TMI Blog2011 (5) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... maintenance expenditure stood disallowed u/s. 38(2) - same stood confirmed. Disallowance of brokerage expenses - paid to five different persons - without deduction of tax at source, i.e., by applying s. 40(a)(ia) of the Act - default u/s. 40(a)(ia), which is a non obstante provision, is admitted - in the case of Divya Business systems (P.) Ltd. (2010 -TMI - 206405 - ITAT, Cochin ), and wherein, it after consideration of the issue in all its aspects, confirmed the application of the provision in case of violation of the provision - revenue authorities is, therefore, confirmed on this issue as well - assessee's appeal is dismissed. - IT APPEAL NO. 1 (COCH.) of 2009 - - - Dated:- 2-5-2011 - N. VIJAYAKUMARAN, SANJAY ARORA, JJ. K.R. Sudhakaran Pillai for the Appellant. T.J. Vincent for the Respondent. ORDER Sanjay Arora, Accountant Member This Appeal by the Assessee contests the Order by the Commissioner of Income-tax (Appeals)-II, Kochi ('CIT(A)' for short) dated 30.10.2008 passed pursuant to the assessee agitating its assessment u/s. 143(3) of the Income-tax Act, 1961 ('the Act' hereinafter), dated 28.11.2007 for the assessment year (A.Y.) 2005-06. 2. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Meerakhan v. CIT [1969] 73 ITR 735 (SC). The fact of the bank loan, supported the inference of it being so. The cost price of the land, therefore worked out by her by following the normal accounting principles and the profit for the two consecutive years of sale worked out at Rs. 314396/- and Rs. 12457378A. In doing so, she allowed the expenses incurred by the assessee during the relevant year by excluding those in relation to agricultural expenses, i.e., Rs. 598007/-, also including therein a part (50%) of the expenditure (being on salary (Rs. 2.82 lakhs) and travelling expenses (Rs. 1.1 lakhs)), which could be attributed to both the activities, i.e., agricultural/plantation activity as well as real estate dealings. Accordingly, the income was assessed at Rs. 5245700/- as income from real estate business u/s. 28(i) of the Act. In appeal, the ld. CIT(A) dealt with the issue at length. The assessee's legal claims were not maintainable as it had itself conceded the income as taxable. Also the issue had been examined by the AO on facts, finding the assessee's claim, both as regards the income being exempt (i.e.. sale of agricultural land) and non-business income as not maintainable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Rs. 170 lakhs) only for the said purpose and only in the regular course of its business, i.e., after due verification and satisfying itself as to the viability of the project and the credentials of the borrowers the ld. AR replied that as the manager had gone 'out of the way' in extending the loan. He did not elaborate further. That, however, he continued further would not concern the assessee's asset, which is a stock-in-trade. To another question by the Bench, i.e., as to why the land was sold in small sizes, to several persons, he replied that it was only on account of absence of buyers for the total (or large) holdings. The ld. DR. on the other hand, would submit that the Revenue authorities have examined the case in detail, both from legal and factual standpoint, finding it untenable. The decisions by the Apex Court in the case of Raja J. Rameshwar Rao v. CIT (supra) and P.M. Mohammed Meera Khan v. CIT (supra) are fully applicable in the facts and circumstances of the case. 4. We have heard the parties, and perused the material on record. 4.1 The primary facts are not in dispute (refer para 2). We shall, as is incumbent on us, examine the issue on both the legal and fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct. True, it is the correct legal position that is relevant, and would prevail, and not the view that an assessee may take off its rights, so that where it inadvertently fails to make a claim, arising from the given facts of the case, it would not be fatal to its case for deduction/exemption on its basis [CIT v. C. Parakh Co. (India) Ltd. [1956] 29 ITR 661 (SC)]. However, in the facts of the case, the issue is one of fact, arising out of the essential, bare facts of the transaction, and does not flow from any misunderstanding as to the legal position, which is well-settled. That is, if it is a case of gains arising on the sale of agricultural land per se, it would not be taxable, while if it is in the nature of a trade, notwithstanding the fact that the land in question qualifies to be considered as an agricultural land, the profit realized would be only in the nature of a profit on trade, and taxable as business income. The inference leading to either of the two propositions being true or correct, i.e., in fact, is not legal, but factual. A contradictory stand on primary facts is not understandable. At the same time, if the Revenue, in examination of the assessee's claim, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on sale or otherwise. The admission by the assessee that the bank manager had gone 'out of his way' to sanction the loan, confirms this. No material in respect of bank loan, i.e., pertaining to its sanction, or its recall, has been placed on record. Why, even assuming so, a businessman would not shelve his project/activity, but seek alternative funding for the project. This, as in his considered view as a businessman/agriculturist, the project is viable and in fact in operation. In fact, this is a serious issue, as such premature withdrawal by the bank could lead to heavy and unwarranted losses, besides being impractical and even unfeasible in most cases. No responsible bank would do so, lead as it could to serious consequences for its business reputation, besides legal claim for repudiation of the contractual obligation/s. 4.5 The loan, as we see it, was only granted for a short period of time, as an accomodation loan to enable the assessee to acquire the property and realise the potential gains on his purchase/acquisition, the bargain price therefor, on account of the size of the holding, being very competitive. However, being in the realm of a 'speculative' trade involving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inference of which being - to that extent - a venture in the nature of trade. As regards its explanation, the same is only understandable, if it was making serious efforts to sell the estate, i.e., were made, and on the same proving futile, sale in parts was mooted. Here, we find the sale in small pieces right from the first day. In fact, as noted earlier, only interested buyers, i.e., for what is up for sale, would approach the assessee. In other words, had the assessee spread the word that its entire (or even a substantial part) estate was on sale, it would not be approached by the buyer for a fragment of the holding viz. 1.9 acres, 5.39 acres, 6.86 acres. 2.11 acres and 15.90 acres (which represents 5 sale transactions) during February to March 2004. i.e., from marginal buyers, and from the very beginning. The same, in fact, represents systematic selling, even as found by the ld. CIT(A). The land parcels sold are not contiguous. As such, sale in lots breaks the contiguity of land, which is one of the main if not an essential attribute for acquiring large holdings. In other words, the assessee could not have proceeded to sell in lots unless he is sure, from day one that he intend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case. It, we observe, has already been allowed interest expenditure at Rs. 1150549/- by the ld. CIT(A), finding the same, and correctly so, acceptable. 4.8 Both in terms of intention and action, the transaction of purchase and sale of rubber estate represents a business activity and, thus, stands rightly assessed as business income u/s. 28(i) of the Act. We decide accordingly. 5. The appeal raises two other issues, in respect of the claim toward certain expenses in the computation of business income. The assessee claimed depreciation for four vehicles at a total of Rs. 295014/-. Besides, expenses on running and maintenance of vehicles, being car and jeep, was also claimed at Rs. 684618/-. The vehicles were explained to be used by the four working partners for the purposes of the firm. However, as, admittedly, no personal vehicle was either owned or maintained by the partners, so that a part user of the vehicles for their personal purposes could not be denied, the AO estimated a user of 20% as toward personal purposes, so that Rs. 59000/- qua depreciation and a lump sum of Rs. 50000/- qua maintenance expenditure stood disallowed u/s. 38(2). The same stood ..... X X X X Extracts X X X X X X X X Extracts X X X X
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