Rajesh Krishnakumar Goyal,, Pune vs Assessee

Shri Rajesh Krishnakumar Goyal, Shop No.7 & 8, Prestige Plaza, Phase-II, Pune-Mumbai Road, Akurdi, Pune - 411035 PAN No.AELPG9647L .. Appellant

Vs.

ACIT, Circle-9, Pune .. Respondent

Assessee by : Mrs. M.N. Kulkarni Department by : Shri M.M. Chate Date of Hearing : 30-04-2015 Date of Pronouncement : 30-04-2015

ORDER

PER R.K. PANDA, AM :

This appeal filed by the assessee is directed against the

order dated 31-05-2013 of the CIT(A)-V, Pune relating to

Assessment Year 2009-10.

2. Ground of appeal No.1 by the assessee reads as under :

"1. Commissioner of Income Tax (Appeals) has erred in confirming Assessing Officer's action of disallowing Rs. 3,71,813/- as 10% of Development Expenses without bringing on record any specific instances that the vouchers are not related to the business of the Assessee. Such ad-hoc disallowance based on estimate basis without bringing on record any cogent reasons, is not justified and is invalid, and the said addition be deleted."

3. Facts of the case, in brief, are that the assessee is an

individual and is engaged in the business of purchase and sale of

plots/land. He filed his return of income on 01-10-2009 declaring

total income of Rs.12,03,40,350/-. During the course of 2

assessment proceedings the AO noted that the assessee has

shown land purchase amounting to Rs.2,91,26,743/- in value.

The assessee has incurred development expenses of

Rs.37,41,759/- which has been debited to land purchase

account. These expenses pertain to land excavation, removing

stones, soiling, cutting, filling morum/ approach road, work at

site, expenses for general improvement of land purchased etc.

The AO noted that the bills raised have been raised in lumpsum

basis without exact quantitative details of work done by the

contractors. He therefore confronted the assessee to explain the

same on the ground it is not ascertainable from the bills as to

what quantity of work has been charged and on which rate the

work has been charged. It was explained that the expenditure

have been incurred in connection with purchase of land only and

therefore may be allowed.

4. However, the AO was not satisfied with the explanation

given by the assessee. Since the expenses were unverifiable in

nature he was of the opinion that the quantum of expenses

incurred in connection with the land development becomes

unascertainable. From the breakup of expenses submitted by the

assessee the AO noted that a portion of expenditure amounting to

Rs.23,622/- are unavoidable/mandatory expenses such as

Mojani and survey charges which have to be incurred in

connection with the purchase of land. However, after giving credit

to same expenditure amounting to Rs.37,18,137/- still remains

unverifiable. He therefore disallowed an amount of Rs.3,71,813/-

being 10% of the above expenses on adhoc basis on account of

leakage of revenue that may have arisen due to improper

maintenance of expenditure records.

3

5. In appeal the Ld.CIT(A) upheld the action of the AO by

observing as under :

"10. After carefully considering the facts of the case as well as reply of the appellant, it is seen that the appellant has not been able to address the defects pointed out by the Assessing Officer in bills and vouchers. This being so, the appellant cannot claim that the action of the Assessing Officer is unjustified. For claiming any expenditure, it is incumbent upon the appellant to maintain proper records of expenses duly verified. In this case, this has not been done and therefore no fault can be find with the action of the Assessing Officer in disallowing 10% of the total expenditure. Accordingly, action of the Assessing Officer is upheld and the ground is dismissed."

6. Aggrieved with such order of the CIT(A) the assessee is in

appeal before us.

7. We have considered the rival arguments made by both the

sides, perused the orders of the Assessing Officer and the CIT(A)

and the Paper Book filed on behalf of the assessee. We have also

considered the various decisions cited before us. From the details

submitted before the CIT(A) we find that the assessee while

justifying the payments made on lumpsum has stated as under :

"e. We would like to clarify that in case of land development and construction of WBM roads the amount payable to the contractors is decided on a lump sum basis. This is worked out on approximate area to be excavated and leveled, length of WBM road to be constructed, etc. It is difficult to estimate the exact area to be excavated and leveled because of uneven levels of the land and also the hardness of the land cannot be gauged from the top surface. The rates of excavation are dependent on the hardness of the land. As such after considering the estimates given by the respective contractor and to avoid future disputes while settling the bills because it is not possible to cross verify the measurements minutely and in details in such type of contracts, the final amount payable to the contractor is decided on a lump sum basis.

f. The assessee has carried out major development work for making various approach roads in land at Karadwadi during the year details of which are separately given. His total holding in land at Karadwadi is 22 Acres and 13 gunthas. Taking into consideration the huge size of holding in lands, expenses on development per acre are meager."

4 7.1 From the above, we find that the assessee himself has

admitted that the amount payable to the contractors for land

development and construction of WBM roads is payable on

lumpsum basis. Further, from the sample copies of the bills and

vouchers filed in the paper book, we find the engineers and

contractors in most of the cases have raised lumpsum bills.

Therefore, the nature of expenditure debited by the assessee is

not reliable and fully verifiable. However, under the facts and

circumstances of the case, the disallowance at 10% of the

expenses on adhoc basis appears to be on the higher side. We,

therefore, direct the Assessing Officer to restrict such

disallowance to 5% of Rs.37,18,137/-. This ground by the

assessee is accordingly partly allowed.

8. Ground of appeal No.2 by the assessee reads as under :

"2. Commissioner of Income Tax (Appeals) has erred in confirming Assessing Officer's action of Agricultural Income Rs.20,000/- arising from Agricultural Land at village Shirgaon under the head income from Other Sources. The Appellant pleads that the action of the Assessing Officer is not justified & is invalid and the said addition be deleted."

9. After hearing both the sides, we find the assessee has

claimed agricultural income of Rs.20,000/- during the year. On

being questioned by the Assessing Officer, the assessee submitted

that he has received net agricultural income of Rs.20,000/- from

agricultural activity carried on land at Shirgaon. However, the

Assessing Officer noted that the assessee is a high profile

businessman having diverse portfolio of economic activities. It is

a remote possibility that he would undertake agricultural activity

of a scale that would fetch an income of Rs.20,000/- only. The

claim of the agricultural income although is small has possibly

made with a view to show case the land as agricultural land so 5

that capital gain is not attracted in the future. Looking to the

status of the assessee and smallness of receipt, the claim of

income of Rs.20,000/- appears implausible. He, therefore,

treated the agricultural income of Rs.20,000/- shown by the

assessee as income from non-agricultural sources and added the

same to the total income of the assessee,.

10. In appeal the Ld.CIT(A) upheld the action of the Assessing

Officer on the ground that the assessee was not able to furnish

any evidence regarding the agricultural income except for merely

stating that the amount being small the same should be allowed.

11. Aggrieved with such order of the CIT(A) the assessee is in

appeal before us.

12. We have considered the rival arguments made by both the

sides, perused the orders of the Assessing Officer and the CIT(A)

and the Paper Book filed on behalf of the assessee. We find the

Assessing Officer disallowed the agricultural income of the

assessee on the ground that the assessee in future may take

advantage of such agricultural income so that capital gain is not

attracted. This has been upheld by the CIT(A). This in our

opinion is far-fetched and based on surmises and presumptions

only. Merely because the assessee is a high profile businessman

having diverse portfolio of economic activities, the same cannot be

a ground to deny earning of any agricultural income. The

observation of the Assessing Officer that it is a remote possibility

that the assessee would undertake agricultural activity of a scale

that would fetch an income of Rs.20,000/- only in our opinion is

misconceived and too narrow. The assessee has shown only net

agricultural income of Rs.20,000/-. The entire order of the 6

Assessing Officer in our opinion is based on surmises and

presumptions which has been upheld by the CIT(A). Under these

circumstances, we set aside the order of the CIT(A) and direct the

Assessing Officer to allow the claim of Rs.20,000/- as agricultural

income. The ground raised by the assessee is allowed.

13. In the result, the appeal filed by the assessee is partly

allowed.

Pronounced in the open court on 30-04-2015.

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER

satish Pune Dated: 30th April, 2015

Copy of the order forwarded to :

1. Assessee 2. Department 3. CIT(A)-V, Pune 4. CIT-V, Pune 5. The D.R, "B" Bench 6. Guard File

By order

// True Copy //

Assistant Registrar ITAT, Pune Benches, Pune