M.R.CHENDILNATHAN, CHENNAI V. ACIT NON CORPORATE CIRCLE-1, CHENNAI

ITA 2010/CHNY/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4985 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 18-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R CELEMENT RAMESH KUMAR ADD
• Assessee Lawyers: D ANAND
• Keywords: Capital asset; Business income; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 40(a)(ia); 68; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C BENCH, CHENNAI . , . , BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.2010/CHNY/2017 / ASSESSMENT YEAR: 2011-12) SHRI M.R. CHENDILNATHAN, NO.22, 2 ND STREET, KAMARAJ NAGAR, CHEMMENCHERRY, CHENNAI 600 019. VS THE ASST. COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE -1(1), CHENNAI PAN: ACYPC9428N ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.1893/CHNY/2017 / ASSESSMENT YEAR: 2011-12) THE ASST. COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE -1(1), CHENNAI VS SHRI M.R. CHENDILNATHAN, NO.22, 2 ND STREET, KAMARAJ NAGAR, CHEMMENCHERRY, CHENNAI 600 019. PAN: ACYPC9428N ( /APPELLANT) ( /RESPONDENT) /REVENUE BY : SHRI R. CELEMENT RAMESH KUMAR, ADD. CIT /ASSESSEE BY : SHRI D. ANAND, ADVOCATE /DATE OF HEARING : 27.03.2019 /DATE OF PRONOUNCEMENT : 23.05.2019 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, CHENNAI DATED 23.05.2017 IN ITA :: 2 :: ITA NOS. 1893 & 2010/CHNY/2017 NO.11/CIT(A)-2/2014-15 FOR THE ASSESSMENT YEAR 2011-12 U/S.250(6) R.W.S. 143(3) OF THE ACT. 2. ASSESSEES APPEAL IN ITA NO.2010 OF 2017:- THE ASSESSEE HAS RAISED EIGHT GROUNDS IN HIS APPEAL HOWEVER THE CRUXES OF THE ISSUES ARE THAT:- (I) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LD.AO AMOUNTING TO RS.31,43,864/- TOWARDS DISALLOWANCE OF BAD DEBTS ON ACCOUNT OF IRRECOVERABLE SECURITY DEPOSIT. (II) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LD.AO AMOUNTING TO RS.30,19,146/- U/S.40(A)(IA) OF THE ACT DUE TO NON DEDUCTION OF TAX AT SOURCE. (III) THE LD.CIT(A) HAS ERRED IN SUSTAINING THE ADDITION MADE BY THE LD.AO AMOUNTING TO RS.44,23,000/- U/S.68 OF THE ACT DUE TO UNEXPLAINED CASH DEPOSIT IN THE BANK ACCOUNT OF THE ASSESSEE. (IV) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LD.AO AMOUNTING TO RS.89,49,050/- BEING THE GAIN ARISING OUT THE SALE OF AGRICULTURAL LAND BY TREATING IT AS BUSINESS INCOME AND NOT GRANTING DEDUCTION U/S.54B OF THE :: 3 :: ITA NOS. 1893 & 2010/CHNY/2017 ACT WITH RESPECT TO REINVESTMENT IN ANOTHER AGRICULTURAL LAND PURSUANT TO SALE OF THE AGRICULTURAL LAND. (V) THE LD.CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS.6,71,54,590/- U/S.40A(3) OF THE ACT WITH RESPECT TO CASH PAYMENTS TOWARDS PURCHASE OF LAND AND CONSTRUCTION EXPENSE. 3. REVENUES APPEAL IN ITA NO.1893 OF 2017:- THE REVENUE HAS RAISED TWO GROUNDS IN ITS APPEAL HOWEVER THE CRUXES OF THE ISSUES ARE THAT:- (I) THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE AMOUNTING TO RS.23,95,623/- SIC RS.23,95,625/- TOWARDS LOSS OF CYLINDERS BY ADMITTING FRESH EVIDENCE IN VIOLATION TO RULE 46A OF THE RULES. (II) THE LD.CIT(A) HAS ERRED IN (PARTLY DELETING THE ADDITION AMOUNTING TO RS.89.49 LAKHS TOWARDS SALE OF AGRICULTURAL LAND) SIC PARTLY ALLOWED THE APPEAL BY HOLDING THAT THE GAIN ARISING OUT OF THE SALE OF LAND IS TO BE TREATED AS LONG TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME AS HELD BY THE LD.AO. :: 4 :: ITA NOS. 1893 & 2010/CHNY/2017 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL EARNING INCOME FROM TRADING IN INDUSTRIAL AND MEDICAL GAS AND REAL ESTATE BUSINESS, FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 15.12.2011, ADMITTING TOTAL INCOME OF RS.43,30,085/-. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED ON 10.09.2012. FINALLY ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE ACT ON 24.03.2014 WHEREIN THE LD.AO MADE SEVERAL ADDITIONS. ASSESSEE S APPEAL IN ITA NO.2010/CHNY/2017:- 5. GROUND NO.2(I) : DISALLOWANCE OF BAD DEBTS AMOUNTING TO RS.31,43,864/- :- DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD CLAIMED LOSS ON ACCOUNT OF CYLINDERS FOR AN AMOUNT OF RS.31,43,864/-. IT WAS EXPLAINED BY THE ASSESSEE THAT SECURITY DEPOSIT OF RS.31,00,000/- AND RS.50,000/- WAS MAINTAINED WITH NATIONAL OXYGEN LTD., AND EAST COAST ACETYLENE TOWARDS CYLINDER FOR SUPPLY OF GAS. SUBSEQUENTLY THE ASSESSEE DISCONTINUED TO PURCHASE GAS FROM BOTH THESE COMPANIES AND THE REFUND OF THE SECURITY DEPOSIT WAS DENIED RESULTING IN LOSS OF :: 5 :: ITA NOS. 1893 & 2010/CHNY/2017 RS.31,43,864/-. THE LD.AO WAS OF THE VIEW THAT THE LOSS OF RS.31,43,864/- CANNOT BE CLAIMED AS BAD DEBTS WRITTEN OFF AS IT WAS DUE TO NON-REFUND OF THE SECURITY DEPOSIT BEING LOSS OF CURRENT ASSET NOT FALLING IN THE REVENUE FIELD. THE LD.AO FURTHER WAS OF THE VIEW THAT THE ASSESSEE HAD NEITHER ESTABLISHED THE NEXUS BETWEEN THE ADVANCES MADE AND THE BUSINESS NOR DID HE PRODUCE EVIDENCE FOR THE SAME. THE LD.AO FURTHER OPINED THAT THE ASSESSEE DID NOT TAKE ANY EFFORT TO RECOVER THE DEPOSIT. FINALLY THE LD.AO CAME TO THE CONCLUSION THAT THE LOSS INCURRED BY THE ASSESSEE IS CAPITAL EXPENDITURE AND THEREFORE DEDUCTION CANNOT BE GRANTED AS REVENUE EXPENDITURE. ON APPEAL THE LD.CIT(A) AGREEING WITH THE VIEW OF THE LD.AO CONFIRMED HIS ORDER. 5.1 AFTER PERUSING THE MATERIALS AVAILABLE ON RECORD AND HEARING BOTH SIDES, WE DO NOT FIND ANY MERIT IN THE ORDER OF THE LD.REVENUE AUTHORITIES. THERE IS NO DOUBT THAT THE LOSS WRITTEN OFF BY THE ASSESSEE PERTAINS TO SECURITY DEPOSIT MAINTAINED WITH THE SUPPLIERS OF THE ASSESSEE WHICH SUBSEQUENTLY BECAME IRRECOVERABLE IN THE WISDOM OF THE ASSESSEE. HOWEVER, THOUGH THE LOSS INCURRED DUE TO THE NON- RECOVERY OF SECURITY DEPOSIT CANNOT BE TERMED AS BAD DEBTS, IT IS DEFINITELY LOSS INCURRED IN THE COURSE OF THE BUSINESS OF THE ASSESSEE :: 6 :: ITA NOS. 1893 & 2010/CHNY/2017 AND CRYSTALLIZED IN THE YEAR WHEN IT WAS REALIZED THAT THE SECURITY DEPOSIT HAS BECOME IRRECOVERABLE. IN SUCH SITUATION, SUCH LOSS HAS TO BE CHARACTERIZED AS REVENUE LOSS. MOREOVER WHEN LOSS HAS OCCURRED DURING THE COURSE OF THE BUSINESS OF THE ASSESSEE, PROVISIONS OF SECTION 28 OF THE ACT COMES INTO PLAY AND ALLOWANCE HAS TO BE GRANTED FOR THE SAME. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE LOSS SUFFERED BY THE ASSESSEE DUE TO NON RECOVERABILITY OF THE SECURITY DEPOSIT FROM THE SUPPLIERS OF THE ASSESSEE HAS TO BE TREATED AS REVENUE EXPENDITURE AND ACCORDINGLY IT HAS TO BE REDUCED FROM THE PROFIT OF THE ASSESSEE. HENCE, WE HEREBY DIRECT THE LD.AO TO GRANT DEDUCTION OF RS.31,43,864/- TOWARDS LOSS INCURRED TOWARDS IRRECOVERABLE SECURITY DEPOSITS. 6. GROUND NO.2(II) : DISALLOWANCE OF RS.30,19,146/- U/S.40(A)(IA) OF THE ACT :- THE ASSESSEE HAS INCURRED EXPENDITURE TOWARDS COMMISSION, ADVERTISEMENT, AUDIT FEES, BULL DOZER EXPENSES, TRAVELLING EXPENSES AND AMOUNT PAID TO CONTRACTORS AGGREGATING TO RS.30,19,146/- TOWARDS WHICH TAX WAS NOT DEDUCTED AT SOURCE. THEREFORE THE LD.AO INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DISALLOWED THE AMOUNT OF RS.30,19,146/-. ON APPEAL, THE LD.CIT(A) ALSO CONFIRMED THE ORDER OF :: 7 :: ITA NOS. 1893 & 2010/CHNY/2017 THE LD.AO BECAUSE THE ASSESSEE COULD NOT FURNISH ANY DETAILS TO SUPPORT HIS CASE. BEFORE US ALSO AT THIS STAGE THE ASSESSEE COULD NOT FURNISH ANY MATERIALS AGAINST THE DECISION OF THE REVENUE FOR MAKING SUCH ADDITION. THEREFORE WE DO NOT HAVE ANY OPTION BUT TO CONFIRM THE ORDERS OF THE LD.REVENUE AUTHORITIES. HENCE THE DISALLOWANCE MADE BY THE LD.REVENUE AUTHORITIES INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF RS.30,19,146/- IS HEREBY CONFIRMED. 7. GROUND NO.2(III) : ADDITION OF RS.44,23,000/- U/S.68 OF THE ACT:- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD MADE CASH DEPOSIT OF RS.44,23,000/- IN HIS ICICI BANK ACCOUNT ON 31.03.2011. SINCE ASSESSEE HAD NOT OFFERED ANY EXPLANATION, THE LD.AO ADDED THE SAME TO THE INCOME OF THE ASSESSEE INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT. EVEN BEFORE THE LD.CIT(A), THE ASSESSEE COULD NOT FURNISH ANY MATERIALS, THEREFORE THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD.AO. BEFORE US THE LD.AR PLEADED THAT ONE MORE OPPORTUNITY MAY BE PROVIDED TO THE ASSESSEE TO EXPLAIN THE SOURCE OF CASH DEPOSIT BEFORE THE LD.AO. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN DECLARING INCOME OVER RS.40 LAKHS YEAR AFTER YEAR AND THEREFORE THE :: 8 :: ITA NOS. 1893 & 2010/CHNY/2017 CASH FLOW OF THE ASSESSEE OVER THE PERIOD OF YEARS COULD EXPLAIN THE SOURCE OF CASH DEPOSIT. HENCE IT WAS PLEADED THAT THE MATTER MAY BE REMITTED BACK TO THE FILE OF LD.AO FOR FRESH CONSIDERATION. THE LD.DR ON THE OTHER HAND VEHEMENTLY OPPOSED TO THE SUBMISSION OF THE LD.AR AND PLEADED FOR SUSTAINING THE ORDERS OF THE LD.REVENUE AUTHORITIES. 7.1 THOUGH WE DO NOT FIND MUCH MERIT IN THE CLAIM OF THE ASSESSEE BECAUSE EVEN BEFORE US HE HAS NOT PRODUCED ANY MATERIALS TO ESTABLISH THE SOURCE OF CASH DEPOSIT IN HIS BANK ACCOUNT, CONSIDERING THE PRAYER OF THE LD.AR AND THE FACT THAT FOR THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAS DECLARED INCOME OF RS.43,30,085/- IN THE INTEREST OF JUSTICE, WE HEREBY REMIT BACK THE MATTER TO THE FILE OF LD.AO FOR DE-NOVA CONSIDERATION, THEREBY PROVIDING ONE MORE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD ON THE ISSUE. THE ASSESSEE IS AT LIBERTY TO PRODUCE FRESH EVIDENCE BEFORE THE LD.AO IN SUPPORT OF HIS CASE. 8. GROUND NO.2(IV) : ADDITION OF RS.89,49,050/- AS BUSINESS INCOME:- IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAS DISCLOSED SALE OF LAND AT MANAMAI AND DID NOT OFFER THE CAPITAL GAIN ARISING OUT OF THE SAME AS TAXABLE INCOME CLAIMING IT TO BE SALE OF AGRICULTURAL LAND :: 9 :: ITA NOS. 1893 & 2010/CHNY/2017 EXEMPT FROM TAX. HOWEVER THE LD.AO OPINED THAT SINCE THE ASSESSEE HAS BEEN INVOLVED IN REAL ESTATE BUSINESS, THE INCOME ARISING OUT OF THE SALE OF THE LAND BY THE ASSESSEE HAS TO BE TREATED AS BUSINESS INCOME AND ACCORDINGLY ADDED THE AMOUNT OF RS.89,49,050/- AS THE BUSINESS INCOME OF THE ASSESSEE. BEFORE THE LD.CIT(A), THE ASSESSEE HAD MADE THE FOLLOWING SUBMISSIONS: I) THE LAND CONSISTING OF 96.50 CENTS LOCATED AT MANAMAL VILLAGE, THIRUKAZHUKUNDRAM, WAS PURCHASED FOR RS.2.50 LAKHS DURING THE PREVIOUS YEAR 2004-05. II) THE LONG TERM CAPITAL GAIN ARISING OUT OF THE TRANSACTION WORKS OUT TO RS.89,49,050/-. III) SINCE THE LAND IS AGRICULTURAL LAND AND SITUATED BEYOND 8 KMS FROM MUNICIPAL LIMITS, THE GAIN ARISING OUT OF THE SAME IS EXEMPT FROM CAPITAL GAIN TAX BY VIRTUE OF SEC.2(14)(III) OF THE ACT. IV) THE ASSESSEE HAD ALWAYS CLASSIFIED THE LAND IN HIS BOOKS OF ACCOUNTS AS FIXED ASSETS AND HAS NOT CONVERTED THE SAME AS STOCK IN TRADE. V) THE ENTIRE LAND HAS BEEN SOLD IN ACREAGE AND NOT BY MAKING PLOTS. :: 10 :: ITA NOS. 1893 & 2010/CHNY/2017 VI) THE LAND HAS BEEN CLASSIFIED AS AGRICULTURAL LAND IN REVENUE RECORDS. VII) NO COMMERCIAL ACTIVITY SUCH AS OBTAINING APPROVAL FOR CONVERTING THE TOTAL EXTENT OF LAND INTO PLOTS WAS CARRIED OUT. VIII) THE LAND WAS NOT USED FOR ANY PURPOSE OTHER THAN AGRICULTURE. IX) WITHIN TWO YEARS SUBSEQUENT TO THE SALE OF AGRICULTURAL LAND, THE ENTIRE SALE PROCEEDS WERE INVESTED IN THE PURCHASE OF ANOTHER AGRICULTURAL LAND AND THEREFORE, THE GAIN ARISING OUT OF THE SALE OF AGRICULTURAL LAND IS ELIGIBLE FOR DEDUCTION U/S.54B OF THE ACT. 8.1. HOWEVER, THE LD.CIT(A) AFTER HEARING THE SUBMISSION OF THE LD.AR OPINED AS FOLLOWS: I) SINCE THE LAND SOLD WAS CLASSIFIED AS FIXED ASSETS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THE ASSESSEES CLAIM OF CAPITAL ASSET IS ACCEPTABLE, CONTRARY TO THE VIEW OF THE LD.AO WHO HAS HELD IT TO BE STOCK IN TRADE. II) THOUGH THE ASSESSEE HAS CLAIMED THE LAND SOLD TO BE SITUATED BEYOND 8 KMS FROM THE MUNICIPAL LIMITS, HE HAS NOT SPECIFIED THE NAME OF THE NEAREST MUNICIPALITY WITH EVIDENCE. :: 11 :: ITA NOS. 1893 & 2010/CHNY/2017 III) THE ASSESSEE HAS ALSO NOT PRODUCED ADANGAL COPY ISSUED BY THE CONCERNED VILLAGE OFFICER TO ESTABLISH THAT THE LAND SOLD IS AGRICULTURAL LAND. IV) NO EVIDENCE IN THE NATURE OF INVOICES, BILLS, ETC., WERE PRODUCED TO ESTABLISH THAT THE ASSESSEE HAS CARRIED OUT AGRICULTURAL OPERATIONS WITH RESPECT TO TILLING OF THE LAND, PURCHASE AND SOWING OF SEEDS, IRRIGATION, ETC. V) THE ASSESSEE HAS ALSO NOT DECLARED ANY AGRICULTURAL INCOME IN HIS RETURN OF INCOME FILED BEFORE THE REVENUE. 8.2. THEREAFTER, THE LD.CIT(A) PLACING RELIANCE IN THE DECISION OF THE HONBLE APEX COURT, IN THE CASE SARIFABIBI MOHAMMED IBRAHIM AND OTHERS. VS. CIT REPORTED IN 204 ITR 631, IN THE CASE CWT VS. OFFICER- IN-CHARGE (COURT OF WARDS) (1976) REPORTED IN 105 ITR 133 AND IN THE CASE CIT VS. RAJA BENOY KUMAR SAHAS ROY (1957) REPORTED IN 32 ITR 466, ARRIVED AT THE FOLLOWING CONCLUSION: I) THE ASSESSEE HAS NOT ESTABLISHED THAT THE LAND SOLD BY HIM IS AGRICULTURAL IN NATURE AND HENCE THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION WITH RESPECT TO THE GAIN ARISING OUT OF THE SALE OF THE LAND. :: 12 :: ITA NOS. 1893 & 2010/CHNY/2017 II) HOWEVER, SINCE THE ASSESSEE HAS CLASSIFIED THE LAND AS HIS FIXED ASSETS IN HIS BOOKS OF ACCOUNTS, THE GAIN ARISING OUT OF THE SALE OF THE LAND HAS TO BE TREATED AS LONG TERM CAPITAL GAIN AND NOT AS INCOME FROM BUSINESS. III) SINCE THE ASSESSEE HAS FAILED TO ESTABLISH THAT HE HAS BEEN CARRYING OUT AGRICULTURAL OPERATIONS IN THE LAND SOLD BY HIM, HE IS NOT ENTITLED FOR DEDUCTION U/S.54B OF THE ACT THOUGH THE ASSESSEE HAS PURCHASED THE AGRICULTURAL LAND WITHIN TWO YEARS FROM THE SALE OF THE LAND. 8.3. ACCORDINGLY, THE LD.CIT(A) DIRECTED THE LD.AO TO TREAT THE GAIN ARISING OUT OF THE SALE OF LAND AS LONG TERM CAPITAL GAIN DENYING THE BENEFIT OF DEDUCTION U/S.54B OF THE ACT. 8.4. BEFORE US, THE LD.AR REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED REVENUE AUTHORITIES AND ON THE OTHER HAND, THE LD.DR VEHEMENTLY ARGUED IN SUPPORT OF THE ORDER OF THE LD.AO AND FURTHER PLEADED THAT THE GAIN ARISING OUT OF THE SALE OF LAND OUGHT TO BE TREATED AS BUSINESS INCOME BECAUSE THE ASSESSEE WAS ENGAGED IN REAL ESTATE BUSINESS. :: 13 :: ITA NOS. 1893 & 2010/CHNY/2017 8.5. WE HEARD THE RIVAL SUBMISSIONS CAREFULLY AND PERUSED THE MATERIALS AVAILABLE ON RECORD. 8.6. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAD CLASSIFIED THE LAND IN HIS STATEMENT OF AFFAIRS AS FIXED ASSETS. THEREFORE, IT IS OBVIOUS THAT THE LAND HELD BY THE ASSESSEE IS HIS INVESTMENT AND NOT STOCK IN TRADE. THEREFORE, THE LD.CIT(A) IS RIGHT IN HIS REALM TO TREAT THE GAIN ARISING OUT OF THE SALE OF THE LAND AS LONG TERM CAPITAL GAIN, SINCE THE ASSET WAS HELD BY THE ASSESSEE MORE THAN THE STIPULATED PERIOD UNDER THE ACT. FURTHER, ON PERUSING THE PURCHASE DEED DATED 25.10.2004 (PAGE NO.41 OF THE PAPER BOOK), IT IS OBVIOUS THAT THE ASSESSEE HAS PURCHASED 96.50 CENTS (SCHEDULE-B PAGE NO.11 OF THE SALE DEED) OF AGRICULTURAL LAND FROM M/S.S. RADHA LAKSHMI VIDE REGISTERED DOCUMENT NO.3409/2004 OUT OF HER TOTAL EXTENT OF 1.93 ACRES (SCHEDULE-A PAGE NO.10 OF THE SALE DEED). THEREAFTER, ON 19 TH DAY OF SEPTEMBER, 2010 THE ASSESSEE HAS SOLD THE AGRICULTURAL LAND TO M/S.GREAT LAKES INSTITUTE OF MANAGEMENT (PAGE NO.63 OF THE PB) WHEREIN THE LAND SOLD IS SPECIFIED AS AGRICULTURAL LAND. THEREFORE, PRIMA FACIE, IT IS EVIDENT THAT THE LAND PURCHASED AND SOLD BY THE ASSESSEE IS AGRICULTURAL LAND. IT IS ALSO EVIDENT THAT THE LAND PURCHASED BY THE ASSESSEE IS OUT OF THE LARGER EXTENT OF LAND OF 1.93 ACRES WHICH AGAIN ORIGINALLY FORMED PART OF :: 14 :: ITA NOS. 1893 & 2010/CHNY/2017 BIGGER EXTENT OF LAND MEASURING 4.13 ACRES SITUATED AT MANAMAI VILLAGE, THIRUKAZHUKUNDRAM TALUK, KANCHEEPURAM DISTRICT THEREBY TO A GREAT EXTEND ATTRIBUTABLE AS AGRICULTURAL LAND. HOWEVER, THE ASSESSEE HAS NOT PRODUCED THE REVENUE RECORDS BEFORE THE LD.AO AS WELL AS THE LD.CIT(A) TO ESTABLISH THAT THE LAND HELD BY THE ASSESSEE IS AGRICULTURAL LAND. IN THIS SITUATION, PRUDENTLY, THE LD.AO COULD ALSO HAVE VERIFIED THE NATURE OF THE LAND FROM THE CONCERNED REVENUE OFFICIALS WHICH THEY HAVE FAILED. CONSIDERING THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE LD.AO AND ALSO AN OPPORTUNITY IS TO BE PROVIDED TO THE ASSESSEE FOR PRODUCING THE RELEVANT RECORDS BEFORE THE LD.REVENUE AUTHORITIES. THEREFORE, IN THE INTEREST OF JUSTICE WE HEREBY REMIT THIS ISSUE BACK TO THE FILE OF THE LD.AO FOR VERIFYING THE REVENUE RECORDS OF THE LAND AND IF THE LAND IS CLASSIFIED AS AGRICULTURAL LAND, THE SAME HAS TO BE TREATED AS EXEMPT FROM TAX UNLESS THE LAND IS SITUATED WITHIN 8 KMS OF THE MUNICIPALITY LIMITS. FURTHER, IF THE LAND IS SITUATED WITHIN 8 KMS OF THE MUNICIPALITY LIMITS, THE ASSESSEE SHALL BE ELIGIBLE FOR DEDUCTION U/S.54B OF THE ACT IF HE HAS INVESTED THE ENTIRE SALE PROCEEDS IN ANOTHER AGRICULTURAL LAND. IF FOUND OTHERWISE THE LD.AO SHALL PASS APPROPRIATE ORDER IN ACCORDANCE WITH LAW AND MERIT. IT IS ORDERED ACCORDINGLY. :: 15 :: ITA NOS. 1893 & 2010/CHNY/2017 9. GROUND NO.2(V) : DISALLOWANCE U/S.40A(3) OF THE ACT AMOUNTING TO RS.6,71,54,590/- TOWARDS CASH PAYMENTS EXCEEDING RS.20,000/-:- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD INCURRED EXPENDITURE BY WAY OF CASH PAYMENTS EXCEEDING RS.20,000/- ON A SINGLE DAY WITH RESPECT TO CONSTRUCTION OF VIJAY RAJA HOMES TOWARDS PURCHASE OF, JELLY RS.6,69,032/- & RS.6,84,845/-, STREET HOLLOW BLOCK RS.12,58,274/-, LAND RS.5,89,73,020/-, PAINTING MATERIALS RS.4,97,882/-, TWO FEET POST RS.3,20,500/-, QUARRY DUST RS.2,65,885/-, 7.2 FEET POST RS.5,98,956/-, BRICKS RS.26,96,058/-, CEMENT RS.1,29,335/- AND BULLDOZER HIRE CHARGES RS.8,60,803/-. THE LD.AR HAD EXPLAINED BEFORE THE LD.AO THAT THE LAND WAS PURCHASED FROM VILLAGERS WHO DO NOT MAINTAIN BANK ACCOUNTS AND THEY WOULD NOT PART WITH THEIR LAND UNLESS AND UNTIL THE PAYMENT IS RECEIVED IN CASH. THE LD.AR FURTHER EXPLAINED THAT THE OTHER EXPENDITURES WERE INCURRED TOWARDS BUILDING CONSTRUCTION WHERE THE MATERIALS HAVE TO BE PROCURED FROM SMALL VENDORS IN THE VILLAGE BY CASH PAYMENTS. FURTHER, IT WAS SUBMITTED THAT THE ASSESSEE HAD DECLARED THE ENTIRE PROFIT OUT OF THE BUSINESS VENTURE AND THERE WAS NOT ESCAPEMENT OF TAX AND THE REVENUE HAS ALSO MADE NO ADDITIONS :: 16 :: ITA NOS. 1893 & 2010/CHNY/2017 TOWARDS THE SAME. IT WAS THEREFORE PLEADED THE PROVISIONS OF SEC.40A(3) OF THE ACT MAY NOT BE INVOKED IN THE HANDS O THE ASSESSEE. HOWEVER, THE LD.AO NOT SATISFIED WITH THE SUBMISSIONS OF THE LD.AR, INVOKED THE PROVISIONS OF SEC.40A(3) OF THE ACT AND DISALLOWED THE ENTIRE EXPENDITURE. ON APPEAL THE LD.CIT(A) AGREEING WITH THE VIEW OF THE LD.AO, CONFIRMED HIS ORDER. 9.1. BEFORE US, THE LD.AR REITERATED THE SUBMISSIONS MADE BEFORE THE LD.REVENUE AUTHORITIES AND PLEADED FOR DELETING THE ADDITION MADE BY INVOKING THE PROVISIONS OF SEC.40A(3) OF THE ACT WHILE AS THE LD.DR ARGUED IN SUPPORT OF THE ORDERS OF THE LD.REVENUE AUTHORITIES. 9.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. IT IS AN UNDISPUTED FACT THAT THE LAND WAS PURCHASED BY THE ASSESSEE FROM THE VILLAGERS. IT IS ALSO OBVIOUS THAT NORMALLY PEOPLE RESIDING IN VILLAGES WHO ARE FARMERS DO NOT MAINTAIN BANK ACCOUNTS. IN REAL ESTATE TRANSACTIONS, SUCH INDIVIDUALS WOULD NOT PREFER TO SIGN ANY DOCUMENTS WITH RESPECT TO THE TRANSFER OF THEIR LAND WITHOUT RECEIVING PAYMENT IN ADVANCE. THE CONSTRUCTION OF THE BUILDING ALSO APPEARS TO HAVE BEEN MADE IN THE SURROUNDING SUBURBS OF THE CITY AMID VILLAGES. IN SUCH PLACES, IT WOULD BE QUITE DIFFICULT TO EXECUTE :: 17 :: ITA NOS. 1893 & 2010/CHNY/2017 PROJECTS BY PAYMENT IN CHEQUES. MOREOVER, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS SUPPRESSED HIS PROFITS OR INDULGED IN ANY TRANSACTIONS EVADING TAX OR GENERATING UNACCOUNTED CASH. IN SUCH CIRCUMSTANCES, THE PROVISO TO SEC.40A(3) OF THE ACT COMES TO RESCUE OF THE ASSESSEE WHEN THE ASSESSEE INCURS EXPENDITURE BY WAY OF CASH DUE TO BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE THAT THE LAND PURCHASED ARE FROM VILLAGERS WHO ARE FARMERS AND THE PROJECT IS EXECUTED AMID VILLAGES AND ALSO THE FACT THAT THERE IS NO ADVERSE FINDINGS BY THE REVENUE WITH RESPECT TO GENERATION OF UNACCOUNTED MONEY OR TAX EVASION, WE ARE OF THE CONSIDERED VIEW THAT THE ADDITION OF RS.6,71,54,590/- IS NOT WARRANTED IN THE HANDS OF THE ASSESSEE INVOKING THE PROVISIONS OF SECTION.40A(3) OF THE ACT. THEREFORE, WE HEREBY DIRECTED THE LD.AO TO DELETE THE ADDITION MADE FOR RS.6,71,54,590/-. WHILE HOLDING SO WE MAKE IT CLEAR THAT THE ADDITION MADE BY INVOKING THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT WITH RESPECT TO PAYMENTS MADE TOWARDS HIRE CHARGES TO BULLDOZER WITHOUT DEDUCTING TAX AT SOURCE SHALL STAND CONFIRMED AS HELD HEREIN ABOVE. REVENUES APPEAL: :: 18 :: ITA NOS. 1893 & 2010/CHNY/2017 10. GROUND NO.3(I) - DISALLOWANCE AMOUNTING TO RS.23,95,625/- TOWARDS LOSS OF CYLINDERS BY ADMITTING FRESH EVIDENCE IN VIOLATION TO RULE 46A OF THE RULES: DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD WRITTEN OFF RS.23,95,625/- AS LOSS OF CYLINDERS. IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE HAD STOPPED PURCHASING GAS FROM M/S.NATIONAL OXYGEN LTD., AND M/S.EAST COAST ACETYLENE AND WHILE CLOSING THE ACCOUNTS THOSE COMPANIES HAVE CLAIMED LOSS/DAMAGES OF CYLINDERS WHICH WAS ADJUSTED AGAINST THE SECURITY DEPOSIT MAINTAINED BY THE ASSESSEE WITH THEM. HOWEVER, THE LD.AO WAS OF THE VIEW THAT SINCE THE LOSS WAS DUE TO FORFEITURE OF SECURITY DEPOSITS IT CANNOT BE TERMED AS BAD DEBTS AND THEREFORE CANNOT BE ALLOWED AS DEDUCTION. ON APPEAL, THE LD.CIT(A) AFTER EXAMINING THE BOOKS OF ACCOUNTS OF THE ASSESSEE ALLOWED THE LOSS TO BE CLAIMED AS DEDUCTION. THE REVENUE HAS RAISED THE GROUND THAT THE LD.CIT(A) HAS VIOLATED THE PROVISIONS OF RULE 46A OF THE RULES BY ADMITTING FRESH EVIDENCE. WE DO NOT FIND ANY MERIT IN THIS GROUND RAISED BY THE REVENUE BECAUSE THE LD.CIT(A) HAS ONLY EXAMINED THE AVAILABLE RECORDS WITH THE ASSESSEE WHICH THE LD.AO COULD HAVE EXAMINED DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS. MOREOVER, ON A SIMILAR SITUATION IN THE ASSESSEES APPEAL HEREIN BELOW, WE HAVE GRANTED RELIEF TO THE ASSESSEE WITH RESPECT TO :: 19 :: ITA NOS. 1893 & 2010/CHNY/2017 LOSS ON ACCOUNT OF IRRECOVERABLE SECURITY DEPOSIT WHICH ALSO STANDS ON A SIMILAR FOOTING. THEREFORE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. 11. GROUND NO.3(II) GAIN ARISING FROM THE SALE OF LAND TO BE TREATED AS LONG TERM CAPITAL GAIN OR BUSINESS INCOME: SINCE WE HAVE ALREADY HELD IN THE ASSESSEES APPEAL HEREIN ABOVE THAT THE GAIN ARISING OUT OF SALE OF LAND SHOULD BE TREATED AS LONG TERM CAPITAL GAIN AND NOT AS HELD BY THE LD.AO TO BE BUSINESS INCOME, THIS GROUND RAISED BY THE REVENUE IS DEVOID OF MERITS. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREIN ABOVE AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 23 RD MAY, 2019 AT CHENNAI. SD/- SD/- ( ) (DUVVURU R.L REDDY) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER /CHENNAI, /DATED 23 RD MAY, 2019 :: 20 :: ITA NOS. 1893 & 2010/CHNY/2017 RSR /COPY TO: 1. /ASSESSEE 2. /REVENUE 3. ( )/CIT(A) 4. /CIT 5. /DR 6. /GF