Nisha Sarawgi, Ranchi V. ACIT,Circle-2, Ranchi

ITA 137/RAN/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3301 (ITAT-RANCHI)
• Duration Of Justice: 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 25-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASSESSEES SIXTH
• Keywords: Capital asset converted into stock in trade; Capital asset; Business income; Date of conversion; Fair market value; Capital Gains
• Section: 45(2); 43CA; 143(3); 54F; 201; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 137 / RAN / 201 9 ASSESSMENT YEAR :2015-16 NISHA SARAWGI 206, MAHABIR TOWER, J.D. COMPOUND, MAIN ROAD, RANCHI-834001 [ PAN NO.AFZPS 8212 G ] V/S . ACIT, CIRCLE-2, 5A, MAIN ROAD, CENTRAL REVENUE BUILDING, ANNEX BUILDING, RANCHI-834001 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI K.M. ROY, AR & SHRI P.S. PAUL, AR /BY RESPONDENT MRS. NISHA SINGHMAR, JCIT-DR /DATE OF HEARING 02-03-2020 /DATE OF PRONOUNCEMENT 02-03-2020 / O R D E R PER BENCH (ORAL):- THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2015-16 ARISES AGAINST THE COMMISSIONER OF INCOME TAX (APPEALS)-RANCHIS O RDER DATED 07.02.2019 PASSED IN CASE NO.CIT(A), RANCHI/10112/2017-18, INV OLVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE A CT. HEARD BOTH THE PARTIES. CASE FILE PERUSED 2. IT TRANSPIRES DURING THE COURSE OF HEARING THAT THE ASSESSES SOLE SUBSTANTIVE GRIEVANCE RAISED IN THE INSTANT APPEAL SEEKS TO REVISE BOTH THE LOWER AUTHORITIES ACTION DECLINING SEC.54F DEDUCTI ON CLAIM OF RS.60,94,982/- IN ASSESSMENT AS UPHELD IN THE LOWER APPELLATE PROC EEDINGS. THE ASSESSEE ITA NO.137/RAN/2019 A.Y. 2015-16 NISHA SARAWGI VS. ACIT CIR-2, RANCHI PAGE 2 HAD CONVERTED THE ALLEGED CAPITAL ASSET AS STOCK-IN -TRADE IN THE YEAR 2012. I.E.09.01.2012 AS PER ASSESSING OFFICER AND 29.11.2 012 AS PER THE TAXPAYER SHE SOLD THE SAME ON 21.05.2014 RELEVANT TO THE IMP UGNED ASSESSMENT YEAR 2015-16. THE ASSESSEE WOULD THEN RE-INVEST THE CORR ESPONDING CAPITAL GAINS IS A YET ANOTHER INDEPENDENT PROPERTY. THE REVENUE S STAND AS PER THE FOREGOING SYNOPSIS IS THAT THE DATE OF TRANSFER OF THE CAPITAL ASSET(S) HAVE TO BE TAKEN AS ON THEIR CONVERSION OF STOCK-IN-TRADE WAY BACK IN THE YEAR OF 2012-13 GOING BY SEC. 2(47)(III) OF THE ACT. WE FIN D THIS INSTANT ISSUE A NO MORE RES INTEGRA SINCE COVERED BY THIS TRIBUNALS CO-ORDINATE BENCH S IN ITA NO.14/RAN/2018 RAJESH KUMAR ADUKIA VS. DCIT, CIRCLE-2, RANCHI DAT ED 30.10.2019 AS FOLLOWS:- 16 . THE LAST CONTROVERSY FOR OUR ADJUDICATION IS THAT AS TO WHETHER THE AUTHORITIES BELOW ARE RIGHT IN DISMISSING THE CLAIM OF THE ASSE SSEE U/S 54F OF THE ACT ON THE GROUND THAT RESIDENTIAL FLAT WAS NOT CONSTRUCTED AF TER THE DATE OF TRANSFER AND THEY WERE CONSTRUCTED ALONGWITH SALEABLE FLATS. 17 . LD. AR SUBMITTED THAT THE ASSESSEE IS ENTITLED FO R CLAIM OF EXEMPTION U/S.54F OF THE ACT AS THE INCOME EARNED OR ACCRUED TO THE ASSE SSEE FROM SALE OF FLATS HAS BEEN UTILIZED FOR THE PURPOSE OF CONSTRUCTION OF FL ATS KEPT BY THE ASSESSEE FOR HIS RESIDENTIAL PURPOSE. LD. AR FURTHER DRAWN MY ATTENT ION TOWARDS JUDGMENT OF SPECIAL BENCH OF ITAT KOLKATA IN THE CASE OF OCTAVIUS STEEL & CO. LTD. VS. ACIT, 83 ITD 087 (KOL)(SB) AND CBDT CIRCULAR NO.791 DATED 2.06.2 000 AND SUBMITTED THAT FOR THE PURPOSE OF CLAIMING DEDUCTION U/S. 54EA / 54EB / 54EC, THE DATE OF TRANSFER SHALL BE THE DATE ON WHICH THE STOCK-IN-TRADE IS SO LD OR OTHERWISE TRANSFERRED BY THE ASSESSEE AND NOT ON THE DATE OF CONVERSION OF T HE CAPITAL ASSET INTO STOCK-IN- TRADE. LD. AR SUBMITTED THAT ON CONVERSION OF CAPI TAL ASSET INTO STOCK-IN- TRADE, THERE IS ON PROFIT AS NO CAN MAKE PROFIT OUT OF HIMSELF AND THIS SITUATION IS NOW CLARIFIED BY THE LEGISLATURE BY INTRODUCING PROVISI ONS OF SECTION 45(2) OF THE ACT, WHICH PROVIDED THAT FOR TAXATION WHERE THE CONVERTE D -IN-TRADE IS SOLD AND DIFFERENCE BETWEEN THE MARKET VALUE ON THE DATE OF CONVERSION AND ACTUAL COST IS THE CAPITAL GAIN, THEN THE DIFFERENCE ON TRANSFER O R SALE OF CAPITAL ASSET SHALL BE THE DATE OF TRANSFER OF STOCK-IN-TRADE AND NOT THE DATE ON WHICH CAPITAL ASSET WAS CONVERTED INTO STOCK-IN-TRADE AND NOT THE DATE ON WHICH CAPITAL ASSET WAS CONVERTED INTO STOCK-IN-TRADE. 18 . REPLYING TO ABOVE, LD D.R. SUPPORTED THE ASSESSME NT ORDER AND SUBMITTED THAT RESIDENTIAL FLAT ON WHICH EXEMPTION U/S.54F HAS BEE N CLAIMED BY THE ASSESSEE WAS NOT CONSTRUCTED AFTER THE DATE OF TRANSFER BUT CONS TRUCTED ALONGWITH SALEABLE FLATS. THEREFORE, THE EXEMPTION WAS RIGHTY DISALLOWED BY T HE AO. LD D.R. FURTHER CONTENDED THAT AS THE CIT(A) TREATED THE INCOME FR OM SALE OF FLATS AS INCOME FROM BUSINESS OR PROFESSION, THEREFORE, EXEMPTION U/S.5 4F OF THE ACT CANNOT BE ALLOWED TO THE ASSESSEE OUT OF BUSINESS INCOME. 19 . ON CAREFUL CONSIDERATION OF RIVAL SUBMISSIONS, FI RST OF ALL, I MAY POINT OUT THAT SINCE IN EARLIER PART OF THIS ORDER, I HAVE HELD T HAT THE ACTIVITY OF CONSTRUCTION AND SALE OF FLAT WAS NOT IN THE ADVENTURE IN NATURE OF TRADE AND INCOME ACCRUED TO THE ITA NO.137/RAN/2019 A.Y. 2015-16 NISHA SARAWGI VS. ACIT CIR-2, RANCHI PAGE 3 ASSESSEE FROM SALE OF FLATS HAS TO BE TREATED AS LO NG TERM CAPITAL GAIN AND THUS, GROUND OF DISALLOWANCE OF EXEMPTION U/S.54F OF THE ACT BY THE ASSESSING OFFICER CANNOT BE HELD AS SUSTAINABLE. FURTHER, FROM THE RE LEVANT PART OF THE ASSESSMENT ORDER, I OBSERVE THAT THE AO HAS DENIED EXEMPTION U /S.54F OF THE ACT ON THE GROUND THAT RESIDENTIAL FLAT WAS NOT CONSTRUCTED AFTER THE DATE OF TRANSFER OF SALEABLE FLATS. THEREFORE, HE HELD THAT THE ASSESSEE IS NOT ENTITLE D FOR EXEMPTION U/S. 54F OF THE ACT. 20 . AT THUS JUNCTURE, I TAKE COGNIZANCE OF CBDT CIRCU LAR NO.791 DATED 2.6.2000 (SUPRA), WHICH CLARIFIED THAT FOR THE PURPOSE OF CL AIMING DEDUCTION U/S. 54EA/54EB/54EC, THE DATE OF TRANSFER SHALL BE THE D ATE ON WHICH THE STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED BY THE ASSESSEE AN D NOT ON THE DATE OF CONVERSION OF THE CAPITAL ASSET INTO STOCK-IN-TRADE. FURTHER, SPECIAL BENCH OF ITAT KOLKATA IN THE CASE OF OCTAVIUS STEEL & CO. LTD (SUPRA) HAS HE LD THAT ON CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE, THERE IS NO PROFIT AS NO CAN MAKE PROFIT OUT OF HIMSELF. FURTHER, AS PER AMENDED SUB-SECTION(2) OF SECTION 45 OF THE ACT, WHICH WAS INSERTED BY THE TAXATION LEGISLATION (AMENDMENT ACT ), 1984 W.E.F. 1.4.1985, NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTION ( 1), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNE R OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOCK-IN-TRADE OF A BUSINESS C ARRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME TAX AS HIS INCOME OF THE PREVI OUS YEAR IN WHICH SUCH STOCK IN TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM AND, FOR THE PURPOSES OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RE CEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. THEREFORE, IN VI EW OF ABOVE CBDT CIRCULAR AND ORDER OF SPECIAL BENCH OF KOLKATA BENCH OF THE TRIB UNAL IN THE CASE OF OCTAVIUS STEEL & CO. LTD (SUPRA), I HAVE NO HESITATION TO HO LD THAT THE ASSESSING OFFICER WAS ALSO NOT CORRECT IN DENYING BENEFIT OF SECTION 54F OF THE ACT TO THE ASSESSEE ON THE GROUND THAT RESIDENTIAL FLAT WAS NOT CONSTRUCTED AF TER THE DATE OF TRANSFER BUT ALONGWITH SALEABLE FLATS. WE ADOPT THE FOREGOING DETAILED REASONING MUTATIS MUTANDIS AND DIRECT THE ASSESSING OFFICER TO ALLOW ASSESSEES SEC. 54F DEDU CTION IN ISSUE. 3. LEARNED COUNSEL IS FAIR ENOUGH IN NOT PRESSING F OR ASSESSEES SIXTH SUBSTANTIVE GRIEVANCE SEEKING TO CLAIM COST OF IMPR OVEMENT OF THE CAPITAL ASSET AMOUNTING TO RS.77,758/-. THE SAME IS AFFIRME D ACCORDINGLY. 4. THE ASSESSEES EIGHTH SUBSTANTIVE GRIEVANCE SEEK S TO CLAIM AN AMOUNT OF RS.4,47,846/- PERTAINING TO A RESIDENTIAL UNIT O FFERED AS A SETTLEMENT TO ONE MD. EKRAM WAY BACK IN THE YEAR 2009. THE REVENUES CASE IS THAT BOTH THE LOWER AUTHORITIES HAVE RIGHTLY INVOKED SE. 43CA OF THE ACT SINCE THE CORRESPONDING AGREEMENT TOOK PLACE ON 28.02.2015. L EARNED DEPARTMENTAL REPRESENTATIVE FAILS TO REBUT THE CLINCHING FACT TH AT THE COURT PROCEEDINGS QUA ITA NO.137/RAN/2019 A.Y. 2015-16 NISHA SARAWGI VS. ACIT CIR-2, RANCHI PAGE 4 THE FOREGOING SETTLEMENT ATTAINED FINALITY IN THE Y EAR 2009 WHEREAS SEC. 43CA OF THE ACT CAME INTO EFFECT MUCH LATER W.E.F. 01.04 .2014. WE THEREFORE GO BY THE CLINCHING EVIDENCE OF COURT SETTLEMENT IN THE YEAR 2009 THAN THE AGREEMENT BETWEEN THE PARTIES AND DIRECT ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS.4,47,846/-. 5. LAST GROUND OF INTEREST COMPUTATION, IF ANY, IS RESTORED TO THE ASSESSING OFFICER IN VIEW OF HONBLE JURISDICTIONAL HIGH COUR TS DECISION IN AJAY PRAKASH VERMA VS. ITO (2010) TA NO. 38 OF 2010 REPORTED IN 2013(1) TMI 140. 5. THIS ASSESSEES APPEAL IS PARTLY ALLOWED IN ABOV E TERMS. ORDER PRONOUNCED IN THE OPEN COURT AT THE CLOSE OF HEARING ON MONDAY 2 ND MARCH, 2020 . SD/- SD/- ( ) ('# ) (DR. A.L. SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) RANCHI, *DKP SR.P,.S $- 02 / 03 /20 20 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-NISHA SARAWGI 206, MAAHABIR TOWER, J.D. COMPOUND, MAIN ROAD RANCHI-834001 2. /RESPONDENT-ACIT, CIR-2, 5A, MAIN ROAD, CENTRAL REV ENUE BUILDING, ANNEX BUILDING, RANC HI-834001 3. / 2 / CONCERNED CIT RANCHI 4. 2- / CIT (A) RANCHI 5. 5 ##/, /, / DR, ITAT, RANCHI 6. ; / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR.PS, (ON TOUR), RANCHI