Case Law Details
DCIT Vs. Kushal Infraproject Industries India Ltd. (ITAT Delhi)
The assessee has admittedly sold the agricultural land as it is so there were no intention to do any business activity, therefore, period of holding would not be relevant. The intention of the assessee is therefore clear that assessee purchased the agricultural land and sold the agricultural land as it is. The assessee never treated the said agricultural land as stock in trade and never converted into non agricultural land. The assessee did not create any plot in the said land and no developmental activities have been done and no facilities have been provided. The assessee did not make any advertisement for sale of the land. The character of the land in the hands of assessee as agricultural land has not changed. The agricultural land in question is classified in revenue record as agricultural land and actual cultivation was done as per the record. The AO has not produced any evidence on record to show agricultural land was used for nonagricultural purposes. The AO has also not brought information/evidence on record. The assessee had been carried on activities of buying and selling of the land in a systematic and regular manner. It is well settled Law that Certificate of the Tehsildar and Patwari who are the designated Officers and is Competent Authority and are authorised to issue Certificate measuring distance from Municipal Limits which relevant.
Since the land in question is dealt by Delhi Land Reforms Act and nothing is brought on record of violation of the aforesaid provisions and the Competent Authority under the Delhi Land Reforms Act, Certified that the lands in question falls beyond 8 KM from the Municipal Limits, therefore, there is nothing wrong in the findings of the Ld CIT(A) in holding that land in question is agricultural land and amount earned on sale of the land to be capital receipt. The decisions relied upon by the Learned D.R. would not support the case of the Revenue. Considering the totality of the facts and circumstances, we do not find any infirmity in the order of the Learned CIT(A) in allowing the claim of assessee.
Fees paid to the Registrar of Companies for enhancement of capital is capital expenditure
Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. Vs. CIT, 225 ITR 792 and Brooke Bond India 225 ITR 798, the Hon’ble Delhi High Court held that since expenses incurred in connection with the issue of shares with a view to increase its share capital was directly related to expenditure expansion of capital base of the company was capital expenditure even though it might incidentally help in company’s business. The issue was decided against the assessee. Ld Counsel for the Assessee did not dispute the above legal proposition.
In assessment year under appeal the assessee company has increased its authorised share capital. The assessee paid ROC fees. The issue is, therefore, covered by the Judgment of the Hon’ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited and Brooke Bond India Limited (supra) against the assessee, in which it was held that fees paid to the Registrar of Companies for enhancement of capital is capital expenditure. In this view of the matter, we set aside the Order of the ld. CIT(A) and restore the Order of the AO as no deduction is permissible and Section 35D would not be applicable.
Section 40A(2)(a) Disallowance for salary to relatives of Director
Section 40A(2)(a) deals with incurring of the expenditure in respect of which payment is made to the relatives and in the opinion of the A.O. same is excessive and unreasonable having regard to the fair market value of the goods, services or facilities, for which payment is made. The A.O. has not made any such case that payment made to the relatives was on account of salary was excessive or unreasonable having regard to the fair market value of the goods, services or facilities, for which payment is made. The assessee has explained before the authorities below, the circumstances of which payments have been made to the relatives and also expenditure as to what services they have rendered for the assessee company along with their qualification. In earlier year, similar salary have been allowed deduction by the Revenue Department. There is nothing unreasonable in this regard. In any case, even for applying the provisions of Section 40A(2), it is for the A.O. to make-out a case that the expenditure incurred is excessive or unreasonable having regard to the fair market value of such services. However, no efforts have been made by the A.O. in this regard. Therefore, there were no justifications for the A.O. to disallow the salary payment to the employees who are relatives of the Director. The Hon’ble Supreme Court in the case of Upper India Publishing House Pvt. Ltd., 117 ITR 569 held that “before applying the provisions of Section 40A(2), A.O. should have proved expenditure is excessive or unreasonable.” In the absence of any such finding by the A.O, there was no justification to disallow salary. The A.O. did not doubt the salary paid to the employees which is paid through banking channel and the employees have shown the same salary in their return of income, on which, TDS also deducted. Considering the totality of the facts and circumstances of the case and earlier record of the assessee, we do not find any justification to interfere with the Orders of the Ld. CIT(A) in deleting the addition. Ground No.1 of appeal of Revenue is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
The cross-appeals for A.Y. 2010-2011 are directed against the Order of the Ld. CIT(A)-5, New Delhi, Dated 23.02.20 15. Cross-appeals for the A.Y. 2011-2012 are directed against the Order of Ld. CIT(A)-5, New Delhi, Dated 03.06.20 15.
2. We have heard the Learned Representatives of both the parties and perused the material on record.
2.1. All the appeals were heard together being connected on various issues, therefore, all appeals are decided issue-wise as under.
ISSUE NO.1:
3. In A.Y. 2010-2011, on Ground No.1, Revenue challenged the Order of the Ld. CIT(A) in deleting the disallowance made on account of salaries paid to the relatives of Rs.7,80,355/-. The A.O. observed that out of salary expenses claim of Rs.18,97,443/- and amount of Rs.7,80,355/- represent salary paid to relatives of the Director. The A.O. disallowed the same holding that the assessee did not prove the business exigencies to justify the payment of salary and that payment made remain unverifiable.
3.1. The assessee challenged the above addition before the Ld. CIT(A). Written submissions of the assessee are reproduced in the appellate order in which the assessee briefly explained that salary was paid to 05 persons and the actual amount was Rs.8 lakhs. It was further submitted that out of the 05 payees, one of them namely Smt. Veena Rana is not an employee, but she is a Director of the company. Instead of salary, Director’s remuneration in the shape of one-time payment of Rs.2 Lakhs was made to her towards the end of the accounting period considering prospects of good income of the company and valuable contribution made by the said Director towards the business of the company. This payment is duly supported by Board’s resolutions. However, owing to an inadvertent mistake on the part of the Accountant, this payment was shown and accounted for as salary instead of Director’s remuneration. It was a bona fide mistake which is corrected. The same is an allowable expenditure. It was further submitted that total salaries paid during the accounting period 2009-10 have been claimed at Rs. 18,97,443/- only. Given the size and turnover of the assessee company, the salary paid cannot be termed as excessive. The assessee company maintained proper records along with Attendance Register, Leave Record, evidence of Payments to the employees, etc. All the payments towards salary are well accounted for in the books of account and are properly vouched. Payments are made through cheque through banking channel, therefore, correctness of the same cannot be doubted. The A.O. disallowed the salary payment because the recipients are relative of the Director Shri Kushal Rana. It was submitted that to engage relatives for work and to pay them for the same is nowhere banned or prohibited in the Income Tax Act. The payments are made to Smt. Sheela Rana, Smt. Pankhi Rana, Shri Dalbir Rana, Smt. Poonam Rana in a sum of Rs. 1,50,000/- each and Rs.2 lakhs was paid to Smt. Veena Rana. The salary paid them is not excessive or unreasonable. Since they were all qualified, intelligent, laborious and willing works and having adequate educational qualification, therefore, considering their expertise and education, salary is not excessive. These employees were doing more work for the assessee company i.e., visiting various sites of the company, attending various vendors from whom material was purchased, handling cash and bank transactions and doing documentation and also take care of day-to-day running business. There is no violation of Section 40A(2) of the I.T. Act, 1961. The salary paid to these employees is reflected by them in their income tax returns which have been accepted by the Department. The salary paid to the employees in a sum of Rs.18,18,465/- in preceding A.Y. 2009-2010 have been accepted by the Department including Rs.8 lakhs paid to these 05 employees. The TDS have been deducted on their salaries which have been deposited in the Government Record. The assessee relied upon several decisions of the Tribunal to show that payments of salary are reasonable and should be allowed.
3.2. The Ld. CIT(A) considering the material and factual position noted that the A.O. has nowhere in the assessment order claimed that the said relatives did nothing for the assessee company to earn salary or that payment of salary was excessive and not commensurate with the work done by them. The assessee filed all the details to show they were working for the assessee company and looking after various job. The assessee has also provided qualification of these employees which are verifiable. The salary paid to them has been disclosed. These employees show income in the income tax return. The salary expenditure of the company which was less than Rs. 19 lakhs could not be considered as excessive as per record maintained by assessee. The Ld. CIT(A), accordingly, deleted the addition.
4. The Ld. D.R. relied upon the Order of the A.O. and submitted that no details have been filed before A.O. and onus is not discharged. All the employees were relative of the Director.
5. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has referred to PB-5 1 which is reply filed before A.O. supported by documentary evidences and payment of salary. PB-73 onwards is ledger account of the salary, on which, TDS has ben deducted. PB-77 is another reply. He has submitted that in earlier year similar salary have been allowed and there is no finding by the authorities below that no services have been rendered by these employees. Learned Counsel for the Assessee, therefore, submitted that Ld. CIT(A) correctly allowed the deduction of the salary.
6. We have considered the rival submissions and do not find any infirmity in the Order of the Ld. CIT(A) in deleting the addition. Section 40A(2)(a) deals with incurring of the expenditure in respect of which payment is made to the relatives and in the opinion of the A.O. same is excessive and unreasonable having regard to the fair market value of the goods, services or facilities, for which payment is made. The A.O. has not made any such case that payment made to the relatives was on account of salary was excessive or unreasonable having regard to the fair market value of the goods, services or facilities, for which payment is made. The assessee has explained before the authorities below, the circumstances of which payments have been made to the relatives and also expenditure as to what services they have rendered for the assessee company along with their qualification. In earlier year, similar salary have been allowed deduction by the Revenue Department. There is nothing unreasonable in this regard. In any case, even for applying the provisions of Section 40A(2), it is for the A.O. to make-out a case that the expenditure incurred is excessive or unreasonable having regard to the fair market value of such services. However, no efforts have been made by the A.O. in this regard. Therefore, there were no justifications for the A.O. to disallow the salary payment to the employees who are relatives of the Director. The Hon’ble Supreme Court in the case of Upper India Publishing House Pvt. Ltd., 117 ITR 569 held that “before applying the provisions of Section 40A(2), A.O. should have proved expenditure is excessive or unreasonable.” In the absence of any such finding by the A.O, there was no justification to disallow salary. The A.O. did not doubt the salary paid to the employees which is paid through banking channel and the employees have shown the same salary in their return of income, on which, TDS also deducted. Considering the totality of the facts and circumstances of the case and earlier record of the assessee, we do not find any justification to interfere with the Orders of the Ld. CIT(A) in deleting the addition. Ground No.1 of appeal of Revenue is dismissed.
7. In A.Y. 2011-2012, Revenue challenged the Order of the Ld. CIT(A) in deleting the addition of Rs.7,80,000/- made by the A.O. on account of salary paid to the relatives of the Director. The Ld. CIT(A) found that this issue is same as have been considered by him in A.Y. 2010-2011. Following the Order for the A.Y. 2010-2011, the Ld. CIT(A) deleted the addition.
8. Since in A.Y. 2010-2011, we have dismissed the Departmental Appeal, therefore, following the reasons for decision, we dismiss Ground No.1 of appeal of the Revenue for the A.Y. 2011-2012 as well.
9. In the result, Ground No.1 of the Departmental Appeal for both the assessment years is dismissed.
ISSUE NO.2:
10. In A.Y. 2010-2011, the Revenue on Ground No.2 challenged the Order of Ld. CIT(A) in deleting the disallowance of excess remuneration paid to the Directors amounting to Rs.33, 10,000/- during the year. The A.O. disallowed Rs.33, 10,000/- out of Director’s Remuneration paid to Shri Kushal Rana, Director of the Assessee-Company at Rs.42 lakhs. The A.O. disallowed substantial portion of the payment on the belief that for the immediately preceding A.Y. 2009-2010 payment of only Rs.2 lakhs had been made to Shri Kushal Rana on this account and there was abnormal increase in Director’s remuneration over the year. The assessee submitted written submissions which is reproduced in the appellate order in which the assessee submitted that Rs.42 lakhs have been paid to the Director Shri Kushal Rana which is duly accounted for in the books of account, on which, TDS has been deducted. In preceding A.Y. 2009-20 10 same amount of Rs.42 lakhs have been paid to the Director which have been allowed by the Department. The A.O, was therefore, not justified in making any addition which is also double addition. The Ld. CIT(A) found contention of assessee to be correct because in preceding A.Y. 2009-20 10, the Department has allowed the deduction of Rs.42 lakhs as Director’s remuneration. The Ld. CIT(A), accordingly, deleted the addition.
11. After considering the rival submissions, we do not find any justification to interfere with the Order of the Ld. CIT(A) in deleting the addition. The Ld. D.R. merely relied upon the Order of the A.O. but could not point-out any infirmity in his order in deleting the addition. Since in preceding assessment year same amount have been paid to the Director which have been allowed by the Revenue Department, therefore, Ld. CIT(A) following the Order for earlier year, correctly deleted the addition. Ground No.2 of the appeal of Revenue is accordingly dismissed.
12. In A.Y. 2011-12, the Revenue on Ground No.2 similarly challenged the Order of Ld. CIT(A) in deleting the addition of Rs.42,71,000/- on account of Director’s remuneration. The assessee filed detailed written submissions before the Ld. CIT(A) which is incorporated in the appellate order. The assessee pleaded that TDS have been deducted on the salary and Director has shown the salary in his return of income. It was also submitted that there is a slight enhancement in the remuneration of the Director. Therefore, considering his contribution towards business, small enhancement in the salary is reasonable. The Ld. CIT(A) after examining the record found that normal increase in Director’s salary is justified and that in preceding A.Y. 2010-2011, he has allowed Director’s remuneration of Rs.42 lakhs. The Director has offered the same salary to the Income Tax Department and paid the taxes. Considering the contribution of the Director for business purposes, small increase in the salary was found justified. The disallowance was deleted and this ground of the appeal of the assessee was allowed.
13. After considering the rival submissions, we do not find any merit in this ground of appeal of the Revenue. This issue is same as have been considered in A.Y. 2010-2011. In the assessment year under appeal there is a slight increase in the salary of the Director which is approved by the Company, on which, TDS have been deducted and income have been offered for tax by the Director. Therefore, considering the nature of business of assessee and contribution of Director and following order for A.Y. 2010-2011 in which we have dismissed the departmental appeal, we do not find any justification to interfere with the Order of the Ld. CIT(A) in deleting the Ground No.2 of the appeal of the Revenue for both the assessment years i.e., 2010-2011 and 2011-2012 are dismissed.
ISSUE No. 3:
14. In A.Y. 2010-2011, the Revenue on ground no. 3 challenged the Order of the Ld. CIT(A) in deleting the disallowance of Rs.36,66,75,500/- which was claimed as exempt under section 2(14) of the I.T. Act by the assessee. The A.O. made this addition rejecting the claim of assessee by treating profit on sale of Pooth Khurd village land to be exempt under section 2(14) of the I.T. Act, being agricultural lands not falling in the definition of “Capital Asset”. The assessee had claimed profit on sale of the lands to be exempt on the ground that lands sold by it were agricultural land since agricultural operations were being carried on the said lands by the farmer which fell 9 KM outside local limits of Municipal Committee as on 06.01.1994 which is the date of CBDT’s latest Notification of jurisdiction of Municipal Committees/Corporations. The A.O. for holding that impugned lands are not agricultural lands relied upon the report of Deputy Commissioner, Narela Zone, North Delhi Municipal Corporation, as per which, the lands in question fell within the municipal limits of Ward-27, Begumpur of North Delhi Municipal Corporation. While making the addition the A.O. rejected the Certificate issued by the Consolidation Officer regarding location, position and nature of the impugned lands. The A.O. also noted that holding of land in the hands of the assessee was of very small period. He denied to consider the impugned land to be falling in Section 2(14) and accounted for the profit on sale on the said land as business receipt and taxable income treating the same as Urban Land falling within the municipal limits of North Delhi Municipal Corporation. The A.O. while rejecting the claim of assessee noted that as per provisions of Section 2(14)(iii) of the Act, any land situated within a distance of 8 KM from the local limits of any Municipal Corporation will be treated as Urban Land for the purpose of Income Tax Act and the letter Dated 13.02.20 13 received from the O/o. Assistant Commissioner, Narela Zone proved that all these land properties fall in Municipal Ward-27, Begumpur. Hence, agricultural land in question cannot be held to be agricultural land. The A.O. also noted that the lands have been sold by the assessee generally within four days of entering into agreement. In three numbers of cases, the number of days that the right has been held is 77 days and that too only in one case. The A.O. accordingly made the addition of Rs.36,66,75,500/-.
15. The assessee challenged the addition before the Ld. CIT(A). Detailed written submissions of the assessee are reproduced in the appellate order. The assessee issue-wise explained the matter before the Ld. CIT(A). It is explained that the findings of the A.O. are based on information furnished by an Officer of the North Delhi Municipal Corporation, the origin of which Municipality dates back to merely 3-4 years back. Apparently, it talks of present position of the land whereas relevant portion of the land is one which existed on 06.01.1994 that is the date on which latest Notification about the jurisdiction of the Municipalities of India was got published by the CBDT. The name of North Delhi Municipal Corporation is not mentioned in the said Notification. Hence, the information provided by its functionary is not relevant for this purpose. As per the period for which the position of the impugned land is to be taken into reckoning, even the A.O. has not disputed in his remand report that the period/date for their purpose is 06.01.1994 and not the present position or that which was obtaining on the date of sale of the lands. It was further submitted that limits for this Section 2(14)(iii) from Notified Municipalities have to be seen as they existed on the date on which such Notification was published in the Official Gazette. This is clearly stated in the Explanation-2 to the said Notification No. 9447 itself which is reproduced in the submissions in which it is clarified that reference to the Municipal limits or the limits of Cantonment Board in the Schedule of this Notification is to the limits as existing on the date on which Notification is published in the Official Gazette. The assessee relied upon several decisions in support of the same proposition about the reference and relevance of the CBDT Notification in the matter. The assessee also relied upon decision of Jaipur Bench in the case of Dr. Subha Tripathi 34 taxmann.com 286 in which it was held that “distance of 8 KM had to be taken into account in terms of Notification Dated 06.01.1994 for the purpose whether the land in question fell under mischief of sub-clause (b) of Section 2(1 4)(iii) of the I. T. Act”. It was further submitted that similarly the most Appropriate Authority to determine the position of the land is Tehsildar of the Land Revenue Department who has categorically stated in his Certificate that the lands in question are situated at a distance of 9 KM from the local limits of Municipal Corporation of the Delhi as the position was existing as on 06.01.1994. It was further to be confirmed that name of the Municipal Corporation of the Delhi finds place in CBDT Notificiation Dated 06.01.1994 and not North Delhi Municipal Corporation which is later on created. There are several decisions to hold that Tehsildar is only an Appropriate Authority to issue such Certificate and the names of the case Law are reproduced in the submissions. The Certificate Dated 06.05.20 14 issued by Tehsildar, Narela-Alipur Delhi has clinched the issue squarely in favour of the assessee company by certifying that the lands in question are situated at 9 KM away from local limits of Municipal Corporation of Delhi. In this view of the matter, the impugned lands are agricultural lands which do not fall in the definition of “Capital Asset” under section 2(14) of the I.T. Act, 1961.
15.1. The assessee also explained the issue with regard to small period holding of the land in the hands of the assessee and it is consequence. It was submitted that the A.O. took the view against the assessee because the land was held for a short period. The A.O. took an adverse view of the same and held that since the beginning the mentality of the assessee company was that of purchasing the lands for selling them for profit, rather than retaining for own purposes. The assessee submitted that A.O. has failed to appreciate that period of holding as seen from the sale agreement is deceptive. The assessee does not deal in sale or purchase of lands, properties. It is an infrastructure developer. The agricultural lands in question were purchased with an intention to use them for own purposes. The A.O. failed to see that lot of effort and time was consumed before reaching stage of signing of the agreements. Before entering into agreements with different Farmers for purchase of their respective lands, assessee had undertaken huge spade work for preparing them to part with their lands, for negotiating the price of the land, for verifying genuineness of these vendors, for examining and verifying the ownership paper to ensure very clear title to the land, for ensuring that lands in question are free from any dispute legal etc., ownership, for negotiating payment terms and for determining the settlements of these transactions. After going through of these processes, assessee had entered into an agreement with the sellers of the lands. The A.O. conveniently overlooked and ignored the hidden period between initiation of purchase process and date of signing of the agreements with various vendors/agriculturists. The A.O. failed to appreciate the agricultural lands were intended to be purchased by the assessee company for the purpose of investment and the said purchase was essentially in the nature of investment and for keeping the same as fixed asset with an intention of retaining the same and holding the lands for wealth or otherwise enjoying or using it. It was never treated as stock-in-trade. However, as a matter of chance, some developers and builder parties contacted the assessee during the period. Assessee was making negotiations for purchasing the lands and offer to purchase of land at the high rate. This offer changed the mind of the assessee and it happened to be immediate reason for the sale of the fixed assets within short period of its purchase. There was no intention on the part of the assessee to do business of trading of the land. There was no pre-planning. There was no pre-thought of sale/purchase of the lands was not with any sale motive. The entire history of the assessee company right from its incorporation bears testimony to it that assessee company never entered into sale/purchase of lands as a business proposition. It was submitted that period of holding is not a parameter for determining either the nature of the impugned lands or that of the transaction of sale thereof. The assessee relied upon decision of Hyderabad Tribunal in the case of Tulla Veerender vs., Addl. CIT, Range-6 [2013] 144 ITD 440 (Hyderabad-Trib.) in which it was held that “where intention of assessee from inception was to carry on agricultural operation on the lands in question, the gain from the sale could not be taxed as profit arising from adventure in nature of trade merely because of the short period of holding.” It was further submitted that the character of the land in question of the assessee has not changed. There is no material on record to show that assessee carried on business activities. The assessee was engaged in the agricultural operation and never converted to non-agricultural land. Since the lands in question were agricultural lands, upon which, agriculture has been carried out on the said land, therefore, it was exempt from tax. It was further submitted that the impugned land is governed by the provisions of Delhi Land Reforms Act, according to which, the concept of ownership of the land has been done away with those which were in possession of the land were recognized as tenure-holder with the nomenclature Bhumidhar. The land could not be converted into non-agricultural land because it was subjected to restriction since it was agricultural land and there is no provision under the Delhi Land Reforms Act to change its land use from ‘agriculture to residential’ or ‘commercial’ with the result that there is no scope of its development, urbanization, commercialization and colonization. Therefore, it could not be subjected to commercial exploitation. It is, therefore, not a capital asset to be taxed. It was further submitted that main Director of the assessee company is Shri Kushal Rana who is from agriculturist family. In purchase of these agricultural lands his initial intention is to retain it in the custody of the assessee company and to use it for agricultural purposes. However, he and other member of Management of the Company were deep in negotiation and everything was settling down regarding purchase of the land, certain party approached the assessee for purchase of the land, therefore, land was sold. The comments of the A.O. were called for on the explanation of assessee. The assessee further submitted that the facts would clearly disclosed there was no business transaction. There was no intention of the assessee to purchase the land for any business purposes. The land is essential agricultural land and on sale of the same, the same is totally exempt from tax. It was further reiterated that the land was situated beyond 8 KM from the local Municipal limits. The assessee had not taken or applied for permission from the Government for making plots of the land for development for any commercial purpose. No hoardings were raised to promote land for sale. It was own agricultural land of the assessee. The history of the assessee also supports the explanation of the assessee that assessee never entered into any business transaction in lands. Therefore, assessee was not indulged in any adventure in the nature of trade and surplus earned by it on transfer of the agricultural land and amount received was pure and simple tax free receipt. Several case Law in support of the same were relied. The assessee further explained regarding status of Poot Khurd land. The transaction on the said land was made during the period 2009-2010 when its status in the record of the Revenue Authorities was, agricultural land and agricultural operations were being carried out which is confirmed by the Department of Land Revenue, Government of Delhi and still status of the land is agricultural land. The Tehsildar has issued Certificate confirming the land in question is agricultural land and beyond Municipal limit. The assessee ultimately explained that the finding of the fact recorded by the A.O. are incorrect and are liable to be set aside. The Ld. CIT(A) considering the material on record in the light of various case Laws held that the land in question is agricultural land and profit earned on sale of the said land is a capital receipt. The addition was accordingly deleted. The findings of the Ld. CIT(A) are reproduced as under:
MY FINDINGS:
“I have perused the assessment order, written submissions and disused the matter with the AR very carefully. The evidences, remand report of AO were also discussed with them.
The remand proceedings and opportunities given to ARs are described below: –
13. After affording opportunity of being heard to the AO on the fresh evidence filed by the appellant at the appellate stage, the fresh evidence, which is in the form of a certificate issued by the Tehsildar, a Revenue authority of the Delhi Govt., is admitted and taken into consideration for deciding the case.
14. After duly considering the remand report and the rejoinder of the appellant, the cases cited and the oral arguments advanced by Ld. AR on the impugned issue, it is observed that the determination of the exact nature of land purchased and sold by the appellant lies at the core of the impugned issue. The appellant company vehemently pleaded that the said lands are agricultural lands falling in the exempt category under section 2(1 4)(iii)(b). On the contrary, the AO held that the lands, in question, were urban lands and fell under the category of ‘capital asset’. He has based his finding on the report of the Assistant Commissioner, Narela Zone, North Delhi Municipal Corporation, as sent vide letter No. AC/NRZ/2013/525 dated 13.02.2014. It is further seen that the position and nature of impugned lands is to be adjudged as per the latest CBDT notification No. 164/3/87-ITA dated 06.01.1994 [1994] 205 ITR (Stat) 0121B. As per this notification, “This notification shall have effect on and from the date of its publication in the Official Gazette. (2) The reference to municipal limits or the limit of Cantonment Board in the schedule to this notification is to the limits as existing on the date on which limit as existing on the date on which the notification is published in the Official Gazette.” So, the position of lands as is obtained as on 06.01.1994 rather than the present position is to be taken into account. The case laws on this point also support the above position. The ITAT, Jaipur held in the case of Smt. (DR) Subha Tripathi, vs. DCIT (12013) 34 taxmann.com 289 that “if agricultural land fell beyond 8 kms. of municipal limits on the date of publication of relevant CBDT notification but feel within 8 kms. on the date of sale of land, it would still fall outside the term ‘Capital Asset’.”
In this view of the matter, only the certificate issued by the Tehsildar, Narela Sub-Division, Alipur, Delhi is the evidence to be taken into consideration as North Delhi Municipal Corporation, which came into existence on trifurcation of MCD, of which Assistant Commissioner, Narela Zone and the Nigam Pars had are authorities, did not exist as on 06.01.1994 and name of this municipality does not figure in the said notification. The said municipality is not a notified municipality for the purposes of section 2(14) of the I. T. Act, 1961. The reports of these two authorities of North Delhi Municipal Corporation state the present position of the impugned lands whereas certificate of Tehsildar describes its position as on the date on which CBDT notification was published in the Official Gazette. So, going by the report of the Tehsildar, the lands at Pooth Khurd Village from Mustil No. 70 to 105 are held as agricultural lands, which do not fall in the definition of ‘capital asset’, as provided in Section 2(1 4)(iii)(b) of the Act.
It is further stated that though the period of holding is small, it does not affect the nature and position of the lands, in question. Period of holding is not one of the parameters to determine the nature of lands.
The AO has further stated that the transactions of the appellant in the Pooth Khurd lands are in the nature of trade. The appellant has pleaded that the assessee company is not doing any business of sale purchase of lands, be it agricultural land or urban residential/commercial estate dealer. It further pleaded that the lands, in question, were being purchased for own use but in the meantime some buyer contacted the appellant and they offered handsome amount and that the appellant deemed it feasible to sell the agricultural lands. He relinquished his ‘right to obtain conveyance’ vested in it by virtue of the ‘Agreement to sell’ undertaken with the farmers. Relinquishment of ‘right’ would amount to ‘tranfer’ within the meaning assigned to the term under the provisions of sec. 2(4 7) of the Act. As per the decision of Hon’ble Delhi High Court in the case of E.K. Kashyap vs. ACIT (2008) 302 ITR 255 (Delhi), “interest was ultimately relinquished by him in favour of a new vendee by virtue of agreement dated 26.09.1995 and the consideration received by him for relinquishing his rights in the property, thus attracted the provisions of sec. 45(1) making him liable to capital gains tax” this decision was re-emphasized by the jurisdictional High Court in the case of Simka Hotels & Resorts vs. DCIT (2013) Taxman 482 (Delhi) by holding that “Even when as assessee becomes entitled to an undefined and undivided share in a property, though an agreement, which he later relinquishes, the gain has to be assessed as income from capital gain, and not as income from other sources.”
The appellant has also cited the following decisions, wherein it was held that right to obtain a conveyance of immovable property falls within the expression ‘property of any kind’ used in sec. 2(14) and amount received in connection therewith is liable to capital gains tax:
i. CIT vs. Teleservices Ltd. (1980) 122 ITR 594 (Bombay)
ii. Hochat Kizhakke Madathil Venkateswara Aiyar vs. Kallor Illath Raman Nambudhri, AIR 1917 Mad. 358.
iii. CIT vs. H. Anil Kumar (2011) 242 CTR 537 (Karnataka)
iv. CIT vs. Vijay Flexible Containers (1990) 186 ITR 693 (Bom.)
v. CIT vs. Smt. Laxmidevi Ratani & Others (2008) 296 ITR 363 (MP)
vi. K.R. Srinath vs. ACIT (2004) 268 ITR 436.
Ld. AR of the appellant contended that merely because of the fact that the land was sold for profit, it cannot be held that income arising from the said transaction would be taxable as ‘business income’ citing the case of Constructions Co. vs. ITO, Ward 4(2) [2013] 39 taxmann.com 181 (Hyderabad-Trib). Ld. AR cited another case of Hyderabad ITAT ie. of Harnkis Park (P) Ltd. vs. ITO, Ward 2(2) (2014) 62 SOT 15, wherein it was held that the profit earned on sale of a land wherein agricultural operations were being carried out and which was also classified as agricultural land in revenue records, is agricultural income of the assessee.
It is also observed that the lands were sold by the assessee, as it is, since no plotting was done, no development activity was made on the lands, no providing of roads and other facilities were created. It is further seen that no advertisement for the sale of land was made. The character of the land in the hands of the appellant company has not changed. The agricultural land was sold by the appellant in acreage and not by making plots. The land in question is classified in the revenue records as agricultural land and actual cultivation has been carried out on this land as per revenue records. The AO has not brought on record any evidence to show that the agricultural land was used for nonagricultural purposes. Further, he has brought no material on record to show that the appellant carried on activities of buying and selling of land in a systematic manner so as to justify the action of the AO.
15. After duly considering the above facts, cited case laws on the issue and written submissions of the appellant, I hold the Pooth Khurd Village land to be an agricultural land and profit earned on sale of the said land to be a capital receipt of the appellant company. Consequently, addition made at Rs. 36,66,75,500/- is hereby deleted.”
16. The Learned D.R. relied upon the order of the AO. He has submitted that the land was within the municipal area / limit. PB-370 is agreement to sale to purchase land in Pooth Khurd, Delhi, Dated 15.11.2009. It is in Narela Zone, MCD. Ph-377 is assignment agreement dated 16.11.2009 by assessee. PB-362 to 369 are details of properties. The Learned D.R. referred to PB-8 1 to 82 (Departmental paper book) which is Delhi Municipal Corporation Amendment Act to show that the same extend only to Delhi and that Delhi means entire area of Union Territory of Delhi except New Delhi and Delhi Cantonment. The Learned D.R. therefore submitted that entire Delhi Municipal Corporation Act is applicable to entire Delhi. The learned D.R. relied upon Judgment of the Hon’ble Delhi High Court in the case of CIT vs., Surjan Singh 125 taxman 1075 (Del.) in which it was held that capital gain arising on transfer of agricultural land in village Nangal Dewat, Delhi is chargeable to tax. It has been held that it is the population of the Municipality as a whole and not of any part of the area of it, that has to be taken into account for the purpose of section 2(14)(iii)(a) to determine, whether property in the particular area is exigible to capital gains. The learned D.R. also relied upon Judgment of the Hon’ble Supreme Court in the case of G.M. Omerkhan vs. Addl. CIT 196 ITR 269 in which also similarly held that it is the population of the Municipality which is so to be taken into account for the purpose of Section 2(14)(iii)(a) and not population of any area within the Municipality. The learned D.R. also relied upon Judgment of Delhi High Court in the case of CIT vs., Deep Chand 257 ITR 756 in which it was held that capital asset, whether capital gain arising on transfer of agricultural land situated in village Nangal Dewat, Delhi is chargeable to capital gain tax – Held” Yes”. The learned D.R. therefore submitted that since it falls in Delhi Municipal Corporation Area so it is capital asset. The learned CIT(A) did not appreciate the case of assessee. The Learned Departmental Representative submitted that Section 2(14)(iii)(a) apply to the facts of the case. There is no need to go to Section 2(14)(iii)(b) of the I.T. Act. Only part payment was made to the seller and rest of the payment was made by further purchaser to the seller directly. The assessee assigned the land interest. Assessee had not intended to hold the land. Therefore, it was business activity of the assessee. The Learned D.R. relied upon the Judgment of the Delhi High Court in the case of Vardan Buildcon Vs. ACIT [2012] 21 taxmann.com 446 (Del.) in which it was held that where real estate developer purchased the land to develop the same and sold the same within a short span of year or so, income on sale of the land would be assessed as business income and not capital gains. The learned D.R. relied upon the Order of ITAT, Hyderabad Bench in the case of G.K. Properties Pvt. Ltd., vs., ITO 25 taxmann.com 197 in which it was held that purchase of agricultural land with sole motive to sell the same for earning profit to be treated as business income and no capital gain. The learned D.R. also relied upon Judgment of the Hon’ble Kerala High Court in the case of N.A. Baby Vs. DCIT [2016] 383 ITR 585 in which it was held that where assessee having purchased agricultural land, converted the same into barren land and thereupon sold it within a short period of purchase, the said activity was to be regarded as an adventure in nature of trade and consequently profit earned on sale of land was to be taxed as business income. The learned D.R. submitted notification Dated January, 1994 is with regard to section 2(14)(iii)(b) of the I.T. Act and not with Section 2(14)(iii)(a) of the I.T. Act. He has submitted that area is in Municipal Corporation of Delhi, no Revenue Certificate is relevant. The CBDT Circular could not apply the certificate given by Assistant Commissioner, Municipal Corporation of Delhi [“MCD” ] that the land in question fall in MCD area, therefore, provisions of DMC Act would apply.
17. On the other hand Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has submitted that Section 2(14) of the I.T. Act for the assessment year under appeal was amended in 2014. No further notifications have been issued. PB-203 is Certificate of the Tehsildar in which he has certified that the land in question is agricultural land and agricultural operations were being conducted on the said land by the Farmers and the said agricultural lands are situated at a distance of 9 KM from the local municipal limits as these limits existed on or prior to 06.01.1994 of the Municipal Corporation of Delhi. He has referred to PB-268 which is notification of the CBDT dated 06.01.1994 which is also reported in 205 Statute 121B which is issued under Section 2(14)(iii)(b) of the I.T. Act which specified the scope of urbanisation of the area concerned and other relevant consideration and the lands fallen outside municipal limits. Learned Counsel for the Assessee referred to PB-273 to show that in Delhi areas up-to distance of 8 KM from the limits of Municipal Corporation in all directions falling outside the local limits of Municipality. He has submitted that thereafter no further notifications have been issued. The North Municipal Corporation of Delhi has been created in the year 2011. The Certificate of the North Municipal Corporation of Delhi Dated 13.12.2013 [PB-348] have been issued subsequently in which also it is mentioned that map of the ward is not available with this office. This North Municipal Corporation was thus not in existence in assessment year under appeal. Learned Counsel for the Assessee referred to Pages 1 and 2 which are Certificate of the Halka Patwari who have confirmed that the land in question is outside approximately 10 KM from the municipal limits and the population of village is around 7000 in the area. Learned Counsel for the Assessee relied upon following propositions in various decisions:
I. Patwari is the designated officer and is the competent authority that is authorized to issue certificates measuring distance from the municipal limits
1. ACIT 33(1), Mumbai Vs. Alkesh Kantilal Patel, Mumbai on 3 April, 201 7/ITA No. 4270/Mum/201 5
2. Income-tax Officer 5(1), Indore Vs. Ashok Shukla [2012] 139 ITD 666 (Indore)
3. Commissioner of Income-tax, Faridabad Vs. Lal Singh [2010]325 ITR 588 (Punjab & Haryana)
4. Commissioner of Income-tax, Coimbatore Vs. KRN Prabhakaran (HUF) [2017] 393 ITR 175 (Madras)
II. Agricultural land would fall outside term ‘capital asset’ if it fell beyond 8 kms of municipal limits on date of publication of relevant CBDT notification:
5. Satya Dev Sharma Vs. Income Tax Officer, Ward 5(2), Jaipur [2014] 46 com 149 (Jaipur – Trib.)
6. Smt. (Dr.) Subha Tripathi Vs. Deputy Commissioner of Income-tax, Circle -6, Jaipur [2013] 34 taxmann.com 286 (Jaipur – Trib.)
7. Dinesh Kumar Jain Vs. ITO, Ward 6(1), Jaipur [2017] 78 com 53 (Jaipur – Trib.)
8. Deputy Commissioner of Income-tax, Circle 8, Kolkata Arijit Mitra [2011] 16 taxmann.com 66 (Kol.)
9. Capital Local Area Bank Ltd. Vs. A CIT-III, Jalandhar [2017]82 com 387 (Amtritsar – Trib.)
III. Income from agricultural land was not business income
10. Marigold Merchandise (P) Ltd. Vs. DCIt [2015] 55 com 358 (Delhi – Trib.)
11. Goutham Constructions Co. Vs. ITO, Ward 4(2), Hyderabad [2013] 39 com 181 (Hyderabad – Trib.)
12. Hindustan Industrial Resources Ltd. Vs. ACIT [2011] 335 ITR 77 (Delhi)
13. Principal Commissioner of Income tax, Rajkot-1 Vs. Heenaben Bhadresh Mehta [2018] 409 ITR 196 (Gujarat)
IV. Gain from sale of land could not be taxed as profit arising from adventure in nature of trade, merely because of short period of holding
14. Tulla Veerender Vs. ACIT, Range-6 [2013] 144 ITD 440 (Hyderabad – Trib.)
V. Exemption u/s 2(14) is available even when sale of the agricultural land takes place on agreement to sell
15. CIT, Meerut Vs. Smt. Sanjeeda Begum [2006] 154 TAXMAN 346 (ALL.)
16. Mangal Singh (HUF) Vs. ACIT, Gurgaon Circle, Gurgaon [2010] 36 SOT 394 (Delhi)
17. ITO, Ward 7(2), Jaipur Vs. Megh Chand Meena, HUF [2016] 159 ITD 457 (Jaipur – Trib.)
18. ITO, Business Ward IV(3), Chennai Vs. P. Prakasam [2014] 62 SOT 127 (Chennai – Trib.) (URO)
19. N. Jayamurgan Vs. DCIT, Central Circle 2(1), Chennai [2016] 70 taxmann.com 24 (Chennai – Trib.)
18. Learned Counsel for the Assessee submitted that the land is out of 8 KM from DMC area, therefore, notification of 1994 would apply. He has submitted that the learned D.R. cited old decisions when notification of 1994 was not in force. Since the assessee sold the agricultural land as it is, so, no business activity has been conducted by assessee and no business income has been earned. PB- 164 is the remand report filed by A.O. supported by letter Dated 28.06.20 14 of Sub-Divisional Magistrate, North Delhi in which information to A.O. under section 133(6) have been supplied in respect of the subject matter in which it is clearly certified that the land in question is situated at a distance of 9 KM from local municipal limits which is supported by copy of the certificate. Learned Counsel for the Assessee submitted that notification dated 06.01.1994 was issued as per the Act. The learned DR filed copy of MCD. However, CBDT circular is relevant to prove the land holding, therefore, MCD record is not relevant. The assessee shows that it has made investment in agricultural land. No business activity in land has been done. Sale of agricultural land is not taxable. So period of holding is not relevant. Nature and Character of land shall have to be seen. Learned Counsel for the Assessee, therefore, submitted that Ld. CIT(A) correctly deleted the addition.
19. We have considered the rival submissions. It is not in dispute that Tehsildar, Revenue Department and Patwari, Revenue Department have certified that the lands in question falls more than 8 KM from the Municipal limits. Since it is also not disputed that the lands in question at the time of purchase by assessee was agricultural land, therefore, it is governed by Delhi Land Reforms Act. The assessee did nothing in the agricultural land. The assessee did not make any request for conversion of the land use and did not made plotting in the said land. The assessee with great efforts purchased the lands in question from several Farmers and after making these efforts during the long period purchased the land and since some other party approached the assessee for purchase of the lands in question at a higher rate, the assessee has sold the lands to other party. Therefore, there is no question of assessee doing any business activity in the agricultural land. The Revenue Authorities have also certified that at the time of purchase by assessee, the land was cultivated as agricultural land by the Farmers. Therefore, land use was agricultural land only. No land use was changed at any point of time. The CBDT has issued notification dated 06.01.1994 under section 2(14)(iii)(b) of the I.T. Act regarding urbanisation of area. This notification has clarified the area which have fall outside the local limits of Municipality and as regards Delhi, it is explained that the area up to the distance of 8 KM from the limits of Municipal Corporation in all directions shall have to be excluded. No other notification has been issued by CBDT thereafter. Therefore, issue shall have to be considered in the light of aforesaid circular. Section 2(14) deals with the capital asset and exception is provided in sub-clause (iii) of Section 2(14) of the I.T. Act. It has two parts of agricultural land in India not being lands situated:
“2(1 4)(iii) (b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette.”
20. The learned D.R. contended that the case of the assessee would fall in Section 2(14)(iii)(a) of the I.T. Act. However, while applying the aforesaid provision it has to be proved that population of that area was more than 10000 as per the last preceding Census. Further, no such case has been made-up by the A.O. The AO has not brought any material on record to satisfy if the said provision is applicable to the case of the assessee and what is the population of that area where the land in question is situated. Therefore, contention of Learned D.R is rejected that provisions of Section 2(14)(iii)(b) of the I.T. Act are not applicable. It is specified in section 2(14)(iii)(b) that the agricultural land which is situated beyond 8 KM from the local limits of the Municipality were referred to in item (a) (supra) as the Central Government may having regard to extend of and scope of urbanising of that area and other relevant factors specified in this behalf by the Notification in the Official Gazette. Therefore, sub-clause (a) to Section 2(14) (iii) is excluded by sub-clause (b) of the aforesaid Section by issuing notification by the CBDT. It is well settled Law that the CBDT instructions are binding on Income Tax Authorities. According to the Notification Dated 06.01.1994 if the land in question is situated outside 8 KM from the Municipal limits, it would be agricultural land and would not fall within the definition of “capital asset”. No other notification has been issued by the CBDT. Therefore, the case of the assessee is supported by Certificate of Patwari as well as Tehsildar and Sub-Divisional Magistrate of Delhi in which it is clarified that the land in question is situated more than 9 KM from the municipal limit and the population of the area is about 7000 only. Therefore, contention of the Learned D.R. is rejected. It may also be noted here that Amendment in the Act is made in the year 2014 which is not relevant to the matter in issue. The North Municipal Corporation Delhi is created in the year 2011 and they have issued certificate in the year 2013. Since it was not in existence in assessment year under appeal, therefore, such notification issued by North Municipal Corporation Delhi is not relevant. The assessee has admittedly sold the agricultural land as it is so there were no intention to do any business activity, therefore, period of holding would not be relevant. The intention of the assessee is therefore clear that assessee purchased the agricultural land and sold the agricultural land as it is. The assessee never treated the said agricultural land as stock in trade and never converted into non agricultural land. The assessee did not create any plot in the said land and no developmental activities have been done and no facilities have been provided. The assessee did not make any advertisement for sale of the land. The character of the land in the hands of assessee as agricultural land has not changed. The agricultural land in question is classified in revenue record as agricultural land and actual cultivation was done as per the record. The AO has not produced any evidence on record to show agricultural land was used for nonagricultural purposes. The AO has also not brought information/evidence on record. The assessee had been carried on activities of buying and selling of the land in a systematic and regular manner. It is well settled Law that Certificate of the Tehsildar and Patwari who are the designated Officers and is Competent Authority and are authorised to issue Certificate measuring distance from Municipal Limits which relevant. The ITAT, Jaipur Bench in the case of Satya Dev Sharma Vs. Income Tax Officer, Ward 5(2), Jaipur 46 taxmann.com 149 (supra) held as under:
“IT: For purpose of application of item (b) of sub-clause (iii) of section 2(14) and to measure KMs from radius of Municipal Corporation, relevant date would be date of notification and not date of sale of land in question”
21. The ITAT, Jaipur Bench in the case of Smt. (Dr.) Subha Tripathi Vs. Deputy Commissioner of Income-tax, Cirle-6, Jaipur 34 taxmann.com 286 held as under:
“IT: If agricultural land fell beyond 8 kms of municipal limits on date of publication of relevant CBDT notification but fell within 8 kms on date of sale of land, it would still fall outside term ‘capital asset’.”
- The ITAT, Jaipur Bench in the case of Dinesh Kumar Jain Vs. Income-tax Officer, Ward 6(1), Jaipur 78 com 53 held as under:
“IT: Amendment to section 2(14) by Finance Act, 2013 cannot apply for assessment year 2011-12; for this year distance of agricultural land from nearest municipality was to be measured by approach road.”
23. Since the land in question is dealt by Delhi Land Reforms Act and nothing is brought on record of violation of the aforesaid provisions and the Competent Authority under the Delhi Land Reforms Act, Certified that the lands in question falls beyond 8 KM from the Municipal Limits, therefore, there is nothing wrong in the findings of the Ld CIT(A) in holding that land in question is agricultural land and amount earned on sale of the land to be capital receipt. The decisions relied upon by the Learned D.R. would not support the case of the Revenue. Considering the totality of the facts and circumstances, we do not find any infirmity in the order of the Learned CIT(A) in allowing the claim of assessee. We, therefore, do not find any merit in the departmental appeal on this ground and the same is dismissed accordingly. In the result, Ground No.3 of the appeal of the Revenue for the A.Y. 2010- 2011 is dismissed.
24. In A.Y. 2011-2012, the Revenue on Ground No.3, challenged the Order of the Ld. CIT(A) in deleting the addition of Rs. 18,03,84,934/- on account of exemption claimed under section 2(14) of the I.T Act. The Ld. CIT(A) reproduced the facts and submissions of the parties in the appellate order and noted that he has decided the similar issue in A.Y. 2010-2011 and following the same, he has deleted the addition. Learned Representatives of both the parties submitted that the issue is same as have been considered in A.Y. 2010-2011 (supra). Following the same reasons for decision, we dismiss this ground of appeal of the Revenue.
25. In the result, Ground No.3 of the appeal of the Revenue for the AY 2011-2012 is dismissed.
ISSUE NO.4:
26. In AY 2010-2011, Revenue on Ground No.4 challenged the Order of the Ld. CIT(A) in directing the AO to allow 1 / 5th of ROC fees of Rs.6,50,000/- and balance in four years. The Assessee on Ground No.4 in its appeal for AY 2010-11 has challenged the Order of the Ld. CIT(A) in allowing part relief.
27. The AO noted that the authorised share capital of assessee company has increased from Rs. 10 lakhs to Rs.5 1 The assessee was asked to file details of the same and why the fees on this increase should not be disallowed being capital in nature. The assessee submitted that ROC fees paid for increase in authorised share capital has been shown in preliminary expenses it has also furnished copy of the preliminary expenses in which total amount of Rs.32,50,000/- have been booked, out of which, an amount of Rs.6,50,000/- has been written off and debited in the P & L Account on account of preliminary expenses written off. The AO, therefore, noted that it is crystal clear that the amount of Rs.6,50,000/.- claimed by assessee company being preliminary expenses written off under section 35D of the Act is related to the increase in authorised share capital, therefore, the expenditure incurred on the increase of authorised share capital is not allowable under section 35D of the I.T. Act. The claim of assessee was accordingly rejected and addition was accordingly made. The Ld CIT(A), however, noted that as per Section 35D only 1/5th of the expenses could be allowed in each 05 years and was accordingly directed to disallow the whole amount of Rs.6,50,000/- and allow 1/5th of the expenses i.e., Rs1,30,000/- in assessment year in appeal and balance in four years.
27.1 The learned DR relied upon the Order of the AO and contended that ROC fees was paid for increase of share capital which was capital expenses only. The Learned DR relied upon the Judgment of Hon’ble Delhi High Court in the case of CIT vs., Hindustan Insecticides Ltd., 116 Taxman 406 in which following the Judgment of Hon’ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. Vs. CIT, 225 ITR 792 and Brooke Bond India 225 ITR 798, the Hon’ble Delhi High Court held that since expenses incurred in connection with the issue of shares with a view to increase its share capital was directly related to expenditure expansion of capital base of the company was capital expenditure even though it might incidentally help in company’s business. The issue was decided against the assessee. Ld Counsel for the Assessee did not dispute the above legal proposition.
28. We have considered the rival submissions. In assessment year under appeal the assessee company has increased its authorised share capital. The assessee paid ROC fees. The issue is, therefore, covered by the Judgment of the Hon’ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited and Brooke Bond India Limited (supra) against the assessee, in which it was held that fees paid to the Registrar of Companies for enhancement of capital is capital expenditure. In this view of the matter, we set aside the Order of the ld. CIT(A) and restore the Order of the AO as no deduction is permissible and Section 35D would not be applicable.
29. In the result, Ground No.4 of the appeal of the Revenue for the AY 2010-2011 is allowed and Ground No.4 of the appeal of Assessee for the AY 2010-2011 is dismissed.
ISSUE No. 5:
30. On Ground Nos. 2 and 3 of Assessee’s appeal for the AY 2010-2011 the assessee challenged the Order of the Ld. CIT(A) in confirming the addition of Rs.4 crores made under section 51 of the I.T. Act on account of treating the forfeiture of advance paid for acquisition of property as capital loss without considering the facts and circumstances of the case.
31. The Ld. CIT(A) noted that this ground of appeal was directed against the addition of Rs.4 crores made on account of non-allowing of loss of purchase of property which occurred on account of forfeiture of advance by seller. The AO did not allow the loss on the transaction stating that purchase agreement in respect of property was neither Registered nor Notarised and that property in question is of residential property and, therefore, transaction of purchase of the same was not business transaction which was capital in nature therefore, such loss suffered was not allowable. The assessee filed detailed submissions before Ld CIT(A). It was replied that assessee company has entered into an agreement to purchase the constructed property bearing M- 15, NDMC Part-2, New Delhi for which advance at Rs.4 crores was paid at the time of making the agreement to sell/ purchase. The deal was for Rs.30 crores and balance Rs.26 crores was agreed to be paid within next 15 days and to get sale deed registered. The assessee company eventually failed to keep its promise of payment of the balance amount to the seller on account of having not been able to arrange the money in given time. Therefore, seller has forfeited the amount which is business loss. The objections of the AO about agreement to sell is not registered is not valid. The agreement is made on non-judicial stamp paper and duly singed by both the parties and two independent witnesses. There is no legal requirement that agreement should be registered or should be notarised. The advance/earnest money was paid through account payee cheques and has been encashed by the seller. The genuineness of the transaction could not be doubted. AO without considering the totality of the facts and circumstances of the case and without considering the entire transaction, rejected the claim of assessee. The Ld. CIT(A) however, dismissed this ground of appeal of assessee. Learned Counsel for Assessee submitted that no information was confronted to the assessee and the authorities below without considering the issue in proper perspective have confirmed the addition. He has, therefore, prayed that the matter may be sent back to the AO for reconsideration. The Ld DR has also suggested that the matter could be remanded to the AO for fresh consideration. Considering the facts and circumstances of the case and nature of business of assessee that assessee is engaged in the business of infrastructure, purchase, manufacturing, trading, import and export of construction material, mining extracts etc., we are of the view that the matter have not been appreciated by the authorities below in accordance with the Law. Since both the parties have suggested that the matter may be remanded to the file of AO, therefore, in the interest of justice, we set aside the Orders of the authorities below and restore this issue to the file of AO with a direction to re-decide this issue in accordance with Law, by giving reasonable, sufficient opportunity of being heard to the assessee.
32. In the result, Ground Nos. 2 and 3 of the appeal of the Assessee for the AY 2010-2011 are allowed for statistical purposes.
ISSUE NO.6:
33. In AY 2011-2012, on Ground Nos. 2 and 3, assessee challenged the addition of Rs.2,51,000/- on account of disallowance of TDS default.
34. The AO disallowed the impugned amount stating that assessee has committed short deduction of TDS on certain The addition was accordingly made. The Ld CIT(A) confirmed the addition.
35. Learned Counsel for the Assessee submitted that assessee has not claimed such amount as expenses in P & L A/c, therefore, matter requires reconsideration.
36. Considering the above facts, we set aside the Orders of the authorities below and restore this issue to the file of AO with a direction to verify the record and in case no expenses have been claimed by assessee in P & L A/c, then, no addition could be made on account of non-deduction of TDS, otherwise, it would amount to double addition. The AO shall give reasonable, sufficient opportunity of being heard to the assessee.
37. In the result, Ground Nos. 2 of the appeal of assessee for the AY 2011-2012 is allowed for statistical purposes.
ISSUE NO.7:
38. On Ground No.3 in appeal of assessee for the AY 2011- 20 12, the assessee challenged the disallowance of 1 1,11,000/- under section 37 of the I.T. Act.
39. The AO has stated in the assessment order that assessee has claimed deduction under section 80G of Rs. 11,11,000/-, but, it failed to produce any proof, therefore, it was disallowed under section 37 of the I.T. Act, 1961.
40. The assessee submitted before the Ld CIT(A) that amount in question were directly paid to the construction material supplier M/s. Siddhi Vinayaka Steel for purchase of iron and steel which material was donated to an old and dilapidated temple for its renovation at the prayer of its employees who happened to regularly visiting the temple existing close to their work site. The bills were drawn in the name of assessee company. The Temple Trust has acknowledged the receipt of donation made for renovation of the Temple. The assessee claimed it to be business expenditure. The Ld CIT(A), however, noted that the receipt issued by the Trust based no information whether Trust has obtained approval of CIT under section 80G of the I.T. Act. Therefore, this ground of the assessee was dismissed.
41. Learned Counsel for the Assessee merely relied upon the Order of the AO and has not produced any approval under section 80G of the I.T. Act of the Temple, whether the said Temple was authorised to collect donation? Further, as per Explanaion-5 to Section 80G of he I.T Act, no deduction shall be allowed under this Section of any donation unless such donation is of a sum of money. Therefore, claim of assessee could not be allowed. This ground of appeal of Assesse is dismissed.
42. In the result, Ground No.3 of the appeal of Assessee for
ISSUE No.8:
43. On Ground No.4 in the appeal of assessee for the AY 2011-2012, assessee challenged the Order of the Ld CIT(A) in disallowing Rs.41,000/- on account of tour and travel The AO disallowed the above amount because the same did not pertain to assessment year under appeal because that was of dated 02.04.2011. The ld CIT(A) also noted that the expenditure pertain to subsequent AY 2012-2013, therefore, this ground was dismissed.
44. After considering rival submissions, we do not find any merit in this ground of appeal of assessee. Since the bill submitted by assessee of the expenditure do not pertain to the assessment year under appeal, therefore, there is no infirmity in the Order of the Ld CIT(A) in dismissing this ground of appeal of assessee. Ground No.4 of the appeal of Assessee for the AY 2011-2012 is dismissed.
45. No other point is argued or pressed.
To sum-up
(1) The Departmental Appeal for the AY 2010-2011 is partly allowed and the Departmental Appeal for the AY 2011-2012 is dismissed.
(2) The Assessee’s appeals for the AYs 2010-2011 and 2011-2012 are partly allowed for statistical purposes.
