TMI Blog2022 (6) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... -10 months between the properties sold to other parties and agreement to sale entered into with Mr.M.A.Salim. It is a well-known fact in real estate segment that there is a quick appreciation in property prices which depends upon various factors, including location of the property, size of the property and buyer demand. There cannot be any uniformity in rates of properties like any other goods. Therefore, on the basis of one agreement to sale with one person, there cannot be any estimation of income to remaining plots or properties sold during the relevant period when evidences clearly prove that the assessee has sold the properties for the rate specified in the registered Sale Deed. In this case, except agreement to sale for one plot with Mr.M.A.Salim, the AO does not have any other credible evidence to support his estimation of income by extrapolation of rate on the basis of agreement to sale with Mr.M.A.Salim to remaining plots sold during the block period. In our considered view, the estimation made by the AO towards undisclosed income of under reporting of sales Revenue from sale of plots, is purely a guess work, which is based on the suspicion and surmises, but not base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance u/s.40A(3) for payment in cash in excess of prescribed limit - only argument of the assessee is that there was a business exigency in making cash payment in as much as the film shooting was carried out in remote places, where there is no banking facility and because of this, the assessee was compelled to make payments in cash - HELD THAT:- We find that the arguments of the assessee that its case falls under exceptions as per Rule 6DD(g) of Income Tax Rules, 1962, goes unexplained. The assessee neither filed any evidences to prove its arguments that where payment is made, is not served by a banking facility nor justified its explanation that shooting was carried out in remote places, where there is no banking facility. Therefore, we are of the considered view that there is no error in the reasons given by the authorities below to make additions towards cash payment u/s.40A(3) of the Act. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee. Disallowance u/s.40(a)(ia) - non-deduction of TDS - assessee has incurred certain expenditure under the head garbage cleaning charges paid without deduction of tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing held in para 10 of his appellate order in ITA Nos.218,217,216 215/14-15, dated 31.01.2017 that there is not much merit in the assessee's plea that some plots were more valuable than others and all plots were located in the same layout and had more or less similar advantages and that the Assessing Officer has gone to a great length to justify and explain why extrapolation has been done, the ld.CIT(A) is not justified in holding that the Assessing Officer is not within his privilege to extrapolate the sale consideration for A.V 2008-09 in this case. 2.2 The ld.CIT(A) ought to have appreciated that the facts in the decisions referred to by him in para 11 of his appellate order in ITA Nos.218,217,216 215/14-15, dated 31.01.2017 are distinguishable from the facts of assessee's case, since in the present case, no estimated extrapolation has been made on account of on-money receipt or undisclosed income but what has been adopted is only the rate for which evidence in the form of agreement dated 18.01.2008 for sale of plot nos.1 to 7 to Mr. Salim, is available on record and admitted by the assessee in the return of income filed by him for the A.Y 2008-09. 2.3 The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. 4. The assessee carried the matter in appeal before the First Appellate Authority and during the course of appellate proceedings, vehemently argued the case in light of certain judicial precedents, including the decision of the Hon ble Madras High Court in the case of CIT v. P.V.Kalyanasundaram reported in 282 ITR 259, wherein, it has been held that there is no scope for the AO to estimate undisclosed income on the basis of incriminating material found for part of year to remaining part of year on the basis of one sole piece of evidence being sale agreement with one person by ignoring other evidences filed by the assessee, including the registered Sale Deed of properties entered into with other buyers. 5. The Ld.CIT(A) after considering relevant submissions of the assessee and also taken note of certain judicial precedents, including the decision of the Hon ble Karnataka High Court in the case of B.Nagendra Baliga reported in 363 ITR 410, deleted the addition made by the AO by holding that there is no scope for the AO to determine undisclosed income by extrapolation of documents in block assessment. Therefore, the Ld.CIT(A) opined that the AO is erred in extrapola ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which document was related and not for the entire block period. Similarly, in the case of B.Nagendra Baliga (363 ITR 410), the Karnataka High Court had held that the AO is not entitled to extrapolate undisclosed income deducted in course of search for a particular period to entire block period on estimate basis despite adopting a rational basis for working out such an estimate and same having reasonable nexus to material discovered and statement of assessee recorded pursuant to search. Considering the judicial decisions as above, I am of the view that the AO is not within his privilege to extrapolate the sale consideration from Rs.400 to Rs.1458 per sq.ft. The additions made for the A.Yrs.2008-09, 2010-11 2011-12 by extrapolating the value of sale consideration to Rs.1458 are hereby deleted. 6. The Ld.DR submitted that the Ld.CIT(A) erred in deleting the additions made by the AO towards estimation of income from sale of plots on the basis of evidences found during the course of search in the form of agreement with Mr.M.A.Salim and extrapolating said rate to remaining plots sold during the year without appreciating the fact that when the assessee has sold residential plo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the additions made by the AO. 7. The Ld.AR for the assessee, on the other hand, supporting the order of the Ld.CIT(A) submitted that the AO has completely erred in estimating sales Revenue on the basis of sole evidence of one agreement between the assessee and Mr.M.A.Salim and adopted said rate to remaining sales made during the year and made additions without appreciating the fact that there is a huge time gap between the plots sold to other persons and agreement to sale with Mr.M.A.Salim. It is quite common in real estate segment, the rates are changing very rapidly within a short span of time. Further, the rates of properties are depended upon the buyer interest and sizes. Therefore, there cannot be any uniformity in sale price of any property. Therefore, when the evidences in the form of registered Sale Deed clearly indicating selling price of plots, the AO is completely erred in estimating sale price on the basis of agreement to sale with one person, that too when the assessee has explained the reasons for difference in sale price and offered to other persons and to Mr.M.A.Salim. The Ld.CIT(A) after considering the relevant facts has rightly deleted the additions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of plots on the basis of one agreement to sale with Mr.M.A.Salim and extrapolated said rate to remaining plots sold during the block period and estimated income. In our considered view, the reasons given by the AO to estimate income on the basis of one evidence of agreement to sale to entire block period is not in consonance with settled legal principles and thus, on this basis alone, additions made by the AO, cannot be sustained. 9. Be that as it may. The assessee has explained the reasons for difference in sale price received from other parties, when compared to price agreed between the assessee and Mr.M.A.Salim as per the sale agreement. The first reason given by the assessee is that Mr.M.A.Salim is a real-estate Agent who negotiates sale of price with the assessee and gets commission. Secondly, there is a time gap of 8-10 months between the properties sold to other parties and agreement to sale entered into with Mr.M.A.Salim. It is a well-known fact in real estate segment that there is a quick appreciation in property prices which depends upon various factors, including location of the property, size of the property and buyer demand. There cannot be any uniformity in rates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. Therefore, merely for the reason that those properties are residential plots, it cannot be held that the assessee was involved in commercial exploitation of properties in the nature of adventure in trade and commerce and thus, income is chargeable under the head income from business or profession . 11. The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A) submitted that the AO as well as the Ld.CIT(A) have brought out very clear facts to the effect that the assessee and his family members were in the business of real estate for many years. The assessee had acquired many land properties and has developed landed properties into residential townships. Therefore, from the nature of activity carried out by the assessee, it is abundantly clear that the properties were acquired for the purpose of commercial exploitation in the nature of adventure in trade and commerce and consequently, income derived from sale of said lands, is assessable under the head income from business or profession 12. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from the records clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in value and the assessee group had developed the same into a modern layout by the.name Ashok Nandavanam-II after getting necessary conversion and other approvals from MMDA. These profits on sale of residential plots had been declared by the assessee as Long Term Capital Gains. The AO disputed the same and held it as adventure in the nature of trade and brought it to taxation as business income. The AO had relied on the following decisions: 1 Indramani Bai Another Vs. Addl.ClT (SC)200 ITR 594. 2. G .Nenkatasami Naidu Co Vs CIT 35 ITR 594. 3. Addl. CIT vs. Chikkaveerayya Lingaiah (Kar) 164 1TR 41 4. CIT Vs. R.Ramaiah Others (Kar) 146 ITR 39 5. The AR for the assessee has filed detailed written arguments as per which the AR has relied on the apex court's decisions in G.Venkataswamy Naidu Co. (107 !TR 716), Rajputtana Textile Agency Ltd. (42 ITR 743) as well as Madras High Court's decisions in CIT Vs. Sairam (242 ITR 104) to make a case that facts and circumstances of the instant transaction should be considered before arriving at a decision to tax the income as arising out of adventure in the nature of trade. The AR has also alleged that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Considering the facts and circumstances, as well as the compelling nature of the judicial decisions, the incomes from sale of plots declared by the assessee for A.Y.2008-09 to 2011- 12 are upheld to be brought to taxation as income from business. The grounds of appeal by the assessee on this issue are dismissed. 13. Considering the facts and circumstances of the case and also facts brought out by the AO as well as the Ld.CIT(A), we are of the considered view that the assessee is in the business of real estate and thus, profit derived from sale of properties is assessable under the head income from business or profession , but not under the head capital gains as claimed by the assessee. The Ld.CIT(A) after considering relevant facts has rightly rejected the arguments of the assessee and sustained the findings of the AO in assessing profit under the head income from business or profession and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee for the AYs 2008-09 and 2011-12. 14. The next issue that came up for our consideration from assessee s appeals for the AY 2009-10 is addition of Rs.20 lakhs u/s.69C of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough, the agreement specifies payment of Rs.24 lakhs, but, in fact, the assessee had paid a sum of Rs.4 lakhs only and remaining amount, the assessee could not arrange. There are contradicting facts. The AO claims that the assessee has made payment of Rs.24 lakhs, whereas, the assessee claims that he has paid a sum of Rs.4 lakhs. The facts need to be examined. Therefore, we are of the considered view that this issue needs to be go back to the file of the AO for fresh examination. Hence, we set aside the issue to the file of the AO and direct the AO to re-examine the issue in light of various averments made by the assessee and decide the issue in accordance with law. 18. The next issue that came up for our consideration from Ground Nos.6 7 of the assessee s appeal for the AY 2011-12 is disallowance of sum of Rs.3.5 lakhs u/s.40A(3) of the Act, for payment in cash in excess of prescribed limit. During the course of assessment proceedings, the AO noticed that the assessee had furnished a list of payments made to various artists/technicians and in some cases, payments were made in cash in excess of Rs.20,000/- prescribed u/s.40A(3) of the Act. The AO has listed out cash payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture u/s.40(a)(ia) of the Act. It was the explanation of the assessee that the recipient has included the sum paid by the assessee in their return of income and offered to tax and thus, in view of provisions of Sec.40(a)(ia) of the Act, this issue can be verified by the AO. 21. Having heard both the sides and considering relevant materials on record, we find that although, the assessee does not dispute payments made to M/s.Sri Murugan Cleaning Services, for garbage cleaning work without deduction of tax at source, but claims that said party has included the sum paid by the assessee in their return of income and have paid necessary tax and thus, in view of provisions of Sec.40(a)(ia) of the Act, once the payee included the sum paid without deduction of tax at source in their return of income and paid taxes, then the same cannot be disallowed u/s.40(a)(ia) of the Act. We find that as per the provisions of Sec.40(a)(ia) of the Act, if assessee proves with necessary evidences that the payee had included the sum paid by the assessee without deduction of tax at source in the return of income and paid necessary taxes, then sum paid without deduction of taxes, cannot be disallowed u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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