Income Tax Appellate Tribunal - Indore
Khialdas Construction Pvt. Ltd.,, ... vs Assessee on 16 January, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M.
PAN NO. : AADCK3822A
I.T(SS).A.No. 36/Ind/2010
A.Y. : 2006-07
M/s.Khialdas ACIT,
Construction Pvt.Ltd., 1(1),
Gandhi Nagar, vs. Bhopal
Itartsi
Appellant Respondent
Appellant by : Shri S. S. Deshpande, C. A.
Respondent by : Shri R. A. Verma, Sr. DR
Date of Hearing : 16.01.2013
Date of : .02.2013
pronouncement
ORDER
PER R. C. SHARMA, A.M.
This is an appeal filed by the assessee against the order passed by the CIT(A) dated 10th December, 2009, passed u/s 153C/153A/143(3) of the Income-tax Act, 1961.
2. Following grounds have been taken by the assessee :-
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1. That on the facts and in the circumstances of the case and in law, it be held that the initiation of the proceedings u/s.
153C are bad in law and without jurisdiction and, therefore, the order of assessment be held as null and void.
2. That on the facts and in the circumstances of the case and in law, it be held that the land in issue was acquired for the purpose of carrying out business activities and, therefore, the said land was a stock-in-trade of the assessee and hence the income arising on itself is assessable as income u/s. 28 of the I.T. Act. The learned authorities below are unjustified in their findings that the said land was a capital asset and, therefore, the income arisen from its sale was chargeable as income u/s. 45 of the Act. Such findings of the learned lower authorities be quashed and the income from sale of land be held as income chargeable u/s.28 of the Act.
3. That on the facts and in the circumstances of the case and in law, and without prejudice to ground no. (2) at any event if it is held that the said land was a capital assets and its income is chargeable u/s.45 of the LT. Act then the A.O. 2
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erred in law in not following the procedure laid down in section 50C of the LT. Act. The findings of the learned CIT(A) on this issue are wholly unjustified and not lawful. The assessment of income at Rs. 5840082 (modified by C1T(A) to Rs. 5839760) is unlawful and not justified hence be quashed.
3. Rival contentions have been heard and records perused. Brief facts of the case are that the assessee is a Private Limited Company. Search and seizure operation u/s 132 were carried out on 15.11.2006 at the residential premises of Shri Chandrabhan J. Lalchandani.
Simultaneously, survey u/s 133A was also carried out at the business premises of M/s. Laxmi Agencies and the office premises of M/s. Khialdas Construction Pvt.Ltd. During the search and seizure operations u/s 132, documents belonging to the assessee, M/s. Khialdas Constructions Pvt. Limited, were also seized. The Assessing Officer recorded the satisfaction enumerating therein the documents belonging to the assessee company found and seized during the course of 3
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search and, thereafter, issued notice u/s 153C r.w.s. 153A. In response to notice u/s 153C issued on 19.5.2008 for assessment year 2006-07, the assessee furnished return of income on 16.6.2008 declaring a total income of Rs. 1,32,519/-. The assessment u/s 153C r.w.s. 153A was completed on 30.12.2008 determining taxable income at Rs. 58,40,080/-. The assessee has challenged the validity of assessment made u/s 153C r.w.s. 153A of the Income-tax Act, 1961, in addition to the merits of addition. It was argued by the ld. Authorized Representative that even if intimation has been issued u/s 143(1)(a) then the assessment is not pending and it does not abate. For this purpose, reliance was placed on the decision of Sun City Alloys, 121 TTJ 674. Ld. Authorized Representative further contended that if no incriminating material is found during the course of search in respect of issue, then no addition is warranted in the assessment u/s 153A and that only undisclosed income can be assed u/s 153A/153C and for this purpose reliance was also placed on the decision of Abhay Kumar Shroff, 290 ITR 114. 4
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4. On the other hand, it was contended by the ld. Sr. DR, Shri R. A. Verma, that detailed satisfaction has been recorded by the Assessing Officer u/s 153C and to indicate that various documents were seized pertaining to the issue during the course of search at the residential premises of its directors, accordingly, the Assessing Officer has validly initiated proceedings u/s 153C.
5. On merits, it was contended by the ld. Authorized Representative that the assessee was engaged in business of construction and the land so purchased was held in stock of trade, accordingly, profit arising on its sale was liable to be taxed as business income as pleaded by the assessee during the course of assessment proceedings. However, the Assessing Officer did not accept the same and taxed the profit as capital gains.
6. The ld. Sr. DR argued that the assessee itself has offered the gain on sale of land as capital gains and thereafter changing its stand during the course of assessment proceedings, which should not be permitted. 5
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7. We have considered the rival submissions and have gone through the orders of the authorities below and also deliberated on the case laws cited by ld. Authorized Representative and ld. Senior DR in the context of factual matrix of the case. From the record, we found that the assessee was engaged in business of construction as per the main clause in its Memorandum & Articles of Association. The land so sold was purchased by the assessee in the assessment year 2000-01 and since then continuously shown as stock in trade in the audited balance sheet of various years up till the assessment year 2006-07. Even though in the return of income, the assessee has offered profit arising out of sale of land as capital gains but during course of assessment itself, the assessee contended that land was held as stock in trade, therefore, gain arising out of its sale was liable to be taxed as business income and provisions of Section 50-C was not applicable. However, the Assessing Officer did not agree and found that the stamp valuation authority has assessed the consideration of the property at high figures as against the value declared by the appellant and other two owners in the 6
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sale deed registered. This sale deed was registered in respect of sale of 1.2 acres land consisting of 1.01 acre of the appellant M/s. Khialdas Contractions Pvt. Ltd. and 0.095 acres each of Shri Nitin Lalchandani and Shri Ratan Lalchandani. As per the value of the property informed by the Registrar office the full value of the consideration of the property belonging to the assessee was worked out as against the value declared by the assessee. The Assessing Officer taxed the gains on sale of stock in trade as long term capital gain and also invoked provisions of Section 50C.
8. Submission of the assessee before the ld. CIT(A) was as under, which also find place in the order of CIT(A) :-
"the company was incorporated on 01.06.1997 for carrying on the business of acquiring land for commercial exploitation including construction of residential, commercial buildings, flats, apartments etc. With these objects in mind, the land in question was acquired in the F.Y. 1999-2000 and therefore, the land was accounted for in the books of account as stock in hand. He has also furnished a copy of 7
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balance sheet for F. Y. 1999-2000. Thus, it was argued that the land was acquired with the express intention of commercial exploitation and accordingly reflected as stock in hand by the appellant company in the books of account and it was being all along treated as stock in trade till it was finally sold out. In support, he has filed balance sheets of the subsequent period also. It was further submitted that the land in question admeasuring 1.01 acres at Chuna Bhatti, Bhopal was purchased from one Mr. Anil Seetha, Power of Attorney holder of the original owners Mrs. Maya Mitra and Mrs. Beena Bose. As per the land use, 40 % was for the green belt and the balance 60 % was for residential purposes. Shortly after the purchase, the appellant moved an application with the competent authority for mutation in the name of the appellant. However, a housing society named Gouri Grah Nirman Sahakari Sansthan Ltd, filed an application before the said authority claiming ownership of the said land having 8
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purchased it from the original owner Mrs. Maya Mitra and Mrs. Beena Bose and requesting for rejection of the application for mutation in favour of the appellant company. Since, the property was disputed, it was decided by the assessee not to go in for colonization but to dispose of the property at the earliest at the best available price for the reason that in view of the dispute it would be difficult for the assessee to transfer clear title to the buyers of the houses constructed on the said property. Since, this was to be the maiden venture of the assessee company, it would tarnish its image and reputation in the market. Efforts were made to dispose of the property and one Sh. Shailesh Gupta agreed to buy the land and gave an advance of Rs.3,00,000/- as a bayana during the financial year 2000-01, the previous year relevant to the assessment year 2001-02. Since, Sh. Gupta had not paid the full price, the sale deed was not executed in this favour. During the intervening period, the assessee company's application for mutation was 9
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rejected two times by the competent authority as the other person came into the picture claiming ownership of the land.
The said property is still in dispute and the matter is before the Hon'ble Madhya Pradesh High Court under a petition filed by the Original Owners Mrs. Maya Mitra and Mrs. Beena Bose claiming that they had rescinded the POA in favour of Sh Anil Seethan in June 1999 and that the said POA was not authorised to sell the property. However, in March, 2006, the assessee received an offer for the property and sold it on an as is where is basis, after informing the buyer of all the legal disputes. It was submitted that in the return filed in response to the notice issued by the Assessing officer under section 153C, the assessee had offered under a bona fide belief of law, though mistaken that the profit on sale of any land is assessable as Capital Gains. However, subsequently, during the assessment proceedings, 10
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the assessee realized that the land is its stock in trade and the profit arising from the sale of such land, under the law, is assessable as the income u/s 28 and not u/s 45 of the IT Act. Therefore, letters were filed on 15.12.2008 and 22.12.2008 in this regard before the Assessing officer. It was contended that the land was its stock-in-trade and, therefore, the profit arising from sale of such land was assessable u/s 28 as claimed before the Assessing officer. Thus, it was argued that the assessee's income from the sale of land comprising stock in trade is assessable as business income U/S 28 of the IT Act. It is not assessable U/S 45 of the IT Act. It was prayed that the Assessing officer may be directed to assess the income as business income u/s 28 and provisions of section 50C are not applicable in computation of business income. " 11
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9. However, the CIT(A) did not accept the assessee's contention and upheld the action of the Assessing Officer for treating the gain arising on sale of land as capital gains.
10. It is clear from the documents placed before the lower authorities that the assessee company was engaged in the business of construction and real estate and whatever land was purchased way back in the year 1999-2000 was with the object of using the same in its business of real estate and continuously held and treated as its stock in trade and shown in the audited balance sheet under the heading current assets, loans and advances. The assessee had no intention of purchase of land as investment. Had the assessee intention to purchase of land as investment and treated the same as its capital asset and not as stock-in-trade, profit arising out of its sale was liable to be taxed as capital gains, but where the assessee had no object of holding the same as investment and which has been acquired with the object of using it as stock in trade and continuously shown as stock in trade, not only in the year of sale in financial year 2005-06 but right from the year of its purchases in financial year 1999-2000, any profit 12
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arising on its sale is essentially liable to be taxed as business profit u/s 28 of the Income-tax Act, 1961. Once it is held that land so purchased was its stock in trade, there is no reason to treat such land as assessee's capital asset so as to bring to tax profit on its sale as capital gain. The fact that the assessee has not got any construction on land, was due to dispute in the land and for which litigation was going on in the High Court, accordingly, the same cannot be made reason for treating the stock in trade as capital assets. Land which was held as stock in trade whether sold as it is or after construction of building thereon, the nature of income so accruing on its sale will remain to be business income and not capital gain. In case of income is assessable under the head "Business income"
provisions of Section 50C is not applicable. Section 50C is a special provision for taking full value of consideration in case of transfer of capital assets being land or building, while computing capital gain u/s 45 read with Section 48. However, in case the property is treated as business assets, the provisions of Section 50C is not applicable in so far as profit on its sale is determined u/s 28 to 44 of Income-tax Act, 1961. 13
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Moreover, after introduction of Section 50C by Finance Act, 2002, the C.B.D.T. issued a circular no. 8 of 2002 dated 27th August, 2002, reported at 258 (Statute) ITR 13, clarifying the provisions of Finance Act, 2002, relating to Direct Taxes in respect of newly inserted Section 50C in the explanatory note. The C.B.D.T. has explained the purpose behind introducing Section 50C as under :-
"37. Computation of capital gains in real estate transactions :
37.1 The Finance Act, 2002, has inserted a new section 50C in the Income-tax Act to make a special provision for determining the full value of consideration in cases of transfer of immovable property. 37.2 It provides that where the consideration declared to be received or accruing as a result of the transfer of land or building or both, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed accordingly u/s 48 of the Income-tax Act. 14
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37.3 It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or court, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with Section 55A of the Income-tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the Assessing Officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the Assessing Officer shall not adopt such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purposes.
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37.4 This amendment will take effect from April 1, 2003, and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years. "
It is abundantly clear from the explanation given in the Central Board of Direct Taxes circular that the basic intention to insert Section 50C is for the purpose of determining full value of sale consideration for the purpose of computation of capital gains in real estate transaction u/s 48 of the Act.
11. Hon'ble Madras High Court in the case of CIT vs. Thiruvengadam Investment Private Limited, 320 ITR 345, held that where property is treated as business assets and not as capital assets, there is no question of invoking provisions of Section 50C. Respectfully following the decision of Madras High Court, we hold that provisions of Section 50C cannot be invoked where profit is assessable as business income. Accordingly, the Assessing Officer was not justified in treating profit on sale of land which was held as stock in trade, as capital gain and invoking provisions of Section 50C. 16
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12. In view of above discussion, the matter is restored back to the file of Assessing Officer with a direction to compute business income in respect of profit arising on sale of land under the head "Profit and Gains of business" u/s 28 of the Income-tax Act, 1961, Part D of Chapter IV. As the gain is not assessable under the heads of capital gains u/s 45 Part E of Chapter IV, the assessee is neither entitled for benefit of indexation nor provisions of Section 50C is applicable. We direct accordingly.
13. With reference to the legal ground taken by the assessee against framing of assessment u/s 153C, we found that incriminating documents were found during course of search at the residential premises of Shri Chandrabhan J. Lalchandani on 15.11.2006, during search u/s 132, documents belonging to the assessee M/s. Khialdas Construction Company Limited were also seized, which indicated sale of the impugned land. Accordingly, we do not find any infirmity in the order of Assessing Officer for initiating proceedings u/s 153C of the Income-tax Act, 1961. 17
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Accordingly, legal ground taken by the assessee is hereby dismissed.
14. In the result, the appeal is allowed in part in terms indicated hereinabove.
This order has been pronounced in the open court on 26th February, 2013.
sd/- sd/-
(JOGINDER SINGH) (R. C. SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 26th February, 2013.
CPU*
1624.1.26.2
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