R.P. Malik, , Delhi vs Assessee

DCIT Vs. Shri R. P. Malik, Room No. 333, E-2, ARA A-16, Nirman Vihar, Centre, Jhandewalan, Extn. Delhi. New Delhi. PAN: AARPM0072B

(APPELLANT) (RESPONDENT) C.O. No. 227/Del/2010 (in I.T.A. No. 2732 /Del/2010) Assessment Year: 2006-07 Shri R. P. Malik, Vs. DCIT A-16, Nirman Vihar,, Room No. 333, E-2, ARA Delhi. Centre, Jhandewalan, Extn. PAN: AARPM0072B New Delhi.

(APPELLANT) (RESPONDENT)

Revenue by: Shri Vivek Wadekar, CIT. DR. Assessee by: Shri. V. P. Gupta, Adv. Date of Hearing: 01/06/2015 Date of Pronouncement: 29th/06/2015

ORDER

PER J. S. REDDY, AM:

These appeals are filed by the revenue and Cross-objection filed by the

assessee directed against the order of CIT (Appeals)-I, New Delhi, dated

31.03.2010 for the AY 2006-07.

I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 2

2. The facts in brief, the assessee is individual. A search and seizure

operation was carried out at Room No. 101, Hotel Sara International,

Hyderguda, Hyderabad on 17/03/2006. The AO passed order u/s 153C r.w.s.

143(3) of the Income Tax Act, 1961 on 30.12.2008 determined the total income

at Rs.11,85,86,805/- by making the following additions;

a) Rs.5,34,20,400/- on the grounds that the payment is made by the assessee

for taking over G.B. Educational Society based on an MOU dated 27.6.2005.

b) An addition of Rs.1,28,53,800/- u/s 68 of the IT Act 1961.

c) An amount of Rs.1,20,00,000/- on the grounds that number of persons

have given unsecured loan to G.B.E.S and as the assessee has taken over

G.B.E.S, loan also belong to the assessee.

d) The other additions are Rs.50,00,000/- being amount received from Shri

Bhupinder Singh, Rs.25,00,000/- being payment in cash to Mr. Raja Singh and

Rs.6,00,000/- on account of sale of four flats.

e) The additions of Rs.50,00,000/-, Rs.25,00,000/- and Rs.6,00,000/- are not

disputed by the assessee.

3. As regards the other additions, the assessee carried the matter in appeal.

4. The first appellate authority framing the following questions which are

extracted from Para 5.5 page 11 of the CIT order:

I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 3

"5.5 Now the issue to be decided is.......

a) Whether there was takeover of M/s G B Educational Society (regd) along with 24282 Sq Mts of land allotted to it by M/s Lovely Bal Shiksha Parishad (regd) through its President Shri R.P. Malik i.e. the assessee?

b) If so, what is the amount of unexplained investment made by the assessee for the said takeover to be assessed u/s 68 of the IT Act?

5. In the various reasons given in his order, the first appellate authority

allowed the appeal of the assessee.

6. Aggrieved the Revenue is before us on the following grounds:

"1. The order of the Ld. CIT(Appeals) is not correct in law and facts.

2. On the facts and circumstances of the case, the Ld. CIT (A) has erred in law and facts of the case in deleting the addition of Rs.3,12,53,280/- towards unexplained investment in takeover of GB Educational Society as recorded in impounded documents page-37 and 32-35 of Annexure-4 while ignoring provisions of section 292C(1) of Income-tax Act, 1961.

3. On the facts and circumstances of the case, the Ld. CIT (A) has erred in law and facts of the case in deleting the addition of Rs.1,28,53,000/- on account of loans from GBES repaid back and unexplained investment in Lord Tirupati Educational Society while dis-believing impounded documents and ignoring the provisions of section 292C(1) of Income-tax Act, 1961.

I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 4

4. On the facts and circumstances of the case, the Ld. CIT (A) has erred in law and facts of the case in deleting addition of Rs.1,20,00,000/- towards unexplained loans from various persons to GBES taken over by the assessee as evidenced by impounded documents.

7. The assessee has filed Cross-objection on the following grounds:

1) That the respondent filed the Return of Income on 27.09.2007 declaring an income of Rs.3,22,12,605/-.

2) That the Ld. Asstt. Commissioner of Income Tax, Central Circle-

20, New Delhi passed an Asstt. Order u/s 143(3) computing an income of Rs.11,85,86, 805/- on 30.12.2008.

3) That the assessing authority made the following addition as per Asstt. Order:-

1) Payment to G.B. Educational Society (Item Rs.53420400/-

13)

2) Payment to G.B. Educational Society (Item Rs.12853800/-

14)

3) Unsecured loan to G.B. Educational Society Rs.12000000/- (Item 15)

4) Receipt of cash from Sh. Bhupinder Singh Rs.5000000/-

(Item 16) 5) Payment to S. Raja Singh & Others (Item 17) Rs.2500000 6) Sale of 4 Flats (Item 18) Rs.600000

I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 5

4) That the respondent went into an appeal before CIT (Appeals-1) against the Asstt. Order of ACIT Central Circle-20 on 30.12.2008 and the Ld. CIT(Appeals-1) has accepted the contention of the respondent in respect of 1 to 3 stated above in para 3 and other points 4 to 6 of Para 3 were not contended by the respondent.

5) That the respondent also filed rectification application in which an amount of Rs.22167120/- was rectified by Ld. ACIT CC-20 out of Rs.

53420400/- as stated in 1 of Para 3.

6) That Ld. Dy. Commissioner of Income Tax, Circle-20, New Delhi filed an appeal before your goodself against the appellate order of Ld. CIT(Appeals-1) New Delhi on 04.06.2010.

7) That the respondent object in respect of the appeal filed by Ld. Dy. CIT, Central Circle-20, New Delhi. Moreover, the appellant has not filed any ground to substantiate their claim in favour of appeal.

8) That the respondent further submits to stand by the submission made at time of hearings in appeal before Ld. CIT(Appeals-1) New Delhi.

8. We have heard Mr. Vivek Wadekar, Ld. CIT DR on behalf of the revenue

and Shri V. P. Gupta, the ld. Advocate on behalf of the assessee.

9. Mr. V.P. Gupta submitted that the Cross-objection filed by the assessee

do not rise any issue other than the issue on which the appeal has been filed by

the Department.

10. The ld. DR Mr. Vivek Wadekar, relied on the order of the AO and

submitted that the first appellate authority has not properly appreciated the facts I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 6

of the case and granted relief. He argued that the land in question is held by the

society and it is this land which is targeted for acquisition by the assessee who

is in the business of purchase and sale of Real Estate. He submitted that this is

basically a real estate transaction which the assessee sought to enter and gain

from. He pointed out that the land allotted to GB Educational Society by M/s

Greater Noida Industrial Development Authority was measuring 24,282 sq.

mtrs. He argued that memorandum of understanding was found and this

disclosed that the assessee had taken over M/s GB Educational Society. He

pointed out the pages 96 to 98 of the assessee's paper book which is

memorandum understanding dated 27th June, 2005 entered into between GB

Educational Society and M/s Lovely Bal Shiksha Parishad through its president

Mr. R.P. Malik. He referred to Para 5.4.7 of the ld.CIT(A) order he submitted

that the assessee was admitted a member of govt body and was authorized to

operate bank account with Punjab National Bank. He further referred to Para 5.6

of the ld. CIT(A)'s order and disputed the same. On grounds No. 3 & 4 he

submitted that this is linked with the decisions that would be taken by the Bench

on the first ground and hence no separate arguments were advanced.

11. The ld. counsel for the assessee Shri V.P.Gupta, Advocate on the other

hand submitted that the transactions had not materialized and in the MOU did

not get acted upon. He filed written submissions and relied on the orders of the I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 7

first appellate authority. He vehemently contended that the addition is a

hypothetical addition for the reason that, no transactions has taken place.

12. In reply the ld. DR referred to statement of president of GB Educational

Society, Mr. Satish Chander Goel, dated 18.12.2008 which is at pages 115 to

126 assessee's paper book and specifically to question nos. 13, 16 and 21 and

argue that once a part payment is made it is a case of the transaction having

been gone through.

13. On a careful consideration of the facts and circumstances of the case and

a perusal of the papers on record and the orders of the authorities below, we

hold as follows;

14. The facts that emerge are that there was a proposal for takeover of GB

Educational Society. During the impugned assessment year, the payment of

Rs.30 lacs and Rs.63,13,320/- aggregating to Rs.93,13,320/- were made by way

of cheques to GB Educational Society and to Greater Noida Industrial Authority

respectively.

15. Further an amount of Rs.1,28,53,800/- in cash was handed over to one

Shri Ajay Kumar against payments to be made. These payments are recorded in

the books of accounts.

16. There is no evidence to prove that the assessee or M/s Lovely Bal

Shiksha Parishad had made payments amounting to Rs.3,12,53,280/-.

I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 8

17. Though the deal was negotiated, the final transfer had not taken place and

this is clear from the letter of the Registrar of Society, given in an inquiry made

by AO that there was no change in the list of members of the Society. Copies of

the letter are at page nos. 110 to 114 of the paper book. Punjab National Bank

confirmed that Mr. R.P. Malik and others were Joint Secretaries between

16.07.2005 to 1.03.2007 and that the account has been closed on 11.08.2008.

The AO made reference of hand written slips, a copy of which are at pages 94

& 95 of the paper book. A perusal of the same demonstrates that only payments

which are appearing on records are mentioned herein.

18. With this factual background, we find that the first appellate authority has

in his order at Para 5.5 upheld the contention of the assessee and deleted the

addition. While doing so he held as follows;

a) There is no change in the membership of the Society from the date of

allotment of land, till the date of issue of letter by the Registrar of the Society

on 11.11.2008. It was also confirmed that as per the records, Shri Satish

Chandra Goel is the authorized person to deal in all matters of the Society with

them.

b) Shri Satish Chandra Goel in his sworn statement, stated that the MOU is a

waste paper which was neither framed nor signed by him. However, he I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 9

confirmed the clauses 1, 2, 3 and 6, and further denied clause nos. 4, 5 & 8

clause no. 2 of the MOU reads as follows:

"2. That party of the second part shall pay Rs.31,56,660/- (Rupees thirty one lac fifty thousand six hundred and sixty six only) and Rs.55,00,000/- (Rupees fifty five lac only) in cash and the balance will be paid as and when required by party of the first part. The balance of Rs.2.841 crores shall be paid by the party of the second part directly to Greater Noida Authority as and when dues. However, if any, Government Authority does not allow the smooth transfer of Society to the party of the second part, the whole amount will be refunded by party of the first part along with interest @ 2% per month to the party of the second part."

19. As per the memorandum of M/s GB Educational Society, the Society

cannot be taken over unless and until majority of the members are inducted

from another group. As per these clauses, at least 12 members should be

inducted by the assessee's group, which has not taken place. When the same

members of the society continue, it cannot be said that there was a takeover of

GBES.

20. Regarding authorization to operate corporation bank account, this is

limited authorization and is not conclusive proof that the transfer has taken

place. As per clause 2 of MOU dated 27.06.2005, the amount invested by the

assessee upto 31st March, 2006 would be Rs.1,49,69,980/-, out of which the AO I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 10

is already held that the source to the extent of Rs.2,21,67,732/- is explained by

the assessee in his order u/s 154 of the Act dated 11.02.2010 and no further

addition is warranted.

21. The same clauses in MOU states that, in case government authority does

not allow the smooth transfer of Society, then the entire amount has to be

refunded with interest of 2% per month to the party, by GB Educational

Society. Thus the assessee's claim that the deal was cancelled and the amount

paid to GB Educational Society and the amount got deposited with intermediary

was returned, cannot be rejected without contrary proof.

22. At Para 5.6 of the order of ld. CIT(A) held as follows:

"5.6 I have examined the documentary evidence produced by the assessee and also the basis on which the AO has made additions. In my opinion the stand taken by the AO for making addition towards take over of GBES including 24,282 sq mtrs of land allotted by GNIDA for Rs.5,34,20,400/- lacks evidence. The unsigned Memorandum of Understanding made for land area measuring 24282 Sq. Mtrs. @Rs.2200/- per Sq. Mtr. can not be taken into cognizance. Primarily both the concerned authorities viz., GNIDA for allotment of land and Registrar of Societies have confirmed that the land was allotted to GBES and that there is no change in either the members or the executive council ever since the date of incorporation to the date of reporting which confirms the fact that the assessee has not taken over neither the society nor the land. The AO himself has rectified the order by allowing payments verified by him in the books of accounts of Rs.93, 13,320/- and Rs.1 ,28,53,400/-. Further the GNIDA allotment letter shows that still a sum of Rs.1, 1 0,48,310/- was not due for payment at all and that the AO has not established proof of payment of Rs.3,12,53,280/- apart from Rs.2,21 ,66,720/- which was paid and recorded in the books of accounts of the assessee.

I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 11

The assessee only acted as an authorized signatory for a specific limited period which does not mean that he has taken over the management of the society. Again the statement of Sri Satish Chandra Goel is also false if it is looked from over all point of view including the Memorandum of Understanding. Hence, the ground on which the AO has relied is not acceptable in law. I have clear evidence and reasons to believe that the assessee's efforts to take over GBES along with land did not materialize. The assessee has received back all the payments made towards membership and also loan to GBES are returned by cheque and recorded in the books of the assessee. Therefore, the contention of the assessee having received cash also in the books on cancellation cannot be rejected. I have scrutinized the loan confirmation letters from the various parties to GBES. These confirmations are self explanatory giving complete particulars of payment and also of the parties. I have no reason to believe that these unsecured loans are fictitious. Assessee even though if had taken over GBES, the loans if existed on the date of taking over would have become the loans of the society under the new management. Under no circumstances the assessee can be brought to tax on account of these unsecured loans. The AO has grossly erred in making this addition. For the detailed reasons stated in Paras Supra, the following additions are deleted from the assessment order passed for the assessment year 2006-07 which was subsequently rectified by the AO in the order u/s 154 passed on 11/02/2010."

23. The above factual findings could not be controverted with evidence by

the ld. DR. The evidence pointed out to the fact there was a negotiation and

certain payment for transfer of GB Educational Society to the assessee and that

the transaction could not be completed and under those circumstances the

finding of the first appellate authority have to be upheld.

24. Ground nos. 3 & 4 are consequential to the view taken by us on ground

no. 2. Thus these grounds also have to be rejected.

I.T.A. No. 2732/Del/2010 & C.O. No.227/Del/2010 12

24(a). Ground nos. 1 &5 are general in nature. In the result, the appeal of the

Revenue is dismissed.

25. Coming to the Cross-objection these are in support of the orders of the

first appellate authority, in view of our decision in the Revenue appeal, no

separate adjudication is required in this appeal. In the result, the appeal of the

assessee is dismissed

26. In the result, the appeal of the Revenue as well as the Cross-Objection of

the assessee is dismissed.

Order pronounced in the open Court on 29th/06/2015.

Sd/- Sd/-

(I. C. SUDHIR) (J. S. REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:29th /06/2015

*AK VERMA*

Copy forwarded to:

1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR