ACIT, Central Circle-2, Hyderabad V. Shri Ch. Vijender Reddy (HUF), Secunderabad

ITA 1134/HYD/2012

• Counselvise Citation: 113422514 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Unexplained expenditure; Capital asset; Business income; Search and seizure; Opportunity of being heard; Additional evidence; Capital receipt
• Section: 69C; 40A(3); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1017/HYD/12 ASST. YEAR: 2007-08. CH. VIJENDER REDDY (HUF) -V- DCIT, CC-2, SAINIKPURI, SECUNDERABAD. HYDERABAD. PAN:AABHC 5135 P (APPELLANT) (RESPONDENT) ITA NO. 1134/HYD/12 ASST. YEAR: 2007-08. ACIT, CC-2, -V- CH. VIJENDER REDDY (HUF) HYDERABAD. SAIN IKPURI, SECUNDERABAD. PAN:AABHC 5135 P (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI K.A. SAI PRASAD DEPARTMENT BY SHRI B. YADAGIRI DATE OF HEARING 08-01-2014 DATE OF PRONOUNCEMENT 26-03-2014 ORDER PER SAKTIJIT DEY, J.M: THESE CROSS APPEALS FILED BY THE ASSESSEE AND DEPARTMENT ARISES OUT OF THE ORDER DATED 30-5-2012 OF CIT (A)-I, HYDERABAD PERTAINING TO ASSESSMENT YEAR 2007-08. 2. WE WILL FIRST DEAL WITH ASSESSEES APPEAL IN ITA NO.1017/HYD/12. THE ASSESSEE HAS RAISED ALTOGETHER NINE GROUNDS. GROUND NOS. 1 AND 9 BEING ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 2 GENERAL IN NATURE ARE NOT REQUIRED TO BE ADJUDICATE D UPON. 3. THE LEARNED AR, AT THE OUTSET, EXPRESSED HIS INTENTION NOT TO PRESS GROUND NO.3. HENCE GROUND N O.3 IS DISMISSED AS NOT PRESSED. 4 IN GROUND NOS. 2 AND 4, THE ASSESSEE HAS CHALLENGED THE DECISION OF THE REVENUE AUTHORITIES IN BRINGING TO TAX INCOME FROM THE TRANSACTIONS OF TRANSFER OF LAND TO M/S SAINATH ESTATES PVT. LTD., UNDER THE HEAD BUSINESS INCOME INSTEAD OF CAPITAL GAIN S. 5. BRIEFLY THE FACTS ARE, THE ASSESSEE IS AN HUF. A SEARCH AND SEIZURE OPERATION U/S 132 WAS INITIATED IN THE CASE OF SAINATH ESTATES PVT. LTD. ON 17-3-2009. DURING THE SEARCH AND SEIZURE OPERATION, CERTAIN INCRIMINATING DOCUMENTS BELONGING TO THE ASSESSEE WERE FOUND AND SEIZED. IN CONSEQUENCE THEREOF NOTI CE U/S 153C WAS ISSUED TO THE ASSESSEE CALLING FOR RET URNS OF INCOME FOR ASST. YEARS 2003-04 TO 2008-09. IN RESPONSE TO THE NOTICE SO ISSUED, THE ASSESSEE ON 2 9- 12-2009 FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING TOTAL INCOME OF RS.23,87,218. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE EXAMINING THE SEIZED MATERIALS NOTICED THAT M/S SAINATH ESTATES PVT. L TD., HAD ENTERED INTO AN AGREEMENT WITH THE ASSESSEE AN D AS PER THE TERMS OF SUCH AGREEMENT AS WELL AS OTHER INCRIMINATING MATERIALS FOUND DURING THE SEARCH OPERATION, AMOUNTS WERE PAID TO THE ASSESSEE BY TH E SAID COMPANY TOWARDS TRANSFER OF LAND. DURING THE POST SEARCH PROCEEDINGS, WHEN THE MD OF M/S SAINATH ESTATES PVT. LTD., WAS ASKED ABOUT THE PAYMENTS MAD E ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 3 TO THE ASSESSEE AS FOUND IN THE SEIZED MATERIAL, IT WAS STATED BY HIM THAT A SUM RS.3,04,15,000 WAS PAID BY THE SAID COMPANY TO THE ASSESSEE DURING THE FINANCI AL YEAR 2006-07 TOWARDS CONSIDERATION OF TRANSFER OF L AND. WHEN THE SAID STATEMENT OF MD OF THE M/S SAINATH ESTATES PVT. LTD., ALONG WITH SEIZED MATERIAL WAS CONFRONTED TO THE ASSESSEE DURING THE POST SEARCH PROCEEDINGS, THE ASSESSEE ADMITTED OF HAVING RECEIV ED A SUM OF RS.2,64,15,000/- AND AN AMOUNT OF RS.40 LAKHS WAS STATED TO HAVE BEEN RECEIVED BY SMT. LAKSHMI WIFE OF LATE K. KRISHNA REDDY WHO WAS JOINT AGREEMENT HOLDER OF THE LAND IN QUESTION. AS NOTE D BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, DURI NG THE POST SEARCH PROCEEDINGS, THE ASSESSEE THOUGH CLAIMED TO HAVE INCURRED VARIOUS EXPENDITURE FROM T HE AMOUNTS RECEIVED BUT WHEN CALLED UPON TO PRODUCE EVIDENCE, NEITHER THE ASSESSEE WAS ABLE TO PRODUCE THE PERSONS TO WHOM THE PAYMENTS CLAIMED TO HAVE BEEN MADE NOR ANY OTHER EVIDENCE IN THAT REGARD. 6. DURING THE ASSESSMENT PROCEEDINGS, WHILE EXAMINING THE COMPUTATION OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE TOTAL INCOME OF RS.23,87,2 18/- DECLARED BY THE ASSESSEE INCLUDED LONG TERM CAPITAL GAINS OF 23,74,977/- TOWARDS HASMATHPET LAND TRANSACTION. THE ASSESSING OFFICER PRIME FACIE WA S OF THE VIEW THAT THE TRANSACTION IS NOT IN THE NATURE OF CAPITAL GAIN BUT IT IS AN ADVENTURE IN THE NATURE OF TRADE. THE ASSESSING OFFICER FELT THAT THE ASSESSE E HAS NOT PURCHASED THE LAND FOR THE PURPOSE OF INVESTMEN T. THE ASSESSEE HAS ENTERED INTO AGREEMENT OF SALE FOR PURCHASE OF THE SAID LAND AND IN TURN HE HAS ENTERE D ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 4 INTO AGREEMENT OF SALE WITH SEVERAL PROSPECTIVE BUY ERS WITH INTENTION TO SELL THE LAND WITH PROFIT. HE FU RTHER NOTED THAT THE LAND BEING A PROPERTY IN LITIGATION, THE TRANSACTION COULD NOT BE COMPLETED IMMEDIATELY. O N THE AFORESAID PREMISE, THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN WHY TH E INCOME FROM THE LAND TRANSACTION SHALL NOT BE TREAT ED AS ADVENTURE IN THE NATURE OF TRADE AND NOT CAPITAL GAIN. IN RESPONSE TO THE NOTICE ISSUED, THE ASSES SEE CONTENDED THAT HE HAS ENTERED INTO AN ORAL AGREEMEN T WITH DR. HARINATH AND OTHERS ON 8-2-2003 WHICH WAS SUBSEQUENTLY REDUCED TO WRITING ON 30-4-2004 FOR PURCHASE OF AC.2.19 GUNTAS OF LAND. DR. HARINATH A ND OTHERS GOT THE TITLE BY VIRTUE OF COURT DECREE FROM THE ORIGINAL LAND OWNERS NAMELY, SMT. VARALAKSHMI AND OTHERS. IT WAS SUBMITTED THAT THERE WAS DISPUTE BETWEEN SMT. VARALAKSHMI AND HARINATH OVER A PERIOD OF YEARS AND FINALLY DR. HARINATH GOT THE PROPERTY BY VIRTUE OF COURT DECREE. THE ASSESSEE CONTENDED THA T PRIOR TO THIS THE ORIGINAL LAND OWNERS SMT. P. VARALAKSHMI AND OTHERS SOLD A PART OF THE LAND TO R AJA RAJEWESARI CO-OPERATIVE SOCIETY ON 20-11-1991 AND THE LAND IN TURN WAS SOLD TO M/S SAINATH ESTATE PVT . LIMITED IN THE YEAR 2006. IN THE MEAN WHILE, THE ASSESSEE HAS ALSO ENTERED INTO AN AGREEMENT WITH DR . HARINATH AND OTHERS IN THE YEAR 2004 FOR PURCHASE O F THE SAME LAND. HENCE THE LAND WAS ALL ALONG UNDER DISPUTE. IT WAS SUBMITTED THAT THE ASSESSEE BEING ONE OF THE AGREEMENT HOLDERS OF THE SAID LAND, IN ORDER TO CLEAR THE LITIGATION, M/S SAINATH ESTATES HAS PAID THE AMOUNT OF RS.3,04,15,000/- TO THE ASSESSEE. AS A ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 5 RESULT OF WHICH ULTIMATELY THE LAND WAS REGISTERED IN THE NAME OF M/S SAINATH ESTATES IN THE YEAR 2006. IT WAS THEREFORE CONTENDED THAT THE TRANSACTION CANNOT BE TREATED AS ADVENTURE IN THE NATURE OF TRADE. 7. THE ASSESSING OFFICER HOWEVER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. THE ASSESSING OFFI CER NOTED THAT THE ASSESSEE WAS BASICALLY AN ADVOCATE. HENCE, HE IS AWARE OF THE LEGAL PROBLEMS INVOLVED I N THE SAID TRANSACTION. PRIOR TO ENTERING INTO AGRE EMENT OF SALE WITH DR. HARINATH ON 30-4-2004 THE ASSESSEE WAS AWARE OF THE FACT THAT THE LAND WAS ALREADY REGISTERED BY SMT. VARALAKSHMI IN THE NAME OF SRI R AJA RAJESWARI CO-OP. SOCIETY IN THE YEAR 1991. IN SPIT E OF KNOWING THE FACT THAT THE LAND IS UNDER LITIGATION, THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH HARINAT H AND OTHERS FOR PURCHASE OF THE SAID PROPERTY AND PA ID ADVANCE ALSO. NOT ONLY THE ASSESSEE CONFINED HIMSE LF TO THAT BUT HAS ALSO ENTERED INTO AGREEMENT OF SALE WITH SEVERAL PROSPECTIVE BUYERS TO SELL THE SAME. THIS, ACCORDING TO THE ASSESSING OFFICER CLEARLY ESTABLIS HES THE INTENTION OF THE ASSESSEE THAT HE HAS VENTURED INTO A REAL ESTATE TRANSACTION FOR PURCHASE AND SALE OF THE SAID PROPERTY. HE FURTHER NOTED THE FACT THAT THE ASSESSEE AND HIS BUSINESS PARTNER LATE SRI KRISHNA REDDY RECEIVED ADVANCES FROM 5 TO 6 PROSPECTIVE BUYERS TO SELL THE LAND. AS THE BUSINESS DID NOT MATERIALISE AS PER THEIR EXPECTATION, THE LAND WAS FINALLY TRANSFERRED BY ALL OF THEM TO M/S. SAINATH ESTATE PVT. LTD., FOR A TOTAL CONSIDERATION OF RS.3,04,15,000/-. ACCORDINGLY, THE ASSESSING OFFIC ER CONCLUDED THAT THE TRANSACTIONS ENTERED INTO BETWEE N ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 6 THE ASSESSEE AND M/S SAINATH ESTATES PVT. LIMITED BEING AN ADVENTURE IN THE NATURE OF TRADE HAS TO BE ASSESSEE AS BUSINESS INCOME AND NOT UNDER THE HEAD CAPITAL GAIN. AT THIS STAGE, WE MAY MENTION THAT BEFORE THE ASSESSING OFFICER AS WELL AS THE FIRST APPELLATE AUTHORITY, THE ASSESSEE HAS ALSO CONTENDE D THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM M/S SAINATH ESTATES PVT. LTD., BEING IN THE NATURE OF COMPENSATION/DAMAGES, IT CANNOT BE BROUGHT TO TAX A T ALL. HOWEVER, AS THE LEARNED AR HAS PREFERRED NOT T O PRESS THAT GROUND BEFORE US, WE REFRAIN FROM DEALIN G WITH THAT ISSUE. BE THAT AS IT MAY, THE ASSESSEE HAS CHALLENGED THE FINDING OF THE ASSESSING OFFICER WIT H REGARD TO THE HEAD OF INCOME BEFORE THE FIRST APPEL LATE AUTHORITY. THE CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE IN THE LIGHT OF MATERIALS ON RECOR D CONFIRMED THE VIEW OF THE ASSESSING OFFICER BY HOL DING AS UNDER:- 06. I HAVE CAREFULLY CONSIDERED THE DETAILED SUBMI SSIONS MADE BY THE APPELLANT IN THE COURSE OF APPELLATE PROCEEDINGS ON VARIOUS GROUNDS RAISED IN THIS APPEA L. THE APPELLANT FILED THE RETURN OF INCOME TREATING THE A MOUNT RECEIVED ON THE LAND DEAL AS LONG TERM CAPITAL GAIN . WHEREAS, IN THE ASSESSMENT PROCEEDINGS, THE ASSESSI NG OFFICER REJECTED THE SAID CLAIM OF THE ASSESSEE AN D TREATED THE ENTIRE TRANSACTION AS BUSINESS AS 'ADVENTURE IN THE NATURE OF TRADE'. IN THE APPEAL THE ASSESSEE RAISED A GROUND THAT ASSESSING OFFICER IS NOT JUSTIFIED IN NOT ACCEPTING THE CLAIM OF THE APPELLANT THAT AMOUNT RE CEIVED IS CAPITAL RECEIPT NOT ASSESSABLE TO TAX. FURTHER, RAISED ALTERNATIVE PLEA THAT THIS SHOULD BE ASSESSED UNDER THE HEAD LONG TERM' CAPITAL GAINS. IN SUPPORT OF HIS CO NTENTION THE ASSESSEE NARRATED VARIOUS INSTANCES TO SAY THAT THE AMOUNT RECEIVED IS NOTHING BUT COMPENSATION FOR THE DAMAGES CAUSED TO HIM ON ACCOUNT OF THIS LAND DEAL AND THAT THE APPELLANT HAS NO INTENTION TO DEAL THIS LA ND FOR THE PURPOSE OF BUSINESS. ON CONSIDERATION OF THE FACTS, IT IS CLEARLY EMANATING THAT THE APPELLANT HAS ENTERED IN TO AGREEMENT ALONG WITH OTHER PERSON (KRISHNAREDDY) WI TH ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 7 DR.HARNATH AND OTHERS TO TAKE THE LAND FOR THE PURP OSE OF CARRYING ON REAL ESTATE BUSINESS ONLY. AS PER THE AGREEMENT THE CONSIDERATION PAYABLE IS RS.L CRORE B UT INITIALLY THE ASSESSEE PAID ONLY RS.1S LAKHS TO DR. HARNATH AND OTHERS AS PART CONSIDERATION AND TAKEN POSSESSI ON OF THE LAND. IN HIS OWN ADMISSION, THE APPELLANT SUBMI TTED THAT HE HAD INCURRED HUGE EXPENDITURE ON THIS LAND TOWARDS LAND DEVELOPMENT AND TO EVICT ENCROACHERS. IF ASSESSEE IS NOT ENTERTAINING ANY INTENTION OF CARRY ING ON BUSINESS THERE IS' NO REASON FOR HIM TO INCUR SO MU CH EXPENDITURE TOWARDS LAND DEVELOPMENT. FURTHER, HE C OULD PAY ONLY MINIMUM AMOUNT TO THE ORIGINAL LAND HOLDER S. IT SHOWS THE INTENTION OF THE ASSESSEE THAT THE LAND W AS TAKEN ONLY TO CARRY ON THE BUSINESS OF TRADING ACTI VITY AND ACCORDINGLY INCURRED DEVELOPMENT EXPENSES. THERE IS A CLEAR INTENTION IN THE CONDUCT OF THE ASSESSEE TO E NGAGE HIMSELF IN THE TRADING ACTIVITY ON THIS LAND. PRECISELY, FOR THIS REASON, THE ASSESSEE ENTERED IN TO AGREEMENT WITH VARIOUS OTHER PEOPLE BY SELLING SMAL L BITS AND RECEIVED CONSIDERATION TOWARDS SALE OF THE SAID LAND THE APPELLANT DERIVED RIGHT ON THIS LAND AND THE SA ME WAS ULTIMATELY RESULTED IN GETTING THE SUM OF RS.3,04,1 5,OOO/- FROM M/S. SAINATH ESTATES PVT LTD TO LAYOFF FROM TH IS LAND AND TO SETTLE ALL DISPUTES INVOLVED ON THIS LAND. T HEREFORE, THE APPELLANT IS NOT CORRECT IN CLAIMING THE ABOVE CONSIDERATION AS CAPITAL RECEIPT NOT AMOUNTING TO T AXABLE INCOME. IT IS A CLEAR RECEIPT CONSEQUENT TO THE EFF ORTS MADE BY THE APPELLANT NOT ONLY TO OBTAIN INTEREST O N THIS LAND BY MAKING PAYMENT TO DR. HARNATH AND OTHERS BU T ALSO BY INCURRING EXPENSES ON THIS LAND. INITIAL PA YMENT OF ADVANCE AND SUBSEQUENT SALE OF BITS OF LAND TO DIFFERENT INDIVIDUALS FOR HIGHER CONSIDERATION, CLE ARLY DEMONSTRATES HIS SOLE AIM OF CARRYING ON COMMERCIAL ACTIVITY ON THIS LAND. THEREFORE, THE SAID AMOUNT I S NOTHING BUT A RECEIPT OUT OF BUSINESS VENTURE AND T HE SAME IS ESTABLISHED BY THE FACT THAT THE ASSESSEE A LL ALONG TREATED THE LAND AS STOCK IN TRADE BY INCURRI NG DEVELOPMENT EXPENSES AS WELL AS SELLING IN BITS AND PIECES. ACCORDINGLY, THERE IS NO REASON FOR ME TO D EVIATE FROM THE LINE OF ACTION TAKEN BY THE AO IN TREATING THE SAID CONSIDERATION AS BUSINESS INCOME. THE ASSESSEE RELIED ON VARIOUS CASE LAWS WHICH ARE NOT APPLICABL E TO THE CURRENT CASE AS THE FACTS IN THOSE CASE ARE TOT ALLY DISTINGUISHABLE FROM THE PRESENT ONE. 8. THE LEARNED AR SUBMITTED BEFORE US THAT THE ASSESSING OFFICER AS WELL AS THE CIT (A) HAVE HELD THE TRANSACTION TO BE AN ADVENTURE IN THE NATURE OF TRA DE ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 8 ONLY DUE TO THE FACT THE ASSESSEE HAS INCURRED SOME EXPENDITURE ON THE LAND. BESIDES, THE ASSESSEE HAD ENTERED INTO AGREEMENT OF SALE WITH PROSPECTIVE BUY ERS FOR SALE OF LAND. IT WAS SUBMITTED THAT THE EXPENDI TURE INCURRED TOWARDS EVICTION OF ENCROACHMENTS AND OTHE R LAND DEVELOPMENT EXPENSES ARE ONLY FOR PROTECTION O F THE CAPITAL ASSET. IT WAS SUBMITTED THAT THE ORIGI NAL VENDORS I.E., MR. HARINATH AND OTHERS HAVE NO CLEAR TITLE OVER THE PROPERTY AND THEY WERE MERE DECREE HOLDERS. HENCE THE INCURRING OF THE EXPENDITURE BY THE ASSESSEE IS ONLY FOR PROTECTING THE CAPITAL ASSET A ND FOR GETTING BETTER REALISATION WHICH CANNOT BE TREATED AS BUSINESS ACTIVITY. THE COLLECTION OF ADVANCES FR OM THE PROSPECTUS BUYERS SHOULD THEREFORE BE TREATED AS AUGMENTING THE CAPITAL INVESTMENT ONLY. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS NEITHER APPLIED FOR CONVERSION OF THE LAND NOR HAS PLOTTED THE LAND. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS ENTERED INTO A BUSINESS ACTIVITY. THE LEARNED AR REFERRING TO THE AGREEMENT WITH THE PROSPECTIVE BUY ERS PLACED IN THE PAPER BOOK, SUBMITTED THAT THE NEED O F CASH IS TO PAY TO THE DECREE HOLDERS THE BALANCE CONSIDERATION. IT WAS SUBMITTED THAT OUT OF AC.5 .13 GUNTAS OF LAND AGREED TO BE PURCHASED BY THE ASSESS EE, HE HAS ENTERED INTO AGREEMENT OF SALE FOR ABOUT ONE ACRE OF LAND ONLY. THEREFORE, IT CANNOT BE CONSIDER ED AS AN ACTIVITY OF PURCHASE AND SALE OF LAND. 9. THE LEARNED AR RELIED UPON A DECISION OF INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD IN CASE OF G. NARASIMHA REDDY VS. ITO (47 ITD 398) WHEREIN IT IS HELD THAT EVEN WHERE THE LAND IS PLOTTED AND SOLD I T IS ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 9 ONLY AN ENDEAVOUR TO REALISE THE MAXIMUM OUT OF THE CAPITAL ASSET HELD WHICH WOULD ONLY GIVE RISE TO CA PITAL GAIN. THE LEARNED AR REFERRING TO THE PREAMBLE OF THE AGREEMENT ENTERED INTO M/S SAINATH ESTATE PVT. LTD. , SUBMITTED THAT THE ENTIRE SUM OF RS. 3,04,15,000 WA S PAID TO THE ASSESSEE FOR WITHDRAWING CLAIMS IN RESP ECT OF ALL PROPERTY RIGHTS WHICH IS A RIGHT OF SPECIFI C PERFORMANCE ATTAINED VIDE AGREEMENT OF SALE WITH SR I HARINATH AND OTHERS. THEREFORE SURRENDERING OF SUC H RIGHT FOR SPECIFIC PERFORMANCE IN RELATION TO AN IMMOVABLE PROPERTY IS IN THE NATURE OF CAPITAL GAIN . THE LEARNED AR IN SUPPORT OF HIS CONTENTION RELIED UPON THE FOLLOWING DECISIONS: I) B. RAMA KRISHNAIAH VS. ITO (39 SOT 379) II) GOVINDBHAI C. PATEL VS. DCIT (36 SOT 279) 10. THE LEARNED DR, ON THE OTHER HAND, RELYING UPO N THE FINDING OF FACT AT PARA-6 OF THE CIT (A) S ORD ER CONTENDED THAT THE TRANSACTION ENTERED INTO BY THE ASSESSES IS NOTHING ELSE BUT AN ADVENTURE IN THE NA TURE OF TRADE. HENCE, THE PROFIT DERIVED THERE FROM HAS RIGHTLY BEEN ASSESSED AS BUSINESS INCOME. 11. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WE LL AS OTHER MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE DECISIONS RELIED UPON BY THE PARTIES. THE SOLE ISSUE BEFORE US IS WHETHER THE PROFIT DERIVED BY THE ASSESSEE SHOULD BE ASSESSED UNDER THE HEAD BUSINESS OR AS CAPITAL GAIN. IT IS A FACT THAT T HE ASSESSEE ALONG WITH LATE K. KRISHNA REDDY HAD ENTERED INTO AGREEMENT OF SALE ON 30-4-2004 WITH DR . HARINATH AND THREE OTHERS, WHO WERE THE DECREE ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 10 HOLDERS IN RESPECT OF A PROPERTY FOR PURCHASING T HEIR 4/5 TH SHARE IN THE DECRETAL PROPERTY FOR A TOTAL CONSIDERATION OF RS.1 CRORE. THE DESCRIPTION OF TH E PROPERTY AS PER SCHEDULE-A OF THE AGREEMENT TO SALE , A COPY OF WHICH IS PLACED AT PAGE-163 OF THE PAPER BO OK, IS AS UNDER:- 1) OPEN LAND IN SY. NO.10 ADMEASURING AC. 2.19 GUNTAS SITUATED AT HASMATHPET (V), BALANAGAR MANDAL, SECUNDERABAD. 2) OPEN LAND IN SY. NO.14,ADMEASURING AC.2.17 GUNTAS SITUATED AT HASMATHPET (V) BALANAGAR MANDAL, SECUNDERABAD. 3) OPEN LAND IN SY. NO.19/2 ADMEASURING 17 GUNTAS 90 SQ. YARDS SITUATED AT HASMATHPET (V) SECUNDERABAD CANTONMENT. 12. AFTER ENTERING INTO THE AFORESAID AGREEMENT OF SALE, THE ASSESSEE NOT ONLY TOOK OVER THE POSSESSIO N OF THE LAND BUT ALSO AS PER THE ASSESSEES OWN VERSION HAS INCURRED EXPENDITURE OF SUBSTANTIAL AMOUNT TOWARDS DEVELOPMENT OF THE LAND AND EVICTING ENCROACHERS. O NE MORE CRUCIAL FACTOR WHICH REQUIRES TO BE WEIGHED IN IS THE ASSESSEE EVEN BEFORE EXECUTING THE WRITTEN AGREEMENT OF SALE WITH THE DECREE HOLDERS NAMELY; D R. HARINATH AND OTHERS HAVE ENTERED INTO AGREEMENT OF SALE WITH PROSPECTIVE BUYERS OF THE VERY SAME LAND AND ALSO RECEIVED SALE CONSIDERATION IN ADVANCE. THEREFORE, THE FACT THAT (I)INITIALLY THE ASSESSEE ALONG WITH SRI K. KRISHNA REDDY HAD ENTERED INTO AN AGREEMENT OF SALE WITH DR. HARINATH AND OTHERS FOR PURCHASING THE PROPERTY,(II) BEFORE EXECUTING THE ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 11 AGREEMENT OF SALE ON 30-4-2006 THE ASSESSEE ALONG WITH SRI K. KRISHNA REDDY HAD ENTERED INTO AGREEMEN T OF SALE WITH PROSPECTIVE BUYERS,(III) AFTER DEATH O F K. KRISHNA REDDY ASSESSEE HIMSELF CARRIED ON THE DEVELOPMENT ACTIVITIES, CLEARLY ESTABLISHES THE FAC T THAT ASSESSEES INTENTION WAS NEVER TO PURCHASE THE LAND IN QUESTION AS AN INVESTMENT BUT TO EXPLOIT IT COMMERCIALLY. 13. FURTHER, THE FACT THAT THE ASSESSEE HAD ALSO RETURNED BACK THE INVESTMENT MADE BY THE OTHER CO- OWNER LATE K. KRISHNA EDDY TO HIS WIFE ALSO INDICAT ES THAT THE PROPERTY WAS NEVER INTENDED TO BE ACQUIRED FOR INVESTMENT PURPOSE. THE VERY FACT THAT THE ASSESSE E HAS TAKEN THE RISK OF PURCHASING A DISPUTED PROPER TY AND THEREAFTER MADE INVESTMENT TOWARDS EVICTING ENCROACHERS AND DEVELOPING THE PROPERTY MAKES THE INTENTION OF THE ASSESSEE CLEAR THAT HE ONLY INTEND ED TO EXPLOIT THE PROPERTY COMMERCIALLY BY MAKING ADEQUAT E PROFITS BY SELLING OFF THE PROPERTY WITHIN A SHORT DURATION. FURTHER, THE VERY FACT THAT THE ASSESSEE ALONG WITH SRI KRISHNA REDDY HAS ENTERED INTO AGREEMENT O F SALE WITH THE PROSPECTIVE BUYERS EVEN BEFORE THE AGREEMENT OF SALE WAS EXECUTED BETWEEN THE ASSESSEE AND THE VENDOR, ITSELF SHOWS THE INTENTION OF THE ASSESSEE THAT THEIR SOLE OBJECT WAS TO DERIVE PROFI T BY DISPOSING OF THE PROPERTY AT A HIGHER PRICE. IN T HAT VIEW OF THE MATTER, THE REVENUE AUTHORITIES WERE CORRECT IN TREATING THE INCOME DERIVED FROM THE LAN D TRANSACTION WITH M/S SAINATH ESTATES PVT. LTD., AS INCOME FROM BUSINESS. SO FAR AS THE DECISIONS RELI ED UPON BY THE LEARNED AR IS CONCERNED ON CAREFULLY ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 12 EXAMINING THEM, WE FOUND THEM TO BE FACTUALLY DISTINGUISHABLE AS IN NONE OF THOSE CASES THE ASSES SEE HAS SOLD A PART OF THE PROPERTY EVEN BEFORE THE AGREEMENT OF SALE WAS FORMALLY ENTERED INTO WITH TH E ORIGINAL VENDOR. THEREFORE, CONSIDERING THE TOTAL ITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY MERIT IN THE GROUNDS RAISED WHICH ARE ACCORDINGLY DISMISSED. 14. IN GROUND NO.5, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT (A) IN SUSTAINING THE DISALLOWANCE OF AN AMOUNT OF RS.35,65,000/- BEING THE AMOUNT PAID FOR EVICTING THE ENCROACHERS. 15. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT WHI LE COMPUTING CAPITAL GAINS, THE ASSESSEE HAS CLAIMED A N AMOUNT OF RS.1,15,65,060/- AS LAND DEVELOPMENT AND PROTECTION EXPENSES COMPRISING OF THE FOLLOWING:- 2. LAND DEVELOPMENT & PROTECTION EXPENSES BETWEENF.Y.2003-04 TO RS.1,15,65, 060 2006-07 A) BOREWELL RS.2,72,750 B) SECURITY SALARY RS.15,81,010 C) FENCING EXP. RS. 1,85,000 D) TEMP. SHED RS. 3,04,000 E) CIVIL CONSTNS RS. 4,75,000 F) ENCROACHMENT RS.35,65,000 CLEARANCE G) LAND FILLING EXP. RS.48,55,500 H) LAND LEVELLING EXP RS.3,26,800/- ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 13 16. THE ASSESSING OFFICER HOWEVER DISALLOWED THE EXPENDITURE CLAIMED FOR THE REASON THAT THE ENTIRE EXPENDITURE WAS NOT ONLY INCURRED IN CASH BUT THE ASSESSEE HAS ALSO NOT DISCLOSED THOSE EXPENDITURES IN THE RETURN OF INCOME. THE ASSESSING OFFICER THEREF ORE CONCLUDED THAT THE EXPENDITURE CLAIMED CANNOT BE ALLOWED AS THEY ARE NOT GENUINE. HE WAS FURTHER OF THE VIEW, SINCE IT IS IN THE NATURE OF UNEXPLAINED EXPENDITURE, IT CANNOT BE ALLOWED AS PER SEC. 69C O F THE ACT. BEING AGGRIEVED OF SUCH DISALLOWANCE, THE ASSESSEE CHALLENGED THE SAME BEFORE THE CIT (A). 17. THE CIT (A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE ACCEPTED ALL EXPENDITURES EXCEPT AN AMOUNT OF RS.35,65,000/- BEING THE AMOUNT PAID TOWARDS EVICTING THE ENCROACHERS. THOUGH, THE ASSESSEE DURING THE APPELLATE PROCEEDINGS BEFORE CIT(A) CLAIMED THAT THE EXPENDITURE IS A GENUINE EXPENDITURE INCURRED FOR EVICTING THE ENCROACHERS B UT THE CIT (A) REJECTED SUCH CLAIM BY OBSERVING THAT T HE ASSESSEE HAS FAILED TO PRODUCE ADEQUATE EVIDENCE I N SUPPORT OF SUCH CLAIM. 18. THE LEARNED AR SUBMITTED BEFORE US THAT BEFOR E THE ASSESSING OFFICER AS WELL AS CIT (A), THE ASSES SEE HAS PRODUCED ADEQUATE EVIDENCE IN RESPECT OF PAYMEN T MADE TO THE ENCROACHERS FOR EVICTING THEM FROM THE LAND BUT THE AUTHORITIES TOTALLY IGNORING SUCH EVID ENCES HAVE PROCEEDED TO DISALLOW THE EXPENDITURE. THE LEARNED AR REFERRING TO THE AGREEMENT WITH THE ENCROACHERS, A COPY OF WHICH IS PLACED AT PAGE-132 OF THE PAPER BOOK, SUBMITTED THAT NOT ONLY THE COPY OF THE ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 14 AGREEMENT WITH THE ENCROACHERS WAS SUBMITTED BUT ALSO CONFIRMATION LETTERS FROM THE ENCROACHERS CONTAINING THEIR IDENTITY AND ADDRESS PROOF WERE AL SO SUBMITTED BEFORE THE ASSESSING OFFICER. IN THIS CON TEXT, HE DREW OUR ATTENTION TO THE COPIES OF THE CONFIRMA TION LETTERS AT PAGES 256 TO 258 OF THE PAPER BOOK. THE LEARNED AR SUBMITTED THAT WITHOUT PROPERLY VERIFYIN G THE EVIDENCES PRODUCED BY THE ASSESSEE, THE ASSESSI NG OFFICER WAS NOT JUSTIFIED IN DISALLOWING ASSESSEES CLAIM OF EXPENDITURE INCURRED AND THE CIT (A) WAS ALSO NO T JUSTIFIED IN SUSTAINING THE SAME. 19. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT IN ABSENCE OF PROPER EVIDENCE, THE DISALLOWANCE OF EXPENDITURES WAS CORRECT. 20. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIAL ON RECORD. ON PERUSAL OF THE RESPECTIVE ORDERS OF THE ASSESSING OFFICER AND THE CIT (A) IT CAN BE SEEN THAT BOTH THE ASSESSING OFFICER AS WELL AS CIT (A) HAVE DISALLOWED AN AMOUNT OF RS.35,65,000/- CLAIMED TO HAVE BEEN PAID TO ENCROACHERS ON THE GROUND THAT THE PAYMENTS ARE NOT GENUINE. HOWEVER, FACT REMAINS THAT THE ASSESSEE HAS SUBMITTED AN AGREEMENT ENTERED WITH THE ENCROACHERS REGARDING SETTLEMENT WITH THEM FOR LEAVING THE PROPERTY ON PAYMENT OF AMOUNTS RANGING BETWEEN RS.75,000 TO RS. 2 LAKHS AND IN ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 15 FACT THE ASSESSEE HAS ALSO PRODUCED TWO PERSONS W HO IN THE STATEMENT RECORDED FROM THEM ADMITTED OF HAVING RECEIVED MONEY FROM THE ASSESSEE. THAT BEIN G THE CASE, IT WAS NOT PROPER ON THE PART OF THE REVE NUE AUTHORITIES IN DISALLOWING THE EXPENDITURE BY TREAT ING IT AS NOT GENUINE WITHOUT PROPERLY MAKING ANY ENQUIRY. WHEN THE ASSESSEE HAS FURNISHED CERTAIN EVIDENCES TOWARDS THE PAYMENTS MADE WHICH INDICATE THE NAMES AND ADDRESS OF THE PERSONS CONCERNED TO WHOM THE PAYMENTS WERE MADE, IT WAS INCUMBENT ON THE PART OF THE ASSESSING OFFICER TO CONDUCT NECESSARY ENQUIRY WITH THE PERSONS CONCERNED TO ASCERTAIN THE GENUINENESS OF EXPENDITURE. WITHOUT DOING THAT, THE ASSESSING OFFI CER CANNOT DISALLOW THE EXPENDITURE CLAIMED BY MERELY TREATING IT AS NOT GENUINE ON PRESUMPTION AND SURMISES. IT IS A FACT ON RECORD THAT THE PROPER TY WAS UNDER LITIGATION HAVING BEEN SOLD MORE THAN ONCE. THEREFORE, THE FACT THAT SOME PERSONS MIGHT HAVE ENCROACHED INTO THE PROPERTY CANNOT BE DENIED. CONSIDERED IN THE AFORESAID PERSPECTIVE, INCURRING OF EXPENDITURE BY THE ASSESSEE FOR EVICTING THE ENCROACHERS CANNOT BE RULED OUT. THEREFORE, CONSIDERING THE TOTALITY OF FACTS AND THE CIRCUMSTA NCES OF THE CASE, WE ARE INCLINED TO ALLOW THE CLAIM OF THE ASSESSEE. THE ADDITION OF RS.35,65,000/- IS DIRECT ED TO BE DELETED. 21. GROUND NO.6 IS IN RESPECT OF DISALLOWANCE OF AN AMOUNT OF RS.3,50,000/- TOWARDS LAND COST. 22. BRIEFLY THE FACTS ARE DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE CLAIMED DEDUCTION OF AN AMOUNT OF RS.20 LAKHS BEING THE AMOUNT PAID TO THE ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 16 ORIGINAL LAND OWNER. THE ASSESSING OFFICER HOWEVER WHILE COMPLETING THE ASSESSMENT, ALLOWED DEDUCTION OF RS. 5 LACKS TOWARDS LAND COST. THE CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ALLOWE D LAND COST OF RS.16,50,000/-. 23. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDER S OF THE REVENUE AUTHORITIES. IT IS CONTENTION OF TH E LEARNED AR THAT ASSESSEE HAS ACTUALLY PAID AN AMOUN T OF RS.20 LAKHS TO THE ORIGINAL LAND OWNERS I.E. DR. HARINATH AND OTHERS. ON A PERUSAL OF THE AGREEMENT OF SALE DATED 30-4-2004 WITH DR. HARINATH AND OTHERS INDICATES THAT AN AMOUNT OF RS.20 LAKHS HAS ALREADY BEEN PAID TO THE VENDORS BY THE ASSESSEE. COPIES OF THE RECEIPTS KEPT AT PAGES 199 TO 202 OF THE PAPER BOOK DO INDICATE THE PAYMENT OF RS.20 LAKHS TO DR. HARINADH AND OTHERS. CONSIDERING THE EVIDENCES FURNISHED, WE ARE OF THE VIEW THAT THE ASSESSEES CLAIM OF DEDUCTION OF AN AMOUNT OF RS.20 LAKHS TOWARDS L AND COST DESERVES TO BE ALLOWED. ACCORDINGLY, WE DIREC T THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.3,50,000/-. 24. IN GROUND NO.7, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF AN AMOUNT OF RS.39 LAKHS OUT OF TOT AL COMPENSATION/GOODWILL OF RS.1,38,00,000 PAID BY THE ASSESSEE. 25. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE CLAIMED THAT IT HAD INCUR RED EXPENDITURE OF RS.1,38,00,000/- TOWARDS PAYMENT OF COMPENSATION/GOODWILL TO VARIOUS PERSONS WITH WHOM ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 17 THE ASSESSEE ALONG WITH K. KRISHNA REDDY HAD ENTERE D INTO AGREEMENT OF SALE AND RECEIVED ADVANCES. IT W AS SUBMITTED THAT SINCE THE ASSESSEE ULTIMATELY ENTER ED INTO AGREEMENT WITH SAINATH ESTATES PVT. LTD. RELINQUISHING ITS RIGHTS OVER THE LAND, HE HAS TO C ANCEL THE AGREEMENT WITH THE PERSONS WITH WHOM HE HAS ALREADY ENTERED INTO AGREEMENTS OF SALE AND RETURNE D THE ADVANCES ALONG WITH COMPENSATION/GOODWILL. T HE DETAILS OF THE AMOUNTS RECEIVED AND COMPENSATION PA ID AS MENTIONED IN THE ASSESSMENT ORDER IS REPRODUCED HEREUNDER:- NAME AMT. RECD.(RS.) AMT. REPAID(RS) COMPENSATION (RS.) N.S.VIJAY KUMAR &OTHERS 7,00,000 25,00,000 18,00,000 MIRZA AHD. BAIG 25,00,000 45,00,000 20,00,000 N.V. RAYUDU 2,50,000 4,50,000 2,00,000 C. DAMODAR REDDY 10,00,000 50,00,000 40,00,000 K. SUNITHA REDDY 16,00,000 32,00,000 16,00,000 G.LAXMA REDDY NIL 11,00,000 11,00,000 K.VENKATA RAM REDDY NIL 6,00,000 6,00,000 K. LAKSHMI DIRECTLY PAID BY SAINATH NIL 15,00,000 15,00,000 C. DAMODAR REDDY (DIRECTLY PAID BY SAINATH NIL 10,00,000 10,00,000 TOTAL 1,38,00,000 26. IN RESPONSE TO THE QUERY MADE BY THE ASSESSING OFFICER IT WAS SUBMITTED BY THE ASSESSEE THAT OUT O F THE ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 18 AMOUNT OF RS.1,38,00,000/-, AN AMOUNT OF RS.15 LAKH S TO SMT. K. LAKSHMI AND AN AMOUNT OF RS.10 LAKHS TO C. DAMODARA REDDY WAS DIRECTLY PAID BY M/S SAINATH ESTATES PVT. LTD. IN RESPECT OF THE BALANCE AMOUNT OF RS.1,13,00,000/- THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH EVIDENCE TO SUBSTANTIATE ITS CL AIM. IN RESPONSE, THE ASSESSEE FURNISHED CONFIRMATION LETTERS CONTAINING THEIR IDENTITY, ASSESSMENT PARTICULARS, MODE OF REPAYMENT ETC. ON THE BASIS O F THE INFORMATION SUBMITTED BY THE ASSESSEE, THE ASSESSING OFFICER CONDUCTED INDEPENDENT ENQUIRY IN RESPECT OF EACH OF THE PERSONS TO WHOM COMPENSATION/GOODWILL WAS STATED TO HAVE BEEN PAID BY THE ASSESSEE AND ON THE BASIS OF SUCH ENQUIRY CONCLUDED THAT THE AMOUNT OF RS.25 LAKHS TO SMT. LAKSHMI AND SRI C. DAMODARA REDDY CANNOT BE CLAIMED BY THE ASSESSEE AS IT WAS DIRECTLY PAID TO THEM BY THE COMPANY. IN RESPECT OF PAYMENT OF RS.17 LAKHS, T HE ASSESSING OFFICER NOTED THAT THE CONCERNED PERSONS SHRI G. LAKSHMA REDDY, SRI VENKATA RAMA REDDY AND SRI MOHAN REDDY HAVE STATED THAT THE ORIGINAL ADVAN CE PAID WAS RETURNED BY THE ASSESSEE AND THERE WAS NO FRESH COMPENSATION PAID. HE THEREFORE HELD THAT TH E ASSESSEE IS NOT ENTITLED FOR DEDUCTION OF RS.17 LAK HS. SO FAR AS THE AMOUNT OF RS.20 LAKHS PAID TO MIRZA A HD. BAIG IS CONCERNED THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS FAILED TO FURNISH ANY CONFIRMATION WHE N A SO CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AND INST EAD THE ASSESSEE HAD STATED THAT THE SAID PERSON IS NO T CO- OPERATING AND REQUESTED THE ASSESSING OFFICER TO ISSUE SUMMONS. ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 19 27. THE ASSESSING OFFICER HOWEVER BEING OF THE VI EW THAT THE ONUS OF PROVING THE EXPENDITURE LIES ON TH E ASSESSEE, DISALLOWED AN AMOUNT OF RS.20 LAKHS. IN RESPECT OF PAYMENT OF AN AMOUNT OF RS.2 LAKHS TO M. V. RAYUDU THE ASSESSING OFFICER DISALLOWED THE SAME SI NCE THE ASSESSEE HAS FAILED TO PRODUCE EITHER ANY CONFIRMATION OR ANY OTHER EVIDENCE. THEREFORE, OUT OF TOTAL COMPENSATION/GOODWILL PAYMENT OF RS.1,38,00,000/- THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.64 LAKHS. THE CIT (A) ALSO SUSTAINED T HE DISALLOWANCE. THE LEARNED AR SUBMITTED BEFORE US THAT OUT OF THE TOTAL COMPENSATION PAID OF RS.1,13,00,000/- EXCLUDING THE AMOUNT OF RS.25 LAKH S DIRECTLY PAID BY THE COMPANY TO K. LAKSHMI AND SRI C. DAMODARA REDDY THE AMOUNTS DISALLOWED ARE AS UNDER:- A) MIRZA BAIG RS.20,00,000 B) M.V.RAYUDU RS. 2,00,000 C) LAXMA REDDY RS.11,00,000 D) VENKAT REDDY & MOHANA REDDY RS. 6,00,000 --------- -------- RS.39,00 ,000 --------- -------- 28. THE LEARNED AR SUBMITTED THAT SO FAR AS THE AMOUNT OF RS.20 LAKHS PAID TO MIRZA BAIG IS CONCERN ED, THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.25 LAKHS FROM HIM AS ADVANCE WHILE ENTERING INTO AGREEMENT O F SALE. SUBSEQUENTLY, THE AGREEMENT OF SALE WAS CANCELLED AND THE ASSESSEE HAD PAID AN AMOUNT OF RS.45 LAKHS I.E. RS.25 LAKHS TOWARDS HIS ADVANCE AN D RS.20 LAKHS TOWARDS GOODWILL/COMPENSATION WHICH WAS ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 20 DULY ACKNOWLEDGED BY MIRZA BAIG. IN THIS CONTEXT, THE LEARNED AR REFERRED TO THE AGREEMENT OF SALE DATED 20- 4-2005 AND SPECIFICALLY DREW OUR ATTENTION TO PAGE 214, WHEREIN SRI MIRZA BAIG HAD ENDORSED THAT HE HAS RECEIVED PRINCIPAL AMOUNT OF RS.25 LAKHS AND GOODWI LL OF RS.20 LAKHS. THE LEARNED AR SUBMITTED THAT EV EN OUT OF THE RS.20 LAKHS, AN AMOUNT OF RS.14 LAKHS WA S PAID BY CHEQUE AND BALANCE AMOUNT OF RS.6 LAKHS WAS PAID IN CASH. IT WAS SUBMITTED THAT EVEN THE ASSE SSEE HAD REQUESTED THE ASSESSING OFFICER TO ISSUE SUMMON S TO THE SAID PERSON TO ASCERTAIN ABOUT THE PAYMENT MADE BY THE ASSESSEE. SIMILARLY, IN CASE OF M.V. RAYUDU ALSO, THE LEARNED AR REFERRING TO THE COPY OF THE AGREEMENT PLACED AT PAGE 216 TO 220 OF THE PAPE R BOOK SUBMITTED THAT THE CONCERNED PERSON HAD DUL Y ACKNOWLEDGED THE RECEIPT OF GOODWILL OF RS.2 LAKHS ALONG WITH THE PRINCIPAL AMOUNT OF RS.2,50,000/- WA S ACKNOWLEDGED BY THE SAID PERSON. SO FAR AS PAYMENT TO LAXMA REDDY, VENKATARAMA REDDY AND MOHANA REDDY AMOUNTING TO RS.17 LAKHS IS CONCERNED, THE LEARNED AR SUBMITTED THAT THESE PERSONS ACTUALLY HA D NOT PAID ANY AMOUNT TO THE ASSESSEE BUT, THEY HAD P AID THE ADVANCE TO K. KRISHNA REDDY. THEREFORE,. THE AMOUNT REPAID BY THE ASSESSEE TO THESE PERSONS IS I N THE NATURE OF COMPENSATION. THE LEARNED AR SUBMITTE D THAT WHEN THE PERSONS CONCERNED HAVE CONFIRMED OF HAVING RECEIVED THE AMOUNT FROM THE ASSESSEE, THERE IS NO REASON WHY ASSESSEES CLAIM SHOULD NOT BE ALLOWE D. 29. THE LEARNED DR, ON THE OTHER HAND, JUSTIFIED TH E DISALLOWANCE OF THE AMOUNT IN QUESTION. ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 21 30. HAVING HEARD THE SUBMISSIONS OF THE PARTIES, WE ARE OF THE VIEW THAT THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE WITHOUT PROPER ENQUIRY. AS CAN BE SEEN FROM THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT DISPUTED THE PAYMENT OF THE PRINCIPAL AMOUNT IN CAS E OF MIRZA AHD. BAIG AND M.V. RAYUDU. THE ASSESSING OFFICER HAS ONLY DISPUTED THE PAYMENT OF GOODWILL/COMPENSATION. HOWEVER, THE ENDORSEMENT MADE BY MIRZA AHD. BAIG, A COPY OF WHICH IS AT PAGE 214 OF THE PAPER BOOK, CLEARLY INDICATES THAT HE HA S ADMITTED OF HAVING RECEIVED AN AMOUNT OF RS.20 LAKH S AS GOODWILL. FURTHERMORE, OUT OF RS. 20 LAKHS, AN AMOUNT OF RS.14 LAKHS IS STATED TO HAVE BEEN MADE THROUGH CHEQUE WHICH HAS ALSO BEEN MENTIONED IN THE ASSESSMENT ORDER. THAT BEING THE CASE, THE PAYMENT COULD HAVE BEEN EASILY VERIFIED BY MAKING ENQUIRY W ITH THE CONCERNED BANK. SIMILARLY, M.V. RAYUDU ALSO ACKNOWLEDGED RECEIPT OF RS.2 LAKHS TOWARDS GOODWIL L. IT IS ALSO A FACT THAT THE ASSESSEE HAS REQUESTED T HE ASSESSING OFFICER TO SUMMON THESE PERSONS FOR ASCERTAINING THE TRUTH. THAT BEING THE CASE, THE ASSESSING OFFICER IN OUR VIEW, WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE WITHOUT CONDUCTING ANY ENQUIRY. SO FAR AS PAYMENT OF RS.17 LAKHS TO LAXMA REDDY, VENKATARAMA REDDY AND MOHANA REDDY IS CONCERNED, THE ASSESSEE HAS NOT ONL Y FURNISHED CONFIRMATION LETTERS FROM THEM TOWARDS PAYMENT OF THE AFORESAID AMOUNTS BUT HAS ALSO FURNISHED CONFIRMATION LETTER FROM SMT. K. LAKSHMI CONFIRMING THAT AMOUNT OF RS.17 LAKHS WAS RECEIVED BY ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 22 HER HUSBAND. THEREFORE, WITHOUT MAKING ADEQUATE ENQUIRY THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE, THEREFORE, CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES , WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFIC ER WHO SHALL CONDUCT NECESSARY ENQUIRY IN THE MATTER AND I F DEEMED APPROPRIATE HE MAY ISSUE SUMMON TO THE PERSON CONCERNED TO VERIFY THE GENUINENESS OF ASSESSEE CLAIM. AFTER CONSIDERING ALL MATERIALS O N RECORD, THE ASSESSING OFFICER SHALL TAKE A DECISION WITH REGARD TO THE ALLOWABILITY OF THE CLAIM OF THE ASSE SSEE. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 31. IN GROUND NO.8, THE ASSESSEE HAS ASSAILED THE ORDER OF THE CIT (A) IN DISALLOWING AN AMOUNT OF RS.14,80,000/- U/S 40A(3) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT OUT OF TOTAL EXPENDITURE OF COMPENSATION, AN AMOUNT OF RS.74 LAKHS WAS INCURRED IN CASH. AS NOT ED BY THE ASSESSING OFFICER SINCE AN AMOUNT OF RS.17 LAKHS WAS ALREADY DISALLOWED HE RESTRICTED THE DISALLOWANCE U/S 40A(3) OF THE ACT TO 20% OF THE AMOUNT OF RS.49 LAKH AND QUANTIFIED THE DISALLOWANC E TO RS.11,40,000/-. 32. THE CIT (A) HOWEVER ENHANCED THE DISALLOWANCE TO RS.14,80,000/- BY HOLDING THAT THE AMOUNT OF RS .17 LAKHS HAS ALREADY BEEN DISALLOWED BY THE ASSESSING OFFICER AND FORMS PART OF THE TOTAL DISALLOWED AMO UNT OF RS.64 LAKHS. HENCE THE SAID AMOUNT OF RS.17 LAK HS ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 23 SHOULD HAVE BEEN REDUCED FROM THE AMOUNT OF RS.74 LAKHS ALLOWED BY THE ASSESSING OFFICER AS COMPENSAT ION PAID. 33. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDER S OF THE REVENUE AUTHORITIES. THOUGH THE ASSESSEE HA S RAISED THE AFORESAID GROUND BUT AT THE TIME OF HEAR ING, THE LEARNED AR DID NOT ADVANCE ANY SUBSTANTIVE ARGUMENT WITH REGARD TO THE AFORESAID ISSUE. EVEN OTHERWISE ALSO, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT (A). ADMITTEDLY, AN AMOUNT OF RS.7 4 LAKHS WAS PAID IN CASH. THE ASSESSEE HAS ALSO NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT CASH PAYMENTS MADE COMES WITHIN THE EXCEPTION PROVIDED U/R 6DD. FURTHER, THE ASSESSING OFFICER HAS ALSO COMMITTED A MISTAKE BY REDUCING THE AMOUNT OF RS.17 LAKHS FROM THE COMPENSATION ALLOWED OF RS.74 LAKHS. THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANCES, TH E CIT (A) WAS JUSTIFIED IN DIRECTING DISALLOWANCE OF 20% U/S 40A (3) ON THE TOTAL COMPENSATION PAYMENT OF RS.74 LAKHS IN CASH. WE THEREFORE UPHOLD THE ORDER OF THE CIT (A) ON THIS ISSUE BY DISMISSING THE GROUND RAISED BY THE ASSESSEE. 34. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NO.1134/HYD/12 (DEPARTMENTAL APPEAL) : 35. IN GROUND NOS.2,3 AND 6 THE DEPARTMENT HAS ASSAILED THE ORDER OF THE CIT (A) IN DELETING THE ADDITIONS MADE ON ACCOUNT OF DISALLOWANCE OF LAND ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 24 DEVELOPMENT EXPENDITURE AND LAND COST ETC. IN VIE W OF OUR FINDING WHILE CONSIDERING THE ASSESSEES APP EAL IN ITA NO.1017/HYD/12, THESE GROUNDS HAVE BECOME INFRUCTUOUS. SUFFICE TO SAY, ON GOING THROUGH THE ORDER OF THE CIT (A) AND MATERIALS PLACED BEFORE US , WE ARE OF THE VIEW THAT THE CIT (A) WAS JUSTIFIED IN DELETING ADDITIONS MADE ON ACCOUNT OF LAND DEVELOPMENT EXPENDITURE SINCE THEY WERE SUPPORTED B Y PROPER EVIDENCE. FURTHERMORE, AS RIGHTLY OBSERVED B Y THE CIT (A), SINCE THE ASSESSEE HAD TREATED THE INC OME DERIVED AS CAPITAL GAIN, THERE WAS NO OCCASION FOR HIM TO CLAIM THE EXPENDITURE UNDER VARIOUS HEADS. HOWEVER, WHEN THE INCOME OF THE ASSESSEE IS TREATED TO BE BUSINESS INCOME, NECESSARILY ALL EXPENDITURES RELATED TO EARNING OF SUCH INCOME HAS TO BE ALLOWED . CONSIDERED IN THE AFORESAID CONTEXT, THERE IS NO INFIRMITY IN THE ORDER OF THE CIT (A) IN RESTRICTIN G THE DISALLOWANCE TO 20% U/S 40A(3) OF THE ACT. SO FAR A S GROUND NO.4 RELATING TO VIOLATION OF PROVISIONS OF RULE 46A IS CONCERNED, THE LEARNED DR COULD NOT POINT OU T WHAT ADDITIONAL EVIDENCE WAS CONSIDERED BY THE CIT (A) WHICH WAS NOT PRODUCED BEFORE THE ASSESSING OFFICER . IN THAT VIEW OF THE MATTER, THE OBJECTION OF THE DEPARTMENT THAT THE CIT (A) HAS VIOLATED THE PROVIS IONS OF RULE 46A CANNOT BE ACCEPTED. WE THEREFORE DISM ISS GROUNDS RAISED BY THE DEPARTMENT. 36. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMISSED. ITA NOS.1017 &1134 OF 2012 CH. VIJENDER REDDY (HUF), HYD. ====================== 25 37. TO SUM UP, ITA NO.1017/HYD/2012 IS PARTLY ALLOWED AND ITA NO.1134/HYD/12 IS DISMISSED. ORDER WAS PRONOUNCED IN THE COURT ON 26.03.2014. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATEDTHE 26 TH MARCH, 2014. JMR* COPY TO:- 1) PRASAD & PRASAD, CAS, FLAT NO.301, 3 RD FLOOR, M.J. TOWERS, ROAD NO.12 BANJARA HILLS, HYDERABAD. 2) DCIT, CENTRAL CIRCLE-2, HYDERABAD. 3) CIT(A)-I, HYDERABAD. 4) CIT, CENTRAL, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD.