Income Tax Appellate Tribunal - Hyderabad
M/S. Rajapushpa Properties, Hyderabad vs Department Of Income Tax on 21 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 1760/Hyd/2011 - A.Y. 2008-09
ITA No. 1761/Hyd/2011 - A.Y. 2009-10
Asst. Commissioner of vs M/s. Rajapushpa Properties
Income-tax, Central Circle-1, Hyderabad
Hyderabad. PAN: AAJFR3461P
Appellant Respondent
ITA No. 1772/Hyd/2011 - A.Y. 2008-09
ITA No. 1773/Hyd/2011 - A.Y. 2009-10
M/s. Rajapushpa Properties vs Asst. Commissioner of
Hyderabad Income-tax, Central Circle-1,
PAN: AAJFR3461P Hyderabad.
Appellant Respondent
ITA No. 1931/Hyd/2011 - A.Y. 2007-08
Shri P. Mahender Reddy vs Asst. Commissioner of
Hyderabad Income-tax, Central Circle-1,
PAN: AOBPP2873B Hyderabad.
Appellant Respondent
ITA No. 1932/Hyd/2011 - A.Y. 2006-07
ITA No. 1933/Hyd/2011 - A.Y. 2007-08
ITA No. 1934/Hyd/2011 - A.Y. 2009-10
M/s. Parupati Farms vs Asst. Commissioner of
Hyderabad Income-tax, Central Circle-1,
PAN: AAJFP4364K Hyderabad.
Appellant Respondent
ITA No. 1995/Hyd/2011 - A.Y. 2007-08
Asst. Commissioner of vs M/s. Parupati Farms
Income-tax, Central Circle-1, Hyderabad
Hyderabad. PAN: AAJFP4364K
Appellant Respondent
Revenue by: Shri V. Srinivas
Assessee by: Shri K.C. Devdas
Date of hearing: 21.03.2012
Date of pronouncement: 18.05.2012
2 ITA No. 1761/Hyd/2011 & Ors
M/s. Rajapushpa Properties & Ors.
=========================
ORDER
PER CHANDRA POOJARI, AM:
These appeals by different assessees as well as by the Revenue are directed against different orders of the CIT(A)-I, Hyderabad for the above assessment years. Since certain issues involved in these appeals are interconnected, they are clubbed together, heard together and are being disposed of by this common order for the sake of convenience.
2. First we will take up appeals relating to M/s. Rajapushpa Properties:
I.T.A. No. 1760 & 1761/Hyd/2011 - By Revenue I.T.A. No. 1772 & 1773/Hyd/2011 - By Assessee
3. These are cross appeals directed against the order of the CIT(A)-I, Hyderabad dated 24.8.2011. The assessee raised the ground in its appeal that the CIT(A) erred in holding that Rs. 100 per square feet (sft) is the net profit earned on the alleged extra consideration received by the assessee despite the fact that no evidence whatsoever is available in the seized material.
4. The Revenue raised the ground that the CIT(A) is not justified in reducing the income from Rs. 250 per sft which the assessee had declared u/s. 132(4) as its income to Rs. 100 per sft. Thus, the assessee ground and the ground raised by the Revenue are interconnected.
5. Brief facts of the issue are that a search and seizure operation u/s. 132 of the Income-tax Act, 1961 was conducted at the business premises of the assessee. Consequently, notices u/s. 153A of the Act were issued in response to which the assessee filed the returns of income for the years under consideration as below.
3 ITA No. 1761/Hyd/2011 & OrsM/s. Rajapushpa Properties & Ors.
========================= Assessment year Returned income (Rs.) 2008-09 1,24,18,187 2009-10 48,49,724
6. In the course of the assessment proceeding, the Assessing Officer found that the assessee firm is developing a residential complex viz., Silicon Ridge at Attapur. The land admeasuring 3 acre 39 guntas originally belonged to Smt. B. Kalavathi and Smt. P. Sujana. Smt. B. Kalavathi sold one acre and Smt. P. Sujana sold about 20 guntas of land to Sri P. Mahender Reddy and Smt. P. Pushpaseela. The remaining land was given on development basis to the assessee firm. Development Agreement was entered for development of a residential complex on the total land including 2 acre 19 guntas of land belonging to Smt. P. Sujana and Smt. P. Kalavathi. As per the agreement both the land owners got 40% and the developer got 60% of the land. The share of super built up area was specified. As per the MOU, the super built up area allocated to Smt. P. Sujana and Smt. Kalavathi was 77,298 sft and 41,889 square feet (sft for short), respectively. The developer's share of built up area was 2,98,773 sft. The Assessing Officer found that during the course of search, a loose sheet vide page No. 66 of Annexure A/RPP/03 was found which contained details of sale consideration received in respect of sale of flats. As per the statement of the Manager (Accounts) who was present at the time of search, the paper contained details of sale pertaining to sale of some of the flats falling to the share of B. Kalavathi in the ongoing project. The average sale price was around Rs. 2200 to Rs. 2300 per sft. Later Shri P. Mahender Reddy, partner of the firm was also confronted, who stated that they are selling flats in the project @ Rs. 1400 to Rs. 2000 per sft. Statement of some of the buyers of the flats as appearing in the seized paper was also obtained who confirmed to have paid sale consideration as per the seized paper. During the course of search, statement was also 4 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= recorded from Sri P. Mahender Reddy who stated that cash collection of Rs. 250 per sft was being made from the customers which was not reflected in the regular books of account and he agreed to offer the same as undisclosed income. He submitted the details of flats sold in terms of square feet as below.
Financial year Sq. feet (Sft)
2007-08 1,37,428
2008-09 15,763
-----------
1,53,191
========
7. He also stated that in addition to the above, they had made booking for about 27,087 sft of area. Considering the cash collection towards amenities and other charges, the total collection from the customers was to the tune of Rs. 4,50,69,500. The year- wise details of additional income offered is as below.
Area sold Addl. Income
Financial Year
(sft) disclosed (Rs.)
2007-08 137428 3,43,57,000
2008-09 15763 39,40,750
(up to 25.9.08)
Plus 27087 67,71,750
(booking)
8. However, the return of income filed by the assessee showed that the declaration made during the search had not been honoured. The assessee had furnished his clarification in this regard on 2-12-2009 wherein it was stated that the firm had filed a letter before DDIT explaining the fact of cancellation- of booking due to recession. This made the alleged extra consideration irrelevant. The assessee had worked out the additional profit considering 10% of the total alleged consideration which worked out to Rs. 38,29,600 which was shown as additional profit for the assessment year 2008-09. It was submitted by the assessee that the additional profit of Rs. 38,29,600 be accepted on the ground 5 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= that in the real estate business certain portion of consideration in cash is again used for spending on extra consideration paid for acquisition of land etc. This way, both the receipts and payments get compensated leaving no margin. Further, there was no evidence found during the course of search that extra consideration had been received, no assets were found matching the declaration made. Confessional statements alone should not be taken without pointing out any incriminating material or evidence in view of the circulars of CBDT. If the entire extra consideration is taken as profit and no expenditure is allowed, then the net profit for the FY 2007-08 and 2008-09 would work out to 25.06% and 22.04% respectively. During the course of assessment proceeding, the assessee was once again given opportunity to explain why the average rate as per the seized documents should not be made applicable to their sales. In reply, the assessee submitted that the seized document pertains to the share of the land lord and as such they have no knowledge as to the rate at which the flat is sold. The assessee drew attention to page 64 and 65 of the seized annexure which is a statement showing gross rate of Rs. 1500 per sft with a request that the seized material be given reliance. It was also stated that the statement of Shri P. Mahender Reddy was recorded at a time when no books of account or documents or papers were available.
9. The Assessing Officer did not accept the explanation filed by the assessee. The AO relied on the statement made u/s. 132( 4) stating that the receipt of extra consideration has not been disputed by the assessee. The only dispute is regarding the quantum of income out of the extra consideration received which as per the assessee is about 10%. From the submission made by the assessee, the Assessing Officer found that the total square feet sold during the year 2007-08 relevant to the A.Y. 2008-09 was 1,37,421 sft and the flats have been sold @ rate ranging from Rs.
6 ITA No. 1761/Hyd/2011 & OrsM/s. Rajapushpa Properties & Ors.
========================= 1500 to Rs. 900 and the average rate works out to Rs. 1250 per sft. The Assessing Officer observed that assuming the average rate at Rs. 2,200 the extra consideration received by the assessee works out to Rs. 950 over and above the registered average rate of Rs. 1,250. Even if an expenditure of Rs. 700 is allowed, the net extra consideration of Rs. 250 is quite reasonable. The Assessing Officer observed that the declaration made by the assessee through its partner P. Mahender Reddy was voluntary and hence the same should be considered. It is also a well known fact that the builders charge some amount over and above the agreed cost. Even though no direct evidence was found relating to the assessee but a statement u/s. 132(4) is itself is evidence in itself. Accordingly, the AO worked out the undisclosed income for the asst. year 2008-09 and 2009-19 as under.
Assessment year Undisclosed income (Rs.)
2008-09 3,43,57,000
2009-10 1,07,12,500
10. The Assessing Officer further found that for the AY 2008-09, the assessee had debited a sum of Rs. 44 lakhs towards purchase of land. The AO treated the same as capital in nature and not allowable as revenue expenditure. Accordingly, he disallowed the same. He also disallowed a sum of Rs. 2,20,25,000 u/s. 40A(3) in respect of payments made in cash towards purchase of land. Though the assessee had submitted that the said payments were advances towards purchase of land which were subsequently received back and hence the provision of sec. 40A(3) would not apply. Similarly, for the A.Y. 2009-10, he made an addition of Rs. 1,16,164 u/s. 40A(3). Considering the above disallowances, and disclosure made by assessee the total income was assessed at Rs. 6,93,70,887 for the A.Y. 2008-09 and at Rs. 1,56,78,388 for the A.Y. 2009-10. Being aggrieved, the assessee went in appeal before the CIT(A). The CIT(A) confirmed the profit at Rs. 100 per 7 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= sq. ft as against Rs. 250/- per sq. ft determined by assessing officer. Against this, the assessee as well as the Revenue are in appeal before us.
11. The first common effective ground of appeal for A.Y. 2008-09 and 2009-10 relates to the addition made on account of extra consideration received by the assessee. The AR submitted that the statement of the partner was recorded at a time when no books of account or documents or papers were readily available. Further, the partner had clearly stated that no evidence leading to receipt of extra consideration has been found in the seized material. It was also stated that no matching assets were found during the search to indicate that the firm had collected such a huge extra consideration. Further, the assessee had filed a clarification dated 2.12.2009 highlighting the fact that most of the bookings had been cancelled due to recession thus making the alleged extra consideration irrelevant. It was also stated that the assessee had filed confirmation in the form of affidavit from some buyers denying any extra consideration paid to the assessee. Since the buyers are the persons who can provide evidence with regard to collection of extra consideration they should have been examined by the Assessing Officer which has not been done. It was also stated that while framing the assessment order, the Assessing Officer has simply referred page No. 66 of the· Annexure A/RPP/03 of the seized material which according to him reflects the sale consideration of some flats @ Rs. 2200 per sft. It was pointed out to the Assessing Officer that the seized paper recorded the sale price of the flats sold by the landlord and not by the assessee. At the same time, page No. 64 an 65 of the said same Annexure contain the name of the buyers of the flats falling to the share of the assessee which confirmed a gross average rate of Rs. 1500 per sft collected by the firm which was ignored by the Assessing Officer. The assessee also stated that simultaneous 8 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= operations had been conducted at the premises of the land owners Smt. P. Sujana and Smt. B. Kalavathi with whom the assessee firm had entered into a development agreement. The flats in question are located in the said complex in which the flats allotted to the land owners are also situated. The said land owners have filed their return of income with the said Assessing Officer who have completed the assessments of the assessee firm also. Apparently the gross average written and adopted by the Assessing Officer is Rs. 1300 per sft including the extra consideration declared by the land owners as against Rs. 1750 adopted in the case of the assessee firm. It is impossible to concede that the flats which were sold by the landowners @ Rs. 1300 per sft have been sold by the developer @ Rs. 1750 which tantamount to inequitable justice.
12. As regards retraction of the admission made during the course of search, the assessee referred to the guideline issued by the CBDT in Circular No. F. No. 286/2/2003-IT (lnv) wherein it was advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed and is not likely to be disclosed before the LT. Department. The assessee referred to the decision in the case of CIT Vs. Dhingra Metal Works (2010-TIOL-693-HC- DEL-IT) wherein the Hon'ble Delhi High Court laid down the ratio that though an admission is an extremely important piece of evidence it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. The assessee also referred to the decision in the case of Vinod Solanki Vs. Union of India in Civil Application No. 7407 of 2008 on the issue of confession. Assessee also referred to the decision of Hon'ble Gujarat High Court in the case of Kailash Ben Manoharlal Chokshi Vs. CIT 14 DTR 257 that a statement recorded at odd hours cannot be considered to be a voluntary statement, if it is 9 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= subsequently retracted and necessary evidence is laid contrary to such admission and therefore addition on the basis of retracted statement u/s. 132(4) was not called for in the fact and circumstance of the case. The assessee also relied on various other decisions in support of the retraction made while filing the return of income and argued that the addition made by the Assessing Officer be deleted in its entirety.
13. The AR also submitted that even assuming that the assessee firm did have the turnover not recorded in the books of etc, the entire receipt of on-money/premium cannot be treated as undisclosed income of the assessee and only the net profit rate can be applied on account of sales/receipts for making addition. The assessee relied on the decision of ITAT, Hyderabad In the case of K.C.K.A. Gupta Vs. ACIT 90 TTJ 555 (Hyd) wherein it was held that entire receipt of on-money / premium cannot be treated as undisclosed income of the assessee.
14. According to the AR, the CIT(A) not justified in directing the Assessing Officer to restrict the addition in respect of undisclosed income considering at Rs. 100 per sft instead of Rs. 250 per sft adopted by the Assessing Officer.
15. The learned AR submitted that entire extra consideration cannot be considered as income of the assessee. Only profit element in that consideration has to be considered as income of the assessee. For the purpose of he relied on the judgement of Gujarat High Court in the case of CIT vs. President Industries (258 ITR 654). According to the AR, the rate adopted by the Assessing Officer at Rs. 2,200 per sft as extra consideration does not pertain to the assessee but it is the rate at which the landlord made the sales. He drew our attention to page No. 58 of the assessee's Paper Book-I. According to this document the rate is Rs. 1500 per 10 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= sft which has been adopted. He submitted that the average rate disclosed by the assessee is Rs. 1250 per sft and extra consideration is Rs. 1500 sft. On this the assessee earned Rs. 250 per sft. After considering the expenditure of Rs. 700 per sft there is negative amount. Being so, there cannot any undisclosed income. He submitted that the CIT(A) worked out the profit at Rs. 100 per sft thereby total gross receipt is Rs. 1,53,191 x 100 = Rs. 1,53,19,100. Adopting 10% on this undisclosed income worked out to Rs. 15,31,910 as the assessee has already disclosed Rs. 38,29,600. Being so, it is higher than the income worked by the CIT(A) and there cannot be any addition towards undisclosed income. He further drew our attention to letter dated 25.10.2010 placed on record in Paper Book-II which is in the form of affidavit from various buyers where the gross rate per sft is Rs. 1500.
16. He submitted that the admission made by the assessee u/s. 132(4) was retracted by the assessee by cogent material. Being so it has no financial value. For the purpose of he relied on the order of the Tribunal in the case of K.C.K.A. Gupta vs. ACIT (90 TTJ
555) (Hyd), Abhishek Corporation vs. DCIT (63 TTJ 661). Further he relied on the CBDT circular which prohibits Department officials procuring confession statement during such survey operations. Placing reliance on the circular, he submitted that the Department shall concentrate on collection of evidence of undisclosed income rather than collection of confession statements from the assessee.
17. The learned DR submitted that the CIT(A) erred in not holding that a declaration u/s. 132(4) has evidentiary value and that no further evidence is collectable after a lapse of 3 years. The same view has been held by the jurisdictional ITAT in the case of M/s. Surabhi Shelter P. Ltd. in ITA No. IT(SS)A No. 71/Hyd/2006 dated 30.9.2009 which also relied upon P.R. Metrani vs. CIT, 287 11 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= ITR 209 (SC). Further he placed reliance on the Bombay High Court's decision in the case of Kesri K. Deboo vs. ACIT in ITA No. 380 of 2005. Further the learned DR placed reliance on the order of the Assessing Officer.
18. We have heard both the parties and perused the material on record. In our opinion, declaration given by the assessee cannot be itself treated as a conclusive evidence for sustaining the addition. It should be supported by other documents corroborating the undisclosed income. In this case, the statement given by assessee u/s 132(4) is not supported by any seized document or by any circumstantial evidence. Further no unexplained assets were found, therefore the admission itself cannot be considered as basis for addition. The admission also retracted by assessee vide letter dated 25.10.2010 which is placed on record at page No. 50-52 of Paper Book. The entire on-money receipt itself cannot be treated as the undisclosed income of the assessee. This view was taken in the case of Abhishek Corporation (cited supra) wherein held that even though it is established from the seized documents that the assessee was receiving on-money on booking flats the entire receipt of on-money cannot be treated as undisclosed income of the assessee and only net profit can be applied on such unaccounted receipt.
19. Further it is on record that apart from the assessee the land owners i.e., B. Kalavathi and Sujana have also sold flats in the same apartment and they have shown the sale price at a lesser price and they are also assessed by the same Assessing Officer. The Assessing Officer has tried to justify the addition of Rs. 250 per sft stating that the flats were sold at the rate ranging from Rs. 1500 to Rs. 900 per sft and the average rate works out to Rs. 1250 per sft. Assuming the average rate of sale of Rs. 2200 per sft, the Assessing Officer held that the assessee received about Rs. 950 12 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= per sft over and above the registered average rate of Rs. 1250. Allowing an expenditure of Rs. 700 per sft the Assessing Officer held that the net extra consideration of Rs. 250 is quite reasonable. The assessee during the course of assessment proceedings as also during the course of appellate proceedings submitted that the Assessing Officer did not take into consideration the price shown in page 64 and 65 of same seized annexure which shows gross average rate of Rs. 1500 per sft. A copy of the said seized paper was also filed before the lower authorities. The CIT(A) observed that there is nothing about sale of/advance received of 71 flats along with the rate per sft. Out of 71 entries, 41 entries showed sale @ Rs. 1500 per sft and 23 entries showed sale of Rs. 1000 per sft. Based on the factual noting in the seized paper, the average rate comes to around Rs. 1339 per sft. Thus, Assessing Officer's assumption of average of registered sale price of Rs. 1250 per sft does not match with the noting in the seized paper. Even if the Assessing Officer's assumption of actual sale of Rs. 2200 per sft is considered, the difference comes to about Rs. 861 and not Rs. 950- as worked out by the Assessing Officer. The Assessing Officer himself shows Rs. 700 towards construction cost though no basis has been given for that. Thus, the net extra consideration based on factual noting in the seized paper and the assumption of actual sale price considered by the Assessing Officer of Rs. 2200 per sft comes to Rs. 161. However, the fact remains that the Assessing Officer does not dispute that there were no seized papers found relating to the assessee in respect of actual sale being done @ Rs. 2200 per sft. The same was found in respect of the sale of flat by the land owners in whose case the assessment has been done at a lower price as contended by the assessee. As noted earlier, the Tribunal Hyderabad Bench had observed that the entire undisclosed turnover need not be considered as income. Also ITAT B Bench 13 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= Hyderabad in ITA No. 42/H/05 in the case of ACIT vs. M/s. Pahal Food Pvt. Ltd., Hyderabad on a somewhat similar issue have directed the Assessing Officer to adopt the net profit rate adopted by the assessee to determine the unaccounted income out of the unaccounted turnover.
20. Further, in the case of Abdul Qayume (184 ITR 404) (All) wherein held that an admission or an acquiescence cannot be the foundation for an assessment, where the income is returned under an erroneous impression or misconception of law. It is always open to an assessee to demonstrate and satisfy the authority concerned that a particular income was not taxable in his hands and that it was returned under an erroneous impression of law. Each assessment year is an independent year and it is always open to the tax payer to contend that he had wrongly been assessed in the past.
21. In the case of Chhat Mull Aggarwal v. CIT (116 ITR 694) (P&H) wherein held that the assessee was able to convince the AAC that the admission made by him was not binding on him and was made under misapprehension and the AAC was right in reversing the order of the Income tax Officer and was consequently bound to go into the merit of the issue.
22. In the case of Krishanlal Shiv Chand Rai vs. CIT (88 ITR
293) (P&H) wherein held that it is an established principle of law that a party entitled to show and prove that an admission made by him previously was in fact not correct and true. It was incumbent upon the IAC to have afforded the assessee full opportunity to prove his assertion. Even treating the surrender as an admission of concealment of undisclosed income the IAC could not deny the assessee its right to prove that fact of surrender was no such admission and that the so called admission was in fact 14 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= wrong and surrender was made solely to avoid botheration. The surrender by the assessee could have been for more than one reason in spite of the fact that it was not his income and that fact alone could not be the basis of assessment.
23. In the case of Satinder Kumar (HUF) vs. CIT (106 ITR 64) (HP) wherein held that there should be clear and definite material to sustain the addition.
24. In the case of K.C.K.A. Gupta vs. ACIT (90 TTJ 555) (Hyd) wherein held that in case of unaccounted sales only a percentage of sales should be considered as undisclosed income even though it is established from the TDS document where the assessee was receiving premium/on-money on book a flat and the entire on- money/ premium cannot be treated as undisclosed income of the assessee.
25. The above view has also been taken in the case of Abhishek Corporation vs. DCIT (63 TTJ 661)
26. Considering the fact that the Assessing Officer has resorted to estimation, we are of the opinion that estimation of 25% of the undisclosed turnover at Rs. 250 per sq. ft. be treated as undisclosed income of the assessee instead of Rs. 100 per sft being the net profit out of the on-money of Rs. 250 per sft., considered by the CIT(A). In other words, Income of the assessee to be considered as Rs. 62.50 per sft being the net profit out of the on-money receipt of Rs. 250 per sft. Thus the appeals of the Revenue are dismissed and assessee's appeals are partly allowed 15 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= I.T.A. No. 1932 to 1934/Hyd/2011 - M/s. Parupati Farms (By assessee) I.T.A. No. 1931/Hyd/2011 - Shri P. Mahender Reddy (By assessee) I.T.A. No. 1995/Hyd/2011 - M/s. Parupati Farms (By Revenue)
27. The appeals in ITA Nos. 1932 to 1934/Hyd/2011 and 1995/Hyd/2011 emanate from the common order of the CIT(A) dated 28.10.2011 and ITA No. 1931/Hyd/2011 emanates from the order of the CIT(A) dated 31.10.2011. Certain issues in these appeals are common and are adjudicated together by this common order.
28. The assessees' common ground in these appeals that the CIT(A) erred in treating the sale proceeds of agricultural land as taxable under the logic that the assessees purchase and sale of the said agricultural land is in the nature of trade.
29. For brevity, we will consider in the case of Parupati Farms. Brief facts of the issue are that there was a search and seizure operation u/s. 132 of the Income-tax Act, 1961 carried out on 22- 10-2008. Prior to search the assessee has filed its return of income for the assessment years 2006-07 and 2007-08 on 23-1- 2006 and 11-2-2008, respectively, admitting Nil incomes for both the years. However, the assessee admitted agricultural income of Rs. 2,03,340 for the A.Y. 2006-07 and Rs. 46,264 for A.Y. 2007-
08. As regards A.Y. 2009-10, the assessee has filed its return of income consequent to search on 8-10-2009 admitting income of Rs. 66,891 and there was no agricultural income for this year. Apparently, during the course of assessment proceedings, the Assessing Officer has noticed that the assessee has sold certain land during the period relevant to A.Y. 2006-07, 2007-08 and 2009-10 and claimed the gain arising on it as exempt being the agricultural land.
30. The Assessing Officer observed that the assessee was the owner of land admeasuring 36 acres 1 guntas at Survey No. 376, 16 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= Gudur village, Kondakal Mandal, Ranga Reddy district which was purchased in the year 2002 from M/s. Icon Orchids & Agri Exports (India) Ltd., vide document No. 2085/2002 dated 16-8- 2002 for a sum of Rs. 7,20,000. This entire land was sold to M/s. UNI Estates on three different dates i.e., on 16-3-2006, 13-4-2006 and 23-06-2006 vide document Nos. 3381/06, 5245/06 and 5380/2006 for a consideration of Rs. 2,92,14,000, Rs. 1,40,40,000 and Rs. 3,45,60,600 totalling to Rs. 7,78,14,600. The Assessing Officer also observed that during the period relevant to A.Y. 2009-10, the assessee has sold another piece of land admeasuring 15 guntas at Survey No. 150B situated at Kokapet village for a sum of Rs. 41,25,000. This land in question was sold along with the land of one Smt. P. Sujana admeasuring 8 guntas as a single transaction vide document No. 1974/08 for a total consideration of Rs. 63,23,000. This entire patch of land was purchased in the year 2006-07 for a sum of Rs. 72,76,375. Gain on sale of 15 guntas of land falling to the share of the assessee was also claimed by the assessee as exempt being the agricultural land. This being the history of the lands acquired and sold by the assessee at Gudur and Kokapet villages, the Assessing Officer in the assessment orders passed for the A.Ys. 2006-07 and 2007-08, has discussed the issue at length. In paragraph Nos. 3.1, 3.2, 3.2.1, 3.3, 3.4.1, 3.4.2, 3.5.1, 3.5.2 the Assessing Officer has discussed the facts of the case, submissions of the assessee in support of its claim for agricultural income, analysis/ consideration of the submissions, modus operandi of the partners of the firm and the intention of the assessee. The Assessing Officer, after detailed discussion made in para 3.6 of the order held that the real intention of the assessee behind purchase of the lands was not to carry on agricultural activity. He further held that the gain arose on sale of these lands should be treated as adventure in nature of trade. Accordingly, he completed 17 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= the assessments for A.Ys. 2006-07 and 2007-08, bringing the gains on sale of lands to tax. Assessments were thus completed for the A.Ys. 2006-07 and 2007-08, computing the total income of the assessee at Rs. 2,89,43,688 and Rs. 4,81,50,312, respectively. That apart, for the A.Y. 2007-08, the Assessing Officer has observed that the assessee has sold another piece of land admeasuring 2 acres 29 guntas at survey Nos. 149 and 151 situated at Kokapet village for a sum of Rs. 54,50,000 which was purchased in the same year for Rs. 25,05,000. For the same reasons given in respect of sale of land at Gudur village, the Assessing Officer treated the activity of the assessee as adventure in the nature of trade and brought the profit of Rs. 29,45,000 arose on sale of this land too, to tax. The Assessing Officer also made disallowance u/s. 40A(3) of Rs. 19,65,000/-. The assessments for the A.Ys. 2006-07 and 2007-08 were thus completed and tax demand of Rs. 1,54,90,488 and Rs. 2,59,38,945 was raised. As regards A.Y. 2009-10, the Assessing Officer has taken the similar stand that was taken in A.Ys. 2006- 07 and 2007-08, in respect of sale of land. Thus, the Assessing Officer completed the assessment for the A.Y. 2009-10 computing the total income of the assessee at Rs. 23,99,370 and raising a tax demand of Rs. 8,97,100.
31. On appeal, the CIT(A) observed that purchase and sale of land is in the nature of trade. However, he directed to allow proportionate development expenses while computing the profit on sale of land.
32. The learned AR submitted that the learned counsel for the assessee vehemently contested that the action of the Assessing Officer in treating the sale proceeds of the agricultural land as business profits is without an iota of evidence in support of such view. It is submitted that the assessee had purchased agricultural 18 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= lands and carried the agricultural activities and sold the vegetable products and declared the agricultural income in the return of income filed before the Income-tax Department. The assessee received subsidy from the Government for- the purpose of drip irrigation and planted mango trees on the land etc. The AR further submitted that the land was originally purchased as agricultural land, that the land was further developed with drip irrigation system to make the same suitable for growing orchids, that the firm filed returns declaring agricultural income, that the lands situated beyond specified area, no part of the sale proceeds of these lands cannot be treated as business income under any circumstances. The assessee had incurred capital expenditure for the development of the land and carried agricultural operations; thereby there is no evidence that the assessee is carrying on trading activity on the land. The AR has tried to distinguish the facts ruling in his case with that of cases mentioned by the Assessing Officer in the assessment order. In support of his contention, the AR relied on the decision of earlier CIT(A) in the case of Shri Durgaiah Yadav for the A.Y. 2003-04 in ITA No, 0685/CC-l, HYD/CIT(A)-I/10-11 dated 2-8-2001.
33. The AR further submitted that the lands are agricultural lands and agricultural income has been disclosed and accepted. The return of income was filed much before the search disclosing the agricultural income and classifying the lands as investment. The lands were sold as agricultural lands as the buyer was willing to pay a good price. The Income-tax authorities have accepted the fact that they are agricultural lands but have treated its sale as income from trade. In the case of B. Radha a member of the group the profit from sale of lands has been assessed as capital gains. The agricultural lands were not converted as non-agricultural lands and no permission as obtained from the relevant authorities to convert the same. In short the land was sold as agricultural 19 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= lands. The intention of the buyer who may develop the lands as per his motive cannot be a ground to treat the nature of transaction in the hands of the assessee as the same.
34. The learned DR submitted that these lands were acquired by the assessee in the FY 2004-05 relevant to the A.Y. 2005-06 for a total consideration of Rs. 9,21,025 in 3 different survey numbers. These 3 bits were sold during the year vide 3 sale transactions for a total consideration of Rs. 18,35,000. It is the contention of the assessee that these are agricultural lands and situated beyond 8 km of the notified area not subjected to tax under capital gains. But the fact is that no agricultural operations have been carried out on these sites and the same have been sold subsequently for a consideration. The assessee is in the activity of such purchase and sale of lands frequently to gain profit. Not only in individual capacity but also he is involved with various concerns to trade in such purchase and sale of lands. These lands were not acquired for the purpose of any agricultural activity. They are primarily acquired to carry on trading activity by procuring the lands at cheaper price and sell the same in subsequent period for higher consideration. No credible evidence has been furnished to substantiate the claim that these lands are agricultural lands and he is engaged in agricultural operations on these lands. In the absence of such evidence, it cannot be presumed that these lands are agricultural in nature. Nevertheless, it is on record that the assessee is in the business of purchase and sale of lands regularly in other years as well. The lands were not acquired for the purpose of carrying on agricultural operations. In fact, there is no intention on the part of the assessee to utilise these lands to carry out agriculture at all. No attempt or effort has been made by the assessee to initiate any activity of the nature falling under agriculture. Basically he is interested in doing trading activity by purchasing lands from various individuals and sell them to 20 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= realtors after creating market for his lands. Hence, the action of the Assessing Officer in subjecting the gain as a profit derived out of trading activity is justified.
35. We have heard both the parties and perused the material on record. In the present case, the agricultural lands was disclosed before the date of search and sale was claimed as exempted. These returns were before the lower authorities as evident from the acknowledgment, computation of income, balance sheet and computation of short term capital gain for the A.Y. 2006-07 and 2007-08 which are placed on record in paper book II, in page No 14 -26. Further it is also fact that the land is situated 60 K.M. away from municipal limits. The photograph of the property produced by assessee reflects that the agricultural activities has been carried on the said land. The same photographs of the land kept on record on page No. 72-78 of paper book -II. The assessee also availed loan from ING Vysya bank for raising mango garden to this effect the assessee filed a certificate from bank which is kept on record in page number 47 of paper book -I. The assessee also filed a copy of certificate from project director of APMIP, Department of Horticulture, RR District dated 1.6.2010 towards the installation of drip irrigation system which is placed on record at page No. 48 of PB-I. The assessee also produced village revenue officer letter dated 12.04.2006 stating that the assessee possessed garden land with mango trees on agricultural land of 36 Acres which is on record at page No. 49 of PB-I. There is also proceedings of Project Director, Horticulture Dept. RR District regarding installation of drip irrigation system and granting of subsidies vide letter dated 26.06.2005 which is kept on record page No. 50-52 of PB -I. The sale deed in document No. 3381/ 2006, 5245/2006 and 9380/2006 is kept on record in PB No. II in page No. 40,46A & 51A respectively. Being so nature of land as discussed in the document as agricultural land and which is to be 21 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= accepted. Further, similar land situated at Kokapet considered by this tribunal in the case of Mrs. K. Radhika and & Ors in ITA No. 208/Hyd/2011 the Tribunal vide order dated 9th September, 2011 held in para 55 as follows:
"55. As seen from the above tables, the assessee has been acquiring the land from the year 1995 which has been sold in the subsequent years. It is also fact that the assessee was showing income from the said land holding as agricultural income. As per the table, the land which was acquired in Sept. 1996 was sold during the financial year relevant to the assessment year 2004 - 05 which means the land has been held by the assessee as an investment not as a stock in trade before realising the same. Had been the assessee in real estate business she would not have kept the land for such a long period. The contention of the department is that the assessee sold the land within a year of acquisition. We have gone through the facts of the case. The certain land acquired by the assessee has been sold by the assessee within short time on account of compelling circumstances. It was explained to us by the AR that certain land as enumerated in the table is falling under Bio conservation zone/green belt which she was not aware of it. Thus, the land was sold under compelling circumstances to realise the investment and to avoid any future dispute. Similarly, in case of certain land, there was impending acquisition by the govt. and to avoid future litigation the assessee was compelled to sell them. Similarly, in the case of land situated at Kokapet village, the assessee had received a legal notice from the family members of the vendors and in fact a case was filed in OS No. 113 before the Addl. District Judge, LB Nagar. Hence, to avoid any future complications, the said land was sold. Considering the above facts, we cannot hold that the assessee engaged in the real estate business. It is also fact that the assessee has been offered capital gain in subsequent years which has not been disturbed by the assessing officer. For example, for the assessment year 2006-07 the assessee had shown in her return long term capital gain in respect of sale of land, measuring 4 acres 89 guntas and no adverse view has been taken by the assessing officer on this. If the revenue authorities were of the opinion that the assessee is in the business of real estate, the assessing officer would have taken a consistent stand in respect of all the transactions. It is also admitted fact that there is no regular activity of purchasing and selling of land and there is nothing on record to show that the land was purchased for the purpose of selling the same. Even if the land was developed and was sold after converting into plots with a view to secure the better price it cannot come within the purview of adventure in the nature of trade and business. Further, it is admitted fact that the land in dispute herein is an agricultural land and assessed to land revenue. The earning on sale of the land 22 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= was in the nature of capital gain and therefore, not assessable as income from business. Accordingly, we are entirely agreement with the findings given by the CIT(A) in his order and the same is confirmed. The grounds raised by the revenue are rejected."
36. Since the facts and circumstances of the present case are similar to that of the case considered by the Tribunal hereinabove in the case of Smt. K. Radhika & Ors, we are inclined to decide the issue on similar lines allowing the claim of the assessee. This ground of the assessee in ITA No. 1931 to 1934/Hyd/2011 is allowed.
37. The next ground in ITA No. 1931/Hyd/2011 is that the CIT(A) erred in not giving credit to the balance of cash available in his capacity as the Karta of HUF as on the opening day of the financial year.
38. Brief facts of the issue are that in the course of search action certain documents were found and seized at pages 71 to 78 of Annexure A/PMR/Res/01. The said documents pertain to sale of land by Smt. Nilanjana Swarupa to the assessee. The agreement is dated 26.7.2007. It is mentioned therein that a cash of Rs. 30.73 lakhs was paid as a purchase consideration. The deed was refused to be registered by the authorities for some reason. The assessee explained the sources for such payments that he had opening balance in individual and HUF accounts as follows:
i) Opening cash balance (Individual) - Rs. 10,15,112
ii) Opening cash balance (HUF) - Rs. 14,08,503
iii) Sale of land - Rs. 4,10,000
------------------
Total Rs. 28,33,615
=============
39. The Assessing Officer rejected the above contention of the assessee and treated Rs. 30.73 lakhs as income of the assessee.
On appeal, the CIT(A) sustained a sum of Rs. 18,58,344 as against 23 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= Rs. 30,73,000 made by the Assessing Officer. Against this the assessee is in appeal before us.
40. The AR submitted that as per the agreement the above cash was paid as purchase consideration but the agreement could not be registered by the authorities for some reasons and the above cash was returned to the assessee as the transaction could not materialise. As far as sources are concerned, it is submitted that the assessee had sufficient cash and submitted cash flow statement from 1.4.2006 to 15.7.2006. Further argued that the assessee had opening cash and bank balance of Rs. 10,15,122 with bank balance of Rs. 5,466 leaving cash portion of Rs. 10,09,656. That the HUF having opening cash of Rs. 14,08,503. That on 27.4.2006, the assessee sold land at Kollur village along with others and assessee's share received is of Rs. 2,05,000. It was further submitted that cash was withdrawn from Canara Bank through Ravinder Reddy of Rs. 4 lakhs. Finally assessee submitted that income declared in the return of Rs. 1,15,000. totalling of above cash balances comes to around Rs. 31,38,159 as on 30.6.2006 and out of the above, cash of Rs. 30,73,000 was paid to Nilanjana Swarup on 26.7.2006 vide the agreement for purchase of land. Hence, the assessee had sufficient cash resources to meet the above commitment and Assessing Officer is not justified to make addition of Rs. 30,73,000 as if the assessee has no sources to meet the cash payment.
41. The learned DR submitted that the assessee has not furnished the details of cash balance with the assessee in his individual capacity or in HUF capacity. The balance in receipts and payments accounts for the individual and HUF mentioned as "cash and bank balance". The bifurcation figure of cash and bank balance was not furnished. He relied on the order of the lower authorities.
24 ITA No. 1761/Hyd/2011 & OrsM/s. Rajapushpa Properties & Ors.
=========================
42. We have heard both the parties and perused the material on record. In this case, the assessee filed the return of income on 21.2.2008 and disclosed the entire investment in purchase of agricultural property. The assessee had 50% share in the land. Since the entire investment is disclosed in the return of income filed before the date of search, there is no question of treating the same as undisclosed income in the absence of any evidence to the contrary. More so, due credit has to be given towards opening cash balance available with assessee in his individual capacity as well as HUF as the fund is available for investment in land. Accordingly, this ground is allowed.
43. Now we will take up the Revenue appeal in ITA No. 1995/Hyd/2011. The Revenue raised the ground with regard to deleting of disallowance made u/s. 40A(3) of the IT Act at Rs. 19.65 lakhs.
44. Brief facts of the issue are that during the course of search action documents are found and seized at Annexure A/RPP/TO/1. Pages 157 to 161 and pages 54 to 61 are copies of sale deed for acquisition of land for a sum of Rs. 63.25 lakhs and Rs. 35 lakhs respectively at Survey No. 143 and 150 Kokapet respectively. The assessee made these payments by cash to the tune of Rs. 98.25 lakhs. The Assessing Officer invoked the provisions of section 40A(3) and disallowed 20% of this which worked out at Rs. 19.65 lakhs. The CIT(A) deleted the same on the reason that this is towards purchase of agricultural land.
45. Since we have already held elsewhere in this order that the land in dispute is an agricultural land and the provisions of section 40A(3) are not applicable being it is covered by the exception provided in Rule 6DD of the IT Rules. Accordingly, we do not find infirmity in the action of the CIT(A) on this issue. The 25 ITA No. 1761/Hyd/2011 & Ors M/s. Rajapushpa Properties & Ors.
========================= order of the CIT(A) is confirmed on this issue. The ground raised by the Revenue is dismissed.
46. In the result, assessees' appeals in ITA Nos. 1772/Hyd/ 2011 and 1773/Hyd/2011 are partly allowed. Assessees' appeals in ITA Nos. 1931/Hyd/2011, 1932/Hyd/2011, 1933/ Hyd/2011 and 1934/Hyd/2011 are allowed. The Revenue appeals in ITA Nos. 1760/Hyd/2011, 1761/Hyd/2011 and 1995/ Hyd/2011 are dismissed.
Order pronounced in the open court on 18th May, 2012.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 18th May, 2012
Copy forwarded to:
1. The Asst. Commissioner of Income-tax, Central Circle-1, 7th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad-500 004.
2. M/s. Rajapushpa Properties, Flat No. 301, My Home Nawadweepa, Madhapur, Hyderabad.
3. Shri P. Mahender Reddy, Flat No. 301, My Home Nawadweepa, Madhapur, Hyderabad.
4. M/s. Parupati Farms, Plot No. 34, Silicon Valley, Madhapur, Hyderabad-500 082.
4. The CIT(A)-I, Hyderabad.
5. The CIT (Central), Hyderabad
6. The DR - A Bench, ITAT, Hyderabad.
Tprao