Shri. Vivek Plus Fernandes , Mangalore vs Department Of Income Tax

I.T.A. No.1458/Bang/2012 (Assessment Year : 2008-09) Dy. Commissioner of Income Tax, Vs. Shri Vivek Pius Fernandes, Central Circle, Mangalore. Prop. Vishal Enterprises, D>no.4-3-305/5, Assissi Complex, Bijai Church Road, Near Pinto Bakery, Bijai, Mangalore-575 004 PAN AAEPF 8387R Appellant Respondent.

C.O. No.64/Bang/2013 S.P. No.177/Bang/2014 (In I.T.A. No.1458/Bang/2012) (Assessment Year : 2008-09) (By Assessee)

Revenue By : Shri Farhat Hussain Qureshi, CIT-III (D.R) Assessee/C.O/Petitoner By : Shri V. Srinivasan, C.A

Date of Hearing : 19.3.2015. Date of Pronouncement : 24.04.2015.

Per Shri Jason P. Boaz, A.M. :

This appeal by Revenue is directed against the order of the Commissioner of Income

Tax (Appeals)-VI, Bangalore dt.23.8.2012 for Assessment Year 2008-09. The assessee

has also preferred Cross Objections (in short 'C.O.') against the said order of the CIT 2 ITA No.1458/Bang/2012 C.O. No.64/Bang/2013 & S.P. No.177/Bang/2014 (Appeals). Both the appeal and C.O. being heard together are disposed off by way of this

order.

2. The facts of the case, briefly, are as under :-

2.1 The assessee, an individual engaged in the business of land development and works

contract, filed his return of income for Assessment Year 2008-09 on 14.11.2009 declaring

income of Rs.28,91,040. The income returned related to the profit from sale of land

measuring 2.81 acres at Kodialbail village, (Bejai Automatrix Land) at Mangalore for a

declared consideration of Rs.3,55,65,000 which was received over three financial years

ending with the year under consideration. After claiming expenditure of Rs.3,22,03,455 in

connection with the sale and administrative expenses, the assessee returned income of

Rs.28,91,040.

2.2 On 13.2.2009 a search under Section 132 of the Income Tax Act, 1961 (herein

after referred to as 'the Act') was conducted at the premises of one Sri Denzil D'Souza,

Denida Cottage, Jayashree Gate, Bikaranakatte, Mangalore. In the course of search,

incriminating documents marked A/DDS/2 dt.13.2.2009 were seized, wherein pages 21 to

26, 38 to 43 and 44 to 48 thereof was a MOU between Sri Denzil D'Souza and the

assessee regarding the transaction of 2.81 acres of land at Kodialbail village (Bejai

Automatrix Land) mentioned above. Based on the aforesaid incriminating documents

pertaining to the assessee, notice under Section 153A rws 153C of the Act was issued to

the assessee on 21.10.2010. In response thereto, the assessee filed a return of income on 3 ITA No.1458/Bang/2012 C.O. No.64/Bang/2013 & S.P. No.177/Bang/2014 29.6.2010 declaring total income of Rs.2,13,41,040. In the course of assessment

proceedings, the assessee filed a revised return of income declaring total income of

Rs.2,33,74,876. The assessment was completed under Section 143(3) rws 153A of the Act

vide order dt.24.12.2010, adopting the income at Rs.2,33,74,876 as per the revised return

of income and making a further addition of Rs.1,00,00,000 received by the assessee from

the sale of Bejai Automatrix Land at Kodialbail, Mangalore and also protectively assessing

the capital gains of Rs.2,04,83,886 on sale of Bejai Automatrix Land at Kodialbail,

Mangalore. In this manner, the income of the assessee was determined at Rs.3,34,18,880

in the order of assessment for Assessment Year 2008-09.

2.3 Aggrieved by the order of assessment for Assessment Year 2008-09 dt.24.12.2010,

the assessee preferred an appeal before the CIT (Appeals) - VI, Bangalore. The learned

CIT(A) disposed off the assessee's appeal vide order dt.23.8.2012 allowing the assessee

partial relief. While disposing off the appeal, the learned CIT(A) has recorded a finding

that the income from the land transaction at Kodialbail, Mangalore has to be assessed for

Assessment Year 2008-09 and that the assessee had returned the income therefrom in

his return of income. In that view of the matter, the learned CIT(A) deleted the addition

of Rs.1 Crore made by the Assessing Officer in the order of assessment, as the same was

already reflected as a part of the receipts of Rs.3,55,65,000 shown by the assessee as

part of the sale proceeds of the land at Kodialbail, Mangalore. In addition thereto, the

learned CIT(A) has also deleted the protective addition towards capital gains as she held 4 ITA No.1458/Bang/2012 C.O. No.64/Bang/2013 & S.P. No.177/Bang/2014 that the income should be assessed under the head "business". The learned CIT(A) also

held that, out of the expenses of Rs.3,22,03,485, disallowance of Rs.1,84,50,000 requires

to be made under Section 40A(3) of the Act, since the said amount was claimed as

payments to tenants in cash and therefore it amounted to violation of the provisions of

Section 40A(3) of the Act.

3. Aggrieved by the order of the CIT (Appeals) - VI, Bangalore for Assessment Year

2008-09 dt.23.8.2012, revenue has preferred this appeal, raising the following grounds :-

" Ground No.1. The learned CIT (Appeals) erred in law and in fact in confirming the disallowance of Rs.1,84,50,000 under Section 40A(3) of the Income Tax Act ignoring the fact that the expenses are not allowable under Section 37(1) of the Income Tax Act as the assessee failed to prove the genuineness of the expenditure.

Ground No.2. The learned CIT (Appeals) erred in law and in fact in directing to compute the business income after disallowing Rs.;1,84,50,000 out of the expenses of Rs.3,22,03,445 claimed thereby confirming the total income at Rs.2,13,81,040 as against the total income ofRs.2,33,74,876 declared in the revised return of income."

4.1 The assessee has also filed Cross Objections in respect of the impugned order of the

CIT (Appeals) for Assessment Year 2008-09 which are as under :-

"1. The orders of the authorities below in so far as they are against the Cross- objector/respondent are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned CIT (Appeals) is not justified in directing the learned Assessing Officer to make a disallowance of Rs.1,84,50,000 in terms of section 40A(3) of the Act under the facts and in the circumstances of the cross-objector's case.

3. For the above and other grounds that may be urged at the time of hearing of the cross-objection, your respondent / cross-objector humbly prays that the appeal filed by the appellant A.O. in respect of the relief granted by the CIT (Appeals) may be dismissed and grounds of the cross-objection may be allowed and justice rendered."

5 ITA No.1458/Bang/2012

C.O. No.64/Bang/2013 & S.P. No.177/Bang/2014 4.2.1 In the course of proceedings before us, the assessee has also urged additional

grounds of C.Os which are as under :-

" 1. The order of assessment passed under Section 153C rws 143(3) of the Act is bad in law and void-ab-initio in as much there was no material was found during the course of person searched inducing a belief that the same belonged to the cross-objector and therefore, there was no justification to issue the notice under Section 153C of the Act and the order of assessment passed is opposed to law consequently the impugned assessment order deserves to be cancelled.

3. For the above and other grounds that may be urged at the time of hearing of the cross-objection, your respondent / cross-objector humbly prays that the appeal may be allowed and justice rendered."

4.2.2 The learned Authorised Representative submitted that these additional grounds

(supra) were not urged before the learned CIT(A) inadvertently. It is submitted that

these grounds do not involve any investigation of facts other than which are already on

record and being pure questions of law ought to be admitted and disposed off in the

interest of justice and equity. We have perused and considered the submissions put forth

by the learned Authorised Representative, in respect of the admission of the additional

grounds raised, and are of the view that the additional grounds raised are purely legal

grounds and ought to be admitted in the interest of equity and justice and accordingly

admit the same.

5.2 It is seen from the record that the total receipts of the assessee from the sale

of land at Kodialbail, Mangalore are spread over three different financial years and the

total receipts are Rs.3,55,65,000 which has been shown in the return of income filed on

14.11.2009. In the said return of income, the assessee had computed his income from the 6 ITA No.1458/Bang/2012 C.O. No.64/Bang/2013 & S.P. No.177/Bang/2014 sale of land at Rs.28,91,040 which is at page 6 of the impugned order of the learned

CIT(A) and is extracted hereunder :-

1. Total Receipts Rupees A.Y. 2006-07 2,05,65,000 A.Y. 2007-08 50,00,000 A.Y. 2008-09 1,00,00,000 Total Receipts 3,55,65,000

2. Total Payments :

A Payments to Tenants 1,84,50,000 B Land Development Expenses (AY 2006-07) 78,43,455 C Payments to Tenants (2003-04) 30,10,000 D Payments to Tenants (2005-06) 11,00,000 E Payment to Rohan 18,00,000 Total 3,22,03,455 Profit from above - as per books of accounts. 35,61,545 Net profit after administration and other 28,91,040 expenses.

5.3 It is seen that subsequently the assessee had, filed a return of income on 29.6.2010

in response to the notice under Section 153A rws 153C of the Act declaring income of

Rs.2,13,41,040. The difference in income in both these returns, i.e. the original return of

income filed on 14.11.2009 declaring income of Rs.28,91,040 and the return of income filed

on 29.6.2010 in response to notice issued under Section 153A rws 153C of the Act

declaring income of Rs.2,13,41,040 appears to be the sum of Rs.1,84,50,000 claimed as

payments to tenants. It is seen that subsequently, the assessee filed another return of

income declaring an income of Rs.2,33,74,836 in which income from the sale of lands was

offered under the head Capital Gains. Though the Assessing Officer has rejected the 7 ITA No.1458/Bang/2012 C.O. No.64/Bang/2013 & S.P. No.177/Bang/2014 theory relating to assessment of the income under the head "Capital Gains", the Assessing

Officer adopted the income as declared in this return of income in the order of

assessment. It appears to us that both the Assessing Officer as well as the learned

CIT(A), who held that the income from the transaction of the Kodialbail land requires to

be computed considering the same as business income are correct as even before us there

is no claim that the income requires to be assessed as Capital Gains. In the factual matrix,

we find that the assessee's business is that of purchase and sale of land and therefore

the income is assessable under the head business only.

5.4 In respect of the original return of income for Assessment Year 2008-09 filed on

14.11.2009 declaring income of Rs.28,91,040 and the return filed on 29.6.2010 in response

to notice under Section 153A rws 153C of the Act wherein the income declared is

Rs.2,13,41,040, we find that the difference between the income declared in both these

returns precisely relates to the sum of Rs.1,84,50,000, the findings in respect of which

are contested by both Revenue as well as the Assessee. While Revenue's case is that the

aforesaid payments are hit by the Explanation to Section 37(1) of the Act, the assessee

has questioned the action of the learned CIT(A) in invoking the provisions of Section

40A(3) of the Act to sustain the disallowance without giving any opportunity to assessee

to present its position and views and explanations in the matter. 8 ITA No.1458/Bang/2012

C.O. No.64/Bang/2013 & S.P. No.177/Bang/2014 5.5 The assessee has also challenged the jurisdiction invoked under Section 153C of the

Act in the case on hand, by way of rising of additional grounds of appeal, which have been

admitted.

5.6 In view of the facts and circumstances of the case as discussed above, we are of

the view that it would be in the interest of justice and equity if the matter of assessment

is restored to the file of the Assessing Officer, who shall consider the aforesaid issues

afresh and pass orders in accordance with law after affording the assessee adequate

opportunity of being heard and to file details and submissions required. We make it

absolutely clear that the assessee is at liberty to urge all contentions before the

Assessing Officer including the validity of assumption of jurisdiction under Section 153C

of the Act by the Assessing Officer and similarly the Assessing Officer is also at liberty

to cause such enquiry to be made as is required to arrive at the proper determination of

income on the facts and circumstances of the case. The Assessing Officer shall,

thereafter, pass the order of assessment afresh being uninfluenced by any of the earlier

orders and shall conclude the proceedings in accordance with law. It is ordered

accordingly.

6. In the result, both Revenue's appeal and the C.Os of the Assessee for Assessment

Year 2008-09 are treated as allowed for statistical purposes.

7. The assessee has also filed a Stay Petition ('S.P.') in S.P. No.177/Bang/2014 for

Assessment Year 2008-09. Since the appeal and C.Os for Assessment Year 2008-09 have 9 ITA No.1458/Bang/2012 C.O. No.64/Bang/2013 & S.P. No.177/Bang/2014

been disposed off by us (supra), the S.P. is rendered infructuous and is accordingly

dismissed.

Order pronounced in the open court on 24th April, 2015.

Sd/- Sd/- (N.V.VASUDEVAN) (JASON P BOAZ) Judicial Member Accountant Member

*Reddy gp

Copy to :

1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, - 'B' Bench. 6. Guard File.

(True copy) By Order

Asst. Registrar, ITAT, Bangalore