M/S SHAILESH T SHAH & CO. (HUF), MUMBAI V. ACIT CIRCLE-22 (3), MUMBAI

ITA 6597/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9317 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 22-10-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURBINDER SINGH
• Keywords: Capital asset converted into stock in trade; Capital asset; Business income; Date of conversion; Fair market value; Tax effect; Capital Gains
• Section: 45(2); 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , H BENCH MUMBAI BEFORE : SHRI SHAMIM YAHYA , A CCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE , JUDICIAL MEMBER ITA NO. 6597 / MUM/ 2019 ( ASSESSMENT YEAR : 2013 - 14 ) M/S. SHAILESH T SHAH & CO. (HUF) C/O. B ANDRA SPIRIT DEPOT 297, VIDYA NAGAR MARG KALINA, SANTACRUZ (E) MUMBAI 400 098 VS. ACIT CIRCLE 22(3) MUMBAI PAN/GIR NO. AAQHS1610E (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI DILIP KUMAR REVENUE BY SHRI GURBINDER SINGH DATE OF HEARING 29 /07 /2021 DATE OF PRONOUNCEMENT 02 / 08 /202 1 / O R D E R PER SHRI SHAMIM YAHYA AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF LD.CIT(A) - 34, MUMBAI DATED 02/07/2019 AND PERTAINS TO ASSESSMENT YEAR 2013 - 14. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER: - ASSESSMENT OF LONG TERM CAPITAL GAIN U/SEC 45(2) : ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE COMMISSIONER OF INCOME TAX (APPEALS - 34) MUMBAI, , ERRED IN CONFIRMING THE LONG TERM CAPITAL GAIN U/SEC. 45(2) ON SALE OF LAND AT RS.95,12,524/ - AS AGAINST RS.16,22,135/ - COMPUTED BY THE APPELLANT. ITA NO . 6597/M UM/2019 M/S. SHAILESH T. SHAH & CO.(HUF) 2 THE SAID C.I.T. - (A) ERRED IN NOT ALLOWING INDEXED COST OF IMPROVEMENT OF LAND INCURRED IN A.Y. 1993 - 94 AMOUNTING TO RS.1,83,230/ - CLAIMED U/SEC 48 IGNORING THE F ACT THAT THE SAME WERE NEVER CLAIMED AGAINST AGRICULTURAL INCOME AND WAS TOWARDS COST OF IMPROVEMENT OF THE SAID LAND. 1.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE SAID C.I.T. - (A) ERRED IN COMPUTING NOTIONAL SALE CONSIDERATION AT RS.2,28,16,02 9/ - U/SEC 45(2) AS AGAINST RS.1,61,84,861/ - IGNORING THE FACT THAT THE SALEABLE AREA OF THE SAID LAND WAS 32,049.23 SQ. METERS, AND NOT 44,314 SQ. METERS WHEN THE BUSINESS INCOME HAS BEEN COMPUTED ON THE SAID AREA OF 32,049.23 SQ. METERS BY THE SAID A.O. 1.4 WITHOUT PREJUDICE TO ABOVE, THE SAID CIT (A) ERRED IN IGNORING THE FACT THAT NOTIONAL SALE VALUE SHOULD BE RS.61,31,093/ - (2,28,16,029/44,314*11,908) BEING THE VALUE OF ACTUAL SALE OF PLOTS OF 11,908 SQ. METERS OF LAND ONLY AND NOT THE TOTAL LAND AREA OF 44,314 SQ.METRS, METERS WHEN THE BUSINESS INCOME HAS BEEN COMPUTED ON THE SAID AREA SOLD OF 11,908 SQ. METERS BY THE SAID C.I.T.(A). 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MODIFY, DELETE AND / OR CHANGE ALL OR ANY OF THE ABOVE GROUNDS ON OR BEFORE THE DATE OF HEARING. 3. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HE SHALL BE PRESSING ONLY GROUND NO.1.4. THE LD. COUNSEL FURTHER SUBMITTED THAT THERE ARE SOME MISTAKES IN THE ABOVE SAID GROUND NO.1.4 WHICH HAVE BEEN AME NDED TO READ AS UNDER: - '1.4 WITHOUT PREJUDICE TO ABOVE, THE SAID C.I.T. (A) ERRED IN IGNORING THE FACT THAT NOTIONAL SALE VALUE SHOULD BE RS. 1,41,45,938/ - (2,28,16,028 X 62 / 100) BEING THE LAND VALUE OF 62% OF THE STOCK - IN - TRADE SOLD DURING THE YEAR AN D NOT ON ENTIRE LAND CONVERTED INTO STOCK - IN - TRADE WHEN ONLY 19,908.39 SQ METERS OF PLOT AREA OUT OF 32,049.29 HAS BEEN SOLD DURING THE YEAR AND BUSINESS INCOME IS ALSO COMPUTED ON SALE OF 19,908.39 SQ. METERS OF PLOT AREA ONLY' 3.1. BRIEF FACTS OF THIS I SSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CONVERTED ITS AGRICULTURAL AND ENCOMPASSING 44,314 SQ.MTRS. AT VILLAGE DEHRI, TALUKA UMERGAON, DISTT. VALSAD, GUJARAT INTO NON - AGRICULTURAL LAND AS STOCK - IN - TRADE AFTER OBTAINING ITA NO . 6597/M UM/2019 M/S. SHAILESH T. SHAH & CO.(HUF) 3 NECESSARY APPROVALS FROM THE COMPETENT AUTHORITIES AND CARRIED OUT PLOTTING FOR INDUSTRIAL USE. THE ASSESSEE HAS THUS DERIVED INCOME FROM BUSINESS AND LONG TERM CAPITAL GAINS. IN THIS REGARD, LD. AO NOTED THAT ASSESSEE HAS STATED THAT THE HUF WHICH WAS HOLDING THE LAND AS A CAPITAL ASSET HAS CONVERTED THE LAND INTO ITS STOCK - IN - TRADE ON 01/07/2012, WITH A VIEW TO DEVELOP THE SAME BY DIVIDING THE SAME INTO DIFFERENT PLOTS AND SELLING THE SAID PLOTS AND ENGAGING INTO REAL ESTATE BUSINESS FROM THE SAID DATE. 3.2 . ASSE SSEE ALSO STATED THAT IT GOT THE MARKET VALUE REPORT OF THE SAID NON - AGRICULTURAL LAND FROM AN APPROVED VALUER WHO HAS ESTIMATED THE MARKET VALUE OF THE SAID PLOT ADMEASURING ABOUT 44,314 SQ.MTS. AS ON 01/07/2012 AT RS.2,23,78,600/ - . THE LD. AO MADE A REFE RENCE U/S.55A DATED 09/09/2015 TO THE VALUATION OFFICER. THE LD. AO NOTED THAT THE VALUATION OFFICER VIDE REPORT DATED 22/02/2016 HAS VALUED THE SAID LAND AT RS.2,21,570/ - AS ON 01/04/1981 AND RS.2,28,91,500/ - AS ON 01/07/2012. THE LD. AO FURTHER NOTED THA T T HE LD. AR VIDE ORDER SHEET NOTING DATED 01/03/2016 HAS AGREED TO ADOPT THE VALUATION FOR THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAINS. AS REGARDS TO THE COMPUTATION OF LONG TERM GAIN ON THE CONVERSION OF AGRICULTURAL LAND INTO STOCK IN TRADE, IT WAS POINTED OUT BY THE ASSESSEE THAT AS PER COLLECTOR S ORDER, 44314 SQ.MTRS OF THE LAND WAS CONVERTED INTO NON - AGRICULTURAL LAND. THAT OUT OF THIS, 9447.07 SQ.MTRS WAS TO BE USED AS ROADS - D RAINAGE PLUS 2817.70 SQ.MTS WAS TO BE USED AS COMMON PLACE I.E. LOADI NG AND UNLOADING AREA THAT WILL BE CONSIDERED AS EXTERNAL AMENITIES AT RS.61.937 LAKHS. THE LD. AO NOTED THAT WHILE COMPUTING LONG TERM CAPITAL GAIN, ASSESSEE HAS TAKEN ONLY PROPORTIONATE COST FOR THE PLOT AREA I.E. RS.161.85 LAKHS AND THE MARKET VALUE OF THAT ONLY HAS BEEN SHOWN IN THE COMPUTATION OF CAPITAL GAIN. THE LD. AO IS OF THE OPINION THAT THE ENTIRE ITA NO . 6597/M UM/2019 M/S. SHAILESH T. SHAH & CO.(HUF) 4 CHUNK OF LAND IS CONVERTED INTO NON - AGRICULTURAL LAND AND THUS, THE FAIR MARKET VALUE OF THE LAND IS TO BE TAKEN. HE WAS OF THE OPINION THAT THE VALUE OF LAND PROPORTIONATE TO ONLY SALEABLE AREA SHOULD NOT BE TAKEN FOR LTCG PURPOSE AS HE WAS OF THE OPINION THAT ROADS OF LOADING AND UNLOADING AREA IS INTEGRAL AND INSEPARABLE PART OF THE SALEABLE PLOTS. 4. THE LD. CIT(A) ALSO UPHELD THE VIEW OF THE LD. A O. NOW, ASSESSEE HAS RAISED THE GROUND AS ABOVE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. WE FIND THAT UPON CONVERSION OF AGRICULTURAL LAND INTO NON - AGRICULTURAL LAND, THE ACT MANDATES THAT FAIR MARKET VALUE OF THE SAME SHOULD BE TAKEN F OR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN ON THE DATE OF CONVERSION. IN OTHER WORDS , STOCK - IN - TRADE HAS TO BE VALUED. THE ASSESSEE BY WAY OF THIS GROUND WISHES TO CLAIM LONG TERM CAPITAL GAIN ONLY WITH REFERENCE TO SALEABLE PLOT. NOW, IT IS ADMITTED TH AT ASSESSEE WILL BE SELLING ONLY THE PLOTS . R OADS AND OTHER AREAS WILL CERTAINLY NOT BE SOLD AS SUCH BUT THEY WILL ADD TO THE PRICE WHICH THE PLOT OF LAND WILL FETCH . THE ROAD AND THE PERIPHERAL DEVELOPMENT CANNOT BE SOLD IN ISOLATION. IN FACT THEY WILL BE COMMON TO ALL THE PLOTS. HENCE, LOADING COST OF THESE AREAS ON THE SALEABLE PLOTS WOULD NO DOUBT INCREASE THE CAPITAL GAIN IN THE HANDS OF THE ASSESSEE, IT WILL GO ON TO INCREASE THE VALUE OF STOCK - IN - TRADE AND HENCE, WHEN THE PLOTS ARE SOLD, THE RESULTAN T PROFIT WILL BE SMALLER. THAT RATE OF TAXATION ON LONG TERM CAPITAL GAIN IS MUCH LOWER THAN THE TAX OF NORMAL PROFITS. IN TH IS VIEW OF THE MATTER, THE QUERY WERE RAISED TO THE LD. DEPARTMENTAL REPRESENTATIVE AS TO WHAT PREJU DICE DOES THE ASSESSEES CLAIM CAU SE TO THE REVENUE . T HE LD. DR COULD NOT OFFER ANY COGENT EXPLANATION. IN OUR CONSIDERED OPINION, THE ASSESSEE IS MAKING A CLAIM TO VALUE THE STOCK - IN - TRADE ONLY ON THE VALUE OF SALEABLE PLOTS WHICH ARE ITA NO . 6597/M UM/2019 M/S. SHAILESH T. SHAH & CO.(HUF) 5 STOCK - IN - TRADE . THE ASSESSEES CLAIM TO COMPUTE LON G TERM CAPITAL GAIN WITH REFERENCE TO SALEABLE PLOT IS REVENUE NEUTRAL IN AS MUCH AS ON THE SALE OF PLOTS AS BUSINESS INCOME THE RESULTANT INCOME WOULD BE MUCH HIGHER AND WOULD BE TAXED AT A HIGHER RATE. MOREOVER THE ROAD AND PERIPHERAL DEVELOPMENT IN ISOL ATION HAVE NO MARKET VALUE. HENCE, IN OUR CONSIDERED OPINION, THIS CLAIM OF THE ASSESSEE WOULD BE REVENUE NEUTRAL . A S HELD BY THE HONBLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRIES LTD., WHEN ON AN ISSUE THE TAX EFFECT IS NEUTRAL, THE SAME SHOULD NOT BE AGITATED. IN THIS VIEW OF THE MATTER, IN OUR CONSIDERED OPINION, THIS CLAIM OF THE ASSESSEE BY WAY OF THE GROUND RAISED ABOVE IS ALLOWABLE AND ACCORDINGLY, WE ALLOW THE SAME. THIS IS MORE SO WHEN ASSESSEE IS NOT PRESSING THE OTHER GROUNDS RELATING TO COST OF IMPROVEMENT, ETC. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS ABOVE. ORDER PRONOUNCED ON 02 / 08 /202 1 BY WAY OF PROPER MENTIONING IN THE NOTICE BOARD. SD/ - ( PAVAN KUMAR GADALE ) SD/ - ( SHAMIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 02 / 08 / 2021 KARUNA , SR.PS ITA NO . 6597/M UM/2019 M/S. SHAILESH T. SHAH & CO.(HUF) 6 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUA RD FILE. //TRUE COPY//