Income Tax Appellate Tribunal - Hyderabad
Ch. Narsimha Reddy,, Hyderabad vs Assessee on 26 March, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
Sl.
ITA No. A.Y. Appellant Respondent
No.
1. 803/Hyd/2013 2007 08 Sri Ch. Narasimha Reddy, The Asst CIT
2. 764/Hyd/2013 2008 09 Hyderabad Cent. Circle 1
3. 765/Hyd/2013 2009 10 PAN: ABJPC6524F Hyderabad
4. 819/Hyd/2013 2003 04 Smt. Ch. Kalpana,
5. 820/Hyd/2013 2005 06 Hydera bad, PAN: do
AEXPC9173R
6. 785/Hyd/2013 2007 08 Sri C. Gopal Reddy,
7. 767/Hyd/2013 2008 09 Hyderabad do
8. 768/Hyd/2013 2009 10 PAN: ABJPC6525E
9. 804/Hyd/2013 2003 04
10. 805/Hyd/2013 2005 06 Sri Ch. Mahender Reddy,
Hyderabad do
11. 806/Hyd/2013 2008 09 PAN: ABOPC7402H
12. 807/Hyd/2013 2009 10
13. 769/Hyd/2013 2003 04
14. 770/Hyd/2013 2004 05 Sri Ch. Malla Reddy
15. 771/Hyd/2013 2005 06 Hyderabad do
16. 772/Hyd/2013 2008 09 PAN: ABWPC2441A
17. 773/Hyd/2013 2009 10
Sri Ch. Bhoopal Reddy,
18. 766/Hyd/2013 2008 09 Hyderabad; do
PAN:ADDPC8979L
19. 821/Hyd/2013 2008 09 Smt. Ch. Swaroopa,
Hyderabad do
PAN: ACIPC2626G
Smt. Ch. Vasanthalatha,
20. 822/Hyd/2013 2008 09 Hyderabad do
PAN: ACYPC2835M
Smt. C. Lakshmi,
21. 823/Hyd/2013 2008 09 Hyderabad do
PAN: AGRPL2308M
Sri Ch. Srisailam Reddy,
22. 824/Hyd/2013 2008 09 Hyderabad, do
PAN: ADDPC8977E
Sri P. Satyawati,
23. 825/Hyd/2013 2008 09 Hyderabad do
PAN: BLPPP4248E
Smt. D. Bharathi
24. 902/Hyd/2013 2008 09 Hyderabad, do
PAN: ANSPB3241B
25. 814/Hyd/2013 2005 06 Shri M. Laxman Reddy
26. 815/Hyd/2013 2006 07 Hyderabad do
27. 816/Hyd/2013 2009 10 PAN: ADTPM0709Q
28. 799/Hyd/2013 2003 04
29. 800/Hyd/2013 2005 06 Sri Ch. Bhadra Reddy
Hyderabad do
30. 801/Hyd/2013 2008 09 PAN: ABVPC7579C
31. 802/Hyd/2013 2009 10
Appellant by: Sri S. Rama Rao
Respondent by: Sri P. Soma Sekhar Reddy
Date of hearing: 26.03.2014
Date of pronouncement: 06.06.2014
2
ITA No. 764/Hyd/2013 & Ors.
Sri Ch. Narsimha Reddy & Ors.
========================
ORDER
PER CHANDRA POOJARI, A.M.:
All the above appeals by different assessees are directed against different orders of the CIT(A)-I, Hyderabad for the respective assessment years. Since all the assessees belong to one group and the issues being identical, these appeals are clubbed together, heard together and are being disposed by this common consolidated order for the sake of convenience. ` ITA Nos. 769, 770, 771, 772 and 773/Hyd/2013 Sri Ch. Malla Reddy
2. Firstly, we take up appeals in ITA Nos. 769, 770, 771, 772 and 773/Hyd/2013 in respect of Sri Ch. Malla Reddy for A.Ys. 2003-04, 2004-05, 2005-06, 2008-09 and 2009-10, respectively.
3. The first common ground in these appeals is that the CIT(A) erred in holding that while completing assessment u/s. 153A addition can be made without reference to seized documents.
4. Facts of the case in brief, as narrated in ITA No. 769/Hyd/2013, are that a search and seizure operation was conducted in the residential premises of the assessee on 7.8.2008. Subsequently, a notice u/s. 153A was issued for the A.Ys. 2003-04 to 2008-09. In response, the assessee filed his return of income for the A.Y. 2007-08 on 5.8.2010. The particulars of the return of income filed by the assessee originally for these years, as also those filed in response to the notice u/s. 153A are as under:
3 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
======================== Agri.
Date of Income Income as Income
A.Y. filing as per Agri. per return in return
original original Income after 153A after
return return notice 153A
notice
2003 04 31.03.2004 78,620 4,01,369 78,620 4,01,369
2004 05 31.03.2005 4,60,900 4,70,000 4,60,900 4,70,000
2005 06 31.03.2007 3,60,010 2,62,645 3,60,010 2,62,645
2008 09 3,08,27,386 3,74,100
5. The learned AR submitted that the AO framed the assessment for these assessment years u/s. 143(3) r.w.s.
153A without any basis of seized material and the AO has used all the materials which were already available on record to pass the assessment order u/s. 143(3) r.w.s. 153A of the Income-tax Act, 1961. Being so, that assessment order is to be cancelled.
6. On the other hand, the learned DR submitted that as per the provisions of section 153A the assessments need not be confined to evidence found during the course of search and it could be framed on the basis of evidence and information in the possession of the AO. He relied on the judgement of jurisdictional High Court in the case of Gopal Lal Badruka & Ors., vs. DCIT reported in 346 ITR 106 wherein it was held that for the proceedings u/s. 153A/ 153C, the AO can take into consideration material other than what was available during the course of search and seizure operation for making assessment of undisclosed income of the assessee.
7. We have heard both the parties and perused the material on record. In this case, the AO framed assessment u/s. 143(3) r.w.s. 153A consequent to search action conducted at the residence of the assessee on 7.8.2008. The assessee filed cash flow statement in the 4 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== course of assessment. It was found by the AO that certain income was not shown by the assessee in its return of income that lead to the addition in these assessment years. The assessee's main contention is that initiation of proceedings u/s. 153A is bad in law as there was no incriminating material found during the course of search and seizure action. In the present case returned filed for these assessment years pending on the date of search. Consequently, by virtue of the proviso to section 153A, the assessment for these assessment years stands abated on the date of initiation of search. Therefore, even if there is no incriminating material to indicate any undisclosed income or income escaped assessment during the original assessment completed u/s. 143(3), the AO is bound to make assessment u/s. 153A for all these assessment years. More so, this issue is covered against the assessee as per the judgement of jurisdictional High Court in the case of Gopal Lal Badruka (cited supra) and also by the order of the Tribunal Special Bench of Mumbai, in the case of All Cargo Global Logistics Pvt. Ltd. vs. DCIT reported in 137 ITD
287. Accordingly, this ground is dismissed.
8. The next ground in ITA No. 769/Hyd/2013 is with regard to disallowance of expenditure of Rs. 54,059. The assessee claimed expenditure of Rs. 54,059 out of commission income of Rs. 2,67,700 which was disallowed by the AO. The contention of the assessee's counsel is that the amount had been shown in the original return of income whereas there was no contradicting evidence in the seized material suggesting non-incurring of such expenditure by the assessee so as to disallow the same.
5 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
9. The DR submitted that no details of expenditure in respect of expenses of Rs. 54,059 were furnished. Being so, it was disallowed.
10. We have heard both the parties and perused the material on record. The AO disallowed the expenditure of Rs. 54,059 without an iota of discussion in his order. There is no finding by the AO regarding how he doubted this expenditure and he in a mechanical manner disallowed the same which is not proper. Had he doubted the expenditure, he ought to have called for evidence and confronted the assessee to prove the genuineness of the expenditure. In absence of this, in our opinion, the said expenditure cannot be disallowed. Accordingly, this ground is allowed.
11. The next ground in ITA No. 769/Hyd/2013 is with regard to addition of Rs. 3,25,000 towards unexplained credit. The assessee had shown Rs. 3,25,000 as receipts from sale of agricultural land in the cash flow statement furnished during the course of assessment proceedings. According to the lower authorities there is no evidence to suggest the receipt of this amount is from sale of agricultural land and the same was added back u/s. 68 of the Act.
12. The learned AR submitted that the amount of Rs. 3,25,000 shown by the assessee as a receipt on sale of agricultural land in his regular return of income and the Department having failed to examine this in the regular 6 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== assessment, it cannot be questioned in the assessment u/s. 143(3) r.w.s. 153A of the Act.
13. We have heard both the parties and perused the material on record. Once the search takes place u/s. 132 of the Act and the assessment is framed u/s. 143(3) r.w.s. 153A of the Act, the AO retains original jurisdiction as well as conferred jurisdiction on him u/s. 153A of the Act for which assessment shall be made for each of the six assessment years separately. In other words, any addition to the income that has been already assessed, the assessment u/s. 153A will be made on the basis of incriminating material as well as on the basis of other evidence in the possession of the AO. Being so, while framing assessment u/s. 153A if it came to the knowledge of the AO that any income is not properly explained, it is left to the AO to make addition to that extent. The contention of the AR is that this receipt of amount has already appeared in the return of income and it cannot be questioned in assessment u/s. 143(3) r.w.s. 153A of the Act. However, it was held in the case of Gopal Lal Badruka (cited supra) wherein held that by virtue of section 158BI of the Act, various provisions of Chapter XIVB of the Act are made in applicable to the proceedings u/s. 153A/153C of the Act. The effect of this is that while provisions of Chapter XIVB of the Act limit the enquiry by the AO to those materials found during the course of search and seizure operation, no such limitation is found in so far as section 153A/153C of the Act are concerned. Consequently, there is no necessity of seized material to frame the assessment u/s. 153A of the Act as required for 7 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== framing assessment u/s. 158BC r.w.s. 158BB of the Act. Being so, the assessee is required to explain the source of Rs. 3,25,000 while framing the assessment u/s. 153A of the Act. Before the learned AR submitted that the assessee has material to suggest that the assessee has received this amount of Rs. 3,25,000 from sale of agricultural land. Considering the plea of the assessee, we are inclined to remit this issue to the file of the AO to explain the source of receipt of Rs. 3,25,000. Accordingly, this ground is remitted back to the file of the AO for fresh consideration. ITA No. 769/Hyd/2013 is partly allowed for statistical purposes.
14. The second ground in ITA No. 770/Hyd/2013 is with regard to sustaining addition of Rs. 1,25,000 u/s. 68 of the Act. This issue is relating to receipt of Rs. 1,25,000 out of the sale proceeds from agricultural land. As this issue is similar to the ground in A.Y. 2003-04 relating to receipt of Rs. 3,25,000, as discussed in earlier paras, this ground is remitted back to the file of the AO for fresh consideration.
ITA No. 770/Hyd/2013 is also allowed partly for statisticalpurposes.
15. ITA No. 771/Hyd/2013: The second ground in this appeal is with regard to sustaining addition capital gain arising out of development agreement with R.V. Nirman Pvt. Ltd. (for short RVNPL) though it was already assessed in the hands of the HUF and taxed in A.Y. 2008-09. Facts of the issue are that during the course of search action a development agreement cum GPA was found and seized, at page No. 76-90 of Annexure A/GNY/Res/PO/01 from the premises of the assessee. The said development 8 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== agreement cum GPA is executed by the assessee and others along with family members on 16.9.2004 in favour of M/s. RVNPL. According to the AO, the possession of the property was handed over to the developer for construction of residential units.
16. The AO noticed that as per the Development Agreement, the cost of the project admeasuring 70,000 square feet (sft) was Rs. 3,42,00,000. As against this, the cost of acquisition of the entire land of 2 acres was Rs. 23,64,688, including registration charges. Accordingly, the cost of land forgone by the owners of 9680 square yards (sqy) was taken at Rs. 14,95,480/-. Since 3 years had not been fully completed, the transaction was considered as resulting in Short Term Capital Gains of Rs. 3,27,04,520 and the assessee's l/8th share therein was determined at Rs, 40,88,065. Being so, the AO invoked the provisions of section 2(47)(v) of the Act and brought the capital gain into taxation. Against this the assessee is in appeal before us.
17. The learned AR submitted that in the previous year 2004-05, the assessee had entered into a development agreement-cum-GPA with M/s. RVNPL as the Karta of HUF, possession of land was handed over to the developer and the constructed area was received by the HUF. He contended that since the property belonged to HUF and the assessee had filed the return of income admitting the capital gain on completion of construction in the case of HUF, in the first instance; the income could not have been assessed in the hands of individual. Without prejudice to 9 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== the above, the AR submitted that capital gains in respect of this transaction also could not have been brought to tax in the A.Y. 2005-06. He claimed that in respect of this property, development work was indeed undertaken by the developer and construction was completed. However, since the property belonged to HUF and the HUF had admitted the same on completion of construction, the capital gains could not have been taxed in the A.Y. 2005-06. Without prejudice to the above contentions, it was submitted that the Assessing Officer adopted consideration in respect of 70000 square feet of constructed area at Rs. 3,42,00,000, being the market value for the entire constructed area, whereas he should have adopted only 36%, being the assessee's share. It was also claimed that the market rate fixed by the Sub- Registrar could not have been adopted as it included the cost of land also, which is owned by the assessee. Accordingly, it was claimed that the sale consideration was adopted without considering the exact cost of construction of the constructed area to be allotted to the assessee, whereas the value of land was also to be excluded.
18. Further he submitted that there cannot be any income recognition in the hands of the assessee for the A.Y. under consideration even if it is presumed that the land belongs to the assessee rather than HUF since the assessee has not received any substantial consideration and only given possession of the property to the vendor for the limited purpose of construction and by any stretch of imagination just a symbolic handing over of possession of 10 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== the property cannot be considered as transfer u/s. 2(47)(v) of the Act. For this purpose he relied on the following judgements/orders:
a) S. Raghurami Reddy vs. ITO, ITA No. 296/Hyd/ 2003 dated 30.7.2004.
b) CIT vs. Sri Sadia Shaikh in Tax appeal Nos. 11 and 12/2013; oral order of the High Court of Bombay at Goa.
c) S. Ranjith Reddy vs. DCIT, ITA Nos. 290, 292 and 336/Hyd/2012 dated 7.6.2013.
d) CIT vs. Smt. Najoo Dara Deboo, 38 taxmann.com 258 (All)
e) Vittal Krishna Conjeevaram vs. ITO, ITA Nos. 422 to 424/Hyd/2013 dated 10.7.2013.
f) K. Radhika & Ors. vs. ACIT, 149 TTJ 736 (Hyd).
g) CIT vs. Aatam Prakash and Sons, 219 CTR 164 (Bom).
h) Chaturbhuj Dwarkadas Kapadia vs. CIT, 260 ITR 491 (Bom).
i) Zuari Estate Development & Investment Co. Pvt. Ltd. vs. J.R. Kanekar, 271 ITR 269 (Bom).
j) Ashok Kapur (HUF) vs. ITO, 12 ITD 520 (ITAT Del)
k) DCIT vs. Asian Distributors Ltd., 70 ITD 88 (Mum).
l) S.J. Agarwal & Co. vs. ITO, 114 ITD 27 (Pune)
19. Further he relied on the decision of Third Member Chennai Bench in the case of Vijaya Productions (P) Ltd. vs. Addl. CIT, 134 ITD 19 (TM) (Chennai).
20. On the other hand, the learned DR submitted that as the assessee himself admitted in the facts of the case filed before the CIT(A) that the assessee is a co-owner of the 11 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== property along with seven persons. He drew out attention to the following facts as narrated before the CIT(A).
21. The assessee jointly along with 7 other joined into the development agreement with M/s. RVNPL. As per the AO and the case-laws referred in the assessment order pertains to the title of the transfer of land and the capital. The assessee is the owner of land admeasuring 10 guntas of land and the capital gains to be calculated and income is to be disclosed. As per the development agreement and GPA executed jointly be the appellants show only that the land was handed over to the developer for development activity and till the development is completed it cannot be treated as delivered. The delivery actually comes when the developer and land owners execute the sale deeds in the names of prospective purchasers. Till that time the assessee is the land owner and will become liable to offer any income or capital gains in the year and receives his share of developed land and executes the sale deeds as land owner along with the developer. In the assessee's case either the land was not developed nor any construction activity was completed nor was the share of the assessee delivered to him.
22. Further, he submitted that it was not the plea of the assessee before the lower authorities that the property is owned by the HUF. The fact of entering into a Development Agreement with regard to the land admeasuring Ac. 2.00 Gts. in survey No. 212 (part) at Madinaguda, Serilingampally, as evidenced by the seized material also, has not been disputed by the assessee and 12 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== others. It is also a fact that as per the said Development Agreement, the possession of land had also been given to the developer for construction of residential units thereon on 16-9-2004 itself. The consideration to be received by the land owners for foregoing their share in the said land had also been specified in the said agreement, which was 36% of the total constructed space of 70,000 sq. feet. It is however claimed by the Representative of the assessee in his submissions that the impugned land belonged to the HUF and not the assessee in his individual capacity. However, it is clear that such contention has not been evidenced by way of any documentary evidence. On the other hand, from the Development Agreement cum GPA dated 16-9-2004, it is seen that the same had been entered into by Shri Ch. Malla Reddy in his individual capacity only and not as the Kartha of his HUF. Under the circumstances, in the absence of any evidence to the effect, this contention is not acceptable.
23. The DR, with regard to the year of taxability of capital gain arising from the above transaction, submitted that in the light of the decision of the Jurisdictional Income- tax Appellate Tribunal in the case of Dr. Maya Shenoy vs. ACIT (supra), there was indeed a "transfer" as contemplated u/s. 2(47)(v) of the Act read with the provisions of sec. 53A of Transfer of Property Act, 1882. It is clear that the view taken by the Tribunal finds support from the view of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarakadas Kapadia (supra) and also by the Authority for Advance Ruling in the case of Jasbir Singh Sarkaria (2007 INDLAW AIR 14). Besides, he relied on the 13 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== order of ITAT, Cochin Bench, dated 28-9-2012 in the case of G. Sreenivasan vs, DCIT (ITA No. 188/Coch/2009) Accordingly, from the above mentioned judicial pronouncements, it is clear that since the assessee and others had entered into the above referred Development Agreement on 16-9-2004 and had also given possession of land for construction of residential units thereon, on the said date itself, the capital gains arising from such transfer was indeed chargeable to tax in the assessment year 2005-06,
24. The DR submitted, as regards the contention that the above Development Agreement gave the developers the limited right to seek necessary permission from authorities and to enter the property and construct buildings as per approved plans only, that as observed by the Cochin ITAT also in the above mentioned decision, it is a fact that the builder/developer cannot start any construction, unless physical possession of the land is handed over to him. Therefore, the DR submitted that there is no merit in the contention of the assessee that the Development Agreement amounted to only an empty permission to enter the property and carry construction. Obviously, the developers could have put in their efforts and money into the said project only in lieu of their rights in the said land, which had indeed been transferred to them by way of such Development Agreement itself.
25. The DR submitted, as regards the contention, that consideration for the transfer was neither received nor did it accrue on the date of entering into the Development 14 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== Agreement, it is an established position of law that consideration for transfer can be even futuristic. Reliance in this regard is placed on the decision of the Hon'ble Chennai Bench of the ITAT in the case of R. Kalanidhi vs. ITO (122 TTJ 405), In the assessee's case, the consideration to be received in lieu of such transfer had been clearly ascertained by specifying that the assessee and others were to get 36% of the total constructed area of 70,000 sq. feet. Accordingly, tile cost of construction of such area was to be the consideration received and the same was categorically specified on the date of entering into the Development Agreement itself.
26. The DR submitted that the assessee contented that the capital gains in respect of the above transaction had been offered by the HUF in the return filed by it after the completion of construction and that the same was accepted by the Department. However, it is clear that in the light of the decisions cited above; the correct year in which such capital gains was to be brought to tax is assessment year 2005-06 only. As held by the Cochin Bench of ITAT in the case of G. Sreenivasan (supra), such plea is against tile scheme of taxation as it is a well settled proposition of law that tax can be levied in a particular assessment year only in respect of the income assessable in that year. It has also been opined that it is neither the prerogative of the assessee nor of the Assessing Officer to offer/assess the income of a particular year in any other year. Since the capital gains from the above referred Development Agreement was rightly taxable in the assessment year 2005-06, the fact of assessee's offering 15 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== such Income in any other year cannot alter this position. Accordingly, this plea of the assessee is also cannot be accepted and the capital gain is rightly brought to tax in the assessment year 2005-06.
27. We have heard both the parties and perused the material on record. In this case the joint development agreement was entered by the assessee along with seven other persons with M/s. RVNPL on 16.9.2014. On entering this agreement, the developer has paid a sum of Rs. 75 lakhs as interest free refundable deposit to the land owners. The land owners delivered vacant physical possession of the property for development to the developer and the developer is allowed to obtain all necessary permissions and sanctions from HUDA and Serilingampally Municipality for construction of proposed building at their own cost and expenses. The sharing of built-up area between the land owners and the builder is in the ratio of 36:64, respectively. The time limit for delivering the built-up area to the land owners is 36 months from the date of obtaining necessary sanctions and permissions from HUDA and Serilingampally Municipality. It is also agreed between the parties that date of completion of first block in the proposed building shall be 15 months from the date of obtaining such permission. There is also penalty clause that if the developer failed to deliver the built-up area falling into the share of land owners within the stipulated period, then they shall be liable to pay a sum of Rs. 3 per sft per month for such delay period. There is also one more supplementary agreement 16 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== entered between the parties on 18.6.2005 with reference to the allotment of certain flats.
28. The main plea of the assessee before us is that the property is a subject matter of transfer u/s. 2(47)(v) does not belong to the assessee and it belongs to the HUF. The assessee pleaded that the capital gain arising out of such transfer is offered to tax by the assessee in the hands of the HUF for A.Y. 2008-09. He drew our attention to the copy of assessment order passed by the ACIT, Central Circle-1, Hyderabad in the case of Sri Ch. Malla Reddy HUF for A.Y. 2007-08 and copy of acknowledgement of return of income and assessment order in the case of Ch. Malla Reddy HUF for A.Y. 2008-09 placed on record in Paper Book No. 121 and 122 for A.Y. 2007-08, for A.Y. 2008-09 123-
126.
29. Further, the AR also brought on record the order u/s. 171 of the Act in the case of Ch. Malla Reddy, Ch. Narasimha Reddy and Sri C. Gopal Reddy dated 28.2.2003 vide partition deed dated 31.8.1988 which is kept on record at Paper Book No. 296. He also brought on record another order u/s. 171 dated 28.3.2000 in the case of Ch. Malla Reddy, K. Mahender Reddy, K. Bhadra Reddy vide partition deed dated 31.8.1988. It is also brought on record by the assessee that the return of income filed by the assessee as a HUF in the following assessment year:
(a) Ch. Malla Reddy HUF AY 1999-00 and 2001-02;
Paper Book p. 298 to 304 17 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
========================
(b) Ch. Bhadra Reddy HUF AY 2001-02 and 2002-03; Paper Book p. 305-310.
(c) Ch. Mahender Reddy, AY 2003-04 and 2002-03; Paper Book p. 321 to 327.
30. Thus, the learned AR submitted that the statement made by the assessee in the statement of facts with regard to property owned by the assessee individual is an error. There is ample evidence on record to suggest that the property was owned by the HUF and capital gain arising out of transfer of the said capital asset was offered to tax by HUF in the A.Y. 2007-08 and 2008-09. It cannot be taxed again in the hands of the individual assessee which amounts to double taxation. The CBDT in its circular No. 14 (XL-35) dated 11.4.1955 directed the officers not to take advantage of ignorance of the assessee as to his rights. It is one of the duties to assist the taxpayer in every reasonable way, particularly in the matter of claiming and securing relief and in this regard the officers should take initiative in guiding a taxpayer where proceedings or other particulars where they indicate that some relief is due to him, etc. The purpose of this circular is merely to emphasise that the Department should not take advantage of assessee's ignorance to collect more tax out of him that which is legitimately due from him.
31. It was held by the Karnataka High Court in the case of Gopal Ramnarayan (126 ITR 369) that "Computation of total income and tax thereon envisages the final determination by the assessing authority in terms of sections 143 or 144 of the Act. The assessee, who, for instance, had paid tax on the basis of 18 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== self- assessment under a wrong assumption that the entire income shown therein was liable to tax, is entitled to assert before the assessing authority when the case is taken up for assessment that either whole or part thereof was not liable to form part of the taxable income and that the tax paid on the basis of self-assessment was not liable to be paid, and the assessing authority, if it finds that either the whole income or part thereof was not liable to be included in the taxable income, is bound to give effect to the claim of the assessee and compute the total income of the assessee in accordance with law and not accept self-assessment regarding his total income."
32. The Hon'ble Supreme Court in the case of CIT vs. Shelly Products (261 ITR 367) that :
"We find considerable force in the submission of the revenue and it must be upheld. We have earlier noticed the scheme of the Act. Section 4 of the Act creates the charge and provides inter alia for payment of tax in advance or deduction of tax at source. The Act provides for the manner in which advance tax is to be paid and penalises any assessee who makes a default or delays payment thereof. Similarly the deduction of tax at source is also provided for in the Act and failure to comply with the provisions attracts the penal provisions against the person responsible for making the payment. It is, therefore, quite apparent that the Act itself provides for payment of tax in this manner by the assessee. The Act also enjoins upon the assessee the duty to file a return of income disclosing his true income. On the basis of the income so disclosed, the assessee is required to make a self-assessment and to compute the tax payable on such income and to pay the same in the manner provided by the Act. Thus the filing of return and the payment of tax thereon computed at the prescribed rates amounts to an admission of tax liability which the assessee admits to have incurred in accordance with the provisions of the Finance Act and the Income Tax Act. Both the quantum of tax payable and its mode of recovery are authorized by law. The liability to pay income tax chargeable under section 19 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== 4(1) of the Act thus, does not depend on the assessment being made. As soon as the Finance Act prescribes the rate or rates for any assessment year, the liability to pay the tax arises. The assessee is himself required to compute his total income and pay the income tax thereon which involves a process of self-assessment. Since all this is done under authority of law, there is no scope for contending that Article 265 is violated."
33. In the present case, it is an admitted fact that the HUF has declared the income arising out of transfer of property vide Joint Development Agreement dated 16.9.2004 in the hands of HUF for A.Ys. 2007-08 and 2008-09 and paid tax on 5.8.2009 consequent to the notice issued to the assessee u/s. 153A of the Act on 9.9.2009. For A.Y. 2006-07 the HUF has filed the return of income on the same date admitting long term capital gains which was filed consequent to the search action and notice was issued u/s. 153C of the Act on 9.9.2009. For A.Ys. 2007-08 also return of income was filed on 5.8.2010 consequent to the notice issued u/s. 153C on 9.9.2009. Further, the assessment was framed for these assessment years u/s. 143(3) r.w.s. 153C of the Act. Once the Department accepted the return of income declared by the HUF arising out of transfer of capital asset vide development agreement dated 16.9.2004 it is not proper to tax the same in the hands of the assessee in any assessment year which amounts to double taxation. Accordingly, we are inclined to hold that the lower authorities are not justified in taxing the capital gain arising out of transfer of capital asset vide development agreement dated 16.9.2004. Accordingly, we delete the addition and other grounds on this issue are 20 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== dismissed as infructuous. In the result, ITA No. 771/Hyd/2013 is partly allowed.
34. The next ground in ITA No. 772/Hyd/2013 (A.Y. 2008-
09) is with regard to finding of the CIT(A) that there was a transfer of property during the previous year under consideration within the meaning of s. 2(47)(v) of the Act and confirming action of the AO in taxing the capital gain for the assessment year under consideration.
35. As regards the addition of Rs. 1,73,74,047 towards undisclosed profit from development agreement in the assessment year 2008-09, facts are that during the course of search operation, a Development Agreement cum GPA had been found and seized from the premises of M/s. Malla Reddy Educational Society as page Nos. 16 to 51 of Annexure A/MRG/PO/01, which was a Development Agreement executed by the assessee, his family member's and other relatives in favour of M/s. Aditya Construction Co. India Pvt. Ltd. on 2-5-2007. Possession of the land had been handed over to the Developer for construction of residential units. The total impugned land of Ac. 20.17 Gts. at survey No. 98, 99 and 100, Gundla Pochampally village, Medchal Mandal was owned by 14 individuals, wherein the assessee had share to the extent of 2 acres. The entire piece of land had been given on development and the developers and land owners were entitled to 50% each of the constructed residential bungalows. As per the Development Agreement (DA), 150 units with plinth area of 3,500 square feet each were to be built.
21 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
36. On a consideration of facts, the Assessing Officer opined that since the land owners had handed over vacant and peaceful possession of the impugned land to the developer to execute the project in terms of the Development Agreement, as per the provisions of sec. 2(47)(v) of the Act, the said agreement constituted transfer. He noted that in several judicial pronouncements, it has been held that any transaction which allows the possession to be taken would constitute "transfer" within the meaning of s. 2(47): and that any transaction which involves a transfer of title in future or exchange of a property to be put up in future, would necessarily constitute a "transfer", within the meaning of s. 2(47). For this proposition, he relied on the decision of Hon'ble Income-tax Appellate Tribunal in the case of Smt. Shantha Vidya Sagar Annam vs. ITO (ITA No. 885/Hyd/2003, dated 9-6-2006). Besides, he also referred to their decision in the case of Dr. Maya Shenoy vs. ACIT in ITA No. 266/Hyd/2005 dated 24-10-2008, holding that the Development Agreement has the effect of transferring the land from the owner to the developer. The Assessing Officer also relied on the decisions in the cases of Chaturbhuj Dwarakadas Kapadia vs. Commissioner of Income-tax (2003 INDLAW MUM 47, 501) and Jasbir Singh Sarkaria (2007 INDLAW AIR
14). Accordingly, he opined that in the instant case also the assessee was liable for capital gains in the Financial Year 2006-07, the year in which the Development Agreement was entered into and the "transfer" took place. Against this, the assessee is in appeal before us.
22 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
37. We have heard both the parties and perused the material on record. As discussed in ITA No. 771/ Hyd/2013 for A.Y. 2005-06, we are inclined to hold that the capital gain cannot be computed in the hands of the present assessee as the property belongs to the HUF, as the HUF offered the said income in its hands and the same was assessed by the Department. Without prejudice, in the decision of co-ordinate Bench in the case of Mrs. K. Radhika & Others vs. DCIT, 65 DTR 250 (Hyd) held as under:
46. A plain reading of the Section 53A of the transfer of Property Act shows that in order that a contract can be termed to be "of the nature referred to in Section 53A of the Transfer of Property Act" it is one of the necessary preconditions that transferee should have or is willing to perform his part of the contract. This aspect has been duly taken note of by the Hon'ble Bombay High when their Lordships observed as follows:
"That, in order to attract Section 53A, the following conditions need to be fulfilled.
(a) There should be contract for consideration;
(b) It should be in writing;
(c) It should be signed by the transferor;
(d) It should pertain to the transfer of immovable property;
(e) The transferee should have taken possession of property;
(f) Lastly, transferee should be ready and willing to perform the contract".
47. Elaborating upon the scope of expression "has performed or is willing to perform", the oft quoted commentary "Mulla-The Transfer of Property Act" (9th Edn. : Published by Butterworths India), at p. 448, observes that:
"The doctrine of readiness and willingness is an emphatic way of expression to establish that the transferee always abides by the terms of the 23 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== agreement and is willing to perform his part of the contract. Part performance, as a statutory right, is conditioned upon the transferee's willingness to perform his part of the contract in terms covenanted there under."
Willingness to perform the roles ascribed to a party, in a contract is primarily a mental disposition. However, such willingness in the context of Section 53A of the Act has to be absolute and unconditional. If willingness is studded with a condition, it is in fact no more than an offer and cannot be termed as willingness. When the vendee company expresses its willingness to pay the amount, provided the (vendor) clears his income tax arrears, there is no complete willingness but a conditional willingness or partial willingness which is not sufficient.......
In judging the willingness to perform, the Court must consider the obligations of the parties and the sequence in which these are to be performed........"
48. We are in considered agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that 'willingness to perform' for the purposes of Section 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of Section 53A of the Transfer of Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of Section 53A of the Transfer of Property Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer under Section 2(47)(v) of the IT Act. Let us therefore consider whether the transferee, on the facts of the present case, can be said to have 'performed or is willing to perform' its obligations under the agreement.
24 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
49. Even a cursory look at the admitted facts of the case would show that the transferee had neither performed nor was it willing to perform its obligation under the agreement in the assessment year under consideration. The agreement based on which capital gains are sought to be taxed in the present case is agreement dated 11.05.2005 but this agreement was not adhered to by the transferee. The transferee originally made a payment of Rs .10 lakhs on 11.5.2005 and another payment of Rs. 90 lakhs on the same day as refundable security deposit. However, out of this a sum of Rs. 50 lakhs was said to be refunded by the landlord to the developer on 5.3.2009. As such, the assessee has received only a meager amount as refundable security deposit which cannot be construed as receipt of part of sale consideration. Admittedly, there is no progress in the development agreement in the assessment year under consideration. The Municipal sanction for development was obtained not in this assessment year and it was obtained only on 17.09.2006 from the Hyderabad Urban Development Authority. The sanction of the building plan is utmost important for the implementation of the agreement entered between the parties. Without sanction of the building plan, the very genesis of the agreement fails. To enable the execution of the agreement, firstly, plan is to be approved by the competent authority. In fact, the building plan was not got approved by the builder in the assessment year under consideration. Until permission is granted, a developer cannot undertake construction. As a result of this lapse by the transferee, the construction was not taken place in the assessment year under consideration. There is a breach and break down of development agreement in the assessment year under consideration. Nothing is brought on record by authorities to show that there was development activity in the project during the assessment year under consideration and cost of construction was incurred by the builder/developer. Hence it is to be inferred that no amount of investment by the developer in the 25 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== construction activity during the assessment year in this project and it would amount to non- incurring of required cost of acquisition by the developer. In the assessment year under consideration, it is not possible to say whether the developer prepared to carry out those parts of the agreement to their logical end. The developer in this assessment year had not shown its readiness or having made preparation for the compliance of the agreement. The developer has not taken steps to make it eligible to undertake the performance of the agreement which are the primary ingredient that make a person eligible and entitled to make the construction. The act and conduct of the developer in this assessment year shows that it had violated essential terms of the agreement which tend to subvert the relationship established by the development agreement. Being so, it was clear that in the year under consideration, there was no transfer of not only the flats as superstructure but also the proportionate land by the assessee under the joint development agreement. As per clause no. 12.11 and 19.1 of Development Agreement-cum Power of Attorney, time is the essence of the contract and as per clause No. 12.11 the said property is to be developed and hand over the possession of the owners' allocation to the owners' and or their nominees within 24 months from the date of receiving the sanction of the plan from HUDA and Municipality/Gram Panchayat with a further grace period of 3 months. But the fact remains that the transferee was not only failed to perform its obligations under the agreement, but also unwilling to perform its obligations in the assessment year under consideration. Even otherwise, the assessing authorities has not brought on record the actual position of the project even as on the date of assessment or he has not recorded the findings whether the developer started the construction work at any time during the assessment year under consideration or any development has taken place in the project in the relevant period. He went on to proceed on the sole issue with regard to handing over the possession of the property to the developer in part performance of the Development 26 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== Agreement-cum-General power of Attorney. In our opinion, the handing over of the possession of the property is only one of the condition u/s 53A of the Transfer of Property Act but it is not the sole and isolated condition. It is necessary to go into whether or not the transferee was 'willing to perform' its obligation under these consent terms. When transferee, by its conduct and by its deeds, demonstrates that it is unwilling to perform its obligations under the agreement in this assessment year, the date of agreement ceases to be relevant. In such a situation, it is only the actual performance of transferee's obligations which can give rise to the situation envisaged in Section 53A of the Transfer of Property Act. On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down under Section 53A of the Transfer of Property Act was not satisfied in this assessment year. Once we come to the conclusion that the transferee was not 'willing to perform', as stipulated by and within meanings assigned to this expression under Section 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the present assessment year, it is only a corollary to this finding that the development agreement dt. 11.5.2005 based on which the impugned taxability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a "contract of the nature referred to in Section 53A of the Transfer of Property Act" and, accordingly, provisions of Section 2(47)(v) cannot be invoked on the facts of this case Chaturbhuj Dwarkadas Kapadia v. CIT's case (supra) undoubtedly lays down a proposition which, more often that not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of Section 53A of the Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. The very foundation of 27 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== Revenue's case is thus devoid of legally sustainable basis.
50. That is clearly an erroneous assumption, and an the provisions of deemed transfer under Section 2(47)(v) could not have been invoked on the facts of the present case and for the assessment year in dispute before us. In the present case, the situation is that the assessee has received only a 'meager amount' out of total consideration, the transferee is avoiding adhering to the agreement and there is no evidence brought on record by the revenue authorities to show that there was actual construction has been taken place at the impugned property in the assessment year under consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is not adhered to, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on reason that the capital gains could not have been taxed in the in this assessment year in appeal before us. The other grounds raised by the assessees in their appeals have become irrelevant at this point of time as we have held that provisions of section 2(47)(v) will not apply to the assessees in the assessment year under consideration.
Consequently, the appeal filed by the revenue in ITA No. 328 to 331/Hyd/2011 have become infructuous and dismissed accordingly.
28 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
38. Accordingly, taking a consistent view, since the facts are similar, as there is no development activity undertaken by the developer in the assessment year under consideration, we are inclined to allow this ground of the assessee in ITA No. 772/Hyd/2013.
39. The next ground in ITA No. 772/Hyd/2013 is with regard to treating Rs. 5,15,400 as undisclosed income of the assessee.
40. Before the CIT(A), this ground was not pressed. Even before us also this ground is not pressed. Being so, we are not inclined to entertain this ground at this stage. Accordingly, this ground is dismissed as not pressed.
41. The next ground is with regard to addition of Rs. 29,78,040 as unexplained investment. This addition is made on the basis that the assessee has purchased property situated at Gundlapochampally admeasuring 1 acre 38 guntas for a consideration of Rs. 78,60,000 as against registered value of Rs. 48,81,906. The difference is worked out at Rs. 29,78,040. There was a loose sheet marked as "A/CMR/Res/02" which on reverse side contains the names as Sri S. Sathaiah, Sri S. Yadaiah and Sri S. Anjaiah. On sworn statement, the assessee stated that these notings relate to purchase of land admeasuring 1 acre 38 guntas situated at Gundlapochampally in the name of his son from Sri S. Sathaiah and others on 17.12.2007 for an amount of Rs. 58,72,060. The assessee explained source for Rs. 48,81,960 and balance amount of Rs. 9,90,090 is not explained and the same was offered to tax by the 29 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== assessee himself in the FY 2007-08. According to the AO as per information contained on the reverse side of the loose sheet, the consideration exchanged between the parties was Rs. 78,60,000. The assessee was not able to explain the consideration. The AO brought into tax Rs. 29,78,040 (7860,000-48,81,960). Against this, the assessee is in appeal before us.
42. Before us the learned AR submitted that though it was not pressed before the CIT(A), there was a mistake in sustaining this addition and the consideration was only Rs. 58,72,050 as per the registered document and the assessee failed to explain only Rs. 9,90,090 and the same was offered to tax. In spite of this, the AO further made addition of Rs. 29,78,040 only on the basis of loose sheet which cannot be a basis for addition as there is no corroborative material for making the addition and the addition is to be deleted. He also submitted that non- pressing of this ground before the lower authorities is an inadvertent mistake on the part of the assessee which shall be condoned and the issue may be adjudicated on merit.
43. The DR relied on the orders of the lower authorities.
44. We have heard both the parties and perused the material on record. In this case, the addition is made by the AO on the basis of loose sheet bearing No. A/CMR/Res/02. It suggests purchase of property admeasuring 1 acre 38 guntas situated at Gundlapochampally. The property was registered for a consideration of Rs. 58,72,050. There is no conclusive 30 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== evidence for passing the consideration between the parties at Rs. 78,60,000, except loose sheets. Being so, the apparent consideration disclosed in the sale deed which was duly registered with the SRO is to be considered as the consideration passed between the parties. Accordingly, we are inclined to hold that the AO shall consider the consideration only at Rs. 58,72,050 and if there is no failure on the part of assessee to explain the source of Rs. 58,72,050 for purchase of this property, the same should be treated as explained investment. This view of ours is also supported by the Supreme Court in the case of K.P. Verghese vs. ITO, 131 ITR 597. This ground is partly allowed. In the result, ITA No. 772/ Hyd/2013 is partly allowed.
45. Coming to ITA No. 773/Hyd/2013. The first issue for our consideration is that the CIT(A) erred in holding that while completing the assessment u/s. 153A of the Act additions can be made without reference to the seized documents.
46. We have heard both the parties and perused the material on record. We have considered similar issue in ITA No. 769/Hyd/2013 and decided the issue in para 7 of this order. Following the same ratio, this ground of the assessee is dismissed.
47. The next ground in this appeal is with regard to confirming addition of Rs. 44,38,710 out of Rs. 67,83,100 made by the AO.
48. Facts of the issue are that the addition of Rs. 67,83,100/- is towards unaccounted jewellery in the 31 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== assessment year 2009-10. As per the assessment order, jewellery, weighing 4340 grams and RBC diamonds weighing 85 Cents, of the total value of Rs. 68,08,100 was found in the course of search. During the search proceedings the assessee admitted amounts of Rs. 25,000 and Rs. 2,75,000 as investment from undisclosed sources in jewellery for the financial years 2007-08 and 2008-09 respectively. However, no explanation for the balance jewellery could be given. The assessee had not filed his wealth tax returns also. The acquisition of jewellery could not be substantiated even during the assessment proceedings, Accordingly, in the absence of any explanation, the balance amount of Rs. 65,08,100 was also brought to tax, leading total addition of Rs. 67,83,100 and the CIT(A) sustained Rs. 44,38,700 out of the above addition. Hence, the assessee is in appeal before us.
49. Before us the AR of the assessee submitted that the assessee hails from an affluent family and the family members had inherited the gold jewellery from their ancestors. It was claimed that the assessee's wife, his mother and grandmother had received gold jewellery from their parents and all such jewellery was available at the assessee's residence. It was contended that the Income-tax Authorities did not find any material showing purchase of jewellery during the year under consideration and hence addition could not have been made by disbelieving the assessee's claim. The AR argued that the jewellery was available with the assessee since long and the value thereof at the time of purchase was very less. He pointed out that the CBDT Circulars also stipulate that it is 32 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== common to possess 500 grams among Indian woman whereas the assessee's being an affluent agricultural family, women would receive more than 1000 grams of gold at the time of marriage.
50. The DR stated that in the course of search, gold jewellery, totally weighing 4340 grams, was found in addition to RBC diamonds weighing 85 Ct. The same was valued at Rs. 67,83,100. The said jewellery was claimed as belonging to the assessee's wife, his mother and grandmother. It is the contention of the assessee that as per the Board Circular No. 1916 dated 11-5-1994, it is common to possess 500 grams of gold jewellery among Indian women. However, since the assessee hails from an affluent agricultural family, women in his family would have received more than 1000 grams of gold at the time of their marriage, which should be considered explained, However, as regards the Instruction No. 1916 stated above, it is clear that the said Instruction itself is in fact in the nature of a guideline for dealing with the jewellery found in the course of search and effect seizure out of such jewellery, if the same is in excess of the limits prescribed therein. Though the Hon'ble Karnataka High Court in the case of Smt. Pati Devi vs ITO (240 ITR 727) have approved the retrospective applicability of the said Instruction only, but they have not held that these guidelines would apply even to the consideration of investment in unaccounted jewellery in the course of assessment proceedings also. However, tile Hon'ble High Court have indeed mentioned in the said judgement that the limits regarding weight in the said Instruction have been prescribed "view of the 33 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== social circumstances prevailing in the country". Considering such observation, in conjunction with the facts of the case, various Benches of the Tribunal have opined that the benefit of the said Instruction, after considering both aspects, can be given in the post-search assessments also while deciding the issue of unaccounted investment in jewellery. Therefore, the issue in the instant case also is required to be decided after considering the limits given in the said Instruction, coupled with the socio-economic status of the assessee herein and his family.
51. The DR submitted that from the facts of the present case, it is clear that neither the assessee's wife, nor his mother and grandmother are assessed to wealth tax. However, considering the fact that the assessee indeed hails from an affluent agricultural family and it is customary in the state of Andhra Pradesh to receive reasonable amount of jewellery at the time of marriage and other social functions, full benefit of the said Instruction can be given to the above mentioned three married ladies in the assessee's family, holding 500 grams of gold jewellery as explained on this account in the case of each of them. In view of the above discussion, out of the total gold jewellery of 4340 grams found in the course of search, that to the extent of 1500 grams can be considered as reasonably explained. Accordingly, the proportionate addition of Rs. 44,38,710 is to be sustained.
52. We have heard both the parties and perused the material on record. The contention of the assessee's counsel is that the jewellery found at the residence of the 34 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== assessee is not only belongs to the assessee but also belongs to the family members of the assessee and the same should be considered as per the CBDT circular 1916 dated 11.5.1994. We accede to the request of the assessee's counsel. In our opinion, it is appropriate to remit the issue to the file of the AO with a direction that if the assessee proves that all the family members to whom the said gold jewellery is belonging along with the assessee with documentary evidence that they are staying under a single roof where the search has taken place, then the corresponding deduction is to be given in terms of CBDT circular (cited supra). This ground is partly allowed for statistical purposes.
53. The next ground in ITA No. 773/Hyd/2013 is with regard to sustaining addition of Rs 10 lakhs out of Rs. 11,21,200.
54. Facts of the issue are that the assessee could not explain cash to this extent found at the residence in the course of search. Accordingly, Rs. 10 lakhs out of the cash so found was seized. In his statement recorded u/s. 131 on 20.11.2006, the assessee admitted Rs. 10 lakhs of cash as his undisclosed income and the same was admitted as unaccounted money in the return filed for the assessment year 2009-10 also. The remaining was stated to be petty cash belonging to himself and his family members. Though the assessee filed his return offering a sum of Rs. 3,03,00,991, which included the amount so admitted, the Assessing Officer opined that the assessee had accounted for Rs. 10 lakhs only as his undisclosed income. In the 35 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== absence of any clarification and reconciliation regarding petty cash, the entire cash of Rs. 11,21,200/- was treated as unexplained money u/s. 69A. However, the CIT(A) reduced the addition to 10 lakhs on this count. Hence, the assessee is in appeal before us.
55. The AR submitted that the Assessing Officer did not reject the Receipts and Payments A/c submitted by the assessee but treated Rs. 1,21,200 also, over and above the admitted cash of Rs. 10 lakhs, as assessee's income. He argued that in the earlier years and in the relevant previous year, the assessee had derived incomes of more than Rs. 4.50 lakhs, as per the returns of income and therefore the availability of cash of Rs. 11,21,200 could not have been disbelieved.
56. The DR submitted that considering the socio economic status of the assessee, the admission of Rs. 10 lakhs out of the total cash found of Rs. 11,21,200 by the assessee himself, the meagre balance of Rs. 1,21,200 could not have been added by merely disbelieving the assessee's contention that the same was petty cash belonging to the assessee and his family members. The further addition of Rs. 1,21,200 is, therefore, deleted by the CIT(A) while the remaining addition of Rs. 10 lakhs is sustained.
57. We have heard both the parties and perused the material on record. In this case the assessee is not able to explain the source of cash found at the residence of the assessee at Rs. 11,21,200. The CIT(A) given relief of Rs.
36 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
======================== 1,21,200 which is reasonable. We do not find any infirmity in the order of the CIT(A) and the same is confirmed. This ground of the assessee is dismissed.
58. The next ground in ITA No. 773/Hyd/2013 is with regard to confirming addition of Rs. 27,00,000 made towards investment in loans holding that cheques issued by Sri M. Krishna Rao and Sri J. Narasimha Reddy represent the unaccounted for investment.
59. Brief facts of the case are that during the course of search two cheques were found and seized as page No. 4 and 5 of Annexure/CHMR/RES/ PO/01. The said cheques were issued by Shri M. Krishna Rao and Shri Jakkula Narasimha Reddy for Rs. 20 lakhs and Rs. 7 lakhs, respectively, but did not contain the name of the bearer. In his sworn statement dated 20.11.2008, the assessee claimed that the said cheques were given to him by the said persons as security for arranging loans. However, the loans could not be arranged but the cheques had remained with the assessee. This fact was confirmed by the said two parties also in their statements dated 22.9.2008 and 15.9.2008, wherein they denied having taken loan from the assessee. This stance was maintained by the assessee even in the course of assessment proceedings. However, the AO did not accept the same as he opined that it is a common practice to give duly signed blank cheques in lieu of loans borrowed as a form of security. He, therefore, concluded that the cheques found from the premises of the assessee showed that loans had been advanced by the assessee to the said two parties and those were lying with him as security only.
37 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
======================== Accordingly, the sum of Rs. 27 lakhs was treated as undisclosed investment out of undisclosed sources.
60. During the course of appellate proceedings, the AR of the assessee reiterated that the above said parties had stated that they had not taken any loan from the assessee and that the signed cheques had been given by them only with a view to get loan, which they did not receive. Accordingly, he claimed that the evidence clearly indicated that the assessee had not given any loan to the said persons, as long as there is no evidence to show that the amounts were so advanced.
61. The CIT(A) observed that the above mentioned signed cheques had been given by Sri M. Krishna Rao and Sri Jakkula Narasimha Reddy to the assessee as security for getting loans. It is, however, the contention of the assessee that the said two parties were not given loans and the cheques had only remained with the assessee. However, it is clear that the explanation offered by the assessee is not maintainable in view of the principle of human probabilities laid down by the Hon'ble Supreme Court in the case of Sumati Dayal (214 ITR 801) and Durga Prasad More (72 ITR 807). It is clear that when the said cheques have been admitted as sufficient "securities" towards loans, no prudent person will leave such valuable documents with any other person, unless the two have very intimate and personal relationship. No intimacy or relationship of this extent could also be established by the assessee in the instant case. Accordingly, he confirmed the action of the AO and the addition of Rs. 27 lakhs on 38 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== this count is sustained. Hence, the assessee is in appeal before us.
62. We have heard both the parties and perused the material on record. The contention of the AR is that the cheques were not in the name of the present assessee and the parties were examined who in turn denied this transaction. There is no evidence to show that the assessee has given loans to these parties. In this case addition was made by the lower authorities by placing reliance on the judgements of Supreme Court in the case of Sumati Dayal (supra) and Durga Prasad More (supra). In other words, the addition is made on the basis of conjectures and surmises. This is an assessment framed u/s. 153A r.w.s. 143(3) of the Act. There should be conclusive evidence to suggest that the assessee has carried on money lending business and in terms of money lending business the assessee has received these cheques. Unless and until there is corroborative evidence to suggest that the assessee has carried on the money lending business no addition can be made. Hence, we are not in a position to confirm the addition on the basis of evidence brought on record. Accordingly, this addition is deleted. In the result, ITA No. 773/ Hyd/2013 is partly allowed.
ITA Nos. 804, 805, 806 and 807/Hyd/2013 Sri Ch. Mahender Reddy
63. The first common ground in all these appeals is with regard to CIT(A)'s holding that while completing the assessment u/s. 153A of the Act additions can be made without reference to the seized documents. Similar issue is 39 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== already dealt with by us in the case of Sri Ch. Malla Reddy in ITA Nos. 769-773/Hyd/2013 and the ground taken by the assessee is dismissed. Following the same ratio, this ground in ITA Nos. 804, 805, 806 and 807/Hyd/2013 is dismissed.
64. The next ground in ITA No. 804/Hyd/2013 is with regard to sustaining addition by the CIT(A) of Rs. 5,25,000 made by the AO u/s. 68 of the Act.
65. Brief facts of the issue are that during the course of first appellate proceedings the assessee claimed that no such addition could have been made in the proceedings u/s. 153A, as no material was found or seized in the course of search and seizure operation pertaining to the A.Y. 2003-04. The AR contended that the amount had been shown in the return of income filed originally and the AO had no controverting evidence in the seized material. The AR submitted that the said amounts were advances for sale of land, which were refunded later as the agreement of sale was cancelled.
66. The CIT(A) observed that once the provisions of s. 153A are invoked, the AO acquires jurisdiction to assess/re- ass the total income in respect of six preceding years. While making such assessment/re-assessment, the AO is required to look into various claimed of the assessee, irrespective of the fact whether the seized material specifically pertains to all of those six years individually. As regards the credits considered as unexplained, it is seen that despite such contention, the assessee did not produce any evidence to support the same even in the 40 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== course of appellate proceedings. Accordingly, the CIT(A) confirmed the action of the AO. Against these findings, the assessee is in appeal before us.
67. We have heard both the parties and perused the material on record. Under the provisions of section 68, when any credit is found in the books of account, the assessee is required to explain nature and source of such credit to the satisfaction of the AO. The assessee has pleaded before us that it was a receipt of refund earlier advance. However, the assessee is not able to place any evidence to suggest when the assessee actually made the advance and to whom it was advanced. Being so, in absence of these particulars, the argument of the assessee's counsel cannot be upheld and this ground is dismissed. ITA No. 804/Hyd/2013 is dismissed.
68. Now coming to ITA No. 805/Hyd/2013. The next issue for our consideration is with regard to assessability of capital gain on entering into development agreement with M/s. RVNPL.
69. This issue has already came for consideration in the case of Sri Ch. Malla Reddy in ITA No. 771/Hyd/2013 for A.Y. 2005-06. After detailed discussion this ground is allowed in favour of the assessee. Being so, in conformity with our above findings in the case of Sri Ch. Malla Reddy in ITA No. 771/Hyd/2013, we are inclined to allow this ground. In the result, ITA No. 805/Hyd/2013 is partly allowed.
41 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
70. Now the next ground for our consideration in ITA No. 806/Hyd/2013 is that the CIT(A) erred in holding that there was transfer of property during the period under consideration within the meaning of s. 2(47)(v) of the Act thereby confirming the assessment of capital gains for the year under consideration, though there was no commencement of development activity even after a period of 5 years from the date of agreement.
71. Brief facts of the issue are that during the course of search operation, a Development Agreement cum GPA had been found and seized from the premises of M/s. Malla Reddy Educational Society as page Nos. 16 to 51 of Annexure A/MRG/PO/0l, which was a Development Agreement executed by the assessee, his family members and other relatives in favour of M/s. Aditya Construction Co. India Pvt. Ltd on 2-5-2007. Possession of the land had been handed over to the Developer for construction of residential units, The total impugned land of Ac. 20.17 Gts. at survey No. 98, 99 and l00, Gundla Pochampally village, Medchal Mandal was owned by 14 individuals, wherein the assessee had share to the extent of 2 acres. The entire piece of land had been given on development and the developers and land owners were entitled to 50% each of the constructed residential bungalows. As per the Development Agreement (DA), 150 units with plinth area of 3,500 square feet each were to be built.
72. On a consideration of facts, the Assessing Officer opined that since the land owners had handed over vacant and peaceful possession of the impugned land to 42 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== the developer to execute the project in terms of the DA, as per the provisions of s. 2(47)(v) of the Act, the said agreement constituted transfer. He noted that in several judicial pronouncements, it has been held that any transaction which allows the possession to be taken would constitute "transfer" within the meaning of s. 2(47) and that any transaction which involves a transfer of title in future or exchange of a property to be put up in future, would necessarily constitute a "transfer", within the meaning of s. 2(47). For this proposition, he relied on the decision of Hon'ble Income-tax Appellate Tribunal in the case of Smt. Shantha Vidya Sagar Annam vs. ITO (ITA No. 885/Hyd/2003, dated 9-6-2006). Besides, he also referred to their decision in the case of Dr. Maya Shenoy Vs. ACIT In ITA No. 266/Hyd/2005 dated 24-10- 2008, holding that the Development Agreement has the effect of transferring the land from the owner to the developer. The Assessing Officer also relied on the decisions in the cases of Chaturbhuj Dwarakadas Kapadia Vs. Commissioner of Income-tax (2003 INDLAW MUM 47, 501) and Jasbir Singh Sarkaria (2007 INDLAW AIR 14). Accordingly, he opined that in the instant case also .. the assessee was liable for Capital Gains in the Financial Year 2006-07, the year in which the Development Agreement was entered into and the "transfer" took place.
73. During the course of assessment proceedings, the assessee was required to explain as to why Capital Gains should not be charged on the above transaction. The assessee objected to the proposal of the Assessing Officer, contending that the case lav-s so cited were not 43 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== applicable to his case. It was also claimed that possession of the property had not been given. On a consideration of the facts and contentions, however, the Assessing Officer opined that even though construction had not been completed till then, possession of the land had indeed been taken over by the developer for construction of buildings. He felt that the Clause-7 in the Agreement to the effect that the said agreement did not mean transfer of property as per Section 2(47) of the Act or Section 53A of the Transfer of Property Act, 1882, had been inserted with a view to avoid tax and mere such clause could not over write any law. He felt that even if the developer had changed his plans for construction or cancel the agreement, the assessee could have taken recourse to s. 264 of the Act to avail benefit, if any.
74. The CIT(A) observed that the assessee, his family members and other relatives had indeed entered into a Development Agreement cum GPA with M/s. Adithya Construction Company on 2-5-2007. The cost thereof was Rs. 37,64,46,000 and the sharing ratio between the land owners and the developer too had been specified at 50% each for the land owners and the developer. Besides, possession of the land has also been handed over to the developer for the construction of residential units. Under the circumstances, it is clear that in the light of the decision of the Hon'ble Jurisdictional Income-tax Appellate Tribunal in the case of Dr. Maya Shenoy Vs. ACIT (supra), which has been consistently followed by them in their subsequent decisions, there was indeed a "transfer" as contemplated u/s. 2( 47)(v) of the Act read with the provisions of s. 53A of 44 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== Transfer of Property Act, 1882 .It is clear that the view taken by the Hon'ble Jurisdictional Income- tax Appellate Tribunal finds support from the view of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarakadas Kapadia Vs. CIT (supra) and also of Hon'ble Authority for Advance Ruling in the case of Jasbir Singh Sarkaria, (supra). Besides, it is seen that the Hon'ble IT AT , Cochin Bench, in their relatively recent decision dated 28-9-2012 in the case of G. Sreenivasan Vs. DCIT (ITA No. 188/Coch/2009) have also expressed a similar view after referring to the above mentioned decision of the Hon'ble Bombay High Court. Accordingly, following the above mentioned judicial pronouncements, it is clear that since the t:ppellant and others had entered into the above referred Development Agreement on 28-3-2007 and had also given possession of land for construction of residential units thereon, on the said date itself, the capital gains arising from such transfer was indeed chargeable to tax in the assessment year 2007-08.
75. The CIT(A) observed that the assessee has further admitted that the developers had even obtained permissions from Municipal Authorities for the construction of residential complexes. It is however claimed that since no construction activity was undertaken, in the absence of any activity, no capital gain could have been considered as accrued. However, it is clear that even granting the right to seek necessary permission from authorities and to enter the property and construct buildings as per approved plans amounts to granting possession, as observed by the Hon'ble Cochin ITAT also in the above 45 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== mentioned decision, which in turn has to be considered as transfer in view of the part performance. Further, even if the developers subsequently did not undertake any construction, even after obtaining approvals from the Local Authorities, the land is standing as it is even after the lapse of considerable time, the Development Agreement dated 2-5-2007 cannot be said to have lost its legal sanctity. Clearly, there is no stipulation in the said agreement that the agreement itself will lapse or would become invalid if construction is not undertaken within a certain period of time.
76. As regards the contention regarding willingness of the developer to perform its part of contract, there is no evidence to the effect that no such willingness existed or there was any change or cancellation of the proposed development itself. In fact, in the course of appellate proceedings, the Representative of the assessee had been required to furnish any evidence regarding such cancellation, so as to establish that the developer was not willing to perform. However, despite being given sufficient opportunity, no evidence to this effect could be furnished. It is true that the conduct of the parties is indeed the determining factor in regard to such transactions. However, such conduct needs to be established by way of documentary evidence and cannot be inferred from the mere delay in execution of any agreement, which itself can be attributable to so many reasons, other than willingness itself. It is clear that in the absence of any evidence to the contrary, the willingness of the developer to perform in this case is required to be judged only from 46 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== the available Development Agreement, which indeed shows absolute and unconditional willingness, which is not studded with any condition. In my considered opinion therefore, the mere fact of not taking up construction alone cannot establish the developer's intent in not performing its part. Until and unless the impugned Development Agreement is itself modified or cancelled and it is established with evidence. that the project itself has been abandoned, it cannot be said that the parties thereto do not intend to adhere to the terms there of in future also or that the Development Agreement has broken down. Further, even lf the developer under the Development Agreement was required to develop the property and hand over the possession of land owner's share within a period of two years and six months, it is clear that the said agreement did not stipulate that in the case of delay exceeding such time limits, the Development Agreement would be deemed as cancelled or abandoned.
77. The CIT(A) observed that so far as the reliance of the Id. Representative of the assessee in the case of K. Radhika Vs. Den (supra) is concerned, it is seen that even in the said decision the Tribunal have opined that handing over of possession is only one of the conditions u/s. 53A of the Transfer of Property Act, it is necessary to go into whether the transferee is "willing to perform" its obligation. They have felt that if the transferee, by its conduct and its deeds, demonstrates that it is unwilling to perform its obligations under the agreement, the date of agreement ceases to be relevant and in such a situation it is only the 47 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== actual performance of transferee's obligations which can give rise to the situation envisaged in sec. 53 of the Transfer of the Property Act. In the case of the present assessee however, the unwillingness of the developer has not been established with any evidence. On the other hand, since the Development Agreement continues to remain in force and possession of the lands has been taken in part performance thereof, it can be reasonably concluded that the non-initiation of construction activities may be a calculated move of the parties to the Development Agreement in view of the existing market conditions. In fact, despite being sufficient time and opportunity, the assessee has failed to establish its claim with any correspondence, institution of any legal action etc, which does indicate that the agreement stays as it existed on the date of agreement itself and the present plea of unwillingness of the developer has been brought in only with a view to defer tax liabilities of that year. Therefore, I am of the view that since the unwillingness of the developer has not been established with any evidence in this case, the ratio laid down in the case of K. Radhika and others (supra), is not applicable here.
78. Accordingly, the CIT(A) held that since the assessee and others had entered into the above mentioned Development Agreement on 2-5-2007 and had also given possession of land for construction of residential units thereon, and further because there exists no evidence regarding the unwillingness of the developer to adhere to the said agreement, the capital gains arising from the impugned transfer has been rightly brought by the 48 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== Assessing Officer to tax in the assessment year 2008-09 and decided the grounds raised in this regard against the assessee.
79. We have heard both the parties and perused the material on record. In our opinion, there is no commencement of activities of development by the developer. Being so, this issue is squarely covered by the order of this Tribunal in the case Mrs. K. Radhika & Ors. (cited supra). Accordingly, we are inclined to delete the addition. In the result, ITA No. 806/Hyd/2013 is partly allowed.
80. The next ground for our consideration in ITA No. 807/Hyd/2013 is with regard to addition of Rs. 6,49,000 made u/s. 68 of the Act.
81. Brief facts of the issue are that the addition of Rs. 6,49,000 on account of unexplained credit in the assessment year 2009-10, as per the assessment order, a credit of such amount had been shown in the Fund Flow Statement furnished by the assessee towards sale of land. However, no profit from such sale was admitted in the return of income. The assessee could not furnish any documentary evidence in the course of assessment proceedings to substantiate the reasons for not offering any income on account of said credit. Therefore, the sum of Rs. 6,49,000 was considered as unexplained cash credit. During the course of appellate proceedings, the Representative of the assessee submitted that the assessee proposed to sell land during the previous year relevant to 49 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== the assessment year 2009-10 and had received advance of Rs. 22 lakhs for the some. He averred that the said amount was shown as advance and, therefore, no addition could have been made particularly when no material was found during the course of search and seizure operation.
82. The CIT(A) observed that though it has been contended in the course of appellate proceedings that the amount of Rs. 6,49,000 shown in the Fund Flow statement for the assessment year 2009-10 was part of the advance of Rs. 22 lakhs, it is clear that at no stage, the assessee has been able to establish such claim with any documentary evidence. It has also not been explained as to who had paid such advance and for which property and whether the same was supported by any contemporaneous documentary evidence. Accordingly, he sustained the addition of Rs. 6,49,000.
83. We have heard both the parties and perused the material on record. As discussed in earlier para No. 13 in ITA No. 769/Hyd/2013 in the case of Sri Ch. Malla Reddy. Being so, in the absence of corroborative evidence regarding source and genuineness of the credit, we are inclined to remit the issue back to the file of the AO. In the result, ITA No. 807/Hyd/2013 is partly allowed for statistical purposes.
50 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
======================== ITA Nos. 803, 764 and 756/Hyd/2013 Sri Ch. Narasimha Reddy
84. Now, we take up the appeals in ITA Nos. 803, 764 and 765/Hyd/2013 pertaining to Sri Ch. Narasimha Reddy for A.Ys. 2007-8, 2008-09 and 2009-10, respectively.
85. The first issue in ITA No. 803/Hyd/2013 is with regard to sustaining addition of Rs. 3,48,900 under the head short term capital gains.
86. Brief facts of the issue are that in the A.Y. 2007-08, the AO noticed from the computation of income that the assessee had worked out capital gains at Rs. 2,24,000. The sale consideration had been admitted at Rs. 10 lakhs while the cost of acquisition was claimed to be Rs. 4,27,100. The assessee had further claimed development expenses and brokerages amounting to Rs. 3,48,900. Since no evidence for such development expenses and brokerage could be furnished, the AO calculated the short term capital gains as a difference between the sale consideration and cost which came to Rs. 5,72,900. The difference of Rs. 3,48,900 was, therefore, brought to tax.
87. Before the CIT(A) it was contended that no opportunity was given to submit proof regarding expenditure claimed. However, despite such contention no evidence was submitted by the assessee even before him. Since the assessee failed to discharge the onus of establishing the claim for deduction on account of development expenses and brokerage, the addition 51 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== made by the AO of Rs. 3,48,900 was sustained by the CIT(A). Against this, the assessee is in appeal before us.
88. We have heard both the parties and perused the material on record. The contention of the assessee's counsel is that the AO not pointed out this addition at the stage of assessment and no opportunity was given to the assessee to submit evidence regarding this addition. In our opinion, it is appropriate to give an opportunity to the assessee. Accordingly, this issue is remitted back to the AO with a direction to the assessee to furnish necessary evidence before the AO. This ground is partly allowed for statistical purposes. In the result, ITA No. 803/Hyd/2013 is partly allowed for statistical purposes.
89. Now coming to ITA No. 764/Hyd/2013. The first ground for consideration is with regard to framing assessment u/s. 153C of the Act.
90. As discussed in the case of Sri Ch. Malla Reddy in ITA No. 769/Hyd/2013 and Others., in the earlier paras of this order, we confirm framing of assessment u/s. 153C of the Act. This ground of the assessee is dismissed.
91. The next ground in this appeal for our consideration is with regard to holding that there was a transfer of property u/s. 2(47)(v) of the Act and thereby confirming the assessment of capital gains for the assessment year under consideration.
92. Brief facts of the case are that as regards the addition of Rs. 78,73,988/- on account of capital gains in 52 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== assessment year 2008-09, during the course of search, a Development Agreement cum GPA was found and seized at Page Nos. 16 to 51 of Annexure A/MPG/PO/01 from the premises of M/s. Malla Reddy Educational Society. The same had been executed by the assessee and others, along with their family members in favour of M/s. Aditya Construction Co. India Pvt. Ltd, vide Deed No. 8203/07 dated 02-05-2007 and possession of the impugned land had been handed over to the developer for construction of residential units. The Assessing Officer noticed that the land owners possessed Ac. 20.17 Gts. of land in survey Nos. 98, 99 & 100, situated at Gundla Pochampally Village, Medchal Mandal. As per the tabulated details furnished by the AO in the assessment order, the individual share holding of the assessee in the above mentioned land is Ac. 0-21.5 Gts.
93. Since in terms of the above said Development Agreement cum GPA dated 2.5.2007, the land owners had handed over vacant and peaceful possession of the entire land to the developer, the AO opined that the said agreement, as per the provisions of s. 2(47)(v) constituted a transfer.
94. He noted that in several judicial pronouncements, it has been held that any transaction which allows the possession to be taken would constitute "transfer" within the meaning of s. 2(47) and that any transaction which involves a transfer of title in future or exchange of a property to be put up in future, would necessarily constitute a "transfer", within the meaning of s. 2(47). For 53 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== this proposition, he relied on the decision of this Tribunal in the case of Srnt. Shantha Vidya Sagar Annam vs. ITO (ITA No. 885/Hyd/2003, dated 9-6-2006). Besides, he also referred to their decision in the case of Dr. Maya Shenoy vs. ACIT in ITA No. 266/Hyd/2005 dated 24-10-2008, holding that the Development Agreement has the effect of transferring the land from the owner to the developer. The AO also relied on the decisions in the cases of Chaturbhuj Dwarakadas Kapadia vs. CIT (2003 INDLAW MUM 47, 501) and Jasbir Singh Sarkaria (2007 INDLAW AIR 14). Accordingly, he opined that in the instant case also, the assessee was liable for capital gains in the FY 2007-08, the year in which the Development Agreement was entered into and the "transfer" took place.
95. During the course of assessment proceedings, the assessee was required to explain as to why capital gains should not be charged on the above transaction. The assessee objected to the proposal of the Assessing Officer, contending that the case laws so cited were not applicable to his case. It was also claimed that possession of the property had not been given. On a consideration of the facts and contentions, however, the Assessing Officer opined that even though construction had not been completed till then, possession of the land had indeed been taken over by the developer for construction of buildings. He felt that Clause-7 in the Agreement to the affect that the said agreement did not mean transfer of property as per s. 2(47) of the Act or s. 53A of the Transfer of Property Act, 1882, had been inserted with a view to avoid tax and mere such clause could not overwrite any 54 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== law. He felt that even if the developer had changed his plans for construction or cancel the agreement, the assessee could have taken recourse to s. 264 of the Act to avail benefit, if any.
96. The AO noticed that as per the Development Agreement, the cost of the entire landed property consisting of Ac. 20.17 Gts., in the year 2007-08, was mentioned at Rs. 37,64,46,000, out of which land admeasuring Ac. 12.03 Gts. was acquired in the financial year 1982-83 at a cost of Rs. 90,562 and the balance land of Ac. 3.14 Gts. was acquired in the year 2004-05 at a cost of Rs. 41,75,000. The AO held that on the land admeasuring Ac. 12.03 Gts., long term capital gains would arise and on the balance land of Ac. 8.14 Gts., short term capital gains would arise. Accordingly, he worked out the long term capital gains , giving the indexation benefit of Rs. 15,14,64,388/-, and short term capital gains at Rs. 14,77,47,183. The share of the assessee in the total gain of Rs. 29,92,11,571 was arrived at by the AO at Rs. 78,73,988 (21.5/817 x 29,92,11,571), which was brought to tax in the assessment year 2008-09.
97. Before the CIT(A), the AR of the assessee contended that in the previous year 2007-08, the assessee along with others, had entered into a development agreement-cum- GPA with M/s. Aditya Construction Company India Pvt. Ltd on 2-5-2007. As discussed in the assessment order, during the course of search operation, a Development Agreement cum GPA had been found and seized from the premises of M/s. Malla Reddy Educational Society as 55 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== page Nos. 16 to 51 of Annexure A/MRG/PO/01 which was a Development Agreement executed by the assessee, his family members and other relatives in favour of M/s. Aditya Construction Co India Pvt. Ltd. on 2-5-2007. Possession of the land had been handed over to the Developer for construction of residential units. The total impugned land of Ac. 20.17 Gts. at Survey No. 98, 99 and 100, Gundla Pochampally village, Medchal Mandal was owned by 14 individuals, wherein the assessee had share to the extent of 2 acres. The entire piece of land had been given on development and the developers and land owners were entitled to 50% each of the constructed residential bungalows. As per the Development Agreement , 150 units with plinth area of 3,500 square feet each were to be built.
98. Before the CIT(A), the AR of the assessee submitted that since the real estate market dwindled owing to recession worldwide. the developers could not even obtain approvals from the local authorities and no construction of bungalows was undertaken. It was stated that the land stands as it is even after the lapse of five years and is in complete possession of the land owners. He stated that in the absence of any activity by the developer, no capital gain could be said as arising only on entering into the development agreement. He claimed that the transfer was not complete on the said date, but could be said as completed only when the construction got completed and the constructed are handed over to the assessee. It was argued that as per the development agreement, the same was to be implemented within a 56 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== period of two years and six months and as mentioned therein, time was to be the essence of the contract. However, since the developer did not commence any activity, the agreement could not be considered as valid and is rather void, as the same has not been implemented even till date. The AR averred that the AO did not verify whether any development work was entered into or net In accordance with the agreement.
99. The AR of the assessee contended that in the case of K. Radhika and others vs ACIT (65 DTR 250), the Jurisdictional ITAT have observed that capital gain does not arise when the developer is not willing to perform his part of obligation. He maintained that in the present assessee's case also, the transferee did not perform any of the obligations as per the agreement even after a period of six years. It was pointed out that the permissions obtained from the local authorities also have expired. Without prejudice, it was maintained that capital gain does not arise on the day of entering into the development agreement, only when on handing over the constructed area. However, in the assessee's case, such a situation did not arise and therefore, there was no capital gain. It was further submitted that transfer by way of development agreement represents an exchange of property and such exchange would be complete only when both the properties exist. However, in this case, 50% of the constructed area to be received in exchange did not exist. He claimed that the point where the capital gains are deemed to accrue purely depends on the terms of the joint development agreement. It was also claimed 57 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== that the provisions of s. 53A of the Transfer of Property Act have no application to a transfer by way of exchange and the transaction under consideration was not of sale also. Therefore, the said provisions could not apply till the construction is completed by the developer.
100. The CIT(A) held observed that the assessee, her family members and other relatives had indeed entered into a Development Agreement cum GPA with M/s. Adithya Construction Company on 2-5-2007. The cost thereof was Rs. 37,64,46,000 and the sharing ratio between the land owners and the developer too had been specified at 50% each for the land owners and the developer. Besides, possession of the land has also been handed over to the developer for the construction of residential units. Under the circumstances, it is clear that in the light of the decision of the Jurisdictional Tribunal in the case of Dr. Maya Shenoy vs. ACIT (supra), which has been consistently followed by the Tribunal in their subsequent decisions, there was indeed a transfer as contemplated u/s. 2(47)(v) of the Act read with the provisions of s. 53A of Transfer of Property Act, 1882.
101. The CIT(A) observed that that the Jurisdictional Tribunal finds support from the view of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT (supra) and also of the Hon'ble Authority for Advance Ruling in the case of Jasbir Singh Sarkaria (supra). Besides, the Cochin Bench of the Tribunal , i their relatively recent decision dated 23.9.2012 in the case of G. Sreenivasan vs. DCIT (ITA No. 188/Coch/2009) have also 58 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== expressed a similar view after referring to tile above mentioned judgement of the Hon'ble Bombay High Court. Accordingly, following the above mentioned judicial pronouncements. it is clear that since the assessee and others had entered into the above referred Development Agreement on 28-3-2007 and had also qiven possession of land for construction of residential units thereon on the said date itself, the capital gains arising from such transfer was indeed chargeable to tax in the assessment year 2007-08.
102. The CIT(A) observed that the assessee has further contended that the developers had not even obtained permissions from Municipal Authorities for construction of residential complexes, therefore, in the absence of any construction activity no capital gain could have been considered as accrued. However, it is clear that even granting the right to seek necessary permission from authorities and to enter the property and construct buildings as per approved plans amounts to granting possession, as observed by the Cochin Bench of ITAT also in the above mentioned decision, which in turn has to be considered as transfer in view or the part performance. Further, even if the developers subsequently did not undertake any construction, or even if no approvals were taken by them from the Local Authorities and the land is standing as it is even after the lapse of considerable time, the Development Agreement dated 2-5-2007 cannot be said to have lost its legal sanctity. Clearly, there is no stipulation in the said agreement that the agreement itself will lapse or would become invalid if construction is not undertaken with a certain period of time.
59 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
103. The CIT(A) observed that the contention regarding willingness of the developer to perform its part of contract, there is no evidence to the effect that no such willingness existed or there was any change or cancellation of the proposed development itself. In fact, in the course of appellate proceedings, the AR of the assessee had been required to furnish any evidence regarding such cancellation, so as to establish that the developer was not willing to perform. However, despite being given sufficient opportunity, no evidence to this effect could be furnished. It is true that the conduct of the parties is indeed the determining factor in regard to such transactions. However, such conduct needs to be established by way of documentary evidence and cannot be infer red from the mere delay in execution of any agreement, which itself can be attributable to so many reasons, other than willingness itself. It is clear that in the absence of any evidence to the contrary, the willingness of the developer to perform in this case is required to be judged only from the available Development Agreement, which indeed shows absolute and unconditional willingness, which is not studded with any condition. He observed that the mere tact of not taking up construction alone cannot establish the developer's intent in not performing its part. Until and unless the impugned Development Agreement is itself modified or cancelled and it is established with evidence that the project itself has been abandoned, it cannot be said that the parties thereto do not intend to adhere to the terms thereof in future also or that the Development Agreement has broken down.
60 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
104. The CIT(A) observed that even if the developer under the Development Agreement was required to develop the property and hand over the possession of land owner's share within a period of two years and six months, it is clear that the said agreement did not stipulate that in the case of delay exceeding such time limits, the Development Agreement would be deemed as cancelled or abandoned.
105. The CIT(A) observed that so far as the reliance of the AR of the assessee in the case of Mrs. K. Radhika vs. DCIT (supra) is concerned. it is seen that even in the said decision the ITAT have opined that handing over of possession is only one of the conditions u/s. 53A of the Transfer of Property Act, it is necessary to go into whether the transferee is "willing to perform" its obligation. They have felt that if the transferee, by its conduct and its deeds, demonstrates that it is willing to perform its obligations under the agreement, the date of agreement ceases to be relevant and in such a situation it is only the actual performance of transferee's obligations which can give rise to the situation envisaged in s. 53 of the Transfer of the Property Act. In the case of the present assessee, however, the unwillingness of the developer has not been established with any evidence. On the other hand, since the Development Agreement continues to rernain in force and possession of the lands has been taken in part performance thereof, it can be reasonably concluded that the non-initiation of construction activities may be a calculated move of the parties to the Development Agreement in view of the existing market conditions. In 61 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== fact, despite being sufficient time and opportunity, the assessee has failed to establish its claim with 'any correspondence, institution of any legal action, etc., which does indicate that the agreement stays as it existed on the date of agreement itself and the present plea of unwillingness of the developer has been brought in only with a view to defer tax liabilities of that year. The CIT(A) observed that since the unwillingness of the developer has not been established with any evidence in this case, the ratio laid down in the case of K. Radhika and others (supra), is not applicable here. In view of the foregoing discussion, the CIT(A) held that since the assessee and others had entered into the above mentioned Development Agreement on 2-5.2007 and had also given possession of land for construction of residential units, thereon and further because there exists no evidence regarding the unwillingness of the developer to adhere to the said agreement the capital gains arising from the impugned transfer has been rightly brought by the AO to tax in the A.Y. 2008-09. Against this, the assessee is in appeal before us.
106. We have heard both the parties and perused the material on record. As similar issue is considered in the case of Sri Ch. Malla Reddy for A.Y. 2005-06 in ITA No. 771/Hyd/2013 in earlier paras of this order, in conformity with the same, we are inclined to allow the ground taken by the assessee. ITA No. 764/Hyd/2013 is partly allowed.
107. In ITA No. 765/Hyd/2013, only one ground is raised for adjudication, with regard to sustaining addition of Rs. 8 62 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== lakhs representing cash seized from the premises of Sri Gopal Reddy.
108. Brief facts of the case are that the only ground taken in assessment year 2009-10 relates to the contention that the AO erred in not giving credit for Rs. 8 lakhs out of the cash seized in the course of search, and charged interest without deducting the said amount from taxes due. It is claimed that the assessee had requested the AO to adjust the cash of Rs. 8 lakhs seized from the premises of Shri Ch. Gopal Reddy towards his tax dues for the A.Y. 2009-10 by way of a letter from him.
109. The CIT(A) observed that the Hon'ble Punjab and Haryana High Court in the case of CIT vs. Arun Kapoor reported in 334 ITR 351 have observed that while the assessee is liable to pay interest u/s. 234B and 234C, they are also entitled to the benefit of payment out of seized cash from the date of making application for adjustment of seized cash towards tax liability. Similarly, in the case of CIT vs. Ashok Kumar (334 ITR 355) also they have observed that the assessee is entitled to adjustment of cash seized, if request has been made prior to the date of payment of advance tax. Similar view has been expressed by the ITA Chandigarh Bench in the case of Nikka Mal Babu Ram vs. ACIT, Central Circle (41 SOT 407) and by the Hon'ble Delhi High Court in the case of CIT vs. K.K. Marketing (278 ITR
596). Following the ratio laid down in the decisions as above, he directed the AO to examine the claim of the assessee in the light of the aforesaid decisions, as also the provision of s. 132B and if the assessee's case satisfies the 63 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== ratio laid down in the aforesaid judicial decisions, interest u/s. 234B may be revised suitably keeping in view the seizures of cash made by the Department.
110. We have heard both the parties and perused material on record. The CIT(A) has given a direction to examine the issue in the light of the decision cited in the immediate earlier para and being so, we do not find any infirmity in the same and the ground taken by the assessee is dismissed. In the result, ITA No. 765/Hyd/2013 is dismissed.
ITA Nos. 785, 767 and 768/Hyd/2013 Sri C. Gopal Reddy
111. The ground for our consideration in ITA Nos. 785 and 768/Hyd/2013 is with regard to confirming the action of the AO in considering the income admitted at Rs. 2,61,010 as against the actual admitted income of Rs. 20,81,040 for A.Y. 2007-08 and Rs. 63,620 as against the actual amount of income admitted of Rs. 1,45,44,220 for A.Y. 2009-10 in response to notice u/s. 153A of the Act.
112. Facts of the case are that for A.Ys. 2007-08 and 2009- 10, the AO adopted the "income as admitted" at Rs. 2,61,040 and Rs. 63,220/- and added to the same as the undisclosed investment of Rs. 18,20,000 in the assessment year 2007-08, thereby computing the total income at Rs. 20,81,040. For the A.Y. 2009-10, he started the computation with the admitted income of Rs. 63,220 and added to the same the additions on account of unaccounted cash, jewellery and loans, determining the total income at Rs. 1,48,68,350. It is the contention of the 64 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== assessee that during the course of search, in order to avoid protracted litigation and to purchase peace with the Department, the assessee had offered the "advance to G. R. Education Society" aggregating to Rs. 18,20,000 through a declaration under the provisions of 132(4) of the Act for the A.Y. 2007-08 and accordingly, requested the authorities not to levy any penalties. It is stated that in response to notice u/s. 153A, the assessee filed his return of income on 30.12.2009 admitting income of Rs. 20,81,040, which included the amounts declared and the assessment was completed by accepting the amounts so offered, Accordingly, he claimed that the income returned should have been taken at Rs. 20.81,040 as against the income of Rs. 2,61,040 for the A.Y. 2007-08. Likewise, it is claimed that since the assessee had admitted the unaccounted cash of Rs. 40,41,000, unaccounted jewellery of Rs. 42,80,000, and had filed the return u/s. 153A admitting an income of Rs. 1,45,44,220, after admitting the undisclosed loans also, the computation should have been started with the figure of Rs. 1,45,44,220.
113. The CIT(A) observed that the assessee in the return filed in response to the notice u/s. 153A on 30.12.2009, had admitted an income of Rs. 20,81,040 for the assessment year 2007-08. However, it is clear that "Such income was shown only after considering the undisclosed investment of Rs. 18,20,000 admitted by the assessee in his statement recorded on 12-11-2008 after the search and seizure action. Therefore, no infirmity can be said to exist in the computation of income made by the Assessing Officer by adopting the income of Rs. 2,61,040 only at the beginning 65 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== of the computation. It is clear that the present claim of the admitted income being Rs. 20,81,040 has been made only with a view to avoid penal provisions of the Act, whereas the fact remains that the assessee on his own had disclosed the total income for the year at Rs. 2,61,040 only. For the same reasons, the contention of the assessee is not acceptable for the assessment year 2009-10 also. Accordingly, the CIT(A) decided this issue against the assessee in both the years.
114. We have heard both the parties and perused the material on record. The ground raised by the assessee requires no adjudication as there is no change in the income computed by the AO. The assessee cannot have any grievance in this regard. This ground is dismissed in ITA No. 785 and 768/Hyd/ 2013. ITA No. 785/Hyd/2013 is dismissed.
115. The next ground in ITA No. 767/Hyd/2013 for our consideration is with regard to treating transfer of property during the previous year under consideration within the meaning of s. 2(47)(v) of the Act thereby computing the capital gain for the year under consideration.
116. Similar issue came for consideration in the case of Sri Ch. Mahender Reddy in ITA No. 804/Hyd/ 2013 &Ors., in the earlier paras of this order. Taking a consistent view, this ground of the assessee is allowed. Thus, ITA No. 767/Hyd/2013 is partly allowed.
66 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
117. The next ground in ITA No. 768/Hyd/2013 is with regard to confirming valuation of jewellery at Rs. 46,04,130 as against Rs. 42,80,000 admitted by the assessee.
118. As regards the ground relating to adoption of value of unaccounted jewellery at Rs. 46,04,130 in the A.Y. 2009- 10 as against the value of such jewellery declared by the assessee at Rs. 42,80,000 in the course of search, the CIT(A) observed that the value of Rs. 46,04,130 has been adopted in view of the valuation made by the Registered Valuer. Therefore, finding no infirmity in the action of the AO, the CIT(A) confirmed the addition of Rs. 46,04,130 and decided this ground against the assessee.
119. We have heard both the parties and perused the material on record. The AO adopted the value of Rs. 46,04,130 on the basis of valuation made by the Registered Valuer. The assessee not brought anything contrary to this. Being so, we confirm the addition on this count.
120. The next ground in ITA No. 768/Hyd/2013 is with regard to giving no direction by the CIT(A) to the AO to adjust the cash seized of Rs. 16 lakhs towards tax payable thereby resulting in levy of interest u/s. 234A and 234B of the Act.
121. We have heard both the parties and perused the material on record. The assessee has not furnished any evidence to substantiate his claim that the assessee has made a request before the AO to adjust the cash seized. However, considering the plea of the assessee, if the balance left over after adjustment of existing tax liability, it 67 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== should be adjusted over tax payable by the assessee. This ground is partly allowed. In the result, ITA No. 768/ Hyd/2013 is partly allowed.
ITA Nos. 766, 821, 822, 823, 824, 825 and 902/Hyd/ 2013 - Sri Ch. Bhoopal Reddy & Ors
122. Now coming to ITA Nos. 766, 821, 822, 823, 824, 825 and 902/Hyd/2013 in case of Shri Ch. Bhoopal Reddy, Smt. Ch. Swaroopa, Smt. Ch. Vasanthalatha, Smt. C. Lakshmi, Sri Ch. Srisailam Reddy, Smt. P. Satyawati and Smt. D. Bharati, respectively, for A.Y. 2008-09.
123. The first common ground in all these appeals is framing of assessment u/s. 153C of the Act.
124. As discussed earlier in the case of Sri Ch. Malla Reddy in ITA No. 769/Hyd/2013, we are inclined to reject this ground. This ground is decided against the assessee in all these appeals.
125. The next common ground in all these appeals is with regard to assessability of capital gains by holding that there was a transfer of capital asset u/s. 2(47)(v) of the Act.
126. This issue is similar to the issue considered in the case of Sri Ch. Mahender Reddy in ITA Nos. 805 and 806/Hyd/2013 in the earlier paras of this order. Accordingly, this ground is allowed in all these appeals. In the result, ITA No. 766, 821, 822, 823, 824, 825 and 902/Hyd/2013 are partly allowed.
68 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
127. Now we consider the appeals in ITA Nos. 799, 800, 801 and 802/Hyd/2013 in the case of Sri Ch. Bhadra Reddy.
128. The first common ground in all these appeals is with regard to framing of assessment u/s. 153A of the Act.
129. As discussed in ITA No. 769/Hyd/2013 in the case of Sri Ch. Malla Reddy, taking a consistent view, this ground is dismissed in all these appeals.
130. The next ground in ITA No. 799/Hyd/2013 for A.Y. 2003-04 is with regard to addition of Rs. 1,25,000 and Rs 3,65,000 in A.Y. 2005-06 (ITA No. 800/Hyd/ 2013).
131. Facts of the case are that as regards the additions of Rs. 1,25,000 and Rs. 3,65,000 in the A.Ys. 2003-04 and 2005-06, as per the assessment orders, there were such credit in the fund flow statement furnished by the assessee towards sale of land. However, no profit had been shown in the original return on this account or even in the return filed in response to the notice u/s. 153C. Besides, no documentary evidence in this regard was furnished even in the course of assessment proceedings. In the absence of such evidence, the Assessing Officer treated the amount of Rs. 1,25,000 as unexplained credit. Likewise, in the A.Y. 2009-10, there was a credit of Rs. 22 lakhs towards sale of land, but no profit had been shown in the return. In this respect also, no documentary evidence could be furnished in the assessment proceedings. Accordingly, the amount of Rs. 22 lakhs was also treated as unexplained cash credit in the assessment year 2009-10.
69 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
132. Before the CIT(A) it was claimed that the amounts of Rs. 1,25,000 and Rs. 3,65,000 had been shown in the cash flow statements for the A.Ys. 2003-04 and 2005-06 as exempted income out of the sale proceeds of agricultural land. It was also claimed that the said amounts were advances for sale of land, which were refunded later as the agreement of sale was cancelled. The AR also claimed that these amounts had been shown in the receipts and payment account filed along with the regular return of income and there was no controverting evidence in this respect in the seized material. The CIT(A) observed that no additions could have been made by the AO.
133. We have heard both the parties. These additions were made as the assessee failed to establish the nature and source of credit appearing in the books of account of the assessee for the assessment years under consideration. Further, the assessee was not able to controvert the findings of the lower authorities. Accordingly, this ground is rejected and the additions are sustained. In the result, ITA No. 799 and 800/Hyd/2013 are dismissed.
134. Coming to the other common ground in ITA Nos. 800 and 801/Hyd/2013 with regard to treating transfer of property in the year under consideration as a transfer u/s. 2(47)(v) of the Act.
135. Similar issue came for consideration in the case of Sri Ch. Malla Reddy in ITA No. 772/Hyd/2013. Taking a consistent view this ground is allowed. Thus, ITA No. 801/ Hyd/2013 is partly allowed.
70 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
========================
136. The next ground for consideration in ITA No. 802/ Hyd/2013 is with regard to the addition of Rs. 22 lakhs made u/s. 68 of the Act.
137. Facts of the case are that the assessee is said to have received Rs. 22 lakhs by way of sale of agricultural land. However, the assessee not produced any evidence in support of his claim. Even before us he could not produce any evidence. In the absence of any evidence, we are inclined to confirm the addition. ITA No. 802/Hyd/ 2013 is dismissed.
ITA Nos. 819 and 820/Hyd/2013 Smt. Ch. Kalpana
138. The first common ground in these appeals is with regard to framing of assessment u/s. 153A of the Act.
139. As discussed in the case of Sri C. Malla Reddy in ITA Nos. 769/Hyd/2013 & Ors, this ground is dismissed.
140. The next ground in ITA No. 819/Hyd/2103 is with regard to addition of Rs. 1,25,000 made u/s. 68 of the Act.
141. The assessee is said to have received Rs. 1,25,000 on sale of agricultural land but no evidence was produced before the lower authorities. Even before us the assessee could not bring any supporting evidence in this regard. Being so, this ground is rejected. ITA No. 819/Hyd/2013 is dismissed.
142. The next ground in ITA No. 820/Hyd/2013 is with regard to holding that there is a transfer of property u/s.
71 ITA No. 764/Hyd/2013 & Ors.Sri Ch. Narsimha Reddy & Ors.
======================== 2(47)(v) of the Act and thereby confirming the assessment of capital gain. Similar issue came for consideration in the case of Sri Ch. Malla Reddy in ITA No. 772/Hyd/2013 in earlier paras of this order. Taking a consistent view, this ground is allowed. In the result, ITA No. 820/Hyd/2103 is partly allowed.
ITA Nos. 814, 815 and 816/Hyd/2013 Shri M. Laxman Reddy
143. The first ground in ITA No. 814/Hyd/2013 is with regard to confirming the action of the AO in taxing the gain on sale of agricultural land at Rs. 75,125.
144. Facts of the case are that as regards the addition of Rs. 75,125 in the assessment year 2005-06, as per the assessment order, the assessee had shown sale of property at Gowdavali and Dundigal at Rs. 5,13,500 and Rs. 3,02,500, respectively. The profit of Rs. 75,125/- from such sale was claimed as exempt. However, no supporting documents could be submitted in respect of the exemption claimed. Accordingly, the Assessing Officer disallowed the claim of exemption and added Rs. 75,125/- to the total income of the assessee. During the course of appellate proceedings, it was claimed that the assessee has sold agricultural lands at the above mentioned places. It was claimed that he hails from a community basically engaged in agriculture and his family, including himself, was engaged in agriculture. The assessee's AR submitted that the assessee had been showing agricultural income from year to year, including the assessment year 2005-06. It was added that the impugned lands were situated 72 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== beyond notified areas and hence excluded from the definition of capital asset. Accordingly, any profit from sale of such lands was exempt from tax, It was also argued that the AO did not give any opportunity for submitting documentary evidence to support the claim. Vide submissions dated 20-5-2011, it was submitted that apart from the lands already owned by him, the assessee , along with others had purchased certain agricultural lands as under:
Joint Date
Sy. Date of Doc. Share of
No. Extent ownership purchase No. of Sold to consideration
with sale
440, Ac. M. Raja 1823/ 19.4.06 S.S. Rs. 10,00,000
443, 5.0 Sekhar 2004 Educational
444 Gts Reddy Society
145. It was submitted that the lands so purchased at Gowdavali and Dungidal villages were beyond the limits of any town, municipality with a population exceeding 10,000 or the limit notified within 8 kilometres from any such town or municipality, and as such, did not fall under the definition of capital asset, Copies of the sale deeds, executed by the assessee along with others were also furnished, pleading that the same may be admitted as additional evidence in the light of the decisions in the cases of Prabhavathi S. Shah (231 ITR 1) (Bom), Keshav Miils Co Ltd (56 ITR 365) (SC) and Kanpur Coal Syndicate (53 ITR 225) (SC).
146. The CIT(A) observed that though it may be true that the assessee hails from an agriculturist family, owns certain old agricultural lands and had been showing agricultural income in his earlier returns, this itself cannot be sufficient evidence to prove the claim that the lands acquired by 73 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== the assessee at Gowdavalli village, Medchal Mandal, Ranqareddy district and Dundigal village, Qutbullapur Mandal, Rangareddy district, subsequently were also acquired for the purpose of agriculture itself. First of all, it can be seen that the lands stated above were acquired jointly with others. The assessee has not been able to furnish any evidence to the effect that any agriculture was actually done on the lands so acquired in the intervening period. The agricultural income shown by the assessee has also not been linked to the said land, nor it was explained as to what were the expenses, produce there from and further as to how the proceeds were shared with the co- owner. Besides, it is also clear that the lands so acquired were sold off by the assessee within a very short period of time, while Ac. 5. Gts. 3 purchased on 3-2-2003 was sold off on 8-12-2004 itself, Ac. 10 Gts 0 purchased on 6-2-2004 was sold off on 18-10-2004. The sale of the said lands was made to Shri S. Arun Reddy and M/s. S.S. Educational Society. While from the very name, it is clear that M/s. S.S. Educational Society cannot be said to be intending to undertake any agricultural operations, the assessee could not establish as to what was the purpose of the land so acquired from him by Shri S. Arun Reddy. The nature of the asset and the short time within which it was disposed of, therefore, indeed goes to show that the said lands were purchased and sold off only with an intention to earn quick profits. The very tradability of the impugned lands shows that at the time of transaction the said lands had lost their agricultural character and were traded like any other commodity. It is also clear that even in the course of 74 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== appellate proceedings, the assessee has not been able to substantiate, its claim that the same were agricultural lands. It is an established position that mere mentioning of lands as agricultural in the revenue records is not sufficient to establish that those are indeed agricultural and that those were acquired for the purpose of agriculture only. Finding no infirmity in the action of the Assessing Officer, the addition of profit of Rs. 75,125 as a taxable item of income in the hands of the assessee is upheld by the CIT(A). Against this, the assessee is in appeal before us.
147. We have heard both the parties and perused the material on record. In this case, the assessee pleaded that an opportunity may be given to explain source of this credit in A.Ys. 2005-06 and 2006-07 towards receipt of Rs 75,125 and Rs. 10 lakhs in A.Y. 2005-06 and 2006-07, respectively. Considering the plea of the assessee, we remit the entire issue to the file of the AO with direction to the assessee to substantiate his claim that the land sold is agricultural land. In the result, ITA Nos. 814 and 815/Hyd/2013 are partly allowed for statistical purposes.
148. The ground for our consideration in ITA No. 816/Hyd/2013 is with regard to confirming addition of Rs. 1,94,406 out of Rs. 15,63,464 towards value of unaccounted jewellery.
149. The only issue in the assessment year 2009-10 relates to the addition of Rs. 15,63,464 towards unaccounted jewellery. As per the assessment order, during the course of search operation at the residence of the assessee , gold 75 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== jewellery weighing 1256.20 grams was found and valued at Rs. 15,63,464/-. The assessee claimed that the same belonged to himself, his wife and his married daughter (divorcee), who was staying with him in his house. It was claimed that the purchases thereof were made out family's savings while part was received by his family members on various functions] However, no evidence regarding investment in jewellery could be furnished at the time of search. During the course of assessment proceedings also, the assessee was required to substantiate his claim regarding source of such jewellery. However, he could not furnish the requisite information. Besides, the AO noticed that there was no amount spent for jewellery in the cash flow statement. Accordingly, the entire amount of Rs. 15,63,464/- was considered as invested out of undisclosed sources.
150. Before the CIT(A), the AR of the assessee contended that the aggregate value of jewellery found but not seized, was much below the entitlement of members of the family as laid down in Instruction No. 1916 of the Board dated 11-5-1994. Citing the decision of the Hon'ble Karnataka High Court in the case of Smt. Pati Devi vs. ITO (240 ITR 727), he contended that the said guidelines apply even to block assessment and the assessee is entitled to take benefit thereof. He also cited the decision of Mumbai Bench of ITAT in the case of Mrs. Sundari Umesh Thakur (ITA No. 5150/Mum/2009).
151. The CIT(A) observed that as stated in the assessment order, in the course of search, gold jewellery, totally 76 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== weighing 1256.20 grams, was found from the residence of the assessee . The same was valued at Rs. 15,63,464. The said jewellery was claimed as belonging to the assessee himself, his wife and his divorcee daughter, who was staying with the assessee at the time of search. It is the contention of the assessee that the Board Circular No. 1916 dated 11-5-1994, it is common to possess 500 grams of gold jewellery among Indian women.
152. The CIT(A) observed that as regards the Instruction No. 1916, it is clear that the said Instruction itself is in fact in the nature of a guideline for dealing with the jewellery found in the course of search and effect seizure out of such jewellery, if the same is in excess of the limits prescribed therein. Though the Hon'ble Karnataka High Court in the case of Smt. Pati Devi vs ITO (240 ITR 727) have approved the retrospective applicability of the said Instruction only, but they have not held that these guidelines would apply even to the consideration of investment in unaccounted jewellery in the course of assessment proceedings also. However, the Hon'ble High Court have indeed mentioned in the said judgement that the limits regarding weight in the said Instruction have been prescribed "in view of the social circumstances prevailing in the country". Considering such observation, in conjunction with the facts of the case, various Benches of the Tribunal have opined that the benefit of the said Instruction, after considering both aspects, can be given in the post-search assessments also while deciding the issue of unaccounted investment in jewellery. The issue in the instant case also is required to be decided after 77 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== considering the limits given in the said Instruction, coupled with the socio-economic status of the assessee and his family.
153. The CIT(A) observed that neither the assessee , nor his wife, nor even his daughter is assessed to wealth tax. However, considering the, fact that the assessee hails from a well off family and it is customary in the state of Andhra Pradesh to receive reasonable amount of jewellery at the time of marriage and other social functions, full benefit of the said Instruction can be given to the above mentioned two married ladies in the assessee 's family, holding 500 grams of gold jewellery as explained on this account in the case of each of them. Besides, 100 grams of jewellery can also be considered as reasonably available and explained in the hands of the assessee himself. He observed that out of the total gold jewellery of 1256.20 grams found in the course of search to the extent of 1100 grams can be considered as reasonably explained. Accordingly, he directed the AO to consider the difference of 156.20 grams only as unexplained investment in gold jewellery. Accordingly, the CIT(A) sustained the proportionate addition of Rs. 1,94,406 and the ground raised in this regard is partly decided in favour of the assessee .
154. We have heard both the parties and perused the material on record. Similar issue came for our consideration in the case of Sri Ch. Malla Reddy in ITA No. 773/Hyd/2013. Accordingly, we direct the AO to give credit of jewellery to each member of assessee's family in terms of CBDT circular No. 1916 dated 11.5.1994. This 78 ITA No. 764/Hyd/2013 & Ors. Sri Ch. Narsimha Reddy & Ors.
======================== ground is partly allowed. In the result, ITA No. 816/Hyd/2013 is partly allowed for statistical purposes.
155. To sum up Sl.
ITA No. Result
No.
1. 803/Hyd/2013 Partly allowed for statistical purposes
2. 764/Hyd/2013 Partly allowed
3. 765/Hyd/2013 Dismissed
4. 819/Hyd/2013 Dismissed
5. 820/Hyd/2013 Partly allowed
6. 785/Hyd/2013 Dismissed
7. 767/Hyd/2013 Partly allowed
8. 768/Hyd/2013 Partly allowed
9. 804/Hyd/2013 Dismissed
10. 805/Hyd/2013 Partly allowed
11. 806/Hyd/2013 Partly allowed
12. 807/Hyd/2013 Partly allowed for statistical purposes
13. 769/Hyd/2013 Partly allowed for statistical purposes
14. 770/Hyd/2013 Partly allowed for statistical purposes
15. 771/Hyd/2013 Partly allowed
16. 772/Hyd/2013 Partly allowed
17. 773/Hyd/2013 Partly allowed
18. 766/Hyd/2013 Partly allowed
19. 821/Hyd/2013 Partly allowed
20. 822/Hyd/2013 Partly allowed
21. 823/Hyd/2013 Partly allowed
22. 824/Hyd/2013 Partly allowed
23. 825/Hyd/2013 Partly allowed
24. 902/Hyd/2013 Partly allowed
25. 814/Hyd/2013 Partly allowed for statistical purposes
26. 815/Hyd/2013 Partly allowed for statistical purposes
27. 816/Hyd/2013 Partly allowed for statistical purposes
28. 799/Hyd/2013 Dismissed
29. 800/Hyd/2013 Dismissed
30. 801/Hyd/2013 Partly allowed
31. 802/Hyd/2013 Dismissed Pronounced in the open court on 6 th June, 2014 Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 6 th June, 2014
tprao
79
ITA No. 764/Hyd/2013 & Ors.
Sri Ch. Narsimha Reddy & Ors.
========================
Copy to:
1. Sri Ch. Narsimha Reddy
2. Smt. Ch. Kalpana
3. Sri C. Gopal Reddy
4. Sri Ch. Mahender Reddy
c/o. Sri S. Rama Rao,
5. Sri Ch. Malla Reddy
Advocate, Flat No.
6. Sri Ch. Bhoopal Reddy
102, Shriya's
7. Smt. Ch. Swaroopa
Elegance, H. No. 3-6-
8. Smt. Ch. Vasanthalatha
643, St. No. 9,
9. Smt. C. Lakshmi
Himayatnagar,
10. Sri Ch. Srisailam Reddy
Hyderabad-500 029
11. Smt. P. Satyawathi
12. Smt. D. Bharathi
13. Sri M. Laxman Reddy
14. Sri Bhadra Reddy
15. The Asst. CIT, Central Circle-1, Hyderabad
16. The CIT(A)-I, Hyderabad
17. The CIT (Central), Hyderabad.
18. The DR, A Bench, ITAT, Hyderabad.