THE Dy. CIT, CIRCLE - 2(1), Vijayawada V. Sri Chennupati Bhaskara Rao, Vijayawada

ITA 45/VIZ/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8877 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 20-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 01-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T S N MURTHY
• Assessee Lawyers: S RAMA RAO
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income
• Section: 45(2); 50C; 142(1); 194C

Judgement Text

ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.45/VIZAG/2013 ( / ASSESSMENT YEAR: 2007-08) DY.CIT, CIRCLE - 2(1), VIJAYAWADA CHENNUPATI KUTUM BAVATHI, CHANUMOLU VIJAYA LAKSHMI, L/RS OF LATE CHENNUPATI BHASKARA RAO VIJAYAWADA [PAN NO. AAZPC9488R ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI T.S.N. MURTHY, DR / RESPONDENT BY : SHRI S. RAMA RAO, AR / DATE OF HEARING : 07.06.2017 / DATE OF PRONOUNCEMENT : 09.06.2017 / O R D E R PER SHRI G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE CIT(A), VIJAYAWADA DATED 9.11.2012 AND IT PERTAINS TO THE ASSESSMENT YEAR 2007-08. ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E CARRYING ON BUSINESS OF TRANSPORT CONTRACTORS WITH ITC LIMITED, FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 31.10.200 7 ADMITTING A TOTAL INCOME OF ` 1,07,45,900/- AND AGRICULTURAL INCOME OF ` 30,000/-. THE TOTAL INCOME COMPRISING OF ` 31,21,937/- INCOME FROM BUSINESS, ` 75,26,277/- INCOME FROM CAPITAL GAINS AND ` 97,688/- INCOME FROM OTHER SOURCES. THE RETURN WAS PROCESSED U/S 143(1) OF TH E INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') ON 13.3.2009 . THE CASE WAS SELECTED FOR SCRUTINY AS PER CLAUSE 9 OF CBDT GUIDE LINES AND NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED. IN RESPONS E TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED THE BOOKS OF ACCOUNTS AND INFORMATION /DOCUMENTS AS CALLED FOR. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS INCURRED FREIGHT CHARGES OF ` 4,43,45,100/-. TO ASCERTAIN THE CORRECTNESS OF EXPENDITURE INCURRED I N THE ASSESSEE AND ALSO TO EXAMINE THE APPLICABILITY OF PROVISIONS OF SECTION 194C OF THE ACT FOR DEDUCTION OF TAX AT SOURCE, THE A.O. ISSUED A S HOW CAUSE NOTICE AND ASKED TO FURNISH NECESSARY DETAILS OF EXPENDITURE A LONG WITH TDS PARTICULARS. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE VIDE LETTER DATED 19.11.2009 SUBMITTED THAT HE IS INVOLVED IN T HE BUSINESS OF ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 3 TRANSPORT CONTRACT ENTERED INTO AN AGREEMENT WITH I TC LIMITED FOR TRANSPORT OF GOODS FROM ITS MANUFACTURING FACILITIE S TO VARIOUS PLACES OF CUSTOMERS. THE ASSESSEE FURTHER SUBMITTED THAT TO EXECUTE CONTRACT, HE HAS HIRED LORRIES FROM VARIOUS PARTIES TO BE DEPLOY ED TO M/S. ITC LIMITED FOR TRANSPORTATION OF GOODS. THE ASSESSEE FURTHER SUBMITTED THAT THE TRUCKS WILL BE HIRED DIRECTLY FROM OWNERS/DRIVERS A S AND WHEN IT IS REQUIRED. THERE IS NO WRITTEN OR ORAL CONTRACT WIT H THE SUPPLIERS AND THE LORRIES WERE HIRED BASED ON THE REQUIREMENT FROM VA RIOUS PLACES AND THE PAYMENT IS DIRECTLY MADE TO THE DRIVERS OR THE OWNE RS OF THE VEHICLES, THEREFORE, THE PROVISIONS OF SECTION 194C OF THE AC T HAS NO APPLICATION AND HENCE, THE TDS IS NOT DEDUCTED ON SUCH PAYMENTS . 4. THE A.O. FURTHER OBSERVED THAT DURING THE FINANC IAL YEAR RELEVANT TO ASSESSMENT YEAR 2007-08, THE ASSESSEE HAS COMPUT ED LONG TERM CAPITAL GAIN FROM SALE OF LANDS. THEREFORE, ISSUED A SHOW CAUSE NOTICE AND ASKED TO FURNISH NECESSARY DETAILS OF COMPUTATI ON OF CAPITAL GAIN ALONG WITH EVIDENCES. IN RESPONSE TO SHOW CAUSE NO TICE, THE ASSESSEE SUBMITTED THAT HE HAD PURCHASED AN AGRICULTURAL LAN D ADMEASURING 2 ACRES 95 CENTS SITUATED IN SURVEY NO.215/1, AYYAPPA NAGAR IN THE YEAR 1980. THE ASSESSEE FURTHER SUBMITTED THAT THE SAID LAND HAS BEEN CONVERTED INTO STOCK-IN-TRADE AS ON 31.3.2006 FOR T HE PURPOSE OF FORMATION OF LAY OUT. THE ASSESSEE FURTHER SUBMITT ED THAT HE HAD ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 4 CONVERTED ITS CAPITAL ASSET INTO STOCK-IN-TRADE, FO RMED LAYOUT AND SOLD AND ACCORDINGLY COMPUTED PROFIT ARISING OUT OF SALE OF LAND UNDER THE PROVISIONS OF SECTION 45(2) OF THE ACT. 5. THE A.O. AFTER CONSIDERING EXPLANATIONS OF THE A SSESSEE AND ALSO ANALYSIS OF THE PROVISIONS OF SECTION 194C OF THE A CT, OBSERVED THAT THE ASSESSEE HAS PAID FREIGHT CHARGES WITHOUT DEDUCTION OF TAX AT SOURCE U/S 194C OF THE ACT, EVEN THOUGH THE PAYMENTS EXCEEDS T HE THRESHOLD LIMIT FIXED FOR DEDUCTION OF TAX AT SOURCE. THE A.O. FUR THER OBSERVED THAT THE ASSESSEE HAS ENTERED INTO CONTRACT WITH LORRY OWNER S FOR THE PURPOSE OF TRANSPORTATION OF GOODS WHICH IS EVIDENT FROM THE F ACT THAT THE LORRY RECEIPTS ISSUED BY THE ASSESSEE STIPULATES A CONDIT ION THAT THE RISK ASSOCIATED WITH GOODS IS ON THE DRIVERS TILL THE GO ODS ARE DELIVERED AT THE SPECIFIED PLACES. THE A.O. FURTHER OBSERVED THAT T HE ASSESSEE IS ALSO LIABLE FOR CONSTRUCTIVE OR ACTUAL DAMAGES, GOODS BE ING LOST IN TRANSIT OR GOODS BEING DAMAGED OR DETERIORATED. THE TERMS AND CONDITIONS AS APPEARED IN THE L/R SPECIFIES THAT THE DRIVER OR OW NER OF THE TRUCK OR HIS AGENTS WILL BE TOTALLY RESPONSIBLE AND LIABLE FOR T HE SAFETY OF GOODS AND FOR ANY LOSS, DAMAGE, THEFT, HIGHWAY ROBBERY, FIRE AND DAMAGE ARISING OUT OF THE NEGLIGENCE OF THE TRUCK CREW TILL SUCH T IME THE GOODS ARE DELIVERED. FURTHER, IT IS ALSO INCORPORATED THAT I N THE EVENT OF ANY LOSS OR DAMAGE CAUSED TO THE CONSIGNMENT, THE DRIVER/OWNER OF THE TRUCK WILL ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 5 BE RESPONSIBLE TO MAKE GOOD THE LOSS TO THE ASSESSE E AS VALUED BY HIM. THE SIGNATURE OF OWNER/DRIVER ON THE L/R AUTHENTICA TE THE ACCEPTANCE OF THE LIABILITIES OF THE ASSESSEE BY THE LORRY OWNER/ DRIVER. THE A.O. FURTHER OBSERVED THAT THE L/R IS THE BASIS FOR PAYMENT OF F REIGHT, HENCE, THE PAYMENT CANNOT BE A HIRE PAYMENT AS CLAIMED BY THE ASSESSEE. THEREFORE, OPINED THAT THE FREIGHT CHARGES PAID BY THE ASSESSEE NEED TO BE TREATED AS PAYMENT TO SUB CONTRACTORS AS DEFINED U/S 194C(2) OF THE ACT. SINCE, THE ASSESSEE FAILED TO DEDUCT TAX AT SO URCE U/S 194C OF THE ACT, THE TOTAL EXPENDITURE INCURRED TOWARDS FREIGHT CHARGES CANNOT BE ALLOWED AS DEDUCTION U/S 40(A)(IA) OF THE ACT. 6. IN SO FAR AS COMPUTATION OF CAPITAL GAIN, THE A. O. OBSERVED THAT THE ASSESSEE HAS PURCHASED AGRICULTURAL LAND IN THE YEAR 1980 FOR THE PURPOSE OF CARRYING OUT AGRICULTURAL OPERATIONS, WH ICH IS EVIDENT FROM THE FACT THAT HE HAD DECLARED AGRICULTURAL INCOME F ROM SAID LAND FOR ALL THE ASSESSMENT YEARS. THE A.O. FURTHER OBSERVED TH AT THOUGH ASSESSEE CLAIMS TO HAVE CONVERTED CAPITAL ASSET INTO STOCK-I N-TRADE AS ON 31.3.2006, ON PERUSAL OF THE FINANCIAL STATEMENT FI LED BY THE ASSESSEE FOR THE FINANCIAL YEAR 2005-06, IT IS OBSERVED THAT THE ASSESSEE HAS NOT INCORPORATED CONVERSION OF CAPITAL ASSET INTO STOCK -IN-TRADE BY PASSING NECESSARY ENTRIES IN THE BOOKS OF ACCOUNTS. THE A. O. FURTHER OBSERVED THAT THE TAX AUDIT REPORT ISSUED BY THE AUDITOR U/S 44AB OF THE ACT, ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 6 CLEARLY SPECIFIED THAT DURING THE FINANCIAL YEAR RE LEVANT TO ASSESSMENT YEAR THERE IS NO CONVERSION OF ANY CAPITAL ASSET IN TO STOCK-IN-TRADE. THEREFORE, OPINED THAT THE ASSESSEE HAS FAILED TO F ILE NECESSARY EVIDENCES TO PROVE, HE HAD CONVERTED HIS CAPITAL AS SET INTO STOCK-IN- TRADE. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS NO INTENTION AT THE TIME OF PURCHASE OF AGRICULTURAL LAND TO RESALE , AND HE HAS NOT PLACED ANY MATERIAL EVIDENCE TO SHOW THAT THE AGRICULTURAL LAND WAS CONVERTED INTO STOCK-IN-TRADE. FURTHER, THE ASSESSEE FAILED TO PLACE ANY EVIDENCE TO BRAND THE ACTIVITY AS BUSINESS. ON THE CONTRARY, T HE MATERIAL EVIDENCE AVAILABLE ON RECORD SHOW THAT THE ASSESSEE RECEIVED AMOUNT ON REALIZATION OF INVESTMENT ONLY. HENCE, THE PURCHAS E OF AGRICULTURAL LAND AND HOLDING IT AS CAPITAL ASSET TILL 31.3.2006 AND SALE OF THE SAME BY MARKING INTO PLOTS AND RECEIPT OF SALE CONSIDERATIO N SHOULD BE TREATED AS INCOME FROM CAPITAL GAINS. WITH THESE OBSERVATIONS, AND ALSO BY FOLLOWING CERTAIN JUDICIAL PRECEDENTS, THE A.O. HEL D THAT THE SALE PROCEEDS FROM SALE OF LAND SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM CAPITAL GAINS BUT NOT UNDER THE HEAD INCOME FR OM BUSINESS. IN SO FAR AS CONSIDERATION FOR COMPUTATION OF CAPITAL GAI N, THE A.O. HAS ADOPTED SALE CONSIDERATION AS PER PROVISIONS OF SEC TION 50C OF THE ACT, FOR THE REASON THAT THE SALE OF LAND IS ASSESSABLE UNDER THE HEAD CAPITAL GAINS, AS THE ASSESSEE FAILED TO PROVE THE CONVERS ION OF CAPITAL ASSET ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 7 INTO STOCK-IN-TRADE, ACCORDINGLY, COMPUTED LONG TER M CAPITAL GAIN BY ADOPTING FULL VALUE OF CONSIDERATION RECEIVED AS PE R THE PROVISIONS OF SECTION 50C OF THE ACT. 7. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS. AS REGARDS DISALLOW ANCE OF FREIGHT CHARGES FOR FAILURE TO DEDUCT TDS U/S 194C OF THE A CT, THE ASSESSEE SUBMITTED THAT THERE IS NO WRITTEN OR ORAL CONTRACT WITH THE LORRY OWNERS AND HENCE, THE QUESTION OF DEDUCTION OF TAX AT SOUR CE U/S 194C OF THE ACT DOES NOT ARISE. THE ASSESSEE FURTHER CONTENDED THAT HE HAD HIRED LORRIES IN THE OPEN MARKET AS AND WHEN REQUIRED FOR THE PURPOSE OF TRANSPORTATION OF GOODS. IT WAS FURTHER SUBMITTED THAT HE HAD ENTERED INTO A TRANSPORT CONTRACT AGREEMENT WITH M/S. ITC L IMITED FOR TRANSPORTATION OF GOODS FROM ITS MANUFACTURING FACI LITIES TO VARIOUS PLACES. IN THE PROCESS, HE HAD HIRED LORRIES FROM THE OWNERS WITHOUT THERE BEING ANY WRITTEN OR ORAL CONTRACT AND THE LO RRIES ARE HIRED ON VARIOUS PLACES DEPENDING UPON THE REQUIREMENT AND H ENCE, IT CANNOT BE CONSIDERED AS CONTRACT OR SUB CONTRACT AS DEFINED U /S 194C(2) OF THE ACT. THE ASSESSEE FURTHER SUBMITTED THAT THE PROVI SIONS OF SECTION 194C OF THE ACT WOULD APPLY, ONLY WHEN THERE IS A CONTRA CT BETWEEN THE PARTIES FOR EXECUTION OF WORK INCLUDING TRANSPORTAT ION OF GOODS. HE HAD ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 8 NEITHER ENTERED INTO ANY CONTRACT NOR TAKEN VEHICLE S ON REGULAR BASIS, THEREFORE, THE PAYMENTS MADE TO LORRY OWNERS CANNOT BE CONSIDERED AS PAYMENT MADE TOWARDS EXECUTION OF WORKS CONTRACT AS DEFINED U/S 194C OF THE ACT. THE ASSESSEE FURTHER SUBMITTED THAT TH E PAYMENTS WERE DIRECTLY MADE TO THE DRIVERS OR WHO SO EVER WAS INC HARGE OF VEHICLES AND THE DRIVERS HAS NOT UNDERTAKEN ANY RESPONSIBILITY O F GOODS EXCEPT WHAT IS STATED IN THE L/R RECEIPTS, WHICH IS ONLY AN ASS IGNMENT OF RESPONSIBILITY TO THE LORRY OWNERS FOR SAFE MOVEMEN T OF GOODS, WHICH CANNOT BE CONSIDERED AS TRANSFER OF RISK INVOLVED I N THE GOODS TO THE LORRY OWNERS. THE A.O. MERELY RELIED UPON THE L/RS TO HOLD THAT THE PAYMENTS ARE COMING WITHIN THE AMBIT OF THE PROVISI ONS OF SECTION 194C OF THE ACT. BUT, THE FACT IS THAT THE ASSESSEE HIM SELF HAS UNDERTAKEN THE RESPONSIBILITY OF THE GOODS. THE LORRY OWNERS DOES NOT TAKE ANY RESPONSIBILITY, THEREFORE, THE QUESTION OF APPLICAT ION OF THE PROVISIONS OF SECTION194C OF THE ACT IS UNWARRANTED. 8. IN SO FAR AS COMPUTATION OF LONG TERM CAPITAL GA IN ON SALE OF LAND, THE ASSESSEE SUBMITTED THAT HE HAD CONVERTED HIS CA PITAL ASSET INTO STOCK-IN-TRADE AND FORMED PLOTS AND COMPUTED RESULT ANT PROFIT UNDER THE PROVISIONS OF SECTION 45(2) OF THE ACT. THE A.O. I GNORED THE PROVISIONS OF SECTION 45(2) OF THE ACT, AND RE-COMPUTED PROFIT ARISED FROM THE SALE OF LAND UNDER THE HEAD INCOME FROM CAPITAL GAINS MERELY ON THE GROUND ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 9 THAT THE ASSESSEE HAS FAILED TO PROVE CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE. BUT, THE FACT REMAINS THAT HE HAD CONVERTED CAPITAL ASSET INTO STOCK-IN-TRADE AS ON 31.3.2006, WHICH IS EVIDE NT FROM THE FACT THAT HE HAD COMPUTED INCOME ARISED FROM SALE OF LAND UND ER THE PROVISIONS OF SECTION 45(2) OF THE ACT. THE A.R. FURTHER SUBM ITTED THAT HE HAD DEVELOPED THE LAND INTO PLOTS, AND THE PLOTS WERE S OLD IMMEDIATELY AFTER DEVELOPMENT AND ALL THESE FACTORS CLEARLY INDICATE THE INTENTION IS TO CONVERT THE LAND INTO STOCK-IN-TRADE TO COMMERCIALL Y EXPLOIT. THE A.O. FAILED TO CONSIDER THE INTENTION OF THE ASSESSEE TO COMMERCIALLY EXPLOIT THE LAND ON THE SOLE REASON THAT THE ASSESSEE HAS N OT CARRIED OUT ANY BUSINESS ACTIVITY IN THE PAST. BUT, THE FACT REMAI NS THAT EVEN A SINGLE TRANSACTION MAY CONSTITUTE ADVENTURE IN THE NATURE OF TRADE OR COMMERCE AND SERIES OF TRANSACTIONS ARE NOT NECESSA RY TO PROVE THAT THE ASSESSEE IS INTO THE BUSINESS. 9. THE CIT(A) AFTER CONSIDERING RELEVANT SUBMISSION S OF THE ASSESSEE AND ALSO ANALYSIS OF THE PROVISIONS OF SECTION 194C OF THE ACT, OBSERVED THAT THE ASSESSEE HAS TAKEN LORRIES ON HIRE WITHOUT THERE BEING ANY WRITTEN OR ORAL AGREEMENT. THE CIT(A) FURTHER OBSE RVED THAT AS SEEN FROM THE AGREEMENT ENTERED INTO BY THE ASSESSEE WIT H ITC LIMITED THERE ARE NUMBER OF RESPONSIBILITIES FOR THE ASSESSEE AND ALL THE RISK INVOLVED IN TRANSPORT OF GOODS ARE REST WITH THE ASSESSEE. THE A.O. TREATED THE ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 10 FREIGHT PAYMENTS AS PAYMENT MADE TO SUB CONTRACTORS MERELY ON THE GROUND THAT THE LORRY RECEIPTS CLEARLY INDICATES TH AT THE DRIVER/LORRY OWNERS HAVE UNDERTAKEN THE RISK ASSOCIATED WITH THE GOODS. THE CIT (A) FURTHER OBSERVED THAT IT IS SEEN THAT THE LORRI ES ARE PLACED AT THE DISPOSAL OF THE ITC LIMITED FOR TRANSPORT OF THE GO ODS. THE GOODS ARE LOADED AND TRANSPORTED AT THE RESPONSIBILITY OF THE ASSESSEE. THE ASSESSEE MAKES ADVANCE PAYMENT TO THE LORRY DRIVER AT THE TIME OF LOADING GOODS AND AFTER DELIVERY THE LORRY DRIVER G OES BACK AND TAKES THE BALANCE AMOUNT. THUS, IN THE IMPUGNED ACTIVITY ELE MENTS OF CONTRACT ARE ABSENT AND AS SUCH THE ACTION OF THE A.O. IN AP PLYING THE PROVISIONS OF SECTION 194C OF THE ACT IS NOT APPROVED. SINCE, IT IS HELD THAT THE PROVISIONS OF SECTION 194C OF THE ACT HAVE NO APPLI CATION AND ACCORDINGLY, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT HAVE ALSO NO APPLICATION, ACCORDINGLY, DIRECTED THE A.O. TO DELE TE ADDITIONS MADE TOWARDS DISALLOWANCE OF FREIGHT CHARGES. 10. IN SO FAR AS COMPUTATION OF CAPITAL GAIN, THE C IT(A) OBSERVED THAT IT TRANSPIRES FROM THE RECORD THAT THE ASSESSEE HAS CONVERTED HIS CAPITAL ASSET INTO STOCK-IN-TRADE, FORMED PLOTS AND THEREAF TER SOLD. THE ASSESSEE HAS COMPUTED BOTH INCOME FROM CAPITAL GAIN AND INCOME FROM BUSINESS ON CONVERSION OF CAPITAL ASSET INTO STOCK- IN-TRADE AS PER THE PROVISIONS OF SECTION 45(2) OF THE ACT. BUT, THE A SSESSING OFFICER IS OF THE ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 11 VIEW THAT THERE IS NO BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE PARTICULARLY IN VIEW OF THE FACT THAT THE STOCK CON VERTED ON 31.3.2006 WAS NOT SHOWN IN THE BALANCE SHEET. BUT, THE ASSES SEE HAS FILED NECESSARY EVIDENCES TO PROVE THAT HE HAD CONVERTED HIS CAPITAL ASSET INTO STOCK-IN-TRADE. ONCE CONVERSION CANNOT BE DOU BTED, THE PROVISIONS OF SECTION 45(2) OF THE ACT COME INTO PLAY AND THE INCOME IS TO BE DETERMINED IN ACCORDANCE WITH THE SAID SECTION. WIT H THESE OBSERVATIONS AND ALSO BY FOLLOWING THE DECISION OF ITAT, MUMBAI BENCH IN ACIT VS. JAHANGIR REPORTED IN 20 SOT 512, HELD T HAT THE A.O. IS INCORRECT TO DOUBT THE GENUINENESS OF SUCH CONVERSI ON AND ALSO COMPUTE THE INCOME UNDER THE HEAD INCOME FROM CAPITAL GAINS . IN SO FAR AS APPLICATION OF THE PROVISIONS OF SECTION 50C OF THE ACT, THE CIT(A) OBSERVED THAT WHEN INCOME IS COMPUTED UNDER THE HEA D INCOME FROM BUSINESS THE PROVISIONS OF SECTION 50C OF THE ACT HAS NO APPLICATION. ACCORDINGLY, DIRECTED THE A.O. TO DETERMINE THE INC OME BASED ON THE ACTUAL CONSIDERATION RECEIVED FROM SALE OF LAND. A GGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 11. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION IS DISALLOWANCE OF FREIGHT CHARGES U/S 40(A)(IA) OF THE ACT, FOR FA ILURE TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT. THE ASSESSEE HAS INCUR RED FREIGHT CHARGES WITHOUT DEDUCTION OF TAX AT SOURCE U/S 194C OF THE ACT. THE A.O. ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 12 DISALLOWED FREIGHT CHARGES ON THE GROUND THAT THE A SSESSEE OUGHT TO HAVE DEDUCTED TDS, HOWEVER FAILED TO DEDUCT TDS AS PER THE PROVISIONS OF SECTION 194C OF THE ACT. THE A.O. FURTHER WAS O F THE OPINION THAT THE LORRY RECEIPTS ISSUED BY THE ASSESSEE CLEARLY INDIC ATES THAT THERE EXIST A CONTRACT BETWEEN THE ASSESSEE AND THE LORRY OWNERS. THE A.O. FURTHER OBSERVED THAT THERE IS NO NEED FOR WRITTEN AGREEMEN T, EVEN AN ORAL AGREEMENT IS SUFFICIENT TO ATTRACT THE PROVISIONS O F SECTION 194C OF THE ACT. ACCORDING TO THE A.O., THE TRANSACTIONS BETWE EN THE ASSESSEE AND THE LORRY OWNERS ARE COMES WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 194C OF THE ACT AND ACCORDINGLY, THE PAYMENT MADE T O LORRY OWNERS ARE NOTHING BUT A PAYMENT MADE TO SUB CONTRACTORS. IT IS THE CONTENTION OF THE ASSESSEE THAT THE EXPENDITURE INCURRED UNDER TH E HEAD FREIGHT CHARGES IS A PAYMENT MADE FOR MERE HIRING OF VEHIC LES WITHOUT ANY WRITTEN OR ORAL CONTRACT WITH THE LORRY OWNERS. TH E ASSESSEE FURTHER CONTENTED THAT THE RISK OF TRANSPORTATION OF GOODS IS REST WITH HIM. THE LORRY OWNERS/DRIVERS DOES NOT TAKE ANY RESPONSIBILI TY OF RISK. ANY DAMAGES TO THE GOODS WHILE IN THE TRANSPORTATION IS FULLY ON THE ASSESSEE. THEREFORE, THE PAYMENTS MADE TO THE LORR Y OWNERS CANNOT BE CONSIDERED AS PAYMENT MADE TO SUB CONTRACTORS AS DE FINED U/S 194C(2) OF THE ACT. ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 13 12. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. DISALLOWED FREIGHT CHARGES FOR FAILURE TO DEDU CT TAX AT SOURCE U/S 194C OF THE ACT. ACCORDING TO THE A.O., THE EXPEND ITURE INCURRED UNDER THE HEAD FREIGHT CHARGES IS NOTHING BUT PAYMENT M ADE TO SUB CONTRACTORS WHICH ATTRACTS TDS PROVISIONS U/S 194C( 2) OF THE ACT. THE PROVISIONS OF SECTION 194C OF THE ACT REQUIRE ANY P ERSON WHO IS RESPONSIBLE FOR PAYING ANY SUM TO ANY SUB CONTRACTO R IN PURSUANCE OF A CONTRACT WITH SUCH SUB CONTRACTOR FOR CARRYING OUT ANY WORK UNDERTAKEN BY THE CONTRACTOR. AS PER THE EXPLANATION (III), T HE WORK SHALL INCLUDE CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRA NSPORT OTHER THAN BY RAILWAYS. A READING OF SECTION 194C(III) OF THE ACT, WOULD CLEARLY INDICATE THAT THERE SHOULD BE A CONTRACT BETWEEN TH E PARTIES FOR CARRYING OUT ANY WORK. IF THERE IS NO CONTRACT AND THE AMOU NTS WERE PAID DIRECTLY FOR ENGAGING THE VEHICLES TEMPORARILY FOR DELIVERING THE GOODS, IT WOULD NOT FALL WITHIN THE PROVISIONS OF SECTION 194 C OF THE ACT. 13. IN THIS CASE, ON PERUSAL OF THE FACTS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE IS ENTERED INTO A TRANSPORT CONTR ACT WITH M/S. ITC LIMITED FOR TRANSPORTATION OF GOODS FROM ITS MANUFA CTURING FACILITIES TO VARIOUS PLACES. IN THE PROCESS, THE ASSESSEE HAS H IRED VEHICLES AND DEPLOYED THE VEHICLES TO M/S. ITC LIMITED FOR TRANS PORTATION OF GOODS. ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 14 AS PER THE AGREEMENT ENTERED INTO WITH ITC LIMITED, THE TOTAL RESPONSIBILITY OF TRANSPORTATION OF GOODS IS REST W ITH THE ASSESSEE. IN THE EVENT OF ANY DAMAGE CAUSED TO THE GOODS, IT IS THE RESPONSIBILITY OF THE ASSESSEE TO BEAR THE COST OF GOODS. THE LORRY OWNE RS/DRIVERS DOES NOT UNDERTAKE ANY RESPONSIBILITY. THEY MERELY DEPLOY T HE VEHICLE AT THE DISPOSAL OF THE ASSESSEE AND THE ASSESSEE HAS TO HI RE THE VEHICLES AND MAKE PAYMENT DIRECTLY TO THE DRIVERS OR THE LORRY O WNER. WE FURTHER OBSERVED THAT THE A.O. HAS TREATED THE SAID PAYMENT S AS PAYMENT MADE TO SUB CONTRACTORS, MERELY ON THE GROUND THAT THE L /RS ISSUED BY THE ASSESSEE CLEARLY ESTABLISHES THAT THE ASSESSEE IS E NTERED INTO A SUB CONTRACT WITH THE LORRY OWNERS FOR TRANSPORTATION O F GOODS. THE A.O. FURTHER REFERRING TO THE L/RS OBSERVED THAT THE DRI VER OR THE OWNER OF THE TRUCK OR HIS AGENTS WILL BE TOTALLY RESPONSIBLE AND LIABLE FOR THE SAFETY OF GOODS AND FOR ANY LOSS, DAMAGE AND ALSO ANY DAMAGES ARISING OUT OF THE NEGLIGENCE OF THE TRUCK, TILL SUCH TIME THE GOODS A RE DELIVERED, THE DRIVERS OR LORRY OWNERS HAS TO UNDERTAKE TO BEAR TH E COST OF GOODS. WE DO NOT AGREE WITH THE FINDINGS OF THE A.O. FOR THE REASON THAT ON PERUSAL OF PAPER BOOK FILED BY THE ASSESSEE, WE FIND THAT T HE ASSESSEE HAS FURNISHED SAMPLE COPIES OF L/RS. THE TERMS AND CON DITIONS MENTIONED IN THE L/RS INDICATES THAT THE LORRY OWNERS OR DRIV ERS WILL UNDERTAKE RESPONSIBILITY OF SAFE MOVEMENT OF GOODS. THE L/RS FURTHER INDICATE THAT ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 15 IN THE EVENT OF ANY DAMAGES TO THE GOODS, ON ACCOUN T OF NEGLIGENCE OF THE TRUCK/LORRY OWNERS OR DRIVERS, THEN THE LORRY O WNERS ARE LIABLE TO BEAR THE COST OF GOODS. THE A.O. WITHOUT APPRECIATING T HE PROPER FACTS, SIMPLY CAME TO THE CONCLUSION THAT THE L/RS ISSUED BY THE ASSESSEE INDICATES THAT THERE EXIST A CONTRACT BETWEEN THE A SSESSEE AND THE LORRY OWNERS. BUT, THE FACT REMAINS THAT THE TOTAL RESPO NSIBILITY OF RISK INVOLVED IN THE GOODS IS REST WITH THE ASSESSEE. T HE ASSESSEE MERELY HIRED THE VEHICLES AND DEPLOYED THE VEHICLES AT THE DISPOSAL OF THE ITC LIMITED. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE PAYMENTS MADE TO LORRY OWNERS ARE NOT COMING WITHIN THE AMBI T OF THE PROVISIONS OF SECTION 194C OF THE ACT. 14. THE ASSESSEE HAS RELIED UPON THE DECISION OF IT AT, VISAKHAPATNAM IN THE CASE OF KRANTI ROAD TRANSPORT PRIVATE LIMITE D VS. ACIT, (2012) 50 SOT 15. THE COORDINATE BENCH OF THIS TRIBUNAL, UND ER SIMILAR CIRCUMSTANCES, OBSERVED THAT WHENEVER THE LORRIES A ND TRUCKS ARE HIRED BY THE ASSESSEE TO BE USED IN HIS BUSINESS UNDER IT S OWN SUPERVISION AND CONTROL, THEN TDS IS NOT REQUIRED TO BE DEDUCTED ON PAYMENT MADE TO THE LORRIES/TRUCK OWNERS. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: IN THE PROVISIONS OF SECTION 194C, THE WORD 'WORK' HAS BEEN USED AND THE SAID WORD 'WORK' HAS BEEN DEFINED UNDER EXPLANATION 3 AC CORDING TO WHICH THE EXPRESSION 'WORK' INCLUDES ADVERTISING, BROADCASTIN G, TELECASTING, CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS AND CATERING. FOR ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 16 THE PURPOSE OF IMPUGNED CONTROVERSY, THE CARRIAGE O F GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS IS CON SIDERED TO BE THE WORK WHICH CAN BE ASSIGNED TO THE CONTRACTOR OR SUBCONTRACTOR FOR ITS CARRYING OUT. [PARA 11] IN THE INSTANT CASE, THE ASSESSEE IS A TRANSPORTER AND BOOKS THE CONSIGNMENT OF DIFFERENT PARTIES FOR ITS TRANSPORTATION. SOMETIMES , THE ASSESSEE HIRES THE TRUCKS AND LORRIES OF OTHERS FOR THE TRANSPORTATION OF THE CON SIGNMENT BOOKED BY IT. THE ASSESSEE HAS MADE OUT A CASE THAT HE HAS SIMPLY HIRED THE LO RRIES AND TRUCKS TO TRANSPORT ITS CONSIGNMENT UNDER ITS OWN CONTROL AND SUPERVISION. THE MOVEMENT OF TRUCKS AND LORRIES ARE GOVERNED BY THE ASSESSEE ITSELF AND NOT THE TRUCK OWNERS. TRUCK OWNERS SIMPLY HIRE OUT THEIR TRUCKS FOR ITS USE BY THE ASS ESSEE AGAINST CERTAIN HIRE CHARGES. THE REVENUE HAS NOT MADE OUT A CASE THAT THE ASSESS EE HAS ENGAGED OR HIRED THE TRUCKS FOR TRANSPORTATION OF THE CONSIGNMENT BOOKED BY IT UNDER THE CONTROL AND SUPERVISION OF TRUCK OWNERS. THEREFORE, THE ASSESSE E HAS NOT ASSIGNED ANY WORK TO THE LORRY/TRUCK OWNERS AS PER PRO VISIONS OF SECTIO N 194C. THE QUESTION INVOLVED IN THIS CASE WHETHER THE ASSESSEE IS REQUIRED TO DEDUC T THE TDS ON PAYMENT OF HIRE CHARGES MADE TO LORRY OWNERS WAS ALSO EXAMINED IN T HE CASE OF M. SITARAMAIAH V. ACIT [I T APPEAL NO. 355 OF2008], IN THE LIGHT OF F INDING IN THE CASE OF MYTHRI TRANSPORT CORPORATION V. ASSTT. CIT [2010] 24 LTD 4 0 (VISAKHAPATNAM) AND IN THAT CASE IT WAS CONCLUDED THAT THE PAYMENTS MADE TO TAN KER OWNER WOULD NOT FALL IN THE CATEGORY OF SUB-CONTRACTOR FOR CARRYING OUT THE WH OLE OR PART OF CONTRACT LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER SECTION 194C [PARA 12] TDS AS PER SECTION 194C IS REQUIRED TO BE DEDUCTED WHEN THE PAYMENTS ARE MADE TO THE CONTRACTOR FOR CARRYING OUT THE WORK I.E. CARRI AGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS SUBJECT TO OTHER CONDITIONS PRESCRIBED UNDER SECTION 194C BUT WHENEVER THE LORRIES AND TRUCKS AR E HIRED BY THE ASSESSEE FOR ITS OWN USE IN ANY MANNER UNDER ITS OWN CONTROL AND SUP ERVISION, THE TDS IS NOT REQUIRED TO BE DEDUCTED ON PAYMENT MADE BY THE CONT RACTOR TO THE LORRY/TRUCK OWNERS. IN THE INSTANT CASE, THE ASSESSEE HAS HIRED THE TRUCKS/LORRIES FOR TRANSPORTING OF THE CONSIGNMENT BOOKED BY IT UNDER ITS OWN SUPER VISION AND CONTROL WITH ALL RESPONSIBILITY AND LIABILITIES. THEREFORE, THE HIRI NG OF TRUCK AND LORRIES CANNOT BE CALLED TO BE THE WORK AS PER DEFINITION GIVEN IN EXPLANATI ON 3 OF SECTION 194C AND CONSEQUENT THERETO, THE ASSESSEE IS NOT LIABLE FOR DEDUCTION OF TDS ON PAYMENT TO LORRY/TRUCK OWNERS AS PER SECTION 194C THEREFORE, T HERE WAS NO MERIT IN THE ORDER OF COMMISSIONER (APPEALS) AND IT WAS TO BE SET ASIDE. [PARA 13] 15. THE ASSESSEE RELIED UPON THE DECISION OF HONBL E HIGH COURT OF PUNJAB & HARYANA, IN THE CASE OF CIT(TDS) VS. UNITE D RICE LAND LIMITED (2010) 322 ITR 594. THE HONBLE HIGH COURT, HAS OB SERVED THAT IN THE ABSENCE OF ANY ORAL OR WRITTEN AGREEMENT BETWEEN TH E ASSESSEE AND THE TRANSPORTERS FOR CARRIAGE OF GOODS, FREIGHT CHARGES PAID TO THE LORRY ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 17 OWNERS ARE NOT COMING WITHIN THE AMBIT OF PROVISION S OF SECTION 194C OF THE ACT. THE RELEVANT PORTION OF THE ORDER IS EXTR ACTED BELOW: THE ASSESSING OFFICER HAD HELD THE ASSESSEE LIABLE FOR DEDUCTION OF TAX ONLY ON THE ASSUMPTION THAT IT WAS HAVING AGREEMENT WITH THE PA RTIES THROUGH WHOM TRUCKS WERE ARRANGED FOR TRANSPORTATION OF GOODS. HOWEVER, THE COMMISSIONER (APPEALS) HAD RECORDED A FINDING OF FACT THAT THERE WAS NEITH ER ANY ORAL OR WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND THE TRANSPORTERS FOR CARRI AGE OF GOODS, NOR HAD IT BEEN PROVED THAT ANY SUM OF MONEY REGARDING FREIGHT CHAR GES WAS PAID TO THEM IN PURSUANCE OF A CONTRACT FOR A SPECIFIC PERIOD, QUAN TITY OR PRICE. THAT FINDING OF FACT WAS RECORDED BY THE COMMISSIONER (APPEALS) AFTER CO NSIDERING THE CERTIFICATES FURNISHED BY THE TRANSPORTERS. THE TRIBUNAL HAD ALS O RECORDED A FINDING OF FACT THAT THE DEPARTMENT HAD NOT CONTROVERTED THE SAID FINDIN G OF THE COMMISSIONER (APPEALS) EVEN BEFORE IT. WHILE RECORDING THE FINDI NG OF FACT, THE TRIBUNAL BAD CLEARLY STATED THAT NOTHING HAD BEEN BROUGHT ON REC ORD BY THE ASSESSING OFFICER TO PROVE THAT THERE WAS ANY WRITTEN OR ORAL AGREEMENT BETWEEN THE ALLEGED PARTIES FOR CARRIAGE OF THE GOODS. IN VIEW OF THAT, NO INTE RFERENCE WAS CALLED FOR WITH THE FINDING OF FACT RECORDED BY THE TRIBUNAL. THE APPEA L, BEING WITHOUT MERIT, WAS TO BE DISMISSED. 16. IN THIS VIEW OF THE MATTER AND ALSO CONSIDERING THE RATIOS OF THE CASE LAWS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD FREIGHT CH ARGES IS NOT COMING WITHIN THE AMBIT OF PROVISIONS OF SECTION 194C OF T HE ACT, AS THE ASSESSEE NEITHER ENTERED INTO ANY ORAL OR WRITTEN A GREEMENT WITH THE ASSESSEE NOR TAKEN VEHICLES ON REGULAR CONTRACT BAS IS. THE ASSESSEE HAS TAKEN VEHICLES ON MERE HIRE BASIS TO BE DEPLOYED IN THE PLACES WHERE HE HAS UNDERTAKEN TRANSPORT CONTRACT WITH M/S. ITC LIM ITED. THE RISK ASSOCIATED WITH THE GOODS TILL TRANSPORTATION TO TH E DESTINATION IS REST WITH THE ASSESSEE. THE LORRY OWNERS/DRIVERS HAD NOT UNDERTAKEN ANY RESPONSIBILITY OF RISK IN THE GOODS. THEREFORE, WE ARE OF THE VIEW THAT THE PAYMENTS MADE TO LORRY OWNERS ARE NOT LIABLE FO R TDS AS PER THE ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 18 PROVISIONS OF SECTION 194C OF THE ACT, CONSEQUENTLY , THE EXPENDITURE INCURRED UNDER THE HEAD FREIGHT CHARGES ARE NOT L IABLE FOR DISALLOWANCE U/S 40(A)(IA) OF THE ACT. THE CIT(A) AFTER CONSIDE RING RELEVANT SUBMISSIONS OF THE ASSESSEE HAS RIGHTLY DELETED ADD ITIONS MADE BY THE A.O. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE C IT(A). HENCE, WE ARE INCLINED TO UPHOLD THE CIT(A) ORDER AND DISMISS THE GROUND RAISED BY THE REVENUE. 17. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS COMPUTATION OF CAPITAL GAIN ON SALE OF LAND. THE FACTUAL MATRI X OF THE CASE WHICH LEADS TO THE IMPUGNED ADDITIONS ARE THAT DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2007-08, THE ASSESSEE H AS SOLD LAND ADMEASURING 2.98 ACRES AND COMPUTED RESULTANT PROFI T UNDER THE HEAD INCOME FROM BUSINESS AND INCOME FROM CAPITAL GAINS AS PER THE PROVISIONS OF SECTION 45(2) OF THE ACT. THE A.O. O BSERVED THAT THE ASSESSEE HAS FAILED TO PROVE CONVERSION OF CAPITAL ASSET INTO STOCK-IN- TRADE WITH NECESSARY EVIDENCES. THE A.O. FURTHER O BSERVED THAT THE FACT CLEARLY INDICATES THAT THE ASSESSEE HAS SOLD HIS CA PITAL ASSET. ACCORDING TO THE A.O., THE ASSESSEE FAILED TO PROVE CONVERSIO N OF CAPITAL ASSET THEREFORE, THE RESULTANT PROFIT FROM SALE OF LAND W OULD BE ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAINS. THE A. O. HAS GIVEN VARIOUS REASONS TO COME TO THE CONCLUSION THAT THE IMPUGNED LAND IS SOLD AS A ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 19 CAPITAL ASSET, BUT NOT AS STOCK-IN-TRADE. THE A.O. FURTHER OBSERVED THAT THOUGH ASSESSEE CLAIMS TO HAVE CONVERTED CAPITAL AS SET INTO STOCK-IN- TRADE, AS ON 31.3.2006, THE FINANCIAL STATEMENTS IN DICATES THAT THE ASSESSEE HAS NOT PASSED NECESSARY ENTRIES TO INCORP ORATE CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE. THE A.O. FURTHE R OBSERVED THAT THE TAX AUDIT REPORT ISSUED BY THE TAX AUDITOR CLEARLY INDI CATES THAT DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR, THERE I S NO CONVERSION OF CAPITAL ASSETS IN TO STOCK-IN-TRADE OR VICE-VERSA. ACCORDING TO THE A.O., THE ASSESSEE NEVER HAD INVOLVED IN ANY BUSINESS ACT IVITY OF REAL ESTATE DEVELOPMENT. THE A.O. FURTHER WAS OF THE OPINION T HAT THE ACTIVITY UNDERTAKEN BY THE ASSESSEE IS NOT IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE OR COMMERCE. 18. IT IS THE CONTENTION OF THE ASSESSEE THAT HE HA D CONVERTED HIS CAPITAL ASSET INTO STOCK-IN-TRADE AS ON 31.3.2006, DEVELOPED SAID LANDS INTO PLOTS BEFORE IT WAS SOLD AND COMPUTED RESULTAN T PROFIT BY APPLYING THE PROVISIONS OF SECTION 45(2) OF THE ACT. THE AS SESSEE FURTHER CONTENDED THAT HE NEVER CARRIED OUT ANY BUSINESS AC TIVITY DURING THE PREVIOUS YEAR ENDED 31.3.2006, EXCEPT CONVERSION OF LAND INTO STOCK-IN- TRADE, THEREFORE, NO PROFIT AND LOSS ACCOUNT WAS DR AWN IN SO FAR AS THE BUSINESS ACTIVITY OF REAL ESTATE IS CONCERNED. IT IS ALSO SUBMITTED THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT RELEVA NT FOR DETERMINING THE ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 20 NATURE OF TRANSACTIONS. THE TAX AUDITOR HAS ISSUED AUDIT REPORT IN RESPECT OF ITS TRANSPORT BUSINESS, THEREFORE, HE DI D NOT MENTION THE CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE IN CLAUSE 12 OF THE TAX AUDIT REPORT. MERELY, THE AUDITOR DID NOT MENTION THE CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE, IT CANNOT BE CON SIDERED THAT CONVERSION HAS NOT BEEN TAKEN PLACE. IN SUPPORT OF HIS ARGUME NTS, RELIED UPON THE DECISION OF HONBLE A.P. HIGH COURT, IN THE CASE OF CIT VS. M. KRISHNA RAO REPORTED IN 120 ITR 101 AND ALSO THE DECISION O F THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. GOVIND GRUHA NIRMAN SA HAKAR SAMITI LIMITED REPORTED IN 258 ITR 208. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. THE A.O. COMPUTED LONG TERM C APITAL GAIN FROM SALE OF LAND ON THE GROUND THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE IS NOT IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE O R COMMERCE. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS SOLD AG RICULTURAL LAND. MERE CONVERSION OF AGRICULTURAL LAND INTO VARIOUS PARTS CANNOT CONSTITUTE ADVENTURE IN THE NATURE OF TRADE OR COMMERCE. ACCO RDING TO THE A.O., THE ASSESSEE NEVER INVOLVED IN THE BUSINESS OF TRAD ING IN LANDS. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE FAILED TO P ROVE CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE WITH NECESSARY EV IDENCES. ACCORDING TO THE A.O., THE DOCUMENTS FURNISHED BY THE ASSESSEE A ND HIS FINANCIAL ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 21 STATEMENTS FOR THE FINANCIAL YEAR 2005-06 AND TAX A UDIT REPORT ISSUED BY THE AUDITOR CLEARLY INDICATES THAT THERE IS NO CONV ERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE DURING THE RELEVANT FINANCIAL Y EAR. 20. THE ONLY QUESTION THAT NEEDS TO BE EXAMINED IS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE PROFIT FROM SALE OF LAND IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR UNDER THE HEAD INCOME FROM CAPITAL GAINS. THE TERM BUISNESS INCLUDES ANY A DVENTURE IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. IN ORDER TO FIN D WHETHER A TRANSACTION OF PURCHASE AND SUBSEQUENT SALE AMOUNTS TO AN ADVENTURE IN THE NATURE OF TRADE, THE INITIAL INTENTION IS AN IMPORTANT FACTOR, BUT NOT A CONCLUSIVE ONE. THE SUBSEQUENT EVENTS AND THE AS SESSEES CONDUCT ARE ALSO IMPORTANT FACTORS AND THE FACTS TO BE CONS IDERED ARE FIRSTLY WHETHER THE TRANSACTION WAS IN THE LINE OF THE ASSE SSEES BUSINESS AND SECONDLY WHETHER IT WAS A ISOLATED TRANSACTION OR T HERE WAS A SERIES OF SIMILAR TRANSACTIONS. IT IS NOT NECESSARY THAT IN ORDER TO CONSTITUTE TRADE, THERE SHOULD BE A SERIES OF TRANSACTIONS, BO TH OF PURCHASE AND OF SALE. EVEN A SINGLE AND ISOLATED TRANSACTION CAN B E HELD TO BE CAPABLE OF FALLING WITHIN THE DEFINITION OF BUSINESS. WHETHER A TRANSACTION IS IN THE NATURE OF TRADE AND COMMERCE MUST BE DECIDED ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. THE ACTIVITY ALLEGED/C LAIMED TO BE AN ADVENTURE IN THE NATURE OF TRADE NEED NOT BE ALLIED TO BE THE ALREADY ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 22 EXISTING ACTIVITY OF THE ASSESSEE. THE ACTIVITY OR THE TRANSACTION SAID TO BE AN ADVENTURE IN THE NATURE OF TRADE MUST BE WITH THE OBJECT OF EARNING PROFIT. THEREFORE, TO DECIDE WHETHER A PAR TICULAR TRANSACTION IS IN THE NATURE OF TRADE OR COMMERCE OR IT IS IN THE NATURE OF REALIZATION OF INVESTMENT BY SALE OF CAPITAL ASSET HAS TO BE DECID ED BASED ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. 21. IN THIS CASE, ON PERUSAL OF THE FACTS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS PURCHASED AN AGRICULTURAL LAN D IN THE YEAR 1980. THE ASSESSEE HAS SOLD THE IMPUGNED LAND IN THE FINA NCIAL YEAR RELEVANT TO ASSESSMENT YEARS 2007-08. THE ASSESSEE CLAIMS T O HAVE CONVERTED HIS INVESTMENT INTO STOCK-IN-TRADE AS ON 31.3.2006, DEVELOPED THE SAID LAND INTO VARIOUS PLOTS BEFORE IT WAS SOLD. FROM T HIS, IT IS VERY CLEAR THAT THE INTENTION OF THE ASSESSEE WAS TO PURCHASE THE L AND, DIVIDE THEM INTO PLOTS AND SELL THE PLOTS WITHIN THE PERIOD ESTABLIS HED, THEREFORE, IT IS CLEARLY INDICATES THAT THE INTENTION OF THE ASSESSE E WAS TO CARRY OUT ADVENTURE IN THE NATURE OF TRADE TO COMMERCIALLY EX PLOIT THE SAID LAND. THE A.O. RECOMPUTED PROFIT FROM SALE OF THE SAID LA ND ON THE SIMPLE REASON THAT THE ASSESSEE HAS FAILED TO PROVE THE CO NVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE. THE ASSESSEE CLAIMS TO HAVE CONVERTED ITS CAPITAL ASSET INTO STOCK-IN-TRADE AS ON 31.3.2006. SINCE, THE SAID LAND WAS SHOWN AS INVESTMENT IN THE BALANCE SHEET BEFORE IT WAS CONVERTED, ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 23 THE ASSESSEE HAS NOT PREPARED FINANCIAL STATEMENT F OR THE REAL ESTATE BUSINESS SEPARATELY. IN THE PROFIT & LOSS ACCOUNT PREPARED FOR ITS OTHER BUSINESS, THE ASSESSEE HAS NOT DISCLOSED THE SAID C ONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE. THE ASSESSEE FURTHER CL AIMS THAT MERELY BECAUSE THE BOOKS OF ACCOUNTS NOT DISCLOSED THE CON VERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE, THE CHARACTERISTICS OF T HE TRANSACTION WOULD NOT CHANGE. 22. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE, FOR THE REASON THAT THE ASSESSEE HAS PROVED ITS INTENTION TO CARRY OUT ADVENTURE IN THE NATURE OF TRADE ON THE SAID LAND. THE ASSESSEE HAS CONVERTED THE LAND INTO STOCK-IN-TRADE, FORMED SITES BEFORE IT WAS SOL D. THEREFORE, FROM THE ABOVE FACTS, IT IS VERY CLEAR THAT THE ASSESSEE HAS INVOLVED IN THE BUSINESS OF REAL ESTATE WHICH IS EVIDENT FROM THE F ACT THAT THE ASSESSEE HAS COMPUTED RESULTANT PROFIT FROM SALE OF IMPUGNED LAND BY APPLYING THE PROVISIONS OF SECTION 45(2) OF THE ACT. ONCE T HE ASSESSEE HAS PROVED THE CONVERSION OF CAPITAL ASSET INTO STOCK-I N-TRADE, THE PROVISIONS OF SECTION 45(2) OF THE ACT COME INTO PLAY AND THE INCOME IS TO BE DETERMINED IN ACCORDANCE WITH THE SAID SECTION. IN THIS CASE, THE ASSESSEE HAS APPLIED THE PROVISIONS OF SECTION 45(2 ) OF THE ACT AND COMPUTED CAPITAL GAIN AS WELL AS BUSINESS INCOME AF TER CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE. THEREFORE, WE A RE OF THE VIEW THAT THE ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 24 DOCUMENTS FURNISHED BY THE ASSESSEE CLEARLY INDICAT ES THAT THE ASSESSEE HAS CONVERTED HIS CAPITAL ASSET INTO STOCK-IN-TRADE AND HENCE, RIGHTLY COMPUTED RESULTANT PROFIT BY APPLYING THE PROVISION S OF SECTION 45(2) OF THE ACT. 23. IN SO FAR AS APPLICATION OF THE PROVISIONS OF S ECTION 50C OF THE ACT FOR THE PURPOSE OF DETERMINATION OF COMPUTATION OF CAPITAL GAINS, WE FIND THAT THE A.O. HAS ADOPTED FULL VALUE OF CONSIDERATI ON RECEIVED AS PER THE PROVISIONS OF SECTION 50C OF THE ACT TO DETERMINE T HE CAPITAL GAIN ON THE GROUND THAT THE ACTIVITY CARRIED OUT BY THE ASSESSE E IS NOT IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE OR COMMERCE AND IT IS THE REALIZATION OF SALE OF CAPITAL ASSET. SINCE, WE HOLD THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE IS IN THE NATURE OF ADVENTURE IN THE N ATURE OF TRADE OR COMMERCE AND THE RESULTANT PROFIT IS ASSESSABLE UND ER THE HEAD INCOME FROM BUSINESS THE PROVISIONS OF SECTION 50C OF THE ACT HAS NO APPLICATION, WHEN THE INCOME IS COMPUTED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. 24. NOW IT IS PERTINENT TO DISCUSS CASE LAWS RELIED UPON BY THE ASSESSEE. THE ASSESSEE HAS RELIED UPON THE DECISIO N OF HONBLE HIGH COURT OF ANDHRA PRADESH, IN THE CASE OF CIT VS. M. KRISHNA RAO REPORTED IN 120 ITR 101. THE HONBLE HIGH COURT, UNDER SIMI LAR CIRCUMSTANCES, HELD THAT WHEN THE ASSESSEE PURCHASED THE LAND, DIV IDE THEM INTO PLOTS ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 25 AND SOLD THE PLOTS WITHIN THE PERIOD ESTABLISHED, T HEN THE INTENTION OF THE ASSESSEE WAS TO CARRY ON THE ADVENTURE IN THE N ATURE OF TRADE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: THE ASSESSEE HAD NOT SOLD THE PROPERTY AS HE BOUGH T IT, BUT HAD PARCELED IT. HE COULD NOT HAVE REALIZED THE SAID AMOUNTS IF THERE WAS NO LAYOUT AND HE HAD NOT PLOTTED OUT THE LAND FOR BUILDING SITES. EVEN A SINGLE VENTURE MIGHT BE REGARDED AS IN THE NATURE OF TRADE AND BUS INESS. FROM THE FACTS, IT WAS MANIFEST THAT THE INTENTION OF THE ASSESSEE IN PURCHASING THE LAND IN TWO TRANSACTIONS WAS TO DO BUSINESS IN REAL PROPERT Y AND IT WAS A BUSINESS VENTURE. THE PROFITS DERIVED BY THE ASSESSEE ON TH E SALE OF PLOTS WAS ASSESSABLE TO TAX AS INCOME FROM ADVENTURE IN THE N ATURE OF TRADE, FOR THE TWO ASSESSMENT YEARS IN QUESTION. 25. THE ASSESSEE ALSO RELIED UPON THE DECISION OF H ONBLE RAJASTHAN HIGH COURT, IN THE CASE OF CIT VS. GOVIND GRUHA NIR MAN SAHAKAR SAMITI LIMITED REPORTED IN 258 ITR 208. THE HONBLE HIGH COURT IN THE SAID CASE OBSERVED THAT THE LAND WHICH HAS BEEN DEVELOPE D AND DIVIDED INTO SMALL PLOTS HAS TO BE TREATED AS STOCK-IN-TRADE. T HE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: THE FACTS FOUND BY THE TRIBUNAL WERE THAT THE LAND HAD BEEN DEVELOPED AND THE EXPENSES WERE INCURRED IN DEVELOPING THE LA ND. THAT LAND HAD BEEN TREATED AND FOUND BY THE TRIBUNAL AS STOCK-IN- TRADE. IN VIEW OF THE FINDING OF THE TRIBUNAL, NO INTERFERENCE WAS CALLED FOR IN THE ORDER OF THE TRIBUNAL. 26. IN THIS VIEW OF THE MATTER AND ALSO CONSIDERING THE RATIO OF THE CASE LAWS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE INCOME FROM SALE OF LAND IS ASSESSABLE UNDER THE HEAD INCOME FROM B USINESS, BUT NOT UNDER THE HEAD INCOME FROM CAPITAL GAINS. WE FURT HER OBSERVED THAT THE ASSESSEE HAS FILED NECESSARY EVIDENCES TO PROVE , HE HAD CONVERTED ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 26 HIS CAPITAL ASSET INTO STOCK-IN-TRADE, DEVELOPED TH E SAID LAND BEFORE IT WAS SOLD. THE ASSESSEE HAS COMPUTED RESULTANT PROFI T FROM SALE OF THE LAND BY APPLYING THE PROVISIONS OF SECTION 45(2) OF THE ACT. WHEN THE INCOME IS COMPUTED UNDER THE HEAD INCOME FROM BUSI NESS, THE PROVISIONS OF SECTION 50C OF THE ACT HAS NO APPLICA TION FOR DETERMINATION OF FULL VALUE OF CONSIDERATION FOR THE PURPOSE OF C OMPUTATION OF CAPITAL GAIN. THE CIT(A) AFTER CONSIDERING THE RELEVANT PR OVISIONS OF THE ACT AND ALSO SUBMISSIONS OF THE ASSESSEE RIGHTLY DIRECT ED THE A.O. TO DELETE ADDITIONS MADE TOWARDS COMPUTATION OF CAPITAL GAINS . WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A). HENCE, WE AR E INCLINED TO UPHOLD THE CIT(A) ORDER AND DISMISS GROUND RAISED BY THE R EVENUE. 27. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 9 TH JUN17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 9.6.2017 VG/SPS ITA NO.45/VIZAG/2013 SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAY A LAKSHMI, VJA 27 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-2(1), VIJAYAWAD A 2. / THE RESPONDENT SMT. CHENNUPATI KUTUMBAVATHI & SMT. CHANUMOLU VIJAYA LAKSHMI, L/RS OF LATE SRI CHENNUPATI BHASAKA RA RAO #62-2-33, CH. RAMAKOTAIAH STREET, PATAMATA LANKA, VIJAYAWADA 3. + / THE CIT, VIJAYAWADA 4. + ( ) / THE CIT (A), VIJAYAWADA 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM