DCIT, CHITTORGARH V. Shri Mohd. Sher Khan, CHITTORGARH

ITA 389/JODH/2011

• Counselvise Citation: 38923314 RSA 2011
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 08-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGALCIT
• Assessee Lawyers: SHYAM SINGHVI
• Keywords: Capital asset; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 389/JODH/2011 (A.Y. 2008-09) DCIT, CIRCLE, VS SHRI MOHD. SHER KHAN CHITTORGARH PROP. M/S PROGRESSIVE ENTERPR ISES KHWAJA BAGH SAWA CHITTORGARH PAN NO ABFPK 1122 P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SHYAM SINGHVI. DEPARTMENT BY : DR. DEEPAK SEHGAL-CIT- DR. DATE OF HEARING : 01/08/2013. DATE OF PRONOUNCEMENT : 30/08/2013. O R D E R PER HARI OM MARATHA, J.M. : THIS APPEAL OF THE REVENUE FOR A.Y. 2008-09 IS DIR ECTED AGAINST THE ORDER OF LD. CIT(A), UDAIPUR, DATED 30/08/2011. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE DERIVED INCOME FROM TRADING AND PROCESSING OF MINERALS, VIZ ., CHINA CLAY, REOCHRE, LIMESTONE ETC. FOR THE A.Y. 2008-09, HE FI LED HIS RETURN OF INCOME [ROI] CLAIMING AN AMOUNT OF RS. 2,48,14,500/ - AS COMPENSATION 2 AGAINST SURFACE RIGHTS WHICH WAS PAID TO 9 LAND OWN ERS AND CLAIMED IT AS REVENUE EXPENSES. AS PER THE ASSESSEE, THIS AMOU NT WAS PAID TO THE LAND OWNERS FOR EXCAVATION OF MINERALS, AS THESE LA NDS WERE PART OF LEASED MINING AREA GRANTED TO THE ASSESSEE BY THE G OVT. OF RAJASTHAN SUBJECT TO NOC FROM THE LAND OWNERS FOR THE USE OF SURFACE RIGHTS AND THE LEASE DEEDS GRANTED FROM THE GOVT. OF RAJASTHAN WAS AMENABLE FOR EXCAVATION ONLY AFTER PROCURING EITHER NOC FOR THE SURFACE RIGHTS OR TITLE OF THE LAND FROM LAND OWNERS. SO, HE PROCURED SURFACE RIGHTS FOR EXCAVATION OF MINERAL BY MAKING ABOVE PAYMENTS. FUR THER, IT WAS CLAIMED THAT SUBSEQUENTLY THESE LANDS WERE PURCHASE D BY ASSESSEE EXECUTION OF SALE AGREEMENT DATED 20.11.2008 AS PER WHICH ABOVE PAYMENT HAS BEEN CONVERTED INTO 'ADVANCE AGAINST PU RCHASE' OF LAND AND BALANCE PAYMENTS TO LAND OWNERS WERE TO BE MADE AT THE TIME OF REGISTRATION. SO PAYMENT WAS MADE TO CONVERT THE RI GHT TO USE LEASED AREA INTO OPERATIONAL ONE I.E. EXCAVATION OF MINERA LS FOR HIS BUSINESS. 2.1 AS PER THE A.O. THIS PAYMENT WAS MADE UNDER COM PENSATION AGREEMENTS EXECUTED WITH THE LAND OWNERS FOR USING AGRICULTURAL LAND FOR A STIPULATED PERIOD OF 5 YEARS AND THIS AMOUNTE D TO LEASE RENT AND COVERED UNDER THE PROVISIONS OF SECTION 194-I OF TH E INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT', FOR SHO RT] AND ADMITTEDLY, 3 HAS NOT DEDUCTED TDS ON THIS PAYMENT. THEREFORE, TH IS CLAIM OF THE ASSESSEE MADE IN THE PROFIT AND LOSS ACCOUNT HAS NO T BEEN ALLOWED U/S 40(A)(IA) OF THE ACT. 2.2 FURTHER THE A.O. ALSO FOUND THAT THE ASSESSEE'S CLAIM THAT THE SAID COMPENSATION AGREEMENT WAS MADE INOPERATIVE WI TH THE EXECUTION OF 'SALE AGREEMENT' OF THE LAND DATED 20. 11.2008 AND PAYMENT IS TO BE TREATED AS ADVANCE AGAINST THE PUR CHASE OF LAND IS AN AFTER-THOUGHT, A SHAM TRANSACTION AND IT IS ONLY AN ATTEMPT TO CHANGE THE NATURE OF TRANSACTION IN THE FINANCIAL YEAR UND ER CONSIDERATION BY AN ATTEMPT IN THE NEXT FINANCIAL YEAR AND PLACED RE LIANCE ON THE DECISION IN THE CASE OF CIT VS. SARABHAI HOLDINGS P VT. LTD. 307 ITR 80 AND CIT VS. SYNDICATE BANK 159 ITR 464. THE A.O. HE LD THAT ASSESSEE'S CLAIM TO BE TREATED AS ADVANCE AGAINST PURCHASE OF LAND IS NOT ACCEPTABLE AS NO SUCH ENTRY IN THE BALANCE SHEET WA S SHOWN, AGREEMENT TO SALE WAS EXECUTED AFTER A PERIOD OF EI GHT MONTHS AFTER THE CLOSURE OF FINANCIAL YEAR. MOREOVER, THE ASSESS EE HAS CLAIMED THE ABOVE AMOUNT IN THE P&L ACCOUNT AS REVENUE EXPENDIT URE AND NOT AS CAPITAL EXPENDITURE. THE A.O. FURTHER FOUND THAT WI THOUT PREJUDICE TO THE ABOVE, ONLY FOR THE SAKE OF DISCUSSIONS, IF THE SAME IS TREATED AS ADVANCE, THEN : 4 I) THE NATURE OF TRANSACTION WOULD BE CHANGED ONLY IN THE NEXT YEAR I.E. 2008-09 AS THE AGREEMENT TO PURCHASE THE LAND WAS ENTERED ON 20.11.2008 WHILE APPLICABILITY OF SEC. 194-1 AND 40 (A)(IA) WILL BE DETERMINED BY NATURE OF TRANSACTION ON 31.3.2008 WH ICH IS REVENUE EXPENDITURE ON THAT DATE, (II) BEING PURELY THEORET ICAL AND DISCUSSION PURPOSE, HAD THE ASSESSEE ENTERED INTO AGREEMENT BY THE LAND OWNER IN APRIL 2007 ITSELF IMMEDIATELY AFTER THE COMPENSA TION AGREEMENT ON 2.4.2007, IN SUCH CASE ADVANCE WOULD HAVE BEEN FOR THE PURCHASE OF CAPITAL ASSET WHICH IS DISALLOWABLE. 2.3 AFTER DISCUSSING OF THE ABOVE ASPECTS, THE A.O. REJECTED ASSESSEE'S CLAIM AND DISALLOWED THE CLAIM OF RS. 2, 48,14,500/- U/S 40A(IA) OF THE ACT AND HAS ADDED THE SAME IN THE HA NDS OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE WENT IN APPEAL B EFORE THE LD. CIT(A) WHO HAS REVERSED THE FINDING OF THE A.O. AND ALLOWE D THE APPEAL OF THE ASSESSEE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. BOTH THE PARTIES HA VE REITERATED THEIR EARLIER ARGUMENTS. APART FROM THAT, IT HAS BEEN SU BMITTED BY THE LD. A.R. THAT THIS ISSUE WHICH WAS COMMON IN OTHER CO-O WNERS CASES STANDS 5 COVERED BY THE DECISION OF THIS BENCH RENDERED IN T HE CASE OF ONE OF THE CO-OWNERS, NAMELY SHRI SABIR KHAN IN ITA NO. 22 4/JU/2012 FOR A.Y. 2008-09 ORDER DATED 16.1.2013. THE ABOVE FACTS COU LD NOT BE DENIED OR CONTROVERTED BY THE LD. D.R. 4. WE HAVE GONE THROUGH THE TRIBUNAL ORDER AS WELL AS PAGES 2 AND 3 OF THE ASSESSMENT ORDER. AT PAGE 3 OF THE ASSESSME NT ORDER, A BREAK- UP OF THE AMOUNT OF RS. 2,48,14,500/- AND THE RELEV ANT PORTION OF THE SHOW CAUSE NOTICE IS REPRODUCED BELOW: PLEASE REFER TO THE ASSESSMENT PROCEEDINGS PENDING IN YOUR CASE FOR THE A.Y. 2008-09. ON PERUSAL OF THE ACCOUNTS ANNEXED WITH THE RETURN FOR A.Y. 2008-09 IT IS NOTI CED THAT DURING THE YEAR UNDER CONSIDERATION IN THE MANUFACT URING, PROFIT AND LOSS ACCOUNT UNDER THE HEAD MINING EXPEN SES THE EXPENDITURE HAS BEEN CLAIMED AT RS. 22,26,31,611/- WHICH INCLUDES A SUM OF RS. 2,48,14,500/- CLAIMED TO HAVE BEEN PAID ON ACCOUNT OF COMPENSATION AGAINST SURFACE RIG HTS TO THE FOLLOWING PERSONS:- 1. IQBAL HUSSAIN 63,94,000 2. REHMAT ALL 35,69,500 3. SABIR KHAN 85,77,000 4. MOHD. JAVED KHAN 20,49,000 5. QNKAR LAI BHIL 2,97,000 6 6. BAGDIRAM 6,99,000 7. MOHD, RASHID SHEIKH 11,11,000 8. TAMMNNA BEGUM 16,20,000 9. GULBAJ KHAN 4,98,000 TOTAL : 24814500 THIS AMOUNT WAS PAID BY YOU TO THE ABOVE MENTIONED PERSONS ON ACCOUNT OF COMPENSATION AGAINST SURFACE RIGHTS. THIS IS A REVENUE EXPENDITURE AND THE NATURE FOR WH ICH IT WAS PAID CAN BE CONSTRUED FROM ONE OF THE AGREEMENT S (SUBMITTED BY YOUR A/R SHRI SHYAM S. SINGHIVI, WITH HIS REPLY DATED 02/09/2010) OF SH. IQBAL HUSSAIN DATED 02,04.2007, WHICH IS FOR THE RENT OF THE LAND. FROM THE AFORESAID AGREEMENT IT IS VERY MUCH CLEAR THAT RIGH T FROM THE INCEPTION OF THE AGREEMENT, THE LAND WAS OF THE OWNERSHIP OF THE PERSON OFFERING THE LAND FOR MININ G OPERATIONS AND BY GIVING THE SO CALLED ''COMPENSATI ON', THE ASSESSEE DID NOT ACQUIRE ANY CAPITAL ASSET, AND THE ONLY ADVANTAGE OBTAINED IS THAT THE ASSESSEE GOT THE RIG HT TO USE THE LAND FOR MINING WHICH IS IN THE NATURE OF T HE LEASE OF THE LAND BY PAYING MUTUALLY AGREED PAYMENT AS AG REED BETWEEN THE PARTIES. FROM THE LANGUAGES OF THE AGREEMENTS EXECUTED BY THE ASSESSEE WITH THE AFORES AID PERSONS, IT IS CLEAR THAT THE PAYMENTS TO BE PAID B Y THE ASSESSEE FOR USING THE AGRICULTURE LAND FOR STIPULA TED PERIOD IS NOTHING BUT LEASE RENT OF THE LAND UNDER CONSIDERATION. SO, AS CAN BE CLEARLY INTERPRETED T HAT THIS COMPENSATION AGAINST SURFACE RIGHT WAS PAID AS RENT TO THE 7 RECIPIENTS AND THE PAYMENT OF RENT ENTAILS DEDUCTIO N OF T.D.S. AS LAID DOWN IN SECTION 194-1 OF THE I.T. AC T. IN THE ABSENCE OF NON-DEDUCTION OF THE TDS ON THIS PAYMENT OF RENTAL NATURE, THIS PAYMENT IS NOT ALLOWABLE AS EXPENDITURE AS PER THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT AND NEEDS TO BE DISALLOWED. 5. WE HAVE GONE THROUGH THE TRIBUNAL ORDER IN QUEST ION AND HAVE FOUND THAT SHRI SHABIR KHAN FALLS AT SL. NO. 3 AND IS ONE OF THE NINE CO- OWNERS WHO PAID CUMULATIVE SUM OF RS. 2,48,14,500/- . UNDER IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE, QUA PAYMENT OF RS. 85,77,000/- FALLING TO HIS SHARE. TRIBUNAL HAS HELD AT PARA 9 AS UNDER: THE FINDING OF THE A.O. THAT THE ASSESSEE HAS BEEN SHOWING AGRICULTURAL INCOME AND THE CUMULATIVE AGRICULTURAL INCOME COULD HAVE BEEN ABOUT 5 TO 7 LAKHS AS RETURNED BY THE ASSESSEE IN THE EARLIER YEARS WHILE ASSESSEE HAS RECEIVED 85.77 LAKHS FOR A PERIOD OF 5 YEARS, SO THIS AMOUNT CANNOT BE TREATED AS COMPENSATION, IS DEFINITELY CORRECT. NOBODY WOULD GIVE SUCH A HUGE AMOUNT FOR A PIECE OF LAND GIVING MEAGER AGRICULTURAL INCOME. THAT IS WHY THE PARTIES [INCLUDING THE ASSESSEE] HAVE AGREED FOR 8 SALE OF THIS LAND FOR A TOTAL CONSIDERATION OF 93.5 7 LAKHS, FOR TOTAL AGRICULTURAL LAND MEASURING 31.19 BIGHAS. THE A.O. HAS NOT DISPUTED THE PRICE OF THI S LAND. RATHER, HE HAS DISPUTED THE COMPENSATION BY TREATING IT ON HIGHER SIDE. FOR WHATEVER PURPOSE THIS LAND WAS TAKEN BY SHRI MOHD. SHER KHAN AND WHATEVER NATURE OF THIS PAYMENT, HE MAY HAVE SHOWN IN HIS RETURN WOULD HARDLY BE OF ANY USE AGAINST THE INTEREST OF THE ASSESSEE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE HAD DISCLOSED THIS AMOUNT OF RS. 85.77 LAKHS IN COLUMN 6 OF SCHEDULE EI AT PAGE NO. 20 OF HIS RETURN. IN FACT, THE ASSESSEE HAS AGREED FOR SALE OF THIS LAND AND THE PURCHASER BEING ON DICTATING POSITION, MAY BE DEALING WITH THIS ISSUE IN ANY MANNER SUITABLE TO HIS CAUSE. FOR THE ASSESSEE, THIS SUM RELATES ONLY TO THE SALE CONSIDERATION OF THIS LAND. THIS IS NOT AN AFTERTHOUGHT OF THE ASSESSEE BUT A PRE-THOUGHT OF SHRI SHER KHAN. IN FACT, THIS AMOUNT IS AN ADVANCE TOWARDS THE SALE CONSIDERATION. VERILY, THE AGREEMENT FOR SALE DATED 20.11.2008 HAS SUPERCEDED THE EARLIER AGREEMENT AND STAND CANCELLED. ALL THE CIRCUMSTANTIAL EVIDENCE PROVE THAT THE SALE AGREEMENT IS THE CORRECT INTENTION OF THE PARTIES, AND THE COMPENSATION AGREEMENT IS A CAMOUFLAGE AS CORRECTLY POINTED OUT BY THE A.O. THE PAYMENT OF LEASING OUT THIS LAND FOR COMMERCIAL USE AND 9 SALE PRICE OF LAND CANNOT BE EQUAL. RATHER, NO ONE WILL GIVE SUCH A HUGE COMPENSATION WHICH CANNOT BE A REAL THING AND HENCE, THIS AMOUNT IS AN ADVANCE TOWARDS SALE CONSIDERATION ONLY. THEREFORE, THIS AMOUNT CANNOT BE SUBJECTED TO TAX. ASSESSEE MAY NOT BE AWARE OF ALL SUCH NITTY GRITTIE S OF LEGAL PROCEDURES AND HE HAS BEEN USED BY THE PURCHASERS ON THE ADVICE OF HIS LEGAL BRAINS. IN VIEW OF THE ABOVE DISCUSSION, IT IS PROVED THAT THE SALE AGREEMENT IS A CORRECT DOCUMENT, AND THE ASSESSEE HAD, IN FACT, SOLD THIS LAND. IT WAS OR I S UPTO THE PURCHASER WHEN HE WANTS TO GET IT REGISTERED. ACCORDINGLY, WE ORDER TO DELETE THIS ADDITION. THEREFORE, RESPECTFULLY FOLLOWING THE TRIBUNAL ORDE R ON IDENTICAL FACTS AND CIRCUMSTANCES, WE CONFIRM THE IMPUGNED DELETION AND CANNOT ALLOW THE APPEAL OF THE REVENUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2013. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER 10 DATED : 30 TH AUGUST, 2013. VL/ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT BY ORDER 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR