SMT. M. MAGESWARI,,CHENNAI vs. ITO, NCW - 10 (3),, CHENNAI

PER G.MANJUNATHA, AM: These two appeals filed by the assessee are directed

against common order of the learned CIT(A)-12, Chennai

dated 26.04.2019 and pertain to assessment years 2011-12 &

2012-13. Since, the facts are identical and issues are

common, for the sake of convenience, these appeals were

heard together and are disposed off by this consolidated order.

of appeal for both the assessment years, therefore, for the sake

of brevity, grounds of appeal filed for assessment year 2011-

12 in ITA No.2200/Chny/2019 are reproduced as under:-

ITA Nos. 2200 &2201/Chny/2019

“1. Your appellant submits that the order of the Commissioner of Income Tax (Appeals) is against the facts of the case and bad in law. 2. Your appellant submits that the authorities below had not fully considered the facts of the facts. 3. Your appellant submits that the learned Assessing Officer had erred in adopting the assessment procedure followed in the hands of Mr. P.S. Man (father of the appellant) in computing the income for the present year in the hands of your appellant. 4. your appellant submits that the learned Assessing Officer had not properly considered the ,replies submitted at the time of assessment proceedings about the nature of the transactions happened in the hands of your appellant, the variance in the relationship at your appellant with her fathers business. 5. Your appellant submits that the Learned Assessing Officer is not correct in wholly depending upon the statement made by the father of your appellant at the time of survey in his office which is generalized statement. 6. Your appellant submits that the income earned by your appellant is to be considered as Income from long term capital gains and further the sales of the plots were made as Power of Attorney holder of other sellers and not the property of your appellant. 7. Your appellant submits that even admitting for the sake of argument that the income is to be computed as Income from Business instead of Income from Long Term Capital Gains the reasonable expenses incurred for buying lands and developing and other incidental expenses are to be allowed in arriving at the income. 8. Your appellant submits that the authorities below are not correct in adopting the funds transferred to the trust as the

3 ITA Nos. 2200 &2201/Chny/2019

Income of your appellant without considering the expenses involved. 9. Your appellant submits that funds transferred are the amounts received from transactions and while considering the income from business the necessary expenses like cost of purchase, developmental charges, plan permission expenses, and incidental expenses are to be deducted to arrive at the correct income from the business. The principle of commercial expediency has not been followed in arri,im1g at the income for the year. 10. Your appellant submits that the authorities below had not considered this point and made the assessment on the premises that the whole amount received was the income of the year which your appellant submits that not correct and the income of Rs. 34,07,600/- determined for the year is to be re-determined

barred by limitation of 2 days for which necessary petition for

condonation of delay along with affidavit explaining the

reasons for delay has been filed. The learned counsel

submitted that assessee could not file appeal within the time

allowed under the Act, therefore delay may be condoned.

Having heard both sides and considered the petition filed by the

4 ITA Nos. 2200 &2201/Chny/2019

assessee for condonation of delay, we are of the considered

view that reasons given by assessee for not filing the appeal

within the time allowed under the Act comes under reasonable

cause as provided under the Act for condonation of delay and

hence, 2 days delay in filing of above appeal is condoned and

appeal filed by the assessee is admitted for adjudication.

her return of income for assessment year 2011-12 & 2012-13. A

survey u/s. 133A of the Act was conducted on 02.09.2013 in the

office premises of M/s .Kumaran Real Estate & Builders, Vellore

assessed as APO. Based on the survey, assessment of the

AOP and members have been reopened and concluded

u/s.143(3) r.w.s. 147 of the Act and assessed income derived

from purchase and sale of properties under the head income

from business or profession, as against income admitted by

AOP as well as Members under the head income from long

term capital gain on the ground that AOP as well as Members

were involved in a systematic business activity of purchase and

sale of lands and thus, profit derived from such activity is

5 ITA Nos. 2200 &2201/Chny/2019

assessable under the head income from business or profession. Further, the case of the assessee was reopened u/s. 147 of the Act for both assessment years on the basis of survey report received from Office of the Income Tax Officer, Vellore, as per which the assessee was also engaged in the business activity of purchase and sale of lands and further, offered capital gain from sale of land for assessment years 2011-12 & 2012-13. Based on the survey report, assessment has been reopened u/s. 147 of the Act, and accordingly, notice u/s. 148 dated 31.03.2017 was issued and served on the assessee. In response to notice, the assessee has filed return of income on 16.08.2018 admitting total income of ` 82,600/- for assessment year 2011-12 and ` 99,400/- for assessment

year 2012-13. The case was taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer based on survey report received from Office of the Income Tax Officer, Vellore and upon further enquiry came to the conclusion that assessee was engaged in the business activity of purchase and sale of land in line with other members of AOP, M/s.Kumaran Real Estate & Builders and hence, profit

6 ITA Nos. 2200 &2201/Chny/2019

derived from purchase and sale of lands is assessable under

the head income from business or profession. The Assessing

Officer to arrive at such conclusion has taken support from

findings recorded during the course of survey, admission of Mr.

P.S.Mani, one of the Members of AOP. Therefore, he opined

that there is no merit in the contention of the assessee that she

is not engaged in the activity of buying and selling of lands and

whatever lands sold by her is investment activity and profit

derived from such activity is assessable under the head capital

gains. The relevant findings of the Assessing Officer are as

under:-

“15. The submissions, survey folder and orders passed on other members of the trust are carefully perused. That the assessee had been involved in the affairs of M/s. Kumaran Real estate has been clearly put out as in all the submissions made by Shri P S Mani. The Family members were carrying on the business as a whole was well brought out. This clearly establishes the next’s of the assessee in all the and transactions undertaken over the years by Shri PS Mani and family members. It had been clearly stated that purchase of property are being done in individual names only. Most of the real estate transactions are being done executed in the individual named and admit partly in the name of the AOP for convenience. This is brought out also in the orders of other trustees.”

ITA Nos. 2200 &2201/Chny/2019

ITA Nos. 2200 &2201/Chny/2019

and Forwarded also the assessing officer had categorically recorded as under.

Considering the details submitted by the assessee and the representative, it is appeared that the assesee’s claim of LTCG appears to reasonable. But on further investigation, it is came 10 light the assesses is doing the real estate activity in and around gudiyattam town for more than 15-20 years and whatever investment he has made over the years only with the intention to do real estate business and this has been confirmed by the local period and the vicinity of the assessees business premises at Gudiyattam. Hence on the above lines, further Investigation was carried out at kollati, near minjur and at Santhosh Nagar Plots, When all the above details are brought to the knowledge of the assessee, they have agreed to declare the income under the head real estate business income. Since the case was taken for deep scrutiny with the permission of JCIT, Vellore range, a breakthrough was happened at the end. Considering the discrepancies pointed out to the assesses and the representative, they came forward and submitted a letter dated 31.03.2016 with a request to sought installments to pay tax due arisen on the basis of revised declaration.

I8. Thus, Shri P S Mani and others have accepted and the orders were passed considering the disclosure made at survey as business income. Thus the business had been a going concern and the same was also accepted by Shri P S Mani. As per records, the assessee is not a member of the AOP. However she is one of the co-opted trustees. The assessment as proceeded by the assessing officer, ITO Ward - 1 , Vellore holds good or M. Mageswari too. Though she is not a member of AOP, the formation of AoP is only an arrangement and her involvements in the sale of land and in particular with M/s. Kumaran Real Estate & Builders have been proved beyond doubt during the scrutiny proceedings. sworn statements etc. After having recorded so many statements, deep verification carried out and also after a number of hearings, the conclusion was drawn by the ITO Ward -2, Vellore. In line with the same,

9 ITA Nos. 2200 &2201/Chny/2019

the assessments in the case of M Mageswari is also completed based on the reports as under:

Total income returned : Rs.82,600/ Income from house property (as returned) Rs.82,600/- Income from business Rs.33,25,000/- =============== ` 34,07,600/- Total income assessed : ===============” 5. Being aggrieved by the assessment order, the assessee

preferred an appeal before learned CIT(A). Before the learned

CIT(A), the assessee submitted that the Assessing Officer has

erred in arriving at a conclusion that income derived by the

assessee from sale of land is assessable under the head

income from business or profession, as against income

admitted under the head long term capital gain without

appreciating the fact that assessee is neither a member of

AOP, nor involved in the activity of buying and selling lands.

The assessee further contended that Assessing Officer on

wrong assumption of facts has concluded that the assessee is

also a part of AOP and further involved in the activity of buying

& selling lands, but facts remains that assessee was not a

member of AOP and this fact has been admitted by the

Assessing Officer . The Assessing Officer, having accepted the

fact that assessee is not a member of AOP, wrongly assessed

10 ITA Nos. 2200 &2201/Chny/2019

the income under the head income from business or profession.

even though the assessee has furnished various evidences to

prove that lands sold by her are different from the lands sold by

AOP and consequently, profit derived from sale of land is

assessable under the head income from long term capital

gains.

submissions of the assessee rejected the claim of the assessee

that income derived from sale of land is assessable under the

head income from long term capital gain by holding that the role played by the assessee in real estate business is same as that

of the other associates in whose hands, income was assessed

as income from business or profession. The records related to

survey and related statement and also the fact that income has

been assessed as business income in the hands of other

associates clearly prove that income of the assessee is liable

to be assessed under the head income from business.

Accordingly, rejected the arguments of the assessee and

confirmed additions made by the Assessing Officer towards

profit derived from sale of lands under the head income from

11 ITA Nos. 2200 &2201/Chny/2019

business or profession. Aggrieved by the learned CIT(A) order,

the assessee is in appeal before us.

learned CIT(A) has erred in fact and in law to confirm the

findings of the Assessing Officer in assessing profit derived

from sale of lands under the head income from business or

profession as against income admitted under the head long

term capital gains, without appreciating the fact that the

assessee was neither a member of AOP nor involved in activity

of buying and selling of lands. The AR further submitted that the

Assessing Officer has taken wrong facts to come to the

conclusion that assessee is also involved in activity of selling

lands on the basis of one settlement deed executed by the

assessee for a piece of land in favour of M/s. Sri Kumaran

Educational & Charitable Trust, Minjur, Chennai, ignoring the

fact that said land was settled in favour of the charitable trust for

objective of the trust, whereas business activity was carried out

by M/s. Kumaran Real Estate Builders as an AOP at Vellore.

12 ITA Nos. 2200 &2201/Chny/2019

of learned CIT(A) submitted that facts brought out by the

Assessing Officer and learned CIT(A) in light of findings of

survey and further survey report clearly indicate that the

assessee is also involved in the activity of buying and selling of

lands, like other members of AOP and hence, once income

from sale of land is assessed under the head income from

business in case of other members, no different view can be

taken in the case of the assessee, unless assessee

demonstrates that lands sold by her are different from lands

sold by AOP and further, she has sold lands as investment

activity. In this case, the assessee has failed to file any further

evidences to prove that admission during the course of survey

is incorrect to assess the profit under the head income from

capital gains.

available on record and gone through orders of the authorities

below. The Assessing Officer has assessed profit derived from

sale of land under the head income from business or

profession on the sole basis of survey report received from

13 ITA Nos. 2200 &2201/Chny/2019

Office of the Income Tax Officer, Vellore in the case of M/s.

Kumaran Real Estate & Builders, Vellore as an AOP. To arrive

at such conclusion, the Assessing Officer has taken support

from survey report coupled with statement recorded from

members of AOP during the courseof survey, where they have

admitted the fact that they are involved in the activity of real

estate development and profit derived from sale of lands is

assessable under the head income from business. The

Assessing Officer has also taken support from assessment

orders of AOP and its members, where the Assessing Officer

has assessed profit derived from sale of land under the head

income from business and profession as against income

admitted under the head long term capital gains. The Assessing

Officer has not disputed the fact that the assesse is not a

member of AOP. In fact, he has categorically admitted that the

assessee is not a member of AOP, but went on to assess

income under the head income from business, only on the basis

of letter filed by one Mr.P.S.Mani, member of AOP, where he

has admitted capital gains from sale of lands in the hands of the

assessee. It was the contention of the assessee before the

14 ITA Nos. 2200 &2201/Chny/2019

Assessing Officer as well as learned CIT(A) that she is neither a

member of AOP, nor engaged in the business of buying and

selling of lands. She further contended that lands sold by AOP

are different from the lands sold by her in individual capacity.

To support her argument, she has filed various evidences

including settlement deed executed by her in favour of Sri

Kumaran Educational & Charitable Trust . We find that the

Assessing Officer has taken support from settlement deed

executed by the assessee to arrive at conclusion that the

assesse also engaged in real estate development. But on

perusal of details filed by the assessee including settlement

deed dated 24.11.2008 executed in favour of Sri Kumaran

Educational & Charitable Trust, we find that the said land was

settled in favour of trust for the purpose of public charity and

other good reasons without any consideration. The assessee

further clarified that she has not derived any income from

property settled in favour of charitable trust, whereas, income

declared under the head long term capital gain is derived from

some other lands, which were sold in her individual capacity as

an investment activity . She further clarified that lands sold by

15 ITA Nos. 2200 &2201/Chny/2019

AOP at Vellore and lands sold by her in her individual capacity

are different lands and there is no connection between the

activities carried by AOP and herself.

assessee in light of facts brought out by the Assessing Officer

as well as learned CIT(A) and find that the Assessing Officer

having accepted the fact that assessee is not a member of

AOP, ought to have verified the income declared under the

head long term capital gain with reference to lands sold by her

in her individual capacity by ascertaining the fact that whether

the assessee has sold lands as part of AOP or not. In case,

lands sold by the assessee are not part of activity of AOP, but

are independent lands, then assessability of profit from sale of

lands should be independently examined without any influence

from survey report in the case of M/s. Kumaran Real Estate &

Builders, Vellore, because assessment of AOP and its

members were made solely based on the findings of the

survey and statement recorded from the members during the

course of survey. Therefore, we are of the considered view that

Assessing Officer has arrived at a conclusion that income

16 ITA Nos. 2200 &2201/Chny/2019

derived by assessee from sale of lands is assessable under the

head income from business or profession without carrying out

an independent enquiry with regard to land sold by the

assessee. Hence, we are of the considered view that the issue

needs to go back to the file of Assessing Officer for both

assessment years to ascertain the fact with regard to the land

sold by the assessee in her individual capacity to determine

nature of income and assessability of such income under the

head income from business or profession or capital gains.

Hence, we set aside both appeals to the file of the Assessing Officer and direct him to reconsider the issue in light of various

evidences filed by the assessee including settlement deed

executed in favor of M/s. Sri Kumaran Educational & Charitable

Trust and to ascertain nature of income declared by the

assessee under the head income from long term capital gains.

assessment years are allowed for statistical purposes. Order pronounced in the open court on 19th March, 2021 Sd/- Sd/- ( वी.दुगा� राव ) ( जी. मंजुनाथ ) (V. Durga Rao) (G.Manjunatha) "या�यक सद%य /Judicial Member लेखा सद%य / Accountant Member

17 ITA Nos. 2200 &2201/Chny/2019

चे"नई/Chennai, (दनांक/Dated 19th March, 2021 DS

आदेश क� ��त*ल+प अ,े+षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु-त (अपील)/CIT(A) 4. आयकर आयु-त/CIT 5. +वभागीय ��त�न1ध/DR 6. गाड� फाईल/GF.