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TMI Blog2014 (12) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition u/s 69 – Decided in favour of assessee. Treatment of agricultural income – Income from other sources or not – Held that:- Assessee’s claim of agricultural income has been rejected only on the ground of lack of supporting evidence - it is the claim of assessee that assessee is having substantial agricultural land holding which it has leased out and agricultural operations is being carried on such land. It is also to be noted that assessee has claimed that similar income shown in the preceding AY has been accepted by AO in scrutiny assessment proceeding - the matter requires re-examination - If the assessee has been showing agricultural income from lease rentals from the same land in the preceding AY, which has been accepted by the department, then, there is no reason why it should be disallowed in the impugned AY - AO is directed to verify this aspect and decided the issue accordingly – decided in favour of assessee. Opportunity for verification of fresh evidences provided to AO or not – Held that:- Only on the basis of materials available on record, which also formed part of assessment record, viz., return of income, balance sheet, P&L a/c, confirmation letters etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The ld. CIT(A) having found as a matter of fact that the sum of ₹ 2,40,000 could not be added u/s 69 of the IT Act, 1961 erred in giving the following finding/direction which is not necessary for the disposal of the appeal and is therefore be deleted: i. The order of CIT(A) in giving a finding/direction that the allowance of expenditure as cost of acquisition development can be taken up as and when the lands are sold in a finding direction not necessary for the disposal of the appeal and therefore is to be deleted. ii. The direction of CIT(A) at paragraph 6.5 his order directing the appellant to file complete details of the expenses and supporting evidences to the notice of the appellate authority by 15th February, 2014 in a finding which is not necessary for the disposal of the appeal and therefore to be expunged. 4. Briefly the facts relating to the aforesaid issue, as taken from the folder ITA No. 485/Hyd/2014 are, assessee a company is engaged in carrying on agricultural and allied activities. It is one amongst number of companies established by Shri B. Ramalinga Raju, erstwhile chairman of Satyam Computers and Services ltd. and his family members. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out to him in no uncertain terms that the appellant was not in possession of records as they were seized by investigating agencies. This was also a fact that was in the knowledge of the assessing officer. The AO could have easily cross checked with the records of the creditors available with another assessing officer with another Central circle officer (DCIT, Central circle 1 Hyderabad.) 6. Ld. CIT(A) being convinced with the submissions made by assessee, held that addition to the fixed assets representing development expenses could not be treated as unexplained as the same has flown from application of funds as appearing on the assets side of assessee s balance sheet. Ld. CIT(A) held that source of funds for making investments in addition to the fixed assets thus was duly explained and the same could not be treated as unexplained investment of assessee u/s 69 of the Act. Having held so, ld. CIT(A) proceeded further to hold that if the expenses were capitalized the allowability of the same has to be considered in the subsequent years when the land is sold. He, therefore, directed assessee to file the complete details of the relevant expenses with supporting evidence so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing agricultural income as income from other sources and disallowing an amount of ₹ 1,66,221 out of total expenditure of ₹ 1,76,221 from the expenditure claimed. 10. Briefly the facts relating to the aforesaid issue are, during the assessment proceeding, AO noticed that assessee has shown agricultural income of ₹ 6,63,125 and has claimed expenditure of ₹ 1,76,221. As alleged by AO in the assessment order, assessee did not file any evidence in support of income earned from agricultural activity, hence, entire income was treated as income from other sources . Since AO disallowed assessee s claim of agricultural income, he also was of the view that expenditure claimed of ₹ 1,76,221 cannot be allowed to be set off in view of the provisions of section 56. Accordingly, while treating the amount of ₹ 6,63,125 as income from other sources , AO also made separate addition of ₹ 1,76,221 of the expenditure claimed by holding that it is not allowable u/s 37(1) of the Act. Being aggrieved of the additions made by AO, assessee preferred appeal before CIT(A). 11. Ld. CIT(A) after considering the submissions of assessee, did not find merit in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich has been accepted by the department, then, there is no reason why it should be disallowed in the impugned AY. AO is directed to verify this aspect and decided the issue accordingly. While doing so, AO is also directed to examine assessee s claim of expenditure and if assessee is able to establish the same, then, allow it. This ground is allowed for statistical purposes. 15. In the result, ITA Nos. 485 564/Hyd/14 are allowed and ITA No. 486/Hyd/14 is partly allowed. ITA Nos. 715, 525 and 582/Hyd/2014 by Revenue 16. The only issue which is common in all the aforesaid appeals by the department is as under: 2. The learned CIT(A) erred in deciding the appeal of the assessee without according an opportunity to the AO for the verification of the fresh evidence produced before him during the appellate proceedings. 17. As discussed in hereinbefore while dealing with assessees claim of investments made in land in course of assessment proceeding, AO treated the land development expenses as unexplained investment of assessee u/s 69 of the Act. That apart, during the assessment proceeding, AO also while examining the balance sheet of assessee, found increase in unsecured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while profit on sale of land was declared as book profit u/s 115JB of the Act. As book profit u/s 115JB was more than regular income, the same was adopted for tax purposes and tax payable was computed by different assessees are as under: Book profit Self assessment tax Nallamalla Agro Farms (P) Ltd. 20,46,76,320 2,31,89,827 Chitravati Agro Farms (P) Ltd. 15,30,71,372 1,73,42,987 Parbati Agro Farms Pvt. Ltd. 20,43,20,574 2,82,53,990 Gomati Agro Farms Pvt. Ltd. 24,41,41,876 2,76,61,267 Kanchanjunga Green Lands 6,74,10,871 76,37,652 However, it was noticed that neither assessees paid any advance tax during the year nor even while filing the returns of income any self assessment tax was paid. Returns filed by assessees were processed u/s 143(1) by accepting the book profit u/s 115JB and tax payable as computed by assessees. Because of failure on the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Accordingly, considering the admitted tax liability of each assessee, AO passed orders imposing penalty u/s 221(1) as under: Penalty imposed Nallamalla Agro Farms (P) Ltd. 45,00,000 Chitravati Agro Farms (P) Ltd. 35,00,000 Parbati Agro Farms Pvt. Ltd. 56,00,000 Gomati Agro Farms Pvt. Ltd. 50,00,000 Kanchanjunga Green Lands 15,00,000 23. In course of hearing of appeal, before ld. CIT(A), assessee made the following submissions: a) The transaction covered in this case is not a sale. The appellant had transferred land (28.10 acres of land) to sister concerns (subsidiary companies, which are the group companies) and as these were agricultural lands and the transfer was to a subsidiary company, the very taxability of the transaction in terms of section 47(iv) was doubtful. b) The demand arose only because of the crediting of the sale proceeds to P L A/c and because of the applicability of provisions of section 115JB to a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment tax. Ld. CIT(A) observed that as the taxes are the revenue of the govt. enabling it to carry out its functions and when the liability is self determined, the responsibility on the tax payer is more, therefore, consequence for default has to follow as a natural corollary. Accordingly, he confirmed the penalty imposed. 25. The learned AR mostly reiterating the submissions made before the departmental authorities, submitted that assessees could not discharge their admitted tax liability due to lack of liquidity. Referring to the bank account copies ld. AR submitted that in the beginning of year as well as in the end of year, assessees were having nil balance. It was submitted, therefore, on the date of filing of return on 30/09/08, assessee could not discharge the tax liability. Ld. AR submitted that however subsequently assessees have discharged the admitted tax liability along with interest charged u/s 234B and 234C. 26. Ld. AR submitted that due to the subsequent events like fraud committed and with the affairs of M/s Satyam Computers Services Ltd. and consequential actions which followed with attachment of bank accounts, freezing of properties, assessee could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty in a case where assessee has defaulted in making payment of the tax liability as a result of which he is to be treated as an assessee deemed to be in default. However, it is also necessary to note that quantum of penalty has not been fixed in the said provision and it has been left to the discretion of AO. However, the first proviso to section 221(1) provides that before imposition of penalty, assessee shall be given a reasonable opportunity of being heard. Whereas, second proviso provides that where assessee proves to the satisfaction of AO that the default was for good and sufficient reasons, no penalty shall be levied. From the plain reading of the aforesaid provision, it becomes clear that imposition of penalty u/s 221(1) is not automatic or mandatory. AO has been given discretion to impose penalty in an appropriate case whereas assessee has also been given an opportunity to satisfy AO that there is good and sufficient reasons for default in making payment. 30. Keeping in view the aforesaid statutory provision, let us examine the facts of the present case. At the cost of repetition, we would like to observe that there is no dispute that assessee has defaulted in dischar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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