TaxTMI 
TaxTMI 
2004 (11) TMI 310
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessed by the AO. Considering the common issue for all the assessment years, the appeals have been grouped together and the arguments of the parties were made on that basis and the result is the order made in the following paragraphs. 3. The learned counsel for the assessee, Shri Devanathan, made submissions in regard to the right of assumption of jurisdiction by the Asstt. CIT, Circle I(1), Coimbatore. The submission made was that the assessee was being assessed under the territorial jurisdiction of the AO located at Pollachi. The AO who had jurisdiction was the ITO, Ward-I(2), Pollachi. The assessee had filed the returns of income for the asst. yrs. 1995-96 to 1999-2000 with the said AO. For the asst. yr. 1996-97 the returned income was Rs. 3,97,080 and the AO transferred the files to the Asstt. CIT, Circle I(1) Coimbatore, for the reasons that the returned income was in excess of Rs. 2 lakhs. The learned counsel submitted that there was a notification or circular issued by the CIT whereby jurisdiction based on quantum of income returned was fixed. Notwithstanding the fact that the assessment record for the asst. yr. 1996-97 was transferred to the Asstt. CIT, Circle I(1), Coi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions to the proposed transfer in view of the specific provision in s. 127(1) of the IT Act, 1961. The assessee was asked whether any office of Asstt. CIT was located in Pollachi who had concurrent jurisdiction with the ITO Ward-I(2), Pollachi. The answer to this question was that there was no office of the Asstt. CIT located at Pollachi. The officer who had concurrent jurisdiction with that of the AO was the Asstt. CIT located at Coimbatore. 7. The assessee in support of her claim that jurisdiction was improperly assumed relied on various decisions, The assessee further stated that jurisdiction is something which the AO cannot assume and even if the assessee consents to the officer assuming jurisdiction, if by law he has no jurisdiction, his assumption would be illegal. It was further insisted that power of transfer of cases under s. 127 of the Act was of a profile judicial one. The assessee further submitted that she has a vested legal right to get assessed in the area in which she resides for which she placed reliance on the decision of the Supreme Court in the case of Bidi Supply Co. vs. Union of India & Ors. (1956) 29 ITR 717 (SC). In regard to requirement of notice, relianc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10. The AO, viz., the Asstt. CIT at Coimbatore assumed jurisdiction for the detailed reasons given by him in his order of assessment framed on 26th March, 2001. The AO apparently noted that a survey was made on 31st March, 1999. During the course of survey some agreements were found regarding the actual value of the house sites sold and promissory notes for the loans advanced to various parties, constructions accounts, list of persons to whom house sites were sold, details of interest receipts, blank promisory notes, cheques, etc. The AO noted that the assessee had land of six acres in Kottampatti village, Pollachi. This land was converted into 59 house sites consisting of 4 cents to 5-1/2 cents. The house site plan was approved by the concerned town planning authorities in 1994. The assessee had started selling sites from 1995. 11. During the survey, the assessee was asked the price at which she sold the plots. She had stated that she had received between Rs. 15,000 to 20,000 per cent. She also stated that 56 sites were sold out of the total 59 plots. She had admitted the consideration amount at Rs. 12,60,626. She had also stated that she gave her daughter Rs. 9,00,000 and anot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rimary requirement for a person who assumed jurisdiction to reopen an assessment must be that he should initially have the jurisdiction to assess the income. The jurisdiction to assess income for administrative convenience was segregated by the notification issued by the Board based on quantum of returned income. This has been reproduced earlier. This notification makes it clear that if income is below Rs. two lakhs and is not a loss, the jurisdiction to frame the assessment is with the ITO Pollachi. This notification as reproduced earlier goes to confer the jurisdiction on the Asstt. CIT at Coimbatore on the basis that the income or loss returned is Rs. two lakhs or above and is below Rs. five lakhs. This classification has been explained in an endorsement issued by the office of the Chief CIT on 13th June, 1991. According to this notification the jurisdiction in cases of persons returning income of Rs. ten lakhs and above would be with the Dy. CIT Asstt. CIT would have jurisdiction in respect of income returned of Rs. 50,000 and above but below Rs. 10 lakhs in company cases and Rs. 2 lakhs and above but below Rs. 10 lakhs in other cases. This notification further explains "return....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt. If the initial officer has no jurisdiction to frame an assessment on a person, then it is not open to such an officer to assume jurisdiction, reopen the assessments. Therefore, in order that the Asstt. CIT, Coimbatore, who claimed jurisdiction over the assessee, he must have specific authority or order by which the jurisdiction is conferred on him. In that event alone he could claim that he has the jurisdiction to frame an assessment followed by the jurisdiction to proceed with reopening of an assessment also. 14.1 In the instant case from the above facts we have, therefore, to conclude that the Asstt. CIT at Coimbatore did not have jurisdiction for the asst. yrs. 1995-96 and 1997-98 for the reason that the income returned was very below Rs. two lakhs. Because the precondition for assumption of jurisdiction for reopening of assessment is the processing jurisdiction to frame an assessment at the initial stage, which in the instant case, especially for the asst. yrs. 1995-96 end 1997-98, not vested with the Asstt. CIT, Coimbatore, the assumption to jurisdiction to reopen these two assessments is beyond his powers. Therefore, the action having been initiated without adequate po....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cating that it was a business proposition. He submitted that the Madras High Court in the case of CIT vs. Kasturi Estates (P) Ltd. (1966) 62 ITR 578 (Mad) has observed as under: "A sale of immovable property may possibly be a trading commercial transaction, but need not necessarily be so.....If a land owner developed his land, expended money on it, laid roads, converted the land into house sites and with a view to get a better price for the land, eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form of asset into another. Obviously, the surplus in such a case will not be trading or business profits because the transaction is one of realisation of assets in investment rather than one in the course of trade carried on by the assessee or an adventure in the nature of trade." He submitted that in the instant case the assessee is stated to have inherited 15 acres of land and she was cultivating the said land for the last several years. The inheritance as noted by the CIT(A) was about 50 years back. The learned Departmental Representat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....better price which would enable her to construct a residential house for herself. This is identically found by the Madras High Court in the case of M/s Kasturi Estates. In the case of Shyamala Pictures (P) Ltd. the assessee was found to have sold the property with a view to clear part of the debts incurred and therefore, the High Court came to the conclusion that the purpose of sale was not to make a profit but wipe of the debt incurred. The Supreme Court had occasion to consider the case of P.M. Mohamed Meera Khan vs. CIT (1969) 73 ITR 735 (SC), where the assessee purchased a rubber estate and immediately converted them into 23 plots and sold them to 22 different buyers. The entire purchase and sale after conversion into plots were completed in less than a year and this made the Supreme Court to come to the conclusion that the real intention was a business transaction. In the case of CIT vs. M. Krishna Rao 1978 CTR (AP) 287 : (1979) 120 ITR 101 (AP), the Andhra Pradesh High Court had occasion to consider a situation where certain agricultural lands were purchased in 1964 and in 1967. In the earlier part of 1968 the village Panchayat had granted permission for conversion of the lan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion in the asst. yr. 1999-2000. The amount that the assessee had invested in the building over the years was Rs. 27,75,600. On the sale of 56 plots (out of 59 plots 3 remained unsold) the documents were registered for a total consideration of Rs. 13,69,900. The assessee claimed to have received on-money to the extent of Rs. 28 lakhs and this made the total realisation at Rs. 41,69,900. The cost of the plots was determined at Rs. 4,03,090 which the assessee claimed to have paid to her second daughter. The capital gains offered by the assessee plus the capital gains paid was in the range of Rs. 5,93,000 approximately. Rs. 27.50 lakhs was the cost of construction shown and Rs. 2.96 lakhs as cash in hand. The assessee claimed deduction under s. 54F of the Act initially for one year and later on gave the break-up of the same at Rs. 6,25,000, Rs. 14 lakhs, Rs. 6,75,000, Rs. 40,000 and Rs. 60,000 for the asst. yrs. 1998-99, 1999-2000, 2000-01, 2001-02 and 2002-03 respectively. The assessee further stated that out of Rs. 41,69,900, Rs. 92,700 was already subjected to tax for the asst. yrs. 1995-96 and 1996-97 and the balance amount is to be considered for purposes of capital gains. To the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the course of survey for the advancement of loans to the tune of Rs. 10,10,000 as under without dates: Slip No. Name of borrower Amount 11 Blank pronote Nil 20,000 12 -do- Sundaram (Amount not mentioned) - Nil-do- Lalji Patel 2,60,000 17-do- Sri Jayalakshmi Saw Mills 50,000 40,41,42 -do- Rajasekaran Sekar Readymade 1,25,000 Repayment loan obtained for conversion 3,75,000 10,10,000 Asst. yr. 1997-98 As per pronote and loose slips found during the course of survey, the assessee has lent a sum of Rs. 11,40,000 to the following persons: Date Name of the borrower Slip No./ No. copy of pronote Amount Rs. 2-5-96 Alagirisamy 18 1,10,000 20-5-96 -do- 19 15,000 30-10-96 -do- 20 1,40,000 2-1-97 -do- 21 2,00,000 28-1-96 -do- 24 1,50,000 15-6-96 Ramathal 8 2,50,000 15-6-96 R. Govindaraj 9 2,75,000 Amount given to her first daughter Smt. Thilagamani in June, 1996 2,00,000 13,40,000 Asst. yr. 1998-99: Date Name of the borrower Slip No./ No. co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the pronotes given in favour of Mrs. Thilagamani showed interest at 24 per cent and the purpose of the loan is mentioned as "business expenses". The CIT(A) was of the opinion that the daughter was unaware of the facts and, therefore, rejected the claim of the assessee that it was her own money. For the asst. yr. 1996-97 Alagirisamy had filed an affidavit that money was given to him by the assessee for safe custody. There was a loan of Rs. 75,000 advanced to R. Gopalasamy and Rajammal. There was a loan of Rs. 1,25,000 advanced to Sekar Readymades. There was a loan of Rs. 2,60,000 advanced to Lalji Patel and Rs. 50,000 to Sri Jayalakshmi Saw Mills, Rs. 2,50,000 to Ramathal and Rs. 2,75,000 to R. Govindaraj. The CIT(A) made his observations in para 11.5 of his order with regard to amount given to the daughter and the quantum. The statement of the daughter was taken in which she accepted that Rs. 9 lakhs was given by her mother for construction of a house at Tirupur. The CIT(A) found fault with the statement of the mother wherein she had stated that she had given to her daughter Rs. 8 to Rs. 10 lakhs. For the asst. yr. 1998-99 the amount given to Lalji Patel was the subject-matter and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1-4-81 (Rs. 60 per cent) 10,980 12,49,020 Less : Proportionate cost of development expenses (60 x 1300) 78,000 Net capital gains 11,71,020 Interest income 1,61,200 Total income 13,32,220 Agricultural income 90,000 21.4. Asst. yr. 1998-99: Long-term capital gains : Sale consideration for 5.5 cents of land 1,21,000 Less : Indexed cost of acquisition 1,090 1,19,910 Less : Proportionate cost of development expenses (5.5 x 1300) 7,150 Net capital gains 1,12,760 Interest income from Lalji Patel 15,000 Total income 1,27,760 Agricultural income 90,000 21.5. Asst. yr. 1999-2000: Long-term capital gains : Sale consideration for 11 cents of land 2,75,000 Less : Indexed cost of acquisition 2,317 2,72,683 Less : Proportionate cost of development expenses (11 X 1300) 14,300 Net capital gains 2,58,383 Total income 2,58,383 Agricultural income 1,00,000 The CIT(A) in para 22 of his order had deleted Rs. 28 lakhs which the assessee claimed as receipt of on-money and which the AO had assessed as unexplained incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the records that are before us and as produced before us shows that other than the only document that showed Rs. 21,000 per cent, no other document showed that the land fetched a price of Rs. 21,000 only and not Rs. 15,000 to Rs. 20,000 per cent as claimed by the assessee. The CIT(A) had accepted that on-money has already been included as part of sale consideration because there was no business activity of the assessee. Further, the statement of Alagirisamy, the assessee, etc. go to show that the money was earned from sale of property and from agricultural activity and it was kept with Alagirisamy and others only for safe custody. It is not the case of the Department that the purchasers are found to have paid the assessee more than what the assessee had claimed to have received from them. Out of Rs. 41 lakhs, which is stated to be the consideration by the assessee, Rs. 27.75 lakhs is what she had invested in the construction of the property. The amounts that the assessee has realised for the various assessments ere as indicated below and as was placed before the AO: Asst. yrs. Amount (Rs.) 1995-96 9,32,500 1996-97 20....