THE COMMISSIONER OF INCOME TAX,KOZHIKODE vs. SRI.M.N.SAIDALAVI, MALAPPURAM

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ITA/37/2011HC KeralaKLHC01026385201117 January 2012Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR8 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court partly allowed the appeal filed by the Revenue. Regarding the Rs. 5 lakhs from the sale of debris, the Court held that while the Tribunal correctly noted that capital gains computation was not possible due to NIL cost of the building, the transaction should be treated as business income. The Court reasoned that the acquisition and sale of building materials, even as a solitary incident, would fall under the ambit of business and be assessable as business income, especially since the tax rates are the same as short-term capital gains. Therefore, the Tribunal's deletion of tax on Rs. 5 lakhs was set aside, and it was sustained as business income. For the Rs. 15,15,350/- addition concerning the Pollachi property, the Court sustained the Tribunal's finding, agreeing that the AO lacked sufficient material to make the addition based solely on the brother's statement, and the documents supported the assessee's disclosure. This issue did not raise a question of law. The Court refused to answer the issue regarding CPWD versus State PWD rates, finding that the difference was nominal and the Tribunal's acceptance of State PWD rates could not be faulted, as it did not raise a question of law.

What were the facts?

The Revenue appealed against an order of the Income Tax Appellate Tribunal (ITAT) concerning a block assessment for assessment years 1989-90 to 1999-2000, initiated after a search under Section 132 of the Income Tax Act. The ITAT had deleted additions made by the Assessing Officer (AO). The disputed issues involved Rs. 5 lakhs shown as profit on sale of debris, treated as short-term capital gain by the AO, and Rs. 15,15,350/- for alleged undisclosed investment in a Pollachi property. The AO's addition for the Pollachi property was based on a statement from the assessee's brother during a separate search. A third issue concerned the valuation of construction costs using CPWD rates versus State PWD rates.

What were the issues?

1. Whether the Tribunal was correct in deleting the addition of Rs. 5 lakhs, representing profit on sale of debris, from the assessee's total income, when the Revenue contended it should be taxed as capital gains or business income? The assessee argued that the debris sale arose from demolishing a building acquired with the land at NIL cost, and thus capital gains computation was not possible. The Revenue argued that the Tribunal erred in deleting the addition, as it should be taxed as business income. 2. Whether the Tribunal was correct in deleting the addition of Rs. 15,15,350/- for alleged undisclosed investment in a Pollachi property? The assessee contended that the entire sale proceeds were adjusted against the prior purchase price, and the AO lacked material to rely solely on the brother's statement. The Revenue argued that the AO's addition was justified based on the brother's disclosure. 3. Whether the Tribunal was correct in accepting the State PWD rates for estimating construction costs over the CPWD rates adopted by the AO? The assessee argued for State PWD rates, while the Revenue supported CPWD rates.

Which sections of the Income-tax Act were involved?

Section 132,Section 158 BC,Section 263

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN MONDAY, THE 9TH DAY OF JANUARY 2012/19TH POUSHA 1933 ITA.No. 37 of 2011 ----------------- ITSSA.77/2004 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT(S)/APPELLANT/RESPONDENT: --------------------------------- THE COMMISSIONER OF INCOME TAX, KOZHIKODE.

BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/APPELLANT: ------------------------ 1 SRI.M.N.SAIDALAVI,MEDUVIL NALAKATH HOUSE,TIRURANGADI.P.O,CHEMMAD MALAPPURAM DISTRICT, PIN-676306.

R, BY SRI.S.ARUN RAJ THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 09-01-2012, THE COURT ON 17.1.2012 DELIVERED THE FOLLOWING:

ITA.No. 37 of 2011 APPENDIX APPELLANT'S ANNEXURES: ANNEXURE A : COPY OF ORDER UNDER SECTION 158 BC READ WITH SECTION 263 DATED 31.12.2003 ANNEXURE B : COPY OF THE CIT'S ORDER DATED 29.6.2004 ANNEXURE C : CERTIFIED COPY OF THE ITAT'S ORDER DATED 17.9.2010 RESPONDENTS' ANNEXURES: NIL //TRUE COPY// P.A. TO JUDGE jma

C.N. RAMACHANDRAN NAIR, & K. VINOD CHANDRAN, JJ ---------------------------------------------------- ITA No. 37 of 2011 ---------------------------------------------------- Dated this the 17th day of January, 2012

J U D G M E N T K. Vinod Chandran

, J The order of the Tribunal in the assessee's appeal is challenged by the Revenue in the above appeal. The brief facts necessary for consideration of the appeal is stated hereunder. 2. The block assessment for assessment years 1989-90 to 1999-2000 was completed against the assessee consequent to a search under Section 132 of the Income Tax Act. The assessment was completed determining undisclosed income of Rs.1,07,96,410/-. In the cash flow statement for the year ended 31.3.1997 a receipt of Rs.5 lakhs was shown as profit on sale of debris to explain the source for investment. The same was brought to tax for the assessment year 1997-98 as short term capital gain. The explanation of the assessee was that the assessee, along with two others purchased a property with building thereon but, however, without any value

ITA37/2011 : 2 : attributed to the building, which was in a dilapidated condition. Subsequent to the acquisition of the property the dilapidated building was demolished and the materials sold out. Amounts were received on sale of such debris which along with rent received for letting out a portion of the plot for advertisement purposes came to Rs. 15 lakhs. The amounts assessed as short term capital gains is 1/3rd of the said amount since the purchase of property and sale of the building materials were jointly done by these persons. One other addition was with respect to the investment in purchase of property in Pollachi which according to the assessee was purchased in the financial year 1997-98 for an amount of Rs.19,84,650/-. However, the Assessing Officer relying on the submission made by the assessee's brother in another search operation as also the documents recovered therefrom brought to tax further amount of Rs.15,15,350/- for the assessment year 1998-99. This was on the premise that the statement of the brother of the assessee was that he has received Rs.35 lakhs from the assessee for the said property against which the assessee had disclosed only Rs19,84,650/- in the cash flow

ITA37/2011 : 3 : statement. The last issue challenged herein, and raised before the Tribunal was with respect to the adoption of CPWD rates for estimating cost of construction as against the State PWD rates adopted by the approved valuer of the assessee. The above issues were found against the assessee in the first appellate order which was challenged before the Tribunal. 3. The Tribunal found that Rs.5lakhs disclosed by the assessee as the amount received on sale of debris cannot be charged as capital gains since the acquisition of the building was on NIL cost and the computation of capital gains cannot be done. It is an admitted fact that the land on which the building was situated was purchased and it is not seen whether the Tribunal has examined the title deeds to come to a conclusion that there was no cost attributable to the building. Admittedly there was consideration passed on the acquisition of the property and since the Tribunal has not gone into the facts, we should have remanded the issue for fresh consideration. However, we desist from doing so, since in any event the acquisition of the property and the sale of building, though a solitary incident would come within the

ITA37/2011 : 4 : term of business and would be assessable as business income. The short term capital gains assessed to tax without any deduction would be as good as an assessment of business income especially so, since the rates are the same. In such circumstances, we are constrained to set aside the order of the Tribunal with respect to the deletion of tax assessed on Rs.5lakhs being sale of debris. 4. The other deletion which is the subject matter of challenge here made by the Tribunal was with respect to the amount of Rs.15,15,350/- being alleged undisclosed investment in a property at Pollachi. The addition was made by the Assessing Officer as noticed earlier, on the premise that the assessee had shown a lesser amount in the cash flow statement, while, the assessee's own brother had disclosed in his accounts Rs.45 lakhs as the value of the property against which Rs 35 lakhs was shown as cash received from the assessee. The property was jointly purchased by the assessee and his brother on behalf of their children and subsequently the right of the assessee's children was purchased by the assessee on behalf of his children. The assessee, on being

ITA37/2011 : 5 : confronted with the statement of his brother denied the same and contended that the entire sale proceeds as disclosed in his cash flow statement was adjusted against the prior purchase price paid when the property was originally purchased jointly with his brother. The documents, as noticed by the Tribunal contain the amount disclosed by the assessee in the cash flow statement. Therefore, there was absolutely no material available with the Assessing Officer to simply adopt the details of a search conducted in the assessee's brother's premises. The Tribunal having found the above issue on facts, we are inclined to sustain the same as the issue does not raise any question of law. The remaining issue is regarding the adoption of CPWD rates by the departmental valuer and State PWD rates by the approved valuer of the assessee. The Tribunal found that the difference is only nominal and consistently State PWD rates are adopted for the purpose of estimation; which according to us cannot be faulted. In the circumstances, we partly allow the appeal filed by the department answering the first question in favour of the Revenue, sustaining the assessment of Rs.5 lakhs received on

ITA37/2011 : 6 : sale of debris as business income and not capital gains. The issue projected in question No.2 and 3, we refuse to answer since the said issues, as noticed earlier, does not give raise to any question of law and the order of the Tribunal is sustained to that extent. Sd/-

C.N. RAMACHANDRAN NAIR (Judge) Sd/- K. VINOD CHANDRAN (Judge) jma //true copy// P.A to Judge

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