THE ITO, WARD - 2(3), Vijayawada V. Pedarla Venkata Ramaiah, Vijayawada

ITA 108/VIZ/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6423 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 22-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T S N MURTHY
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Cost of acquisition; Fair market value; Corroborative evidences
• Section: 45(2); 50C

Judgement Text

ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.108/VIZAG/2013 ( / ASSESSMENT YEAR: 2009-10) ITO, WARD-2(3), VIJAYAWADA LATE SRI PEDARLA VENKATA RAMAIAH L/R SMT. PEDARLA SUNANDA VIJAYAWADA [PAN NO. AIAPP1033G ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI T.S.N. MURTHY, DR / RESPONDENT BY : SHRI C. SUBRAHMANYAM, AR / DATE OF HEARING : 14.02.2017 / DATE OF PRONOUNCEMENT : 28.03.2017 / O R D E R PER SHRI MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE CIT(A), VIJAYAWADA DATED 11.12.2012 AND IT PERTAINS TO THE ASSESSMENT YEAR 2009-10. ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS LEGAL REPRESENTATIVE OF HER DISEASED HUSBAND LATE SHRI PE DARLA VENKATA RAMAIAH. LATE SHRI PEDARLA VENKATA RAMAIAH FILED R ETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 31.3.2011 DECLARING TOTAL INCOME OF ` 2,71,92,150/- BESIDES AGRICULTURAL INCOME OF ` 1,60,000/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY THROUGH CASS, MAINLY FOR THE REASON TO EXAMINE THE SOURCES OF CASH DEPOSITS IN SAVINGS BAN K ACCOUNT. NOTICES U/S 143(2) & 142(2) OF THE ACT WERE ISSUED. IN RES PONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED INFORMATION AS CALLED FOR. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO F URNISH THE SOURCES FOR CASH DEPOSITS IN THE SAVINGS BANK ACCOUNT WITH ING VYSYA BANK LIMITED. THE ASSESSEE HAS FURNISHED A STATEMENT EX PLAINING SOURCES FOR ALL THE DEPOSITS IN THE BANK ACCOUNT. IT WAS EXPLA INED THAT THE SOURCES FOR CASH DEPOSITS WERE MADE OUT OF SALE PROCEEDS OF AGRICULTURAL LAND MEASURING 5.11 ACRES RECEIVED ON VARIOUS DATES. 3. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS COMPUTED LONG TERM CAPITAL GAIN FROM SALE OF AGRICULTURAL LAND ME ASURING 5.11 ACRES. TO ASCERTAIN THE CORRECTNESS OF LONG TERM CAPITAL G AIN COMPUTED BY THE ASSESSEE, THE A.O. ISSUED A SHOW CAUSE NOTICE AND A SKED TO EXPLAIN THE NATURE OF TRANSACTION, MODE OF COMPUTATION OF LONG TERM CAPITAL GAIN ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 3 AND ALSO TO FURNISH THE COPIES OF DOCUMENTS EXECUTE D FOR CONVEYANCEOF TITLE DEEDS OF LAND. IN RESPONSE TO SHOW CAUSE NOT ICE, THE ASSESSEE SUBMITTED THAT HER HUSBAND LATE SHRI P.V. RAMAIAH H AD ENTERED INTO AN UN-POSSESSORY, UN-REGISTERED SALE AGREEMENT DATED 3 .12.2007 FOR SALE OF 5.11 ACRES OF AGRICULTURAL LAND WITH ONE SHRI P.VEN KATA PRASAD FOR A CONSIDERATION OF ` 2,65,72,000/-. THE ASSESSEE FURTHER SUBMITTED THA T HE HAD ENTERED INTO AGREEMENT FOR SALE OF AGRICULTU RAL LAND AND RECEIVED SALE CONSIDERATION ON VARIOUS DATES. IT WAS FURTHE R SUBMITTED THAT AGREEMENT HOLDER SHRI P.V. PRASAD CONVERTED LAND IN TO FLATS AND SOLD TO VARIOUS BUYERS FOR WHICH HER HUSBAND HAS EXECUTED R EGISTERED SALE DEEDS ON BEHALF OF AGREEMENT HOLDER. IN SUPPORT OF HER ARGUMENTS, FURNISHED NECESSARY COPIES OF UN-REGISTERED, UN-POS SESSORY SALE AGREEMENT EXECUTED IN FAVOUR OF SHRI P.V. PRASAD AN D ALSO FURNISHED NECESSARY PROOF FOR HAVING RECEIVED CONSIDERATION I N CASH AND CHEQUES ON VARIOUS DATES AS PER THE NOTINGS RECORDED IN THE BACK SIDE OF THE SALE AGREEMENT, WHICH WAS ENDORSED BY THE AGREEMENT HOLD ER AND WITNESSED BY ONE SHRI K. SAMBI REDDY, A DOCUMENT WRITER AND A LSO FATHER-IN-LAW OF THE AGREEMENT HOLDER. 4. THE A.O. AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, OBSERVED THAT THE ASSESSEE HAS FURNISHED COPY OF UN -REGISTERED, UN- POSSESSORY SALE AGREEMENT DATED 3.12.2007 STATED TO BE ENTERED INTO ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 4 WITH SHRI P.V. PRASAD, HOWEVER, THE AGREEMENT HOLDE R DENIED HAVING ENTERED INTO ANY AGREEMENT WITH THE ASSESSEE FOR PU RCHASE OF AGRICULTURAL LANDS. THE A.O. FURTHER OBSERVED THAT THE AGREEMENT HOLDER SHRI P.V. PRASAD HAS APPEARED AND GIVEN A STATEMENT ON OATH, WHEREIN HE WAS STATED THAT HE NEVER ENTERED INTO ANY AGREEM ENT WITH THE ASSESSEE SHRI P.V. RAMAIAH FOR PURCHASE OF AGRICULT URAL LANDS AND THE COPY OF AGREEMENT FURNISHED BY THE ASSESSEE STATED TO BE ENTERED WITH ME IS FABRICATED ONE AND SIGNATURE AFFIXED ON THE A GREEMENT IS FORGED. THE A.O. FURTHER OBSERVED THAT SINCE THE AGREEMENT HOLDER CATEGORICALLY DISOWNED HAVING ENTERED INTO ANY AGREEMENT WITH THE ASSESSEE, THE ASSESSEE FAILED TO PROVE THE TRANSACTION WITH ANY O THER CORROBORATIVE EVIDENCES TO PROVE HIS CASE THAT HE HAD ENTERED INT O AGREEMENT FOR SALE OF AGRICULTURAL LAND. THE A.O. HAS LISTED OUT NUMB ER OF REASONS TO REJECT THE PURPORTED SALE AGREEMENT STATED TO BE ENTERED B Y THE ASSESSEE. ACCORDING TO THE A.O., THE ASSESSEE HIMSELF HAS CON VERTED AGRICULTURAL LAND INTO FLATS AND SOLD TO VARIOUS BUYERS ON DIFFE RENT DATES, BUT FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN, THE ASSESSE E HAS CREATED A FABRICATED AGREEMENT. THE A.O. REJECTED ALL THE CL AIMS MADE BY THE ASSESSEE TO SUBSTANTIATE THE AGREEMENT. ACCORDING TO THE A.O., THE AGREEMENT IS UNREGISTERED AND ALSO UN-POSSESSORY AN D THE TOTAL CONSIDERATION IS PAID BY WAY OF CASH ON VARIOUS DAT ES. THOUGH THE ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 5 ASSESSEE STATED TO HAVE RECEIVED PART OF SALE CONSI DERATION BY CHEQUES, ON VERIFICATION OF THE DETAILS FILED BY THE ASSESSE E, IT IS NOTICED THAT THE TWO CHEQUES CLAIMED TO HAVE RECEIVED FROM THE ASSES SEE ARE ACTUALLY RECEIVED FROM THE BUYERS OF THE FLATS, BUT NOT FROM THE AGREEMENT HOLDER, THEREFORE, REJECTED CLAIM OF THE ASSESSEE A ND COMPUTED LONG TERM CAPITAL GAIN BASED ON THE SALE DEEDS EXECUTED BY THE ASSESSEE TO VARIOUS FLAT BUYERS. THE A.O. FURTHER OBSERVED THA T THERE IS A DIFFERENCE BETWEEN CONSIDERATION SHOWN IN THE SALE DEED AND CO NSIDERATION AS PER THE SUB-REGISTRAR VALUE, THEREFORE, ADOPTED MARKET VALUE OF THE PROPERTY AS DEEMED CONSIDERATION FOR THE PURPOSE OF COMPUTAT ION OF LONG TERM CAPITAL GAIN. 5. IN SO FAR AS COST OF ACQUISITION OF THE PROPERTY , THE ASSESSEE HAS TAKEN COST OF ACQUISITION OF THE PROPERTY AT ` 4,95,465/- AS ON 1.4.1981. AFTER INDEXATION, THE INDEXED COST OF ACQUISITION W AS ARRIVED AT ` 28,83,306/-. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE A.O. ASKED THE ASSESSEE TO JUSTIFY THE BASIS FOR ADOPTIO N OF COST OF ACQUISITION OF ` 4,95,465/-. IN RESPONSE, THE ASSESSEE SUBMITTED A COPY OF CERTIFICATE ISSUED BY THE JOINT SUB-REGISTRAR-1, VI JAYAWADA DATED 22.6.2009, WHEREIN THE MARKET VALUE OF THE LAND AS PER SUB-REGISTRAR VALUE AS ON 1.1.1982 WAS CERTIFIED AT ` 150/- P.SQ.YD. SINCE THE SUB- REGISTRAR HAS ISSUED VALUE OF THE PROPERTY AS ON 1. 1.1982 AND ALSO FACT ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 6 THAT THE RATE APPLICABLE IS FOR VACANT PLOT OF LAND , THE A.O. ISSUED A LETTER TO THE SUB-REGISTRAR, GANDHINAGAR, VIJAYAWADA, REQU ESTING THEM TO PROVIDE MARKET VALUE OF THE AGRICULTURAL LAND IN S. NO.19/1 OF GUNADALA AS ON 1.4.1981. IN REPLY, THE SRO, VIJAYAWADA VIDE LETTER DATED 26.12.2011 STATED THAT THE MARKET VALUE OF THE PROP ERTY FROM 1981 TO 1985 IS NOT AVAILABLE IN THEIR OFFICE, SINCE THE RE CORDS WERE BURNT IN CONNECTION WITH V.M. RANGA AGITATION AND SUBMITTED THE DETAILS OF THE MARKET VALUE FOR 4 YEARS STARTING FROM 1.5.1986 TO 16.8.1990. THE A.O. AFTER CONSIDERING THE MARKET VALUE CERTIFIED BY THE SRO AND ALSO COST OF ACQUISITION CLAIMED BY THE ASSESSEE, OBSERVED THAT AS PER THE SRO RECORDS, THE MARKET VALUE OF THE PROPERTY AS ON 1.4 .1986 WAS AT ` 28,500/- PER ACRE, WHEREAS THE ASSESSEE HAS CLAIMED ` 96,800/- PER ACRE WHICH APPEARS TO BE ABNORMAL. THEREFORE, RE-W ORKED COST OF ACQUISITION OF THE PROPERTY BY ADOPTING ` 25,000/- PER ACRE AS AGAINST THE ASSESSEES CLAIM OF ` 96,800/-. 6. IN SO FAR AS ALTERNATIVE PLEA OF THE ASSESSEE, T HAT THE PROVISIONS OF SECTION 45(2) OF THE ACT, IS APPLICABLE AS THE ASSE SSEE HAS CONVERTED HIS INVESTMENT INTO STOCK IN TRADE, FORMED FLATS AND SO LD. THE ASSESSEE FURTHER SUBMITTED THAT HE HAS SHOWN THE AGRICULTURA L LAND IN THE PREVIOUS FINANCIAL YEAR AS ITS INVESTMENT AND CONVERTED INVE STMENT INTO STOCK IN TRADE, THEREFORE, THE PROVISIONS OF SECTION 45(2) O F THE ACT IS APPLICABLE. ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 7 THE A.O. OBSERVED THAT THE PROPERTY TRANSFERRED BY THE ASSESSEE IS A CAPITAL ASSET WHICH WAS HELD BY HIM AS INVESTMENT I N ITS BOOKS OF ACCOUNTS, THEREFORE, THE PROVISIONS OF SECTION 45(2 ) OF THE ACT HAS NO APPLICATION. THE A.O. FURTHER OBSERVED THAT THOUGH THE ASSESSEE HAS DIVIDED THE LAND INTO FLATS AND SOLD TO DIFFERENT P ERSONS, THE ACTIVITY OF THE ASSESSEE DOES NOT COME UNDER ADVENTURE IN THE N ATURE OF TRADE OR COMMERCE TO COMPUTE CAPITAL GAIN AS WELL AS BUSINES S INCOME ON CONVERSION OF INVESTMENT INTO STOCK IN TRADE OR VIC E-VERSA. WITH THESE OBSERVATIONS, RE-WORKED CAPITAL GAIN FROM SALE OF L AND BY ADOPTING VALUE AS PER SECTION 50C OF THE ACT, BY ADOPTING GUIDANCE VALUE OF THE SRO FOR THE PURPOSE OF PAYMENT OF STAMP DUTY AND COMPUTED L ONG TERM CAPITAL GAIN OF ` 4,39,59,996/-. 7. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. WAS ERRED IN REJECTING THE EVIDENCES FILED BY THE ASSESSEE IN TOTO BASED ON THE DENIAL OF AGREEMENT HOLDER WIT HOUT GOING INTO THE EVIDENCES FILED BY THE ASSESSEE. THE ASSESSEE FURT HER SUBMITTED THAT THE AGREEMENT HOLDER HIMSELF HAS ACCEPTED BEFORE TH E A.O. THAT THEY HAVE ENTERED AGREEMENT WITH THE ASSESSEE BUT THE SA ME HAS BEEN CANCELLED. BUT THE FACTS REMAINS THAT, THE ASSESSE E HAS ENTERED INTO ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 8 AGREEMENT WITH SHRI P.V. PRASAD AND THEY HAVE FORME D LAY OUT AND SOLD TO VARIOUS INDIVIDUALS. THE ASSESSEE HAS FURNISHED NECESSARY EVIDENCES IN THE FORM OF AGREEMENT, SUPPORTING EVIDENCES SUCH AS AFFIDAVITS FROM THE PARTIES WHO ACTED AS WITNESSES FOR THE AGREEMEN T AND ALSO AFFIDAVIT FROM SHRI K. SAMBI REDDY WHO IS DOCUMENT WRITER AND ALSO FATHER-IN-LAW OF SHRI P.V. PRASAD, THE AGREEMENT HOLDER. 8. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETED ADDITIONS MADE BY THE A.O. BY HOLDING THAT IT TRANSPIRES FROM THE RECORDS THAT THE ASSESSEE HAS ENTERED INTO AN AGREE MENT FOR SALE OF PROPERTY TO SHRI P.V. PRASAD ON 3.12.2007 FOR A CON SIDERATION OF ` 2,65,72,000/- AND THE CONSIDERATION HAS BEEN RECEIV ED THROUGH CASH AND CHEQUES. THE CIT(A) FURTHER HELD THAT IT MAY BE NO TED FROM THE RECORDS THAT SHRI P.V. PRASAD DEFAULTED IN PAYMENT OF SALE CONSIDERATION FOR WHICH HE HAS PAID INTEREST OF ` 2,48,320/-, WHICH WAS SHOWN AS INCOME FROM OTHER SOURCES IN THE ASSESSEES RETURN OF INCO ME FILED FOR THE RELEVANT ASSESSMENT YEAR. THE NOTING MADE IN THE B ACK SIDE OF THE AGREEMENT FOR ACKNOWLEDGING THE PAYMENT WAS IN AGRE EMENT WITH THE PAYMENTS MADE BY THE PURCHASER OF THE PROPERTY. TH E CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS EXPLAINED WITH NECES SARY EVIDENCES AND ALSO PROVED SALE OF LAND BY WAY OF UN-POSSESSORY SA LE AGREEMENT. WITH ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 9 THESE OBSERVATIONS, HE DIRECTED THE A.O. TO COMPUTE LONG TERM CAPITAL GAIN BY CONSIDERING UN-POSSESSORY SALE AGREEMENT. 9. IN SO FAR AS COST OF ACQUISITION IS CONCERNED, T HE CIT(A) DIRECTED THE A.O. TO ADOPT COST OF ACQUISITION OF ` 25,000/- PER ACRE AS AGAINST THE COST OF ACQUISITION ADOPTED BY THE ASSESSEE OF ` 96,800/- PER ACRE. THE CIT(A) FURTHER OBSERVED THAT, IN SO FAR AS ALTE RNATIVE PLEA OF THE ASSESSEE THAT WHEN CONVERSION OF INVESTMENT INTO ST OCK IN TRADE TOOK PLACE IT GIVEN RISE TO CAPITAL GAINS AS WELL AS BUS INESS INCOME OR BUSINESS LOSS AS THE CASE MAY BE, WHICH HAS NOT BEEN CONSIDE RED. THE PROCEDURE ADOPTED BY THE A.O. LACKS RHYMES, REASON, LEGITIMAC Y AND THE SAME HAS TO BE DELETED AS THE SAME IS NOT IN TUNE WITH THE P ROCEDURE LAID DOWN FOR THIS PURPOSE. AS PER THE MATERIAL ON RECORD, I T HAS TO BE HELD THAT THE ASSESSEE HAS MADE OUTRIGHT SALE OF THE IMPUGNED AGRICULTURAL LAND OF 5.11 ACRES TO SHRI P.V. PRASAD FOR A CONSIDERATION OF ` 2,65,72,000/- ON WHICH LONG TERM CAPITAL GAIN ACCRUES TO THE ASSESSE E FOR THE YEAR ENDING 31.3.2009. WITH THESE OBSERVATIONS, DIRECTED THE A. O. TO RE-COMPUTE LONG TERM CAPITAL GAIN BASED ON THE SALE CONSIDERAT ION RECEIVED FROM SALE AGREEMENT AFTER REDUCING COST OF ACQUISITION O F THE PROPERTY. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN AP PEAL BEFORE US. 10. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) ERRE D IN HOLDING THAT THE ASSESSEE HAS MADE OUTRIGHT SALE OF AGRICULTURAL LAND OF 5.11 ACRES TO ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 10 SHRI P.V. PRASAD FOR A CONSIDERATION OF ` 2,65,72,000/- WITHOUT APPRECIATING THE FACT THAT THE A.O. HAS BROUGHT OUT CLEAR EVIDENCES IN THE FORM OF STATEMENTS FROM SHRI P.V. PRASAD, WHERE IN HE HAS CATEGORICALLY DENIED HAVING ENTERED INTO AGREEMENT DATED 3.12.2007 WITH THE ASSESSEE. THE D.R. FURTHER SUBMITTED THAT DURING THE COURSE OF CROSS EXAMINATION OF SHRI P.V. PRASAD, THE A.R. OF THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCES TO PROVE THAT THE COPY OF UN- REGISTERED AGREEMENT STATED TO HAVE BEEN ENTERED WITH SHRI P.V . PRASAD IS GENUINE. THE D.R. FURTHER SUBMITTED THAT THE AGREEMENT ITSEL F IS UNREGISTERED AND ALSO UN-POSSESSORY AND THE CONSIDERATION IS FULLY P AID IN CASH. THOUGH THE ASSESSEE CLAIMS TO HAVE RECEIVED PART OF THE SA LE CONSIDERATION BY CHEQUES, THE A.O. HAS BROUGHT OUT A CLEAR FACT THAT THOSE CHEQUES ARE RECEIVED FROM THE BUYERS OF THE FLAT BUT, NOT FROM THE AGREEMENT HOLDER. THE A.O. AFTER CONSIDERING THE RELEVANT FACTS HAS R IGHTLY COMPUTED LONG TERM CAPITAL GAIN BASED ON THE SRO VALUE OF THE FLA T SOLD AND HIS ORDER SHOULD BE UPHELD. 11. ON THE OTHER HAND, THE LD. A.R. FOR THE ASSESSE E STRONGLY SUPPORTED ORDER OF THE CIT(A), THE A.R. FURTHER SU BMITTED THAT THE ASSESSEE HAS MADE OUTRIGHT SALE OF 5.11 ACRES OF AG RICULTURAL LAND TO SHRI P.V. PRASAD FOR A CONSIDERATION OF ` 2,65,72,000/- AND THE SAME HAS BEEN RECEIVED ON VARIOUS DATES AS EVIDENCED FROM TH E NOTINGS IN THE ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 11 BACK SIDE OF THE SALE AGREEMENT. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS FILED NECESSARY EVIDENCES IN THE FORM OF SALE AGREEMENT AND ALSO AFFIDAVIT FROM THE PERSONS WHO ACTED AS WI TNESSES IN THE TRANSACTIONS, WHEREIN THEY HAVE CONFIRMED THAT THE ASSESSEE HAS ENTERED INTO SALE AGREEMENT WITH SHRI P.V. PRASAD. THE A.R. REFERRING TO THE RETURN OF INCOME FILED BY THE ASSESSEE, SUBMITT ED THAT SHRI P.V. PRASAD HAS DEFAULTED IN MAKING PAYMENT FOR WHICH HE HAS PAID INTEREST OF ` 2,48,320/- WHICH WAS OFFERED FOR TAX UNDER INCOME FROM OTHER SOURCES. THE A.O.,IN TOTAL DENIED ALL THE EVIDENC ES FURNISHED BY THE ASSESSEE TO REJECT THE SALE AGREEMENT. IT IS FURTH ER SUBMITTED THAT THE AGREEMENT HOLDER HAS CONVERTED LAND INTO FLATS AND SOLD TO VARIOUS INDIVIDUALS, WHICH IS EVIDENT FROM THE FACT THAT HE HAS SIGNED AS WITNESSES IN MANY OF THE SALE DEEDS. 12. IN SO FAR AS ALTERNATIVE PLEA OF APPLICATION OF SECTION 45(2) OF THE ACT, THE A.R. SUBMITTED THAT IN CASE THE SALE AGREE MENT IS NOT ACCEPTED AS GENUINE, THE A.O. OUGHT TO HAVE APPLIED THE PROV ISIONS OF SECTION 45(2) OF THE ACT, AS THE ASSESSEE HAS CONVERTED HIS INVESTMENT INTO STOCK IN TRADE FORMED FLATS AND SOLD TO BUYERS WHIC H COMES UNDER THE DEFINITION OF ADVENTURE IN THE NATURE OF TRADE OR C OMMERCE AND THE INCOME FROM SAID TRANSACTION SHOULD BE ASSESSED UND ER THE HEAD INCOME FROM BUSINESS AS WELL AS CAPITAL GAINS AS AND WHEN THE FLATS ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 12 ARE SOLD. THE A.R. REFERRING TO THE PROVISIONS OF SECTION 45(2) OF THE ACT, SUBMITTED THAT WHEN A CAPITAL ASSET IS CONVERTED IN TO STOCK IN TRADE OR VICE-VERSA, IT GIVES RISE TO CAPITAL GAIN AS WELL A S BUSINESS INCOME. SINCE, THE ASSESSEE HAS CONVERTED HIS LAND INTO STO CK IN TRADE, THE PROVISIONS OF SECTION 45(2) OF THE ACT HAS TO BE AP PLIED FOR THE PURPOSE OF DETERMINATION OF INCOME. THE A.O. WITHOUT ASSIG NING ANY REASON REJECTED THE CLAIM OF THE ASSESSEE, SIMPLY STATING THAT THE ASSESSEE HIMSELF HAS COMPUTED LONG TERM CAPITAL GAIN FROM SA LE OF LANDS. 13. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE FACTUAL MATRIX OF THE CASE WHICH LEADS TO THE DISPU TE IS THAT THE ASSESSEE HAS SOLD AGRICULTURAL LAND MEASURING 5.11 ACRES AND COMPUTED LONG TERM CAPITAL GAIN. THE ASSESSEE CLAIMS THAT THE HE HAD ENTERED INTO UN- POSSESSORY SALE AGREEMENT WITH SHRI P.V. PRASAD FOR A CONSIDERATION OF ` 2,65,72,000/- AND RECEIVED SALE CONSIDERATION BY WA Y OF CASH AND CHEQUE ON VARIOUS DATES. THE ASSESSEE FURTHER CONT ENDED THAT THE AGREEMENT HOLDER HAS CONVERTED LAND INTO SITES AND SOLD TO VARIOUS BUYERS, WHEREAS HE HAS FACILITATED TRANSACTIONS BY EXECUTING SALE DEEDS IN FAVOUR OF THE BUYERS ON BEHALF OF THE AGREEMENT HOLDER. ACCORDING TO THE A.O., THE ASSESSEE HAS DIVIDED LAND INTO FLATS AND SOLD TO BUYERS ON HIS OWN, HOWEVER COMPUTED LONG TERM CAPITAL GAIN BA SED ON THE ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 13 PURPORTED UN-POSSESSORY SALE AGREEMENT. THE A.O. F URTHER OBSERVED THAT THE SALE AGREEMENT ENTERED WITH SHRI P.V. PRAS AD IS FABRICATED ONE AND THE PARTY TO THE AGREEMENT SHRI P.V. PRASAD CAT EGORICALLY DENIED HAVING ENTERED INTO ANY AGREEMENT WITH THE ASSESSEE . THE A.O. FURTHER OBSERVED THAT THE CONSIDERATION SHOWN IN THE SALE A GREEMENT HAS BEEN FULLY PAID IN CASH. THOUGH, THE ASSESSEE CLAIMS TO HAVE RECEIVED PART OF THE SALE CONSIDERATION BY WAY OF CHEQUES, ON VERIFI CATION OF THE BANK STATEMENT FILED BY THE ASSESSEE, IT IS NOTICED THAT THE CHEQUES CLAIMED TO HAVE RECEIVED FROM THE PARTY HAS BEEN ACTUALLY RECE IVED FROM THE BUYERS OF THE SITE. THEREFORE, OPINED THAT THE PURPORTED SALE AGREEMENT STATED TO BE ENTERED WITH SHRI P.V. PRASAD IS FABRICATED A ND CANNOT BE RELIED UPON. 14. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIALS ON RECORD, WE FIND THAT THE ASSESSEE HAS FURNISHED AN UNREGIST ERED, UN-POSSESSORY SALE AGREEMENT DATED 3.12.2007 STATED TO BE ENTERED WITH SHRI SHRI P.V. PRASAD. ON PERUSAL OF THE AGREEMENT COPY FILED BY THE ASSESSEE, WE FIND THAT THE AGREEMENT IS UNREGISTERED. THE CONSI DERATION AGREED FOR SALE OF PROPERTY HAS BEEN PAID IN CASH ON VARIOUS D ATES. THOUGH, THE ASSESSEE CLAIMS TO HAVE RECEIVED PART OF SALE CONSI DERATION BY WAY OF CHEQUES, THE ASSESSEE FAILS TO PROVE THE PAYMENT OF SALE CONSIDERATION BY CHEQUE WITH NECESSARY EVIDENCES. WE FURTHER OBSE RVED THAT THE ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 14 AGREEMENT HOLDER SHRI P.V. PRASAD HAS CATEGORICALLY DISOWNED AGREEMENT AND ALSO STATED THAT SIGNATURE AFFIXED IN THE AGREEMENT IS FORGED. THOUGH, THE ASSESSEE TRIED TO SUBSTANTIATE THE SALE AGREEMENT, HE FAILED TO PROVE THE GENUINENESS OF SALE AGREEMEN T WITH NECESSARY EVIDENCES. ALL THE EVIDENCES FILED BY THE ASSESSEE IN THE FORM OF AFFIDAVIT FROM THE PARTIES WHO ACTED AS WITNESSES T O THE TRANSACTIONS HAS BEEN NEGATED BY THE A.O. BY BRINGING A CLEAR FACT T O THE EFFECT THAT THE PARTY TO THE AGREEMENT SHRI P.V. PRASAD HAS GIVEN A STATEMENT, WHEREIN HE HAS CATEGORICALLY DISOWNED THE AGREEMENT. THERE FORE, WE ARE OF THE VIEW THAT THE ASSESSEE FAILED TO PROVE THE UNREGIST ERED SALE AGREEMENT WITH NECESSARY EVIDENCES TO ACCEPT HIS CLAIM THAT H E HAS MADE OUTRIGHT SALE OF AGRICULTURAL LAND TO SHRI P.V. PRASAD. 15. COMING TO SALE CONSIDERATION STATED TO BE RECEI VED FROM SALE OF LAND. THE ASSESSEE CLAIMS TO HAVE RECEIVED SALE CO NSIDERATION OF ` 2,65,72,000/- BY CASH AS WELL AS CHEQUES ON VARIOUS DATES. THE A.O. HAS BROUGHT OUT A CLEAR FACT TO THE EFFECT THAT THE ASSESSEE HIMSELF HAS EXECUTED INDIVIDUAL SALE DEEDS IN FAVOUR OF THE BUY ERS OF THE FLATS AND CONSIDERATION HAS BEEN DIRECTLY PAID TO THE ASSESSE E. THE A.O. FURTHER OBSERVED THAT THE CONSIDERATION SHOWN IN THE SALE D EED IS LESSER THAN THE GUIDANCE VALUE OF THE PROPERTY AS PER THE SUB-R EGISTRAR VALUE FOR THE PURPOSE OF PAYMENT OF STAMP DUTY. ACCORDINGLY, THE A.O. HAS WORKED ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 15 OUT A SALE CONSIDERATION OF ` 4,46,99,501/- AND APPLIED THE PROVISIONS OF SECTION 50C OF THE ACT FOR THE PURPOSE OF COMPUTATI ON OF LONG TERM CAPITAL GAIN. WE FIND THAT AS PER THE PROVISIONS O F SECTION 50C OF THE ACT, WHEN THE SALE CONSIDERATION SHOWN IN THE SALE DEED IS LESS THAN THE GUIDANCE VALUE OF THE PROPERTY FOR THE PURPOSE OF P AYMENT OF STAMP DUTY, THE SRO VALUE HAS TO BE CONSIDERED AS DEEMED CONSIDERATION FOR THE PURPOSE OF TRANSFER OF PROPERTY. IN THIS CASE, THE ASSESSEE HAS EXECUTED SALE DEEDS AND THE CONSIDERATION AGREED IN THE SALE DEED IS LESS THAN THE GUIDANCE VALUE OF THE PROPERTY. THER EFORE, WE ARE OF THE VIEW THAT THE A.O. WAS RIGHT IN COMPUTING THE LONG TERM CAPITAL GAIN BASED ON THE GUIDANCE VALUE OF THE PROPERTY AS PER THE SRO VALUE. 16. IN SO FAR AS COST OF ACQUISITION OF THE PROPERT Y, THE ASSESSEE HAS TAKEN COST OF ` 98,600/- PER ACRE AND APPLIED INDEXATION FROM 1.4. 1981. THERE IS NO DISPUTE WITH REGARD TO THE DATE OF HOLD ING OF THE PROPERTY. THE ONLY DISPUTE IS WITH REGARD TO THE COST OF ACQU ISITION ADOPTED BY THE ASSESSEE WHICH IS BASED ON THE CERTIFICATE ISSUED B Y THE SRO, WHEREIN THE SUB REGISTRAR HAS CERTIFIED THE VALUE OF THE PR OPERTY AT ` 150/- PER SQ.YD. AS ON 1.1.1982. ON THE OTHER HAND, THE A.O. HAS OBTAINED A LETTER FROM THE SUB REGISTRAR GANDHINAGAR, VIJAYAWA DA ON 26.12.2011, WHEREIN THE MARKET VALUE OF THE PROPERTY FROM 1986 TO 1990 HAS BEEN FURNISHED, AS PER WHICH, THE VALUE OF THE PROPERTY VARIES FROM ` 28,500/- ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 16 TO 1,00,000/- PER ACRE. THOUGH, THE ASSESSEE FURNI SHED A COPY OF REGISTERED DOCUMENT VIDE DOCUMENT NO.2201 DATED 25. 3.1980, THE A.O. OBSERVED THAT THE DOCUMENT FURNISHED BY THE ASSESSE E RELATES TO SALE OF VACANT RESIDENTIAL FLAT, WHICH CANNOT BE APPLIED TO SALE OF AGRICULTURAL LANDS. WE FIND FORCE IN THE FINDINGS OF THE A.O., FOR THE REASON THAT THE LANDS SOLD BY THE ASSESSEE ARE AGRICULTURAL LANDS A ND MARKET VALUE OF THE PROPERTY AS ON 1.4.1981 HAS TO BE TAKEN AS PER THE SRO VALUE, WHICH IS APPLICABLE TO THE AGRICULTURAL LANDS, BUT NOT FOR T HE VACANT RESIDENTIAL FLATS. THE A.O. HAS OBTAINED A CERTIFICATE FROM TH E SRO, WHICH INDICATES THE MARKET VALUE OF THE AGRICULTURAL LAND AS ON THE DATE OF SALE. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS RIG HT IN RE-COMPUTING COST OF ACQUISITION BY ADOPTING VALUE OF ` 25,000/- PER ACRE. 17. COMING TO THE ALTERNATIVE PLEA OF THE ASSESSEE. THE ASSESSEE HAS MADE AN ALTERNATIVE PLEA FOR APPLICATION OF THE PRO VISIONS OF SECTION 45(2) OF THE ACT. THE ASSESSEE CLAIMS THAT HE HAD CONVERTED HIS INVESTMENT INTO STOCK IN TRADE, FORMED FLATS AND SO LD TO INDIVIDUALS, THEREFORE, THE PROVISIONS OF SECTION 45(2) OF THE A CT HAS TO BE APPLIED FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN AS WELL AS BUSINESS INCOME. THE LD. A.R. REFERRING TO THE PROVISIONS OF SECTION 45(2) OF THE ACT, SUBMITTED THAT SECTION 45(2) OF THE ACT, WAS ENACTE D FOR COMPUTING CAPITAL GAINS IN RESPECT OF TRANSFER OF ASSET THAT WAS CONVERTED INTO STOCK ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 17 IN TRADE OF BUSINESS. AS PER THE PROVISIONS OF SEC TION 45(2) OF THE ACT, PROFIT ARISING FROM THE TRANSFER, BY WAY OF CONVERS ION OF INVESTMENT INTO STOCK IN TRADE SHALL BE CHARGEABLE TO INCOME TAX AS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK IN TRADE IS SOLD OR OTHERWISE TRANSFERRED. SINCE, THE ASSESSEE HAS CONVERTED HIS INVESTMENT INTO STOCK IN TRADE AND FORMED FLATS, THE PROVISIONS OF SECTIO N 45(2) OF THE ACT, SHALL APPLY AND ACCORDINGLY, THE A.O. OUGHT TO HAVE RE-CO MPUTED THE INCOME FROM SALE OF AGRICULTURAL LAND BY APPLYING THE PROV ISIONS OF SECTION 45(2) OF THE ACT. 18. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL ON RECORD, WE FIND THAT THE A.O. NEVER DISPUTED THE FACT THAT THE ASSESSEE HAS CONVERTED HIS INVESTMENT INTO STOCK IN TRADE. THE A.O. DENIED ALTERNATIVE CLAIM OF THE ASSESSEE, MERELY ON THE GR OUND THAT THE ASSESSEE HIMSELF HAS COMPUTED LONG TERM CAPITAL GAI N ON SALE OF LAND UNDER NORMAL PROVISIONS OF THE ACT. IT IS THE CLAI M OF THE ASSESSEE THAT THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY W AY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO OR ITS TREATMENT BY H IM AS STOCK IN TRADE OF A BUSINESS CARRIED ON BY HIM, SHALL BE CHARGEABLE T O INCOME TAX AS IT IS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK IN TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM AND FOR THE PURPOSE OF SECTION 48 OF THE ACT, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 18 SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDE RATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE, FOR THE REASON THAT WHEN A CAPITAL ASSET IS CONVERTED INTO STOCK IN TRADE OR VICE-VERSA, THE INCOME FROM TRANSFER OF PROPERTY HAS TO BE COMPUTED UNDER THE PROVISIONS OF SECTION 45(2) OF THE ACT. THE PROVISIONS OF SECTION 45(2) OF THE AC T, MANDATES THE ASSESSING OFFICER TO COMPUTE THE INCOME FROM BUSINE SS AS WELL AS INCOME FROM CAPITAL GAIN BY APPLYING THE SAID PROVI SIONS, THE MOMENT THE ASSESSEE CONVERTED HIS INVESTMENT INTO STOCK IN TRADE. 19. IN THIS CASE, THE A.O. HAS NOT DISPUTED THE FAC T THAT THE ASSESSEE HAS CONVERTED HIS INVESTMENT INTO STOCK IN TRADE. THE A.O. DENIED THE CLAIM OF THE ASSESSEE MERELY ON THE GROUND THAT THE ASSESSEE HAS ADMITTED LONG TERM CAPITAL GAIN UNDER NORMAL PROVIS IONS OF THE ACT. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERR ED IN NOT CONSIDERING THE ALTERNATIVE PLEA OF THE ASSESSEE FOR COMPUTATIO N OF INCOME FROM SALE OF LAND BY APPLYING THE PROVISIONS OF SECTION 45(2) OF THE ACT. WE FURTHER OPINED THAT, IT IS FOR THE A.O. TO COMPUTE THE INCOME BY APPLYING APPROPRIATE PROVISIONS OF THE ACT, EVEN THOUGH THE ASSESSEE HAS MADE AN INCORRECT CLAIM TO COMPUTE THE INCOME. IN THIS CASE, ALTHOUGH THE ASSESSEE MADE ALTERNATIVE PLEA FOR COMPUTATION OF I NCOME BY APPLYING THE PROVISIONS OF SECTION 45(2) OF THE ACT, THE A.O . HAS REJECTED THE PLEA ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 19 WITHOUT ASSIGNING ANY REASONS. THEREFORE, WE ARE O F THE VIEW THAT THE A.O. WAS ERRED IN NOT CONSIDERING THE PLEA OF THE A SSESSEE, WITH REFERENCE TO THE PROVISIONS OF SECTION 45(2) OF THE ACT. THE CIT(A) AFTER CONSIDERING THE RELEVANT PROVISION HAS RIGHTLY OBSE RVED THAT, THE CASE OF THE ASSESSEE SQUARELY FALL WITHIN THE PROVISION OF SECTION 45(2) OF THE ACT AND THE A.O. WAS ERRED IN NOT CONSIDERING THE ASSES SEES PLEA FOR APPLICATION OF SECTION 45(2) OF THE ACT. THE REVEN UE DID NOT CHALLENGE THE FINDING OF THE CIT(A) BECAUSE HE FINALLY WENT O N TO DELETE ADDITIONS ON THE GROUND THAT SALE AGREEMENT IS GENUINE AND TH E ASSESSEE HAS MADE OUTRIGHT SALE OF LAND AND HENCE, LIABLE TO PAY CAPITAL GAIN ON THE BASIS OF SALE AGREEMENT. THE ASSESSEE HAS FILED NE CESSARY COMPUTATION OF BUSINESS INCOME AND CAPITAL GAIN AS PER THE PROV ISIONS OF SECTION 45(2) OF THE ACT AND CLAIMS THAT THE SAME IS FURNIS HED BEFORE THE A.O. THEREFORE, WE DEEM IT APPROPRIATE TO REMIT THE ISSU E BACK TO THE FILE OF THE A.O. FOR THE LIMITED PURPOSE OF VERIFICATION OF COMPUTATION FILED BY THE ASSESSEE AND DIRECT THE A.O. TO CONSIDER THE AL TERNATIVE PLEA OF THE ASSESSEE WITH REFERENCE TO THE RELEVANT MATERIALS A ND DIRECT HIM TO RE- COMPUTE THE INCOME BY APPLYING THE PROVISIONS OF SE CTION 45(2) OF THE ACT. ITA NO.108/VIZAG/2013 PEDARLA VENKATA RAMAIAH, L/R SMT. PEDARLA SUNANDA, VJA 20 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28 TH MAR17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 28.03.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-2(3), VIJAYAWADA. 2. / THE RESPONDENT SHRI PEDARLA VENKATA RAMAIAH, L /R SMT. PEDARLA SUNANDA, 32-16-5/2, NR RAVI CHETTU CENTRE, PEDARLA VARI STREET, MOGHALRAJPURAM, VIJAYAWADA. 3. + / THE CIT, VIJAYAWADA 4. + ( ) / THE CIT (A), VIJAYAWADA 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM