Case Law Details

Case Name : Krupeshbhai N. Patel Vs Deputy Commissioner of Income-tax (ITAT Ahmedabad)
Appeal Number : IT(SS) Appeal No. 590 TO 595, 616, 626, 627, 637, 638 & 651 (AHD.) OF 2011
Date of Judgement/Order : 29/06/2012
Related Assessment Year : 2006-07 tO 2009-10
Courts : All ITAT (4534) ITAT Ahmedabad (338)

IN THE ITAT AHMEDABAD BENCH ‘A’

Krupeshbhai N. Patel

versus

Deputy Commissioner of Income-tax

IT(SS) APPEAL NOS. 590 TO 595, 616, 626, 627, 637, 638 & 651 (AHD.) OF 2011

C.O. NOS. 12, 13, 20 & 21 (AHD.) OF 2012

[ASSESSMENT YEARS 2006-07 tO 2009-10]

JUNE 29, 2012

ORDER

[A] Appeals of Shri Krupeshbhai N. Patel

(a) A.Y. 2006-07 – IT(SS)A No. 590/Ahd/2011 (Assessee’s appeal)

Per Bench :

1. This is an appeal filed by the Assessee arising from the order of the ld. CIT(A)-IV, Ahmedabad dated 30.08.2011.

2. Grounds raised are hereby decided as follows.

3. Ground No.1 :-

1. The learned CIT(A) erred in fact and in law in confirming the action of the AO in not restricting the assessment/addition based on the material found during the course of search.

3.1 Ld. AR, at the outset, has informed that this is a technical ground in respect of certain additions which were alleged to be not based upon incriminating material, therefore the assessment u/s. 153A of the Act was bad in law. When the Bench has confronted that this technical issue is subjudice before the Special Bench, then ld. AR in the alternative has suggested not to adjudicate this ground rather to proceed on the merits of the case. In view of the concession expressed by Ld. AR Mr. Milin Mehta for not pressing this ground; as also Ld. DR Mr. Kartar Singh has no objection if decide the quantum additions, resultantly we hereby dismiss this ground being not pressed and proceed hereinbelow.

4. Ground No. 2 :-

2. The learned CIT(A) erred in fact and in law in confirming the action of the AO in disallowing short term capital loss of Rs. 22,38,207 (Rs. 21,84,395 in the case of Shri Navinbhai N. Patel) invoking provisions of section 94(7) of the Act.

4.1 Facts in brief as emerged form the corresponding assessment order passed u/s. 153A r.w.s. 143(3) dated 23/12/2010 for A.Y. 2006-07 were that a search u/s. 132 was carried out on a group named as “Amod Group of cases” on 11/02/2009. Consequent thereupon a proceeding u/s. 153A was initiated. During the course of assessment proceedings, it was noticed that the assessee had sold “mutual fund units”. The assessee has claimed short-term capital loss on sale of mutual funds. The AO had proceeded to examine the correctness of the claim in the light of the provisions of Section 94(7) of IT Act. The AO has placed on record the details of the date-wise purchase and sale of those units as under:-

Sl. No.

Asst. Year Name of Fund Date of Purchase/Value Date of Sales/Value STCL Claimed (Rs.) Dividend Received Rs. Record Date

1.

2006-07 ICICI Prudential Dynamic Plan 18/8/2005
1,63,900
13/12/2005
1,57,169
6416 20445 22/9/2005

2.

2006-07 Franklin India Opp Fund 14/9/2005
3,50,000
13/12/2005
3,02,604
47396 53615 21/9/2005

3.

2006-07 Birla Sun Life Freedom Fund 20/10/2005
1,35,00,000
6/2/2006
1,13,15,605
 2184395 3731343 20/1/2006

4.2 The observation of the AO was that according to section 94(7) where any person buys any units within a period of three months prior to the “record date” and such person sells such unit within a period of nine months after such “record date”, then loss if any arising on account of such purchase and sale of unit to the extent of dividend received would be ignored for the purpose of computing the income chargeable to tax. As far as the transactions mentioned at Sl. Nos. 1 & 2 are concerned, as per AO there was no dispute that those units have been bought within a period of three months prior to the “record date” and sold within a period of nine months after such record date, therefore the loss to the extent of dividend received was admittedly ignored. The dispute was only in respect of the transaction referred at Sl. No. 3 above. It was contended that the period as prescribed u/s. 94(7) did not fall within that restriction. As per assessee, the record date was 20/01/2006, therefore the date prior to the record date was 19/01/2006, however the purchases have been made on 20/10/2005. Three months prior to the record date according to assessee was to be computed from 20/10/2005 upto 19/01/2006. The AO has held that three months prior to the record date starts from 20/10/2005 and the record date was 20/01/2006, therefore the purchases have been made within three months prior to the record date. The AO has therefore asked the assessee to explain as to why the short-term capital loss should not be disallowed. The contention of the assessee about the computation of the period was not acceptable to the AO, so he has rejected the claim. With the result the loss to that extent was disallowed, resultantly short-term capital gain was enhanced. The matter was carried before the first appellate authority.

5. The basic contention before ld. CIT(A) was that the language used in section 94(7) of the Act prescribes “prior to the record date”. According to the argument of the assessee the word used “to” signifies that the record date, i.e. 20/01/2006 is to be computed in the following manner:-

From

To

Month

21-12-2005

20-1-2006

1

21-11-2005

20-12-2005

2

21-10-2005

20-11-2005

3

5.1 The assessee has referred section 9(1) of General Clauses Act 1897. However, ld. CIT(A) has taken a view that it is important to note that the language of the section is “prior to” and not only “to” therefore, the word “prior” should not be ignored. The ld. CIT(A) has also given a second reason for affirming the action of the AO that the units of Birla Sunlife have also been sold undisputedly within a period of nine months of the “record date”. According to him, all the conditions as prescribed under section 94(7) are to be cumulatively satisfied, therefore the disallowance was held as justified.

6. We have heard both the sides and also carefully perused the relevant provisions. Ld. AR has reiterated the provisions of General Clauses Act, 1987 section 9(1) of that Act and argued that the “record date” is required to be included. According to him, this section would apply if only the units could have been purchased on 21/10/2005 or thereafter. Since the units were purchased on 20/10/2005, therefore the said provisions should not apply to the said transaction. On the other hand, from the side of the Revenue ld. DR Mr. Kartar Singh has contended that the assessee’s submission covered only one part of this section but did not refer the other part of this section which says that if such person sells such unit within a period of nine months, then also the loss is to be ignored. In this regard, we have examined a decision of ITO v. Shambhu Mercantile Ltd. [2008] 115 ITD 337 (Delhi), wherein the Respected Co-ordinate Bench has taken a view that all the three conditions as prescribed under clauses (a), (b) & (c) of section 94(7) required to be cumulatively satisfied. For ready reference, we hereby reproduce the applicable provisions as follows:-

Section 94 : Avoidance of tax by certain transactions in securities

(7) Where –

(a)  any person buys or acquires any securities or unit within a period of three months prior to the record date;

(b)  such person sells or transfers –

 (i) such securities within a period of three months after such date; or

(ii) such unit within a period of nine months after such date;

(c)  the dividend or income on such securities or unit received or receivable by such person is exempt,

then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.

6.1 Likewise, in the case of Ashok Kumar Damani v. Addl. CIT [2011] 138 TTJ 45/130 ITD 287/9 taxmann.com 69 (Mum.), it was held that the applicability of section 94(7) comes into play when all the three conditions are fulfilled. We have examined the General Clauses Act section 9(1) which is also referred before us; relevant portion is reproduced below:-

“19. For substantiating our claim we invite your kind attention the section 9(1) of the General Clauses Act, 1897. The same is reproduced hereinabelow:

“9(1) In any Central Act or Regulation made after the commencement of this Act, it shall be sufficient, for the purpose of excluding the first in a series of days or any other period of time, to use the word “from”, and, for the purpose of including the last in a series of days or any other period of time, to use the word “to”.

(2) This section applies also to all Central Acts made after the third day of January, 1868, and to all the Regulations made on or after the fourteenth day of January, 1887.”

6.2 Even if the General Clauses Act is to be applied, then we are not convinced that “record date” has no significance because that particular date is purposely incorporated in the Statute and then the word “prior” has also significance. The Statute is not saying that any unit is to be acquired within a period of three months to the record date, but it says that any person buys or acquires any unit within a period of three months prior to the record date. According to us, units have been purchased within a period of three months prior to the record date, therefore one of the condition applies on such transaction. Then it is not in dispute that the sale was made on 06/02/2006, i.e. within the period of nine months from the record date, i.e. 20/01/2006, therefore within clause (b)(ii) of section 94(7) of IT Act. In the light of the case laws cited hereinabove, the relevant conditions have been cumulatively satisfied therefore we hereby uphold the stand of the Revenue. This ground of the assessee is therefore dismissed.

7. Ground No. 3 :-

3. The learned CIT(A) erred in fact and in law in confirming the action of the AO in making an addition of Rs. 27,66,022 (1,06,66,471 in the case of Shri Navinbhai N. Patel) holding that the said sum represents deemed dividend u/s. 2(22)(e) and therefore taxable in the hands of the Appellant despite the fact that the Appellant showed that he did not hold beneficial interest in required number of shares.

7.1. The observation of the AO was that during the course of search, various papers relating to shareholding pattern of M/s. Amod Stampings Pvt. Ltd. were seized. On the basis of those documents, it was found that M/s. Amod Stampings Pvt. Ltd. had granted loans to various members having shareholding and voting power exceeding 10%. Due to that reason, the AO has invoked the provisions of section 2(22)(e) of IT Act to cover the impugned loans as “deemed dividend” in the hands of the assessee. Before Assessing Officer from the side of the assessee, it was contested that a Trust was created on 16/11/2005. On creation of the Trust, an aggregate 5,12,000 equity shares of M/s. Amod Stampings Pvt. Ltd. were settled in favour of the Trust. After the said exclusion of shares, it was contested that the assessee did not hold more than 10% of the total voting power, therefore the assessee had no beneficial interest in the Trust. In this regard, facts are as under:-

“The assessee has submitted that he along with other family members has created the family trust “Narharibhai S Patel Family’s Children Trust” as per Trust Deed dated 16th November, 2005 to meet the education and medical cost of the children of the family. By way of the said trust, the family members being shareholders i.e. Shri Krupesh Patel, Shri Navin Patel and Smt. Lalitaben Patel transferred respectively 1,56,000 shares, 2,00,000 shares and 1,56,000 shares of M/s. Amod Stampings P Ltd to the trust. Therefore, they did not hold the beneficial interest in the shares for more than 10%. The assessee has relied upon various case laws wherein it was held that in order to satisfy the requirement of Section 2(22)(e), the assessee must be registered as well as beneficial shareholders of the company from whom he has received the loans.

I have carefully considered the submission of the assessee but the same is not found acceptable.”

7.2. After discussion, the AO has taken a stand that the creation and the existence of the Trust was an after-thought. He has concluded that the assessee along with family members was holding shares of M/s. Amod Stampings Pvt. Ltd. which was more than 10% of the holding, therefore deemed dividend to that extent has to be taxed.

8. The matter was carried before the first appellate authority. The assessee has rebutted the action of the AO on the following points:-

“Validity of Trust & its shareholding:

39. The AO in the assessment order has stated that the existence of the trust was an afterthought and therefore should be rejected. We submit, that the trust existed on and from 16-11-2005. The existence of the trust was duly noted by the company in its minutes of meeting and also the trust has been formed by executing a valid document. We therefore submit that the comments of the AO are required to be ignored.

40. The AO has also stated that the trust has no bank account, no balance sheet is prepared and that the shares are not registered in its name. We submit that till date no income has been received by the trust. Therefore there, is no question of having any bank account. Regarding the balance sheet and income and expenditure account it may be noted that except the beneficial interest in the shares the trust has no other property. We therefore submit that this contention of the AO is also not as per law. As there was no income the question of filing of return of income also does not arise.

41. Regarding the registration of the shares in the name of the trust in the books of the company it may be noted that as per section 153 of the Companies Act, 1956 a company is not permitted to include the name of the trust in the register of the members. For ready reference section 153 of the Companies Act, 1956 is reproduced hereinbelow:

“Trusts not to be entered on register.

153. No notice of any trust, express, implied or constructive, shall be entered on the register of members or of debenture holders.”

42. Your kind office would appreciate that since the company is legally debarred from registering the trust as its member the name of the trust would never form part of the register of the members of the company,

43. However, the company has duly noted the existence of the trust and the beneficiary has been recorded in the minutes of the company. We invite your kind attention to page no. 175 of the paper book (refer note 3). Your kind office would appreciate that the existence of the trust has been duly noted and the number of share which are vested in the trust has also been noted. We therefore submit that the contention raised by the AO is again not as per law.

44. We may also like to mention that the trust has been duly executed on the stamp paper of valid denomination. Further, it has been duly notarized and therefore, its genuineness cannot be lightly ignored. Further, there is no law which requires registration of a private trust or approval of the private trust.

45. It may be noted that section 187C of the Companies Act, 1956, required every person to declare to a company that he does not have beneficial interest in the shares which as per the register of members are in his name. Further, a company was also required to file a declaration of such beneficial interest to the Registrar of Companies. The provisions of section 187C have been made ineffective w.e.f. 13th December, 2000 and therefore, there is no requirement at present to declare beneficial interest, etc. Therefore, such beneficial interest is not declared in the register of the Company or the Registrar of the Companies.

46. Therefore, as per the register of members of the company, the shares are still in the name of the respective shareholders and there is no note taken of their divestment of beneficial interest.

47. It is submitted that the existence of the trust is proved by way of a legally executed document. The document is notarized by a government appointed notary on a date which is much prior to the date of search. The said document is part of the minutes of the company and part of a meeting which is held much prior to the date of search. All these evidences are being ignored, including the Evidence of a notarized documents, merely because of a suspicion or surmises or Conjectures. There is no evidence with the AO to hold that the trust is bogus, that the signature of the notary is bogus, that the company’s minutes are falsified, etc. It is also submitted that the AO has not brought any evidence on record, either found during the course of search or even as a result of post search investigation, which goes to prove that any of the evidences produced by the Appellant are wrong or falsified. We invite your kind attention to the following decisions, which hold that the additions which are made purely based on surmises, conjectures or wild allegations cannot be sustained, especially when the claim of the Assessee is based on sound evidences and documentary proof, evidenced by third party independent proofs.

 a.  Smt. Purnima Beri v. DCIT 264 ITR 54 (Amritsar) (AT)

 b.  CIT v. Kulwant Rat 291 ITR 36 (Del)

48. Considering the entire facts and circumstances of the case we submit that the allegations raised by the AO are not valid therefore no adverse view may please be taken.”

8.1 However, ld. CIT(A) was not convinced and held that M/s. Amod Stampings Pvt. Ltd. is a family owned company and advanced loan to the family members aggregating to Rs. 881.71 lacs. The company has also possessed accumulated profit to the extent of loan given. Ld. CIT(A) has noted that during the course of search, no document relating to the trust-deed named as “Narharibhai S. Patel Family’s Children Trust” was found. He has also noted that in a statement recorded u/s. 132(4) dated 12/02/2009, the assessee has admitted to pay the tax. According to him, there was no independent evidence to demonstrate that a trust was created on 16/11/2005 and that the assessee as well as the other family members have settled 5,12,000 equity shares of M/s. Amod Stampings Pvt. Ltd. to the trust. He has concluded that there was no bank account of the Trust, no return of income was filed, there was no transfer of shares in the name of trust, hence merely a notarized trust-deed in isolation did not establish the existence of the trust. He has upheld the action of the AO that the assessee was covered within the parameters of section 2(22)(e) of IT Act. Being aggrieved, now the assessee is further before us in second appeal.

9. From the side of the assessee, ld. AR Mr. Milin Mehta appeared. He has given the pattern of the shareholding by the individuals and by the trust as follows:-

Name of the Registered Member

No. of Shares

% of shares held by individual to total no. of shares

Shares held by Trust (beneficial owner)

% of shares held by trust to total no. of shares

Total %

Deemed Dividend (Rs.)

a

b

c

d

e

c + c = f

AY 2006-07
Krupesh Patel

1,69,990

8.50%

1,56,000

7.80%

16.30%

27,66,022

Navin Patel

 1,76,000

8.80%

2,00,000

10.00%

18.80%

1,06,66,471

Lalitaben Patel

1,94,000

9.70%

1,56,000

7.80%

17.50%

4,60,273

AY 2007-08
Krupesh Patel

59,100

2.96%

1,56,000

7.80%

10.76%

3,93,74,965

Navin Patel

15,100

0.76%

2,00,000

10.00%

10.76%

 3,48,26,894

Lalitaben Patel

83,000

4.15%

 1,56,000

7.80%

11.95%

 Nil

Smitaben Patel (Note 2)

2,15,100

10.76%

76,378

Total

[Note : (1) Total number of shares having voting power is 20,00,000 equity shares.

(2) Not in Appel.]

8,81,71,003

9.1 Ld. AR has argued that the Revenue had arbitrarily clubbed the shareholding of the trust along with the share-holdings of the individuals. He has emphasized that the trust was formed on 16/11/2005. He has drawn our attention on page 167 of the paper-book containing a photocopy of “declaration of trust” on a stamp paper of Rs.100 which was stated to be dated 16/11/2005. Ld. AR has contested that in total 5,12,000 shares were settled by the settlers for the benefit of the beneficiaries and that document is duly notarized. Ld. AR has drawn our attention on page 175 of the paper-book, i.e. Minutes of the Meeting of the Board of Directors of Amod Stampings Pvt. Ltd. dated 21/12/2005. He has informed that the said meeting has not only decided the settlement of shares in favour of the trust but also discussed an another resolution which was related to some amalgamation activity. He has reiterated the above reproduced point-wise reply with regard to the objections of the Revenue.

9.2 Finally, he has argued that in the light of the decision of Asstt. CIT v. Bhaumik Colour (P.) Ltd. [2009] 118 ITD 1 (Mum.) [SB] and Jt. CIT v. Kunal Organics (P.) Ltd. [2007] 164 Taxman 169 (Ahd.) (Mag.) the twin conditions of shareholding i.e. the beneficial shareholding and registered shareholding, have not been complied with, therefore out of the clutches of the provisions of deemed dividend.

10. From the side of the Revenue, ld. DR Mr. Kartar Singh appeared and placed reliance on the findings of the AO & CIT(A). He has pleaded that the theory of creation of trust was made after the search operation. The only proof with the assessee was a notarized stamp paper but there was no other supporting document. Since loan has been granted, therefore deemed dividend was rightly taxed in the hands of the assessee.

11. We have heard both the sides at some length. We have also perused the orders of the authorities below in the light of the compilation filed. As far as the provisions of the Act is concerned, now it has been streamlined that deemed “dividend” includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder being a person who is the “beneficial owner” of shares holding not less than 10% of the voting power. As far as the question of applicability of deeming provisions are concerned, in the case of CIT v. Ankitech (P.) Ltd. [2011] 199 Taxman 341/11 taxmann.com 100 (Delhi) it was held that the definition of “dividend” has been enlarged. The purpose for such introduction of a deeming provision was that instead of distributing accumulated profit as dividend, companies distribute loans or advances to shareholders having substantial interest. Such payments are made for the benefit of the shareholders. Therefore, in such an event a deeming provision has been introduced and those advances are henceforth treated as dividend. So the intention behind the introduction of this provision is to tax deemed dividend in the hands of the shareholder. The deeming provision is based on the presumption that the loans or advances are in lieu of dividend. In an admitted case, under normal circumstances, such loans or advances given to shareholders do not qualify as dividend. Only because of a legal fiction as created u/s. 2(22)(e) of the Act the scope of the term “dividend” has been enlarged. The Hon’ble Court has further clarified that the legal fiction do not extend to “shareholders”. The loans or advances given under the conditions specified under this section would amount to dividend and that fiction has to stop at that place. According to the Delhi High Court, the said fiction do not extend further for broadening the concept of shareholder, that too by a legal fiction. If the intention of the legislature was to tax such loans or advances as “deemed dividend” at the hands of a “deeming shareholder”, then the legislature would have inserted deeming provision in respect of shareholders as well. A shareholder should not be presumed by way of such deeming provision. In the light of the above decision, next in line, is the order of the Respected Special Bench in the case of Bhaumic Colour (P.) Ltd. (supra) wherein it was clarified that to attract the provisions of this section the payment must be made to a person who is shareholder. However, the word “shareholder” is coupled with the words “being a person who is the beneficial owner of shares”. Therefore, as per the Special Bench the requirement is not merely holding a beneficial interest in the shares but it should be “registered shareholders”. Finally, it was concluded that the expression “shareholder being a person who is the beneficial of the share” refers to both “a registered shareholder” and “a beneficial shareholder”.

11.1 In the light of the above legal discussion, we have examined the facts of the case. The area of dispute is the existence of a “declaration of trust claimed to be executed on 16/11/2005. Undisputedly, search was conducted on 11/02/2009. Revenue’s main objection is that on the date of search the said document was not recovered. However, the vehement contention of the assessee is that this document has duly been executed on a stamp-paper of Rs. 100/- on 16/11/2005. Further, it has also been strongly contested that the said document was duly notarized by a notary, who has authenticated it’s execution. Rather it was alleged that no attempt was made by the Revenue to negate the validity of the said document. Revenue Department could have examined the veracity of the said document by investigating the records of the stamp vendor, as also the said notary. A legal document which is executed in the presence of a duly authorised person, i.e. notary, an appointed legal entity by Government of India, has to be acknowledged and to be accepted as true and correct unless and until proved otherwise. From the side of the assessee, it was strongly contested that to corroborate such declaration, reliance is also placed on the minutes of the meeting of the Board of Directors of M/s. Amod Stampings Pvt. Ltd. held on 22/12/2005, wherein it was resolved as under:-

“RESOLVED FURTHER THAT the copy of the said resolution be submitted to the Bank.

03. SETTLEMENT OF SHARES HELD BY N.S. PATEL FAMILY’S CHILDREN TRUST.

The Chairman placed before the board information received from the three shareholders of the Company being Smt. Lalitaben N. Patel, Shri Navinbhai N. Patel and Shri Krupeshbhai N. Patel about settlement of 5,12,000 enquiry shares of Rs. 10 each fully paid up held by them in favour of M/s. N.S. Patel Family’s Children Trust. The said persons have informed that they would be continuing to hold these shares, but beneficial interest in these shares would be those of the trust so settled and its beneficiaries.”

11.2 Our attention has also been drawn on the terms through which the settlers have settled the shares in favour of the beneficiaries vide N.S. Patel Family’s Children Trust – DELCARATION OF TRUST dated 16th day of Novermber-2005 as follows:-

“WHEREAS

 (i)  the Settlers are members of the family of Late Shri Narharibhai Somabhai Patel and are presently shareholders of one company by the name of M/s.Amod Stampings Private Limited, a Company formed and registered under the provisions of the Companies Act, 1956 and having its registered office at Gujarat Spun Pipe Compound, P.O. Samiala, Padra Road, Vadodara – 391 410) “the Company”);

(ii)  the Settlers are desirous of ensuring that the children of the family, who are presently pursuing education or are proposing to settle in business, do not have any scarcity of funds for their future pursuits, primarily being education or commencing new business;

(iii) the Settlers have decided, for natural love and affection, to settle some of the shares of the Company upon a trust for the benefit of the children of the family to be governed by the provisions of this Declaration of the Trust;

Terms and Conditions of Settlement

 1.  In consideration of natural love and affection, the Settlers do hereby settle the following equity shares held by the respective shareholders for the benefit of the Beneficiaries as described in this Declaration:

Name of the Settler

Number of shares Settled

Distinctive Number

From

To

Krupesh N. Patel

156,000

1000001

1999981

4800011079990

1999990

556000Navinbhai N. Patel

200,000

1079991

 

6800011209990

750001Lalitaben N. Patel

156,000

200001356000Total

512,000

 

The shares of the Company are equity shares of Rs.10 each fully paid up and the same are referred to as the “Settled Assets”.

2. The Settlers shall act as the First Trustees, unless and until other persons are appointed as the Trustees in accordance with the Declaration and the respective Settler shall continue to hold the part of the Settled Assets in their name, but shall not have any beneficial interest in the said Settled Asset and the beneficial interest in the said asset shall stand vested in the beneficiaries in accordance with this Declaration;”

11.3 After the search, Dy. Commissioner of Investigation has also enquired about this issue and vide submission dated 22/04/2009, the assessee has furnished the complete details of the said declaration. In respect of few other queries, explanation of the assessee was that in the absence of any other transaction or earning of NIL income, there was no necessity to open a bank account. Further, about the registration of the shares, it was explained that as per section 153 of the Companies Act, 1956, a company is not permitted to include the name of the Trust in the register because trusts are not required to be entered in the register. Due to this reason, the name which was earlier noted as shareholders remained the same, however through a Board Meeting it was resolved to acknowledge the change in the vesting of the shares. Under the totality of the circumstances of the case and the evidence on record, we are of the view that a deeming provision has to be applied strictly, so that a fiction so created by a Statute should not cover within its ambits more than what is subscribed. A deeming provision is, therefore, to be applied restrictively, so that its application must not enlarge the scope of presumption. Rather, it has been held in the case of L.H. Sugar Factory & Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293/4 Taxman 5 (SC) that no authority can presume something which is not envisaged in the Act. A documentary evidence is thus nothing but affirmation of the existence of a fact and, therefore, merely on preponderance of probabilities such a documentary evidence should not be rejected. We, therefore, conclude that in the absence of any contrary material specially when we are dealing with a fiction created by a Statute, a fictional income, i.e. deemed dividend need not be taxed in the hands of the assessee on an un-established hypothecation. We hereby direct to delete the addition. Ground is allowed.

12. Rest of the grounds are consequential in nature thus need no adjudication at this stage of appeal, hence this appeal is partly allowed.

(b) A.Y.2007-08 – IT(SS)A No. 591/Ahd/2011 (Assessee’s appeal)

13. Grounds raised are hereby decided as follows:-

 1.  The learned CIT(A) erred in fact and in law in confirming the action of the AO in not restricting the assessment/addition, based on the material found during the course of search.

 2.  The learned CIT(A) erred in fact and in law in confirming the action of the AO in making an addition of Rs. 3,93,74,965 (Rs. 3,48,26,894 in the case of Shri Navinbhai N. Patel) holding that the said sum represents deemed dividend u/s. 2(22)(e) and therefore taxable in the hands of the Appellant despite the fact that the Appellant showed that he did not hold beneficial interest in required number of shares.

13.1 Ground No. 1 is general in nature, not pressed, hence dismissed. However, in respect of ground No. 2 in the light of the discussion made hereinabove, while deciding assessee’s appeal for A.Y. 2006-07, it stood allowed. For this year as well, this ground is allowed. Rest of the grounds are consequential in nature need no adjudication at this stage of appeal, hence this appeal is partly allowed.

(c) A.Y. 2007-08 – IT(SS)A No. 594/Ahd/2011 (Revenue’s appeal)

14. The only ground in this appeal is reproduced below:-

 1.  The Ld. CIT(A) has erred in law and on facts and circumstances of the case by deleting the addition of Rs. 1,46,66,667/- on account of sale of Ampad land on the basis of seized papers.

14.1 Facts in brief as emerged from the corresponding assessment order passed u/s. 153A r.w.s.143(3) dated 23/12/2010 are identical as narrated hereinabove that a search u/s.132 of the Act was conducted on the assessee on 11/02/2009. In respect of the above ground, the AO has noted that a document, i.e. page No. 50 marked as Annexure BS-1 was seized from the office of the Company. Simultaneously, a page marked as Annexure A1 was seized from a locker, belonging to the assessee and Smt. Samita Patel. On the basis of the said page, AO has noted that the same was a cash receipt of Rs. 524.17 lacs. In this regard, a statement was recorded of the assessee on 12/02/2009, i.e. on the next day of the search and relevant portion was reproduced by the AO in the assessment order. The assessee’s reply was that although the schedule of payment was noted but that was not complied with fully. He has referred the noting on the said page about refund of Rs. 20 lacs on 12/01/2009. He has explained in his statement in reply to a question No. 31 which was recorded on 06/03/2009 that the transaction was related to AMPAD land. The amount was received in advance for the sale of land, however, the sale could not be materialized. The same identical paper was seized from the locker and in that paper as well the fact of repayment had been reflected. The said property was subsequently sold to an another party for an amount of Rs. 3.50 crore in cash. The assessee has informed that the cash component of Rs. 3.50 crore shall be disclosed. Before AO, few more facts have been narrated that the transaction was ultimately completed in A.Y. 2009-10 and, therefore, the ‘on-money’ is to be taxed along with the said amount of sale transaction. It was informed that the transfer of AMPAD land was affected in the relevant A.Y. 2009-10. However, the AO was not convinced and he has held that the sum which was found noted in a particular financial year should be assessed as undisclosed income in that very financial year. In the result, an amount of Rs. 1,46,66,667/- was taxed as income for the year under consideration in respect of AMPAD land. Being aggrieved, the matter was carried before the first appellate authority.

15. After hearing the submission, ld. CIT(A) has noted that the entire amount of Rs. 524.17 lacs was disclosed by the assessee along with other co-owners in A.Y. 2009-10 as a “short-term capital gain”. Ld. CIT(A) has noted certain facts as under:-

“10.1 It is a fact that the entire amount of Rs. 524.17 lakhs has been disclosed by the appellant and other co-owners in AY 2009-10 as short term capital gains. The AO has taxed the above amount in the hands of each of the owners including the appellant by making an addition of Rs. 1,46,66,667/- in AY 2007-08 & and Rs. 28,05,666/- in AY 2008-09 respectively by invoking provisions of section 68 of the Act by holding that the receipts have to be taxed in assessment years relevant to financial Years in which they were received.

10.2 It is also an undisputed fact that the said Ampad land was subsequently sold in AY 2009-10 to various parties for a consideration of Rs. 1,80,99,916/- on which short term capital gains has been offered to tax in AY 2009-10 including the undisclosed amount of Rs.1,74,72,333/- in the hands of the appellant. Thus, the same amount in respect of Ampad land has been disclosed by the appellant in AY 2009-10 pertaining to the year in which transfer / sale of the land took place whereas the addition has been made by the AO in AY 2007-08 / AY 2008-09. Thus, this is definitely a case of double taxation of the same income in different Assessment Years.”

15.1 Ld. CIT(A) has mentioned the statement recorded u/s. 132(4) of the IT Act and opined that through the said statement it was clearly established that the said amount of Rs. 524.17 lacs was received in respect of AMPAD land from Mr. Kanubhai Patel on various dates falling within the AYs 2007-08 & 2008-09, however, that could not be materialised and the amount was returned to said Mr. Kanubhai Patel in AY 2009-10, that too along with interest of Rs. 18 lacs. Ld. CIT(A) has therefore agreed that the impugned amount was not required to be taxed in AYs 2007-08 and 2008-09. Being aggrieved, now the Revenue is before us.

16. From the side of the Revenue, ld.DR has argued that a document was recovered from the possession of the assessee and on the basis of that document, it was clear that the assessee has received ‘on-money’ on the said sale transaction. It was not a question of double assessment of the same income because as per the documents recovered the two transactions were separately recorded. He has concluded that the AO has rightly taxed the said two amounts respectively in two Assessment Years.

17. We have examined the facts of the case and the orders of the authorities below in the light of the compilation placed on record. A document was seized which has indicated a cash receipt of Rs. 524.17 lacs which was stated to be in respect of transfer of AMPAD land. The transactions which were found recorded in the said seized document have mentioned the name of one Mr. Kanubhai Patel. The AO has added the amount which was alleged to be assessed for AY 2007-08 and part of it, respectively for AY 2008-09. But one of the fact which has a direct adverse impact on the stand taken by the AO was that in a statement recorded u/s. 132(4) of IT Act dated 12/02/1999, i.e. during the search operation, clarified the position of capital gain which was disclosed in AY 2009-10. As far as the quantum of the amount is concerned, there was no dispute. The only dispute is thus about the year of taxability. The admitted factual position is that the entire amount of Rs. 524.17 lacs was shown as undisclosed income in AY 2009-10. However, the AO was not satisfied and taxed the same in two assessment years proportionately, i.e. AYs 2007-08 & 2008-09. The salient features favouring assessee, submitted before us, are as under:-

“a.  The land under consideration belonged to Shri Krupeshbhai N. Patel, Shri Navinbhai N. Patel and Smt. Varshaben S. Patel

 b.  The land was purchased in A.Y. 2007-08 and was sold in AY 2009-10. The Appellant had filed the copies of purchase deed and also the sale deeds before the AO for effecting the purchases and sales. No discrepancy was found by the AO in these documents.

 c.  The land was sold as agricultural land and the resultant gain was offered to tax in AY 2009-10.

 d.  Since the actual execution of the sale deed and parting of the possession of land took place during AY 2009-10, the same has been treated as sales in AY 2009-10 and the gains arising therefrom were treated as income for AY 2009-10.

 e.  Regarding the transaction made with Mr. Kanubhai Patel, it is submitted that Mr. Kanubhai Patel from Surat had approached the Appellant in a property fair and had expressed his willingness to purchase the aforesaid Ampad Land and accordingly had paid an amount of Rs. 524.17 lacs in cash on various dates.

 f.  Mr. Kanubhai Patel was not closely known to the Appellant. As Mr. Kanubhai Patel failed to convert the land from agricultural land into non-agricultural land the transaction was cancelled and the amount received from him was returned back.

 g.  It may be mentioned that seized material Page 1 of Annexure A-1 itself shows that the amount had been paid back along with interest of Rs. 18.00 lacs (refer page 77).

 h.  The fact that the amount was paid back is duly reflected in the seized material found during the course of search by the Department. Therefore it is proved beyond doubt that the amount was actually paid back.

 i.  As per law since the transaction did not materialize the same cannot be treated as income of the Appellant. However, to cover up the discrepancy the Appellant had declared the said sum as income.

 j.  The advances from Mr. Kanubhai Patel were received in AY 2007-08 and AY 2008-09 whereas the money was refunded to him in the subsequent year.”

17.1. In the light of the above discussed factual matrix, we find no reason to reverse the findings of ld. CIT(A) because in a worst situation if we affirm the action of the AO, then the natural consequences should be to adjust the income which has already been taxed against the addition made for the year under consideration. Since double taxation is not permitted and the exercise of revision of income for the year under consideration shall be a futile exercise, therefore we hereby hold that the impugned income deserves to be excluded from the total income for the year under consideration. Resultantly, we hold accordingly and this ground of the Revenue is dismissed.

(d) A.Y.2007-08 – CO No. 12/Ahd/2012 (by Assessee)

18. Ground read as under:-

 1.  Without prejudice and without admitting that no addition can be made in AY 2007-08 in respect of income from sale of Ampad land, the AO may be directed to grant consequential relief in AY 2009-10, in case, addition of Rs.1,46,66,667/- is confirmed in AY 07-08.

18.1 A view has already been taken while deciding hereinabove the Revenue’s appeal, therefore this cross objection has become infructuous, hence dismissed.

(e) A.Y.2008-09 – IT(SS)A No. 592/Ahd/2011 (Assessee’s appeal)

19. Grounds raised are as follows:-

 1.  The learned Commissioner of Income Tax (Appeals)-IV, Ahmedabad [“the CIT(A)] erred in fact and in law in confirming the action of the Deputy Commissioner of Income Tax, Central Circle – 1, Baroda [“the AO”] in not restricting the assessment/additions based on the material found during the course of search.

 2.  The learned AO erred in fact and in law in giving adverse remarks in respect of the Gift received in the form of shares.

19.1 These grounds are general in nature and one of the ground, i.e. ground No.2 has not raised the grievance from the order of the CIT(A), but on the face of it, a grievance has been raised by the assessee about a comment/remark of the AO. This ground therefore do not survive before us. Rest of the grounds are either in respect of charging of interest u/s. 234B of IT Act or levy of penalty, hence either pre-mature or consequential in nature, therefore infructuous. Resultantly, this appeal is dismissed as infructuous.

(f) A.Y. 2008-09 – IT(SS)A No. 595/Ahd/2011 (Revenue’s appeal)

20. Grounds are reproduced below:-

 1.  The Ld. CIT(A) has erred in law and on facts and circumstances of the case by deleting the addition of Rs. 28,05,666/- (Rs. 28,05,666 in the case of Shri Navinbhai N. Patel) on account of sale of Ampad land on the basis of seized papers.

 2.  The Ld. CIT(A) has further erred in law and on facts and circumstances of the case by deleting the addition of Rs. 65,83,830/- (Rs. 1,69,27,845 in the case of Shri Navinbhai N. Patel) on account of Gift received in kind.

20.1 As far as ground No.1 is concerned, a view has already been taken hereinabove, therefore, following the same this ground of the Revenue is hereby dismissed.

21. Apropos to Ground No2, it was noted by the AO vide order u/s. 153A r.w.s. 143(3) dated 23/12/2010 that the assessee had shown a gift in kind of equity shares of Sun Pharmaceutical Industries. It was noted that through a declaration of gift-deed dated 07/02/2008 and 17/03/2008 respectively 3400 shares and 2300 shares were gifted. According to AO, the donor namely, Shri Jayant Sanghavi is not related to the assessee. The AO has noted the market value of the shares was at Rs. 65,83,830/-. The assessee has produced the gift-deeds and other evidences but according to AO those were not the conclusive evidences. Finally, the value of the gifted shares of Rs. 65,83,830/- was taxed.

22. The matter was carried before the first appellate authority, who has held that the said addition being made on account of non-genuineness of the gifts was nothing but part of the total consideration in respect of the Gotri land, hence to be taxed in the year of transaction and the impugned amount was deleted.

23. Having heard the submissions of both the sides, we are of the considered view that the AO has connected the impugned gift with the sale of Gotri land and that issue is yet to be decided in AY 2009-10, therefore the ld. CIT(A) has rightly held that the gift being transferred “in kind” hence not to be taxed for the year under consideration. We hereby affirm the factual as well as the legal finding of the CIT(A), hence this ground of the Revenue is hereby dismissed and appeal is dismissed.

(g) A.Y. 2008-09 – CO No. 13/Ahd/2012 (By Assessee)

24. Grounds read as under:

 1.  Without prejudice and without admitting that no addition can be made in AY 2008-09 in respect of income from sale of Ampad land, the AO may be directed to grant consequential relief in AY 2009-10 in case addition of Rs. 28,05,666/- is confirmed in AY 08-09.

 2.  Without prejudice to Grounds 3 and 4 of AY 2009-10, in case, the addition of gift of Rs. 65,83,830/- (Rs. 1,69,27,845 in the case of Shri Navinbhai N. Patel) is confirmed in 2008-09, the AO may be directed to grant consequential relief in the AY 2009-10.

24.1. The cross-objector vide above two grounds has simply asked to give consequential direction. At present, for the Asstt. Year under consideration, the consequential direction as suggested is not required, hence these two grounds of the cross-objection have become redundant, therefore dismissed. Resultantly, cross objection filed by the assessee is dismissed.

(h) A.Y. 2009-10 – IT(SS) A No. 593/Ahd/2011 (Assessee’s appeal)

25. Grounds are reproduced below:-

 1.  The learned CIT(A) erred in fact and in law in confirming the action of the AO in not restricting the assessment / addition based on the material found during the course of search.

 2.  The learned CIT(A) erred in fact and in law in confirming the action of the AO in holding that the sale consideration of the Gotri land is Rs. 22.61 crores instead of claim of the Appellant that the sale consideration is Rs. 13.62 crores [Rs. 10.62 crores as per books + Rs. 3.00 crores declared during search] and making consequential addition of Rs. 4,49,50,000, being share of the Appellant in the income.

 3.  The learned CIT(A) erred in fact and in law in holding that the total value of gift received in kind by the family members including the Appellant amounting to Rs. 4.70 crores is required to be taxed in the hands of the Appellant and Shri Navinbhai N Patel on substantive basis on the ground that the gift received by the Appellant including other family members represent part of sale consideration of Gotri land and thereby confirming the addition to the extent of Rs. 2.35 crores in the case of the Appellant [equal amount is added in the case of Shri Navinbhai N Patel making total addition of Rs. 4.70 corres].

 4.  The learned CIT(A) erred in fact and in law in rejecting the contention of the Appellant that the transaction of gift is an independent transaction and not related to the transaction of sale of Gotri land.

 5.  The learned CIT(A) erred in fact and in law in confirming the addition of gift of Rs. 65,83,830 (Rs. 1,69,27,845 in the case of Shri Navinbhai N. Patel) in the current year (AY 2009-10).

 6.  The learned CIT(A) erred in fact and in law in treating the transaction of gift received by various family members as taxable in the hands of the Appellant despite the fact that the transaction of gift and sale of Gotri land are independent transaction.

 7.  The learned CIT(A) erred in fact and in law in charging interest u/s. 234B of the Act.

 8.  The learned CIT(A) erred in fact and in law in charging interest u/s. 234C of the Act.

 9.  The learned CIT(A) erred in fact and in law in initiating penalty proceedings u/s. 271(1)(c) of the Act.

25.1 Ground No.1 is general in nature thus requires no independent adjudication, hence dismissed.

26. Apropos to Ground No. 2, facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) of the Act dated 23/12/2010 are that the assessee along with one Shri Navin Patel is the owner of “Gotri Land”, both having equal shares. It was noted that the said land was sold to Smt. Vishakha Sanghavi. The consideration was stated to be Rs. 10.62 crores. The Revenue Department consequent upon the search has unearthed two loose papers, one from the bank locker, and the other from the office. Due to the said seized document, the assessee has disclosed a sum of Rs. 3 crores received in cash. The AO has scanned and printed those documents in the assessment order itself and marked as Annexure BS-1 and Annexure AS-1. These pages have been scrutinized by the AO and he has noted that there was a noting of two figures, i.e. Rs. 22.61 crores and Rs. 14.75 crores. He has also noted that those transactions, as recorded in those seized documents, was related to the sale of Gotri land. The assessee’s stand since inception was that the amounts recorded and the dates mentioned was only an offer for the purchase of Gotri land. The assessee has explained that several offers were invited considering the conversion of land either from agriculture to non-agriculture or non-agriculture to commercial purpose. It was stated that there was a proposal from a broker for the purchase of the said agricultural land if converted for residential use. It was explained that the conversion was difficult within the proposed short time, therefore it was decided to sale the agricultural land as it was. From the side of the assessee in support of the said contention an Affidavit of one Shri Rasik Padaria, broker, dated 08/03/2010 was filed. In the said Affidavit, he has deposed that the said offers were made by him in respect of Gotri land. According to AO, it was nothing but a make believe story. In his opinion, there was no evidence that the documents were merely an offer by Shri Rasik Padaria. The notings in the said documents had clearly mentioned the cash component and the cheque component. As per AO, the cheque component was duly recorded in the books of account of the assessee, as evident from the copy of account of Smt.Vishakha Sanghavi, purchaser of Gotri land. According to AO, the simultaneous transaction of unaccounted money, that too recorded on those loose-papers, had to be believed. The AO has noted that in both the pages the area of land was mentioned as 4,51,419 square feet and the rate mentioned has two components, i.e. Rs. 250/- per square foot in cheque and Rs. 251/- per sq.ft in cash. AO has also noted that the dates of receipts as appearing in the said loose-papers were beyond doubt, therefore the component of cash was correct and the transaction was not merely an offer but actually taken place on sale of Gotri land. The AO has raised a suspicion that why that loose-paper was kept in a bank locker ? The assessee has admitted the component of cash money of Rs. 3 crores which clearly lead to the conclusion that the transaction of the Gotri land was made for a sum of Rs. 22.61 crores and not on the documented sale price of Rs. 10.62 crores, expressed by the A.O. He has concluded that after the set off of admitted amount of Rs. 3 crores, the balance Rs. 4,49,50,000/- was the short-term capital gain to be taxed in the hands of the assessee.

26.1 In addition to the above discussion, it has also been noted by the AO that the family members of the said assessee have received shares as a Gift of M/s. Sun Pharmaceutical Industries Ltd. According to AO, spouse of Mrs. Vishakha Sanghavi, purchaser of the land, has gifted the shares. The value of all the shares gifted was found to be Rs. 4.70 crores. The AO has treated those gifts as not genuine. As per AO, the impugned gifts were part of the “on-money” consideration. Accordingly the total payment of on-money received by the owners of this land other than consideration in the form of gift is Rs.4.29 Crores [22.61 Crores – 13.62 Crores – 4.7 Crores]. Accordingly, Rs. 2,14,50,000/- is added in the case of Shri Krupesh Patel and Rs. 2,14,50,000/- in the case of Shri Navin Patel in AY 2009-10 being the two were the equal co-owners of the land, as short term capital gain on substantive basis. Since the other members of the family who have received the gifts have not admitted that the gifts are not genuine and have not offered the same to tax, the balance of Rs. 2,35,00,000/- (on account of addition of Rs. 4,70,00,000/- made on account of gift as discussed above) is added in the case of Shri Krupesh Patel and Rs. 2,35,00,000/- in the case of Shri Navin Patel in AY 2009-10 being the two were owners of the land as short term capital gain on protective basis. To sump up total amount of Rs. 4,49,50,000/- is added in the case of Shri Krupesh Patel and Rs. 4,49,50,000/- in the case of Shri Navin Patel in AY 2009-10 being the two were owners of the land as short term capital gain, and out of the same Rs. 2,14,50,000/- each is added on substantive basis and the balance of Rs. 2,35,00,000/- each is added on protective basis. Thus, the additional undisclosed income as short term capital gain on sale of Gotri land was taxed in the hands of the assessee at Rs. 4,49,50,000/- by the A.O. Being aggrieved, the matter was carried before the first appellate authority.

27. The assessee has reiterated that the seized papers have reflected only an offer for purchase of land by the prospective buyers. An Affidavit of Mr. Rasik Padaria has also been referred. Ld. CIT(A) has described that the relevant seized paper had two columns, one is having heading “250 relating to the cheque payment in respect of the Gotri land”. The payment under the heading “250” had exactly tallied with the amounts noted in the books of account of the assessee. Next, on the other column of the same seized paper, there was a heading “251” which related to the cash receipts in respect of the same land. That total area was 4,51,419 sq.ft. and the CIT(A) has interpreted that the sale consideration was Rs. 250 per sq.ft. by way of cheque and Rs. 251/- per sq.ft. was in cash. According to ld. CIT(A) there was mention of the total sale consideration of Rs. 22.61 crores. He has concluded that once the assessee has accepted one part of the document and recorded the receipts in the books of account which were made through cheque, then the other part of the same seized document should also be accepted by the assessee as true and correct. He has drawn a conclusion that taking into account the cheque component the corresponding cash component should also be taken into consideration and the total sale consideration was held as correctly taxed in the hands of the assessee.

27.1 Ld. CIT(A) has also examined the issue of gifts received from Shri Jayant Sanghavi, husband of Smt. Vishakha Sanghavi, purchaser of Gotri land. The value of the shares which were received by the assessee allegedly amounted to Rs. 4.70 crores. According to him, Shri Jayant Sanghavi is not related to assessee. There was no occasion to make such gift. There was no occasion in the family for prompting the donor to make a gift. The assessee’s plea of taking the gift under exemption by virtue of section 56(2) of IT Act, ld. CIT(A) has also been rejected on the same ground that the gifts in question were part of the undisclosed sale consideration of Gotri land. However, he has opined that the year of transfer was AY 2009-10, therefore to be taxed in the said year as per section 45(1) of IT Act. He has concluded that the total gift amount of Rs. 4.70 crores received by the assessee and his family members was towards undisclosed sale consideration. The same was taxed in AY 2009-10 amounting to Rs. 4.70 crores in the hands of assessee and Shri Navin N. Patel, i.e. respectively Rs. 2,35,00,000/- each on protective basis. The result of the said conclusion was that an addition of Rs. 65,83,830/- made in AY 2008-09 being non-genuine gift, was directed not to be taxed in AY 2008-09.

28. From the side of the assessee, ld. AR Mr. Milin Mehta appeared and contested that the Revenue Authorities have not correctly appreciated a noting made on the said seized document which is going to settle the controversy. The said noting was written by Mr. Krupesh N. Patel addressed to Mr. Navin N. Patel “As per discussion with them none of the above option is acceptable. Variation in price is also expected. Please Discuss…..”. This note itself proves that certain options were available but none of them was acceptable to them. He has explained that there were three alternate offers and in the transaction a broker was involved. The said broker, namely, Mr. Rasik Padaria has furnished an Affidavit affirming that there were few offers only and no transaction factually took place. He has emphasized that barring these two small papers nothing was found or any other document was recovered from the assessee through which it could be proved that the assessee had received extra consideration in respect of the Gotri land. The said amount of Rs. 3 crores was offered merely to co-operate with the Revenue Department. As far as the gift of shares was concerned, there was no link or connection with the sale of Gotri land. There were copies of gift-deeds and the donor had confirmed that the gifts were made out of love and affection, therefore gift transaction being an independent transaction must not be connected with the sale of Gotri land.

29. From the side of the Revenue, ld. DR Mr. Kartar Singh appeared and reiterated the view taken by the AO and CIT(A). Intensely he has pleaded that the entire unrecorded transaction was unearthed consequent upon the search operation therefore the stories concocted thereafter ought to be rejected.

30. Having heard the submissions of both the sides, we have noted that the assessee has purchased the Gotri land through nine sale-deeds during the period of 27th July-2004 to 9th of January-2008 from several persons for a total consideration of Rs. 1,64,49,955/-, as per the list on page 65 & 66 of the paper-book. The land was stated to be purchased by Shri Krupeshbhai N. Patel and Shri Navinbhai N. Patel. This land was sold to Smt. Vishakha J. Sanghavi for a consideration of Rs. 10,70,70,000/- as documented. For this sale consideration, relevant documents were found, therefore, upto that extent, there was no controversy. However, at the time of search two loose papers were seized marked as Annexure BS-1 and Annexure A-1 respectively page 3 & 4. It was noted by the Revenue Department that the figures noted on those papers was in respect of Gotri land. The assessee’s vehement contention is that the figures noted in those papers was nothing but certain proposals which were received from a broker. It has also been explained that the different offer was on account of three situations which were claimed to be connected with the conversion of non-agricultural land either for commercial purposes or for residential purposes. Those figures were merely proposed figures and not the actual details of consideration receipt. For this submission, our attention has been drawn on a noting on page number 4 (Annexure A-1) which was claimed to have been written by Mr. Krupesh N. Patel addressed to Mr. Navin N. Patel. The wording of the said noting were “As per discussion with them none of the above option is acceptable. Variation in price is also expected. Please Discuss”. In the light of this noting, which was found written when the impugned loose paper was seized , it is intensely argued that the very existence of this comment by it self proves the true character of the loose paper i.e. it was an offer/ proposal simply quoting various rates for the purpose of sale of the said land.

31.1. In respect of the above noting, the vehement contention of the assessee is that the said noting was found at the time of seizure of the paper. The presumption is that whatever is noted on the seized document should be correct and truthfully state the existence of the fact or occurrence of an event. The thinking behind this presumption is that any such noting is meant for personal as also private reading/consumption of the person who has written the paper. Such a noting may or may not be meant for declaration, hence if not declared, then the information is treated as a concealed information. Keeping this principle in mind, the IT Act has incorporated section 132(4A) of IT Act which reads as follows:-

Search and seizure

Section 132.(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed—

 (i)  that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

 (ii)  that the contents of such books of account and other documents are true; and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document, stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.

31.2. This section thus supports the contention of the assessee that the contents of the document should be considered as true and correct. To buttress this legal proposition, case law can be referred is CIT v. S.M.S. Investment Corpn. (P.) Ltd. [1994] 207 ITR 364 (Raj.). The next plank of argument is that the entire land was not converted into “N.A.” and the land which was finally sold was as under:-

Land after converting it into NA 35817 Sq. Mtrs.

Land without converting it to NA 4450 Sq Mtrs.

Due to this variation in the conversion of the land, the sale consideration was accordingly settled as finally documented. The assessee has demonstrated that the said noting has been made with that reference because the price of the land was to be negotiated on the basis of the conversion of the agricultural land. Since the entire land could not be converted, therefore the price which was quoted for total conversion of the land was not fetched by the assessee. The noting on those two papers was therefore with reference to the negotiations and the proposed offers were made from the broker keeping in mind the eventuality of conversion of land. The maximum price offered of Rs. 22 crores but that was subject to conversion of agricultural land to commercial use. But the fact was that the land was partly converted into N.A. There was an alternate offer in case the entire land is not converted. That alternate offer was also noted in one of the said two seized papers, i.e. Rs. 14.75 crores. Since the condition of complete conversion was not fulfilled hence the sales were not effected on the said proposed amounts. As per the notings on those two papers, there was a time limit prescribed upto 31/05/2009. There was some other time limitation and hence, it was decided to execute the sale for a sum of Rs. 10.70 crores. The assessee has accepted the said figure of Rs. 13.70 crores as noted in the said loose-paper. Since the amount which was documented was only Rs. 10.70 crores, therefore the balance of Rs. 3 crores was offered and disclosed by the assessee. The assessee has therefore pleaded that the said offer being based upon the seized material should have been accepted by the Revenue Department. For this legal proposition that if an offer is duly corroborated by an evidence, then such an offer deserves to be held as correct and acceptable to the eyes of law, a case law can be referred, namely Pullangode Rubber Produce Co. & Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) wherein the law laid down was that in the case of an admission it is open for the deponent to show that it was based upon an evidence and not merely a bald offer. Therefore, an offer should be led by a corroborative evidence and in the present case the said difference in the amount could be witnessed by the figure mentioned in one of the seized paper.

31.3 There is one more reason given by the assessee to accept the sale consideration at Rs. 13.70 crores (Rs. 10.70 crores documented sale consideration + Rs. 3 crores offered amount) because on enquiry, it was found that the stamp duty is levied for that area on a lower price of sale consideration. The assessee has therefore contended that the sale consideration now offered of Rs. 13.70 crores is not only adequate but also higher than the sale consideration as prevailed during that period of that locality. Ld. AR has thus argued that the total amount thus disclosed by the assessee has commensurated with the official sale rate of that locality.

31.4 Our attention has also been drawn on those two loose-papers for the purpose that both were unsigned and undated by the parties of sale, i.e. vendor and vendee. Those papers did not suggest even remotely that the transactions recorded therein were actually executed or taken place among the parties or in any manner agreed upon. Those loose papers did not give an impression that the parties have written the figures of on-money for each others satisfaction or even in conformity of amount mutually fixed, because there was no signatures. It was repeatedly argued that the pages were nothing but an offer and therefore one of the offer was finalized keeping in mind the nature of the land sold.

31.5 Before us, there is a reference of an Affidavit executed by one Mr. Rasik Padaria, broker. The contents of the Affidavit dated were that the deponent had affirmed that he has worked as a broker of real estate and that he has offered the purchase of land at Gotri and that the said offer was made to Shri K.N. Patel & Others on behalf of his clients. In the said Affidavit, he has deposed that several offers for purchase of land was made with the condition of conversion of agricultural land to non-agricultural land either for residential purpose or for commercial purpose. During the course of hearing, a question has been raised by us that why this Affidavit be not treated as a self-serving document. In reply, ld. AR has pleaded that although the said Affidavit could be treated as a self-serving statement but such an assertion that to through an Affidavit should have been verified by the Revenue Department, appropriately cross-examining the said deponent. Indeed, the Revenue Department has not cross-examined Mr. Rasik Padaria.

31.6 Our attention has also been drawn on the statement recorded u/s. 131/132(4) dated 06/03/2009 wherein vide question No. 24, the Revenue Officer has shown the said page to the assessee and in reply the assessee has answered that those papers were in respect of two proposals for Gotri land. The assessee has also informed that the deed could not be materialized. It was also informed that when the said paper was recovered from the locker, even at that time it was stated that the assessee got proposals from the perspective buyers in respect of Gotri land. The cheques mentioned have also matched with the amount which was finally settled, i.e. Rs. 10,70,70,000/-.

31.7 In the light of the above discussion and the contents of the paper, we are of the view that in the absence of any direct evidence about receiving on-money, as apprehended by the Revenue Department, such loose-papers were merely in the nature of an offer which was made to the assessee. Finally the land was sold on the price near to one of said amount of the offer made by one of the buyer through a broker. The document is also suggesting that certain options were available to the assessee and those options were not acceptable. The assessee has noted on those papers that variation in the price was expected. Since the said noting was found in existence when the paper was seized, such a noting cannot be ignored. That noting is rather a proof which supports the contentions of the assessee that the figures were nothing but certain offers which were made in respect of the Gotri land. Even the statements which were recorded by the Revenue Department have also demonstrated that since inception the assessee’s stand was that the purpose of writing three figures or three rates itself has established that the offers were made in respect of the same land. Rather, the case of the assessee is that the three rates conclusively suggest that some negotiation has happened and that negotiation was pertaining to the pre-conditions of sale. It is not the case that only one rate was found noted on a piece of paper showing the documented sale consideration along with the amount of on-money. Had it been a noting of a single transaction, the presumption could be in favour of the Revenue, but by the very presence of three dates on the said paper gives an indication that out of the three offered price, one of them was materialized. Now the question is that on one hand, the Revenue has picked-up the highest figure of the three and the assessee has picked-up the figure which was documented plus the difference of Rs. 3 crores so as to match with one of the cited figures. We therefore conclude that the Revenue Department should not have disputed the offer as made by the assessee. Resultantly, Ground is allowed.

32. Apropos to Ground Nos. 3, 4, 5 & 6, facts in brief are that the AO has noted that the family members of the assessee have received shares of M/s. Sun Pharmaceutical Industries as a gift amounting to Rs. 4.70 crores. It was found that those gifts were made by the husband of Mrs. Vishakha Sanghavi. The AO has thus held that the gifts were in lieu of the unaccounted sale consideration, hence given a finding as under:-

“During the assessment proceedings of various family members of this group it was found that they have received gift of shares of M/s. Sun Pharmaceutical Industries Limited from the spouse of the person to whom this land has been sold. The values of such gifts cumulatively in the hands of these persons were of Rs. 4.70 crore. These gifts have been treated as not genuine and addition of the same has been made in the respective hands for detailed reasoning mentioned therein, and it has also been held that the said gifts are part of the “on money” consideration for sale of this land. Accordingly the total payment of on money received by the owners of this land other than consideration in the form of gift is Rs. 4.29 Crores [22.61 Crores – 13.62 Crores – 4.7 Crores]. Accordingly, Rs. 2,14,50,000/- is added in the case of Shri Krupesh Patel and Rs. 2,14,50,000/- in the case of Shri Navin Patel in AY 2009-10 being the two were owners of the land as short term capital gain on substantive basis. Since the other members of the family who have received the gifts have not admitted that the gifts are not genuine and have not offered the same to tax, the balance of Rs. 2,35,00,000/- (on account of addition of Rs. 4,70,00,000/- made on account of gift as discussed above) is added in the case of Shri Krupesh Patel and Rs. 2,35,00,000/- in the case of Shri Navin Patel in AY 2009-10 being the two were owners of the land as short term capital gain on protective basis. To sump up total amount of Rs. 4,49,50,000/- is added in the case of Shri Krupesh Patel and Rs. 4,49,50,000/- in the case of Shri Navin Patel in AY 2009-10 being the two were owners of the land as short term capital gain, and out of the same Rs. 2,14,50,000/- each is added on substantive basis and the balance of Rs. 2,35,00,000/- each is added on protective basis.”

Being aggrieved the Assessee is before us.

33. Ld. CIT(A) has noted that Shri Jayant Sanghavi, donor, husband of Smt. Vishaka Sanghavi (purchaser of Gotri land), had donated shares of M/s. Sun Pharmaceutical Industries during the period of February/March-2008. As per ld. CIT(A), the Gotri land was sold in April-2008. Ld. CIT(A) has opined that Shri Jayant Sanghavi was not related to the assessee and there was no occasion for making such gifts. He was of the view that the act of receiving gifts in February/March-2008 and after one month the sale of Gotri land was effected therefore both can be said to be connected transaction and not totally independent transaction. According to him, the AO had rightly taken into account the surrounding circumstances and held that the gifts were not genuine. The gift of shares was in fact the undisclosed sale consideration of Gotri land. He has upheld the view of the AO that the undisclosed sale consideration was received in the form of gift of shares of M/s. Sun Pharmaceutical Industries. He has also held that once the gifts were not genuine, therefore whether they were in kind and not taxable u/s. 56(2) did not matter. However, he has held that since the undisclosed sale consideration is connected with the year of transfer, i.e. AY 2009-10, therefore the amount of gift although received in AY 2008-09 but being part of the sale consideration, therefore has to be taxed in the year in which the sale took place, i.e. AY 2009-10. He has thus concluded that the total gift amount of Rs. 4,70,000/- is to be taxed in AY 2009-10 on substantive basis equally in the hands of both the above two appellants. He has given a direction that the addition of Rs. 65,83,830/- taxed in AY 2008-09 is to be deleted. Being aggrieved, both the sides are in appeal(s) before us in respective assessment years.

34. We have heard both the sides. We have also perused the documents related to this ground. We have found that on 7/2/2008 & 17/3/2008, Shri Krupeshbhai N. Patel has received 3400 shares and 2300 shares of M/s. Sun Pharmaceutical Industries from Shri Jayant S. Sanghavi. In this regard, a declaration of gift is on record. Likewise, on 7/2/2008 and 17/3/2008 Shri Jayant S. Sanghavi has received respectively 8700 & 5950 number of shares of M/s. Sun Pharmaceutical Industries from Shri Jayant S. Sanghavi. It was not in dispute that Shri Jayant S. Sanghavi is the husband of Smt. Vishakha Sanghavi. Further, it is also not in dispute that Mrs. Vishakha Sanghavi purchased Gotri land in April-2008. However, as per the details of the sales executed in respect of Gotri land, further we have noted that several sale documents were executed during the period starting from April-2008 upto July-2008. With this brief background, we have to examine whether the sale transaction of Gotri land had any connection with the gift of shares. Now the question is that whether the impugned gift is to be linked with the sale consideration which was finally offered for tax purpose by the assessee. The AO has linked the same, so that he can arrive at the figure of 22.70 crores but we have already held that there was no evidence on record to conclusively establish that the said amount was the actual sale consideration, hence we have held that the sale consideration was nothing but 10.70 corres plus the amount of consideration of Rs. 3 crores which was offered for tax purpose. Once we have already fixed a sale consideration, therefore the Revenue’s such allegation is hereby dismissed. Before us, an another plank of argument was that the gift being in the form of shares, therefore the gift has been made in kind, hence not to be taxed in the hands of the assessee. But this argument has no substance due to the reason that it had become redundant in the light of the view taken and the AO has also not separately assessed the impugned gift in the hands of the assessee. We therefore leave this argument without adjudication since it has become redundant. The outcome of the above discussion is that since it was not a part of the sale consideration, therefore barring for the year under consideration, it was not required to be added and now the present position is that the impugned amount even not taxable in the hands of the assessee. All the grounds therefore stood allowed.

34.1. The Additional grounds raised in this appeal read as under:-

11. “Without prejudice and without accepting the validity of the addition made on account of Ampad land in AY 07-08 and AY 08-09, the AO may be directed to grant consequential relief of Rs. 1,74,72,333/- in AY 2009-10”

12. “Without prejudice to Ground 4, 5 and 6, the Learned AO may be directed to grant consequential relief in AY 2009-10, in case addition on account of gift is confirmed in AY 2008-09 in the hands of the App and in the hands of various family members.”

34.2 The additional ground has already been dealt with while deciding the issue of Ampad land and the question of taxability of gift. Since a view has already been taken, this alternate plea of the assessee has become redundant, therefore needs no independent adjudication, hence dismissed.

35. We summarize the result as under (in the case of Shri Krupeshbhai N. Patel):-

 (i)  Assessee’s appeal, IT(SS)A No.590/Ahd/2011, A.Y. 2006-07 is partly allowed.

(ii)  Assessee’s appeal, IT(SS)A No.591/Ahd/2011, A.Y. 2007-08 is partly allowed.

(iii) Assessee’s appeal, IT(SS)A No.592/Ahd/2001, A.Y. 2008-09 is dismissed.

(iv) Assessee’s appeal, IT(SS)A No.593/Ahd/2011, A.Y. 2009-10 is partly allowed.

(v)  Revenue’s appeal, IT(SS)A No.594/Ahd/2011, A.Y. 2007-08 is dismissed.

(vi) Revenue’s appeal, IT(SS)A No.595/Ahd/2011, A.Y. 2008-09 is dismissed.

(vii) Assessee’s CO No.12/Ahd/2012, A.Y. 2007-08 is dismissed.

(viii) Assessee’s CO No.13/Ahd/2012, A.Y. 2008-09 is dismissed.

[B] Appeals of Shri Navinbhai N. Patel

(i) A.Y.2006-07 – IT(SS)A No. 651/Ahd/2011 (Assessee’s appeal)

36. This is an appeal filed by the Assessee arising from the order of the ld. CIT(A)-IV, Ahmedabad dated 02.09.2011.

36.1. All the Grounds are identical in verbatim as were in the case of Shri Krupeshbhai N. Patel in IT(SS)A No.590/Ahd/2011 for A.Y. 2006-07 (supra). Therefore, following the findings contained in the case of Krupeshbhai N. Patel, this appeal is partly allowed.

(j) A.Y.2007-08 – IT(SS)A No. 616/Ahd/2011 (Assessee’s appeal)

37. This is an appeal filed by the Assessee arising from the order of the ld. CIT(A)-IV, Ahmedabad dated 02.09.2011.

37.1 All the grounds are identical in verbatim as were in the case of Shri Krupeshbhai N. Patel in IT(SS)A No. 591/Ahd/2011 for A.Y. 2007-08 (supra). Therefore, following the findings contained therein, this appeal is partly allowed.

(k) A.Y. 2007-08 – IT(SS)A No. 626/Ahd/2011 (Revenue’s appeal)

38. This is an appeal filed by the Revenue arising from the order of the ld. CIT(A)-IV, Ahmedabad dated 02.09.2011.

38.1 The sole ground in this appeal is identical in verbatim as was in the case of ACIT v. Shri Krupeshbhai N. Patel in IT(SS)A No.594/Ahd/2011 for A.Y. 2007-08 (supra). Therefore, following the findings contained therein, this appeal is dismissed.

(l) A.Y. 2007-08 – CO No. 20/Ahd/2012 (by Assessee)

39. A view has already been taken while deciding hereinabove the Revenue’s appeal, therefore this cross objection has become infructuous, hence dismissed.

(m) A.Y. 2008-09 – IT(SS)A No. 627/Ahd/2011 (Revenue’s appeal)

40. This is an appeal filed by the Revenue arising from the order of the ld. CIT(A)-IV, Ahmedabad dated 02.09.2011.

40.1 Both grounds in this appeal are identical in verbatim as were in the case of ACIT v. Shri Krupeshbhai N. Patel in IT(SS)A No.595/Ahd/2011 for A.Y. 2008-09 (supra). Therefore, following the findings contained therein, this appeal is dismissed.

(n) A.Y. 2008-09 – CO No. 21/Ahd/2012 (By Assessee)

41. Both grounds in this cross-objection are identical in verbatim as were raised in CO No.13/Ahd/2012 in the case of Shri Krupesh Narhari Patel for A.Y. 2008-09 (supra).

41.1 The cross-objector vide two grounds has simply asked to give consequential direction. At present, the consequential direction as suggested is not required, hence two grounds of the cross-objection have become redundant, therefore dismissed. Resultantly, cross objection filed by the assessee is dismissed.

(o) A.Y. 2008-09 – IT(SS)A No. 637/Ahd/2011 (Assessee’s appeal)

42. This is an appeal filed by the Assessee arising from the order of the ld. CIT(A)-IV, Ahmedabad dated 02.09.2011.

42.1 Grounds in this appeal are identical in verbatim as were in the case of Shri Krupeshbhai N. Patel in IT(SS)A No.592/Ahd/2011 for A.Y.2008-09 (supra). Therefore, following the findings contained therein, this appeal is dismissed as infructuous.

(p) A.Y. 2009-10 – IT(SS)A No.638/Ahd/2011 (Assessee’s appeal)

43. This is an appeal filed by the Assessee arising from the order of the ld. CIT(A)-IV, Ahmedabad dated 02.09.2011.

43.1 Grounds in this appeal are identical in verbatim as were in the case of Shri Krupeshbhai N. Patel in IT(SS)A No.593/Ahd/2011 for A.Y. 2009-10 (supra). Therefore, following the findings contained therein, this appeal is partly allowed.

44. We summarize the result as under (in the case of Shri Navinbhai N. Patel):-

 (i)  Assessee’s appeal, IT(SS)A No.651/Ahd/2011, A.Y. 2006-07 is partly allowed.

 (ii) Assessee’s appeal, IT(SS)A No.616/Ahd/2011, A.Y. 2007-08 is partly allowed.

(iii) Assessee’s appeal, IT(SS)A No.637/Ahd/2001, A.Y. 2008-09 is dismissed.

(iv)  Assessee’s appeal, IT(SS)A No.638/Ahd/2011, A.Y. 2009-10 is partly allowed.

(v)  Revenue’s appeal, IT(SS)A No.626/Ahd/2011, A.Y. 2007-08 is dismissed.

(vi) Revenue’s appeal, IT(SS)A No.627/Ahd/2011, A.Y. 2008-09 is dismissed.

(vii) Assessee’s CO No.20/Ahd/2012, A.Y. 2007-08 is dismissed.

(viii) Assessee’s CO No.21/Ahd/2012, A.Y. 2008-09 is dismissed.

More Under Income Tax

Posted Under

Category : Income Tax (25868)
Type : Featured (4122) Judiciary (10460)
Tags : ITAT Judgments (4713)

Leave a Reply

Your email address will not be published. Required fields are marked *