TaxTMI 
TaxTMI 
2024 (4) TMI 922
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....appeal in ITA No. 130/Bang/2023 for the AY 2007-08. 2.1 Facts of the case are that originally, the assessee as well as revenue came in appeal before this Tribunal challenging the confirming of substantive addition in ITA No.127/Bang/2020 and deletion of protective addition in ITA No. 575/Bang/2020 respectively for the assessment year 2007-08. The Tribunal vide order dated 27.5.2022 recorded the grounds, facts and findings as below: "46. First, we will take up the substantive assessment in the case of SPR Spirits Ltd. In ITA No. 127/Bang/2020. The assessee has raised following grounds of appeal:- 1. The order of the Hon'ble -Commissioner of Income Tax (Appeals),Bengaluru-11 is opposed to law and facts of the case. 2. The Hon'ble Commissioner of Income Tax (Appeals)-11 erred in upholding the addition in a sum of Rs. 7,30,77,776/-under the head business income. 3. The Hon'ble Commissioner of Income Tax (Appeals) failed to appreciate that entire surplus arising out of the transaction not being exigible to tax in the hands of the appellant. 4. The Hon'ble Commissioner of Income Tax (Appeals) committed an error in upholding the additions, without even looking a....
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.... society at the rate of Rs. 276/- per sq. ft of saleable area for the first 80 acres of land and subsequently it was increased to Rs. 360/- per Sq. ft. of saleable area for the rest 100 acres of land situated on Mysore-Bangalore Road. These lands were transferred from Shri M. Thimme Gowda and his family members to the society during FY 2005-06 and 2006-07. As the assessee being a company cannot acquire agricultural land for the purpose of formation of residential sites and cannot sell the same to the employees of M/s Vijay Bank Employees Housing Cooperative Society, purchase and selling was done through Shri T. Nadakrishna. Therefore, the business income of Rs. 7,30,77,776/- was assessed substantively in the hands of the assessee company. Aggrieved, the assessee is in appeal. Accordingly, AO computed the income in the hands of the assessee as follows: Survey no. Area Village purchase date cost of purchase Sale agreement date Sale Amount Gain 45 4A 22G Manch. Halli 44/1 2A 2Q Manch. Halli 33,92,289 44/2 2A 4a Manch. Halli 48 1A Manch. halli 20,01,567....
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....pellant. 4. The Hon'ble Commissioner of Income Tax (Appeals) committed an error in upholding the additions, without even looking at the transaction which was a subject matter of arbitration and later was cancelled." 51. We have heard the rival submissions and perused the materials available on record. In this case, order of the Ld. CIT(A) is very cryptic with regard to the issue that how there was income generated in the hands of the assessee on giving Rs. 1.85 crores advance to T. Nanda Krishna who has bought the property and later it was sold to M/s. SPR Developers Pvt. Ltd. In our opinion, the CIT(A) is required to examine all the documents relating to these transactions listed in earlier para and also examine various statements recorded during the course of search action and decide the issue afresh by considering the entire facts and circumstances of the case. Accordingly, this issue is remitted back to the file of CIT(A) for fresh consideration to decide the same within six months of receipt of this order as this is old matter relating to the AY 2007-08. 2.2 Hence, these appeals went back to the ld. CIT(A) to decide the issue afresh. While deciding the set aside asses....
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.... transferred is not subject to any tax since any transfer vide unregistered agreement for sale is not a valid transfer for the purpose of any law, including the Act. 11. The Hon. CIT(A) committed an error in upholding the additions, without even considering that the arrangements proposing to transfer the land have been terminated. 12. The Hon. CIT(A) erred in not directing the LAO towards granting rebate on agriculture income while computing the tax liability. 13. The Hon. CIT(A) erred in not directing the LAO in considering the facts and circumstances of the case, in levying statutory interest under section 234A and 234A of the Act. The Appellant craves leave to add or altar, by deletion, substitution or otherwise, any or all the above grounds of appeal, at any time before or during the hearing of the appeal. 2.3 The crux of the above grounds raised by assessee are that the ld. CIT(A) erred in sustaining additions in respect of income earned from transactions carried on by Mr. Nadakrishna Thimmaiah in the hands of present assessee holding that he has acted as a conduit of the present assessee. 3. The ld. A.R. submitted that a search and seizure action was conducted on th....
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....s Housing Co-operative Society (VBEHCS) and SPR Developers Private Limited ('SPRD') as the confirming party for total consideration of Rs. 5,33,45,000. A summary of the sale deeds is tabulated below: Date of sale deed Survey Nos Area of land Sale consideration 15.03.2007 Survey No. 46/1 1 acre 37 guntas 42,20,000 15.03.2007 Survey No. 47, 1 acre 2 guntas 95,40,000 Survey No. 54 21 guntas Survey No. 54 17 guntas Survey No. 46/2 32 guntas Survey No. 46/2 1 acre 8 guntas 15.03.2007 Survey No. 34 2 acre 1 guntas 1,32,150,000 Survey No. 48 1 acre Survey No. 34 1 acre 2 guntas Survey No. 46/2 16 guntas Survey No. 54 10 guntas 15.03.2007 Survey No. 44/1 1 acre 2,08,80.000 Survey No. 45 1 acre 21 guntas Survey No. 44/2 1 acre 2 guntas Survey No. 45 1 acre 20 guntas Survey No. 44/1 1 acre 2 guntas Survey No. 45 1 acre 21 guntas Survey No. 44/2 1 acre 2 guntas 15.03.2007 Survey No. 47 1 acre 20 guntas 36,00,000 15.03.2007 Survey No. 47 21 acre 0.5 guntas 24,00,000 Survey No. 46/1 18 acre 0.5 guntas 3.2 He submitted that the lands were purchased by the Assessee from T Nagaraju, C Amarnath and S Vijaykumar under various sale de....
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.... T Nadakrishna with SPR Developers; ii. T Nadakrishna has offered the income for taxation in his hands. His financial statements reflect all of these transactions. 3.5. He submitted that it is not the case of the ld. AO that none of the taxpayers are alleging that the income is not taxable in either of their hands. Thus, when clearly, an income stream has been duly offered to tax by Sri T Nadakrishna and he has acknowledged his legal liability in this regard, it is unclear as to why income-tax liability is sought to be fastened on another person. Without prejudice to the above, he submitted that the ld. AO's approach of taxing the Assessee as the lender of the funds is akin to alleging that house-owners, when they borrow money from banks to fund purchase of a house, are not the real owners but it is the bank who owns the house and hence, any gain on the disposal of the house is taxable in the hands of the bank rather than the house-owner. This is an absurd proposition that is canvassed by the ld. AO. It should also be noted that for a lender of money, such as the Assessee, the source of income can never be gains derived from disposal of the asset acquired from lent money. Th....
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....fter accepting funds from the Assessee. Nowhere in the underlying documentation is it mentioned / indicated nor has T Nadakrishna stated that he has held the land for Assessee's benefit. Hence, seeking to tax the transaction in the Assessee's hands is incorrect. Without prejudice to the above, he submitted that assessee cannot be held to be the owner of the land, that is agricultural, given the provisions of the Karnataka Land Reforms Act, 1974 which explicitly prohibit a company from acquiring agricultural land. Thus, the approach contemplated by the ld. AO would result in contravention of another law and hence- underlines the absurdity of the proposition put forth by the ld. AO. Land is agricultural land: 3.8 Without prejudice to the preceding submissions, assuming but not admitting that the Assessee is the owner of the land, what is dealt with is agricultural land which is outside the purview of capital gains tax. Without prejudice, given the nature of activities of the Assessee, the transaction of 'dealing' in the land, cannot be regarded as a business activity, yielding business income. Transfer of land is not adventure in nature of trade: 3.9 The ld. A.R. ....
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....e / T Nadakrishna had not applied for conversion of the land in question into non-agricultural purposes and no such permissions were obtained from the concerned authority. p) The fact that T Nadakrishna has borrowed money from Assessee would not determine whether or not a transaction is an 'adventure in the nature of trade'. All of the above factors listed above should be cumulatively considered. For instance, an individual (such as T Nadakrishna) can borrow a loan to purchase any property and also repay the loan. This does not result in the dealing with that property as an adventure in the nature of trade'/ The dealing should be viewed in light of all of the points listed above. 3.10 Considering the above, he submitted that it cannot be stated that T Nadakrishna or the Assessee carried on an "adventure in the nature of trade'. In this regard, reliance is placed on the following rulings: a) Madhya Pradesh HC in CIT v. Suresh Chand Goyal (163 Taxman 54); b) Chennai ITAT in ITO v. Mrs. Chitra Rajendra (81 taxmann.com 155); c) Hyderabad ITAT in Goutham Constructions Co. v. ITO (39 taxmann.com 181); d) Chennai ITAT in ITO v. Smt. Ayisha Fathima (73 taxmann.co....
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....ions/ restrictions provided under the Karnataka Land Reforms Act, 1964. 3.15 In relation to the above, he placed reliance on the ruling of the Bangalore ITAT in Assessee's own case for AY 2005-06 in ITA No. 1465/Bang/2008 dated 30.12.2009. 3.16 He submitted that in respect of the ld. AO's observation that the land revenues are collected by the Gramapanchayat after conversion leads to the conclusion that the lands are nonagricultural land is irrelevant. He submitted that it is for the competent authorities to examine whether the applicable land revenues are paid by T Nadakrishna or not. The mere fact that agricultural activities were carried on by T Nadakrishna satisfies the conditions provided in section 2(l4)(iii) is sufficient evidence to hold that the transferred lands are agricultural lands and income arising therefrom is tax exempt. 3.17 He also placed reliance on the following rulings in relation to the proposition that where land sold by assessee was entered as agricultural land in revenue records, the same cannot be brought to capital gains tax: o Madras High Court in CIT v. Ashok Kumar Rathi (89 taxmann.com 406), affirming the ruling of the Chennai ITAT in ITA....
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....t or gain which arises from the transfer of a capital asset. b) The Assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. c) This being the case, in the circumstances, there was no debt owed to the Assessee. Hence, the Assessee has not acquired any right to receive income under the JDA. As such, no profits or gains 'arose' from the transfer of a capital asset. 3.22 The ld. A.R. further submitted that, if at all any substantive / protective assessment is to be undertaken, at best it can be undertaken in the hands of SPR Developers. SPR Developers is the entity which entered into arrangements with various persons of the Sri M Thimmegowda group, including Sri T Nadakrishna. for aggregating lands for onward development and sale. It is SPR Developers that had funds at its disposal and it was to this entity mat the Assessee had remitted moneys for the properties purchased by Sri T Nadakrishna. This is the entity which had a(so discharged the sale consideration to Sri T Nadakrishna. 3.23 He submitted that the above principles are squarely covered by the ruling of the Bangalore ITAT in....
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....vident that M/s SPR Group Holding Pvt Ltd, one of the Sister concerns of M/s. SPR Developers Pvt ltd., has financed the sum required for purchase of land and the possession of lands were handed over to M/s. SPR Developers. Since M/s. SPR Developers Pvt ltd and M/s SPR Group Holding Pvt Ltd, both being companies cannot acquire agricultural land as per the provisions of the Karnataka Land Reforms Act, 1974 which explicitly prohibit a company from acquiring agricultural land, to facilitate such purchase, the transaction routed through an individual T Nadakrishna. Therefore, the Business income of the T Nadakrishna is nothing but the income of M/s. SPR Group Holdings Pvt ltd., which financed the money required for purchase of lands and the Business Income of Rs. 7,30,77,776/- earned by T Nadakrishna assessed protectively in the hands of T Nadakrishna and substantively in the hands of M/s. SPR Group Holdings Pvt Ltd. Addition of Rs. 7,30,77,776/- as business income substantively in the hands of assessee company is to be confirmed. 4.1. The ld. D.R. submitted that the assessee has contended that the land sold was agriculture land which should not be brought to tax. During the course of ....
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....ly a conduit to M/s. SPR Spirits Pvt. Ltd. to purchase this 22 acres and 36 guntas of land of Manchanayakanahalli. Accordingly, ld. AO made addition of Rs. 7,30,77,776/- as income in the hands of present assessee under the head "business income". The main contention of the ld. D.R. is that the entire transaction of purchase of this impugned property in the name of T. Nadakrishna has to be treated as transaction carried out by the present assessee and Mr. T. Nadakrishna is a name lender to present assessee i.e. M/s. SPR Spirits Pvt. Ltd. In our opinion, to understand this transaction, it is appropriate to refer the judgement of Hon'ble Supreme Court in the case of Mangathai Ammal (Decd.) through LRS & Others Vs. Rajeshwari & Ors. (414 ITR 358) wherein held as under: "8. While considering the issue involved in the present appeal viz. whether the transactions/sale deeds in favour of defendant No. 1 can be said to be Benami transactions or not, the law on the Benami transactions is required to be considered and few decisions of this court on the aforesaid are required to be referred to. 8.1 In the case of Jaydayal Poddar (supra) it is specifically observed and held by this court th....
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....with the property after the sale." In the case of Thakur Bhim Singh (supra) this court in paragraph 18 observed and held as under: "18. The principle governing the determination of the question whether a transfer is a Benami transaction or not may be summed up thus : (1) the burden of showing that a transfer is a Benami trans action lies on the person who asserts that it is such a transaction ; (2) it is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who sup plied the purchase money, unless there is evidence to the contrary ; (3) the true character of the transaction is governed by the intention of the person who has contributed the purchase money ; and (4) the question as to what his intention was has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct, etc." 8.2 In the case of P. Leelavathi (supra) this court held as under : "9.2 In Binapani Paul case (supra), this court again had an occ....
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.... by this Court in the aforesaid decisions. 9.1 The first reason which is given by the learned Trial Court while holding the suit properties as benami transactions is that part sale consideration was paid by Narayanasamy Mudaliar at the time of the purchase of the property vide Sale Deed Exh. B3. As held by this Court in catena of decisions referred to hereinabove, the payment of part sale consideration cannot be the sole criteria to hold the sale/transaction as benami. While considering a particular transaction as benami, the intention of the person who contributed the purchase money is determinative of the nature of transaction. The intention of the person, who contributed the purchase money, has to be decided on the basis of the surrounding circumstances; the relationship of the parties; the motives governing their action in bringing about the transaction and their subsequent conduct etc. It is required to be noted that Narayanasamy Mudaliar, who contributed part sale consideration by purchasing property at Exh. B3, might have contributed being the husband and therefore by mere contributing the part sale consideration, it cannot be inferred that Sale Deed in favour of the defen....
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.....1 all throughout treated the suit property as her self-acquired property which according to her were purchased from the Stridhana and selling of the jewellery. 10. It is required to be noted that in the plaint the plaintiffs came out with the case that the suit properties purchased in the name of defendant no.1 by Narayanasamy Mudaliar from the funds raised by selling the ancestral properties received by him. It was never the case on behalf of the plaintiffs that the suit properties were purchased by Narayanasamy Mudaliar in the name of defendant no.1 out of the income received from the ancestral properties. However, considering the date of transactions with respect to the suit properties and the ancestral properties sold by Narayanasamy Mudaliar, it can be seen that all the suit properties purchased in the name of defendant no.1 were much prior to the sale of the ancestral properties by Narayanasamy Mudaliar. The ancestral property was sold by the Narayanasamy Mudaliar (Exh. A3) was on dated 11.11.1951. However, the Sale Deeds at Exh. B3, B4, B5, B6 and B7 which are in favour of defendant no.1 were much prior to the sale of the property at Exh. A3. Therefore, also it cannot be ....
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....ndant no.1 has specifically stated and admitted that the suit property Item nos. 1 and 3 can be said to be the ancestral properties and according to him even before the High Court also it was the case on behalf of the defendant no.1 that item nos. 1 and 3 of the suit properties are ancestral properties. 13. In view of the above and for the reasons stated above, the present appeal is partly allowed. The impugned judgement and order passed by the High Court as well as the Trial Court holding that the plaintiffs have 3/4th share in the suit properties (Except Item Nos. 1 and 3 of the suit properties) are hereby quashed and set aside. It is observed and held that except Item Nos. 1 and 3 of the suit properties, the plaintiffs have no share in other suit properties. Preliminary Decree directed to be drawn by the learned Trial Court, confirmed by the High Court, is hereby directed to be modified accordingly. The present appeal is partly allowed to the aforesaid extent. No costs. 5.1 Now we examine the facts of present issue in the light of above judgement of Hon'ble Supreme Court, in the case of Mangathai Ammal (Decd.) cited (supra). The only reason for taxing the alleged income in th....
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....ionship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct. In the present case, the Sale Deeds are in the name of Shri T. Nadakrishna and executed by him and the sale consideration was also received by T. Nadakrishna from M/s. SPR Developers Pvt. Ltd. and the present assessee is entitled only for receipt of the amount advanced to T. Nadakrishna and not entitled for any element of profit embedded with this transaction. The revenue authorities failed to prove anything otherwise by adducing cogent evidence. There was no intention of the present assessee to purchase the property in the name of T. Nadakrishna and the intention was only to advance money to T. Nadakrishna to purchase the property by himself. The payment part of the sale consideration provided by present assessee could not be the sole criterion to infer that the sale deed in favour of T. Nadakrishna as a transaction for and on behalf of the present assessee. For this purpose, we place reliance on the judgement of Hon'ble Supreme Court in the case of Mangathai Ammal (Decd.) through LRS and Others Vs. Rajeshwari & Ors. Cited (supra). Accordingly, we are of the o....
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....es has always been recognized. This rule presupposes that in a given case the real intention of the parties to a document/transaction/arrangement could be different from what it appears from it ex facie. The court must normally proceed on the basis of the professed intention, but if that is under doubt or is disputed or challenged, then its power to find out the real intention of the parties by ignoring the apparent has to be, and has always been conceded. It is difficult to imagine where this is possible except in cases of a make believe arrangement or a subterfuge or a dubious or colourable device adopted. In such a case, the court will be merely removing the façade to expose the real intention of the parties cleverly cloaked and if that intention is discovered to be the evasion of taxes, it cannot be given effect to merely because all the steps taken as component parts of the arrangement are legally correct or valid. This is far different from saying that the court cannot re-write an agreement for the parties. A case of re-writing the agreement arises where what the income-tax authorities do is not to doubt or dispute the genuineness of the transaction/agreement/document,....
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....sessing authority to refuse to recognize partial partitions of Hindu Undivided Families was challenged and the Revenue relied on McDowell & Co. Ltd.'s case (supra) before the Madreas High Court. McDowell & Co. Ltd.'s case (supra) could not be invoked by the Assessing Officer in that case because the orders were all passed by him in 1983 and 1984, before McDowell & Co. Ltd's case (supra) was decided (in 1985). While recognizing that the rule would not apply to a genuine transaction or arrangement in which the assessee apply to a genuine transaction or arrangement in which the assessee really and in fact parts with a part of his property, just because there is a reduction of tax liability, it was held that honest and bona fide transactions cannot be hit by the McDowell & Co. Ltd.'s case (supra) approach merely because there is a reduction in the tax liability. The madras High Court did not understand the Mc Dowell & Co. Ltd.'s case (supra) rule as holding that all transactions, irrespective of their genuineness, which resulted in a reduction of tax liability would be hit by a rule. In Banyan & Berry's case (supra), the Gujarat High Court confirmed the right of freedom of business and....
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....ention of the parties has always been recognized. Therefore, to consider the impugned transaction as a colourable devices aimed at tax evasions, one has to look at the truth of the transaction by going behind the façade of documentation or the series of steps taken. That rule presupposed that in a given case the real intention of the parties to a document/transactions/arrangements could be different from what it appears from it ex-facie. The department/court must normally proceed on the basis of professed intention, but if that is under doubt, or is disputed or challenged, then it has a power to find out the real intention of the parties by ignoring the department have the freedom to go behind by removing the façade to expose the real intention of the parties cleverly cloaked and if that intention is discovered to be the evasion of taxes, it cannot be given effect to merely because all the steps taken as component parts of arrangement are legally correct and valid. However, any transaction in which the professed intention and the intention gathered from the documentation are the same, must be considered to be genuine transaction and not colourable device adopted to ev....
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....ich require no adjudication. 6. In the result, appeal of the assessee in ITA No.130/Bang/2023 is allowed. 7. Now coming to the revenue's appeal in ITA No.653/Bang/2023, as discussed on setting aside assessment by Tribunal vide order in ITA No.575/Bang/2020 dated 27.5.2022 wherein held as follows: "ITA No.575/Bang/2020 for AY 2007-08 (Revenue's appeal):- 52. This appeal by revenue challenging the protective additions deleted by the CIT(A) and on the reason that the addition is sustained in the hands of M/s. SPR Spirits Pvt. Ltd. Since we have remitted the substantive assessment back to the file of CIT(A) for fresh consideration, as discussed in para 48 of this order. This issue should also go back to CIT(A) to decide both the appeals together in view of the judgement of Hon'ble Gujarat High Court in the case of Surendra Gulabchand Modi (140 ITR 517) and Rajesh Shantilal Adani (20 GSTR 526) and issue in dispute accordingly is remitted to the CIT(A) for fresh consideration. The CIT(A) has to decide this issue within six months from the d ate of receipt of this order as this is old matter relating to the AY 2007-08." 7.1 Thereafter, the ld. CIT(A) vide order dated 26.6.2023 has ....
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.... the date of service of notice. In response to notice u/s 153C, the assessee filed his return of income on 25-11-2013 declaring income of Rs. 66,000/- being salary income and Rs. l,25,000/- as agricultural income. During the assessment proceedings, it was noted by the ld. AO that assessee had purchased 22 acres 36 guntas of convened lands at Manchanayakanahalli and within a very short duration had entered into sale agreement with M/s. SPR Developers Pvt. Ltd for further development of land. 8.1 Further, she submitted that on perusal of purchase deed submitted by the assessee during the assessment proceedings it was noted that the assessee had purchased the said lands during the current financial year and transferred the lands to the developer during the current financial year itself. It was clearly evident that the duration of land holding by the assessee was short term. The assessee vide his submissions dated 20-01-2014 had reiterated that the submissions filed by the assessee was not accepted by the ld. AO on the ground that he had not submitted any copies of RTCs, bills and vouchers for sale of agriculture produce. Further, the ld. AO at para no. 19 of the assessment order stat....