ITO, NEW DELHI vs. M/S SAMAK NATURE RESORTS & SPA P. LTD., NEW DELHI

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ITA 29/DEL/2010Status: DisposedITAT Delhi07 October 2016AY 2006-079 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the order of the First Appellate Authority and dismissed the Revenue's appeal. The Tribunal found that the AO's presumption that the assessee was not in possession of sufficient cash for investments was incorrect. They noted that the AO failed to demonstrate how any money was routed in the manner presumed by him. The Tribunal agreed with the CIT(A) that all transactions made by the assessee company and its directors were in the normal course and appeared to have been fully explained. Crucially, the Tribunal held that the transfer of land was completed on 23.12.2004, based on an agreement to sell executed on that date and the transfer of physical possession, in part performance of section 53A of the Transfer of Property Act. This made the assessee company the owner of the land, rendering the execution of sale deeds in May 2006 of no consequence for the impugned AY. The Tribunal also found that the land was transferred at rates exceeding circle rates, supporting the claim that expenditure was over and above the land's value. The sale of plants was also found to be related to the period prior to the impugned AY or supported by audited accounts and evidence. The AO's rejection of the assessee's statements and sale bills was found to be without cogent reasons. Expenses incurred by the directors were also supported by evidence. Therefore, the CIT(A)'s deletion of additions was approved.

What were the facts?

The Revenue is in appeal against the order of the CIT(A) for Assessment Year 2006-07. The assessee, a company engaged in developing nature resorts, filed a return declaring a loss. The Assessing Officer (AO) completed assessment under section 143(3), assessing total income at Rs. 3,62,84,509/-. The AO made additions, including 10% of gross receipts as net profit, and Rs. 3,37,44,820/- and Rs. 23,35,763/- representing increase in share capital and share application money received, treating them as income from undisclosed sources under section 68. The First Appellate Authority (CIT(A)) deleted these additions. The Revenue's appeal challenges the deletion of additions made under section 68.

What were the issues?

1. Whether the Ld. CIT(A) erred in law and facts by deleting the addition of Rs. 3,37,44,820/- and Rs. 23,35,763/- made by the AO under section 68 of the Income Tax Act, 1961. Assessee's contentions: The assessee contended that the transactions relating to the sale of agricultural land and plantation developed on it should be segregated. They argued that share application money of Rs. 27,99,418/- and Rs. 27,51,012/- was received from Promoter Directors Shri KC Sharma and Shri Atul Vashisht, respectively, during FY 2004-05 (relevant to AY 2005-06), and shares were allotted against these amounts during FY 2005-06 (relevant to AY 2006-07). They also submitted that personal land and plants were sold by the Promoter Directors to the assessee company, and shares were allotted against such transfers, supported by bills, vouchers, and other evidence. The sale transactions were at rates exceeding circle rates, and Promoter Directors had paid capital gains. The agreement to sell land was executed on 23.12.2004, and physical possession was handed over, making the company the owner as per section 2(47)(v) read with section 53A of the Transfer of Property Act. Revenue's contentions: The Revenue relied on the AO's order, arguing that under the Transfer of Property Act, immovable property includes land, benefits arising from land, and plants attached to the land. They contended that the Directors' expenditure on growing plants on their land could not be treated as share application money, especially as it was above market rates. The Revenue also questioned whether the assessee could demonstrate storage of such plants.

Which sections of the Income-tax Act were involved?

Section 68,Section 143(3),Section 2(47)(v),Section 53A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCHES: G NEW DELHI

Before: SHRI J.SUDHAKAR REDDY, A.M. & SHRI C.M. GARG, J.M.

For Appellant: Smt. Anima Barnwal, Sr.D.R

PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER This is an appeal filed by the Revenue directed against the order of the Ld.Commissioner of Income Tax(Appeals)-X, New Delhi dated 06.10.2009 pertaining to the Assessment Year (A.Y.) 2006-07.

2.

Facts in brief:- The assessee is a company and is engaged in developing Nature Resorts and Natural Diversity Village at Damdama, Tehsil Sohna, Gurgaon. It filed its return of income on 28.11.2006, declaring total income at a loss of Rs.44,022/-. The Assessing Officer (hereinafter referred to as the AO) completed assessment u/s 143(3) on 30.12.2008 , assessing the total income at Rs.3,62,84,509/- inter alia making an addition of 10% of gross receipts as net profit and further an amount of Rs.3,37,44,820/- being increase in share capital and Rs.23,35,763/- being share application money

1.

Samak Nature Resorts & SPA P.Ltd. (Now known as Samak Dhoot Resorts & Spa Pvt.Ltd.) received during the year, as income from undisclosed sources u/s 68 of the Act. 2.1. On appeal the First Appellate Authority deleted the addition.

2.2. Aggrieved, the Revenue is in appeal before us on the following grounds . “1. Ld.CIT(A) erred in law and on facts and circumstances of the case, in deleting the addition of Rs.3,37,44,820/- and Rs.23,35,763/- made by the AO u/s 68 of the Income Tax Act.

2. The appellant craves to amend, modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal.”

3. We have heard Shri RK Mehra, the Ld.Counsel for the assessee and Smt. Anima Barnwal, Ld.Sr.D.R. on behalf of the Revenue.

4. On a careful consideration of the facts and circumstances of the case, perusal of material on record, orders of lower authorities, case laws cited, we hold as follows.

5. The sole issue of dispute before us is addition made u/s 68 of the Act. The facts leading to this addition are brought out by the A.O. in his order which is extracted for ready reference. “4. As per the submissions of the AR of the assessee company and on collation of the data on record, the pending share application deposit as on 31-03-2006 is as under : As on 01.04.2005 Less shares As on 31.3.2006 allotted by trfn of closing balance in personal a/c K.C. Sharma 27,99,415 27,99,410 14,59,223 Atul Vashisth 27,51,012 27,51,010 8,76,540 Total: 23,35,763

Samak Nature Resorts & SPA P.Ltd. (Now known as Samak Dhoot Resorts & Spa Pvt.Ltd.) 5. As per the submissions of the AR of the assessee company and on collation of the data on record, the pending share application deposit as on 31-03-2006 is as under :

As on Against tr. Against cost Against Against 01.04.05 From of cost of credit share agricultural plants balance of application land tr. sold Samak a/c during the Farms & year Nursery as on 31.3.05 KC Sharma 20,000 27,99,410 19,20,000 65,00,000 39,79,900 1,52,19,310 Atul Vashisth 40,000 27,51,010 1,57,94,500 - - 1,85,85,510 Shama 40,000 - - - - 40,000 Vashisth Total: 3,38,44,820

6.

The assessee company has claimed that in lieu of agricultural land transferred to them by the Directors during the financial year 2005-06 relevant to the AY 2006-07 as under; (a) By Shri Kuber Chand Sharma worth Rs. 19,20,000/- (b) By Shri Atul Vashisth worth Rs. 1,57,94,500/- shares of equivalent amounts were allotted in the names of the above Directors. Perusal of these Sale Deeds reveals that:

Date of execution of Location of land Sale consideration Mode of payment – sale deed (RS.) Rs. Sale by Sh.KC Sharma: Rs.10 lakhs vide Abhaypur tehsil, ch.no. 240163 dt. 15.5.2006 Sohna 10,00,000 15.5.2006. 19.5.2006 Abhaypur tehsil, 10,00,000 Shares to be issued Sohna in lieu Sale by Sh.Atul Vashisth: 19.05.2006 Abhaypur tehsil, 1,00,58,500 Shares to be issued Sohna in lieu 19.5.2006 Mauja, Damdama 57,36,000 Shares to be issued in lieu

Samak Nature Resorts & SPA P.Ltd. (Now known as Samak Dhoot Resorts & Spa Pvt.Ltd.) It is therefore apparent that shares worth Rs. 19,20,000/- was allotted to Shri Kuber Chand Sharma eventhough only Rs. 3,50,000/- was payable to him. Further, while the Sale Deeds were executed during May 2006 i.e. . Financial year 2006-07 relevant to the assessment year 2007-08, shares were allotted to the two Directors during April 2005 ie. Finanacial year 2005-06 relevant to the assessment year 2006-07. Therefore, it is apparent that land sold by the Directors to the assessee company during the FY 2006-07 can not be the consideration for which shares were allotted to them during the FY 2005-06.

7.

Vide questionnaire dated 18-08-2008 the assessee company was required to show cause why it should not held that the shares worth Rs. 1,77,14,500/- allotted to the two Directors were in lieu of cash receipts of equivalent amount from them. Further the assessee company was required to show cause why the provisions of section 68 of the Income Tax Act should not be attracted in view of unexplained cash receipts. Pre-incorporation Project development expenses incurred by promoter Directors (a) Rs.27,99,415/- by Shri Kuber Chand Sharma Mainly for building of civil structure, land leveling, soil deposit, manure, plantation, labour payment, horticulture (b) Rs. 27,51,012/- by Shri Atul Vashisth Mainly for civil construction, borewell installation gardener’s payments etc. was transferred to their respective share application money a/c during FY 2004-05 and against which shares were allotted during the Finanacial year 2005-06 relevant to the assessment year 2006-07 as under; Shri Kuber Chand Sharma Rs. 27,99,415/- Shri Atul Vashisth Rs. 27,51,012/-.” 6. The assessee in reply to the questionnaire of the A.O. submitted that, the transaction relating to the sale of agricultural land has to be segregated from the sale of plantation developed on such land and that the transfer of plantation was not considered as part of the land. The assessee further explained that share application money of Rs.27,99,418/- was shown as receipt from the Promoter Director Shri KC Sharma during the Financial Year 2004-05 relevant to the A.Y. 2005-06 and that an amount of Samak Nature Resorts & SPA P.Ltd. (Now known as Samak Dhoot Resorts & Spa Pvt.Ltd.) Rs.27,51,012/- was received as share application money from the Director Shri Atul Vashisht for the F.Y. 2004-05 relevant to the A.Y. 2005-06. The Explanation given by the assessee that the assessee company purchased plants worth Rs.39,79,900/- for the F.Y. 2004-05 and Rs.65 lakhs for the F.Y. 2005-06 from Shri Kuberchnd Sharma Proprietors M/s Samak Farms and Nursery was rejected by the A.O. The A.O. arrived at a conclusion that the share capital allotted was in lieu of cash receipts of equal amount. He made an addition u/s 68 of the Act. On appeal the First Appellate Authority deleted the addition on the ground that the A.O. has not brought any evidence on record in support of its finding and that the assessee company and its directors appear to have fully explained the transaction. He held that the agreement of sale of these lands in question was dated 31.12.2004 and the provisions contained in S.2(47)(v) of the Act come into play and the assessee company has become the owner of the said plants in December, 2007 as physical possession was handed over, along with advance of money. He also gave a finding that the land was transferred at rates exceeding the circle rates and there is evidence to prove that the assessee has incurred expenditure on the land. He concluded that the sale of plots to the tune of Rs.39,79,000/- related to the period prior to the impugned A.Y. and that the sale of land for Rs.65,00,015/- also stood established based on audited accounts of the above and supported by evidences. He recorded that the assessee has stated that these lands were supplied over a period of time in small plots/lots and had to restore for various short periods in different places and were planted immediately after the purchases. He granted relief. 6.1. The Ld.Sr.Dt.Ms Anima Barnwal, relied on the order of the A.O. and submitted that under the Transfer of Property Act, the immovable property shall include lands, benefits that arise out of land and plants attached to the land and thus the claim of the Directors that they had incurred substantial expenditure on the land held in their personal capacity for growing plants etc. and that amount so spent cannot be treated as share application money as it is above prevailing market rate. He further

Samak Nature Resorts & SPA P.Ltd. (Now known as Samak Dhoot Resorts & Spa Pvt.Ltd.) submitted that the assessee could not convince the A.O. as to whether such plants were stored.

6.2. The Ld.Counsel for the assessee Mr.R.K.Mehra, on the other hand supported the order of the First Appellate Authority. He submitted that there was opening balance in the account of Mr.KC Sharma and Mr.Atul Vashist both Promoter Directors and shares were allotted against these opening balances. He further submitted that personal land of the Directors as well as certain plants were sold by the Promoter Directors to the assessee Company and the shares were allotted to them against such transfer. He filed a paper book which contain bills, vouchers and other evidences in support of the sale transactions.

7. The assessee company has allotted shares to Shri KC Sharma and Shri Atul Vashisht both Promoter Directors of an amount of Rs.19,20,000/- and Rs.1,57,94,500/- on 28.4.2005 against transfer of the respective lands to the assessee company, on the basis of an agreement to sell which was executed on 23rd December,2004 for an aggregate value of Rs.1,77,14,500/- i.e. Rs.19,20,000 + Rs.1,57,94,500/-. The Ld.Counsel for the assessee pointed out that the sale transactions were at rates more than the circle rates and were registered with the registering authority and the Promoter Directors have paid capital gains on this sale. 7.1. The Ld.Sr.D.R. could not controvert these factual submissions made by the assessee and executed by the Ld.CIT(A). 7.2. While valuing the lands, plants, flowers etc. on the land and the value of lands, fencing etc. were also considered. The two Promoter Directors have incurred expenses and these expenses as per the Ld.CIT(A) are properly supported by the evidences. The Ld.Counsel for the assessee pointed out that in case of sale of plants of Rs.39,79,900/-, plants worth Rs.29,80,900/- had been planted on the land belonging to Mr.KC Sharma, long before

Samak Nature Resorts & SPA P.Ltd. (Now known as Samak Dhoot Resorts & Spa Pvt.Ltd.) incorporation of the company. After perusing all the evidences we approve the following findings of the First Appellate Authority. (a) The AO’s presumption was wrong that he was not in possession of any material or evidence on record to show that the assessee company was in possession of so much cash so as to make investments in the company. (b) No case has been made by the AO to show that in fact any money was routed in the manner presumed by the A.O. (c ) It is seen that all the transactions made by the assessee company and the directors of the company were made in the normal course and appear to have been fully explained during the course of assessment proceedings. (d) It is seen that as per the contention of the AO the land in question had been sold in May, 2006 based on the execution of various sale deeds. However, it is seen that there was an agreement to sell executed on 23-12- 2004 which is a part of the record. In the case of transfer of land to an assessee on the basis of an agreement to sell, the provisions contained in section 2(47)(v) of the Act come into play which are clear. In the appellant’s case the transfer of land for consideration in part performance of section 53A of the Transfer Property Act has made the assessee company as the owner of the underlying land and as such transfer of land has been completed on 23-12-2004 on giving the physical possession of the entire land on the said date as per the terms of agreement. Thus the execution of the sale deed in May 2006 is of no consequence and date of execution of the agreement to sell on 23-12-2004 establishes the transfer of land in view of the transfer of possession of land on that date by Mr. K. C. Sharma and Mr. Atul Vashisht which entitled the assessee company to carry on its business on the said land. e) It is also seen that the land has been transferred at rates exceeding the circle rates which gives credence to the claim that the expenditure of Rs.5550420 (including payment made by cheques of Rs.510000) is over and above the value of land of Rs.17715125.

Samak Nature Resorts & SPA P.Ltd. (Now known as Samak Dhoot Resorts & Spa Pvt.Ltd.) f) The sale of plants of Rs.3979900 are related to the period ended on 31st March, 2005 which had been brought forward as opening balance as on 31- 03-2005 from the last year’s audited accounts. The sale of plants of Rs.6500015 stood established based on audited accounts of this year and as supported by evidences. g) It is seen that the statement of the appellant have been rejected by the assessing officer without giving any cogent reasons. The assessing officer has failed to prove that the sale bills of Rs.6500015 were not genuine in this year or in the case of sale of plants of Rs.3979900 related to the earlier year. h) Even the expenses incurred during the period after incorporation of the company upto 31-03-2006 aggregated to Rs.2335763 [including Rs.1382380 (Rs.840000 + Rs.542380) paid by cheques] by two directors are supported with the evidence and the AO has rejected the contentions of the assessee company without giving any plausible reasoning for doing so. 7.3. Thus we uphold the order of the First Appellate Authority and dismiss this appeal of the Revenue.

8.

In the result the appeal of the Revenue is dismissed. Order pronounced in the Open Court on 07th October, 2016.

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