Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-2, Aurangabad, dated 19-12-2016 for the assessment year 2009-10.
2 ITA No.1246/PUN/2018 A.Y. 2009-10
This appeal is time barred by 503 days. The assessee has filed an application seeking condonation of delay, supported by an affidavit. The primary reason for delay in filing of the appeal is wrong advice given by the Chartered Accountant of the assessee, who had represented the assessee before the First Appellate Authority. Giving the chronology of events, the ld. AR submitted that the assessee had received order of the First Appellate Authority on 06-01-2017, the due date for filing the appeal was 07-03- 2017. However, the appeal was filed on 23-07-2018 i.e. with the delay of 503 days. We have examined the contents of affidavit filed by the assessee explaining delay in filing of the appeal. We are satisfied that the delay in filing of the appeal is not on account of negligence attributable to the assessee. The explanation furnished by the assessee appears to be bonafide and the same is accepted.
2.1 The Hon‟ble Supreme Court of India in the case of Ram Nath Sao @ Ram Nath Sahu and Others Vs. Gobardhan Sao and Others reported as 2002 AIR 1201 has held that acceptance of explanation furnished seeking condonation of delay should be the rule and refusal an exception, more so when no negligence or inaction or want of bonafide can be imputed to the defaulting parties. Taking a pedantic and hyper technical view of the matter, the explanation furnished should not be rejected when stakes are high and/or arguable points of facts and law are involved in the case, causing enormous loss and irreparable injury to the party against whom the lis terminates either by default or inaction. The Hon‟ble Apex Court in various other decisions has taken similar view in liberally accepting the explanation furnished by the assessee for condoning delay in filing of appeal.
3 ITA No.1246/PUN/2018 A.Y. 2009-10
2.2 The Hon'ble Supreme Court of India in the case of Collector, Land Acquisition Vs. Mst. Katiji & Ors. reported as 167 ITR 471 (SC) has held that liberal approach should be adopted in condoning the delay. The Hon‟ble Apex Court has laid down principles to be followed while dealing with applications / petitions seeking condonation of delay. The said principles are reproduced as under:- “1. Ordinarily a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. “Every day’s delay must be explained” does not mean that a pedantic approach should be made. Why not every hour’s delay, every second’s delay? The doctrine must be applied in a rational common sense pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. 6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.”
In view of the law laid down by the Hon‟ble Apex Court and the reasons furnished by the assessee explaining delay, the delay of 503 days in filing of appeal is condoned and the appeal is admitted to be heard and disposed of on merits.
The facts germane to the issue in appeal as emanating from records are; a survey u/s 133A of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) was carried out in the case of assessee on 26-02-2010. During
4 ITA No.1246/PUN/2018 A.Y. 2009-10
survey it was noticed that the assessee had sold land during the period relevant to assessment year under appeal. The assessee had not filed any return of income for A.Y. 2009-10 till the date of survey, though the same was overdue. Notice u/s 142(1) of the Act was issued to the assessee on 03-03-2010 directing the assessee to file return on or before 12-03-2010. The assessee filed return of income on 16-08-2010 declaring total income of Rs.2,77,35,950/-. In the said return of income, the assessee had declared income from sale of land as “Business Income”. Thereafter, the assessee filed another return of income on 17-03-2011 revising its income from sale of land as Rs.7,84,51,430/-. In the subsequent return / revised return, the assessee offered profit on sale of land as capital gains. The Assessing Officer did not accept revised return of income and held the same as non-est. The matter travelled upto the Tribunal. The Tribunal in appeal by the assessee in ITA No.1445/PN/2012 decided on 14-05-2013 restored the issues raised in appeal to the file of Assessing Officer with a direction to consider the revised return filed by the assessee as valid return of income.
In accordance with the directions of Tribunal, the Assessing Officer framed fresh assessment vide order dated 27-02-2015 on the revised return filed by the assessee. The Assessing Officer held that the income from sale of land is the “Business Income” of the assessee and assessed total income of assessee from sale of land as Rs.15,29,47,270/-. Aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) vide impugned order confirmed the assessment order holding that the income from sale of land is the “Business Income” of the assessee. The CIT(A) further upheld the findings of Assessing Officer in disallowing
5 ITA No.1246/PUN/2018 A.Y. 2009-10
expenditure claimed to be incurred by the assessee in connection with the development of land. Hence, the present appeal by the assessee.
The assessee has filed revised grounds on 07-06-2019 assailing the findings of CIT(A). The same are reproduced as under: 1. Capital Gains vs alleged Business Income (i) The ld. CIT(A) erred in confirming the solitary ownership transaction of sale of agricultural land as an adventure in the nature of trade as against declared capital gains without appreciating that the same had resulted into transfer u/s. 2(47) r.w.s. 2(14) for an agreed consideration; therefore, it may be taxed u/s. 45 of the Income Tax Act, 1961. (ii) Without prejudice to above, the ld. CIT (A) failed to appreciate that when the Appellant had neither used any borrowed funds to acquire the land nor had treated the said land as his stock- in-trade nor had plotted the land to sell in piecemeal and the Revenue accepting the said land as Fixed Asset/investment for more than five years; taxing the sale consideration u/s. 28 is uncalled for as Sec.45 is clearly attracted for Capital Gains levy with indexation. 2. Disallowance of cost of Improvement over the land - Rs.3,74,62,925/- (i) The ld. CIT(A) erred in confirming and restricting the expenses incurred to the extent of reimbursement and not appreciating that the additional expenses which were incurred u/s. 48 pertaining to land disposal such as commission, legal fees, stamp duty, costs incurred for settlement with encroachers and others; therefore, the disallowance on summary basis is uncalled for and the same may be deleted. (ii) The ld. CIT(A) ought to have appreciated that when entire receipts from bank statements were accepted as gross receipts for taxation, the debits representing of land expenses over and above the reimbursement ought to have been accepted u/s.48(i) or (ii) r.w.s. 45; therefore, the disallowance made may be deleted. 3. Levy of Penal interests The Appellant, on merits, denies his liability to penal interest.
Shri Pramod Kumar Parida, appearing on behalf of the assessee submitted that the assessee carried multiple business activities viz. dairy business, supply of building material and real estate business. In the year
6 ITA No.1246/PUN/2018 A.Y. 2009-10
2002, the assessee had acquired agricultural land with multiple impediments. The assessee with great effort was able to settle the claim of various parties and removed the encroachments from the land. In the year 2006, the land was transferred in the name of assessee vide Registered Sale Deed and the name of assessee was also entered in the land revenue records. In support of his contentions, the ld. AR referred to agreement to sell dated 25-07-2002 (at pages 195 to 207 of Paper Book), registered sale agreement dated 04-08-2006 (at pages 251 to 270 of Paper Book). Recording of assessee‟s name in land revenue records on 18-08-2006 (at pages 328 to 371 of Paper Book). The ld. AR submitted that till the time assessee was holding land, the assessee carried agricultural activities on the land in question, and the same was evident from 7/12 extracts (at pages 328 to 371 of Paper Book). The assessee cultivated paddy on the land. The assessee sold the land to Nemichand J. Mehta vide registered deed of sale dated 03-06-2008. The assessee filed return of income in response to the notice u/s 142(1) of the Act declaring gain arising from sale of land as business income. Thereafter, the assessee filed revised return of income on 17-03-2011 i.e. before completion of assessment declaring income of Rs.7.84 crores from sale of land under the head „Capital Gains‟. The ld. AR submitted that the assessee inadvertently in the original return of income had offered gain on sale of land as “Business Income”. In the revised return, the assessee rectified the mistake and offered income from sale of land under correct head of income.
6.1 The ld. AR submitted that the authorities below have erred in coming to the conclusion that the gain on sale of agricultural land is business income of the assessee. The authorities below have failed to take note of
7 ITA No.1246/PUN/2018 A.Y. 2009-10
the fact that the assessee had carried out agricultural activities on the land, no borrowed funds were used by the assessee to purchase the land, the assessee was holding the land for a period of six years and at the time of sale of land, the entire land was sold to an agriculturist. The assessee at no point of time applied for change of land use to convert the land for non- agricultural purposes, the land was sold as a single chunk and there was no plotting on the land. The assessee had purchased the land by utilizing own funds generated from sale of ancestral agricultural land. The ld. AR further pointed that the land at the time of purchase by the assessee in 2002 and at the time of sale in 2008 was classified as agricultural land in the revenue records. The assessee as well as purchaser of the land both are agriculturists.
6.2 The ld. AR further submitted that the authorities below have failed to take note of the fact that apart from sale of land in question, the assessee has not sold any other piece of land and it was the sole transaction of sale of land. The extraordinary profits earned by the assessee on sale of land cannot determine the nature of transaction. In support of his contentions, ld. AR placed reliance on the decision of Hon‟ble Bombay High Court in the case of Gopal C. Sharma Vs. CIT reported as (1994) 209 ITR 946 (Bom).
6.3 The ld. AR further contended that the authorities below in an arbitrary and unjustified manner have rejected the expenditure incurred by the assessee on transfer of land. The AO in the assessment order has time and again mentioned that the assessee has not provided requisite details, whereas, the assessee has furnished all the details of expenditure claimed during assessment proceedings. The ld. AR referred to the Paper
8 ITA No.1246/PUN/2018 A.Y. 2009-10
Book No.I containing 187 pages wherein the assessee pointed that the documents to substantiate expenditure and reimbursement of expenditure were furnished before the AO. The ld. AR further pointed that the purchaser of land vide different communications placed on record (at pages 12 to 28 of Paper Book) have confirmed that the amounts paid are reimbursement of expenditure. All the reimbursements are made by way of cheques and thus reimbursement of expenditure is not part of sale consideration. The confirmations filed by the assessee before the Department were neither considered by the AO nor considered by the CIT(A). The ld. AR finally submitted that statements recorded u/s 133A of the Act without corroborative evidence have no evidentiary value. To support his contentions, ld. AR placed reliance on the following decisions: (i) CIT Vs. Dhingra Metal Works (2010) 328 ITR 384 (Del) (ii) ITO Vs. Vijay Kumar Kesar (2010) 327 ITR 497 (Chhattisgarh) (iii) Paul Mathews & Sons Vs. CIT (2003) 263 ITR 101 (Ker)
Mrs. Amrita Mishra representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. DR has filed following written submissions to support her contentions: “III. The sum total of the grounds of appeal is whether land sold by the assessee is to be assessed as income from business or is it capital gains. The arguments of the revenue are as under:- 1. The assessee is in the business of sale and purchase of land. This is evident in the return of income filed on 16.08.2010 (Page No 1 to 4 of Department's Paper Book, Page No 2, Serial No Part A-Gen, Serial No (ii) shows- Resellers of Land). The revised return has been filed in ITR 2, which is for Individuals and HUFs, not having income from business or profession. 2. During the course of Survey Proceedings u/s 133A of the I.T. Act, 1961, the statement of the assessee's brother (who was available at the time of survey) has stated in Question No 8 and 10 (Page No 8 of Department's Paper Book) that:-
9 ITA No.1246/PUN/2018 A.Y. 2009-10
Question No 8: Please give the details about your brother Shri Ravindra Joma Bhagat? Answer: Shri Ravindra Joma Bhagat, is my old brother, and his nature of business is Real Estate, under the name and style of M/s Apeksha Real Estate. Question No 10: Are you & your brother doing the business of Real Estate please explain? Answer: I have no Real Estate business. The Real Estate Business is owned by my Brother Shri Ravindra Joma Bhagat under the name and style of M/s Apeksha Real Estate. 3. During the course of Assessment Proceedings for A.Y. 2007-08, the assessee has filed letter dated 23.03.2011 and stated therein that "my nature of business is dealing in sale and purchase of lands and commission agent, etc" (Page No 142 of Department's Paper Book). 4. The statement of the assessee was recorded u/s 131 of the I.T. Act, 1961 after the survey action. In this statement (Page No 150 & 151 of Department's Paper Book), the assessee has stated that:- Question No 3: Please give the details of your activities & Sources of Income? Answer: Basically, I am engaged in the business of Real Estate- Sale, Purchase of land & Sources of Income is by way of commission on transaction of land. I was also doing Dairy business which was started during the year 2003-04. I am not having any other sources of income other that above two. 1- Real Estate, 2- Dairy business. 5. During the course of same statement (Page No 152 of the Department's Paper Book), the assessee was asked to give details of movable and immovable properties. The same is stated as under: Question No 6: Please give the details of Movable & Immovable property in the name of yourself & your family members? Answer: Myself -Shri Ravindra Joma Bhagat Wife - Smt Reshma Ravindra Bhagat Son - Master Omkar Ravindra Bhagat Daughter - Kumari Aparna Ravindra Bhagat Daughter - Kumari Apeksha Ravindra Bhagat Daughter - Kumari Ankita Ravindra Bhagat My family consist of above members & the details of Movable & Immovable properties are as under: Myself- Bungalow- Stilt +3, admeasuring area of land is 1900 sq. ft. & construction of Bungalow approx 3000 sq. ft. Movable Property-BMW Car, cost of Rs.64 lakhs purchased in the year 2008, No.6789.
10 ITA No.1246/PUN/2018 A.Y. 2009-10
-Swift car is in the name of my brother namely Neelkanth Joma Bhagat, Purchased in the month of March, 2009 or earlier, No.1113. -Mercedes 'E' Class, No.7777 in the name of my friend Shri Rajiv Bhingarde resident of Kolhapur. So, this land was not shown as immovable property of the assessee in statement recorded u/s 131 of the I.T. Act, 1961. 6. Even the survey action u/s 133A of the I.T. Act, 1961 was carried out at the business premises of M/s Apeksha Real Estate, Prop. Shri Ravindra Joma Bhagat situated at Shop No1, Stand View Building, behind S.J. Stand on 02.03.2010. The premises of the survey itself shows that the assessee was running real estate business. 7. In addition to the above, the bank statement of Vijaya Bank, New Panvel Branch, A/c No 505300300000579, was obtained by the Assessing Officer. On verification of the bank account, it is also seen that the assessee was running the business under the name and style of M/s Apeksha Builders & Developers (Page No 154 of Departments' Paper Book). 8. The assessee sold 32 acres of land. Only the rights of the said land were purchased through Power of Attorney and the assessee was not the owner. It is mentioned that in CIT(A)'s Order dated 15.12.2016 (Page No 111 to 124 of Department's Paper Book), that this Power of Attorney was not registered (Page No 125 to 131 of Department's Paper Book). 9. The owner of the land, Mrs. Bela Dharam (Dharma) Godha was paid Rs.2 Crores directly by the buyer (i.e. Mehta Brothers) of the land. 10. The aforesaid land was sold to Shri Nemichand Jaywantraj Mehta for Rs.27,95,65,000/-. In this sale, the assessee has been reimbursed Rs.11,51,15,000/- by the Mehta Brothers for clearing the title of the land, getting permission from the Government for land under 32G, providing approach from the road, level the surface and develop the land so as to make it useable vide letter dated 15.05.2008 prior to the sale of land. This elucidates that the assessee was engaged in the business of buying, developing and reselling land. 11. The assessee has placed on record sale agreements, wherein sale of land has been shown to Shri Nemichand Jaywantraj Mehta, wherein Smt Bela Dharam (Dharma) Godha has been referred to as land owner and the assessee has been shown as Power of Attorney holder. Even in the 7/12 Extract of 2006, assessee has been shown as Power of Attorney holder (Page No 372A of the Assessee's Paper Book No.II. 12. The CIT (Appeals) in his Order dated 19.12.2016 has stated that (Page No 114 of Department's Paper Book) "from the documents furnished during the course of appellate proceedings, it is noticed
11 ITA No.1246/PUN/2018 A.Y. 2009-10
that the appellant enjoys a loan of Rs.20 lakh and cash credit of Rs.1.50 lakh from Union Bank of India, Panvel Branch, Panvel vide letter dated 15.03.2004. It is very relevant to point out here that Term Loan and cash credit facilities are all was taken for the purpose of Business of Profession and appellant has not disclosed any income from business or profession in the return of income except for profits and gains from business or profession from sale of land in question". 13. From all the above facts, it is clear that the transactions of this land was adventure in the nature of trade and Apex Court in the case of Raja J. Rameshwar Rao Vs. Commissioner of Income Tax [42 ITR 179 SC] has stated as under: "In our opinion, the High Court answered the question correctly. No doubt, this was only a single venture; but even a single venture may be regarded as in the nature of trade or business. When a person acquires land with a view to selling it later after the developing it, he is carrying on an activity resulting in profit, and the activity can only be described as a business venture." IV. Thus, there are ample evidences on record to show that the assessee was in the business of selling and buying land under the proprietary name of M/s Apeksha Real Estate. The CIT(A) has correctly upheld the view of the AO that the transaction of the aforesaid land is adventure in nature of trade.”
We have heard extensive submissions made by the representatives of rival sides and have perused the voluminous paper books filed by assessee and the Revenue. The primary issue in the appeal is: Whether the gain on sale of agricultural land by the assessee is taxable under the head „Capital Gains‟ or „Business Income‟? The assessee in revised return of income has declared the gain on sale of land as „Capital Gains‟, whereas, the stand of Revenue is that the gain on sale of land is assessable under the head „Income from business‟.
The assessee in order to substantiate his intention to retain the land for agricultural purposes and hence, the same was „capital asset‟ has placed on record various documents viz. revenue records i.e. 7/12 extracts, agreement to sell dated 25-03-2002, registered sale deed in the name of assessee and the registered sale deed executed by the assessee in the
12 ITA No.1246/PUN/2018 A.Y. 2009-10
name of the purchaser. A mutation entry in the revenue records in favour of assessee qua land was entered on 18-09-2006 i.e. after execution of registered sale deed in favour of the assessee. The 7/12 extracts available on record shows that on part of the land some cultivation activities were carried out. As per the revenue records, rice was grown on the land in question. The revenue records and sale transactions of the land indicate that the intention of assessee was to retain the land for agricultural purposes. The Revenue has not brought on record any other instance of sale transaction of the land carried out by the assessee. The entire emphasis of the Revenue is on the statement of assessee‟s brother recorded in proceedings u/s 133A of the Act. The assessee has also admitted the fact that he is engaged to real estate business on commission basis. However, this does not preclude the assessee to purchase the land and held it as capital asset. The Revenue has not furnished any document which indicates that the land was held by the assessee as stock-in-trade or before the sale of land, the assessee had developed the land for commercial purpose.
The ld. DR has vehemently argued that the assessee has merely purchased rights in land through unregistered Power of Attorney, hence, conduct of the assessee indicates that the intention of the assessee was to sell the land right from beginning for profit. We do not find merit in the contention of the Revenue. The fact is that registered sale deed of the land in question was executed in favour of the assessee on 4/8/2006. The assessee thereafter sold the land vide registered sale deed dated 3/6/2008 to Nemichand Mehta. If the intention of the assessee would have been to trade in land, the assessee would have done so on the basis of Power of
13 ITA No.1246/PUN/2018 A.Y. 2009-10
Attorney, without incurring expenditure on executing registered sale deed in his name. The sequence of events and the documents available on record fairly indicates that the intention of assessee was not to engage in the business of trading in subject land. It was standalone transaction carried out by the assessee.
The contention of the Revenue that in the original return of income the assessee had declared gain arising from sale of land as business income and it was in the revised return that the assessee declared the gain from sale of land was an afterthought, is not sustainable. The provisions of the Act has granted liberty to the assessee to revise the returns with the object of removing any mistakes / errors in the computation of income or head of income. If the assessee in the original return of income has inadvertently mentioned the head of income as business income, it does not mean that it becomes sacrosanct and the assessee cannot change the head of income in the revised return. Taking into consideration the entirety of the facts, we are of the considered view that the transaction of sale of agricultural land by the assessee is not adventure in the nature of trade. The gain arising from sale of land is assessable under the head „Capital Gains‟. Accordingly, the assessee succeeds on ground No.1 of the appeal.
In ground No.2 of the appeal, the assessee has assailed disallowance of cost of improvement over the land. A perusal of assessment order reveal that the AO has failed to adjudicate this issue as the assessee has not furnished the requisite information relating to the expenditure claimed. It further emerges that the assessee in the original return of income had
14 ITA No.1246/PUN/2018 A.Y. 2009-10
claimed expenditure of Rs.11,29,27,500/-, which has already been allowed by the AO. In the absence of complete information, it was difficult for the AO to determine whether expenditure of Rs.3,74,62,925/- claimed by the assessee is part of the expenditure already allowed by the AO in original assessment proceedings or this expenditure is over and above the expenditure already allowed. Though the voluminous paper book filed before the Tribunal by the assessee, the ld. AR has certified that all the details were available before the AO, however, it is not clearly emanating from records whether the expenditure claimed by the assessee Rs.3.74 crores was part of expenditure already allowed by the AO. Since, there is ambiguity on facts on this issue, we deem it appropriate to restore this issue back to the file of AO for re-examination. The assessee is directed to furnish relevant details of expenditure before the AO and also clarify whether expenditure of Rs.3.74 crores is part of the expenditure already allowed by the AO. The AO shall decide this issue de novo after affording reasonable opportunity of hearing to the assessee, in accordance with law. The ground No.2 of the appeal is allowed for statistical purposes in the terms aforesaid.
In the result, the appeal by assessee is partly allowed.
Order pronounced in open Court on Tuesday, the 17th day of December, 2019.
Sd/- Sd/- (D.Karunakara Rao) (Vikas Awasthy) ACCOUNTANT MEMBER JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 17th December, 2019 GCVSR
15 ITA No.1246/PUN/2018 A.Y. 2009-10
आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-2, Aurangabad. 3. The Pr.CIT-2, Thane. 4. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गार्ड फ़ाइऱ / Guard File. 6. आदेशानुसार / BY ORDER, सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधचव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे/ ITAT, Pune