Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income-Tax,, vs Sai Baba Sales Pvt. Ltd.,, Pune on 30 December, 2016
आयकर अपील य अ धकरण, पुणे यायपीठ "ए" पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
ी आर. के. पांडा, लेखा सद य एवं
ी वकास अव थी, या"यक सद य के सम#
BEFORE SHRI R.K. PANDA, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No.1854/PUN/2014
"नधा%रण वष% / Assessment Year : 2008-09
DCIT, Circle-10, Pune .......... अपीलाथ /
Appellant
बनाम v/s
Sai Baba Sales Pvt. Ltd.,
Plot No.54, Tapkir Nagar, .......... यथ /
Kalewadi, Pimpri,
Respondent
Pune - 411 018
PAN : AAJCS4471P
Assessee by : Shri S.N. Doshi
Revenue by : Shri Anil Chaware
सुनवाई क तार ख / घोषणा क तार ख /
Date of Hearing : 28.12.2016 Date of Pronouncement: 30.12.2016
आदे श / ORDER
PER R.K.PANDA, AM :
This appeal filed by the Revenue is directed against the order dated 16-07-2014 of the CIT(A)-V, Pune relating to the Assessment Year 2008-09.
2. Facts of the case, in brief, are that the assessee is a company deriving income from rental income and income from other sources, i.e., interest income as in the past. During the year under consideration, the assessee company has started business of building construction which is not completed during this financial year. It filed its return of income on 27-09-2008 declaring total 2 ITA No.1854/PUN/2014 income of Rs.11,84,440/-. During the course of assessment proceedings the Assessing Officer verified the depreciation schedule and noticed that the land at Rahatane was sold for Rs.58 lakhs to M/s. Divya Properties on which profit of Rs.45,75,000/- was earned. Another land at Jagtap dairy at Wakad was sold for Rs.40 lakhs and profit of Rs.30 lakhs was earned. However, the same was not offered for taxation. The Assessing Officer, therefore, asked the assessee to explain as to why the profit earned has not been shown in the computation of income. It was explained by the assessee that due to legal disputes, possession of the same was not given and therefore profit was not shown in respect of sale of the above land.
3. However, the Assessing Officer did not accept the above contention of the assessee. He observed that the land has been shown in the block of assets and therefore the same was stock in trade and accordingly profit on the same was required to be offered for taxation under the head business income. Without prejudice to the above the Assessing Officer also was of the view that since the land was sold within 3 years, therefore, even if it is assessed under the head "short term capital gain" the same will be at normal rate of tax. The Assessing Officer accordingly made addition of Rs.45,75,000/- in respect of the land at Rahatane and Rs.30 lakhs in respect of the land at Wakad. Thus, the Assessing Officer made total addition of Rs.75,75,000/- to the total income of the assessee on account of profit on sale of the land.
4. Before CIT(A) the assessee submitted that the land at Rahatane was held by Shri Kripal Ghansham Gehani, one of the directors, in his individual capacity and the same was not held by 3 ITA No.1854/PUN/2014 the assessee company. The assessee also submitted that the error has crept in the books of the assessee company on account of error of the Accountant. Based on the arguments advanced by the assessee the Ld.CIT(A) called for a remand report from the Assessing Officer. The Assessing Officer after verification of the additional evidence found that the assessee had not come forward with the fact that the said property belong to Shri Kripal G. Gehani any time during the course of assessment proceedings and the documents such as sale deeds and copy of development agreements submitted by the assessee during assessment proceedings were taken into consideration before making the addition on this ground and therefore the additional evidence was not found to be true and hence should not be taken cognizance of.
5. The Ld.CIT(A) confronted the copy of the remand report to the assessee. The assessee submitted that the Assessing Officer has misconstrued the purpose of forwarding the copy of its submission for his comments. It was submitted that these evidences are not additional evidence since the copies of the sale deeds and development agreements were already filed before the Assessing Officer but this argument was never taken before the Assessing Officer. It was argued that the Assessing Officer has not properly examined the documents filed before him which he was supposed to do.
6. Based on the arguments advanced by the assessee, the remand report of the Assessing Officer and the counter comments of the assessee to such remand report the Ld.CIT(A) directed the Assessing Officer to delete the profit on sale of land at Rahatane from the income of the assessee company and held that such 4 ITA No.1854/PUN/2014 income should be taxed in the hands of the director Shri Kripal G. Gehani in whose name the land was purchased and sold. He accordingly directed the Assessing Officer to issue notice u/s.148 r.w.s. 150 of the I.T. Act and tax the same in the hands of Shri Kripal G. Gehani. The relevant observation of the CIT(A) at para 12 of the order reads as under :
"12. I have carefully considered the facts of the case as well as reply of the appellant. In this case, it is clear from the report of the Assessing Officer that he has not understood the real purpose of asking for his comments on the issue, as highlighted by the learned counsel of the appellant. The main purpose of writing a letter to the Assessing Officer was to examine the appellant's plea that the profit in respect of land at Rahatani actually belongs to Shri Kripal Ghansham Gehani, was correct or not? which has not been answered by the Assessing Officer and he has merely harped on the fact that these documents were examined by the Assessing Officer during the course of assessment proceedings. It is true that this claim was not made before the Assessing Officer at the time of original assessment by the appellant and appellant merely took the stand that since the possession was not given, the same was not taxable. However, subsequently the income of the same has been offered in the hands of Shri Kripal Ghansham Gehani, one of the Directors of the company in whose name the land was purchased. This being so, it was incumbent upon the Assessing Officer to verify this claim which has not been done. Any way after going through the records, it is seen that the land has been purchased and sold by Shri Kripal Ghansham Gehani, the Director in his individual capacity and the fact that it was shown in the books of Account in the Block of Assets will not change the issue of taxability of income, as held by Hon'ble Supreme Court in the case of Kedarnath Jute Mils, the method of accounting followed by the assessee is not the sole criteria for determining the income. This being so, it is held that profit on sale of land at Rahatani is taxable in the case of Shri Kripal Ghansham Gehani in whose name the land was purchased and sold. Since Shri Kripal Gehani has purchased the land for development, the same was business asset and is required to be taxed as business income. Accordingly, the Assessing Officer is directed to issue notice u/s.148 r.ws. 150 of Income-tax Act and tax the same in the hands of Shri Kripal G. Gehani. As regards sale of Wakad land is concerned, I do not find any merit in the submission of the appellant. The land in question was shown in the Books of Account of the appellant company in the Block of Assets which was sold by the appellant and therefore profit on the same was required to be offered for taxation as business income. Since, the appellant has not done so, the Assessing Officer was perfectly justified in taxing the same as business income and making the addition of Rs.30 lacs. Accordingly, action of the Assessing Officer in adding Rs.30 lacs on account of profit in respect of Wakad land is upheld, while the Assessing Officer is directed to assess profit on sale of land at Rahatani as business income in the hands of Shri Kripal G. Gehani. Accordingly, the grounds are partly allowed."5 ITA No.1854/PUN/2014
7. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds :
"1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition made by the AO on account of profit for sale of land and assess the same in the hands of director, which is not only shown in the balance sheet of the company, but fund for investment is also from the assessee company.
2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in directing the AO to tax the income in the hands of the Director in individual capacity.
3. The appellant craves leave to add, amend or alter any of the above grounds of appeal."
8. The Ld. Departmental Representative while supporting the order of the Assessing Officer submitted that although the land was in the name of the director yet the same was not only shown in the balance sheet of the assessee company but also the fund has been utilized from the assessee company. He submitted that the decision quoted by the Ld.CIT(A) in the case of Kedarnath Jute Mfg. Co. Ltd. reported in 82 ITR 363 (Supra) is misplaced since the funds for the purchase of the said land is out of the funds of the assessee company and not of the director. He submitted that the Pune Bench of the Tribunal in various decisions has held that though the vehicle is in the name of the director yet the fund is out of the firm and hence depreciation is allowable in the hands of the firm. Therefore, the profit from sale of land at Rahatane required to be taxed in the hands of the assessee firm and not in the hands of the director. The same is only criteria to decide the ownership of the land and moreover the land is also shown in the balance sheet. 8.1 Referring to the decision of the Hon'ble Allahabad High Court in the case of CIT Vs. Varanasi Auto Sales Pvt. Ltd. reported in 190 taxmann 60 he submitted that the direction of the CIT(A) to issue 6 ITA No.1854/PUN/2014 notice u/s.148 r.w.s. 150 to tax the profit in the hands of the director in individual capacity is not acceptable. He accordingly submitted that the order of the CIT(A) be reversed and that of the Assessing Officer be restored.
9. The Ld. Counsel for the assessee on the other hand submitted that the director Shri Kripal G. Gehani has filed revised return of income on 19-1-2012 by declaring the profit on sale of the land at Rahatane. He submitted that despite the direction given by the Ld.CIT(A) to issue notice u/s.148 of the I.T. Act to tax the profit in the hands of the director Shri Kripal G. Gehani the Assessing Officer has not yet issued any notice u/s.148 till date. He submitted that since the land was purchased in the name of Shri Kripal G.Gehani, director of the assessee company and the land was sold by Shri Kripal G. Gehani, therefore, the profit, if any, has to be taxed in his hands and not in the hands of the company. He submitted that the land was shown in the balance sheet of the company due to some clerical error. He accordingly submitted that since the order of the CIT(A) is in consonance with law, therefore, the same should be upheld and the grounds raised by the Revenue should be dismissed.
10. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee company in the instant case had sold the land at Rahatane for Rs.58 lakhs to M/s. Divya Properties vide agreement dated 02-02-2008 on which profit of Rs.45,75,000/- was earned. Another land at Jagtap dairy at Wakad was also sold for Rs.40 lakhs and profit of Rs.30 lakhs 7 ITA No.1854/PUN/2014 was earned. However, the profit on such land was not shown in the computation of income. The Assessing Officer, therefore, asked the assessee to explain as to why the same should not be taxed. It was explained by the assessee that due to certain litigation the possession was not given and therefore the profit was not shown. We find rejecting the explanation given by the assessee the Assessing Officer made addition of Rs.75,75,000/- to the total income of the assessee on the ground that land was shown in the block of assets of the assessee company and the same was stock in trade and therefore profit on the same should have been offered for taxation under the head business income. It was also his stand that since the land was sold within 3 years, therefore, it has to be assessed under the head short term capital gain. The same will be charged under the normal rate of tax. He accordingly made addition of Rs.75,75,000/-.
11. We find before CIT(A) the assessee took a stand in respect of the land at Rahatane that the same was purchased in the name of the director of the assessee company Shri Kripal G. Gehani in his individual capacity and the same was also sold by him in his individual capacity. Due to some mistake by the Accountant, the same was shown in the balance sheet of the assessee company. However, the fact remains that the land was purchased in the name of the director of the assessee company and sold by him, therefore, profit, if any, has to be taxed in his individual hand. We find in appeal the Ld.CIT(A) following the decision of Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. (Supra) allowed the claim of the assessee holding that the profit on sale of the land at Rahatane has to be taxed in the hands of the director 8 ITA No.1854/PUN/2014 Shri Kripal G. Gehani and not in the hands of the assessee company. We find no infirmity in the same. Admittedly, the assessee before the Assessing Officer has filed the copy of the sale deed showing purchase of the land at Rahatane which was in the name of Shri Kripal G. Gehani. Copy of the sale deed showing sale of the above land by Shri Kripal G. Gehani to M/s. Divya Properties was also available before the Assessing Officer. No doubt the assessee has not raised the objection before the Assessing Officer that the profit on sale of land has to be shown in the hands of the director of the assessee company. However, it is also the settled proposition of law that tax should be computed in the correct hands. We find based on the arguments advanced by the assessee the Ld.CIT(A) directed the Assessing Officer to tax the profit in the hands of the director of the assessee company by issuing notice u/s.148 of the I.T. Act. On the basis of such direction, we do not find any loss of Revenue since the profit ultimately has to be taxed in the hands of the director instead of the company. Further the Assessing Officer may also explore the possibility of invoking the provisions of section 2(22)(e) of the I.T. Act in such reassessment proceedings as per law in case the company has advanced any money to the director for purchase of land at Rahatane. We further find despite such a direction given by the CIT(A) to the Assessing Officer to issue notice u/s.148 r.w.s. 150 of the I.T. Act and to tax the profit in the hands of Shri Kripal G. Gehani the same has not been implemented by the Assessing Officer, a statement made by the Ld. Counsel for the assessee at the bar. Since the order of the CIT(A) in the instant case in our opinion is fully justified we do not find any infirmity in the same. However, we direct the Assessing Officer to fully implement the 9 ITA No.1854/PUN/2014 order of the CIT(A) and bring the gain on sale of the land at Rahatane to tax by following the due process of law. We hold and direct accordingly. Grounds raised by the Revenue are accordingly dismissed.
12. In the result, the appeal filed by the Revenue is dismissed.
Pronounced in the open court on 30-12-2016.
Sd/- Sd/-
(VIKAS AWASTHY) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
पण
ु े Pune; दनांक Dated : 30 December, 2016.
th
सतीश
आदे श क( )"त+ल प अ,े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. The CIT(A)-V, Pune
4. CIT-V, Pune
5. "वभागीय $त$न)ध, आयकर अपील य अ)धकरण, "A Bench" पुणे / DR, ITAT, "A Bench" Pune;
6. गाड1 फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, //स या"पत $त / True C// // True Copy // व%र&ठ $नजी स)चव / Sr. Private Secretary आयकर अपील य अ)धकरण, पुणे / ITAT, Pune