TMI Blog2013 (11) TMI 1782X X X X Extracts X X X X X X X X Extracts X X X X ..... vide order dated 31.12.2009, determining the income of the assessee at ₹ 105,70,17,730, after making the following additions- (a) Unexplained expenditure ₹ 32 crores (b) Consideration in kind ₹ 68,31,25,000 (c) Profit received/receivable from Sai Surya Realtors ₹ 5 crores. 3. On appeal, the CIT(A) though deleted the addition of ₹ 32 crores made on account of unexplained expenditure, he sustained addition of ₹ 3,55,28,500 out of ₹ 68,31,25,000 made on account of consideration in kind, deleting the balance addition made by the Assessing Officer, and sustained the entire addition of ₹ 5 crore made by the Assessing Officer representing profit received or receivable by the assessee from Sai Surya Realtors. 4. Aggrieved by the reliefs granted by the CIT(A), Revenue preferred appeal, ITA No.337/Hyd/2012, whereas the assessee is in appeal, ITA No.291/Hyd/2012, aggrieved by the additions sustained by the CIT(A). 5. The first issue in these appeals relates to the action of the CIT(A) in deleting the addition of ₹ 32 crores made by the Assessing Officer. 6. Facts of the case in brief in relation to this issue are that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that there appears to be no direct involvement of the assessee to such unsigned letter found at the residence of Srhi Sriivas. With these observations, the CIT(A), deleted the addition of ₹ 32 crores made by the Assessing Officer, vide para 5.0 of the impugned order, concluding portion of which reads as under- 05.0 Shri Srinivas s assertion that he said letter noted in his diary is in his own handwriting; and that it is he who drafted the letter clearly explains the position. It should also be appreciated that the said assertion by Sri Srinivas was made on the very day and during the course of search proceedings and is not an exercise as a result of afterthought. Thus, the presumption under section 132(4A) should point to the fact that the assessee had no connection whatsoever with the said letter. In view of this veracity of the said unsigned letter was doubtful not only because it was seized from the premises of Sri Srinivas; but also on account of the fact that it w as clarified by the person in whose writing the same was written that the said letter did not emanate from the assessee; it cannot be presumed that the assessee is the owner of the letter and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of 10 acres and 37 guntas remained. The Assessing Officer concluding that this balance land was transferred to four persons without consideration, and arrived at the value of such land at ₹ 136.62 crores. Further observing that two of such persons to whom the land was transferred were dummy persons, the Assessing Officer brought to tax 50% of the consideration amounting to ₹ 68,31,25,00 in assessee s hands, by making an addition in that behalf. 11. On appeal, the CIT(A), in the first place noted that the main players right from the beginning are two concerns such as M/s. Demi Realtors, who handled land situated at Puppalguda Vilalge and M/s. Mali Florex Ltd. who dealt with land situated at Narsingi Village. These two concerns, according to him, have taken various steps which include direct negotiations with land owners engaging middlemen, GP holders and taking legal action to ensure proper title to the land transferred to DLF and its subsidiaries. Therefore, it is necessary to consider the value of the land, so obtained under GPA, in the hands of M/s. Demi Realtors and also M/s. Mali Florex Ltd. for the services and activities carried on by them to fiulfil the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing persons: a) 0.20guntas transferred to Sri C.Srinvas; b) 0.37.5 guntas to Anjanakumar others; c) 1.32 to Belmont Estates (part of 26 acres sold to DLF). Around 5-00 acres land was registered in favour of the assessee and Sri D.S.Karunakara Reddy i.e. 2.5 acres each. Balance land claimed to be not in existence. 06.5 . Although as discussed above, the value of the total land under the AGPA should be assessed in the hands of two entities, whatever benefit accrues to the appellant along with other person Sri D.S.Karunakar Reddy, also to be assessed in their respective hands as gratuitous payments. In regard to issue of valuing such benefit it has first to be decided as to whether the value of entire 10.37 acres is to be taken into account or the value of land left over with the assessee under AGPA. After transferring 1 acre 32 guntas to DLF, out of the remaining land, the following extent of land was transferred in favour of the following persons: a) 0-20 guntas transferred to Sri C. Srinivas; b) 0-37.5 guntas to Anjanakumar others; 06.6 The appellant had also explained the sequence of events and the assessee's interest in acquisition/disposal of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaging the services of middlemen and others. It is very clear from the facts of the case that this land deal is having multiplicity of legal issues, owners, middlemen and Notifications of the Government on land use etc. In the process of having control on the land to be transferred to DLF subsidiary company, M/s. Demi Realtors has obtained AGP in the names of Sri Karunakar Reddy and Narayana Reddy by roping in all the parties involved in this deal. Thereafter, the land has been transferred to the DLF company for agreed consideration. Hence, in the fitness of things, the value received on transfer of 1 acre 32 guntas is required to be considered in the hands of M/s. Demi Realtors. The appellant has no stake or right over this land because of pre-existing commitment of the main company i.e. Demi Realtors. Accordingly, the land admeasuring 1.32 acres cannot be considered as benefit accrued to the assessee. Therefore, the same should be excluded for purpose of calculating the value of the benefit to the assessee on this transaction. Nevertheless, the appellant has disclosed an amount of ₹ 4 lakhs as income from other sources on this land. Thus if the transaction relating to sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n reasonably be assessed at ₹ 1 crore for the purpose of valuing the benefit. Thus, the total value comes to ₹ 7,37,32,000/-(49,50,000+92,82,000+4,95,00,000- +,1,00,00,000) The assessee claims that he is only owner of 1/4th share in the deal whereas the Assessing Officer considered 50% in the hands of the assessee. I have considered the aspect of share of the assessee in this deal. The other two names cropped up in this deal are Mr. K.Srinivasulu and Sri B.Mukunda Rao. These two persons are mere namelenders without any service rendered to the entire deal. They have been roped in only for the sake of transaction without any stake for them. Their contribution to the deal is not visible till the AGP comes into picture. The fact of such subsequent registration of 5 acres in the hands of the assessee and Karunakar Reddy is clear indication about the truth in the contention of the assessee. Had these persons are also having interest in the transaction; they also could have received some value. But no such benefit has been given to Sri Srihivasulu and Mukunda Rao. Therefore, the contention of the assessee smacks of any evidence much less substantial evidence. Accordingly, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aslsessee to be valued at ₹ 1 crore, on the basis of valuation reprot from District Valuation Officer. Thus, the CIT(A) valued the above land at ₹ 7,37,32,000 (being aggregate of ₹ 49,50,000 + 92,82,000+ 4,95,00,000+1,00,00,000) and assessee's share was arriveed at 50% of this figure at ₹ 3,68,66,000. Since the assessee has already offered ₹ 13,37,500, be brought to tax the balance amount of ₹ 3,55,28,500 as constituting income of the assessee within the meaning of S.2(24)(iv) of the Incoem-tax Act. According to the CIT(A) the assessee, being a Director of M/s. Mali Florex Ltd., played a key role in the purchase and sale of lands done by M/s. DEMI Realtors, and he has paid ₹ 4.2 crores per acre of land and on the basis of written submission of the authorised representative of the DEMI Realtors and its partner Shri Karunakar Reddy, he came to the conclusion that land was transferred without consideration to four persons namely, the assessee Shri D.S.Karunakar Reddy, Shri D.Mukund Rao and Shri K.Srinivasulu for the services rendered by them. Since the M/s. DEMI Realtors sold the land to DLF at ₹ 12.5 crores per acre on 22.8.2007, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, so as to attract the provisions of S.2(24)(iv) of the Income-tax Act. That being so, since the assessee has not derived the benefit from the company wherein he is a director or in which he was having substantial interst, in our opinion, the provisions fo S.2(24)(iv) cannot be invoked. The Learned Departmental Representative submitted that it could be alternatively brought to tax under S.56 of the IT Act. We have also carefully gone through the provisions of S.56(vii) of the Act. This provision was introduced by Finance (No.2) Act, 2009 with effect from 1.10.2009. The case before us, being relevant for assessment year 2008-09, the said provision also cannot have any application to the facts of the present case. The department cannot levy tax on income, which is only hypothetical and does not materialise as held by the Supreme Court in the case of Godhra Electric Company Ltd. V/s. CIT (225 ITR 746). Being so, the Assessing Officer cannot bring to tax the difference between the book value of any part of the asset acquired and the price paid for the same as revenue receipt. It cannot be said that the assessee made any profit at all by one from the purchase of any of the asset. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serving that mere non-encashment of cheques by itself cannot be a pointer to suggest that the document has no relevance for being considered, confirmed the addition made by the Assessing Officer. 29. Aggrieved by the orders of the lower authorities on this issue, assessee is in appeal before us. 30. We have considered rival submissions and perused the material available on record. As per the MOU entered into by the assessee with Shri Sai Surya Realtors on 27.6.2007, the assessee made an investment of ₹ 2 crore in real estate business. Against this the assessee has to receive ₹ 7 crores on a future date, and as a security, assessee received from Sai Surya Realtors post dated cehques. Assessee pleaded before us that this sum of ₹ 7 crores, returning of ₹ 2 crores invested by the assessee, and the profit of ₹ 5 crores. The Assessing Officer treated the amount of ₹ 5 crores represented by post dated cheques as profit from real estate business in the assessment year under consideration. Assessee pleaded before us that the proposed transaction has not materialised and the post dated cheques have not been encashed, and the Assessing Officer has no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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