Sandesh Ramrao Patil, Satara V. Tax Recovery Officer,

ITA 712/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0931 (ITAT-PUNE)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 01-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Capital asset converted into stock in trade; Capital asset; Opportunity of being heard; Cost of acquisition; Reason to believe; Reassessment proceedings
• Section: 45(2); 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NO.710/PN/2016 / ASSESSMENT YEAR : 2007-08 SHRI SACHIN RAMRAO PATIL SAIDAPUR, KARAD DIST. SATARA-415110 PAN :AALHS5136M . / APPELLANT V/S TAX RECOVERY OFFICER, SATARA . / RESPONDENT . / ITA NO.711/PN/2016 / ASSESSMENT YEAR : 2007-08 SHRI SANJAY RAMRAO PATIL SAIDAPUR, KARAD DIST. SATARA-415110 PAN :AALHP5137L . / APPELLANT V/S TAX RECOVERY OFFICER, SATARA . / RESPONDENT . / ITA NO.712/PN/2016 / ASSESSMENT YEAR : 2007-08 SHRI SANDESH RAMRAO PATIL SAIDAPUR, KARAD DIST. SATARA-415110 PAN :AALHP5138F . / APPELLANT V/S TAX RECOVERY OFFICER, SATARA . / RESPONDENT / APPELLANT BY : SHRI M.K. KULKARNI / RESPONDENT BY : SHRI HITENDRA NINAWE / DATE OF HEARING :20.09.2016 / DATE OF PRONOUNCEMENT: 21 .09.2016 2 ITA NOS.710 TO 712/PN/2016 / ORDER PER R.K.PANDA, AM : THE ABOVE THREE APPEALS FILED BY THE RESPECTIVE ASSESSEE S ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 04-01-2016 OF THE CIT(A)- 2, PUNE RELATING TO A.Y. 2007-08. 2. ALTHOUGH A NUMBER OF GROUNDS HAVE BEEN TAKEN BY TH E RESPECTIVE ASSESSEES THEY ALL RELATE TO THE ORDER OF THE CIT(A) IN CONFIRMING THE TAXATION OF LONG TERM CAPITAL GAIN OF RS.12,35, 688/-IN EACH APPEAL. 3. FIRST WE TAKE UP ITA NO.710/PN/2016 IN THE CASE OF S HRI SACHIN RAMRAO PATIL AS THE LEAD CASE. FACTS OF THE CASE , IN BRIEF, ARE THAT THE ASSESSEE BELONGS TO AN AGRICULTURIST FAMILY RESID ING IN THE VILLAGE SAIDAPUR IN KARAD TALUQ. THE ANCESTRAL AGRICULTURAL LA ND IN HUF CAPACITY WAS CULTIVATED BY HIM JOINTLY WITH HIS OTHER TWO BROTHERS NAMELY SHRI SANDESH R. PATIL AND SHRI SANJAY R. PATIL AND MOTHER SMT. SHARADABAI R. PATIL. THERE WAS NO SOURCE OF INCOME OTHER THAN AGRICULTURE. IN THIS CASE, INFORMATION WAS REC EIVED FROM DIT (CIB) PUNE THAT THE ASSESSEE HAS DEPOSITED CASH OF RS.13,95,500/- IN HIS SAVINGS ACCOUNT MAINTAINED WITH THE KA RAD URBAN COOPERATIVE BANK DURING F.Y. 2006-07. ON ENQUIRY IT WAS REVEALED THAT ASSESSEE AND HIS TWO BROTHERS NAMELY SH RI SANDESH R. PATIL AND SHRI SANJAY R. PATIL HAD EXECUTED THE DEVELOPMEN T AGREEMENT IN FAVOUR OF M/S. ASHTABHUJA BUILDERS PVT. LTD. FO R DEVELOPMENT OF LAND FOR A CONSIDERATION OF RS. 52,55,000/-. T HIS AGREEMENT WAS REGISTERED IN THE OFFICE OF THE SUB-REGISTRA R, KARAD AT SL.NO.1065. IT WAS ALSO NOTICED THAT EVERY BROTHER IS 1/3 RD OWNER OF THE LAND UNDER CONSIDERATION. THE LAND IS SITUATED AT SAID APUR 3 ITA NOS.710 TO 712/PN/2016 WHICH IS UNDER THE GRAM PANCHAYAR AREA. THE TOTAL AREA OF THE LAND IS 1H 55R. INITIALLY THIS WAS AN AGRICULTURAL LAND BUT CONVE RTED INTO NON-AGRICULTURAL LAND VIDE ORDER NO.NA/SR/19/2007 DATED 1 4-07- 2006 PASSED BY SUB DIVISIONAL OFFICER, KARAD. AS PER 1/3 RD SHARE EACH BROTHER HAS RECEIVED RS.17,51,766/- OUT OF THE TOT AL SALE CONSIDERATION. SINCE THE ASSESSEE HAS NOT FILED RETURN U/ S.139(1) THE AO HAD REASON TO BELIEVE THAT LONG TERM CAPITAL GAIN HAS ESCAPED FROM ASSESSMENT FOR A.Y. 2007-08. ACCORDINGLY, THE AO ISSUE D NOTICE U/S.148 ON 23-11-2010 WHICH WAS SERVED ON THE ASSESSE E ON 25-11- 2010. SUBSEQUENTLY, THE AO COMPLETED THE ASSESSMENT U /S.143 R.W.S. 147 DATED 29-12-2011 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.7,02,355/-. 4. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT NO CAPITAL G AIN AROSE TO THE ASSESSEE SINCE THE AGRICULTURAL LAND WAS CO NVERTED INTO NON-AGRICULTURAL LAND VIDE STATUTORY PERMISSION DATED 10-0 7-2006. THIS OTHERWISE MEANS THAT THE AGRICULTURAL LAND WAS CONVE RTED INTO CAPITAL ASSET ONLY ON 10-07-2006. THEREFORE, THE COST O F ACQUISITION OF THE NON-AGRICULTURAL LAND/CAPITAL ASSET WAS THE SAME A S RECEIVABLE ON DEVELOPMENT AGREEMENT. THUS, THERE WAS NO DIFFERENCE IN THE COST OF ACQUISITION AND SALE/TRANSFER THEREOF. REFERR ING TO THE DECISION OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. GURUCHARAN SINGH REPORTED IN 292 ITR 387 AND THE DECISION IN THE CASE OF CIT VS. HOSHNAK SINGH REPORTED IN 292 ITR 390 IT WAS ARGUED THAT THE COST OF ACQUISITION WOULD HAVE TO BE TAKEN AS THE PRICE OF THE LAND ON THE DATE ON WHICH THE AGRICULTURAL LAND WAS DEEMED TO BE A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) OF THE I.T. ACT, 1961. 4 ITA NOS.710 TO 712/PN/2016 5. IT WAS ARGUED THAT IN THE INSTANT CASE THE COST O F ACQUISITION OF THE CAPITAL ASSET DEEMED TO BE SO ON THE CONVERSION OF AGRICULTURAL LAND INTO NON-AGRICULTURAL LAND/CAPITAL ASSET, THE COST OF A CQUISITION WOULD BE DEEMED TO BE THE PRICE OF THE LAND THAT IS RS.7 8,75,000/-. SINCE THIS IS THE COST OF ACQUISITION THEREFORE THERE IS NO DIFFERENCE BETWEEN THE VALUE OF THE LAND TRANSFERRED AND THE COST OF ACQUISITION DEEMED TO BE OF THE CAPITAL ASSET ON CONVERSION OF AGRICU LTURAL LAND TO NON-AGRICULTURAL LAND. NO CAPITAL GAIN IS TAXABLE U/S.45 OF THE I.T. ACT. THE ASSESSEE ACCORDINGLY ARGUED BEFORE THE CIT(A) CHALLENGING THE VALIDITY OF THE REASSESSMENT PROCEEDINGS AS WELL AS TH E COMPUTATION OF CAPITAL GAIN. 6. IN APPEAL THE LD.CIT(A) UPHELD THE VALIDITY OF REASSESSM ENT PROCEEDINGS. HE ALSO UPHELD THE ACTION OF THE AO IN BRINGIN G TO TAX THE LONG TERM CAPITAL GAIN OF RS.7,02,355/-. HE, HOWEVER, HAS NOT DECIDED THE ISSUE AS TO WHETHER THE DATE ON WHICH COST OF ACQ UISITION IS TO BE CALCULATED SHOULD BE THE COST ON THE DATE OF AC QUISITION OF THE LAND OR THE COST ON THE DATE FROM WHICH THE AGRICULTURAL LAND H AS BEEN DEEMED TO BE CAPITAL ASSET WITHIN THE MEANING OF SEC TION 2(14) FOR THE PURPOSE OF CAPITAL GAIN. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE FOLLOWING GROUNDS : (WITHOUT PREJUDICE TO EACH OTHER) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE LD. CIT(A) WAS NOT JUSTIFIED IN DISMISSING THE APPEAL OF THE ASSESSEE WH I CH DECISION IS CONTRARY TO THE PROVISIONS OF LAW. THE ORDE R OF THE LD. CIT(A) BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE LD. CIT(A) CONFIRMED THE TAXATION OF THE LONG TERM CAPI TAL GAIN OF RS.12,35,688/- DURING THE YEAR UNDER APPEAL. THE ORD ER OF THE LD. CIT(A) CONFIRMING THE ORDER OF THE A. O. AS REGARDS T AXATION OF CAPITAL GAIN BEING CONTRARY TO LAW BE SET ASIDE. 5 ITA NOS.710 TO 712/PN/2016 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF T HE A.O. WHEREIN THE CAPITAL GAIN WAS SUBJECTED TO TAX. THE LD. CIT(A) OUG HT TO HAVE CONSIDERED THE LEGAL POSITION WHEN THE CASE OF THE ASSESSE E WAS COVERED BY S. 45(2) OF THE ACT. THE ORDER OF THE LD. CIT(A) BE SET ASIDE TO THIS EFFECT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE LD. CIT(A) ERRED IN CONFIRMING ACTION TAKEN BY THE A. O . OF R EOPENING THE ASSESSMENT UNDER S. 147 OF THE ACT. THE FACTS AND LEGAL POSITIONS AS PLEADED THE ACTION INVOKED UNDER S. 147 WAS ILLEGAL AND WITHOUT JURISDICTION. THE ASSESSMENT BEING ILLEGAL BE QUASHED. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W AND IN VIEW OF THE FACT THAT NO CAPITAL GAIN AROSE FOR TAXATION DURING THE YEAR UNDER APPEAL. IN VIEW OF THIS THE ASSESSMENT OF CAPITAL GAIN I N THE YEAR UNDER APPEAL WAS BAD IN LAW. THE ASSESSMENT BE QUASHED. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE ASSESSMENT OF CAPITAL GAIN AS CONFIRMED BY CIT(A) IN APP EAL IS ILLEGAL AS THERE WAS NO DIFFERENCE BETWEEN THE COST OF ACQUISITIO N AND THE SALE CONSIDERATION. THE ORDER OF THE CIT(A), THEREFORE, B E SET ASIDE. 7. THE APPELLANT CRAVES TO LEAVE, ADD/AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE OTHER ASSESSEES. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LAND IN QUESTION WAS AN AGRICULTURAL LAND SITUATED BEYOND 8 KMS FR OM THE MUNICIPAL LIMITS AND THERE IS NO DISPUTE TO THE ABOVE FACT. THE LAND WAS CONVERTED INTO NON-AGRICULTURAL LAND VIDE STATUTORY P ERMISSION DATED 10-07-2006. THUS, THE AGRICULTURAL LAND WAS CONVER TED INTO CAPITAL ASSET ON 10-07-2006. THEREFORE, IN VIEW OF THE DE CISION OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CI T VS. GURUCHARAN SINGH (SUPRA) THE COST OF ACQUISITION WOULD HAVE TO BE TAKEN AS THE PRICE OF THE LAND ON WHICH DATE THE AGRICULT URAL LAND WAS DEEMED TO BE A CAPITAL ASSET. HOWEVER, THIS PLEA WAS NEVER RAISED BEFORE THE AO. ALTHOUGH IT WAS RAISED BEFORE THE C IT(A) HE HAS NOT DWELT UPON THIS ISSUE. HE ACCORDINGLY SUBMITTED THAT THE 6 ITA NOS.710 TO 712/PN/2016 MATTER MAY BE DECIDED IN FAVOUR OF THE ASSESSEE OR ALTER NATIVELY IT MAY BE SET ASIDE TO THE FILE OF THE AO. 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE AO S INCE THE ASSESSEE HAS NEVER RAISED SUCH PLEA BEFORE THE AO AND THE CIT(A) HAS ALSO NOT DECIDED ON THIS ISSUE. 10. AFTER HEARING BOTH THE SIDES, I FIND THE ASSESSEE IN T HE INSTANT CASE HAS SOLD AGRICULTURAL LAND ALONG WITH HIS 2 BROTHERS IN THE CAPACITY OF HUF FOR A CONSIDERATION OF RS.52,55,000/-. THE A O BROUGHT TO TAX AN AMOUNT OF RS.7,02,355/- AS LONG TERM C APITAL GAIN IN THE HANDS OF THE ASSESSEE WHICH HAS BEEN UPHELD BY THE CIT(A). IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE AGRICULTURAL LAND WAS CONVERTED INTO NON-AGRICULTURAL L AND ON 10-07-2006, THEREFORE, THE COST OF ACQUISITION IS TO BE CA LCULATED ON THE DATE FROM WHICH THE AGRICULTURAL LAND HAS BEEN DEEMED TO BE A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) OF THE I.T.A CT FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN. FOR THE ABOVE PROPOSITION, THE ASSESSEE HAS RELIED UPON THE DECISION OF H ONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. GU RUCHARAN SINGH REPORTED IN 292 ITR 387. IN THE ABOVE MENTIONED CASE, THE TRIBUNAL RELYING UPON THE JUDGMENT OF HONBLE SUPREME CO URT IN THE CASE OF CIT VS. SHIRINBAI K. KOOKA REPORTED IN 46 ITR 86 H AS HELD THAT THE VALUATION OF THE AGRICULTURAL LAND SHOULD BE TAKEN ON THE DATE WHEN IT BECAME A CAPITAL ASSET. THE RELEVANT OBSE RVATION OF THE HONBLE HIGH COURT AT PARA 4 AND 5 OF THE ORDER IS AS UNDER : 7 ITA NOS.710 TO 712/PN/2016 4. BY REJECTING THE PLEA OF THE REVENUE, THE TRIBU NAL RELIED UPON A JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT V. BAI SHIRINBAI K. KOOKA [1962] 46 ITR 86, WHEREIN IT WAS HELD THAT WHERE AN ASSESSEE WHO HELD, BY WAY OF INVESTMENT, CERTAIN SHARES IN COMP ANIES, COMMENCED A BUSINESS IN SHARES CONVERTING THE SHARE INTO STOCK-IN- TRADE OF THE BUSINESS, AND SUBSEQUENTLY SOLD THESE SHARES AT A PROFIT, IN THAT EVENTUALITY THE ASSESSEE'S ASSESSABLE PROFITS ON SALE O F THE SHARES WAS THE DIFFERENCE BETWEEN THE SALE PRICE OF THE SHARE S AND THE MARKET PRICE OF THE SHARES PREVAILING ON THE DATE WHEN THE SH ARES WERE CONVERTED INTO STOCK-IN-TRADE OF THE BUSINESS IN SHARES, AND NOT THE DIFFERENCE BETWEEN THE SALE PRICE AND THE PRICE AT W HICH THE SHARES WERE ORIGINALLY PURCHASED BY THE ASSESSEE. NO JUDGMENT T AKING A CONTRARY VIEW HAS BEEN CITED BEFORE US. IN THE PRESENT CASE ALSO BY AMENDMENT IN THE ACT, AGRICULTURAL LAND BECAME A CA PITAL ASSET ON THE SALE OF WHICH CAPITAL GAIN TAX BECAME EXIGIBLE, SO A PPLYING THE PRINCIPLES OF LAW LAID DOWN IN BAI SHIRINBAI K. KOOKA ( SUPRA ), THE DATE OF VALUATION OF THE CAPITAL ASSET WILL BE THE DATE WHEN THE AGRICU LTURAL LAND BECAME CAPITAL ASSET. 5. IN VIEW OF OUR ABOVE DISCUSSIONS WE ARE OF THE VIEW THAT THE TRIBUNAL WAS RIGHT IN TAKING THE VIEW THAT VALUATION OF LAND SHOULD BE TAKEN ON THE DATE WHEN IT BECAME A CAPITAL ASSET. 11. ALTHOUGH THE ABOVE DECISION WAS CITED BEFORE THE CIT (A), I FIND THE LD.CIT(A) HAS NOT DWELT UPON THIS ISSUE AND HAS NOT C OMMENTED UPON AS TO WHETHER THE VALUATION OF THE CAPITAL ASSET, I .E. THE AGRICULTURAL LAND IN THE INSTANT CASE, WILL BE THE DATE WHEN THE AGRICULTURAL LAND BECAME CAPITAL ASSET OR THE COST ON THE DATE OF THE ACQUISITION OF THE LAND. FURTHER, THIS PLEA WAS ALSO NOT TA KEN BY THE ASSESSEE BEFORE THE AO DURING THE ASSESSMENT PROCEEDIN GS. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AND IN T HE INTEREST OF JUSTICE, I DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. I HOLD AND DIRECT ACCORDINGLY. GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 12. IDENTICAL GROUNDS HAVE BEEN TAKEN BY SHRI SANJAY R . PATIL IN ITA NO.711/PN/2016 AND SHRI SANDESH R. PATIL IN ITA NO.712/PN/2016. SINCE FACTS ARE IDENTICAL, THEREFORE, FOLLOWING THE 8 ITA NOS.710 TO 712/PN/2016 REASONINGS GIVEN IN ITA NO.710/PN/2016 IN THE CASE OF SHR I SACHIN R. PATIL THE GROUNDS RAISED BY THE RESPECTIVE ASSESSEES ARE ALSO ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, ALL THE 3 APPEALS FILED BY THE RESPECTIVE ASSESSEES ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21-09-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED : 21 ST SEPTEMBER, 2016. '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // $ % // TRUE COPY // &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - 2 , PUNE 4. THE CIT-2, PUNE 5. $ %%* , * , SMC BENCH / DR, ITAT, SMC BENCH PUNE; 6. 2 / GUARD FILE.