Purshotttam Mukunddas Lohia, Pune V. DCIT, Pune

ITA 944/PUN/2010

• Counselvise Citation: 94424514 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 28-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS ANN KAPTHUAMA
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Cost of acquisition; Fair market value
• Section: 143(3); 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 944/PN/10 (ASSTT. YEAR: 2006-07) SHRI PURUSHOTTM MUKUNDDAS LOHIA, .. APPELLANT 157 MUKUNDNAGAR, PUNE 411 037, PAN AAFPL4913Q VS. DY. COMMISSIONER OF INCOME-TAX, .. RESPONDENT CIR. 2, PUNE APPELLANT BY : SHRI KISHOR PHADKE RESPONDENT BY : MRS ANN KAPTHUAMA DATE OF HEARING : 07.02.2 012 DATE OF PRONOUNCEMENT : 28.03 .2012 ORDER PER G.S. PANNU, A.M .: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER O F THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, PUNE DATED 19. 04.2010 WHICH, IN TURN, HAS ARISEN FROM ORDER PASSED BY THE ASSESSING OFFICER , UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2006-07. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS FOLLOWS: 1. THE LD CIT(A)-II, PUNE ERRED IN LAW AND ON FACT S IN SUSTAINING THE LD AOS ACTION OF ADOPTING STAMP DUTY VALUE OF MOHAMMADWAI PROPERTY AT RS 89.66 LACS AS THE SALES CONSIDERATION OF DHANORI PROPERTY EXCHANGED BY THE ASSESSEE. 2. THE LD CIT(A)-II, PUNE ERRED IN NOT APPRECIATING THAT THE SAID EXCHANGE TRANSACTION WAS LEADING TO BUSINESS INCOME FOR THE APPELLANT AND NOT CAPITAL GAINS. 3. ALTERNATIVELY, THE LD CIT(A)-II, PUNE ERRED IN N OT APPRECIATING THAT THE ALLEGED DIFFERENTIAL CONSIDERATION OF RS 33.80 LACS (I.E. R S 89.66 LACS LESS RS 55.86 LACS) REPRESENTS A BUSINESS LOSS ALLOWABLE AS A DED UCTION TO THE APPELLANT IPSO FACTO. 4. THE LD CIT(A)-II, PUNE ERRED ON FACTS N OT DEALI NG WITH THE ADDITIONAL ALTERNATE GROUND OF APPEAL RAISED DURING THE COURSE OF APPEAL AND REITERATED BY IN THE APPELLANT ORDER AS SUCH AT THE 4 TH PARA ON PAGE NO. 5 OF THE APPELLATE ORDER. 3. BRIEFLY PUT THE FACTS GIVING RISE TO THE CAPTIONED APPEAL CAN BE SUMMARIZED AS FOLLOWS. THE ASSESSEE IS AN INDIVIDUAL ENGA GED IN THE BUSINESS OF LAND TRADING, PROMOTERS AND BUILDERS, AND FO R THE ASSESSMENT YEAR UNDER CONSIDERATION IT FILED A RETURN OF INCOME DECLARI NG TOTAL INCOME OF RS 68,11,550/-. THE ASSESSING OFFICER NOTICED THAT THE ASSE SSEE ACQUIRED DEVELOPMENT RIGHTS IN RESPECT OF A LAND SITUATED AT DHA NORI, PUNE IN TERMS OF A PURCHASE AGREEMENT DATED 21.5.2005 FOR A TOTAL CONSID ERATION OF RS 55,86,660/-. SUBSEQUENTLY, VIDE ANOTHER PURCHASE AGREE MENT DATED 25.5.2005 THE ASSESSEE ACQUIRED DEVELOPMENT RIGHTS IN RESPECT OF ANO THER PROPERTY LOCATED AT VILLAGE MOHAMMEDWADI, PUNE. THE CONSIDERATI ON PAID FOR ACQUIRING THE DEVELOPMENT RIGHTS IN RESPECT OF THE PROPERTY AT MOHAMMEDWADI, PUNE WAS DISCHARGED BY TRANSFERRING THE RIGHTS IN RESPECT OF T HE LAND AT DHANORI, PUNE TO THE SELLER OF LAND AT MOHAMMEDWADI, NAMELY SAHARA INDIA COMMERCIAL CORPORATION LTD. THE LAND AT VILLAGE MOHA MMEDWADI, PUNE WAS VALUED AT RS 89,90,000/- BY THE STAMP VALUATION AUTH ORITY FOR THE PURPOSES OF THE PAYMENT OF STAMP DUTY. ACCORDINGLY, AS PER THE ASS ESSING OFFICER, THE PROFIT OF RS 34,03,340/- (I.E. RS 89,90,000 MINUS 55, 86,660/-) RESULTED IN THE HANDS OF THE ASSESSEE AS A RESULT OF THE EXCHANGE/TRANSFER OF THE PROPERTY LOCATED AT DHANORI, PUNE. HOWEVER, NO INCOME ON ACCOUNT OF THE TRANSFER OF DHANORI PROPERTY WAS DECLARED BY THE ASSESSEE IN HIS RETU RN OF INCOME. ON BEING SHOW-CAUSED, ASSESSEE EXPLAINED THAT THE DEVELOPMENT RIGHTS IN RESPECT OF DHANORI LAND OWNED BY HIM WAS EXCHANGED AGAI NST THE RIGHTS OF MOHAMMEDWADI LAND AND, THERE WAS NO MONETARY CONSIDERA TION RECEIVED AND THUS NO INCOME ACCRUED TO THE ASSESSEE IN THIS TRANSACTION. THE ASSESSEE ALSO EXPLAINED BEFORE THE ASSESSING OFFICER THAT THE PRO PERTY AT VILLAGE MOHAMMEDWADI WAS ALSO TRANSFERRED BY THE ASSESSEE IN THE SUBSEQUENT ASSESSMENT YEAR AND THE SURPLUS ON SUCH TRANSFER WAS DECLARED AS BUSINESS INCOME IN THE SUBSEQUENT ASSESSMENT YEAR OF 2007-08. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND ASSESSED THE DIFFERENCE OF RS 34,03,340/- AS BUSINESS INCOME ACCRUING A S A RESULT OF THE TRANSFER OF THE PROPERTY AT DHANORI, PUNE. THE ASSESSEE CONTESTED THE ADDITION BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). 4. IN APPEAL, FIRSTLY IT WAS CONTENDED THAT THERE WAS N O MONETARY CONSIDERATION RECEIVED AGAINST THE TRANSFER OF DHANORI LAND AND THEREFORE NO INCOME WAS ASSESSABLE IN THE HANDS OF THE ASSESSEE. SECONDLY, IT WAS CONTENDED THAT THE ASSESSING OFFICER HAS MADE THE ADDITI ON ON THE LINES OF THE PROVISIONS CONTAINED IN SECTION 50C OF THE ACT BY TREATIN G THE VALUE ASSESSED FOR STAMP DUTY PURPOSES OF THE PROPERTY AT MOHAMMEDWAD I, PUNE AS THE CONSIDERATION, WHICH WAS WRONG INASMUCH AS SECTION 50C WAS A PPLICABLE ONLY FOR COMPUTATION OF A CAPITAL GAIN WHEREAS IN THE CASE O F THE ASSESSEE THE SURPLUS FROM THE LAND WAS LIABLE TO BE TREATED AS BUSINE SS INCOME, AS HAD BEEN DECLARED BY THE ASSESSEE IN THE SUBSEQUENT ASSESSMENT YE AR. THIRDLY, IT WAS CONTENDED THAT IN THE SUBSEQUENT ASSESSMENT YEAR ASSESSEE H AD TRANSFERRED THE DEVELOPMENT RIGHTS IN RESPECT OF THE LAND AT MOHAMMEDWADI, PUNE AND FOR COMPUTING THE SURPLUS THEREOF, THE ASSESSEE HAD CONSIDERED THE COST OF ACQUISITION AT RS 55,86,660/- ONLY, I.E. THE COST OF ACQUIRING THE DEVELOPMENT RIGHTS OF DHANORI LAND AND, THEREFORE, T HERE WAS NO INCOME ASSESSABLE IN THE INSTANT ASSESSMENT YEAR. IN THE ALTERNAT IVE, IT WAS ALSO CONTENDED THAT IF THE IMPUGNED ADDITION WAS MAINTAINE D, THEN ASSESSEE BE PERMITTED TO SUBSTITUTE THE COST OF RS 89,66,200/- IN ORDER TO COMPUTE THE SURPLUS ON SALE OF MOHAMMEDWADI LAND IN THE ASSESSMENT YE AR 2007-08. 5. THE AFORESAID SUBMISSIONS OF THE ASSESSEE HAVE NOT FOUN D FAVOUR WITH THE COMMISSIONER OF INCOME-TAX (APPEALS). AS PER THE COMMISSIONER OF INCOME-TAX (APPEALS), ON THE SALE OF DHANORI LAND, THE ASSESSEE HAD RECEIVED THE SALE CONSIDERATION IN THE SHAPE OF DEVELOPMENT RIGH TS OF LAND AT MOHAMMEDWADI OF WHICH THE FAIR MARKET VALUE DETERMINE D BY THE STAMP DUTY AUTHORITIES WAS RS 89,90,000/-, AND THAT THE SAME WAS LI ABLE TO BE TREATED AS THE CONSIDERATION RECEIVED FOR THE PURPOSES OF COMPUTING THE SURPLUS ON TRANSFER OF THE DHANORI LAND. ACCORDING TO THE COMMI SSIONER OF INCOME-TAX (APPEALS) IT WAS A CASE WHERE THE SALE CONSIDERATION IS N OT RECEIVED IN CASH BUT HAS BEEN EFFECTUATED IN KIND. SINCE THE ASSESSEE WAS IN THE BUSINESS OF LAND TRADING, THE PROFIT ACCRUING ON THE TRANSFER OF DHANORI LAND HAS BEEN RIGHTLY ASSESSED AS BUSINESS INCOME. TO THE PLEA OF THE ASSE SSEE THAT NO INCOME ACCRUED AS NO CONSIDERATION WAS RECEIVED IN CASH FOR T HE TRANSFER OF THE DHANORI LAND, THE COMMISSIONER OF INCOME-TAX (APP EALS) DISAGREED WITH THE SAME AND FOLLOWING THE RATIO LAID DOWN BY THE HO NBLE SUPREME COURT IN THE CASE OF ORIENT TRAINING CO. LTD. V. CIT 224 ITR 3 71 (SC). IN NUTSHELL, AS PER THE COMMISSIONER OF INCOME-TAX (APPEALS), AGAINST T HE TRANSFER OF DHANORI LAND, ASSESSEE HAD ACQUIRED THE LAND AT MOHAMMEDWADI W HICH RESULTED IN A PROFIT IN THE HANDS OF THE ASSESSEE, AND THE SAME WAS LI ABLE TO BE TAXED. ACCORDINGLY THE ORDER OF THE ASSESSING OFFICER HAS BEEN UP HELD ON THIS COUNT. 6. NOT BEING SATISFIED BY THE ORDER OF THE COMMISSIONE R OF INCOME-TAX (APPEALS), ASSESSEE IS IN FURTHER APPEAL BEFORE JUS. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DHANORI LAND WAS A BUSINESS ASSET INASMUCH AS THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF P ROMOTER AND DEVELOPERS AND THEREFORE, THE TRANSACTION WAS NOT L IABLE TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS. IT IS POINTED OUT THAT B Y TREATING THE VALUE OF MOHAMMEDWADI LAND ASSESSED FOR THE PURPOSES OF PAYMENT OF STAMP DUTY AS THE CONSIDERATION, IS ERRONEOUS SINCE SECTION 50C WAS APPLICA BLE TO THE COMPUTATION OF CAPITAL GAIN ON TRANSFER OF A CAPITAL ASSET UNLIKE THE CASE OF THE ASSESSEE WHEREIN THE TRANSFER RELATES TO A BUSINESS ASSET. IT IS FURTHER POINTED OUT THAT EVEN IF THE PROFIT IS TO BE QUANTIFIED ON T HE TRANSFER OF DHANORI LAND, IT SHOULD BE DONE IN RELATION TO THE MARKET VALUE OF THE PROPERTY RECEIVED IN EXCHANGE AND NOT WITH REFERENCE TO THE VALUE ASSESSED FO R THE STAMP DUTY PURPOSES. NOTWITHSTANDING THE AFORESAID, IT IS SUBMITT ED THAT SINCE THE PROFIT ON SALE OF THE LAND AT VILLAGE MOHAMMEDWADI HAS BEEN OFFERED TO TAX IN THE SUBSEQUENT YEAR AS BUSINESS INCOME AFTER TREATING THE COST OF ACQUISITION AT RS 55,86,660/- (WHICH IS THE COST OF ACQUIRING THE DHANOR I LAND), THE ASSESSEE BE ALLOWED TO SUBSTITUTE THE COST AS THE VALUE AT WHICH THE MOHAMMEDWADI LAND IS ADOPTED IN THIS ASSESSMENT YEAR. 7. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE, APPEARING FOR THE REVENUE, HAS DEFENDED THE ACTION OF THE AUTHORITIES BELOW BY ADOPTING THE REASONING CONTAINED THEREIN, WHICH WE HAVE ALREADY NOTICED IN THE EARLIER PARAGRAPHS AND ARE NOT BEING REPEATED FO R THE SAKE OF BREVITY. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE CRUX OF THE CONTROVERSY RELATES TO THE SURPLUS ACCRUING TO THE ASSESSEE O N TRANSFER OF THE DEVELOPMENT RIGHTS IN THE LAND LOCATED AT DHANORI, PU NE. THE ASSESSEE ACQUIRED SUCH RIGHTS VIDE AGREEMENT DATED 21.5.2005 FOR A CONSIDERATION OF RS 55,86,660/-.THE SAID RIGHTS HAVE BEEN TRANSFERRED TO M/S SAHARA INDIA COMMERCIAL CORPORATION LTD IN EXCHANGE FOR DEVELOPME NT RIGHTS OF ANOTHER LAND SITUATED AT VILLAGE MOHAMMEDWADI, PUNE. THE VAL UE OF THE PROPERTY AT MOHAMMEDWADI VILLAGE ASSESSED FOR THE PURPOSES OF PAYMENT OF STAMP DUTY WAS RS 89,66,200/-. NOTABLY, IN EXCHANGE FOR TRANSFERR ING THE DEVELOPMENT RIGHTS OF DHANORI LAND ASSESSEE DID NOT RECEIVE ANY CONSID ERATION IN CASH, BUT ONLY ACQUIRED THE DEVELOPMENT RIGHTS IN LAND AT MOHAM MEDWADI, PUNE. THE FIRST AND THE FOREMOST PLEA OF THE ASSESSEE IS THAT IN THE ABSENCE OF ANY CONSIDERATION RECEIVED IN CASH, NO INCOME ACCRUED TO THE ASSE SSEE ON SUCH EXCHANGE. IN OUR CONSIDERED OPINION, THE SAID PLEA HAS BEEN RIGHTLY NEGATED BY THE LOWER AUTHORITIES. IT IS QUITE WELL SETTLED THA T THE EXPRESSION TRANSFER INCLUDES AN EXCHANGE ALSO AND IN THAT VIEW OF THE MATTE R, THE IMPUGNED EXCHANGE OF LAND HAS RESULTED IN A TAXABLE EVENT. FUR THER, IT IS EQUALLY WELL UNDERSTOOD THAT CONSIDERATION IN LIEU OF A TRANSFER CAN BE IN MONEY OR MONEYS WORTH. IN THIS CASE, THE CONSIDERATION HAS BEEN RECEIVED IN MONEYS WORTH, INASMUCH AS THE CONSIDERATION IS IN THE FORM OF THE DEVEL OPMENT RIGHTS IN THE LAND SITUATED AT MOHAMMEDWADI, PUNE. UNDER THESE CIRCU MSTANCES, WE THEREFORE FIND NO MERIT IN THE ASSERTIONS OF THE ASSESSEE THAT NO INCOME ACCRUES AS A RESULT OF THE TRANSFER OF DHANORI LAND IN THIS YEAR. 9. FURTHER, THERE IS NO DISPUTE TO THE POSITION THAT T HE ASSESSEE IS IN THE BUSINESS OF PROMOTING AND DEVELOPING LANDS AND THEREFOR E, THE ACQUISITION AND THE SUBSEQUENT TRANSFER OF THE DEVELOPMENT RIGHTS IN T HE DHANORI LAND WERE TRANSACTIONS OF BUSINESS NATURE. THE PROFIT ON SUCH TRANSACT ION IS ASSESSABLE AS BUSINESS INCOME, A FACTUM WHICH IS NOT DISPUTED BY THE A SSESSEE. THE ONLY ASPECT DISPUTED BY THE ASSESSEE IS THE QUANTIFICATION OF SUC H PROFIT. IN ORDER TO ARRIVE AT THE SURPLUS, THE ASSESSING OFFICER ADOPTED THE FIGURE OF 89,90,000/- AS THE CONSIDERATION RECEIVED, WHICH WAS THE VALUE OF MOH AMMEDWADI LAND ASSESSED BY THE LOCAL AUTHORITY/STATE GOVERNMENT FOR THE PURPOSES OF PAYMENT OF STAMP DUTY. AS PER THE ASSESSEE, THE PROFIT IS TO BE COMPUTED HAVING REGARD TO THE MARKET VALUE OF THE LAND AT MOHAMMEDWADI AND NOT AS COMPUTED BY THE ASSESSING OFFICER BECAUSE AS PER THE ASSESSEE THE ACTION OF TH E ASSESSING OFFICER IS BASED ON SECTION 50C WHICH IS INAPPLICABLE IN T HE CASE OF A TRANSFER OF A BUSINESS ASSET. THE ASSESSEE IS RIGHT IN HIS ASSERTION TH AT THE PROVISIONS OF SECTION 50C OF THE ACT ARE RELEVANT TO COMPUTE CAPIT AL GAINS ON TRANSFER OF A CAPITAL ASSET, SO HOWEVER, THE ASSESSING OFFICER IN THIS CASE HAS ADOPTED THE VALUE ASSESSED BY THE STAMP DUTY AUTHORITIES FOR MOHAMME DWADI LAND FOR THE PURPOSE OF DETERMINING ITS FAIR MARKET VALUE. THE BASI S REFERRED TO IN SECTION 50C HAS BEEN ADOPTED BY THE ASSESSING OFFICER IN THE ABSE NCE OF ANY OTHER BASIS OR ASSERTIONS PUTFORTH BY THE ASSESSEE SO AS TO DETERMI NE THE FAIR MARKET VALUE OF MOHAMMEDWADI LAND. EVEN BEFORE US, APART FR OM ASSAILING THE ACTION OF THE ASSESSING OFFICER, THERE IS NO CONTRARY VALUE OR B ASIS PUTFORTH TO DETERMINE THE FAIR MARKET VALUE OF THE MOHAMMEDWADI LAND. UNDER THESE CIRCUMSTANCES, WE HEREBY AFFIRM THE ACTION OF THE ASSESSING O FFICER IN ADOPTING THE VALUE OF MOHAMMEDWADI LAND AT RS 89,90, 000/- IN ORDER TO COMPUTE THE SURPLUS ACCRUING ON TRANSFER OF DHANORI LAN D. THEREFORE, THE ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN SUSTAINING THE ADDITION OF RS 34,04,340/- AS PROFIT ON SALE OF DHANORI LAND IS HEREBY AFFIRMED. THUS ON THIS ASPECT, ASSESSEE FAILS. 10. NOW WE MAY MAKE AN OBSERVATION WITH REGARD TO T HE ALTERNATIVE PLEA OF THE ASSESSEE. THE ALTERNATIVE PLEA WAS THAT IN THE SUBSE QUENT ASSESSMENT YEAR OF 2007-08 THE PROFIT DECLARED ON SALE OF MOHAM MEDWADI LAND HAS BEEN COMPUTED BY ADOPTING ITS COST OF ACQUISITION AT RS 55,86,6 60/-, WHICH WAS THE COST OF ACQUISITION OF DHANORI LAND. IN THIS MANNER, THE SURPLUS OF RS 34,04,340/- ASSESSED TO TAX IN THIS YEAR WOULD ALSO SUFFER TAXATION IN THE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, IT HAS BEEN CONTEND ED THAT THE ASSESSEE BE PERMITTED TO SUBSTITUTE THE COST OF RS 89,66,20 0/- IN THE ASSESSMENT YEAR 2007-08 SO AS TO COMPUTE THE SURPLUS IN RESPE CT OF THE TRANSFER OF THE MOHAMMEDWADI LAND. THE AFORESAID PLE A OF THE ASSESSEE IS NOT RELEVANT TO DETERMINE THE DISPUTE IN THIS APPEAL, SO H OWEVER, WE MAY STATE THAT THE ASSESSING OFFICER SHALL CONSIDER THE AFORESAID PLEA APPR OPRIATELY WHILE DETERMINING THE INCOME IN THE ASSESSMENT YEAR 2007-08, IN CASE THE ASSESSEE BRINGS THE SAME TO HIS NOTICE. 11. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 28 TH DAY OF MARCH, 2012. SD/- SD/- (I C SUDHIR) (G.S . PANNU) JUDICIAL MEMBER ACCOUNTANT MEMB ER PUNE, DATED 28 TH MARCH, 2012 B COPY TO:- 1) SHRI PURUSHOTTAM M LOHIA, PUNE, 2) DCIT, CIR PUNE 3) THE CIT(A)-II PUNE, 4) CIT-II PUNE 5) DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE TRUE COPY BY ORDER SR. PS, ITAT PUNE