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2016 (5) TMI 534 - ITAT PUNE

2016 (5) TMI 534 - ITAT PUNE - TMI - Unexplained investment - assessment in the hands of AOP - purchase of the property - shares of individual co-purchasers of AOP - Held that:- The land was acquired by 16 members of the family who combined together for a common purpose and common action in their own volition with a view to commercially exploit the land acquired by resale thereof at profits. It is evident that soon after purchase deed was registered, the same was handed over to the builder for d .....

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t be faulted. We thus find no infirmity in the action of the CIT(A) in upholding the action of the AO exerting jurisdiction over assessee in the status of AOP. Therefore, acquisition of land and sale thereof subsequently has been rightly assessed in the hands of the AOP. Therefore, the objection of the assessee in this regard fails.

We also find that the claim of the assessee that AOP family members owned the land and received the benefit/income since 1985-86 is in contradiction to th .....

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is clear in the prevailing circumstances that all the members of the AOP had combined together to purchase land with a pre-conceived idea to commercially exploit the property and make profits by immediate sale thereof as a business adventure. In totality, the circumstances are weighed against the assessee when tested on the touchstone of preponderance of probabilities. Therefore, We see no error in the action of the revenue in treating the investment in purchase of land as unexplained investment .....

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been preferred by the assessee relating to assessment years 1993-94, 1996-97 & 1998-99. All the assessment orders in appeal were passed simultaneously by Assessing Officer on 28.03.2002. Since the issues involved in all the appeals are common and interconnected for the respective assessment years under consideration, they are being disposed of in this consolidated order for the sake of convenience. ITA No.857/PN/2004 (A.Y. 1993-94) : 2. To begin with, we shall take-up the appeal of the asse .....

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ng valid jurisdiction over the case of the appellant at the time of issue of Notice u/s 148 of the I.T. Act, 1961. 2. On the facts and in the circumstances of the case, the Assessment Order so passed please be quashed being without jurisdiction. 3. On the basis of facts and in the circumstances of the case, whether the Commissioner of Income Tax, Appeals-II, Nashik is justified in holding that the agricultural land in question was purchased by the appellant in December, 1993. 4. On the basis of .....

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lled AOP from 1994-95 and not from 1985-86 as claimed. 6. On the basis of facts and in the circumstances of the case, whether the Commissioner of Income Tax, Appeals-II, Nashik is justified in holding that the Kabje Pawti of the agricultural land in question dated 02.01.1996 is not genuine. 7. On the basis of facts and in the circumstances of the case, whether the Commissioner of Income Tax, Appeals-II, Nashik is justified in holding that the deposit in the bank account of Mr. Iqbal Khatib was c .....

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ase, whether the Commissioner of Income Tax, Appeals-II, Nashik is justified in holding that the agricultural land in question was not used for agricultural purpose. 10. On the basis of facats and in the circumstances of the case, whether the Commissioner of Income Tax, Appeals-II, Nashik is justified in holding that all the persons has come together to purchase the agricultural land in question in the month of December 1993 for getting profit and thereby taxing the investment in the agricultura .....

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On the basis of facts and in the circumstances of the case, whether the Commissioner of Income Tax, Appeals-II, Nashik is justified in holding that the purchase transaction of agricultural land in question is governed by the provision of section 69 of the I.T. Act, 1961. 14. On the basis of facts and in the circumstances of the case, whether the Commissioner of Income Tax, Appeals-II, Nashik is justified in assessing the investment in the agricultural land in question in the hands of AOP when t .....

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grounds above mentioned. 4. The relevant facts, in brief, are that the appellant herein has been assessed by the Assessing Officer in the status of Association of Persons (AOP) comprising of 16 persons of Khatib family as the members of AOP. In the course of survey action conducted under section 133A of the Act on 03.08.2000 in the case of one Shri J.D. Jaybhawe Advocate, Nashik, documents relating to agreement of sale of land between family members of the assessee and M/s Pai Developers Pvt. Lt .....

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ment dated 19.03.1993. The Assessing Officer further noted that the total consideration of land was fixed at ₹ 13,00,000/-. It is the case of the Assessing Officer that the purchase consideration of ₹ 13,00,000/- was paid by the appellant AOP (16 members) in cash. Shri C. M. Khatib is also one of the members of the AOP. The Assessing Officer observed that ₹ 9,61,000/- was paid from time to time in cash upto the time of registration of purchase agreement on 19.03.1993 and remain .....

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of the document, etc.. Hence, the Assessing Officer concluded that total investment made by the AOP for the purchase of the aforesaid parcel of land amounted to ₹ 15,06,000/-. It was further noticed that out of total 16 persons who purchased land, majority of 13 persons surrendered their right on the said land by giving Power of Attorney as well as possession to M/s Pai Developers Pvt. Ltd. on 25.05.1995. The Assessing Officer observed that as per documents found in survey, it was agreed t .....

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purchase deed dated 19.03.1993. The land has been sold in the immediate future as part of business deal. Therefore, the Assessing Officer concluded that an investment of ₹ 15,06,000/- in the assessment year 1993-94 was made in the capacity of AOP and no taxes were paid by the AOP. No return of income was filed either. He accordingly issued notice under section 148 of the Act dated 27.09.2000 addressed to Shri C. M. Khatib (AOP) together with a list of 16 members annexed thereto. In respons .....

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of AOP allegedly thrust upon it and secondly questioned the jurisdiction of the Assessing Officer over the AOP at the time of issue of notice under section 148 of the Act. According to the Assessee, the jurisdiction of the Assessee falls with other ward officer. As regards investments in land, it was clarified on behalf of the assessee that all the co-holders of land were agriculturists and it is also not correct to say that purchase was made on 19.03.1993. It is also wrong to allege that the s .....

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of the Assessing Officer. As regards the jurisdiction of the incumbent of the Assessing Officer over AOP to enable it to issue notice, the Assessing Officer observed that pursuant to order of the CIT(A)-I, Nashik, the jurisdiction shifted from ITO, Ward-1(3), Nashik and stood vested with the ITO, Ward-2(2), Nashik. On receipt of case record by the incumbent Assessing Officer, notices under section 143(2)/142(1) were issued to give effect to notice under section 148 of the Act issued by the earli .....

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f the joint holders were mentioned in the purchase deed dated 19.03.1993. Thus, these 16 persons belonging to one family came together and jointly purchased land and therefore, the land is rightly held to be asset of the AOP. He also observed that the some documents filed by the assessee themselves clearly indicate that land was non-agricultural. As such, there was no agricultural income arising to the assessee per se. The land was purchased with the intention to commercially exploit the same wh .....

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essing Officer also did not find the explanation towards source of payment of ₹ 3,39,000/- to be satisfactory in the light of the fact that no agricultural income was generated from the land as claimed to be the source thereof. He accordingly concluded that the impugned investment of ₹ 15,06,000/- remains unexplained. Accordingly, this sum of ₹ 15,06,000/- was brought to tax as unexplained investment under section 69 of the Act as undisclosed income of the AOP relevant to asses .....

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the basis of agreement dated 19.03.1993 as against the claim of the assessee that the purchase of land was made by the assessee family by way of an agreement dated 21.12.1985 and the assessee was in legal possession of the land by virtue of Kabja Pawati dated 02.01.1986. (iii) The Assessing Officer was incorrect in not accepting the contention of the assessee that out of total consideration of ₹ 15,06,000/-, ₹ 9,61,000/- was paid in the earlier years and only ₹ 3,39,000/- was p .....

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ultural purposes and was held as capital asset. The assessee also contended before the CIT(A) that the relevant documents filed before the Assessing Officer were not taken in account while coming to the aforesaid conclusions. 6.2 The CIT(A) after examining all the documents and material placed before him in length held that the Assessing Officer was correct in exerting jurisdiction over the assessee at the time of issuance of notice and by the next incumbent after the transfer of the file by ord .....

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pect of all pieces of land. The CIT(A) next observed that the impugned land was acquired and transferred in the name of the assessee in assessment year 1993-94 and the said AOP surrendered their rights in the land by effecting Power of Attorney dated 25.05.1995 and the possession was also given to the developer. Therefore, the land was handed over to the developer/ builder for the purposes of development in a very short span of time. Prior thereto also, the assessee was found to be engaged in ne .....

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000/- as per para 25 - 26 of its order on the ground that balance amount does not belong to the current year when the registered deed was executed. In the result, the CIT(A) upheld the order of the Assessing Officer in substance. 7. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. 8. In the course of hearing, the Ld. Authorized Representative for the assessee submitted that he does not seek to press Ground No.1 concerning his objection of assumption of jurisdiction by w .....

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ince, the assessee has raised legal ground, we consider it expedient to dispose the same at the outset. On a query from the Bench, the Ld. Authorized Representative for the assessee admitted that the aforesaid objection was not raised at any stage of the proceedings either before the Assessing Officer or before the CIT(A). He also admitted that during the course of hearing, inspection of the entire assessment records were provided to him as requested. The statutory notice under section 143(2) an .....

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by the assessee after compliance with the notice under section 148 of the Act. The return was filed on 01.01.2001 in compliance with notice under S. 148 relevant to assessment year 1993-94. No request was found to be made by the Assessee subsequent to the compliance of notice under S. 148 of the Act. Coupled with above circumstances, we also simultaneously notice that the appeal was filed in the present case by appeal memo dated 03rd May, 2004 while the assessee is coming out with this new aspe .....

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of the alleged members Shri C. M. Khatib (AOP) only. The Assessing Officer was required in law to issue notice to all the members of the purported AOP in order to assume jurisdiction for making assessment pursuant thereto. This issue also requires to be addressed at the threshold. We find that notice under section 148 of the Act was issued together with the list of all the members as integral part of the impugned notice. Thus, as per the record, all the members were made party to the statutory p .....

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tion as annexed at page 181 - 182 of the Paper Book addressed to Shri C. M. Khatib (AOP), it is evident that notice under S. 142(1) was issued to each member separately for necessary compliance. No objection was raised at any stage. The proceedings under Income Tax Act is not a game of hide and seek. The income-tax proceedings are not adversarial proceedings either. Hence, we are of the considered view that in the circumstances existing in the matter, notice under section 148 of the Act was issu .....

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along with agricultural implements electrical motor and standing crops etc.. Though the above land contained different survey numbers but the same are situated at one place. The agricultural operations were carried out regularly by the assessee family in the above mentioned land from the date of possession of the same. Purchase deed of the said land was registered belatedly on 19.03.1993 owing to some legal disputes. However, the substantial payment to the tune of ₹ 9,61,000/- made in the .....

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subject to registration which was carried out later in assessment year 1993-94 and only remaining amount of ₹ 3,39,000/- were paid in the assessment year 1993-94. Reference was made to 7/12 extracts as appearing at page 172 - 173 wherein name of all the 16 family members have been incorporated in the revenue records along with original owners who transferred the land in favour of the family members. The Ld. Authorized Representative for the assessee contended that this duplicate copy of 7/ .....

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view to cultivate the same for agricultural purposes and therefore the Assessing Officer was not correct in attributing the impugned transactions in the hands of the AOP. The share of co-ownership in land is assessable in the hands of the respective members in their individual capacity. 9.3 He next contended that the CIT(A) was not justified in holding the said investment in impugned agricultural land in question as business adventure on the basis of wrong premise. To justify the land to be agri .....

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uffers from error due to incorrect appreciation of facts on record and is liable to be set-aside. 10. The Ld. Departmental Representative for the Revenue, on the other hand, relied upon the orders of the authorities below and submitted that all the objections of the assessee has been dealt with objectively and therefore no interference is called for. 11. We have carefully considered the rival submissions and the orders of the authorities below and also the material placed on record. The assessee .....

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lso impugned by the assessee. 12. We shall address ourselves with the preliminary issue first. As observed, the objection on behalf of the assessee is that the notice issued in the status of AOP is bad in law since the parcel of land was acquired jointly by the family members in the capacity of co-owners . In the wake of controversy, it is imperative to examine the legal position before proceeding with the facts of the case. 12.1 The charge of income is on every person and the expression person .....

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must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section, which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. 12.2 The Andhra Pradesh High Court, in the case of Deccan Wine and General Stores vs. CIT (106 ITR 111), laid down the principles governing an AOP by stating that it is clear that an association of persons does not mean any and every combination of persons; it .....

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meaning of AOP, as culminates from different decisions of Supreme Court and High Court is that an association of persons exist when following conditions are satisfied :(i) Two or more persons joins; (ii) Voluntarily for; (iii) A common purpose or common action with object to produce profit or gains. However, notably the object to produce profit or gains is no longer a sine qua non in view of the Explanation to section 2(31); (iv) combine for in joint enterprise; and (v) creates some kind of sch .....

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ion enumerated above. We note that the assessee has executed an agreement for purchase of the impugned land in question by a formal agreement dated 19.03.1993. We observe that purchase deed nowhere indicate any specific share of respective co-purchasers. Coupled with this, the assertions by the authorities below that entire payment towards the purchase of the property has been made in cash could not be rebutted by the assessee. Thus, share of contribution of individual members pooling their resp .....

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mine such a vital fact in issue. We find it difficult to attribute any propriety to such affidavit. The conduct of the members of the Assessee AOP are relevant. No such land is shown to have been declared in the return of income of individual assessee. No income therefrom is brought on records. The transactions of this substantial sum of nearly ₹ 15 lacs in the year 1993 were stated to be routed in cash which is nondescript and without any trail. The amount of contribution of respective me .....

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found. As observed earlier, Khatib family has not declared the profit/loss arising from the transaction with M/s Pai Developers Pvt. Ltd. and no returns were filed either. We find that no specific share of individual members of the Khatib family is specified in the purchase agreement dated 19.03.1993. We also note that a case has been made out by the revenue that that the assessee was in contact with many builders for the development of the property immediately after acquisition of the land in M .....

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Assessee. On these facts, we have to endorse the observation of the CIT(A) that the land was acquired by 16 members of the family who combined together for a common purpose and common action in their own volition with a view to commercially exploit the land acquired by resale thereof at profits. It is evident that soon after purchase deed was registered, the same was handed over to the builder for development and prior thereto also the members of Khatib family were negotiating various builders .....

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e AO exerting jurisdiction over assessee in the status of AOP. Therefore, acquisition of land and sale thereof subsequently has been rightly assessed in the hands of the AOP. Therefore, the objection of the assessee in this regard fails. 13. We also find that the claim of the assessee that AOP family members owned the land and received the benefit/income since 1985-86 is in contradiction to the information recorded in 7/12 extracts as reproduced in para 19 of the CIT(A) order. The 7/12 extracts .....

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ip did not pass to the members of the AOP till 1993-94 in respect of the pieces of land. The legal possession with Khatib family since F.Y. 1985-86 as claimed is without any corroborative value. As stated on behalf of the Assessee itself, the ownership of land itself was in legal dispute and not transferable. Except for some generic averments, no cogent evidence of payment towards purchase purportedly made in cash in earlier years is on record. Simultaneously, the averments made by the Advocate, .....

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conceived idea to commercially exploit the property and make profits by immediate sale thereof as a business adventure. In totality, the circumstances are weighed against the assessee when tested on the touchstone of preponderance of probabilities. Therefore, We see no error in the action of the revenue in treating the investment in purchase of land as unexplained investment under S. 69 for the relevant assessment year 1993-94 which is rightly assessed in the hands of the AOP. We also do not fin .....

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tested the taxability of sale proceeds determined by the Assessing Officer at ₹ 43,06,413/-. The facts are on the identical footing to that of assessment year 1993-94. The assessee claimed that the agreement for purchase of land was made on 21.12.1985 and possession of land was taken on 02.01.1996. The assessee also claimed that the land under construction was agricultural land and therefore not subject to taxation in the hands of the assessee. As noted in assessment year 1993-94, it was f .....

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s for land admeasuring 10 acres at amount of ₹ 40,00,000/- but only land admeasuring approximately 8.7 acres could be sold due to consent of 13 persons only. The other three persons were mere consenters to the deed. On behalf of the assessee, it was further objected to the adoption of ₹ 43,06,413/- as sale consideration of impugned land. The CIT(A) after examining the claim of the assessee in land observed that the negotiated price of ₹ 43,06,413/- was applicable to the whole p .....

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reference to the documents made available by the A.O. and the appellant. The notings of piece of paper on the basis of which addition was made by the A.O. states as under:- Pai Developers Pvt. Ltd. Survey No.49/3A, 49/3B & 50/3/2 Year Payments made Date Amount 95-96 Name i) Amir Khatib 540191 (Bom) 15-10-95 Rs.5,00,000/- ii) Amir Khatib 540192 (Bom) 15-10-95 Rs.5,00,000/- 96-97 Total Rs.33,06,413/- Rs.43,06,413/- i) Amir S. Khatib ii) Aniruddin S. Khatib 9.1 The learned authorized representa .....

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each of ₹ 5 lakhs was paid to Amir S. Khatib and there is no mention of payment of ₹ 33,06,413/-. It has also been mentioned that the amount is related with year 1996-97 i.e. immediately succeeding year. Thus, the amount may indicate the price of negotiations or other facts but it does not conclusively prove that the piece of land was sold for above amount. 10. The undersigned went through the clauses of purchase deed dt.19-3-93 which shows that the piece of land following survey num .....

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t sold. 11. The learned Authorized Representative clarified that the purchase was made by 16 members of Khatib family but later on 3 member backed out and refused to sale their shares. It was claimed that Sammati Patra / Vyavastha Patra dt. 22- 11-1995 was prepared between 13 members on one hand and 3 members namely Shri Iqbal Buranuddin Khatib, Salauddin Buranuddin Khatib & Gulamahemad Buranuddin Khatib on the other hand, whereby the land under reference was divided. The front portions comp .....

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he part of the A.O. to adopt the sale price at ₹ 43,06,413/-. The claim of breakup of 3 members of the family is supported by the observations of the A.O. in para-6 of the assessment order where he has stated that 3 members did not make sale. The A.O. therefore, has deducted the 10% of the price of land stated to be attributable to 3 members. However, while doing so, he has ignored to reduce the area of land sold by the share belonging to those 3 members. It is apparent from the facts ment .....

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ituted by 16 members. As a result of a split, 13 members formed a group who sold the land for the price of ₹ 28,85,000/-. The other part was held by smaller AOP formed as a result of split. The "Sammati Patra" and facts deducible therefrom, rebuts the claim of appellant that adoption of AOP by AO is not justified. It also rebuts the claim made by appellant that because only 13 persons have disposed of their shares in the said land, it may be presumed that the land was purchased o .....

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, Director Pai Developer was recorded on 26-2-2004 which was forwarded vide letter of same date which in turn, forwarded by the Jt.CIT vide his letter dt: 27-2-2004. Shri Pai in response to Q.No. 4 & 5 has stated as under:- "Q.No.4: In earlier questions stated that you are director in Pai Developers Pvt. Ltd., and made an agreement to the Khatib. In which dates and area of land purchased for doing the constructing the bunglow's at Shirin Medow ? Ans: I entered into agreement for pur .....

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the said bunglow in the said land was given to respective purchasers. After this we made various transaction with other land owners in the adjoining area for doing the same kind of business. We entered into agreement to purchase the land bearing survey No.42/1 and 2 the total area of this was 18 Acres out of which we entered into agreement for the area of 9 acres 12R (372R) in the year 1997 for total consideration of ₹ 1,35,00,000/- (Rs. One Crore thirty five lakhs) out of which we made p .....

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so also the vacant land of survey No. 42/1 and 2 wherein we could not carry out any business due to the technical defect in the title of the land. Show also to produce the proof of cultivation in the said land the adjoining area in the central of this survey No. where developments not yet started and the cultivation of grapes and vegitables going on which is in possession of other partners." The clarification as above by the purchaser clearly shows that the negotiated price of ₹ 43 la .....

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hat the proceeds over and above the agreement price as indicated in the registered agreement was received by the appellant AOP. No evidence of sale of further land by the AOP could be brought on record by the A.O. Therefore, the AO is directed to adopt the sale price of land at ₹ 28,85,000/ - instead of ₹ 43,06,413/ - adopted in his assessment order. The rest of the amount has to be included in the total income of smaller AOP in the year when sale took place. The necessary action may .....

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rational approach in the matter. Accordingly, we do not find any error in the findings of the CIT(A). The Revenue has not objected to the modification in quantum. The Grounds taken by the assessee in this appeal are analogous to the Grounds taken in assessment year 1993-94 in ITA No.857/PN/2004. All the objections taken on behalf of the assessee were duly addressed in appeal concerning assessment year 1993-94. For the parity of reasoning given in the assessment year 1993-94, we find no merit in .....

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relating to assessment year 1998-99 revolves around yet another land similarly situated at Anandwali Area, Village Nashik bearing Survey No.42 which is also allegedly transferred to M/s Pai Developers Pvt. Ltd. as per Development Agreement dated Nil in the year 1997 at Nashik. The appellant AOP led by Mr. Chiraguddin Mohd. Khatib along with other 16 family members stated to have jointly purchased land from one Shri Vilas Rasiklal Shah by making two sale deeds. First sale deed was dated 07.06.19 .....

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ent was for a total consideration which was fixed at ₹ 1,50,00,000/-. The possession of land was stated to be given by possession receipt dated 22.09.1997. The developer was required to pay ₹ 1.35 crore in cash/ cheque to the assessee AOP. The developer was also required to construct two bungalows on the layout worth ₹ 15 lakhs on behalf of the assessee. It was also noticed by the Assessing Officer that the developer has already paid ₹ 32,00,000/- in aggregate by way of c .....

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th a motive of profit which nothing but a business transactions. He accordingly determined the business income emanating from the development agreement at ₹ 1,40,46,000/- on proportionate basis having regard to the fact that out of 17 members, only 14 members have transferred their rights in the aforesaid land in favour of the developer in the assessment year relevant to assessment year 1998-99. The Assessing Officer also vociferously observed that he did not get desired cooperation from t .....

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the other assessment years viz. 1993-94 and 1996-97. However, the CIT(A) found that possession of land bearing Survey No.42 is continuing with the assessee and the aforesaid transactions executed through development agreement and Power of Attorney could not achieve finality as the developer failed to meet the terms and conditions of the agreement. The CIT(A) also noted on facts that the possession receipt dated 22.09.1997 was fabricated and the possession was never passed to the developer in te .....

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