, the nature of payment had to be considered only as commission payment. As rightly held by the AO, the commission payable to the agent for providing professional assistance was in the range of 2 to 5% and the payment of 50% of the sale consideration as commission to the agent was not justified. As already discussed earlier True Value had no locus standi in the transaction. Neither it was having any booking rights in respect of this property nor it was authorized by the assessee to sell the property on its behalf, by way of any power of attorney. All the arrangements were made post the date of actual sale of the property with an intention to divert the sale consideration and to reduce the tax liability. Therefore, the AO was correct in treating the transaction as sham transaction and in holding that the payment made by the assessee to True Value was not genuine. To that extent, the finding of the AO is upheld. 14. From the documents brought on record and the facts as discussed above, it is evident that the sale consideration of Rs.5,04,80,000/- was received by the assessee and True Value had no locus standi to make any agreement on behalf of the assessee. Therefore, the AO was correct in treating the sale consideration of property at Rs.5,04,80,000/-. As the profit derived from sale of property was in the nature of short-term capital gain, the same was required to be reduced from WDV of the block of assets. Accordingly, the action of the AO in ITA No. 1370/Ahd/2019 [ACIT vs. Neptune Plastic Corporation] A.Y. 2014-15 - 12 – reducing the sale consideration of Rs.5,04,80,000/- from WDV of block of assets and thereby disallowing excess depreciation of Rs.25,48,000/- is upheld. However, the action of the AO in making separate addition of Rs.2.54 Crores on account of disallowance of expenditure cannot be held as correct. It has not been made out by the Revenue that this expenditure of Rs.2.54 Crores was separately debited in the P&L account of the assessee. Therefore, the addition of Rs.2.54 Crores in respect of disallowance of expense is deleted and the ground taken by the Revenue in this regard is dismissed. In case it is found that this expenditure was separately deleted to P&L account, then Revenue is free to approach us on this issue. 15. In the result, the appeal filed by the Revenue is partly allowed. This Order pronounced on 13/03/2025 Sd/- Sd/- (SUCHITRA KAMBLE) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 13/03/2025 S. K. SINHA True Copy आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंͬधत आयकर आयुÈत / Concerned CIT 4. आयकर आयुÈत(अपील) / The CIT(A)- 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड[ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलȣय अͬधकरण, अहमदाबाद / ITAT, Ahmedabad "