ITO, Ward 8(1), Pune V. Shri Balkawade Sadanand Dhanaji, Pune

ITA 686/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85111 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 18-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Cost of acquisition; Assessment record
• Section: 143(3); 50C; 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.686/PN/2013 (ASSESSMENT YEAR: 2008-09) THE INCOME TAX OFFICER, WARD 8(1) . APPELLANT VS. SHRI BALKAWADE SADANAND DHANAJI KUMBHARWADI, BEHIND SHIVAJI STATUE, PIMPRIGAON, PUNE 411017 PAN: AKMPB9590J . RESPONDENT APPELLANT BY : SHRI B.C. MALAKAR RESPONDENT BY : SHRI KISHORE PHADKE DATE OF HEARING : 10-10-2014 DATE OF PRONOUNCEMENT : 30-10-2014 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A )-V, PUNE DATED 13.12.2012 RELATING TO ASSESSMENT YEAR 2008- 09 IS AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN HOLDING PROFIT ON SA LE OF RIGHTS IN LAND AS 'BUSINESS INCOME ' AS AGAINST THE ACTION OF THE A.O. TO TREAT THE SAME AS 'CAPITAL GAIN' WHEN THE TRANSA CTION RELATING TO PURCHASE AND SALE OF LAND ARE NOT REFLECTED IN THE BOOKS OF ACCOUNTS PARTICULARLY WHEN THE SAME IS CLAIMED AS 'BU SINESS TRANSACTION'. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN CONSIDERING THE PLEA OF THE ASSESSEE TAKEN DURING APPELLATE PROCEEDINGS THAT PROF IT ON SALE OF RIGHTS IN LAND IS 'BUSINESS INCOME' WITHOUT GIVIN G AN OPPORTUNITY TO THE A.O. AS PROVIDED UNDER RULE 46A OF THE IT RULES 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN CONSIDERING OFFI CE EXPENSES OF RS. 1,88,122/- AS WELL AS PROVISION FOR COMPENSATION TO L ITIGANTS ITA NO.686/PN/2013 SHRI BALKAWADE SADANAND DHANAJI 2 WHEN THE EXPENSES WERE NOT AT ALL DEBITED TO THE P&L A /C OF THE ASSESSEE. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL 3. THE ONLY ISSUE RAISED BY THE REVENUE IS THE ASSESSA BILITY OF PROFIT ON SALE OF RIGHTS IN LAND WHETHER TO BE ASSESSED AS BUSINESS INCOME OR AS CAPITAL GAIN. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE E NTERED INTO A DEVELOPMENT AGREEMENT IN RESPECT OF LAND AT S.NO.73, MOUJ E RAHATANI (KALEWADI), TAL. HAVELI, PUNE FOR CONSIDERATION OF RS.44,00,000/- ON 13.12.2007. ON 03.03.2008, THE SAID LAND WAS SOLD FOR RS.1,05,00,000/-. THE MARKET VALUE OF THE LAND AS OF THE D ATE OF SALE WAS RS.1,44,11,152/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS THE ASSESSEE HAD ENTERED INTO A DEVELOPMENT AGREEMENT FOR CONSIDERATION WHICH WAS LESS THAN MARKET VALUE OF THE PRO PERTY, THE PROVISIONS OF SECTION 50C OF THE ACT WERE ATTRACTED IN TH E TRANSACTION. THE ASSESSEE AND OTHER TWO PERSONS WERE INVOLVED IN TH E TRANSACTION. THEREFORE, THE ASSESSEES SHARE WAS TAKEN AT RS.48,03,7 17/- IN THE SALE VALUE AND IN THE COST OF ACQUISITION, THE ASSESSEES SHARE WAS COMPUTED AT RS.22,00,000/-. THE INCOME FROM SHORT TERM CAPITAL GAIN OF RS.26,03,717/- WAS ADDED IN THE HANDS OF THE ASSESSEE AND AS THE SAME WAS NOT DISCLOSED BY THE ASSESSEE AND THE SAME W AS HELD TO BE CONCEALED INCOME OF THE ASSESSEE. 5. BEFORE THE CIT(A), THE ASSESSEE EXPLAINED THAT IT HAD E NTERED INTO A DEVELOPMENT AGREEMENT WITH THE INTENTION TO DEVELOP TH E PROPERTY AND THE SAID PROPERTY WAS NEVER INTENDED FOR SELF USE OR AS AN INVESTMENT. IT WAS FURTHER EXPLAINED BY THE ASSESSEE B EFORE THE CIT(A) THAT THE PROPERTY WAS TRANSFERRED MERELY BECAUSE THE RE WAS LITIGATION ITA NO.686/PN/2013 SHRI BALKAWADE SADANAND DHANAJI 3 INVOLVED AND AS THE INITIAL TRANSACTION WAS THE BUSINESS TR ANSACTION, THE INCOME GENERATED FROM THE SAME WAS BUSINESS INCOME AND COULD NOT BE TREATED AS INCOME FROM CAPITAL GAIN. THE ASSESSEE ALSO EXPLAINED THAT HE WAS ENGAGED IN THE BUSINESS OF REAL EST ATE TRANSACTIONS AS WELL AS COMMISSION AGENT AND FILED THE COPIE S OF THE INCOME TAX RETURNS RELATING TO ASSESSMENT YEARS 2007-0 8 TO 2009-10. THE CIT(A) NOTED THAT THE NATURE OF BUSINESS OF THE ASSE SSEE WAS CIVIL CONTRACTOR AS WELL AS COMMISSION AGENT AS APPARENT FROM THE ASSESSMENT ORDER AS WELL AS THE RETURN OF INCOME FILED FOR ASSESSMENT YEARS 2007-08 TO 2009-10. THE CIT(A) THUS, HELD THAT TH E LAND TRANSACTION CARRIED OUT BY THE ASSESSEE WAS IN THE LINE OF BUSINESS OF THE ASSESSEE AND THE FINDING OF THE ASSESSING OFFICER THAT THE INCOME FROM THE SAME WAS CAPITAL GAIN WAS NOT JUSTIFIED. HOWEVER, WHILE COMPUTING THE INCOME IN THE HANDS OF ASSESSEE, THE CIT(A) UNDER PARA 11 OF THE APPELLATE ORDER HAS FAILED TO INCLUDE THE SAID INCO ME IN THE HANDS OF ASSESSEE. 6. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE CIT(A). THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE DREW OUR ATTENTION TO THE COMPUTATION OF INCOME PLACED AT PAGE 2 OF THE PAPER BOOK AND POINTED OUT THAT IN THE ORIGINAL RETURN OF INCOME FILED BY THE ASSESSEE, NO SUCH INCOME WAS DECLARED BY THE ASSESSEE . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT EVEN IN THE PROFIT & LOSS ACCOUNT AND THE BALANCE SHEET PLACED AT PAGES 4 & 5 OF THE PAPER BOOK FILED BY THE REVENUE, THE SAID TRANSA CTION WAS NOT DECLARED. IT WAS POINTED OUT BY THE LEARNED DEPARTMENT AL REPRESENTATIVE FOR THE REVENUE IN THE REVISED COMPUTATIO N OF INCOME PLACED AT PAGES 34 & 35 OF THE PAPER BOOK, THE ASSESSE E HAD DECLARED INCOME FROM SHORT TERM CAPITAL GAIN ON THE SALE OF THE SAID PLOT AND ITA NO.686/PN/2013 SHRI BALKAWADE SADANAND DHANAJI 4 THE ASSESSING OFFICER HAD ACCEPTED THE SAME AND ASSESSE D THE INCOME IN THE HANDS OF THE ASSESSEE. HOWEVER, THE PROVISIONS OF SECTION 50C OF THE ACT WERE APPLIED AS THE SALE CONSIDERATION SHOWN B Y THE ASSESSEE WAS ON THE LOWER SIDE. 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSE SSEE ON THE OTHER HAND, REFERRED TO THE PROFIT & LOSS ACCOUNT PLACED AT PAGE 10 AND BALANCE SHEET AT PAGE 11 OF THE PAPER BOOK FILED BY THE ASSESSEE AND POINTED OUT THAT IN THE SAID PROFIT & LOSS ACCOUNT, T HE SALE OF THE LAND HAS BEEN DECLARED AND NET PROFIT EARNED BY THE AS SESSEE WAS SIMILAR TO THE PROFIT SHOWN IN THE ORIGINAL PROFIT & LOSS ACC OUNT FILED ALONG WITH THE RETURN OF INCOME. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT THE COM PUTATION OF INCOME REFERRED TO BY THE LEARNED DEPARTMENTAL REPRESEN TATIVE FOR THE REVENUE IS NOT SIGNED THOUGH AVAILABLE IN THE ASSESSMENT RECORDS. IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIV E FOR THE ASSESSEE THAT THOUGH THE DEVELOPMENT AGREEMENT WAS E XECUTED, BUT NO AMOUNT WAS PAID AND FURTHER, THE ASSESSEE DID NOT HA VE THE FUNDS TO PURCHASE THE SAID RIGHTS AND MONEY WAS PAID TO THE SELLER ONLY ON RECEIPT OF THE SALE OF RIGHTS BY THE ASSESSEE. IT WAS FU RTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE THAT THE ASSESSEE PURCHASED DEVELOPMENT RIGHTS AND NOT LAND & B UILDING AND THIS SORT OF TRANSACTION WAS BUSINESS ARRANGEMENT. WITHO UT PREJUDICE TO THE SAME, THE LEARNED AUTHORIZED REPRESENTATIVE FOR T HE ASSESSEE POINTED OUT THAT THE ISSUE ARISING IN THE PRESENT APPEAL IS WHETHER THE PROVISIONS OF SECTION 50C OF THE ACT COULD BE INVOKED. RELIA NCE WAS PLACED ON THE DECISION IN THE CASE OF CIT VS. THIRUVENGADA M INVESTMENTS P. LTD. (2010) 320 ITR 345 (MAD). ITA NO.686/PN/2013 SHRI BALKAWADE SADANAND DHANAJI 5 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO T HE ASSESSABILITY OF THE SALE PROCEEDS RECEIVED BY THE ASSESS EE ON ACCOUNT OF SALE OF DEVELOPMENT RIGHTS. THE ASSESSEE WAS A CIVIL CON TRACTOR AND WAS ALSO EARNING INCOME AS COMMISSION AGENT. DURING THE FIN ANCIAL YEAR 2006-07, THE ASSESSEE HAD RECEIVED COMMISSION OF RS .8,47,172/- AND DURING THE FINANCIAL YEAR 2008-09, THE ASSESSEE HAD R ECEIVED A COMMISSION OF RS.4,99,000/- WHICH HAD BEEN DECLARED IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEARS, AS NOTED B Y THE CIT(A) VIDE PARA 8 OF THE APPELLATE ORDER. DURING THE YEAR UNDE R CONSIDERATION, THE ASSESSEE HAD ENTERED INTO A DEVELOPME NT AGREEMENT ALONG WITH SHRI SAMEER MORESHWAR MHASULKAR AND SHRI SHAR AD S. KOKATE IN RESPECT OF LAND AT SR.NO.73, HISSA NO.2B AT MAUJ E RAHATNI (KALEWADI), TAL HAVELI, DIST. PUNE FOR A TOTAL CONSIDERATION OF RS.44,00,000/-. THE SAID AGREEMENT WAS EXECUTED ON 13.0 2.2007. THEREAFTER, THE LAND RIGHTS WERE SOLD TO ONE SHRI RATNANI FOR A TOTAL SALE CONSIDERATION OF RS.1,05,00,000/-. THE PLEA OF THE ASS ESSEE IN THIS REGARD WAS THAT THE TITLE OF THE SAID PROPERTY WAS DISPUTED AND THE SAME WAS TRANSFERRED TO ANOTHER BUYER. THE ASSESSEE S SHARE IN THE SAID TRANSACTION WAS 1/3 RD I.E. SALE PRICE OF RS.35,00,000/- BEING ASSESSEES SHARE AND COST OF THE ACQUISITION OF THE SAID PROPERTY WAS RS.22,00,000/-. 9. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION T O THE ASSESSABILITY OF THE GAIN ARISING ON THE SALE OF SAID DEVELOPM ENT RIGHTS. THE FIRST ASPECT OF THE ISSUE RAISED WAS WHETHER THE SAID GAIN WAS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR UND ER THE HEAD INCOME FROM SHORT TERM CAPITAL GAIN. THE SECOND ASPECT OF THE ISSUE WAS WHETHER WHILE ASSESSING THE INCOME UNDER THE HEAD INCOME FROM ITA NO.686/PN/2013 SHRI BALKAWADE SADANAND DHANAJI 6 SHORT TERM CAPITAL GAIN, THE PROVISIONS OF SECTION 50C OF T HE ACT ARE APPLICABLE. AS POINTED OUT IN THE PARAS HEREIN ABOVE, THE ASSESSEE HAD ENTERED INTO DEVELOPMENT AGREEMENT WITH SHRI SAMEER MOR ESHWAR MHASULKAR AND SHRI SHARAD S. KOKATE IN RESPECT OF LAND AT SR.NO.73, HISSA NO.2B AT MAUJE RAHATNI (KALEWADI), TAL HAVELI, DIST. PUN E FOR A TOTAL CONSIDERATION OF RS.44,00,000/- ON 13.12.2007. THE SAID LAND RIGHTS WERE SOLD TO SHRI RATNANI FOR A TOTAL CONSIDERATIO N OF RS.1,05,00,000/- AS THE TITLE DEEDS OF THE SAID PROPERTY W ERE DISPUTED. THE ASSESSEE HAD CLAIMED VARIOUS EXPENSES AND OFFERED INC OME OF RS.1,75,695/- UNDER THE CHAPTER E I.E. INCOME FROM CAPITAL G AIN ARISING ON THE TRANSFER OF CAPITAL ASSET. 10. THE TERM CAPITAL ASSET IS DEFINED UNDER SECTION 2(14 ) OF THE ACT TO INCLUDE PROPERTY OF ANY KIND HELD BY THE ASSESSEE WHE THER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION. THE DEFINITION OF CAPITAL ASSET IS INCLUSIVE DEFINITION BUT CERTAIN EXCLUSIONS ARE PROVI DED WITHIN THE SUB-SECTION ITSELF. THE EXPLANATION TO SECTION 2(14) OF T HE ACT CLARIFIES THAT THE PROPERTY INCLUDES AND SHALL BE DEEMED TO HAVE BEEN INCLUDED THE RIGHTS IN OR IN RELATION TO ANY INDIAN COMPAN Y. THE WORD TRANSFER IS ALSO DEFINED UNDER THE ACT UNDER SECTION 2(47 ) OF THE ACT AND INCLUDES SALE, EXCHANGE, RELINQUISHMENT OF AN ASSET OR THE EXTINGUISHMENT OF ANY RIGHTS THEREIN OR THE COMPULSORY AC QUISITION THEREOF UNDER ANY LAW. 11. UNDER THE PROVISIONS OF SECTION 50C OF THE ACT WHICH IS A SPECIAL PROVISION IN RELATION TO THE FULL VALUE OF CONSIDERATION IN CERT AIN CASES, IT IS PROVIDED THAT WHERE THE CONSIDERATION IS RECEIVED O R ACCRUING, AS RESULT OF TRANSFER OF A CAPITAL ASSET, BEING LAND OR BUILDING O R BOTH, IS LESS THAN THE VALUE ADOPTED OR ASSESSED BY THE STATE GOVERNMENT ITA NO.686/PN/2013 SHRI BALKAWADE SADANAND DHANAJI 7 AUTHORITY, FOR THE PURPOSE OF PAYMENT OF STAMP DUTY, THEN , THE VALUE SO ADOPTED OR ASSESSED, SHALL FOR THE PURPOSE OF SECTION 48 OF THE ACT, BE DEEMED TO BE FULL VALUE OF CONSIDERATION RECEIVED OR A CCRUING, AS A RESULT OF SUCH TRANSFER. THE PROVISIONS OF SECTION 50C OF T HE ACT ARE ATTRACTED WHERE THERE IS A TRANSFER OF CAPITAL ASSET BE ING LAND OR BUILDING OR BOTH. IN THE FACTS OF THE PRESENT CASE BEFORE US, THE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR THE DEVELOP MENT OF THE PROPERTY. BY WAY OF THE SAID AGREEMENT, THE ASSESSEE HAD SOME RIGHTS IN THE PROPERTY AND THE EXTINGUISHMENT OF THE SAID RIGHTS GIVE RISE TO THE TRANSFER OF THE ASSET IN THE HANDS OF THE ASSESSEE AND SUCH TRANSFER IS ASSESSABLE AS INCOME FROM CAPITAL GAIN IN THE HA NDS OF THE ASSESSEE. HOWEVER, THE PROVISIONS OF SECTION 50C OF THE A CT ARE NOT APPLICABLE AS THE SAME ARE TO BE APPLIED ONLY WHERE THER E IS TRANSFER OF LAND OR BUILDING OR BOTH. IN THE CASE OF THE ASSESSEE, T HERE WERE ONLY DEVELOPMENT RIGHTS IN THE SAID LAND AVAILABLE TO THE ASSESS EE AND SUCH TRANSFER OF DEVELOPMENT RIGHTS DOES NOT ESTABLISH THE CAS E OF THE REVENUE THAT IT AMOUNTS OF TRANSFER OF LAND OR BUILDING O R BOTH. THE PROVISIONS OF SECTION 50C OF THE ACT ARE ATTRACTED IN SPE CIFIC CASES AND ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN VIEW THEREOF, WE HOLD THAT THE INCOME ARISING IN THE HANDS OF THE ASSESSEE ON SALE OF DEVELOPMENT RIGHTS BY ADOPTING THE SALE PRICE AT RS.1,05,00 ,000/- AND ADOPTING COST PRICE OF RS.44,00,000/- IS TO BE COMPUTED IN THE HANDS OF THE ASSESSEE TO THE PROPORTION OF HIS SHAREHOLDING. WE DIRECT THE ASSESSING OFFICER TO COMPUTE AND INCLUDE THE SAME IN THE H ANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM SHORT TERM CAPITAL GAIN. 12. THE CIT(A) UNDER PARA 8 HELD THAT THE SAID TRANSACT ION IS TO BE TREATED AS IN THE NATURE OF BUSINESS OF THE ASSESSEE. H OWEVER, WHILE COMPUTING THE INCOME UNDER PARA 11 OF THE APPELLATE ORDE R, BY ERROR ITA NO.686/PN/2013 SHRI BALKAWADE SADANAND DHANAJI 8 FAILED TO INCLUDE THE INCOME FROM BUSINESS IN THE HANDS OF TH E ASSESSEE. FURTHER, THE EXPENSES CLAIMED BY THE ASSES SEE I.E. OFFICE ESTABLISHMENT EXPENSES, PROVISION FOR COMPENSATION TO LITIGA TION AS HELD BY THE CIT(A) UNDER PARA 11 ARE NOT TO BE ALLOWED A S EXPENSES. WE FIND NO MERIT IN THE GROUNDS OF APPEAL RAISED BY THE R EVENUE IN THIS REGARD AS THE PROVISION FOR COMPENSATION TO LITIGANTS HAVE NOT BEEN ALLOWED BY THE CIT(A). 13. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE FAIRLY ADMITTED THAT THERE IS AN ERROR IN THE ORDER OF CIT(A) W HILE COMPUTING THE INCOME IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE INCOME IN LINE WITH OUR DIRECTIONS. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE PARTLY ALLOWED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF OCTOBER, 2014. SD/- SD/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH OCTOBER, 2014. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE DEPARTMENT; 2) THE ASSESSEE; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE