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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
order.
ITA No.601/Chny/2017 (A.Y.2008-09):
The assessee has raised following grounds of appeal:-
“1. The order of The Commissioner of Income Tax (Appeals)
19, Chennai dated 20.01.2017 in l.T.A.No.212/2014-15 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case. 2. The CIT (Appeals) erred in dismissing the technical grounds challenging the validity of the search assessment in para 4 of the impugned order without assigning proper reasons and justification.
3. The CIT (Appeals) failed to appreciate that the search assessment in co a distinction to the re-assessment under the statute should be tested with reference to the seized materials and hence went wrong in recording the findings in this regard in para 4 of the impugned order without assigning proper reasons
and justification. 4. The CIT (Appeals) erred in sustaining the disallowance of Rs.13,98,830/- being the cash payments in excess of Rs.20,000/- towards purchase of land on the application of section 40A(3) of the Act in the computation of taxable total income without assigning proper reasons and justification. 5. The CIT (Appeals) failed to appreciate that the lack of seized materials and the non consideration of the proviso below section 40A(3A) of the Act would vitiate the addition made in the computation of taxable total income which formed part of the search assessment.
6. The CIT (Appeals) failed to appreciate that the non
consideration of Ground Nos.5 to 7 of the statutory Form No.35 would vitiate the mechanical sustenance of the said disallowance of expenses on the application of section 40A(3) of the Act.
7. The CIT (Appeals) erred in sustaining the disallowance of Rs.4 Lakhs representing land development expenses for Noombal land on the presumption of non deduction of tax at source on the application of section 40(a)(ia) of the Act while
adding back the said sum in the closing stock without assigning proper reasons and justification.
8. The CIT (Appeals) failed to appreciate that the provisions
governing TDS had no application to the facts of the case and further ought to have appreciated that the exact components of such expenses were not examined thereby vitiating the sustenance of the said disallowance.
The CIT (Appeals) failed to appreciate that in any event the provisions of section 40(a)(ia) of the Act had no application to the facts of the case and ought to have appreciated that having
not disputed the incurring as well as actual payment of such expenses, the question of making disallowance for want of TDS did not arise, thereby vitiating the addition sustained in para 9 of the impugned order.
10. The CIT (Appeals) erred in sustaining the addition of Rs.3,67,085/- representing the expenses incurred as not related to the conceröj1 which finding was recorded by the Assessing Officer in para 5 of the assessment order in the computation of taxable total income without assigning proper reasons and justification.
11. The CIT (Appeals) failed to appreciate that the sustenance of the disallowance as well as the addition of such sum to the closing stock in the search assessment was wrong, erroneous, unjustified, incorrect and not sustainable in law.
12. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.”
The first issue that came up for our consideration from ground 2 & 3 of assessee appeal is validity of assessment order passed by the Assessing Officer u/s.143(3) r.w.s.153A of the Income Tax Act, 1961, dated 30.03.2014. The learned A.R for the assessee referring to dates and events submitted that consequent to search in the case of the assessee on 21.06.2011, assessment for the impugned assessment year has been completed u/s.143(3) r.w.s 153A of the Income Tax Act, 1961. The original assessment was completed u/s.143(1) of the Act, but time limit for issue of statutory notice u/s.143(2) was expired on 30th September, 2009. Therefore, assessment for the impugned assessment year is unabated /concluded as on date of search and thus, in absence of any reference to incriminating materials found during the course of search, no addition can be made. The learned AR further referring to various additions made by the Assessing Officer submitted that if you see additions made by the Assessing Officer towards disallowance u/s.40A(3), addition to closing stock, it is clear that the Assessing Officer has made additions without any reference to incriminating materials found during the course of search. It is well established principles of law by the decisions of various courts, including decision of the Hon'ble Supreme Court in the case of PCIT Vs Meeta Gutgutia 396 ITR 691, that in absence of incriminating materials found during the course of search for each assessment year, no additions can be made in the unabated/concluded assessments.
4. The learned DR, on the other hand, supporting order of the learned CIT(A) submitted that case of the assessee was subjected to search and during the course of search various incriminating materials were found which suggest undisclosed income not offered to tax. Although, there is no direct reference any of the additions made by the Assessing Officer for impugned assessment year to materials found as a result of search, but law is very clear, inasmuch as once search takes place assessments for six assessment years immediately preceding assessment year in which search took place should be reassessed and the Assessing Officer shall have powers to assess total income, including undisclosed income and thus, arguments of the assessee that there is no incriminating materials found during the course of search and consequently, additions cannot be made is devoid of merit.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. The case of the assessee was searched on 29.03.2011 and as on date of search, assessment for the impugned assessment year 2008-09 was unabated/concluded, because time limit for statutory notice u/s.143(2) of the Act, was expired on 30th September, 2009. Therefore, from the above facts, it is very clear that assessment for the impugned assessment year is unabated/concluded as on date of search. In light of above factual position, if you examine settled legal position as per various courts, including decision of the Hon'ble Supreme Court in the case of PCIT Vs Meeta Gutgutia 396 ITR 691, it is very clear that no addition can be made in the assessment framed u/s.143(3) r.w.s 153A of the Act, in absence of any incriminating materials found during the course of search qua, each assessment year. This legal position is further supported by the decisions of the Hon’ble Bombay High Court in the case of CIT vs. Continental Warehousing Pvt.Ltd. 374 ITR 645 (Bom) and CIT Vs Gurinder Singh Bawa, 386 ITR 483 (Bom). In this case, there is no dispute with regard to fact that there is no incriminating materials qua, additions made by the Assessing Officer towards additions towards cash payments u/s.40A(3) of the Act and additions towards difference in closing stock.
Therefore, we are of the considered view that the additions made by the Assessing Officer cannot be sustained and thus, we delete additions made by the Assessing Officer towards disallowance of expenses u/s.40A(3) of the Act and additions towards closing stock.
In the result, appeal filed by the assessee is allowed.
The assessee has raised following grounds of appeal:-
“1. The order of The Commissioner of Income Tax (Appeals)
19, Chennai dated 20.01.2017 in l.T.A.No.213/2014-15 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case.
2. The CIT (Appeals) erred in sustaining the addition of Rs.40,70,000/- relatable to the cash found and seized in the course of search in the computation of taxable total income without assigning proper reasons and justification.
3. The CIT (Appeals) failed to appreciate that the sustenance of the protective addition made based on the findings recorded by the Assessing Officer in the last para, second page of his assessment order was wrong, erroneous, unjustified, incorrect and not sustainable in law.
The CIT (Appeals) failed to appreciate that the detailed submissions made before him which in fact was reproduced in para 3 of the impugned order would establish the double taxation, thereby vitiating the findings in para 4 of the impugned order.
5. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.”
The only issue that came up for our consideration from ground no.2 to 5 of the assessee appeal is additions towards cash found during the course of search on protective basis amounting to Rs.40,70,000/-. The facts with regard to impugned dispute are that during the course of search on 21.06.2011 at the residence of the assessee, cash amounting to Rs.40,70,000/- was found. The assessee was called upon to explain source for cash found during the course of search for which in the sworn statement recorded u/s.132 of the Act, the assessee stated that out of total cash found during the course of search of Rs.40,70,000/-, a sum of Rs.35 lakhs belongs to his business and further, a sum of Rs.1 lakh is his personal cash. He was further asked to explain details of source for rest of cash for which in response to question no. 20 & 21 of sworn statement dated 21.06.2011, the assessee was unable to explain source of cash and further, he stated that above cash was not reflected in the books of account maintained for relevant assessment years. He further stated that he is not able to recollect names & addresses of persons from whom the amount was collected. However, the assessee fairly agreed that said amount was received as on money from sale of flats during the recent period. The assessee had also agreed to offer said cash found during the course of search for tax.
9. During the course of assessment proceedings, the Assessing Officer noticed that although, cash found during the course of search pertains to previous year relevant to assessment year 2012-13, the assessee has offered said cash for taxation for the assessment year 2010-11. Therefore, called upon the assessee to explain as to why cash found during the course of search cannot be added on protective basis to protect interests of the revenue. In response, the assessee submitted that as stated in sworn statement recorded during the course of search, he had admitted cash found during the course of search was on-money receipts received from sales made recently and thus, same has been offered to tax for the assessment year 2010-11. The Assessing Officer was not convinced with the explanation furnished by the assessee and according to A.O., the assessee has offered cash found during the course of search to tax for the assessment year 2010-11, in order to get benefit of telescoping against on-money received in the transaction with Mr.Palani for which documentary evidence was seized during the course of search. Therefore, the Assessing Officer opined, that from the statement recorded from the assessee, it is very clear that the assessee himself has accepted on-money received from sales made recently, which means financial year 2011-12 and not financial year 2009-10. Therefore, considering fact that the assessee has already offered to tax a sum of Rs.40,70,000/- for the assessment year 2010-11 and also fact that same needs to be assessed to tax for the assessment year 2012-13, he has made protective addition of Rs.40,70,000/- for the assessment year 2010-11.
The learned A.R. for the assessee submitted that the learned CIT(A) erred in not appreciating fact that the assessee had made it very clear in his statement that cash found during the course of search is out of on-money received from sale of flats made during recent period, which does not mean only assessment year 2012-13. The assessee has reconciled cash found during the course of search through sales made during the assessment year 2010-11 and rightly offered to tax and thus, the Assessing Officer has completely erred in making further additions on protective basis for very same cash found during the course of search.
The learned D.R., on the other hand, supporting order of the learned CIT(A) submitted that although, cash found during the course of search pertains to assessment year 2012-13, the assessee has offered same for taxation for the assessment year 2010-11 to get benefit of telescoping against on-money received in transaction with Mr.Palani, because document with respect to transaction with Mr.Palani was found during the course of search. The Assessing Officer well as the learned CIT(A), after considering relevant facts has rightly held that cash found during the course of search is assessable to assessment year 2012-13 and thus, fairly submitted that if at all, the Tribunal agree with the stand taken by the authorities below that cash found during the course of search is assessable to tax for the assessment year 2012-13, then protective addition made for impugned assessment year may be deleted.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. There is no dispute with regard to cash found during the course of search of Rs.40,70,000/- and the assessee has very categorically admitted that cash found during the course of search is unexplained income generated from sales made during the recent period on account of on-money receipts. It was also not in dispute that said cash was unaccounted in the books of account of the assessee. Therefore, taxability of cash found during the course of search is not in dispute. In fact, the assessee himself had admitted a sum of Rs.40,70,000/-, as his undisclosed income for the assessment year 2010-11. But, only question that needs to be answered in the given facts & circumstances of the case is whether cash found during the course of search on 21.06.2011 is assessable for assessment year 2012-13 as considered by the Assessing Officer or is it assessable to tax for the assessment year 2010-11, as claimed by the assessee. The assessee claims that cash found during the course of search is generated out of on-money received from sales made during recent period. According to the assessee, recent period does not only mean assessment year 2012-13, but it may be assessment year 2010-11 also. It was the findings of the Assessing Officer that ‘recently’ means assessment year 2012-13, but not assessment year 2010-11.
We have gone through reasons given by the Assessing Officer in light of arguments of the assessee and we ourselves do not subscribe to the reasons given by the Assessing Officer for the simple reason that first of all, it is for the assessee to reconcile cash found during the course of search in his books of account and ascertain period for which said cash belongs to.
In this case, the assessee has reconciled his books of account and found out that cash found during the course of search is generated out of on-money received from sales made during the financial year 2010-11. We find that claim made by the assessee that cash found during the course of search pertains to assessment year 2010-11 is abruptly rejected by the Assessing Officer without any valid reasons, except stating that ‘recently’ means assessment year 2012-13. In our considered view, reasons given by the Assessing Officer is purely on suspicion and surmises manner, without there being any contrary materials to reject claim of the assessee. Therefore, we are of the considered view that the Assessing Officer as well as the learned CIT(A) were completely erred in making further addition towards cash found during the course of search amounting to Rs.40,70,000/- and offered by the assessee for the assessment year 2010-11 on protective basis, once again on the ground that cash found is assessable for the assessment year 2012-13. Hence, we direct the Assessing Officer to delete protective addition made for assessment year 2010-11.
In the result, appeal filed by the assessee for assessment year 2010-11 is allowed.
ITA No. 596/Chny/2017 (A.Y.2012-13):-
The assessee has raised following grounds of appeal:-
“1. The order of The Commissioner of Income Tax (Appeals) 19, Chennai dated 20.01.2017 in l.T.A.No.214/2014-15 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case.
2. The CIT (Appeals) erred in sustaining the assessment of Rs.5 Lakhs under the head ‘income from other sources’ while rejecting the claim of agricultural income in the computation of taxable total income without assigning proper reasons and justification.
3. The CIT (Appeals) failed to appreciate that the sustenance of the said addition as per the findings in para 4 of the impugned order was wrong, erroneous, unjustified, incorrect and not sustainable in law and ought to have appreciated that the lack of seized materials as well as the perversity in the findings recorded on facts would vitiate such findings.
4. The CIT (Appeals) erred in sustaining the change of head of income to tax the surplus generated from the sale of capital asset/lands from LTCG to the head ‘income from business’ in the computation of taxable total income without assigning proper reasons and justification.
5. The CIT (Appeals) failed to appreciate that the accounting treatment should not be taken as decisive for the purpose of assigning the head of income for taxing the surplus and ought to have appreciated that the reporting of the surplus under the head ‘LTCG’ was correct on the factual matrix of the case thereby vitiating the findings in para 5 of impugned order.
6. The CIT (Appeals) erred in sustaining the assessment of cash seized as unexplained cash/income in the previous year relating to the assessment year under consideration despite the decision taken to sustain the protective assessment framed for the Assessment Year 2010-11 for the reasons stated in para 8 of the impugned order without assigning proper reasons and justification.
7. The CIT (Appeals) failed to appreciate that the taxation of such sum representing the seized cash at various places/at multiple times was wrong, erroneous, unjustified, incorrect and not sustainable in law.
8. The CIT (Appeals) failed to appreciate that the facts and legal position brought out in the written submissions filed which in fact extracted verbatim in para 7 of the impugned order was completely overlooked and brushed aside and ought to have appreciated that the stand taken in para 4.3 of the said written submissions was not adjudicated thereby vitiating the findings in para 8 of the impugned order. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.”
The first issue that came up for our consideration from ground no.2 & 3 of assessee appeal is additions made towards agricultural income of Rs.5.00 lakhs. The facts with regard to impugned dispute are that the assessee has claimed agricultural income of Rs.5.00 lakhs, however, could not substantiate its claim with necessary evidences. Therefore, the Assessing Officer made addition of Rs.5.00 lakhs under the head ‘income from other sources’.
The learned A.R for the assessee at the time of hearng submitted that except details of landholding, the assessee could not fie any other evidence, however, considering fact that the assessee is having huge extent of agricultural lands, a reasonable estimate may be made on agricultural income declared by the assessee.
The learned DR , on the other hand, supporting order of the learned CIT(A) submitted that the assessee could not adduce any evidence including Chitta / Adangal etc. except details of landholding. Therefore, there is no reason to deviate from the reasons given by the authorities below to make additions towards agricultural income.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. We find that the assessee is having more than 50 acres of agricultural land at various places for which he has filed necessary Chitta / Adangal etc., however, could not file further evidences to justify agricultural income declared from those lands, including sale receipts etc. Therefore, considering fact that the Assessing Officer has not disputed agricultural lands owned by the assessee and also pleading of the assessee for estimation of reasonable income from agricultural land, we deem it appropriate to direct the Assessing Officer to restrict addition towards agricultural income to Rs.3,00,000/- as against disallowance of Rs.5,00,000/- made by the Assessing Officer. Hence, we order accordingly.
The next issue that came up for our consideration from ground No.4 & 5 of the assessee appeal is additions made towards profit derived from sale of land income under the head ‘income from business or profession’ on substantive basis and protective addition of same income under the head ‘income from capital gains’. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has sold property and declared income under the head ‘long term capital gain’, however, impugned land has been classified as stock in trade in the books of account of the assessee.
Therefore, called upon the assessee to explain as to why profit derived from sale of land cannot be assessed under the head ‘income from business or profession’. In response, the assessee submitted that he had purchased 5.60 acres of agricultural land in 2006 and said land has been sold in previous year relevant to the assessment year 2012-13.
Although, purchase of land had been shown as stock in trade in the books of account, but purpose of purchase of land is investment and thus, profit derived from said land is assessable under the head ‘income from capital gains’ . The Assessing Officer, however, was not convinced with the explanation furnished by the assessee and according to the Assessing Officer, argument of the assessee was that land in question was shown as stock in trade by inadvertent error is an afterthought, to reduce profit derived from sale of land.
Therefore, rejected arguments of the assessee and assessed profit derived from sale of land on substantive basis under the head ‘income from business or profession’. The Assessing Officer had also made protective addition on very same income under the head ‘long term capital gain’ on the basis of admission of the assessee in the return of income filed for the relevant assessment year.
The learned A.R for the assessee submitted that the learned CIT(A) was erred in not appreciating fact that purpose of purchase of land in question was investments and consequently, profit on sale of such land is rightly assessable under the head ‘capital gain’, but not under the head ‘income from business or profession’. The learned A.R further referring to financial statement filed by the assessee submitted that accounting treatment in the books of account is not a decisive factor for the purpose of assigning head of income for taxing surplus, but, what is relevant to see is nature of income derived by the assessee. Since, profit derived from sale of land is long term capital asset, said profit is assessable under the head ‘income from capital gain’ and hence, the assessee has rightly declared profit under the head ‘capital gain’.
The learned DR, on the other hand, supporting order of the learned CIT(A) submitted that the assessee himself has classified land under the head ‘stock in trade’, which clearly proves intention of the assessee to commercially exploit the land and thus, argument of the assessee that by an inadvertent error, land in question was classified under the head ‘stock in trade’ is an afterthought to reduce tax liability. The Assessing Officer as well as learned CIT(A), after considering relevant facts has rightly assessed income under the head ‘income from business or profession’. However, the learned DR fairly conceded that protective additions made by the Assessing Officer on very same income under the head ‘long term capital gain’ may be decided in accordance with law.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. The assessee has sold land, which was purchased in the year 2006 and computed income under the head ‘long term capital gain’. The Assessing Officer disputed head of income for the reason that land in question was shown as stock in trade in the books of account for earlier assessment years.
Therefore, profit if any, derived from sale of said land is assessable under the head ‘income from business or profession’, but not under the head ‘income from capital gain”.
We have gone through reasons given by the Assessing Officer in light of arguments advanced by the assessee and we find that the assessee has taken an argument in light of financial statements filed for earlier assessment years and submitted that classification of asset under the head ‘stock in trade’ is an inadvertent error and intention of acquiring land in question was for the purpose of investment, but not for commercial exploitation of land. We do not find substance in the arguments of the learned A.R for the assessee for two reasons. The first and foremost reason is the assessee is into business of real estate development and he had developed various lands for several years. Secondly, the assessee himself had classified the land as stock in trade in his books of account. Therefore, from the above reasons, it is very clear that purpose of purchasing impugned land in question was not for investment, but for commercial exploitation. The assessee has changed head of income and offered profit under the head ‘capital gain’, without any reason. Therefore, we are of the considered view that arguments of the assessee that classification of land under the head ‘stock in trade’ is an inadvertent error is an afterthought to overcome tax liability on profit derived from sale of land. The Assessing Officer as well as learned CIT(A), after considering relevant facts has rightly assessed profits derived from sale of land under the head ‘income from business or profession’ and thus, we are in complete agreement with reasons given by the learned CIT(A) to assess profit on sale of land under the head ‘income from business or profession’.
Thus, grounds of appeal raised by the assessee are rejected.
24. As regards protective addition made by the Assessing Officer on very same profit derived from sale of impugned land under the head ‘capital gain’, we find that once substantive addition made on profit derived from land under the head ‘profit from business’ is confirmed, then protective addition made by the Assessing Officer for very same profit under the head ‘capital gain’ cannot be survived. Hence, we direct the Assessing Officer to delete protective addition made towards profit derived from sale of land under the head ‘capital gain’.
25. The next issue that came up for our consideration from ground no.6 to 8 of assessee appeal is addition towards cash found during the course of search under the head ‘income from other sources’ amounting to Rs.40,70,000/-. During the course of search a sum of Rs.40,70,000/- was found in the residential premises of the assessee. When the assessee was questioned about source of income for cash found during the course of search, the assessee explained that source of cash found during the course of search was generated from his business activity. The assessee further admitted that cash found during the course of search was not recorded in books of account of the assessee and further, offered to tax as his undisclosed income. The assessee has offered a sum of Rs.40,70,000/- as undisclosed income for the assessment year 2010-11. The Assessing Officer did not agree with income offered by the assessee for the assessment year 2010-11. Therefore, the Assessing Officer has made protective addition for the assessment year 2010-11 and substantive addition for the assessment year 2012-13. We have considered the issue for the assessment year 2010-11 in light of reasons given by the Assessing Officer for making additions and arguments advanced by the learned A.R for the assessee. We gave a clear finding that income disclosed by the assessee towards cash found during the course of search for the assessment year 2010-11 is correct and thus, protective addition made by the Assessing Officer for the assessment year 2010-11 has been deleted. In the year under consideration, the Assessing Officer has made additions towards cash found during the course of search on substantive basis. Since, we have already held that cash found during the course of search is assessable for the assessment year 2010-11, additions made by the Assessing Officer for very same cash found for impugned assessment year cannot survive. Hence, we direct the Assessing Officer to delete additions made towards cash found during the course of search amounting to Rs.40,70,000/- for the assessment year 2012-13.
In the result, appeal filed by the assessee is partly allowed.