Jt.CIT, Cir. (OSD) Cir.-1, Nashik, Dhule V. M/s. Ganraj Enterprises, Nashik

ITA 551/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9862 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 28-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIB JAIN
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income
• Section: 143(3); 50C; 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.551/PN/2011 (ASSESSMENT YEAR: 2006-07) JT. CIT CIR. 1, NASIK .. APPELLANT VS. M/S. GANRAJ ENTERPRISES PLOT NO. 12, GANGAPUR ROAD, NASIK PAN AAEFG 5075 F RESPONDENT APPELLANT BY : SHRI RAJIB JAIN RESPONDENT BY : SHRI C.H. NANIWADEKAR DATE OF HEARING : 13-9-2012 DATE OF PRONOUNCEMENT :31-10-2012 ORDER PER G.S. PANNU, A.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I NASIK DATED 8-2-2011 WHICH, IN TURN, HAS ARISEN FROM ORDER DATED 10-12-2 008 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSM ENT YEAR 2006-07. 2. THE REVENUE IN ITS APPEAL HAS RAISED THE FOLLOWI NG GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A)-I NASIK WAS JUSTIFIED IN D ELETING THE ADDITION OF RS. 29,82,000/- MADE BY THE AO ON ACCOUNT OF LONG TERM CAPITAL GAINS? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-I NASIK WAS JUSTIFIED IN H OLDING THAT THE ASSETS IN QUESTION WAS NOT A CAPITAL ASSET S IGNORING THE FACT THAT THE ASSET WAS SHOWN AS A FIX ED ASSETS IN THE BALANCE SHEET OF THE FIRM AS ON 31-3- 2005 AND THE INCOME THEREFROM WAS OFFERED TO TAX AS INC OME FROM HOUSE PROPERTY. 3. IN BRIEF, THE FACTS GIVING RISE TO THE CAPTIONED PROCEEDINGS CAN BE SUMMARIZED AS FOLLOWS: THE ASSESSEE IS A PARTNER SHIP FIRM AND ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. RETURN OF INCOME WAS FILED DECLARING TOTAL INCOME OF RS. 16,3 4,770/- WHICH WAS PROCESSED U/S 143(1) OF THE ACT ON 21-9-2007 RESULT ING A REFUND OF 2 ITA NO 551/PN/11 GANRAJ ENTER PRISES A.Y. 2006-07 RS. 96,166/-. THE CASE WAS SELECTED FOR SCRUTINY A SSESSMENT WHEN THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS S OLD A PROPERTY FOR RS. 74,52,000/-, WHICH FORMED PART OF THE TOTAL SALES OF RS. 1,42,73,140/-. THE SAID PREMISES WERE RENTED OUT TO LIC AND HDFC PRIOR TO SALE DURING THE YEAR. THE SAID PROPERTY W AS SEPARATELY SHOWN AS FIXED ASSET IN THE BALANCE SHEET AS ON 31- 3-2005. THE ASSESSING OFFICER TOOK THE VIEW THAT SINCE THE SAID PROPERTY WAS GIVEN ON RENT WHICH WAS ASSESSED AS INCOME FROM HOU SE PROPERTY, THE SAID PROPERTY ASSUMED THE CHARACTER OF A CAPITA L ASSET WITHIN THE MEANING OF SEC. 2(14) OF THE ACT AND THEREFORE, INV OKED SECTION 50C OF THE ACT AND TAXED THE SALE PROCEEDS AS CAPITAL G AINS AGAINST THE ASSESSEES SHOWING THE SAME AS BUSINESS INCOME. TH IS HAS RESULTED IN THE CAPITAL GAINS OF RS. 29,82,000/- WH ICH HAS BEEN ADDED IN THE IMPUGNED ASSESSMENT ORDER. ON APPEAL, THE CIT(A) HELD THAT THE ASSESSING OFFICERS ACTION IN TREATIN G THE SALE PROCEEDS AS CAPITAL GAINS IS UNWARRANTED AND THAT INVOCATION OF SECTION 50C OF THE ACT IS ALSO NOT JUSTIFIED. ACCORDINGLY, THE CI T(A) HAS DIRECTED THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION OF RS. 29,82,000/- . 4. THE LEARNED DR APPEARING FOR THE REVENUE HAS SUB MITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITI ON OF RS. 29,82,000/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF LONG TERM CAPITAL GAINS BY HOLDING THAT THE ASSET IN QUESTION WAS NOT A CAPITAL ASSET IGNORING THE FACT THAT THE ASSET WAS SHOWN AS A FIXED ASSETS IN THE BALANCE SHEET OF THE ASSESSEE AS ON 31-3-2005 A ND THE RENTAL INCOME THEREFROM WAS OFFERED TO TAX AS INCOME FROM HOUSE PROPERTY. THE LEARNED DR THEREFORE, CONTENDED THA T THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICE R BE RESTORED. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE SUPPORTED THE ORDER OF THE CIT(A). 3 ITA NO 551/PN/11 GANRAJ ENTER PRISES A.Y. 2006-07 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN THIS CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BU ILDERS AND DEVELOPERS. THE ASSESSEE-FIRM CARRIED OUT CONSTRUC TION OF A COMMERCIAL BUILDING WHICH WAS STARTED FROM THE EARL IER ASSESSMENT YEAR. IN THE ASSESSMENT YEAR 2005-06, THE ASSESSEE INCURRED A TOTAL EXPENDITURE INCLUSIVE OF THE OPENING WORK-IN-PROGRE SS) OF RS. 1,87,44,345/- OUT OF WHICH RS. 1,33,34,345/- WAS S HOWN AS CLOSING WORK-IN-PROGRESS AND THE BALANCE OF RS. 54,10,000/- WAS SHOWN AS FIXED ASSETS. THIS INFORMATION IS EMERGING FROM PA GE 7 AND 8 OF THE PAPER BOOK WHICH CONTAINS BALANCE SHEET AS ON 31-3- 2005 AND THE PROJECT ACCOUNT FOR THE YEAR ENDED ON 31-3-2005 RES PECTIVELY. A PORTION OF THE PROPERTY REFLECTED BY COST OF RS. 54 ,10,000/- WAS RENTED OUT TO HDFC AND LIC AND THE SAME HAS BEEN SO LD DURING THE INSTANT YEAR FOR RS. 74,52,000/-. IN THE INSTANT Y EAR, THE SAID SALE IS FORMING PART OF THE TOTAL SALE OF RS. 1,42,73,140/- CREDITED IN THE PROJECT ACCOUNT, AS EMERGING FROM PAGE 6 OF THE PAP ER BOOK. THE INCOME FROM SUCH SALE HAS BEEN OFFERED AS BUSINESS INCOME. THE ASSESSING OFFICER HAS HELD THAT INCOME FROM SUCH SA LE OF PROPERTY WHICH WAS RENTED OUT PRIOR TO ITS SALE WAS TO BE AS SESSED UNDER THE HEAD CAPITAL GAIN. 6. IN THIS CONTEXT, IT IS TO BE APPRECIATED THAT TH E BUSINESS OF THE ASSESSEE IS THAT OF A BUILDER/DEVELOPER AND IT IS A LSO NOTE-WORTHY THAT THE SAID RENTED PROPERTY NOW SOLD IS A PART OF SAME COMMERCIAL BUILDING BEING CONSTRUCTED WHEREIN THE SALE OF OTHE R UNITS HAS BEEN ACCEPTED AS SALE OF STOCK-IN-TRADE SO AS TO BE ASSE SSED AS BUSINESS INCOME. IT IS THEREFORE, JUSTIFIABLE FOR THE ASSES SEE TO ASSERT THAT THE INCOME FROM SUCH SALE IS ALSO ASSESSABLE AS BUSINES S INCOME. MERELY BECAUSE, THE PROPERTY WAS RENTED OUT PRIOR T O SALE OR SUCH RENTAL WAS ASSESSED AS INCOME FROM HOUSE PROPERTY W OULD NOT NEGATE THE STAND OF THE ASSESSEE. THE OTHER ASPECT BROUGHT OUT BY 4 ITA NO 551/PN/11 GANRAJ ENTER PRISES A.Y. 2006-07 THE ASSESSING OFFICER IS TO THE EFFECT THAT IN THE EARLIER YEAR I.E. AS ON 31-3-2005, SUCH PORTION OF THE PROPERTY HAS BEEN SHOWN AS A FIXED ASSET IN THE BALANCE SHEET BY THE ASSESSEE AN D THEREFORE, ITS SALE IN THIS YEAR CANNOT BE TREATED AS SALE OF STOC K-IN-TRADE. FACTUALLY, THE ASSESSING OFFICER IS RIGHT IN SAYING THAT SUCH PORTION OF THE PROPERTY VALUED AT RS. 54,10,000/- HAS BEEN SHO WN AS FIXED ASSET IN THE BALANCE SHEET AS ON 31-3-2005 AS IS EV IDENT FROM PAGE 7 OF THE PAPER BOOK. SO HOWEVER, ASSESSEE EXPLAINE D THAT SUCH SEGREGATION WAS DONE MERELY BECAUSE SUCH PORTION WA S RENTED OUT WHEREAS THE BALANCE OF THE PREMISES WERE SHOWN AS W ORK-IN- PROGRESS AND THAT IN ANY CASE, IT WAS NOT DETERMINA TIVE OF THE ISSUE ON HAND. IN OUR VIEW, HAVING REGARD TO THE ENTIRETY OF THE CIRCUMSTANCES, THE AFORESAID DEPICTION IN THE BALAN CE SHEET FOR 31-3- 2005 CANNOT BE FATAL TO ASSESSEES CLAIM THAT THE I NCOME IN QUESTION WAS DERIVED FROM SALE OF PROPERTY CARRIED OUT IN TH E ORDINARY COURSE OF BUSINESS OF BUILDER/DEVELOPER. CONSIDERED IN TH IS LIGHT, WE FIND THAT THE CIT(A) MADE NO MISTAKE IN HOLDING THAT THE SALE PROCEEDS OF THE IMPUGNED PROPERTY WAS LIABLE TO BE ASSESSED AS BUSINESS INCOME DECLARED BY THE ASSESSEE AND NOT AS CAPITAL GAIN AS CONTENDED BY THE ASSESSING OFFICER. IN THIS VIEW O F THE MATTER, WE THEREFORE, FIND NO MERIT IN THE PRESENT APPEAL OF T HE REVENUE WHICH IS HEREBY DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER 2012. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 31 ST OCTOBER 2012 ANKAM 5 ITA NO 551/PN/11 GANRAJ ENTER PRISES A.Y. 2006-07 COPY TO:- 1. ASSESSEE 2. DEPARTMENT 3. THE CIT (A)-I NASIK 4. THE CIT-I NASIK 5. THE DEPARTMENTAL REPRESENTATIVE, B BENCH, I.T. A.T., PUNE. BY ORDER //TRUE COPY// SR. P.S. I.T.A.T., PUNE