INCOME TAX OFFICER, WARD-3-5, JAIPUR V. M/S MAA KARNI KRIPA HOUSING PROJECTS PVT. LTD., JAIPUR

ITA 1357/JPR/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4031 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 03-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KARNI DAN
• Assessee Lawyers: PRERNA SHARMA
• Keywords: Capital asset; Business income; Date of conversion; Fair market value
• Section: 271(1)(c); 201; 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC H B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 1357/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2011-12 ITO, WARD-3(5), JAIPUR CUKE VS. M/S MAA KARNI KRIPA HOUSING PROJECTS PVT. LTD., F-177, AMRAPALI MARG, VAISHALI NAGAR, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAECM4921H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : KARNI DAN (JCIT) FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : PRERNA SHARMA (CA) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 07/08/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 19/08/2019 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-1, JAIPUR DATED 18.09.2018 AGAINST THE DELETION OF PEN ALTY AMOUNTING TO RS. 35,89,920/- FOR ASSESSMENT YEAR 2011-12 U/S 271(1)( C) OF THE ACT 2. AT THE OUTSET, THE LD. AR SUBMITTED THAT IN THE QUANTUM PROCEEDINGS (IN ITA NO. 1020/JP/2015 DATED 27.07.2018) , THE MATTER HAS BEEN DECIDED BY THE CO-ORDINATE BENCH IN ASSESSEES FAVOUR. FURTHER, MI SC. APPLICATION FILED BY THE REVENUE HAS ALSO BEEN DISMISSED VIDE ORDER OF THE C O-ORDINATE BENCH IN MA NO. 18/JP/2019 DATED 10/07/2019. IT WAS ACCORDINGLY SUBMITTED THAT WHERE THE QUANTUM ADDITIONS HAVE BEEN DELETED BY THE CO-ORDIN ATE BENCH, THERE IS NO BASIS FOR LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. SHE ACCORDINGLY SUBMITTED THAT THERE IS NO INFIRMITY IN THE FINDINGS OF THE L D. CIT(A) WHEREIN HE HAS ITA NO. 1357/JP/2018 ITO, JAIPUR VS. M/S MAA KARNI KRIPA HOUSING PROJEC TS PVT LTD., JAIPUR 2 DELETED THE LEVY OF PENALTY FOLLOWING THE DELETION OF ADDITIONS IN THE QUANTUM PROCEEDINGS. 3. THE LD. DR IS HEARD WHO HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER. AT THE SAME TIME, HE FAIRLY SUBMITTED THAT THE MATT ER HAS BEEN DECIDED IN THE QUANTUM PROCEEDINGS IN FAVOUR OF THE ASSESSEE AND E VEN THE MISC. APPLICATION FILED BY THE REVENUE HAS BEEN DISMISSED. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CO-ORDINATE BENCH (IN ITA NO. 1020/JP/2015 DATED 27.07.2018) HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFI CER IN THE QUANTUM PROCEEDINGS AND THE RELEVANT FINDINGS ARE CONTAINED AT PARA 5 OF ITS ORDER WHICH READS AS UNDER:- 5. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE ONLY ISSUE IN VOLVED IN THE APPEAL IS THAT THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER WHILE CONSIDERING THE GAIN EARNED ON SALE OF AGRICU LTURAL LAND AS BUSINESS INCOME. FOLLOWING FACTS ARE UNDISPUTED. THE ASSESSE E PURCHASED AGRICULTURAL LAND SITUATED AT VILLAGE DUKIYA AND VI LLAGE ALAUDA. THIS LAND REMAINS AGRICULTURE LAND AND WAS NOT CONVERTED TO A NY OTHER USE. THIS LAND WAS DECLARED AS STOCK IN TRADE BY THE ASSESSEE COMPANY IN EARLIER YEAR. THE ASSESSEE COMPANY PASSED A RESOLUTION PLAC ED AT PAGE 16 OF THE PAPER BOOK ON 01/4/2010 THAT THE AGRICULTURAL L AND PURCHASED BY THE COMPANY DURING A.Y. 2005-06 AND 2006-07 IN VILLAGES DUKIYA AND ALAUDA, TEHSIL- DANTARAMGARH, DISTRICT- SIKAR WITH THE INTENTION OF SELLING THEM OR CONVERTING THE SAME INTO RESIDENTIAL AND CO NSTRUCTING RESIDENTIAL APARTMENTS THEREON SHALL HENCEFORTH BE TREATED AS C APITAL ASSET OF THE COMPANY IN VIEW OF DECISION TO USE SUCH LANDS FOR A GRICULTURAL FARMING FOR ITA NO. 1357/JP/2018 ITO, JAIPUR VS. M/S MAA KARNI KRIPA HOUSING PROJEC TS PVT LTD., JAIPUR 3 THE COMPANYS OWN PURPOSE AS INITIAL INTENTION OF H OLDING ABOVE LANDS AS STOCK IN TRADE IS NO MORE VIABLE SINCE IT WOULD TAK E AT LEAST 10 YEARS FOR THE AGRICULTURAL LAND TO BE INHABITABLE. THUS, THE ASSESSEE HAS CONVERTED THIS AGRICULTURAL LAND FROM THE STOCK IN TRADE TO I NVESTMENT. THE ITAT MUMBAI E BENCH WHILE DECIDING ITA NO. 4208/MUM/20 07 IN THE CASE OF ACIT-1(3), MUMBAI VS M/S SUPERIOR FINANCIAL CONSULT ANCY SERVICES PVT. LTD. ON RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SIR KIKABHAI PREMCHAND VS CIT(CENTRAL), BOMBAY (SUP RA) HAS HELD AS UNDER: 6. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. IT IS RELEVANT TO STATE THAT THE LD. CIT(A) , FOR THE PURPOSE OF DECIDING THE CASE HAS ELABORATELY DISCUSSED THREE M AIN ISSUES, NAMELY (I) WHETHER THE ASSESSEE CAN LEGALLY CONVERT ITS STOCK-IN- TRADE INTO INVESTMENTS, (II) IF YES, WHETHER THE CO NVERSION IS MOTIVATED BY TAX AVOIDANCE AND (III) IF NOT, WHETHE R THE ASSESSEE CAN CLAIM TO BE AN INVESTOR IN SOME SHARES WHILE DO ING SPECULATION IN OTHER SHARES. 6.1 AS REGARDS THE LEGALITY OF CONVERSION OF STOCK- IN-TRADE INTO INVESTMENTS, THE LD.CIT HAS CORRECTLY HELD THAT THE RE IS NO SPECIFIC BAR FOR THE SAID CONVERSION AND VICE VERSA IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SIR KIK ABHAI PREMCHAND (24 ITR 506) (SC) WHEREIN IT HAS BEEN HEL D THAT SUCH CONVERSION IS NOT SOMETHING NOT KNOWN TO THE COMMER CIAL WORLD AND THERE IS NO LEGAL BAR ON THE SAME. THUS, IT HAS BEEN CLEARLY HELD THAT THERE IS NO SPE CIFIC BAR FOR THE CONVERSION OF STOCK IN TRADE INTO INVESTMENT AND VI CE VERSA IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SIR KIKABHAI PREMCHAND (SUPRA). THE ACT OF THE ASSESSEE CONVERTI NG THE STOCK IN TRADE INTO INVESTMENT IS NOT AGAINST ANY LAW AT THE RELEV ANT TIME. THE FACT REGARDING AGRICULTURAL LAND AND SITUATED BEYOND THE PRESCRIBED LIMIT OF MUNICIPAL CORPORATION IS ALSO UNDISPUTED. THE AGRIC ULTURAL LAND WHICH WAS ITA NO. 1357/JP/2018 ITO, JAIPUR VS. M/S MAA KARNI KRIPA HOUSING PROJEC TS PVT LTD., JAIPUR 4 SOLD, WAS NOT A CAPITAL ASSET AS PER I.T. ACT. ONCE THE ASSET TRANSFERRED IS NOT A CAPITAL ASSET THEN CAPITAL GAIN IS NOT TAXABL E. THIS VIEW IS ALSO GET STRENGTH FROM THE MEMORANDUM OF FINANCIAL BILL, 201 8. RELEVANT PARA OF MEMORANDUM OF FINANCIAL BILL, 2018 IS REPRODUCED AS UNDER: RATIONALISATION OF PROVISION RELATING TO CONVERSION OF STOCK-IN-TRADE INTO CAPITAL ASSET SECTION 45 OF THE ACT, INTER ALIA, PROVIDES THAT CAPITAL GAINS ARISING FROM A CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE SH ALL BE CHARGEABLE TO TAX. HOWEVER, IN CASES WHERE THE STOCK IN TRADE IS CO NVERTED INTO, OR TREATED AS, CAPITAL ASSET, THE EXISTING LAW DOES NOT PROVIDE FOR ITS TAXABILITY. IN ORDER TO PROVIDE SYMMETRICAL TREATMENT AND DISCOURAGE THE PRACTICE OF DEFERRING THE TAX PAYMENT BY CONVERTING THE INVENTORY I NTO CAPITAL ASSET, IT IS PROPOSED TO AMEND THE PROVISIONS OF (I) SECTION 28 SO AS TO PROVIDE THAT ANY PROFIT OR GAI NS ARISING FROM CONVERSION OF INVENTORY INTO CAPITAL ASSET OR ITS TREA TMENT AS CAPITAL ASSET SHALL BE CHARGED TO TAX AS BUSINESS INCOME. IT IS ALSO PROPOSED TO PROVIDE THAT THE FAIR MARKET VALUE OF THE INVENTORY ON THE DATE OF CONVERSION OR TREATMENT DETERMINED IN THE PRESCRIBED MANN ER, SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH CONVERSION OR TREATMENT; (II) CLAUSE (24) OF SECTION 2 SO AS TO INCLUDE SUCH FAIR MARKET VALUE IN THE DEFINITION OF INCOME; (III) SECTION 49 SO AS TO PROVIDE THAT FOR THE PURPOS ES OF COMPUTATION OF CAPITAL GAINS ARISING ON TRANSFER OF SUCH CAPITAL ASSE TS, THE FAIR MARKET VALUE ON THE DATE OF CONVERSION SHALL BE THE C OST OF ACQUISITION; (IV) CLAUSE (42A) OF SECTION 2 SO AS TO PROVIDE THAT THE PERIOD OF HOLDING OF SUCH CAPITAL ASSET SHALL BE RECKONED FROM THE DATE OF CONVERSION OR TREATMENT. ITA NO. 1357/JP/2018 ITO, JAIPUR VS. M/S MAA KARNI KRIPA HOUSING PROJEC TS PVT LTD., JAIPUR 5 THESE AMENDMENTS WILL TAKE EFFECT, FROM 1ST APRIL, 20 19 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2019-20 AND SUBSEQUENT ASSESSMENT YEARS. [CLAUSE 3, 9 & 18] IN THE MEMORANDUM OF FINANCIAL BILL, 2018, IT HAS B EEN CATEGORICALLY STATED THAT WHERE THE STOCK IN TRADE IS CONVERTED I NTO CAPITAL ASSET (INVESTMENT, THE EXISTING LAW DOES NOT PROVIDE FOR ITS TAXABILITY AND IN ORDER TO PROVIDE SYMMETRICAL TREATMENT AND DISCOURA GE DIFFERING THE TAX PAYMENT, THE AMENDMENTS HAVE BEEN CARRIED OUT. IN V IEW OF THESE LEGAL AND FACTUAL MATRIX, WE ALLOW THE APPEAL OF THE ASSE SSEE. 5. FURTHER, IT IS NOTED THAT THE REVENUE HAS MOVED AN MISC. APPLICATION SEEKING RECALLING OF THE SAID ORDER AND THE SAID MI SC. APPLICATION HAS SINCE BEEN DISMISSED BY THE CO-ORDINATE BENCH (IN MA NO. 18/JP/2019 DATED 10/07/2019) AND THE RELEVANT FINDINGS ARE CONTAINED AS UNDER:- THUS THE TRIBUNAL HAS DULY CONSIDERED THE FINDING OF THE LD. CIT (A) AS WELL AS THE AO WHILE TREATING THE INCOME ON SALE OF AGRICULTURAL LAND AS BUSINESS INCOME. THE IMPUGNED ORDER HAS BEEN PASSED BY THE TRIBUNAL ON MERIT AFTER ANALYZING THE FACTS AS WELL AS FOLLO WING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL. FURTHER, THE AME NDMENT BROUGHT TO SECTION 28 OF THE IT ACT BY THE FINANCE BILL 2018 W AS CONSIDERED BY THE TRIBUNAL AND, THEREFORE, PRIOR TO THE SAID AMENDMEN T THERE WAS NO PROVISION IN THE IT ACT TO TAX THE CONVERSION OF ST OCK-IN-TRADE INTO CAPITAL ASSET. ONCE THE TRIBUNAL HAS DECIDED THE ISSUE BY CONSIDERING ALL THE RELEVANT FACTS, THEN EVEN IF THE DECISION TAKEN BY THE TRIBUNAL MAY BE AN ERROR OF JUDGMENT, THE SAME CANNOT BE SAID TO BE AN APPARENT MISTAKE ON RECORD WHICH CAN BE RECTIFIED UNDER SECTION 254( 2) OF THE ACT. THE JURISDICTION OF THE TRIBUNAL UNDER SECTION 254(2) I S VERY LIMITED AND CIRCUMSCRIBED TO RECTIFY THE APPARENT MISTAKE WHICH DOES NOT REQUIRE ANY LONG DRAWN REASONING. THE REVENUE IN THE PRESENT M ISCELLANEOUS ITA NO. 1357/JP/2018 ITO, JAIPUR VS. M/S MAA KARNI KRIPA HOUSING PROJEC TS PVT LTD., JAIPUR 6 APPLICATION IS SEEKING TO RE-APPRECIATE THE FACTS A ND REVIEW THE REASONING ON THE MATTER. ACCORDINGLY, WE HOLD THAT THE MISCEL LANEOUS APPLICATION DOES NOT REVEAL ANY APPARENT MISTAKE IN THE IMPUGNE D ORDER. 6. WE THEREFORE, DO NOT SEE ANY INFIRMITY IN THE OR DER OF LD. CIT(A) WHERE HE HAS DELETED THE PENALTY SO LEVIED ON THE ASSESSE E WHERE THE VERY BASIS FOR LEVY OF PENALTY HAS BEEN DELETED IN THE QUANTUM PRO CEEDINGS,. THEREFORE, WITHOUT GOING INTO THE MERITS OF THE LEVY OF PENALT Y, GIVEN THAT THE VERY BASIS FOR LEVY OF PENALTY DOES NOT EXIST, THE PENALTY U/S 271(1)(C) HAS RIGHTLY BEEN DELETED BY THE LD CIT(A) AND THE SAME IS HEREBY CON FIRMED. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/08/2019. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 19/08/2019 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- ITO, WARD-3(5), JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- M/S MAA KARNI KRIPA HOUSING PROJECT S PVT. LTD., JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 1357/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR