Appeal details
Counselvise Citation
[2017] 130 COUNSELVISE.COM (IT) 7964 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 5 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-02-2017
Appeal Filed By
Department
Bench Allotted
C
Next Hearing Date
08-02-2017
Assessment Year
2006-2007
Appeal Filed On
21-08-2012
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ' # . $ & ' BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A. NO. 1640/MDS/2012 / ASSESSMENT YEAR : 2006-07 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI - 600 034. VS. M/S. EASWARAN & SONS ENGINEERS LTD, 6TH FLOOR, TEMPLE TOWERS, 672, ANNA SALAI, NANDANAM, CHENNAI - 600 035. [PAN: AAACE 1363P] ( / APPELLANT) ( / RESPONDENT) ) * / APPELLANT BY : SHRI S. SANKARALINGAM, CIT -.) * / RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE * /DATE OF HEARING : 08.02.2017 * /DATE OF PRONOUNCEMENT : 14.02.2017 /O R D E R PER M. BALAGANESH, ACCOUNTANT MEMBER: THIS APPEAL OF THE REVENUE ARISE OUT OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI VID E PROCEEDINGS IN ITA NO. 681/2011-12/A.III DATED 18.05.2012 FOR THE ASSE SSMENT YEAR 2006-07. :-2-: I.T.A. NO. 1640/MDS/2012 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN DELETING THE ADDITION MADE U/S 50C OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE SOLD 3.642 ACRES OF VACANT LAND FOR A SUM OF RS. 2,73,15,000/- AND OFFE RED CAPITAL GAINS THEREON ACCORDINGLY. THE LD AO ADOPTED THE VALUE PRESCRIBE D BY THE STAMP VALUATION AUTHORITY IN TERMS OF SECTION 50C OF THE ACT AT RS. 8,63,82,412/- AND SOUGHT TO REWORK THE LONG TERM CAPITAL GAINS ACCORDINGLY. T HE ASSESSEE IN RESPONSE TO SHOW CAUSE THEREON REPLIED THAT THE SUBJECT MENTION ED LANDS WERE LOCATED AT TIRUVOTTIYUR WHICH IS A SEA SHORE AREA PRONE TO SEA EROSION AND SUBSEQUENT TO TSUNAMI ATTACK ON 26.12.2004, THE MARKET VALUE OF T HE LANDS HAD COME DOWN DRASTICALLY. THERE WERE NOT MANY BUYERS FOR THIS K IND OF LAND AND THE ASSESSEE SOMEHOW MANAGED TO FIND OUT A BUYER AND EF FECT THE SALE FOR A TOTAL SALE CONSIDERATION OF RS. 2,73,15,000/-. HEN CE IT WAS PLEADED THAT THE SAME IS TO BE CONSTRUED ONLY AS A DISTRESS SALE. I T WAS PLEADED THAT THOUGH THE GUIDELINE VALUE FIXED BY THE STAMP VALUATION AU THORITY FOR STAMP DUTY PURPOSES WAS AT RS. 8,63,82,412/-, THE ASSESSEE HAD DISPUTED THE SAME UNDER THE REGISTRATION ACT. HOWEVER, THE LD AO ADOPTED TH E VALUE FIXED BY THE STAMP VALUATION AUTHORITY AND ADOPTED THE SALE CONS IDERATION FIGURE AT RS. 8,63,82,412/- IN TERMS OF SECTION 50 C OF THE ACT A ND REWORKED THE CAPITAL GAINS. BEFORE THE LD CITA, THE ASSESSEE SUBMITTED THAT WHEN THE VALUATION IN TERMS OF SECTION 50C IS DISPUTED BY THE ASSESSEE UN DER THE REGISTRATION ACT :-3-: I.T.A. NO. 1640/MDS/2012 AND THE ASSESSEE DOES NOT CONSIDER THE SAME TO BE T HE FAIR MARKET VALUE, THEN THE LD AO OUGHT TO HAVE REFERRED THE VALUATION OF THE SUBJECT MENTIONED PROPERTY TO DISTRICT VALUATION OFFICER (DVO) FOR AR RIVING AT THE SALE VALUE AND DECIDE THE SALE CONSIDERATION IN ACCORDANCE WITH TH E PROVISIONS OF SECTION 50C(2) OF THE ACT, WHICH WAS NOT DONE BY THE LD AO IN THE INSTANT CASE. THE LD CITA AFTER REITERATING THE PROVISIONS OF SECTION 50C OF THE ACT HELD AS UNDER:- SINCE THE VALUATION HAS BEEN DISPUTED, THE AO CANNO T REFER THE VALUATION OF LAND TO THE VALUATION OFFICER. HENCE, THE CONTENTION OF THE APPELLANT THAT THE AO SHOULD HAVE REFERRED THE MATT ER TO THE DVO CANNOT BE ACCEPTED AND THE SAME IS REJECTED. THE AO IS , HOWEVER, DIRECTED TO ADOPT THE FINAL VALUE AS DECIDED BY THE REGISTERING AUTHORITY AS THE FULL VALUE OF CONSIDERATION FOR THE PURPOSE OF COMPUTING CAPITAL GAIN. 2.2. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 2.2.1 THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSI NG OFFICER TO ADOPT THE GUIDELINE VALUE BASED ON THE FINALISATION OF LI TIGATION BY THE ASSESSEE BEFORE THE REGISTRATION AUTHORITIES ON THE PROPERTY WHICH WAS HELD AS CAPITAL ASSET IN THE BOOKS; 2.2.2 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT AT THE TIME OF RE-ASSESSMENT PROCEEDINGS WHICH WAS DONE IN THIS CASE AFTER A LAPSE OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR, NO EVIDENCE WAS ADDUCED IN SUPPORT OF ITS CLAIM THAT THE VALUE OF STAMP DUTY WAS :-4-: I.T.A. NO. 1640/MDS/2012 BEING DISPUTED AND LITIGATION WAS PENDING BEFORE TH E REGISTRATION AUTHORITIES. 2.2.3 IT IS FURTHER SUBMITTED THAT THE ASSESSEE DID NOT OBJECT TO THE ADOPTION OF GUIDELINE VALUE U/S. 50C BEFORE THE ASS ESSING OFFICER AT THE TIME OF SCRUTINY PROCEEDINGS. 2.3. THE ASSESSEE HAD ALSO PREFERRED A PETITION UN DER RULE 27 OF THE ITAT RULES IN THIS REGARD WHEREIN HE HAD RAISED A GROUND AS BELOW:- 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE AS SESSEE HAVING OBJECTED TO THE ADOPTION OF THE GUIDELINE VALUE, IN VIEW OF THE SPECIAL CIRCUMSTANCES, SHOULD HAVE REFERRED THE MATTER TO T HE DVO FOR VALUATION. 2.4. THE LD DR VEHEMENTLY RELIED ON THE ORDER OF T HE LD AO. IN RESPONSE TO THIS, THE LD AR REITERATED THE FACTS SUBMITTED BEFO RE THE LD CITA. HE FINALLY ARGUED THAT LET THE ISSUE BE DECIDED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 50C(2) OF THE ACT , FOR WHICH , THE LD DR A LSO FAIRLY AGREED BEFORE THE BENCH. 2.5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ISSUE REQUIRES TO BE DECIDED BY REFERRING THE VALUATION OF THE SUBJECT MENTIONED PROPERTY TO DVO IN TERMS OF SECTION 50C(2) OF THE ACT. ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE AND GROUND RAISED :-5-: I.T.A. NO. 1640/MDS/2012 BY THE ASSESSEE IN ITS PETITION UNDER RULE 27 OF TH E ITAT RULES ARE ALLOWED FOR STATISTICAL PURPOSES. 3. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DIRECTING THE LD AO TO ALLOW THE B USINESS LOSS IN THE SUM OF RS. 4,19,71,453/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF HT / LT SWITCH BOARDS, V ACUUM CIRCUIT BREAKERS, ELECTRICAL STAMPINGS, LAMINATIONS AND FABRICATIONS ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD AO OBSERVED THAT THE ASSESSEE SOLD 5.262 ACRES OF LAND SITUATED AT TIRUVOTTIYUR HIGH ROAD, E RNAVOOR VILLAGE, WHICH WAS ORIGINALLY HELD AS CAPITAL ASSET BUT LATER CONVERTE D INTO STOCK IN TRADE DURING THE PREVIOUS YEARS RELEVANT TO ASST YEARS 2000-01 A ND 2002-03. IN THESE TWO ASSESSMENT YEARS, THE NOTIONAL PROFITS ON CONVERSIO N OF CAPITAL ASSETS INTO STOCK IN TRADE WAS REDUCED FROM THE PROFITS FOR INC OME TAX PURPOSES WITH AN OPTION THAT CAPITAL GAINS WOULD BE OFFERED AT THE T IME OF DISPOSAL OF LAND. HE HELD THAT THE FAIR MARKET VALUE OF THE ASSET AS ON THE DATE OF CONVERSION IS TO BE TAKEN AS THE SALE VALUE. THE ASSESSEE SUBMITT ED THAT THE 5.262 ACRES OF LAND , ORIGINALLY HELD AS CAPITAL ASSET, WAS CONVER TED INTO STOCK IN TRADE IN ASST YEARS 2000-01 AND 2002-03 WAS SOLD FOR A CONSIDERA TION OF RS. 3,94,65,000/- DURING THE YEAR UNDER APPEAL. THE FAIR MARKET VALU E AS ON THE DATE OF CONVERSION INTO STOCK IN TRADE WAS TAKEN AT RS. 8,1 4,36,453/-. IT WAS PLEADED :-6-: I.T.A. NO. 1640/MDS/2012 THAT THE ENTIRE AREA IN WHICH THE LAND WAS SITUATED WAS BADLY AFFECTED BY TSUNAMI DURING DECEMBER 2004 AND ALSO SINCE THE SUB JECT MENTIONED LANDS IN THIS AREA WERE PRONE TO SEA EROSION, THE ASSESSEE W ITH LOT OF EFFORTS COULD SELL THE SUBJECT MENTIONED LANDS FOR A TOTAL SUM OF RS. 3,94,65,000/- . IT WAS PLEADED THAT AS THE LAND WAS CONVERTED INTO STOCK I N TRADE, IN ACCORDANCE WITH SECTION 45(2) OF THE ACT, THE ASSESSEE HAD ADOPTED THE FAIR MARKET VALUE AS ON THE DATE OF CONVERSION INTO STOCK I.E RS. 8,14,3 6,453/- AS VALUE OF SALE CONSIDERATION FOR THE PURPOSE OF ARRIVING AT THE CA PITAL GAINS NOTWITHSTANDING THE FACT THAT THE ACTUAL SALE VALUE WAS ONLY RS. 3, 94,65,000/-. THE CAPITAL GAINS OFFERED THEREON WERE DULY OFFERED TO TAX. T HE DIFFERENCE BETWEEN THE FAIR MARKET VALUE AS ON THE DATE OF CONVERSION (WHI CH WAS CONSIDERED AS COST AT THE TIME OF ACTUAL SALE) AND THE ACTUAL SALE CON SIDERATION OF RS. 3,94,65,000/- WAS CLAIMED AS BUSINESS LOSS AMOUNTIN G TO RS. 4,19,71,453/- (8,19,36,453 -3,94,65,000) IN THE RETURN. HOWEVER , THE LD AO DISALLOWED THE SAID BUSINESS LOSS OF RS. 4,19,71,453/- IN THE ASSE SSMENT BY REFERRING TO SECTION 45(2) OF THE ACT STATING THAT THE ASSESSEE HAD NOT CARRIED ON REAL ESTATE BUSINESS DURING THE YEAR UNDER APPEAL. HE O BSERVED THAT THE PROVISIONS OF SECTION 45(2) OF THE ACT MANDATES CAR RYING ON OF BUSINESS BY AN ASSESSEE AND THE RESULTANT GAIN OR LOSS ARISING THE REFROM SHALL BE CONSTRUED AS INCOME FROM BUSINESS. ON THESE OBSERVATIONS, HE DI SALLOWED THE LOSS OF RS. 4,19,71,453/- IN THE ASSESSMENT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. :-7-: I.T.A. NO. 1640/MDS/2012 3.2. BEFORE THE LD CITA, THE ASSESSEE PLEADED THAT THE LD AO HAD ERRONEOUSLY APPLIED THE PROVISIONS OF SECTION 45(2) AND ALSO SECTION 50C OF THE ACT THOUGH THE SAME IS NOT APPLICABLE FOR A BUSINES S ASSET AT THE RELEVANT POINT OF TIME IN THE STATUTE. APART FROM REITERATI NG THE SUBMISSIONS MADE BEFORE THE LD AO AND THE FACTUAL CALCULATIONS OF CA PITAL GAINS AND CLAIM OF BUSINESS LOSS, IT PLACED RELIANCE ON THE DECISION O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS THIRUVENGADAM INVESTMEN TS (P) LTD REPORTED IN 320 ITR 345 (MAD) WHEREIN IT WAS HELD THAT THE PROV ISIONS OF SECTION 50C OF THE ACT WERE NOT APPLICABLE FOR ASSETS HELD AS STOC K IN TRADE. 3.3. THE LD CITA ALLOWED THE CLAIM OF BUSINESS LOSS OF RS. 4,19,71,453/- BY MAKING THE FOLLOWING OBSERVATIONS :- 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ID.AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE ID.AR. THERE IS NO DISPUTE REGARDING THE FACT THAT LAND TO THE EXTENT OF RS. 5.26 ACRES WAS CONVERTED INTO STOCK-I N-TRADE DURING FINANCIAL YEARS 2000-01 AND 2001-02 RELEVANT TO ASS ESSMENT YEARS 2001-02 AND 2002-03. THE SAME WAS SUBSEQUENTLY SOLD DURING THE PRESENT ASSESSMENT YEAR 2006-.07. THE APPELLANT HAS OFFERED LONG TERM CAPITAL GAINS OF RS.7,95,32,256/- AS PER SEC 45(2) AND-CLAIMED BUSINESS LOSS OF RS. 4,19,71,453/- ON ACTUAL SALE OF THE ASS ET (LAND) HELD AS STOCK-IN-TRADE. THE IMPUGNED LAND NO LONGER RETAINE D THE CHARACTER OF CAPITAL ASSET AT THE TIME OF SALE. IT WAS ONLY A ST OCK-IN-TRADE IN THE :-8-: I.T.A. NO. 1640/MDS/2012 HANDS OF THE APPELLANT. THEREFORE, THE PROFIT OR TH E LOSS, AS THE CASE MAY BE, ON SALE OF THE ABOVE LAND HAS TO BE COMPUTE D UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION'. PROVI SIONS OF SEC 50C HAS NO APPLICATION IN RESPECT OF SUCH TRANSACTION. SUB-SEC (2) 'OF SEC 45 COMES INTO OPERATION WHEN THE OWNER OF A CAPITAL ASSET CO NVERTS IT INTO STOCK- IN-TRADE OF A BUSINESS CARRIED ON BY HIM OR TREATS THE CAPITAL ASSET AS STOCK-IN-TRADE. FOR COMPUTATION OF CAPITAL GAINS AN D BUSINESS INCOME ARISING FROM SUCH CONVERSION AND SUBSEQUENT SALE, T HE FOLLOWING ISSUES ARE INVOLVED. (I) CAPITAL GAINS ARISING ON SUCH CONVERSION IS T AXABLE IN THE PREVIOUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS S OLD OR TRANSFERRED AND NOT IN THE YEAR IN WHICH THE CONVER SION TAKES PLACE. SUCH CAPITAL GAIN IS COMPUTED NOTWITHSTANDIN G ANYTHING CONTAINED IN SUB-SEC (1) OF SEC 45. FULL VALUE OF C ONSIDERATION FOR THIS PURPOSE IS THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT. THE COST OF ACQUISITI ON FOR THIS PURPOSE IS COMPUTED AS PER THE NORMAL PROVISIONS CO NTAINED IN SEC 55(2) AND (3). FOR THE PURPOSE OF INDEXATION, T HE YEAR OF CONVERSION IS TO BE TAKEN AS THE YEAR OF TRANSFER O F THE CAPITAL ASSET. THE PERIOD OF HOLDING' RUNS FROM THE DATE OF ACQUISITION OF THE ASSET TO THE DATE OF CONVERSION. (II) FOR THE PURPOSE OF COMPUTATION OF BUSINESS IN COME ARISING FROM SUCH CONVERSION, IT IS TO BE DEALT WITH AS FOL LOWS: BUSINESS INCOME ARISING FROM SALE OF THE CAPITAL ASSET SUBSE QUENT TO THE CONVERSION OR TREATMENT INTO STOCK-IN- TRADE IS TAX ABLE IN THE YEAR IN WHICH SUCH STOCK-IN-TRADE IS SOLD OR TRANSFERRED BY THE ASSESSEE. THE BUSINESS INCOME IS THE DIFFERENCE BET WEEN THE SALE CONSIDERATION ON SALE OF SUCH STOCK-IN-TRADE AND I THE FAIR MARKET :-9-: I.T.A. NO. 1640/MDS/2012 VALUE OF THE ASSET ON THE DATE OF CONVERSION OR TRE ATMENT INTO STOCK-IN-TRADE. IT IS SEEN FROM THE DETAILS INCLUDING THE COMPUTAT ION OF INCOME THAT THE APPELLANT HAS DULY COMPLIED WITH THE PROVI SIONS OF SEC 45(2) AND OFFERED RS.7,95,32,256/- AS LONG- TERM CAPITAL GAIN. IT HAS ALSO DULY COMPUTED THE BUSINESS INCOME WHICH TURNED OUT TO BE A LOSS. MERELY BECAUSE THE RESULT WAS A LOSS, THE SAME CANNOT BE I GNORED. AS STATED EARLIER, PROVISIONS OF SEC 50C HAS NO APPLICATION W HILE DETERMINING BUSINESS INCOME (OR LOSS) IN THIS TYPE OF TRANSACTI ON. THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TH IRUVENGADAM INVESTMENTS P LTD (SUPRA) IS DIRECTLY ON THE ISSUE. THE HON'BLE COURT HAS HELD THAT INVOCATION OF SEC 50C CAN BE MADE IN ORDE R TO FIND OUT TRUE, VALUE OF CAPITAL ASSET; WHERE, HOWEVER, PROPERTY IN HANDS OF ASSESSEE WAS TREATED AS BUSINESS .ASSET AND NOT AS CAPITAL A SSET, THERE WAS NO QUESTION OF INVOKING PROVISIONS OF SECTION 50C. IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE DECISION CITED SUPRA, THE AO IS DIRECTED TO ALLOW THE BUSINESS LOSS OF RS.4, 19,71, 453/- . THE GROUND IS ALLOWED. 3.4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 3.4.1 THE LEARNED CIT(A) ERRED IN ALLOWING THE BUSI NESS LOSS CLAIMED BY THE ASSESSEE AMOUNTING TO RS. 4.19 CRORES WHICH HAS ARISEN OUT OF SALE OF LAND HELD AS STOCK IN TRADE IN THE BOOKS; 3.4.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THE F ACT THAT THE ASSESSEE'S MAIN BUSINESS ACTIVITY ACCORDING TO THE DIRECTOR'S REPORT WAS MANUFACTURE OF SWITCHGEAR PRODUCTS; 3.4.3 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT IN THE DIRECTOR'S REPORT THAT REGARDING THE SALE OF LAND H ELD AS STOCK IN TRADE, :-10-: I.T.A. NO. 1640/MDS/2012 IT WAS MENTIONED AS 'DURING THE YEAR, THE COMPANY H AS SOLD VACANT LAND MEASURING 8.904 ACRES OF ERNAVUR AND THE AMOUN T REALISED HAS BEEN USED TO PAY THE SECURED LOAN'. 3.4.4 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITY IN REAL ESTATE BUSINESS DURING THE PREVIOUS YEAR TO CLAIM THE LOSS ON SALE OF THE ASSET AS BUSINESS LOSS; 3.4.5 IT IS SUBMITTED THAT WHEN THERE WAS NO BUSINE SS ACTIVITY IN THE REAL ESTATE, AND WHEN THERE WAS NO OTHER TRANSACTIO N OTHER THAN THE SALE OF LAND WHICH WAS CONVERTED AS STOCK IN TRADE DURING THE FYS 2000- 01 AND 2002-03, THE LOSS CLAIMED BY THE ASSESSEE ON SALE OF LAND HELD AS STOCK IN TRADE CAN FLAT BE TREATED AS BUSINESS L OSS; 3.4.6 IT IS FURTHER SUBMITTED THAT NO EXPENDITURE INCURRED IN CONNECTION WITH PURCHASE AND SALE OF LAND DURING THE PREVIOUS YEAR WAS DEBITED AND CREDITED IN THE PROFIT AND LOSS ACCOUNT TO SHOW THE FREQUENCY OF TRANSACTIONS IN THE REAL ESTATE BUSINESS; 3.4.7 CONSIDERING THE SCOPE AND POWERS OF THE LEARN ED CIT(A), THE LEARNED CIT(A) OUGHT TO HAVE DISALLOWED THE CLAIM O F BUSINESS LOSS ON SALE OF LAND ADMEASURING 5.463 ACRES ON THE ABOVE G ROUNDS EVEN THOUGH THE ASSESSING OFFICER DID NOT GO INTO THE AS PECT OF BUSINESS ACTIVITY OF THE ASSESSEE IN REAL ESTATE. 3.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. THE FACTS STATED HEREIN ABOVE REMAIN UN DISPUTED ON THE HAPPENING OF VARIOUS TRANSACTIONS AND HENCE THE SAM E ARE NOT REITERATED FOR THE SAKE OF BREVITY. THE DISPUTE IS ONLY ON THE AD OPTION OF CERTAIN FIGURES FOR :-11-: I.T.A. NO. 1640/MDS/2012 THE PURPOSE OF COMPUTATION OF INCOME. THE PROVISIO NS OF THE ACT ARE VERY CLEAR THAT WHEN A CAPITAL ASSET IS CONVERTED INTO S TOCK IN TRADE BY THE ASSESSEE, AS AND WHEN SUCH ASSET IS SOLD BY THE ASS ESSEE (WHICH IS ASST YEAR 2006-07 IN THE INSTANT CASE) , THE GAINS OR LOSSES SHALL BE COMPUTED IN THE FOLLOWING MANNER :- (I) COMPUTATION OF CAPITAL GAINS IN THE YEAR OF TRA NSFER FAIR MARKET VALUE ON THE DATE OF CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE (A) - TO BE TREATED AS SALE CONSIDERATION LESS: COST OF ACQUISITION U/S 55(2) & (3) (B) - TO BE TREATED AS COST DIFFERENCE OF (A) (B) SHALL BE CAPITAL GAINS. IN THE INSTANT CASE, THE ASSESSEE HAD ARRIVED AT TH E CAPITAL GAINS OF RS. 7,95,32,256/- , ON WHICH COMPUTATION, THERE IS NO D ISPUTE AT ALL. (II) COMPUTATION OF BUSINESS INCOME / LOSS IN THE Y EAR OF SALE OF STOCK IN TRADE ACTUAL SALE CONSIDERATION OF STOCK IN TRADE (C) LESS: FAIR MARKET VALUE AS ON THE DATE OF CONVERSIO N (D) DIFFERENCE OF (C ) (D) SHALL BE BUSINESS INCOME O R BUSINESS LOSS. :-12-: I.T.A. NO. 1640/MDS/2012 IN THE INSTANT CASE, SINCE THE SALE CONSIDERATION W AS RS. 3,94,65,000/- WHICH WAS LESS THAN THE FAIR MARKET VALUE ON THE DATE OF CONVERSION OF RS. 8,19,36,453/- , IT HAD RESULTED IN A BUSINESS LOSS OF RS. 4,19,71,453/-. 3.6 WE ALSO AGREE WITH THE FINDINGS OF THE LD CITA THAT THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS THI RUVENGADAM INVESTMENTS (P) LTD REPORTED IN 320 ITR 345 (MAD) WOULD BE SQUA RELY APPLICABLE TO THE FACTS OF THE INSTANT CASE AND THE ANALOGY LAID DOWN THEREON THAT WHEN A STOCK IN TRADE (BUSINESS ASSET) IS SOLD, THE REVENUE CANN OT SUBSTITUTE THE SALE CONSIDERATION FIGURE BY ADOPTING THE VALUE FIXED BY THE STAMP VALUATION AUTHORITIES IN TERMS OF SECTION 50C OF THE ACT. T HE LD DR REITERATED THE FINDINGS OF THE LD AO AND HARPED ON THE POINT THAT UNLESS THE ASSESSEE CARRIES ON THE REAL ESTATE BUSINESS AT THE TIME OF SALE, NO BUSINESS INCOME OR SALE COULD ARISE THEREON. IN RESPONSE TO THIS, THE LD AR REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES APART FROM DRAWIN G THE ATTENTION OF THE BENCH TO THE RELEVANT PORTION OF THE COMPUTATION. WE ARE NOT INCLINED TO ACCEPT THE ARGUMENT OF THE LD DR IN VIEW OF THE FAC T THAT ONCE THE CAPITAL ASSET IS CONVERTED INTO STOCK IN TRADE, IT BECOMES A BUSINESS ASSET AND ACCORDINGLY THE SAID ASSET SHOULD HAVE TO BE CONSTR UED ONLY AS A RESULT OF BUSINESS. WE FIND THAT THE REVENUE HAD NOT DISTURB ED THE FACTUM OF CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE. I NFACT THE ASSESSEE HAD EVEN REFLECTED THE PURPORTED CAPITAL GAINS THAT MIGHT AR ISE IN THE YEAR OF ACTUAL SALE IN THE MEMO OF INCOME FOR ASST YEARS 2000-01 AND 20 02-03 DULY REFLECTING :-13-: I.T.A. NO. 1640/MDS/2012 THE FUTURE CAPITAL GAINS TO BE PAYABLE BY THE ASSES SEE IN THE YEAR OF ACTUAL SALE. THIS ASPECT HAS NOT BEEN DISPUTED BY THE REV ENUE. HENCE WITHOUT DISPUTING THE CONVERSION OF CAPITAL ASSET INTO STOC K IN TRADE, BASIS OF CONVERSION IN THE YEAR OF CONVERSION AND FAIR MARKE T VALUE ON THE DATE OF CONVERSION IN THE YEAR OF CONVERSION, THERE IS NO C ASE MADE OUT BY THE REVENUE BEFORE US TO REFUTE THE FINDINGS OF THE LD AO. IN OUR CONSIDERED OPINION, THE ASSESSEE HAD GIVEN PROPER EXPLANATION FOR HAVING REDUCED SALE CONSIDERATION IN THE SUBJECT MENTIONED LOCALITY DUE TO TSUNAMI IN DECEMBER 2004. IT IS COMMON KNOWLEDGE THAT THE PROPERTIES N EAR THE SEA SHORE WERE AFFECTED AND THE REAL ESTATE MARKET THEREON FELL DO WN DRASTICALLY AND THERE WERE NO PROSPECTIVE BUYERS IN THE SAID LOCALITY FOR THE SAID LANDS. HENCE WE HOLD THAT THERE IS NO MALAFIDE INTENTION ON THE PAR T OF THE ASSESSEE IN REPORTING A LESSER SALE CONSIDERATION WHICH INCIDEN TALLY RESULTED IN A BUSINESS LOSS. THE BUSINESS LOSS HAD ARISEN DUE TO BONAFIDE REASONS WHICH WAS BEYOND THE CONTROL OF THE ASSESSEE. WE ALSO FIND THAT THE CAPITAL GAINS OFFERED BY THE ASSESSEE IN THE SUM OF RS. 7,95,32,256/- HAS NO T BEEN DISPUTED BY THE REVENUE. 3.7 IN VIEW OF THE SPECIFIC PROVISIONS OF THE ACT A S STATED SUPRA AND IN VIEW OF OUR SPECIFIC FINDINGS IN THE FACTS AND CIRCUMSTA NCES OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CITA IN T HIS REGARD. ACCORDINGLY, THE GROUNDS 2 TO 2.5 RAISED BY THE REVENUE ARE DISMISSE D. :-14-: I.T.A. NO. 1640/MDS/2012 4. WITH REGARD TO THE OTHER GROUNDS RAISED (OTHER THAN GROUND 3) IN THE RULE 27 PETITION BY THE ASSESSEE, THE LD AR DURING THE COURSE OF HEARING STATED THAT HE IS NOT PRESSING THE SAME. ACCORDING LY THE GROUNDS IN RULE 27 (OTHER THAN GROUND 3 WHICH HAS ALREADY BEEN INDEPEN DENTLY ADJUDICATED ELSEWHERE IN THIS ORDER) ARE DISMISSED AS NOT PRESS ED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND GROUND NO. 3 OF ASSESSEE RAISED IN PET ITION UNDER RULE 27 OF THE ITAT RULES IS ALLOWED FOR STATISTICAL PURPOSES AND OTHER GROUNDS IN RULE 27 PETITION ARE DISMISSED AS NOT PRESSED. ORDER PRONOUNCED ON TUESDAY, THE 14TH DAY OF FEBRUA RY, 2017 AT CHENNAI. SD/ - ( ' # . $ ) (DUVVURU RL REDDY) /JUDICIAL MEMBER SD/ - ( ) (M. BALAGANESH) / ACCOUNTANT MEMBER /CHENNAI, 3 /DATED: 14TH FEBRUARY, 2017 JPV * -&45 65 /COPY TO: 1. ) APPELLANT 2. -.) /RESPONDENT 3. 7 ( )/CIT(A) 4. 7 /CIT 5. 5 -&& /DR 6. 9 /GF
