Appeal details
Counselvise Citation
[2013] 140 COUNSELVISE.COM (IT) 67364 (ITAT-VISAKHAPATNAM)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 4 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
03-05-2013
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
DB
Next Hearing Date
01-05-2013
Assessment Year
2008-2009
Appeal Filed On
23-12-2011
Judgement Text
ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI D. MANMOHAN , VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO S . 367 /VIZAG/ 20 11 ASSESSMENT YEAR : 2008 - 09 ACIT KAKINADA VS. SRI SAMA SURYA PRAKASH TALLAREVU (APPELLANT) (RESPONDENT) PAN NO.ARRPS 1109G ITA NOS.368/VIZAG/2011 ASSESSMENT YEAR : 2008 - 09 ACIT KAKINADA VS. SRI SAMA NARESH TALLAREVU (APPELLANT) (RESPONDENT) PAN NO.BOOPS 0845A APPELLANT BY: SHRI B. SAS MAL, ADDL. CIT RESPONDENT BY: SHRI P. PRABHAKARA MURTHY, ADVOCATE DATE OF HEARING : 01.05.2013 DATE OF PRONOUNCEMENT : 03.05.2013 ORDER PER SHRI D. MANMOHAN, VICE PRESIDENT:- THESE TWO APPEALS ARE DIRECTED AGAINST THE COMMON ORDER DATED 9.9.2011 PASSED BY THE CIT(A) RAJAHMUNDRY. SINCE G ROUNDS URGED BY THE REVENUE IN BOTH THE APPEALS ARE IDENTICAL, WE PROCE ED TO DISPOSE OF THESE APPEALS BY A COMBINED ORDER FOR THE SAKE OF CONVENI ENCE. 2. SRI SAMA SURYA PRAKASH AND SRI SAMA NARESH SOLD AGRICULTURAL LAND SITUATED AT P. MALLAVARAM VILLAGE, TALLAREVU MANDAL ON 11.6.2007 TO M/S. GUJARAT STATE PETROLEUM CORPORATION LTD. (M/S. GSPC L). WHILE DECLARING LONG TERM CAPITAL GAINS, THEY HAVE CLAIMED DEDUCTION U/S 54B OF THE INCOME-TAX ACT AS WELL AS SECTION 54F OF THE ACT. WITH REGARD TO THE COST OF THE ASSET SOLD, SHRI SAMA SURYA PRAKASH CLAIMED DEVELOPMENT E XPENSES OF ` . 64 LAKHS TOWARDS COST OF DEVELOPMENT TO ENABLE THE ASSESSEE TO SELL THE LAND. ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU 2 SIMILARLY, A SUM OF ` .30 LAKHS WAS CLAIMED TOWARDS COST OF DEVELOPMENT I N THE CASE OF SHRI SAMA NARESH. THE RETURNS WERE ORI GINALLY PROCESSED U/S 143(1) OF THE ACT BUT SUBSEQUENTLY SELECTED FOR SCR UTINY AS PER BOARD GUIDELINES. ACCORDINGLY NOTICES U/S 143(2) AND 142 (1) OF THE ACT WERE ISSUED. SRI SURYA PRAKASH SOLD 10.60 ACRES OF LAND TO M/S. GSPCL FOR A TOTAL CONSIDERATION OF ` . 2,28,96,000/- AND WHILE DEDUCTING THE COST OF THE ASSET, A SUM OF ` .64 LAKHS WAS INCLUDED THEREIN TOWARDS COST OF DEVE LOPMENT. SIMILARLY, SRI SAMA NARESH SOLD 5 ACRES OF AGRICUL TURAL LAND TO M/S. GSPCL FOR A TOTAL CONSIDERATION OF ` .1,08,00,000/- AND WHILE DEDUCTING THE COST OF THE ASSETS, HE ADDED A SUM OF ` .30 LAKHS REFERABLE TO COST OF DEVELOPMENT OF LAND SOLD. DURING THE SCRUTINY PROCEEDINGS, THE ASSESSE ES WERE ASKED TO SUBMIT THE DETAILS OF AMOUNTS PAID TOWARDS LAND DEVELOPMEN T. THE ASSESSEES SUBMITTED THAT THE PAYMENTS WERE MADE BY CHEQUE. S RI SURYA PRAKASH AND NARESH PAID TO TWO CONTRACTORS I.E. ROLLA SIVA SANA DHA RAO, TALLAREVU AND SREE CONSTRUCTIONS, KAKINADA FROM 19.06.2007 TO 24. 09.2007 WHEREAS, THE LAND WAS TRANSFERRED TO M/S. GSPCL ON 11.6.2007. I N THIS REGARD, THE A.O. OBSERVED THAT THE ENTIRE DEVELOPMENT APPEARS TO HAV E TAKEN PLACE AFTER THE DATE OF TRANSFER AND THERE IS NO EVIDENCE TO PROVE THAT DEVELOPMENT OF LAND IS A CONDITION PRECEDENT FOR SALE OF AGRICULTURAL LAND . HE ALSO NOTICED THAT THE ALLEGED LAND DEVELOPERS COMPLETED FILLING/LEVELING OF THE LAND EVEN WITHOUT RECEIVING ANY AMOUNTS FROM THE ASSESSEE; IF ONE WER E TO GO BY THE ASSUMPTION THAT THE LAND WAS SOLD ON 11.06.2007 AND SIMULTANEOUSLY LEVELING OF LAND HAD COMMENCED. TAKING JUDICIAL NOTICE OF T HE FACT THAT ORDINARILY NO DEVELOPER WOULD CARRY ON THE LAND DEVELOPMENT WORK WITHOUT TAKING ANY ADVANCE AMOUNT FROM THE ASSESSEES MORE PARTICULARLY WHEN THERE IS NO AGREEMENT ON RECORD TO SUBSTANTIATE THAT THEY WERE DIRECTED TO FILL/LEVEL THE LAND THE SAME WAS POINTED OUT TO THE ASSESSEE. THE COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE DEVELOPME NT WAS A PRE-CONDITION FOR SALE OF THE PROPERTY. IN OTHER WORDS LAND WAS TO BE HANDED OVER ONLY AFTER FILLING THE SAME TO THE EXTENT REQUIRED. IT WAS ALSO SUBMITTED THAT THE LAND WAS USED FOR AGRICULTURAL PURPOSE FOR LONG TIM E I.E. FOR GROWING PADDY AND IN RESPECT OF SUCH LANDS, HUGE AMOUNT HAS TO BE SPENT FOR FILLING THE LAND. IT WAS ALSO CONTENDED THAT SRI SURYA PRAKASH IS ENG AGED IN A SMALL TIME ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU 3 BUSINESS I.E. SELLING OF ROPES AND SCRAP IRON AND S RI SAMA NARESH IS ALSO ENGAGED IN SMALL TIME BUSINESS (NATURE OF BUSINESS NOT MENTIONED). THEREFORE, THEY COULD NOT GET ANY LOANS FROM BANKS AND FINANCIAL INSTITUTIONS PARTICULARLY ON ACCOUNT OF THE FACT THAT NO SUCH CR EDIT FACILITY WOULD BE PROVIDED BY BANKS FOR LAND FILLING. THEREFORE, IT WAS CLAIMED THAT THEY WERE FORCED TO PAY HIGHER AMOUNTS, COMPARED TO THE NORMA L RATES, TO THE LAND FILLING CONTRACTORS. BECAUSE OF THEIR LONG RELATIO N WITH THE CONTRACTORS THEY HAVE OBLIGED TO CARRY ON THE JOB WITHOUT ADVANCE PA YMENT. 3. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE S FAILED TO GIVE DETAILS REGARDING THE AGREEMENT BETWEEN ASSESSEES AND PURCH ASER AS WELL AS CONTRACTOR AND THE RATE AGREED UPON WAS NOT FURNISH ED. ON AN AVERAGE, THE RATE OF DEVELOPMENT PAID PER ACRE WORKS OUT TO ` .5.66 LAKHS. HE FURTHER NOTICED THAT PRIOR TO THE SALE OF LAND TO M/S. GSPC L, THE RATE PER ACRE IN THAT VILLAGE WAS ONLY AROUND ` .4 TO 5 LAKHS AND THOUGH THE ASSESSEES CLAIMED THAT DEVELOPMENT OF LAND IS A PRE-CONDITION SET BY THE C OMPANY FOR PURCHASE AT THE SPECIFIED RATE, THERE WAS NO SUCH PRIOR AGREEME NT ON RECORD, AS THE SALE DOCUMENT DOES NOT CONTAIN ANY SUCH PRE-CONDITION. UNDER THESE CIRCUMSTANCES, THE ASSESSEES WERE AGAIN CALLED UPON TO EXPLAIN DETAILS OF THE EXPENDITURE INCURRED BY THE DEVELOPERS FOR EACH ACR E OF LAND AND HOW MANY ACRES WERE DEVELOPED BY EACH DEVELOPER SEPARATELY. IN RESPONSE THERETO, THE ASSESSEES SUBMITTED THAT THEY ARE BROTHERS AND THE ENTIRE LAND BELONGS TO THEM AND SITUATED AT ONE PLACE. THEY HAVE JUST HAN DED OVER THE LAND TO THE DEVELOPER WITH A REQUEST TO LEVEL THE LAND AND IN T URN, THE DEVELOPERS HAVE DONE THEIR WORK AS PER THEIR CONVENIENCE. THEREAFT ER, AS DEMANDED BY THEM, PAYMENT WAS MADE TO THEM. FROM THE ABOVE MENTIONED FACTS, THE LD. ASSESSING OFFICER DREW A CONCLUSION THAT THE ASSESS EES ARE NOT IN A POSITION TO SUBMIT DETAILS OF EXPENDITURE INCURRED PER ACRE EVE N AFTER COMPLETION OF THE WORK AND ON THE TOP OF IT, NO EVIDENCE WAS PRODUCED REGARDING THE NECESSITY OF UNDERTAKING THE LAND FILLING ACTIVITY. IT MAY B E NOTICED HERE THAT COST OF DEVELOPMENT OF LAND, WHICH IS WHOLLY AND EXCLUSIVEL Y NECESSARY FOR THE PURPOSE OF SALE, CAN BE ADDED TO THE COST OF LAND W HEREAS, IN THE INSTANT CASE, THERE WAS NO EVIDENCE ON RECORD TO PROVE THAT THE LAND FILLING ACTIVITY ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU 4 WAS DONE OUT OF NECESSITY I.E. ON ACCOUNT OF A PRE- CONDITION. THE ONLY EVIDENCE WAS THAT THE ASSESSEES COULD ONLY PRODUCE PROOF OF PAYMENT TO THE DEVELOPERS THROUGH CHEQUES WHICH IS NOT SUFFICIENT. A.O. OBSERVED THAT UNDER NORMAL CIRCUMSTANCES NO PRUDENT PERSON WOULD ENTER INTO AN AGREEMENT FOR EITHER LAND FILLING OR DEVELOPMENT WITHOUT DECIDING UPON THE RATE PER ACRE OR RATE PER UNIT OF LAND. EVEN AFTER ALLEGED COMPLETI ON OF LAND FILLING, THE ASSESSEE IS NOT IN A POSITION TO TELL AS TO HOW MUC H EXPENDITURE WAS INCURRED PER ACRE. NO DOUBT IT IS TRUE THAT THE DEVELOPERS HAVE DECLARED THE RECEIPTS IN THEIR INCOME-TAX RETURNS BUT THE FACT REMAINS THAT THEY HAVE ADMITTED MEAGER PROFITS AND MERE DECLARATION IN THEIR RETURNS IS NO T SUFFICIENT ENOUGH TO PROVE THAT THE LAND DEVELOPMENT ACTIVITY WAS DONE AS A PR E-CONDITION FOR SALE OF LAND. 4. HAVING ANALYSED THE PECULIAR FACTUAL MATRIX OF T HE CASE AT LENGTH, THE A.O., FOR THE REASONS BEST KNOWN TO HIM, DID NOT WA NT TO REST UPON THE STRONG FOUNDATION MADE BY HIM BUT RATHER DIVERTED HIS ATTE NTION ON THE ALTERNATIVE GROUNDS. IN THIS REGARD, HE OBSERVED THAT EVEN IF IT IS ASSUMED THAT THE EXPENDITURE WAS INCURRED BY THE ASSESSEES AND HAD T O BE TREATED AS COST OF DEVELOPMENT, REASONABILITY OF SUCH EXPENDITURE HAS TO BE PROVED BY THE ASSESSEES. IN THIS REGARD, HE HAS REFERRED TO A CO MPARABLE CASE OF SRI K. SRINIVAS, TALLAREVU WHO IN TURN SOLD LAND SITUATED IN THE SAME AREA AND CLAIMED DEVELOPMENT EXPENSES OF ` .2.27 LAKHS PER ACRE. AGAIN THE ASSESSING OFFICER DRIFTED FROM THE COMPARABLE CASE AND ASSUME D THAT THE ASSESSEE MIGHT HAVE INCURRED MORE EXPENDITURE, FOR WHICH THE RE IS ABSOLUTELY NO BASIS, AND IT APPEARS TO BE A PIGMENT OF HIS OWN IMAGINATI ON, OVERLOOKING THE FACT THAT BEING AN ASSESSING OFFICER HE IS DUTY BOUND TO BASE HIS CONCLUSIONS ON FACTS AND MATERIALS AND ANALYSE THE CIRCUMSTANCES I N ACCORDANCE WITH LAW BUT HE PROCEEDED TO USE HIS DISCRETION WHILE TURNING DO WN THE CLAIM OF THE ASSESSEE OF MORE THAN ` .6 LAKHS EXPENDITURE PER ACRE AND ALSO BY NOT TAKIN G THE COMPARABLE CASE AS THE BASIS; A.O. PROPOSED TO ALLOW THE DEVELOPMENT EXPENDITURE AT THE RATE OF ` .3 LAKHS PER ACRE AND THE BALANCE AMOUNT WAS DISALLOWED. ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU 5 5. IT COULD THUS BE SEEN THAT THOUGH THE ASSESSING OFFICER HAS COPIOUSLY RECORDED THE FACTS AND CIRCUMSTANCES TO HIGHLIGHT T HAT THE SO CALLED DEVELOPMENT EXPENDITURE CANNOT BE ALLOWED AS DEDUCT ION, BUT FROM PAGE 5 ONWARDS HE PROCEEDED TO ESTIMATE THE EXPENDITURE, I MPLYING THEREBY THAT IT WAS ASSUMED THAT EVEN IN THE ABSENCE OF PRIOR AGREE MENT BETWEEN M/S. GSPCL AND THE ASSESSEES REGARDING DEVELOPMENT OF LA ND EXPENDITURE, IF ANY, CAN BE ADJUSTED AGAINST CAPITAL GAINS. 6. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, ASSESSEE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. THE CASE OF THE ASSESS EE IS THAT THE DEVELOPMENT EXPENDITURE, AS CLAIMED BY THE ASSESSEES, OUGHT TO HAVE BEEN ALLOWED HAVING REGARD TO THE FACT THAT THE PAYMENTS WERE MADE BY C HEQUES AND THE FACTUM OF PAYMENT WAS NOT DISPUTED. IN THE ALTERNATIVE, I T WAS CONTENDED THAT THE ESTIMATE OF DEVELOPMENT EXPENDITURE IS VERY LOW AND THE ASSESSING OFFICER SHOULD HAVE ENQUIRED WITH APPROPRIATE AUTHORITIES B EFORE ESTIMATING THE EXPENDITURE. 7. THE LD. CIT(A) RECORDED THE OBSERVATIONS OF THE ASSESSING OFFICER WITH REGARD TO THE MAIN ASPECT OF THE ISSUE, I.E. DEVELO PMENT EXPENDITURE CANNOT BE CLAIMED AS DEDUCTION SINCE THERE IS NO AGREEMENT BETWEEN M/S. GSPCL AND THE ASSESSEE BUT HE DID NOT GIVE ANY FINDING ON THIS ASPECT BECAUSE THE ASSESSING OFFICER MERELY ESTIMATED THE EXPENDITURE AND DID NOT DISALLOW THE CLAIM IN ITS ENTIRETY. IN THIS REGARD, THE LD. CIT (A) OBSERVED THAT THE ASSESSING OFFICER NEVER DOUBTED THAT DEVELOPMENT OF LAND WAS TAKEN UP AND NEVER DOUBTED THE PAYMENTS. HE ALSO OBSERVED THAT THE A.O. NEITHER ENQUIRED INTO THE NECESSITY OF DEVELOPMENT NOR MADE ANY FURTHER PROBE REGARDING THE NATURE AND EXTENT OF DEVELOPMENT. TH E A.O. HAVING ACCEPTED THE FACTUM OF DEVELOPMENT AND FACTUM OF PAYMENT, HE OUGHT NOT TO HAVE REDUCED THE DEVELOPMENT EXPENDITURE IN AN ADHOC MAN NER SINCE THERE IS NO BASIS FOR ARRIVING AT EXPENDITURE @ ` .3 LAKHS PER ACRE. HE AGAIN REITERATED THE FACT THAT THE ASSESSING OFFICER HAVING SATISFIE D HIMSELF REGARDING THE GENUINENESS OF DEVELOPMENT ACTIVITY, IDENTITY OF TH E PAYEE AND THE GENUINENESS OF THE PAYMENT HE CANNOT PROCEED TO DIS ALLOW CERTAIN ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU 6 EXPENDITURE ON ADHOC BASIS. THUS THE EXPENDITURE, AS CLAIMED BY THE ASSESSEE, WAS ALLOWED BY THE LD. CIT(A). 8. AGGRIEVED, REVENUE PREFERRED APPEALS BEFORE THE APPELLATE TRIBUNAL. THE CASE OF THE ASSESSING OFFICER IS THAT THE POWER S OF THE LD. CIT(A) ARE CO- TERMINUS WITH THAT OF THE ASSESSING OFFICER AND HE OUGHT TO HAVE CALLED FOR A REMAND REPORT WHEN HE NOTICED THAT FURTHER ENQUIRY OUGHT TO HAVE BEEN CONDUCTED BY THE ASSESSING OFFICER. IT WAS FURTHER CONTENDED THAT THE CIT(A) SHOULD HAVE GIVEN OPPORTUNITY TO THE ASSESSING OFFI CER TO FURNISH ADDITIONAL INFORMATION IN THIS REGARD SINCE HIS POWERS ARE CO- TERMINUS WITH THAT OF THE ASSESSING OFFICER. IT WAS ALSO CONTENDED THAT EVEN IF IT IS TO BE ASSUMED THAT DEVELOPMENT EXPENSES ARE ALLOWABLE, THE FACT REMAIN S THAT A LAND DEVELOPED IN THE SAME AREA INVOLVED AN EXPENDITURE OF ` .2.27 LAKHS PER ACRE WHICH IN ITSELF SHOWS THAT THE DEVELOPMENT EXPENSES CLAIMED BY THE ASSESSEE IS ON HIGHER SIDE AND ASSESSEE INFLATED THE COST. THE CA SE OF THE LD. D.R. IS THAT THE VERY FACT THAT THE ASSESSING OFFICER DID NOT AC CEPT THE FULL CLAIM OF THE ASSESSEE IMPLIES THAT THE ASSESSEE INFLATED THE COS T. 9. DURING THE COURSE OF HEARING, THE LD. D.R. SUBMI TTED THAT THE MAIN ISSUE THAT EMANATES FROM THE FACTS RECORDED BY THE ASSESSING OFFICER IS THAT THE GENUINENESS OF THE DEVELOPMENT EXPENDITURE AND THE NECESSITY TO INCUR SUCH DEVELOPMENT EXPENDITURE HAS TO BE PROVED BY AS SESSEES. THERE ARE TWO ASPECTS OF THE MATTER I.E. (A) IF THERE WAS NO NEED FOR THE ASSESSEE TO INCUR SUCH EXPENDITURE, IT CANNOT BE ADDED TO THE COST OF THE LAND, EVEN IF SUCH EXPENDITURE WAS INCURRED BY AN ASSESSEE AND (B) WHE THER THE EXPENDITURE WAS INFLATED HAVING REGARD TO THE FACT THAT GOING B Y THE ORDINARY HUMAN CONDUCT, NO PERSON WOULD ALLOW A DEVELOPER TO CHARG E THE PRICE OF HIS CHOICE WITHOUT KNOWING THE RATE BEFORE HAND, PARTICULARLY WHEN AN EXPENDITURE CLAIMED TO HAVE BEEN INCURRED IS SO HIGH. ORDINARI LY, IN SUCH TRANSACTION THEY SHOULD ENTER INTO AN AGREEMENT AND NO PRUDENT BUSIN ESS MAN WOULD INCUR SUCH HUGE EXPENDITURE WITHOUT AN AGREEMENT/ASSURANC E IN WRITING, PARTICULARLY WHEN THE ALLEGED EXPENDITURE IN THE CA SE OF BOTH THE PARTIES PUT TOGETHER IS ABOUT ` .1 CRORE. THE LD. D.R. SUBMITTED THAT ALL THE PAYM ENTS ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU 7 WERE MADE AFTER THE DATE OF SALE. THERE WAS NO AGR EEMENT BETWEEN THE ASSESSEE AND M/S. GSPCL TO SHOW THAT DEVELOPMENT OF LAND IS A CONDITION PRECEDENT FOR SALE OF LAND. IN FACT THERE IS NO WR ITTEN AGREEMENT BETWEEN THE ASSESSEE AND THE DEVELOPER ALSO. UNDER THE PECULIA R FACTUAL MATRIX, WHETHER MERE PAYMENT BY CHEQUE, AFTER THE DATE OF SALE, IS A DEVICE OR RUSE TO REDUCE THE TAX PAYMENT OR NOT OUGHT TO HAVE BEEN LOOKED IN TO BY THE CIT(A) SINCE HIS POWERS ARE CO-TERMINUS WITH THAT OF THE ASSESSI NG OFFICER AND HE HAS THE POWER OF ENHANCEMENT ALSO BUT DESPITE THE FACT THAT SUBSTANTIAL PORTION OF THE ASSESSMENT ORDER REFERS TO ABSENCE OF EVIDENCE REGARDING NEED TO INCUR EXPENDITURE AND ABSENCE OF AGREEMENTS, ETC.; THE L D. CIT(A) WAS NOT JUSTIFIED IN ACCEPTING THE FINAL CONCLUSIONS DRAWN BY THE ASSESSING OFFICER BY NOT DISCHARGING HIS DUTY AS A FIRST APPELLATE AUTHO RITY IN VERIFYING ABOUT THE NEED TO INCUR SUCH EXPENDITURE AND WHETHER SUCH EXP ENDITURE IS ALLOWED U/S 48 OF THE ACT. THE LD. D.R. STRENUOUSLY CONTENDED THAT EXCEPT PLACING ON RECORD THAT PAYMENTS WERE MADE BY CHEQUES, THERE WA S NO OTHER EVIDENCE TO SHOW THAT THERE WAS NECESSITY TO DEVELOP THE LAND. IT IS NOWHERE STATED BY THE ASSESSEE AS TO WHEN THE DEVELOPMENT HAD COMMENC ED. BUT EVEN GOING BY THE FACTS PLACED ON RECORD, IT HAS TO BE ASSUMED THAT THE SO CALLED DEVELOPMENT ACTIVITY I.E. FILLING THE LAND, HAD COM MENCED ONLY AFTER THE DATE OF SALE. IF SUCH BE THE CASE, WHETHER THE ASSESSEE OR THE DEVELOPER IS ENTITLED TO TRESPASS THE LAND PURCHASED BY M/S. GSP CL AND FILL THE LAND WITHOUT PRIOR WRITTEN AGREEMENT? M/S. GSPCL IS A C ORPORATE ENTITY AND IT WOULD NOT BE DIFFICULT TO CROSS VERIFY AS TO WHETHE R THERE IS ANY SUCH PRIOR AGREEMENT OR WHETHER THERE IS ANY ACTIVITY ON THE L AND BY THE SELLER AFTER THE DATE OF SALE, AS A PRE-CONDITION OF SALE. IN FACT WITHOUT THE CONSENT OF PURCHASER, NEITHER THE ASSESSEES NOR THE DEVELOPER COULD HAVE CARRIED ON ANY ACTIVITY ON THE LAND AND IN THE PECULIAR FACTUAL MA TRIX, IT IS THE DUTY OF THE CIT TO CALL FOR REMAND REPORT FROM THE ASSESSING OFFICE R TO RENDER SUBSTANTIAL JUSTICE INSTEAD OF IGNORING THE DETAILED OBSERVATIO NS OF THE ASSESSING OFFICER IN SUBSTANTIAL PORTION OF HIS ORDER. THE LD. D.R. SUB MITTED THAT AN APPELLATE AUTHORITY IS DUTY BOUND TO CORRECT ALL ERRORS COMMI TTED BY THE ASSESSING OFFICER AND, IF NECESSARY, HE SHOULD HAVE CALLED FO R FURTHER INFORMATION TO DECIDE THE MATTERS IN ACCORDANCE WITH LAW. IN SUBS TANCE, THE LD. D.R. ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU 8 SUBMITTED THAT THE MATTER DESERVES TO BE RESTORED T O THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION IN ACCORDANCE WITH LAW. SINCE THE PRIMARY OBLIGATION IS UPON THE ASSESSEES TO PROVE THAT DEVE LOPMENT IS A PRE-CONDITION FOR SALE OF LAND AS OTHERWISE ANY EXPENDITURE INCUR RED OUT OF FANCY CANNOT BE ALLOWED AS DEDUCTION FROM THE SALE PRICE. 10. ON THE OTHER HAND, THE LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEES SUBMITTED THAT DESPITE CERTAIN OBSERVATIO NS IN THE PRECEDING PAGES OF THE ASSESSMENT ORDER, THE A.O. ACCEPTED THAT IN ORDER TO SELL THE LAND, THE ASSESSEE HAD TO FILL THE LAND WHICH IS TERMED AS DE VELOPMENT EXPENDITURE. THOUGH HE HAS TAKEN INTO CONSIDERATION A COMPARABLE CASE, HE PROCEEDED ON THE ASSUMPTION THAT THE COMPARABLE CASE DO NOT REFL ECT THE CORRECT RATE AND BY TAKING INTO CONSIDERATION THE NATURE OF LAND HEL D BY THE ASSESSEES HEREIN, THE A.O. CONCLUDED THAT EXPENDITURE UP TO ` . 3 LAKHS PER ACRE IS REASONABLE WHICH IN ITSELF SHOWS THAT FILLING ACTIVITY HAD TAK EN PLACE. IN FACT, THE PAYMENT HAVING BEEN MADE BY CHEQUE AND DEVELOPERS H AVING FILED THE RETURNS OF INCOME AND ADMITTED THAT THEY HAVE CARRI ED ON DEVELOPMENT ACTIVITY, IT IS NOT NECESSARY FOR THE LD. CIT(A) TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. IN FACT, THE CIT(A) HAS NO POWER TO SET ASIDE THE MATTER. HE ALSO CONTENDED THAT THE ASSESSEES SHOUL D NOT BE PUT TO LOSS IF THE ASSESSING OFFICER CHOOSES TO PASS A SCANTY ORDER AN D IN SUCH CASES, ASSESSMENT ORDER SHOULD NOT BE SET ASIDE TO MAKE GO OD THE LACUNA IN THE ASSESSMENT ORDERS. HE THUS STRONGLY SUPPORTED THE ORDERS PASSED BY THE LD. CIT(A). 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. THE FACTS AND CIRCUMSTANCES HAVING BEEN EL ABORATELY DEALT WITH IN THE PRECEDING PARAGRAPH, IT IS NOT NECESSARY TO RE- STATE THE FACTS. SUFFICE IT TO SAY THAT THE ASSESSING OFFICER CATEGORICALLY OBSERV ED THAT THE SALE DEED DO NOT CONTAIN ANY CLAUSE, WHEREBY DEVELOPMENT OF LAND WAS REQUIRED TO BE CARRIED OUT BY THE ASSESSEES AS PART OF THE PACKAGE OF SALE . SECTION 48(I)&(II) PROVIDES FOR MODE OF COMPUTATION OF CAPITAL GAINS W HEREBY, AN ASSESSEE IS ENTITLED TO COMPUTE THE CAPITAL GAINS TAXABLE UNDER THE ACT BY DEDUCTING, ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU 9 FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED, THE FOLLOWING AMOUNTS I.E. (A) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND (B) THE COST OF ACQUISITION OF THE ASS ET AND THE COST OF ANY IMPROVEMENT THERETO. FROM A PLAIN READING OF THE S ECTION 48 OF THE ACT, IT BECOMES CLEAR THAT ONLY EXPENDITURE INCURRED PRIOR TO AGREEMENT OF SALE OR EXPENDITURE WHICH WAS WHOLLY AND EXCLUSIVELY INCURR ED IN CONNECTION WITH SUCH TRANSFER IS ALLOWABLE AS DEDUCTION. IN RESPEC T OF ANY CLAIM OF EXPENDITURE, THE INITIAL ONUS IS UPON THE ASSESSEES TO PROVE THAT SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. IN THE INSTANT CASE, THE ASSESSING OFFIC ER REPEATEDLY ASSERTED THAT DEVELOPMENT IS NOT A PRE-CONDITION FOR SALE. IN OT HER WORDS, SALE PRICE WAS BASED UPON THE QUALITY OF THE LAND AS IT EXISTED PR IOR TO THE SO CALLED DEVELOPMENT. THUS, THE INITIAL ONUS IS UPON THE AS SESSEE TO PROVE THAT THE EXPENDITURE ALLEGED TO HAVE BEEN INCURRED WAS IN CO NNECTION WITH THE TRANSFER. THE APEX COURT IN THE CASE OF SUMATI DAY AL VS. CIT 214 ITR 801 LAID DOWN THE PRINCIPLE THAT IT IS THE DUTY OF THE ASSESSING OFFICER TO CONSIDER THE SURROUNDING CIRCUMSTANCES AND APPLY THE TEST OF THE HUMAN PROBABILITIES WHILE APPRECIATING THE EXPLANATION GIVEN BY AN ASSE SSEE AND THE EXPLANATION SHOULD NOT BE ACCEPTED ON ITS FACE VALUE. IN THE C ASE OF THE ASSESSEES HEREIN, THEY HAVE ADMITTED THAT THEY WERE BUSINESS MEN OF MODEST TURNOVER AND THEY HAVE NO CAPACITY EVEN TO OBTAIN LOANS FROM FINANCIAL INSTITUTIONS. M/S. GSPCL PURCHASED THE AGRICULTURAL LAND OUT OF N ECESSITY AND HENCE THEY WOULD NOT HAVE INSISTED UPON THE ASSESSEES TO DEVEL OP THE LAND BEFORE FINALISING THE SALE. IN FACT, THE EXPENDITURE CLAI MED TO HAVE BEEN INCURRED BY THE ASSESSEES HEREIN IS ABOUT 30% AND NO BUSINESS M AN WOULD ORDINARILY SPEND SUCH AMOUNT VOLUNTARILY UNLESS THEY ARE COMPE LLED TO DO SO AND SUCH COMPULSION SHOULD BE REFLECTED IN THE SALE DEED. S IMILARLY, EVEN IF THE LAND HAD TO BE DEVELOPED/FILLED IN, NOBODY WOULD BE WILL ING TO INCUR GENEROUSLY 30% OF THE SALE PRICE THAT TOO WITHOUT ANY AGREEMEN T, EITHER WITH THE PURCHASER OR WITH THE DEVELOPERS. IT IS ALSO NECES SARY TO NOTICE THAT THE DEVELOPERS, BEING BUSINESS MEN, WOULD NOT ORDINARIL Y TAKE UP SUCH CONTRACTS WITHOUT ANYTHING IN WRITING AND WITHOUT ANY PRIOR P AYMENT. THE ENTIRE SURROUNDING CIRCUMSTANCES PLAINLY GO TO PROVE THAT THE ASSESSING OFFICER HAS ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU 10 CORRECTLY NOTICED THE FACTS AND ARRIVED AT A CONCLU SION THAT DEVELOPMENT EXPENDITURE CANNOT BE ALLOWED AS DEDUCTION U/S 48 O F THE ACT. MERELY BECAUSE HE HAS DRIFTED FROM HIS MAIN OBSERVATIONS T O ESTIMATE EXPENDITURE ON ADHOC BASIS AND TO GENEROUSLY ALLOW THE SAME AS DED UCTION THE LD. CIT(A), WHOSE POWERS ARE CO-TERMINUS WITH THAT OF THE ASSES SING OFFICER, SHOULD NOT REMAIN AS A MUTE SPECTATOR OF THE GAME. IN THE CAS E OF KAPURCHAND SHRIMAL VS. CIT, A.P. 131 ITR 451, THE APEX COURT OBSERVED THAT AN APPELLATE AUTHORITY HAS A JURISDICTION AS WELL AS THE DUTY TO CORRECT ALL ERRORS IN THE PROCEEDINGS UNDER APPEAL AND TO ISSUE, IF NECESSARY , APPROPRIATE DIRECTIONS TO DISPOSE OF THE WHOLE OR ANY PART OF THE MATTER AFRE SH. SINCE CIT HAS UNFRETTED POWERS IN DECIDING FIRST APPEAL, HE OUGHT TO HAVE ATLEAST CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER TO SEEK CL ARIFICATION AS TO WHY HE HAS DRIFTED FROM THE STRONG FOUNDATION LAID BY HIM FROM PAGES 1 TO 4 WHILE MAKING ADHOC ESTIMATE OF EXPENDITURE. SINCE THE LD . CIT(A) HAS NOT CONSIDERED THIS ASPECT AT ALL WE ARE OF THE VIEW TH AT IN THE INTEREST OF THE SUBSTANTIAL JUSTICE THE MATTER REQUIRES TO BE SET A SIDE WITH A DIRECTION TO THE LD. CIT(A) TO GIVE THE ASSESSING OFFICER A REASONAB LE OPPORTUNITY OF BEING HEARD AND IF NECESSARY TO MAKE FURTHER ENQUIRIES TO ENABLE HIM TO DISPOSE OF THE APPEALS IN ACCORDANCE WITH LAW. WE THEREFORE, SET ASIDE THE MATTER TO THE FILE OF THE CIT(A) WITH A DIRECTION TO HIM TO R ECONSIDER THE MATTER AFRESH IN THE LIGHT OF OUR OBSERVATIONS ABOVE. 12. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 03.05.2013 SD/ - SD/ - (B . R . BASKARAN) ( D. MANMOHAN ) ACCOUNTANT MEMBER VICE PRESIDENT VISAKHAPATNAM, DATED 3 RD MAY, 2013 VG/SPS ITA NOS.367 & 368/VIZ/2011 SRI SAMA SURYA PRAKASH & SAMA NARESH, TALLAREVU 11 COPY TO 1 ACIT, KAKINADA 2 SRI SAMA SURYA PRAKASH, 1 - 6, TALLAREVU. 3 THE CI T, RAJAHMUNDRY 4 THE CIT (A) , RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM
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