ACIT, MEERUT vs. SH. KULBUSHAN GUPTA, MEERUT

Date of Hearing : 14-08-2015 Date of Order : 28-09-2015 ORDER

PER H.S. SIDHU : JM

in the Revenue’s appeal read as under:- “I. Whether on the facts and circumstances of the case, the Ld. Commissioner of Income-tax (Appeals) has erred in law in deleting the addition made by the AO on account of Long Term Capital Gains holding 'that the land is agriculturaI and transferred without sale deed and ignoring the vital facts proving contrary stand.

2. Whether on the facts and circumstances of the case the Commissioner of Income- tax(Appeals) was justified in holding the land in question as agricultural while the-assessee himself declared that out of the total land, 625 sq.m. land was commercial and 5104 sq.m. was agricultural one, more so when the assessee himself intended to commercially develop that land and already submitted a proposed Map to MDA for the same.

3. Whether on the facts and circumstances of the case the Commissioner of Income-tax (Appeals) was justified in holding that the land was under developed, agricultural and provisions of section 50C of the IT Act, 1961 were in-applicable while the facts on record proved otherwise.

CO No. 247/Del/2010 4. Whether in the facts and circumstances of the case, the Ld. Commissioner of lncome-tax (Appeals) has erred in deleting the additi9P of Rs.29,580/- made on account of running expenses inspite of the fact that the assessees had not maintained any log book for the purpose of car running expenses to distinguish between the personal use and business use of Car? 5. Whether in the facts and. circumstances of the case, the Ld. Commissioner of Income-tax has erred in deleting the addition of Rs. 23,916/- made on account of telephone expenses inspite of the fact that the assessee had not maintained any call registers? 6. In the facts and circumstances of the case, the order of the Ld. CIT(A) may be set aside and that of the AO be restored. “ 3. The grounds raised in the Assessee’s Cross Objection read as under:-

1. That the AO as well as Ld. CIT(A) is in error in invoking provision of section 50C of the Income Tax Act by ignoring the fact that circle rate on the transfer of 1st Land and was Rs. 2000/- per sq.meter. However, purchaser has wrongly paid Rs. 3800/- per meter.

CO No. 247/Del/2010 2. That the assessee has right to add/ delete or modify any grounds of appeal

.” REVENUE’S APPEAL NO. 2269/DEL/2010

4. The facts in brief are that the assessee filed return of income dated 28.10.2005 of Rs. 38,96,057/-. The case was selected for scrutiny and notice u/s. 143(2) of the IT Act dated 14.6.2007 was duly served on the assessee. The assessee is engaged in the manufacturing and sales of carom boards and atheletic items. In response to the statutory notice Sh. TL Mahajan appeared on behalf of the assessee and filed reply from time to time. Books of accounts were produced and put to random test check. During the year the assessee has sold two aricultural lands at Khasra No. 204 to 207 measuring 625 mtrs. (748.61 yds) and 5104 sqtrs. (6104.39 yds) respectively. First sale deed was executed on 19.7.2004 for a piece of land measuring 748.61 yds. for Rs. 15,00,000/- the circle rate of which as per sale deed is Rs. 23,78,498/-. For the second piece of land measuring 6104.39 sq.yds. agreement was entered into on 23.8.2004. however, no circle rate was mentioned but since the land is situated on same Khasra No. of the same Village, the circle rate can be derived from the first sale deed which then comes to Rs. 1,93,94,984/-. Therefore, total sale consideration comes to Rs. 2,17,73,182/-. After deducting the cost of the land which has been submitted by the assessee itself that is Rs. 36,31,059/-, the long term capital gain comes to Rs. 1,81,42,423/-. Assessee has shown a short term loss of Rs. 1,34,020/- on sale of land situated at Khasra No. 400, Village – Sherkhan / Jainpur, Distt. Meerut. Assessee had invested Rs. 18,00,000/- in the purchase of this land at Rs. 31,00,000/- and after adding sale charges, stamps charges etc. (as given by the assessee), his share comes at Rs. 21,34,020/-. In the same ratio, assessee’s share comes at Rs. 20,32,258/- in the total CO No. 247/Del/2010 sale consideration of Rs. 35,00,000/- received for this land. Therefore, the short term capital loss in the hands of the assessee comes at Rs. 1,01,762/-. After adjusting this loss against the long term capital gain as mentioned above, assessee is in net long term capital gain of Rs. 1,80,40,661/-, in place of Rs. 32,34,921/-. Therefore, the difference of Rs. 1,48,05,740/- is being added under this head of income. 4.1 The assessee has debited Rs. 1,77,475.54 as repair, running and maintenance of vehicle. Since no logbook is being maintained by the assessee, personal use cannot be ruled out therefore, 1/6th of the same has been disallowed i.e. Rs. 29,580/- by AO. Assessee has also debited telephone expenses for Rs. 1,43,494.13. 1/6th of the same has also disallowed as personal use which cannot be ruled out thereof i.e. Rs. 23,916/-. The AO assessed the total income of Rs. 1,87,66,173/- vide his order dated 28.12.2007 passed u/s. 143(3) of the I.T. Act, 1961.

5. Against the assessment order, assessee filed an appeal before the Id. First Appellate Authority who vide impugned order dated 16/2/2010 has partly allowed the appeal of the assessee. Now the Revenue is aggrieved against the impugned order and filed the present appeal before the Tribunal.

7. On the contrary, Ld. Counsel of the assessee relied upon the order of the Ld. First Appellate Authority. In addition to that, he has filed the Synopsis alongwith its Annexures. For the sake of clarity, the Synopsis is reproduced hereunder:-

CO No. 247/Del/2010 1) The Assessee sold the following two agricultural lands situated in Khasra No. 204 to 207 in a village namely Hafizabad Mewla, District Meerut by declaring long term capital gain of Rs.33,68,941/- as per copy of computation of total income placed at pages 12-13 of the paper book: b) Agricultural land situated on the main Meerut - Delhi Road, near Amar Ujala Newspaper Office, Meerut (Khasra No. 207) measuring 625.92 Sq. mtrs was sold for Rs.15,OO,000 vide registered sale deed dated 20/07/2004, copy placed at pages 14-32 of the paper book. From such sale deed, it is evident that stamp duty was paid on circle area rate of Rs.23,78,498/- which works out to Rs.3,800/- per sq. mtr. b) Agricultural land situated at the back side of the above mentioned land (Khasra No. 204 and part of Khasra No. 207) measuring 5104 sq. mtr was sold for RS.55,OO,OOO vide Agreement to sell (unregistered) dated 16/08/2004, copy placed at pages 33-36 of the paper book. It is pertinent to point out here that no stamp duty was paid on such land as it was sold through Agreement to sell and not through registered sale deed. 2) The AO accepted indexed cost shown by the Assessee for working out long term capital gains. However, the AO worked out the long term capital gains for both the above mentioned agricultural lands by estimating sales on the basis of circle area rate i.e. Rs.3,800/- per sq. mtr. mentioned in the registered sale deed as under: Area of Sale Sale Addition Treatment agricultural consideration consideration made by AO by CIT(A) land sold by the estimated by (Rs.) assessee the AO (Rs.) 6 CO No. 247/Del/2010 (Rs.) 625.92 15,00,000 23,78,498 on 8,78,498 Confirmed (Sq.mtr.) the basis of the circle area addition rate as per registered sale deed Dt. 20.7.04 i.e. @ Rs. 3,800 per sq.mtr. 5104 55,00,000 1,93,94,984 1,38,94,984/- Deleted (sq.mtr.) on the basis the of circle area addition rate as per the above mentioned registered sale deed Dated 20.7.04 i.e. @Rs. 3,800 per sq.mtrs. Total 1,47,73,482 Ground No. 1 to 3:

1. 1. Written submissions filed before the Ld. CIT(A) placed at pages 1-12 of the paper book.

2. Agricultural land situated at Khasra No. 204 and part of Khasra No. 207 measuring 5104 sq. mtr was sold for Rs.55,00,000 vide Agreement to sell (unregistered) dated 16/08/2004, copy placed at pages 33-36 of the paper book. It is pertinent to point out here that no stamp duty was paid on such land as it was sold through Agreement to sell and not through registered sale deed. The said land was not touching the main Delhi- Meerut road.

3. Copy of Khatauni to prove ownership of the above mentioned agricultural land sold by the Assessee at pages 7 CO No. 247/Del/2010 37-38 of the paper book.

6. The price of agricultural land measuring 5104 sq. mtr situated at the back side of agricultural land measuring 625.92 sq. mtr (touching the main Delhi-Meerut Road) could not be the same as that of land touching the main road as explained before the Ld. CIT(A) and also reproduced in the appellate order: (i) Agricultural land situated at Khasra No. 204 and part of Khasra No. 207 measuring 5104 sq. mtr was situated at the back side of the other agricultural land measuring 625.92 sq. mtr. In other words, it was not touching the main Delhi-Meerut road and therefore had no commercial value. In fact, the buyers of such land made a residential colony i.e. Shyam Enclave by making roads, drains and parks etc. due to which area of land reduced by approx. 42.16% and thereafter plots were sold @ Rs.2,005/ per sq. mtr as is evident from copy of registered CO No. 247/Del/2010 sale deed dated 07/06/2005 placed at pages 39-46 of the paper book in which circle area rate was Rs. 2,000/- per sq. mtr. (ii) Moreover, such agricultural land (back side) had many drawbacks as it was like jungle where maveshies used to through carcasses of dead animals, therefore, the value of such land could not be equated with the value of land measuring 625.92 sq. mtr. which was touching the main Delhi-Meerut Road and had commercial value.

8. Without prejudice to above, no addition u/s 50C of I.T. Act could be made on agricultural land sold as per unregistered sale deed for which reliance is placed on the case laws attached as Annexure I. Hence, the Ld. CIT(A) was justified in deleting the addition. Ground No. 4 & 5: are against the deletion of additions of Rs.29,580/- on account of car running expenses and Rs.23,916/- on account of telephone expenses. The Assessee relies on the findings recorded by the l.d. CIT(A) vide para 7 to 7.3 at page 18 of the appellate order while deleting the above additions.

CO No. 247/Del/2010 Consequently, the appeal filed by the Revenue deserves to be dismissed. CO No. 247/Del/2010 As regards Cross Objection, the same is hereby withdrawn.”

CO No. 247/Del/2010 ii) The case of Jodhpur Bench as well as the Allahabad High Court relied upon by the A.R. don't apply to the assessee's case as regards provisions of section 50C. iii) The A.O. felt that both the buyer and the seller have evaded tax in two ways, one by selling a property whose value has been determined by Stamp Valuation Authority as per Circle Rates vide an unregistered agreement to sell and secondly by declaring a lower full value of consideration which is not in consonance with the provisions of section 50C of the Income Tax Act, 1961. The A.R.' s specific replies to the three points as above are as under: i) Regarding contention of the AO that it is a single piece of land, it has been submitted that the land was purchased through two different bainamas and from two different persons. Moreover, it is never possible to compare the rates of land which is adjacent to the main road in the instant case and, thus comprises the front portion and the rear (back) portion of the land which has been used for residential purposes after being developed. Thus the comments of the A.O. that it is a single piece of land is devoid of facts and have no merit, as stated by the AR. It was also pointed out that the back portion of the land mainly comprising of Khasra No.204 was developed as a residential colony by the purchaser after the same being purchased through a unregistered agreement which was passed as Shyam Nagar Enclave by the Meerut Development Authority. The circle rate of the above said land is itself fixed at Rs.2000/- sq. yard by the District Authorities after being CO No. 247/Del/2010 developed. The above land cut into different residential plots have been sold by the developer on which circle rate of Rs.2000/- per sq.yard has been applied by the Stamp Valuation Authority. Thus, the comments of the A.O. that it is the same land and should have the same commercial value is devoid of factual d legal merits, as argued. It was further pointed out by the AR that the land in question is agricultural land in the revenue records and the Inspector's report referred to by the AO had no significance. It was argued that what was material was the status of the land in revenue records. It was possible that there may not be any agricultural activity going on an agricultural land at a particular point of time. ii) According to the AR, section 5OC has no application unless and until the sale registered with the registrar of document and Registrar of Stamp duty. As no registered sale took place, section 50C is not applicable and even if applied, it cannot exceed Rs.1150/- per sq. yard as explained. In this regard a recent decision of the Jodhpur Bench in the case of Navneet Kumar Thakkar vs. I.T.O. Ward-4 was relied upon and it was argued that it is clearly applicable in the appellant’s case with reference to the second land sold through an unregistered agreement wherein it has been held that section 50C of Income Tax Act would not come into operation unless property transferred has been registered by sale deed and for that purpose value has been assessed and stamp duty has been paid by parties . It was further held by the court that in such a situation position existing prior to section 50C would apply and onus CO No. 247/Del/2010 would he upon revenue to establish that sale consideration declared by the assessee was understated with some clinching evidence. As ruled by the Tribunal in the instant case, the assessee transferred the property in question by executing an agreement which was not registered with the registering authority. In such a case, section 50C could not have come into operation and the resultant application of section 55A, by which the Assessing Officer got the property valued and adopted the report of the Valuation Officer as the sole basis for making the impugned addition, was wholly invalid. As the Assessing Officer had not embarked upon making enquiries from the purchaser about the actual sale consideration, and had not brought on record any other material worth the name to show that the sale consideration declared by the assessee was understated, the addition was wrongly made and sustained. Therefore, the addition was to be deleted." The AR argued that in the appellant's case just because the A.O. has not got the property valued from the Valuation Officer would in no way make the essence of the order different than that of the case of the assessee and is a clear violation of the decided laws. As argued, in the instant case the Courts even declared the action of the A.O. to value the property from a registered valuer u/s 55A and adopting such valuation as sole basis for making the impugned addition as wholly invalid. Under such circumstances how could the A.O. state the case of the assessee to be different under the given facts when the A.O. did not even bother to get the valuation of the Property done from an approved valuer.

CO No. 247/Del/2010 Thus as argued, the facts of the case are very much similar and provisions of section 50C are not applicable to the second agricultural land sold through an unregistered agreement. iii. Regarding the observation of the AO that the assessee has not made sale deed in favour of purchaser to avoid stamp duty and also to save himself from section 50C of Income Tax Act, the AR submitted as under: a. Sale Through Agreement:- As per instruction 2(47) of Income Tax Act read with section 53A of transfer of Property Act, sale through agreement is a valid transfer. Therefore the assessee transferred the land as per transfer of Property Act. Regarding stamp duty Act, stamp is paid by the purchaser. If any wrong is committed by the purchaser then action can be taken against the purchaser only. Seller cannot be held responsible for this act because seller has right to get the sale consideration as per sale agreement. b. Applicability of Section 50C:- Section 50C is applicable only if sale is made at lesser value than the stamp value. The assessee has sold the second agricultural land for Rs. 55 lac. As the assessee has sold the agricultural land on agreement basis the circle rate is not applicable as section 50C is not applicable. Without prejudice to the facts mentioned above, circle rate of the agricultural land at that time was Rs. 50 lac per hectare. Therefore section 50C is not applicable on this issue. The A.O. tried to compare first land which is industrial plot just adjacent to the main road. However, this agricultural land is approximately at Rs.1100/- per sq. meter behind the CO No. 247/Del/2010 main road. Therefore, the circle rate of the rear portion cannot be equated to the main road value. In support of his contentions, the A.R. has adduced following evidences: i. Copy of different Bainamas (Purchase Deeds) ii. Copy of Khatauni showing the land as Agricultural in revenue records in February' 2008 iii. Copy of Khasra showing the crop grown on the above land as on March' 2008 iv. Copy of Circle rate applicable to the second land in Annexure-7 issued by the District Authorities. In the light of the above facts and evidences on record; I hold as under:- (i) Regarding the AO's observation that by transferring the land without a registered deed for evading stamp duty, I hold no merit in the comments of the A.O. The appellant was not under any obligation to press the buyer for entering into a sale deed and no benefit has passed to him by not making a sale deed. Secondly, the provisions of section 50C, as held below, are not attracted in his (ii) Regarding the spirit of section 50C(3) emanating from the word 'assessable' therein, as argued by the AO through oral submissions, I find that even if the SVA had to assess its value of required, it could have assessed it only @ 50,00,000/- per hectare which was the rate as fixed by the Meerut Development Authority, prevailing on the date of transfer. The assessee's actual sale consideration is much more than that. In any case and the amendment 15 CO No. 247/Del/2010 referred to comes into effect 1e.f. 1.10.2009 and is thus irrelevant for the issue under appeal. (iii) Factually, on the basis of evidences which are unmistakable, it would not be correct to say that just because the front portion of a long stretch of land is sold at a particular price, the rear portion also would fetch the same price. A large piece of land can be sold/transferred in any number of parts depending on the owner's wisdom and choice. In the instant case, I do not find an iota of logic in the AO’s observations on this point. As per revenue records the rate of the back portion of land transferred by the assessee by way of an unwritten agreement was Rs.50,00,000/- per hectare and its use as per Government records was agricultural. Its circle rate was fixed at Rs.2000/- per sq. yard by the Government authority after its development which happened after its transfer by the assessee. It is common knowledge too that a piece of land on the main road and one at the back side, far from the main road cannot be sold at the same price. In view of these reasons, it is difficult to agree with the AO on the understanding of the facts of the case. (iv) Legally, regarding the applicability of provision of section 50C, I have carefully considered the case laws cited by the A.R. In my opinion the case law of IT AT Jodhpur Bench (2008) 110 ITD 525 Jodhpur quoted by the assessee is clearly applicable on the sale of second land wherein it has been held by the court the unless property transferred has been registered by sale deed and for that purpose value has been CO No. 247/Del/2010 assessed and stamp duty has been paid by parties Sec. 5OC inserted by Finance Act, 2002 with effect from 1-4-2003, cannot come into operation. It has been further held- by the Hon'ble Court that in such a situation, position existing prior to Sec. 5OC would apply and on would be upon revenue to establish that sale consideration declared by the assessee was understated with clinching evidence. I was further held by the Hon'ble court that where the assessee transferred property in question executing an agreement which was not registered with registering authority, Sec. 5OC could not have come into operation. Therefore, addition made on the basis of deemed sale value is uncalled for. It is held that section 50C is not applicable in respect of the transfer of second land (6103.39 sq.yards) and the addition is deleted. “ 8.1 We have heard both the parties and perused the relevant records available with us, especially the orders of the authorities below alongwith the Written Synopsis filed by the Ld. Counsel for the assessee, we are of the considered view that Ld. CIT(A) has thoroughly gone through the assessment order alongwith the Remand Report and Rejoinder to the Remand Report as well as the other evidences filed by the assessee. Ld. CIT(A) has decided the issue in favour of the assessee by respectfully following the order of the ITAT, Jodhpur Bench reported in (2008) 110 ITD 525 (Jodhpur) which is clearly similar to the facts and circumstances of the present case. The ITAT, Jodhpur Bench has held that unless property transferred has been registered by sale deed and for that purpose value has been assessed and stamp duty has been paid by parties Sec.5OC inserted by Finance Act, 2002 with effect from 1-4-2003, cannot come into operation. It has been further held by the Hon'ble Court that in such a situation, position existing prior to CO No. 247/Del/2010 Sec. 5OC would apply and onus would be upon revenue to establish that sale consideration declared by the assessee was understated with clinching evidence. The property in question has been transferred by executing an agreement which was not registered with registering authority, therefore, in our view Sec. 5OC could not have come into operation and the addition in dispute has rightly been deleted by the Ld. CIT(A by respectfully following the order of the ITAT, Jodhpur Bench reported in (2008) 110 ITD 525 (Jodhpur). Keeping in view of the facts and circumstances and precedent, we find that Ld. CIT(A) has passed a well reasonable order on the issues in dispute by deleting the addition in dispute, which does not need any interference on our part, hence, we uphold the same by dismissing the ground no. 1, 2 & 3 raised by the Revenue.