B Ramakrishnaiah, Hyderabad v. ITO, Hyderabad

ITA 1153/HYD/2009 | 2008-2009
Pronouncement Date: 26-03-2010 | Result: Allowed

Appeal Details

RSA Number 115322514 RSA 2009
Assessee PAN AGEPB7589H
Bench Hyderabad
Appeal Number ITA 1153/HYD/2009
Duration Of Justice 3 month(s) 23 day(s)
Appellant B Ramakrishnaiah, Hyderabad
Respondent ITO, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 26-03-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 26-03-2010
Date Of Final Hearing 23-02-2010
Next Hearing Date 23-02-2010
Assessment Year 2008-2009
Appeal Filed On 03-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.:1152/HYD/2009 ASSTT. Y EAR : 2007-08 ITA NO.1153/HYD/2009 2008-09 SHRI B. RAMAKRISHNAIAH HYDERABAD. (PAN AGEPB 7589 H) VS ITO WARD 11 (1) HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. VASANT KUMAR RESPONDENT BY : S/SHRI GYAN PRAKASH CIT-DR AND H. PHANI RAJU O R D E R PER: CHANDRA POOJARI ACCOUNTANT MEMBER THESE TWO APPEALS PREFERRED BY THE ASSESSEE ARE DIRECT ED AGAINST THE COMMON ORDER PASSED BY THE CIT(A) VI DATE D 30/11/2009 AND PERTAINS TO THE ASSESSMENT YEAR 2007-08 AND 2008-09. SINCE COMMON ISSUES ARE INVOLVED IN THESE TWO APPEALS THEY A RE CLUBBED TOGETHER HEARD TOGETHER AND DISPOSED OFF VIDE THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS RAISED BY THE ASSESSEE IN THESE TWO APPEA LS ARE COMMON ARE AS FOLLOWS: 1. THE CIT(A) DATED 30.11.2009 IS AGAINST LAW AND FACTS OF THE CASE. 2. THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ORDER O F THE ASSESSMENT MADE IN THE GROSS VIOLATION OF PRINCIPLES OF NATURA L JUSTICE AND WITHOUT MEETING THE SUBMISSIONS MADE BEFORE HIM DURING THE COURSE OF HEARING. 2 2 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THERE WAS NO SUBSTANTIVE EVIDENCE ON RECORD IN SUPPORT OF ADDITION OF RS.25L AKS AND RS.2.55 CRORES FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09 RESPECTIVELY AND OUGHT TO HAVE DELETED THE ADDITION. 4. WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) OUGH T TO HAVE APPRECIATED THAT EVEN ASSUMING THERE WAS EVIDENCE S UPPORTING THE RECEIPT OF MONEY OF RS.2.8 CRORES IT WAS NOT TAXABL E BECAUSE THE RECEIPT WAS NEITHER REVENUE NOR CAPITAL GAINS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED RETURN OF INCOME FOR THE ASSESSMENT YEARS 2007-08 ON 22/10/2007 AND ON 23/8/2008 FOR THE ASSESSMENT YEARS 2008-09. THE ASSESSEE DECL ARED THE INCOME AT RS.3 71 400/- FOR THE ASSESSMENT YEARS 2007- 08 AND RS.7 51 340/- AND AGRICULTURAL INCOME OF RS.1.40 000/- FOR THE ASSESSMENT YEARS 2008-09. THE ASSESSEES INCOME INCLUDES INCOME FROM HOUSE PROPERTY INCOME FROM BUSINESS AND INCOME FROM OTHER SOURCES. THERE WAS A SURVEY OPERATION U/S 133A OF THE ACT IN THE CASE OF M/S BHARAT ESTATES (M/S BE) MIG 219 1 ST FLOOR KHPB COLONY KUKATPALLY HYDERABAD ON 13.8.2008. DURING THE COURSE OF SURVEY MEMORANDUM OF UNDERSTANDING (MOU) WAS FOUND AND IMPOU NDED ALONG WITH SOME RECEIPTS SIGNED BY THE ASSESSEE SHRI B. RAMAKRI SHNA WHICH INDICATES THAT M/S BHARATI ESTATES LTD. AND ITS MANAGING PARTNER SHRI G.V. SATYA SAI PAID HUGE AMOUNT TO THE ASSESSEE DURING THE FINANCIAL YEAR 2007-08 AND THE RETURN FILED BY THE ASSESSEE DURIN G THE ASSESSMENT YEARS 2007-08 DOES NOT CONTAIN ANY INCOME RECEIVE D FROM THIS TRANSACTION. BASED ON THE MATERIAL AVAILABLE IN THE CASE OF M/S BHARATHI ESTATES RELATING TO THE ASSESSEE THE ASSESSING OF FICER HAS CONDUCTED A SURVEY U/S 133A OF THE ACT ON 21.8.2008 IN CASE OF THIS ASSESSEE ALSO. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAS ADMITTED TO HAVE RECEIVED RS.2 CRORES FROM M/S BHARATI E STATES THROUGH CHEQUE AS WELL AS BY CASH AND ALSO RECEIVED 2 PLOTS AND SU BSEQUENTLY ON VERIFICATION OF BANK ACCOUNT OF THE ASSESSEE WITH M/S C OSMO COOPERATIVE BANK KINGKOTI HYDERABAD WHICH SHOWED TH AT A SUM OF RS.2.0 CRORES RECEIVED FROM M/S BHARATI ESTATES. ON QUE STIONING THE 3 3 ASSESSEE IT WAS STATED THAT THE ASSESSEE HAS RECEIVED IN AD DITION TO SUM OF RS.2 CRORES TWO PLOTS OF LAND FROM M/S BHARAT ESTA TES. THESE PLOTS WERE SOLD BY THE ASSESSEE TO M/S GURU RAGAVENDRA CONST RUCTIONS FOR A CONSIDERATION OF RS. 80 LAKHS. THUS THE ASSESSING OFF ICER IS OF THE OPINION THAT THE TOTAL AMOUNT RECEIVED BY THE ASSESSEE W AS RS.2.8 CRORES FROM M/S BHARATI ESTATES. THE DETAILS ARE AS FOL LOWS: DATE AMOUNT(RS.) CASH/CHEQUE 25.2.2007 25 00 000 CASH 4.5.2007 65 00.000 CHEQUE 17.7.2007 50 000 CASH 20.7.2007 2 75 000 CASH 13.8.2007 27 50 000 CASH 12.10.2007 6 50 000 CASH 10.11.2007 5 37 500 CASH 1.12.2007 25 000 CASH 2.12.2007 5 00 000 CASH 3.12.2007 5 00 000 CASH 22.12.2007 5 00 000 CASH 21.2.2008 20 00 000 CASH 9.2.2008 13 00 000 CASH 21.3.2008 7 12 500 CASH ---------------- 1 88 00 000 ========= 3.1. FURTHER IT WAS STATED BY THE ASSESSEE IN HIS SW ORN STATEMENT THAT THE ASSESSEE WANTED TO BUY 10 ACRES OF LAND BELONG TO FAMILY SURVEY NO.332/1 NIZAMPET (VILLAGE) QUTUBULL APUR (MANDAL) RANGAREDDY DISTRICT FOR A CONSIDERATION OF RS.15 LAKHS P ER ACRE TOTALING OF RS.1.50 CRORES DURING THE MONTH OF OCT. 2005. THE A SSESSEE HAS ALREADY STATED TO HAVE PAID RS.1 LAKH TO THE LAND LOR D AS A TOKEN ADVANCE. IT WAS FURTHER STATED THAT THE ASSESSEE COULD NOT MOBILIZE REQUISITE FUND TO BUY THIS LAND AND HENCE APPROACHED T HE FIRM M/S BHARATI ESTATES LTD. REPRESENTED BY ITS MANAGING PART NER SHRI G.V. SATYA SAI AND FACILITATED THE TRANSACTION TO HAPPEN BY RELINQUISHING HIS RIGHT IN THE LAND AND ALSO FOR FACILITATING THE PEACE FUL POSSESSION 4 4 (INCLUDING REMOVING ENCROACHMENTS) OF 10 ACRES PIECE OF LAND TO M/S BHARATI ESTATES. FOR THE PURPOSE THE ASSESSEE WAS COMPENSA TED WITH RS.2.8 CRORES BY THE ABOVE FIRM. IN PURSUANCE THIS UNDE RSTANDING A MOU WAS ENTERED SIGNED INDICATING THE ABOVE AMOUNT ON 20.9.2006. ACCORDING TO THE ASSESSING OFFICER THIS FACTS HAS BEEN ADMIT TED BY THE ASSESSEE IN HIS SWORN STATEMENT ON 29.8.2008 AND 18.9.2008 . THIS AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE FOR RELINQUISHIN G HIS RIGHT OVER THE LAND FACILITATING THE PEACEFUL POSSESSION (INCLU DING REMOVING ENCROACHMENTS) OF 10 ACRES PIECE OF LAND. THE ASSESSING OFFICER BROUGHT INCOME TO TAX AT RS.25 LAKHS RELATING TO THE A SSESSMENT YEARS 2007-08 AND RS.2.5 CRORES RELATING TO THE ASSESSMENT YEARS 2008-09. DURING THE COURSE OF ASSESSMENT THE ASSESSEE CLAIMED EXPENDITU RE ON ACCOUNT OF PAYMENT MADE TO THIRD PARTY TO SETTLE THE D ISPUTES FOR THE ASSESSMENT YEARS 2007-08 AS FOLLOWS: MR. MURALI RS.30 00 000 SRINIVASA REDDY RS.8 00 000 MISC. EXPENDITURE RS.47 00 000 SMT. BAVANI RS. 9 00 000 3.2. THE ASSESSING OFFICER HAS NOT GIVEN ANY DEDUCTION TOWARDS THIS EXPENDITURE SINCE THE ASSESSEE HAS NOT SUBSTANTIATED THE EXPENDITURE. MORE SO ON 21.11.2008 THE ASSESSEE HAS FI LED A LETTER IN HIS OWN HANDWRITING IN TELUGU LANGUAGE BEFORE THE ASSE SSING OFFICER AS FOLLOWS : DATED 21.11.2008 TO THE ITO WARD 11(1) HYDERABAD THERE WAS A SURVEY OPERATION IN MY BUSINESS PREMI SES ON 21.8.2008. BOOKS OF ACCOUNTS AND DOCUMENTS WERE TAKEN AWAY BY THE DEPARTMENT I HAVE RECEIVED NET AMOUNT OF RS.1.5 CRORES FROM M/S BHARATI ESTATES. I AM TREATING THIS AMOUNT AS 5 5 INCOME FOR THE FINANCIAL YEARS 2007-08 AND 2008-09 AND DECLARING THE SAME FOR ASSESSMENT. I SHALL PAY TAXES ON THIS INCOME BY DECEMB ER 2008 AND JANUARY 2009 I DO NOT HAVE ANY EXPERIENCE AND IDEA IN THIS MATT ER HENCE I COULD NOT SHOW THE ABOVE INCOME IN MY RETURN OF INC OME FOR THE ASSESSMENT YEARS 2008-09. NOW I WILL REFLECT THIS INCOME AND FILE REVISED RETURN AND PAY TAXES. HENCE I REQUEST YOU TO EXCUSE ME FOR THE LAPSES AND DO NOT LEVY AND PENALTY. WITH THE A BOVE INCOME I HAVE PURCHASED IMMOVABLE PROPERTIES IN MY NAME AND IN TH E NAME OF MY FAMILY MEMBERS AND SOME AMOUNTS I HAVE INVESTED IN MAKING FILM TARGET AND JUNCTION. 4. ON APPEAL THE CIT(A) CONFIRMED THE SAME. HENCE THE ASSESSEE IS IN APPEAL BEFORE US. SUBMISSION BY AUTHORIZED REPRESENTATIVE: 5. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT DURING THE COURSE OF SURVEY IT WAS QUESTIONED REGARDING THE REASON FOR WHICH THE ASSESSEE HAS RECEIVED THIS IMPUGNED AMOUNT FROM M /S BHARATHI ESTATES. THE ASSESSEE HAS STATED IN HIS SWORN STATE MENT DATED 18.9.2008 THAT HE WANTED TO BUY 10 ACRES LAND BELONG ING TO SRI KRISHNAMURTHY AND OTHER FAMILY MEMBERS IN SURVEY NO.33 2/1 NIZAMPET VILLAGE QUTUBULLAPUR MANDAL FOR A CONSIDERATION OF R S.15 LAKHS PER ACRE TOTALING RS.1.5 CRORES DURING THE MONTH OCT. 2005. TH E ASSESSEE HAS ALSO STATED TO HAVE PAID RS.1 LAKH AS ADVANCE TO THE LAN D LORD. IT WAS FURTHER STATED THAT THE ASSESSEE COULD NOT MOBILIZE FUNDS TO BUY THE LAND AND HENCE APPROACHED THE FIRM M/S BHARATI ESTATES LTD. R EPRESENTED BY ITS MANAGING PARTNER SHRI G.V. SATYA SAI AND FACILITA TED THE TRANSACTION TO HAPPEN BY RELINQUISHING HIS RIGHT IN THE LAND AND ALSO FOR FACILITATING THE PEACEFUL POSSESSION (INCLUDING REMOVING ENCROACHMENTS) OF 10 ACRE PIECE OF LAND TO M/S BHARATI ESTATES. FOR THE PURPOSE THE ASSESSEE WAS COMPENSATED WITH RS.2.8 CRORES BY THE ABOVE FIRM. IN PU RSUANCE OF THIS UNDERSTANDING A MOU WAS ENTERED ON 20.9.2006 WHICH IN DICATES THE ABOVE AMOUNT. M/S BHARATHI ESTATES IN TURN GAVE THIS LAND FOR JOINT 6 6 DEVELOPMENT TO M/S GURU RAGAVENDRA CONSTRUCTION FOR CON STRUCTION OF VILLAS. 5.1. HE SUBMITTED THAT THOUGH THE PASSING OF MONEY O F RS.2.8 CRORES FOR THE ABOVE TRANSACTION FROM M/S BHARATI ESTATE S IS SUPPORTED BY EVIDENCES FOUND ADMITTED BY BHARATI ESTATES AND ACCEP TED BY ASSESSEE DURING THE COURSE OF EXAMINATION ON OATH ON 29.8 .2008 AND 18.9.2008 THIS A CAPITAL RECEIPT FOR FACILITATING TH E PEACEFUL POSSESSION OF 10 ACRE PIECE OF LAND. THE ASSESSEE IS NOT LIABLE TO B E TAXED ON THIS AMOUNT. OUT OF THE AMOUNT RS.25 LAKHS RELATES TO TH E ASSESSMENT YEAR 2007-08 AND RS.2.55 CRORES RELATES TO ASSESSMENT YEARS 2008-09. 5.2. HE SUBMITTED THAT THE LEARNED ASSESSING OFFICER MA DE ADDITION ON PRESUMING THAT THE ASSESSEE HAD RECEIVED CONSI DERATION AS REVENUE RECEIPT FROM M/SBHARATI ESTATES FOR RELINQUISHIN G HIS INTEREST IN THE PROPERTY SITUATED IN SURVEY NO.332/1 NIZAMAPET V ILLAGE QUTUBULLAPUR MANDAL. THIS IS ONLY A PRESUMPTION AS T HE EVIDENCE ON RECORD SUGGESTS THAT THE ASSESSEE HAD NO RIGHT TO PURCHASE TH E PROPERTY. 5.3. HE SUBMITTED THAT THE ASSESSING OFFICER ALSO RELIED UPON ON ONE MOU BETWEEN M/S BHARATI ESTATES AND THE ASSESSEE ENT ERED ON 20.9.2006. THE SAID MOU WAS NEVER ACTED UPON AND THE CONSIDERATION MENTIONED IN THE MOU WAS NEVER PASSED ON TO THE ASSESSEE. THE CHEQUE MENTIONED IN THE ABOVE MOU WERE NEVER HONOURE D. THE MOU HAS NO RELEVANCE IN AS MUCH AS THE AGREEMENT OF SALE CUM GENERAL POWER OF ATTORNEY BETWEEN LAND OWNERS AND M/S BHARATI ESTATES WAS ENTERED AND REGISTERED ON 6.1.2006. THEREFORE THE SAID MOU WAS SHAM DOCUMENT WHICH CANNOT BE RELIED UPON WHILE FRAMING TH E ASSESSMENT. THE DOCUMENT WAS NEVER PUT TO THE ASSESSEE AND THEREFORE CANNOT BE RELIED UPON IN MAKING THE ASSESSMENT. 7 7 5.4. HE SUBMITTED THAT THE ASSESSING OFFICER ALSO RELIED UPON THE STATEMENT RECORDED FROM THE ASSESSEE DURING THE COURSE OF SU RVEY OPERATIONS ON 21.8.2008. IN THIS CONNECTION IT IS SUBM ITTED THAT THE ASSESSING OFFICER HAD NOT FURNISHED THE STATEMENTS RECORDED ON THE DAY OF SURVEY AS WELL AS THE STATEMENTS RECORDED SUBSEQUENTLY ON 21.8.2008 AND 29.8.2008 AND 18.9.2008. IN ANY EVENT THE STA TEMENT WAS NOT RECORDED ON OATH AND NOT AN EVIDENCE AS HELD BY MADRAS HIGH COURT IN THE CASE OF CIT VS. KHADER KHAN & SON (300 ITR 157) KERALA HIGH COURT IN THE CASE OF PAUL MATHEWS & SONS VS. CIT (2003) (263 ITR 101). IN ANY EVENT THE ASSESSEE NEVER ADMITTED RECEIPT OF CASH FROM M/S BHARATI ESTATES LTD AND THE ASSESSEE HAD NOT BEEN GIVEN O PPORTUNITY TO MEET HIS CASE IN THE LIGHT OF ALLEGED STATEMENT RECORDE D U/S 133A. THE ASSESSING OFFICER ALSO RELIED UPON THE BOOKS OF ACCOUNT MAI NTAINED BY M/S BHARATI ESTATES LTD. THIS MATERIAL WAS NEVER PUT TO THE ASSESSEE AND THEREFORE THE ASSESSEE HAS NOT OPPORTUNITY OF EXPLAI NING IT. IN SUCH CIRCUMSTANCES IT CANNOT BE RELIED UPON AND THE ADDITION SHOULD BE DELETED AS THE ADDITION WAS MADE IN GROSS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. HE RELIED ON THE JUDGEMENT IN THE CA SE OF M/S VASANTLAL & CO. VS. CIT (1962) (45 ITR 206) (SC) AND RAKESHWAR I COTTON MILLS LTD. VS. CIT (1954) (26 ITR 775) (SC). 5.5. WITHOUT PREJUDICE TO THE ABOVE ARGUMENT HE SUBMITTED THAT EVEN ASSUMING FOR A MOMENT NOT ADMITTIN G THAT THE ASSESSEE HAD INTEREST IN THE SAID PROPERTY THE TAXABLE EV ENT HAD NOT TAKEN PLACE. THE AGREEMENT FOR SALE HAD TAKEN PLACE O N 6.1.2006 WHICH IS RELEVANT TO THE ASSESSMENT YEARS 2006-07. IT WAS ONLY DURING THAT PERIOD THAT THERE WAS AN AGREEMENT DULY SIGNED BY THE PARTIES IN WRITING AND REGISTERED AND TRANSFEREE HAD TAKEN POSSESSION OF PR OPERTY AND THEREFORE THE QUESTION OF ANY ADDITION IF ANY ARISES FOR THE ASSESSMENT 8 8 YEARS 2006-07 AND NOT FOR ASSESSMENT YEARS 2007-08 OR SUBSE QUENT ASSESSMENT YEARS. THERE WAS NO ORAL AGREEMENT WITH LANDLORDS ENTERED BY THE ASSESSEE. THE EVIDENCE ON RECORD ON THE OTHER HAND SUGGEST THAT T HE ASSESSEE HAD NO INTEREST OF ANY KIND IN THE SAID PROPERTY. THE ST ATEMENT RECORDED HAS NO EVIDENTIARY VALUE. 5.6. HE SUBMITTED THAT IT WAS STATED BY THE ASSESSING OF FICER THAT THE TRANSACTION WAS CONFIRMED BY SHRI G.V. SATYA S AI DURING THE COURSE OF SURVEY AT HIS BUSINESS PREMISES ON 13 TH AUGUST 2008. THE STATEMENT WAS NEVER PUT TO ASSESSEE AND HE DENIED THE EXISTENCE OF ANY SUCH AGREEMENT. THE ASSESSING OFFICER SHOULD HAVE GIVEN AN OPPORTUNITY TO CROSS EXAMINE MR. GV SATYA SAI AND IN T HE ABSENCE OF SUCH EXAMINATION THE ADDITION CANNOT BE UPHELD AS IT IS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. HE RELIED ON THE CBDT INSTRUCTIONS NO.286/2/2003/IT(INV.) DATED MARCH 11 2003 AS PER WH ICH THE DEPARTMENT NOT TO TAKE ANY STATEMENT AS TO ANY UNDIS CLOSED INCOME AND THE OFFICERS SHOULD RELY UPON ONLY ON THE MATERIALS GAT HERED DURING THE COURSE OF SURVEY SEARCH OPERATIONS. THE ASSESSEE NEVER ADM ITTED RECEIPT OF CASH EITHER FROM BHARATI ESTATES OR FROM M/S G URU RAGHAVENDRA CONSTRUCTIONS AND THE COPIES OF STATEMENTS NEVER FURNISHED. THE ALLEGATION OF ASSESSING OFFICER THAT THE ASSESSEE NEVER RESPONDED TO THE HEARING NOTICES DATED 8-9-2008 23.10 .2008 17-11- 2008 2-2-2009 16-2-2009 AND 25.3.2009. THE HEARI NG NOTICES WERE RECEIVED EITHER AFTER THE NOTIFIED DATE OF HEARING O R SHORT NOTICE OF HEARING WAS GIVEN. IN ANY CASE THE ASSESSEE HAD FILED LET TERS SEEKING ALTERNATIVE DATES OF HEARING. THE ASSESSMENT HAS BEEN CO MPETED IN HASTE WITHOUT COMPLYING WITH THE PRINCIPLES OF NATURAL JUSTICE. 5.7. HE DENIED EXISTENCE OF ANY MOU BETWEEN THE ASSESSEE AND BHARATI ESTATES. THE ALLEGED DOCUMENT IS UNREGISTERED AS NEVER BEEN 9 9 ACTED UPON BY THE PARTIES IT IS A SHAM DOCUMENT AND CANN OT BE TAKEN AS A EVIDENCE AS HELD BY CIT VS. DURGA PRASAD MORE (82 IT R 540) (SC). REGARDING THE MOU IT WAS STATED THAT IT IS A SHAM DOCU MENT IT HAS NO EVIDENTIARY VALUE SO IS THE CASE WITH THE ALLEGED STATE MENTS RELIED UPON BY THE ASSESSING OFFICER. THE ASSESSEE NEVER ADMITTED RECEIP T OF CASH EITHER FROM SRI GV SATYA SAI OR M/S GURU RAGHAVENDRA CONSTRUCTIONS. IN ANY EVENT THE PROVISIONS OF SEC.45 OF THE IT ACT 19 61 ENVISAGES LEVY OF TAX ONLY IN THE YEAR IN WHICH THE TRANSFER OF PROP ER IS TAKES PLACE IRRESPECTIVE OF THE RECEIPT OF THE MONEY OR CONSIDERATIO N. 5.8. FURTHER IT WAS CONTENDED BY THE LEARNED AR TH AT EVEN ASSUMING FOR A MOMENT THAT THE ASSESSEE HAS INTEREST IN THE SAID PROPERTY BY VIRTUE OF ORAL AGREEMENT BETWEEN THE ASSE SSEE AND THE LANDLORDS AND THE CONSIDERATION HAS BEEN RECEIVED SUCH SUM IS NOT CHARGEABLE TO TAX BECAUSE THE SEC.54 OF THE TRANSFER OF P ROPERTY ACT 1882 DOES NOT CREATE ANY INTEREST OR CHARGE ON SUCH PROPE RTY. AND THEREFORE THE QUESTION OF ANY TRANSFER OF PROPERTY DO ES NOT ARISE. THE RIGHT UNDER AN AGREEMENT OF SALE IS A MERE RIGHT TO SP ECIFIC PERFORMANCE OR A RIGHT TO SUE AND THEREFORE NOT TRANSFERABLE U/S 6 (E) OF THE TRANSFER OF PROPERTY ACT 1882 AND HENCE A PROPRIETARY (PERSONA L) RIGHT AND NOT A CAPITAL ASSET. THE COMPENSATION RECEIVED WAS HELD TO BE I N THE NATURE OF DAMAGES FOR BREACH OF AGREEMENT OF SALE AND WHICH DI D NOT REPRESENT INCOME OF ASSESSEE AS HELD IN THE CASE OF CIT V. HIRALAL M ANILAL MODY (1981) 131 ITR 421 (GUJ) SINCE THE ASSESSEE WAS NOT A DEAL ER IN IMMOVABLE PROPERTY. HE RELIED ON THE JUDGEMENT IN T HE CASE OF CIT VS. ASOKA MARKETING LTD. (1987) 164 ITR 664 (CAL) AND CIT VS. DHANRAJ DUGUR (1982) (137 ITR 350 (CAL) AND IT WAS STATED THAT THE RECEIPT WAS NEITHER REVENUE NOR RECEIPT LIABLE FOR CAPITAL GAIN TAX. THERE WAS NO CAPITAL GAINS BECAUSE THERE WAS NO TRANSFER OF IMMOVABLE PROPERTY AND EVEN IF THERE WERE THERE WAS NO COST AND HENCE THEY WE RE NOT TAXABLE FOLLOWING THE DECISION IN THE CASE OF CIT VS B C SRINIVA SA SETTY (1981) 128 ITR 294(SC). 10 10 5.9. HE MADE SAME ARGUMENTS FOR THE ASSESSMENT YEAR 2008 -09 ALSO. REGARDING AMOUNT RECEIVED FROM M/S GURU RAGHAVE NDRA CONSTRUCTIONS HE SUBMITTED THAT THE RECEIPT WAS NEITHE R REVENUE NOR LIABLE FOR CAPITAL GAINS TAX. THERE WERE NO CAPITAL G AINS BECAUSE THERE WAS NO TRANSFER OF IMMOVABLE PROPERTY AND EVEN IF THE RE WERE THERE WAS NO COST AND HENCE THEY WERE NOT TAXABLE. FINALLY HE RELIED ON THE FOLLOWING JUDGEMENTS: 1. HUF OF H.H. LATE SIR J.M. SCINDIA VS. ACIT (305 ITR 231) ( AT) (MUM) 2. CIT VS. MANOHARSINHJI P. JADEJA (281 ITR 19) (GUJ) 3. DHRUVA N SHAH VS. DCIT (273 ITR 59) (AT 3 RD MEMBER) 6. SUBMISSIONS OF DEPARTMENTAL REPRESENTATIVE: I) HE SUBMITTED THAT AS PER THE STATEMENT GIVEN BY TH E ASSESSEE ON 21.8.2008 AT THE TIME OF SURVEY IT WAS AGRGUED BY HI M THAT HE HAD ENTERED ORAL AGREEMENT WITH THE LAND LORD FOR PURCHA SE OF SAID LAND. AS HE COULD NOT ARRANGE THE REQUIRED MONEY FOR PURCHASE O F LAND HE HAS MEDIATED WITH M/S BHARATI ESTATES. THE LAND WAS SUBSEQ UENTLY PURCHASED BY M/S BHARATI ESTATES AND THE ASSESSEE IN TURN R ECEIVED RS.2 CRORES AND 2 PLOTS FROM M/S BHARATI ESTATES FOR ARRANGIN G THE DEAL AND ALSO FOR EVACUATING THE TRESPASSERS . THESE TWO PLOTS WERE LATER SOLD TO M/S GURU RAVENDRA CONSTRUCTIONS FOR A CONSIDERATION OF RS. 80 LAKHS. THUS THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.2.80 CRORES IN THIS TRANSACTIONS. IN THE STATEMENT RECORDED ON 29.8.2008 AN D 18.9.2008 THE ASSESSEE HAS CATEGORICALLY AND REPEATEDLY ADMITTED TO HAVE RECEIVED THE SAID AMOUNTS. THE SAID TRANSACTIONS WAS ALSO CONFIRMED BY SHRI G.V. SATYA SAI DURING THE COURSE OF SURVEY AT HIS BUSINE SS PREMISES ON 30.8.2008 WHEREIN HE HAS STATED THAT AN AGREEMENT WA S ENTERED BETWEEN HIM AND SHRI B. RAMAKRISHNIAH AND A COMMISSION OF RS.3.3 11 11 CRORES HAS TO BE PAID FOR THE LAND OF 10 ACRES AT NIZAMP ET VILLAGE. AS STATED ABOVE THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.2.8 CRORES FROM THIS DEAL. IN VIEW OF THE ABOVE ALLEGATION LEV ELED BY THE ASSESSEE THAT ADDITION IS MADE ON PRESUMPTION WHICH IS INCORRECT AND NOT ACCEPTABLE. II) THE ASSESSEE IN HIS STATEMENTS ON 21.8.2008 AND 18.9.2008 HAS SPECIFICALLY STATED THAT HE HAS RECEIVED AMOUNT THROUG H CASH AND CHEQUE FROM M/S BHARATI ESTATES AND M/S GURU RAGHAVENDRA CONSTRUCTIONS. THIS IS ALSO EVIDENT FROM THE DEPOSITS MADE IN M/S COSMOS COOPERATIVE BANK HYDERABAD ON DIFFERENT DATES FROM FEB. 2007 TO MARCH 2008 I.E. FOR THE FINANCIAL YEARS 2006-07 AND 2007-08. THE ASSESSEE HAS NE VER DENIED THE FACT THAT HE HAS RECEIVED MONEY FROM M/S BHA RATI ESTATES AT ANY POINT OF TIME. III) DURING THE COURSE OF SURVEY PROCEEDINGS THE ASSESSEE HAS GIVEN SUFFICIENT OPPORTUNITY WHICH IS APPARENT FROM TH E STATEMENTS OF THE ASSESSEE RECORDED ON DIFFERENT DATES OF HEARING I.E. 8.9.2008 23.10.2008 17.11.2008 2.2. 2009 16.2.2009 AND 25.3.2009. THE ASSESSEE NEVER RESPONDED T O THE NOTICES ISSUED. HENCE THE ALLEGATION IS INCORRECT AND N OT ACCEPTABLE. DURING THE COURSE OF SURVEY AND ALSO SCRUTI NY PROCEEDINGS THE MOU BETWEEN ASSESSEE AND M/S BHARATI ESTATES AND THE BOOKS OF ACCOUNTS OF M/S BHARATI ESTATES W ERE SHOWN TO THE ASSESSEE FOR HIS OBJECTIONS IF ANY. THE ASSESSE E HAS ADMITTED THAT THE MOU WAS ENTERED WITH M/S BHARATI AND STATED THAT HE DID NOT HAVE ANY OBJECTIONS REGARDING T HE BOOKS OF ACCOUNTS OF M/S BHARATI ESTATES. HENCE THE ALLEGATION IS NOT ACCEPTABLE. IV) THE MOU BETWEEN SRI B RAMAKRISHNIAH AND M/S BHARATI E STATES WAS ENTERED ON 20.9.2006. HOWEVER AS PER THE STATEMEN T OF SRI B RAMAKRISHNIAH AND SRI GV SATYA SAI THE AMOUNT WAS PAID 12 12 DURING MAY 2007. THE ASSESSEE HAS ALSO STATED THAT HE HA D RECEIVED AMOUNTS FROM M/S GURU RAGAVENDRA CONSTRUCTIONS BETWEEN JANUARY TO MARCH 2008 AND THIS IS ALSO EVIDENT FROM THE DEPOSITS MADE IN THE COSMOS COOPERATIVE BANK DURING FEBRUARY 2007 TO MARCH 2008. THEREFORE THE ADDITI ONS HAVE TO BE MADE FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09. HENCE THE ALLEGATION MADE BY THE ASSESSEE IS NOT ACCEPTAB LE. 6.1. IT IS SUBMITTED THAT THE ASSESSEE HAS CATEGORICALLY ADMITTED TO HAVE RECEIVED THE AMOUNTS FROM M/S BHARATI ESTATES AN D M/S GURU RAGAVENDRA CONSTRUCTIONS AND VOLUNTARILY OFFERED THE AM OUNTS TO TAX AND ACCORDINGLY THE ASSESSMENTS WERE COMPLETED. THE ALLEG ATIONS RAISED BY THE ASSESSEE ARE THEREFORE BASELESS UNTENABLE A ND DESERVES TO BE REJECTED. 6.2. HE SUBMITTED THAT THE SURVEY U/S 133A WAS CONDUCT ED IN THE CASE OF THE ASSESSEE BASED ON THE MATERIAL FOUND IN THE CASE OF M/S BHARATI ESTATES WITH WHOM THE ASSESSEE HAD THE BUSINESS TRAN SACTIONS. DURING THE COURSE OF SURVEY PROCEEDINGS IN THE CASE OF THE ASSESSEE HE WAS PROVIDED THE MATERIAL FOUND IN THE PREMISES OF THE BHARATI ESTATES. THE ASSESSEE HAS ACCEPTED THE FACT THAT HE HAS RECEIVED THE A MOUNTS FROM M/S BHARATI ESTATES ON DIFFERENT OCCASIONS WHILE DEPO SING ON OATH BEFORE THE ASSESSING OFFICER. THE ASSESSEE HAS NOT DISCLOSED TH ESE RECEIPTS DURING THE FINANCIAL YEARS 2006-07 AND 2007-0 8 IN THE RETURNS OF INCOME FIELD. THE ASSESSEE HAS SUBMITTED LETTER DATED 21.11.2008 ADMITTING ADDITIONAL INCOME OF RS.1.5 CRORES BEFORE THE ASSESSING OFFICER. 6.3. FURTHER THE STATEMENTS RECORDED BY THE ASSESSING OF FICER ON VARIOUS DATES ALSO PROVE THAT THE ASSESSMENTS HAVE BEEN COM PLETED BASED ON MATERIAL GATHERED AND AFTER GIVING SUFFICIEN T OPPORTUNITY TO THE 13 13 ASSESSEE. HE DREW OUR ATTENTION TO THE STATEMENTS RECORDE D FROM THE ASSESSEE ON VARIOUS DATES. 6.4. FURTHER HE SUBMITTED THAT THE ASSESSING OFFICER H AS COLLECTED THE EVIDENCE RELATING TO RECEIPT OF MONEY FRO M M/S BHARATHI ESTATES IN THE FORM OF RECEIPTS AND SIGNED BY SHRI B. RA MAKRISHNAIAH THE ASSESSEE. HE DREW OUT ATTENTION TO SUCH RECEIPTS REPROD UCED IN THE ORDER OF THE CIT(A). 6.5. HE SUBMITTED THAT FROM THE SWORN DEPOSITIONS OF T HE ASSESSEE ON OATH U/S 131 OF THE IT ACT AND THE ABOVE EVID ENCES IT IS VERY CLEAR THAT THE ASSESSEE HAD RECEIVED RS.25 LAKHS FOR T HE ASSESSMENT YEARS 2007-08 AND RS.2.55 CRORES FOR THE ASSESSMENT YEARS 2008-08 FROM M/S BHARATI ESTATES FOR RELINQUISHING HIS I NTEREST AND FOR FACILITATING THE TRANSACTION BETWEEN SHRI T. KRISHNAMU RTHY AND OTHERS AND M/S BHARATHI ESTATES AND SRI GV SATYA SAI WITH REG ARD TO THE PROPERTY SITUATED IN SURVEY NO.332/1 NIZAMPET (VILLA GE) QUTUBULLAPUR (MANDAL) RANGAREDDY DISTRICT. FURTHER THE ASSESSING OF FICER HAS BROUGHT ON RECORD THE EVIDENCE RELATING TO APPLICATION OF THE MONEY RECEIVED BY THE ASSESSEE. THE TRANSACTIONS HAVE BEEN ROUTE D THROUGH THE BANK ACCOUNT BEARING NO.30050105777 IN THE NAME O F THE ASSESSEE MAINTAINED WITH M/S COSMOS COOPERATIVE BANK LTD. KING KOTI ROAD HYDERABAD. THE ASSESSEE HAS ALSO ADMITTED IN HIS SWORN DEP OSITION THAT THE AMOUNTS RECEIVED FROM M/S BHARATHI ESTATES AND OTHER S HAVE BEEN UTILIZED IN PURCHASING IMMOVABLE PROPERTIES IN HIS NAM E AND THE NAMES OF FAMILY MEMBERS AND IN MAKING TWO FILMS VZ. JUNCTI ON AND TARGET AND ADVANCEMENT OF LOANS. FURTHER IT IS SEEN FROM THE RECORD THAT THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE WAS PRESENT O N 29.8.2008 AND WITNESS TO THE DEPOSITION GIVEN BY THE ASSESSEE ADMITTING THE RECEIPT OF RS.2.8 CRORES AND APPLICATION OF THE ABOVE MONEY. 14 14 6.6. HE RELIED ON THE FOLLOWING JUDGEMENTS TO SUPPOR T HIS ARGUMENTS THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS TH AT IS ADVENTURE IN THE NATURE OF TRADE: I). DALMIA CEMENTS LTD. VS. CIT (105 ITR 633) (SC) (ND) WHEREIN IT WAS HELD THAT: EVEN THE TRANSACTIONS NOT RESULTED IN THE EARNING O F A PROFIT; IT AMOUNTS TO CARRYING AN ADVENTURE IN THE NATURE OF TRADE. II). CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. ( 100 ITR 706) (SC) WHEREIN IT WAS HELD THAT: THE INTENTION OF THE PARTIES TO BE SEEN TO DECIDE W HETHER IT IS ADVENTURE IN THE NATURE OF TRADE OR NOT. III). P.M. MOHAMMED MEERAKHAN VS. CIT (KER.) (SC) ( 73 ITR 735) WHEREIN IT WAS HELD THAT: IT IS NOT POSSIBLE TO EVOLVE ANY SINGLE LEGAL TEST OR FORMULA WHICH CAN BE APPLIED IN DETERMINING WHETHER A TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE OR NOT. THE ANSWER TO THE QUESTION M UST NECESSARILY DEPEND IN EACH CASE ON THE TOTAL IMPRESSION AND EFF ECT OF ALL THE RELEVANT FACTORS AND CIRCUMSTANCES PROBED THEREIN AND WHICH DETERMINE THE CHARACTER OF THE TRANSACTION IV). G. VENKATASWAMI NAIDU & CO VS. CIT (35 ITR 594) (SC) WHEREIN IT WAS HELD THAT: THE EXPRESSION IN THE NATURE OF TRADE APPEARING IN THE DEFINITION OF BUSINESS IN SECTION 2(4) OF THE IT ACT POSTULATES THE EXISTENCE OF CERTAIN ELEMENTS IN THE ADVENTURE WHICH IN LAW WOU LD INVEST IT WITH THE CHARACTER OF TRADE OR BUSINESS AND THAT WOULD MAKE THE QUESTION WHETHER A TRANSACTION IS IN THE NATURE OF A TRADE A ND ITS DECISION ONE OF MIXED LAW AND FACT. WHERE THE QUESTION IS WHETHER A TRANSACTION IS IN T HE NATURE OF TRADE EVEN IF THE CONCLUSION OF THE TRIBUNAL ABOUT THE CH ARACTER OF THE TRANSACTION IS TREATED AS A CONCLUSION ON A QUESTIO N OF FACT IN ARRIVING AT ITS FINAL CONCLUSION ON FACTS PROVED. THE TRIBU NAL HAS UNDOUBTEDLY AND NECESSARILY TO ADDRESS ITSELF TO THE LEGAL REQU IREMENTS ASSOCIATED WITH THE CONCEPT OF TRADE OR BUSINESS. THE FINAL C ONCLUSION OF THE TRIBUNAL CAN THEREFORE BE CHALLENGED ON THE GROUN D THAT THE RELEVANT LEGAL PRINCIPLES HAVE BEEN MISAPPLIED BY THE TRIBUN AL IN REACHING ITS DECISION ON THE POINT. 15 15 V). CIT VS. M. KRISHNA RAO (120 ITR 101) (AP HC) W HEREIN IT WAS HELD THAT PURCHASING OF LAND DIVIDED THEM INTO PLOTS AND SOL D THEM AT HIGHER PRICE GO TO ESTABLISH THAT INTEREST IN ASSESSEE WAS TO CARRY ON AN ADVENTURE IN THE NATURE OF TRADE. VI) KODIDASU APPALASWAMY & SURYANARAYANA VS. CIT (46 ITR 735) (AP HC) WHEREIN IT WAS HELD THAT THE ASSESSING OFFICER IS N OT BOUND BY STRICT RULE OF EVIDENCE IN MAKING AN ASSESSMENT TO THE BEST OF HI S JUDGEMENT EVEN THOUGH THE ASSESSMENT SHOULD NOT BE BASED ON SUSPIC ION AND CONJECTURES. 6.7. WITH REGARD TO ALLOWING THE EXPENDITURE HE SU BMITTED THAT THERE IS NO EVIDENCE FOR INCURRING EXPENDITURE HENCE N OT ALLOWED AND HE RELIED ON THE JUDGEMENT OF THE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. TRANSPORT CORPORATION OF INDIA LTD. (256 ITR 701) (AP HC). 6.8. HE SUBMITTED THAT THOUGH THE CHEQUES MENTIONED I N MOU ARE NOT ENCASHED IT AMOUNTS TO VALID AGREEMENT. HE S UBMITTED THAT STRICT RULE OF EVIDENCE NOT APPLICABLE TO INCOME TAX PRO CEEDINGS. HE RELIED ON THE FOLLOWING JUDGEMENTS: I) MRIGANKA MOHAN SUR VS. CIT (120 ITR 529) (CAL. HC ) WHEREIN IT WAS HELD THAT: STRICT RULE OF EVIDENCE DO NOT APPLY TO INCOME TAX PROCEEDINGS AND CONCLUSIVE PROOF IS ALSO NOT NECESSARY TO ARRIVE AT ANY CONCLUSION OR TO ESTABLISH A FACT. THE APPELLATE TRIBUNAL IS ENTITL ED TO ARRIVE AT A CONCLUSIVE ON APPRECIATION OF A NUMBER OF FACTS TH E ACCUMULATIVE EFFECT WHEREOF MAY BE CONSIDERED TO JUDGE THE SOUNDNESS OF THE CONCLUSION. II). THAKUR V. HARI PRASAD VS. CIT (AP HC) (173 ITR 24 2) III). CIT VS. METAL PRODUCTS OF INDIA (P&H HC) (150 ITR 714) 16 16 6.9. WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THERE WAS A COST INCURRED AT RS. 1 LAKH AS THE ASSESSEE HAS GIVEN TOKEN ADVANCE TO THE VENDOR IN THE YEAR 2005 AND SAME TO BE CONSIDERED AS COST OF ACQUI SITION OF CAPITAL ASSET AND CAPITAL GAIN TO BE COMPUTED ACCORDINGL Y HE REQUESTED THE BENCH TO GIVE SUITABLE DIRECTION TO THE A SSESSING OFFICER. 7. FINDINGS: WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERI AL AVAILABLE ON RECORD AND ALSO CAREFULLY GONE THROUGH THE VARIOUS CASE L AW CITED BY THE PARTIES. IN THIS CASE ADDITION WAS MADE ON THE BASIS OF THE MATERIAL FOUND IN THE PREMISES OF M/S BHARATI ESTATES COLLECTED D URING THE COURSE OF SURVEY U/S 133A OF THE IT ACT ON 13.8.2008 AND ON T HE BASIS OF STATEMENTS RECORDED FROM ASSESSEE ON VARIOUS DATES. DURING THE COURSE OF SURVEY A MEMORANDUM OF UNDERSTANDING DATED 20 .9.2006 WAS FOUND AND AS PER WHICH THE ASSESSEE WAS ENTITLED FOR CERTAI N AMOUNT OF MIDDLE MEN COMMISSION FROM M/S BHARATHI ESTATES LTD. T O SETTLE THE DISPUTE WITH THE THIRD PARTY IN RESPECT OF THE PROPERT Y AT NO.332/1 NIZAMPET (VILLAGE) QUTUBULLAPUR (MANDAL) RANGARED DY DISTRICT. THE ASSESSEE HAS CAUSED THE REGISTRATION OF AGREEMENT OF SALE CUM GENERAL POWER OF ATTORNEY BEARING NO. S/9484 AND S/9585 OF 2006 REGISTERED IN FAVOUR OF M/S BHARATI ESTATES ON 22.4.2006 AT SUB REGI STRAR OFFICE AT MOOSAP. AS PER THE MOU THE ASSESSEE WAS ENTITLED FOR RS.3 .30 CRORES MIDDLE MAN COMMISSION. THE ASSESSEE ENTITLED TO RECEIVE T HE SAID AMOUNT BY CHEQUE EXCEPT PAYMENT OF RS.40 LAKHS WAS AS AN ADVANCE BY WAY OF CASH PAYMENT ON 31.7.2006. HOWEVER NOTHING BROUGHT ON RECORD REGARDING THE PAYMENT OF BALANCE OF MONEY OF R S.2.90 CRORES AS STATED IN THIS MEMORANDUM OF UNDERSTANDING. ACCORDING T O THE ASSESSEE COUNSEL THIS AGREEMENT IS NOT AT ALL ACTED UPON. FURTHER THE PROPERTY BEARING NO. NO.332/1 NIZAMPET (VILLAGE) QUTUBULLAPUR (MANDAL) RANGAREDDY DISTRICT WAS SOLD ON 5-3-2007 TO M/S BHARATHI 17 17 ESTATES BY THE OWNER OF THE SAID PROPERTY. SINCE THE A SSESSEE IS NOT AT ALL A PARTY TO THE AGREEMENT OF SALE CUM GENERAL POWE R OF ATTORNEY BETWEEN THE LAND OWNERS AND MS/ BHARATHI ESTATES ENTER ED ON 6.1.2006 AS SUCH THIS MOU HAS NO EVIDENTIAL VALUE. WE HAVE CAREFUL LY GONE THROUGH THIS MOU DATED 20.9.2006 WHICH IS THE ONE OF THE REASON FOR MAKING ADDITION BY THE ASSESSING OFFICER. AS ARGUED BY THE ASSESSEE COUNSEL THE ASSESSING OFFICER NOT BROUGHT ON RECORD THE FACT THAT THIS MOU IS ACTUALLY ACTED UPON. ADMITTEDLY THE DETAILS OF CHEQUES MENTIONED THEREIN IN THE MOU NOT AT ALL EN-CASHED BY THE ASSESSEE. MORESOVER THIS AGREEMENT IS ENTERED ON 20.9.2006 AFT ER M/S BHARATHI ESTATES ENTERED INTO AGREEMENT OF SALE CUM GENERAL POWE R OF ATTORNEY WITH LAND OWNERS ON 6.1.2006. WE DO NOT FIND THE N ECESSITY OF ENTERING INTO THIS MOU WHEN THE PROPERTY WAS ALREADY ALIENATED BY THE VENDOR TO THE PURCHASER ON 6.1.2006. 7.1. WE HAVE ALSO GONE THROUGH THE STATEMENTS RECORDED ON VARIOUS DATES IN THE COURSE OF SURVEY FROM THE ASSESSEE. T HE IMPORTANT DETAILS OF STATEMENTS RECORDED ON 21.8.2008 IS AS FOLLOW S: Q.6 WE HAVE EVIDENCE THAT HUGE PAYMENTS WERE MADE TO YOU FROM M/S BHARATHI ESTATES. GIVE DETAILS OF THE SAME. ANS. I HAVE HELPED M/S BHARATHI ESTATES IN PURCHAS ING 10 ACRES OF LAND. FOR THE PURPOSE OF M/S BHARATHI ESTATES AND SHRI G.V. S ATYA SAI HAVE PAID RS.65 LAKHS IN THE MONTH OF MAY 2007. Q.8. BESIDES THE ABOVE YOU HAVE RECEIVED ANY COMMI SSION? ANS: BESIDES THE ABOVE PAYMENTS I HAVE RECEIVED TW O FLATS. LATER ON THESE WERE TRANSFERRED TO GURU RAGHAVENDRA CONSTRUCTIONS FOR WHICH HAVE BEEN PAID 80 LAKHS BY THEM. Q.9. GIVE4 THE DETAILS OF INVESTMENTS IN IMMOVABLE PROPERTIES? ANS: DURING THE FINANCIAL YEAR 2007-08 I HAVE INVE STED RS.31 24 000 IN MY NAME AND FAMILY MEMBERS NAME. STATEMENT RECORDED ON OATH FROM THE ASSESSEE ON 29. 8.2008 Q.3. GIVE THE DETAILS OF BUSINESS TRANSACTIONS WIT H M/S BHARATHI ESTATES? 18 18 ANS: INITIALLY I CONTACTED THE ORIGINAL LANDLORDS SMT. JANAKAMMA T SRI T. KRISHNA MURTHY AND FAMILY MEMBERS ENTERED INTO ORA L AGREEMENT AND PAID TOKEN AMOUNT TOWARDS AGREEMENT OF SALE. IT IS ONLY ORAL AGREEMENT OF SALE. LATER I TRIED FOR A BUYER AND FOUND THAT M/S BHARAT HI ESTATES REPRESENTED BY SHRI G. V. SATYA SAI IIS INTERESTED IN PURCHASE OF THE LAND OF 10 ACRES AT NIZAMPET VILLAGE. THE TOTAL NEGOTIATIONS WERE DONE THROUGH ME. THE LAND WAS PURCHASED FOR A TOTAL CONSIDERATION OF RS.4.5 C RORES. WHICH INCLUSIVE OF AMOUNT PAID TO ME OF RS.2.8 CRORES AND THE LANDLORD S WERE PAID RS.1.7 CRORES TOWARDS CONSIDERATION OF LAND. Q. WHAT IS THE NATURE OF TRANSACTION FOR WHICH YOU WERE PAID 2.8 CRORES AND HOW IS THAT AMOUNT PAID I.E. EITHER CASH OR CHEQUE AND WHEN WAS THIS AMOUNT PAID OF PEACEFUL AND PERFECTION OF TITLE DEEDS TO T HE VENDEES M/S BHARATHI ESTATES. ANY DISPUTE WITH REGARDS TO THE LAND POSS ESSION TO M/S BE IS MY RESPONSIBILITY. THE PAYMENTS WERE RECEIVED PARTLY BY CHEQUES AND PARTLY BY CASH. THE PAYMENTS WERE RECEIVED DURING FINANCIAL YEAR 2007-08. Q.5. AS SEEN FROM THE SALE DEED ENTERED BY SMT. JA NAKAMMA AND OTHERS WITH M/S BE DATED 5.3.2007 . IT APPEARS THAT THE POSSESS ION OF LAND WAS PEACEFULLY TRANSFERRED WITHOUT ANY LITIGATION. WHAT DO YOU SA Y? ANS: IT IS A FACT THAT LAND WAS TRANSFERRED IN MAR CH 2007 ON AGPA AND AFTER ON AGREEMENT TOOK PLACE IN MAY 2007. THOUGH I HAV E RECEIVED 2.8 CRORES I HAVE ALSO INCURRED EXPENDITURE TO THE TUNE OF RS.1. 2 CRORES TOWARDS EVICTION OF TRESSPASSERS AND PERFECTION OF TITLE OF THE PROP ERTY. THE DISPUTES ARE STILL GOING ON AND I HAVE TO INCUR EXPENDITURE TO SETTLE THE ISSUES WITH THE CLAIMANTS. Q.6 IS THERE ANY WRITTEN COMPLIANCE BETWEEN BE AND YOURSELF ? ANS: THERE WAS MOU WITH M/S BHARATHI ESTATES INITI ALLY. I AM NOT IN POSSESSION OF THE SAME. Q.7 IN THE ABSENCE OF ANY EVIDENCE EXCEPT EVIDENCE FOR RECEIPT OF 2.8 CRORES WHY THIS MONEY CANNOT BE TREATED AS YOUR INCOME FOR THE ASSESSMENT YEAR 2008-09? ANS: THE DISPUTES ARE YET TO BE SETTLED. I SHALL FURNISH THE DETAILS OF THE CLAIMANTS OVER THE PROPERTY SINCE THE NEGOTIATIONS ARE IN PROGRESS. THE EXACT EXPENDITURE IS NOT KNOWN AND THE INCOME ARISING OUT OF THESE TRANSACTIONS WILL BE DISCLOSED IN THE YEAR OF FULL AND FINAL SET TLEMENTS. Q.14 ON THE DATE OF SURVEY YOU HAVE STATED ANSWER TO QUESTION NO.4 & 5 THAT THE EXPENDITURE INCURRED FOR PRODUCTION OF FILM VI Z. JUNCTION AND TARGET AMOUNTING TO RS.59 LAKHS WHICH IS EVIDENCED BY A D IARY IMPOUNDED. WHAT IS THE SOURCE FOR THE SAME? ANS: THIS AMOUNT RECEIVED FROM M/S BE THE EXPENDIT URE IS INCURRED APPROXIMATELY RS.1 CRORE. I SHALL FURNISH THE DETA ILS IN NEXT WEEK. THE ABOVE STATEMENT OF THE ASSESSEE WAS RECORDED IN THE PRESE NCE OF LEARNED AR SHRI I. RAMA RAO ON 29.8.2008. 19 19 DURING THE COURSE OF SURVEY ON 18.9.2008 STATEMENT OF THE ASSESSEE WAS RECORDED IN TELUGU. THE TRANSLATION O F THE SAME IS AS FOLLOWS: Q2: IN THE STATEMENT DATED 29.8.2008 AT ANSWER Q.5 AND 8. YOU HAVE STATED THAT YOU HAVE RECEIVED 2.8. CRORES FROM BHARATI EST ATES. OUT OF WHICH YOU HAVE STATED THAT YOU HAVE PAID RS.1.2 CRORES TO VAR IOUS PERSONS FOR PROTECTION OF LAND. YOU HAVE STATED THAT YOU WILL GIVE THE DE TAILS ON 8.9.2008 BUT YOU HAVE NOT FURNISHED DETAILS SO FAR. PLEASE EXPLAIN THE REASONS. ANS: I WAS NOT WELL LAST WEEK THEREFORE I SOUGHT ADJOURNMENT FOR TODAY. THE EXPENDITURE DETAILS ARE AS UNDER: A. FOR PROTECTION OF LAND RS.40 LAKHS A) GAVE TO MURALI RS.30 LAKHS B) SRI SRINIVASA REDDY RS.8 LAKHS C) FOR DIFFERENT PERSONS RS.2 LAKHS B. REVENUE EXPENDITURE RS.45 LAKHS C. PAID TO SMT. BHAVANI (COMMISSION OF RS.9 LAKHS) THE ABOVE AMOUNTS INCURRED ON BEHALF OF M/S BHARATH I ESTATES. Q3. GIVE DETAILS OF ROLE PAID BY YOU IN THIS LAND TRANSACTION. ANS: SURVEY NO.332/1 OF NIZAMPET (V) PANCHAYAT 10 ACRES OF LAND BELONGING TO SRI T. RAMACHANDRA SARMA AND FAMILY MEMBERS. AS SHRI KRISHNA MURTHY S/O T. RAMACHANDRA SARM A KNOWN TO ME MOVED A PROPOSAL FOR SALE OF THE SAID LAND TO ME. I HAD DISCUSSED WITH THEM THEN I ENTER ED INTO ORAL AGREEMENT FOR PURCHASING THE LAND OF 10 ACRES BELONGING TO THEM @ 15 LAKHS PER ACRE I.E. 1.5 CRORES FOR THE PURPOSE I HAD GIVEN AN ADVANCE OF RS .1 LAKH. THIS HAPPENED IN THE MONTH OF OCT. 2005 AFTER THIS AGREEMENT I DID NOT HAVE MONEY TO INVEST THE ABOVE LAND THEREFORE I CONTACTED SHRI GV SATYA SAI AND MEDIATED BETWEEN SRI KRISHNAMURTHY AND SATYA SAI. AS A RESU LT M/S BHARATHI ESTATES AND SATYA SAI HAVE AGREED TO PURCHASE LAND OF 10 AC RES FOR 3 CRORES. OUT OF THIS THEY HAVE AGREED TO PAY ME 1.5 CRORES FOR REL INQUISHING MY RIGHT OVER THE LAND. SUBSEQUENTLY M/S BHARATHI ESTATES HAS PURCHASED THIS LAND FROM SRI KRISHNAMURTHY. Q.4 YOU HAVE STATED THAT YOU HAVE RECEIVED RS.2.8 CRORES FROM M/S BHARATHI ESTATES . GIVE DETAILS. ANS: AS I SAID ABOVE THAT I HAVE RECEIVED RS.1.5 C RORES FOR RELINQUISHMENT OF RIGHT OVER THE LAND AND RS.1.3 CRORES FOR PROTECTIN G THE LAND OUT OF DISPUTES. I SHALL GIVE DETAILS AS TO WHAT AMOUNT IS GIVEN TO DI FFERENT PERSONS. Q.8 GIVE DETAILS OF INVESTMENT MADE IN FILM PRODUC TION (JUNCTION AND TARGET). EXPLAIN THE SOURCES FOR THE ABOVE INVESTMENT. ANS: I HAVE INVESTED RS.1 90 00 000 FOR THE PURP OSE. I HAVE TAKEN RS.10 LAKHS LOAN FROM SHRI C. KALYAN AND RS.20 LAKHS FROM CBC ENTERTAINMENTS. INITIALLY I HAVE INVESTED RS.50 LAKHS IN THE FILM TARGET AND LATER WITHDRAWN 20 20 RS.32 LAKHS. THIS AMOUNT I HAVE INVESTED IN THE FI LM JUNCTION. BESIDES THIS I HAVE LET RS.15 LAKHS TO SRI BABU MOHAN. 7.2. FURTHER THE ASSESSING OFFICER HAS COLLECTED THE EVI DENCE RELATING TO RECEIPT OF MONEY FROM M/S BHARATHI ESTATES IN THE FORM OF RECEIPTS SIGNED BY SHRI B. RAMAKRISHNAIAH THE ASSESSEE. 7.3. AS PER THE ABOVE STATEMENST AND ON THE BASIS OF MOU THE ASSESSING OFFICER DREW CONCLUSION THAT THE ASSESSEE HAS RECEIVED 2.8 CRORES CONSIDERATION FROM THE BHARATHI ESTATE ON RELINQU ISHMENT OF RIGHT IN THE LAND AND ALSO FOR FACILITATING PEACEFUL POSSESS (I NCLUDING REMOVING ENCROACHMENTS). IN SPITE THE ASSESSEE CATEGORICALLY STATED O N 18.9.2008 AS ANSWERED TO THE QUESTION NO.4 THAT HE HAS RECEIVED 1.5 CRORES FOR RELINQUISHMENT OF RIGHT OVER THE LAND AND RS.1.3. CRORES FOR PROTECTING THE LAND OUT OF DISPUTES. IT WAS ALSO STATED BY THE ASSESSEE THAT HE HAS INCURRED THE FOLLOWING EXPENDITURE TO PR OTECT THE LAND WHICH IS CLEAR FROM THE ANSWER TO QUESTION NO.2 RECORDED ON 1 8.9.2008. ACCORDING TO ASSESSEE HE HAS INCURRED EXPENDITURE AS FOLLOW S: A) PROTECTION OF LAND EXPENDITURE RS.40 LAKHS (PAID TO SHRI MURALI RS.30LAKHS SRI SRINIVASA REDDY 8 LAKHS AND VARIOUS OTHER PERSONS 2 LAKHS) B) REVENUE EXPENDITURE RS.45 LAKHS C) PAID TO SMT. BHAVANI AS COMMISSION R S.9 LAKHS 7.4. FURTHER ON 29.8.2008 THE ASSESSEE ALSO STATED IN HIS SWORN STATEMENT VIDE ANSWER TO QUESTION NO.5 THAT HE HAS I NCURRED EXPENDITURE OF RS.1.2 CRORES TOWARDS EVICTION OF TRESPASSE RS AND PERFECTION OF THE TITLE OF THE PROPERTY AND ALSO STATE D THAT THE DISPUTES ARE STILL GOING ON AND HE HAS TO INCUR AN EXPENDITURE TO SETTLE THE ISSUES WITH THE CLAIMANTS. IN SPITE OF THIS THE ASSESSING OFFICER NOT GIVEN ANY CREDIT TO EXPENDITURE INCURRED BY THE ASSESSEE . 21 21 7.5. FURTHER THE ASSESSEE HAS ALSO STATED IN HIS SWORN STA TEMENT RECORDED ON 29.8.2008 THAT HE HAS ENTERED INTO ORAL A GREEMENT WITH THE ORIGINAL LAND OWNERS AND PAID TOKEN AMOUNT OF RS.1 LA KH IN OCTOBER 2005. THIS WAS FORTIFIED BY THE STATEMENT OF SHRI T. K. KRISHNA MURTHY VIDE HIS SWORN STATEMENT RECORDED ON 3.10.2008 THAT A SSESSEE HAS PAID RS.1 LAKH AS TOKEN ADVANCE IN THE YEAR 2005. FROM THI S IT IS CLEAR THAT THE CONSIDERATION RECEIVED BY ASSESSEE IF ANY TO BE BIFURCA TED INTO TWO PARTS. ONE FOR RELINQUISHMENT OF RIGHT OVER THE PR OPERTY AND ANOTHER FOR FACILITATING THE PEACEFUL POSSESSION TO THE VENDEE. HOWEVER THE ASSESSING OFFICER CONSIDERED THE ENTIRE CONSIDERATION RECEIVE D AS INCOME OF THE ASSESSEE WITHOUT MENTIONING THE HEAD OF INCOME UN DER WHICH HE AS ASSESSED WHICH IS NOT PROPER. 7.6. FURTHER THERE ARE TWO AGREEMENTS OF SALE ONE FOR 3 ACRES AND ANOTHER FOR 7 ACRES ON 6.1.2006. AS PER THESE AG REEMENTS OF SALE- CUM-GENERAL POWER OF ATTORNEY THE VENDOR HAD DELIVE RED THE VACANT POSITION OF THE SCHEDULED PROPERTY TO THE VENDEE. AS PE R THE PROVISION OF SECTION 2(47) OF THE IT ACT TRANSFER TOOK PLACE AS SOON A S ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SEC.53A OF THE TRANSFER OF PROPERTY ACT 1882. U/S 45(1) TO ATT RACT THE CAPITAL GAINS THE FOLLOWING CONDITIONS TO BE FULFILLED. I) THERE SHOULD BE A CAPITAL ASSET II) THAT CAPITAL ASSET SHOULD HAVE BEEN HELD OR OWNED BY TH E ASSESSEE III) TRANSFER OF THAT CAPITAL ASSET SHOULD HAVE BEEN EFFECTED IV) THE TRANSFER SHOULD HAVE BEEN EFFECTED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR V) PROFIT AND GAINS SHOULD HAVE BEEN FROM SUCH TRANSFER 22 22 7.7. IF THE ABOVE CONDITIONS ARE SATISFIED THEN PROFI T AND GAINS ARE CHARGEABLE TO INCOME TAX UNDER HEAD CAPITAL GAIN AND WOULD BE DEEMED TO BE INCOME OF THE YEAR IN WHICH TRANSFER TOO K PLACE. IN ORDER TO ATTRACT TAX ON CAPITAL GAIN SUBJECT MATTER OF TRANSF ER SHOULD BE CAPITAL ASSET. THE TERM CAPITAL ASSET HAS BEEN DEFINED I N SEC.2(14) SAME READS AS UNDER: CAPITAL ASSET MEANS PROPERTY OF ANY KIND HELD BY AN AS SESSEE WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION BUT DOES NO T INCLUDE I) ANY STOCK IN TRADE CONSUMABLE OR RAW MATERIALS HELD FOR THE PURPOSE OF HIS BUSINESS OR PROFESSION II) PERSONAL EFFECTS THAT IS TO SAY MOVABLE PROPERTY (INCLUD ING WEARING APPAREL AND FURNITURE BUT EXCLUDING JEWELLER Y) HELD FOR PERSONAL VIEWS BY THE ASSESSEE OR ANY MEMBER OF HIS FAMIL Y DEPENDENT ON HIM. 7.8. AS SEEN FROM ABOVE A PARTICULAR THING RIGHT OR INTEREST MAY BE A CAPITAL ASSET WITHIN THE MEANING SEC.2(14) AT TRAN SACTION IN RELATION MAY NOT GIVE RISE TO TAXABLE CAPITAL GAIN THIS SHOULD BECAUSE OF THE FACT THAT NO TRANSFER AS ENVISAGED BY THE ACT WAS INV OLVED. SIMILARLY CERTAIN CAPITAL ASSET WHICH COULD NOT GIVE R ISE TO CAPITAL GAIN BECAUSE OF THE FACT THAT COST OF ACQUISITION CAN BE ENVI SAGED IN THE ACQUISITION OF THE ASSET. ANY RIGHT WHICH CAN BE CALLED P ROPERTY WILL BE INCLUDED IN THE DEFINITION OF CAPITAL ASSET. A CONT RACT FOR SALE OF LAND IS CAPABLE FOR SPECIFIC PERFORMANCE. IT IS ALSO ASSIGNABLE. THEREFORE A RIGHT TO OBTAIN CONVEYANCE OF IMMOVABLE PROPERTY IS CL EARLY PROPERTY CONTEMPLATED BY SEC. 2(14) OF THE IT ACT. WITH THIS BA CKGROUND WE REQUIRED TO CONSIDER THE FACTS OF THE PRESENT CASE. IN THE PRESENT CASE WHAT WAS SAID TO BE RELINQUISHED OR SURRENDER WAS A RIGH T IN THE ASSET. THE GIVING UP OF THE RIGHT TO CLAIM SPECIFIC PERFORMA NCE BY CONVEYANCE 23 23 OF IMMOVABLE PROPERTY HELD TO BE RELINQUISHMENT OF CA PITAL ASSET AND IT WAS TRANSFER OF CAPITAL ASSET WITHIN THE MEANING OF THE IT ACT. THE ASSESSEE GAVE UP HIS RIGHT TO CLAIM SPECIFIC PERFORMANCE. BY THE TERMINATION OF HIS ORAL AGREEMENT AND ALLOWING THE VENDOR TO SELL THE PROPERTY TO ANY PERSON AT ANY PRICE THE ASSESSEE HAD G IVEN UP OR RELINQUISHED HIS RIGHT OF SPECIFIC PERFORMANCE AND WHAT HE HAS RECEIVED IS THE CONSIDERATION FOR RELINQUISHING THAT RIGHT THAT ASSESSEE WAS PAID SOME OF RS.1.5 CRORES. THIS TRANSFER ATTRACTS THE TAX ON CAPITAL GAIN IF THERE IS A COST INVOLVE TO ACQUIRE THAT RIGHT. IN THE PRESENT CASE IT WAS NOT POSSIBLE TO ENVISAGE ITS COST. IN ANY CASE SUCH COST HAS NOT BEEN SPECIFICALLY DETERMINED OR BROUGHT ON RECORD BY ASSESSING O FFICER. THOUGH THE PARTIES INVOLVED STATED THAT THERE WAS AN ADVANCE PAYMENT OF RS.1 LAKH BY THE ASSESSEE TO THE VENDOR THERE WAS NO IOTA OF DOCUMENTARY EVIDENCE SUPPORTING THIS OTHER THAN STATEME NT FROM THE PARTIES. THEREFORE THE AMOUNT OF RS.1.5 CRORES THO UGH IT IS A CAPITAL RECEIPT WHICH DID NOT GIVE RISE ANY CAPITAL GAIN BECAU SE IT WAS RECEIVED IN RESPECT OF RELINQUISHMENT OF RIGHT OF PURCHASE OF PRO PERTY THE COST OF WHICH WAS NOT DETERMINED. IT WAS HELD IN THE CASE OF CIT VS. B.C. SRINIVASA SETTY (128 ITR 294) (SC) THAT IN COMPUTING THE CAPITAL GAIN IT IS A CONDITION THAT TO DETERMINE THE COST OF ACQUISITIO N OF THE ASSET TRANSFER WHERE SUCH DETERMINATION FAILS THERE CAN BE N O CAPITAL GAIN. IN VIEW OF THIS THOUGH THERE WAS A RELINQUISHMENT OF RI GHT OVER AN ASSET THERE WAS NO TRANSFER OF CAPITAL ASSET IN ACCORDANCE WITH T HE PROVISIONS OF SEC. 45 OF THE IT ACT. THE ASSESSEE NOT LIABLE FOR T HE CAPITAL GAIN. FURTHER WE PLACE RELIANCE ON CIT VS. MARKAPAKULA AGAM MA (165 ITR 386) (AT PAGE 390 & 391) AP HC) WHEREIN IT WAS HELD THAT : THE LEVY OF TAX ON CAPITAL GAINS U/S 45 OF THE IT ACT IS INTERTWINED WITH THE MODE OF COMPUTATION ENVISAGED U/S 48 OF THE ACT . THE MODE OF COMPUTATION PROVIDED U/S 48 COMPRISES TWO FOLD DIME NSION NAMELY THE EXPENDITURE INCURRED IN CONNECTION WITH TRANSFE R AND COST OF ACQUISITION OF THE ASSET ADDED BY THE COST OF IMPRO VEMENT. THE PROFITS OR GAINS CONTEMPLATED U/S 45 AS A SEQUEL TO TRANSFE R IS THE SURPLUS AMOUNT REALIZED OVER AND ABOVE THE COST OF ACQUIRIN G THE ASSET. IN THE EVENT OF THE ABSENCE OF COST OF ACQUISITION THE QU ESTION OF ACCRUAL OF 24 24 GAIN DOES NOT ARISE AND THE LEVY OF TAX PROFESSING TO BE A CAPITAL GAIN LEVY IS IN ESSENCE A LEVY ON A CAPITAL ASSET. THE CHARGING SECTION U/S 45 LOSES ITS VITALITY IN THE ABSENCE OF COST OF ACQUIS ITION OF ASSET AS THE COST OF ACQUIRING THE ASSET CONSTITUTES THE BED ROC K FOR EXIGIBILITY TO LEVY OF CAPITAL GAINS. THIS APPROACH AS TO THE PRE SENCE OF COST OF ACQUISITION CONTROLLING THE CHARGING SECTION IS CON CRETIZED BY SECTION 49. IT IS OBLIVIOUS THAT SECTION 49 TAKES CARE OF ARRIVING AT THE COST OF ACQUISITION BY INSERTION OF DEEMING PROVISION FOR T HE ASSETS IN RESPECT OF WHICH THE ASSESSEE DID NOT INCUR ANY EXPENDITURE OR PAY CONSIDERATION IN TERMS OF MONEY. FOR THE ASSETS EN UMERATED IN SECTION 49 THERE WOULD NOT HAVE BEEN ANY COST OF ACQUISITI ON BUT FOR THE DEEMING PROVISION WHEREBY THE COST OF ACQUISITION O F AN ASSETS IS CONSIDERED TO BE THE COST FOR WHICH THE PREVIOUS OW NER ACQUIRED IT. THUS SECTION 49 BY IMPLICATION FURNISHES A CLUE TO THE INTERPRETATION TO SECTION 48. THE DEEMED COST OF ACQUISITION IS CONF INED TO THE ASSETS PARTICULARIZED IN SECTION 49 ONLY AND IN ALL THE OT HER ASSETS THE ACTUAL COST OF ACQUISITION IS THE SUBSTRATUM FOR THE LEVY OF CAPITAL GAINS. IF THERE IS NO COST OF ACQUISITION THERE IS NO GAIN A ND CONSEQUENTLY THERE IS NO CAPITAL GAINS TAX. THUS THE CHARGING SECTIO N TAKES COLOUR FROM THE COMPUTATION AS BOTH THE PROVISIONS ARE INTEGRAT ED AND SEEK TO LEVY TAX REGARDING AN ASSET IN THE ACQUISITION OF WHICH IT IS POSSIBLE TO ENVISAGE THE COST. 7.9. EVEN OTHERWISE IN THE PRESENT CASE THE CAPITAL G AIN ACCRUED TO THE ASSESSEE ON HANDING OVER THE POSSESSION OF THE PROPE RTY BY THE VENDOR TO THE VENDEE ON 6.1.2006 SINCE THE ASSESSEE RELIN QUISHED THE RIGHT ON THE SAID PROPERTY ON THIS DATE. THIS TRANSACTI ON IS RELEVANT TO THE ASSESSMENT YEAR 2006-07. THE ASSESSING OFFICER HAS NO T CONSIDERED THIS ASPECT AND CONFUSED HIMSELF AND ASSESSED THE ENTIRE RECEI PTS AS INCOME OF THE ASSESSEE WITHOUT SPECIFYING THE ANY HEAD OF INCOME IN ASSESSMENT YEAR 2007-08 AND 2008-09. UNDER THE IT ACT T HE DISTINCT HEADS UNDER WHICH THE INCOME OF AN ASSESSEE IS TO BE CLASSI FIED ARE SET OUT IN SEC.14 OF THE IT ACT AS FOLLOWS : A) INCOME FROM SALARIES B) INCOME FROM HOUSE PROPERTIES C) PROFIT AND GAINS FROM BUSINESS OR PROFESSION D) CAPITAL GAINS E) INCOME FROM OTHER SOURCES 25 25 7.10. THE INCOME RECEIVED BY AN ASSESSEE HAS TO BE FITTED UNDER ONE OR OTHER HEAD HAVING REGARD TO THE SOURCES FROM WH ICH THAT INCOME IS DERIVED. THE COMPUTATION OF INCOME UNDER EACH OF THE ABOVE HEAD WILL HAVE TO BE MADE INDEPENDENTLY AND SEPARATELY AND THA T THERE ARE SPECIFIC RULES OF DEDUCTION AND ALLOWANCES UNDER EACH HEAD AND THAT NO DEDUCTION OR ADJUSTMENT ON ACCOUNT OF ANY EXPENDITURE CAN BE MADE EXCEPT AS PROVIDED BY THE ACT. THE FACT THAT A PERSON CARRIES ON BUSINESS DOES NOT LEADS TO THE INFERENCE THAT ALL INCOME R ECEIVED BY SUCH A PERSON IS INCOME FROM BUSINESS. THE SAME ASSESSEE CAN H AVE INCOME WHICH MAY REQUIRE TO BE CLASSIFIED UNDER MORE TH AN ONE HEAD. IT IS THE MANNER IN WHICH THE INCOME IS DERIVED THAT IS RELEVANT AND NOT MERELY ON THE FACT THAT PERSON ENGAGED IN A BUSINESS OR IN A PROFESSION. IN THE PRESENT CASE AS WE HAVE DISCUSSED IN EARLIER PARAS THE ASSESSEE EARN INCOME FROM TWO HEADS OF INCOME. ONE IS EMANATED FROM CAPITAL RECEIPT AND ANOTHER FROM REVENUE RECEIPT. IN OUR OP INION THE CAPITAL GAIN IF ANY ACCRUED TO THE ASSESSEE CANNOT BE TAXED IN THE ASSESSMENT YEARS 2007-08 OR 2008-09. THE ASSESSING OFFICER CAN ASSE SS ONLY THE NET INCOME ARISE OUT OF REVENUE RECEIPTS OF RS.1.3 CRORES IN THE YEAR WHEN THE TRANSACTION TOOK PLACE. AT THE SAME TIME THE ASSESSEE IS ENTITLED FOR EXPENDITURE INCURRED TO EARN THAT INCOME IF IT IS SUBSTANTIATED BY THE REQUISITE EVIDENCE. THE ASSESSING OF FICER CANNOT SAY THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TO EARN THIS PART OF INCOME. IF THE ASSESSEE SAYS THAT HE HAS RECEIVED RS.1.3 CR ORES FOR PROTECTING THE PROPERTY AND HE HAS INCURRED EXPENDITU RE TO PROTECT THE PROPERTY SAME CREDIT IS TO BE GIVEN ON PRODUCTION OF EV IDENCE. 8. IN THE PRESENT CASE THOUGH ASSESSEE HAS STATED THAT HE HAS INCURRED EXPENDITURE TO EARN THAT INCOME THE ASSESSING OFFICER HAS OVER LOOKED THIS FACT. IN VIEW OF THIS WE ARE OF THE O PINION THAT THE NET INCOME GENERATED OUT OF COMMISSION TO BE TAXED IN THE ASSESSMENT YEAR 26 26 2007-08 AND 2008-09 AND BALANCE RECEIPT OF RS.1.5 CRORE S IS BEING CAPITAL RECEIPT CANNOT BE BROUGHT TO TAX IN THESE ASSESSMEN T YEARS. 8.1. WITHOUT PREJUDICE TO THE ABOVE FURTHER WE AR E OF THE OPINION THAT STATEMENT RECORDED U/S 131 OF THE IT ACT CONSEQUENT TO THE SURVEY ACTION CANNOT BE SOLE BASIS FOR ADDITION UNLESS THERE I S A MATERIAL TO SUPPORT THE DEPARTMENTAL CASE. IN THE SURVEY THE DEPA RTMENT IS NOT ABLE TO FIND OUT ANY CORROBORATIVE EVIDENCE REGARDING THE EXACT INCOME EARNED BY THE ASSESSEE IN THESE ASSESSMENT YEARS. THE CASE OF DEPARTMENT HINGES ONLY AND ONLY ON THE SURRENDER STATE MENT. IT IS WELL SETTLED LAW THAT AN ADDITION IN ORDER TO BE SUSTAINAB LE IN A LAW MUST HAVE SOME CONCRETE MATERIAL EVIDENCE AS ITS BASIS. IT IS N OT SO HERE. IF THE ASSESSEE IS DOING THE BUSINESS OF PROTECTING THE PROPE RTY AND SETTLING THE DISPUTE THE TRUE RESULT OF THAT BUSINESS T O BE ASCERTAINED. THE END RESULT OF THE TRADING ACTIVITIES TO BE BROUGHT INTO TAX. FURTHER IF ANY STATEMENT RECORDED FROM THE ASSESSEE COULD BE RETRACTE D BY THE ASSESSEE. FURTHER THE CBTD ON 10 TH MARCH 2003 VIDE INSTRUCTIONS F.NO.286/2/2003/IT (INV.) THAT WHILE RECORDING THE ST ATEMENT IN THE COURSE OF SEARCH AND SEIZURE AND SURVEY OPERATIONS NO ATT EMPT SHOULD BE MADE TO OBTAIN CONFESSIONS AS TO THE UNDISCLOSED INCOME; THAT ANY ACTION TO THE CONTRARY WOULD BE VIEWED ADVERSELY AND T HAT IN RESPECT OF PENDING ASSESSMENT PROCEEDINGS ALSO ASSESSING OFFICER SHOULD RELY UPON THE EVIDENCE AND MATERIAL GATHERED IN THE COURSE OF SEARCH/SEIZURE OPERATION AND CONNECTED CASES. IN THESE CIRCUMSTANCES ON CON FESSIONS DURING THE COURSE OF SEARCH AND SEIZURE AND SURVEY OPERAT IONS DO NOT SERVE ANY USEFUL PURPOSES. THE CBDT INSTRUCTION IS BINDI NG ON THE DEPARTMENT. IN OUR OPINION ADDITION ON THE BASIS OF ADMISSION DURING THE SURVEY WITHOUT ANY SUPPORTIVE MATERIAL CANNOT BE SU STAINABLE. 8.2. FURTHER IT WAS HELD IN THE CASE OF PAUL MATHE W & SONS VS. CIT (263 ITR 101) KERALA THAT A STATEMENT RECORDED AT THE TIME OF 27 27 SURVEY DOES NOT CARRY ANY EVIDENTIARY VALUE WHATSOEVER. FURTHER IT WAS HELD THAT THE IT ACT WHENEVER IT THOUGHT FIT AND N ECESSARY TO CONFIRM SUCH POWER TO EXAMINE A PERSON ON OATH HAS EXPRESSLY PROV IDED FOR IT; WHEREAS SEC.133A DOES NOT EMPOWER ANY ITO EXAMINE ANY PERSON ON OATH. THUS IN CONTRADISTINCTION TO THE POWER U/S 133 A SEC.132(4) OF THE IT ACT ENABLES THE AUTHORIZED OFFICER TO EXAMINE A PERSON ON OATH AND ANY STATEMENT MADE BY SUCH PERSON DURING SUCH EXAMINA TION CAN ALSO BE USED AS EVIDENCE UNDER THE IT ACT. 8.3. FURTHER IT WAS HELD IN THE CASE OF PULLANGO DE RUBBER PRODUCTS COMPANY LTD. VS. STATE OF KERALA (91 ITR 18) (SC) THAT AN ADMISSION IS EXTREMELY IMPORTANT PIECE OF EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE AND IT IS OPEN TO PERSON WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT. IN THE CASE OF CIT VS. S. KHADER KHAN & SONS (300 ITR 1 57) (MADRAS) WHEREIN IT WAS HELD THAT IN VIEW OF THE SCOPE AND AMB IT OF THE MATERIALS COLLECTED DURING THE COURSE OF SURVEY ACTION U/S 133A OF THE IT ACT SHALL NOT HAVE ANY EVIDENTIARY VALUE. IT COULD NOT BE SAID SOLELY ON THE BASIS OF THE STATEMENT GIVEN BY ASSESSEE THAT THE DISCLOSED INCOM E WAS ASSESSABLE AS LAWFUL INCOME OF THE ASSESSEE. 9. IN VIEW OF THE ABOVE JUDGEMENTS OF VARIOUS COURTS AND IN VIEW OF THE CBDT INSTRUCTIONS THE SEC.133A OF THE IT ACT DOES NOT EMPOWER ANY AUTHORITY TO EXAMINE ANY PERSON ON OATH ANY SUCH STATEMENT HAS NO EVIDENTIARY VALUE AND ANY ADMISSION MA DE DURING SUCH STATEMENT CANNOT BY ITSELF BE MADE THE BASIS FOR ADDITION UNLESS THE ASSESSING OFFICER HAVE CORROBORATIVE MATERIAL IN HAND TO MAKE SUCH ADDITIONS. IF THERE IS ANY UNACCOUNTED INVESTMENT TH E SAME SHOULD HAVE BEEN BROUGHT TO TAX AS UNDISCLOSED INCOME AND NOT O N THE BASIS OF 28 28 MOU OR ON THE BASIS OF UNSUBSTANTIATED STATEMENTS RECORDED EITHER FROM THE ASSESSEE OR FROM THE THIRD PARTIES. 9.1. FURTHER THE ASSESSEE TAKEN GROUND BEFORE US THA T THERE IS GROSS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. THE A SSESSING OFFICER RELIED ON THE BOOKS OF ACCOUNTS OF M/S BHARATHI ESTATES LT D. TO MAKE ADDITION AND THESE BOOKS OF ACCOUNTS NEVER PUT TO THE ASSE SSEE FOR COMMENTS AND THE OPPORTUNITY OF CROSS EXAMINATION NOT PR OVIDED TO THE ASSESSEE. WE HAVE GONE THROUGH THIS ISSUE. THE REQUIREME NT OF NATURAL JUSTICE DEPEND ON THE CIRCUMSTANCES OF THE CASE THE NATURE OF THE ENQUIRY THE RULES UNDER WHICH THE ASSESSING OFFICER ACTED UPON THE SUBJECT MATTER THAT IS BEING DEALT WITH AND SO FORTH. ONE ESSENTIAL IS THAT THE PERSON CONCERN SHOULD HAVE REASONABLE OPPORTUNI TY OF PRESENTING HIS CASE. ONE OF THE RULES WHICH CONSTITUTES A PART OF PRINCIPLES OF NATURAL JUSTICE IS THE RULE OF AUDI ALTER EM PARTEM WHICH REQUIRES THAT NO MAN SHOULD BE CONDEMNED UNHEARD. IT IS INDEED A REQUIREMENT OF THE DUTY TO ACT FAIRLY WHICH LIES IN AL L QUASI JUDICIAL AUTHORITIES AND THIS DUTY HAS BEEN EXTENDED ALSO TO T HE AUTHORITIES HOLDING ADMINISTRATIVE ENQUIRIES INVOLVING CIVIL CONSEQU ENCES OR AFFECTING RIGHTS OF PARTIES BECAUSE THE AIM OF THE RULES OF NATURA L JUSTICE IS TO SECURE JUSTICE OR TO PUT IT NEGATIVELY TO PREVENT MISCARR IAGE OF JUSTICE AND JUST IN A SOCIETY WHICH HAS ACCEPTED SOCIALISM AS ITS ARTICL E OF FAITH IN THE CONSTITUTION IS DISPENSED NOT ONLY BY JUDICIAL OR QUASI JUDICIAL AUTHORITIES BUT ALSO BY AUTHORITIES DISCHARGING ADMIN ISTRATIVE FUNCTION. THIS RULE REQUIRES AN OPPORTUNITY TO BE HEARD TO BE GIVEN TO A PERSON LIKELY TO BE AFFECTED BY A DECISION IS ALSO LIKE THE G ENUS OF WHICH IT IS SPECIES NOT AN INFLEXIBLE RULE HAVING A FIXED CONNOTAT ION. IT HAS VARIABLE CONTENT DEPENDING ON THE NATURE OF THE ENQU IRY THE FRAME WORK OF THE LAW UNDER WHICH IT IS HELD THE AUTHORITY HOLDI NG THE ENQUIRY THE NATURE AND CHARACTER OF THE RIGHTS AFFECTED AND THE CON SEQUENCES FLOWING FROM THE DECISION. IT IS THEREFORE NOT POSSIB LE TO SAY THAT IN 29 29 EVERY CASE THE RULE OF AUDI ALTEREM PARTEM REQUIRE S THAT A PARTICULAR SPECIFIED PROCEDURE TO BE FOLLOWED. IT MAY BE THAT IN A GIVEN CASE THE RULE OF AUDI ALTEREM PARTEM MAY IMPORT A REQUIREM ENT THAT WITNESSES WHOSE STATEMENT ARE SOUGHT TO BE RELIED UPON BY THE AU THORITY HOLDING AN ENQUIRY SHOULD BE PERMITTED TO BE CROSS EXAMINED BY THE PARTY AFFECTED WHILE IN SOME OTHER CASE IT MAY NOT. THE PROCE DURE REQUIRED TO BE ADOPTED FOR GIVING AN OPPORTUNITY TO A PERSON TO BE HEARD OR CROSS EXAMINED MUST NECESSARILY DEPEND ON THE FACTS AND CIRCUMSTAN CES OF EACH CASE. NOW IN THE PRESENT CASE WE ARE CONCERNED WITH T HE RELYING ON THE BOOKS OF ACCOUNTS OF MS/ BHARATI ESTATES AND THE ST ATEMENT RECORDED FROM THEM. IN OUR OPINION THE AUTHORITIES CONCERNED REQUIRED TO GIVE AN OPPORTUNITY OF CROSS EXAMINING THE PARTIES CO NCERNED AND ALSO COMMENTS ON THE STATEMENTS AND BOOKS OF ACCOUNTS TO BE REL IED UPON BY THE REVENUE AUTHORITIES. THIS WILL ENABLE ASSESSEE TO P ROVE THE INCORRECTNESS OR INCOMPLETENESS OF THOSE BOOKS OF ACCOUNTS. THE OPPORTUNITY WOULD THEREFORE NECESSARILY CARRYING WITH IT RIGHT TO EXAMINE WITNESS AND THAT WOULD INCLUDE THE RIGHT TO CROSS EXAMIN E THE WITNESS EXAMINED BY THE REVENUE AUTHORITIES. THE REVENUE AUTHORITIES RELIED ON THE BOOKS OF ACCOUNTS OF THE M/S BHARATHI ESTATES AND THEIR STATEMENTS AND CAME TO THE CONCLUSION THAT THE ASSESSEE REC EIVED RS.2.8 CRORES MIDDLE MEN COMMISSION. PLACED IN THESE CIRCUMST ANCES THE ASSESSEE COULD PROVE THE INCORRECTNESS OR INCOMPLETENESS O F THESE EVIDENCE ONLY AFTER CROSS EXAMINING THEM. THE CROSS EXAM INATION OF WITNESS IS ONE OF THE MOST EFFICACIES METHOD OF ESTABLISHIN G TO AND EXPOSING FALSEHOOD. THOUGH THERE IS A RECORD IN THE FO RM OF RAISING THIS GROUND BEFORE THE CIT(A) THE CIT(A) HELD THAT REASO NABLE OPPORTUNITY OF BEING HEARD HAS BEEN GIVEN TO THE ASSESSEE BUT THE O RDER IS SILENT ABOUT GIVING THE OPPORTUNITY OF CROSS EXAMINING THE WI TNESS. THE REVENUE CANNOT RELY ON CERTAIN STATEMENTS AND MATERIALS TO STRENGTHEN ITS CASE AGAINST THE ASSESSEE AND CANNOT SAY THAT THE STATEMEN TS OR MATERIALS DIRECTLY SUPPORT THE DEPARTMENTS CASE. NO PR INCIPLES OF LAW 30 30 AND ANY JUDICIAL DECISION SUPPORTS THE APPROACH OF THE RE VENUE. THE CORRECT AND SET RULE IS THAT IF A STATEMENT OR MATERIAL IS AN INTEGRAL PART OF THE CASE OF THE DEPARTMENT OR IS RELIED UPON TO D RAW AN ADVERSE INFERENCE CROSS EXAMINATION OR THE PERSON MAKING THE STA TEMENT MUST BE GIVEN. THE DEPARTMENT CANNOT RELY ON A STATEMENT OR MATERIAL AND AT THE SAME TIME SEEK TO DENY CROSS EXAMINATION ON THE GRO UND THAT THE STATEMENT OF THE ASSESSEE ALSO RECORDED ON THE SAME ISSUE. T HE NATURAL JUSTICE REQUIRES CROSS EXAMINATION OF WITNESSES IF ASKED FO R MUST BE GRANTED. THE ASSESSEE SHOULD BE AFFORDED AN OPPORTU NITY TO DEAL WITH AND REBUT SUCH MATERIAL. CROSS EXAMINATION TO BE ALLO WED TO THE ASSESSEE WHEN THIRD PARTY ACCOUNTS ARE RELIED UPON BY THE DEPARTMENT. THE NORMAL PRINCIPLE IS THAT ORDINARY CROSS EXAMINATION HAS TO BE GRANTED WHEN ASKED FOR. IF THE DEPARTMENT TO RELY ON ANY EXCEPTIONS THE BURDEN IS ON THE DEPARTMENT TO ESTABLISH THE EXIS TENCE OF ANY EXCEPTIONS. THE NON PROVIDING OF CROSS EXAMINATION O F WITNESS CLEARLY CONSTITUTES INFRACTION OF THE RIGHT CONFERRED ON THE ASSES SEE AND THAT VITIATED THE ORDER OF THE ASSESSMENT MADE AGAINST THE A SSESSEE. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IN ITA NO S.1152 & 1153/HYD/2009 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT : 26. 3.2 010 SD/- SD/- N.R.S. GANESAN CHANDRA POOJARI JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 26TH MARCH 2010 COPY FORWARDED TO: 31 31 1. M/S I.R. RAO & COMPANY CA C-69 MADHURA NAGAR OPP. LANE TO RELIANCE FRESH YOUSUFGUDA ROAD HYDERABAD. 2. THE ITO WARD 11 (1) HYDERABAD IT TOWERS AC GUA RDS HYDERABAD 3. CIT(A)- VI HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP