INCOME TAX OFFICER-1, RAIGARH vs. M/S SUMIT GLOBAL PVT. LTD, RAIGARH

O R D E R

Per Arun Khodpia, AM :

2. The revenue in its appeal has raised the following grounds :-

1. Whether in the facts and circumstance and in law, the Ld. CIT(A) is justified in deleting the addition of Rs. 7,79,92,5147- made by the AO being the short term capital gains, while the AO recorded his findings that the land sold was not an agricultural land?

2. Whether on the facts and circumstances of the case and on the points of the law Ld. CIT(A) was justified in deleting the addition of Rs. 7,79,92,514/- while the AO recorded his findings that the land was not used for agricultural purpose and as per land 2 CO No.10/RPR/18 records the same was shown as "Matashi" land and barren land? 3. Whether in the facts and circumstances and in law, the Ld. CIT(A) is justified in deleting the addition of Rs. 7,79,92,514/- while the AO recorded his findings that the assessee did not declare any agricultural income from the said land? 4. Whether in the facts and circumstances and in law, the Ld CIT(A) is justified in deleting the addition of Rs. 7,79,92,514/- holding that the sale executed by the assessee was null & void while the assessee had declared the sale in the return of income and had not reversed the transactions? 5. Whether in the facts and circumstances and in law, the Ld CIT(A) is justified in deleting the addition of Rs. 7,79,92,514/- as the assessee received consideration in the form of shares in the purchaser company and the said consideration was not reverted back in the return of income filed by the assessee? 6. The order of the Ld CIT(A) is erroneous both in law and on facts.

7. Any other ground that may be adduced at the time of hearing of appeal.

3 CO No.10/RPR/18 the short term capital gain from the transaction of sale of agricultural land of Rs.7,79,92,514/- after incurring some expenses for this transaction and on this income from short term capital gain, the assessee has claimed exemption of entire amount of Rs.7,79,92,514/-, being sale of agricultural land. However, the AO did not accept the contention of the assessee observing that the land sold by the assessee company is not an agricultural land, hence, the sale proceeds received from the transfer of such land is not eligible for the exemption. Accordingly, the AO added the total profit received by the assessee company of Rs.7,79,92,514/- from the transaction of the non-agricultural land treating the same as income of the assessee from the short term capital gain i.e. its business income for the year under consideration.

4 CO No.10/RPR/18 5. The Ld. CIT-DR , pertaining to the sole controversy of the appeal that the land transferred by the assessee company to M/s. Rashi Steel & power Ltd. during the year was not eligible for exemption available on the transaction of the sale of agricultural land, and an addition of Rs.7,79,92,514/- was made by the Ld. A.O treating the income from transfer as short term capital gain (STCG), has submitted that during the assessment proceedings, the Ld. AO noticed that the assessee had credited an amount of Rs.7,80,31,900/- as profit from the sale of agricultural land and in the computation of income this amount has been claimed as the exempted income. When the assessee was asked to explain the nature of land sold along with the details of the purchaser to whom the land has been sold. Also, the assessee was requested to explain that why not the land acquired by it would not be treated as its business assets rather than the capital assets. In response, the assessee submitted that the agricultural land purchased earlier was his capital assets and therefore, the income generated from sale of such land is assessee’s income from capital gain. The land was purchased by the assessee on 27.10.2010 at Rs.83,02,000/- and the said land was transferred by the assessee to M/s. Rashi Steel & Power Ltd. during the year under consideration at Rs.8,70,00,000/- which was adjusted against the share issued to the assessee by M/s. Rashi Steel & Power Ltd. The assessee has considered the difference in sale consideration and cost of acquisition as its STCG from transaction of land and has claimed the

6. The Ld. CIT-DR further submitted that the Ld. A.O on perusal of the memorandum of association of the company observed that the company has no object regarding to performing of any agricultural activities. It is also observed by the Ld. AO that the assessee company has not produce any evidence to substantiate agricultural activities conducted by the company at any point of time. It is also revealed by the Ld. AO that the assessee company had not shown any agricultural income during the year under consideration or previous year. This itself proves that the assessee company has not carried out agricultural activities. The A.O further deputed one Inspector to conduct enquiries in this respect, whereby the report of the Inspector also reveals that the land is a “Matasi Land” which equal to Barran land. As per report of the Inspector, no agricultural activities were carried out by the company on this land. As per the Ld. AO while going through the 22 Bindu report of Patwari which is a part of the registered document dated 18.10.2010 at point No.7 of the said report clearly shows that the land is a barren land. Also, at Point No.13 it is discernible that the purpose of the sale/purchase is shown as “other”. All these facts shows that land sold by the assessee company is not an agricultural land. It was further submitted by the Ld. CIT-DR that capital asset transferred by the assessee company attracts the capital gain. Since the holding of the company of the said land was for 6 CO No.10/RPR/18 approximately 11-12 months i.e. less than 36 moths, therefore, profit from sale of such land is chargeable to tax in the hands of the assessee company as STCG. Since land was not used for any agricultural activities in previous two years, the A.O has rightly observed that profit arising from the transaction of sale of such land was not eligible for exemption under the provisions of the Income Tax Act, thus, had made an addition of Rs.7,79,92,514/- in the hands of the assessee company.

7. The Ld. CIT-DR further submitted that on a perusal of the order of the Ld. CIT(Appeals) wherein additional evidence were submitted by the assessee a/w altogether new narrative pertaining to the impugned transaction of sale of land that land so sold was purchased by the assessee from Mr. Amit Chowhan and others who have fraudulently entered their names into the land revenue records and have become legal heir of Shri Basant who was original/real owner of the land. On this aspect, remand report was also called for from the A.O, therein, the Ld. AO has commented that since the land was purchased by the assessee company from fraudsters who were not real legal heirs of Shri Basant, therefore, the transaction of sale was reversed by the assessee company. However, return in the A.Y.2013-14 was not revised by the assessee company. The A.O was also mentioned in his remand report at Para 5 that the assessee has reversed entries pertaining to receipt of shares from M/s. Rashi Steel and Power Ltd., Bilaspur. However, the copy of the audit report and reversal of entries of shares allotted by the M/s. Rashi

7 CO No.10/RPR/18 Steel and Power Ltd. for A.Y.2016-17 was filed by the assessee but it has neither filed return of income for A.Y.2017-18 nor filed audit report for the said period on the site of the Ministry of Corporate Affairs (MCA), therefore, authenticity of the audit report could not be verified by the A.O. As the assessee has not revised exempt income claimed till date of remand report hence, the claim of exemption of income received in the year under dispute could not be accepted. In such circumstances, the claim of the assessee that as the land was agricultural land, therefore, income from transfer of such land was exempted or claim of the assessee that the land purchased/sold was a disputed land having bad title in the hands of seller is not sustainable. It was submitted by the Ld. DR that as per the copy of revenue records submitted by the assessee in its paper book at Page 43 having copy of order of the proceedings before the Land Revenue Court of Naya Paridhar, Tehsildar, Sub-Divisional Officer (R) which was started from 01.04.2010 i.e. relevant to A.Y.2010-11 whereas, transaction of sale or transfer of property has taken place in the A.Y.2013- 14. This clearly shows that the assessee was very much in knowledge that the property sold to M/s. Rashi Steel and Power Ltd. was a disputed property but this fact was not brought to the knowledge of the A.O neither computation of income, accounts of the assessee company, audit report of the assessee company or income tax return filed by the assessee company for A.Y.2013-14 have revealed any such information on record. It was, therefore, copiously clear that the assessee has tried to claim exemption on sale/transfer of its land by showing it as agricultural land but 8 CO No.10/RPR/18 the same was not found acceptable by the A.O and has made addition. Later on, the assessee has come up with all new facts which were never brought to the notice of the A.O, \ has attempted to make its case to evade legitimate taxes. With such contention, the Ld. CIT-DR submitted that the order of the CIT(Appeals) based on facts on which the Ld. AO has offered a remark that additional evidence submitted by the assessee are not inspiring any confidence, therefore, authenticity of the same needs to be verified. However, the CIT(Appeals) has ignored such contention of the A.O and had decided the issue based on submissions of the assessee, without making any further enquiry or without any direction to the Ld. AO to make any such enquiries, the order of the CIT(A) was cryptic, erroneous against the principle of natural justice, therefore, the same needs to be set-aside and addition made by the A.O deserves to be restored.

8. The Ld. CIT-DR alternatively submitted that in case plea of the assessee regarding forgery while purchasing the impugned land by the assessee was to be believed then the onus is on the assessee to prove by substantiating the matter supporting with corroborative evidences such as what legal action the assessee had preferred against such fraudsters and once the transaction was found as null and void, how the same dealt with in the books of the assessee company as well as Rashi Steel and Power Ltd., the buyer, all such issues was are subject to further

10. No income accrued to the assessee as the agreement with Rashi Steel & Power Limited stood cancelled:-

Reliance is placed on following Judicial pronouncement:- Sl. Title CITATITON AUTHORITY Following No. page No of CCL 1. CIT Vs. Lok (2015) 93 CCH Hon’ble High 39-44 Housing & 171 ( Mum HC) Court of Construction Ltd. (2015) 232 Mumbai TAXMAN 159 (Bombay)

11. No capital asset was held by the assessee as defined u/s 2(14). Therefore, there could be no "transfer" as defined u/s 2(47) of the Income Tax Act, consequently no income accrued u/s 5 r.w.s. 45 of the Income Tax Act. Reliance is placed on following Judicial Pronouncements:- Sl. Title CITATITON AUTHORITY Following No. page No of CCL 1. Godhra Electricity (1997) 225 ITR Hon’ble 45-54 Co. Ltd. Vs. CIT 746 Supreme Court of India 2. Poona Electric (1965) 57 ITR Hon’ble 55-62 Supply CO. Ltd. Vs. 521 Supreme Court CIT of India

12. Revenue not to be misguided by any window dressing of account:- Reliance is placed on following judicial pronouncements:-

Sl. Title CITATITON AUTHORITY Following No. page No of CCL 1. M/s. Karnataka ITA Hon’ble High 63-84 Soap & Detergent No.257/2007 Court of Ltd. Vs. CIT c/w. 266/2007 Karnataka c/w. 63/2011 2. CIT Vs. M/s. ITA Hon’ble 85 Karnataka Soap & No.257/2007 Supreme Court Detergent Ltd dated of India 16.11.2015

Prayer : It is prayed that the order passed by the Learned CIT (Appeal) may kindly be confirmed.”

Rashi Steel & Power Ltd. which reads as under:

Chronological history of the case Si. Event date Relevant document placed on following Remarks No. Page No. of the Paper Book 1 01.04.2010 Complaint filed by the real owner namely On 18.09.2009, the fraudsters namely Shri Basant Kumar (POA holder - Shri Smt. Anita and others namely Shri Amit, Narendra Kumar) etc, before Tehsildar, Shri Ganesh and Smt. Rupali had Bilaspur, kind attention is invited to fraudulently got their names entered in proceedings before the Court of Additional the revenue records as the owners of Tehsildar vide order sheet entry dated the property by virtue of being the legal 01.04.2010 placed on Page No. 38 of the heirs of deceased Basant, for Paper Book. cancellation of the same and rectification of mistake, the real owner namely Shri Basant and Narendra Kumar had filed a suit before the Court of Additional Tehsildar, Seepat which is evident from order sheet entries placed on Page no. 38 of the Paper Book. 2 27.10.2010 Assessee purchased the land vide registered Copy of the registered conveyance deed conveyance deed from fraudsters namely where name of the fraudsters is Smt. Anita and others who were relatives of appearing as the sellers is placed on deceased Basant who was not the actual Page No. 23 to 34 of the Paper Book. owner of the property.

3 20.09.2011 Sale agreement was entered into between Copy of the agreement to sale is placed the assessee and Rashi Steel & Power on Page No. 19 to 22 of the Paper Book, Limited dated 20.09.2011. thus, no sale deed was registered in favour of Rashi Steel & Power Limited and the sale was recognised in the books of accounts of the assessee merely on the basis of sale agreement which is an unregistered document as the same was not got registered.

13 CO No.10/RPR/18 4. FY 2016-17 Assessee reversed the accounting entry in Copy of the audited financial statements its books of accounts in the F.Y 2016-17. of the assessee pertaining to F.Y. 2016- 17 is placed on page No. 52 to 64 of the Paper Book, kind attention is invited to Page No. 61 being Schedule No. 4 from which it is evident that the profit recognised on sale of land in the F.Y. 2011-12 was reversed by debiting the same to reserves and surplus.

14 CO No.10/RPR/18 the assessee vide letter dated 07.09.2016 has requested M/s Rishi Steel and Power Ltd. to forfeit the share. (iii) It is established principle of law that forgery is nullity. A person cannot get title over a property by forged document. In the case of the assessee, the sale deed executed in favour of the assessee on 27.10.2010 by Amit and others is a forged document. For this reason, the assessee never had any title over the impugned land sold to M/s Rishi Steel and Power Ltd. Accordingly the assessee cannot transfer this land to M/s Rishi Steel and Power Ltd. Further the assessee in response to letter of M/s Rishi Steel and Power Ltd. has requested them to forfeit the shares allotted by that company to the assessee company. For this reason I am of the view that no transfer of impugned agriculture land has taken place on 22.10.2010 and no capital gain has accrued to the assessee on account of this transfer. Accordingly the assessee is not liable to pay capital gain of Rs.7,79,92,514/- accrued as result of transfer of land to M/s. Rishi Steel and power Ltd. (iv) In result these grounds of appeal are allowed.”

(i) Hira Lal Ram Daya; Vs. CIT (1980) 122 ITR 461 ( P & H) Held : 1. While evidentiary value has to be attached to a registered document, the said document cannot be a final word in the matter. Capital gains accrue only on sale or any other transfer of capital asset. If the assessee, even in the face of the registered deed, is able to prove by cogent evidence and satisfy the Tribunal that no sale, in fact, took place, the Tribunal has 'to necessarily conclude that there was no capital gain. The Tribunal may come to its independent conclusion that the sale was genuine on facts but it has to take into consideration the material placed before it. If the sale deed is held to be final, the income-tax authorities will be debarred from looking into as to how much sale consideration passed under the transaction outside the law. The factum of sale and the sale proceeds are the real questions to be determined by the income-tax authorities.

2.The Tribunal had, accordingly, erred in refusing to examine the material put before it to prove that the sale was a sham transaction.

C. The next contention of the Ld. AR was that no income accrued to the assessee as the agreement with Rashi Steel and Power limited stood cancelled. On this context, the reliance was placed by the Ld. AR to the following decision:

(i) CIT Vs. Lok Housing & Construction Ltd. (2015) 93 CCH 171 ( Mum HC): Held : Subsequent to cancellation of agreement of sale of land, assessee filed its revised return declaring nil income, since income had not accrued to assessee in real sense, no hypothetical income of assessee could be brought to tax. D. The Ld. AR further submitted that No capital asset was held by the assessee as defined u/s 2(14). Therefore, there could be no "transfer" as defined u/s 2(47) of the Income Tax Act, consequently no income accrued u/s 5 r.w.s. 45 of the 16 CO No.10/RPR/18 Income Tax Act. In support of his aforesaid contention, the Ld. AR relied on the following judicial pronouncements: (i) Godhara Electricity Co Ltd. Vs. CIT (1997) 225 ITR 746 (SC) Held : Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessment years 1969-70 to 1972-73 - Assessee-company a licencee to generate and supply electricity to its consumers, from 1963 enhanced tariff - Suit was filed by consumers which was decreed against assessee ultimately - Supreme Court decided dispute in favour of assessee-company in 1969 - During pendency of litigations assessee though accounting for enhanced tariff could not recover same and even after decisions in its favour in view of Government's advice assessee was prevented from realising amounts in question - Ultimately, company was taken over by Government and later transferred to Electricity Board - Whether in above circumstances, since assessee was not able to collect enhanced charges, necessary entries made in its books of account represented only hypothetical income and it could not be brought to tax as it did not represent income which had really accrued even though assessee-company was following mercantile system of accounting - Held, yes (ii) Poona Electric Supply Co. Ltd. Vs. CIT (1965) 57 ITR 521 (SC) Held : Section 28(i) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessment years 1953-54 and 1954-55 – Whether where an assessee maintained his accounts on mercantile basis, accrued liability and estimated expenditure which it would incur in discharging same could be deducted from income of accounting year in which said liability accrued – Held, yes – Assessee electric supply company claimed deduction of certain amounts from its taxable income as they were credited to 'consumers' Benefit Reserve Account to be distributed to its consumers in form of rebate – Whether since amount credited to consumer's Benefit Reserve Accounts was a part of excess amount paid to it and reserved to be returned to consumers did not form part of assessee real profits and in order to arrive at its taxable income from business under section 10(1) of 1922 Act, amounts in question had to be deducted – Held, yes

(a) What is the status of legal case registered before that land revenue court, whether the revenue court has decided the issue and treated the transaction of purchase by the assessee company as null and void.

(b) What legal course of action assessee company has preferred against the alleged fraudsters on being come to know that it was forged.

(c) Assessee’s claim that the profit of sale of land due to cancellation of agreement is substantiated by furnishing the copy of Audited Financial Statements of the assessee for the FY ended on 31.03.2017, veracity and authenticity of such documents, which the Ld AO has doubted while furnishing the remand report before the Ld CIT(A), thus, are subject to verification with the supporting evidence.

18 CO No.10/RPR/18 (d) Assessee’s general contentions based on certain case laws cannot accepted, unless the same are under the identical facts and circumstances, which the assessee was squarely failed to demonstrate.