ITA NO. 835/Del/2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "H", NEW DELHI
BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER
AND
SHRI H.S. SIDHU, JUDICIAL MEMBER
I.T.A. No. 835/DEL/2011
A.Y. : 2006-07
Income Tax Officer, Shri Vishal Goyal,
Ward-2(1), VS. KM-78, Kavi Nagar,
Ghaziabad Ghaziabad
(PAN: ACWPG3686Q)
(APPELLANT) (RESPONDENT)
Department by : Sh. J.P. CHANDREKAR, SR. DR
Assessee by : Sh. R.K. GAUR, FCA
Date of Hearing : 14-07-2015
Date of Order : 20-07-2015
ORDER
PER H.S. SIDHU, JM
Revenue has filed this appeal against the Order dated
26.11.2010 passed by the Ld. Commissioner of Income Tax
(Appeals), Ghaziabad pertaining to assessment year 2006-07 on the
following grounds:-
1. That the Ld. CIT(A) has erred in law and on facts by not
appreciating that the entire transaction is colorable
where instead of three parties mentioned in the sale
agreement only one party received the entire advance
proceeds whereas as per the sale agreement, it
should have been divided on pro-rata basis.
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2. That the Ld. CIT(A) has erred in law and on facts by
falling to appreciate the fact that as per the sale
agreement the sale consideration so received was
to be utilized for promoting the objective of the
trust. As such the advance received should have
also gone to the trust only but this was not done.
This again shows the colorable transaction by the
assessee to take the benefit of the advance
proceeds.
3. That the Ld. CIT CA) has erred in law on facts by not
appreciating that the entire transaction is colorable
in nature where the assessee has conveniently tried
to colour the transaction as that of capital receipt
taking the shadow of section 51 of the I.T. Act,
whereas the transaction is an attempt to evade
taxation by the assesse in the form of income from
other sources and siphoning of funds by the paying
concern.
4. That the Ld. CIT CA) has erred in law and on facts in
failing to pierce the corporate veil in this case to
expose the true nature of transaction which is
attempt by the assessee to evade taxation till the
final transfer of capital asset and prevent the
advance forfeited to be considered as income from
other sources even if the capital asset is never
transferred In the thus preventing any taxation on
the advance forfeited till then.
5. That the Ld.CIT(A) has erred in law and on facts by
not considering the case law CIT Vs Sterling
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Investment Corporation Ltd.(1979) I taxman 396:
(1979) 12 CTR 263: (1980) 123 ITR 441 (Bom)
whereby held by Hon'ble Bombay High Court to
consider the forfeiture of advance money as
revenue receipt and not capital receipt as
considered by the Ld. CIT(A).
6. That the order of the Ld. CIT(A) deserves to be set
aside and the order of the AO be restored.
2. The brief facts of the case are that the return was filed on
19.1.2007 by the assessee declaring an income of Rs. 84,152/-. The
case was processed u/s. 143(1) of I.T. Act, 1961. Thereafter, the
case was selected for compulsory scrutiny and notices u/s. 142(1)
and 143(2) were issued and properly served upon the assessee.
Notice u/s. 142(1) and 143(2) was issued on 1.12.2008. In
compliance to which neither anybody attended nor any reply was
filed. On going through the documents filed by the assessee's
counsel , AO completed the assessment u/s. 143(3) of the I.T. Act,
1961 at a total income of Rs. 75,84,150/- + Rs. 57,500/- Agricultural
Income vide order dated 26.12.2008.
3. Against the aforesaid assessment order of the Assessing
Officer, Assessee appealed before the Ld. First Appellate Authority,
who vide impugned order 26.11.2010 has allowed the appeal of the
assesee and deleted the addition in dispute.
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4. Aggrieved by the aforesaid impugned order dated 26.11.2010,
Revenue is in appeal before the Tribunal.
5. At the time of hearing Ld. Departmental Representative has
relied upon the order of the Assessing Officer and reiterated the
contentions raised in the grounds of appeal filed by the Revenue.
6. On the other hand, Ld. Counsel of the assessee relied upon
the order of the Ld. CIT(A) and submitted that the order of the Ld.
CIT(A) may be upheld.
7. We have heard both the parties and perused the records
especially the orders of the revenue authorities, we find that the
assessee is an individual. AO observed that an agreement dated
25.4.2005 was made to sell certain properties belonging to the trust
to M/s Raj Hans Tower Pvt. Ltd. Certain amounts in the form of part
payment were received by the Trust as well as assessee and
assessee's brother, Shri Vineet Goyal Total amount received by the
assessee was Rs. 75,00,000/-. Later on, litigation occurred due to
non approval of map by the GDA and assessee has not returned
back the amount. The AO held that the trust was created to avoid
proper taxation in disguise of Trust. The AO added receipts of Rs.
75,00,000/- as income of the assesee from other sources. We
further find that AO neither obtained full details nor could
understand the entire sequence of transactions and has reached the
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conclusions in a haphazard and confused manner; the basic
agreement, which has been referred to by the AO, itself, when read
carefully, makes it amply clear that certain properties clubbed
together were subject matter of sale; the owners of these properties
were the assessee, his brother Shri Vineet Goel and Devi Dayal
Charitable Trust, which is a family trust of assessee's family. In other
words, the most important issue is as to whether the AO has erred in
concluding that the assessee is not a legal owner, while the facts on
record point out that assessee is one of the 3 legal owners of the
land under sale; the other two being Shri Vineet Goel and Devi Dayal
Charitable trust. The AO is totally wrong in assuming and, somehow
insisting in the remand report that the assessee is not a legal owner
and, therefore, the amount forfeited, if any, would be taxed in the
hands of the assessee as income from other sources. The assessee
has furnished proof of ownership of this land piece. These
documents furnished clearly show that the assessee Shri Vishal
Goyal, his brother Shri Vineet Goel and the family trust, namely,
Devi Dayal Charitable Trust are all legal owners of respective
portions of land which is the subject matter of sale advances. We
note from the records that these land owners have received
advances from M/s JMD Buildtech Private Limited and Mls Rajhans
Towers Private Limited, the share of the assessee, in total of such
advances, being Rs.75,OO,QOO/-. However, Mls Rajhans Towers
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Private Limited has gone in litigation: currently in the form of
arbitration proceedings pending before retired Justice J.P. Singh.
According to the assessee, he and other two legal owners have no
intention to withhold the advances, but have countered the claim of
Mls Raj Hans Towers Private Limited by saying that as Mls Raj Hans
Towers Private Limited has not fulfilled their part of commitments;
so the amount received as advance part payment was also liable to
be forfeited. As the matter is under arbitration; so the dispute is still
undecided. In view of the above fact; even if AO's presumption that
the amount has been is likely to be forfeited; section 51 will
immediately come into operation. Section 51 of I.T. Act, 1961 clearly
says that "where any capital asset was on any previous occasion the
subject of negotiations for its transfer, any advance or other money
received and retained ay the assessee in respect of such
negotiations shall be deducted from the cost for which the asset was
acquired in computing the cost of acquisition." Therefore, whatever
amount has been received by the assessee as advance in
aforementioned negotiations for sale and if those amounts are not
returned back; the cost of property would stand reduced by such
amount. In other words, when this sale does not materialize and the
amount stands forfeited/not returned; and assessee makes another
sale in future; then for purposes of computing the gain, cost of
acquisition would be reduced by respective amount of advances
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received and not returned. We further find that Ld. CIT(A) has noted
that various court cases clarified this operation of section 51; the
most recent and relevant being the case of Mls Travancore Rubber &
Tea Ltd reported in 243 ITR 158 (SC). This is further on record that
the M/s Devi Dayal Trust has not made any such conclusion (as
made by the AO of the assessee in this case) in scrutiny order
passed for the same assessment year. It is more interesting to note
that the same AO, who is also assessing Shri Vineet Goel, another
recipient and legal owner, does not take any remedial action in case
of Shri Vineet Goel. The above facts shows the inconsistent attitude
of the AO.
7.1 We find from the above, that in nutshell, as assessee is one of
the legal owners of the impugned land for sale; so the entire theory
of the AO (that the trust has been designed for tax evasion and
assessee has earned income from other sources), crumbles down.
Section 51 is found to be applicable in such cases; the assessee is
asked to reduce the amount of advance if forfeited after arbitration,
from cost of property while working out gain on any subsequent
sale. The AO is also directed to take note of this, for future
assessment purposes. We find Ld. CIT(A) has rightly held that for
the-time being, there is no basis for any addition of,Rs.75,OO,OOO/-
and accordingly he deleted the addition in dispute.
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8. In the background of the aforesaid discussions and precedent,
we do not see any reason to interfere with the well reasoned order
of the Ld. CIT(A), accordingly, we uphold the same and decide the
issue against the Revenue by dismissing this ground of appeal.
9. In the result, the Appeal filed by the Revenue stands
dismissed.
Order pronounced in the Open Court on 20/07/2015.
Sd/- Sd/-
[N.K. SAINI] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date:- 20/7/2015
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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