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TMI Blog2010 (3) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was no substantive evidence on record in support of addition of Rs. 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai 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 payment made to third party to settle the disputes for the assessment year 2007-08 as follows : Mr. Murali Rs. 30,00,000 Srinivasa Reddy Rs. 8,00,000 Misc. expenditure Rs. 47,00,000 Smt. Bavani Rs. 9,00,000 3.2 The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 the assessee had received consideration as revenue receipt from M/s. Bharati Estates for relinquishing his interest in the property situated in survey No. 332/1, Nizamapet Village, Qutubullapur Mandal. This is only a presumption as the evidence on record suggests that the assessee had no right to purchase the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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-examine Mr. G.V. Satya Sai and in the absence of such examination, the addition cannot be upheld as it is violation of principles of natural justice. He relied on the CBDT Instructions No. 286/2/2003/IT(Inv.), dated 11-3-2003 as per which the department not to take any statement as to any undisclosed income and the officers should rely upon on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 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 was no transfer of immovable property and even if there were, there was no cost and, hence, they were not taxable. Finally, he relied on the following judgments : 1.HUF of H.H. Late Sir J.M. Scindia v. Asstt. CIT [2009] 118 ITD 190 (Mum.). 2.CIT v. Manoharsinhji P. Jadeja [2006] 281 ITR 19 (Guj.). 3.Dhruv N. Shah v. Dy. CIT [2004] 88 ITD 118 (Mum.) (TM). 6. Submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... states 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, the additions have to be made for the assessment years 2007-08 and 2008-09. Hence, the allegation made by the assessee is not acceptable. 6.1 It is submitted that the assessee has categorically admitted to have received the amounts from M/s. Bharati Estates and M/s. Guru Ragavendra Constructions and voluntarily offered the amounts to tax and, accordingly, the assessments were completed. The allegations rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worn 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 transactions not resulted in the earning of a profit; it amounts to carrying an adventure in the nature of trade." (ii) CIT v. Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC) wherein it was held that : "The intention of the parties to be seen to decide whether it is adventure in the nature of trade or not." (iii) P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735 (SC) wherein it was held that : "It is not possible to evolve any sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings. 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 Departmental Representative submitted that there was a cost incurred at Rs. 1 lakh as the assessee has given token advance to the vendor in the year 2005 and same to be considered as cost of acquisition of capital asset and capital gain to be computed, accordingly, he requested the Bench to give suitable direction to the Assessing Officer. Findings 7. We have heard both the parties and perused the material available on record and also carefully gone through the various case law cited by the parties. In this case, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 by them. Q. 9. Give the details of investments in immovable properties? Ans. During the financial year 2007-08, I have invested Rs. 31,24,000 in my name and family members name. Statement recorded on oath from the assessee on 29-8-2008 Q. 3. Give the details of business transactions with M/s. Bharathi Estates? Ans. Initially I contacted the original landlords Smt. Janakamma T, Sri T. Krishna Murthy and family members, entered into oral agreement and paid token amount towards agreement of sale. It is only oral agreement of sale. Later ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproximately 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 on 8-9-2008 but you have not furnished details so far. Please explain the reasons. Ans. I was not well last week therefore, I sought adjournment for today. The expenditure details are as under: A.for protection of land Rs. 40 lakhs (a)Gave to Murali Rs. 30 lakhs (b)Sri Srinivasa Reddy Rs. 8 lakhs (c)For different persons Rs. 2 lakhs. B.Revenue expenditure Rs. 45 lakhs. C.Paid to Smt. Bhavani (commission of Rs. 9 lakhs). The above amounts incurred on behalf of M/s. Bharathi Estates. Q3. Give details of role paid by you in this land transaction. Ans. Survey No. 332/1 of Nizampet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 7.4 Further on 29-8-2008, the assessee also stated in his sworn statement vide answer to question No. 5 that he has incurred expenditure of Rs. 1.2 crores towards eviction of trespassers and perfection of the title of the property and also stated that the disputes are still going on and he has to incur an expenditure to settle the issues with the claimants. In spite of this, the Assessing Officer not given any credit to expenditure incurred by the assessee. 7.5 Further the assessee has also stated in his sworn statement recorded on 29-8-2008 that he has entered into oral agreement with the original land owners and paid token amount of Rs. 1 lakh in October, 2005. This was fortified by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 definition of "capital asset". A contract for sale of land is capable for specific performance. It is also assignable. Therefore, a right to obtain conveyance of immovable property is clearly property contemplated by section 2(14) of the Income-tax Act. With this background, we required to consider the facts of the present case. In the present case what was said to be relinquished or surrender was a right in the asset. The giving up of the right to claim specific performance by conveyance of immovable property held to be relinquishment of capital asset and it was transfer of capital asset within the meaning of the Income-tax Act. The assessee gave up his right to claim specific performance. By the termination of his oral agreement a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 enumerated in section 49, there would not have been any cost of acquisition but for the deeming provision whereby the cost of acquisition of an asset is considered to be the cost for which the previous owner acquired it. Thus section 49 by implication furnishes a clue to the interpretation to section 48. The deemed cost of acquisition is confined to the assets particularized in section 49 only and in all the other assets, the actual cost of acquisition is the substratum for the levy of capital gains. If there is no cost of acquisition, there is no gain and consequently there is no capital gains tax. Thus, the charging section takes colour from the computation as both the provisions are integrated and seek to levy tax regarding 'an asset in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 the net income generated out of commission to be taxed in the assessment years 2007-08 and 2008-09 and balance receipt of Rs. 1.5 crores is being capital receipt cannot be brought to tax in these assessment years. 8.1 Without prejudice to the above, further we are of the opinion that statement recorded under section 131 of the Income-tax Act consequent to the survey action cannot be sole basis for addition unless there is a material to support the departmental case. In the survey, the department is not able to find out any corroborative evidence regarding the exact income earned by the assessee in these assessment years. The case of department hinges only and only on the surrender statement. It is well settled law that an addition, in order to be sustainable in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 admission made during such statement, cannot, by itself, be made the basis for addition unless the Assessing Officer 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. 9.1 Further, the assessee taken ground before us that there is gross violation of principles of natural justice. The Assessing Officer relied on the books of account of M/s. Bharathi Estates Ltd. to make addition and these books of account never put to the assessee for comments and the opportunity of cross-examination not provided to the assessee. We have gone through this issue. The req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 revenue authorities relied on the books of account of the M/s. Bharathi Estates and their statements and came to the conclusion that the assessee received Rs. 2.8 crores middle men commission. Placed in these circumstances, the assessee could prove the incorrectness or incompleteness of these evidences, only after cross examining them. The cross-examination of witness is one of the most efficacies method of establishing to and exposing falsehood. Though there is a record in the form of raising this ground before the CIT(A), the CIT(A) held that reasonable opportunity of being heard has been given to the assessee but the order is silent about giving the opportunity of cross-examining the witness. The revenue cannot rely on certain statements and materials to strengthen its case against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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