NEMI CHAND,GUDUR vs. ITO., WARD-1, GUDUR

Succinctly stated, the assessee had filed his return of income for AY 2018-19 on 31/08/2018 declaring an income of Rs.27,21,340/-. Subsequently, the case of the assessee was selected for limited scrutiny assessment under the E-Assessment Scheme-2019 for verifying the deduction claimed by him under the head capital gains.

During the course of the assessment proceedings, the AO observed that the assessee in his return of income had raised the claim for deduction under section 54 of the Act amounting to Rs. 24,59,649/-. On being queried, it was the claim of the assessee that the subject deduction was claimed with respect to the residential house that he had purchased during the immediately succeeding year, i.e., Financial Year 2018-19. However, the AO observed that verification of the return of 3 Nemi Chand vs. ITO income of the assessee did not reveal any deposit made by him in Capital Gain Account Scheme, 1964 (CGAS). Thereafter, the assessee vide his reply through ITBA portal on 17/11/2020 furnished the requisite details as were called for by the AO. On perusal of the record, it transpires that the assessee had claimed that he had in tranches purchased certain lands at Chevella Village, Ranga Reddy District over the years, viz., (i) land admeasuring Ac.7.20 Guntas vide registered sale deed No.7774/06, dated 08/06/2006: Rs. 11,25,000/- (subject to separate stamp duty charges of Rs. 1,42,600/-; (ii) land admeasuring Ac.3.13 Guntas situated at Chevella Village, Ranga Reddy District purchased by the assessee along with seven other owners, vide registered sale deed No.11272/06, dated 13/09/2006: Rs.8,31,500/- (subject to separate stamp duty of Rs. 79,115/-) – wherein the assessee’s 1/8th share, i.e., 0.39125 Acres worked out at Rs.1,03,939/- (subject to separate stamp duty of Rs.9,889/-); and (iii) land situated at Chevella Village, Ranga Reddy District admeasuring 0.10 Guntas purchased by the assessee along with one another person, vide registered deed 5353/2015, dated 17/12/2014: Rs.3,75,000/- (subject to separate stamp duty of Rs.22,600/-) – wherein the assessee’s ½ share in the subject land was Ac. 0.05 Guntas: Rs.1,87,500/- (stamp duty: Rs. 11,300/-). The assessee submitted before the AO that though he wanted

The assessee had further submitted before the AO that M/s. Mishri Developers (supra), comprised of five partners, viz., (a) Sri Rikab Chand; (b) Sri Ugamraj Nahar; (c) Sri Ashok Kumar Kothari; (d) Sri R. Nemichand (i.e., the assessee); and (e) Sri Prakash Chand, who all were the lawful GPA holders of the land owners and were authorized to do the acts and duties mentioned in the GPA.

The AO based on the aforesaid facts as were brought to his notice, observed that the firm, viz., M/s. Mishri Developers (supra) was represented by the individual land owners (including the assessee) mentioned in the GPA agreements who had joined hands with the motive of earning profits. The AO called upon the assessee to put forth an explanation that now when he along with other land owners have joined hands, pooled their lands and given the same to a developer to develop plots and sell the same, therefore, why the profit/accretion arising therefrom may not be considered as his business income and 6 6. As the assessee has failed to come forth with any satisfactory explanation, therefore, the AO held the entire amount of consideration of Rs. 36,17,648/-, i.e., the sale consideration received by the assessee as his unexplained money under section 69A of the Act.

Alternatively, the AO observed that as the assessee along with certain other land owners had joined hands, pooled their lands and given the same to a developer firm, viz., M/s. Mishri Developers (supra) which was comprised of five partners who were also the independent land owners (including the assessee), thus, it was evident that they had associated with a motive to earn profit. Accordingly, the AO based on his aforesaid observations concluded that the income/accretion arising on the sale of the lands was to be considered as the business income of the assessee and, thus, his claim for deduction under section 54 of the Act was liable to be rejected.

The AO thereafter vide the order under section 143(3) r.w.s 144B of the Act, dated 23/04/2021 after treating the entire amount of sale consideration falling to the share of the assessee of Rs. 36,17,648/- as 7 Nemi Chand vs. ITO having been sourced out of his unexplained money under section 69A of the Act, determined his income at Rs. 63,38,988/-. 9. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success. “6.1.3 Decision:

2.1 Decision:

3 Ground of appeal No. 7:

3.1 This ground pertains to appellant's contention that AO wrongly charged interest 234C of the Act. Charging of such interest is consequential and mandatory and there is also no discretion provided as regards the manner of computation thereof. However, AO is directed to charge interest as per the relevant provisions of the Act while giving effect to this appeal order. Ground is therefore dismissed.

4 Ground of appeal No. 8:-

Result:

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.

Elaborating on his contention, the Ld. AR submitted that now when the subject amount was received by the assessee as sale consideration of the land falling to his share i.e., on sale of part of the land situated at Chevella Village, Ranga Reddy District, therefore, it was incomprehensible and beyond understanding as to how the said sale consideration so received by the assessee from an explainable source could be held as the assessee’s as unexplained money under section 69A of the Act. The Ld. AR to buttress his contention submitted that the factum of sale of the subject land by the assessee along with other land

Per contra, Dr. Sachin Kumar, the Learned Senior Departmental Representative (for short, “Ld. Sr. DR”) relied upon the orders of the lower authorities. The Ld. Sr. DR submitted that as the assessee had joined hands with the other land owners with a motive to earn profit on the sale of the subject land, i.e., by commercially exploiting the same, therefore, both the authorities below had rightly observed that the income/accretion on the sale of the subject land was liable tot be assessed as the business income of the assessee and not under the head capital gains.

At the threshold, we may herein observe that now when the amount of Rs.36,17,648/- (supra) had been received by the assessee as his share of sale consideration on the sale of land situated at Chevella Village, Ranga Reddy District, therefore, the said amount so received by him from an explained source could not have been brought within the meaning of unexplained money under section 69A of the Act. We, thus, in terms of our aforesaid observation vacate the view taken by the authorities below who had held the amount of Rs. 36,17,648/- (supra) as having been sourced out of the assessee’s unexplained money under section 69A of the Act.

Apropos, the observation of the Ld. AO that as the assessee along with the other land owners had voluntarily associated with other land owners with a motive to earn profit by pooling their lands, developing the 13 Power of Attorney (GPA) to a developer, viz., M/s. Mishri Developer, wherein the latter was to develop the plots and sell the said consolidated land on behalf of the aforesaid land owners (including the assessee), therefore, as observed by the AO and rightly so, the profit/accretion on the sale of the subject land which was backed by a clear motive to earn profit by the aforesaid land owners (including the assessee), was in the nature of adventure in the nature of trade, and, thus, the profit arising therefrom was to be assessed as business income in the hands of the assessee. Accordingly, once the income arising on the transfer of the land falling to the share of the assessee is to be assessed as business income, therefore, we concur with AO that there remained no occasion for him to raise a claim for deduction under section 54 of the Act. Accordingly, finding no infirmity in the view taken by the AO who had rightly declined the assessee’s claim for deduction under section 54 of the Act, we uphold the same. Resultantly, we herein modify the order of the CIT(A) in terms of our aforesaid observations.

In the result, appeal filed by the assessee is partly allowed in terms of our aforesaid observations.