1. real estate
2. apartments

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: ‘D’ NEW DELHI
BEFORE SMT DIVA SINGH, JUDICIAL MEMBER
AND
SHRI T.S.KAPOOR, ACCOUNTANT MEMBER
I.T.A .No.-3079/Del/2009
(ASSESSMENT YEAR-2006-07 )
vs M/s Kay Kay Royal Apartments Pvt. Ltd.,
3, Shivji Marg, Westend Green,
Rangpuri, New Delhi
PAN-AACCK7813Q
(RESPONDENT)
CO-273/Del/2009
M/s Kay Kay Royal Apartments Pvt. Ltd.,
vs ACIT,
3, Shivji Marg, Westend Green,
Co.Cir,-5(1), Room No.Rangpuri, New Delhi
409A, C.R. Building,
I.P.Estate, New Delhi
PAN-AACCK7813Q
(APPELLANT)
(RESPONDENT)
I.T.A .No.-3080/Del/2009
(ASSESSMENT YEAR- 2006-07 )
ACIT,
Co.Cir,-5(1), Room No.409A, C.R. Building,
I.P.Estate, New Delhi
(APPELLANT)
vs M/s Kay Kay Apartments Pvt. Ltd.,
3, Shivji Marg, Westend Green,
Rangpuri, New Delhi
PAN-AACCK7816M
(RESPONDENT)
CO-274/Del/2009
M/s Kay Kay Apartments Pvt. Ltd.,
vs ACIT,
3, Shivji Mrg, Westend Green,
Co.Cir,-5(1), Room No.-409A,
Rangpuri, New Delhi
C.R. Building, New Delhi
(APPELLANT)
(RESPONDENT)
I.T.A .No.-3081/Del/2009
(ASSESSMENT YEAR- 2006-07 )
ACIT,
Co.Cir,-5(1), Room No.409A, C.R. Building,
I.P.Estate, New Delhi
(APPELLANT)
vs M/s Kay Kay Buildworth Pvt. Ltd.,
3, Shivji Marg, Westend Green,
Rangpuri, New Delhi
PAN-AACCK7815J
(RESPONDENT)
CO-275/Del/2009
M/s Kay Kay Buildworth Pvt. Ltd.,
vs ACIT,
3, Shivji Marg, Westend Green,
Co.Cir,-5(1), Room No.-409A,
Rangpuri, New Delhi
C.R. Building,
New Delhi
PAN-AACCK7815J
(APPELLANT)
(RESPONDENT)
ACIT,
Co.Cir,-5(1), Room No.409A, C.R. Building,
I.P.Estate, New Delhi
(APPELLANT)
2
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
I.T.A .No.-3082/Del/2009
(ASSESSMENT YEAR- 2006-07 )
vs M/s Kay Kay Executive Apartments Pvt.
Ltd., 3, Shivji Marg, Westend Green,
Rangpuri, New Delhi
PAN-AACCK7817Q
(RESPONDENT)
CO-276/Del/2009
M/s Kay Kay Executive Apartments
vs ACIT,
Pvt. Ltd., 3, Shivji Marg, Westend
Co.Cir,-5(1), Room No.-409A,
Green, Rangpuri, New Delhi
C.R. Building, I.P.Estate, New
Delhi
PAN-AACCK7817Q
(APPELLANT)
(RESPONDENT)
I.T.A .No.-3084/Del/2009
(ASSESSMENT YEAR- 2006-07 )
ACIT,
Co.Cir,-5(1), Room No.409A, C.R. Building,
I.P.Estate, New Delhi
(APPELLANT)
ACIT,
Co.Cir,-5(1), Room No.409A, C.R. Building,
I.P.Estate, New Delhi
(APPELLANT)
vs M/s Kohli Housing & Development Pvt.
Ltd., 3, Shivji Marg, Westend Green,
Rangpuri, New Delhi
PAN-AABCK7836Q
(RESPONDENT)
Appellant by:
Sh. Vikram Sahay, Sr. DR
Respondent by: Sh. U.N.Marwah, FCA
ORDER
PER BENCH
All these appeals argued together on similar issues pertaining to 2006-07
assessment years are being decided by a common order in view of the stand of
the parties before the Bench that the arguments advanced by the respective parties
in ITA No.-3080-3082/Del/2009 alongwith CO No.-274/Del/2009 would address
the remaining appeals as the lead order has been passed by the AO in the case of
Kay Kay Apartments Pvt. Ltd.
2.
In the light of the afore-mentioned common stand of the parties, we
propose to first set out the facts as available on record in the case of Kay Kay
Apartments Pvt. Ltd. wherein both the department and the assessee have assailed
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I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
the correctness of the order dated 27.04.2009 of CIT(A)-VIII, New Delhi on the
following grounds, respectively:Grounds raised by department in ITA No.3080/Del/2009
1.
“The order of the Learned Commissioner of Income Tax (Appeals)
is erroneous & contrary to facts & law.
2.
On the facts and in the circumstances of the case, the Ld. CIT (A)
has erred in deleting the addition of RS.1 ,25,00,000/- made u/s 2(22)(e) as
deemed dividend without appreciating the facts and reasons and also the
case laws mentioned by the AO in his assessment order.
3.
On the facts and in the circumstances of the case, the learned
CIT(A) has erred in reducing the addition made u/s 69 of Rs.36,69,125/- to
12,41,500/-.
a).
Ignoring that in a group case, it has been established beyond doubt
that the assessee has made payment of on money for purchasing land in the
same village where other lands purchased by the assessee company are
located. The Ld CIT(A) has also accepted the fact of payment of on-money
for purchase of land in the said case.
b)
Ignoring the findings and the reasons as discussed by the AO in his
assessment order.
c)
Without appreciating that when for almost all the properties
except one the same stamp duty rate was levied by the authority, than in
the same manner, the AO was completely justified in adapting same rate of
6.60 Lacs per acre as established beyond doubt' in one case for valuing the
purchase consideration in r/o the other lands located in the same village.
4. . On the facts and in the circumstances of the case, the Ld. CIT(A) has
erred in reducing the addition of Rs. 121081/-- made u/s 69C to
Rs4O,970/- ignoring the facts and reasons as mentioned in the assessment
order.
5.
The appellant craves leave to add, to alter, or amend any grounds
of the appeal raised above at the time of hearing.”
2.1.
The grounds raised by the assessee in the cross-objection in C.O. No.-
274/Del/2009 read as under:“That on the facts and in the circumstances of the respondent's
case the learned Commissioner of Income Tax, (Appeals)-VIII, New Delhi,
erred in confirming the addition of Rs 12,41,500/- out of the addition of Rs
36,69,125/- made under section 69 of the I. T. Act, 1961.
2.
That the Learned CIT (Appeals)-VIII, New Delhi failed to consider
and appreciate that the learned assessing officer on the facts of the
respondents case has wrongly invoked the provisions of Section 69 of the
I.T.Act,1961 while making the impugned addition of Rs 36,69,125/3.
That on the facts and in the circumstances of the respondent's case
the learned Commissioner of Income Tax, (Appeals)-VIII, New Delhi,
erred in confirming the addition of Rs 40,970/- out of the addition of Rs
1,21,081/- made under section 69 C of the LT Act 1961.
1.
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I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
That the appellant, craves, leave to add, alter, amend, substitute, forgo,
any or all the grounds of cross objections before or at the time of
hearing.”
3.
The relevant facts relatable to the Ground No.s. 2 & 3 of the Revenue
which is interlinked with the Grounds raised by the assessee in its C.O as
emanating from the record are that the assessee company who is now a land
holding company of M/s Kohli Housing Development Pvt. Ltd. is found to have
received in the year under consideration unsecured loan from M/s Kohli Housing
Development Pvt. Ltd. and had purchased lands in Gurgaon. The AO required
the assessee to support its purchases. Considering the furnished copies of sale
deeds made available by the assessee the AO observed that the assessee company
had purchased 20.19 acres of land at Village-Sultanpur, Tehsil Parukh Nagar,
Gurgaon in July, August and September 2005. The details of the land purchased
is summarised at page 2 of the assessment order which disclosed that land had
been purchased from 9 different parties in the afore-mentioned months.
These
details are extracted from the assessment order hereunder for ready-reference:S.No.
1.
2.
Date
06.07.2005
11.07.2005
Stamp
Sale
consider
ation
11110 1851500
09650
55560
4830
926000
3.
02.08.2005
67150 1119000
4.
06.09.2005
18000
5.
06.09.2005
50640
Area
(Kanals
&
Marlas)
Area
in
Acres
Rate per
acre as
per sale
deed
32K 4M
4.025
460000
128K 18M
2.0125
460124
17K 18M 1.34375
832744
300000
4K 16M
0.6
500000
844000
15K 2M
1.8875
447152
Sellers Address
Land Sold
Sh.Om Prakash R/oSultanpur, Tehsil-Parukh
Nagar, Gurgaon
Sh. Haneef Chunnilal
Daalchand, Rameshwar,
Ram Kumar, ANgoori
Devi, R/o-Sultanpur,
Tehsil-Parukh Nagar,
Distt.-Gurgaon
Smt. Raj Aggarwal &
Rakesh Aggarwal, R/o437/14, Urban Estate,
Gurgaon
Sh.Vinay Kumar, R/oA 54, Gujrawala, New
Delhi
Sh.Raj Kumar Jain
(Ram Kumar), R/o-A54/2, Railway Road,
Vil.-Sultanpur,
Tehsil-Parukh
Nagar, Gurgaon
Vil.-Sultanpur,
Tehsil-Parukh
Nagar, Gurgaon
Vil.-Sultanpur,
Tehsil-Parukh
Nagar, Gurgaon
Vil.-Sultanpur,
Tehsil-Parukh
Nagar, Gurgaon
Vil.-Sultanpur,
Tehsil-Parukh
Nagar, Gurgaon
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I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
6.
07.09.2005 108600 1810000
7.
09.09.2005 136320
8.
20.09.2005
39400
656500
10K 10M
1.3125
500190
9.
27.09.2005
25500 425000
6K 16M
0.85
500000
TOTAL 626750
3.1.
2000000
28K 19M 3.61875
500173
36K 7M 4.54375
440165
932000
Gurgaon
Sh.Babu Ram, Jai
Singh, Karampal, Beer
Singh, Smt. Santosh,
Vil.-Sultanpur,
Suresh, Veermati, R/oTehsil-Parukh
Sultanpur, Distt.Nagar, Gurgaon
Sultanpur, Distt.Parukh Nagar, Distt.Gurgaon
Smt. Dayawati, W/oVil.-Sultanpur,
Om Prakash, R/oTehsil-Parukh
nathpur Village,
Nagar, Gurgaon
Gurgaon
Sh.Mahabeer Singh,
Vil.-Sultanpur,
R/o-Sultanpur, TehsilTehsil-Parukh
Parukh Nagar,
Nagar, Gurgaon
Gurgaon
Sh.Chandra, Raampal,
Vil.-Sultanpur,
R/o-Sultanpur, TehsilTehsil-Parukh
Parukh Nagar, Gurgaon Nagar, Gurgaon
20.19375
Out of these 9 transactions the AO picked up the transaction dated
09.09.2005 at Sl. No.-7 and issued summons to the seller, Smt. Dayawati, W/oSh. Om Prakash, Village-Nathpur, Gurgaon and recorded her statement on oath.
Considering the same he concluded that since she has accepted that the land
measuring-4.5 acres located in Sultanpur, Tehsil Parukh Nagar, Gurgaon was
sold by her for total consideration of Rs.30,00,000/- which included cash receipts
of Rs.10 lakh over and above, Rs.20 lakh received by her by bank drafts as per
the registered sale deed. Considering the fact that the sale deed was registered at
Rs.20 lakh the AO confronted the assessee with the translated copy of the
statement recorded. The translated version is found reproduced at page 3 of the
assessment order and the assessee was issued show cause requiring it to explain
why addition of Rs.10 lakh not be made as unexplained investment in the hands
of the assessee u/s 69 of the Act.
3.2.
The assessee is found to have availed of the opportunity granted to “cross-
examine” Smt. Dayawati on 26.12.2008 wherein she reiterated the fact that the
amount of Rs.10 lakh over and above the amount of Rs.20 lakh mentioned in the
6
Registered Sale Deed was paid.
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
The English translation of the “cross-
examination” has also been extracted in page 4 & 5 of the assessment order. The
AO after providing the assessee opportunity to cross-examine Smt. Dayawati
subsequently later on, on the very same date also recorded the statement of the
assessee’s husband, Sh. Om Prakash who also confirmed that these facts were
brought to the knowledge of his wife on 14.12.2008 by him and on which date
his wife’s statement had been recorded. The English translation of the said
statement is also extracted in the assessment order.
3.3.
In view of the same it was concluded that since the statements of Smt.
Dayawati and her husband established the payment of Rs.10 lakh over and above
what is recorded in the Registered sale deed,
a show cause notice dated
06.12.2008 was issued to the assessee. The extract of the same found reproduced
in the assessment order at pages 6 & 7 is reproduced hereunder:0.1. “Please refer to the letter no. 806 dated 17.12.2008 in which the
statement of Smt. Dayawati W/O Sh. Om Prakash which was recorded
under section 131 of the Income Tax Act, 1961 on 14.12.2008 was
confronted and you were asked to submit your reply to the Show-cause on
21.12.2008. In response to the letter you requested for an opportunity vide
letter 22.12.2008 to cross examine Smt. Dayawati. In the letter you have
raised following objections:
"That the aforesaid statement seems to have been procured as would be
evident from the fact that the husband of the deponent Sh. Om Prakash
being one of the seller has not come forward with his statement, but his
wife, presumably illiterate, having no personal knowledge / inter action
with regard to the property transaction has made the purported statement.
The lady has herself admitted and said 'that her husband inter acted with
the company and settled the rate'. Thus, her purported statement can at
best be said as 'hear say' having no evidentiary value. Merely on hear say
no additions can be made."
In this regard, the above objections are not valid for the following
reasons: (i)
Smt. Dayawati wlo Sh. Om Prakash is the seller as per registered
sale deed without whose knowledge and presence the sale could not have
been registered. She is assessed to Income Tax and has PAN. In her
statement in reply to Question no. 2, she has categorically replied that the
property transaction related to sale of land at Village - Sultanpur was
handled by her husband Sh. Om Prakash who interacted with the
company. Her statement dated 14.12.2008 was recorded in the presence of
7
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
her husband. Since, the sale of land was in her name the evidence
regarding payments received from such sale was given by Smt. Dayawati
on the basis of inputs received from her husband Sh. Om Prakash.
Therefore, the statement of Smt Dayawati is not mere hear say but a
statement of facts told on oath under section 131 of the Income Tax Act,
1961. It is oral evidence based on personal knowledge derived from inputs
from her husband who has handled the sale transaction.
ii) Statement of Sh. Om Prakash has also been recorded on oath on 26 12
2008 In which he has stated that the land in the name of his wife Smt.
Dayawati was sold to Kay Kay Apartments Pvt Ltd for a sale consideration
of Rs. 30 lakhs out of which Rs. 10 lakhs was received in cash. He has also
stated that his wife Smt. Dayawati has given the statement on 14.12.2008
in his presence and on the basis of facts related to the sale of land as told
by him to his wife. A copy of statement is enclosed for reference and
record.
2.
On 26.12.2008 you were offered an opportunity to cross examine
Smt. Dayawati with regard to the statement dated 14.12.2008. Cross
examination of Smt. Dayawati was conducted on oath vide statement
containing 4 Pages. The cross examination was conducted by Sh. U N.
Marwah, CA from M/s. R. N. Marwah & Company. It may be highlighted
that Smt. Dayawati has stood by her statement dated 14.12.2008 and
confirmed receipt of Rs.10 lacs cash from Si: Rajinder Singh Malik, who is
the authorized signatory / Director of Mls. Kay Kay Apartments Pvt. Ltd.
as per the registered sale deed). The statement was given by her in the
presence of her husband Sh. Om Prakash who has also signed as witness.
A copy of statement of cross examination of Smt. Dayawati recorded on
26. 12.2008 consisting of 4 pages is being enclosed for your reference and
record.
3.
On the basis of above evidences, you are hereby required to showcause as to why a sum of Rs.10 lacs may not be treated as unexplained
investment under section 69 of the Income Tax Act, 1961 and also showcause as to why the rate of Rs.6.6 Iacs per Acre may not be applied to the
land of 20.19 Acres purchased by the assessee company in Village Sultanpur during the same period.”
3.4.
The
assessee in response to the same is found to have reiterated its
position and further submitted that opportunity to cross-examine Sh.Om Prakash
had not been provided. However the AO was of the view that the statement of
Sh. Om Prakash recorded on 26.12.2008 was only to confirm what his wife had
already stated and the objection of the assessee that he was not provided
opportunity to cross-examine Sh. Om Prakash was considered to be not relevant
as he merely confirmed what Smt. Dayawati had stated and she had already been
8
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
cross-examined on behalf of the assessee. Accordingly he was of the view that
the objection was made only to make an issue out of a non-issue.
3.4.1.Similarly the objection
of the assessee that Smt. Dayawati’s financial
records be seen so as to determine whether she had disclosed the said amount in
her own return was also considered to be not relevant for the purposes of the
issue.
3.4.2. The other argument that how and where the funds were held by Smt.
Dayawati till the date of the marriage of her daughter the AO concluded could
not be doubted as he was of the view that parents in villages start preparing for
marriage of their daughters very early.
3.4.3. The following decisions relied upon by the assessee were also considered
to be not relevant by the AO in view of the statement of Smt. Dayawati already
available and duly confronted to the assessee company on record:-
3.5.
1).
CIT vs P.V.Kalyanasundaram 282 ITR 259;
2).
CIT vs Krishnan 210 ITR 707 (Mad.); and
3).
CIT vs M.K.Brothers 163 ITR 249 (Guj.)
Accordingly addition of Rs.10 lakh was made in the hands of the assessee
company as unexplained investment u/s 69 of the Act. The AO further concluded
that these facts lead to the conclusion that the rate of land at village Sultanpur
was Rs.6,60,000/- per acre in September 2005 when the land was sold by Smt.
Dayawati. He further concluded that it also proved that the assessee company
even for the other purchases during the period necessarily must have paid part of
the sale consideration outside the books in cash and the value of sale
consideration reflected in the sale deed accordingly shown was concluded to be at
a much lower amount then the market value. Accordingly on account of the
following reasons addition of Rs.26,69,125/- was also made by him. The relevant
extract from the assessment order is reproduced hereunder:“As per the details of sale summarized in table in para 4 above, it
can be seen that except the land measuring 17 kanals 18 marlas sold by
Smt. Raj Aggarwal on 2.8.2008, which has been registered for Rs.
16.
9
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
11,19,000 @ Rs. 8.32 lakhs per acre, sale of all the other lands have been
registered @ 4.5 to 5 lakhs per acre. The sale of most of the land has been
registered in September 2005.
17.
It was also gathered through field enquiries made by Inspector of
this office that the land value in Village Sultanpur and neighboring
villages like Village Jhanjrollakhedi reached as high as Rs. 22 lakhs per
acre when 'Reliance group' started purchasing land in the same Village.
Thus, the minimum prevailing market rate in Village Sultanpur was at
least Rs. 6,60,000 in September 2005 as established from the statements
of Smt. Dayawati and Sh. Om Prakash.
18.
On the basis of minimum rate of Rs. 6,60,000 per acre the
unexplained investment made by assessee company on purchase of land
(other than the land purchased from Smt. Dayawati) by payment of part of
sale consideration in cash outside the books has been computed as underS.No.
Date
1.
06.07.2005
2.
3.
4.
5.
6.
7.
8.
11.07.2005
02.08.2005
06.09.2005
06.09.2005
07.09.2005
20.09.2005
27.09.2005
Location
Land Sold
of Sale
Area in
consideration Acres
as
per
registered
sale deed
A
Vill. Sultanpur,
Tehsil-Parukh
1851500
4.025
Nagar,
Gurgaon
Vill. Sultanpur,
Tehsil-Parukh
926000
2.0125
Nagar,
Gurgaon
Vill. Sultanpur,
Tehsil-Parukh
1119000
1.34375
Nagar,
Gurgaon
Vill. Sultanpur,
Tehsil-Parukh
300000
0.6
Nagar,
Gurgaon
Vill. Sultanpur,
Tehsil-Parukh
844000
1.8875
Nagar,
Gurgaon
Vill. Sultanpur,
Tehsil-Parukh
1810000
3.61875
Nagar,
Gurgaon
Vill. Sultanpur,
Tehsil-Parukh
656500
1.3125
Nagar,
Gurgaon
Vill. Sultanpur,
425000
0.85
Rate per
acre as
per sale
deed
Sale
Consideration
@ Rs.6,60,000
per acre
B
Unexplained
investment
being
the
difference of
B and A
460000
2656500
805000
460124
1328250
402250
832744
Not applicable
0
500000
396000
96000
447152
1245750
401750
500173
2388375
578375
500190
866250
209750
500000
561000
136000
10
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
Tehsil-Parukh
Nagar,
Gurgaon
TOTAL
4.
26,29,125
Aggrieved by this the assessee carried the issues in appeal before the
CIT(A). The addition of Rs.10 lakh was assailed on the following grounds:(a) The recipient has under oath in her tax return stated to have
disclosed a sale consideration as Rs.20,00,000/-.
(b) The recipient before the sub-registrar at the time of registration
of the sale deed has confirmed having receipt Rs. 20,00,000/only.
(c) The receipt of cash of the alleged sum of Rs. 10,00,000/- prior
to the execution of sale deed is highly improbable as the seller
after receiving the so called (on money) could decline the
registration of sale deed nor hand over physical possession of
the land.
(d) The statement that the seller had used the "on money" stated to
have been received in Sept. 2005 for the wedding of her
daughter in Feb. 2008 is highly improbable.
(e) The seller is in all probability palming off her undisclosed
income spent at the time of her daughter's marriage as having
been given by the assessee company to subvert enquiry of the
income tax department with regard to marriage expenses.
(f) The seller neither negotiated the transaction nor admitted to
have received the alleged on money, which has purportedly
been received by her husband. The statement of her husband
has been recorded after the cross examination of the deposed
had been completed and the appellant's AR had left the office.
The appellant is denied the right to cross examine him and as
such the statement of Mr. Om Prakash has no validity.
4.1.
The remaining addition of Rs.26,29,125/- made by the AO was assailed on
various grounds contending that apart from the statement of Smt. Dayawati there
was no other basis to uniformly applying a flat rate of Rs.6,60,000/- per acre on
all the purchases from different parties ignoring the basic fact that price of
property is determined by criteria like location of the land; distance from the road
etc. and cannot be based on extraneous and irrelevant evidences. Referring to the
material on record it was pointed out that it can be seen that for one of the
properties the rate of purchase was Rs.8,32,744/- per acre which was in excess of
the assumed rate of Rs.6,60,000/- applied by the AO.
The AO’s stand
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I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
accordingly was assailed on the ground that it was arbitrary and not in
consonance with the provisions of the Act. Reliance yet again was placed on the
decisions relied upon by before the AO. Reliance was also placed upon the CIT
vs R.S.Rathore (1995) 212 ITR 390, 394 (Raj.). It was submitted that the onus
placed upon the department to prove that the amount invested is more than the
recorded consideration has not been discharged. Reliance was placed upon the
following decisions:· J.S.Parkar vs. P.B.Palekar 94 ITR 616, 644 (Bom.);
· CIT vs Naresh Khatter (HUF) (2003) 261 ITR 664 (Del);
· Amrit Kumari Surana vs CIT (1997) 226 ITR 344 (Raj.); and
· CIT vs Dr. S. Bharti (2002) 254 ITR 261 (Del.)
4.2.
It was also canvassed that the AO has wrongly invoked section 69 as on
facts it was not attracted as the said section would have come into play only when
the investment was wholly undisclosed and not when the asset is disclosed. It
was submitted that in situations where the amount recorded is found to be less
than the actual amount in such a situation section 69B would have been attracted.
On facts it was argued that even section 69B was also not attracted as the said
section is attracted only when the value of the investments is not fully, but partly
recorded and (a) the assessee’s offers no explanation about the nature and source
of investment; or (b) the explanation in the opinion of the AO is not satisfactory.
5.
Considering the submissions the CIT(A) relying upon the decision of the
Hon’ble Calcutta High Court in the case of Unit Construction Co. Ltd. Vs JCIT
260 ITR 189 (Cal.) was of the view that mentioning of incorrect section by itself
would not make the addition incorrect or improper. The addition of Rs.10 lakh
was sustained vide para 7.4 holding as under:7.4 “In the light of the above, I shall first discuss the addition regarding
the purchase made from Smt. Dayawati. The AO has already recorded the
statement of seller of land namely Smt. Dayawati and afforded opportunity
of cross .examination to the assessee. The seller concerned not only
explained the entire transaction but also explained how she utilized the
money received by her, which included the amount received in cash and
12
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
not recorded by the assessee in its books of account. Her statement has
been affirmed by her husband namely Shri Om Prakash before the AO. A
proper show cause notice was issued to the assessee by the AO and
thereafter the AO arrived at the decision of the under statement of the
consideration. Under these circumstances, the arguments put forth by the
assessee cannot be considered relevant. The facts remains that the seller
consistently admitted to have received the sum of Rs. 10 lakhs in cash, in
addition to the recorded consideration and that her husband who had
carried out the said transaction also approved it unequivocally and
unambiguously. How the transaction was disclosed in the return of the
seller is immaterial to the issue under consideration particularly when the
user of the amount received in cash is clearly brought out by the seller in
her statement. Under these circumstances, it is proved conclusively by the
AO that the consideration paid for the said transaction was understated by
Rs. 10 lakhs. In the light of the ratio of the decisions refer to above in Para
7.3, I hold that the AO has discharged to burden cast specifically upon
him, enough material of independent nature has been placed on record
which justify the stand adopted by the AO and that due opportunity was
afforded to the assessee to put forth its view. In view of the above, I uphold
the action of the AO in bringing to tax a sum of Rs. 10 lakhs as undisclosed
consideration/undisclosed investment in terms of the provisions of section
69B.”
5.1.
However the uniform application of the rate of Rs.6,60,000/- per acre to
the other 8 instances of sale by the AO was not approved by him. The Ld.
CIT(A) assailed the AO’s stand in ignoring the relevant parameters governing the
price of land namely location; size; dimension; and also the proximity to the
existing road etc. as these according to him would have been the relevant criteria
for influencing the rate. He also castigated the AO for not even making any
attempt to ascertain the rate at which the stamp duty authority had valued the land
at the time of Registration. Considering the same to be relevant he proceeded to
work out the sustainable addition by tabulating the data by considering the value
of the stamp authority in the following manner of all the 9 instances of sale as
under:-.
S.No.
Date
Stamp
1.
2.
3.
4.
5.
06.07.2005
11.07.2005
02.08.2005
06.09.2005
06.09.2005
1,11,100
55,560
67,150
18,000
50,640
Sale
Consideration
18,51,500
9,26,000
11,19,000
3,00,000
8,44,000
Rate
6.00
6.00
6.00
6.00
6.00
Other
charges
9,650
4,830
Reg.
Fee
702
702
702
702
702
Acres
4.02500
2.01250
1.34375
0.60000
1.8875
13
6.
7.
8.
9.
5.2.
07.09.2005
09.09.2005
20.09.2005
27.09.2005
Total
1,08,600
1,36,320
39,400
25,500
6,12,270
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
18,10,000
20,00,000
6,56,500
4,25,000
99,32,000
6.00
7.00
6.00
6.00
702
702
702
702
6138
3.61875
4.54375
1.3125
0.8500
20.19375
Considering the above he concluded that when the total sum of other
charges paid are extrapolated the following position emerged:S.No.
(1)
1.
2.
5.3.
Total
paid
Charges Corresponding value of
sale taken by stamp duty
Authority
(2)
(3)=(2)x100/6.0
1,20,750
20,12,500
60,390
10,06,500
Recorded Sale Unexplained
consideration
Investment
(4)
18,51,500
9,26,000
(5)=(3)-(4)
1,61,000
80,500
2,41,500
In view of the above he restricted the addition of Rs.26 lakh odd to
Rs.2,41,500/- for properties found mentioned at Sl. No.-1 & 2, apart from that the
addition of Rs.10 lakh sustained by him for the property mentioned at Sl. No.-7
by holding as under:“Thus, for the instances at S.No.1 & 2, the stamp duty authority has itself
has considered the sale by higher sum by Rs. 1,61,000/- and 80,500/respectively. The stamp duty levied by the stamp duty authority is an
evidence which is independent in nature and which has been accepted by
the assessee while registration of the said properties. The payment of
understated consideration to this extent cannot be ruled out
and therefore, coupled with the instance in the case of Smt. Dayawati, I
hold that the unexplained investment/understated consideration for
properties at S.No. 1 & 2 was for an aggregate sum of Rs. 2,41,500/-. The
AO is directed to allow the relief for the differential amount concerned for
these transactions.
7.6.3 So far as the property at S.No. 3 of the table is concerned, the AO
himself has considered that the rate shown by the assessee as correct and
therefore, no action is necessary on my part.
7.6.4 So far as the instances of the purchase at S.Nos. 4 to 6, 8 & 9 are
concerned, in all these cases the stamp duty authority has applied the rate
of 6 % and no other charges have been levied which indirectly indicates
that the consideration disclosed is correct. In view of it, the action of the
AO in adopting higher consideration cannot be upheld. The AO is directed
to allow relief to the appellant on these instance of the purchases.
7.7.
In nutshell, the addition tot he extent of Rs.2,41,500/- for property
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C.O. Nos.-273-276/Del/2009
at S.No.1 & 2 and Rs.10 lakhs for property at S.No.7 is upheld.”
6.
Aggrieved by this both the assessee and the Revenue are in appeal before
the Tribunal.
7.
The Ld. Sr. DR heavily relying upon the assessment order submitted that
on facts the CIT(A) was not justified in reducing the addition made as the
assessee has been found to have purchased land at a specific rate in one instance
for which money over and above the stated amount has been paid. It was
submitted that the statement of Smt. Dayawati the seller has been confronted to
the assessee and even in the cross-examination the seller of the land Smt.
Dayawati stands by the stated position. In the circumstances the AO was justified
in applying a flat rate of Rs.6,60,000/- lakh per acre to the other instances of
purchase which were within the same period and the approach of the CIT(A) in
relying upon the value taken for the purposes of stamp duty it was submitted
cannot be upheld. It was contended that the AO himself has been most fair by
not making any addition for the property referred to in the third instance of sale
as the sale consideration was more than the stamp value.
8.
Ld. AR on the other hand addressing the departmental grounds and the
Grounds raised in the C.O. submitted that the impugned order cannot be upheld
as in the facts of the present case section 69 has wrongly been invoked by the AO
and the CIT(A) cannot substitute section 69 applied by the AO with section 69B.
It was his submission that although the CIT(A) has not agreed with the stand of
the assessee but it cannot be ignored that even if section 69B is considered even
then on facts it is not applicable as assessee has offered explanation which cannot
be ignored.
The addition made and sustained of Rs.10 lakh based on the
statement of Smt. Dayawati, it was submitted cannot be upheld as when read
alongwith the cross-examination the record shows that the AO needed to support
the same by the statement of her husband, Sh. Om Prakash. It was submitted the
record would show that it was never confronted to the assessee and the request
for opportunity to cross-examine the husband was arbitrarily brushed aside.
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C.O. Nos.-273-276/Del/2009
Accordingly it was his submission that the same should be deleted. Addressing
the other additions it was his submission that the finding of the CIT(A) that a
uniform rate cannot apply to the remaining instances of sale was correct but in the
absence of any evidence to the contrary how the evidence supported by Sale
Deeds could be interfered with it was submitted should be strongly deprecated. It
was his submission that the reasoning of the CIT(A) to restrict the addition to the
extent of Rs.2,41,500/- is contrary to facts on record and law.
9.
We have heard the rival submissions and perused the material available on
record. In view of the fact that the departmental case has been built on the
statement of Smt. Dayawati and her husband it is necessary to our minds to first
consider the same. The record shows that the statement of Smt. Dayawati was
duly confronted to the assessee and opportunity to cross-examine her was also
provided, on which occasion it is seen that Smt. Dayawati has maintained her
stand. The departmental case built on the above edifice has further been fortified
according to the AO and the CIT(A) by the statement of Sh. Om Prakash,
husband of Smt. Dayawati which was considered to be not necessary for
confronting to the assessee as it merely supported the statement of Smt. Dayawati
and nothing new was stated.. On an impartial consideration of the statements it is
seen that the so-called prime witness Smt. Dayawati has no personal knowledge
of the events and is basing her statement on hearsay and can be safely described
as a “tutored witness”. This fact would be evident from a Co-joint reading of
Question No.-2 recorded on 14.12.2008 wherein she clearly states on oath that
the matter of sale was handled by her husband,, Sh. Om Prakash the same read
alongwith answers to Question No.-7 & 8 put to her during
the cross-
examination on 26.12.2008 would show that she states that firstly the cash was
not received by her and was received by her husband and what is more
damaging is that her husband did not inform her of receiving the cash amount
at that time of receipt of the same.
These answers demonstrate that Smt.
Dayawati’s personal knowledge was nil at the time of sale. When these two
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I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
answers are read alongwith answers to Question No.-2 & 4 of Sh. Om Prakash,
husband of Smt. Dayawati recorded on 26.12.2008 which has also been
extracted by the AO in the assessment order it would show that Om Prakash
corroborates his wife’s statement that sale of her land was handled by him and he
has “incorporated the complete details of the deal in the statement of my wife
Smt. Dayawati recorded on 14.12.2008” and he “did not inform my wife at the
time of deal” as in “our families” such matters are not shared with ladies in the
house, “However on 14.12.2008 where the statement of my wife was recorded,
I told her about the deal and incorporated all the details in her statement.” The
response to Question No.-4 further demonstrates that the statement of Smt.
Dayawati treated to be a “prime witness” is based
on hearsay where the
concerned husband had already expressed the opinion that she was never kept
informed about the transaction at the relevant point of time by her husband who
for reasons best known to himself only on 14.12.2008 addressing the transaction
which took place on 09.09.2005 affirms in his answer to Question No.-4
(extracted at page 5 of the assessee order) that he concurred with the statement of
his wife and further the fact that “the statement is based on the facts as told to
my wife by me, which are correct and based on truth”. Whether the statement is
based on truth and is correct or not cannot be based on self certification of Sh.Om
Prakash and will be addressed subsequently, however, the fact remains that Smt.
Dayawati as a witness who no doubt was “cross-examined” by a Chartered
Accountant was clearly a dumb tutored witness as her knowledge was based
purely on hearsay since evidently her personal knowledge on the issue was
completely non-existent. The hearsay knowledge in the facts of the present case
does not inspire any confidence whatsoever.
It is not to say that hearsay
knowledge is to be disregarded in all instances. There may be occasions when
immediately on the occurrence of an event the first information report based on
the statement of a witness even based on hearsay can be taken as an evidence in
support of a conclusion.
However while relying upon the same due
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I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
consideration has to be given to the fact whether it is supported by other
surrounding circumstances leading to the same possible conclusion. As no doubt
the statement recorded of a witness based on hearsay at the time of the instance
generally inspires greater
confidence in its correctness and truthfulness as
opposed to a statement of a witness based on hearsay after a few years as is
evident in the facts of the present case. In the facts of the present case the
statement recorded based on hearsay is after three years and a few month of the
event having occurred during which period Smt. Dayawati remained in constant
ignorance of having allegedly received Rs.10 lakh over and above the stated
amount for her piece of land sold. She as per her own and her husband’s version
also remained ignorant of this fact while incurring the expenditure on her
daughter’s wedding which she was at pains to explain. As per the husband and
wife’s version on the basis of which the Revenue wants to use to disregard the
evidence on record and justify the addition it is seen that only on 14.12.2008 for
the first time Sh. Om Prakash informs Smt. Dayawati his wife. It is seen that as
per both the husband and wife’s version
it is learnt by Smt. Dayawati on
14.12.2008 that for the first time that for their daughter’s wedding in Feb.2008
the Rs.10 lakh also allegedly received in September 2005 from the sale of her
land was spent. The husband on record is found to have categorically stated that
he was of the view that his wife need not be informed of her financial affairs and
only on 14.12.2008 he considers it necessary to inform his wife for reasons best
known to him. The husband justifying his control over the loyality and blind
faith of his wife which is enjoyed by him as per his own answers to questions put
by the AO, accepts repeatedly that he has got these facts “incorporated” in his
wife’s statement. Considering the overall socio-economic fabric wherein the
boasts and claims of ignorance on the part of his spouse by Sh. Om Prakash may
be warranted on facts as the wife of Sh.Om Prakash may not have much choice
but to blindly believe and accept her husband’s assertion of facts and events
which took place three years ago. However we do not see any such constraint for
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C.O. Nos.-273-276/Del/2009
the AO or the CIT(A) to also subscribe to this blind faith and repose the same
trust in the evidence of a prime witness based on hearsay. Nothing has been
placed on record by the Revenue to address the fact why Sh.Om Prakash and his
assertions blindly accepted by his wife in good faith in his overall wisdom and
welfare for her family be accepted and given greater preference as opposed to the
recorded evidence by way of sale deed on record. The fact that Smt. Dayawati is
a tutored witness it is seen further demonstrated by the fact that in response to
Question no.-3 recorded on 14.12.2008 she is found to have stated as per the
extract at page 3 of the assessment order that “the full value of sale
consideration was Rs.30 lakh.
Sale was registered for Rs.20 lakh
on
09.09.2005. The amount received as per sale deed was in form of bank drafts,
which were deposited by us in Oriental Bank of Commerce, DCF-III, Gurgaon.
Balance amount of Rs.10 lakh was received in cash.” The record shows that
when within less than 2 weeks from the said date i.e. the time of her so-called
“cross-examination” her response to Question No-4 on 26.12.2008 shows that
she did not even know/remember whether she had received the payment
through pay order or cheque.
9.1.
Accordingly on a consideration of the material available on record and the
arguments on behalf of the parties we are of the considered view that the Revenue
has not been able to refer to any argument or evidence available on record to
show that the Smt. Dayawati (the owner of the land) and her husband, Sh. Om
Prakash (who handled the sale of his wife land) were reliable witnesses. Infact
the manner of recording statement reeks of a position where the couple appear to
have given statements to explain the expenses incurred on the marriage of their
daughter in February 2008. Nothing is available on record qua the education and
financial status of the Smt. Dayawati except the fact that she is a PAN holder and
blindly accepted her husband’s word and nothing is on record to establish the
credibility of Sh. Om Prakash who does not identify himself by a PAN and
merely as the husband of Smt. Dayawati, his education, his legitimate source of
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C.O. Nos.-273-276/Del/2009
livelihood, financial background etc. are all left unaddressed as would be evident
from answers to Question No-1 put by the AO to Sh. Om Prakash on 26.12.2008
as opposed to Question No.-1 put by the AO to his wife on 14.12.2008. The
reliance placed by the Revenue on the husband who as per record unambiguously
affirms that his wife need not be kept informed about her financial affairs in
regard to sale of property which undisputably is owned by her who on the sly
without his wife’s knowledge accepts cash of Rs.10 lakh for the alleged sale
without even caring to inform his wife either during or immediately after the
event in September 2005 and continues to keep her in ignorance even while
allegedly spending therefrom for the daughter’s wedding right till the date of
recording of her statement wherein both the husband and wife explain that the
source of marriage expenses of their daughter was from the Rs.10 lakh received
in September 2005. The half baked story does not inspire any trust whatsoever.
We do not deem it appropriate to deliberate on the possible sources of Sh. Om
Prakash’s income as neither there is anything on record qua the same nor is it
necessary for the purposes of the present proceedings to deliberate thereon suffice
it to say that the Revenue has left glaring loopholes in the so-called self serving
evidence on record which does not inspire any confidence whatsoever on the
statements of Smt. Dayawati or Sh. Om Prakash and the consequent addition of
Rs.10 lakhs in the hands of the assessee or the addition of brokerage etc. for the
purchase of the specific land.
9.2.
Accordingly in view of the above reasoning on facts, we hold that the AO
erred in making the addition of Rs.10 lakh and the CIT(A) erred in conforming
the same based on the statement of a tutored witness who as per her own
statement had no personal knowledge of the events and relied blindly in good
faith on hearsay information given to her by her husband. The other witness
infact who could have been prime witness as the facts allegedly were only known
to him was never made available for cross-examination and even otherwise his
credibility and reliability appears to be in severe doubt and he most definitely
20
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C.O. Nos.-273-276/Del/2009
cannot be treated to be a reliable witness. In the facts as they stand the addition
in the hands of the assessee based on the statement of Smt. Dayawati and her
husband cannot be upheld, ordered accordingly.
9.3.
Considering the other sale instances wherein the AO applied a flat rate of
Rs.6,60,000/- per acre and the CIT(A) proceeded to sustain the addition on the
basis of value adopted for stamp duty purposes found recorded in the Registered
Sale Deeds itself, we find that since the whole action had started on the basis of
the fact that Smt. Dayawati has alleged that the figures given in the sale deed
were not reliable and the same on facts has not been upheld by us in the
circumstances the very edifice on the basis of which the additions have been
made having fallen the remaining additions fall. Thus where the very basis
justifying interference by the Revenue stands demolished the occasion to
interpolate the amounts in the absence of any other cogent evidence does not
arise. We have seen that no doubt that in certain instances the valuation by the
Stamp Duty authority is more however it is equally true that in certain instances
the actual sale price vis a vis the value taken for Stamp Duty purposes is very low
as would be evident from the sale instances referred to at serial No. 3 by the AO
himself in his order. Similar instances are therein in the instances of purchase of
lands by the sister concerns also where the sale consideration is higher than the
value adopted by the Stamp Authority the reason is self evident as for Stamp
Duty purposes the Revenue Authorities regardless of the actual price struck by
the parties necessitate the application of notified circle rates for the area.
However the fact remains that each and every property sold does not necessarily
sell at the notified circle rate as the actual consideration settled amongst the
parties is not only based on its location, size, but also the bargaining powers of
the parties, the urgency on the part of the parties to sell/purchase, awareness of
the parties and the
proximity to roads, hospitals, schools etc. including the
overall trend in the market and whether the market is flooded by buyers in a
scarce situation or flooded by sellers with almost no buyers which again is
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C.O. Nos.-273-276/Del/2009
dependent on the availability of funds and buyers in the market. It is seen that no
evidence has been led by the Revenue to show that the instances of recorded sales
supported by Registered Sale Deeds did not reflect the correct picture. Section
69B does not permit drawing of inferences based on subjective beliefs and
necessitate cogent evidence to be taken into consideration so as to justify its
invokation. Since in the facts of the present case nothing has been placed by the
department apart from the statement of a tutored witness the action cannot be
upheld. Accordingly the remaining additions sustained by the CIT(A) are also
ordered to be deleted. Since the sale price remains undisturbed the addition on
brokerage etc. also does not survive which was made by the AO u/s 69C and
partly sustained by the CIT(A).
9.4.
For ready-reference we reproduce the statements from the assessment order
relied upon by the Revenue:Statement of Smt. Dayawati recorded on 14.12.2008
Q.1. Please identify yourself.
Ans:-My name is Dayawati. My husband’s name is Sh.Om Prakash. I
reside at House No.-U-15/62, DLF-III, Town House, Gurgaon. I am
showing my PAN card (ABGPY9951K) for identification.
Q.2.As per information, you have sold land at village Sultanpur, Tehsil
Parukh Nagar, Distt.-Gurgaon, in financial year 2005-06. Please give
complete details.
Ans. Yes, I had sold land measuring 36 kanals 7 marlas at Village Sultanpur,
Tehsil Parukh Nagar, Distt. Gurgaon to Mls Kay Kay Apartments Pvt. Ltd, 701,
Udyog Vihar, Gurgaon. Initially one Mr. Chaudhary had offered to purchase the
said land from us. Later I had transacted directly with the company. Here I wish
to tell that the matter relating to sale of land was handled by my husband Sh. Om
Prakash and he was dealing directly with the company.
Q. 3. Please tell the amount for which the land was sold.
Ans. The land was sold at the rate of Rs. 6,60,000 per acre. The land measured 36
kanals 7 marlas or approximately 4.5 acres. The full value of sale consideration
was Rs. 30 lakhs. Sale was registered for Rs. 20 lakhs on 9.9.2005. The amount
received as per sale deed was in form of bank drafts, which were deposited by us
in Oriental Bank of Commerce. DLF-III, Gurgaon. Balance amount of Rs. 10
lakhs was received in cash.
0.4. Please tell how was the amount of Rs. 10 lakhs received on sale of land was
22
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
utilized by you?
Ans. The amount of Rs. 10 lakhs received on sale of land was used for marriage of
my daughter and for household expenses.
0.5.
Do
you
wish
to
state
anything
else?
Ans. No.
The above statement has been given voluntarily without any fear, pressure or
influence. I have given the statement in the presence of my husband Sh. Om
Prakash."
9.5.
Cross-examine of Smt. Dayawati extracted from page 4 & 5 of the assessment
order:0.1. When was your statement recorded?
Ans. My statement was recorded on 14.12.2008
0.2. Did you file income tax return in the year in which land was sold?
Ans. Yes, I have filed income tax return in the year in which land was sold
0.3. To whom was the land sold and who had paid the money?
Ans. I sold the land to a company whose name is mentioned in the sale deed.
0.4. Did you receive pay order or cheque, where was it received and who paid?
Ans. I don't remember whether it was pay order or cheque but it was received at
my house. I don't remember.
0.5. You have stated that you received Rs. 10 lakhs cash. Where was the cash
received and who paid the cash?
Ans. The cash was received from Sh. Rajinder Singh Malik, whose name is
mentioned in the sale deed. The cash was received at my house.
0.6. Did you receive the cash before or after the registration of sale deed.
Ans. The cash was received before the registration of sale deed.
0. 7. To whom was the cash handed over?
Ans. The cash was handed over to my husband Sh. Om Prakash.
0.8. Were you informed by your husband at the time of receipt of cash?
Ans. No
0.9. When was your daughter married?
Ans. My daughter got married on 15.02.2008
0.10. Please inform where did you keep the cash for 2 ~ years?
Ans -. This is an internal matter, which I do not wish to divulge.
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C.O. Nos.-273-276/Del/2009
0.11. What was the amount of sale consideration as admitted before the registrar?
Ans. Amount mentioned in the sale deed.
Q.12.Did you give the earlier statement voluntarily?
Ans. Yes, The statement was given in the presence of my husband.
Q.13. Do you wish to state anything else?
Ans.No, nothing else.
Cross examination conducted by Sh.U.N.Marwah CA on behalf of M/s Kay Kay
Apartments Pvt. Ltd. On 26/12/2008 at camp office of DCIT, Circle-5(1), Delhi at
U-15/62, Town House, DLF-III, Gurgaon, Haryana in the presence of Sh. Anil
Kumar and SH. Om Prakash.”
9.6.
Statement of Sh. Om Prakash recorded on 26.12.2008 extracted from
the assessment order:Q.1.Please identify yourself.
Ans.My name is Om Prakash. I live at U-15/62, DLF-III, Townhouse,
Gurgaon.
Q.2. land measuring 36 kanalas 7 marlas in Village Sultanpur, tehsil
Parukh Nagar, Gurgaon in the name of your wife Smt. Dayawati was sold
in F.Y.2005-06. Give complete details.
Ans. There was a land measuring 36 kanals 7 marlas in Village Sultanpur, Tehsil
Parukh Nagar, Gurgaon in the name of your wife Smt. Dayawati. It was sold to
M/s Kay Kay Apartments Pvt Ltd in FY 2005-06 and the sale was
registered on 9.9.2005. I had handled the deal with Kay Kay Apartments Pvt
Ltd for sale consideration of Rs. 30,60,000. Out of this amount, Rs. 20,00,000
was received vide bank drafts as per registered sale deed and Rs. 10,00,000
was received in cash. I have incorporated the complete details of the deal in
the statement of my wife Smt. Dayawati recorded on 14.12.2008.
Q.3.Did you inform your wife about the money received from the said deal?
Ans. I did not inform my wife at the time of deal because in our families such
matters are not shared with ladies in the house. However, on 14.12.2008 when the
statement of my wife was recorded, I told her about the deal and incorporated all
the details in her statement.
Q.4. Do you concur with the contents regarding sale of land and sale consideration
received from the sale as recorded in the statement of your wife on 14. 12.2008?
Ans. Yes, I concur with the statement of my wife. The statement is based on the
facts as told to my wife by me, which are correct and based on truth.
Q.5.As per the statement of your wife the land was sold at the rate of Rs.6,60,000 per
acre. What do you have to say to that?
Ans.As stated by my wife, the land was sold at the rate of Rs.6,60,000 per acre and a
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C.O. Nos.-273-276/Del/2009
sum of Rs.30,00,000 was received from the sale. The land was sold at the prevailing
market price.
Q.6. Do you wish to state anything else?
Ans. I just want to re-iterate that my wife has given a true statement based on
facts told to her by me and that the statement was given in my presence. I concur
with her statement.”
9.7.
In view of the above detailed findings on facts, Ground Nos. 3 & 4 of the
Revenue are dismissed and the Grounds of the assessee in its C.O. are allowed.
10.
The next issue in the department’s appeal is addressed by Ground No.-2
which has been reproduced in the earlier part of this order. The facts relatable to
the said issue are found discussed at pages 11 to 15 in the assessment order. A
perusal of the same shows that the AO observing that the assessee had received
unsecured loan of Rs.1,25,00,000 from M/s Kohli Housing & Development Pvt.
Ltd. and the fact that both the assessee company and M/s Kohli Housing &
Development Pvt. Ltd. have Sh. Sudershan Kohli and Smt. Kum Kum Kohli as
common shareholders having 50% share each in both these companies. In the
circumstances he was of the view that the loan amount is deemed dividend u/s
2(22)(e) of the Act in the hands of assessee company to the extent to which M/s
Kohli Housing & Development Pvt. As a result thereof he issued a show cause
notice to the assessee to explain its stand. The show cause notice is extracted
from the assessment order hereunder for ready-reference:“During the relevant year. assessee company has received unsecured loan of Rs.
1,25.00,000 from M/s Kohli Housing & Development Pvt. Ltd. Shareholding pattern of
both these companies shows that Sh, Sudershan Kohli and Smt, Kum Kum Kohli are
shareholders in both these companies having 50% share each, As per section 2(22)(e)
of the Income Tax Act, 1961, any payment by a company, not being a company in
which the public are substantially interested, of any sum to any concern in which such
shareholder (who is the beneficial owner of shares, holding not less than 10% of the
voting power) is a member and in which he has a substantial interest is deemed to be
dividend to the extent to which the company in either case possesses accumulated
profits. In this background, show cause as to why the sum of Rs. 1.25 crores may not
be treated as deemed dividend in your hands under section 2(22)(e) of the Act"
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I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
10.1. The record shows that the assessee replied vide letter dated 29.12.2008
stating that the original shareholders of the company were Ajay Vats and Vinay
Vats and that they transferred the shares subsequently to the two shareholders of
M/s Kohli Housing & Development Pvt. Ltd. It was canvassed that at the time
of advancement the loan by M/s Kohli Housing & Development Pvt. Ltd.
Sudharshan Kohli and Kum Kum Kohli were not shareholders of the assessee
company accordingly the provision of the said section
were not attracted.
However the AO was not convinced as he was of the view that M/s Kohli
Housing & Development Pvt. Ltd. had given loan of the following amounts to
the assessee company and other sister companies and in all the following
companies also the only shareholders were Sudharshan Kohli and Kumkum
Kohli having 50% share each:·
·
·
·
Kay Kay Apartments Pvt. Ltd.
Kay Kay Buildworth Pvt. Ltd.
Kay kay Executive Apartments Pvt. Ltd.
Kay Kay Royal Apartments pvt. Ltd.
Rs.1.25 crores
Rs.1.00 crores
Rs.0.75 crores
Rs.1.25 crores
10.2. The AO observed that the original shareholders in all the above mentioned
companies were the same set of persons namely Ajay Vats and Vinay Vats who
subsequently transferred the shares of these companies to the two shareholders of
M/s Kohli Housing & Development Pvt. Ltd. as a result of which Sudharshan
Kohli and Kum Kum Kohli became the only shareholders of the assessee
company as well as the other companies. He observed that the shares were
transferred at the same price at which the shares were initially subscribed i.e. @
Rs.10/- per share and no share premium was charged even though the assessee
company had assets in the form of land holding. All the above mentioned
companies had transferred the shares by way of transfer by Ajay Vats and Vinay
Vats and these were incorporated in 24.05.2005 (Kay Kay Apartments Pvt. Ltd.
and Kay kay Buildworth Pvt. Ltd.) and 18.07.2005 (Kay Kay Royal Apartments
Pvt. Ltd. and Kay Kay Executive Apartments Pvt. Ltd.) and all these companies
were transferred by way of share transferred in favour of Sudharshan Kohli and
26
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
Kum Kum Kohli after the advance from M/s Kohli Housing & Development Pvt.
Ltd. for acquiring the land at Gurgaon on 24.10.2005/22.11.2005. He observed
that the above mentioned companies became the land holdings companies of M/s
Kohli Housing Hosing & Development Pvt. Ltd. who is a developer and by virtue
of land holding in sister concerns is controlling the land holdings. The AO was
of the view that the transactions have been planned to take the advance from M/s
Kohli Housing & Development Pvt. Ltd. prior to transfer of shares of the assessee
company from the original shareholders in order to avoid payment of taxes and
the transaction was considered to be colourable in nature attracting the
applicability of various judgements and was considered to be a device created by
the assessee to avoid tax liability.
Reliance was placed upon Workmen,
Associated Rubber Industry Ltd. vs Associated Rubber Industry Ltd. and Another
157 ITR 77 (SC); Miss P.Sarada vs CIT (1998) 229 ITR 444 (SC); Nandlal
Kanoria vs CIT [1980] 122 ITR 405 (Cal); CIT vs Durga Prasad More [1971] 82
ITR 540 (SC); M.D.Jindal vs. CIT [1987] 164 ITR 28 (Cal.); LIC vs Escorts Ltd.
[1986] 59 Comp Case 548 (SC) so as to conclude that the corporate veil has to be
lifted and the true nature of transactions was required to be examined. The
decisions relied upon by the assessee in support of its claim were considered to be
not relevant. In view this addition of Rs.1,25,00,000/- was made in the hands of
the assessee holding as under:26.“Accordingly, the amount advanced by M/s Kohli Housing & Development
Pvt. Ltd. to the assessee company is held to be deemed dividend u/s 2(22)(e) of
the Act to be taxed in the hands of assessee company to the extent to which
M/s Kohli Housing & Development Pvt. Ltd. possesses accumulated profits,
which in the present case would be more than adequate to cover the entire
loan under the ambit of deemed dividend u/s 2(22)(e).
27.At the time of giving advance to the assessee company, M/s Kohli Housing &
Development Pvt.Ltd had reserve and surplus/accumulated profits as envisaged
by the provisions of section 2(22)(e) of the Act. The balance sheet of M/s Kohli
Housing & Development Pvt. Ltd. for the year ending 31.03.2005 and 31.03.2005
shows that there are reserves and surplus of Rs.2,25,77,079.14 and
Rs.7,53,82,352.22. Thus, the average reserves and surplus during the year has
remained Rs.4,89,79,715/-.
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C.O. Nos.-273-276/Del/2009
28.Accordingly a sum of Rs.1,25,00,000/- is added in the hands of assessee as
deemed dividend u/s 2(22)(e) of the Act. Satisfaction is hereby recorded for
initiation of penalty under section 271 (1 )(c) of the Act for furnishing
inaccurate particulars of income I concealing particulars of income.”
11.
Aggrieved by this the assessee went in appeal before the First Appellate
Authority. Before the said Appellate Authority the following detailed arguments
on facts are found have been advanced on behalf of the assessee. These are
extracted from the impugned order:3.1 “The Id. AR of the appellant has made extensive arguments to counter
the addition made by the AO on this issue. Bringing out the facts of the
case, it is submitted that the appellant company was promoted and
incorporated by Mr. Ajay Vats & Mr. Vinay Vats as original subscribers,
under certificate of incorporation dated 24th May 2005 with the main
object of dealing in real estate. The initial expenditure on incorporation
being fees paid to Register of Companies amounting to Rs.4,800/- was
undertaken by the said Mr. Ajay Vats & the said amount was reimbursed
to him vide cheque no. 192026 drawn on Andhra Bank on 5th July 2005.
The subscribers had in terms of the Memorandum & Articles of
Association undertaken to subscribe for 5,000 equity shares each of the
company of a face value of Rs. 10/- each. Accordingly Mr. Ajay Vats and
Mr. Vinay Vats made payment of a sum of Rs. 50,000/- each by means of
bank transfer on 30th June 2005 from their respective saving Bank A/cs
with Andhra Bank, Gurgaon Branch, Gurgaon, The company pursuant to
the aforesaid payment issued share, certificate no. 0001 bearing distinctive
no. 1-5000 in the name of Mr. Ajay Vats and no. 0002 bearing distinctive
no. 5,001-10,000 in the name of Mr. Vinay Vats.
3.2 The company took loan of Rs. 30,00,000/- from M/s. VPN Management
& Consulting Pvt. Ltd. New' Delhi, on 4th July 2005. The company
constituted of the said directors purchased the first parcel of land in terms
of sale deed executed by Shri Omprakash in favour of the company on 6th
July 2005 in respect of 4.025 acres of agricultural land at Village
Sultanpur, Gurgaon @ Rs. 4,60,000/- per acre. Some other plots of land
were also purchased. In terms of article 7 of the Article of Association, the
promoters issued letter dated 7th October 2005 to the company signifying
their intention to sell their shareholding to Mr. Sudarshan Kumar Kohli
and Mrs. Kum Kum Kohli. After complying with the necessary legal
compliances of the Companies Act, and having received the sale
consideration of Rs. 50,000/- each by cheques dated 21.10.2005 from Mr.
Sudarshan Kumar Kohli and Mrs. Kumkum Kohli; the promoters
transferred the shares and it was duly approved by the board of directors
alongwith recorded in the register of Transfer & Members on 24th
October 2005. Thus, Mr. Sudarshan Kumar Kohli and Mrs. Kum Kum
Kohli became registered and beneficial shareholders of the assessee
28
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
company on 24th October 2005. It is submitted that all these facts are duly
supported by the relevant documents placed in the paper book, a certificate
of an independent company secretary and an affidavit of the seller of the
shares confirming the facts.
3.3 It is submitted that the AO has considered the loan given by M/s Kohli
Housing & Development Pvt. Ltd.,(company in which Mr. Sudarshan
Kumar Kohli as on the date of payments held more than 10% and Mrs.
Kum Kum Kohli held less than 10%) (hereinafter KHDPL) as deemed
dividend. The loans were raised when the appellant company was under
the control of Vats, as under:
· On 9th July 2005
Rs.50,00,000/· On 16th August 2005
Rs.75,00,000/The above amounts have been treated as deemed dividend u/s 2(22)(e) in
the hands of the appellant despite the aforesaid uncontroverted facts that
there was no relationship between the appellant company 'and KHDPL
when the loans were taken by the appellant company.
11.1. Apart from that it was also canvassed that the AO on facts erred in
invoking the specific section on the following reasoning:“Elaborating the basic conditions of section 2(22)(e) for its applicability,
it is submitted that the section requires the satisfaction of the cumulative
conditions for bringing a sum into taxable net. The primary condition is
that on the date of transaction, the payer and receiver shall be covered by
the law in terms of stipulated threshold shareholding pattern. It is
submitted that on the aforesaid dates on which loan is taken by the
appellant company, there had been no such relationship as Mr. Sudarshan
Kumar Kohli and Mrs. Kum Kum Kohli became directors on a subsequent
date, on 24.10.2005.”
11.2. Addressing the case law relied upon by the AO following arguments
assailing the AO’s stand are found to have been advanced:3.4
“Reacting to the case laws relied by the AO in the assessment
order, the Id,AR of the appellant submitted that none of the cases have any
resemblance or similarity with the facts of the appellant's case. Explaining
the facts of the respective cases, the distinctions were outlined.
3.4.1. It is submitted that in McDowell & Co. Ltd v. Commercial Tax
officer (1985) (SC) 154 ITR 148, the dispute was about the demand of sales
tax on gross turnover including excise. In these facts the decision was
rendered and the aspect of tax-evasion came into play. But in the present
case, there are no legal obligations which have been arranged or could be
called a sham. It is submitted that. in a case involving a similar issue
regarding authenticity of dates to determine shareholdlnq for the purposes
of section 2(22)(e); the Hon'ble Kerala High Court in 219 ITR 661 held
29
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
that McDowell's case was not applicable.
It is submitted that the decision in the McDowell case has been
subsequently , referred to, analysed and explained by the Supreme .Court
in Union of India Vs Play World Electronics Pvt. Ltd 184 ITR 808 and
observed, "this court in McDowell case tried to discourage colorable
devices, tax planning is legitimate provided it is within the frame
work of law. Colorable devices shouldn't be part of planning". The Gujarat
High Court in the' case of Banyan & Berry Vs CIT 222 ITR 831 (Guj) have
stated that the revenue sees in McDowell case, more than what it says and
frowned upon such misapplication as in that decision, tax avoidance by
colorable
devices/dubious
methods
or
subterfuge
done is deprecated. That is to say what has been deprecated as tax
planning for avoidance of tax are those acts which have doubtful or
questionable character as to their bona fide and righteousness, not all
legitimate acts of a taxpayer which in the ordinary course of conducting
his affairs a person does and are under law he is entitled to do, can be
branded as being of questionable character on the anvil of McDowell
Case. In the McDowell decision, there is nothing to say that any act of an
assessee which results in the reduction of his tax liability or expectation of
tax benefit in the future amounts to colorable device, a dubious method or
subterfuge to avoid tax. If the acts are unambiguous and bona fide, merely
on
the
ground
that
treating
those
as
deliberate
would result in the tax liability in future, cannot be read in that decision.
3.4.2 In Workmen, Associated Rubber Industry Ltd. v. Associated Rubber
Industry Ltd. and another 157 ITR 77 (SC); corporate veil could be
ignored as it was a wholly owned subsidiary as also it had been
incorporated to avoid welfare legislation. But the position is entirely
different in the case under consideration.
3.4.3 In the case of Miss P. Sarada v. CIT(1998) 229 ITR 444 (SC), the
liability was already identified due to fact that the loan was made to a
shareholder having substantial interest in company, which had
accumulated profits. But the liability was circumvented by making
withdrawals subsequently and adjusting against credit balance of another
shareholder and hence the decision. The facts and the issues in the case of
the appellant are totally different and as such the said case cannot be
relied upon.
3.4.4 Regarding the case of Nandlal Kanoria v. CIT (1980) 122 ITR 405
(CAL), it is submitted that in that case loan was given by company to
proprietary concern and assessee received loan from proprietary concern.
But, in the case of the appellant's case, the facts are wholly different and as
such not applicable to the present case.
3.4.5 In the case of CIT v. Durga Prasad More (1971) 82 ITR 540 (SC), it
is submitted that the assessee purchased certain house property and
claimed it should not be brought to tax in his hands in view of the deed of
trust executed by his wife. The assessee merely made a statement that the
amount represented "Stridhan", but could not produce any material to
30
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
show that his wife had any money or independent source of income. On
these facts the court held "that though an apparent statement must be
considered real unless it is shown that there were reasons to believe that
the apparent was not real". But in the present case, the assessee has
furnished all supporting documents, material to establish that Sudarshan
Kohli and Smt. Kum Kum Kohli were not shareholders till 24th October
2005. Thus the ratio of the said judgment on the facts of the case is not
applicable.
3.4.6 In M.D. Jindal v. CIT (1987) 164 ITR 28 (CAL), the issue was about
the applicability of Sec. 2(22)(e), when Assessee & wife were only directors
of Co dealing in Iron materials. Material was supplied by Co to directors
but subsequently agreement was made to circumvent Sec 2(22)(e). In such
circumstances court could pierce corporate veil. But the facts in the
impugned case are different.
3.4.7. The facts in Juggilal Kamlapat v. CIT (1969) 73 ITR 702 (SC) were
that the Partnership firm M/s. Juggilal Karnlapat [in which Singhania
Brothers were majority partners] were also the majority shareholders in a
company namely J.K. Iron & Steel Co. Ltd. & in J.K. Commercial
Corporation in which the Singhania Brothers, their wife and
children were majority shareholders. It was in such circumstances in view
of the majority holding in all the concerns that it was held that termination
of the Managing agencies was a collusive device practiced for the purpose
of evading Income tax as there was only a change of personnel of the
managing agency company and not a change in office. But no such case
can be made out in the impugned case.
3.4.8 In all the cases relied upon by the AO the corporate veil was sought
to be lifted wherein the parties to the transaction were related which fact is
absent in the present case. Extending it further, the Id. AR of the appellant
company submitted that in CIT Vs Dhawan Investment and Trading Co.
Ltd (1999) 238 ITR 486 (Cal), a loss incurred by the assessee on sale of
shares
was
disallowed
for
set
off
against
other
positive income on the ground that the loss had the effect of reducing tax
liability and has, therefore to be ignored. The existing shares were, it was
alleged, deliberately sold to incur losses and McDowell's case was relied
upon. However, ITAT & High Court decided in favour of assessee.”
11.3. It was further canvassed that in the peculiar facts and circumstances the
onus was upon the Revenue to prove that the apparent is not real. Without
placing any supporting material and confronting the assessee with the same the
AO it was submitted cannot disregard the facts available on record. Reliance was
upon the decision of the Apex Court in the case of CIT vs Bedi & Co. Pvt. Ltd.
230 ITR 580(SC). IT was submitted that the burden of proving that the apparent
31
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
state of affairs was not real was very heavy on the department. Reliance was also
placed upon Mahalingappa (G) vs Savitha (GM) [2005] 147 Taxmann 583 (SC)
and Rajagopal Reddy (R) vs Padmini Chandrashekhran 213 ITR 340 (SC) which
has held that after the benami transaction (prohibition Act) the registered holder
is the real owner and the burden to prove whether the transaction is benami or
sham is on the department.
Reliance was also placed upon the following
decisions so as to contend that the assessee company does not fall in the ambit of
section 2(22)(e) of the Act :·
·
·
·
·
CIT vs. Parvathavardini Ammal 219 ITR 661 (Kerala);
CIT vs H.K.Mittal (1996) 219 ITR 420 (All.);
Victor Aluminium Industries Pvt. Ltd. vs ACIT (2006) 9 SOT 197 (Delhi);
Seamist Properties PVt. LTd. vs ITO (2005) 95 TTJ (Mum) 201;
Sagar Sahil Investments Pvt. Ltd. (2008) 13 DTR 350 (Mum.)
11.4. It was reiterated that on the date of receiving the loans, shareholding
pattern of the assessee company and M/s Kohli Housing & Development Pvt.
Ltd. were inconfirmity with the provision of section 2(22)(e) of the Act.
11.5. Without prejudice it was also alternately
canvassed that the recipient
cannot be taxed u/s 2(22)(e) of the Act and the record shows that the assessee is a
recipient of the loan and the recipient is not a shareholder and the loan cannot be
treated as a dividend in its hands for which proposition reliance placed upon CIT
vs Hotel Hilltop [2008] 217 CTR 527 (Raj.) and ACIT vs Bhaumik Color Pvt.
Ltd. [2009] 120 TTJ 865 (Spl. Bench, Mum.).
12.
Considering the arguments on facts and law the CIT(A) after examining
the requirements of section 2(22)(e) and taking into consideration the specific
facts concluding that on the date of taking of loan by the assessee company the
relationship between the assessee and the Kohli group was not established in
terms of section 2(22)(e) as on the dates of taking the loan the assessee company
or the sister concerns were not a shareholder in any of the Kohli Group of
companies including Kohli Housing & Development Company and there was no
common shareholders also. Thus it was concluded neither the payer qualified nor
32
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
the receiver qualified for bringing the amount of loan received within the ambit
of section 2(22)(e) of the Act. These findings are found recorded in para 4.1 to
4.2 at pages 10 to 12 and reproduced hereunder for ready-reference:4.1 “I have perused the assessment order and the written submission made
by the Ld. A.R. of the appellant company. The issue, in brief, relates to the
application of section 2(22)(e) of the Act in the facts and circumstances of
the case. It is, therefore, relevant to consider the definition of "deemed
dividend" u/s 2(22)(e).
The definition of "deemed dividend" in section 2(22)(e) of the Incometax Act, 1961, applies to three categories of cases. It covers any payment
made by a company, in which the public are not substantially interested, by
way of loans or advances
i) The first category: to a shareholder (beneficial owner of shares) having
not less than ten per cent voting power.
ii) The second category: to any concern in which such shareholder is a
member or a partner having substantial interest, entitled to not less than
twenty percent of the income of such concern.
iii) The third category: any payment by any such company on behalf or for
the individual benefit of any such shareholder.
But in all these three categories the extent of deemed dividend is
confined to the available accumulated profits of such company. In order to
be "deemed dividend" within the meaning of section 2(22)(e), in any of the
three categories, all the ingredients are to be satisfied, viz.,
(a)the
company
must
qualify,
(b) the payment must qualify,
(c) the persons to whom the payment is made must also qualify, and
(d) the payment is to be made out of the accumulated profits of the
company.
All these four ingredients in relation to the qualification of the company,
the shareholder, the concern and the payment by way of loan or advance in
respect of the first two categories and any kind of payment in respect of the
third category out of accumulated profits, are required to be established.
The issue of taxability of loan raised to be taken as dividend is,
therefore, governed by the following determinants:
1.Whether the basic conditions stipulated above have been satisfied?
2.If no, whether it is a device of tax evasion?
4.2 Before venturing into the realm of the ratio of the decided cases on the
subject, the facts of the case of the assessee company are enumerated
below in terms of the relevant dates having bearing on the matter under
consideration:
S.No.
1.
Particulars of event
Incorporation of assessee
company
Relevant date
24.05.2005
Comments
Co. Incorporated by Ajay Vats
& Vinay Vats as original
subscribers/directors
who
agreed
to
subscribe
for
minimum shares of Rs.50,000/-
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I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
2.
Allotment of shares
original subscribers
to
3.
Reimbursement
expenditure
incorporation
of 05.07.2005
on
4.
Co. received loan of Rs.30
lacs from VPN Management
& Consulting Pvt. Ltd.
Initial land purchased at
Village
Sultanpur,
Gurgaon, Haryana
Loan from Kohli Housing &
Development Pvt. Ltd.
Loan from Kohli Housing &
Dev. Pvt. Ltd.
Letter issued by Ajay Vats
&
Vinay
Vats
to
co.signifying intention to
sell shareholding to Kohli
Group
Circular letter issued by co.
seeking no objection for
sale of shares
Sale of shares between Vats
& Kohli
04.07.2005
Registration of transfer in
books of co.
24.10.2005
5.
6.
7.
8.
9.
10.
11.
30.06.2005
06.07.2005
each.
Co. Received Rs.50,000/- each
from Ajay Vats & VInay Vats on
30thh June 2005 as undertaken
by them. Co. allotted 5000
shares each to each of them.
Ajay Vats had personally
incurred
expenditure
of
Rs.4,800/towards
incorporation of Co. Which was
reimbursed by issue of cheque.
The said loan was arranged by
Vats group to purchase land.
09.07.2005
Co. purchased 4.025 acres of
land for Rs.18.51,500/- (excl.
Rs.1,20,750/- stamp duty.)
Rs.50 lacs received as loan.
16.08.2005
Rs.75 lacs received as loan.
07.10.2005
The said letter was issue in
terms of article 7 of the Article
of Association of the company.
14.10.2005
Co.in accordance with article 7
issued circular letter seeking
NOC.
Parties executed the documents,
handed over share script &
Consideration passed.
Co.at its board meeting held on
24.10.2005
approved
the
transfer of shares and recorded
the name of Kohli group as the
shareholder.
21.10.2005
From the above, it is evident that the assessee company took loan
aggregating to Rs. 1.25 crores in July/August,2005 from KDHPL when the
relationship between the assessee company and the Kohli Group was not
established in terms of the provisions of section 2(22)(e). The assessee
company, on the dates of receipt of loan, had not been
share holder with any of Kohli Group of Companies including KDHPL.
There were no common shareholders either. Thus, neither the payer
company qualifies nor the receiver i.e. the assessee (person to whom the
payment is made) qualifies for bringing the amount of loan received within
the ambit of section 2(22)(e).”
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C.O. Nos.-273-276/Del/2009
12.1. The CIT(A) further held that his view is fortified by the decision of the
Mumbai Bench of the Tribunal in the case of Sagar Sahil Investments Pvt. Ltd.
[2008] 120 TTJ 925 (Mum.) and CIT vs. John PV 181 ITR 1 (Ker.); CIT vs
H.K.Mittal [1996] 219 ITR 420 (All.) and various other decisions of the ITAT.
He further took into consideration the fact that the assessee company was not a
registered shareholder in Kohli Housing & Development company relying upon
and various decisions of the High Court and ITAT concluded that the provision
of section 2(22)(e) on this ground also could not be attracted. Considering the
parameters for considering the distinction in regard to tax evasion, tax avoidance
and tax planning as considering by the Hon’ble Calcutta High Court in the case of
Hela Holdings’case [2003] 263 ITR 129 (Cal.) and inviting specific attention to
para 3.4 of the same, he held that the view taken by him stood fortified.
12.2. Further taking into consideration the observations of Justice Rangnathan
Mishra in McDowell Ltd. vs. CTO [1985] 154 ITR 148/22 Taxman 11 (SC)
which held that all such arrangements by which tax laws are fully complied with,
not using ‘colourable devices’ and having no intention to deceit the legal spirit
would normally fall within the ambit of tax planning. He observed that their
Lordships have held that the tools used are not meant to defraud the revenue.
In view of the AO’s reliance on the decision of the Apex Court in the case
McDowell & Co. Ltd. he also took into consideration the fact that the said
decision has been a subject matter of discussion in several cases which have been
amplified by the Supreme Court in the case of Playworld Electronics and Azadi
Bachao Andolan 263 ITR 706 which have held that it is applicable only the
device is beyond that what is permissible by law. On a consideration of these
factual findings and judicial precedent the CIT(A) concluded that it has been held
that bonafide, legitimate tax planning is permissible and proceeded to delete the
addition in the following words:4.7.4. “The decision in the other cases relied upon by the AO are also not
applicable in the facts and circumstances of the cases. The AO has not
brought anything on record to establish that the sequence of events had
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I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
been only with a view to evade the payment of tax. The presumption made
by the AO has not been substantiated by any evidence whatsoever on this
account. The AO has also not established by any evidence that the
transactions were not bonafide. Indirectly, the AO has taken the Vats as a
benami of Kohli Group for this set of transactions but not an iota of
evidence is brought on record is establish and substantiate it. By merely
giving up the control over 4 companies, and handing over their reins in the
hands of Kohli Group, it can't be said that it is a device to subvert payment
of taxes. It could be an initiating point of suspicion but not sufficient
enough to put in the bracket of a subterfuge of tax-evasion. The similar
nature of transactions in 4 different companies can not convert the
suspicion of the AO into proven fact particularly when the AO has also not
brought any evidence or material which substantively overcomes the
independent documentary evidences about compliance to the statutory
provisions such as formation of the assessee company, its promoter
directors, issue of share capital, transactions through banking channels
etc. under the Companies Act, 1956. Undoubtedly, when the department
has raised this issue, the burden is upon the department to prove the same.
Moreover, the case laws on which AO has relied upon to pierce the
corporate veil; are those cases where the parties to the transaction were
closely related to each other and therefore, apprehension of tax evasion
was made. However, in the case of the appellant company, it is noticed
that the relationship of the concerned nature between Kohli Group and the
appellant company took germination only in the second week of Oct. 2005
while the transaction for loan had been concluded in July/August 2005.”
12.3. It is seen that the CIT(A) further went on to examine that the provisions of
section 2(22)(e) were amended by Finance Act, 1987 w.e.f 01.04.1988 to include
a case where the payment is received by any concern in which the common
shareholder is a member partner and holding that in view of the findings arrived
at holding that primary conditions were not fulfilled.
However by way of
abundant caution he still proceeded to examine the conclusion from that aspect
and relying on CIT vs Hotel Hilltop (cited supra) and the decision of the Special
Bench in ACIT vs Bhaumik Color Pvt. Ltd.(cited supra) came to the conclusion
that the action of the AO was not warranted on facts. Apart from these he further
referred to various other decisions of the ITAT proceeded to delete the addition.
13.
Aggrieved by this the Revenue is in appeal before the Tribunal. The Ld.
Sr. DR, Sh. Vikram Sahay placed reliance upon the assessment order however no
infirmity on facts in the impugned order was pointed out by him nor any
36
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
distinction on facts was sought be argued from the decisions relied upon by the
CIT(A).
14.
Ld. AR apart from relying upon the impugned order and the detailed
arguments on facts and law relied upon before the CIT(A) placed further reliance
upon the various orders of Tribunal which have consistently upheld the same
principle. Relying upon the written submissions and synopsis filed following
facts in support of the impugned order were highlighted:1.1 “The aforesaid Companies were promoted and incorporated by Mr
Ajay vats & Mr Vinay Vats as original subscribers, under certificates
of incorporation dated 24th May 2005 in case of cos at Sr No (ii) &(iii)
and 18th July 2005 in case of Cos at Sr No (i) & (iv) with the main
object of dealing in real estate.
The initial expenditure on incorporation being fees paid to Registrar
of Companies amounting to Rs. 4,800/- was undertaken by the said
Mr. Ajay Vats and the said amount was reimbursed to him by the said
Cos as Under:
(i)
Kay Kay Royal Apartments P.Ltd vide cheque no. 197376 drawn
on Andhra Bank on 21st September 2005;
(ii)
Kay Kay Apartments P.Ltd vide cheque no. 192026 drawn on
Andhra Bank on 7th July 2005;
(iii) Kay Kay Buildworth P.Ltd vide cheque no. 197176 drawn on
Andhra Bank on 7th July 2005.
(iv) Kay Kay Executive Apartments P.Ltd vide cheque no. 197226
drawn on Andhra Bank on 21st September 2005. (copy of bank
statement in support placed at page 62 of the paper book).
2.1.
The subscribers, i.e. Vats Group had in terms of the Memorandum
& Articles of Association undertaken to subscribe for 5,000 equity shares
each of the company of a face value of Rs.10/- each.
Company Name
No. Of Shares Amount paid
1. Kay Kay Aptts. P. Ltd.
Ajay Vats
5000
50,000/VInay Vats
5000
50,000/2. Kay Kay Buildworth P. Ltd.
Ajay Vats
5000
50000/Vinay Vats
5000
50000/3. Kay Kay Executvie Apptts. Pvt. Ltd.
Ajay vats
5000
50000/Vinay Vats
5000
50000/4. Kay Kay Royal Apptts Pvt. Ltd.
Ajay Vats
5000
50000/Vinay vats
5000
50000/-
Date of payment
30.06.2005
30.06.2005
30.06.2005
03.05.2005
13.09.2005
13.09.2005
13.09.2005
13.09.2005]
37
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
2.2. The First directors of the company as per MOA and AOA of the
aforesaid four companies were:1. .Mr. Ajay Vats (50%)
2. Mr. Vinay vats (50%)
14.1. The specific dates on which loans were received from M/s Kohli Housing
& Development Pvt. Ltd. which were not in dispute were re-emphasized:2.3. “Details of loan received from Kohli One Housing
Name of the
Date of Receipt of Loan
Amount
1.Kay Kay Apptt. P. Ltd.
09.07.2005
5000000/16.07.2005
7500000/12500000/2.Kay Kay Buildworth P. Ltd.
09.07.2005
10000000/3.Kay Kay Executive Apptts Pvt.Ltd. 22.11.2005
7500000/4.Kay Kay Royal Apptts.
18.07.2005
5000000/-
14.2. To drive home the point in support of the impugned order the specific
dates on which S.K.Kohli & K.K.Kohli became the shareholders in the assessee
company and sister companies available from the record were also emphasised as
under:2.4. Date when S.K.Kohli & k.K.Kohli became share Holder
Name of the Company
Date of becoming Shareholder
1.Kay Kay Apptt. P. Ltd.
24.10.2005
2.Kay Kay Buildworth P. LTd.
24.10.2005
3.Kay Kay Executive Apptts. P.Ltd.
22.11.2005
4.Kay Kay Royal Apptts.P.Ltd.
24.10.2005
14.3. It was submitted that the assessee in response to the show cause notice
furnished letter dated 29.12.2008 alongwith all relevant documents in support of
it’s claim including certificate of an independent company secretary and an
affidavit of the sellers of the shares confirming the facts. These documents
available in the Paper Book
it was argued have not been rebutted by the
Revenue. It was submitted that the action of the AO based on the case laws
distinguished in detail before the CIT(A) has also not been contradicted by the
Ld. Sr. DR as no contrary argument either on fact or law has been advanced. It
was also submitted that no contrary decision has also been referred to by the
Revenue to take a contrary view. In view of the same it was submitted that the
38
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
impugned order deserves to be upheld. For the sake of completeness attention
was invited to the specific provisions of section 2(22)(e) so as to submit that they
are attracted as per bare reading of the section and judicial precedent only if all
the following additions are fulfilled namely:(a)
(b)
(c)
(d)
Payment has to be made by a closely held company
Payment by the company to (i) Registered and beneficial
Shareholder holding not less than 10% of the voting power of the
company on the date of making payment (ii) concern I company in
which such shareholder also holds 20% or more in the recipient
company on the date of payment.
The payment should be in the nature of a loan or advance.
The company making payment should have accumulated profits as
on the date of payment.”
14.3.1.In the facts of the present case it was submitted that the above-mentioned
additions are not attracted on account of the following conditions:(i)
(ii)
“Mr. Sudarshan Kumar Kohli & Mrs. Kumkum Kohli on the date of
payment made by Kohli Housing & Development Pvt. Ltd. on 17th
November 2005, were not the registered and beneficial
shareholders of the assessee company and hence condition (b)
aforesaid is not fulfilled.
In all the cases relied upon by the AO the corporate veil was sought
to be lifted wherein the parties to the transaction were related
which fact is absent in the present case.”
14.4. The allegation of the AO that the assessee has arranged its affairs solely to
deprive the Revenue it was submitted as per judicial precedent has to be
substantiated by the Revenue and this onus has not been discharged.
It was
submitted that if the AO is under a belief that either Vats were the benami
holders and Kohlis were the real holder of shares or the fact that Kohli’s were the
beneficial holders. These suspicions it was argued have not been demonstrated
by any evidence on record. Apart from relying upon decisions relied upon before
the CIT(A) reliance was also placed upon the following decisions:(i)
(ii)
In CIT v. Parvathavardini Ammal 219 ITR 661 (Kerala)
CIT v K.K.Mittal (1996) 219 ITR 420 (All)
Assessee not a shareholder-advance received from company not
deemed dividend.
39
(iii)
(iv)
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
(b) Victor Aluminium Industries Pvt. Ltd. v ACIT, New Delhi
(2006) 9 SOT 197 (Delhi)
Seamist Properties Pvt. Ltd. v ITO 920050 95 TTJ (Mum) 201.
14.5. In support of the alternate legal submissions that deemed dividend cannot
be taxed in the hands of Recipient company as recipient is not a shareholder.
Reliance was placed upon the following decisions:(a) CIT .v. AR Magnetics (P.) Ltd. (2014) 220 Taxman 209
(Delhi)(HC)
CIT v. Navyug Promoters (P) Ltd. (2011) 203 Taxman 618
(Delhi)(High Court)
(c) Commissioner of Income-tax-I v. Bikaner Cuisine (P.) Ltd. [2014]
45taxmann.com 253 (Delhi)
(d) CIT .v. Daisy Packers (P.) Ltd. (2014) 220 Taxman 331
(Guj)(HC)
(e) CIT vs. Ankitech (P.) Ltd. [2011] 199 Taxman 341 (Delhi High
Court)
(f) CIT vs. Gopal Clothing Company (P.) Ltd. [2012] 207 Taxman
134 (Delhi HC)(MAG.)
(g) CIT vs. Impact Containers Pvt. Ltd (Bombay High Court) ITA
No. 114/2012
(h) CIT v. MCC Marketing (P.) Ltd. [2011] 16 taxmann.com 411
(Delhi)
(i) ACIT .v. Britto Amusement P. Ltd. (2014) 360 ITR 544 (Bom)
(j) CIT v. Hotel Hilltop (2008) 217 CTR 527 (Raj.)
(b)
14.6. Specific reliance was also on the following findings of the CIT(A) in para
4.8.5 & 4.9 which read as under:4.8.5. “Thus, it is evident that even after the amendment to section
2(22)(e), the amount received will not be taxable in the hands of
the recipient until and unless he is not only a registered
shareholder but also a beneficial shareholder. The case of the
appellant company does not fall in either category when the loans
were taken and on this account also, the case made out by the AO
cannot be accepted.
4.9. Considering all the facts and circumstances of the case, I hold that
the appellant company did not satisfy the stipulated conditions of
section 2(22)(e), on the dates on which loan was raised by it from
KHDPL and that in the light of the detailed discussion made above,
the said provisions cannot be applied to the case of the appellant
company. The AO is, therefore, directed to delete the addition
made by him on this account.”
15.
We have heard the rival submissions and perused the material available on
record. A perusal of the facts on record on which we have deliberated at great
40
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
length in the earlier part of this order would show that evidently there is no
dispute either in regard to the dates on which the loans were advanced and nor on
the ownership pattern of the recipient i.e. the assessee company. In these facts the
reliance placed by the Revenue on the principles laid down by the Courts in
different contexts namely in the case of M/s Dowells the addition on facts is not
warranted. We have no hesitation in holding that in the facts as they stand which
have not been upset by the Revenue the inference drawn by the AO that the
affairs of the assessee company were so arranged only to deprive the collection of
tax having not been substantiated the finding of the CIT(A) on facts deserving to
be upheld. Since the primary condition for attracting the provisions of section
2(22)(e) admittedly stand unfulfilled, the occasion to bring the assessee within
the rigorous of the said section cannot be upheld. We have also seen that the
issue has been examined by the CIT(A) from various angles and facets on facts
and law and this discussion has also been addressed by us in great detail which
also stands unassailed. In these afore-mentioned peculiar facts and circumstances
in the face of the clear mandate of the judicial precedent cited, we find that the
Ground of the Revenue has to be dismissed.
16.
In the result, Ground No.-2 raised by the Revenue in ITA No.-
3080/Del/2009 is dismissed.
17.
Since Ground Nos. 1 & 5 in ITA No.-3080/Del/2009 being general and
residuary in nature respectively, no specific adjudication on facts is required.
18.
In the result, ITA No.-3080/Del/2009 is dismissed and CO.-274/Del/2009
is allowed.
19.
As per the common stand of the parties the facts and arguments on the two
issues in the ITA No.-3079/Del/2009; ITA No.-3081/Del/2009 and ITA No.3082/Del/2009 are same. For similar reasons these remaining three appeals also
meet the same fate. The stand of the parties is found to be correct as it is seen
that in all these appeals Ground Nos. 1 & 5 are identical and vide Ground No.-2
similar addition deleted by the CIT(A) is assailed on same set of facts. Vide
41
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
Ground No.-3 and 4 it is seen that based on the very same statement of Smt.
Dayawati and Sh. Om Prakash in ITA No.-3079/Del/2009 considering the six
instances of purchases made and in ITA No.-3081/Del/2009 and ITA No.3082/Del/2009 considering the 12 and 5 instances of purchases respectively the
AO has proceeded to make addition in similar lines which has been restricted by
the CIT(A) in ITA No.-3079/Del/2009 and totally deleted in the remaining two
appeals as admittedly the stamp value was much less than the settled price for
similar reasoning the CIT(A)’s order assailed by the Revenue vide Ground No.-2
in each of these appeals is upheld and the finding in Ground Nos.-3 & 4 in the
remaining Grounds in view of the relief granted in the respective Cos being
allowed stands substituted.
20.
As a result thereof ITA No.-3079/Del/2009, ITA No.-3081 &
3082/Del/2009 are dismissed and CO. No.-273/Del/2009 is allowed; CO. Nos.275 & 276/Del/2009 which appear to be in support of the respective impugned
orders as the entire addition made by the AO on facts was deleted by the CIT(A)
as the stamp value was found to be much less than the settled purchase price
recorded in the Sale Deeds the same are allowed whereby the conclusion of the
CIT(A) is sustained however his reason is substituted by the reasoning taken in
ITA No.-3080/Del/2009 and CO.274/Del/2009.
21.
In ITA No.3084/Del/2009 also it was the common stand of the parties
before the Bench that the finding arrived at in ITA No.-3080/Del/2009 would
apply here also. This stand of the parties is found to be correct on facts. The
record shows considering the electronic returns filed by the assessee on
10.08.2006 the AO referring to the enquiry conducted upon Kay Kay Apartments
Pvt. Ltd. made the addition u/s 69C relying on the reasoning taken there. As a
result thereof addition of Rs.1,26,05,741/- was made in the hands of the assessee
by order dated 31.12.2008 u/s 143(3). The assessee in appeal is found to have
advanced the following arguments considering which the addition was deleted:-
42
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
4.
“The Ld. AR of the company submitted that the addition made in
the case of the appellant company on protective basis is unwarranted. The
protective addition has been made for the substantive additions made u/s
69 & 69C by the AO in the case of M/s Kay Kay Apartments Pvt. Ltd., M/s
Kay Kay Royal Apartments Pvt. Ltd., M/s Kay Kay Executive Apartments
Pvt. Ltd. and M/s Kay Kay Buildworth Pvt. Ltd. It is submitted that
detailed submissions have been made in their respective cases to highlight
that no addition is warranted in their cases. The appellant company has
advanced loans to the above companies in normal course of business and
these companies have utilized the loan amount according to their business
requirements. The appellant company is not the benamidar of any of these
entities and therefore, the addition is not warranted in the case of the
appellant company.”
21.1. The specific reasoning for deleting the addition which is under challenge
by the Revenue reads as under:5.
“I have perused the assessment order and the submission of the
appellant company. The additions made by the AO u/s 69 & 69C in the
case of four companies mentioned above have been discussed at length in
the respective appellate orders of even date. It is matter of fact that the
acquisition of the land was made by these 4 companies when these had no
relationship with the appellant company. It is trite that the provisions of
section 69B and 69C are applicable on the assessee who makes the
undisclosed investment/payment and the amount concerned is deemed to
be the income of that person only. Moreover, privity is not established by
the AO between the appellant company and the 4 entities mentioned in the
assessment order about the utilization of loans raised from the appellant
company and their use for the purposes of acquisition of the agricultural
land. Considering the position of law and that the addition to the extent
required have been upheld substantively in the respective cases of M/s Kay
kay Apartments Pvt. Ltd. and M/s Kay Kay Royal Apartments Pvt. Ltd., I
hold that the protective addition in the case of the assessee company is not
proper. The AO is, therefore, directed to give relief to the assessee on the
aggregate protective addition of Rs.1,26,05,741/-”
21.2. In the afore-mentioned peculiar facts and circumstances of the case where
the very basis of the addition in the case of Kay Kay Apartments has not been
upheld by us, we find that the departmental appeal is devoid of merit. The same
is accordingly dismissed.
43
22.
I.T.A .Nos.-3079-3082 & 3084/Del/2009
C.O. Nos.-273-276/Del/2009
In the result, departmental appeals ITA No.-3079/Del/2009 to ITA Nos.-
3082/Del/2009 are dismissed; the CO. Nos.-273/Del/2009 to 276/Del/2009 are
allowed and ITA No.-3084/Del/2009 of the Revenue is dismissed.
The order is pronounced in the open court on 16th of January 2015.
Sd/(T.S.KAPOOR)
ACCOUNTANT MEMBER
Sd/(DIVA SINGH)
JUDICIAL MEMBER
Dated:16/01/2015
*Amit Kumar*
Copy forwarded to:
1.
Appellant
2.
Respondent
3.
CIT
4.
CIT(Appeals)
5.
DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI