Prasad Mathew, Pathanamthitta V. DCIT, Pathanamthitta

ITA 290/COCH/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4318 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2010
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 04-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 15-05-2009
• Court: TRIBUNAL
• Department Lawyers: T J VINCENT
• Assessee Lawyers: M P JAYANTHAN NAMPOOTHIRI
• Keywords: Capital asset; Cost of acquisition; Fair market value; Capital receipt; Onus to prove
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE T RIBUNAL COCHIN BENCH, COC HIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY ARORA, AM I.T.A. NO.290/COCH./ 2009 ASSESSMENT YEAR :2005-06 SHRI PRASAD MATHEW, P.W.D. CONTRACTOR, KUTTIKATTU HOUSE, KADAPRA, KUMBANAD, THIRUVALLA. [PAN: AGBPM 0102G]. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, THIRUVALLA. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI M.P.JAYANTHAN NAMPOOTHIRI, AR REVENUE BY SHRI T.J.VINCENT, DR O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOCHI (CIT(A) FOR SHORT) DATED 19.2.2009, AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2005-06. 2. THOUGH THE APPEAL RAISES SEVERAL GROUNDS, IT, IN EFFECT, AGITATES THREE ISSUES, EACH OF WHICH WE SHALL TAKE UP IN SERIATIM, CONDONI NG THE DELAY OF FIVE DAYS IN FILING OF THE APPEAL BEING SUPPORTED BY AN AFFIDAVIT DATED 15.5.2009 BY THE LD. COUNSEL FOR THE ASSESSEE, AVERRING HIS BEING SERIOUSLY ILL AND UNDER MEDICAL TREATMENT AS THE REASON FOR THE DELAY. 3. THE FIRST ISSUE RELATES TO THE ASSESSMENT OF THE ASSESSEES TRADING PROFIT. THE ASSESSEE, AN INDIVIDUAL, IS A CONTRACTOR, MAINTAINI NG HIS ACCOUNTS ON MERCANTILE BASIS. CONSEQUENT TO THE FINDING BY THE ASSESSING OFFICER (A.O.) OF THE CORRECT INCOME OF THE ASSESSEE FROM THE CONTRACT BUSINESS BEING NOT DEDU CIBLE FROM ITS BOOKS OF ACCOUNT, HE ESTIMATED THE SAME. THE LD. CIT(A), IN APPEAL, THOU GH CONFIRMED THE AOS FINDING IN THIS REGARD IN PRINCIPLE, ALLOWED THE ASSESSEE RELI EF BY REDUCING THE AOS ESTIMATION OF ITA. NO. 290/COCH./2009 2 NET PROFIT FROM 8% (OF THE GROSS RECEIPT) TO 6.5% T HEREOF. THE ASSESSEES ACCOUNTS FOR THE YEAR REVEALED CONTRACTUAL RECEIPTS AT RS. 193.9 6 LAKHS, BESIDES INCOME FROM HIRE CHARGES AT RS. 7.42 LAKHS; DISCLOSING THE NET PROFI T AT RS. 9.55 LAKHS. THE AO WAS OF THE VIEW THAT THE SAME, AT 4.91% OF THE TURNOVER, W AS ON THE LOWER SIDE. IN FACT, IF THE HIRE CHARGES CREDIT OF RS. 7.42 LAKHS WERE TO BE EX CLUDED THERE-FROM, BEING A SEPARATE SOURCE OF INCOME, THE ASSESSEES DECLARED PROFIT WO ULD STAND TO BE REDUCED TO A BARE MINIMUM. EXAMINING THE ASSESSEES ACCOUNTS, HE OBSE RVED THAT THE EXPENSES UNDER THE PRINCIPAL HEADS OF ACCOUNT, VIZ. LABOUR EXPENSE S; SITE EXPENSES; AND CONVEYANCE EXPENSES, WHICH CONSTITUTED A SUBSTANTIAL COMPONENT OF THE TOTAL EXPENSES, WERE BOOKED THROUGH SELF-MADE VOUCHERS AND, AS SUCH, NOT CROSS-VERIFIABLE. THE ASSESSEE WAS, FURTHER, FOUND TO HAVE INCURRED RS. 10 LAKHS T OWARDS COST OF SOIL AND ANOTHER RS. 1.5 LAKHS TOWARDS COST OF CRUSHED STONES AND RUBBLE S (METAL), WITH A CORRESPONDING CREDIT TO THE `LAND ACCOUNT, BEING SOURCED FROM HI S OWN LAND, REDUCING ITS BOOK-VALUE FROM RS. 46.17 LAKHS TO RS. 34.67 LAKHS. THE CLOSIN G WORK-IN-PROGRESS FOR THE YEAR STOOD VALUEDAT RS. 215 LAKHS, WITHOUT DISCLOSING TH E BASIS OF SUCH VALUATION. AS THE ASSESSEE HAD NOT INCURRED ANY COST IN RESPECT OF SO IL AND RUBBLES SOURCED FROM HIS LAND, WHICH WAS EXPLAINED BY THE ASSESSEE TO HAVE BEEN BO OKED AND CLAIMED ON THE BASIS OF THE PREVALENT MARKET RATE, HE OUGHT TO HAVE INCLUDE D THE SAME AS A RECEIPT OF HIS SOIL BUSINESS, FOR WHICH HE HAD SEPARATELY SHOWN RECEIPT OF RS. 6.5 LAKHS - WHICH, AGAIN, THOUGH, HAD NOT BEEN OFFERED FOR TAXATION, BUT CRED ITED TO HIS CAPITAL ACCOUNT. IN VIEW OF THESE DEFECTS, HE APPLIED THE PROVISION OF SECTI ON 145 OF THE ACT, ESTIMATING THE ASSESSEES NET PROFIT/INCOME FROM THE CONTRACT BUSI NESS AT 8% OF THE GROSS RECEIPT (OF RS. 1,93,96,413/-), AND THAT ON HIRE CHARGES AT 10% OF RS. 7,42,090/-, I.E., AT A TOTAL OF RS. 16,25,922/-. IN THE FIRST APPEAL, THE ASSESSEE SUBMITTED THAT IT HAD EXPLAINED THE LOWER PROFIT FOR THE YEAR AS ON ACCOUNT OF ACCEPTAN CE FOR A CONTRACT FOR WIDENING THIRUVALLA-KUMBAZHA ROAD AT 16.79% BELOW THE CPWD R ATE(S) IN TERMS OF THE PROBABLE AMOUNT OF CONTRACT (PAC), RECEIPTS FOR THE YEAR FROM WHICH PROJECT AMOUNTED TO RS. 164.22 LAKHS. AS REGARDS THE VERIF IABILITY OF THE EXPENSES CLAIMED, THE VOUCHERS WERE GOT SIGNED FROM THE PAYEES, AND T HAT BEING THE CASE, NO FURTHER EVIDENCE IS AVAILABLE, I.E., GIVEN THE NATURE OF TH E WORK INVOLVED, SO AS TO FURNISH THE SAME. THE WORK-IN-PROGRESS (WIP) STANDS VALUED BY T HE METHOD CONSISTENTLY ITA. NO. 290/COCH./2009 3 FOLLOWED, REDUCING FROM THE BILL AMOUNT OF THE WORK , I.E., AS PER PWD RATES, THE ESTIMATED PROFIT MARGIN AND OVERHEAD EXPENSES, WHIC H, IN AGGREGATE, VARIES BETWEEN 21% TO 30% OF THE GROSS VALUE. THIS IS SO AS IT WAS NOT PRACTICAL TO MAINTAIN `COSTING FOR EACH PROJECT SEPARATELY, EVEN AS EXPLAINED BEFO RE THE AO. THE LD. CIT(A) WAS OF THE VIEW THAT THE AO HAD NOT MADE A PROPER INVESTIG ATION QUA THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE HIM SO AS TO VERIFY THE TRU TH THEREOF. ALSO, HE HAD NOT CITED ANY COMPARABLE CASE. AT THE SAME TIME, THE ASSESSE ES BOOKS WERE NOT FULLY VERIFIABLE AND, THEREFORE, THE BOOK RESULTS NOT FULLY ACCEPTAB LE. SHE, THEREFORE, DIRECTED FOR THE ADOPTION OF THE RATE OF NET PROFIT AT 6.5%, I.E., B Y RECKONING THE TURNOVER AFTER EXCLUDING THEREFROM THE COST OF THE MATERIAL SUPPLI ED, AND CONTRIBUTION TOWARDS KERALA CONSTRUCTION WORKERS WELFARE FUND. THE PROFIT FROM THE HIRE CHARGES WAS SUSTAINED AS THAT ESTIMATED BY THE AO. AGGRIEVED, THE ASSESSE E IS IN APPEAL. 4. BEFORE US, LIKE SUBMISSIONS STOOD MADE BY EITHER SIDE, WITH THE ASSESSEE RELYING ON THE HEARING NOTE. 5. WE HAVE HEARD THE PARTIES AND PERUSED T HE MATERIAL ON RECORD. 5.1 THE FIRST ISSUE IS IN RESPECT OF THE ADDIT ION ON ACCOUNT OF ESTIMATION OF INCOME, BY THE APPLICATION OF SECTION 145(3) OF THE ACT. TH E QUESTION OF ESTIMATION OF INCOME OF THE BUSINESS WOULD ARISE ONLY WHERE THE FINDING OF THE BOOKS OF ACCOUNTS NOT YIELDING CORRECT INCOME DUE TO THEIR BEING NOT CORR ECT OR COMPLETE, IS UPHELD. IN THIS REGARD, WE FIND THAT THE REVENU E HAS RAISED THREE PERTINENT OBJECTIONS. THE FIRST RELATES TO THE BOOKING OF A SUBSTANTIAL P ORTION OF THE EXPENSES THROUGH SELF- VOUCHERS. THE ASSESSEE HAS CITED THE NATURE OF ITS BUSINESS AS A REASON FOR THE SAME, AS ALSO CONTENDING THAT IN VIEW OF THE SIGNATURES BY T HE PAYEES, THE SAME MUST BE REGARDED AS EXTERNAL EVIDENCE. WE FIND MERIT IN TH E ARGUMENT, THOUGH, THE MATTER IN OUR VIEW, REQUIRES FURTHER EXAMINATION. IT IS NOT CLEAR AS TO WHAT IS THE NATURE OF THE EXPENSES CLAIMED AS SITE EXPENSES. SIMILARLY, WHY T HE CONVEYANCE EXPENSES SHOULD NOT BE SUPPORTED BY EXTERNAL (THIRD PARTY) EVIDENCE IS NOT CLEAR. THE ASSESSEE HAS ALSO NOT LED ANY EVIDENCE OR MATERIAL IN SUPPORT OF ITS CLAIMS, AND REFERS IN THE MAIN IN HIS ARGUMENTS ONLY TO THE LABOUR EXPENSES. ITA. NO. 290/COCH./2009 4 THE PRIMARY ONUS TO PROVE ITS RETURN AND TO ESTABLISH ITS CLAIMS IS ON THE ASSESSEE, WHICH WE CONSIDER AS NOT DISCHARGED. WIT H REGARD TO THE CLAIM OF EXPENDITURE TOWARD SALE OF SOIL AND RUBBLE AT RS. 1 1.50 LAKHS, WE DO NOT FIND THE SAME AS RELEVANT FOR THE PURPOSE OF ACCEPTANCE (OR REJEC TION) OF BOOKS. IF, AND TO THE EXTENT, THE REVENUE IS OF THE VIEW THAT THE SAID EXPENDITUR E IS NOT AN ALLOWABLE EXPENDITURE, IT COULD DISALLOW THE SAME. LIKEWISE, IF IT IS OF THE VIEW THAT THE SAID AMOUNT REQUIRES BEING BROUGHT TO TAX AS INCOME FROM OTHER SOURCES, IT WAS AT LIBERTY TO DO SO. THE THIRD OBJECTION IS WITH REGARD TO THE VALUATION OF WIP. T HE ASSESSEE HAS EXPLAINED THE SAME TO BE IN RESPECT OF WORK DONE, AND FOR WHICH BILLS STAND PREPARED, THOUGH NOT YET PASSED, AND FOR WHICH A PRIOR APPROVAL OF THE SANCT IONING AUTHORITY (IN THE CONCERNED DEPARTMENT PWD) IS REQUIRED. FROM THE VALUE SO A RRIVED, IT HAS REDUCED THE PROFIT ELEMENT AND OVERHEAD EXPENSES, SO THAT THE BALANCE REPRESENTS THE COST, I.E., THE DIRECT MATERIAL COST PLUS WORKS OVERHEAD. WE, AGAIN, FIND THE ASSESSEES OBJECTION AS VALID. THE ASSESSEE HAVING CLARIFIED THE BASIS ON WHICH IT HAS VALUED ITS WIP, IT WAS FOR THE REVENUE TO EXAMINE THE MATTER FURTHER AND CORRECT T HE DEFICIENCY THEREIN, IF ANY. THE ASSESSEE, WE NO DOUBT OBSERVE, HAS NOT EXPLAINED TH E WIDE VARIATION OF 9%, I.E., FROM 21% TO 30%, MADE FROM THE BILL AMOUNT TOWARD REDUCT ION ON ACCOUNT OF PROFIT AND OVERHEAD EXPENSES, AND TO THAT EXTENT THE ASSESSEE S EXPLANATION IS NOT COMPLETE. SO HOWEVER, IT WAS FOR REVENUE TO QUESTION THE ASSESSE E WITH REGARD TO THIS VARIATION, MAKING SUCH VERIFICATION OR INQUIRY IN THE MATTER A S IT DEEMED FIT, TO ARRIVE AT A FINDING OF FACT, I.E., AS TO WHAT WOULD BE THE CORR ECT PERCENTAGE OF DEDUCTION(S), MAKING ADJUSTMENT(S) TO THE DISCLOSED VALUE OF WIP, WHICH MAY BE QUA DIFFERENT PROJECTS, SO AS TO STATE THE WIP AT ITS CORRECT VAL UE, I.E., AS WARRANTED ON THE BASIS OF ITS FINDINGS OF FACT, WHILE, AS NOTED EARLIER, IT HAS F AILED TO RENDER ANY. FOR ALL WE KNOW THE ASSESSEE MAY WELL HAVE VALID REASONS FOR OBSERVING SUCH A DIFFERENTIAL, QUA DIFFERENT PROJECTS, IN ELIMINATING THE EXCESS OVER COST IN AR RIVING AT THE `COST OF ITS WIP; THE MATTER IS ENTIRELY FACTUAL, THE RELEVANT FACTS AS O BTAINING FOR THE YEAR WERE REQUIRED TO BE INQUIRED INTO AND THUS ASCERTAINED, AND THE ONUS FOR WHICH IS ONLY ON THE REVENUE. IN FACT, IN VIEW OF THE AO HIMSELF ASSESSING THE IN COME FROM HIRE CHARGES AT RS. 74, 209/-, HIS OBSERVATION THAT REDUCTION OF HIRE CHARG ES INCOME FROM THE RETURNED PROFIT ITA. NO. 290/COCH./2009 5 FIGURE (RS. 9.55 LACS) WOULD STAND TO BE REDUCED TO A MINIMAL AMOUNT, STANDS DISPROVED. UNDER THE CIRCUMSTANCES, WE, THEREFORE, U PHOLD THE NON-ACCEPTANCE OF THE ACCOUNTS BY THE AO ONLY ON THE FIRST GROUND. HERE WE MAY ALSO ADD THAT THE RETURNING OF A LOWER PROFIT, WHICH IS ITSELF A RELATIVE TERM, CANNOT BY ITSELF FORM A REASON FOR THE REJECTION OF ACCOUNTS, BUT CAN ONLY LEAD TO A REASO N TO SUSPECT THE ACCOUNTS AS BEING NOT CORRECT AND COMPLETE, LEADING TO FURTHER INQUIR Y, AND, FURTHER COULD BE RELEVANT WHILE ESTIMATING THE INCOME, I.E., IN CASE FOLLOWED BY AN ACTUAL REJECTION OF THE ACCOUNTS. 5.2 COMING, NEXT, TO THE ESTIMATION OF THE INCOME. WHILE THE AO ESTIMATED THE SAME AT RS. 16.26 LAKHS, THE LD. CIT(A) REDUCED IT TO RS. 12.69 LAKHS, I.E., BY SUSTAINING THE PROFIT ON THE HIRE CHARGES, AND APPL YING THE PROFIT RATE OF 6.5% ON THE CONTRACT RECEIPT, WHICH WAS FOR THE PURPOSE TO BE R EDUCED (BY RS. 10.05 LAKHS) ON ACCOUNT OF COMPONENTS THEREOF NOT BEARING ANY INCOM E ELEMENT, AS AGAINST THE RETURNED PROFIT OF RS. 9.55 LAKHS BY THE ASSESSEE. THE ASSESSEE CLAIMS THE ESTIMATE TO BE EXCESSIVE, ALBEIT WITHOUT REFERENCE TO ANY MATER IAL. WHEN THE QUANTUM OR ESTIMATE ITSELF IS IN DISPUTE, MAKING CLAIMS, SANS ANY BASIS, IS OF NO MOMENT; THE LAW, IN FACT, ONLY REQUIRING THE ASSESSING AUTHORITY TO BE NOT AR BITRARY AND MAKE THE ESTIMATE IN AN OBJECTIVE, REASONABLE MANNER; IN SHORT, FAIRLY. IN THIS REGARD, WE ARE OF THE VIEW THAT AN INFORMED ESTIMATE CANNOT BE MADE IN THE ABSENCE OF ANY DEFINITE INFORMATION ON THE EXPENSES IN RESPECT OF LABOUR EXPENSES, SITE EXPENS ES AND CONVEYANCE EXPENSES, CLAIM QUA WHICH IS UNSUBSTANTIATED, AND WHICH WE HAVE CONFIR MED TO BE THE ONLY DEFECT IN THE ASSESSEES ACCOUNTS FOR THE YEAR. THERE IS NO M ENTION OF THE EXPENDITURE CLAIMED ON EACH OF THE THREE HEADS OF ACCOUNT FOR THE YEAR UNDER REFERENCE AS WELL AS FOR THE EARLIER YEARS, AS ALSO THE NORMATIVE FIGURE(S) THAT OBTAINS IN THE TRADE IN RESPECT THEREOF. EVEN THE AGGREGATE OF THE THREE, EITHER IN TERMS OF FIGURE OR PERCENTAGE OF THE CONTRACT RECEIPT, IS NOT FORTHCOMING FROM THE RECORD. ALSO, THE LD. CIT(A) HAS NOT CLARIFIED ANY BASIS OR JUSTIFICATION FOR THE PROFIT ESTIMATE OF 6 .5% ON THE CONTRACT RECEIPT; THE RECEIPT FROM HIRE CHARGES BEING NOMINAL, AND THE PROFIT EST IMATE IN ITS RESPECT WE OBSERVE AS HAVING NOT BEEN SERIOUSLY CONTESTED BY THE ASSESSEE . UNDER THE CIRCUMSTANCES, WE ITA. NO. 290/COCH./2009 6 ONLY CONSIDER IT FIT AND PROPER TO RESTORE THE MATT ER BACK TO THE FILE OF THE LD. CIT(A) FOR PASSING A SPEAKING ORDER IN THE MATTER, AND AFT ER ALLOWING PROPER OPPORTUNITY OF HEARING TO BOTH THE PARTIES. WE DECIDE ACCORDINGLY, PARTLY ALLOWING THE ASSESSEES OBJECTIONS. 5.3 THE ASSESSEES GROUND NOS. 2 TO 5 (GROUND NO. 1 BEING GENERAL IN NATURE) PROJECTING THIS ISSUE, ARE ACCORDINGLY DISPOSED OF. 6. THE SECOND ISSUE (GROUNDS 6 TO 14) IS QUA THE RECEIPT OF RS. 17 LAKHS DERIVED BY THE ASSESSEE ON THE SALE OF RUBBER AND COCONUT TREES, STANDING ON THE ASSESSEES LAND, WHICH STOOD BROUGHT TO TAX BY THE AO AS INCOM E FROM OTHER SOURCES; THE SAID TREES BEING A SPONTANEOUS GROWTH. HE RELIED FOR TH IS PURPOSE ON THE DECISIONS IN THE CASE OF RAJA MUSTAFA ALI KHAN VS.CIT 16 ITR 330 (PC); CIT VS.RAJA BENOY KUMAR SAHA ROY, 32 ITR 466 (SC); CIT VS . KANNAN DEVAN HILL PRODUCE COMPANY LTD., 200 ITR 453, 460 (CAL.); AND M.RAMALAKSHMI REDDY VS. CIT , 232 ITR 281 (MAD). THE ASSESSEE EXPLAINED THAT THE TREES HAD BEEN SOLD ALO NG WITH THE ROOTS AND, AS SUCH, THERE WAS NO SCOPE FOR RE-GENERATION OF THE TREES, WHICH FORM PART OF THE CAPITAL STRUCTURE AND, THUS, THE SALE PROCEEDS THEREOF REPRESENTED A CAPITAL RECEIPT. RELIANCE STOOD PLACED BY HIM ON THE DECISION IN THE CASE OF A.K.T.K.M.VISHNUDATTA ANTHARJANAM VS. COMMISSIONER OF AGRICULTURAL INCOME-TAX (1970) 78 ITR 58 (SC). THE AO DEPUTED THE INSPECTOR TO MAKE AN ENQUIRY IN THE MATTER. IT WAS REPORTED BY HIM THAT THE TREES WERE SOLD TO TWO BROTHERS, SHRI C.C. VARGHESE AND S HRI C.C. JACOB, WHO ARE RELATED TO THE ASSESSEE, AND HAD PURCHASED THE TREES FOR WOOD FOR USE IN THE CONSTRUCTION OF THEIR BUILDING. IT WAS REPORTED BY HIM THAT THE PORTION OF THE VARIOUS TREES WAS STILL LYING AT THE SITE. THE AO CONFRONTED THE POSITION TO THE ASS ESSEE, WHO REPLIED THAT THE TREES WERE IN FACT SOLD WITH ROOTS. THE SAME DID NOT FIND FAVOUR WITH THE AO IN VIEW OF THE INSPECTORS REPORT, AS WELL AS FOR THE REASON THAT AS THE PURCHASERS ONLY REQUIRED TIMBER FOR CONSTRUCTION, THERE WAS NO REQUIREMENT FOR THEM TO PURCHASE THE TREES WITH ROOTS. THE DECISION BY THE APEX COURT IN THE CASE OF VIHNUDATTA ANTHARJANAM WOULD, THUS, NOT APPLY IN THE FACTS OF THE CASE. ITA. NO. 290/COCH./2009 7 IN APPEAL, THE LD. CIT(A) EXAMINED THE MA TTER. NOTING THE MATERIAL RELIED UPON BY BOTH THE PARTIES IN SUPPORT OF THEIR RESPECTIVE CLAIMS, IT WAS FOUND BY HER THAT THE ASSESSEE, WHEN CONFRONTED BY THE AO WITH THE INSPEC TORS REPORT, HAD NOT DENIED THE SAID REPORT IN ITS ENTIRETY. HE HAD, RATHER, SOUGH T TO MAKE A DISTINCTION BETWEEN THE PRIMARY AND THE SECONDARY ROOTS, STATING THAT THE S ECONDARY ROOTS WERE LEFT BEHIND BY THE PURCHASERS, AS THESE ARE USED ONLY AS FIREWOOD. THE ENTIRE ISSUE, THEREFORE, IN HER VIEW, HINGED ON WHETHER THE TREES WERE SOLD WITH RO OTS OR WITHOUT THEM. THIS IS SO AS IT IS ONLY WHEN THE ROOTS ARE STILL LEFT WITH THE T REE STUMPS, SO THAT THEY STAY ROOTED TO THE LAND, THAT THE POSSIBILITY OF REGENERATION SUBS ISTS, WITHOUT AFFECTING THE CAPITAL STRUCTURE, AS HELD BY THE APEX COURT IN THE CASE OF VIHNUDATTA ANTHARJANAM (SUPRA). IN VIEW OF THE FINDINGS BY THE AO, SUPPORTED BY THE IN SPECTORS REPORT, WHICH GOT AFFIRMED FROM THE FACT THAT WHAT WAS SOLD WAS ONLY TIMBER FOR RESIDENTIAL CONSTRUCTION, SHE CONFIRMED THE ADDITION. AGGRIEVED, THE ASSESSE E IS IN APPEAL. 7. BEFORE US, THE ASSESSEE REITERATED ITS STAND, I. E., AS BEFORE THE AUTHORITIES BELOW. THE INSPECTION WAS MADE IN NOVEMBER, 2007, WHILE TH E TREES WERE CUT IN JUNE, 2004, I.E., 2 1/2 YEARS EARLIER. THE ASSESSEE HAD NOT SO LD THE TEAKWOOD, VATTA, COCONUT OR RUBBER TREES, ROOTS OF WHICH, ALONG WITH THAT OF JA CKFRUIT TREES, WERE FOUND BY THE INSPECTOR TO BE LYING ON THE BOUNDARY OF THE PROPER TY FROM WHERE THE SOIL WAS UTILIZED FOR CONTRACT WORK, AND SALE. THE LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD, AS ALSO THE CASE LAW CITED. 8.1 WE, FIRSTLY, OBSERVE THAT THERE IS NO DISPUTE W ITH REGARD TO THE FACT THAT THE TREES, WHICH STAND CUT AND SOLD, ARE A SPONTANEOUS GROWTH. THEY STAND NEITHER CULTIVATED NOR NURTURED BY THE ASSESSEE. ALSO, THEY WERE NOT IN AN Y MANNER BEING USED BY THE ASSESSEE FOR HIS AGRICULTURAL, OR FOR THAT MATTER, ANY OTHER, ACTIVITY. 8.2 THE NEXT THING THAT WE OBSERVE IS THAT THE CONTROVERSY BETWEEN THE ASSESSEE AND THE REVENUE IS WITH REGARD TO WHETHER THE TREES STO OD SOLD ALONG WITH THE ROOTS, OR NOT. THIS QUESTION OF FACT ASSUMES RELEVANCE IN VIEW OF THE DECISION BY THE APEX COURT IN ITA. NO. 290/COCH./2009 8 THE CASE OF VISHNUDATTA ANTHARJANAM (SUPRA). THE ASSESSEE CLAIMS THAT THE TREES STOOD SOLD ALONG WITH THE ROOTS, THOUGH THE PURCHASERS LE FT THE SECONDARY ROOTS, WHICH HAVE APPLICATION ONLY AS FIREWOOD, AT THE SITE ITSELF. IT IS NOT IN DISPUTE THAT SOME ROOTS, WHICH HAVE NOT BEEN QUANTIFIED IN RELATION TO THE T REES CUT AND SOLD, OR QUALITATIVELY EVALUATED AS BEING PRIMARY OR SECONDARY OR BOTH, BY ANY OF THE PARTIES, (THE ASSESSEES SUBMISSIONS IN THIS REGARD BEING ALSO UNSUBSTANTIAT ED AND, IN FACT, RENDERED ONLY AFTER THE INSPECTORS REPORT), WERE LYING AT THE PLACE FR OM WHERE THE SOIL STOOD EXTRACTED BY THE ASSESSEE FOR USE IN HIS CONTRACT WORK OR FOR SA LE, EVEN MONTHS AFTER THE SALE (OF TREES). AS SUCH, IT IS CLEAR THAT WHETHER THE TREE S STOOD SOLD ALONG WITH THE ROOTS OR NOT, THE SAME STOOD UPROOTED. IF THAT BE SO, IT IS ONLY UNDERSTANDABLE THAT THE ASSESSEE WOULD HAVE REALISED THE VALUE IN ITS RESPECT. AS SU CH, IT IS ONLY LOGICAL TO INFER THAT ROOTS STOOD SOLD EITHER TO THE PURCHASER OF THE TRE ES, AS CONTENDED BY THE ASSESSEE, OR TO SOMEBODY ELSE. HOWEVER, THE QUESTION OR THE ISSUE HERE IS NOT OF THE IDENTITY OF THE PERSON(S) TO WHOM THE ROOTS STOOD SOLD, WHICH IS WH AT THE CONTROVERSY BETWEEN THE TWO OPPOSING PARTIES WE OBSERVE AS HAVING BOILED DO WN TO (THE ASSESSEE CONTENDING TO NON-ACCEPTANCE BY THE REVENUE - THAT THE ROOTS S TOOD LEFT BEHIND BY THE PURCHASERS THEMSELVES), AND WHICH, TO OUR MIND, IS NOT THE MAT ERIAL, GIVEN THE FACT THAT THE TREES STAND UPROOTED. THE MOOT OR THE MATERIAL QUESTION IN THIS CASE WOUL D BE THE PURPOSE FOR WHICH THE TREES WERE CUT AND SOLD . FOR EXAMPLE, IF THE TREES WERE CUT BY THE ASSESSEE FOR PLANTING FRESH ONES IN THEIR STEAD; TH E EARLIER ONES HAVING ATTAINED OPTIMUM SIZE, WHILE ALSO COMMERCIALLY EXPLOITING HI S ASSET, THE SAME WOULD STAND TO BE ASSESSED AS INCOME FROM OTHER SOURCES. REFERENCE IN THIS CONTEXT IS DRAWN TO THE DECISION IN THE CASE OF CIT V. AMBAT ECHUKUTTY MENON , 120 ITR 70 (SC), WHEREIN, UPHOLDING THE ASSESSEES CLAIM OF THE RECEIPT BEING CAPITAL, AND NOT REVENUE, THE HONBLE COURT CLARIFIED THAT THE OBJECT FOR WHICH T HE TREES WERE CUT IS EXTREMELY RELEVANT IN DECIDING THE ISSUE. IN THAT CASE THE RE VENUE HAD NOWHERE REJECTED THE ASSESSEES CLAIM OF THE SALE (OF TREES) AS BEING TH E FIRST AND LAST SALE, I.E., EFFECTED FOR CONVERTING THE LAND FOR AGRICULTURE PURPOSES; IN FA CT, EXTENDING THE DRY OR WET CULTIVATION TO THE AREA, AND PROCEEDED ON THE BASIS THAT THE SAME WAS WITH A VIEW TO EARN INCOME BY WAY OF REGENERATION OF TREES. IN TH E PRESENT CASE, IT IS APPARENT THAT THE ASSESSEE IS USING THE SOIL OF HIS LAND EITHER F OR HIS OWN BUSINESS OR SELLING IT AS ITA. NO. 290/COCH./2009 9 SUCH; EITHER WAY, REALIZING ITS VALUE; FURTHER, EVE N GOING TO REDUCE THE VALUE OF HIS LAND TO THAT EXTENT. IN FACT, THE LAND IS DUG OUT TO THE ROCK- BOTTOM, LITERALLY, UP TO THE LEVEL WHERE THE ROCKS ARE FOUND. AS SUCH, HE WOULD, THERE FORE, NEED TO CLEAR THE TREES FOR THE SAME, BEING, AGAIN, ONLY BY WAY OF AND A MANNER OF REALIZING THE VALUE OF LAND, HIS PRIME ASSET, MUCH IN THE SAME WAY AS A MINE-OWNER R EALIZES HIS MINE BY QUARRYING IT. 8.3 THE NEXT QUESTION WOULD BE THE NATURE OF T HE RECEIPT, IN VIEW OF THE SAID FINDING. TREES ROOTED TO THE LAND, BY DEFINITION, A RE A PART OF LAND (REFER: TRANSFER OF PROPERTY ACT ), EVEN AS CLARIFIED BY THE APEX COURT PER INTER ALIA THE CITED DECISIONS. THUS WHAT STANDS SOLD AND TRANSFERRED BY HIM WAS A PART OF LAND ITSELF. HOWEVER, THE TREES UNDER REFERENCE ARE NOT SOLD TOGETHER WITH TH E LAND, WHICH REMAINS UNSOLD, BUT AFTER UPROOTING THEM. THUS, THOUGH AN ERSTWHILE CO NSTITUENT THEREOF, AND NOT MAINLAND ITSELF, IT WOULD NEVERTHELESS, WHERE SEVERED FROM T HE LAND AND REALIZED AS SUCH, STAND TO BE CATEGORIZED AS A CAPITAL ASSET IN SPECIE . THE RECEIPT ON THEIR SALE WOULD, THUS, BE A CAPITAL RECEIPT, THOUGH ONLY QUA A CAPITAL ASSET, ON ITS TRANSFER, AND THEREFORE, EXIGIBLE TO CAPITAL GAINS TAX UNDER THE ACT. IN THI S CONTEXT, WE FIND THAT THE ASSESSEE CLAIMS THAT ITS LAND IS NOT AN AGRICULTURAL LAND AN D, AS SUCH, IS A CAPITAL ASSET UNDER THE ACT, SO THAT REDUCING ITS VALUE BY THE NOTIONAL SAL E VALUE OF SOIL REALIZED BY USE IN OWN BUSINESS, WOULD LEAD TO AN ENHANCED, I.E., TO THAT EXTENT, CAPITAL GAINS ON ITS SALE. FIRSTLY, WE OBSERVE AN INCONSISTENCY IN THE ASSESSE ES STAND IN THIS RESPECT. WHILE THE SOIL USED FOR OWN BUSINESS STANDS CREDITED TO THE L AND ACCOUNT, THAT SOLD (RS. 6.50 LACS) STANDS CREDITED TO THE CAPITAL ACCOUNT, AND NOT TO THE LAND ACCOUNT . A UNIFORM APPROACH, CONSISTENT WITH ITS ARGUMENT, WOULD WARRA NT THE ENTIRE CREDIT TO THE LAND ACCOUNT; THE TWO PROCESSES, OF DIRECT SALE OR USER IN OWN BUSINESS, BEING ECONOMICALLY EQUIVALENT, I.E., ONLY A MANNER OF REALIZING THE VA LUE OF THE SOIL. SECONDLY, IN OUR VIEW, THE ARGUMENT IS LARGELY IRRELEVANT. THIS IS A S THE QUESTION WHETHER THE ASSESSEES LAND IS A CAPITAL ASSET U/S. 2(14)(III) OF THE ACT IS BESIDES THE POINT. THE SAME WOULD BE RELEVANT IF WHAT WAS BEING SOLD WAS LAND, I.E., AS WHERE THE STANDING TREES STOOD SOLD ALONG WITH THE LAND, WHILE WHAT STANDS SOLD BY THE ASSESSEE IS NOT LAND, BUT A DISINTEGRATED COMPONENT THEREOF, AND WHICH FOR THAT REASON CANNOT BE CONSIDERED AS LAND ITSELF. IT MAY BE THAT THE ASSESSEE CONSIDERS IT ECONOMICALLY MORE BENEFICIAL TO ITA. NO. 290/COCH./2009 10 EXPLOIT THE LAND BY REALIZING ITS COMPONENTS THAN T HE LAND AS SUCH. IT IS ONLY WHERE THE SAME IS SOLD AS SUCH, THAT THE QUESTION OF IT BEING A CAPITAL ASSET OR NOT, AND THUS THE INCOME ARISING ON ITS TRANSFER AS BEING TAXABLE OR NOT, WOULD ARISE. REFERENCE IN THIS CONTEXT BE ALSO MADE TO THE DECISION BY THE APEX CO URT HOLDING THE SHIP-BREAKING ACTIVITY TO BE A MANUFACTURING ACTIVITY; THE SAME B EING NOT TANTAMOUNT TO SALE OF SHIP. THE GAINS ON THE SALE OF TREES, DECIDEDLY A CAPITAL ASSET U/S. 2(14), WOULD THEREFORE STAND TO BE ASSESSED AS `CAPITAL GAINS U/S. 45 OF THE ACT. 8.4 WE WOULD, NEXT, CONSIDER THE QUESTION OF THE CO ST OF ACQUISITION. THE BOOK- VALUE OF THE ASSESSEES LAND AT THE COMMENCEMENT OF THE PREVIOUS YEAR IS AT RS. 46.17 LAKHS; THAT, PERHAPS, IS ALSO ITS COST. THE TREES STANDING THEREON FORMED PART OF THE LAND. AS SUCH, HOWSOEVER INSIGNIFICANT IT MAY BE, S OME PART OF THE COST OF THE LAND IS TO BE ATTRIBUTED THERETO ITS CONSTITUENT - AS WEL L, AND WHICH WOULD REPRESENT THE COST OF THEIR ACQUISITION. IT IS NOT CLEAR WHEN THE LAND WAS PURCHASED/ACQUIRED. ALSO, IT MAY BE CONTENDED THAT SOME OF THE TREES CUT AND SOLD ON LY GENERATED AFTER THE ACQUISITION OF LAND BY THE ASSESSEE. AS THE TREES GENERALLY TAKE A LONG TIME TO MATURE FOR TIMBER, IF THE ASSESSEES ACQUISITION DATES BACK TO ONLY FEW Y EARS, THE SAID ARGUMENT WOULD STAND OUSTED AT THE THRESHOLD. IN ANY CASE, THE SAME IS NOT OF MUCH RELEVANCE. PLANTS AND TREES ARISE OUT OF THE WOMB OF THE LAND WITHOUT ANY ORGANISED EFFORT OR ACTIVITY, WHICH IS WHAT ESSENTIALLY THE TERM `SPONTANEOUS GROWTH S IGNIFIES. FURTHER, THEIR GROWTH IS VALUABLE. THE SAME WOULD ALSO LEAD TO AN INCREASE I N THE VALUE OF LAND IN-AS-MUCH AS A BARREN LAND, OR EVEN FERTILE ONE, BUT SANS ANY TREES, ETC., WOULD FETCH A LOWER VALUE VIS- -VIS THAT BEARING THEM, AND FOR THE SIMPLE REASON THAT, IF NOTHING ELSE, THE SAME COULD BE SOLD AND, THUS, ENCASHED, I.E., APART FROM THE L AND WHICH REMAINS INTACT; ITS FERTILITY OR POTENTIAL BEING NOT DIMINSHED. EVEN IF ALLOWED T O GROW FURTHER, WOOD, A NATURAL PRODUCT, MATURES WITH AGE, SO AS TO GAIN DISPROPORT IONATELY IN VALUE VIS--VIS TIME. IN OTHER WORDS, THE INCREASE IN VALUE IS NOT LINEARLY RELATED WITH TIME. THE LAND VALUE WOULD DEPEND LARGELY ON THE PURPOSE FOR WHICH THE L AND IS BEING PURCHASED. THE HONBLE APEX COURT IN THE CASE OF DHUN KAPADIA VS. CIT , 63 ITR 651 (SC), HAD AN OCCASION TO CONSIDER THE COST OF ACQUISITION OF RIGHT SHARES SOLD BY THE ASSESSEE. HOLDING IT TO BE A CAPITAL ASSET, WHICH STOOD EMBED DED IN THE PARENT (ORIGINAL) SHARES, ITA. NO. 290/COCH./2009 11 THE HONBLE COURT OPINED THAT THE FALL IN THE VALUE OF THE ORIGINAL SHARES IMMEDIATELY AFTER THE ISSUE OF RIGHTS SHARES WOULD REPRESENT A FAIR ESTIMATE OF THE `COST OF THOSE (RIGHT) SHARES. THE SAME COULD NOT BE CONSIDERED A S WITHOUT COST, AS THE PARENT SHARES, WHICH REPRESENTED THE CAPITALIZED VALUE OF THE ISSU ING-COMPANY, SUFFER A DECLINE IN VALUE, AS THE SAME (SAID VALUE) STANDS TO BE NOW RE PRESENTED BY A LARGER NUMBER OF SHARES. THE ASSESSEE MUST, THEREFORE, TO THAT EXTEN T, BE CONSIDERED AS HAVING INCURRED COST TOWARDS ACQUISITION OF RIGHT SHARES, WHICH WOU LD STAND TO BE REASONABLY ALLOWED AS A DEDUCTION IN THE COMPUTATION OF THE CAPITAL GA INS ON THE SALE OF THE RIGHT SHARES. WE CONSIDER THE SAME ANALOGY AS APPLICABLE IN THE I NSTANT CASE. TREES, TOGETHER WITH LAND, STAND ACQUIRED AT A COST, AND WHICH, THEREFOR E, WOULD ONLY BE TOWARD CAPITAL STRUCTURE/COMPLEX, I.E., THE LAND AND THE TREES STA NDING THEREON. THE SAID TREES, AND ALSO THOSE THAT ARISE ON THE LAND SUBSEQUENT TO ITS ACQUISITION, NEVERTHELESS, CONTINUE TO GROW ON THEIR OWN. THE SAME CERTAINLY HAS A BEARIN G ON THE VALUE OF LAND, OF WHICH THEY ARE BUT AN INTEGRAL PART. AS SUCH, WHERE CUT A ND SOLD, THE ASSESSEE IS ONLY REALIZING THE VALUE OF ITS CAPITAL ASSET, ALBEIT BY REALIZING SEPARATELY ITS ERSTWHILE CONSTITUENTS, SUCH AS TREES. WHEN SOLD IN SUCH A ST ATE, IT CANNOT BE SAID THAT WHAT STANDS SOLD IS LAND PER SE . THE SAME, NEVERTHELESS, FORMING PART OF THE ASSES SEES CAPITAL STRUCTURE OR COMPLEX (COMPOSITE ASSET), IS A CAPITAL ASSET. ITS SEPARATE COST, THUS, CAN ONLY REASONABLY BE REGARDED AS THE FALL I N THE VALUE OF THE LAND CONSEQUENT TO THE REMOVAL OF THE TREES. IT MAY WELL BE ARGUED, AS INDEED THE ASSESSEE ACTUALLY DOES, IN EFFECT, WITH REFERENCE TO SOIL A CONSTITUENT O F LAND TO THE EXTENT USED FOR OWN BUSINESS, THAT THE VALUE OF THE LAND SHALL STAND TO BE REDUCED BY THE LIKE AMOUNT, I.E., THE SALE VALUE OF THE TREES. WE CANNOT BUT DISAGREE , EVEN AS, IN PRINCIPLE, THE COST OF LAND, OR THE DEEMED COST OF LAND, AS THE CASE MAY B E, WOULD STAND TO BE REDUCED BY THE COST OF ACQUISITION OF THE TREES, I.E., IN THE EVEN TUALITY OF THE SALE OF LAND. FIRSTLY, THE PROPOSITION SUFFERS ON ACCOUNT OF THE FACT THAT THE ACTUAL REDUCTION IN VALUE OF THE LAND IS THE MATTER OF FACT AND, THUS, WOULD NOT ADMIT OF ANY PRESUMPTION, SO AS TO SAY THAT THE SAME IS EXACTLY TO THE EXTENT OF THE SALE VALUE OF THE TREES. SECONDLY, THE ARGUMENT IS BEREFT OF ECONOMIC RATIONALE, INASMUCH AS THE SA LE OF TREES SEPARATELY WOULD IN THAT CASE MAKE LITTLE ECONOMIC SENSE, AND WOULD STAND TO BE SOLD SEPARATELY (IN A SCENARIO WHERE THE ASSESSEE IS SEEKING TO REALIZE HIS CAPITA L ASSET), ONLY WHERE MORE VALUE ITA. NO. 290/COCH./2009 12 STANDS TO BE REALISED THUS. THIS IS ALSO FOR THE RE ASON THAT THE LAND DOES NOT LOSE ITS FERTILITY OR POTENTIALITY IN ANY MANNER BY THE REMO VAL OF THE TREES. ALSO, THE ANALOGY OF THE SALE OF RIGHT SHARES HAS A MARKED SIMILARITY IN THIS RESPECT ALSO. THIS IS AS IT IS NOBODYS CASE THAT THE DECLINE IN THE MARKET VALUE OF SHARES DIRECTLY CORRESPONDS, IN THAT RATIO, WITH THE VALUE OF THE RIGHT SHARES, OR EVEN CORRESPONDS WITH THE DECREASE IN THE PER SHARE CAPITALIZED VALUE OF THE COMPANY. THI S IS AS IF THAT WERE THE CASE, JUST AS IN THE CASE OF TREES, RATHER MORE SO - AS THE TREES COULD ALSO BE SOLD WITHOUT THE INTENT TO SELL THE LAND, THE ISSUE OF RIGHT SHARES SHOULD NOT LEAD TO ANY INCREASE IN THE SHARE- HOLDER VALUE OR WEALTH. THE DIMINUTION IN THE FAIR MARKET VALUE OF THE LAND, THUS, WOULD ONLY REPRESENT A REASONABLY GOOD APPROXIMATIO N OF THE ASSESSEES LOSS OF VALUE OF HIS CAPITAL STRUCTURE/COMPLEX ON THE SALE OF TRE ES, AND THUS THE DEEMED COST THEREOF IN HIS HANDS. WE ARE AWARE, AND ONLY ACUTELY, THAT THE MATTER OF VALUATION IS VIEWED IS IMBUED WITH PRACTICAL CONSTRAINTS, AND DOES NOT ADM IT OF READY ANSWERS. HOWEVER, THE DIFFICULTY IN THE ESTIMATION CANNOT WITHHOLD OR OBS TRUCT THE COURSE OF LAW, WHICH MUST PREVAIL, APPLYING THE SAME IN THE BEST POSSIBLE MAN NER UNDER THE CIRCUMSTANCES. REFERENCE IN THIS CONTEXT IS MADE TO THE DECISION I N THE CASE OF A.R.KRISHNAMOORTHY AND ANR. VS. CIT, 176 ITR 417 (SC), WHEREIN THE HONBLE APEX COURT, REJECTING THE ASSESSEES CONTENTION, MADE RELYING ON THE DECISION IN THE CASE OF CIT VS. B.C. SRINIVAS SHETTY , 128 ITR 294 (SC), THAT DETERMINATION OF COST WAS IMPOSSIBLE, CLARIFIED THAT THOUGH DIFFICULT THE SAME MUST BE EN GAGED IN, MAKING THE BEST POSSIBLE VALUATION ON THE BASIS OF EVIDENCE. WE ARE ALSO AWA RE THAT THE ESTIMATED COST OF THE TREES SOLD WOULD ONLY BE BASED ON CURRENT VALUATION S, WHILE THE COST, BY DEFINITION, WOULD HAVE TO BE RELATED TO THE TIME OF ACQUISITION . THE LAW, BY PROVIDING FOR ADJUSTMENT OF COST, ON THE BASIS OF INFLATION INDEX , ITSELF SINCE RECOGNIZES AND ADDRESSES THIS INFIRMITY, WHICH HAD EARLIER INFLICT ED THE COMPUTATION OF CAPITAL GAINS UNDER THE ACT, AS IT IN EFFECT LED ALSO TO THE TAXA TION OF THE VALUE REALISED ON THE TRANSFER OF THE ASSET ON ACCOUNT OF THE FALL IN THE PURCHASING POWER OF MONEY. ADJUSTING THE COST ON THE BASIS OF THE VARIATION IN THE INFLATION INDEX, I.E., BETWEEN THE DATE OF ACQUISITION AND TRANSFER, THUS, SEEKS TO AD JUST THE ASSESSEES COST OF ACQUISITION (AND/OR OF IMPROVEMENT) ON ACCOUNT OF INFLATION, SO THAT WHAT IS BROUGHT TO TAX IS ONLY ITA. NO. 290/COCH./2009 13 THE CAPITAL GAIN ON THE TRANSFER OF THE CAPITAL A SSET, OF COURSE, VALUED AT THE CURRENT PRICE LEVELS. 8.5 THE ASSESSEE HAS ALSO BEFORE US (PER ITS HEARIN G NOTE, PG. 12) SOUGHT TO CREATE A DISTINCTION BETWEEN THE TREES SOLD, AND THE ROOTS I N RESPECT OF WHICH STOOD FOUND BY THE INSPECTOR. THE SAME, WE, AGAIN, CONSIDER AS OF NO MOMENT. THIS IS FIRSTLY FOR THE REASON THAT WHETHER THE ASSESSEE SOLD VATTA, TEAKWO OD, COCONUT OR RUBBER TREES, OR ONLY JACKFRUIT TREES, AS CONTENDED BY HIM, CANNOT BE CON SIDERED BY US IN VIEW OF NO SUCH CONTENTION HAVING BEEN RAISED OR A STAND TAKEN BEFO RE THE AUTHORITIES BELOW. SECONDLY, THE ROOTS OF JACKFRUIT TREES STOOD ALSO F OUND, AND THOSE HAVING BEEN ADMITTEDLY SOLD BY THE ASSESSEE, THE FACT OF NON-SA LE OF OTHER TREES WOULD BE OF NO CONSEQUENCE, GIVEN THAT THERE IS NO DISPUTE WITH RE GARD TO THE AMOUNT REALIZED ON THE SALE OF TREES. IN FACT, RAISING THE SAID ISSUE AT T HIS STAGE WOULD GIVE RISE TO A NEW CONTROVERSY, I.E., IF THE ASSESSEE HAD SOLD ANY TR EES OTHER THAN THE JACKFRUIT TREES, AND WHICH, IF SO, IS ONLY WITHOUT DISCLOSING THE SAME T O THE REVENUE; THEIR ROOTS HAVING BEEN FOUND EVEN AS THE ASSESSEE CLAIMS TO HAVE NOT CUT AND SOLD THOSE TREES. AS SUCH, IN OUR CONSIDERED VIEW, THIS ARGUMENT BY THE ASSESS EE ONLY NEEDS TO BE REJECTED, AND DO SO. 8.6 SUMMING UP OUR DISCUSSION, WE, THEREFORE, H OLD THAT THE RECEIPT OF RS. 17 LACS FROM THE SALE OF TREES DURING THE YEAR TO BE A CAPI TAL RECEIPT, INCOME ON WHICH IS LIABLE TO TAX UNDER THE HEAD `CAPITAL GAINS U/S. 45 OF TH E ACT. THE ASSESSEE, HOWEVER, IN THE COMPUTATION OF ITS INCOME UNDER THE SAID HEAD WOULD BE ENTITLED TO A REDUCTION TOWARD THE DECLINE IN THE VALUE OF THE LAND ON ACCOUNT OF REMOVAL OF SUCH TREES, AND WHICH WOULD BE INDEPENDENT AND IRRESPECTIVE OF WHETHER TH E ROOTS STOOD SOLD TO THE SAME PURCHASER, OR STOOD NOT SOLD BY THE ASSESSEE, BEING UNREALISABLE OR OTHERWISE; IT BEING NOT THE REVENUES CASE THAT THE ROOTS STOOD SOLD TO SOMEBODY ELSE. UNDER THE CIRCUMSTANCES, WE, THEREFORE, ONLY CONSIDER IT FIT AND PROPER TO REMIT THIS MATTER BACK TO THE FILE OF THE AO TO ALLOW THE ASSESSEE A REASO NABLE OPPORTUNITY TO MAKE ITS CLAIM TOWARD THE SAID COST OF ACQUISITION, ADJUDICATING T HEREON PER A SPEAKING ORDER, IN ACCORDANCE WITH LAW. WE DECIDE ACCORDINGLY. ITA. NO. 290/COCH./2009 14 9. THE LAST ISSUE AGITATED BY THE ASSESSEE IN THE PRESENT APPEAL (GROUNDS NOS. 15 THROUGH 18), RELATES TO, LIKE-WISE, THE ASSESSMENT OF THE RECEIPT ON THE SALE OF SOIL (RS. 6.50 LACS) AS INCOME FROM OTHER SOURCES. THE ISSUE IS PARA MATERIA WITH THAT QUA THE SALE OF TREES, DISCUSSED AT PARAS 6 TO 8 OF THIS OR DER; IN FACT, THE SALE OF SOIL AND RUBBLES BEING ONE OF THE FACTS NOTED BY THE TRIBUNAL IN ARR IVING AT THE FINDING OF FACT OF THE ASSESSEE BEING THUS ENGAGED IN THE REALIZATION OF H IS CAPITAL ASSET, SELLING ITS CONSTITUENTS BY DISMEMBERING THE LAND. WE, THEREFOR E, FOR THE SAME REASONS AS MENTIONED AT PARAS 8.1 TO 8.5 OF THIS ORDER, HOLD T HE SAME RECEIPT TO BE A TAXABLE RECEIPT U/S. 2(24)(VI) R/W S. 45 OF THE ACT, ALBEIT ENTITLED TO, SIMILARLY, A REDUCTION TOWARD THE COST OF ITS ACQUISITION, AND FOR WHICH W E, LIKE-WISE, RESTORE THE MATTER BACK TO THE FILE OF THE AO WITH THE SAME DIRECTIONS AS I N PARA 8.6. WE DECIDE ACCORDINGLY. 10. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 13TH JULY, 2010 GJ COPY TO: 1. PRASAD MATHEW, KUTTIKATTU HOUSE, KADAPRA, KUMBAN AD, THIRUVALLA. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -1(1), RANGE-1 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R./I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT R EGISTRAR)