M/s Parshwanath Corporation, Ahmedabad V. The CIT.A'bad-III, Ahmedabad

ITA 506/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9224 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 28-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Assessee Lawyers: M G PATEL
• Keywords: Business income; Cost of acquisition
• Section: 143(3); 263

Judgement Text

P , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ ITA NO. 506/AHD/2012 / ASSESSMENT YEAR : 2007-08 M/S. PARSHWANATH CORPORATION, 50, 3 RD FLOOR, HARSIDDH CHAMBERS, ASHRAM ROAD, AHMEDABAD PAN : AABFP 9058 J VS COMMISSIONER OF INCOME-TAX, AHMEDABAD-III, AHMEDABAD / (APPELLANT) / (RESPONDENT) ASSESSEE(S) BY : SHRI M.G. PATEL, AR REVENUE BY : SHRI JAGDISH, CIT-DR / DATE OF HEARING : 24/02/2016 / DATE OF PRONOUNCEMENT: 15/03/2016 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX, AHMEDABAD-III, AHMEDABAD, DATED 17.02.2012 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX, AHMEDABAD-I II, AHMEDABAD HAS ERRED IN LAW AND ON FACTS OF THE CASE BY INVOKING T HE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT, 1961 AND ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED U/S 143(3) DATED 23.12.2009 IS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF REVENUE AND AS A CONSEQUENCE, HAS ERRED IN CANCELLING THE ASSESSMENT ORDER PASSED U/S 143(3), DIRECTING THE AS SESSING OFFICER TO PASS FRESH ASSESSMENT ORDER AFTER CALLING NECESSARY DETA ILS. 2. YOUR APPELLANT PRAYS TO CANCEL THE ORDER PASSED U/S 263 AND RESTORE THE ORDER OF THE ASSESSING OFFICER. 3. YOUR APPELLANT RESERVES THE RIGHT TO ADD, ALTER, AM END AND/OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL. ITA NO. 506/AHD/2012 M/S. PARSHWANATH CORPORATION VS. CIT FOR AY 2007-08 2 3. BRIEFLY STATED FACTS ARE THAT, IN THIS CASE, THE ASSESSMENT WAS COMPLETED VIDE ORDER DATED 23.12.2009, WHEREBY THE ASSESSING OFFICER HAD COMPUTED INCOME AT RS.2,61,59,749/- AGAINST THE TOT AL INCOME DECLARED BY THE ASSESSEE AT RS.1,60,22,490/-. SUBSEQUENTLY, T HE LEARNED CIT, WHILE INVOKING THE PROVISIONS OF SECTION 263, PROPOSED TO REVISE THE ASSESSMENT ORDER ON THE GROUND THAT THE ASSESSEE HAD SHOWN LON G TERM CAPITAL GAIN OF RS.2,35,62,680/- ON SALE CONSIDERATION OF RS.2,89,9 3,200/- OF AGRICULTURAL LAND AT SURVEY NO.37/1, 37/2, 37/3-4 AND 40-PART-I, CHANDKHEDA. THE ASSESSING OFFICER RECOMPUTED AND ENHANCED THIS CAPI TAL GAIN TO RS.2,52,59,088/-, BY EXCLUDING THE BANAKHAT CHARGES FROM THE COST OF ACQUISITION, AND ASSESSED SUCH GAIN AS LONG TERM CA PITAL GAIN, WITHOUT VERIFYING AS TO WHETHER SUCH GAIN WAS ACTUALLY TAXA BLE AS CAPITAL GAIN OR UNDER THE HEAD OF INCOME FROM BUSINESS OR PROFESSI ON. IN THE BALANCE- SHEET, THE TOTAL VALUE OF AGRICULTURE LAND WAS SHOW N AT RS.2,84,43,714/-; HOWEVER, DURING THE YEAR, THE LAND VALUED AT RS.32, 28,965/- WAS SOLD AFTER CONVERTING THE SAME INTO NON-AGRICULTURE LAND IN MA RCH, 2007. FURTHER, DURING THE YEAR UNDER CONSIDERATION, LAND VALUED AT RS.52,87,818/- WAS TRANSFERRED TOWARDS CONSTRUCTION OF RESIDENTIAL PRO JECTS NAMED METRO CITY AT CHANDKHEDA AND WAS SHOWN UNDER CURRENT ASSETS. THE PROJECT EXPENSES OF RS.80,65,819/- WAS ALSO DEBITED. THUS, THE ASSESSEE-FIRMS INTENTION BEHIND PURCHASING THE LAND WAS NOT FOR IN VESTMENT OR FOR EARNING CAPITAL GAIN, BUT TO USE THE SAME FOR BUSINESS ACTI VITIES. 3.1 AFTER CONSIDERING THE REPLY OF THE ASSESSEE, TH E LEARNED CIT PROCEEDED TO PASS THE IMPUGNED ORDER, WHEREBY THE LEARNED CIT CANCELLED THE ASSESSMENT ORDER DATED 23.12.2009 AND DIRECTED THE ASSESSING OFFICER TO PASS A FRESH ASSESSMENT ORDER AFTER CALLING FOR ALL THE NECESSARY DETAILS, ALONG WITH DETAILED EXPLANATIONS OF THE ASSESSEE, AND AFT ER MAKING THE REQUISITE ITA NO. 506/AHD/2012 M/S. PARSHWANATH CORPORATION VS. CIT FOR AY 2007-08 3 INQUIRIES BRINGING ALL RELEVANT FACTS ON RECORD AND AFTER HAVING APPLIED HIS MIND TO ALL ASPECTS OF THE CASE. 3.2 THE ONLY EFFECTIVE GROUND IN THIS APPEAL IS AGA INST INVOKING THE PROVISIONS OF SECTION 263 OF THE INCOME-TAX ACT, 19 61 AND CANCELLING THE ASSESSMENT ORDER PASSED U/S. 143(3) OF THE ACT DATE D 23.12.2009. 3.3 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT WAS NOT JUSTIFIED IN REVISING THE ASSESSMENT ORDER AS THE REVENUE HAS ACCEPTED THE SURPLUS ARISING OUT OF SALE OF IMMOVAB LE ASSET AS THE CAPITAL GAIN AND NOT AS A BUSINESS INCOME. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE IS ALSO ENGAGED IN THE ACTIVITIES OF FARMING AND AL LIED AGRICULTURAL ACTIVITIES. HE FURTHER SUBMITTED THAT THE LAND WAS NOT CONVERTE D INTO STOCK-IN-TRADE. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS MADE INQUIRIES WITH REGARD TO THE CLAIM OF THE ASSESSEE AND AFTER APPLY ING HIS MIND HAS RIGHTLY TREATED THE SAME AS INCOME FROM THE CAPITAL GAIN AN D NOT AS A BUSINESS INCOME. THE LEARNED COUNSEL DREW OUR ATTENTION TO THE PARTNERSHIP DEED DATED 01.03.2004 AND AMENDED PARTNERSHIP DEED DATED 01.04.2005 IN SUPPORT OF HIS CONTENTION THAT THE ASSESSEE IS ALSO INTO THE AGRICULTURAL ACTIVITIES. THE LEARNED COUNSEL FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE LEARNED CIT AND SUBMITTED THAT UNDER THE FACTS OF THE PRESENT CASE, THE LEARNED CIT OUGHT NOT TO HAVE INV OKED THE PROVISIONS OF SECTION 263 OF THE ACT, AS SUCH THE IMPUGNED ORDER IS BAD IN LAW. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO DREW OUT ATTE NTION AT PAGE NO.126 TO 127 OF THE PAPER-BOOK IN THIS REGARD. 3.4 ON THE CONTRARY, LEARNED CIT-DR SUPPORTED THE O RDER OF THE LEARNED CIT AND SUBMITTED THAT THE BARE PERUSAL OF THE ORDE R OF THE ASSESSING ITA NO. 506/AHD/2012 M/S. PARSHWANATH CORPORATION VS. CIT FOR AY 2007-08 4 OFFICER, IT WOULD REVEAL THAT THE ASSESSING OFFICER HAD NOT MADE ANY INQUIRY AND HAS SIMPLY ACCEPTED THE CLAIM OF THE ASSESSEE T HAT THE SURPLUS ARISING OUT OF THE TRANSFER OF THE ASSET WAS A CAPITAL GAIN , BUT NOT AN INCOME FROM BUSINESS. UNDER THESE FACTS, THE LEARNED CIT WAS J USTIFIED IN REVISING THE ORDER AND CANCELLING THE SAME. LEARNED CIT-DR FURTH ER SUBMITTED THAT NO PREJUDICE IS CAUSED TO THE ASSESSEE AS THE LEARNED CIT HAS MERELY DIRECTED THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AF TER CALLING FOR ALL THE NECESSARY DETAILS AND EXPLANATIONS FROM THE ASSESSE E. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE IS A PARTNERSHIP FIRM CAME INTO EXISTENCE BY VIRTUE OF PARTNERSHIP DEED EXECUTED ON 01.01.200 1 WITH THE OBJECT OF CARRYING OUT BUSINESS OF FARMING AND AGRICULTURAL A CTIVITIES UNDER THE NAME AND STYLE OF SHREE PARSHWANATH FARM, WHICH SUBSEQUE NTLY CHANGED THE NAME TO M/S. PARSHWANATH CORPORATION W.E.F. 01.04.2 005. AS PER REVISED PARTNERSHIP DEED, THE ASSESSEE HAD EXPANDED HIS BUS INESS TO OTHER ACTIVITIES LIKE DEALING IN LAND, LAND DEVELOPMENT AND VARIOUS KINDS OF CONSTRUCTION ACTIVITIES INCLUDING CONSTRUCTION OF HOUSING AND CO MMERCIAL COMPLEXES, RESIDENTIAL FLATS ETC.., IN ADDITION TO THE ACTIVIT Y OF FARMING AND ALLIED AGRICULTURAL ACTIVITIES. FOR THE YEAR UNDER CONSID ERATION, THE ASSESSMENT ORDER U/S. 143(3) OF THE ACT WAS PASSED BY THE ASSE SSING OFFICER, WHEREBY HE RECOMPUTED THE LONG TERM CAPITAL GAIN AT RS.2,52 ,59,088/- ON SALE CONSIDERATION OF AGRICULTURAL LAND AS AGAINST RS.2, 35,62,680/- SHOWN BY THE ASSESSEE AND THE HE DID NOT ALLOW THE SET-OFF OF BR OUGHT FORWARDED LOSSES CLAIMED BY THE ASSESSEE. UNDISPUTED FACTS IN THIS CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE AGRICULTURAL ACTIVITY. IT IS ALS O UNDISPUTED FACT THAT THE ASSESSING OFFICER HAD RECOMPUTED THE CAPITAL GAIN A ND MADE ADDITION OF RS.1,01,37,259/-. BEFORE THE LEARNED CIT, WITH REG ARD TO THE LAND IN QUESTION, THE ASSESSEE HAD CATEGORICALLY SUBMITTED AS UNDER:- ITA NO. 506/AHD/2012 M/S. PARSHWANATH CORPORATION VS. CIT FOR AY 2007-08 5 1.1 THE ASSESSEE IS A PARTNERSHIP FIRM CAME INTO EXISTENCE BY VIRTUE OF PARTNERSHIP DEED EXECUTED ON 01/01/2001 WITH THE OB JECT OF CARRYING OUT- BUSINESS OF FARMING AND AGRICULTURAL ACTIVITIES UND ER THE NAME AND STYLE OF SHREE PARSHWANATH FARM. COPY OF PARTNERSHIP DEED IS PLACED ON PAGE NOS. 21 TO 29 OF THE PAPER BOOK. ACCORDINGLY, PARTNERSHIP FIRM PURCHASED VARIOUS AGRICULTURAL LANDS AND CARRIED ON AGRICULTURAL ACTI VITIES. AGRICULTURAL LANDS SO PURCHASED, HAVE BEEN CLASSIFIED AS INVESTMENT. I N SUPPORT OF THIS, WE ENCLOSE HEREWITH COPIES OF BALANCE SHEETS AND PROFI T & LOSS ACCOUNTS FOR F.YS. 2001-02 TO., 2005-06 WHICH ARE PLACED ON PAGE NOS. 9 TO 20 OF THE PAPER BOOK. FURTHER, AGRICULTURAL LANDS HAVE BEEN P URCHASED OUT OF OWN FUNDS OF THE FIRM AND NO BORROWED FUNDS HAVE BEEN U TILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN AGRICULTURAL LANDS WHICH CAN B E VERIFIED FROM THE BALANCE SHEETS OF THE FIRM. 2. SUBSEQUENTLY, AMENDMENT IN PARTNERSHIP DEED WAS MADE ON 01/04/2005 FOR THE PURPOSE OF MAKING AMENDMENT IN THE NAME OF THE PARTNERSHIP FIRM AND ALSO IN THE OBJECT CLAUSE SO AS TO ENHANCE DEFI NITION OF BUSINESS. AS PER THE SAID AMENDED AGREEMENT, PARTNERSHIP FIRM NAME H AS BEEN CHANGED TO PARSHWANATH CORPORATION FROM PARSHWANATH FARM AND T HE OBJECT HAS BEEN CHANGED AS UNDER: 'THE BUSINESS OF THE PARTNERSHIP FIRM SHALL BE THAT OF DEALING IN LAND DEVELOPMENT THEREOF, TO CARRY OUT VARIOUS KINDS OF CONSTRUCTION ACTIVITIES INCLUDING CONSTRUCTION OF HOUSING AND CO MMERCIAL COMPLEXES, RESIDENTIAL FLATS, ORGANIZERS OF THE SOC IETIES ETC. IN ADDITION TO THE BUSINESS OF FANNING AND AGRICULTURAL ACTIVIT IES ETC.' COPY OF AMENDED DEED IS PLACED ON PAGE NOS. 30 TO 3 5 OF THE PAPER BOOK. 2.1 IN TERMS OF AMENDED PARTNERSHIP DEED AND AS PE R AMENDED OBJECT, THE ASSESSEE FIRM, DURING THE YEAR UNDER CONSIDERATION, STARTED HOUSING PROJECT VIZ. METRO-CITY PROJECT AND THE LAND IN THIS RESPEC T WHICH WAS CLASSIFIED AS AGRICULTURAL LAND ON WHICH METRO-CITY PROJECT HAS B EEN UNDERTAKEN HAS BEEN CONVERTED INTO STOCK-IN-TRADE (PIS. SEE PAGE NO. 6 OF THE PAPER BOOK). THE OTHER LANDS ARE CONTINUED TO BE CLASSIFIED AS ASSET S UNDER THE HEAD AGRICULTURAL LANDS AS INVESTMENT WHICH CAN BE SEEN FROM THE BALANCE SHEET ON PAGE NO.6 OF THE PAPER BOOK. 2.2 EVEN TO-DAY, ALL AGRICULTURAL LANDS, EXCEP T LAND CONVERTED INTO STOCK- IN-TRADE, CLASSIFIED AS INVESTMENT ARE AGRICULTURAL LANDS ONLY AND NO CONVERSION HAS BEEN MADE INTO NON-AGRICULTURAL LAND S WHICH IS EVIDENT FROM THE COPIES OF 7/12 EXTRACTS WHICH ARE PLACED ON PAG E NOS. 36 TO 120 OF THE PAPER BOOK. EVEN THE LAND WHICH HAS BEEN SOLD DURIN G THE YEAR UNDER ITA NO. 506/AHD/2012 M/S. PARSHWANATH CORPORATION VS. CIT FOR AY 2007-08 6 CONSIDERATION, ON WHICH LONG TERM CAPITAL GAIN HAS BEEN ASSESSED, IS SOLD AS AGRICULTURAL LAND ONLY (PLS. SEE PAGE NO. 38 OF THE PAPER BOOK). IN OTHER WORDS, AGRICULTURAL LANDS WHICH HAVE BEEN SOLD DURI NG THE YEAR UNDER CONSIDERATION HAVE NOT BEEN CONVERTED INTO STOCK-IN -TRADE AND HENCE PROFIT IN RESPECT OF THE SAME HAS BEEN RIGHTLY TAXED UNDER TH E HEAD CAPITAL GAIN. THE LAND WHICH HAS BEEN CONVERTED INTO STOCK-IN-TRADE F OR METRO-CITY PROJECT AS MENTIONED IN THE PRECEDING PARAGRAPH, INCOME IN RES PECT THEREOF WILL BE TAXED UNDER THE HEAD BUSINESS INCOME AS AND WHEN FL ATS/TENEMENTS ARE SOLD. 5. HOWEVER, THE LEARNED CIT HAS REVISED THE ASSESSM ENT ORDER BY OBSERVING AS UNDER:- 8.4. IN THE CASE OF THE ASSESSEE, THE A.O. SIMPLY PA SSED A VERY BRIEF AND CRYPTIC ORDER WITHOUT EXAMINING THE ISSUE AS INDICA TED IN THE SHOW-CAUSE NOTICE DATED 17.06.2011 AND AS DISCUSSED ABOVE IN C ONSIDERABLE DETAIL. HE COMPLETED THE ASSESSMENT IN A ROUTINE WAY, ACCEPTIN G THE CLAIM OF CAPITAL GAIN, AND SIMPLY TECHNICALLY DISALLOWING THE CLAIM OF BROUGHT FORWARD LOSSES, AS THERE WAS NO ANY LOSS REMAINED IN VIEW OF THE SC RUTINY ASSESSMENTS COMPLETED FOR THE RELEVANT EARLIER YEARS. A FIRST GL ANCE AT THE ASSESSMENT ORDER WOULD SHOW THAT IT WAS PASSED WITHOUT ANY APP LICATION OF MIND AND WITHOUT EXAMINING THE ISSUE OF SALE CONSIDERATION R ECEIVED ON THE LANDS, THE NATURE OF OWNERSHIP OF THE LAND, THE OBJECTS OF THE PARTNERSHIP FIRM, AS WELL AS THE INTENTION BEHIND THE PURCHASE AND SALE OF TH E LAND AND EVEN WITHOUT CONSIDERING THE BUSINESS NATURE OF THE TRANSACTIONS , CONVERSION OF THE AGRICULTURAL LAND INTO COMMERCIAL PLOTS, WORK-IN-PR OGRESS, ETC. THESE ISSUES CAME TO NOTICE, SUBSEQUENTLY FOR WHICH PROCEEDINGS U/S.263 OF THE IT. ACT WAS INITIATED. THE A.O. SIMPLY ACCEPTED THE ASSESSEE' S CLAIM(S) WITHOUT MAKING ANY ENQUIRY OR RAISING ANY ISSUE OR EVEN CAL LING FOR ANY EXPLANATION. THE ASSESSEE'S CASE THEREFORE IS SQUARELY COVERED BY THE RATIO OF THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA). IT IS SIMPLY A CASE OF INCORRECT ASSUMPTION OF FACTS AS IN THE CASE OF MALABAR INDUS TRIAL CO. LTD. (SUPRA). CONSEQUENTLY, IT IS AN ORDER WHICH IS TOTALLY ERRON EOUS AND HENCE, PREJUDICIAL TO THE INTEREST OF THE REVENUE, AND THE PROVISIONS OF SECTION 263 ARE CLEARLY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. LEARNED CIT HAS NOT CONTROVERTED THE SUBMISSIONS OF THE ASSESSEE THAT THE LAND IN QUESTION REMAINED TO BE AN AGRICULTURAL LAND AND WAS SOLD AS AGRICULTURAL LAND. EVEN BEFORE THIS TRIBUNAL ALSO T HE REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO REBUT THIS CONTENTION OF THE ASSESSEE. THEREFORE, THE FINDING OF THE LEARNED CIT THAT THE ORDER OF TH E ASSESSING OFFICER IS ITA NO. 506/AHD/2012 M/S. PARSHWANATH CORPORATION VS. CIT FOR AY 2007-08 7 ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE CANNOT BE AFFIRMED. HENCE, WE HEREBY SET ASIDE THE ORDER OF THE LEARNED CIT AND UPHOLD THE ACTION OF THE ASSESSING OFFICER FOR COMPUTING THE C APITAL GAIN ARISING OUT OF THE TRANSFER OF AGRICULTURAL LAND. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 15 TH MARCH, 2016 AT AHMEDABAD SD/- SD/- ( PRAMOD KUMAR) ACCOUNTANT MEMBER (KUL BHARAT) JUDICIAL MEMBER AHMEDABAD; DATED 15/03/2016 BIJU T., PS !'#$%$&' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! ' ' # / CONCERNED CIT 4. ' ' # ( ) / THE CIT(A) 5. &'( ! , ' ! , / DR, ITAT, AHMEDABAD 6. (- . / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD