Smt. Manjusree Gorparthi, Hyd, Hyderabad V. ITO, Ward-6(3), Hyderabad

ITA 1925/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66325 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 15-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Sale consideration of property below Jantri Value; Business income; Fair market value; Revised return
• Section: 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 1925/HYD/2011 ASSESSMENT YEAR: 2008-09 SMT. MANJUSREE GORAPARTHI, APPELLANT HYDERABAD (PAN AEBPG3050K) VS. INCOME TAX OFFICER, RESPONDENT WARD 6(3), HYDERABAD. APPELLANT BY : SHRI A.V. RAGHURAM RESPONDENT BY : SHRI K.J. RAO DATE OF HEARING : 04/07/2012 DATE OF PRONOUNCEMENT : 28 /09 /2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF CIT(A)-IV, HYDERABAD DATED 20/09/2011 FOR THE ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE ALONG WITH THREE OTHERS PURCHASED T HE PROPERTY IN BANJARA HILLS ON 22.06.2006 BY MEANS OF AGREEMENT OF SALE COUPLED WITH GENERAL POWER OF ATT ORNEY. THEREAFTER THE SAME PROPERTY WAS SOLD ON 15.02.2008 . THE ASSESSEE OFFERED THE GAINS ON SALE OF PROPERTY AS S HORT TERM CAPITAL GAINS IN HER RETURN OF INCOME. HOWEVER, IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO REFERRED THE MATTER TO THE FILE ITA NO. 1925/HYD/11 SMT. MANJUSREE GORAPARTHI 2 OF DVO FOR DETERMINING THE CORRECT MARKET VALUE UND ER SECTION 50C OF THE I.T ACT. THEREAFTER, THE ASSESSEE PRODUC ED BEFORE THE AO AN MOU AMONG PURCHASERS INTENDING TO DEVELOP THE PROPERTY ALONG WITH SOME VOUCHERS TOWARDS LEVELING THE PROPERTY AND CLAIMED THAT THE PURCHASE OF THE PROPE RTY WAS A BUSINESS TRANSACTION AND THE PROFIT ON SALE OF THE LAND IS ASSESSABLE AS BUSINESS INCOME, THEREFORE, PROVISION S OF SECTION 50C ARE NOT APPLICABLE. BUT THE AO NEGATIVED THIS C ONTENTION AND ASSESSED THE PROFIT ON SALE OF LAND AS SHORT TE RM CAPITAL GAINS AND ADOPTED THE VALUE DETERMINED BY THE DVO A S THE DEEMED CONSIDERATION U/S 50C. 3. ON FURTHER APPEAL BEFORE THE CIT(A), THE CIT(A) OBSERVED THAT THE ASSESSEE HERSELF HAS SHOWN THE TRANSACTION UNDER CONSIDERATION AS ONE OF SHORT TERM CAPITAL GAINS IN THE RETURN OF INCOME DULY SIGNED AND VERIFIED BY HER. FURTHER, HE OBSERVED THAT THE CLAIM OF TRANSACTION BEING IN THE NATURE OF BUSINESS TRANSACTION WAS NOT MADE BY WAY OF REVISED RETURN AS THE TIME AVAILABLE FOR FILING SUCH REVISED RETURN H AD ELAPSED AND ONLY WHEN THE ASSESSING OFFICER PROPOSED TO INV OKE THE PROVISIONS OF SECTION 50C AND THE DVO ISSUED THE SH OW CAUSE NOTICE TO THE ASSESSEE TO FURNISH HER OBJECTIONS, T HE ASSESSEE TOOK THE PLEA OF THE TRANSACTION BEING A BUSINESS T RANSACTION. AT PARA 6.1, THE CIT(A) HELD AS FOLLOWS: AT THE SAME TIME, IT IS ALSO CLEAR THAT THE APPELLA NT COULD NOT JUSTIFY THE EXISTENCE OF ANY BUSINESS DURING TH E YEAR. EVEN THOUGH SHE CONTENDED THAT THE MOU HAD BEEN ENTERED INTO AMONG THE 4 PERSONS ON 28.04.2006 ITSE LF, THE REGISTERED DOCUMENT DATED 22/06/2006 DID NOT MENTION THAT THE LAND HAD BEEN PURCHASED FOR THE BUSINESS PROPOSED TO BE UNDERTAKEN BY THE AOP. BESI DES, THE INDIVIDUAL SHARES OF THE 4 PERSONS HAD ALSO NOT BEEN ITA NO. 1925/HYD/11 SMT. MANJUSREE GORAPARTHI 3 MENTIONED. IT IS ALSO NOT EXPLICABLE AS TO WHY THE APPELLANT AND HER HUSBAND SHOWED THE INCOME AS CAP ITAL GAINS, EVEN THOUGH THEY WERE CONTENTEDLY IN RECEIP T OF LEGAL OPINION ON TAX INCIDENCE EVEN BEFORE PURCHASI NG THE LAND. FURTHER, THE FACT THAT THE CAPITAL MENTIONED IN THE MOU, RS. 80,40,000/-, WAS THE EXACT COST OF THE LAN D, ALSO GOES TO SHOW THAT IT WAS ONLY AN AFTERTHOUGHT OF THE APPELLANT TO ESCAPE THE RIGOURS OF SECTION 50C OF T HE IT ACT. 4. THE CIT(A) FURTHER OBSERVED THAT THE ASSESSEE W AS NOT IN THE BUSINESS OF PURCHASE AND SALE OF LAND EARLIER. WITH RESPECT TO THE LAND BEING SOLD AS AN AOP, THE CIT(A) POINTE D OUT THAT EVEN THE OTHER TWO CO-OWNERS HAVE NOT FILED THE RET URNS OF INCOME WITHIN DUE TIME, SHOWING THE INCOME HAS ARIS EN FROM SUCH A BUSINESS AND, HENCE, THE AOP ROUTE TO CLAIM THE EXISTENCE OF BUSINESS WAS AN AFTER THOUGHT. THE CIT (A) DISTINGUISHED THE CASE OF G VENKATESWAMI NAIDU & CO , VS. CIT, 35 ITR 594 (SC) WITH THE PRESENT CASE BEFORE US STA TING THAT THE DISCLOSURE OF TRANSACTION AS ONE OF SHORT TERM CAPITAL GAIN IN THE RETURN OF INCOME GOES TO SHOW THAT THE INTEN TION OF THE ASSESSEE IN ACQUIRING THE LAND ALONG WITH THREE OTH ERS WAS TO MAKE A JOINT INVESTMENT. THE CIT(A) ALSO DISCUSSED THE CASE OF THE SUPREME COURT IN THE CASE OF ANIL JAIN VS CI T, 294 ITR 435 AND POINTED OUT THAT IN THE PRESENT APPEAL NO S UCH TRANSACTION COULD BE ESTABLISHED AS HAVING BEEN UND ERTAKEN BY THE ASSESSEE AT ANY OTHER POINT OF TIME. FURTHER, T HE CIT(A) HELD THAT THE ASSESSING OFFICER HAVING FOLLOWED THE PROCEDURE OF REFERRING TO THE VALUATION CELL WAS BOUND TO ADO PT THE VALUE INDICATED THEREIN WITHOUT GOING FURTHER INTO IT. WI TH RESPECT TO THE INCURRENCE OF DEVELOPMENT EXPENDITURE, THE CIT( A) OBSERVED THAT THE ASSESSEE COULD NOT FURNISH ANY EV IDENCE IN ITA NO. 1925/HYD/11 SMT. MANJUSREE GORAPARTHI 4 THIS REGARD AT ANY STAGE, AND THE SAME WERE NOT SUB JECTED TO TDS. 5. THE CIT (A) HAS REJECTED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ASSESSMENT OF THE PROFITS ON SALE OF LAND AS SHORT TERM CAPITAL GAINS AND DETERMINATION OF THE D EEMED CONSIDERATION AS DETERMINED BY THE DVO, U/S 50C. 6. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US RA ISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS BOT H ON FACTS AND IN LAW. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER HOLDING THE INCOME TO BE FROM CAP ITAL GAINS INSTEAD OF BUSINESS INCOME. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE FILED RETURN OF INCOME ADMITTING THE I NCOME TO BE CAPITAL GAINS UNKNOWING OF THE OPINION OBTAIN ED BY THE OTHER MEMBER OF AOP AND FURTHER THAT ONCE THE INTENTION AT THE PURCHASE IS TO SELL IT FOR GAINS, IT HAS TO BE HELD TO BUSINESS AND NOT CAPITAL GAINS AND THERE BY ERRED IN HOLDING THAT THE GAINS IS ASSESSABLE AS CA PITAL GAINS AND NOT BUSINESS INCOME. 4. THE LEARNED CIT(A) WHILE UPHOLDING THE STAND OF THE ASSESSING OFFICER THAT THE INCOME IS LIABLE TO BE A SSESSED AS CAPITAL GAINS ERRED IN NOT CONSIDERING THE DISAL LOWANCE OF CLAIM OF IMPROVEMENTS THAT IS INCURRED THROUGH CHEQUES AND OUGHT TO HAVE DIRECTED THE ASSESSING OF FICER TO ALLOW SUCH EXPENDITURE. 5. THE LEARNED CIT(A) WHILE UPHOLDING ADOPTING THE VALUE INVOKING PROVISIONS OF SEC. 50C FAILED TO APPRECIAT E THE FACT THAT THE DVO HAS NOT BROUGHT IN ANY NEW MATERI AL TO SUBSTANTIATE THE VALUE OF SALE CONSIDERATION IS AS PER SRO VALUE WHEN DVO ALSO RELIED ON SRO VALUE ONLY AND FO R SUCH PURPOSE THERE IS NO REQUIREMENT TO REFER TO DV O PARTICULARLY IN CASES WHERE THE VALUATION OF LAND I N INVOLVED. ITA NO. 1925/HYD/11 SMT. MANJUSREE GORAPARTHI 5 7. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SHRI AV RAGHURAM CONTENDED THAT FAIR MARKET VALUE OF THE PR OPERTY WAS LESS THAN THE SRO VALUE DUE TO THE SLUMP IN REA L ESTATE MARKET. FURTHER, IT WAS SUBMITTED THAT THE PLOT WAS NOT AT THE GROUND LEVEL AND WAS UNEVEN AND WAS NOT AS PER VAAS TU. HE EXPLAINED THAT THE OTHER CO-OWNERS HAD ADMITTED THE INCOME FROM SALE OF THE SAID PLOT UNDER THE HEAD INCOME F ROM BUSINESS OR PROFESSION. HE FURTHER EXPLAINED THAT AN MOU HAD BEEN ENTERED INTO BY THE ASSESSEE AND HER HUSBAND, AS THE FIRST PARTY, ALONG WITH SRI M. KONDAL RAO AND SMT. N. SANDHYA RANI, AS THE SECOND PARTY, ON 28/04/2006, WITH AN A GREEMENT TO CARRY ON THE BUSINESS OF REAL ESTATE. THE LEARNE D COUNSEL POINTED OUT THAT AS PER CLAUSE 4 OF THE SAID MOU, T HE CAPITAL OF THE PARTNERSHIP WAS TO BE RS. 80,40,000/- AND AS PE R CLAUSE 9 THEREOF, TAXES, IF ANY PAYABLE ON THE INCOME GENERA TED FROM THE BUSINESS WERE TO BE THE RESPONSIBILITY OF EACH INDIVIDUAL. THE LEARNED COUNSEL CONTENDED THAT SHRI G. RANGA RA O, HUSBAND OF THE ASSESSEE AND A CO-OWNER OF THE PLOT, HAD TAKEN LEGAL OPINION FROM SHRI P. VINOD, ADVOCATE, IN THIS REGARD ON 08/05/2006. THE LEARNED COUNSEL AVERRED THAT THE P ROPERTY HAD BEEN PURCHASED IN THE STATUS OF THE AOP IN THE NAME OF 4 CO-OWNERS AND AS PER THE MOU, THE INCOME HAS TO BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM BUSINESS OR PROF ESSION AND NOT UNDER THE HEAD CAPITAL GAINS AS SHOWN BY HER IN RETURN OF INCOME WRONGLY. THE LEARNED COUNSEL THEREFORE SUBMI TTED THAT THE ASSESSEE REQUESTED THE AO TO CONSIDER THE SHORT TERM CAPITAL GAINS ON SALE OF PLOT SHOWN IN THE RETURN O F INCOME AS INCOME FROM BUSINESS OR PROFESSION. THE LEARNED C OUNSEL SUBMITTED THAT THE INTENTION OF THE PARTIES IS CLEA R RELYING UPON ITA NO. 1925/HYD/11 SMT. MANJUSREE GORAPARTHI 6 COMMISSIONER OF INCOME-TAX VS. ASSOCIATED INDUSTRIA L DEVELOPMENT CO.(P) LTD., 82 ITR 586(SC) AND THAT A SINGLE TRANSACTION CAN CONSTITUTE BUSINESS. FOR THIS PROPO SITION, HE RELIED UPON THE DECISION OF G. VENKATASWAMI NAIDU ( SUPRA) THAT A SOLITARY TRANSACTION OR SINGLE ACTIVITY OF PURCHA SE AND SALE MAY ALSO BE TREATED AS BUSINESS. 8. THE LEARNED DR, SHRI K.J. RAO, RELIED UPON THE O RDER OF THE AUTHORITIES BELOW AND CONTENDED THAT THE MOU WA S AN AFTER THOUGHT. THE DR RELIED UPON THE DECISION OF 306 ITR 61 IN THE CASE OF K.R. PALANISAMY VS. UOI. HE FURTHER CONTEND ED THAT THE DEVELOPMENT EXPENDITURE WAS NOT SUPPORTED BY ANY EV IDENCE AND THE ASSESSEE HAD SUBMITTED ONLY SELF-MADE VOUCH ERS. 9. THE LEARNED COUNSEL FOR THE ASSESSEE IN THE REJO INDER ARGUED THAT THE METHOD ADOPTED BY THE VALUATION OFF ICER IS NOT CORRECT AS HE IS NOT EXPECTED TO DETERMINE THE VALU E BY THE METHOD OF AVERAGING. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. FROM THE PERUSAL OF THE RECORDS AND AFTER HEARING THE ARGUMENTS FROM BOTH SIDES WE FIND NO MA TERIAL TO TAKE A DIFFERENT VIEW FROM THAT TAKEN BY THE LOWER AUTHORITIES. THE PURCHASER ALONG WITH THREE OTHERS PURCHASED THE LAND AND AFTER HOLDING IT FOR SOME TIME SOLD THE SAME AND RE ALIZED A HIGHER PRICE. AN MOU, PRODUCED BELATEDLY WITHOUT AN Y EXPLANATION AS TO HOW THEY HAD PROPOSED TO DEVELOP THE PROPERTY AND A FEW INVOICES FOR HAVING CARRIED OUT SOME WORK ITA NO. 1925/HYD/11 SMT. MANJUSREE GORAPARTHI 7 ON THE LAND WITHOUT THE SAME BEING SUBSTANTIATED EI THER BY THE PERSONS WHO HAVE CARRIED OUT THE WORK OR BY MEANS O F CASH FLOW OF THE ASSESSEE, DO NOT PERSUADE US TO TAKE A VIEW THAT IT IS A BUSINESS VENTURE ENTERED INTO BY THE FOUR PEOP LE. THERE IS ALSO NOTHING ON RECORD TO SHOW THAT THE PARTIES HAD INTENDED TO DEAL IN REAL ESTATE. THEY HAVE MERELY BOUGHT THE PR OPERTY, HELD IT FOR SOME TIME AND REALIZED HIGHER VALUE FOR THE PROPERTY BY SELLING THEM. IN THE CIRCUMSTANCES THE AO AND CI T(A) ARE RIGHT IN HOLDING THAT PROFIT ON SALE OF THE LAND IS ASSESSABLE AS SHORT TERM CAPITAL GAINS. ONCE THE SURPLUS IS ASSES SABLE AS A SHORT TERM CAPITAL GAINS PROVISIONS OF SEC 50C ARE ATTRACTED AND AS PER THE PROVISION OF THAT SECTION THE DEEMED CONSIDERATION HAS TO BE WORKED OUT AS PER THE RATE ADOPTED BY THE STAMP AUTHORITY OR AS DETERMINED BY THE DVO. 11. IN THE CIRCUMSTANCES, WE CONCUR WITH THE FINDIN GS OF THE LOWER AUTHORITIES AND HOLD THAT THE ASSESSMENT OF P ROFIT ON SALE OF LAND AS SHORT TERM CAPITAL GAINS IS CORRECT AND PROPER. IN THESE CIRCUMSTANCES, REFERENCE TO THE VALUATION OFF ICER UNDER SECTION 50C HAS ALSO BEEN PROPERLY MADE. THE APPEA L OF THE ASSESSEE ON THESE ISSUES ARE DISMISSED. 12. AS REGARDS THE VALUATION BY THE DVO, WE FIND TH AT HE HAS TAKEN FOUR COMPARABLE SALE INSTANCES AND ADOPTED TH E AVERAGE RATE AS THE MARKET VALUE FOR THIS PROPERTY. WE FIND NO MISTAKE IN THE METHOD ADOPTED BY DVO, AS IT IS BASED ON COM PARABLE SALE INSTANCES. BUT WE FIND THAT THE ASSESSEE IN TH EIR LETTER DATED 11.10.201 TO THE AO HAS GIVEN REASON FOR LOWE R VALUE FOR THE SALE OF THE PROPERTY. IT HAS BEEN MENTIONED THA T THE LAND ITA NO. 1925/HYD/11 SMT. MANJUSREE GORAPARTHI 8 WAS SOLD AT LOWER RATE BECAUSE OF THE MARKET SITUAT ION AS WELL AS UNEVENNESS OF THE LAND AND SURROUNDING HILLS WHI CH HAS REDUCED THE VALUE OF THE PROPERTY. 13. WE FIND THAT DVO HAS NOT SPECIFICALLY ADDRESSED THESE OBJECTIONS. THE DVO HAS NOT MADE ANY EFFORT TO COMP ARE THE SITUATION, SIZE AND THE CHARACTERISTICS OF THE COMP ARABLE INSTANCES WITH THAT OF THE LAND IN QUESTION. UNEVEN NESS OF THE GROUND OF THE PROPERTY WOULD ALSO JUSTIFY CERTAIN E XPENDITURE FOR LEVELING THE SAME. THEREFORE WE SET ASIDE THE MATTER TO THE FILE OF THE AO WHO MAY IF NECESSARY TAKE THE HE LP OF DVO TO DECIDE THE OBJECTION ON THE ASSESSEE REGARDING A DJUSTMENT IF ANY THAT MAY HAVE TO BE MADE ON THE COMPARABLE S ALE PRICE ON THE BASIS OF THE SITUATION, SIZE AND CHARACTERIS TICS OF THE COMPARABLE LAND SALE INSTANCES AND THAT OF THE ASSE SSEES LAND. 14. WE, THEREFORE, DIRECT THE AO TO DECIDE ON THE C ORRECT MARKET VALUE OF THE LAND IN QUESTION AFTER TAKING I NTO ACCOUNT THE OBJECTION OF THE ASSESSEE AND ON THAT BASIS COM PUTE THE SHORT TERM CAPITAL GAINS. 15. IN THE CIRCUMSTANCES, THE APPEAL OF THE ASSESSE E IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28/09/2012. SD/- SD/- (D. KARUNAKARA RAO) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED:28 TH SEPTEMBER, 2012. ITA NO. 1925/HYD/11 SMT. MANJUSREE GORAPARTHI 9 KV COPY TO:- 1) SMT. MANJUSREE GORPATHI C/O S/SHRI K. VASANTKUMAR & AV RAGHURAM, ADVOCATES, 610, 6 TH FLOOR, BABHUKHAN ESTATE, BASHEERBAGH, HYDERABAD 1. 2) ITO, WARD 6(3), HYDERABAD. 3) THE CIT (A)-IV, HYDERABAD 4) THE CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD.