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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned cross appeals filed by the Revenue and Assessee, pertaining to assessment years (AYs) 2012-13, are directed against the common order passed by the Learned Commissioner of Income Tax (Appeals)-3, Surat [in short “the ld. CIT(A)”], in Appeal No. CAS/3/trfd/1/214/2015-16 dated 25.09.2017, which in turn arise out of an assessment order passed by the Assessing Officer under section 144 of the Income Tax, Act, 1961 (hereinafter referred to as “the Act”), dated 17.06.2022.
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani 2. First, we shall take Revenue`s appeal in ITA No.305/SRT/2017 for AY.2012-13, wherein the grounds of appeal raised by Revenue are as follows: “1. Whether on the fact and circumstance of case and in law, the Ld. CIT(A) is justified in admitting additional evidence in violation of rule 46A which were not available to the AO for verification during the course of assessment proceedings and also erred in not giving proper opportunity for verification of the additional evidences to AO which is violation of natural justice. 2. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) is justified in deleting the addition of Rs.7,76,38,393/- made by the AO on account of unexplained cash credit u/s. 68 of the I.T. Act, 1961 without appreciating the fact narrated by AO. 3. On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the assessing officer. 4. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of assessing officer may be restored to the above extent.”
Brief facts as discernable from the orders of lower authorities are that assessee before us is an individual and filed his return of income on 18.03.2013 showing total income at Rs.7,22,940/-. The return of income was processed under section 143(1) of the Income Tax Act. Later on, the assessee`s case was selected for scrutiny and accordingly notice under section 143(2) of the Act was issued on 31.08.2013 and duly served upon the assessee. The assessee has mainly shown income from salary, interest and capital gain in his return of income. In response to the notices issued, Shri Bharat Rudani, advocate and the duly authorized representative of the assessee attended the proceedings from time to time and furnished details. The assessee was asked to furnish the details related to deduction u/s 54B, unsecured loans and other details. Therefore, assessing officer issued a show cause notice on 17.02.2015, the relevant portion of the show-cause notice is reproduced below: "Notices issued u/s 142(1) calling for various details related to your income and expenditure remained un-complied till date. On 18.12.2014 and thereafter on 05.1.2015 Shri Bharat Rudani attended on your behalf. Vide order sheet entries he was requested to furnish details related to Income and expenditures shown in the return of income by you. Till date those details have not been furnished. Sufficient opportunities were given to you. Now you are requested to show cause as to why assessment in your case should not be finalized u/s 144 of the I T Act as per details available on records. In the order u/s 144 of the I. T. Act I
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani propose to disallow at least following items from your P & L account/ Balance sheet - (i) Disallowance of deduction claimed u/s 54B. (ii) Treating the difference of sale consideration and purchase price of sold immovable assets as business income. (iii) Addition of unsecured loans as unexplained cash credit u/s 68 of the IT Act. (iv) Other disallowances and additions as per details available on records. Your reply should reach this office by 26.02.2015 else assessment in., your case will be finalized as proposed." 4. In reply of above show cause notice, the assessee attended the office of the assessing officer and furnished copies of confirmations and acknowledgement copy of return of income filed in respect of few cash creditors. However, assessee could not furnish details of all cash creditors. The details furnished by assessee in respect of creditors and findings of each cash creditor is mentioned by the assessing officer on page No. 10 to 12 of the assessment order. In the books of accounts of assessee, amounts received from various persons have been credited as unsecured loans and advances. To claim an exemption, it is the duty of assessee to substantiate it with records and evidences. Assessee failed in his onus cast upon him, therefore assessing officer made addition to the tune of Rs.7,76,38,393/- under section 68 of the Act. 5. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition. Aggrieved, the Revenue is in appeal before us.
Learned DR for the Revenue pleads that CIT(A) has failed to appreciate the facts that during the assessment proceedings, sufficient numbers of opportunities were provided to assessee to submit Name, Present Postal Address, PAN No., Contra ledger confirmation, Capital Account, Balance Sheet, ITR Acknowledgement and Bank Statements of persons from whom unsecured loans taken/repaid by assessee during the year under consideration. However, assessee utterly failed to submit details. However, details in respect of unsecured loans taken during the year under consideration as additional evidences were
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani submitted before Ld. CIT(Appeals). These additional evidences were remitted back to the assessing officer for his examination and submit remand report. However, the assessing officer could not submit the remand report on time, therefore ld CIT(A) has himself examined these evidences, which is against the principle of natural justice, therefore addition made by the assessing officer should be upheld.
On the other hand, Ld. Counsel for the assessee defended the order passed by the ld. CIT(A).
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. Though facts have been discussed in detail in the foregoing paragraphs, however in the succinct manner, the relevant facts and background are reiterated in order to appreciate the controversy and the issue for adjudication. The assessing officer has added the difference between the balances in various names as per balance sheets of Assessment Year 2011-12 and 2012-13. The total addition is Rs.7,76,38,393/-. The assessing officer asked for details of these unsecured loans, and the assessee filed various details as mentioned in table (in para 7.1 of the assessment order). The numbers of details vary for each Lender. In some cases, the confirmation, copy of bank account and copy of acknowledgment of ITR of lenders are filed, whereas in some cases, only one or two details were furnished by assessee. In some cases, no details were furnished. In each case, the assessing officer has drawn adverse inference based on what details is not filed. The assessing officer has not discussed whether he has examined the details filed and any adverse findings made thereon. The assessee in his application for admission of additional evidence, before ld CIT(A), has stated that assessee has not received any show cause notice dated 02.03.2015 referred to in the assessment order. Subsequent to this, the assessing officer passed the assessment order on 16.03.2015 without verifying whether the notice was
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani served. Even the assessment order does not mention the date of service. The ld CIT(A) noted that assessing officer has not furnished remand report on submission made by assessee, and additional evidence in spite of two opportunities. 9. Before, ld CIT(A), the assessee has submitted following evidences in two paper books running 324 pages with an index. The index is reproduced below. The same index/papers mentioned in the index were forwarded to the assessing officer, by ld CIT(A) during the appellate proceedings, for examination and report. However, ld CIT(A) did not receive the report from the assessing officer. Hence, after waiting a long period, the ld CIT(A) has himself examined these evidences:
“Paper Book Index Sr. Particulars Page No. No. Addition of Rs. 3,23,34,800/- by treating capital gain as business income 1. Letter filed before assessing officer dated 24.02.2015 1-2 2. Letter filed before assessing officer dated 15.01.2015 3-4 3. Letter filed before assessing officer dated 18.12.2014 5-7 4. Sale Deed - Agriculture Land Dumas B.N. 100-1 8-24 5. Purchase deed - Agriculture Land Dumas B.N. 100-1 25-39 6 Purchase Deed - Agriculture Land Kosmada B. No. 264-A 40-95 7. Purchase Deed - Agriculture Land Parvat Gam B. No. 89 96-160 8. Ledger accounts of Agriculture Land for A.Y 2012-13 161-163 9. Acknowledgment of Return of Income along with computation of 164-167 income for A.Y 2011-12 10 Profit & Loss Account and Balance Sheet along with Capital Account 168-174 for A.Y 2011-12 11 Acknowledgment of Return of Income along with computation of 175-178 income for A.Y 2012-13 12 Balance Sheet and Capital Account for A.Y 2012-13 179-182
Addition of Rs. 7,76,38,393/- on account of alleged Unsecured Loans and Advances 13. Sale deed entered by the assessee with Arvind Bodra HUF, Naresh 183-207 Virani and Shobha P. Patel from whom assessee has received advances 14. Sale deed of land sold by kanubhai Patel and Sanjaybhai Patel 208-250 through which the part sale amount has been advanced to assessee. Anilbhai G. Patel 15. Contra Ledger Account 251 16. Ledger Account 252 17. Acknowledgement of Return of Income 253
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani 18. Balance Sheet 254-255 Anilkumar Jain 19. Ledger Account 256 20. Relevant Bank Statement 257-258 21. Balance Sheet 259 Dharmesh D. Polara 22. Contra Confirmation 260 23. Ledger Account of unsecured loan and loans and advances 261-262 Shailesh M Agrawal 24. Contra Confirmation 263 25. Ledger Account of current year and subsequent years evidencing 264 repayment of loans 26. Acknowledgement of Return of Income 265 Hasmukh Laljibhai Sojitara 27. Contra Confirmation 266 28. Ledger Account of current year and subsequent years evidencing 267 repayment of loans 29. Relevant Bank Statement 268-269 30 Acknowledgement of Return of income along with Computation of 270-272 Income Indrajeet Yadav 31 Contra Confirmation 273 32 Ledger Account of current year and subsequent years evidencing 274 repayment of loans 32 Relevant Bank Statement 275-280 34 Acknowledgement of Return of income along with Computation of 281-283 Income Kanubhai Ishwerbhai Patel 35. PAN 284
Count Confirmation 285 37. Ledger Account 286 38. Relevant Bank Statement 287-288 Sanjaybhai Ishwerbhai Patel 39. PAN 289 40. Account Confirmation 290 41. Ledger Account 291 42. Relevant Bank Statement 292-293 Vallabhbhai Premjibhai Savani 43. Contra Confirmation 294 44. Ledger Account 295 45. Relevant Bank Statement 296-298 46. Acknowledgement of Return of income along with Computation of 299-302 Income 47. Profit & Loss Account and Balance Sheet along with Capital Account 303-308 Ankur A. Jain 48. Ledger Account of current year and subsequent years evidencing 309-310 repayment of loans Arvind B Bodra - HUF 49. Contra Confirmation Account 311 50. Ledger Account of current year and subsequent years evidencing 312 repayment of loans
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani 51. Relevant Bank Statement 313-315 52. Acknowledgement of Return of income 316 Naresh Virani 53. Confirmation Account 317 54. Ledger. Account of current year and subsequent years evidencing 318 repayment of loans 55 Relevant Bank Statement 319-320 56 Acknowledgement of Return of income 321 Shobha P. Patel 57 Ledger Account of current year and subsequent years evidencing 322-323 repayment of loans Vallabh B Dhola 58 Ledger Account of current year and subsequent years evidencing 324 repayment of loans Assessee also furnished ROI of Anilkumar Jain.” The ld CIT(A) narrated that Table in Para 7.1 of the assessment order 10. gives details in a nutshell. Transactions mentioned in serial no. 1 to 9 in table in para 7.1 of assessment order and pages 251-398 in above paper book, are unsecured loans amounting to Rs.5,47,38,393/- The transactions given in serial no 10, 11, 11.1, 11.4 in the table (in para 7.1 and page no. 309 - 324 in the paper book) are advances received for sale of lands. (i) In the case of unsecured loans, the details furnished are confirmation of lender acknowledgement of ITR and copy of bank account of lender in the following cases.
The ld CIT(A) noted that in the above cases, three elements of the section 68 is established as the lenders have confirmed the loan, the lenders are assessed to tax and transactions are through their bank accounts. It is seen that, there is no adverse finding by the assessing officer regarding these details filed. It can be seen that serial no. 9 Shri Vallabhhai Savani is the father of the assessee and he
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani has advanced a sum of Rs.1.68 crores. It can be seen from ITR that he has gross total income of Rs.46.54 lakhs. In the balance sheet filed, the loan given to the assessee is reflected. The net worth of Shri Vallabhbhai Savani is Rs.25.39 crores as per the said balance sheet. Hence, the creditworthiness is established. Similarly, no adverse inference can be drawn in case of any other lenders listed above, as noted by ld CIT(A). (ii) The ld CIT(A) in two cases appearing at serial nos.7 & 8, Shri Kanubhai I. Patel, and Sanjaybhai I. Patel, the PAN, confirmation, copy of bank statement, has been given. There is no copy of ITR, however assessment orders u/s 143(3) are filed. The assessee claimed that the lenders had sold land and received money, which was used by them to advance to assessee. From the copy of sale deed furnished (page nos.208-250 of paper book), it was observed by CIT(A) that both the above lenders have sold two pieces of land at RS No. 73/2, block no. 78/A at village Parvat Patia taluka Surat and received Rs.1.17 crores and Rs.79.29 lakhs each. The bank accounts show these remittances received form the “source” for the advances made to the assessee. (The assessment order u/s 143(3) in both cases, show that these sales have been examined and taxed. Assessment orders of ITO (Intl Tax) and ITO Ward 2(3)(2) Surat dt 22.03.2016 and 10.03.2005). In view of these facts, no adverse inference can be drawn regarding the loans received by assessee form above two lenders.
(iii) In case at serial no. 3 of list, the ld CIT(A) observed that Lender appearing in serial no. 3, filed contra confirmation showing PAN and copy of bank accounts of assessee showing receipt of loan and also repayment of loan is filed. The bank account shows that loan was repaid on 20.01.2012 by cheque, in the same year itself. The fact that the said loan is repaid in the same year and through the same bank accounts, tilts the scale in favour of the genuineness of transaction. Contra confirmation and PAN has already been submitted to the assessing officer, on which, no adverse finding is made by the assessing officer. The ld CIT(A) on these facts relied on the judgment of the
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani Hon'ble Gujarat High Court in the case of Ayachi Chandrashekar Narsangji (2014) 42 Taxmann.com 251. (iv) The Ld CIT(A) also observed that “Loans and Advances” received from Sr. No.4, 5, 6, 10, 11.1 and 11.4 have been repaid by the assessee in subsequent years whereas the loans received from Sr. No 3 was repaid in same year. The ledger accounts and bank account filed have been examined and they confirm the assertion made by the assessee. It is also seen that, the assessments of Asstt Years 2013-14 and 2014-15 are completed u/s 143(3) of the Act and no adverse finding is made in this regard. The Hon'ble jurisdictional High Court in the case of Ayachi Chandra Shekar Narsangji 42 Taxmann.com 251 (2014) (Guj) has held that where the department has accepted the repayment of loan in subsequent year, no addition was to be made in the current year on account of cash credit. 11. From the above details, the ld CIT(A) convinced that for the ‘unsecured loans’ appearing in Sr. nos. 1 to 9, the assessee has discharged its onus u/s 68 establishing the elements of identity, creditworthiness of the lenders and genuineness of transaction. The ld CIT(A) also relied on the binding decisions of jurisdictional High Court in the case of (i) CIT v/s Ranchhod Jivabhai Nakhwa 21 tax.man.com 159 (Guj) (ii) CIT v/s Apex Therm Packaging P Ltd (2014) 42 txtnann. Com 473 ( Guj) and (iii) DCIT v/s Rohini Builders (256 ITR 230) (Guj) and (iv) CIT v/s Ayachi Chandrashekhar Narsangji (2014) 42 Taxmann.Com 251.
The ld CIT(A) observed that in the table in para 7.1 of the assessment order, the amounts received from persons appearing in Sr no. 10 onwards is advances towards sale of properties. From the details filed, the ld CIT(A) ascertained the following facts: (a) In the case of serial no. 10, the advance has been received from one person named Shri Ankur Arunkumar Jain for the land at Kosmadi by account payee cheque. It is seen that the same has been returned back /repaid by account
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani payee cheque in the subsequent year. The said land was sold, to another person Shri Rajendra Jain for Rs. 3.2 crores and the amount received from that sale has been used for repayment to Ankur A Jain. The copy of ledger account and the sale deed were produced by assessee before ld CIT(A). They were examined by ld CIT(A) and ld CIT(A) did not notice any adverse findings. (b) About transactions at Sr. no. (11.1 to 11.4), the ld CIT(A) observed that these are the advances received from four persons regarding sale of land located at Gavier Block no. 18 Sub district Majura City. From the details, it was observed by ld CIT(A) that said land has been sold to three persons named out of four. However, instead of Arvind D Badora (HUF) the name of Arvind D Badora ( Ind) is included in the sale deed dated 15.04.2011. Amount received from Arind D Bodara (Ind) is repaid to HUF. Similarly, the amount received on sale of land is used to repay the advance received from Shri Vallabhbhai B Dhola ( sr no. 11.4) vide cheque no. 70722/ 10.12.2013. The ld CIT(A) observed that the same is reflected in ledger account and bank account of assessee in Kotak Mahindra Bank. In view of above, details and documentary evidences, ledger accounts, and bank accounts filed, the advances shown in serial no 10 to 11.4 cannot be said to establish. In view of the above facts, and legal position held in binding decisions of jurisdictional High Court and ITAT (supra), the ld CIT(A) held that addition made by the assessing officer u/s 68 of the Act on account of loans and advances listed by the assessing officer in table at Para 7.1 cannot be sustained, therefore, ld CIT(A) deleted the additions made u/s 68 of the Act, to the tune of Rs.7,76,38,393/-.
We note that all the loans were taken by the assessee by account payee cheques and Lenders are assessed to tax. The bank statements, Balance Sheet, confirmation from parties, sale deed/purchase deed and ledger accounts of the parties were submitted. In most of the cases loan has been repaid in the same assessment year and some of the loans were repaid in subsequent years, therefore, genuineness of the loan should not be doubted. Therefore respectfully following the binding decisions of jurisdictional High Court of Gujarat in the
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani case of (i) CIT v/s Ranchhod Jivabhai Nakhwa 21 tax.man.com 159 (Guj) (ii) CIT v/s Apex Therm Packaging P Ltd (2014) 42 txtnann. Com 473 ( Guj) and (iii) DCIT v/s Rohini Builders (256 ITR 230) (Guj) and (iv) CIT v/s Ayachi Chandrashekhar Narsangji (2014) 42 Taxmann.Com 251, we do not find any infirmity in the order passed by ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. 14. In ground No.1, the Revenue`s grievance is that Ld. CIT(A) was not justified in admitting additional evidence which is in violation of Rule 46A of the Rules. Learned DR pointed out that additional evidences were not available to the assessing officer for verification. The ld DR further pointed out that ld CIT(A) did not give opportunity to the assessing officer for verification of the additional evidences. On the other hand, ld Counsel submitted that ld CIT(A) has sent additional evidences to the assessing officer for his verification, however, assessing officer did not submit the remand report. The assessing officer took more than one month in the initial stage to submit remand report. Then after, ld CIT(A) allowed another 120 days ( 4 Months) to the assessing officer for examination of additional evidences and to submit remand report. Despite of this, assessing officer did not submit remand report. Therefore, assessing officer has been given lot of time to submit remand report. The assessing officer has failed to submit the remand report therefore ld CIT(A), using the co-terminus power has himself examined these evidences.
We have heard both the parties and note that ld CIT(A) relied on the judgment of Hon'ble High Court of Allahabad in the case of K. M. Sugar Mills Ltd (99 CCH 035) (All), wherein it was held that Commissioner of Income Tax (Appeals) can proceed without remand report if it is not received within reasonable time. In the assessee`s case the time given to assessing officer was 45 days and this period expired on 24.06.2017. However, ld CIT(A) was waiting for remand report for more than 3 months, after the given date. Neither remand
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani report nor request for more time has been made by the AO. In view of this, the appeal was taken up for disposal by CIT(A) without further waiting for the remand report. In this regard, the findings of ld CIT(A), are reproduced below: “9. Remand Proceedings 9.1 The ld assessing officer states that assessee did not furnish details of unsecured loans and deduction u/s 54 B. However, in para 7 of the assessment order, he has reproduced the details furnished if any. It can be seen that details were not furnished in case of sr no. 1 to 8 and serial nos. 10 and 11.2, 11.3 and 11.4. So, out of 14 details were not produced regarding 7 persons. The AR filed a paper book before me containing all the above details. The same were forwarded to the ld AO vide letter dated 17.02.2017 and he was asked to examine the details and file remand report. There was no response from the ld AO for more than a month. Subsequently, this office received a letter from the ld AO on 07.04.2017 stating that above letter did not contain the enclosures as mentioned. The enclosures i.e. paper book was forwarded to the ld assessing officer on 08.05.2017 with a request to submit report within 45 days of receipt of this letter. However, till date, no report has been received. The ld AO had more than one month in the initial phase and now another 120 days to conduct examinations and enquiries, if any and furnish the report. 9.2 I am of the view that reasonable time was available with the ld AO for furnishing the remand report. Even in response to letter dt 17.02.2017, the ld AO took more than a month to bring to my notice that enclosures were not received. Had it been, the ld AO could have immediately brought to my notice on phone or deputed his ITI to collect it. No exercise is done by the ld AO. 9.3 The Hon'ble High Court of Allahabad in K. M. Sugar Mills Ltd (99 CCH 035) (All) has held that the Commissioner of Income Tax (Appeals) can proceed without remand report if it is not received within reasonable time. The time given in this office letter was 45 days and this period expired on 24.06.2017. However, till date, i.e. 3 months after the given date, neither report nor request for more time has been made by the ld AO. In view of this, the appeal is taken up for disposal without further waiting for the remand report. 9.4 It is seen that the details and evidences furnished are records of banks and record available on files of the Income Tax Department, hence, the additional evidences are admitted.” 16. From the above findings of ld CIT(A), it is vivid that it is not a case that assessing officer has not been given opportunity to examine the additional evidences. The additional evidences were remitted to the assessing officer for his examination. Enough time was given to assessing officer to examine the additional evidences and submit the remand report; however, the assessing officer was gross negligent to submit the remand report. Therefore, ld CIT(A)
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani has himself examined the evidence, thus we do not find any irregularity in the procedure adopted by ld CIT(A), therefore, we approve and confirm the findings of ld CIT(A) and consequently, we dismiss ground no.1 raised by the Revenue.
In the result, appeal filed by the Revenue (in ITA No.305/SRT/2017) is dismissed.
Now, coming to assessee’s appeal in ITA No. 382/SRT/2017 for AY.2012-13 wherein the grounds of appeal raised by the assessee are as follows: “1.On the facts and circumstances of the case as well as law on the subject, the learned CIT(Appeals) has erred in confirming the action of assessing officer in making addition of Rs.3,23,34,800/- by treating the sale of agricultural land as business income instead of capital gain as claimed by the assessee. 2. On the facts and circumstance of the case as well as law on the subject, the learned CIT(Appeals) has erred in confirming the action of assessing officer in rejecting the claim of deduction of Rs.3,19,69,268/- on account of purchase of agricultural land u/s 54B of the Act. 3. It is therefore prayed that the additions/disallowed made by Assessing Officer and confirmed by CIT(Appeals) may please be deleted. 4. Assessee craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
Succinct facts are that during the assessment proceedings, the assessing officer observed that in assessee’s balance sheet agricultural lands are shown however no agricultural income has been shown because assessee is not involved in any agricultural activities. Therefore, assessing officer observed that first and most important issue to be determined is whether the land is held as investment or stock in trade. If the agricultural land is held as stock in trade then the sale of such lands is taxable as business income and no exemption under the Act is provided in this regard. The assessing officer observed that in the capital account assessee has claimed interest expenses of Rs.21,42,588/- and the same interests were paid to persons from whom assessee obtained unsecured loans and advances for purchasing lands, so it is very clear that assessee has the lands out of unsecured loans / advances received and he also paid interest on those loans. Since the assessee has failed to furnish adequate evidence, therefore
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani assessing officer treated land sold by the assessee, as stock in trade and sale proceeds was considered as business receipts and difference amount of Rs. 3,23,34,800 (3,30,48,000 - 7,13,200 ) was treated as income from business added to total income of assessee.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the assessing officer. Aggrieved, the assessee is in further appeal before us.
Shri Rasesh Shah, Learned Counsel for the assessee, submitted before the Bench that section 2(14) of the Income Tax Act, 1961 defines capital asset and which states that "property of any kind held by an assessee, whether or not connected with his business or profession" is a capital asset. Further the said definition is an exclusive definition meaning thereby that if the said land is not covered in any of the exclusions, it would be a capital asset and as per Section 45 which is the charging section for capital gains, the said transaction would be subjected to capital gains and not business income. In the course of appellate proceedings, it is submitted that the assessee has entered into transaction of sale of agriculture land. The nature of land being agriculture land itself is one of the major factor to consider the said transaction as capital gain. There cannot be said to be intention to trade in the agricultural land as in Gujarat the agricultural land can be purchased only by the person who is Agriculturist. So, there is restriction to find the potential buyer and it cannot be said that assessee purchased the impugned land to hold as stock in trade. Therefore, asset falls in the definition of investment activities, and not the business activities.
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 23. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. Counsel, we find that assessee is not doing business of purchase and sale of land. We note that
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani assessing officer has drawn an adverse inference in the year under consideration because assessee has purchased land at three places and sold land at Dumas. This activity of assessee does not prove that asset is in the category of stock in trade. The Ld Counsel submits that said frequency, in fact, is very less and just because the average value of transaction as mentioned by the Assessing Officer is more, the said transaction cannot be said to be in nature of trading (business activity). Assessee purchased agricultural lands for the purpose of availing deduction u/s 54B of the Act. The said agricultural lands were purchased at village Kosmada & Parvat village which are far from city center of Surat. So it cannot be said that the assessee has purchased the land with the intention to trade. The assessing officer also observed that assessee purchased the land at Kosmada during the year under consideration out of the borrowings on which the interest was paid. However, the impugned land which was sold was purchased on 22.03.2009 and there is no finding of the assessing officer that this land was purchased out of the borrowings. Further, the assesses is having the capital of Rs. 23,76,07,572/- as on 31.03.2011 and Rs. 26,03,47,808/- as on 31.03.2012. The investment in fixed assets in form of land and motor car and other immovable properties is only Rs. 11,51,52,341/- as on 31.03.2012 which is very less than capital owned by the assessee. It is not a case where assessee has entered into an adventure in the nature of trade and in fact assessee has not carried out any sort of activities which a trader would undertake like plotting of land, fencing, etc, or construction on said land. No development work was carried out by the assessee and no expenditure was incurred with respect to the impugned property. Further, the assessee has proved that the subject land sold by him was agricultural land at the point of sale, and was not converted into non -agricultural land before sale. Further, the potential non-agricultural value of the land for which a purchaser may be prepared to pay a larger price did not lure the assessee for conversion of the land before sale, and hence the land was sold for as an agricultural land. This fact clearly goes on to prove that intention of the assessee is not to trade in land.
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani 24. Another main factor which decides the nature of transaction being capital gain or business income is the time devoted on the activity. The ld Counsel submits that assessee is getting Salary from Radiant English Academy which is a School. This shows that assessee has not devoted any major time for the said alleged business activity and the person who is salaried employee; it is very difficult to do business. The ld Counsel further submitted that assessee has classified the land in his Balance Sheet as investment activity. Therefore, we note that assessee has discharged the primary onus to prove that assessee is not into the business of purchasing and selling of land as a business activity. 25. What is again important is the post utilization of proceeds of sale to determine the intention of assessee. It is submitted by ld Counsel that the intention of the assessee was not to enter into any trade to purchase and sale of land, therefore, instead of investing the sale consideration in any other construction business, the assessee had made the investment in another agricultural land. The assessee has not invested the sales proceeds in a non- agricultural land or development of project which would have more scope of trading profits in form of capital appreciation. This action of the assessee thus gives an indication about the intention of the assessee that he is not trader. The ld Counsel also submitted before us that in the scrutiny assessment for assessment year 2013-14, the sale of agricultural land was considered as the sale of capital asset vide order passed u/s 143(3) on 21.03.2016.
The Hon`ble Gujarat High Court in the case of CWT V/s. Shashiben [288 ITR 0319] (Guj HC) held that if the land is recorded as agricultural land, it has to be treated as agricultural land irrespective of inflation or escalation in price thereof; sale of agricultural land in the later year at a higher rate did not change the character of the land. Thus, we note that land was sold as an agricultural land and in fact, what was sold was agriculture land. What was the intention of the purchaser cannot be the determinative fact to treat the profit earned by the assessee on sale of agriculture land as business income. Similar merely because for whatever reason, the assessee has earned huge amount of profit also cannot
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani be a ground to treat the profit earned by the assessee on sale of agriculture land as busine income. Based on these facts we treat the land as an investment activity and not stock in trade. Therefore, assessing officer is directed to treat the sale of agricultural land as capital gain income.
In the result, ground No.1 raised by the assessee is allowed.
Now coming to ground No.2 raised by the assessee. We have heard both the parties and noted that assessing officer rejected the claim u/s 54B of the Act on the ground that income from the impugned sale of the land was treated as the business income instead of assessee's claim for long term capital gain. He further held that even otherwise the deduction u/s. 54B is not allowable as no agricultural activities were done in the land so sold by assessee and also on the new land purchased. Before us ld Counsel for the assessee has furnished the relevant evidences and contended that assessee is eligible to claim deduction u/s 54B of the Act. We note that in the revenue records and registered sale deed of land so sold and land newly purchased are described agricultural land, that is, in revenue records the nature of the land is agricultural land, hence assessee is eligible to claim deduction under section 54B of the Act. Moreover, we have allowed ground no.1 raised by the assessee stating that sale of land is capital gain and not business income, hence assessee is eligible to claim deduction under section 54B of the Act. However, we are of the view that an opportunity should be given to the Assessing Officer to examine the conditions mentioned in Section 54B of the Act. If the assessee satisfies the conditions mentioned in Section 54B of the Act, then Assessing Officer should allow deduction under section 54B of the Act in accordance with law. Therefore, we remit this issue back to the file of the assessing officer to examine conditions mentioned under section 54B of the Act and adjudicate the issue in accordance with law. Statistical purposes, ground no.2 raised by the assessee is allowed.
In the result, ground No. 2 raised by the assessee is allowed for statistical purposes.
ITA 305 & 382/SRT/2017/AY.2012-13 737 Maheshbhai V. Savani 30. In the combined result, appeal filed by the Revenue (305/SRT/2017) is dismissed whereas appeal filed by the Assessee (382/SRT/2017) is partly allowed for statistical purposes.
Registry is directed to place one copy of this order in all appeals folder / case file(s).
Order is pronounced in the open court on 29/07/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963.
Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat �दनांक/ Date: 29/07/2022 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat