TMI Blog2012 (8) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... uced by the assessee - issue back to the file of the Assessing Officer for fresh adjudication Disallowance of the travelling expenses incurred by the wife of Managing Director - AO made the disallowance by observing that the directors and their spouses travelled abroad and that travel was personal in nature - claim of the assessee is that the director of the company travelled for business purposes and his wife accompanied him – Held that:- Facts are not clear as to whether the director traveled for the business purposes - issue is remanded back to the Assessing Officer for fresh adjudication in accordance with the law, after providing due and reasonable opportunity of being heard to the assessee. Capital gains on the transfer of immovable property - possession of the land is not given as per the terms of agreement and will be handed over to the developer only after completion of the work – Held that:- claim of the assessee was that amount was received as an advance, would be offered for taxation when the sale deed gets executed - nothing is brought on record to suggest that M/s. IDEB had taken possession of the property either physically or constructively - matter remanded b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed to the assessee out of the addition made by the AO on account of unaccounted scrap sales. 6. The facts of the case in brief are that the assessee was engaged in the business of bus body building and fabrication. The return of income was filed on 31.01.2008 declaring a total income of Rs.6,52,46,566, the said return was processed u/s. 143(1) of the Income-tax Act, 1961 [hereinafter referred to as the Act in short ] on 18.03.2009. 7. A survey u/s. 133A of the Act was conducted in the business premises of the assessee on 22.02.2008, consequent to the survey and material found at the time of survey, the case was selected for scrutiny. The Assessing Officer pointed out that during the course of survey, details of scrap sales were found, but the assessee out of total scrap sales, recorded only sales worth Rs.31,45,974 and the balance sales of Rs.25,76,253 was not accounted for in the books. The AO asked the assessee for explanation, one of the employee of the assessee viz., Mr. S.K. Ajmera replied as under:- Out of the above amounts, Rs. 10 lakhs has already been included in the sales shown for the financial year 2006-07. The details of the same will be furnished in your o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a should have been given credence to and at least Rs. 10.00 lakhs should have been allowed out of Rs.25,76,253/- and if at all any addition was required, it could only be in respect of the balance. 10. The ld. CIT(A) after considering the submissions of the assessee restricted the addition to Rs.15,76,253 by observing in para 15.1 of the impugned order as under:- After considering the facts and statement of Sri Ajmera, not disputed by the A.O, addition is restricted to Rs.15,76,253/-. Appeal is partly allowed. 11. Now both the parties are in appeal. The department is in appeal against the relief of Rs.10 lakhs, while the assessee is in appeal against the sustenance of addition of Rs.15,76,253. 12. The ld. CIT(DR) strongly supported the order of the AO and further submitted that the assessee did not furnish any evidence in support of its claim that a sum of Rs.10 lakhs was offered for taxation in another year, so there was no option left with the AO, except to reject the claim of the assessee and to make the addition. 13. In his rival submissions, the ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arity in a decision undoubtedly puts a party in quandary. Section 250(6) expressly embodies the principle of natural justice and such a provision is clearly mandatory in nature. The impugned order passed by the Commissioner (Appeals) in violation of the provisions of section 250(6) could not, therefore, be sustained." 16. The ratio laid down by the ITAT Ahmedabad Bench in the aforesaid referred to case is squarely applicable to the facts of the present case. 17. The Hon'ble Punjab Haryana High Court in the case of CIT V Palwal Cooperative Sugar Mills Ltd. (2006) 284 ITR 153 has held as under: "Every judicial/quasi judicial body/authority must pass a reasoned order which should reflect the application of mind of the concerned authority to the issues/points raised before it. The requirement of recording reasons is an important safeguard to ensure observance of the rule of law. It introduces clarify, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision making process. Another reason which makes it imperative for quasi judicial authorities to give reasons is that their orders are not only subject to the fight of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t aside this issue back to the file of the Assessing Officer for fresh adjudication in accordance with the law, after providing due and reasonable opportunity of being heard to the assessee. 20. Now we will deal with the appeal of the assessee in ITA No.1057/Bang/2010. Following grounds have been raised in this appeal: 1. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) ought to have allowed the traveling expenses as claimed by the appellant in full and refrained from upholding the disallowance of Rs.1,68,371/-. 2. The learned Commissioner (A) ought to have appreciated that the traveling expenses incurred by the wife of the Managing Director of the company along with him was essentially required for the business purpose and was liable to be allowed as held in various judicial pronouncements relied upon and cited before him. 3. The learned Commissioner (A) ought to have appreciated that the interest expenditure incurred by the appellant was exclusively for the purpose of business and no part of the loan was borrowed having been diverted towards non-business purpose. 4. The learned Commissioner (A) ought to have app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for justifying the computation of capital gains in the case of the appellant. 14. On the facts the learned Commissioner (A) ought to have appreciated that the cases cited had no application on the peculiar facts of the transaction and there being no transfer as contemplated U/s.2(47) of the Act, no capital gains was liable to be computed for the relevant assessment year. 15. Without prejudice the learned Commissioner (A) ought to have appreciated that on real income theory as propounded by the Hon ble Supreme Court there was no income under the head capital gains computable for the relevant assessment year to justify the impugned addition and accordingly he ought to have deleted the impugned addition in full. 16. Without prejudice the disallowances are excessive, arbitrary and unreasonable and ought to be deleted in toto. 17. The learned Commissioner (A) erred in confirming the interest levied u/s.234B, 234C and 234D of the Act. 18. For these and other grounds that may be urged at the time of hearing of the appeal the appellant prays that the appeal may be allowed. 21. Ground Nos. 1 to 5 relates to the disallowance of the travelling expenses incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO mentioned that the expenses were incurred for directors and their spouses, while claim of the assessee is that the wife of one of the director accompanied him because he was suffering from various diseases. The ld. CIT(A) confirmed the action of the AO by observing that the inherent element of enjoyment and entertainment to wife from such trips could not be ruled out. But nothing is brought on record to substantiate the above observations. We therefore considering the totality of the facts as discussed herein above and particularly in the absence of clear facts brought on record, think it appropriate to remand this issue back to the file of the Assessing Officer to be adjudicated afresh in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. 27. So, respectfully following the aforesaid referred to order dated 22.03.2012 in ITA No.1056/Bang/2010 for the A.Y. 2006-07 in assessee s own case, the issue is remanded back to the Assessing Officer for fresh adjudication in accordance with the law, after providing due and reasonable opportunity of being heard to the assessee. 28. The next issue vide ground Nos. 6 7 relates to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.K. Ajmera, G.M. (Finance) was asked to furnish supporting evidence for the expenditure during the course of survey, but no supporting evidence was produced. The AO considered the expenditure as huge amount of expenses for fencing of the land and asked the assessee to furnish the necessary gate pass entries for the purchases. He also noticed that at the time of survey, no such entry relating to the said purchases was found in the register maintained by the assessee for the purpose of tracking entry, use and exit of material. The explanation of the assessee before the AO was as under:- The above materials were used for fencing, compound wall and other related purposes. Since these materials have been specifically purchased for project, no store records have been maintained by the assessee. As the same has been used for the business, it may be allowed as an expense. 32. The AO did not find merit in the explanation of the assessee by observing in paras 4.11 to 4.14 of the assessment order dated 17.4.09 as under:- 4.11 Firstly, as per the original agreement, the total value of land and building measuring 1,38,885 sq. ft. was to be Rs.19,44,38,720/-, while the value of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e building. Accordingly, the capital gain on land and building was offered at Rs.5,55,31,547/-. With regard to the balance Rs.5.00 crores, the appellant company offered the same for taxation as it was for the improvements after the expenditure of Rs. 1,63,70,521/-: The assessing officer was of the opinion that the entire Rs. 14.00 crores was attributable to the land and building and brought to tax the long term capital gains at Rs. 10,55,31,547/-. The appellant company objects to the capital gains as determined by the assessing officer. Undisputedly, the consideration of Rs. 14.00 crores received was for the transfer of the land and building and also towards the cost and development expenses incurred by the appellant company. The appellant company had rightly included the gross receipt of Rs.5.00 crores under the head Miscellaneous Receipts and the same was offered to tax after claiming the expenses incurred to the tune of Rs.1,63,70,521/- which had been charged in the Profit Loss Account. The balance of Rs.3,30,29,479/- was brought as the income of the appellant company for the relevant year. The Director and also the General Manager (Finance) on another occasion had explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration the expenses incurred by the assessee for land development. He further submitted that the ld. CIT(A) without considering the facts of the case in the right perspective confirmed the action of the AO. It was submitted that the matter may be sent back to the AO for proper examination and verification of the claim relating to the expenses incurred by the assessee for land development. 37. In his rival submissions, the ld. DR strongly supported the orders of the authorities below. 38. We have considered the submissions of both the parties and material on record. In the present case, the AO himself admitted in para 4.11 of the assessment order that the revised agreement was split into two parts, the first part related to sale of land for Rs. 9 crores and the second part related to the improvement cost of Rs. 5 crores. It is not the case of the AO that the said agreement was a fake agreement, however the claim of the assessee for expenses on land development was not accepted by the AO. The claim of the assessee was that the expenses were incurred for land development, that claim was not accepted by the AO only on this basis that entries were not made in the register found at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it will be taken as capital gains. The assessee submitted to the AO as under:- The monies so received by the assessee are in the nature of advances only. The capital gain on this transaction shall arise only after the constructed area is physically handed over to the assessee. Further, till date the entire land and building is in the possession of the assessee and has not handed over the physical possession to the developer. The developer has not taken any plan sanction/approval for any construction in the land so given. However, to secure the advances given, the developer has entered into an agreement of sale with the assessee and this does not constitute a sale . 42. It was further submitted as follows:- The point where the capital gains are deemed to accrue will purely depend on the terms of the Joint Development Agreement. Where the agreement is of such nature that possession is given in part performance of a contract, the liability of capital gains tax will arise on the handing over of such possession to the builder. In case of Jaico, possession is not handed over. Where the possession is not transferred but deferred until the construction is complete, the liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Agreement for Sale between the appellant company and M/s.IDEB dated 30.03.2007. iii) General Power of Attorney executed by the appellant company in favour of M/s.IDEB dated 30.03.2007. On a perusal of these documents, the assessing officer was of the opinion that there was transfer of the land, to be developed, to M/s.IDEB during the relevant year in accordance with the provisions of Section 2(47)(v) of the Act and accordingly the capital gain had arisen during the relevant year. For this proposition, he had relied upon the judgement of the Hon ble High Court of Bombay in the case of Sri.Chathurbuj Dwarakadas Kapadia vs. CIT reported in (2003) 260 ITR 41 and the Authority for Advance Rulings in Jasbir Singh Sarkaria reported in (2007) 294 ITR 196 (AAR). Consequently, the capital gains had been computed by taking into consideration at Rs.44,49,99,000/- on the basis of the built up area to be given to the appellant company by M/s.IDEB @ Rs.3,000/- per sq.ft., as agreed to in the Joint Development Agreement. Thus, the capital gains of Rs.43,61,72,341/- was determined by considering the cost of purchase of the land and the cost of inflation thereon as required u/s.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut through. In the circumstances, it is totally unjustified in computing the capital gains on transaction which did not exist in the relevant assessment year. Thus, the impugned addition is required to be cancelled. In fact the assessing officer s apprehension that the transaction involving allotting portion of immovable property taken or retained in part performance of the contract of the nature referred to in the provisions of Section 53A of the Transfer of Property Act would mean not a physical possession , but a constructive possession and in this case that the three documents executed by the appellant company would suggest that there was constructive possession with the developer and accordingly the conditions u/s.2(47)(v) would apply. We wish to submit that the above observations of the assessing officer had no sanction of law. Under section 53A of the Transfer of Property Act the possession contemplated is the basis to be taken and retained by the transferee towards part performance of the contract. In this case, the assessing officer had no evidence to suggest that the documents executed had been acted upon and M/s.IDEB had physical constructive possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... op the property and construct flats thereon only it cannot be treated as transfer at all because the effective title and possession over the property still remained with the transferor. However, though the terms of JDA remain silent about the transfer of possession, if it is later on corroborated by an irrevocable power of attorney authorizing the developer to deal with different persons and authorities to carry on the activity of construction on the property, in such case it has to be construed that possession had been handed over legally over the property to the developer by the owner-seller and the date of execution of the such power of attorney is conclusive for determining the year of taxability of the capital gains arising out of such transfer of the immovable capital asset. 46. The ld. CIT(A) further observed that three deeds registered on the same day i.e., 30.3.07 were found in the course of survey u/s. 133A(1) of the Act conducted on 22.2.08 which itself demonstrate that the assessee had an intention to translate the terms of agreement and the irrecoverable power of attorney or otherwise it had not kept such documents in its safe custody which itself refutes the argum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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