KISHAN MEHTA,UDAIPUR vs. ACIT, CIRCLE-1, UDAIPUR

PER: R.C. SHARMA, AM

This is an appeal filed by the assessee against the

order of the CIT(A)-1, Udaipur dated 20/12/2018 for the

A.Y. 2014-15 in the matter of order passed u/s 143(3) of

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the Income-tax Act, 1961 [hereinafter referred to as ‘the

Act’, for short]. Following grounds have been taken by the

assessee.

“1. Under the facts and circumstances of the case, the ld. CIT(A)-1, Udaipur has erred in disallowing improvement expenses of Rs. 2,50,000/- incurred in financial year 2003-04 though paid long back is illegal and bad in law.

brief are that the assessee is engaged in the business of trading in

the name of Ratan Tata Layland. During the course of scrutiny

assessment out of capital gains offered by the assessee, the A.O.

made disallowance of improvement expenses of Rs. 2.50 lacs,

transfer expenses of Rs. 7.00 lacs paid as brokerage and construction

expenditure of Rs. 2,32,28,644/-.

consideration the assessee sold property. Long Term Capital Gains

(LTCG) arrived on sale of property by considering sales consideration

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and deducting eligible expenses thereto i.e. cost of land, construction

cost thereon and transfer expenses, filed return of income with LTCG

and other regular income. The A.O. had assessed total income of Rs.

6,02,39,248/- against returned income of Rs. 358,03,585/- by making

following additions:

Particular of Activities Additions Total Income as per Return of Income-As 3,58,03,585 submitted online Add: Improvement expenses- FY 2003- 04 Rs. 250000 Indexed Cost – 250000/463 * 939 5,07,019 b) Transfer Expenses 7,00,000 c) Construction Expenses 2,32,28,644 2,44,35,663 Total Income assessed by A.O. U/s 143(3) 6,02,39,248 4. The issue with regard to decline of improvement expenses of

Rs. 2.50 lacs, the A.O. has discussed the issue at page 4 para 3.3 of

the assessment order. We found that the land under consideration

situated at village Nahar Magra (Dhunimata), Panchayat Nandwel,

Tehsil Mavli, district-Udaipur which was purchased as agricultural land

vide sale deed dated 08/03/2001. Being the land was not used for a

long period after purchase, incurred expenses for levelling, filling

holes and other various work mostly labour oriented thereon in the

year 2003-04. After that considering the use for business, said

agricultural land was converted for commercial purpose and

deposited various charges on 12/02/2007 as directed by the

government department. During assessment proceedings, the AO

demanded original vouchers and bills of material, labour, etc. in

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support of improvement expenses purely labour work, claimed Rs.

2,50,000/- incurred in the year 2003-04. Despite of the fact that

matter is old one and consisting mostly of labour work, produced

receipt showing payment made from time of time against contract

given for various work at the site, which has also been acknowledged

by the A.O. in the assessment order.

expenses of more than 10 years old, the A.O. further asked to

produce the contractor in person. In that response, the assessee tried

to contact that work contractor but meanwhile assessment order was

passed by disallowing whole expenses mainly labour work, without

considering the facts and basic requirement of expenses on

agricultural land in village. We have verified the details of

improvement expenses of Rs. 2.50 lacs so incurred by the assessee.

Genuineness of these expenses were not doubted by the A.O. nor the

work alone at site was disputed, accordingly above, we do not find

any merit in the A.O’s action for making disallowance of improvement

expenses of Rs. 2.50 lacs as incurred by the assessee without

pointing out any defect in the nature and quantum of expenditure so

incurred. We found that the expenses were genuinely incurred and

the same deserves to be allowed in view of the following judicial

pronouncements:

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(a) A Rajendran & ors. Vs ACIT (Mad) 2006(155) Taxmann 0364- Mad; 2006-(204)-CTR-0009-Mad

Hon'ble High Court held that - When the assessee have established all the requirements of IT Act,... rejection of those explanations is definitely due to arbitrary and unreasonable exercise of power."

(b) CIT Vs Smt P K Noorjahan [1999] 237 ITR 570 (SC]

... to treat the…… the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case.

(c) Lal Chand Bhagat Ambika Ram Vs. Commissioner of Income Tax, 37 ITR 288 (SC) –

... that burden to prove the source ... was on the assessee and such onus had been discharged by her by producing of relevant record'. ..

(d) CIT vs. Daya Chand Jain Vaidhya 98 ITR 280 (All.); Narndra G. Goradia (HUF) Vs. CIT (234 ITR 571) (Bom); decision in the case of Sumiti Dayal

conclusion that . . . . The revenue had failed to bring on record any evidence to show that the explanation of the assessee was incorrect.

comment: Merely asking for identity of the person after passing of more than ten years without considering the facts of actual work and improvement at the site.

In the case of Ravi Marketing (P) Ltd vs CID [2006] 280 ITR 519 (Cal.)

It is held therein that the scope for the authorities under the Act or the court is confined only to examining the purpose and the genuineness of the expenditure, neither the expedience nor the quantum.

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brokerage. The A.O. has dealt with the issue at page 3 and 4 para

3.2 under the heading expenses relate to LTCG.

said land was purchased by the assessee as agricultural land in the

year 2001 being the land was not used for a long period after

purchase, incurred expenses for levelling and filling holes and other

various work mostly labour oriented in the year 2003-04. After that

considering the use for business, said agricultural land was converted

for commercial purposes and deposited various charges on

12/02/2007 as directed by the government department. The assessee

has given this land for the hotel project to M/s Ratan Jyoti Village

Resorts P Ltd.. Total consideration on sale of assessee’s property

inclusive construction cost on land was received through bank

aggregating to Rs. 610.00 lacs. To explore higher realization personal

efforts was put on by the assessee and for that purpose assessee

took services of person who arranged buyer of the property with

reasonable rates. It is a well known fact that this type of expenses of

brokerage are essential in normal course also, whereas present case

was of possession of property with lending institution and incomplete

project. The brokerage expenses so incurred by the assessee was

accepted by the A.O. and no where the A.O. has mentioned such

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expenses as false or wrong or excessive. Thus, the brokerage of Rs.

7.00 lacs paid by the assessee which is found to be genuine and

deserves to be allowed. We direct accordingly.

we found that the AO has discussed the issue at page 4 to 8 in para

3.4 to 3.6 of the assessment order under the heading Expenses

related to LTCG. The land under consideration situated at village

Nahar Magra (Dhunimata), Panchayat Nandwel, Tehsil Mavli, District

Udaipur which was purchased as agricultural land vide sale deed

dated 08/03/2001. Being the land was not used for a long period

after purchase, incurred expenses for levelling, filling holes and other

various work mostly labour oriented thereon in the year 2003-04.

After that considering the use for business, said agricultural land was

converted for commercial purpose and deposited various charges on

12/02/2007 as directed by the government department. Details of

cost of improvement, conversion charges and construction cost has

been stated in computation of total income. Adjoining to this land,

the assessee brother late Shri Sushil Kumar Mehta was also having

land. Considering development in the area, assessee’s brother

planned to set up hotel project on this total land in the name of

company styled as Ratan Jyoti Village Resorts P Ltd. (RJVRPL). For

this hotel project, the assessee given the land on lease to the

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company RJVRPL for 18 years vide lease deed dated 05/02/2010 with

the condition that total construction cost would be borne by company

and on vacation after completion of lease period shall handover to

the assessee on “AS IT IS CONDITION”.

RJVRPL obtained term loan against the security of land from the

Udaipur Co-Operative Bank ltd. (TUUCBL). Land was given to the

company on lease of 18 years and to that effect offered as security to

bank for company RJVRPL who took the loan. Due to untimely

demises of assessee’s brother Shri Sushil Mehta in July 2010 and

various reasons thereafter, hotel project could not be completed.

Meanwhile period of repayment of term loan started and company

RJVRPL become defaulter in repayment of loan and as per banking

norms loan account become NPA in the books of banker TUUCBL. On

company’s RJVRPL default in repayment, banker (loanee) TUCCBL

took over possession under SARFAESI Act in December, 2012 of

whole property with land and sold. After that and before sale of

property the TUCCBL took authorisation cum consent for sale of

properties by way of Private Treaty sale on 22/02/2013 in which

clearly mentioned by the assessee:

i. in page 4…. Sale proceeds for the clearance of the said loan shall be treated as the reimbursement of the cost of

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building constructed on the said properties and/or for release of the mortgage of the said properties…”

acceptance vide letter No. 103 dated 22/02/2013 of assessee’s

conditions as mentioned in above assessee’s private Treaty Consent

letter. After adjustment of due loan amount in the account of TUUCBL

returned balance realized amount on sale to assessee.

land was in the individual name and sale deed of land with

construction thereon executed through bank under SARFAESI Act.

Total consideration on sale of assessee’s property inclusive

construction cost on land was received through bank aggregating to

Rs. 610.00 lacs.

had submitted detailed statement for construction/investment cost

reimbursed to company Rs. 232,28,644 in FY 2013-14 vide letter

dated 08/11/2016 stating expenses and as claimed in return of

income. The A.O. observed in page No. 5 at para 3.5 of the

assessment order about lease agreement dated 05/02/2010 on para

7, if company taken any loan etc. by mortgage of property, any such

loan, interest, other expenses will be beared by the company only.

The A.O. further mentioned about Rs. 175,00,000/- on account of

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non payment of loan by company, but assessee in its submission

stated about the way of payment received through bank only, nothing

has been claimed as interest and other expenses in that account,

being was to be borne and actually paid by the borrower company

RJVRPL. This recovery through assessee sale proceeds by TUCCBL

was on account of term loan sanctioned and disbursed for

construction of RJVRPL Hotel Project, which itself justify that

construction cost has been reimbursed by the assessee to the

company not paid to bank on assessee’s account. Further the said

amount has been considered by RJVRPL as part consideration

towards recovery of construction cost in their account.

land under consideration and construction thereon was made by the

loanee company RJVRPL. Thus, the sale consideration is inclusive of

construction cost on land. The assessee only claimed relevant

expenses reimbursed on construction as claimed by the company

RJVRPL during the period and which is on account of realization of

cost of land with construction cost by the assessee which was

incurred by RJVRPL.

construction whereas otherwise the assessee was owning only land

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and all construction expenses have been incurred by RJVRPL. Whole

construction cost has been borne by the RJVRPL. Due to sale whole

property before completion of scheduled construction work by loanee

bank whole construction cost as claimed by the company being sale

before the agreed lease period of 18 years, was reimbursed by the

assessee. On sale realization of property consisting of cost of land

and construction, whole amount received by the assessee and on that

account only huge long term capital gain was earned, offered and

paid income tax thereon.

A.O. to allow construction expenses of Rs. 2,32,28,644/- so incurred

by RJVRPL while computing the capita gains.

By way of this Stay application, the assessee seeks

stay of outstanding demand raised by the department till

disposal of the appeal.

from which this stay application arose on merit. Therefore,

this Stay application become infructuous.

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infructuous.

S.A. of the assessee is dismissed as infructuous.

Order pronounced in the open court on 20/03/2020.

Sd/- Sd/- (SANDEEP GOSAIN) (R.C.SHARMA) Judicial Member Accountant Member

Dated :. 20/03/2020 *Ranjan Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. The CIT(A) 5. DR, ITAT, Jodhpur 6. Guard File (ITA 28/Jodh/2019 & SA No. 01/Jodh/2020)

By order

Assistant Registrar ITAT Jodhpur