Vimal Singhvi v. Assistant Commissioner of Income-tax
[Citation -2014-LL-1114]

Citation 2014-LL-1114
Appellant Name Vimal Singhvi
Respondent Name Assistant Commissioner of Income-tax
Court HC
Date of Order 14/11/2014
Judgment View Judgment
Keyword Tags precious and semi-precious stones • principles of natural justice • sale of agricultural land • permanent account number • appropriate authority • non-agricultural land • agricultural income • sale consideration • colourable device • gross profit rate • municipal limits • trading account • conveyance deed • stock register • capital asset • land revenue • actual sale • sale deed • sales tax • evade tax
Bot Summary: The bone of the contention in the present appeal relates to two activities of the assessee wherein the Assessing Officer, with reference to the sale of lands came to the conclusion that it is business income while the claim of the assessee was that it being sale/transfer of agricultural land is not a capital asset within the meaning of section 2(14)(iii) of the Act and, thus, is not liable to tax under the Income-tax Act. On a further query raised by the Assessing Officer, it was noticed that all the aforesaid lands were purchased by the assessee in his own name and later on transferred/sold to the aforesaid limited companies where the assessee was a director and there being a consistency and frequency of the transaction of sale and purchase, the Assessing Officer was of the view that it is in the nature of business income and observed that the land claimed is not in the nature of agricultural land as no agricultural activities are carried on by the assessee. The Assessing Officer also, on a perusal of the recital in the sale deeds and admission by the assessee, where it was mentioned that the land stands converted and is no more agricultural land and indeed there being no agricultural operations, the character of the land stood converted by the very admission by the assessee. The Assessing Officer was not satisfied with the explanation so offered and on analysis of the evidence and the material on record, further came to the conclusion that the assessee did purchase the lands, converted the same for residential/commercial use and sold to the companies where the assessee was a director and the companies utilised the land for development and plotting. The assessee failed to furnish such details and even the Assessing Officer has noticed that the assessee is not maintaining stock register at all and the entire valuation of the opening as well as closing of the stock is on mere estimation and, thus, prima facie, came to the conclusion that the books of account are to be rejected and a higher gross rate is to be applied. These are all admitted facts by the assessee as the chart has been provided by the assessee himself to the Assessing Officer during the course of the assessment proceedings and by registered sale deeds duly registered with the Sub-Registrar and such sale deeds were provided by the assessee to the Assessing Officer. The Income-tax Appellate Tribunal has recorded a finding of fact that no documentary evidence was led by the assessee herein to substantiate his claim of doing any agricultural operations therein as the Assessing Officer in the assessment order has clearly and repeatedly asked the assessee to substantiate the claim about the exact agricultural operations having been carried on by the assessee but no satisfactory material was placed by the assessee.


JUDGMENT judgment of court was delivered by J. K. Ranka J.-This appeal under section 260A of Income-tax Act, 1961 (for short, "the IT Act") is directed against order of Incometax Appellate Tribunal (for short, "the ITAT") and is relevant for assessment year 2008-09. Brief facts, which can be noticed on perusal of impugned order and order annexed are that assessee though was indulged in activity of trading of precious stones was simultaneously also director of M/s. Grass Field Farms and Resorts Pvt. Ltd. and M/s. Grass Field Fire Capital Developers Pvt. Ltd. and during year under appeal had sold certain lands to aforesaid companies. bone of contention in present appeal relates to two activities of assessee wherein Assessing Officer (for short, "the AO"), with reference to sale of lands came to conclusion that it is business income while claim of assessee was that it being sale/transfer of agricultural land is not capital asset within meaning of section 2(14)(iii) of Act and, thus, is not liable to tax under Income-tax Act (for short, "the IT Act"). second issue, which has been raised in appeal relates to rejection of books of account by invoking provisions of section 145(3) of Income-tax Act and in applying higher gross profit rate after rejecting trading accounts. During course of hearing in assessment proceedings before Assessing Officer, information was gathered by Assessing Officer on basis of information conveyed by assessee that he had sold certain lands from April 1, 2007, to March 31, 2008, falling within previous year relating to assessment year 2008-09 for sale consideration of Rs. 8,36,93,154. Simultaneously, assessee also gave purchase value including registration cost at Rs. 3,21,29,158 and res ulting into difference/gain/ surplus of Rs. 5,15,43,996. It was noticed by Assessing Officer that in some of cases, lands were sold/transferred in near vicinity of land purchased to private limited companies where assessee was director resulting in huge difference/gain to assessee but claim of assessee was that although there was surplus of Rs. 5,15,43,996 during assessment year 2008-09 on sale of agricultural land situated at village Hingoniya, Basoda, Bukni, Nasnoda and Mahela, but all subject lands were situated outside municipal limits of JDA/Jaipur Nigar Nigam, etc., and population of these villages does not exceed 10000 and, therefore, is not capital asset within meaning of section 2(14)(iii) of Income-tax Act and, hence, surplus on sale of agricultural land is not subject to tax. On further query raised by Assessing Officer, it was noticed that all aforesaid lands were purchased by assessee in his own name and later on transferred/sold to aforesaid limited companies where assessee was director and there being consistency and frequency of transaction of sale and purchase, Assessing Officer was of view that it is in nature of business income and observed that land claimed is not in nature of agricultural land as no agricultural activities are carried on by assessee. Assessing Officer also, on perusal of recital in sale deeds and admission by assessee, where it was mentioned that land stands converted and is no more agricultural land and indeed there being no agricultural operations, character of land stood converted by very admission by assessee. It was further observed by Assessing Officer that there are series of land transactions and, thus, assessee was actively engaged in business of purchase and sale of land. assessee, during course of assessment proceedings, reiterated fact that lands are agricultural lands and are beyond 8 kilometers of municipal limits and, thus, not liable to be taxed and is not capital asset under section 2(14) of Income-tax Act. However, Assessing Officer was not satisfied with explanation so offered and on analysis of evidence and material on record, further came to conclusion that assessee did purchase lands, converted same for residential/commercial use and sold to companies where assessee was director and companies utilised land for development and plotting. Thus, assessee tried to claim entire surplus/gains as agricultural income but on contrary, real intention of assessee was to sell land to companies where assessee himself was director which used it for development and plotting. Thus, on one hand, assessee gained substantially by not showing surplus by wa y of capital gains but on contrary claimed properties to be converted in sale deed itself. Assessing Officer was also further of view that no agricultural operations had been carried on as no evidence was placed on record by assessee about agricultural income or activity having been carried on said lands. It was also noticed by Assessing Officer that in some cases, land has been allegedly transferred to limited companies through unregistered sale deeds and that no evidence further thereto was provided to Assessing Officer. After analysing evidence on record, Assessing Officer held that entire surplus of Rs. 5,15,43,996 is in nature of business income and further held that modus operandi adopted by assessee was colourable device to evade tax and, accordingly, made aforesaid addition. In so far addition relating to rejection of books of account under section 145(3) of business relating to precious and semi-precious stones is concerned, Assessing Officer noticed that assessee did purchase some goods from party, namely, Lotus Impex, which was found to be non-genuine or party used to issue bills rather than actual sale and purchase. Assessing Officer also found that despite assessee being asked to furnish day-to-day details of all types of stocks in terms of opening and closing stocks with quantity-wise categorisation, etc., assessee failed to furnish such details and even Assessing Officer has noticed that assessee is not maintaining stock register at all and entire valuation of opening as well as closing of stock is on mere estimation and, thus, prima facie, came to conclusion that books of account are to be rejected and higher gross rate is to be applied. assessee responded by placing confirmation and photo copy of bills of party, permanent account number (PAN) as also TIN under sales tax and also submitted that payment is by account payee cheques. It further requested for issuing summons under section 131 for production of party. However, Assessing Officer noticed that despite of summons under section 131 of Act having been issued on different dates at address given by assessee himself, summons returned unserved and even inspector was deputed to get summons served and it was reported by inspector that "no such concern existed on given address". Therefore, Assessing Officer finally held that results deserves to be rejected by invoking section 145(3) and, accordingly, not being satisfied with explanation so offered, made trading addition of Rs. 1,05,275. Dissatisfied with additions made by Assessing Officer, matter was carried in appeal before Commiss ioner of Income-tax (Appeals) (for short, "the CIT(A)") who, after analysing evidence on record, in so far as issue relating to agricultural land is concerned, was satisfied that said lands were not capital asset within meaning of section 2(14)(iii) and deleted addition but in so far as addition relating to trading account is concerned, while Commissioner of Income-tax (Appeals) upheld finding of Assessing Officer that rejection of books of account under section 145(3) was proper but sustained trading addition of Rs. 3,31,176 by enhancing trading addition which was made by Assessing Officer at Rs. 1,05,275 on premise that Assessing Officer had gone wrong in disallowing 25 per cent. of bogus purchases while Assessing Officer ought to have gone on basis by applying proper gross profit rate. matter was carried in appeal by Revenue before Income-tax Appellate Tribunal. assessee filed cross-objection. Income-tax Appellate Tribunal allowed appeal of Revenue and partly allowed cross- objections of assessee. Counsel for appellant at outset during course of arguments contended that appeal has been decided ex parte though admitted that notice was received by appellant but on account of boycott call given by associations, namely, Rajasthan Tax Consultants Association; Tax Consultants Association and Jaipur Tax Tribunal Bar Association with allegation against member of Income-tax Appellate Tribunal who is author of order of Income-tax Appellate Tribunal in impugned order, resolution was passed unanimously by all associations to boycott Jaipur Bench of Income-tax Appellate Tribunal on account of said Member and arguing counsel, in instant case, also happened to be signatory of resolution being Secretary of Jaipur Tax Tribunal Bar Association, hon'ble Bench of Income-tax Appellate Tribunal was aware of boycott call given and, therefore, it ought not to have proceeded to decide said appeal ex parte. Thus, order is not proper and is without application of mind and is in violation of principles of natural justice and matter deserves to be remitted to Income-tax Appellate Tribunal to decide questions afresh in accordance with law. learned counsel for appellant on other issues submitted that Income-tax Appellate Tribunal has grossly erred in reversing finding reached by Commissioner of Income-tax (Appeals) and came to conclusion that agricultural lands, sold/transferred by assessee to limited companies are in nature of agricultural lands and finding of fact reached by Commissioner of Income-tax (Appeals) has been reversed by Income-tax Appellate Tr ibunal, in absence of any evidence to contrary being produced in rebuttal and even if two views were possible, still it was not open to reverse finding recorded by Commissioner of Income-tax (Appeals) and being perverse, deserves considerations. He further contended that evidence was led that lands in question were agricultural lands as per revenue records were out of purview of municipal limits/limits of JDA and, thus, gain/surplus, if any, was not liable to be taxed as capital asset. He further contended that Assessing Officer as well as Income-tax Appellate Tribunal have gone wrong in disbelieving version of assessee without adequate material being there that lands continued to be agriculture on record, unless converted by assessee. He further contended that merely because there were some frequent transactions, does not lead to conclusion that it becomes business and gain/surplus is liable to be taxed as business income. He drew attention of this court on chart annexed by Assessing Officer that some of lands were purchased by assessee in December, 2004, and April, 2005, which came to be transferred/sold in May, 2007, and, thus, it is not that lands in question were transferred within short period of time, relied on judgment of Bombay High Court in case of CIT v. Smt. Debbie Alemao reported in [2011] 331 ITR 59 (Bom). In so far as second issue about trading addition is concerned, counsel contended that provisions of section 145(3) are inapplicable in instant case as assessee purchased goods from seller who was assessed to income-tax/sales tax and whereabouts were known, confirmation was filed and payment was by account payee cheques and, thus, addition by invoking provisions of section 145(3) are inapplicable in facts of instant case. He further contended that as far as assessee is concerned, it was proved by tangible evidence that purchase made by assessee is genuine but conclusion reached by authorities that sale/purchase by assessee is not genuine, is without any evidence or material on record and contended that provisions of section 145(3) are inapplicable and no addition could be made either trading or otherwise and substantial question of law arises out of finding on record for consideration of this court. We have considered arguments advanced by learned counsel for appellant and perused all orders minutely. We notice that appeal was listed for hearing on May 21, 2013, before Income-tax Appellate Tribunal when counsel moved appl ication seeking adjournment for preparing case and request was carried out. Again, on August 29, 2013 (the date of hearing) Judicial Member was deputed to constitute Division Bench along with Accountant Member posted at Jaipur but when case was called for hearing, no one appeared on behalf of assessee nor any application was filed for adjournment and Department was represented by its authorised representative who was heard and order dated September 26, 2013, was passed by Tribunal. We are not convinced with argument advanced by learned counsel for assessee that members of association being on strike still passing order behind back of assessee's representative is in violation of principles of natural justice. hon'ble apex court, in case of Ex. Captain Harish Uppal v. Union of India [2003] 2 SCC 45, deprecated strike call/boycott call by lawyers and held it to be illegal and unjustified. It expressed in strong terms that lawyers have no right to go on strike or give call for boycott, not even on token strike. It further observed that lawyers holding vakalats on behalf of their clients are under legal duty to attend courts/tribunals irrespective of strike or boycott. Lawyers must boldly refuse to abide by any call for strike or boycott. No lawyer can be visited with any adverse consequence by Association or Council and no threat or coercion of any nature including that of expulsion can be held out. Strike or boycott cannot be countenanced in present day situation and real sufferer is society-public at large. In light of judgment (supra), we are not convinced with argument advanced by counsel for appellant on this submission and particularly in view of fact that adjournment was already granted by Bench on request made on behalf of appellant. Thus, we see no reason to interfere in order passed by Income-tax Appellate Tribunal deciding appeal ex parte as alleged and thus not convinced with submission of counsel for appellant that matter deserves to be remitted back to Income-tax Appellate Tribunal for re-hearing or opportunity be afforded to assessee for fresh hearing. On perusal of chart A, which is annexed by Assessing Officer in assessment order as also reproduced by Income-tax Appellate Tribunal, what we notice is that it may be in regard to initial purchase, which has been disclosed by assessee in December, 2004, or April, 2005, has been sold in May, 2007, or there can be said to be gap of about 2 years but when we peruse other purchases vis-a-vis sale, it transpires that in almost all cases, transfer/sale has taken place within period of one or less than one year. We have also scanned chart "A" minutely and it can be noticed that: 19.1. In item/serial No. 4, date of purchase has been shown to be May 31, 2007, against consideration of Rs. 2,14,16,200 while same has been sold/transferred to one of companies, where assessee himself was director, on June 1, 2007, against consideration of Rs. 3,21,35,785 with surplus/difference of Rs. 1,07,19,585 and, therefore, it is apparent that within day of purchase, said property was transferred with gain/surplus of Rs. 1,07,19,585. 19.2. In item/serial No. 6, date of purchase has been shown to be May 31, 2007, against consideration of Rs. 5,88,860 while same has been sold/transferred on June 13, 2007, against consideration of Rs. 61,23,450 with surplus/gain of Rs. 55,34,590 and, therefore, it is apparent that within less than 15 days of purchase, said property was transferred with gain/surplus of Rs. 55,34,590. 19.3. In item/serial No. 7, date of purchase has been shown to be April 11, 2007, against consideration of Rs. 2,31,725 while same has been sold/transferred on August 18, 2007, against consideration of Rs. 26,35,970 with surplus/difference of Rs. 24,04,245 and, therefore, it is apparent that in about four months of purchase, said property was transferred with gain/surplus of Rs. 24,04,245. 19.4. other instances are similar in nature. These are all admitted facts by assessee as chart has been provided by assessee himself to Assessing Officer during course of assessment proceedings and by registered sale deeds duly registered with Sub-Registrar and such sale deeds were provided by assessee to Assessing Officer. On perusal of said chart, it is again noticed that in some of cases, land was transferred by unregistered instrument within short span of time resulting into huge surplus/difference/gain by assessee. With this, what we as well as Income-tax Appellate Tribunal and Assessing Officer, have noticed is that claim of assessee itself is apparently wrong that transaction did not take place within short span of time. Admittedly, even as per chart, lands in question were transferred/sold even within day of purchase as noticed earlier. Therefore, contention of counsel for appellant on very face of chart seems to be incorrect and, therefore, conclusion of Income-tax Appellate Tribunal as well as Assessing Officer appears to be correct that there was regularity of transaction with intention to make income and even within short span of time, lands were transferred on substantial gains. Purchases were not by way of investment. It will also be necessary to observe that Income-tax Appellate Tribunal came to finding of fact based on material on record and appreciatio n of evidence produced by assessee, Income-tax Appellate Tribunal categorically observed in order that even so-called agricultural land stood converted into nonagricultural use, is clearly spelt out in conveyance deed executed by assessee in favour of companies, namely, M/s. Grass Field Farms and Resorts Pvt. Ltd. (GFFR) and M/s. Grass Field Fire Capital Developers Pvt. Ltd. (GFFC). Income-tax Appellate Tribunal has reproduced recital of sale deed also in respect of land being Khasra No. 426/1 and 426/ 2 at serial No. 4 of chart for sale consideration of Rs. 3,21,35,785 executed in favour of GFFC which we have also pointed out hereinabove that khatedar, who sold his land to assessee, had deposited expenses relating to conversion of this land including expenses incurred on conversion charges and even paid amount to appropriate authorities prior to sale of his land to assessee and even order under section 90A of Rajasthan Land Revenue Act, 1956, read with Rajasthan Land Revenue (Conversion of Agricultural Land for Non-Agricultural Purposes in Rural Areas) Rules, 1992, stood issued by concerned authorities in respect of said land. Thus, by order under section 90A nature of land stood converted from agricultural to non-agricultural. Thus, when assessee in conveyance deed himself has recited about land having been converted under section 90A of Act, nature of land never remained agricultural any more. recital of sale deed executed by assessee/consignee is reproduced hereunder: "Whereas seller own and possess in converted area of lands bearing in khasra No. 426/1 admeasuring 11 bighas, 13 biswas in which converted area is 10 bighas 17.17 biswas (i.e., 27464 sqm), khasra No. 426/2 admeasuring 2 bighas, 14 biswas in which converted area is 0 bigha, 16 biswas (i.e., 2023 sqm), khasra No. 427/2 admeasuring 11 bighas, 2 biswas in which converted area is 3 bighas, 4 biswas (i.e., 8093 sqm), khasra No. 432/2 admeasuring 11 bighas, 14 biswas fully converted (i.e., 29594 sqm) and whereas land coming under abovementioned khasras originally belonged to: 1. Shri Deenanath Hereinafter referred to as khatedar. Whereas after having purchased abovementioned converted area in lands of khasra No. 426/1 admeasuring 11 bighas, 13 biswas in which converted area is 10 bighas, 17.17 biswas (i.e., 27464 sqm), khasra No. 426/2 admeasuring 2 bighas, 14 biswas in which converted area is 0 bigha 16 biswas (2023 sqm), khasra No. 427/2 admeasuring 11 bighas, 2 biswas in which converted area is 3 bighas, 4 biswas (i.e., 8093 sqm), khasra No. 432/2 admeasuring 11 bighas, 14 biswas fully converted (i.e., 29594 sqm) situated at village Nasnota, khatedar herein got land use converted of abovementioned entire land being sold to seller in these presents for purposed development and that all expenses, duties, Government charges on said land including expenses incurred on conversion charges, fees has been deposited to appropriate authorities by khatedar and appropriate order under section 90A of Rajasthan Land Revenue Act, 1956, read with Rajasthan Land Revenue (Conversion of Agricultural Land for Non-Agricultural Purposes in Rural Areas) Rules, 1992, has been issued by concerned authorities in respect of said land. detailed list of section 90A orders issued by appropriate authority in respect of said land is given hereinbelow: Order Sr. Khata Khasra Area in Order Village Khatedar Reference No. No. No. (share) B-B-B Date No. New 10.17.1 18B Shri 1 Nasnota 111 and 426/1 7 (27464 19.9.06 (80) 2006/R/ Deenanath Old 101 sqm) 10393 New 18B 00.16 Shri 2 Nasnota 27 and Old 426/2 19.8.06 (82) 2006/R/ (2023 sqm) Deenanath 29 10399 New 18B 03.04 Shri 3 Nasnota 27 and Old 427/2 19.8.06 (82) (8093 sqm) Deenanath 29 2006/R/10399 New 18B 11,14 Shri 4 Nasnota 208 and 432/2 19.9.06 (80) 2006/R/ 29594 sqm) Deenanath old 187 10393 26.11.17, i.e., twenty-six bighas eleven point Total seventeen biswas On perusal of above, it is apparent that even order passed under Land Revenue Act has also been indicated in sale deed. In this very sale deed, admittedly, assessee himself has stated "Thus, seller herein became absolute own er of residential land as mentioned above having converted from agricultural to residential use of land". Income-tax Appellate Tribunal has recorded finding of fact that no documentary evidence was led by assessee herein to substantiate his claim of doing any agricultural operations therein as Assessing Officer in assessment order has clearly and repeatedly asked assessee to substantiate claim about exact agricultural operations having been carried on by assessee but no satisfactory material was placed by assessee. Income-tax Appellate Tribunal also observed that other lands, though not converted from agricultural to non-agricultural use, were in same/near vicinity of lands which were converted from agricultural to non-agricultural and, thus, nature of said lands too could not be different. Ordinarily, question, whether land is agricultural land or non-agricultural land is question of fact and finding on question of fact recorded by Income-tax Appellate Tribunal is final, unless perverse, is not open for us to interfere in finding of fact recorded by Income-tax Appellate Tribunal. Therefore, in our view and in light of law laid down by hon'ble apex court in case of Sarifabibi Mohamed Ibrahim v. CIT [1993] 204 ITR 631 (SC) conclusion arrived at by Income-tax Appellate Tribunal that lands sold/transferred by assessee to private limited companies were non-agricultural and outside scope and meaning of section 2(14)(iii) of Income-tax Act requires no consideration. Accordingly, no question of law, much less substantial question of law can be said to emerge out of order of Income-tax Appellate Tribunal with regard to first issue. In so far as issue on trading addition is concerned, we notice that all three authorities, i.e., Income-tax Appellate Tribunal, Commissioner of Income-tax (Appeals) as well as Assessing Officer, have categorically arrived to conclusion that provisions of section 145(3) are applicable and what should be reasonable profit on account of trading transactions, is finding of fact. assessee has introduced and recorded bogus purchases and verification of opening stock/closing stock were not open for verification in books of account, thus motive was to reduce its profits and, thus, assessee-appellant has not been able to dispel this finding of fact recorded by all three authorities who in consonance, have come to aforesaid conclusion. In case of Venus Arts and Gems v. ITO (DB ITA No. 582 of 2011) [2014] 369 ITR 161 (Raj), this court has come to conclusion that on non- DB genuine purchases, books of account can be rejected and provisions of section 145(3) are applicable. Thus, when there is concurrent finding of fact of all three authorities, no question of law much less substantial question of law can be said to emerge out of order of Income-tax Appellate Tribunal. In view of what we have observed herein above, we find no infirmity or perversity in order of Income-tax Appellate Tribunal and no substantial question of law arise out of order of Income-tax Appellate Tribunal so as to call for interference of this court. Consequently, instant appeal, being devoid of merit, stands dis missed in limine. *** Vimal Singhvi v. Assistant Commissioner of Income-tax
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