, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , ! ' ! # . $% & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.2256/MDS/2016 / ASSESSMENT YEAR:2012-13 SHRI K.R.JAGANNATHAN , NEW NO.4, OLD NO.33, KRISHNA STREET, T. NAGAR, CHENNAI-17. VS. THE INCOME TAX OFFICER, INTERNATIONAL TAXATION-1(2), CHENNAI-34. [PAN :A HMPJ0881H ] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : MS. B. RAMAKRISHNAN, CA /RESPONDENT BY : MS. SHIVA SRINIVAS, JCIT / DATE OF HEARING : 16.11.2016 / DATE OF PRONOUNCEMENT : 25 .01 . 201 7 - / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-16, CHENNA I, DATED 31.05.2016 PERTAINING TO ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS FOR OUR ADJUDICATION. 1. FOR THAT THE ORDER OF THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANC ES OF THE CASE. 2. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ASSESSING OFFICERS ACTION OF CONSIDE RING A HIGHER VALUE ITA NO.2256/MDS/2016 :- 2 -: (GUIDELINE VALUE OF RS. 200/- PER SQ.FT) AS SALE CO NSIDERATION FOR SALE OF LAND AT KUNDRATHUR AND THEREBY MADE AN ADDITION OF RS. 2,02,65,720/- TO THE TOTAL INCOME AS LONG-TERM CAPI TAL GAINS. 3. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ASSESSING OFFICERS ACTION OF CALCULA TING THE BUSINESS INCOME UNDER SECTION 45(2) OF THE ACT AS NIL, INS TEAD OF LOSS OF (-) RS. 2,02,65,720 BEING THE DIFFERENCE BETWEEN THE AC TUAL SALE CONSIDERATION AND FAIR MARKET VALUE AS ON DATE OF C ONVERSION OF LAND. 4. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ASSESSING OFFICERS ACTION OF RESTRIC TING THE AMOUNT OF TDS CLAIM TO RS. 6,37,181/-. 5. FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE LEVY OF INTEREST U/S 234B OF THE ACT ON THE ABOVE ADDITIONS MADE. 6. FOR THESE GROUNDS AND SUCH OTHER GROUNDS THAT MA Y BE ADDUCED BEFORE OR DURING, THE HEARING OF THE APPEAL, IT IS PRAYED THAT THE HONBLE TRIBUNAL MAY BE PLEASED TO PASS SUCH OTHER ORDERS AS THE HONBLE TRIBUNAL MAY DEEM FIT. 2.1. AT THE TIME OF HEARING, LD.A.R HAS NOT PRESSE D GROUND NO.2. HENCE, THIS GROUND IS DISMISSED AS NOT PRESSED. 3. THE FACTS RELATING TO THE GROUND NO.3 ARE THAT THE ASSESSEE HAS CONVERTED LAND INTO STOCK-IN-TRADE. HENCE, THE AO I NVOKED PROVISIONS OF THE SECTION 45(2) OF THE ACT AND ASSESSED THE DIFFERENC E OF FAIR MARKET VALUE OF THE PROPERTY IN THE YEAR OF CONVERSION INTO STOCK-I N-TRADE AND COST OF ASSET AFTER GIVING INDEXATION BENEFITS, AS LONG TERM CAPI TAL GAINS AMOUNTING TO ` 2,27,69,814/- AS AGAINST LTCG DECLARED BY THE ASSES SEE FOR ` 25,04,094/- AND BUSINESS INCOME AT RS.NIL. THE AO ALSO DISALLO WED LAND DEVELOPMENT CHARGES FOR ` 4,89,020/- IN ABSENCE OF THE SUPPORTING DOCUMENTS AND RESTRICTED TDS TO THE EXTENT OF INCOME OFFERED IN T HE RETURN OF INCOME. ACCORDINGLY, TDS CREDIT WAS GIVEN FOR ` 6,37,181/- AS AGAINST CLAIMED BY THE ITA NO.2256/MDS/2016 :- 3 -: ASSESSEE FOR ` 15,23,280/-. AGGRIEVED WITH THE ORDER OF AO, THE A SSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 3.1 ON APPEAL, LD.CIT(A) OBSERVED THAT NOTWITHSTA NDING ANYTHING CONTAINED IN SUB-SECTION (1) OF S.45, THE PROFITS O R GAINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAP ITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOCK-IN-TRADE OF A BUSINESS CA RRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME-TAX AS HIS INCOME OF THE PREVI OUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM AND, FOR THE PURPOSES OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET O N THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEMED TO BE THE F ULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET.) 3.2 THUS, HE OBSERVED THAT AS PER SECTION 45(2) TH AT WHEN A ASSET IS CONVERTED INTO A STOCK IN TRADE AND THEREAFTER THE SAME IS SOLD THEN INCOME ARISING FROM SUCH TRANSACTION WILL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH SUCH STOCK IN TRADE IS SOLD AND IT CLEARLY ME NTIONS THAT FOR THE PURPOSES OF SEC.48 THE FAIR MARKET VALUE OF THE ASS ET ON THE DATE OF SUCH CONVERSION, IN THE INSTANT CASE THE A.O HAS ADOPTED THE FAIR MARKET VALUE OF THE PROPERTY AT ` 2,44,80,720/- AND IT IS TO BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. ACCORDINGLY, AFTER REDUCING THE INDE X COST OF ACQUISITION OF ` 17,10,906/- ARRIVED TO A LTCG AT ` 2,27,69,814/- AND MADE ADDITION OF ` 2,02,65,720/-. HOWEVER, ASSESSEE STATED THAT THE AO HAD INADVERTENTLY FORGET TO GIVE EFFECT TO SECOND LIMB OF SECTION 45( 2) OF THE ACT. AS PER ITA NO.2256/MDS/2016 :- 4 -: ASSESSEE THE BUSINESS INCOME HAS TO BE ASSESSED A S PER THE DIFFERENCE OF ACTUAL SALE CONSIDERATION AND THE FAIR MARKET VALUE OF THE PROPERTY AND THEREFORE AS PER ASSESSEES CLAIM THE DIFFERENCE B ETWEEN THE FAIR MARKET VALUE AS ON CONVERSION DATE AND THE SALE CONSIDERAT ION RESULTING INTO A BUSINESS LOSS OF ` 2,02,65,720/-. IS TO BE ALSO ASSESSED BUSINESS INCO ME HOWEVER, THERE BEING NO SUCH PROVISIONS IN THE ACT, THE AO TREATING THE BUSINESS INCOME AT ` NIL IS CONFIRMED BY CIT(A). AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, LD.A.R SUBMITTED THAT THE ASSESSEE H AS CONVERTED HIS CAPITAL ASSET INTO STOCK-IN-TRADE IN ASSESSMENT YEA R 2001-12 AND AFTER THAT THE ASSESSEE COMPANY SOLD ITS STOCK-IN-TRADE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. ACCORDING TO HIM, THERE IS TWO STEP S OF COMPUTING THE INCOME OF ASSESSEE ON SALE OF THE SAID ASSET. ONE IS A CAP ITAL GAIN ON CONVERSION OF THE CAPITAL ASSET INTO STOCK-IN-TRADE AND SALE OF S TOCK-IN-TRADE ON SALE AS BUSINESS INCOME OR LOSS. HE SUBMITTED THAT THE AO COMPUTED THE ENTIRE INCOME FROM THE SALE OF ASSETS AS CAPITAL GAIN ONLY AND HE HAS NOT COMPUTED THE BUSINESS INCOME OR LOSS ON SALE OF STOCK-IN-TRA DE. HE PLEADED BEFORE THE BENCH THAT PROPER DIRECTION IS TO BE GIVEN TO THE A SSESSING AUTHORITY ON THIS ISSUE. 5. ON THE OTHER HAND, LD.D.R RELIED ON THE ORDER O F LOWER AUTHORITIES. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE ACQUIRED THE SAID PROPE RTY IN EARLIER ASSESSMENT YEAR AND TREATED IT AS INVESTMENT IN HIS HAND. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE SAID TO BE ITA NO.2256/MDS/2016 :- 5 -: CONVERTED ITS INVESTMENT INTO STOCK-IN-TRADE. THER E WAS NO RESTRICTION FOR THE ASSESSEE TO HOLD THE LAND EITHER AS A BUSIN ESS ASSET OR AS AN INVESTMENT AND LAND WHICH WAS ORIGINALLY TREATED AS FIXED ASSET IN HIS HAND. THE ASSESSING OFFICER HAS NOT BOTHERED TO EX AMINE THE NATURE OF ACTIVITY CARRIED ON BY THE ASSESSEE AND HE STRA IGHT AWAY TREATED THE GAIN ON SALE OF LAND AS CAPITAL GAIN. ACCORDING TO LD.A.R, THOUGH THE ASSESSEE HAS TREATED THE LAND AS INVESTMENT IN ITS BOOKS OF ACCOUNT AND ONLY IN THE ASSESSMENT YEAR 2011-2012 IT WAS CO NVERTED INTO STOCK-IN-TRADE. HOWEVER, LOWER AUTHORITIES HAS NOT EXAMINED THE EVIDENCE WHICH SHOWS THAT THE ASSESSEE CONVERTED T HE LANDED PROPERTY INTO STOCK-IN-TRADE IN THE FINANCIAL YEAR 2010-2011 RELEVANT TO ASSESSMENT YEAR 2011-2012 WHILE CARRYING ON BUSI NESS OF ASSESSEE. IF BY LOOKING INTO THE INTENTION OF THE ASSESSEE I N THE YEAR OF ACQUISITION, AFTER HOLDING THE PROPERTY FOR LONG T IME IT WANT TO CHANGE THE USE OF THE PROPERTY AS STOCK IN TRADE AND CONV ERTED INTO STOCK IN TRADE WHILE CARRYING ON BUSINESS OF ASSESSEE, THE L OWER AUTHORITIES SHALL CONSIDER THE SAME FOR THE PURPOSE OF COMPUTAT ION OF INCOME ON TRANSFER OF SUCH AN ASSET. IF IT IS SO UPTO FINANC IAL YEAR 2010-2011, THE ASSET SHOULD BE CONSIDERED AS FIXED ASSET AND PROVI SIONS OF SEC. 45(2) TO BE APPLIED FOR THE PURPOSE OF DETERMINING THE IN COME. SEC. 45(2) OF THE ACT DEALS WITH CONVERSION BY OWNER OF A CAPITAL ASSET INTO STOCK-IN- TRADE WHICH GENERATES PROFITS OR GAINS. THESE PRO FITS AND GAINS ARE ITA NO.2256/MDS/2016 :- 6 -: TAXABLE IN THE ASSESSMENT YEAR IN WHICH THE SAID ST OCK-IN-TRADE OR THE BUSINESS ASSET IS SOLD. DATE OF CONVERSION IS TREA TED AS THE DATE OF TRANSFER FOR THE PURPOSE OF SEC. 48 OF THE ACT. FU LL VALUE OF CONSIDERATION IS THE FAIR MARKET VALUE OF THE SAID CAPITAL ASSET ON THE SAID DATE OF CONVERSION. THE ABOVE PROVISION PROVI DED FOR THE COMPUTATION AND IT IS DONE IN TWO STEPS. FIRSTLY M ARKET VALUE AS ON THE DATE OF THE CONVERSION HAS TO BE ASCERTAINED IN RES PECT OF THE PROPERTY SOLD DURING THE YEAR. THE DIFFERENCE BETWEEN THE M ARKET VALUE OF THE PROPERTY AND THE COST OF ACQUISITION HAS TO BE ASSE SSED UNDER THE HEAD CAPITAL GAINS. THE SECOND STEP IS TO FIND OUT BUSI NESS INCOME FOR FINDING OUT THE DIFFERENCE BETWEEN THE SALE PRICE A ND THE MARKET PRICE ON THE DATE OF CONVERSION OF THE STOCK-IN-TRADE. 7. IN THE PRESENT CASE, IF THE ASSESSEE, THE OW NER OF THE CAPITAL ASSET CONVERTED THE SAME INTO STOCK-IN-TRADE IN THE FINANCIAL YEAR 2010-2011 WHILE CARRYING ON BUSINESS OF ASSESSEE, T HE COMPUTATION OF INCOME TO BE DONE AS PER PROVISIONS OF SECTION 45(2 ) OF THE IT ACT. IN OUR OPINION, THE ASSESSING OFFICER HAS TO COMPUTE T HE INCOME UNDER TWO HEADS BY APPLYING SEC. 45(2) THOUGH THE ASSESSE E HAS RAISED A GROUND RELATING TO APPLICABILITY OF PROVISIONS OF S EC. 45(2) BEFORE THE CIT(A). THE CIT(A) WRONGLY OBSERVED THAT THE INCOM E GENERATED FROM TRANSFER OF THE ASSET TO BE CONSIDERED AS CAPITAL G AINS WHICH IS NOT APPROPRIATE. IN OUR OPINION, THE ENTIRE ISSUE HAS TO BE RELOOKED BY THE ITA NO.2256/MDS/2016 :- 7 -: ASSESSING OFFICER SO AS TO APPLY THE PROVISIONS OF SEC. 45(2) OF THE ACT AND HE HAS TO COMPUTE THE INCOME UPTO THE DATE OF C ONVERSION AS INCOME FROM CAPITAL GAINS AND THEREAFTER INCOME HAS TO BE COMPUTED AS INCOME FROM BUSINESS. THE ASSESSEE, IF HE HAS C ONVERTED THE PROPERTY AS STOCK-IN-TRADE WHILE CARRYING ON HIS BU SINESS IN THE FINANCIAL YEAR 2010-2011, HE SHALL LEAD EVIDENCE T O THAT EFFECT. IF THE ASSESSING OFFICER SATISFIED THAT THE ASSESSEE HAS R IGHTLY CONVERTED THE FIXED ASSETS AS STOCK IN TRADE AS DISCUSSED ABOVE W HILE CARRYING ON HIS BUSINESS, THE ASSESSING OFFICER FROM THAT DATE OF CONVERSION, THE ASSESSEES LANDED PROPERTY IS TO BE CONSIDERED AS S TOCK-IN-TRADE AND INCOME GENERATED FROM THE TRANSFER THEREAFTER HAS T O BE CONSIDERED AS BUSINESS INCOME ONLY. ACCORDINGLY, WE SET ASIDE T HE ORDER OF LOWER AUTHORITIES AND REMIT THIS ISSUE TO THE FILE OF TH E ASSESSING OFFICER FOR RECONSIDERATION OF THE ISSUE IN DISPUTE AND TO DEC IDE THE ISSUE AS INDICATED ABOVE. ACCORDINGLY, THIS GROUND OF THE A PPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. THE NEXT GROUND IS WITH REGARD TO NON-GIVING CRE DIT TOWARDS TDS AT ` 6,37,181/-. 9. THE FACTS OF THE ISSUE ARE THAT THE AO RESTRICT ING TDS CLAIM TO THE EXTENT OF INTEREST INCOME OFFERED FOR ` 6,37,181/- AS AGAINST CLAIMED BY THE ASSESSEE FOR ` 15,23,280/-, THE ASSESSEE CLARIFIED THAT THE INTER EST INCOME WERE RECEIVED FROM THE JOINT FIXED DEPOSIT ACCOUNT WHICH WAS IN THE NAME ITA NO.2256/MDS/2016 :- 8 -: OF ASSESSEE AND SMT.JAGANATHAN SAILAJA CHITTA. THE INTEREST AMOUNT BELONGS TO BOTH HOWEVER WHILE DEDUCTING TDS IT WAS DEDUCTED ONLY IN THE NAME OF THE ASSESSEE. HENC,E THE ASSESSEE ALONE HAD CLAIMED THE ENTIRE TDS. SMT.JAGANATHAN SAILAJA CHITTA HAD OFFERED THE BALAN CE INTEREST INCOME IN HER HAND WHICH THE AO HAS NOT OBJECTED. THEREFORE THE T DS WHICH WAS DEDUCTED IN THE NAME OF THE ASSESSEE NEEDS TO BE ALLOWED WHE N THE INCOMING QUESTION HAS ALREADY BEEN OFFERED TO TAX IN THE HAN DS OF THE RESPECTIVE ASSESSEE AND THEREFORE RELIED IN THE CASE LAWS OF A RVIND MOORJANI BRANDS PVT LTD., VS. ITO, 21 TAXMAN 131 MUMBAI, HOWEVER AS PER THE STATUTE PROVISIONS TDS, OF SEC.198 R.W.S.199, THE ASSESSEE IS ELIGIBLE FOR CREDIT OF THE TDS TO THE EXTENT OF INCOME OFFERED IN THE RETURN OF INCOM E, CREDIT CAN BE GIVEN ONLY WHEN THE CORRESPONDING INCOME IS OFFERED IN TH E RETURN OF INCOME. SINCE THE ASSESSEE HAD CLAIMED TDS CREDIT FOR AN IN COME WHICH HAS NOT BEEN OFFERED IN HIS RETURN OF INCOME THEREFORE THE LD.CI T(A) HAS CONFIRMED THE ACTION OF THE AO TO RESTRICT THE TDS CREDIT TO THE EXTENT OF INCOME OFFERED BY THE ASSESSEE. AGAINST THIS, THE ASSESSEE IS IN APPE AL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. THE MAIN CONTENTION OF THE DEPARTMENT IS THAT TDS T O BE GIVEN TO THE EXTENT INCOME OFFERED BY THE ASSESSEE, NOT ON THE BASIS OF TDS CERTIFICATE FURNISHED BY THE ASSESSEE. IN OUR OPINION, IN THIS CASE, TDS CERTIFICATE WAS ISSUED IFN THE NAME OF ASSESSEE. HOWEVER, THE INCOME INVOLVING IN THOSE TDS CERTIFICATE WAS SPLITED BETWEEN ASSESSEE AND HIS WI FE, AS SUCH, THE DEPARTMENT HAS NOT CONSIDERED THE PORTION OF THE TD S CERTIFICATE, THOUGH THE IN THE NAME OF THE ASSESSEE TO GIVE CREDIT TOWA RDS PAYMENT OF TAX. IN ITA NO.2256/MDS/2016 :- 9 -: OUR OPINION, IF THE BENEFIT OF TDS IS NOT GIVEN TO THE ASSESSEES WIFE, AND ALSO TO THE ASSESSEE AS THE INCOME IS NOT OFFERED I N THE HANDS OF ASSESSEE WHICH IS NOT CORRECT. HENCE, WE DIRECT THE AO TO C ONSIDER THAT PORTION OF TDS CERTIFICATE IN RESPECT OF INCOME OFFERED BY THE ASSESSEES WIFE TO THE ASSESSEE, IF IT IS NOT GIVEN TO THE CREDIT TO THE A SSESSEES WIFE. WITH THIS OBSERVATION, WE REMIT THE ISSUE TO THE FILE OF AO F OR FRESH CONSIDERATION. 11. THE LAST GROUND IS WITH REGARD TO LEVY OF INTE REST U/S.234B OF THE ACT. AS REGARDS INTEREST U/S. 234B IS CONSEQUENTIAL AND MANDATORY IN NATURE AND TO BE CHARGED ACCORDINGLY. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) & / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 25 TH JANUARY, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF