Medasani Kamal, Vijayawada V. The Income Tax Officer, Ward-2(2), Vijayawada

ITA 150/VIZ/2020

AI Insights

The case involves Medasani Kamal, who appealed against the order of the Commissioner of Income Tax (Appeals)-2, Guntur, which arose from the assessment year 2014-15. The primary issues in the appeal were the valuation of capital gains and the eligibility for deductions under sections 54B and 54F of the Income Tax Act, 1961. The assessee had converted ancestral agricultural land into stock in trade and claimed deductions for the same. The Assessing Officer had rejected some of these claims and assessed higher capital gains, which led to the appeal. The Tribunal's decision addressed the discrepancies in property valuation and the lack of evidence for agricultural activities, while also considering the development expenses claimed by the assessee.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 128519 (ITAT-VISAKHAPATNAM)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 11-10-2022
• Assessment Year: misc
• Appeal Filed On: 29-12-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset converted into stock in trade; Business income; Fair market value; Capital Gains
• Section: 45(2); 143(3); 54B; 54F; 142(1); 143(1); 143(2)

Judgement Text

आयकर अपीलȣयअͬधकरण, ͪवशाखापटणम पीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įी दुåवूǽ आर एल रेɬडी, ÛयाǓयक सदèय एवं Įी एस बालाकृçणन, लेखा सदèय के सम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./ I.T.A. No.150/VIZ/2020 (Ǔनधा[रण वष[ / Assessment Year :2014-15) Medasani Kamal, Vijayawada. PAN: BNJPK 8978 C Vs. Income Tax Officer, Ward-2(2), Vijayawada. (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) अपीलाथȸ कȧ ओर से/ Appellant by : Sri GVN Hari, Advocate Ĥ×याथȸ कȧ ओर से / Respondent by : Sri ON Hari Prasada Rao, Sr. AR सुनवाई कȧ तारȣख / Date of Hearing : 12/10/2022 घोषणा कȧ तारȣख/Date of Pronouncement : 16/11/2022 O R D E R PER S. BALAKRISHNAN, Accountant Member : This appeal filed by the assessee is against the order of the Learned Commissioner of Income Tax (Appeals)-2, Guntur [Ld. CIT(A)] in appeal No. 540/GNT/CIT(A)-2/2016-17, dated 26/02/2020 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 [the Act] for the AY 2014-15. 2 2. Brief facts of the case are that the assessee an individual e- filed his return of income for the AY 2014-15 admitting a total income of Rs. 29,94,110/- on 1/4/2015. The return was summarily processed U/s. 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS and statutory notices U/s. 143(2) and 142(1) of the Act were issued and served on the assessee. In response to the notices, the assessee’s representative furnished the information as called for by the Ld. AO from time to time. The assessee was asked to produce Form- 26AS and books of account and copies of bank statements, purchase and sale deed copies of property etc., which the assessee filed on 14/12/2016. The assessee’s Representative in his reply stated that during the FY 2013-14 the assessee has converted his ancestral land admeasuring 1.885 Acres to stock in trade and created 23 plots for sale. The assessee’s Representative also submitted that the above said property of agricultural land was acquired by the assessee through a partition deed by the HUF dated 3/7/2006 vide registered document no. 3644/2006. The assessee adopted Rs. 90 lakhs per acre including the conversion cost and considered it as cost of purchase and claimed cost of acquisition accordingly. During the assessment proceedings, the assessee was asked to produce 3 the SRO value at the time of conversion of capital asset into stock in trade. The assessee produced a certificate from SRO, Pattamata dated 14/12/2016 that the market value of the property as on 12/5/2013 was Rs. 35 lakhs per acre. However, the Ld. AR submitted that the assessee has taken the market value which is higher than the SRO value and has also claimed deduction U/s. 54B and 54F of the Act. The Ld. AO issued a show cause notice on 16/12/2016 and the assessee filed his reply on 19/12/2106 before the Ld. AO. The Ld. AO considering the submissions made by the assessee’s representative found that the assessee has not furnished any agricultural income during the earlier periods in order to claim deduction U/s. 54B of the Act and therefore rejected the claim made by the assessee U/s. 54B of the Act. Further, the Ld. AO also adopted the SRO value of Rs. 35 lakhs and computed the capital gains accordingly. Further, the Ld. AO also disallowed certain development expenses and assessed the business income at Rs. 68,95,888/-. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). Before Ld. CIT(A), the assessee’s Representative submitted that the assessee was carrying on agricultural activities on “Metta” lands during the earlier two years and hence pleaded that the deduction U/s. 54B shall be allowed to the 4 assessee. The Ld. CIT(A) provided various opportunities to the assessee but the assessee appeared only on 1/3/2019 and filed written submissions, copies of market value and VUDA approved plan before the Ld. CIT(A). Considering the submissions made by the assessee’s Representative, the Ld. CIT(A) partly allowed the appeal. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 3. The assessee has raised the following grounds of appeal: “1. The order of the Ld. CIT(A), Vij ayawada is not based on facts and circumstances of the case and the weight of the evidence submitte d to him. 2. The Ld. CIT(A), Vij ayawada erred in stating that the Ld. AO is right in assessing the l ong capital gains and business income in individual cap aci ty, though assessee produced evidence of Regd. HUF parti tion Deed, and cl aimed HUF status in vie w of the facts submitte d to him. 3. The Ld. CIT(A) erred in rejecting sectio n 54B deduction of the appell ant on the ground that the Ld. AO is right in observing that the Agrl . Income is not admi tte d, as proof of cul tivation. 4. The Ld. AO h as erre d in res tricting th e 54F exemption to the purchased cost of ne w house and denying the addi tional repai rs and renov ations cost. 5. The Ld. CIT(A) erred in not appreci ating the fact th at the sq. yard rate FMV has to be adopte d as per sec. 45(2) and not SRO v al ue adopted by the AO an d concurring wi th the Ld. AO adopte d per acre rate as FMV. 6. The Ld. CIT(A) erred in dis al l owi ng 20% of l and devel opment expenses ass part of business expenses partl y concurring with the Ld. AO. 5 7. Any other ground may be urged wi th the kind permission of the Hon’bl e Tribunal at the ti me of heari ng.” 4. Grounds No. 1 & 7 are general in nature and need no adjudication. 5. With respect to Grounds No. 2 and 5, the Ld. Authorized Representative [Ld. AR] argued that the assessee has taken the fair market value [FMV] at Rs. 90 lakhs per acre and has computed the cost of acquisition of the property. The Ld. AR further submitted that the value given by the SRO is for the purpose of stamp duty calculation. The Ld. AR further submitted that since the assessee has sold the plots at Rs 4500/- per sq. yd the subsequent sale price determining the FMV shall be a guiding factor for the purpose of cost of acquisition. The Ld. AR therefore pleaded that the assessee has rightly adopted Rs. 3000 per sq yd as cost of acquisition based on the prevailing market value. The Ld. AR pleaded that the order of the Ld. Revenue Authorities be quashed. The Ld. DR relied on the orders of the Ld. Revenue Authorities. 6. We find from the submission of the Ld. AR that the SRO has provided Rs. 35 lakhs per acre which can be utilized for the purpose of calculating the stamp duty valuation of the said 6 agricultural lands. However, it cannot be considered as a FMV as on 12/5/2013. Similarly the FMV adopted by the assessee at Rs. 90 lakhs per acre also is on the higher side and there cannot be such huge difference between the FMV adopted by the assessee and the SRO value. The Ld. AR also failed to provide any basis for adopting Rs. 90 lakhs per acre as market value. Considering the peculiar circumstances, we are of the considered view that the market value can be estimated at Rs. 60 lakhs per acre and accordingly, the Ld. AO is directed to compute the capital gains for the impugned assessment year. Thus, the grounds no. 2 and 5 raised by the assessee are partly allowed. 7. Ground No.3 is with respect to deduction U/s. 54B of the Act where the assessee has claimed deduction U/s. 54B but has failed to produce the evidence carrying of agricultural activities on the said agricultural lands. The Ld. AO has simply rejected the deduction claimed U/s. 54B of the Act by merely stating that it is a “Metta” land. The Ld. AR submitted that even in the Dry Lands, agricultural activities were carried on and was disclosed while filing the return as a HUF. Therefore, the Ld. AR pleaded that the deduction U/s. 54B shall be allowed to the assessee. 7 Per contra, the Ld. DR relied on the order of the Ld. Revenue Authorities. 8. We find from the submissions made by the Ld. AR that the assessee failed to produce details with respect to admission of agricultural income in the earlier years while filing the returns of income. The assessee also failed to produce before us regarding the crops raised, yielding etc., to substantiate the claim U/s. 54B of the Act. The Ld. CIT(A) in his findings has held as follows: “5.3. Ground No.3 is related to denial of exemption clai med U/s. 54B of the IT Act. The appellant converted the said land received through partition deed into stock in trade during the FY 2013-14. The appellant has not offered any agricultural income in the return of income f or the AY 2013-14 and 2014-15 and in the Pattadar pass book the maximum land mentioned as ‘metta’ which means the agricultural operation very limited in these lands and the agricultural income would be meager if at all they were cultivated. The appellant also f ailed to produce certif icate f rom Tahsildar Office showing the crops raised, yield etc., and sale patties showing the sale of agricultural produce. Even during appeal proceedings also the appellant f ailed to produce these details. Though number of opportunities were given by issuing notices as mentioned supra. As there was no agricultural activity in the said lands, the AO is correct in his action denying the exe mption U/s. 54B as claimed by the appellant. Ground no.3 is adjudicated.” 9. We therefore are in concurrence with the findings of the Ld. CIT(A) as no evidences have been produced even before us. Accordingly, we are of the considered view that there is no infirmity in the order of the Ld.CIT(A) and no interference is 8 required on this issue. Thus, the Ground No.3 raised by the assessee is dismissed. 10. With respect to Ground No.4 raised by the assessee regarding the claiming of deduction u/s. 54F of the Act, the Ld. AR argued that the assessee has purchased a residential property and has incurred certain expenditure for renovation. The Ld. AR also submitted that the proof of expenditure was also provided before the Ld. AO. He therefore pleaded that the deduction claimed U/s. 54F be allowed. The Ld. DR relied on the order of the Ld. Revenue Authorities. 11. We find from the written submissions and the paper book submitted by the Ld. AR that the assessee has claimed renovation expenses amounting to Rs. 5,25,390/- which were mostly though self-made vouchers. No cogent evidences are provided before us or before the Ld. Revenue Authorities. In the absence of any material evidence, we find no infirmity in the order of the Ld. CIT (A) and hence no interference is required on this ground. Thus, this Ground No.4 raised by the assessee is dismissed. 9 12. With respect to Ground No.6 regarding restriction of land development expenses, the Ld. AR argued that the details of expenses for the purpose of development to the extent of Rs. 70,33,400/- were submitted during the assessment proceedings. However, the Ld. AO has not considered the same and has disallowed 2/3 rd of expenses claimed. The Ld. AR further submitted that the Ld. CIT(A) restricted the disallowances to 20% of the expenses of Rs. 70,33,400/- in the absence of any evidences. The Ld. AR pleaded that the assessee has incurred various expenses for laying internal roads, electricity supply etc., without which the plots cannot be sold and therefore prayed for upholding the disallowance made by the Ld. CIT(A). The Ld. DR relied on the order of the Ld. Revenue Authorities. 13. After hearing both the sides and on perusal of the orders of the Ld. Revenue Authorities, we find it relevant to extract the findings of the Ld. CIT(A) on this issue which are placed at para 5.5 of the CIT(A)’s order at page which reads as under: “5.5. Ground no.5 is related to disallowance of development expenses f or want of evidence. The appellant claimed that she has spent development expenses to the extent of Rs. 70,33,400/- to develop the said plots. The assessee did not produce bills, vouchers, 10 evidences to support his claim during the assessment proceedings and the AO disallowed 2/3 rd of the expenses clai med. The appellant f ailed to produce supporting evidence even during appeal proceedings bef ore me. It is also a f act that unless the plot is developed by laying internal roads, electricity supply etc., the plot cannot be sold. Considering these expenses, I direct the AO to restrict the disallowance to 20% of Rs. 70,33,400/- f or want of evidence such as bills, vouchers, etc. Ground no. 5 is adjudicated.” 14. We find that the Ld. CIT(A) has reasonably considered the disallowance of expenses to the extent of 20% of the total expenses of Rs. 70,33,400/- in the absence of any cogent evidences such as bills, vouchers etc., not produced by the assessee either before the Ld. Revenue Authorities or before us. We are therefore inclined to uphold the order of the Ld. CIT(A) on this issue. Thus, this ground No.6 raised by the assessee is dismissed. 15. In the result, appeal of the assessee is partly allowed. Pronounced in the open Court on the 16 th November, 2022. Sd/- Sd/- (दुåवूǽ आर.एल रेɬडी) (एस बालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखा सदèय/ACCOUNTANT MEMBER Dated :16.11.2022 OKK - SPS 11 आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee – Medasani Kamal, D.No. 40-1-16 & 117, KBR Heights Chandramoulipuram, MG Road, Vijayawada, Andhra Pradesh. 2. राजèव/The Revenue – Income Tax Officer, Ward-2(2), CR Buildings, 1 st Floor, Annex, MG Road, Vijayawada, Andhra Pradesh – 520002. 3. The Principal Commissioner of Income Tax-2, Vijayawada. 4. आयकर आयुÈत (अपील)/ The Commissioner of Income Tax (Appeals)-2, Guntur. 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, ͪवशाखापटणम/ DR, ITAT, Visakhapatnam 6. गाड[ फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam