The Deputy Commissioner Of Income Tax, Central Circle-2(3), Bangalore V. M/s Oliviya Apparels Private Limited, Bangalore

ITA 1211/BANG/2013

AI Insights

The case involves multiple appeals by the Deputy Commissioner of Income Tax and M/s. Olivia Apparels Pvt. Ltd. concerning the assessment years 2005-06 to 2007-08. The primary issues revolved around the legality of the AO's jurisdiction under section 153C of the Income Tax Act, the admissibility of bad debts written off, and the treatment of capital gains from property and mutual fund transactions. The Tribunal's decision followed a remand from the Karnataka High Court, which directed a reconsideration of the appeals on their merits.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124973 (ITAT-BANGALORE)
• Duration Of Justice: 9 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-02-2023
• Assessment Year: 2005-2006
• Appeal Filed On: 01-08-2013
• Other Referred Cases: T.R.F Limited vs. CIT, Vijaya Bank vs. CIT, CIT vs. Morgan Securities & Credits (P) Ltd., CIT vs. Girish Bhagwatprasad, CIT vs. Brilliant Tutorials Private Limited, CIT vs. Autometers Ltd., Raheja Development Corporation, CIT v. T.K. Dayalu
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Unexplained expenditure; Capital asset; Bad and doubtful debts; Capital Gains
• Section: 132; 13; 22; 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND Ms. PADMAVATHY S, ACCOUNTANT MEMBER ITA Nos.1211 to 1212/Bang/2013 Assessment years : 2005-06 & 2006-07 The Deputy Commissioner of Income Tax, Central Circle 2(3), Bangalore. Vs. M/s. Olivia Apparels Pvt. Ltd., No.208, West Minister Complex, Cunningham Road, Bangalore – 560 052. PAN: AAACO 4522F APPELLANT RESPONDENT ITA Nos.1251 to 1253/Bang/2013 Assessment years : 2005-06, 2006-07 & 2007-08 M/s. Olivia Apparels Pvt. Ltd., Bangalore – 560 052. PAN: AAACO 4522F Vs. The Deputy Commissioner of Income Tax, Central Circle 2(3), Bangalore. APPELLANT RESPONDENT Appellant by : Shri Balram R. Rao, Advocate Respondent by : Shri Gudimella VP Pavan Kumar, Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 08.02.2023 Date of Pronouncement : 14.02.2023 ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 2 of 23 O R D E R Per Padmavathy S., Accountant Member These cross appeals of the revenue and the assessee for the assessment years 2005-06 to 2006-07 and the appeal of the assessee for the assessment year 2007-08 are arising out of the directions of the Hon’ble Karnataka High Court vide order dated 28.06.2022. 2. The brief facts of the case are that the assessee is a private limited company engaged in the business of manufacture of apparels. The assessee filed the returns of income as per details given below:- Asst. year Date of filing return of income Income returned 2005-06 30.10.2005 1,35,81,850 2006-07 24.11.2006 4,94,692 2007-08 27.10.2007 9,52,480 3. A search u/s. 132 of the Income-tax Act, 1961 [the Act] was carried out in the case of Shri M. Krishna & Others, Bangalore on 26.8.2008. The business premises of Ms. Ind Sing Developers Pvt. Ltd. of which Shri M. Krishna is the director was also covered u/s. 132 search. On perusal of the documents seized, the AO noticed certain documents that belonged to the assessee and in view of the same the provisions of section 153C of the Act was invoked in assessee’s case and notice was issued accordingly. ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 3 of 23 4. In response to the notice, the assessee filed returns of income for the impugned AYs as given below:- Asst. year Date of filing return of income Income returned 2005-06 29.7.2010 1,35,81,847 2006-07 29.7.2010 3,28,500 2007-08 29.7.2010 9,52,480 5. The AO completed the assessment by making the following additions:- Addition Asst. year 2005-06 Asst. year 2006-07 Asst. year 2007-08 Bad debts written off 30,34,124 26,633 – Unexplained expenses towards property improvement 54,17,542 – – Undisclosed capital 1,44,00,000 – – Unexplained gain on sale of mutual fund – – 6,07,621 6. Aggrieved, the assessee preferred appeals before the CIT(Appeals). The CIT(Appeals) gave full relief to the assessee in respect of the addition made towards bad debts written off. With regard to unexplained expenditure incurred towards property improvement, the CIT(A) gave partial relief to the assessee to the extent of Rs.44,17,542. Regarding the undisclosed capital gains, the CIT(A) sustained the addition with a direction to modify the capital gain computation. The ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 4 of 23 CIT(A) dismissed the assessee’s appeal for AY 2007-08 by upholding the addition made towards undisclosed profits from sale of mutual funds. 7. Before the CIT(Appeals), the assessee had raised a legal contention that the AO has assumed jurisdiction u/s. 153C without complying the mandatory requirement of recording the reasons. The CIT(A) rejected the said legal contention by holding that the AO has clearly recorded his satisfaction with valid reasons while taking action u/s. 153C. 8. Both the assessee and the revenue preferred appeals before the Tribunal against the order of the CIT(Appeals). In assessee’s appeals, the assessee contended the legal issue of jurisdiction of the AO u/s. 153C and the AO not recording the reasons. The revenue contended the issues on merits. The Tribunal in the first round of the proceedings disposed of the appeals by holding – “6. Since the issue of validity of proceedings under Section 153C of the Act goes to the root of the matter of assessment framed under Section 153C of the Act has been set-aside to the record of the CIT(Appeals), we do not propose to go into the other issues raised by the assessee as well as the department on merits which are kept open. 7. In the result, all appeals filed by the assessee as well as revenue are allowed for statistical purposes.” 9. The assessee preferred further appeal before the Hon’ble Karnataka High Court where the assessee raised the below question of law besides other questions – ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 5 of 23 “4. Whether the Tribunal without even adverting to the issues raised by the revenue could treat the appeal as allowed for statistical purposes and consequently passed an unsustainable and perverse order on the facts and circumstances of the case? 10. The Hon’ble High Court remitted the issue back to the Tribunal by holding that – “In view of the above, we are of the view that it is just and appropriate for the Tribunal to reconsider the appeals filed by the assessee as also the Revenue on merits.” 11. As a result of the above directions, the present appeals have arisen before the Tribunal. 12. We will first consider the appeal filed by the revenue in ITA Nos.1211 & 1212/Bang/2013 for AYs 2005-06 & 2006-07 for adjudication. ITA No.1211/Bang/2013 for AY 2005-06 13. The revenue raised grounds pertaining to the following issues:- (i) CIT(A) deleting the addition made by the AO towards bad debts written off – Rs.30,34,124 (Ground Nos.1 & 2) (ii) CIT(A) deleting addition made towards unexplained investment by the AO with respect to expenditure on property improvement – Rs.44,17,542 (Ground Nos. 3 & 4). (iii) CIT(A) giving directions to the AO without giving an opportunity to the AO in respect of the JDA entered into by the assessee and the calculation of capital gains. Bad debts written off ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 6 of 23 14. On perusal of the return filed in response to notice u/s. 153C, the AO noticed that the assessee has claimed a sum of Rs.30,34,124 as bad debts written off. The AO disallowed the said claim for the reason that the assessee has not furnished any details pertaining to the same due to which the AO could not verify if it has been taxed in the earlier year, whether the debt arose in the course of business and that the same has become bad during the year under consideration. 15. The assessee made the following submissions before the CIT(Appeals the assessee had made certain advance payments for the purpose of business of the appellant to M/s. Dreamy Apparels of Rs. 28,59,000/- during the year 2000 and a sum of Rs. 2,00,000/- to Yathin Rajan during the year financial year 2003-04. The total balance outstanding from M/s. Dreamy Apparels as on 31.03.2005 was Rs. 27,72,124/- and a sum of Rs. 2,00,000/- from Yathin Rajan. The assessee submitted that these are genuine trade debts shown in the Balance sheet of the assessee for the year 31.03.2004. These are also shown in the Balance Sheet of the Debtor company M/s. Dreamy Apparels private limited for the year ended 31.03.2005 and 31.03.2004. The assessee during the impugned assessment year had written off the said amounts as bad debts in its books of accounts. The assessee also submitted that the relevant details were submitted before the AO who failed to consider the same. The assessee placed reliance on the decision of the Hon'ble Apex Court in the case of T.R.F Limited vs. CIT, reported in 323 ITR 397 and the circular of the board in 183 ITR (St.) 7 for the proposition ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 7 of 23 that the assessee would be entitled to a deduction of amount of any bad debt which has been written off as irrecoverable in its accounts for the previous year and that the assessee had made entries in its books of accounts treating the debts as irrecoverable whereby the assessee wrote off in its books of accounts. The assessee substantiated the entries by submitting the financial statements where the impugned debts are shown as sundry debtors in the balance sheet of as on 31.03.2004 and are written off by the assessee in its books during the year ending 31.03.2005. Reliance is also placed on the following decisions: i. Vijaya Bank vs. CIT, 323 ITR 166 [SC] ii. CIT vs. Morgan Securities & Credits (P) Ltd., 292 ITR 339 [Del] iii. CIT vs. Girish Bhagwatprasad, 256 ITR 772 [Guj] iv. CIT vs. Brilliant Tutorials Private Limited, 292 ITR 399 [Mad] v. CIT vs. Autometers Ltd., 292 ITR 345 [Del] vi. Board Circular No. 551, dated 23, 1990, 183 ITR (St.) 7 vi. Unreported decision of the Jurisdictional High Court in the case of Raheja Development Corporation. 16. The CIT(Appeals) accepted the submissions of the assessee and deleted the disallowance by holding that – 8.1 I find strength in the argument of the appellant that for a bad debt to be allowed as a written off, it is enough if the appellant establishes that the debt is written off in its books of accounts. The case laws cited by the appellant are on that issue. **** ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 8 of 23 9.1 The appellant enclosed the balance sheet of Dreamy Apparels Pvt. Ltd., wherein this figures are reflected. Hence, I find strength in the argument of the appellant that these bad debts are to be allowed once it is written off in the books of the appellant since this debts are trade debtors. Accordingly these additions are directed to be deleted. 17. The ld. DR submitted that the assessee had produced the documents and evidences supporting the claim of bad debts before the CIT(A) and therefore the CIT(A) would have called for a remand report from the AO before deleting the disallowance. The ld. DR therefore argued that the AO should be given an opportunity to examine the evidences and accordingly prayed that the issue may be remanded to the AO. 18. The ld. AR, on the other hand, submitted that the onus is on the revenue to prove the contrary that the debts have not become bad during the year under consideration. The ld. AR submitted that the details of bad debts were called for by the CIT(A) and were submitted accordingly. The CIT(A) after examining the details has allowed the appeal and therefore the CIT(A)’s decision needs to be upheld. 19. We heard the rival submissions and perused the material on record. Before proceeding, we will have a look at the provisions of section 36(1)(vii) and 36(2) of the Act:- ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 9 of 23 “36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— .......... (vii) subject to the provisions of sub-section (2), the amount of [any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]: .................... (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply— [(i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;] (ii) if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made; (iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year 65[(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)], but the 66[Assessing] Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year; (iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year 67 [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] and the 68[Assessing] Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 10 of 23 preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; [(v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.]” 20. The failure on the part of the assessee to establish that the debt is irrecoverable has been an issue of contention for a long time. The Hon’ble Supreme Court in the case of TRF Ltd. in CA No.5292 to 5294 of 2003 vide judgment dated 9.2.2010 has stated that the position of law is well settled and held that – “After 1/4/89 for allowing deduction for the amount of any bad debt or part thereof u/s. 36(1)(vii) of the Act, it is not necessary for the assessee to establish that the debt in fact has become irrecoverable, it is enough if bad debts is written off as irrecoverable in the books of the assessee.” We also notice that this view of the Hon’ble Supreme Court is affirmed by the CBDT which has issued a Circular [F.No.279/Misc/140/2015-ITJ dated 30.5.2016] The relevant extract of the Circular is reproduced below:- 2. Direct Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(1 )(vii) and 36(2) of the Income Tax Act 1961 , (hereafter referred to as the Act) to rationalize the provisions regarding allowability of bad debt with effect from the 1 st April, 1989. 3. The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the bad debt by doing away with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable. However, despite the amendment, ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 11 of 23 disputes on the issue of allowability continue, mostly for the reason that the debt has not been established to be irrecoverable. The Hon'ble Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide judgment dated 9.2.2010 (NJRS 2010-LL- 0209-8), has stated that the position of law is well settled. "After 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(J)(vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is written off as irrecoverable in the books of accounts of assessee. 4. In view of the above, claim for any debt or part thereof in any previous year, shall be admissible under section 36(l)(vii) of the Act, if it is written off as irrecoverable in the books of accounts of the assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub-section 36(2) of the Act. 5. Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon.” 21. From the above, it becomes clear that claim for any debt or part thereof shall be admissible u/s. 36(1)(vii) of the Act, if it is written off as irrecoverable in the books of accounts of the assessee for that previous year and it is not necessary for the assessee to establish that the debt in fact has become irrecoverable in the books of the accounts of the assessee. In the assessee’s case here, the assessee has written off the ‘trade debtors’ as has been confirmed by the CIT(Appeals) that is no longer recoverable and that the assessee has substantiated the same by producing the relevant details before the lower authorities. The CIT(A) has allowed the claim after verification of the said details. Considering the decision of the Hon’ble Supreme Court and the facts of the assessee’s ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 12 of 23 case as discussed above, we see no reason to interfere with the decision of the CIT(A). Accordingly, the ground raised by the revenue in this regard is dismissed. Property improvement expenses 22. The assessee had claimed a sum of Rs.54,17,542 as cost incurred towards improvement of the property against the capital gain on sale of property. The AO did not allow the claim on the ground that the assessee has not given any details pertaining to the expenses and therefore assessed the same as unexplained investments. 23. Before the CIT(Appeals), the assessee submitted that out of the sum of Rs. 54,17,542.00 incurred towards improvement to property a sum of Rs. 44,17,542.00 was incurred in the year ended 31.3.2001 and Rs. 10,00,000.00 in the year ended 31.03.2005. Addition to improvement of property are expenses incurred by the assessee by employing labor and procuring material in house without outsourcing the construction activity / work. The assessee also submitted that expenses of Rs. 44,17,542.00 incurred are nearly 9 to 10 years old and that the expenses incurred in 2000-2001 cannot be taken as income of the year under assessment i.e. 2005-06. The assessee submitted the details of expenses incurred as given in the table here below: Particulars of expenses Area covered 2000-01 2004-05 ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 13 of 23 Road Cutting 41205 4 4 , 1 7 , 5 4 2 Strom water drains 41205 Asfalting of road 41205 Electrification 5 4 9 6 9 Compound wall 10,00,000 " 24. The CIT(Appeals) after considering the submissions allowed the claim of assessee and deleted the additions made by the AO to the extent of Rs.44,17,542. 25. The ld. DR supported the order of the AO by submitting that the assessee has not furnished any details before the AO. It is also submitted that the CIT(A) without calling for any remand report should not have allowed the claim of the assessee. 26. The ld. AR reiterated the submissions made before the CIT(Appeals) and submitted that from the details produced before the CIT(A) the assessee has discharged the onus of substantiating the claim of expenses. Therefore the ld. AR submitted that the CIT(A) has correctly allowed the claim. 27. We heard the rival submissions and perused the material on record. We notice that out of the total amount of Rs.54,17, 542, the assessee had submitted details for an amount of Rs.44,17,542 as incurred during the previous year 2000-01. The ld AR submitted that the assessee substantiated the said claim by producing the Fixed Assets Schedule ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 14 of 23 wherein the impugned spend has been reflected thereby discharging the onus of proving that the amount has actually been spent. In our view the fact that the amount is reflected in the Fixed Assets Schedule of the financials of the company which are subjected to audit would substantiate that the assessee has spent the said amount towards improvement of the property. We also notice that the CIT(A) has confirmed the disallowance of the balance amount of Rs.10,00,000 claimed to have been spent towards cost of construction of compound wall for the reason that the assessee could not furnish any vouchers. Since the CIT(Appeals) has after examination of the details allowed the claim to the extent to which the assessee has substantiated the spend, we see no reason to interfere with the order of the CIT(Appeals). The grounds raised by the revenue on this issue is dismissed. 28. Ground No.5 raised by the revenue reads as under:- “Ground No.5: Whether on the facts and circumstances of the case, the Ld CIT(A) is correct in law and in facts in giving directions to the Assessing Officer without giving opportunity to the Assessing Officer in respect of the Joint Development Agreement entered by the assessee for calculation of long term capital gains and short term capital gains for the Assessment Years 2003-04, 2004-05 and 2005-06?.” 29. During the year under consideration, the assessee has offered an amount of Rs.2,50,00,000 as sale consideration received towards sale of land to one M/s. Crystal Properties P. Ltd. The AO based on material seized during the course of search noted that as per the final settlement ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 15 of 23 deed dated 19.1.2005 the entire consideration for the flats given to the assessee was agreed at Rs.3.94 crores. The AO proceeded to add the difference in the consideration received as undisclosed income for the reason that the assessee did not furnish the details called for by the AO such as confirmation from M/s. Crystal Properties Pvt. Ltd., etc. 30. Before the CIT(Appeals), the assessee submitted that though as per the JDA the assessee received a refundable deposit of Rs.45,00,000 which is 15% of the consideration of Rs.3,00,00,000, the assessee opted for one time consideration of Rs.2,50,00,000 only. The assessee also submitted the AO has not considered the explanation and details given by the assessee and did not provide an opportunity to present the case. 31. The CIT(Appeals) after considering the submissions of the assessee upheld the addition with a direction to modify/rework the addition. The modifications to the computation of capital gains as directed by the CIT(Appeals) is as summarized below:- (i) Long term capital gain from sale of land to be taxed in AY 2003-04 of a consideration of Rs.3 crores as per JDA dated 27.3.2003. (ii) Short term capital gain on transfer of 3 flats in AY 2004-05 based on actual consideration received as per supplementary agreement dated 23.2.2004 and the cost of flats to be taken based on the JDA value of transfer of land i.e., Rs. 3 crores. (iii) Long term capital gain on sale of 19 flats for a sale consideration at Rs.3,94,40,475 during the year under ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 16 of 23 consideration as per the full and final settlement agreement dated 19.01.2005.The AO is also directed to taking into account the capital gain already offered as per the return of income and also the indexed cost of improvement at Rs.74,53,479 for the purpose of capital gains. 32. The relevant extract of the order of the CIT(Appeals) directing the AO to compute the long term and short term capital gains is as under:- 11.4 I have considered the rival contentions. I have verified the seized material and the records of the AO. The addition is made based on seized material in the form of "agreement and full and final settlement". In this document dated 19.1.2005, while recognizing the JDA dated 27.3.2003 mentioning it has 'Principle indenture' with regard to the land property of area 32,800 sqft but the actual measurement as per sale deed is 31682.05 sq ft. It is also mentioned that the appellant got 22 flats being 30% on account of JDA of which 3 flats were transferred to the developer M/s. Kristal Projects (India) Pvt. Ltd. for a consideration prescribed in supplementary agreement dated 23.2.2004 which pertains to AY 04-05 and the balance 19 flats are the subject matter of this final settlement. The consideration for these 19 flats is agreed at Rs. 3,94,40,475/- of which 16,42,06,256/- was received by cheque on various dates as listed in this document. Out of the balance Rs. 2,30,19,850/- , the following adjustments were made: a. "An amount of Rs. 45,00,000/- (Rupees Forty Five Lakhs only) being the refundable advance vide JDA dt. 27.3.2003 due to the Second Party from the First Party on handing over of the 30% share of the built up apartment, is deducted. b. An amount of Rs. 5,50,000/- (Rupees Five Lakhs Fifty Thousand only) paid by the Second Party to Tamilnad Mercantile Bank Ltd., on behalf of the First Party for clearing the loan taken by the First Party is deducted. ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 17 of 23 c. An amount of Rs.3,11,875/- (Rupees Three Lakhs Eleven Thousand Eight Hundred a Seventy Five only) being the financial charges as agreed by the First party is deduced. d. An amount of Rs. 1,00,000,00 (Rupees One Crore only) is adjusted towards payment of 5000 sq ft of Commercial space being purchased from the Second Party by the First Party." 11.5 After this, the balance is mentioned as Rs.76,57,975/- of which Rs. 25,00,000/- were paid in cash in January 2005. The remaining was scheduled to be paid in Jan and Feb 2005. This is the document based on which the AO made the addition. 11.6 I find that there is a strong basis for the addition made by the AO. However, on careful reading of the document and the submissions of the appellant the following issues clearly crop up 1. There is JDA dt 27.3.2003 hence in view of the decision of Hon'ble jurisdictional High Court of Karnataka in the case of T. K. Dayalu case, there is a transfer on that date regarding this property which is also mentioned as 'principle indenture' in the final settlement. Hence, the capital gains on conversion of this land into apartments on 27.3.2003 by virtue of JDA needs to be taxed in the AY 2003-04. The appellant themselves claim that 15% of the value of the property works out to Rs. 45,00,000/-which is the advance given as per this agreement. Hence, the value of consideration is ascertainable in this case which works out to Rs. 3 crores hence AO is directed to assess long term capital gains on this Rs. 3 crores for the AY 2003-04. 2. The second issues that emanates from this agreement is that the appellant has transferred 3 flats by virtue of supplementary agreement dated 23.2.2004. Hence, there is a short term capital gain that is arising for the AY 2004¬05 on account of the transfer of these 3 fiats by this supplementary agreements. The cost of these flats are ascertainable from the fact that 22 flats are valued at 3 cores. Now for the current year, the balance 19 flats are given off by the appellant for a consideration of Rs. 3,94,40,475/- . The cost of these 19 flats ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 18 of 23 are also ascertainable based on the fact that 22 flats were valued at Rs. 3 crores hence the cost of 19 flats would come to Rs.2,60,00,000/-. However, this value includes undivided share of land which has always been with the appellant on which these 22 apartments were constructed and given to the appellant in lieu of the balance land by the developer. Hence, by virtue of this transfer, the gain on account of this land will have to be computed under long term capital gains which will be part of this 2.6 crores. As seen from the statement of total income, the appellant has admitted long term capital gains taking Rs. 2.5 crores as sale of 100% land to the developer which includes 30% now transferred and indexed cost of improvement is taken at Rs.74,53,479/-. From this, the proportionate long term capital gain on the portion of the land transferred under this 19 flats is workable and to that extent, the capital gains has to be treated as long term capital gains and the balance has to be treated as short term capital gains. AO is directed to verify and adopt these values and assesses the short term and long term capital gains since the period of holding of these flats is less than 3 years from the date of JDA being 27.3.2003 and the date of settlement being 19.1.2005 which is less than 3 years, while the undivided share of land was always with the appellant leading to proportionate lone term capital gain. Since the appellant has admitted certain CGs the proportionate tax benefit should judiciously be given to the appellant and the balance should be taxed. 3. Further, the AO may intimate the AO of Kristal Project, to take appropriate action in that case since the payment of on money is detected. With this direction the ground is dismissed and the addition is confirmed subject to the above alterations.” 33. The ld. DR submitted that the CIT(A) has not given opportunity to the AO to examine the JDAs based on which the CIT(A) has directed the re-computation of capital gains. ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 19 of 23 34. The ld. AR submitted that the CIT(A) has gone beyond his jurisdiction to assessee the capital gains from AY 2003-04 to 2005-06. Therefore, the ld. AR submitted that the directions of the CIT(Appeals) to recompute the capital gain is liable to be quashed. 35. We heard the rival submissions and perused the material on record. We notice from the records that the assessee has entered into three agreements with M/s. Kristal Projects (I) Pvt. Ltd. viz., (i) JDA dated 27.3.2003 for development of land situated at Bellandur Village measuring 32,800 sq.ft. (ii) Agreement to sell 3 flats dated 23.2.2004. (iii) Agreement to sell 19 flats dated 19.01.2005. 36. The assessee has also executed a General Power of Attorney in favour of M/s. Kristal Projects (I) Pvt. Ltd. dated 14.11.2003 in connection with land development as agreed by the JDA. Based on these seized documents, the AO had made an addition of Rs.1,44,00,000 in the hands of the assessee in the impugned year. 37. The CIT(Appeals) has examined all these agreements entered into between the assessee and M/s. Kristal Projects (I) Pvt. Ltd., and had directed the AO to recompute the capital gains in 3 parts spread across AYs 2003-04 to 2005-06 as summarised in the earlier part of this order. We have perused various clauses of JDA dated 27.3.2003 whereby the asse has given the absolute possession and not the permissive possession to the developer. Accordingly, we see no infirmity in the decision of the CIT(Appeals) to direct the AO to tax the capital gains on transfer of land ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 20 of 23 in AY 2003-04 following the decision of the Hon’ble Karnataka High Court in the case of CIT v. T.K. Dayalu, 202 Taxman 531. 38. It is also evident from the perusal of the agreements dated 23.2.2004 and 19.1.2005 that the assessee has transferred 22 flats which is received in lieu of transfer of land as per the JDA to the developer for a certain consideration. The CIT(A) has in this regard issued direction to the AO to compute the capital gain on transfer of flats based on the consideration agreed by the assessee with the developer. The CIT(A) has directed the AO to adjust the cost of flats based on the amount already taxed for sale of land. From these facts, it is clear that the CIT(A) has perused the various documents related to the impugned transaction and issued directions to the AO accordingly. The addition made by the AO on adhoc basis without giving any deduction towards cost of acquisition/improvement, in our view, has been correctly modified by the CIT(A). Further, the grievance of the revenue that the AO was not given proper opportunity to examine the JDA is not tenable since the said documents were part of the seized documents based on which the AO has issued notice u/s. 153C. We therefore dismiss the ground raised by the revenue in this regard. 39. In the result, the appeal of the revenue in ITA No.1211/Bang/2013 is dismissed on merits. ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 21 of 23 ITA No.1212/Bang/2013 – AY 2006-07 40. The ground raised by the revenue is with respect to deletion of the addition of Rs.26,333 made by the AO towards the debts written off. 41. During the course of hearing, the Ld.AR submitted that the appeal filed by the revenue needs to be dismissed on the ground that the tax demand arising out of the appeal is below Rs. 50 Lakhs Accordingly, we dismiss the appeal of the revenue for AY 2006-07 on the ground of tax effect being below the monetary limit as per CBDT Circular No.7/2019 dated 8.8.2019. 42. Since we have dismissed the appeals of the revenue for AYs 2005- 06 & 2006-07, the cross appeals of the assessee in ITA Nos.1251 & 1252/Bang/2013 for these assessment years contending the additions have become infructuous and does not warrant any separate adjudication. ITA Nos.1253/Bang/2013 – AY 2007-08 (Assessee’s appeal) 43. During the year under consideration, the assessee has shown an amount of Rs.6,07,621 as profit on sale of mutual funds. The AO during the course of assessment proceedings called on the assessee to produce details pertaining to the same. The AO added the said income as unexplained for the reason that the assessee did not furnish any details. The CIT(A) sustained the addition stating that income from transfer of mutual funds are not exempt u/s. 10(35) as claimed by the assessee. ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 22 of 23 44. The ld. AR submitted that the income from sale of mutual funds is exempted u/s. 10(38) and therefore cannot be added as unexplained. 45. The ld. DR supported the orders of lower authorities. 46. We heard the rival submissions and perused the material on record. We will look at section 10(38) before proceeding further. “Incomes not included in total income. 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— ......... 38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where— (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter : 47. From the above, it is clear that exemption is available only to long term capital gain arising on sale of equity shares or unit of an equity oriented mutual funds on which securities transaction tax is paid. We notice that the assessee contended before the CIT(Appeals) that the income is exempt u/s. 10(35). However, it is noticed that the income declared by the assessee is with respect to gain on sale of mutual funds and not income arising out of dividend/income arising out investment in ITA Nos.1211 to 1212 & 1251 to 1253/Bang/2013 Page 23 of 23 mutual fund. Therefore, we see no reason to interfere with the decision of the CIT(A) in confirming the addition made towards profits arising on sale of mutual funds. The appeal filed by the assessee is therefore dismissed. 48. In the result, all the appeals filed by the revenue and the assessee are dismissed. Pronounced in the open court on this 14 th day of February, 2023. Sd/- Sd/- ( N V VASUDEVAN ) ( PADMAVATHY S ) VICE PRESIDENT ACCOUNTANT MEMBER Bangalore, Dated, the 14 th February, 2023. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.