KALURAM BUNKAR,JAIPUR vs. ITO, JAIPUR

PER VIJAY PAL RAO, JM :

This appeal by the assessee is directed against the order dated 7th March,

2017 of ld. CIT (A), Ajmer for the assessment year 2008-09. The assessee has

raised the following grounds :-

“ 1. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in reopening the assessment under section 147 of Income Tax Act, 1961. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the reassessment proceedings being illegal and without any basis.

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Rs. 24,048/- on sale of said land under trading activity pertaining to business. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of Rs. 29,89,159/- and accepting the business income as declared by assessee.

Ground No. 1 relates to reopening of the assessment under section

147 of the IT Act.

the assessee does not want to press ground no. 1 of the assessee’s appeal and the

same may be dismissed as not pressed. The ld. D/R has raised no objection if the

ground no. 1 of the assessee’s appeal is dismissed as not pressed. Accordingly, the

ground no. 1 is dismissed being not pressed.

Ground No. 2 is regarding addition made by the AO by treating the

transaction of purchase and sale of land as Long Term Capital Gain and

applying the provisions of section 50C of the IT Act.

section 139(1) of the IT Act. Subsequently, the AO received AIR information that

the assessee has sold an immovable property for Rs. 65,64,772/- and accordingly reopened the assessment by issuing the notice under section 148 on 20th March,

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2015. In response to the notice under section 148, the assessee filed his return of

income declaring total income of Rs. 24,158/- as income from business and

profession. The AO proposed to treat the income arising from sale of land as capital

gain and consequently adopted the full value consideration in terms of section 50C

of the IT Act. The assessee opposed to the action of the AO and contended that the

assessee has started the business of real estate trading. He converted the said land

into stock-in-trade and also applied for change of land use after its conversion into

residential land by JDA. The assessee sold the land to M/s. Sheetal Buildcon Pvt.

Ltd. Thus the assessee has explained before the AO that once the assessee has

converted the land as stock-in-trade, then the income from sale of the land would be

income from business and profession and provisions of section 50C would not arise.

The AO did not accept the contention of the assessee and held that the assessee

has failed to substantiate his submission regarding business activity with any

supporting evidence. The AO accordingly adopted the full value consideration as per

the provisions of section 50C and made the addition of Rs. 29,89,159/- as short term

capital gain. The assessee challenged the action of the AO before the ld. CIT (A)

but could not succeed.

purchased agricultural land bearing Khasra No. 697/3, 695/2 and 699 measuring 1.08 hectares on 26th May, 2005 at Gram Jaisinghpura Baas, Bhankrota, Tehsil

Sanganer, Jaipur. The assessee then applied for conversion of land use from

agriculture to residential and consequently the JDA issued No Objection Certificate

for development of residential project on 16.12.2006. Consequently, the assessee surrendered the said land to the JDA on 31st January, 2007 and paid the

4 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

regularization fee of Rs. 3,42,914/-. The assessee has also paid lease money of Rs. 5,97,079/- on 20th June, 2007. The JDA then issued the Single Patta/Sale Deed dated 2nd July, 2007. The said Single Patta/Sale Deed no. 22 was registered with

the Registrar on 13.08.2007. Subsequently the assessee sold the land to M/s.

Sheetal Buildcon Pvt. Ltd. for group housing society for a sale consideration of Rs.

36,00,000/-. The ld. A/R has further pointed out that the assessee has converted

the land into stock-in-trade in the record and also carried out all these activities

which itself shows that the assessee has converted the agricultural land as stock-in-

trade and sold the same. The transaction is a business transaction and adventure in

nature of trade. In support of his contention, he has relied upon the decision of

Hon’ble Supreme Court in the case of Smt. Indramani Bai vs. Additional CIT, 70

Taxman 67 (SC) as well as the decision of the Coordinate Bench of this Tribunal dated 22nd February, 2018 in case of Ramswaroop Saudagar vs. ITO in ITA No.

329/JP/2017. The ld. A/R of the assessee further pointed out that the AO has raised

an objection that on conversion of the land into stock-in-trade, the assessee did not

offer the same for capital gains tax, however, as per provisions of section 45(2) the

capital gain on such conversion will be chargeable to tax in the year in which stock-

in-trade is sold. Therefore, even if the capital gain is computed on conversion of the

land into stock-in-trade, the net result would be same as the business loss of the

assessee would be increased by the said amount due to the reason that the fair

market price as adopted by the AO as per the provisions of section 50C of the Act

would be considered as the price at which the investment was converted into stock-

in-trade. Therefore, whatever way the income is to be assessed the result would be

same. However, the AO has not computed the capital gain on the transaction of

5 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

conversion of land into stock-in-trade. Thus the ld. A/R has submitted that once the

land was converted into stock-in-trade and assessee has carried out development

work over the land conversion and surrendering the same to the JDA for

development and thereafter it was sold for residential purpose, it is nothing but an

activity of business as an adventure in nature of trade.

produced any record in support of the contention that the land in question was

converted into stock-in-trade. Since the assessee did not file any return of income,

therefore, there is no record whereby the assessee can prove that the assessee has

converted the land as stock-in-trade. The assessee has not developed the land.

The only change carried out by the assessee is to convert the land from agriculture

to non-agricultural use which is not itself change the character of transaction from

investment to stock-in-trade. This is an after-thought claim of the assessee when

the AO proposed to invoke the provisions of section 50C on the transaction of sale of

land in question. The assessee has never filed any return of income declaring any

business income, therefore, the return of income filed in response to the notice

under section 148 cannot be accepted when it is a single transaction of purchase

and sale by the assessee which lacks the systematic activity on the part of the

assessee which can be described as business activity. He has relied upon the orders

of the authorities below.

May, 2005 as an agricultural land for a consideration of Rs. 24,15,000/-. In the year

2006, the assessee applied for the conversion of the land for developing residential

6 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

project by JDA and accordingly a No Objection Certificate was issued by the JDA on

16.12.2006. Pursuant to the said Certificate, the assessee surrendered the land to

the JDA on 31.01.2007 and also paid the regularization fee of Rs. 3,42,914/- and lease money of Rs. 5,97,079/- vide challan dated 20th June, 2007. Thereafter, the JDA issued a single patta/sale deed no. 22 on 2nd July, 2007, the said sale deed was

registered with Registrar on 13.08.2007. These series of activities from purchase of

agricultural land till the obtaining the No Objection Certificate for developing a

residential project by the JDA surrendering the land and consequently issuing the

patta/sale deed clearly shows that the assessee was regularly acting on the

development activity of the land in question and finally the land was sold for group

housing purposes on 16.10.2007. The assessee claimed that when the assessee has

converted the land into stock-in-trade and also carried out the development activities

then the income arising from sale of land is income from business and profession

and not capital gain and, therefore, the provisions of section 50C are not applicable.

We find that when the assessee surrendered the land to the JDA for development, a

part of the land was retained for the purpose of roads and other common facilities

and only remaining land measuring 9,548 sq. meters was converted for group

housing purposes. Thus the entire land which was purchased by the assessee was

not finally received by the assessee on conversion into residential land by JDA.

These are the actual activities which shows the intention of the assessee that

assessee was actively involved in development of the land and finally got it

converted from agricultural to residential development from JDA and part of the land

was retained by the JDA for the purposes of sector roads and other common use

and the balance was returned to the assessee as converted land. The intention of

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the assessee is clearly manifest from all these activities on the part of the assessee

to treat the land as stock-in-trade. The Hon’ble Supreme Court in the case of Smt.

Indramani Bai vs. Additional CIT (supra) while dealing with an identical question has

held in para 3 as under :-

“3. On the facts found we cannot say that the High Court was in error in coming to the conclusion it did. On the other hand, the Tribunal seems to have made certain assumptions while coming to the conclusion in favour of the assessees, which were not really warranted. The Tribunal refers to the 'background of the ladies' as one of the circumstances inducing it to come to the conclusion in favour of the assessees but it has not taken care to elucidate what that background was. The fact that soon after the purchase, the assessees carved out the land into plots and sold them within a few months, coupled with the other circumstances of the case, is consistent more with the theory of adventure in the nature of trade than with the other theory accepted by the Tribunal.”

Thus the Hon’ble Supreme Court has held that the assessee carved out the land into

plots and sold them within a few months coupled with the other circumstances of

the case, is consistent more with the theory of adventure in the nature of trade than

with the other theory accepted by the Tribunal. The Coordinate Bench of this

Tribunal in the case of Ramswaroop Saudagar vs. ITO (supra) while dealing with an

issue of nature of activity in respect of the purchase and sale of land after

development of the same and carving out the land into plots held in para 8 as under

:-

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“8. The Bench have heard both the sides on this issue. Although the land was agricultural land and situated in the limits of city of Dausa. It was developed into 23 plots of various sizes and sold during the year. The nature of land had gone irreversible change from agricultural to residential plots, therefore, we are agree with the finding of the ld. CIT(A) that this was an adventure in the nature of trade and income has to be taxed under the head ‘profit and gains of business and profession’. We have also considered the various case laws relied upon by the ld AR of the assessee during the hearing of appeal, in all these cases, the facts were at variance to the facts of assessee’s case. Therefore, none of the ratio laid down by the Hon’ble Courts is applicable to the assessee’s case, accordingly, findings of the ld. CIT(A) on this issue is sustained. However, the provisions of Section 45(2) of the Act provides that the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-intrade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. Apparently these provisions of Act have not been taken into consideration by the ld. CIT(A), therefore, in the interest of justice and equity, the Bench find deem it fit to restore the issue back to the file of the ld. CIT(A) to give effect to the provisions of Section 45(2) of the Act. Hence, the issue is restored back to the file of the ld. CIT(A).”

Having considered the peculiar facts and circumstances of the case where the

assessee has undertaken a series of steps and development activity in respect of the

land in question and finally got the land converted from agricultural to non

agricultural and surrendered the same for residential development with JDA who in

turn issued a Patta/Sale Deed in favour of the assessee of converted land after

retaining the portion of the land used for sector roads and common use. Therefore,

once the assessee has brought on record undisputed facts of carrying out various

9 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

development activities over the land then the activities of assessee are clearly

adventure in nature of trade and, therefore, the claim of the assessee of business

income arising from sale of the land cannot be disputed. However, there is an

admitted fact that the assessee after purchasing of the land in question has

converted into stock-in-trade and, therefore, as per the provisions of section 45(2)

the income arising from sale of land which has been converted into stock-in-trade

shall be chargeable to income tax as income from capital gains to be computed by

adopting fair market price as the conversion price for the purpose of capital gain and

another is business income by considering the fair market price as cost of stock-in-

trade. Therefore, even if the provisions of section 45(2) are invoked in this case, the

net result would be the same being the short term capital gain will be reduced by

setting off of equal amount of business loss. The AO in the assessment order has

also accepted the fact that in case there is a conversion of land into stock-in-trade,

the provisions of section 45(2) will be applicable, para 3.5 (iv) at page 8 as under :-

“ (iv) As far as the contention of the assessee that income for the year under consideration was below the taxable limits is concerned, it is only due to his baseless submission that the transaction is trading activity. However, if his intentions of the same would have been of business, he would have offered capital gains as per provisions of Sec. 45(2) of the I.T. Act. Further, the assessee has not produced or furnished any such evidence which suggest his intentions clearly. Therefore only submissions without any credible evidence are not acceptable. The showing of land as stock in trade in balance sheet as on 31.03.2007 is also an afterthought of the assessee only support his contention. However, the same is not reliable or does not seem to be

10 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

real due to the fact the neither it is the balance sheet which is audited at that time nor it is the balance sheet submitted by the assessee with return of income u/s 139 of the IT Act at earlier time or anywhere else. Therefore, the contention of the assessee is not acceptable.”

Accordingly, in the facts and circumstances and following the decision of Hon’ble

Supreme Court as well as the Coordinate Bench of this Tribunal, we allow the claim

of the assessee as business income and consequently the addition made by the AO

is deleted.

Ground No. 3 is regarding the addition of Rs. 68,02,400/- towards

income from undisclosed sources. The AO noted that on 20th June, 2007 the assessee purchased a land bearing 7.

Khasra No.839 measuring 0.43 hecares and Khasra No. 843 measuring 0.63 hectares

at Gram Jaisinghpura Baas, Bhankrota, Tehsil Sanganer, Jaipur for a consideration of

Rs. 63.60 lacs. The AO further noted that there was a cash deposit of Rs. 20.25 lacs

on 18.10.2007 in the Savings Bank account of the assessee maintained with ICICI

Bank. Accordingly, the AO asked the assessee to explain the sources of purchase

consideration of land and cash deposit in Bank account. In reply, the assessee

submitted that at the time of registration of purchase of agricultural land, the

assessee paid only Rs. 3,00,000/- in cash and for balance consideration of Rs.

60,60,000/- was paid through three cheques of Rs. 20.20 lacs each to the seller.

Since the assessee could not arrange fund for clearing of the cheques, therefore, the

assessee sold the said land to third party and managed to get Rs. 21 lacs as

advance against the sale consideration of the said land, out of which the assessee

deposited Rs. 20.25 lacs in the bank account and managed to get cleared one of the

11 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

cheques issued by him. The assessee then explained that the balance outstanding

payment was also made from the sale consideration received against the same land

and, therefore, it was contended that there was no unexplained income on account

of deposit as well as payment of purchase consideration. The AO did not accept the

contention of the assessee and accordingly made an addition of Rs. 68,02,400/- on

account of purchase consideration of Rs. 47,77,400/- and Rs. 20,25,000/- as deposit

made in bank. The assessee challenged the action of the AO before the ld. CIT (A)

but could not succeed.

purchase of the land in question, the assessee paid only Rs. 3,00,000/- and for

balance, the assessee issued three cheques of Rs. 20.20 lacs each, all these cheques

were post dated cheques. The first cheque was even did not clear on presentation.

The second cheque was cleared as the assessee made the deposit in the meantime

of Rs. 20.25 lacs in the bank account. Thus out of three cheques, only one cheque

was cleared against the deposits in the bank account and the remaining two

cheques were not encashed by the seller. The consideration was paid to the seller

when the assessee received the funds against the sale of the same land. The ld. A/R has referred to the sale deed dated 3rd May, 2010 whereby the land in question

was sold by the assessee. In support of his explanation, the assessee submitted

declaration of both the parties from whom funds were received by the assessee in

advance for sale of the land in question and, therefore, the assessee explained the

source of purchase consideration and deposits made in the bank account. The AO

has made the double addition to the extent of Rs. 20.20 lacs as well as the deposit

made in the bank account of Rs. 20.25 lacs out of which the cheques issued by the

12 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

assessee of Rs. 20.20 lac was encashed. When the assessee received the advance

against sale of the land, then the question of establishing the identity and

creditworthiness of the creditor does not arise. The purchasers of the land have

given the declarations which have not been controverted by the AO. The sale

consideration as well as the purchase consideration is not in dispute, therefore,

when the sale consideration is more than the purchase consideration of the land in

question then merely because the sale deed was executed after a considerable

period from the date of initial agreement and advance received by the assessee

cannot be a reason for rejecting the claim once the purchasers have admitted the

fact of giving the advance against the said land. The ld. A/R has submitted that

once the assessee has explained the source of purchase consideration and also

produced the declaration of the purchases who have admitted payment of advance

against the purchase of the land in question, then in the absence of any contrary

fact or record brought by the AO, the explanation cannot be rejected merely on

surmises and conjectures.

filed any return of income then all these explanations are after-thought to cover up

the unexplained income of the assessee though the assessee claimed that the

assessee has received the funds from the prospective buyers of the land, however

despite specific instructions by the AO the assessee has failed to produce these

persons for examination. Therefore, the assessee failed to prove the identity and

creditworthiness of the persons from whom the funds are claimed to have been

received. He has relied upon the orders of the authorities below.

13 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

record. The assessee purchased the land in question Khasra No. 839 and Khasra No. 843 vide sale deed dated 20th June, 2007 for a consideration of Rs. 63,60 lacs.

There is no dispute that at the time of execution of sale deed, the assessee paid

only Rs. 3,00,000/- in cash and balance was stated to have been paid through three

cheques of Rs. 20.20 lac each. We have considered the bank statement of the

assessee wherein only one cheque was presented and encashed on 18.10.2007 of

Rs. 20.20 lacs. Hence if one has to go by the consideration as stated to have been

paid in the sale deed, then the said consideration will be considered to be paid only

when the cheques given by the assessee were finally encashed. Only one cheque

was eacashed and remaining two cheques were not even presented during the year

under consideration. We further note that on 18.10.2007 the assessee deposited

Rs. 20.25 lacs in cash in the bank account to facilitate the encashment of the cheque

presented in the bank account by the seller of Rs. 20.20 lacs. Therefore, it is clear

from the bank account that the amount of Rs. 20.25 lacs was used for encashment

of the cheque. Though the authorities have considered this fact and made the

addition only to the extent of the purchase consideration of Rs. 63,60,000 + Stamp

Fee for registration charges of Rs. 4,37,400/- total amounting to Rs. 68,02,400/-.

The assessee explained the source of the balance payment and deposit of Rs. 20.25

lacs in bank as advance received from the prospective buyers of the same land though the sale deed was executed on 3rd May, 2010 for a total consideration of Rs.

1,09,18,000/-. The AO as well as the ld. CIT (A) has turned down the explanation of

the assessee as well as the declaration filed by the assessee from the buyers of the

land. The ld. CIT (A) has considered this issue in para 6.3 as under :-

14 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

“ 6.3. I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen that the appellant had deposited cash of Rs. 20,25,000/- in his bank account on 18.10.2007. The appellant hand also made payment of purchase consideration of Rs. 43,40,000/- and stamp duty of Rs. 4,37,400/-. The source of all these funds was stated to be Smt. Anita Devi and Smt. Kanta Devi. The appellant had filed confirmation of Smt. Anita Devi and Smt. Kanta Devi. During the course of assessment proceedings, the AO requested the appellant to produce these persons before him for examination. The appellant failed to produce either of these persons before the AO. The appellant in written submission has mentioned that he had requested the AO to examine the sellers of the land. According to appellant this fact is found mentioned at page 13 of the assessment order. I have gone through the page no. 13 of the assessment order carefully. Nowhere the appellant has requested the AO that he should summon Smt. Anita Devi and Smt. Kanta Devi as his witness. Therefore, this contention of the appellant is found to be incorrect and contrary to the facts available on record. Even otherwise, it is a well settled position of law that onus is on the assessee to prove the identity and creditworthiness of the person from whom the funds are claimed to have been received by the assessee and also the genuineness of the transactions. Merely by filing confirmatory letter from Smt. Anita Devi and Smt. Kanta Devi, the appellant can not claim that he had discharged his onus. As far as the claim of the appellant that sum of Rs. 40,40,000/- was paid after 31.03.2008, therefore the same can not be subject matter for the A.Y. 2008-09 is concerned, this is also not found to be substantiated by any documentary evidences. The appellant had put this argument only on the basis of the fact that the sale deed was executed on 03.05.2010. The appellant had not furnished any evidence

15 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

to show that the payment of Rs. 40,40,000/- was made after 31.03.2008. Therefore, this argument of the appellant is also rejected. As the appellant had failed to explain satisfactorily the source of the funds of Rs. 68,02,400/-, therefore, the addition of Rs. 68,02,400/- made by the AO is hereby confirmed.”

An objection was raised by the ld. CIT (A) that the assessee has failed to produce

these buyers, namely, Smt. Anita Devi and Smt. Kanta Devi for examination of the

AO. It is pertinent to note that the assessee has filed the declaration from these two

ladies who have purchased the land in question and also declared that an advance

of Rs. 10,50,000/- each was given to the assessee on 16.10.2007 and balance was also paid prior to the execution of sale deed dated 3rd May, 2010. Thus once the

assessee has produced the record which includes declaration under Income

Declaration Scheme (IDS) 2016 made by the purchasers of the land as well as their

confirmations having given advance to the assessee against the purchase of the land

in question, then the AO before rejecting the claim of the assessee could have

verified the record produced by the assessee from the persons concerned. The

assessee cannot be asked to produce the persons who are only the purchasers of

the land if it is not in the control of the assessee and the AO is having all the powers

to summon the persons for examination under section 131 or call for the information

under section 133(6) of the Act. We find that the AO has not taken any step either

to ask any information or to summon these persons. Therefore, shifting the burden

on the assessee that the assessee ought to have produced these persons is not

proper and justified once the assessee produced the declaration of these persons.

Further, the ld. CIT (A) has referred the AO’s objection regarding the identity and

16 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

creditworthiness of these persons, we find that once the sale of the land is not in dispute and executed in vide registered sale deed dated 3rd May, 2010 wherein both

these persons have purchased the land from the assessee, therefore, the identity of

these persons cannot be disputed. Hence, we find that the disallowance made by

the AO and confirmed by the ld. CIT (A) is based on surmises and conjectures and

not on any material or substance brought on record through a proper enquiry

conducted by the AO to disprove the claim of the assessee and documents produced

by the assessee. Hence in the facts and circumstances of the case, when the

cheques which were given for the purchase consideration to the extent of Rs. 40.40

lacs were not presented for encashment during the financial year relevant to

assessment year under consideration, then no addition can be made to the extent of

that amount as unexplained source of investment under section 69 of the IT Act.

Further, once the assessee has produced the record to explain the source of

payment made to the seller, then in the absence of any contrary material or finding,

the rejection of the documents filed by the assessee is not justified. Accordingly the

addition made by the AO is deleted.

Order is pronounced in the open court on 06/12/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- 06/12/2018. Das/

17 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

18 ITA No. 341/JP/2017 Shri Kaluram Bunkar, Jaipur.