SRI.AJU ABDURAHIMAN,CALICUT vs. THE ITO, CALICUT

Per CHANDRA POOJARI, ACCOUNTANT MEMBER:

These two appeals filed by the assessee are directed against the separate

orders of the CIT(A), Kozhikode dated 05/02/2014 and pertains to the

assessment years 2007-08 and 2008-09.

Tribunal. The assessee has filed a condonation petition accompanied by an

affidavit stating that the Chartered Accountant of the assessee was frequently

hospitalized due to illness and he finally expired in April, 2015. Thereafter his

I.T.A. Nos.400&401/C/2015

son took over the management of the firm and on realizing that no appeal was

filed against the impugned order, had immediately taken steps and filed the

current appeals on 20/05/2015 with a delay of 423 days. The assessee

submitted that the delay in filing the appeals was due to a genuine inability and

due to sufficient and reasonable cause and hence, it was prayed that the delay

of 423 days may be condoned, failing which irreparable loss and injury may be

caused to the assessee.

through the condonation petition filed by the assessee, we find that there is

good and sufficient cause for condoning the delay in filing the appeals and the

delay in filing the appeals is found to be bonafide. Accordingly, we condone the

delay of 423 days and admit the appeals for adjudication.

regard to the sustenance of addition of Rs.23,42,600/- unexplained investment in

the bank accounts.

Officer that the assessee had entered into an agreement with Shri Anil Kumar

Sharma of Ernakulam for procuring about 13 acres of land in Olavanna village in

Kozhikode district on 05/07/2007. As per the agreement, the assessee had to

I.T.A. Nos.400&401/C/2015

receive Rs.1,05,000/- per cent for procuring land on behalf of Shri Anil Kumar

Sharma irrespective of the cost actually paid by the assessee to the seller.

Accordingly, the assessee had procured about 544 cents of land during the

period from 01/04/2007 to 25/09/2008 and Shri Anil Kumar Sharma had paid

about Rs.5.71 cores to the assessee through banking channels. Since the

assessee had not filed the return of income for AY 2007-08, notice u/s. 148 of

the Act was issued to the assessee. However, the assessee did not respond to

the notice and the Assessing Officer issued notice u/s. 144 of the Act. In

response to the 144 notice, the assessee filed return of income on 20/12/2010

showing remuneration of Rs.40,000/- from Gazaz global Ad Vision Pvt. Ltd. On

verification of the details of land deal with Shri Anil Kumar Sharma, the Assessing

Officer noticed that the assessee had only received advance of Rs.1,50,00,000/-

from Shri Anil Kumar Sharma during the FY 2006-07 relating to AY 2007-08 and

no property transaction was done during the year. However, from the cash flow

statement and bank statements, it was noticed by the Assessing Officer that

there were huge cash deposits in the SB account of the assessee with Federal

Bank and ICICI bank. It was explained by the assessee that these were

amounts received from Shri Muhammed and Hameed towards refund of advance

paid for purchase of properties on behalf of brother of assessee’s father-in-law.

The source of the money was explained to be withdrawals made from the bank

account of Shri Sulaiman, brother of Shri Moosakutty, father-in law of the

assessee, and paid to Shri Muhammed and Hameed. Further, it was submitted

I.T.A. Nos.400&401/C/2015

that both Shri Sulaiman and Moosakutty were NRIs doing business in the Gulf

and produced copies of their bank accounts. On verification of the bank

accounts, it was noticed by the Assessing Officer that the payments to Shri

Muhammed and Hameed were made way back in March, 2006 and the assessee

could not given any plausible explanation with regard to the advance made and

the possible channel of its refund to the assessee, and therefore, the explanation

of the assessee was rejected by the Assessing Officer and treated the bank

deposits amounting to Rs.23,42,600/- as unexplained investment made by the

assessee .

clinching evidence that the money had come from refund of advance given for

purchase of a property. According to the CIT(A), there was no proof that the

amounts deposited in the bank accounts were the refunds of the same amounts

which had been advanced for purchase of the property. In view of this, the

CIT(A) confirmed the addition made by the Assessing Officer.

deposits in bank accounts represented the amounts received from relatives out

of their withdrawals from NRE accounts and refund of various land advances on

cancellation of deals executed by the assessee on behalf of his relatives.

According to the Ld. AR, the declaration and statement filed by the assessee

I.T.A. Nos.400&401/C/2015

clearly established that the cash deposits in banks were made out of the surplus

funds available with the assessee as an agent on behalf of the relatives. The Ld.

AR submitted that the assessee had not been given an opportunity to prove his

case.

of the assessee’s Counsel is that originally the amount was advanced for

purchase of landed properties by the assessee’s relatives out of their NRE bank

accounts, the same was received back by the present assessee. However, this

fact has not been verified by the lower authorities. In our opinion, the assessee

has to place the copies of NRE bank accounts of his relatives along with the

details of refund received on cancellation of the agreements with various parties

for purchase of landed properties. Accordingly, we remit this issue to the file of

the Assessing Officer for de novo examination of the documents mentioned

above after affording opportunity of hearing to the assessee. If there is no

agreement entered with the various parties, the payments made by the

assessee’s relatives to the vendor and refund from them is to be substantiated

by the assessee. Thus, this ground of appeal of the assessee is partly allowed

for statistical purposes.

I.T.A. Nos.400&401/C/2015

regard to sustenance of addition of Rs. 1,50,42,950/- towards receipt of

commission on real estate business.

Officer that the assessee had entered into an agreement with Shri Anil Kumar

Sharma of Ernakulam for procuring about 13 acres of land in Olavanna village in

Kozhikode district on 05/07/2007. As per the agreement, the assessee had to

receive Rs.1,05,000/- per cent for procuring land on behalf of Shri Anil Kumar

Sharma irrespective of the cost actually paid by the assessee to the seller.

Accordingly, the assessee had procured about 544 cents of land during the

period from 01/04/2007 to 25/09/2008 and Shri Anil Kumar Sharma had paid

about Rs.5.71 cores to the assessee through banking channels. Since the

assessee had not filed the return of income for AY 2008-09, notice u/s. 148 of

the Act was issued to the assessee. However, the assessee did not respond to

the notice and the Assessing Officer issued notice u/s. 144 of the Act. In

response to the 144 notice, the assessee filed return of income declaring a total

income of Rs.6,85,205/-, which included remuneration of Rs.40,000/- from Gazaz

global Ad Vision Pvt. Ltd. and commission amounting to Rs.4,45,205/- from the

property deal with Shri Anil Kumar Sharma. On verification of the land deals

made by the assessee during the year, the Assessing Officer noticed that the

assessee had procured 4.53 acres of land during FY 2007-08 relating to AY 2008-

I.T.A. Nos.400&401/C/2015

Rs.1,05,000/- per cent for procurement of land to various sellers. It was further

claimed that the entire money amounting to Rs. 4,57,18,050/- received from Shri

Anil Kumar Sharma was paid to the sellers. However, it was noticed by the

Assessing Officer from the deed of documents in respect of these property deals

that only an amount of Rs.1,86,66,400/- was actually paid by the assessee to the

sellers. It was claimed by the assessee that he had paid sale consideration over

and above the value shown in the documents. Since the assessee could not

substantiate the claim with supporting evidences, the Assessing Officer brought

to assessment the amount of Rs.2,70,51,650/- as business profit of assessee

from the property transactions with Shri Anil Kumar Sharma.

purchased were registered in the name of Shri Anil Kumar Sharma and the one

property which was purchased in the name of the assessee was also

subsequently transferred to Shri Anil Kumar Sharma. According to the CIT(A), if

the assessee was a trader, the land would have been purchased in his name or

in the name of his near and dear or some person close to him. In this case, the

CIT(A) found that the properties have been purchased in the name of Shri Anil

Kumar Sharma from whom the money was received by the assessee. According

to the CIT(A), the person from whom money had come and the person in whose

name these properties had been registered is one and the same, namely Shri

I.T.A. Nos.400&401/C/2015

Anil Kumar Sharma, and therefore it goes to prove that the assessee was only

working as an agent and not as a trader as assumed by the Assessing Officer .

The CIT(A) relied on the judgment of the Hon’ble Apex Court in the case of

Durga Prasad More (82 ITR 540) wherein it was observed that – “High Court

should not ignore facts of life………need not put on blinkers and swallow the

story given without applying test of human probabilities. According to the

CIT(A) it is not possible for an agent to make super normal profits like a trader.

According to the CIT(A), in Kerala land titles are not registered at 100% of their

value and part of it was paid in cash to the sellers. The CIT(A) observed that 40

to 80% of actual sale consideration was given in cash to the sellers. Therefore,

considering that the money coming into the bank account of the assessee had

gone out completely before coming to the notice of the Department, the CIT(A)

estimated 50% of the money in the bank account as utilized for purchase of land

as ‘on money’ and reduced the addition of Rs.3,00,85,900/- (Rs.2,70,51,650 +

Rs.30,34,250) to Rs. 1,50,42,950/-.

that the CIT(A) had accepted the fact that the assessee is working as an agent in

buying and selling of properties. Even after accepting that the assessee is an

agent, in the real estate business, the CIT(A) sustained the addition at 50% of

the money in the bank account which has been utilized for purchase of land as

on-money. According to him, by any stretch of imagination, the assessee cannot

I.T.A. Nos.400&401/C/2015

get commission at 50% of the transaction value of the land and would get only a

meager amount of commission at 2% of its transaction value.

sustained the entire addition. However, he was very liberal in sustaining the

addition at only 50% of the money in the bank account.

had received an amount of Rs.4,57,18,050/- from various parties. Out of this,

the assessee had utilized an amount of Rs.,1,86,66,400/- . The Assessing Officer

brought to assessment the balance amount of Rs.2,70,51,650/- as business

profit of the assessee from the property transactions with the parties. Further,

the Assessing Officer observed that the assessee earned short term capital gain

of Rs.30,34,250/- on the sale of the landed property of 54.75 cents. The

Assessing Officer considered the amount of Rs.3,00,85,900/- as income of the

assessee. The CIT(A) considered the assessee as an agent in real estate

business and estimated the income of the assessee at 50% of the total money in

the bank account which is not correct. Once the CIT(A) has considered the

assessee as an agent in real estate business, the income of the assessee cannot

be estimated at 50% of the total transaction value. In our opinion, the income

of the assessee is to be considered at 2% of the total transaction value of

Rs.2,70,51,650/- at Rs. 45,41,033/- (i.e. after excluding short term capital gain).

I.T.A. Nos.400&401/C/2015

16.1 Further, the CIT(A) has considered the short term capital gain on sale of

54.75 cents of land at 50% of Rs.30,34,250/-. The Ld. AR submitted that the

assessee’s role was as an intermediary which was established by an agreement

entered by the assessee with Shri Anil Kumar Sharma. The Assessing Officer has

overlooked the explanation filed for establishing the circumstances under which

the land was acquired by the assessee. Later it was transferred to Shri Anil

Kumar Sharma. However, there was no discussion whatsoever on this issue by

the lower authorities. Hence, to compute the short term capital gain, one has to

go through all the relevant documents for acquiring and transferring of the

impugned capital asset and thereafter, it has to be decided. If the assessee has

actually acquired the property for himself, then only the question of computation

of capital gain arises in the hands of the assessee. Accordingly, we remit this

issue to the file of the Assessing Officer to re-examine the issue afresh and bring

to tax only short term capital gain, if so, after giving deduction of cost towards

acquisition and transfer of the said property. In other words, if the said property

was acquired on behalf of Shri Anil Kumar Sharma and thereafter transferred to

Shri Anil Kumar Sharma, then there cannot be any capital gain in the hands of

the assessee and income on this transaction is to be estimated at 2% on this

also. Accordingly, we direct the Assessing Officer to compute the income of the

assessee as above. Thus, this ground of appeal of the assessee is partly

allowed.

I.T.A. Nos.400&401/C/2015

partly allowed for statistical purposes and the appeal filed by the assessee in ITA

No. 401/Coch/2015 is partly allowed.

Order pronounced in the open Court on this 05 July, 2018.

sd/- sd/- ( GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Dated:05 July, 2018 GJ Copy to: 1. Shri Aju Abdurrahiman, “Greens”, Feroke, Petta, Kozhikode. 2. The Income Tax Officer, Ward-1(1), Kozhikode. 3. The Pr. Commissioner of Income-tax(Appeals), Kozhikode. 4. The Pr. Commissioner of Income-tax, Kozhikode. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin