M/S. COCOON RESORTS PVT. LTD., CHENNAI V. ITO, CORPORATE WARD - 1 (3), CHENNAI

ITA 1898/CHNY/2019

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 9637 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 21-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income; Set aside; Capital Gains
• Section: 115JB; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , ! ' # , % #& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NO.1898/CHNY/2019 ) *) / ASSESSMENT YEAR : 2012-13 M/S COCOON RESORTS PVT. LTD., NEW NO.211, OLD NO.142, T4, 3 RD FLOOR, SIVAMEGAM TOWERS, VALLUVARKOTTAM HIGH ROAD, NUNGAMBAKKAM, CHENNAI - 600 034. PAN : AAACB 3637 P V. THE INCOME TAX OFFICER, CORPORATE WARD 1(3), CHENNAI - 600 034. (,-/ APPELLANT) (./,-/ RESPONDENT) ,- 0 1 / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE ./,- 0 1 / RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT 2 0 3% / DATE OF HEARING : 22.10.2019 45* 0 3% / DATE OF PRONOUNCEMENT : 02.12.2019 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -1, CHENNA I, DATED 29.03.2019 AFTER THE ASSESSMENT WAS REOPENED UNDER SECTION 147 OF THE ACT AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2 I.T.A. NO.1898/CHNY/19 2. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERAT ION IS WHETHER THE LONG TERM CAPITAL GAINS ARISING ON TRANSFER OF AGRI CULTURAL LANDS CAN BE INCLUDED WHILE COMPUTING BOOK PROFIT UNDER SECTI ON 115JB OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ACCORDI NG TO THE LD. COUNSEL, THE ASSESSING OFFICER AS WELL AS THE CIT(A PPEALS) FOUND THAT THE LANDS TRANSFERRED BY THE ASSESSEE ARE NOT AGRICULTURAL LANDS, THEREFORE, THE CAPITAL GAIN ARISING OUT OF TRANSFER OF THE SAID LANDS IS LIABLE FOR TAXATION. THE LD.COUNSEL FURTHER SUBMIT TED THAT ALL THESE LANDS WERE AGRICULTURAL LANDS. DUE TO TSUNAMI IN D ECEMBER, 2004, ALL THE LANDS WERE AFFECTED. DUE TO TSUNAMI, SALT LAYERS WERE DEPOSITED ON THE LANDS WHICH PREVENTED THE ASSESSEE FROM CULTIVATING THE LANDS. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE LANDS WERE NOT CULTIVABLE. ON A QUERY FROM THE BEN CH, THE LD.COUNSEL SUBMITTED THAT IT IS NOT THE BUSINESS OF THE ASSESSEE TO CULTIVATE THE LANDS. 3. REFERRING TO THE COPIES OF PATTA AND ADANGAL EXT RACTS, WHICH ARE AVAILABLE IN THE PAPER-BOOK, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LANDS WERE CLASSIFIED AS WET LA NDS AND DRY LANDS. THE LD.COUNSEL SUBMITTED THAT DRY LANDS CA N ALSO BE CULTIVATED, THEREFORE, THE OBSERVATION OF BOTH THE AUTHORITIES BELOW 3 I.T.A. NO.1898/CHNY/19 THAT THE LANDS IN QUESTION ARE NOT AGRICULTURAL LAN DS IS NOT CORRECT. ACCORDING TO THE LD. COUNSEL, THE CLASSIFICATION OF REVENUE DEPARTMENT AS WET LANDS AND DRY LANDS CANNOT BE IGN ORED BY THE ASSESSING OFFICER AS WELL AS THE CIT(APPEALS). ON A QUERY FROM THE BENCH, AFTER REFERRING TO PAGES 22 TO 31 OF THE PAP ER-BOOK, WHICH CONTAIN THE COPIES OF THE ENCUMBRANCE CERTIFICATES INDICATING THE SALE OF THE LANDS AS PLOT, THE LD.COUNSEL SUBMITTED THAT THE LANDS WERE SOLD AS PLOT BY THE ASSESSEE AND HE HAS NOTHIN G TO ADD ANYTHING FURTHER. THE LD.COUNSEL HAS ALSO CLARIFIE D THAT THE BUSINESS OF THE ASSESSEE IS REAL ESTATE AND TO RUN RESORTS. THE LANDS IN QUESTION WERE TAKEN AS INVESTMENTS EVEN THOUGH CULT IVATION IS NOT THE BUSINESS OF THE ASSESSEE AND THERE WAS NO ENABL ING PROVISION IN THE MEMORANDUM OF THE COMPANY TO DO CULTIVATION. SINCE THE AGRICULTURAL LANDS WERE ACQUIRED BY THE ASSESSEE, A CCORDING TO THE LD. COUNSEL, THE GAIN ARISING OUT OF TRANSFER OF SA ID AGRICULTURAL LANDS IS EXEMPT FROM TAXATION, HENCE, THE CIT(APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER. 4. WE HEARD SHRI AR.V. SREENIVASAN, THE LD. DEPARTM ENTAL REPRESENTATIVE ALSO. ACCORDING TO THE LD. D.R., TH E BUSINESS OF THE ASSESSEE IS REAL ESTATE AND TO ESTABLISH AND RUN RE SORTS. CULTIVATION IS NOT THE BUSINESS OF THE ASSESSEE. EVEN THOUGH T HE ASSESSEE 4 I.T.A. NO.1898/CHNY/19 CLAIMS THAT THE LANDS WERE UNFIT FOR CULTIVATION DU E TO TSUNAMI EFFECT, ACCORDING TO THE LD. D.R., THE ASSESSEE HAS MADE NO ATTEMPT TO CULTIVATE THE LANDS. REFERRING TO THE ORDER OF THE CIT(APPEALS), THE LD. D.R. SUBMITTED THAT THE LANDS WERE CLASSIFIED A S DRY LANDS BY THE STATE REVENUE DEPARTMENT AND NOT AS AGRICULTURAL LA NDS. ON A QUERY FROM THE BENCH, WHEN THE BUSINESS OF THE ASSE SSEE IS REAL ESTATE AND NOT CULTIVATION, WHY THE PROFIT ON SALE OF LANDS WAS NOT ASSESSED AS BUSINESS INCOME? THE LD. D.R. SUBMITTE D THAT THE ASSESSING OFFICER TREATED THE INCOME AS CAPITAL GAI N AND NOT AS AGRICULTURAL INCOME. ACCORDING TO THE LD. D.R., TH E LANDS IN QUESTION ARE DRY LANDS WHICH WERE NOT SUBJECTED TO CULTIVATI ON AT ANY POINT OF TIME. THEREFORE, ACCORDING TO THE LD. D.R., THE PR OFIT ON SALE OF LANDS HAS TO BE ASSESSED UNDER THE HEAD CAPITAL GA INS. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE BUSINESS OF THE ASSESSEE IS REAL E STATE AND ESTABLISHING AND RUNNING OF RESORTS. WHEN THE BUSI NESS OF THE ASSESSEE IS REAL ESTATE AND TO ESTABLISH RESORTS, PRIMA FACIE , THE INTENTION AT THE TIME OF ACQUISITION OF THE PROPERT Y WAS TO DO BUSINESS WITH THE LANDS ACQUIRED. IN CASE, THE ASS ESSEE INTENDED TO DO CULTIVATION EVEN THOUGH THE CULTIVATION IS NOT T HE BUSINESS OF THE 5 I.T.A. NO.1898/CHNY/19 ASSESSEE-COMPANY, IT IS FOR THE ASSESSEE TO ESTABLI SH THE SAME BY PRODUCING NECESSARY MATERIAL EVIDENCE. IN THIS CAS E, NO EVIDENCE WAS PRODUCED BY THE ASSESSEE. EVEN THOUGH THE ASSE SSING OFFICER AS WELL AS THE CIT(APPEALS) FOUND THAT THE LANDS IN QUESTION ARE DRY LANDS, THE COPIES OF ADANGAL EXTRACTS AND PATTA CLE ARLY INDICATE THAT THE MAJOR PORTION OF THE LANDS WERE WET LANDS. WHE N THE STATE REVENUE DEPARTMENT HAS CLASSIFIED THE LANDS AS WET LANDS, THERE SHOULD BE A NATURAL IRRIGATION FACILITY. IN OTHER WORDS, THE SOURCE OF IRRIGATION SHALL BE FROM THE NEARBY TANK. SOME OF THE LANDS WERE CLASSIFIED AS DRY LANDS. NO DOUBT, ALL THE DRY LAN DS WERE NOT SUBJECTED TO CULTIVATION. HOWEVER, THERE IS EVERY POSSIBILITY FOR CULTIVATION OF DRY LANDS PROVIDED THERE WAS SOURCE OF IRRIGATION. IN OLD DAYS, DRY LANDS WERE ALSO USED TO BE CULTIVATED UTILIZING THE RAIN WATER. NOWADAYS DRY LANDS ARE BEING CULTIVATED THR OUGH ARTIFICIAL SOURCE OF IRRIGATION FROM WELL/BOREWELL. THEREFORE , IT IS FOR THE ASSESSEE TO ESTABLISH THAT THE DRY LANDS WERE ALSO USED FOR CULTIVATION. 6. IN THIS CASE, THE ASSESSEE CLAIMS THAT THE LANDS IN QUESTION WERE AFFECTED VERY BADLY DUE TO TSUNAMI IN DECEMBER , 2004 AND THEREAFTER THEY WERE NOT SUBJECTED TO CULTIVATION A T ALL. THE FACT REMAINS THAT THE MAJOR PORTION OF THE LANDS IN QUES TION WERE WET 6 I.T.A. NO.1898/CHNY/19 LANDS. THEREFORE, BOTH THE AUTHORITIES BELOW ARE N OT CORRECT IN SAYING THAT THE LANDS IN QUESTION ARE DRY LANDS AND NOT AGRICULTURAL LANDS. 7. THERE WAS NO CLASSIFICATION OF LANDS AS AGRICULT URAL LANDS IN STATE REVENUE DEPARTMENT. THE CLASSIFICATIONS IN T HE STATE REVENUE DEPARTMENT ARE DRY LAND, WET LAND, KUDIYURU PPU, NATTHAM, MEICHAL PORUMBOKKU, KAALVAI PORUMBOKKU, ETC. THERE WAS NO CLASSIFICATION AS AGRICULTURAL LAND AS SUCH IN THE STATE REVENUE DEPARTMENT. THEREFORE, THE OBSERVATION OF THE CIT( APPEALS) THAT THE LANDS WERE NOT CLASSIFIED AS AGRICULTURAL LANDS IS NOT CORRECT. WHEN THERE WAS NO CLASSIFICATION AS AGRICULTURAL LA ND IN THE STATE REVENUE DEPARTMENT, THE CIT(APPEALS) IS NOT EXPECTE D TO SAY THAT THE LANDS WERE NOT CLASSIFIED AS AGRICULTURAL LANDS . THEREFORE, THERE ARE TWO TYPES OF LANDS. ONE IS WET LAND AND ANOTHE R IS DRY LAND. IN RESPECT OF WET LAND, THERE SHOULD BE NATURAL SOURCE OF IRRIGATION. DRY LANDS CAN ALSO BE CULTIVATED EITHER BY ARTIFICIAL S OURCE OF IRRIGATION SUCH AS WELL OR BOREWELL OR EVEN BY USING THE RAIN DURING THE MONSOON SEASON. THEREFORE, THE OBSERVATION OF THE CIT(APPEALS) THAT THE LANDS ARE NOT AGRICULTURAL LANDS IS NOT CO RRECT. 8. NOW COMING TO SALE OF LANDS AFTER PLOTTING AS HO USING SITE, THIS FACT WAS NOT EXAMINED BY THE AUTHORITIES BELOW . THE COPIES OF 7 I.T.A. NO.1898/CHNY/19 ENCUMBRANCE CERTIFICATES SAID TO BE OBTAINED FROM R EGISTRATION DEPARTMENT WITH REGARD TO SALE OF LANDS BY THE ASSE SSEE INDICATE THAT THE ENTIRE LANDS WERE PLOTTED ONE ACRE PLOT EA CH AND IT WAS SOLD TO PURCHASERS. EVEN THOUGH THERE WAS REFERENCE AS AGRICULTURAL LAND WITH REGARD TO NATURE OF LAND, IN THE SCHEDULE IT WAS SHOWN AS PLOT. THEREFORE, IT IS NECESSARY TO EXAMINE WHETHE R THE ASSESSEE HAS PREPARED LAYOUT TO DEVELOP THE LANDS INTO HOUSI NG / FARM LANDS AND THEREAFTER IT WAS SOLD TO VARIOUS PURCHASERS. IT ALSO NEEDS TO EXAMINE WHETHER THE PROFIT ON SALE OF SUCH LANDS IS BUSINESS INCOME OR CAPITAL GAIN AND THEREAFTER THE ASSESSING OFFICE R SHALL EXAMINE WHETHER THE PROFIT ON SALE OF SUCH LANDS HAS TO BE TAKEN INTO ACCOUNT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT OR NOT. 9. SINCE THESE FACTS WERE NOT EXAMINED BY THE ASSES SING OFFICER AS WELL AS THE CIT(APPEALS), THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE REMI TTED BACK TO THE FILE OF THE ASSESSING OFFICER. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ENTIRE ISSU E IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSIN G OFFICER SHALL RE- EXAMINE THE MATTER IN THE LIGHT OF THE OBSERVATION MADE HEREINABOVE AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANC E WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 8 I.T.A. NO.1898/CHNY/19 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 2 ND DECEMBER, 2019 AT CHENNAI. SD/- SD/- ( ! ' # ) ( . . . ) (INTURI RAMA RAO) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 2 ND DECEMBER, 2019. KRI. 0 .389 :9*3 /COPY TO: 1. ,- /APPELLANT 2. ./,- /RESPONDENT 3. 2 ;3 () /CIT(A)-1, CHENNAI 4. PRINCIPAL CIT, CHENNAI-I, CHENNAI 5. 9< .3 /DR 6. =) > /GF.