DCIT, Coimbatore V. Martin Multi Projects Pvt. Ltd., Coimbatore

ITA 1084/CHNY/2015

• Counselvise Citation: 108421714 RSA 2015
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2015
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 01-12-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 08-05-2015
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: P N RAJAN
• Keywords: Capital asset
• Section: 40A(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , ! ' ! # . $ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 1084/MDS/2015 / ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-1, 63-A, RACE COURSE ROAD, COIMBATORE. APPELLANT) V. M/S. MARTIN MULTI PROJECTS PVT. LTD., NO.54, METTUPALAYAM ROAD, G.N.MILLS POST, COIMBATORE 641 029. PAN AAGCM0211J RESPONDENT) / APPELLANT BY : SHRI A.B.KOLI, JCIT / RESPONDENT BY : SHRI P.N.RAJAN, ADVOCATE ! / DATE OF HEARING : 01.12.2015 '# ! / DATE OF PRONOUNCEMENT: 31.12.2015 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 19 .2.2015 FOR THE ASSESSMENT YEAR 2011-12. - - ITA 1084/15 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND IN T HIS APPEAL : 2. THE LEARNED CIT(A) ERRED IN ACCEPTING ADDITIONA L EVIDENCES IN THE FORM OF BOARD RESOLUTIONS DURING T HE APPEAL PROCEEDINGS, WITHOUT AFFORDING ADEQUATE OPPO RTUNITY TO THE ASSESSING OFFICER UNDER RULE 46A(3) OF THE I NCOME TAX RULES, 1962. 3. THERE IS A DELAY OF 4 DAYS IN FILING THESE APPEA LS BEFORE THE TRIBUNAL. THE DEPARTMENT HAS FILED AN AFFIDAVI T AND EXPLAINED THE REASONS FOR THE DELAY IN FILING THE APPEAL. WE HAVE GONE THROUGH THE AFFIDAVIT FILED BY THE DEPARTMENT AND WE ARE OF THE OPINION THAT THERE IS GOOD AND SUFFICIENT REASO N FOR FILING THE APPEAL BELATEDLY. ACCORDINGLY, THE DELAY IS CONDON ED AND THE APPEAL IS ADMITTED FOR ADJUDICATION. 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY, PURCHASED LANDS AND ACCOUNTED THE SAME IN THEIR BALANCE SHEET AFTER DUE AUTHORIZATION FROM IT S BOARD OF DIRECTORS AS FIXED ASSETS. THE ASSESSEE COMPANYS ACCOUNTS ARE DULY CERTIFIED BY A CHARTERED ACCOUNTANT AND WE RE DRAWN IN CONFORMATION WITH THE COMPANIES ACT, 1956. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAS TREATED THE LAND S PURCHASED AS CURRENT ASSETS AND INVOKED THE PROVISI ONS OF - - ITA 1084/15 3 SEC.40A(3) OF THE ACT AND DISALLOWED THE CASH PAYME NTS MADE TOWARDS THE PURCHASE OF SUCH FIXED ASSETS IN THE BA LANCE SHEET. AGGRIEVED, THE ASSESSE WENT IN APPEAL BEFORE THE CI T(APPEALS). 5. BEFORE THE CIT(APPEALS), THE LD. AR SUBMITTED TH AT THE INTENTION OF THE COMPANY WAS TO BUY LAND AS FIXED A SSETS FOR THE BENEFIT OF THE COMPANY AND THE WELFARE OF THE EMPLO YEES. THE LD. AR FILED THE BOARD RESOLUTION PASSED AT THE MEE TING OF THE BOARD OF DIRECTORS OF THE COMPANY. THE BOARD RESO LUTION WAS PASSED ON 30.4.2009. IN THE BALANCE SHEET THE ASSE SSE CLASSIFIED THE ASSETS AS FIXED ASSETS. ACCORDING T O THE CIT(APPEALS), THE AO, IN HIS ORDER HAS STATED LAND PURCHASED FORMING STOCK-IN-TRADE WAS ENTERED IN THE BOOKS AS ASSETS WILL NOT PREVENT THE AO TO LOOK INTO THE TRUE INTENTION OF THE ASSESSE. AS PER THE ACCOUNTING STANDARDS (AS-7), THE ASSESSE SHOULD FIRST BOOK EXPENSES INCURRED FOR PURCHASE OF LAND ( STOCK-IN-TRADE) IN TRADING ACCOUNT AND THEN CORRESPONDING IN BALANC E SHEET ONLY UNDER SCHEDULE CURRENT ASSETS SHOULD BE MADE. H OWEVER, THE ASSESSEE HAS NOT FOLLOWED THE STANDARD ACCOUNTING M ETHOD. AND THE CIT(APPEALS) OBSERVED THAT THE ASSESSE ACQU IRED THE LAND AS FIXED ASSET AND IT IS NOT CLAIMED AS EXPEND ITURE IN PROFIT - - ITA 1084/15 4 AND LOSS ACCOUNT IN THE ASSESSMENT YEAR UNDER CONSI DERATION. BEING SO, THE PROVISION OF SEC.40A(3) CANNOT BE INV OKED AND DELETED THE ADDITION. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. AR FILED A COPY OF STATEMENT STATING THA T THE EXPENDITURE INCURRED WAS TREATED IT AS FIXED ASSET. NO EXPENDITURE HAS BEEN CLAIMED AS DEDUCTION WHILE COM PUTING THE INCOME OF THE ASSESSEE AND PROVISIONS OF SEC.40A(3) ARE NOT APPLICABLE ON THIS GROUND. 7. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF THE AO AND SUBMITTED THAT INTENTION OF THE ASSESSEE IS TO MAKE PLOTS IN THE SAID LAND AND SALE IT FOR PROFITS AS ITS BUS INESS ACTIVITY. 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. IN OUR OPINION, THE SAME ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF C HARLES MODULAR HOMES PVT. LTD. IN ITA NO.3126/14. THE TRIBUNAL VID E ORDER DATED 30.6.2015 OBSERVED AS FOLLOWS: 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 SHOW N - - ITA 1084/15 5 AS CAPITAL ASSET IN THE BALANCE SHEET. HOWEVER, SIN CE THE 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 BALANC E SHEET, 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 HA S NOT DENIED THE FACT THAT LAND PURCHASED BY THE ASSESSEE WAS SHOWN AS FIXED ASSET IN THE BALANCE SHEET OF THE AS SESSEE. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) ON EXAMINING THE CONTENTIONS OF THE ASSESSEE AND THE FINDINGS OF THE ASSESSING OFFICER DELETED THE DISAL LOWANCE OBSERVING 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 STATE D THAT THE LANDS PURCHASED WERE APPEARING IN THE BALANCE SHEET UNDER THE HEAD 'FIXED ASSETS'. CONSIDERING THE MOA AND AO A PRODUCED BY THE ASSESSING OFFICER HELD THAT THE TRE ATMENT OF LAND PURCHASED BY THE ASSESSEE WHICH IS SHOWN AS FI XED ASSET IN THE BALANCE SHEET IS INCONSISTENT WITH ITS INTEN TION AND NORMAL BUSINESS PRACTICE. IN THE ASSESSMENT ORDER T HE 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 O R DEVELOP BUILDINGS AND SELL AT PROFIT AND THE ASSESSEE AT NO POINT HAD INTENTION OF HOLDING THE PROPERTY FOR HIMSELF O R OTHERWISE ENJOYING OR USING IT, IRRESPECTIVE OF THE TREATMENT OF THE LAND AS FIXED ASSET IN THE BOOKS O F THE ASSESSEE, THE INTENTION IS TO USE THIS AS STOCK FOR BUSINESS, IS AN UNDENIABLE FACT'. 8. ON VERIFICATION OF THE LAND DOCUMENTS, ASSESSING OF FICER NOTED THAT THE PURCHASES WERE MADE IN CASH. THE ASS ESSING 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 DOMINA NT INTENTION OF THE COMPANY WAS TO BUY LAND AS FIXED A SSET FOR THE BENEFIT OF THE COMPANY AND WELFARE OF ITS EMPLOYEES . THE AUTHORIZED REPRESENTATIVE FURNISHED THE BOARD RESOL UTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON 18.12.2010. THE BOARD RESOLUTION ST ATES - - ITA 1084/15 6 THAT THE EXTENT OF 2.11 ACRES OF LAND IN THEETHIPAL AYAM VILLAGE OF COIMBATORE SOUTH TALUK, WITHIN THONDAMUTHUR SUB REGISTRATION DISTRICT, COIMBATORE DISTRICT SHALL BE PURCHASED / PROCURED AS FIXED ASSETS IN THE NAME OF THE COMPANY AND AUTHORIZED SHRI M. SIVA PRAKASH TO NEGOTIATE WITH T HE VENDORS OF THE LANDED PROPERTY. IN THE BALANCE SHEET THE AS SESSEE CLASSIFIED THE ASSETS AS FIXED ASSETS. THE ASSESSI NG OFFICER IN HIS ORDER HAS STATED 'THAT THE LAND PURCHASED FORMI NG STOCK-IN- TRADE WAS ENTERED IN THE BOOKS AS ASSETS WILL NOT P REVENT ASSESSING OFFICER TO LOOK INTO THE TRUE INTENTION O F THE ASSESSEE. AS PER THE ACCOUNTING STANDARD (AS 7), AS SESSEE 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 B E MADE. HOWEVER, ASSESSEE HAS NOT FOLLOWED THE STANDARD ACC OUNTING METHOD. ACCEPTING THE ASSESSEE'S CONTENTION WILL FR USTRATE 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 ASSESS EE] AS STOCK- IN-TRADE AND DISCUSSED THE ACCOUNTING STANDARD (AS 7). IN THE EARLIER PARAS OF THE ASSESSMENT ORDER, THE ASSESSIN G OFFICER CLEARLY MENTIONED THAT THE LAND PURCHASED WERE APPE ARING UNDER THE HEAD 'FIXED ASSETS'. THE ASSESSING OFFICE R CANNOT ASSUME THE INTENTION OF THE ASSESSEE AND TREAT THE FIXED ASSET AS STOCK-IN-TRADE. THE ASSESSEE MAY BE INVOLVED IN REAL ESTATE TRANSACTIONS, BUT HE HAS THE RIGHT TO CHOOSE THE ASSET TO BE SHOWN AS FIXED ASSETS AND CURRENT ASSETS. IN THE CASE OF THE APPELLANT, THE LANDS PURCHASED WITH CASH PAYMEN T HAVE BEEN CLEARLY SHOWN AS FIXED ASSETS. THE PURCHASE CO ST OF THE LAND INCLUDING THE REGISTRATION EXPENSES WILL BE CA PITALIZED AND SHOWN AS THE COST OF FIXED ASSET. THE ASSESSING OFF ICER CANNOT TREAT THE FIXED ASSET SHOWN IN THE BALANCE SHEET AS CURRENT ASSET OR AS STOCK-IN-TRADE AND INVOKE THE PROVISION S OF SECTION 40A(3) OF THE ACT. THEREFORE, THE PROVISIONS OF SEC TION 40A(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 B E SHOWN AS FIXED ASSET OR CURRENT ASSET. THE ASSESSING OFF ICER CANNOT ASSUME THE INTENTION OF THE ASSESSEE AND TRE AT THE FIXED ASSET AS STOCK-IN-TRADE. THEREFORE, ASSESSING OFFICER - - ITA 1084/15 7 CANNOT TREAT THE FIXED ASSET SHOWN IN THE BALANCE S HEET AS CURRENT ASSET AND INVOKE THE PROVISIONS OF SECTION 40A(3) OF THE ACT. REGARDING BOARD RESOLUTION FURNISHED BEFOR E 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 A SSET. IN THE BALANCE SHEET IT WAS CLASSIFIED AS FIXED ASSET. THEREFORE, NOTHING MUCH WILL TURN ON PRODUCTION OF BOARD RESOLUTION BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). EVEN OTHERWISE POWERS OF COMMISSIONER OF INCOME TAX (APPEALS) ARE CO-TERMINUS OF THE ASSESSI NG OFFICER AND HE CAN DECIDE THE ISSUE ON THE EVIDENC E PRODUCED BEFORE HIM. THUS, EVEN IF WE SET ASIDE THE MATTER TO THE ASSESSING OFFICER NOTHING MUCH WILL TURN ON THE BASIS OF BOARD RESOLUTION SINCE THE ASSESSING OFFICER WA NTED TO INVOKE THE PROVISIONS OF SECTION 40A(3) IN SPITE OF THE FACT THAT THE ASSET WAS CLASSIFIED AS CAPITAL ASSET IN T HE BALANCE SHEET. THEREFORE, IN OUR VIEW, THERE IS NO NEED FOR SETTING ASIDE THE MATTER TO THE ASSESSING OFFICER FOR OPPOR TUNITY. IN THE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT AS THE CASH PAYMENTS WERE MADE ONLY TO PURCHASE CAPITAL ASSET A ND THEREFORE SECTION 40A(3) OF THE ACT ARE NOT APPLIC ABLE IN SUCH CASH PAYMENTS. THE GROUNDS RAISED BY THE REVEN UE ON THIS ISSUE ARE REJECTED. 8. HOWEVER, THE OBJECTION OF THE DEPARTMENT IS THA T THE CIT(APPEALS) CONSIDERED THE FRESH DOCUMENTS IN THE FORM OF BOARD RESOLUTION. HENCE, WE ARE INCLINED TO REMIT THE ISSUE BACK TO THE FILE OF THE AO TO CONSIDER ALL THE DOCU MENTS FILED BY THE ASSESSEE BEFORE THE CIT(APPEALS) AND THE ORDER OF THE - - ITA 1084/15 8 TRIBUNAL CITED SUPRA AND DECIDE THE ISSUE AFRESH. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 31 ST OF DEC., 2015 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 31 ST DEC., 2015. MPO* 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.