2012 (5) TMI 670 - AT - Income Tax

Addition made on account of extra consideration received by the assessee - Held that - We are of the opinion that estimation of 25% of the undisclosed turnover at ₹ 250 per sq. ft. be treated as undisclosed income of the assessee instead of ₹ 100 per sft being the net profit out of the on-money of ₹ 250 per sft., considered by the CIT(A). In other words, Income of the assessee to be considered as ₹ 62.50 per sft being the net profit out of the on-money receipt of ₹ 250 per sft. Thus the appeals of the Revenue are dismissed and assessee s appeals are partly allowed. Earning on sale of the land - nature of land - Held that - Even if the land was developed and was sold after converting into plots with a view to secure the better price it cannot come within the purview of adventure in the nature of trade and business. Further, it is admitted fact that the land in dispute herein is an agricultural land and assessed to land revenue. The earning on sale of the land was in the nature of capital gain and therefore, not assessable as income from business. Accordingly, we are entirely agreement with the findings given by the CIT(A) in his order and the same is confirmed. The grounds raised by the revenue are rejected. Not giving credit to the balance of cash available in his capacity as the Karta of HUF as on the opening day of the financial year - Held that - In this case, the assessee filed the return of income on 21.2.2008 and disclosed the entire investment in purchase of agricultural property. The assessee had 50% share in the land. Since the entire investment is disclosed in the return of income filed before the date of search, there is no question of treating the same as undisclosed income in the absence of any evidence to the contrary. More so, due credit has to be given towards opening cash balance available with assessee in his individual capacity as well as HUF as the fund is available for investment in land. Accordingly, this ground is allowed. Addition u/s 40A - Held that - Since we have already held elsewhere in this order that the land in dispute is an agricultural land and the provisions of section 40A(3) are not applicable being it is covered by the exception provided in Rule 6DD of the IT Rules. Accordingly, we do not find infirmity in the action of the CIT(A) on this issue. The order of the CIT(A) is confirmed on this issue.

Issues Involved:
1. Addition on account of extra consideration received by the assessee.
2. Treatment of sale proceeds of agricultural land as taxable under the logic that the purchase and sale of the said agricultural land is in the nature of trade.
3. Credit for the balance of cash available in the capacity as the Karta of HUF on the opening day of the financial year.
4. Disallowance made u/s. 40A(3) of the IT Act.

Detailed Analysis:

1. Addition on Account of Extra Consideration Received by the Assessee:
The first issue pertains to the addition made on account of extra consideration received by the assessee. A search and seizure operation u/s. 132 of the Income-tax Act, 1961 was conducted, revealing that the assessee allegedly received extra consideration of Rs. 250 per square foot, which was not reflected in the regular books of account. The Assessing Officer (AO) relied on the statement made u/s. 132(4) and estimated the undisclosed income based on the extra consideration. The CIT(A) confirmed the profit at Rs. 100 per sq. ft. instead of Rs. 250 per sq. ft. determined by the AO. The Tribunal held that the declaration given by the assessee cannot be treated as conclusive evidence for sustaining the addition and should be supported by other documents. The entire on-money receipt cannot be treated as undisclosed income, and only the net profit rate can be applied. The Tribunal concluded that estimation of 25% of the undisclosed turnover at Rs. 250 per sq. ft. should be treated as undisclosed income, resulting in a net profit of Rs. 62.50 per sq. ft.

2. Treatment of Sale Proceeds of Agricultural Land as Taxable:
The second issue involves the treatment of sale proceeds of agricultural land. The AO treated the gain from the sale of agricultural land as an adventure in the nature of trade, thus taxable. The CIT(A) observed that the purchase and sale of land were in the nature of trade but directed to allow proportionate development expenses. The Tribunal referred to various pieces of evidence, including photographs, certificates from the bank, and the Department of Horticulture, confirming agricultural activities on the land. The Tribunal concluded that the land was agricultural and situated beyond 8 km from the municipal limits, thus exempt from capital gains tax. The Tribunal allowed the assessee's claim, treating the sale proceeds as exempt agricultural income.

3. Credit for the Balance of Cash Available as Karta of HUF:
The third issue pertains to the credit for the balance of cash available as the Karta of HUF. During the search, documents revealed a cash payment of Rs. 30.73 lakhs for the purchase of land. The AO treated this amount as undisclosed income. The CIT(A) sustained a sum of Rs. 18,58,344. The Tribunal found that the assessee had sufficient cash balances in individual and HUF capacities and had disclosed the entire investment in the return of income filed before the date of search. Therefore, the Tribunal allowed the assessee's claim, giving due credit for the opening cash balance.

4. Disallowance Made u/s. 40A(3) of the IT Act:
The fourth issue involves the disallowance made u/s. 40A(3) for cash payments towards the purchase of agricultural land. The AO disallowed 20% of the cash payments made, amounting to Rs. 19.65 lakhs. The CIT(A) deleted the disallowance, reasoning that the payments were for agricultural land. The Tribunal upheld the CIT(A)'s decision, stating that the provisions of section 40A(3) are not applicable as the transactions are covered by the exception provided in Rule 6DD of the IT Rules.

Conclusion:
The Tribunal allowed the assessee's appeals in part, confirming that the entire on-money receipt cannot be treated as undisclosed income, and only the net profit should be considered. The sale proceeds of agricultural land were treated as exempt, and due credit was given for the opening cash balance. The disallowance made u/s. 40A(3) was deleted, confirming the CIT(A)'s decision. The Revenue's appeals were dismissed.

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