Income Tax Officer (Ward ) 1(3), Panaji V. Balachandra S. Ghantkar, Goa

ITA 117/PAN/2013

• Counselvise Citation: 11724114 RSA 2013
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NISHANT K
• Assessee Lawyers: V Y PAWAR
• Keywords: Capital asset; Business income; Cost of acquisition
• Section: 45(2); 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P.K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 116/PNJ/2013 : (ASST. YEAR : 2007 - 08) INCOME TAX OFFICER, WARD - 1(3), PANAJI, GOA (APPELLANT) VS. BALACHANDRA S. GHANTKAR THROUGH L/H SMT. HIRA BAI B. GHANTKAR, H.NO. 846, TO LOPOVADA, KUMBARJUA TALUKA TISWADI POST, MARCELA, GOA. PAN : ACHPG9350Q (RESPONDENT) ITA NO. 117/PNJ/2013 : (ASST. YEAR : 2007 - 08) INCOME TAX OFFICER, WARD - 1(3), PANAJI, GOA (APPELLANT) VS. SMT. HIRA BAI BALACHANDRA GHANTKAR, H.NO. 846, TO LOPOVADA, KUMBARJUA TALUKA TISWADI POST, MARCELA, GOA. PAN : ACHPG9349R (RESPONDENT) REVENUE BY : NISHANT K., DR ASSESSEE BY : V.Y. PAWAR, ADV. DATE OF HEARING : 21/08/2013 DATE OF PRONOUNCEMENT : 28 /08/2013 O R D E R PER P.K. BANSAL : 1. BOTH THESE APPEALS FILED BY THE REVENUE SINCE RELATE TO THE SAME ISSUE S AND TO THE SAME YEAR IN RESPECT OF ASSESSEES (HUSBAND AND WIFE), ARE DISPOSED OFF BY THIS COMMON ORDER. IN BOTH THE APPEALS THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL : 1. THE LD. CIT(A) ERRED ON FACT TREATING THE PROCEEDS OF SALE OF PLOTS AS INCOME FROM CAPITAL GAINS INSTEAD OF BUSINESS INCOME AS DETERMINED BY THE AO. 2 ITA NOS. 116 & 117/PNJ/2013 (ASST. YEAR : 2007 - 08) 2. THE LD. CIT(A) ERRED ON FACT AND IN LAW BY HOLDING THAT IN ABSENCE OF ANY BUSINESS IN REAL ESTATE PRIOR TO THE TRANSACTION UNDER CONSIDERATION THE PROCEEDS FROM SALE OF PLOTS IS NOT CONSIDERED AS BUSINESS INCOME. 3. THE LD. CIT(A) ERRED ON FACTS AND IN LAW BY NOT A PPRECIATING THE PROFIT MOTIVE OF THE ASSESSEE NOTWITHSTANDING THE AGRICULTURAL LAND WAS CONVERTED INTO NON - AGRICULTURAL LAND IN 1999 ITSELF AND SOLD SUBSEQUENTLY. 4. THE LD. CIT(A) ERRED ON FACT AND IN LAW BY DETERMINING ONLY 10% OF THE SALE PROCEEDS AS BUSINESS INCOME WITHOUT ANY COGENT REASONS/BASIS. 5. ON THE FACTS OF AND IN LAW, THE LD. CIT(A) ERRED BY GIVING RELIEF TO THE ASSESSEE U/S 54EC NOTWITHSTANDING THE FACT THA T THERE WAS NO ELIGIBLE CAPITAL GAINS ARISING OUT OF THE SALE OF PLOTS. 6. IN THE FACTS AND IN LAW, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 54EC AGAINST THE BUSINESS INCOME. 2. BOTH THE ASSESSEES ARE HUSBAND AND WIFE AND THE INCOME ASSESSED HAS TO BE DIVIDED BETWEEN THEM U/S 5A OF THE INCOME TAX ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME AT RS. 1,76,840/ - ON 30.7.2007 CLAIMING DEDUCTION U/S 54EC OF THE ACT. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE SOLD LAND AND CONSIDERED SURPLUS AS LONG TERM CAPITAL GAINS. SMT. JAYASHREEBAI GHANTKAR, A DIVORCEE WITHOUT ANY ISSUES EXPIRED ON 19.12.1984 INTESTATE LEAVING BEHIND HER THE LAND IN QUESTION ADMEASURING 42255 SQ. MTRS. IN CARAMBOLIM, GOA. THIS LAND DEVO LVED UPON 6 HEIRS CONSISTING OF THE ASSESSEE HIMSELF, HIS BROTHER, HIS SISTER, ONE COUSIN BROTHER AND TWO COUSIN SISTERS. THE ASSESSEE AND HIS BROTHER RESIDED IN GOA AND 4 HEIRS WERE STATIONED PERMANENTLY OUTSIDE GOA IN MUMBAI. AN AMICABLE FAMILY MUTUAL SETTLEMENT TOOK PLACE IN 1994 BETWEEN ALL THE 4 HEIRS TO PRESERVE THE FAMILY LAND WITHIN THE FAMILY MEMBERS AND AS SUCH, THE ASSESSEE AND HIS BROTHER WERE ALLOTTED THE UNDIVIDED SHARES OF ALL THE 4 HEIRS. SUBSEQUENTLY, THE LAND REMAINED WITH THE ASSESSEE AND HIS BROTHER. AS CONTENDED BY THE ASSESSEE, THE ASSESSEE WAS CARRYING OUT AGRICULTURAL ACTIVITY ON THIS LAND SINCE 3 ITA NOS. 116 & 117/PNJ/2013 (ASST. YEAR : 2007 - 08) 1984. IN 1999 DUE TO OLD AGE AND SICKNESS THE ASSESSEE DECIDED TO LIQUIDATE HIS SHARE IN THE LAND AND ACCORDINGLY, THE LAND WAS SUB - DIVI DED INTO SMALL PLOTS. BOTH THE BROTHERS DECIDED TO MAKE SMALL PLOTS TO YIELD BETTER PRICE. THE ASSESSEE GOT 11 PLOTS OUT OF WHICH 3 PLOTS CAME UNDER HIGH COURT BAN AND REMAINING 8 PLOTS WERE SOLD IN ONE STROKE IN F.Y. 2006 - 07. THE TOTAL AREA SOLD WAS 69 18.78 SQ. MTRS. AND THE CONSIDERATION RECEIVED WAS RS.74,88,920/ - . THE ASSESSEE OUT OF THIS, CALCULATED INDEXED COST OF ACQUISITION AT RS.20,7,522/ - AND OFFERED THE SURPLUS AS LONG TERM CAPITAL GAINS AGAINST WHICH RELIEF U/S 54EC WAS CLAIMED IN RESPECT OF INVESTMENT AMOUNTING TO RS. 56 LACS IN REC BONDS. THE AO HELD THAT THE ASSESSEE HAS DONE BUSINESS ACTIVITY BY CONVERTING HIS CAPITAL ASSET INTO STOCK IN TRADE AND THEREBY DISALLOWED THE RELIEF U/S 54EC AND ASSESSED THE SURPLUS AS BUSINESS INCOME. THE AS SESSEE WENT IN APPEAL BEFORE THE CIT(A). CIT(A) DIRECTED THE AO TO CONSIDER PART OF THE SURPLUS AS CAPITAL GAINS AND TREAT 10% OF THE SALE PRICE AS BUSINESS INCOME BY HOLDING AS UNDER : 4.6 I HAVE GONE THROUGH ALL THE RELEVANT PORTIONS OF THE ORDERS PASSED, DOCUMENTS ON RECORD AND THE ARGUMENTS OF THE LEARNED COUNSEL OF THE APPELLANT. IN MY OPINION, THE APPELLANT HAS NOT DONE ANY BUSINESS, BUT IN ORDER TO FETCH BETTER VALUE FOR HIS LAND, HE HAS DONE CONVERSION AND PLOTTING. THEREFORE, 10% OF THE TOTAL SALE VALUE BE TREATED AS BUSINESS INCOME AND BALANCE EXCESS AS CAPITAL GAINS. CIT(A) ALSO DIRECTED THE AO TO ALLOW DEDUCTION U/S 54EC FOR RS. 20 LACS. 3.1 WE HAVE HEARD THE RIVAL SUBMISSIO NS AND CAREFULLY CONSIDERED THE SAME. W E HAVE ALSO GONE THROUGH THE ORDER OF CIT(A) AS WELL AS THE ASSESSMENT ORDER. WE DO NOT AGREE WITH THE FINDING OF CIT(A). THE ASSET SOLD BY THE ASSESSEE IS EITHER TO BE HELD AS A CAPITAL ASSET OR AS STOCK IN TRADE. ON THE ONE SIDE , CIT(A) TOOK THE VIEW THAT DUE TO CONVERSION AND PLOTTING, SOME MARGINAL VALUE ADDITION IN THE SALE PRICE OF THE LAND OCCURRED AND ON THE OTHER SIDE, DIRECTED THE AO TO ASSESS 10% AS BUSINESS INCOME AND BALANCE SURPLUS AS CAPITAL GAINS. WE HAVE GONE THROUGH THE PROVISIONS OF INCOME TAX ACT. CAPITAL GAINS IS DEFINED U/S 4 ITA NOS. 116 & 117/PNJ/2013 (ASST. YEAR : 2007 - 08) 2(14) OF THE ACT. THIS SECTION NOWHERE STATES THAT PART OF THE CAPITAL ASSET WILL BE A BUSINESS ASSET AND THE OTHER PART OF THE CAPITAL ASSET WILL BE A CAPITAL ASSET. ON CE AN ASSET IS CONVERTED INTO A BUSINESS ASSET, IT BECOMES A BUSINESS ASSET. EVEN SECTION 45(2) WHICH DEALS WITH CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE DOES NOT TALK OF PART CONVERSION OF THE BUSINESS ASSET. CIT(A) WITHOUT LOOKING INTO THE PROVI SIONS OF THE LAW AND WITHOUT DISCUSSING THE RELEVANT PROVISIONS SUCH AS SECTION 2(14), 45 AND 45(2) TOOK THE VIEW THAT 10% OF THE TOTAL SALE VALUE BE TREATED AS BUSINESS INCOME AND BALANCE AS CAPITAL GAINS. IN VIEW OF THIS, WE SET ASIDE THE ORDER OF CIT(A ) AND RESTORE THIS ISSUE TO THE FILE OF CIT(A) WITH THE INSTRUCTIONS THAT CIT(A) MUST LOOK INTO THE FACTS OF THE CASE AND PASS A DETAILED AND REASONED ORDER AFTER GIVING APPROPRIATE OPPORTUNITY TO THE ASSESSEE BY HOLDING HOW PART OF THE SALE VALUE IS TO BE TREATED AS BUSINESS INCOME AND BALANCE AS CAPITAL GAINS. THUS, THIS ISSUE IS RESTORED TO THE FILE OF CIT(A). IN VIEW OF THIS, GROUND NOS. 1, 2, 3 AND 4 IN REVENUES APPEAL S ARE ALLOWED FOR STATISTICAL PURPOSE. 4. THE BRIEF FACTS RELATING TO THE NEXT ISSUE IN RESPECT OF DEDUCTION TO BE ALLOWED U/S 54EC IS THAT THE ASSESSEE AND HIS WIFE BOUGHT BONDS ELIGIBLE FOR DEDUCTION U/S 54EC AMOUNTING TO RS. 56 LACS. THE AO CALCULATED THE CAPITAL GAINS AT RS. 45,18,383/ - WHICH WAS TO BE DIVIDED AMONG THE ASSESSEE AND HIS WIFE AT RS.22,59,191/ - EACH. THE AO ASSESSED THE BUSINESS INCOME AT RS.49,88,920/ - BUT WHILE ALLOCATING THE CAPITAL GAINS IN THE ASSESSMENT ORDER OF THE ASSESSEE AND HIS WIFE, THE AO HAS TAKEN THE FIGURE OF RS. 11,29,595/ - BUT DID NOT ALLOW THE DEDUCTION IN RESPECT OF THE BOND ISSUED U/S 54EC EVEN OUT OF CAPITAL GAINS. THE ASSESSEE WENT IN APPEAL BEFORE CIT(A) AND CLAIMED DEDUCTION IN RESPECT OF THE BONDS PURCHASED. CIT(A) ALLOWED THE DEDUCTION TO THE ASSESSEE U/S 54EC FOR RS. 20 LACS AND DIRECTED THE AO TO ASSESS 10% OF THE SALE PRICE AS BUSINESS INCOME AND THE BALANCE TO BE CAPITAL GAINS. 5 ITA NOS. 116 & 117/PNJ/2013 (ASST. YEAR : 2007 - 08) 4.1 THIS ISSUE, IN OUR OPINION, IS CONSEQUENTIAL. THE ASSESSEE HAS TO BE ALLOWED DEDUCTION IN RESPECT OF INVESTMENT MA DE IN THE BONDS U/S 54EC AS THE INVESTMENT HAS BEEN MADE WITHIN 6 MONTHS. DEDUCTION IS TO BE ALLOWED ONLY IN CASE THE ASSESSEE HAS THE INCOME UNDER THE HEAD CAPITAL GAINS MUCH MORE THAN THE INVESTMENT MADE BY EACH OF THE ASSESSEE. SINCE WE HAVE ALREADY SET ASIDE THE ISSUE RELATING TO THE COMPUTATION OF CAPITAL GAINS, WE, THEREFORE, SET ASIDE THIS ISSUE ALSO AND RESTORE THIS ISSUE TO THE FILE OF CIT(A) TO DECIDE THIS ISSUE ALONGWITH THE ISSUE RELATING TO THE CAPITAL GAINS AFTER GIVING APPROPRIATE OPPORTU NITY TO THE ASSESSEE. 5. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSE. 6. ORDER PRONOUNCED IN THE OPEN COURT ON 28 /08/2013. SD/ - (D.T.GARASIA) JUDICIAL MEMBER SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 28 /08/ 2013 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT, PANAJI (4) CIT(A), PANAJI (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER , SR. P RIVATE S ECRETARY ITAT, PANAJI, GOA