TMI Blog2010 (3) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... sustainable. In view of the judgments in the case of S. Khader Khan Son [ 2007 (7) TMI 182 - MADRAS HIGH COURT] , Paul Mathews Sons [ 2003 (2) TMI 25 - KERALA HIGH COURT] and in view of the CBDT instructions, section 133A does not empower any authority to examine any person on oath, any such statement has no evidentiary value and any admission made during such statement, cannot, by itself, be made the basis for addition unless the AO have corroborative material in hand to make such additions. If there is any unaccounted investment, the same should have been brought to tax as undisclosed income and not on the basis of MoU or on the basis of unsubstantiated statements recorded either from the assessee or from the third parties. Gross violation of principles of natural justice - opportunity of cross-examining - HELD THAT:- In our opinion, the authorities concerned required to give an opportunity of cross-examining the parties concerned and also comments on the statements and books of account to be relied upon by the revenue authorities. This will enable assessee to prove the incorrectness or incompleteness of those books of account. The opportunity would therefore necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 lakhs and Rs. 2.55 crores for the assessment years 2007-08 and 2008-09 respectively and ought to have deleted the addition. (4)Without prejudice to the above, the CIT(A) ought to have appreciated that even assuming there was evidence supporting the receipt of money of Rs. 2.8 crores it was not taxable because the receipt was neither revenue nor capital gains. 3. Brief facts of the case are that the assessee filed return of income for the assessment year 2007-08 on 22-10-2007 and on 23-8-2008 for the assessment year 2008-09. The assessee declared the income at Rs. 3,71,400 for the assessment year 2007-08 and Rs. 7,51,340 and agricultural income of Rs. 1,40,000 for the assessment year 2008-09. The assessee s income includes income from house property, income from business and income from other sources. There was a survey operation under section 133A of the Act in the case of M/s. Bharati Estates (M/s. BE), MIG 219, 1st floor, KHPB Colony, Kukatpally, Hyderabad on 13-8-2008. During the course of survey, Memorandum of Understanding (MoU) was found and impounded along with some receipts signed by the assessee Shri B. Ramakrishnaiah which indicates that M/s. Bharati Estates Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dlord as a token advance. It was further stated that the assessee could not mobilize requisite fund to buy this land and, hence, approached the firm M/s. Bharati Estates Ltd. represented by its Managing partner Shri G.V. Satya Sai and facilitated the transaction to happen by relinquishing his right in the land and also for facilitating the peaceful possession (including removing encroachments) of 10 acres piece of land to M/s. Bharati Estates. For the purpose, the assessee was compensated with Rs. 2.8 crores by the above firm. In pursuance this understanding a MoU was entered signed indicating the above amount on 20-9-2006. According to the Assessing Officer, this facts have been admitted by the assessee in his sworn statement on 29-8-2008 and 18-9-2008. This amount has been received by the assessee for relinquishing his right over the land facilitating the peaceful possession (including removing encroachments) of 10 acres piece of land. The Assessing Officer brought income to tax at Rs. 25 lakhs relating to the assessment years 2007-08 and Rs. 2.5 crores relating to the assessment years 2008-09. During the course of assessment, the assessee claimed expenditure on account of paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Partner Shri G.V. Satya Sai and facilitated the transaction to happen by relinquishing his right in the land and also for facilitating the peaceful possession (including removing encroachments) of 10 acre piece of land to M/s. Bharati Estates. For the purpose, the assessee was compensated with Rs. 2.8 crores by the above firm. In pursuance of this understanding a MoU was entered on 20-9-2006 which indicates the above amount. M/s. Bharati Estates in turn gave this land for joint development to M/s. Guru Ragavendra Construction for construction of villas. 5.1 He submitted that though the passing of money of Rs. 2.8 crores for the above transaction from M/s. Bharati Estates is supported by evidences found, admitted by Bharati Estates and accepted by assessee during the course of examination on oath on 29-8-2008 and 18-9-2008, this a capital receipt for facilitating the peaceful possession of 10 acre piece of land. The assessee is not liable to be taxed on this amount. Out of the amount, Rs. 25 lakhs relates to the assessment year 2007-08 and Rs. 2.55 crores relates to assessment year 2008-09. 5.2 He submitted that the learned Assessing Officer made addition on presuming that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.5 Without prejudice to the above argument, he submitted that even assuming for a moment not admitting that the assessee had interest in the said property the taxable event had not taken place. The agreement for sale had taken place on 6-1-2006 which is relevant to the assessment year 2006-07. It was only during that period that there was an agreement duly signed by the parties in writing and registered and transferee had taken possession of property and, therefore, the question of any addition, if any, arises for the assessment year 2006-07 and not for assessment year 2007-08 or subsequent assessment years. There was no oral agreement with landlords entered by the assessee. The evidence on record on the other hand suggest that the assessee had no interest of any kind in the said property. The statement recorded has no evidentiary value. 5.6 He submitted that it was stated by the Assessing Officer that the transaction was confirmed by Shri G.V. Satya Sai during the course of survey at his business premises on 13-8-2008. The statement was never put to assessee and he denied the existence of any such agreement. The Assessing Officer should have given an opportunity to cross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, not transferable under section 6( e ) of the Transfer of Property Act, 1882 and, hence, a proprietary (personal) right and not a capital asset. The compensation received was held to be in the nature of damages for breach of agreement of sale and which did not represent income of assessee as held in the case of CIT v. Hiralal Manilal Mody [1981] 131 ITR 421 (Guj.) since the assessee was not a dealer in immovable property. He relied on the judgment in the case of CIT v. Ashoka Marketing Ltd. [1987] 164 ITR 664 (Cal.) and CIT v. Dhanraj Dugar [1982] 137 ITR 350 (Cal.) and it was stated that the receipt was neither revenue nor receipt liable for capital gain tax. There was no capital gains because there was no transfer of immovable property and even if there were, there was no cost and, hence, they were not taxable following the decision in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC). 5.9 He made same arguments for the assessment year 2008-09 also. Regarding amount received from M/s. Guru Raghavendra Constructions, he submitted that the receipt was neither revenue nor liable for capital gains tax. There were no capital gains because there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given sufficient opportunity which is apparent from the statements of the assessee recorded on different dates of hearing, i.e., 8-9-2008, 23-10-2008, 17-11-2008, 2-2-2009, 16-2-2009 and 25-3-2009. The assessee never responded to the notices issued. Hence, the allegation is incorrect and not acceptable. During the course of survey, and also scrutiny proceedings the MoU between assessee and M/s. Bharati Estates and the books of account of M/s. Bharati Estates were shown to the assessee for his objections if any. The assessee has admitted that the MoU was entered with M/s. Bharati and stated that he did not have any objections regarding the books of account of M/s. Bharati Estates. Hence, the allegation is not acceptable. ( iv )The MoU between Sri B. Ramakrishnaiah and M/s. Bharati Estates was entered on 20-9-2006. However, as per the statement of Sri B. Ramakrishnaiah and Sri G.V. Satya Sai, the amount was paid during May, 2007. The assessee has also stated that he had received amounts from M/s. Guru Ragavendra Constructions between January to March 2008 and this is also evident from the deposits made in the Cosmos Co-operative Bank during February 2007 to March 2008. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 332/1, Nizampet (Village), Qutubullapur (Mandal), Rangareddy District. Further the Assessing Officer has brought on record the evidence relating to application of the money received by the assessee. The transactions have been routed through the bank account bearing No. 30050105777 in the name of the assessee maintained with M/s. Cosmos Co-operative Bank Ltd., Kingkoti Road, Hyderabad. The assessee has also admitted in his sworn deposition that the amounts received from M/s. Bharati Estates and Others have been utilized in purchasing immovable properties in his name and the names of family members and in making two films, viz., "Junction" and "Target" and advancement of loans. Further, it is seen from the record that the authorized representative of the assessee was present on 29-8-2008 and witness to the deposition given by the assessee admitting the receipt of Rs. 2.8 crores and application of the above money. 6.6 He relied on the following judgments to support his arguments that the assessee was carrying on the business that is adventure in the nature of trade : ( i ) Dalmia Cement Ltd. v. CIT [1976] 105 ITR 633 (SC) wherein it was held that : "Even the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on suspicion and conjectures." 6.7 With regard to allowing the expenditure, he submitted that there is no evidence for incurring expenditure, hence, not allowed and he relied on the judgment of the jurisdictional High Court in the case of CIT v. Transport Corpn. of India Ltd. [2002] 256 ITR 701 (AP). 6.8 He submitted that though the cheques mentioned in MoU are not encashed, it amounts to valid agreement. He submitted that strict rule of evidence not applicable to income-tax proceedings. He relied on the following judgments : ( i ) Mriganka Mohan Sur v. CIT [1979] 120 ITR 529 (Cal.) wherein it was held that : "Strict rule of evidence do not apply to income-tax proceedings and conclusive proof is also not necessary to arrive at any conclusion or to establish a fact. The Appellate Tribunal is entitled to arrive at a conclusive on appreciation of a number of facts, the accumulative effect whereof may be considered to judge the soundness of the conclusion." ( ii ) Thakur V. Hari Prasad v. CIT [1988] 173 ITR 242 (AP). ( iii ) CIT v. Metal Products of India [1984] 150 ITR 714 (Punj. Har.). 6.9 Without prejudice to the above arguments, the learned Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought on record the fact that this MoU is actually acted upon. Admittedly, the details of cheques mentioned therein in the MoU not at all en-cashed by the assessee. Moresover, this agreement is entered on 20-9-2006 after M/s. Bharathi Estates entered into agreement of sale- cum -general power of attorney with land owners on 6-1-2006. We do not find the necessity of entering into this MoU when the property was already alienated by the vendor to the purchaser on 6-1-2006. 7.1 We have also gone through the statements recorded on various dates in the course of survey from the assessee. The important details of statements recorded on 21-8-2008 is as follows : Q. 6. We have evidence that huge payments were made to you from M/s. Bharathi Estates. Give details of the same. Ans. I have helped M/s. Bharathi Estates in purchasing 10 acres of land. For the purpose of M/s. Bharathi Estates and Shri G.V. Satya Sai have paid Rs. 65 lakhs in the month of May, 2007. Q. 8. Besides the above you have received any commission? Ans. Besides the above payments I have received two flats. Later on these were transferred to Guru Raghavendra Constructions for which have been paid 80 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led. I shall furnish the details of the claimants over the property, since the negotiations are in progress. The exact expenditure is not known and the income arising out of these transactions will be disclosed in the year of full and final settlements. Q.14 . On the date of survey, you have stated answer to question Nos. 4 and 5 that the expenditure incurred for production of film, viz., junction and target amounting to Rs. 59 lakhs, which is evidenced by a diary impounded. What is the source for the same? Ans. This amount received from M/s. BE the expenditure is incurred approximately Rs. 1 crore. I shall furnish the details in next week. The above statement of the assessee was recorded in the presence of learned AR Shri I. Rama Rao on 29-8-2008. During the course of survey on 18-9-2008, statement of the assessee was recorded in Telugu. The translation of the same is as follows : Q. 2. In the statement dated 29-8-2008 at answer Q. 5 and 8. You have stated that you have received Rs. 2.8 crores from Bharati Estates. Out of which you have stated that you have paid Rs. 1.2 crores to various persons for protection of land. You have stated that you will give the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he evidence relating to receipt of money from M/s. Bharathi Estates in the form of receipts signed by Shri B. Ramakrishnaiah, the assessee. 7.3 As per the above statement and on the basis of MoU, the Assessing Officer drew conclusion that the assessee has received 2.8 crores consi-deration from the Bharathi Estates on relinquishment of right in the land and also for facilitating peaceful possess (including removing encroachments). In spite the assessee categorically stated on 18-9-2008 as answered to the Question No. 4 that he has received 1.5 crores for relinquishment of right over the land and Rs. 1.3. crores for protecting the land out of disputes. It was also stated by the assessee that he has incurred the following expenditure to protect the land which is clear from the answer to Question No. 2 recorded on 18-9-2008. According to assessee he has incurred expenditure as follows: ( a ) Protection of land expenditure (Paid to Shri Murali Rs. 30 lakhs, Sri Srinivasa Reddy 8 lakhs and various other persons 2 lakhs) Rs. 40 lakhs ( b ) Revenue expenditure Rs. 45 lakhs ( c ) Paid to Smt. Bhavani as commission Rs. 9 lakhs 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the year in which transfer took place. In order to attract tax on capital gain, subject-matter of transfer should be capital asset. The term capital asset has been defined in section 2( 14 ), same reads as under : Capital asset means property of any kind held by an assessee whether or not connected with his business or profession but does not include ( i )any stock-in-trade, consumable or raw materials held for the purpose of his business or profession. ( ii )personal effects, that is to say movable property (including wearing apparel and furniture but excluding jewellery) held for personal views by the assessee or any member of his family dependent on him. 7.8 As seen from above, a particular thing, right or interest may be a capital asset within the meaning section 2( 14 ), at transaction in relation may not give rise to taxable capital gain, this should because of the fact that no transfer as envisaged by the act was involved. Similarly, certain capital asset which could not give rise to capital gain because of the fact that cost of acquisition can be envisaged in the acquisition of the asset. Any right which can be called property will be included in the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mode of computation envisaged under section 48 of the Act. The mode of computation provided under section 48 comprises two fold dimension, namely, the expenditure incurred in connection with transfer and cost of acquisition of the asset added by the cost of improvement. The profits or gains contemplated under section 45 as a sequel to transfer is the surplus amount realized over and above the cost of acquiring the asset. In the event of the absence of cost of acquisition, the question of accrual of gain does not arise and the levy of tax professing to be a capital gain levy is in essence a levy on a capital asset. The charging section under section 45 loses its vitality in the absence of cost of acquisition of asset as the cost of acquiring the asset constitutes the bed rock for exigibility to levy of capital gains. This approach as to the presence of cost of acquisition controlling the charging section is concretized by section 49. It is oblivious that section 49 takes care of arriving at the cost of acquisition by insertion of deeming provision for the assets in respect of which the assessee did not incur any expenditure or pay consideration in terms of money. For the assets enum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is relevant and not merely on the fact that person engaged in a business or in a profession. In the present case, as we have discussed in earlier paras, the assessee earn income from two heads of income. One is emanated from capital receipt and another from revenue receipt. In our opinion, the capital gain, if any, accrued to the assessee cannot be taxed in the assessment year 2007-08 or 2008-09. The Assessing Officer can assess only the net income arise out of revenue receipts of Rs. 1.3 crores in the year when the transaction took place. At the same time, the assessee is entitled for expenditure incurred to earn that income, if it is substantiated by the requisite evidence. The Assessing Officer cannot say that the assessee has not incurred any expenditure to earn this part of income. If the assessee says that he has received Rs. 1.3 crores for protecting the property and he has incurred expenditure to protect the property same credit is to be given on production of evidence. 8. In the present case, though assessee has stated that he has incurred expenditure to earn that income, the Assessing Officer has over looked this fact. In view of this, we are of the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the power under section 133A, section 132(4) of the Income-tax Act enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used as evidence under the Income-tax Act. 8.3 Further, it was held in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) that an admission is extremely important piece of evidence but it cannot be said that it is conclusive and it is open to person who made the admission to show that it is incorrect. In the case of S. Khader Khan Son ( supra ) wherein it was held that in view of the scope and ambit of the materials collected during the course of survey action under section 133A of the Income-tax Act, shall not have any evidentiary value. It could not be said solely on the basis of the statement given by assessee that the disclosed income was assessable as lawful income of the assessee. 9. In view of the above judgments of various courts and in view of the CBDT instructions, section 133A of the Income-tax Act does not empower any authority to examine any person on oath, any such statement has no evidentiary value and any admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of audi alterem partem requires that a particular specified procedure to be followed. It may be that in a given case, the rule of audi alterem partem may import a requirement that witnesses whose statement are sought to be relied upon by the authority holding an enquiry should be permitted to be cross-examined by the party affected while in some other case it may not. The procedure required to be adopted for giving an opportunity to a person to be heard or cross-examined must necessarily depend on the facts and circumstances of each case. Now in the present case, we are concerned with the relying on the books of account of M/s. Bharati Estates and the statement recorded from them. In our opinion, the authorities concerned required to give an opportunity of cross-examining the parties concerned and also comments on the statements and books of account to be relied upon by the revenue authorities. This will enable assessee to prove the incorrectness or incompleteness of those books of account. The opportunity would therefore necessarily carrying with it right to examine witness and that would include the right to cross-examine the witness examined by the revenue authorities. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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