Commissioner of Income Tax vs Hiraben Govindbhai Patel

Akil Kureshi, J.—The Revenue is in appeal against the judgment of the Income tax Appellate Tribunal, Ahmedabad ("the Tribunal" for short) dated May 17, 2013, raising the following questions for our consideration:

(A) Whether, in the facts and in the circumstances of the case, the income tax Appellate Tribunal has erred in law in confirming the order of the Commissioner of income tax (Appeals) directing the Assessing Officer to adopt the long-term capital gains of Rs. 91,14,574 as against that of Rs. 12,70,40,330 by adopting the sale consideration as per registered sale deed?

(B) Whether, in law and on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in relying on the stamp value determination by the stamp authorities of the sale deed while disallowing the addition made by the Assessing Officer?

(C) Whether, in law and on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in relying on the percentage of profit of the assessee stated in the MOU to hold that the sale price stated therein cannot be adopted?

The issue pertains to the computation of capital gains in the hands of the respondent-assessee arising due to sale of land which was sold by the assessee to one Savvy Homes Co-operative Housing Society (proposed). As per the Assessing Officer, the sale consideration should have been taken at 14.71 crores (rounded off) as against Rs. 7.36 crores (rounded off) reflected in the sale deed. There was also a dispute with respect to the fair market value of the land. As on April 1, 1981, the assessee adopted the figure of Rs. 2,00,95,680 at the rate of Rs. 800 per sq. yard. The Assessing Officer, however, adopted the rate of Rs. 250 per sq. yard. With respect to the discrepancy in the sale consideration, the Assessing Officer relied on the MOU signed between the seller and the purchasers indicating that the land was to be sold at Rs. 12.70 crores. He discarded the agreement to sale as well as the sale deeds on the ground that the same did not reflect the correct sale consideration.

With respect to the fair market value on April 1, 1981, the assessee relied on the valuation report of a registered valuer who had indicated the price band of Rs. 250 to Rs. 800 per sq. yard and that is how the fair market value of Rs. 2 crores as on April 1, 1981. The Assessing Officer did not dispute this valuation but adopted the patent valuation of Rs. 250 per sq. yard.

The assessee carried the matter in appeal. The Commissioner of income tax (Appeals) as well as the Tribunal both ruled in favour of the assessee. With respect to the sale consideration, the assessee pointed out that 50 per cent of the land was subject to reservation, and, therefore, not available for development to the prospective buyer. After entering into MOU, which was principally for creation of partnership and not for sale or purchase of the land, negotiations were held out between the parties and ultimately reduced price was agreed to be paid. It was pointed out that a supplementary deed was also signed on January 18, 2007, in which it was agreed that if the reservation problem for green belt is resolved and the purchaser gets the use of full land being sold, the seller would receive the remaining price, as indicated in the MOU.

The Commissioner of income tax (Appeals) as well as the Tribunal accepted the stand of the assessee. The Tribunal, while confirming the order of the Commissioner of income tax (Appeals), held and observed as under:

3.8 We have considered the rival submissions, perused the material on record and have gone through the orders of the authorities below. We find that the case of the Assessing Officer is this that as per the MOU between the assessee and Smt. Chetnaben M. Patel dated September 23, 2006, it is stated at various places in clauses 1, 2, etc., that the assessee is selling this land in question to Smt. Chetnaben M. Patel for a consideration of Rs. 1471.36 lakhs. In paragraph 7 of the same MOU, it is noted that for the purpose of developing the land in question, a new partnership firm is to be formed jointly by the assessee and his other partners, Shri Rajnibhai Ambalal Patel, Mukeshbhai Keshavlal Patel and Shri Kalpeshbhai Atmaram Patel and the second part, M/s. Savvy Infrastructure Co. Ltd. From this MOU, the true meaning of this MOU is not consistent as to whether it is for the purpose of sale of land in question for the given price of Rs. 1471.36 lakhs or whether it is for the purpose of transferring the land in question to a new partnership firm to be formed jointly by the assessee along with his three partners of one part and other part M/s. Savvy Infrastructure Co. Ltd. Again, on page 8 of the same MOU, it is stated that a token amount given towards sale price by the party on the other part to the first part is to be treated as given to the new partnership firm by the other part. This has increased the confusion as to whether this MOU is for formation of a new partnership firm or it is for sale of land simpliciter. Although only one name is given as party of one part, i.e., the assessee, Shri Govindbhai A. Patel, but on page 37 of the paper book, it is stated that ''we the party of the one part is exclusively owning, holding, possessing and enjoying and this land is free from encumbrances...''. In paragraph 2 of this MOU, it is also agreed that the tenure of this MOU will be 18 months and during this period, instalment of equal amount has to be paid at every month. There is nothing brought on record by the Revenue to show that any such monthly instalment was paid by the party of the second part, i.e., Shri Chetnaben M. Patel to the assessee. Further, paragraph 10 of the MOU is relevant and the same is reproduced from pages 42 and 43 of the paper book for the sake of ready reference:

The said land is falling within the green belt and, hence, whatever betterment or increment contribution for the purpose of town planning scheme is to be paid, shall be borne by the party of the other part and whatever land is allotted against the 50 per cent deduction as per the T.P. Scheme or whatever reimbursement is received, it will belong to the new partnership firm; which means in view of the T.P. Scheme, whatever final plot is allotted or whatever amount is received as a benefit of the same, shall all go to the new partnership firm and whatever responsibilities that may arise, shall be borne by the party of the other part with the help of party of the one part. Further, all the benefits as well as the responsibilities of the said land due to T.P. Scheme shall rest upon the new partnership firm.

3.9 From the above paragraph of the MOU, it is seen that even the expenditure towards the land price as well as the construction to be put up upon the said land is to be borne by both the parties, i.e., the assessee as well as the party of other part in the ratio of 50:50 each. It is also agreed that the profit will be distributed between these two parties in the ratio of 45 per cent to the assessee and 55 per cent to M/s. Savvy Infrastructure Co. Ltd. This clause of the agreement in the MOU to get only 45 per cent profit although the cost to be borne in the ratio of 50 per cent by the assessee, it is possible that the price of the land agreed to by the other party was possibly higher figure for any purpose not disclosed in the MOU but to compensate the assessee for lesser amount of profit percentage being given to the assessee in the profits of the project. In view of these clauses of this MOU, as discussed above, we find force in these contentions of the learned authorised representative that this MOU is not a sale simpliciter of the land in question but the same is mainly towards contribution as capital to the new partnership firm by the assessee and although a high value of land as considered for this purpose, but the fact that the assessee was to bear 50 per cent expenses of the partnership firm along with the cost of land, the assessee was eligible for only 45 per cent of the profits and, therefore, the value considered in the MOU cannot be considered as the sale price of the land in question.

3.10 The basis of the Revenue for adopting the amount of Rs. 1471.36 lakhs as total sale consideration of the land in question was this MOU only and except this MOU, no other evidence even circumstantial evidence has been found even in the course of search carried out only 11 days after the date of sale deed to corroborate this allegation that the assessee has received sale consideration in cash of Rs. 735.15 lakhs. If this much huge cash was received by the assessee, something must be found in the course of search either unaccounted cash or unaccounted investment or any other papers, etc., which may have indicated such a huge cash transaction. This is also not the case of the Assessing Officer that jantri price of this land in question at the relevant point of time was more than the value declared by the assessee in the sale deed. Hence, we find that neither the value as per jantri rates is more than the sale value declared in the sale deed nor any other evidence was found suggesting receipt of money by the assessee in cash apart from this MOU. We have already discussed that this MOU cannot be said to be a sale simpliciter because various clauses of this MOU are suggesting that this MOU was mainly for entering into a partnership firm between the assessee along with his three partners with the other party, i.e., Savvy Infrastructure Co. Ltd. in which the assessee was to bear 50 per cent of the expenditure including the land expenses but the assessee was entitled to profits of only 45 per cent and it is also seen that along with the assessee, his three partners; Shri Rajnibhai Ambalal Patel, Mukeshbhai Keshavlal Patel and Kalpeshbhai Atmaram Patel, are also considered along with the assessee as parties of one part who will share 45 per cent of the profits of the firm to be created and considering all these facts, in our considered opinion, this cannot be accepted in the facts of the present case that in the absence of any other corroborating evidence, the price stated in this MOU is the sale price of the land in question.

3.11 Now, we consider the decision of the learned Commissioner of income tax (Appeals) as per paragraph 7.3 of his order and the same is reproduced below for the sake of ready reference:

7.3 The Assessing Officer has stated that the first document being memorandum of understanding, fixes the price at Rs. 14,71,36,000 and payment of Rs. 21 lakhs was made to the asses-see by way of cheque by Savvy Infrastructure Ltd. He has further stated that the second document being unsigned banakhat between the assessee and Chetnaben Mukeshbhai Patel, promoter of Savvy Co-operative Housing Society is for Rs. 14,71,36,000. This figures are changed to Rs. 7,36,20,750. He has, therefore, presumed that the sale consideration was of Rs. 14.71 crores and not of Rs. 7.36 crores. He has considered the differential amount as payment in cash. However, on perusal of the submissions of the appellant and the details furnished, it is found that first document being MOU cannot be the basis as it has not resulted into final transaction between the parties of the MOU. The second document relied upon by the Assessing Officer is unsigned and, hence, it cannot be the basis for conclusion reached by the Assessing Officer. As such, based on both these documents, no presumption about passing of cash can be reached, it is also found that at the same time, the appellant''s premises were subject to search and statement of the appellant was recorded on February 14, 2007, wherein he had in clear terms stated before the search officer that the sale price was around Rs. 7.14 crores and on further question, he had specifically stated that no cash was received against sale of such land. Apart from this, at the time of search, cash of only Rs. 1,50,000 was found from the appellant''s premises which was also explained from the withdrawals from bank account and further no evidence about any other unaccounted assets or receipt of cash was found during the course of search from the appellant''s premises. It is also noticed that no specific evidence is referred to by the Assessing Officer that the appellant was paid any amount in excess of the price of Rs. 7.36 crores as per the documents. The appellant has also specifically pointed out that the price as per the document is also accepted for stamp duty purpose and it is not disputed by that authority. Considering these facts, I am of the view that the Assessing Officer has no basis for adopting the sale value of the land at Rs. 14.71 crores as against the value of Rs. 7.36 crores as per the document in the form of sale deed dated February 3, 2007. The Assessing Officer is, therefore, directed to consider the sale consideration at Rs. 7.36 crores as against the amount of Rs. 14,71 crores adopted by him.

3.12 From the above paragraph of the order of the learned Commissioner of income tax (Appeals), it is seen that he has given a clear finding that the MOU and no other document can be a basis for the conclusion reached by the Assessing Officer and on the basis of these documents, a presumption cannot be raised about receiving the cash by the assessee. We have also seen that no specific evidence is referred to by the Assessing Officer about the allegation that the assessee has been paid any amount in excess of the price of Rs. 7.36 crores as per the documents. It is also noted by us that this price has been accepted by the stamp duty authority and it is not disputed by the authority. Hence, considering all these facts of the present case as discussed above by us and also by the learned Commissioner of income tax (Appeals) in the above paragraph as reproduced above, we find that there is no infirmity in the order of the learned Commissioner of income tax (Appeals) on this issue and, hence, we decline to interfere in the order of the learned Commissioner of income tax (Appeals) on this issue. This ground is rejected.

From the above, it can be seen that the entire issue is based on evidence on record, duly considered by the Commissioner of income tax (Appeals) as well as the Tribunal to come to a concurrent factual finding. Significant facts were though advanced, such MOU did reflect the sale price of Rs. 14.71 crores, nevertheless, the agreement to sale as well as the sale deed recorded the sate consideration of Rs. 7.35 crores. There was no material to suggest that any sale consideration in excess of the said amount was actually paid. As pointed out by the assessee, the search was carried out only eleven days after the sale and no cash was recovered. More importantly, the Commissioner of income tax (Appeals) as well as the Tribunal both have considered the development and limited use of land to the purchaser. Fifty per cent of the land was likely to be reserved. It was, therefore, that the seller agreed to receive the reduced rate. Simultaneously, another deed was signed indicating that if by some chance, the use of full area of land is available to the purchaser, the entire amount indicated in the MOU would be paid. The Assessing Officer did not have any other evidence barring the MOU to controvert such evidence. No question of law, therefore, arises.

With respect to the fair market value, the Commissioner of income tax (Appeals) as well as the Tribunal relied on the valuation report of the registered valuer. Without any further evidence, the Assessing Officer could not have substituted such amount. In the result, the tax appeal is dismissed.