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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC-1’ NEW DELHI
Before: SMT DIVA SINGH
Date of Hearing 05.09.2016 Date of Pronouncement 04.11.2016 ORDER
The present appeal has been filed by the assessee assailing the correctness of the order dated 31.03.2014 of the CIT(A), Muzaffarnagar pertaining to 2010-11 AY on the following grounds:-
1. “The Ld CIT(A) has erred in upholding the order of the AO in assessing the total income of the appellant at Rs.1398030 as against Rs.96490 as declared by the appellant.
The Ld. CIT(A) has erred in upholding the change of head of income' by the AO treating the declared Income from Long term Capital Gains as Income from Business. 3. The Ld. CIT(A) has erred in upholding the order of AO in treating the income from sale of plots as Business Income as against declared as Income from Capital Gains and thereby making an addition of Rs.11,69,344 under the head Business income as against Rs.96,485 declared by the appellant as Income from Long Term Capital gains. 4. The Ld CIT(A) has erred in upholding the order of AO in disallowing Rs.1,21,832 from the development expenses @ 20% of Rs. 609158. 5. The order of the A.O. is against law and facts of the case. 6. The appellant craves the right to add, amend or withdraw any grounds of appeal
at the time of hearing.”
2. The relevant facts of the case are that the assessee in the year under consideration declared an income of Rs.96,490/- and agricultural income of Rs.88,300/-. The said return was selected for scrutiny through CASS in view of I.T.A .No.-4366/Del/2014 the fact that the assessee as per AIR information was found to have deposited cash of Rs.41,07,500/- on 31.03.2009 in Vysya Bank Ltd., 31/6 Siddharth Colony, Arya Samaj Road, Muzaffarnagar. Accordingly after issuance of notice u/s 143(2) and Questionnaire etc. the Assessing Officer made the following additions in the hands of the assessee in the year under consideration:-
“On going through the records as well as the reply submitted by the A.R. of the assessee it is gathered that the land was agricultural land. The land was converted from agricultural land to other than agricultural land by the Deputy Collector, Sadar, Muzaffarnagar vide his order dated 21.06.2008. The land bearing Khasra No.324 was converted u/s 143 of Jamindari Vinash Adhinium. The assessee is having I/3 share in this land Khasra No.
The assessee has 9275 sq. mt. as his share. After calculating the road area i.e. 1683.7 sq.mt. the saleable land came 7591.40 sq. mt. During this year the assessee sold 4737.47 sq.mt. land. After discussion with the A.R. of the assessee and the information submitted by the assessee it is found that the assessee has made expenses to develop the land such as roads filling of sand the assessee claimed Rs.11,92,607/- on the whole land. But in this year the assessee claimed the expenses on development of land at Rs.9,19,500/-. After examination it is found that the assessee has made expenses on this account at Rs.6,09,158/-. These expenses are not fully vouched therefore 20% of these expenses i.e. Rs.1,21,832/- are hereby disallowed. Hence, an addition of Rs.1,21,832/- is made to the returned income of the assessee. (Addition Rs.1,21,832/-) The agricultural land was got converted to other than agricultural land mentioned in para 3 above and area chart forming past of valuation report filed by the assessee bearing date 05.04.2010 is annexed to this order as annexure "A". The cost of land is taken by indexing the rate of 1981-82. After conversion of agricultural land to other than, agricultural land, the value of land is takenF.Y.2008-09 considering it the business activities with effect from F.Y. 2009-10. The assessee shown capital gain at Rs.96,485/- which shows that at this stage the assessee is treated to be doing business. Since the land had been converted into the ether than agricultural land, the concept of capital gain is not admissible. Considering the land as stock in trade the activities of sale of land in the form of plots is treated as business activities. Thus, the sale proceeds of the land are treated as business income. During the year under consideration the assessee sold land in plots of Rs. 27,39,133/- after indexing as on 2008-09 and expenses made on development of land totaling to Rs.14,73,304/- the assessee has earned Rs.11,69,344/-. Therefore, an addition of Rs.11,69,344/- is hereby made to the returned income of the assessee.” (Addition Rs.11,69,344/-)
I.T.A .No.-4366/Del/2014 3. The assessee carried the issue in appeal before the CIT(A). The claim of development expenses was rejected and the addition was sustained holding that the vouchers relied upon were hand-made. The contention that the very nature of the expenses would show that they were bound to be handmade vouchers which were duly supported by a report of the engineer/architect was not accepted.
Leading to the filing of the present appeal.
Qua the addition of Rs.11,69,344/-, it was submitted that it had wrongly been assessed under the head “business income”. The fact that it was the ancestral land inherited by the assessee for the last more than 29 years and the assessee is not involved in any business activity of real estate business and this was the first time that agricultural land was sold it was submitted have been ignored. These written submissions it was submitted are extracted at page 5 of the CIT(A)'s order. Considering these, the CIT(A) at page 7 though notes the argument of the assessee, however rejects the claim taking the following facts into consideration:-
“In the case of the appellant the land was purchased for business purposes. The appellant waited for the correct time to develop it and then sold the land after dividing it in plots. There is no conversion of capital asset in stock etc.” (emphasis provided)
4.1. The Ld.AR referring to the impugned order submitted that the CIT(A) has not addressed the issues on facts and has misdirected himself by referring to wrong facts. The land it was submitted was ancestral land of the assessee which devolved upon him by way of inheritance and the plotting was done so as to make the sale of the said land and the conversion from agricultural to non-agriculture was insisted upon by the local laws. These submissions have been recorded by I.T.A .No.-4366/Del/2014 the CIT(A) at page 3 of his order and despite this while deciding the issue the facts were ignored.
4.2. In the circumstances, it was his prayer that for appreciating the facts correctly the issues may be restored to the AO so that if need be the assessee can demonstrate the claim that it was ancestral land inherited by the assessee.
The Ld. Sr.DR did not have any objection to the said prayer.
I have heard the rival submissions and perused the material available on record. Admittedly, the assessee made the following submissions before the CIT(A):-
“That the assessee have an ancestral agricultural land and the land was acquired in the Year 1980. Assesses 's main sources of income are :- Income from House property. Income from other sources such as Interest, Bunk Interest and Income from Long Term Capital Gain. During the year under consideration assessee have disposed off some part of his ancestral agricultural land which has been converted in urban land under sec 143 of the Zamindari Vinash Adhinium. In fact the land which are in municipal limits and in case any person wants to sell such type of agricultural land it is mandatory to convert such type of agricultural land into urban land. Assessee has converted this land due to this legal implication in this case.”
6.1. It is seen that it has been argued that for making the sale feasible the assessee has borne the expenses for plotting and making the roads etc. Payments for which necessarily were made to labourers and the material sourced was again local material sourced from the unorganised sector wherein necessarily the expenditure vouched would again be hand vouched. In the absence of any abnormal claim vis-à-vis the nature and extent of development done disallowance of the expenses claimed in an adhoc manner is not justified. The said claim it has been stated has been supported by the Report of an Architect/Engineer.
These facts, evidences and arguments, it is seen have not been examined before arriving at a conclusion. Accordingly, the impugned order is set aside and the Page 4 of 5
I.T.A .No.-4366/Del/2014 issue is restored to the AO directing him to examine the claim put forth on the basis of facts and evidences and not reject the claim purely on the grounds that it was hand vouched.
6.2. Similarly, considering the claims not considered i.e. the land sold was ancestral land devolving upon the assessee by way of inheritance. I find no evidence in support of the same is available on record. The argument is available.
Accordingly the impugned on this issue also is set aside and the issue is restored to the AO directing the assessee to demonstrate this fact before the Assessing Officer and support its claim by way of facts and evidences. The AO considering the facts is directed to decide the same by way of a speaking order, needless to say that the assessee shall be afforded a reasonable opportunity of being heard.
In the result the appeal of the assessee is allowed for statistical purposes.
The order is pronounced in the open court on 04th of November, 2016.