TMI Blog2004 (11) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... vanathan, made submissions in regard to the right of assumption of jurisdiction by the Asstt. CIT, Circle I(1), Coimbatore. The submission made was that the assessee was being assessed under the territorial jurisdiction of the AO located at Pollachi. The AO who had jurisdiction was the ITO, Ward-I(2), Pollachi. The assessee had filed the returns of income for the asst. yrs. 1995-96 to 1999-2000 with the said AO. For the asst. yr. 1996-97 the returned income was Rs. 3,97,080 and the AO transferred the files to the Asstt. CIT, Circle I(1) Coimbatore, for the reasons that the returned income was in excess of Rs. 2 lakhs. The learned counsel submitted that there was a notification or circular issued by the CIT whereby jurisdiction based on quantum of income returned was fixed. Notwithstanding the fact that the assessment record for the asst. yr. 1996-97 was transferred to the Asstt. CIT, Circle I(1), Coimbatore, the assessee continued to file her income with the ITO, Ward-I(2), Pollachi. The learned counsel submitted that this fact is not in dispute with the Department. 4. The challenge of the assessee is with regard to the Asstt. CIT, Circle I(1), Coimbatore, assuming jurisdiction w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no office of the Asstt. CIT located at Pollachi. The officer who had concurrent jurisdiction with that of the AO was the Asstt. CIT located at Coimbatore. 7. The assessee in support of her claim that jurisdiction was improperly assumed relied on various decisions, The assessee further stated that jurisdiction is something which the AO cannot assume and even if the assessee consents to the officer assuming jurisdiction, if by law he has no jurisdiction, his assumption would be illegal. It was further insisted that power of transfer of cases under s. 127 of the Act was of a profile judicial one. The assessee further submitted that she has a vested legal right to get assessed in the area in which she resides for which she placed reliance on the decision of the Supreme Court in the case of Bidi Supply Co. vs. Union of India Ors. (1956) 29 ITR 717 (SC). In regard to requirement of notice, reliance was placed on the decision of the Supreme Court in the case of General Exporters vs. CIT (1998) 149 CTR (Mad) 138 : (1998) 234 ITR 860 (Mad). 8. The rival contentions in regard to the above have been very carefully considered. The territorial jurisdiction has been further expanded by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual value of the house sites sold and promissory notes for the loans advanced to various parties, constructions accounts, list of persons to whom house sites were sold, details of interest receipts, blank promisory notes, cheques, etc. The AO noted that the assessee had land of six acres in Kottampatti village, Pollachi. This land was converted into 59 house sites consisting of 4 cents to 5-1/2 cents. The house site plan was approved by the concerned town planning authorities in 1994. The assessee had started selling sites from 1995. 11. During the survey, the assessee was asked the price at which she sold the plots. She had stated that she had received between Rs. 15,000 to 20,000 per cent. She also stated that 56 sites were sold out of the total 59 plots. She had admitted the consideration amount at Rs. 12,60,626. She had also stated that she gave her daughter Rs. 9,00,000 and another daughter Rs. 4,00,000. Further, she had stated that she had advanced Rs. 15 lakhs to one Alagirisamy and also Rs. 5 lakhs to outsiders. She had also stated that she was constructing a two-storeyed building of 6,300 sq. fts. and she had been spending about Rs. 20,00,000 towards the construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturned income. This has been reproduced earlier. This notification makes it clear that if income is below Rs. two lakhs and is not a loss, the jurisdiction to frame the assessment is with the ITO Pollachi. This notification as reproduced earlier goes to confer the jurisdiction on the Asstt. CIT at Coimbatore on the basis that the income or loss returned is Rs. two lakhs or above and is below Rs. five lakhs. This classification has been explained in an endorsement issued by the office of the Chief CIT on 13th June, 1991. According to this notification the jurisdiction in cases of persons returning income of Rs. ten lakhs and above would be with the Dy. CIT Asstt. CIT would have jurisdiction in respect of income returned of Rs. 50,000 and above but below Rs. 10 lakhs in company cases and Rs. 2 lakhs and above but below Rs. 10 lakhs in other cases. This notification further explains "return of income" for consideration of conferring jurisdiction. According to this notification, in case only one assessment is pending, the return for the said assessment would be treated as the return of income. The second classification is with regard to more than one assessment year pending for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or order by which the jurisdiction is conferred on him. In that event alone he could claim that he has the jurisdiction to frame an assessment followed by the jurisdiction to proceed with reopening of an assessment also. 14.1 In the instant case from the above facts we have, therefore, to conclude that the Asstt. CIT at Coimbatore did not have jurisdiction for the asst. yrs. 1995-96 and 1997-98 for the reason that the income returned was very below Rs. two lakhs. Because the precondition for assumption of jurisdiction for reopening of assessment is the processing jurisdiction to frame an assessment at the initial stage, which in the instant case, especially for the asst. yrs. 1995-96 end 1997-98, not vested with the Asstt. CIT, Coimbatore, the assumption to jurisdiction to reopen these two assessments is beyond his powers. Therefore, the action having been initiated without adequate powers to act under law or his actions following the reopening of assessments have also become bad in law, illegal and we have no alternative but to quash the reopening proceedings as well as the assessments framed on that basis. For the asst. yrs. 1995-96 and 1997-98 the Asstt. CIT, Coimbatore, assum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d owner developed his land, expended money on it, laid roads, converted the land into house sites and with a view to get a better price for the land, eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form of asset into another. Obviously, the surplus in such a case will not be trading or business profits because the transaction is one of realisation of assets in investment rather than one in the course of trade carried on by the assessee or an adventure in the nature of trade." He submitted that in the instant case the assessee is stated to have inherited 15 acres of land and she was cultivating the said land for the last several years. The inheritance as noted by the CIT(A) was about 50 years back. The learned Departmental Representative further submitted that it is not disputed that the assessee did not carry on any business activity earlier. He submitted that notwithstanding these facts the manner in which she went ahead of converting six acres of land into various sizes of plots and that 59 specific size of plots indicated that it was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the High Court came to the conclusion that the purpose of sale was not to make a profit but wipe of the debt incurred. The Supreme Court had occasion to consider the case of P.M. Mohamed Meera Khan vs. CIT (1969) 73 ITR 735 (SC), where the assessee purchased a rubber estate and immediately converted them into 23 plots and sold them to 22 different buyers. The entire purchase and sale after conversion into plots were completed in less than a year and this made the Supreme Court to come to the conclusion that the real intention was a business transaction. In the case of CIT vs. M. Krishna Rao 1978 CTR (AP) 287 : (1979) 120 ITR 101 (AP), the Andhra Pradesh High Court had occasion to consider a situation where certain agricultural lands were purchased in 1964 and in 1967. In the earlier part of 1968 the village Panchayat had granted permission for conversion of the land into building sites and accordingly the land was converted into housing plots and sold in the years 1968 and 1969. It was these facts which compelled the Andhra Pradesh High Court to come to the conclusion that it was a transaction of business. 19. We note that considering the identical circumstances as fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Rs. 28 lakhs and this made the total realisation at Rs. 41,69,900. The cost of the plots was determined at Rs. 4,03,090 which the assessee claimed to have paid to her second daughter. The capital gains offered by the assessee plus the capital gains paid was in the range of Rs. 5,93,000 approximately. Rs. 27.50 lakhs was the cost of construction shown and Rs. 2.96 lakhs as cash in hand. The assessee claimed deduction under s. 54F of the Act initially for one year and later on gave the break-up of the same at Rs. 6,25,000, Rs. 14 lakhs, Rs. 6,75,000, Rs. 40,000 and Rs. 60,000 for the asst. yrs. 1998-99, 1999-2000, 2000-01, 2001-02 and 2002-03 respectively. The assessee further stated that out of Rs. 41,69,900, Rs. 92,700 was already subjected to tax for the asst. yrs. 1995-96 and 1996-97 and the balance amount is to be considered for purposes of capital gains. To the extent of Rs. 27.75 lakhs having been spent, the balance of Rs. 6.45 lakhs was available with the assessee for planning in the next 3 years for which also she gave the break-up. The AO, however, had made certain observations. on the basis of certain documents found during the survey for which reference is already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of survey for the advancement of loans to the tune of Rs. 10,10,000 as under without dates: Slip No. Name of borrower Amount 11 Blank pronote Nil 20,000 12 -do- Sundaram (Amount not mentioned) Nil-do- Lalji Patel 2,60,000 17-do- Sri Jayalakshmi Saw Mills 50,000 40,41,42 -do- Rajasekaran Sekar Readymade 1,25,000 Repayment loan obtained for conversion 3,75,000 10,10,000 Asst. yr. 1997-98 As per pronote and loose slips found during the course of survey, the assessee has lent a sum of Rs. 11,40,000 to the following persons: Date Name of the borrower Slip No./ No. copy of pronote Amount Rs. 2-5-96 Alagirisamy 18 1,10,000 20-5-96 -do- 19 15,000 30-10-96 -do- 20 1,40,000 2-1-97 -do- 21 2,00,000 28-1-96 -do- 24 1,50,000 15-6-96 Ramathal 8 2,50,000 15-6-96 R. Govindaraj 9 2,75,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e opinion that the daughter was unaware of the facts and, therefore, rejected the claim of the assessee that it was her own money. For the asst. yr. 1996-97 Alagirisamy had filed an affidavit that money was given to him by the assessee for safe custody. There was a loan of Rs. 75,000 advanced to R. Gopalasamy and Rajammal. There was a loan of Rs. 1,25,000 advanced to Sekar Readymades. There was a loan of Rs. 2,60,000 advanced to Lalji Patel and Rs. 50,000 to Sri Jayalakshmi Saw Mills, Rs. 2,50,000 to Ramathal and Rs. 2,75,000 to R. Govindaraj. The CIT(A) made his observations in para 11.5 of his order with regard to amount given to the daughter and the quantum. The statement of the daughter was taken in which she accepted that Rs. 9 lakhs was given by her mother for construction of a house at Tirupur. The CIT(A) found fault with the statement of the mother wherein she had stated that she had given to her daughter Rs. 8 to Rs. 10 lakhs. For the asst. yr. 1998-99 the amount given to Lalji Patel was the subject-matter and it was noted that on various dates the pronote showed amount having been given and the pronote has the signature of Lalji Patel. Considering the various amounts give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sale consideration for 60 cents of land 12,60,000 Less : Indexed cost of acquisition : Market value of land as on 1-4-81 (Rs. 60 per cent) 60 x 60 x 305 100 10,980 12,49,020 Less : Proportionate cost of development expenses (60 X 1300) 78,000 Net capital gains 11,71,020 Interest income 1,61,200 Total income 13,32,220 Agricultural income 90,000 21.4. Asst. yr. 1998-99 : Long-term capital gains : Sale consideration for 5.5 cents of land 1,21,000 Less : Indexed cost of acquisition 5.5 X 60 X 331 100 1,090 1,19,910 Less : Proportionate cost of development expenses (5.5 X 1300) 7,150 Net capital gains 1,12,760 Interest income from Lalji Patel 15,000 Total income 1,27,760 Agricultural income 90,000 21.5. Asst. yr. 1999-2000 : Long-term capital gains : Sale consideration for 11 cents of land 2,75,000 Less : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sold in the various assessment years, plus the total blank pronotes, amounts noted in loose sheets etc. found in the survey. The area of land sold in the previous years ending 31st March, 1995, 31st March, 1996, 31st March, 1997, 31st March, 1998, and 31st March, 1999 was 86, 135, 60, 5.50 and 11 cents respectively. Because one piece of paper showed Rs. 21,000 per cent, he applied that rate to all the plots and arrived at a sale consideration of Rs. 62,58,000. 24. A perusal of the records that are before us and as produced before us shows that other than the only document that showed Rs. 21,000 per cent, no other document showed that the land fetched a price of Rs. 21,000 only and not Rs. 15,000 to Rs. 20,000 per cent as claimed by the assessee. The CIT(A) had accepted that on-money has already been included as part of sale consideration because there was no business activity of the assessee. Further, the statement of Alagirisamy, the assessee, etc. go to show that the money was earned from sale of property and from agricultural activity and it was kept with Alagirisamy and others only for safe custody. It is not the case of the Department that the purchasers are found to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eys were kept with them only for safe custody. We have the finding given by the CIT(A) that the assessee did not carry on any business before and after the sale of the plots. We have also observed, that other than the AO making an estimate on the basis of one single document which was consideration of Rs. 21,000 per cent and applying it uniformly for all the plots without verification or without any basis, in our opinion, is not justified. When the persons to whom the money was given for safe custody have corroborated the version of the assessee, it is found that no other document or evidence is found indicating that the averments of the assessee as corroborated are false. Rejecting the claim as nothing but refusing to see the fact as it is. We are therefore, of the opinion that the sale consideration claimed by the assessee and offered by the assessee is the correct price and therefore the addition made on account of interest, etc. should be deleted. We may observe that the extra addition made by the AO to the extent of Rs. 28 lakhs on the basis of offer made by the assessee was deleted by the CIT(A) for the sole reason that the assessee did not carry on any business. When it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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