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TMI Blog2018 (10) TMI 491X X X X Extracts X X X X X X X X Extracts X X X X ..... o right to transfer the plots to other parties before their development or agreed expiry of the development project undertaken by Omaxe. This fact itself goes to support the objections of the AO on the genuineness of transaction, but the ld. CIT(A) has not considered this aspect of the case properly, particularly when the agreements entered with other parties were neither registered nor were their original copy was placed before the AO. Also as per AO once two of the parties, namely, M/s. Prime Quality Construction and Ram Devi Steels Tikamgarh in response to summons sent to them denied to have made any transaction or execution of any such agreement with the assessee in response to the summons issued by AO to them. CIT(A) has also not considered this vital objection of the AO which has direct bearing on the veracity of assessee’s version. Further we observe that the agreements made with 10 parties do neither contain any specification of developed land nor Khasra Number of agricultural land, which is necessary to mention in the sale agreement. The nature of such agreements, in our opinion, has rightly led the Assessing Officer to doubt the genuineness of the transaction - decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a buyback agreement of the plots at the rate of ₹ 3,500/- per sq. yds., as awarded by arbitrator. At the same time, the assessee entered into new terms and conditions with Omaxe by which Omaxe agreed to outright purchase of the entire plots at the rate of ₹ 3,900/- per sq. yds. instead of giving developed plots as per earlier agreement. Accordingly, the assessee received ₹ 26,36,01,000/- from Omaxe and paid ₹ 21,49,87,500/- to all the parties. In this process the assessee gained ₹ 12,32,15,570/-. The AO held the entire transaction as colorable device and disallowed the payment of ₹ 15,35,62,500/- made to ten parties (M/s Supreme Ceramic, M/s Prime Quality, M/s Ram Devi Steel and seven other parties) as bogus payment. 3. The assessee assailed the assessment order in appeal before the ld. CIT(A), who after considering the submissions of the assessee and the remand report furnished by AO, allowed the appeal vide impugned order. Aggrieved, the Revenue is in appeal before the Tribunal. 4. The ld. DR submitted that the first year of the financial year ending is 2004-05 and the assessee has prepared balance sheet showing fixed asset of ₹ 6, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not furnished quickly and considerable time was taken for supplying even photocopies of the documents on the basis of which the loss was being claimed. The assessee failed to submit any documentation in respect of' Supreme Ceramics Ltd. . It may be mentioned here that though the assess has furnished documents executed with Prime Quality Construction but in response to summons from this office Prime Quality has denied any such documents having been executed. Similarly, the Directors of Ram Devi Steels, Tikkamgarh has also denied any such transaction. These three cases will be discussed separately in this order. 5.2 The assessee after providing the Photocopies of the documents argued that the settlement amount was paid through Cheque to all the parties, there is no occasion in such situation to doubt the transaction. It is though being argued that the amount of respective gains to these parties is being paid through account payee cheque, it can not be lost sight that merely amount has been shown to be paid it does not become deductible unless the transaction is supported by the documents on the basis of which the liability has arisen. All the parties are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position of stamp and signature on both these documents was different. The document submitted by the assessee will show that the signatures have finished with in the stamp where as the document directly obtained from the parties would show that the signatures are over shooting the stamp. Such instances are recurring. The copies of only first page of the agreements with the aforesaid four parties are placed as Annexture -A of this order. It is expected that agreements available with both parties of transaction should be exact replica but they are not. It is a fact that Photocopies are unreliable and the credibility of document becomes extremely low. The assessee was confronted with this discrepancy vide note sheet proceedings dated 4.12.2008 and in reply dated 11.12.2008 the following was submitted: With reference to difference in places where stamps/ signatures of parties are affixed in the photocopies of agreements of 4 parties noticed by you. it is submitted that the generally one copy oi agreement etc. are prepared on stamp paper. Sometimes the other party also desires copy with original signatures for their safety. Hence in such cases we take out one copy before s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... document, which is notarized by him, since the photocopies shown to her did not contain any register number, it is less likely that these documents were notarized by her. But before giving any final conclusion, she wanted original document. Her statutory register also did not contain mention of any such document having notarized on the dates. In such circumstances, the suggestive conclusion of the assessee in letter dated 29.12.2008 is incorrect because the notary public demanded originals in her statement which assessee failed to produce, therefore, drawing conclusion that she has deposed in favour of the assessee. In fact, it was her view that unless she sees the original, she cannot finally comment upon the document. 6.4. It is mentioned by the assessee in reply dated 29.12.2008 that this office has summoned the stamp paper vendor to verify the stamp paper used in all the agreements. It is incorrect because, in none of the cases, the assessee produced original agreement for verification, however, from one party, namely, Shivam Iron Steel Company Ltd., the parties sent photocopies even of the back side of stamp paper bearing No. 398773 dated 10.06.2005, 398761 dated 09.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay back of settlement amount through banking channel; where as not even a single transaction with any of the ten parties was through banking Channel prior to that. 7.2 Cash Book of the Assessee: It may be mentioned that the assessee had to show that it carried cash in hand from 04.05.2005. All the ten parties allegedly paid about 47 lakhs as Cash as an advance on 4th May 2005 and it became part of cash in hand. This cash in hand continued with the assesee till 31 st March 2006 as on closing date the cash in hand was ₹ 55,77,782/- as against ₹ 10,87,250/- as on 31.03.2005. Advertisement: 8. It may be noticed that the purchasing parties belong to cities like Giridhi, Ranchi ,Calcutta, Delhi, Ghaziabad, Tikkamgarh and Jhansi. In absence of any advertisement the assessee failed to produce any evidence which could show how such geographically diverse person got interested in to a land which is undeveloped and is at Jaipur. It is not out of place to mention that the colonisers are not permitted under law to make booking and advertisement before it is authorised by Development Authority. The assessee has chosen people with a particular design because passin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the contingency does not result in to product. The assessee company if genuinely entered into agreement to sell a future product, if such product does not comes in to existence; the only course of action left with the assessee is to settle the difference. Such a transaction is some what akin to Speculative transaction and any loss arising out of such a speculative transaction can not be set off against the real business profits, which the assessee has done. Colourable Device: 11.0 It has been recognised by Hon'ble Supreme Court in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148, in which it has been held that even if the transaction is genuine and even if it is actually acted upon, but if the transaction is entered into with the intention of tax avoidance. then the transaction would constitute a colourable device. That the courts are now concerned, not merely with the genuineness of a transaction, but with the intended effect of the transaction on the fiscal purpose. That, the true principle in the case of W. T. Ramsay [1981] 2 WLR 449 (HL) was that one must consider fiscal consequences of a pre-planned series of transactions and one has not to disse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated in the letter that after persuasion MEK Developer has started paying higher compensation on account of settlement arrived. 13.2 The assessee has produced same set of four documents Agreement of sale, Arbitration and buy back, allegedly entered in to by Sh. Bijay Singh Director of Prime Quality Consultatnts Pvt. Ltd. It is trite that the originals were not produced for verification. But in this case one party denies the documents. 13.3 In view of the inconsistency in the stand the assessee and Prime Quality the fact was confronted to the assessee vide order sheet proceedings dated 14. 12.2008 (on a page) apprising the facts that the payment is coming from individuals and the directors are saying no agreement was entered in to only after persuasion differential amount was settled. In response to the above the assessee vide reply dated 11.12.2008 submitted that the assessee is not concerned about as to how the other party manages its affairs. No reply has been given as to how the assessee claims that there was an Agreement when the other party deposes that there was no Agreement. It is the primary burden upon assessee to prove the contention raised by it when it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them. In this letter it was also disclosed that the transaction was also verified by Addl. Director ofIncome Tax, (Inv.), Ghaziabad vide summons dated 15.07.2007. 14.3 The file relating to the proceedings before Addl. Director of Income Tax, (Inv.), Ghaziabad was perused. In that file there were extensive enquiries regarding the practise of providing accommodation entries by Suprme Ceramics Ltd. In those proceedings, the investigation unit has concluded that Supreme Ceramics was a loss making concern and involved in providing accommodation entries to number of parties all over country through its bank account. Since the payment of MEK Developer has also been paid to Supreme Ceramics through Bank, therefore, Investigation unit Ghaziabad issued summons to Mek developer in those proceedings. The assessee company has submitted certain documents in those proceedings in its letter dated 13.06.2007 about this transaction and a statement of Sh. S. Bhattacharya. Director, of the assessee company recorded on 15.06.2007, all the material is relevant for the present case. 14.4 In the above proceedings the assessee company has produced a photocopy of two agreements with Supreme Cera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, I started selling. ( c) Q.11. Why did you buy the same land from supreme ceramics ltd. when? Our co. bought back the land as per cancellation agreement dated 23.06.2005 for a price of ₹ 31.5 lacs 1 Bigha. The Omaxe Group people approached me to buy my other land in the same area. The Omaxe group was willing to offer me price of ₹ 35 to 40 lacs/ Bigha By that time the prices rose very high. The projects of Omaxe group were approved by the Jaipur Development Authority. Since that land belonging to Supreme Ceramics was sold by us only. I approached Mr. Sharad Lahoti to sale the land to us for which he agreed when we offered the price of ₹ 31.5 lac per Bigha. (d) Q16 Did you sell the other land also to other person around the time of sale with Supreme Ceramics Ltd. ? Yes, about 2 to 3 parties. ( e) Q 17. Did you sell the land to Omaxe group as you have stated 'to do so Yes, I sold the entire land to Omaxe group in September 2005. If you desire. I can produce the details of Registry of land sold. I have brought the ledger Books of co. you can verify. 14.7 It is needless to mention that the aforesaid aspect of transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts. ( c) The transaction still resulted in profit of ₹ 2.70 Crores. ( d) The transaction of paying back is by Cheque. ( e) The conduct of business should be left to the Businessman. 11.2 However, before the above aspects are touched the following noteworthy features need to be highlighted. I. In no case the original documents were produced so that its genuineness could be established and these are put to strict test of time. Il. There were discrepancies pointed out in Photocopies and in the case of Supreme Ceramics the entire gamut of the transaction is different. Now, the issues raised by the assessee are touched upon: ( a) In this case the transaction of payment back is through banking Channel and there is not even a single banking transaction prior to 24.02.2006, thus it is matter of record that only pay back is through banking which is a collusive transaction. ( b) All the parties have confirmed the transactions is also an arrangement because such an arrangement is with a motive to reduce the tax liability of the assessee company and at the same time ensuring that the other person is also not visited with the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) The transaction in respect of Prime Quality and Ram Devi Steel has been denied and for all other reasons mentioned above not substantiated being a business transaction. ( c) The remaining transactions in respect of the balance seven parties held to be paper transactions and the loss arising out of these transactions can not be adjusted against the business income of the assessee company. I am also satisfied that the assessee has furnished inaccurate particular in respect of all the three transactions above and therefore liable for penalty proceedings u/s 271(1) of Income Tax Act. 12.0 The income of the assessee with the above remarks is calculated as under: Business Profit as per Return of Income 6,29,11,938 Add (i) As discussed in para above for Supreme Ceramics 3,03,75,000 (ii) As discussed in para above for Prime Quality and Ram Devi Steel 3,15,00,000 (iii) As discussed in para above for the balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompletion of the project, the appellant transferred one plot of land to M/s. Supreme Ceramics Pvt. Ltd. on 04.05.2005 and some other plots which the assessee was supposed to receive from Omaxe on completion of the project, to nine other parties. The assessee sold the plot in advance on the basis of collaboration agreement with Omexe, before actually receiving the plots. In such situation, if the collaboration agreement is taken to be correct, then the assessee had no right to transfer the plots to other parties before their development or agreed expiry of the development project undertaken by Omaxe. This fact itself goes to support the objections of the AO on the genuineness of transaction, but the ld. CIT(A) has not considered this aspect of the case properly, particularly when the agreements entered with other parties were neither registered nor were their original copy was placed before the AO. 8. It is also notable that as per AO once two of the parties, namely, M/s. Prime Quality Construction and Ram Devi Steels Tikamgarh in response to summons sent to them denied to have made any transaction or execution of any such agreement with the assessee in response to the summons is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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