TaxTMI 
TaxTMI 
2012 (7) TMI 623
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....t was bad in law. When the Bench has confronted that this technical issue is subjudice before the Special Bench, then ld.AR in the alternative has suggested not to adjudicate this ground rather to proceed on the merits of the case. In view of the concession expressed by Ld.AR Mr.Milin Mehta for not pressing this ground; as also Ld.DR Mr.Kartar Singh has no objection if decide the quantum additions, resultantly we hereby dismiss this ground being not pressed and proceed hereinbelow. 4. Ground No.2 :- 2. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing short term capital loss of Rs.22,38,207 (Rs.21,84,395 in the case of Shri Navinbhai N.Patel) invoking provisions of section 94(7) of the Act. 4.1. Facts in brief as emerged form the corresponding assessment order passed u/s.153A r.w.s. 143(3) dated 23/12/2010 for A.Y. 2006-07 were that a search u/s.132 was carried out on a group named as "Amod Group of cases" on 11/02/2009. Consequent thereupon a proceeding u/s.153A was initiated. During the course of assessment proceedings, it was noticed that the assessee had sold "mutual fund units". The assessee has claimed short-term capital lo....
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....he AO, so he has rejected the claim. With the result the loss to that extent was disallowed, resultantly short-term capital gain was enhanced. The matter was carried before the first appellate authority. 5. The basic contention before ld.CIT(A) was that the language used in section 94(7) of the Act prescribes "prior to the record date". According to the argument of the assessee the word used "to" signifies that the record date, i.e. 20/01/2006 is to be computed in the following manner:- From To Month 21-12-2005 20-1-2006 1 21-11-2005 20-12-2005 2 21-10-2005 20-11-2005 3 5.1. The assessee has referred section 9(1) of General Clauses Act 1897. However, ld.CIT(A) has taken a view that it is important to note that the language of the section is "prior to" and not only "to" therefore, the word "prior" should not be ignored. The ld.CIT(A) has also given a second reason for affirming the action of the AO that the units of Birla Sunlife have also been sold undisputedly within a period of nine months of the "record date". According to him, all the conditions as prescribed under section 94(7) are to be cumulatively satisfied, therefore the disallo....
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....me is reproduced hereinabelow: "9(1) In any Central Act or Regulation made after the commencement of this Act, it shall be sufficient, for the purpose of excluding the first in a series of days or any other period of time, to use the word "from", and, for the purpose of including the last in a series of days or any other period of time, to use the word "to". (2) This section applies also to all Central Acts made after the third day of January, 1868, and to all the Regulations made on or after the fourteenth day of January, 1887." 6.2. Even if the General Clauses Act is to be applied, then we are not convinced that "record date" has no significance because that particular date is purposely incorporated in the Statute and then the word "prior" has also significance. The Statute is not saying that any unit is to be acquired within a period of three months to the record date, but it says that any person buys or acquires any unit within a period of three months prior to the record date. According to us, units have been purchased within a period of three months prior to the record date, therefore one of the condition applies on such transaction. Then it is not in dispute that th....
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....s case laws wherein it was held that in order to satisfy the requirement of Section 2(22)(e), the assessee must be registered as well as beneficial shareholders of the company from whom he has received the loans. I have carefully considered the submission of the assessee but the same is not found acceptable." 7.2. After discussion, the AO has taken a stand that the creation and the existence of the Trust was an after-thought. He has concluded that the assessee along with family members was holding shares of M/s.Amod Stampings Pvt.Ltd. which was more than 10% of the holding, therefore deemed dividend to that extent has to be taxed. 8. The matter was carried before the first appellate authority. The assessee has rebutted the action of the AO on the following points:- "Validity of Trust & its shareholding: 39. The AO in the assessment order has stated that the existence of the trust was an afterthought and therefore should be rejected. We submit, that the trust existed on and from 16-11-2005. The existence of the trust was duly noted by the company in its minutes of meeting and also the trust has been formed by executing a valid document. We therefore submit that the comme....
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.... was also required to file a declaration of such beneficial interest to the Registrar of Companies. The provisions of section 187C have been made ineffective w.e.f. 13th December, 2000 and therefore, there is no requirement at present to declare beneficial interest, etc. Therefore, such beneficial interest is not declared in the register of the Company or the Registrar of the Companies. 46. Therefore, as per the register of members of the company, the shares are still in the name of the respective shareholders and there is no note taken of their divestment of beneficial interest. 47. It is submitted that the existence of the trust is proved by way of a legally executed document. The document is notarized by a government appointed notary on a date which is much prior to the date of search. The said document is part of the minutes of the company and part of a meeting which is held much prior to the date of search. All these evidences are being ignored, including the Evidence of a notarized documents, merely because of a suspicion or surmises or Conjectures. There is no evidence with the AO to hold that the trust is bogus, that the signature of the notary is bogus, that the comp....
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.... (beneficial owner) % of shares held by trust to total no.of shares Total % Deemed Dividend (Rs.) a b C d e c + c = f AY 2006-07 Krupesh Patel 1,69,990 8.50% 1,56,000 7.80% 16.30% 27,66,022 Navin Patel 1,76,000 8.80% 2,00,000 10.00% 18.80% 1,06,66,471 Lalitaben Patel 1,94,000 9.70% 1,56,000 7.80% 17.50% 4,60,273 AY 2007-08 Krupesh Patel 59,100 2.96% 1,56,000 7.80% 10.76% 3,93,74,965 Navin Patel 15,100 0.76% 2,00,000 10.00% 10.76% 3,48,26,894 Lalitaben Pate 83,000 4.15% 1,56,000 7.80% 11.95% Nil Smitaben Patel (Note 2) 2,15,100 10.76% - - - 76,378 Total [Note : 1) Total number of shares having voting power is 20,00,000 equity shares. 2) Not in Appel.] 8,81,71,003 9.1. Ld.AR has argued that the Revenue had arbitrarily clubbed the shareholding of the trust along with the share-holdings of the individuals. He has emphasized that the trust was formed on 16/11/2005. He has drawn our attention on page 167 of the paper-book containing a photocopy of "declaration of trust" on a stamp paper of Rs.100 wh....
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....r the benefit of the shareholders. Therefore, in such an event a deeming provision has been introduced and those advances are henceforth treated as dividend. So the intention behind the introduction of this provision is to tax deemed dividend in the hands of the shareholder. The deeming provision is based on the presumption that the loans or advances are in lieu of dividend. In an admitted case, under normal circumstances, such loans or advances given to shareholders do not qualify as dividend. Only because of a legal fiction as created u/s.2(22)(e) of the Act the scope of the term "dividend" has been enlarged. The Hon'ble Court has further clarified that the legal fiction do not extend to "shareholders". The loans or advances given under the conditions specified under this section would amount to dividend and that fiction has to stop at that place. According to the Delhi High Court, the said fiction do not extend further for broadening the concept of shareholder, that too by a legal fiction. If the intention of the legislature was to tax such loans or advances as "deemed dividend" at the hands of a "deeming shareholder", then the legislature would have inserted deeming provisio....
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....d information received from the three shareholders of the Company being Smt.Lalitaben N.Patel, Shri Navinbhai N.Patel and Shri Krupeshbhai N.Patel about settlement of 5,12,000 enquiry shares of Rs.10 each fully paid up held by them in favour of M/s.N.S.Patel Family's Children Trust. The said persons have informed that they would be continuing to hold these shares, but beneficial interest in these shares would be those of the trust so settled and its beneficiaries." 11.2. Our attention has also been drawn on the terms through which the settlors have settled the shares in favour of the beneficiaries vide N.S.Patel Family's Children Trust - DELCARATION OF TRUST dated 16th day of Novermber-2005 as follows:- "WHEREAS i) the Settlors are members of the family of Late Shri Narharibhai Somabhai Patel and are presently shareholders of one company by the name of M/s.Amod Stampings Private Limited, a Company formed and registered under the provisions of the Companies Act, 1956 and and having its registered office at Gujarat Spun pipe Compound, P.O. Samiala, Padra Road, Vadodara - 391 410 )"the Company"); ii) the Settlors are desirous of ensuring that the children of the family, wh....
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....ange in the vesting of the shares. Under the totality of the circumstances of the case and the evidence on record, we are of the view that a deeming provision has to be applied strictly, so that a fiction so created by a Statute should not cover within its ambits more than what is subscribed. A deeming provision is, therefore, to be applied restrictively, so that its application must not enlarge the scope of presumption. Rather, it has been held in the case of L.H. Sugar Factory 125 ITR 293 (SC) that no authority can presume something which is not envisaged in the Act. A documentary evidence is thus nothing but affirmation of the existence of a fact and, therefore, merely on preponderance of probabilities such a documentary evidence should not be rejected. We, therefore, conclude that in the absence of any contrary material specially when we are dealing with a fiction created by a Statute, a fictional income, i.e. deemed dividend need not be taxed in the hands of the assessee on an un-established hypothecation. We hereby direct to delete the addition. Ground is allowed. 12. Rest of the grounds are consequential in nature thus need no adjudication at this stage of appeal, hence t....
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....bout refund of Rs.20 lacs on 12/01/2009. He has explained in his statement in reply to a question No.31 which was recorded on 06/03/2009 that the transaction was related to AMPAD land. The amount was received in advance for the sale of land, however, the sale could not be materialized. The same identical paper was seized from the locker and in that paper as well the fact of repayment had been reflected. The said property was subsequently sold to an another party for an amount of Rs.3.50 crore in cash. The assessee has informed that the cash component of Rs.3.50 crore shall be disclosed. Before AO, few more facts have been narrated that the transaction was ultimately completed in A.Y. 2009-10 and, therefore, the 'on-money' is to be taxed along with the said amount of sale transaction. It was informed that the transfer of AMPAD land was affected in the relevant A.Y.2009-10. However, the AO was not convinced and he has held that the sum which was found noted in a particular financial year should be assessed as undisclosed income in that very financial year. In the result, an amount of Rs.1,46,66,667/- was taxed as income for the year under consideration in respect of AMPAD land.....
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....tion of double assessment of the same income because as per the documents recovered the two transactions were separately recorded. He has concluded that the AO has rightly taxed the said two amounts respectively in two Assessment Years. 17. We have examined the facts of the case and the orders of the authorities below in the light of the compilation placed on record. A document was seized which has indicated a cash receipt of Rs.524.17 lacs which was stated to be in respect of transfer of AMPAD land. The transactions which were found recorded in the said seized document have mentioned the name of one Mr.Kanubhai Patel. The AO has added the amount which was alleged to be assessed for AY 2007-08 and part of it, respectively for AY 2008-09. But one of the fact which has a direct adverse impact on the stand taken by the AO was that in a statement recorded u/s.132(4) of IT Act dated 12/02/1999, i.e. during the search operation, clarified the position of capital gain which was disclosed in AY 2009-10. As far as the quantum of the amount is concerned, there was no dispute. The only dispute is thus about the year of taxability. The admitted factual position is that the entire amount of ....
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....n a worst situation if we affirm the action of the AO, then the natural consequences should be to adjust the income which has already been taxed against the addition made for the year under consideration. Since double taxation is not permitted and the exercise of revision of income for the year under consideration shall be a futile exercise, therefore we hereby hold that the impugned income deserves to be excluded from the total income for the year under consideration. Resultantly, we hold accordingly and this ground of the Revenue is dismissed. (d) A.Y.2007-08 - CO No. 12/Ahd/2012 (by Assessee) 18. Ground read as under:- 1. Without prejudice and without admitting that no addition can be made in AY 2007-08 in respect of income from sale of Ampad land, the AO may be directed to grant consequential relief in AY 2009-10, in case, addition of Rs.1,46,66,667/- is confirmed in AY 07-08. 18.1. A view has already been taken while deciding hereinabove the Revenue's appeal, therefore this cross objection has become infructuous, hence dismissed. (e) A.Y.2008-09 - IT(SS)A No. 592/Ahd/2011 (Assessee's appeal) 19. Grounds raised are as follows:- 1. The learned Commissioner o....
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....he first appellate authority, who has held that the said addition being made on account of non-genuineness of the gifts was nothing but part of the total consideration in respect of the Gotri land, hence to be taxed in the year of transaction and the impugned amount was deleted. 23. Having heard the submissions of both the sides, we are of the considered view that the AO has connected the impugned gift with the sale of Gotri land and that issue is yet to be decided in AY 2009-10, therefore the ld.CIT(A) has rightly held that the gift being transferred "in kind" hence not to be taxed for the year under consideration. We hereby affirm the factual as well as the legal finding of the CIT(A), hence this ground of the Revenue is hereby dismissed and appeal is dismissed. (g) A.Y.2008-09 - CO No. 13/Ahd/2012 (By Assessee) 24. Grounds read as under: 1. Without prejudice and without admitting that no addition can be made in AY 2008-09 in respect of income from sale of Ampad land, the AO may be directed to grant consequential relief in AY 2009-10 in case addition of Rs.28,05,666/- is confirmed in AY 08- 09. 2. Without prejudice to Grounds 3 and 4 of AY 2009-10, in case, the add....
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....axable in the hands of the Appellant despite the fact that the transaction of gift and sale of Gotri land are independent transaction. 7. The learned CIT(A) erred in fact and in law in charging interest u/s.234B of the Act. 8. The learned CIT(A) erred in fact and in law in charging interest u/s.234C of the Act. 9. The learned CIT(A) erred in fact and in law in initiating penalty proceedings u/s.271(1)(c) of the Act. 25.1. Ground No.1 is general in nature thus requires no independent adjudication, hence dismissed. 26. Apropos to Ground No.2, facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the Act dated 23/12/2010 are that the assessee along with one Shri Navin Patel is the owner of "Gotri Land", both having equal shares. It was noted that the said land was sold to Smt.Vishakha Sanghavi. The consideration was stated to be Rs.10.62 crores. The Revenue Department consequent upon the search has unearthed two loose papers, one from the bank locker, and the other from the office. Due to the said seized document, the assessee has disclosed a sum of Rs.3crores received in cash. The AO has scanned and printed those documents in the assess....
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....transaction of the Gotri land was made for a sum of Rs.22.61 crores and not on the documented sale price of Rs.10.62 crores, expressed by the A.O. He has concluded that after the set off of admitted amount of Rs.3 crores, the balance Rs.4,49,50,000/- was the short-term capital gain to be taxed in the hands of the assessee. 26.1. In addition to the above discussion, it has also been noted by the AO that the family members of the said assessee have received shares as a Gift of M/s.Sun Pharmaceutical Industries Ltd. According to AO, spouse of Mrs. Vishakha Sanghavi, purchaser of the land, has gifted the shares. The value of all the shares gifted was found to be Rs.4.70 crores. The AO has treated those gifts as not genuine. As per AO, the impugned gifts were part of the "on-money" consideration. Accordingly the total payment of on-money received by the owners of this land other than consideration in the form of gift is Rs.4.29 Crores [22.61 Crores - 13.62 Crores - 4.7 Crores]. Accordingly, Rs.2,14,50,000/- is added in the case of Shri Krupesh Patel and Rs.2,14,50,000/- in the case of Shri Navin Patel in AY 2009-10 being the two were the equal co- owners of the land, as short term....
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....and the total sale consideration was held as correctly taxed in the hands of the assessee. 27.1 Ld.CIT(A) has also examined the issue of gifts received from Shri Jayant Sanghavi, husband of Smt.Vishakha Sanghavi, purchaser of Gotri land. The value of the shares which were received by the assessee allegedly amounted to Rs.4.70 crores. According to him, Shri Jayant Sanghavi is not related to assessee. There was no occasion to make such gift. There was no occasion in the family for prompting the donor to make a gift. The assessee's plea of taking the gift under exemption by virtue of section 56(2) of IT Act, ld.CIT(A) has also been rejected on the same ground that the gifts in question were part of the undisclosed sale consideration of Gotri land. However, he has opined that the year of transfer was AY 2009-10, therefore to be taxed in the said year as per section 45(1) of IT Act. He has concluded that the total gift amount of Rs.4.70 crores received by the assessee and his family members was towards undisclosed sale consideration. The same was taxed in AY 2009-10 amounting to Rs.4.70 crores in the hands of assessee and Shri Navin N.Patel, i.e. respectively Rs.2,35,00,000/- each on....
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....nsideration of Rs.10,70,70,000/- as documented. For this sale consideration, relevant documents were found, therefore, upto that extent, there was no controversy. However, at the time of search two loose papers were seized marked as Annexure BS-1 and Annexure A-1 respectively page 3 & 4. It was noted by the Revenue Department that the figures noted on those papers was in respect of Gotri land. The assessee's vehement contention is that the figures noted in those papers was nothing but certain proposals which were received from a broker. It has also been explained that the different offer was on account of three situations which were claimed to be connected with the conversion of non-agricultural land either for commercial purposes or for residential purposes. Those figures were merely proposed figures and not the actual details of consideration receipt. For this submission, our attention has been drawn on a noting on page number 4 (Annexure A-1) which was claimed to have been written by Mr.Krupesh N.Patel addressed to Mr.Navin N.Patel. The wording of the said noting were "As per discussion with them none of the above option is acceptable. Variation in price is also expected. Ple....
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....was as under:- Land after converting it into NA 35817 Sq.Mtrs. Land without converting it to NA 4450 Sq Mtrs. Due to this variation in the conversion of the land, the sale consideration was accordingly settled as finally documented. The assessee has demonstrated that the said noting has been made with that reference because the price of the land was to be negotiated on the basis of the conversion of the agricultural land. Since the entire land could not be converted, therefore the price which was quoted for total conversion of the land was not fetched by the assessee. The noting on those two papers was therefore with reference to the negotiations and the proposed offers were made from the broker keeping in mind the eventuality of conversion of land. The maximum price offered of Rs.22 crores but that was subject to conversion of agricultural land to commercial use. But the fact was that the land was partly converted into N.A. There was an alternate offer in case the entire land is not converted. That alternate offer was also noted in one of the said two seized papers, i.e. Rs.14.75 crores. Since the condition of complete conversion was not fulfilled hence the sales were not....
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....e there was no signatures. It was repeatedly argued that the pages were nothing but an offer and therefore one of the offer was finalized keeping in mind the nature of the land sold. 31.5. Before us, there is a reference of an Affidavit executed by one Mr.Rasik Padaria, broker. The contents of the Affidavit dated were that the deponent had affirmed that he has worked as a broker of real estate and that he has offered the purchase of land at Gotri and that the said offer was made to Shri K.N.Patel & Others on behalf of his clients. In the said Affidavit, he has deposed that several offers for purchase of land was made with the condition of conversion of agricultural land to nonagricultural land either for residential purpose or for commercial purpose. During the course of hearing, a question has been raised by us that why this Affidavit be not treated as a self-serving document. In reply, ld.AR has pleaded that although the said Affidavit could be treated as a selfserving statement but such an assertion that to through an Affidavit should have been verified by the Revenue Department, appropriately cross-examining the said deponent. Indeed, the Revenue Department has not cross-exa....
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....ed price, one of them was materialized. Now the question is that on one hand, the Revenue has picked-up the highest figure of the three and the assessee has picked-up the figure which was documented plus the difference of Rs.3 crores so as to match with one of the cited figures. We therefore conclude that the Revenue Department should not have disputed the offer as made by the assessee. Resultantly, Ground is allowed. 32. Apropos to Ground Nos.3, 4, 5 & 6, facts in brief are that the AO has noted that the family members of the assessee have received shares of M/s.Sun Pharmaceutical Industries as a gift amounting to Rs.4.70 crores. It was found that those gifts were made by the husband of Mrs.Vishakha Sanghavi. The AO has thus held that the gifts were in lieu of the unaccounted sale consideration, hence given a finding as under:- "During the assessment proceedings of various family members of this group it was found that they have received gift of shares of M/s.Sun Pharmaceutical Industries limited from the spouse of the person to whom this land has been sold. The values of such gifts cumulatively in the hands of these persons were of Rs.4.70 crore. These gifts have been tr....
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....he AO that the undisclosed sale consideration was received in the form of gift of shares of M/s.Sun Pharmaceutical Industries. He has also held that once the gifts were not genuine, therefore whether they were in kind and not taxable u/s.56(2) did not matter. However, he has held that since the undisclosed sale consideration is connected with the year of transfer, i.e. AY 2009-10, therefore the amount of gift although received in AY 2008-09 but being part of the sale consideration, therefore has to be taxed in the year in which the sale took place, i.e. AY 2009-10. He has thus concluded that the total gift amount of Rs.4,70,000/- is to be taxed in AY 2009-10 on substantive basis equally in the hands of both the above two appellants. He has given a direction that the addition of Rs.65,83,830/- taxed in AY 2008-09 is to be deleted. Being aggrieved, both the sides are in appeal(s) before us in respective assessment years. 34. We have heard both the sides. We have also perused the documents related to this ground. We have found that on 7/2/2008 & 17/3/2008, Shri Krupeshbhai N.Patel has received 3400 shares and 2300 shares of M/s.Sun Pharmaceutical Industries from Shri Jayant S.Sa....
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....AY 08- 09, the AO may be directed to grant consequential relief of Rs.1,74,72,333/- in AY 2009-10" 12. "Without prejudice to Ground 4, 5 and 6, the Learned AO may be directed to grant consequential relief in AY 2009-10, in case addition on account of gift is confirmed in AY 2008-09 in the hands of the App and in the hands of various family members." 34.2. The additional ground has already been dealt with while deciding the issue of Ampad land and the question of taxability of gift. Since a view has already been taken, this alternate plea of the assessee has become redundant, therefore needs no independent adjudication, hence dismissed. 35. We summarize the result as under (in the case of Shri Krupeshbhai N.Patel):- (i) Assessee's appeal, IT(SS)A No.590/Ahd/2011, A.Y. 2006-07 is partly allowed. (ii) Assessee's appeal, IT(SS)A No.591/Ahd/2011, A.Y. 2007-08 is partly allowed. (iii)Assessee's appeal, IT(SS)A No.592/Ahd/2001, A.Y. 2008-09 is dismissed. (iv) Assessee's appeal, IT(SS)A No.593/Ahd/2011, A.Y. 2009-10 is partly allowed. (v) Revenue's appeal, IT(SS)A No.594/Ahd/2011, A.Y. 2007-08 is dismissed. (vi) Revenue's appeal....