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Income Tax Appellate Tribunal, DELHI BENCH `G’ NEW DELHI
Before: SHRI CHANDRA MOHAN GARG & SHRI L.P. SAHU
This appeal by the revenue has been directed against the order of the CIT(A)-XXIV, New Delhi dated 27.2.2011 in assessee’s Appeal No.298/2010- 11 for AY 2007-08.
The main grounds raised by the revenue read as follows:-
“Restricting the addition to business profits at Rs. 10,00,000/- as against of Rs. 41,90,024/- made by the AO, without giving any justification for the same despite holding that the AO was justified in invoking the provision of section 145(3) of the I.T. Act in; rejecting the trading results of the assessee and that the assessee failed to justify AY: 2009-10 the steep rise in various expenses and assessee’s failure to produce any documentary evidence or proof of expenses to substantiate his claim that there was otherwise loss suffered.
2. Directing the AO to measure the shortest possible aerial distance of the land and in case it is in the area upto a distance of 2 Kms from the Gunnor Municipal Limits while upholding the AO’s findings but ignoring the fact that in the AO’s remand report it was clarified that the land area of 5 acre 6 kanal & 4 acre 1 kanal 15 maria falls within 2 Kms from the end of the municipal limits.”
Ground No.1
Apropos ground no.1, we have heard arguments of both the sides and carefully perused the material placed on record before us. Learned Departmental Representative submitted that the Assessing Officer noticed that the land falls within the category of capital assets as defined in section 2(14)(iii)(b) of the Income Tax Act, 1961 (for short the Act), therefore, the sale of agricultural land is considered for capital gain tax purpose and he rightly worked out long term capital gain and the same was correctly added to the income of the assessee. Learned Departmental Representative vehemently contended that the CIT(A) granted relief to the assessee without any solid reasoning or basis, thus the same may be set aside by restoring that of the Assessing Officer.
ITA No.3310/Del/12 AY: 2009-10 4. Replying to the above, learned counsel of the assessee pointed out that the Assessing Officer made addition on wrong appreciation of facts and incorrect application of law which was corrected by the CIT(A) on cogent and justified reasoning and hence, the impugned order may be upheld on this issue. He has also drawn our attention towards CBDT Circular No. 17/2015 dated 6.10.2015 the amended prescribed distance to be measured – aerially, applied prospectively in relation to assessment year 2014-15 and onwards. For the period prior to assessment year 2014-15, it was held that the distance between municipal limit and agriculture land is to be measured having regard to shortest road distance. Accepting the decision of Hon'ble Bombay High Court (Nagpur Bench) in in the case of Smt. Maltibai R. Kadu CBDT has issued said Circular on 6.10.2015 on this issue of distance measurement.
On careful consideration of above, we note that the CIT(A) granted relief to the assessee by observing as follows:-
“4. I have carefully considered the facts of the case, remand report of the AO, submission f rejoinder of the appellant and perused the record. It is evident from the remand report including the Tehsildar's report that the Khewat No. 1002/987, Khata No. 1229 and Khewat No. 898, Khata No. 1154, 1156, 1158 are not agricultural lands at all. The facts mentioned in the AO's remand report in respect of these two khewats as extracted under were not controverted with any documentary evidences by the appellant: i) Khewat No. 1002/987, Khata No. 1229 is having the area of 3 Kanal & 4 Marla is vacant land in which the stones were lying to construct the road, is covered with Boundary 3 AY: 2009-10 Wall from which it is noticed that the road is being developed for plotting development in the land. Further, submitted no Agricultural activities are being carried out therein. The status as on the report is same since last year. However, in the revenue record, the kind of land is noted as per choice (Chaahi Darj Hai). ii) Khewat No. 898, Khata No. 1154, 1156, 1158 having area 9 Kanal, the land, prior to 2006 was used to keep animals for Milk Purpose. At present, the land is covered with Boundary Wall and is having pieces of bricks and no crop is grown in the said land while in the record, the kind of land recorded is as (Kism Chaahi Bhoomi Darj Ha The land has not been in any use since 2006.
Thus, it is held that the capital gains worked out on transfer of these lands (Khewat No. 1002/987, Khata No. 1229 and Khewat No. 898,Khata No. 1154, 1156, 1158) are held justified as these lands, being non-agricultural lands, are capital assets in accordance with the section 2(14) of the Act and thus the AO's findings in this regard are thus upheld.
4.1 The notification no. 9447 dated 06.01.1994 specifies the area upto a distance of 2.00 Kilometers (Kms) from the Gunnor Municipal Limits in all direction. It means that the distance has to be measured from the boundary of the municipal limit. In principle, I do agree with the view of the view_of the AO, stated in the remand report, that Gunnor Town and Village Panchi Gujran have common boundary and Inspectors of Income Tax and the revenue authorities of Gunnor measured the distance of lands other than lands mentioned in para 4 above ( lands other than Khewat Nck 1002/987, Khata No. 1229 and Khewat No. 898, Khata No^ll54, 1156, 11581. from the office of the Tehsildar by vehicle, which may be more than 6 Kms. Therefore, the shortest possible aerial distance of lands other than lands mentioned in para 4 above, for the purpose of capital gains, has to be taken from the boundary of Municipal Limit of Gunnor. The AO is therefore, directed to measure the shortest possible aerial distance of lands other than lands mentioned in para 4 4 ITA No.3310/Del/12 AY: 2009-10 above along with the appellant and in case it is in the area upto a distance of 2.00 Kilometers (Kms) from the Gunnor Municipal Limits, the AO's findings in this regard remain upheld other wise not. In these circumstances, this issue is set aside for limited purpose for verification by the AO to consider the issue in line with the above directions.
5. The next issue is in respect of working of business income. Before going into the merits of the additions made by the AO in this case, it would be worthwhile to examine the veracity of action of the AO to invoke section 145(3) of the Act. The decision of the AO to invoke section 145(3) of the Act is based on his observations that the appellant has suppressed his gross profit (GP) to avoid the tax incidence on surrendered income during the survey operations, as normally; there is no loss in the export business. The AO further observed that the appellant has failed to produce export orders compelling him to sell goods at pre- negotiated price. However, the AO has rejected books of accounts even when the same was not produced before him during the scrutiny proceedings.”
In view of above conclusion of the CIT(A), at the outset, we note that the CIT(A) has upheld findings of the Assessing Officer on two counts viz., first, the capital gains worked out on transfer of lands was held justified as these lands, being non-agricultural lands, are capital assets in accordance with section 2(14) of the Act and second, that the Assessing Officer, in his remand report, rightly stated that Gunnor Town and Village Panchi Gujran have common boundary and distance measured for other lands (other than lands in question) from the office of the Tehsildar by vehicle was more than 6 kms. With these observations, the CIT(A) directed the Assessing Officer to measure the shortest possible distance of lands, other than mentioned in para 4 of the CIT(A) order, the CIT(A) in principle decided that the order of the Assessing Officer will AY: 2009-10 remain upheld if the distance from municipal limit to lands is upto 2.00 kms, otherwise the same would not hold the field. The CIT(A) after laying dicta in principle, restored the issue to the file of the Assessing Officer for limited purposes of factual verification and we are unable to see any perversity or any other valid reason to interfere with the same. Before we part with the discussion on this issue, it is relevant to mention that the Assessing Officer will also take into consideration the binding Circular no. 17/2015 dated 6.10.2015 of the CBDT (supra) while verifying the facts and while applying the law in pursuance to the order of the first appellate authority. Accordingly, we uphold the conclusion of the CIT(A) with the direction to the Assessing Officer, as set out above. Therefore, ground no. 1 of the Revenue being devoid of merits is dismissed.
Ground No.2
Apropos ground no. 2 of the revenue, we have heard the rival submissions and carefully perused the relevant material placed on record, inter alia, assessment order, impugned order of CIT(A) and other records. Ld. Ld. DR pointed out that the Assessing Officer in first para at page 4 has rejected the books of accounts of the assessee u/s 145(3) of the Act and this action of the Assessing Officer has been upheld by the CIT(A) in last operative para of the impugned order wherein it is held that the Assessing Officer was justified in invoking the provisions of section 145(3) of the Act in rejecting book results of AY: 2009-10 the assessee and the assessee has accepted this conclusion of first appellate authority as he has not filed any cross appeal or cross objection against these observations and conclusion of the authorities below.
Learned Departmental Representative further pointed out that the Assessing Officer was correct in making calculation of profit from business wherein the Assessing Officer has taken GP rate of 2.90% of the turnover on the basis of earlier year G.P. rate at Rs.7,70,486 being 2.90% of the turnover of Rs.2,65,68,488 relevant to financial period 2006-07 relevant to assessment year 2007-08. Learned Departmental Representative has further drawn our attention to page 4 of the assessment order and submitted that the Assessing Officer further proceeded to make logical and correct calculation of profits from business when after calculating gross profit on the basis of earlier year results, he added the surrendered amount of 85,10,000 pertaining to cash in hand and excess stock and allowed deduction of depreciation and interest amount Rs. 6,73,538 and Rs.6,24,638 and finally calculated the net business income at Rs.79,82,620 and also gave reconciliation and adjustment of the amount of Rs.37,92,596 as declared by the assessee as profit and gains from business.
Learned Departmental Representative vehemently pointed out that the CIT(A) reduced the addition to Rs.10,00,000 without any reasoning and hence the impugned order may be set aside by restoring that of the Assessing Officer.
ITA No.3310/Del/12 AY: 2009-10 9. Learned counsel of the assessee submitted that as per dicta laid down by Hon'ble High Court of Delhi in the case of CIT vs Surendra Buildtech Pvt. Ltd. in order dated 17.5.2012 and submitted that if the CIT(A) records a factually incorrect finding, then the revenue/assessee , when they prefer an appeal before the ITAT, must place necessary documents/papers on record to show and establish that factual findings were incorrectly recorded by the first appellate authority. Learned counsel of the assessee supported the action of the CIT(A).
On careful consideration of above, at the outset, we observe that the assessee accepted the conclusion of the CIT(A) in regard to rejection of book results u/s 145(3) of the Act as admittedly there is no cross appeal by the assessee against said findings of the authorities below. Further, the assessee, in his ground no. 5 before the CIT(A), has agitated the issue of addition of Rs. 41,90,024 by simply alleging that the said addition is not warranted by the case and the addition so made needs to be deleted. From the facts emerged from the assessment order as noted by the Assessing Officer, it is apparent that the assessee, during the survey, surrendered an amount of Rs.85,10,310 during survey u/s 133A of the Act conducted at the business premises of the assessee which include difference in stock of Rs. 83,00,310 and excess cash of Rs.2,10,000. The assessee replying to the question no. 17 in his statement recorded during survey voluntarily surrendered said amount of Rs.85,10,310 for AY: 2009-10 taxation over and above normal profit for the financial year and on this basis and after rejecting the book results, the Assessing Officer proceeded to estimate the normal profit from business by adopting GP rate of 2.90% of total turnover amounting to Rs.7,70,486 (being 2.90% of turnover of Rs.2,65,68,488) and he added surrendered amount of Rs.85,10,310 to this estimated profit and also allowed deduction of Rs.6,73,538 on account of interest claimed and Rs.6,24,638 on account of depreciation and calculated the net business profit at Rs.79,82,630. Furthermore, the Assessing Officer also adjusted the amount of profit and gains from business as declared by the assessee in his return and arrived at the figure of Rs.41,90,024 which was added to the returned income of the assessee.
During first appellate proceedings, the assessee submitted written submissions, which have been reproduced by the CIT(A) in para 3 of the impugned order. On careful perusal of the same, we clearly observe that the assessee has mainly challenged the conclusion of the Assessing Officer wherein he rejected books of accounts of the assessee u/s 145(3) of the Act. At the cost of repetition, we may again point out that the CIT(A) has upheld rejection of books of accounts and since the assessee has not challenged this issue by way of either cross appeal or objection, then this issue attains finality. In the written submissions, the assessee has not pointed out any mistake in calculation of the business profit made by the Assessing Officer. AY: 2009-10 12. Now, we proceed to analyse the order of the CIT(A) wherein he restricted the addition to Rs.10,00,000 instead of Rs.41,90,024. For the sake of clarity in our findings, the relevant operative part of the impugned order on this is being reproduced below which reads as under:-
“5.2 I have carefully considered the facts of the case, remand report of the Assessing Officer, submission & rejoinder of the appellant and perused the record. It is held that the Assessing Officer’s observations as mentioned in the impugned order coupled with findings of survey were of consequence to jeopardize the correctness of the books of accounts, if maintained by the appellant though the same was neither produced before the AO or me. Books of accounts are thus held non-reliable, which is also buttressed by the fact that the excess stock in trade and surplus cash were found during survey resulting disclosure of income of Rs. 85.10 lakhs for relevant year. Thus it is held that the AO was justified in invoking the provisions of section 145(3) of the Act in rejecting the trading results of the appellant. Further, it is noticed that the gross profit of the appellant, as evident from the chart of 7 years which is annexed here with, varies from year to year. The reasons for the same are different year to year. The GP rate has gone up to 30.48% in the relevant year only on account of disclosure of income of Rs. 85.10 lakhs during survey, otherwise it is in loss. It is noticed that this is not the first year in which the input cost has gone up substantially higher in last 7 years. However, the appellant demonstrated that goods exported in financial year (FY) 2008-09 was at lesser rate than the cost of purchases, which resulted loss of Rs. 69.53 lakhs. The appellant argued that the recurring loss forced him to give up this export business from 04.09.2009. Further, the appellant failed to justify the steep rise in various expenses as pointed out by the AO in 3rd para of page 4 of the impugned order. No documentary proof of expenses to substantiate the claim was produced before me to controvert the findings of the AO. Therefore, keeping in view the facts and circumstances in totality, I hereby uphold the addition of Rs. 10.00 lakhs out of Rs. 41,90,024/- done by the AO under the head business income. Thus, the addition of Rs. 31,90,024/-/under the head business income is hereby deleted. Accordingly, the appellant gets relief.” 10 AY: 2009-10 13. From the above, it is apparent that the CIT(A) upheld the conclusion of the Assessing Officer in the adjudication part wherein he concluded that “no documentary proof of expenses to substantiate the claim was produced before me to controvert findings of the Assessing Officer.” We further observe that in the last two sentences, the CIT(A) reduced the addition to Rs. 10 lakh and granted relief of Rs.31,90,024 to the assessee without pointing out any calculation mistake or any other allegation against the action of the Assessing Officer. Hence, we are inclined to hold that the CIT(A) granted relief to the assessee without recording any factual findings and thus we are unable to draw any conclusion about the correctness of impugned order. In this situation, we cannot expect the appellant/revenue to show and establish that the factual findings were incorrectly recorded by the first appellate authority. Hence, in our humble understanding, the benefit of ratio of the order of Hon'ble High Court of Delhi in the case of CIT vs Surendra Buildtech Pvt. Ltd. (supra) is not available for the assessee respondent.
On the basis of foregoing discussion, we are of the considered view that the CIT(A) reduced the addition without pointing out any mistake in the calculation of the Assessing Officer and without recording any findings
regarding conclusion of the Assessing Officer which is an incorrect approach for a first appellate authority. We, therefore, are of the opinion that this issue requires afresh adjudication at the end of the CIT(A) and hence, we restore this AY: 2009-10 ground to the file of the CIT(A) for readjudication on this sole issue. Needless to say that the CIT(A) shall provide due opportunity of hearing to the assessee and shall decide the issue without being prejudiced from his earlier order and our observations in this order. Accordingly, ground no. 2 of the revenue is deemed to be allowed for statistical purposes.
In the result, the appeal of the revenue is partly dismissed on ground no. 1 and partly deemed to be allowed on ground no. 2.
Order pronounced in the open court on 4.11.15.