The ACIT, Circle-I, Rajahmundry V. Sri Konala Venkata Satya Suryanarayana Reddy, Rajahmundry

ITA 91/VIZ/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56801 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: TH L PETER; D KOMALI KRISHNA
• Keywords: Business expenditure
• Section: 133A; 234B

Judgement Text

ITA NO.81,82,84&91 OF 2011 V.P. REDDY, RJY 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 81 /VIZAG/ 20 11 ASSESSMENT YEAR : 2007 - 08 SRI VANGA PULLA RED DY RAJAHMUNDRY VS. DCIT CIRCLE - 1 RAJAHMUNDRY (APPELLANT) (RESPONDENT) AARPV 0802A ITA NO.82/VIZAG/2011 ASSESSMENT YEAR : 2007 - 08 SRI K.V. SATYA SURYANARAYANA REDDY RAJAHMUNDRY VS. DCIT CIRCLE - 1 RAJAHMUNDRY (APPELLANT) (RESPONDENT) AMGPK 4690J ITA NO.84/VIZAG/2011 ASSESSMENT YEAR : 2007 - 08 SRI VANGA RAMALAKSHMI KUMARI RAJAHMUNDRY VS. DCIT CIRCLE - 1 RAJAHMUNDRY (APPELLANT) (RESPONDENT) AEYPV 1455J ITA NO.91/VIZAG/2011 ASSESSMENT YEAR : 2007 - 08 ACIT CIRCLE - 1 RAJAHMUNDRY VS. K.V. SAT YA SURYANARAYANA REDDY RAJAHMUNDRY (APPELLANT) (RESPONDENT) AMGPK 4690J APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI TH.L. PETER, CIT(DR) & SMT. D. KOMALI KRISHNA, SR.DR DATE OF HEAR I NG: 0 3.8.2011 DATE OF PRONOUNCEMENT: 23 .8.20 11 ITA NO.81,82,84&91 OF 2011 V.P. REDDY, RJY 2 ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THESE APPEALS ARE PREFERRED BY THE ASSESSEES AS W ELL AS THE REVENUE AGAINST THE RESPECTIVE ORDER OF THE CIT(A). IN THE ASSESSEES APPEAL THE ORDER OF THE CIT(A) IS ASSAILED ON COMMON GROUNDS T HAT CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE INCURRED FOR DEVELOPMENT OF PROPERTY AT RIVERDALE SITE MADE BY THE A.O. BESIDE S, THE LEVY OF INTEREST U/S 234B AND 234C IS ALSO CHALLENGED. IN THE CASE OF S HRI K.V.SATYA SURYANARAYANA REDDY, THE REVENUE HAS FILED AN APPEA L AGAINST THE ORDER OF THE CIT(A) ON THE GROUND THAT CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF PENALTY ON DEFAULT OF AGREEMENT AT ` 16,60,000/- SINCE THE SAID EXPENDITURE WAS INCURRE D BY THE ASSESSEE IN VIOLATION OF THE CONTRACTUAL OBLIGATION BETWEEN TWO PARTIES AND THIS CONTRACTUAL OBLIGATIONS IS GOVERNED BY THE IND IAN CONTRACT ACT. THOUGH THESE APPEALS WERE HEARD SIMULTANEOUSLY, WE PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. ITA NOS.81,82&84/VIZAG/2011: 2. IN THESE APPEALS FACTS ARE ALMOST IDENTICAL AND THE SAME ARE THAT DURING THE COURSE OF SURVEY OPERATION U/S 133A ON 1 8.9.2007 IN THE BUSINESS PREMISES OF CERTAIN CONCERN WITH WHICH THE ASSESSEE S ARE ASSOCIATED, IT WAS NOTICED THAT THE ASSESSEES HAVE PURCHASED WITH SOME OTHER PERSONS DIFFERENT LAND SITE ADJACENT TO EACH OTHER WHICH TOGETHER CAM E TO BE KNOWN AS RIVERDALE SITE HAVING DIFFERENT PERCENTAGE OF SHARE IN THE LAND ON PAYMENT OF CERTAIN CONSIDERATION. WITHIN A SHORT SPAN OF TIME , SUCH RIVERDALE SITE WAS SOLD TO ONE HIMADRI ENTERPRISES PVT. LTD. FOR A CON SIDERATION OF ` 14,30,63,100/- OUT OF WHICH RESPECTIVE SHARES WERE CLAIMED BY THE ASSESSEES. IN THEIR RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEARS I.E. 2007-08, ASSESSEES OFFERED THE CAPITAL GAIN AF TER CLAIMING SUBSTANTIAL AMOUNT OF DEVELOPMENT EXPENDITURE. THE ASSESSING O FFICER HAS DOUBTED THE GENUINENESS OF DEVELOPMENT EXPENDITURE AND DISALLOW ED THE ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEES AND RE-COMPUTE D THE CAPITAL GAIN. ITA NO.81,82,84&91 OF 2011 V.P. REDDY, RJY 3 AGAINST WHICH AN APPEAL WAS FILED BEFORE THE CIT(A) . THE ASSESSEES DID NOT FIND FAVOUR WITH HIM. 3. NOW THE ASSESSEES HAVE PREFERRED AN APPEAL BEFOR E THE TRIBUNAL WITH THE SUBMISSIONS THAT THEY HAVE FILED ALL RELEVANT V OUCHERS AND EVIDENCE WITH REGARD TO THE EXPENDITURE INCURRED ON DEVELOPMENT O F SITE BUT IT WAS NOT APPRECIATED BY THE A.O. AND WAS REJECTED ON THE GRO UND THAT IT WAS THE SELF- MADE VOUCHERS. IN SUPPORT OF HIS CONTENTION, THE L D. COUNSEL FOR THE ASSESSEE HAS FILED THE PHOTOCOPIES OF BUNCH OF VOUC HERS IN ALL THESE THREE CASES WITH THE SUBMISSION THAT THESE EVIDENCES ARE SUFFICIENT TO PROVE THAT ASSESSEE HAS INCURRED THE SUBSTANTIAL AMOUNT OF EXP ENDITURE ON DEVELOPMENT OF SITE. THE AMOUNT WAS INCURRED IN FILLING AND LE VELING OF LAND AND THESE FACTS WERE NOT APPRECIATED BY THE A.O. WITHOUT BRIN GING ANYTHING ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IF THE ASSESSING OFFICER HAS ANY DOUBT WITH REGARD TO THE GENUINENES S OF THESE EXPENSES AND VOUCHERS, THE SAME COULD HAVE BEEN VERIFIED BY SUMM ONING THE CONCERNED PERSONS TO WHOM THE PAYMENTS WERE MADE. BUT ASSESS ING OFFICER DID NOT MAKE ANY EFFORT TO VERIFY THE EXPENDITURE AND HAS S IMPLY DISALLOWED THE CLAIM OF EXPENDITURE ON CONJECTURES AND SURMISES. 4. THE LD. D.R. ON THE OTHER HAND BESIDES PLACING H EAVY RELIANCE UPON THE ORDER OF THE CIT(A) HAS CONTENDED THAT THE AFOR ESAID EXPENDITURE WERE CLAIMED TO HAVE BEEN INCURRED WITHIN A PERIOD OF SH ORT SPAN. THE QUANTUM OF EXPENDITURE CLEARLY SPEAKS THAT IT CANNOT BE SPENT WITHIN A PERIOD OF SHORT SPAN I.E. LITTLE MORE THAN 2 MONTHS. THEREFORE, TH E CLAIM RAISED BY THE ASSESSEE IS FALSE AND CANNOT BE ALLOWED. 5. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE R IVAL SUBMISSIONS AND FROM PERUSAL OF THE DOCUMENTS PLACED BEFORE US, WE FIND THAT THE ASSESSEE HAS FILED THE ENORMOUS EVIDENCE IN SUPPORT OF THE E XPENDITURE INCURRED FOR THE DEVELOPMENT OF THE SITE. BUT THIS EVIDENCE WAS NOT EXAMINED BY THE ASSESSING OFFICER AND HE HAS OUTRIGHTLY REJECTED TH E SAME AFTER HOLDING THAT THIS MUCH OF EXPENDITURE CANNOT BE INCURRED WITHIN A SHORT SPAN OF TIME. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR T HE ASSESSE HAS ALSO MADE ITA NO.81,82,84&91 OF 2011 V.P. REDDY, RJY 4 AN ALTERNATIVE SUBMISSION THAT THE ASSESSMENT YEAR INVOLVED IS 2007-08 AND EVEN IF THE MATTER IS SENT BACK TO THE A.O. FOR VER IFICATION OF THE EXPENDITURE, IT WOULD BE VERY DIFFICULT FOR THE ASSESSEE TO PROD UCE THE CONCERNED PEOPLE AS THE PAYMENTS WERE MADE TO THE DAILY WAGERS AND OTHE R PEOPLE WHO WERE ENGAGED IN ARRANGING THE LABOUR FOR LEVELING AND FI LLING THE LAND. THEREFORE, THE REASONABLE EXPENDITURE MAY BE ESTIMATED. THIS PROPOSITION OF THE ASSESSEE WAS THOUGH OPPOSED BY THE REVENUE INITIALL Y, BUT ULTIMATELY THEY HAVE ALSO AGREED TO IT. 6. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CI RCUMSTANCES OF THE CASE, WE ARE ALSO OF THE OPINION THAT INSTEAD OF SENDING THE MATTER BACK TO THE A.O. FOR VERIFICATION OF THE EXPENSES, THE REASONABLE DE VELOPMENT EXPENSES MAY BE ESTIMATED. WE THEREFORE, OF THE VIEW THAT 50% O F EXPENDITURE CLAIMED BY THE ASSESSEE BE CONSIDERED TO BE THE EXPENDITURE IN CURRED FOR DEVELOPMENT OF THE SITE. WE THEREFORE, RESTRICT THE DEVELOPMEN T EXPENDITURE TO THE EXTENT OF ITS 50% AND DIRECT THE A.O. TO ALLOW THE 50% OF THE EXPENDITURE TO HAVE BEEN INCURRED FOR DEVELOPMENT OF THE LAND AND THERE AFTER TO RE-COMPUTE THE CAPITAL GAIN. ACCORDINGLY, THESE APPEALS ARE DISPO SED OF. ITA NO.91/VIZAG/2011: 7. THIS IS AN APPEAL OF THE REVENUE PREFERRED AGAIN ST THE ALLOWANCE OF EXPENDITURE OF ` 16,60,000/- INCURRED ON PAYMENT FOR DEFAULT OF AGR EEMENT. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE TH AT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 16,60,000/- TOWARDS THE PENALTY OF DEFAULT OF AGRE EMENT SINCE THE EXPENSES CLAIMED ARE PENAL IN NATURE. TH E A.O. HAD DISALLOWED THE SAME AND ADDED BACK TO THE RETURNED INCOME. AGAINS T WHICH AN APPEAL IS FILED BEFORE THE CIT(A) AND HE HAS ALLOWED THE SAME AFTER HOLDING THAT SUCH PENALTY DOES NOT EMANATE FROM ANY ACT OF INFRINGEME NT OF ANY STATUTE BUT REPRESENTS A COMPENSATORY NATURE OF PAYMENT TO THE PARTIES WHO HAD EXPECTED THE ASSESSEE TO ADHERE TO THE CONTRACTUAL AGREEMENT ENTERED BETWEEN THEM AND THE ASSESSEE. THEREFORE, SUCH EXP ENDITURE PARTAKES THE CHARACTER OF ORDINARY BUSINESS EXPENDITURE IN THE A SSESSEES LINE OF REAL ESTATE ACTIVITIES. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. D.R. COULD NOT POINT OUT ANY SPECIFIC DEFECT IN THE ORDE R OF THE CIT(A). ADMITTEDLY, ITA NO.81,82,84&91 OF 2011 V.P. REDDY, RJY 5 THIS AMOUNT WAS NOT PAID ON ACCOUNT OF ANY INFRINGE MENT OF ANY STATUTE BUT IT WAS PAID TO COMPENSATE THE OTHER PARTIES FOR DEFAUL T OF AGREEMENT. WE THEREFORE, FIND NO MERIT IN THE ARGUMENTS OF THE LD . D.R. THE CIT(A) HAS PROPERLY ADJUDICATED THE ISSUE AND WE FIND NO INFIR MITY THEREIN. 8. IN THE RESULT, THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THAT OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 23.8.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 23 RD AUGUST, 2011 COPY TO 1 SRI VANGA PULLA REDDY, D.NO.79 - 8 - 18, TILAK ROAD, RAJAHMUNDRY, EAST GODAVARI DIST. (A.P.) 2 SRI KONALA VENKATA SATYA SURYANARAYANA REDDY, D.NO. 79 - 17 - 14, OFFICIAL COLONY, RAJAHMUNDRY-533 103, EAST GODAVARI (A.P.) 3 SMT. VANGA RAMALAKSHMI KUMARI, D.NO.79 - 8 - 18, TILAK ROAD, RAJAHMUNDRY, EAST GODAVARI DIST. (A.P) 4 DCIT, CIRCLE - 1, RAJAHMUNDRY 5 ACIT, CIRCLE - 1, RAJAHMUNDRY 6 THE CI T, RAJAHMUNDRY 7 THE CIT (A) , RAJAHMUNDRY 8 THE DR, ITAT, VISAKHAPATNAM. 9 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM