The Commissioner Of Income Tax vs Shri Bharat R Gajria
2021 Latest Caselaw 5548 Kant

     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 6TH DAY OF DECEMBER, 2021

                         PRESENT

           THE HON'BLE MRS.JUSTICE S.SUJATHA

                           AND

THE HON'BLE MR. JUSTICE HANCHATE SANJEEVKUMAR

                     I.T.A.No.68/2015

BETWEEN :
1.      THE COMMISSIONER OF INCOME-TAX
        CENTRAL CIRCLE, C.R. BUILDING,
        QUEENS ROAD, BANGALORE.

2.      THE DEPUTY COMMISSIONER OF INCOME-TAX
        CENTRAL CIRCLE-1(2),
        C.R. BUILDING, QUEENS ROAD,
        BANGALORE.                      ...APPELLANTS

                 (BY SRI K.V.ARAVIND, ADV.)

AND :
SHRI BHARAT R GAJRIA
BY L/R SMT. SEEMA B. GAJRIA,
No.294, 8TH BLOCK, JAYANAGAR,
39TH CROSS, BANGALROE-560 082.
PAN: AEJPG46688K.                             ...RESPONDENT

                 (BY SRI S.ANNAMALAI, ADV.
              A/W. SRI BHAIRAV KUTTAIAH, ADV.)


      THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A
OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED
05/09/2014 PASSED IN ITA No.705/BANG/2013, FOR THE
ASSESSMENT YEAR-2007-2008 PRAYING THIS HON'BLE COURT TO
                            -2-



1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED
ABOVE; 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS
PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BANGALORE
IN ITA No.705/BANG/2013 DATED 05/09/2014 CONFIRMING THE
ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE
ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME
TAX, CENTRAL CIRCLE-2(2), BANGALORE.

     THIS APPEAL COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:

                    JUDGMENT

This appeal is filed by the Revenue under Section

260A of the Income Tax Act, 1961 ('Act' for short)

challenging the order dated 05.09.2014 passed by the

Income Tax Appellate Tribunal, Bangalore Bench 'C',

Bengaluru ('Tribunal' for short) in ITA No.705/Bang/2013

relating to the Assessment Year 2007-08.

2. The appeal has been admitted by this Court

to consider the following substantial questions of law:

"1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee was not carrying the activity of adventure in the nature of trade even when the materials on record establish that assessee was in fact

carrying activity in the nature of adventure in trade and the decision relied upon by the Tribunal is challenged before this Hon'ble High Court in ITA No.233/2011?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that it is not inclined to accept the contention of the Revenue that there is suppression of sale consideration by the assessee even when the assessing authority has clearly made out the case that the assessee has suppressed the sale consideration by showing Rs.975/- sq.ft., instead of Rs.1,224/- per sq.ft., and Sri.Purushotham Reddy had given the said amount in the statement recorded during search proceedings which was not disputed by the assessee?

3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance under Section 40[a][ia] of the Act even when the assessing authority has rightly disallowed under the said provision as all the

ingredients of the said provisions are established in the case of the assessee?"

3. The assessee, an individual had filed his

return of income for the assessment year under

consideration declaring a total income of

Rs.2,97,39,262/- and subsequently filed a revised

return of income declaring a total income of

Rs.6,06,32,187/-. Subsequent to the search

proceedings in the case of Sri.Purushotham Reddy,

Managing Director of M/s.Chamundi Gold Hills Estate

and Others, the Assessing Officer passed Assessment

Order under Section 143 [3] of the Act accepting the

return of income. Consequent to the assessment

proceedings initiated under Section 153C of the Act in

the case of M/s.Chamundi Gold Hills Estate and

Others, the assessment of the assessee was re-opened

under Section 147 of the Act. In reply thereto, the

assessee's legal representative filed a letter requesting to

treat the return filed earlier as the return in response to

the notice under Section 148 of the Act. The Assessing

Officer concluded the re-assessment proceedings and

held that the activity carried on by the assessee was an

adventure in the nature of trade and therefore income

from sale of land has to be assessed as the business

income and not as capital gains as offered by the

assessee. He also disallowed the claim made under

Section 40[a][ia] of the Act for non-deduction of tax at

source before making payment to certain parties.

4. Being aggrieved by the said order, the

assessee preferred an appeal before the Commissioner

of Income Tax [Appeals] who partly allowed the same.

Aggrieved by the same, the Revenue preferred appeal

before the Tribunal and the assessee preferred Cross-

Appeal. The Tribunal has allowed the Cross-Appeal and

dismissed the appeal preferred by the Revenue. Hence,

the Revenue has preferred this appeal.

5. Learned counsel for the Revenue argued that

the Tribunal has disposed of the appeal and the Cross-

Appeal mainly relying on the earlier order passed by the

Tribunal in the assessee's own case in ITA

No.816/Bang/2010 relating to the assessment year

2006-07. The said order was challenged by the Revenue

before this Court in ITA No.233/2011. But, due to want

of monetary limits, the appeal came to be disposed of as

not maintainable. Learned counsel placing reliance on

G.Venkataswami Naidu and Company V/s.

Commissioner of Income Tax [(1959) 35 ITR 594],

argued that the transaction of the assessee cannot be

construed as coming under capital gains but it is an

adventure in the nature of trade, as rightly held by the

Assessing Officer. Nextly, it was contended that there

was suppression of sale consideration by the assessee

by showing the sale value at Rs.975/- per square feet

instead of Rs.1,224/-. This fact has come to light in the

statements of Sri.Purushotham Reddy recorded during

search proceedings. The Tribunal grossly erred in

setting aside the disallowance under Section 40[a][ia] of

the Act and further erred in remitting the matter

regarding the issue pertaining to the disallowance of

expenditure claimed by the assessee towards

construction of the compound wall.

6. Learned counsel for the assessee submitted

that the findings of the Assessing officer are incongruous

in nature. The Assessing Officer has recorded that the

assessee has entered into an agreement with Sri.Jawar

Gopal and Sri.U.C.Rami Reddy on 01.12.2003 to sell the

land at Amanikere, Bellandur and has taken an advance

of Rs.50,00,000/- each from the said parties but he

didn't had even an inch of land. However, in the next

paragraph, it has been recorded that the assessee

purchased agricultural lands from various persons at

Amanikere Bellandur between 25.08.2003 to

30.12.2004. It is thus evident that the Assessing Officer

had failed to apply his mind in a right perspective.

Considering the overall aspects, the Commissioner of

Income Tax [Appeals] has disagreed with the Assessing

Officer and opined that the said income has to be treated

as capital gains and not business income, thereby

accepted the arguments of the assessee which has been

further confirmed by the Tribunal. The property in

question was never shown in the accounts as a trading

asset. Nextly, it was argued that merely based on some

statements said to have been recorded during the search

proceedings of the third party, the sale consideration

amount cannot be determined at Rs.1,224/- per square

feet, ignoring the material documents. Since the Tribunal

has held that the income from sale of the subject

property has to be taxed as capital gains, the provisions

of Section 40[a][ia] are not applicable. The Tribunal has

remanded the matter insofar as the Cross-Objections

filed by the assessee to verify whether compound wall

was in fact constructed around the schedule land and

the expenditure said to have been incurred by the

assessee was genuine. Thus, it was submitted that no

perversity is found with the order impugned.

7. We have carefully considered the rival

submissions of the learned counsel appearing for the

parties and perused the material on record.

8. It is ex-facie apparent that based on a letter

said to have been written by the assessee who is no more

to Sri.Rami Reddy which is said to have been found in

possession of one Sri.Purushotham Reddy, the Assessing

Officer has arrived at a conclusion that the transaction

in question was taxable as business income and not

capital gains. It is significant to note that the said

property was held by the assessee as long term capital

asset. The Tribunal being the last fact finding authority,

has recorded a finding that the contents of the letter

alleged to have been written by the assessee to his

partner do not clearly establish as to whether the

assessee was really carrying on the activity of adventure

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in the nature of trade or that these properties were

considered as trading assets by the assessee. Similarly,

as regards the sale consideration of the property in

question, addition has been made by the Assessing

Officer merely based on the statement of

Sri.Purushotham Reddy which is not substantiated by

any other material evidence.

9. The disallowance under Section 40[a][ia] of

the Act by the Assessing Officer cannot be sustained in

view of the income from the sale of property under

consideration is now held to be taxed as capital gains

and not as income from business.

10. Even the other ground of challenge

inasmuch as the Tribunal remitting the matter to the

Assessing officer with a direction to examine and verify

whether the compound wall was actually constructed

around the schedule land and the expenditure allegedly

incurred towards the construction of the compound

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wall, paid to GK Associates, has no merit. Indeed, the

factual aspects have to be examined at the ground level

by the Assessing Officer.

11. The judgment relied upon by the Revenue is

not applicable in the present facts and circumstances of

the case. Moreover, the Hon'ble Apex Court has

observed that in reaching the conclusion that the

transaction is an adventure in the nature of trade, the

Tribunal has to find primary evidentiary facts and then

apply legal principles. It is evident that the Tribunal has

rightly considered the factual aspects and then applied

the legal principles.

12. There being no perversity or arbitrariness in

the order of the Tribunal impugned, the same requires

to be confirmed. The issues involved relates to pure

questions of facts, no substantial questions of law arises

for our consideration.

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Resultantly, appeal stands dismissed.

SD/-

JUDGE

SD/-

JUDGE

NC.