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TMI Blog2011 (1) TMI 1568X X X X Extracts X X X X X X X X Extracts X X X X ..... the land has been treated as stock-in-trade of the assessee. 3. The assessee had purchased land from its directors and shareholders. The land was purchased at the rate of ₹ 3 lakhs per cent. The directors of the assessee-company have to hand over the possession of the property to the company as and when an ultimate buyer is located. On the basis of the above business arrangement, 41 buyers were located in the previous year relevant to the assessment year under appeal and that much land was released by the directors to the possession of the assessee. The land purchased by the assesseecompany from its directors were transferred from the possession of the assessee-company to ultimate buyers in a sequential manner in the same day. 4. As against the above, the assessee-company has sold different plots of land to ultimate buyers at a price lesser than the purchase price. The Assessing Officer had attached a list of land transactions entered into by the assessee-company in the relevant previous year wherein the details of such sales are available. In the case of one Shri T.Raghuraman, the land was sold at the rate of ₹ 1,36,363/- per cent as against the purchase value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 2,72,000/- per cent and thereafter at the rate of ₹ 6,36,000/- per cent. The Commissioner of Income-tax (Appeals) found that when the plot of land was sold at the rate of ₹ 6,36,000/- per cent, the price paid to the directors was the same flat rate of ₹ 3 lakhs per cent. The Commissioner of Income-tax (Appeals) held that this yearly increase in the sale price of plot justifies the business scheme proposed by the assessee. The 568 cents of land remaining unsold as on 31 March, 2007 if sold at the rate of ₹ 6,36,000/- per cent which is the latest sale price, the assessee will be making a substantial gain of nearly ₹ 39 crores. He held that the gain of the assessee-company will be much higher as and when the situation in the real estate market improves in future. Therefore, he held that it is not possible to overrule the submissions of the assessee with reference to the sale price of the land only for the reason that in the initial years the land was sold at a price lesser than the purchase price. 8. While coming to the above conclusion, the Commissioner of Income-tax (Appeals) has relied on mainly on the judgment of the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in number) at ₹ 1.36 lakhs per cent and that that transmission of land through the Company by the Directors resulted in transmission of excess money to the tune of ₹ 5,42,99,307 from company to the Directors during the previous year alone. 2.5 The learned Commissioner of Income-tax (Appeals) ought to have seen the fact that as per the agreement between the assessee-company and the Directors, the lands were not transferred to the Company but possession of the land property was handed over to company only when the company finds an ultimate buyer and hence act of fixing high price, not prevalent in the market, in the agreement and losing huge money by the assessee is a colourable action particularly with respect to the present Asst. Year. 2.6 It is submitted that the inflation of cost of purchases is to shift the taxable profits to the Directors hands wherein such profits are exempt from tax and that the agreement was colourable device falling within purview of sec.40(A)(2)(b) of the IT Act. 12. The grounds raised by the assessee in its cross appeal are as below : 2. The Commissioner of Income-tax (Appeals) erred in confirming the disallowance u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When we consider the argument of the assessee-company that over all profits of the assessee-company need to be appreciated for a period of more than six years rather than focusing the loss incurred for the initial years, we find that there is substance in that argument. The assessee-company has purchased large extent of land including the land of the directors. It had to develop that property into saleable plots. In such a project, it is necessary, that plots be sold initially for attractive prices, so that the buyers would develop those plots and thereby the overall marketability of the entire property will be increased. Therefore, in order to stimulate future growth, the assessee might have sold plots in the initial years for a price lesser than the purchase price. But when the plots sold by the assessee-company in the initial years are developed by the buyers, the acceptability of that property increases and the assesseecompany will be in a position to sell the remaining plots of land for a better and remunerative price. Therefore, it is to be seen that the sale of land in the initial years for a price lesser than the purchase price is justified by higher amount of price fetche ..... X X X X Extracts X X X X X X X X Extracts X X X X
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