ITO, Ward-14(1), Hyd, Hyderabad V. Saibabu Gorla, Hyd, Hyderabad

ITA 1053/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6234 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 12-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Sale consideration of property below Jantri Value; Cost of acquisition; Deemed dividend
• Section: 143(3); 50C; 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 1053/HYD/2015 ASSESSMENT YEAR: 2010-11 INCOME-TAX OFFICER, WARD 14(1), HYDERABAD. VS. SAIBABU GORLA, HYDERABAD. PAN ACWPG 4794 R (APPELLANT) (RESPONDENT) REVENUE BY : SHRI A. SITARAMA RAO ASSESSEE BY : SHRI S. RAMA RAO DATE OF HEARING 07-09-2016 DATE OF PRONOUNCEMENT 21-09-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-4, HYDERABAD, DATED 25/05/2015 FOR AY 2010-1 1. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY FILED ITS RETURN OF INCOME FOR THE AY 2010-11 ON 3/03/201 2 DECLARING A TOTAL INCOME OF RS. 15,08,977/-. THE CASE WAS SELECTED FO R SCRUTINY BY ISSUING A NOTICE U/S 143(2). SUBSEQUENTLY, A NOTICE U/S 142(1) WAS ISSUED. THE ASSESSMENT WAS COMPLETED U/S 143(3) BY MAKING AN ADDITION OF RS. 4,24,181/- AND RS. 12,032/- UNDER T HE HEAD INCOME FROM OTHER SOURCES AND RS. 68,06,000/- ON ACCOUNT OF INCOME FROM CAPITAL GAINS. 3. SINCE THE SUBJECT MATTER IN THIS APPEAL IS REGAR DING ADDITION OF RS. 68,06,000/-, THE FACTS RELATING TO THIS ISSUE A RE THAT IN THE COMPUTATION, THE ASSESSEE HAD SHOWN INCOME OF RS. 6 9,477/- UNDER THE HEAD INCOME FROM CAPITAL GAINS. DURING THE COUR SE OF ASSESSMENT 2 ITA NOS. 1053/H/15 SAIBABU GORLA PROCEEDINGS, THE ASSESSEE WAS REQUESTED TO FURNISH THE DETAILS OF ABOVE CAPITAL GAINS AND COPIES OF RESPECTIVE REGIST ERED DEEDS IN RESPECT OF PURCHASE AND SALE OF THE PROPERTIES. IN COMPLIANCE TO THE ABOVE, THE ASSESSEE FURNISHED THE DETAILS OF CAPITA L GAINS AND THE CAPITAL GAINS COMPUTATION SHOWN BY THE ASSESSEE IS AS UNDER: SALE CONSIDERATION OF PLOT NO. 1 AT SY.NO. 76, JAYADARSHINI ENCLAVE, KOMPALLY (V), QUTUBULLAPUR (M) RS. 3,20,000/- LESS: COST OF ACQUISITION RS. 2,00,000/- ON 21/03/2003. INDEXED COST 200000 X 632/447 RS. 2,82,774/- RS. 37,226/- SALE CONSIDERATION OF PLOT NO. 43 AT SY NO. 76, JAYADARSHINI ENCLAVE, KOMPALLY (V), QUTUBULLAPUR (M) RS. 2,80,000/- LESS: COST OF ACQUISITION RS. 1,81,500/- ON 04/11/2003. INDEXED COST 181500 X 632/463 RS. 2,47,749/- RS. 32,251/- TOTAL LTCG RS. 69,477/- 3.1 AO NOTED THAT THE ASSESSEE HAD FURNISHED COPIES OF DOCUMENTS FOR SALE AND PURCHASE OF THE PLOTS. ON PERUSAL OF T HE DOCUMENTS FILED, IT IS FOUND THAT THE ASSESSEE ACQUIRED THE ABOVE PL OTS IN THE YEAR 2003 AND SUBSEQUENTLY ENTERED INTO AN UNREGISTERED MOUS ON 30/07/2007 WITH JAYADARSHINI HOUSING (P) LTD., FOR CONSIDERATION OF RS. 3,20,000/- IN RESPECT OF PLOT NO. 1 AND RS. 2,8 0,000/- IN RESPECT OF PLOT NO. 43. IT IS CLAIMED THAT THE PLOTS WERE SOLD TO JAYADARSHINI HOUSING (P) LTD., AS PER THE ABOVE MOU FOR SALE CON SIDERATION OF RS. 3,20,000/- AND RS. 2,80,000/- FOR PLOT NO. 1 AND PL OT NO. 43 RESPECTIVELY. IN THE MOU, THE ABOVE COMPANY HAS EXP RESSED ITS INTENT TO PURCHASE THE ABOVE PLOTS FROM THE ASSESSEE. HOWE VER, THE ASSESSEE COULD NOT PRODUCE ANY REGISTERED SALE DEED ENTERED INTO BY THE ASSESSEE WITH THE ABOVE COMPANY FOR SALE OF THE ABOVE PLOTS TO THE COMPANY. THE ASSESSEE ALSO COULD NOT PLACE ON R ECORD ANY EVIDENCE TO THE EFFECT THAT THE PHYSICAL POSSESSION OF THE PLOTS WERE HANDED OVER TO THE COMPANY CONSEQUENT TO THE ABOVE MOU. AS PER 3 ITA NOS. 1053/H/15 SAIBABU GORLA THE DETAILS OF REGISTERED SALE DEEDS FILED BY THE A SSESSEE FOR TRANSFER OF THE ABOVE PLOTS, THE PARTICULARS ARE AS FOLLOWS: S N O DEED NO. DESCRIPTION OF THE PROPERTY NAME OF THE VENDEE SALE CONSIDERATION SRO VALUE OF THE PROPERTY SALE CONSIDERATIO N OFFERED BY THE ASSESSEE 1 2822/2009, 26/08/09 280 SQ.YDS IN PLOT NO.1, AT SY.NO. 76, JAYADARSHINI ENCLAVE, KOMPALLY (V), QUTUBULLAPUR (M) VIRAT GOUD VEMULA 30,00,000/- 15,40,000/- 3,20,000/- 2 2821/2009, 26/08/09 220 SQ.YDS IN PLOT NO. 1, AT SY.NO. 76, JAYADARSHINI ENCLAVE, KOMPALLY (V), QUTUBULLAPUR (M) ENGANTI RAVINDER GOUD 12,10,000/- 12,10,000 3 3527/2009 02/11/2009 412.5 SQ.YDS IN PLOT NO. 1, AT SY. NO. 76, JAYADARSHINI ENCLAVE, KOMPANNY (V), QUTUBULLAPUR (M) KARE PRAVEEN KUMAR 31,96,000/- 22,86,750/- 2,80,000 4 TOTAL 74,06,000/- 50,36,750/- 6,09,000/- 3.2 THE AO NOTED THAT AS PER THE SALE DEEDS, THE AS SESSEE RECEIVED SALE CONSIDERATION FROM THE ABOVE VENDEES AND EXECUTED THE SALE DEEDS IN FAVOUR OF THE VENDEES. THE ASSESSEE A LSO DELIVERED PHYSICAL POSSESSION OF THE PLOT TO THE VENDEES ON T HE DATE OF THE SALE. IN THE SALE DEED, THERE IS NO WHISPER REGARDING THE ALLEGED MOU ENTERED INTO BY THE ASSESSEE WITH THE COMPANY. THE COMPANY IS NOT A PARTY TO THE ABOVE SALE DEEDS AND NOT A SIGNATORY T O THE REGISTERED SALE DOCUMENTS. THOUGH AS PER THE MOU, THE COMPANY HAS SHOWN INTENT TO PURCHASE THE PLOTS, THE SALE WAS MATERIAL IZED WITH VARIOUS VENDEES AS PER THE SALE DEEDS MENTIONED ABOVE. 3.3 THE AO OBSERVED THAT AS SEEN FROM THE SALE DEED S ENTERED INTO BY THE ASSESSEE, THE PLOTS WERE SOLD BY THE ASSESSE E TO VARIOUS VENDEES AS PER THE SALE DEEDS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN AS T O WHY THE SALE CONSIDERATION STATED IN THE SALE DEEDS SHOULD NOT B E ADOPTED WHILE COMPUTING CAPITAL GAINS. IN COMPLIANCE TO THE ABOVE , THE ASSESSEE CLAIMED THAT THE COMPANY IS INTO THE BUSINESS OF DE VELOPMENT OF PLOTS 4 ITA NOS. 1053/H/15 SAIBABU GORLA PROCURED FROM LAND OWNERS FOR AN AGREED PRICE IN TH E NAME OF THE DIRECTORS OR IN THE NAME OF RELATED COMPANIES AND W HENEVER A CUSTOMER IS IDENTIFIED THE SALE DEED IS ENTERED INT O BY THE LAND OWNER DIRECTLY IN THE NAME OF THE VENDEES. HOWEVER, THE T OTAL SALE CONSIDERATION RECEIVED FROM THE CUSTOMER IS ACCOUNT ED FOR BY THE COMPANY IN ITS BOOKS OF ACCOUNT. IT IS FURTHER CLAI MED THAT THOUGH THE SALE DEED IS ENTERED INTO BY THE LAND OWNER WITH P ROSPECTIVE BUYER, THE PROFIT/SURPLUS IS OFFERED IN THE HANDS OF THE C OMPANY. IT IS ALSO CLAIMED THAT THIS METHOD OF ACCOUNTING HAS CONSISTE NTLY BEEN FOLLOWED FOR MANY YEARS AND THE DEPARTMENT HAS ACCEPTED THE TREATMENT SO GIVEN IN THE BOOKS OF ACCOUNT BY THE COMPANY. FOR T HE ABOVE REASONS, THE ASSESSEE MADE A REQUEST TO ACCEPT THE SALE CONSIDERATION SHOWN AS PER UNREGISTERED MOU AND ACC EPT THE CAPITAL GAINS OFFERED BY HIM. 3.4 AFTER EXAMINING THE CLAIM OF THE ASSESSEE, THE AO FOUND TO BE NOT ACCEPTABLE FOR THE FOLLOWING REASONS: 1. THE MOU AS PER WHICH THE ASSESSEE OFFERED CAPITA L GAINS IS UNREGISTERED AND THERE IS NO MENTION OF HANDING OVE R OF POSSESSION OF THE PROPERTY BY THE ASSESSEE TO THE C OMPANY. THE MOU ONLY MENTIONED THAT THE COMPANY JAYADARSHINI HO USING (P) LTD. HAS AN INTENTION TO BUY THE PLOT. THE INTENTIO N CANNOT BE CONSTRUED AS TRANSFER AS PER THE DEFINITION OF TRAN SFER AS PER SEC. 2(47) OF THE IT ACT, 1961. 2. ON VERIFICATION OF THE SALE DEEDS BEARING NOS 28 21/2009, 2822/2009 & 3527/2009, THE PROPERTY WAS REGISTERED BY THE ASSESSEE IN THE NAMES OF VENDEES. NOWHERE IN THE DO CUMENT, IT IS MENTIONED THAT THE ASSESSEE HAS ENTERED INTO A M OU WITH THE COMPANY JAYADARSHINI HOUSING (P) LTD. 3. AS PER THE SALE DEEDS, THE SALE CONSIDERATION WA S RECEIVED DIRECTLY BY THE ASSESSEE FROM THE VENDEES. THERE IS NO MENTION THAT THE SALE CONSIDERATION WAS IN TURN PAID TO THE COMPANY. 4. THE ASSESSEE HANDED OVER PHYSICAL POSSESSION OF THE PROPERTY TO THE VENDEES AS PER THE TERMS OF SALE DE EDS. 5. THE ASSESSEE IN THE SALE DEEDS DECLARED THAT HE IS THE ABSOLUTE OWNER AND PHYSICAL POSSESSOR OF THE PROPER TY. 5 ITA NOS. 1053/H/15 SAIBABU GORLA 6. AS SEEN FROM THE SALE DEEDS BEARING NO'S 3320/20 03 DATED 25- 03-2003 AND SALE DEED NO'S 13859/2003 DATED 04-11-2 003 FOR PURCHASE OF THE PLOTS, THE ASSESSEE HAS ACQUIRED DE VELOPED PLOTS AND THERE IS NO FURTHER DEVELOPMENT CARRIED O UT EITHER BY HIMSELF OR BY THE COMPANY. 7. THE CLAIM THAT THE ASSESSEE HAS BEEN FOLLOWING T HE SAME TREATMENT IN EARLIER YEARS IS NOT ACCEPTABLE AS EAC H YEAR IS SEPARATE AND IS NOT GOVERNED BY THE EARLIER YEAR'S DECISION/TREATMENT. THE HONORABLE SUPREME COURT IN INSTALMENT SUPPLY (PVT) LTD, VS UNION OF INDIA (AIR 1976 SC 53 ) HELD THAT 'EACH YEAR'S ASSESSMENT IS FINAL ONLY FOR THAT YEAR AND DOES NOT GOVERN LATER YEARS, BECAUSE IT DETERMINES ONLY THE TAX FOR A PARTICULAR PERIOD. 3.5 IN VIEW OF THE ABOVE, THE AO COMPUTED THE CAPIT AL GAINS AS UNDER: SALE CONSIDERATION OF PLOT NO. 1 AT SY.NO. 76, JAYADARSHINI ENCLAVE, KOMPALLY (V), QUTUBULLAPUR (M) RS. 30,00,000/- AS PER DOC. NO. 2822/2009 RS. 12,10,000/- AS PER DOC. NO. 2821/2009 RS. 42,10,000/- LESS: COST OF ACQUISITION RS. 2,00,000/- ON 21/03/2003. INDEXED COST 200000 X 632/447 RS. 2,82,774 RS. 39,27,226/- SALE CONSIDERATION OF PLOT NO. 43 AT SY NO. 76, JAYADARSHINI ENCLAVE, KOMPALLY (V), QUTUBULLAPUR (M) RS. 31,96,000/- AS PER DOC. NO. 3527/2009 RS. 31,96,000/- LESS: COST OF ACQUISITION RS. 1,81,500/- ON 04/11/2003. INDEXED COST 181500 X 632/463 RS. 2,47,749/- RS. 29,48,251/- TOTAL LTCG RS. 68,75,477/- 3.6 AS THE ASSESSEE HAD SHOWN LTCG OF RS. 69,477/- IN THE COMPUTATION OF TOTAL INCOME, AS AGAINST THE LTCG OF RS. 68,75,477/- COMPUTED BY THE AO, THE DIFFERENCE AMOUNT OF RS. 68 ,06,000/- WAS BROUGHT TO TAX AS LONG TERM CAPITAL GAINS. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED APPEAL BEFORE THE CIT(A). 6 ITA NOS. 1053/H/15 SAIBABU GORLA 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, WHICH WERE EXTRACTED BY THE CIT(A) AT PAGES 6 TO 11 OF HIS ORD ER, THE CIT(A) DIRECTED THE AO TO ASSESS THE CAPITAL GAINS AS RETU RNED BY THE ASSESSEE BY OBSERVING AS UNDER: 6. THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT ARE CONSIDERED. THE MODUS OPERANDI OF THE ASSESSEE IN ACQUIRING LANDS AND DEALINGS THEREOF THOUGH THE COMPANY HAVE BEEN TAKEN COGNIZANCE OFF. THE MOU ENTERED INTO BETWEEN THE AS SESSEE AND THE COMPANY HAS NOT BEEN DOUBTED. THE FUNDS FOR PUR CHASE OF LAND ARE PROVIDED BY THE COMPANY. THE TRANSACTION O F PURCHASE AND SALE OF LAND AS RECORDED IN THE BOOKS OF COMPAN Y HAVE BEEN ACCEPTED. THE AO DOUBTED WHETHER THE MOU HAS BEEN A CTED UPON OR NOT AND IN ABSENCE OF EVIDENCES TO SHOW THA T POSSESSION WAS GIVEN TO COMPANY, THE AO DID NOT ACCEPT THE SAL E ON ACCOUNT OF MOU TO THE COMPANY. FURTHER, THE AO NOTING THAT THERE IS NO MENTION OF MOU IN THE SALE DEED HELD THAT THE PROPE RTY HAS BEEN TRANSFERRED BY THE APPELLANT ONLY AND APPLYING PROV ISIONS OF SEC.50C THE CAPITAL GAINS HAVE BEEN COMPUTED. HOWEV ER, LOOKING INTO TOTALITY OF THE FACTS, THE MODUS OPERA NDI OF THE ASSESSEE AS EXPLAINED AND THE FACT THAT THE RESULTA NT PROFIT HAS BEEN ASSESSED IN THE HANDS OF THE COMPANY, IT CAN N OT BE SAID THAT MOU HAS NOT BEEN ACTED UPON. ONCE, IT IS SEEN THAT THE MOU HAS BEEN ACTED UPON BY THE ASSESSEE, LOOKING IN TO OVERALL FACTS OF THE CASE, THE SALE IS HELD TO BE MADE BY T HE COMPANY ONLY AND THE ASSESSEE HAS ONLY ACTED AS AGENT. FURT HER, THE RATIO OF DECISION OF HON'BLE ITAT IN THE CASE OF M/S. ATL URI SUBBA RAO (ITA NO. 930/HYD/2011 AND ITA. 525/HYD/2010), WHERE IN THE PERSON FACILITATING TRANSACTION, AS MEDIATOR THROUG H GENERAL POWER OF ATTORNEY WAS NOT TREATED AS SELLER, IS APP LICABLE TO THE CASE OF THE ASSESSEE. IN VIEW OF THE ABOVE, IT IS H ELD THAT PROVISIONS OF SECTION 50C ARE NOT APPLICABLE TO THE ASSESSEES CASE AND CAPITAL GAINS AS RETURNED ARE ASSESSABLE. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUND OF APPEAL: THE CIT(A) ERRED IN DELETING THE ADDITION OF LTCG O F RS. 68,06,000/- MERELY ON THE BASIS OF THE MOUS SIGNED BY THE ASSESSEE AND ITS COMPANY, M/S JAYADARSHINI HOUSING PVT. LTD., WHICH IS NEITHER REGISTERED NOR EXECUTED; AND THERE WAS NO WHISPER ABOUT THE SAID MOUS OR ITS COMPANY IN THE S ALE DEEDS EXECUTED BY THE ASSESSEE IN RELATION TO SALES OF TH E PROPERTIES CONCERNED TO VARIOUS VENDEES. 7. THE LD. DR SUBMITTED THAT THE LANDS SOLD WERE AL READY DEVELOPED AND THERE IS NOTHING TO DEVELOP ON THESE LANDS. THE 7 ITA NOS. 1053/H/15 SAIBABU GORLA DOCUMENTS CLEARLY STATE THAT THE ASSESSEE HAD DIREC TLY SOLD THE PROPERTIES TO THE SELLERS. HE SUBMITTED THAT CIT(A) HAS WRONGLY DELETED THE ADDITION RELYING ON THE UNREGISTERED MO U. THE LD. DR RELIED ON THE ORDER OF THE AO. 8. THE LD. AR RELIED ON THE ORDER OF THE CIT(A). SI NCE THE CIT(A) ALLOWED THE ASSESSEES APPEAL AFTER CONSIDERING THE SUBMISSIONS ADVANCED BY THE ASSESSEE BEFORE HIM AND THE LD. AR OF THE ASSESSEE REITERATED THE SAME BEFORE US. THEREFORE, FOR THE S AKE OF CLARITY, WE EXTRACT THE SAME AS UNDER: THE ASSESSEE IS THE MANAGING DIRECTOR OF M/S JAYAD ARSHINI HOUSING PVT. LTD. A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF REAL ESTATE. THE COMPANY HAS IDENTIFIED AGRICULTURA L LANDS OF AROUND 75 ACRES FOR DEVELOPMENT OF TOWNSHIP IN KOMP ALLY VILLAGE IN QUTUBULLAPUR MANDAL RANGA REDDY DISTRICT AND ARO UND 200 ACRES OF LAND IN MEDCHAL VILLAGE IN THE YEAR 2003. THE LAND PROCURED BY THE COMPANY WAS AGRICULTURE LA ND WHICH WERE SUBSEQUENTLY CONVERTED INTO LAYOUTS AND SOLD B Y THE COMPANIES. DUE TO THE AP AGRICULTURE LAND CEILING ACT, WHICH R ESTRICTS HOLDING OF AGRICULTURE LAND IN RANGA REDDY DISTRICT UPTO 54 ACRES ONLY THE COMPANY HAS IN ORDER TO ACCOMPLISH THE TAS K OF ACQUIRING OF THE LAND HAS STRATEGICALLY AUTHORIZED SOME OF ITS DIRECTORS AND ALSO SISTER COMPANIES TO ACQUIRE THE SAID EXTENT OF LAND ON ITS BEHALF. THE MODUS OPERANDI ADOPTED BY THE COMPANY WAS THE L AND SO ACQUIRED BY THE DIRECTORS WAS TO BE CONVERTED INTO NON AGRICULTURE LANDS AND THE COMPANY WOULD MAKE THE NE CESSARY DEVELOPMENT TO FACILITATE DEVELOPMENT OF RESIDENTIA L PLOTS. THE RESIDENTIAL PLOTS WERE OFFERED FOR SALE BY THE COMPANY TO ITS CUSTOMERS AND ONCE A PURCHASE WAS IDENTIFIED THE CO MPANY ENTERED INTO AN MEMORANDUM OF UNDERSTANDING (MOU) W ITH THE DIRECTORS/ SISTER COMPANIES TO FACILITATE PURCHASE OF THE LAND WITHOUT ANY ELEMENT OF PROFIT, AND SUCH PLOTS WERE SOLD TO THE CUSTOMERS OF THE COMPANY AND SALE PROCEEDS RECEIVED BY THE DIRECTORS/ SISTER COMPANIES TRANSFERRED TO THE COMP ANY WHICH 'WAS OFFERED AS REVENUE BY THE COMPANY. THE ASSESSEE FURTHER HUMBLY SUBMITS THE FACT THAT T HE FUNDS THAT ARE REQUIRED FOR PURCHASE OF LAND FROM THE FARMERS HAS ALSO BEEN PROVIDED BY THE COMPANY IN ORDER TO FACILITATE PROC UREMENT OF THE LAND BY THE ASSESSEE. 8 ITA NOS. 1053/H/15 SAIBABU GORLA IT IS RESPECTFULLY SUBMITTED THAT THE ABOVE MODUS O PERANDI HAS BEEN CONSISTENTLY FOLLOWED BY THE COMPANY AND THE S AME WAS ALSO ACCEPTED IN THE COURSE OF SEARCH ASSESSMENTS F OR THE A YS 2004-05 TO 2007-08. THE ONLY ISSUE THAT WAS RAISED BY THE ASSESSING AUTHORITIES IN THESE SEARCH ASSESSMENTS W AS ON THE MONEY ADVANCED FOR PURCHASE OF LAND TO THE ASSESSEE WHICH WAS TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSE SSEE. HOWEVER, THE ASSESSEE HAS BEEN GRANTED RELIEF ON TH E ISSUE OF DEEMED DIVIDEND BY BOTH CIT APPEALS AS WELL AS THE HONBLE ITAT HYDERABAD ON AN APPEAL NO. 1044, 1045 & 1046 & 1109 /H/11 PREFERRED BY THE DEPARTMENT VIDE ORDER DATED 31/07/ 2013. THE HON'BLE ITAT WHILE ACKNOWLEDGING THE MODUS OPER ANDI OF THE TRANSACTIONS IN WHICH THE ASSESSEE WAS INVOLVED IN THE AYS 200405 TO 2007-08 HAS OBSERVED AS FOLLOWS UNDER PAR A 12 OF THE ORDER: 'WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE REC ORDS. THE FACTS ARE THAT THE COMPANY HAS IDENTIFIED A LAR GE EXTENT OF PROPERTY FOR DEVELOPMENT INTO TOWNSHIP AS THE AG RICULTURE LAND HOLDING IN RANGA REDDY DISTRICT CANNOT EXCEED AC. 54.00 DUE TO AP AGRICULTURE LAND CEILING ACT. THE A SSESSEE EVOLVED A SHEME BY WHICH THE COMPANY COULD DEVELOP LAYOUTS IN 300 ACRES OF LAND. THE COMPANY AUTHORIZE D SOME OF ITS DIRECTORS AND SISTER COMPANIES TO ACQUIRE L AND ON ITS BEHALF. THE ASSESSEE WAS FACILITATED WITH THE FUNDS BY THE COMPANY JAYADARSINI HOUSING PVT. LTD., FOR PURCHASE OF LANDS IN HIS NAME. THE COMPANY PROCURED THE LAND SUBSEQUENTLY FROM THE ASSESSEE. IN OUR OPINION, THE AMOUNTS GIVEN AS ADVANCES CANNOT BE CATEGORIZED AS A LOAN AS THERE IS NO REPAYMENT SCHEDULE AND THE ADVANCES DID NOT CARRY ANY INTEREST. THE LAW DOES NOT PROHIBIT BUSIN ESS TRANSACTION BETWEEN RELATED PARTIES AND THEREFORE, PAYMENT MADE IN ORDINARY COURSE OF BUSINESS CANNOT BE TREAT ED AS LOANS AND ADVANCES '. IT IS HUMBLY SUBMITTED THAT ALTHOUGH THE FACTS OF T HE CASE OF ABOVE ITAT ORDER ARE DIFFERENT I.E. DEEMED DIVIDEND , THE MODUS OPERANDI OF THE COMPANY HAS NOT BEEN DISPUTED EITHE R BY THE ASSESSING OFFICER, CIT APPEALS OR THE HONBLE ITAT. IT IS HUMBLY SUBMITTED THAT THE ABOVE MODUS OPERAND I OF THE TRANSACTIONS WAS EXPLAINED DURING THE COURSE OF ASS ESSMENT AND THE MOU'S WERE ALSO SUBMITTED. HOWEVER, THE ASSESSI NG OFFICER CHOSE TO IGNORE THE ABOVE FACTS AND MADE THE ADDITI ON BY APPLYING THE PROVISIONS OF SEC. 50C FOR THE FOLLOWI NG TRANSACTIONS. 9 ITA NOS. 1053/H/15 SAIBABU GORLA THE TOTAL LAND ACQUIRED BY THE COMPANY IN RANGA RED DY DISTRICT IS AROUND 300 ACRES AND THE DEVELOPMENT OF THE LAND WAS DONE IN A PHASED MANNER, AND THE EXTENT OF 2000 SQ. YDS OF LAND WAS SOLD IN THE FY 2009-10 RELEVANT TO THE AY 2010-11. THE ASSESSEE HAS PURCHASED 2000 SQ. YDS OF AGRICULT URE LAND VIDE DOC NO. 332O/2003 DATED 21/03/2003 FROM GUMMAD I SRINIVAS REDDY AND OTHERS FOR A TOTAL CONSIDERATION OF RS.8,00,00O/-. THE FUNDS WERE PROVIDED BY THE COMPA NY TO THE ASSESSEE FOR PURCHASE OF THE LAND INVOLVED IN ALL T HE 3 TRANSACTIONS IN THE YEAR 2003. THE ASSESSEE HAS TRANSFERRED THE SAID PROPERTIES TO THE COMPANY AS FOLLOWS: 1. MOU DATED 30TH JULY, 2009 - 500 SQ. YDS - RS.3,2 0,000/-. 2. MOU DATED 30TH JULY, 2009 - 412.50 SQ. YDS - RS. 2,80,000/- SALE TRANSACTIONS FOR ABOVE MOU A) OUT OF500 SQ. YDS TRANSFERRED UNDER THE ABOVE MO U, - 280 SQ. YDS WAS SOLD BY THE COMPANY TO MR VIRAT G AUD VEMULA FOR RS.30,00,00/- (SRO VALUE OF RS.15,40,000/-). TH E SALE DEED WAS EXECUTED BY MR. SAI BABU VIDE SALE DEED NO. 282 2/09 DATED 26/08/2009. - 220 SQ. YDS WAS SOLD BY THE COMPANY TO MR ENGANTI RAVINDAR GAUD FOR RS.12,10,000/- (SRO VALUE OF RS. 12,10,000 /-). THE SALE DEED WAS EXECUTED BY MR. SAI BABU VIDE SALE DE ED NO. 2821/09, DATED 26/08/2009. THE COMPANY M/S. JAYADARSINI HOUSING HAS RECORDED T HE SAID SALE TRANSACTION IN ITS BOOKS OF ACCOUNTS FOR RS.30 ,00,000/- AND RS.12,10,000/- RESPECTIVELY IN ITS BOOKS OF ACCOUNT S. (LEDGER COPY ENCLOSED). B) 412.50 SQ. YDS WAS SOLD BY THE COMPANY TO MR. KA RE PRAVEEN KUMAR FOR RS.31,96,000/- (SRO VALUE OF RS.22,86,75O /-). THE SALE DEED WAS EXECUTED BY M. SAI BABU VIDE SALE DEE D NO. 2822/09 DATED 26/08/2009. THE COMPANY M/S. JAYADARSINI HOUSING HAS RECORDED T HE SAID SALE TRANSACTION IN ITS BOOKS OF ACCOUNTS FOR RS.31 ,96,000/- AND RS.12,10,000/- RESPECTIVELY IN ITS BOOKS OF ACCOUNT S. (LEDGER COPY ENCLOSED). THE ASSESSEE INCLUDED THE INCIDENTAL EXPENSES OF RE GISTRATION ON THE PURCHASE TRANSACTION PROPORTIONATELY WHILE CONV EYING THE TITLE THROUGH MOU. 10 ITA NOS. 1053/H/15 SAIBABU GORLA HOWEVER, IN THE COURSE OF FURNISHING THE RETURN OF INCOME, THE ACCOUNTANT OF THE ASSESSEE INADVERTENTLY CLAIMED TH E INCIDENTAL EXPENSES SO CLAIMED FROM THE COMPANY AS CAPITAL GAI NS OF RS.69,477/-. THE LEARNED ASSESSING OFFICER 'WHILE REJECTING THE CLAIM OF THE ASSESSEE RELIED ON THE FOLLOWING GROUNDS FOR MAKING THE ADDITIONS UNDER SECTION 50C OF THE INCOME TAX ACT, 1961: A) IN THE MOU, THE ABOVE COMPANY HAS EXPRESSED ITS INTENT TO PURCHASE THE ABOVE PLOTS FROM THE ASSESSEE. HOWEVER , THE ASSESSEE COULD NOT PRODUCE ANY REGISTERED SALE DEED ENTERED INTO BY THE ASSESSEE WITH THE ABOVE COMPANY FOR SAL E OF THE PLOTS TO THE COMPANY. B) THE ASSESSEE COULD NOT PLACE ON RECORD ANY EVIDE NCE TO THE EFFECT THAT THE PHYSICAL POSSESSION OF THE PLOTS WE RE HANDED OVER TO THE COMPANY CONSEQUENT A THE MOU. C) IN THE SALE DEED THERE IS NO WHISPER REGARDING T HE ALLEGED MOU ENTERED INTO BY THE ASSESSEE WITH THE COMPANY. WITH RESPECT TO THE ABOVE OBSERVATIONS THE ASSESSEE HUMBLY SUBMITS THE FOLLOWING FACTS AND THE CONTENTS OF TH E MOU FOR YOUR KIND CONSIDERATION. THE MOU BETWEEN THE COMPANY AND THE ASSESSEE VERY C LEARLY SPECIFIES UNDER PAM 1 OF PAGE (2) AS FOLLOWS: 'WHEREAS THE FIRST PARTY IS THE MANAGING DIRECTOR O F M/S. JAYADARSHINI HOUSING PRIVATE LIMITED HAS BEEN AUTH ORIZED TO ACQUIRE LANDS ON BEHALF OF THE SECOND PARTY IN ORDE R TO FACILITATE THE SECOND PARTY TO CONSOLIDATE ITS LAND BANK FOR FUTURE DEVELOPMENT BY PROCURING THE LANDS AT A REAS ONABLE COST BY VIRTUE OF ENTERING INTO AGREEMENT OF SALE CUM GP A OR THROUGH SALE DEEDS FROM THE FARMERS/LAND OWNERS IN AND AROU ND THE VICINITY OF RANGA REDDY DISTRICT.' WHEREAS THE FIRST PARTY AND SECOND PARTY DESIRE TO REDUCE TO WRITING THE TERMS AND CONDITIONS GOVERNIN G THIS MEMORANDUM OF UNDERSTANDING AS UNDER TO ENABLE THE TRANSFER OF THE PROPERTY REFERRED ABOVE TO THE SECOND PARTY. THE ABOVE CLAUSES OF THE MOU CLEARLY INDICATE THE I NTENTION OF BOTH THE PARTIES TO THE MOU THAT THE PURCHASE OF LA ND IS MADE ON BEHALF OF THE COMPANY, FOR FUTURE DEVELOPMENT AND H ENCE, THE POSSESSION OF THE LAND IS DEEMED TO HAVE BEEN TRANS FERRED ON THE DATE OF EXECUTION OF THE MOU. FURTHER PARA 4 CLEARLY STATES THAT THE PROPERTY IS BEING TRANSFERRED TO THE COMPANY ON THE DATE OF SIGNING O F THE MOU WITH CERTAIN COVENANTS MUTUALLY AGREED UPON BY BOTH THE PARTIES. 11 ITA NOS. 1053/H/15 SAIBABU GORLA WITH RESPECT TO THE OBSERVATION OF THE LEARNED ASSE SSING OFFICE THAT THE MOU HAS NOT BEEN REGISTERED, IT IS HUMBLY SUBMITTED THAT FORMAL REGISTRATION OF THE MOU IS NOT ESSENTIAL IN ORDER TO CONVEY THE OWNERSHIP OF THE PROPERTY TO THE COMPANY AS PAR A (2) STATED ABOVE CLEARLY SPECIFIES THAT THE LAND INITIALLY HAS BEEN ACQUIRED FOR THE COMPANY ONLY. FURTHER THE PROCESS OF REGISTRATION OF THE MOU HAS NOT BEEN UNDERTAKEN AS IT WOULD VITIATE THE PROVISIONS OF TH E AP AGRICULTURE LAND CEILING ACT IN THE HANDS OF THE CO MPANY IN CASE THE EXTENT OF LAND TRANSFERRED THROUGH MOU WOULD RE SULT IN EXCESS HOLDING OF THE THRESHOLD LIMIT OF 54 ACRES I N THE HANDS OF THE COMPANY. IT IS FURTHER HUMBLY SUBMITTED THAT, IN VIEW OF THE ABOVE FACTS AND CONSTRAINTS THE SALE DEED EXECUTED BY THE ASSESSEE IN FAVOUR OF THE CUSTOMERS OF THE COMPANY DOES NOT MENTION ANYTH ING ABOUT THE MOU. THE ASSESSEE FURTHER SUBMITS THE FACT THAT ONCE THE COMPANY JUMPED UP THE SALE TRANSACTION TO ITS CUSTOMERS AND HAS DULY RECORDED THE SAME IN ITS BOOKS OF ACCOUNT THE SAME TRANSACTION CANNOT BE SUBJECTED TO TAX IN THE HANDS OF THE ASSE SSEE, WHO HAS ACTED ONLY AS A MEDIATOR / AGENT OF THE COMPANY FOR FACILITATING THE PURCHASE AND SALE OF THE PROPERTY. 9. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD. THE CIT(A) GAVE A CAT EGORICAL FINDING WHILE ALLOWING THE APPEAL OF THE ASSESSEE THAT LOOKING INTO TOTALITY OF THE FACTS, THE MODUS OPERANDI OF THE ASSESSEE AS EX PLAINED AND THE FACT THAT THE RESULTANT PROFIT HAS BEEN ASSESSED IN THE HANDS OF THE COMPANY, IT CAN NOT BE SAID THAT MOU HAS NOT BEEN A CTED UPON. ONCE, IT IS SEEN THAT THE MOU HAS BEEN ACTED UPON B Y THE ASSESSEE, LOOKING INTO OVERALL FACTS OF THE CASE, THE SALE IS HELD TO BE MADE BY THE COMPANY ONLY AND THE ASSESSEE HAS ONLY ACTED AS AGENT. MOREOVER, THE INCOME TAXED IN THE HANDS OF THE COMP ANY CANNOT BE SUBJECTED TO TAX AGAIN IN THE HANDS OF ASSESSEE, WH ICH IS NOT PROPER. AS PER THE PRINCIPLE, THE SAME INCOME CANNOT BE TAX ED TWICE, IN THE GIVEN CASE, THE SALE PROCEEDS WERE RECORDED IN THE BOOKS OF THE COMPANY AND ASSESSED TO TAX, THE SAME CANNOT BE ASS ESSED IN THE HANDS OF THE ASSESSEE ALSO. THEREFORE, WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO ASSE SS THE CAPITAL GAINS 12 ITA NOS. 1053/H/15 SAIBABU GORLA AS RETURNED BY THE ASSESSEE AND, HENCE, WE UPHOLD T HE ORDER OF THE CIT(A) DISMISSING THE GROUND RAISED BY THE REVENUE ON THIS ISSUE. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 21 ST SEPTEMBER, 2016 KV COPY TO:- 1) ITO, WARD 14(1), 6 TH FLOOR, C BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 2) SRI SAIBABU GORLA, FLAT NO. B603, ADITYA HILL TO P, BEHIND SENAR VALLEY, JUBILEE HILLS EXTENSION, JUBILEE HILLS, HYD. 3) CIT(A) - 4, HYDERABAD 4 PR. CIT - 6, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE .