THE PR COMMISSIONER OF INCOME TAX vs. SHRI H NAGARAJA

The Commissioner of Income Tax, Karnataka,

These appeals are filed under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act’) challenging the orders dated 17.03.2017 passed by the Income Tax Appellate Tribunal, Bengaluru, in ITA No.613/Bang/2014 and ITA No.614/Bang/2014, thereby allowing the appeals filed by the assessee and setting aside the order dated 28.03.2013 passed by the Commissioner for Income Tax, Karnataka (Central), Bengaluru, under Section 263 of the Act. The Commissioner had disallowed the expenses claimed by the assessee under the heads, ‘labour charges’, ‘expenses of commission’ and ‘work in progress’, with a direction to the Assessing Officer to enhance the total income in terms of the findings recorded by him. The

For better appreciation of the questions involved, it is necessary to briefly advert to the facts of the case.

Assessee is a partnership firm run in the name and style M/s.SLV Housing Development Corporation. The partnership firm consists of the assessee – Mr. H.Nagaraja, his wife Smt. Bhagya Nagaraj and his father Mr. Hanumappa as partners. Their business is to purchase agricultural lands, convert them for non-agricultural purpose viz., for formation of a residential layout and thereafter sell them. On 06.01.2009, a search was conducted in the premises of the assessee. Notice under Section 153A of the Act was issued for the assessment year 2008-09 and 2009-10. The assessee filed return of income for the assessment year 2008-09 declaring the total income at Rs.8,82,13,948/- and for the assessment year 2009-10 at Rs.3,98,90,396/-. By assessment order

The assessee preferred two appeals to the Commissioner of Income Tax. Both the appeals were considered together. After examining the grounds raised challenging the additions made, the Commissioner confirmed the additions to the extent of only Rs.12,50,000/- for the assessment year 2008-09 and allowed the appeal in respect of the balance. As regards the assessment year 2009-10, addition of Rs.2 Crores was confirmed and rest of the amount in a sum of Rs.1,92,72,383/- was ordered to be deleted. This order was passed on 15.09.2011.

By exercising his powers of revision under Section 263 of the Act, the Revisional Commissioner proceeded to hold that the properties purchased by the assessee at Kaggalipura and the subsequent sale made in favour of

Aggrieved by the said order passed in the revisions, the assessee preferred appeals to the Income Tax Appellate Tribunal, Bengaluru. Both the appeals were clubbed and heard together. By a common order dated 17.03.2017, the Tribunal has set aside the order passed by the Revisional Commissioner, thereby allowing the appeals of the assessee. It is this common order passed by the Tribunal is assailed by the Revenue by filing these two appeals in

Several contentions have been urged on merits. Indeed, Counsel for the respondent has seriously contended that the issue involved in these appeals has been fully covered by the judgment of this Court in the case of DCIT Vs VARMA INDUSTRIAL LTD. – (2001) 250 ITR 472 (KAR) and order dated 17.11.2015 passed in ITA No.699/2009 in the case of SRI SALIL PUNOOSE VS ITO, in as

Mr. Aravind, learned Counsel appearing for the Revenue has urged the following points:

Learned Counsel appearing for the respondent- assessee has contended that as regards point no.(1) pertaining to development expenses, both the Assessing Officer as well as the Appellate Commissioner did consider the entire matter and for the assessment year 2008-09, disallowed a sum of Rs.50 lakhs and as regards the assessment year 2009-10, disallowed Rs.2 Crores, and therefore, the assessment order passed merged with the appellate order; hence, in view of the judgment of the High Court in the case of DCIT Vs VARMA INDUSTRIAL LTD. – (2001) 250 ITR 472 (KAR), the Revisional Commissioner could not have exercised jurisdiction under Section 263 of the Act to revise the said items. In so far as the second contention urged by the Revenue pertaining to expenses on purchase

As regards the third point urged by the Revenue in respect of expenses claimed for payment of commission to agents for purchase and sale of lands, the assessee contends that addresses of agents, details of cheque payments, TDS deductions were placed before the Assessing Officer for scrutiny and based on the said details, the Assessing Officer was satisfied and had dropped further proceedings, and therefore, the Revisional Commissioner was not right and justified in insisting for profiting details for service as the same was not permissible in law. Reliance is placed on the judgment of the Apex Court in the case of CIT VS GREENWORLD

We have heard the learned Counsel for both parties at length.

Regarding first point urged by the Revenue:- It is apparent from the facts involved in the case that assessee purchased 63 acres 20 guntas of agricultural property at Kaggalipura, Bengaluru, under registered sale deeds. The said lands were got converted to non-agricultural use; the lands were developed into residential sites and thereafter sold to M/s.Brigade Enterprises Pvt. Ltd., during the assessment years 2008-09 and 2009-10. The assessee claimed expenses in a sum of Rs.20,87,92,471/- for developing the layout at Kaggalipura, Bengaluru under three different heads viz., development expenses, labour charges and work in progress.

The Assessing Officer scrutinized the return of income filed by the assessee and directed the assessee to furnish the details. In reply, assessee furnished names and addresses of parties to whom the amount had been paid along with PAN numbers, bills and vouchers. Considering the details furnished in support of the development expenses for the assessment year 2008-09, the Assessing Officer concluded as under which is evident from paragraph 6.5 of the order passed by the Assessing Officer. “The assessee has offered an amount of Rs.50 lakhs for the assessment year 2008-09 in respect of the development expenses claimed by him for this assessment year and has offered an amount of Rs.2,00,00,000/- on this account for the assessment year 2009-10. The additional income admitted by the assessee in respect of unsubstantiated development expenses have been accepted after examining the details filed by the assessee and the details available on records. The amount of Rs.50 lakhs and Rs.2,00,00,000/- admitted by the assessee for the assessment year 2008- 09 and 2009-10 have been treated as assessee’s undisclosed income for the relevant assessment years and brought to tax accordingly.”

In respect of the assessment year 2009-10, the Assessing Officer has proceeded to consider the addition regarding development expenses by a separate order which has been produced along with ITA No.605/2017. At paragraph 7.5 of the said order, the Assessing Officer has concluded as under: “7.5. The assessee has offered an amount of Rs.50 lakhs for the assessment year 2008-09 and Rs.2,00,00,000/- for the assessment year 2009-10 in respect of the development expenses incurred by him stating that he is not in a position to produce the relevant vouchers for the expenses incurred. The additional income admitted by the assessee in respect of unsubstantiated development expenses have been accepted after examining the details filed by the assessee and the details available on records. The amounts of Rs.50 lakhs and Rs.2,00,00,000/- admitted by the assessee for the assessment years 2008- 09 and 2009-10 have been treated as assessee’s undisclosed income for the relevant assessment years and brought to tax accordingly. This amount of Rs.2 crore of undisclosed income is in addition to the amount of Rs.1,92,72,383/- (as discussed in para 6 above) treated as assessee’s undisclosed profit received from the transactions with M/s Brigade Enterprises for the assessment year under consideration (Add.Rs.2,00,00,000/-).”

In the two appeals preferred by the assessee challenging the orders passed by the Assessing Officer for both the assessment years before the Commissioner for Income Tax, the assessee urged that there was non- consideration of addresses of parties, PAN numbers, bills and vouchers in support of development expenses. The Appellate Commissioner in his order, under the head development expenses and unexplained investment has proceeded to consider the controversy. He has upheld the conclusion of the Assessing Officer that the claim of development expenses of Rs.20,87,92,471/- had to be accepted with an addition of Rs.50 lakhs. The observations made in paragraph 3.2.3 are usefully extracted hereunder: “The appellant had claimed development expenses amounting to Rs.20,87,92,471/- and the A.O. asked him to furnish the details and evidence for the developmental expenses. The appellant furnished the names and addresses of the parties and their PAN but no bills and vouchers were produced….. In view of the same, and in view of the appellant’s own admission which is quoted by the A.O. in para 6 & 6.1 wherein they had offered

In so far as the head ‘unexplained investment’, the Appellate Commissioner has held as under in paragraph 3.3.6. “….. It is fact that the appellant has offered a sum of Rs.50,00,000/- out of the developmental expenses claimed of Rs.20,87,92,471/-. The A.O. has categorically stated that no bills and vouchers were produced…… In view of inability of the appellant to furnish the details of actual expenditure, they have offered a sum of Rs.50,00,000/- as income since they were not able to substantiated their expenses to the extent of Rs.20,87,92,471/- In view of inflation of expenses and in view of the assessment proceedings which is over and above the returned income the benefit of this amount shall be given towards investments made during the year”.

In respect of assessment year 2009-10 also, the Appellate Commissioner considered the question regarding development expenses and has proceeded to confirm the addition made observing as under in paragraph 4.3.3.

The question now is, whether the Commissioner of Income Tax (Appeals) exercising jurisdiction under Section 263 of the Act, could re-consider the claim of development expenses which had been considered by the Assessing

As regards the second point urged by the Revenue, regarding expenses of purchase of land and profit from sale of properties to M/s. Brigade Enterprises, it is the case of the assessee that during the assessment years 2005-06 to 2009-10, he had purchased 63 acres 20 guntas

The assessee challenged this order by filing appeal before the Appellate Commissioner. The Appellate Authority considered both the appeals and in his order dated 28.03.2013, has held after examining the legality and correctness of the order passed by the Assessing Officer that addition made by the Assessing Officer regarding unexplained income was not justified in view of the evidence furnished by the assessee. Hence, the Appellate Commissioner ordered for deletion of the additions made by the Assessing Officer, as a result the conclusions regarding purchase price paid for acquiring the lands and the sale proceeds received by selling the lands stood concluded as per the order of the Appellate Commissioner. The order passed by the Assessing Officer got merged with that of the Appellate Commissioner for both the assessment years. Therefore, there was no scope for the Revisional Commissioner to exercise jurisdiction under Section 263 to proceed to re-examine the purchase

As rightly contended by the Counsel for the respondent, the conclusion reached by the Commissioner while exercising revisional jurisdiction tantamounts to directly interfering with the conclusions reached by the Appellate Commissioner. Such power of the revisional authority cannot be conceded to enable him to interfere with the orders passed by the Appellate Commissioner in view of the doctrine of merger. Hence, it has to be held that the Revisional Commissioner acted without jurisdiction in passing the said order.

As regards commission expenses:- Similar is the factual matrix involved in respect of commission expenses claimed by the assessee for the two assessment years.

The assessee challenged the order passed by the Revisional Authority before the Tribunal. The Tribunal has found that the assessee had furnished details of the names, addresses, cheque payment details and TDS deduction towards commission. The assessee challenged the order passed by the Revisional Authority before the Tribunal. The Tribunal has found that the assessee had furnished the details of the names, addresses, cheque payments and TDS deduction towards commission; the Assessing Officer took into consideration the fact that in real estate transactions normally norms of accepting

We have given our careful consideration to the findings given by the Appellate Tribunal. In our view, the Tribunal has rightly held that the Commissioner was in error in proceeding to take the view that actual service rendered by each of the individuals had to be established for accepting commission in the sale and purchase of land. A careful perusal of the findings recorded in paragraph 11 of the order passed by the Tribunal makes it clear that as regards commission expenses, the Assessing Officer after examining the assessee, had questioned him to state details regarding evidence he had supporting the claim of commission and development expenses and also as to whether TDS had been deducted and remitted by him of the said payments. In response to the same, the assessee had stated that evidence would be placed before the Assessing Officer. As a sequel of the same, the assessee submitted full details regarding payment of commission.

As we do not find any error in the approach adopted by the Tribunal, we find that there is no scope for interference in the matter. Therefore, the substantial question of law raised by the Revenue is answered in the negative. We, therefore, hold that in the facts and circumstances of the case, the Tribunal was right in holding that the Commissioner of Income Tax was not justified in exercising the revisional powers under Section 263 of the Act to upset the order passed by the Assessing

For the reasons stated above, the appeals filed by the Revenue are dismissed. In the facts and circumstances of the case, parties shall bear their respective costs.