Madhumati Realty Pvt.Ltd.(Previously ACIT, Central Cir-2(3)), Ahmedabad V. The ITO, Ward-2(1)(4), Ahmedabad

ITSSA 167/AHD/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3124 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 23-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-06-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 21-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Opportunity of cross examination; Set aside
• Section: 263; 132; 13; 22; 153C

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ C’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And Ms. MADHUMITA ROY, JUDICIAL MEMBER Sl. No (s) IT(SS)A No. Asset. Year(s) Appeal(s) by Appellant vs. Respondent Appellant Respondent 1. IT(SS)A No.167/Ahd/2018 2008-09 Madhumati Realty Pvt. Ltd., “Ganesh Corporate House”, 100 Ft. Hebtpur Thaltej Road, Near Sola Bridge, Off. S.G. Highway, Ahmedabad. PAN: AADCM2567L Income Tax officer, Ward-2(1)(4), Ahmedabad. (Previously ACIT, Central Circle-2(3)) 2. IT(SS)ANo.168/Ahd/2018 2008-09 Maitrik Buildcon Pvt. Ltd., “Ganesh Corporate House”, 100 Ft. Hebtpur Thaltej Road, Near Sola Bridge, Off. S.G. Highway, Ahmedabad. PAN:AADCM2570M Income Tax officer, Ward-2(1)(4), Ahmedabad (Previously ACIT, Central Circle-2(3) 3. IT(SS)ANo.169/Ahd/2018 2008-09 Martand Estate Pvt. Ltd., “Ganesh Corporate House”, 100 Ft. Hebtpur Thaltej Road, Near Sola Bridge, Off. S.G. Highway, Ahmedabad. PAN: AADCM2572K Income Tax officer, Ward-2(1)(4), Ahmedabad (Previously ACIT, Central Circle-2(3) 4. IT(SS)A No.170/Ahd/2018 2008-09 Madhuj Realty Pvt. Ltd., “Ganesh Corporate House”, Income Tax officer, Ward-2(1)(4), Ahmedabad IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 2 Assessee by : Shri Dhiren Shah, A.R with Ms Nupur Shah, A.R Revenue by : Shri A.P. Singh, CIT.D.R सुनवाई कᳱ तारीख/Date of Hearing : 22/06/2022 घोषणा कᳱ तारीख /Date of Pronouncement: 24/08/2022 100 Ft. Hebtpur Thaltej Road, Near Sola Bridge, Off. S.G. Highway, Ahmedabad. PAN: AADCM2568F (Previously ACIT, Central Circle-2(3) 5. IT(SS)A No.171/Ahd/2018 2008-09 Medhbhuti Complex Pvt. Ltd., “Ganesh Corporate House”, 100 Ft. Hebtpur Thaltej Road, Near Sola Bridge, Off. S.G. Highway, Ahmedabad. PAN: AADCM2569E Income Tax officer, Ward-2(1)(4), Ahmedabad (Previously ACIT, Central Circle-2(3) 6. IT(SS)A No.172/Ahd/2018 2008-09 Matang Properties Pvt. Ltd., “Ganesh Corporate House”, 100 Ft. Hebtpur Thaltej Road, Near Sola Bridge, Off. S.G. Highway, Ahmedabad. PAN: AADCM2571L Income Tax officer, Ward-2(1)(4), Ahmedabad (Previously ACIT, Central Circle-2(3) (Applicant) (Respondent) IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 3 आदेश/O R D E R PER BENCH: The captioned six appeals have been filed at the instance of different Assessee against the orders of the Learned Commissioner of Income Tax -2, Ahmedabad [Ld. CIT) in short] arising in the matter of assessment order passed under s. 153C r.w.s. 263 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") relevant to the Assessment Year (A.Y.) 2008-09. Since, the issues involved in all these appeals are identical, we proceed to dispose of all the appeals by this common order for the sake of convenience and brevity. The facts of IT(SS)A No. 167/Ahd/2018 for A.Y.2008-09 in the case of M/s Madhumati Realty Pvt. Ltd. are taken as the lead case. 2. The assessee has raised the following grounds of appeal: 1. The Ld.CIT(A) has erred in law and on facts in dismissing the appeal. He ought to have allowed the appeal fully in accordance with the grounds of appeal raised by appellant before him. 1. DISALLOWANCE OF COMPENSATION PAID TO FRONTLINE FINANCIAL SERVICES PVT LTD.- RS.37,60,000/- 1. The Ld.CIT(A) has erred in law and on facts in confirming the disallowance of compensation paid to Frontline Financial Services Pvt. Ltd. of Rs.37,60,000/- by holding that the compensation paid by the appellant company is held to be not genuine. 2. The Ld.CIT(A) as well as the Ld.AO erred in law and on facts in failing to appreciate the fact that the transaction entered between the appellant company and six other Frontline Financial Services Pvt. Ltd. is a genuine transaction. 3. The Ld.CIT(A) has erred in law and on facts in relying upon the cross examination statement of Shri Tushar Shah which is a self-serving statement as in his statement recorded u/s.131 of the Act dated 03.08.2017 as in most of the questions he has given the answer that “ I do not remember”, “No”, “I am not aware” and he has also not produced any material at the time of his cross examination. The appellant reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either or at the time of hearing. IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 4 3. The only issue raised by the assessee is that the learned CIT-A erred in confirming the addition made by the AO for ₹ 37,60,000/- on account of the compensation paid on cancellation of development agreement. 4. At the outset, we note that this is the second round of litigation before us. In the first round of litigation, the co-ordinate bench of this tribunal in IT(SS) Nos. 96 to 102/AHD/ 2012 vide order dated 12 th May 2016 has set aside the issue to file of the learned CIT-A for fresh adjudication and also directed to provide the opportunity of cross examination of party namely M/s Frontline Financial Services Ltd. which was represented by Shri Tushar Shah, who was the director during the relevant time. The relevant direction of ITAT reads as under: We find that disallowance in question has been made mainly on account of denial by Tushar Shah as discussed above. The facts remain that main focus of revenue is on statement of Tushar Shah before ADIT (investigation). Irrespective of peculiar background of case assessees had right to cross examine Tushar Shah whose statement recorded by concern ADIT (investigation) has been mainly relied by revenue while making disallowance in question denial. Denial of opportunity of cross examination of said Tushar Shah is violation of principle of natural justice which is not justified. Taking all facts and circumstances into consideration, we set aside this issue to CIT(A) with direction to decide the issue as per fact and law after providing due opportunity of hearing to both parties including cross examination of said Turshar Shah of FFSL by assessees as discussed above. Thus the second issue in all these appeals is allowed for statistical purposes. 5. The necessary facts to be noted for the purpose of disposing off the impugned appeal are that the assessee along with 6 co-owners has acquired a piece of land in the earlier year. The assessee along with co-owners has entered into a development agreement on the impugned land with M/s Frontline Financial Services Ltd (in short FFSL) vide agreement dated 27 th March 2007. The assessee along with co-owners in pursuance to such development agreement was to receive a sum of ₹ 2510 per square meters aggregating to ₹ 4,31,49,900/- from the party namely Frontline Financial Services Ltd. As per the development agreement, it was agreed that in the event the assessee along with co-owners does not fulfil the development agreement, then the assessee along with the co-owners has to pay a penalty to the developer at the rate of ₹ 1600 per square meter aggregating to ₹ 2.75 crores. IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 5 5.1 However, the assessee along with co-owners during the year under consideration terminated the development agreement vide dated 18 th August 2007 and transferred the impugned land at ₹ 2.50 crores to M/s Care Cardiovascular Consultant Pvt. Ltd. (in short CCCPL) vide sale deed entered in the month of October 2007. 5.2 As the assessee along with the co-owners failed to fulfil the commitment in pursuance to the development agreement, it had to pay the damages/ penalty to FFSL as agreed. The share of the assessee in such damages/penalty stands at ₹ 37.6 Lacs which was adjusted against the sale consideration attributable to it i.e. consideration received from CCCPL. 6. However, the AO was of the view that the damages/penalty paid to FFSL is not genuine for the reasons as detailed below: i. The assessee has not made any payment of the damages/penalty to the FFSL in the year under consideration as well as in the following financial year ending as on 31 st of March 2009. Likewise, the company namely FFSL has also not shown any debtors in its books of accounts. ii. On perusal of the balance sheet of FFSL, no amount of compensation received from the assessee has been shown or offered to tax in the financial statements. iii. As a result of search dated 21 st August 2008 under section 132 of the Act at the premises of the assessee and the co-owners, letter dated 5 th of March 2007 written by CCCPL, the actual buyer of the impugned land evidences that the stamp duty for ₹ 5 lacs was paid to the competent authorities dated 6 March 2007. Thus, it can be safely transpired that land was sold by the assessee to the actual buyer namely CCCPL before entering into development agreement. Thus, the impugned agreement for the development of the property is bogus which was made to avoid the payment of tax. IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 6 6.1 In view of the above, the AO treated the impugned amount of compensation/damages/penalty paid to FFSL as bogus and accordingly held that the same cannot be allowed as deduction while calculating the income under the head capital gain. Thus, the AO disallowed the sum of Rs. 37.60 lacs attributable to the assessee while calculating the capital gain of the assessee. 7. Aggrieved assessee preferred an appeal to the learned CIT-A. 8. The assessee before the learned CIT-A submitted that it has entered, along with 6 co-owners, into the development agreement for the land with FFSL which was duly registered. There was one of the clause in the agreement that if the assessee along with co-owners decides to sale the impugned land to any other party without getting the same developed, then the FFSL would be compensated for relinquishment of its right. Accordingly, the assessee along with co-owners, when sold the impugned land to third-party namely CCCPL, has compensated the amount of ₹2.75 crores to FFSL in pursuance to the agreement. The payment was made to the FFSL in the subsequent year through the account payee cheque. Admittedly, the payment was made in the subsequent year but the liability for the same arose in the year under consideration. Accordingly the deduction for the liability accrued in the form of the compensation to the FFSL was accounted and adjusted against the sale consideration received from CCCPL for transferring the impugned land. Accordingly, the amount of compensation to the FFSL was genuine and therefore the same is eligible to be adjusted against the impugned sale consideration. 8.1 As regards the letter dated 5 th of March 2007, the assessee contended that such letter was not on the letterhead of CCCPL and bears no signature of any of the party. Therefore, no credence can be given to such letter for drawing any inference against the assessee. Even assuming, the latter is correct, then also it is not known for what purpose the letter was written by CCCPL. It might be probable that the CCCPL has done so to conduct some enquiry Suo-motto to find out the value and IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 7 the stamp duty of such property for having interest in the impugned property. Furthermore, such enquiry has been conducted by the CCCPL without the knowledge of the assessee and other co-owners. From the contents of the letter, it appears as if it has been written to some government agency but there was no stamp/acknowledgement of any of the government authority. Thus, based on such letter, no adverse inference can be drawn against the assessee. 9. However, the learned CIT-A was not satisfied with the contention of the assessee by observing that the latter dated 5 March 2007 is genuine. It is because the same latter was used as an evidence by the director of CCCPL in the respective appellate proceedings. Furthermore, the CCCPL on the next date i.e. 6 March 2007 makes the payments of the stamp duty for ₹ 5,01,440.00. Thus the genuineness of the letter is corroborated by the payment of stamp duty made by CCCPL in connection with the impugned land. Thus, there remains no ambiguity to the fact that the assessee along with 6 co-owners has already made the sale of the land to CCCPL before 6 March 2007. This fact is also corroborated from the documentary evidences found during the search at CCCPL indicating the 1 st payment of on money to the assessee in the month of October 2006. Thus the Act of entering into the development agreement dated 27 March 2007 and cancellation thereof in the month of August 2007 as discussed above and the subsequent payment for the compensation is bogus just to avoid the payment of tax. Therefore, such agreement and the payment in pursuance to such agreement cannot be accepted as genuine. 9.1 Furthermore, had the assessee acted upon the development agreement, it would have been in the receipt of ₹4.31 crores which is much more than the amount to be received by him against the sale of such land to CCCPL at ₹2.50 crores. Likewise, the assessee had to bear cost of ₹2.75 crores as a result of cancellation of the agreement against which the assessee has received the sale consideration of ₹2.50 crores. As such, No prudent businessman would sale the land at a value of ₹2.50 crore against the compensation of ₹2.75 crores. IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 8 9.2 The learned CIT-A, in order to verify the veracity of the genuineness of the development agreement dated 27 th of March 2007, has also deputed ADIT to conduct the necessary enquiries from the company namely frontline financial advisers. The ADI has recorded the statement of the director of frontline financial services dated 11 October 2011 wherein the director has admitted that he doesn’t know the assessee and the co-owners. He has signed the agreement on receiving the payment of ₹1 lac on the request of some third-party known to him as well as to the assessee along with its co-owners. The director also admitted that its company has never carried out any land development activity. 9.3 Learned CIT-A also issued summon dated 14 November 2011 to all the companies for the personal hearing. In response to such summon Shri Shaker Patel, who happened to be the director in all the companies, appeared before the learned CIT-A and submitted that his father was the director in all the companies and looking after all the affairs of the vendor companies. It was his father who has entered into the agreement with frontline financial services on the advice of the broker namely Shri Shashikant Patel. It is his father who cancelled the agreement with the frontline financial services and entered into the agreement to sell to CCCPL at a value of ₹2.50 crores. As such, the father has expired in the year October 2009. Therefore, the director namely Shri Shaker Patel claimed that he does not know anything about the impugned land transaction deal. However, the director admitted to have acted upon the agreements entered by his father for making the payment of the compensation and selling the land to CCCPL at a value of ₹2.50 crores. As such, the director namely Shri Shaker Patel expressed his inability for giving any satisfactory reply for all the land transaction deals on the reasons that he was not known with the complete facts. 9.4 The learned CIT-A further appointed to ADI to find out the details of the payment made by the assessee along with its 6 associates to frontline financial IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 9 services and found that the payment was made by the assessee along with 6 co- owners for ₹2.75 crores dated 22 December 2009 in the bank of frontline services. The payment received by frontline services was transferred immediately (next day) to 5 companies including the company namely M/s Sagar which was 1 of the group company and controlled and managed by the father of the director- Shri Shaker Patel. subsequently all other companies transferred the fund to M/s sagar which in turn transferred the money to all the assessee’s dated 23 December 2009. Thus according to the learned CIT-A, the finally the payment was received by the assessee along with 6 co-owners. 9.5 In view of the above and after considering the facts in totality, the learned CIT-A concluded that the payment made to frontline advisers private Ltd is bogus and to avoid the payment of tax. 10. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us. 11. The learned AR before us filed a paper book running from pages 1 to 345 and contended that all the payments representing the compensation were paid to the banking channel. The learned AR reiterated the findings made before the authorities below. 12. On the other hand, the learned DR before us vehemently supported the stand of the authorities below by reiterating the findings contained in the respective orders which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. 13. We have heard the rival contentions of both the parties and perused the materials available on record. As noted earlier, that it is the 2 nd round of litigation before us. The ITAT on the earlier occasion has set aside this issue to the file of the IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 10 learned CIT-A for the limited purpose of providing the opportunity of cross- examination of Shri Tushar Shah, a director of FFSL. The direction of the ITAT has already been reproduced somewhere in the preceding paragraph. 13.1 Undoubtedly, in the set-aside proceedings the scope for the fresh adjudication is limited to the extent of the direction. As such once the issue has been set aside by the ITAT with the direction to the learned CIT-A, then it is necessary for the lower authorities not to travel beyond the direction. In holding so we draw strength from the judgment of Hon’ble Allahabad High Court in the case of S.P. Kochhar vs. ITO reported in 145 ITR 255 wherein it was held as under: “the powers of the Tribunal are confined to the subject-matter of appeal as constituted by the original grounds of appeal and such additional grounds as may be raised by the leave of the Tribunal. Thus, when the Tribunal allows the appeal and sets aside the assessment and remands the case for making a fresh assessment, the power of the ITO is confined to such subject-matter only. He cannot take up the questions which were not the subject-matter of appeal before the Tribunal. This will be so even though no specific direction has been given by the Tribunal. If a specific direction is given, then there is no scope what so ever for the ITO to travel beyond those directions or restrictions.” 13.2 Admittedly, the direction issued by the ITAT was duly complied by the learned CIT-A. The necessary extract of the cross-examination are placed on pages 7 to 12 of the learned CIT-A order. The relevant questions raised during the cross- examination are reproduced below: Que 11. Whether at the time of recording of your statement on 11.10.2011, any agreement between Frontline Financial Services Ltd. and Martand Estate Pvt. Ltd. Matag Properties Pvt. Ltd., Madhuj Reality Pvt. Ltd. Medbhuti Complex Pvt. Ltd. Madhumati Realty Pvt. Ltd. & Maitrik Buildcon Pvt. Ltd. & Tirth Developers Pvt. Ltd. were been shown to you by DDIT (Inv.) Unit 1(3) Ahmedabad. And. I do not remember. Que.12 In your statement on 11.10.2011, you have stated that you were Managing Director of Frontline Financial Services Ltd. And therefore as a managing Director, you must be attending the day to day affairs of the company as well as for bank account of the company you must be signatory what do you have to say on this? Ans. I was not signatory to the bank account of Frontline Financial Services Ltd. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Que. 19 Whether on 11.10.2011 at the time of your statement, the bank statement of Martand Estate Pvt. Ltd. Matang Properties Pvt. Ltd. Madhuj Realty Pvt. Ltd. Medbhuti IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 11 Complex Pvt. Ltd., Madhumati Realty Pvt. Ltd. & Maitrik Buildcon Pvt. Ltd. & Tirth Developers Pvt. Ltd. were shown to you by DDIT(Inv.) Unit 1(3) Ahmedabad ? Ans. No XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Que.21 When you agreed to give the statement on 11/10/2011, when DDIT entered into your office, when you were not having books/documents/records of the company in your office, then without verification of the records of the company, why did you agree to give the statement. You could have stated to the DDIT you will attend to his chamber alongwith books/documents etc for recording of the statement. Is it so, that in your office the books/documents/records of the other 4 companies mentioned above must be available as you were the Director and to avoid consequences in these concerns, you must have agree to give the statement to DDIT and statement of Shri Tishar S. Shah u/s.131 of the IT Act (Cross-examination) Therefore the names of these 4 companies have not been taken on record in your statement. Kindly comment. Ans. When the officer came to my office for recording my statement, I though it was my duty to answer the questions to the best of my knowledge. Hence I gave the statement in my office itself. That’s it. Q.22. In your statement dated 11.10.2022, you have mentioned that there was some mediator for transaction between Frontline Financial Services Ltd and martand Estate Pvt. Ltd. Matang Properties Pvt. Ltd. Madhaj Realty Pvt. Ltd., Medbhuti Complex Pvt. Ltd. Madhumati Realty Pvt. Ltd. & maitrik Buildcon Pvt. Ltd. & irth Developers Pvt Ltd. However, you had not named the mediator then. Can you identify name his now? Ans. I don’t remember Que 23. In your answer Q no 10 of statement dated 11.10.2011, you have stated that you had received brokerage of Rs.1 lac for signing the agreement. Do you have any proof/evidence? Ans. No. 13.3 On perusal of the above details, we note that there was nothing specific brought on record by the Revenue where the other party namely the director of FFSL has admitted to have given accommodation entry to the assessee. Admittedly, the director of FFSL on the earlier occasion has admitted to have given accommodation entry to the assessee but during the cross-examination, the director of FFSL has not given any satisfactory reply. As such, the director of FFSL did not withstand with his earlier statement. Thus, in such a situation it is difficult to believe the statement of the director of FFSL. In holding so, we draw support and guidance IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 12 from the judgment of Hon’ble Calcutta High Court in the case of CIT Vs. Eastern Commercial Enterprise reported in 210 ITR 103 wherein it was held as under: “A man indulging in double-speaking cannot be said by any means a truthful man at any stage-and no court can decide on which occasion he was truthful” 13.4 Thus in the absence of necessary evidence brought on record by the revenue in the set-aside proceedings the scope of which was limited to the extent of the direction given by the ITAT in the earlier occasion, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Now coming to the other appeals filed by the different assessee which are as follows: 14. At the outset, we note that issues raised by all the above assessee in their ground of appeals are similar to the grounds raised in the case of M/s Madhumati Reality Pvt. Ltd. in IT(SS)A No.167/Ahd/2018 for A.Y. 2008-09. Therefore, the findings given in IT(SS)A No.167/Ahd/2018 for A.Y. 2008-09 shall also be applicable to the above mentioned five different assessee for A.Y. 2008-09. The Sr.No IT(SS)A No. A.Y Assessee 1. IT(SS)ANo.168/Ahd/2018 2008-09 Maitrik Buildcon Pvt. Ahmedabad 2. IT(SS)ANo.169/Ahd/2018 2008-09 Martand Estate Pvt. Ltd., Ahmedabad 3. IT(SS)A No.170/Ahd/2018 2008-09 Madhuj Realty Pvt. Ltd., Ahmedabad. 4. IT(SS)A No.171/Ahd/2018 2008-09 Medhbhuti Complex Realty Pvt. Ltd., Ahmedabad 5. IT(SS)A No.172/Ahd/2018 2008-09 Matang Properties Pvt. Ltd., Ahmedabad IT(SS)A no.167/AHD/2018 (with five others) A.Y. 2008-09 13 appeal of the assessee Madhumati Reality Pvt. Ltd. has been decided by us vide paragraph No. 13 of this order in favour of the assessee. The learned AR and DR also agreed that whatever will be the findings for the IT(SS)A No. 167/Ahd/2018 shall also be applied to the other appeals on hand i.e. IT(SS)A No. 168 to 172/Ahd/2018 for the assessment year 2008-09. Hence, the ground of appeal filed by the different assessee are hereby allowed. 15. In the combined results, the appeals filed by the different assessee are allowed. Order pronounced in the Court on 24/08/2022 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 24/08/2022 Manish