THE issues before the Bench are - Whether lawyers holding Vakalats on behalf of their clients are under legal duty to attend the Courts/Tribunals irrespective of strike or boycott and thus, there is no reason to interfere in the order passed by the ITAT deciding the appeal ex-parte as alleged; Whether when the land sold is already converted from agricultural land to non-agricultural, it cannot be treated as agricultural land and tax will be computed on sale of the same; Whether when there was regularity of transaction with intention to make income and even within a short span of time, the lands were transferred on substantial gains, the gain
arising on the same is business income and Whether assessee has introduced and recorded bogus purchases and verification of opening stock/closing stock were not open for verification in the books of accounts, books of account were rightly rejected. And the verdict goes against the assessee.
Facts of the case
The assessee is indulged in the activity of trading of precious stones and director in two companies. Assessee sold certain land to these companies. AO concluded the gain on sale of lands as business income while the claim of the assessee was that it being sale/transfer of agricultural land, is not a capital asset within the meaning of Section 2(14)(iii) and is not liable to tax. AO also rejected the books of accounts by invoking provisions of section 145(3) and applied higher gross profit rate after rejecting the trading accounts.
AO observed that in some cases, the lands were sold/transferred in near vicinity of the land purchased to the private limited companies where the assessee was a Director resulting in huge difference/gain to the assessee, but the claim of the assessee was that all the subject lands were situated outside the municipal limits and the population of these villages, does not exceed 10000 and therefore, is not a capital asset within the meaning of Sec. 2(14)(iii). AO held that there being a consistency and frequency of the transaction of sale and purchase, it is in the nature of business income and the land claimed is not in the nature of agricultural land as no agricultural activities are carried on by the assessee. The land stands converted and is no more agricultural land and indeed there being no agricultural operations, the character of the land stood converted by the very admission by the assessee. AO came to the conclusion that the assessee did purchase the lands, converted the same for residential/commercial use and sold to the companies where the assessee was a Director and the companies utilized the land for development and plotting. The assessee gained substantially by not showing surplus by way of capital gains but on the contrary claimed the properties to be converted, in the sale deed itself. The land has been allegedly transferred to the limited companies through unregistered sale deeds and that no evidence further thereto was provided to the AO. Thus, the entire capital gain was treated as business income and taxable.
Regarding rejection of books of account, AO observed that the assessee did purchase some goods from a party which was found to be non-genuine or the party used to issue bills rather than actual sale and purchase. Assessee failed to furnish day to day details of all types of stocks in terms of opening and closing stock with quantity wise categorization and noticed that the assessee is not maintaining stock register at all and the entire valuation of the opening as well as closing of the stock is on mere estimation and thus, prima-facie, came to the conclusion that the books of accounts are to be rejected and a higher GP rate is to be applied.
Assessee submitted a confirmation, photo copy of bills of the party, permanent account number (PAN) as also TIN number under sales tax and the payment is by account payee cheques. It further requested for issuing summons u/s 131 for production of the party. Summon issued returned unserved and inspector reported that "no such concern existed on the given address". Thus, AO invoked the provisions of section 145(3) and made trading addition.
CIT (A) was satisfied that the said lands were not capital asset within the meaning of Sec. 2(14)(iii) and deleted the addition but in so far as the addition relating to trading account is concerned, CIT (A) upheld the finding of the AO that rejection of books of accounts u/s 145(3) was proper and confirmed enhanced addition treating GP @ 25%. ITAT allowed the appeal of revenue and partly allowed the appeal of assessee.
Assessee contended that the appeal has been decided ex-parte, though admitted that notice was received by the appellant but on account of boycott call given by the Associations with an allegation against member of the Income Tax Appellate Tribunal who is the author of the order of the ITAT in impugned order, a resolution was passed unanimously to boycott the Bench of the ITAT. The bench was aware of the boycott call and therefore, ought not to have proceeded to decide the said appeal ex-parte. Assessee contended that the AO as well as ITAT have gone wrong in disbelieving the version of the assessee without adequate material being there that the lands continued to be agriculture on record, unless converted by the assessee. Merely because there were some frequent transactions, does not lead to conclusion that it becomes business and the gain/surplus is liable to be taxed as business income. Further it was contended that provisions of Sec. 145(3) are inapplicable as the assessee purchased the goods from a seller who was assessed to income tax/sales tax and whereabouts were known, confirmation was filed and payment was by account payee cheques and thus the addition by invoking provisions of Sec 145(3) are inapplicable. The conclusion reached by the authorities that the sale/purchase by the assessee is not genuine, is without any evidence or material on record.
After hearing both the parties, the High Court held that,
++ it is not convinced that the members of the association being on strike still passing order behind the back of the assessee's representative is in violation of principles of natural justice. Lawyers have no right to go on strike or give a call for boycott, not even on a token strike. It further observed that lawyers holding Vakalats on behalf of their clients are under legal duty to attend the Courts/Tribunals irrespective of strike or boycott. No lawyer can be visited with any adverse consequence by the Association or the Council and no threat or coercion of any nature including that of expulsion can be held out. There is no reason to interfere in the order passed by the ITAT deciding the appeal ex-parte as alleged;
++ it may be in regard to the initial purchase, there can be said to be a gap of about 2 years but on perusal of the other purchases vis-a-vis sale, it transpires that in almost all cases, the transfer/sale has taken place within a period of one or less than one year. In some of the cases, the land was transferred by unregistered instrument within a short span of time resulting into huge surplus/ difference/ gain by the assessee. Thus, the claim of the assessee itself is apparently wrong that the transaction did not take place within a short span of time. The conclusion of the ITAT as well as AO appears to be correct that there was regularity of transaction with intention to make income and even within a short span of time, the lands were transferred on substantial gains. Purchases were not by way of investment. ITAT came to a finding of fact based on material on record and appreciation of evidence produced by the assessee, the ITAT categorically observed in the order that even the so-called agricultural land stood converted into non-agricultural use, is clearly spelt out in the conveyance deed executed by the assesssee in favour of the companies namely. ITAT also observed that the Khatedar, who sold his land to the assessee, had deposited the expenses relating to conversion of this land including the expenses incurred on conversion charges and even paid amount to Appropriate Authorities prior to sale of his land to the assessee and even an order for conversion of Agricultural Land for Non-Agricultural Purposes was issued. Thus, the nature of the land never remained agricultural any more;
++ ITAT has recorded a finding of fact that no documentary evidence was led by the assessee herein to substantiate his claim of doing any agricultural operations therein as the AO in the assessment order has clearly and repeatedly asked the assessee to substantiate the claim about the exact agricultural operations having been carried on by the assessee, but no satisfactory material was placed by the assessee. The other lands, though not converted from agricultural to non-agricultural use, were in the same/near vicinity of the lands which were converted from agricultural to non-agricultural and thus the nature of the said lands too could not be different. Ordinarily, the question, whether the land is an agricultural land or a non-agricultural land is a question of fact and the finding on the question of fact recorded by the ITAT is final, unless perverse, is not open for us to interfere in the finding of fact recorded by the ITAT. Thus, the conclusion arrived at by ITAT that the lands, sold/transferred by the assessee to the private limited companies, were non-agricultural and outside the scope and meaning of Sec. 2(14)(iii) of the IT Act requires no consideration;
++ regarding trading addition it is observed that all the three authorities i.e. the ITAT, CIT(A) as well as AO, have categorically arrived to a conclusion that provisions of Sec. 145(3) are applicable and what should be a reasonable profit on account of the trading transactions, is a finding of fact. The assessee has introduced and recorded bogus purchases and verification of opening stock/closing stock were not open for verification in the books of accounts, thus the motive was to reduce its profits and thus the assessee/appellant has not been able to dispel this finding of fact recorded by all the three authorities who in consonance, have come to the aforesaid conclusion. When there is a concurrent finding of fact of all the three authorities, no question of law much less substantial question of law can be said to emerge out of the order of the ITAT. Thus, no interference is called for in the order of ITAT
The assessee is indulged in the activity of trading of precious stones and director in two companies. Assessee sold certain land to these companies. AO concluded the gain on sale of lands as business income while the claim of the assessee was that it being sale/transfer of agricultural land, is not a capital asset within the meaning of Section 2(14)(iii) and is not liable to tax. AO also rejected the books of accounts by invoking provisions of section 145(3) and applied higher gross profit rate after rejecting the trading accounts.
AO observed that in some cases, the lands were sold/transferred in near vicinity of the land purchased to the private limited companies where the assessee was a Director resulting in huge difference/gain to the assessee, but the claim of the assessee was that all the subject lands were situated outside the municipal limits and the population of these villages, does not exceed 10000 and therefore, is not a capital asset within the meaning of Sec. 2(14)(iii). AO held that there being a consistency and frequency of the transaction of sale and purchase, it is in the nature of business income and the land claimed is not in the nature of agricultural land as no agricultural activities are carried on by the assessee. The land stands converted and is no more agricultural land and indeed there being no agricultural operations, the character of the land stood converted by the very admission by the assessee. AO came to the conclusion that the assessee did purchase the lands, converted the same for residential/commercial use and sold to the companies where the assessee was a Director and the companies utilized the land for development and plotting. The assessee gained substantially by not showing surplus by way of capital gains but on the contrary claimed the properties to be converted, in the sale deed itself. The land has been allegedly transferred to the limited companies through unregistered sale deeds and that no evidence further thereto was provided to the AO. Thus, the entire capital gain was treated as business income and taxable.
Regarding rejection of books of account, AO observed that the assessee did purchase some goods from a party which was found to be non-genuine or the party used to issue bills rather than actual sale and purchase. Assessee failed to furnish day to day details of all types of stocks in terms of opening and closing stock with quantity wise categorization and noticed that the assessee is not maintaining stock register at all and the entire valuation of the opening as well as closing of the stock is on mere estimation and thus, prima-facie, came to the conclusion that the books of accounts are to be rejected and a higher GP rate is to be applied.
Assessee submitted a confirmation, photo copy of bills of the party, permanent account number (PAN) as also TIN number under sales tax and the payment is by account payee cheques. It further requested for issuing summons u/s 131 for production of the party. Summon issued returned unserved and inspector reported that "no such concern existed on the given address". Thus, AO invoked the provisions of section 145(3) and made trading addition.
CIT (A) was satisfied that the said lands were not capital asset within the meaning of Sec. 2(14)(iii) and deleted the addition but in so far as the addition relating to trading account is concerned, CIT (A) upheld the finding of the AO that rejection of books of accounts u/s 145(3) was proper and confirmed enhanced addition treating GP @ 25%. ITAT allowed the appeal of revenue and partly allowed the appeal of assessee.
Assessee contended that the appeal has been decided ex-parte, though admitted that notice was received by the appellant but on account of boycott call given by the Associations with an allegation against member of the Income Tax Appellate Tribunal who is the author of the order of the ITAT in impugned order, a resolution was passed unanimously to boycott the Bench of the ITAT. The bench was aware of the boycott call and therefore, ought not to have proceeded to decide the said appeal ex-parte. Assessee contended that the AO as well as ITAT have gone wrong in disbelieving the version of the assessee without adequate material being there that the lands continued to be agriculture on record, unless converted by the assessee. Merely because there were some frequent transactions, does not lead to conclusion that it becomes business and the gain/surplus is liable to be taxed as business income. Further it was contended that provisions of Sec. 145(3) are inapplicable as the assessee purchased the goods from a seller who was assessed to income tax/sales tax and whereabouts were known, confirmation was filed and payment was by account payee cheques and thus the addition by invoking provisions of Sec 145(3) are inapplicable. The conclusion reached by the authorities that the sale/purchase by the assessee is not genuine, is without any evidence or material on record.
After hearing both the parties, the High Court held that,
++ it is not convinced that the members of the association being on strike still passing order behind the back of the assessee's representative is in violation of principles of natural justice. Lawyers have no right to go on strike or give a call for boycott, not even on a token strike. It further observed that lawyers holding Vakalats on behalf of their clients are under legal duty to attend the Courts/Tribunals irrespective of strike or boycott. No lawyer can be visited with any adverse consequence by the Association or the Council and no threat or coercion of any nature including that of expulsion can be held out. There is no reason to interfere in the order passed by the ITAT deciding the appeal ex-parte as alleged;
++ it may be in regard to the initial purchase, there can be said to be a gap of about 2 years but on perusal of the other purchases vis-a-vis sale, it transpires that in almost all cases, the transfer/sale has taken place within a period of one or less than one year. In some of the cases, the land was transferred by unregistered instrument within a short span of time resulting into huge surplus/ difference/ gain by the assessee. Thus, the claim of the assessee itself is apparently wrong that the transaction did not take place within a short span of time. The conclusion of the ITAT as well as AO appears to be correct that there was regularity of transaction with intention to make income and even within a short span of time, the lands were transferred on substantial gains. Purchases were not by way of investment. ITAT came to a finding of fact based on material on record and appreciation of evidence produced by the assessee, the ITAT categorically observed in the order that even the so-called agricultural land stood converted into non-agricultural use, is clearly spelt out in the conveyance deed executed by the assesssee in favour of the companies namely. ITAT also observed that the Khatedar, who sold his land to the assessee, had deposited the expenses relating to conversion of this land including the expenses incurred on conversion charges and even paid amount to Appropriate Authorities prior to sale of his land to the assessee and even an order for conversion of Agricultural Land for Non-Agricultural Purposes was issued. Thus, the nature of the land never remained agricultural any more;
++ ITAT has recorded a finding of fact that no documentary evidence was led by the assessee herein to substantiate his claim of doing any agricultural operations therein as the AO in the assessment order has clearly and repeatedly asked the assessee to substantiate the claim about the exact agricultural operations having been carried on by the assessee, but no satisfactory material was placed by the assessee. The other lands, though not converted from agricultural to non-agricultural use, were in the same/near vicinity of the lands which were converted from agricultural to non-agricultural and thus the nature of the said lands too could not be different. Ordinarily, the question, whether the land is an agricultural land or a non-agricultural land is a question of fact and the finding on the question of fact recorded by the ITAT is final, unless perverse, is not open for us to interfere in the finding of fact recorded by the ITAT. Thus, the conclusion arrived at by ITAT that the lands, sold/transferred by the assessee to the private limited companies, were non-agricultural and outside the scope and meaning of Sec. 2(14)(iii) of the IT Act requires no consideration;
++ regarding trading addition it is observed that all the three authorities i.e. the ITAT, CIT(A) as well as AO, have categorically arrived to a conclusion that provisions of Sec. 145(3) are applicable and what should be a reasonable profit on account of the trading transactions, is a finding of fact. The assessee has introduced and recorded bogus purchases and verification of opening stock/closing stock were not open for verification in the books of accounts, thus the motive was to reduce its profits and thus the assessee/appellant has not been able to dispel this finding of fact recorded by all the three authorities who in consonance, have come to the aforesaid conclusion. When there is a concurrent finding of fact of all the three authorities, no question of law much less substantial question of law can be said to emerge out of the order of the ITAT. Thus, no interference is called for in the order of ITAT
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