Ita/473/2009 Of The Commissioner Of Income Tax v. Dr L Narendra Prasad

1 IN THR HIGH COURT OF KARNATAKA ATBENGALURU| DATHD THIS THR 18 DAY OF AUGUST 2015) PRESENT THR HON’BLE MR.JUSTICE VINBEBT SARAN R ANT) THERE HON’BLE MR.JUSTICE B MANOHA ITA No.473 OF 2009 BHITWER° 1.THE COMMISSIONER OF INCOME-TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE. 2.THE AssT. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2(3), C.R.BUILDING, QUEENS ROAD,BANGALORE.BANGALORE. _ APPBRBLLANTS (BY SRILEEVAN.J.NEERALAGI, ADV.,) ANT) DR. L.NARENDRA PRASAD,NO. 175, 6 CROSS,GANDHINAGAR,BANGALORE. ... RESPONDENT (BY SRI.A.SHANKAR, ADV.,) — THIS ITA IS FILED UNDER SECTION 260-A OFTHE I.T. ACT, 1961 ARISING OUT OF ORDER DATED |30-04-2009 PASSED IN IT(SS)A NO.47/BNG/2008, FORTHE BLOCK ASSESSMENT PERIOD 1/4/1996 TO26/11/2002, PRAYING THAT THIS HON’BLE COURTMAY BBR PLEASED TO: THE I.T. ACT, 1961 ARISING OUT OF ORDER DATED | (1)RFORMULAIETHESUBSTANTIALQUESTIONS OF LAW STATED THEREIN, (11) ALLOW THR APPBAL AND SET ASIDETH EORDERPASSEDBY|TH FITATBANGALORE IN IT(SS)A NO.47/BNG/2008,|DATED30-04-2009,CONFIRMINGTHEORDEROH|THEAPPBRLLA TCOMMISSIONER.AN]CONHIRMTHEORDERPASSEDBY|THEASSISTANT|COMMISSIONER.ORINCOME,TAX,CIRCLE-2(3),BANGALORE,IN|THEINTEREST OF JUSTICE AND EQUITY. TAX, THIS APPKRAL COMING ON FOR HBARING THISDAY,B.MANOHAR, J. DELIVERED THR FOLLOWING: JUDGMENT The Revenue has preferred this appeal undersection 260-A of the Income-Tax Act (hereinaiterreferred to as‘the Act’for short) being aggrieved by theorder dated 30[:/]April2009 passed in IIT(SS)A47/BANG/2008 by the Income Tax Appellate Tribunal, 3 Bangalore-"B’ branch, (hereinafter referred to as‘theTribunal?’for short) dismissing the appeal filed by the|Revenue and confirming the order passed by theCommissioner of Income-Tax (Appeals) (hereinafterreferred to as °the First Appellate Authority’‘for short)modifying the order passed by the Assessing Authorityfor the block period from 01-04-1996 to 26-11-2002. D _TheRespondent-assessee 1S.aaDoctor|by|Profession and the main source of income is his salaryfrom Bhagawan Mahaveer Jain Hospital as well as fromProfession as a Doctor. He filed his return of income for|the assessment years 2000-2003. While filing thereturn, he filed a note along with the return, whichreads as under: “The assessee purchased agriculturallands of about & acres from K.Gundu Rao in|the year 1996 and 1997. Subsequently, he|proposed to develop the same by having itconverted for residential layout. He decided|to form a layout along with his_ fatherosru.C.V.L.Sastry and had agreed to do the same for HMT Employees Co-Operative HouseBuilding Society Ltd. On 12-07-1999. M/s.HMT Employees Co-Operative House BuildingSociety Ltd., wanted a layout spread over 50|acres 36 guntas land to be formed over a\period of time. For various reasons this.project did not go through and had to be.abandoned. In the meanwhile an advance ofRs.82 lakhs was received from M/s.HMTEmployees|Co-OperativeHouseBuilding|society Ltd., and the same was used for|layout development. The assessee subsequently, enteredintoanagreementwithO7FLoruS.N.Arishnaiah Setty on 05-09-2001 for|sale of residential sites @ rate of 110 p.sq.ft. TheaSsSSCSSCalso|receivedadvance|payments amounting to Rs.73,75,000/- upto31-03-2002 and of which a sum of Rs.57lakhs was repaid to HMT Employees Co-op.|House Building Society Ltd. And the balanceamount utilized to layout development. | payments amounting to Rs.73,75,000/- upto The layout is not fully developed evenas on date and the following works are|pending.| 1.Formation of two roads 11.Water supply and sanitary works 111.Electricity sanction and connections Iv,Overhead water tank UvStatutory payments to City Municipal |Corporation by way of betterment charges.Corporation by way of betterment charges. Statutory payments to City Municipal | 5 As the layout is_ still not fit forresidential use and pending completion the|aSsSSCSSCwil offer income from layoutbusiness on completion of the same’| payments amounting to Rs.73,75,000/- upto The layout is not fully developed evenas on date and the following works are|pending.| 1.Formation of two roads 11.Water supply and sanitary works 111.Electricity sanction and connections Iv,Overhead water tank UvStatutory payments to City Municipal |Corporation by way of betterment charges.Corporation by way of betterment charges. Statutory payments to City Municipal | 5 As the layout is_ still not fit forresidential use and pending completion the|aSsSSCSSCwil offer income from layoutbusiness on completion of the same’| 3.|Assessee is the son of Sri.C.V.L. Sastry and is alsoone of the partners of C.V.L. Sastry Group. The fatherand Sri.B.L.Nagendra Prasad, brother of the assesseewere carrying on Real Estate business in the name andstyle “M/s. Skytop Builders Pvt. Ltd.” A search wasconducted under Section 132 of the Act on 26-11-2002in the office premises of the Skytop Builders Pvt. Ltd.and residential premises of the assessee. On the basisof some documents found during search, a notice wasissued to the assessee under Section l158BC on28-10-2003 calling upon the assessee to file return forthe block period from 01-04-1996 to 26-11-2002. Inresponse to the said notice, the assessee filed return ofincomedeclaringNILundisclosed|income11-12-2003. In pursuance of the notice issued by theAssessing Authority, the authorized representative of OT) 6 theaSSCSSEEappearedandproducednecessarydocuments. Incidentally, a search was conducted in thepremises of S.N.Krishnaiah Setty on 26-11-2002 on theday on which, the assessee’s premises was searched. —On the basis of the materials seized with reference to the Real Estate business, the Assessing Authorityexamined the case; and after obtaining the clarificationheld that though the assessee purchased the propertyin the year 1996-97, in the balance sheet of theassessment year 1998-99, the assessee has shown thevalue of the land as Rs.46,46,6600/- and for theassessment year 2OOO-O1, the value was shown as.Rs.1,10,46,660/- and for the assessment year 2001-02,the value was shown as _ Rks.1,19,46,6060/-. TaSSCSSEEcontendedthat|he.hasinvestedRs.78,00,000/- for formation of the layout. However, nodocument has been produced to show that he has spentRs.78,00,000/- for formation of the layout. Duringsearch, some materials were found, which reveals that. 7 the assessee had spent a sum of Rs.14,92,/705/- on |26-12-2002 and a sum of Rs.11,69,628/- was spent byM/s. Sky Top Builders Pvt. Ltd. for improvement of thesaid property. In all, they have spent Rs.26,62,333/-. —The cost of the land comes to Rs.73,08,993/-, whereas.the assessee had entered into an agreement with».N.Krishnaiah Setty agreeing to sell the sites at therate of Rs.110/- per sq.it. and power of attorney was_also executed in favour of S.N.Krishnaiah Setty formarketingthesitesthroughShri.Balaji.KrupaEnterprises. Krishnaiah Setty had sold 86 sites from.01-04-2001 to 31-33-2002 and 53 sites from 01-04-2002to 31-3-2003. Taking into consideration the extent ofland as 8 acres; value of the land at the rate of Rs.110/-.per Sq.ft. deducting expenditure towards CMC and KEB—and development expenditure of Rs.97,49,994/-, from.the total value of the land, the balance amount ofRs.1,27,591,055/- was net receivable by the assessee. Out of the said amount, the profit of the assessee is 8 worked out to Rs.91,22,096/- as on 26-11-2002. Theassessing officer worked out the undisclosed incomeand determined the profit at Rs.42,17,430/- for theblock period from 1-4-1996 to 26-11-2002. A draftassessment order was prepared and the assessee was.called upon to file his objections. The assessee filed hisobjections to the Drait Assessment. After consideringthe objections, the Assessing Authority concluded theassessment and called upon the assessee to pay tax onthe said amount, by its order dated 30-11-2004. — 8 worked out to Rs.91,22,096/- as on 26-11-2002. Theassessing officer worked out the undisclosed incomeand determined the profit at Rs.42,17,430/- for theblock period from 1-4-1996 to 26-11-2002. A draftassessment order was prepared and the assessee was.called upon to file his objections. The assessee filed hisobjections to the Drait Assessment. After consideringthe objections, the Assessing Authority concluded theassessment and called upon the assessee to pay tax onthe said amount, by its order dated 30-11-2004. — 4The assessee being aggrieved by the order dated30.11.2014 passed by the Assessing Authority preferredallappealbeforetheFirstAppellateAuthoritycontending that the order of assessment is contrary tolaw and the Assessing Officer is not justified indetermining the undisclosed income of Rs.42,17,430/-.for the block period from 01-04-1996 to 26-11-2002. |The entire transaction has been reflected to the' Department. The facts of the case has not beendisputed by the Assessing Officer, thus the sumdetermined does not constitute the undisclosed income. —The Assessing Officer is not justified in assessingincome contrary to the method of accounting followedby the assessee. The assessee clearly stated that he hasnot maintained the books of accounts. Along with thereturns, the assessee has clearly disclosed that theassessee will offer the income from the real estate|business on completion of the layout. For so manyyears the profit from the Real Estate business has beentaken at 8% of total amount of income. However, the.Assessing Authority assessed the income at the rate of26% which is contrary to law. 5The First Appellate Authority after considering thematter in detail found that the assessee has given powerof attorney in favour of Krishnaiah Setty to market thesites formed in 6 acres of land. The finding of the Assessing Authority taking 8 acres of land to arrive atan undisclosed income is contrary to facts of the case. —Further, the net profit of 26% taken by the AssessingAuthority is not correct since from many years, theDepartment has been taking 8% from the Real Estatebusiness on the total amount and accordingly modifiedthe order reducing the undisclosed income of theassessee to Rs.13,95,240/- trom Rs.42,17,430/- by itsorder dated 31-03-2008. Being aggrieved by the orderpassed by the First Appellate Authority the assessee aswell as the Revenue preferred appeals before theTribunal. The Appellate Tribunal after re-examining thematter and taking into consideration the material seizedduring the course of search and also accepting some ofthe findings of the Assessing Authority held that theassessee has not suppressed any facts in the returnfiled tor the assessment year 2002-03. He has disclosedeverything regarding purchase of the property in theyear 1996-97 and also entering into an agreement with 117 HMT Employees Co-operative House Building SocietyLimited and subsequently with 8.N.Krishnaiah Setty on5-9-OJ001 for sale of residential sites at the rate otRs.110/- per sq.ft. The seized materials clearly disclosethat the assessee has spent Rs.26,62,333/- forformation of the layout. Further, the agreement enteredinto with 8.N.Krishanaiah Setty was only in respect of 6acres of land and the Department itself has acceptedthe net profit at 8% on the turnover from the RealEstate business. Accordingly, upheld the order passedby the First Appellate Authority and dismissed both theappeals filed by the assessee as well as the revenue byits order dated 30[:/]April, 2009. Being aggrieved by the.said order, the Revenue preferred this appeal. 6. The appeal was admitted on 24-09-2010 forconsidering the following substantial questions of law: 1.Whether the Appellate Authorities werecorrect in estimating the profit at 8% of thesaleconsiderationwhen.the|Sel1zed 17- material found during course of searchreflected the actual expenditure incurredby|theaSSCS SCEand|consequentlyrecorded a perverse finding?| 6. The appeal was admitted on 24-09-2010 forconsidering the following substantial questions of law: 1.Whether the Appellate Authorities werecorrect in estimating the profit at 8% of thesaleconsiderationwhen.the|Sel1zed 17- material found during course of searchreflected the actual expenditure incurredby|theaSSCS SCEand|consequentlyrecorded a perverse finding?| 2.Whether the Appellate Authorities werecorrect in directing the Assessing Officer toallow the expenditure incurred towards 8&acres for development, when the AssessingOfficer has taken into consideration theland developed in respect of 6 acres onlyas contended by the assesseeP TS|We have heard Sri.Jeevan J Neeralagi, learned counsel appearing for the appellants and Sri.A.Shankar, learned counsel appearing for the respondent. 8.|The records clearly disclose that the respondent assessee iS a Doctor by profession. He has been filingthe income tax return every year disclosing the incomefrom his profession and also the salary he was gettingfrom Bhagawan Mahaveer Jain Hospital. During theassessment year 2002-03 along with the return, theassessee had filed a note with regard to purchase of _8 acres of land in the year 1996-97. The father and brother oft assessee are in the Real Estate business. |Initially the assessee entered into an agreement with theHMT Employees Co-operative House Building SocietyLimited for formation of layout for HMT employees anddeveloped the residential layout. However, the saidproject did not go through and abandoned in themiddle. The assessee entered into an agreement with».N.Krishnaiah Setty for the sale of residential sites atthe rate of Rs.110/- per sq.ft. and received someamount and the said amount was repaid to the HMTEmployees Co-operative House Building Society Limited. —A search was conducted on 26-11-2002 at the!residential premises of the assessee as well as the officepremises of his father C.V.L. Sastry and also thepremises of S.N.Krishnaiah Setty. On the basis of thematerial seized during the search, a notice was issuedto the assessee under Section 158BC, calling upon theassessee to file return for the block period from1-4-1996 to 26-11-2002. The assessee filed NIL returns| on 11-12-2003. During the course of assessmentproceedings, theaSSCSSEFEclaimed.that|he|hadpurchased 8 acres of agricultural land in the year1996-97forRs.46,46,600/-.Subsequently,heproposed to develop the said land and form a residentiallayout along with his father and brother. He invested asum of Rs.78,00,000/- consequent to buying of theproperty towards improvement charges, however, nodocument has been produced in this regard. It wasfound from the seized material that a sum oORs.26,62,333/- has been spent towards improvement ofthe layout. In view of the agreement entered into with».N.Krishnaiah Setty on 0-9-2001 to sell the sites forRs.110/- per sq.it., considering the value of the sites asRs.2,25,01,050/-, deducting expenditure, the assessingofficer determined the undisclosed income in a sum otRs.42,17,430/- and called upon the assessee to pay taxon the said amount with fine and interest. 15. 15. OQ On an appeal filed by the assessee, the FirstAppellate Authority after examining the matter in detailfound that purchase of the land has already beendisclosed to the Assessing Authority along with thereturn for the assessment year 2002-03 and alsoadmitted that the residential layout is not fit forresidential use, pending completion, and the assesseewill offer income from the layout business on completionof the same. As per the agreement entered withS.N.Krishnaiah Setty, the power of attorney executedwas only in respect of 6 acres of land 1.e. 1585950 sq.ft.and not 8 acres oft land. The cost of 6 acres of land is Rs.1,74,40,550/-instead|oT|Rs.2,29,01,050/-.Normally, in the real estate business, the net profitwould be taken at the rate of 8%. Hence, the AppellateAuthority, taking into consideration the net profit at 8%_on the total amount of income arrived at undisclosed|income of Rs.13,95,240/- as against Rs.42,17,430/-.assessed by the Assessing Officer. Accordingly modified the order passed by the Assessing Authority and thesaid order was confirmed by the Tribunal aiter re-examining the matter afresh. The finding recorded bythe First Appellate Authority as well as the Tribunal ispurely a question of fact. The Assessing Officer havingaccepted the tact that the agreement entered with».N.Krishnaiah Setty is only in respect of 6 acres ofland, while assessing the undisclosed income, hadtaken into consideration the entire 8 acres of land,which is contrary to law. In the real estate business thedepartment had accepted the net profit of 8% on theturnover for the last so many years in respect of theM/s.Skytop Builders Pvt.Ltd. The same benefit wasextended in case of assessee also. Section 44-AD of theAct contemplates that in the case of an eligible assesseeengaged in an eligible business, a sum equal to 8% ofthe total turnover or gross receipt of the assessee in theprevious year on account of such business or, as thecase may be. In the instant case, admittedly, the assessee had not maintained books of accounts. The!assessee 1S a doctor by profession, his father andbrother are involved in the real estate business. For thelast so many years, the Department has accepted thenet profit at 8% on the total turnover of the companyM/s. Skytop Builders Pvt. Ltd. Accordingly, the)Appellate Authority as well as the Tribunal accepted thecontention of the assessee and taken 8% of the total|turnover as the income. The Assessing Authority duringthe course of assessment proceedings admitted the factthat the assessee has entered into an agreement andissued power of attorney to Sri.S.N.Krishnaiah Setty formarketing the sites formed in 6 acres of land. Inrespect of remaining 2 acres of land, the dispute ispending before the Arbitrator. Such being the case, theAssessing Authority ought to have taken the incomefrom 6 acres of land. We find no infirmity orirregularity in the finding arrived at by the FirstAppellate Authority as well as the Tribunal. The 18| appellants have not made out a case to interfere with the order passed by the Tribunal. Hence, thesubstantial questions of law are answered against therevenue and in favour of the assessee. Accordingly, the appeal is dismissed. od/-JUDGE od/-|JUDGEH _* mpk/