DCIT, V. Sri. Bharath R.Gajra,

ITA 705/BANG/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80687 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Revised return
• Section: 143(3); 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NO. 705 / BANG/20 1 3 (ASSESSMENT YEAR: 20 07 - 08 ) DEPUTY COMMISSIONER OF INCOME - TAX, CENTRA L CIRCLE 2(2), BANGALORE. APPELLANT VS. SHRI BHARAT R GAJRIA, BY L/R SMT.SEEMA B.GAJRIA, NO.294, 8 TH BLOCK, JAYANAGAR, 39 TH CROSS, BANGALORE - 560082. PAN:AEJPG46688K RESPONDENT AND CROSS OBJN.NO.98/BANG/2013 (IN ITA NO.705/B ANG/2013) (ASSESSMENT YEAR: 2007 - 08) (BY THE ASSESSEE) REVENUE BY: SHRI T.S.N.MURTHY, CIT - III(DR). ASSESSEE BY: SHRI G.ROHIT, CA. DATE OF HEARING : 20 - 08 - 2014. DATE OF PRONOUNCEMENT: 05 - 09 - 2014. O R D E R PER SMT. P.MADHAVI DEVI, JM : THE A PPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE AGAINST THE ORDER OF THE CIT(A) - VI, BANGALORE, DATED 28 - 3 - 2013 FOR THE ASSESSMENT YEAR 2007 - 08. ITA NO . 705 & CO 98 /BANG/20 13 SHRI BHARAT R.GAJRIA. PAGE 2 OF 10 2. IN TH E APPEAL, THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A) IN (I) HOLD ING THAT PROFIT ON SALE OF LAND AMOUNTING TO RS.6,72,792/ - IS ASSESSABLE UNDER THE HEAD CAPITAL GAINS INSTEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION (II) DELETING THE ADDITION OF RS.2,95,99,571/ - MADE ON ACCOUNT OF SUPPRESSION OF SALE CONSIDER ATION OF THE LAND, AND (III) DELETING THE DISALLOWANCE OF RS.1,59,70,089/ - U/S 40(A)(IA) OF THE INCOME - TAX ACT, 1961[HEREINAFTER REFERRED TO AS 'THE ACT'] 3. THE ASSESSEE HAS FILED CROSS - OBJECTION AGAINST THE ORDER OF THE CIT(A) IN DISALLOWING THE EXPENDI TURE INCURRED BY THE ASSESSEE TOWARDS THE COST OF CONSTRUCTION OF COMPOUND WALL AND ALSO PAYMENT TOWARDS DEVELOPMENT FEE TO THE CONCERNED DEPARTMENT. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL, HAD FILED HIS RETURN OF INCOME FOR THE A SSESSMENT YEAR 2007 - 08 ON 31 - 3 - 2008 DECLARING A TOTAL INCOME OF RS.2,97,39,262/ - AND SUBSEQUENTLY FILED A REVISED RETURN OF INCOME ON 31 - 3 - 2009 DECLARING A TOTAL INCOME OF RS.6,06,32,187/ - . SUBSEQUENT TO THE SEARCH PROCEEDINGS IN THE CASE OF SHRI PURUSHOT TAM REDDY, MANAGING DIRECTOR OF M/S.CHAMUNDI GOLD HILLS ESTATE & OTHERS, THE ASSESSING OFFICER ( AO ) PASSED THE ASSESSMENT ORDER U/S 143(3) ON 19 - 12 - 2009 ACCEPTING THE RETURNED INCOME. THEREAFTER, DURING THE ASSESSMENT PROCEEDINGS U/S 153C IN THE ITA NO . 705 & CO 98 /BANG/20 13 SHRI BHARAT R.GAJRIA. PAGE 3 OF 10 CASE OF M/ S.CHAMUNDI GOLD HILLS ESTATE, CONSEQUENT TO THE SEARCH U/S 132 IN THE CASE OF SHRI PURUSHOTTAM REDDY & GROUP, IT CAME TO THE KNOWLEDGE OF THE AO THAT THE ASSESSEE HAD SOLD LAND TO M/S.CHAMUNDI GOLD HILLS ESTATE AND OTHERS DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2007 - 08 AND THAT THE ASSESSEE HAD DECLARED INCOME FROM THE TRANSACTION AT THE RATE OF 975 PER SQ.FT. AND THE ACCOUNTED SALE RECEIPTS OF RS.15,04,00,429/ - WHEREAS ON VERIFICATION FROM M/S.CHAMUNDI GOLD HILLS ESTATE, IT CAME TO LIGHT THAT THE ASSESSEE HAD RECEIVED RS.1224 PER SQ.FT. AND THE TOTAL CONSIDERATION WORKS OUT TO RS.18.75 CRORES. THE AO, THEREFORE, WAS OF THE OPINION THAT THERE IS SUPPRESSION OF SALE CONSIDERATION TO THE EXTENT OF RS.2,95,99,571/ - AND ACCORDINGLY IT HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF THE PROVISIONS OF SEC.147 OF THE ACT. ACCORDINGLY, HE REOPENED THE ASSESSMENT BY ISSUANCE OF NOTICE DATED 11 - 11 - 2010 U/S 148 OF THE ACT. IN REPLY THERETO, THE ASSESSEE S LEGAL REPRESENTATIVE FILED A LETTER REQUESTING TO T REAT THE RETURN FILED ON 31 - 3 - 2009 DECLARING A TOTAL INCOME OF RS.6,06,32,187/ - AS THE RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) R.W. SEC.147 OF THE ACT, THE AO REQUIRED THE ASSESSEE TO FURNISH DETAILS O F THE TRANSACTION. AS REGARDS THE TRANSACTION OF SALE OF LAND TO M/S.CHAMUNDI GOLD HILLS ESTATE, THE ASSESSEE S LR HAD FILED A LETTER DATED 26 - 3 - 2009 STATING AS FOLLOWS: ITA NO . 705 & CO 98 /BANG/20 13 SHRI BHARAT R.GAJRIA. PAGE 4 OF 10 I RS.35,00,000/ - PAID TO JAWAHAR GOPAL AND RAMI REDDY TOWARDS CANCELLATION OF ORIGIN AL AGREEMENT II RS.3,01,00,000/ - PAID TO PRAKRUTHI INFRASTRUCTURE AND DEVELOPMENT COMPANY CANCELLATION OF SUBSEQUENT AGREEMENT. III RS.17,59,322/ - PAID TO BIFORA TOWARDS INTEREST ON SHORT TERM BORROWING FOR PAYMENT OF ABOVE. IV RS.70,83,188.50 PAID T O MR.DHANANJAY PANDEY TOWARDS SETTLEMENT OF UNAUTHORIZED TENANTS RESIDING ON THE SAID LAND. V RS.1,11,47,319/ - PAID TO G.K.ASSOCIATES TOWARDS CONSTRUCTION OF COMPOUND WALLS FOR THE ABOVE SAID PROPERTY. VI RS.57,50,000/ - PAID TOWARDS EARTH FILLING AND LEV ELING OF LOW LYING LAND. VII RS.13,77,620/ - PAID TO THE GOVERNMENT TOWARDS LAND BETTERMENT AND CONVERSION CHARGES. THE AO AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE AND THE DETAILS FILED THEREWITH , HELD THAT THE ACTIVITY CARRIED ON BY THE ASSES SEE IS NOTHING BUT AN ADVENTURE IN THE NATURE OF TRADE AND THEREFORE INCOME FROM SALE OF LAND HAS TO BE ASSESSED AS THE BUSINESS INCOME AND NOT AS CAPITAL GAINS AS OFFERED BY THE ASSESSEE. HE, ACCORDINGLY, BROUGHT IT TO TAX AND ALSO DISALLOWED PART OF THE EXPENDITURE CLAIMED BY THE ASSESSEE. HE ALSO MADE DISALLOWANCE U /S 40(A)(IA) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOURCE BEFORE MAKING PAYMENT TO CERTAIN PARTIES. 5. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO PARTLY ALLOWED THE SAME AND AGAINST THE RELIEF GIVEN BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US WHILE AGAINST ITA NO . 705 & CO 98 /BANG/20 13 SHRI BHARAT R.GAJRIA. PAGE 5 OF 10 THE CONFIRMATION OF PART OF THE DISALLOWANCE, THE ASSESSEE IS IN CROSS - OBJECTION BEFORE US. 6 AS REGARDS THE NATURE OF THE ACTIVITY CARRIED ON BY THE ASSESSE E, LEARNED DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDER OF THE CIT(A). WE FIND THAT THE AO HAS MAINLY RELIED UPON THE CONTENTS OF THE LETTER ALLEGEDLY WRITTEN BY THE ASSESSEE TO HIS PARTNER IN WHICH HE HAS STATED THAT HE WAS DEALING WITH PROPE RTIES WITH A VIEW TO CONVEY THEM I.E. TO PA R TNERS BY MAKING THEM ABSOLUTE OWNERS THEREOF. THE CONTENTS OF THE LETTER HAVE BEEN REPRODUCED AT PAGE 12 OF THE ASSESSMENT ORDER. FROM THE RECITALS IN THE LETTER , IT IS NOT CLEAR AS TO WHETHER THE ASSESSEE WAS REALLY CARRYING ON THE ACTIVITY OF ADVENTURE IN THE NATURE OF TRADE OR THAT THESE PROPERTIES WERE CONSIDERED AS TRADING ASSETS BY THE ASSESSEE. THE CIT(A) HAS CLEARLY HELD THAT THESE LANDS WERE HELD BY THE ASSESSEE AS AGRICULTURAL LAND FOR A PERIOD OF MOR E THAN 3 YEARS . FURTHER THE TRIBUNAL BY ORDER DATED 7 - 3 - 2011 IN ITA NO.816/BANG/2010 IN THE ASSESSEE S OWN CASE IN SIMILAR SET OF FACTS FOR ASSESSMENT YEAR 2006 - 07 HELD THE INCOME FROM THE SALE OF LAND T O BE CAPITAL GAINS AND NOT INCOME FROM BUSINESS OR PROFESSION. COPY OF THE TRIBUNAL S ORDER FOR THE EARLIER ASSESSMENT YEAR 2006 - 07 IS ALSO FILED BEFORE US AND IT IS EVIDENT THERE - FROM THAT THE TRIBUNAL HAS CONSIDERED THE ACTIVITIES OF THE ASSESSEE OF IMPROVING THE LAND BY LEVELING THE LAND AND MAKING PLO TS ETC., AND HAS HELD THAT IT IS ITA NO . 705 & CO 98 /BANG/20 13 SHRI BHARAT R.GAJRIA. PAGE 6 OF 10 NOT AN ACTIVITY IN THE NATURE OF ADVENTURE IN TRADE. THE TRIBUNAL, IN PARA. 7 , OF ITS ORDER HELD AS UNDER: 07. IN PAGE 13 OF HIS ORDER, THE COMMISSIONER OF INCOME - TAX(A) HAS LISTED OUT THE DETAILS OF VARIOUS PURCHASES MA DE BY THE LATE ASSESSEE FROM 1988 - 89 TO 2002 - 04. THE LAND WAS SOLD IN FINANCIAL YEAR 2005 - 06 WHICH IS THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE MAIN CHUNK OF LAND LIKE 1 ACRE 1 GUNTA; 2 ACRES 64 GUNTAS; 1 ACRE 23 GUNTAS; 9 ACRE 2 0 GUNTAS ETC WERE IN FACT PURCHASED BY THE ASSESSEE IN FINANCIAL YEARS 1988 - 89, 1989 - 90, 1991 - 92, 1992 - 93, ETC., AT THAT RELEVANT POINT OF TIME WHEN LANDS WERE PURCHASED BY THE ASSESSEE, THEY WERE AGRICULTURAL LANDS. THE ASSESSEE SOLD THOSE HOLDINGS IN T HE FINANCIAL YEAR 2005 - 06 WHICH MEANS AFTER A PERIOD OF FIVE TO SEVEN YEARS. THE HOLDING OF LAND FOR THAT LONG A PERIOD IS PRIMARILY AN INDICATION OF THE FACT THAT THE ASSESSEE HELD THE AGRICULTURAL LANDS PURCHASED BY HIM AS INVESTMENT. THERE IS NO EVIDE NCE ON RECORD TO SHOW THAT THE ASSESSEE HAS BEEN CARRYING ON THE ACTIVITIES AS ADVENTURE IN THE NATURE OF TRADE. ONLY FOR THE REASON THAT THE AGRICULTURAL LAND PREVIOUSLY PURCHASED BY THE ASSESSEE WERE DEVELOPED AND PLOTTED AND SOLD AT A HUGE PRICE, DOES NOT MEAN THAT THE ASSESSEE WAS CARRYING ON THE ACTIVITIES IN AN ORGANIZED MANNER IN THE NATURE OF BUSINESS. AS A PRUDENT INVESTOR, THE ASSESSEE STARTED SAVING HIS INVESTMENTS IN LAND IN ANTICIPATION OF GOOD PRICE ON SALE. THIS PRUDENCE OF THE LATE ASSESSE E CANNOT BE EQUATED WITH AN OBJECT OF INDULGING IN ADVENTURE IN THE NATURE OF TRADE. BECAUSE OF THE DEVELOPMENT OF BANGALORE CITY, LIKE MANY OTHER PERSONS, THE ASSESSEE ALSO MIGHT HAVE BENEFITED BY A WINDFALL. THE RISE IN PRICE OF THE LAND SURROUNDING BI G CITIES IS A NATURAL THING WITH WHICH ALONE THE OBJECT OF ASSESSEE CANNOT BE TESTED. SINCE THE FACTS OF THE CASE BEFORE US ARE SIMILAR TO THE FACTS IN THE ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEAR, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - OR DINATE BENCH TO WHICH ONE OF US I.E. THE JUDICIAL MEMBER IS THE SIGNATORY, WE UPHOLD THE FINDINGS OF THE CIT(A) THAT INCOME FROM SALE OF LAND IS TO BE TAXED AS INCOME FROM CAPITAL GAINS . THE REVENUE S GROUND OF APPEAL IS ACCORDINGLY REJECTED. ITA NO . 705 & CO 98 /BANG/20 13 SHRI BHARAT R.GAJRIA. PAGE 7 OF 10 6.1 AS REG ARDS THE SALE CONSIDERATION FOR THE LAND, THE AO HAS MADE ADDITION ONLY ON THE BASIS OF THE STATEMENT OF SHRI PURUSHOTHAM REDDY RECORDED DURING THE COURSE OF SEARCH THAT THE ASSESSEE HAS RECEIVED SALE CONSIDERATION AT THE RATE OF RS.1224/ - PER SQ.FT. AS AG AINST RS.975/ - PER SQ.FT. CLAIMED BY THE ASSESSEE. EXCEPT FOR THE STATEMENT OF SHRI PURUSHOTHAM REDDY, THERE HAS BEEN NO EVIDENCE BROUGHT ON RECORD TO SHOW THAT THE SALE CONSIDERATION WAS AT THE RATE OF RS.1224/ - PER SQ.FT.. IN THE ABSENCE OF ANY MATERIA L ON RECORD TO SUBSTANTIATE THE STATEMENT RECORDED DURING THE COURSE OF SEARCH OF THE THIRD PARTY, WE ARE NOT INCLINED TO ACCEPT THE CONTENTION OF THE REVENUE THAT THERE IS SUPPRESSION OF SALE CONSIDERATION BY THE ASSESSEE. WE, THEREFORE, DO NOT SEE ANY R EASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE. THIS GROUND OF APPEAL IS ALSO REJECTED. 6.2 THE NEXT DISALLOWANCE IS U/S 40(A)(IA) OF THE ACT. THE AO HAS DISALLOWED THE SUM ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX BEFORE MAK ING PAYMENT TO VARIOUS PARTIES SET OUT IN PARA.13 OF THE ASSESSMENT ORDER. WE FIND THAT THE CIT(A) HAS ALSO RECORDED A FINDING THAT NO TDS HAS BEEN DEDUCTED WHILE MAKING PAYMENT BUT THAT THE GENUINENESS OF THE EXPENDITURE HAS NOT BEEN DOUBTED BY THE AO AN D THAT THERE IS NO EVIDENCE ON RECORD TO SUGGEST THAT THIS EXPENDITURE WAS NOT INCURRED. HOWEVER, SINCE WE HAVE ALREADY HELD THAT INCOME FROM SALE OF LAND IS TO BE TAXED AS CAPITAL GAINS AND NOT AS INCOME FROM ITA NO . 705 & CO 98 /BANG/20 13 SHRI BHARAT R.GAJRIA. PAGE 8 OF 10 BUSINESS OR PROFESSION , THE PROVISIONS OF SEC.40(A)(IA) ARE NOT APPLICABLE. THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS ALSO REJECTED. 6 .3 IN THE RESULT, THE REVENUE S APPEAL IS DISMISSED. 7 . AS REGARDS THE CROSS - O BJ ECTION FILED BY THE ASSESSEE, W E FIND THAT THE AO HAS DISALLOWED THE EXP ENDITURE ALLEGEDLY INCURRED BY THE ASSESSEE TOWARDS THE CONSTRUCTION OF THE COMPOUND WALL AND PAID TO G.K.ASSOCIATES. THE CIT(A) HAS ALSO CONFIRMED THE DISALLOWANCE ON THE GROUND THAT SOME OF THE PAYMENTS ARE SUBSEQUENT TO THE DATE OF SALE OF THE LAND AND THEREFORE IT IS NOT UNDERSTANDABLE AS TO HOW THE ASSESSEE HAS CONSTRUCTED THE COMPOUND WALL AFTER SALE OF THE LAND. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT MOST OF THE PAYMENTS ARE TO GK ASSOCIATES AND THE CIT(A) HAS REPRODUCED THE DETAILS AS SCHEDULE E AT PAGE 5 OF HIS ORDER WHICH ARE ALL BY ACCOUNT PAYEE CHEQUES EXCEPT FOR THREE PAYMENTS I.E. FROM 17 - 2 - 2007 TO 19 - 3 - 2007. HE SUBMITTED THAT THERE IS NO DISPUTE AS REGARDS THE CONSTRUCTION OF COMPOUND WALL BY THE AO BUT THE CIT(A) HA S ONLY GONE ON THE PREMISE THAT SINCE PAYMENTS WERE MADE AFTER THE SALE OF LAND, CONSTRUCTION OF COMPOUND WALL IS DOUBTFUL. HE SUBMITTED THAT THE WALL WAS CONSTRUCTED MUCH PRIOR TO THE DATE OF SALE BUT THE PAYMENTS WERE ACTUALLY MADE SUBSEQUENT TO THE SAL E AND THAT IT IS NO ITA NO . 705 & CO 98 /BANG/20 13 SHRI BHARAT R.GAJRIA. PAGE 9 OF 10 GROUND TO DISALLOW THE EXPENDITURE WHICH HAS GENUINELY BEEN INCURRED BY THE ASSESSEE AND TH EREFORE IT SHOULD BE ALLOWED AS COST OF IMPROVEMENT TO THE LAND. WE FIND THAT T HE SALE OF LAND HAD TAKEN PLACE IN MARCH 2007. UP TO THE DATE OF SALE , A SUM OF RS.49,79,320/ - WAS MADE TO GK ASSOCIATES. OUT OF THIS, EXCEPT FOR A SUM OF RS.10,42,929/ - THE BALANCE WAS PAID IN CASH. THE SUBSEQUENT PAYMENTS ARE IN THE MONTHS OF APRIL, JUNE, JULY AND OCTOBER 2010 AND ARE ALL BY ACCOUNT PAYEE CHEQUES. A S RIGHTLY HELD BY THE CIT(A) AND ARGUED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, JUST BECAUSE CERTAIN ACCOUNT PAYEE CHEQUES HAVE BEEN MADE TO ONE PERSON, IT DOES NOT MEAN THAT THESE ARE ATTRIBUTABLE TO CONSTRUCTION OF COMPOUND WALL OR THAT THEY ARE RELA TABLE TO THE IMPROVEMENT OF LAND. THE ASSESSEE HAS TO EXPLAIN WITH NECESSARY EVIDENCE AS TO THE REASONS WHY PAYMENTS WERE MADE MUCH LATER TO THE SALE OF LAND. NO DETAILS WERE FURNISHED EITHER BEFORE THE AO OR THE CIT(A), NOR DID THE AUTHORITIES BELOW EXA MINE AS TO WHETHER THERE WAS A COMPOUND WALL CONSTRUCTED BY GK ASSOCIATES DURING THE RELEVANT PERIOD AND WHETHER THE PAYMENT TO GK ASSOCIATES AS CLAIMED BY THE ASSESSEE WAS TOWARDS SUCH CONSTRUCTION OF THE COMPOUND WALL . THEREFORE, IN THE INTERESTS OF JUST ICE, WE DEEM IT FIT AND PROPER TO REMIT THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE AND VERIFY WHETHER COMPOUND WALL WAS IN FACT CONSTRUCTED AROUND THE SCHEDULE LAND AND REASONS FOR PAYMENTS MADE SUBSEQUENT TO THE DATE OF SALE OF LAND AND ALLOW THE EXPENDITURE ITA NO . 705 & CO 98 /BANG/20 13 SHRI BHARAT R.GAJRIA. PAGE 10 OF 10 INCURRED FOR SUCH CONSTRUCTION OF COMPOUND WALL, IF IT IS FOUND THAT COMPOUND WALL WAS IN FACT, CONSTRUCTED BY THE GK ASSOCIATES AT THE BEHEST OF THE ASSESSEE . 8. IN THE RESULT, THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STAT ISTICAL PURPOSES. PRON OUNCED IN THE OPEN COURT O N 5 TH OF SEPTEMBER , 201 4. SD/ - SD/ - (JASON P BOAZ ) ( SMT. P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE