THE ITO, Kakinada V. Jalumuri Rama Lakshmi, Kakinada

ITA 242/VIZ/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8848 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 05-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R S NARAYAN
• Keywords: Business income
• Section: 40A(3)

Judgement Text

ITA NO.242/VIZAG/2015 SMT. JALUMURI RAMA LAKSHMI, KAKINADA 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.242/VIZAG/2015 ( / ASSESSMENT YEAR: 2008-09) SMT. JALUMURI RAMA LAKSHMI KAKINADA [PAN NO. ADOPJ4656J ] ( / APPELLANT) ( / RESPONDENT) C.O. NO.28/VIZAG/2015 (ARISING OUT OF I.T.A.NO.242/VIZAG/2015) ( / ASSESSMENT YEAR: 2008-09) SMT. JALUMURI RAMA LAKSHMI KAKINADA ITO, WARD - 2, KAKINADA ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI S.R.S. NARAYAN, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 19.06.2017 / DATE OF PRONOUNCEMENT : 28.07.2017 ITA NO.242/VIZAG/2015 SMT. JALUMURI RAMA LAKSHMI, KAKINADA 2 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAIN ST ORDER OF THE CIT(A)-2, VISAKHAPATNAM IN ITA NO.2/10-11/129/ITO W-2 KKD/201 4-15 DATED 23.3.2015 FOR THE ASSESSMENT YEAR 2008-09. THE ASS ESSEE ALSO FILED CROSS OBJECTIONS AGAINST THE ORDER OF THE LD.CIT(A ) WITH REGARD TO THE ISSUE PERTAINING TO VENTURE IN THE NATURE OF TRADE AGAINST THE CAPITAL GAINS ADMITTED BY THE ASSESSEE. 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE ADD ITION MADE U/S 40A(3) OF THE ACT. THE ASSESSEE FILED THE RETURN O F INCOME DECLARING TOTAL INCOME OF ` 5,43,600/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE A SSESSEE HAS PURCHASED 5.35 ACRES OF LAND AT P. MALLAVARAM VILLA GE TALLAREVU MANDAL VIDE DOCUMENT NO.2071/2007 DATED 26.5.2007 FROM SRI MANYALA INDIRA MALLESWARI AND OTHERS FOR A CONSIDERATION OF ` 60,18,600 AND GOT IT DEVELOPED THROUGH M/S. SREE CONSTRUCTIONS BY INCURR ING AN EXPENDITURE OF ` 51,00,000/- AND THEREAFTER, SOLD IT TO M/S. RELIAN CE INDUSTRIES LTD FOR A CONSIDERATION OF ` 1,13,56,000/- VIDE DOCUMENT NO.2347/2007 DATED 11.6.2007. THE ASSESSEE HAS ADMITTED AN AMOU NT OF ` 3,73,000/- BEING EXCESS CONSIDERATION RECEIVED OVER AND ABOVE THE PURCHASE PRICE ITA NO.242/VIZAG/2015 SMT. JALUMURI RAMA LAKSHMI, KAKINADA 3 AND THE EXPENDITURE INCURRED TOWARDS THE DEVELOPMEN T OF THE LAND AS SHORT TERM CAPITAL GAIN. 3. THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO W HY THE SALE OF LAND SHOULD NOT BE TREATED AS VENTURE IN NATURE OF TRADE AS AGAINST THE INCOME ADMITTED BY THE ASSESSEE UNDER THE HEAD CAPI TAL GAINS. THE ASSESSEE EXPLAINED THAT IT WAS A SOLE TRANSACTION, THE INTENTION OF THE PURCHASE WAS NOT FOR THE TRADE BUT FOR CARRYING ON AGRICULTURAL ACTIVITY AND INVESTMENT. FURTHER, THE ASSESSEE ALSO EXPLAIN ED BEFORE THE A.O. THAT NO BORROWED FUNDS WERE TAKEN FOR THE PURPOSE O F ACQUIRING THE LAND AND NO INTEREST WAS PAID. DUE TO SOME INCIDENTS HAV E HAPPENED AFTER THE PURCHASE OF THE SAID LAND THE ASSESSEE HAS BEE N FORCED TO SELL THE LAND. THEREFORE, THE ASSESSEE PLEADED BEFORE THE A. O. THAT THE INCOME SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAINS BUT NOT UNDER THE HEAD BUSINESS INCOME. NOT CONVINCED WITH THE ASSESSEES EXPLANATION, THE ASSESSING OFFICER HELD THE TRANSACTIONS AS VENTURE IN THE NATURE OF TRADE AND ACCORDINGLY ASSESSED THE INCOME UNDER THE HEAD BUSINESS INCOME AND ALSO MADE THE ADDITION OF ` 77,50,000/- U/S 40A(3) OF THE ACT FOR MAKING THE PAYMENTS IN CASH. (OUT OF ` 77.50 LAKHS, THE AMOUNT OF ` 26,50,000/- FOR PURCHASE OF LAND AND THE BALANCE AM OUNT PAID TO THE DEVELOPER). ITA NO.242/VIZAG/2015 SMT. JALUMURI RAMA LAKSHMI, KAKINADA 4 4.0 AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A). THE LD. CIT(A) U PHELD THE NATURE OF TRANSACTION AS VENTURE IN NATURE OF TRADE BUT DELET ED THE ADDITIONS MADE U/S 40A(3) OF THE ACT. 5.0 AGGRIEVED BY THE ORDER OF CIT(A), THE RE VENUE IS IN APPEAL BEFORE US. APPEARING FOR THE REVENUE, THE LD. D.R. ARGUED THAT THE ASSESSEE HAS MADE THE PAYMENT OF ` 26,50,000/- TOWARDS PURCHASE OF THE LAND AND THE BALANCE OF ` 51.00 LAKHS WAS PAID TO M/S. SIRI CONSTRUCTIONS, WHICH IS THE RELATED COMPANY OF THE ASSESSEE. THEREFORE, THE LD. D.R. ARGUED THAT THE PAYMENT MADE FOR PURCH ASE OF THE LAND AND THE PAYMENT MADE TO THE DEVELOPER FOR THE DEVEL OPMENT OF THE LAND IS SQUARELY HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND THE A.O., HAS RIGHTLY MADE THE ADDITION. THE INTENTION OF THE LEGISLATURE IN INSERTING THE PROVISIONS OF SECTION 40A(3) OF THE A CT WAS TO PREVENT THE MISUSE OF THE PROVISIONS AND TO PLUG THE LEAKAGE OF INCOME AS A DETERRENT EFFECT HENCE NO LIBERAL INTERPRETATION NE ED TO BE GIVEN AND ARGUED THAT THE CIT(A) HAS COMMITTED AN ERROR BY DE LETING THE ADDITION. 6. ON THE OTHER HAND, THE LD. A.R. RELIED ON THE OR DERS OF THE LD. CIT(A). ITA NO.242/VIZAG/2015 SMT. JALUMURI RAMA LAKSHMI, KAKINADA 5 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ASSESSEE HAS MADE THE PAYMENTS FOR PURCHASE OF THE LAND IN CASH FOR ` 26,50,000/- TO THE SELLER AND A SUM OF ` 51.00 LAKHS WAS MADE TO THE DEVELOPER. THE FACT THAT THE LAND WAS PURCHASED AN D GOT DEVELOPED BY THE ASSESSEE WAS NOT DISPUTED BY THE A.O. THE LD. CIT(A) DELETED THE ADDITION PLACING RELIANCE ON THE DECISION IN THE CA SE OF PSL LIMITED VS. ACIT AND CIT VS. VIJAY KUMAR GOEL, WHEREIN THE PRIN CIPLE FOLLOWED IN BOTH THE CASES WAS THE DISALLOWANCE IS NOT WARRANTE D WHEN THE TRANSACTION IS GENUINE AND THE IDENTITY OF THE PAYE R IS NOT DOUBTED APART FROM THE APPLICABILITY OF RULE 6DD(H) & 6DD(A)(IV). THE CIT(A) HAS GIVEN A FINDING THAT A SUM OF ` 26,50,000/- WAS PAID IN CASH AND RECORDED IN THE REGISTERED SALE DOCUMENT DATED 26.5 .2007 AND ACKNOWLEDGED BY THE VENDOR. THE PHOTO IDENTITY OF THE VENDOR ALSO AVAILABLE IN THE SAID DOCUMENT, WITH REGARD TO THE PAYMENT OF ` 51 LAKHS, THE CIT GOT IT ENQUIRED THROUGH THE A.O., AN D THE ASSESSING OFFICER REPORT SHOWS THAT RECIPIENT M/S. SIRI CONSTRUCTIONS HAS ACCOUNTED THIS AMOUNT IN THE BOOKS OF ACCOUNTS AND DECLARED HIS RE TURN OF INCOME. THE INTENTION OF THE LEGISLATURE FOR INSERTING SEC TION 40A(3) OF THE ACT IS TO PLUCK THE LOOPHOLE OF TAX EVASION BY MAKING THE PAYMENTS IN CASH. ONCE IT IS ESTABLISHED THAT THE PAYMENT IS GENUINE AND THE RECIPIENT HAS ITA NO.242/VIZAG/2015 SMT. JALUMURI RAMA LAKSHMI, KAKINADA 6 ADMITTED THE PAYMENT IN THEIR INCOME RETURN, THE PU RPOSE OF 40A(3) OF THE ACT IS COMPLIED WITH. THEREFORE, THE COURTS HA VE HELD IN SUCH CIRCUMSTANCES THE RIGOR OF THE PROVISIONS NEEDS TO BE INTERPRETED LIBERALLY WHEN THE PAYMENT IS GENUINE AND THE PAYEE IS IDENTIFIABLE. IN THIS CASE, THERE IS NO DOUBT REGARDING THE PAYEE AN D PAYER AND THE LD. CIT(A) ALSO HAS GIVEN A FINDING THAT THE PAYEE IN T HE CASE OF SIRI CONSTRUCTIONS HAS ADMITTED THE AMOUNT IN THEIR RETU RNS. HONBLE A.P. HIGH COURT IN THE CASE OF SRI LAKSHMI SATYANARAYANA OIL MILL VS. CIT (2014) 49 TAXMANN.COM 363 HELD THAT THE PROVISION MUST BE INTERPRETED LIBERALLY AND THE ASSESSEES CANNOT BE S UBJECTED TO UNDUE RIGOR. THEREFORE, IN THE INSTANT CASE, THE PAYMENTS ARE S AID TO BE GENUINE AND THE PAYEES ARE IDENTIFIABLE AND THE RECIPIENTS HAVE ADMITTED THE RECEIPTS IN THE INCOME. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SA ME IS UPHELD AND THE APPEAL OF THE REVENUE IS DISMISSED. 8. IN THE CROSS OBJECTION, THE ASSESSEE HAS ARGUED THAT ASSESSMENT OF INCOME UNDER THE HEAD PROFIT & GAINS IS AGAINST THE LAW SINCE THE ASSESSEE HAS MADE ONLY A SOLITARY TRANSACTION AND S HE IS A HOUSE WIFE NOT CARRYING ON ANY BUSINESS. THE LD. A.R. REITERA TED THE SUBMISSIONS MADE BEFORE THE A.O. ON THE OTHER HAND THE LD. D.R . RELIED ON THE ORDERS OF CIT(A). ITA NO.242/VIZAG/2015 SMT. JALUMURI RAMA LAKSHMI, KAKINADA 7 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE FACTS OF THE CASE AS PER THE A.O. IS AS UNDER: 2.1 THE ASSESSEE MADE ADVANCE OF RS 3227000 FOR PURCHASE OF THE LAND DURING THE FINANCIAL YEAR 2006-07 ITSELF AND T HEREAFTER, MADE PAYMENT OF THE REMAINING AMOUNT OF RS 2650000 IN TH E FINANCIAL YEAR 2007-08 EVEN BEFORE THE DATE OF REGISTRATION OF THE LAND IN THE NAME OF THE ASSESSEE ON 11-06-2007 SHE ENTERED INTO AN AGRE EMENT ON 03-04-2007 WITH M/S SREE CONSTRUCTIONS FOR DEVELOPM ENT THE LAND. FROM THE RECITALS IN THE DEVELOPMENT AGREEMENT DATE D 03-04-2007 ENTERED INTO BY THE ASSESSEE WITH M/S SREE CONSTRUC TIONS IT IS SEEN THAT THE ASSESSEE INTENDED TO DEVELOP AND TRANSFER THE SCHEDULED LAND AND ONLY FOR THAT PURPOSE SHE APPROACHED THE CONTRA CTOR TO DEVELOP THE LAND BY LEVELING IT BY FILLING WITH MUD AND GRA VEL THUS, IT CLEARLY SHOWS THAT WITH THE INTENTION OF SELLING THE LAND O NLY. 10. THE LD. CIT(A) HELD THE TRANSACTION AS BUSINESS INCOME AS PER THE DISCUSSION MADE IN THE PARA NO.8 OF THE CIT(A) ORDE R, WHICH IS EXTRACTED AS UNDER: 8. FROM THE PERUSAL OF THE DETAILS FILED IT IS SEEN THAT THE ASSESSEE HAS FILED THE IMPUGNED GPA CUM SALE AGREEMENT DATED 265.2007. THE SAME WAS SOLD TO M/S.RELIANCE INDUSTRIES LTD ON 11,6.2007 VIDE DOC. NO.2347/2007. A PERUSAL OF THE SALE AGREE MENT DT. 26.5.2007, IT IS SEEN THAT THE ASSESSEE HAD ORIGINA LLY ENTERED INTO AN AGREEMENT FOR PURCHASE OF THE IMPUGNED PROPERTY FROM TWO OF THE SAID VENDORS (I.E. M. INDIRAMALLESWARI & J.JAYA MADHAVI) VIDE AGREEMENT DT. 41.2007. THE PERUSAL OF THE SALE DEED DT. 11.6.2007 SHOW THAT THE ASSESSEE AS SHAREHOLDER ENTERED INTO AN AGREEMENT OF SALE WITH M/S. GUJARAT STATE PETROLEUM CORPORATI ON LTD FOR SALE OF THE IMPUGNED LAND VIDE AGREEMENT DATED 25.1.2007 (SAID TO BE REGISTERED AS DOC. NO.360/2007). IN VIEW OF SUCH AG REEMENT WITH M/S.GUJARAT STATE PETROLEUM CORPORATION LTD., THE S AID COMPANY WAS INCLUDED AS CONFIRMING PARTY IN THE SALE DEED D T. 11.6.2007 AND WAS ALSO PAID RS.2 LAKHS BY THE BUYER, RELIANCE INDUSTRIES LTD TOWARDS REPAYMENT OF THE ADVANCES ALREADY RECEIVED. THE ASSESSEE HAS ALSO ENTERED INTO AN AGREEMENT WITH M/S.SHREE C ONSTRUCTIONS ON 3.4.2007, PRIOR TO OBTAINING OF THE IMPUGNED LAN D IN HER FAVOUR ON 26.5.2007, FOR DEVELOPMENT OF THE IMPUGNED LAND, THE SAID ITA NO.242/VIZAG/2015 SMT. JALUMURI RAMA LAKSHMI, KAKINADA 8 AGREEMENT STATES THAT THE ASSESSEE BEING OWNER OF T HE SCHEDULED LAND, AND THAT THE SAME WAS NOT CONVENIENT AND DOES NOT FETCH INCOME TO THE OWNER, AND HE INTENDS TO DEVELOP AND TRANSFER THE SCHEDULE LAND AND APPROACHED THE CONTRACTOR TO DEVE LOP THE SAME BY LEVELING THE LAND BY FILLING WITH MUD & GRAVEL F OR 5.35 ACRES WITHIN THREE MONTHS OF THE CONTRACT. ALL THESE RECI TALS IN THE ABOVE REFERRED DOCUMENTS CLEARLY PROVE THAT THE INTENTION OF THE ASSESSEE WAS TO ACQUIRE AND DISPOSE THE SAID LAND TO MAKE QU ICK MONEY. THE INTENTION WAS NOT TO DO ANY AGRICULTURAL ACTIVITY A S CONTENDED IN THE WRITTEN SUBMISSION FILED. THE IMPUGNED LAND ALREADY BEING AGRICULTURAL LAND NEED NOT BE FILLED WITH BLACK MUD AND RED GRAVEL TO MAKE IT FIT FOR AGRICULTURAL ACTIVITY. THUS THE CONTENTION THAT THE LAND WAS ACQUIRED WITH THE INTENTION TO DO AGRICULT URAL ACTIVITY IS WITHOUT ANY BASIS. THE MATERIAL ON RECORD ALREADY S UGGEST THAT AS THE COMPANY, M/S.RELIANCE INDUSTRIES LTD WAS LOOKIN G TO PROCURE LAND IN THE SAID AREA WHICH WAS PAYING FANCY AMOUNT S FOR THE AGRICULTURAL LAND IN THE AREA, THE ASSESSEE HAS ENT ERED INTO THE VENTURE TO MAKE PROFIT FROM THE TRANSACTION. THEREF ORE, I FIND THAT THE AO IS JUSTIFIED IN HOLDING THAT THE TRANSACTION IS IN THE NATURE OF 'ADVENTURE IN THE NATURE OF TRADE' AND IN ASSESSING THE INCOME FROM THE IMPUGNED TRANSACTION AS INCOME UNDER THE HEAD B USINESS. 11. FROM THE ABOVE FACTS, IT IS EVIDENT THAT THE AS SESSEE HAS METICULOUSLY PLANNED THE ENTIRE TRANSACTION AS BUSI NESS TRANSACTION. IT IS EVIDENT FROM THE FACT THAT BEFORE REGISTRATION OF T HE LAND WITH THE HELP OF GPA AND SHE HAD ENTERED INTO AN AGREEMENT FOR DEVEL OPMENT OF THE LAND WITH M/S. SIRI CONSTRUCTIONS AND IMMEDIATELY A FTER THE DEVELOPMENT SHE HAS SOLD THE LAND TO RELIANCE INDUSTRIES. THE ENTIRE TRANSACTION APPEARS TO BE WITH AN INTENTION TO DO THE BUSINESS BUT NOT FOR THE INVESTMENT. THEREFORE, THE CIT(A) RIGHTLY HELD THE TRANSACTION AS THE VENTURE IN THE NATURE OF TRADE AND NOT CAPITAL GAIN S. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A), THEREFORE ORDER OF THE CIT(A) IS UPHELD. ITA NO.242/VIZAG/2015 SMT. JALUMURI RAMA LAKSHMI, KAKINADA 9 12. THE SECOND GROUND IN CROSS OBJECTION IS IN SUPP ORT OF THE ORDER PASSED BY THE CIT(A) WHICH WAS ADJUDICATED BY US SE PARATELY IN REVENUES APPEAL. THEREFORE THIS GROUND DOES NOT REQ UIRE SPECIFIC ADJUDICATION AND ACCORDINGLY DISPOSED AS INFRUCTUOU S. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE ALSO DISMISSE D. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28 TH JUL17. SD/- SD/- ( . ) ( . . ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM: /DATED : 28.07.2017 VG/SPS /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-2, KAKINADA 2. / THE RESPONDENT SMT. JALUMURI RAMALAKSHMI, PENK EVARI STREET, KAKINADA 3. / THE PRINCIPAL 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