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TMI Blog2009 (3) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... was conducted on 1st Feb., 2006, in the case of one M/s Mahaveer Medical Agencies and others. The AO conducted certain enquiries after the said survey operation, wherein he noticed that some persons namely: 1. Shree Natraj Sikaria S/o Shree Satyanarayan Sikaria, aged 40 years R/o Behind Collectrate Ward No. 31, Sikar; 2. Shree Raghuveer Singh Kajla S/o Shree Gulab Singh Kajla, aged 41 years R/o village and post Jerthi (Subhash Nagar) Tehsil Sikar, District Sikar; 3. Shree Shrichand Dhaka S/o Shree Laxman Singh Dhaka, aged 37 years R/o village and post Alakhpura Bogan via Patoda, Tehsil Laxman Garh, District Sikar; and 4. Shree Jamanlal Chahar S/o Shree Chokha Ram village and Post Sutot, Tehsil Laxman Garh, District Sikar, purchased a plot of land measuring 674 sq. ft. on 3rd March, 2005 from one Shri Ghyana Ram S/o Shri Hanmana Ram Choudhary for a total consideration of Rs. 5 lacs. For the sake of convenience, a common sale deed was executed. The appellants also separately applied to the municipal committee of Sikar in their individual capacity, which was granted vide order number dt. 30th May, 2005 of the council for the use of the land for residential purposes. Later on a bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, instead of filing a return of income, Shri Pradeep Pilania, Authorised Representative of the assessee filed a written reply objecting to the issue of notice to M/s Sangam Tower in the status of AOP. The Authorised Representative once again objected to the treatment of the assessee as AOP and stated that the building "Sangam Tower" was constructed by the aforesaid four persons individually and each of them had fully explained their investment in the return of income filed with the concerned AO. The AO however, rejected the contentions and assessed the income. In first appeal, the learned CIT(A) has confirmed the action and entire addition made by the AO. 4.2 The learned Authorised Representative submitted that the impugned order has been passed in the name of the alleged AOP i.e. M/s Sangam Tower, Sikar, which is a totally non-existent tax entity and do not fall within the specific definition of person contained under s. 2(31) of the Act. There is no such alleged AOP known to anyone in the world nor it has come in existence at any time till date. An AOP is an unincorporated body of persons and in the context of the Act, if some persons have joined hands on their own volition f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in question or thereafter. It cannot, therefore, be said that they had constituted an 'AOP' with the common object of producing income, profits or gains. The only transaction, in which they joined together, was the transaction under consideration. 4.6 The various indicators to show that there existed no AOP as such are: (i) Each of the appellants applied separately to the Municipal Council, Sikar and the sanction granted for residential purposes, and not for commercial purposes. (ii) No books of account have been maintained, which being a matter of mutual faith and to ascertain whether there was a joint earning of profits, to determine rights and obligations of the members per se (sic-inter se), was essentially required. (iii) All the four persons have been regularly filing their returns of income, wherein they have duly declared there respective income from the co-ownership and have duly shown the investment made of the subjected property, in their respective returns of income. (iv) All the four persons have maintained accounts for the purposes of their respective part of the construction done and sales made. Moreover, the part of the property belonging to a person is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust, HUF etc. Hence to expect that a layman shall confidently and correctly reply the status is highly doubtful. 4.9 It was pointed out that the past assessment has been completed without scrutiny, therefore, the assessee had no occasion in the past. The very presence of the Department at his doorstep, was sufficient to create a tension and panic in his mind. Further submitted, that there is no estoppel in law. A wrong interpretation assumes, cannot bind. On the contrary, Shri Sikariya also stated that the subjected plot was purchased by 4 persons in co-ownership. He relied upon Ashok Kumar Soni vs. Dy. CIT (2001) 72 TTJ (Jd) 323, Karam Chand vs. Asstt. CIT (2000) 68 TTJ (Chd) 789 : (2000) 73 ITD 434 (Chd) and Rishab Kumar Jain vs. Asstt. CIT (1999) 63 TTJ (Del) 236. It has been held by the Hon'ble Supreme Court in Pullangode Rubber & Produce Co. Ltd. vs. State of Kerala & Anr. (1973) 91 ITR 18 (SC). 4.10 The learned Authorised Representative submitted that it is factually wrong to say that all members were engaged in construction business in as much as the AO has himself noted that Shri Dhaka and Kajla were teachers. Moreover signing by each member was quite natural as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 2(31) as a taxable entity. The learned CIT(A) summarily decided the issue in hand. 4.15 The AO has also applied McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), however, much water has flown thereafter and therefore, McDowell is not universally applicable. He relied upon M.V. Valliappan & Ors. vs. CIT (1988) 67 CTR (Mad) 289 : (1988) 170 ITR 238 (Mad), CWT vs. Arvind Narottam (Indl.) (1988) 72 CTR (SC) 94 : (1988) 173 ITR 479 (SC) and Banyan & Berry vs. CIT (1996) 131 CTR (Guj) 127 : (1996) 222 ITR 831 (Guj). 4.16 The learned Authorised Representative finally prayed that the orders of the authorities below taking the status of AOP be quashed. 5. On the other hand the learned Departmental Representative strongly relied upon the orders of the authorities below taking the status of AOP. He submitted that the assessment was rightly framed under s. 144 in absence of return of income. The operation of bank accounts jointly, the purchase of Haveli, the commercial construction jointly and answers given by Shri Sikaria established that it was a case of AOP. He therefore, prayed that the status of AOP be confirmed. 6. The impugned order has been pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an AOP and that transaction did not amount to an adventure in the nature of trade. 7.1 In Smt. Jaswant Kaur Sehgal & Ors. vs. CIT, it was held an AOP essentially presupposes a union of the members thereof for a common purpose. There has to be a community of interest. For the purpose of the IT Act such a combination must be, one, the object of which is to secure income, profit or gain. In order that an income can be assessed in the hands of an AOP, it must be derived from a process in which the AOP has some control facilitating contribution of its members for earning the income, profit or gain for which it is formed. 7.2 The writ petitioners with four other persons had jointly purchased a lottery ticket of the lottery conducted by the Directorate of State Lotteries, Government of Nagaland. It won the first prize of Rs. 1 crore. The purchasers claimed individual shares of the available prize money from the Government which was paid to them after deducting the income-tax at source. The certificate of such deduction was also issued to the purchasers. The tax was credited to the corresponding income-tax head as well and a certificate to the effect was also issued. The appellants in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not assessable in the status of AOP. 7.5 In Rama Devi Agarwalla & Ors. vs. CIT five persons had purchased and sold property and made profit and since there was no evidence of common management or user; it was held that they cannot be assessed as an AOP. 7.6 In CIT vs. Har Parshad & Ors., a large piece of land sold even after a period of 8 years that too, after conversion into plots, was treated as a capital gain and not a business in the status of AOP. 7.7 Applying the ratio laid in the above decisions, we find that in the present case, all the four persons, never intended to carry out a regular business of real estate, i.e. the purchase, sales and construction of apartments etc. In fact, they did not have the requisite amount of experience in as much as admittedly two of them were teachers in Government schools. In the past, there is nothing to show on record that all these four very persons had been carrying out any business activity relating to construction business nor in future except this isolated transaction. With regard to this particular transaction even, it is not denied that all the four persons applied individually in their respective individual capacities seeking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to what is an AOP or what not. We also find substance in the submission of the learned Authorised Representative that it was only an isolated transaction and could not have been given the name of the business or adventure in the nature of the trade. Moreover, we find that the facts of the present case are also covered by the decisions on facts and situations which are near to the facts of the present case. 7.9 In the case of Saroj Kumar Mazumdar vs. CIT, the Hon'ble Supreme Court held that in the absence of any evidence to support the inference that the isolated transaction constituted an adventure in the nature of trade, it should be regarded as on capital account. Under the totality of the facts and circumstances, as discussed above, we are of the view that it was not the case of an (sic). We hold accordingly. The ground no. 2 is thus allowed. Ground No. 3: 8. This ground is dismissed as not pressed. Ground No. 4: 9. The addition of Rs. 10,70,775 being the unaccounted income (unexplained investment) in the purchase of a land measuring 674 sq. ft. on 3rd March, 2005 from one Shri Ghyana Ram S/o Shri Hanmana Ram Choudhary for a total consideration of Rs. 5 lacs, has been quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j) 289. 9.4 He further submitted that the onus under s. 69 was upon the AO, however the AO totally failed to discharge the same by bringing some cogent evidence on record. Reliance on stamp duty valuation was a mere suspicion, which was not sufficient. Moreover, even on merit, the locations of the subjected plots are not such so as to fetch such high prices, as valued by the sub-Registrar. The very fact that one plot was situated near hostel itself, has substantially reduced the market prices working as a disincentive for a prospectus buyer for the simple reason that hostel residents, are not holding good reputation. 9.5 Thus, to the extent of the difference between declared consideration and stamp valuation of Rs. 4,82,355, he prayed that no addition could and should have been made and therefore be deleted. 9.6 As regards the balance addition of Rs. 5 lacs, he submitted that the amount invested by these 4 persons towards the subjected land, was a capital contribution by them. Therefore, the source of the same should have been examined and considered in the hands of the respective person only and addition, if any required, should be made there only, as done in case of Natraj Sik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the seller in which case provisions of s. 50C are applicable for the purpose of computation of capital gain under s. 48 of the Act. Provisions laid down under s. 50C are clear, hence the same cannot be extended in the case of purchaser, the assessee herein, unless the fact of understatement is established by the Revenue. Hence the addition to this extent is deleted. As regards, the balance addition relating to the source is concerned, it appears that the AO and the learned CIT(A) have not appreciated the material facts that all the purchasers are income-tax assesses being in the services of the State Government for last several years and in some cases the spouse is also in services, it should not have been difficult for them to have invested Rs. 5 lacs, when individual share, if assumed, comes below Rs. 1.25 lacs each. The statements of Shri Sikaria have not been also appreciated wherein vide answer to question No. 19, he had already explained the source. Thus, there was nothing to show that the explanation offered by the appellant could be said to be unsatisfactory. No contrary material was brought on record to rebut assessee's contentions. Therefore, the balance addition of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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