ANWAR HUSSAIN KHAN,BULANDSHAHR vs. ACIT, CIRCLE, , BULANDSHAHR

This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-Aligarh dated 22.02.2018 for Assessment Year 2014-15.

Anwar Hussain Khan vs. ACIT 2 addition has been made by recording incorrect facts and findings and in violation of principles of natural justice. He further submitted that the action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.74,55,500/- u/s 56(2)(vii)(b), is bad in law and against the facts and circumstances of the case and by not considering the submissions placed on record by the assessee. Further placing reliance on the order of ITAT, Jaipur Benches in the case of CIT vs. Shri Ashok Agarwal HUF, dated 30.07.2020, the Learned Counsel submitted that when the properties in question are undisputedly shown in the books of account of the assessee as stock- in-trade and part of the closing stock, then the same would not fall in the ambit of the property as defined in explanation to section 56(2)(vii) of the Act and consequently the said provisions will not be applicable in the case of the assessee.

Anwar Hussain Khan vs. ACIT 3 The Learned Counsel finally submitted that the AO was not justified in making additions in the hands of the assessee by invoking inapplicable provision of section 56(2)(vii) of the Act and Learned CIT(A) was also not justified in upholding the same. The Learned Counsel thus submitted that the addition made by AO and upheld by CIT(A) may kindly be deleted.

Anwar Hussain Khan vs. ACIT 4 book and submitted that since the brother of the assessee was seriously ill after purchase of land and therefore, no action could have been taken and no business decisions could have been made to proceed for development of land and construction of multistory commercial and residential projects. He also contended that due to said reason the propose of purchase of land could not be achieved but the MOU shows that the intention of assessee and his brother was only to develop a project and they rightly treated the purchased the land as stock-in-trade.

5. Here is worthwhile to mention that for capital gain purpose provision of Sec-50C are applicable for the purpose of charging long term capital gain as well as short term capital gain taking the value for stamp purpose and the sale value whichever is higher i.e. in case capital assets is sold at lower value than the value for stamp purpose, it is the value for stamp purpose, which it to be taken for charging capital gain tax. The section 56(2)(vii)(b) speaks of capital assets and the same is applicable for purpose of immovable property of any kind. Therefore the contention of the assessee that he has not purchased the capital assets but stock in trade also does not hold good since, transfer of immovable property is involved in entire transaction. The assessee has not brought on record any evidence except MOU (Memorandum of Understanding), self drafted document between the assessee and his brother Shri Safdar Khan for launching a new commercial multistory market. In fact, this document bears no sanctity. The ITI was deputed to visit the land and report after ascertaining the nature of land with reference to its situation. The ITI in his report has opened that the land under consideration is that of urban character and is situated well within the municipal limit. No signs of agricultural operations having been carried on there earlier were visible from the inspection of the land. The assessee has simply got constructed a boundry wall along the sides of the plot with some land filling work which is not sufficient enough to prove the nature of the land as trading asset/stock in trade. This so called multi storey project at Khurja has not been approved by Development Authority i.e. Khurja Development Authority, Khurja. The assessee with the sole intention to save itself from the mischief of section 56(2)(vii)(b) is trying to treat the property under consideration as stock in trade. Accordingly an addition of Rs. 74,55,500/- being the difference of the purchase value and the market value is made to the returned income of the assessee treating the same as income from other sources. (Addition of Rs. 74,55,500/-)”

Anwar Hussain Khan vs. ACIT 6 7. From the first appellate order, we further note that the Learned CIT(A) has upheld the addition with following observations and findings :

“All these grounds relate to the addition of Rs. 74,55,500/- made by the AO us 56 (2) (viia) (b). It is an undisputed fact that the value of the appellant's share in the purchase of land as per circle rate is Rs. 1,24,35,500/- whereas his share as per the value mentioned in the purchase deed is Rs. 49,80,000/-. The AO has applied the provisions of section 56(2)(viia) (b) and added the difference of Rs. 74,55,500/- to the total income. The appellant is contending that the said land is his stock in trade and therefore, provisions of section 56(2) (viia) (b) are not applicable. In the remand report, the AO has argued that the documents produced by the appellant are self drafted and self arranged and have been created just to avoid mischief of section 56(2)(viia)(b). It has been submitted that no independent evidence has been brought out by the assessee either during the assessment proceedings or during the remand proceedings to substantiate that the purchased land is not a capital asset. The AO had deputed and Inspector to visit the site and he has reported that the assessee has simply got constructed a boundary wall around the plot with some land filling and there is no evidence that the said land is held as stock in trade. It has also been indicated that the appellant's project has not been approved by the Khurja Development Authority. Considering the totality of the facts and evidence, I find merit in the AO's argument that there is no such evidence which would establish that the land in question is held as stock in trade. The land is in possession of the appellant for the past so many years and yet no portion of the land has been sold to any If the appellant has held this land as stock in trade, he would have made efforts to find prospective buyers. There is no evidence which would show that the appellant has made some efforts in this regard. When an asset is held as stock in trade, the intention is to trade in the same as quickly as possible. Despite lapse of so many years, the appellant has not shown any inclination of trading in the said land. Since the intention of trading is absent, it is not prudent to consider the land as stock in trade. The MOU drafted by the appellant and his brother is simply a self serving document which cannot be considered to be of much significance. Apparently, the said document has been created just to escape the tax liability U/s 56(2)(viia)(b). Considering the above, the appellant's claim of holding the said land as stock in trade is being rejected. Therefore, the provisions of section 56(2) (viia) (b) are clearly applicable in this case. Hence, the AO

Anwar Hussain Khan vs. ACIT 7 was fully justified in applying the provisions of section 56(2)(viia)(b) and adding a sum of Rs. 74,55,500/- to the total income. In view of the above, the addition of Rs.74,55,000/- is confirmed and these grounds of appeal are being dismissed.”

8. On careful consideration of above rival submissions, basis taken by the AO for invoking provision of section 56(2)(vii) of the Act and findings recorded by the Learned CIT(A) while confirming the addition. First of all, we note that it is a fact on record that the assessee prior to purchase of land, on 10.12.2013 entered into MOU with his co- owner brother Shri Safdar Hussain Khan, which speaks of only future planning of the assessee and the co-owner but the same was not sufficient to protect the assessee from the applicability of section 56(2)(vii) of the Act. As subsequent to the purchase of land, there was no action by the assessee and his brother showing their intention to use the land for development of project as a business venture. The copies of Medical Certificates available at pages 48-53 shows that these medical documentary evidence shows illness of Shri Safdar Hussain Khan from 21.04.2016 to 03.05.2016 and also shows that the brother of assessee being co-owner was under treatment for some serious illness during F.Y. 2016-17. Moreover, the fact of illness was brought to the notice of the Assessing Officer during assessment proceedings only for seeking some more time to present the case before the Assessing Officer. Keeping in view said fact, when we proceed to adjudicate the contention of the assessee then we know that the land was purchased by assessee and his brother on 10.12.2013 during F.Y. 2013-14 and even after laps of 3 years up to A.Y. 2015-16 except signing MOU no other action had been taken by the assessee and his brother showing their intention to develop the land as a business venture.

Anwar Hussain Khan vs. ACIT 8 9. It is also pertinent to note that the judgment relied by the Learned Counsel of assessee rendered by Co-ordinate Bench of ITAT, Jaipure in the case of CIT vs. Shri Ashok Agarwal HUF (supra), the assessee successfully demonstrated its intentions of assessee to develop the land and undisputedly in that case the land in question was shown in the books of accounts as stock-in-trade and part of other closing stock. Therefore, the Tribunal held that the land in question was not under the ambit of trigger of section 56(2)(vii) of the Act. But the facts and circumstances of the present case are clearly distinguishable and dissimilar from the said case as in the present case, expect signing an MOU, there is no action or evidence on record by the assessee and his co-owner brother after laps of three years till his co-owner brother fall ill. There is no other documentary evidence to show that the Shri Safdar Hussain Khan is continuously sick till date. There is no action or efforts by the assessee and his brother before illness of his co-owner brother to show that the assessee and his brother formed any partnership firm or LLP entity or Company for said business venture and showing any action to apply for any approvals or permissions from the Government Authorities regarding development of land as a Multistory Commercial/Residential Project. Therefore, we are inclined to hold that the benefit of order of Co- ordinate Bench of ITAT, Jaipur in the case of CIT vs. Ashok Agarwal HUF (supra) is not available for the assessee in the present case.

Order pronounced in the open court on 17.10.2023