DCIT-6, Kanpur V. M/S Kan Construction & Colonizers P Ltd., Kanpur

ITA 288/LKW/2011

• Counselvise Citation: 28823714 RSA 2011
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2011
• Court: TRIBUNAL
• Department Lawyers: P K B AJAJ
• Assessee Lawyers: SUJEET CHOUDHARY
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Corroborative evidences
• Section: 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI H.L. KARWA, VICE PRESIDENT AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO.288/LKW/2011 ASSESSMENT YEAR:2006-07 DCIT-6 KANPUR V. M/S KAN CONSTRUCTIONS & COLONIZERS (P) LTD. KANPUR PAN:AABCK8163C (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. P. K. BAJAJ, SR. D.R. RESPONDENT BY: SHRI. SUJEET CHOUDHARY, C.A. DATE OF HEARING: 17.08.2011 DATE OF PRONOUNCEMENT: 19.8.2011 O R D E R PER H. L. KARWA: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) II, KANPUR DATED 10.3.2011 RELATING TO ASSESSMENT YEAR 2006-07. 2. GROUND NO. 1 OF THE APPEAL READS AS UNDER:- 1. THAT THE LEANRED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE U/S 50C OF THE IT. ACT WITHOUT APPRECIATING THE FACT THAT THE PLOTS UNDER CONSIDERATION ARE CAPITAL ASSETS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF REAL ESTATE AND CONSTRUCTION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REQUIRED THE :-2-: ASSESSEE TO FURNISH DETAILS OF SALES MADE WITH SUPPORTING EVIDENCE. THE ASSESSING OFFICER, FROM PERUSAL OF THE DETAILS OF SALES MADE, OBSERVED THAT OUT OF TOTAL SALES MADE, THE ASSESSEE HAS SHOWN FOLLOWING SALES AT DIFFERENT SITES:- 1. SALE OF OFFICES AT KAN CHAMBERS RS.3,25,07,000/- 2. SALE OF FLATS AT, WOODLAND APARTMENTS RS.1,04,25,000/- 3. SALE OF SHOPS AT MEGA MALL RS.1,57,50,000/- 4. SALE OF OFFICES AT MEGA MALL RS. 80,00,000/- 5. SALE OF PLOTS RS. 79,84,200/- TOTAL RS. 7,46,66,20 0/- 4. WITH REGARD TO THE SALE OF PLOTS AMOUNTING TO ` 79,84,200, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE VALUE ADOPTED FOR THE PURPOSES OF STAMP DUTY AND EXPLAIN WHY THE VALUE ADOPTED FOR THE STAMP DUTY MAY NOT BE TAKEN AS THE SALE VALUE, AS THE SALE OF PLOTS REPRESENTED THE SALE OF CAPITAL ASSET AND THE PROVISIONS OF SECTION 50C OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) ARE APPLICABLE IN THE CASE OF THE SALE OF PLOTS. IN THIS REGARD, THE ASSESSEE VIDE ITS REPLY DATED 12.12.2008 SUBMITTED THAT THE SALES ARE RECORDED AT THE TIME OF REGISTRATION OR HANDING OVER OF POSSESSION WHICHEVER IS EARLIER AND THE ENTIRE SALES HAVE BEEN MADE TO UNRELATED PARTIES AND ARE AT THE AMOUNTS THAT HAD BEEN AGREED TO AT THE TIME OF BOOKING. THE ASSESSEE FURTHER SUBMITTED THAT PROVISIONS OF SECTION 50C OF THE ACT ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND THE VALUE ADOPTED FOR THE PURPOSES OF STAMP DUTY HAD NO SIGNIFICANCE. IT WAS ALSO CONTENDED BY THE ASSESSEE THAT IN THE CASE OF BUILDERS, THE CIRCLE RATES ALSO LOSE WHATEVER LITTLE SIGNIFICANCE THEY MIGHT HAVE IN VIEW OF THE FACT THAT CIRCLE RATES UNDERGO PERIODIC REVISION. AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT NO DOUBT THE ASSESSEE IS A BUILDER AND CONSTRUCTION IS ITS BUSINESS AND INDUSTRIAL ACTIVITY AND THE ASSETS SOLD AFTER CONSTRUCTION ARE ITS STOCK IN TRADE. HOWEVER, THIS CANNOT BE SAID IN RESPECT OF THE PLOTS SOLD BY THE ASSESSEE. THE ASSESSING OFFICER, THEREFORE, OBSERVED THAT THE ASSESSEE HAD MADE SALE OF PLOTS AMOUNTING TO ` 79,84,200 WHICH DID NOT REPRESENT ITS STOCK-IN-TRADE BUT IN FACT THESE WERE THE CAPITAL ASSETS. HE, THEREFORE, INVOKED PROVISIONS OF SECTION 50C OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THE TOTAL :-3-: VALUE OF PLOTS SOLD FOR THE PURPOSES OF STAMP DUTY IS ` 58,37,594. HENCE THE DIFFERENCE BETWEEN THE VALUE OF PLOTS ADOPTED FOR THE PURPOSES OF STAMP DUTY AND SALE VALUE ALLEGEDLY RECEIVED AMOUNTS TO ` 8,53,394 WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE UNDER SECTION 50C OF THE ACT. THE SALE OF PLOT WAS TREATED AS SALE OF CAPITAL ASSET AND THE DEEMED PROFIT FROM IT AS PER PROVISIONS OF SECTION 50C OF THE ACT CAME TO ` 8,53,394 WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS CAPITAL GAIN. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS:- 'THE SALES MADE BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION INCLUDED SALES OF OFFICES, FLATS, SHOPS AND PLOTS. WITH RESPECT TO THE SALE OF PLOTS THE LD AO HAS NOT ACCEPTED THE SALE VALUE WHICH WAS RECORDED IN THE BOOKS OF ACCOUNTS AND WAS EVIDENCED BY REGISTRIES AND HAS WRONGLY APPLIED THE PROVISIONS OF SECTION 50C. THE VALUE OF SALE OF PLOTS AS RECORDED IN THE BOOKS OF ACCOUNTS TOTALLED TO RS.79,84,200/-. AS AGAINST THIS, THE VALUE ADOPTED BY THE REGISTRAR FOR THE PURPOSES OF PAYMENT OF STAMP DUTY WAS RS.88,37,594/-. ACCORDINGLY THE AO HAS TREATED THE DIFFERENCE RS.8,53,394/- AS DEEMED CAPITAL GAINS AS PER PROVISIONS OF SECTION 50C. THE ASSESSEE HAS OFFERED THE ENTIRE INCOME TO TAX AS PROFITS AND GAINS FROM BUSINESS. IT IS THE BUSINESS OF THE ASSESSEE TO CARRY OUT CONSTRUCTION ACTIVITIES AND BUY AND SELL LAND AND ALSO TO ENGAGE IN OTHER CONSTRUCTION ACTIVITIES. IN SUPPORT THEREOF THE ASSESSEE VIDE REPLY DATED 05.12.2008 FILED BEFORE THE AO A COPY OF THE MAIN OBJECTS FOR WHICH THE COMPANY IS INCORPORATED WHICH FORMED PART OF THE MEMORANDUM OF ASSOCIATION OF THE COMPANY. BUYING AND SELLING LAND IS CLEARLY LISTED AS ONE OF THE MAIN OBJECTS APART FROM :-4-: CONSTRUCTION ACTIVITIES. FURTHER A PERUSAL OF THE BALANCE SHEET WILL SHOW THAT THE LAND HAS BEEN SHOWN AS STOCK IN TRADE. THE PROVISIONS OF SECTION 50C ARE UNDISPUTABLY APPLICABLE ONLY FOR THE PURPOSES OF SECTION 48 WHILE COMPUTATION OF CAPITAL GAINS. IN THE INSTANT CASE THE ASSESSEE PURCHASED A LARGE PLOT OF LAND AND AFTER LEVELING ETC SOLD IT TO VARIOUS UNRELATED PARTIES AFTER PLOTS. THIS CONSTITUTED AN ABSOLUTELY BONAFIDE BUSINESS ACTIVITY. THE LD AO HAS FAILED TO APPRECIATE THE DIFFERENCE BETWEEN 'CAPITAL GAINS' ARISING FROM TRANSFER OF A 'CAPITAL ASSETS' AND 'BUSINESS PROFITS' ARISING FROM SALE OF STOCK IN TRADE AND HAS ERRONEOUSLY APPLIED PROVISIONS TO SECTION 50C TO MAKE THE IMPUGNED ADDITION OF RS.8,53,394/-. THE ADDITION BEING BAD IN LAW DESERVES TO BE DELETED. 6. IN ADDITION TO ABOVE, IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT REAL ESTATE TRANSACTION WAS THE MAIN OBJECT FOR WHICH THE COMPANY WAS INCORPORATED AND THE LAND SOLD WAS HELD BY IT AS STOCK-IN-TRADE. IT WAS THE BUSINESS OF THE ASSESSEE AND THE INCOME THEREFROM WAS BUSINESS INCOME. IT WAS ALSO SUBMITTED BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE PLOTS OF LAND SOLD WERE HELD BY THE ASSESSEE-COMPANY AS STOCK-IN-TRADE UNDER THE HEADS PROJECTS IN PROGRESS AND INVENTORIES. IT WAS ALSO SUBMITTED BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE COMPANY HAD NEVER PURCHASED ANY LAND AS A CAPITAL ASSET AND HAS ALWAYS PURCHASED LAND AS STOCK-IN-TRADE. THE BALANCE SHEETS OF THE ASSESSEE SHOWING FIGURES AS AT 31.3.2006 AND ALSO AS ON 31.3.2005 WERE PRODUCED BEFORE THE LD. CIT(A). 6.1 THE LD. CIT(A) DELETED THE ADDITION OBSERVING AS UNDER:- 4.1.4. I AM IN AGREEMENT WITH THE SUBMISSIONS MADE BY THE LD. AR THAT PROVISIONS OF SECTION 50C WOULD BE APPLICABLE TO A CASE WHERE :-5-: THE INCOME FROM TRANSFER OF AN IMMOVABLE PROPERTY IS COMPUTED UNDER THE HEAD 'CAPITAL GAINS'. SECTION 50C WOULD HAVE NO APPLICATION WHERE THE TRANSFER OF AN IMMOVABLE PROPERTY IS ON ACCOUNT OF SALE OF STOCK-IN-TRADE INCOME OF WHICH IS COMPUTED UNDER THE HEAD 'D' I.E. INCOME FROM BUSINESS, WHICH IS THE CASE HERE. THE ADDITION IS, THEREFORE, DELETED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. WE ARE IN AGREEMENT WITH THE ABOVE OBSERVATIONS OF THE LD. CIT(A) THAT SECTION 50C OF THE ACT WOULD HAVE NO APPLICATION WHERE THE TRANSFER OF AN IMMOVABLE PROPERTY IS ON ACCOUNT OF SALE OF STOCK-IN-TRADE INCOME OF WHICH IS COMPUTED UNDER THE HEAD INCOME FROM BUSINESS. THERE IS NO MATERIAL ON RECORD TO CONTROVERT THIS CONTENTION OF THE ASSESSEE THAT THE PLOTS OF LAND SOLD WERE HELD BY THE ASSESSEE-COMPANY AS STOCK-IN-TRADE. THESE DETAILS WERE SUBMITTED BEFORE THE ASSESSING OFFICER. THE ASSESSEE ALSO FURNISHED LIST OF LAND SOLD DURING THE YEAR UNDER CONSIDERATION, INTER ALIA, INDICATING ADDRESS AND PROJECT UNDER WHICH IT FELL. THERE IS NO MATERIAL ON RECORD TO CONTROVERT THIS FACT THAT THE ASSESSEE-COMPANY HAD NEVER PURCHASED ANY LAND AS A CAPITAL ASSET AND HAS ALWAYS PURCHASED LAND AS STOCK-IN-TRADE. THIS FACT IS SUBSTANTIATED BY FILING BALANCE SHEETS OF THE ASSESSEE SHOWING FIGURES AS ON 31.3.2006 AND ALSO AS ON 31.3.2005. IT SEEMS THAT THE ASSESSING OFFICER HAS NOT CORRECTLY APPRECIATED THE DIFFERENCE BETWEEN CAPITAL GAINS ARISING FROM TRANSFER OF CAPITAL ASSETS AND BUSINESS PROFITS ARISING FROM SALE OF STOCK-IN-TRADE AND HAS ERRONEOUSLY APPLIED PROVISIONS OF SECTION 50C OF THE ACT TO MAKE THE IMPUGNED ADDITION. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE DECISION RENDERED BY THE LD. CIT(A) ON THIS ISSUE ARE BASED ON CORRECT APPRECIATION OF FACTS AS WELL AS SETTLED LEGAL POSITION. WE, THEREFORE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. CONSEQUENTLY, WE DISMISS GROUND NO. 1 OF THE APPEAL. :-6-: 8. GROUND NO. 2 READS AS UNDER:- 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING RELIEF ON ACCOUNT OF CLOSING STOCK OF DIESEL IN VIEW OF THE FACT THAT THE ASSESSEE HAD NOT MAINTAINED ANY LOG BOOK/STOCK BOOK FOR DIESEL. 9. THE ASSESSING OFFICER MADE AN ADDITION OF ` 2,01,060 BEING 50% OF THE BILL FOR DIESEL ENTERED IN THE ACCOUNT ON 31.3.2006. 10. ON APPEAL, THE LD. CIT(A) REDUCED THE ADDITION TO ` 1 LAKH OBSERVING AS UNDER:- 5.1 THERE ARE 2 ASPECTS TO THIS ISSUE: ONE IS NON-MAINTENANCE OF ANY LOG BOOK/STOCK REGISTER WHICH COULD GIVE A FAIR IDEA ABOUT THE DAY TO DAY CONSUMPTION OF THE DIESEL USED FOR RUNNING THE DG SETS. THE 2 ND ASPECT IS A BILL OF RS.4,02,120/- FOR PURCHASE OF 12000 LITRES OF DIESEL ON THE LAST DAY OF THE YEAR, IE. ON 31/03/2006. IN THIS REGARD, IT HAS BEEN EXPLAINED THAT THIS BILL IS ACTUALLY A COMPENDIUM OF MANY CHALLANS OF DIESEL SUPPLY FROM 21 ST MARCH TO 31 ST MARCH AND FOR 31 ST MARCH, THE DIESEL SUPPLY WAS ONLY 1200 LITRES. ADMITTEDLY AS THE APPELLANT DOES NOT MAINTAIN ANY LOG BOOK/STOCK BOOK FOR DIESEL, IT WOULD BE DIFFICULT TO JUDGE AS TO THE QUANTUM AVERAGE OF DAILY CONSUMPTION OF DIESEL FOR RUNNING OF THE DG SETS. UNDER THESE FACTS & CIRCUMSTANCES, I AM OF THE CONSIDERED VIEW THAT A L.S. DISALLOWANCE OF RS.1,00,000/- WOULD MEET THE END OF JUSTICE. 11. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. THE LD. CIT(A) HAS REDUCED THE ADDITION TO ` 1 LAKH AFTER CONSIDERING THE MATERIAL FACTS OF THE CASE. IN OUR VIEW, THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT PROPER BECAUSE HE HAS CONSIDERED 50% OF DIESEL PURCHASED ON 31.3.2006 AS CLOSING STOCK. THE :-7-: ADDITION MADE BY THE ASSESSING OFFICER IS WITHOUT ANY BASIS. HOWEVER, THE ASSESSING OFFICER HAS CORRECTLY OBSERVED THAT THE ASSESSEE DID NOT MAINTAIN ANY LOG BOOK/STOCK BOOK FOR DIESEL, THEREFORE, IT WOULD BE DIFFICULT TO JUDGE AS TO THE QUANTUM AVERAGE OF DAILY CONSUMPTION OF DIESEL FOR RUNNING THE DG SETS. THE ESTIMATION MADE BY THE LD. CIT(A) IN THIS REGARD SEEMS TO BE FAIR AND REASONABLE. THERE WAS NO JUSTIFICATION IN DISALLOWING 50% OF THE DIESEL PURCHASED ON 31.3.2006. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS GROUND NO. 2 OF THE APPEAL. 12. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.8.2011. SD/- SD/- [ N. K. SAINI] [H. L. KARWA] ACCOUNTANT MEMBER VICE PRESIDENT DATED:19.8.2011 JJ:1708 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR