The Income-tax Officer, MANSA V. M/s. Ravneet Construction P.Ltd, MANSA

ITA 77/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8891 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Capital asset
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH; AMRITSAR (SMC) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER ITA NO.77(ASR)/2014 ASSESSMENT YEAR:2010-11 PAN: AAD CR7245L INCOME TAX OFFICER, VS. M/S. RAVNEET CONSTRUCTION S PVT. WARD 1(4), MANSA. LTD., MANSA. (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. RATINDER KAUR, DR RESPONDENT BY:SH. P.N.ARORA, ADVOCATE DATE OF HEARING: 07/12/2015 DATE OF PRONOUNCEMENT: 01/02/2016 ORDER THIS IS THE DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2010-11, AGAINST THE ORDER DATED 21.11.2013, PASSED BY THE L D. CIT(A), BATHINDA. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A), HAS ERRED IN DELETING THE ADDITION OF RS.11,40,000/- MADE BY THE AO U/S 40A(3) OF THE I.T . ACT, 1961 BY HOLDING THE LAND PURCHASED WAS AN INVESTMEN T AND NOT WAS STOCK IN TRADE, AS THE SAME WAS SOLD AS IT IS AT A LATER STAGE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A), HAS ERRED IN HOLDING THAT THE SELLERS OF THE SAID LAND BELONG TO VILLAGE BUPAL DISTT. MANSA WHEREAS T HE SELLERS BELONG TO VILLAGE MALIKPUR KHIALA DISTT. MANSA WHIC H IS PROVIDED WITH THE BANKING FACILITIES. THE RATIO OF CASE LAW OF ITA NO.77(ASR)/2014 ASSESSMENT YEAR:2010-11 2 ITO VS. KENARAM SAHA & SUBASH SAHA (2009) 116 ITD 1 ( KOL. TRIB) (SB) IS APPLICABLE INN THIS CASE. 2. THE FACTS AS PER RECORD ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY INCORPORATED ON 28.08.2006. SINCE ITS INCOR PORATION TILL 31.03.2010 IT HAD NOT DONE ANY BUSINESS ACTIVITY. D URING THE YEAR, THE ASSESSEE PURCHASED 21 KANAL AND 16 MARLA AGRICULT URAL LAND SITUATED IN VILLAGE BHUPAL, TEHSIL AND DSTT. MANSA, FOR A SUM O F RS.10,90,000/- AND A SUM OF RS.50,000/- PAID AS REGISTRATION FEE, FROM SH. GURVINDER SINGH S/O SH. KARNAIL SINGH AND JASWINDER SINGH S/O SH. U GGAR SINGH R/O VILLAGE BHUPAL, TEHSIL & DISTT. MANSA, AGRICULTURIS TS. THE PAYMENT WAS MADE IN CASH. QUERYING THE ASSESSEE, THE AO STATED THAT THE ASSESSEE- COMPANY WAS DEALING IN REAL ESTATE BUSINESS AND THE PURCHASE OF STOCK IN TRADE ATTRACTED THE PROVISIONS OF SECTION 40A(3) OF THE I.T. ACT, AS THE PAYMENT EXCEEDED RS.20,000/-. IN RESPONSE, THE ASSE SSEE SUBMITTED THAT THE PAYMENT HAD BEEN MADE TO THE PURCHASER WHO RESI DED IN A VILLAGE, I.E., BHUPAL, WHICH WAS NOT COVERED UNDER BANKING F ACILITIES AND, THEREFORE, SINCE THE CASE FELL WITHIN RULE 6DD(G) OF THE I.T. RULES, 1962, NO DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT WAS CALLED FOR. IT WAS ALSO SUBMITTED THAT THE SELLERS OF THE LAND WERE NO T READY TO SELL THE PROPERTY UNTIL AND UNLESS THE AMOUNT WAS PAID IN AD VANCE AT THEIR HOME, WHICH FACT WAS ALSO STATED IN THE TITLE DEED, AND T HAT THE AMOUNT HAD BEEN RECEIVED BY THE SELLERS AT HOME. IT WAS CONTEN DED THAT IT WAS DUE TO THE SAID REASON THAT THE PAYMENT WAS MADE IN CASH, ELSE, THE SELLERS ITA NO.77(ASR)/2014 ASSESSMENT YEAR:2010-11 3 WOULD NOT HAVE SOLD THE PROPERTY TO THE ASSESSEE. I T WAS FURTHER STATED SINCE THE LAND HAD BEEN PURCHASED AS AN INVESTMENT IN AGRICULTURAL LAND AND THE AMOUNT HAD NOT BEEN INCURRED AS EXPENSES FO R PURCHASE OF LAND TO DEVELOP IT AND THEN TO SELL IT TO AS A COLONIZER . COPIES OF ACCOUNT WERE FILED BEFORE THE AO TO SUPPORT THIS CONTENTION. 3. HOWEVER, THE AO DISAGREEING WITH THE STAND TAK EN BY THE ASSESSEE, HELD THAT THE ASSESSEE-COMPANY WAS DOING REAL ESTATE BUSINESS; THAT THE SELLERS OF THE LAND BELONGED TO VILLAGE MALIKPUR KHIALA, DISTT. MANSA AND NOT TO VILLAGE BHUPAL, DIS TT. MANSA, AS MENTIONED IN THE REGISTRATION DEED; THAT DURING THE ENQUIRY CONDUCTED, THE INSPECTOR OF THE DEPARTMENT HAD FOUND THAT BANK ING FACILITY WAS AVAILABLE IN VILLAGE MALIKPUR KHIALA; THAT THEREFOR E, THE CASE WAS NOT COVERED UNDER RULE 6DD(G) OF THE I.T. RULES; THAT T HE ARGUMENT OF THE ASSESSEE THAT THE TRANSACTION WAS NOT A EXPENSE, SI NCE THE PURCHASE OF THE LAND WAS MADE AS AN INVESTMENT IN AGRICULTURAL LAND, HAD NO FORCE, SINCE THE ASSESSEE COMPANY DEALT IN REAL ESTATE BUS INESS AND DURING THE YEAR IT HAD SOLD THE LAND PURCHASED, ON 30.03.2010, VIDE TRANSFER DEED, FOR A CONSIDERATION OF RS.12,00,000/- AND THE ASSES SEE COMPANY HAD REFLECTED PROFIT ON THE SAID TRANSFER; AND THAT AS SUCH, THE LAND WAS STOCK IN TRADE WITH THE ASSESSEE. IT WAS ON THIS BASIS TH AT THE AO MADE A DISALLOWANCE OF RS.11,40,000/- U/S 40A(3) OF THE AC T AND ADDED THE SAME BACK TO THE INCOME OF THE ASSESSEE. ITA NO.77(ASR)/2014 ASSESSMENT YEAR:2010-11 4 4. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE DISALLOWANCE, BRINGING THE DEPARTMENT IN APPEAL BEF ORE THIS BENCH. 5. THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.11,40,000/- CORRECTLY MADE B Y THE AO UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT, WITHOUT AP PRECIATING THAT THE LAND WAS STOCK IN TRADE IN THE HANDS OF THE ASSESSEE COM PANY, AS OBSERVED BY THE AO, THE SAME HAVING BEEN SOLD BY THE ASSESSEE O N 30.03.2010 FOR RS.12,00,000/- AND THE ASSESSEE HAD REFLECTED THE PROFIT ON THE TRANSFER OF THE LAND. IT HAS ALSO BEEN CONTENDED THAT THE LD . CIT(A) HAS FURTHER ERRED IN HOLDING THAT THE SELLERS OF THE LAND BELON GED TO VILLAGE BHUPAL, DISTT. MANSA, WHEREAS ACCORDING TO THE AO, THEY WER E RESIDENTS OF VILLAGE MALIKPUR KHIALA, DISTT. MANSA, WHICH VILLAGE WAS HA VING BANKING FACILITY, TAKING THE CASE OUT OF THE PURVIEW OF RULE 6DD(G) O F THE I.T. RULES. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN CONTENDED THAT THE AO HAD WRONGLY OBSERVED THAT THE ASSESSEE COMPANY W AS DOING REAL ESTATE BUSINESS, WHEREAS ACCORDING TO THE BALANCE S HEETS OF THE ASSESSEE FOR THE YEARS ENDING ON 31.03.2007, 30.03.2008, 31. 03.2009 AND 31.03.2010, NO SUCH BUSINESS ACTIVITY WAS CARRIED O UT BY THE ASSESSEE. IT HAS BEEN SUBMITTED THAT THE AO HAD ERRED IN OBSERVI NG THAT THE SELLERS OF THE LAND WERE RESIDENTS OF VILLAGE MALIKPUR KHIALA, DISTT. MANSA, WHERE THE BANKING FACILITIES WERE AVAILABLE AND NOT OF V ILLAGE BHUPAL, DISTT. ITA NO.77(ASR)/2014 ASSESSMENT YEAR:2010-11 5 MANSA, WHERE NO BANKING FACILITIES WERE AVAILABLE. IT HAS BEEN CONTENDED THAT THE LD. CIT(A) HAS FOUND THESE FACTS TO BE NOT CORRECT AND IT IS ON THIS BASIS THAT THE DISALLOWANCE HAS RIGHTLY BEEN DELET ED. 7. I HAVE HEARD THE PARTIES AND HAVE PERUSED THE MA TERIAL AVAILABLE ON RECORD. APROPOS THE AOS OBSERVATION THAT THE AS SESSEE COMPANY WAS DOING BUSINESS OF REAL ESTATE, FIRSTLY, IN THE ASSE SSMENT ORDER, THE AO HAS NOT GIVEN ANY BASIS FOR SUCH OBSERVATION. THEN, THE REFERENCE BY THE ASSESSEE TO ITS BALANCE SHEETS FOR THE YEARS ENDING 31.03.2007, 30.03.2008, 31.03.2009 AND 31.03.2010, WHEREIN, NO SUCH ACTIVITY HAS BEEN SHOWN, DOES NOT STAND REBUTTED. THE PURCHASE O F LAND BY THE ASSESSEE WAS THE SOLE TRANSACTION CARRIED OUT. ON T HIS LAND, NO FURTHER DEVELOPMENT WAS DONE BY THE ASSESSEE AND IT WAS SOL D AS IT IS. THUS, THE ASSESSEE NOT HAVING CARRIED OUT ANY BUSINESS ACTIVI TY, THE AGRICULTURAL LAND HAS RIGHTLY BEEN OBSERVED BY THE LD. CIT(A) AS INCAPABLE OF BEING TREATED AS STOCK IN TRADE IN THE HANDS OF THE ASSES SEE. 8. APROPOS THE AOS OBSERVATION THAT THE SELLERS OF THE LAND WERE RESIDING IN VILLAGE MALIKPUR KHIALA, WHERE BANKING FACILITIES WERE AVAILABLE, AS AGAINST THE ASSESSEES STAND THAT THE Y WERE RESIDENTS OF VILLAGE BHUPAL, WHERE THERE WERE NO BANKING FACILIT IES, THE LD. CIT(A) HAS OBSERVED THAT AS PER THE REGISTRATION DEED OF THE L AND, THE SELLERS WERE OF VILLAGE BHUPAL. NOTHING TO THE CONTRARY HAS BEEN BR OUGHT ON RECORD ITA NO.77(ASR)/2014 ASSESSMENT YEAR:2010-11 6 EITHER BY THE AO IN THE ASSESSMENT ORDER, OR BY THE LD. DR BEFORE ME. NOW, SINCE VILLAGE BHUPAL ADMITTEDLY DID NOT HAVE ANY BANKING FACILITIES AT THE RELEVANT TIME, RULE 6DD(G) OF THE I.T. RULES , IS SQUARELY APPLICABLE AND, THEREFORE, NO DISALLOWANCE U/S 40A(3) OF THE A CT IS CALLED FOR. 9. SO FAR AS REGARDS THE CASE LAWS CITED, IN DLF UNITED LTD. VS. CIT, DELHI (CENTRAL), 161 ITR 709, IT HAS BEEN HEL D THAT IN THE CASE OF PURCHASE OF AGRICULTURAL LAND AND SALE THEREOF THRO UGH ANOTHER COMPANY, THE SURPLUS REALIZED ON SALE OF LAND IS AGRICULTURA L INCOME. IN THE PRESENT CASE, AS DISCUSSED, THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITY IN REAL ESTATE. THE LAND WAS SOLD AS IT WAS PURCHAS ED. THEREFORE, IT COULD NOT BE TREATED AS STOCK IN TRADE IN THE HANDS OF TH E ASSESSEE. 9.1. IN CIT VS. K. LEELAVATHY, 341 ITR 287 (KAR.) , THE AO FOUND THAT THE SALE DEED RECITED THE LAND SOLD TO BE A LAND CO NVERTED FOR NON- AGRICULTURAL USE AND IT WAS THUS, HELD TO BE A CAPI TAL ASSET. THE LD. CIT(A) AND THE TRIBUNAL HELD THAT THE TRANSACTION WAS NOT ONE INVOLVING TRANSFER OF CAPITAL ASSETS. THE HONBLE HIGH COURT HELD THAT THE EARLIER TRANSACTION WAS IN RESPECT OF AGRICULTURAL LAND AND THE LATER ONE WAS NOT SO, SINCE THE PERMISSION FOR NON-AGRICULTURAL USE W AS GRANTED FOR THE FIRST TRANSACTION. IN THE PRESENT CASE, THE ASSESSEE HAS NOT CARRIED OUT ANY ACTIVITY OF CONVERSION/DEVELOPMENT ON THE LAND IN Q UESTION AND SO, THE LD. CIT(A) HAS CORRECTLY HELD THAT THE LAND WAS NOT STOCK IN TRADE IN THE HANDS OF THE ASSESSEE AND HELD THAT THE ASSESSEE HA D MADE INVESTMENT IN THE LAND. ITA NO.77(ASR)/2014 ASSESSMENT YEAR:2010-11 7 9.2. IN GURDAS GARG VS. CIT (APPEALS), BATHINDA AN D ANOTHER (COPY PLACED ON RECORD), THE HONBLE JURISDICTIONAL HIGH COURT, VIDE ORDER DATED 16.07.2015 PASSED IN ITA NO.413 OF 2014, EMPHASISED THE PROVISO TO SECTION 40A(3) OF THE ACT. AS PER THIS PROVISO, NO DISALLOWANCE UNDER THIS SECTION CAN BE MADE IN SUCH CASES AND UNDER SUCH CI RCUMSTANCES AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND TO THE EXTENT OF, INTER-ALIA, BANKING FACILITIES AVAILABLE. IN THAT C ASE, LIKE HEREIN, THE HONBLE JURISDICTIONAL HIGH COURT FOUND THAT, LIKE HEREIN, THE IDENTITY OF THE PAYEES WAS ESTABLISHED. THE SALE DEED HAD BEEN PRODUCED. THE GENUINENESS THEREOF STOOD ACCEPTED. THE AMOUNT PAID WAS NOT UNDER QUESTION. THE DISALLOWANCE, HOWEVER, WAS DUE TO THE TRIBUNAL HAVING HELD THE PROVISIONS OF SECTION 40A(3) APPLICABLE, THE PAYMENTS OVER RS.20,000/- HAVING BEEN MADE IN CASH. THE HONBLE H IGH COURT NOTED, IN ADDITION TO THE ABOVE ADMITTED FACTS THAT EVEN THE REASONS FURNISHED BY THE ASSESSEE FOR HAVING MADE THE CASH PAYMENTS DID NOT STAND DISBELIEVED. THIS IS ALSO THE CASE EXACTLY HEREIN. IT WAS UNDER THESE CIRCUMSTANCES, THAT THE HONBLE HIGH COURT HELD TH AT THE PAYMENTS COULD NOT BE DISALLOWED U/S 40A(3) OF THE ACT. IN T HE PRECEDING PARAGRAPHS, IT HAS ALSO BEEN OBSERVED THAT RULE 6DD (G) IS SQUARELY APPLICABLE SINCE BANKING FACILITIES WERE NOT AVAILA BLE IN THE VILLAGE OF THE SELLERS, THEREBY REPELLING THE APPLICABILITY OF SE CTION 40A(3) OF THE ACT. 10. NO DECISION CONTRARY TO THE ABOVE CASE LAWS HAS BEEN PLACED BEFORE THIS BENCH. ITA NO.77(ASR)/2014 ASSESSMENT YEAR:2010-11 8 11. FOR THE ABOVE, FINDING NO REASON WHATSOEVER TO DIFFER WITH THE WELL VERSED ORDER PASSED BY THE LD. CIT(A), THE SAME IS HEREBY CONFIRMED. THE GRIEVANCE OF THE DEPARTMENT IS FOUND TO BE SHORN OF MERIT AND HENCE, IS REJECTED. 12. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/02/2016 . SD/- (A.D. JAIN) JUDICIAL MEMBER DATED: 01/02/2016 /SKR/ COPY OF ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. RAVNEET CONSTRUCTION (P) LTD., MANSA. 2. THE ITO, ITO WARD 1(4), MANSA. 3. THE CIT(A), BATHNDA. 4. THE CIT, BATHINDA. 5. THE SR. DR, ITAT, ASR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: AMRITSAR.