Sri M B Chandrappa , Davangere V. The Income Tax Officer Ward-2(1), Davangere

ITA 1710/BANG/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0016 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-07-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 22-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KANNAN NARAYANAN JT BENGALURU
• Assessee Lawyers: PRATIBHA
• Keywords: Business income; Opportunity of being heard; Cost of acquisition; Date of conversion; Fair market value; Set aside; Capital Gains
• Section: 45(2); 54F; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI , JUDICIAL MEMBER IT A NO. 1710/ BANG / 2018 ASSESSMENT YEAR : 2013 - 14 SHRI M.B. CHANDRAPPA, JAYADEVA NILAYA, NEAR BUS STAND, HONNALI. DAVANGERE DIST. PAN: ACOPC 4980F VS. THE INCOME TAX OFFICER, WARD 2(1), DAVANGERE. APPELLANT RESPONDENT APPELLANT BY : SMT . PRATIBHA, ADVOCATE RESPONDENT BY : SHRI KANNAN NARAYANAN, JT.CIT(DR)(ITAT), BENGALURU. DATE OF HE ARING : 22 . 07 .202 1 DATE OF PRONOUNCEMENT : 22 .07 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19.03.2018 OF THE CIT(APPEALS), DAVANGERE FOR THE A SSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING AUTHORITY IN T REATING THE PROFIT ON SALE OF SITES AS INCOME FROM BUSINESS BY HOLDING THE ACTIVITY AS ADVENTURE IN THE NATURE OF TRADE. ITA NO.1710/BANG/2018 PAGE 2 OF 6 2. THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRE CIATED THE SITES IN QUESTION HAD BEEN FORMED OUT OF THE AGRICULTURAL LANDS HELD BY THE APPELLANT FOR SEVERA L YEARS AND APPELLANT INVESTMENT IN AGRICULTURAL LAND WAS A CAPITAL INVESTMENT AND CONSEQUENTLY HE OUGHT TO HAVE ACCEPT ED THE APPELLANT'S CLAIM THAT THE PROFIT WAS TO BE ASSESSE D UNDER THE HEAD INCOME FROM CAPITAL GAINS. 3. THE LEARNED COMMISSIONER (A) OUGHT TO HAVE FOLLO WED THE VARIOUS CASES CITED BY THE APPELLANT WHICH INCLUDED THE JURISDICTIONAL HIGH COURT JUDGMENT WITHOUT GIVING A NY VALID REASON TO DISTINGUISH AND ACCORDINGLY THE ORD ER OF THE COMMISSIONER (A) IS OPPOSED TO LAW AND LIABLE TO BE SET ASIDE. 4. ON THE FACTS AND ALSO ON THE EXPLANATION PROVID ED BY THE APPELLANT THE LEARNED COMMISSIONER (A) OUGHT TO HAV E ALLOWED THE CLAIM OF THE APPELLANT THAT THE PROFIT ON SALE OF SITES WAS LIABLE TO BE ASSESSED ONLY UNDER THE HEAD 'INCOME FROM CAPITAL GAINS'. 5. WITHOUT PREJUDICE, THE ADDITION IS EXCESSIVE, AR BITRARY AND UNREASONABLE AND LIABLE TO BE CANCELLED. 6. THE LEARNED COMMISSIONER (A) ERRED IN CONFIRMING THE INTEREST U/ S.234A OF THE ACT. 7. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRAYS THAT T HE APPEAL MAY BE ALLOWED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PROPRIETOR OF THE FIRM, M/S. SRI DEVI ENTERPRISES DEALING IN CEME NT. HE IS ALSO A PARTNER IN THE FIRM, M/S. SRI DEVI TRADERS DEALING IN FERTI LIZERS. THE ASSESSEE HAD PURCHASED 3 ACRE 32 GUNTAS OF AGRICULTURAL LAND AT DEVANAYAKANAHALLI HONNALI TALUK ON 17.12.1982 FOR RS.30,000. THE SAI D LAND WAS CONVERTED INTO RESIDENTIAL PURPOSE ON 18.3.1983 MEASURING 112 FT. X 203 FT. AND SOLD FOR RS.25,000 ON 30.10.2017. DURING THE FY 2012-13 , THE ASSESSEE SOLD 16 SITES FOR RS.52,63,000 AND DECLARED THE SAME UND ER LONG TERM CAPITAL ITA NO.1710/BANG/2018 PAGE 3 OF 6 GAINS AND DEPOSITED THE SALE PROCEEDS WITH STATE BA NK OF INDIA, MYSORE AND CLAIMED DEDUCTION U/S. 54F OF THE ACT. THE MON EY DEPOSITED WITH SBI HAS BEEN WITHDRAWN AND UTILIZED FOR CONSTRUCTION OF RESIDENTIAL HOUSE. 4. THE AO WHILE PASSING THE ASSESSMENT ORDER U/S. 1 43(3) HAS TREATED THE AMOUNT RECEIVED ON SALE OF SITES AS INCOME FROM BUSINESS INSTEAD OF CAPITAL GAIN AND DENIED EXEMPTION U/S. 54F OF THE A CT. THE CIT(APPEALS) CONFIRMED THE ORDER OF THE AO. AGAINST THIS, THE A SSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE PURCHASED AGRICULTURAL L AND MEASURING 3 ACRES 32 GUNTAS ON 7.12.1982. NO AGRICULTURAL ACTIVITY H AS BEEN CARRIED OUT IN THIS LAND WHICH WAS CONVERTED FOR NON-AGRICULTURAL PURPO SES ON 18.3.1983. LATER, THE ASSESSEE CONVERTED THE LAND INTO SITES M EASURING 112 FT. X 203 FT. AND SOLD 16 SITES. THE ASSESSEE DECLARED THE INCOM E AS CAPITAL GAIN AND CLAIMED DEDUCTION U/S. 54F OF THE ACT PLACING RELIA NCE ON THE FOLLOWING DECISIONS:- CIT V. GAJANANA ENTERPRISES IN ITA NO.50/2004 OF KA RNATAKA HIGH COURT JUDGMENT DATED 18.3.2009. HOTEL SREERAJ IN ITA NO.262/2002 OF KARNATAKA HIGH COURT JUDGMENT DATED 6.3.2007. BABULAL V. ITO, ITA NO.887/BANG/2019 DATED 28.1.202 1 OF ITAT, BANGALORE. RAMESH RAJ BOHRA V. DCIT, ITA NO.157/JODH/2019 DATE D 20.3.2020, ITAT, JODHPUR. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE ASSESSEE CONVERTED AGRICULTURAL LAND FOR NON-AGRICULTURAL PU RPOSES WITHIN 3 MONTHS FROM THE PURCHASE WHICH MAKES IT CLEAR THAT THE ASS ESSEES INTENTION WAS TO EARN PROFIT ON SALE OF LAND. THEREFORE, THE SURPLU S EARNED BY THE ASSESSEE ITA NO.1710/BANG/2018 PAGE 4 OF 6 WAS TO BE TREATED AS INCOME FROM BUSINESS AND IT WA S ADVENTURE IN THE NATURE OF TRADE. 7. IF WE LOOK AT THE SEQUENCE OF EVENTS AS MENTIONE D ABOVE, IN OUR OPINION, THE INTENTION AND MOTIVE OF REALIZATION OF ENTIRE SCHEME OF THINGS ADOPTED BY THE ASSESSEE WAS TO MAXIMISE THE VALUE O F ASSET AND USING IT FOR BUSINESS PURPOSE. IN THAT PURSUIT, THE ASSESSE E HAS CONSTANTLY TRIED TO EXPLOIT THE RESOURCES AND MAXIMISE PROFITS. THE CO NDUCT OF THE ASSESSEE SUBSEQUENT TO THE PURCHASE OF PROPERTY BY CONVERTIN G IT INTO NON- AGRICULTURAL PURPOSE SO AS TO MAKE IT MORE READILY SALEABLE IS A RELEVANT FACTOR IN DETERMINING THE CHARACTER OF TRANSACTION AND WOULD SHOW THE CONDUCT OF ASSESSEES DESIGN AND PURPOSE PRIOR TO P URCHASE. IN THIS CASE, THE PURPOSE AND DESIGN OF ASSESSEE IN UTILIZATION O F THE LAND IS POINTED OUT TOWARDS CARRYING OUT ADVENTURE IN THE NATURE OF TRA DE SO AS TO MAXIMISE PROFIT FROM THIS TRANSACTION. AS NOTED EARLIER, TH OUGH ASSESSEE PURCHASED AGRICULTURAL LAND, NO AGRICULTURAL ACTIVITY HAS BEE N CARRIED OUT. HOWEVER, IT WAS CONVERTED INTO NON-AGRICULTURAL LAND WITHIN 3 M ONTHS OF PURCHASE AND LATER LAND WAS CONVERTED INTO SMALL PARTS OF RESIDE NTIAL UNITS TO REALISE OPTIMUM VALUE ON SALE. THE CONVERSION OF AGRICUL TURAL LAND INTO RESIDENTIAL STOCK IN TRADE OF HIS BUSINESS OF SELLING THE PLOTS OF LAND IS FOR EARNING PROFIT. THE VERY NATURE AND PURPOSE OF THE AGRICULTURAL LAN D HAS BEEN CHANGED AND WE AGREE WITH THE FINDINGS OF THE CIT(APPEALS) THAT SUCH CHANGE IS AN IRREVERSIBLE CHANGE WHERE THE VERY NATURE AND PURPO SE OF THE LAND HAS BEEN CHANGED FROM AGRICULTURE TO RESIDENTIAL. IT I S NOT A CASE THAT THE BUYERS HAVE ACQUIRED AGRICULTURE PLOTS AND SUBSEQUE NTLY CHANGED IT TO RESIDENTIAL USE. IN THIS CASE, THE ASSESSEE HIMSEL F HAS DEVELOPED RESIDENTIAL PLOTS AND THEN SOLD IT TO INDIVIDUAL BU YERS. THEREFORE, WE AFFIRM THE FINDINGS OF THE AO THAT BY SUCH PLOTTING OF LAN D, THE AGRICULTURE LAND HAS BEEN CONVERTED INTO STOCK-IN-TRADE IN THE FORM OF R ESIDENTIAL PLOTS OF ASSESSEES BUSINESS. THE SAID CONVERSION AND DEVEL OPMENT OF RESIDENTIAL ITA NO.1710/BANG/2018 PAGE 5 OF 6 PLOTS HAS HAPPENED BY ASSESSEES OWN ADMISSION DURI NG AND THE INTENT OF ASSESSEE HAS THUS BEEN DEMONSTRATED THROUGH HIS OWN ACTIONS. THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF CONVERSION AS REDUCED BY THE COST OF ACQUISITION IS REQUIRED TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN IN THE YEAR(S) THE STOCK-IN-TRADE IS SOLD OR TRANSFERR ED. FURTHER, SALES REALIZATION OF THE STOCK-IN-TRADE OVER SUCH FAIR MA RKET VALUE IS REQUIRED TO BE ASSESSED AS BUSINESS INCOME. THEREFORE, TAXABILIT Y ARISING ON CONVERSION AGRICULTURAL LAND INTO STOCK-IN-TRADE TO THE EXTENT IT HAS BEEN SOLD DURING THE YEAR ARISES DURING THE IMPUGNED ASSESSMENT YEAR. TH E MATTER IS ACCORDINGLY SET ASIDE TO THE FILE OF ASSESSING OFFI CER TO DETERMINE THE CAPITAL GAINS FOR FRESH CONSIDERATION IN ACCORDANCE WITH THE PROVISIONS OF SECTION 45(2) OF THE ACT AS WELL AS BUSINESS INCOME ON SALE OF SUCH PLOTS, AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. THIS ISSUE IS ACCORDINGLY DISPOSED OF WITH THE ABOVE DIRECTIONS. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JULY, 2021. SD/- SD/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 22 ND JULY, 2021. / DESAI S MURTHY / ITA NO.1710/BANG/2018 PAGE 6 OF 6 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.