Essorpe Mills Ltd., CHENNAI V. ACIT, Coimbatore

ITA 391/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8153 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 30-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 23-02-2015
• Court: TRIBUNAL
• Department Lawyers: DR MILIND MADHUKAR BHUSARI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Business income; Date of conversion; Fair market value; Commercial expediency
• Section: 45(2)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.391/MDS/2015 / ASSESSMENT YEAR : 2009-10 M/S ESSORPE MILLS LTD 37/54, 7 TH CROSS BHARATHI PARK ROAD COIMBATORE 641 043 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 2 COIMBATORE [PAN AAACE 4783 D] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : DR. MILIND MADHUKAR BH USARI, CIT / DATE OF HEARING : 30 - 12 - 2015 ! / DATE OF PRONOUNCEMENT : 05 - 0 2 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, COIMBA TORE, DATED 9.12.2014 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS ASSESSME NT OF CAPITAL GAINS ON SALE OF 5.075 ACRES OF LAND. ITA NO. 391/15 :- 2 -: 2. SHRI R.VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE-COMPANY HAS CONVERTED T HE LAND WHICH WAS CONSIDERED AS CAPITAL ASSET INTO STOCK-IN-TRADE IN THE YEAR 2000. ACCORDING TO THE LD. COUNSEL, THE REAL ESTATE DIVIS ION OF THE ASSESSEE- COMPANY WAS DEMERGED BY AN ORDER OF THE HIGH COURT WITH EFFECT FROM 28.2.2007. THE ASSESSEE-COMPANY ENTERED INTO A MEM ORANDUM OF ASSOCIATION WITH M/S GLOBUS REALTORS PVT. LTD. OFFE RING 5.075 ACRES OF LAND AS SECURITY FOR THE AMOUNTS ADVANCED BY M/S GL OBUS REALTORS PVT. LTD. TO M/S ESSORPE HOLDINGS PVT. LTD, A SISTER CON CERN OF THE ASSESSEE-COMPANY. THE ASSESSEE HAS ALSO EXECUTED A POWER OF ATTORNEY IN FAVOUR OF SHRI V. SIVAKUMAR, THE MANAGI NG DIRECTOR OF M/S GLOBUS REALTORS PVT. LTD IN RESPECT OF 5.075 ACRES OF LAND. THE PHYSICAL POSSESSION OF THE LAND WAS ALSO HANDED OVE R TO M/S GLOBUS REALTORS PVT. LTD. SHRI V.SIVAKUMAR, MANAGING DIRE CTOR OF M/S GLOBUS REALTORS PVT. LTD, SOLD 5.075 ACRES OF LAND TO M/S RASI SEEDS (P) LTD AND M/S GLOBUS REALTORS PVT. LTD. ON 5.1.2009 AND 7 .1.2009 WHILE ENFORCING THE SECURITY FOR REPAYMENT OF LOAN BORROW ED BY THE SISTER CONCERN M/S ESSORPE HOLDINGS PVT. LTD. THE ASSESSI NG OFFICER FOUND THAT THERE WAS A TRANSFER OF PROPERTY BETWEEN THE ASSESSEE AND M/S RASI SEEDS (P) LTD. AND COMPUTED THE CAPITAL GAINS IN THE HANDS OF THE ASSESSEE-COMPANY SUBSTANTIVELY. IN THE COURSE OF A SSESSMENT PROCEEDINGS, A PROTECTIVE ASSESSMENT WAS MADE IN TH E HANDS OF TO M/S ITA NO. 391/15 :- 3 -: ESSORPE HOLDINGS PVT. LTD, IN RESPECT OF THE GAIN A RISING ON THE SALE OF VERY SAME LAND. THE CONTENTION OF THE ASSESSEE BE FORE THE LOWER AUTHORITIES IS THAT THERE WAS A DEMERGER BY THE ORD ER OF THE HIGH COURT WITH EFFECT FROM 28.2.2007 IN RESPECT OF REAL ESTAT E DIVISION. THE MANUFACTURING DIVISION REMAINED WITH THE ASSESSEE-C OMPANY. THE REAL ESTATE DIVISION WAS ALLOTTED TO M/S ESSORPE HOLDING S PVT. LTD, THEREFORE, WITH EFFECT FROM 28.2.2007, THE ASSESSEE IS NO LON GER THE OWNER OF THE LANDED PROPERTY. THE LD. COUNSEL FURTHER SUBMITTED THAT WHEN THE MATTER CAME UP BEFORE THIS TRIBUNAL IN ASSESSMENT Y EAR 2009-10, THIS TRIBUNAL FOUND THAT THE GAIN ON TRANSFER OF THE LAN DED PROPERTY HAS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE UPTO THE DATE OF CONVERSION INTO STOCK-IN-TRADE. HOWEVER, AFTER CONVERSION OF PROPERTY INTO STOCK- IN-TRADE, IT HAS TO BE ASSESSED BAS BUSINESS INCOME . REFERRING TO PAGES 9 & 10 MORE PARTICULARLY PARA 9 OF THE ORDER OF THIS TRIBUNAL IN I.T.A.NO. 2256/MDS/2012 DATED 11.7.2013, THE LD. CO UNSEL SUBMITTED THAT THIS TRIBUNAL DIRECTED THE ASSESSING OFFICER T O COMPUTE THE BUSINESS INCOME IN RESPECT OF THE STOCK-IN-TRADE OF THE PROPERTY AFTER CONSIDERING THE PROVISIONS OF SEC. 45(2) OF THE ACT . ACCORDING TO THE LD. COUNSEL, IN VIEW OF THIS OBSERVATION OF THIS T RIBUNAL, THE PROPERTY WAS CAPITAL ASSET TILL THE ASSESSMENT YEAR 2007-08 AND FROM ASSESSMENT YEAR 2007-08, THE PROPERTY WAS CONVERTED INTO STOCK-IN- TRADE. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE HAS NOT RECEIVED ITA NO. 391/15 :- 4 -: ANY CONSIDERATION ON TRANSFER OF THE LAND TO M/S RA SI SEEDS (P) LTD, THEREFORE, THE ASSESSEE CLAIMED THE SAME AS LOSS O F BUSINESS. ACCORDING TO THE LD. COUNSEL, WHILE THE ASSESSING O FFICER ACCEPTED THE TRANSACTION AS BUSINESS TRANSACTION, HOWEVER, REFUS ED TO ASSESS THE LOSS INCURRED ON ACCOUNT OF NON-RECEIPT OF SALE CON SIDERATION AS BUSINESS LOSS. THE LD. COUNSEL FURTHER SUBMITTED T HAT THIS TRIBUNAL IN THE CASE OF TO M/S ESSORPE HOLDINGS PVT. LTD, FOUN D THAT THE RESIDUAL LAND SOLD WAS TO BE TREATED AS CAPITAL ASSET UPTO C ONVERSION INTO STOCK-IN-TRADE AND AFTER CONVERSION WHEN THE LAND W AS ACTUALLY SOLD, THE INCOME ARISING FROM THE SALE OF SUCH LAND HAS T O BE CONSIDERED AS BUSINESS INCOME. THE LD. COUNSEL FURTHER SUBMITTED THAT THE LAND WAS GIVEN AS SECURITY TO THE SISTER CONCERN IN THE COUR SE OF BUSINESS ACTIVITY FOR COMMERCIAL PURPOSE. THEREFORE, THE LOSS SUFFER ED BY THE ASSESSEE IN THE COURSE OF BUSINESS ACTIVITY HAS TO BE ALLOWE D AS BUSINESS LOSS. 3. ON THE CONTRARY, DR. MILIND MADHUKAR BHUSARI, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THIS TRI BUNAL IN THE EARLIER ROUND OF LITIGATION FOUND THAT THE GAIN ON TRANSFER OF PROPERTY UPTO THE DATE OF CONVERSION INTO STOCK-IN-TRADE HAS TO BE AS SESSED UNDER THE HEAD CAPITAL GAIN AND THE GAIN AFTER THE DATE OF CO NVERSION INTO STOCK- IN-TRADE HAS TO BE ASSESSED AS BUSINESS INCOME IN T HE HANDS OF THE ASSESSEE. THIS TRIBUNAL DIRECTED THE ASSESSING OFF ICER TO COMPUTE THE BUSINESS INCOME IN RESPECT OF STOCK-IN-TRADE OF THE PROPERTY AFTER ITA NO. 391/15 :- 5 -: TAKING INTO CONSIDERATION THE PROVISIONS OF SEC. 45 (2) OF THE ACT IN THE EARLIER ROUND OF LITIGATION. THE CIT(A) AFTER REFE RRING TO THE ORDER OF THIS TRIBUNAL DATED 11.7.2013, FOUND THAT THE ISSUE OF TAXABILITY REGARDING GAIN ON TRANSFER OF CAPITAL ASSET WAS DEC IDED BY THIS TRIBUNAL THEREFORE, THE CIT(A) FOUND NO MERIT IN THE CLAIM O F THE ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADM ITTEDLY, THE ASSESSEE-COMPANY WAS DEMERGED BY AN ORDER DATED 15. 9.2009. BEFORE DEMERGER, THE ASSESSEE-COMPANY GAVE THE LAND ED PROPERTY TO SISTER CONCERN AS SECURITY FOR THE LOANS ADVANCED B Y M/S GLOBUS REALTORS PVT. LTD. THE SECURITY WAS GIVEN TO M/S G LOBUS REALTORS PVT. LTD FOR COMMERCIAL EXPEDIENCY. IN THE COURSE OF IT S BUSINESS ACTIVITY, IT APPEARS THAT THE ASSESSEE HAS ALSO EXECUTED A POWE R OF ATTORNEY IN FAVOUR OF SHRI V. SIVAKUMAR, MANAGING DIRECTOR OF M /S GLOBUS REALTORS PVT. LTD. IN RESPECT OF 5.075 ACRES OF LAND. THE P OWER OF ATTORNEY AGENT SOLD THE PROPERTY TO ENFORCE THE SECURITY GIV EN BY THE ASSESSEE TO M/S RASI SEEDS (P) LTD. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE PROFIT ARISING ON SALE OF THE LAND WHIL E ENFORCING THE SECURITY GIVEN BY THE ASSESSEE FOR LOAN GIVEN TO T HE SISTER CONCERN NAMELY, M/S ESSORPE HOLDINGS PVT. LTD, IS ASSESSABL E IN THE HANDS OF THE ASSESSEE OR NOT? AS RIGHTLY POINTED OUT BY TH E LD. DR, THIS TRIBUNAL IN THE EARLIER OCCASION BY AN ORDER DATED 11.7.2013 EXAMINED ITA NO. 391/15 :- 6 -: THIS ISSUE AND FOUND THAT UPTO THE DATE OF CONVERSI ON OF THE CAPITAL ASSET INTO STOCK-IN-TRADE, THE PROFIT HAS TO BE ASS ESSED AS CAPITAL GAIN AND AFTER THE CONVERSION, IT HAS TO BE ASSESSED AS BUSINESS INCOME. ACCORDINGLY, THIS TRIBUNAL DIRECTED THE ASSESSING O FFICER TO COMPUTE THE BUSINESS INCOME IN RESPECT OF THE STOCK-IN-TRAD E OF THE PROPERTY. IN VIEW OF THE ABOVE DIRECTION OF THIS TRIBUNAL, NO DOUBT, THE PROFIT ON SALE OF THE LANDED PROPERTY HAS TO BE ASSESSED ONLY IN THE HANDS OF THE ASSESSEE AND NOT IN THE HANDS OF M/S ESSORPE HOLDIN GS PVT. LTD. THIS ORDER OF THE TRIBUNAL DATED 11.7.2013 ATTAINED FINA LITY. 5. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SE C. 45(2) OF THE ACT WHICH READS AS FOLLOWS: NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTION (1), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY O F CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM AS, STOCK-IN-TRADE OF A BUSINESS C ARRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME-TAX AS HIS I NCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS S OLD OR OTHERWISE TRANSFERRED BY HIM AND, FOR THE PURPOSES OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET]. IN VIEW OF THE ABOVE PROVISION, THE CAPITAL GAINS O N TRANSFER OF 5.075 ACRES OF LAND AS STOCK-IN-TRADE HAS TO BE ASSESSED AS CAPITAL GAINS IN THE HANDS OF THE ASSESSEE. ITA NO. 391/15 :- 7 -: 6. NOW COMING TO THE CONTENTION OF THE ASSESSEE THAT ON SALE OF THE PROPERTY, THE ASSESSEE HAS NOT RECEIVED ANY AMOUNT, THEREFORE, IT HAS TO BE ALLOWED AS BUSINESS LOSS. IT IS NOT I N DISPUTE THAT M/S ESSORPE HOLDINGS PVT. LTD. IS A SISTER CONCERN OF T HE ASSESSEE. THE PROPERTY IN QUESTION WAS GIVEN AS SECURITY TO M/S G LOBUS REALTORS PVT. LTD. FOR ADVANCING LOAN TO THE SISTER CONCERN M/S E SSORPE HOLDINGS PVT. LTD. THEREFORE, IT IS OBVIOUS THAT TO PROMOTE THE BUSINESS OF SISTER CONCERN, M/S ESSORPE HOLDINGS PVT. LTD, THE ASSESS EE GAVE THE LAND IN QUESTION AS SECURITY. WHILE GIVING THE SECURITY, T HE ASSESSEE HAS ALSO EXECUTED POWER OF ATTORNEY IN FAVOUR SHRI V. SIVAKU MAR, MANAGING DIRECTOR OF M/S GLOBUS REALTORS PVT. LTD. WHEN THE SISTER CONCERN COULD NOT REPAY THE LOAN AMOUNT, THE PROPERTY WHICH WAS GIVEN AS SECURITY WAS SOLD BY SHRI V. SIVAKUMAR AND THE SALE CONSIDERATION WAS ADJUSTED FOR REPAYMENT OF THE LOAN BY M/S ESSORPE HOLDINGS PVT. LTD. IN THOSE CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CO NSIDERED OPINION THAT SINCE THE LAND WAS GIVEN AS SECURITY FOR COMMERCIA L EXPEDIENCY TO SISTER CONCERN, THERE WAS A BUSINESS LOSS ARISING I N THE COURSE OF BUSINESS. SINCE NO AMOUNT WAS REALIZED AND THE ASS ESSEE-COMPANY SUFFERED A LOSS FOR GIVING SECURITY TO THE SISTER C ONCERN, THE SAME HAS TO BE ALLOWED AS BUSINESS LOSS WHILE COMPUTING THE TAXABLE INCOME. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS UNABLE TO UPHOL D THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE ITA NO. 391/15 :- 8 -: MODIFIED AND THE ASSESSING OFFICER IS DIRECTED TO C OMPUTE THE CAPITAL GAINS U/S 45(2) OF THE ACT ON SALE OF LAND UPTO TH E DATE OF CONVERSION AS STOCK-IN-TRADE. THE PROFIT ON SALE OF LAND AS S TOCK-IN-TRADE HAS TO BE COMPUTED AS BUSINESS LOSS SINCE THE ASSESSEE HA S NOT RECEIVED ANY MONEY ON SALE OF THE LAND. THEREFORE, THE CAPITAL GAINS COMPUTED UPTO THE DATE OF CONVERSION OF LAND INTO STOCK-IN-T RADE HAS TO BE SET OFF AGAINST THE BUSINESS LOSS COMPUTED ON SALE OF THE S TOCK-IN-TRADE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH FEBRUARY 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 5 TH FEBRUARY, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF