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2019 (7) TMI 22

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....e payments and identity of payees were not doubted and hence, considering the intention of legislature behind introducing the provisions of section 40A(3), the disallowance made by the A.O. was not justified.   2.1] The learned CIT(A) erred in not appreciating that the above payments were made to rural farmers towards purchase of agricultural lands who insisted on cash payments since they were not prone to banking activities and they did not know the assessee personally and hence, the disallowance u/s 40A(3) was not attracted in respect of the said cash payments made of business expediency especially in view of the fact that the genuineness of the same was not doubted.   3] Without prejudice to the above grounds, the assessee submits that none of the above cash payments totaling to Rs. 26,46,185/- were made in this year and hence, there was no reason to make any disallowance u/s 40A(3) in the year under consideration.   4] Without prejudice to the above grounds, the assessee submits that the impugned agricultural lands purchased in the earlier years were held as investment at the time of purchase and not as stock in trade and the said fact has also been accepte....

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....ear to various parties.  The list of plots sold is enlisted at page 2 of assessment order.  The Assessing Officer further noted that expenditure in respect of purchase of these land plots was made in previous years but was claimed during the year as the plots were not part of Trading Account in the previous years.  The assessee had not included the plots of land in the stock of previous years.  It was further noted by Assessing Officer that purchase in respect of said plots of land were made in cash and not through account payee cheques.  He thus, was of the view that there was violation of section 40A(3) of the Act.  The contention of assessee in this regard was that these plots of land when they were purchased were in the nature of investment and the said investments were converted into stock-intrade, sold as business transaction during the year and hence, provisions of section 40A(3) of the Act were not attracted.  The Assessing Officer did not accept the contention of assessee as there were no entries in the books of account of conversion of investment into stock-in-trade.  Further, there was no estimation of fair market value as on the d....

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.... Nashik for Rs. 12,66,605/-, which was sold for Rs. 12,25,000/- on 22.01.2013, resulting in loss of (-) Rs. 41,605/-.  It was further pointed out that in the statement of facts, the assessee had also declared market value as on 01.04.2012 i.e. the date on which conversion of agricultural land was made into stock-in-trade and the tabulated details were filed in respect of each of the dates of land indicating the days of holding the land for two purposes i.e. first, for the purpose of computing capital gains and secondly, days of holding the land upto 31.03.2012 for working out the proportionate increase in value of the said land upto 31.03.2012.  The assessee pointed out that he had inadvertently shown the cost of purchase of agricultural lands held as investment, instead of market value of said lands as on the date of conversion i.e. 01.04.2012.  The assessee also referred to letters filed before the Assessing Officer dated 20.08.2015 and 29.01.2016 in which the claim was made of deemed conversion of capital asset i.e. agricultural land held as investment into stock-in-trade as on 01.04.2012 and the consequent computation of business income at Rs. 9,14,984/- as again....

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....anikKhamb 09.04.2008 1,42,740 24.09.2012 1,94,500 1,88,876 46,136 5,625 Gat 655, ManikKhamb 26.09.2008 1,27,390 20.10.2012 4,72,000 4,24,892 2,97,502 47,108 Gat 809, ManikKhamb 26.09.2008 8,24,550 24.09.2012 14,90,000 14,09,270 5,84,720 80,730 Gat 114, Balwant Nagar 23.07.2009 2,28,500 02.07.2012 4,68,750 4,47,966 2,19,466 20,784 Gat 437, Balwant Nagar 16.02.2010 1,00,100 20.10.2012 1,75,000 1,59,437 59,337 15,563 Gat 165/B, Balwant Nagar 30.12.2010 11,76,000 30.05.2012 52,00,000 47,33,000 35,57,000 4,67,000 Gat 170, Nandgaon 09.05.2011 1,40,920 11.03.2013 1,50,000 1,45,338 4,418 4,662 Gat 164, Balwant Nagar 20.04.2011 11,57,400 30.05.2012 51,02,500 45,19,480 33,62,080 5,83,020 Total - 48,79,585 - 1,54,36,250 1,40,65,620 91,86,035 13,70,630   10. The perusal of chart would reflect that the assessee had purchased different plots of land on different dates ranging from March, 2008 to May, 2011 and the value of said pieces of lands were different.  Admittedly, all these purchases were made in cash by the assessee.  The assessee ha....

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....hat be so, then the gain arising therefrom cannot be assessed as business income.  But the assessee has declared profits on sale of land as its business income.  So the exercise of working fair market value as on the date of conversion into stock in trade and consequent capital gains to be assessed on the date of conversion and the business income to be assessed on the date of sale of stock in trade need to be computed and assessed in the hands of assessee.  The assessee also claims that since it is the agricultural land which is converted into stock in trade, then capital gains is assessable under section 45(2) of the Act.  This aspect also needs verification by Assessing Officer.  Consequently, we remit this issue back to the file of Assessing Officer to carry out necessary verification and also direct the assessee to furnish complete information before the Assessing Officer in order to enable him to first determine the fair market value of property as on the date of conversion i.e. 01.04.2012 and to see whether the capital gains arises on the sale of aforesaid agricultural land in the hands of assessee or not.  Further, business income on the sale o....