SOLAR PAPER MILL LTD.,CHENNAI vs. ACIT, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The appeal filed by the assessee is directed against order of the Commissioner of Income-tax (Appeals)-15, Chennai in dt 16.03.2015 for the assessment year 2006- 2007 passed u/s.271(1)(c) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

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The assessee has raised the following grounds :- 2.

considered as concealment for imposing penalty under Section 271 (1 ) (c)’’.

The Brief facts of the case the assessee is a limited 3. company and in the business of manufacturer of paper was incorporated on 26.11.1982 and filed return of income on 07.12.2006 with total income of �47,543/-. Subsequently, return of income was processed u/s.143(1) of the Act and the case was selected for scrutiny and notice was issued. In compliance to notice, ld. Authorised Representative of assessee appeared from time to time and produced information and explanations. The Assessing Officer found the assessee company earned profit on sale of agricultural land �1,30,92,111/- and claimed exempted. The agricultural land located in S No.33, Navalur Village, Chengalpet Taluk was leased by assessee out to Shri. Sadasivam for cultivation and called for the lease agreement and confirmation of agricultural operation on land by cultivator. But the assessee could not substantiate inquiry with any documentary evidence except letter on 12.12.2008 explaining that �17,500/- was received from cultivator for use of agricultural land during the financial year 2005-06. The Assessing Officer based on the assessees submissions called an enquiry and Inspector of the Income Tax Department made enquiry with Department of Town Planning

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Authority to verify the nature of property. The report obtained bythe Department is as under:-

‘’The Engineer verified the survey numbers in the town planning master Book, and said that the lands come under urbanization lands and all activities can be made in these lands except pollution related activities. There is no need of conversation certificate from agricultural land to non agricultural land, for these zones’’.

Considering the report and nature of land, the Assessing Officer treated the land as urbanized land and sale proceeds are taxable. The ld. Authorised Representative further explained the agricultural land is situated in India and outside the specified area and not a capital asset.

The Assessing Officer alleged that assessee could not produce any documentary evidence of situation of land outside the specified area.

Further based on report and verification of town planning master book, the survey numbers of land specified in the sale deed fall under the category of urbanised land and any sort of activity can be carried on the land without obtaining conversion certificate, and also no onus of proof was submitted that agricultural operations carried with supporting lease agreement or land user confirmation. On perusal of the Registered sale deed dated 15.10.2005 the land was sold to ‘’M/s.

Hiranandani Realtoss Pvt. Ltd,’’ Mumbai for the purpose of promoting real estate business and as per the notification circular No.310(F.

No.164/15/18-IT(A1) dated 29.07.1981, the area fall in the ITA No.1163/Mds/2015. :- 5 -:

Municipality of Chengalpattu as notified by Central Government. The sale deed was executed by the assessee company to develop in the name of ‘’M/s. S.M.L. Developers’’ and provisions of capital gains are attracted. The ld. Assessing Officer considered the submissions, findings, notification and Government report and treated the land as non agricultural land and assessed total income of �1,30,78,287/- and passed u/s.143(3) of the Act dated 31.12.2008. Subsequently, Assessing Officer initiated penalty proceedings and called for the explanations and the ld. Authorised Representative of the assessee reiterated the submissions in assessment proceedings and explained that the land was sold as a agricultural land and agricultural operations are carried out prior to sale and there is no willful attempt to conceal the income and filed explanations by letter dated 27.01.2009 submitting as per the provisions of Sec. 273B of the Act no penalty shall be imposed u/s.271(1)(C), if the assessee proves that there was a reasonable cause and relied on notification of the Income Tax Act and claimed exemption from tax but the ld. Assessing Officer considered the facts, provisions of law and written submissions found that explanations are not satisfactory and lack reasonable cause on agricultural land operation with any authentic confirmation and levied penalty of �29,36,625/- u/sec. 271(1 )(C) of the Act dated

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29.06.2009. Aggrieved by the penalty order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 4.

Representative argued that order of the Assessing Officer is erroneous and assessee has not conceled any particulars as the character of the land changed due to specific conversation by the buyer after completion of legal formalities and re-characterization is subsequent to sale and the land was sold as agricultural land. The Government order issued by the Central Government in Notification No.SO 10(E) dated 06.10.1994 and amended Notification No.SO1302 dated 28.12.1999 land is situated outside the specified limits of the notified distance of 8 kms from Chennai and 5 kms from Chengalpattu Municipality limit. The Assessing Officer relied on the report of Development of Town Planning Authority instead of Central Government notification. The assessee company has not preferred an appeal against the order u/s.143(3) of the Act and paid taxes though income was disclosed under agricultural income. The ld. Authorised Representative relied on decision of Co-ordinate Bench and the catena of judgments of High Court and addition of income in assessment proceedings will not attract levy of penalty as there is no intention to conceal the income. The ld. Commissioner of Income Tax (Appeals)

ITA No.1163/Mds/2015. :- 7 -: considering the submissions made a elaborate observations that assessee contention that land is agricultural land and has accepted the addition and paid taxes and also not challenged the assessment order and the ld. Authorised Representative also argued the case without any evidence on record that property is beyond 15kms from Chennai Municipal Corporation and 25 kms from Municipality limit of Chengalpattu to substantiate that land is not capital asset and there is no certificate or evidence of the property fall outside the distance of 8kms from Municipal limits of Chennai. The property was sold to M/s. Hiranandani Realtors (P) Ltd for real estate activities and used for agricultural operations by cultivation and received income of �17,500/- and offered as income from other source and the land was used for agricultural purpose before sale to builder. The assessee could not substantiate its claim with any documentary evidence of situation of land outside distance of 5 kms from Chengalpattu Municipality and the decision relied by the Jurisdictional High Court in the case of M.S. Srinivasa Naicker vs. ITO (2007) 292 ITR 481 are distinguishable and not applicable to the present case. There is no authentic proof of agricultural operations. The Commissioner of Income Tax (Appeals) relied on the decision of Co-ordinate Bench in the case of ACIT vs. Sri Subramaniam Vadivel in were held as ‘’non-agricultural property whether

ITA No.1163/Mds/2015. :- 8 -: inside the municipality or outside the municipality or even a remote village is treated as capital asset and taxes are levied. With these observations, the CIT(A) has confirmed the penalty order of the Assessing Officer as no authentic proof of agricultural lands and agricultural operations are proved. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the assessee assailed an appeal before Tribunal.

Before us, the ld. Authorised Representative reiterated the 5. submissions of assessment proceedings, penalty proceedings and appellate proceedings. The ld. Counsel argued that Commissioner of Income Tax (Appeals) has failed to appreciate the significant facts that land changed its agricultural characteristic due to specific conversion by the buyer after completion of legal formalities at the time of sale.

As per the Central Government notification, the land is situated outside the specified limits of notified distance of 8kms from Chennai limit and 5kms from Chengalpattu municipality. The Assessing Officer is bound to accept the Government notification instead relied on the Report of Department of Town Planning Authority. The property was sold to builder but subsequent conversation by the builder is outside purview of taxation. The assessee company has accepted the addition and paid the taxes to buy peace with the department and avoid protracted

ITA No.1163/Mds/2015. :- 9 -: litigations and also not filed Appeal against order u/s.143(3) of the Act. The ld. Counsel drew attention to the paper book containing relevant portion of Central Government notification at page no.18 disclosing the survey no. and guideline value. The main clarification as

per the SRO, that Village Navalur is a agricultural place and produced copies of Patta and Chitta in regional language at page 13 of paper book and certificate from Village Administrative Office certifying the population of Navalur village is below ten thousand. The ld. Authorised Representative also relied on the order of Co-ordinate bench decision in the case of Shri. K. Kumaran vs. ITO in dated 1.6.2011 were it was observed at para 7 as under:-.

’13. Now coming to the apprehension of the Commissioner of Income-tax that the land might be liable for capital gains taxation, the only ground relied on by him is the order issued by the Tamil Nadu Government in G.O. No.287 dated 8-7- 2004, stating that the area is ‘urbanisable land’. The Government Order has only stated that the land is urbanisable; that is in near future this agricultural area may be transformed into an urban settlement. But, till the date of sale of the land by the assessee in the previous year relevant to the assessment year under appeal, no notification was issued, declaring Egathur and Navalur villages as urban area. The State Government has not issued any such notification making its intention absolute. The earlier notification issued by the State Government clarifying the villages to be urbanisable was in contemplation of its developmental activities and schemes. That has nothing to do with the administration of Income-tax law. The Central Board of Direct Taxes has not issued any notification declaring Egathur and Navalur villages as notified areas for ITA No.1163/Mds/2015. :- 10 -: the purpose of section 2(14) of the Income-tax Act, 1961. Therefore, only in the light that the villages might be declared as urban areas in future, it is not possible to hold that the land sold was not agricultural land’’. and prayed for deletion of penalty levied by the Assessing Officer.

Contra, the ld. Departmental Representative relied on the 6. lower authorities orders and argued that assessee alleging penalty proceedings are separate and by making tax payments action cannot be treated as furnishing of accurate details and concealment of income further relied on the judicial decision.

We heard the rival submissions, perused the material on 7. record, judicial decisions cited and notifications. The ld. Authorised Representative argued the grounds against the addition by the Assessing Officer though accepted the addition and also paid taxes.

The assessee company is a public limited company and Books of Accounts are Audited under Companies Act and provisions of Income Tax Act. The assessee’s contention that the land is agricultural land cannot be sustained with proof, as reiterated before lower authorities and also filed paper book containing central notification and guideline values and copy of patta and chitta, VAO certificate for census to substantiate that land is agricultural land fall within specified area.

The assessee is arguing the penalty proceedings but not quantum appeal were the grounds to substantiate the addition are being

ITA No.1163/Mds/2015. :- 11 -: argued. On perusal of records and lower authorities order, we find that assessee company was provided adequate opportunity of hearing and they could not substantiate with documentary evidence except relying on the notification and the decisions which the Commissioner of Income Tax (Appeals) has distinguished in his order. Therefore, we find that Commissioner of Income Tax (Appeals) has examined the issue and also explanations of the assessee were dealt. Therefore, we are not inclined to interfere with the order of the Commissioner of Income Tax (Appeals) and uphold the same.

Order pronounced on Thursday, the 24th day of March, 2016, at Chennai.