ITO, KOTDWAR vs. SH. KALYAN SINGH ADHIKARI, KOTDWAR

सुनवाई क� तार�ख/Date of Hearing : 18/04/2017 घोषणा क� तार�ख /Date of Pronouncement: 20/04/2017 ORDER This appeal of the Revenue arises from the order of learned CIT(A), Dehradun, vide order dated 23.09.2016 for the assessment year 2011-12. 2. The Revenue has raised the following grounds of appeal. “1. That the ld. CIT(A) has erred in law and on facts by giving more importance to the unregistered agreement than to the legal registered deeds.

2. That the ld. CIT(A) has erred in law and on facts by deleting the addition of Rs.11,66,616/- made by the AO on account of capital gain without appreciating the facts that the land was sold by making small residential plots to various parties before sale thus losing the Agricultural nature of land.

3. That the ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.26,81,000/- by not appreciating the facts that various amounts were deposited/credited in the account of the assessee much before the date of sale and the assessee failed to explain the source of whole amount.”

3. The brief facts of the case are that the AO has made the addition on account of agricultural land amounting to Rs.11,66616/- and also with regard to the deposits before the date of sale amounting to Rs.26,81,000/- which were deleted by the learned CIT(A) and the Revenue is in appeal before me.

4. I have heard the rival contentions and perused the facts of the case. I have gone through the entire assessment order and the order of the learned CIT(A) which in fact is reproduced hereinbelow: “I have duly considered the facts and circumstances of the case. There are three issues of dispute in this appeal. The first is relating to the introduction of cash into the bank accounts of the assessee, which the assessee has explained as arising from the sale of agricultural land but the AO has treated to be unexplained as the same was not explained by the sale deeds, which were concluded for a lesser value. The second is the addition on account of capital gain, which the assessee first conceded but has now challenged in appeal and the third is addition on account of application of section 64 on deposits by the assessee's wife in her account. I have dealt with the first two issues in my order in appeal number 35/CIT(A)/DDN/13-14 for the assessment year 2010-11. In that order I have held:- "The next addition is with regard to credit of Rs. 22 lakhs in cash into the assessee's account at Bank of India Motadhak. The A.O. has rejected the submission of the assessee on the grounds that the assessee did not sell his lands to AP. Semwal and Shamim Ahmed but to various others and the sale deeds for the total amount added up to only Rs. 30 lakhs. He has disbelieved the statement of the Shri S. Ahmed and AP. Semwal that entire transaction was done as per the wishes of Shri Tajbar Singh Bhandari to whom these people sold their beneficial interest at a price of Rs.12 lakhs per bigha on account of the fact that Shri Tajbar Singh Bhandari has denied any involvement in the matter and one of the purchaser has confirmed purchasing directly from the assessee at the registered price. However, it is seen that before using the evidence provided by Shri Tajbar Singh Bhandari and the purchaser Shri Dharmendra Singh against the assessee, the assessee has not been accorded the benefit of for cross examining them. Accordingly, their statement cannot be used against the assessee. What emerges from the agreement for sale IS that the assessee upon receipt of Rs. 30 lakhs,transferred the control of the land to Shri S. Ahmed and Shri AP. Semwal for the purposes of development of plots from the said land and agreed to present himself for registration as and when asked to. Thus, the lands stood transferred as per sub clause (v) of clause (47) of section 2 of the I. T. Act. Thereafter the beneficial Interest acquired by Shri S. Ahmed and Shri AP. Semwal was apparently sold to one Shri Tajbar Singh Bhandari resident of Kotdwar and the balance money was paid in cash to the assessee. The payment of this money has been confirmed by Shri AP. Semwal and Shri Shamim Ahmed through whom it Was paid. Thereafter, upon instructions the registrations were performed in the name of certain different individuals. The entire exercise seems to have taken place in a manner to evade payment of stamp duty, first on the transfer of land to Shri A.P. Semwal and Shri S. Ahmed and then on transfer from A.P. Semwal and S. Ahmed to Tajbar Singh Bhandari. Even the final registrations have been done at circle rates far below the prices stated in the agreement for sale. Thus, the attempt is to evade stamp duty on the transactions. However, as a result of the same, there is no clear audit trail that could act as proof of the source of deposit in the said bank accounts. Be that as it may, there is circumstantial evidence that would back up the assessee's story. The assessee did enter into an agreement for sale to transfer its lands at a particular rate; the persons with whom he concluded the agreement for sale have confirmed this agreement and paid advance by cheque; the assessee has disclosed the total quantum of such receipts which tally with the agreement for sale; the people through whom he has gotten such receipts has confirmed that they acted as conduits for the payment of this quantum of money to the assessee for the sale of his land. Moreover when an agreement for sale had been concluded at a particular rate, there was no logical reason for there to be a sudden drop in the price of land unless there was a title dispute or distress sale. Since neither was true, the third explanation could only be under statement of purchase consider evasion of stamp duty. In The circumstances, the A O. should not have dismissed the assessee's story off hand but considered the fact that land could have been purchased by Shri Tajbar Singh Bhandari and the final beneficiairies at much more than the stated, value in the sale deeds. Furthermore, Shri Tajbar Singh Bhandari, being a shadow player, would have generated undisclosed income by way of profit from such transaction, which could be a reason for him to deny the transactions altogther. Had such a considered view been taken, it would become clear that while the amount over and above the sale deeds found credited to the bank accounts of the assessee could not be added back in his hands, as it was neither unexplained nor acquired out of the sale of a capital asset, the amount actually likely to have been invested by Shri Tajbar Singh Bhandari and the final purchasers is completely outside regular channels end in all likelihood unexplained investment. Accordingly the additions of Rs. 15 lakhs made on account of cash deposit by the assessee in Bank of India, Motadhak is deleted. Furthermore, the Assessing Officer is directed to take necessary action against Shri Tajbar Singh Bhandari and the final purchasers, to bring the unexplained investment to tax in their hands.

28. It appears that in pursuance of such findings and directions, the AO has taken up enquiries in the case of Shri Tajbar Singh Bhandari. In the course of these enquiries the statement of the assessee has also been recorded on 8.02.2-016. It appears from perusal of question number 9 of the said statement, that some of the ultimate purchasers have admitted that though the registration was done as per the circle rate the actual amount that was paid was three to four times the amount. They have also apparently claimed that they paid directly to the assessee, while the assessee says that he received it through Ayodhya Prasad Semwal and Shamim Ahmad .Thus the claim of the assessee that the money credited to his bank account was actually sale proceeds of his agricultural land at Shivrajpur, Motadhak, which was earlier corroborated by Shri Ayodhya Prasad Semwal and Shri Shamim Ahmad is now strengthened by such statement from the purchasers also. The only question is whether the middlemen namely Shri Ayodhya Prasad Semwal and Shamim Ahmad entered into an agreement with Shri Tajbar Singh Bhandari or no. To my mind that is immaterial to the assessee's case. Once they have confirmed that the paid the money to the assessee on account of the sale of his land, the source of the money is to be investigated in their hands. As far as the assessee is concerned, the source is explained. Therefore it cannot be regarded as unexplained investment and brought to tax as such. Therefore the addition made by the AO on this account is unsustainable. Similarly, the AO has made addition on account of money stated to be received son in law Shri Rakesh Bisht Rs.300,000/- of such deposit has been confirmed by Shri Rakesh Bisht by way of affidavit. Shri Rakesh Bisht has also filed copies of his income tax returns which have been examined by the AO. In the circumstances there does not seem to be any occasion to hold any part of the deposit made on his account as unexplained or taxable. As regards the repayment loan from Neelarn Adhikari, I have already pointed out in my appeal order for A.Y.2010-11, that as the same is quite clearly a repayment of loan, it is not taxable. It is seen that the bank has certified that it was the husband of Smt Neelam Adhikari who had deposited the money. It is also seen that this was the balance amount of the loan taken in earlier years. Hence no addition is called for on this count. That leaves the money stated to be deposited by his wife out of her pin money and by the assessee out of withdrawals. It is seen that the deposits made on 4/09 and 25/11 are preceded by sufficient withdrawals but those made on 8/04 and 20/04 are not. Furthermore the assessee had made sufficient withdrawals to explain his wife’s deposit of PIN money. Thus the addition made on account of unexplained investment is confirmed to the extent of Rs.1,60,000/-. The balance is deleted.

Finally, with regard to the computation of capital gain on account of sale of plots at vii/age Shivrajpur Patti, and the submission of the A.O. that the same was taxed on account of the request of the assessee to treat as capital gains and the fact that plotting was done, it is seen the land sold as plots was part of the agricultural land of 8 bighas that was transferred and that Shivrajpur Patti is more than 8 kms. Outside municipal limits of Kotdwar Municipalities per the certificates issued by the Nayab Tehsildar and the Gram Panchayat. It is also seen that as per the govt. records the land was agriculture land. In the circumstances, there cannot be any capital gain on the sale of this land because it is not a capital asset. The assessee even while surrendering the same, before the A.O. had submitted that he had not offered it earlier because it was agricultural land and he was under the impression that sale of agricultural land was not taxable. Hence the surrender taken by the A. O. was not as per the law. Accordingly, since the land was agricultural land located outside 8 kms. from the municipal limits, no capital gains can be levied on account of the sale of this land even If some plotting was done before its sale. Accordingly, the addition of Rs.3,09,300/- in this regard is deleted.” The view of the Assessing Officer that once the assessee began to do plotting on the land it ceased to be agricultural land was examined by me in great detail in the case of the Assessee's brother Shri Hari Singh Adhikari in appeal number 532/CIT(A)/ODN/13-14, while discussing levy of capital gains tax on the same land, I have held :- "it may be pertinent to note what the Hon'ble Courts have to say regarding the nature of land situated outside 8 Kms. of municipal limits. In the case of CIT Vs. Madhukumar N (HUF) (2012) 208 Taxman 394 (Kar.) the Hon'ble High Court held that section 2(14)(iii)(b) of the Act covers the situation where the subject land was not only located within the distance of 8 Kms, from the local limits but also requires the fulfilment that the Central Govt. had issued a notification under this clause for the purpose of including the area upto 8 Kms. from the municipal limits, to render the land as a capital asset. It concluded that in the absence of a notification issued under clause (b) to section 2(14)(iii), the land could not be held to be a capital asset. In the instant case, the A. O. has admitted that no such notification has been issued for Kotdwar. Hence, the land could not be considered to be a capital asset in that sense. However, the A.O. has held that capital gain arose because the assessee was involved in the plotting and layout of the land. The Hon'ble Al1ahabad High court in the case of CIT Vs. Smt. Sanjeeda Begum (2006) 154 Taxaman 346 (All.) had occasion to consider a similar case. In that case the assessee sold part of the land measuring 2888 Sq. Yards during the Assessment Year in question to 12 different persons after dividing the lands into plots, each plot having an area of about 200 Sq. Yards and the colony having been named Shiv Vihar Colony. The assessee's claim that the land was agricultural land, was also situated outside the municipal limits and it was not covered by the Notification of the Govt. of India issued under section 2(14)(iii)(b) of the of the I. T. Act, 1961 and therefore, no capital gains were applicable. However, the Assessing Authority did not accept the plea as the land was under regulated area of Saharanpur for which the Addl. Disti. Magistrate had fixed a circle rate and it was situated near to Saharanpur City and was in the proximity of building and building sites. He took the view that agricultural land had been converted into non-agricultural land before the date of agreement to sell and therefore the provisions regarding capital gains were attracted. In appeal the AAC, Dehradun accepted the plea of the assessee after he came to the conclusion that the land was not within 8 kms of municipal limits and were agricultural lands. The ITAT upheld the conclusion drawn by the AAC. The matter came before the Hon'ble High Court which held that "on the findings recorded by the Tribunal that the land was agricultural land and stood beyond 8 kms of the municipal limits of Saharanpur, it was not included in the definition of capital assets as given in section 2(14)(iii) of the Act. Thus, there is no infirmity in the order of the Tribunal". Further in the case of Hamiks Park Pvt. Ltd. Vs. Ward-2(2), Hyderabad (2014) 41 Taxman.com 109 (HYD- Tribe), the Hon’ble ITA T, while examining the case of assessee who was engaged in agricultural operation on land classified as agricultural land in revenue records and transferred such land on as is and where is basis to a developer held that since the land was situated In rural area outside the municipal limits, and since agricultural operations were being carried out by the assessee on the said land and since it was classified as agricultural land in revenue records, the said land did not come within the purview of capital asset uls 2(14) of the I. T. Act, 1961 and, therefore, the profit earned on the sale of land was agricultural income of the assessee liable to be exempt from tax. In the case of Manibhai Motibhai Patel Vs. CIT 131 ITR 120 (Guj.), the Hon'ble High Court held that in a case where the land was used for agricultural purposes right from the beginning, the sale of land for house construction and the persons of building projects in the vicinity of the land was not material. It was held that the lands were agricultural land at the time of sale and therefore, profit on the sale of land was completely immaterial. In CIT-I/, Chandigarh Vs. Harjit Singh Sangha (2003) 217 Taxman 201, the Punjab & Haryana High Court observed in a case where the assessee sold his agriculture land in small size plots and the Assessing Officer charged tax on the profit "the said asset being held by the assessee cannot be said to be a business asset and its sale in small plots of land to different purchaser is not a adventure in the nature of trade, in the absence of the assessee having floated the same or divided its land for the purpose other than agriculture land. Further for converting the use, prior permission is required from the authorities and in the absence of any permission being obtained by the assessee from PUDA authorities in respect of the land sold, merely because the land is sold in smaller plots to persons, who intended its residential use, does not change the nature of land sold in the hands of the assessee, and it's taxability." A similar issue was considered by the Hon'ble Chandigarh Bench of ITAT in the case of Wealth Tax Officer Vs. Sukhpal Singh (1989) 42 Taxman 119 (CHD). In the said case, the assessee had claimed that certain land owned by him was agricultural land for the purpose of computing his net wealth. The records showed that as long as assessee remained the owner of the land he did not use the land for any non agricultural purposes, although he carved and sold out the plots out of it and had made provision for approach roads as per outlay which had been seized during search of his premises. The Hon'ble ITA T held that land being agricultural in first instance and the use of land not having been actually changed by the assessee it should be held to be agricultural land in his hands. It further observed that the purchaser intended to exploit the use of land for the purpose of construction, but it was not the assessee who was to raise any building thereon and, therefore, so far as the assessee was concerned, it never ceased to be agricultural land and because the assessee so long as he remained the owner of the land did not use it for non- agricultural purposes, the assessee's lands could not be treated as non agricultural land for the purpose of computing of his net wealth. In the case of M.S. Srinivas Naicker V. ITO (2008) 169 Taxman 255 (Mad.), the Hon'ble High court of Madras observed that the chargeability of tax uls 45 arise only if on the date of sale, the land in question retained it character as a capital asset, which means, an asset which did not answer to the description of capital asset and which is an agricultural land falling within the definition of section 2(14) would automatically be outside of the section 45. What emerges from all these case laws is that once it is established that the land in question was held outside 8 kms from municipal limits or even within 8 kms but no notification had been it then even if the assessee divided the land into small plots and sold it, the the nature of the land did not change as far as the assessee was concerned and since it was not a capital asset, capital gains tax could not be charged on the same. Applying the logic of the said judgements, it is held that the computation of capital gains of Rs.10,59,411/- by the A.O. on the grounds that the same had been declared by the assessee in the return is not sustainable because the land was both outside 8 km of municipal limits and no notification had been issued for kotdwar plus there was evidence to indicate agricultural operation on the land. 3.1 In the circumstances for the detailed reasons as stated above, the addition of Rs.11,66,616/- on account of long term capital gains is deleted.”

by the Revenue are dismissed.

6. In the result, the appeal of the assessee is dismissed.