SURESH M. BHATHIJA (HUF),MUMBAI vs. ITO WD 23(3)(1), MUMBAI

Bhathija Suresh M (HUF) Vs. Income Tax Officer 120 DakshinPali, D Monte 23(3)(1), Mumbai Park Road Pali Hill Mumbai 400050 स्थायीलेखासं./जीआइआरसं./PAN/GIR No: AAAHS 8289 M Appellant .. Respondent [ Appellant by : Ms. Rutuja N Pawar& Ms. Sneha More Respondent by : Shri Yogendra T Wakare Date of Hearing 31.08.2023 Date of Pronouncement 27.09.2023 आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the assessee is directed against the order passed by the NFAC (NFAC), Delhi, dated 15.09.2022 for A.Y. 2006-07. The assessee has raised the following grounds before us: “1. The learned CIT(Appeals) was not justified in confirming the action of the learned Assessing Officer in bringing to tax an amount of Rs. 90,92,165/- as long term capital gains on sale of land.

2. The learned CIT(Appeals) and the learned Assessing Officer failed to appreciate that the said land was an agricultural land and was not a capital asset.

3. Without prejudice to the above grounds of appeal, the learned CIT(Appeals) and the learned Assessing Officer were not justified in disallowing the claim for expenses of Rs. 69,00,000/- while computing the long term capital gains.

P a g e | Suresh M. Bhathija (HUF) vs. ITO 4. The reasons given by the learned CIT(Appeals) and the learned Assessing Officer in relation to the above grounds are unjustified and unwarranted. The Appellant challenges all the findings given in this regard.

5. The learned CIT(Appeals) was not justified in confirming the action of the learned Assessing Officer in taxing an amount of Rs. 1,00,000/- as unexplained deposit in the bank account.

P a g e | Suresh M. Bhathija (HUF) vs. ITO "In connection with the assessment for the assessment year 2006-07 in your case, you were asked to produce the following details before the undersigned on various occasions during the course of assessment proceedings, by way of order sheet notings marked on 20- 06-2008, 24-07-2008 and 01-08-2008. However, the following details are yet to be submitted. 1. submitted (Age for sale) Statement of affairs/balance sheet for the year.

2. Details of sale of property during the year and computation of Capital Gains thereon.

2 Please also show-cause to me why the provisions of section 50C should not be applied in your case by adopting the market value of the land as per the Stamp Value Authorities for the computation of Capital Gains on sale of such land.

3. Please explain the source of cash deposit of Rs. 1,00,000/- on 02-05- 2005 in your bank account No. 006310100020790 maintained with M/s Bank of India, Turner Road Branch, Mumbai. Please also explain why the said bank account was not disclosed in your return of income for the AY 2006-07.

P a g e | Suresh M. Bhathija (HUF) vs. ITO Kindly ensure point-wise compliance of the contents of this letter on or before 18-09- 2008. The next date of hearing is hereby fixed on 18-09- 2008 at 11.00 AM. In case you do not file your reply by 18-09-08, then in may be presumed that you have nothing to offer with respect to the issues as mentioned above. In that event, the assessment in your case may be finalised as per material available on records after taking into account all the details/replies filed by you.” 2.1 In response, the assessee submitted vide letter dated 18th Sept, 2008 that assessee has not maintained any books of account and no balance sheet has been prepared and also filed a copy of sale of purchase deed of the sale of said land. The assessee submitted that the said land was used for agricultural operation and the same was not a capital asset within the meaning of section 2(14) of the Act. The assessee also mentioned that copy of 7/12 extracts has been filed along with sale deed. It is also mentioned that the District Collector had allowed permission to use the said land as non- agricultural if needed. The assessee also claimed that income earned from the sale of agricultural land was exempt income, therefore, the same was not shown in the return of income. The assessee asked further time to furnish the supporting evidences in respect of his claim that income from sale of agriculture was exempt income, however, the assessee has not filed further detail. Therefore, the AO has deputed his inspector and inspector has reported after verification of the land record from revenue authority that the said land was not used for agricultural purposes. The inspector has also obtained a copy of the 7/12 extract which was also similar to the copy annexed by the assessee himself along with copy of sale deed. It was seen from the copy of land record that the said land was not used for agricultural purposes. However, the assessee has submitted another 7/12 extract on 6th Oct, 2008 indicating that there were agricultural activities carried out on the sold land. The AO found that 7/12 extract submitted by the assessee on 6th Oct, 2008 was obtained by him from unofficial channel which were different from the real 7/12 extract enclosed by the assessee with sale deed and P a g e | Suresh M. Bhathija (HUF) vs. ITO obtained by the inspector officially from the revenue authority. The AO noticed that assessee has produced fabricated document in the form 7/12 extracts. The assessee was asked to controvert 7/12 real document and also requested to cross examine the inspector who had brought real 7/12 extract showing that sold land was not agricultural land. However, the assessee has not crossed examine the income tax inspector. Therefore, the AO after considering the facts and document come to the conclusion that sold land was non agricultural land.

2.2 Further during the course of assessment, the assessee also claimed that they have incurred Rs. 60,00,000/- for constructing boundary wall and levelling of land. However, during the course of assessment, the assessee could not substantiate its claim with relevant supporting evidences. Therefore, AO has disallowed the claim of expenditure towards improvement of the land. During the course of assessment, the assessee further claimed deduction u/s 54F of the Act of Rs. 10,00,000/- on investments in residential house. However, the AO has rejected the said claim since the said investment was made in the name of karta of the assessee HUF. Further, no other evidence such as agreement, confirmation from the builder etc has been furnished by the assessee in support of its claim for deduction u/s 54F of the Act. Therefore, the AO has computed long term capital gain after adopting the value determined by the stamp duty authority as per the provision of section 50C of the Act and computed long term capital gain on sale of the land to the amount of Rs. 90,92,165/-. 2.3 Further, during the course of assessment, the AO noticed that there was cash deposit to the amount of Rs. 1,00,000/- found in the bank account of the assessee maintained with Bank of India Branch. On query, the assessee could not substantiated the source of cash deposit with relevant supporting P a g e | Suresh M. Bhathija (HUF) vs. ITO evidences, therefore, the same was treated as unexplained cash credit u/s 68 of the Act and added to the total income of the assessee.

3. Aggrieved the assessee filed the appeal before the ld. CIT(A). However, the ld. CIT(A) has dismissed the appeal of the assessee. The relevant extracted of the discussion of the ld. CIT(A) is reproduced as under:- “5.5 It is to be noted that the sale of property came to light only on the basis of AIR information, the appellant too was not forthcoming in sharing the documents and other particulars relate to this sale of land. It is seen from the Assessment order that when the initial query was raised by the A.O. calling for bank statements, capital gain computation, etc, the assessee did not comply. This has been brought out by A.O. in Para No.3.3 of the Order. Subsequently, when the details of sale of property were specifically called for, the assessee submitted Purchase and Sale Agreement. Even at this stage, the bank statement did not reveal the sale proceeds of land. When the relevant bank account statement was furnished by the assessee, it was noticed by A.O. that from the receipt of sale proceeds amounts had been transferred to various corporate entities and the account was closed on 20th October 2006. The A.O. initiated enquiries u/s 133 (6) as well as on spot enquiry in respect of land under consideration. Before him the assessee took a stand as follows: i. The land under consideration was agricultural land. ii. The agriculture on the said land was yielding only nominal income. iii. A certificate from local authority was filed stating the land to be agricultural land. It also talked of agricultural activities carried on by the assessee. The A.O. has made this certificate a part of the order of assessment as Exhibit D'. The results of enquiries undertaken by Inspector on the spot turned out to be totally different. The report of the Inspector has been again made part of the order of assessment as Exhibit 'A' and reveals the following: 1. That the land in question is non-agricultural 2. No agricultural activity had been carried out on the said land. A copy of the necessary document from the local authority, the Talati, was also obtained by the Inspector and is part of the order of assessment as Exhibit 'E'. As confirmation of the fact that the land in question was not an agricultural land, the A.O. has also relied upon purchase and sale Documents filed by the assessee before him. The observations of the A.O. are contained P a g e | Suresh M. Bhathija (HUF) vs. ITO in Para No.3.14 onwards on page 14 of the order of assessment. These again establish that land in question is non-agricultural land. The appellant was also given opportunity to cross examine the ITI, who had done the field investigation, but this opportunity was never availed by the appellant. The A.O. has also placed reliance upon the fact that assessee had never disclosed any agricultural income in the Return of Income confirming that as a matter of fact no agriculture was carried out on the land. The statement of Karta of HUF was recorded by the AO, wherein all these facts were confronted. The relevant portions of the statement recorded had been made part of the order of assessment. A perusal of various replies given by the Karta revealed that he could not substantiate the veracity of the 7/12 extract filed by him in the course of assessment proceedings claiming the land to be agricultural land. Further, he also could not give any concrete reasons on the income resulting from agricultural activities from the land in question. 5.6 The appellant has taken a plea that to qualify for agricultural land, it is not necessary that the land was once a agricultural land. However, the weight of evidence produced by the Id AO overwhelmingly show that the land was not an agricultural land. The ITI had obtained a copy of 7/12 extract which was part of the sale deed, and this clearly records that the true value of the land. the 7/12 extract are part of the record. The appellant did not cross examine the inspector even when opportunity was provided. on the contrary the appellant produced a fabricated copy of 7/12 extract. Also, the appellant itself has mentioned nature of the land as non- agricultural in the relevant sale agreement. Further, the appellant has not shown any agricultural income in the return filed for the earlier years. Book profit of the sale also has not been credited to the capital account. Thus, the evidence gathered by the AO are summarized in the para 3.34 of the Assessment order. Relying on these evidence, I conclude that the land in question is not an agricultural land. 5.7 I further note that a notice u/s 133(6) was issued on 01.08.2018 to the Pune Metropolitan Region Development Authority, this authority has categorically stated that the said land was approximately 1920 meter from the limits of Lonavala Municipal council. Thus, as the said land is a non- agricultural land and within 2 kilometers from the limits of Lonavala Municipal council, therefore, I hold that the Id AO has correctly computed capital gains on the sale of land at Waksai Village, Plot No.543, Taluka Maval, Dist Pune. Accordingly, the ground of the appellant is dismissed.

6.0 The second ground of appeal is against A.O. invoking provisions of section 50C in respect of agricultural land. I find that the only contention of assessee P a g e | Suresh M. Bhathija (HUF) vs. ITO is that the land in question being non-agricultural Sec 50C is not attracted. I have already held in para 5 of this order that the land in question is not agricultural land. Therefore, the A.O. has rightly invoked provisions of Sec.50C of the Act. The ground of appeal is dismissed. 7.0 The Next ground of appeal is against A.O. disallowing expenses of Rs.69 lakhs incurred on the land before its sale. The appellant has claimed in the assessment proceedings that expenses on land were incurred by obtaining, loans from two parties and making cash withdrawals of loan amounts. The loan was claimed from the following concerns: i. M/s. Dewan Housing Finance Corporation: Rs.50 lakhs ii. M/s. Sapphire Land Development Pvt. Ltd.: Rs.57 lakhs 7.1 In order to verify the genuineness of the contention, the A.O. initiated enquiries and wrote letters u/s. 133 (6) to the two parties. According to A.O., the response from DHFC reveals that the loan was actually in the individual capacity and not to HUF appellant. He has further observed that there are no documentary evidences towards expenses incurred. According to A.O., the assessee has not even given the details of names of parties, etc. who had done any kind of work on the land under question. Therefore, the claim that fund from DHEC was utilised for improvement in land has been rejected by him. In respect of M/s. Sapphire Land Development Pvt. Ltd., again the A.O. has observed that the loan was to the individual and not the HUF. In this case too, the appellant has not produced any supporting evidence towards the claim of expenses. it is merely claimed that the expenses were made in cash. 7.2 Further, the A.O. has observed that in the course of assessment proceedings a computation of capital gain was filed in which assessee has not claimed any indexation of such expenses incurred. He has also referred to no claim of interest on the borrowed funds to establish non-genuineness of the claim of expenses incurred. On the above arguments, the A.O. has disallowed the claim of any expenses incurred on the agricultural land. 7.3 I have perused all the facts of the case. The claim of expenses has to be supported by some evidence. In the instant case, there is nothing on record either in the form of documents or in the form of name, address, etc. of any contractor, labour, etc. through which any work was got done or even in the form of purchase of material like bricks, etc. for boundary wall. In the absence of any evidence whatsoever the claim of expenses incurred cannot be accepted. Mere fact of withdrawal from bank account does not confirm anything. Moreover, even loans were given to individual and not appellant.

P a g e | Suresh M. Bhathija (HUF) vs. ITO Therefore, in my view, the A.O. has rightly rejected the claim of expenses incurred on agricultural land. The ground of appeal is accordingly dismissed. 8.0 The next ground of appeal is against addition of an amount of Rs.1 lakh on account of cash deposited in bank account. 8.1 The A.O. had given a specific show cause in response to which the only submission made by the assessee was that deposit was out of cash in hand. According to A.O., the assessee had talked of submitting statement of affairs which were never filed. He had come to the conclusion that there is no evidence of any cash in hand with the assessee. He made the addition u/ s. 68 of the Act. 8.2 I have perused the facts of the case. I find that there is nothing on record to suggest that there was cash balance with the assessee. Yet an amount of Rs.1 lakh was deposited in the bank account. In the absence of any satisfactory explanation, the addition made by the A.O. is justified. I find that the A.O. has invoked Sec.68 of the Act for making the addition which is not correct. In the instant case, the cash of Rs.1 lakh was in possession of the assessee which has been deposited in the bank account. Therefore, the addition is justified u/s. 69A of the I.T. Act. The order of the A.O. is modified to this extent. the ground of the appellant is dismissed. 9.0 The last grounds of appeal are general in nature and are not discussed. 10.0 In result, the appeal is dismissed.”