SHRI LAXMANBHAI JIVRAJBHAI PATEL,,AHMEDABAD vs. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-5(3),, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL “ D ” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ITA No. 421/Ahd/2018 (�नधा�रण वष�/Assessment Year : 2013-14 ) बनाम/ Laxmanbhai Jivrajbhai Patel The DCIT M/s.Shree Krishna Vijay Saw Circle-5(3) Vs. Mills Ahmedabad Lati GBazar Zone-3 Geeta Mandir Ahmedabad-380 022 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : ABHPP 3999 H (अपीलाथ�/Appellant) (��यथ� / Respondent) .. अपीलाथ� ओर से/ Appellant by : Shri M.J. Shah, AR ��यथ� क� ओर से/Respondent by: Shri Nilam Das Gupta, Sr.DR सुनवाई क� तार�ख/ Date of Hearing 08/05/2019 घोषणा क� तार�ख /Date of Pronouncement 17/06/2019 आदेश / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–5, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-5/DCIT Cir.5(3)/10530/2017-18 dated 08/12/2017 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 16/02/2016 relevant to Assessment Year (AY) 2013-14.

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 2 -

The facts of the case are that the assessee an Individual and generating his Income from Let-out of House Property, commission, Capital Gain on sale of land, Interest and Dividend Income.

The AO during the assessment proceedings observed that the assessee in the year under consideration had transferred the land situated at Survey No. 917 of village mouje Sanathal dated 23-07-2012 for Rs. 6,48,30,800/-. The land was also held by the other four co-owners. As such, the assessee’s share was only 23.50% in the said land, and accordingly, the consideration received by him was amounting to Rs. 1,52,35,238/- only. The assessee in his return of income on the sale of such land declared the Short Term Capital Gain (in short STCG) at Rs. 12,91,243/- after deducting the cost of acquisition amounting to Rs. 1,39,43,995/- against the sale consideration.

On the question by the AO, the assessee submitted as detailed under:

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 3 - 1. That the agricultural land was purchased along with other four co- owners on dated 29-03-2011 for a sum of Rs. 44,35,860/- including purchase cost, stamp duty, registration fees, brokerage, etc. 2. The assessee share in such land is only 23.50%. 3. Subsequently, he made a Banakhat deed dated 08-07-2011 with Mavjibhai Patel and Dharmendra Patel in respect of the said land. After a few months, the Banakhat deed was cancelled on dated 07- 07-2012. Therefore the assessee paid Rs. 36,57,264/- as cancellation of Banakhat Deed to avoid any dispute in the title of the property and to get waived the right of the proposed purchasers (parties) in the said land. 4. The assessee further made another Banakhat deed dated 08-10- 2011 with Pasawala Share Trading Co. Pvt Ltd. Again after a few months, the Banakhat deed was cancelled on dated 27-06-2012. Therefore he paid Rs. 58,84,460/- as cancellation of Banakhat deed to avoid any dispute in the title of the property and to get waived the right of the proposed purchasers (parties) in the said land. 5. Finally, he sold said agricultural land on 23-07-2012 where he received his share of sale consideration for Rs. 1,52,35,238/- and declared STCG after claiming above expenditure as cost of acquisition in his return of income at Rs. 12,91,243/- only. 6. The assessee further in support of the above submitted that he received the advance as cash from the said party on the execution of Banakhat deed which was reflecting in his balance-sheet as an advance in the financial year 2011-12. On the other hand, on cancellation of Banakaht deed, he paid the compensation through cheque to avoid the litigation in the title of land and the same also reflected in his regular books of account.

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 4 - 7. The payment received by the said parties against cancellation of Banakahat deed was also reflected in their account, and they also declared as income in their income tax return. 8. In support of the above contention, he submitted all the relevant documents. The details of documents submitted by him are available on page 8 of AO order which are reproduced as under: “(1) Ledger account of Agricultrual Land Purchase Survey No.917 of Sanathal for A.Y. 2012-13 & 2013-14. (2) Ledger Account of Both the parties from whom I had Received the amount of Banakhat which was reflected in books of account for the A.Y. 2012-13. (3) Ledger Account of Both the parties to whom I had paid the amount for cancellation of Banakhat which was reflected in books of account for the A.Y. 2013-14. (4) Copy of the bank Statement.

(5) All the payment for cancellation of Banakhat deed for Both the parties amounting of Rs.94,40,184/- the said amount was paid by A/c Payee Cheque. (6) Copy of the balance sheet on banakhat deed was shown as an advance received against the agricultural land. The assessment proceeding for A.Y. 2012-13 was finalized u/s.143(3) read w.s. 147 dated 31.07.2015, the said facts was brought to your notice.

(1) Ledger Acount of Agricultural Land from the books of Mavjibhai Savani & Dharmendra Savani duly signed by them. (Name, Address & PAN Number) along-with their ITR Filed and Computation of Income. 2) Ledger Account of Agricultural Land from the book sof Passawala Trading Co Pvt.Ltd. duly signed by the Director. (Name, Address & PAN Number) along-with their ITR Filed and computation of Income. Further the said party had furnished a Separate Letter Explaining the facts vide his letter dated 16.12.2015 by confirming all the facts.”

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 5 - However, the AO from the submission made by the assessee observed as under:

i. The Banakhat deed was executed on stamp papers which were notarized, but the same has no legal sanctity unless it is registered with the prescribed authority. ii. On perusal of the Banakhat deed executed with the said parties, there was not mentioned to pay anything on cancellation of Banakhat deed. iii. The second Banakhat dated 08-10-2011 was executed with Passawala Share Trading Co. Ltd without cancelling the first Banakhat dated 08-07-2011 which was executed with MavjibhaiShivani and DharmendrabhaiShivani. Similarly, the 2nd Banakhat was cancelled dated 27-06-2012 before the cancellation of the first one dated 07-07-2012. iv. The 2nd Banakhat was executed with non-agriculturist, but as per the norms it can be sold only to an agriculturist. v. The provisions of section 55(2) and section 55(1) relate to cost of acquisition and cost of improvement, but the same does not apply to the expenses incurred towards the cancellation of Banakhat. vi. The provision of section 48 of the Act also provides that the expenditures incurred wholly and exclusively in connection with the transfer are allowed as deduction. But the assessee did not incur the amount in connection with the sale, purchase of

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 6 - the said agriculture land (i.e., Stamp Duty, Registration Fees, etc.). Therefore, the same cannot be allowed as deduction.

Thus the AO in view of the above concluded that the said payment made by the assessee was neither related to the acquisition nor for the cost of improvement and also it is not incurred wholly and exclusively in relation to transfer of the assets. All the transaction was used as a colorable device to reduce the capital gain tax liability.

Therefore, the AO disallowed Rs. 58,84,460/- and Rs. 36,05,724/- was paid on account of the cancellation of Banakhat Deed while computing the capital gain of the assessee.

The aggrieved assessee preferred an appeal before the Ld. CIT (A).

The assessee before the Ld. CIT (A) reiterated the submission as before the AO. The further submissions of the assessee before the Ld. CIT (A) are reproduced as under:

“During the appellate proceedings, the appellant has contended as under:-

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 7 - in their income-tax returns and has also offered the said receipt as income. 3. Both the above parties have given confirmation of receipt of the amount stated in cancellation deed. 4. Disallowance in the hand of appellant and parallel taxation in the hands of recipient amount to double taxation on the same amount which is against the law. 5. In the case of one of the co-owner of the land sold the AO has allowed the claim of improvement cost against the sale consideration for computing capital gain. The differential treatment cannot be meted out to another co-owner while making the assessment of the same property or while valuing the same property. 6. By virtue of said two agreements right in person has been created in favour of both the above parties and said parties get right to get the property transferred in their name or sue for compensation for breach of contract by way of filing suit of specific performance.”

However, the Ld. CIT (A) during appellate proceedings referred the Banakhat made with Passwala share trading co. ltd. dated 8/10/2011 Para E and F of Banakhat Deed which are reproduced as under:

“E. That if you accepting party ready and happy to give remaining consideration amount within the above said period in two same installments even though if we executing party shall not execute registered sale deed by clearing the rights and titles and interest clear and marketable of the said land then you accepting party authorize to get Specific Performance of this agreement by the Court.” XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX “F. That if we executing party willing and ready to take remaining consideration amount from you accepting party and ready to execute Registered Sale Deed of the said land within stipulated period, even t4hough you accepting party shall not pay the remaining consideration amount and shall not be executed registered sale deed then after completing the period we executing party hereby authorize to cancel this Agreement to Sale (Banakhat)”.

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 8 - In view of the above, the Ld. CIT-A concluded that no right was created in the said land in favor of the party merely by executing the Banakhat deed. Therefore the assessee’s contentions that he made the payment to such parties to get waived the right of the parties is wrong. As the parties do not comply with the terms and conditions regarding the payment as mentioned in Bnakahat deed, so the right of the parties in the land does not arise. Therefore the question of the payment against waiver of the right also does not arise.

Thus, the Banakhat deed executed by the assessee and after that it was cancelled was raising the doubt about intentions and the genuineness of these Banakhats deed. Therefore the Ld. CIT (A) was also of the view that as the right was not vested on the said land, then the payment made by the assessee cannot be said that it was incurred wholly and exclusively in connection with the transfer. The Ld. CIT (A) accordingly confirmed the order of the AO.

Aggrieved by the order of the Ld. CIT (A), the assessee is in appeal before us.

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 9 - The learned AR also submitted that the compensation paid by the assessee was accepted in the assessment framed under section 143(3) of the Act in the case of the co-owners of the property.

The assessee vide Banakhat (1st time) dated 8-7-2011 sold such agriculture land at Rs. 3,63,06,918.00.

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 10 - The assessee further vide Banakhat (2nd time) dated 8-10-2011 sold such agriculture land at Rs. 2,60,40,291.00.

Thus, the assessee on the cancellation of 1st Banakhat dated 8th of July 2011 paid compensation of Rs. 36,57,264.00 being his share in the property vide cancellation deed dated 7-7-2012.

Thus, the assessee on the cancellation of 2nd Banakhat dated 8-10-2011 paid compensation of Rs. 58,84,460.00 being representing his share in the property vide cancellation deed dated 27-6-2012.

The assessee further vide sale deed (3rd time) dated 23-7-2012 sold such agriculture land at Rs. 6,48,30,800/- in which he received a sum of Rs. 1,52,35,238 being 23.50% representing his share in the property.

Accordingly, the assessee worked out the short-term capital gain in his hands, representing his share in the property as detailed under:

“(A) Sale Price (My share 23.50%) Rs.1,52,35,238/- (B) Less: Purchase Price (44,53,811/- Purchase cost + 58,84,460/- Amount Paid for Cancellation of Banakhat Deed + 36,05,724/- Amount paid for Cancellation of banakhat Deed Rs.1,39,43,995/- Short Term Capital Gain (Disclosed in ITR)Rs.12,91,243/-“

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 11 - However, we note that if the assessee had not cancelled the 1st Banakhat dated 08-07-2011 then his income should have been at Rs. 40,78,315.00 representing his share in the property. The necessary working for the income of the assessee stands as under: “(A) Sale Price (My share 23.50% of Rs. 3,63,06,918) Rs. 85,32,126.00 (B) Less: Purchase Price Rs. 44,53,811.00 Short Term Capital Gain Rs.40,78,315/

On perusal of the above, it is revealed that the assessee would have earned more income had he had not cancelled the Banakhat above. Therefore, it appears that the assessee to avoid the tax liability has adopted a colorable device as discussed above.

Regarding the 2nd Banakhat dated 8-10-2011, we note that the assessee has agreed to sell at Rs. 2,60,40,291.00 which is much lower than the sale value agreed in the 1st Banakhat as discussed above. As such, it appears to our mind that there was no reason for the assessee to go for 2nd Banakhat at the lower value and that too after incurring the huge cost as discussed above. At the time of hearing, the learned AR for the assessee has also not brought anything on record justifying with cogent reasons for entering into Banakhats and cancelling the same.

We also note that the assessee has received advances alongwith other co- owners against 1st and the 2nd Banakhat for Rs. 11,00,000/- and

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 12 - Rs. 5,40,255/- respectively but it has paid huge compensation amounting to Rs. 36,57,264.00 and Rs. 58,84,460.00 respectively, as discussed above.

However, we find that the assessee has paid compensation to the following parties: 1. MavjibhaiSavani 2. DharmendraSavani 3. Passawala Share Trading Co. Pvt Ltd. On perusal of the income tax return of the aforesaid parties, we note that all the parties have disclosed such compensation in their income tax return and have paid the due taxes on such compensation amount. This fact can be verified from the returns of income of the aforesaid parties which are placed on pages 11, 16, and 23 of the paper book. Accordingly, we hold that impugned transaction cannot be said to have made to avoid the tax liability.

It is also important to note that the Revenue has accepted the aforesaid compensation paid by the assessee in the case of the co-owner namely Ramji Bhai P Patel in the assessment framed under section 143(3) of the Act. The copy of the assessment order is placed on record. Thus we hold that once the Revenue has accepted the impugned transaction in the case of the co-owner, the same transaction cannot be disputed/disturbed in the case of another co-owner. Regarding this, we find support and guidance from the judgment of Hon’ble Madras High Court in the case of CIT v/s

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 13 - Kumararani Smt. Meenakshi Achi reported in 292 ITR 624 wherein it was held as under: “It is trite that if during the same assessment year, the same quantity of wealth in possession of one co-sharer is subjected to a lower rate of taxation, it would be highly improper to burden a similarly situated co-sharer with a higher rate of tax. If such an action on the part of the assessing authorities is sanctioned, it would militate against the principle of equality of law as enshrined in article 14 of the Constitution, vide Jaswant Rai's case (supra). [Para 5] Applying the ratio laid down in Jaswant Rai's case (supra), to the facts of the instant case would lead to the firm conclusion that the assessee, who was also a co-owner of the property, was entitled to the benefit enjoyed by the other co- owner, whose valuation of the same property, at the same rate as that of the assessee, was accepted by the Commissioner and recorded in the order under appeal by the Tribunal.[Para 6] Finding no reason to interfere with the order of the Tribunal, the instant appeal was to be dismissed.”

We also note that the ITAT Ahmedabad has also taken the similar view in the case of Shri Chandulal Parbatbhai Patel v/s DCIT in ITA No. 2444/AHD/2016 vide order dated 23-10-2018 wherein it was held as under; “With the assistance of ld.reprsentatives, we have gone through the record carefully. The grievance of the assessee is that the ld.AO has erred in adopting value of the land transferred by the assessee equivalent to the value on which stamp duty was paid. It emerges out from the record that the assessee was having 25% share in the land bearing survey no.1089/90. He has sold this land with other co-owners. The ld.AO while computing the capital gain under section 48 of the Act adopted full value of the sale consideration equivalent to the amount on which stamp duty was paid. The case of the assessee was that in the case of co-owner, reference was given to DVO under section 50C(2) who had determined fair market value of the property. The ld.counsel for the assessee contended that the assessee made a prayer before the ld.CIT(A) that the same value be adopted in the case of the assessee. We find force in this contention of the assessee, because section (2) of section 50C contemplates that in case assessee raises an objection of the value on which stamp duty was paid, then in order to find fair market value of the asset, reference would be made to the DVO , since in the case of co-owner such reference was made on the same piece of land. The same value ITA No.2444/Ahd/2016 determined by the AO in the case of co- owner ought to be adopted in the case of the assessee. We allow the appeal of the assessee and remit the issue to the file of the AO with direction to the ld.AO to compute the capital gain assessable in the hands of the assessee on transfer of the

ITA No.421/Ahd/2018 Laxmanbhai Jivrajbhai Patel vs.DCIT Asst.Year - 2013-14 - 14 - above land by adopting full sale consideration equivalent to the amount determined by the DVO in the case of co-owner. With this direction, we allow this ground of appeal.”

In view of the above and after considering the facts in totality, we are of the considered view that there cannot be any addition to the total income of the assessee on account of the compensation paid to the parties. Hence, the ground of appeal of the assessee is allowed.

-Sd- -Sd (Ms. MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 17/06/2019 Disposed by mr. maneesh ps. ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS