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

ITA 1441/PUN/2011

• Counselvise Citation: 144124514 RSA 2011
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2013
• 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
• Department Lawyers: RAIV HARITT
• Keywords: Business income; Business expenditure; Cost of acquisition; Date of conversion; Fair market value; Valuation report; Revenue expenditure
• Section: 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.1441/PN/2011 ASSESSMENT YEAR : 2006 - 07 INCOME-TAX OFFICER, WARD-1(3), NASHIK VS. LAWATE RAJENDRA NARAYAN, (HUF) 86, LAWATE NAGAR, SAMBHAJI CHOWK, NASHIK (APPELLANT) (RESPONDENT) PAN NO. AABHL0991C APPELLANT BY: SHRI RAIV HARITT RESPONDENT BY: SHRI NIKHIL PATHAK ORDER PER R.S. PADVEKAR, JM: THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGN ED ORDER OF THE LD.CIT(A)-I, NASHIK DATED 12-09-2011 FOR THE A.Y. 2006-07. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE HONOURABLE CIT(A) ERRED BY THE HOLDING THAT THE ASSESSEE HAS SOLD THE NET PLOTTED AREA AND NOT THE GROSS AREA OF THE LAND THER EFORE THE UNSALEABLE AREA IS TO BE EXCLUDED FOR DETERMINING THE CAPIT AL GAINS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE HONOURABLE CIT(A) FAILED TO APPRECIATE THE FACT THAT AS PER INFO RMATION AVAILABLE ON RECORD ASSESSEE HAD FIRST CONVERTED THE GROSS LA ND AS STOCK IN TRADE AND LATER DEVELOPED AND CONVERTED IT INTO PLOTS . THUS, THE DIFFERENCE BETWEEN THE VALUE OF THE GROSS LAND AS ON 1/4/81 AND THE VALUE OF THE LAND AS ON THE DATE OF CONVERSION O F THE SAME INTO STOCK IN TRADE IS TAXABLE UNDER THE HEAD LONG TERM C APITAL GAINS. THE CIT(A) ERRED BY DIRECTING THE A.O. TO ADOPT THE VA LUE OF THE NET SALEABLE LAND AS ON 1/4/81 TO WORK OUT THE INCOME UND ER THE HEAD LTCG WITHOUT APPRECIATING THE FACT THAT THE LOSS/COST IN RESPECT OF THE UNSALEABLE LAND IS A BUSINESS EXPENDITURE/COST WH ICH THE ASSESSEE HAS ALREADY LOADED ON THE COST OF THE SALEABLE PART OF THE LAND WHILE WORKING OUT THE BUSINESS INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE HONOURABLE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE COST/AMO UNT IN RESPECT OF THE UNSALEABLE LAND IS A NOTIONAL REVENUE EXPENDITURE OF THE LAND DEVELOPMENT BUSINESS ACTIVITY AND THIS COST IS LOADE D BY ASSESSEE 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 O F THE COST OF THE UNSALEABLE LAND TWICE, ONCE WHILE COMPUTING THE INCOME UNDER THE HEAD LTCG AND THE OTHER WHILE WORKING OUT THE BUSINESS IN COME. 2 ITA NO.1441/PN/2011, LAWATE RAJENDRA NARAYAN, NASHI K 2. THE FACTS WHICH REVEALED FROM THE RECORD ARE AS UNDE R. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT. ON THE PARTITION OF THE BIGGER HUF OF SADASHIV KASHINATH LAWATE IN THE YEAR 1970, THE ASSESSEE GOT THE LANDS AT SURVEY NO. 748 + 7 48/A/1 AND SURVEY NO. 749. THE PART OF THE SAID LAND WAS CONVERTED BY THE ASSESSEE INTO STOCK IN TRADE ON 01-02-2001 AND THE ASSESSEE ST ARTED SELLING THE LAND AFTER DOING PLOTTING. THE CORE ISSUE IN CONTROVERSY IS IN RESPECT OF THE FAIR MARKET VALUE ADOPTED BY THE ASSESSEE AS A COS T OF ACQUISITION AS ON 01-04-1981. THE TOTAL AREA OF THE LAND WAS 42100 SQ . MTRS. AND AS PER THE VALUATION REPORT OF THE ASSESSEE, RATE PER SQ. MTR. OF THE LAND WAS RS.125/- AND TOTAL VALUE OF THE SAID LAND, IS INCLUDING THE VA LUE OF THE CONSTRUCTION AND PIPELINE ETC. WAS WORKED OUT BY THE REG ISTERED VALUER AT RS.75,14,715/-. AS PER THE VALUERS REPORT GROSS RAT E PER SQ. MTR. AS ON 01-04-1981 WAS RS.178.50/- PER SQ. MTRS. THE ASSESSEE CLAIME D THAT AFTER THE PLOTTING WAS DONE, HE HAD TO KEEP THE OPEN SP ACE AS WELL AS AREA WAS ALSO OCCUPIED FOR INTERNAL LOADS TO THE EXTENT O F 20,272 SQ. MTR. AND NET AREA AVAILABLE FOR THE SALE WAS ONLY 21,827 SQ. MTRS. THE ASSESSEE, THEREFORE, DIVIDED TOTAL VALUE OF THE AGRICULTURE LA ND I.E. RS.75,14,715/- 21,827 SQ. MTRS. AND WORKED OUT THE MARKET VALUE FOR THE SALEABLE PLOT AS ON 01-04-1981 AT RS.344.28 PER SQ. MTR. 2.1 THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE AS SESSEE AND HE ADOPTED THE COST OF ACQUISITION OF THE SAID LAND AS ON 01-04-1981 AT RS.125/- PER SQ. MTR. AS DETERMINED BY THE REGISTERED VALUER AND ACCORDINGLY WORKED OUT LONG TERM CAPITAL GAIN. THE ASSE SSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE LD .CIT(A) AND THE LD.CIT(A) DIRECTED THE ASSESSING OFFICER TO WORK OUT T HE CAPITAL GAIN BY ADOPTING THE COST OF THE LAND AS ON 01-04-1981 AT R S.344.28 PER SQ. MTR. NOW THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE LEARNED COUNSEL SUBMITS THAT THE ISSUES STAND COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FO R THE A.Y. 2004- 05. IN THE A.Y. 2004-05, THE LD.CIT-PUNE HAS INITIATED PR OCEEDING 3 ITA NO.1441/PN/2011, LAWATE RAJENDRA NARAYAN, NASHI K U/S.263 OF THE INCOME-TAX ACT BY EXERCISING HIS REVISIONA L POWER AND SET ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER. THE TRIB UNAL SET ASIDE THE ORDER OF THE LD. CIT AND DECIDED THE ISSUE IN ASSES SEES FAVOUR ON MERIT. THE LEARNED COUNSEL FILE A COPY OF THE ORDER OF TH E TRIBUNAL IN ITA NO. 630/PN/2009 DATED 25-05-2012 WHICH IS PLACED ON RECORD. WE HAVE ALSO HEARD THE LD. DR. 4. WE FIND THAT IN ASSESSEES OWN CASE FOR THE A.Y. 2004- 05 THE ISSUE HAS REACHED BEFORE THE TRIBUNAL AS THE LD.CIT, PUNE B Y EXERCISING HIS REVISIONAL JURISDICTION SET ASIDE THE ASSESSMENT ORDER FOR THE A.Y. 2004- 05 AND THE TRIBUNAL ACCEPTED THE PLEA OF THE ASSESSEE T HAT 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 SUPPO RTED THE ORDER OF THE ASSESSING OFFICER ON MERIT. THE OPERATIVE PART OF TH E ORDER OF THE TRIBUNAL IS AS UNDER: IN THIS BACKGROUND WE MAY NOW EXAMINE THE ERROR SO UGHT TO BE POINTED BY THE COMMISSIONER IN THE INSTANT ASSESSME NT ORDER TO INVOKE SECTION 263 OF THE ACT. OUR DISCUSSION IN THE EARLI ER PARAGRAPHS SHOW THAT AS PER THE COMMISSIONER THE COST OF ACQUISITIO N AS ON 01/04/1981 HAS BEEN 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. IN THIS CONNECTION, WE HAVE PERUSED THE VALUATION REPORT PLAC ED AT PAGES 44-56 OF THE PAPER BOOK. AS PER THE VALUATION REPOR T, AS ON 01/04/1981 APART FROM THE LAND, THERE WAS OTHER STR UCTURES ON SUCH LAND WHICH HAVE BEEN ENUMERATED AS CONSTRUCTION, WELL, PIPELINE, 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 OTHER STRUCTURES EXISTING ON SUCH LAND. IN THE ENTIRE ORDER OF THE COMMISSIONER, THERE IS NO ASSERTION MUCH LESS A FINDI NG, 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 T HE COST OF ACQUISITION TO COMPUTE CAPITAL GAIN IS TO BE THE FA IR MARKET VALUE OF THE BARE LAND AS WELL THE CONSTRUCTION, PIPELINES, WELL, ETC. THEREON. UNDER THE CIRCUMSTANCES OF THE PRESENT CASE, THE CO MMISSIONER WAS WRONG IN TAKING THE FAIR MARKET VALUE ONLY OF T HE BARE LAND ALONE. THE FAIR MARKET VALUE OF THE CONSTRUCTION, P IPELINE, WELL MOTOR PUMPS ETC. WAS ALSO TO BE CONSIDERED AND THE SAME IN OUR VIEW, WAS RIGHTLY CONSIDERED BY THE ASSESSEE AND TH EREAFTER 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 4 ITA NO.1441/PN/2011, LAWATE RAJENDRA NARAYAN, NASHI K AREA OF 42100 SQ.MTR. ON PARTITION, WHICH WAS SUBSE QUENTLY CONVERTED INTO STOCK-IN-TRADE IN THE BUSINESS OF LA ND 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, COM MON AMENITIES, ETC. FOR COMPUTATION OF CAPITAL GAINS ON THE SALE OF THE NET PLOTTED AREA, THE COST OF ACQUISITION OF THE AS SET 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 MARKET VALUE OF ENTIRE GROSS AREA OF 42100 SQ. MTRS. IS TO BE CONSI DERED TO ASCERTAIN COST OF ACQUISITION FOR THE PURPOSE OF COMPUTING CA PITAL GAINS ON THE SALE OF NET PLOTTED AREA. ACCORDINGLY, THE RATE O F RS.344.28 PER SQ.MTR. CONSIDERED BY THE ASSESSEE AND WHICH HAS BEEN ACCEP TED BY THE ASSESSING OFFICER, DOES NOT REQUIRE ANY INTERFE RENCE. QUITE CLEARLY THE FAIR MARKET VALUE OF THE GROSS AREA OF LAND INC LUSIVE OF CONSTRUCTION, ETC. AS ON 01/04/1981 IS RS.75,14,715/- AND IF THE SAME IS APPLIED TO COMPUTE 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 T HE COST OF ACQUISITION AS ON 01/04/1981 ADOPTED BY THE ASSESSE E FOR DETERMINATION OF CAPITAL GAINS CANNOT BE CONSIDERED AS ERRONEOUS SO AS TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN T HE 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 TER M CAPITAL GAIN ON SALE OF PLOTS OF LAND. 5. AS THE TRIBUNAL HAS GIVEN THE DECISION ON MERIT ALSO O N THE ISSUE OF COST OF ACQUISITION FAIR MARKET VALUE OF THE LAND IN QUESTIO N AS ON 01- 04-1981, WE DO NOT FIND ANY REASON TO TAKE A DIFFERENT V IEW. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS CONFIRMED ON THE REASONS GIVEN ABOVE. 6. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 05.04.2013 SD/- SD/- (G.S. PANNU) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER RK/PS PUNE, DATED: 05 TH APRIL, 2013 COPY TO 1 DEPARTMENT 2 ASSESSEE 3 THE CIT(A) - I, NASHIK 4 THE CIT - I, NASHIK 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, PUNE