ITO (Central), Nashik V. Sh. Nikesh P. Shah, Nashik

ITA 848/PUN/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49920 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 16-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P R MORE
• Assessee Lawyers: V L JAIN
• Keywords: Business income; Assessment record
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO. 848/PN/2009 (ASSTT. YEAR : 2004-05) I NCOME TAX OFFICER (CENTRAL), NASHIK ... APPELLA NT 3 RD FLOOR, KENDRIYA RAJASWA BHAVAN, RAM GANESH GADKARI CHOWK, OLD AGRA ROAD, NASHIK - 422002 V. SHRI NIKESH P. SHAH RESPONDENT SUMANGAL APRT, CANADA CORNER, NASHIK APPELLANT BY : SHRI V.L. JAIN DEPARTMENT BY : SHRI P.R. MORE ORDER PER I.C. SUDHIR, JM THE REVENUE HAS QUESTIONED THE FIRST APPELLATE ORD ER WHEREBY THE LD CIT(A0 HAS TREATED THE AGRICULTURAL LANDS HELD B Y THE ASSESSEE AS INVESTMENT AND SURPLUS ON THE SALE OF THE SAME IS N OT TAXABLE AS BUSINESS INCOME. 2. THE RELEVANT FACTS ARE THAT THE ASSESSEE IN THE BUSINESS OF LAND DEVELOPMENT AND CONSTRUCTION AND ENGAGED IN PURCHAS E AND SALE OF AGRICULTURAL LAND, HAD REFLECTED THE INVESTMENT IN CURRENT ASSETS IN THE BALANCE SHEET AND DURING F.Y. 2003-04, RELEVANT TO A.Y. 2004-05 UNDER CONSIDERATION, PROFIT EARNED ON THE SALE OF AGRICUL TURAL LAND WAS NOT OFFERED TO TAX. IT WAS REFLECTED/CREDITED TO CAPIT AL ACCOUNT. THE A.O. HELD THE INCOME EARNED ON SALE OF AGRICULTURAL LAND AS ESCAPED ASSESSMENT. HE INITIATED RE-OPENING PROCEEDINGS A ND COMPLETED THE ASSESSMENT U/S. 143(3) R.W.S. 147 OF THE ACT AT RS. 14,59,974/- MAKING AN ADDITION ON ACCOUNT OF PROFIT ON SALE OF AGRICUL TURAL LAND MAINLY ON THE ITA . NO 848/PN/2009 SHRI NIKESH P. SHAH A.Y 2004-05 PAGE OF 6 2 BASIS THAT ASSESSEE IS LAND DEVELOPER. THE LD CIT (A) HAS DELETED THE ADDITION IN FAVOUR OF THE ASSESSEE ON THE BASIS THA T LAND WAS AGRICULTURAL, SITUATED BEYOND THE SPECIFIED DISTANCE OF U8 KMS. F ROM THE MUNICIPAL LIMITS AND THAT THE AGRICULTURAL INCOME OFFERED TO TAX WAS ACCEPTED BY THE A.O. THIS ACTION OF THE LD CIT(A) HAS BEEN QUESTIO NED BY THE REVENUE. 3. IN SUPPORT OF THE GROUND, THE LD. D.R. CONTENDED THAT UNDISPUTEDLY, THE ASSESSEE IS IN THE BUSINESS OF LAND DEVELOPMENT AND PURCHASE AND SALE OF AGRICULTURAL LAND. THE LAND PURCHASED ARE PART OF HIS STOCK IN TRADE. MERELY BY TREATING LAND AS CURRENT ASSET AN D BY NOT SHOWING UNDER SPECIFIC HEAD OF STOCK IN TRADE OF ASSET, DOES NOT MEAN THAT THE SAID LAND WERE NOT IN HIS STOCK, THE PROFIT EARNED ON SALE OF THIS LAND IS NOTHING BUT BUSINESS INCOME. IT IS SUBMITTED FURTHER THAT TH ERE IS NO BAR FOR EARNING OF AGRICULTURAL INCOME OF SUCH LAND LYING AS STOC K IN TRADE. HE CITED FOLLOWING DECISIONS IN SUPPORT : I) BADRILAL BHOLARAM V. CIT (1983), 139 ITR 207 (M .P) II) CIT V. JAWAHAR DEVELOPMENT ASSOCIATION (1981), 127 ITR 431 (MP) III) HEMCHAND HIRACHAND SHAH V. CIT (1994), 206 IT R 55 (GUJ.) 4. THE LD. A.R ON THE OTHER HAND TRIED TO JUSTIFY T HE FIRST APPELLATE ORDER ON THE ISSUE. HE REFERRED CHART PRODUCED BY THE LD CIT(A), AT PAGE NO. 7 OF THE FIRST APPELLATE ORDER SHOWING THAT DUR ING THE YEAR, THE ASSESSEE HAD SOLD ONLY AGRICULTURAL LAND WHICH WAS PURCHASED IN EARLIER YEARS AS AN INVESTMENT AND AGRICULTURAL INCOME EARN ING THERE-FROM SHOWN BY THE ASSESSEE IN THE LAST A.YS. HAS BEEN AC CEPTED BY THE DEPARTMENT. A PERUSAL OF THE CHART REPRODUCED BY T HE LD CIT(A) AT PAGE NO. 7 WILL SUGGEST THAT THE ASSESSEE WAS CONSISTE NTLY SHOWING THE SAID AGRICULTURAL LAND IN THE CURRENT ASSET. THE ASSESS EE HAS BOTH AGRICULTURAL LANDS AND BARREN LANDS. WHENEVER THE BARREN LANDS WERE SOLD, THEY WERE ITA . NO 848/PN/2009 SHRI NIKESH P. SHAH A.Y 2004-05 PAGE OF 6 3 OFFERED TO TAX TREATING THEM AS BUSINESS INCOME, WH EREAS THE SALE PROCEEDS OF THE AGRICULTURAL LAND WAS CREDITED TO T HE CAPITAL ACCOUNT OF THE ASSESSEE. THE LD. A.R. PLACED RELIANCE ON THE FOLLOWING DECISIONS : I) ACIT VS. KETHAN KUMAR (2000)242 ITR 83 (KER.) II) CIT VS. N.S.S. INVESTMENT (P) LTD. (2007),277 I TR 149 (MAD.) III) CIT VS. COCANADA RADHASWAMI BANK LTD. (1965),3 06 (S.C) 5. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW, AND THE DECISIONS RELIED UPON BY THE PARTIES, WE DO NOT FIN D REASON TO INTERFERE WITH THE FIRST APPELLATE ORDER ON THE ISSUE AS THE SAME IS REASONED ONE. FOR A READY REFERENCE, THE RELEVANT PARA NO. 4.3 OF THE FIRST APPELLATE ORDER IS BEING REPRODUCED HEREUNDER : 4.3 NOW THE DISPUTE IS WHETHER THE PROFIT ON SALE OF THESE AGRICULTURAL LANDS IS TAXABLE UNDER THE INCOME-TAX ACT. IT IS ALSO A FACT THAT THE APPELLANT IS IN THE REAL ESTATE BUSI NESS. THE APPELLANT SOLD THE SAID PIECES OF LANDS AND CREDITED THE SA ME TO HIS CAPITAL ACCOUNT. ON THE OTHER HAND, THE A.O. WAS OF THE OP INION THAT THE SAID AGRICULTURAL LANDS WERE PART OF HIS BUSINESS ASSETS THEREFORE THE PROFIT ARISING OUT OF THE SALE OF THESE LANDS SHOULD BE OFFERED TO TAX. A PERUSAL OF THE BALANCE SHEET ALONGWITH THE ASSESSMENT RECORDS WOULD REVEAL THAT THAT THE APPELLANT SHOWED THE FOLLOWING AGRICULTURAL LANDS. ITA . NO 848/PN/2009 SHRI NIKESH P. SHAH A.Y 2004-05 PAGE OF 6 4 A PERUSAL OF THE ABOVE CHART SHOWS THAT THE APPELL ANT WAS CONSISTENTLY SHOWING THE SAID PROPERTIES OF AGRICU LTURAL LANDS IN THE CURRENT ASSETS. THE APPELLANT HAS BOTH, AGRICULTUR AL AND BARREN LANDS. W HENEVER THE BARREN LANDS WERE SOLD THEY WERE OFFERE D TO TAX TREATING THEM AS BUSINESS INCOME. FROM THE CHAR T, IT MAY ALSO BE SEEN FROM SR. NO. 10 LAND SITUATED AT TALEGAON, DINDORI WAS SOLD AND OFFERED TO TAX BY CREDITING INTO THE PROFI T & LOSS ACCOUNT IN THE F.Y. 2005-06. WHEREAS THE SALE PROCEEDS OF THE SAID AGRICULTURAL LANDS WERE CREDITED TO THE CAPITAL AC COUNT OF THE APPELLANT. THE APPELLANT ALSO SHOWED THE AGRICULT URAL INCOME ON ACCOUNT OF THESE LANDS IN THE RETURN OF INCOME AS E XEMPT AND THESE WERE ACCEPTED BY THE A.O. EVEN IN THE RE-ASSESSMENT PROCEEDINGS. THUS, THERE IS A MISTAKE ON THE PART OF THE A.O. AS WELL AS THE APPELLANT. IF THE LAND IS A BUSINESS ASSET, THE IN COME THERE FROM SHOULD ALSO BE TREATED AS BUSINESS INCOME. SIMILAR LY, IF THE LAND IS AN INVESTMENT, IT SHOULD HAVE BEEN SHOWN AS INVESTM ENT IN THE ITA . NO 848/PN/2009 SHRI NIKESH P. SHAH A.Y 2004-05 PAGE OF 6 5 BALANCE SHEET AND SURPLUS BECOMES A CAPITAL RECEIP T AND NOT TAXABLE. FURTHER, THE APPELLANT NEVER CONSIDERED TH ESE TRANSACTIONS THROUGH THE PROFIT & LOSS ACCOUNT AS CAN BE SEEN FR OM THE RECORDS. THE SURPLUS OR DEFICIT ONLY IS REFLECTED IN THE PRO FIT & LOSS ACCOUNT WITHOUT SHOWING THE OPENING/CLOSING STOCK OF LAND. IN THE CASE OF SALE OF AGRICULTURAL LAND, THE SURPLUS WAS DIREC TLY CREDITED TO THE CAPITAL ACCOUNT. THEREFORE, THE APPELLANT HAS NOT FOLLOWED A PROPER METHOD OF ACCOUNTING. BUT FROM THE TREATMENT IN T HE BOOKS AND CONDUCT OF THE APPELLANT IT CAN REASONABLY PRESUME D THAT THE APPELLANT HELD THESE AGRICULTURAL LANDS AS INVESTME NTS AND SURPLUS ON THE SALE OF THE SAME IS NOT TAXABLE. THE NOMENC LATURE AS CURRENT ASSET IN THE BALANCE SHEET HAS LITTLE REL EVANCE PARTICULARLY WHEN THE APPELLANT IS AN INDIVIDUAL AND COMBINED A CCOUNTS ARE MAINTAINED FOR BUSINESS AND HIS PERSONAL AFFAIRS. IN VIEW OF THESE REASONS, I AM OF THE CONSIDERED OPINION THAT IT IS WRONG TO CONCLUDE THAT THE SAID PIECES OF AGRICULTURAL LANDS ARE PART OF THE BUSINESS ASSET. THEREFORE, THE ADDITION MADE BY THE A.O. IN THIS REGARD IS DELETED. 6. THE MATERIAL FACTS THAT THE AGRICULTURAL LAND IN QUESTION SITUATED BEYOND THE PRESCRIBED LIMIT OF 8 KILOMETERS FROM TH E MUNICIPAL LIMIT WAS PURCHASED IN EARLIER YEARS AS AN INVESTMENT SHOWN I N THE BALANCE SHEET AND THE AGRICULTURAL INCOME (EARNED FROM THOSE LAN D) SHOWN BY THE ASSESSEE HAS BEEN ACCEPTED BY THE REVENUE IN THE LA ST ASSESSMENT YEARS HAVE REMAINED UNREBUTTED. WE THUS DO NOT FIND INF IRMITY IN THE FIRST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD . THE GROUND IS ACCORDINGLY REJECTED. 7. IN RESULT, APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON T H JUNE 2011. SD/- SD/- ( D. KARUNAKARA RAO ) ACCOUNTANT MEMBER ( I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 30TH JUNE, 2011 ITA . NO 848/PN/2009 SHRI NIKESH P. SHAH A.Y 2004-05 PAGE OF 6 6 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-II, PUNE 4. THE CIT(A)-II, NASHIK 5. THE D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE