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TMI Blog2011 (8) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... s return of income for assessment year 2007-08 on 21.2.2008 admitting a total income of Rs. 8,08,861/-. The Assessing Officer issued notice u/s 143(2) on 17.8.2008 and notice u/s 142(1) on 20.3.2009. After the date of filing of the return and before the date of issuance of notice u/s 143(2), a survey u/s 133A of the Act was conducted (on 27.2.2008) in the business premises of a third party namely, M/s Rajarathinam Constructions Pvt. Ltd at no.20, Anderson Street, Ayanavaram, Chennai, including its Branch Office situated at Siruvallur Road, Perambur, and its godown at Madhavaram. A simultaneous search was also conducted u/s 132 of the Act at the residence of Company's Managing Director, Shri A. Anthony Rajarathinam on the same day. During these search/survey operations an incriminating document in the form of a sale deed evincing sale of a piece of land situated in the Revenue Estate of Village, Perumbakkam, for a sale consideration of Rs. 1.79 crores by Shri Mainraj, the present assessee. The relevant details of this sale transaction are given in a tabular form as under: Sl. No. Name of seller Extent of land Consideration Rs. Nature of Document Date 1. Shri S.Mainraj 1.23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icion, surmises and conjectures which is not valid in law. 292 ITR 0481 (Mad) Still the land has got Mango trees, Pump sets, Coconut trees etc., with abundant water facility available from big well which could be inspected even on today. An assessment based on mere suspicion, surmises and conjecture is bad is bad in law: a) CIT vs Kamweshwar Singh 1 ITR 94 at106{privy council). b) CIT vs Gokuldas Hukumchand 15 ITR 61. c) Banshidar Onkarmall vs CIT 23 ITR 353. d) CIT vs Narain Chand Baidya 20 ITR 287. e) Dhakeshwari Cotton Mills 26 ITR 775 f) Lalchand Bhagat Ambica 37 ITR 288 S.C g) Gopal Nath Agarwal 28 ITR 753 h) Seth Nathurmal 25 ITR 216 i) Rajmohan Saha 52 ITR 231 j) Bhagat Ambica Ram 37 ITR 288 SC k) Umacharan Shah 37 ITR 271 SC l) Omar Salay Mohamed Sait 37ITR 151 SC Law is also well settled that there is no presumption of bad faith against an assessee Heerabhai Desai 4 ITR 95 Sivan Pillai 34 ITR 328 Lalchand Bhagat Ambica Ram 37 ITR 288 S.C CIT v Mahajan Overseas 191 ITR St.4 M.J Cherian 117 ITR 371 It is humbly prayed that in the light of Government records and evidence furnished by us, it is humbly prayed that the assessment be based on verification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer treated this piece of land, in question at the time of sale as a 'capital asset' and not as 'agricultural land' and thus has computed LTCG as under: Sale consideration of the land Rs. 1, 79,25,000 Less: Indexed cost of acquisition Rs. 16, 55,300/- Long Term Capital Gain Rs. 1,62,69,700/- 7. Consequent upon above finding, he has also disallowed the agricultural income claimed at Rs. 3 lakhs by treating it as ' income from other sources'. 8. Further, the assessee has also claimed a sum of Rs. 13,60,085/- towards marketing expenses while computing business loss. The Assessing Officer has disallowed expenses of Rs. 13,60,085/- for want of details. He, therefore, has added this amount also to the total income of the assessee. He has also charged interest u/s 234A and 234B. Aggrieved, the assessee has assailed all these additions and ld. CIT(A) has allowed a part relief to the assessee, by allowing Rs. 10 lakhs as marketing expenses out of the total addition of Rs. 13,60,085/- ,but he has confirmed the other additions. The assessee has filed second appeal before us by raising the following grounds: "1. The order of the learned CIT (A) is contrary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue department of the state government of Tami Nadu. 8. The CIT (A) fundamentally failed to appreciate that the land is situated and comprised within the jurisdiction of Perumbakkam Village Panchayat and hence agricultural land situated within the jurisdiction of Panchayat is not amenable for capital gains which has a population of less than ten thousand as per last census in term so sec 2 (14) of the income Tax Act . 9. The learned CIT(A) ought to have appreciated that the land is situated as per revenue records duly certified more than 8 kms from the local limits of Tamabarm Municipality and hence the provision of clause (b) of section 2 (14) of the Act does no apply and hence the impugned land is not a capital asset Without prejudice the Central Government has no power to levy tax on sale of agricultural lands which is a state subject unless procedure envisage under article 274 has been followed. 10. The learned CIT (A) grossly erred in holding that there was no cultivation in the land is contrary to evidence on record and the appellant proved the cultivation to the hilt by producing cultivation records maintained by the Government, assessed to tax on the basis of cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to exemption in respect of capital gains on the sale of this piece of land which is situated at Perumbakkam village or in other words, was it a capital asset or an agricultural land when it was sold. We have treaded through the orders and the evidence available in the paper book and have found that the land in question is situated 8 kms away from the Tambaram Municipality. This fact is supported by the following pieces of evidence on record: (i) A letter from Village Administrative Officer, Perumbakkam Village. (ii) A copy of a map showing entire area of 831 acres from the Tamilnadu Government Revenue records, which represents field area and classified as village, issued by Deputy Director, Survey and Land records. (iii) A copy of the Survey Map certified by the Joint Director, Survey and Land records, published by K.Mathew, IAS, Special Commissioner & Director, Survey and Settlement showing the distance of this land at 8.5 kms between the two boundaries Tambaram Municipal and Perumbakkam Municipal limits. (iv) A copy of the Map of Chennai Metropolitan Development Authority, showing distance between Perumbakkam and Tambaram at 9.205 kms. = 5.72 miles. (v) Evidence showi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Such a course would be illusory. It is in pursuance of the aforesaid provision that Notification No. 9447 dt. 6th Jan., 1994 has been issued by the Central Government. In respect of the State of Punjab, at item No. 18 the subdivision Khanna has been listed at serial No. 19. It has inter alia been specified that area upto 2 kms. from the municipal limits in all directions has to be regarded other than agricultural land. Once the statutory guidance of taking into account the extent and scope of urbanization of the area has to be reckoned while issuing any such notification then it would be incongruous to the argument of the Revenue that the distance of land should be measured by the method of straight line on horizontal plane or as per crow's flight because any measurement by crow's flight is bound to ignore the urbanization which has taken place. Tribunal was therefore justified in holding that distance of 2 kms. from the municipal limits of city of Khanna has to be reckoned for the purposes of s. 2(14)(iii) by measuring the same as per the road distance and not as per straight line distance on a horizontal plane or as per crow's flight.-Laukik Developers vs. Dy. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the above overwhelming evidence, it cannot be said that no agricultural activities were being carried out on this land before sale. Moreover, as stated above, the Assessing Officer has himself accepted in substance, that agricultural activities were being carried on now and then. The fact that the assessee was showing agricultural income from this land further fortifies this contention and goes to prove the claim of the assessee. In view of the above facts, we hold that agricultural activities were carried on this land prior to sale and the income shown at Rs. 3 lakhs has to be accepted as agricultural income, as apart from that no finding has been given by the Assessing Officer in this regard. 15. The issue of regarding jurisdiction was not seriously contested before us, hence, the same stands dismissed. 16. In so far as the issue regarding validity of notice u/s 148 is concerned, we uphold the same because as a result of third party's case, certain incriminating evidence was found which lead a valid basis for forming an opinion of escapement of income by the Assessing Officer and to take a recourse to sections 147 and 148 of the Act. So, this legal issue cannot be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 23. Out of total expenses of Rs. 8,15,100/- claimed on account of dealer's commission [of Rs. 5,16,650/-], marketing expenses [of Rs. 2,98,450/-], the ld. CIT(A) has allowed Rs. 7 lakhs because the entire expenses are not properly explained. The disallowance which is on lower side would not entail us to interfere in the ld. CIT(A)'s order, hence, this issue is decided against the assessee. 24. Charging of interest will take consequential effect. In so far as validity of notice u/s 148 is concerned, we uphold the same because as a result of search of third party's case, certain incriminating evidence was found which is a valid basis for re-assessment u/s 147 r.w.s 148. So, this legal issue cannot be allowed. 25. In the result, the appeal is partly allowed. 26. In view of our above order in assessee's appeal, the stay petition has become infructuous and the same is disposed of accordingly. S.P.No.57/Mds/2011 & I.T.A.No. 1373/Mds/2011 - in the case of Shri Sugandararaj 27. This appeal of the assessee for assessment year 2007-08 is directed against the order of the ld. CIT(A), dated 24.6.2011. Stay petition has also been filed by the assessee for the stayal of outstandin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition. 31. The disallowance of agricultural income by treating it as 'income from other sources' to the tune of Rs. 3 lakhs is also allowed as agricultural income in view of the same reasoning as given in the case of Shri.Mainraj . Hence, this addition is also deleted. 32. The last issue of this appeal is regarding disallowance of the expenses. The Assessing Officer has disallowed Rs. 4,79,275/- claimed in the computation of business loss. During the appellate proceedings it was argued that Rs. 4,79,275/- was sub-dealers incentive and travelling expenses for which the assessee had already filed details before the predecessor officer of the Assessing Officer. It was further argued that the assessee had taken old, damaged and not saleable oil packets from M/s New Raja Agency, in which the assessee is a partner, and marketed them. To sell these items, the assessee had to incur considerable expenses. After considering the above submissions of the assessee, the ld. CIT(A) has given the following finding: "13. The burden of establishing the expenses and their allowability is on the appellant. Though it is submitted that the particulars were furnished to the predecessor Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X
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