Income-tax Officer, Ward-1(3), Nashik V. Smt. Nirmala Narayan Lawate, Nashik

ITA 1440/PUN/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67096 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 17-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Cost of acquisition; Date of conversion; Fair market value; Valuation report; Revenue expenditure
• Section: 45(2); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 144 0 / P N/ 20 11 ASSESSMENT YEAR : 2006 - 07 INCOME - TAX OFFICER, WARD - 1(3), NASHIK VS. SMT. NIRMALA NARAYAN LAWATE, 2158, SOMWAR PETH, LAVATE WADA, NASHIK (APPELLANT) (RESPONDENT) PAN NO. A BBPL8186C APPELLANT BY: SHRI SANTOSH KUMAR RESPONDENT BY: SHRI NIKHIL PATHAK DATE OF HEARING : 17 - 06 - 2013 DATE OF PRONOUNCEMEN T : 21 - 06 - 2013 ORDER P ER R.S. PADVEKAR , JM : IN T HIS APPEAL , THE REVENUE HAS CHALLENG ED THE IMPUGNED ORDER OF THE LD.CIT(A) - I, NASHIK DATED 1 3 - 09 - 2011 FOR THE A.Y. 2006 - 07. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE HONOURABLE CIT(A) ERRED BY THE HOLDING THAT THE ASSESSEE HAS SOLD THE NET PLOTTED AREA AND NOT THE GROSS AREA OF THE LAND THEREFORE THE UNSALEABLE AREA IS TO BE EXCLUDED FOR DETERMINING THE CAPITAL GAINS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE HONOURABLE CIT(A) FAILED TO APPRECIATE THE FACT THAT AS PER INFORMATION AVAILABLE ON RECORD ASSESSEE HAD FIRST CONVERTED THE G R OSS LAND AS STOCK IN TRADE AND LATER DEVELOPED AND CONVERTED IT INTO PLOTS. THUS, THE DIFFERE NCE BETWEEN THE VALUE OF THE GROSS LAND AS ON 1/4/81 AND THE VALUE OF THE LAND AS ON THE DATE OF CONVERSION OF THE SAME INTO STOCK IN TRADE IS TAXABLE UNDER THE HEAD LONG TERM CAPITAL GAINS. THE CIT(A) ERRED BY DIRECTING THE A.O. TO ADOPT THE VALUE OF THE NET SALEABLE LAND AS ON 1/4/81 TO WORK OUT THE INCOME UNDER THE HEAD LTCG WITHOUT APPRECIATING THE FACT THAT THE LOSS/COST IN RESPECT OF THE UNSALEABLE LAND IS A BUSINESS EXPENDITURE/COST WHICH THE ASSESSEE HAS ALREADY LOADED ON THE COST OF THE SALEABLE P ART OF THE LAND WHILE WORKING OUT THE BUSINESS INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE HONOURABLE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE COST/ AMOUNT IN RESPECT OF THE UNSALEABLE LAND IS A NOTIONAL REVENUE EXPENDITURE OF THE LA ND DEVELOPMENT BUSINESS ACTIVITY AND THIS COST IS LOADED BY ASSESSEE 2 ITA NO.144 0 /PN/2011, NIRMALA NARAYAN LAWATE , NASHIK ON THE SALEABLE PART OF THE LAND WHILE WORKING OUT THE BUSINESS INCOME. BY ALLOWING ASSESSEE TO ADOPT THE COST OF THE NET SALEABLE LAND AS ON 1/4/81 WILL RESULT IN GIVING THE BENEFIT OF THE COST OF THE UNSALEABLE LAND TWICE, ONCE WHILE COMPUTING THE INCOME UNDER THE HEAD LTCG AND THE OTHER WHILE WORKING OUT THE BUSINESS INCOME. 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELO PMENT OF LAND . SHRI SADASHIV KASHINATH LAWATE ( F ATHER - IN - L AW) BEQUEATH ED ONE FOURTH UNDIVIDED SHARE IN PLOT OF LANDS BEARING SURVEY NO. 747/1/2, 747/2 AND SURVEY NO. 744/A/2 ADMEASURING 14700 SQ. METERS (ONE FOURTH OF 58,800 SQ. METERS) ON 20 - 10 - 1970. TH E SAID LAND WAS CONVERTED BY THE ASSESSEE INTO STOCK IN TRADE AS ON 01 - 02 - 2001 FOR THE PURPOSE OF CARRYING OUT HER LAND DEVELOPMENT BUSINESS. THERE IS NO DISPUTE WITH REGARD TO FACT OF THE POSSESSION AND CONVERSION OF THE LAND INTO STOCK - IN - TRADE. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR BEFORE US THE ASSESSEE SOLD OUT FEW PLOTS OF LA ND ADMEASURING TOTAL 1819.34 SQ. M TRS. AND WORKED OUT CAPITAL GAINS U/S. 45(2) OF THE INCOME - TAX ACT. FOR WORKING OUT THE CAPITAL GAINS , THE ASSESSEE ADOPTED THE COST OF ACQUISITION OF THE PLOTS SOLD AT RS.344.28 SQ. MTRS. AS ON 01 - 04 - 1981, WHICH WAS DULLY SUPPORTED BY VALUATION REPORT OF A REGISTERED VALUER. 2.1. THE ASSESSING OFFICER EXAMINED THIS ISSUE WITH REFERENCE TO THE DETERMINATION OF THE COST OF ACQUI SITION AND COST OF CONVERSION OF THE SAID LAND INTO STOCK - IN - TRADE. THE ASSESSEE SUBMITTED THE VALUATION REPORT DATED 06 - 09 - 2003 OF A REGISTERED VALUER IN WHICH THE VALUE OF THE LAND AS ON 01 - 04 - 1981 WAS ADOPTED AT RS.145 PER SQ. M TRS . SINCE THE ASSESSEE WHILE WORKING OUT THE CAPITAL GAINS HA S ADOPTED THE RATE AS ON 01 - 04 - 1 9 81 AT RS. 347.77 PER SQ. MTRS . AS AGAINST THE RATE OF RS.145 PER SQ. MTRS. A S PER THE VALUATION R EPORT , T HE ASSESSING OFFICER EXAMINED THE ISSUE FURTHER AND DID NOT ACCEPT SAID RATE AD OPTED BY THE ASSESSEE . THE ASSESSEE STATED BEFORE THE ASSESSING OFFICER THAT THE TOTAL AGRICULTURAL LAND AREA OF 58,800 SQ. MTRS . , ON ITS CONVERSION INTO STOCK - IN - TRADE WAS 3 ITA NO.144 0 /PN/2011, NIRMALA NARAYAN LAWATE , NASHIK REDUCED TO RS.29,352.37 SQ. MTRS. WHICH IS CALLED A NET SALEABLE AREA. THE ASSESS EE GAVE VARIOUS REASONS FOR THE GROSS AREA OF THE PLOT OF LAND WHICH RESULTED INTO DEDUCTION OF THE LAND AREA I.E. PROVISION S FOR R OADS, MANDATORY OPEN SPACE, SANITATION AND DRA I NAGE, ELECTRICAL POLES ETC. IT WAS PLEADED BY THE ASSESSEE THAT THE NET PLOT AREA C OMES TO 29,352.37 SQ. MTRS . AS A GAINST THE GROSS LAND AREA OF 58,800 SQ. MTRS. THE TOTAL VALUE OF THE GROSS AREA OF LAND OF 58,800 SQ. MTRS . @ 145 PER SQ. MTRS. IS ARRIVED AT RS.85,26,000/ - AND BY ADDING THE VALUE OF CONSTRUCTION AND PIPELINE AREA A MOUNTING TO RS.16,81,923/ - THE FAIR MARKET VALU E OF THE GROSS LAND WAS ARRIVED AT RS. 1,02,07,923/ - . 3. DUE TO THE CONVERSION ON ACCOUNT OF THE ABOVE FACTORS I.E. PLOTTING OF LAND 29447.63 SQ. MTRS. OF THE LAND WAS RENDERED UNFIT FOR SALE AS A CONTROL OVE R THAT AREA GOT VESTED WITH THE MUNICIPAL A UTHORITIES FOR THE CIVIL AMENITIES. THE ASSESSEE , THEREFORE , PLEADED BEFORE THE ASSESSING OFFICER THAT AS NET SALEABLE ARE A OF THE PLOT IS 29352.37 SQ. MTRS. AND HENCE, GROSS AMOUNT OF THE VALUATION IS TO BE DIVI DED BY THE NET SALEABLE AREA. BASED ON THIS CONTENTION, THE ASSESSEE WORKED OUT THE MARKET VALUE OF THE SALEABLE AREA AT RS.347.77 PER SQ. MTRS. 3.1. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION WITH THE ASSESSEE WITH REGARD TO THE DEDUCTION OF THE SALEABLE PLOT OF LAND O N CONVERSION AND HELD THAT IN BUSINESS TERMS THE ASSESSEE GOT AN ADVANTAGE IN FORM OF BETTER INFRASTRUCTURE TO COMM AND BETTER PRICE IN MARKET ON SALE OF THE DEVELOP ED AREA. THE ASSESSING OFFICER ALSO DISPUTED THE CONVERSION DATE BY OBSERVING THAT THE ASSESSEE STARTED BUSINESS OF DEVELOPMENT OF LAND W.E.F. 01 - 02 - 2001 AND WHEREAS THE DISTRIBUTION DEED IN RESPECT OF PLOTS OF LAND W ERE EXECUTED IN THE YEAR 2002 . T HE ASSESSING OFFICER THEREFORE , OBSERVED THAT THE ASSESSEE INFACT INTR ODUCED THE STOCK IN TRADE OF THE NET PLOT AREA IN HIS BOOKS OF ACCOUNT 4 ITA NO.144 0 /PN/2011, NIRMALA NARAYAN LAWATE , NASHIK AND NOT THE GROSS AREA OF THE LAND. ON THIS OBSERVATION AND CONCLUSION, THE ASSESSING OFFICER REJECTED THE RATE ADOPTED BY THE ASSESSEE AT RS. 347.77 PER SQ. MTR. AND INSTEAD OF SAID RA TE, ADOPTED THE RATE OF RS.145 PER SQ. MTR. AND WORKED OUT THE COS T OF ACQUISITION AS ON 01 - 04 - 1981 AT RS.2, 63,804/ - AND THE INDEXED COST OF ACQUISITION WAS WORKED OUT OF RS.13,11,105/ - . IT RESULTED INTO WORKING OF THE POSITIVE CAPITAL GAINS TO THE EXTENT OF RS.17,81,768/ - . THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) AND THE LD. CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO ADOPT THE NET LAND ADMEASURING 29352.37 SQ. MTRS. @ 347.77 PER SQ. MTRS . FOR DETERMIN ING LONG TERM CAPITAL G AIN . B EING AGGRIEVED , N OW THE REVENUE IS IN APPEAL BEFORE US. 4 . WE HAVE HEARD THE PARTIES . THE LEARNED COUNSEL SUBMITS THAT THE ISSUES STAND COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CA SE FOR THE A.Y. 2004 - 05 . I N THE A.Y. 2004 - 05, THE LD.CIT - PUNE HAS INITIATED PROCEEDING U/S.263 OF THE INCOME - TAX ACT BY EXERCISING HIS REVISIONAL POWER AND SET ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER. THE TRIBUNAL SET ASIDE THE ORDER OF THE LD. C IT AND DECIDED THE ISSUE IN ASSESSEES FAVOUR O N M ERIT. THE LEARNED COUNSEL FILE A COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO. 630/PN/2009 DATED 25 - 05 - 2012 WHICH IS PLACED ON RECORD . WE HAVE ALSO HEARD THE LD. DR. 5 . WE FIND THAT IN ASSESSEES OWN C ASE FOR THE A.Y. 2004 - 05 T HE ISSUE HAS REACHED BEFORE THE TRIBUNAL AS THE LD.CIT, PUNE BY EXERCISING HIS REVISIONAL JURISDICTION SET ASIDE THE ASSESSMENT ORDER FOR THE A.Y. 2004 - 05 AND THE TRIBUNAL ACCEPTED THE PLEA OF THE ASSESSEE THAT THERE WAS NO ERROR IN THE ASSESSMENT ORDER AND ASSESSMENT ORDER IN THE A.Y.2004 - 05 CANNOT BE SAID TO BE ERRONEOUS. THE TRIBUNAL ALSO SUPPORTED THE ORDER 5 ITA NO.144 0 /PN/2011, NIRMALA NARAYAN LAWATE , NASHIK OF THE ASSESSING OFFICER ON MERIT . THE OPERATIVE PART OF THE ORDER OF THE TRIBUNAL IS AS UNDER: IN THIS BACKGROUND WE MAY NOW EXAMINE THE ERROR SOUGHT TO BE POINTED BY THE COMMISSIONER IN THE INSTANT ASSESSMENT ORDER TO INVOKE SECTION 263 OF THE ACT. OUR DISCUSSION IN THE EARLIER PARAGRAPHS SHOW THAT AS PER THE COMMISSIONER THE COST OF ACQUISITION AS ON 01/04/1981 HAS BE EN WRONGLY ADOPTED BY THE ASSESSEE, WHICH HAS RESULTED IN AN ERRONEOUS ASSESSMENT THAT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. AS PER THE COMMISSIONER, FAIR MARKET VALUE OF LAND AS ON 01/04/1981 IS TO BE ADOPTED AT THE RATE OF RS.125 PER SQ.MTR. I N THIS CONNECTION, WE HAVE PERUSED THE VALUATION REPORT PLACED AT PAGES 44 - 56 OF THE PAPER BOOK. AS PER THE VALUATION REPORT, AS ON 01/04/1981 APART FROM THE LAND, THERE WAS OTHER STRUCTURES ON SUCH LAND WHICH HAVE BEEN ENUMERATED AS CONSTRUCTION, WELL, PI PELINE, PUMP, ETC. THE AFORESAID STRUCTURES ALONGWITH THE LAND 42,100 SQ.MTRS HAS BEEN VALUED AT RS.75,14,7157 - . THE RATE APPLIED TO VALUE THE BARE LAND WAS RS.125 PER SQ.MTR., WHICH CAME TO RS.52,60,500/ - AND THE BALANCE OF RS.22,52,215/ - WAS FOR THE OT HER STRUCTURES EXISTING ON SUCH LAND. IN THE ENTIRE ORDER OF THE COMMISSIONER, THERE IS NO ASSERTION MUCH LESS A FINDING, THAT ELEMENTS OF CONSTRUCTION, PIPELINES, WELL, MOTOR PUMP, ETC. CONSIDER BY THE REGISTERED VALUER WERE NOT IN EXISTENCE ON THE LAND AS ON 01/04/1981. THEREFORE, FAIR MARKET VALUE OF THE LAND AS ON 01/04/1981 FOR THE PURPOSES OF ASCERTAINING THE COST OF ACQUISITION TO COMPUTE CAPITAL GAIN IS TO BE THE FAIR MARKET VALUE OF THE BARE LAND AS WELL THE CONSTRUCTION, PIPELINES, WELL, ETC. THE REON. UNDER THE CIRCUMSTANCES OF THE PRESENT CASE, THE COMMISSIONER WAS WRONG IN TAKING THE FAIR MARKET VALUE ONLY OF THE BARE LAND ALONE. THE FAIR MARKET VALUE OF THE CONSTRUCTION, PIPELINE, WELL MOTOR PUMPS ETC. WAS ALSO TO BE CONSIDERED AND THE SAME IN OUR VIEW, WAS RIGHTLY CONSIDERED BY THE ASSESSEE AND THEREAFTER ACCEPTED IN THE ASSESSMENT ORDER DATED 25/07/2006. THE SECOND POINT MADE BY THE APPELLANT IS THAT EVEN THE ADOPTION OF THE RATE OF RS.125 PER SQ.MTR. FOR THE BARE LAND IS ALSO WRONG. IN THIS CONNECTION, IT IS EVIDENT THAT THE ASSESSEE RECEIVED A TOTAL LAND AREA OF 42100 SQ.MTR. ON PARTITION, WHICH WAS SUBSEQUENTLY CONVERTED INTO STOCK - IN - TRADE IN THE BUSINESS OF LAND DEVELOPMENT. AFTER DEVELOPING THE LAND INTO SMALLER PLOTS, THE TOTAL SALEABLE AREA OR IN OTHER WORDS, THE NET PLOTTED AREA REMAINED 21827.13 SQ.MTR AND THE BALANCE WAS LEFT FOR OPEN SPACE, ROADS, COMMON AMENITIES, ETC. FOR COMPUTATION OF CAPITAL GAINS ON THE SALE OF THE NET PLOTTED AREA, THE COST OF ACQUISITION OF THE ASSET HAS TO BE ASCERTAINED AND IN THIS REGARD, IT IS SEEN THAT THE FAIR MARKET VALUE AS ON 01/04/1981 OF THE LAND AREA 42100 SQ, MTRS. INCLUSIVE OF THE CONSTRUCTION, PUMP, ETC. THEREON IS RS.75.14.715/ - (AND FOR BARE LAND IS RS.52.60.500/ - ). OSTENSIBLY, THE FAIR MARK ET VALUE OF ENTIRE GROSS AREA OF 42100 SQ. MTRS. IS TO BE CONSIDERED TO ASCERTAIN COST OF ACQUISITION FOR THE PURPOSE OF COMPUTING CAPITAL GAINS ON THE SALE OF NET PLOTTED AREA. ACCORDINGLY, THE RATE OF RS.344.28 PER SQ.MTR. CONSIDERED BY THE ASSESSE E AND WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER, DOES NOT REQUIRE ANY INTERFERENCE. QUITE CLEARLY THE FAIR MARKET VALUE OF THE GROSS AREA OF LAND INCLUSIVE OF CONSTRUCTION, ETC. AS ON 01/04/1981 IS RS.75,14,715/ - AND IF THE SAME IS APPLIED TO COMPUT E COST OF ACQUISITION OF THE NET PLOTTED AREA / SALEABLE AREA, THE RATE WOULD BE RS.344.28 PER SQ.MTR . THEREFORE, IN OUR VIEW, HAVING REGARD TO THE FACTS AND MATERIAL ON RECORD THE COST OF 6 ITA NO.144 0 /PN/2011, NIRMALA NARAYAN LAWATE , NASHIK ACQUISITION AS ON 01/04/1981 ADOPTED BY THE ASSESSEE FOR DETERMINA TION OF CAPITAL GAINS CANNOT BE CONSIDERED AS ERRONEOUS SO AS TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT. THUS, THE ORDER OF THE COMMISSIONER IS SET ASIDE AND THAT OF THE ASSESSING OFFICER DATED 25/07/2006 IS RESTORED QUA THE ISSUE RELATING 19 THE DETERMINATION OF LONG TERM CAPITAL GAIN ON SALE OF PLOTS OF LAND. 6 . AS THE TRIBUNAL HAS GIVEN THE DECISION ON MERIT ALSO ON THE ISSUE OF COST OF ACQUISITION / FAIR MARKET VALUE OF THE LAND IN QUESTION AS ON 01 - 04 - 1981, WE DO NOT FIND ANY REASON TO TAKE A DIFFERENT VIEW. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS CONFIRMED ON THE REASONS GIVEN ABOVE. 7 . IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 21 - 0 6 - 20 1 3 S D/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 21 ST JUNE, 20 1 3 COPY TO 1 DEPARTMENT 2 ASSESSEE 3 THE CIT(A) - I, NASHIK 4 THE CIT - I, NASHIK 5 THE DR, ITAT, B BE NCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, PUNE