DCIT, CHENNAI V. Crystal Residency India P Ltd., CHENNAI

ITA 1836/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9227 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 26-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A B KOLI IRS
• Assessee Lawyers: K BALASUBR AMANIAN
• Keywords: Capital asset; Business income; Cost of acquisition
• Section: 45(5); 2(14); 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.1836/MDS/2014 # % &% / ASSESSMENT YEAR : 2009-2010 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3) CHENNAI 600 034. VS. M/S. CRYSTAL RESIDENCY INDIA P. LTD, 51/22, MODEL SCHOOL ROAD, THOUSANDS LIGHTS, CHENNAI 600 006. [PAN AABCC 7530M ] ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : SHRI. A.B. KOLI, IRS, JCIT. +,'( ) * /RESPONDENT BY : SHRI. K. BALASUBRAMANIAN, ADVOCATE ! ) - / DATE OF HEARING : 09-03-2016 ./& ) - / DATE OF PRONOUNCEMENT : 31-05-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, CHEN NAI IN ITA NO.302/11-12/A-I, DT 24.03.2014 FOR THE ASSESSMENT YEAR 2009-2010 ITA NO.1836/MDS/2014. :- 2 -: PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1 961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE REVENUE HAS RAISED THE GROUNDS ALLEGING THAT TH E COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG COMPENSATION ON COMPULSORY ACQUISITION OF LAND BY THE GOVERNMEN T AUTHORITY AS INCOME FROM CAPITAL GAINS AND NOT UNDER BUSINESS IN COME, THOUGH THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE AND LAND IS STOCK-IN-TRADE AND FURTHER ASSESSEE NOT ABLE TO DEVELOP THE LAND A ND SELL THE LAND DUE TO EXTERNAL FORCES AND OBTAINED LOANS FOR DEVELOPM ENT AND ITS AN ADVENTURE IN THE NATURE OF TRADE AND INTENTION IS TO MAKE PROFIT IN REAL ESTATE AND SIMILAR ISSUE OF MANAGING DIRECTOR SHRI. K.A. MANSHOOR, IS CHALLENGED BY DEPARTMENT BEFORE THE TRIBUNAL AND IS PENDING. 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE COMPA NY IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND HOTELIER S AND FILED RETURN OF INCOME DECLARING TOTAL INCOME OF ;3,84,55,570/- ON 17.03.2010. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2 ) OF THE ACT WAS ISSUED. THE LD. ASSESSING OFFICER CALLED FOR VARIO US DETAILS OF REAL ESTATE DEVELOPMENTS AND ACQUISITION OF LAND BY GOVE RNMENT UNDER COMPULSORY ACQUISITION AND COMPENSATION. THE ASSESS EE HAS CLAIMED COMPENSATION UNDER INCOME FROM CAPITAL GAINS AND C ALCULATED LONG ITA NO.1836/MDS/2014. :- 3 -: TERM CAPITAL GAINS IN THE RETURN OF INCOME. THE LD . ASSESSING OFFICER IS OF THE OPINION THAT ASSESSEE COMPANY IS IN REAL EST ATE BUSINESS AND DISCLOSED LAND AS STOCK-IN-TRADE AND NOT ELIGIBLE F OR BENEFIT OF COST OF INDEXATION U/S.48(2) OF THE ACT AND INCOME IS CHAR GEABLE AS BUSINESS INCOME. THE COMPENSATION WAS RECEIVED FOR ASSESSE ES LAND AT KOLAPAKKAM VILLAGE, SRIPERUMBUDUR TALUK, KANCHEEPUR AM DISTRICT ACQUIRED BY AIRPORT AUTHORITY OF INDIA FOR EXPANSIO N. THE ASSESSEE COMPANY HAS ACQUIRED THE LAND IN THE FINANCIAL YEAR 2003-04 AND DISCLOSED IN THE BALANCE SHEET. THE CRUX OF THE DI SPUTED ISSUE BEING THE LD. ASSESSING OFFICER BASED ON THE DISCLOSURES IN THE BALANCE SHEET AND ACTIVITIES OF THE ASSESSEE ON OBTAINING LOANS FOR DEVELOPMENT OF RESIDENTIAL PLOT AND ALSO THE MAIN OBJECT OF THE BU SINESS IS REAL ESTATE. FURTHER, THE ADJACENT LAND OWNED BY MANAGING DIREC TOR SHRI. K.A. MANSHOOR BEING DEVELOPED AS RESIDENTIAL PLOTS AND T HE ASSESSEE COMPANY OFFERED INCOME FROM REAL ESTATE BUSINESS. THE OBJECTS OF THE ASSESSEE COMPANY ARE ADVENTURE IN THE NATURE OF TRA DE AND COMPENSATION ON COMPULSORY ACQUISITION OF LAND IS T REATED AS BUSINESS INCOME AND DENIED COST OF INDEXATION OF LAND AND P ASSED ASSESSMENT ORDER U/S.143(3) OF THE ACT ON 23.12.2011 WITH ASSE SSED INCOME OF ;7,24,30,460/-. AGGRIEVED BY THE ORDER, THE ASSESS EE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). ITA NO.1836/MDS/2014. :- 4 -: 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE ARGUED THE GROUNDS AND E XPLAINED THE FACTS OF REAL ESTATE BUSINESS AND REITERATED THE SUBMISSI ONS OF ASSESSING OFFICER AND THE COMPENSATION HAS TO BE ASSESSED AS INCOME FROM CAPITAL GAINS AND NOT UNDER THE HEAD PROFIT AND GAI NS OF THE BUSINESS. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSID ERED THE WRITTEN SUBMISSIONS AND REFERRED AT PARA 4.2. OF HIS ORDER AND PERUSED THE ASSESSMENT ORDER AND CAME TO A CONCLUSION THAT THE LAND WAS ACQUIRED BY THE GOVERNMENT UNDER COMPULSORY ACQUISITION BY T HE SPECIAL TAHSILDAR, CHENNAI AIRPORT EXPANSION SCHEME, SRIPER UMBUDUR AND COMPENSATION IS PAID AS PER SCHEME AND RELIED ON T HE PROVISIONS OF SEC. 45(5) OF THE ACT AND IS OF THE OPINION THAT CO MPENSATION FROM GOVERNMENT IS CHARGEABLE UNDER THE HEAD CAPITAL G AINS AND SIMILARLY, IN CASE OF MANAGING DIRECTOR SHRI. K.A. MANSHOOR AN D HIS WIFE ON COMPULSORY ACQUISITION OF LAND IN THE SAME VICINITY , WERE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON MANAGING DIRECTOR APPEAL IN ORDER CIT(A)-IX, CHENNAI IN ITA NO.303/11-12, DA TED 28.03.2013 ALLOWED THE CLAIM OF THE MANAGING DIRECTOR REFERRE D AT PAGE 6 OF HIS ORDER AS UNDER:- 10.3 THE ASSESSING OFFICERS CONCLUSIONS IN TREAT ING THE SAID AMOUNT RECEIVED BY THE APPELLANT AS BUSIN ESS INCOME IS NOT ACCEPTABLE AS THE APPELLANT HAS NOT S HOWN THE LAND SITUATED AT KOLAPAKKAM AS BUSINESS ASSET WHEREAS IT WAS SHOWN AS CAPITAL ASSET. THEREFORE, T HE ITA NO.1836/MDS/2014. :- 5 -: GAINS ARISING OUT OF TRANSFER OF THE CAPITAL ASSET WILL BE CAPITAL GAIN ONLY. ASSESSING OFFICER HAS EMPHASIZE D THAT THE APPELLANTS INTENTION IS TO COVERT THE SAID LAN DS INTO SMALLER RESIDENTIAL UNITS, THEREBY THIS ACT OF APPE LLANT WAS CATEGORIZED BY THE ASSESSING OFFICER AS BUSINESS AC TIVITY. IN THIS REGARD, IT IS TO BE MENTIONED HERE THT EVEN THOUGH THE APPELLANT INTENDED TO DEVELOP THE ABOVE SAID LA ND INTO SMALLER RESIDENTIAL UNITS THE APPELLANT COULD NOT T RANSLATE THE SAME INTO REALITY AS THE SAID LAND WAS ACQUIRED BY THE AIRPORTS AUTHORITY OF INDIA. ASSESSING OFFICERS C ONCLUSION WOULD HAVE BEEN CORED HAD THE SAME NOT BEEN TAKEN O VER BY THE AIRPORTS AUTHORITY OF INDIA. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BASED ON THE FINDINGS OF THE ASSESSING OFFICER AND THE LD. COMMISSIONER O F INCOME TAX (APPEALS) ORDER IN MANAGING DIRECTOR CASE IS OF THE OPINION THAT THE LD. ASSESSING OFFICER IS NOT JUSTIFIED IN TREATING THE COMPENSATION AS BUSINESS INCOME AND HAVING AGREED TO THE DECISION OF THE APPELLATE AUTHORITY, THE LD. COMMISSIONER OF INCOME TAX (APPE ALS) DECIDED THE CONSIDERATION BE TREATED AS CAPITAL GAINS AND THE ASSESSEE IS ELIGIBLE FOR COST INFLATION INDEXATION BENEFIT U/S.48(2) OF THE ACT ON ACQUISITION COST AND COST OF IMPROVEMENT AND COMPUTED TABULAR C ALCULATION IN ORDER AND DIRECTED THE ASSESSING OFFICER TO ALLOW T HE CLAIM AFTER VERIFYING THE VALUES ADOPTED BY THE ASSESSEE AND WO RKING AND ALLOWED THE APPEAL FOR STATISTICAL PURPOSE. AGGRIEVED BY TH E COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE REVENUE ASSAILED AN APPEAL BEFORE TRIBUNAL. ITA NO.1836/MDS/2014. :- 6 -: 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT ASSESSEE HAS DISCLOSED THE LAND AS F IXED ASSET AND EXPENDITURE ON IMPROVEMENT IN THE SCHEDULE OF CURRE NT ASSET. THE MAIN ACTIVITIES OF THE ASSESSEE BEING IN REAL ESTAT E BUSINESS AS PER MEMORANDUM OF ARTICLES. THE ASSESSEE SATISFIED ACT IVITIES AS ADVENTURE IN NATURE OF TRADE AND WERE THE LAND TAKE S THE CHARACTERISTIC OF STOCK-IN-TRADE. THE TREATMENT OF LAND AS CAPITA L ASSET IS WITHOUT ANY BASIS EXCEPT THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) RELIED ON THE DECISION OF MANAGING DIRECTOR WHOSE LAND IS ADJ ACENT TO ASSESSEE COMPANY LAND WAS COMPULSORILY ACQUIRED BY AIRPORT AUTHORITY AND SAME WAS TREATED AS CAPITAL ASSET AND PLEADED TO SE T ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND ALLOW T HE GROUNDS. 6. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIV E REITERATED THE SUBMISSIONS OF ASSESSING OFFICER, CO MMISSIONER OF INCOME TAX (APPEALS) AND WRITTEN SUBMISSIONS FILED IN THE APPELLATE PROCEEDINGS. THE LD. AUTHORISED REPRESENTATIVE SUB MITTED THAT THE ASSESSEE COMPANY HAS PURCHASED LAND IN THE FINANCI AL YEAR 2003-04 AND DISCLOSED IN THE SCHEDULE OF FIXED ASSETS. THE ASSESSEE HAS TREATED THE LAND AS CAPITAL ASSET AS IT SATISFY THE DEFINITION OF SEC. 2(14) OF THE ACT. FURTHER, UNDER THE PROVISIONS OF SEC. 45(5) OF THE ACT IN CASES OF COMPULSORY ACQUISITION UNDER THE LAW OR BY CENTRAL ITA NO.1836/MDS/2014. :- 7 -: GOVERNMENT, INCOME HAS TO BE TREATED UNDER CAPITAL GAINS. THE LD. AUTHORISED REPRESENTATIVE ARGUED THAT NO DOUBT THE VILLAGE PANCHAYAT HAS GIVEN PERMISSION FOR LAYOUT IN THE YEAR 2007, B UT BEFORE DEVELOPMENT OF LANDS AS PER LAYOUT THE AIRPORT AUT HORITIES HAVE ACQUIRED THE LAND AND SUPPORTED HIS ARGUMENTS WITH JUDICIAL DECISIONS AND FINANCIAL STATEMENTS AND PRAYED FOR DISMISSING OF REVENUE APPEAL. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATER IAL ON RECORD AND JUDICIAL DECISIONS. THE LD. DEPARTMENTA L REPRESENTATIVE ONLY CONTENTION BEING THAT LAND OWNED BY ASSESSEE A T KOLAPAKKAM VILLAGE CANNOT BE TREATED AS CAPITAL ASSET, AS THE ASSESSEE COMPANY IS IN REAL ESTATE BUSINESS AND ACTIVITIES ARE ADV ENTURE IN THE NATURE OF TRADE. THE ASSESSEE COMPANY OBTAINED PERMISSION FO R LAYOUT WHICH COULD NOT BE COMPLETED AS THE LAND WAS ACQUIRED FOR AIRPORT EXPANSION. THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE FINANCIAL STATEMENTS OF THE ASSESSEE FOR ASSESS MENT YEAR 2004-05 AND SCHEDULE 4 OF THE BALANCE SHEET AS ON 31.03.200 4, WERE THE ASSESSEE COMPANY HAS DISCLOSED THE LAND AT KOLAPAKK AM VILLAGE AS PER PROVISIONS OF COMPANIES ACT UNDER FIXED ASSET S CHEDULE AND DEVELOPMENT AND LEVELING EXPENDITURE AS WORK IN PRO GRESS SCHEDULE OF CURRENT ASSET, LOAN AND ADVANCES AND CARRIED FO RWARD FROM THE ITA NO.1836/MDS/2014. :- 8 -: SUBSEQUENT ASSESSMENT YEARS TILL ASSESSMENT YEAR 20 09-2010. THE DISCLOSURE OF THE LAND IN THE FIXED ASSET SCHEDULE WAS ACCEPTED BY THE REVENUE AUTHORITIES WERE THE ACCOUNTS ARE AUDITED UNDER PROVISION OF COMPANIES ACT, 1956 BY THE STATUTORY AUDITORS AN D AUDIT REPORT WAS OBTAINED. THE ASSESSEE HAS NOT CLAIMED DEPRECAT ION ON LANDS AS PER THE PROVISIONS OF INCOME TAX ACT AND HAS TO BE COMPULSORY DISCLOSED UNDER FIXED ASSETS SCHEDULE. THE MOA AN D AOA PERMITS THE ASSESSEE TO DEAL IN IMMOVABLE PROPERTIES. ON P ERUSAL OF THE MEMORANDUM OF ARTICLE AND ARTICLE OF ASSOCIATION, T HE ASSESSEES MAIN OBJECTS ARE TO CARRY ON THE BUSINESS OF BUYING, S ELLING OR OTHER WIDE DEALING IN LAND, BUILDING, FLATS, TENEMENTS, SHOP O FFICES AND ALSO TO CARRY ON THE BUSINESS OF REAL ESTATE PROPERTY DEVEL OPMENT, BUILDERS OF RESIDENTIAL, COMMERCIAL COMPLEX, FACTORIES, INDUST RIAL SHEDS. FURTHER, THE ASSESSEE HAS BEEN IN THE REAL ESTATE BUSINESS F ROM THE ASSESSMENT YEAR 2004-05 AND ON PERUSAL OF THE PROFI T AND LOSS ACCOUNT, THE ASSESSEE WAS OFFERING INCOME FROM CONS TRUCTION AND REAL ESTATE INCOME FROM EARLIER YEARS. THE ASSESSEE I N THE ASSESSMENT YEAR 2009-2010 HAS SHOWN THE ACTIVITIES OF WORK IN PROGRESS OF LAND BEING THE CASE REAL ESTATE WORKS. WE PERUSED THE LOAN SANCTION LETTER DATED 02.11.2007 FOR DEVELOPING RESIDENTIAL LAYOUT REFLECTING SECTOR OF THE ASSESSEE COMPANY IS IN REAL ESTATE-L AND DEVELOPMENT. ITA NO.1836/MDS/2014. :- 9 -: THE ASSESSEE OBTAINED DEVELOPMENT/ PLANNING PERMIS SION FROM PANCHAYAT ON 22.02.2007 FOR KOLAPAKKAM LAND. THE L D. AUTHORISED REPRESENTATIVE SUPPORTED HIS ARGUMENTS WITH JUDICIA L DECISIONS THAT LAND HAS TO BE TREATED AS CAPITAL ASSET NOT BUSINE SS ASSET. THE ASSESSEE WAS DIRECTLY OR INDIRECTLY PERUSING ITS MA IN OBJECTIVE OF REAL ESTATE AT DIFFERENT PLACES. PRIME FACIE, THE INTEN TION OF THE ASSESSEE ON PERUSAL OF THE FINANCIAL STATEMENTS AND EVIDENCE AND THE ACTIVITIES ARE REAL ESTATE BUSINESS AND HOTELING BUSINESS FURT HER KOLAPAKKAM LAND IS NOT A SOLE TRANSACTION. CONSIDERING THE AP PARENT FACTS AND THE COMMERCIAL CHARACTER OF THE LAND SUPPORTED WITH AS SESSEES INTENTION TO DEVELOP RESIDENTIAL PLOTS AND THE LD. COMMISSION ER OF INCOME TAX (APPEALS) HAS RELIED WHOLLY ON THE DECISION OF CO MMISSIONER OF INCOME TAX (APPEALS) ORDER OF THE MANAGING DIRECTO R BEING INDIVIDUAL ASSESSEE. WHEREAS THE ASSESSEE COMPANY BOOKS OF AC COUNTS ARE AUDITED UNDER PROVISIONS OF COMPANIES ACT AND MAIN OBJECTIVE IN THE NATURE OF REAL ESTATE WORKS, THE LAND CANNOT TAKE T HE CHARACTERISTIC OF CAPITAL ASSET, CONSIDERING THE WORK IN PROGRESS AND ACCOUNTING DISCLOSURES. THEREFORE, WE ARE OF THE OPINION THAT OBJECTS AND INTENTION OF THE ASSESSEE COMPANY ARE THE REAL ESTA TE BUSINESS AND THE COMPENSATION RECEIVED FROM GOVERNMENT OF INDIA ON COMPULSORY ACQUISITION OF LAND HAS TO BE TREATED AS BUSINESS INCOME AND WE SET ITA NO.1836/MDS/2014. :- 10 -: ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPE ALS) AND ALLOW THE REVENUE GROUND. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED . ORDER PRONOUNCED ON TUESDAY, THE 31ST DAY OF MA Y, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI 1 / DATED:31.05.2016 KV 2 ) +#-34 54&- / COPY TO: 1 . '( / APPELLANT 3. ! 6- () / CIT(A) 5. 4 9: +#-# / DR 2. +,'( / RESPONDENT 4. ! 6- / CIT 6. :;% < / GF