D.YASODHA,CHENNAI vs. ADDITIONAL CIT, CHENNAI

आदेश / O R D E R

Per A. Mohan Alankamony, AM:-

Tax (Appeals)-IX, Chennai dated 03.05.2011 in ITA No.105/09-

10 for the assessment year 2007-08 passed U/s.250(6) r.w.s.

143(3) of the Act. The Revenue has raised an appeal against the order passed by the Ld. Commissioner of Income Tax(Appeals)

– IX dated 27.02.2012 in for the assessment year 2008-09 passed U/s.250(6) r.w.s. 143(3) & 148 of the Act

The assessee has raised several grounds in her appeal and they are concisely stated herein below for adjudication:-

(i) The Ld.CIT(A) has erred in enhancing the income of Rs.3,65,00,000/- under the head income from other source, though the amount was received & retained by the assessee’s power of attorney holder Shri Balaji.

(ii) The Ld.CIT(A) has erred in disallowing the expenditure incurred for Rs.2,95,37,787/- which was debited to the assessee’s account by M/s. Exim Rajathi India Pvt. Ltd., in its books, towards shipment made on 26.12.2005 by holding that it pertains to financial year 2005-06 and not 2006-07.

(iii) The Ld.CIT(A) has erred in sustaining the disallowance of Rs.34,00,000/- with respect to expenses relating to chilly exports.

(iv) The Ld.CIT(A) has erred in confirming the order of Ld.AO who had treated the sale of agricultural land as non- agriculture land and thereby computed short term capital gains of Rs.10,12,00,000/- in the hands of the assessee.

A) of 2011 for the Assessment year 2007-08

The Revenue has raised several grounds in its appeal however the cruxes of the issues are that:-

(i) The Ld.CIT(A) has erred in deleting the addition made by the Ld.AO amounting to Rs.61,15,180/- towards disallowance of the claim of loss on foreign exchange in the forward contract transaction.

(ii) The Ld.CIT(A) has erred in deleting the addition made by the Ld.AO amounting to Rs.3,86,56,582/- out of the total addition of Rs.6,81,94,369/- towards disallowance of general expenses incurred in export of iron ore.

(iii) The Ld.CIT(A) has erred in restricting the disallowance of Rs.2,40,00,000/- to Rs.34,00,000/- towards general expenses in respect of chilly exports.

(iv) The Ld.CIT(A) has erred in deleting the addition of Rs.1,37,90,526/- out of total addition of Rs.1,38,00,156/- made by the Ld.AO towards disallowance of interest.

B) of 2012 for the Assessment year 2008-09:-

The Revenue has raised several grounds in its appeal however the cruxes of the issue are that:-

(i) The Ld.CIT(A) has erred in deleting the addition made by the Ld.AO of Rs.5,00,000/- towards inadequate drawings.

(ii) The Ld.CIT(A) has erred in deleting the addition of Rs.1,44,00,000/- U/s.40(a)(ia) of the Act, towards freight charges paid without deducting tax at source.

onion, filed her return of income for the relevant assessment year

2007-08 & 2008-09 on 31.10.2007 & 27.09.2008 admitting total income of Rs.1,15,75,020/- & Rs.60,15,119/- respectively.

Initially the return was processed U/s.143(1) of the Act and subsequently the case was selected for scrutiny under CASS.

The assessment order was passed for the assessment year

2007-08 U/s 143(3) of the Act on 24.12.2009 and for the assessment year 2008-09 U/s.143(3) r.w.s 148 of the Act on 27.12.2010, wherein the Ld.AO made several additions.

Assessee’s Appeal:

The Ld.CIT(A) had treated the amount of Rs.3,60,00,000/- as the deemed income of the assessee and thereby enhanced her income under the head ‘income from other source’ which was actually received by the power of attorney holder of the assessee Shri Balaji towards compensation received from M/s. Carmen Builders Pvt. Ltd., though not paid to the assessee, on the premises that “once power given to the power holder on behalf of the person concerned then whatever actions done by the power holder actually will attract against the person who had given power of attorney.”

5.1 At the outset, we find that in the case of Shri Balaji for the assessment year 2007-08 in the assessee’s cross objection No.119 of 2011 at para 8.1 to 8.3, we have confirmed the addition in the hands of Shri Balaji. The relevant portion of the order is reproduced herein below for reference:-

“8. Assessee’s Cross Objections: 8.1 CO No.119 of 2011 of Shri J. Balaji, AY 2007-08: In the CO, the assessee has raised the ground that the Ld.CIT(A) has erred in sustaining the addition made by the Ld.AO of Rs.3,60,96,000/- being the difference in the sale consideration received and the amount paid to the vendors of land Smt. Neena of Rs.96,000/- and Smt. Yasodha of Rs.3,60,00,000/- by acting as Power Agent.

8.2 The brief facts of the case is that the assessee in the capacity of Power of Attorney had sold the landed property belonging to Smt. Yasodha of 5 acres for sale consideration of Rs.11,50,00,000/- and the landed property belonging to Smt. Neena of 3.48 acres for sale consideration of Rs.8,00,40,000/- on 5th October 2006. The assessee received the sale consideration on various dates during the month of October 2006, which was passed on to the owners of the land. Further Shri J. Balaji acting as power agent entered into a tripartite agreement with M/s. BDCL and M/s. Carmen Builders to forego the farming rights held by M/s. BDCL and the landlord, towards which M/s. Carmen Builders paid an amount of Rs.10,17,60,000/- to M/s. BDCL. Out of the above additional consideration M/s. BDCL passed on 60% of the amount to Shri J. Balaji, the assessee. The assessee explained before the Ld.AO that he had passed on the aforesaid consideration to the landowners. The Ld.AO directed the assessee to produce the evidence for having paid the compensation and the sale consideration received by him to the landlords. The assessee could not substantiate with evidence the amount of Rs.96,000/- and Rs.3,60,00,000/- paid to Smt. Neena an Smt. Yasodha respectively out of the aggregate amount received by him towards the sale of the landed property. Since the vendors of the property Smt. Neena and Smt. Yasodha had also not disclosed the aforesaid amount as their respective income in the return of income and since there was no proof that they have received the aforesaid amount from the assessee, the Ld.AO opined that the amount was retained by the assessee and therefore added to his income. The Ld.CIT(A) agreeing with the view of the Ld.AO confirmed his order.

8.3 At the outset, we find that even before us at this stage the assessee is not able to establish with cogent evidence that he has paid the aforesaid amount received on behalf of the vendors of the property to the vendors. The vendors of the property has also not acknowledged the receipt of the amount of Rs.3,60,96,000/- from the assessee. In this situation, we do not find it necessary to disturb the finding of the Ld.Revenue Authorities on this issue. Accordingly we hereby confirm the order of the Ld.CIT(A) on this issue.”

Since we have already confirmed the addition of Rs.3.6 crores in the hands of Shri Balaji for the assessment year 2007-08, assessing the same amount as the deemed income of the assessee, would amount to double addition. Moreover there is nothing on record that is produced before us to establish that the assessee Smt. Yasodha has received the amount of Rs.3,60,00,000/- from Shri Balaji. Therefore we hereby set aside the order of the Ld.CIT(A) who has enhanced the income of Rs.3,60,00,000/- in the hands of the assessee under the head ‘income from other source’ and further direct the Ld.AO to delete the same. It is Ordered accordingly.

6. Ground No.2(ii) : Disallowance of Rs.2,95,37,787/-:-

M/s. Exim Rajathi India Pvt. Ltd. had raised a debit note in the name of the assessee for Rs.2,95,37,787/- dated 24.04.2006 towards shipment expenses incurred on behalf of the assessee on 26.12.2005. Since the expense of Rs.2,95,37,787/- was related to financial year 2005-06 relevant to assessment year

2006-07, the Ld.AO disallowed it to be treated as deduction for the relevant assessment year 2007-08. Agreeing with the view of the Ld.AO, the Ld.CIT(A) confirmed his order. Before us the Ld.AR submitted that the aforesaid amount was paid to M/s.

Exim Rajathi Pvt. Ltd., with respect to the genuine expenses reimbursed by the assessee and therefore it was pleaded that the expenses may be allowed as deduction for the assessment year 2006-07. We do not find any merit in the submission of the Ld.AR. The year under consideration before us is assessment year 2007-08 and aforesaid expenditure cannot be allowed as deduction for the relevant assessment year 2007-08 because it is an expense incurred pertaining to the assessment year 2006-

we do not find it necessary to interfere with the orders of the Ld.Revenue Authorities in this issue.

7. Ground No.2 (iii) : Disallowance of Rs.34,00,000/- with respect to expenses relating chilly exports:-

It was observed by the Ld.AO that M/s. Exim Rajathi India

Pvt. Ltd., had raised a debit note on 31.03.2007 in the name of the assessee for Rs.2,40,00,000/- towards general expenses incurred with respect to chilly exports and accordingly journal entry was passed in the books of accounts of the assessee.

However the assessee had not furnished any evidence with respect to such expenses incurred by M/s. Exim Rajathi India

Pvt. Ltd. on behalf of the assessee. Since there was no basis for incurring such expenditure by the assessee, the Ld.AO opined that it is a modus operandi to divert the profit of the assessee to M/s. Exim Rajathi India Pvt. Ltd. Hence the Ld.AO treating the transaction to be sham and thereby disallowed the expenditure of Rs.2,40,00,000/- booked in the profit & loss account of the assessee. However on appeal the Ld.CIT(A) after examining the issue in detail sustained the addition for Rs.34,00,000/- by observing as under:- “6.2 On perusal of general expenses claimed by the appellant it is understandable that there is some increase when compared to last year expense. But the increase in the general expenses as a percentage on the turnover from 14% (Financial year 05-06) to 21.53% (Financial year 6-07) is quite high even after considering the fact that there is an increase in freight charges per metric tonne from US $ 16(FY 05-06) to US $ 17(FY 06-07) and the rate of exchange per US $ in INR has increased from Rs.45 (FY 05- 06) to Rs.47 (FY 06-07). I therefore take the view that a percentage of 19 on turnover would be fair general expenses which comes to Rs.2.54 Crores whereas the Appellant has claimed Rs.2.88 crores as general expenses. I restrict the disallowance of Rs.2,40,00,000 to Rs.34,00,000. The Appellant gets a relief of Rs.2,06,00,000/-.”

7.1 Since the Ld.CIT(A) has examined the issue in detail and had made a categorical finding that the assessee had reimbursed the genuine expenses incurred by M/s. Exim Rajathi

Pvt. Ltd., on behalf of the assessee and had only sustained the addition to the extent of Rs.34,00,000/- after analyzing the issue with plausible reasons, we do not find it necessary to interfere with his order. Accordingly this ground raised by the assessee is devoid of merits.

During the previous year relevant to the assessment year the assessee had sold 5 acres of agricultural land to M/s.

Carmen Builders and Constructions Pvt. Ltd., New Delhi for sale consideration of Rs.11,50,00,000/- vide sale deed No.8845/2006 dated 05.10.2006. The agricultural land was purchased by the assessee on 19.05.2005 at the cost of Rs.1,38,00,000/-. The details of the land are as follows:-

Survey No.178/2 of Thazhambur Village, Chengalpattu Taluk, Kancheepuram District.

8.1 The Ld.AO treated the agricultural land sold by the assessee as non-agriculture citing various reasons which is recorded in his order and thereby assessed the gain arising out of it as short term capital gain amounting to Rs.10,12,00,000/- (Rs.11,50,00,000 – 1,38,00,000) in the hands of the assessee. On appeal the Ld.CIT(A) confirmed the order of the Ld.AO by observing as under:- “7.22 From the above discussion, the following inferences are drawn.

(a) The appellant has not carried out any agricultural operation in Survey No. 178/2.

(b) Adjacent survey numbers 176/2, 177/1, 177/2, 175, 180/1 & 180/2 and 176/1 have already been converted into housing sites by the Competent Authority.

(c) Contradictory claim made by the appellant that she has raised Casuarina plants whereas the BOCL Company claimed that they have planted Jetropa through Joint Venture forming entered between BOCL and Shri J.Srinivasan who was the original owner of Survey No. 178/2.

(d)In the sale deed, there was no mention of irrigation facility.

(e) The AO has reported that about 25 years there was no agricultural operation in the Survey No. 178/2.

(f) As per the Joint venture forming dated 7.7.2004 also the land is supposed to be vacant only as the appellant and the BOCL give a contradictory statement.

(g) Before the sale of the land on 5.10.2006 about more than 2 years the land was not put in agricultural operation atleast.

Above all, the following case laws are relied upon. i) Sarifabibi Mohmed Ibrahim And Others. Vs Commissioner Of Income-Tax 204 ITR 631 ii) Abdul Basheer (M) v. ITO (1995) 54 ITO 336 (Hyd. Trib.) iii) Fazalbhoy Investment Co. Ltd. vs. CIT(Bom) 176 ITR 523 iv) State of Uttar Pradesh Vs Nand Aggarwal AIR 1998, CS, 473, 476 v) Gujarat High Court decision in the case of CIT Vs Siddharth J Oesai (1983) 139 ITR 628 (Guj) Considering all the above facts and the case laws mentioned above, the fact remains that the land under Survey No. 178/2 belong to the appellant is not found to be an agricultural land at the time of sale i.e. on 5.10.2006 and therefore I am of the opinion that the sale transaction made by the appellant is not an exempted one but a capital asset only and therefore exemption is denied and the addition made by the AO of Rs. 10,12,00,000/- is confirmed.”

8.2 At the outset we find the issue is covered in favour of the assessee by the decision of this Bench of the Tribunal in the Revenue’s Appeal in of 2011 for the assessment year 2007-08 vide order dated 13.11.2017 in the case of Smt.

Jayanthi Balaji, wherein the land of Smt. Jayanthi Balaji which is adjacent to the land sold by other assessees was treated as agriculture land falling outside the area specified U/s.2(14)(iii)(a&b) of the Act and therefore the gain arising out of it was held not to attract capital gain tax. The relevant portion of the order is extracted herein below for reference:

4.4 During the course of scrutiny proceedings it was revealed from the documents produced by the assessee that the assessee had purchased land measuring 5 acres at Thazhambur Village from Smt. Samtyuktha Paramahamsan vide sale deed dated 18.05.2005 for a sale consideration of Rs.66 lakhs and also vide consent letter dated 20.05.2005, the assessee had accepted to continue with the joint venture farming agreement executed earlier between the vendor Smt. Samtyuktha Paramahamsan and M/s. Bhavani Distilleries & Chemicals Limited (M/s. BDCL) dated 11.06.2004.

4.5 It was further observed that at the time of the sale of land, the assessee had entered into a tripartite agreement with M/s. BDCL and M/s. Carmen Builders (a unit of DLF) wherein M/s. BDCL agreed to forego the farming rights held by it against a consideration of Rs.5,25,00,000/- to be received from M/s. Carmen Builders out of which 60% was paid to the assessee amounting to Rs.3,15,00,000/-.

4.6 The Ld.AO queried the assessee, as to why the sale proceeds of the 5 acres land sold for Rs.12.25 crores should not be treated as sale of ‘capital asset’ U/s.2(14) of the IT Act. In response, the Ld.AR of the assessee had produced the following details to establish that the land sold by her is agricultural land and therefore does not fall within the ambit of ‘capital asset’ U/s. 2(14) of the Act. a) Copy of the web extract of pattas, chita/adangal, Kist receipts etc. b) Distance of the land from Municipal limits and population certificate issued by the concerned authorities. c) Evidence for lands situated outside the CMDA limits. d) Income-tax Return for the past years where the assessee had admitted income from agriculture. e) Copy of joint venture farming agreement entered into with M/s. BDCL for cultivation f) Copy of sworn statement made by two of Village Administrative Officers before the income-tax Officer, Company Ward – I(2). g) Copy of appeal order No.ITA/667/2009-10/A-III dated 31.03.2010. h) Latest Photograph showing evidence of cultivation in and around the subject land. i) Opinion from Shri S Rajaratinam, retired Honorable ITAT member. j) Case law of MS Srinivasa Naicker vs. Income Tax Officer, 2007 292 ITR 482 Mds.

The Ld.AR further made the following submission before the Ld.AO to justify the stand of the assessee:-

2. The land was not situated within the notified area declared by the Central Government. 3. Joint Venture Agreement between the parties establishes the fact that the land was under cultivation. 4. The assessee is an agriculturists carrying on agricultural operation for number of years and continue to do so till date. 5. The IT return filed by the assessee during the past few years reveals that the assessee was earning agricultural income. 6. The documentary evidence with respect to Revenue records also establishes the fact that the land sold by the assessee was under cultivation. 7. Reliance was also placed in the case of M/s. BDCL wherein the Ld.CIT(A) in had held that the land in question was agriculture land and agricultural operations were carried out in the land.

After hearing the Ld.AR and further deliberation, the Ld.AO rejected the submission made by him due to the following reasons: i. On inspection it was found that the land comes under the Tiruporur Union Panchayat which is only 3½kms away from Sholinganallur Town Panchayat. ii. Though the photographs revealed that agricultural operations were being carried out in and around the land, the purchaser of the land had built very huge multistoried flats in the land. iii. Therefore it was evident that the intention of the buyer was to deploy the land for non-agriculture purposes. iv. The land was situated within 2 kms from old Mahabalipuram Road, a software hub and the area had lost its agricultural characteristics long back. v. Though the sale deed mentioned that the land sold by the assessee was agricultural land, it does not carry any significance because generally the Sub-Registrar refers to the characteristics of land from the previous documents. vi. The sale consideration of the land is abnormally high and no prudent agriculturists will pay such huge price to purchase land for agriculture purpose. vii. The developments in the locality subsequent to the sale of the land show that large scale constructions have taken place. viii. Subsequent to the purchase of the land, agricultural operations have been seized to take place. ix. Even during the period of long gap, when the conversion of the land to non-agricultural land took place, agricultural operations seized to exist. x. Since the business of the assessee was not purchase and sale of land, the gain on sale of land has to be necessarily assessed under the head ‘capital gains’.

4.7 Thereafter the Ld.AO rejected the decision of the Hon’ble Madras High Court in the case of Srinivasa Naickar vs. ITO reported in 482 ITR, cited by the AR as not applicable in the case of the assessee and relied on the decision of the Hon’ble Apex Court in the case Sarifabibi Md. Ibrahim reported in 204 ITR 631 and assessed the gain arising out of the sale of the land under the head ‘short term capital gain’ amounting to Rs.14,74,00,000/- in the hands of the assessee.

4.8 While doing so, the Ld.AO accepted the contention of the assessee that the additional sale consideration received from M/s. BDCL amounting to 40% of the compensation received by it, which works out to Rs.3,15,00,000/- is taxable in her hands.

4.9 On appeal, the Ld.CIT(A) after hearing both the parties, examining the issue in detail and verifying the patta passbook, kist receipt, tripartite agreements, IT return of the earlier years, distance/population certificate, certificate from VAO that Thazhampur is not within Sholinganallur Town Panchayat, JVFA with M/s. BDCL, copy of DLF agreement showing that the approval for construction was sanctioned in November 2008, etc., held that the land sold by the assessee is agriculture land as per the provisions of Section 2(14)(iii) of the Act by observing as under:-

(i) The chitta, patta and adangal reveals the fact that agricultural operations were carried out in the land during the earlier years & up to the date of sale. (ii) The assessee had also disclosed her agricultural income and expenditure in her return of income, which cannot be decried without valid reason. (iii) On verifying it was revealed that the land is situated at a distance beyond 8 Kms from the city limit.

(iv) As per the certificate issued by the VAO, it was evident that the distance of Thazhampur village from the nearest municipality i.e., Chennai Corporation is 18.3 Kms. (v) Because of the afore stated reasons, it is evident that the land in question is agricultural land as provided U/s.2(14)(iii) of the Act. (vi) The fact in the case Sarifabibi Md. Ibrahim supra decided by the Hon’ble Supreme court is not identical to the case of the assessee due to the following reasons and therefore not applicable:-

The facts in the case of Sarifabibi Md. Ibrahim are as follows:- a) The land sold was non-agriculture land at the time of sale. b) The land sold was @Rs.23 per sq.yard. c) The land was within 1 km from Surai Railway Station. d) Application for conversion of land to non-agricultural purposes was made before the sale. e) The construction activity started immediately after the sale. However, in the case of the assessee the facts are as follows: a) The land sold by the appellant was measured in acres. b) At the time of sale, the land was agricultural land. c) Agricultural activities were carried out in the land for several years consistently up to the date of sale. d) All the documentary evidences and Revenue records establishes the above fact. e) The appellant had not made any request for re-classification of the land before the sale. f) All the commercial activities with respect to the land was carried out by the purchaser of the land subsequent to the sale including request for reclassification of the land. g) The land was situated beyond 18 kms from the Chennai Corporation Limit. h) None of the provisions of Section 2(14)(iii) of the Act brings the land of the assessee within the ambit of “capital asset”. For the above stated reasons, the ratio laid out in the case Sarifabibi Md. Ibrahim supra is not applicable in the case of the assessee. (vii) Further reliance was placed in the decision of the Hon’ble Supreme Court in the case CIT vs. All India Tea & Trading Co. Ltd. reported in 219 ITR 544, wherein it was held that the determining factor with regard to sale of land is the characteristic of the land at the time of sale. (viii) The Ld.AO had relied on the fact that the land is situated at a distance of 3½ kms from Sholinganallur which is a Town Panchayat, however Sholinganallur is neither a municipality nor a cantonment or a notified area. (ix) Reliance was placed in the decision of the Hon’ble Jurisdictional Madras High Court in the case CIT vs. PJ Thomas reported in 211

ITR 897, wherein it was held that Panchayats are excluded from the list of locality enumerated in the Section. (x) The certificate issued by the VAO certifies that the distance of Thazhampur village from the nearby Municipality i.e., Chennai Corporation is 18.3 Kms. Therefore the property does not fall in the classification of ‘capital asset’ defined in Section 2(14)(iii)(a) or (b) of the Act. (xi) Reliance was also placed in the decision of the Hon’ble Jurisdictional Madras High Court in the case M.S Srinivasa Naickar vs. ITO reported in 292 ITR 482, wherein after considering various other decisions including the decision of the Hon’ble Apex court in the case Sarifabibi Md. Ibrahim supra, it was held that the characteristic of the land as on the date of sale of land should only be taken into consideration while determining whether the land sold falls within the ambit of “capital asset” as per Section 2(14)(iii) of the Act.

4.10 Before us the Ld.DR vehemently argued in support of the order of the Ld.AO by reiterating the discussions made therein and further relied on the decision of the case Sarifabibi Md. Ibrahim & others reported in 204 ITR 631 and pleaded for reinstating the order of the Ld.AO. The Ld.AR on the other hand submitted a paper-book consisting of the factual details of the case and all the relevant agreements and another paper-book consisting of twenty four decisions of various Judicial Authorities including that of the Hon’ble Apex Court in support of his contention that the land sold by the assessee is agricultural land. He further argued in support of the order of the Ld.CIT(A) and requested for sustaining his order.

5.1 We have heard the rival submissions and carefully perused the materials available on record. From the orders of both the Revenue Authorities and the documents produced before us, the following undisputable facts are revealed:-

(i) From page No.28 of the PB, it is evident that the land in Survey No.182, Patta No.984 of Thazhampur Village is classified as ‘agriculture land’. (ii) From page No.30 of PB, it is evident that the assessee has paid land revenue tax with respect to the agriculture land in patta No.984. (iii) For the assessment year 2006-07, the assessee has filed income tax return wherein she has disclosed agricultural income of Rs.1,55,500/- as found in page No.39 to 41 of the PB. The Ld.CIT(A) has also accepted the same. (iv) On page No. 33 of the PB, the certificate of the VAO of Thazhampur village is enclosed, wherein it is stated that Thazhampur village is situated beyond 19 Kms from Tambaram Municipal limit and the population of Thazhampur village is 2950.

(v) Thus the finding of the Ld.CIT(A) that the land in question is agricultural land which is situated outside the limit prescribed under Section 2(14)(iii)(a) or (b) of the Act, is unchallengeable. (vi) Page 10 of the PB reveals that the land sold by the assessee is agriculture land because the sale deed executed for the sale of land dated 14.06.2006 mentions it so and the same is accepted by the Sub-Registrar, Thiruporur. (vii) The commercial tripartite agreement executed between the assessee and the other parties also reveals that the land sold by the assessee is agriculture land. (viii) The Ld.CIT(A) has verified the chitta, patta and adangal which states that the land is agricultural land and there is no reason to doubt the same. (ix) It is also apparent that the land sold is measured by acres and not in sq.ft., which establishes the fact that the land is not a commercial land.

5.2 Moreover, the finding of the Ld.AO for treating the land sold by the assessee as non-agricultural land does not have any merit because of the following reason:-

(i) The main grievance of the Ld.AO was that the purchaser of the land had built a huge multistoried flat. However the decision of the Hon’ble Jurisdictional High Court in the case M.S Srinivasa Naicker vs. ITO supra, it has been held that ‘when the assessee had used the land for agricultural operations till the date of sale, it has to be treated as agricultural land and not a capital asset irrespective of the fact that the purchaser intend to put the land to a totally different use.’ (ii) The finding of the Ld.AO that abnormal sale consideration was received by the assessee therefore the nature of land sold by the assessee cannot be classified as agricultural land also does not have any merit. This Bench of the Tribunal in for the assessment year 2012-13 in the case M/s. A.V. Thomas Leather & Allied Products Pvt. Ltd. vs. DCIT vide order dated 05.02.2016 relying on the revenue records held that the land has to be treated as agricultural land though it was sold for exorbitant price. (iii) The finding of the Ld.AO that the land is situated in Tiruporur Union Panchayat which is only 3½ Kms away from Sholinganallur Town Panchayat also do not have any merit because the Hon’ble Jurisdictional Madras High Court in the case CIT vs. P.J. Thomas reported in 211 ITR 897 as categorically held that ‘the exclusion in S.2(14)(iii) of the Act, does not apply to agricultural land situated within Panchayat limits and where such land is agriculture land, capital gain tax is not attracted’.

(iv) The finding of the Ld.AO that the land is situated in developed / developing area and therefore has lost the characteristic of agricultural land, also does not have any merit because in the case ITO vs. Mrs. Chitra Rajendran reported in 81 taxmann.com 155, this Bench of the Tribunal has held otherwise.

5.3 Considering the facts and circumstance of the case, we find merit in the order of the Ld.CIT(A) who has elaborately discussed the issue at length and based on the documentary evidence and various decisions of the higher Judiciary has held that the land sold by the assessee is agricultural land and therefore capital gain tax will not be attracted. Further the reason stated by the Ld.AO for arriving at a contrary conclusion does not have any merit as discussed herein above. Hence, we do not find it necessary to interfere with the order of the Ld.CIT(A) who has treated the land sold by the assessee as agricultural land falling outside the area specified U/s.2(14)(iii) (a)&(b) of the Act and the gain arising out of the same will not attract ‘capital gain’ tax. However, we also make it clear that the additional compensation received by the assessee (other than what is retained by the Power of Attorney holder) for cancelling the tripartite agreement with M/s. BDCL and M/s. Carmen Builders to forego the farming right of M/s. BDCL has to be necessarily brought to tax under the head ‘capital gains’ because it arises out of extinguishment of a commercial right which is an intangible asset and not attributable towards sale of agricultural land. Needless to mention that the compensation retained by the Power of Attorney holder will be assessed to tax in his hands under the head ‘income from other source’ because it does not relate to any particular head of income. It is ordered accordingly.

In Paper Book (Page Nos.) Classific VAO ation of Sale Certificate Compen land in Reve IT return for Revenue Appeal Considera beyond 18 Adan Area of sation in Revenue nue AY 2006-07 No, Assessee & Land details tion Kms from gal land Crores Records Tax Patta disclosing Sale Deed In Crores. Corporatio Wet (Rs.) as Recei Agricultural (Rs.) n limit, land Agricult pt Income (AI) population ure 2950 Land 1198 of 2011 Thaiyur Village 9 Acres 27.00 Nil 26-35 - - 37 - 45-48 58 & 59 AY 2007-08 Various Survey 40 Rs.90,000/- J. Balaji Nos.

- S.No.178, 1 Acre 3.00 Nil 36 - 53-54 - Thazhampur Village, Chengalpattu Taluk, Kancheepuram District 1602 of 2012 Thaiyur Village - - - - 2-4 8-11 AY 2007-08 Various Survey J. Srinivasan Nos. Nil 82 to 84 Rs.60,000/-

S. No.174 2 Acres 12.00 25 28 77 & 78 26 - 31, Thazhambur Village, Chengalpattu Taluk, Kancheepuram District 1720 of 2012 S.No.179/1 & 5 11.50 7.2 25 26 28 & 29 - - - AY 2007-08 179/2 Acres & N. Murughasan 31, Thazhambur & 5 11.50 (Late) Village, Acres Sale Deed 8846 Chengalpattu & 8847 of 2016 Taluk, Dt. 05.10.2006 Kancheepuram District Appeal No, Land details Area of Sale Compen In Paper Book Assessee & Sale land Considera sation Classific Rev VAO Patta Adan IT return for Deed tion ation of enue Certificate gal AY 2006-07 In Rs. land in Tax disclosing Revenue Rec Agricultural Records eipt Income (AI) 1377 of 2012 S.No.181/1, 4.65 31 & 32 35 37 & 38 33 - 53 & 54 AY 2007-08 182/2A, 183/2A Acres, Rs.1,00,000/- J. Shanthi (Late) 31, Thazhambur 3 Sale Deed 5240 Village, Acres of 2006 Dt. Chengalpattu & 3.46 27.2 14.06.2006 Taluk, Acres (approx.) Kancheepuram District 7.00 S.No.1351/3 & (approx) 1351/5 0.80 Thaiyur ‘B’ Acres, 45 & 46 49 - 47 - Village, 1.20 6.00 Chengalpattu Acres Taluk, Kancheepuram Dist. 1378 of 2012 182/3, 165/21 1.82 4.46 1.15 42 44 & 45 11 & - - AY 2007-08 31, Thazhambur Acres (approx.) (approx.) 40 P. Venkatesan Village, 4 Sale Deed dt. Chengalpattu Acres 12.00 13.06.2006 Taluk, Kancheepuram District 15 S.No. 171/2A 1.69 2.80 Nil 16 19 21 & 22 17 31, Thazhambur Acres (approx.) 699 of 2013 Village, AY 2009-10 Chengalpattu Taluk,

Kancheepuram District 1379 of 2012 S.No.182/2 6 14.70 3.78 28 31 32 & 33 29 - 38 & 39 AY 2007-08 31, Thazhambur Acres Rs.60,000/- S. Anuradha Village, Sale Deed 5241 Chengalpattu of 2006 dt. Taluk, 14.06.2006 Kancheepuram District 1380 of 2012 S.No.138 1 Acre 3.00 Nil 7 - 10 & 11 8 - 15 & 16 AY 2007-08 Thazhambur Rs.50,000/- S. Srinivasan Village, Sale Deed Chengalpattu dt. 13.06.2006 Taluk, Kancheepuram District

6.1 Since the Revenue has not raised any doubt on the authenticity of the documents produced before us and the issue in the above mentioned appeals being identical to the appeal decided by us in of 2011 in the case of Smt. Jayanthi Balaji, herein above, the same decision holds good in all these appeals also. Therefore we do not find it necessary to interfere with the order of the Ld.CIT(A) who has held that the land sold by the assessees is agricultural land falling outside the area specified U/s.2(14)(iii) (a)&(b) of the Act and the gain arising out of the same will not attract ‘capital gain’ tax.”

8.3 Since the characteristics of the agricultural land sold by the assessee is similar/identical and adjacent to the land sold by Smt.

Jayanthi Balaji which was treated by this Bench of the Tribunal in the Revenue’s Appeal in of 2011 for the assessment year 2007-08 vide order dated 13.11.2017 as agriculture land and therefore held to be exempt from tax, in the case of the assessee we do not find any reason to defer. Hence we hereby hold that in the case of the assessee who has sold her agricultural land in survey No.178/2 of Thazhambur Village, Chengalpattu Taluk, Kancheepuram District, capital gain tax will not be attracted because the land falls outside the area specified U/s.2(14)(iii)(a)&(b) of the Act.

Revenue’s Appeal in of 2011 for the assessment year 2007-08:

During the course of scrutiny assessment, it was observed by the Ld.AO that the assessee had debited an amount of Rs.61,15,180/- with respect to the loss on foreign exchange in the forward contract transactions. The assessee had explained before the Ld.AO that since she was engaged in export trade involving substantial foreign exchange, such contracts are essential and it is an integral part of the business which cannot be treated as speculation in nature. However the Ld.AO was of the view that the loss claimed in the forward contract is in the nature of speculation loss and not business loss as claimed by the assessee. However on appeal, the Ld.CIT(A) relying on the decisions of Hon’ble High Court held the issue in favour of the assessee by observing as under:-

“4.4 I have considered the submissions made by the AR gone through the records and various details available on record and the detailed submissions made by the AR. I have also carefully considered the two decisions rendered High court in 261 ITR 256 relied on by the Appellant in support of her case. I find that the appellant's case is squarely covered by the principles laid down in the two decisions. I also agree with that the AR's submission that the present case the appellant is not carrying on a separate and independent business of dealing in foreign exchange. but the forward contracts in foreign exchange were entered into by the appellant factually only for the purpose of protecting her export business and consequently the forward transaction is neither independent nor speculative in nature constitutes an integral and necessary part of the activity of export business and hence the Appellant is entitled to succeed on this point. It is also pertinent to note that the permission of RBI is a prerequisite under Foreign Exchange Management Act to be a dealer in foreign exchange and it is not the case of the AO that the present Appellant at no point of time applied for and obtained any such licence. Therefore the assumption of the AO that the appellant is carrying on the business of dealing in foreign exchange is without any basis or factual material to support such view and is not sustainable either in law or on facts. Meanwhile the AR pleaded that for earlier years profit was offered for taxation in the same transaction. Respectfully following the decisions in the cases of 261 ITR 256 and 129 ITR 169, I am of the opinion that the addition of Rs. 61,15,180/- is not justifiable and the AD is directed to delete the above addition.”

9.1 At the outset we do not find any infirmity in the order of the Ld.CIT(A) because it is an undisputed fact that the assessee is in the business of export of chilly and the turnover is substantial considering the forward contract entered into by the assessee.

The Ld.CIT(A) after explaining the facts of the case and analyzing the decision of the Hon’ble High Court in the case

CIT vs. Badridas Gauridu Pvt. Ltd. reported in 261 ITR 256 has held that in the case of the assessee who has substantial export business the loss incurred by the assessee on forward contract of foreign exchange is not a speculation loss but business loss. In this situation we do not find it necessary to interfere in his order.

The assessee had debited Rs.3,86,56,582/- being general expenses reimbursable to M/s. Exim Rajathi India Pvt. Ltd., since M/s. Exim Rajathi India Pvt. Ltd., had incurred the expenditure on account of the assessee’s export business. This transaction was recorded in the books of accounts of the assessee for the relevant assessment year by way of journal entry. The Ld.AO opined that the transaction is a modus-operandi to divert the profit of the assessee company to M/s. Rajathi India Pvt. Ltd., because no details, explanations or evidence were produced to establish that the expenses are genuine. Therefore the Ld.AO disallowed the expenditure claimed by the assessee as allowable deduction. On appeal, the Ld.CIT(A) deleted the addition. However on perusing the order of the Ld.CIT(A) we do not find any convincing evidence recorded by the Ld.CIT(A) in order to justify his stand. Therefore in the interest of justice we hereby remit back the matter to the file of Ld.CIT(A) so as to arrive at a concrete finding on the issue after obtaining the remand report from the Ld.AO and thereafter pass appropriate order as per merit and law providing proper opportunity to the assessee of being heard.

Since we have held in the assessee’s appeal in para No.7.1 herein above that “the Ld.CIT(A) has examined the issue in detail and had made a categorical finding that the assessee had reimbursed the expenses incurred by M/s. Exim Rajathi Pvt. Ltd., on behalf of the assessee and had only sustained the addition only to the extent of Rs.34,00,000/- after analyzing the issue with plausible reasons, we do not find it necessary to interfere with his order. Accordingly this ground raised by the assessee is devoid of merits.”, this ground raised by the Revenue does not survive.

Accordingly this issue is decided against the Revenue.

Revenue’s Appeal in of 2012 for the assessment year 2008-09

Order pronounced on the 30th January, 2018 at Chennai.