Shri K.Kumaran, CHENNAI V. ITO, CHENNAI

ITA 1452/CHNY/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5012 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V S MANOJ
• Keywords: Capital asset; Corroborative evidences; Competent authority; Assessment record; Set aside; Capital Gains
• Section: 143(3); 2(14); 54EC; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A, CHENNAI B E F O R E DR. O.K.NARAYANAN, VICE PRESIDENT AND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NO.1452(MDS)/2009 (ASSESSMENT YEAR: 2006-07) SHRI K.KUMARAN, THE INCOME-TAX OFFICER, NO.10, ROYAL ENCLAVE, WARD XIII(4), BESANT AVENUE, ADYAR, VS. CHENNAI CHENNAI-600 020. PAN AAKPK6829M. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.S.MANOJ RESPONDENT BY : SHRI SHAJI P JACOB O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE FOR THE ASSE SSMENT YEAR 2006-07. THE APPEAL IS DIRECTED AGAINST THE REVISI ON ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX, CHENNAI-VI AT CHENN AI. THE REVISION ORDER WAS PASSED BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 THROUGH HIS PROCEEDINGS DATED 14-7-2009. 2 ITA NO.1452(MDS)/2 009 2. THE ASSESSEE IS AN INDIVIDUAL. HE HAS BEEN FILI NG RETURNS OF INCOME ON A REGULAR BASIS. THE ASSESSEE EARNS INCO ME FROM BUSINESS, LONG AND SHORT TERM CAPITAL GAINS AND FROM OTHER SO URCES. HE HAS FILED A RETURN OF INCOME FOR ` 3,20,12,651/- FOR THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON A TOTAL INCOME OF ` 4,25,24,315/-. 3. THE ASSESSEE HAD SOLD LAND AT EGATHUR AND NAVAL UR VILLAGES FOR A SUM OF ` 45,70,00,000/- ON 10-10-2005 AND 15-10-2005 TO HIRANANDANI GROUP. AS THE LANDS WERE AGRICULTURAL LANDS AT THE TIME OF SALE, THE ASSESSEE CLAIMED EXEMPTION FOR THE ENTIRE CONSIDERATION FROM THE LEVY OF TAX. 4. ON A PERUSAL OF THE ASSESSMENT RECORDS, THE COM MISSIONER OF INCOME-TAX FOUND THAT EGATHUR VILLAGE WAS NOTIFI ED BY THE STATE GOVERNMENT AS URBANISABLE LAND BY ISSUING G.O. NO .287 DATED 8-7- 2004. IN VIEW OF THE ABOVE NOTIFICATION OF THE STA TE GOVERNMENT, THE COMMISSIONER OF INCOME-TAX HELD A VIEW THAT THE PRO PERTY SOLD BY THE ASSESSEE WOULD NOT COME UNDER THE EXEMPTION PROVISI ON AND PRIMA FACIE TO BE TREATED AS CAPITAL ASSET. 3 ITA NO.1452(MDS)/2 009 5. LIKEWISE THE ASSESSEE HAS INVESTED A SUM OF ` 10 CRORES IN NABARD BONDS TO CLAIM EXEMPTION UNDER SECTION 54EC OF THE ACT. THE COMMISSIONER OF INCOME-TAX OBSERVED THAT THE INVEST MENT WAS MADE ON 26-11-2005 AND AT THAT POINT OF TIME THE FUNDS AVAI LABLE WITH THE ASSESSEE WERE NOT FULLY MADE UP OF THE CONSIDERATIO N ARISING OUT OF THE SALE OF LAND, BUT INCLUDED ALSO THE CONSIDERATION R ECEIVED ON SALE OF SHARES. HE ACCORDINGLY FORMED AN OPINION THAT THE FUNDS NECESSARY FOR INVESTING IN NABARD BONDS WERE NOT FULLY GENERATED FROM THE SALE OF LANDS AND, THEREFORE, EXEMPTION UNDER SECTION 54EC CANNOT BE GRANTED TO THE EXTENT CLAIMED BY THE ASSESSEE. 6. IN THE LIGHT OF THE ABOVE TWO OBSERVATIONS, NOT ICE UNDER SECTION 263 WAS ISSUED TO THE ASSESSEE INVITING HIS OBJECTIONS, IF ANY, IN REVISING THE ASSESSMENT SO AS TO EXAMINE THE TAXABI LITY OF THE CAPITAL GAIN ARISING OUT OF THE SALE OF LANDS AND THE CORRE CT QUANTUM OF EXEMPTION AVAILABLE UNDER SECTION 54EC. 7. THE ASSESSEE FILED DETAILED OBJECTIONS TO THE N OTICE ISSUED BY THE COMMISSIONER OF INCOME-TAX. THE ASSESSEE EX PLAINED THAT THE LAND SOLD BY THE ASSESSEE IN EGATHUR AND NAVALUR VI LLAGES WAS CERTAINLY AGRICULTURAL LAND AND THOSE VILLAGES WERE NOT NOTIF IED BY ANY COMPETENT AUTHORITY FOR THE PURPOSE OF LEVY OF CAPITAL GAINS TAX. THE ASSESSEE 4 ITA NO.1452(MDS)/2 009 EXPLAINED THAT THOSE AREAS ARE BEYOND THE SPECIFIED LIMIT OF ANY MUNICIPAL AREA OR TOWN MUNICIPALITY OR CANTONMENT A REA OR ANY SUCH OTHER URBANIZED AREA. THE LAND SITUATED IN VILLAGE S ALONE. THOSE VILLAGES WERE NOT NOTIFIED UNDER ANY OF THE PROVISI ONS, WHICH COULD BE INVOKED BY THE COMMISSIONER OF INCOME-TAX AGAINST T HE ASSESSEE. THEREFORE THE AGRICULTURAL LANDS SOLD BY THE ASSESS EE DID NOT TAKE THE CHARACTER OF CAPITAL ASSET AND, THEREFORE, THE ASSE SSING OFFICER WAS JUSTIFIED IN ACCEPTING THE CLAIM OF THE ASSESSEE TH AT THE ENTIRE SALE CONSIDERATION WAS EXEMPT FROM LEVY OF TAXATION. 8. IN RESPECT OF THE INVESTMENT OF ` 10CRORES MADE IN NABARD BONDS, THE ASSESSEE EXPLAINED THAT HE HAD SUFFICIEN T FUNDS AVAILABLE FROM THE CONSIDERATION RECEIVED ON SALE OF PROPERTI ES AND, THEREFORE, THERE IS NO REASON TO STATE THAT THE ASSESSEE HAD U SED ANY OTHER FUNDS IN MAKING INVESTMENT IN NABARD BONDS FOR THE PURPOS E OF CLAIMING EXEMPTION UNDER SECTION 54EC. 9. ANYHOW THE COMMISSIONER OF INCOME-TAX WAS NOT I NCLINED TO ACCEPT THE DETAILED REPLIES FILED BY THE ASSESSEE. HE CONFIRMED HIS PROPOSAL AND PASSED AN ORDER UNDER SECTION 263 SETT ING ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO THE ASSESSING OFFICER TO MAKE FRESH ASSESSMENT AFTER CONSIDERING THE POINTS RAISED BY H IM. THE ASSESSMENT 5 ITA NO.1452(MDS)/2 009 ORDER HAS BEEN SET ASIDE ON THE GROUND THAT THE SAI D ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 10. WE HEARD SHRI V.S.MANOJ, THE ADVOCATE APPEARIN G FOR THE ASSESSEE AND SHRI SHAJI P JACOB, THE LEARNED COMMIS SIONER OF INCOME- TAX, APPEARING FOR THE REVENUE AND EXAMINED THE REC ORDS OF THE CASE. 11. AS FAR AS THE NATURE OF THE LAND SOLD BY THE A SSESSEE IN EGATHUR AND NAVALUR VILLAGES IS CONCERNED, THE ISSU E WAS CONSIDERED BY THE ASSESSING AUTHORITY IN A DETAILED MANNER IN THE COURSE OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3). AS THE PAPER-BOOK PLACED BEFORE US SUGGESTS, THE ASSESSEE HAS FILED ABOUT 23 PIECES OF PAPERS AND EVIDENCES BEFORE THE ASSESSING AUTHORITY IN THE COURSE OF ASSESSMENT TO ESTABLISH HIS CLAIM THAT THE PROPERTY WAS AGRICULTURAL IN NATURE. THE ASSESSEE HAS FURNISHED THE DETAILS ABO UT THE AGRICULTURAL LANDS, STATING THE DISTANCE FROM THE NEAREST MUNICI PALITY, THE POPULATION OF THE PLACE AND SUPPORTING CERTIFICATES ISSUED BY THE VILLAGE ADMINISTRATIVE OFFICER. THE ASSESSING OFFICER HAS EXAMINED ALL THESE PAPERS PLACED BEFORE HIM. IT IS AFTER EXAMINING AL L THESE EVIDENCES PLACED BEFORE HIM THAT THE ASSESSING OFFICER HAS CO ME TO THE CONCLUSION THAT THE LANDS SOLD BY THE ASSESSEE WERE AGRICULTUR AL IN NATURE AND, THEREFORE, THE ENTIRE CONSIDERATION OF ` 45,70,00,000/- WAS EXEMPT FROM 6 ITA NO.1452(MDS)/2 009 TAXATION. THEREFORE, IT IS NOT POSSIBLE TO HOLD TH AT THERE WAS LAXITY ON THE PART OF THE ASSESSING OFFICER IN EXAMINING THE ISSU E OF CAPITAL GAINS WITH REFERENCE TO THE SALE OF LAND AT EGATHUR AND NAVALU R VILLAGES. 12. NOW THE QUESTION IS WHETHER THE ORDER PASSED B Y THE ASSESSING OFFICER ON THIS ISSUE IS ERRONEOUS OR NOT . THERE IS NO DOUBT THAT THE ASSESSEE HAS PRODUCED SUFFICIENT MATERIALS BEFORE THE ASSESSING AUTHORITY TO ESTABLISH HIS ARGUMENT THAT THE PROPERTIES WERE AGRICULTURAL IN NATURE. IT IS FOR THE SAID REASON THAT THE ASSESSING OFFICER HAS CONCLUDED IN HIS ASSESSMENT ORDER AS BELOW:- THE ASSESSEE HAS SHOWN A PROFIT OF ` `` ` 45,70,00,000/- FROM SALE OF LAND STATED TO BE AGRICULTURAL LAND AN D CLAIMED EXEMPTION AGAINST THE SAME. IN THE ABSENCE OF ANY CONTRARY DOCUMENT ON RECORD, THE CLAIM IS ALLOWED. THIS ASSERTION OF FINDING RECORDED BY THE ASSESSING OFFICER IN HIS ORDER IS A SPEAKING TESTIMONY OF THE CONTENTION OF THE ASSES SEE THAT NECESSARY SUPPORTING EVIDENCES WERE PRODUCED BY THE ASSESSEE TO ESTABLISH THE AGRICULTURAL NATURE OF THE LAND SOLD BY HIM. 7 ITA NO.1452(MDS)/2 009 13. NOW COMING TO THE APPREHENSION OF THE COMMISSI ONER OF INCOME-TAX THAT THE LAND MIGHT BE LIABLE FOR CAPITA L GAINS TAXATION, THE ONLY GROUND RELIED ON BY HIM IS THE ORDER ISSUED BY THE TAMIL NADU GOVERNMENT IN G.O. NO.287 DATED 8-7-2004, STATING T HAT THE AREA IS URBANISABLE LAND. THE GOVERNMENT ORDER HAS ONLY STATED THAT THE LAND IS URBANISABLE; THAT IS IN NEAR FUTURE THIS AGRICUL TURAL AREA MAY BE TRANSFORMED INTO AN URBAN SETTLEMENT. BUT, TILL TH E DATE OF SALE OF THE LAND BY THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, NO NOTIFICATION WAS ISSUED, DECL ARING EGATHUR AND NAVALUR VILLAGES AS URBAN AREA. THE STATE GOVERNME NT HAS NOT ISSUED ANY SUCH NOTIFICATION MAKING ITS INTENTION ABSOLUTE . THE EARLIER NOTIFICATION ISSUED BY THE STATE GOVERNMENT CLARIFY ING THE VILLAGES TO BE URBANISABLE WAS IN CONTEMPLATION OF ITS DEVELOPMENT AL ACTIVITIES AND SCHEMES. THAT HAS NOTHING TO DO WITH THE ADMINISTR ATION OF INCOME-TAX LAW. THE CENTRAL BOARD OF DIRECT TAXES HAS NOT ISS UED ANY NOTIFICATION DECLARING EGATHUR AND NAVALUR VILLAGES AS NOTIFIED AREAS FOR THE PURPOSE OF SECTION 2(14) OF THE INCOME-TAX ACT, 1961. THER EFORE, ONLY IN THE LIGHT THAT THE VILLAGES MIGHT BE DECLARED AS URBAN AREAS IN FUTURE, IT IS NOT POSSIBLE TO HOLD THAT THE LAND SOLD WAS NOT AGRICUL TURAL LAND. 14. THIS POSITION IS FURTHER FORTIFIED BY THE HIST ORY OF ASSESSMENTS COMPLETED IN ASSESSEES CASE FOR THE EARLIER ASSESS MENT YEARS. IN THE 8 ITA NO.1452(MDS)/2 009 EARLIER ASSESSMENT YEARS, THE ASSESSEE HAS DECLARED AGRICULTURAL INCOME FROM THE SAID PROPERTIES IN HIS INCOME-TAX R ETURNS AND THE ASSESSING AUTHORITY HAS ACCEPTED THIS AGRICULTURAL INCOME FOR RATE PURPOSES. 15. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE DO NOT FIND ANY MERITORIOUS GROUND TO HOLD A VIEW THAT THE LAND SOL D BY THE ASSESSEE WAS NOT AGRICULTURAL IN NATURE. 16. REGARDING SECTION 54EC EXEMPTION, THE CASE OF THE COMMISSIONER OF INCOME-TAX IS THAT THE FUNDS UTILIZ ED BY THE ASSESSEE FOR PURCHASING NABARD BONDS WERE NOT ENTIRELY GENER ATED FROM THE CONSIDERATION RECEIVED ON SALE OF AGRICULTURAL PROP ERTIES. THE ASSESSEE WAS HAVING SUFFICIENT FUNDS IN HIS HANDS TO SUBSCRI BE TO THE NABARD BONDS EVEN WITHOUT CONSIDERING THE SALE OF SHARES. WITHIN THE OVERALL SPAN OF TIME AVAILABLE TO THE ASSESSEE UNDER THE ST ATUTE FOR MAKING INVESTMENTS IN QUALIFIED FINANCIAL ASSETS, THE ASSE SSEE HAD ENOUGH FUNDS, WHICH ALSO INCLUDED THE SALE CONSIDERATION O F CORRESPONDING PROPERTIES. THE DAY TO DAY COMPARISON OF THE AVAIL ABLE FUNDS ON THE BASIS OF A CASH BOOK TO VERIFY WHETHER THE INVESTME NTS WERE MADE ON EXACTLY OUT OF THE SALE PROCEEDS OF THE LANDS OR NO T, IS AN EXTREME VIEW OPPOSED TO THE SPIRIT OF LAW. ONCE ALL THE FUNDS A VAILABLE FROM DIFFERENT 9 ITA NO.1452(MDS)/2 009 SOURCES ARE IMMERSED IN THE HANDS OF THE ASSESSEE, THEN IT IS NOT POSSIBLE TO IDENTIFY THAT THIS MUCH FUND HAS COME F ROM THIS SOURCE AND THAT MUCH FUND HAS COME FROM THAT SOURCE. SUCH A S ITUATION ARISES ONLY WHEN THERE IS NO PROXIMITY BETWEEN THE GENERATION O F FUNDS AND THE SALE OF PROPERTIES. THAT IS NOT THE PRESENT CASE. 17. THEREFORE WE FIND THAT THE ORDER PASSED BY THE ASSESSING AUTHORITY IS NOT ERRONEOUS AND ALSO NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 18. TO MAKE THE LONG STORY SHORT, WE HAVE ONLY TO STATE THAT THE REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME -TAX IS NOT SUSTAINABLE IN LAW. IT IS ACCORDINGLY SET ASIDE. 19. IN RESULT THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON WEDNESDAY, THE 1 ST DAY OF JUNE, 2011 AT CHENNAI. SD/- SD/- (GEORGE MATHAN) (DR.O.K.NARAY ANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 1 ST JUNE , 2011. V.A.P. COPY TO: APPELLANT/RESPONDENT/CIT/CI T(A)/DR/GF.