THE ACIT, CIRCLE-2(1),, BARODA vs. SMT. GAURI JAY JANI,, BARODA

आदेश / O R D E R

PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER :

These are five appeals by the department against the order of the Commissioner of Income Tax(Appeals)-V, Baroda, dated 09/06/2015

ITA Nos.2683, 2684, 2686, 2687 & 2688/Ahd/2015 Asst.Year –2008-09 - 2 - for the Assessment Year (AY) 2008-09 for deleting the penalty of Rs.11,54,526/- u/s.271(1)(c) of the I.T. Act. Similar Grounds have taken by the department: i. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the penalty of Rs.11,54,526/- imposed u/s.271(1)(c) of Income Tax Act 1961 as the assessee tried to potray the transaction regarding the gain on sale on land/rights in land as “capital gain” whereas the evidences gathered by AO genuinely prove it to be business transaction which should be taxed under the head of “Business Income”. ii. On the facts and circumstances of the case and in law, whether the learned CIT(A) was correct by deleting the penalty which was levied on additions confirmed by himself.

iii. The learned CIT(A) has failed to appreciate the fact that the assessee had furnished inaccurate particulars of income for which penalty u/s.271(1)(c) of the Income Tax Act, 1961 is leviable and the assessee had deliberately tried to pay less tax by furnishing inaccurate particulars of income, thereby making it a fit case for imposition of penalty u/s.271(1)(c) of the Income tax Act, 1961. 2. The relevant facts as culled out from the materials on record are as under:-

Assessee and other five members of Jani family came together, signed an MOU for sale of Sankarda land. The total consideration received was Rs.3,95,14,188/-. Out of the consideration, payments for purchase of land were made and also other payments which were claimed to be for relinquishment of various rights. The payment for so called rights was Rs.2.60 crore. Shri Arvind D. Jani, who is the prime person in this deal, has been doing the business of purchasing and selling rights in land since

ITA Nos.2683, 2684, 2686, 2687 & 2688/Ahd/2015 Asst.Year –2008-09 - 3 - long and has been showing business income there from, claiming purchase of rights as revenue expenditure in the preceding years. However, this year, the gain on sale of land/rights in land, which is of similar nature, has been treated by the assessee as capital gain, instead of business income. The major issue involved is whether the transaction was one giving rise to capital gain, as claimed and whether the payments made by the assessee for relinquishment of rights were actually an allowable expenditure. The Assessing Officer held the transaction as a business transaction, after analyzing the same and looking to the past transactions of identical nature entered into by Shri Arvind D. Jani, which were shown as "business" by him.

2.2 During the course of assessment proceedings, the assessee was asked to justify the claim. The brief facts of the two land deals are as under:- (a) Sankarda Land:- The land at Sankarda bearing Survey No.39 to 130, mouje Sakarda, Tal & Dist:- Baroda belonging to Sakarda Sayukat Khetai Sahakari Mandli Ltd. Shri Arvind D. Jani has been given “Power of Attorney” by a Registered document dated 07/08/2007. The assessee has claimed to have paid Rs.1,00,000/- in Cash on 12/04/2007 for this purpose and Sherno Ltd. Nirayu Pvt. Ltd (to whom this land is sold) Have respectively paid Rs.22,66,000/- on 29/10/2007 and Rs.23,00,000/- on 30/08/2007 directly to Sakarda Sanyukh Keti Sahkari Mandali Ltd. Part of this land is sold to Shreno Ltd. by sale deed dated 29/10/2007, for Rs.1,82,58,995/- and part sold to Nirayu Pvt. Ltd. by sale deed dated 30/08/2007 for Rs.1,85,35,193/-.

ITA Nos.2683, 2684, 2686, 2687 & 2688/Ahd/2015 Asst.Year –2008-09 - 4 -

As narrated above, the claim of right by the assessee is in the form of POA i.e. Kabulat on Rs.100 stamp paper. The documents are not a registered one. Further assesses has claimed have been paid to the following persons for leaving the right. Dalpatbhai Mangalbhai Chavda Rs. 20,00,000/- Lalit B Patel Rs. 20,00,000/- Bhikhubhai Rathod Rs. 35,00,000/- Diwakar Shetty Rs. 37,00,000/- Jitendra Shah Rs. 26,00,000/-

The assessee could not prove with any substantiate evidence that the payments were made for leaving the rights. From the above it is clear that the assessee has obtained rights in the Sakarda land through POA dated 07.08.2007, which has been sold off on 30/8/2007 and 29/10/2007. There is no sale deed in favour of the assessee but only POA. The assessee has himself admitted that he has paid Rs.1,00,000/- towards the right of these land and balance of Rs.23,00,000/- and Rs.22,66,000/- were paid by the Ultimate purchaser of the land i.e Nirayu Pvt. Ltd. and Shreno Ltd. The agreement for sale does not have the name of the right holders. In view of the above facts, the A.O. held that the profit earned from the sale of land was his "Business Income" and since the payments were made in cash were disallowed u/s.40 A (3) of the Act.

(b) Kantikala Land:- Land situated at Survey No.49/1 Moje Sakard, Tal & Dist Baroda admeasuring 13695 sq.mtr belonging to legal heirs of Kantikala Viz Chiman Jenbahi, Ganpatsinh Jenabhai,

ITA Nos.2683, 2684, 2686, 2687 & 2688/Ahd/2015 Asst.Year –2008-09 - 5 - Manchaben Sardarsang, Dhirsing Sardarsang, Sangeetaben Sardasang, Kailasbhai Sardarsand and Shaileshbhai Sardarsang. These legal heirs have given “Power of Attorney” to Shri Arvind D Jani, Vide registered document dated 07/08/2007. The assessee claims to have paid Rs.92,00,000/- for the land including Rs.27,20,000/- paid by Nirayu Pvt. Ltd. directly. This land was sold to Nirayu Pvt. Ltd. by Registered Sale deed dated 06/11/2007 for Rs.27,20,000/-.

Similarly in this dealing also the claim of right by the assessee is in the form of POA. Further assessee has claimed to have been paid to the following persons for leaving the right. Kantikal & others Rs.92,00,000/-

As discussed in detail in the assessment order, summons was also issued to the alleged parties who have received cash on account of leaving their rights. In the POA it is clearly mentioned that rights of the land to the assessee was given for an unspecified consideration which has been already received. In view of the above facts, the AO held that the profit earned from the sale of land was his “Business Income” and since the payments were made in cash were disallowed u/s.40A(3) of the Act.

In total the Assessing Officer disallowed Rs.2.60 crores in aggregate and in the case of assessee i.e. l/6th of Rs.43,33,333/- and added to the total income of the assessee. Penalty proceedings u/s.271(l)(c) of the Act was initiated separately.

ITA Nos.2683, 2684, 2686, 2687 & 2688/Ahd/2015 Asst.Year –2008-09 - 6 -

Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the CIT(A), Baroda. The ld. C1T(A)-II, Baroda has held that the Assessing Officer has rightly taxed the profit on sale of Sakarda land and Kantikala land as business income but also observed that the assessee has paid Rs.1,00,000/- cash in respect of Sankarda Land on 12/07/2007 and it attract provisions of Section 40A(3) of the Act and therefore enhanced disallowance by Rs.1,00,000/- i.e.16,666/- (1/6th of 1,00,000/-). Further, the CIT(A)-II, Baroda has pointed that there was arithmetical mistake i.e. the AO instead of taking 2.30 crores cash payment wrongly taken Rs.2.60 crores and worked disallowance at Rs.43,33,333/- in the case of assessee and his family members. After considering the enhancement of Rs.1,00,000/- made by CIT(A) and the arithmetical mistake of Rs.30,00,000/- and reducing Rs.27,20,000/- as cost of Kantikala land, net aggregate disallowance comes to Rs.2,03,80,000/- and assessee’s 1/6th share comes to Rs.33,96,333/-, which were confirmed by the learned CIT(A)-III, Baroda.

2.3 The assessee and family members had obtained the rights in both the land by way of POA. They had not become the full fledged owner of the lands. So the expenditure if any relinquishment of rights etc by other parties at the time of sale, was not the liability of assessee. The letter from the President of Mandali stating that there were a few unauthorized occupants of the land and it is the responsibility of Shri Arvind D Jani to clear it from them has little evidentiary value, as pointed out by the

ITA Nos.2683, 2684, 2686, 2687 & 2688/Ahd/2015 Asst.Year –2008-09 - 7 - Assessing officer. It also against the facts stated in the POA giving rights to Shri Arvind d jani as well as the stated in the sale deed which are that.

• The land is stated to be free from all encumbrances and without any disputes from any person or authority. • The selling party and confirming party assure that they have not sold mortgaged, shifted or transferred to anybody or not made any encumbrances, whatsoever. • Land is self occupied, independent, vacant and is peaceful physical possession. • The land is without any irrigation facility and as on date there is no agricultural income whatsoever.

There is no mention, whatsoever about any encroachments, tenancies, or rights of any other person which takes the expenditure claimed away and out of the realm of cost for these transactions.

2.4 Whether there has actually been such an expenditure is also not established. The assessing office has clearly brought out that the fact of payment to the stated parties, for the purpose claimed, has not been proved by the assessee. No admissible evidence was produced by the assessee in this regard. The Assessing Officer issued summons to these persons, on the request of the assessee, but most of the summons were returned unserved. In response to the ones served, no one appeared before the Assessing Officer and in the case of Shri Diwakar Shetty, only his return of income was sent where no income was in from the rights relinquished. Thus the fact of payment has not been established by assesses.

ITA Nos.2683, 2684, 2686, 2687 & 2688/Ahd/2015 Asst.Year –2008-09 - 8 - 2.5 Even perusing that those persons had some rights in the land, which on payment was relinquished by them, the transacting parties should have got them to sign the sale deed for acknowledging the relinquishment. The sale deed does not carry the signature of any of them, which opens the deal of challenge by them which any prudent purchases/seller would avoid at all cost.

2.6 For the payments made in cash, provisions of section 40A(3) apply as the land deals are business transactions, and not transactions in capital assets, as has been held in the foregoing paragraphs. Such cash payments suffer from this disallowance u/s.40A(3), over and above the disqualification that their business purpose has not been established by the assessee.

The income from sale of these lands is to be brought to tax as “Business Income”.

2.7 As narrated detailed in the assessment order by assessing officer have also been confirmed by the learned CIT(A)-II, Baroda. No adjournment or submissions received from the assessee. Therefore, it is presumed that assessee has nothing to say anything in this matter. In absence any submission, the penalty proceedings were finalized on the basis of materials. In view of the facts, Learned ACIT was satisfied that assessee has furnished inaccurate particulars and concealed his income thereby committed a default punishable u/s.271(1)(c) the IT Act, 1961 and penalty of Rs.11,54,526/- was imposed.

ITA Nos.2683, 2684, 2686, 2687 & 2688/Ahd/2015 Asst.Year –2008-09 - 9 -

3.2 Learned CIT further discussed a matter in the case of CIT vs. Mahavi Irrigation (P) Ltd. [2011] 244 CTR 596 (Del), held that “it may be that the claim of the assessee was not found acceptable in quantum proceedings on merits. However, it was not the case of concealment and the provisions of section 271(1)(c) would not be applicable more so when all material facts relevant to the said claim were duly furnished by the assessee before the AO.”

ITA Nos.2683, 2684, 2686, 2687 & 2688/Ahd/2015 Asst.Year –2008-09 - 10 - infirmity or illegality in the order passed by the learned CIT(A). Therefore, we dismiss the appeals of the department.

This Order pronounced in Open Court on 31/07/2017

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Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-V, Baroda. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad True Copy 1. Date of dictation 28/07/2017 (dictation-pad 7 pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …31/07/2017 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk…31/07/2017 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………