M/s. Jayaram Paper Mills Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 672/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1164 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2013
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 27-02-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 12-04-2011
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: R VENKATESH
• Keywords: Business income; Depreciation; Business expenditure; Corroborative evidences
• Section: 143(3); 2(14)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI. BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO.671/MDS/2011 ASSESSMENT YEARS: 2004-05 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), 21, M.G. ROAD, CHENNAI 600 034. VS. M/S. JAYARAM PAPER MILLS LTD. SUPER A 12 & 13 INDUSTRIAL ESTATE, GUINDY, CHENNAI 600 032. [PAN:AAACJ6259R] (APPELLANT) (RESPONDENT) I.T.A. NO.672/MDS/2011 ASSESSMENT YEARS: 2004-05 M/S. JAYARAM PAPER MILLS LTD. SUPER A 12 & 13 INDUSTRIAL ESTATE, GUINDY, CHENNAI 600 032. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), 21, M.G. ROAD, CHENNAI 600 034. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI ANIRUDH RAI, CIT - DR ASSESSEE BY : SHRI R. VENKATESH, C.A. DATE OF HEARING : 26.02.2013 DATE OF PRONOUNCEMENT : 07.03.2013 ORDER PER S.S. GODARA, JUDICIAL MEMBER THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSE E RESPECTIVELY, ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI DATED 27.01.2011 IN ITA NO. 406/09-10/A.III FOR THE ASSESSMENT YEAR 2004-05; IN PROCEEDINGS UNDER SECTI ON 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961 [IN SHORT THE ACT]. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .671 & 672 671 & 672 671 & 672 671 & 672/M/ /M/ /M/ /M/1 11 11 11 1 2 2. REITERATING TO THE GROUNDS RAISED IN ITS APPEAL , THE REVENUE ARGUES THAT THE CIT(A) HAS WRONGLY DELETED THE ADDITION OF RS.3,42,74,662/- MADE UNDER THE HEAD LONG TERM CAPITAL GAINS BY HOLDING THAT THE PROPERTY SOLD IS AGRICULTURAL LAND AND ALSO IN UPSETTING THE FINDING S OF THE ASSESSING OFFICER IN TREATING THE ADDITION OF RS.27,302/- MADE UNDER THE HEAD INCOME FROM OTHER SOURCES INSTEAD OF AGRICULTURAL INCOME AS CLAIMED B Y THE ASSESSEE. THE DR VEHEMENTLY SUBMITS THAT THE ORDER OF THE CIT(A) IS LIABLE TO BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. OPPOSING THIS, THE ASSESSEE STRONGLY SUPPORTS T HE ORDER OF THE CIT(A) AND PRAYS FOR UPHOLDING THE SAME SO FAR AS REVENUE S GROUNDS IN I.T.A. NO.671/MDS/2011 ARE CONCERNED. THEREAFTER, IT ARGUE S WITH REFERENCE TO GROUNDS IN I.T.A. NO. 672/MDS/2011 THAT THE CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN TREATING ITS INCOME FROM INTEREST RECEIPTS FROM BUSINESS OF MONEY LENDING AS INCOME FROM OTHE R SOURCES. TO BUTTRESS HIS SUBMISSIONS, THE ASSESSEE ALSO PLACED ON RECORD A PAPER BOOK AS WELL AS CASE LAW OF [2008]169 TAXMAN 255 (MAD.) M.S. SRI NIVASA NAICKER V. ITO AND PRAYS FOR REJECTION OF REVENUES APPEAL AND ACCEPTANCE OF ITS APPEAL. 4. IN REPLY TO ASSESSEES ARGUMENTS IN I.T.A. NO. 672/MDS/2011, THE REVENUE SUPPORTS THE ORDER OF THE CIT(A) AND REASON S STATED THEREIN. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .671 & 672 671 & 672 671 & 672 671 & 672/M/ /M/ /M/ /M/1 11 11 11 1 3 5. FACTS COMMON TO BOTH CASES ARE THAT THE ASSESSE E IS A COMPANY, FORMED WITH MAIN OBJECT OF CARRYING ON BUSINESS OF PAPER AND BOARD MANUFACTURING. THERE IS NO DISPUTE BETWEEN THE PART IES THAT IT HAS NOT BEEN ABLE TO CARRY THE SAID BUSINESS TILL THE IMPUGNED A SSESSMENT YEAR. ON 19.08.1974 AND ON 23.09.1974, IT HAD PURCHASED LAND IN QUESTION MEASURING 29.71 ACRES FOR ` .2,20,001/- AND ` . 6,000/- RESPECTIVELY AND CONSTRUCTED A BUILDING THEREUPON, CLAIMED DEPRECIATION AS WELL BY FOLLOWING WRITTEN DOWN VALUE METHOD TILL THE IMPUGNED ASSESSMENT YEAR. ON 09.11.2003, THE ASSESSEE HAD EXECUTED A GENERAL POWER OF ATTORNEY Q UA AFORESAID LAND IN FAVOUR OF M/S. S.S. FOUNDATION PVT. LTD. FOR ` .3,61,25,000/-. ON 26.02.2004, THE SALE WAS FINALIZED AND SETTLED VIDE SETTLEMENT RECEIPT BETWEEN THE VENDOR ASSESSEE AND VENDEE AFORESAID. 6. AS PER THE ASSESSMENT ORDER DATED 29.12.2009, T HE ASSESSEE DID NOT OFFER THE AFORESAID CONSIDERATION AMOUNT OF ` .3,61,25,000/- IN ITS INCOME AND DIRECTLY TOOK THE SAME TO ITS RESERVE ACCOUNT. THE ASSESSEES RECEIPTS DISCLOSED FOR THE IMPUGNED ASSESSMENT YEAR ARE SUGA RCANE SALES AND INTEREST OF ` .27,302/- AND ` .12,80,258/- RESPECTIVELY. 6. THE ASSESSEES RETURN WAS SUMMARILY PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, THE ASSESSING OFFI CER REOPENED THE ASSESSMENT. IN PROCEEDINGS CONSEQUENCE THERETO, THE WAS OF THE OPINION AND AS PER THE WEBSITE OF THE STATE GOVERNMENT, IT STOOD VERIFIED THAT THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .671 & 672 671 & 672 671 & 672 671 & 672/M/ /M/ /M/ /M/1 11 11 11 1 4 LAND IN QUESTION HAD BEEN CATEGORIZED AS RESIDENTI AL AREA BY THE OFFICE OF THE SUB-REGISTRAR CONCERNED AND ITS FAIR MARKET VAL UE AS ON 01.04.1981 WAS RS. 120/- PER SQ.FT. IN REPLY, THE ASSESSEE SUBMITT ED THAT THE LAND WAS BASICALLY AGRICULTURAL AND, IN THE PRECEDING ASSE SSMENT YEARS IT HAD BEEN DECLARING AGRICULTURAL INCOME ARISING FROM THE SAME . THEREFORE, IT CAME UNDER SECTION 2(14) (III) OF THE ACT WHICH DID AT TRACT CAPITAL GAINS AFTER TRANSFER IN QUESTION. IN SUPPORT THEREOF, IT PRODUC ED THE REVENUE RECORD COMPRISING PATTA, CHITTA AND ADANGAL. HOWEVER, IT C OULD NOT CONVINCE THE ASSESSING OFFICER; WHO, IN THE ASSESSMENT ORDER DAT ED 29.12.2009, CONSIDERED THE CLAUSES WHICH FORMED PART OF GENERAL POWER OF ATTORNEY (SUPRA) READING AS UNDER: '6) TO EXECUTE, ADMIT EXECUTION AND REGISTER ALL F ORMS OF TRANSACTIONS AS ENVISAGED UNDER THE TRANSFER OF PRO PERTY ACT NAMELY, A) TO SUB DIVIDE THE LAND INTO PLOTS. B) AMALGAMATION OR RECLASSIFICATION OF THE PLOTS. C) RE-UNION OF THE PLOTS. D) APPLY SUBMIT AND OBTAIN SANCTIONS OF PLAN IN RES PECT OF THE PROPOSED CONSTRUCTION OF COMMERCIAL CUM/ OR RESIDEN TIAL BUILDING OR BUILDINGS, TO CONSTRUCT THE SAME, TO ENGAGE A CIVIL CONTRACTOR OR CONSTRUCTION COMPANY FOR CONSTRUCTION, TO ENTER INT O, SIGN AND EXECUTE CONSTRUCTION AGREEMENT AND TO DO ALL ACTS AND DEEDS WITH RESPECT TO THE SAME. E) APPLY FOR ADDITIONS, REVISIONS AND ALTERATIONS TO THE BUILDINGS THAT MAY BE CONSTRUCTED THEREON.' IN LIGHT THEREOF, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE LAND WAS PRIMARILY A RESIDENTIAL AREA WHICH HAD BEEN W RONGLY CLAIMED AS I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .671 & 672 671 & 672 671 & 672 671 & 672/M/ /M/ /M/ /M/1 11 11 11 1 5 AGRICULTURAL LAND BY THE ASSESSEE. HE FURTHER HELD THAT THE ASSESSEE HAD CONSTRUCTED A BUILDING CLAIMING DEPRECIATION THEREU PON. HENCE, THE PROFIT ARISING FROM THE TRANSFER THERE FROM IS LIABLE TO B E TAXED AS RECEIPT FROM SALE OF RESIDENTIAL LAND. ON THIS ANALOGY, HE COMPUTED LONG TERM CAPITAL GAINS OF ` . 3,42,74,662/-. AS A NECESSARY COROLLARY, HE ALSO REJECTED ASSESSEES RECEIPT OF ` . 27,302/- (SUPRA) AS INCOME FROM SUGARCANE SALE FO R WANT OF DETAILS OF LAND AND OTHER SUPPORTING EVIDENCE. THER EFORE, THE ABOVE SAID RECEIPT WAS TREATED AS INCOME FROM OTHER SOURCES. 7. IN THE SAME MANNER, THE ASSESSING OFFICER ALSO CONSIDERED THE INTEREST RECEIPT (SUPRA) DECLARED BY THE ASSESSEE A ND ALSO THE CLAIM OF RS. 11,27,881/- AS EXPENDITURE INCURRED. THE EXPENDITUR E STATEMENT CLAIMED BY THE ASSESSEE READS AS UNDER: SALARIES AND BONUS 306,309 TELEPHONE CHARGES 69,164 TRAVELING & CONVEYANCE 181,830 MISCELLANEOUS EXPENSES 142,095 RENT 108,000 VEHICLE MAINTENANCE 104,802 AS WE NOTICED FROM THE ASSESSMENT ORDER, THE ASSE SSING OFFICER HELD THAT SINCE THE ASSESSEE HAD ACTUALLY CARRIED NO BUS INESS, ITS CLAIM OF BUSINESS EXPENDITURE AND DEPRECIATION OF ` .8,20,797/- HAD TO BE DISALLOWED. 8. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL. IT IS EVIDENT FROM THE ORDER OF THE CIT(A) THAT HE HAS ACCEPTED ASSESSEES CONTE NTION QUA CLAIM OF I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .671 & 672 671 & 672 671 & 672 671 & 672/M/ /M/ /M/ /M/1 11 11 11 1 6 AGRICULTURAL LAND AND AGRICULTURAL INCOME (SUPRA) B Y HOLDING THAT AS PER REVENUE RECORD; CROPS GROWN AND MATERIAL ON RECORD THAT IT HAD BEEN DECLARING AGRICULTURAL INCOME IN THE PRECEDING ASSE SSMENT YEARS SUPPORTED BY DULY AUDITED ACCOUNTS, THEREFORE, THE LAND WAS L IABLE TO BE TREATED AS AGRICULTURAL. BY ACCEPTING ASSESSEES CONTENTION, THE CIT(A) HOLDS THAT SINCE THE LAND IS COVERED BY SECTION 2(14)(III) OF THE ACT, SECTION 45 ACT OF THE PRESCRIBING COMPUTATION OF CAPITAL GAINS WOULD NOT BE APPLICABLE IN THE INSTANT CASE. ON THE SAME REASONING, HE HAS ALSO TR EATED THE RECEIPT OF SUGARCANE SALES AS AGRICULTURAL INCOME. REGARDING THE ISSUE OF INTEREST RECEIPT AND EXPENDITURE INCURRED (SUPRA), HE HAS UP HELD THE ASSESSMENT ORDER. IN THIS BACKDROP, THE REVENUES GRIEVANCE IS THAT S INCE THE LAND HAD BEEN WRONGLY TREATED RESIDENTIAL LAND BY LOWER APPE LLATE AUTHORITY AS AGRICULTURAL AND THEREFORE, THE RECEIPT OF SUGARC ANE (SUPRA) SALE IS ALSO LIABLE TO BE TREATED AS INCOME FROM OTHER SOURCES . ON THE OTHER HAND, THE SOLE GROUND OF THE ASSESSEE IS THAT THE CIT(A) SHOU LD HAVE ACCEPTED ITS CONTENTION THAT THE INTEREST INCOME (SUPRA) WAS LIA BLE TO BE TREATED ARISING FROM BUSINESS RECEIPT. 9. WE HAVE HEARD BOTH PARTIES AT LENGTH AND PERUSE D THE ASSESSMENT ORDER, CIT(A)S ORDER AS WELL AS THE PAPER BOOK AND CASE LAW AVAILABLE ON RECORD. IN OUR VIEW, THE QUESTION WHICH ARISES FOR OUR DETERMINATION AS TO I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .671 & 672 671 & 672 671 & 672 671 & 672/M/ /M/ /M/ /M/1 11 11 11 1 7 WHETHER THE LAND IS AGRICULTURE OR NOT AS CLAIMED B Y THE ASSESSEE AND DISPUTED BY THE REVENUE RESPECTIVELY, AND ALSO AS T O WHETHER THE INTEREST INCOME IN QUESTION CAN BE TERMED AS ASSESSEES BUSI NESS INCOME OR NOT. SO FAR AS THE ISSUE OF AGRICULTURAL LAND AND SUGARCANE SALE RECEIPT IS CONCERNED, THE ASSESSING OFFICERS FINDINGS ARE THAT PER CONCE RNED SUB-REGISTRAR OFFICE RECORD, THE LAND HAS BEEN CATEGORIZED AS RESIDENTI AL. THIS OPINION, IN OUR VIEW IS WITHOUT ANY BASIS BECAUSE THAT THE SAID OFF ICE IS MEANT FOR CARRYING OUT VARIOUS DUTIES UNDER REGISTRATION ACT, STAMP AC T COLLATERAL FUNCTIONS SUPPLEMENTING THE SAME AS PER VARIOUS GUIDELINES IS SUED BY THE GOVERNMENT. THE SAID GUIDELINES OFFER STANDARD TREA TMENT TO A PARTICULAR AREA OR LOCALITY. WHILE FRAMING THESE GUIDELINES, T HE NATURE OF LAND MAY OR MAY NOT BE A DECIDING FACTOR AND THE CONCERNED LAND OWNER COULD ALWAYS CLAIM BY LEADING COGENT EVIDENCE ON RECORD THAT THE NATURE OF THE LAND IS CONTRARY THAT STATED IN THE GUIDELINES. THEREFORE, WE HOLD THAT SO FAR AS REVENUES ARGUMENT OF CATEGORIZATION OF LAND AS PER THE WEBSITE OF SUB- REGISTRAR OFFICE, THE SAME HARDLY CARRIES ANY SIGNI FICANCE. 10. COMING TO OTHER FINDINGS OF THE ASSESSING OFFI CER THAT THE ASSESSEE HAD ERECTED A BUILDING ON THE LAND IN QUESTION AND CLAIMED DEPRECIATION, THERE IS NO EVIDENCE LED BY THE ASSESSEE ABOUT THE AREA OF THE BUILDING AND UTILITY THEREOF. THEREFORE, IN OUR VIEW, THE CIT(A) HAS ERRED IN HOLDING THAT THE ENTIRE LAND IS AGRICULTURAL IN NATURE WITHOUT RECOR DING ABOUT THE PURPOSE OF I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .671 & 672 671 & 672 671 & 672 671 & 672/M/ /M/ /M/ /M/1 11 11 11 1 8 THE SAID CONSTRUCTION. 11. THIS LEAVES US WITH THE OTHER FINDINGS OF THE ASSESSING OFFICER THAT IN THE GENERAL POWER OF ATTORNEY EXECUTED BY THE ASSES SEE AND CLAUSES THEREIN, THE INTENTION OF PARTIES WAS TO DEVELOP A LAYOUT PLAN FOR RESIDENTIAL DEVELOPMENT, IN OUR VIEW, AS RIGHTLY HELD BY THE HO NBLE JURISDICTIONAL HIGH COURT (SUPRA), NATURE OF THE LAND BEFORE TRANSFER T ILL THE DATE OF SALE IS THE ISSUE TO BE DECIDED AND INTENTION OF SUBSEQUENT BUY ER QUA USER OF THE LAND DOES NOT CARRY ANY SIGNIFICANCE. 12. AT THE SAME TIME, WE ARE OF THE VIEW THAT WHEN THE ISSUE IS TO FIND OUT THE NATURE OF THE LAND SOLD I.E., WHETHER IT IS AGR ICULTURAL OR OTHERWISE, THE COGENT EVIDENCE TO BE EXAMINED IS REVENUE RECORD, P ROOF OF AGRICULTURAL ACTIVITIES AND OPERATIONS LEADING TO AGRICULTURAL I NCOME AS WELL AS OTHER CORROBORATIVE EVIDENCE DEPENDING UPON THE FACTS OF THE CASE PLAY THE CLINCHING ROLE TO ARRIVE AT AN APPROPRIATE CONCLU SION. IN THIS INSTANT CASE, WE NOTICE THAT THOUGH THE ASSESSEE HAS FILED A PAPER B OOK OF ITS RETURN, COMPUTATION, ANNUAL REPORT, AUDITED FINANCIAL STATE MENT, THE SAME HAVE NOT BEEN CONSIDERED IN DETAIL BY THE ASSESSING OFFICER OR CIT(A). RATHER, THEY HAVE PROCEEDED ON THE REASONING NOT WARRANTED BY TH E LAW WHICH WE HAVE ALREADY DEALT HEREINABOVE. 13. FACED WITH THIS SITUATION, WE DEEM IT PROPER T HAT THE ASSESSING OFFICER SHOULD RE-EXAMINE THE MATTER AND DECIDE THE ISSUE A FRESH AFTER AFFORDING I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .671 & 672 671 & 672 671 & 672 671 & 672/M/ /M/ /M/ /M/1 11 11 11 1 9 ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. AC CORDINGLY, THE REVENUES APPEAL IS ACCEPTED FOR STATISTICAL PURPOS E ON BOTH GROUNDS RAISED AS ABOVE. 14. NOW, WE COME TO THE SOLE GROUND RAISED BY THE ASSESSEE (SUPRA) IN ITS APPEAL. THERE IS HARDLY ANY DISPUTE RAISED BY THE A SSESSEE THAT IT HAS NOT BEEN ABLE TO PERFORM ANY BUSINESS ACTIVITY IN THE I MPUGNED ASSESSMENT YEAR OR IN THE PAST. ONCE THAT IS SO, WE ARE UNABLE TO T REAT THAT THE INTEREST INCOME IS LIABLE TO BE TREATED AS BUSINESS RECEIPT. IN THE ABSENCE OF ANY BUSINESS ACTIVITY PERFORMED BY THE ASSESSEE AT ALL, WE HOLD THAT THE ASSESSING OFFICER AS WELL AS CIT(A) HAVE RIGHTLY DECLINED TO ACCEPT T HE STAND OF THE ASSESSEE. THEREFORE, WE AFFIRM THE WELL REASONED ORDER OF THE CIT(A) IN ASSESSEES APPEAL QUA THIS GROUND. 15. AS SEQUEL TO OUR ABOVE DISCUSSION, REVENUES A PPEAL IS ACCEPTED FOR STATISTICAL PURPOSE AND ASSESSEES APPEAL IS DISMIS SED. ORDER PRONOUNCED ON THURSDAY, THE 7 TH OF MARCH, 2013 AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER CHENNAI, DATED, THE 07.03.2013 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.