Victory Alloys Steels Ltd., Hyderabad V. Dy.CIT, Circle-3(3), Hyderabad

ITA 1036/HYD/2014

• Counselvise Citation: 103622514 RSA 2014
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: P RAVI SESHAGIRI RAO
• Keywords: Capital asset; Business income; Cost of acquisition
• Section: 263; 143(3); 133A

Judgement Text

ITA NO.1036 OF 2014 VICTORY ALLOYS STEELS LTD HYDER ABAD PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1036/HYD/2014 (ASSESSMENT YEAR: 2007-08) VICTORY ALLOYS STEELS LTD HYDERABAD PAN- AABCV 9188 L VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(3) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. RAVISESHAGIRI RAO FOR REVENUE : SMT. G. APARNA RAO DATE OF HEARING : 26.03.2015 DATE OF PRONOUNCEMENT : 27 . 03.2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE CIT III HYDERABAD DATED 25 TH MARCH, 2013 PASSED FOR A.Y 2007-08. 2. THE ASSESSEE HEREIN M/S VICTORY ALLOYS STEELS LT D ALONGWITH SHRI MAHINDRA VADDINENI & SMT. DEVASENA V ADDINENI AND SHRIVENKATAPPAIAH NAIDU VADDINENI OWNED LAND ADMEASURING AC.85.25GTS BETWEEN F.Y. 2000-01 AND 20 03-04 AT MEDCHAL FOR AN AGGREGATE CONSIDERATION OF RS.2,35,3 6,015. IT WAS SEEN THAT THE ASSESSEE ALONG WITH THREE OTHER L AND OWNERS PROMOTED A VENTURE BY THE NAME OF 'FABEL COUNTY' WI TH AN ITA NO.1036 OF 2014 VICTORY ALLOYS STEELS LTD HYDER ABAD PAGE 2 OF 7 INTENTION TO DEVELOP THE LAND INTO PLOTS AND TOWARD S THIS END THEY MADE SUITABLE APPLICATIONS BEFORE THE CONCERNED URB AN DEVELOPMENT AUTHORITY. LAND USE CONVERSION FEE AS W ELL AS LAY- OUT FEE, FOR CONVERSION OF THE LAND FROM AGRICULTUR AL TO RESIDENTIAL USE AND ALSO FOR GETTING THE LAYOUT PLAN APPROVED, WAS PAID. OUT OF THE TOTAL LAND HOLDING OF AC.85.28 GUNTAS THE TO TAL LAND DEVELOPED WAS AC.63.10 GUNTAS AND 112. SQ. YARDS EQ UIVALENT TO 306242 SQ. YDS. AS PER THE HUDA APPROVED PLAN, THE NET PLOT AREA WAS 167802 SQ. YDS AND THE SAME WAS SOLD/ AGRE ED TO SALE AND THE DETAILS ARE AS UNDER : LAND IN SQ. YARDS WHOM THE LAND WAS SOLD TO SALE CONSIDERATION 60743 VICTORY AVE NUE P LTD @ RS.1800 OER SQ. YARD RS.10,93,55,600 67563 I.SRI V. BRAHMANANDA REDDY (20706 SQ.YARDS) II.M/A.LAKSHMI VENKATESWARA ESTATES P LTD (26,879 SQ.YARDS) III. SRI P. SRINIVASA SARMA (19978 SQ.YARDS) IV. OTHER CURSTOMERS (834 SQ.YDS) RS.5,35,00,000 3. SURVEY OPERATION UNDER SECTION 133A WERE CONDUCT ED IN THE BUSINESS PREMISES OF M/S. VICTORY TRANSFORMERS AND SWITCHGEARS LTD., AND GROUP ON 28.02.2008. DURING T HAT IT WAS FOUND THAT ASSESSEE HEREIN HAD DERIVED GAINS BY SAL E OF LANDS ITA NO.1036 OF 2014 VICTORY ALLOYS STEELS LTD HYDER ABAD PAGE 3 OF 7 WHICH THEY ADMITTED TO TAX LATER. ACCORDINGLY, ASSE SSEE HEREIN HAVE FILED RETURN OF INCOME, ADMITTING LONG TERM CA PITAL GAINS. A.O. HAS EXAMINED THE CLAIM AND ASSESSED THE SAME. 4 . LD. CIT, HAVING NOTICED THE ASSESSMENT ORDERS AND DOCUMENTS, HAS ISSUED NOTICES UNDER SECTION 263 ASK ING ASSESSEE WHY THE CAPITAL GAIN SHOULD NOT BE TAXED A S BUSINESS INCOME AND WHY THE GAIN ON AGREEMENT WITH M/S VICTO RY AVENUES LTD., (VAPL) SHOULD NOT BE TAXED ENTIRELY I N THE YEAR UNDER CONSIDERATION AS AGAINST THE INCOME OFFERED T O THE EXTENT OF SALES MADE BY VAPL. EVEN THOUGH, LD. CIT RAISED THE ISSUE OF TAXING THE GAINS AS BUSINESS INCOME ON THE SALE OF LANDS AT MEDCHAL, HE, HOWEVER, ACCEPTED THAT THE SAME HAS TO BE TAXED UNDER THE HEAD 'LONG TERM CAPITAL GAINS' ONLY. TO T HAT EXTENT, A.O. STAND WAS ACCEPTED. HOWEVER, ON ASSESSING THE QUANTUM OF GAINS, THE LD. CIT DIRECTED AS UNDER : ' 5. I HAVE PERUSED THE DETAILED SUBMISSION MADE BY T HE ASSESSEE AS WELL ALL DOCUMENTS ON RECORD. I AM CONVINCED THA T THE LAND WHICH WAS PURCHASED BETWEEN YEARS 2000-01 TO 2003-0 4 WAS A CAPITAL ASSET WITH AN INTENTION TO HOLD ON TO THE S AME. MERE APPLICATION FOR CHANGE OF LAND USE SHALL NOT CHANGE THE NATURE OF THE ASSET IN THE ABSENCE OF ANY WORK CARRIED OUT BY THE ASSESSEE TO IMPROVE THE LAND OR TO MAKE SUCH CHANGES AS WOUL D INDICATE THAT THE ASSESSEE IS NOW IN THE BUSINESS OF REAL ES TATE. HENCE, THE ASSESSMENT ORDER U/S 143(3) R.W.S.147 DT.19.11.201O IS FOUND TO BE IN ORDER AS FAR AS THE SALE OF 67563 SQ. YDS TO MR. V. ITA NO.1036 OF 2014 VICTORY ALLOYS STEELS LTD HYDER ABAD PAGE 4 OF 7 BRAHMANANDA REDDY AND OTHERS FOR A CONSIDERATION OF RS.5,35,00,000 IS CONCERNED. HOWEVER, AS MENTIONED EARLIER, THERE IS A SECOND LIMB TO THIS LAND TRANSACTION. VI DE AGREEMENT FOR SALE-CUM-GPA, THE ASSESSEE AND HIS GROUP HAVE S OLD 60742 SQ. YDS OF LAND TO A COMPANY INCORPORATED WITH EXPR ESS PURPOSE OF DEVELOPING THE LAND, PLOTTING THE SAME AND SELLI NG IT TO PROSPECTIVE BUYERS. THIS AGREEMENT FOR SALE-CUM-GPA WAS ENTERED INTO WITH VAPL ON 26.2.2007, WHEREIN IT IS CLEARLY MENTIONED THAT THE POSSESSION FOR ENTIRE 60742 SQ. YDS OF LAND HAS BEEN HANDED OVER TO THE SAID CONCERN I.E. VAPL. AN AMOUNT OF RS.50 LAKHS HAS ALSO BEEN RECEIVED AS ADVANCE CO NSIDERATION WHILE THE BALANCE HAS TO BE RECEIVED OVER A PERIOD OF TIME. THE TOTAL CONSIDERATION FIXED FOR THIS PLOT OF LAND IS RS.1800 PER SQ. YD. I.E. RS.10,93,55,600. THIS TRANSACTION CLEARLY FALLS WITHIN THE AMBIT OF TRANSFER AS DEFINED UNDER SEC.2(47)(V) ITA. NO. 1034 & 1035/HYD/2014 MR. VENKATAPPAIAH NAIDU VADDINENI & MR . MAHENDRA VADDINENI OF THE I.T. ACT, 1961. IT IS CLE AR THAT 60745 SQ. YDS OF LAND WAS SOLD TO VAPL ON A PRICE WHICH W AS DETERMINED IN THE AGREEMENT FOR SALE-CUM-GPA, POSSE SSION WAS HANDED OVER TO THE BUYER COMPANY AND PART OF THE CO NSIDERATION WAS RECEIVED AS ADVANCE. IF THE ASSESSEE WAS INTEND ING TO TRADE IN THE PLOTS OF LAND PROPOSED TO BE DEVELOPED BY VA PL, THE ASSESSEE AND HIS GROUP WOULD THEN HAVE EITHER KEPT THE SALES CONSIDERATION FLEXIBLE TO TAKE BENEFIT OF THE NATUR AL APPRECIATION IN THE PRICE OF LAND OVER THE PERIOD OF SALE OR IN THE ALTERNATE WOULD RECEIVE PART OR WHOLE CONSIDERATION IN THE FO RM OF DEVELOPED PLOTS OF LAND. HOWEVER, THE ASSESSEE AS S TATED EARLIER, HAS ON THE DATE OF AGREEMENT DECIDED THE CONSIDERAT ION TO BE RECEIVED WHICH IS RS.1800 PER SQ. YD END HENCE THE ASSESSEE HAS TRANSFERRED HIS CAPITAL ASSET BEING HIS SHARE IN 60 742 SQ. YDS OF [END TO VAPL. THE ASSESSEE AND HIS GROUP HAS HOWEVE R OFFERED SURPLUS FROM SALE OF ONLY 19574 SQ. YDS OF LAND INST EAD OF THE ENTIRE SALES CONSIDERATION FOR 60742 SQ. YDS OF LEN D, THE' ASSESSING OFFICER HAS ACCEPTED THIS COMPUTATION OF CAPITAL GAINS AND HENCE HIS ORDER IS HELD TO BE ERRONEOUS IN AS M UCH AS IT IS PREJUDICIAL TO THE INTERESTS. OF REVENUE. THE ASSES SMENT ORDER ITA NO.1036 OF 2014 VICTORY ALLOYS STEELS LTD HYDER ABAD PAGE 5 OF 7 DT.29.11.201O IS HENCE SET-ASIDE WITH A DIRECTION T O THE ASSESSING OFFICER TO COMPUTE THE CAPITAL GAINS ARISING FROM S ALE OF 60743 SQ. YDS OF LAND TO VAPL BY HOLDING THAT THE CAPITAL GAINS ON THE ENTIRE PARCEL OF LAND HAS ARISEN IN AY 2007-08 AND HENCE THE ENTIRE SALES CONSIDERATION OF RS.10,93,55,600 SHOUL D BE BROUGHT TO TAX IN AY 2007-08. IN THE CASE OF THE ASSESSEE, HIS PROPORTIONATE SHARE OUT OF TOTAL SALES CONSIDERATIO N OF RS.10,93,55,600 SHOULD BE ADOPTED AGAINST WHICH THE COST OF ACQUISITION AS DETERMINED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER DT.29.11.2010 SHOULD BE ALLOWED. 5. AGGRIEVED, THE ASSESSEE RAISED THE FOLLOWING GRO UNDS OF APPEAL: 1. THE ORDER OF THE LD CIT IS ERRONEOUS BOTH ON FA CTS AND IN LAW. 2. THE LD CIT ERRED IN HOLDING THAT THERE IS ANY E RROR IN THE ORDER OF ASSESSMENT PASSED U/S 143(3) R.W.S. 147 OF THE I.T. ACT BY THE DY. COMMISSIONER OF INCO ME TAX, CIRCLE 3(3) HYDERABAD. THE LD CIT OUGHT TO HAV E SEEN THAT THERE IS NEITHER AN ERROR NOR ANY PREJUDI CE CAUSED TO THE DEPARTMENT SO AS TO ENABLE HIM TO INVOKE THE PROVISIONS OF SECTION 263 OF THE I.T. AC T. 3. THE LD CIT ERRED IN HOLDING THAT THERE WAS UNDER ASSESSMENT OF THE SALE CONSIDERATION RECEIVED DURIN G THE YEAR UNDER CONSIDERATION AND FURTHER ERRED IN DIRECTING THE AO TO DETERMINE THE SALE CONSIDERATI ON AT RS.10,93,55,600. 6. WE FIND THAT THIS ISSUE IS COVERED IN THE CASE O F THE CO- OWNER OF THE LAND BY THE COORDINATE BENCH IN THE CA SE OF ITA NO.1036 OF 2014 VICTORY ALLOYS STEELS LTD HYDER ABAD PAGE 6 OF 7 VENKATAPPAIAH NAIDU VADDINENI AND MAHENDRA VADDINEN I IN ITA NOS. 1034 & 1035/HYD/2014 FOR THE A.Y 2007-08 WHERE IN IT HAS BEEN HELD AS FOLLOWS: 8. COMING TO THE ISSUES OF BRINGING TO TAX THE ENT IRE GAIN ON AGREEMENT WITH VAPL, WE ARE OF THE OPINION THAT THE STAND OF CIT CANNOT BE SUPPORTED. FIRST OF ALL, THE AGREEMENT WI TH VAPL IS A GPA AGREEMENT WITHOUT HANDING OVER POSSESSION. THIS STAND GETS SUPPORT BY THE STAMP DUTY PAID AND ACCEPTED BY REGI STRATION AUTHORITY. THE AGREEMENT WAS REGISTERED AS GPA AGRE EMENT AND NOT AS A SALE AGREEMENT. THUS ON FACTS THE AGREEMEN T CANNOT BE CONSIDERED AS SALE AGREEMENT SO AS TO BRING ENTIRE CAPITAL GAIN TAX IN THE IMPUGNED YEAR. MOREOVER, THERE WAS A STATEME NT FROM MANAGER OF VAPL RECORDED BY A.O. DURING SURVEY WHIC H INDICATE THAT THERE WERE LOT OF UNSOLD PLOTS AND DETAILED ST ATEMENT WAS RECORDED ABOUT SALE OF VARIOUS PLOTS AND HOW THE MO NIES ARE ACCOUNTED. THIS INDICATES THAT THE SAID VAPL IS ONL Y ACTING AS AN AGENT IN SALE OF PROPERTY AND IT DID NOT ACQUIRE TH E PROPERTY. THEREFORE, STAND OF CIT THAT THE LAND/PROPERTY IN Q UESTION WAS SALE CANNOT BE ACCEPTED. LASTLY, THE CIT HIMSELF AC CEPTED THAT GAINS ON SALE OF MEDCHAL LAND HAS TO BE ASSESSED UN DER THE HEAD 'LONG TERM CAPITAL GAINS'. THE GAIN IS TAXABLE AT T HE RATE OF 20% ONLY. WHETHER IT IS TAXED IN A.Y. 2007-08 OR IN LAT ER YEARS, THE TAX RATE IS AT 20% ONLY. THUS, THERE IS NO PREJUDICE CA USED TO REVENUE. THEREFORE, THE TWIN CONDITIONS FOR INVOKING JURISDI CTION UNDER SECTION 263 HAVE NOT BEEN SATISFIED. FOR THESE REAS ONS, WE ARE OF THE OPINION THAT THE ORDERS OF CIT CANNOT BE JUSTIF IED AND SO THEY ARE ACCORDINGLY SET ASIDE. 9. IN THE RESULT, ASSESSEES APPEALS ARE ALLOWED. ITA NO.1036 OF 2014 VICTORY ALLOYS STEELS LTD HYDER ABAD PAGE 7 OF 7 7. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE AL LOW THE APPEAL FILED BY THE ASSESSEE. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MARCH, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 27 TH MARCH, 2015. VNODAN/SPS COPY TO: 1. SHRI S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS EL EGANCE, H.NO.3-6-643, STREET NO.9 HIMAYATNAGAR, HYDERABAD 500029 2. DY. COMMISSIONER OF INCOME TAX CIRCLE 3(3) HYDERABA D 3. THE CIT-III HYDERABAD 4. THE DR, ITAT, HYDERABAD 5. GUARD FILE BY ORDER