SUNDEEP SHRIPAL GANGWAL,BEED vs. INCOME TAX OFFICER,

PER D. KARUNAKARA RAO, AM

This appeal filed by assessee is directed against the order of Commissioner of Income Tax (Appeals)-2, Aurangabad dated 07.11.2016 for assessment year 2013-14. 2. The assessee has raised following grounds in appeal:

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“1. The learned CIT(A)-2 has erred both on facts and in law in confirming addition u/s.40A(3) Rs.10,00,000/- and same addition confirmed by CIT(A) may please be deleted.

purchased by assessee. The core issue is whether the payment made in cash for buying the land constitutes business expenditure or not for attracting the provisions of section 40A(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The Assessing Officer held the said transaction constitutes an adventure in the nature of trade and invoked the provisions of section 40A(3) of the Act. However, the assessee argued that the land purchased is shown as an investment. Therefore the said section 40A(3) of the Act is inapplicable.

purchased a piece of land admeasuring 1647 Sq. Mtrs for the consideration of Rs.1,25,09,000/-. The assessee’s share in the land, being share of 9.30%, is valued at Rs.11,65,000/-. The assessee paid Rs. 10 Lakhs in cash for acquiring

the said share of land. The assessee argued that the said share in the land is reflected as transaction involving investment in the book of account. Therefore,

provision of section 40A(3) of the Act does not apply to the capital asset. Before

CIT(A), the assessee filed a declaration from the rest of the co-owners of the land

stating that the said land was purchased for developing a residential bunglows

for all of them and also a Jain temple for common use. As per the assessee, this kind of purchase transaction cannot constitute a business transaction for invoking provisions of section 40A(3) of the Act. The assessee filed declaration

before CIT(A) for the first time on 22.08.2016. However, CIT(A) did not call for 3 A.Y.2013-14

any remand report on this document before concluding that the transactions in question constitutes adventure in the nature of trade and confirmed invoking

provisions of section 40A(3) of the Act. Actually, there is no reference to this declaration in the orders of the Authorities below.

Therefore, the provision of section 40A(3) of the Act cannot be invoked in this regard. He further brought my attention to the balance sheet, copy of which is placed at Page 1 of the paper book. He further submitted that declaration given

by rest of the share holders of the land was not considered by CIT(A). The contents of declaration were not examined by Assessing Officer/CIT(A).

Normally, in such cases, matters are remanded back to the file of Assessing

Officer for want of remand report but the same was not done in this case.

the land. Mentioning the said piece of land as commercial asset, the Ld. DR

submitted that it is part of the adventure in the nature of trade and therefore,

the property constitutes business asset/stock in trade. Hence, provision of section 40A(3) was rightly invoked.

submitted that assessee was not engaged in real estate business and therefore,

stock in trade does not arise. The assessee did not have any intention to develop

the property for business purposes. The assessee purchased the land jointly with six other persons for investment purpose only. Therefore, the purchase

transaction is neither a business transaction nor an adventure in the nature of 4 A.Y.2013-14

trade. Therefore, the Ld. AR for the assessee contended that the order of CIT(A)/Assessing Officer on this issue is required to be reversed.

nature of asset purchased by assessee against the cash of payment Rs.10 Lakhs.

It is undisputed fact that assessee’s investment appears in the balance sheet of the assessee and not as a stock in trade. Further, it is admitted that the land in question is located within municipal limits. Now the question that arises is, if it is on account of the business transaction or investment transaction. The declaration has been filed before the CIT(A) given by the rest of the co-owners of the property. The said declaration is extracted as under:

“ DECLARATION

This is to confirm that we, 7 co-owners, have jointly purchased a. Plot bearing No 03 in Gut No 57/P admeasuring 1647 Sq Mtr. at Village Satara Tq & dist Aurangabad on 08/08/2012 for total consideration of Rs.1,25,09,000/-. Our basic purpose and intention in jointly purchasing large size plot was construction of individual residential bunglows for all 7 of us and construction of one Jain Temple so that we 7 co -owners could live near to each other and have a Jain Society. Hence, we all have made Investment in said plot. We confirm that whatever stated above is true and correct to the best of our knowledge and belief.”

From the above, it is evident that assessee entered into the transaction

along with co owners for purchasing land for raising of residential bunglows. The same could not be done till date due to the infrastructural paucity to that area.

In my view, this document i.e. declaration requires deep scrutiny by Assessing

Officer as CIT(A) failed to call for any remand report from Assessing Officer. In principles, this lapse constitutes an irregularity. It is surprising that the CIT(A)

failed to address this important piece of information. Keeping all these issues, I

am of the view that all these issues raised in appeal by assessee are remanded to the file of Assessing Officer for fresh adjudication of the facts. If necessary, the Assessing Officer is directed to examine the co-owners of the property and visit

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the premises of the land whether there is any development and to decide the issue after enquiring the neighbours of the locality of the land in question. Assessing Officer shall also undertake other investigation/enquires as deemed fit as per the law/procedure. The Assessing Officer shall grant reasonable opportunity of being heard to the assessee in accordance with set principles of natural justice.

Order pronounced on 16th day of May, 2018. (डी.क"णाकरा राव/D. Karunakara Rao) लेखा सद"य / ACCOUNTANT MEMBER

पुणे / Pune; "दनांक / Dated : 16th May, 2018. SB आदेश क" ""त"ल"प अ"े"षत / Copy of the Order forwarded to : अपीलाथ" / The Appellant.

"नजी स"चव /Private Secretary आयकर अपील"य अ"धकरण, पुणे / ITAT, Pune.