J.K. Bros Constrafin Limited, Hyderabad V. Income Tax Officer, Ward-2(1), Hyderabad

ITA 1997/Hyd/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2458 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 21-08-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 04-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PHANI RAJU
• Assessee Lawyers: A V RAGHURAM
• Keywords: Capital asset; Business income; Cost of acquisition; Set aside
• Section: 54; 143(3); 2(14)

Judgement Text

ITA NO 1997 OF 2017 JK BROS CONSTRAFIN LTD HYDERABA D. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1997/HYD/2017 ASSESSMENT YEAR: 2013-14 J.K. BROS CONSTRAFIN LTD HYDERABAD PAN:AABCJ2139H VS. INCOME TAX OFFICER, WARD 2(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI A.V. RAGHURAM REVENUE BY : SRI PHANI RAJU, DR DATE OF HEARING: 21/08/2019 DATE OF PRONOUNCEMENT: 05/09/2019 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2013-14 AGAIN ST THE ORDER OF THE CIT (A)-2, HYDERABAD, DATED 20 TH OCTOBER, 2017. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF REAL ESTATE AND FINANCE, FILED ITS RETURN OF INCOME FOR THE A.Y 2013-14 ON 26.09.2 013 DECLARING A LOSS OF RS.13,36,965/-. DURING THE ASSESSMENT PRO CEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSE E HAS SOLD AGRICULTURAL LAND ADMEASURING 43 ACRES AND 29 GUNTA S FOR A TOTAL CONSIDERATION OF RS.54,65,625/- WHICH WAS PURCHASED DURING THE FINANCIAL YEAR 2008-09 FOR RS.13,29,610/-. HE OBSER VED THAT THE ASSESSEE HAS EARNED A PROFIT OF RS.41,36,015/- ON S UCH SALE AND ITA NO 1997 OF 2017 JK BROS CONSTRAFIN LTD HYDERABA D. PAGE 2 OF 6 HAS SHOWN AS INCOME IN THE P&L A/C. BUT WHILE COMPU TING THE TOTAL INCOME, THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.41,36,015/- I.E. PROFIT ON SALE OF AGRICULTURAL LANDS FROM THE TOTAL INCOME ON THE GROUND THAT IT IS ON SALE OF AG RICULTURAL LAND. HE OBSERVED THAT IN THE BALANCE SHEET, THE AGRICULT URAL LAND SHOWN AS FIXED ASSET. ON SHOW CAUSE LETTER ISSUED A GRICULTURAL INCOME AS TO WHY THE SAID INCOME SHOULD NOT BE BROU GHT TO TAX, THE ASSESSEE VIDE LETTER DATED 19.02.2016, STATED T HAT THE SAID AGRICULTURAL LAND IS LOCATED IN THE DISTRICT OF MAH ABOOBNAGAR, WHICH IS A DROUGHT-PRONE AREA AND THEREFORE, THE AS SESSEE COMPANY COULD NOT DERIVE ANY AGRICULTURAL INCOME FR OM THE SAID AGRICULTURAL LANDS. HE FURTHER OBSERVED THAT THE AS SESSEE HAS NOT USED THE SALE PROCEEDS OF AGRICULTURAL LANDS FOR AN Y INVESTMENT TO BE ELIGIBLE TO CLAIM ANY DEDUCTION U/S 54 OF THE AC T. WITH REGARD TO THE ASSESSEES CLAIM THAT IT IS AGRICULTURAL LAN D AND THEREFORE, IT IS NOT A CAPITAL ASSET AND NOT INCLUDIBLE AS INCOME , THE AO AGREED THAT THE AGRICULTURAL LAND IS NOT CAPITAL ASSET BUT HELD THAT SINCE THE ASSESSEE HAS NOT UTILIZED THE PROCEEDS FROM SAL E OF AGRICULTURAL LAND, IT SHOULD BE TREATED AS ASSESSEE S BUSINESS INCOME. HE ACCORDINGLY BROUGHT THE PROFIT TO TAX. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (A), WHO PERUSED THE BALANCE SHEET OF THE ASSES SEE AS ON 31.03.2013 AND OBSERVED THAT THE LAND WAS CATEGORIZ ED AS LAND & SITE DEVELOPMENT AND THAT THE ASSESSEE HAS NOT SHO WN ANY REVENUE FROM THE SAID LAND. HE OBSERVED THAT THE ON LY REVENUE SHOWN IN THE YEAR UNDER CONSIDERATION WAS PROFIT ON SALE OF LAND AMOUNTING TO RS.41,36,015/-. HE THUS OBSERVED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS OPERATIONS DURING THE RELEVANT A.Y AND HAS ALSO NOT INCURRED ANY EXPENDITURE IN HI S BUSINESS ITA NO 1997 OF 2017 JK BROS CONSTRAFIN LTD HYDERABA D. PAGE 3 OF 6 OPERATIONS. HE, THEREFORE, HELD THAT IT IS A CAPITA L ASSET LIABLE FOR CAPITAL GAINS ON TRANSFER. HE, THEREFORE, COMPUTED THE LONG TERM CAPITAL GAIN AFTER ALLOWING THE COST OF ACQUISITION AND THE STAMP DUTY AND DIRECTED THE AO TO COMPUTE THE CAPITAL GAI NS ACCORDINGLY. AGAINST THE ORDER OF THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS O F APPEAL: 1. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS B OTH ON FACTS AND IN LAW TO THE EXTENT IT IS PREJUDICIAL TO THE I NTERESTS OF THE ASSESSEE. 2. THE LEARNED CIT (A) ERRED IN HOLDING THAT THOUG H THE LANDS SOLD ARE CAPITAL ASSET THEY ARE NOT AGRICULTURAL LA ND AND HENCE GAINS ARE TAXABLE. 3. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT TH ERE IS NO SUCH CONDITION THAT THERE SHOULD BE INCOME FROM AGR ICULTURAL LANDS TO HOLD THEM TO BE NOT A CAPITAL ASSET AND TH EREBY ERRED IN DIRECTING TO TAX THE GAINS ON SALE AS CAPI TAL GAINS. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, WHILE REIT ERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW S UBMITTED THAT THE ASSESSEE HAD UNDISPUTEDLY PURCHASED THE AGRICUL TURAL LAND IN ACRES AND HAS ALSO SOLD THE LAND AS AGRICULTURAL LA ND ONLY. SINCE IT WAS A DROUGHT-PRONE AREA, THE ASSESSEE HAD NOT CARR IED OUT ANY AGRICULTURAL ACTIVITY AND HAD NOT DERIVED ANY AGRIC ULTURAL INCOME THEREFROM. THEREFORE, HE SUBMITTED THAT THE LAND BE ING AGRICULTURAL LAND DOES NOT FALL WITHIN THE DEFINITI ON OF CAPITAL ASSET. HE SUBMITTED THAT THE AO HAS ACCEPTED THE LA ND TO BE NOT A CAPITAL ASSET AND HAS TREATED IT AS BUSINESS INCOME , WHEREAS THE CIT (A) HAS TREATED IT AS A CAPITAL ASSET AND HAS D IRECTED THE AO TO COMPUTE THE LONG-TERM CAPITAL GAINS THEREFROM. HE P LACED RELIANCE UPON THE DECISION OF THE COORDINATE BENCH OF THE TR IBUNAL IN THE ITA NO 1997 OF 2017 JK BROS CONSTRAFIN LTD HYDERABA D. PAGE 4 OF 6 CASE OF MR. DESHAM SATYANARAYANA VS. ITO IN ITA NO.1825/HYD/2014, DATED 20.01.2016 WHEREIN IT WAS H ELD THAT WHERE A PROPERTY PURCHASED AND SOLD WAS AGRICULTURA L LAND AND THERE WAS NO INTENTION OR EVIDENCE THAT THE LAND WA S CONVERTED TO NON-AGRICULTURAL LAND OR PUT TO USE FOR NON-AGRICUL TURAL PURPOSES, THEN IT CANNOT BE CONSIDERED AS A CAPITAL ASSET U/S 2(14) OF THE ACT. THEREFORE, HE PRAYED THAT THE ORDER OF THE CIT (A) BE SET ASIDE AND THE ADDITION MADE BY THE AO BE DELETED. 5. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND ALSO PLACED REL IANCE UPON THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CA SE OF SREEDHAR ASHOK KUMAR VS. CIT REPORTED IN (2018) 89 TAXMANN.C OM 145 (KER.) AND THE DECISION OF THE COORDINATE BENCH IN THE CASE OF D.S. KARUNAKAR REDDY VS. DY. CIT IN ITA NOS.752 TO 757/H YD/2011 DATED 30.11.2011. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ONLY DISPUTE IS WHETHER THE LAND PURCHASED BY THE ASSESSEE AS AGRICULTURAL LAND AND ALSO SOLD AS AGRICULTURAL LAND, IS A CAPITAL ASSET U/S 2(14) OF THE ACT, OR AND WHETHER THE INCOME FROM SUCH SALE IS BUSINESS INCOM E OR CAPITAL GAINS?. ADMITTEDLY, THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND HAS APPARENTLY P URCHASED THE PROPERTY FOR DEVELOPMENT OF THE SAME INTO PLOTS AS IS EVIDENT FROM THE BALANCE SHEET OF THE COMPANY. IF THE ASSESSEE H AD CARRIED ON SUCH ACTIVITY AND HAD DERIVED INCOME THEREFROM, IT WOULD DEFINITELY BE BUSINESS INCOME, AS HELD BY THE AO. H OWEVER, THE ASSESSEE HAS NOT CARRIED ON ANY AGRICULTURAL ACTIVI TY NOR HAS IT ITA NO 1997 OF 2017 JK BROS CONSTRAFIN LTD HYDERABA D. PAGE 5 OF 6 CONVERTED THE SAID AGRICULTURAL LAND INTO NON-AGRIC ULTURAL LAND AND HAD NOT SHOWN ANY INTENTION OF DEVELOPING THE S AME INTO PLOTS. UNDISPUTEDLY, THE ASSESSEE HAS SOLD THE LAND AS IT IS I.E. IN THE SAME STATUS OF AGRICULTURAL LAND TO THE VENDEE FOR A SALE CONSIDERATION IN ACRES. THEREFORE, WE AGREE WITH TH E CONTENTION OF THE ASSESSEE THAT THE LAND DID NOT LOOSE ITS CHARAC TER OF BEING AGRICULTURAL LAND AT THE TIME OF SALE. SINCE THE LO CATION OF THE LAND IS BEYOND 8KMS FROM THE MUNICIPAL AREA, IT DID NOT BECOME A CAPITAL ASSET U/S 2(14) OF THE I.T. ACT. FURTHER, T HE AO HIMSELF HAS HELD THE LAND TO BE AGRICULTURAL LAND AND THUS NOT A CAPITAL ASSET, BUT SINCE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF REAL ESTATE, HE HELD THE INCOME FROM SUCH SALE OF LAND TO BE BUS INESS INCOME. WE FIND THAT THE CIT (A), HAS HELD THE LAND TO BE A CAPITAL ASSET ONLY BECAUSE THE LAND WAS SHOWN AS A FIXED ASSET IN THE BALANCE SHEET OF THE ASSESSEE. THE DECISIONS RELIED UPON BY THE LEARNED DR ARE DISTINGUISHABLE ON FACTS. IN THE CASE OF D.S. K ARUNAKAR REDDY (SUPRA), THE ASSESSEE THEREIN HAD PURCHASED THE AGR ICULTURAL LAND AND HAD CONVERTED THE SAME INTO PLOTS AND SOLD TO V ARIOUS PURPOSES. IT IS FOR THIS REASON THAT THE TRIBUNAL H AD HELD THAT THE INTENTION OF THE ASSESSEE THEREIN WAS TO DO BUSINES S IN THE REAL ESTATE. IN THE CASE OF SREEDHAR ASHOK KUMAR (SUPRA) ALSO, IT WAS HELD THAT MERE CLASSIFICATION OF AGRICULTURAL LAND BY THE REVENUE AUTHORITIES IS NOT SUFFICIENT TO HOLD THAT THE LAND AS AGRICULTURAL LAND. HOWEVER, THE FACTS OF THE RELEVANT CASE ARE N OT AVAILABLE IN THE ORDER. THEREFORE, WE ARE NOT IN A POSITION TO U NDERSTAND THE FACTS AND CIRCUMSTANCES UNDER WHICH THE ABOVE OBSER VATIONS HAVE BEEN MADE BY THE TRIBUNAL. HENCE, DEEM IT FIT AND P ROPER TO GRANT THE BENEFIT OF DOUBT TO THE ASSESSEE THEREIN. SINCE THE ASSESSEE BEFORE US HAS PURCHASED THE AGRICULTURAL LAND AND H AD SOLD IT AS AGRICULTURAL LAND AND THERE IS NO EVIDENCE BROUGHT ON RECORD THAT ITA NO 1997 OF 2017 JK BROS CONSTRAFIN LTD HYDERABA D. PAGE 6 OF 6 THE ASSESSEE HAS CARRIED ON ANY DEVELOPMENTAL ACTIV ITIES ON THE SAID LAND AND SINCE THE LAND WAS DESCRIBED BY THE R EVENUE AUTHORITIES AS AGRICULTURAL LAND ONLY, WE ACCEPT TH E CONTENTION OF THE ASSESSEE AND HOLD THAT THE LAND, IN QUESTION, I S AGRICULTURAL LAND AND THE PROFIT THEREFROM IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE EITHER AS BUSINESS INCOME OR AS CAPITAL GA INS. APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH SEPT. 2019. SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 5 TH SEPT. 2019. VINODAN/SPS COPY TO: 1 JK BROS CONSTRAFIN LTD, C/O K.VASANTHAKUMAR, A.V. RAGHURAM & P. VINOD, ADCOATES, 610 BABUKHAN ESTATE, BASHEERBAG H, HYDERABAD-1 2 ITO WARD 2(1) 5 TH FLOOR, SIGNATURRE TOWERS, KONDAPUR, HYDERABAD 3 CIT (A)-2 HYDERABAD 4 PR. CIT 2 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER