INCOME TAX OFFICER, KORAMANGALA BANGALORE vs. NADAKRISHNA THIMMAIAH, BANGALORE

O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: is filed by the assessee which directed against the order of LD. CIT(A) dated 24.1.2023 for the assessment year 2007-08, which in turn emanated from the substantive assessment order dated 25.3.2014 passed in the case of M/s. SPR Spirits Pvt. Ltd. The other appeal in is filed by the department against the order of ld. CIT(A) dated 24.1.2023 for the assessment year 2007-08 which is in turn arise out of the protective assessment order passed in the case of Nadakrishna Timmaiah, Bangalore for the same assessment year i.e. AY 2007-08.

1. The order of the Hon'ble -Commissioner of Income Tax (Appeals),Bengaluru-11 is opposed to law and facts of the case.

2. The Hon'ble Commissioner of Income Tax (Appeals)-11 erred in upholding the addition in a sum of Rs.7,30,77,776/-under the head business income.

M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 3 of 41

3. The Hon'ble Commissioner of Income Tax (Appeals) failed to appreciate that entire surplus arising out of the transaction not being exigible to tax in the hands of the appellant.

5. The appellant craves for leave to add to delete from or amend the grounds of appeal

. 46.1. Assessee has filed additional grounds of appeal in which are as follows:-

1. The order of the Learned Assessing Officer (‘LAO’) and Hon’ble Commissioner of Income-tax (Appeals) (‘Ld. CIT(A)’) is opposed to law and general principles of natural justice as applicable to quasi judicial proceedings.

2. The order of the LAO and Ld. CIT(A) is bad in law and against the provisions of section 153A, since amongst others, the additions are not based on any incriminating material found during the course of search.

3. Without prejudice to above grounds, the order passed by the LAO is bad in law since the LAO has not provided an opportunity to the Appellant to cross examine certain personnel whose statements have been recorded on oath during the course of search.

4. For the above and other grounds that may be urged at the time of the hearing of the appeal the appeal may be allowed and justice rendered.

47. Facts of the case are that a search action u/s 132 of the Act was conducted in the case of M/s SPR Spirits Pvt. Ltd. (erstwhile M/s SPR Group Holdings Pvt. Ltd.) to search of office at No. 33/1, Sapthagiri Arcade, 8th Cross, H. Siddaiah Road, Wilson Garden, Bangalore on 08/12/2011 & 16/12/2011. Notice u/s 153A of the Act dated 23/11/2012 was issued to the assessee requiring it to file return of income within 20 days from the date of receipt of notice. In response to notice u/s 153A, assessee filed return of income on 05/01/2013 declaring an income of Rs. 3,80,24,770/- as income from business. The original return of income u/s 139(1) of the Act was filed on 31/10/2007 declaring an income of Rs. 3,47,98,080/-. Notice u/s 143(2) of the Act dated 14/05/2013 was issued and served on the assessee on 20/05/2013.

M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 4 of 41 Notice u/s 142(1) of the Act along with annexure dated 14/05/2013, 28/11/2013 & 17/02/2014 were issued and served on the assessee. During the course of search action conducted in the group cases, it came to light that M/s SPR Developers Pvt. Ltd., had entered into sale agreement dated 23/11/2005 and MOUs dated 06/10/2005 and 28/07/2007 with M/s Vijay Bank Employees Housing Cooperative Society to form residential sites and transfer the same to members of the society at the rate of Rs. 276/- per sq. ft of saleable area for the first 80 acres of land and subsequently it was increased to Rs. 360/- per Sq. ft. of saleable area for the rest 100 acres of land situated on Mysore-Bangalore Road. These lands were transferred from Shri M. Thimme Gowda and his family members to the society during FY 2005-06 and 2006-07. As the assessee being a company cannot acquire agricultural land for the purpose of formation of residential sites and cannot sell the same to the employees of M/s Vijay Bank Employees Housing Co- operative Society, purchase and selling was done through Shri T. Nadakrishna. Therefore, the business income of Rs. 7,30,77,776/- was assessed substantively in the hands of the assessee company. Aggrieved, the assessee is in appeal. Accordingly, AO computed the income in the hands of the assessee as follows: Survey Area Village purchase cost of Sale Sale Gain agreement no. date purchase Amount date 45 4A Manch. halli 22G 44/1 2A 2Q Manch. halli 33,92,289 44/2 2A 4a Manch. halli 20,01,567 48 1A Manch. halli 34 3A 3 G Manch. halli 15.11.2006 46/2 16G Manph. halli 15.11.2006 9,16,00,000 54 10 Manch. halli 14,88,915 47 2A 4G Manch. halli 54 38G Manch. halli 46/2 2A Manch. halli 26,30,468 47 21.5G Manch. halli 03.02.2007 46/1 18.5G Manch. halli M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 5 of 41 1A 46/1 Manch. halli 50,63,379 37G 47 1A Manch. halli 39,45,606 20G TOTAL 1,85,22,22 9,16,00,000 7,30,77,776 4 48. From the above table, AO came to the conclusion that assessee earned a business income of Rs.7,30,77,776/- treated as a business income in the hands of the assessee. Against this assessee went in appeal before Ld. CIT(A). Ld. CIT(A) confirmed the order of AO observed that the assessee has purchased 22 acres 36 guntas of land at Manchanayakanahalli through T. Nanda Krishna since the assessee being a company was not permitted to acquire the agricultural land for formation of residential sites and layouts and later said land was sold by T. Nanda Krishna to SPR Developers Pvt. Ltd. for a consideration of Rs.9.16 crores for which assessee has given an amount of Rs.1.85 crores. The income generated from the same to be assessed as business income of the assessee. Against this assessee is in appeal before us by way of above grounds.

herein as additional ground Nos.1 to 3 in were already discussed while adjudicating the ITA in Nos.1658 to 1661/Bang/2018 from para Nos.14 to 39 and the same decision is applicable herein also. Accordingly, all the additional grounds raised by the assessee herein are dismissed.

50. The constructive main grounds for our consideration in ground Nos.2 to 4 in ITA No.127/Bang/2020 are as follows:-

2. “The Hon'ble Commissioner of Income Tax (Appeals)-11 erred in upholding the addition in a sum of Rs.7,30,77,776/-under the head business income.

3. The Hon'ble Commissioner of Income Tax (Appeals) failed to appreciate that entire surplus arising out of the transaction not being exigible to tax in the hands of the appellant.

4. The Hon'ble Commissioner of Income Tax (Appeals) committed an error in upholding the additions, without even looking at the transaction which was a subject matter of arbitration and later was cancelled.” 51. We have heard the rival submissions and perused the materials available on record. In this case, order of the Ld. CIT(A) is very cryptic with regard to the issue that how there was income generated in the hands of the assessee on giving Rs.1.85 crores advance to T. Nanda Krishna who has bought the property and M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 6 of 41 later it was sold to M/s. SPR Developers Pvt. Ltd. In our opinion, the CIT(A) is required to examine all the documents relating to these transactions listed in earlier para and also examine various statements recorded during the course of search action and decide the issue afresh by considering the entire facts and circumstances of the case. Accordingly, this issue is remitted back to the file of CIT(A) for fresh consideration to decide the same within six months of receipt of this order as this is old matter relating to the AY 2007-08. 2.2 Hence, these appeals went back to the ld. CIT(A) to decide the issue afresh. While deciding the set aside assessments, once again in the case of M/s. SPR Spirits Pvt. Ltd. for the assessment year 2007-08, the ld. CIT(A) has confirmed the additions. Against this assessee is in appeal before us in by raising following grounds of appeal:-

1. On the facts and in the circumstances of the case, the orders passed by the LAO and the Ld.CIT(A)-11, Bengaluru are bad in facts and in law since the same were undertaken without considering the Appellant's submissions.

2. The substantive assessment undertaken by the LAO and affirmed by the Hon. CIT(A) is bad in taw and ought to be quashed. 3. The LAO erred in undertaking the substantive assessment when the facts are clear that it is Shri. T Nadakrishna who at best will be liable to any income tax- subject to this being taxable in his hands. The Hon. CIT(A) erred in confirming the same. 4. The LAO and Hon. CIT(A) erred in not considering any of the submissions made by the Appellant in the course of remand proceedings. 5. Without prejudice to the preceding grounds, the order of the LAO and Hon. CIT(A) is bad in law and ought to be quashed since these orders were passed without considering that the Appellant is only a lender of funds and is neither the legal nor the economic owner of the impugned land. 6. Without prejudice to the preceding ground, the order passed by the Hon. CIT(A)is bad in facts and in law since, the same have not given effect to the directions of the Hon. ITAT as provided in para 51 of the Hon. ITATs order dated 27.05.2022.

Without prejudice to the preceding grounds,

8. The Hon. CIT(A) erred in not considering, failed to appreciate that the entire surplus arising out of the transaction will not be exigible to tax in the hands of the Appellant, 9. The Hon. CIT(A) and the LAO erred in not appreciating the facts that the agricultural land sold was not a capital asset with the meaning of section 2(14) of the Income-tax Act, 1961.

10. The Hon. CIT(A) and the LAO erred in not considering that the land transferred is not subject to any tax since any transfer vide unregistered agreement for sale is not a valid transfer for the purpose of any law, including the Act.

11. The Hon. CIT(A) committed an error in upholding the additions, without even considering that the arrangements proposing to transfer the land have been terminated.

13. The Hon. CIT(A) erred in not directing the LAO in considering the facts and circumstances of the case, in levying statutory interest under section 234A and 234A of the Act. The Appellant craves leave to add or altar, by deletion, substitution or otherwise, any or all the above grounds of appeal, at any time before or during the hearing of the appeal. 2.3 The crux of the above grounds raised by assessee are that the ld. CIT(A) erred in sustaining additions in respect of income earned from transactions carried on by Mr. Nadakrishna Thimmaiah in the hands of present assessee holding that he has acted as a conduit of the present assessee.

3.1 He submitted that in this backdrop, the Assessee entered into a sale agreement for transfer of agricultural lands measuring 22 acre and 36 guntas situated at Manchanayakanahalli Village for total sale consideration of Rs.9,16,00,000. Subsequently, these lands M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 9 of 41 were transferred vide sale deeds to Vijaya Bank Employees Housing Co-operative Society (VBEHCS) and SPR Developers Private Limited ('SPRD') as the confirming party for total consideration of Rs. 5,33,45,000. A summary of the sale deeds is tabulated below:

Date of sale Survey Nos Area of land Sale deed consideration 15.03.2007 Survey No. 46/1 1 acre 3 7 guntas 42,20,000 15.03.2007 Survey No. 47, 1 acre 2 guntas 95,40,000 Survey No. 54 21 guntas Survey No. 54 1 7 guntas Survey No. 46/2 32 guntas Survey No. 46/2 1 acre 8 guntas 15.03.2007 Survey No. 34 2 acre 1 guntas 1,32,150,000 Survey No. 48 1 acre Survey No. 34 1 acre 2 guntas Survey No. 46/2 1 6 guntas Survey No. 54 1 0 guntas 15.03.2007 Survey No. 44/1 1 acre 2,08,80.000 Survey No. 45 1 acre 2 1 guntas Survey No. 44/2 1 acre 2 guntas Survey No. 45 1 acre 20 guntas Survey No. 44/1 1 acre 2 guntas Survey No. 45 1 acre 21 guntas Survey No. 44/2 1 acre 2 guntas 15.03.2007 Survey No. 47 1 acre 20 guntas 36,00,000 15.03.2007 Survey No. 47 21 acre 0.5 guntas 24,00,000 Survey No. 46/1 18 acre 0.5 guntas 3.2 He submitted that the lands were purchased by the Assessee from T Nagaraju, C Amarnath and S Vijaykumar under various sale deeds on 15.11.2006. The lands were converted by the previous owners for residential use in FY 1994-95. Pursuant to such M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 10 of 41 conversion, also, the lands were used for agricultural activities. Thus, the income arising on sale of agricultural lands was claimed as exempt by the Assessee in terms of section 2(14)(iii) of the Act. The ld. AO proceeded to treat the income from sale of agricultural lands as 'adventure in the nature of trade' taxable under the head 'Income from Business1. Without prejudice, the ld. AO also treated the gains arising on sale of agricultural lands as 'Short term capital gains'. Further, since the funds for the purchase of the agricultural lands were financed by the Assessee M/s. SPR Spirits Private Limited the surplus arising on the transfer of the lands was substantively assessed in the hands of Assessee and on a protective basis in the hands of the Respondent. On appeal, the Commissioner of Income- tax (Appeals) confirmed the additions in the hands of Assessee. Due to the inherent litigations involved in the lands to be developed, the completion of the project was delayed. As such, the MOU dated 6.10.2005 between M Thimme Gowda and VBEHCS was cancelled vide arbitration award dated 25.04.2013. Hence, the Respondent continues to be the owner of the land and in effect, no transfer has taken place of the impugned lands to be exigible to tax. Action of the ld. AO and basis for the same 3.3 He submitted that the ld. AO has, as an alternative to above, treated the gains arising on the sale of agricultural lands as 'Short- term capital gain' for the following reasons: o The transferred asset is non-agricultural / converted land; o No proof is submitted to show that cultivation was carried out on the lands prior to date of sale; o The Assessee could not have transferred agricultural lands to a non-agriculturist in view of the prohibitions imposed by section 80 of the Karnataka Land Reforms Act, 1964; M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 11 of 41 Without prejudice to the above, we submit as follows: Substantive assessment in the case of the Assessee is bad in law: 3.4 He submitted that the substantive assessment is bad in law. The law permits the ld. AO to make a substantive assessment only when it is clear as to in whose hands the income is to be taxed. In the present case, the following are undisputed: i. The agreements for sale have been entered into by T Nadakrishna with SPR Developers; ii. T Nadakrishna has offered the income for taxation in his hands. His financial statements reflect all of these transactions.

3.5. He submitted that it is not the case of the ld. AO that none of the taxpayers are alleging that the income is not taxable in either of their hands. Thus, when clearly, an income stream has been duly offered to tax by Sri T Nadakrishna and he has acknowledged his legal liability in this regard, it is unclear as to why income-tax liability is sought to be fastened on another person. Without prejudice to the above, he submitted that the ld. AO's approach of taxing the Assessee as the lender of the funds is akin to alleging that house-owners, when they borrow money from banks to fund purchase of a house, are not the real owners but it is the bank who owns the house and hence, any gain on the disposal of the house is taxable in the hands of the bank rather than the house-owner. This is an absurd proposition that is canvassed by the ld. AO. It should also be noted that for a lender of money, such as the Assessee, the source of income can never be gains derived from disposal of the asset M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 12 of 41 acquired from lent money. Thus, a gain as alleged by the ld. AO given the relatively lower amount lent by the Assessee to T Nadakrishna cannot be taxed in Assessee's hands but, at best, and subject to the provisions of the Act, only in the hands of T Nadakrishna. The ld. AO's approach defies commercial practice and human / corporate probability. Hence, the alleged gains derived by T Nadakrishna can never be taxed in Assessee's hands. Apart from the discussion on the source of funds, the ld. AO in the assessment order has also not provided any reasons as to why he is clear that the income has to be taxed both substantively and protectively. Hence, he submitted that the ld. AO's action to treat the income as taxable 'substantively' in the Assessee's hands is incorrect and ought to be quashed.

3.6 He further submitted that there is an inherent contradiction in the ld. AO's approach. The ld. AO first states that SPR Developers did not purchase the lands in question since as a company, it is precluded by the local law to purchase the same. On the other hand, the ld. AO states that the Assessee, a company, has purchased the lands and transferred the lands as well for which it is liable to capital gains. When the local law precludes a company from purchasing lands, it applies to both SPR Developers as well as the Assessee. That is, if SPR Developers is unable to purchase the land, for the same reason, the Assessee cannot purchase the land. Thus, the ld. AO has adopted contrary positions on this issue. Having stated this, the correct legal position is that a company cannot purchase agricultural lands, and hence, either SPR Developers or Assessee cannot be said to have purchased or owned lands. As such, Assessee cannot be subject to capital gains taxation. It is only T Nadakrishna, who is the rightful purchaser and owner of the M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 13 of 41 agricultural land. Assuming but not admitting that the ld. AO's action of treating the income substantively in the Assessee's hand is appropriate, he submitted that on merits, the addition is bad in law.

Transaction not taxable since the Assessee is neither the legal nor economic owner; 3.7 Without prejudice to the preceding submissions, the Assessee submits that it is not taxable on the said land transactions. since it is neither the legal owner nor the economic owner. The lands were purchased by T Nadakrishna in his name and after accepting funds from the Assessee. Nowhere in the underlying documentation is it mentioned / indicated nor has T Nadakrishna stated that he has held the land for Assessee's benefit. Hence, seeking to tax the transaction in the Assessee's hands is incorrect. Without prejudice to the above, he submitted that assessee cannot be held to be the owner of the land, that is agricultural, given the provisions of the Karnataka Land Reforms Act, 1974 which explicitly prohibit a company from acquiring agricultural land. Thus, the approach contemplated by the ld. AO would result in contravention of another law and hence- underlines the absurdity of the proposition put forth by the ld. AO.

Land is agricultural land:

3.8 Without prejudice to the preceding submissions, assuming but not admitting that the Assessee is the owner of the land, what is dealt with is agricultural land which is outside the purview of capital gains tax. Without prejudice, given the nature of activities of the M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 14 of 41 Assessee, the transaction of 'dealing' in the land, cannot be regarded as a business activity, yielding business income.

Transfer of land is not adventure in nature of trade:

3.9 The ld. A.R. submitted that the transfer of land is not an 'adventure in the nature of trade'. In this regard, he submitted that the following facts are relevant: a) The land does not fall within 8 kms from the local limits of any Municipal or Cantonment Board as referred in section 2(14)(iii)(a). It also does not fall within the notified area as per provisions of section 2(14)(iii)(b). b) The land is actually classified as agricultural land as per Government revenue records and this land is subject to revenue land tax. c) The land was actually and ordinarily used for agricultural purpose, since it was purchased till the date of sale. d) The land was never used for non-agricultural purpose till the date of sale and it was never ceased to put to agricultural purpose. e) Agricultural operations were carried out in the said land by T Nadakrishna on his own and agricultural income was admitted up to the impugned AY. f) Assessee / T Nadakrishna never made any plot out of the impugned land and the land was sold in acres and guntas and not as square feet. g) Assessee / T Nadakrishna has not made any roads or any facilities and it was undeveloped land fit to use for agricultural purpose at the time of sale. M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 15 of 41 h) T Nadakrishna had shown the agricultural income, when the agricultural operations were carried on the said land. i) The purpose for which the purchaser used the land cannot be a reason to treat the agricultural land as non-agricultural land. j) Assessee / T Nadakrishna has not taken any permission from the Government for making plots, as he never had any intention to make the land into plots and carry on real estate business in respect of the land. T Nadakrishna has sold land in as it is condition. k) All of the above is also evidence by the agreements of sale. l) T Nadakrishna held the land always as investment and not at all converted into stock-in-trade. The character of the land in the hands of T Nadakrishna has not changed. Assessee never even owned the land. m) There is no material on record in respect of this land to show that Assessee / T Nadakrishna carried on activities of buying and selling of land in a systematic manner so as to justify the ld. CIT(A)’s action in treating his activities as adventure in the nature of trade. n) Assessee / T Nadakrishna is not in the business of Real Estate as alleged by the ld. AO. o) Assessee / T Nadakrishna had not applied for conversion of the land in question into non-agricultural purposes and no such permissions were obtained from the concerned authority. p) The fact that T Nadakrishna has borrowed money from Assessee would not determine whether or not a transaction is an 'adventure in the nature of trade'. All of the above factors listed above should be cumulatively considered. For instance, an individual (such as T Nadakrishna) can borrow a loan to purchase any property and also repay the loan. This does not M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 16 of 41 result in the dealing with that property as an adventure in the nature of trade'/ The dealing should be viewed in light of all of the points listed above.

3.10 Considering the above, he submitted that it cannot be stated that T Nadakrishna or the Assessee carried on an "adventure in the nature of trade'. In this regard, reliance is placed on the following rulings: a) Madhya Pradesh HC in CIT v. Suresh Chand Goyal (163 Taxman 54); b) Chennai ITAT in ITO v. Mrs. Chitra Rajendra (81 taxmann.com 155); c) Hyderabad ITAT in Goutham Constructions Co. v. ITO (39 taxmann.com 181); d) Chennai ITAT in ITO v. Smt. Ayisha Fathima (73 taxmann.com 78); e) Hyderabad ITAT in Smt. M. Vijaya v. DCIT (49 taxmann.com 26); f) Chennai ITAT in ITO v. Chandar HUF (12 taxmann.com 305); g) Bombay HC in CIT v. Dhable, Bodbe Parose, Kale, Lute and Choudhari ( 202 ITR 98).

3.11 Without prejudice to the above, the ld. A.R. for the assessee submitted that the asset transferred is an agriculture land within the meaning of section 2(14)(iii) of the Act. The Assessee submits that although the lands were converted, agricultural activities were carried on by the Assessee till the date of transfer. The same can be evidenced from the RTC Copies provided by the competent M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 17 of 41 authorities. The said RTC copies are enclosed as page no. 303 to 312 of PBC. 3.12 Without prejudice, he submitted that for the agricultural land to fall out of the purview of capital asset under section 2(14)(iii), the land should be situated beyond 8 kms from the local limits any municipality or cantonment board. This fact is acknowledged by the ld. AO. The income-tax law does not mandate that agriculture activities should be carried out for the land to be construed as agricultural land.

3.13 Further, he submitted that as per the conversion order, one of the conditions laid for the conversion to be valid is that the land should be used for the intended purpose i.e., residential use within 2 years from the date of conversion order. Failure to comply with the condition would render the land conversion to be invalid. In this backdrop, since the land had not been put to use for its intended purpose, the lands has automatically restored to its original nature of agriculture land on the expiry of two years.

3.14 He also submitted that the ld. AO has erred in stating that the lands are non-agricultural land since the lands were transferred to a non-agriculturist. The ld. AO relies on section 80 of the Karnataka Land Reforms Act, 1964 to show that T Nadakrishna could not have transferred agriculture lands to non-agriculturist since the transfer is prohibited. Here, he submitted that pursuant to the amendment brought to section 80 w.e.f. 25.11.1980, the transfer of agriculture land to a- non-agriculturist is valid, but the sale is invalid. Without prejudice, he submitted that it is for the competent authority to determine whether the transfer is valid or invalid. It is not open for the ld. AO to re-characterise the nature of an asset based on the M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 18 of 41 prohibitions/ restrictions provided under the Karnataka Land Reforms Act, 1964.

3.15 In relation to the above, he placed reliance on the ruling of the Bangalore ITAT in Assessee's own case for AY 2005-06 in dated 30.12.2009.

3.16 He submitted that in respect of the ld. AO's observation that the land revenues are collected by the Gramapanchayat after conversion leads to the conclusion that the lands are non- agricultural land is irrelevant. He submitted that it is for the competent authorities to examine whether the applicable land revenues are paid by T Nadakrishna or not. The mere fact that agricultural activities were carried on by T Nadakrishna satisfies the conditions provided in section 2(l4)(iii) is sufficient evidence to hold that the transferred lands are agricultural lands and income arising therefrom is tax exempt.

3.17 He also placed reliance on the following rulings in relation to the proposition that where land sold by assessee was entered as agricultural land in revenue records, the same cannot be brought to capital gains tax: o Madras High Court in CIT v. Ashok Kumar Rathi (89 taxmann.com 406), affirming the ruling of the Chennai ITAT in / Mds / 2016 dated 24.06.2016; o Hyderabad ITAT in Tulla Veerender v. Addl. CIT (36 taxmann.com 545); o Hyderabad ITAT in Harniks Park P. Ltd. v. ITO (41 taxmann.com 109). M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 19 of 41 Without prejudice, the arrangement vide unregistered agreements for sale is not a valid transfer for the purpose of the Act 3.18 He submitted that the ld. AO has sought to levy tax based on the Unregistered Agreements For Sale (“UAFS") entered by T Nadakrishna with SPR Developers Private Limited ('SPR Developers'). These UAFS do not create any right in favour of SPR Developers. Hence, it cannot be said that income accrues to T Nadakrishna by executing the UAFS.

3.19 He submitted that the UAFS would not be recognized for the purpose of section 53-A of the Transfer of Property Act, 1882 since for the purposes of those provisions, the agreements for sale are required to be registered for section 53-A to apply. Hence, section 2(47)(v) of the Act would not apply to the UAFS. 3.20 He also submitted that merely because T Nadakrishna has reflected the above transaction in his income-tax return as being exempt, does not imply that the UAFS results in income under the Act. in this regard, reliance is placed on the well-settled principles that taxation cannot be based on estoppel and that it can be only under the provisions of the Act. Without prejudice, the arrangements with VBEHCSL are presently terminated pursuant to an arbitration arrangement and hence the Assessee continues to be the owner of the lands 3.21 Without prejudice, he submitted that no development has taken place on the proposed lands to be transferred due to dispute on titles to the land; the land that was to be converted has not been converted. Hence, the terms of the MOU have not been complied with for the transfer to be regarded as complete. Hence, for the above reasons, he submitted that it would not be appropriate to consider M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 20 of 41 that income has arisen to T Nadakrishna or the Assessee on account of the transfer of lands. The following propositions are relevant here: a) No real income 'arises' in the present facts on the assumption that there is transfer of a capital asset. Income from capital gain on a transaction which never materialized is, at best, a hypothetical income, Where for want of statutory permissions, the entire transaction of development of land falls through, there will be no profit or gain which arises from the transfer of a capital asset. b) The Assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. c) This being the case, in the circumstances, there was no debt owed to the Assessee. Hence, the Assessee has not acquired any right to receive income under the JDA. As such, no profits or gains 'arose' from the transfer of a capital asset. 3.22 The ld. A.R. further submitted that, if at all any substantive / protective assessment is to be undertaken, at best it can be undertaken in the hands of SPR Developers. SPR Developers is the entity which entered into arrangements with various persons of the Sri M Thimmegowda group, including Sri T Nadakrishna. for aggregating lands for onward development and sale. It is SPR Developers that had funds at its disposal and it was to this entity mat the Assessee had remitted moneys for the properties purchased by Sri T Nadakrishna. This is the entity which had a(so discharged the sale consideration to Sri T Nadakrishna.

3.23 He submitted that the above principles are squarely covered by the ruling of the Bangalore ITAT in the case of Sri D Dasappa in ITA M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 21 of 41 Nos.2222 & 2223/Bang/2016, dated 09.02.2022, Sri M Thimmegowda in and 1036/Bang/2019, dated 20.04.2022 and Smt. Leelavathy in ITA Nos. 752 to 755/Bang/2019, dated 18.04.2022. In these rulings, the facts involved the same transaction as is the subject matter of this appeal. In so holding, the ITAT relied on the ruling of the SC in Balbir Singh Maini (398 ITR 531). In this regard, he took support of the following rulings of this proposition: a) CIT v. City Lubricants Ltd. (129 taxmann.com 267); Madras HC; b) Seshasayee Steels (P.) Ltd. v. CIT (421 ITR 46); SC; c) Pr. CIT v. Fardeen Khan (411 ITR 533); Bombay HC; d) ACIT v. Ijyaraj Singh (183 ITD 237); Jaipur ITAT.

3.24 In light of all of the above, the ld. A.R. submitted that the purported transfer of agricultural land is not taxable either in the hands of SPR Spirits Private Limited or T Nadakrishna. Therefore, the substantive and protective assessment orders of the ld. AO in the cases of SPR Spirits Private Limited or T Nadakrishna respectively should be quashed.

4. On the other hand, ld. D.R. submitted that during the course of assessment proceedings, financial statement of T Nadakrishna was analysed and noticed that he had purchased 22 acres 36 guntas of converted lands at Manchanayakanahalli, near Bangalore-Mysore highway. Subsequently, he had entered into sale agreement with M/s. SPR Developers Pvt. Ltd within a short duration of such purchase. Further, the income and financial statements of T Nadakrishna was analysed from AY 2006-07 to 2012-13 and noticed that T Nadakrishna was earning meagre salary from M/s. Chamundi Distilleries Pvt Ltd and also he didn't have any fixed asset in his name. Details of source of funds for purchase of property was called for during the course of assessment proceedings, in reply he M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 22 of 41 stated that "Amount received from sister concern." T Nadakrishna, being an individual, cannot have any sister concern. The claim made by the T Nadakrishna in respect of source of funds was baseless. During the assessment proceedings, the ledger extract of the T Nadakrishna in the books of M/s. SPR Developers Pvt. Ltd was examined and found that the amount of Rs. 1,85,00,000/- for purchase of land was paid by M/s. SPR Group Holidays - Arrack Division and was repaid back by M/s. SPR Developers Pvt Ltd. She submitted that it is clearly evident that M/s SPR Group Holding Pvt Ltd, one of the Sister concerns of M/s. SPR Developers Pvt ltd., has financed the sum required for purchase of land and the possession of lands were handed over to M/s. SPR Developers. Since M/s. SPR Developers Pvt ltd and M/s SPR Group Holding Pvt Ltd, both being companies cannot acquire agricultural land as per the provisions of the Karnataka Land Reforms Act, 1974 which explicitly prohibit a company from acquiring agricultural land, to facilitate such purchase, the transaction routed through an individual T Nadakrishna. Therefore, the Business income of the T Nadakrishna is nothing but the income of M/s. SPR Group Holdings Pvt ltd., which financed the money required for purchase of lands and the Business Income of Rs. 7,30,77,776/- earned by T Nadakrishna assessed protectively in the hands of T Nadakrishna and substantively in the hands of M/s. SPR Group Holdings Pvt Ltd. Addition of Rs. 7,30,77,776/- as business income substantively in the hands of assessee company is to be confirmed. 4.1. The ld. D.R. submitted that the assessee has contended that the land sold was agriculture land which should not be brought to tax. During the course of assessment proceedings, T Nadakrishna was asked to produce the details of Agriculture income and Expenditure Account, details of Crops grown with acreage, Bills and vouchers for the agricultural crops grown, copies of RTC of the agricultural land holding. M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 23 of 41 In response to this, he could not provide any proof like RTC, details of crops grown or Bills or voucher. During the course of appellate proceedings also, assessee company did not furnish any documentary evidence which could substantiate assessee's claim. The ld. AO, during assessment proceedings, on verification of purchase deed found that T Nadakrishna had purchased 16 acres 19 guntas of land on 15-11-2006 and 4 acres 17 guntas of land on 03-02-2007 and entered into agreement with M/s. SPR Developers Pvt. Ltd on 15-1 1-2006 for handing over the possession of entire land of 22 acres 36 entered into agreement with the company before acquiring the land of 4 acres 17 guntas. This shows that intention of the T Nadakrishna was not for cultivation. If the intention of the T Nadakrishna was cultivation, he would not have entered into an agreement with the SPR Developers before acquiring the lands. As such, the claim of the assessee is not correct. Hence, she submitted that no interference in assessment order is called for since no infirmity arose. She prayed that addition is to be sustained in the event of protective addition is deleted in the hands of T. Nadakrishna.

8. While considering the issue involved in the present appeal viz. whether the transactions/sale deeds in favour of defendant No. 1 can be said to be Benami transactions or not, the law on the Benami transactions is required to be considered and few decisions of this court on the aforesaid are required to be referred to. 8.1 In the case of Jaydayal Poddar (supra) it is specifically observed and held by this court that the burden of proving that a particular sale is Benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be so. It is further observed that this burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of the Benami transaction or establish circumstances unerringly and reasonably raising an interference of that fact. In paragraph 6 of the aforesaid decision, this court has observed and held as under :

6. It is well-settled that the burden of proving that a particular sale is Benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of Benami or establish circumstances unerringly and reasonably raising an inference of that fact. The essence of a Benami is the intention of the party or parties concerned ; and not unoften, such intention is shrouded in a thick veil which cannot be easily pierced M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 25 of 41 through. But such difficulties do not relieve the person asserting the transaction to be Benami of any part of the serious onus that rests on him ; nor justify the acceptance of mere conjectures or surmises, as a substitute for proof. The reason is that a deed is a solemn document prepared and executed after con siderable deliberation, and the person expressly shown as the pur chaser or transferee in the deed, starts with the initial presumption in his favour that the apparent state of affairs is the real state of affairs. Though the question whether a particular sale is Benami or not, is largely one of fact, and for determining this question, no absolute for mulae or acid tests, uniformly applicable in all situations, can be laid down ; yet in weighing the probabilities and for gathering the relevant indicia, the courts are usually guided by these circumstances : (1) the source from which the purchase money came ; (2) the nature and possession of the property, after the purchase ; (3) motive, if any, for giving the transaction a Benami colour ; (4) the position of the parties and the relationship if any, between the claimant and the alleged Benamidar ; (5) the custody of the title deeds after the sale and (6) the conduct of the parties concerned in dealing with the property after the sale." In the case of Thakur Bhim Singh (supra) this court in paragraph 18 observed and held as under: "18. The principle governing the determination of the question whether a transfer is a Benami transaction or not may be summed up thus : (1) the burden of showing that a transfer is a Benami trans action lies on the person who asserts that it is such a transaction ; (2) it is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who sup plied the purchase money, unless there is evidence to the contrary ; (3) the true character of the transaction is governed by the intention of the person who has contributed the purchase money ; and (4) the question as to what his intention was has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct, etc." 8.2 In the case of P. Leelavathi (supra) this court held as under : "9.2 In Binapani Paul case (supra), this court again had an occasion to consider the nature of Benami transactions. After considering a catena of decisions of this court on the point, this court in that judgment observed and held that the source of money had never been the sole consideration. It is merely one of the relevant considerations but not determinative in M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 26 of 41 character. This court ultimately concluded after considering its earlier judgment in the case of Valliammal v. Subra maniam [2004] 7 SCC 233 that while considering whether a particular transaction is Benami in nature, the following six circumstances can be taken as a guide : '(1) the source from which the purchase money came ; (2) the nature and possession of the property, after the purchase ; (3) motive, if any, for giving the transaction a Benami colour ; (4) the position of the parties and the relationship, if any, between the claimant and the alleged Benamidar ; (5) the custody of the title deeds after the sale ; and (6) the conduct of the parties concerned in dealing with the pro perty after the sale. (Jaydayal Poddar v. Mst. Bibi Hazra (supra), SCC page 7, para 6)" 8.3 After considering the aforesaid decision in the recent decision of this court in the case of P. Leelavathi (supra), this court has again reiterated that to hold that a particular transaction is Benami in nature the aforesaid six circumstances can be taken as a guide. 8.4 Applying the law laid down by this court in the aforesaid decisions to the facts of the case on hand and the reasoning given by the trial court confirmed by the High Court, it appears that both, the learned trial court and the High Court have erred in shifting the burden on the defend ants to prove that the sale transactions were not Benami transactions. As held hereinabove in fact when the plaintiffs' claim, though not specifically pleaded in the plaint, that the sale deeds in respect of suit properties, which are in the name of defendant No. 1, were Benami transactions, the plaintiffs have failed to prove, by adducing cogent evidence, the intention of the Narayanasamy Mudaliar to purchase the suit properties in the name of defendant No. 1—his wife 9. Even the reasoning and the findings recorded by the Trial Court confirmed by the High Court while holding the Sale Deeds/transactions in favour of defendant no.1 as benami cannot be said to be germane and or fulfilling the circumstances as carved out by this Court in the aforesaid decisions. 9.1 The first reason which is given by the learned Trial Court while holding the suit properties as benami transactions is that part sale consideration was paid by Narayanasamy Mudaliar at the time of the purchase of the property vide Sale Deed Exh. B3. As held by this Court in catena of decisions referred to hereinabove, the payment of part sale consideration cannot be the sole criteria to hold the M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 27 of 41 sale/transaction as benami. While considering a particular transaction as benami, the intention of the person who contributed the purchase money is determinative of the nature of transaction. The intention of the person, who contributed the purchase money, has to be decided on the basis of the surrounding circumstances; the relationship of the parties; the motives governing their action in bringing about the transaction and their subsequent conduct etc. It is required to be noted that Narayanasamy Mudaliar, who contributed part sale consideration by purchasing property at Exh. B3, might have contributed being the husband and therefore by mere contributing the part sale consideration, it cannot be inferred that Sale Deed in favour of the defendant no.1-wife was benami transaction and for and at behalf of the joint family. Therefore, the Trial Court as well as the High Court have committed a grave error in holding the suit properties as benami transactions/ancestral properties on the basis of the document at Exh. B3. 9.2 Similarly, merely because of the stamp duty at the time of the execution of the Sale Deed at Exh. B4 was purchased by Narayanasamy Mudaliar, by that itself it cannot be said that the Sale Deed at Exh. B4 in favour of defendant no.1 was benami transaction. It is required to be noted that except the aforesaid two documentary evidences at Exh. B3 and B4, no other documentary evidence/transaction/Sale Deed in favour of defendant no.1 have been considered by the learned Trial Court and even by the High Court. 9.3 Now, so far as the findings recorded by the Trial Court and the High Court on considering the Release Deed at Exh. A1 viz. the Release Deed executed by Nagabushanam in favour of defendant no. 1 on payment of Rs.10,000/- and therefore inference drawn by the learned Trial Court and the High Court that therefore even the defendant no.1 also considered the share of the daughter and considered the suit properties as joint family properties and therefore plaintiffs have also share in the suit properties is concerned, the said finding is just a mis- reading and mis-interpretation of the evidence on record. In her deposition, defendant no.1 has explained the payment of Rs.10,000/- to Nagabushanam, daughter and the Release Deed executed by her. It is specifically stated by her that though she had no share in the suit properties, with a view to avoid any further litigation in future and to be on safer side, Rs.10,000/- is paid and the Release Deed was got executed by Nagabushanam in favour of defendant no.1. Even in the Release Deed at Exh. A1, it is so specifically stated. Therefore, merely because to avoid any further litigation in future and though Nagabushanam had no share in the suit properties, Rs.10,000/- was paid and the Release Deed was got executed in favour of defendant no.1, by that itself, it cannot be said that defendant no.1 treated the suit properties as ancestral properties and/or Joint Family Properties. 9.4 Even considering the Will executed by defendant no.1 dated 11.02.1987 and the subsequent revocation of the Will is suggestive of the fact that defendant no.1 all throughout treated the suit property as her self-acquired property which according to her were purchased from the Stridhana and selling of the jewellery. M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 28 of 41

11. Even considering the observations made by this Court in paragraph 10 in the case of Om Prakash Sharma (Supra) it can be said that Narayanasamy Mudaliar might have purchased the properties in the name of defendant no.1 in order to provide his wife with a secured life in the event of his death. It is required to be noted that it was the specific case on behalf of the defendant no.1 that the suit properties were purchased by her from the Stridhana and on selling of the jewellery. 12. It is required to be noted that the benami transaction came to be amended in the year 2016. As per Section 3 of the Benami Transaction (Prohibition) Act 1988, there was a presumption that the transaction made in the name of the wife and children is for their benefit. By Benami Amendment Act, 2016, Section 3 (2) of the Benami Transaction Act, 1988 the statutory presumption, which was rebuttable, has been omitted. It is the case on behalf of the respondents that therefore in view of omission of Section 3(2) of the Benami Transaction Act, the plea of statutory transaction that the purchase made in the name of wife or children is for their benefit would not be available in the present case. Aforesaid cannot be accepted. As held by this Court in the case of Binapani Paul (Supra) the Benami Transaction (Prohibition) Act would not be applicable retrospectively. Even otherwise and as observed hereinabove, the plaintiff has miserably failed to discharge his onus to prove that the Sale Deeds executed in favour of defendant no.1 were benami transactions and the same properties were purchased in the name of defendant no.1 by Narayanasamy Mudaliar from the amount received by him from the sale of other ancestral properties. 12.1 Once it is held that the Sale Deeds in favour of defendant no.1 were not benami transactions, in that case, suit properties, except property nos. 1 and 3, which were purchased in her name and the same can be said to be her self- acquired properties and therefore cannot be said to be Joint Family Properties, the M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 29 of 41 plaintiffs cannot be said to have any share in the suit properties (except property nos. 1 and 3). At this stage, it is required to be noted that the learned Counsel appearing on behalf of defendant no.1 has specifically stated and admitted that the suit property Item nos. 1 and 3 can be said to be the ancestral properties and according to him even before the High Court also it was the case on behalf of the defendant no.1 that item nos. 1 and 3 of the suit properties are ancestral properties.

5.2 In our opinion, the burden of proving the transaction as carried out by T. Nadakrishna on behalf of the present assessee and the apparent purchaser T. Nadakrishna is not the real owner always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character, which is neither directly proved by the lower authorities directly nor established by indirectly and no inference could be drawn to hold it so. While considering the particular transaction as colourable device, the intention of the person, who contributed the purchase money is determinative of the nature of transaction. The intention of the person, who contributed the purchase cost has to be decided on the basis of surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct. In the present case, the Sale Deeds are in the name of Shri T. Nadakrishna and executed by him and the sale consideration was also received by T. Nadakrishna from M/s. SPR Developers Pvt. Ltd. and the present assessee is entitled only for receipt of the amount advanced to T. Nadakrishna and not entitled for any element of profit embedded with this transaction. The revenue authorities failed to prove anything otherwise by adducing cogent M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 31 of 41 evidence. There was no intention of the present assessee to purchase the property in the name of T. Nadakrishna and the intention was only to advance money to T. Nadakrishna to purchase the property by himself. The payment part of the sale consideration provided by present assessee could not be the sole criterion to infer that the sale deed in favour of T. Nadakrishna as a transaction for and on behalf of the present assessee. For this purpose, we place reliance on the judgement of Hon’ble Supreme Court in the case of Mangathai Ammal (Decd.) through LRS and Others Vs. Rajeshwari & Ors. Cited (supra). Accordingly, we are of the opinion that if any income arise out of this impugned transaction to be considered in the hands of T. Nadakrishna only. 5.2.1 Further, at this point, it is appropriate to refer the order of the Special Bench of Mumbai Tribunal in the case of Mid East Portfolio Management Ltd. vs. DCIT (87 ITD 537 (Mum) (SB), wherein they considered the decision of Hon’ble Supreme Court in the case of Mc Dowell & Coll. Ltd. Vs. The Commercial Tax Officer {154 ITR 148 (SC)} and observed as under: “In our opinion it is more of an approach to the facts of a particulars case than any inviolable rule laid down regarding tax evasion. It is a call to the courts and Tribunals to expose subterfuges, colourable devices and dubious methods in tax cases. It is a caution administered that lawful dues to the State cannot be withheld under schemes acquired off-the-shelf or through transactions that have no commercial or economic value or by taking certain pre-ordained steps which are calculated to cancel out each other. The approach in such cases must be to take the entire transaction or arrangement as a whole and see if it makes any economic or commercial sense without attaching weight to the steps that go to make up the scheme, each of which may be legally valid. The genuineness of the arrangement has to be viewed not in relation to every step taken to achieve the result but in relation to the final result. This is only a different way of saying that you have to look at the truth of the transaction (and if permissible) by going behind the façade of documentation or the series of steps taken. In our country, this approach has been approved by the Supreme Court every now and then and in one of the earliest cases Jiyajeerao Cotton Mills Ltd. V. CIT(1958) 34 ITR 888 it was held by His Lordship Justice T.L. Venkatarama Iyer (at page 897) that: M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 32 of 41 “Mr. Kolah argues that there is nothing wrong in business being done in such a way as to escape taxation. No exception can be taken to that statement. Every person is entitled so to arrange his affairs as to avoid taxation. But the arrangement must be real and genuine and not a sham or make believe, and the question now under consideration is whether the contracts with the brokers were genuine”. (emphasis supplied) That the courts (and Tribunals) always have the freedom to “go behind” the documents to find out the real intention of the parties has always been recognized. This rule presupposes that in a given case the real intention of the parties to a document/transaction/arrangement could be different from what it appears from it ex facie. The court must normally proceed on the basis of the professed intention, but if that is under doubt or is disputed or challenged, then its power to find out the real intention of the parties by ignoring the apparent has to be, and has always been conceded. It is difficult to imagine where this is possible except in cases of a make believe arrangement or a subterfuge or a dubious or colourable device adopted. In such a case, the court will be merely removing the façade to expose the real intention of the parties cleverly cloaked and if that intention is discovered to be the evasion of taxes, it cannot be given effect to merely because all the steps taken as component parts of the arrangement are legally correct or valid. This is far different from saying that the court cannot re-write an agreement for the parties. A case of re-writing the agreement arises where what the income-tax authorities do is not to doubt or dispute the genuineness of the transaction/agreement/document, but to add to its terms what they think should be added or delete there from what according to them should be deleted so that it can be interpreted in their favour enabling them to collect more taxes. This approach has been strongly deprecated by the courts. The right of the parties to enter into transactions according to their free will and choice has always been protected, the only rider being that both the professed ties have without exception bee denied the right to vary the terms of the contract between the parties merely because the agreed terms are not to their liking in the sense that they do not add to the statistics of collection of taxes. Cases on point are CIT v. Motor & General Stores (P) Ltd. (1967) 66 ITR 692 (SC) and CIT v. B.M. Kharwar (1969) 72 ITR 603 (SC). This approach has been reiterated recently by the Gujarat High Court in Banyan & Berry v. CIT (1996) 222 ITR 831. McDowell & Co. Ltd.’s case (supra) therefore did not depart from what has already been laid down by the Supreme Court earlier except that the law regarding tax evasion was restated in much stronger expressions such as “dubious device”, “subterfuge”, “colourable transaction”, etc. The judgement did not permit the income-tax authorities to re-write or make a new contract for the parties nor did it say that they could not go behind the documentation in an attempt to find out the real intention of the parties. If the real intention of the parties id discovered to be something different from the intention professed in the document, the income-tax authorities are at liberty to brand the same as a subterfuge or a dubious device or a colourable transaction. Our attention was drawn to the decisions of the Supreme Court and High Courts rendered after the judgement in McDowell & Co. Ltd.’s case (supra). We may first M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 33 of 41 refer to CWT V. Arvind Narottam (Individual) (1988) 173 ITR 479 (SC) where the Supreme Court refused to apply McDowell & Co. Ltd.’s case (supra) to a case where the deeds were clearly worded that the deeds did not intend to convey what they professed. The McDowell & Co. Ltd.’s case (supra) rule was convassed by the Revenue before the Supreme Court without any evidence to show that the documents were a subterfuge, an artifice or embodied colourable transactions. In M.V. Valliappan V. CIT (1988) 170 ITR 238 (Mad.) the amendment made to the Income-tax Act to enable the assessing authority to refuse to recognize partial partitions of Hindu Undivided Families was challenged and the Revenue relied on McDowell & Co. Ltd.’s case (supra) before the Madreas High Court. McDowell & Co. Ltd.’s case (supra) could not be invoked by the Assessing Officer in that case because the orders were all passed by him in 1983 and 1984, before McDowell & Co. Ltd’s case (supra) was decided (in 1985). While recognizing that the rule would not apply to a genuine transaction or arrangement in which the assessee apply to a genuine transaction or arrangement in which the assessee really and in fact parts with a part of his property, just because there is a reduction of tax liability, it was held that honest and bona fide transactions cannot be hit by the McDowell & Co. Ltd.’s case (supra) approach merely because there is a reduction in the tax liability. The madras High Court did not understand the Mc Dowell & Co. Ltd.’s case (supra) rule as holding that all transactions, irrespective of their genuineness, which resulted in a reduction of tax liability would be hit by a rule. In Banyan & Berry’s case (supra), the Gujarat High Court confirmed the right of freedom of business and to enter into commercial transactions and confined the applicability of the rule in McDowell & Co. Ltd.’s case (supra) to a case where a colourable device or a subterfuge is adopted to evade the tax liability. The applicability of the approach in McDowell & Co. Ltd.’s case (supra) should be confined to a case where the sole motive of the parties to the transaction is the avoidance of tax and for this purpose the courts are bound to enquire into the reality. Union of Inia v. Playworld Electronics (P) Ltd. (1990) 184 ITR 308 (SC) is a case where it was reiterated that tax planning may be legitimate provided it is within the framework of the law. It was stated that colourable devices cannot be part of tax planning. It was also observed that one must find out the true nature of the transaction. In the light of these cases in which McDowell & Co. Ltd.’s case (supra) has been considered, it seems to us that the proper way to understand the observations in McDowell & Co. Ltd.’s case (supra) regarding tax evasion, read as a whole and in perspective, is to hold that all commercial arrangements and documents or transactions have to be given effect to, even though they result in a reduction of the tax liability, provided that they are genuine, bonafide and not colourable transactions. The contention that the validity of the transactions cannot be looked into within the frame of the question is, with respect, of the mark because merely legal validity does not necessarily give a touch of genuineness to the transaction, which depends on various other considerations. Therefore, the further contention that since the question referred to the Special Bench is limited to the application of the rule laid down in McDowell & Co. Ltd.’s case (supra), it presupposes that the sale and lease-back transaction is valid and therefore it cannot be held to be non-genuine, M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 34 of 41 cannot be accepted. Every step in the whole transaction may be legally correct, but still whether the whole transaction is genuine in the sense that it is not a subterfuge or colourable device or a dubious method is an entirely different question not dependent solely on the fact that every step in the transaction is legally valid or correct.” 5.2.2 As seen from the above orders of the Tribunal, it is pertinent to mention herein that authorities always have the freedom to “go behind” documents to find out the real intention of the parties has always been recognized. Therefore, to consider the impugned transaction as a colourable devices aimed at tax evasions, one has to look at the truth of the transaction by going behind the façade of documentation or the series of steps taken. That rule presupposed that in a given case the real intention of the parties to a document/transactions/arrangements could be different from what it appears from it ex-facie. The department/court must normally proceed on the basis of professed intention, but if that is under doubt, or is disputed or challenged, then it has a power to find out the real intention of the parties by ignoring the department have the freedom to go behind by removing the façade to expose the real intention of the parties cleverly cloaked and if that intention is discovered to be the evasion of taxes, it cannot be given effect to merely because all the steps taken as component parts of arrangement are legally correct and valid. However, any transaction in which the professed intention and the intention gathered from the documentation are the same, must be considered to be genuine transaction and not colourable device adopted to evade tax by assessee. In the present case, the parties involved herein entered into a transaction according to their free will and that choice has always been protected, the only rider being that both the professed intention and real intention should be the same. The departmental authorities have no right to vary the terms M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 35 of 41 of contract are result of the transaction between the parties merely because the agreed terms are not to their liking in the sense that they do not add to the collection of the taxes. In our opinion, in the present case, the transaction have to be given effect as they are executed on bona fide belief though it was resulted in reduction of tax liability since these transactions are genuine, bona fide and not colourable transactions. Further, the impugned transaction undertaken by T. Nadakrishna was right from the inception conceived and controlled by himself not by the present assessee M/s. SPR Spirits Pvt. Ltd. 5.3 To sum up as held by Hon’ble Supreme Court, Binapani Paul (6 SCC 100) (para 5), that the source of money had never been the sole consideration. It is merely one of the relevant considerations but not determinative in character. This court ultimately concluded after considering its earlier judgment in the case of Valliammal v. Subramaniam [2004] 7 SCC 233 that while considering whether a particular transaction is benami in nature, the following six circumstances viz.,

'(1) the source from which the purchase money came; (2) the nature and possession of the property, after the purchase; (3) motive, if any, for giving the transaction a Benami colour ; (4) the position of the parties and the relationship, if any, between the claimant and the alleged Benamidar; (5) the custody of the title deeds after the sale; and (6) the conduct of the parties concerned in dealing with the property after the sale. (Jaydayal Poddar v. Mst. Bibi Hazra (supra), SCC page 7, para 6)

M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 36 of 41 cumulatively or collectively to be taken as a guiding factor. In the present case, all these conditions not fulfilled at all. Accordingly, this ground of appeal of the assessee is allowed. Other grounds of appeal are infructuous in view of our finding that this impugned transaction cannot be considered as a transaction carried out by T. Nadakrishna on behalf and in the name of present assessee. Accordingly, all the other grounds of appeal are only academic which require no adjudication.

6. In the result, appeal of the assessee in is allowed.

7. Now coming to the revenue’s appeal in Tribunal vide order in ITA No.575/Bang/2020 dated 27.5.2022 wherein held as follows:

ITA No.575/Bang/2020 for AY 2007-08 (Revenue’s appeal):- 52. This appeal by revenue challenging the protective additions deleted by the CIT(A) and on the reason that the addition is sustained in the hands of M/s. SPR Spirits Pvt. Ltd. Since we have remitted the substantive assessment back to the file of CIT(A) for fresh consideration, as discussed in para 48 of this order. This issue should also go back to CIT(A) to decide both the appeals together in view of the judgement of Hon’ble Gujarat High Court in the case of Surendra Gulabchand Modi (140 ITR 517) and Rajesh Shantilal Adani (20 GSTR 526) and issue in dispute accordingly is remitted to the CIT(A) for fresh consideration. The CIT(A) has to decide this issue within six months from the d ate of receipt of this order as this is old matter relating to the AY 2007-08.

7.1 Thereafter, the ld. CIT(A) vide order dated 26.6.2023 has held as under: “7.0 The Assessing officer had concluded the assessment in the case of assessee shri T. Nadakrishna and M/s SPR Spirits Pvt Ltd for the year under consideration wherein business income of Rs. 7,30,77,776/- was assessed protectively in the hands of assessee and substantively in the hands of M/s SPR Pvt Ltd. Further, It is noted that substantive addition made by the AO in the case of SPR Spirits Pvt Ltd (formerly known as SPR Group Holdings Pvt Ltd) has already been confirmed by this office vide Appellate Order passed u/s 250 of Income Tax Act in dated 24-OK 2023. Since, substantive M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 37 of 41 addition made by the AO in the case of SPR Spirits Pvt Ltd has already been confirmed, protective addition made by the AO in the case assessee Shri T. Nadakrishna does not survive. Therefore, the protective addition made in the hands of assessee is deleted. Grounds raised above by the assessee from 1 to 7 are not being adjudicated since it become academic in nature.”

7.2. Thus, the ld. CIT(A) deleted the protective additions made by ld. AO in the hands of present assessee on the ground that substantive assessment has been confirmed by him in the hands of M/s. SPR Spirits Pvt. Ltd. for the same assessment year.

7.3 Against this, revenue filed the appeal before us wherein raised following grounds:

1) “The order of the learned CIT(A) is opposed to law and facts of the case. 2) The CIT(A) erred in deleting the addition made on a protective basis when the substantive assessment in the case of M/s. SPR Spirits Pvt. Ltd. had not reached finality. 3) The CIT(A) erred in not following the directions of the Hon'ble ITAT to decide the appeal in view of the judgement of Hon'ble Gujarat High Court in the case of Surendra Guiabchand Modi (140 ITR 517) and Rajesh Shantilai Adani (20 GSTR 526). 4) For these and other grounds that may be urged upon, the order of Jhe CIT(A) may be reversed and that assessment order to be restored.”

8.1 Further, she submitted that on perusal of purchase deed submitted by the assessee during the assessment proceedings it was noted that the assessee had purchased the said lands during the current financial year and transferred the lands to the developer during the current financial year itself. It was clearly evident that the duration of land holding by the assessee was short term. The assessee vide his submissions dated 20-01-2014 had reiterated that the submissions filed by the assessee was not accepted by the ld. AO on the ground that he had not submitted any copies of RTCs, bills and vouchers for sale of agriculture produce. Further, the ld. AO at para no. 19 of the assessment order stated that the assessee's only source of income was from salary of Rs. 66,000/- from M/s Chamundi Distilleries Pvt Ltd and the capital of the assessee at the beginning of the current asst. year was Rs.1,66,300 and opening cash balance was Rs. 13,300/-. Assessee had also not shown any fixed asset in the Balance Sheet. He was asked to produce the details of sources of funds for purchase of property. In reply he stated that Amount received from sister concern while the assessee being an individual cannot have any sister concern. During the assessment proceedings it was noted by the ld. AO on perusal of ledger extracts of the assessee and also from the confirmation furnished by the developers that amount of Rs. 1,85,00,000/- for purchase of land was paid by the M/s. SPR Developers Pvt Ltd. - M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 39 of 41 Arrack Division. So it was clear that the assessee was not having any source of income of his own while he had received money from M/s. SPR Spirits Pvt Ltd for purchase of land. The ld. AO concluded the assessment by assessing the Business income of Rs. 7,30,77,7767- protectively in the hands of assessee and substantively in the hands of M/s. SPR Spirits Pvt. Ltd. (Formerly known as SPR Group Holdings Pvt. Ltd.)

8.2 Further, she submitted that the ld. CIT(A) ought to have decided both appeals which were remitted to ld. CIT(A) by Tribunal collectively instead of deciding each appeal independently on different dates.

9.1 The above principles are squarely covered by the ruling of the Bangalore ITAT in the case of Sri D Dasappa in & 2223/Bang/2016, dated 09.02.2022, Sri M Thimmegowda in ITA Nos. 1035 and 1036/Bang/2019, dated 20.04.2022 and Smt. Leelavathy in ITA Nos. 752 to 755/Bang/2019, dated 18.04.2022. In these rulings, the facts involved the same transaction as is the subject matter of this appeal. In so holding, the ITAT relied on the ruling of the SC in Balbir Singh Maini (398 ITR 531). He also relied on the following rulings: a) CIT v. City Lubricants Ltd. (129 taxmann.com 267); Madras HC; b) Seshasayee Steels (P.) Ltd. v. CIT (421 ITR 46); SC; c) Pr. CIT v. Fardeen Khan (411 ITR 533); Bombay HC; d) ACIT v. Ijyaraj Singh (183 ITD 237); Jaipur ITAT. M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 40 of 41 9.2 In light of all of the above, the ld. A.R. submitted that the purported transfer of agricultural land is not taxable either in the hands of SPR Spirits Private Limited or T Nadakrishna. Therefore, the substantive and protective assessment orders of the ld. AO in the cases of SPR Spirits Private Limited or T Nadakrishna respectively should be quashed.

10. We have heard both the parties and perused the materials available on record. Since we have already deleted substantive additions in the case of M/s. SPR Spirits Pvt. Ltd. in as discussed in earlier para, the protective additions made by ld. AO in the hands of T. Nadakrishna required to be examined at the end of ld. CIT(A) on merit after giving opportunity of hearing to the assessee. It is needless to mention herein that the ld. CIT(A) also required to take note of our earlier orders of the Tribunal cited (supra) in Group cases of assessee in similar kind of transactions. Further, at this stage, we refrain from going into the merit of the issue raised by the assessee before us as the ld. CIT(A) has not given any finding on merit of the addition made by ld. AO and he has dismissed this appeal only on the reason that substantive addition made by ld. AO in the case of M/s. SPR Spirits Pvt. Ltd. has already been confirmed, protective addition made by ld. AO in the case of present assessee does not survive for the same assessment year. Now we have deleted the substantive addition made in the hands of M/s. SPR Spirits Pvt. Ltd., the protective addition required to be examined afresh in the light of our above observation. Accordingly, the issue in dispute is remitted back to the file of ld. CIT(A) for fresh adjudication after giving an opportunity of hearing to the assessee as observed by us herein. M/s. SPR Spirits Pvt. Ltd., Bangalore Nadakrishna Thimmaiah, Bangalore Page 41 of 41