Sri Bijay Shankar Halwasiya, Kolkata V. ITO, Ward 44(4)/ Kolkata, Kolkata

ITA 2353/KOL/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0155 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 15-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: S M SURANA SHRI D K MAROTI
• Keywords: Capital asset; Business income; Cost of acquisition; Date of conversion; Reassessment proceedings
• Section: 45(2); 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI S.S.GODARA, JM & HONBLE SHRI M.BALAGANESH, AM] I.T.A NO. 2353/KOL/2016 & I.T.A. NO. 910/KOL/2018 ASSESSMENT YEARS : 2007- 08 & 2009-10 SHRI BIJAY SHANKAR HALWASIYA -VS- ITO, WARD-44( 4) , KOLKATA [PAN: AAQPH 4752 A] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI S.M. SURANA, ADVOCATE SHRI D.K. MAROTI, FCA FOR THE RESPONDENT : SHRI SAURABH KUMAR, ADDL. CIT SR. DR DATE OF HEARING : 13.11.2018 DATE OF PRONOUNCEMENT : 05.12.2018 ORDER PER M.BALAGANESH, AM 1. THESE APPEALS BY THE ASSESSEE ARISE OUT OF TH E SEPARATE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-13, KOLKATA [IN SHORT THE LD CIT(A)] IN APPEAL NO.93/CIT(A)-13/KOL/2015-16 DATED 06.09.2016 AND AP PEAL NO. 97/CIT(A)-13/W- 44(4)/KOL/2015-16 DATED 18.01.2018 AGAINST THE SEP ARATE ORDER PASSED BY ITO, WARD- 44(4), KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 147 / 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 25.03.2015 AND 30 .03.2015 RESPECTIVELY FOR THE ASSESSMENT YEARS 2007-08 AND 2009-10 RESPECTIVELY. BOTH THE APPEALS ARE TAKEN TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 2 ITA NO. 2353/KOL/2016 ASST YEAR 2007-08 2. THE PRELIMINARY ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE VALIDITY OF REO PENING OF ASSESSMENT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE INTER CONNECTED ISS UE INVOLVED THEREIN IS AS TO WHETHER ANY CAPITAL GAINS DID ARISE TO THE ASSESSEE IN ASST YEAR 2007-08 IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSES SEE IS AN INDIVIDUAL AND HAD FILED HIS RETURN OF INCOME FOR THE ASST YEAR 2007-08 ON 8.9.2 007 DECLARING TOTAL INCOME OF RS 1,43,510/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. LATER THE ASSESSMENT WAS SOUGHT TO BE REOPENED BY THE LD AO ON THE GROUND TH AT THE ASSESSEE HAD NOT DISCLOSED ANY CAPITAL GAIN ON CONVERSION OF HIS CAPITAL ASSET INTO BUSINESS ASSET IN THE RELEVANT FINANCIAL YEAR. NOTICE U/S 148 OF THE ACT WAS ISSU ED AND SERVED ON THE ASSESSEE. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE STATED VI DE LETTER DATED 3.4.2014 THAT THE ORIGINAL RETURN FILED MAY BE TREATED AS A RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THE BRIEF FACTS OF THE DISPUTE REGARDING THE CAPITA L GAINS ARE THAT THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT DATED 13.9.2006 WITH M /S KOKRA DEVELEPORS PVT LTD FOR CONSTRUCTION OF BUILDING ON HIS ANCESTRAL LAND. IT WAS AGREED THAT ASSESSEE AND DEVELOPER WOULD SHARE 50% EACH OF CONSTRUCTED PORTION AND ALL CONSTRUCTION AND OTHER RELATED COSTS WOULD BE BORNE BY THE DEVELOPER. NO CONSTRUCT ION ACTIVITIES WERE TAKEN UP / COMPLETED BY 31.3.2007. THE LD AO SHOWCAUSED THE A SSESSEE VIDE OFFICE LETTER DATED 17.3.2015 MENTIONING AS UNDER:- AS PER DETAILS OF VALUATION BY THE VALUER OF GOVT. OF INDIA FOR INCOME TAX & WEALTH TAX, IT HAS STATED THAT THE VALUE OF THE LAN DED PROPERTY IS RS 38,22,000/- AS ON 01/04/1981 . SO, BY CALCULATING C.I.I. FOR T HE FINANCIAL YEAR 2006-07 I.E ON THE DATE OF 13/09/2006 , IT HAS COME TO : 38,22,000 * 519 (C.I.I.OF 2006-07) / 100 (C.I.I. OF 1981-82) = RS 1,98,36,180/- 3 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 3 THE MATTER HAS BEEN DULY PASSED ON TO THE DISTRICT VALUATION OFFICR, INCOME TAX DEPARTMENT FOR VALUATION OF THE SAID LAND ON 01/04/ 1981 AND ON 01/09/2006, BUT THE REPLY HAS BEEN YET TO BE RECEIVED. HOWEVER, A PRELIMINARY REPORT HAS BEEN INTIMATED BY THE VALUATION OFFICER MENTIONING THE VALUE OF THE PROPERTY AS RS 5.5 CROR ES. HOWEVER, YOU HAVE NOT SHOWN ANY INCOME FROM LONG TE RM CAPITAL GAIN FOR TRANSFER OF YOUR CAPITAL ASSET TO YOUR BUSINESS ASS ET IN YOUR JOINT VENTURE ACCOUNTS WITH M/S KOKRA DEVELOPERS (P) LTD FOR THE AY 2007-08. HENCE, YOU ARE SHOW CAUSED AS TO WHY THE DIFFERENCE AMOUNT OF RS 3,51,63,820/- ( RS 5,50,00,000 RS 1,98,36,180) OR THE VALUATION OF THE SAID PROPERTY VALUED BY THE DISTRICT VALUATION OFFICER IS NOT TREATED AS YOUR INCOME FROM LONG TERM CAPITAL GAINS FOR THE FINANCIAL YEAR 2006-07 RELATI NG TO ASSESSMENT YEAR 2007- 08. THE ASSESSEE OBJECTED TO THE DETERMINATION OF VALUA TION OF PROPERTY AT RS 5.5 CRORES WHICH WAS ONLY BASED ON AN ESTIMATE AND ALSO INFORM ED THE LD AO THAT THE VALUATION OFFICER OF INCOME TAX DEPARTMENT HAD VISITED THE PR EMISES IN BHIWANI ON 19.3.2015 AND ALL THE DOCUMENTS AND INFORMATION ON FACTS AND FIND INGS WERE PROVIDED TO HIM AS PER HIS REQUIREMENTS AND SATISFACTION AND THAT HE HAD ASSUR ED THAT THE FINAL REPORT WOULD BE SUBMITTED BY HIM IN DUE TIME. ACCORDINGLY, IT WAS PLEADED BY THE ASSESSEE BEFORE THE LD AO TO KEEP THE REASSESSMENT PROCEEDINGS IN ABEYA NCE TILL THE RECEIPT OF THE REPORT FROM DISTRICT VALUATION OFFICER. 4. THE LD AO OBSERVED IN HIS ORDER AS UNDER:- SINCE THIS IS A TIME BARRING CASE AND THE ASSESSME NT PROCEEDINGS HAVE TO BE COMPLETED WITHIN THE STIPULATED TIME. RATHER DEPENDING ON THE ASSESSEE'S SUBMISSION, IT IS INEVITABLE TO SUBSTANTIATE WITH THE PRELIMINARY REP ORT PROVIDED BY THE DEPARTMENT'S VALUATION OFFICER. THE ASSESSEE'S CONTENTION FOR OB JECTION ON THE PRELIMINARY REPORT BY THE VALUATION OFFICER IS NOT TENABLE AS BECAUSE IT IS AN EXPERT OPINION. THE PRELIMINARY REPORT BY THE DISTRICT VALUATION OFFICER IS ESTIMAT ED AND DULY REPORTED TO THIS OFFICE ON 07/11/2014 IS AS UNDER: 4 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 4 THE CIRCLE RATES FOR THE ABOVE MENTIONED PROPERTY AVAILABLE FOR THE YEAR 2005- 06 IS RS. 10,000/-; AND THE AREA OF THE PROPERTY IS 5500 SQ. YARD; THEREBY TAKING THE PRELIMINARY VALUATION OF THE PROPERTY TO RS. 5. 50 CRORES. WHATEVER, THE VALUATION OFFICER SAID IN HIS REPORT; IT HAS TO BE CONSIDERED AS THERE IS NO OTHER OPTION TO JUDGE THE VALUE OF THE PROPERTY. TH E ASSESSEE AS WELL AS THE A.O. IS NOT THE AUTHORITY TO TAKE SUCH DECISION FOR ESTIMATING THE PROPERTY VALUE. THAT'S WHY THE MATTER WAS PASSED TO THE DISTRICT VALUATION OFFICER AND I COMPEL TO RELY ON THE REPORT, AS IT IS ONE & ONLY BASIS TO COMPLETE THE ASSESSMEN T PROCEEDINGS. CONSIDERING ALL OF THE ABOVE, THE DIFFERENCE AMOUNT OF RS. 3,51,63,820/- ( RS. 5,50,00,000/- WHICH IS VALUED ON 01/09/2006 - RS, 1,98,36,180/- WHICH IS VALUED ON 0 1/04/1981) IS TREATED AS INCOME FROM LONG TERM CAPITAL GAINS AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE ASSESSEE SPECIFICALLY DREW THE ATTENTION OF THE LD CITA THAT AS PER THE DEVELOPMENT AGREEMENT DATED 13.9.2006 AND IN SUPPLE MENTARY AGREEMENT DATED 9.3.2007, IT WAS CLEARLY MENTIONED THAT POSSESSION OF LAND WOULD BE HANDED OVER ONLY AFTER APPROVAL OF PROJECT SANCTION PLAN BY THE MUNI CIPAL COUNCIL, BHIWANI AND ACTUAL DATE OF FILING OF PROJECT SANCTION PLAN WAS 15.10.2 007 AND SANCTION OBTAINED ON 19.10.2007 FOR CONSTRUCTION OF TOTAL 2271.19 SQ.YAR D VIDE MISAL NO. 179 DATED 15.10.2007 FOR 1100 SQ.YARD IN THE NAME OF AMARISH HALWASIYA AND MISAL NO. 180 DATED 15.10.2007 FOR 1171.19 SQ.YARD IN THE NAME OF BIJAY SHANKAR HALWASIYA RESPECTIVELY AND ACTUAL DATE OF HANDING OVER OF POS SESSION BY LAND OWNERS TO DEVELOPER WAS ON 29.10.2007, FALLING IN ASST YEAR 2008-09. I T WAS SPECIFICALLY ARGUED THAT THE POSSESSION OF THE LAND WAS NOT HANDED OVER BY THE A SSESSEE TO THE DEVELOPER IN FINANCIAL YEAR 2006-07 AND HENCE THERE IS NO TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT READ WITH SECTION 53A OF TRANSFER OF PROPERTY ACT, 1882. HENCE AT THE FIRST INSTANCE, THERE CANNOT BE ANY CAPITAL GAINS IN ASST YEAR 2007-08 AND CONSEQUENTLY THERE CANNOT BE ANY INCOME ESCAPING ASSESSMENT FOR THE A SST YEAR 2007-08. THE ASSESSEE FURTHER SUBMITTED THAT BALANCE LAND OUT OF TOTAL LA ND AROUND 5500 SQ.YARD AS PER DEVELOPMENT AGREEMENT DATED 13.9.2006 WAS NOT CONST RUCTED AND WAS UNDER POSSESSION OF LAND OWNER AND WITH MUTUAL CONSENT, NO FURTHER C ONSTRUCTION WOULD BE MADE DUE TO 5 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 5 SOME UNAVOIDABLE CIRCUMSTANCES AND DEVELOPMENT AGRE EMENT DATED 13.9.2006 STOOD COMPLIED TO THE EXTENT OF 2271.19 SQ.YARD ONLY. 5.1. THE ASSESSEE FURTHER SUBMITTED THAT IT IS GENE RALLY ACCEPTED PERCEPTION THAT LAND PERTAINING TO CONSTRUCTION PORTION ALLOTTED TO DEVE LOPER WOULD BE CONSIDERED AS TRANSFER AND SALE CONSIDERATION OF SUCH LAND WOULD BE COST O F CONSTRUCTION OF CONSTRUCTED AREA ALLOTTED TO THE LAND OWNER. HERE WHEN LAND APPURT ENANT TO CONSTRUCTED PORTION ALLOTTED TO DEVELOPER IS SOLD, THERE WILL BE LONG TERM CAPIT AL GAIN WHEN LAND IS ANCESTRAL, VALUE AS ON 1.4.1981 WILL BE THE ORIGINAL COST AND INDEXATIO N COST TO BE ARRIVED AT ON SALE OF LAND TO DEVELOPER WHICH IS APPURTENANT TO HIS CONSTRUCTE D AREA. SALE CONSIDERATION WILL BE COST OF CONSTRUCTION OF CONSTRUCTED PORTION ALLOTTE D TO LAND OWNER AND DIFFERENCE WILL BE LONG TERM CAPITAL GAIN OR LOSS. HERE THERE CANNOT BE ANY QUESTION OF THROWING OR CONVERTING ANY INVESTMENT INTO STOCK IN TRADE AS NO INVESTMENT WAS MADE BY LAND OWNER AND HE HAS NO STOCK IN TRADE OR DOING ANY TRADING B USINESS. FURTHER IT IS A CASE OF GETTING ANCESTRAL PROPERTY DEVELOPED , HENCE TO ALLEGE THAT ASSESSEE HAS THROWN HIS PROPERTY INTO STOCK IN TRADE IS BEYOND ALL RELEVANT PROVISIONS OF THE ACT. WHENEVER THE DEVELOPERS PORTION WILL BE SOLD TO HIM, THE ASSESEE MAY HAVE C APITAL GAIN ON SALE OF ANCESTRAL LAND. 6. THE LD CITA OBSERVED THAT FINAL VALUATION OF LAN D FOR FINANCIAL YEAR 2006-07 OF DEPARTMENTAL VALUATION OFFICER (DVO), ROHTAK VIDE T HEIR REPORT DATED 30.3.2015 WAS RS 2,33,24,000/-. THE INDEXED COST OF ACQUISITION FOR THE ASSESSEE AFTER TAKING COST INFLATION INDEX FOR FINANCIAL YEAR 2006-07 WAS RS 1 ,98,36,180/- AS HAS BEEN WORKED OUT BY THE LD AO IN HIS ORDER. THE LD CITA OBSERVED THAT THE ASSESSEES ARGUMENT FOR NOT GIVING POSSESSION OF LAND TO DEVELOPER IN FINANCIAL YEAR 2006-07 IS NOT ACCEPTABLE ON THE GROUND THAT SECURITY DEPOSIT OF RS 50 LACS WAS GIVE N TO THE ASSESSEE BY THE DEVELOPER IN FINANCIAL YEAR 2006-07 AND DEVELOPMENT AGREEMENT WA S ALSO EXECUTED IN FINANCIAL YEAR 2006-07 . THEREFORE, REMAINING AND OTHER ACTIVITIES WERE ONLY FOLLOW UP ACTIVITY. THE LD CITA HELD THAT THE DEVELOPMENT AGREEMENT EFFECTI VELY AMOUNTS TO TRANSFER AGREEMENT 6 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 6 AND POSSESSION WAS HANDED OVER BY THE ASSESSEE TO T HE DEVELOPER GRANTING PERMISSION TO THE DEVELOPER TO ENTER UPON THE LAND AND DO CONSTRU CTION THEREON. ACCORDING TO LD CITA, THE DATE OF DEVELOPMENT AGREEMENT DATED 13.9. 2006 DETERMINES THE DATE OF TRANSFER AND THAT THE ACTUAL DATE OF TAKING PHYSICA L POSSESSION OR THE INSTANCES OF POSSESSORY ACTS EXERCISED WAS NOT VERY RELEVANT. HE HELD THAT THE FACT THAT LEGAL OWNERSHIP CONTINUES TO REMAIN WITH THE OWNERS OR TH AT THE HANDOVER OF LAND CAN BE DEMANDED BY THE DEVELOPER ONLY WHEN HE GETS MAP APP ROVED WAS REALLY NOT GERMANE TO THE APPLICABILITY OF SECTION 2(47)(V) OF THE ACT. ACCORDINGLY HE DETERMINED THE LONG TERM CAPITAL GAINS ON TRANSFER OF 5500 SQ.YARD OF L AND AT RS 34,87,820/- AS UNDER:- FINAL VALUE OF LAND OF 5500 SQ.YARD AS DETERMINED B Y DVO ON 1.9.2006 2,33,24,000 LESS: INDEXATION VALUE OF COST OF ACQUISITION 1,98 ,36,180 --------------- LONG TERM CAPITAL GAIN 34,87,820 --------------- 7. THE LD CITA FURTHER OBSERVED THAT IF A PERSON DE SIRES TO DEVELOP OR EXPLOIT IN ANY OTHER MANNER, A CAPITAL ASSET HELD BY HIM, HE MAY T AKE FULL ADVANTAGE OF THE FULL PROVISIONS OF SECTION 45(2) OF THE ACT. SUCH A PER SON OR THE ASSESSEE MAY CONVERT THE CAPITAL ASSET INTO STOCK IN TRADE AND THEREAFTER, H E MAY EITHER DEVELOP IT OR EXPLOIT IN ANY OTHER MANNER. SUCH A COURSE OF ACTION WILL BE VERY USEFUL IN THE CASE OF A PERSON WHO DESIRES TO DEVELOP A PLOT OF LAND, WHICH HE IS HOLD ING AS A CAPITAL ASSET. HE MAY CONVERT SUCH A PLOT OF LAND INTO STOCK IN TRADE AND THEREAF TER, BY WAY OF DEVELOPMENT OF PLOT OF LAND, HE MAY CONSTRUCT RESIDENTIAL OR COMMERCIAL BU ILDING UNITS ON THE SAE. SUCH A COURSE OF ACTION WILL PROVIDE AN ADVANTAGE TO SUCH A PERSON, BECAUSE HE WILL NOT BE REQUIRED TO PAY CAPITAL GAINS TAX IMMEDIATELY ON TH E DATE OF CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE. HE MAY, IN VIEW OF PROVISIONS OF SECTION 45(2) OF THE ACT MAKE PAYMENT OF CAPITAL GAINS TAX AT THE TIME OF SALE OF SUCH CAPITAL ASSET, AFTER ITS CONVERSION 7 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 7 INTO STOCK IN TRADE. BESIDES, SUCH AN ASSESSEE WIL L HAVE ANOTHER ADVANTAGE BY WAY OF REDUCTION OF HIS TAX LIABILITY IN RESPECT OF THE GA INS RESULTED BY HIM, BY WAY OF DIFFERENCE BETWEEN THE MARKET VALUE OF CAPITAL ASSET ON THE DA TE OF ITS CONVERSION INTO STOCK IN TRADE AND THE COST OF SUCH CAPITAL ASSET. IN OTHER WORDS , HE WILL BE REQUIRED TO PAY CAPITAL GAINS TAX IN RESPECT OF SUCH GAINS IN PLACE OF NORM AL TAX, WHICH IS DEFINITELY HIGHER THAN THE CAPITAL GAINS TAX. THUS THE TAX LIABILITY OF T HE ASSESSEE IN SUCH A CASE WILL BE TWO FOLD AS FOLLOWS:- 1. HE WILL BE REQUIRED TO PAY CAPITAL GAINS TAX ON THE AMOUNT OF DIFFERENCE BETWEEN THE MARKET VALUE OF THE CAPITAL ASSETS ON THE DATE OF I TS CONVERSION INTO STOCK IN TRADE AND COST OF SUCH CAPITAL ASSET. HE WILL HAVE AN ADDITI ONAL ADVANTAGE AS SUCH CAPITAL GAINS TAX WILL BE REQUIRED TO BE PAID ONLY AT THE TIME OF SAL E OF SUCH STOCK IN TRADE. 2.THE ASSESSEE WILL BE REQUIRED TO PAY TAX ON THE B USINESS INCOME BY WAY OF PROFIT REALIZED BY HIM, AS A DIFFERENCE BETWEEN THE SALE P RICE OF STOCK IN TRADE AND MARKET VALUE OF CAPITAL ASSET ON THE DATE OF ITS CONVERSIO N INTO STOCK IN TRADE. 8. THE LD CITA KEEPING IN VIEW THE AFORESAID OBSERV ATIONS, HELD THAT CAPITAL GAINS OF THE ASSESSEE IS DETERMINED AT RS 34,87,820/- FOR ASST Y EAR 2007-08. REMAINING ADDITION MADE BY THE LD AO ON ACCOUNT OF CAPITAL GAINS OF RS 5,15,12,180/- ( 5,50,00,000 34,87,820) IS HEREBY DELETED. IT IS NOT CHARGEABLE IN ASST YEAR 2007-08 AS THERE IS NO SALES DURING THE YEAR AND IT WILL BE CHARGED IN THE YEAR IN WHICH ACTUAL LAND SOLD / TRANSFERRED IN PROPORTION TO TOTAL LAND AREA. THE AO IS DIRECTED TO COMPUTE THE CAPITAL GAIN AFRESH AND CHARGE THE SAME AS DISCUSSED ABOVE. 9. AGGRIEVED, BY THE AFORESAID ACTION AND OBSERVATI ONS OF THE LD CITA , THE ASSESSEE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OUT SET, WE FIND THAT THE ASSESSEE HAD ONLY GIVEN ITS 5500 SQ.YARD OF LAND IN PART FOR DEV ELOPMENT PURSUANT TO A DEVELOPMENT 8 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 8 AGREEMENT. THE SAID AGREEMENT SPECIFICALLY CONTAIN ED A CLAUSE THAT THE POSSESSION OF THE LAND SHALL BE HANDED OVER TO THE DEVELOPER BY THE ASSESSEE ONLY AFTER OBTAINING THE SANCTION OF THE BUILDING PLAN. ADMITTEDLY, THE BUIL DING PLAN WAS SANCTIONED ON 29.10.2007 FALLING IN ASST YEAR 2008-09. HENCE POS SESSION AS PER THE DEVELOPMENT AGREEMENT, COULD BE EFFECTIVELY AND CONSTRUCTIVELY HANDED OVER TO THE DEVELOPER BY THE ASSESSEE ONLY ON 29.10.2007 FALLING IN ASST YEAR 20 08-09. THE TEMPORARY PERMISSION GRANTED BY THE ASSESSEE TO THE DEVELOPER TO ENTER U PON THE LAND FOR THE PURPOSE OF INSPECTION OF THE LAND AND PREPARE A BUILDING PLAN AND START CONSTRUCTION THEREON DOES NOT FALL WITHIN THE AMBIT OF POSSESSION AS CONTEMPL ATED IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882. HENCE WE HOLD THAT THERE WAS N O TRANSFER IN ASST YEAR 2007-08 IN THE FACTS OF THE INSTANT CASE. WE FIND THAT THE LD AO HAD RECORDED REASONS FOR REOPENING THE ASSESSMENT ON THE GROUND THAT THE ASS ESSEE BY ENTERING INTO DEVELOPMENT AGREEMENT DATED 13.9.2006 HAD CONVERTED HIS CAPITAL ASSET (I.E LAND) INTO BUSINESS ASSET AND ACCORDINGLY ASSESSEE IS LIABLE FOR CAPITAL GAIN S U/S 45(2) OF THE ACT. SINCE NO CAPITAL GAINS WAS DISCLOSED BY THE ASSESSEE FOR ASS T YEAR 2007-08, HIS INCOME HAD ESCAPED ASSESSMENT FOR WHICH ASSESSMENT WAS REOPENE D. AT THE OUTSET, WE HOLD THAT THERE IS NO CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE BY THE ASSESSEE PURSUANT TO DEVELOPMENT AGREEMENT DATED 13.9.2006. THE POSSESS ION OF THE LAND IS TO BE TRANSFERRED ONLY AFTER OBTAINING THE SANCTION OF THE BUILDING P LAN WHICH HAPPENED ON 29.10.2007 FALLING IN ASST YEAR 2008-09. EVEN OTHERWISE, THE PROVISIONS OF SECTION 45(2) OF THE ACT MAKE IT CLEAR THAT EVEN IF THERE IS CONVERSION OF C APITAL ASSET INTO STOCK IN TRADE, THE CAPITAL GAINS SHALL ARISE TO AN ASSESSEE ONLY IN TH E YEAR IN WHICH SUCH CONVERTED STOCK IN TRADE IS SOLD. ADMITTEDLY THE ALLEGED STOCK IN TRA DE WAS NOT SOLD BY THE ASSESSEE IN ASST YEAR 2007-08. IT IS NOT THE CASE OF THE REVENUE AL SO THAT ANY STOCK IN TRADE WAS SOLD BY THE ASSESSEE IN ASST YEAR 2007-08. HENCE THERE CA NNOT BE ANY CAPITAL GAINS IN ASST YEAR 2007-08 EVEN ON ALLEGED CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE. HENCE WE HOLD THAT THE BASIS OF REOPENING PURSUANT TO REASON S RECORDED , FAILS ON ALL FORCE OF LAW. 9 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 9 WE HOLD THAT THE REOPENING WAS MADE IN THE INSTANT CASE BASED ON INCORRECT ASSUMPTION OF FACTS BY THE LD AO. 10.1. EVEN ON MERITS, THE LD AO ESTIMATED THE VALUE OF 5500 SQ.YARD OF LAND AT RS 5,50,00,000/- BASED ON ESTIMATED VALUE QUOTED BY TH E DVO ON AN INTERIM BASIS. THE LD AO FAILED TO APPRECIATE THAT ULTIMATELY SOME PORTIO N OF LAND WAS EVEN HELD BY THE ASSESSEE. IN ANY CASE, 5500 SQ.YARD OF LAND WAS NE VER SOLD IN FULL BY THE ASSESSEE. MOREOVER, THE TOTAL VALUE DETERMINED BY THE DVO AT A LATER STAGE I.E DURING FIRST APPELLATE STAGE WAS FIXED AT RS 2,33,24,000/- FOR E NTIRE 5500 SQ.YARD OF LAND. THE LD CITA HAVING AGREED TO THE SAID CONSIDERATION VALUE FOR THE PURPOSE OF COMPUTING CAPITAL GAINS AT RS 34,87,820/- BY CONSIDERING FULL VALUE OF CONSIDERATION FIGURE AT RS 2,33,24,000/- , MADE TOTALLY UNWANTED AND IRRELEVAN T OBSERVATIONS IN HIS APPELLATE ORDER BY OBSERVING THAT THE ASSESSEE SHALL BE LIABLE FOR BUSINESS INCOME AT RS 5,15,12,180/- ( 5,50,00,000 34,87,820) IN THE YEAR IN WHICH LAND IS SOLD. IN ANY CASE ON MERITS, WE HOLD THAT THE CAPITAL GAINS ARISE ONLY IN THE YEAR IN WHICH POSSESSION OF THE LAND WAS HANDED OVER TO THE DEVELOPER PURSUANT TO THE PROVIS IONS OF SECTION 2(47)(V) OF THE ACT READ WITH SECTION 53A OF THE TRANSFER OF PROPERTY A CT, 1882. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ DWARKADAS KAPADIA OF BOMBAY VS CIT REPORTED IN 260 ITR 491 (BOM). 10.2. HENCE WE HOLD THAT THE REOPENING MADE BY THE LD AO BASED ON ABSOLUTE INCORRECT ASSUMPTION OF FACTS DESERVES TO BE QUASHED. ACCORDI NGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED BOTH IN LAW AS WELL AS ON MERI TS. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT ANO. 2353/KOL/2016 FOR ASST YEAR 2007-08 IS ALLOWED. ITA NO. 910/KOL/2018 ASST YEAR 2009-10 ASSESSEE APPEAL 10 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 10 12. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE BUSINESS INCOME ADDED BY THE LD AO IN THE SUM OF RS 26,60,000/- AND ON THE CONTRARY DIRECTING THE LD AO TO COMPUTE THE LON G TERM CAPITAL GAINS ON TRANSFER OF LAND BY THE ASSESSEE TO THE DEVELOPER, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 13. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSE SSEE ENTERED INTO A DEVELOPMENT AGREEMENT DATED 13.9.2006 WITH KOKRA DEVELOPERS PVT LTD FOR CONSTRUCTION OF MULTI STORIED BUILDING ON ASSESSSES ANCESTRAL LAND. IT WAS AGREED THAT ASSESSEE AND DEVELOPER WILL SHARE 50% EACH OF CONSTRUCTED PORTION AND ALL CONSTRUCTION AND OTHER RELATED COSTS WOULD BE BORNE BY THE DEVELOPER. ON THE BASIS OF A FORESAID DEVELOPMENT AGREEMENT DATED 13.9.2006, THE DEVELOPER COULD NOT COMPLETE T HE CONSTRUCTION DURING THE YEAR AND ONLY SOME SHOPS WERE CONSTRUCTED. 4 SHOPS WERE ALL OTTED TO THE DEVELOPER AND LAND APPURTENANT THERETO OF 253.33 SQ.YARDS WAS TRANSFER RED TO DEVELOPER OUT OF TOTAL 2550 SQ.YARDS, ORIGINALLY AGREED AS HIS SHARE AND CONSTR UCTION WAS NOT FULLY COMPLETE ON BALANCE LAND. THE ASSESSEE EXECUTED TRANSFER DEEDS FOR 4 SHOPS TO THE DEVELOPER IN CONSEQUENCE OF THE DEVELOPMENT AGREEMENT WITH THE D EVELOPER FOR TOTAL VALUE OF RS 53,20,000/- (ASSESSEES 50% SHARE IS RS 26,60,000/- ) AS PER TRANSFER DEEDS DATED 17.11.2008. THE ASSESSEE STATED THAT THIS CONSIDER ATION OF RS 53,20,000/- WAS MEANT ONLY FOR THE LIMITED PURPOSE OF STAMP DUTY VALUATIO N ON TRANSFER OF PROPORTIONATE LAND PERTAINING TO 4 SHOPS ALLOTTED TO THE DEVELOPER. THE ASSESSEE FURTHER CLARIFIED BEFORE THE LD AO THAT EQUIVALENT CONSTRUCTED AREA HAS BEEN HAN DED OVER TO HIM BY THE DEVELOPER AS REMAINING 50% OF CONSTRUCTED AREA AS PER TERMS AND CONDITIONS OF DEVELOPMENT AGREEMENT DATED 13.9.2006 AND THE SAME WAS UNDER HI S POSSESSION AND NOT SOLD / LET OUT DURING THE FINANCIAL YEAR 2008-09 AND IN FUTURE, WH ENEVER HIS PORTION WERE SOLD OUT / LET OUT, RESULTANT GAIN / LOSS WOULD BE DULY ACCOUNTED FOR BY HIM IN HIS INCOME TAX RETURNS. THE ASSESSEE ALSO CLARIFIED THAT HE IS NOT DEALING IN ANY CONSTRUCTION ACTIVITY AND HAS NO 11 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 11 TRADE LICENSE TO DEAL IN SUCH TYPE OF CONSTRUCTION ACTIVITY AND HENCE PROPERTY CANNOT BE TREATED AS STOCK IN TRADE IN HIS HANDS. 14. THE LD AO HOWEVER, DISREGARDED ALL THESE CONTEN TIONS AND HELD THAT 50% OF SALE PROCEEDS OF LAND ATTRIBUTABLE TO 4 SHOPS TRANSFERRE D TO THE DEVELOPER PURSUANT TO TRANSFER DEED BECOMES BUSINESS INCOME OF THE ASSESSEE AND AC CORDINGLY ADDED A SUM OF RS 26,60,000/- (53,20,000 * 50%) AS UNDISCLOSED INCOME FROM BUSINESS OF THE ASSESSEE. 15. THE LD CITA OBSERVED IN HIS ORDER AS UNDER:- 'DURING THE COURSE OF APPELLATE PROCEEDING THE APP ELLANT HAS ALSO PRODUCED THE COPY OF TRANSFERRED AGREEMENT WHEREIN IT HAS BEEN CLEAR LY STATED THAT IN LIEU OF THE AGREEMENT AS PER JOINT DEVELOPMENT AGREEMENT THERE IS TRANSFER OF 253.33 SQUARE YARD OF LAND ON WHICH FOUR SHOPS ARE ALSO CONSTRUCTED AN D IT WAS ONLY THE PORTION OF LAND WHICH WAS TO BE TRANSFERRED TO THE DEVELOPER AFTER THE COMPLETION OF CONTRACT AS JOINT AGREEMENT. IN THIS CASE NO MATERIAL VALUE HAS BEEN RECEIVED BY THE APPELLANT RATHER IN LIEU OF TRANSFER OF AFORESAID LAND WHERE FOUR SHOP S WERE CONSTRUCTED BY THE DEVELOPER. THE APPELLANT HAS GOT BENEFITED FOR GETTING FREE OF COST CONSTRUCTION IN HIS SHARE IN LIEU OF TRANSFERRING LAND UNDER THE JOINT DEVELOPMENT AG REEMENT. KEEPING IN VIEW OF THE AFORESAID FACTS IT IS CLEAR THAT THE APPELLANT HAS TRANSFERRED LAND FOR AY 2009- 10 ON WHICH PROPORTIONATE CAPITAL GAIN IS CHARGEABLE ON 2 53.33 SQUARE YARD AS IT HAS BEEN DETERMINED IN AY 2006-07 AT RS.34,87,820/- ON 5500 SQUARE YARD . AS REGARD THE COST OF CONSTRUCTION FOR REMAINING SH OPS WHICH ARE LEFT WITH THE APPELLANT WILL BE TREATED AS NIL AND THE MARKET VALUE AS ON D ATE OF SALE WILL BE REDUCED BY THE STAMP VALUE OF LAND ON THE DATE OF CONVERSION OF AS SETS INTO STOCK IN TRADE AS MENTIONED IN AY 2006-07 AND DIFFERENTIAL WILL BE THE BUSINESS PROFIT OF THE APPELLANT. THEREFORE EXCEPT CAPITAL GAIN ON THIS TRANSFER OF LAND NO BUS INESS PROFIT WAS TO BE CHARGED. THEREFORE, THE ADDITION MADE AS A BUSINESS PROFIT I N THE HANDS OF THE APPELLANT IS HEREBY DELETED AND THE AO IS DIRECTED TO COMPUTE THE LTCG AND TAX IT TO THE PORTION OF LAND TRANSFERRED TO THE DEVELOPER. THE GROUND OF APPEAL IS PARTLY ALLOWED. IT IS FURTHER SEEN THAT THE BUILDING IS COMPLETED I N THE YEAR ITSELF AS IT HAS BEEN TRANSFERRED TO THE DEVELOPER BUT THE APPELLANT HAS NOT SHOWN SALE OF ANY SHOP OF HIS SHARE, THEREFORE NEITHER CAPITAL GAIN HAS BEEN PAID NOR BUSINESS PROFIT HAS BEEN GIVEN. THE AO IS DIRECTED TO ASCERTAIN THE ALV OF THE CONS TRUCTED SHOP WHICH ARE IN THE SHARE OF THE APPELLANT AS PER AMENDED PROVISION AND DEEME D RENTAL INCOME MAY BE WORKED OUT AND TAXED ACCORDINGLY. THE BUSINESS PROFIT AND CAPITAL GAIN SHOULD ALSO BE CHARGED AFTER ASCERTAINING THE SALE OF THESE SHOPS YEAR-WIS E. 12 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 12 7. IN THE RESULT THE APPEAL OF THE APPELLANT IS PAR TLY ALLOWED.' 16. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OUT SET, WE HOLD THAT THERE WAS NO CONVERSION OF CAPITAL ASSET (I.E LAND) OF THE ASSES SEE INTO STOCK IN TRADE AT ANY TIME. THE ASSESSEE HAD ONLY ENTERED INTO DEVELOPMENT AGREEMEN T DATED 13.9.2006 FOR CONSTRUCTION OF MULTI STORIED BUILDING. THE ENTIRE COST OF CONS TRUCTION IS TO BE BORNE BY THE DEVELOPER. THE CONSIDERATION FOR THE ASSESSEE WOUL D BE 50% OF CONSTRUCTED PORTION WHICH INCLUDES SHOPS TO BE BUILT THEREON. WE FIND THAT DURING THE YEAR UNDER APPEAL, THE ASSESSEE HAD JUST EXECUTED TRANSFER DEEDS FOR THE L ANDS PROPORTIONATE TO THE 4 SHOPS ALLOTTED TO THE DEVELOPER. IT WAS ALSO SPECIFICALLY MENTIONED BEFORE THE LD AO THAT THE SAID TRANSFER DEEDS WERE EXECUTED ONLY FOR THE LIMI TED PURPOSE OF FIXING STAMP DUTY ON TRANSFER OF PROPORTIONATE LAND ATTRIBUTABLE TO 4 SH OPS ALLOTTED TO THE DEVELOPER. ACTUALLY WE FIND THAT THE ASSESSEE HELD 5500 SQ.YARDS OF LAN D IN TOTAL AND HAD RETAINED SOME PORTION OF LAND WITH HIM WHICH WAS NEVER TRANSFERRE D TO THE DEVELOPER. THE POSSESSION OF THE LAND TO BE TRANSFERRED BY THE ASSESSEE WAS T O BE DONE ON OBTAINING THE SANCTION OF THE BUILDING PLAN AS PER THE SPECIFIC CLAUSE CONTAI NED IN THIS REGARD IN THE DEVELOPMENT AGREEMENT DATED 13.9.2006. ADMITTEDLY THE SANCTION OF THE BUILDING PLAN WAS OBTAINED ON 29.10.2007 AND THE POSSESSION OF LAND (AFTER RET AINING THE LAND WHICH WAS NOT THE SUBJECT MATTER OF DEVELOPMENT AGREEMENT) WAS HANDED OVER BY THE ASSESSEE TO THE DEVELOPER IN ASST YEAR 2008-09. THIS TANTAMOUNTS T O TRANSFER U/S 2(47)(V) OF THE ACT READ WITH SECTION 53A OF THE TRANSFER OF PROPERTY A CT, 1882 AND CAPITAL GAINS, IF ANY, ON TRANSFER OF LAND, SHOULD BE CONSIDERED ONLY IN ASST YEAR 2008-09. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ DWARKADAS KAPADIA OF BOMBAY VS CIT REPOR TED IN 260 ITR 491 (BOM). WE HOLD THAT PURSUANT TO THE DEVELOPMENT AGREEMENT DATED 13.9.2006 AND HANDING OVER OF POSSESSION OF LAND IN ASST YEAR 2008-09 BY THE A SSESSEE TO THE DEVELOPER , THE 13 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 13 DEVELOPER HAS ALREADY BEEN ENTITLED TO 50% SUPERSTR UCTURE PORTION TOGETHER WITH OWNERSHIP OF LAND THEREON IN ASST YEAR 2008-09 ITSE LF. TITLE IS ALREADY HELD WITH DEVELOPER IN ASST YEAR 2008-09 ITSELF. THE TRANSFER DEEDS EXECUTED ON 17.11.2008 IN RESPECT OF LANDS PROPORTIONATE TO 4 SHOPS WERE ONLY FOR BETTERMENT OF EXISTING TITLE TO THE DEVELOPER. HENCE THERE CANNOT BE ANY CAPITAL GAINS OR BUSINESS INCOME IN THE HANDS OF THE ASSESSEE FOR ASST YEAR 2009-10 IN RESPECT OF TH E LAND HELD BY THE ASSESSEE OR THE SHOPS. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSE SSEE ARE ALLOWED. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO. 910/KOL/2018 FOR ASST YEAR 2009-10 IS ALLOWED. 19. TO SUM UP, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE COURT ON 05.12.2018 SD/- SD/- [S.S. GODARA] [ M .BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 05.12.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. SHRI BIJAY HALWASIYA, 1B, HALWASIYA ROAD, KOLKAT A-700007. 2. ITO, WARD-44(4), KOLKATA, 3, GOVERNMENT PLACE(WE ST), KOLKATA-700001. 3..C.I.T.(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER A SSISTANT REGISTRAR ITAT , KOLKATA BENCHES 14 ITA NO.2353/KOL/2016 ITA NO.910/KOL/2018 SHRI BIJAY SHANKAR HALWASIYA A.YRS. 2007-08 & 2009-10 14