Nishchay Fab Pvt. Ltd., Ahmedabad V. The Jt.CIT, (OSD), Circle-5, Ahmedabad

ITA 2579/AHD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80270 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 01-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Maximum Marginal Rate; Avoidance of tax

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , ! ' #$ #$ #$ #$ %, ' BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER 1. $./ I.T.A. NO.2579/AHD/2013 A.Y. 2009-10 2. $./ I.T.A. NO.2829/AHD/2013 A.Y. 2009-10 1. NISHCAY FAB PVT.LTD. 8, LAVANYA SOC., NR.JALTARANG CLUB VASNA, AHMEDABAD 2. ACIT, CIRCLE-5 AHMEDABAD / VS. 1. JT.COMMISSIONER OF INCOME TAX (OSD) CIRCLE-5 AHMEDABAD 2. M/S.NISHCAY FAB PVT. LTD., AHMEDABAD '( ! $./)* $./ PAN/GIR NO. : AABCN 4115 F ( (+ / // / APPELLANTS ) .. ( ,-(+ / RESPONDENTS ) ASSESSEE BY : SHRI J.P. SHAH, A.R. REVENUE BY : SHRI V.K.SINGH, SR.D.R. . / ! / / / / DATE OF HEARING 13/08/2014 012 / ! / DATE OF PRONOUNCEMENT 26/08/2014 3 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THESE CROSS-APPEALS BY THE ASSESSEE AND THE REVEN UE ARE DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER O F INCOME TAX(APPEALS)-XI, AHMEDABAD (CIT(A) IN SHORT) DAT ED 02/09/2013 PERTAINING TO ASSESSMENT YEAR (AY) 2009-10. THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.2579/AHD/2013 (BY ASSESS EE) AND ITA NO.2829/AHD/2013 (BY REVENUE) NISHCHAY FAB PVT.LTD. VS.JT.CIT/ACIT ASST.YEAR 2009-10 - 2 - 2. FIRST, WE TAKE UP THE ASSESSEES APPEAL IN ITA N O.2579/AHD/2013 FOR AY 2009-10. THE ABRIDGED GROUND OF APPEAL RAI SED BY THE ASSESSEE READS AS UNDER:- 1. THE ORDER OF C.I.T.(APPEALS) DISALLOWING THE AM OUNT OF RS.88,72,276/- PAID TO KETAN SHAH, ALPA SHAH, JENAL PATEL AND DIPIKA PATEL IN COMPUTATION OF TAXABLE CAPITAL GAIN FROM SALE OF LAND TO M/S.WRITERS AND PUBLISHERS LTD. AS PER SALE DEED OF 30.06.2008 IS BAD IN LAW AS ALSO ON FACTS. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE A SSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 26/12/2011, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF RS.88,72,276/- ON ACCOUNT OF THE CO MPENSATION PAID TO SHRI KETAN SHAH AND OTHERS AND ALSO DISALLOWED COMP ENSATION PAID TO GUJARAT STEEL & PIPES AMOUNTING TO RS.57,20,000/-. AGAINST THIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE PARTLY ALLOWED THE APPEAL. WHILE ALLOWING THE APPEAL, THE LD.CIT(A) CONFIRMED THE DI SALLOWANCE OF RS.88,72,272/- AND DELETED THE DISALLOWANCE OF RS.5 7,20,000/-. NOW, BOTH THE ASSESSEE AND THE REVENUE ARE IN CROSS-APPE ALS BEFORE US. 3. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE UNDISPUTED FACTS ARE THAT THE ASSESSEE ENTERED INTO AN AGREEMENT TO SELL TO FOUR PERSONS; NAMELY, SHRI KETAN SHAH, MS.ALPA SHAH, SHRI JENAL P ATEL AND MS. DIPIKA PATEL. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED T HAT BEFORE THE SALE-DEED COULD BE EXECUTED, THE ASSESSEE FOUND ANOTHER BUYER OF THE LAND WHO OFFERED HIGH PRICE FOR THE LAND, THEREFORE THE ASSE SSEE ENTERED INTO AN ITA NO.2579/AHD/2013 (BY ASSESS EE) AND ITA NO.2829/AHD/2013 (BY REVENUE) NISHCHAY FAB PVT.LTD. VS.JT.CIT/ACIT ASST.YEAR 2009-10 - 3 - AGREEMENT OF CANCELLATION OF AGREEMENT TO SELL ON 20/06/2008 AND AGREED TO MAKE PAYMENT TO THE PURCHASERS AT 50% OF THE SAL E CONSIDERATION RECEIVED HIGHER THAN THE PRICE WITH THE ORIGINAL PU RCHASERS. HE SUBMITTED THAT IN THE BUSINESS OF REAL ESTATE, THIS KIND OF A RRANGEMENT HAPPENS DAY IN AND DAY OUT. HE SUBMITTED THAT THE AUTHORITIES BELOW HAVE GROSSLY ERRED IN MAKING ADDITION OF THIS AMOUNT. HE SUBMIT TED THAT THE ORIGINAL PURCHASERS HAVE OFFERED FOR TAXATION THE AMOUNT REC EIVED FROM THE ASSESSEE-COMPANY. HE HAS DRAWN OUR ATTENTION TOWAR DS THE ASSESSMENT ORDER, AND SUBMITTED THAT THE AO STRANGELY PROCEEDE D ON THE BASIS THAT OUT OF FOUR ORIGINAL PURCHASES, TWO WERE NOT HAVING SUFFICIENT MEANS TO PURCHASE THE LAND. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THE FAC T THAT THERE WAS NO OCCASION TO MAKE ANY AVOIDANCE OF TAX BY THE ASSESS EE SINCE THE CAPITAL GAIN WOULD BE PAYABLE AT THE LESSER RATE. HE SUBMI TTED THAT THE REVENUE HAS ALL LIBERTY TO PROCEED AGAINST THE ORIGINAL PUR CHASERS IF THEY DO NOT REFLECT THE AMOUNT RECEIVED FROM THE ASSESSEE-COMPA NY. HE SUBMITTED THAT THE PAYMENT HAS BEEN MADE THROUGH BANKING CHAN NELS. HE FURTHER SUBMITTED THAT THE CHEQUES OF THE ORIGINAL PURCHASE RS WERE DULY CLEARED IN THE ACCOUNT OF THE ASSESSEE. 3.1. ON THE CONTRARY, THE LD.SR.DR SUPPORTED THE OR DERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THERE IS NO ER ROR IN THE ORDER OF THE LD.CIT(A). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. ITA NO.2579/AHD/2013 (BY ASSESS EE) AND ITA NO.2829/AHD/2013 (BY REVENUE) NISHCHAY FAB PVT.LTD. VS.JT.CIT/ACIT ASST.YEAR 2009-10 - 4 - WE FIND THAT THE AUTHORITIES BELOW HAVE REJECTED TH E CLAIM OF THE ASSESSEE ON THE BASIS THAT THE ASSESSEE-COMPANY DID NOT RECE IVE ANY ADVANCE FROM THE ORIGINAL PURCHASERS AS THE CHEQUES WHICH WERE H ANDED OVER TO THE ASSESSEE-COMPANY WERE NOT PRESENTED TO THE BANK PRI OR TO EXECUTION OF SALE-DEED WITH THE NEW BUYER. THEREFORE, THE AUTHO RITIES BELOW OF THE VIEW THAT THERE WAS NO CREATION OF ANY ENCUMBRANCE. THE CONTENTION OF THE ASSESSEE IS THAT ONCE THE ASSESSEE HAS EXECUTED AGREEMENT TO SELL AND RECEIVED CHEQUES, THEN A CONTRACT IS EXECUTED AND T HE RIGHTS IN FAVOUR OF THE ORIGINAL PURCHASERS WERE CREATED TO PROCEED AGA INST THE ASSESSEE- COMPANY. IT IS ALSO THE CONTENTION OF THE ASSESSEE THAT THE CONSIDERATION WAS RECEIVED IN THE FORM OF THE CHEQUES BEING THE N EGOTIABLE INSTRUMENT AND IN CASE THE ASSESSEE PRESENTED THE SAME, THE BA NKERS OF THE ORIGINAL PURCHASERS WOULD HAVE CLEARED THE SAME AND IN CASE OF DISHONOUR OF THE CHEQUES, THE ASSESSEE-COMPANY WAS AT LIBERTY TO PRO CEED UNDER THE NEGOTIABLE INSTRUMENT ACT. THEREFORE, CERTAIN RIGH TS AND LIABILITIES WERE CREATED BY RECEIVING THE CONSIDERATION IN THE FORM OF CHEQUES. WE FIND THAT THE AO HAS DOUBTED THE GENUINENESS OF THE TRAN SACTION ON THE BASIS THAT ACTUALLY NO ADVANCE WAS RECEIVED BY THE ASSESS EE-COMPANY FROM THE ORIGINAL PURCHASERS. IT WAS ONLY THE SALE CONSIDER ATION THAT WAS RECEIVED FROM M/S.WRITERS AND PUBLISHERS LTD. THAT HAS BEEN ROTATED THROUGH THE ORIGINAL PURCHASERS THAT TO THE ACCOUNT OF THE ASSE SSEE-COMPANY. THESE ARE NOTHING BUT CIRCULAR ENTRIES. THE LD.CIT(A) HA S CONFIRMED THESE FINDINGS ON THE BASIS THAT THE AGREEMENT DATED 17/0 4/2008 DOES NOT APPEAR TO BE LEGALLY ENFORCEABLE DOCUMENT. ITS GE NUINENESS REMAINS UNPROVED IN ABSENCE OF ANY OTHER CORROBORATIVE EVID ENCES. IT APPEARS TO BE A SELF CREATED EVIDENCE BY THE APPELLANT IN ORDE R TO REDUCE HIS OVERALL ITA NO.2579/AHD/2013 (BY ASSESS EE) AND ITA NO.2829/AHD/2013 (BY REVENUE) NISHCHAY FAB PVT.LTD. VS.JT.CIT/ACIT ASST.YEAR 2009-10 - 5 - CAPITAL GAIN TAX LIABILITY. THE PARTIES TO WHOM THE COMPENSATION HAVE BEEN PAID DO NOT APPEAR TO BE THE PERSONS HAVING CR EDITWORTHINESS TO AFFORD PURCHASE OF LAND BY PAYING AN AMOUNT OF OVER RS.2 CRORES. WE FIND THAT THE LD.CIT(A) HAS NOT GIVEN ANY BASIS AS TO HOW THESE AGREEMENTS EXECUTED BY THE ASSESSEE-COMPANY WITH TH E ORIGINAL PURCHASERS ARE NOT LEGALLY ENFORCEABLE. IN THE ABS ENCE OF CLEAR FINDINGS, WE ARE OF THE CONSIDERED VIEW THAT THE MATTER REQUI RES FRESH DECISION. THEREFORE, WE RESTORE THIS ISSUE BACK TO THE FILE O F THE LD.CIT(A) TO GIVE A CLEAR FINDING AS TO HOW THE AGREEMENTS WITH ORIGIN AL PURCHASERS ARE NOT ENFORCEABLE UNDER THE LAW. MOREOVER, THE AUTHORITI ES BELOW HAVE NOT PLACED ANY CONCRETE EVIDENCE PROVING THAT THE ENTIR E COMPENSATION PAID TO THE ORIGINAL PURCHASERS CAME BACK TO THE ASSESSE E-COMPANY. HENCE, ALL THESE ASPECTS REQUIRE FRESH ADJUDICATION. THUS, A SSESSEES GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.2579/AHD/2013 IS ALLOWED FOR STATISTICAL PURPOSES. 6. NOW, WE TAKE UP THE REVENUES APPEAL IN ITA NO.2 829/AHD/2013 FOR AY 2009-10. THE REVENUE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- I) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.57,20,000/- CLAIMED BY THE ASSESSEE TOWARDS COST OF IMPROVEMENT AND ADDED BY THE A.O. TREATING THE S AME AS NOT AN EXPENSE INCURRED IN CONNECTION WITH THE TRANSFER OF THE CAPITAL ASSET IN QUESTION BUT PAYMENTS MADE WITH A MOTIVE T O AVOID TAXES. ITA NO.2579/AHD/2013 (BY ASSESS EE) AND ITA NO.2829/AHD/2013 (BY REVENUE) NISHCHAY FAB PVT.LTD. VS.JT.CIT/ACIT ASST.YEAR 2009-10 - 6 - II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER TO THE ABOVE EXTENT. III) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD.C OMMISSIONER OF INCOME TAX (A) MAY BE SET-ASIDE AND THAT OF THE ASS ESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. 7. THE LD.SR.DR ARGUED THAT THE CIT(A) WAS NOT JUST IFIED IN DELETING THE ADDITION MADE BY THE AO IN RESPECT OF THE COMPE NSATION PAID TO THE GUJARAT STEEL AND PIPES A SISTER-CONCERN OF THE ASS ESSEE. HE SUBMITTED THAT THE AO HAS GIVEN A FINDING THAT THE ALLEGED PA YMENT OF COMPENSATION OF RS.65 LACS WAS ONLY DUBIOUS ARRANGEMENT AS THE S AME WAS RECEIVED BY THE ASSESSEE-COMPANY. 7.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THERE IS NO ERR OR IN THE ORDER OF THE LD.CIT(A). HE SUBMITTED THAT THE UNDISPUTED FACT R EMAINS THAT ON THE LAND IN QUESTION GUJARAT STEEL & PIPES HAD ERECTED INDUSTRIAL STRUCTURES AND WAS CARRYING OUT THE BUSINESS. DUE TO THE DECI SION OF THE ASSESSEE- COMPANY TO SELL THE LAND, GUJARAT STEEL AND PIPES W AS PUT TO HARDSHIPS AND LOSS. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS DECIDED THIS ISSUE I N PARAS 3.1.1 & 3.1.2 OF HIS ORDER, WHICH ARE IN THE FOLLOWING TERMS:- 3.1.1.WITH REGARD TO THE PAYMENT O COMPENSATION TO TENANTS, THE FACTS THAT CLEARLY EMERGE ARE ITA NO.2579/AHD/2013 (BY ASSESS EE) AND ITA NO.2829/AHD/2013 (BY REVENUE) NISHCHAY FAB PVT.LTD. VS.JT.CIT/ACIT ASST.YEAR 2009-10 - 7 - (1) M/S.GUJARAT STEELS & PIPES WERE IN OCCUPATION OF THE LAND SINCE FEBRUARY, 2006. (2) THE APPELLANT HAD ENTERED INTO AN AGREEMENT TO SELL THE LAND AND THEREFORE HAD ASKED THE TENANT TO VACATE THE LA ND PRIOR TO THE COMPLETION OF THE LEASE PERIOD. (3) THAT M/S.GUJARAT STEELS & PIPES HAD CARRIED OU T CERTAIN CONSTRUCTION ON THE LAND AND HAD BORNE THE EXPENDIT URE ON ACCOUNT OF THE SAME. (4) THAT THE TENANT HAD TO BEAR CERTAIN COST ON AC COUNT OF SHIFTING AFTER VACATION FROM THE SAID LAND TO ANOTH ER PREMISES. (5) THAT THE TENANT HAD TO BEAR INCONVENIENCE ON A CCOUNT OF SHIFTING BEFORE THE EXPIRY OF THE LEASE PERIOD. (6) THAT THE AMOUNT OF COMPENSATION OF RS.65,00,000 /- HAS BEEN PAID BY THE APPELLANT TO THE TENANT ON THE BAS IS OF MOU BETWEEN THE APPELLANT AND THE TENANT. 3.1.2. THE ABOVE AMOUNT CANNOT BE SAID TO BE EXCESS IVE IN VIEW OF THE FACT THAT THE TENANT HAD TO INCUR ALMOST MATCHING E XPENDITURE ON CONSTRUCTION, SHIFTING AND OTHER INCIDENTALS. THE PROVISIONS OF SEC.40A(2)(B) CANNOT BE MADE APPLICABLE ON A TRANSA CTION CLAIMED AS DEDUCTION AGAINST CAPITAL GAIN. THE CONTENTION OF THE A.O. THAT THE ENTIRE ARRANGEMENT IS A SHAM TRANSACTION WITH A MOT IVE TO AVOID TAX IS NOT ACCEPTABLE BECAUSE THE OTHER PARTY IS TAXED AT MAXIMUM MARGINAL RATE WHEREAS THE APPELLANT HAD TO PAY THE TAX AND I NTEREST AT THE RATE OF 20% ON ACCOUNT OF L.T.C.G. I THEREFORE, I HOLD THA T THE DISALLOWANCE OF RS.57,20,000/- OF COMPENSATION PAID TO THE TENANT I S NOT JUSTIFIED AND IS DELETED. 8.1. WE FIND THAT THE ABOVE FINDINGS ON FACT IS NOT CONTROVERTED BY THE REVENUE BY PLACING ANY CONTRARY MATERIAL ON RECORD, THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A), S AME IS HEREBY UPHELD. ITA NO.2579/AHD/2013 (BY ASSESS EE) AND ITA NO.2829/AHD/2013 (BY REVENUE) NISHCHAY FAB PVT.LTD. VS.JT.CIT/ACIT ASST.YEAR 2009-10 - 8 - THUS, GROUND RAISED BY THE REVENUE IS REJECTED AND APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE COMBINED RESULT, THE APPEAL OF THE ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSES, WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( ) ( %) ! ' ' ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 26/ 08/2014 6.., .../ T.C. NAIR, SR. PS 3 / ,7 8 72 3 / ,7 8 72 3 / ,7 8 72 3 / ,7 8 72/ COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. $$ 9 / CONCERNED CIT 4. 9() / THE CIT(A)-XI, AHMEDABAD 5. 7%: , , , / DR, ITAT, AHMEDABAD 6. :;< =. / GUARD FILE. 3 3 3 3 / BY ORDER, -7 , //TRUE COPY // > >> >/ // / $) $) $) $) ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..26.8.14(DICTATION-PAD 16-PAGE S ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.8.14 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BA CK TO THE SR.P.S./P.S.27.8.14 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27.8.14 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER