Income Tax Appellate Tribunal - Indore
M/S. Kanchan Baug, Ratlam vs The Dcit, Ratlam on 25 September, 2018
आयकर अपील य अ धकरण, इ दौर यायपीठ, इ दौर
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER
AND
SHRI MANISH BORAD, ACCOUNTANT MEMBER
ITA No.632/Ind/2014
Assessment Year: 2005-06
DCIT M/s. Kanchan Bag
Ratlam बनाम/ 159, Shastri Nagar, Ratlam
(M.P.)
Vs.
(Revenue) (Respondent)
P.A- AAEFK4178M
CO No.85/Ind/2014
(Arising out of ITA No.632/Ind/2014)
Assessment Year: 2005-06
M/s. Kanchan Bag DCIT
159, Shastri Nagar, बनाम Ratlam
Ratlam (M.P.)
(Appellant) /Vs. (Revenue )
P.A- AAEFK4178M
Appellant by Shri P.K. Mitra Sr. DR
Respondent by Shri S.S. Deshpande, CA
Date of Hearing: 17.09.2018
Date of Pronouncement: 25.09.2018
आदे श / O R D E R
Kanchan Bag Ratlam
PER MANISH BORAD, A.M:
This appeal at the instance of Revenue and Cross Objection by the assessee pertaining to A.Y. 2005-06 are directed against the order of Ld. Commissioner of Income Tax(Appeals)-Ujjain, (in short 'CIT(A)'), dated 15.07.2014 which is arising out of the order u/s 143(3) r.w.s 147 of the Income Tax Act 1961(hereinafter called as the 'Act') framed on 28.03.2013 by DCIT, Ratlam.
2. Briefly stated facts as culled out on the records are that the assessee is a partnership firm which was incorporated with the object of civil construction and developer. The income of Rs.35,87,149/- is declared under the head of capital gain in the return of income filed on 04.05.2005. The assessment u/s 143(3) r.w.s. 147 of the Act was completed on 28.12.2007 after examining the records of the assessee and accepting the income declared by the assessee. Subsequently, the case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 29.03.2012 with a reason that the alleged long term capital gain declared by the assessee should have been assessed as business income of Rs.43,58,500/- as the impugned land was sold by the partnership firm 2 Kanchan Bag Ratlam incorporated with the object of land development, income assessed at Rs.43,58,500/-.
4. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) challenging the reopening as well as action of the Ld. Assessing Officer treating long term capital gain as business income. Ld. CIT(A) dismissed the assessee's ground challenging the reopening of assessment u/s 147 of the Act but allowed the assessee's ground on merits holding that the assessee has rightly disclosed income as long term capital gain at Rs.35,87,149/-.
5. Now the Revenue is in appeal assailing the order of Ld. CIT(A) and assessee has raised cross objection against the reopening of assessment held as valid by the ld. CIT(A). First we take up Cross objection of the assessee wherein following grounds have been raised:
"1. The Ld. CIT(A) was wrong in upholding the action of the Ld. AO for reopening the assessment u/s 147.
2. The order of assessment was illegal in so far as all material facts where submitted before the Ld. AO and where considered while framing the assessment.
3. The assessment was reopened initially and all the points where consider while framing the assessment. The reopening is based on mere change of opinion and 3 Kanchan Bag Ratlam cannot be sustained in view of various judgments cited before the Ld. CIT(A).
4. The order of the Ld. CIT(A) be maintained on grounds allowed by him."
6. We have heard the rival contentions and perused the material available on record placed before us. We find that the income of Rs.35,87,149/- was declared by the assessee under the head of long term capital gain in the income tax return submitted on 04.05.2005. Thereafter the assessee's case was reopened for reassessment and during the course of reassessment proceedings u/s 143(3) r.w.s 147 of the Act. The Ld. Assessing Officer called for all the details relating to the alleged transactions for sale of land, compensation paid by the assessee firm vide notice u/s 142(1) of the Act dated 20.09.2007 along with Annexure placed at page 32 to 33 of the paper book. In response thereto the assessee gave details and explanation towards the alleged transactions (placed at pages 35 & 36 on the paper book) and at para 4 thereof assessee has clearly mentioned that no business has been done by the firm since inception and the land has been sold at Rs.90,00,000/- and after claiming the deduction for cost of acquisition and compensation paid to Mr. Vijendra Kumar 4 Kanchan Bag Ratlam Gadia, the remaining amount has been offered as long term capital gain. We also find from perusal of the assessment order u/s 143(3) r.w.s 147 of the Act dated 28.12.2007 placed at pages 37 & 38 of the paper book wherein at para 3 by the Ld. Assessing Officer has given complete details of the transactions and accepted the submissions of the assessee and assessed the income under the head of long term capital gain.
7. In these given facts and circumstances of the case, we are of the considered view that while issuing notice u/s 148 of the Act dated 29.03.2012 for again reopening the assessment there was no material facts/documents/evidences available with the Assessing Officer which was new or going to the root cause of the issue which could prove that the assessee has not proper disclosure of facts during the first round of assessment proceedings completed on 28.12.2007. Therefore, in our considered view the reassessment proceedings concluded on 28.03.2013 u/s 143(3) r.w.s 147 of the Act is not valid and the same needs to be proved. We, accordingly set aside the finding of Ld. CIT(A) and allow the grounds raised by the assessee in its cross objection.
5Kanchan Bag Ratlam
8. Now we take up the Revenue's Appeal wherein following grounds have been raised:
"On the facts and in the circumstances of the case Ld. CIT(A) is erred in:
"1. directing the AO to treat the income from sale of land as long term capital gain of Rs.35,87,149/- as against business income of Rs.43,58,499/- as tereate by the AO.
2. accepting the addition evidence in shape of some agreement according to which dissolution of the firm was made on 27.11.2000, without providing any opportunity to the AO as per rule 46-A of the I.T. Act, 1961.
3. Accepting that the firm stood dissolved as on 27.11.2000 and directing relief without taking note of the fact that the return of income for the year was filed on 04.05.2005 in the capacity of firm by the assessee and the bank account of the firm was operational bill 31.03.2005.
4. accepting that the firm stood dissolve as on 27.11.2000 without examining the fact that no initiation of discontinuance of business of firm was given by the assessee u/s 176 of the I.T. Act, 1961.
5. granting relief by observing that no development was made on the land without taking note of the expenses incurred on land leveling charges, land drawing charges, plotting drawing expenses as per books of accounts in the years after 27.11.2000.
6. granting relief by not taking note of the accounting treatment given in the books of the assessee to the land as a land projected account in which all business expenses accounted for."6
Kanchan Bag Ratlam
9. From perusal of above grounds we find that the sole issue is that whether the income from sale of land is to be taxed as long term capital gain or 'business income'. The assessee has declared the income as long term capital gain whereas the assessing officer has treated as it has business income but the ld. CIT(A) reversed the finding of the Ld. Assessing Officer holding the alleged income to be taxed as long term capital gain.
10. Ld. Departmental Representative (DR) supported the order of the Assessing Officer and Ld. counsel for the assessee carrying on the finding of the Ld. CIT(A) also added that no business activity was carried out in the partnership firm. The land purchased remained in the same shape and no project was under taken on account of dispute between the partners. As a result of which the firm of dissolved. The impugned land was very much a capital asset and therefore income has been rightly shown as long term capital gain.
11. We have heard the rival contentions and perused the material available on record placed before us. The issue raised by the revenue is that the income from sale of land during the year under appeal should have been taxed as business income. We find that the partnership firm came 7 Kanchan Bag Ratlam into existence on 17.10.2000 with the object to develop any lands and any rights over or connected with land belonging to the firm and also for constructing building as builder and contractor vide purchase deed dated 24.10.2000, the firm purchased land at Khasara No. 319, Kasba- Ratlam, Dist.- Ratlam for a consideration of Rs.38,52,000/- thereafter, some minors work relating to boundary wall and leveling was done. There is no other proof available on record to show that the assessee firm made any other effort to develop the land for business purpose. This, land was sold during the year and the income has been disclosed as long term capital gain. The Ld. CIT(A) held that the Assessing Officer's actions of treating the sale of land as business income was not tenable, by observing as follows:
"4.2 Ground No.2,3 & 4:- Through this ground the appellant has challenged the estimation of income Rs.43,58,500/- as business income, disallowance of expenses of Rs.43,58,500/- as business income, disallowance of expenses of Rs.4,09,501/- from sales receipts and wrong estimation of LTCG of Rs.35,87,149/- as business and assessed business income at Rs.43,58,500/- by the AO. The facts of the case are that the appellant firm was constituted as per the partnership deed dated 17.10.2000. The object of the partnership is to develop land by clearing, draining, fencing, cultivating, building, road making improving and circling. The partnership has been formed to dod 8 Kanchan Bag Ratlam the business of builders/developers/colonizers and contractors. It is also to be mentioned here that the firm has purchased the land on 21.10.2000. After purchase of this land due to differences among the partners the firm stands dissolved on 27.11.2000. From the above it is clear that the firm remained in existence for 40 days only. It is not possible to carry out business for such a small period. Although the firm had purchased the land but the same had not been developed as it was intended in the partnership deed. That the appellant has never applied for license of colonizer from the Nagar Nigam, Ratlam being local authorities. The appellant does not have any license to develop the colonies. In absence of which any act of colonizer is illegal. Further the appellant had never applied for the local authorities to get the permission to develop the land and develop a colony.
In the present case, there was no activity such as in the nature of improvement on the lands, for instance, by laying drainage line, electricity, leveling or construction of road which shows intention of the firm to develop the colony. It is also to be mentioned her that while passing the order u/s 143(3) r.w.s. 147 dated 28.12.2007 the then AO has examined this fact that assessed the income from transfer of this land as capital gain. Since there is no change of circumstances, the sale of same land cannot be treated as business. From the date of purchase till date of sale, no such activity has been carried on which proves that it is the business activity. The land has been sold in the same form in which it is purchased. In view of the above facts the AO's action of treating the sale of land as business income is not tenable. The AO is directed to take income of Rs.35,87,149/- as long term capital gain as assessed in 9 Kanchan Bag Ratlam the original order dated 28.12.2007 u/s 143(3) r.w.s. 147 instead of assessing income from business amounting to Rs.43,58,499/-. Therefore these grounds of appeal are allowed."
12. We find that Ld. DR failed to controvert the finding of Ld. CIT(A) nor could place any proof to show that the impugned land was used for any business purpose. It is clearly discernable from the records that the alleged land has been shown as fixed asset and was very much in the shape of capital asset and therefore, the gain from sale therefo has been rightly shown as long term capital gain. We find no inconsistency in the finding of Ld. CIT(A). Thus all the grounds raised by the revenue stands dismissed.
13. In the result, the appeal of the Revenue is dismissed and Cross Objection of the assessee is allowed.
Order was pronounced in the open court on 25.09.2018.
Sd/- Sd/-
(KUL BHARAT) (MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Indore; दनांक Dated : 25/ 09/2018
ctàxÄ? P.S/. न.स.
10
Kanchan Bag Ratlam
Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file.
By order Private Secretary/DDO, Indore 11