Shri Anil Bholabhai Patel, Baroda V. The ACIT.,Circle-5, Baroda

CO 291/AHD/2008

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6054 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 13-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 24-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M G PATEL
• Keywords: Business income; Depreciation; Income from undisclosed sources
• Section: 143(3)

Judgement Text

I.T.A.NO. 3288/AHD/2008 C.O.291/AHD/2008 1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI G. D. AGARWAL, HONBLE VICE PRESIDENT AND SHRI D. K. TYAGI, JUDICIAL MEMBER I.T.A. NO. 3288/ AHD/2008 (ASSESSMENT YEAR 2004-05) ACIT, CIRCLE 5, BARODA VS. SHRI ANIL BHOLABHAI PATEL, 1, DARSHAN SOCEITY, KARELIBAUG, BARODA C.O. NO.291/AHD/08 IN I.T.A.NO. 3288/AHD/08 (ASSESSMENT YEAR 2004-05) SHRI ANIL BHOLABHAI PATEL, 1, DARSHAN SOCEITY, KARELIBAUG, BARODA VS. ACIT, CIRCLE 5, BARODA PAN/GIR NO. : ACTPP2509G (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI RAJESH OJHA, SR. DR RESPONDENT BY: SHRI M G PATEL, AR O R D E R PER SHRI D. K. TYAGI, JM:- THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE HAVE BEEN PREFERRED AGAINST THE ORDER OF CIT(A) V, BAROD A FOR THE ASSESSMENT YEAR 2004-05. 2. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEA L: I.T.A.NO. 3288/AHD/2008 C.O.291/AHD/2008 2 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN ALLOWING THE INCOME OF RS.55,69,429 /- RECEIVED BY HE ASSESSEE IN THE NATURE OF LONG TERM CAPITAL GAIN AN D NOT AS BUSINESS INCOME. 2) ON THE FACTS AND CIRCUMSTANCES OF THE SEND IN LA W, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE AGRICULTURAL LAND PURCHASED WAS CONVERTED INTO NON-AGRICULTURAL LAND BY APPROPRIATE AUTHORITY AND CARRIED OUT ACTIVITY IN THE NATURE OF BUSINESS RESULTING IN PROFIT. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS DONE THIS WITH THE INTENTION OF PAYMENT LESS TAX TREATIN G THE SALE OF LAND AS LONG TERM CAPITAL GAIN. 3. THE ASSESSEE HAS DISCLOSED CAPITAL GAIN OF RS.55 ,69,429/- FROM SALE OF LAND IN ITS RETURN OF INCOME. THE A.O. TREATED THI S CAPITAL GAIN AS BUSINESS INCOME. BEFORE CIT(A), IT WAS ARGUED ON BEHALF OF THE ASSESSEE THAT THE ISSUE WAS EXAMINED BY THE CIT(A) IN THE CASE OF SHR I BHOLABHAI R. PATEL (HUF) FOR THE ASSESSMENT YEAR 2001-02 AND IT WAS HE LD BY THE CIT(A) IN THAT CASE THAT THE A.O. WAS NOT JUSTIFIED IN TREATING TH E ACTIVITIES OF THE ASSESSEE AS ADVENTURE IN THE NATURE OF TRADE AND HE HAD DIRE CTED THE A.O. TO TAX THIS INCOME AS CAPITAL GAIN. IT WAS FURTHER SUBMITTED T HAT THE FACTS OF THE CASE IN THE CASE OF THE ASSESSEE FOR THAT YEAR ARE EXACTLY IDENTICAL. THERE IS SALE OF THE SAME LAND HELD FOR THE EARLIER YEAR. PART OF I T WAS SOLD IN EARLIER YEAR AND THE REST ARE BEING SOLD NOW. IN VIEW OF THIS, IT WAS ARGUED THAT THE CASE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF C IT(A). LD. CIT(A) AGREED WITH THIS SUBMISSION OF THE ASSESSEE AND TRE ATED THE CASE WHOLLY COVERED BY THE DECISION OF CIT(A) IN THE CASE OF SH RI BHOLABHAI R. PATEL (HUF) AND FOLLOWING THIS DECISION, DIRECTED THE A.O . FOR TREATING THIS INCOME AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. AG GRIEVED BY THIS ORDER OF LD. CIT(A), NOW THE REVENUE IS IN APPEAL BEFORE US. I.T.A.NO. 3288/AHD/2008 C.O.291/AHD/2008 3 4. AT THE TIME OF HEARING, AT THE OUTSET, LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF THE FAMILY MEMBERS OF T HE ASSESSEE I.E. IN THE CASE OF ACIT VS SHRI BHOLABHAI R. PATEL( HUF) IN I.T.A. NO. 3433/AHD/2005 FOR THE ASSESSMENT YEAR 2001-02 AND I.T.A. NOS. 1570 AN D 2343/AHD/2008 FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 WHEREIN IT WAS HELD THAT INCOME RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF CAPIT AL GAIN. THE TRIBUNAL IN THAT CASE HAS OBSERVED AS UNDER: 6. HEARD BOTH PARTIES AND PERUSED THE RECORD. THE UNDISPUTED FACTS I ARE THAT THE LAND IN QUESTION HAD BEEN INHERITED AND CONTINUED TO HOLD IT I AS AN INVESTME NT AND HAD ALSO PAID WEALTH TAX ON IT. SUBSEQUENTLY PERMISSIO N FOR MAKING CONSTRUCTION ON THE SAID LAND WAS OBTAINED F ROM VADODARA MUNICIPAL CORPORATION VIDE LETTER NO.L/9/96/98-99 DT.26.3.1998 AND PERMISSION CONVENI NG LAND INTO NON-AGRICULTURE LAND WAS OBTAINED FROM THE CON CERNED AUTHORITY VIDE ORDER NO.L/A/SR/120/97-I 98 DT.18. 3.1999. VIDE A DEVELOPMENT AGREEMENT DT.15.2.2000 ENTERED I WITH M/S SHREENATH CORPORATION, THE ASSESSEE AGREED TO S ALE ITS SHARE IN I PIECE OF LAND AT A FIXED PRICE OF RS. 100 PER SQ.FT. AFTER THE LAND BEING SOLD, THE ASSESSEE HAS SHOWN T HE SURPLUS AS THE CAPITAL GAIN. CONSIDERING THE ABOVE FACTS, WE A RE OF THE CONSIDERED VIEW THAT IT CANNOT BE SAID TO BE A CARR YING OUT OF ANY BUSINESS ADVENTURE, BECAUSE THE LAND IN QUESTIO N HAVING BEEN OWNED BY THE ASSESSEE AS AN INVESTMENT AND NOT AS STOCK- IN-TRADE. FURTHER THE ASSESSEE HAS PAID WEALTH-TAX ON THE LAND IN QUESTION. THIS AMPLY PROVES THAT THE ASSESSEE HAS T REATED THE LAND AS AN INVESTMENT. RECENTLY IN THE CASE OF CIT VS. M.V. CHANDRASEKHAR [SLP (C) NO.477 OF 2009] HON'BLE SUPR EME COURT DISMISSED THE DEPARTMENT'S SPECIAL LEAVE PETI TION AGAINST THE JUDGMENT DATED JANUARY 2, 2008 OF THE K ARNATAKA HIGH COURT IN ITA NO.209 OF 2003, WHEREBY THE HIGH COURT FOLLOWING ITS DECISION IN ITA NO.282 OF 2002 UPHELD THE DECISION OF THE TRIBUNAL HOLDING THAT THE PROFITS D ERIVED FROM THE LANDS OWNED BY THE ASSESSEE WHICH WERE CONVERTE D INTO SMALL PLOTS AND SOLD TO THIRD PARTIES WHO PUT UP RE SIDENTIAL HOUSES COULD NOT BE TREATED AS AN ADVENTURE IN THE NATURE OF TRADE AND ASSESSED AS INCOME FROM BUSINESS BUT AS C APITAL GAINS VOLUME 312 ITR FROM OUR REPORTED AT THE SUPREME COU RT -PAGE 335. THEREFORE, CONSIDERING THE FACTS AND CIRCUMST ANCES OF THE I.T.A.NO. 3288/AHD/2008 C.O.291/AHD/2008 4 CASE AND VARIOUS DECISIONS AS DISCUSSED BY THE ID. CIT(A) IN HIS ORDER, WE ARE OF I THE CONSIDERED VIEW THAT THE ID. CIT(A) HAS CORRECTLY HELD THAT THE INCOME, RECEIVED BY THE ASS ESSEE IS IN THE NATURE OF LONG TERM CAPITAL GAINS. WE UPHOLD THE SA ME AND DISMISS THE APPEALS OF THE REVENUE FOR ALL THE THREE YEARS UNDER CONSIDERATION.' 5. SINCE NO CONTRARY FACTS HAVE BEEN POINTED OUT, W E RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, CONFIRM THE OR DER OF LD. CIT(A). THEREFORE, APPEAL OF THE REVENUE STANDS DISMISSED. 6. THE ASSESSEE IN THE CROSS OBJECTIONS, HAS TAKEN THE FOLLOWING GROUNDS: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-V , BARODA HAS ERRED IN LAW AS WELL AS ON FACTS OF THE CASE BY CON FIRMING THE ADDITION OF RS.1,29,378/- IN RESPECT OF AGRICULTURAL INCOME TREATED AS INCOME FROM OTHER SOURCES. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-V, BARODA HAS ERRED IN LAW AS WELL AS ON FACTS OF THE CASE BY CON FIRMING THE DISALLOWANCE OF RS.12,39,410/- OUT OF INTEREST EXPE NDITURE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT BORROWED FUNDS HAVE BEEN TRANSFERRED TO THE ASSOCIATE CONCERN AND SUBSIDIARY COMPANY ON WHICH NO INTEREST HAS BEEN CHARGED. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-V, BARODA HAS ERRED IN LAW AS WELLS ON FACTS OF THE CASE BY CONFI RMING THE DISALLOWANCE OF RS.L,75,103/- ON ACCOUNT OF USE OF CAR, CAR DEPR ECIATION AND TELEPHONE EXPENSES. THE RESPONDENT, THEREFORE, PRAYS FOR THE FOLLOWING : (I) TO DELETE THE ADDITION OF RS.1,29,378/- IN RESPECT OF AGRICULTURAL INCOME TREATED AS INCOME FROM OTHER SOURCES. (II) TO DELETE DISALLOWANCE OF RS.12,39,4107- O UT OF INTEREST EXPENDITURE. (III) TO DELETE DISALLOWANCE OF RS.1,75,103/- O N ACCOUNT OF USE OF CAR, CAR DEPRECIATION AND TELEPHONE EXPENSES. 7. GROUND NO.1 RELATES TO CONFIRMATION OF ADDITION OF RS.1,29,378/- IN RESPECT OF AGRICULTURAL INCOME TREATING AS INCOME F ROM OTHER SOURCES. I.T.A.NO. 3288/AHD/2008 C.O.291/AHD/2008 5 DURING THE ASSESSMENT PROCEEDINGS, THE A.O. FOUND T HAT THE ASSESSEE HAS SHOWN AGRICULTURAL INCOME OF RS.4,05,781/-. THE DE TAILS OF AGRICULTURAL LAND AND PRODUCT WERE PRODUCED BEFORE HIM. THE A.O. ASK ED TO FURNISH THE DETAILS OF EXPENDITURE INCURRED TO EARN THIS INCOME . THE ASSESSEE COULD NOT FURNISH THE DETAILS OF EXPENDITURE INCURRED BY HIM. THE A.O. WAS OF THE VIEW THAT ACCORDING TO THE DOCUMENTS FURNISHED THE ASSESSEE HAD 21.87 BIGHAS OF LAND AND TAKING THE YIELD @ RS.8,000/- PE R BIGHA, THE ACCRUABLE AGRICULTURAL INCOME WOULD COME TO RS.1,74,960/-. I N VIEW OF THIS, THE A.O. TREATED THE EXCESS AGRICULTURAL INCOME OF RS.2,30,8 21/- AS INCOME FROM UNDISCLOSED SOURCES. BEFORE CIT(A), FOLLOWING WRIT TEN SUBMISSIONS WERE FILED ON BEHALF OF THE ASSESSEE: THE LD. A.O. HAS ALSO MENTIONED IN THE ORDER THAT, THE ASSESSEE FAILED TO SUBSTANTIATE THE AGRICULTURAL INCOME DECL ARED BY HIM WITH RELEVANT DOCUMENTS. IN THIS CONNECTION, IT IS SUBMITTED THAT YOUR APPELLANT HAS SUBMITTED THAT EXTRACT OF 7/12 S TATEMENT ISSUED BY THE TALATIS OF VARIOUS VILLAGES. 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE ARGUMENTS OF THE A.O. AND THE SUBMISSIONS MADE BY THE AR BEFORE COMING TO A CONCLUSION, THE FOLLOWING FACTS ARE TO BE PLACED ON RECORD FOR EXAMINING THE ISSUE. (I) THE APPELLANT HAS FURNISHED SUFFICIENT EVIDENCE OF HOLDING OF LAND WHICH IS AN ANCESTRAL PROPERTY. (II) THE GOVERNMENT RECORD ALSO SHOW THE CROP CULTI VATED I.E. COTTON. THE BASIC EVIDENCE HAS NOT BEEN CONTRADICT ED IN THE COURSE OF INVESTIGATION. (III) THE EVIDENCE OF PURCHASE OF LAND ALONG WITH T HE PURCHASE DEED HAS BEEN FURNISHED BEFORE THE A.O. THE NAME O F THE ORIGINAL OWNER HAS ALSO BEEN GIVEN. (IV) THE LAND APPEARS AS A FIXED ASSET IN THE BALAN CE SHEET AND DULY DISCLOSED IN THE RETURN OF INCOME. (V) IN THE EARLIER YEAR WHERE THE AGRICULTURAL LAND REMAINS SAME FOR CULTIVATION THE AGRICULTURAL INCOME OFFERE D BY THE APPELLANT HAS BEEN ACCEPTED BY THE I T DEPARTMENT U NDER SECTION 143(3) OF THE ACT AFTER DETAILED VERIFICATION. I.T.A.NO. 3288/AHD/2008 C.O.291/AHD/2008 6 8. TAKING INTO CONSIDERATION THESE SUBMISSIONS OF T HE ASSESSEE, CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE RESTRICTI NG THE DISALLOWANCE TO RS.1,29,378/-. FURTHER AGGRIEVED, THE ASSESSEE HAS FILED THIS CROSS OBJECTION. 9. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). LD. D.R. ON TH E OTHER HAND RELIED ON THE ORDER OF LD. CIT(A). 10. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORDS, WE FIND THAT LD. CIT(A) WHILE GIVING RELIEF TO THE ASSESSEE, HAS OBSERVED AS UNDER: IN THE LIGHT OF THESE FACTS, IT CANNOT BE SAID THA T THERE WAS NO AGRICULTURAL INCOME EARNED BY THE APPELLANT. THE I NCOME IS ALREADY EVIDENCED BY THE HOLDING OF LAND, EVIDENCE IN GOVERNMENT RECORDS AND EVIDENCE OF SELLING OF THE P RODUCE FURNISHED BY THE APPELLANT. HOWEVER, THE APPELLANT HAS NOT BEEN ABLE TO PRODUCE THE DETAILS OF EXPENSES IN RELATION TO AGRICULTURAL INCOME EARNED. ON AN AVERAGE ABOUT 25% OF THE INCO ME DECLARED CAN BE TAKEN TO BE EXPENSES MET OUT OF UND ISCLOSED SOURCES AND MAY BE TAXED AS INCOME FROM UNDISCLOSED SOURCES. HENCE, AN AMOUNT OF RS.1,01,445/- COULD BE TREATED AS UNVERIFIABLE EXPENSES. THE NET AGRICULTURAL INCOME WILL BE RS.3,04,336/-. OUT OF THE TOTAL DISALLOWANCE OF RS .2,30,821/- AN AMOUNT OF RS.1,29,378/- IS SUSTAINED AND THE REST I S DELETED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 11. SINCE, LD. CIT(A) HAS BEEN QUITE REASONABLE IN GIVING FURTHER RELIEF TO THE ASSESSEE AFTER TAKING INTO CONSIDERATION THE AS SESSEES SUBMISSION WE FEEL NO NEED TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THE SAME IS HEREBY CONFIRMED. THIS GROUND OF CROSS OBJECTION IS DISMI SSED. 12. THE 2 ND GROUND OF CROSS OBJECTION RELATES TO CONFIRMATION OF DISALLOWANCE OF RS.12,39,410/- OUT OF INTEREST EXPE NDITURE MADE BY HE A.O. ON THE GROUND THAT BORROWED FUNDS HAVE BEEN TRANSFE RRED TO THE ASSOCIATE CONCERN AND SUBSIDIARY COMPANY ON WHICH NO INTEREST HAS BEEN CHARGED. AT THE TIME OF HEARING BOTH THE PARTIES AGREED THAT TH E ISSUE IS NOW COVERED BY THE ORDER OF ITAT IN ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2003-04 IN I.T.A.NO. 3288/AHD/2008 C.O.291/AHD/2008 7 I.T.A.NO. 2886/AHD/2006 WHEREIN THE MATTER HAS BEEN RESTORED BACK TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. FOLLOWING THE SAME, THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. THIS GROUND OF ASSESSEES C.O. IS ALLOWED FOR STATISTICAL PURPOSES. 13. THE 3 RD GROUND RELATES TO DISALLOWANCE OF RS.8,75,103/- ON ACCOUNT OF USE OF CAR, CAR DEPRECIATION AND TELEPHONE EXPENSES . AT THE TIME OF HEARING BOTH THE PARTIES AGREED THAT THE ISSUE IS COVERED B Y THE DECISION OF ITAT IN I.T.A.NO. 2886/-AHD/2006 WHEREIN THESE DISALLOWANCE S HAVE BEEN RESTRICTED TO 1/5 TH OF THE TOTAL EXPENDITURE. FOLLOWING THE SAME AND TO MAINTAIN CONSISTENCY FOR THIS YEAR ALSO, WE HEREBY DIRECT TO DISALLOW ONLY 1/5 TH OF THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE ON THESE HEADS. THIS GROUND OF ASSESSEES CROSS OBJECTION IS PARTLY ALLOWED. 14. IN THE RESULT, APPEAL OF THE REVENUE STANDS DIS MISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. 15. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JUNE, 2011. SD./- SD./- (G. D. AGARWAL) (D. K. TYAGI) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED : 10 TH JUNE, 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE I.T.A.NO. 3288/AHD/2008 C.O.291/AHD/2008 8 1. DATE OF DICTATION 25/5/11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26/5/11 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 26/5/11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 10/6/11 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 10/6/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 10/6/11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..