M/s. Orange Homes, Hyderabad V. Income Tax Officer, Ward-6(2), Hyderabad

ITA 1008/HYD/2012

• Counselvise Citation: 100822514 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 25-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Business income; Business expenditure
• Section: 40A(3); 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.1008/HYD/2012 ASSESSMENT YEAR 2008-2009 M/S. ORANGE HOMES HYDERABAD PAN AABFO2836K VS. ITO, WARD 6(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. S. RAMA RAO FOR REVENUE : MR. JEEVAN LAL LAVIDIYA DATE OF HEARING : 13.02.2014 DATE OF PRONOUNCEMENT : 26.03.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV, HYDERABAD DATED 30.03.2012 FOR THE A.Y. 2008-2009. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F IRM M/S. ORANGE HOMES IS IN THE BUSINESS OF DEVELOPMENT OF LANDS AND CONSTRUCTION OF RESIDENTIAL FLATS. THE ASSESSEE HAS COMMENCED A PROJECT FOR DEVELOPMENT OF FLATS LOCATE D ON LAND AT BACHUPALLY DURING THE FINANCIAL YEAR IN QUESTION . ASSESSEE FIRM FILED ITS RETURN OF INCOME ON 30.09.2008 FOR T HE A.Y. 2008- 2009 ADMITTING A TOTAL INCOME OF RS. NIL. IN THE SC RUTINY PROCEEDINGS, A.O. PROPOSED FOLLOWING ADDITIONS/DISA LLOWANCES. (I) PROFIT ON SALE OF AGRICULTURAL LAND RS.18,15,8 47/- (II) COST OF AGRICULTURAL LAND RS.18,02,653/- U/S.40A(3) . (III) PROFIT ON WORK-IN-PROGRESS (CONSTRUCTION) OF RS.1,34,02,828/- 2 ITA.NO.1008/HYD/2012 M/S. ORANGE HOMES, HYDERABAD 2.1. A SHOW CAUSE NOTICE HAS BEEN ISSUED TO THE ASSESSEE CALLING FOR HIS OBJECTIONS ON THE ABOVE AD DITIONS. ON CONSIDERING THE DETAILED REPLY FILED BY THE ASSESSE E, THE A.O. OBSERVED THAT IN THE COMPUTATION OF TOTAL INCOME TH E FIRM HAS CLAIMED EXEMPTION U/S.10(1) THE ENTIRE AMOUNT OF RS.18,15,847/- SHOWN AS PROFIT ON SALE OF AGRICULTU RAL LANDS. HOWEVER, AS PER SECTION 10(1) AGRICULTURAL INCOME D OES NOT INCLUDE PROFIT ON SALE OF AGRICULTURAL LANDS. THERE FORE, THE A.O. DISALLOWED THE CLAIM AND BROUGHT TO TAX A SUM OF RS.18,15,847/-. 2.3. WITH RESPECT TO COST OF AGRICULTURAL LAND OF RS.18,02,653/-, THE A.O. OBSERVED THAT THE ASSESSEE FIRM PAID THE AMOUNT BY WAY OF CASH FOR PURCHASE OF AGRICULTU RAL LANDS. AS PER THE PROVISIONS OF SECTION 40A(3) OF I.T. ACT , PAYMENTS MADE BY WAY OF CASH EXCEEDING RS.20,000/- ATTRACT T HE PROVISIONS OF THE ACT AND THEREFORE, THE A.O. BROUG HT TO TAX THE ENTIRE AMOUNT OF RS.18,02,653/- AND DISALLOWED THE CLAIM OF THE ASSESSEE. 2.4. THE THIRD ADDITION OF NET PROFIT AT RS.13,60, 939/- BY CIT(A) ON CONSTRUCTION ACTIVITY WAS DELETED BY C IT(A) ON WHICH THERE IS NO REVENUE APPEAL. 3. AGGRIEVED BY THE ABOVE ADDITIONS/DISALLOWANCE MADE BY THE A.O., THE ASSESSEE FILED AN APPEAL BEFO RE THE CIT(A) AND THE LEARNED CIT(A) CONFIRMED THE ADDITIO NS MADE BY THE A.O. ON ACCOUNT OF PROFIT ON SALE OF AGRICULTUR AL LAND AT RS.18,15,847/- AND DISALLOWANCE U/S.40A(3) OF COST OF AGRICULTURAL LAND OF RS.18,02,653/- STATED TO HAVE BEEN PAID IN CASH. 3 ITA.NO.1008/HYD/2012 M/S. ORANGE HOMES, HYDERABAD 4. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1.0. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDERS OF THE A.O. IS AGAINST THE FACTS OF THE CASE AND PROVISIONS OF LAW. 2.0. THE LOWER AUTHORITIES ERRED IN BRINGING SALE O F AGRICULTURAL LAND UNDER TAX NET WHEN THE FACTS AND CIRCUMSTANCES AND IN LAW THE AGRICULTURAL LAND IS EXCLUDED FROM THE DEFINITION OF CAPITAL ASSET AS PE R SECTION 2(14) OF THE I.T. ACT. 3.0. THE LOWER AUTHORITIES ERRED IN INVOKING THE PR OVISIONS OF SECTION 40A(3) OF THE I.T. ACT AND DISALLOWING THE COST OF AGRICULTURAL LAND THERETO WHEN IN THE FACTS AND CIRCUMSTANCES IN LAW THE CASE OF THE ASSESSEE IS NO T FALLING WITHIN THE MISCHIEF OF THE SECTION. 4.0. THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN STA TING THAT THE ASSESSEES NATURE OF BUSINESS IS BUYING AND SELLING OF AGRICULTURAL LANDS, WHEN IT WAS NEVER THE BUSINESS OF THE ASSESSEE AND AGRICULTURAL LANDS SOLD WERE HELD AS INVESTMENT. 5.0. FOR THESE AND OTHER REASONS THAT ARE TO BE URG ED AT THE TIME OF HEARING OF THE CASE, THE APPELLANT PRAYS TH AT THE ORDERS PASSED BY THE LOWER AUTHORITIES ARE AGAINST PROVISIONS OF THE LAW. 5. DURING THE COURSE OF HEARING, THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE FIRM WAS ESTABLISHED WI TH THE MAIN PURPOSE OF CARRYING ON THE BUSINESS OF REAL ES TATE AND CONSTRUCTION OF RESIDENTIAL/COMMERCIAL COMPLEX, PUR CHASES AND DEVELOPMENT OF PROPERTY ETC., HOWEVER, THE LD. COUNSEL SUBMITTED THAT FEW AGRICULTURAL LANDS WERE PURCHASE D IN THE F.Y. 2005-06 AND THE SAID AGRICULTURAL LANDS WERE S OLD DURING THE RELEVANT PREVIOUS YEAR AND CLAIMED AS EXEMPT. I T WAS SUBMITTED THAT A.O. ERRED IN TREATING THE PROFIT AR ISING OUT OF 4 ITA.NO.1008/HYD/2012 M/S. ORANGE HOMES, HYDERABAD SALE OF AGRICULTURE LAND AS BUSINESS PROFIT INSTE AD OF AGRICULTURAL INCOME. THE LAND WAS AND STILL IS AG RICULTURAL LAND. THE GAIN FROM SALE OF AGRICULTURAL LAND WAS N OT A TAXABLE RECEIPT AND PLEADED FOR TREATING THE PROFIT OF RS.1 8,15,847/- AS EXEMPT OUT OF SALE OF AGRICULTURAL LAND AND PURCHAS E OF AGRICULTURAL LAND OF RS.18,02,653/- WILL NOT ATTRAC T PROVISIONS OF SEC. 40A(3) SINCE PURCHASE OF AGRICULTURAL LAND IS NOT A BUSINESS EXPENDITURE. IT WAS FURTHER SUBMITTED THAT PAYMENTS ARE NOT COVERED, AS PER RULE 6DDJ, AS THE RECIPIENT S HAVE NO BANKING FACILITY. 6. ON THE OTHER HAND, THE LEARNED D.R. RELIED ON T HE ORDERS OF THE REVENUE AUTHORITIES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE PAPER BOOK FILED BY THE ASSESSEE CONTAINING PAG ES 1 TO 150. THE A.O. IN HIS BRIEF ORDER HAS TREATED THE PROFIT ON SALE OF AGRICULTURAL LAND AS TAXABLE INCOME ON THE REASON T HAT ASSESSEE ITSELF HAS SHOWN THE PROFIT IN THE P & L A CCOUNT. LEARNED CIT(A) WHILE ANALYZING THE NATURE OF INCOME TOOK INTO THE FACT THAT ASSESSEE IS IN THE REAL ESTATE BUSINE SS AND HAS NOT SHOWN ANY EXPENDITURE REGARDING AGRICULTURAL AC TIVITIES AND THEREFORE, HE WAS OF THE OPINION THAT PURCHASE WAS TOWARDS TRADING ONLY. WHILE RELYING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NEW DELHI H OTELS LTD. 345 ITR 1, HE CONSIDERED THAT THE INTENTION OF THE ASSESSEE IN ACQUIRING AGRICULTURAL LAND HAS TO BE JUDGED IN THE LIGHT OF ORIGINAL LINE OF BUSINESS OF THE ASSESSEE I.E., REA L ESTATE BUSINESS ONLY. IT WAS THE CONTENTION OF THE LD. COU NSEL THAT ASSESSEE HAS PURCHASED AGRICULTURAL LANDS BY WAY OF GPA AND INTURN, SUBSEQUENTLY SOLD. THEREFORE, THE INCOME TH EREON IS AGRICULTURAL INCOME. IN ORDER TO EXAMINE THIS ASPEC T, THE FACTS 5 ITA.NO.1008/HYD/2012 M/S. ORANGE HOMES, HYDERABAD AVAILABLE ON RECORD IS NOT SUFFICIENT. FIRST OF ALL , THE PROPERTY TRANSACTION OF ACQUISITION BY WAY OF GPA FROM 24 FA RMERS HAPPENED ON 16.03.2006 WHICH IS NOT IN THE RELEVANT ASSESSMENT YEAR. WHETHER ASSESSEE HAS SPENT ANY AMO UNT TOWARDS THIS ACTIVITY AND ENTRIES THEREIN MADE IN T HE BOOKS OF ACCOUNTS COULD NOT BE VERIFIED BY US. THE GENERAL P OWER OF ATTORNEY (GPA) WAS ENTERED BY THE FIRM AND AS NOT ICED THE FIRM WAS EXISTING ONE VIDE PARTNERSHIP DEED DATED 13 TH APRIL, 2005 FOR THE BUSINESS OF CONSTRUCTION AND SALE OF RESIDENTIAL/COMMERCIAL FLATS. THIS PARTNERSHIP DEED WAS REVISED W.E.F. 04 TH APRIL, 2007 BY TAKING ANOTHER PARTNER. SUBSEQUENTLY ALSO, THE PARTNERSHIP DEED WAS REVISED . SINCE THE PROPERTY WAS PURCHASED BY WAY OF GPA ON 16.03.2006, WHETHER THE SAME IS TREATED AS PURCHASE IN THE BOOK S OF ACCOUNTS OF THE ASSESSEE OR NOT THEREON REQUIRE EXA MINATION. EVEN THOUGH LD. CIT(A) HELD THAT THERE SEEMS TO BE NO EXPENDITURE OF AGRICULTURAL INCOME, THIS ASPECT IS NOT ARISING OUT OF THE A.O. ORDER AT ALL. THEREFORE, WHETHER AS SESSEE OBTAINED THE PROPERTIES BY WAY OF GPA AND SOLD SUBS EQUENTLY REQUIRE EXAMINATION. WHETHER ASSESSEE HAS INDULGED IN AGRICULTURAL ACTIVITIES IN THE MEANTIME ALSO REQUIR E VERIFICATION. IF THERE IS NO SUCH AGRICULTURAL ACTIVITY ON THE PR OPERTY CERTAINLY PROFIT THEREON BECOMES BUSINESS INCOME AS THE INTENTION SEEMS TO BE FOR BUSINESS. THEREFORE, ISSU E OF CONSIDERING THE PROFIT ON SALE OF AGRICULTURAL LAN D AS BUSINESS INCOME IS RESTORED TO THE FILE OF A.O. WITH REFERE NCE TO OTHER ISSUE OF DISALLOWANCE UNDER SECTION 40(A3), IT IS S URPRISING TO NOTE THAT BOTH A.O. AND CIT(A) DISALLOWED THE AMOUN T, IN THIS YEAR WHEREAS THE AMOUNTS WERE PAID ON 16.03.2006 I. E., IN THE EARLIER A.Y. ASSESSEE HAS ONLY MADE CLAIM FOR COST OF AGRICULTURAL LAND WHILE ARRIVING AT THE PROFIT IN T HE TRANSACTION. 6 ITA.NO.1008/HYD/2012 M/S. ORANGE HOMES, HYDERABAD SINCE THE PAYMENT WAS NOT MADE DURING THE YEAR AT A LL, QUESTION OF DISALLOWANCE UNDER SEC.40A(3) DOES NOT ARISE. HOWEVER, SINCE THE ISSUE OF TAXING THE PROFIT ON SA LE OF AGRICULTURAL LAND IS RESTORED TO THE FILE OF A.O., THIS ISSUE ALSO IS RESTORED TO THE FILE OF A.O. TO EXAMINE AS PER THE ENTRIES MADE IN THE BOOKS OF ACCOUNTS AND WHETHER DISALLOWANCE UNDER SECTION 40A(3) IS WARRANTED IN THIS YEAR. FOR THIS PURPOSE, THE MATTER ON THE ABOVE TWO ISSUES IS RESTORED TO THE F ILE OF A.O. FOR FRESH EXAMINATION AND NECESSARY DECISION. THE ASSES SEE SHOULD BE GIVEN DUE OPPORTUNITY AND A.O. IS DIRECTE D TO EXAMINE ALL THE CONTENTIONS RAISED BEFORE US INCLUD ING THAT PROVISIONS OF SECTION 40A(3) ARE NOT APPLICABLE, AS THE RECIPIENTS DO NOT HAVE ANY BANK ACCOUNTS AND EXCEPT IONS PROVIDED IN THE RULES. GROUNDS RAISED BY THE ASSESS EE ARE ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 26.03.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATED 26 TH MARCH, 2014 VBP/- COPY TO : 1. M/S. ORANGE HOMES, 7-1-27/243, F-402, LALBANGLA, AMEERPET, HYDERABAD. 2. ITO, WARD 6(2), HYDERABAD. 3. CIT(A)-IV, HYDERABAD 4. CIT-III, HYDERABAD 5. D.R. ITAT, B BENCH, HYDERABAD.