ITAT Bangalore remanded the matter back to AO for fresh consideration as assessee didn’t proved existence of business exigency in making payment in cash and AO didn’t carried necessary enquiry before making addition u/s 40A(3) of the Income Tax Act.
Facts- In the present case, it is alleged that the assessee has made payment of various expenditure exceeding Rs.20,000/- in cash while purchasing the land. According to the A.O., it is the violation of provisions of section 40A(3) of the Act. Accordingly, he disallowed that expenditure made in excess of Rs.20,000/- otherwise than by crossed cheque or DD. Whereas, the assessee conteded that these payments are made for purchase of land. The genuineness of payment to the payee who is identifiable and all these payments are duly recorded in the assessee’s books of accounts and also supported by registered sale deeds. Being a genuine cash payment, section 40A(3) of the Act cannot be applied.
Conclusion- Held that since assessee has not proved existence of business exigency in making the payment by way of cash otherwise by crossed cheque or DD or electronic clearance system through bank and AO also not carried necessary enquiry on this count by examining all the sale deeds entered by the assessee with the parties, in our opinion, in the interest of justice, it is appropriate to remit the entire this issue in dispute to the file of AO for reconsideration. Accordingly, the issue in these appeals with regard to addition made u/s 40A(3) of the Act is remitted back to the AO for fresh consideration to decide the same after giving opportunity of hearing to the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals by assessee for the assessment years 2010-11 to 2015-16 are directed against different orders of CIT(A)-11, Bangalore, all are dated 25.10.2022, The certain grounds raised by assessee in all these appeals are common in nature. Hence, these are clubbed together, heard together and disposed of with this common order for the sake of convenience.
2. Facts of the case are that there was a search action in the case of assessee on 9.10.2014 u/s 132 of the Act. Consequent to this search action, notice u/s 153A of the Act was issued to the assessee on 2.7.2015. In response to this notice, assessee filed return of income for these assessment years. Consequently, order u/s 143(3) r.w.s. 153A of the Act has been issued for the assessment years 201011, 2011-12, 2012-13, 2013-14 & 2014-15 and also framed assessment for AY 2015-16 u/s 143(3) r.w.s. 144 of the Act.
2.1 The assessee went in appeal before the ld. CIT(A) against these orders in respect of assessment years 2010-11, 2011-12 & 2015-16, wherein ld. CIT(A) deleted the additions. Against this, department came in appeal before this Tribunal vide ITA No.3014-Bang/2018, 3015/Bang/2018 & 3016/Bang/2018 for these 3 assessment years. The Tribunal set aside the order of ld. CIT(A) to the file of respective jurisdictional CIT(A) to decide these appeals afresh in accordance with law after due opportunity of hearing to the assessee since these appeal orders have been passed by ld. CIT(A)-11 between 5.7.2018 to 13.7.2018 involving different assessees and during that time the said CIT(A)-11 who has passed those orders have no power to pass such orders, since his power has been withdrawn w.e.f. 18.6.2018 by Director General of Income Tax (Investigation), Karnataka & Goa, Bangalore and the issue once again came before the concerned CIT(A) for re-adjudication vide order of the Tribunal dated 22.2.2021. The ld. CIT(A) in these assessment years in ITA Nos.1164/Bang/2022, 1165/Bang/2022 & 1170/Bang/2022 has passed fresh order. Against this assessee is in appeal before us.
2.2 In the case of ITA Nos.1166 to 1169/Bang/2022 the assessee is in appeal before us against the orders of ld. CIT(A) dated 25.10.2022, which is passed consequent to assessment order passed u/s 143(3) r.w.s. 263 of the Act. In these assessment years, the original assessment order was subject matter of revision and thereafter the assessee came before this Tribunal in ITA Nos.1376 to 1379/Bang/2019, wherein assessee challenged the jurisdiction of ld. PCIT (Central) to invoke the provisions of section 263 of the Act for revision of the assessment order passed by AO and also raised the issue relating to applicability of principles of merger of issues since the appeals were pending before ld. CIT(A) at that time and also raised the issue that there was no seized material to frame the assessments in these assessment years. These issues were disposed by the Tribunal as follows:
23. He thus vehemently supported impugned order by submitting that, Ld.AO in years under consideration did not verify/enquire payments made in cash, claimed as expenditure by assessee.
We have perused submissions advanced by both sides in light of records placed before us
24. Decisions relied by Ld.AR is not in the context of applicability of Explanation 2. Explanation 2 was inserted by the Finance Act, 2015, w.e.f 01/06/2015. Explanation 2 sets out, what orders passed by Assessing Officer constitute orders, which are erroneous, in so far as they are prejudicial to the interest of Revenue. We have perused Explanatory notes to Memorandum of Objects to the Finance Bill, 2015, reported in (2015) 371 ITR 233 (St). It has been mentioned that, issue of what constitutes assessment orders, “erroneous and prejudicial to the revenue”, is a contentious one and Explanation 2 was introduced to clarify, what constitutes an erroneous order that is prejudicial to the revenue.
At this juncture, we agree with argument advanced by Ld. Standing Counsel that if interpretation advanced by Ld.AR is accepted, all decisions passed by Hon’ble High Courts across the country and Hon’ble Supreme Courts, upholding orders passed under section 263 for no enquiry, will have to be considered redundant. This cannot be the intention of legislature. In our opinion, Explanation 2 is clarificatory in nature, as it expressly specifies circumstances under which Ld .Pr. CIT could invoke section 263. Provisions of Section 263 was considered by Hon’ble Supreme Court in case of Malabar Industrial Co. Ltd. v. CIT (supra). It was held by Hon’ble Supreme Court that the phrase ‘prejudicial to the interests of the revenue’, has to be read in conjunction with an erroneous order passed by Assessing Officer and every loss of revenue as a consequence of such order of the Assessing Officer has be treated as prejudicial to the interest of revenue. At this juncture we also refer to decisions of Hon’ble Supreme Court in case of Ram Pyari Devi Sagar Vs. CIT reported in (1968) 67 ITR 84 and Taradevi Agarwal Vs. CIT reported in (1973) 88 ITR 323, wherein, it is held that, mere failure to make enquiries would make the assessment order erroneous and prejudicial to interest of revenue. These principles laid down in aforesaid decision were reiterated by Hon’ble Supreme Court in ‘CIT v. Max India Ltd. reported in 295 ITR 282 and recently in ‘Ultratech Cement Ltd. & Ors. Vs. State of Rajasthan& Ors. in Civil Appeal No.2773/2020 decided on 17/07/2020.
Accordingly, we do not find any merit in additional ground raised by assessee and the same is dismissed.
25. On merits of the case, Ld.AR placed reliance on following decisions vide paper book filed on 24/09/2020 before this Tribunal:
a) CIT Vs Lancy Constructions 383 ITR 168 Karnataka High Court
b) CIT Vs Continental Ware Housing Corporation 374 ITR 645 Bombay High Court
c) CIT Vs Gurinder Singh 386 ITR 483 Bombay High Court
d) CIT Vs Kabul Chawla 380 ITR 573 Delhi High Court
e) Raju J Soomaney Vs ACIT in ITA No.347114um/2014 Mumbai ITAT
f) Kolkata ITAT ‘C’ Bench in case of Krishna Kumar Singhania Vs Dy. CIT LT(SS) Appeal No. 104 to 112 (Kol) of 2017 author of judgment Sri. N.V. Vasudevan 3M & M.
g) Indore ITAT in case of Omprakash Gupta Vs ACIT IT(SS)A.No.277 to 2811Ind/2017, 283 to 2871Ind/2017
h) Delhi Bench ITAT in case of ACIT Vs SMC Power Generation Ltd in ITA No.33951Del/2015 CO No.4361DeI/2015
i) Mumbai ITAT ‘E’ Bench in case of Dy.CIT Vs Sopariwala Exports in ITA No.3037, 3038, 3040 and 3077/Mum/2014
j) ITAT Amritsar Bench, Jalandhar Camp in case of Sanjana Mittal Vs Dy CIT in ITA No.487/Asr/2018 J
k) Prime Infra Developers Pvt Ltd Vs ITO in ITA No.7144/Del/2017 dated 27-06-2018
l) Sri Laxmi Satranarayana Oil Mills vs. CIT 367 ITR 200 (T & AP)
m) Marigold Merchandise (P) Ltd. in ITA No.5170/Del/2014 dated 11/09/2017
n) Harshila Chordia vs. ITO 298 ITR 349 (Raj)
26. Ld.AR has also relied on decisions reproduced in para 20 hereinabove in while discussing the legal issue.
27. On the contrary, Ld. Standing Counsel for revenue submitted that all these decisions relied upon by Ld.AR are in context of 153A/153C proceedings, wherein additions were made by assessing officer in a concluded assessment without there being seized materials to support. He submitted that, ratio laid down by Hon’ble High Court and various coordinate benches of this Tribunal in above referred decisions does not have any bearing on the facts of present case. Ld. Standing Counsel submitted that reliance is placed by Ld.AR on CIT vs Lancy construction (supra) passed by Hon’ble Karnataka High Court. He further submitted that, Hon’ble Karnataka High Court in (GMR Energy Ltd.,) in ITA No. 358-360 of 2018 by order dated 08/01/2019 held that, view taken by coordinate bench of Karnataka High Court in Lancy construction (supra) is without considering decision in case of Canara Housing Development Company reported in 62 taxmann.com 650. Hon’ble Karnataka High Court, held the law expressed in Lancy construction (supra) case is no more a good law. He thus submitted that the ratio cannot be followed pursuant to view taken by Hon’ble Karnataka High Court in case of GMR energy (supra).
28. On perusal of decisions relied, we note that, facts are not similar to that of assessee. Most of these decisions( at no. (a) to (i) refers to proceedings under section 153A of the Act, where there was no seized material based on which, certain additions were made in an unabated assessment. These decisions do not consider situation of no enquiry by Ld.AO on any issue.
29. In case of M/s Rajeesh exports Ltd vs principals CIT (supra), relied by Ld.AR, in identical situation this Tribunal placed reliance on decision of Hon ’ble Karnataka High Court in case of CIT vs Lancy constructions reported in 237 taxman 728. Ld. Standing Counsel for revenue brought to our notice that decision of Hon’ble Karnataka High Court in case of CIT vs Lancy Constructions (supra) is no longer held to be a good law by subsequent bench of Hon’ble Karnataka High Court in case of CIT vs GMR Energy Ltd. (Supra). Be that as it may, we note that, even in case of Rajeesh exports Ltd vs Ld. Pr. CIT(supra) there is a categorical observation by this Tribunal that, Ld. AO in original assessment prior to search had adjudicated this issue. In the present facts of the case Ld.AR has not brought anything on record to establish any verification/enquiries by Ld.AO on the issue of huge cash payments for years under consideration, either in sec. 143(3) r.w.s 153A proceedings or original assessment order passed by Ld.AO u/s143(3) of the Act.
30. In the present facts of the case, provisions of 263 are invoked by Ld .Pr. CIT alleging that, no enquiry/verification was conducted by Ld.AO, in respect of expenditure incurred in cash and applicability of provisions of section 40A(3), is discernible from assessment records.
31. Further in case of H. Nagaraja vs CIT (supra) relied by Ld.AR, this Tribunal quashed proceedings under section 263, as it was a case of inadequate enquiry by Ld.AO on alleged issues therein. In facts before us, Ld. Pr .CIT initiated proceedings under section 263, wherein no enquiry was conducted by Ld.AO, as was discerned by him from assessment records.
32. In decision relied on by Ld.AR of Hon’ble Bombay High Court in case of CIT vs Slum Rehabilitation Authority (supra), Hon’ble Court considered the issue in case of trust, wherein, facts were that, assessee therein challenged revision order before Mumbai Tribunal and Mumbai Tribunal allowed appeal on the ground of merger, as well as on the ground that the order of assessment could not be stated to be prejudicial to the interest of the revenue since assessing officer rejected assessee’s claim of exemption under section 11 of the Act, may not be with reference to section 2 (15) of the Act. In the present facts of the case, applicability of principle of merger do not arise since Ld.AO had not considered the issue of expenditure made in cash by assessee and applicability of section 40A (3) of the Act u/s 143(3) r.w.s 153A. On an appeal by assessee before Ld. CIT (A), we note that assessee challenged only disallowances made by Ld.AO, under the head capital gains.
34. Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT (supra) held that: “There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.”
35. Further Hon’ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd., reported in (2010) 189 Taxman 436 has held that;
“The Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see whether there was application of mind before allowing the expenditure in question. If there was any inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Income-tax Act 1961, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open.”
36. In the instant case, Ld. Pr. CIT on perusal of assessment records held that Ld.AO, did not make any inquiries or called for any information/evidences in respect of such huge expenditure in cash, and that assessment order; do not reveal that, Ld.AO considered all aspects of the case, including huge expenditure incurred by assessee in cash. Even before us, Ld.AR could not establish the fact that, any query was raised and/or enquiries conducted by way of documentary evidences on this aspect. Therefore, in our view, Ld.AO failed to apply his mind to this issue and therefore order passed by him was erroneous in so far as it was prejudicial to the interests of the revenue. We therefore do not find any infirmity in the order passed by Pr. CIT and the same is upheld.
Accordingly, grounds raised by assessee stands dismissed for asst. year 2011-12.
37. The decision based on discussion above shall apply mutatis mutandis to Asst. Years 2012-13, 2013-14 and 2014-15, as facts are identical and grounds alleged by assessee on merits are similar.
In the result appeals filed by assessee for asst. year 2011-12 to 2014-15 stands dismissed.”
2.3 Consequent to this order of the Tribunal, the AO passed the fresh order which is also subject matter of appeal before the ld. CIT(A) who has confirmed the addition made by AO. Hence, the assessee is once again in appeal before us in ITA Nos.1166/Bang/2022 to 1169/Bang/2022.
2.4 First we will take up the common grounds in ITA Nos.1164/Bang/2022 & 1166 to 1169/Bang/2022 that on the facts and circumstances of the case and provisions of law where under the judicial precedents of various High Courts the authorities below erred on making addition and sustaining the additions u/s 40A(3) of the Act having found any incriminating material during the course of search in non-abated assessment years. The contention of the ld. A.R. is that there were no seized material to make addition u/s 40A(3) of the Act. As such no addition u/s 40A(3) of the Act could be made. As discussed earlier, this issue came up for consideration before this Tribunal in ITA Nos.1376 to 1379/Bang/2019 vide order dated 20.10.2020 wherein this issue has been decided against the assessee as reproduced in earlier para no.2.2 of this order.
2.5 Hence, in our opinion, this issue is already considered by the Tribunal on earlier occasion vide order dated 20.10.2020 and at this stage it cannot re-argue this issue once again as this issue has been reached finality. Accordingly, we dismiss this ground raised by the assessee in all his appeals.
3. Next common ground in these appeals in ITA Nos.1164/Bang/2022 & 1166 to 1170/Bang/2022 is with regard to making addition u/s 40A(3) of the Act. In these assessment years, assessee made payment of various expenditure exceeding Rs.20,000/- in cash while purchasing the land. According to the A.O., it is the violation of provisions of section 40A(3) of the Act. Accordingly, he disallowed that expenditure made in excess of Rs.20,000/- otherwise than by crossed cheque or DD. The ld. A.R. submitted that these payments are made for purchase of land. The genuineness of payment to the payee who is identifiable and all these payments are duly recorded in the assessee’s books of accounts and also supported by registered sale deeds. Being a genuine cash payment, section 40A(3) of the Act cannot be applied. For this purpose, he relied on the CBDT Circular No.6-P dated 6.7.1968 for the proposition that this provision is designed to counter tax evasion by showing various fictitious expenditure in cash and to frustrate the proper investigation by the department as to the identity of the payee and reasonableness of the payment. He relied on the following judgements:
a) Sri Laxmi Satyanarayana Oil Mills vs. CIT 367 ITR 200 (T&AP)
b) Maigold Merchandise (P) Ltd. in ITA nO.5170/Del/2014 dated 11.9.2017
c) Harshilla Chordia vs. IT 298 ITR 349 (Raj)
d) The judgemen of High Court of Delhi in case f RC Goyal vs. CIT in ITA No.636 OF 2012.
f) Madras High Court in the case of PCIT vs. Sumukha Synthetics (2020) Taxpub (DT) 3709
g) Jaipur ITAT in case of K.K. Construction company vs. ACIT ITA No.990/JP/2017
h) Delhi ITAT in case of Gayatri Build Assocatges pvt. Ltd. Vs. DCIT ITA No.1888/Del/2017.
i) Madras High Cout in case of PCIT vs. Sumukha Synthetics (2020) Taxpub (DT) 3709
j) Jaipur ITAT in case of K.K. Construction Company vs. ACIT in ITA No.990/JP/2017
k) Delhi ITAT in case of Gayatri Build Associates Pvt. Ltd vs. DCIT ITA No.1888/Del/2017
3.1 Further, he submitted that in certain assessment years cash payment has been made in the hitman dwellers to vacate the scheduled property from illegal encroachments. To this extent, the assessee has also offered additional income in assessment year 201516 at Rs.2 crores to this lapse this is to be considered and he reiterated various submissions made before the lower authorities.
4. The ld. D.R. submitted that provisions u/s 40A(3) of the Act will come into operation only in a case and circumstances as may be prescribed having regard to nature and extent of banking facility available, consideration of business exigency and other relevant factors and such cases have been prescribed under Rule 6DD of the Income Tax Rules, 1962, in this case, no exceptions are provided under Rule 6DD of the IT Rules, 1962, is applicable to the assessee, and thus there is no error in the reason given by the lower authorities to make or sustain addition towards expenditure incurred in cash in excess of Rs.20,000/- otherwise addition by crossed cheque or DD.
5. We have heard the rival submissions and perused the materials available on record. There is no dispute that the assessee has made various payments and claimed it as an expenditure, which has been incurred in cash otherwise by crossed cheque or DD or by electronic clearance system through bank account. Now the question is whether the case of the assessee falls under exception as provided in Rule 6DD of IT Rules, 1962 and further, proviso to section 40A(3) of the Act. As per proviso to section 40A(3) of the Act, no disallowance shall be made and no payment shall be deemed to be profit and gains of business or profession under sub-section (3) in such cases and under such circumstances as may be prescribed having regard to nature and extent of banking facilities available, consideration of business exigency and other relevant factors. The cases and circumstances under which payment can be made otherwise by an account payee cheque or bank draft or electronic clearance system, has been prescribed under Rule 6DD of the IT Rules 1962. If we go through clauses under Rule 6DD of the IT Rules, 1962, the assessee has to substantiate that it will fall under exceptions provided under this rule and assessee has to furnish necessary details on this count. The assessee made oral plea before us without furnishing any material on record. Even if there is a business exigency or the payment has been made to parties who have no bank account or payment has been made on bank holidays or after banking hours, the assessee has to furnish necessary evidence. Even the AO has not examined the concerned sale deed to verify whether the parties who sold the land to the assessee having no bank account or payment by crossed cheque or DD has been made in certain occasions to these parties by verifying all the sale deeds of the parties. Hence, the assessee has to prove the existence of exceptional circumstances under which these impugned payments are made to the satisfaction of AO and the business exigency under what circumstances the assessee has made payments in cash to these parties. Since assessee has not proved existence of business exigency in making the payment by way of cash otherwise by crossed cheque or DD or electronic clearance system through bank and AO also not carried necessary enquiry on this count by examining all the sale deeds entered by the assessee with the parties, in our opinion, in the interest of justice, it is appropriate to remit the entire this issue in dispute to the file of AO for reconsideration. Accordingly, the issue in these appeals with regard to addition made u/s 40A(3) of the Act is remitted back to the AO for fresh consideration to decide the same after giving opportunity of hearing to the assessee. This ground in ITA No.1164/Bang/2022, ITA Nos.1166 to 1169/Bang/2022 is partly allowed.
6. Next common ground in ITA Nos.1164 & 1165/Bang/2022 is with regard to addition of Rs.5,12,17,000/- and Rs.6,02,51,004/- for the assessment years 2010-11 & 2011-12 for the total credit in the bank account of Mr. B.R. Madhusudhan. During the course of search action, it was found that assessee has been operating bank account in the name of Shri B.R. Madhusudhan. The AO noted that there were huge credits and debits in the said bank account. Statement from Shri B.R. Madhusudhan was recorded during search. He has submitted that he had only signed various cheques as per the instructions of the assessee and entire transaction in the bank account relate to the assessee. Before lower authorities, assessee submitted that income generated from this impugned bank account reflected in the assessee’s books of accounts and offered for taxation. However, the AO observed that the same was only after thought as no such details were there at the time of search or produced during the post search enquiry. More so, the assessee has not explained why the payments were issued in Shri B.R. Madhusudan’s bank account rather than assessee’s own bank account. The AO observed that assessee has failed to provide necessary details of the transaction appearing in the bank account. The ld. CIT(A) confirmed the same since the assessee was not able to substantiate his claim by submitting details of the payment made through the said impugned bank account with transaction from which he is claiming to have made profit or loss and subsequently reflected in the income offered by the assessee. Against this assessee is in appeal before us in the assessment years 2010-11 & 2011-12.
7. We have heard the rival submissions and perused the materials available on record. The main contention of the ld. A.R. is that bank account in the name of B.R. Madhusudhan is already incorporated in the books of accounts of the assessee and the profit or loss generated from these transactions are also offered for taxation. The plea of the department is that assessee has not been able to substantiate his claim by submitting details of the payments made through the said bank account and it has not been shown that it has been included in the income while arriving the gross total income of the assessee. In our opinion, this is required to be examined at the end of AO after going through the necessary details furnished by the assessee. In other words, assessee has to furnish necessary details to establish that all the receipts and payments generated from this bank accounts in the name of Shri B.R. Madhusudhan has been duly accounted in the books of accounts of the assessee and correspondingly income from this bank transactions has been offered for taxation. If it is incorporated in the books of accounts of the assessee the profit or loss arriving from these transactions is offered for taxation, there cannot be any further addition on this count. The AO has to verify in detail of this bank account along with books of accounts of the assessee and if the assessee proves that all the receipts and payments through this bank account is duly accounted in the books of accounts of the assessee and supported by necessary bills and vouchers, the claim of assessee to be allowed. Otherwise, the transactions in this account to be considered as unexplained investment/income of the assessee. With these observations, we remit the issue in dispute to the file of AO for fresh consideration.
8. Next ground in ITA No.1165/Bang/2022 for the AY 2011-12 is with regard to addition of Rs.12,85,55,904/- in respect of credit appearing in the bank account of 8 persons introduced by assessee to open a bank account in Canara Bank Hebbal branch, Bangalore. The assessee has introduced 8 persons to open bank accounts in Canara Bank, Hebbal branch, which are operated only for a short duration and immediately after opening same there were huge debits and credits in the said bank including cash withdrawals. It was noted that address given for opening bank accounts were fake as no such persons were available on those addresses. The AO also noted that on this issue statement of 1 person namely B.R. Madhusudhan was recorded. During search, he admitted that he had only signed various cheques as per the instruction of the assessee. This provoked the AO that these 8 accounts also belong to assessee and the credits appearing in that 8 bank accounts other than B.R. Madhusudhan was treated as income of the assessee at Rs.12,85,55,904/-. Against this assessee is in appeal before us.
9. We have heard the rival submissions and perused the materials available on record. In our opinion, if these persons are the agents or customers of assessee who have been just introduced by assessee to the Canara Bank to open bank accounts and the credit appearing in those bank accounts cannot be treated as income of the assessee. The assessee has to furnish details of address of those agents, whom he has claimed to have brought those agriculturists from whom the assessee purchased the land. The plea of the ld. D.R. is that this is just a story created to evade tax. So the action of the AO in treating the credit in these bank accounts as un-explained income of the assessee to be confirmed. In our opinion, the enquiry made by the AO is not sufficient to fasten the tax liability on the assessee at this stage. In our opinion, it is appropriate to remit this issue also to the file of AO with the direction to the assessee to furnish necessary addresses of these parties and explained the circumstances under which he has introduced these parties to the Canara Bank, Hebbal branch, Bangalore. Further, since there were huge transactions in these bank accounts and subsequent immediate withdrawals, the AO has to carry out necessary examination of these bank accounts after giving an opportunity to the assessee to controvert the same. If the assessee fails to explain these accounts, then only the AO has to treat it as unexplained investment/income of the assessee. This ground of appeal of the assessee is partly allowed for statistical purposes.
10. In ITA No.1165/Bang/2022 for the AY 2011-12, there is one more addition of Rs.69,99,984/- treating the same as business income instead of exempted long term capital gain on sale of agricultural land. The contention of the ld. A.R. is that this land has been acquired by the assessee prior to the assessee started acting as land aggregator to the PACL group of companies.
10.1 The claim of assessee that the same has been treated as fixed assets in the books of accounts and its being an investment and not a stock in trade and sale of fixed assets will result in long term capital gain and not business income of the assessee. In our opinion, if the assessee treated this asset as fixed asset in his books of accounts, the income generated from the sale of this land cannot be treated as business income of the assessee. On the other hand, it should be treated as capital gain and the taxability of same depends upon the nature of that asset. The assessee has to prove that it is a fixed asset and not a stock in trade. Accordingly, the issue is remitted to the file of AO for fresh consideration.
11. In the result, all the appeals of the assessee are partly allowed for statistical purposes.
Order pronounced in the open court on 24th July, 2023