Income Tax Appellate Tribunal - Jaipur
Pradeep Brahmwar, Ajmer vs Ito, Ajmer on 16 December, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 858/JP/2014
fu/kZkj.k o"kZ@Assessment Year : 2010-11
Pradeep Brahmwar, cuke I.T.O.,
204, Haribhau Upadhyay Vs. Ward 1(3),
Nagar, Extension, Ajmer- Ajmer.
305001.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ALFPB 6046 F
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : None.
jktLo dh vksj ls@ Revenue by : Mrs. Neeja Jeph (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 05/12/2016
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 16/12/2016
vkns'k@ ORDER
PER: KUL BHARAT, J.M. This is an appeal filed by the assessee arises against the order dated 30/09/2014 passed by the ld. CIT(A), Ajmer pertaining to the A.Y. 2010-11, wherein the assessee has raised only following grounds of appeal:
Under the facts and circumstances that the ld. CIT(A) has erred in confirming the issues below:-
2 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO "1. Not considering the conversion of capital asset into stock in trade in term of provision of section 45(2) of Income Tax Act, 1961.
2. Not considering the sale of land (stock) as business sale and wrongly applying the provisions of long term capital gain.
3. Applying the provision of section 50C whereas the matter is sub judicious in court of law by purchaser.
4. Non granting the benefit of cost of improvement at Rs. 3,50,000.00 as incurred by Prem Kumari.
5. Any other matter with the prior permission of chair."
2. At the time of hearing, no one has appeared on behalf of the assessee but he filed a written brief, which is available on the record.
From perusal of record, it transpires that the assessee was given sufficient opportunity to represent his case. The appeal of the assessee is taken up for hearing in absence of assessee and is being decided on the basis of material available on the record. The submissions of the assessee as made in the written brief are as under:-
1. That the assessee Shri Pradeep Brahmwar had received half share in the ancestral property situated at Thok Maliyan - III, Ajmer Sarhad, Nareli, Ajmer on death of his father Late Shri Madan Singh in April'1973. Further his mother, Smt. Prem Kumari had relinquished her right in the said property (1/2 share) as per nomination no. 255 on 21.01.2003 in favor of his son Shri Pradeep Brahmawar Smt. Prem also became
3 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO owner of 'A share in April'1973 on death of Husband. Thus the assessee received in total land measuring 36 Bigha and 5 Biswa at Khata no. 1707 Thok Maliyan, Near Nareli Village, Ajmer.
2. The fair market of the land as on 01.04.1981 was estimated at Rs. 3,50,000.00 as cost to the previous owners since asset is ancestral and was acquired by previous owners prior to 01.04.1981 in terms of section 149.
3. The previous owner (Smt. Prem Kumari) also spent Rs. 3,50,000.00 for making fencing and other development expenditure related to said land in the financial year 2002-
03.
4. The said land was converted into stock in trade by assessee on 31.03.2003 for Rs. 7,50,000.00 and taken into books by converting in stock in terms of provisions of section 45(2) of Income Tax Act, 1961.
5. Now the said stock of land is sold On 07.10.2009 for Rs. 10,00,000.00. thus in the financial year 2009-10 the gain on sale of land as per the provisions of section 45(2) i.e. (After Conversion) of capital asset into stock in trade shall be as under:-
(a) Business Profit from trading of land (As per section 44AD) Sale price (Being price of Registry) 1000000.00 Less: Cost of land taken as stock in - 750000.00 4 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO trade on 31.03.03
----------------
Business profit from sale of land 250000.00
(b) Capital Gain Sale price being price of conversion of 750000.00 capital assets into stock in trade Less: Cost of acquisition being Fair -350000.00 Market Value as on 01.04.1981 Less: Cost of improvement being cost of -350000.00 Fancing and other expenditure incurred By previous owner Smt. Prem Kumari (In Terms of Section 49) -------------
Capital gain on sale of land 50000.00 Moreover the provisions of section 50C were applicable only on capital asset and only w.e.f. 01.04.2003.Thus the provisions of section 50c are not applicable to the said transaction since capital assets converted in stock in trade only on while the provisions of section 50C are applicable w.e.f. 01.04.2003. Thus no question of applicability of provisions of section 50C are there on conversion of capital asset into stock as on 31.03.2003.
Further once "Capital Asset" converted into stock e.g. "Business Asset" the provision of section 50C on such business asset are not applicable. Refer it has been recently held by ITAT Mumbai in case of Neelkamal Realtors & Erectors India Private Limited V/s DCIT (ITA No. 1143/MUM/2013) that provisions section 50C are applicable on "CAPITAL ASSETS" and not applicable on "ASSETS HELD AS STOCK IN TRADE" and that too prospectively.
5 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO Moreover with the insertion of section 43CA in the Finance Act, 2013 applicable for assessment year 2014-15 it has further been clarified that the consideration for transfer of any assets (other than capital assets )cannot be less than the stamp duty value (i.e 50c value).
Thus baised on above facts the A.O. has issued notice u/sec. 148 & has not accepted the claim of assessee for two reasons:-
a. That claim of property being converted into stock in trade is not substantiated.
b. Further this transaction of conversion & sale is a single transaction is also not justified since after converting into stock the intention of business do not justifies.
In view of above; the A.O. has rejected the objections; whereas:-
A. This is a single transaction of the transacting party for sale of property whereas as per provisions of section 45(2) the assessee is at liberty to convert his "Capital Asset" into stock in trade at any time. But the value of such conversion would be at FMV as on day of conversions in terms of section
48. Thus as per law there is no provision for any intimation, registration with any authority of such conversion and thus the first reason to belief does not valid.
B. Secondly the AO has held this transaction as a single transaction is also not justified since after converting into 6 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO stock the assessee has planned to make sale of this asset into piecemeal. But since could not get the proper realization hence preferred to make sale at a lump sum. Thus any single transaction does not mean it is not a business or entrepreneurship. Even adventure is a nature of trade as per section 2(13) is part of "Business" where trade, commence, manufacture any adventure, concern in the nature of trade is all defined as business and thus the allegation / reasons to belief hold by AO does not hold justified.
Thus mere change of opinion cannot form the basis - Refer CIT V/s Bhanji Lavji (1971) 79 1TR 582 (SC) where it has been held that when the primary facts necessary for assessment are fully and truly disclosed, the ITO will not be entitled on change of opinion to commence proceedings for reassessment. Similarly, if he has raised a wrong legal inference from the facts disclosed, he will not, on that account, be competent to commence reassessment proceedings - C1T V. Bhanji Lavji (1971) 79 ITR 582 (SC).
Having second thoughts on the same material, and omission to draw the correct legal presumption during original assessment do not warrant the initiation of a proceedings under section 147
- ITO V. Nawab Mir Barkat Ali Khan Bahadur (1974) 97 ITR 239 (SC.) In view of above facts the notice as issued u/sec. 148 & proceedings thereof is requested to be considered void legally.
7 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO Honourable Supreme Court in case of G. Venkataswami Naidu & Company's Case (1959) 35 ITR 594 that if the purchase of asset was made solely and exclusively with an intention to resell it at profit, it would be a strong factor indicating that the transaction is in nature of trade.
Moreover that provisions of section 50C are applicable only on capital asset and only w.e.f. 01.04.2003. thus the provisions of section 50C are not applicable to the said transaction since capital asset converted in stock in trade only on 31.03.2003 while the provisions of section 50C are applicable w.e.f. & thus no question of applicability of provisions of section 50C are there on conversion of capital asset into stock.
Further once "CAPITAL ASSET" converted into stock e.g. "BUSINESS ASSET" the provisions of section 50C on such business asset are not applicable. As held in case of ITAT Mumbai in case ofNeelkamal Realtors & Erectors India (P) Ltd V/s DCIT (ITA No. 1143)MUM/2013) that provisions of section 50C are applicable on "CAPITAL ASSETS" and not applicable on "ASSETS HELD AS STOCK IN TRADE" and that too prospectively.
The decision as cited by A.O. of Hon'ble Gujrat High Court - CIT V/s Premji Gopalbhai 113 ITR 785 (Guj.) is also in favor of assessee & grossly lies onus on department to prove otherwise.
Thus merely suspicious, single transaction, cannot make liable the change in assessee's claim until not proved by act. A single transaction cannot be considered as "BUSINESS ACTIVITY"
8 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO is again a wrong misconception since section "28" has defined the "BUSINESS CONCEPT":-
Activity must be real, Substantial and organized course of Activity Systematic and Organized or conduct with a set purpose. The expression "BUSINESS" is a well known expression in income tax law.
CIT V/s Distributors (Baroda) (P) Ltd. (1972) 83 ITR 377 (SC) Narain Swadeshi Wvg. Mills V/s CEPT (1954) 26 ITR 765 (SC) CIT V/s Admiralty Flats Motel (1982) 133 ITR 895 (Mad.) Business Activity can sometimes be quiescent; not necessarily be continuous. CIT V/s Calcutta National Bank Ltd. (1959) 37 ITR 171 (SC.) The Ld. CIT(A) in appeal order no. dealing the issue has mentioned as below & has rejected the claim of assessee challenging the notice u/sec. 148.
The assessee has claimed that the A.O. has reopened the assessment due to change of opinion and due to wrong legal inference from the facts disclosed. However, it may be mentioned that original return filed by the assessee for asst, year 2010-11 was processed u/sec. 143(1) of the Income Tax Act, and while processing the return, it cannot be said that A.O. has formed any particular opinion. So in this case, there is no question of change of opinion involved while reopening the assessment. Further, the prima facie there existed the material on basis of which the A.O. reopened the assessment. The
9 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO sufficiency of the belief of the A.O. cannot be challenged at this stage. Moreover, it is not a case where the earlier assessment was made u/sec. 143(3) or 147 of the Income Tax Act, and reopening was done before the expiry of four years from the end of the assessment year. So the proviso to section 147 is not applicable in the case of the assessee. Accordingly, reopening of the case by way of issue of notice u/sec. 148 is upheld and this ground of appeal is dismissed.
With respect to "CONVERSION OF CAPITAL ASSET TO BUSINESS STOCK" the CIT(A) has further stated that It has been mentioned by the A.O. that this was the ancestral land of the assessee inherited on 08.03.1988 and 21.01.2003 which has been simply sold as such on 05.11.2009 without carrying out any activity in the nature of development or holding it as a stock in trade. This was a inherited land by the assesse so from the time of acquisition to the sale, there was no change in status of land and nothing indicates that the said land was converted in stock in trade for purpose of business. Further, no frequency of purchase and sale of the property has been noticed and assessee is not in the real estate business. The whole of the inherited land has been sold in a single transaction to Smt. Kiran Brahmwar.
From the above facts, it is clear that assessee has sold the inherited ancestral land in a single transaction. The assessee's claim that he has converted it into the stock in trade on 3103.2003 as per provisions of section 45(2) and sold the land as stock in trade while carrying out the real estate business, is 10 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO not supported by any evidence to this effect. In fact the word "BUSINESS" cannot some real substantial and systematic or organized course of activity with a set purpose. In the case of assessee, the assessee has merely inherited the land and sold it as such without any developmental activity on the said land. This is a solitary transaction of inheriting the land and selling it without any development after a substantial period of time and it cannot be said to be business activity. In fact assessee is not carrying out any real estate business. The assessee has only reiterated the contentions made before the A.O. and the findings of the A.O. have not been controverted. As such, the findings of the A.O. holding it to be a capital asset liable to application of section 50C of the Income Tax Act, is upheld.
Thus the facts were very much made clear in voluntarily return filed, replying to notice u/sec. 148 & later detailed submission with legal inferences. "THERE IS NO RULE OR INTIMATION SYSTEM IN ACT TO INTIMATE THE A.O. OR ANY OTHER AUTHORITY OF SUCH INTENTION FOR CONVERSION OF CAPITAL ASSET INTO BUSINESS ASSET.
Thus the act of assessee is more important & that has been entrusted with voluntarily filing the return. Once the assessee has declared "ASSET AS BUSINESS ASSET" provisions of section 45(2) of act are applicable & after conversion to business asset no provisions of section 50C are applicable. We pray for justice.
11 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO ALTERNATIVELY; even if Ao's view for Long Term Capital Gain is sustained; than the cost of acquisition of said land should be taken in terms of section 49(1) e.g. The cost to the previous owners is deemed to be the cost of acquisition to the assessee. (From the previous owner father late Madan Singh received rights on 08.03.1985 (Refer Release Deed). However Late. Madan Singh acquired this land prior to 01.04.1981 (Since expired in April' 1973). Thus in terms of section 49(l)(c)(i) by succession, in heritance or demolition & thus the cost of acquisition of said capital asset would be taken at fair market value as on 01.04.1981 / section 55(2) or date of acquisition by previous owner being or on before 01.04.1981 so FMV as on 01.04.1981.
Since the land was acquired by Late Madan Singh before 01.04.1981 hence the indexation cost should also have been granted from that date in view of provisions in act below:-
When the asset was acquired under the circumstances given by section 49(1) - if an asset was acquired by gift or will (or under any circumstances given by section 49(1)), indexed cost of acquisition at the time of its transfer shall be calculated as follows -
Cost of acquisition * Cost inflation index (CII) for the year in which the asset is transferred / CII for the year in which asset was first held by the previous owner or (1981-82), whichever is later.
12 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO The Bombay High Court in the case of CIT v/s Manjula J. Snah (2012) 204 Taxman 691 has held that indexed cost of acquisition has to be computed with reference to year in which previous owner first held asset (and not year in which the assessee became owner of asset). A similar ruling is given by the Delhi High Court in case of Arun Shunglo Trust V. CIT (2012) 2065 Taxman 456. Practical problems are solved in the Reckoner on the basis of these High Court Rulings.
Thus it is requested to direct the A.O. to correctly calculate the CII value taking cost being F.M.V. index as on 01.04.1981.
APPLYING THE PROVISION OF SECTION 50C.
That once it is a "BUSINESS ASSET" as declared by assessee his intention in terms of section 45(2) it becomes immaterial that whether assessee sale it as a whole, in piecemeal or in a developed situation. The intention of assessee is important & thus the provisions of section 50C cannot apply; since not a "CAPITAL ASSET".
Note: The Hon'ble Rajasthan Kar Board Vide Appeal No. 1700/2013/ Ajmer dated 30.12.2014 has decided in favour of assessee that for registration & stamps purpose the DLC value of land shall be taken at Rs. 43,86,250.00 instead valued at Rs. 1,52,17,300.0 by collector stamps.
It is requested to consider the facts.
13 ITA 858/JP/2014_
Pradeep Brahmwar Vs ITO
NON GRANTING THE BENEFIT OF COST OF
IMPROVEMENT AT RS. 3,50,000.00 AS INCURRED BY PREM KUMARI.
The assessee during course of assessment & while filling the return of income claimed that a sum of Rs. 3,50,000.00 was further incurred for fencing & other expenditure by mother (Smt. Prem Kumari) who released her rights in favour of assessee & claimed for "COST OF IMPROVEMENT" in terms of section 49.
The A.O. without asking or verification for facts has not commented anything in his order for said claim & nor has given credit for same.
The Ld. CIT(A) has simply denied the claim that no document filed or proof filed as mentioned by A.O. in his order; whereas the fact is that A.O. has not commented anything thereon. Thus the LD. CIT(A) has also not dealt the issue in a positive aspect.
Since Smt. Prem Kumari (Mother) has expired on 05.02.2004; hence now we are submitting the sworn affidavit of Smt. Kiran Brahmwar where she has confirmed that Ag. Land so purchased was properly & densly fenced with barbered steel wire & pillars & same are still there on site. The estimated value thereof is around Rs. 3,00,000.00 to Rs. 3,50,000.00 It is requested to consider the facts & evidences. If this sworn affidavit of buyer is considered as "ADDITIONAL EVIDENCES" than a separate application under Rule 29 is 14 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO filed. It is requested to consider the facts & give credit for "COST OF IMPROVEMENT".
3. At the outset, the ld. DR has opposed the submissions and submitted that the submissions as made are not supported with the evidence, therefore, she prayed that the appeal of the assessee deserved to be dismissed.
4. We have heard the rival contentions of both the parties, perused the material available on the record and also gone through the orders of the authorities below. The contention of the assessee that the land in question was sold on 07/10/2009 for Rs. 10.00 lacs. The gain on sale of land in terms of Section 45(2) and business profit calculated and tax paid on 28/3/2012. It is contended that the land was converted in stock in trade by the assessee on 31/3/2003 for Rs. 7.50 lacs and taken into books by converting in stock in terms of provisions of Section 45(2) of the Act. Therefore, he submitted that the assessee has over it as a profit. We find force into the contention of the ld DR that the assessee is unable to substantiate its claim that the land in question was converted into stock in trade. In absence of relevant material, we are not able to accept the submissions of the assessee, therefore, the ground raised with regard to taxing the surplus as capital gain is rejected. In respect of application of Section 50C of the Act, the contention of the assessee is 15 ITA 858/JP/2014_ Pradeep Brahmwar Vs ITO that the purchaser of land had disputed the assessee has not placed any material on record suggesting that the assessee had objected to the adoption of value U/s 50C before the A.O.. Moreover, the assessee has not placed any material on record suggesting the prevalent market rate of land in question. Therefore, we do not see any merit into the ground taken by the assessee in appeal and the same is hereby dismissed.
5. In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 16th December, 2016.
Sd/- Sd/-
¼foØe flag ;kno½ ¼dqy Hkkjr½
(Vikram Singh Yadav) (Kul Bharat)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:-16th December, 2016
*Ranjan
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Pradeep Brahmwar, Ajmer.
2. izR;FkhZ@ The Respondent- The I.T.O., Ward 1(3), Ajmer.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 858/JP/2014) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar