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TMI Blog2022 (6) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... l filed for the AY 2008-09, are re-produced as under: 1. The order of the learned Commissioner of Income Tax (Appeals) is wholly erroneous on facts of the case and in law. 2. The learned CIT(A) erred in restricting the sale consideration of Rs.1458/- per sq.ft adopted in the assessment order passed by the Assessing Officer u/s 143(3) r.w.s 153C r.w.s 153A of the Income Tax Act, 1961, for A.Y 2008-09 in the case of the assessee, to Rs.400/- per sq.ft as admitted by the assessee for computing the profit from sale of residential plots in this case for A.Y 2008-09. 2.1 Having 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining plots to other persons @ Rs.400/- to Rs.800/- per sq.ft. The AO has tabulated few examples of Sale Deed executed by the assessee to some buyers and then, compared to agreed rate between the assessee and Mr.M.A.Salim and opined that the assessee has understated the sale consideration of plots sold to other persons and thus, by considering the rate agreed to sell to Mr.M.A.Salim, has adopted for other Sale Deed executed to different persons and estimated undisclosed income on account of under reporting of sale price for all the three assessment 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, includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing by builders and developers. In the case of Barish Textiles Engineers Ltd (379 ITR 160), the Bombay High Court has not favoured extrapolation of on money received on sale of Stenter Machines for the block period when certain amounts had been added to the assessee's income on account of evidence of on money received. In the case of Standard Tea Processing Co. Ltd (215 Taxman 659), the Hon'ble Gujarat High Court has held that addition for undisclosed income on account of inflated purchase price could be made only for period 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of search, an agreement between the assessee and Mr.M.A.Salim was found and as per the said agreement, the assessee agreed to sale few plots @ Rs.1,458/- per sq.ft. whereas, in the very same layout, the assessee has sold plots to other persons at the ranging between Rs.400/- to Rs.800/- per sq.ft. The AO after considering wide difference in rate charged by the assessee, had estimated the highest price derived from sale of plots to other persons and has made additions. The Ld.CIT(A) without considering the relevant facts deleted 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 buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Abdulali (supra), we find that in case, before the Hon'ble Supreme Court, evidences were found for part of the period in respect of under reporting of sales turnover and on said basis, the Hon'ble Supreme Court held that the sales Revenue can be estimated for remaining period of the month. However, there is no findings from the court on extrapolation of said estimation of income to whole year or for entire block period. In this case, the AO has estimated undisclosed income of under reporting of sales Revenue from sale 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst income from capital gains declared by the assessee without appreciating the fact that the lands in question sold by the assessee during the relevant period, is an investment, but not stock in trade. The Ld.AR further submitted that the assessee has inherited those lands from his father and said lands were acquired and developed by his father when he was minor and not competent to enter into the business. The lands development cost was incurred by his father and the assessee did not incur any expenditure. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head 'capital gains' as claimed by the assessee. The relevant findings of the Ld.CIT(A) are as under: 4. As per the assessment orders passed, the AO had noted the background of the assessee group which has been in real estate business for the last many decades. The assessee's family had acquired a landed property at Noombal Mathura and Puliambedu Villages on the outskirts of Chennai on ECR. The lands owned by the assessee along with his mother and sister since 1984 had appreciated 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem within a reasonably short period - Adventure in the nature of trade. Hemachand and Hirachand Shah Vs. CIT(Guj) 206 ITR 55 Land purchased had potentiality of being developed into building site - No agricultural operations were carried out on land by the assessee - Adventure in the nature of trade. Badrilal Bholaram Vs. CIT (MP) 139 ITR 207 CIT Vs. B.Narasimha Reddy (Kar) 150 ITR 347 CIT Vs. M.Krishna Rao (AP) 120 ITR 101. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies below. There is no dispute with regard to the seizure of agreement between the assessee and Mr.D.Sabapathy, the person was supposed to direct and produce a motion picture. The dispute with regard to payment alleged to have been made to the party and source of said payment. According to the AO, a sum of Rs.24 lakhs paid to the party was unexplained. It was the explanation of the assessee before the AO that although, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The next issue that came up for our consideration from Ground Nos.8 & 9 of the assessee's appeal for the AY 2011-12 is disallowance of certain expenses u/s.40(a)(ia) of the Act, for non-deduction of TDS. The assessee has incurred certain expenditure under the head 'garbage cleaning charges' paid to M/s.Sri Murugan Cleaning Services, without deduction of tax at source. The AO has disallowed such expenditure 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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