Tax Law – Nature of transactions entered into by assessee is definitely of adventure in trade and therefore, rightly held to be a business transaction.
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR
BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER
Date of pronouncement: 27.05.2016
Dy. CIT Vs. Sh. Sakun Aggarwal Circle-VI, Pathankot. S/o Sh. Anil Aggarwal, Garden Colony, Pathankot PAN: AHPPA7621P (Appellant) (Respondent) I.T.A No.478(Asr)/2014 Assessment Year: 2010-11 Sh. Sakun Aggarwal Vs. Dy. CIT S/o Sh. Anil Aggarwal, Circle-VI, Pathankot. Garden Colony, Pathankot PAN: AHPPA7621P (Appellant) (Respondent) Appellant by: Sh. Umesh Takyar (DR) Respondent by: Sh. Ashwani Kalia (CA)
PER T. S. KAPOOR (AM):
These are cross appeals filed by Revenue as well as by the assessee against the order of learned CIT(A) dated 12.05.2014 for Asst. Year 2010-11.
2. The grounds of appeal taken by Revenue as well as by assessee are reproduced below.
“The Following Grounds taken by Revenue.
“Whether the Ld. CIT(A), was right in allowing the relied of Rs.25,00,000/- which has been paid by the assessee in cash on account of unexplained investment and in violation of provisions of section u/s 40A(3) of the Income Tax Act,1961.”
Whereas the following grounds has been taken by assessee.
1. That the Ld. CIT(A), Amritsar has erred in law and on facts, in upholding the order of the AO that the transaction of purchase and sale of land by the assessee was in the nature of business venture, ignoring the fact that the appellant had purchased the said land by way of invetment and not as a business venture, without distinguishing catena of supporting case laws cited by the appellant.
2. That the ld. CIT(A), Amritsar has erred in law and on facts, in holding that the AO was right in denying the set off unabsorbed brought forward short term capital loss against the short term capital gain of the current year.
3. That the ld.CIT(A) Amritsar has erred in law and on facts, in confirming the disallowance of Rs.12860890 by the AO u/s 40A(3) completely ignoring the fact that the transaction was snot in the nature of business but was in the nature of investment as a restult of which the provisions ofsection 40A(3) are not applicable.
4. That the Ld.CIT(A), Amritsar has erred in law and on facts, in confirming the disallowance of Rs.1,28,60,890 by invoking the provisions of section 40A(3) inspie of the fact that assessee had made payment of only Rs.25 lacs to seller of the land and balance payment was made directly by the ultimate buyers of the land and not by the appellant.
5. That the ld. CIT(A) has erred in law on facts in confirming the disallowance u/s 40A(3) even if the whole transaction is treated as business income for arguments sake as the transactin of purchase was outside the books as a resultof which the provisions of section 40A(3) are not applicable.
6. That the ld. CIT(A), Amritsar has erred in law and on facts, in confirming the disallowance of the party to who, the payment is alleged to have been mae as well as the genuiness of the transaction is establiseed.”
3. The brief facts of the case as noted in assessment order are that assessee declared total income of Rs.40,46,970/-. During the course of assessment proceedings the Assessing Officer observed that assessee had declared to have earned short term capital gain of Rs.38,53,000/- and after setting off of brought forward short term capital loss of Rs.26,95,879/-, had declared net capital gain to the tune of Rs.11,57,121/- The Assessing Officer further observed that the other income offered by assessee included Rs.25,00,000/- surrendered by assessee during the course of survey proceedings u/s 133A. He further observed that during the survey proceedings a copy of purchase agreement of some land was found from the premises of assessee wherein the fact of having advanced an amount of Rs.25,00,000/- for purchase of a land was mentioned and assessee during survey proceedings had surrendered this amount of advance. The Short Term Capital Gain declared by assessee was on account of profit from sale of such land which was sold in the form of plots. Since the assessee had treated the sale of land as short term capital gain the assessee was asked to explain as to why the profit from sale of land be not treated as business income instead of capital gain. In response to the above, the assessee filed written submissions wherein it was submitted that the assessee was a partner in M/s Balaji Brick Works and was having income from firm and was also earning income from Tractor Hire charges. It was also submitted that the assessee intended to hold the property as a capital asset and therefore, the income from sale of such land has been offered as income from capital gain. It was also submitted that since the assessee was not having means to make balance payments and therefore, the assessee had entered into a verbal agreement with sellers of land whereby the sellers were free to sell the land to other buyers in lieu of which the sellers would give some part of profits earned from sale of such land to assessee. It was also submitted that assessee was not a regular dealer in Real Estate and keeping in view the facts that this was only transaction of purchase and sale of land the asseessee’s income cannot be taxed as business income. However, the Assessing Officer was not satisfied with the submissions of the assessee and he held the transactions as business transactions by holding as under:
3.2 The arguments of the assessee have been considered. The following points emerge from the scrutiny of the assessee’s transactions in land:-
a) The assessee purchased 246.50 Marlas of land vide an agreement to purchase land. Advance sum of Rs. 25 lakh was paid by the assessee on 26.05.2009 as per this agreement.
b) The assessee did not get the purchased land registered or transferred in his name.
c) He further sold the land in parts, in form of 12 plots, the details of which have been given above in para 3.0(4).
d) The modus operandi of the sale was that the assessee got direct registries of sale made between the original owners and the final customers.
e) The assessee made the sale in a very short period of time, the first sale was made on 03.08.2009 and in a few months total 6 plots were sold before 31.03.2010. Another 6 plots were sold in another 4-5 months, the last sale being on 11.08.2010.
f) The assessee made the sale by plotting the area of 246.50 Marlas. There is another evidence of plotting in the shape of a map1 found during the survey. This map is reproduced as follows map
g) The above map shows the plots made by the assessee. The following examples are visible in the map.
19.58 M Kailaso Devi 16.28 M Tarun Thakur 60.20 M Ajay Mahajan 11.50 M Aman
The above are the plots sold as per the map and these also occur in details available in impounded material2 regarding the same land. The plots were sold by registries and the names in registration deeds are different. The rates in registration deeds are also different. The difference is there because the impounded material speaks of actual transactions while the registration deeds contain only the white portion of the transactions. The names are different because the registered sale is shown between original landholders and final customers while the transactions have taken place in cash in different names. In any case, it is established that the map contains the graphic version of the sale of land undertaken by the assessee.
g) It is also visible that considerable development of land has been undertaken by the assessee by leaving out streets for proper colonization of the said land. The map area of total does not match, as the assessee has claimed that the entire land subject to the land purchase agreement was not purchased and only 246.50 Marlas was purchased.
h) The above facts show that the assessee was actually engaged in development of colony and sale of plots. The fact that the assessee never got the purchase of land transferred in his name shows that the land was never intended to be an investment. It was just a stock-in- trade purchased on credit with initial investment of Rs. 25 Lakh only. The credit was paid off by sale proceeds of the plotted land. This is thus a clear cut business venture. Further, the land purchased in one chunk was cut in plots and sold to 12 persons in 12 parts. The sale was made in a very short time. These facts too, indicate that it was a business venture.
3.3 The assessee has relied upon some cases also. It is seen that the facts are very different in those cases. In the case of 1 SOT 937 ITAT Amritsar, the long period of nine years is involved. The Hon’ble Tribunal had said that there was not enough material to hold it business income. In present case the material to hold so is abundant. In the case of Suresh Chander Goyal (High Court MP) also, the assessee is selling ‘own’ land. In present case it is regarding the land purchased on agreement. There are so many other factors also as listed above. The question that whether a transaction is falling under business head, is dependent on facts. In the present case the facts make it amply clear that the said transaction is of business nature.
Infact the legal position in this matter is also very clear. There are several cases including those of the Hon’ble Apex Court where it has been held that such transactions are business ventures. The following are cited for example: