By TIOL News Service

AHMEDABAD, JUNE 20, 2016: THE issue is - Whether when the assessee has transferred majority of amount arising as a result of sale of land through account payee cheques to third party, the same can be considered as diversion of income and has to be taxed in assessee's hands. YES is the verdict.

Facts of the case

The assessee is a company. It had filed the return of income for AY 2011-12 declaring total income of Rs. 94,440/-. It had sold agriculture land situated in Gandhinagar by a registered sale deed in favour of one Kusumben C. Doshi. In the sale deed, total sale consideration for the land in question was shown as Rs. 3,54,48,600/-. Out of such sale consideration, however, the assessee received only Rs. 58,68,000/-. Rest of the amount of Rs. 2,95,80,600/- was paid to one Kolkata based company M/s. Pushpadanta Infrastructure Ltd. by name. All amounts were stated to have been paid through different cheques drawn on Indusind Bank. AO raised several issues. One of them being diversion of the sale consideration of Rs. 2.95 crores in favour of the third party i.e. M/s. Pushpadanta Infrastructure Ltd. The assessee could not offer explanation. The assessee could also not give full details of the assessment proceedings of the said company. The assessee could not justify why such hefty sum, which represented more than 80% of the sale consideration, was paid to a third party where the assessee himself was the owner of land in question. The AO, therefore, treated it as a sham transaction and believed that there was diversion of income through such impermissible means. AO, therefore, taxed such amount in the hands of assessee. On filing of revision petition u/s 264, CIT dismissed the petition and noted that assessee had not brought any documentary evidence of any agreement between him and M/s. Pushpadanta Infrastructure Ltd. or agreement of sale between inter-mediator Dasharthsinh Waghela and M/s. Pushpadanta Infrastructure Ltd. According to CIT, this would show that M/s. Pushpadanta Infrastructure Ltd. had not acquired any right in the property nor had possession of the same. There was no logical reason why the assessee being the owner of the land who received only Rs. 58.68 lacs whereas the confirming party who received Rs. 2.95 crores. Inter alia on such grounds, the revision petition was dismissed.

Held that,

++ the Revenue Authorities have committed no error. The facts are plain. The petitioner was the owner of the land in question. He executed a sale deed in favour of Kusumben Doshi. As per the sale deed, the petitioner received only Rs.58.68 lacs by way of sale consideration whereas M/s. Pushpadanta Infrastructure Ltd., as the confirming party, received Rs. 2.95 crores. There is not a word in the sale deed why the majority of the sale consideration was diverted to M/s. Pushpadanta Infrastructure Ltd. The petitioner has not been able to produce before the Revenue Authorities or even before us any reason why M/s. Pushpadanta Infrastructure Ltd. should have received such sale consideration. No agreement to sale, no lease document, no other document showing even in remote manner M/s. Pushpadanta Infrastructure Ltd. having acquired any right, title or interest in the land has ever come on record. It is not even stated that M/s. Pushpadanta Infrastructure Ltd. legally or otherwise was in possession of the land due to which such sale consideration had to be diverted to it. The Revenue Authorities, therefore, correctly disbelieved the genuineness of payment to M/s. Pushpadanta Infrastructure Ltd. and treated it as diversion of income. The petition is, therefore, dismissed.

(See 2016-TIOL-1175-HC-AHM-IT)