Itxa/1555/2013 Of The Commissioner Of Income Tax - (Central) v. Chandulalsadhuram Khemani

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1555 OF 2013WITHINCOME TAX APPEAL NO.138 OF 2014WITHINCOME TAX APPEAL NO.143 OF 2014WITH INCOME TAX APPEAL NO.154 OF 2014WITHINCOME TAX APPEAL NO.173 OF 2014WITHINCOME TAX APPEAL NO.987 OF 2014WITHINCOME TAX APPEL (L) NO.1815 OF 2014(Not on Board) … The Commissioner of Income Tax(Central) ...Appellant v/s.Chandulal Sadhuram Khemani ...Respondent … Mr.Vimal Gupta, Sr.Advocate with Mr.Vipul A. Bajpayee for the Appellant. Mr.J.D.Mistri, Sr.Advocate with Ms.Madhu Hiraskar and Mr.Vachan Bodke i/b Chitnis Vaity & Co. for the Respondent. ... CORAM : S.C.DHARMADHIKARI & A.A. SAYED, JJ. DATED : 14 NOVEMBER 2014 P.C. In all these Appeals of the Revenue, the following is termed as a substantial question of law:- itxa-1555-13.doc “Whether on facts and in the circumstances of the case and in law, the Hon'ble ITAT was justified in deleting the disallowances made by the Assessing Officer of Rs.13,00,800/- on pro-rata basis in respect of costs of sales of land made by the assessee by invoking proviso to Section 69C of the Act; especially when ITAT had accepted the case of the A.O. that lands were purchased from unexplained sources? 2.We would for the purpose of disposal of all these Appeals take the facts in Income Tax Appeal No.1555 of 2013. 3.This Appeal arises out of the order passed on 31 October 2012 by the Income Tax Appellate Tribunal `B' Bench, Pune. The Assessee is in the business of construction. His premises was searched on 9-10-2003. In the previous year relevant to Assessment Year 2002-03, it was found by the Assessing Officer that the Assessee had effected sale of plots and land amounting to Rs.13,02,000/- out of stock appearing as opening stock in the previous year relevant to Assessment Year 1998-99. The Assessee claimed deduction of Rs.13,00,800/- on account of pro-rata cost. The Assessing Officer held that since the investments were held as unexplained expenditure to which section 69C of the Income Tax Act, 1961 (For short “Income Tax Act”) is applicable, and in terms of itxa-1555-13.doc the proviso thereto no part of the expenditure can be allowed as deduction against any head of income in any assessment year in which the plot of lands out of such stock are sold. That proviso has been invoked and the Assessing Officer did not allow its deduction. He, therefore,made addition of Rs.13,00,800/- to the income of the Assessee by taking recourse to this section and the proviso. That order dated 27 March 2006 (Annexure-A) was challenged before the First Appellate Authority and the Commissioner passed an order on 30 November 2007 partly allowing the appeal of the Assessee. He enhanced the income on account of opening stock and disallowance u/s 40(3) of the Income Tax Act, but deleted the disallowance made by the Assessing Officer by invoking proviso to section 69C of the Act. Both the Assessee and the Revenue carried the matter in Appeal to the Tribunal. We are only concerned with the correctness of the view taken by the Tribunal and the Commissioner in so far as the Revenue's Appeals. 4.It was argued before us by Mr.Vimal Gupta, learned Sr.Counsel appearing for the Revenue, that the Tribunal's order raises an important question, particularly about the applicability of the proviso. He submits that the Tribunal should not have deleted 4.It was argued before us by Mr.Vimal Gupta, learned Sr.Counsel appearing for the Revenue, that the Tribunal's order raises an important question, particularly about the applicability of the proviso. He submits that the Tribunal should not have deleted itxa-1555-13.docthe pro-rata disallowance by invoking the proviso to section 69C, to the stock of plot of lands sold during the Assessment Year 2002-03. In the submission of Mr.Gupta, the Tribunal noted that the stock of lands declared by the Assessee as on 1-4-1997 was never offered for taxation nor was source of the amount explained. Therefore, it was an unexplained income. However, the Tribunal lost sight of the fact that sale of the stock was effected during the assessment year when the proviso was admittedly in force. It is in these circumstances that the Assessing Officer applied the proviso and made the addition. This should not have been deleted. 5.Mr.Mistri, learned Sr.Counsel appearing for the Assessee, would submit that the view taken by the Tribunal cannot be said to be perverse or vitiated by an error of law apparent on the face of record. He submits that section 69C is applicable where in any financial year the Assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof or such expenditure as offered is not in the opinion of the Assessing Officer satisfactory. Proviso, therefore, would come into play when there is unexplained expenditure incurred during the years in question and which is then deemed to be the income of the 5/9 itxa-1555-13.doc Assessee. He, therefore, submits that if the basic facts are not ignored, then the Tribunal's view can be definitely sustained. The Appeal does not raise any substantial question of law. It deserves to be dismissed. 6.With the assistance of the learned Sr.Counsel we have perused the Appeal Paper Book and that part of the order of the Tribunal from which the aforementioned question of law arises. Section 69C of the Income Tax Act with the proviso reads as under:- “69C-Unexplained expenditure- Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year; Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.” 7.A perusal thereof would reveal that it is dealing with unexplained expenditure etc. It was inserted from with effect 1 April 1976. The requirement thereof is where in any financial year an Assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or itxa-1555-13.doc offers an explanation, but which in the opinion of the Assessing Officer is not satisfactory, the amount covered by such expenditure or part thereof, as the case may be , may be deemed to be the income of the Assessee for such financial year. Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.” 7.A perusal thereof would reveal that it is dealing with unexplained expenditure etc. It was inserted from with effect 1 April 1976. The requirement thereof is where in any financial year an Assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or itxa-1555-13.doc offers an explanation, but which in the opinion of the Assessing Officer is not satisfactory, the amount covered by such expenditure or part thereof, as the case may be , may be deemed to be the income of the Assessee for such financial year. 8.The Tribunal has in para 57 of the order under challenge referred to the facts on record. It is not disputed that the Assessee is in the business of real estate and land development. He purchases lands, develops them and sells thereafter the same. He claimed that the expenditure on purchase of land is allowable as deduction on pro-rata basis against the sale price whenever the lands are sold. The Assessing Officer was of the opinion that the Assessee was not a investor, but he traded in lands. Hence, whatever purchase price he has incurred for acquiring the stock of lands as on 1-4-1997 is covered by section 69C. That part of the Assessing Officer's conclusion is not interfered with by the Tribunal as well. The question before the Tribunal was whether the stock of lands declared by the Assessee as on 1-4-1997 is not offered for taxation nor the source of the said amount was explained. Whether the proviso could be invoked so as to delete the addition made by the Assessing Officer as above, the Tribunal noted that the itxa-1555-13.doc Assessee was given relief because the Assessing Officer could not have reassessed the income beyond a period of six assessment years immediately preceding the Assessment Year, relevant to the previous year in which the search was conducted. The Tribunal was dealing with the Assessment Year 1998-99, 1999-00 and 2000-01. Mr.Gupta would submit before us that the proviso which has been inserted to section 69C is brought in from with effect 1-4-1999. Therefore, that could have been invoked. 9.In our opinion, the Tribunal has understood the factual matrix and concluded that when the extent of five transactions are prior to 1-4-1997, and three transactions have not been interfered with and sent back to the file of the Assessing Officer for verification, then what would be the governing factor is the year in which the expenditure, which is unexplained, can be deemed to be income of the Assessee. The Assessee, admittedly, has not incurred any expenditure in the financial year in question. The plots were acquired admittedly prior to 1-4-1997. It is only the pro-rata deduction which was claimed and in the form of adjustment against this purchase price as the plots were sold. In such circumstances, the primary condition which has to be fulfilled so as to apply section 8/9 itxa-1555-13.doc 69C was not at all fulfilled. That did not, therefore, enable the Assessing Officer to apply this section. Once this factual position was noted, then, the proviso also could not have been invoked. 8/9 itxa-1555-13.doc 69C was not at all fulfilled. That did not, therefore, enable the Assessing Officer to apply this section. Once this factual position was noted, then, the proviso also could not have been invoked. 10.We find substance in the contention of the Assessee that for the purpose of invoking and applying this provision, the condition stipulated therein that the expenditure should be incurred in any financial year and that such expenditure has to be either unexplained or part thereof should be explained or if the expenditure explained, must be found to be wholly unsatisfactory or partly unsatisfactory and that is the requirement to be fulfilled. If that is not satisfied, then the proviso which does nothing but enables the Revenue to deem the unexplained expenditure or part thereof to be income and on which no deduction shall be allowed under any head of the income under other provisions of the Act, should be applied. If that was not applicable and could not have been invoked in the given facts and circumstances, then, the view taken by the Tribunal is not perverse or vitiated by any error of law apparent on the face of the record. The reasoning in para 58 in that behalf contains a view and which could be said to be possible in the given facts and circumstances as also the language of the provision. itxa-1555-13.doc 11.Our view also finds some support in the judgment of the Division Bench of this Court in the case of Commissioner of Income Tax-II v/s. M/s.Tips Industries Pvt.Ltd. in Income Tax Appeal No.541 of 2009 decided on 22-01-2010. 12.In the light of the above discussion, we do not find that any of these Appeals raise substantial question of law. All Appeals are , therefore, dismissed. No costs. (A.A. SAYED, J.) (S.C.DHARMADHIKARI,J.)