Income Tax Appellate Tribunal - Chennai
Late Trv Selvaraj Rep By Legal Heirs, ... vs Assessee on 17 April, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
I.T.A. Nos. 570, 571 & 572/Mds/2011
(Assessment Years : 2002-03, 2003-04 & 2004-05)
Late TRV Selvaraj,
Rep by L/Heirs, The Income Tax Officer,
65, Kumbakonam Road, v. Ward I (4),
Panrutti. Cuddalore.
PAN : AUGPS3727E
(Appellant) (Respondent)
Appellant by : Shri N. Muthukumaran
Respondent by : Dr. Yogesh Kamat, Sr. DR
Date of Hearing : 17.04.2012
Date of Pronouncement : 30.04.2012
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
These are appeals of the assessee for impugned assessment years, directed against orders dated 28.1.2011 of Commissioner of Income Tax (Appeals)-XII, Chennai.
2. Grounds taken by the assessee, assail the computation of capital gains by the Assessing Officer and also non-apportionment of the consideration received on sale between capital gains and business income. As per the assessee, Section 45(2) of Income-tax Act, 1961 (in 2 I.T.A. Nos.570 to 572/Mds/11 short 'the Act') was ignored by the CIT(Appeals) and A.O. and the end result was that value of capital gains were worked out based on certain uncorroborated statements taken from purchasers and that too by generalizing the rates taken from such uncorroborated statements.
3. Facts for all the years fall within a short compass. For assessment year 2002-03, assessee had filed its return on 24.3.2003 admitting an income of ` 1,87,600/-. For assessment year 2003-04, a return was filed on 28.1.2004 admitting an income ` 18,71,080/- and for assessment year 2004-05, a return was filed on 25.10.2004 admitting income of ` 14,50,599/-. Though there is no information as to the break-up of returned income in the assessment orders, it seems such income comprised of share from partnership firms and capital gains. A survey was conducted under Section 133 of the Act in the premises of the assessee on 9.1.2008. During the survey, it came out that assessee had converted 12.29 acres of his land to stock-in-trade and effected sales thereafter as housing plots. As per the A.O., out of such area, assessee had obtained approval from town planning authorities for 7.15 acres for sale as plots. Assessing Officer also noted that assessee had developed roads and claimed development charges as expenses. It seems in the sworn statement recorded during the survey, assessee admitted the sale of plots. Based on these, A.O. came to a conclusion that assessee had converted the entire capital asset into stock-in-trade. 3 I.T.A. Nos.570 to 572/Mds/11 Pursuant to the survey, notice under Section 148 was issued for all the years. For assessment year 2002-03, a fresh return was filed by the assessee in which the income admitted was ` 1,61,630/-. For assessment year 2003-04, pursuant to notice under Section 148, assessee filed a return wherein income shown was ` 18,71,280/-. For assessment year 2004-05, pursuant to notice under Section 148, income admitted was ` 14,51,390/-. It is seen from the assessment orders that assessee had claimed a loss of ` 30,489/- for assessment year 2002-03, ` 13,900 for assessment year 2003-04 and an income of ` 50,910/- for assessment year 2004-05 under the head "Income from business". Such amounts were included in the declared income.
4. During the previous year relevant to assessment year 2002-03, assessee had, out of the above mentioned land, sold a plot measuring 2100 sq.ft. to one Shri N.S. Arugadoss. Capital gains admitted by the assessee on this sale was ` 86,679/-. As per the sale deed, the consideration was ` 50,000/-. As per the A.O., assessee had claimed business loss on this sale after setting off development expenses and Electricity Board service expenses. A.O. thereafter issued summon to Shri N.S. Arugadoss and the buyer appeared before the A.O. and stated that he had bought the plot for a sum of ` 2 lakhs. Thereafter, said Shri N.S. Arugadoss was cross-examined by the assessee. As per the A.O., in such cross-examination, Shri N.S. Arugadoss confirmed payment of 4 I.T.A. Nos.570 to 572/Mds/11 on-money, i.e. amounts in excess of what was stated in the registered deed. In the cross-examination, assessee asked Shri N.S. Arugadoss whether there were any documentary proof for payment of on-money and also whether he had intimated his employer, being a public sector undertaking, the factum of purchase of plot. A.O. was of the opinion that such questions were intended to threaten the deponent. The A.O. finally came to a conclusion that Shri N.S. Arugadoss had confirmed the sale consideration as ` 2 lakhs. In other words, against ` 50,000/- shown in the sale deed, the amount considered by the A.O. was ` 2 lakhs for the purpose of computing capital gains. It is to be noted that assessee had adopted fair market value of ` 86,679/- based on stamp value while working out the capital gains. Thus, under the head long term capital gains an amount of ` 1,13,321/- was assessed, in addition to what was returned.
5. During assessment year 2003-04 also, A.O. issued summons to buyers of the plots and land. As per the A.O., in response, one Smt. Vetriselvi and one Smt. Malarvizhi appeared. In the statement recorded, it was mentioned by the said buyers that against sale price mentioned in the registered deed as ` 1,00,800/-, what was paid by them was ` 1,50,000/- and ` 1,60,000/- respectively. A.O. worked out average square feet rate of the land sold to Smt. Vetriselvi and Smt. Malarvizhi at ` 65/-. The total area of the plots sold in the previous year relevant to 5 I.T.A. Nos.570 to 572/Mds/11 assessment year 2003-04 came to 30,400 sq. ft. comprising of 11,400 sq. ft. divided into plots and 19,000 sq. ft. sold on the road side without dividing into plots. Cross-examinations were allowed to be done on Smt. Vetriselvi and one Smt. Malarvizhi and as per the A.O., the concerned persons had confirmed the payment of ` 1,50,000/- and ` 1,60,000/- respectively. He, therefore, after excluding 4800 sq. ft. sold to these two persons, for the balance land of 25,600 sq. ft., applied the rate of ` 65/- per sq. ft. and arrived at the sale consideration. Accordingly, the capital gains were re-computed and an addition of ` 7,23,301/- was made.
6. For assessment year 2004-05 also summons were issued to buyers of the plots and land. As per the A.O., on examination of six persons, out of the various buyers, who had responded to the summons, it had come out that the actual price for which plots were sold were as under:-
Sl. Name of the buyer Sq. ft. sold Sale price Rate per Sale price No. stated by sq.ft. admitted by the buyers the assessee in the sworn statement (`) (`) (`)
1. J. Girirajan 2100 1,11,732/- 53/- 1,02,500/-
2. E. Vasantha 2400 1,64,000/- 68/- 1,17,800/-
3. K. Muthuramalingam 2100 1,26,000/- 60/- 1,02,500/-
(father and guardian of Hemalakshmi)
4. R. Gunabalan 2100 1,60,000/- 76/- 1,02,500/-
5. P. Sivakumar 1800 1,00,000/- 56/- 87,500/-
6. P. Ramadoss 1800 90,000/- 50/- 87,500/-
TOTAL 12300 7,51,732/-
6 I.T.A. Nos.570 to 572/Mds/11Based on the above table, A.O. worked out per sq. ft. rate of sale consideration as ` 60.50. Out of the above persons, cross-examination was allowed only in the case of Smt. E. Vasantha. A.O. did a re- examination whereupon according to him, Smt. E. Vasantha had confirmed the payment of on-money to the assessee for purchase of the plot. Total area of plots and land sold by the assessee during the relevant previous year, came to 23,100 sq. ft. and after excluding 12,300 sq. ft. sold to six parties mentioned in the table above, the balance, as per the A.O., came to 15,800 sq. ft. and for such area also, the A.O. applied average rate of ` 60.50 per sq. ft. On account of such re- computation, the capital gains was enhanced by ` 5,22,550/-.
7. Assessee moved in appeal before ld. CIT(Appeals) for all the years. However, ld. CIT(Appeals) was not impressed by the argument of the assessee that there was no corroboration of on-money payment mentioned by the buyers through any supporting records. Assessee also argued that the Assessing Officer had made an averaging of rates of the area sold based on deposition of few of the parties, ignoring registered documents. There was also a contention that market value adopted for stamp value alone could be considered and there could be no presumption regarding on-money receipts. Ld. CIT(Appeals), 7 I.T.A. Nos.570 to 572/Mds/11 however, was of the opinion that existence on-money payment in real estate business was a common knowledge. As per ld. CIT(Appeals), sufficient evidence were brought on record by the A.O. to show that on- money was paid on a number of plots and hence, Assessing Officer was right in taxing difference in sale consideration based on the recorded statements of the buyers. In short, he confirmed the assessments done by the A.O.
8. Now before us, learned A.R., assailing the orders of authorities below, submitted that for assessment year 2002-03, Shri N.S. Arugadoss had stated in the cross-examination that he had not informed his employer M/s Neyveli Lignite Corporation, which is a public sector undertaking, on the purchase of plot. As per the learned A.R., the registered document clearly mentioned ` 50,000/- and the Assessing Officer had come to a presumption that ` 2 lakhs was passed based on the statement recorded from Shri N.S. Arugadoss. According to him, assessee had himself worked out the gains based on stamp value rates adopted which was the fair market value. Further, according to him, Assessing Officer ignored all these and proceeded to presume the surplus consideration, under the head "Capital Gains" when, admittedly, the sale was of stock-in-trade. Learned A.R. submitted that Section 45(2) of the Act was ignored by ld. CIT(Appeals) despite specific ground raised in this regard. According to learned A.R., land once converted 8 I.T.A. Nos.570 to 572/Mds/11 into stock-in-trade, capital gains could be assessed only for difference in fair market value as on the date of conversion and original cost and any surplus realized on sale when compared to fair market value, could be considered only under the head "Income from business".
9. Insofar as assessment year 2003-04 was concerned, argument of the learned A.R. was that Assessing Officer had relied on the statements recorded from two persons and made averaging based on such statements for the whole of the sale effected by the assessee. According to learned A.R., Assessing Officer had used this method without any rhyme or reason and ignored the value mentioned in the registered deeds. Specific reliance was placed on the affidavits placed at paper-book pages 24-31 filed by four of the buyers, namely, Shri P.K. Elumalai, Shri R. Srinivasan, Smt. S. Saraswathi and Shri R. Ponnappan which, according to him, clearly confirmed that nothing more than what was stated in the registered documents were paid by the said persons to the assessee. As per learned A.R., both the authorities below completed ignored the affidavits filed by the buyers and relied solely on statements of two of the buyers. Cross-examination of two of the buyers clearly showed that the said parties did not inform the employers who were public sector undertakings.
9 I.T.A. Nos.570 to 572/Mds/11
10. Insofar as assessment year 2004-05 was concerned, learned A.R. submitted that two of the buyers, namely, Shri B. Rajan and Shri Kuppusamy Achari (paper-book pages 21-24) had confirmed that nothing more than what was mentioned in the registered sale deeds was paid through their respective applications. According to him, only one buyer, namely, Smt. E. Vasantha was examined and in such examination, Smt. E. Vasantha (paper-book page 7) had stated that the value mentioned in the document alone was correct. Thus, according to him, the Assessing Officer fell in gross error in relying on a few uncorroborated statements recorded from few of the buyers and generalizing the rates based on such statements for whole of the sales effected by the assessee for the impugned assessment year, and in ignoring Section 45(2) of the Act while computing the income of the assessee.
11. Per contra, learned D.R., supporting the orders of authorities below, submitted that the assessment orders were based on statements recorded from buyers and all such buyers admitted payment of on- money. According to learned D.R., the plots were adjacently situated and therefore, rates of sale considered by the Assessing Officer by taking the amounts mentioned by the persons, who had deposed before him, were a fair estimate. When assessee had converted the land into stock-in-trade, it could not be presumed that the sale of the plots, within 10 I.T.A. Nos.570 to 572/Mds/11 the same land area would be effected at rates which were at substantial variance. On the other hand, assessee would have adopted the same rates and if at all there were any variation it would be only marginal. Assessee having not proved any concession to have been given to any purchaser, Assessing Officer's basis of computing the capital gains could not be faulted.
12. We have perused the orders and heard the rival submissions. The total area of land, as per the A.O., converted by the assessee from capital asset to stock-in-trade, was 12.29 acres. Assessing Officer had observed that out of such 12.29 acres, 7.15 acres were approved by the town planning authorities for selling as plots. Once a capital asset is converted to stock-in-trade and such a conversion is accepted, the method of computing capital gains is given in Section 45(2) of the Act which is reproduced hereunder:-
"Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset."
The Act has laid down a clear methodology for assessment where there has been conversion of capital asset into stock-in-trade. The 11 I.T.A. Nos.570 to 572/Mds/11 methodology prescribed mandates that when such a stock-in-trade is sold, the fair market value on the date of conversion should be considered to be full value of consideration for the purpose of computing capital gains. Anything in addition to that, received on such sale, will be income under the head "business". Both the A.O. as well as ld. CIT(Appeals) had not considered this provision despite clear admission that there was a conversion of capital asset into stock-in-trade. Further, assessee had filed affidavits of a number of buyers who were not examined by the Assessing Officer. In such affidavits, it has been confirmed that no money in excess of what was stated in the registered transfer deeds, were paid. Though for assessment years 2003-04 and 2004-05, Assessing Officer had mentioned that he had summoned all the buyers, nothing has been mentioned who all had appeared and why cross-examination was allowed only for a few. As to the question whether deponents intimated their employers regarding the purchase transaction, in our opinion, this is irrelevant for the purpose of computation of the income of the assessee. Nevertheless, in the facts and circumstances, we are of the opinion that the computation of capital gains for respective years requires a re-look. As already mentioned, assessee had claimed business loss for assessment years 2002-03 and 2003-04 and profits under the head "business" for assessment year 2004-05. Atleast for assessment year 2002-03, Assessing Officer had 12 I.T.A. Nos.570 to 572/Mds/11 noted that the loss resulted out of the claim of land development expenses and Electricity Board service tax. Therefore, a re-appraisal of whole computation is required and income of the assessee should be correctly computed in accordance with mandate in the Act. We, therefore, set aside the orders of authorities below and remit the issue of computation of income of the assessee under the head "capital gains"
and under the head "business income" back to the A.O. for consideration afresh in accordance with law. Assessing Officer has to give a fair chance to the assessee for cross-examinations of the parties.
Assessing Officer shall examine all aspects de novo and make fresh assessments and proceed in accordance with law.
13. In the result, appeals filed by the assessee for all the years are allowed for statistical purposes.
The order was pronounced in the Court on 30th April, 2012.
sd/- sd/-
(Challa Nagendra Prasad) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 30th April, 2012.
Kri.
Copy to: Appellant/Respondent/CIT(A)-XII, Chennai-34/ CIT, Pondicherry/D.R./Guard file