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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
आदेश / ORDER PER SUSHMA CHOWLA, JM:
The appeal filed by assessee is against order of CIT(A)-1, Nashik, dated 18.10.2016 relating to assessment year 2013-14 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
The assessee has raised the following grounds of appeal:- On facts and in law, 1] The learned CIT(A) erred in confirming the disallowance u/s 40A(3) of Rs.26,46,185/- in respect of the payments made for purchase of land before sub-registrar i.e. Govt. Authority on the ground that the said payments were not covered under the exceptions specified u/r 6DD of the I.T. Rules.
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2] The learned CIT(A) failed to appreciate that the said payments were confirmed before the Sub-Registrar i.e. the Govt. Authority and the genuineness of the payments and identity of payees were not doubted and hence, considering the intention of legislature behind introducing the provisions of section 40A(3), the disallowance made by the A.O. was not justified. 2.1] The learned CIT(A) erred in not appreciating that the above payments were made to rural farmers towards purchase of agricultural lands who insisted on cash payments since they were not prone to banking activities and they did not know the assessee personally and hence, the disallowance u/s 40A(3) was not attracted in respect of the said cash payments made of business expediency especially in view of the fact that the genuineness of the same was not doubted. 3] Without prejudice to the above grounds, the assessee submits that none of the above cash payments totaling to Rs.26,46,185/- were made in this year and hence, there was no reason to make any disallowance u/s 40A(3) in the year under consideration. 4] Without prejudice to the above grounds, the assessee submits that the impugned agricultural lands purchased in the earlier years were held as investment at the time of purchase and not as stock in trade and the said fact has also been accepted by the A.O. and hence the provisions of section 40A(3) are not applicable in respect of cash payments made towards purchase of capital asset. 5] The learned CIT(A) further erred in not adjudicating the ground nos.3 & 4 pertaining to the quantum of business income to be assessed in respect of sale of agricultural lands by holding that the said grounds did not emanate from the asst. order and thereby dismissing the same. 5.1] The learned CIT(A) failed to appreciate that the said claim was raised by the assessee even in the course of the asst. proceedings by filing letters dated 28.08.2015 and 29.01.2016 and hence, merely because the said claim was not considered by the A.O., there was no reason to reject the same even in the appellate proceedings. 5.2] The learned CIT(A) erred in not appreciating that in view of the ratio laid down by Hon'ble Bombay H.C. in the case of Pruthvi Stock Brokers [349 ITR 336], the appellate authorities are empowered to consider fresh claims which are not raised in the return of income and hence, the said claim should have been adjudicated on merits of the case. 5.3] The learned CIT(A) ought to have appreciated that the business income on sale of agricultural lands should have been assessed at Rs.9,14,984/- as against the business income of Rs.78,04,184/- wrongly declared by the assessee in the return of income. 5.4] The learned CIT(A) erred in not appreciating that the agricultural lands sold during the year were held as investment for various years and the same were converted into stock in trade only on 01.04.2012 and hence, in view of the provisions of section 45(2), the business income on sale of the said lands in this year should have been computed by considering the fair market value as on 01.04.2012 as cost and thus, the business income should have been reworked at Rs.9,14,984/-.
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The issue raised vide grounds of appeal No.1 to 4 is against disallowance of ₹ 26,46,185/- made under section 40A(3) of the Act on account of payment made for purchase of land in cash.
Briefly, in the facts of the case, the assessee is an individual deriving income from house property, business or profession and other sources. The case of assessee was taken up for scrutiny. The Assessing Officer noted that the assessee had sold various plots of land during the year to various parties. The list of plots sold is enlisted at page 2 of assessment order. The Assessing Officer further noted that expenditure in respect of purchase of these land plots was made in previous years but was claimed during the year as the plots were not part of Trading Account in the previous years. The assessee had not included the plots of land in the stock of previous years. It was further noted by Assessing Officer that purchase in respect of said plots of land were made in cash and not through account payee cheques. He thus, was of the view that there was violation of section 40A(3) of the Act. The contention of assessee in this regard was that these plots of land when they were purchased were in the nature of investment and the said investments were converted into stock-in- trade, sold as business transaction during the year and hence, provisions of section 40A(3) of the Act were not attracted. The Assessing Officer did not accept the contention of assessee as there were no entries in the books of account of conversion of investment into stock-in-trade. Further, there was no estimation of fair market value as on the date of conversion of investment into stock-in-trade in the books of account of assessee. Hence, the contention of assessee was not accepted and addition of ₹ 26,46,185/- was made on account of disallowance under section 40A(3) of the Act.
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The CIT(A) referred to the background of introduction of section 40A(3) of the Act and exceptions provided in Rule 6DD of Income Tax Rules, 1962 (in short ‘the Rules’) and held that where the assessee had failed to show that the payments made by it were covered by any of the exceptions provided under Rule 6DD of the Rules, then the cash payments made by assessee were disallowable under section 40A(3) of the Act.
The assessee is in appeal against the order of CIT(A).
The learned Authorized Representative for the assessee pointed out that the issue raised vide grounds of appeal No.1 to 4 was against disallowance made under section 40A(3) of the Act. Further issue raised vide grounds of appeal No.5 to 5.4 was against non-adjudication of grounds of appeal No.3 and 4 raised before the CIT(A) pertaining to assessability of quantum of business income in respect of sale of agricultural land and further determination of income from long term capital gains. The said claim was not made in the return of income. However, in the course of assessment proceedings, the assessee had furnished letters asking the Assessing Officer to adjudicate the business income to be assessed in the hands of assessee as against business income of ₹ 78,04,184/- wrongly declared by assessee in the return of income and also to work out the income from long term capital gains i.e. on account of conversion of investment into stock-in-trade. However, the Assessing Officer did not discuss the said issue and the CIT(A) dismissed grounds of appeal No.3 and 4 as not emanating from the assessment order. Our attention was drawn to the statement of facts which were enclosed with the Memo of Appeal filed before the CIT(A), in which the assessee had enumerated the date of purchase of all the plots of land of different plots of land sold by it, which did not fall within the
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accounting period under consideration. The said plots were purchased on various dates starting from 2008 to 2011 except for one plot which was purchased on 09.01.2013 i.e. land in Gat No.419, Manikkhambh, Tal. Igatpuri, Dist. Nashik for ₹ 12,66,605/-, which was sold for ₹ 12,25,000/- on 22.01.2013, resulting in loss of (-) ₹ 41,605/-. It was further pointed out that in the statement of facts, the assessee had also declared market value as on 01.04.2012 i.e. the date on which conversion of agricultural land was made into stock-in-trade and the tabulated details were filed in respect of each of the dates of land indicating the days of holding the land for two purposes i.e. first, for the purpose of computing capital gains and secondly, days of holding the land upto 31.03.2012 for working out the proportionate increase in value of the said land upto 31.03.2012. The assessee pointed out that he had inadvertently shown the cost of purchase of agricultural lands held as investment, instead of market value of said lands as on the date of conversion i.e. 01.04.2012. The assessee also referred to letters filed before the Assessing Officer dated 20.08.2015 and 29.01.2016 in which the claim was made of deemed conversion of capital asset i.e. agricultural land held as investment into stock-in-trade as on 01.04.2012 and the consequent computation of business income at ₹ 9,14,984/- as against business income shown at ₹ 70,04,184/-. The second issue which was raised in the said statement of facts is against disallowance made under section 40A(3) of the Act, wherein the learned Authorized Representative for the assessee stressed that the said lands were purchased as investment and that also in earlier years and hence, there was no merit in the aforesaid disallowance under section 40A(3) of the Act. In any case, where the cash payments were made / confirmed before the Sub-Registrar i.e. Government Authority and since the payment was actually made and was genuine, there
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was no justification for making the aforesaid disallowance under section 40A(3)
of the Act.
The learned Departmental Representative for the Revenue on the other
hand, placed reliance on the orders of authorities below.
We have heard the rival contentions and perused the record. The
assessee before us has raised grounds of appeal No.1 to 4 against
disallowance made under section 40A(3) of the Act. Further, grounds of appeal
No.5 to 5.4 are interlinked to the first issue raised of disallowance under section
40A(3) of the Act. Vide ground of appeal No.5, the assessee has raised
working of quantum of business income to be assessed in the hands of
assessee in respect of agricultural land sold which was converted into stock-in-
trade by the assessee but by an inadvertent error, the said bifurcation was not
declared in the return of income and the total income arising from the
transaction was offered as business income. The two issues are interlinked
and hence, we proceed to decide the same together. The assessee has
furnished the details of land transactions undertaken by him over a period of
time by way of tabulated chart in the statement of facts. The said chart reads
as under:-
Particulars of Date of Cost of Date of Sale Sale FMV as on Income Business Agricultural Purchase Purchase Considerati conversion of assessable Income Land (Including on investment as capital stamp duty into stock in gains as per and regd. trade i.e. on section Charges) 01.04.2012 45(2) without indexation Gat 714, 27.03.2008 1,55,785 20.10.2012 11,28,000 10,09,679 8,53,894 1,18,321 ManikKhamb Gat 132, 29.09.2008 8,26,200 24.09.2012 10,55,500 10,27,682 2,01,482 27,818 ManikKhamb Gat 540, 09.04.2008 1,42,740 24.09.2012 1,94,500 1,88,876 46,136 5,625 ManikKhamb Gat 655, 26.09.2008 1,27,390 20.10.2012 4,72,000 4,24,892 2,97,502 47,108 ManikKhamb Gat 809, 26.09.2008 8,24,550 24.09.2012 14,90,000 14,09,270 5,84,720 80,730 ManikKhamb Gat 114, 23.07.2009 2,28,500 02.07.2012 4,68,750 4,47,966 2,19,466 20,784 Balwant Nagar Gat 437, 16.02.2010 1,00,100 20.10.2012 1,75,000 1,59,437 59,337 15,563
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Balwant Nagar Gat 165/B, 30.12.2010 11,76,000 30.05.2012 52,00,000 47,33,000 35,57,000 4,67,000 Balwant Nagar Gat 170, 09.05.2011 1,40,920 11.03.2013 1,50,000 1,45,338 4,418 4,662 Nandgaon Gat 164, 20.04.2011 11,57,400 30.05.2012 51,02,500 45,19,480 33,62,080 5,83,020 Balwant Nagar Total - 48,79,585 - 1,54,36,250 1,40,65,620 91,86,035 13,70,630
The perusal of chart would reflect that the assessee had purchased
different plots of land on different dates ranging from March, 2008 to May, 2011
and the value of said pieces of lands were different. Admittedly, all these
purchases were made in cash by the assessee. The assessee has also
enclosed the copies of registered purchase deeds in respect of aforesaid
agricultural lands before us in the Paper Book at pages 63 to 186. In the return
of income filed for the year under consideration, the assessee from the sale
consideration reduced the cost of acquisition and had offered balance income
as its business income. However, by way of submissions before the Assessing
Officer dated 20.08.2015, copy of which is placed at pages 10 to 13 of Paper
Book, the plea of assessee that business income has not been correctly shown.
The assessee claims that as on 01.04.2012 the said assets were converted into
stock in trade and hence two transactions arose during the year i.e. (a) capital
gains under section 45(2) of the Act, wherein investment has been converted
into stock in trade and (b) gain arising on the sale of aforesaid stock in trade.
The learned Authorized Representative for the assessee has pointed out that it
had furnished details of fair market value as on the conversion of investment
into stock in trade i.e. 01.04.2012 and the income assessable under section
45(2) of the Act and it has also worked out the business income for the year
under consideration. But these submissions of assessee have not been
addressed by any of the authorities either by Assessing Officer or by CIT(A).
While making assessment in the hands of assessee, it is incumbent upon the
Revenue authorities to compute correct income in the hands of assessee.
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Merely because the assessee has offered certain income to tax under particular head of income but if it has not been correctly worked out then, the Assessing Officer has all the authority to re-compute income in the hands of assessee. It may be fair to point out that Assessing Officer in his order has stated that the plea of assessee cannot be accepted as the books of account do not reflect any entry of conversion of investment into stock in trade as on 01.04.2012 on the basis of fair market value, but on the other hand assessed income as business income. However, the assessee pleads otherwise. In fairness, we are of the view that this aspect needs confirmation in the hands of assessee. The first point which is to be kept in mind is that the investment in different plots of land have not been shown as stock in trade by assessee in earlier years and if that be so, then the gain arising therefrom cannot be assessed as business income. But the assessee has declared profits on sale of land as its business income. So the exercise of working fair market value as on the date of conversion into stock in trade and consequent capital gains to be assessed on the date of conversion and the business income to be assessed on the date of sale of stock in trade need to be computed and assessed in the hands of assessee. The assessee also claims that since it is the agricultural land which is converted into stock in trade, then capital gains is assessable under section 45(2) of the Act. This aspect also needs verification by Assessing Officer. Consequently, we remit this issue back to the file of Assessing Officer to carry out necessary verification and also direct the assessee to furnish complete information before the Assessing Officer in order to enable him to first determine the fair market value of property as on the date of conversion i.e. 01.04.2012 and to see whether the capital gains arises on the sale of aforesaid agricultural land in the hands of assessee or not. Further, business income on the sale of stock in trade is also to be computed in the hands of assessee
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taking into account the fair market value of property as on 01.04.2012. The Assessing Officer shall complete enquiry in this regard and compute the income accordingly, in the hands of assessee. Reasonable opportunity of hearing shall be granted to the assessee in this regard.
Now, coming to the linked issue of disallowance made under section 40A(3) of the Act. Admittedly, purchase price of various plots of land was paid before the Registering Authorities on different dates and none of the same fall within accounting period except the one on which the assessee had incurred loss. In such circumstances, where the amount of cash has been paid for purchasing plots of land in earlier years, then no disallowance can be made under section 40A(3) of the Act during the year, as no such purchases were made during the year. In any case, purchase price has been paid before the Sub-Registrar and the transaction being genuine, there is no merit in making any disallowance under section 40A(3) of the Act. Accordingly, we reverse the order of CIT(A) in this regard and delete the addition of ₹ 26,46,185/- made under section 40A(3) of the Act. The grounds of appeal raised by assessee are thus, allowed.
In the result, the appeal of assessee is allowed.
Order pronounced on this 27th day of June, 2019.
Sd/- Sd/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 27th June, 2019. GCVSR
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आदेश की प्रयतलऱपप अग्रेपषत/Copy of the Order is forwarded to : 1. अऩीऱाथी / The Appellant; 2. प्रत्यथी / The Respondent; 3. आयकर आयुक्त(अऩीऱ) / The CIT(A)-1, Nashik; 4. The Pr.CIT-1, Nashik; ववबागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे “फी” / DR 5. ‘B’, ITAT, Pune; 6. गार्ड पाईऱ / Guard file. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे/ ITAT, Pune