Dr. Prem Chand Sharma v. The Commissioner Of Income Tax And Another

In the High Court of Punjab and Haryana, Chandigarh. ITA No. 903 of 2008 Date of Decision: 03.02.2009 Dr. Prem Chand Sharma ....Appellant. Versus The Commissioner of Income Tax and another. ....Respondents. Coram:- Hon'ble Mr.Justice J.S. Khehar Hon'ble Mr. Justice Nawab Singh Hon'ble Mr. Justice Nawab Singh Present: Mr. Ravi Shankar, Advocate for the appellant. for the appellant. ... J.S. Khehar, J. (Oral). The appellant – assessee, in the first instance, impugned theorder passed by the Assessing Officer dated 7.9.2006 by preferring anappeal before the Commissioner of Income Tax (Appeals). The aforesaidappeal was dismissed by the Commissioner of Income Tax (Appeals) videorder dated 16.3.2007. The appellant impugned the order dated 16.3.2007by preferring a second appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal also dismissed the appeal preferred bythe appellant – assessee vide an order dated 25.4.2008. Through the instant appeal, the appellant – assessee hasimpugned the orders passed by the Assessing Officer, the Commissioner ofIncome Tax (Appeals), as also, the Income Tax Appellate Tribunal, referred to hereinabove. The issue under consideration relates to the addition ofRs.7,00,000/- to the income of the appellant – assessee. The claim of theappellant – assessee was that, he entered into an agreement dated 4.11.2003(Annexure A-4) for the sale of his agricultural land, wherein the totalconsideration payable to the appellant – assessee was Rs.31,60,000/- in lieuof the sale of land measuring 23 kanals 13 marlas to one Basau Ram.During the course of the execution of the agreement, referred to above, asum of Rs.7,00,000/- was paid by the aforesaid Basau Ram to the appellant– assessee as earnest money. The case of the appellant – assessee before theRevenue Authorities was that, the aforesaid amount of Rs.7,00,000/- stoodforfeited as Basau Ram could not comply with the terms and conditions ofthe agreement dated 4.11.2003 (Annexure A-4). It is the vehementcontention of the learned counsel for the appellant – assessee, that theamount of Rs.7,00,000/-, which stood forfeited to the appellant – assesseeon account of non-compliance of the conditions stipulated in the agreementdated 4.11.2003 (Annexure A-4), should be treated as a capital receipt in thehands of the appellant – assessee. While determining the issue underreference, the Income Tax Appellate Tribunal has arrived at the conclusion,that theory of forfeiture suggested by the appellant – assessee has beenconcocted by him so as to save his tax liability. The reasons which hadweighed with various authorities in arriving at the conclusion, that theagreement dated 4.11.2003 (Annexure A-4) was only a sham transaction soas to save tax, emerged from the factual position taken into consideration byall the authorities. The same stand crystallized in the order passed by theAssessing Officer in the following format:- “a) Dr. P.C. Sharma did not actually sell any agriculturalland. The piece of land at Pankjikhara is still with him. Thecircumstances indicate that he had no intention of selling thisland. As a matter of fact, he purchased More lands in thesubsequent year ending 31.3.2005 where the addition to theagricultural land is Rs.10,21,720/-. It is also relevant tomention that even in subsequent year, he has again shown theforfeiture of earnest money of Rs.2,50,000/- against the sale oflands. “a) Dr. P.C. Sharma did not actually sell any agriculturalland. The piece of land at Pankjikhara is still with him. Thecircumstances indicate that he had no intention of selling thisland. As a matter of fact, he purchased More lands in thesubsequent year ending 31.3.2005 where the addition to theagricultural land is Rs.10,21,720/-. It is also relevant tomention that even in subsequent year, he has again shown theforfeiture of earnest money of Rs.2,50,000/- against the sale oflands. b) As per agreement dated 4.11.2003, the area of land whichwas shown to be sold was 23 kanals 13 marlas @Rs.10,70,000/- per acre. The total sale consideration was aboutRs.3.16 lakh out of which Rs.7,00,000/- was shown as earnestmoney received by Dr. P.C. Sharma. The date by which theregistration deed was to be executed was shown as 5.12.2003i.e. only one month’s time. The said agreement was not writtenon any stamp paper which undermine the legal sanctity of thedocument. What is really strange is that the alleged purchasernamed Shri Basau Ram did not ask or request the seller evenonce to extend the time for execution of registration deed. More so, he did not even request the seller to refund the amountof Rs.7,00,000/- or part thereof when the transaction did notmature. There is no evidence of any extension or refusal toextend the time limit on the said agreement dated 4.11.2003. Shri Basau Ram did not even feel the necessity of sending anylegal notice to Dr. P.C. Sharma for return of Rs.7,00,000/-. These facts prove that the agreement dated 4.11.2003 wassham. c)The enquiries were made from the SBOP, Kaithal andfrom Shri Basau Ram personally at his village Budha Khera. Inletter dated 22.7.2006, the said Bank has mentioned that theloan given to Shri Basau Ram was for agricultural purposes (asstated by the borrower) which was for purchase anddevelopment of agriculture inputs, machinery etc. Shri BasauRam is an agriculturalist and he had mortgaged his personalagricultural lands in favour of the Bank for sanction of theseloans. Interest was charged by the Bank on these loans. As perprocedure and requirement of Rules governing the sanction ofloans, Shri Basau Ram had declared and furnished a certificatedated 29.10.2003 to the said Bank that the amount of said loansof Rs.4,00,000/- would be utilized for the purpose for whichthis loan was taken by him. The copy of this certificate as sentby the Bank is lying at file page – 58 Vol.III. This documentclearly proves that the loan of Rs.4,00,000/- was not meant forpurchase of land belonging to Dr. P.C. Sharma. d) Shri Basau Ram had stated on 13.7.2006 that the other draftof Rs.3,00,000/- which was payable to Dr. P.C. Sharma waspurchased out of cash amount lying at his residence in thevillage. It has been found that Shri Basau Ram had opened asaving Bank A/c. No.9159 with SBOP, Kaithal on 29.10.2003by depositing Rs.1,000/- in cash. If any cash like Rs.3,00,000/-was lying with him, it can be expected that he would have preferred to keep the same in his Bank account. At the sametime, if any such amount like Rs.3,00,000/- was available withhim, there was no need to mortgage his lands to raise the loansof Rs.1,00,000/- and Rs.3,00,000/- from the said Bank wherethe interest was also to be paid. The Bank had actually chargedthe interest of Rs.3,156/- on the loan of Rs.3,00,000/- for theperiod of just one month. It is also a fact that the loan ofRs.3,00,000/- could not be returned by Shri Basau Ram in timeand there was debit balance of Rs.2,00,900/- as on 12.7.2006against him. Similarly, the other loan of Rs.1,00,000/- was alsonot returned and debit against him as on 12.7.2006 wasRs.99,800/- (file page-7 & 8 Vol.III). These facts prove thatShri Basau Ram did not have the financial capacity to enter intoany transaction like purchase of land at Panjokhera the valueof which would go upto Rs.31.6 lakh. This fact again provesthat the agreement dated 4.11.2003 was sham. e)In view of the fact that Shri Basau Ram continued to beunder debt for the loans raised from the SBOP, Kaithal, itcannot be believed that he would forego and get forfeited thesubstantial amount of Rs.7,00,000/- without raising any hueand cry. The whole story regarding the forfeiture of amount byDr. P.C. Sharma is nothing but manipulation.” The impugned orders also reveal, that the statement of the vendee – BasauRam was also recorded by the Assessing Officer, wherein Basau Ram inter-alia, acknowledged the following factual position: -- “i) A depreciation chart was enclosed with the return which is lying at file page – 11. The perusal of this chart shows thatassessee had deducted a sum of Rs.7,00,000.00 from the valueof agricultural lands showing the same as sale. It was actuallynot a sale. In the note below the depreciation chart, assesseehad mentioned – a sum of Rs.7,00,000.00 has been deductedfrom agricultural land, which is on account of forfeiture ofearnest money against sale. During the course of assessment proceedings, assessee wasrequested to produce the evidence for ownership and sale ofland for the earnest money, which was received against theagricultural land. This is per order sheet entry dated 12.6.2006.ii)A written reply was filed on 16.6.2006. A copy of oneagreement dated 4.11.2003 was produced which is lying at filepage 135-136 Volume-II. As per this agreement, the assesseehad agreed to sell 23 kanals 13 marlas of land situated inPanjokhara (Ambala) to Shri Basau Ram of village BudhaKhera (Kaithal) @ Rs.10,70,000.00 per acre. Out of this saleconsideration a sum of Rs.7,00,000.00 is said to be received byway of bank drafts dated 30.10.2003 of Rs.4.00 Lacs andRs.3.00 Lacs which were purchased from State Bank of Patiala,Kaithal. This agreement was not written on any stamp paperand it was not entered with any petition writer or any authority. Normally such agreements are written on stamp papers.Iii)Enquiry was made from the State Bank of Patiala,Kaithal by writing a letter dated 13.7.2006. Written repliesdated 13.7.2006, 22.7.2006 and 9.8.2006 were given by the said Bank. I had personally gone to village Budha Khera tomake enquiries from Shri Basau Ram. His statement wasrecorded by me on 13.7.2006, which is lying at page 29-36 ofVolume-III. The source of payment of Rs.7,00,000/- with ShriBasau Ram was stated as under: -- a)Loan of Rs.4,00,000.00 was raised from SBOP,Kaithal and draft payable to Shri P.C. Sharma prepared. It was admitted by Shri Basau Ram that the purpose ofraising loan was agricultural development and it wasreturned to the Bank in instalments. b) Bank draft of Rs.3,00,000.00 was prepared from theSBOP, Kaithal out of cash amount lying at his residencein the village. iv)Assessee Dr. P.C. Sharma was confronted with the factthat the SBOP, Kaithal had given the loans of Rs.1,00,000.00(cash credit limit) and Rs.3,00,000/- (Kisan Gold Card) againstmortgage of lands for agricultural purposes i.e. for purchaseand development of agricultural inputs, machinery etc. thismeans that these loans were not for purchase of any lands.” Collectively, on the basis of the factual position noticedhereinabove, the Assessing Officer, the Commissioner of Income Tax(Appeals), as well as, the Income Tax Appellate Tribunal arrived at theconclusion, that the agreement dated 4.11.2003 (Annexure A-4) set-up bythe appellant – assessee was a bogus document. Having heard the learned counsel for the appellant – assesseeand having considered the factual position noticed hereinabove, we are satisfied that the inferences drawn by the Revenue Authorities are whollyjustified and call for no interference. Having arrived at the conclusion, that the agreement dated4.11.2003 was a bogus transaction, we are satisfied that no question of lawarises for determination at our hands in the instant appeal. The same is,accordingly, dismissed. ( J.S. Khehar )Judge 03.02.2009 sk. ( Nawab Singh ) Judge.