Income Tax Appellate Tribunal - Mumbai
Estate Of Late Shrei N.J. Patel, Mumbai vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL "I" Bench, Mumbai Before Shri N.V. Vasudevan (JM) and Shri Rajendra Singh(AM) ITA No.7272/M/2008 Assessment Year 1994-95 The Income-tax Officer-12(3)(4) Estate of late Shri N.J. Patel Room No.138, 1st floor, C/o. Shri N.C.Patel, Mani Bhuvan Aayakar Bhavan, M.K.Road 10 Parleshwar Road, Vile Parle (E) Mumbai 400 020. Mumbai 400 057. PAN AAACE2830M Appellant Respondent Revenue by : Shri Shravankumar Assessee by : Shri N.M. Porwal O R D E R
PER RAJENDRA SINGH (AM) This appeal by the revenue is directed against the order dated 10.10.2008 of CIT(A) for the assessment year 1994-95. The only dispute raised is in relation to computation of income from sale of land.
2. Briefly stated the facts of the case are that the assessee was owner of agricultural land measuring 338169 sq.ft falling within the municipal limit. The assessee had converted the agricultural land into stock in trade on 3.2.92. Out of saleable area of 338169 sq.ft land measuring 294486 was sold by the assessee on 10.3.94 for a sum of Rs.2,56,70,513/-. The entire income from sale of land was originally assessed as business income in the order passed by the AO under section 143(3)/263. In appeal tribunal held that income from sale of land on the date of conversion (3.2.92) should be taxed under the head "capital gain" and the gain arising on sale of land after the date of conversion should be taxed as business income. This was in view of the provisions of section 45(2) as per which in case a capital asset was converted into stock in trade and is sold during the year, the profit or gain arising on account of conversion will have to be assessed as capital gain and the fair market value of the asset for this purpose on the date of such conversion is deemed to be the full value of consideration received or accruing as a result of transfer of the capital asset. In case the asset is sold for a value higher than the fair market value on the date of conversion, the sale price in excess of FMV on the date of conversion will be assessed as business income as held by the Tribunal. Since in this case asset had been acquired prior to 1.4.81, for the purpose of computation of capital gain under section 45(2), the cost of acquisition has to be the FMV as on 1.4.81. Thus the computation of capital gain as well as the business profit required ascertaining of market value of the asset sold as on 1.4.81 and as on 3.2.92. The AO with a view to ascertaining the FMV as on 1.4.81 had referred the matter to the DVO who had valued the FMV at Rs.74,39,700/-. Since the assessee had sold 294486.75 sq.ft out of saleable area of 338169 sq.ft, the AO calculated the proportionate FMV as on 1.4.81 at Rs.64,78,692/-. Thereafter he computed the FMV of the asset as on 3.2.92 using indexation to the value as on 1.4.81, which gave the value at Rs.1,38,92,598/-. The indexed cost of acquisition was computed at Rs.1,58,08,008/-. AO thus computed long term capital loss of Rs.29,15,410/- on the date of conversion. As regards the business profit, he deducted the FMV of the asset as on 3.2.92 (1,28,92,598) from the sale value of Rs.2,56,70,513/- and after allowing other expenses incurred of Rs.17,05,372/- the business income was computed at Rs.1,10,72,543/-.
3. The assessee disputed the decision of AO to change the cost of acquisition ie. FMV as on 1.4.81 valued by DVO at Rs.74,39,700/- to Rs.64,78,692/- on proportionate basis. The assessee also disputed the decision of AO to compute the market value of the land sold on 3.2.92 on the basis of indexation. It was pointed out that the DVO had determined FMV on an average at Rs.2,65,03,800/- on the basis of average sale rate between 91 to 94 and before the AO was not justified in determining the FMV on the basis of indexation. The DVO had determined the FMV as on 3.2.92 at average rate of Rs.90 per sq.ft taking average price of land sold measuring 294486 during the September 91 to March 94. The assessee further submitted that the entire saleable area of 338169 sq.ft. had been sold which consisted of the plot area of 294486 sq.ft. and the balance area constituting the common road and internal approach roads which were also transferred along with the plots. Therefore the AO was not justified in computing the average cost of acquisition proportionate to the area of only 294486 sq.ft. CIT(A) was satisfied by the explanation given that the plot could not be sold without giving the common road and approach roads and therefore the total area of the land sold had to be taken at 338169 sq.ft and the FMV as on 1.4.81 at Rs.74,39,700/- as determined by the DVO. As regards the FMV as on 3.2.92 CIT(A) observed that FMV had been defined in section 22(22B) as the prices which the capital asset would fetch in the open market on the relevant date. The AO was therefore not justified in determining the FMV on the basis of indexation which is applicable only in determining the cost of acquisition and cost of improvement for the purpose of computing the capital gain. He agreed that the FMV as on 3.2.92 has to be determined on the basis of average sale price of Rs.90/- per sq.ft in respect of the land sold during September 91 and March 94 which gave a value of Rs.2,65,03,807/-. CIT(A) directed the AO to compute the capital gain and business profit accordingly. Aggrieved by the said decision the revenue is in appeal before the tribunal.
4. Before us the Learned AR for the assessee reiterated the submissions made before CIT(A) and supported the order of first appellate authority whereas the Learned DR placed reliance on the order of AO.
5. We have perused the records and considered the matter carefully. The dispute is regarding computation of capital gain and the business profit on the sale of land converted into stock in trade as on 3.2.92. The land had been acquired by the assessee on inheritance and the previous owner had acquired the same prior to 1.4.81. In case the land converted into stock in trade is sold the capital gain has to be computed with respect to the FMV of the land on the date of conversion and the excess of sale price above the FMV has to be taken as business profit. Therefore computation of capital gain and business profit in this case required the determination of FMV as on 1.4.81 and 3.2.92. The DVO had determined the FMV as on 1.4.81 at Rs.74,39,700/-. The AO however reduced the FMV to Rs.64,78,692/- proportionate to the area of plot measuring 294486 sq.ft sold out of total saleable are of 338169 sq.ft. The explanation of the assessee is that difference was because of common road and approach roads which had also been sold along with the plots and therefore total saleable area has to be treated as sale and FMV could not be reduced proportionately. The claim of the assessee is reasonable. There is nothing to controvert the claim that the difference was because of common road and approach roads which were also sold along with plot. Therefore order of CIT(A) that the FMV as on 1.4.81 has to be taken at Rs.74,39,700/- as valued by DVO is upheld. As regards the FMV as on 3.2.92, the AO had determined the same using the price index as on 3.2.92 with respect to the FMV as on 1.4.81. This approach has not been accepted by the CIT(A) and in our view the action of CIT(A) is legally in order because FMV is the price for which an asset can be sold in the open market and the same cannot be determined on the basis of indexation. The FMV of plot as on 3.2.92 has been determined as per the average sale rate of Rs.90/- per sq.ft based on sale of plots during September 91 to March 94 giving the value of Rs.2,65,03,807/-. We see no infirmity in the approach adopted by the CIT(A) which has to be upheld. We accordingly confirm the decision of the CIT(A) taking the FMV as on 1.4.81 and 3.2.92 at Rs.74,39,700/- and Rs.2,65,03,800/- respectively for computing the capital gain and the business profit.
6. In the result the appeal of the revenue is dismissed.
7. The order was pronounced in the open court on 09. 7.2010.
Sd/- Sd/-
(N.V. VASUDEVAN) (RAJENDRA SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date : 09.07.2010
At :Mumbai
Copy to :
The Appellant
The Respondent
The CIT(A), Mumbai concerned
The CIT, Mumbai City concerned
The DR "I" Bench, ITAT, Mumbai
// True Copy//
By Order
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
Alk
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