Facts of the Case

The assessee, Shrey Properties Pvt. Ltd., filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 19.01.2025 passed by the Income Tax Appellate Tribunal in ITA No. 5182/Del/2017. The Tribunal had remanded the matter to the Commissioner of Income Tax (Appeals) despite having accepted the assessee’s principal contention on merits.

The case arose out of a search conducted in the Aerens Group, during which a Memorandum of Understanding was found indicating that 50% interest in property situated at 15, Prithviraj Road, New Delhi was allegedly transferred at an undervalue. Based on this, reassessment proceedings were initiated and an addition of ₹75 crores was made under Section 68 by treating the estimated market value of the property as undisclosed income of the assessee.

Issues Involved

Whether an addition under Section 68 could be made in the hands of the assessee company on the basis of alleged undervaluation of property where no property or interest therein was transferred by the assessee, whether transfer of shares by shareholders resulting in indirect interest in property could be treated as income of the assessee, and whether the ITAT was justified in remanding the matter despite clear findings in favour of the assessee.

Petitioner’s Arguments

The assessee contended that it had not transferred any part of its title or interest in the Prithviraj Road property during the relevant assessment year. The transaction relied upon by the Revenue was a transfer of shares by the shareholders to a third party, and not a sale or transfer of property by the assessee company. It was argued that any income, if at all, could arise only in the hands of the shareholders and not the assessee, and therefore the addition under Section 68 was wholly unsustainable.

Respondent’s Arguments

The Revenue argued that by acquiring shares of the assessee company, the transferee had effectively acquired indirect interest in the underlying property and that the corporate veil ought to be lifted. It was contended that the alleged undervaluation reflected receipt of unaccounted consideration, justifying the addition under Section 68. The Revenue supported the ITAT’s decision to remand the matter for further factual examination.

Court Order / Findings

The Delhi High Court held that the Assessing Officer committed a fundamental error in assuming that transfer of shares or acquisition of indirect interest resulted in divestment of the assessee’s title or interest in the property. The Court observed that it was undisputed that the assessee continued to hold full title and interest in the Prithviraj Road property and had not alienated the same during the relevant year.

The Court further held that even assuming the market value of the property to be ₹150 crores, the sale and purchase of shares of the assessee company could not result in any income in the hands of the assessee. Any tax incidence would be confined to the transacting shareholders and not the company. The Court found no ambiguity in the findings of the CIT(A) deleting the addition and held that the ITAT was unjustified in remanding the matter.

Important Clarification

The Court clarified that indirect acquisition of interest in property through share transfers does not result in taxable income in the hands of the company owning the property, unless the company itself has transferred the property or received any consideration. Section 68 cannot be invoked merely on the basis of estimated market value where no transaction is undertaken by the assessee.

Final Outcome

The appeals were allowed. The Delhi High Court set aside the impugned order of the Income Tax Appellate Tribunal and restored the order of the Commissioner of Income Tax (Appeals) deleting the addition of ₹75 crores made under Section 68. All pending applications were disposed of, and the decision was rendered in favour of the assessee and against the Revenue.

 

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769595533_SHREYPROPERTIESPVT.LTD.VsASSISTANTCOMMISSIONEROFINCOMETAXCENTRALCIRCLE18.pdf 

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.