AAGAM REALTY PVT. LTD.,AHMEDABAD V. THE INCOME TAX OFFICER, WARD-1(1)(1), AHMEDABAD

ITA 3541/AHD/2016

AI Insights

The case involves Aagam Realty Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals)-1, Ahmedabad, concerning the assessment year 2012-13. The primary issues revolved around the treatment of income from property sales and the corresponding losses claimed from transactions on the Multi Commodity Exchange. The Assessing Officer had added undisclosed income and disallowed losses claimed by the assessee, which were viewed as adjustments to evade tax. The CIT(A) upheld these decisions, leading to the appeal before the Income Tax Appellate Tribunal. The Tribunal found that the assessee had not provided complete facts and directed further investigation into the transactions and the tax declarations of the property sellers.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 653018 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Other Referred Cases: Me Dowell & Co. Ltd. Vs. Commercial tax Officer, Genus Commu Trade Ltd for AY.2010-11, Nexus Software Ltd. for A.Y. 2010-11
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRITHVI RAJ MEENA
• Assessee Lawyers: P. F. JAIN
• Keywords: Corroborative evidences; Capital Gains; Wrong claim; Bogus

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER & SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER I.T.A. No.3541/Ahd/2016 (Assessment Year: 2012-13) Aagam Realty Pvt. Ltd., C/o. Vishvesh A. Shah & Co., 316, 3rd Floor, Abhishek Plaza, B/h. Navgujarat College, Usmanpura Ahmedabad-380014 Vs. Income Tax Officer, Ward-1(1)(1), Ahmedabad [PAN No.AAHCA9340B] (Appellant) .. (Respondent) Appellant by : Shri P. F. Jain, CA Respondent by: Shri Prithviraj Meena, CIT-DR Date of Hearing 13.06.2025 Date of Pronouncement 18.06.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-1, (in short “Ld. CIT(A)”), Ahmedabad vide order dated 28.10.2016 passed for A.Y. 2012- 13. 2. The Assessee has taken the following grounds of appeal:- “1. The learned CIT(A) has erred in law and on facts in upholding amount of Rs.40,25,000/- as income on transaction for Deed No. 6533 with Sureshbhai Valjibhai without properly appreciating the facts in as much as that it is case of double addition. 2. He has erred in law and on facts in confirming the disallowance of loss of Rs.9,18,72,450/- incurred during course of business without properly appreciating the facts of the appellant treating the loss of Rs.9,18,72,450/- as wrong claim of purchases. 3. He has erred in law and facts in not considering the additional grounds mentioned below in its proper perspective and without conducting any inquiry and wrongly treating the same as afterthought in as much as they went to the root of the matter:- ITA No. 3541/Ahd/2016 Aagam Realty Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 2– a) The receipts as confirming party as per sale documents of land as detailed in Para 3.3 of the assessment order at Rs.10,00,92,908/- being accommodating transactions ought not to have been treated as income of the assessee. b) On the receipts as confirming party under consideration being accommodating entries only and having been passed on to the land owners only commission income thereon ought to have been treated as income of the assessee and not the entire receipts. 4. He has erred in law and facts in not properly appreciating and considering the affidavit furnished before him by treating the same as afterthought and self serving without any inquiry. 5. He has erred in law and facts in not properly appreciating and considering the decisions on similar facts submitted to him and treating the decisions as not applicable to the facts of the appellant. 6. On the facts no interest u/s. 234-B & 234-C ought to have been levied. 7. On the facts and considering the surrounding circumstances, affidavit, decisions in other companies on similar facts, no addition of Rs.9,58,97,450/- ought to have been made. 8. The appellant craves leave, to add / to alter and / or modify any ground of appeal.” 3. The assessee has also raised the following additional grounds of appeal: “a) The receipts as confirming party as per sale documents of land as detailed in Para 3.3 of the assessment order at Rs.10,00,92,908/- being accommodating transactions ought not to have been treated as income of the assessee. b) On the receipts as confirming party under consideration being accommodating entries only and having been passed on to the land owners only commission income thereon ought to have been treated as income of the assessee and not the entire receipts.” 4. The brief facts of the case are that the assessee had filed return of income on 26.09.2012 showing total income of Rs. 1,37,510/-. During the course of assessment proceedings, the Assessing Officer observed that assessee had shown income from sale of immovable property at Rs. 9,60,67,908/- and after claiming expenses of Rs. 39,00,000/- on sale of land, the assessee had shown net revenue at Rs. 9,21,67,908/-. The ITA No. 3541/Ahd/2016 Aagam Realty Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 3– Assessing Officer observed that the assessee had acted as “confirming party” toward sale of lands, and such consideration was shown as “income from sale of property” by the assessee. The assessee had furnished sale deeds in respect of eight properties, in which the assessee had received a total sum of Rs. 10,00,92,908/- as confirming party income. The Assessing Officer observed that sale consideration with respect to one property was not reflected by the assessee amounting to Rs. 40.25 lakhs, which was added as undisclosed income of the assessee, during the course of assessment proceedings. Further, the Assessing Officer noticed that against the income from sale of property amounting to Rs. 9,21,67,908/- received by the assessee as “confirming party” (on sale of eight properties), the assessee had shown purchases of Rs. 9,18,72,450/-. On further verification of details of purchase, the Assessing Officer observed that the assessee had entered into transaction with M/s. Adventures India, a member of Multi Commodity Exchange of India and on this trade, the assessee had suffered a loss of Rs. 9,18,72,450/-, which was adjusted by the assessee against the income from sale of properties (referred to above). However, on further verification, the Assessing Officer observed that the assessee had not furnished any supporting evidences with regards to membership obtained by assessee from M/s. Adventures India to transact business on behalf of the assessee on Multi Commodity Exchange. Accordingly, the Assessing Officer was of the view that firstly, the assessee had derived losses in transactions without taking delivery on derivatives, which cannot be considered for the purpose of set off, in view of the provisions of Section 73, Explanation 4 and secondly, the Assessing Officer observed that the PAN stated by the assessee as belonging to M/s. Adventures India, in fact, belonged to one Shri Ramesh Dwarkadas Daga and therefore, clearly losses incurred by the assessee on Multi Commodity ITA No. 3541/Ahd/2016 Aagam Realty Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 4– Exchange were only an adjustment entry undertaken by the assessee to escape payment of taxes on income earned by the assessee on sale of properties. Accordingly, the said set off of loss was disallowed by the Assessing Officer. 5. In appeal, the assessee took an alternate plea that the income from sale of eight properties was not income of the assessee but the assessee had earned only a small percentage of 0.5 per cent on such sale of properties, as a commission agent. However, Ld. CIT(A) noted that during the course of assessment proceedings, the assessee had himself submitted copies of registered sale deeds before the Assessing Officer and it was on this basis that the assessee had calculated the total income earned by the assessee from real estate business. However, once the set off of losses was held by the Assessing Officer to be bogus in nature, the assessee had now contended that the assessee had earned only commission income from such sale of property. Ld. CIT(A) noted that the assessee had earned substantial profits on sale of properties and it was with a view to reduce the incidence of taxation, that the assessee has acquired bogus losses from the commodity market. Further, Ld. CIT(A) also distinguished the cases cited by the assessee, since the same had been rendered on their own set of facts. Accordingly, Ld. CIT(A) dismissed the appeal of the assessee with the following observations: “4.4. The transactions, therefore, is clearly on paper only which is arranged for the sole purpose of reducing the tax-incident. In case the assessee really entered into purchase and sale on the commodity market, the full details could have been submitted which has not been done in this case. Such a clandestine activity is not permissible under the law. The appellant has used colorable device to reduce the taxable profit by taking the bogus entries. The Hon'ble Supreme Court in the case of Me Dowell & Co. Ltd. Vs. Commercial tax Officer reported in 22 Taxman 11 (SC) as observed as under: \"it is open to everyone to so arrange his affairs as to reduce the brunt of taxation to the minimum, was concerned, the tax planning may be ITA No. 3541/Ahd/2016 Aagam Realty Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 5– legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by restoring to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. Courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it\". It is difficult to accept the submission of the appellant in view of the developments as regarding to the facts of the case. The facts and circumstances in the case of Genus Commu Trade Ltd for AY.2010-11 are entirely different from this case. In the case of Nexus Software Ltd. for A.Y. 2010-11, the CIT(A) has only reduced the quantum of commission added by the A.O. in assessment order. Even assuming that some of the facts are common in this case, with due respect the above orders, I have different understanding of the facts related to the case. It is very clear that the ratio of the above cases cannot be applied. The affidavit is an afterthought of the appellant and is self serving. From the above facts and circumstances, it is very clear that the appellant company has booked loss of Rs. (-)9,18,72,450/- in the transactions entered into by the assessee in taking bogus entry and claimed such loss against the gain of Rs. 10,00,92,908/- earned during the year on sale of land. In the circumstance, the loss of Rs.(-)9,18,72,4502/- claimed to be incurred by the assessee in the purchase at commodity market is treated as not at all incurred to the assessee but such transactions are remained only in paper and the loss so shown is to evade the payment of faxes on the profit earned by the assessee in the sale of land. The case of the appellant is very clear and proved beyond doubt that the appellant company has taken /booked the fictitious loss to wipe out the profit from the sale of the said land. The case is very clear as how the appellant has earned the profit and how it has taken bogus entry to reduce the profitability. The appellant has been caught on the wrong foot and now taking the alibi of additional ground and presenting the facts in very different perspective which is not comprehensible and not related to the facts of the case. It is abundantly clear from the facts that the appellant has booked bogus loss to reduce the profitability. The addition made by the A.O. is confirmed in toto. The ground of the appellant is dismissed.” 6. Before us, the Counsel for the assessee during the course of hearing, specifically admitted that the losses on account incurred on the Multi Commodity Exchange were bogus losses and accordingly, the assessee shall not be arguing for the set off of such losses against income from sale of properties. However, the Counsel for the assessee placed reliance on various judicial precedents in support of the contention that in case of commission income, the assessee is only required to pay taxes on the real ITA No. 3541/Ahd/2016 Aagam Realty Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 6– income, which may range from 1% to 2% depending on the assessee’s set of facts. 7. In response, Ld. D.R. placed reliance on the observations made by the Assessing Officer and Ld. CIT(A) in their respective orders. 8. We have heard the rival contentions and perused the material on record. 9. On going through the contents of the order passed by Ld. Assessing Officer and CIT(A), we observe that the assessee has not come with clean hands with respect to the transactions under taken by the assessee / income declared by the assessee in the return of income. At the initial stage of assessment, the assessee had shown income from sale of properties in which as per sale deed the assessee was acting as a “confirming party” with respect to eight different properties and against such sale of properties, the assessee had set off losses incurred on Multi Commodity Exchange. However, further inquiries revealed that such losses incurred by the assessee on multi commodity exchange were clearly bogus losses, which were secured only with a view to reduce the incidence of such taxation from sale of properties. Even before us, the Counsel for the assessee admitted that such bogus losses are not eligible for set off and the fact that they are not genuine is not being challenged by the assessee. Thereafter, the assessee has taken an alternate position that on perusal of the bank statement of the assessee, it is seen that the amounts received as sale consideration was immediately withdrawn by the assessee and thereafter, these amounts were transferred to various entities in which the sellers / owners of these properties had substantial interest. Accordingly, it was submitted that since the amount was deposited and withdrawn from ITA No. 3541/Ahd/2016 Aagam Realty Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 7– the assessee’s bank account at a very short interval, it is evident that the assessee was only earning commission income. However, on perusal of sale deed furnished by the assessee, it was observed that in the sale deeds in respect of these eight properties, it has been mentioned that the assessee had entered into separate Banakhat (agreement to sale) with these sellers. It was owning to these Banakhat (agreement to sale) with the sellers of these eight parties, that the assessee was incorporated as a “confirming party” in the registered sale deeds entered towards sale of these eight properties. However, when the Counsel for the assessee was asked to produce copies of these Banakhats, which find specific mention in the registered sale deeds (which formed the basis of assessee acting as a “confirming party” with respect to these sale transactions), the Counsel for the assessee submitted that such Banakhats are not available, since no such Banakhats were entered in the first place. Therefore, it is clear that the assessee has not disclosed the complete set of facts before the Tax Authorities (and even before us) so as to ascertain as to on what basis and for what reasons, the assessee was acting as a “confirming party” with respect to these eight properties. Further, it may be noted by stating that no Banakhat were entered by the assessee with the sellers (eight number), the assessee has himself challenged the genuineness of these registered sale deeds, in which the assessee is acting as a “confirming party” on the basis of “Banakhats” entered with the sellers / owners. Nevertheless, without an analysis of Bankhats entered into between the assessee and the sellers, it is not possible to ascertain as to what was the basis of including the name of the assessee as “confirming party” in these registered sale deeds and further, on what basis was the quantum of amounts paid by the purchasers to the assessee determined. Further, on being asked as to on what basis was the withdrawal of these amounts made from bank account ITA No. 3541/Ahd/2016 Aagam Realty Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 8– of the assessee in favour of various parties in which the sellers were having interest, the Counsel for the assessee submitted that there is no formal agreement with respect to transfer of such amount by the assessee to the bank accounts of various entities, in which the sellers were having substantial interest. Accordingly, in light of these facts, since assessee has been taking an evasive position all throughout the tax proceedings, reliance cannot be placed by the assessee on various judicial precedents which have held that only 1% to 2% can be taxed as commission income in the hands of the assessee which had been rendered on their own set of facts. We observe that in the instant facts, there is no legal document produced by the assessee creating a right as “confirming party” to the assessee. Evidently there is no basis of payment given to the assessee for acting as “conforming party”. Another interesting fact which was noted by us was that it is not clear from the entire arrangement of things whether the sellers have paid any tax on such sale of property. The Counsel for the assessee submitted that he has no visibility as to whether the sellers of these parties (for whom the assessee acted as a confirming party) have offered income from sale of property under the head “capital gains”. Therefore, while initially, the assessee had shown income from such sale of property as it’s taxable income (though the same was set against bogus accommodation losses incurred on commodity exchange) thereafter, the assessee changed it’s position and argued / submitted that the assessee had only earned commission on such sale of properties by acting as “confirming party”. Therefore, apparently neither the assessee has paid taxes on such sale of eight properties and evidently neither the sellers have paid taxes on such sale of property. 10. Accordingly, looking into the instant facts, we are of the considered view that it will be difficult to accept the submissions of the assessee that ITA No. 3541/Ahd/2016 Aagam Realty Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 9– the assessee is only entitled to commission ranging between 1% to 2% on such sale of property especially keeping into light the fact that the basic / necessary documents like Banakhat in respect of these properties (which gave right to the assessee to act as “confirming party”) have not been furnished by the assessee at any stage of proceedings. An analysis of these documents is critical to ascertain the basis of assessee acting as a “confirming party”. Further, from the facts placed on record it is also not clear that whether respective sellers of eight properties have shown any income from sale of properties with respect to these eight properties. Further, we observe that on perusal of registered sale deed, there is a specific mention that the assessee has entered into a Banakhat (agreement to sale) with the sellers and a specific date of Banakhat has also been mentioned and it was towards obtaining the consent of the “conformity party” i.e. the assessee, that a substantial consideration was paid to the assessee under the registered sale deed. Therefore, once there is mention of a specific Banakhat between the sellers and the assessee in the registered sale deed, as a consequence of which the assessee has got “confirming party” rights, it cannot be accepted that no Banakhat existed in the first instance. Accordingly, in the interest of justice, the matter is restored to the file of Assessing Officer with a direction to the assessee to furnish the relevant Banakhats, which are forming the basis for the assessee acting as a “confirming party”. An analysis of these documents, in our view, it is critical to analyse the quantum of income which may be subject to tax in the hands of the assessee. Further, the Department has also directed to carry out necessary verification whether the sellers of these properties (eight numbers) have in fact offered income on the sale consideration with respect to these eight properties. Notably, the stand of the assessee is that is has only earned a meagre commission income and ITA No. 3541/Ahd/2016 Aagam Realty Pvt. Ltd. vs. ITO Asst.Year –2012-13 - 10– the entire sale consideration has been effectively transferred by the assessee to the real sellers / owner of these properties. Therefore, the Department is directed to ascertain whether the sellers have offered income from sale of these properties, in their respective returns of income. Accordingly, the Assessing Officer is directed to carry out the necessary investigation / inquiry in terms of above directions and thereafter, pass appropriate order, in accordance with law. 11. In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 18/06/2025 Sd/- Sd/- (MAKARAND V. MAHADEOKAR) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 18/06/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 16.06.2025 2. Date on which the typed draft is placed before the Dictating Member 17.06.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 18.06.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 18.06.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 18.06.2025 7. Date on which the file goes to the Bench Clerk 18.06.2025 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 Dispatch of the Order…………………………………… "