Income Tax Appellate Tribunal - Chennai
Smt. N. Kaasivisalam vs Assistant Commissioner Of Income Tax on 12 November, 2004
Equivalent citations: (2005)93TTJ(CHENNAI)537
ORDER
A. Kalyanasundharam, Senior Vice President
1. These are cross-appeals by the assessee and by the Department for the same set of assessment years. Considering this aspect the appeals have been grouped together and are being disposed of by this common order,
2. For the asst. yrs. 1995-96 to 1997-98 the challenge by the assessee is with regard to the reopening of the assessments as well as with regard to the common issue for all the years of the allowability of deduction under Section 54F of the IT Act, 1961. The grievance of the Department for the various assessment years is common and is with reference to the decision of the CIT(A) wherein he has held that the sale of plot resulted in capital gains and not business income as assessed by the AO. Considering the common issue for all the assessment years, the appeals have been grouped together and the arguments of the parties were made on that basis and the result is the order made in the following paragraphs.
3. The learned counsel for the assessee, Shri Devanathan, made submissions in regard to the right of assumption of jurisdiction by the Asstt. CIT, Circle I(1), Coimbatore. The submission made was that the assessee was being assessed under the territorial jurisdiction of the AO located at Pollachi. The AO who had jurisdiction was the ITO, Ward-I(2), Pollachi. The assessee had filed the returns of income for the asst. yrs. 1995-96 to 1999-2000 with the said AO. For the asst. yr. 1996-97 the returned income was Rs. 3,97,080 and the AO transferred the files to the Asstt. CIT, Circle I(1) Coimbatore, for the reasons that the returned income was in excess of Rs. 2 lakhs. The learned counsel submitted that there was a notification or circular issued by the CIT whereby jurisdiction based on quantum of income returned was fixed. Notwithstanding the fact that, the assessment record for the asst. yr. 1996-97 was transferred to the Asstt. CIT, Circle I(1), Coimbatore, the assessee continued to file her income with the ITO, Ward-I(2), Pollachi. The learned counsel submitted that this fact is not in dispute with the Department.
4. The challenge of the assessee is with regard to the Asstt. CIT, Circle I(1), Coimbatore, assuming jurisdiction without the assessee being given an opportunity to place her objection in regard to such transfer. The second objection of the assessee is an alternative one, i.e., the jurisdiction if could be assumed has to be limited to the asst. yr. 1996-97 only when the income was in excess of Rs. two lakhs. The third objection is that though there is a notification or circular by means of which the AO came to assume jurisdiction based on the income returned, he could not have assumed jurisdiction for other assessment years where the declared income of that assessment year was much less than Rs. two lakhs.
5. The assessee insisted that never a circular was issued and further that even if a circular was issued, the assessee was never given an opportunity, The learned Departmental Representative Shri Sriram Bharathan was directed to place on record the various circulars, notifications based on which the jurisdiction has been given on the basis of quantum of income. He accordingly placed the notification dt. 14th June, 1988 whereby the Asstt. CIT, Circle I(1), Coimbatore, was given jurisdiction of all cases of persons other than companies and their directors, whose returned income/loss is Rs. two lakhs and above, but below Rs. five lakhs as on 1st April, 1988 and who fall within the jurisdiction of Dy. CIT, Range-I, Coimbatore, excluding Nilgiri District. The notification further stated that the ITO, Ward-I(1), Pollachi, will have jurisdiction as earlier, The learned Departmental Representative filed another notification dt. 12th June, 1991, explaining the meaning of "returned income" or "loss". He filed one more notification dt. 13th June, 1991 whereby jurisdiction was placed on the basis of quantum of income. He also filed a copy of the Board's Circular in F. No. 225/105/98-ITA-II, dt. 16th Sept., 1998 under the subject "Transfer of cases from one IT authority to another."
6. The assessee was confronted with the various documents as filed by the learned Departmental Representative. The assessee still insisted that the assessee should have been given an opportunity to place her objections to the proposed transfer in view of the specific provision in Section 127(1) of the IT Act, 1961. The assessee was asked whether any office of Asstt. CIT was located in Pollachi who had concurrent jurisdiction with the ITO Ward-I(2), Pollachi. The answer to this question was that there was no office of the Asstt. CIT located at Pollachi. The officer who had concurrent jurisdiction with that of the AO was the Asstt. CIT located at Coimbatore.
7. The assessee in support of her claim that jurisdiction was improperly assumed relied on various decisions, The assessee further stated that jurisdiction is something which the AO cannot assume and even if the assessee consents to the officer assuming jurisdiction, if by law he has no jurisdiction, his assumption would be illegal. It was further insisted that power of transfer of cases under Section 127 of the Act was of a profile judicial one. The assessee further submitted that she has a vested legal right to get assessed in the area in which she resides for which she placed reliance on the decision of the Supreme Court in the case of Bidi Supply Co. v. Union of India and Ors. (1956) 29 ITR 717 (SC). In regard to requirement of notice, reliance was placed on the decision of the Supreme Court in the case of General Exporters v. CIT (1998) 234 ITR 860 (Mad).
8. The rival contentions in regard to the above have been very carefully considered. The territorial jurisdiction has been further expanded by the CIT from the point of view of administration with reference to the income returned by the assessee. On this basis the Asstt. CIT at Coimbatore was given jurisdiction of assessees who are located at Pollachi and who have returned income of Rs. two lakhs and more or loss of Rs. two lakhs and more to be assessed by the Asstt. CIT at Coimbatore. Pollachi is a small town and Coimbatore is about 40 to 45 kms. from this town, which is a bigger city or town. It is an accepted position that at Pollachi there is no office of Asstt. CIT The office of the Asstt. CIT was at Coimbatore and it was covering various locations excluding Nilgiris District. It is therefore a case of the AO being placed at Coimbatore having jurisdiction to assess persons located at Pollachi and other places. The location of the AO, though is relevant, but in the circumstances of the instant case, it is of academic interest only. It is purely a question of the Asstt. CIT not having any office in Pollachi because the number of assessees having income in excess of Rs. two lakhs were not too many requiring exclusive office of the Asstt. CIT at Pollachi. In this view of the matter, the location of the office of the Asstt. CIT at Coimbatore could not be treated as transfer within the meaning of Section 127 of the Act. It is, purely an administrative convenience that was worked out. It is not a case of transfer from one city to another requiring an opportunity to the assessee. In view of the above, we are not in a position to accept the claim of the assessee that the assumption of jurisdiction by the Asstt. CIT at Coimbatore was not justified. This claim of the assessee is accordingly rejected.
9. The related issue is with regard to the Asstt. CIT assuming jurisdiction to reopen the assessments for the asst. yrs. 1995-96 and 1997-98. The arguments advanced by the learned counsel for the assessee in this connection was that the income as was returned was very much below Rs. two lakhs and, therefore, even according to the circular issued by the CIT, the Asstt. CIT at Coimbatore could not have assumed jurisdiction.
10. The AO, viz., the Asstt. CIT at Coimbatore assumed jurisdiction for the detailed reasons given by him in his order of assessment framed on 26th March, 2001. The AO apparently noted that a survey was made on 31st March, 1999. During the course of survey some agreements were found regarding the actual value of the house sites sold and promissory notes for the loans advanced to various parties, constructions accounts, list of persons to whom house ..sites were sold, details of interest receipts, blank promisory notes, cheques, etc. The AO noted that the assessee had land of six acres in Kottampatti village, Pollachi. This land was converted into 59 house sites consisting of 4 cents to 5-1/2 cents. The house site plan was approved by the concerned town planning authorities in 1994. The assessee had started selling sites from 1995.
11. During the survey, the assessee was asked the price at which she sold the plots. She had stated that she had received between Rs. 15,000 to 20,000 per cent. She also stated that 56 sites were sold out of the total 59 plots. She had admitted the consideration amount at Rs. 12,60,626. She had also stated that she gave her daughter Rs. 9,00,000 and another daughter Rs. 4,00,000. Further, she had stated that she had advanced Rs. 15 lakhs to one Alagirisamy and also Rs. 5 lakhs to outsiders. She had also stated that she was constructing a two-storeyed building of 6,300 sq. fts. and she had been spending about Rs. 20,00,000 towards the construction of the building. She had stated that the loan advanced to Alagirisamy on pronote is in the name of her first daughter. The daughter was asked for her confirmation and she did confirm. The daughter has also stated that she had received from her mother 120 sovereign of jewellery at the time of her marriage and that she had received Rs. 1.25 lakhs from her mother about 3 to 4 months before the survey. The Asstt. CIT, Coimbatore, was of the opinion that income had escaped assessment. He accordingly issued notice to the assessee to file the return.
12. The objection of the assessee in regard to the above is that for the asst. yr. 1995-96 the income already returned being below Rs. two lakhs, the Asstt. CIT, Coimbatore, could not have assumed jurisdiction, and the reopening of the assessment by him should be struck down.
Further, for the asst. yr. 1997-98 the income assessed was very much below Rs. two lakhs and therefore the assumption of jurisdiction by the Asstt. CIT for 1997-98 is also invalid. Likewise for the asst. yr. 1996-97 the intimation was framed initially by the ITO. Ward-I, Pollachi. It was on the above set of facts that the learned counsel for the assessee insisted vehemently that the reopening of the assessments by the Asstt. CIT at Coimbatore was without jurisdiction. Alternatively the claim was that at best the jurisdiction could be limited to the asst. yr. 1996-97 alone which was based on the quantum of income returned by the assessee.
13. The learned Departmental Representative objected to the above arguments advanced by the learned counsel of the assessee. He submitted that the AO who assumed jurisdiction based on the quantum of income returned noticed escapement of income for the other years also. It was for this reason that he had assumed jurisdiction. He further submitted that impliedly the AO, who assumed jurisdiction for the asst. yr. 1996-97 also had jurisdiction for the earlier assessment years as well as for the subsequent assessment years.
14. The rival contentions in regard to the above have been very carefully considered. The primary requirement for a person who assumed jurisdiction to reopen an assessment must be that he should initially have the jurisdiction to assess the income. The jurisdiction to assess income for administrative convenience was segregated by the notification issued by the Board based on quantum of returned income. This has been reproduced earlier. This notification makes it clear that if income is below Rs. two lakhs and is not a loss, the jurisdiction to frame the assessment is with the ITO Pollachi. This notification as reproduced earlier goes to confer the jurisdiction on the Asstt. CIT at Coimbatore on the basis that the income or loss returned is Rs. two lakhs or above and is below Rs. five lakhs. This classification has been explained in an endorsement issued by the office of the Chief CIT on 13th June, 1991. According to this notification the jurisdiction in cases of persons returning income of Rs. ten lakhs and above would be with the Dy. CIT Asstt. CIT would have jurisdiction in respect of income returned of Rs. 50,000 and above but below Rs. 10 lakhs in company cases and Rs. 2 lakhs and above but below Rs. 10 lakhs in other cases. This notification further explains "return of income" for consideration of conferring jurisdiction. According to this notification, in case only one assessment is pending, the return for the said assessment would be treated as the return of income. The second classification is with regard to more than one assessment year pending for assessment-the return showing the highest total income or loss would be considered as the basis for conferring of jurisdiction. The last category is where no assessment is pending, the return for the latest assessment year for which assessment had been made would be the criteria. All these notifications further talk about assignment made with reference to the provisions of Section 127 of the Act also. In the year 1998 the Board issued a circular No. P. 225/105/98-ITA-II, dt. 16th Sept., 1998, and this talked of applicability of the instructions for the period from July, 1998 to March, 1999. One indication is that "while no case would be transferred in a routine manner, the exceptional cases of sensitive nature or those requiring the centralization and decentralisation on priority basis or where Court's directions are to be complied with, the orders for change of jurisdiction may be passed only after obtaining the prior approval of Board". The above facts have been brought out to appreciate the assumption of jurisdiction by the Asstt. CIT, Coimbatore. In the normal manner the Asstt. CIT at Coimbatore has no jurisdiction for the asst. yrs. 1995-96 and 1997-98 when the returned income was below Rs. two lakhs. This is based on the fact that it is not the case of the Department that a special order has been passed granting jurisdiction for these two years and other years to the Asstt. CIT, Coimbatore in addition to the asst. yr. 1996-97 which assessment was given jurisdiction based on the notification with reference to the quantum of income returned. What we are trying to put across is that in normal circumstances the Asstt. CIT, Coimbatore, does not have jurisdiction because the quantum of income returned is very much below Rs. two lakhs. The primary condition in our view for assumption of jurisdiction for reopening of an assessment is that the AO must initially have the jurisdiction to assess the income. It is for this officer to apply his mind and frame an opinion leading to a belief based on certain materials from which he has to record his reasons for reopening of an assessment. If the initial officer has no jurisdiction to frame an assessment on a person, then it is not open to such an officer to assume jurisdiction, reopen the assessments. Therefore, in order that the Asstt. CIT, Coimbatore, who claimed jurisdiction over the assessee, he must have specific authority or order by which the jurisdiction is conferred on him. In that event alone he could claim that he has the jurisdiction to frame an assessment followed by the jurisdiction to proceed with reopening of an assessment also.
14.1 In the instant case from the above facts we have, therefore, to conclude that the Asstt. CIT at Coimbatore did not have jurisdiction for the asst. yrs. 1995-96 and 1997-98 for the reason that the income returned was very below Rs. two lakhs. Because the precondition for assumption of jurisdiction for reopening of assessment is the processing jurisdiction to frame an assessment at the initial stage, which in the instant case, especially for the asst. yrs. 1995-96 end 1997-98, not vested with the Asstt. CIT, Coimbatore, the assumption to jurisdiction to reopen these two assessments is beyond his powers. Therefore, the action having been initiated without adequate powers to act under law or his actions following the reopening of assessments have also become bad in law, illegal and we have no alternative but to quash the reopening proceedings as well as the assessments framed on that basis. For the asst. yrs. 1995-96 and 1997-98 the Asstt. CIT, Coimbatore, assuming jurisdiction being illegal, the assessments made cannot stand in the eye of law and accordingly they are quashed. The claim of the assessee that for the asst. yrs. 1995-96 and 1997-98 the Asstt. CIT, Coimbatore, did not have jurisdiction is found in favour of the assessee and to that extent the claim is allowed.
15. The question on merits which is common to all the assessment years is the action of sale of land by the assessee, the profits derived therefrom-whether it is taxable as business income or is to be classified as capital in nature.
16. We have brought out the brief facts of the case in the earlier paragraphs. The order of assessment indicated that the assessee converted her six acres of agricultural land located at Kottampetti village, Pollachi, into 59 housing sites consisting of 4 cents to 5-1/2 cents. It was further noted that the house site plan was approved by the concerned town planning authorities in 1994 and the recognition number given is 1037/94. The assessee then started selling the plot of land with the aid of certain people. All these facts are not in dispute. The claim of the assessee is that she is aged and she was unable to manage the agricultural land and wanted a comfortable house for the remaining years of her life that compelled her to sell off agricultural land. The money that she obtained from the sale of agricultural land was used to constructing a house for herself. It was on this basis that she claimed that the sale of house sites resulted in capital gains and that she having invested the same in building a residential house, the benefit under Section 54F of the Act was clearly available to her.
17. The stand of the Department, on the other hand, was that it was a carefully planned activity by the assessee and she was selling the plots for various years, which clearly showed that the purpose of sale was to make income. The learned Departmental Representative submitted that the purpose was to make income is also not disputed by the assessee but the fact remains that it was an activity carried on periodically from 1994 indicating that it was a business proposition. He submitted that the Madras High Court in the case of CIT v. Kasturi Estates (P) Ltd. (1966) 62 ITR 578 (Mad) has observed as under :
"A sale of immovable property may possibly be a trading commercial transaction, but need not necessarily be so.....If a land owner developed his land, expended money on it, laid roads, converted the land into house sites and with a view to get a better price for the land, eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form of asset into another. Obviously, the surplus in such a case will not be trading or business profits because the transaction is one of realisation of assets in investment rather than one in the course of trade carried on by the assessee or an adventure in the nature of trade."
He submitted that in the instant case the assessee is stated to have inherited 15 acres of land and she was cultivating the said land for the last several years. The inheritance as noted by the CIT(A) was about 50 years back. The learned Departmental Representative further submitted that it is not disputed that the assessee did not carry on any business activity earlier. He submitted that notwithstanding these facts the manner in which she went ahead of converting six acres of land into various sizes of plots and that 59 specific size of plots indicated that it was a planned activity of business. He submitted that the CIT(A) in his order has relied on the decision of the Madras High Court in the case of Shyamala Pictures (P) Ltd. v. CIT (1983) 142 ITR 115 (Mad). He submitted that in that case there was a development of land approved by the town planning authorities and the High Court upheld the claim that it was not business on the reasoning that it was held for 13 years. His plea was that in this manner if the claim of the assessee is upheld, then under no circumstances a person converting agricultural land into plots and selling them would ever be taxed for business income.
18. The rival contentions in regard to the above have been very carefully considered. In addition to the decisions of the Madras High Court in the cases of Kasturi Estates and Shyamala Pictures (P) Ltd. (supra), there is one other decision of the Madras High Court considered by the CIT(A), i.e., CIT v. Ramanathan Chettiar (1985) 152 ITR 489 (Mad). In that case, the- assessee owned certain land, converted them into housing plots and sold them. The Department assessed the gain as capital gain and the only issue was with reference to expenses incurred on ploting of the land. The Madras High Court while allowing the claim of the assessee for deducting the expenses from the capital gain observed that the expenses were incurred by the assessee only for the sole reason to get a better price for the land. One of the major reason that was in the mind of the CIT(A) is that the sale of 59 plots resulting in capital gains was the holding of the land by the assessee in the status of agricultural land for 50 years. The other reason was that she never carried out any business. He was, therefore, impressed with the reasoning that the predominant objective of selling the land was to construct a new residential house. He was also satisfied with her case of sub-division of the land into 59 plots which "was at par with the ruling of the Madras High Court in the case of CIT v. Ramanathan Chettiar (supra), viz., for getting a better price which would enable her to construct a residential house for herself. This is identically found by the Madras High Court in the case of M/s Kastuii Estates (supra). In the case of Shyamala Pictures (P) Ltd. (supra) the assessee was found to have sold the property with a view to clear part of the debts incurred and therefore, the High Court came to the conclusion that the purpose of sale was not to make a profit but wipe of the debt incurred. The Supreme Court had occasion to consider the case of P.M. Mohamed Meera Khan v. CIT (1969) 73 ITR 735 (SC), where the assessee purchased a rubber estate and immediately converted them into 23 plots and sold them to 22 different buyers. The entire purchase and sale after conversion into plots were completed in less than a year and this made the Supreme Court to come to the conclusion that the real intention was a business transaction. In the case of CIT v. M. Krishna Rao (1979) 120 ITR 101 (AP), the Andhra Pradesh High Court had occasion to consider a situation where certain agricultural lands were purchased in 1964 and in 1967. In the earlier part of 1968 the village Panchayat had granted permission for conversion of the land into building sites and accordingly the land was converted into housing plots and sold in the years 1968 and 1969. It was these facts which compelled the Andhra Pradesh High Court to come to the conclusion that it was a transaction of business.
19. We note that considering the identical circumstances as found in the cases of Kasturi Estates (supra) Shyamala Pictures (P) Ltd. (supra) and Ramanathan Chettiar (supra) by the Madras High Court with the facts of the assessee's case which are - the assessee held the land for 50 years, and cultivated the same for agricultural purposes, the assessee never carried on any business and after the sale of plots, all that the assessee did was construction of a residential house and did not carry in any business of any sort. Therefore, applying the ratio pronounced by the Madras High Court supra, we uphold the claim of the assessee that the intention to convert the agricultural plots and selling them was not to carry on business out of necessity to have a residential house for herself. The claim that it should be assessed as capital gains is accordingly upheld end to this extent the order of the CIT(A) is upheld.
20. Before parting with this proposition, we may state that the learned Departmental Representative pointed out that for the asst. yr. 1999-2000 the assessee had shown capital gains and claimed exemption under Section 54F of the Act on the basis of completed sale. He submitted that this is something specific and related to the accounting technology and that this also showed that her intention was to carry on business. We have to reject this particular proposition in view of the fact that the case of the assessee, being identical (sic)
21. Now the question is with regard to the claim of exemption under Section 54F of the Act. The assessee made the claim for the asst. yr. 1999-2000. In para 7.1 of his order the CIT(A) on the aspect of 'completion of project method expressed that this was an attempt to absolve the assessee from various penal consequences. This was based on the fact that in the previous year relevant to the asst. yr. 1999-2000 only 2 plots were sold and most of the sale was before the previous year relevant to the asst. yr. 1999-2000. The CIT(A) also noted that the claim of the assessee that she had received on-money and that based on such claim the assessee pleaded that she should be considered for capital gains and exemption in the asst. yr. 1999-2000. The amount that the assessee had invested in the building over the years was Rs. 27,75,600. On the sale of 56 plots (out of 59 plots 3 remained unsold) the documents were registered for a total consideration of Rs. 13,69,900. The assesses claimed to have received on-money to the extent of Rs. 28 lakhs and this made the total realisation at Rs. 41,69,900. The cost of the plots was determined at Rs. 4,03,090 which the assessee claimed to have paid to her second daughter. The capital gains offered by the assessee plus the capital gains paid was in the range of Rs. 5,93,000 approximately. Rs. 27.50 lakhs was the cost of construction shown and Rs. 2.96 lakhs as cash in hand. The assessee claimed deduction under Section 54F of the Act initially for one year and later on gave the break-up of the same at Rs. 6,25,000, Rs. 14 lakhs, Rs. 6,75,000, Rs. 40,000 and Rs. 60,000 for the asst. yrs. 1998-99, 1999-2000, 2000-01, 2001-02 and 2002-03 respectively. The assessee further stated that out of Rs. 41,69,900, Rs. 92,700 was already subjected to tax for the asst. yrs. 1995-96 and 1996-97 and the balance amount is to be considered for purposes of capital gains. To the extent of Rs. 27.75 lakhs having been spent, the balance of Rs. 6.45 lakhs was available with the assessee for planning in the next 3 years for which also she gave the break-up. The AO, however, had made certain observations, on the basis of certain documents found during the survey for which reference is already made in the earlier paragraphs. For the sake of convenience these are reproduced below :
Rs.
As per order for the assessment year 1995-96 14,65,000
1996-97 12,90,000
1997-98 11,40,000
1988-99 13,40,000
1999-2000 50,000
Other items : Blank pronotes,
amounts noted in the loose sheets, conversion
expenses, repayment of loans, etc. 11,35,000
----------
64,20,000
Add : Amount invested in building 27,75,000
----------
91,95,600
Asst. yr. 1995-96 : ----------
(i) As per slip No. 43 found in the assessee's premises on
the day of survey under Section 133A conducted on 31-3-99, has
advanced loan to Shri Ramaboyan 1,65,000
(ii) Amount given by the assessee to her daughter Smt.
Thilagamani, Tirupur, from 1994 to June, 1996 : Total Rs. 9
lakhs taken as Rs. 6 lakhs as the amount given extends to 6,00,000
June, 1996. ---------
7,65,000
---------
Amount brought forward 7,65,000
(iii) Amount given to the second daughter Smt. Premalatha,
as per assessee's statement dt. 31-3-99 and sworn
statement recorded on 6-8-99 4,00,000
(iv) Repayment of loan taken for conversion of land into
house site as per assessee's statement in question No. 34 of
the sworn statement dt. 6-8-99: Rs. 5,15,000
Less : Drawn from bank Rs. 1,25,000
3,90,000
---------
Total Investments made 15,55,000
Asst. yr. 1996-97 ---------
The assessee has advanced a loan of Rs. 12,90,000 to the following persons as under :
Date Name of borrower Slip No. Amount
18-9-95 Alagirisamy 1 1,05,000
14-9-95 -do- 2 2,00,000
9-7-95 -do- 3 1,25,000
30-6-95 -do- 4 1,00,000
16-6-95 -do- 5 1,00,000
6-5-95 -do- 6 4,00,000
29-1-96 -do- 7 60,000
5-4-95 R. Gopalasamy & Rajammal 75,000
13-12-95 Sekar Readymades 39 1,25,000
---------
Total 12,90,000
---------
Further, blank pronotes, loose papers found during the course of survey for the advancement of loans to the tune of Rs. 10,10,000 as under without dates :
Slip No. Name of borrower Amount
11 Blank pronote Nil 20,000
12 -do- Sundaram (Amount not --
mentioned)
Nil-do- Lalji Patel 2,60,000
17-do- Sri Jayalakshmi Saw 50,000
Mills
40,41,42-do- Rajasekaran Sekar 1,25,000
Readymade
Repayment loan obtained for conversion 3,75,000
---------
10,10,000
---------
Asst. yr. 1997-98
As per pronote and loose slips found during the course of survey, the assessee has lent a sum of Rs. 11,40,000 to the following persons :
Date Name of the Slip No./ No. copy Amount
borrower of pronote Rs.
2-5-96 Alagirisamy 18 1,10,000
20-5-96 -do- 19 15,000
30-10-96 -do- 20 1,40,000
2-1-97 -do- 21 2,00,000
28-1-96 -do- 24 1,50,000
15-6-96 Ramathal 8 2,50,000
15-6-96 R. Govindaraj 9 2,75,000
Amount given to her first daughter Smt. Thilagamani in 2,00,000
June, 1996 ---------
13,40,000
---------
Asst. yr. 1998-99:
Date Name of the Slip No./ No. copy Amount
borrower of pronote Rs.
6-4-1977 Alagirisamy 22 2,50,000
17-4-1997 -do- 23 1,50,000
3-6-1997 Sri Ram & Co. 13 2,40,000
19-11-1997 Lalji Patel 14 2,00,000
7-7-1997 Sri Ram & Lalji 16 5,00,000
Patel
-----------
13,40,000
-----------
Asst. yr. : 1999-2000 50,000"
21.1 For the asst. yr. 1995-96 the AO noted that the assessee had accepted having paid to his first daughter Mrs. Thilakamani Rs. 6 lakhs, his second daughter Premalatha Rs. 4 lakhs and Rs. 39,000 towards conversion charges. The AO included a sum of Rs. 1,65,000 on the basis of a paper which had contained the name of Ramaboyan. The slip No. 43 as noted by the CIT(A) did not contain any mention of the appellant. In the slip, Ramaboyan has signed mentioning that he has received interest of Rs. 39,000 for 12 months from 11th Jan., 1995. The CIT(A) considering that the said note did not contain any mention of the appellant, deleted the same. The other item was interest receipt from various parties by Alagirisamy. The CIT(A) considered the proposition that the assessee a widow was living alone and since there was no male member in the house, she used to entrust the agricultural income of her daughter with Alagirisamy, for keeping the same safely. However, Alagirisamy insisted the assessee taking a demand promissory note (DPN) in respect of each such lumpsum payment with a view to avoid future misunderstandings and to preserve cordial relationship. These DPNs were also renewed periodically. On 1st May, 1995 a DPN for Rs. 4,00,000 was given in favour of the first daughter together with interest of Rs. 49,772, which was rounded of Rs. 50,000. This the assessee claimed was her own money and the question of payment of interest to Alagirisamy did not arise, The CIT(A) considered this aspect in paras 10,2 to 10.6 of his order. He noted that one of the pronotes given in favour of Mrs. Thilagamani showed interest at 24 per cent and the purpose of the loan is mentioned as "business expenses". The CIT(A) was of the opinion that the daughter was unaware of the facts and, therefore, rejected the claim of the assessee that it was her own money. For the asst. yr. 1996-97 Alagirisamy had filed an affidavit that money was given to him by the assessee for safe custody. There was a loan of Rs. 75,000 advanced to R. Gopalasamy and Rajammal. There was a loan of Rs. 1,25,000 advanced to Sekar Readymades. There was a loan of Rs. 2,60,000 advanced to Lalji Patel and Rs. 50,000 to Sri Jayalakshmi Saw Mills, Rs. 2,50,000 to Ramathal and Rs. 2,75,000 to R. Govindaraj. The CIT(A) made his observations in para 11.5 of his order with regard to amount given to the daughter and the quantum. The statement of the daughter was taken in which she accepted that Rs. 9 lakhs was given by her mother for construction of a house at Tirupur. The CIT(A) found fault with the statement of the mother wherein she had stated that she had given to her daughter Rs. 8 to Rs. 10 lakhs. For the asst. yr. 1998-99 the amount given to Lalji Patel was the subject-matter and it was noted that on various dates the pronote showed amount having been given and the pronote has the signature of Lalji Patel. Considering the various amounts given to the daughters, the AO arrived at the investments made are unaccounted income of the assessee. Similarly he considered the various amounts given to Alagirisamy and others. The CIT(A) in para 8.1 has summarised the position for all the various assessment years, which we have reproduced above at p. 19. The CIT(A) considered the various submissions of the assessee that she did not carry on any business and that she received on-money from the sale of plots and that the money was kept with Alagirisamy and the money was not kept in any bank account. The CIT(A) arrived at the long-term capital gains for the various assessment years in paras 21.1 to 21.5 of his order and these are reproduced below for the sake of convenience :
"21.1. Asst. yr. 1995-96:
Long-term capital gains : Rs.
Sale consideration for 86 cents of land 17,63,000
Less : Indexed cost of acquisition: Market value of land as
on 1-4-81 (Rs. 60 per cent) (as computed by
the appellant in the returns of income for asst. yr. 1995-96) :
60X86 = 5,160
Indexed cost of acquisition
=5160 x 259 13,365
-------------- ---------
100 17,49,635
Less : Expenses incurred in connection with transfer:
Rs.
Total expenditure 5,15,000
Area 396 cents
Exps. per cent 1,300
Exps. for 86 cents 1,300 X 86 1,11,800
----------
Net capital gains 16,37,835
Interest income 49,772
----------
Total income 16,87,607
----------
Agricultural income 90,000
21.2. Asst. yr. 1996-97:
Long-term capital gains :
Sale consideration for 136.5 cents of land 28,66,500
Less : Indexed cost of acquisition: Market value of land as
on 1-4-81 (Rs. 60 per cent)
=60 x 136.5 x 28
-------------
100 23,014
--------
28,43,486
Less : Proportionate expenses incurred in connection with 1,77,450
transfer : 1300 X 136.5
Net capital gains 26,66,036
Interest income 2,72,300
---------
Total income 29,38,336
---------
Agricultural income 90,000
---------
213. Asst. yr. 1997-98 :
Long-term capital gains:
Sale consideration for 60 cents of land 12,60,000
Less : Indexed cost of acquisition : Market value of land as
on 1-4-81 (Rs. 60 per cent)
= 60 x 60 x 305
----------------
100 10,980
---------
12,49,020
---------
Less : Proportionate cost of development expenses
78,000 (60 X 1300)
Net capital gains 11,71,020
Interest income 1,61,200
---------
Total income 13,32,220
---------
Agricultural income 90,000
---------
21.4. Asst. yr. 1998-99 :
Long-term capital gains:
Sale consideration for 5.5 cents of land 1,21,000
Less : Indexed cost of acquisition
5.5 x 60 x 331
-------------- 1,090
100
---------
1,19,910
Less : Proportionate cost of development expenses 7,150
(5.5 X 1300)
Net capital gains 1,12,760
Interest income from Lalji Patel 15,000
---------
Total income 1,27,760
---------
Agricultural income 90,000
---------
21.5. Asst. yr. 1999-2000:
Long-term capital gains:
Sale consideration for 11 cents of land 2,75,000
Less : Indexed cost of acquisition 2,317
11 x 60 x 351
------------
100 ---------
2,72,683
Less : Proportionate cost of development expenses
(11X1300) 14,300
Net capital gains 2,58,383
Total income 2,58,383
---------
Agricultural income 1,00,000
---------
The CIT(A) in para 22 of his order had deleted Rs. 28 lakhs which the assessee claimed as receipt of on-money and which the AO had assessed as unexplained income because the assessee did not carry on any business earlier to the sale or after the sale of plots of land.
22. The assessee apparently is not disputing about the number of plots sold in the various assessment years. The assessee claimed deduction under Section 54F of the Act for the asst. yr. 1999-2000. According to the provisions of Section 54F of the Act, if the assessee sells a property or any item that is subjected to capital gain and within a period of 3 years after the date of such sale, constructed a residential house, the cost of the new asset is not less than the net consideration of the sold property, capital gains will not be charged and if it is less than the consideration for which the original asset has been sold, capital gains will be levied in the proportion of the cost of the new asset and the net consideration of the sold asset. One other condition is that the benefit under Section 54F of the Act will not be available if the assessee has more than one residential house.
23. The AO arrived at the total sale value by taking the average rate of Rs. 21,000 per cent and to Rs. 62,58,000. In para 17 of his order the AO has noted that the actual consideration received by the assessee worked out to Rs. 41,35,048. He further observed that the investments made out of consideration received on sale of house sites amounted to Rs. 64,20,000. On this basis he was of the opinion that the amount admitted by the assessee as sale consideration of Rs. 41,35,048 was not acceptable. In para 10 of his order the AO mentions about the survey made and the statement made by the assessee about the selling of various sites at a price ranging from Rs. 15,000 to Rs. 20,000 per cent from 1994. He also noted that one particular site No. 19 was sold at Rs. 21,000 per cent He accordingly calculated the sale consideration that the assessee would have received at Rs. 64,20,000 on the basis of number of sites sold in the various assessment years, plus the total blank pronotes, amounts noted in loose sheets etc. found in the survey. The area of land sold in the previous years ending 31st March, 1995, 31st March, 1996, 31st March, 1997, 31st March, 1998, and 31st March, 1999 was 86, 135, 60, 5.50 and 11 cents respectively. Because one piece of paper showed Rs. 21,000 per cent, he applied that rate to all the plots and arrived at a sale consideration of Rs. 62,58,000.
24. A perusal of the records that are before us and as produced before us shows that other than the only document that showed Rs. 21,000 per cent, no other document showed that the land fetched a price of Rs. 21,000 only and not Rs. 15,000 to Rs. 20,000 per cent as claimed by the assessee. The CIT(A) had accepted that on-money has already been included as part of sale consideration because there was no business activity of the assessee, Further, the statement of Alagirisamy, the assessee, etc. go to show that the money was earned from sale of property and from agricultural activity and it was kept with Alagirisamy. and others only for safe custody. It is not the case of the Department that the purchasers are found to have paid the assessee more than what the assessee had claimed to have received from them. Out of Rs. 41 lakhs, which is stated to be the consideration by the assessee, Rs. 27.75 lakhs is what she had invested in the construction of the property. The amounts that the assessee has realised for the various assessments ere as indicated below and as was placed before the AO :
Asst. yrs. Amount
(Rs.)
1995-96 9,32,500
1996-97 20,20,000
1997-98 10,08,000
1998-99 70,000
1999-2000 1,37,400
---------
41,67,900
---------
The assessee has spent Rs. 27.75 lakhs over the three years towards the construction of her house. Accordingly part of the amount realised in the asst. yr. 1995-96 has gone into the construction and likewise the amount realised in the years 1996-97 and 1997-98 has also gone into the construction of the house, Therefore, the claim of the assessee that she is entitled to deduction under Section 54F of the Act based on three years limit for the asst. yr. 1999-2000. The assessee would benefit of nearly 30 lakhs of rupees sale consideration available on which she has invested Rs. 27.75 lakhs in the construction. However, since the assessment for 1996-97 was pending at the time the survey was made, notwithstanding the fact that the claim was made for the asst. yr. 1999-2000, it could still be considered by the AO who is quite aware of the facts that the amount realised on the sale of plots was utilised in the construction of the house. For each of the assessment years the assessee could have been given the benefit to the extent of Rs. 9,32,500 if invested in the property, and likewise for the asst. yrs. 1998-99 and 1999-2000 on the basis of realisation made in the asst. yr. 1996-97 as available for deduction under Section 54F of the Act for the asst. yr. 1999-2000. We accordingly direct the AO to consider this claim of the assessee in the proper light. In order that the AO could determine the capital gains as well as the extent of deduction allowable under Section 54F of the Act, one item that is required for this purpose is the sale consideration. We have brought out the various facts of the case. We have also considered the submissions of Alagirisamy, daughters of the assessee and others. We have also considered the submissions of the assessee and corroborated by others that the moneys were kept with them only for safe custody. We have the finding given by the CIT(A) that the assessee did not carry on any business before and after the sale of the plots. We have also observed, that other than the AO making an estimate on the basis of one single document which was consideration of Rs. 21,000 per cent and applying it uniformly for all the plots without verification or without any basis, in our opinion, is not justified. When the persons to whom the money was given for safe custody have corroborated the version of the assessee, it is found that no other document or evidence is found indicating that the averments of the assessee as corroborated are false. Rejecting the claim as nothing but refusing to see the fact as it is. We are therefore, of the opinion that the sale consideration claimed by the assessee and offered by the assessee is the correct price and therefore the addition made on account of interest, etc. should be deleted. We may observe that the extra addition made by the AO to the extent of Rs. 28 lakhs on the basis of offer made by the assessee was deleted by the CIT(A) for the sole reason that the assessee did not carry on any business. When it is admitted to this extent that the assessee is found (not) to have carried on any business and further there is no evidence of investments made by the assessee on any other property or matter and further there being no source of income available which the assessee could be said to have not disclosed, the claim of the assessee that she had given to the CIT(A) at the time of offering Rs. 28 lakhs in addition to Rs. 13 lakhs offered for various years as her income from sale of plots, in our opinion, deserves to be accepted. We accordingly accept the sale value and direct the AO to rework the capital gains for the asst. yrs. 1996-97, 1998-99 and 1999-2000.
25. For the asst. yrs. 1995-96 and 1997-98 though factually the assessee would have got a claim for deduction under Section 54F of the Act, it would become academic because we have quashed the assessments on jurisdictional aspect itself.
26. In the result, the appeals preferred by the assessee are allowed and the ^appeals preferred by the Revenue are dismissed.