2016 (6) TMI 744 - HC - Income Tax

Genuineness of payment - diversion of income - Held that - The petitioner was the owner of the land in question. He executed a sale deed in favour of Kusumben Doshi. As per the sale deed, the petitioner received only ₹ 58.68 lacs by way of sale consideration whereas M/s. Pushpadanta Infrastructure Ltd., as the confirming party, received ₹ 2.95 crores. There is not a word in the sale deed why the majority of the sale consideration was diverted to M/s. Pushpadanta Infrastructure Ltd. The petitioner has not been able to produce before the Revenue Authorities or even before us any reason why M/s. Pushpadanta Infrastructure Ltd. should have received such sale consideration. No agreement to sale, no lease document, no other document showing even in remote manner M/s. Pushpadanta Infrastructure Ltd. having acquired any right, title or interest in the land has ever come on record. It is not even stated that M/s. Pushpadanta Infrastructure Ltd. legally or otherwise was in possession of the land due to which such sale consideration had to be diverted to it. The Revenue Authorities, therefore, correctly disbelieved the genuineness of payment to M/s. Pushpadanta Infrastructure Ltd. and treated it as diversion of income.

Summary

Issues:
Challenging order under Section 264 of Income Tax Act - Diversion of sale consideration to third party - Dismissal of revision petition by Commissioner.

Analysis:
The petitioner challenged an order by the Commissioner of Income Tax under Section 264 of the Income Tax Act regarding the diversion of sale consideration to a third party. The petitioner sold agriculture land but received only a portion of the total sale consideration, with the rest being paid to a third party. During scrutiny, the Assessing Officer found the transaction suspicious as the petitioner failed to provide satisfactory explanations. Consequently, the Assessing Officer treated the transaction as a sham and taxed the amount in the petitioner's hands.

The petitioner then filed a revision petition under Section 264, which was dismissed by the Commissioner. The Commissioner noted the lack of documentary evidence supporting the transaction between the petitioner and the third party. The absence of any agreement or logical reason for diverting a significant portion of the sale consideration raised doubts about the genuineness of the transaction, leading to the dismissal of the revision petition.

The petitioner contended that an agreement to sell with an intermediary justified the transaction. However, the court held that the Revenue Authorities did not err in disbelieving the petitioner's claims. The petitioner failed to provide concrete evidence or reasons for diverting the substantial amount to the third party. The lack of documentation or proof of the third party's rights or possession of the land undermined the petitioner's arguments. Consequently, the court upheld the decision to dismiss the petition, emphasizing the absence of credible evidence supporting the transaction.

In conclusion, the court found no error in the Revenue Authorities' decision to treat the transaction as a diversion of income. The lack of substantial evidence or justification for diverting the majority of the sale consideration to a third party led to the dismissal of the petitioner's claims. The court upheld the dismissal of the petition, highlighting the absence of concrete proof or legitimate reasons for the transaction, affirming the Revenue Authorities' stance on the matter.