Income Tax Appellate Tribunal - Hyderabad
Sri Y Radhakrishna,, Warangal vs Department Of Income Tax on 29 April, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B" : HYDERABAD
BEFORE SHRI G.C. GUPTA, VICE PRESIDENT
AND
SHRI P.M. JAGTAP, ACCOUNTANT MEMBER
ITA.No.1652/Hyd/2013
Assessment Year 2009-2010
ACIT, Circle-1 Mr. Y. Radhakrishna
Warangal. vs. Warangal.
PAN AANPY6931D
(Appellant) (Respondent)
Cross Objection No.55/Hyd/2014
Arising out of
ITA.No.1652/Hyd/2013 - Assessment Year 2009-2010
Mr. Y. Radhakrishna ACIT, Circle-1
Warangal. vs. Warangal.
PAN AANPY6931D
(Cross Objector) (Respondent)
For Revenue : Mr. Rajat Mitra
For Assessee : Mr. K.V. Chalamaiah
Date of Hearing : 27.04.2015
Date of Pronouncement : 29.04.2015
ORDER
PER P.M. JAGTAP, A.M.
This appeal is preferred by the Revenue against the Order of the Ld. CIT(A)-VI, Hyderabad dated 30.08.2013 and the same is being disposed of along with the cross objection filed by the assessee being C.O.No.55/Hyd/2014.
2. In Ground No.1 of its appeal, the Revenue has challenged the action of the Ld. CIT(A) in restricting the addition made by the A.O. to the total income of the assessee 2 ITA.No.1652/Hyd/2013 & C.O.No.55/Hyd/2014 Mr. Y. Radhakrishna, Warangal.
by estimating his income from business of contracting by applying a net profit rate of 10%.
3. The assessee in the present case is an individual who is engaged in the business of execution of civil contracts. The return of income for the year under consideration was filed by him on 30.09.2009 declaring total income of Rs.98,39,610. During the course of assessment proceedings, the assessee could not produce the relevant bills and vouchers to support the various expenses claimed in respect of his contracting business. Since the expenses claimed by the assessee in the absence of supporting bills/vouchers were not verifiable, the A.O. proceeded to estimate the income of the assessee from his contracting business by applying net profit rate of 10% to the gross receipts declared by the assessee which resulted in substantial trading addition.
3.1. The trading addition made by the A.O. was challenged by the assessee in an appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT(A) found justification in the action of the A.O. in estimating the income of the assessee by applying a net profit rate as a result of failure of the assessee to produce the relevant bills/vouchers to support various expenses claimed by him. However, keeping in view that the net profit of the assessee was estimated by the A.O. in A.Y. 2007-2008 at 8%/of gross receipts, he held that the net profit rate of 10% applied by the A.O. in the year under consideration was on the higher side and it would be fair and reasonable to estimate the income of the assessee by applying the net profit rate of 8%. Accordingly, 3 ITA.No.1652/Hyd/2013 & C.O.No.55/Hyd/2014 Mr. Y. Radhakrishna, Warangal.
the trading addition made by the A.O. was restricted by the Ld. CIT(A.
4. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that the relevant bills/vouchers to support and substantiate his claim for various expenses could not be produced by the assessee before the A.O. for verification and since in the absence of such vouchers, it was not possible for the A.O. to verify the various expenses claimed by the assessee, we are of the view that the A.O. was fully justified in resorting to estimation of the income of the assessee from contracting business by applying the net profit rate. As regards the net profit rate of 10% applied by the A.O. for estimating the business income, it is observed that in assessee's own case for A.Y. 2007-2008, a net profit rate of 8% was applied by the A.O. to estimate the business income of the assessee and all the relevant facts including the nature of the business of the assessee remaining the same in the year under consideration, we are of the view that the Ld. CIT(A) was fully justified in directing the A.O. to estimate the income of the assessee by applying net profit rate of 8%. We therefore, find no infirmity in the impugned order of the Ld. CIT(A) giving part relief to the assessee on this issue and upholding the same, we dismiss ground No.1 of Revenue's appeal.
5. Ground Nos. 2 and 3 of the Revenue's appeal and Ground Nos. 1 and 2 of assessee's cross objection involve a common issue relating to the determination of income of the assessee from long term capital gain including his claim for exemption under section 54EC of the Act.
4ITA.No.1652/Hyd/2013 & C.O.No.55/Hyd/2014 Mr. Y. Radhakrishna, Warangal.
6. In the return, income from short term capital gain was declared by the assessee as having arisen from sale of two flats. During the course of assessment proceedings, assessee however, produced the copy of sale deed of only one flat and could not produce copy of sale deed of the other flat. In the absence of the copy of sale deed of other flat, the sale consideration thereof was taken by the A.O. at Rs.22,50,000 as against Rs.14,50,000 shown by the assessee and income from short term capital gain chargeable to tax in the hands of the assessee was worked out by him at Rs.44,82,344. In the return of income, exemption of Rs.50 lakhs was claimed by the assessee under section 54EC of the Act for investment made in purchase of Rural Electrification Corporation bonds. Since the corresponding capital gain had arisen to the assessee as a result of sale of land to builder on 25.11.2006 and investment in Rural Electrification Corporation bonds was made on 22.12.2008, the A.O. disallowed the claim of the assessee for exemption under section 54EC in the assessment completed under section 143(3).
6.1. The disallowance made by the A.O. on account of its claim of exemption under section 54EC as well as the enhancement made on account of short term capital gain was challenged by the assessee in an appeal filed before the Ld. CIT(A). During the course of appellate proceedings before the Ld. CIT(A), elaborate submissions were made on behalf of the assessee on this issue which, was reproduced by the Ld. CIT(A) in paragraph No. 6.2 and 6.3 of his impugned order, were as under :
"6.2. During the course of appellate proceedings, vide written submissions the appellant stated that the appellant had purchased a piece of vacant land 5 ITA.No.1652/Hyd/2013 & C.O.No.55/Hyd/2014 Mr. Y. Radhakrishna, Warangal.
admeasuring 1100 sq. yards situated at Bagh Ameeri Village, Balanagar Mandal, RR District for a total consideration of Rs.18,56,250/- vide registered document No. 4639 of 2005 dt. 15.06.2005. It was stated that subsequently the appellant entered into a development agreement with M/s. Vijaya Builders and Developers of Habsiguda, Hyderabad on 25.11.2006, whereby the appellant was to receive 45% of built up area i.e. finished flats in all respects in lieu of 55% of land area surrendered to the builder. It was stated that the appellant was allotted 14 flats with a total built up area of 18,000 sft and on receipt of constructed flats in the year 2007-08, as handed over by the builder the appellant had sold 8 flats in the financial year 2007-08 and 2 flats in the financial year 2008-09. It was also elaborated that the appellant had sold one flat on 25.06.2008 with a plinth area of 1000 sft for a consideration of Rs. 14,50,000/- and the other on 18.03.2009 with a plinth area of 1500 sft for Rs. 22,50,000/-, and stated that the total consideration received during the FY 2008-09 was Rs. 37 lakhs. It was further stated that the appellant in the computation of income filed along with the return of income for the AY 2009-10, had erroneously worked out the long term capital gain on sale of builder's 55% share of land of 605 sq. yards out of 1100 sq. yards at Rs. 48,02,227/- and claimed the entire amount as exempt u/s. 54EC of the Act on purchase of Rural Electrification Bonds on 01.11.2008 to the extent of Rs. 50 lakhs. It was further averred that the assessing officer while considering the above claim, had misdirected himself by observing that the appellant handed over the land to the builder on 25.11.2006 and invested in bonds only 22.12.2008, with a time gap of over two years and hence was not entitled for the claim u/s·. 54EC of the Act. It was further averred that the assessing officer had ignored the fact that whether capital gains, if any, arising on transfer of 55% share of land to builder was assessable in the year of such transfer or in subsequent year, and if so what was actually realised by the appellant by transfer of land to builder; whether it was 'short term' or 'long term' capital gains. It was stated that the land was purchased on 15.06.2005 and the same was handed over the builder on 25.11.2006 for development and that in 6 ITA.No.1652/Hyd/2013 & C.O.No.55/Hyd/2014 Mr. Y. Radhakrishna, Warangal.
such a situation, the capital gain would be 'short term' and should arise only in the financial year in which the asset was transferred to builder which is 2006-07 relevant for AY 2007-08. It was argued that thus there is no cause for the appellant to declare long term capital gain of Rs. 48,02,227/- for the AY 2009-10 and consequently, do not warrant the AO to disallow Rs. 50,00,000/- and adding back the same to the total income as inadmissible claim as per law. The appellant pleaded that the declaration of income at Rs. 48,02,227/- as long term capital gains and claim for exemption to that extent u/s. 54EC by appellant for AY 2009-10 having been found to be invalid in the eye of law, may pleas be ignored and the consequent addition of Rs. 50 lakhs made by the AO be deleted.
6.3 In respect of long term and short term capital gains calculation, the appellant had submitted that out of 14 flats received as the share of the appellant, 8 flats were sold during the FY 2007-08 relevant to AY 2008-09 and two flats were sold in FY 2008-09 for a consideration of Rs. 37,00,000/- and the resultant capital gain was worked out for the year under consideration as under:
i. Long term capital gain on sale of Rs.3,90,000 Proportionate share of land of 65 Sq.Yds @ Rs.6,000 per Sq. Yard Cost of acquisition Rs.1,16,015 Long term Capital gain Rs.2,73,985
ii) Short term capital gain on sale of Rs.37,00,000 2 flats (14,50,000+22,50,000) Less: Land Cost as above Rs.3,90,000 Short term capital gain Rs.33,10,000 It was stated that the remaining 4 flats were sold during subsequent two financial years 2009-10 and 2010-11 at 2 flats in each year. The appellant pleaded to consider the amount of Rs. 2,73,985/- as long term capital gain in place of Rs. 1,34,198/- declared in the return of income and that the amount of Rs.
33,10,000/- be considered as short term capital gain for substitution in place of Rs.44,82,344/- determined 7 ITA.No.1652/Hyd/2013 & C.O.No.55/Hyd/2014 Mr. Y. Radhakrishna, Warangal.
by the AO. Copies of the sale deeds etc.] were furnished by the appellant in support of the claims made.
6.2. After considering the submissions made by the assessee as well as material available on record, the Ld. CIT(A) decided the issue vide paragraph No.6.4 of his impugned order as under :
"6.4. Considered the submissions made by the appellant along with the copies of sale deeds etc. As could be seen from them it is clear that the appellant had purchased land of 1100 sq. yards on 15.06.2005, for a consideration of Rs. 18,56,250/- @ Rs. 1688 per square yard. The land was given for development vide development agreement dated 25.11.2006 and in lieu of the land, appellant was to receive 45% of the built up area i.e. finished flats in all respect 55% of land area surrendered to the builder. The appellant was thus allotted 14 flats with a total built up area of 18,000 sq.ft. The builder had handed over the flats in the financial year 2007-08 relevant to the AY 2008-09 and the appellant had sold 8 flats during AY 2008-09 and 2 flats in the asst. year under consideration i.e. 2009-10 and balance of the flats in subsequent years. It is clear from the sale deeds furnished for the two flats sold during the asst. year 2009-10 that the two flats with measurements of 1500 sft. and 1000 sft. Were sold for a consideration of Rs. 24,50,000/- and Rs. 14,50,000/-, totalling to Rs. 37,00,000/- as against the sale consideration of Rs.45,00,000/- for the two flats, as considered by the assessing officer in calculation of short term capital gains. From the above it is clear that the appellant had purchased the land on 15.06.2005 and had given it for development vide agreement dt. 25.11.2006, as such the gains arising out of such transaction in the year 2007-08 are to be treated as short term capital gains. Further, the flats were handed over by the builder to the appellant during the financial year 2007-08. By this perspective, the gains arisen to the appellant on account of development agreement and sale of flats are to be treated as short term capital gains. On facts, the amount considered by the assessing officer at Rs. 45,00,000/-, for arriving at short term capital gains of 8 ITA.No.1652/Hyd/2013 & C.O.No.55/Hyd/2014 Mr. Y. Radhakrishna, Warangal.
Rs. 48,02,227/- is disputable and there is merit in the objections raised by the appellant in respect of the plinth area of flats sold and the considerations received. The method for adopting the total consideration at Rs. 45,00,000/- by the A.O is devoid of the truth and hence no basis. As such the capital gains, which are short term in nature are required to be computed, based on the facts of the case, wherein the short term capital gains were available to the assessee at two stages i.e. on account of transfer of property (land) vide the agreement for development dated 25.11.2006, which are relatable to the AY 2007-08 and the further short term capital gains on sale of flats received by appellant from the developer, in the respective years of sales of flats. Hence, the assessing officer is directed to adopt the figure of Rs. 35,83,950/- for computation of short term capital gains as has been narrated below. As far as the claim of exemption u/s. 54EC on purchase of Rural Electrification Bonds of Rs. 50,00,000/- is concerned, the claim is to be made on the long term capital gains derived by the appellant. However, as has been decided, the gains obtained by the appellant are only short term capital gains and the appellant is not eligible to claim the exemption u/s. 54EC. Accordingly the claim made u/s. 54EC to the extent of Rs.
50,00,000/- stand to be rejected based on facts above and the action of the assessing officer is substantiated."
7. We have heard the arguments of both the parties and also perused the material available on record. It is observed that the case made out by the assessee before the Ld. CIT(A) on this issue was entirely different from the case put- forth before the A.O. A perusal of relevant portion of the respective orders of the A.O. and Ld. CIT(A) shows that altogether new facts and figures were furnished by the assessee before the Ld. CIT(A) and the issue was decided by him taking into consideration the said facts and figures without giving any opportunity of being heard to the assessee. We therefore, find it fair and reasonable and in the interest of 9 ITA.No.1652/Hyd/2013 & C.O.No.55/Hyd/2014 Mr. Y. Radhakrishna, Warangal.
justice to set aside the order of the Ld. CIT(A) on this issue and restore the matter to the file of the A.O. for deciding the same afresh after giving the assessee a proper and sufficient opportunity of being heard. Ground Nos. 2 and 3 of Revenue's appeal and Ground Nos.1 and 2 of assessee's cross objections are accordingly treated as allowed for statistical purposes.
8. In the result, appeal of the Revenue is treated as partly allowed for statistical purposes and cross objection of the assessee is treated as allowed for statistical purposes.
Order pronounced in the open Court on 29.04.2015.
Sd/- Sd/- (G.C. GUPTA) (P.M. JAGTAP) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 29th April 2015 VBP/-
1. ACIT, Circle-1, Aayakar Bhavan, Station Road, Warangal.
2. Mr. Y. Radhakrishna, H.No.24-7-42, Siddhartha Nagar, Kazipet, Warangal.
3. CIT(A)-VI, Hyderabad.
4. CIT-VI, Hyderabad.
5. D.R. ITAT "B" Bench, Hyderabad.
6. Guard File.