M. Lakshmi Priya, CHENNAI V. ITO, CHENNAI

ITA 3184/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4443 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 21-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S NETHRAPAL IRS JCUT
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Principle of natural justice; Fair market value; Valuation report
• Section: 50C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO. 3184/MDS/2016 / ASSESSMENT YEAR : 2010-2011. M. LAKSHMI PRIYA, NO.16, MANDAVELI STREET, MANDAVELI, CHENNAI 600 028. [PAN ACFPL 4790D] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 1(3) CHENNAI 600 034. ( !' / APPELLANT) ( #$ !' /RESPONDENT) / APPELLANT BY : SHRI. A.S. SRIRAMAN, ADVOCATE /RESPONDENT BY : SHRI. S. NETHRAPAL, IRS, JCUT. /DATE OF HEARING : 30-05-2017 !' /DATE OF PRONOUNCEMENT : 31-05-2017 % / O R D E R GROUNDS TAKEN BY THE ASSESSEE IN THIS APPEAL AGAI NST AN ORDER DATED 27.09.2016 OF LD. COMMISSIONER OF INCOM E TAX (APPEALS)- 2, CHENNAI ARE REPRODUCED HEREUNDER:- ITA NO. 3184/MDS/2016. :- 2 -: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) 2, CHENNAI DATED 27.09.2016 IN I.T.A.NO.252/CIT(A)- 2/2013-14 FOR THE ABOVE MENTIONED ASSESSMENT YEAR I S CONTRARY TO LAW, FACTS, AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEALS) ERRED IN CONFIRMING THE ASSESS MENT OF THE SURPLUS FROM THE SALE OF CAPITAL ASSET UNDER THE HEAD INCOME FROM CAPITAL GAINS AS AGAINST REPORTING OF SUCH SURPLUS UNDER THE HEAD INCOME FROM BUSINESS IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASS IGNING PROPER REASONS AND JUSTIFICATION. 3. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE PRESUMPTION OF SUCH SALE AS SALE OF INVESTMENT ON T HE MISREADING OF FACTS AND ACCOUNTING ENTRIES WHICH ACCORDING TO THE APPELLANT WERE NOT DECISIVE WAS WH OLLY UNJUSTIFIED AND WENT WRONG IN RECORDING THE FINDING S IN THIS REGARD IN PAGES 8 - 10 OF THE IMPUGNED ORDER W ITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION.. 4. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THER E WAS NO CONTRADICTING STAND TAKEN BY THE APPELLANT WHILE FORTIFYING HER RETURN OF INCOME AND OUGHT TO HAVE APPRECIATED THAT THE COMPLEXITIES IN KEEPING THE AS SET WERE WRONGLY PRESUMED FOR DETERMINATION THE NATURE OF SALE, THEREBY VITIATING THE FINDINGS RECORDED IN RE LATION THERETO. 5. THE CIT (APPEALS) FAILED TO APPRECIATE THAT EVEN THE COMPUTATION OF LONG TERM CAPITAL GAINS WAS WRONG, ERRONEOUS, UNJUSTIFIED, INCORRECT AND NOT SUSTAINAB LE IN LAW AND OUGHT TO HAVE APPRECIATED THAT THE MECHANIC AL APPLICATION OF THE PROVISIONS OF SECTION 50C OF THE ACT WAS WHOLLY UNJUSTIFIED ESPECIALLY IN VIEW OF COMPLE TELY OVERLOOKING THE DEPRESSING FACTORS. 6.THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE F INDINGS IN PARAGRAPH NO.7.1 OF THE IMPUGNED ORDER WERE NOT CORRECT AND THAT THE VALUATION REPORT RELIED UPON T O CONSIDER THE ISSUES RELATING TO THE QUANTIFICATION OF THE SALE CONSIDERATION IN THE COMPUTATION OF THE LONG T ERM ITA NO. 3184/MDS/2016. :- 3 -: CAPITAL GAINS WAS FACTUALLY NOT CORRECT IN ESTIMATI NG SUCH VALUE FOR ADOPTION, THEREBY VITIATING THE FINDINGS RECORDED IN RELATION THERETO. 7. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THER E WAS NO PROPER OPPORTUNITY GIVEN BEFORE PASSING OF THE IMPUGNED ORDER AND ANY ORDER PASSED IN VIOLATION OF THE PRINCIPLES NATURAL JUSTICE WOULD BE NULLITY IN LAW. 2. FACTS APROPOS ARE THAT ASSESSEE AN INDIVIDUAL, HAD FILED HER RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR D ISCLOSING INCOME OF @11,60,400/-. DURING THE RELEVANT PREVIOUS YEAR ASSESSEE HAD SOLD A PLOT WITH ADDRESS NO.A2, AGS OFFICE STAFF CO-OPERAT IVE BUILDING SOCIETY, KOTTIVAKKAM ON 25.06.2009 ALONGWITH TWO O THER PERSONS FOR AN APPARENT CONSIDERATION OF @60,00,000/-. ASSESSEE TREATED THE PROFITS ARISING ON THE SALE OF THE ABOVE PROPERTY A S BUSINESS INCOME. SHE ALSO FILED A PROFIT AND LOSS ACCOUNT ALONGWITH HER RETURN SHOWING SUCH INCOME. LD. ASSESSING OFFICER ON VERIFICATION FOUND THAT ASSESSEE GOT RIGHTS TO THE SUBJECT PROPERTY THROUGH AN AGRE EMENT DATED 15.06.2006, WHEREBY SHE HAD AGREED TO PURCHASE 1/3R D OF UNDIVIDED SHARE THEREIN. ASSESSEE HAD PAID @13,00,000/- AN D TAKEN POSSESSION. IN THE BALANCE SHEET FILED ALONGWITH R ETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-2008, ASSESSEE HAD SHOWN H ER SHARE IN THIS LAND AT KOTTIVAKKAM AS A CAPITAL ASSET AND NOT AS STOCK IN TRADE. IN SUBSEQUENT YEARS ALSO, THE SAME POSITION CONTINUED UPTO AND INCLUDING ITA NO. 3184/MDS/2016. :- 4 -: ASSESSMENT YEAR 2009-2010. AS PER LD. ASSESSING OF FICER, THE ONLY SOURCE OF INCOME FOR THE ASSESSEE WERE SHARE INCOM E FROM TWO FIRMS CALLED M/S. JAYAM FOUNDATIONS AND M/S. M.R. FOUNDAT IONS, REMUNERATION FROM M/S. JAYAM FOUNDATIONS AND INTERE ST INCOME. LD. ASSESSING OFFICER CAME TO A CONCLUSION THAT ASSESSE E WAS NOT ENGAGED IN ANY BUSINESS ACTIVITY OF HER OWN. AS PER LD. AS SESSING OFFICER ASSESSEE HAD DURING THE RELEVANT PREVIOUS YEAR TREA TED THIS LAND AS A PART OF HER OPENING STOCK AND CLAIMED THE SURPLUS O N SALE AS BUSINESS INCOME. LD. ASSESSING OFFICER REFUSED TO ACCEPT TH IS CHANGE AND HELD THAT THE PROCEEDS ARISING ON SALE OF THE LAND COU LD BE CONSIDERED ONLY AS CAPITAL GAINS. 3. WHILE COMPUTING CAPITAL GAINS, LD. ASSESSING OFFIC ER APPLIED SEC.50C OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). LD. ASSESSING OFFICER NOTED THAT MARKET VALUE OF THE PR OPERTY AS ADOPTED BY THE REGISTRATION DEPARTMENT ON THE DATE OF SALE WAS @1,29,60,000/. SINCE ASSESSEE OBJECTED TO THIS VALUATION, THE MAT TER WAS REFERRED TO THE VALUATION OFFICER BY THE LD. ASSESSING OFFICER. BEFORE THE VALUATION OFFICER, IT WAS ARGUED BY THE ASSESSEE THAT THE L AND WAS SITUATED WITHIN COASTAL REGULATION ZONE AND NO CONSTRUCTION WAS POSSIBLE. FURTHER, AS PER THE ASSESSEE THE LAND WAS EARLIER FRAUDULENTLY SOLD BY THE ERSTWHILE SELLERS TO SOME OTHER PERSONS ALSO AND ASSESSEE HAD TO ITA NO. 3184/MDS/2016. :- 5 -: CANCEL SUCH FRAUDULENT SALE DEEDS OF THE FORMER S ELLER. FURTHER, CONTENTION OF THE ASSESSEE WAS THAT THERE WAS A GR AVEYARD VERY NEAR TO THE SUBJECT PROPERTY. ACCORDING TO HER ALL THES E FACTS CONSIDERABLY DEPRESSED THE MARKET VALUE OF THE PROPERTY. LD. VAL UATION OFFICER AFTER CONSIDERING THE OBJECTION OF THE ASSESSEE ESTIMATE D THE MARKET VALUE AT @97,20,000/-. 1/3RD SHARE OF THE ASSESSEE CAME TO @32,40,000/-. LD. ASSESSING OFFICER COMPUTED THE LONG TERM CAPITA L GAINS CONSIDERING THE ABOVE VALUE OF @32,40,000/- AS THE FULL VALUE OF THE CONSIDERATION. HE ASSESSED A LONG TERM CAPITAL GAIN OF @16,13,930/ - AFTER ALLOWING INDEXATION. 4. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). FIRST CONTE NTION OF THE ASSESSEE BEFORE LD. COMMISSIONER OF INCOME TAX (APP EALS) WAS THAT THE SURPLUS SHOULD BE TREATED AS BUSINESS INCOME. ACCORDING TO ASSESSEE SHE HAD STARTED A BUSINESS OF REAL ESTAT E DURING THE RELEVANT PREVIOUS YEAR. FURTHER, AS PER THE ASSESSEE PURCHA SE ITSELF WAS THROUGH EXECUTION OF A POWER OF ATTORNEY AND THE PROPERTY WAS NEVER REGISTERED IN HER NAME. IN ANY CASE AS PER THE AS SESSEE, THERE WERE NUMBER OF LEGAL IMPEDIMENTS FACED BY HER WITH REGA RD TO THE SUBJECT PROPERTY AND THE VALUATION OFFICER HAD GIVEN ONLY A MARGINAL DISCOUNT OF 15%. LD. COMMISSIONER OF INCOME TAX (APPEALS) H OWEVER, REJECTED ITA NO. 3184/MDS/2016. :- 6 -: THE ABOVE CONTENTION AND CONFIRMED THE ADDITIONS MA DE BY THE ASSESSING OFFICER. 5. NOW BEFORE ME, LD. AUTHORISED REPRESENTATIVE STRONG LY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT BOOK ENTRIES SHOULD NOT BE TAKEN AS DECISIVE FOR ASCERTAINING THE INTENTION OF THE ASSESSEE. AS PER LD. AUTHORISED REPRESENTATIVE VARIOUS COMPLEXITIES, FACED BY THE A SSESSEE WHICH WAS BROUGHT OUT IN VALUATION REPORT, CLEARLY SUPPORTED HER ARGUMENT THAT THE SURPLUS SHOULD BE TREATED AS BUSINESS INCOME. ALTERNATIVELY, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE SUBJEC T LAND WAS SITUATED WITHIN 300 METERS FROM THE HIGH TIDE LINE UNDER THE COASTAL REGULATION ZONE AND NO CONSTRUCTION WAS POSSIBLE. FURTHER, AS PER LD. AUTHORISED REPRESENTATIVE THE SELLER WHO HAD EXECUT ED PAO IN FAVOUR OF THE ASSESSEE HAD RESOLD THE LAND FRAUDULENTLY TO SOME OTHER PERSONS AND ASSESSEE FACED CONSIDERABLE DIFFICULTY IN GETTING SUCH FRAUDULENT SALE CANCELLED. AS PER LD. AUTHORISED REPRESENTATIVE THESE FACTORS DEPRESSED THE VALUE OF THE SUBJECT PROPERTY . APART FROM THAT ACCORDING TO LD. AUTHORISED REPRESENTATIVE, THERE W AS A BURIAL YARD VERY NEAR TO THE SUBJECT PROPERTY AND MARKETING OF THE PROPERTY WAS VERY DIFFICULT. THUS, ACCORDING TO HIM, THE DISCOU NT OF 15% GIVEN BY THE DISTRICT VALUATION OFFICER FOR DISADVANTAGEOUS LOCATION AND 5% FOR ITA NO. 3184/MDS/2016. :- 7 -: LEGAL COMPLEXITIES WAS INSUFFICIENT. IN HIS OPINIO N, ATLEAST 40% DISCOUNT WAS NECESSARY CONSIDERING THE ADVERSE CIRC UMSTANCES. 6. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONGL Y SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IN SO FAR AS TREAT MENT OF SURPLUS UNDER THE HAD CAPITAL GAINS IS CONCERNED, I AM OF THE OP INION THAT ASSESSEE HERSELF HAVING SHOWN THE LAND AS A CAPITAL ASSET IN HER BALANCE SHEET, SINCE ASSESSMENT YEAR 2007-2008 THERE WAS EVERY REA SON FOR THE LOWER AUTHORITIES TO CONSIDER THE GAIN AS NOT SOMETHING ARISING FROM ANY BUSINESS ACTIVITY. ASSESSEE HERSELF WAS NOT DOING ANY BUSINESS ACTIVITY DURING THE RELEVANT PREVIOUS YEAR, APART FROM BEING A PARTNER OF TWO FIRMS. EVEN IN THE PROFIT AND LOSS ACCOUNTS FILED BY THE ASSESSEE ALONG WITH HER RETURNS ASSESSMENT YEARS 2007-08, 2008-09 AND 2009-2010, THE LAND WAS NOT SHOWN AS STOCK IN TRADE. HENCE IN MY OPINION THE ASSET WAS RIGHTLY TREATED AS CAPITAL ASSET AND GAI NS RIGHTLY CONSIDERED UNDER THE HEAD INCOME FROM CAPITAL GAINS. 8. COMING TO THE ASPECT OF VALUATION DONE BY THE LOWER AUTHORITIES THE RELEVANT PART OF THE VALUATION OFFI CERS OBSERVATION IS REPRODUCED HEREUNDER:- ITA NO. 3184/MDS/2016. :- 8 -: THIS IS A VACANT LAND SITUATED AT ABOUT 200 METRES AWAY FROM THE MAIN LAST COAST ROAD (ECR), AND ALSO SITUA TED ONLY ABOUT 300 METRES FROM THE HIGH TIDE LINE THUS SAID TO BE COMING UNDER THE COASTAL REGULATION ZONE WHICH REST RICTS THE CONSTRUCTION ACTIVITIES. HENCE, IN THE NORMAL C OURSE, NO PLAN APPROVAL CAN BE OBTAINED FROM THE CMDA AUTHORI TIES AND HENCE, CORPORATION SEWAGE & WATER SUPPLY CONNECTION ARE NOT AVAILABLE. THE ROAD LEADING TO THE SITE FRO M THE ECR IS ONLY ABOUT 20'-0' WIDE. THE SUBJECT PROPERTY IS SITUATED NEAR A GRAVE YARD WHICH IS ABOUT 200 METRES AWAY. ACCORDING TO THE DOCUMENTS FURNISHED BY THE ASSESSE E, THERE WERE FRAUDULENT ATTEMPTS BY THE VENDOR OF THE LAND (FROM WHOM THE ASSESSEE HAVE PURCHASED THIS PROPERT Y DURING 1999) TO SELL A PART OF THIS SAME LAND AGAIN TO SHRI. A. ANNAMALAI, WHO IN TURN HAVE SOLD THAT PART TO TWO P ERSONS NAMELY MRS. S. SUNITHA & TO SHRI. P. PREETHAM. THESE TRANSACTIONS WERE ACTUALLY REGISTERED IN SRO, A DYA R, CHENNEI-20) THROUGH' SALE DEED DOCUMENT NOS. 1801 OF 2005, NO.388 OF 2006 & NO.389 OF 2006 COPIES OF WHICH ARE FURNISHED TO THIS OFFICE AS PROOF. ALSO, IN THE SUB JECT PROPERTY'S SALE DEED DOCUMENT NO.1435 OF 2009, DATE D: 19. 05. 2009 ALSO, THIS FACT IS MENTIONED IN PAGE NO.6 OF THE DOCUMENT. ACCORDING TO THE ASSESSEE, WITH GREAT AMO UNT OF LITIGATION AND PERSUATION, SALE DEEDS FRAUDULENTLY EXECUTED IN FAVOUR OF OTHER PARTIES WERE CANCELLED VIDE CANCELL ATION DEED DOCUMENT NO.421, 422 & 423 OF 2007 IN THE OFFICE OF THE SRO,ADYAR, CHENNAI-20. THE ASSESSEE HAS FURNISHED T HE COPIES OF THOSE CANCELLATION DEED DOCUMENTS ALSO TO THIS OFFICE AS PROOF. ACCORDING TO THE ASSESSEE, AS THE PRUDENT BUYERS WE RE VERY RELUCTANT TO PURCHASE THE SUBJECT PROPERTY AFTER TH ESE FRAUDULENT EXERCISES EXPLAINED ABOVE WERE EXPOSED, THE ASSESSEE WAS COMPELLED TO SELL THIS LAND AS A DISTR ESS SALE AT A PRICE WHICH WAS MUCH BELOW THE MARKET PRICE. A LSO, ACCORDING TO THE ASSESSEE, THEY WERE FORCED TO SPEN D LOT OF AMOUNT TO COME OUT OF THE PROBLEMS DETAILED ABOVE. THE FACTS EXPLAINED ABOVE CLEARLY ESTABLISHES THE DISADVANTAGEOUS FACTORS ATTACHED TO THIS PROPERTY. AFTER APPLYING THE VARIOUS FACTORS APPLICABLE TO THE ADVANTAGEOUS/DISADVANTAGEOUS POSITION OF THE PROPER TY, THE FAIR MARKET VALUE OF THE PROPERTY HAS BEEN ARRIVED AS DETAILED BELOW: ITA NO. 3184/MDS/2016. :- 9 -: MARKET RATE OF LAND AS ON 25.06.2009 (AS CERTIFIED BY SRO/ADYAR) =RS.1800SQFT. LESS FOR: DISADVANTAGEOUS LOCATION AND SITUATION OF THE PROPERTY SITUATED FAR AWAY FROM THE MAIN EAST COAST ROAD (ECR), I.E., ABOUT 200 METRES AWAY FROM THE MAIN ROAD, PLAN APPROVAL FROM THE CMOA IS NOT PERMITTED AS THIS PROPERTY IS SITUATED WITHIN 300 METRES FROM THE HIGH TIDE LINE AND THUS COMING UNDER THE COASTAL REGULATION ZONE WHICH RESTRICTS THE CONSTRUCTION ACTIVITIES. CORPORATION SEWAGE CONNECTION AND WATER SUPPLY CONNECTION ARE NOT AVAILABLE. FRONT SIDE ROAD IS ONLY ABOUT 20'-0' WIDE A GRAVEYARD IS ALSO SITUATED NEARBY @ 15% OF BASIC LAND RATE I.E., ON RS.1800/- = (-) 270/- 2. FRAUDULENT SALE DEEDS EXPLAINED ABOVE LED TO THE DISTRESS SALE AS PRUDENT BUYERS WERE VERY RELUCTANT TO P URCHASE THE SUBJECT PROPERTY INVOLVED IN ANY FRAUDULENT EXERCISES. =(-) 90/- NET RATE ------- ------- = 1440/- PER SQ.FT ------------- LAND AREA =7200 SQFT. @ 1440/- PER SQFT = 1,03,68,000/- ASSESSEE, WHEN A PROPOSAL ON THE ABOVE LINES WAS P UT TO HER BY THE DISTRICT VALUATION OFFICER, FILED FURTHER OBJECTIO N AND THE VALUATION OFFICER HAD GIVEN ANOTHER 5% REDUCTION, IN ADDITION TO WHAT HAS BEEN MENTIONED ABOVE. WHEN NO CONSTRUCTION WAS POSSIBLE ON THE SUBJECT LAND, SINCE IT WAS LOCATED WITHIN COASTAL REGULATIO N ZONE AND ALSO ITA NO. 3184/MDS/2016. :- 10 -: CONSIDERING THE OTHER COMPLEXITIES HIGHLIGHTED BY T HE ASSESSEE, I AM OF THE OPINION THAT A TOTAL 30% OF DISCOUNT ON BASI C LAND RATES IS APPROPRIATE. I THEREFORE DIRECT THE LD. ASSESSING OFFICER TO GIVE A DISCOUNT OF 30% OF BASIC LAND RATE IN LIEU OF THE DISCOUNT GIVEN BY THE DVO, FOR ARRIVING AT THE FULL VALUE OF THE CONSID ERATION AND RECOMPUTE THE CAPITAL GAINS. ORDERED ACCORDINGLY. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 31 ST DAY OF MAY, 2017, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 31ST MAY, 2017 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,- / CIT(A) 5. )./ 0 / DR 2. / RESPONDENT 4. + / CIT 6. /12 / GF