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Before: Shri Amit Shukla & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the Revenue against the order of ld. CIT(A)- IX, New Delhi dated 24.02.2014 for the assessment year 2006-07 on the following effective ground :
1. Whether in the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs.15,35,62,500/- on account of transactions with ten parties held as bogus by the A.O., entirely relying on the submission of the assessee and completely ignoring the findings of the A.O. in the assessment order ?
The brief facts of the case are that the assessee is engaged in the business of real estate. The return of income was filed on 30.11.2006 declaring an income of Rs.6,29,11,938/-, which was processed u/s. 143(1) of the Act. Later on, the case was selected for scrutiny and the assessment was completed on 31.12.2008 u/s. 143(3) of the Act at an income of Rs.21,64,74,438/- thereby making additions and disallowances aggregating to Rs.15,35,62,500/-. As observed in the assessment order, the assessee company purchased agricultural land measuring 75.10 Bigha, from farmers at Jaipur for Rs.4,71 ,24,562/-. Subsequently, on 08.02.2005, the assessee entered into a development collaboration agreement with M/s Omaxe Ltd. with a condition that the assessee will get one plot (900 sq. yds.) per Bigha of land developed by Omaxe. In the agreement, there were some time limitations for completion of the project. But, before the expiry of the time limitation and completion of the project, the appellant transferred one plot of land to M/s. Supreme Ceramics Pvt. Ltd. on 04.05.2005 and some other plots which the assessee was supposed to receive from Omaxe on completion of the project, to nine other parties. The assessee sold the plot in advance on the basis of collaboration agreement with Omexe, before actually receiving the plots. Subsequently, there was delay in implementation of the project and complexities in getting the necessary approval. The purchasers of the plots went into arbitration claiming compensation from the assessee. After arbitration, the respondent assessee had a buyback agreement of the plots at the rate of Rs.3,500/- per sq. yds., as awarded by arbitrator. At the same time, the assessee entered into new terms and conditions with Omaxe by which Omaxe agreed to outright purchase of the entire plots at the rate of Rs.3,900/- per sq. yds. instead of giving developed plots as per earlier agreement. Accordingly, the assessee received Rs.26,36,01,000/- from Omaxe and paid Rs.21,49,87,500/- to all the parties. In this process the assessee gained Rs.12,32,15,570/-. The AO held the entire transaction as colorable device and disallowed the payment of Rs.15,35,62,500/- made to ten parties (M/s Supreme Ceramic, M/s Prime Quality, M/s Ram Devi Steel and seven other parties) as bogus payment.
The assessee assailed the assessment order in appeal before the ld. CIT(A), who after considering the submissions of the assessee and the remand report furnished by AO, allowed the appeal vide impugned order. Aggrieved, the Revenue is in appeal before the Tribunal.
The ld. DR submitted that the first year of the financial year ending is 2004-05 and the assessee has prepared balance sheet showing fixed asset of Rs.6,66,31,982/- and as per the schedule attached with the balance sheet only land was shown as fixed assets and the assessee has shown huge amount of current liabilities amounting to Rs.6,78,65,810/-. In the next financial year, the assessee converted its fixed asset into the stock in trade, but when it has converted its fixed asset into the stock in trade is not clear and further the assessee purchased land was included in the stock in trade. Prima facie, it appears that the assessee adopted this system to avoid capital gain tax. The assessee also made agreement for developing the land with Omaxe Ltd. And the agreement was made for the assets which are not in existence. He relied on the order of the AO and requested that the ld. CIT(A) has without rebutting the findings recorded by the assessing Officer allowed the appeal of the assessee whereas in the remand report the AO had clearly supported the assessment order. The ld. CIT(A) has co-terminus power as per section 250(4) but he did not utilize the same and merely relied on the submissions made by the assessee. Therefore, the appeal of the Revenue should be allowed.
None is present on behalf of the assessee despite sufficient notices sent to the assessee. A perusal of order sheet reveals that all the modes of service of notices were exhausted and thereafter the last notice for hearing has been served by affixture through the department. The affixture report is available on record. We, therefore, have no option but to decide the appeal of the Revenue exparte qua assessee. The findings reached by the AO in the assessment order read as under :
5.0 The Assessee has entered in to basically four set of documents with each party. Agreement of Sale (dated 04.05. 2005). Arbitration Agreement (30.07.2005), Arbitration Award (31.08.2005) and Buy Back Agreement (09.09.2005). The assessee was asked to provide copies of these four set in respect of each party. The assessee was forther asked to produce the Originals of these documents for the purpose of verification. 5.1 Details of documents submitted: The assessee was persistently through different letters and note sheet entries was requested to furnish copies of the documents on the basis of which the loss was being claimed because these documents were to be investigated for its genuineness. It is a matter of record that the copies of the documents were not furnished quickly and considerable time was taken for supplying even photocopies of the documents on the basis of which the loss was being claimed. The assessee failed to submit any documentation in respect of' Supreme Ceramics Ltd. . It may be mentioned here that though the assess has furnished documents executed with Prime Quality Construction but in response to summons from this office Prime Quality has denied any such documents having been executed. Similarly, the Directors of Ram Devi Steels, Tikkamgarh has also denied any such transaction. These three cases will be discussed separately in this order.
5.2 The assessee after providing the Photocopies of the documents argued that the settlement amount was paid through Cheque to all the parties, there is no occasion in such situation to doubt the transaction.
It is though being argued that the amount of respective gains to these parties is being paid through account payee cheque, it can not be lost sight that merely amount has been shown to be paid it does not become deductible unless the transaction is supported by the documents on the basis of which the liability has arisen. All the parties are showing that the amount has been paid by cheque but until unless the documents related to transaction resulting in to the claim of Loss to the assessee is proved beyond all reasonable doubts such loss can not be termed as (Revenue) Business loss liable for any deduction. It is being discussed in succeeding paragraphs as to how circumstances are pointing out conclusively that the transaction is a colourable transaction entered in to with a view to avoid taxes.
5.3 Original Documents not produced: The assessee out of ten parties has produced photocopies of documents in respect of nine only. In respect of these nine parties also despite repeated opportunity assessee failed to produce originals for verification. The production of original documents is very important because these documents can be put to verification and cross examination of witnesses.
In the entire assessment proceedings the Assessee did not disclose the circumstances preventing it from producing the Original Documents. No reason what so ever has been stated despite repeated opportunities given beginning from 21.11.2008, 27.11.2008 , 4.12.2008 and close of proceedings on 17.12.2008. In none of the written submissions the assessee has explained the circumstances which are preventing assessee from production of original documents. The assessee in letter dated 29.12.2008 stated that there was no need of such agreement but no reply was given as to where the original documents of the assessee are lying and what is preventing the assessee from production of the same.
Doubts about Genuineness of Documents produced: The photocopies produced by the assessee are unreliable because of the following reasons: 5.4 Difference in position of Signature of Parties: (a) In the course of assessment proceedings copies of agreements in respect of the following parties were obtained: (i) Sat yam Ferro Tech Ltd (ii) Shivam Iron & Steel Co. Ltd. (iii) Gangeshwari Metals Pvt. Ltd. (iv) Essance Investment & Finance consultant P Ltd.
On comparison of the documents sent by the parties with the similar documents submitted by the assessee, the first difference noted was that at the bottom of each page, assessee and representative of the buyer parties have put their signatures along with Stamp of the Company. But with open eyes it could be noticed that position of stamp and signature on both these documents was different. The document submitted by the assessee will show that the signatures have finished with in the stamp where as the document directly obtained from the parties would show that the signatures are over shooting the stamp. Such instances are recurring. The copies of only first page of the agreements with the aforesaid four parties are placed as Annexture-A of this order. It is expected that agreements available with both parties of transaction should be exact replica but they are not. It is a fact that Photocopies are unreliable and the credibility of document becomes extremely low.
The assessee was confronted with this discrepancy vide note sheet proceedings dated 4.12.2008 and in reply dated 11.12.2008 the following was submitted:
With reference to difference in places where stamps/ signatures of parties are affixed in the photocopies of agreements of 4 parties noticed by you. it is submitted that the generally one copy oi agreement etc. are prepared on stamp paper. Sometimes the other party also desires copy with original signatures for their safety. Hence in such cases we take out one copy before signatures on the original documents and the get both copies signed after putting stamps of the company. One copy is kept by each party. Hence, there might be difference in the place of signatures on both the copies.
The argument above is not acceptable if two copies were made why not even single original is available for showing it to the Department. As mentioned below, the assessee has taken back its copy and suddenly not even one original is available. In all the Buy Back Agreements dated 06.09.2005, it is written that the respective Parties will hand over all the documents relating to this land deal to the assessee on receipt of payment. But now the assessee does not have even a single original where as it claims that there were two ,copies. This leads to an irresistible conclusion that such documents were generated to manufacture a claim of loss from the transaction.
(b) At the end page of each Agreement the parties sign as a token of document being executed in presence of two witnesses. However invariably the documents obtained from the parties would show only one witness where as documents submitted by the assessee would show two witnesses. This would prove that the argument of the assessee above is not correct because even if the photocopy is taken at an earlier occasion the buyer will ensure that at least copy is complete in all respects. (c ) Notarisation: The documents furnished by the assessee are mostly notarised by Archana Sharma, Notary Public But none of the documents submitted by the parties directly are notarised. The assessee in reply dated 11.12.2008 again advanced the same reason that the Assessee got its copy notarised where as the buyer kept it like that without notarisation.
6.3 The above said alleged notarised of documents was put to Mrs. Archana Sharma, Notary Public for verification whether she has notarised these documents. In her statement dated 10.12.2008, she deposed that original documents must be shown to her before she could verify her signatures on photocopy. The assessee failed to furnish original documents which could be put to Mrs. Archana Sharma. Thus, even the notarization could not be cross verified without original being produced. It was further also stated by the Notary Public in her statement that as per practice and requirement of law, she always put a register number on each page of the document, which is notarized by him, since the photocopies shown to her did not contain any register number, it is less likely that these documents were notarized by her. But before giving any final conclusion, she wanted original document. Her statutory register also did not contain mention of any such document having notarized on the dates. In such circumstances, the suggestive conclusion of the assessee in letter dated 29.12.2008 is incorrect because the notary public demanded originals in her statement which assessee failed to produce, therefore, drawing conclusion that she has deposed in favour of the assessee. In fact, it was her view that unless she sees the original, she cannot finally comment upon the document. 6.4. It is mentioned by the assessee in reply dated 29.12.2008 that this office has summoned the stamp paper vendor to verify the stamp paper used in all the agreements. It is incorrect because, in none of the cases, the assessee produced original agreement for verification, however, from one party, namely, Shivam Iron & Steel Company Ltd., the parties sent photocopies even of the back side of stamp paper bearing No. 398773 dated 10.06.2005, 398761 dated 09.04.2005 and undated stamp number 398786. In order to verify the daes of these papers, the stamp paper vendor was asked to furnish these details on 28.11.2008 but he expressed his inability by stating that the registers are deposited with the Revenue authorities. It was only in one case, the back side details were available. In rest of the cases, no such details were available. The purchase date of stamp was being examined to cross verify the purchase of stamp it in no way will lend support to the case of the assessee because the stamp papers used by the assessee in all the ten parties case bear very varied numbers as per details below :
Sale Agreement Arbitration Buy Back Arbitration 04.05.05 Agreement 06.09.05 Award 30.07.05 31.08.05 --------------- -------------- ------------- ------------ Gangeshwari Metals 889013 889031 889022 989270 T & T Metals 889006 889024 889015 989262 Kumardhubi Steel 889011 889028 450313 989268 Essance Investment 889014 889032 889023 941575 Ram Devi Steel 889009 889026 450314 989266 Shivam Iron 398761 398773 398786 989264 Supreme Ceramics Jai Jagdamba Malleable 889012 889029 450316 989269 Prime Quality Construction 536272 536275 536277 989267 Satyam Ferro Tech 889008 889025 889017 989265 A close look of the pattern above shows that for Gangeshwari Metals, the assessee utilized stamp number 889031 on whereas stamp number 889022 was used later on 06.09.2005. There are many such inconsistencies regarding use of stamp paper. The agreements entered on same date have different stamp series for different parties. This may not be suggestive of any inferences, but it raises certain suspicion about the transaction because a series of stamp paper is forming a particular patter. Advance paid in cash and no transaction in bank: 7.1. It may be noted that the transaction with all the ten parties sarted with a cash of Rs.5,00,000/- as advance, in no case cheque was paid so that any credibility could be attributed to the transaction. It is further surprising that in May, 2005, there was agreement of sale with cash as advance and the agreement was to be honoured by July 2005 and in between 4th May, 2005 ands 31.07.2005. When the agreement was to be executed, there was no banking transaction. There was no exchange f cheque which was deposited in bank by the assessee, it goes against the theory of assessee that Real Estate market was volatile and it was protecting its interests. The agreement to sell only talks about post dated cheques which were returned so quickly when alleged dispute arose. The arrangement is such that right from beginning of transaction on 4th May 2005 till February 2006, there is no banking transaction which could lend credence to transaction. The first banking transaction is on 24.02.2006 when the cheque of settled amount was encashed from the Bank account of the assessee for M/S Gangeshwari Metals Pvt. Ltd. It means that the assessee was very particular in putting pay back of settlement amount through banking channel; where as not even a single transaction with any of the ten parties was through banking Channel prior to that.
7.2 Cash Book of the Assessee: It may be mentioned that the assessee had to show that it carried cash in hand from 04.05.2005. All the ten parties allegedly paid about 47 lakhs as Cash as an advance on 4th May 2005 and it became part of cash in hand. This cash in hand continued with the assesee till 31 st March 2006 as on closing date the cash in hand was Rs. 55,77,782/- as against Rs. 10,87,250/- as on 31.03.2005.
Advertisement: 8. It may be noticed that the purchasing parties belong to cities like Giridhi, Ranchi ,Calcutta, Delhi, Ghaziabad, Tikkamgarh and Jhansi. In absence of any advertisement the assessee failed to produce any evidence which could show how such geographically diverse person got interested in to a land which is undeveloped and is at Jaipur. It is not out of place to mention that the colonisers are not permitted under law to make booking and advertisement before it is authorised by Development Authority. The assessee has chosen people with a particular design because passing of huge gains in their hands results in no tax liability which is discussed in succeeding paragraph.
Some of the parties in their statement deposed that the purpose of buying land at Jaipur was to set up factory unit at the land agreed for purchase, however, the assessee has not disclosed to the buyers that what they were buying were Residential land if developed, otherwise, if Change of Land use is not permitted by State of Rajasthan, it can only be used for Agriculture purposes. In such circumstances, it devolves that every body was interested in paper transaction and the transaction is a facade behind which nothing took place in reality. No Tax Liability in hand of other party: 9.0 It may be noticed that despite having received huge gains on the articulated transaction, even the other party has paid no tax or very negligible tax. The colourable transaction has been entered in to with a view to evade tax in all hands. The details of profit and tax paid by the respective buyers are as under:
Profit as per Profit from Returned Tax Paid company MEK Income P&L a/c --------------- -------------- ------------ ------------- Gangeshwari Metals (211441) 1,23,75,000 Nil Nil T & T Metals 3,75,647 22,50,000 3,98,570 8132 Kumardhubi Steel 20,80,712 95,62,500 nil Nil Essance Investment (51383) 90,00,000 7,88,370 4000 Ram Devi Steel 1,35,00,000 Denied the transaction Shivam Iron 4,05,00,000 73,35,283 Tax paid Supreme Ceramics 2066014 3,03,75,000 6,60,824 Nil Jai Jagdamba Malleable 78,75,000 Nil Prime Quality Construction 547769 1,80,00,000 6,34,286 Nil Satyam Ferro Tech 1,01,00,000 (3696670) Nil
The information about the tax paid by the aforesaid parties suggest that only those parties have been selected as buyers which could due to operational losses /carry forward business losses, absorb huge amounts of gains. It may be mentioned all the respective parties have shown these receipts as Business Income and after setting of it with the current operational losses or carry forward losses, no tax liability has arisen. None of the parties has shown it to be Capital Gain despite the fact that the profit is arising out of capital transaction. It can not be true that all the buyers were also buying the land as stock in trade. The interest of the other party in taking the gain was that in few parties' case, the Balance sheet was reflecting negative net worth and such an arrangement supporting the balance sheet was in their business interest at no expense of tax. The assessee company has gone all over the country in Shopping of Loss from the above parties by way of the aforesaid transaction.
10.0 The nature of transaction as above is such that the assessee company has entered into transaction of sale of the product (developed land) which has not come in to existence. The agreement to sell a contingent product is always with an intention to either honour the commitment if the product comes in to existence or settle the difference if the contingency does not result in to product. The assessee company if genuinely entered into agreement to sell a future product, if such product does not comes in to existence; the only course of action left with the assessee is to settle the difference. Such a transaction is some what akin to Speculative transaction and any loss arising out of such a speculative transaction can not be set off against the real business profits, which the assessee has done. Colourable Device: 11.0 It has been recognised by Hon'ble Supreme Court in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148, in which it has been held that even if the transaction is genuine and even if it is actually acted upon, but if the transaction is entered into with the intention of tax avoidance. then the transaction would constitute a colourable device. That the courts are now concerned, not merely with the genuineness of a transaction, but with the intended effect of the transaction on the fiscal purpose. That, the true principle in the case of W. T. Ramsay [1981] 2 WLR 449 (HL) was that one must consider fiscal consequences of a pre-planned series of transactions and one has not to dissect the scheme and consider individual stages seperately. This judgment squarely applies to the case in hand . Whether Assessee was authorised to enter in to any such agreement:
12:0 It is mentioned above that the assessee has entered in to a collaboration agreement with Omaxe which in turn applied to Jaipur Development Authority (JDA) for granting necessary approval to colonise Omaxe City on the land. The procedure in this regard is that after checking the correctness of the application of joint collaborators and having been satisfied the ownership of respective parties, JDA passes an order under section 92B of Rajastahan Land Revenue Act directing local revenue authority to transfer the land ownership in the name of Jaipur Development Authority. The assessee ceased to have any right in the said Agriculture land which has been relinquished in favour of collaboration and eventually JDA. In such circumstances, the assessee was fully aware that there is no right vested in it which it could sell as on 4th May 2005. The assessee had inalienable right to receive developed area from Omaxe such right emanating from contract can not be further alienated. The assessee did not have any intention of such sale but since knew that the arrangement is being made to reduce its tax liability, therefore, confidently entered in to a paper transaction which was only with an intention to reduce tax liability.
Transaction with Prime Quality Constructions Pvt. Ltd. 13.1 The assessee company initially stated that the documents in respect of Prime Quality Construction are not traceable but in reply dated 11.12.2008 the photocopies of documents were produced. It is worthwhile to mention that the assessee was confronted that Prime Quality in letter dated 28.11.2008 denied any Agreement having been executed. Prime Quality confirmed the transaction in its own terms that two individuals Sourav Malhotra (for her mother Neelam Malhotra) and Gaurav Nayyar were the persons who transacted with MEK for purchase of plotted area. The advance payment of Rs. Five lakhs was made by these persons after allegedly withdrawing amounts from their individual bank accounts and not from the company Prime Quality Constructions Pvt. Ltd . No Agreement was entered in to by the parties. Mr. Gaurav and Mrs. Neelam Malhotra became Directors of the company in January 2006. It is further stated in the letter that after persuasion MEK Developer has started paying higher compensation on account of settlement arrived.
13.2 The assessee has produced same set of four documents Agreement of sale, Arbitration and buy back, allegedly entered in to by Sh. Bijay Singh Director of Prime Quality Consultatnts Pvt. Ltd. It is trite that the originals were not produced for verification. But in this case one party denies the documents.
13.3 In view of the inconsistency in the stand the assessee and Prime Quality the fact was confronted to the assessee vide order sheet proceedings dated 14. 12.2008 (on a page) apprising the facts that the payment is coming from individuals and the directors are saying no agreement was entered in to only after persuasion differential amount was settled. In response to the above the assessee vide reply dated 11.12.2008 submitted that the assessee is not concerned about as to how the other party manages its affairs. No reply has been given as to how the assessee claims that there was an Agreement when the other party deposes that there was no Agreement. It is the primary burden upon assessee to prove the contention raised by it when it is confronted with a fact that the other person has denied execution of any document. The assessee has failed to discharge its burden of proof and merely relied upon photocopies of the documents and cheque payments. The claim is not allowable in view of refusal of any documents executed by the other party.
13.4 In similar circumstances, in the statement of Sh. Alok Aggarwal, Director of Ram Devi Steel P Ltd. Tikamgarh dated 02.12.2008, the Director denied of having any transaction with the assessee company but since these papers were received towards the close of Assessment proceedings, were not confronted to the assessee company for response. The copies of agreement submitted by the assessee in respect of this buyer are allegedly signed by Sh Amit Aggarwal Director. It is not ascertainable as to Sh. Amit was holding any position in the company at the relevant point of time. The original papers of this transaction are not produced and available which could be put back to Sh. Alok Aggarwal for cross examination and ascertaining the truth. The assessee has in none of the case provided original papers.
13.5 In both the above cases even though the photocopies of agreements executed by the buyers have been produced but these are not beyond any doubts in view of factual inconsistencies as mentioned above. The assessee is claiming business loss on these documents; the assessee must prove transaction beyond reasonable doubt.
Transaction with Supreme Ceramics Limited 14.1 The version of the assessee company regarding transaction with this buyer is akin to all the remaining nine parties, i.e. on 04.05.2005 there was agreement of sale for 12150 sq. yds of developed land, there was dispute and Arbitration Agreement (30.07.2005), Arbitration Award and finally Buy Back agreement on 06.09.2005. In all though the proceedings the assessee company maintained that the documents in respect of Supreme Ceramics are not traceable. Not even Photocopies were produced . In final reply dated 11.12.2008 also the assessee maintained a position that the original documents are not traceable and thus can not be produced.
14.2 Supreme Ceramics in letter dated 02.12.2008 submitted one important departure from the stand of the assessee that the original Agreements etc. were cancelled and returned back to the said company after the settlement of our account with them. In this letter it was also disclosed that the transaction was also verified by Addl. Director ofIncome Tax, (Inv.), Ghaziabad vide summons dated 15.07.2007.
14.3 The file relating to the proceedings before Addl. Director of Income Tax, (Inv.), Ghaziabad was perused. In that file there were extensive enquiries regarding the practise of providing accommodation entries by Suprme Ceramics Ltd. In those proceedings, the investigation unit has concluded that Supreme Ceramics was a loss making concern and involved in providing accommodation entries to number of parties all over country through its bank account. Since the payment of MEK Developer has also been paid to Supreme Ceramics through Bank, therefore, Investigation unit Ghaziabad issued summons to Mek developer in those proceedings. The assessee company has submitted certain documents in those proceedings in its letter dated 13.06.2007 about this transaction and a statement of Sh. S. Bhattacharya. Director, of the assessee company recorded on 15.06.2007, all the material is relevant for the present case.
14.4 In the above proceedings the assessee company has produced a photocopy of two agreements with Supreme Ceramics Ltd. One document is Agreement of Sale dated 04.05.2005 and another document is Cancellation of Agreement dated 23.06.2005. A copy of these documents/ statement is placed as Annexture-B of this order.
14.5 In the Agreement of Sale the assessee has agreed to sell 13.5 Bighas of Agriculture land situated at tehsil Sanganare Dist. Jaipur at a price of Rs. 9.00 Lakhs per Bigha. An advance of Rs. Five lakhs was shown to have been taken. The second agreement of cancellation dated 27.06.2005 is regarding buy back of the same Land. It is surprising that both these agreements are after 08.02.2005 on which date the assessee has entered in to collaboration agreement with Omaxe. But in these agreements, there is no mention of any agreement with Omaxe. The land which has been allegedly sold to Supreme Ceramics Ltd. was already put in collaboration agreement. It is not understood how vide agreement dated 04.05.2005 the same was sold to Supreme Ceramics and later on agreement was cancelled also on 27.06.2005 . The assessee is generating paper agreements of Sale and purchase the way it suits its taxation management. These are the documents which were submitted in a parallel proceedings before Income Tax Department.
14.6 . It is worthwhile to mention that statement of Sh. S. Bhattacharya, Director, of the assessee company was also recorded 15.06.2007 by Addl. DIT, Ghaziabad on 15.06.2007 (copy enclosed) and the following extracts are relevant in present context: (a) Q.3 Please produce copy of agreement? The copy of agreement is produced and filed in the submission dated 13/06/2017. Q.4 What was the exact transaction? Our company agreed to sell 13.5 Bighas of agricl. Land on Jaipur-Ajmer High way to M/s Supreme ceramics ltd. In the month of April @ Rs. 9.00 lacs Bigha. The agreement was already executed on 4/5/2005 for a total consideration of Rs. 121.50 lacs. (b) Q.
When you are in real estate business & bought so much land why did you sale the land to Supreme Ceramics Ltd. There was a notification by Jaipur Development Authority about drastic increase in the conversion charges from Agriculture to Non agriculture Land. Since I anticipated no much profits, I started selling the land so that I could earn some profits. The lands were purchased for Rs. 4-5 lacs/ Bigha and still I was getting some profits. Hence, I started selling. (c) Q.11. Why did you buy the same land from supreme ceramics ltd. & when? Our co. bought back the land as per cancellation agreement dated 23.06.2005 for a price of Rs. 31.5 lacs 1 Bigha. The Omaxe Group people approached me to buy my other land in the same area. The Omaxe group was willing to offer me price of Rs. 35 to 40 lacs/ Bigha By that time the prices rose very high. The projects of Omaxe group were approved by the Jaipur Development Authority. Since that land belonging to Supreme Ceramics was sold by us only. I approached Mr. Sharad Lahoti to sale the land to us for which he agreed when we offered the price of Rs. 31.5 lac per Bigha. (d) Q16 Did you sell the other land also to other person around the time of sale with Supreme Ceramics Ltd. ?
Yes, about 2 to 3 parties.
(e) Q 17. Did you sell the land to Omaxe group as you have stated 'to do so’ Yes, I sold the entire land to Omaxe group in September 2005. If you desire. I can produce the details of Registry of land sold. I have brought the ledger & Books of co. you can verify.
14.7 It is needless to mention that the aforesaid aspect of transaction has been disclosed by the assessee company in a much prior investigation proceedings different from the present Assessment Proceedings. From the above, it is clear that what assessee agreed to sell to Supreme Ceramics was Agriculture land and not the developed land from Omaxe. In fact in the entire statement the assessee did not make any mention that it has entered into a Collaboration Agreement with Omaxe Group as ' early as February 2005. In the above statement assessee takes an argument that Omaxe had already received the approvals before assessee bought back from Supreme Ceramics Ltd. Second noteworthy aspect is that by the time assessee had sold its land at Jaipur only to 2 to 3 persons. However in the assessment proceedings the land has been shown to have sold to ten parties. With the risk of repetition, it is mentioned here that the assessee had already transferred the entire land to Omaxe Group in February 2005 and in the present Assessment proceedings, the assessee vide reply dated 04.12.2008 furnished copy of POA executed in favour of Omaxe dated 8th February 2005.
14.8 The transaction with Supreme Ceramics becomes paper transaction, because the assessee can not enter in to transfer of the same land to Collaboration and there after to Supreme Ceramics Ltd. Any illegal activity and any such agreement which is against law can not be taken cognisance in any proceedings. The effect of such transaction is also to be ignored and any loss arising by selling and buying back will be Loss not allowable as a business loss. The assessee company is exercising fiduciary control over the parties and agreements are generated on paper without there being any real transaction.
Conclusion: 15.1 The case of the assessee is finally concluded by it in letter dated 17.12.2008 which inter alia takes the following arguments: (a) All the ten parties have confirmed the transactions, it is evident from their respective income tax records/ Audited accounts. The same transaction can not be taxed twice.
(b ) The decision of selling to ten parties was taken by the assessee since Omaxe was not sticking to the time lines and the assessee had already entered in to Sale commitment which it was not able to honour. In such circumstances the business interest could best be protected by reducing the loss and assesee entered in to Buy Back Agreements. (c) The transaction still resulted in profit of Rs. 2.70 Crores. (d) The transaction of paying back is by Cheque. (e) The conduct of business should be left to the Businessman.
11.2 However, before the above aspects are touched the following noteworthy features need to be highlighted. I. In no case the original documents were produced so that its genuineness could be established and these are put to strict test of time. Il. There were discrepancies pointed out in Photocopies and in the case of Supreme Ceramics the entire gamut of the transaction is different.
Now, the issues raised by the assessee are touched upon:
(a) In this case the transaction of payment back is through banking Channel and there is not even a single banking transaction prior to 24.02.2006, thus it is matter of record that only pay back is through banking which is a collusive transaction. (b) All the parties have confirmed the transactions is also an arrangement because such an arrangement is with a motive to reduce the tax liability of the assessee company and at the same time ensuring that the other person is also not visited with the consequences of tax (c) The decision of sale and buy back was taken because the Omaxe was not sticking to time lines is an after thought, because before Addl. Director Investigation Ghaziabad assessee has stated that company has sold land to 2 to 3 parties and now suddenly the number of parties is ten. The entire distress selling concept is generated on paper. The statement before Addl. DIT was on 15.06.2007 and by that time all the ten parties have settled their amounts and received the compensation. The assessee did not disclose these facts in the statement and has not come clean. if true agreement with Supreme Ceramics Ltd. submitted by the assessee is seen, it transpires that the assessee has agreed to sell land to Omaxe and at that point only Supreme Ceramics was to be bought back because as per statement of the Director of the assessee before Addl DIT, Ghaziabad at that point some other land was sold to two to three parties. And now suddenly in the Assessment proceedings the assessee has raised nine more parties. The transaction with the remaining parties is an after thought. (q,} In so far as confirmation by all the parties is concerned it has been established above that the transaction did suit both the parties and, therefore, it is being held that the transaction is only a paper transaction and not a real transaction. The transaction has started in Banking Channel only after the payment of buy back was to be started because, these payments were the pillars of the transaction of loss. It can not be lost sight that prior to this there is no banking transaction. The transaction with Supreme Ceramics is in different format. And in the statement dated 15.06.2007, the Director had confirmed only transactions with two to three parties, where as by that time money has started going back to these parties from the bank account. The assessee company at that time was not in a position to face further enquiry, therefore, avoided by saying an evasive reply.
11.3 In view of the aforesaid discussion the following additions are being made to the taxable income of the assessee company and ten transactions are categorised into the following three: (a) The transaction of Supreme Ceramics Ltd., is not substantiated by the assessee company and the same property can not be sold twice, and for the elaborated discussion in paragraph above. (b) The transaction in respect of Prime Quality and Ram Devi Steel has been denied and for all other reasons mentioned above not substantiated being a business transaction.
(c) The remaining transactions in respect of the balance seven parties held to be paper transactions and the loss arising out of these transactions can not be adjusted against the business income of the assessee company. I am also satisfied that the assessee has furnished inaccurate particular in respect of all the three transactions above and therefore liable for penalty proceedings u/s 271(1)© of Income Tax Act. 12.0 The income of the assessee with the above remarks is calculated as under: Business Profit as per Return of Income 6,29,11,938 Add (i) As discussed in para above for Supreme Ceramics 3,03,75,000 3,15,00,000 (ii) As discussed in para above for Prime Quality and Ram Devi Steel As discussed in para above for the balance seven parties 9,16,87,500 (iii) Total Income 21,64,74,438 Assessed at an income of Rs. 21,64,74,438/- as per detail given above. Issue demand notice and challan. Give credit for prepaid taxes. Charge interest u/s 234B, 234C & 234D of the I T Act, 1961.”
Having considered the submissions of the ld. DR in the light of material available on record, we find that the ld. CIT(A) was not justified in deleting the addition by placing reliance on the submissions of the assessee. No paper book is available on record either from the side of assessee or the Revenue. It is notable that the Assessing Officer has labelled grave objections against the genuineness of transactions in the assessment order, but the ld. CIT(A) has not considered the same in right perspective. Once, the ld. CIT(A) called for the remand report and the AO in response relied on the findings reached by the AO in the assessment order, it was incumbent upon the ld. CIT(A) to rebut the findings of AO completely while deleting the impugned addition, which he failed to do. It is pertinent to note that none of the agreements filed by the assessee before the AO was registered agreement, rather, the same were notorized. The Notary, on enquiry also admitted to have no entry in her notary register. This enquiry result, keeping in view the nature of documents filed, in our opinion, goes to strengthen the objection of the AO regarding the authenticity and genuineness of the agreements. The ld. CIT(A) appears to have discarded the objections of the AO simply saying that had the AO any doubt on the agreements, he could have obtain the same from the office of registrar of properties. However, once the agreements were admittedly not registered with Registrar of properties, we fail to understand, how such documents/agreements could be obtained from the officer of Registrar of property. We, therefore, do not support this finding of the ld. CIT(A).
On perusal of the facts narrated by the AO, the whole series of facts go to doubt the transactions. The assessee enters into a collaboration agreement with M/s. Omaxe Ltd on 08.02.2005, as noted above for development of assessee’s land. In this agreement, there were some time limitations for completion of the project. But, before the expiry of the time limitation and completion of the project, the appellant transferred one plot of land to M/s. Supreme Ceramics Pvt. Ltd. on 04.05.2005 and some other plots which the assessee was supposed to receive from Omaxe on completion of the project, to nine other parties. The assessee sold the plot in advance on the basis of collaboration agreement with Omexe, before actually receiving the plots. In such situation, if the collaboration agreement is taken to be correct, then the assessee had no right to transfer the plots to other parties before their development or agreed expiry of the development project undertaken by Omaxe. This fact itself goes to support the objections of the AO on the genuineness of transaction, but the ld. CIT(A) has not considered this aspect of the case properly, particularly when the agreements entered with other parties were neither registered nor were their original copy was placed before the AO.
It is also notable that as per AO once two of the parties, namely, M/s. Prime Quality Construction and Ram Devi Steels Tikamgarh in response to summons sent to them denied to have made any transaction or execution of any such agreement with the assessee in response to the summons issued by AO to them. The ld. CIT(A) has also not considered this vital objection of the AO which has direct bearing on the veracity of assessee’s version. Further we observe that the agreements made with 10 parties do neither contain any specification of developed land nor Khasra Number of agricultural land, which is necessary to mention in the sale agreement. The nature of such agreements, in our opinion, has rightly led the Assessing Officer to doubt the genuineness of the transaction. In fact, the whole series of agreements, i.e., collaboration agreement, sale agreements with 10 parties, buy back agreements with the same parties at the rate much higher than the rate at which the land was sold. We further observe that the Assessing Officer has done massive exercise for completing the assessment proceedings and many opportunities were granted to the assessee for production of documents as required by him, but he did not produce some requisite documents, which were necessary. In view of all these adverse facts, the decisions referred to by the ld. CIT(A) in the impugned order do not render any help to the assessee, having no parity of facts involved in the present case.
9. In view of what has been discussed above, we are not inclined to support the impugned order. Accordingly, the appeal of the Revenue is found to have merits and deserves to be allowed.
In the result, the appeal is allowed. Order pronounced in the open court on 01.10.2018