Oorjita Builders & Developers Private Limited, Hyderabad, Hyderabad V. ITO, Ward-16(1), Hyderabad, Hyderabad

ITA 391/HYD/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2317 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 06-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income
• Section: 43CA; 50C; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A SMC : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA.NO. 391/HYD/2017 ASSESSMENT YEAR 2008 - 2009 OORJITA BUILDERS AND DEVELOPERS PVT LTD., PLOT NO. 6A, P & T COLONY, KARKHANA, NEW APPOLLO HOSPITAL, SECUNDERABAD. PAN:AAACO7889C VS. INCOME TAX OFFICER, WARD - 2(1), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI K.A. SAI PRASAD FOR REVENUE : SMT. SUMAN MALIK, DR DATE OF HEARING : 27.07 .2017 DATE OF PRONOUNCEMENT : 27.07 .2017 ORDER PER D. MANMOHAN, VP. THIS APPEAL I S FILED AT THE INSTANCE OF THE ASSESSEE - COMPANY AND IT IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) - 4, HYDERABAD. FOLLOWING GROUNDS WERE URGED BEFORE THE TRIBUNAL. 1. THE LD. CIT(A), IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER. 2. THE LD. CIT(A) IS NOT JUSTIFIED IN NOT CONSIDERING THE FACT THE PROVISIONS OF SECTION 50C ARE NOT APPLICABLE IN THE CASE OF A BUSINESS ASSET. 3. THE LEARNED FIRST APPELLATE AUTHORITY IS ;NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 29,79,200/ - MADE BY THE ASSESSING OFFICER. 2. A SSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF HOUSES AND APARTMENTS. FOR THE YEAR UNDER CONSIDERATION, IT ADMITTED LOSS BOTH UNDER THE REGULAR PROVISIONS AS WELL AS U/S 115JB OF THE ACT, WHICH WAS ACCEPTED WHILE PROCESSING RETURN U/S 143(1) OF THE ACT. 3. SUBSEQUENTLY, IT WAS TAKEN UP FOR SCRUTINY. WHILE EXAMINING THE RECORDS, THE A.O. NOTI CED THAT THE ASSESSEE SOLD LAND TO THREE PEOPLE AND CLAIMED LOSS OF RS. 2 14,59,460/ - FROM THE SALE OF LAND. SALE CONSIDERATION WAS LESS THAN THE MARKET VALUE OF THE LAND. IT IS NOT IN DIS PUTE THAT THE PURCHASER PAID EXCESS STAMP DUTY. 4. IN THE OPINION OF THE ASSESSING OFFICER, THE PROVISIONS OF SECTION 50C OF THE ACT COMES INTO PLAY. WHEN THE SAME WAS PUT TO THE ASSESSEE - COMPANY, IT WAS REPLIED THAT THE COMPANYS MAIN OBJECT WAS TO DEAL WITH REAL ESTATE AND CONSTRUCTION ACTIVITIES. AS PART OF THE ACTIVI TY, COMPANY ACQUIRED LAND DURING THE ASSESSMENT YEAR 2006 - 2007 FROM TWO DIFFERENT PARTIES WITH AN INTENTION TO DEVELOP A LAY OUT AND DIVIDE THE LAND INTO SUITABLY SALEABLE PLOTS AND THUS, THE LAND W AS CONSIDERED AS STOCK - IN - TRADE AND SHOWN UNDER THE HEAD CURRENT ASSETS IN THE BALANCE SHEET, FROM THE DATE OF PURCHASE TILL DATE OF SALE. SINCE, IT WAS STOCK - IN - TRADE, ON T HE SALE THEREOF, THE LOSS ARISING FROM THE TRANSACTIONS WAS SHOWN AS BUSINESS LOSS ONLY. 5. IT WAS ALSO EXPLAINED THAT THOUGH IT WAS SH OWN AS STOCK - IN - TRADE, THE COMPANY HAVING RECEIVED LEGAL NOTICE FROM DIFFERENT PARTIES, CHALLENGING THE TITLE OF THE LAND BOUNDARY ISSUES, THE COMPANY DID NOT WANT TO ENTER INTO MORE LITIGATION AND THEREFORE, THE LAND WAS SOLD ON COMPROMISE WITH OTHER PART IES. IN THE MILIEU, IT SUFFERED LOSS BY VIRTUE OF SALE AT LESS THAN THE MARKET VALUE AS DEPICTED BY THE STAMP VALUE AUTHORITIES. IT WAS ALSO SUBMITTED THAT SECTION 50C IS APPLICABLE ON SALE OF CAPITAL ASSET WHEREAS, IN RESPECT OF STOCK - IN - TRADE, THE SAID PROVISIONS ARE NOT APPLICABLE AND IN FACT, TO BRING CLARITY ON THIS ISSUE, A NEW SECTION 43CA WAS INSERTED IN THE STATUTE W.E.F. 1.4.2014, WHICH WOULD COVER SALE OF STOCK - IN - TRADE ALSO, BUT IT BEING PROSPECTIVE IN NATURE, FOR THE PERIOD UNDER CONSIDERATIO N, THE PROVISIONS OF SECTION 43CA CANNOT BE APPLIED AND THERE IS NO OTHER PROVISION IN THE ACT TO TAKE INTO CONSIDERATION THE MARKET VALUE BY SUBSTITUTING THE ACTUAL SALE CONSIDERATION WHILE WORKING OUT THE INCOME FROM BUSINESS. 6. THE ASSESSING OFFICER DID NOT DISPUTE THE FACT THAT LAND WAS CONSIDERED AS STOCK - IN - TRADE BUT, HE MAINLY FOCUSED ON THE ISSUE THAT THE ASS ESSEE PURCHASED THE LAND FOR A HIGHER PRICE WHEREAS IT SOLD AT THE LOWER PRICE WHICH IS ORDINARILY NOT BEING DONE BY A NY BUSINESS MAN AND THUS, THE PROVISIONS OF SECTION 50C CAN BE APPLIED TO SUCH TRANSACTIONS. HE ALSO REFERRED TO THE SALE DOCUMENTS TO OBSERVE THAT THE DOCUMENT DID NOT REFER TO ANY LITIGATION ON THE LAND AND TO HIGHLIGHT THAT A COMPROMISE PRICE WAS ARRIV E D AT. SINCE, THE SALE DOCUMENT WAS EXECUTED AS NORMAL SALE TRANSACTION, THE MARKET VALUE DEPICTED IN THE RECORDS OF REGISTRATION A UTHORITIES 3 CAN BE TAKEN INTO CONSIDERATION. ACCORDINGLY, THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER WHICH WAS AL SO CONFIRMED BY THE LD. CIT(A) WITHOUT ADDING ANY FURTHER REASONS. PARA 6 OF THE ORDER OF THE LD. CIT(A) IS BASED ONLY ON THE FACT THAT NO ASSESSEE COULD HAVE SOLD THE LAND FO R A LESSER VALUE; THE SAID PARA IS EXT RACTED FOR IMMEDIATE REFERENCE. 6. I HAV E CAREFULLY CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER MAINLY ADDED RS. 29,79,200/ - AS SALE CONSIDERATION, SINCE THE APPELLANT HAS SOLD AT A PRICE LESSER THAN THE MARKET VALUE. DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO THE APPELLANT HAS SUBMITTED THE SAME FACTS WHICH WERE SUBMITTED BEFORE THE ASSESS ING OFFICER AND EXPLAINED THAT DUE TO COURT DISPUTE THE PROPERTY WAS SOLD FOR LESSER VALUE. I AM ALSO NOT CONVINCED WITH THE REASONS GIVEN BY THE APPELLANT, SINCE THE PROPERTY WAS PURCHASED AND SOLD WITHIN A SHORT SPAN OF TIME. IN THE COURT DISPUTE ALSO IT WAS JUST MENTIONED THAT IT IS A DISPUTE, BUT NOWHERE WAS IT SUBSTANTIATED . THEREFORE, THE APPELLANT HAS FAILED TO SUBSTANTIATE THE SALE OF PROPERTY WITHIN A SHORT SPAN OF ONE YEAR AT LESSER SALE CONSIDERATION OF RS. 37.80 LAKHS WHICH WAS PURCHASED AT RS. 67.60 LAKHS EXCEPT STATING THAT THERE IS COURT DISPUTE. SINCE THERE IS LACK OF CIRCUMSTANTIAL EVIDENCE AND PROOF, I AM ALSO IN AGREEMENT WITH THE A.O. AND THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE ADMITTEDLY IS ENGAG ED IN THE BUSINESS OF PURCHASE AND SALE OF LAND, CONSTRUCTION OF APARTMENTS AND HOUSES ETC., AND THE LAND IN DISPUTE HAVING BEEN PURCHASED, REFERRED TO AS STOCK - IN - TRADE, I NCOME ON SALE OF LAND IS TAXABLE UNDER THE UNDER BUSINESS INCOME IN WHICH EVENT, THE PROVISIONS OF SECTION 50C CANNOT COME INTO PLAY. THERE IS NO OTHER PROVISION UNDER THE ACT TO ENABLE THE ASSESSING OFFICER TO SUBSTITUTE THE ACTUAL SALE CONSIDERATION TO THAT OF THE MARKET VALUE. THE LEGISLATURE, IN ITS WISDOM, SOUGHT TO INSERT A NEW PR OVISION I.E., SECTION 43CA ON PAR WITH SECTION 50C TO ENABLE THE TAX AUTHORITIES TO TAKE INTO CONSIDERATION THE MARKET VALUE OF STOCK - IN - TRADE AT THE TIME OF SALE BUT, IT WAS DELIBERATELY BROUGHT INTO FORCE FROM 01.04.2014 AND HENCE, IT IS NOT APPLICABLE T O THE YEAR UNDER CONSIDERATION. HE RELIED UPON THE FOLLOWING DECISIONS WHEREIN, AN IDENTICAL ISSUE WAS CONSIDERED BY VARIOUS HIGH COURTS VIZ., (I) CIT VS. NEELKAMAL REALTORS & ERECTORS INDIA (P) LTD [2017] 79 TAXMANN.COM 238 (BOMBAY); (II) CIT VS. MUKESH & KISHOR BAROT CO - OWNERS [2013] 091 DTR 0220 (GUJ - HC) AND (III) CIT VS. THIRUVENGADAM INVESTMENTS (P) LTD [2010] 320 ITR 345 (MAD.). 4 8. IN THE CASE OF NEELKAMAL REALTORS & ERECTORS INDIA (SUPRA), THE HONBLE HIGH COURT BROUGHT OUT DISTINCTION BETWEEN THE CAPITAL GAINS AND INCOME ARISING ON BUSINESS ASSETS, WHICH WAS REFLECTED AS WORK - IN - PROGRESS (WIP) AND IN THIS REGARD THE COURT OBSERVED AS UNDER: (F) IT IS SELF - EVIDENT FROM READING OF SECTION 50C OF THE ACT THAT IT WOULD NOT HAVE ANY APPLICATION WHILE DETERMINING PROFITS AND GAINS OF BUSINESS OR PROFESSION. THIS IS SO AS ITS APPLICATION IS ONLY LIMITED TO COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS AS IS EVIDENT FROM SPECIFIC REFERENCE IN SUB - SECTION (1) OF SECTION 50C OF THE ACT TO SECTION 48 OF THE ACT I.E., MODE OF COMPUTATION OF CAPITAL GAINS. IN FACT, SECTION 50C OF THE ACT AS OBSERVED BY THE IMPUGNED ORDER IS PLACED AS PART OF THE CHAPTER IV - E UNDER THE HEAD CAPITAL GAINS, IT CAN ONLY GOVERN THE VALUATION OF THE PROPERTY TO DETERMINE CAPITAL GAINS AND CANNOT GOVERN VALUATION OF TRANSFER OF ASSETS (OTHER THAN A CAPITAL ASSET) I.E., STOCK - IN - TRADE. THIS VIEW IS FURTHER STRENGTHENED BY THE FACT THAT SECTION 43CA HAS BEEN INTRODUCED INTO THE ACT W.E.F 1 ST APRIL, 2014 WHICH GO VERNS TAKING OF FULL VALUE OF CONSIDERATION FOR TRANSFER OF ASSETS OTHER THAN CAPITAL ASSETS ON THE BASIS OF STAMP D UTY VALUATION. THIS SECTION 43C A OF THE ACT FINDS A PLACE AS A PART OF CHAPTER IV - D PROFITS AND G AINS OF BUSINESS OR PROFESSION. THEREFO RE, WITH EFFECT FROM 1 ST APRIL, 2014 THE STAMP DUTY VALUATION OF ASSETS SOLD COULD BE TAKEN AS FULL VALUE OF CONSIDERATION. OUR ABOVE VIEW THAT SECTION 50C OF THE ACT H AS NO APPLICATION TO VALUE STOCK IN T R ADE IS ALSO A VIEW TAKEN BY ALLAHABAD HIGH COURT I N CIT VS. KEN CONSTRUCTION AND COLONIZERS (P) LTD [2012] 208 TAXMAN 478 / 20 TAXMANN.COM 381. SIMILARLY, THE MADRAS HIGH COURT IN CIT VS. THIRUVENGADAM INVESTMENTS (P) LTD [2010] 320 ITR 345 HAS ALSO HELD THAT SECTION 50C OF THE ACT CANNOT BE INVOKED TO A RRIVE AT FULL CONSIDERATION OF SALE OF BUSINESS ASSET. WE SEE NO REASON NOT TO ADOPT THE VIEW OF THE ABOVE TWO HIGH COURTS TO THE PRESENT FACTS. 9. EVEN IN THE OTHER TWO CASES, THE HONBLE HIGH COURTS CATEGORICALLY OBSERVED THAT SECTION 50C HAS NO APPLICATION IN THE CASE OF SALE OF LAND WHICH WAS REFLECTED AS WIP AND THERE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE HAS SOLD AT HIGHER PRICE BUT DECLAR ED LOWER PRICE FOR THE PURPOSE OF AVOIDING TAX. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE A.O. AS WELL AS THE LD. CIT(A) ASSUMED THAT THE BUSINESS MEN ARE SUPPOSE D TO MAK E PROFITS IN ALL ITS DEALS OVER LOOKING THE FACT THAT THERE WILL BE VAGARIES OF BUSINESS AND IT SOME TIME S TILT AGAINST THE B USINESS MEN RESULTING IN LOSS ON THE TRANSACTI ONS. 10. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON BOTH THE ORDERS PASSED BY THE LOWER AUTHORITIES AND SUBMITTED THAT IN LINE WITH THE PROVI SIONS OF SECTION 50C OF THE ACT, EVEN IN THE CASE OF SALE OF BUSINESS ASSETS THE A.O. IS ENTITLED TO TAKE THE MARKET VALUE AND SUBSTITUTE THE SAME WITH THAT OF THE ACTUAL SALE CONSIDERATION. 5 11. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. I HAVE ALSO CARE FULLY GONE THROUGH THE CASE L AW RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE AND REASONS BY THE A.O. AS WELL AS THE CIT(A). ON CAREFUL ANALYSIS OF THE MATTER, IT IS NOTED THAT A.O. AS WELL THE CIT(A) HAVE MADE THE IMPUGNED ADDITION BASED ON THE INFERENCE THAT T HE ASSESSEE COULD HAVE SOLD LAND AT HIGHER PRICE AS REFLECTED IN THE RECORDS OF THE STAMP VALUATION AUTHORITIES . IT WAS FURTHER ASSUMED THAT THE ASSESSEE PAID STAMP DUTY AS PER THE MARKET VALUE OVERLOOKING THE FACT THAT THE STAMP DUTY IS NORMALLY PAID BY THE PURCHASER AND NOT THE SELLER. THE TAX AUTHORITIES FURTHER ASSUMED THAT THE PROVISIONS OF SECTION 50C ARE APPLICABLE IN SUCH CASES OVERLOOKING THE FACT THAT SECT ION 50C IS ONLY APPLICABLE WITH RESPECT TO SALE OF CAPITAL ASSETS AND IN RESPECT OF THE TRA NSFER OF THE STOCK - IN - TRADE , A NEW PROVISION HAS BEEN INSERTED BUT THE SAME COMES INTO PLAY ONLY W.E.F. 01 - 04 - 2014 WHICH CLARIFIES THAT FOR THE YEAR UNDER CONSIDERATION, THE MARKET VALUE CANNOT BE SUBSTITUTED BY THE A.O. MERELY ON IPSI DIXIT . HAVING REGAR D TO THE RATIO LAID DOWN BY THE HONBLE HIGH COURTS , CITED SUPRA, WHICH ARE APPLICABLE ON ALL FOURS , I AM OF THE FIRM VIEW THAT THERE IS NO PROVISION UNDER THE ACT, APPLICABLE FOR THE A.Y. 2008 - 09 , UNDER WHICH THE A.O. CAN SUBSTITUTE THE MARKET VALUE TO THE RATE AT WHICH THE ASSESSEE SOLD THE PROPERTY. I THEREFORE, SET ASIDE THE ORDERS OF THE A.O. AS WELL AS THE CIT(A) AND HOLD THAT ONLY THE VALUE AT WHICH THE ASSESSEE SOLD THE LAND SHOULD BE TAKEN INTO CONSIDE RATION FOR THE PURPOSE OF COMPUTING THE ASSESSABLE INCOME AND THE PROVISIONS OF SECTION 50C ARE NOT APPLICABLE IN THE INSTANT CASE. 12. IN THE RESULT, THE ADDITION OF RS. 29,79,200/ - IS DELETED AND THE APPEAL FILED BY THE ASSESSEE - COMPANY IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY OF JULY, 2017. S D / - (D. MANMOHAN) VICE PRESIDENT HYDERABAD, DATED: 27 TH JULY , 2017 6 OKK, SR.PS COPY TO 1. OORJITA BUILDERS AND DEVELOPERS PVT LTD.,PLOT NO. 6A, P & T COLONY, KARKHANA, NEW APPOLLO HOSPITAL, SECUNDERABAD. 2. INCOME TAX OFFICER,WARD - 2(1), HYDERABAD. 3. CIT (A) - 4, HYDERABAD. 4. PR. CIT - 4, HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD. 6. GUARD FILE