M/S Kamakshi Land Developes, vs Department Of Income Tax

Deputy Commissioner of Income-tax, Circle 4(1), Bangalore. ... Appellant

Vs.

M/s.Kamakshi Land Developers, No.17/40, 'Lucky Paradise', Off.No.18/, 22nd cross, 7th Block, Jayanagar, Bangalore-560011. ... Respondent PAN:AANFM 4564 E

Appellant by: S/Shri C.H.Sundar Rao, CIT(DR) and P.Dhivahar, JCIT(DR) Respondent by: Shri Zain Ahmed Khan, CA.

Date of hearing : 22/01/2015. Date of pronouncement: 23/03/2015.

Per Smt. P.MADHAVI DEVI, JM:

All the three appeals are filed by the revenue against the

two orders of the CIT(A)-II, Bangalore, dated 15/04/2013 for

the assessment years 2000-01 and 2005-06 and another order

dated 27/02/2013 of the CIT(A)-II, Bangalore, for assessment

year 2005-06.

2. ITA No.644/Bang/2013 (Assessment year:

2000-01): Brief facts of the case are that the assessee-firm ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 2 of 14 which was engaged in the business of land development was

searched u/s 132 of the Income-tax Act, 1961[hereinafter

referred to as 'the Act'] on 23/09/2004. Consequent to the

search, notice u/s 153A was issued on 31/03/2005 requiring the

assessee to file its return of income. The assessee requested for

copies of books of account and other related documents seized

during the course of search (as per Panchanama) which was duly

supplied to the assessee. Thereafter, the assessee, enclosed

copy of return of income filed on 31/10/2000 along with tax

audit report and also the details of land sold to various parties

for a sum of Rs.4,68,52,500/-. During the assessment

proceedings u/s 143(3) r.w.s.153A, the Assessing Officer (AO)

verified the documents filed by the assessee with reference to

the seized material and the books of account produced. The AO

observed that the assessee has claimed to have sold 43 acres

and 3 guntas of land to seven persons for an amount of

Rs.80,40,000/- at the rate of Rs.1.91 lakh per acre through

agreements to sell. The AO, however, held that the price at

which the land has been sold to these persons is very cheap

when compared to the similar land sold by the assessee to

M/s.Rishi Homes Ltd. and that the material gathered during the

course of search revealed that the alleged transactions with the

above seven persons were sham transactions since no sale of

land was actually intended or took place in favour of the seven

persons. He observed that :

ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 3 of 14

(i) the land was sold for Rs.80,40,000/- but there has been no actual flow of fund from the so-called purchasers to the assessee;

(ii) the so-called agreement to sell with the above 7 persons was written on a stamp paper of Rs.100/-. One of such agreements was seized as per Annexure A/SLD/1/2 page Nos.31 to 35 which is not notarized, not registered and is not signed by any witnesses. It is mentioned in the agreement that the seller shall deliver and put the purchaser in actual vacant possession of the schedule property at the time of registration of sale deed but since the agreement was never registered, the actual sale never took place. The possession of land was not handed over to the so-called agreement holders and therefore there was no actual transaction of the land; and

(iii) it is seen from the record that subsequently, the assessee-firm agreed to sell this land to M/s.Vasavi Developers, a newly constituted firm having only two partners - Shri Arjun Chavala and Smt.N.K. Aswathlakshmi, a copy of which was seized as pages No.22 to 28 of annexure A/SLD1/1, according to which the assessee is mentioned as seller and M/s.Vasavi Developers is mentioned as purchasers and there is no mention of any agreement holders in the share holding.

This agreement to sell is dated 19/08/2003 wherein the assessee had agreed to sell the schedule land for a consideration of Rs.3,50,00,000/- as seen from records, this agreement to sell was open and M/s.Vasavi Developers finally sold this land to M/s.Aishwarya Shelters P. Ltd., in April 2004. If the assessee were to sell the land to the above 7 persons there is no way the assessee could have sold the same land subsequently to ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 4 of 14 M/s.Vasavi Developers and then any portion to M/s.Aishwarya Shelters P. Ltd.

Observing as above, the AO held that the alleged sale of land to

seven persons was a sham transaction and is thus to be ignored

for the purpose of arriving at the assessee's actual income for

the relevant assessment year. Thereafter, he proceeded to

value the closing stock of the land left with the assessee as on

31/03/2000 and adopted the lower of the cost or the market

value for the purpose of valuation of closing stock. He observed

that out of 42 acres of land, about 11 acres of land was

agricultural land not converted for industrial or residential use

and the guidance value of the agricultural land during the

relevant period was about Rs.1.50 per lakh per acre. Since the

assessee had itself alleged to have entered into agreement to

sell this land at Rs.2 lakhs per acre, the AO valued the 11 acres

at Rs.2 lakhs per acre. As regards the balance of 30 acres,

being converted land, he valued it at Rs.4 lakhs per acre totaling

to Rs.120 lakhs. Thus, he valued the entire land of 42 acres as

closing stock at Rs.144 lakhs and computed the tax thereon

accordingly.

2.1 Aggrieved, the assessee preferred an appeal before

the CIT(A) stating that the 'agreements to sell' transactions

between the assessee and seven persons were genuine

transactions and valuation of closing stock by the AO is also

erroneous. It was further stated that the assessee had received ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 5 of 14 an advance of Rs.4,01,000/- from the purchasers in cash and

that possession was also handed over to them. Before the

CIT(A), the learned counsel for the assessee had also filed copies

of endorsements to the effect that possession was handed over

to the purchasers pursuant to the agreements to sell. The

CIT(A), after considering the said documents, held that the

seven persons mentioned in the 'agreements to sell' have

received possession of the property and also that they have

transferred their right and title in the property in question to

M/s.Vasavi Developers by means of agreements dated 6/9/2003

and 10/1/2004 and since sale of property to the said persons

did not materialize, the value of land measuring 42 acres

became opening balance in the hands of the recipient. She also,

deleted the addition made by the AO. Aggrieved by the relief

given by the CIT(A), the revenue is in appeal before us.

2.2 The learned Departmental Representative, while

placing strong reliance on the order of the AO, submitted that

the assessee has claimed to have entered into 'agreements to

sell' the land to seven persons and as held by the AO, no

consideration has moved from these seven persons to the

assessee. As regards the endorsements to the effect that

possession of the property was handed over to the said persons,

he stated that these documents were never filed before the AO

and further that only Xerox copies of the same were filed before

the CIT(A) in spite of request to file originals of the same.

ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 6 of 14 Therefore, according to him, no reliance could be placed on

these documents. Further, he drew our attention to the

'agreements to sell' between the assessee, the seven persons as

confirming parties and M/s.Vasavi Developers to demonstrate

that they were allegedly entered into on 6/9/2003 and

10/1/2004 respectively and the Memorandum of understanding

between the assessee and M/s.Vasavi Developers and

M/s.Aishwarya Shelters P. Ltd. dated 10/05/2004 and also the

absolute sale deed dated 24/04/2004 between assessee and

M/s.Aishwarya Shelters P. Ltd. with M/s.Vasavi Developers as

confirming party, to demonstrate that these documents cannot

be relied upon simply for the reason that in the absolute sale

deed, it is mentioned that the vendors M/s.Aishwarya Shelters P.

Ltd. have paid the entire sale consideration to the vendors out of

which Rs.68,000/- by way of pay order No.019558 dated

05/09/2003 drawn on Union Bank, Bangalore and Rs.39,250/-

by Pay order No.019560 dated 5/9/2003 drawn on Union Bank,

Bangalore as desired by the vendors. Thus according to him,

when the vendor himself has paid part of the sale consideration

as on 5/9/2003 there was no necessity for the assessee to enter

into any agreement with M/s.Vasavi Developers. Thus according

to him, the entire chain of transactions claimed to have been

entered into by the assessee with seven persons and thereafter

with M/s.Vasavi Developers is not believable and has to be ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 7 of 14 disregarded. Thus, he prayed that the order of the CIT(A) may

be set aside.

2.3 The learned counsel for the assessee, on the other

hand, supported the order of the CIT(A) and placed reliance

upon the copies of the 'agreements to sell' between the

assessee and the seven persons and the agreement to sell

between seven persons and M/s.Vasavi Developers,

memorandum of understanding between the assessee,

M/s.Vasavi Developers and M/s.Aishwarya Shelters P. Ltd. and

the sale deed in favour of the M/s.Aishwarya Shelters P. Ltd. He

submitted that the documents found and seized during the

course of search were (1) the 'agreement to sell' entered into by

the assessee with one of the seven persons and also (2) the

'agreement to sell' between the assessee and M/s.Vasavi

Developers with the seven persons as confirming parties. He

submitted that all these documents were executed prior to the

date of search and were found during the course of search and

therefore it cannot be considered as an after-thought and these

documents cannot be disregarded. Therefore, he prayed that the

order of the CIT(A) be upheld. He also relied upon the remand

report of the AO wherein the AO has accepted and confirmed the

'agreement to sell' entered into by the assessee with M/s.Vasavi

Developers and the seven persons as confirming parties and has

not refuted the said documents.

ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 8 of 14 2.4 Having regard to the rival contentions and also the

material on record, we find that the basic dispute is with regard

to the genuineness of the transaction of 'agreement to sell'

between the assessee and the alleged seven persons. As seen

from the assessment order, one of the documents found and

seized during the course of search is a copy of 'agreement to

sell' between Kamakshi Land Developers i.e. the assessee herein

and one of the seven persons. Another document found during

the course of search as seen from the assessment order is the

copy of the agreement to sell between the assessee herein and

M/s.Vasavi Developers. We had directed the learned

Departmental Representative to produce copies of these seized

documents. However, the learned Departmental Representative

submitted his inability to produce the same. Therefore, we

proceed to adjudicate the issue on the basis of the findings of

the AO and the material on record before us. For the sake of

convenience, the chronology of events is tabulated as under:

Date of the Seller Buyer Sy.No. Extent Village Consideration document Acre Gnt. Rs.

14/2/2000 Assessee 1)C.R.Naveen 124 02 10 Koppa 15,00,000

2)K.A.Lavanya 111/1A 02 03 "

111/B 03 25 " 13,00,000 23/2/2000 Assessee 1)A.Vishveshwaraiah 111/3 03 00 " 2)Miss. A.Lakshmi 125/1 13 02 " 125/2 08 04 " 213 23 00 " 03/3/2000 Assessee Smt.A.S.Devi Suraj 17/2 01 14 Ammanebidu- 4,50,000 rakere 16/2 01 05 " 09/3/2000 Assessee P.Venkatesh Babu 111/2 01 32 Harappanahalli 11,40,000

108 03 36 Koppa 13/3/2000 Assessee K.B.Avinash 212 03 04 " 211 02 38 Ammanebidu- 12,00,000 rakere ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 9 of 14 17/2/2000 Assessee 1)H.R.Satish 210 04 25 Koppa 11,00,000 2)Smt.Rama Devi 214 00 34 " 10/2/2000 Assessee 1)S.N.Santosh Kumar 117/2 04 18 " 13,50,000 2)Rajesh B.Chand 117/1 00 39 " 124 27 08 "

06/09/2003 Assessee 124 02 10 Koppa (seller) and 1) K.A.Lavanya 111/1A 02 03 " 1)C.R.Naveen 2) 111/ 03 25 " 2)A.Vishvesh-3)Miss. A.Lakshmi 111/3B 03 00 " waraiah 4)Smt.A.S.Devi Suraj 125/1 13 02 " 3)S.N.Santosh 5) Rajesh B.Chand 125/2 08 04 " Kumar 213 23 00 " (confirming parties 17/2 01 14 Ammanebidura- and Vasavi Builders rakere 16/2 01 05 " 117/2 04 18 Koppa 117/1 00 39 " 124 27 08 " 116 02 10 " 15 00 38 J.Bingipura 10/1/2004 Assessee 1)P.Venkatesh Babu 111/2 01 32 (Seller) 2)H.R.Satish 108 03 36 3) Smt.Ramadevi 212 03 04 K.B.Avinash (confirming party) 211 02 38 & Vasavi builders 210 04 25 214 00 34 10/4/2004 Assessee Vasavi Builders & Aishwarya Shelters (MOU) 24/4/2004 " Vasavi Builders & 125/1 13 02 Aishwarya (Absolute sale deed)

From the chronology of events tabulated above, it is seen that

the 'Agreements to sell' with the seven persons were entered

into in February and March of 2000, and according to the said

agreements, the assessee had agreed to hand over the

possession of the scheduled lands to the buyers for the limited

purpose of survey and marking of the sites as the purchasers

were agreeing to purchase the schedule property for the purpose

of formation of sites in the schedule property and disposal of the

same in favour of the prospective purchasers and the sale shall

be completed in favour of the purchasers or their nominees or ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 10 of 14 assignees after formation of the layout and the balance sale

price is realized from the prospective buyers of the sites. Even

from the copies of the endorsements of handing over of the

possession to these seven persons, we find that the possession

was handed over in part performance of the said agreements to

sell and only to hold, possess and enjoy the schedule property

with liberty to form layouts and develop the same with roads,

drainages, borewells, electricity and water connections etc. It is

not mentioned therein that the other conditions of the

agreements to sell have been fulfilled by the purchasers.

Further, we also do not find any mention of the payment of

balance sale consideration and in some of the endorsements,

there are no witnesses even. Therefore, it is difficult to accept

the contentions of the assessee that the transaction of sale with

these seven persons is complete. However, by virtue of

'agreements to sell' the assessee has transferred some right in

favour of the purchasers as held by the Hon'ble Apex Court in

the case of Sanjeev Lal vs. CIT in Civil Appeal Nos.5899-5900 of

2014 dated 1/7/2014. However, in the case before us, the AO

has held these transactions to be sham as they do not find a

mention in the sale deeds executed by the assessee in favour of

Aishwarya Shelters. On perusal of all the documents filed before

us, we find that the 'agreements to sell' with the seven persons

are mentioned in the 'agreements to sell' between the assessee

and the seven persons as confirming party and Vasavi Builders ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 11 of 14 dated 6/9/2003 and 10/1/2004. The relevant recitals are at

pages 72 and 86 of the paper book filed by the assessee. The

documents dated 6/9/2003 and 10/1/2004 are referred to in the

tri-partite MOU between the assessee, Vasavi Builders and

Aishwarya Shelters. The AO has not doubted the genuineness of

the MOU. In fact, it is stated by the AO in the assessment order

that one of the documents found and seized during the course of

search is the 'agreements to sell' between the assessee and

Vasavi Builders wherein there is no mention of any agreement

holders. The date of search in the case of the assessee is

23/09/2004 whereas one of the documents found and seized is

dated 19/8/2003 which is subsequent in time to document No.1

in the chronology of events. The assessee has filed other

documents which are executed along with documents seized

during the course of search and the execution of the 'agreement

to sell' with the seven persons is very much available amongst

the same. As regards the endorsement to the effect that

possession of the property has been handed over by the

assessee, the learned counsel for the assessee submitted that

even the assessee was not in possession of the originals of these

documents and confirmed that only xerox copies have been filed

before the CIT(A). We find that in most of these endorsements,

there are no witnesses. The agreement between assessee and

the seven persons and M/s.Vasavi Developers is also filed at

page 68 of the paper book and on perusal of the said document, ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 12 of 14 we find that there is reference to four agreements to sell dated

14/2/2000, 23/2/2000, 3/3/2000 and 2/10/2000 and also about

handing over of the possession and receipt of part payment of

sale price. Therefore it is clear that the sale was not complete

during the relevant previous year. The sale can be complete only

when all the conditions of the agreement are fulfilled. Further,

as pointed out by the learned Departmental Representative, the

partners of M/s.Vasavi Developers are also partners of Kamakshi

Land Developers and there is a mention of pay orders of

Aishwarya Shelters dated 5/9/2003 in the absolute sale deed

executed by Kamakshi Land Developers and M/s.Aishwarya

Shelters P. Ltd. which also creates a doubt as regards the

necessity of the assessee to enter into a memorandum of

understanding with M/s.Vasavi Developers on 6/9/2003, when

the final purchaser was already in the field. In all the absolute

sale deeds, part of the sale consideration is alleged to be paid by

pay orders dated 5/9/2003 as is evident from the recitals in the

sale deeds. This creates a doubt on the veracity of the

agreements to sell dated 6/9/2003 and 10/1/2004. Further,

there is no document dated 19/8/2003, as per the assessee,

whereas, there is a mention of the same in the assessment order

as one of the documents seized. Further the handing over of the

possession was only to enable the seven persons to make the

layout and was not as part of performance of the contract and

many of the endorsements do not bear the signatures of the ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 13 of 14 witnesses. In this view of the matter, in our opinion, the whole

issue requires proper and thorough verification and we are of the

opinion that the CIT(A) has proceeded to allow the assessee's

appeal only on the basis of the copies of the endorsements of

handing over of the possession without properly verifying the

same. We are also aware of the fact that the CIT(A) had called

for a remand report from the AO, but we find that the AO also

has not verified the documents from this angle. In view of the

same, we deem it fit and proper to remand the issue to the file

of the AO with a direction to verify the documents filed by the

assessee and re-consider the issue de novo in accordance with

law without being influenced by any of our observations above.

Needless to mention that the assessee shall be given a fair

opportunity of hearing.

2.5 The next ground of appeal against the valuation of closing

stock is consequent to the adjudication as to whether there was

any sale of land during the relevant assessment year and a

finding as to whether the transaction of sale between assessee

and the seven persons is genuine or not. Therefore, we remand

this issue also to the file of the AO.

2.6 In the result, the revenue's appeal (ITA

No.644/Bang/2013) is allowed for statistical purposes.

3. ITA Nos.645 & 1177/Bang/2013: These are appeals for

the assessment year 2005-06 against the relief given by the

CIT(A) in the appeal filed against the assessment completed u/s ITA Nos.644,645 & 1177/Bang/2013 M/s.Kamakshi Land Developers Page 14 of 14 143(3) r.w.s.147 and also the relief given by the CIT(A) against

the penalty levied by the AO u/s 271(1)(c) of the Act. We find

that these appeals are consequent to the findings given in the

assessment year 2000-01. Therefore, since the appeals for

assessment year 2000-01 have been remanded to the file of the

AO, these appeals also need re-consideration by the AO. In view

of the same, the orders of the CIT(A) are also set aside and

remanded to the file of the AO for de novo consideration after

giving the assessee a fair opportunity of hearing.

4. In the result, the revenue's appeals are treated as

allowed for statistical purposes.

Pronounced in the open court on 23rd March, 2015.

sd/- sd/- (Jason P Boaz) (Smt. P.Madhavi Devi) ACCOUNTANT MEMBER JUDICIAL MEMBER eksrinivasulu

Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar Income-tax Appellate Tribunal Bangalore