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TMI Blog2020 (1) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... ), A.O. should have proved expenditure is excessive or unreasonable - 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. - Decided against revenue Disallowance of excess remuneration paid to the Directors - A.O. disallowed substantial portion of the payment on the belief that for the immediately preceding A.Y. 2009-2010 payment of only ₹ 2 lakhs had been made to Shri Kushal Rana on this account and there was abnormal increase in Director s remuneration over the year - as per assessee A.O. disallowed substantial portion of the payment on the belief that for the immediately preceding A.Y. 2009-2010 payment of only ₹ 2 lakhs had been made to Shri Kushal Rana on this account and there was abnormal increase in Director s remuneration over the year - HELD THAT:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing, 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. Disallowance of TDS default - HELD THAT:- 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. Deduction u/s 80G - failure to produce any proof, therefore, it was disallowed under section 37 - HELD THAT:- Learned Counsel for the Assessee merely relied upon the Order of the AO and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of ₹ 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 ₹ 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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-51 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 33,10,000/- during the year. The A.O. disallowed ₹ 33,10,000/- out of Director s Remuneration paid to Shri Kushal Rana, Director of the Assessee-Company at ₹ 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 ₹ 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 ₹ 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. 2009-2010 same amount of ₹ 42 lakhs have been paid t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 addition. 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 ₹ 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 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 Gaz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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(14)(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 F.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 Gazett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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(47) of the Act. As per the decision of Hon ble Delhi High Court in the case of J.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 ₹ 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-81 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 Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aran (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 taxmann.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 taxmann.com 53 (Jaipur Trib.) 8. Deputy Commissioner of Income-tax, Circle 8, Kolkata Vs. Arijit Mitra [2011] 16 taxmann.com 66 (Kol.) 9. Capital Local Area Bank Ltd. Vs. ACIT-III, Jalandhar [2017] 82 taxmann.com 387 (Amtritsar Trib.) III. Income from agricultural land was not business income 10. Marigold Merchandise (P) Ltd. Vs. DCIt [2015] 55 taxmann.com 358 (Delhi Trib.) 11. Goutham Constructions Co. Vs. ITO, Ward 4(2), Hyderabad [2013] 39 taxmann.com 181 (Hyderabad Trib.) 12. Hindustan Industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icultural 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 ₹ 18,03,84,934/- on account of exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial 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 ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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