Rajasthan H.C : Where assessee having purchased agricultural land, converted same into non agricultural land and sold same within a short span of time on regular basis to companies in which he was a director, income earned by assessee from said activity was taxable as ‘business income’

High Court Of Rajasthan

Vimal Singhvi Vs. ACIT, Circle-2, Jaipur

Assessment Year : 2008-09

Section 2(14),28(i), 45, 145

Ajay Rastogi And J. K. Ranka, JJ.

DB IT Appeal No. 34 Of 2014

November 14, 2014

ORDER

J.K. Ranka, J. – This appeal under Section 260A of the Income Tax Act (for short, ‘IT Act’) is directed against the order of the Income Tax Appellate Tribunal (for short, ‘ITAT’) and is relevant for the assessment year 2008-09.

2. Brief facts, which can be noticed on perusal of the impugned order and the order annexed, are that the assessee though was indulged in the activity of trading of precious stones, was simultaneously also Director of M/s Grass Field Farms and Resorts Pvt. Ltd. and M/s Grass Field Fire Capital Developers Pvt. Ltd. and during the year under appeal had sold certain lands to the aforesaid companies. The bone of contention in the present appeal relates to two activities of the assessee wherein the Assessing Officer (for short, ‘AO’), with reference to the sale of lands, came to the conclusion that it is business income while the claim of the assessee was that it being sale/transfer of agricultural land, is not a capital asset within the meaning of section 2(14) (iii) of the Act and thus is not liable to tax under the Income Tax Act (for short, ‘IT Act’). The second issue, which has been raised in the appeal, relates to rejection of the books of accounts by invoking provisions of Sec. 145 (3) of the IT Act and in applying a higher gross profit rate after rejecting the trading accounts.

3. During the course of hearing in assessment proceedings before the AO, information was gathered by the AO on the basis of information conveyed by the assessee that he had sold certain lands from 1st April, 2007 to 31st March, 2008 falling within the previous year relating to the assessment year 2008-09 for a sale consideration of Rs.8,36,93,154/-.

4. Simultaneously, the assessee also gave purchase value including registration cost at Rs.3,21,29,158/- and resulting into a difference/gain/surplus of Rs.5,15,43,996/-. It was noticed by the AO that in some of the cases, the lands were sold/transferred in near vicinity of the land purchased to the private limited companies where the assessee was a Director resulting in huge difference/gain to the assessee, but the claim of the assessee was that although there was surplus of Rs.5,15,43,996/- during the assessment year 2008-09 on sale of agricultural land situated at village Hingoniya, Basoda, Bukni, Nasnoda & Mahela but all the subject lands were situated outside the municipal limits of JDA/ Jaipur Nigar Nigam etc. and the population of these villages, does not exceed 10000 and therefore, is not a capital asset within the meaning of Sec. 2(14) (iii) of the IT Act and hence, surplus on sale of agricultural land is not subject to tax. On a further query raised by the AO, it was noticed that all the aforesaid lands were purchased by the assessee in his own name and later on transferred/sold to the aforesaid limited companies where the assessee was a Director and there being a consistency and frequency of the transaction of sale and purchase, the AO was of the view that it is in the nature of business income and observed that the land claimed is not in the nature of agricultural land as no agricultural activities are carried on by the assessee. The AO also, on perusal of the recital in the sale deeds and admission by the assessee, where it was mentioned that the land stands converted and is no more agricultural land and indeed there being no agricultural operations, the character of the land stood converted by the very admission by the assessee. It was further observed by the AO that there are series of land transactions and thus the assessee was actively engaged in the business of purchase and sale of land.

5. The assessee, during the course of assessment proceedings, reiterated the fact that the lands are agricultural lands and are beyond 8 kilometers of municipal limits and thus not liable to be taxed and is not a capital asset u/s 2(14) of the IT Act. However, the AO was not satisfied with the explanation so offered and on analysis of the evidence and material on record, further came to the conclusion that the assessee did purchase the lands, converted the same for residential/commercial use and sold to the companies where the assessee was a Director and the companies utilized the land for development and plotting. Thus the assessee tried to claim the entire surplus/gains as agricultural income but on the contrary, the real intention of the assessee was to sell the land to the companies where the assessee himself was a Director which used it for development and plotting. Thus on the one hand, the assessee gained substantially by not showing surplus by way of capital gains but on the contrary claimed the properties to be converted, in the sale deed itself. The AO was also further of the view that no agricultural operations had been carried on as no evidence was placed on record by the assessee about the agricultural income or activity having been carried on the said lands. It was also noticed by the AO that in some cases, the land has been allegedly transferred to the limited companies through unregistered sale deeds and that no evidence further thereto was provided to the AO. After analyzing the evidence on record, the AO, held that the entire surplus of Rs.5,15,43,996/- is in the nature of business income and further held that the modus-operandi adopted by the assessee was a colourable device to evade tax and accordingly made the aforesaid addition.

6. In so far the addition relating to rejection of books of accounts u/s 145(3) of the business relating to precious and semi-precious stones is concerned, the AO noticed that the assessee did purchase some goods from a party namely; Lotus Impex which was found to be non-genuine or the party used to issue bills rather than actual sale and purchase. The AO also found that despite the assessee being asked to furnish day to day details of all types of stocks in terms of opening and closing stock with quantity wise categorization etc., the assessee failed to furnish such details and even the AO has noticed that the assessee is not maintaining stock register at all and the entire valuation of the opening as well as closing of the stock is on mere estimation and thus, prima-facie, came to the conclusion that the books of accounts are to be rejected and a higher GP rate is to be applied.

7. The assessee responded by placing confirmation and photo copy of bills of the party, permanent account number (PAN) as also TIN number under sales tax and also submitted that payment is by account payee cheques. It further requested for issuing summons u/s 131 for production of the party. However, the AO noticed that despite of summons u/s 131 of the Act having been issued on different dates at the address given by the assessee himself, the summons returned unserved and even the Inspector was deputed to get the summons served and it was reported by the Inspector that “no such concern existed on the given address”. Therefore, the AO, finally held that the results deserves to be rejected by invoking Sec. 145(3) and accordingly not being satisfied with the explanation so offered, made a trading addition of Rs.1,05,275/-.

8. Dissatisfied with the additions made by the AO, the matter was carried in appeal before the Commissioner of Income Tax (Appeals) (for short, ‘CIT(A)’) who, after analyzing the evidence on record, in so far as the issue relating to agricultural land is concerned, was satisfied that the said lands were not capital asset within the meaning of Sec. 2(14)(iii) and deleted the addition but in so far as the addition relating to trading account is concerned, while the CIT (A) upheld the finding of the AO that rejection of books of accounts u/s 145(3) was proper but sustained the trading addition of Rs.3,31,176/- by enhancing the trading addition which was made by the AO at Rs.1,05,275/- on the premise that the AO had gone wrong in disallowing 25% of the bogus purchases while the AO ought to have gone on the basis by applying proper GP rate.

9. The matter was carried in appeal by the Revenue before the ITAT. The assessee filed cross-objection. The ITAT allowed appeal of the Revenue and partly allowed cross-objections of the assessee.

10. Counsel for the appellant at the outset during the course of arguments contended that the appeal has been decided ex-parte, though admitted that notice was received by the appellant but on account of boycott call given by the Associations namely; the Rajasthan Tax Consultants Association; Tax Consultants Association and Jaipur Tax Tribunal Bar Association with an allegation against member of the Income Tax Appellate Tribunal who is the author of the order of the ITAT in impugned order, a resolution was passed unanimously by all the Associations to boycott the Jaipur Bench of the ITAT on account of said member and the arguing counsel in the instant case also happened to be a signatory of the resolution being Secretary of Jaipur Tax Tribunal Bar Association, the Hon’ble Bench of ITAT was aware of the boycott call given and therefore, it ought not to have proceeded to decide the said appeal ex-parte. Thus the order is not proper and is without application of mind and is in violation of principles of natural justice and the matter deserves to be remitted to ITAT to decide the questions afresh in accordance with law.

11. Ld. counsel for the appellant on the other issues submitted that the ITAT has grossly erred in reversing the finding reached by the CIT(A) and came to the conclusion that the agricultural lands, sold/transferred by the assessee to the limited companies, are in the nature of agricultural lands and a finding of fact reached by the CIT (A), has been reversed by the ITAT, in absence of any evidence to the contrary being produced in rebuttal and even if two views were possible, still it was not open to reverse the finding recorded by CIT (A) and being perverse, deserves considerations. He further contended that evidence was led that the lands in question were agricultural lands as per revenue record, were out of purview of the Municipal limits/limits of JDA and thus the gain/surplus, if any, was not liable to be taxed as capital asset. He further contended that the AO as well as ITAT have gone wrong in disbelieving the version of the assessee without adequate material being there that the lands continued to be agriculture on record, unless converted by the assessee. He further contended that merely because there were some frequent transactions, does not lead to conclusion that it becomes business and the gain/surplus is liable to be taxed as business income.

12. He drew attention of this Court on the chart annexed by the AO that some of the lands were purchased by the assessee in December, 2004 and April, 2005 which came to be transferred/sold in May, 2007 and thus it is not that the lands in question were transferred within a short period of time, relied on the judgment of Bombay High Court in the case of CIT v. Smt. Debbie Alemao [2011] 331 ITR 59/196 Taxman 230/[2010] 8 taxmann.com 243.

13. In so far as the second issue about the trading addition is concerned, counsel contended that provisions of Sec. 145(3) are inapplicable in the instant case as the assessee purchased the goods from a seller who was assessed to income tax/sales tax and whereabouts were known, confirmation was filed and payment was by account payee cheques and thus the addition by invoking provisions of Sec. 145(3) are inapplicable in the facts of the instant case.

14. He further contended that as far as the assessee is concerned, it was proved by the tangible evidence that the purchase made by the assessee is genuine but the conclusion reached by the authorities that the sale/purchase by the assessee is not genuine, is without any evidence or material on record and contended that provisions of Sec. 145(3) are inapplicable and no addition could be made either trading or otherwise and substantial question of law arise out of the finding on record for consideration of this Court.

15. We have considered the arguments advanced by the ld. counsel for the appellant and perused all the orders minutely. We notice that the appeal was listed for hearing on 21/05/2013 before ITAT when the counsel moved an application seeking adjournment for preparing the case and request was carried out. Again on 29/08/2013 (the date of hearing) Judicial Member was deputed to constitute the Division Bench alongwith the Accountant Member posted at Jaipur but when the case was called for hearing, no one appeared on behalf of the assessee nor any application was filed for adjournment and the department was represented by its authorized representative who was heard and the order dt. 26/09/2013 was passed by the Tribunal.

16. We are not convinced with the argument advanced by ld. Counsel for the assessee that the members of the association being on strike still passing order behind the back of the assessee’s representative is in violation of principles of natural justice. The Hon’ble Apex Court, in the case of Ex. Captain Harish Uppal v. Union of India [2003] 2 SCC 45, deprecated the strike call/ boycott call by the Lawyers and held it to be illegal and unjustified. It expressed in strong terms that Lawyers have no right to go on strike or give a call for boycott, not even on a token strike. It further observed that lawyers holding Vakalats on behalf of their clients are under legal duty to attend the Courts/Tribunals irrespective of strike or boycott. Lawyers must boldly refuse to abide by any call for strike or boycott. No lawyer can be visited with any adverse consequence by the Association or the Council and no threat or coercion of any nature including that of expulsion can be held out. Strike or boycott cannot be countenanced in the present day situation and real sufferer is the society-public at large.

17. In the light of the judgment (supra), we are not convinced with the argument advanced by counsel for the appellant on this submission and particularly in view of the fact that an adjournment was already granted by the Bench on the request made on behalf of the appellant. Thus, we see no reason to interfere in the order passed by the ITAT deciding the appeal ex-parte as alleged and thus not convinced with the submission of counsel for the appellant that the matter deserves to be remitted back to the ITAT for re-hearing or an opportunity be afforded to the assessee for fresh hearing.

18. On perusal of Chart-A, which is annexed by the AO in the assessment order as also reproduced by the ITAT, what we notice is that it may be in regard to the initial purchase, which has been disclosed by the assessee in December, 2004 or April, 2005, has been sold in May, 2007 or there can be said to be a gap of about 2 years but when we peruse the other purchases vis-a-vis sale, it transpires that in almost all cases, the transfer/sale has taken place within a period of one or less than one year. We have also scanned the Chart ‘A’ minutely and it can be noticed that :—

19.1 In item/serial No.4, the date of purchase has been shown to be 31st May, 2007 against a consideration of Rs.2,14,16,200/- while the same has been sold/transferred to one of the companies, where the assessee himself was Director, on 01/06/2007 against a consideration of Rs.3,21,35,785/- with surplus/difference of Rs.1,07,19,585/- and therefore, it is apparent that within a day of purchase, the said property was transferred with a gain/surplus of Rs.1,07,19,585/-.

19.2 In item/serial No.6, the date of purchase has been shown to be 31st May, 2007 against a consideration of Rs.5,88,860/-while the same has been sold/transferred on 13/06/2007 against a consideration of Rs.61,23,450/- with surplus/gain of Rs.55,34,590/-and therefore, it is apparent that within less than 15 days of purchase, the said property was transferred with a gain/surplus of Rs. 55,34,590/-.

19.3 In item/serial No.7, the date of purchase has been shown to be 11th April, 2007 against a consideration of Rs.2,31,725/-while the same has been sold/transferred on 18/08/2007 against a consideration of Rs.26,35,970/- with surplus/ difference of Rs.24,04,245/- and therefore, it is apparent that in about four months of purchase, the said property was transferred with a gain/surplus of Rs. 24,04,245/-.

19.4 The other instances are similar in nature. These are all admitted facts by the assessee as the chart has been provided by the assessee himself to the AO during the course of the assessment proceedings and by registered sale deeds duly registered with the Sub-Registrar and such sale deeds were provided by the assessee to the AO.

20. On perusal of the said chart, it is again noticed that in some of the cases, the land was transferred by unregistered instrument within a short span of time resulting into huge surplus/ difference/ gain by the assessee. With this, what we as well as the ITAT and AO, have noticed is that the claim of the assessee itself is apparently wrong that the transaction did not take place within a short span of time. Admittedly, even as per the chart, lands in question were transferred/sold even within a day of purchase as noticed earlier. Therefore, the contention of counsel for the appellant on the very face of the chart seems to be incorrect and therefore, the conclusion of the ITAT as well as AO appears to be correct that there was regularity of transaction with intention to make income and even within a short span of time, the lands were transferred on substantial gains. Purchases were not by way of investment. It will also be necessary to observe that the ITAT came to a finding of fact based on material on record and appreciation of evidence produced by the assessee, the ITAT categorically observed in the order that even the so-called agricultural land stood converted into non-agricultural use, is clearly spelt out in the conveyance deed executed by the assessee in favour of the companies namely; M/s Grass Field Farms and Resorts Pvt. Ltd. (GFFR) and M/s Grass Field Fire Capital Developers Pvt. Ltd. (GFFC). The ITAT has reproduced the recital of the sale deed also in respect of the land being Khasra No. 426/1 and 426/2 at serial No.4 of the chart for a sale consideration of Rs.3,21,35,785/- executed in favour of GFFC which we have also pointed out herein above that the Khatedar, who sold his land to the assessee, had deposited the expenses relating to conversion of this land including the expenses incurred on conversion charges and even paid amount to Appropriate Authorities prior to sale of his land to the assessee and even an order u/s 90A of the Rajasthan Land Revenue Act, 1956 read with Rajasthan Land Revenue (Conversion of Agricultural Land for Non-Agricultural Purposes in Rural Areas) Rules, 1992 stood issued by the concerned authorities in respect of the said land. Thus by an order u/s 90 A the nature of the land stood converted from agricultural to non-agricultural.

21. Thus, when the assessee in the conveyance deed himself has recited about the land having been converted u/s 90A of the Act, the nature of the land never remained agricultural any more. The recital of the sale deed executed by the assessee/consignee is reproduced hereunder:—

“WHEREAS the seller own and possess in converted area of the lands bearing in khasra no.426/1 admeasuring 11 bigha 13 biswa in which converted area is 10 bigha 17.17 biswa (i.e. 27464 sqm), khasra no.426/2 admeasuring 2 bighas 14 biswas in which converted area is 0 bigha 16 biswa (i.e. 2023 sqm), khasra no.427/2 admeasuring 11 bigha 2 biswas in which converted area is 3 bigha 4 biswa (i.e. 8093 sqm), khasra no.4. 432/2 admeasuring 11 bigha 14 biswas fully converted (i.e. 29594 sqm) and whereas the land coming under the above mentioned khasras originally belonged to :—

1. Shri Deenanath

Hereinafter referred to as the Khatedar.

WHEREAS after having purchased the above mentioned converted area in lands of Khasra no.426/1 admeasuring 11 bigha 13 biswa in which converted area is 10 bigha 17.17 biswa (i.e. 27464 sqm), khasra no.426/2 admeasuring 2 bigha 14 biswas in which converted area is 0 bigha 16 biswa (2023 sqm), khasra no. 427/2 admeasuring 11 bighas 2 biswas in which converted area is 3 bigha 4 biswa (i.e. 8093 sqm), khasra no.432/2 admeasuring 11 bigha 14 biswas fully converted (i.e. 29594 sqm) situated at village Nasnota, the Khatedar herein got the land use converted of the above mentioned entire land being sold to the seller in these presents for the purposed development and that all expenses, duties, government charges on the said land including the expenses incurred on Conversion Charges, Fees has been deposited to the appropriate authorities by the Khatedar and an appropriate order under section 90A of the Rajasthan Land Revenue Act, 1956 read with Rajasthan Land Revenue (Conversion of Agricultural Land for Non Agricultural Purposes in Rural Areas) Rules, 1992 has been issued by concerned authorities in respect of the said land. A detailed list of 90A orders issued by appropriate authority in the respect of the said land is given herein below:—

Sr. No. Village Khata No. Khasra No. (share) Area in B-B-B Khated ar Order Date Order Reference No.
1 Nasnota New 111 & Old 101 426/1 10.17.17 (27464 sqm) Shri Deenanath 19.9.06 18B (80) 2006/R/10393
2 Nasnota New 27 & Old 29 426/2 00.16 (2023 sqm) Shri Deenanath 19.8.06 18B (82) 2006/R/10399
3 Nasnota New 27 & Old 29 427/2 03.04 (8093 sqm) Shri Denanath 19.8.06 18B (82) 2006/R/10399
4 Nasnota New 208 & Old 187 432/2 11.14 (29594 sqm) Shri Denanath 19.9.06 18B (80) 2006/R/10393

Total 26.11.17 ie Twenty six Bigha Eleven Point Seventeen biswa

22. On perusal of the above, it is apparent that even the order passed under the Land Revenue Act has also been indicated in the sale deed. In this very sale deed, admittedly, the assessee himself has stated “Thus, the seller herein became an absolute owner of the residential land as mentioned above having converted from agricultural to residential use of the land.”.

23. The ITAT has recorded a finding of fact that no documentary evidence was led by the assessee herein to substantiate his claim of doing any agricultural operations therein as the AO in the assessment order has clearly and repeatedly asked the assessee to substantiate the claim about the exact agricultural operations having been carried on by the assessee, but no satisfactory material was placed by the assessee. The ITAT also observed that the other lands, though not converted from agricultural to non-agricultural use, were in the same/near vicinity of the lands which were converted from agricultural to non-agricultural and thus the nature of the said lands too could not be different. Ordinarily, the question, whether the land is an agricultural land or a non-agricultural land is a question of fact and the finding on the question of fact recorded by the ITAT is final, unless perverse, is not open for us to interfere in the finding of fact recorded by the ITAT.

24. Therefore, in our view and in the light of the law laid down by the Hon’ble Apex Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631/70 Taxman 301 the conclusion arrived at by ITAT that the lands, sold/transferred by the assessee to the private limited companies, were non-agricultural and outside the scope and meaning of Sec. 2(14) (iii) of the IT Act requires no consideration.

25. Accordingly, no question of law, much less substantial question of law can be said to emerge out of the order of the ITAT with regard to the first issue.

26. In so far as the issue on trading addition is concerned, we notice that all the three authorities i.e. the ITAT, CIT(A) as well as AO, have categorically arrived to a conclusion that provisions of Sec. 145(3) are applicable and what should be a reasonable profit on account of the trading transactions, is a finding of fact. The assessee has introduced and recorded bogus purchases and verification of opening stock/closing stock were not open for verification in the books of accounts, thus the motive was to reduce its profits and thus the assessee/appellant has not been able to dispel this finding of fact recorded by all the three authorities who in consonance, have come to the aforesaid conclusion. In the case of Venus Arts & Gems (DB ITA No.582/2011), this Court has come to a conclusion that on non- genuine purchases, books of accounts can be rejected and provisions of Sec. 145(3) are applicable.

27. Thus, when there is a concurrent finding of fact of all the three authorities, no question of law much less substantial question of law can be said to emerge out of the order of the ITAT.

28. In view of what we have observed herein above, we find no infirmity or perversity in the order of the ITAT and no substantial question of law arise out of the order of the ITAT so as to call for interference of this Court.

29. Consequently, the instant appeal, being devoid of merit, stands dismissed in limine.

[Citation : 370 ITR 275]