ACIT, CC- 18, NEW DELHI VS. SNEREA PROPERTIES PVT. LTD., NEW DELHI, ITA 5181/DEL/2017
In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘G’, remanded two appeals concerning alleged undisclosed income of ₹150 crore (₹75 crore each in two cases) back to the CIT(A) for fresh adjudication. The additions were made by the Assessing Officer (AO) on account of a property transaction routed through share transfers, which the AO deemed as business income and alternatively as undisclosed income under Section 68 of the Income Tax Act, 1961.
Background of the Case
The assessees — Snerea Properties Pvt. Ltd. and Shrey Properties Pvt. Ltd. — each held a 50% share in a high-value property located at 15/1 Prithviraj Road, New Delhi. During a search and survey operation on a related party, a Memorandum of Understanding (MoU) was found, allegedly indicating transfer of this property to Om Shivay Pvt. Ltd. for a total consideration of ₹10 crore, i.e., ₹5 crore per assessee.
However, the AO believed that the market value of the property was ₹150 crore, and alleged that the entire consideration had been routed in cash, using share transfer as a façade. Based on this, the AO:
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Initiated reassessment under Section 147;
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Held the transaction to be a business adventure; and
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Taxed ₹75 crore in each assessee’s hands under Section 68 as undisclosed income.
Key Observations by the AO
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The valuation report from the DVO only covered investment in renovations, not the market value.
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AO treated the property as stock-in-trade, using the company’s object clause to justify this.
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The transaction, according to AO, was not a genuine share transfer but a disguised property sale to avoid tax.
Assessee’s Defence
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No property was sold by the companies — only shareholders transferred shares.
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MoU cannot override the legal substance — ownership of the property remained with the companies.
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The share transfer transaction, if taxable, would be in the hands of the shareholders, not the companies.
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Section 68 was not applicable as there was no unexplained cash credit in the books of the assessees.
The assessees also submitted additional documentation, including grievance committee communications terming the assessments as “high-pitched.”
CIT(A)’s Order
The CIT(A) ruled in favor of the assessees, deleting the additions by:
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Rejecting the applicability of Section 68;
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Concluding that any taxability, if at all, would arise in the hands of the transferor shareholders;
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Citing absence of cash credits in the books of the assessees;
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Noting that Section 50CA, which could govern such valuation mismatches in share sales, was introduced only from 01.04.2017.
ITAT’s Decision: Matter Remanded for Fresh Adjudication
While not commenting on the merits, the ITAT found that:
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The CIT(A) had not provided detailed reasoning as required under Section 250(6) of the Act.
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There were inconsistencies in the AO’s order (e.g., treating income as both business income and unexplained credit).
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The AO had not clearly established how the property was stock-in-trade, nor how MoU led to actual income in assessees’ hands.
Accordingly, the ITAT remanded both cases to the CIT(A) with instructions to:
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Reexamine the matter in accordance with law,
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Provide detailed, reasoned findings, and
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Grant the assessees a reasonable opportunity to be heard.
Key Takeaways
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MoUs can trigger scrutiny, but taxability depends on actual flow of income and legal ownership.
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Shareholder-level transactions do not automatically lead to tax implications in the company’s hands.
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Section 68 requires an actual credit in the books — not just suspicion or valuation difference.
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CIT(A) is duty-bound to provide a speaking order with clearly articulated reasoning.