Jami Bala Bhaskara Rao, Srikakulam V. The ITO, Srikakulam

ITA 210/VIZ/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5160 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 12-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEBAKUMAR SONOWAL
• Assessee Lawyers: C V S MURTHY
• Section: 40A(3); 143(3); 263

Judgement Text

I TA NO. 210 /VIZAG/ 201 7 JAMI BALA BHASKARA RAO, SRIKAKULAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D .S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 210 /VIZAG/ 2014 ( / ASSESSMENT YEAR: 2009 - 10 ) JAMI BALA BHASKARA RAO SRIKAKULAM ITO, WARD - 1 , SRIKAKULAM ( / APPELLANT) ( / RES PONDENT) / APPELLANT BY : SHRI C.V.S. MURTHY, AR / RESPONDENT BY : SHRI DEBA KUMAR SONOWAL, DR / DATE OF HEARING : 11.07.2018 / DATE OF PRONOUNCEMENT : 2 0.07.2018 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEAL) - 2 {CIT (A) }, VISAKHAPATNAM VIDE ITA .NO. 83/2015 - 16/CIT(A) - 2/W - 3/SKL/2016 - 17 DATED 19.01.2017 FOR THE ASSESS MENT YEAR 2009 - 10. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1) THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 2, VISAKHAPATNAM, IS CONTRARY TO LAW AND FACTS OF THE CASE. I TA NO. 210 /VIZAG/ 201 7 JAMI BALA BHASKARA RAO, SRIKAKULAM 2 2) THE COMMISSIONER OF INCOME TAX (APPEALS) - 2, VISAKHAPATNAM, IS NOT JUSTIFIED IN COMING TO HIS CONCLUSION THAT THE PROVISIONS U/S.40A(3) OF THE I.T. ACT, ARE APPLICABLE IN THE APPELLANT'S CASE, WITHOUT APPRECIATING THE SUBMISSIONS AND THE EXPLANATIONS SUBMITTED BY THE APPELLANT IN THIS REGARD. AS THE TRANSACTION UND ER CONSIDERATION DOES NOT COME UNDER THE PURVIEW OF SECTION U/S.40A(3) OFD THE I.T. ACT, AS THE APPELLANT HAD NOT SOLD THIS PROPERTY EVEN THOUGH PURCHASED DURING THE YEAR AND SHOWN IT AS FIXED ASSET IN HIS STATEMENTS OF ACCOUNTS. HENCE, THE COMMISSIONER OF INCOME TAX (APPEALS) - 2, VISAKHAPATNAM, IS NOT JUSTIFIED IN COMING TO HIS CONCLUSION THAT THE PROV ISIONS U/S.40A(3) ARE APPLICABLE BY INTERPRETING THE PROVISIONS IN A DIFFERENT WAY. HENCE, THE APPELLANT PRAYS FOR RELIEF. 3) AS UNDER THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE, THE PROVISIONS U/S.40A(3) ARE NOT APPLICABLE AND ALSO EVEN THE APPELLANT SUBMITTED IN SUPPORT OF HIS CONTENTIONS NECESSARY EVIDENCES AND CASE LAW, THE SAME WERE NOT PROPERLY APPRECIATED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) - 2, VISAKHAPATNA M . HENCE, THE APPELLANT PRAYS FOR RELIEF. 4) FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF APPEAL HEARING, THE APPELLANT PRAYS FOR RELIEF. 3. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE ADDITION MADE BY THE A.O. U/S 40A(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'). IN THIS CASE, THE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS AS WELL AS PEA INDUSTRY AND FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME RS. 2,40,030/ - APART FROM AGRICULTURAL INCOM E OF RS. 32,700/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY AN ORDER DATED 23.12.2011 ON TOTAL INCOME OF RS. 5,42,917/ - . SUBSEQUENTLY, THE LD. COMMISSIONER OF INCOME TAX (CIT) HAS TAKEN UP THE CASE FOR REVISION I TA NO. 210 /VIZAG/ 201 7 JAMI BALA BHASKARA RAO, SRIKAKULAM 3 U/S 263 OF THE ACT AND PASSED TH E ORDER VIDE F.NO.CIT - 2/VSP/263/2013 - 14 DATED 21.3.2014 AND DIRECT ED THE A.O. TO CONSIDER THE ISSUES RELATING TO SHORT ADMISSION OF INCOME IN RESPECT OF REAL ESTATE BUSINESS OF RS. 90,000/ - AND THE PAYMENTS MADE IN CASH IN VIOLATION OF SECTION 40A(3) OF THE ACT , AS PER THE DETAILS GIVEN BELOW: DOCUMENT NO. PAYMENT OF CASH IN RS. DATE OF SALE DEED 4414/09 4,71,000 06.01.2009 74/09 1,12,000 06.01.2009 2422/08 4,00,000 (1/4 TH SHARE) 04.06.2008 1275/08 41,000 23.07.2008 5212/08 54,000 21.10.2008 TOTAL 20 ,86,000 4. THE A.O. TAKEN UP THE CASE FOR GIVING EFFECT TO THE ORDER OF THE LD. CIT AND PASSED THE ORDER U/S 143(3) R.W.S. 263 OF THE ACT BY AN ORDER DATED 31.3.2015. IN THE ORDER PASSED U/S 143(3) R.W.S. 263 OF THE ACT, THE A.O. MADE THE ADDITION OF R S. 90,000/ - IN RESPECT OF PROFIT ON SALE OF PROPERTY AND RS. 20,86,000/ - TOWARDS THE DISALLOWANCE U/S 40A(3) OF THE ACT . 4.1. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION , THE ASSESSEE HA S PURCHASED THE LAND S AND THE PAYMENTS WERE MADE IN CASH IN VIOLATI ON OF SECTION 40A(3) OF THE ACT . THE ASSESSEE ARGUED BEFORE THE AO THAT LANDS WERE NOT PUR CHASED AS STOCK IN TRADE, BUT PURCHASED FOR I TA NO. 210 /VIZAG/ 201 7 JAMI BALA BHASKARA RAO, SRIKAKULAM 4 INVESTMENT PURPOSE AND CLASSIFIED THE ASSETS UNDER THE HEAD FIXED ASSETS IN THE BALANCE SHEET. SINCE THE ASSETS WERE PURCHASED FOR INVESTMENT PURPOSE, PAYMENT MADE IN CASH FOR PURCHASE OF ASSETS DOES NOT ATTRACT THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND REQUESTED THE A.O. TO DROP PROPOSAL FOR DISALLOWANCE U/S 40A(3) . THE A.O. OBSERVED THAT THE ASSESSEE HOLDS 15 DI FFERENT PROPERTIES IN FIXED ASSETS IN INDIVIDUAL CAPACITY VALUED AT RS. 44,07,657/ - AND AS PARTNER H E LD THE ASSETS VALUED AT RS. 11,09,019/ - AGGREGATING TO RS. 55,17,576/ - AS AT THE END OF THE YEAR . T HE ASSESSEE SOLD PART OF THE PROPERTY IN DOCUMENT NO.3344 OF 2000, WHICH WAS SHOWN AS FIXED ASSET DURING THE FINANCIAL YEAR 2008 - 09 RELEVANT TO THE ASSESSMENT YEAR 2009 - 10 FOR A CONSIDERATION OF RS. 1,31,157/ - AND THE REMAINING BALANCE OF THE SAID PROPERTY WAS TRANSFERRED TO THE BALANCE SHEET AS FIXED ASSETS AS AT THE END OF THE YEAR . THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS SOLD TWO DIFFERENT LANDS DURING THE YEAR. IT IS ALSO OBSERVED BY THE AO THAT AS AND WHEN THE PROPERTY WAS SOLD, THE ASSESSEE IS CONVERTING THE SAID PROPERTY AS STOCK IN TRADE AND CLASS IFYING THE REMAINING PART OF THE ASSET AS INVESTMENT IN THE BALANCE SHEET. THU S THE AO WAS OF THE VIEW THAT THOUGH THE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS AND PURCHASED THE ASSETS FOR THE PURPOSE OF BUSINESS, THE SAME WE RE SHOWN AS INVESTMENTS IN THE BALANCE SHEET . AS AND WHEN THE STOCKS WE RE SOLD, I TA NO. 210 /VIZAG/ 201 7 JAMI BALA BHASKARA RAO, SRIKAKULAM 5 THE S AI D PROPERTIES WERE BEING CONVERTED INTO STOCK IN TRADE AND THE REMAINING ASSETS/PROPERTIES CONTINUED TO BE CLASSIFIED IN THE BALANCE SHEET AS INVESTMENTS. THEREFORE, THE A.O. HELD THAT THE ASSESSEE IS ENGAGED IN THE SYSTEMATIC ACTIVITY OF REAL ESTATE BUSINESS AND WRONGLY CLASSIFYING THE ASSETS AS INVESTMENT, HENCE , THE PAYMENTS MADE FOR PURCHASE OF ASSETS ATTRACTS THE DISALLOWANCE U/S 40A(3) OF THE ACT, ACCORDINGLY REJECTED THE CONTENTION OF THE ASSESSEE AND DISALLOWED THE SUM OF RS. 20,86,000/ - U/S 40A(3) OF THE ACT. 5. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE HOLDING THAT THE MATERIAL ON RECORD IN DICATE THAT THE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUSINESS. FOR THE SAKE OF CLARIFY AND CONVENIENCE, WE EXTRACT RELEVANT PART OF THE ORDER OF THE CIT(A), WHICH READS AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS AND DETAILS FILED. IN THE STATEMENT O F COMPUTATION OF TOTAL INCOME FOR THE YEAR ENDED 31.3.2009, THE ASSESSEE HAD DECLARED NET PROFIT FROM SALE OF SITE OF RS. 26,514/ - UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. THE ASSESSEE HAD ALSO ENCLOSED SEPARATE TRADING ACCOUNT FOR TRADING OF S ITE AT ILLISIPURAM JUNCTION AND AT GONTI STREET. FOR THE EARLIER YEAR ALSO THE ASSESSEE HAD FURNISHED TRADING OF SITE ACCOUNT. THUS IT IS EVIDENT THAT THE ASSESSEE IS ENGAGED IN REAL ESTATE BUSINESS. IT IS ALSO NOTED THAT THE LANDS PURCHASED ARE INCLUDE D AS PART OF FIXED ASSETS. IT IS ALSO NOTED THAT AFTER EXCLUDING THE EXTENT OF LAND SOLD IN AN AREA, THE BALANCE EXTENT OF LAND IS REFLECTED IN THE FIXED ASSETS. FOR INSTANCE THE LAND AT ILLISIPURAM IS SHOWN OF AN EXTENT OF 6.63 ACRE FOR THE YEAR ENDED 3 1.3.2008, AND AFTER CONSIDERING THE SALES OF 1.55 ACRE DURING THE YEAR 2008 - 09, THE LAND OF AN EXTENT OF 5.08 ACRE (6.63 1.55) WAS SHOWN IN THE FIXED ASSET. THUS, INSTEAD OF SHOWING THE CLOSING BALANCE AS STOCK IN TRADE, THEY ARE ADJUSTED IN THE LIST OF FIXED I TA NO. 210 /VIZAG/ 201 7 JAMI BALA BHASKARA RAO, SRIKAKULAM 6 ASSETS. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD EFFECTED THE IMPUGNED PURCHASE OF LAND BY PAYMENT OF CASH. THE MATERIAL ON RECORD INDICATE THAT THE ASSESSEE IS ENGAGED IN REAL ESTATE TRANSACTIONS. AS PER THE PROVISIONS OF SECTION 40A(3),ANY EX PENDITURE INCLUDING PURCHASES TOWARDS STOCK IN TRADE WOULD FALL WITHIN THE MISCHIEF OF SECTION 40A(3). THE SCOPE OF THE WORD ANY EXPENDITURE IN SECTION 40A(3) IS VERY WIDE. AS A RESULT, I FIND THAT THE AO IS JUSTIFIED IN MAKING THE IMPUGNED DISALLOWANC E U/S 40A(3). ACCORDINGLY, THIS GROUND OF APPEAL IS DISMISSED. 6. DURING THE APPEAL HEARING, THE LD. A.R. ARGUED THAT THE ASSESSEE IS NEITHER ENGAGED IN THE REAL ESTATE BUSINESS NOR PURCHASED THE PROPERTIES FOR THE PURPOSE OF TRADING. THE ASSESSEE HAD P URCHASED THE PROPERTIES AS INVESTMENTS AND REFLECTED THE SAME IN THE BALANCE SHEET AS INVESTMENTS. THERE WAS NO EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT AS OPENING STOCK. SINCE THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE TO THE PROFIT & LOSS ACC OUNT, QUESTION OF DISALLOWANCE U/S 40A(3) OF THE ACT DOES NOT ARISE. THEREFORE, ARGUED THAT THE ORDER OF THE LOWER AUTHORITIES TO BE SET ASIDE AND ALLOW THE APPEAL OF THE ASSESSEE. THE LD. A.R. ALSO RELIED ON THE DECISIONS OF THIS TRIBUNAL IN THE CASE OF CH. HANUMANTHA RAO IN ITA NO.458/VIZAG/2014 DATED 5.5.2017 AND ALSO THE DECISION OF ITAT JAIPUR BENCH IN THE CASE OF M/S. ACE INDIA ABODES LTD. VS.ACIT CENTRAL CIRCLE - 2,JAIPUR VIDE ITA NO.79/JP/2011 DATED 12.8.2011. 7. ON THE OTHER HAND, THE LD. D.R. RE LIED ON THE ORDERS OF THE LOWER AUTHORITIES. I TA NO. 210 /VIZAG/ 201 7 JAMI BALA BHASKARA RAO, SRIKAKULAM 7 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE IS ENGAGED IN THE PEA BUSINESS AS WELL AS THE REAL ESTATE BUSINES S AS OBSERVED BY THE LD. CIT(A). AS OBSERVED FROM THE BALANCE SHEET, THE ASSESSEE HAS SHOWN THE ASSETS IN THE BALANCE SHEET AS FIXED ASSETS AND THE ASSESSEE HAS NOT DECLARED THE SAME AS CLOSING STOCK. THOUGH THE ASSESSEE IS CONVERTING SOME OF THE LANDS AS A STOCK IN TRADE AND SELLING THE SAME AS AND WHEN THE SALE TRANSACTION TOOK PLACE, THE REVENUE DID NOT BRING ANY EVIDENCE TO ESTABLISH THAT THE LANDS IN QUESTION BOUGHT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE IN FACT STOCK IN TRADE. THE ASSESSEE IS PERMITTED TO KE EP PART OF THE A SSETS AS STOCK IN TRADE AND PART OF THE ASSETS AS INVESTMENTS. THIS VIEW IS UPHELD BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF NSS INVESTMENTS (P) LTD 277 ITR 149 (MADRAS) . IN THE INSTANT CASE, THE ASSESSEE HAS CLASSIFIED THE ASSETS FIXED ASSETS AND NO EXPENDITURE WAS DEBITED TO THE PROFIT & LOSS ACCOUNT RELATING TO PURCHASE OF THE ASSETS. AS PER THE PROVISIONS OF SECTION 40A(3) OF THE ACT, THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS ATTRACTS DISALL OWANCE U/S 40A(3) OF THE ACT. FOR READY REFERENCE, WE EXTRACT RELEVANT PART OF THE SECTION, WHICH READS AS UNDER: I TA NO. 210 /VIZAG/ 201 7 JAMI BALA BHASKARA RAO, SRIKAKULAM 8 (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THA N BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE . 9. THE REVENUE HAS NOT BROUGHT ON RECORD TO ESTABLISH THAT THE ASSESSEE HAD INCURRED TH E EXPENDITURE AND CLAIMED THE SAME IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION IN RESPECT OF THE PROPERTIES PURCHASED DURING THE YEAR. THEREFORE, WE HOLD THAT THE RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF ITAT JAIPUR BENCH IN TH E CASE OF ACE INDIA ABODES LTD. (SUPRA ) AND THE DECISION OF THIS TRIBUNAL IN THE CASE OF CH. HANUMANTHA RAO (SUPRA) SQUARELY APPLIES. THEREFORE, WE HOLD THAT THERE IS NO CASE FOR MAKING DISALLOWANCE U/S 40A(3) OF THE ACT AND ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . T HE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 20 TH JUL18 . S D/ - S D/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM: /DATED : 20.07.2017 VG/SPS I TA NO. 210 /VIZAG/ 201 7 JAMI BALA BHASKARA RAO, SRIKAKULAM 9 / COPY OF THE ORDER FORWARDED TO : - 1. / THE APPELLANT SHRI JAMI BALA BHASKARA RAO, DR.NO.2 - 2 - 72, ILLISIPURAM JUNCTION, SRIKAKULAM. 2 . / THE RES PONDENT THE ITO, WARD - 1 , SRIKAKULAM 3 . / THE CIT - 2 , VISAKHAPATNAM 4 . ( ) / THE CIT (A) - 2 , VISAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM