ACIT, CHENNAI V. K.A.Manshoor, CHENNAI

ITA 1412/CHNY/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9225 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 24-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A B KOLI IRS
• Assessee Lawyers: K BALASUBR AMANIAN
• Keywords: Capital asset; Business income; Salary income; Deemed dividend; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . ! , '!# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 1412/MDS/2013 ' $ %$ / ASSESSMENT YEAR : 2009-2010 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3) CHENNAI 600 034. VS. SHRI. K.A. MANSHOOR, NO.10, SRIDEVI GARDENS, AKR NAGAR MAIN ROAD, VALASARASWAKKAM, CHENNAI 600 087. [PAN AADPM 7538C] ( / APPELLANT) ( /RESPONDENT) &' ( ) / APPELLANT BY : SHRI. A.B. KOLI, IRS, JCIT *+&' ( ) /RESPONDENT BY : SHRI. K. BALASUBRAMANIAN, ADVOCATE ( , / DATE OF HEARING : 09-03-2016 -.% ( , / DATE OF PRONOUNCEMENT : 31-05-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I X, CHENNAI IN ITA NO.303/11-12, DT 28.03.2013 FOR THE ASSESSMENT YEAR 2009-2010 PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1 961 (HEREIN AFTER REFERRED TO AS THE ACT). ITA NO. 1412/MDS/2013. :- 2 -: 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- 2. THE CIT(A) ERRED IN DELETING THE ADDITION MAD E BY THE ASSESSING OFFICER BY TREATING THE BULDING ADVANCE A S DEEMED DIVIDEND ULS 2(22)(E). 2.1 THE CIT(A) FAILED TO APPRECIATE THAT THE LAND O N WHICH THE PROJECT IS PROPOSED BELONGS TO THE ASSESSEE AND JOI NT DEVELOPMENT AGREEMENT HAS BEEN ENTERED BETWEEN THE ASSESSEE AND THE COMPANY M/S.CRYSTAL RESIDENCY P LT D. 2.2 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ADVANCE RECEIVED IS MUCH HIGHER THAN THE VALUE OF THE LAND OFFERED BY THE ASSESSEE. 2.3. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ADVANCE RECEIVED HAS BEEN UTILIZED BY THE ASSESSEE FOR HIS PERSONAL INVESTMENTS AND REPAYMENTS OF DEBTS. 3. THE CIT(A) ERRED IN DELETING THE ADDITION MADE ULS 2(22)(E) OF RS.50,00,000/- RECEIVED TOWARDS RENTAL ADVANCE. 3.1. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE COMPANY HAS BEEN THE TENANT OF THE ASSESSEE FOR MORE THAN A DECADE AND DID NOT PROVIDE A RENTAL ADVANCE IN THE FIRST Y EAR OF ITS OCCUPATION. 3.2. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE RENTAL ADVANCE IS A MERE ADVANCE PAID IN A DISGUISED FORM TO THE ASSESSEE. 3.3 IT IS SUBMITTED THAT IN THE MADRAS HIGH COURT D ECISION IN THE CASE OF P.K.MOHD. ABUBUCKER (252 ITR 507) IT IS HEL D THAT THE RENTAL ADVANCE BETWEEN THE COMPANY AND THE DIRECTOR IS ALSO AN ADVANCE CONTEMPLATED U/S 2(22)(E). 4. THE CIT(A) ERRED IN HOLDING THAT THE PROFITS FRO M SALE OF LAND SHOULD BE TAXED UNDER CAPITAL GAINS AND NOT UNDER B USINESS INCOME AS HELD BY THE ASSESSING OFFICER. 4 . 1. THE CIT(A) FAILED TO APPRECIATE THAT THE LAND HA S BEEN HELD BY THE ASSESSEE FOR THE PURPOSE OF PROMOTION OF REAL E STATE ACTIVITY WITH THE INTENTION OF GARNERING LARGER PROFITS BY V ENTURING IN TO REAL ESTATE. 4.2 THE CIT(A) OUGHT TO FOLLOWED THE DECISION OF S UTLEJ ITA NO. 1412/MDS/2013. :- 3 -: COTTON MILLS SUPPLY AGENCY LTD. (100 ITR 206) WHERE IN IT IS HELD THAT IF THE DOMINANT INTENTION OF THE ASSESSEE WAS TO MAKE PROFIT BY RESALE OF ASSETS AND NOT TO MAKE AN INVESTMENT , THE EXERCISE NEEDS TO BE CHARACTERIZED AS AN ADVENTURE IN THE NA TURE OF TRADE AND OUGHT TO HAVE UPHELD THE ACTION OF ASSESSING OF FICER. 4 . 3. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT I F A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME, AND THEN SELLS IT AT A PROFIT, IT WOULD FROM AN ADVENTURE IN THE NATURE OF TRADE . 4 . 4 IT IS SUBMITTED THAT IN THE CASE OF VENKATASWAMI NAIDU & CO (35 ITR 594)(SC), THE HON'BLE SUPREME COURT HAS DECIDED A SIMILAR ISSUE IN FAVOUR OF REVENUE. 5. THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY TREATING THE INCOME FROM AGRICULTURAL LAND AS NON-AGRICULTURAL I NCOME . 5 . 1 THE CIT(A) FAILED TO APPRECIATE THE FACT THA T THE LANDS ARE HELD AS STOCK - IN-TRADE AND HENCE , THE AGRICULTURAL INCOME EARNED IS INCIDENTAL TO THE BUSINESS ACTIVITY . 3. THE BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND HAVING INCOME FROM SALARY, INCOME FROM HOUSE PROPERTY, INCOME FROM BUS INESS, INCOME FROM CAPITAL GAINS AND AGRICULTURAL INCOME AND FILE D RETURN OF INCOME ON 20.03.2010 ADMITTING TOTAL INCOME OF >.94,98,220 /-. SUBSEQUENTLY, THERE WAS CHANGE OF JURISDICTION AND THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. THE ASSESSEE IS MANAGING DIRE CTOR OF M/S. CRYSTAL RESIDENCY PVT. LTD WITH SHARE HOLDING OF 9 9.5%. THE LD. ASSESSING OFFICER SUBSEQUENT TO CHANGE OF JURISDICT ION ISSUED NOTICE U/S.142(1) OF THE ACT CALLING FOR THE RECORDS AND I NFORMATION IN RESPECT OF RETURN FILED. THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND FILED INFORMATION IN RESPECT OF CAPITAL ITA NO. 1412/MDS/2013. :- 4 -: GAINS AND AGRICULTURAL INCOME. THE LD. ASSESSING O FFICER ON VERIFICATION FOUND THAT THE ASSESSEE IS A MANAGING DIRECTOR OF THE COMPANY HAS RECEIVED BUILDING ADVANCE AND PROVISIONS OF SEC. 2( 22)(E) OF THE ACT ARE ATTRACTED AND THE SOURCE FOR THE COMPANY BEIN G COMPENSATION RECEIVED FROM LAND AT KOLAPAKKAM UNDER COMPULSORY ACQUISITION BY GOVERNMENT OF INDIA. THE LD. ASSESSING OFFICER HAS MADE AN ADDITION CONSIDERING CONTRACTUAL RELATION OF MANAGING DIREC TOR OF THE COMPANY. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE FINDINGS OF THE LD. ASSESSING OFFICER AND SUBMISSIONS OF THE ASSESSEE AT PAGE NOS .3 TO 6 DULY SUPPORTED BY THE JUDICIAL DECISIONS AND MINUTES O F THE MEETING APPROVING DEVELOPMENT BUILDING ADVANCE. THE LD. C OMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AT PARA 8.1 OF HIS ORDER WERE THE ASSESSEE EXPLAINED T HE TRANSACTION AND REITERATED THE SUBMISSIONS BEFORE THE ASSESSING OFF ICER ON THE JOINT DEVELOPMENT AGREEMENT AND APPLICABILITY OF PROVISI ONS OF SEC. 2(22) (E) OF THE ACT AND JUDICIAL DECISIONS. THE LD. COM MISSIONER OF INCOME TAX (APPEALS) TREATED THE BUILDING ADVANCE TRANSACT ION AS NORMAL BUSINESS AND THE ASSESSEE COMPANY IS A SEPARATE ENT ITY AND OBSERVED AT PARA 8.3 TO 8.5 OF HIS ORDER AS UNDER:- ITA NO. 1412/MDS/2013. :- 5 -: 8.3 I HAVE PERUSED THE AO'S OBSERVATIONS AND THE SUBMISSIONS OF THE APPELLANT IN THIS REGARD. AFTER CONSIDERING THE FACTS OF THE CASE I AM OF THE CONSIDERED OPINION THAT THE ACTION OF THE AO IN TREATING THE AMOUNT OF RS. 1,46,75,500/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT, AS AGAINST THE APPELLANT'S CLAIM OF TREATING IT AS 'BUSINESS ADVAN CE' IS NOT JUSTIFIED. THE AO HAS DISPUTED THE NATURE OF TRANSACTION BETWEEN THE APPELLANT AND THE COMPANY M/S. CRYSTAL RESIDENCY [INDIA] PVT LTD. IS NOT A BUSINESS TRANSACTION. ON THE OTHER HAND, THE APPELLANT SUBMITTED THAT M/S. CRYSTAL RESIDENCY (INDIA) PVT. LTD. FOR THE ASST.YEAR 2010-11 HAS SHOWN AN AMOUNT OF RS. 29,65,750/- TOWARDS EXPENDITURE INCURRED FOR THE DEVELOPMENT OF PROPOSED PROJECT. IN THIS REGARD, I HAVE PERUSED TH E FINANCIALS ALONG WITH THE RETURN OF INCOME OF M/S. CRYSTAL RESIDENCY (INDIA) PVT. LTD. WHICH WAS FILED ON 14.10.2010 AND IT IS FOUND THAT THE DEVELOPER OF THE AGREEMENT (M/S. CRYSTAL RESIDENCY (INDIA) PVT. LTD.) HAS SPENT RS. 29,65,750/- AS WORK-IN-PROGRESS TOWARDS DEVELOPMENT OF THE PROPOSED PROJECT AT SOMANGALAM. HOWEVER, THE AO HAS NOT TAKEN THIS ASPECT AT THE TIME OF COMPLETION OF THE ASSESSMENT I.E. ON 21.12.2011 AS THE ABOVE INFORMATION WAS VERY MUCH AVAILABLE WITH HIM. THEREFORE, FROM THE ABOVE, IT IS CLEAR THAT THE INTENTION BEHIND THE ADVANCE IS FOR THE PURPOSE OF BUSINESS ONLY. 8.4 SECONDLY, THE APPELLANT HAS ONLY FOLLOWING A CUSTOMARY PRACTICE IN PROPERTY DEVELOPMENT BUSINESS IN KEEPING THE OWNERSHIP AND DEVELOPMENT SEPARATE. 8.5 IN VIEW OF THE ABOVE, THE ADVANCE GIVEN BY M/S. CRYSTAL RESIDENCY (INDIA) PVT. LTD TO THE APPELLANT WAS PURELY A BUSINESS TRANSACTION DONE BY THE SAID COMPANY FOR 'COMMERCIAL EXPEDIENCY', WHICH TOOK IT OUT OF THE PURVIEW OF SEC. 2(22)(E) OF THE ACT. THEREFORE, THE NATURE OF TRANSACTION BETWEEN THE APPELLANT AND 'COMPANY' IS IN THE COURSE OF BUSINESS AND HENCE AO IS NOT JUSTIFIED IN TREATING THE BUSINESS ADVANCE OF RS. 1,46,75,500/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. IT IS ALSO TO BE MENTIONED HERE THAT THE OBJECTIONS RAISED BY THE ASSESSING OFFICER IN THE RELEVANT PARAS OF THE ASSESSMENT ORDER HAVE BEEN ANSWERED BY THE APPELLANT IN THE WRITTEN SUBMISSION S. I AM IN AGREEMENT WITH THE APPELLANTS EXPLANATION IN TH IS ITA NO. 1412/MDS/2013. :- 6 -: REGARD AS THEY ARE BASED ON THE FACTS OF THE CASE. THEREFORE, ASSESSING OFFICERS OBJECTIONS RAISED IN THIS REGARD ARE HEREBY NOT CONSIDERED. AS A RESULT, THE ADDITION OF 1,46,75,500/- MADE BY THE ASSESSING OFFICER IN THIS REGARD IS HEREBY DELETED. THIS GROUND OF A PPEAL IS ALLOWED. AND ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEAL S) ORDER, THE REVENUE HAS ASSAILED AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARG UED THE GROUNDS THAT COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN CONSIDERING BUILDING ADVANCE AS NORMAL BUSINESS TRA NSACTION AND THE PROJECT DEVELOPMENT IS BETWEEN ASSESSEE AND THE COM PANY AND THE ADVANCE IS HIGHER THAN THE LAND OFFERED BY THE ASSE SSEE FOR DEVELOPMENT AND ASSESSEE HAS UTILIZED FUNDS FOR R EPAYMENT OF LOANS. THE ASSESSEE IS IN REAL ESTATE DEVELOPMENT AND D ISCLOSED IN BALANCE SHEET AND PRAYED FOR ALLOWING THE GROUND. 6. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIV E RELIED ON THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS ) AND OPPOSED THE GROUNDS. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE LD. DEPARTMENTAL REPRESENTATIVE CONTES TED CONSIDERING RELATION OF ASSESSEE AND COMPANY AND ALSO THE TRANS ACTION IS IN THE ITA NO. 1412/MDS/2013. :- 7 -: NATURE OF DEEMED DIVIDEND. WE PERUSED THE FINANCIA L STATEMENTS AND LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE JOINT DEVELOPMENT AGREEMENT DATED 1 ST DECEMBER, 2008 WHEREIN THE PROPERTY SITUATED AT NO.99, SOMANAGALAM VILLAGE, A BLOCK, SRIPERUMBUDUR TALUK, KANCHIPURAM DIST WERE THE TOTA L LAND AGGREGATING TO 5 ACRE 88 CENTS IN PLOT NOS.1 TO 62 FOR AN EXTENT OF 1,74,227 SQ.FT THOYIBA GARDEN. AS PER THE CLA USES OF JOINT DEVELOPMENT AGREEMENT, THE ASSESSEE AS A LANDLORD H AD ENTERED INTO DEVELOPMENT AGREEMENT WITH COMPANY ON THE TERMS AN D CONDITIONS. THE DEVELOPER COMPANY SHALL PAY EARNEST MONEY AS PA RT PAYMENT ON EXECUTION OF AGREEMENT >1.50 CRORES. THE LD. AUTH ORISED REPRESENTATIVE SUBMITTED THAT ASSESSEE IS IN REAL ESTATE BUSINESS AND IT IS COMMON PRACTICE IN BUSINESS TO OBTAIN DEPOSI TS FROM THE DEVELOPER/BUILDER BEFORE VENTURING INTO CONSTRUCTIO N ACTIVITY. THE COMPANY IS A SEPARATE LEGAL ENTITY AND THE ASSESSEE IS A LANDLORD AND SUCH TRANSACTIONS CANNOT BE CONSIDERED AS DEEMED DI VIDEND U/S.2(22) (E) OF THE ACT BASED ON THE JOINT DEVELOPMENT AGRE EMENT EXECUTED ON 1 ST DECEMBER, 2008. THE ASSESSEE HAS RECEIVED THE EARN EST MONEY FROM THE DEVELOPER COMPANY, IN THE NORMAL COURSE AS ORDINARY BUSINESS TRANSACTION AS PER THE TERMS OF AGREEMENT . CONSIDERING THE ITA NO. 1412/MDS/2013. :- 8 -: APPARENT FACTS EVIDENCE AND JUDICIAL DECISIONS, THE LD.CIT(A) HAS DEALT ON THE ISSUE OF JOINT DEVELOPMENT AGREEMENT AND EXP LANATION OF THE ASSESSEE AND DELETED THE ADDITION. THEREFORE, WE A RE NOT INCLINED TO INTERFERE WITH THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS GROUND. THE GROUND OF THE DEPARTMENT IS DISM ISSED. 8. ON THE SECOND GROUND, THE LD. ASSESSING OFFICER MAD E ADDITION U/S.2(22)(E) OF THE ACT AS DEEMED DIVIDEND TOWARDS RENTAL ADVANCE. THE LD. AUTHORISED REPRESENTATIVE SUBMITT ED THAT >50,00,000/- WAS PAID AS RENTAL ADVANCE BY THE COM PANY TO THE ASSESSEE TOWARDS SECURITY DEPOSITS AND THE ASSESSEE IS OFFERING INCOME FROM PROPERTY LET OUT TO THE SAID COMPANY >1,00,000 /- PER MONTH. THE COMPANY IS A TENANT OF THE ASSESSEE AND IN OCC UPATION FOR MORE THAN TEN YEARS AND DUE TO ITS INITIAL STABILITY OF BUSINESS NO RENTAL ADVANCE WAS PROVIDED. SUBSEQUENTLY, BECAUSE OF AV AILABILITY OF LIQUIDITY, THE COMPANY HAS PROVIDED THE RENTAL ADV ANCE AND DOES NOT FALL WITHIN THE APPLICABILITY OF SEC. 2(22) (E) OF THE ACT BUT THE LD. ASSESSING OFFICER MADE AN ADDITION OF >50,00,000/-. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSI ONER OF INCOME TAX (APPEALS). 9. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE REITERATED THE SUBMISSIONS OF ASSESS MENT PROCEEDINGS ITA NO. 1412/MDS/2013. :- 9 -: WITH EVIDENCE AND JUDICIAL DECISIONS. THE LD. COM MISSIONER OF INCOME TAX (APPEALS) RELIED ON THE SUBMISSIONS OF THE ASSE SSEE REFERRED IN HIS ORDER AT PAGE 9 AND ALSO FINDINGS OF THE LD. ASSESS ING OFFICER. THE CRUX OF THE ISSUE BEING WHETHER RENTAL ADVANCE COME WITH IN THE AMBIT OF SEC. 2(22) (E) OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED AT PARA 9.4 OF HIS ORDER AS UNDE R:- 9.4 ON PERUSAL OF THE FACTS OF THE CASE, THE SAID AMOUNT OF RS. 50,00,000/- HAS BEEN RECEIVED BY THE APPELLANT TOWARDS ENHANCEMENT OF RENT. IT IS TO BE NOTED THAT THE REN TAL ADVANCE OF RS. 5,00,000/- APPEARING IN THE RETURNS OF INCOM E FILED BY M/S. CRYSTAL RESIDENCY (INDIA) PVT LTD. IN THE EARL IER YEARS. THIS FACT WAS NOT DISPUTED BY THE AO DURING SCRUTIN Y PROCEEDINGS. THIS ITSELF SHOW THAT THE NATURE OF TH E TRANSACTION BETWEEN THE APPELLANT AND M/S. CRYSTAL RESIDENCY (INDIA) PVT. LTD. IS A BUSINESS TRANSACTI ON AS THE APPELLANT HAS LET OUT ITS PROPERTY TO M/S. CRYSTAL RESIDENCY (INDIA) PVT. LTD. FOR THE PAST SEVERAL YEARS. IT IS ALSO TO BE SEEN THAT THE AMOUNT HAS NOT BEEN UTILIZED FOR THE RENOVATION/REPAIRS/ REMODELING OF THE PROPERTY. ACC EPTING RENTAL ADVANCE IS A WIDELY PREVALENT PRACTICE, THER EFORE, THERE IS NOTHING UNUSUAL DONE BY THE APPELLANT. THEREFORE , THE CASE LAWS RELIED UPON BY THE AO CANNOT BE APPLIED TO THE APPELLANT AS THE FACTS ARE DISTINGUISHABLE. IN VIEW OF THE ABOVE, THE RENTAL ADVANCE OF RS. 50,00,000/- RECEIV ED BY THE APPELLANT FROM THE COMPANY M/S. CRYSTAL RESIDENCY ( INDIA) PVT. LTD. IS PURELY BUSINESS TRANSACTION DONE BY TH E SAID COMPANY FOR 'COMMERCIAL EXPEDIENCY', WHICH TOOK IT OUT OF THE PURVIEW OF SEC. 2(22)(E) OF THE ACT. THEREFORE, THE NATURE OF TRANSACTION BETWEEN THE APPELLANT AND 'COMPANY' IS IN THE COURSE OF BUSINESS AND HENCE AO IS NOT JUSTIFIED IN TREATING THE RENTAL ADVANCE OF RS. 50,00,000/- AS DEEMED DIV IDEND U/S 2(22)(E) OF THE ACT. HENCE, AO IS DIRECTED TO D ELETE THE ABOVE ADDITION OF RS.50,00,000/- MADE IN THIS REGAR D. THIS GROUND OF APPEAL IS ALLOWED . ITA NO. 1412/MDS/2013. :- 10 -: AND ALLOWED THE GROUND OF THE ASSESSEE. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE REV ENUE HAS ASSAILED AN APPEAL BEFORE TRIBUNAL. 10. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGU ED THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ELETING THE ADDITION U/S.2(22)(E) OF THE ACT WITHOUT APPRECIATI NG THAT THE COMPANY IS A TENANT AND ASSESSEE IS A LANDLORD AND IN OCCUP ATION FOR MORE THAN A DECADE AND SUCH ADVANCE CANNOT TAKES THE CHARACTE RISTIC OF SECURITY DEPOSITS AND RELIED ON THE FINDINGS OF THE LD. ASSE SSING OFFICER AND PRAYED FOR ALLOWING THE GROUND. 11. CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND OPPOSED THE GROUNDS OF THE REVENUE. 12. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE BASIC CONTENTION OF THE LD. DEPARTMENT AL REPRESENTATIVE THAT THE ADVANCE IS IN THE NATURE OF PERSONAL AND N OT RENTAL ADVANCE. FURTHER, THE ASSESSEE COMPANY IS IN OCCUPATION FOR MORE THAN TEN YEARS AND AT THIS JUNCTURE INCREASE IN ADVANCE DOE S NOT ARISE AND PROVISIONS OF SEC. 2(22) (E) OF THE ACT ARE APPLICA BLE. THE LD. ITA NO. 1412/MDS/2013. :- 11 -: AUTHORISED REPRESENTATIVE REITERATED THE SUBMISSION S MADE IN THE ASSESSMENT PROCEEDINGS AND BEFORE COMMISSIONER OF INCOME TAX (APPEALS) AND DREW OUR ATTENTION TO THE RENTAL AGRE EMENT EXECUTED ON 9 TH JANUARY, 2009 AND AS PER THE AGREEMENT TENANCY SH ALL BE FOR A PERIOD OF FIVE YEARS AND COMPANY SHALL PAY RENT >.1 ,00,000/- PER MONTH. FURTHER, IT WAS AGREED THAT ASSESSEE HAS PA ID ONLY >.5,00,000/- AS SECURITY DEPOSIT AND THE ASSESSEE H AS INCREASED THE SECURITY DEPOSIT TO >.50,00,000/- FROM THE DATE OF EXECUTION OF AGREEMENT WITH TERMS AND CONDITIONS BEING THE SAME IN RESPECT OF 8500 SQ.FT COMMERCIAL PLACE AT THOUSAND LIGHTS, CHE NNAI WERE THE RENTAL VALUES ARE COMPARATIVELY HIGHER BEING BUSIN ESS AREA WHEREAS THE RENT CHARGED BY THE ASSESSEE IS LESS AND THE AD DITIONAL SECURITY DEPOSIT PAID IS ONLY TO SAFEGUARD THE INTEREST OF THE BUSINESS TRANSACTION. CONSIDERING THE APPARENT FACTS AND TH E LEASE AGREEMENT AND THE OFFERING OF RENTAL INCOME, WE ARE OF THE OP INION THAT PROVISIONS OF SEC. 2(22) (E) OF THE ACT SHALL NOT APPLY, WE U PHOLD THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS GROUND AND DISMISSED THE REVENUE GROUND. 13. THE THIRD GROUND RAISED BY THE REVENUE ALLEGING THA T THE ITA NO. 1412/MDS/2013. :- 12 -: COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG COMPENSATION ON COMPULSORY ACQUISITION OF LAND BY THE GOVERNMENT AU THORITY ON COMPULSORY ACQUISITION OF LAND BY THE GOVERNMENT AU THORITY AS INCOME FROM CAPITAL GAINS AND NOT UNDER BUSINESS INCOME, T HOUGH THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE AND OBT AINED LOANS FOR DEVELOPMENT AND IS ADVENTURE IN THE NATURE OF TRAD E AND INTENTION IS TO MAKE PROFIT IN REAL ESTATE. 14. THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE ORD ERS OF COMMISSIONER OF INCOME TAX (APPEALS). 15. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISIONS. THE LD. DEPARTMENTA L REPRESENTATIVE ONLY CONTENTION BEING THAT LAND OWNED BY ASSESSEE A T KOLAPAKKAM VILLAGE CANNOT BE TREATED AS CAPITAL ASSET, AS THE ASSESSEE IS IN REAL ESTATE BUSINESS AND ACTIVITIES ARE ADVENTURE IN TH E NATURE OF TRADE. THE ASSESSEE OBTAINED PERMISSION FOR LAYOUT WHICH COULD NOT BE COMPLETED AS THE LAND WAS ACQUIRED FOR AIRPORT EXPA NSION WERE THE ASSESSEE HAS DISCLOSED THE LAND DULY AS FIXED ASSET AND DEVELOPMENT AND LEVELING EXPENDITURE AS WORK IN PROGRESS AND C ARRIED FORWARD FROM THE SUBSEQUENT ASSESSMENT YEARS TILL ASSESSMENT YEA R 2009-2010. THE ASSESSEE HAS NOT CLAIMED DEPRECATION ON LAND AS PER ITA NO. 1412/MDS/2013. :- 13 -: THE PROVISIONS OF INCOME TAX ACT AND COMPULSORY DI SCLOSED UNDER FIXED ASSETS SCHEDULE. THE ASSESSEE HAS BEEN IN TH E REAL ESTATE BUSINESS AND WAS OFFERING INCOME FROM CONSTRUCTION AND REAL ESTATE INCOME FROM EARLIER YEARS. THE ASSESSEE IN THE A SSESSMENT YEAR 2009-2010 HAS SHOWN THE ACTIVITIES OF WORK IN PROGR ESS OF LAND BEING THE ASSESSEE REAL ESTATE WORKS. THE ASSESSEE OBTA INED DEVELOPMENT/ PLANNING PERMISSION FROM PANCHAYAT ON 22.02.2007 FO R KOLAPAKKAM LAND. THE LD. AUTHORISED REPRESENTATIVE SUPPORTED H IS ARGUMENTS WITH JUDICIAL DECISIONS THAT LAND HAS TO BE TREATED AS CAPITAL ASSET NOT BUSINESS ASSET. THE ASSESSEE WAS DIRECTLY OR INDIR ECTLY PERUSING ITS OBJECTIVE OF REAL ESTATE AT DIFFERENT PLACES. PRIM E FACIE, THE INTENTION OF THE ASSESSEE ON PERUSAL OF THE FINANCIAL STATEME NTS AND EVIDENCE AND THE ACTIVITIES ARE REAL ESTATE BUSINESS AND HOT ELING BUSINESS FURTHER KOLAPAKKAM LAND IS NOT A SOLE TRANSACTION. CONSIDE RING THE APPARENT FACTS AND THE COMMERCIAL CHARACTER OF THE LAND SUP PORTED WITH ASSESSEES INTENTION TO DEVELOP RESIDENTIAL PLOTS AND NATURE OF REAL ESTATE WORKS, THE LAND CANNOT TAKE THE CHARACTERIST IC OF CAPITAL ASSET, CONSIDERING THE WORK IN PROGRESS. THEREFORE, WE AR E OF THE OPINION THAT OBJECT AND INTENTION OF THE ASSESSEE ARE THE R EAL ESTATE BUSINESS AND THE COMPENSATION RECEIVED FROM GOVERNMENT OF IN DIA ON COMPULSORY ACQUISITION OF LAND HAS TO BE TREATED A S BUSINESS ITA NO. 1412/MDS/2013. :- 14 -: INCOME AND WE SET ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND ALLOW THE REVENUE GROUND. 16. THE LAST GROUND RAISED BY THE DEPARTMENT IS THAT AS SESSEE HAS OFFERED AGRICULTURAL INCOME OF >.1,97,640/- FR OM LANDS AT SOMANGALAM AND JAMBODAI AND THE ASSESSEE IS IN REA L ESTATE BUSINESS AND HOLDING THE LAND FROM EARLIER YEARS AND OFFERI NG AGRICULTURAL INCOME. BUT THE LD. ASSESSING OFFICER MADE ADDITION WITHOUT CONSIDERING THE SUBMISSIONS AND TREATED THE INCOME AS NON AGRICULTURAL INCOME. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 17. IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE SUBMISSIONS AND FINDINGS OF THE LD. ASSESSING OFFICER. THE ASSESSEE HAS DISCLOSED AGRICULTURAL LAND IN FINANCIAL STATEMENTS AND AGRICULTURAL INCOME FALLS WITHIN THE DEFINITION OF SEC. 2(1A) (II) OF THE ACT. THE ASSESSEE WAS DEC LARING AGRICULTURAL INCOME IN EARLIER YEARS AND THERE IS NO DISPUTE. SO , THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DIRECTED T HE ASSESSING OFFICER TO DELETE THE ADDITION. AGGRIEVED BY THE C OMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE REVENUE HAS ASSAILE D AN APPEAL BEFORE TRIBUNAL. ITA NO. 1412/MDS/2013. :- 15 -: 18. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE REIT ERATED THE GROUNDS AND ARGUED THAT THE LD. COMMISSIONER OF INC OME TAX (APPEALS) HAS ERRED IN TREATING THE INCOME AS AGRIC ULTURAL INCOME IRRESPECTIVE OF THE FACT THAT THE ASSESSEE IS IN TH E BUSINESS OF REAL ESTATE AND HOLDING THE LAND AS BUSINESS ASSET AND I NCOME HAS TO TREATED AS BUSINESS INCOME PRAYED FOR ALLOWING THE GROUND. 19. CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND OPPOSED THE GROUNDS 20. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE ONLY CONTENTION OF THE LD. DEPARTMENTA L REPRESENTATIVE THAT THE ASSESSEE HAS DISCLOSED THE LAND AS BUSINES S ASSET AND INCOME TAKES THE CHARACTERISTIC OF BUSINESS AND AGRICULTUR AL INCOME IN ONLY INCIDENTAL AND CANNOT BE EXEMPTED. THE LD. AUTHORI SED REPRESENTATIVE SUBSTANTIATED HIS ARGUMENTS THAT THE ASSESSEE HAS B EEN OFFERING AGRICULTURAL INCOME FOR INCOME TAX PURPOSE FROM EAR LIER YEARS AND DREW OUR ATTENTION TO THE ASSESSMENT ORDER OF 2008-09 WE RE THE DEPARTMENT HAS ACCEPTED THE AGRICULTURAL INCOME AND PASSED THE ORDER U/S.143(3) OF THE ACT. FURTHER, THE LD. AUTHORISED REPRESENTATIVE PRODUCED COPY OF REGISTRATION DEPARTMENT WITH SURVE Y NUMBER AND DETAILS OF LAND. SO, CONSIDERING THE APPARENT FACTS THAT THE LAND HELD ITA NO. 1412/MDS/2013. :- 16 -: BY ASSESSEE WAS DISCLOSED IN THE BALANCE SHEET AND AGRICULTURAL INCOME WAS OFFERED FROM EARLIER ASSESSMENT YEARS AN D THE SAME WAS ACCEPTED BY THE DEPARTMENT WITHOUT ANY DISPUTE. TH EREFORE, WE ARE OF THE OPINION, THE INCOME TAKES THE CHARACTERISTIC OF AGRICULTURAL INCOME WITHIN THE DEFINITION OF SEC. 2(1A)(II) OF T HE ACT AND WE FOUND THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS DELETED THE ADDITION AND WE UPHOLD THE SAME. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.1412/MDS/2013 IS PARTLY ALLOWED. ORDER PRONOUNCED ON TUESDAY, THE 31ST DAY OF MAY , 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI 1 / DATED:31.05.2016 KV 2 ( *',34 54%, / COPY TO: 1 . &' / APPELLANT 3. 6, () / CIT(A) 5. 49: *',' / DR 2. *+&' / RESPONDENT 4. 6, / CIT 6. :;$ < / GF