SNF (INDIA) PRIVATE LIMITED, VISAKHAPATNAM V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -3(1), VISAKHAPATNAM

ITA 211/VIZ/2022

AI Insights

The case involves SNF (India) Pvt Ltd., which appealed against the order of the Principal Commissioner of Income Tax, Visakhapatnam, under section 263 of the Income Tax Act, 1961. The original assessment for the assessment year 2014-15 included a transfer pricing adjustment and reclassified income from the sale of industrial land as business income. The Principal Commissioner directed a re-assessment, which the company contested, arguing that the income should be classified as capital gains. The Tribunal's decision favored the company, emphasizing that the land was sold as a fixed asset and not as part of a trading activity.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135740 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-04-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 20-10-2022
• Other Referred Cases: CIT v. Vegetable Products Ltd [1973] 88 ITR 192 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset converted into stock in trade; Sale consideration of property below Jantri Value; Business income; Fair market value; Set aside
• Section: 263; 45(2); 143(3); 50C; 234B; 144C; 192; 48; 22

Judgement Text

आयकरअपीलȣयअͬधकरण, ͪवशाखापटणमपीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įीदुåवूǽआरएलरेɬडी, ÛयाǓयकसदèयएवंĮीएसबालाकृçणन, लेखासदèयकेसम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ I.T.A. No.211/Viz/2022 (Ǔनधा[रणवष[/ Assessment Year : 2014-15) SNF (India) Pvt Ltd., Visakhapanam. PAN: AAACP 4070 A Vs. Assistant Commissioner of Income Tax, Circle-3(1), Visakhapatnam. (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) अपीलाथȸकȧओरसे/ Appellant by : Sri I Kama Sastry, AR Ĥ×याथȸकȧओरसे/ Respondent by : Sri MN Murthy Naik, CIT-DR सुनवाईकȧतारȣख/ Date of Hearing : 25/04/2023 घोषणाकȧतारȣख/Date of Pronouncement : 01/06/2023 O R D E R PER S. BALAKRISHNAN, Accountant Member : This appeal filed by the assessee is against the order U/s. 263 of the Income Tax Act, 1961 [the Act] by the Ld. Principal Commissioner of Income Tax-1, Visakhapatnam [Pr. CIT] in DIN &Order No ITBA/REV5/2020-21/1031830122(1), dated 27/03/2021 for the AY 2014-15. 2 2. At the outset, the Ld. AR brought to our notice that there is a delay of 509 days in filing the appeal before the Tribunal. With respect to the delay, the Ld. AR drawn our attention to the condonation petition filed by the assessee along with affidavit explaining the reasons for filing of the appeal beyond the prescribed time limit and read out the contents therein. The relevant portion of the petition for condonation of delay is extracted herein below: “1...... 2........ 3. Th at the case of the assessee was referred to the Transfer Pricing Officer, Hyderab ad for de termini ng the Arms Length Price with respect to In tern ation al Trans actions entere d into by the comp any wi th Associ ate En terprises. 4. Th at an order U/s. 143(3) r. w.s 144C dated 22/2/2018 was p assed making a TP Adjustment of Rs. 4,40,25,275/- an d raising a de mand of Rs. 37.70 l akhs. 5. Th at subsequentl y the order p assed U/s. 143(3) r.w.s 144C(3) was revised by the Pr. CIT, Vis akhap atn am by passing an order U/s. 263 of the Act on 27/03/2021. 6. Th at the orde r of revision U/s. 263 has set aside the assessment wi th respect to the l ong term capital g ains returned by the assessee with a di recti on to the Assessing Officer to re-do the same by referring to the val uation of the property to DVO and al so to recl assify the income as business income instead of l ong term capital g ains as returned by the assessee and af ter giving an opportunity of hearing to the assessee. 7. Th at since the above order of the Pr. CIT has not raise d an y fresh demand by incre asing the income al re ady dete rmined by the previous assessment order the compan y was under a genuine and bonafide bel ief that there is no need to fil e an appe al ag ainst the s ame. 8. Th at the Assessing Officer has passed an order U/s. 143(3) r. w.s 263 dated 23/09/2022 recl assifying the profits derived fro m s al e of l and as business income and re- computing the business income as per th e val ue determined by the DVO thereby de termining the taxabl e income of Rs. 3 10,68,19,248/- and raised a demand fo r Rs. 2,82,15,925/- including interest U/s. 234B of Rs. 1,53,83,292/- and section 220 of Rs. 9,45,066/- after setting off the prepai d taxes of Rs. 1,97,05,399/-. 9. Th at when we appro ached our Counsel for fil ing an appe al ag ainst the order p assed U/s. 143(3) r.w.s 263 he advise d us to fil e an appeal ag ainst the orde r U/s. 263 passed by the Pr. CIT, Vis akhap atn am dated 27/03/2021 wi th a request for condonation of del ay. 10. Th at the appe al ag ainst the order U/s. 263 ought to have been fil ed on or before 27/05/2021. 11. Th at the s ame is not being fil ed wi th a del ay of 509 days.” 3. After hearing the Ld. AR and on perusal of the contents of the petition for condonation of delay along with the affidavit filed by the assessee, we are of the opinion that there is a reasonable and sufficient cause that prevented the assessee in filing the appeal within the prescribed time limit. Therefore, we are of the view that this is a fit case to condone the delay and accordingly we hereby condone the delay of 509 days in filing the appeal before the Tribunal and proceed to adjudicate the appeal on merits. 4. Briefly stated the facts of the case are that the assessment in the case of the assessee was completed by the ACIT, Circle- 5(1), Visakhapatnam U/s. 143(3) r.w.s 144C(3) of the Act dated 22/2/2018 assessing the total income at Rs. 8,36,19,960/- including the adjustment U/s. 92CA(3) of the Act for Rs. 4,40,25,275/-; Long Term Capital Gains of Rs. 5,06,82,374/-. It 4 was observed that the assessee has sold industrial land including the roads for a total sale consideration of Rs. 6,34,23,000/- during the FYs 2013-14 and 2014-15. The Ld. Pr. CIT observed that the assessee has purchased 28,423 sq yds in Phase-II, IDA, Patancheru, Medak District, Andhra Pradesh from Andhra Pradesh Industrial Infrastructure Corporation [APIIC] vide registered sale deed dated 16/01/1992. The Ld. Pr. CIT alsoobserved that the assessee has divided the industrial land into 22 plots and has sold 14 plots in FY 2013-14 and 8 plots in FY 2014-15. The Ld. Pr. CIT exercised his revisionary jurisdiction U/s. 263 of the Act and issued a show cause notice dated 11/5/2018 and posted the case on 7/6/2018. Responding to the show cause notice, the assessee filed its written submissions stating that the assessee entered into an agreement to sell the entire piece of land of 5.8275 Acres (28,423 sq yds) with Mr. R. Ashok on 03/07/2013 for a consideration of Rs. 6,34,23,000/-. It was submitted before the Ld. Pr. CIT that since the operations of the assessee company have increased, the assessee requested for allotment of additional land in the same industrial estate wherein the APIIC expressed its inability to allot any additional land in that industrial estate but offered to allot the requisite land in Parawada Industrial Estate, Visakhapatnam. 5 Therefore, the assessee acquired about 45 Acres of land in Parawada Industrial Estate, Visakhapatnam and shifted its manufacturing operations to Visakhapatnam. Since the land at Patancheru, Medak District was lying vacant and idle, the assessee decided to dispose of the same. Being an industrial land comprising to a huge extent of 5.8275 Acres (28,423 sq yds), the assessee found that there were no buyers for acquiring the larger extent of land and hence approached the APIIC for sub-division of the land into parts for the purpose of selling to various industrial consumers. Consequent to the approval granted by the APIIC, the assessee sub-divided the plots and sold to various customers for an aggregate consideration of Rs. 6,34,23,000/- whereas the Stamp Valuation Authority valued the land at the fair market value of Rs. 8,59,24,000/-. The Ld. Pr. CIT therefore found that as per the provisions of section 50C of the Act, the assessee should have adopted the valuation as per the Stamp Valuation Authority which stood at Rs. 8,59,24,000/- while calculating the capital gains. Further, the Ld. Pr. CIT also observed that since the assessee has sub-divided the land into plots and sold the same as different plots it is an adventure in nature of trade and hence to be treated as business income of the assessee and not to be taxed as capital gains. The Ld. Pr. CIT considered the order of 6 the Ld. AO as erroneous and also prejudicial to the interest of the of the Revenue as contemplated U/s. 263 of the Act thereby directed the Ld. AO to conduct enquiries and pass an order afresh after affording a sufficient opportunity to the assessee. The Ld. Pr. CIT also directed the Ld. AO to refer the property to the Departmental Valuation Officer [DVO] to ascertain the fair market value as on the date of transfer. Aggrieved by the of the Ld. Pr. CIT, the assessee is in appeal before the Tribunal. 5. The assessee has raised the following grounds of appeal and also subsequently raised an additional ground as below: “1. The Ld. Pr. Commissioner of Income Tax is not justified in giving direction to the Assessing Officer to re-do the assessment by cl assifying the profits from sal e of l and as business profits as ag ainst income under the he ad capi tal gains as re turned by the assessee even though the Assessing Officer has taken a possibl e vie w. 2. The appell ant craves l eave to add to; amend; al ter; del ete al l or any of the above grounds of appeal . Additional grounds of appeal: 3. the assumption of jurisdiction by the Ld. Pr. CIT, Vis akhap atn am is not justified as though the order sought to be revised may be erroneous but the s ame is not prejudicial to the interes t of the Revenue as the same is tax neutral .” 6. The main contention of the Ld. AR is that the exercise of jurisdiction U/s. 263 of the Act by the Ld. Pr. CIT in the absence of satisfaction of the twin conditions namely the order of the Ld. 7 AO is erroneous and also prejudicial to the interest of the Revenue, the Ld. AR argued that the order may be considered as erroneous but not prejudicial to the interest of the Revenue as even if the provisions of section 45(2) of the Act are applied, there is no revenue loss to the Department. The Ld. AR further placed his argument that the assessee has not converted the character of the land which is industrial in nature but has only sub-divided the land into parts to fetch a higher market price on the sale of the same. The Ld. AO also referred to paper book page 46 where the APIIC has approved the sub-division of plots comprising of 23765.24 sq mtrs into 22 parts. The Ld. AR further submitted that the land was divided into 22 parts to facilitate the assessee to market it at a better price as no individual was willing to buy the larger extent of 5.8275 Acres. The Ld. AR therefore pleaded that the order of the Ld. Pr. CIT be set aside. Per contra, the Ld. DR submitted that the Ld. Pr. CIT has rightly exercised his jurisdiction since the assessee has failed to adopt the value of assets as per the Stamp Valuation Authority while calculating the capital gains U/s. 50C of the Act. Further, the Ld. DR also submitted that the sale of plots are made in two assessment years but offered to tax in only one assessment year. 8 The Ld. DR further argued that since the assessee has converted the land into stock-in-trade, it is to be considered as business income only. Controverting the arguments of Ld DR, the Ld AR submitted that the assessee has sold fixed assets and is not in the real estate business. 7. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. In the instant case, the assessee has not disputed the value of the estate as per the Stamp Valuation Authority but has preferred to adopt sale consideration actually received at Rs. 6,34,23,000/- as against the value of the Stamp Valuation Authority at Rs. 8,59,24,000/- for the purpose of computing Capital gains. It is also admitted that the Assessing Officer has not looked into these aspects while framing the assessment U/s. 143(3) r.w.s 144C(3) of the Act. Since the Ld. AO has failed to cause any enquiry on the above issues before passing the assessment order, the Ld. Pr. CIT has held that the order of the Ld. AO passed U/s. 143(3) r.w.s 144C(3) of the Act is not only erroneous but also prejudicial to the interest of the Revenue and accordingly, we are of the considered view the jurisdiction exercised by the Ld. Pr. CIT U/s. 263 of the Act is valid in law. 9 8. Coming to the merits of the case, with respect to the treatment of the income as capital gains or business income arising out of the sale of the industrial land by the assessee by converting it into various parts, the Ld. AR argued that as per the directions of the Ld. Pr. CIT, the Ld. AO referred the matter to the Ld. DVO. The Ld. AR referred to page 56 of the paper book wherein the Ld. DVO has determined the fair market value at Rs. 6,96,36,350/- vide order U/s. 50C of the Act dated 21/7/2022. The Ld. AR argued that the valuation made by the Ld. DVO is within the limit as per the proviso-3 to section 50C(1) of the Act. The Ld. AR argued that since the proviso-3 inserted w.e.f 1/4/2021 is beneficial to the assessee, it has to be applied retrospectively by following the ratio laid down by the Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd [1973] 88 ITR 192 (SC). The Ld. AR therefore submitted that the sale of land should be treated as capital gains and not as business profits since the estate is held as fixed asset as per the financials for the FY 2013-14. The Ld. AR further submitted that the assessee has not converted it into stock-in-trade, the provisions of section 45(2) cannot be applied. 10 Per contra, the Ld. DR submits that since the assessee has sub-divided the plots, the provisions of section 45(2) should be applied and it should be treated as business profits of the assessee. 9. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. It is not in dispute that the assessee has entered into a sale agreement with Mr. R. Ashok on 3/7/2013 for a total consideration of Rs. 6,34,23,000/- for the full extent of land of 5.8275 Acres. The sale deed was executed with various buyers both during the FY 2013-14 and 2014-15. The contention of the assessee that the sale agreement has been entered into with Mr. R. Ashok for the entire area of land of 5.8275 Acres where Mr. Ashok is responsible for paying the full consideration to the assessee as per the agreement. We also find that it is only as a matter of convenience to avoid duplicity of registration ie., once in favour of Mr. R. Ashok and again in favour of respective buyers, the assessee preferred to enter into an agreement making Mr. R. Ashok responsible for the full value of consideration payable to the assessee. Further, from the financials of the assessee, we observed that the land has been categorized as fixed 11 assets in the books of the assessee. Further, from the submissions of the Ld. AR, we also find that APIIC has granted approval for sub-division of Plot No. 19B, Survey No. 810, IDA, Phase-II, Patancheru, Medak District, Telangana into 22 parts by retaining the character of the land for industrial purposes. We also find merit in the argument of the Ld. AR that since there were no buyers for the entire land of 5.8275 Acres, the assessee has resorted to sell it to difference buyers by sub-dividing it into various parts after obtaining the prior approval from the APIIC. Merely by selling the entire land after dividing it into various parts, without altering the character of land, which is for industrial purposes, cannot be considered as an adventure in the nature of trade as contemplated by the Ld. Pr. CIT. Further, as per the Ld. DVO valuation, the property has been valued at Rs. 6,96,36,350/- which is lesser than 110% of the value of the sale consideration received by the assessee. In this regard, we extract below the provisions of section 50C(1) and the 3 rd proviso to the section for the immediate reference: “50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for 12 the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer: Provided .......... Provided further .......... Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and ten per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration.” 10. From the plain reading of the 3 rd proviso to section 50C(1) of the Act, we find that the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and ten percent [110% ] of the consideration received or accruing as a result of the transfer. Accordingly, the consideration received shall be deemed to be the full value of consideration for the purposes of section 48 of the Act. In the instant case, the Ld. DVO has valued the property at Rs. 6,96,36,350/- which is less than 110% of the value of sale consideration received by the assessee as declared in the sale deeds. Since the character of the land has not been recategorized and has been sold as a fixed asset by the assessee, we hereby direct the Ld. AO to compute the income of arising out of the sale of the parts of the industrial land as capital gains of the assessee by considering the actual 13 consideration received by the assessee. Thus, the grounds raised by the assessee are allowed. 11. In the result, appeal of the assessee is allowed. Pronounced in the open Court on the 01 st June, 2023. Sd/- Sd/- (दुåवूǽआर.एलरेɬडी) (एसबालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखासदèय/ACCOUNTANT MEMBER Dated : 01.06.2023 OKK - SPS आदेशकȧĤǓतͧलͪपअĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee–M/s. SNF (India) Private Limited, Plot No.19, JNPC Ponnuru Village, Parawada Mandal, Visakhapatnam, Andhra Pradesh – 531021. 2. राजèव/The Revenue –Assistant Commissioner of Income Tax, Circle- 3(1), Visakhapatnam. 3. The Principal Commissioner of Income Tax-1, Visakhapatnam. 4. आयकरआयुÈत (अपील)/ The Commissioner of Income Tax 5. ͪवभागीयĤǓतǓनͬध, आयकरअपीलȣयअͬधकरण, ͪवशाखापटणम/ DR,ITAT, Visakhapatnam 6. गाड[फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam