DCIT, Cent. Circle-2(4), Hyderabad, Hyderabad V. Y. Girina Rani, Hyderabad, Hyderabad

ITA 165/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2417 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 02-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: MD AFZAL
• Keywords: Capital asset; Business income; Search and seizure
• Section: 45(2); 142(1); 132

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 165/HYD/2017 ASSESSMENT YEAR: 2013-14 DY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(4), HYDERABAD. VS. SMT Y. GIRIJA RANI, HYDERABAD. PAN AALPR2679F (APPELLANT) (RESPONDENT) REVENUE BY : SHRI PATHLAVATH PEERYA ASSESSEE BY : SHRI MD. AFZAL DATE OF HEARING : 02-11-2017 DATE OF PRONOUNCEMENT : 15-11-2017 ORDER PER P. MADHAVI DEVI, J.M.: IN THIS APPEAL, THE REVENUE IS AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A)-12, HYDERABAD DATED 29-09-2016. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION MADE UNDER THE HEAD BUSINESS INCOME OF RS.15,11,49,600/- 2. THE CIT (A) OUGHT TO HAVE RECOGNIZED THAT IT IS A CASE OF CAPITAL CONTRIBUTION BY THE ASSESSEE IN THE FORM OF LAND AND THE DEVELOPER WOULD CONTRIBUTE THE CAPITAL IN THE SHAPE OF COST OF CONSTRUCTION (RESIDENTIAL APARTMENT) AND THUS, IT WOULD BE BUSINESS INCOME IN THE HANDS OF THE ASSESSEE. 3. THE CIT(A) OUGHT TO HAVE RECOGNIZED THAT THE TRANSFER OF STOCK IN TRADE OF THE ASSESSEE TO THE DEVELOPER IS A COMMERCIAL TRANSACTION FOR A COMMERCIAL PROJECT FOR WHICH THE ASSESSEE GIVEN RIGHT TO THE DEVELOPER WHICH DIRECTLY GIVES RISE TO BUSINESS INCOME ON ACCRUAL BASIS AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 2 ITA NO. 165/HYD/2017 SMT. Y. GIRIJA RANI, HYDERABAD. 4. THE CIT(A) DID NOT CONSIDER THE FACT THAT THE ASSESSEE CAN NO LONGER EXERCISE ANY RIGHTS ON THE LAND AS SHE HAS ENTERED INTO A DEVELOPMENT AGREEMENT. 5. THE CIT(A) HAS ERRED IGNORING THE FACTS THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND RECEIVED A SUM OF RS. 1.5 CRORES AS A SECURITY DEPOSIT AND THEREBY THE ASSESSEE IS REQUIRED TO OFFER THE BUSINESS INCOME FOR THE YEAR UNDER CONSIDERATION. 6. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 7. THE APPELLANT PRAYS THAT ANY OTHER GROUND(S) THAT MY URGED AT THE TIME OF HEARING. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL, ORIGINALLY FILED HER RETURN OF INCOME FOR THE A.Y 2013-14 ON 30-07-2013 ADMITTING TOTAL INCOME OF RS. 15,92,970/-. THERE WAS A SEARCH AND SEIZURE OPERATION U/S 132 OF THE IT ACT IN THE CASE OF M/S. RAMKY ESTATES & FARMS LTD., ON 07-02-2013, DURING THE COURSE WHICH, A DEVELOPMENT AGREEMENT-CUM-GENERAL POWER OF ATTORNEY DATED 10-05-2012, (BETWEEN THE ASSESSEE AND THE COMPANY) WAS FOUND AND SEIZED. THEREFORE, THE RETURN WAS TAKEN UP FOR SCRUTINY BY ISSUING THE NECESSARY NOTICES U/SS 143(2) AND 142(1) OF THE IT ACT. 3. THE A.O NOTICED THAT THE ASSESSEE HAS ENTERED INTO AN AGREEMENT FOR DEVELOPMENT / CONSTRUCTION OF VILLAS BY M/S. RAMKY ESTATES & FARMS LTD., ON THE LAND ADMEASURING AC 5-00 GUNTAS COMPRISING AN EXTENT OF AC 3-20 GUNTAS IN SY. NO. 176 AND EXTENT OF AC. 1-20 GUNTAS IN SY. NO. 179 OF NARASINGI VILLAGE OF RAJENDRANAGAR MANDAL, RANGA REDDY DISTRICT. HE OBSERVED THAT VARIOUS CLAUSES OF THE AGREEMENT CLEARLY SHOW THAT THE ASSESSEE HAS TRANSFERRED 3 ITA NO. 165/HYD/2017 SMT. Y. GIRIJA RANI, HYDERABAD. THE STOCK-IN-TRADE FOR DEVELOPMENT IN LIEU OF 30.36% OF TOTAL SALEABLE BUILT UP AREA CONSTRUCTED BY THE DEVELOPER. THE A.O VALUED THE ASSESSEES SHARE OF BUILT UP AREA BY ADOPTING THE MUNICIPAL VALUATION OF CONSTRUCTION AND DIRECTED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE BUSINESS INCOME OF RS. 15,11,92,800/- SHOULD NOT BE BROUGHT TO TAX FOR A.Y 2013-14 ON ACCRUAL BASIS. IN RESPONSE TO THE SAME, THE ASSESSEE, VIDE LETTER DATED 24-03-2015, SUBMITTED THAT SHE HAS ENTERED INTO THE DEVELOPMENT AGREEMENT BY PUTTING HER STOCK-IN-TRADE PROPERTY AS HER SHARE AND THAT THERE IS NO TRANSFER U/S 2(47) OF THE IT ACT, AND PARTICULARLY SINCE THE DEVELOPER HAS NOT OBTAINED THE PERMISSION NOR CARRIED OUT ANY DEVELOPMENT ACTIVITY. THEREFORE, ACCORDING TO THE ASSESSEE, THERE WAS NO INCOME TAXABLE EVEN U/S 45 OF THE IT ACT. THE A.O HOWEVER, WAS NOT CONVINCED WITH THE ASSESSEES CONTENTIONS. HE OBSERVED THAT THE DEVELOPMENT AGREEMENT WAS NOT CANCELLED BUT IS OPERATIONAL AND RESULTS IN TRANSFER AND THEREFORE IS SUFFICIENT TO ASSESS THE BUSINESS INCOME OF THE ASSESSEE ON ACCRUAL BASIS. HE, THEREFORE, TREATED THE SUM OF RS. 15,11,92,800/- AS BUSINESS INCOME OF THE ASSESSEE AND BROUGHT IT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO GRANTED RELIEF TO THE ASSESSEE AND REVENUE IS IN APPEAL BEFORE US. 3. THE LD. DR SUPPORTED THE ORDER OF THE A.O, WHILE, LD. AR SUPPORTED THE ORDER OF THE CIT(A). 4 ITA NO. 165/HYD/2017 SMT. Y. GIRIJA RANI, HYDERABAD. 4. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATERIAL ON RECORD, WE FIND THAT THE LAND IN ISSUE WAS TREATED BY THE ASSESSEE AS HER STOCK-IN-TRADE AND DURING THE RELEVANT FINANCIAL YEAR, SHE ENTERED INTO THE DEVELOPMENT AGREEMENT-CUM-GPA WITH M/S. RAMKY ESTATES & FARMS LTD.,. THEREFORE, THE ASSESSEE ENTERED INTO A BUSINESS AGREEMENT FOR DEVELOPMENT OF HER PIECE OF LAND. THE YEAR IN WHICH CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE HAS TAKEN PLACE IS NOT KNOWN NOR IS IT THE YEAR BEFORE US. WHERE ANY CAPITAL ASSET IS CONVERTED IN TO STOCK-IN-TRADE, THE INCOME WOULD ARISE U/S 45(2) OF THE ACT ONLY IN THE YEAR WHEN THE STOCK-IN-TRADE IS TRANSFERRED/SOLD BY THE ASSESSEE. THERE IS NO DOUBT THAT DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE HAS ENTERED INTO A DEVELOPMENT AGREEMENT ONLY BY CONTRIBUTING THE LAND AS HER SHARE OF CAPITAL, WHILE THE DEVELOPER WAS TO INVEST IN CONSTRUCTION OF THE VILLAS. THE INCOME WOULD ARISE TO THE ASSESSEE ONLY WHEN THE ASSESSEE SELLS HER STOCK-IN-TRADE BUT NOT WHEN SHE CONTRIBUTES HER STOCK-IN-TRADE AS HER SHARE OF CAPITAL. THEREFORE, AS RIGHTLY POINTED OUT BY THE CIT(A), NO GAINS HAVE ARISEN TO THE ASSESSEE DURING THE YEAR BY ENTERING INTO THE JDA DATED 10-05-2012 WITH M/S. RAMKY ESTATES & FARMS LTD., MUCH LESS ON ACCRUAL BASIS. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) WHICH IS IN CONSONANCE WITH THE LEGAL PROVISIONS ON THE ISSUE. ACCORDINGLY, THE GROUNDS OF THE REVENUE ARE DISMISSED. 5 ITA NO. 165/HYD/2017 SMT. Y. GIRIJA RANI, HYDERABAD. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER, 2017. SD/- SD/- (B. RAMAKOTAIAH) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 15 TH NOVEMBER, 2017 KRK 1) SMT. Y. GIRIJA RANI, 8-2-704/A/13, ROAD NO. 12, BANJARA HILLS, HYDERABAD. 2) DY. CIT, CENTRAL CIRCLE-2(4), HYDERABAD 3) CIT(A) -12, HYDERABAD 4) PCIT, (CENTRAL), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6) GUARD FILE