+ Ita 517/2024 & Cm Appl v. M/S Advantage Fashion Pvt. Ltd

$~77 IN THE HIGH COURT OF DELHI AT NEW DELHI+ITA 517/2024 & CM APPL. 60210-11/2024PR. COMMISSIONER OF INCOME TAX-1, DELHIPR. COMMISSIONER OF INCOME TAX-1, DELHI .....Appellant Through:Mr. Sanjay Kumar, SSC. versus M/S ADVANTAGE FASHION PVT. LTD......RespondentThrough:None. CORAM:HON'BLE MR. JUSTICE VIBHU BAKHRUHON'BLE MS. JUSTICE SWARANA KANTA SHARMA O R D E R14.10.2024 % 1.The Revenue has filed the present appeal under Section 260A of theIncome Tax Act, 1961 (hereafter the Act), impugning an order dated30.11.2023 (hereafter the impugned order), passed by the learned IncomeTax Appellate Tribunal (hereafter the Tribunal) in a batch of appeals andcross-appeals preferred by the Revenue and the assessee for the assessmentyears (hereafter AY) 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and2011-12. 2.The present appeal relates to the Revenue’s appeal being ITA No.798/Del/2017 for the AY 2010-11, which was dismissed by the Tribunal interms of the common order impugned in the present appeal. 3.The Revenue has projected the following substantial questions of lawfor consideration of this Court: “A. Whether the Ld. ITAT was correct in deletingthe additions of Rs.6,97,45,648/- made on account of interest income camouflaged as sale/purchaseby the assessee ignoring the documents seized andnature of agreement? B. Whether the Ld. ITAT was correct in deletingthe additions of Rs.6,97,45,648/- made on accountof interest income camouflaged as sale/purchaseby the assessee ignoring the fact that no sale /purchase agreement of property contains clausespertainingtocorporateguarantee,personalguarantee, post-dated cheques etc? C. Whether the Ld. ITAT was correct in deletingthe additions of Rs.6,97,45,648/- made on accountof interest income camouflaged as sale/purchaseby the assessee ignoring the statement of Mr.Naveen Choudhary, CFO who admitted that theamount advanced to M/s Vatika Group is actuallyloan amount?” 4.The principal controversy in the present case relates to an addition of₹6,97,45,648/- made by the learned Assessing Officer (hereafter the AO) interms of the assessment order dated 27.03.2015. The AO had found atransaction, which was declared as giving rise to the capital gains was asubterfuge for a transaction of loan. 5.Accordingly, the AO held that the assessee had earned income by wayof interest which was not disclosed in its books of accounts. The assesseehad relied upon the statements made by the employees of other entities thathad dealt with Vatika Landbase Private Limited (hereafter Vatika). 6.The AO had a similar view in respect of the transactions betweenother entities of Vatika. During the assessment proceedings, certaindocuments and information were received in respect of the said entities and their employees / representatives were also examined.Based on the saidmaterial, the AO imputed that the assessee had entered into similartransactions with Vatika. 7.The search and seizure operations of Span India Group of cases wasconducted on 16.01.2013 under Section 153A of the Act. Thereafter, noticewas also issued to the assessee to furnish its returns of the income.Theassessee thereafter had furnished the returns on 10.11.2014 for the relevantAY 2010-11. 8.The AO noted that the search and survey operations were alsoconducted by the Investigation Wing in the case of Shri K. S. Dhingra andShri J. S. Dhingra (Dhingra Group) as well as the Shahi Group. 9.It is stated that during the search operation conducted on 16.01.2013,certain documents pertaining to Vatika group were also found. On the basisof such documents, the AO found that during the financial year 2005-06 fourgroups (the Shahi Exports group, the Span India group, the Dhingra groupand the Harman Singh Dhingra group) had entered into similar transactionswith Vatika whereby the said companies had agreed to purchase certain realestate in Jaipur. The details of the consideration paid by the said entities isset out below:- 8.The AO noted that the search and survey operations were alsoconducted by the Investigation Wing in the case of Shri K. S. Dhingra andShri J. S. Dhingra (Dhingra Group) as well as the Shahi Group. 9.It is stated that during the search operation conducted on 16.01.2013,certain documents pertaining to Vatika group were also found. On the basisof such documents, the AO found that during the financial year 2005-06 fourgroups (the Shahi Exports group, the Span India group, the Dhingra groupand the Harman Singh Dhingra group) had entered into similar transactionswith Vatika whereby the said companies had agreed to purchase certain realestate in Jaipur. The details of the consideration paid by the said entities isset out below:- 10.Thesaidentitiesalsopaidfurtheramountaggregatingto₹1,86,77,000/- to Vatika. The details of such payments are as under:- 11.Thus, the assessee had paid an aggregate amount of ₹15,37,72,300/- to Vatika pursuant to its agreements to purchase immovable properties. 12.As stated hereinabove, the agreements also provided for buy-back ofthe said properties @ ₹5100/- per square yard within a period of two years from the date of the sale. 13.Thereafter, the assessee and similarly placed entities had entered intofurther agreements with Vatika for extending the period for buy back of theimmovable properties which is subject to the said successive agreements bywhich the buy-back price was also increased. 14.However, Vatika did not buy back the rights of the assessee under theagreements.However, subsequently, the assessee refused to sell theimmovable properties to the third party. 15.The assessee thereafter sold its rights under the agreements to M/sESPO Developers Private Limited for a consideration of ₹22,50,12,000/- during the financial year 2010-11 in terms of the agreement dated10.05.2010. The amount under said agreement was received by the assesseein the months of June, July and September, 2010. 16.The AO held that Vatika was the ultimate source of money paid to theassessee.The AO referred to the statements made by the authorisedrepresentative /employee of other entities as well as some documents toconclude that the transactions entered into by the aforesaid four groups werein the nature of loan bearing interest. 17.The AO also found that there was some information on the hard discof the computers of Vatika which reflected the sale consideration was₹52,39,60,975/-. On the basis of the above, the AO concluded that the assessee had received unaccounted interest income of ₹6,97,45,648/- during the relevant assessment year. 18.Accordingly, the AO had added the gains made by the assessee as theinterest liable to tax as income from other sources and as unexplainedincome, and not as capital gains. 19.The transaction related to an agreement entered into by the assessee,with another real estate company Vatika (Vatika Landbase Private Limited)on 11.06.2005. In terms of the said agreement, the assessee had agreed topurchase certain immovable properties at the rate of ₹3,400/- per sq. yard, inclusive of the development charges and a license fee. The said agreementalso included a buy-back clause whereby Vatika had agreed to re-purchasethe said immovable property at the rate of ₹5,100/- per sq. yard at the end of the period of two years. The assessee was not compelled to sell the immovable property to Vatika and had the right to retain the same. It wasalso agreed that in the event that the assessee chose a plot which was in apreferential location, it would necessarily have to pay an additionalpreferential location charges, subject to a maximum of 15% of the land area.The assessee was also entitled to sell the immovable property to any thirdparty. immovable property to Vatika and had the right to retain the same. It wasalso agreed that in the event that the assessee chose a plot which was in apreferential location, it would necessarily have to pay an additionalpreferential location charges, subject to a maximum of 15% of the land area.The assessee was also entitled to sell the immovable property to any thirdparty. 20.Aggrieved by the assessment order, the assessee had preferred anappeal before the learned Commissioner of Income Tax (Appeals) (hereafterCIT(A)), which was allowed by an order dated 25.11.2016. The learnedCIT(A) had examined the commercial transaction between the parties andhad found that the same could not be held to be a camouflage for a loantransaction as concluded by the AO. 21.The relevant extract of the order passed by the learned CIT(A) readsas under:- “4.2.1.9 It can be seen from the very first agreement itself,that it is clearly an agreement to sell the plots to theappellant. There is not even a whisper of any loan or anywhisper of any interest receivable on the sale considerationunless there is failure on part of the seller to hand over theplots to the buyer. There is a clause of a resale to Vatika, ata pre-determined rate. However, the appellant is not boundto sell to Vatika, and has the right to sell to any outsideparty. The completion of re-sale is at the option of theappellant solely, in case the actual market price of the landexceeds the agreed resale price. This clause indicates thatthe resale clause is to only secure an assured return oninvestment to the appellant, but the appellant is free torealize a higher return. The introduction of a guarantor andPDCs too is only an instrument to secure its minimumassured return from Vatika. In my opinion, a promise ofassured return upon a re-sale to which only Vatika isbound, does not prove that the transaction is one of loan. Inany case, the appellant was not bound to sell the property toVatika, but had the unhindered right to sell to an outside party. In fact, vide the amendatory agreement dated05.06.2007, the appellant had the liberty to sell the plots toany outside party even before the due date of exercising theoption to re-sell i.e.10.06.2009. If it were a loan transactionsimpliciter Vatika would not have agreed to such acondition. party. In fact, vide the amendatory agreement dated05.06.2007, the appellant had the liberty to sell the plots toany outside party even before the due date of exercising theoption to re-sell i.e.10.06.2009. If it were a loan transactionsimpliciter Vatika would not have agreed to such acondition. 4.2.1.10 It would also be seen that the agreement dated11.06.2005 and subsequent agreements thereto have beenentered into in the normal course of the appellant'sactivities.Seizureoftheseagreementsdoesnotautomatically make them incriminating documents to beheld against the appellant in assessment proceedings u/s153A. What has to be seen is that whether the departmenthas unearthed any evidence related to the transactionbetween appellant and Vatika group, which would prove oreven indicate that the transaction was not really a purchasetransaction but one of loan, on which interest has beenreceived/receivable. The details of the assessment orderhave been discussed in the preceding paras of this order. Tomy mind, none of the other evidence referred to by theA.O., either individually or collectively, can be said toindicate that the specific transaction between the appellantand Vatika was actually a loan transaction. The evidencerelied upon by the A.O. are individually discussed below.4.2.1.11 The fact that UK Paints group, in an internal emailcommunication (extracted from seized hard disk AS fromtheU.K.Paintsgroup),hasgroupedanamount(Rs.43,00,00,000/-) given to Vatika as an “ICD” , cannot beheld against the appellant , especially when it does notdetract from language of the agreement between theappellant and Vatika, nor does it mention any rate ofinterestonsuchan"ICD"oreveninterestreceived/receivable. On the other hand, the documentextracted from the seized hard disk A-66 from Vatikapremises, which is a detailed chart of agreements enteredinto by Vatika with the appellant, SHE Realtors P. Ltd, UKPaints India P Ltd and Uttam Enterprises P. Ltd., showsthat the parties are Purchasers/Lenders., and depict theagreement thereon as a sale agreement. There is noindicationofanyinterest@25%payableontheconsideration,except"ifrefundable".Clearly,thetransaction is a sale transaction, and would be subject to apenal interest @ 25% as the fall-back option, in case theprimary transaction of sale does not go through. It isnoteworthy that the re-sale price in the agreements is not @ 25% p.a. of the consideration paid, thus indicating that 25%is only a penal rate of interest, and not the regular interestpayable on the sum of Rs.15,00,00,000/-. 25% p.a. of the consideration paid, thus indicating that 25%is only a penal rate of interest, and not the regular interestpayable on the sum of Rs.15,00,00,000/-. 4.2.1.12 Extrinsic evidence to determine the effect of aninstrument is permissible where there remains a doubt as toits true meaning. In case of doubt, evidence of the acts doneunder it, is a guide to the intention of the parties in such acase and particularly when acts are done shortly after thedate of the instrument. {Abdulla Ahmed vs AnimendraKissen Mitter dt 14.03. 1950 ( 1950 AIR 15, 1950 SCR30)). Thus, the conduct of the parties after signing of theagreements is not a conclusive tool of interpretation of acontract, and does not override the express terms of thecontract. Nevertheless, it would be seen that even in thebalance sheet of the appellant-company for the A.Y. 2006-07 to 2011-12, (i.e. period over which the agreement wasextended repeatedly) the appellant has constantly in itsaudited balance sheet depicted this amount under the head"Property booking Vatika Landbase P. Ltd (Under Loans &advances"). It has not reflected any interest receivable in itsbooks.Thisisquiteindicativeofthecommercialunderstanding that the parties to the contract had. It is alsoseen that although Vatika had provided PDCs, no TDS wasactually deposited in government accounts at any point oftime over the entire period from A.Y. 2008-09 to 2011-12,neither has Vatika debited any interest on the sum of Rs.15crones in its books during this period. This is also clearindicator of the commercial understanding between parties.Even in the extension agreement dated 05.06.2007 theactual plots for sale were identified, thus establishingconclusively the rights of the appellant as a purchaser of theplots; allotment of these plots would, as per the specificterms of the MOU dated 11.06.2005, related back to thedate of the MOU dated 11.06.2005. Even the subsequentpayment of extra consideration for preferential plots on25.04.2006 in pursuance of and as part of the MoU dated11.6.2005 is evidence of the true nature of the transaction.Therefore, it is clear that not treating the transaction as aloan transaction by the appellant in its accounts from thevery beginning is not an afterthought. 4.2.1.13 Even the document (seized as Annexure A-12,page 79 from Vatika premises) being a note dated28.10.2010 prepared by Sh. Manmohan Mehra of Vatikagroup for the perusal of Sh. Gautam Bhalla, Directornamed ‘Jaipur Plots buy back Deal’, shows that the note relates to the buy-back deal between Vatika group and thelenders group; as per the note, ESPO Developers Pvt. Ltd.has been introduced into the transaction to perform theobligations of Vatika to buy back the plots. This too doesnot contradict the appellant's claim. 4.2.1.13 Even the document (seized as Annexure A-12,page 79 from Vatika premises) being a note dated28.10.2010 prepared by Sh. Manmohan Mehra of Vatikagroup for the perusal of Sh. Gautam Bhalla, Directornamed ‘Jaipur Plots buy back Deal’, shows that the note relates to the buy-back deal between Vatika group and thelenders group; as per the note, ESPO Developers Pvt. Ltd.has been introduced into the transaction to perform theobligations of Vatika to buy back the plots. This too doesnot contradict the appellant's claim. 4.2.1.14 I have also gone through the statements of Sh.Navin Choudhary, CFO of Vatika group and Sh. HarishAhuja, MD of the Shahi group relied upon by the A.O. (andreproduced in the assessment order). 1 am of the consideredopinion that that none of these depositions too support theview that the transaction was actually an interest bearingloan transaction, and not a transaction of sale (with aprovision for buy-back). There is neither any admissiontherein, nor even any indication that it is so, insofar as itrelates to the transaction between Vatika and the appellant.4.2.1.15 It would also be seen that the agreement dated11.6.2005 and subsequent extension agreements have beenentered into in the normal course of the appellant'sactivities and that the entries in the balance sheet reflectoutcome of the agreement. A seizure of these agreementsdoes not automatically make them incriminating documentsto be used against the appellant nor do they, as discussedabove, constitute incriminating material. What has to beseen is that whether the department has seized/unearthedany evidence related to the transaction between appellantand Vatika group. which would prove or even indicate thatthe transaction was not really a purchase transaction butone of loan, on which interest has been received/receivable.The details of the assessment order have been discussed inthe preceding paras of this order. To my mind, none of theother evidence referred to by the A.O., either individuallyor collectively, can be said to indicate that the specifictransaction between the appellant and Vatika was actually aloan transaction. Even the fact that in an internal emaildated 08.10.2010 of the U.K. Paints group, sent by Sh.Vinod Kaushik to Sh. Naveen Choudhary, CFO of the U.K.Paints group, amount of Rs. 43 crores shown as due to U.K.Paints P. Ltd. for a similar transaction with Vatika Ltd. isclassified as an ‘ICD’, cannot be held against the applicant.4.2.1.16 Finally, it is necessary to examine the view of theA.O. that since the property was never registered in thename of the appellant, the appellant cannot be said to be theowner of the plots and consequently, the transfer of theland to ESPO cannot be said to be a sale which is exigiblefor capital gain. Section 45 defines profits and gains arising from any ‘Transfer’ of a ‘capital asset’. The term ‘capitalasset’ is defined in section Sec 2(14) of the Income Tax Actas ‘property of any kind’, (subject to some exclusions,which are not relevant in the present case). This definitionwidens the scope of the term so as to include tangible andintangibleassetsandalsoanybenefits,rightsandactionable claims that a person may obtain in respect ofsuch assets. Thus. the term ‘property’ is a word of widestimport and it usually signifies every possible interest whicha person can possibly hold and enjoy. ‘Property’ may besaid to be a bundle of rights of all kinds to a person. In thecase of CIT Vs Tata Services Ltd (122 ITR 594), thehon'ble Bombay High Court has held that the word‘property’ used in Sec 2(14) is a word of the widestamplitude and any right which can be called property willbe included in the definition of capital asset. It held thatsince a contract for sale of land is capable of specificperformance and is also assignable, a right to obtainconveyance of immovable property is also clearly a capitalasset contemplated u/s 2(14) of the Income Tax Act. Theword ‘transfer’ in Sec 2(47) has also been defined to notonly include a regular sale, but also any transaction thatresults in any extinguishment of any right in the property orany relinquishment of the same. Thus, the definition takesinto its ambit not only cases where a person gives up hisrights in the property voluntarily but also instances wherehe gives up his rights in favour of another person inconsideration of the other person fulfilling his part of theobligations as per the contracted terms. In the present case,while the property in question has not been registered in thename of the appellant, it has entered into an agreement withthe seller and as a consequence had absolute rights ofdisposal over them, and its rights were vested to theexclusion of all persons. Thus, it was the owner of theproperty for the purpose of Sec.45, and therefore at thepoint of transferring the plots to ESPO, capital gainsaccrued to the appellant. 4.2.1.17 The A.O. also mentions that there is no reasonwhy the appellant should agree to take sale considerationwhich is less than the principal plus accrued interestamount. This is a valid suspicion, but I am afraid it isnothing more than that. This suspicion, if corroborated byany evidence, would lead to a suitable inference. But byitself, this suspicion does not make any case for theinference that the appellant has actually received an undisclosed amount, over and above the sale consideration.No businessman can be compelled to maximize his profit.The A.O. cannot put himself in the shoes of the assesseeand see how a prudent businessman would act. Theauthorities must not look at the matter from their ownviewpoint but that of a prudent businessman CIT v. DalmiaCement (B.) Ltd. [2002] 254 ITR 377(De1). Given thelong-standing business relationship between the parties,there could be any commercial expediency (including aninability of the appellant to sell the plots to an outside partyat the price of Rs.9,250/- p. sq.yd. at that point of time, orany other market condition) for the appellant agreeing tonot insist on the higher rate agreed to with Vatika. In anycase, in spite of search conducted on both the parties, thereis no evidence to support a view that a higher considerationhas indeed passed to the appellant. In fact UK Paints andbeen subjected twice to search action in 2011 and in 2013,without any evidence being unearthed that the transactionbetween Vatika and the appellant was actually had a loantransaction with an annual interest payable, and not a saletransaction. 4.2.1.18 The A.O. has also referred to the resale of propertyby the appellant to a buyer (ESPO) belonging to the Vatikagroup itself. It is also mentioned by the A.O. that thepurchaser has been funded by Vatika itself, thus indicatingits a sham transaction. Although this point appearsattractive at the first blush, on a detailed examination, itdoes not bear support from a detailed reasoning. Theproperty belongs to M/s Sanskar Buildtech P. Ltd andNakshatra Buildcon Pvt. Ltd. Vatika Ltd. merely hadexclusive rights to develop and sale the property and wasnever the owner; any sale-back , at the option of theappellant, was agreed to done to Vatika or its nominee.Ultimately, the property was sold to a Vatika nominee.Even otherwise, as per the terms of the agreement, theappellant was under no compulsion to sell the plots toeither Vatika or any other party of the Vatika group, oreven to a nominee of Vatika. The Vatika group was under acontractual obligation to purchase back the plots, but onlyat the option of the appellant, within a period of two yearsfrom the date of the agreement, at the prevailing marketrates . The Vatika group did not have any vested rights toget the properties back from the appellant. On the otherhand, the appellant was free to sell the lands in the openmarket, and the fact that the appellant sold the properties/its rights thereon to a Vatika group company, is of no otherconsequence. If it were a loan transaction only, then Vatikawould not have agreed to such a provision. In theagreement, allowing the appellant the rights to sell to anybuyer of the appellant's choice. 4.2.1.19 I am therefore of the view, that the conclusiondrawn by the A.O. in the appellant's case is erroneous. Ihold that the appellant is liable for levy of Capital gains taxat the point of sale to ESPO (i.e., in A.Y.2011-I2). The gainis long term, as the exclusive holding of the property in thehands of the appellant commenced from 11.06.2005 as perthe terms of the MOU dated 11.06.2005. The interestincome added by the A.O. for A.Y. 2006-07 to A.Y. 2011-12 is deleted.” 22.The Revenue preferred an appeal against the said decision of thelearned CIT(A), which was dismissed by the Tribunal in terms of theimpugned order. The Tribunal concurred with the decision of the learnedCIT(A) that the transaction in question could not be termed as a transactionfor loan on which the assessee was entitled to any interest. 23.The Revenue seeks to contend, what was apparent from the terms ofthe agreement between the assessee and Vatika, is not real. This contentionhas been examined and rejected by concurrent findings of two authorities. 24.The Supreme Court in the case of Sumati Dayal v. Commissioner ofIncome Tax: (1995) 214 ITR 801 (SC) had explained that to make anyaddition as unexplained income under Section 68 of the Act, the AO has tobe satisfied that the apparent is not real, based on cogent evidence and thematerial on record. 25.In the present case, there is no cogent material to objectively concludethat the transaction in question was of a loan whereby the assessee had lentfunds to Vatika and therefore the assessee’s gains were in the nature of theinterest on the said loan. As noted above, there was no compulsion for the assessee to sell its rights to Vatika or its nominee. As noted above, thisaspect was examined by the learned CIT(A) as well as the Tribunal and thesaid authorities had not agreed with the AO’s assumption that a loantransaction was disguised as an investment. 26.The question clearly is one of the determination of facts and in viewof the concurrent findings of the learned CIT(A) as well as of the Tribunal,no substantial question of law arises in the present appeal.27.The present appeal is, accordingly, dismissed. Pending applications,also stands disposed of. VIBHU BAKHRU, J OCTOBER 14, 2024at SWARANA KANTA SHARMA, J Click here to check corrigendum, if any