Charles Realtors P Ltd., Coimbatore V. ITO, Coimbatore

CO 19/CHNY/2015

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0980 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-05-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 17-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P N RAJAN
• Assessee Lawyers: P RADHAKRISHNAN
• Keywords: Capital asset; Additional evidence; Cost of acquisition; Capital expenditure
• Section: 40A(3); 143(3); 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. ASSESS MENT YEAR APPELLANT RESPONDENT/ CROSS OBJECTOR 3126/MDS/2014 & C.O. NO. 18/MDS/2015 2011-12 INCOME TAX OFFICER, CORPORATE WARD-I COIMBATORE M/S. CHARLES MODULAR HOMES PVT.LTD. 54, METTUPALAYAM ROAD G.N.MILLS (POST) COIMBATORE-641 029. PAN:AADCC7328R 3127/MDS/2014 & C.O. NO. 19/MDS/2015 2011-12 INCOME TAX OFFICER, CORPORATE WARD-I COIMBATORE M/S. CHARLES REALTORS PVT.LTD. 54, METTUPALAYAM ROAD G.N.MILLS (POST) COIMBATORE-641 029. PAN:AADCC7326B / APPELLANT BY : MR. P.RADHAKRISHNAN, JCIT /RESPONDENT BY : MR. P.N.RAJAN, ADVOCATE /DATE OF HEARING : 13 TH JUNE, 2015 /DATE OF PRONOUNCEMENT : 30 TH JUNE, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THESE TWO APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)- I, COIMBATORE DATED 27.10.2014 FOR THE ASSESSMENT YE AR 2011-12. THE CROSS OBJECTIONS ARE FILED BY THE ASSE SSEE IN SUPPORT OF THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS). SINCE THE ISSUE INVOLVED IN THESE APPEA LS IS COMMON, THEY ARE CLUBBED TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NOS. 3126 & 3127 /MDS/2014 & C.O. NOS.18 & 19/MDS/2015 ITA NO.3126/MDS/2014: 2. THE ONLY GRIEVANCE IN THE APPEAL OF THE REVENU E IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ACCEPTING THE ADDITIONAL EVIDENCES IN THE FORM OF B OARD RESOLUTION DURING THE APPEAL PROCEEDINGS WITHOUT A FFORDING ADEQUATE OPPORTUNITY TO THE ASSESSING OFFICER VIOLA TING RULE 46A(3) OF INCOME TAX RULES, 1962. 3. BRIEF FACTS ARE THAT THE ASSESSEE WHICH IS IN TH E BUSINESS DEVELOPMENT OF HOUSING PROJECTS FILED ITS RETURN DECLARING NIL INCOME . THE ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 19.12.2014. IN THE COURSE OF ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASS ESSEE HAS PURCHASED LAND AND MADE CERTAIN CASH PAYMENTS. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY CASH EXP ENSES MADE FOR PURCHASE OF LAND SHALL NOT BE DISALLOWED U NDER SECTION 40A(3) OF THE ACT. THE ASSESSEE SUBMITTED T HAT CASH PAYMENTS MADE ARE ONLY FOR THE PURPOSE OF CAPITAL EXPENDITURE AND HENCE SECTION 40A(3) IS NOT APPLICA BLE IN THE ASSESSEE S CASE. HOWEVER, THE ASSESSING OFFICER WA S OF THE VIEW THAT ASSESSEE IS IN THE BUSINESS OF BUILDERS A ND DEVELOPERS AND THE LAND PURCHASED IS STOCK-IN-TRADE OF THE 3 ITA NOS. 3126 & 3127 /MDS/2014 & C.O. NOS.18 & 19/MDS/2015 ASSESSEE AND IS NOT A FIXED CAPITAL ASSET. THEREFOR E HE WAS OF THE VIEW THAT LAND PURCHASED FORMING STOCK-IN-TRADE WAS ENTERED IN THE BOOKS OF ACCOUNT AS ASSETS WILL NOT PREVENT HIM TO LOOK INTO THE TRUE INTENTION. THEREFORE, ASS ESSING OFFICER TREATED THE PURCHASE OF LAND AS STOCK-IN-TR ADE AND THEREBY CASH PAYMENTS MADE FOR PURCHASE OF SUCH LAN D WAS DISALLOWED UNDER SECTION 40A(3) OF THE ACT. ON APPE AL, THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE MADE UNDER SECTION 40A(3) TREATING THE PURCHASE OF LAND AS FIXED ASSET AS RECORDED IN THE BALANCE SHEET AND NOT AS STOCK-IN-TRADE, AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 4. DEPARTMENTAL REPRESENTATIVE REFERRING TO PARA 8 OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) SUBMI TS THAT ASSESSEE FURNISHED BOARD RESOLUTION DATED 18.12.201 0 BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) BAS ED ON WHICH HE DELETED THE DISALLOWANCE. THEREFORE, DEPAR TMENTAL REPRESENTATIVE SUBMITS THAT IN VIOLATION OF RULE 46 A, THE COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSING OFFICER ADMITTED THE ADDITIONAL EVIDENCE AND DELETED THE DISALLOWANCE. 4 ITA NOS. 3126 & 3127 /MDS/2014 & C.O. NOS.18 & 19/MDS/2015 5. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUPPORTS THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) A ND SUBMITS THAT NO NEW MATERIAL WAS FURNISHED BEFORE T HE COMMISSIONER OF INCOME TAX (APPEALS) EXCEPT THE BOA RD RESOLUTION. COUNSEL SUBMITS THAT ASSESSEE HAS ALREA DY CLASSIFIED THE LAND PURCHASED BY IT AS FIXED ASSET WHICH IS EVIDENT FROM THE BALANCE SHEET FURNISHED BEFORE THE ASSESSING OFFICER AND ONLY TO SUBSTANTIATE THAT LAN D PURCHASED IS NOT STOCK-IN-TRADE BUT A FIXED ASSET, BOARD RESOLUTION WAS FURNISHED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). HE FURTHER SUBMITS THAT THE POWERS OF COMMISSIONER OF INCOME TAX (APPEALS) ARE CO-TERMIN US OF THAT OF ASSESSING OFFICER AND HE CAN ADJUDICATE ON THE EVIDENCES PRODUCED BY THE ASSESSEE. THEREFORE, HE S UPPORTS THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) I N DELETING THE DISALLOWANCE. 6. HEARD BOTH THE PARTIES. PERUSED ORDERS OF LOWER AUTHORITIES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT OBSERVED THAT THE ASSESSEE HAS PURCHASED LAND BY MAKING CASH PAYMENTS AND THE ASSET WAS SHOWN AS CAPITAL ASSET IN THE BALANCE SHEET. HOWEVER, SINCE THE 5 ITA NOS. 3126 & 3127 /MDS/2014 & C.O. NOS.18 & 19/MDS/2015 ASSESSEE WAS IN THE BUSINESS OF DEVELOPMENT OF HOUS ING PROJECTS, THE ASSESSING OFFICER WAS OF THE VIEW THA T THE LAND THOUGH CLASSIFIED AS FIXED ASSET IN THE BALANCE SHE ET, IT IS NOTHING BUT STOCK-IN-TRADE, THUS THE PROVISIONS OF SECTION 40A(3) ARE ATTRACTED TO THE CASH PAYMENTS MADE FOR PURCHASE OF THE SAID LAND. THE ASSESSING OFFICER HAS NOT DEN IED THE FACT THAT LAND PURCHASED BY THE ASSESSEE WAS SHOWN AS FIXED ASSET IN THE BALANCE SHEET OF THE ASSESSEE. ON APPE AL, THE COMMISSIONER OF INCOME TAX (APPEALS) ON EXAMINING T HE CONTENTIONS OF THE ASSESSEE AND THE FINDINGS OF TH E ASSESSING OFFICER DELETED THE DISALLOWANCE OBSERVIN G AS UNDER:- 7. I HAVE GONE THROUGH THE SUBMISSIONS MADE B Y THE APPELLANT AND ALSO THE ORDER OF THE ASSESSING OFFIC ER. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS STATED THAT THE LANDS PURCHASED WERE APPEARING IN T HE BALANCE SHEET UNDER THE HEAD 'FIXED ASSETS'. CONSIDERING THE MOA AND AOA PRODUCED BY THE ASSESSING OFFICER HELD THAT THE TREATMENT OF LAND PURCHASED BY THE ASSESSEE WHICH IS SHOWN AS FIXED ASSET IN THE BALANCE SHEET IS INCONSISTENT WITH ITS INTENTION AND NORMAL BUSINESS PRACTICE. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER STATED, 'FROM THE FACTS OF THE CASE AND THE OBJECTIVES OF THE ASSESSEE COMPANY IT IS CLEAR THAT THE PURCHASE OF LAND HAS BEEN MADE SOLELY AND EXCLUSIVELY WITH THE INTENTION TO RESELL AS PLOTS OR DEVELOP BUILDINGS AND SELL AT PROFIT AND THE ASSESSEE AT NO POINT HAD INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OTHERWISE ENJOYING OR USING IT, IRRESPECTIVE OF THE TREATMENT OF THE LAND AS FI XED ASSET IN THE BOOKS OF THE ASSESSEE, THE INTENTION I S 6 ITA NOS. 3126 & 3127 /MDS/2014 & C.O. NOS.18 & 19/MDS/2015 TO USE THIS AS STOCK FOR BUSINESS, IS AN UNDENIABLE FACT'. 8. ON VERIFICATION OF THE LAND DOCUMENTS, ASSESSING OFFICER NOTED THAT THE PURCHASES WERE MADE IN CASH. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT, 1961 AND MADE DISALLOWANCE OF RS.61,50,760/-. THE AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE DOMINANT INTENTIO N OF THE COMPANY WAS TO BUY LAND AS FIXED ASSET FOR THE BENEFIT OF THE COMPANY AND WELFARE OF ITS EMPLO YEES. THE AUTHORIZED REPRESENTATIVE FURNISHED THE BOARD RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON 18.12.2010. THE BO ARD RESOLUTION STATES THAT THE EXTENT OF 2.11 ACRES OF LAND IN THEETHIPALAYAM VILLAGE OF COIMBATORE SOUTH TALUK, WITHIN THONDAMUTHUR SUB REGISTRATION DISTRICT, COIMBATORE DISTRICT SHALL BE PURCHASED / PROCURED A S FIXED ASSETS IN THE NAME OF THE COMPANY AND AUTHORI ZED SHRI M. SIVA PRAKASH TO NEGOTIATE WITH THE VENDORS OF THE LANDED PROPERTY. IN THE BALANCE SHEET THE ASSESSEE CLASSIFIED THE ASSETS AS FIXED ASSETS. THE ASSESSI NG OFFICER IN HIS ORDER HAS STATED 'THAT THE LAND PURC HASED FORMING STOCK-IN-TRADE WAS ENTERED IN THE BOOKS AS ASSETS WILL NOT PREVENT ASSESSING OFFICER TO LOO K INTO THE TRUE INTENTION OF THE ASSESSEE. AS PER THE ACCO UNTING STANDARD (AS 7), ASSESSEE SHOULD BOOK EXPENSES INCURRED FOR PURCHASE OF LAND (STOCK- IN-TRADE) IN TRADING ACCOUNT AND THEN CORRESPONDING IN BALANCE SHEET ONLY UNDER SCHEDULE 'CURRENT ASSETS' SHOULD BE MADE. HOWEVER, ASSESSEE HAS NOT FOLLOWED THE STANDARD ACCOUNTING METHOD. ACCEPTING THE ASSESSEE'S CONTENTION WILL FRUSTRATE AND DEFEAT THE VERY PURPOSE OF SECTION 40A(3)'. 9. IN MY OPINION, THE ASSESSING OFFICER HAS TREATED TH E FIXED ASSET [REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE] AS STOCK-IN-TRADE AND DISCUSSED THE ACCOUNTING STANDARD (AS 7). IN THE EARLIER PARAS OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER CLEARLY MENTIONED THAT THE LAND PURCHASED WERE APPEARING UN DER THE HEAD 'FIXED ASSETS'. THE ASSESSING OFFICER CANN OT ASSUME THE INTENTION OF THE ASSESSEE AND TREAT THE FIXED ASSET AS STOCK-IN-TRADE. THE ASSESSEE MAY BE INVOLV ED IN REAL ESTATE TRANSACTIONS, BUT HE HAS THE RIGHT TO C HOOSE THE ASSET TO BE SHOWN AS FIXED ASSETS AND CURRENT A SSETS. IN THE CASE OF THE APPELLANT, THE LANDS PURCHASED W ITH CASH PAYMENT HAVE BEEN CLEARLY SHOWN AS FIXED ASSET S. THE PURCHASE COST OF THE LAND INCLUDING THE REGISTR ATION 7 ITA NOS. 3126 & 3127 /MDS/2014 & C.O. NOS.18 & 19/MDS/2015 EXPENSES WILL BE CAPITALIZED AND SHOWN AS THE COST OF FIXED ASSET. THE ASSESSING OFFICER CANNOT TREAT THE FIXED ASSET SHOWN IN THE BALANCE SHEET AS CURRENT ASSET O R AS STOCK-IN-TRADE AND INVOKE THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THEREFORE, THE PROVISIONS OF SECTION 40 A(3) ARE NOT APPLICABLE TO THE FACTS OF THE CASE. 7. AS COULD BE SEEN FROM THE ABOVE OBSERVATIONS OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE HAS CLASSIFIED THE ASSET PURCHASED AS FIXED ASSET IN TH E BALANCE SHEET AND THOUGH THE ASSESSEE IS IN REAL ESTATE BUS INESS, THE ASSESSEE HAS THE RIGHT TO CHOOSE THE ASSET TO BE SH OWN AS AS FIXED ASSET OR CURRENT ASSET. THE ASSESSING OFFICER CANNOT ASSUME THE INTENTION OF THE ASSESSEE AND TREAT THE FIXED ASSET AS STOCK-IN-TRADE. THEREFORE, ASSESSING OFFIC ER CANNOT TREAT THE FIXED ASSET SHOWN IN THE BALANCE SHEET AS CURRENT ASSET AND INVOKE THE PROVISIONS OF SECTION 40A(3) O F THE ACT. REGARDING BOARD RESOLUTION FURNISHED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), WE ARE OF THE VIEW THAT THE RESOLUTION IS FURNISHED ONLY IN SUPPORT O F THE STAND OF THE ASSESSEE THAT LAND WAS PURCHASED AS FIXED ASSE T. IN THE BALANCE SHEET IT WAS CLASSIFIED AS FIXED ASSET. THE REFORE, NOTHING MUCH WILL TURN ON PRODUCTION OF BOARD RESOL UTION BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). EV EN OTHERWISE POWERS OF COMMISSIONER OF INCOME TAX (APP EALS) 8 ITA NOS. 3126 & 3127 /MDS/2014 & C.O. NOS.18 & 19/MDS/2015 ARE CO-TERMINUS OF THE ASSESSING OFFICER AND HE CA N DECIDE THE ISSUE ON THE EVIDENCE PRODUCED BEFORE HIM. THUS , EVEN IF WE SET ASIDE THE MATTER TO THE ASSESSING OFFICER NO THING MUCH WILL TURN ON THE BASIS OF BOARD RESOLUTION SI NCE THE ASSESSING OFFICER WANTED TO INVOKE THE PROVISIONS O F SECTION 40A(3) IN SPITE OF THE FACT THAT THE ASSET WAS CLAS SIFIED AS CAPITAL ASSET IN THE BALANCE SHEET. THEREFORE, IN O UR VIEW, THERE IS NO NEED FOR SETTING ASIDE THE MATTER TO TH E ASSESSING OFFICER FOR OPPORTUNITY. IN THE CIRCUMSTANCES, WE U PHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) I N DELETING THE DISALLOWANCE UNDER SECTION 40A(3) OF T HE ACT AS THE CASH PAYMENTS WERE MADE ONLY TO PURCHASE CAPITA L ASSET AND THEREFORE SECTION 40A(3) OF THE ACT ARE NOT AP PLICABLE IN SUCH CASH PAYMENTS. THE GROUNDS RAISED BY THE REVEN UE ON THIS ISSUE ARE REJECTED. 8. SINCE WE DISMISSED THE APPEAL OF THE REVENUE, CR OSS OBJECTION FILED BY THE ASSESSEE IN SUPPORT OF THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS) BECOME INFRUCT UOUS AND THE SAME IS DISMISSED ACCORDINGLY. 9 ITA NOS. 3126 & 3127 /MDS/2014 & C.O. NOS.18 & 19/MDS/2015 ITA NO.3127/MDS/2014: 9. SINCE THE FACTS AND CIRCUMSTANCES OF THE CASE I N ITA NO.3127/MDS/2014 ARE BEING SIMILAR TO THAT OF ITA NO.3126/MDS/2014, ADOPTING OUR FINDINGS RECORDED HEREINABOVE, WE UPHOLD THE ORDER OF THE COMMISSIONE R OF INCOME TAX (APPEALS) AND DISMISS THE APPEAL OF THE REVENUE IN ITA NO.3127/MDS/2014. 10. SINCE WE DISMISSED THE APPEAL OF THE REVENUE, C ROSS OBJECTION FILED BY THE ASSESSEE IN SUPPORT OF THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS) BECOME INFRUCT UOUS AND THE SAME IS DISMISSED ACCORDINGLY. 11. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2015. SD/- SD/- ( ) ( ' $ ) ( CHANDRA POOJARI ) ( CHALLA NAGENDRA PRASAD ) & / ACCOUNTANT MEMBER $' & / JUDICIAL MEMBER $ /CHENNAI, ) /DATED 30 TH JUNE, 2015 SOMU ',- .- /COPY TO: 1. APPELLANT 2. RESPONDENT 3. / () /CIT(A) 4. / /CIT 5. - ''3 /DR 6. 6 /GF .