ITO, Kumbakonam V. M/s. Lakshminarayana Real Estate, Kumbakonam

ITA 798/CHNY/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0956 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 22-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 24-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KALRA
• Assessee Lawyers: S SRIDHAR
• Keywords: Non-deduction of tax; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO. 798/MDS/2010 (ASSESSMENT YEAR : 2006-07) THE INCOME TAX OFFICER, WARD I(1), KUMBAKONAM. (APPELLANT) V. M/S LAKSHMINARAYANA REAL ESTATE, 11G, AYEKULAM ROAD, KUMBAKONAM. PAN : AACFL 5582 D (RESPONDENT) APPELLANT BY : SMT. VIDISHA KALRA, CIT-DR RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 22.01.2013 DATE OF PRONOUNCEMENT : 22.01.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, DIRECTED AGA IN AN ORDER DATED 10.3.2010 OF COMMISSIONER OF INCOME TAX (APPE ALS), TIRUCHIRAPALLI, ITS GRIEVANCE IS THAT CIT(APPEALS) DELETED THE ADDITION MADE FOR PROFIT ON SALE OF TREES OF ` 3,73,000/- AND A DISALLOWANCE OF I.T.A. NO. 798/MDS/10 2 ` 15,75,000/- FOR NON-DEDUCTION OF TAX, APPLYING SEC TION 40(A)(IA) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 2. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN REAL ESTATE BUSINESS, HAD FILED ITS RETURN FOR THE IMPUGNED ASS ESSMENT YEAR DECLARING NIL INCOME. IT SEEMS ASSESSEE HAD NOT FI LED ANY PROFIT & LOSS ACCOUNT ALONG WITH RETURN OF INCOME. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE WAS REQUIRED TO EX PLAIN WHY NO PROFIT & LOSS ACCOUNT WAS FILED. REPLY OF THE ASSE SSEE WAS THAT THERE WERE NO SALES DURING THE RELEVANT PREVIOUS YEAR. A SSESSEE, HOWEVER, FILED A BALANCE SHEET AS ON 31.3.2006. FROM THE BAL ANCE SHEET, ASSESSING OFFICER NOTED THAT ASSESSEE WAS DEVELOPIN G PLOTS IN ONE LOCATION CALLED SATHYABAMA NAGAR, ANNALAGRAHARAM VI LLAGE. THE BALANCE SHEET SHOWED THE FOLLOWING AMOUNTS:- ` LAND PURCHASE ADVANCE : 21,00,000 BANK INTEREST AND CHARGES : 1,65,860 BANK CHARGES : 4,632 REMOVAL OF TREES AND CLEARANCE : 3,27,000 EARTH FILLING : 4,00,000 FORMING ROAD, PROVIDING TAR ROAD AND COMPOUND WALL : 11,75,000 41,72,492 LESS: SALE OF TREES : 7,00,000 34,72,492 I.T.A. NO. 798/MDS/10 3 AS PER THE A.O., IT WAS CLEAR FROM THE ABOVE THAT A SSESSEE HAD DERIVED AN INCOME OF ` 3,73,000/- ON SALE OF TREES, VIZ. 7,00,000/- (-) ` 3,27,000/-. FURTHER, ACCORDING TO HIM, IN RESPECT OF EARTH FILLING EXPENSES OF ` 4,00,000/- AND ROAD FORMATION AND COMPOUND WALL EXPENSES OF ` 11,75,000/-, ASSESSEE HAD NOT DEDUCTED TAX AT SOUR CE AS REQUIRED UNDER CHAPTER XVII-B OF THE ACT. HE, T HEREFORE, DISALLOWED ` 15,75,000/- UNDER SECTION 40(A)(IA) OF THE ACT. F ORMER SUM OF ` 3,73,000/- WAS CONSIDERED AS MISCELLANEOUS INCOME ARISING ON ACCOUNT OF SALE OF TREES. 3. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT IT WAS FORMED ONLY ON 29.9.2005 BY TAKING OVER CERTAIN DEVELOPMENT COST INCURRED BY EARLIER PARTIES. SALE OF TREES CONSIDERED IN ITS HAND BY THE ASSESSING OFFICER, WA S BEFORE THE FORMATION OF ASSESSEE-FIRM. ACCORDING TO ASSESSEE, DEVELOPMENT COSTS, WHICH WERE CONSIDERED FOR DISALLOWANCE UNDER SECTION 40(A)(IA), WERE ALSO INCURRED PRIOR TO FORMATION OF ASSESSEE-FIRM. IN ANY CASE, ACCORDING TO ASSESSEE, PROFITS ON SALE OF TREES WERE CAPITAL RECEIPTS SINCE THEY WERE SOLD WITH ROOTS. CIT(APPE ALS) WAS APPRECIATIVE OF THESE CONTENTION. ACCORDING TO H IM, SALE OF TREES I.T.A. NO. 798/MDS/10 4 WAS EFFECTED BEFORE FORMATION OF ASSESSEE-FIRM AND IT COULD AT THE BEST BE ASSESSED AS CAPITAL RECEIPT. SIMILARLY, EA RTH FILLING AND ROAD FORMATION, ETC. WERE ALSO DONE BEFORE THE FORMATION OF THE PARTNERSHIP. HE, THEREFORE, HELD THAT THE ADDITION S WERE NOT CALLED FOR AND DELETED THE SAME. 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT ASSESSEE-FIRM ITSELF W AS ENGAGED IN REAL ESTATE BUSINESS AND LAND WAS STOCK-IN-TRADE. THE S TATEMENT RECORDED FROM THE PARTNER SHRI P. GURUMURTHY IN A P ROCEEDING UNDER SECTION 131, CLEARLY IMPLIED THAT THE FIRM WAS CONS TITUTED IN JUNE-JULY, 2005. THE FACTUM OF CONSTITUTION WAS ESTABLISHED B Y VARIOUS DOCUMENTS. THERE WERE CONFIRMATION LETTERS OBTAINE D IN THIS REGARD. THEREFORE, ACCORDING TO HER, THE AMOUNTS WERE CORRE CTLY CONSIDERED IN THE HANDS OF THE ASSESSEE-FIRM. 5. PER CONTRA, LEARNED A.R., STRONGLY SUPPORTING TH E ORDER OF CIT(APPEALS), SUBMITTED THAT ASSESSING OFFICER WITH OUT GOING THROUGH THE PARTNERSHIP DEED, HAD MADE ADDITION IN THE HAND S OF THE ASSESSEE. I.T.A. NO. 798/MDS/10 5 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WE FIND THAT ASSESSING OFFICER HAS NOT AT ALL LOOKE D INTO THE PARTNERSHIP DEED. ASSESSMENT ORDER DOES NOT SAY AN YTHING ABOUT DATE OF FORMATION OF ASSESSEE-FIRM AND HOW HE CONCL UDED THAT THE INCOME ON SALE OF TREES AND EXPENSES FOR ROAD FORMA TION AND EARTH FILLING WERE INCURRED BY THE ASSESSEE. ON THE OTHE R HAND, CIT(APPEALS) HAD GONE BY THE CONTENTIONS OF THE ASS ESSEE THAT IT WAS FORMED ONLY ON 29.9.2005 AND EXPENSES WERE INCURRED PRIOR TO THAT. ASSESSING OFFICER NO DOUBT HAS RELIED ON THE BALANC E SHEET FILED BY THE ASSESSEE, BUT IT IS ALSO STATED THAT ASSESSEE H AD NOT FILED ANY PROFIT & LOSS ACCOUNT. IN SUCH CIRCUMSTANCES, THER E IS A LACK OF CLARITY IN THE ASSESSMENT ORDER. CIT(APPEALS) HAD A CCEPTED THE CONTENTIONS OF THE ASSESSEE WITHOUT GIVING AN OPPOR TUNITY TO THE ASSESSING OFFICER TO EXPLAIN HIS STAND. IN THE FIT NESS OF THE THINGS, WE ARE OF THE OPINION THAT A FRESH LOOK HAS TO BE GIVE N BY THE ASSESSING OFFICER, ON THE ISSUE. WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE ISSUE BACK TO THE FILE OF THE A.O. FO R CONSIDERATION AFRESH, IN ACCORDANCE WITH LAW. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 798/MDS/10 6 THE ORDER WAS PRONOUNCED IN THE COURT ON TUESDAY, T HE 22 ND OF JANUARY, 2013, AT CHENNAI. SD/- SD/- (S.S. GODARA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 22 ND JANUARY, 2013. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), TIRUCHIRAPALLI (4) CIT-II, TRICHY (5) D.R. (6) GUARD FILE