SH. BIKRAM SINGH,,NEW DELHI vs. DCIT, NEW DELHI

Date of Hearing 11.02.2016 Date of Pronouncement 13.04.2016 ORDER PER SUCHITRA KAMBLE, JM This appeal is filed against the order dated 1/3/2013 passed by CIT (A)- XVIII, New Delhi by the assessee.

are follows:-

1. That the Learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in upholding the additions made in an order of assessment u/s 143(3) of the Act dated 19/12/2011 at Rs.1,03,14,960/- as against thes income declared at Rs.57,12,774/- 1.1 That the learned CIT(A) has failed to appreciate that, the income returned by the assessee aggregated to Rs. 57,12,774/-; whereas the A.O. while computing the total income proceeded to compute the total income by adopting the sum of Rs. 76,22,919/- being the income assessed U/S 143(1) of the Income Tax Act.

1.2 That the CIT (A) has failed to appreciate that the aforesaid difference of Rs. 19, 10,145/- represented the income declared by the assessee as an agricultural income and thus there was no justification to have proceeded to compute the income on the basis of the income computed u/s 143(1) of the Income Tax Act, as the A.O. while framing the assessment has held 50% of the said sum as declared by way of an agricultural income is excessive. In any case the addition made is double addition.

2. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding the addition of Rs. 14,85,641/- allegedly representing the commission earned by the appellant from the sale of agricultural land.

2.1 That in sustaining the aforesaid addition, the learned CIT(A) has completely failed to comprehend that the assessee was not engaged in the business of selling or purchasing of land and as such there could be no income derived or accrued on the investment and disinvestment made. The findings of the CIT(A) in the appellate order in para 4.3 is highly misconceived and are arbitrary.

2.2 That the learned Commissioner of Income Tax (Appeals) has grossly erred in failing to appreciate that appellant was the owner of the agricultural land and sold the aforesaid agricultural land measuring 15 Kanal 11 marlas for a consideration of Rs. 3,11,00,000/- and out of the aforesaid sum, has received only a sum of Rs.

2,97,12,813/-, as such, since the appellant was the owner of the aforesaid agricultural land, finding that appellant has earned alleged commission income from the aforesaid transaction of sale agricultural land is highly misconceived, arbitrary and contrary to the facts.

3. That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in directing the learned AO to bring to tax the alleged commission from the purchase of agricultural land of Rs. 4,33,85,625/-, failing to appreciate that since the appellant had purchased the aforesaid land and for himself, the finding that appellant has earned alleged commission income from the aforesaid transaction of purchase of agricultural land is highly misconceived, arbitrary and contrary to the fact.

4. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding an addition of Rs. 9,55,074/- out of an income of Rs. 19,10,145/- being the income declared from agriculture, failing to appreciate that appellant is an agriculturalist and possess the agricultural land and is regularly declaring income from agriculture in preceding assessment years and agricultural income so declared by the appellant has duly been accepted by the revenue.

4.1 That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in sustaining the aforesaid addition, failing to appreciate that the appellant has produced complete information with regard to the sale of the agricultural produce i.e. bill number, date and name of the purchaser alongwith the sale slips, as such, addition sustained ignoring the evidence/material is perverse and untenable in law. 5. That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in directing the learned AO to bring to tax the capital gain on sale and purchase of the agricultural land, as such a direction under section 251 (1) of the Act is subject to the conditions under section 251(2) of the Act, and direction to enhance the income without giving any specific notice to the assessee is against the statutory provisions and is thus untenable.

5.1 Without prejudice to the aforesaid, the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and on facts in directing the learned Assessing Officer to bring to tax the capital gain on sale and purchase of the agricultural land, as computation of capital gain was neither the subject matter of assessment nor the appellant has raised any ground to that effect, as such, it was beyond the jurisdiction of the learned Commissioner of Income Tax (Appeals) to introduce a new source of income and power of learned Commissioner of Income Tax (Appeals) is confined to those items of income which were the subject-matter of original assessment in an appeal filed by the assessee.

5.2 That the learned CIT(A) had acted without jurisdiction when by an order sheet entry dated 12.09.2012, it was directed to show cause on the sale proceeds of an agricultural land should not be charged to capital gain.

5.3 That the learned CIT(A) failed to comprehend that, the taxability or non-taxability of the said gain was neither the subject matter of assessment nor was the subject matter of appeal before her and further the A.O had not considered in his order of assessment, even the head of income namely “capital gains”.

5.4 That the Learned CIT(A) has further erred in failing to comprehend and appreciate that, she had no jurisdiction, to direct the A.O to bring to tax the purported gain, which arose on the sale of an agricultural land, as profit on sale of the agriculture land had not been subjected to tax or even such a head of income, was even considered by A.O while framing the assessment.

5.5 That the Learned CIT(A) has failed to appreciate that, in the absence of an assessment having been made in respect of the purported capital gain by the A.O or was considered by A.O in the order of assessment, the same was not the subject matter of appeal and was thus outside the scope of the provision of Section 246A of the Income Tax Act.

5.6 That further the findings of the Learned CIT(A) is in disregard of the judgment of the Full Bench of the Delhi High Court in the case of Sardari Lal & Sons and thus the appellate order suffers from the lack of jurisdiction, in respect of addition which has been directed to be made in the impugned appellate order.

5.7 That, even otherwise and without prejudice, the Learned CIT(A) has failed to comprehend that, since the directions issued resulted into enhancement of income, no such direction could have been issued without issuing a notice of enhancement and notice issued to the appellant cannot be regarded as notice of enhancement.

that ‘no purchase deed or sale deed has been furnished by the appellant either during assessment proceedings or during appellate proceedings’, as such a finding recorded is perverse and contrary to facts on record.

It is therefore, prayed that, additions/disallowances made to the income returned by the appellant along with interest levied may kindly be deleted and appeal of the appellant be allowed.

6. The CIT (A) held that the Assessing Officer on perusal of the assessee’s bank account found that the assessee had sold land for Rs.3, 11,000/-, but it was found that the land measured 15 canal and 11 marla was situated in Gurgaon and was sold to M/s SRP Builders Ltd, there was no documentary evidence in regard to purchase of the said land filed by the assessee. The CIT(A) further noted that the said land whether was agricultural and situated outside the municipal limits was not supported by any evidence as assessee did not filed any documentary evidence. While taking further note of Assessing Officer mentioned in the assessment order that instead of sale consideration of Rs.3,11,000/-. The assessee only received an amount of Rs.2, 97, 12,813/- i.e. The short sale consideration was received at Rs.13, 87,187/- non receipt of balance sale consideration was attributed by the Assessing Officer towards the amount of commission which the assessee of the builder had earlier forgotten to take into account. Thus, the Assessing Officer worked out commission at 5% on the sale made by the assessee and made an addition of Rs.14, 85,641/- being commission brokerage on the sale transaction undertaken by the assessee. Before the CIT (A) the assessee took stand that the said commission paid is the expense in the hands of the assessee and not income while taking stand the assessee pointed out the order-sheet entry dated 16/8/2012 the sale was submitted before the CIT(A). The CIT (A) finally hold that no purchase deed or sale deed was furnished by the assessee. Either during assessment proceedings or during appellate proceedings except deed showing further investment excluding the purchase of land at Gurgaon. The CIT (A) once again repeated that there is no evidence that this investment made by him was in the purchase of an agricultural land and, therefore, held that the said sale proceeds can thus not be claim as exempt u/s 54B of the Income Tax Act 1961. Thus, upheld the order of the Assessing Officer. As relates to agricultural income the CIT (A) held that there was no evidence how the produce has been taken to the mark or the source and quantum of the expenditure incurred on purchase of seeds, watering and labour etc, and thus rejected the appeal of the assessee. As relates to addition of Rs.2, 51,325/- while disallowing 25% of expenses. The CIT (A) held that the ledger account was not supported by any documentary evidence/vouchers. Thus, the said ground was rejected.

7. The Ld. AR submitted that the Assessing Officer made no enquiry. The Assessing Officer did not allege that the assessee had derived any income by way of capital gain. The Assessing Officer never commented on the head of capital gain or the source thereof. The only finding given by the Assessing Officer was that the assessee did not produce the Purchase Deed. The same was entirely irrelevant, the A.O. could have drawn an inference the source of purchase/acquisition has since not been explained an addition could be made under section 69 of the Income Tax Act and no more. Unless the AO makes an addition or touches the source or even the head which could be subject matter of appeal or makes an enquiry about the head and source of income, the CIT(A) does not have any power under Section 251 of the Act either to make an addition or even set aside the assessment to do so. This is well settled law. In this context heavy reliance had been placed on the judgment of full Bench of Delhi High Court in the case of CIT vs. Sardari Lal & Co. reported in 251 ITR 864. The Ld. AR further submitted that the direction of the CIT(A) to AO to tax capital gains alleged to have been earned by the assessee on the sale of land at Gurgaon despite the fact, in the order of assessment, no such addition was either made or was such an issued was subject matter of appeal. The CIT(A) cannot touch upon an issue which does not arise from the order of the assessment and was outside the scope of the order of the assessment i.e. the submission of the assessee is that, the CIT(A) acted in excess of jurisdiction as enhancement is beyond the powers available to the CIT(A) under section 251(1)(a) of the Act.

8. The Ld. AR further submitted that when the assessee had sold his own land, there could be no occasion to even arbitrarily assume that the assessee has earned income by way of commission. Despite the aforesaid facts on record, he held that the assessee has earned a commission @ 5% on the sale of the land and thus made an addition of Rs. 14,85,6411-. It is absolutely evident from the aforesaid facts such an addition has been made which is entirely arbitrary. There being no source of income from commission, no commission can be estimated. Further, since the assessee has either been acquiring or selling the land, which is owned by him, the assumption that he has earned commission is without any basis and is entirely misconceived and is unsustainable in the eyes of law. Further, the allegation of the A. O. that a notice dated 09.12.2011 (page 146 of the Paper Book) was not complied is also erroneous. The Ld. AR submitted that the said show cause notice was received by the assessee on 15.12.2011 and vide the aforesaid notice, assessee was required to file its reply on 16.12.2011. It is submitted that as the assessee was at Mumbai on 15.12.2011, 16.12.2011, 17.12.2011 and 18.12.2011 being Saturday and Sunday made compliance on the next working day i.e. on 19.12.2011 (page 147 – 148 of the Paper Book). Thus the allegation was refuted by the Ld. AR. Aforesaid fact was duly stated in the grounds of appeal before the CIT(A) and also the supporting document that on 15.12.2011 & 16.12.2011 was in Mumbai, assessee filed the supporting documents before the CIT(AO (page 159 i.e. Paper Book filed before the CIT(A). During the course of the assessment, assessee has complied all the notices issued to it and as such, assessment framed under Section 144 of the Act was without satisfying the statutory conditions of section 144 of the Act. That the learned CIT(A) in the impugned order thus having been as submitted above, thus made no adverse comments as none of the additions made were as a result of any non- compliance of a notice warranting an assessment u/s 144 of the Act. That assessee is earning agricultural income year after year and in all preceding years, agricultural income earned by the assessee has been accepted as such, an addition made to the total income by reducing the declared income from agricultural activities from Rs. 19,10,149/- to Rs. 9,55,074/- is manifestly erroneous. The income earned and accepted was Rs. 18,62,549/- and the said income was earned in the immediately preceding year and was also accepted. That the disallowance made by the learned A.O. and sustained by CIT(A) out of the claim of expenditure incurred in respect of the business activity being vending machine expenses of Rs. 10,05,299/-, a disallowance of 25% of the total expenditure has arbitrarily been sustained as there is no basis to upheld the disallowance. The CIT(A) failed to appreciate that had disclosed a net profit of Rs. 2,96,060/- on receipt of Rs. 14,01,143/- which included vending machine expenses of Rs. 10,05,299/- and margin of profit declared by the assessee is 15%. Further, in respect of details of expenses, it is submitted that income from aforesaid activity i.e. sale of tea coffee through vending machine ,was earned in cash and also the expenditure for vending machine is also made in cash, however all such expenses are duly recorded in the books of assessee. As such, disallowance made purely on adhoc basis and is not permissible in law. Further, there is no basis to making a disallowance of 25%.

before the CIT(A) and is a part of ground of appeals in the present appeal. It being wholly legal ground of the appeal deserves to be adjudicated. The Assessing Officer has acted beyond the jurisdiction by computing income of the assessee on the basis of the income as per Section 143(3) where as the intimation was u/s 143(1). The CIT(A) acted beyond its power by directing the Assessing Officer to tax the capital gains in respect of sale of land at Gurgaon, though, there was no addition made by the Assessing Officer in the assessment order to that respect. Capital gain is an independent and different source of income and was not the subject matter of appeal before him nor was the issue considered by the Assessing Officer by framing an assessment order. Instead, the Assessing Officer termed the same as commission on the sale of land. The Ld. AR has relied on the various case laws more preciously that of Shapoorji Pallonji Mistry Vs. CIT reported in 34. ITR 342 (confirmed by the Apex Court in 44. ITR 891) wherein the Hon’ble Bombay High Court while dealing with the powers of the CIT(A) held that CIT(A) was not empower to enhance an income on an issue which was not the subject matter of the assessment. The ratio laid down in the judgment of full Bench of Delhi High Court in the case of CIT vs. Sardari Lal & Co. reported in 251 ITR 864 is also relevant in assessee’s case that the CIT(A) cannot touch upon an issue which does not arise from the order of the assessment and was outside the scope of the order of the assessment. The order of the CIT(A) does not sustain.

The order is pronounced in the open court on 13th of April, 2016.