ACIT, Ajmer V. AVIJIT SINGH, Ajmer

ITA 337/JPR/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5417 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 01-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NEENA JEPH
• Assessee Lawyers: SUBHASH PORWAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Rectification of order
• Section: 45(2); 50C

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA- @ ITA NO. 337/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, AJMER. CUKE VS. AVIJIT SINGH, BANDORE HOUSE, CIVIL LINES, AJMER. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AOFPS 6071 J VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : MRS. NEENA JEPH ( JCIT) FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI SUBHASH PORWAL (CA) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 10/02/2016 MN?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 08/04/2016 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 28/02/2014 PASSED BY THE LEARNED CIT(A), AJMER FOR A.Y. 2008-09. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER:- IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A), AJMER HAS ERRED IN: 1 TREATING THE INCOME OF RS. 89,89,150/- AS CAPITAL GAIN AS AGAINST THE BUSINESS INCOME TREATED BY THE A.O., WITHOUT APPRECIATING THE FACTS OF THE CASE; ITA 337/JP/2014_ ACIT VS. AVIJIT SINGH 2 2. DELETING THE ADDITION OF RS. 7,09,303/- ON ACCOU NT OF DEDUCTION CLAIMED U/S 24(A) ON RENTAL INCOME THOUGH THE SAME WAS ASSESSED AS BUSINESS INCOME BY THE A.O., WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. THE ASSESSEE FILED HIS RETURN ON 31/7/2008 DECLAR ING TOTAL INCOME OF RS. 1,19,83,441/-. THE CASE WAS SCRUTINIZED U/S 14 3(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON 14/12/2010. THIS ORDER OF THE ASSESSING OFFICER WAS FOUND ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE TO THE LD CIT(A), AJMER, THEREFORE, HE GAVE CERTAIN DIRECTION ON THE PROFIT BY SELLING THE FLATS/SHOPS WAS THE INCOME ASSESSABLE UNDER THE PROFIT AND GAIN OF BUSINESS OR PROFESSION INSTEAD OF CAPITAL GAIN, EXCESS INDEXED VALUE OF CAPITAL GAIN AND WRONGLY CLAIMED DE DUCTION U/S 24(A) OF THE ACT. THE LD ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD GONE A LAND THROUGH A WILL AND DEVELOPED THE SAID PROPERTY INTO A MULTI STORIED COMMERCIAL COMPLEX THROUGH AN AGREEMENT WITH DEVELOP MENT M/S KRISHNA PRATAP AND COMPANY ON APRIL, 08, 1995. THE A SSESSEE WAS CONTINUING THE TRADING OF SAID MULTI STORIED SHOPS/ FLATS OF THE COMPLEX OF HIS SHARE AND EARNED PROFIT. HIS INTENTION WAS TO EA RN PROFIT. THEREFORE, INCOME WAS ASSESSABLE UNDER THE HEAD PROFIT AND GAIN OF BUSINESS OR PROFESSION. DURING THE YEAR UNDER CONSIDERATION, HE SOLD FLATS AMOUNTING TO RS. 1,45,97,450/- AGAINST STOCK IN TRADE VALUE O F RS. 11,40,765/- AND ITA 337/JP/2014_ ACIT VS. AVIJIT SINGH 3 EARNED PROFIT OF RS. 1,34,83,725/- OUT OF WHICH 2/3 SHARE DERIVED AT RS. 89,89,150/-. AS PER LD ASSESSING OFFICER, THIS INCO ME WAS TAXABLE UNDER THE HEAD INCOME FROM BUSINESS WHEREAS THE ASSESSING OFFICER HAD COMPUTED THE CAPITAL GAIN OF RS. 89,89,150/- UNDER THE HEAD INCOME FROM CAPITAL GAIN AND PAID TAXES ACCORDINGLY. HE FU RTHER OBSERVED THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 24(A) @ 30% OF RS. 7,09,303/- ON RENTAL VALUE OF SHOPPER OF MALL-21. THE SHOP OF M ALL-211 WAS STOCK IN TRADE. THEREFORE, RENTAL INCOME OF THE MALL-21 DECLA RED AT RS. 23,64,344/- WAS THE INCOME OF THE BUSINESS AND HENCE DEDUCTION U/S 24(A) HAS NOT BEEN ALLOWED BY THE ASSESSING OFFICER. ACCORDINGLY, HE MADE ADDITION IN THE INCOME OF THE ASSESSEE. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT( A), WHO HAD ALLOWED THE APPEAL BY OBSERVING AS UNDER:- 3.3 I HAVE CONSIDERED THE CONTENTIONS OF THE APPEL LANT AS WELL AS ASSESSMENT ORDER. (I) IT IS SEEN THAT THE ASSESSEE HAD DEVELOPED A M ULTI STORIED COMMERCIAL COMPLEX KNOWN AS MALL 21 ON INHERITED LAND THROUGH WILL OF GRANDMOTHER BY AN AGREEMENT WITH THE DEVELOPER M/S KRISHNA PRATAP & COMPANY AND HAS SOLD THE FLAT NO. 204, 502 TO 509, 108 AND 102 DURING THE YEAR UNDER CONSIDERATION. DURING THE ITA 337/JP/2014_ ACIT VS. AVIJIT SINGH 4 YEAR UNDER CONSIDERATION, THE ASSESSEE SOLD THE FLA TS AMOUNTING TO RS.1,45,97,450 AGAINST THE COST DETERMINED AT RS. 11,40,765 THEREBY DERIVING PROFIT OF RS.1,34,83,725. OUT OF IT, 2/3 RD SHARE I.E. RS.89,89,120 PERTAIN TO THE ASSESSEE WHICH HAS BEEN HELD TO BE BUSINESS INCOME OF THE ASSESSEE BY THE AO. THE AO TREATED THE SAID INCOME AS INCOME FROM BUSINESS ONL Y ON THE BASIS THAT ASSESSEE HAS SOLD THE MULTI STORIED SHOPS/ FLATS WITH A INTENTION TO EARN PROFIT. HOWEVER, IT CA NNOT BE SAID THAT PROFITS ARE ALWAYS ATTRIBUTABLE TO BUSI NESS INCOME AND THEY CANNOT BE ATTRIBUTABLE TO CAPITAL G AINS ON SALE OF CAPITAL ASSETS. SO, THE PROFITS ACCRUING TO THE ASSESSEE CANNOT BE A SOLE CRITERIA FOR TREATING THE INCOME OF THE ASSESSEE AS INCOME FROM BUSINESS. IT MAY BE MENTIONED THAT THE ASSESSEE IS NOT MAINTAINING ANY BOOKS OF ACCOUNTS IN RESPECT OF THE INHERITED LAND AND IT HAS NOT BEEN SHOWN AS STOCK IN TRADE IN THE BOOKS OF ACCOUNTS. THE ASSESSEES ONLY BUSINESS CONCERN IS M/S BADNOR AUTOMOBILES FOR WHICH PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ARE DRAWN AND SAID LAND DOES NOT APPEAR IN THE SAME. THE LOSS INC URRED IN ABOVE BUSINESS CONCERN HAS BEEN ACCEPTED AS SUCH . SO IT CANNOT BE SAID THAT THE SAID LAND IS STOCK IN TRADE OF THE ASSESSEE FOR THE PURPOSE OF BUSINESS. IT HAS NOT BEEN SHOWN THAT ASSESSEE IS REGULARLY PURCHASING AND SELLING THE FLATS/ SHOPS SO AS TO TR EAT IT AS A ORGANIZED BUSINESS ACTIVITY OF THE ASSESSEE. THE ITA 337/JP/2014_ ACIT VS. AVIJIT SINGH 5 ASSESSEE IS NOT IN THE REAL ESTATE BUSINESS OF DEVE LOPING AND SELLING THE PROPERTIES OF ANY OTHER PARTY. IN F ACT ASSESSEE HAS EVEN GOT HIS OWN LAND DEVELOPED THROUG H A DEVELOPER WHICH SHOWS THAT THERE WAS NO INTENTION OF ENTERING INTO REAL ESTATE BUSINESS. FURTHER, ASSESS EE HAS OFFERED THE SALE CONSIDERATION IN THE RETURN AS PE R SEC. 50C OF THE I.T. ACT EVEN WHEN THE ACTUAL CONSIDERATIO N RECEIVED WAS LOWER THAN THE VALUE DETERMINED AS PER SEC. 50C OF THE I T. ACT. EVEN THE AO HAS ALSO ADOPT ED THE SALE CONSIDERATION AS PER SEC. 50C OF THE I.T. A CT WHICH IS APPLICABLE ONLY IN CASE OF INCOME FROM CAPI TAL GAINS. THE TRUE NATURE OF INCOME HAS TO BE DETERMINED IN CONTEXT OF TRANSACTIONS CARRIED ON BY THE ASSESSEE. IT IS APPARENT FROM THE RECORD THAT ASSESSEE HAS RECEIVED THE INCOME FROM CAPITAL GAINS AND NOT FROM CARRYING ON THE REAL ESTATE BUSINESS. FURTHER, THE DEVELOPMENT AGREEMENT WAS ENTERED BETWEEN THE GRANDMOTHER OF THE ASSESSEE SMT. RAJKANWAR NATHAWAT WITH THE DEVELOPER M/S KRISHNA PRATAP & COMPANY PVT. LTD. ON 08.04.1995. AS PER TH E DEVELOPMENT AGREEMENT, THE DEVELOPER WAS TO BEAR ALL THE EXPENSES AND LAND WAS MADE AVAILABLE TO THE DEVELOPER ONLY FOR THE PURPOSE OF DEVELOPMENT OF TH E LAND. IN CONSIDERATION THEREOF, THE ASSESSEE HAD AG REED TO TRANSFER 50% OF THE TOTAL CONSTRUCTED AREA TO TH E DEVELOPER FOR THE RECOVERY OF CONSTRUCTION COST. FR OM ITA 337/JP/2014_ ACIT VS. AVIJIT SINGH 6 ABOVE, IT IS APPARENT THAT ASSESSEE HAS DEVELOPED H IS LAND INTO FLATS/ SHOPS THROUGH THE DEVELOPER. THE PR OFIT ON THE SALE OF SAID CAPITAL ASSETS IN THE FORM OF F LATS/ SHOPS GIVES RISE TO CAPITAL GAINS ONLY AND IT CANNO T BE TERMED AS BUSINESS INCOME. IT IS ALSO MENTIONED IN THE AGREEMENT THAT THE ASS ESSEE HAS ENTERED INTO THE AGREEMENT WITH THE DEVELOPER ON PRINCIPAL TO PRINCIPAL BASIS AND HAS NOT DEVELOPED THE SAID LAND AS A JOINT VENTURE OR AOP. SO IT CANNOT B E SAID THAT ASSESSEE HAS CARRIED OUT ANY ORGANIZED ACTIVIT Y FOR CARRYING ON ANY REAL ESTATE BUSINESS. IN VIEW OF ABOVE DISCUSSIONS AND SUBMISSIONS OF THE APPELLANT, ABOVE INCOME IS TAXABLE AS INCOME FROM CAPITAL GAINS AND NOT FROM BUSINESS. ACCORDINGLY, T HIS PART OF GROUND OF APPEAL IS ALLOWED. (II) AS REGARDING THE DOUBLE TAXATION OF THE SAME INCOME AS BUSINESS INCOME AS WELL AS INCOME FROM CAPITAL GAINS, THE ASSESSEE HAS POINTED OUT THAT THE AO HA S PASSED THE RECTIFICATION ORDER IN ABOVE RESPECT. SO SAME NEED NO ADJUDICATION. 4. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. ASSESSING OFFICER AN D ARGUED THAT THE ASSESSEE HAS SYSTEMATICALLY DEVELOPED THE LAND AND CONSTRUCTED THROUGH DEVELOPER INTO SHOPS AND FLATS AND WHICH HAS BEEN S OLD OUT DURING THE ITA 337/JP/2014_ ACIT VS. AVIJIT SINGH 7 YEAR UNDER CONSIDERATION, THEREFORE, IT IS AN INCOM E FROM BUSINESS AND PROFESSION. 5. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SUP PORTED THE ORDER OF THE LD CIT(A) AND REITERATED THE ARGUMENTS MADE B EFORE HIM. IT IS FURTHER SUBMITTED THAT THE IN ACCORDANCE WITH THE I NTENTS OF THE LAST WILL AND TESTAMENTS DATED JUNE 29 TH , 1985 OF RANI SAHIBA SMT. RAJKANWAR NATHAWAT JI, THE ENTIRE (2/3 RD ) SHARE IN THE SAID PROPERTY BELONGING TO RANI SAHIBA SMT. RAJKANWAR NATHAWAT JI DEVOLVED ON HE R DEMISE, ON HER GRANDSON KUNWAR AVIJIT SINGH (ASSESSEE) AND THE ASSE SSEE BECAME OWNER OF HIS ASSET. THE ASSESSEE ENTERED INTO A DEVE LOPMENT AGREEMENT WITH M/S KRISHNA PRATAP & CO. PVT. LTD.. THE DEVELOPE R WOULD CONSTRUCT THE MALL AND THEREAFTER ON COMPLETION OF MALL, THE SHOPS PRO-RATA SHALL BE ALLOTTED TO THE ASSESSEE IN LIEU OF LAND. THUS TH E ASSESSEE CONVERTED ITS CAPITAL ASSET BEING LAND INTO SHOPS OF MALL CON STRUCTED AND DEVELOPED BY BUILDER. THE ASSESSEE CALCULATED FAIR MARKET VAL UE AS ON 01/4/1981. AS PER PROVISIONS OF SECTION 50(2) OF THE ACT SINCE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY MOD OF WILL OF RANI SAHIBA SMT. RAJKANWAR NATHAWAT JI AS PRESCRIBED U/S 49(1) WHO ACQU IRED THE SAME PRIOR TO 01 ST APRIL, 1981, THUS IT IS NOT TRANSFERRED U/S 2(47) OF THE ACT. THIS CASE ALSO NOT COVERED U/S 45(2) OF THE ACT. THE ASSESSEE GOT THE ITA 337/JP/2014_ ACIT VS. AVIJIT SINGH 8 PRICE OF THE LAND THROUGH CONSTRUCTED AREA ALLOTTED IN SHAPE OF SHOPS/FLATS. IT IS NOT A CASE OF TRANSFER OF ASSETS NOR A CASE OF CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE AND IS ONLY FO RM OF DEVELOPMENT OF EXISTING CAPITAL ASSETS FOR DISPOSAL AND IS A LONG TERM CAPITAL GAIN. THEREFORE, HE PRAYED TO CONFIRM THE ORDER OF THE LD CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AS SESSEE HAD CONSTRUCTED AREA IN FORM OF SHOPS AND FLATS. ORIGIN ALLY THIS LAND WAS BELONGED TO HIS GRANDMOTHER RANI SAHIBA SMT. RAJKAN WAR NATHAWAT JI, WHO MADE AGREEMENT IN 1995 WITH THE BUILDER NAMELY M/ S KRISHA PRATAP & CO. PVT. LTD. TO BUILD AND CONSTRUCT THE MALL. THE Y MADE AGREEMENT TO SHARE THE CONSTRUCTED AREA ON 50-50 BASIS. ALL THE COST WAS BORNE BY THE BUILDER. THIS LAND HAS NOT BEEN SHOWN AS A STOCK IN TRADE IN THE BOOKS OF ACCOUNT BY THE ASSESSEE. THE ASSESSEE IS NOT IN THE ACTIVITY OF REGULARLY PURCHASING AND SELLING THE FLATS/SHOPS AND IT IS NO T ORGANIZED BUSINESS ACTIVITY OF THE ASSESSEE. THERE WAS NO INTENTION OF T HE ASSESSEE TO ENTER INTO REAL ESTATE BUSINESS. THE ASSESSEE HAS ALSO SHO WN SALE CONSIDERATION ON THE BASIS OF VALUATION OF STAMP AU THORITY U/S 50C OF THE ACT. THUS, THE ASSESSEE RIGHTLY CLAIMED LONG TERM CA PITAL GAIN ON SALE OF ITA 337/JP/2014_ ACIT VS. AVIJIT SINGH 9 SHOPS/FLATS DURING THE YEAR UNDER CONSIDERATION. AC CORDINGLY, WE UPHOLD THE ORDER OF THE LD CIT(A). 7. THE 2 ND GROUND OF THE REVENUES APPEAL IS AGAINST DELETING THE ADDITION OF RS. 7,09,303 ON ACCOUNT OF DEDUCTION U/ S 24(A) OF THE ACT. THE OBSERVATION OF THE LD ASSESSING OFFICER IS ALREA DY MADE IN PARAGRAPH NO. 2 OF THIS ORDER. ACCORDINGLY, THE LD ASSESSING OFFICER MADE ADDITION IN THE INCOME OF THE ASSESSEE, WHICH WAS CHALLENGED BEFORE THE LD CIT(A), WHO HAD DELETED THE ADDITION BY OBSERVING THA T THIS ISSUE ALSO RELATED TO GROUND NO. 1 WHERE HE HAS HELD THAT THE TRANSACTION IS NOT A BUSINESS TRANSACTION BUT CAPITAL ASSETS OF THE ASSE SSEE. INCIDENTAL RENTAL INCOME FROM THE SAME IS LIABLE TO BE TAXED AS INCOM E FROM HOUSE PROPERTY AGAINST WHICH DEDUCTION U/S 24(A) OF THE AC T IS ALLOWABLE. 8. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. AT TH E OUTSET, THE LD AR OF THE ASSESSEE HAS VEHEMENTLY SUPPORTED THE ORDER OF THE LD CIT(A) AND ARGUED THAT THE ASSESSEE HAS SHOWN RENTAL INCOME FR OM SHOP OF MALL-21 (2/3 RD ) ACTUAL VALUE WAS AT RS. 23,64,344/- ON WHICH HE HAS CLAIMED DEDUCTION U/S 24(A) AT RS. 7,09,303/-, WHICH IS AS P ER LAW. THEREFORE, HE PRAYED TO UPHOLD THE ORDER OF THE LD CIT(A). ITA 337/JP/2014_ ACIT VS. AVIJIT SINGH 10 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AS SESSEE, UNDISPUTEDLY, HAS DISCLOSED THE RENTAL INCOME FROM SHOPS OF MALL UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE DEDUCTION U /S 24(A) IS MANDATORY, THEREFORE, WE UPHOLD THE ORDER OF THE LD CIT(A). 10. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 08/04/2016. SD/- SD/- YFYR DQEKJ VH-VKJ-EHUK (LALIET KUMAR) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 08 TH APRIL, 2016 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ACIT, CIRCLE-2, AJMER. 2. IZR;FKHZ @ THE RESPONDENT- SHRI AVIJIT SINGH, AJMER. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 337/JP/2014) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR