Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI LALIET KUMAR & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M: This appeal is filed by M/s. Gorlas Infrastructure Private Limited (“the assessee”), feeling aggrieved by the order passed by the learned Commissioner of Income Tax (Appeals)-12, Hyderabad (“Ld. CIT(A)”), dated 06.08.2021 for the AY 2014-15.
2. The grounds raised
by the assessee reads as under : “
1. 1. The order of the learned Cornmissioner of Income Tax (Appeals) is against the law, weight of evidence and probabilities of case.
2. The learned Commissioner erred in assuming that the Assessing Officer provided to assessee the reasons recorded for issue of notice u/s 148, whereas, the AO has not provided reasons to the assessee, therefore, erred in not holding the assessment as an invalid assessment.
3. The learned Commissioner ought to have appreciated that there is no fresh information before the Assessing Officer except what has already been provided in the financials of the subject assessment year, therefore, erred in not holding the assessment as an invalid assessment, in the absence of any fresh material with the Assessing Officer to assume the escapement of income.
4. The learned Commissioner ought to have appreciated that the Assessing Officer has taken approval for issue of notice u/s 148 for assessing the transaction as income from capital gains and also issued the notice with the same belief, however, assessed the transaction as business income. Therefore, the learned CIT erred in not deleting the addition made as business income.
5. The learned Commissioner ought to have appreciated that no Sale has taken place in respect of the land at Athivalli Village of Medchal Mandal, R.R.District, as the risks and rewards of ownership are not transferred, therefore, erred in confirming the transactions as sale. 6. The learned Commissioner erred in assuming that the assessee handed over the title deeds to PAL who in turn has taken loan from the Bank by keeping the land as security, without appreciating the fact the assessee offered the land/asset as collateral security and further erred in not appreciating the fact that the offering of land as security has taken place prior to proposal of sale of land, therefore, erred in confirming the order of the AO. 7. The learned Commissioner erred 'in assuming that the physical position of the asset is handed over to the purchaser, without identifying who is the probable purchaser, merely on account of giving collateral security, therefore, erred in assuming that the sale has taken place, therefore, erred in confirming the order of the AO. 8. The learned Commissioner ought to have appreciated that the subject transaction of sale is before the Bombay High Court for adjudication and also the ED and CBI have filed charge sheet against the assessee with allegations of collusion with Parekh Group, therefore, erred in assuming that the sale transaction has taken place and therefore, erred in confirming the order of the AO. 9. The learned Commissioner ought to have appreciated that an amount of Rs.16.53 Cr is received. from the five concerns and further amount of Rs.34.O7Cr is allowed to be adjusted towards advance, which was due to the Parekh group, therefore, only an amount ofRs.50.60 Cr is suppose to have received from the Parekh group, during the period relevant to the subject assessment year, therefore, erred in assuming that the assessee received total sale consideration of Rs.575 Cr during the period relevant to the subject assessment year, therefore, erred in confirming the order of the Assessing Officer. 10. The learned Commissioner erred in assuming that it is incumbent on the assessee company to book the entire sales of Rs.575 Cr as income during the period relevant to the subject assessment year and therefore, further erred in enhancing the assessed income by an amount of Rs.28.07 Cr.
The learned Commissioner erred in assuming that the assessee has furnished inaccurate particulars of income and further erred in initiating proceedings u/s. 271(1)(c) of the IT Act.
12. The learned Commissioner ought to have appreciated that the sale has not taken place as pcr the Sale of Goods Act, therefore, erred in confirming the transaction of advance as sale transaction and therefore, further erred in confirming the order of the Assessing Officer.
13. The learned Commissioner ought to have appreciated that if PAI, group can sell or allowed to sell the subject property, then it can be said that the risks and rewards are transferred, in the absence of such a right to the alleged purchaser, therefore, it cannot be said that risks and rewards are transferred, therefore, the learned CIT erred in assuming that the sale has taken place and therefore, erred in confirming the order of the AO.
The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.”
The brief facts of the case are that, survey operations were conducted by the Investigation Directorate, Mumbai on 16.09.2016 in the case of M/s. Sikkim Ferro Alloys Ltd. and its group concerns in which the assessee was one of the sister concerns. The case of the assessee for the A.Y. 2014-15 was reopened u/s.147 of the Act. The assessee was engaged in the business of real estate development . In the books of accounts for A.Y.2014-15, the assessee had shown amount of Rs.546,92,99,950/- as advance received against sale of land admeasuring 47.34 acres situated at Akkilvelli Village, Medchal Mandal (“Impugned Land”). The total agreed sales proceeds to be received was Rs.575 crores. Hence the assessee had already received in advance, 95.11% of the total agreed sales proceeds . Therefore, the Learned Assessing Officer (“Ld. AO”) treated the advance received of Rs.546,92,99,950/- as the total Revenue receipt for the A.Y.2014-15 by adopting Accounting Standards-7 issued by the Institute of Chartered Accountants of India (“AS-7”) and completed the assessment u/s.143(3) r.w.s. 147 of the Income Tax Act,1961 (“the Act”) on 27/12/2019 and determined the total income of the assessee at Rs.537,19,35,634/-.
4. Feeling aggrieved by the order passed by Ld. AO, the assessee filed appeal before the Ld. CIT(A), who enhanced the Revenue receipt from Rs.546,92,99,950/- to Rs.575 crores by treating the total agreed sales proceeds as total Revenue receipt and enhanced the assessed total income of the assessee from Rs.537,19,35,634/- to Rs. 564,76,24,131/-.
5. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The assessee raised as many as 14 grounds in this appeal. However during his submission before us the argument of Learned Authorised Representative (“Ld. AR”) was mainly on two issues. First issue is with regards to the challenge of the assessee regarding the validity of issue of notice by the Ld. AO u/s 148 of the Act and the second issue is with regards to the challenge of the assessee regarding the additions made by the Ld. CIT(A) by treating the total agreed sales proceeds of Rs.575 crores as total Revenue receipt.
With regards to the first issue, the Ld. AR submitted that the Ld. AO had not provided the reasons recorded for issue of notice u/s 148 of the Act to the assessee. He further submitted that there was no fresh information before the Ld. AO except what had already been provided in the financials of the subject assessment year. He also submitted that the Ld. AO had taken approval for issue of notice u/s 148 of the Act for assessing the transaction as income from long term capital gains (“LTCG”) and also issued the notice with the same reason, however, assessed the transaction as business income. The Ld. AR also brought our attention to para no. 3, 5, 6(page no. 69 & 70 of the P.B.) of the reasons recorded by the Ld. AO and submitted that the reopening has been done by the Ld. AO for the purpose of verification and not on the basis of his belief, which is not permissible u/s 148 of the Act. Hence the Ld. AR argued that under these circumstances the issue of notice u/s 148 is bad in law, is not a valid notice and the order passed by the Ld. AO on the basis of this notice is required to be quashed.
Per contra, the Ld. DR placed heavy reliance on the order of authorities below and requested to uphold the order of the Ld. CIT(A). The Ld. DR also submitted that the Ld. AO had supplied the reason to the assessee vide his show cause notice dated 9/11/2019. Hence this ground of the assessee is not valid. He further submitted that the reopening made by the Ld. AO was on proper information with him and the notice issued by the Ld. AO u/s 148 was a valid notice in law.
We have heard the rival contentions, perused the material available on record and gone through the orders of the Revenue authorities. The argument of the Ld. AR with regards to the issue of notice u/s 148 of the Act is that the notice had been issued without any fresh informations, but issued on the basis of the informations already on record, which had been provided in the financial statements of the assessee with the return of income. Hence he submitted that the notice had been issued without any new information and hence it was in the nature of change of opinion on the part of the Ld. AO, which is not permissible under the law for the purpose of issue of notice u/s 148 of the Act. There is no dispute about the facts that the return filed by the assessee had been processed u/s 143(1) of the Act and no assessment had been done u/s 143(3) of the Act. Under the similar issue the Hon’ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 held that an intimation u/s 143(1) of the Act cannot be equated with an assessment and hence, there is no question of a change of opinion, when no opinion was formed at the time of issuing the intimation u/s 143(1) of the Act. Hence respectfully following the decision of the Hon’ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.(Supra) we are also of the concerned opinion that there was no change of opinion on the part of the Ld. AO in this case, as no assessment had been done u/s 143(3) of the Act. Hence the notice issued by the Ld. AO u/s 148 of the Act is valid and as per law. Hence the objection of the assessee on this count is dismissed.
9. As far as the objection of the Ld. AR with regards to non supply of reason by the Ld. AO to the assessee is concerned, we have gone through the show cause notice dated 09/11/2019 issued by the Ld. AO, in which the Ld. AO has provided the reasons for reopening to the assessee. Hence this objection of the assessee is also not acceptable and is dismissed.
Now coming to the argument of the Ld. AR with regards to their contention that the Ld. AO had issued notice u/s 148 of the Act, for the purpose of verification, which is not permissible under law. He also contented that reopening had been done on account of escapement of LTCG, however the Ld. AO completed the assessment by making additions under the head profit and gains from business and profession. The Ld. CIT(A) had examined the contention of the assessee and in Para no. 5.6 and 5.7 of his order has held as under : “5.6 Coming to the merits of reopening the case, as already stated before, there was no scrutiny assessment u/s. 143(3) of the Act done by the AO prior to issue of notice u/s. 147 of the Act. Further, four years have not elapsed from the assessment order under consideration and therefore the AO has rightly taken the approval of the AddI.CIT,Range-2, Hyderabad before issuing the notice u/s. 148 of the Act. Since there was no scrutiny assessment done prior to the issue of notice u/s. 148, there is no occasion for the AO to form an opinion on this issue. Explanation 2(b) of Section 147 clearly states that when no assessment has been made and where the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return then it shall be deemed to be a case where income chargeable to tax as escaped assessment. For ready reference, the relevant Explanation 2(b) of Section 147 is reproduced below : Explanation 2 - For the purposes of this section, the following shall be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) …………………………………………………………………………………. (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (ba) …………………………………………………………………………………. 5.7 It is clear from the plain reading of the above Explanation, that for the purposes of section 147, where no assessment has been made and the assessee has understated his income, then it is deemed to be a case where income chargeable to tax has escaped assessment. In this case, consequent to survey action in appellant company's group concern, AO has recorded detailed reasons that income on sale of Hyderabad land to the extent of Rs. 537.16 crores has escaped assessment. AO has also obtained the approval of the Addl.CIT, Range-2, Hyderabad as per section 151 of the IT Act before issuing the notice. Therefore, the reasons were properly recorded by the AO following due procedure and there is no case of change of opinion by the AO.Accordingly, Ground Nos. 5 & 6 are DISMISSED.” 10.1 From the perusal of the above, it is abundantly clear that the income will be deemed to have been escaped as per explanation (2)(b) of Section 147, if no assessment has been made pursuant to the return filed by the assessee and it was noticed by the Assessing Officer that the assessee had understated the income or claimed excessive loss etc. In the present case, the Ld. AO had clearly mentioned in the reasons for reopening that the assessee has prima facie understated the income and therefore, the Ld. AO was right in invoking section 147 of the Act for reopening the assessment.
10.2 With respect to the reopening of the assessment for the purpose of verification as pointed out by the Ld. AR for the assessee is concerned, this argument of the assessee is devoid of any merit as the balance sheet of the assessee along with the other documents were enough for the Ld. AO to made a belief of the understatement of the income and the Ld. AO was only required to make out a prima facie case for reopening and he was not required to deeply verify the same for the purpose of reopening. In view of the above, we do not find any merit in the submission of the assessee that the reopening made by the Ld. AO was without any basis and is required to be quashed. In the light of the above, the grounds raised by the assessee with respect to reopening of the assessment are dismissed.
Adjudication on merit : 11. The Ld. AR submitted that, no actual sale of the Impugned Land had been taken place, only advances had been received by the assessee in pursuance of agreement to sale. However, the Ld. CIT(A) considered the total agreed value of sales proceeds as the Revenue receipt of the assessee, which is against the accepted legal principle and hence is bad in law and therefore required to be deleted. He further submitted that the revenue authority have treated the advance received as revenue receipt on the basis of AS-7. He further submitted that, AS-7 is applicable in case of construction contracts only. He also submitted that, in the case of the assessee, advance is received by the assessee on account of agreement for sale of land and not on account of any construction contract. Therefore in the case of the assessee AS- 7 is not applicable. 11.1 The Ld. AR also submitted that, the assessee and M/s Parekh Aluminium limited(“ M/s PAL”) had a business relation from 2005- 2006. M/s PAL had to furnish some property to bank as security for obtaining credit facility from bank. Therefore, they approached the assessee and requested them to provide their property as security to the bank for availing credit facility from the bank. As the assessee had a long business dealing with M/s PAL, to strengthen the business relations, the assessee agreed to provide their property as security to the bank, so that M/s PAL can avail credit facility from the bank. Finally the assessee give their impugned property as security to Indian Overseas Bank, nariman point branch, Mumbai on 16/03/2012. It is important to note that the assessee had given their property as security to bank, but the actual possession of the property was still with the assessee. It was promised by the director Late Sri Amitabh parekh to redeem the security of the impugned property on or before 30th September 2012. However the property could not be got released from the bank during the assessment year under consideration also. As the Impugned Land was under the possession of the assessee, was given as security to the bank, no transfer of the title of the Impugned Lad had been executed, the contention of the revenue that there was a sale is incorrect and therefore the additions made by the revenue are required to be deleted. 11.2 The Ld. AR also submitted that M/S PAL was neither redeemed their property from the bank nor paid the balance agreed sum due against the sale of Impugned Land to complete the deal of sale of the Impugned Land by a registered sale deed. Therefore the assessee filed a suit against M/s PAL before the Hon’ble Bombay High court for recovery of balance agreed sum and to complete the deal of sale of the Impugned Land by a registered sale deed. However the Ld. AO misinterpreted and stated that as the assessee had approached the hon’ble high court for recovery of balance sum, there was a valid sale executed by the assessee.
12. Per contra, the Ld. DR placed heavy reliance on the order of authorities below and requested to uphold the order of the Ld. CIT(A). The Ld. DR reiterated that, as the major portion of the agreed sales proceeds had been received by the assessee, the Revenue Authorities were justified to treat the advance received as revenue receipt and making the corresponding addition. He also submitted that the assessee has made a claim before the hon’ble court for realisation of the balance amount receivable from the buyer and if there was no actual sales, why the assessee had made such a claim before the hon’ble court. He opposed to the claim of the assessee for deletion of the addition made by the revenue authority.
We have heard the rival contentions, perused the material available on record and gone through the orders of the Revenue authorities.
13.1. The Ld. CIT(A) in para 6.6 of his order, has recorded that the assessee had passed journal entries to the extent of Rs.512.85 crores as receivable. It was submitted that the assessee has only received Rs.16.53 crore from five sister concerns. However, the Ld. CIT(A) has contradicted the submissions of the assessee while relying upon the confirmation letter filed by the assessee in the suit filed against M/s. PAL and others before the Hon’ble Bombay High Court and wherein the confirmation was given by the assessee on 27.03.2014 wherein it was confirmed in paragraph 8 of the letter as under (page no. 35 & 36 of order of CIT(A) : “GORLAS INFRASTRUCTURE PVT. LTD. Regd. Off. Plot No. 1245, Level-2, Road No.62, Jubilee Hills, Hydeerabad - 500 033, Andhra Pradesh Date: 27-03-2014 Mr. Amit chaturvedi Chaturvedi & Shah (Chartered Accountants) 714-715, Tulsiani Chambers, 212, Nariman Point, Mumbai - 400 021. Dear Sir, Sub: Balance Confirmation of M/s. Parekh Aluminex Ltd.
We are in receipt of letter dated 22.02.2014 written by M/s. Parekh Aluminex Ltd. requesting us to provide balance confirmation. In the said letter, we have been asked to directly send our balance confirmation to your esteemed organisation.
2. Accordingly, we are writing the letter to you. In regards to the same, we would like to state as under.
3. Kindly note that we own land situated at Athivelli Village and Grampanchayat Medchal, Range Reddy District, totally admeasuring 47.39 Acres.
Our director Mr. Kamlesh Kanungo and Late Amitabh Perekh (the then Chairman and Managing Director of M/s. Parekh Aluminex Ltd.) had business relations since long and various concerns of our director Mr. Kamlesh Kanungo has been regularly supplying material to M/s. Parekh Aluminex Ltd.
Based on our relation with Ws. Parekh Aluminax Ltd, and late Amitabh Parekh (the then Chairman and Managing Director of M/s.Parekh Aluminex Ltd.) we had given our consent to mortgage the above referred property as third party collateral against the credit facilities of M/s. Parekh Aluminex Ltd. from the Bank. 6.The Company M/s. Parekh Aluminex Ltd. was not able to return our above referred property and therefore meeting and discussions of our director Mr. Kamlesh Kanungo was held with late Amitabh Parekh (the then Chairman and Managing Director of M/s.Parekh Aluminex Ltd.) 7. Pursuant to the same, late Amitabh Parekh (the then Chairman and Managing Director of M/s. Parekh Aluminex Ltd.) for and on behalf of M/s.Parekh Aluminex Ltd., agreed to purchase and acquire the above referred property by the Company (M/s.Parekh Aluminex Ltd.), on as is where is basis, for the total price of Rs. 575,00,00,000/- (Rupees Five hundred Seventy five crores only). 8.We would like bring to your notice that as per understanding, it was agreed that a sum of Rs. 34,07,99,950/- (Rupees Thirty four Crores seven lacs ninety nine thousand nine hundred fifty only) received by us from the Company, and Rs.44,00,00,000/- Rupees Forty four crores only) received by M/s.Jai Shelters Pvt. Ltd., Rs.379,00,00,000/- (Rupees Three hundred seventy nine crores only) received by Jai Bhagvati Impex P. Ltd., Rs. 1,25,00,000/- (Rupees One Crore twenty five lacs only) received by Megh Leasing & Investments P. Ltd., Rs. 9,60,00,000/-(Rupees Nine Crores sixty lacs only) received by Wescon Finance & Leasing P. Ltd and Rs. 79,00,00,000/- (Rupees Seventy nine Crores only) received by Jai Aluminex P. Ltd from the Company, would be given credit and adjusted against the total price of Rs.575,00,00,000/-(Rupees Five hundred seventy five crores only).
9. M/s.Parekh Aluminex Ltd., therefore has to pay to us the balance amount of Rs.28,07,00,050/- (Rupees Twenty eight crores seven lacs fifty only). Accordingly, the Company M/s.Parekh Aluminex Ltd., has to pay the above Rs.28,07,00,050/- (Rupees Twenty eight crores seven lacs fifty only), rightly due to us and execute the sale deed and take possession and settle the account. Thanking you, Yours truly, For GORLAS INFRASTRUCTURE PVT. LTD. Authorized Signatory.”
14. The Ld. CIT(A) has recorded in para 6.6.1 that the assessee company is the owner of the Impugned Land and the Impugned Land was given as collateral with Indian Overseas Bank, Mumbai to facilitate M/s. PAL to raise loans from the bank. It is the further case of the Ld. CIT(A) that M/s. PAL was required to execute the purchase of Santacruz Property but due to some reasons, it was cancelled and thereafter, it was mutually agreed between M/s. PAL and the assessee that M/s. PAL will purchase the Impugned Land for Rs.575 crore. The Ld. CIT(A) has mentioned that the agreement was for purchase of the property on “as is where is” basis .The Ld. CIT(A) further mentioned in paragraph 6.2 that agreement of sale for Impugned Land was agreed upon in October, 2012. The Ld. CIT(A) further mentioned at para 6.3 that the assessee company acknowledges the existence of agreement between the assessee and M/s PAL for the Impugned Land and further acknowledges the amount of Rs.546.92 crores were adjusted towards the sale consideration. The Ld. CIT(A) further mentioned about the balance confirmation in para 6.6.5 of his order.
The Ld. CIT(A) relied upon the definition of section 2(13) of the Act which defines business for the purposes of taxing the sale consideration adjusted by the assessee to an extent of Rs.546.92 crores.
The Ld. CIT(A) has mentioned that the Impugned Land was not a capital asset and was stock-in-trade and can be sold as per the terms of the agreement between the buyer and seller and there is no need for any written agreement for it to be valid (para 6.6.6. of the order of Ld. CIT(A)). On the basis of this finding, the Ld. CIT(A) had issued enhancement notice and sought to brought on tax the entire sale consideration of Rs.575 crores, for that purposes, the Ld. CIT(A) relied upon AS-7 & Sale of Goods Act,1930(para 7.1). First of all, we have to deal with the findings of the Ld. CIT(A), whether the sale of immovable property, may be stock-in-trade can take place : I. without a written document, II. without registration, III. without payment of stamp duty and IV. Without handing over the possession of the property or not.
In our considered opinion to the above, questions has already been answered by the Hon’ble Supreme Court in catena of judgements, more particularly, in the case of Suraj Lamp Vs. State of Haryana,(2012) 340 ITR 1, wherein it was held as under : “6. In this background, we will examine the validity and legality of SA/GPA/WILL transactions. We have heard learned Mr. Gopal Subramanian, Amicus Curiae and noted the views of the Government of NCT of Delhi, Government of Haryana, Government of Punjab and Government of Uttar Pradesh who have filed their submissions in the form of affidavits. Relevant Legal Provisions 7. Section 5 of the Transfer of Property Act, 1882 (`TP Act' for short) defines `transfer of property' as under: "5. Transfer of Property defined : In the following sections "transfer of property" means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself [or to himself] and one or more other living persons; and "to transfer property" is to perform such act." xxx xxx Section 54 of the TP Act defines `sales' thus: "Sale" is a transfer of ownership in exchange for a price paid or promised or part- paid and part-promised. Sale how made. Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument. In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.
Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property. Contract for sale.-A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property." Section 53A of the TP Act defines `part performance' thus :
Part Performance. - Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract : Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.
8. We may next refer to the relevant provisions of the Indian Stamp Act, 1999 (Note : Stamp Laws may vary from state to state, though generally the provisions may be similar). Section 27 of the Indian Stamp Act, 1899 casts upon the party, liable to pay stamp duty, an obligation to set forth in the instrument all facts and circumstances which affect the chargeability of duty on that instrument. Article 23 prescribes stamp duty on `Conveyance'. In many States appropriate amendments have been made whereby agreements of sale acknowledging delivery of possession or power of Attorney authorizes the attorney to `sell any immovable property are charged with the same duty as leviable on conveyance.
Section 17 of the Registration Act, 1908 which makes a deed of conveyance compulsorily registrable. We extract below the relevant portions of section 17. "Section 17 - Documents of which registration is compulsory- (1) The following documents shall be registered, namely:-- xxxxx (b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property. xxxxx (1A) The documents containing contracts to transfer for consideration, any immovable property for the purpose of section 53A of the Transfer of Property Act, 1882 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement, then, they shall have no effect for the purposes of the said section 53A. Advantages of Registration 10. In the earlier order dated 15.5.2009, the objects and benefits of registration were explained and we extract them for ready reference :
"The Registration Act, 1908, was enacted with the intention of providing orderliness, discipline and public notice in regard to transactions relating to immovable property and protection from fraud and forgery of documents of transfer. This is achieved by requiring compulsory registration of certain types of documents and providing for consequences of non-registration. Section 17 of the Registration Act clearly provides that any document (other than testamentary instruments) which purports or operates to create, declare, assign, limit or extinguish whether in present or in future "any right, title or interest" whether vested or contingent of the value of Rs. 100 and upwards to or in immovable property. Section 49 of the said Act provides that no document required by Section 17 to be registered shall, affect any immovable property comprised therein or received as evidence of any transaction affected such property, unless it has been registered. Registration of a document gives notice to the world that such a document has been executed. Registration provides safety and security to transactions relating to immovable property, even if the document is lost or destroyed. It gives publicity and public exposure to documents thereby preventing forgeries and frauds in regard to transactions and execution of documents. Registration provides information to people who may deal with a property, as to the nature and extent of the rights which persons may have, affecting that property. In other words, it enables people to find out whether any particular property with which they are concerned, has been subjected to any legal obligation or liability and who is or are the person/s presently having right, title, and interest in the property. It gives solemnity of form and perpetuate documents which are of legal importance or relevance by recording them, where people may see the record and enquire and ascertain what the particulars are and as far as land is concerned what obligations exist with regard to them. It ensures that every person dealing with immovable property can rely with confidence upon the statements contained in the registers (maintained under the said Act) as a full and complete account of all transactions by which the title to the property may be affected and secure extracts/copies duly certified." Registration of documents makes the process of verification and certification of title easier and simpler. It reduces disputes and litigations to a large extent. Scope of an Agreement of sale 11. Section 54 of TP Act makes it clear that a contract of sale, that is, an agreement of sale does not, of itself, create any interest in or charge on such property. This Court in Narandas Karsondas v. S.A. Kamtam and Anr. (1977) 3 SCC 247, observed: A contract of sale does not of itself create any interest in, or charge on, the property. This is expressly declared in Section 54 of the Transfer of Property Act. See Rambaran Prosad v. Ram Mohit Hazra [1967]1 SCR 293. The fiduciary character of the personal obligation created by a contract for sale is recognised in Section 3 of the Specific Relief Act, 1963, and in Section 91 of the Trusts Act. The personal obligation created by a contract of sale is described in Section 40 of the Transfer of Property Act as an obligation arising out of contract and annexed to the ownership of property, but not amounting to an interest or easement therein." In India, the word `transfer' is defined with reference to the word `convey'. The word `conveys' in section 5 of Transfer of Property Act is used in the wider sense of conveying ownership... ...that only on execution of conveyance ownership passes from one party to another...." In Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra [2004 (8) SCC 614] this Court held:
Protection provided under Section 53A of the Act to the proposed transferee is a shield only against the transferor. It disentitles the transferor from disturbing the possession of the proposed transferee who is put in possession in pursuance to such an agreement. It has nothing to do with the ownership of the proposed transferor who remains full owner of the property till it is legally conveyed by executing a registered sale deed in favour of the transferee. Such a right to protect possession against the proposed vendor cannot be pressed in service against a third party.
It is thus clear that a transfer of immoveable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immoveable property can be transferred.
Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of TP Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under section 53A of TP Act). According to TP Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of TP Act enacts that sale of immoveable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter”
So far as the reliance of Ld. CIT(A) regarding application of the Sale of Goods Act, 1930 is concerned, section 2(7) of the said Act specifically stated that only movable goods are covered within the definition of “goods”. Therefore, the contention of the Ld. CIT(A) regarding application of the Sale of Goods Act, 1930 to the Impugned Land is not correct. For the sake of clarity section 2(7) of the Sale of Goods Act, 1930 is reproduced as under : “2. Definitions.—In this Act, unless there is anything repugnant in the subject or context,— (1) ----------- (2) ---------- (3) ----------- (4) ----------- (5)------------ (6) ----------- (7) “goods” means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;”
So far as the contention of the Ld. CIT(A) at para 6.6.6 is that, since the Impugned Land has been shown as stock in trade and not shown as capital assets, the provisions of transfer u/s 2(47) of the Act read with section 53A of the Transfer of Property Act are not applicable, hence stock in trade can always be sold as per the terms of agreement between the buyer and seller and there is no need for any written agreement for it to be valid, is also not correct. In deed, the conjoint reading of Section 54 of the Transfer Property Act read with Section 17 of the Registration Act, and Sections 32 and 34 of Stamp Duty Act, make it abundantly clear that the transfer of immovable property valued more than Rs.100/-, the registration under the Registration Act followed with the transfer of possession is sine qua non, therefore, in our understanding, the observation of the Ld. CIT(A) that the stock-in-trade (immovable property) can be sold as per the terms of the agreement and there is no need for any written agreement for it to be valid is without any basis and is wrong.
So far as the reliance of Ld. CIT(A) with regards to the applicability of AS-7 is concerned, it is also not correct. However we are in agreement with the submission of the Ld. AR that AS-7 is applicable to a person who is engaged in construction contracts. To have a better understanding of the facts of the case, it is relevant to reproduce the relevant portion of AS-7, which are to the following effect : “Accounting Standard (AS) 7 (revised 2002) Construction Contracts [This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its objective, the Preface to the Statements of Accounting Standards1 and the ‘Applicability of Accounting Standards to Various Entities’ (See Appendix 1 to this Compendium).] Objective The objective of this Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the recognition criteria established in the Framework for the Preparation and Presentation of Financial Statements to determine when contract revenue and contract costs should be recognised as revenue and expenses in the statement of profit and loss. It also provides practical guidance on the application of these criteria.
Scope 1 This Standard should be applied in accounting for construction contracts in the financial statements of contractors. Definitions 2 The following terms are used in this Standard with the meanings specified: 2.1 A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.”
On perusal of above, it is abundantly clear that AS-7 is applied in accounting for construction contracts in the financial statements of contractors . Further the construction contracts is defined in AS-7, according to which, a construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. However in the present case, the advanced received by the assessee is on account of agreement for sale of land and not on account of any construction contract. Hence in our considered opinion AS-7 is not applicable to the assessee. Therefore the advance received by the assessee cannot be treated as revenue receipt in the hands of the assessee on this count.
However Accounting Standard-9 issued by the Institute of Chartered Accountants of India titled as “Revenue Recognisation” (“AS-9”) deals with the issue, when the revenue is to be recognised. The relevant para of AS-9 is reproduced as under, to have a better understanding of the issue :
“Accounting Standard (AS) 9 (issued 1985) Revenue Recognition [This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the Preface to the Statements of Accounting Standards and the ‘Applicability of Accounting Standards to Various Entities’ (See Appendix 1 to this Compendium).] Introduction 1. This Standard deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. The Standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from — the sale of goods, — the rendering of services, and — the use by others of enterprise resources yielding interest, royalties and dividends.
This Standard does not deal with the following aspects of revenue recognition to which special considerations apply: (i) Revenue arising from construction contracts; (ii) Revenue arising from hire-purchase, lease agreements; (iii) Revenue arising from government grants and other similar subsidies; (iv) Revenue of insurance companies arising from insurance contracts.
3. Examples of items not included within the definition of “revenue” for the purpose of this Standard are: (i) Realised gains resulting from the disposal of, and unrealised gains resulting from the holding of, non-current assets e.g. appreciation in the value of fixed assets; (ii) Unrealised holding gains resulting from the change in value of current assets, and the natural increases in herds and agricultural and forest products; (iii) Realised or unrealised gains resulting from changes in foreign exchange rates and adjustments arising on the translation of foreign currency financial statements; (iv) Realised gains resulting from the discharge of an obligation at less than its carrying amount; (v) Unrealised gains resulting from the restatement of the carrying amount of an obligation. Definitions 4. The following terms are used in this Standard with the meanings specified:
4.1 Revenue is the gross inflow of cash, receivables or other consideration rising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends. Revenue is measured by the charges made to customers or clients for goods supplied and services rendered to them and by the charges and rewards arising from the use of resources by them. In an agency relationship, the revenue is the amount of commission and not the gross inflow of cash, receivables or other consideration. 4.2 Completed service contract method is a method of accounting which recognises revenue in the statement of profit and loss only when the rendering of services under a contract is completed or substantially completed. 4.3 Proportionate completion method is a method of accounting which recognises revenue in the statement of profit and loss proportionately with the degree of completion of services under a contract.
Explanation 5. Revenue recognition is mainly concerned with the timing of recognition of revenue in the statement of profit and loss of an enterprise. The amount of revenue arising on a transaction is usually determined by agreement between the parties involved in the transaction. When uncertainties exist regarding the determination of the amount, or its associated costs, these uncertainties may influence the timing of revenue recognition.
6. Sale of Goods 6.1 A key criterion for determining when to recognise revenue from transaction involving the sale of goods is that the seller has transferred the property in the goods to the buyer for a consideration. The transfer of property in goods, in most cases, results in or coincides with the transfer of significant risks and rewards of ownership to the buyer. However, there may be situations where transfer of property in goods does not coincide with the transfer of significant risks and rewards of ownership. Revenue in such situations is recognised at the time of transfer of significant risks and rewards of ownership to the buyer. Such cases may arise where delivery has been delayed through the fault of either the buyer or the seller and the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault. Further, sometimes the parties may agree that the risk will pass at a time different from the time when ownership passes.
6.2 At certain stages in specific industries, such as when agricultural crops have been harvested or mineral ores have been extracted, performance may be substantially complete prior to the execution of the transaction generating revenue. In such cases when sale is assured under a forward contract or a government guarantee or where market exists and there is a negligible risk of failure to sell, the goods involved are often valued at net realisable value. Such amounts, while not revenue as defined in this Standard, are sometimes recognised in the statement of profit and loss and appropriately described.”
From the perusal para no 1 of AS-9, it is abundantly clear that AS-9 is applicable to sale of goods and hence applicable to the case of the assessee. Further para no. 2 of the AS-9 specifies the cases to which AS-9 will not be applicable. The case of the assessee does not fall under this exceptional clause also. Further para no. 6 of AS-9 states that when the revenue should be recognised in the books of accounts. As per said par no-6 of AS-9, the revenue can be recognised only when the seller has already transferred the property in the goods to the buyer for a consideration and the significant risks and rewards of ownership has been transferred to the buyer. Hence only on fulfilment of these conditions the revenue can be recognised in the books of the assessee. However in the case of the assessee, neither the transfer of property in the goods to the buyer had been made, nor the transfer of significant risks and rewards of ownership had been transferred to the buyer. Therefore under such circumstances, it can not be hold that the sale of Impugned Land had been taken place during the year under consideration.
There is no dispute about the fact that the Impugned Land was in the possession of the assessee and title deed of the same was there with the bank during the assessment year under consideration. Once the Impugned Land was given as security, it creates an encumbrance on the property, meaning the property is subject to the rights of the bank and the owner can sell the property only after redeem of such security. The owner also doesn't have any right to transfer the title of the property to any person. Therefore under such circumstances the contention of the revenue that the property had been sold during the year under consideration, cannot be accepted.
Further, on the basis of our above findings, we are of the considered opinion that no sale have been materialised. We are not in agreement with the contention of the Ld. DR that, as the assessee has received major portion of the agreed amount of the sales proceeds and the assessee has made a legal claim against the buyer for recovery of balance sales proceeds, the agreement to sale should be treated as revenue receipt and is liable to be taxed. The contention of the Ld. DR that the property was sold on “as is where is” basis, is not found to be correct as there is no agreement brought to our notice by the revenue authority showing that there was written agreement between the parties or they have agreed to sell the property on “as is where is” basis. We also fail to understand when the title deeds were deposited with the bank and the possession was with the assessee, then how the sale can take place without the Release of title deed and further, without the transfer of possession of the property to M/s. PAL. There is yet another reason to conclude that no sale of the impugned land takes place as the parties are the litigants before the hon’ble High Court since December, 2015 and the assessee is before the Court claiming the balance amount from M/s. PAL along with interest and in the said litigation, it was categorically mentioned that the possession was still with the assessee. In view of the above, no sale of the impugned land took place during the year under consideration 26. Even assuming the contention of the revenue authority is correct that the sale of the Impugned Land had been took place during the A.Y. 2014-15, the contention of the revenue authority is based on the findings that a) there was agreement for sale of land, b) the Impugned Land had been given as security to the bank on behalf of M/s PAL and c) the assessee had received advances. However on perusal of the record we found that a)the alleged agreement for sale of land was made in October’2012(as per para no.6.6.2 of order of Ld. CIT(A)), b) the Impugned Land had been given as security to the bank on behalf of M/s PAL on 08/05/2012(as per letter at page no. 306 of PB) and c) the assessee had a credit balance of Rs. 34,07,99,950/- as on 31/03/2012 due to PAL(as per letter at page no. 61 of PB). The conjoint evaluation of agreement to sale, security of Impugned Land to the bank and amount of credit balance with the assessee, clearly shows all such events did not falls in A.Y. 2014-15. Hence on this basis also no additions on account of sale of land can be made in A.Y.2014-15.
On the basis of our findings as above, we are of the considered opinion that since no sale of Impugned Land had been executed during the year under consideration, no tax can be levied by the revenue on the advance amount received by assessee. Therefore, we allow the appeal of the assessee and delete the additions made by the revenue authorities. Accordingly, we allow the appeal of the assessee on merits .
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 14th August, 2024.