TMI Blog2011 (7) TMI 1263X X X X Extracts X X X X X X X X Extracts X X X X ..... converted into stock-in-trade in the year 1991-92. This land was developed through M/s. Prasanna Builders to whom the assessee initially claimed to have paid a sum of ₹ 15 lakhs as development charges. The 500 sq.mts of land was sold and the consideration was disclosed as business income. The balance 8,700 sq.mts was sold outright. The total consideration against the sale of 9,200 sq.mts of ladn was ₹ 1,37,50,000/-. The AO took the view that since the assessee had converted 500 sq.mts into stock-in-trade, the remaining land was also to be treated as stock-in-trade and not as a capital asset. Therefore, the AO, after reducing the payment of ₹ 15 lakhs made to M/s. Prasanna Builders, which, he treated as expenditure on the land, from the total sale consideration of ₹ 1,37,50,000/-, he arrived at a figure of ₹ 1,22,50,000/- as income earned by all the co-owners. In the case of Hashmukhlal C. Bhandari, in response to show cause notice, issued by the AO (para-7, page-6), the assessee submitted that the sum actually paid to M/s. Prasanna Builders was ₹ 20.52 lakhs which, they had incurred on behalf of the co-owners, in accordance with the agreement en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there was no business. It was not even an adventure in the nature of trade. There was no basis for the AO to treat the sum paid to M/s. Prasanna Builders as ₹ 15,00,000, while the actual sum paid was ₹ 20.52 lakhs, which was paid for the development of only 500 sq.mts of land. Having accepted the sale consideration, as being in the nature of LTCG in the hands of five coowners, there was no justification on the part of the AO to treat the same as business income in the hands of the assessee and his brother. The AO had conveniently ignored the line demarcated by the date of conversion of a part of the capital asset into stock-intrade, as laid down in sec.45(2) of the IT Act. If the AO's stand was to be accepted as correct, then he ought to have bifurcated the sale proceeds, one attributable to capital gain which was the difference between the introduction price being fair market value on the date of conversion/introduction and the cost of acquisition; the other attributable to business income being the surplus of actual realisation over the conversion/introduction price. Such omission by the AO was contrary to the provisions of sec. 45(2) r.w.s.2(47) of the I.T. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain and business income. For computation, the ld. Counsel of the assessee drew our attention to page 35 of the paper book, filed in the case of Natvarlal C. Bhandari. The Counsel of the assessee further drew our attention to page nos. 25 to 31 of the paper book in the case of Hashmukhlal C. Bhandari. He explained that this is the order of the ld. CIT(A)-I, Surat dated 24.10.2000, wherein at page 6, the ld. CIT(A), in order to facilitate the detailed investigation, as desired by the AO, set aside the original assessment. Despite being set aside, no order under section 263 was made in case of any of the brothers. On this basis, he contended that the view taken by the ld. CIT(A) directing the AO to accept the capital gain and business income declared by both the brothers be upheld. 6. Having heard both the sides, we have carefully gone through the orders of the authorities below. It is pertinent to note that in case of both the assessees sisters and mother, capital gain on sale of 8,700 sq.mts land declared by both the assessees were accepted. Further, business income declared on sale of 500 sq.mts of land was also accepted. In the impugned order, the ld. CIT(A) in respect of bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the remaining half in the assessment year 1996-97. The AO rejected the valuation report on the ground that the valuation was lesser than the total investment disclosed by the assessee and his brother. Most of the construction was completed in the financial year 1994-95 and therefore the entire investment was to be taken into consideration in the assessment year 1995-96. Further, the assessee has not been able to show the source of investment in the assessment year 1996-97. The AO also referred to the seized note book identified as B-6 where, according to him, the details of investment made in the construction of the bungalow had been recorded (page nos.3 4). According to such notings, the total investment was to the tune of ₹ 38,47,118/- whereas, the assessee and his brother has shown the total investment at ₹ 36,73,035/-. On this basis, he concluded that investment to the extent of ₹ 1,74,083/- had remained unaccounted. He, therefore, treated the same as unexplained in the hands of both the brothers amounting to ₹ 87,042/- each. 9. On appeal, the ld. CIT(A) confirmed the same for the detailed reasons given in para 7.1 of the impugned order, which rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e detailed reasons given in para 10, which reads as under: 10. Though the Assesses may have had sufficient cash in hand from which the penalty of ₹ 50,000 would have been paid yet, what was of greater importance and significance was that, the payment of ₹ 50,000 was against the penalty levied by the Collector for infraction or violation of a law which prohibits the construction of buildings on agricultural land, which is to be used wholly and exclusively for the purpose of agricultural activity only. Since, the penalty was levied for an offence which was prohibited by law, under the Explanation to sec.37(1) such payment shall not be deemed to have been incurred for the purpose of the Assessee's business. Consequently, no deduction was to be allowed of the said sum. The addition of the sum of ₹ 50,000 is therefore sustained under the provisions of sec. 37(1) of the Act r.w. the Explanation below the said section. 13. At the time of hearing, the ld. Counsel of the assessee pointed out that this amount should be allowed under section 37(1) of the I.T. Act and it is not hit by the Explanation to section 37(1) of the Act. On the other hand, the ld. D.R. dre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A), the assessee has furnished any evidence of agricultural land holding or sale of agricultural produce. On appeal, the ld. CIT(A) confirmed the same. After considering the totality of the facts, we are also convinced that the view taken by the ld. CIT(A) is fair and reasonable. We, therefore, decline to interfere. This ground of Cross Objection is also rejected. Resultantly, all the grounds taken by the assessee, Shri Hashmukhlal C. Bhandari in his Cross-Objection are rejected. 19. Ground no.2 of Cross Objection raised by the assessee, Shri Natvarlal C. Bhandari is against confirming the addition of ₹ 10,000/- on account of unexplained cash. Brief facts are that during the course of search, a sum of ₹ 10,000/- was found from the assessee s premises. The AO observed that this cash was kept by the assessee for a period of 9 years without bringing it to any use. Therefore, he, out of the total cash of ₹ 14,860/-, treated a sum of ₹ 10,000/- as unexplained and added to the total income of the assessee. On appeal, the ld. CIT(A) confirmed the same by observing that the total cash received in the hands of the assessee and his brother as per the de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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