Income Tax Appellate Tribunal - Amritsar
Assistant Commissioner Of Income Tax vs Janak Raj Chauhan on 30 January, 2006
Equivalent citations: (2006)102TTJ(ASR)316
ORDER
1. This is bunch of four appeals all filed by the Revenue against the consolidated order dt. 3rd April, 1997 of the CIT(A), Jalandhar, for the asst. yrs. 1990-91, 1991-92, 1992-93 and 1993-94 respectively. Since the issues raised in these appeals are common and arise from the same consolidated order dt. 3rd April, 1997 of the CIT'(A), these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. First, we will take up appeal in ITA No. 597/Asr/1997 for the asst. yr. 1990-91. The first issue raised in this appeal relates to the fact that the learned CIT(A) was not justified in accepting the claim of capital gain on the sale of residential house at Amritsar and shops. The facts of the case are that the search and seizure action had been carried out at the premises of the assessee, which revealed that the assessee was carrying on extensive business in purchase and sale of land. In the return of income filed, the assessee had shown capital gain on the sale of one residential house at Gopal Nagar, Amritsar, which was acquired on 27th Nov., 1979 for Rs. 21,500 and sold for Rs. 51,000 in the year 1989. After claiming deduction under Section 48 of the IT Act, 1961 (in short 'the Act'), the assessee had shown capital gains on the sale of this house. Similarly, the assessee had purchased shops at Basti Sheikh, Jalandhar, in 1979 and sold in 1989. The resultant surplus was also shown as long-term capital gains. The AO observed that the assessee has been carrying on substantial transactions for purchase and sale of agricultural lands, plots etc. and, therefore, the intention of the assessee was to earn profit. According to him, these transactions were adventure in the nature of trade and, therefore, fell in the definition of profession under Sub-section (36) of Section 2 of the IT Act. The AO, therefore, treated the resultant surplus on the sale of a residential house and shops at Basti Sheikh as business profit and taxed the same accordingly.
3. Being aggrieved, the assessee impugned the addition in appeal before the CIT(A). It was submitted before the CIT(A) that the shops at Basti Sheikh, Jalandhar, had been purchased in the year 1979 and sold in the year 1989 and during this period, the assessee had earned rental income. It was disclosed in the returns as income from house property. It was also submitted that the residential house at Amritsar was purchased in 1979 with a view to shift to Amritsar and the same was sold after a period of 10 years because of terrorist activities at Amritsar. However, it was submitted that the intention of the assessee was to make investment. The learned CIT(A) considered these submissions and observed that though the assessee was a property dealer and it was his business to purchase and sell the immovable properties, but the holding of the properties in question was for 10 years, i.e., purchased in 1979 and sold in 1989. This fact established that the properties were purchased for the purpose of investment and not for the purpose of business. He, therefore, held that the resultant surplus on the sale of shops and residential house was liable to long-term capital gain for which the AO was directed to compute the capital gain as per provisions of the Act. The Revenue is aggrieved with the order of the CIT(A). Hence, this appeal before us.
4. The learned senior Departmental Representative, Sh. Jayant Kumar heavily relied on the order of the AO. He drew our attention to p. 6 of the assessment order, where the AO has given the reasons for treating the resultant surplus as business profit. He submitted that the assessee was carrying on transactions of sale and purchase of properties at extensive scale and, therefore, the properties in question were also purchased with an intention to earn profit. He further submitted that the assessee had not maintained any books of account. Therefore, it was not possible to ascertain whether investment made in the purchase of two properties was shown as stock-in-trade or investment. Thus, he submitted that the learned CIT(A) was not justified in treating, the surplus realized on sale of these properties as capital gain.
5. The learned Counsel for the assessee, Sh. Ravish Sood, on the other hand, relied on the order of the CIT(A) and reiterated the submissions, which were made before the authorities below. He submitted that the residential house at Gopal Nagar, Amritsar was purchased on 27th Nov., 1979 because the assessee wanted to shift to Amritsar. However, due to subsequent development i.e. terrorist activities, where Amritsar was one of the worst affected District, the assessee changed his mind to shift to Amritsar and sold the property in 1989. Similarly, he stated that shops at Basti Sheikh Jalandhar, were purchased in the year 1979 and given on rent. The intention of the assessee was to earn rental income, which was duly reflected in the returns of income filed. However, in the year 1989, the assessee sold the shops and offered the surplus as long-term capital gains. Thus, he submitted that the order of the learned CIT(A) does not merit any interference.
6. We have heard both the parties and carefully considered the rival submissions and gone through the orders of the authorities below. As regards the residential house at Amritsar, the contention of the assessee that the same was purchased for the purpose of his own residence and later the same was sold after a gap of 10 years because of terrorist activities at Amritsar, the same appears to be correct. The Revenue has not placed any material on record that after the purchase of this house, the assessee took some further steps for use of this property for commercial purposes and not for residence. Coupled with this is a fact of holding of this property for a longer period of 10 years which would show that the property was purchased not with an intention to earn profit rather for investment. Therefore, the CIT(A) has rightly treated the resultant surplus as liable to capital gains because the same represented investment only. As regards the shops, it is not in doubt that the shops were given on rent and such rental income was disclosed in the returns as income from property in the earlier assessment years. This shows that the intention of the assessee was to earn rental income. This intention is further strengthened from the fact that the shops were held for a period of 10 years. In the case of G. Venkataswami Naidu & Co. v. CIT the Hon'ble Supreme Court has held that if a person invested money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from adventure in the nature of trade. Even if the assessee was extensively dealing in purchase and sale of land yet it does not mean that it could not hold certain properties for the purpose of investment. Thus, we do not find any fault with the order of the CIT(A). The same is upheld and this ground of appeal is rejected.
7. The next ground of appeal for the asst. yr. 1990-91 relates to the fact that the learned CIT(A) was not justified in deleting the addition of Rs. 60,000 on account of income declared in the hands of assessee's two minor sons. The facts of the case are that during the course of search and seizure action, it was found that the assessee has been making certain transactions of purchase and sale of land in the names of his various family members including his two sons viz. S/Sh. Raj Kumar and Rakesh Kumar. According to the AO, since the sons of the assessee did not have independent source of income, income shown in their returns was liable to be taxed in their hands as Benamidar of assessee. Accordingly, the AO made addition of Rs. 60,000 in the hands of assessee being income in the names of sons on estimate basis.
7.1 On appeal, the learned CIT(A) referred to his order for the earlier assessment years where he had agreed with the AO's observation that the returns of income filed in the names of minors showing as estimated income from property dealings was an attempt to explain the availability of source for investment in properties purchased in their names. He observed that in the assessment year under consideration, the assessee has himself purchased one plot in Dayal Nagar for Rs. 30,000 on 17th April, 1989 in the name of his two minor sons S/Sh. Raj Kumar and Rakesh Kumar and another property was purchased in Lal Bazar, Jalandhar, in their names for Rs. 56,900. Thus, the total investment made in the minor children aggregated to Rs, 86,900. These investments have obviously been made by the assessee in the names of minor children. He deleted the addition of Rs. 60,000 made on estimate basis by the AO, but sustained the addition of Rs. 86,900 being investment made in the name of two minor sons. The Revenue is aggrieved by the order of the CIT(A). Hence, this appeal before us.
7.2 At the outset, the learned Counsel for the assessee and the learned Departmental Representative conceded before us that this issue is covered in favour of the assessee and against the Revenue by the Tribunal, Amritsar order dt. 30th Aug., 2005 in assessee's own case in ITA Nos. 525, 539 to 543/Asr/1997 for the asst. yrs. 1984-85 to 1989-90. A copy of the same was placed before us. It was submitted before us that the issue is covered on p. 24 para 32 of the aforesaid order of the Tribunal:
On ground No. 3, the Revenue challenged the deletion of addition of Rs. 40,000 made by adding income of minor two sons of the assessee, namely, Shri Raj Kumar and Shri Rakesh Kumar. We have dismissed this ground of appeal in ITA No. 5427Asr/1997. By following the same, we dismiss this ground of appeal of the Revenue.
7.3 We have heard both the parties and carefully considered the rival submissions. We have also referred to the aforesaid order of the Tribunal. We find that this issue is squarely covered in favour of the assessee and against the Revenue by our order dt. 30th Aug., 2005 in assessee's own case for the asst. yrs. 1984-85 to 1989-90 (supra) where in para 27.4 on pp. 22 and 23, the Tribunal has given following findings:
27.4. We have considered the rival submissions and material on record, We find from the order of the AO that investments are stated to be made in the asst. yrs. 1991-92 and 1992-93. The AO has treated the returns filed by Shri Raj Kumar and Shri Rakesh Kumar to be invalid. He has also held that there is no basis for showing income. He has also held that invalid returns are filed with the sole purpose of capital built-up explaining the investment. The findings of the AO, therefore, clearly established that no income has earned or accrued in favour of sons of the assessee, i.e., Shri Raj Kumar and Shri Rakesh Kumar. If no income accrued or earned according to the AO by the sons of the assessee then we fail to understand how the addition on such income can be made in the hands of the assessee. We may also mention here that the AO failed to appreciate/consider the relevant provisions of law applicable to the assessment year under appeal in respect of making addition in the hands of the assessee in respect of the income allegedly earned by the minors. The addition in the case of the assessee in respect of alleged income earned/accrued to the minors could be made with the aid of Section 64 of the IT Act. The relevant provisions in Section 64 of the IT Act in the relevant years 1988-89 and 1989-90 in appeal did not allow addition of the above nature of alleged income to be made in the hands of the assessee. We accordingly do not find any justification to interfere in the order of the CIT(A). This ground of appeal of the Revenue is, therefore, dismissed.
This order was also followed in ITA No. 542/Asr/1997 (in para 32 on p. 24) of the order of the Tribunal. The facts of the case for the assessment year under reference are similar to the facts for the earlier assessment years. Therefore, respectfully following the same, we uphold the order of the CIT(A) and reject this ground of appeal of the Revenue.s
8. The next ground of appeal for the asst. yr. 1990-91 relates to deletion of addition of Rs. 1,02,617 made on account of assessee's mother's share in the AOP in the profit from the sale of land developed as colony at New Ashok Nagar, Jalandhar, by treating assessee's mother as Benamidar. This ground is also common (Sl. No. 1) for the asst. yr. 1991-92 where an addition of Rs. 1,02,617 was again made on the same ground. The facts of the case are that for the asst. yr. 1989-90, the AO made an addition on account of assessee's mother's share in AOP in profit from sale of land developed as colony in New Ashok Nagar, Basti Sheikh, Jalandhar, by treating assessee's mother as his Benamidar. On appeals, the learned CIT(A) deleted the addition by relying on his orders for the earlier assessment years. The Revenue is aggrieved with the order of the CIT(A). Hence, this appeal before us.
8.1 At the outset, both the learned Counsel for the assessee and the learned Departmental Representative conceded before us that this issue is covered in favour of the assessee and against the Revenue vide Tribunal's order dt. 30th Aug., 2005 in assessee's own case for the asst. yrs. 1984-85 to 1989-90 (supra). A copy of this order was also placed before us.
8.2 We have heard both the parties and carefully considered the rival submissions. We have also referred to the aforesaid order of the Tribunal. We find that the same issue was involved in assessee's own case in ITA No. 541/Asr/1997 for the asst. yr. 1987-88 and ITA No. 542/Asr/1997 for the asst, yr, 1988-89, where it was held that profit from sale of land developed as colony at New Ashok Nagar, Jalandhar was liable to tax in the hands of AOP of Sh, Jagdish Raj Ghauhan and Smt. Suhagwanti and Sh. Gurbachan Singh. In fact, the assessments made in the AOP have already been upheld by the Tribunal for the asst. yrs. 1989-90 to 1991-92 vide its order dt. 16th Nov., 2005 (2006) reported in Jagdish Raj Chauhan, Sohagwanti & Gmbachan Singh (AOP) v. ITO (2006) 99 TTJ (Asr) 45. In this view of the matter and respectfully following the order of the Tribunal in the case of AOP, we confirm the order of the CIT(A) and reject the respective grounds of appeal for the asst. yrs. 1990-91 and 1991-92.
9. The next ground of appeal for the asst. yr. 1990-91 relates to reducing the addition of Rs. 1,25,000 to Rs. 62,500 made on account of unexplained marriage expenses of the assessee's daughter. The facts of the case are that during the course of search at the residence of assessee's brother Sh. Jagdish Raj Chauhan, one paper containing the reference of the marriage was found. On being asked, it came to light that this document related to Shagun ceremony of assessee's daughter spent through his brother. The AO observed that the assessee had made usual withdrawals of Rs. 30,000 for meeting household expenses and these did not include any additional withdrawals for marriage expenses of the daughter. The AO referred to the returns filed for the asst. yr. 1994-95 where a note was appended that the marriage of assessee's son was solemnized on 18th April, 1993 oh which expenses of Rs. 1,60,000 were shown. The AO observed that the expenses on the marriage of the daughter are generally on higher side because of some items of gifts in the form of gold ornaments, electronics goods and arrangements for reception of the Barat etc, which are required to be given/made. He, therefore, estimated the marriage expenses at Rs. 1,25,000 and made the addition accordingly.
9.1 The assessee impugned the addition in appeal before the CIT(A). It was submitted before the CIT(A) that assessee's daughter was first child in the family and was brought up by assessee's mother. It was also submitted that the expenses were incurred by assessee's mother and the marriage was solemnized at the residence of the assessee. It was contended that the AO was not justified in estimating the expenses of marriage at Rs. 1,25,000, which was" solemnized before 4 years ago. It was also argued that the mother of the assessee had sufficient income and also had l/3rd share in the AOP when marriage took place. The learned CIT(A) considered these submissions and rejected the contention of the assessee that expenses estimated by the AO were arbitrary or excessive. The learned CIT(A) held that marriage expenses of Rs. 1,25,000 appeared to be fair and reasonable. However,, he partly accepted the contention of the assessee that part of the expenses were borne by assessee's mother who had independent source of income. Thus, he considered 50 per cent of expenses being contributed by assessee's mother and another Rs. 50 per cent by assessee. In this manner, he reduced the addition to Rs. 62,500. The Revenue is aggrieved by the order of the CIT(A). Hence, this appeal before us.
9.2 The learned senior Departmental Representative, Sh. Jayant Kumar heavily relied on the order of the AO. He submitted that the learned CIT(A) ought to have upheld the entire addition in the hands of the assessee.
9.3 The learned Counsel for the assessee, on the other hand, reiterated the submissions, which were made before the authorities below. He submitted that assessee's daughter being a first child in the family, the expenses were borne by assessee's mother.
9.4 We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. The learned CIT(A) has upheld the estimate of marriage expenses made by the AO at Rs. 1,25,000. It is not denied by the Revenue that Smt. Suhagwanti, mother of the assessee was separately being assessed to tax. She also had 1/3rd share of income in AOP. No material has been placed before us to show that even in her case, there were no withdrawal to justify marriage expenses. Now if she did not have any independent source of income to justify marriage expenses, addition could have been made in her hands. Therefore, the findings of the CIT(A) that 50 per cent of the marriage expenses were borne by the mother who had independent source of income do not merit any interference. The order of the CIT(A) is confirmed and this ground of appeal is rejected.
10. The last ground of appeal for the asst. yr. 1990-91 relates to deleting the addition of Rs. 1,32,000 made on account of profit on the sale of plots in the residential colony, named, Shastri Nagar, Ludhiana. The facts of the case are that the seized material revealed that the land was developed near Ludhiana as residential colony called Shastri Nagar. In his statement recorded, the assessee stated that the land was purchased in 1974 for about Rs. 72,000 per acre, which was converted into 200 plots measuring 100 sq. yards to 200 sq. yards sold at Rs. 35 to 36 per sq. yard. Later, during the course of assessment proceedings, he submitted that the land in fact was purchased by his wife Smt. Kamarjit and mother Smt. Suhagwanti and he only acted as a Mukhtiar, power of attorney holder. The AO, however, treated them as his Benamidar in the hands of the assessee. Similar additions were made for the asst. yrs. 1991-92 and 1992-93 also.
10.1 Aggrieved, the assessee filed appeals before the CIT(A), who deleted the additions by relying on his order for the earlier assessment years. The Revenue is aggrieved by the order of the CIT(A). Hence, this appeal before us.
10.2 At the outset, the learned Departmental Representative and the learned Counsel for the assessee were fair enough to concede that this issue is covered in favour of the assessee and against the Revenue vide Tribunal's order dt. 30th Aug., 2005 in assessee's own case for the asst. yrs. 1984-85 to 1989-90 respectively (supra).
10.3 We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. We find that this issue is squarely covered in favour of the assessee and against the Revenue by our aforesaid order dt. 30th Aug., 2005, in assessee's own case (supra) where in para 16.5 on p. 14, it was held as under:
16.5 On consideration of the above facts, we do not find any justification to interfere in the order of the CIT(A). The evidences filed before the CIT(A) were sufficient to hold that the plots, in question, were sold prior to the year 1980 through consideration. The reason for executing the sale deeds subsequently is also explained, which appears to be reasonable as because of Ceiling Act, the sale deeds could not have been registered, The Government usually fix the rates for the purpose of fixing the sale consideration under the stamp duty, Since the stamp duty is to be paid according to the Government rates, therefore, there could have been increase in the sale amount shown in the sale deeds for the purpose of registration. These were facts, which were properly explained before the CIT(A) for executing of the sale deed subsequently. The definition of "transfer" is amended under Section 2(47) of the IT Act, which includes the transfer through part performance under Section 53A of the IT Act. The possession of the properties were given against the consideration prior to the year 1980 as explained before the CIT(A), therefore, it was to be treated as transfer within the meaning of Section 2(47) of the IT Act. Since there is no transfer of the property in the year under consideration and no material is brought on record to prove such facts, therefore, the CIT(A) was justified in deleting the addition in the hands of the assessee in the year in question. As a result, there is no merit in the appeal of the Revenue on this issue. This ground of appeal of the Revenue is accordingly dismissed.
The facts of the case for the assessment year under consideration are similar to the facts of the case for the aforesaid assessment years. Therefore, following the aforesaid order of the Tribunal, we confirm the impugned orders of the CIT(A) and reject the respective grounds of appeal of the Revenue.
11. Now, we take up appeal in ITA No. 598/Asr/1997 for the asst. yr. 1991-92. Ground Nos. 1 and 2 for the asst. yr. 1991-92 have already been disposed of while deciding the appeal for the asst. yr, 1990-91 where by relying on the orders of the Tribunal for the earlier assessment years, these grounds of the Revenue have been dismissed. Therefore, the same did not warrant any further discussion.
12. Ground No. 5 deals with the deletion of addition of Rs. 13,500 made on account of the sale of plots held in the name of assessee's mother, Smt. Suhagwanti and assessee's father-in-law Sh. Hans Raj.
12.1 At the outset, both the learned Departmental Representative and learned Counsel for the assessee conceded before us that this issue is also covered in favour of the assessee and against the Revenue vide Tribunal, Amritsar Bench, Amritsar's, order dt. 30th Aug., 2005 for the asst. yrs. 1984-85 to 1989-90 (supra) where in para 7.2 and 7.3 on pp. 6 and 7, it was held as under:
On consideration of the above facts, we are of the view that the CIT(A) was justified in deleting the addition in the hands of the assessee. As is held above on the basis of power of attorney, no right, title or interest is created unless it is supported by sale consideration. Nothing is proved from record to show that if assessee acquired any right, title or interest in the property because of power of attorney. His finding is proved that power of attorney was subjected to consideration or was supported by any sale agreement. The assessee merely acted as a power of attorney holder on behalf of his mother and father-in-law. The Hon'ble Allahabad High Court in the matter of Prakash Narain v. CIT held that in case of Benami, the burden of proof is on the Revenue to show that transaction was Benami. The Hon'ble Allahabad High Court further held that no absolute formula or acid test, uniformly applicable in all situations, can be laid down, yet, in weighing the probabilities and for gathering the relevant indicia, the Courts are usually guided by these circumstances: (1) the source from which the purchase money came, (2) the nature and possession of the property, after the purchase, (3) motive, (4) the position of the parties and the relationship, (5) the custody of the title deeds after the sale and (6) the conduct of the parties concerned in dealing with the property after the sale. It was further held that the above indicia are not exhaustive and their efficacy varies according to the facts of each case. Nevertheless, the source whence the purchase money came is by far the most important test for determining whether the sale standing in the name of one person, is in reality for the benefit of another. The mere rejection of an explanation would not entitle the Department to claim that the consideration for the purchase of the property in the name of another was provided by the assessee. Apart from the relationship between the parties, there must be some evidence or material to support the case of the Benami nature of the transaction. A finding regarding Benami is a finding of fact. When a finding of fact is based on material, partly relevant and partly irrelevant, then such a finding is vitiated in law.
7.3 On consideration of the above decision of the Hon'ble Allahabad 'High Court, we are of the view that the AO has not brought any evidence or material on record to prove that the assessee was Benamidar of the property. Apart from above conditions specified in this case, the CIT(A) on the basis of the material on record held that the investments have been made by Smt, Suhagwanti and Shri Hans Raj. On such premises, the CIT(A) directed to initiate the proceedings in the name of Smt. Suhagwanti through her legal heirs. Considering the above, we do not find it to be a fit case to interfere in the impugned order of the CIT(A) on this issue. There is no merit in this ground of appeal of the Revenue. The same is accordingly dismissed.
The facts of the case for the assessment year under consideration are also similar to the facts of the aforesaid assessment year. Therefore, respectfully following the aforesaid order of the Tribunal, we confirm the order of the CIT(A) and reject this ground of appeal of the Revenue.
13. Ground No. 6 for the asst. yr. 1991-92 relates to deletion of addition of Rs. 80,000 made on account of sale of booth belonging to assessee's mother, Smt. Suhagwanti, by treating her as Benamidar of the assessee. The facts of the case are that there was a commercial property in the name of assessee's mother, which was sold for Rs. 80,000 by sale deed dt. 27th Dec., 1991. Since the AO treated the assessee's (mother) as his Benamidar, the entire amount of the sale proceeds was treated as the income of the assessee.
13.1 Being aggrieved, the assessee carried the matter in appeal before the CIT(A). It was submitted before the CIT(A) that assessee's mother had purchased the property for Rs. .24.500 on 20th Oct., 1980 and sold the same on 27th Dec., 1991 for Rs. 80,000, It was submitted by no stretch of imagination that entire sale could have been treated as profit of the assessee. However, the learned CIT(A) by referring to appellate order for the asst. yrs. 1985-86 to 1989-90 held that assessee's mother was not a Benamidar of assessee and she was liable to be assessed separately through her legal heirs. Accordingly, the learned CIT(A) deleted the addition with the direction that income arising from such transaction should be assessed in the hands of assessee's mother. The Revenue is aggrieved with the order of the CIT(A). Hence, this appeal before us.
13.2 At the outset, the learned Departmental Representative and the learned Counsel for the assessee conceded before us that this issue is squarely covered in favour of the assessee and against the Revenue by the order of the Tribunal, Amritsar Bench, Amritsar, dt. 30th Aug., 2005 for the asst. yrs. 1984-85 to 1989-90 (supra) where the Tribunal upheld the findings that Smt. Suhagwanti was not a Benamidar of the assessee.
13.3 We have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. We find that this issue is squarely covered in favour of the assessee and against the Revenue by our aforesaid order dt. 30th Aug., 2005 for the asst. yrs. 1984-85 to 1989-90 (supra). The relevant findings recorded by the Tribunal have already been recorded in the preceding paragraphs. Therefore, respectfully following the same, we confirm the order of the CIT(A) and reject this ground of appeal of the Revenue.
14. The next ground of appeal for the asst. yr. 1991-92 relates to reducing the addition from Rs. 4,25,000 to Rs. 1,55,000 made by the AO in respect of income disclosed by the assessee on behalf of his two sons in the statement recorded under Section 132(4) of the IT Act. Ground No. 2 for the asst. yr. 1992-93 also relates to reducing the addition from Rs. 2,75,000 to Rs. 1 lakh made in respect of the income disclosed under Section 132(4) on behalf of his two sons. The facts common for both the assessment years are that during the course of search and seizure action, the statement of the assessee was recorded under Section 132(4) of the IT Act. When the assessee was asked to state whether he would like to disclose any income under Section 132(4), the assessee gave details of the investment made in the names of his two sons, namely, S/Sh. Raj Kumar Chauhan and Rakesh Kumar Chauhan. The assessee also disclosed income of Rs. 3.5 lakhs on behalf of his son Sh. Raj Kumar for the asst. yrs. 1991-92 and 1992-93. He further disclosed income of Rs. 1.5 lakh for the asst. yr. 1991-92 being income of the past years earned in the name of Sh. Raj Kumar. The assessee also disclosed income of Rs. 2 lakhs on behalf of his other son, namely, Sh. Rakesh Kumar i.e. Rs. 1 lakh each in respect of each assessment years i.e. 1991-92 and 1992-93. No returns of income were filed by Sh. Raj Kumar and Sh. Rakesh Kumar before search operation. However, subsequently, both S/Sh. Raj Kumar and Rakesh Kumar filed returns on the same date, i.e., 30th June, 1995 for the asst. yrs. 1988-89 to 1994-95 in each of the two cases, amount offered on their behalf by their father in the statement recorded under Section 132(4) was not disclosed. The amount of income disclosed by the assessee in his statement was retracted and was also not included in the income of the assessee. However, the AO observed, that the properties were acquired in the names of minor sons out of the income/investment of the father made in the name of sons when they were minors. Accordingly, he treated both the sons as Benamidar of the assessee. The AO, however, made protective assessment in the hands of both sons S/Sh. Raj Kumar and Rakesh Kumar for the asst. yrs. 1991-92 and 1992-93. Since the assessee had not given bifurcation of Rs. 3.5 lakhs declared in the name of Sh. Raj Kumar, the AO bifurcated 50 per cent each for the asst. yrs. 1991-92 and 1992-93. He also included income of Rs. 1.5 lakhs offered for the asst. yr. 1991-92 in the hands of the assessee. Therefore, the assessment was made on total income of Rs. 3.25 lakhs for the asst. yr. 1991-92 and Rs. 1.75 lakhs for the asst. yr. 1992-93 in the hands of the assessee on substantive basis. Likewise, the AO also included income of Rs. 1 lakh each surrendered on behalf of Sh. Rakesh Kumar in the hands of the assessee for the asst. yrs. 1991-92 and 1992-93 respectively. This resulted in making additions of Rs, 4,25,000 and Rs. 2,75,000 in the hands of the assessee for the asst. yrs. 1991-92 and 1992-93 respectively on substantive basis.
14.1 Being aggrieved, the assessee impugned the additions in appeal before the CIT(A). It was argued before the CIT(A) that the statement of the assessee was recorded when he was mentally exhausted and in a confused state of mind. It was submitted that on the date when search and seizure action took place, both the sons of the assessee were major and were independent legal entities. It was submitted that the fact that the statement was given in utter state of confused mind was evident from the statement itself where the assessee fist disclosed income of Rs. 3.5 lakhs for the asst. yrs. 1991-92 and 1992-93 on behalf of his sons and again disclosed income of Rs. 1.5 lakhs for the asst. yr. 1991-92 in respect of earlier years earning. It was submitted that the income disclosed in the name of the minor sons in the statement under Section 132(4) may be ignored and the addition made in this regard should be deleted. The learned CIT(A) considered these submissions and observed that the investments made in the names of minor sons during the period of their minority were liable to tax if the hands of the assessee because both the sons had no independent source of income. They were only students. However, no income in their hands could be taxed after they had attained majority. Accordingly, the learned CIT(A) reduced the additions to Rs. 4.25 lakhs to Rs. 1.55 lakh for the asst. yr. 1991-92 and from Rs. 2,75,000 to Rs. 1,00,000 for the asst. yr. 1992-93. The relevant findings recorded by the CIT(A) in para 7.5 of the impugned order are as under:
7.5 I have considered the facts of the case and the submissions of the assessee. In my opinion, the amount disclosed by the assessee on behalf of his sons is not in respect of any asset found in the course of the search. There appears to be no basis for arriving at the amount of the income disclosed. I see no valid basis for making this addition except the statement of the assessee under Section 132(4) of the Act which was rightly contended by the assessee was given under confused state of mind. The quantum of the income disclosed in the statement must represent the equal value of some asset found in the course of the search. I find that in the accounting year period relevant to asst. yr. 1990-91 the two investments in the name of the minor sons was Rs. 86,900, which has been directed by me to be added in the hands of the assessee (supra) in the accounting year relevant to asst. yr. 1991-92. There is an investment of Rs. 45,000 for renovation and construction over the property of Lal Bazar and another investment of Rs. 73,000 in acquisition of agriculture and on 11th Jan., 1991. Thus, in the name of the two sons investment in the immovable property amounts to Rs. 11,800. There is another investment of Rs. 37,500 by the assessee's son Sh. Raj Kumar with M/s City Cement and Allied Agency as a partner. The total investment thus came to Rs. 1,55,500, which has been explained in their own case out of the cash available from the estimated income declared in their individual returns from property dealing. As held by me above, this investment alone is to be added in the hands of the assessee. -7.6 In the accounting period relevant to asst. yr. 1992-93 both the sons have made fixed deposits of Rs. 50,000 each on 24th June, 1991 with the Citizen Urban Co-operative Bank. There appears to be no other investment during that period. After considering therefore, the facts and in view of my observations upholding the addition of Rs. 86,900 in asst, yr. 1990-91 for the investment in the acquisition of immovable properties in the name of the sons, in my opinion, the addition of Rs. 1,55,000 in the asst. yr, 1991-92 and the addition of Rs. 1 lakh for investment in asst. yr. 1992-93 made in the name of the assessee's sons can be sustained in the hands of the assessee. Accordingly, the addition of Rs. 4,25,000 in asst. yr. 1991-92 and addition of Rs. 2,75,000 in asst. yr. 1992-93 is reduced to Rs. 1,55,000 and Rs. 1 lakh respectively. This results into a relief of Rs. 2,69,500 in asst. yr. 1991-92 and Rs. 1,75,000 in asst. yr. 1992-93.
The Revenue is aggrieved by the orders of the CIT(A). Hence, these appeals before us.
14.2 The learned Departmental Representative heavily relied on the order of the AO. He submitted that in this case search and seizure action was carried out at the residential premises of the assessee and during the course of such action, the statement under Section 132(4) was recorded. The fact about the transactions in the purchase and sale of properties carried out in the name of his two sons, who were minors at the relevant time were within the knowledge of the assessee. Therefore, the disclosure made in the statement recorded under Section 132(4) on the basis of his knowledge constitutes a valid evidence and the AO had rightly made the addition. He relied on the judgment of Hon'ble Kerala High Court in the case of V. Kunhambu & Sons v. CIT (1996) 131 CTR (Ker) 396 : (1996) 219 FTR 235 (Ker) where it was held that the assessment made on the basis of voluntary statement made by the partner regarding suppression of stock was valid. He further stated that the confession constitutes a valid piece of evidence until proved otherwise. Thus, he stated that the learned CIT(A) was not justified in reducing the additions made by the AO, 14.3 The learned Counsel for the assessee, on the other hand, reiterated the submissions made before the authorities below. He submitted that the assessee was in a confused state of mind at the time when his statement was recorded. He drew our attention to p. 9 of the paper book where the AO has reproduced the extracts of the statement. He submitted that the assessee disclosed income of Rs. 3.5 lakhs on behalf of his son Sh. Raj Kumar for the asst. yrs. 1991-92 and 1992-93. Again he disclosed another income of Rs. 1.5 lakh in the name of his son for the asst. yr. 1991-92 being income earned in the earlier assessment years. He submitted that this only shows confused state of mind of the assessee. He further stated that immediately after the search on 31st July, 1992, the assessee retracted from the statement in August, 1992. He submitted that there was no evidence in the form of assets or income earned in the names of two sons. In fact, the learned CIT(A) has held that the addition should be sustained only to the extent of investment in the name of two sons when they were minors and had no independent source of income. He submitted that the learned CIT(A) has sustained an addition of Rs. 86,900 for the asst. yr. 1990-91 though the AO had made addition of Rs. 60,000 only because investment in the names of minor sons were to the extent of Rs. 86,900. He submitted that the learned CIT(A) has sustained the addition of Rs. 1,55,500 for the asst. yr. 1991-92 because the investment in the names of minor sons were found to that extent. Similarly, the addition of Rs. 1 lakh has been retained for the asst. yr. 1992-93 because the investment in the names of minor sons in the form of fixed deposits were to the extent of Rs. 1 lakh only. He further relied on the decision of Tribunal (SMC), Amritsar Bench, Amritsar in the case of Asstt. CIT v. Anoop Kumar (2005) 94 TTJ (Asr) 288, where it was held that the addition could not be made merely on the basis of statement recorded under Section 132(4) in the absence of any supporting material and corroborative evidence. He submitted that the same decision was followed by the Tribunal (SMC), Amritsar Bench in the case of ITO v. Bua Dass (2005) 97 TTJ (Asr) 650.
14.4 We have heard both the parties and carefully considered the rival submissions, gone through the material and evidence placed on record. From the facts discussed above, it is obvious that the AO has mainly relied on the statement recorded by the AO under Section 132(4) of the IT Act. It is settled position in law that admission made by the assessee under Section 132(4) is an important piece of evidence, but the same is not conclusive. It is open to the assessee who made the admission to show that it is incorrect and the same was made under a mistaken belief of law or facts. Reliance is placed on the judgment of Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala and Anr. . In the case of Asstt. CIT v. Anoop Kumai (supra), the Tribunal (SMC), Amritsar Bench referred to the judgment of Hon'ble Andhra Pradesh High Court in the case of CIT v. Ramdas Motor Transport (2000) 163 CTR (AP) 403 : (1999) 238 1TR 177 (AP) where it was held that the confessional statement without there being any documentary proof cannot be used in evidence against the person, who made such statement. The Tribunal also relied on the decision of R.P. Locks v. Dy. CIT (2000) 67 TTJ (Del) 588, where it was held that the statement recorded under Section 132(4) surrendering certain amount is legally relevant, but it is open to a party who made an admission to explain clearly and demonstrate on the basis of positive material under and what circumstances, the admission was made or to prove that what was stated was not correct. Reliance was also placed on the decision of the Tribunal, Jaipur Bench in the case of Maheshwari Industries v. Asstt. CIT (2003) 81 TTJ (Jp) 914. This decision was also followed by SMC Bench in the case of ITO v. Bua Dass (supra). Now in this case, we find that apart from disclosing income of Rs. 3.50 lakhs in the asst. yrs. 1991-92 and 1992-93 on behalf of Sh, Raj Kumar, the assesses again disclosed income of Rs. 1.5 lakhs being income earned in the name of Sh. Raj Kumar in the past assessment years. We find that the assessee was being assessed to tax right from asst. yr. 1984-85. If the income was earned in the earlier assessment years relating to 1984-85 to 1990-91, the assessee could have disclosed such income in those assessment years rather than disclosing the same for the asst. yr. 1991-92. Moreover, the Department has not brought any evidence on record to show which particular transaction of land in the name of minor sons resulted in income disclosed by the assessee under Section 132(4). This only shows that the assessee was indeed in a confused state of mind. Further, the Revenue has not placed any material or evidence to show that income disclosed in the names of minor sons was based on positive evidence found during the course of search. Thus, in the absence of evidence, the learned CIT(A) was justified in referring to the investments made in the names of minor sons during the relevant assessment years and restricting the addition to the amounts equal of such investment, In fact, the assessee had even contested these additions before the CIT(A), but such submission of the assessee was rejected. In the light of these facts and circumstances of the case and in the absence of any supportive material, we are of the considered opinion that the learned CIT(A) was justified in reducing the additions made by relying on the statement recorded under Section 132(4). The income disclosed under Section 132(4) in respect of remaining amount was not based on any evidence or material and, therefore, the same was rightly deleted by the CIT(A). As regards the judgment of Kerala High Court in the case of V. Kunhambu & Sons v. CIT (supra) relied upon by the learned CIT(A), the same was on its own facts inasmuch as that during the course of search, evidence was found which indicated discrepancies in the stock, unaccounted investment in cinema and on the basis of such material, the partner of the firm disclosed income of Rs. 6 lakhs. Since there was sufficient evidence and material which backed the income disclosed under Section 132(4), the Hon'ble High Court upheld the addition based on statement recorded under Section 132(4). But these are not the facts of the case. Therefore, the learned CIT(A) has already upheld the additions based on evidence and material on record. Since the remaining additions were not backed by any material, the learned CIT(A) has rightly deleted the same. Accordingly, we confirm the order of the CIT(A) and reject the respective grounds of appeals of the Revenue for both the assessment years.
15. The next ground common to the asst. yrs. 1991-92, 1992-93 and 1993-94 relate to deletion of additions of Rs. 1,39,500, Rs. 3,71,610 and Rs. 1,15,200 respectively made on account of sale of plots out of the land inherited by the assessee through the Will of late Sh. Kashmiri Lal. The facts of the case common to all the assessment years are that the seized material revealed sale of various plots at Basti Danishmandan, Jalandhar. The assessee had received sale consideration amounting to Rs. 1,55,000, Rs. 4,12,900 and Rs. 1,24,000 for sale of plots during the asst. yrs. 1991-92, 1992-93 and 1993-94 respectively. In the returns filed by the assessee, the profit from sale was shown under the head capital gains. It was explained by the assessee that agricultural land was inherited from Sh. Kashmiri Lal who made a Will in favour of the assessee on 15th Sept., 1981, which was registered on 16th Jan., 1989. Late S. Kashmiri Lal died on 2nd Aug., 1985 and thus by virtue of the Will, the land in question was passed on to him. However, the AO observed that Sh. Kashmiri Lal had three sons doing small business in Kurukshetra and it was unusual that the deceased would execute Will in favour of the assessee in exclusion of his three sons. Thus, he doubted the genuineness of the Will and after allocating 10 per cent towards development expenses, the AO treated the resultant surplus as business profits for three assessment years.
15.1 Being aggrieved, the assessee impugned the additions in appeal before the CIT(A). It was submitted before the CIT(A) that the Late Sh. Kashmiri Lal had three sons who were involved in murder case. Therefore, in their absence, the assessee looked after Sh. Kashmiri Lal, Sh. Kashmiri Lal executed Will in favour of the assessee on 15th Sept., 1981 and the same was registered on 16th Jan., 1989 by sub-Registrar, Ludhiana, Sh. Kashmiri Lal died on 2nd Aug., 1985 and thereafter, the land devolved upon Sh. Kashmiri Lal by virtue of this Will. The land in question was divided into plots and converted into stock-in-trade as on 1st April, 1990. As per provisions of Section 45(2) of the Act, the capital gain was computed on the date of conversion and the tax on capital was payable only when the same is transferred or sold and in addition the resultant profit was shown as business income. The learned CIT(A) considered these submissions and held that the genuineness of the Will could not be called into question and since the land was not purchased by the assessee as business asset for earning the profit and it was only after the title of the land passed on the assessee by virtue of Will, he converted the asset into stock-in-trade in the year 1990, Therefore, the assessee was justified in disclosing the resultant gain on the sale of land, which was inherited by him by virtue of, Will as long-term capital gain as per provisions of Sub-section (2) of Section 45. The relevant findings of CIT(A) in para 8.3, are as under:
8.3. I have considered the facts of the case and the submissions of the assessee. Though the assessee is a property dealer and is engaged in sale and purchase of immovable properties, however, in my opinion, the claim of the assessee to treat the asset as capital asset for the purpose of computation of the capital gain is not unjustified. Whatever may have been the considerations but the genuineness of the Will cannot be doubted. The land was not purchased by the assessee as a business asset for earning the profit. It is only after the title of the land passed on to the assessee that he converted the asset into stock-in-trade. After considering the facts of the case, I find justification in assessee's submissions and hence the AO is directed to treat the land as capital asset for the purpose of the computation of the capital gain. He will scrutinize the correctness of the computation made by the assessee under the head capital gain and also the correctness of the deduction etc. claimed. Thus, this issue is restored back to the file of the AO for all the three years to decide the matter afresh after considering the submissions of the assessee as extracted above and after allowing the assessee a reasonable opportunity of being heard. In this view of the matter, the additions made by the AO for the difference between the income declared by the assessee as computed under Section 45(2) of the Act and as determined by the AO should be treated as deleted until the issue is decided by the AO afresh.
Accordingly, he restored the issue to the file of the AO for determination of correct capital gain as per provisions of the Act, The Revenue is aggrieved by the order of the CIT(A). Hence, these appeals before us.
15.2 The learned Departmental Representative heavily relied on the orders of the AO and submitted that considering the extent of land holdings and the facts on record, the learned CIT(A) ought to have upheld the additions made in the hands of the assessee by treating transaction as business profit.
The learned Counsel for the assessee, on the other hand, relied on the order of the CIT(A) and reiterated the submissions made before the authorities below. He further relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Sushila Devi Jain (2004) 191 CTR (P&H) 175 : (2003) 259 JTR 671 (P&H), where it was held that these transactions could not be considered as adventure in the nature of trade. He further relied on the decision of the Tribunal Jabalpur Bench in the case of ITO v. Smt. Sarswatibai Jaiswal (1998) 60 TTJ (Jab) 189 : (1998) 66 ITD 243 (Jab), where it was held that in order to determine whether a particular transaction could not be regarded as adventure in the nature of trade is to be seen from the intention of the party by taking into account the facts and the surrounding circumstances of the case.
15.3 We have heard both the parties and carefully considered the rival submissions, examined the facts, evidence and material placed on record. From the facts discussed above, it is obvious that Late Sh. Kashmiri Lal had executed the Will on 15th Sept., 1981 and the same was registered with sub-Registrar, Ludhiana on 16th Jan., 1989. Late Sh. Kashmiri Lal expired in the year 1985. There is no evidence or material placed on record to show that the land owned by Sh. Kashmiri Lal was held as Benamidar of the assessee. Therefore, in the absence of any documentary evidence, we agree with the findings of the CIT(A) that the genuineness of the Will could not be doubted. In the case of CIT v. Smt Sushila Devi Jain (supra), the Hon'ble Punjab & Haryana High Court has held that for the purpose of deciding whether a particular transaction was an adventure in the nature of trade or not, one has to see the intention of the assessee at the time of purchase of the land. Since the land was not purchased by the assessee, it could not be said that the intention was right from the beginning to earn profit. In the present case also, the land was not purchased by the assessee himself and he inherited by virtue of Will. Therefore, it could not be said that the intention of the assessee was right at the time of purchase to earn profit from the same. Subsequently, when the assessee became owner, the resultant surplus on the date when he converted into stock-in-trade by taking the fair market value was shown as capital gain and further surplus was shown as business profit. Such course of action was in conformity with the provisions of the Act. Under these circumstances, we do not find any justification to interfere with the orders of the CIT(A) and the same are upheld and respective grounds of appeals of the Revenue are dismissed.
16. We now take up appeal in ITA No. 599/Asr/1997 for the asst. yr. 1992-93. In this appeal, the Revenue has taken three grounds. The first ground relates to deletion of an addition of Rs. 1,24,500 made on account of profit from the sale of plots in the residential colony named Shastri Nagar, Ludhiana, the second ground relates to reducing the addition from Rs. 2,75,000 to Rs. 1 lakh, being income disclosed by the assessee on behalf of his sons in the statement-recorded under Section 132(4) of the Act and the last ground relates to setting aside the issue regarding an addition of Rs. 3,71,610 made by the AO in respect of sale of plots out of land claimed to have been inherited by the assessee through Will of Sh. Kashmiri Lal and directing the AO to compute the sale under the head capital gains'.
17. Similarly in ITA No. 600/Asr/1997 for the asst. yr, 1993-94, the Revenue has taken two grounds. The first ground of appeal relates to setting aside the issue regarding addition of Rs. 1,15,200 made by the AO in respect of sale of plots out of the land claimed to have been inherited by the assessee through Will of Sh. Kashmiri Lal and directing the AO to compute the same under the 'capital gains' and the second ground relates to deletion of addition of Rs. 97,366 made on account of income declared in the hands of the assessee's two minor sons by treating them as the Benamidar of the assessee.
18. At the outset, both the learned Departmental Representative and learned Counsel for the assessee conceded before us that the facts of the case and the submissions of both the parties are the same as made for the earlier assessment years. Therefore, the same may be taken into account while deciding the appeals for these two assessment years.
19. We have heard both the parties and carefully considered the rival submissions. While dealing with the appeals for the asst. yrs. 1990-91 and 1991-92, we have also disposed of these grounds of appeals where we have upheld the orders of the CIT(A) and rejected the respective grounds of appeal of the Revenue. Admittedly, the facts of the cases for the present assessment years are the same. Therefore, the findings recorded in the preceding paragraphs would equally apply to the facts of the case for the assessment years under reference. Therefore, for parity of reasons, we confirm the orders of the CIT(A) and reject the respective grounds of appeals of the Revenue for both the assessment years.
20. In the result, all the appeals filed by the Revenue are dismissed.