Appeal details
Counselvise Citation
[2019] 112 COUNSELVISE.COM (IT) 1040 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 6 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-12-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Assessment Year
2002-2003
Appeal Filed On
10-06-2015
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI ... , ! , & BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO.1420/CHNY/2015 ' ' /ASSESSMENT YEAR: 2002-03 THE UNION COMPANY( MOTORS) PRIVATE LIMITED NO. 20, KAVIGNAR BHARATHIDASAN ROAD, OPP. TO SIET COLLEGE, TEYNAMPET, CHENNAI-600018 V . THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-III(3), CHENNAI-600034 [PAN: AAACU5630M ] ( * /APPELLANT) ( +,* /RESPONDENT) ASSESSEE BY : MR. R.BALASUBRAMANIAM AND MS. MAYAIL NICKANE, ADVOCATES ASSESSEE BY : MR. J. PAVITHARANKUMAR, JCIT . /DATE OF HEARING : 18.12.2019 . /DATE OF PRONOUNCEMENT : 18.12.2019 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST APPELLATE ORDER DATED 30.03.2015 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-11, CHENNAI (HEREINAFTER CALLED THE CIT( A)), IN NEW ITA NO. 120/CIT(A)-11/2013-14(OLD IT APPEAL NO.1534/13-14) FOR ASSESSMENT YEAR (AY) 2002-03, THE APPELLATE PROCEEDINGS BEFORE LEARNED CIT(A) HAD ARISEN FROM ASSESSMENT ORDER DATED 29.12.2007 PASSE D BY LEARNED ITA NO1420/CHNY/2015 :- 2 -: ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/ S.143(3) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). 2. THE ASSESSEE HAS RAISED AS MANY AS FOURTEEN GRO UNDS OF APPEAL IN MEMO OF APPEAL FILED WITH INCOME TAX APPELLATE TRIB UNAL, CHENNAI(HEREINAFTER CALLED THE TRIBUNAL) BUT WHEN THIS APPEAL WAS TAKEN UP FOR HEARING , THE EFFECTIVE GRIEVANCE OF THE ASS ESSEE AS WAS STRENUOUSLY ARGUED BY LEARNED COUNSEL FOR THE ASSESSEE IS THAT WHILE FRAMING ASSESSMENT ORDER , THE AO HAS NOT COMPLIED WITH PRO VISIONS OF SECTION 45(2) OF THE 1961 ACT AND LEARNED CIT(A) ALSO DID N OT ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND MERELY CONFIRMED TH E ASSESSMENT ORDER PASSED BY THE AO WHILE ADJUDICATING APPEAL OF THE A SSESSEE. IT IS EXPLAINED BY LEARNED COUNSEL FOR THE ASSESSEE THAT PROVISIONS OF SECTION 45(2) OF THE 1961 ACT STARTS WITH A NON-OBSTANTE CL AUSE THAT NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 45(1) OF THE 1961 ACT, THE PROFITS AND GAINS ARISING FROM TRANSFER BY WAY OF C ONVERSION BY THE OWNER OF CAPITAL ASSET INTO , OR ITS TREATMENT BY HIM AS STOCK IN TRADE OF A BUSINESS CARRIED ON BY HIM SHALL BE CHARGEABLE TO T AX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK IN TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM AND FOR THE PURPOSES OF SECTION 48 OF THE 19 61 ACT, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION O R 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. IT WIL L BE PROFITABLE AT THIS STAGE TO EXTRACT PROVISIONS OF SECTION 45(2) OF THE 1961 ACT AS WERE IN STATUTE DURING RELEVANT PERIOD , WHICH ARE REPRODUCED HERE UNDER : ITA NO1420/CHNY/2015 :- 3 -: [(2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SEC TION (1), 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 HIM AS STOCK-IN-TRADE OF A BUSINESS CA RRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME-TAX AS HIS INCOME OF THE PREVIOUS 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 CONVE RSION OR TREATMENT SHALL BE DEEMED TO BE THE FULL VALUE OF T HE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET.] AS IS EMERGING FROM RECORDS AND AS ARGUED BY LEARNE D COUNSEL FOR THE ASSESSEE BEFORE THE BENCH , THE ASSESSEE HAPPENED TO BE OWNER OF SOME LAND SITUATED AT 113-114, ANNA SALAI, CHENNAI-60002 WHICH IS CLAIMED TO BE OWNED BY ASSESSEE FOR SEVERAL DECADES. THE ASSES SEE ENTERED INTO A JOINT DEVELOPMENT AGREEMENT WITH TWO ASSOCIATE COMP ANIES ON 28.04.1994 FOR DEVELOPMENT OF THESE PLOTS OF LAND I NTO A MULTI STOREYED OFFICE COMPLEX AND OUT OF THE TOTAL CONSTRUCTED ARE A OF 396900 SQUARE FEET, THE ASSESSEE WAS ENTITLED TO 148010 SQUARE FE ET TOGETHER WITH PROPORTIONATE UNDIVIDED INTEREST IN LAND AND 96 RES ERVED CAR PARKS. ACCORDINGLY, THE ASSESSEE STARTED SELLING THE OFFIC E COMPLEX EVERY YEAR. THE ASSESSEE HAS DURING PREVIOUS YEAR 2001-02 RELEV ANT TO IMPUGNED AY: 2002-03 HAS CONVERTED THE UNDIVIDED INTEREST IN LAN D AS STOCK IN TRADE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFO RE THE BENCH THAT THE ASSESSEE HAS OF ITS OWN COMPUTED CAPITAL GAINS OF R S. 14,30,11,600/- AT THE TIME OF CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE AND MADE ENTRIES IN ITS BOOKS OF ACCOUNTS. HOWEVER, THE AO H AS INTERPRETED THE SAME THAT THE ASSESSEE HAS ADMITTED TO PAY TAX ON T HIS CAPITAL GAINS ON ITA NO1420/CHNY/2015 :- 4 -: SALE OF BUILDING , WHICH IT IS EXPLAINED IS AN ERRO R ON THE PART OF THE AO AS THE ASSESSEE NEVER SOLD THE ENTIRE BUILDING BUT MER ELY CONVERTED ENTIRE BUILDING INTO STOCK-IN-TRADE IN ITS BOOKS OF ACCOUN TS DURING THE YEAR UNDER CONSIDERATION. IT WAS EXPLAINED THAT MERELY ON CONV ERSION OF CAPITAL ASSET INTO STOCK IN TRADE IN ITS BOOKS OF ACCOUNTS, THE L IABILITY TO CAPITAL GAIN WILL DEFINITELY ARISE AND GET CRYSTALIZED BUT THE PAYMEN T OF SAME GETS POSTPONED AND HAS TO BE PAID WHEN THE SAID ASSETS A RE SOLD BY THE ASSESSEE. IT IS EXPLAINED THAT THE AO BROUGHT TO TA X ENTIRE CAPITAL GAINS IN THE YEAR UNDER CONSIDERATION MERELY ON CONVERSION O F THE CAPITAL ASSET INTO STOCK-IN-TRADE . THE ASSESSEE EXPLAINED THAT O UT OF ITS SHARE OF 148010 SQUARE FEET TO BE RECEIVED UNDER JOINT DEVEL OPMENT AGREEMENT , THE ASSESSEE HAS ONLY SOLD 29740 SQUARE FEET DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY THE AO HAS RIGHTLY BR OUGHT CAPITAL GAINS ARISING ON SALE OF 29740 SQUARE FEET OF OFFICE COMP LEX TO TAX IN THE IMPUGNED ASSESSMENT YEAR UNDER CONSIDERATION, BUT I T IS EXPLAINED BY LEARNED COUNSEL FOR THE ASSESSEE THAT THE AO ERRED IN ALSO BRINGING TO TAX CAPITAL GAINS ARISING ON ENTIRE 148010 SQUARE FEET OF SHARE OF THE ASSESSEE MERELY ON CONVERSION OF SAID 148010 SQUARE FEET OF SHARE OF ASSESSEE OF OFFICE COMPLEX INTO STOCK-IN-TRADE WHICH HAS LED TO DOUBLE TAXATION OF THE SAME INCOME. IT IS EXPLAINED THAT WHEN IN SUBSEQUE NT YEAR(S) THE ASSESSEE SOLD ITS SHARE OF OFFICE COMPLEX , IT HAD VOLUNTARILY OFFERED TO TAX INCOME ARISING FROM CAPITAL GAINS AS PER SECTIO N 45(2) OF THE 1961 ACT. THUS, IN NUT-SHELL IT IS EXPLAINED THAT BY BRINGING TO TAX ENTIRE CAPITAL GAINS WHICH AROSE ON MERE CONVERSION OF CAPITAL ASSET INT O STOCK IN TRADE IN ITA NO1420/CHNY/2015 :- 5 -: IMPUGNED PREVIOUS YEAR 2001-02 RELEVANT TO AY: 2002 -03, THE AUTHORITIES BELOW HAVE VIOLATED PROVISIONS OF SECTION 45(2) AND AGAIN BRINGING THE SAME CAPITAL GAINS TO TAX WHEN ASSESSEES SHARE IS SOLD , HAS LED TO TAXING THE SAME INCOME TO TAX TWICE WHICH IS NOT PERMISSIB LE UNDER THE PROVISIONS OF THE 1961 ACT. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RAISED A FEEBLE PLEA BEFORE THE BENCH THAT THE ASSE SSEE IS NOT ENGAGED IN THE BUSINESS OF REAL ESTATE BUT THE FACT REMAINS TH AT THE ASSESSEE HAS MANIFESTED ITS INTENTION OF CONVERTING CAPITAL ASSE T BEING OFFICE COMPLEX INTO STOCK-IN-TRADE AND ACCORDINGLY PASSED NECESSAR Y ENTRIES IN BOOKS OF ACCOUNTS WHERE MANIFESTATION OF ITS INTENTION TO UN DERTAKE ACTIVITIES OF REAL ESTATE BY SELLING ITS SHARE IN A SYSTEMATIC MA NNER IS LOUD AND CLEAR. IT IS SETTLED POSITION THAT EVEN AN ADVENTURE IN THE N ATURE OF TRADE WILL ALSO CONSTITUTE BUSINESS WHICH MAY BE A SINGLE ACTIVITY AS IN THIS CASE OF SELLING ITS SHARE OF OFFICE COMPLEX . THUS, THIS PLEA OF TH E ASSESSEE IS REJECTED. THE LEARNED DR ON ITS PART HAS SUBMITTED THAT MATTE R CAN GO BACK TO THE FILE OF THE AO FOR DENOVO ASSESSMENT. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND MERIT IN TH E CONTENTION OF THE ASSESSEE THAT IN CASE THE CAPITAL ASSET IS CONVERTE D INTO STOCK IN TRADE, THEN PROVISIONS OF SECTION 45(2) OF THE 1961 ACT WI LL COME INTO PLAY . THE CAPITAL GAINS ARISING FROM SUCH CONVERSION ON THE D ATE OF CONVERSION HAS TO BE BROUGHT TO TAX WHEN THE TRANSFER/SALE OF SUCH AS SET TOOK PLACE. THUS BY MERELY CONVERTING CAPITAL ASSET INTO STOCK-IN-TRADE , THE LIABILITY TO CAPITAL GAINS ON THE DATE OF CONVERSION SHALL DEFINITELY A RISE BUT THE SAME GETS POSTPONED AND IS TO BE PAID IN THE ASSESSMENT YEAR WHEN SUCH ASSET IS ITA NO1420/CHNY/2015 :- 6 -: SOLD/TRANSFERRED. ANY EXCESS/SHORTFALL BEYOND THE FULL VALUE OF CONSIDERATION ADOPTED FOR PURPOSES OF COMPUTATION O F CAPITAL GAINS ON THE DATE OF CONVERSION IS TO BE BROUGHT TO TAX AS BUSIN ESS INCOME(LOSS) OF THE YEAR WHEN SUCH ASSET IS SOLD/TRANSFERRED THE PROVIS IONS OF SECTION 45(2) CREATES A DEEMING FICTION AND IT HAS TO BE GIVEN FU LL PLAY. AS IS EXPLAINED BY LEARNED COUNSEL FOR THE ASSESSEE , WHAT HAS HAPP ENED IS THAT THE AO HAS BROUGHT TO TAX ENTIRE CAPITAL GAINS ARISING ON CONVERSION OF CAPITAL ASSETS INTO STOCK IN TRADE ON MERE CONVERSION IN PR EVIOUS YEAR 2001-02 RELEVANT TO IMPUGNED AY: 2002-03 , AS WELL THE SAME CAPITAL GAINS IS ALSO BROUGHT TO TAX WHEN SUCH ASSET WAS FINALLY SOLD/TRA NSFERRED IN SUBSEQUENT YARS WHICH HAS LED TO TAXING THE SAME INCOME TWICE IN THE HANDS OF THE ASSESSEE WHICH IS NOT PERMISSIBLE. HOWEVER, THE CON TENTIONS OF THE ASSESSEE NEED VERIFICATION BY THE AO ON A COMPREHEN SIVE BASIS ALONG WITH ALL CONNECTED ISSUES WITH RESPECT TO THIS PROPERTY AND ACCORDINGLY COMPUTATION OF INCOME CHARGEABLE TO TAX FOR THE YEA R UNDER CONSIDERATION. THUS, THE ENTIRE MATTER IS RESTORED TO THE FILE OF THE AO FOR PASSING DENOVO ASSESSMENT ORDER AFTER DUE VERIFICAT ION OF THE ENTIRE SPECTRUM OF CHARGEABILITY TO TAX OF THE CAPITAL GAI NS OR OTHER INCOME ARISING OUT OF THIS PROPERTY AT ANNA SALAI, SHARE O F ASSESSEE UNDER JOINT DEVELOPMENT, SHARE OF THE ASSESSEE, RETAINING OF SH ARE BY DEVELOPERS WHO ARE ASSOCIATED COMPANIES AND ITS IMPACT ON INCOME O F THE ASSESSEE , TREATMENT IN BOOKS OF ACCOUNTS, BASIS OF CLAIM OF D EPRECIATION ON THIS PROPERTY MADE BY THE ASSESSEE AND/OR OTHER ISSUES RELATED / CONNECTED THERETO WITH THIS PROPERTY HAVING BEARING ON ASSESS ING CORRECT INCOME IN ITA NO1420/CHNY/2015 :- 7 -: THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CONSID ERATION , AS IN OUR CONSIDERED VIEW THE MATTER CONNECTED WITH THIS PROP ERTY INCLUDING , INTER- ALIA, CAR PARKING IS TO BE SEEN COMPREHENSIVELY AS THEY ARE INTER-WOVEN AND INTEGRATED AND CANNOT BE ADJUDICATED IN ISOLATI ON DEHORS SEVERAL CLAIMS MADE BY ASSESSEE SUCH AS OFFER OF CAPITAL GA INS IN RETURN OF INCOME FILED, CREDIT OF CAPITAL GAINS IN BOOKS OF ACCOUNTS , CLAIM OF DEPRECIATION ON SUCH ASSETS WHILE COMPUTING INCOME OF THE ASSESSEE FOR THE IMPUGNED AY: 2002-03 WHICH IS UNDER CONSIDERATION BEFORE US . THUS, ALL CONTENTIONS ARE KEPT OPEN AND NEEDED VERIFICATION BY THE AO FOR COMPUTING INCOME OF THE ASSESSEE FOR THE IMPUGNED AY: 2002-03. THE AO IS DIRECTED TO PASS SPEAKING AND REASONED ORDER, AFTER CONDUCTING NECES SARY VERIFICATIONS . THE ASSESSEE IS DIRECTED TO LEAD ALL EVIDENCES BEFO RE THE AO CONNECTED WITH JOINT DEVELOPMENT OF ITS PROPERTY AT ANNA SALA I ETC AND FIR ASSESSING OF CORRECT INCOME BY THE AO IN THE HANDS OF THE ASS ESSEE FOR IMPUGNED AY. THE ASSESSEE IS ALSO DIRECTED TO LEAD EVIDENCES THA T THE SAME INCOME HAS BEEN TAXED TWICE FIRSTLY AT THE TIME OF CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE AS WELL AT THE TIME OF SALE OF SUCH ASSET . IT WILL ALSO BE OPEN FOR THE AO TO VERIFY COMPUTATIONAL ASPECT OF CAPITA L GAINS CLAIMED TO BE ARRIVED AT BY ASSESSEE AT THE TIME OF CONVERSION OF CAPITAL ASSETS INTO STOCK IN TRADE ON THE BASIS OF WHICH THE ENTRIES WE RE PASSED IN BOOKS OF ACCOUNTS BY THE ASSESSEE AND OFFERED TO TAX IN THE YEAR UNDER CONSIDERATION BY ASSESSEE W.R.T. SALE OF OFFICE COM PLEX IN THE YEAR UNDER CONSIDERATION . THUS, WITH AFORESAID DIRECTIONS , WE RESTORE THE AFORESAID ENTIRE ISSUES TO THE FILE OF THE AO FOR FRAMING DE NOVO ASSESSMENT. ITA NO1420/CHNY/2015 :- 8 -: NEEDLESS TO SAY THAT THE AO SHALL GIVE PROPER AND A DEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN DENOVO ASSESSMENT PR OCEEDINGS IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN AC CORDANCE WITH LAW AND ALL EVIDENCES/ EXPLANATIONS FILED BY ASSESSEE IN DENOVO SET ASIDE ASSESSMENT PROCEEDINGS WILL BE ADMITTED BY THE AO AND BE DECID ED ON MERITS IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. 3 IN THE RESULT, THE APPEAL FILED BY ASSESSEE IN IT A NO.1420/CHNY/2015 FOR AY: 2002-03 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS DAY OF 18 TH DECEMBER, 2019 IN CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! ) (RAMIT KOCHAR) /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 18 TH DECEMBER, 2019. TLN . +!1 21 /COPY TO: 1. * /APPELLANT 4. 3 /CIT 2. +,* /RESPONDENT 5. 1 + /DR 3. 3 ( ) /CIT(A) 6. ' /GF
