Income Tax Appellate Tribunal - Jodhpur
Shri Man Mohan Raj Singhvi, Udaipur vs Assessee on 29 April, 2013
1
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER
AND SHRI N.K. SAINI, ACCOUNTANT MEMBER
ITA No. 236/Jodh/2013
Assessment year : 2008-09
PAN: ADAPS 9001 L
Shri Man Mohan Raj Singhvi vs. The DCIT
C/o Dinesh Bhandari & Co. Tax Consultants Central Circle- 1
401, Krishna Plaza, Hajareshwar Colony, Udaipur Udaipur
(Appellant) (Respondent)
Appellant by : Shri Devendra Mehta
Respondent by : Shri Deepak Sehgal
Date of hearing : 29-04-2013
Date of pronouncement : 07-06-2013
ORDER
PER N.K. SAINI, A.M.
This is an appeal by the assessee against the order dated 28-03-2013 of the ld.
CIT(A), (Central), Jaipur. Following grounds have been raised in this appeal.
''1.0 The order passed by the ld. CIT(A), Central, Jaipur partly confirming the assessment order passed u/s 143(3) r.w.s. 153C of the Income Tax Act, 1961, is perverse as well as bad in law and bad in facts.
2.0 The ld. CIT(A) erred in confirming:-
(a) the finding of the Assessing Officer that the profit from sale of agriculture land was to be substantially taxed in the hands of the assessee and not in the case of Shri Rama Gameti who actually purchased the agriculture land, converted into non-agriculture land and sold it to S.S. Education trust.
(b) the application of Section 50C of the Income Tax Act ,1961 on the transaction of sale of agriculture land, which had all the ingredients of a business transaction or an adventure in the nature of trade.
( c) the addition made by the Assessing Officer whereby he treated the profit of Rs. 1,06,200/- earned on sale of land by Shri Rama Gameti to S.S. Education Trust as unaccounted 2 capital gain of Rs. 1,08,47,912/- of the assessee by application of Section 50C 3.0 The assessee may be allowed to add, amend, alter or raise additional grounds of appeal.
4.0 The assessee prays for justice.'' 2.1 The Ground Nos. 1, 3 and 4 are general in nature, so they do not require any comments on our part.
3.1 The only issue remains for adjudication is in Ground No. 2 which relates to profit from sale of agriculture land.
3.2 The facts related to this issue in brief are that the assessee is engaged in transportation business and a search and seizure action was carried out at his residential and business premises on 03-09-2008. Thereafter, notice u/s 153A of the Income Tax Act, 1961 (hereinafter referred to as ' the Act' in short ) was issued to the assessee on 27-01-2009. In response to said notice, the assessee filed return of income on 6-04-2009 declaring an income of Rs. 4,17,920/-. In this case, no original return was filed as on the date of search.
The Assessing Officer framed the assessment at an income of Rs. 1,20,16,000/- by making the addition of Rs. 1,08,47,912/- on account of capital gain accruing to Shri Rama Gameti on the transfer of residential land to assess the education trust by invoking the provision of Section 50C of the Act. The relevant finding has been given by the Assessing Officer in para 8.1 to 8.18 of the impugned order which are reproduced verbatim as under:-
''8.1 During the course of survey action at business premises at Baiji Raj Ka Kund, various incriminating documents pertaining to land transactions were found. Similarly, during the course of search action at the business premises of Shri Babu Lal Motawat, various documents were found pertaining to land transaction of Shri Manmohan Raj Singhvi, such as page no. 101 to 121 and page no. 125 to 129 of annexure A-49, page no. 101 to 121 of Anx. A-46 contains the copy of three sale deeds, all of them dated 15-
07--2005 executed between Shri Rama Bhil( seller) and S.S. Education Trust (purchaser). In all these three deeds the sale consideration has been 3 declared at Rs. 456000/ each, however, the Sub-Registrar has taken the value of these lands at Rs. 2320000/-, 2319840/- and Rs. 2319840/- totalling to Rs. 6959680/- as against declared total sale consideration of Rs. 1395000/-. So there is a difference of Rs. 5564680/-, taxable u/s 50C of the I.T. Act 8.2 Page No. 125 to 129 is a copy of sale dated 13-09-2007 executed between Shri Rama Bhil (seller) and S.S. Education Trust (purchaser). The sale consideration has been declared at Rs. 992000/- against sale of 156880.8 sq. ft of residential land. However, this copy of sale deed does not contain the copy of backside of the page bearing the stamp of valuation adopted by the Sub-Registrar. But considering the above three sale deeds, it evinces that DLC rate in this area is Rs. 40/- per sq. ft. Therefore, the DLC price of this land must be around Rs. 6275232/- as against declared sale consideration of Rs. 9,92,000/-. Thus going by above calculation, there is difference of Rs. 52,83,232/-, taxable u/s of the I.T. Act.
8.3 From the above, it is found that S.S. Education Trust has purchased a total land of 3,30,872.8 sq. ft (converted area) from Shri Rama Gameti. This land was purchased by Shri Rama Gameti from various land holders at the instance of Shri Manmohan Raj Singhvi and funds provided by him, as he neither has any interest nor financial capacity to carry out such purchase. After purchse this agriculture land was convertd into residential by Shri Rama Gameti again at the instance and control of Shri Manmohan Raj Singhvi . After conversion, this land was transferred to S.S. Education Trust by Shri Rama Gameti as below:--
Date of sale Sq. ft Sale Value adopted Difference u/s
deed consideration as by Sub- 50C
per sale deed Registrar
15-07-07 58000 4,65,000 23,20,000/- 18,55,000
15-07-07 57996 4,65,000 23,19,840 18,54,840
15-07-07 57996 4,65,000 23,19,840 18,54,840
13-09-07 156880.8 9,92,000 62,75,232/- 52,83,232/-
Total 330872.8 23,87,000 1,32,34,912/- 1,08,47,912
8.4 It deserves a mention here that the whole story is crystal clear in so
far as Shri Manmohan Raj Singhvi is the actual seller and Shri Rama Gameti and Smt. Laxmi Bai Bhil who are the domestic servants of the assessee are merely name lenders for the transaction. Hence, the provision of Section 50C in respect of capital gain are to be invoked in the case of the assessee as it is more than clear that Shri Rama Gameti and Smt. Laxmi Bai are persons of petty means having no financial capacity to purchase said land in question lest sale the same. Accordingly , in view of above, the assessee vide this office letter dated 4-10-2010 was required to give his comments/ explanation on the above issue. He was also required to explain 4 as to why difference u/s 50C at Rs. 10847912/- should not be treated in his hands and also explain as to why he should not be treated as funds provider of above transactions?
8.5 In response, the assessee has filed written submissions on 25- 10-2010. Gist of which is as under:-
a. Shri Rama Gameti is an old and trusted employee of the assessee b. This being his first business venture, he was guided by his employer i.e. the assessee .
c. Shri Rama Gameti has no sufficient funds for financing the cost of land, therefore, he obtained unsecured loans from various sources including loans from the assesee's family.
d. The intention of the assessee was to help his trusted employee in his business venture because of his faithful services and enable him to earn additional income from this business venture. 8.6 The submission of the assessee was considered carefully but no merit is found. Shri Manmohan Raj Singhvi has established an Engineerng College in the name of M/s. S.S. Engineering College under the aegis of M/s. S.S. Education Trust which is a registered society and also registered u/s 12A(a) of the I.T. Act .The registered address of the trust is 222/7, Saheli Marg, Udaipur that is the residence of Shri Manmohan Raj Singhvi. This college was at the verge of completion of constructions at the time of search. 8.7 On analysis of seized material, it is found that Shri Manmohan Raj Singhvi has used the names of two of his domestic servants namely Shri Rama Gameti and Smt. Laxmi Bai Bhil to purchase the land belonging to Schedule Tribes and converted the same to residential nature from agriculture nature. During the search, some pay slips in the name of Laxmi Bai and copy of purchase/ sale deeds in the name of Shri Rama Gameti were found and seized from the premises of Shri Manmohan Raj Singhvi and Motawat family. During the post search proceedings, both these persons were summoned and their statements were recorded u/s 131 of the I.T. Act. From the same, it is revealed that Shri Rama Gameti and Laxmi Bai Bheel are domestic servants of Shri Manmohan Raj Singhvi, receiving a monthly salary of Rs. 2000/- and Rs. 600/-
respectively besides food. They deposed on oath and they do not have any idea about the transaction done in their name.
58.8 As a part of post search inquiry bank statements of these persons were called for from the Bank. The Bank statement revealed that these accounts were opened just to purchase the land for S.S. Engineering College in year 2007 and the introducer of both these account is Singhvi family. The accounts reflect the money credited by Singhvi Family and withdrawn for purchase of land for S.S. Engineering College 8.9 From the above, it is to be inferred that Shri Manmohan Raj Singhvi has used his domestic servants as a medium for purchase and conversion of land for construction of Engineering College. This was necessary to purchase/ transfer loans belonging to scheduled tribes.
8.10 On perusal of seized material,it is gatered that M/s. S.S. Education Trust has purchased a total land of 3,30,872.8 sq. ft (converted area) from Shri Rama Gameti . This land was purchased by Shri Rama Gameti from various scheduled tribes land holders at the instance and funds provided by Shri Manmohan Raj Singhvi as he neither has any inerest nor financial capacity to carry out such purchase. After purchase, this agriculture land was converted into a residential one by Shri Rama Gameti again at the instance and control of Shri Manmohan Raj Singhvi. As placed adjective conversion, this land was transferred to M/s. S.S. Education Trust by Shri Rama Gameti as below:-
Date of sale Sq. ft Sale Value adopted Difference u/s
deed consideration as by Sub- 50C
per sale deed Registrar
15-07-07 58000 4,65,000 23,20,000/- 18,55,000
15-07-07 57996 4,65,000 23,19,840 18,54,840
15-07-07 57996 4,65,000 23,19,840 18,54,840
13-09-07 156880.8 9,92,000 62,75,232/- 52,83,232/-
Total 330872.8 23,87,000 1,32,34,912/- 1,08,47,912
8.11 To verify the correctness of the facts, summon to Shri Rama Gameti was issued by this office on 27-10-2010. Statement of Shri Rama Gameti was recorded on 23-10-2010.
8.12 From the above statements, it is gathered that Shri Rama Gameti was not aware about the consieration of land purchase and sale transacton except the transacton of sale and purchase made in his name by his employer Shri Manmohan Raj Singhvi . It is also gathered that Shri Rama Gameti's source of income is only salary received from assessee Shri Manmohan Raj Singhvi and besides it, he has no other income and not indulged in business of properties. Further the assessee claimed that he has given unsecured loans to 6 Shri Rama Gameti for these property transactions. But in his statement, Shri Rama Gameti has categorically denied to have any business transaction with the assessee, his family members and their business concerns. He also denied taking any unsecured loan from any of the persons in last 5 to 6 years. He also admitted that the bank account opened by his employer was not maintained by him and his employer only took his signature on some pages from time to time. On being asked, he also replied that he was not aware about transaction made in his bank account. Shri Rama Gameti also admitted that he has no objection with statement recorded during the course of post search on 13-10-2008 in which he had categorically stated the above facts. The above facts clearly established that Shri Rama Gameti is the person having no means and actual fund provider is Shri Manmohan Raj Singhvi. It is worth mentioning here that in the village Umarda, agriculture lands are in the names of tribal. As per policy prevailing in 2007-08, only tribal can purchase the tribal land. Therefore, it can be said that to complete the project of . S.S. Education Trust, the assessee Shri Manmohan Raj Singhvi has purchased land in the name of his employee Shri Rama Gameti (who had no financial capacity to purchase this land as he was getting only salary of Rs. 600/- pm at the time of transactions). This fact was admitted by Shri Rama Gameti as stated above. Thereafter, the land was converted by Shri Manmohan Raj Singhvi in residential status and then the land was transferred to his trust namely, S.S. Education Trust. From the above, it is crystal clear that for these transactions, Shri Manmohan Raj Singhvi is the key person who provided his funds for this transaction in the name of his employee Shri Rama Gameti 8.13 Further, the assessee vide this office letter dated 25-11-2010 was required to furnish his explanation on the statement of Shri Rama Gameti. dated 25- 11-2010, in this regard, the statement of Shri Rama Gameti has also been provided to the assessee. The assessee has been also required to explain as to why it should not be treated that all the transactions pertaining to this land were made by you exclusively in the name of Shri Rama Gameti and necessary additions u/s 50C should not be made in his hands. In response, the assessee has filed submissions which were considered but found not convincing at all. The assessee has not filed evidence which suggests that Shri Rama Gameti has financial capacity for such transactions. Further, he failed to rebut the contents of statement of Shri Rama Gameti in which he admitted to have not made\any expenditure for such transaction.
8.14 It is pertinent to mention here that a copy of valuation report dated 07.11.2007 was found and seized from the business premises of the assessee as per page No. 44 to 46 of Anx-AS-10. Another copy of valuation report dated 07.11.2007 was found and seized from the business premises of the assessee as per page No. 46 to 49 of Anx-AS-
10. Copy of Valuation report dated 7. 11.2007 given by Sh. B.L. Mantri. Registered Valuer of the property owned by S.S. Education 7 Trust at Village Umarda, stating the total value of land at Rs. 293.40 lacs (24.45 bigha @ Rs. 12 lacs per Bigha). Another copy of Valuation report dated 7.11.2007 given by Shri B.L. Mantri, Registered Valuer of the property own by S.S. Education Trust at Village Umarda, stating the total value of land at Rs. . 296,25 lacs (23.7 Bigha @ Rs. 12.50 lacs per Bigha). The valuation report of the land purchased by S.S. Education Trust from Sh, Rama Bhil vide three sale deeds discussed in page No. 101 to 121 of Annexure AS~46 found and seized at the office of Sh. Babu Lal Motawt at 1, Town Hall Link Road, Udaipur. As per this report the valuation of the land purchased by the S.S. Education Trust for a consideration of Rs. 13,95,000/- has been done at Rs. 293.40 Lacs. This fact further strengthens the issue for taxing the above transaction u/s 50C.
8.15 Similarly, a reference for valuation of property was made by this office to DVO, Jaipurand DVO, Jaipur vide his valuation report dated 19.11.2010 has also valued the cost of land at Rs.
1,32,34,912/-. This fact is supported to determine the value of land made by the Sub-Registrar as against consideration made by the assessee.
8.16 It is held by the Hon'ble Supreme Court in the case of CIT Vs. Durga PrasadMore in 82ITR 540 that Whether a question of law arises from the rejection of the claim that property purchased by the assessee was property of trust and rejection of the recitals in the deed? No question of law arises out of the Tribunal's order. Tribunal was correct in holding that the property was not a trust property. Whether the principle of res judicata or the rule of estoppel would be applicable? Neither of these principles was applicable to assessment proceedings, but the fact that the assessee included the income of the premises in his returns for several years after objecting to its inclusion in earlier year was a circumstance which the revenue was entitled to consider in the absence of any satisfactory explanation. Whether Income-tax authorities are entitled to look into the surrounding circumstances to find out the reality? Yes, the department is entitled to do so.
......It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise, it will be very easy to make self-serving statements in 8 documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents ...
....Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law ......
It is held by the Hon'ble Supreme Court in the case of Sumati Dayal Vs CIT in 214 ITR 801 that .......In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut it the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably....
...... This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. The Chairman of the Settlement Commission has emphasized that the appellant did possess the winning ticket which was surrendered to the Race Club and in return a crossed cheque was obtained. It is, in our view, a neutral circumstance; because if the appellant had purchased the winning ticket after the event she would be having the winning ticket with her which she could surrender to the Race Club. The observation by the Chairman of the Settlement Commission that "fraudulent sale of winning tickets is not an usual practice but is very much of unusual practice'' ignores the prevalent malpractice that was noticed by the Direct Taxes Enquiry Committee and the recommendations made by the said Committee which led to the amendment of the Act by the Finance Act, 1972, whereby the exemption from tax that was available in respect of winnings from lotteries, crossword puzzles, races etc. was withdrawn. Similarly, the observation by the Chairman that if it is alleged that these tickets 9 were obtained through fraudulent means, it is upon the alleged to prove that it is so, ignores the reality. The transaction about purchase of wining ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to other conduct of the appellant as disclosed in her sworn statement as well as other materials on record an inference would reasonably be drawn that the wining tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering the surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winnings from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence.'' 8.17 The circumstances of the above two cases are similar to the instant case. In the instant case, it has been established that Shri Rama Gameti, servant of the assessee, has no financial capacity to enter in this huge transactions. While recording statement during the course of post search proceedings as well as assessment proceedings, he repeatedly told that all the money were provided by his employer i.e. assessee Shri Manmohan Raj Singhvi. Further, in the village Umarda, agriculture lands are in the names of Tribal. As per policy prevailing in 2007-08, only Tribal can purchase the Tribal land. Therefore, it can be said that to complete the project of SS Education Trust, the assessee Shri Manmohan Raj Singhvi has purchsed land in the name of his employee Shri Rama Gameti (who had no financial capacity to purchase this land as he was getting only salary of Rs. 600/- p.m. at the time of transactions). Therefore, from the circumstances, it is apparent that all the transactions allegedly made in the name of Shri Rama Gameti were executed by Shri Manmohan Raj Singhvi i.e. the actual money holder. Hence, the provisions of section 50C in respect of capital gain are liable to invoke in the case of the assessee as it is more than clear that Shri Rama Gameti and Smt. Laxmi Bai are persons of petty means having no financial capacity to purchase the said land in question lest sale the same.
8.18 From the above, it is established fact that there is a capital gain of Rs. 1,08,47,912/- accruing to Shri Rama Gameti (Bhil) on the said transfer of residential land to SS Education Trust which is taxable u/s 50C of the Income Tax Act. It is worthwhile to mention 10 here that the aforesaid land was got valued by SS Education Trust by a Registered Valuer,who valued it at Rs. 296.25 lacs (page no. 46 to 49 of Annexure AS-10 from office at Bai Ji Raaj Ka Kund, inside Delhi Gate, Udaipur) As discussed above, Shri Rama Gameti is a man of no means and is a domestic servant of Shri Manmohan Raj Singhvi. All these transactions were in reality carried out by Shri Manmohan Raj Singhvi to bypass the Land Transfer Laws and to avoid the tax liability. In these circmstances, the aforesaid capital gain amounting to Rs. 1,08,47,912/- is liable to be taxed in the hands of Shri Manmohan Raj Singhvi. Although, in papers the capital gain accrues to Shri Rama Gameti but in reality Shri Manmohan Raj Singhvi is the real beneficiary. Therefore, the capital gain amounting to Rs. 1,08,47,912/- is brought to tax in the hands of Shri Manmohan Raj Singhvi for assessment year 2008-09 on substantive basis as his undisclosed investment from undisclosed sources and protective addition is being made in the hands of Shri Rama Gameti for assessment year 2008-09.'' The Assessing Officer also reproduced the part of the statement of Shri Rama Gameti in para 8.7 and 8.11 of assessment order, for the cost of repetition the same is not reproduced herein.
3.3 The assessee carried the matter to the ld. CIT(A) and submitted that Shri Rama Gameti purchase the agriculture land admeasuring 3,30,872.8 sq ft at village Umarda as a business venture and for this he borrowed the funds partly from the assessee's family members and partly by unsecured loans. It was further stated that said agriculture land was registered in the name of Shri Rama Gameti and entire purchase consideration was paid out of the bank account. The said land was converted into non-agriculture land immediately after acquiring by Shri Rama Gameti in his name and all the formalities were completed by him at his own cost and being his trusted household employee the assessee guided him for such conversion and provided financial help as and when required. Therefore, the intention of the assessee was merely to help economic upliftment of one of his trusted employee. It was further stated that after conversion the non-agriculture land, Shri Rama Gameti sold the same to M/s S.S. Education Trust, a public charitable organisation in which the assessee is one of the member. It was emphasised that the assessee was not the owner of M/s S.S. 11 Education Trust and hence, there was no personal benefit to him on transfer of land to it. It was further stated that out of sale proceeds, Shri Rama Gameti repaid unsecured loans and earned some profits and there was no finding that either the loan repaid or profit from sale of land were received in cash by the assessee. Therefore, all the above facts irrespective of statements of Shri Rama Gameti recorded during search as well as assessment proceedings clearly establishes that entire transaction of purchase and sale of land was of Shri Rama Gameti and not of the assessee and on the basis of the documentary evidence placed on record, it was quite manifest that Shri Rama Gameti could not be called as benamidar of the assessee. It was also stated that the case of ld. CIT vs Durga Prasad More, 82 ITR 540 (SC) and Sumati Dayal vs ld. CIT, 214 ITR 801 (SC) relied upon by the Assessing Officer were not applicable to the facts of the assesee's case because in the assesee's case ,the entire transaction of purchase of land, its conversion into non-agriculture and its sale to M/s S.S. Education Trust was evidenced in proper documents and entire transaction had taken placed by Shri Rama Gameti under his signature and his bank account. Reliance was placed on following case laws:-
1. CWT vs Arvind Narottam, 173 ITR 479 (SC)
2. Janki Ram Bahadur Ram vs CIT, 57 ITR (SC)
3. G. Venkataswami Naidu & Co vs CIT, 35 ITR 594 (SC)
4. Mrs. D.M. Alexander vs CIT, 22 ITR 379 (Mad.)
5. Mohd. Meerakhan vs CIT , 63 ITR 729 (SC)
6. Sawandas Devram vs CIT, 150 ITR 576 (M.P.)
7. CIT Addl. Vs Chikka Veerauua Lingaiah, 164 ITR 41 (Kar)
8. Smt. Neerja Birla vs ACIT, 66 ITD 148
9. CIT vs Sutlej Cotton Mills Supply Agency Ltd., 100 ITR 706 (SC) 12 3.4 It was further stated that to decide the controversy of business income vs capital gain in the case of Shri Rama Gameti, following factors were relevant.
(a) He purchased agriculture land out of borrowed funds,
(b) He got the agriculture land converted into non-agriculture land and ( c ) He sold the impugned non-agriculture land immediately after its conversion.
3.5 The assessee submitted to the ld. CIT(A) that on consideration of above factors and conduct of Shri Rama Gameti, it clearly emerged that the intention of Shri Rama Gameti at the time of purchase of land was not to hold it as a matter of pride of possession and enjoy its return but to sell it and earn profit and so it was clearly an adventure in the nature of trade for business venture of Shri Rama Gameti and profit arising therefrom constituted his business income. It was further submitted that the decision regarding purchase of land, its conversion and sale were independent decisions of Shri Rama Gameti and the assessee merely guided and helped him wherever necessary. Therefore, it would be quite erroneous to treat the assessee as beneficiary of land transaction. It was also stated that Section 50C of the Act is applicable for computing the capital gains on transfer of capital asset and where an asset is held to be a business asset, Section 50C of the Act cannot be applied while computing business income on transfer of such business asset. Reliance was placed on the following case laws:-
(a) CIT vs Thiruvengadam Investments Pvt. Ltd. 320 ITR 345 (Mad)
(b) CIT vs Kan Construction and Colonizers (Pvt.) Ltd. ,208 Taxman 478 (All) 3.6 It was further stated that in the case of Shri Rama Gameti the purchase of agriculture land, its conversion into non-agriculture land and its sale immediately thereafter 13 constituted a business or an adventure in the nature of trade. So the provisions of Section 50C of the Act were not applicable for computing the profit on transfer of land. Therefore, no addition could have been made in the assesee's case on account of difference between actual sale consideration and value of land as per stamp duty valuation. Alternatively, it was submitted that if Shri Rama Gameti was to be held benamidar of the assessee, the character of profit on sale of land shall be the same as in the hands of Shri Rama Gameti.
The assessee summarised his contention as under:-
(a) profit on sale of land could be treated as business profit and not the capital gains.
(b) Section 50C should not be applied and
(c) no addition should be made in assesee's case on account of difference between actual sale consideration and value of the land as per stamp duty valuation.
3.7 The ld. CIT(A) after considering the submissions of the assessee confirmed the action of the Assessing Officer by observing in para 6.4 of his impugned order which read as under:-
6.4 I have carefully considered the submissions of the appellant as also the findings the AO. As per AO during course of search action at the business premises of Sh. B.L. Motawat various documents were found pertaining to land transactions of the appellant and reference of page no. 101 to 121 of Annex. A-46 is made. These documents are stated to be copies of three sale deeds dated 15.7.2005 executed between the Sh. Rama Bheel and M/s S.S. Education Trust, In all these three sale deeds the sale consideration was declared at Rs. 465000/- whereas the Sub-registrar taken the value of these land at Rs. 2320000/-, Rs. 2319840/- and Rs. 2319840/-
totaling to Rs. 6959680 /-. In this manner the declared total sale consideration was Rs. 1395000/- as against DLC value at Rs. 6959680/-. There was difference of Rs. 5564680/- which as per the AO was taxable u/s 50C of IT Act, Further as per pages no. 125 to 129 of Annex. A-49 which is copy of sale dated 13.9.2007 executed between Sh. Rama Bheel and M/s S.S. Education Trust, the sale value of 156880.8 sq. ft. residential land was declared at Rs. 992000/-. The sale deed did not contain the copy of back pages where transactions of stamp valuation is recorded by the Sub-Registrar but considering the above three sale deeds the AO adopted the DLC rate @ Rs. 40 per sq.ft. and accordingly determined the DLC price of the land at Rs. 6275232/-as against declared sale consideration of Rs. 992000/-. The difference of Rs. 5283232/- on sale of this land was also believed to be taxable u/s 50C of IT Act as per the AO. The exact detail of sale deed, area of the land, sale consideration as per sale deed etc. is as under:
14Date of Sq.ft. Sale consideration Value adopted by Difference sale Deed as per sale deed Sub Registrar u/sSOC 15.07.07 58000 4,65,000;- 23,20,00/- 18,55,000/-
15.07.07 57996 4,65, 000 / - 23,19,840/- 18,54,840/ -
15.07.07 57996 4 ,65,000 / - 23,19,840/- 18,54,840/-
13.09,07 156880.8 9,92,000/- 62,75,232/- 52,83,232 /-
Total 330872.8 23,87, 000 /- 1,32,34,9 12/- 1,08,47,9 12/-
The AO further observed that as regards such land transaction Sh. Manmohan Raj Singhvi was the actual purchaser and seller of the land and that Sh. Rama Gameti and Smt. Laxmi Bai who happened to domestic servants of the assessee were merely name lenders for the transaction and therefore the provisions of sec, 50C in respect of capital gain were to be invoked in the case of assessee. When the AO confronted the assessee as to why such difference amounting to Rs. 10847912/- should not be taxed in the appellant hands, during the assessment proceeding, the appellant claimed that Sh. Rama Gameti is an old and trusted employee of the assessee and that this being his first business venture he was guided by the assessee and sufficient unsecured loans etc. were arranged through the assessee. It was claimed that the intention of the assessee was to help his trusted employ in his business venture and that it cannot be said that all such transactions were actually carried out by the appellant. However the AO was not convinced with the explanation of the assessee and further observed that the assessee has established as engineering college in the name of S.S. Engineering College under the aegis of S.S. Education Trust which is a registered society u/s 12A of IT Act and having address at 222/17, Saheli Marg. Udaipur, that happened to be residence of the assessee also. As per AO the assessee used the name of two of his domestic servants namely Sh, Rama Gameti and Smt. Laxmi Bai Bheel to purchase the land belonging to Scheduled Tribes, converted to the same into residential status and subsequently the land was sold to M/s S.S. Education Trust. The AO has made reference of statement of Sh. Rama Gameti wherein the persons has clearly admitted that the transaction of sale and purchase was made in his name by his employers Sh. Manmohan Raj Singhvi i.e. appellant. The source of income of Sh. Rama Gameti was also found to be modest salary income from the assessee. The bank of Sh. Rama Gameti was also opened at the instance of the assessee in as much as only his signatures were obtained and he was not aware about such transaction made in his bank account. As per AO the statement of Sh. Rama Gameti which is forming part of this appellate order clearly established that Sh. Rama Gameti is the person having no means and actual fund provider to him was the assessee Sh. Manmohan Raj Singhvi. The AO further mentioned that in the village where such land was purchased, the land owned by the tribal and as per policy of Govt. such land can be purchased only by the, members of the ST therefore for purchase of such land to complete the project of S.S. Education Trust the assessee utilized the name of his employee Sh. Rama Gameti and accordingly the land was purchased in his name. The status of the land from agriculture to residential was also got converted through Sh. Rama Gameti and subsequently the land was shown to be sold by Sh. Rama Gameti to M/s S.S Education Trust. As per AO the assessee was the key person to provide the funds and who actually carried out such transactions and therefore addition u/s 50C was to be made in the hands of the assessee. The AO has also observed that a copy of valuation report dated 7.11.2007 was found and seized from the business premises of the assessee as per pages 44 to 45 of AS-10. Another copy of valuation report of the same date was also found and seized as per pages no. 46 to 49. As per valuation report dated 7.1.2007 (Annex. AS-10) given by Sh. B.L. Mantri the value of the property owned by M/s S.S. Education Trust at village Umarda was determined at Rs. 293.40 lacs (24.45 bighas @ Rs. 12 lac per bigha) In other words as per the valuation report the land purchased by S.S. Education Trust from Sh. Rama Gameti for consideration of Rs. 13.95 lac has been shown at Rs. 293.40 lacs. The DVO Jaipur also valued the cost of land sold by Sh. Rama Gameti at Rs. 13234912/- as per his report dated 19.11.2010. Therefore as regards the prevailing market rate of the. land/ DLC rate determined at Rs. 13234912/-, prima facie there was no dispute in as much as the above mentioned valuation report justified such market rate. The AO accordingly held that capital gain of Rs. 10847912/- (132349172-2387000/-) accruing to Sh. Rama 15 Gameti was substantively to be taxed in the hands of assessee as the assessee was the real beneficiary for such transaction. Accordingly the amount was taxed on substantive basis in the case of appellant.
On the other hand the appellant's case is that the agricultural land was purchased by Sh. Rama Gameti and for his business venture he borrowed fund directly from assessee family and partly by unsecured loans from creditors. It is claimed that the said agriculture land was registered in the name of Shri Rama Gameti and entire purchase consideration was paid out of his bank account. Subsequently the conversion of land was also got done by Sh. Rama Gameti and all the formalities and requirements were completed by him at his own cost. It is stated that being a trusted household employee the assessee merely guided him for purchase of such land and conversion of land and that intention of the assessee was merely to make financial help and ensure economic upliftment of one of his trusted employee. It is also claimed that even the statement of Sh. Rama Gameti recorded during search clearly indicated the entire transaction of purchase and sale of land was of Shri Rama Gameti. In this manner the appellant has disputed the finding of the AO that the transactions were really made by the assessee and that the real beneficiary is also the assessee. The appellant further contended that the profit on sale of land was adventure in the nature of trade or business and not a capital gain. Reference has been made to the term 'adventure in the nature of trade1 as explained in the commentary "Law on income tax by Sampat Iyangar at page 958 Vol. 5, Edition-2". It is stated that Sh. Rama Gameti purchased agricultural land out of borrowed fund, got the agriculture land converted into non-agriculture land and sold such converted land to M/s S.S. Education Trust. It is stated that on consideration of above facts and conduct of Sh. Rama Gameti it clearly emerged that the intention of Sh. Rama Gameti at the time of purchase of land was not holding it as a matter of pride possession and enjoy its return but to sale it to earn profit. The appellant has placed reliance for such proposition of law upon the following case laws:
i) Jankiram Bahadur Ram vs CIT, 51 ITR 21 (Hon'ble Supreme Court )
ii) G. Venkataswami Naidu & Co. vs CIT, 35 ITR 594 (Hon'ble Supreme Court )
iii) Mrs. D.M. Alexender vs CIT, 22 ITR 379 (Mad.)\
iv) Mohd. Meera Khan vs CIT, 63 ITR 729 (affirmed by Supreme Court in 73 ITR
75.
v) Sawandas Devaram vs CIT, 150 ITR 576 (MP)
vi) Neerja Bali vs ACIT 66 ITD 148 (Mum.)
The appellant further submitted that sec. 50C is applicable for computing of capital gain on transfer of capital asset and where the asset is held to be a business asset, Sec. 50C Cannot be applied. In support of above, contention the appellant has relied upon the following judgments:-
(a) CIT vs Thiruvengadam Investments Pvt. Ltd. , 320 ITR 345 (Mad)
(b) CIT vs Kan Construction and Colonizers Pvt. Ltd. 208 Taxman 478 (All.) (c ) Inderlok Hotels Pvt. Ltd. vs ITO, 122 TTJ 145 (Mum) It was accordingly contended that in the case of Sh, Rama Gameti the purchase of agriculture land, its conversion into non-agriculture land and 16 thereafter immediate sale constituted a business venture or an adventure in the nature of trade and it was purchase and sale of a business asset. Therefore sec. 50C of IT Act was not applicable for computing profit from transfer of such land. It was accordingly claimed that no addition should be made in the assessee's case on account of difference between actual sale consideration and value of land as per stamp duty valuation. Alternatively it was also submitted that even if Sh. Rama Gameti is held to be benamidar of the assessee the character of profit on sale of land shall be same and sec. 50C cannot be applied and addition cannot be made in assessee's case on account of difference between actual sale consideration and value of land as per stamp duty valuation.
On careful consideration of all relevant issues and facts it is gathered that the main issues to be decided are whether the finding of the AO treating the assessee as benamidar of Sh. Rama Gameti can be justified and whether the transactions of sale and purch ase of land should be treated as of capital gain n ature or of busin ess nature. It may be noted that the above mentioned agriculture land were shown to be purchased by Sh. Rama Gameti who is a domestic employee of the appellant. The AO has brought on record enough evidences direct as well as corroborative which indicated that the actual person behind such transaction was the appellant himself. It may be noted that the monthly salary of Sh. Rama Gameti who happened to be belonging to Scheduled Tribe category was only Rs. 600/- per month and even this salary was paid by the .assessee himself on account of domestic work. The bank account of Sh. Rama Gameti was admittedly opened at the instance and requirement of the appellant and the account was introduced by the appellant. The purchase and sale of such land was admittedly done at the instance and directions of the appellant and Shri Rama Gameti simply put his signature as and where required by the appellant. As regards the source of purchase of such land admittedly the financial arrangement were also made by the appellant by way of showing loans etc. The statement of Sh. Rama Gameti recorded by the AO itself is an enough evidence indicating that such land transactions were definitely made by the appellant in the name of Sh.. Rama Gameti. Such statement have never been retracted or rebutted by Sh. Rama Gameti. Even the appellant has not disputed the contents of such statement. The inquiries made by the AO and fact brought on record prima facie proved that the appellant carried out such transactions in the name of Sh. Rama Gameti and the effective control over such transaction was always exercised by the appellant by way of transactions in bank account, control over the land and financial management. Such finding also find support from the corroborative and surrounding circumstances discussed by the AO. It may be noted that it is unbelievable that a person earning income of Rs. 600/- per month will embark upon business idea of purchase of land for value of Rs. 23 lac (as per sale deeds) and he will be in a position to ensure conversion of such land from agricultural to residential status. The AO has also brought on record the compelling circumstances as to why it was essential to use the name of Sh. Rama Gameti in as much as the agriculture land belonging to persons of ST category could be purchased only by a person of same category and even the prevailing rate of such land are generally less as compared to other land because of such restrictions on transfer. Therefore the assessee thought it safe and prudent to purchase such agricultural land belonging to ST person through his reliable domestic servant and subsequently after converting the same into residential status, transferred the same/ sold the same to M/s S.S, Education Trust for college building. Therefore the finding of the AO that the profit/ gain on such land transactions was to be substantively taxed in the hands of the appellant is confirmed.
The other objection of the appellant is that such land transactions even if presuming to be belonging to the appellant are not covered under capital gain in as much as the transaction are adventure in the nature of trade.
17The appellant's case is that the land was never kept as capital asset and that the intention of the appellant was never to utilize the same as long term capital asset but to earn profit from the same. In this connection it may be noted that there is no dispute that the agriculture land was purchased in the name, of Sh. Rama Gameti, converted the same as residential land and subsequently sold to M/s S.S. Education Trust. But prima facie the intention of the appellant was not to make such transactions to embark on business or to earn profit. The intention clearly manifested through available facts indicate that the land was purchased with a ultimate objective -to transfer the same and make available the same to M/s S.S- Education Trust. Accordingly land belonging to persons of ST category was purchased in the name of Sh. Rama Gameti who also happened to be belonging to ST category and after converting the same from agricultural to residential transferred/ sold to the same to M/s S.S. Education Trust. The above fact will indicate that the intention of the appellant to purchase such land in the name of Sh. Rama Gameti "was never for business purposes. The important point to be noted is that though technically there is transfer of land from individual to trust but essentially such transfer -was •within the four corners of family concerns including M/s S.S. Education Trust. The originate and the final point for such transaction was M/s S.S. Education Trust which is directly and indirectly manned by the assessee group. In this back ground the contention of the appellant that the transactions were of business nature and that provisions of sec. 50C will not applicable cannot be accepted. In this background there is no dispute on transfer of asset, no dispute on the sale consideration and cost of acquisition the action of the AO treating such surplus amounting to Rs. 10847912/- is confirmed. As regards the case laws referred and relied upon by the appellant it may be stated that the same are in different context and based on different facts, in. all such cases issue of such benami transactions is not involved as also the transactions are not within the same family/ concern therefore such case laws are distinguishable with the appellant's case. The addition of Rs. 10847912/- made by the AO substantively in the hands of the appellant is accordingly confirmed.
The ground of appeal is dismissed'' 3.8 Now the assessee is in appeal.
3.9 The ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that Shri Rama Gameti purchased the agriculture land admeasuring 3,30,872.8 sq ft at village Umarda as a business venture. The said land was registered in his name and entire purchase consideration was paid out of his bank account. It was further submitted that the assessee merely guided him for conversion of agriculture land for non-agriculture purposes and provided him financial help as and when required, the intention of the assessee was merely to help economic upliftment of one of his trusted employee. It was further submitted that M/s S.S Education Trust is a public charitable trust and not the ownership concern either of the assessee or any of his family members. Therefore, there was no personal benefit to the assessee on transfer of land to 18 M/s. S.S. Education Trust. It was pointed out that even the ld. CIT(A) had given a clear finding in para 2 page 50 of his order that '' the assessee and M/s. S.S. Education Trust were two separate entities.'' Therefore, his inference about any benefit being received by the assessee due to transfer of land by Shri Rama Gameti to M/s. S.S. Education Trust is contradictory and contrary to the facts placed on record. It was stated that the copy of registration certificate issued by the Assistant Commissioner, Devsansthan, Udaipur, copy of registration certificate u/s 12AA and 80G issued by the ld CIT and copy of the trust deed clearly establish that M/s. S.S. Education Trust is an independent entity, distinct from the assessee. It was submitted that out of sale proceeds of land Shri Rama Gameti repaid the unsecured loan and earned handsome profit and there was no finding by the Assessing Officer that either the loan repaid or profit earned from sale of land were received in cash by the assessee. Therefore, it cannot be said that entire transaction resulted in any gain to the assessee and Shri Rama Gameti was benamidar of the assessee. It was contended that entire transaction of the purchase of land, its conversion into non-agriculture land and the sale of land represented a business transaction as evident from the following facts.
1. Purchase of agriculture land out of borrowed funds.
2. Conversion of agriculture land into non-agriculture land.
3. Sale of non-agriculture land immediately after its conversion.
4. Regularity in buying and selling of land as evidenced from the return of income of Shri Rama Gameti for the assessment years 2010-11 to 2012- 13 3.10 The ld. counsel for the assessee stated that the impugned transaction was an adventure in the nature of trade. Reliance was placed on following case laws
1. Janki Ram Bahadur Ram vs CIT, 57 ITR 21 (SC)
2. G. Venkataswami Naidu & Co. vs CIT, 35 ITR 594 (SC)
3. Mrs. D.M. Alexander vs CIT, 22 ITR 379 (Ker.)
4. Mohd. Meerakhan vs CIT, 63 ITR 729 (Ker) (affirmed by SC in 73 ITR 735)
5. Sawandas Devram vs CIT, 150 ITR 576 (MP)
6. Addl. CIT vs Chikka Veerayya Lingaihm, 164 ITR 41 (Kar.)
7. Smt. Neerja Bala vs ACIT, 66 ITD 148 (Mum.) 19 3.11 It was further submitted that the impugned transaction was purchase and sale of a business asset and therefore, Section 50C of the Act was not applicable for computing profit from transfer of land. Accordingly no addition should have been made on account of difference between the actual sale consideration and value of land as per stamp duty valuation. It was contended that provisions of Section 50 of the Act are applicable in case of transfer of a capital asset being land or building or both and not on transfer of land or building or both held as a stock in trade. Reliance was placed on following case laws:-
1. CIT vs Thiruvengadam Invesments (P) Ltd., 320 ITR 345 (Mad.)
2. CIT vs Kan Construction and Colonizers Pvt. Ltd. 208 Taxman 478 (All.)
3. Inderlok Hotels (P) Ltd. vs ITO, 120 TTJ 145 (Mum.) 3.12 As regards the observation of the ld. CIT(A) that it was unbelievable that Shri Rama Gameti, old and trusted employee of the assessee will embark upon business idea of purchase of land for value of Rs. 23.00 lacs and will be in a positon to ensure the conversion of such land from agriculture to residential status, it was submnited that the beginning of all ventures was small and on every such venture, there was always someone to help such entrepreneurs. In the case of Shri Rama Gameti, he a very trusted employee of the assessee and because of his loyalty and trustworthy services, the assessee guided him and arranged financial help for him as and when required. The intenton of the assessee was merely to help economic upliftment of one of his trusted employee and a person belonging to lower strata of the society. It was also pointed out that Shri Rama Gameti repaid all loans out of sale proceeds of land.
3.13 As regards the observations of the ld. CIT(A) that important point to be noted was that though technically there was transfer of land from individual to trust but essentially such transfer was within the four corners of family concerns including M/s. S.S. Education 20 Trust. The originate and the final point for such transaction was M/s. S.S. Education Trust which was directly and indirectly manned by assessee group. It was submitted that the assessee and M/s. S.S. Education Trust which is a public charitable organisation registered u/s 12A and Section 80G of the Act are two separate entities. It was emphasised that neither the assessee nor his family members were the owner of M/s. S.S. Education Trust and the assessee was merely one of the trustee but did not derive any personal benefit by transfer of land to a public charitable trust by Shri Rama Gameti. It was contended that alleged benefit if any and if at all accrued, was for the benefit of public at large particularly when M/s. S.S. Education Trust was a duly approved public charitable trust. The original transferor and the ultimate buyer of the property are totally separate persons. Therefore, the inference that there was a transfer within four corners of the family concern is factually wrong. It was further submitted that the addition in the assesee's case was not warranted. 3.14 In his rival submissions, the Ld. D.R. for the Revenue reiterated the observations made by the Assessing Officer and ld. CIT(A) and strongly relied on the order passed by the ld. CIT(A).
3.15 We have considered the submissions of both the parties and gone through the materials available on record. In the present case, it is noticed that that Shri Rama Gameti, an employee of the assessee raised the loans amounting to Rs. 22.85 lacs from the following persons.
S.N. Name of the party Amount (Rs.) Remark
1. Shri H.S. Ametha 18,000 Cash
2. Smt. Kamla Mehta 18,000 Cash
3. Shri Sunil Mehta 18,000 Cash
4. Shri P.R. Bhandari 18,000 Cash
5. Shri Veni Ram 18,000 Cash
6. Shri Mohan Lal 10,000 Cash
7. Shri Shantial Saruparia 6,50,000 Cheque
8. M/s Abhay Singhvi 12,40,000 Cheque
(HUF)
9. Smt. Sushila Singhvi 1,60,000 Cheque
10. Smt. Urvashi Singhvi 1,35,000 cheque
21
The aforesaid loans were utilised by Shri Rama Gameti for purchase of agriculture land admeasuring 3,30,872.8 sq ft. The genuineness of the loan was not doubted by the Assessing Officer. The said land purchased by Shri Rama Gameti was sold to M/s. S.S. Education Trust for a consideration of Rs. 23.87 lacs and after that the loans raised for purchase of the land were repaid by Shri Rama Gameti. The Assessing Officer was of the view that the assessee used the name of his domestic servant namely Shri Rama Gameti and Smt. Laxmi Bai to purchase the land belonging to Schedule Tribe and converted the same to the residential nature from agriculture nature. On the other hand, the land in question was purchased by Shri Rama Gameti and the purchased deed was not doubted. The conversion of land for non-agriculture purpose was got done by Shri Rama Gameti who sold this land to M/s. S.S. Education Trust which is a separate entity registered with Assistant Commisioner, Devasansthan Vibhag, Udaipur. The said trust also enjoy the benefit of registration u/s 12AA and 80G of the Act and is a separate entity from the assessee. So it cannot be said that the assessee got any benefit by purchasing the land in the name of M/s.
S.S. Education Trust, a public charitable organisation. In the instant case, the Assessing Officer although mentioned that Shri Rama Gameti was a benamidar of the assessee and had it been so then the transaction of the land which should have been purchased by a Schedule Tribe only, could easily be cancelled by the administrative authorities but no such action has been taken. Therefore, the Assessing Officer only presumed that Shri Rama Gameti was a benamidar of the assessee and the land purchased was actually benami property of the assessee. On the contrary, the Assessing Officer did not doubt the loans raised by the assessee for purchasing the agriculture land. Shri Rama Gameti deposited the amounts received by raising the loan in his bank account and by withdrawing the amounts from the bank account, he purchased the land which was sold on profit to M/s. S.S. Education Trust after converting it into non-agriculture land and the assessee did not get any benefit from the land sold to M/s. S.S. Education Trust, a public charitable 22 organisation. We therefore, are of the view that the Assessing Officer was not justified in holding that the land in question was a benami asset of the assessee and capital gain., if any, was to be assessed in the hands of the assessee. In the present case, when it has been held that the land in question was not related to the assessee at all, we do not consider it necessary to discuss as to whether the profit on sale of land should be treated as business profit in the hands of the assessee or provisions of Section 50C were applicable because the said facts are to be considered in the hands of the original owner of the land i.e. Shri Rama Gameti who purchased the land by raising the loans and sold the land to M/s. S.S. Education Trust and earned profit. We therefore, by considering the totality of the facts of the case as discussed hereinabove delete the impugned addition made in the hands of the assessee by the Assessing Officer and sustained by the ld. CIT(A).
4.0. In the result, the appeal filed by the assessee is allowed.
(Order Pronounced in the Open Court on this 07-06-2013.) Sd/- Sd/-
(HARI OM MARATHA) (N.K. SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 7th June, 2013
Mishra
Copy to:-
1.The Appellant
2. The Respondent
3. The ld. CIT
4. The ld. CIT(A)
5. The DR
6. The Guard File
Assistant Registrar
ITAT, Jodhpur