Firm Can't Disown Ownership Over Land Simply Because Consideration For Purchase Of Land Was Paid Through Its Directors: Indore ITAT

The Bench of Vijay Pal Rao (Judicial Member) and B.M Biyani (Accountant Member) observed that “when the transaction is very much in the name of the assessee then the form of entity is irrelevant as the assessee has not disowned the ownership of the land in question and payment of the consideration through its directors”. (Para 7)

As per the brief facts of the case, the assessee has submitted that the AO has reopened the assessment u/s 148 to assessee the income on account of unexplained investment in purchase of land vide sale deed for consideration of Rs.30 lakhs. The assessee therefore pointed out that the land in question was purchased in the name of the assessee company by the directors of the assessee and payment was also made by the Directors and therefore, the addition cannot be made in the hands of the assessee.

The Bench found that the land in question was purchased vide sale deed which was executed in favour of the assessee and signed by the Directors of the assessee company.

The Bench noted that when the land was purchased in the name of the assessee and the sale deed was duly executed and signed by the Director of the assessee company then even if the certificate of incorporation was issued subsequently, the assessee was very much inexistence as an entity if not as a company, then as an AOP having the Directors as members which was subsequently succeeded by the assessee company on its being incorporated vide certificate of incorporation.

Therefore, at the time of issuing notice u/s 148, the assessee company was very much inexistence as a successor of the AOP which has purchased the agricultural land in question, added the Bench.

Therefore, the Bench clarified that when the assessee company has not disowned the transaction of purchase of land in question and was very much part of the assets of the assessee company then the onus is on the assessee company to explain the source of investment.

The Bench observed that the conduct of the assessee shows that it was avoiding assessment proceedings and thereby protecting it's directors to discharge their duty for explaining source of investment.

However, the ITAT granted one more opportunity to the assessee to produce all the necessary details and evidence to explain source of investment.

Counsel for Appellant/ Assessee: Siddharth Mahajan & Ashok Mahajan

Counsel for Respondent/ Revenue: Ashish Porwal

Case Title: Bagora Developers verses ACIT

Case Number: ITA No.73/Ind/2021

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