AI Drafter 
TaxTMI 
TaxTMI 
2024 (4) TMI 922
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.... 2. First, we will deal with the assessee's 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 T....
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....07/2007 with M/s Vijay Bank Employees Housing Cooperative Society to form residential sites and transfer the same to members of the 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....
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....follows:- 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 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 cons....
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....he Hon. CIT(A) erred in not considering, failed to appreciate that the entire surplus arising out of the transaction will not be exigible to tax in the hands of the Appellant, 9. The Hon. CIT(A) and the LAO erred in not appreciating the facts that the agricultural land sold was not a capital asset with the meaning of section 2(14) of the Income-tax Act, 1961. 10. The Hon. CIT(A) and the LAO erred in not considering that the land 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....
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....favour of VBEHCS as security against the advances received. The Assessee was one such land aggregator who facilitated acquisition and transfer of land to SPRD. 3.1 He submitted that in this backdrop, the Assessee entered into a sale agreement for transfer of agricultural lands measuring 22 acre and 36 guntas situated at Manchanayakanahalli Village for total sale consideration of Rs. 9,16,00,000. Subsequently, these lands were transferred vide sale deeds to Vijaya Bank Employees 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. ....
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....rior to date of sale; o The Assessee could not have transferred agricultural lands to a non-agriculturist in view of the prohibitions imposed by section 80 of the Karnataka Land Reforms Act, 1964; Without prejudice to the above, we submit as follows: Substantive assessment in the case of the Assessee is bad in law: 3.4 He submitted that the substantive assessment is bad in law. The law permits the ld. AO to make a substantive assessment only when it is clear as to in whose hands the income is to be taxed. In the present case, the following are undisputed: i. The agreements for sale have been entered into by 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 pe....
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....subject to capital gains taxation. It is only T Nadakrishna, who is the rightful purchaser and owner of the agricultural land. Assuming but not admitting that the ld. AO's action of treating the income substantively in the Assessee's hand is appropriate, he submitted that on merits, the addition is bad in law. Transaction not taxable since the Assessee is neither the legal nor economic owner; 3.7 Without prejudice to the preceding submissions, the Assessee submits that it is not taxable on the said land transactions. since it is neither the legal owner nor the economic owner. The lands were purchased by T Nadakrishna in his name and after 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 approac....
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....in respect of the land. T Nadakrishna has sold land in as it is condition. k) All of the above is also evidence by the agreements of sale. l) T Nadakrishna held the land always as investment and not at all converted into stock-in-trade. The character of the land in the hands of T Nadakrishna has not changed. Assessee never even owned the land. m) There is no material on record in respect of this land to show that Assessee / T Nadakrishna carried on activities of buying and selling of land in a systematic manner so as to justify the ld. CIT(A)'s action in treating his activities as adventure in the nature of trade. n) Assessee / T Nadakrishna is not in the business of Real Estate as alleged by the ld. AO. o) Assessee / 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, ....
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....d to its original nature of agriculture land on the expiry of two years. 3.14 He also submitted that the ld. AO has erred in stating that the lands are non-agricultural land since the lands were transferred to a non-agriculturist. The ld. AO relies on section 80 of the Karnataka Land Reforms Act, 1964 to show that T Nadakrishna could not have transferred agriculture lands to non-agriculturist since the transfer is prohibited. Here, he submitted that pursuant to the amendment brought to section 80 w.e.f. 25.11.1980, the transfer of agriculture land to a- non-agriculturist is valid, but the sale is invalid. Without prejudice, he submitted that it is for the competent authority to determine whether the transfer is valid or invalid. It is not open for the ld. AO to re-characterise the nature of an asset based on the prohibitions/ 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 Grama....
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....out prejudice, he submitted that no development has taken place on the proposed lands to be transferred due to dispute on titles to the land; the land that was to be converted has not been converted. Hence, the terms of the MOU have not been complied with for the transfer to be regarded as complete. Hence, for the above reasons, he submitted that it would not be appropriate to consider that income has arisen to T Nadakrishna or the Assessee on account of the transfer of lands. The following propositions are relevant here: a) No real income 'arises' in the present facts on the assumption that there is transfer of a capital asset. Income from capital gain on a transaction which never materialized is, at best, a hypothetical income, Where for want of statutory permissions, the entire transaction of development of land falls through, there will be no profit 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. H....
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.... purchase. Further, the income and financial statements of T Nadakrishna was analysed from AY 2006-07 to 2012-13 and noticed that T Nadakrishna was earning meagre salary from M/s. Chamundi Distilleries Pvt Ltd and also he didn't have any fixed asset in his name. Details of source of funds for purchase of property was called for during the course of assessment proceedings, in reply he stated that "Amount received from sister concern." T Nadakrishna, being an individual, cannot have any sister concern. The claim made by the T Nadakrishna in respect of source of funds was baseless. During the assessment proceedings, the ledger extract of the T Nadakrishna in the books of M/s. SPR Developers Pvt. Ltd was examined and found that the amount of Rs. 1,85,00,000/- for purchase of land was paid by M/s. SPR Group Holidays - Arrack Division and was repaid back by M/s. SPR Developers Pvt Ltd. She submitted that it is clearly evident 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 ....
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....val submissions and perused the materials available on record. In this case, there was search & seizure in case of the assessee on 8.2.2011. During the course of search, certain incriminating materials were found and seized documents belong to one Mr. T. Nadakrishna. The seized materials such as purchase of 22 acres and 32 guntas of converted land at Manchanayakanahalli and within a short duration had entered into sale agreement with M/s. SPR Developers Pvt. Ltd. for further development of land. It was also noted that the said land has been transferred to the developer during the current financial year itself. The ld. AO issued notice u/s 153C of the Act to Mr. Nadakrishna and brought the gain of Rs. 7,30,77,776/- as business income of the assessee protectively and substantially in the hands of present assessee M/s. SPR Spirits Pvt. Ltd. According to the ld. D.R., Shri T. Nadakrishna have no source of income and he has only 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 contentio....
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....ion, and the person expressly shown as the purchaser or transferee in the deed, starts with the initial presumption in his favour that the apparent state of affairs is the real state of affairs. Though the question whether a particular sale is Benami or not, is largely one of fact, and for determining this question, no absolute for mulae or acid tests, uniformly applicable in all situations, can be laid down ; yet in weighing the probabilities and for gathering the relevant indicia, the courts are usually guided by these circumstances : (1) the source from which the purchase money came ; (2) the nature and possession of the property, after the purchase ; (3) motive, if any, for giving the transaction a Benami colour ; (4) the position of the parties and the relationship if any, between the claimant and the alleged Benamidar ; (5) the custody of the title deeds after the sale and (6) the conduct of the parties concerned in dealing 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....
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.... is Benami in nature the aforesaid six circumstances can be taken as a guide. 8.4 Applying the law laid down by this court in the aforesaid decisions to the facts of the case on hand and the reasoning given by the trial court confirmed by the High Court, it appears that both, the learned trial court and the High Court have erred in shifting the burden on the defend ants to prove that the sale transactions were not Benami transactions. As held hereinabove in fact when the plaintiffs' claim, though not specifically pleaded in the plaint, that the sale deeds in respect of suit properties, which are in the name of defendant No. 1, were Benami transactions, the plaintiffs have failed to prove, by adducing cogent evidence, the intention of the Narayanasamy Mudaliar to purchase the suit properties in the name of defendant No. 1-his wife 9. Even the reasoning and the findings recorded by the Trial Court confirmed by the High Court while holding the Sale Deeds/transactions in favour of defendant no.1 as benami cannot be said to be germane and or fulfilling the circumstances as carved out by this Court in the aforesaid decisions. 9.1 The first reason which is g....
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....ffs have also share in the suit properties is concerned, the said finding is just a misreading and mis-interpretation of the evidence on record. In her deposition, defendant no.1 has explained the payment of Rs. 10,000/- to Nagabushanam, daughter and the Release Deed executed by her. It is specifically stated by her that though she had no share in the suit properties, with a view to avoid any further litigation in future and to be on safer side, Rs. 10,000/- is paid and the Release Deed was got executed by Nagabushanam in favour of defendant no.1. Even in the Release Deed at Exh. A1, it is so specifically stated. Therefore, merely because to avoid any further litigation in future and though Nagabushanam had no share in the suit properties, Rs. 10,000/- was paid and the Release Deed was got executed in favour of defendant no.1, by that itself, it cannot be said that defendant no.1 treated the suit properties as ancestral properties and/or Joint Family Properties. 9.4 Even considering the Will executed by defendant no.1 dated 11.02.1987 and the subsequent revocation of the Will is suggestive of the fact that defendant no.1 all throughout treated the suit property as her self....
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....that the purchase made in the name of wife or children is for their benefit would not be available in the present case. Aforesaid cannot be accepted. As held by this Court in the case of Binapani Paul (Supra) the Benami Transaction (Prohibition) Act would not be applicable retrospectively. Even otherwise and as observed hereinabove, the plaintiff has miserably failed to discharge his onus to prove that the Sale Deeds executed in favour of defendant no.1 were benami transactions and the same properties were purchased in the name of defendant no.1 by Narayanasamy Mudaliar from the amount received by him from the sale of other ancestral properties. 12.1 Once it is held that the Sale Deeds in favour of defendant no.1 were not benami transactions, in that case, suit properties, except property nos. 1 and 3, which were purchased in her name and the same can be said to be her self acquired properties and therefore cannot be said to be Joint Family Properties, the plaintiffs cannot be said to have any share in the suit properties (except property nos. 1 and 3). At this stage, it is required to be noted that the learned Counsel appearing on behalf of defendant no.1 has specifically....
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....d. A.R., assessee is only a financier, who provided the finance to Mr. T. Nadakrishna to purchase the property just like a banker and these transactions are duly reflected in the hands of T. Nadakrishna and immovable property being owned by T. Nadakrishna and subsequently, he himself only transferred the property in his name to M/s. SPR Developers Pvt. Ltd. who is a different legal entity. 5.2 In our opinion, the burden of proving the transaction as carried out by T. Nadakrishna on behalf of the present assessee and the apparent purchaser T. Nadakrishna is not the real owner always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character, which is neither directly proved by the lower authorities directly nor established by indirectly and no inference could be drawn to hold it so. While considering the particular transaction as colourable device, 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 cost has to be decided on the basis of surrounding circumstances, the relationship of the p....
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....the scheme, each of which may be legally valid. The genuineness of the arrangement has to be viewed not in relation to every step taken to achieve the result but in relation to the final result. This is only a different way of saying that you have to look at the truth of the transaction (and if permissible) by going behind the façade of documentation or the series of steps taken. In our country, this approach has been approved by the Supreme Court every now and then and in one of the earliest cases Jiyajeerao Cotton Mills Ltd. V. CIT(1958) 34 ITR 888 it was held by His Lordship Justice T.L. Venkatarama Iyer (at page 897) that: "Mr. Kolah argues that there is nothing wrong in business being done in such a way as to escape taxation. No exception can be taken to that statement. Every person is entitled so to arrange his affairs as to avoid taxation. But the arrangement must be real and genuine and not a sham or make believe, and the question now under consideration is whether the contracts with the brokers were genuine". (emphasis supplied) That the courts (and Tribunals) always have the freedom to "go behind" the documents to find out the real intention of th....
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....he judgement did not permit the income-tax authorities to re-write or make a new contract for the parties nor did it say that they could not go behind the documentation in an attempt to find out the real intention of the parties. If the real intention of the parties id discovered to be something different from the intention professed in the document, the income-tax authorities are at liberty to brand the same as a subterfuge or a dubious device or a colourable transaction. Our attention was drawn to the decisions of the Supreme Court and High Courts rendered after the judgement in McDowell & Co. Ltd.'s case (supra). We may first refer to CWT V. Arvind Narottam (Individual) (1988) 173 ITR 479 (SC) where the Supreme Court refused to apply McDowell & Co. Ltd.'s case (supra) to a case where the deeds were clearly worded that the deeds did not intend to convey what they professed. The McDowell & Co. Ltd.'s case (supra) rule was convassed by the Revenue before the Supreme Court without any evidence to show that the documents were a subterfuge, an artifice or embodied colourable transactions. In M.V. Valliappan V. CIT (1988) 170 ITR 238 (Mad.) the amendment made to the Income-tax....
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....esult in a reduction of the tax liability, provided that they are genuine, bonafide and not colourable transactions. The contention that the validity of the transactions cannot be looked into within the frame of the question is, with respect, of the mark because merely legal validity does not necessarily give a touch of genuineness to the transaction, which depends on various other considerations. Therefore, the further contention that since the question referred to the Special Bench is limited to the application of the rule laid down in McDowell & Co. Ltd.'s case (supra), it presupposes that the sale and lease-back transaction is valid and therefore it cannot be held to be non-genuine, cannot be accepted. Every step in the whole transaction may be legally correct, but still whether the whole transaction is genuine in the sense that it is not a subterfuge or colourable device or a dubious method is an entirely different question not dependent solely on the fact that every step in the transaction is legally valid or correct." 5.2.2 As seen from the above orders of the Tribunal, it is pertinent to mention herein that authorities always have the freedom to "go behind" docu....
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....racter. This court ultimately concluded after considering its earlier judgment in the case of Valliammal v. Subramaniam [2004] 7 SCC 233 that while considering whether a particular transaction is benami in nature, the following six circumstances viz., '(1) the source from which the purchase money came; (2) the nature and possession of the property, after the purchase; (3) motive, if any, for giving the transaction a Benami colour ; (4) the position of the parties and the relationship, if any, between the claimant and the alleged Benamidar; (5) the custody of the title deeds after the sale; and (6) the conduct of the parties concerned in dealing with the property after the sale. (Jaydayal Poddar v. Mst. Bibi Hazra (supra), SCC page 7, para 6) cumulatively or collectively to be taken as a guiding factor. In the present case, all these conditions not fulfilled at all. Accordingly, this ground of appeal of the assessee is allowed. Other grounds of appeal are infructuous in view of our finding that this impugned transaction cannot be considered as a transaction carried out by T. Nadakrishna on behalf and in the name of present....
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....s of present assessee on the ground that substantive assessment has been confirmed by him in the hands of M/s. SPR Spirits Pvt. Ltd. for the same assessment year. 7.3 Against this, revenue filed the appeal before us wherein raised following grounds: 1) "The order of the learned CIT(A) is opposed to law and facts of the case. 2) The CIT(A) erred in deleting the addition made on a protective basis when the substantive assessment in the case of M/s. SPR Spirits Pvt. Ltd. had not reached finality. 3) The CIT(A) erred in not following the directions of the Hon'ble ITAT to decide the appeal in view of the judgement of Hon'ble Gujarat High Court in the case of Surendra Guiabchand Modi (140 ITR 517) and Rajesh Shantilai Adani (20 GSTR 526). 4) For these and other grounds that may be urged upon, the order of Jhe CIT(A) may be reversed and that assessment order to be restored." 8. The ld. D.R. submitted that Search and seizure operation was conducted in the case of M/s SPR Developers Pvt Ltd on 08-12-2011. During the course of search certain incriminating material was found and seized. The seized documents belonged to the assessee shri T. Nad....
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....7,7767- protectively in the hands of assessee and substantively in the hands of M/s. SPR Spirits Pvt. Ltd. (Formerly known as SPR Group Holdings Pvt. Ltd.) 8.2 Further, she submitted that the ld. CIT(A) ought to have decided both appeals which were remitted to ld. CIT(A) by Tribunal collectively instead of deciding each appeal independently on different dates. 9. The ld. A.R. submitted that this issue is squarely covered by earlier order of the Tribunal and to be decided in favour of the assessee by submitting as follows: 9.1 The above principles are squarely covered by the ruling of the Bangalore ITAT in the case of Sri D Dasappa in ITA Nos. 2222 & 2223/Bang/2016, dated 09.02.2022, Sri M Thimmegowda in ITA Nos. 1035 and 1036/Bang/2019, dated 20.04.2022 and Smt. Leelavathy in ITA Nos. 752 to 755/Bang/2019, dated 18.04.2022. In these rulings, the facts involved the same transaction as is the subject matter of this appeal. In so holding, the ITAT relied on the ruling of the SC in Balbir Singh Maini (398 ITR 531). He also relied on the following rulings: a) CIT v. City Lubricants Ltd. (129 taxmann.com 267); Madras HC; b) Seshasayee Steels (P.) Ltd. v. CIT (4....