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Income Tax Appellate Tribunal, DELHI BENCH “B” NEW DELHI
Before: SHRI B.P. JAIN & SHRI K.N. CHARY
PER B.P. JAIN, ACCOUNTANT MEMBER:
This appeal of the assessee arises from the order of ld. CIT(A)-VI, New Delhi, vide order dated 15.1.2010 for the A.Y. 2006-07. The assessee has raised the following grounds of appeal:-
“ 1. The Assessing Officer erred in not appreciating the purchase and sale deeds dated 23.3.2005 and 25.9.2005 in respect of agricultural land of Village Bhandwari, Tehsil Sohna, District Gurgaon, Haryana and further erred in denying the exemption of capital gain of Rs. 30,02,500 from the purchase and sale of the said land even when it was not a capital asset under sub-clause (iii) of clause (14) of section 2 of the Income Tax Act nor was the capital gain assessable for this year. 2.(i) The CIT (A) erred in not providing an opportunity of explanation to the appellant to show that the Khasra Girdavari prepared by the Patwari was in continuation of the Purchase and Sale Deeds and the report of the Tehsildar to the effect that the said land was aagricultural land and was used for raising the crops. (ii) The CIT (A) further erred in not adjudicating the Khasra Girdavari nor the purchase and sale deeds nor the report of the Tehsildar. (iii) The CIT (A) erred in not' allowing the exemption in respect of capital gain from the sale of the said land in this year. 3. (i) The CIT (A) erred in assuming that the sale proceeds of Rs. 53,02,500 of the said agricultural land received by means of account payee cheque from the Vendee Vismay Builders and Promoters Pvt. Ltd. before the execution of the Sale Deed was unexplained. (ii) The CIT (A) further erred in assuming that the sale consideration of the s aid agricultural land of Rs. 53,02,500 represented the alleged undisclosed income of the appellant for this year in spite of the documentary evidence. (iii) The CIT(A) erred in enhancing the income of the appellant of Rs. 53,02,500 on account of the sale proceeds of the agricultural land even when the same stood explained in the light of the Sale Deed of the said agricultural land and the receipt of the sale proceeds by means of account payee cheque from the Vendee and deposited in the Bank account of the appellant for this year. The orders of the lower authorities being arbitrary, erroneous and illegal, the same may kindly be modified.”
The brief facts of the case as observed by the Assessing Officer are that the assessee company is incorporated on 05.10,2004 to carry on the real estate business. As per the profit and loss of account of the assessee i.e. the assessee company has declared nil receipt during the year. It was observed by the Assessing Officer that:- “The assessee company has declared nil receipt during the year. It is noticed during the course of assessment proceedings the assessee company had declared following as advance paid for purchase of property against property:- Malini Malik Rs. 10,05,775.00 Surinder Malik Rs. 12,94,225.00 Total Rs. 23,00,000.00
And the assessee company has declared a sum of Rs. 53,02,000/- on account of Vismay Builders Promoters Pvt. Ltd. under the Head “Current Liabilities & Provisions.”
The Assessing Officer asked various queries, the reply of which was submitted vide order dated 20.11.2008 available at page 4 of his order. The assessee company was issued a show cause notice to further file many other details. It was observed by the Assessing Officer:-
“A perusal of Notes to Accounts’ to the balance sheet for the year ending 31.03.07 filed by the assessee, shows that the auditor has mentioned in para no. 10 as under - "The co. had sold on agricultural land fur Rs 5302500 - in the previous I year 05-06 which was purchased for Rs 2300000- The sale of agricultural land could not he recognized in the FY 05-06 through oversight. Hence, the same has been recognized in this year. The payment made.'received for the purchase/sale of agricultural land was shown as current assets/current ^ liabilities in the balance sheet as on 31.03.06. ” Further, the assessee co. submitted a revised computation of taxable income working out MAT amounting to Rs 252661/- in response to query of this office regarding payment of MAT U/s 115JB. It also enclosed copy of challan of payment of Rs 356347/- including interest of Rs 103686/-. VL. The claim of the Assessee Company purchased and sold agriculture land and that it is exempt under Section 2(1) of the I.T. Act, 1961 does not hold good for the reasons mentioned below:- The Assessee Company has opted not to disclose purchase of agriculture land in the Return of income filed by it for the year ending on 31.3.2005 though the land was registered in name of M/s. Care Dental Realtors Private Limited on 23.03.2005. It is important to note here that an amount of Rs. 1,38,000/- was paid as stamp duty for which no disclosure has been made in the Return of income. Necessary action for the relevant Page 4 of 16
Assessment Year has been initiated separately (As per copies of Sale Deed furnished, the said land has been sold by the Assessee Company on 28.09.2005 for a sum of Rs. 53,02,500/-. However, there is no mention of the same in the Balance Sheet of the Assessee Company for the year ending 31.03.2006. Further, a perusal of the Form No 1 filed by Assessee Company on 2 2.2007 for Assessment year 2006-07 it has opted not to disclose any information in respect of the same under any Head including other information under Part A, Schedule II of Capital Gains, Schedule I of Computation of Income from business or profession etc. A perusal of the sale deed dated 28.09.2005 shows that the name of the seller has been mentioned as Realtors Pvt. Ltd which shows that the intention of the Assessee Company is very clear. Even though the Assessee was repeatedly required to furnish books of account however it opted not to furnish the same till the last date of hearing. The Assessee Company has failed to include the receipt from sale of property in its income in the Profit and Loss account filed by the Assessee in the return of income and later on during the course of assessment proceedings. There was no mention of sale of property till 20.11.2008 though the proceeding in the case had been initiated a year back on 13.11.2007. The copies of purchase deed and sale deed were furnished only on specific query being raised during the course of assessment proceedings in respect of liabilities payable and advances given. In view of the above discussions the receipts from sale of agricultural land are treated as business income of the Assessee Company and Page 5 of 16 are taxed under the Head “Income from Business and Profession.”
Before the ld. CIT (A) the assessee has filed copies of Khasra Girdavaries alongwith the submissions. These document are dated 7.9.2009 and were apparently not filed during the assessment proceedings. It was observed by ld. CIT (A) that as per Rule 46A of I.T.Rules the appellant shall not be entitled to produce any evidence during the appeal proceedings other than the evidence-produced by him during the course of proceedings before the Assessing Officer, except for the circumstances specified in Rule 46A, The appellant has included the additional evidences in his submissions without any mention of additional evidence. The appellant has not given any explanation or reason as to how the conditions laid down in Rule 46A are satisfied. In such circumstances, the evidence filed by the assessee are not admitted.
As per ld. CIT (A)’s findings the issue arises as to whether the taxability of the said ‘net profit’ is to be ascertained or whether the present case falls within the scope of section 68 of the Act. The ld. CIT (A) observed that the purchase of the land is not reflected in the return of income. The ‘advances against property’ pertains to the preceding year Page 6 of 16 and the Assessing Officer has given a specific finding that no disclosure has been made for the purchase of land and the payment of stamp duty. As per the sale deed, the name of the seller is mentioned as ‘M/S Care Dental Realtors Pvt. Ltd.’ In such circumstances, the appellant cannot be given the benefit of Rs. 23,00,000/-, particularly so when the false current liability of Rs. 53,02,500/- is being shown in the Balance sheet.
It was further observed by ld. CIT(A) that it is an admitted fact that there is no outstanding liability of Rs. 53,02,500/- as on 31.3.2006. However, the assessee has shown this amount under the head ‘current liabilities and provisions’ in the balance sheet. As per the provisions of section 68 of the Act: “Where any sum is found credited in the books ol an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year.”
In view of the facts of the case and the specific provisions of section 68. Ld. CIT(A) did not find merit in explanation that the credit entry stands Page 7 of 16 explained in view of the sale deed and is supported by the amount given by the vendee. The sale transaction has been completed on 28.9.2005 and there is no justification in showing this amount of Rs. 53,02,500/- as current liability and provisions on 31.03.2006. Ld. AR has placed reliance before ld. CIT(A) on the case of CIT vs. P.V. John, (supra). However, the facts of the present case are not comparable with the case of CIT Vs. P.V. John. In that case provisions of section 2(22)(e) were involved and was observed that there was no material to show that the payments were made to the son of the assessee on behalf of or for his benefit. In the present case, the has shown an amount of Rs. 53,02,500/- as current liability and provision in the balance sheet whereas fact of the matter is that no such outstanding liability or provisions exists as on 31.3.2006. In such circumstances, amount of Rs. 53,02,500/- was treated as income of the Assessee u/s 68 of the Act for the year under consideration. The income was accordingly enhanced by ld. CIT (A).
I have heard the rival contentions and perused the facts of the case. The main contention of the assessee through its ld. AR Mr. K.C. Singhal, Advocate was that the land was situated more than 8 kms. away from the municipal limits as per the certificate of Patwari available on record. The Page 8 of 16 land is agricultural land as per the purchased deed available at P.B. 1 to 12 and sale deed available on P.B. 27 to 32 and the sale deed records the nature of land as agricultural land and there cannot be any dispute to that extent.
It is also a fact that no khasra, girdawari was given before the Assessing Officer but the same was made available before the ld. CIT (A) as an additional evidence which somehow could not admitted by the ld. CIT (A).
It is also a fact on record that the assessee has not declared the said agricultural land as an asset in the balance sheet but has declared as advance payment made against the properties amounting to Rs. 23 lacs and no stamp duty has been declared on the same. Accordingly the sale consideration has been declared as current liabilities received from the M/s. Vismay Buliders to whom properties has been sold.
In this regard we are of the view, even if the agricultural land is not declared as the asset, then the facts of the case has to be looked into and in facts on record in the present case are that the assessee’s properties is Page 9 of 16 an agricultural land measuring 60 kenal and 12 marla in the village Bandhwari, Sohna, Gurgaon, Haryana. Though on perusal of khasra and girdawari the assessee has been carrying on the agricultural income but the same was not declared in the return of income is also a matter of fact. In our view in case of agricultural land if the nature of land is agricultural and the assessee has not declared the agricultural income is in fact is exempt u/s 10(1) of the Income Tax Act under chapter III of the Act and land is not a capital u/s 2(14) of the Income Tax Act, 1961. Therefore in any case if the land would have been declared in the final accounts drawn by the assessee, the nature of the land and the nature of the income would have not been changed and therefore the said income cannot be said to be outside the scope of the agricultural income and we hold that the income/gain so arisen from the sale of agricultural land is exempt because of the fact that said land is away more than 8 kms from the municipal limits and moreover the same is not a capital asset. Our views here in above finds support from the explanation I to section 2(1A) which is reproduced as under:- “Explanation 1. For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to an item (a) or item (b) of sub-clause (iii) of clause (14) of this section.”
We are also reproducing the definition of capital asset u/s 2(14) of the Act herein below:- “capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include — (i) --- (ii) --- (iii) agricultural land in India, not being land situate— (a) in an area which is comprised within the jurisdiction of a municipality , (whether known as a municipality, municipal corporation notified area committee, town area committee Town Committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to Page 11 of 16 the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;]”
As per the Income Tax Act, as held earlier by us, the said gain earned by the assessee cannot be taxed on any count.
The reliance is placed on the decision of Hon’ble Supreme Court in the case of Singhai Rakesh Kumar vs. Union of India the relevant part is reproduced herein below:- “The assessee sold agricultural lands which were situated within the municipal area. The ITO made hint liable to capital gains tax. While the first appellate authority upheld the order of ITO, the Tribunal held that the profit on the sale of agricultural lands was not capital gains within the meaning of the Income-tax Act, 1961. While the reference at the instance of the revenue to High Court was pending, the assessee filed writ petition seeking to declare Explanation to clause (1A) and sub-clause (iii) of clause) 74) of section 2 as unconstitutional. The High Court dismissed the writ petition deciding the case against the assessee."
Whereas on page 5 of the paper book it was held in para 9 and 10 of the Hon’ble Supreme Court as under:- “9. It appears that by reason of the decision of the Bombay High Court in Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87.1 an Explanation was added by the Finance Act, 1989, with effect from 1-4- 1970, to clause (1A) of section 2 which read thus : "Explanation.—For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item ( b) of sub-clause (Hi) of clause (14) of this section:" 10. The position, as a result, is that income arising from the transfer of agricultural land that falls within the terms of items (a) and (b) of sub- clause (iii) of clause (14) of section 2 falls outside the ambit of revenue derived from land, and therefore, outside the ambit of ‘agricultural income’. Such income, therefore, is liable to capital gains tax chargeable under section 45 of the 1961 Act.”
The reliance is also placed on the decision of Hon’ble High Court, being the jurisdictional High Court of Delhi in the case of DLF United vs. CIT reported 161 ITR 714 and the relevant decision at P.B. is reproduced herein below:- “However, this question would, in our view, only arise if the plots had been carved out and the agricultural land transformed into building plots. But, as already held in the previously reported case and that where the agricultural land remained agricultural land and was not urbanised or converted into plots, the acquisition was of agricultural land and. therefore, exempt. If, for instance, the land had been transformed into building plots, it would cease to be agricultural land and then it would be subject to capital gains. Page 13 of 16
Without such transformation, the asset remained in its original state, i.e., agricultural land and, therefore, the exemption granted in the case of acquisition of agricultural land, which is inherent in the fact that a "capital" asset for the purposes of capital gains does not include agricultural land, would be available to the assessee.”
Also we rely upon the decision of Hon’ble High Court of Delhi in the case of Hindustan Industrial Resources vs. ACIT in IT Appeal no. 1130 of 2006 reported in 335 ITR 77 where it has been held that and the relevant part are reproduced herein below:-
“The fact that the assessee intended to use the land for industrial purposes did not alter the nature and character of the land in any way. The further fact that the assessee did not carry out any agricultural operations also did not result in conversion of the agricultural land into an industrial land. It was nobody’s case that the assessee carried out any operations for setting up any plant and machinery or of the like nature so as to lead to an inference that the nature and character of the land had been changed from agricultural to industrial. The mere fact that the assessee did not carry out any agricultural operation did not alter the nature and character of the land.”
Accordingly under the facts and circumstances of the case and the decisions relied upon herein above the present case is identical to the Page 14 of 16 facts of the cases relied upon herein above and therefore from all four corners, facts and law, we do not hesitate to hold that the gains so arisen to the assessee is not taxable and the enhancement made by the ld. CIT(A) and the additions made by the Assessing Officer are directed to be deleted and all grounds of the assessee are allowed.
In the result, the appeal of the assessee in is allowed.
Pronounced in the open court on .03.2017.