DCIT, Central Circle-3(1), Hyd, Hyderabad V. Nallamala Agro Farms (P) Ltd., Hyd, Hyderabad

CO 30/HYD/2015

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3152 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-08-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 12-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SRINIVAS
• Keywords: Capital asset; Business income; Wholly owned subsidiary
• Section: 143(3); 115JB

Judgement Text

ITA NOS. 287 AND OTHERS PARBATI AGRO FARMS P LTD AN D OTHERS HYDERABAD PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER APPEAL NO. APPELLANT RESPONDENT A.Y 287/HYD/2015 A.C.I.T. CIRCLE 3(2) HYDERABAD M/S. PARBATI AGRO FARMS PVT. LTD HYDERABAD 2008-09 C.O. NO. 18/HYD/2015 M/S. PARBATI AGRO FARMS PVT. LTD HYDERABAD A.C.I.T. CIRCLE 3(2) HYDERABAD 2008-09 299/HYD/2015 D.C.I.T. CENTRAL CIRCLE 3(1) HYDERABAD GOMATI AGRO FARMS PVT LTD HYDERABAD -DO- C.O. NO. 19/HYD/2015 GOMATI AGRO FARMS PVT LTD HYDERABAD D.C.I.T. CENTRAL CIRCLE 3(1) HYDERABAD -DO- 301/HYD/2015 D.C.I.T. CENTRAL CIRCLE 3(1) HYDERABAD NALLAMALA AGRO FARMS PRIVATE LTD HYDERABAD -DO- C.O. NO. 30/HYD/2015 NALLAMALA AGRO FARMS PRIVATE LTD HYDERABAD D.C.I.T. CENTRAL CIRCLE 3(1) HYDERABAD -DO- 300/HYD/2015 D.C.I.T. CENTRAL CIRCLE 3(1) HYDERABAD KANCHENJUNGA GREENLANDS PVT. LTD HYDERABAD -DO- CO NO. 20/HYD/2015 KANCHENJUNGA GREENLANDS PVT. LTD HYDERABAD D.C.I.T. CENTRAL CIRCLE 3(1) HYDERABAD -DO- FOR REVENUE: SHRI D. SRINIVAS, CIT (DR) FOR ASSESSEE : SHRI K.C. DEVDAS O R D E R PER BENCH: ALL THESE APPEALS ARE AGAINST THE RESPECTIVE ORDERS OF THE CIT (A)-12, HYDERABAD, DATED 31.12.2014 FOR THE A.Y 2008-09. DATE OF HEARING : 26.09.2017 DATE OF PRONOUNCEMENT : 29.09.2017 ITA NOS. 287 AND OTHERS PARBATI AGRO FARMS P LTD AN D OTHERS HYDERABAD PAGE 2 OF 6 THE ONLY EFFECTIVE GROUND OF APPEAL RAISED BY THE A SSESSEE IS AS UNDER: 2. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE AO HAS DEALT WITH THE ISSUE AT LENGTH AND HAS CONCLUDED THAT THE TRANSACTION IS ADVENTURE IN NATURE OF BUSINESS AND TRADE AS AGAINST THE CLAIM TAKEN BY THE ASSESSEE THAT THE SAME FALLS UNDER THE AMBIT OF CAPITAL GAINS. 2. BRIEF FACTS OF THE CASE ARE THAT THE RESPECTIVE ASSESSEES ARE THE COMPANIES WHICH ARE ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF LAND. THEY FILED THEIR RETURNS OF INCOM E FOR THE A.Y 2008-09 DECLARING TOTAL INCOME UNDER THE I.T. ACT A T NIL AND BOOK PROFIT U/S 115JB OF THE ACT. SINCE THE BOOK PR OFIT WAS MORE THAN THE PROFIT UNDER THE NORMAL PROVISIONS OF THE I. T. ACT, THE ASSESSEE PAID TAX THEREON. DURING THE ASSESSMENT P ROCEEDINGS U/S 143(3) OF THE ACT, THE AO NOTICED THAT THE RESP ECTIVE ASSESSEES HAVE ACQUIRED LANDS FROM VARIOUS PERSONS IN A.YS 200 0-01 TO 2002-03 AND HAVE SOLD THEIR LAND DURING THE FINANCI AL YEAR 2007- 08 BUT HAS CLAIMED THAT THE TRANSACTIONS ARE NOT T O BE TREATED AS TRANSFER AS PER SECTION 47 OF THE I.T. ACT AND CL AIMED IT AS AN EXEMPTED TRANSFER UNDER THE I.T. ACT ON THE GROUND THAT THE LAND WAS SOLD ONLY TO THEIR 100% SUBSIDIARY COMPANIES. 3. THE AO HOWEVER, OBSERVED THAT ALL THE ABOVE ASSE SSEE COMPANIES WERE FLOATED BY THE FAMILY MEMBERS OF MR. RAMA LINGA RAJU OF M/S. SATYAM COMPUTER SERVICES AND HAVE ACQU IRED LANDS AT BACHUPALLY VILLAGE OF R.R. DISTRICT AND HAVE INC URRED SOME EXPENDITURE ON THE DEVELOPMENT OF THE LAND AND SUBS EQUENTLY THE ASSESSEE COMPANIES FLOATED 100% SUBSIDIARY COMPANIES AND SOLD THE LANDS TO THEM IN THE FINANCIAL YEAR 2007-08 VID E SEPARATE SALE ITA NOS. 287 AND OTHERS PARBATI AGRO FARMS P LTD AN D OTHERS HYDERABAD PAGE 3 OF 6 DEEDS. THE AO WAS OF THE OPINION THAT THE PURCHASE AND SALE OF LAND BY THE ASSESSEES WAS IN SUCH A WAY THAT THEY A RE IN CLOSE VICINITY AND IF POOLED CAN FORM A SINGLE CONTINUOUS LAND THAT CAN BE USED ON A FUTURE DATE WITHOUT ANY HINDRANCE. THA T SUBSEQUENTLY, SOME OF THE COMPANIES ENTERED INTO A COMMON DEVELOPMENT AGREEMENT WITH M/S MAYTAS PROPERTIES PV T. LTD AND THOUGH THE ASSESSEES ARE NOT PART OF THIS DEVELOPME NT AGREEMENT, BUT THE LANDS OWNED BY THESE COMPANIES ARE IN THE V ICINITY OF THE SAID VENTURE. HE OBSERVED THE ASSESSEES HAVE SOLD MAJORITY OF THEIR LANDHOLDINGS TO THEIR SUBSIDIARIES IN A PLANN ED WAY TO MAKE PROFIT AND THOUGH, THE LANDS WERE CLAIMED TO BE AGR ICULTURAL LANDS AND NO AGRICULTURAL ACTIVITY WAS CARRIED ON IN THES E LANDS, THEREFORE, THE TRANSACTION HAS TO BE TREATED AS AN ADVENTURE IN THE NATURE OF TRADE AND THE INCOME FROM THE SALE H AS TO BE BROUGHT TO TAX AS BUSINESS INCOME. AGGRIEVED, THE R ESPECTIVE ASSESSEES FILED THEIR APPEALS BEFORE THE CIT (A), W HO ALLOWED THE SAME BY HOLDING THE TRANSACTION AS EXEMPT U/S 47(IV ) OF THE I.T. ACT. AGAINST THIS FINDING OF THE CIT (A), THE REVEN UE IS IN APPEAL BEFORE US AND THE ASSESSEES ARE IN CROSS OBJECTION SUPPORTING THE FINDINGS OF THE CIT (A). 4. THE UNDISPUTED FACTS ARE THAT THE ASSESSEES ARE HOLDING COMPANIES AND THE COMPANIES TO WHOM THE LAN DS ARE TRANSFERRED ARE 100% SUBSIDIARIES OF THE RESPECTIVE ASSESSEE COMPANIES. THE QUESTION BEFORE US IS WHETHER THE C L.(IV) OF SECTION 47 APPLIES TO THESE TRANSACTIONS. FOR THE SAKE OF CL ARITY AND READY REFERENCE, CLAUSE (IV) OF SECTION 47 IS REPRODUCED HEREUNDER: TRANSACTION NOT REGARDED AS TRANSFER: ITA NOS. 287 AND OTHERS PARBATI AGRO FARMS P LTD AN D OTHERS HYDERABAD PAGE 4 OF 6 SECTION 47. NOTHING CONTAINED IN SECTION 45 SHALL A PPLY TO THE FOLLOWING TRANSFERS : (I) ANY DISTRIBUTION OF CAPITAL ASSETS ON THE TOTAL OR PARTIAL PARTITION OF A HINDU UNDIVIDED FAMILY; (II) (III). (IV) ANY TRANSFER OF A CAPITAL ASSET BY A COMPANY T O ITS SUBSIDIARY COMPANY, IF (A) THE PARENT COMPANY OR ITS NOMINEES HOLD THE WH OLE OF THE SHARE CAPITAL OF THE SUBSIDIARY COMPANY, AND (B) THE SUBSIDIARY COMPANY IS AN INDIAN COMPANY; (V) PRO VIDED THAT NOTHING CONTAINED IN CLAUSE (IV) OR CLAU SE (V) SHALL APPLY TO THE TRANSFER OF A CAPITAL ASSET MADE AFTER THE 29TH DAY OF FEBRUARY, 1988, AS STOCK-IN- TRADE. 5. FROM THE ABOVE, IT IS CLEAR THAT WHERE THERE IS A TRANSFER OF ANY CAPITAL ASSET BY A COMPANY TO ITS 100% SUBSID IARY COMPANY AND SUCH SUBSIDIARY COMPANY IS AN INDIAN COMPANY, T HEN SUCH A TRANSACTION SHALL NOT BE CONSIDERED AS A TRANSFER. HOWEVER, AS PER THE PROVISO, THE CLAUSES (IV) & (IV) SHALL NOT APPL Y TO THE TRANSFER OF A CAPITAL ASSET, AS STOCK-IN-TRADE AFTER 29 TH FEBRUARY, 1988. IN VIEW OF THE ABOVE PROVISO, IT IS TO BE SEEN, IF THE TRANSFE R IS OF A CAPITAL ASSET AS STOCK-IN-TRADE. AO APPEARS TO HAVE CONSI DERED THE LAND AS STOCK-IN-TRADE AS THE INTENTION OF THE ASSESSE E COMPANIES WAS TO MAKE PROFIT ULTIMATELY. BUT, THE INTENTION OF TH E PARTIES IS TO BE INFERRED ALSO FROM THE ENTRIES IN THEIR BOOKS OF TH E A/C. THE RESPECTIVE ASSESSEES BEFORE US HAVE FILED COPIES OF THEIR WEALTH TAX RETURNS FOR THE A.YS 2005-06 & 2006-07, WHEREIN THE LANDS OWNED BY THEM ARE REFLECTED AS AGRICULTURAL LANDS AND THU S EXEMPTED ASSETS U/S 2(EA) OF W.T. ACT. THE ASSESSING AUTHORI TIES HAVE ACCEPTED THE CLAIMS OF THE RESPECTIVE ASSESSEES. FRO M THE ANNUAL REPORTS OF THE RESPECTIVE ASSESSEES ALSO, WE FIND T HAT THESE ASSETS ARE REFLECTED AS FIXED ASSETS AND NOT AS STOCK-IN-T RADE. THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. COATS OF INDIA LTD IN I.T. APPEAL NO. 119 OF 2005 VIDE ORDERS DATED 8.9.2008 H AS CONSIDERED ITA NOS. 287 AND OTHERS PARBATI AGRO FARMS P LTD AN D OTHERS HYDERABAD PAGE 5 OF 6 THE APPLICABILITY OF PROVISO TO SECTION 47(IV) OF T HE I.T. ACT AND HAS CONFIRMED THE VIEW OF THE TRIBUNAL THAT THE PROVISO TO SECTION 47 (IV) AND (V) IS APPLICABLE, ONLY IF, IN THE HANDS OF THE TRANSFEREE THE CAPITAL ASSET ON ITS TRANSFER CONSTITUTES STOCK-IN -TRADE. THERE IS NOTHING ON RECORD BROUGHT IN BY THE REVENUE THAT IN THE HANDS OF THE TRANSFEREE SUBSIDIARY COMPANIES, THE LANDS TRAN SFERRED ARE TREATED AS STOCK-IN-TRADE. THE LEARNED COUNSEL FO R THE ASSESSEE, WHEN ENQUIRED AS TO THE TREATMENT OF THESE ASSETS I N THE HANDS OF THE TRANSFEREE COMPANIES, HAS FILED BEFORE US THE C OPIES OF THE BALANCE SHEETS OF THE TRANSFEREE COMPANIES FOR THE RELEVANT A.Y AND THE SUBSEQUENT A.YS TO PROVE THAT THEY WERE TREATED AS CAPITAL ASSETS IN THE HANDS OF THE TRANSFEREE COMPANIES AS WELL. HOWEVER, THIS TRIBUNAL BEING THE FINAL FACT FINDING AUTHORIT Y DEEM IT FIT AND PROPER TO REMAND THIS ISSUE TO THE FILE OF THE AO F OR THE LIMITED PURPOSE OF VERIFYING THE TREATMENT GIVEN TO THESE A SSETS IN THE HANDS OF THE SUBSIDIARY COMPANIES AND ONLY IF THEY ARE TREATED AS STOCK-IN-TRADE, THE AO SHALL APPLY THE PROVISO TO SECTION 47(IV) OF THE ACT. OTHERWISE, THE ORDER OF THE CIT (A) SHALL STAND UNALTERED. 6. IN THE RESULT, BOTH THE REVENUES APPEALS AS WEL L AS CROSS OBJECTIONS OF THE ASSESSEES ARE TREATED AS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2017. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 27 TH SEPTEMBER, 2017. VINODAN/SPS ITA NOS. 287 AND OTHERS PARBATI AGRO FARMS P LTD AN D OTHERS HYDERABAD PAGE 6 OF 6 COPY TO: 1 ASSTT/DY.COMMISSIONER OF INCOME TAX, CENTRAL CIRC LE 3(2), 3 RD FLOOR, POSNETT BHAVAN, TILAK ROAD, HYDERABAD 2 M/S. PARBATI AGRO FARMS P LTD H.NO.8-3-222/B/7/35, 36. D-92 & 93, FLAT NO.304, SRIRAMANA ENCLAVE, MADHURANAGAR, HYDERABAD 3 M/S.GOMATI AGRO FARMS P LTD 2-13/31, S.S. NAGAR, OPP: HYDERNAGAR, HYDERABAD 4 M/S. NALLAMALA AGRO FARMS P LTD. FLAT NO.102, DHANU NJAYA NEST, RAJIV NAGAR, YOUSUFGUDA, HYDERABAD 5 M/S. KANCHENJUNGA GREENLANDS PVT. LTD, H.NO.B-55, FLAT NO.202, SAI VAISHNAVI VIHAR, VENGALRAO NAGAR, SR NAGAR POST , HYDERABAD 6 CIT (A)-12 HYDERABAD 7 CIT CENTRAL, HYDERABAD 8 THE DR, ITAT HYDERABAD 9 GUARD FILE BY ORDER