Income-Tax Officer, Central, Kolhapur V. Shatrunjay Parks and Resorts P Ltd., , Kolhapur

ITSSA 55/PUN/2022

AI Insights

The case revolves around the dispute concerning the classification of profit from the sale of land by M/s. Shatrunjay Parks & Resorts Ltd. The Revenue appealed against the decision of the CIT(A) which had accepted the assessee's claim that the profit should be treated as LTCG. The Assessing Officer had treated the profit as business income based on the frequency of land transactions and the company's memorandum of association, which mentioned land purchase and sale as an ancillary business. However, the CIT(A) and the Tribunal found that the frequency of transactions was not as high as claimed by the AO and that the main business of the assessee was not land trading but developing and operating resorts.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 138120 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 19-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-07-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 04-08-2022
• Other Referred Cases: CIT v. Jawahar Development Association [1981] 127 ITR 431 (MP), CIT v. Sushila Devi Jain [2003] 259 ITR 671 (P&H), CIT v. Suresh Chand Goyal [2007] 209 CTR 410 (MP), Ram Saroop Saini, (HUF) v. ACIT [2007] 15 SOT 470 (ITAT-Del]
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Search and seizure
• Section: 54; 143(3); 145(3); 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE „B‟ BENCHES :: PUNE BEFORE SHRI R.S. SYAL, HON. VICE PRESIDENT & SHRI PARTHA SARATHI CHAUDHURY, HON. JUDICIAL MEMBER IT(SS)A No.55/PUN/2022 (A.Y. 2012-13) ACIT, Central Circle, Kolhapur. vs M/s. Shatrunjay Parks & Resorts Ltd., 1677, e-Business House, 10 th Lane, Rajarampuri, Kolhapur. PAN : AAICS 6797 F Appellant/Revenue Respondent/Assessee Assessee by : Shri Pramod S. Shingte, CA Revenue by : Shri Ajay Kumar Kesari, DR Date of hearing : 18/07/2023 Date of pronouncement : 20/07/2023 O R D E R Per PARTHA SARATHI CHAUDHURY, JM: This appeal preferred by the Revenue emanates from the order of Commissioner of Income Tax (Appeals)-11, Pune, dated 30.05.2022 for A.Y.2012-13 as per the following grounds of appeal:- “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of the assessee that the profit on sale of land is to be taxed as Long Term Capital Gain. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not treating profit on sale of land as business income. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the frequency of sale and purchase of land by the assessee during the last 6 years is very high. 4. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the assessee has carried on business of purchase and sale of land by invoking Sr. No. 2 of ancillary object as per Memorandum of Association. IT(SS)A No.55/PUN/2022 M/s. Shatrunjay Parks & Resorts Ltd. 2 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the assessee has claimed cost of improvement (land development expenses) in respect of the lands sold for making it marketable and thus the assessee has indulged business of purchase and sale of land. 6. The appellant craves leave to add, alter, modify, delete and amend any of the grounds, as per the circumstances of the case. 2. The grievance of the revenue is regarding the decision of Ld.CIT(A) in not treating the profit on sale of land as business income and, rather allowing the claim of the assessee that such profit on sale of land should be taxed as long term capital gain (LTCG). 3. The relevant facts are that a search and seizure action had taken place on Lalit Gandhi group of cases on 25/04/2012. That, post search investigation, the assessee had filed a letter dated 08/08/2012 before the DDIT (Inv.), Kolhapur, wherein it was submitted that it had purchased certain land at Gat No. 314 & 315 at Mauje Jambul, Tal-Maval, Dist. Pune and simultaneously Gat No.37 at Mauje Sate, Tal-Maval, Dist. Pune in the year 2005-06 for the purpose of development of resort. However, the said land was sold in the F.Y.2011-12, as the company was unable to develop any activity as per the object of the company and it was submitted that certain expenses were incurred on land development during the period of holding, which were capitalized in the books of account. The tentative profit on the said land was computed at Rs.2,75,92,787/-. It was also submitted to the DDIT (Inv.) that the benefit of LTCG was available on the said land and shall be computed as per sec. 45 to 54 of the Act IT(SS)A No.55/PUN/2022 M/s. Shatrunjay Parks & Resorts Ltd. 3 and taxes would be paid accordingly. In accordance to this declaration, the assessee-company declared profit of Rs. 2,66,81,518/- on account of sale of land in its books of account for A.Y. 2012-13. However, while filing the return of income for A.Y. 2012-13, the land sold during the year was considered as long term asset and after taking the benefit of indexation, an amount of Rs. 1,55,18,956/- was declared as income from LTCG. While completing the assessment, the Assessing Officer (AO) rejected the claim of the assessee that the said assets were capital assets and treated the same as stock-in-trade and computed the business profit on sale of land at the figure which was declared during the post search investigation. Accordingly, an addition of Rs. 2,75,92,786/- was made by the AO. 4. The first reason given by the AO in the assessment order treating the profit on sale of land as business income is the frequency of purchase and sale of land during the last 05 to 06 years and it was observed that such frequency was very high. That, at the first appellate level, the assessee had furnished a chart of sale of land done by the assessee-company during the last 06 years which forms part of the order of ld. CIT(A) and therein it was observed by him that apart from the sale, during the current assessment year, only a small portion of land was sold in A.Y. 2007-08 and gain on that sale, was declared as short term capital gain (STCG), which had been accepted by the AO. Besides that sale, the assessee has not sold any land IT(SS)A No.55/PUN/2022 M/s. Shatrunjay Parks & Resorts Ltd. 4 during the period A.Y. 2006-07 to A.Y. 2011-12. Therefore, it was rightly held by the ld.CIT(A) that such observation of the AO that frequency of sale and purchase of land by the assessee-company in the preceding years was quite high is factually incorrect. 5. The AO had also held in the assessment order that as per the memorandum of association (MoA), the second object of the company shows that company is engaged in normal business of purchase and sale of land. In this connection, assessee had submitted before the ld.CIT(A) that the main object of the company was to establish and carry on the business of developing and operating water parks, resorts etc. It has been submitted that the second object as mentioned in MoA is in fact ancillary or incidental object in attainment of main object of the company. The ld. CIT(A) has rightly held that such an ancillary object was only incidental to attainment of the main object of the company and in no manner, it can be interpreted that the company was engaged in the normal business of purchase and sale of land as had been held by the AO. For A.Y.2007-08, the assessee had also sold a land and declared income as STCG in the return filed by it and the assessment completed u/sec. 143(3) r.w.s. 153C of the Act for the year under consideration. The AO had accepted the profit on sale of land as income from STCG as declared by the assessee. That, for the present year under consideration, the ld. CIT(A) on perusal of the balance sheet of the assessee along with annexures on fixed assets IT(SS)A No.55/PUN/2022 M/s. Shatrunjay Parks & Resorts Ltd. 5 observed that the lands under consideration i.e. Gat No.314, 315 & 37 are shown as fixed assets and not as stock-in-trade for A.Y. 2007-08 to A.Y. 2012-13. Further, facts revealed that assessment proceedings u/sec. 143(3) r.w.s. 153C of the Act pursuant to search action against the assessee-company on 25/04/2012 for A.Y. 2007-08 to A.Y. 2011-12 was also undertaken by the same AO including the year under consideration and in the said assessment proceedings, the AO had not objected to the classification of the lands under consideration as fixed assets nor did reject the books of account u/sec. 145(3) of the Act. In such circumstances, the AO should have maintained consistency in the classification of the land as assets of the assessee and not take a different view for the year under consideration in the absence of any change in substance or fundamental shift on the business of the assessee-company to warrant the change in adoption of a different stand on an issue which had also been accepted and settled for the preceding 05 assessment years. 6 It was also contended by the assessee before the Department that the AO had taxed the profit earned, on sale of same land, both as business income as well as income from capital gain. The assessee had declared the profit on sale of land as income from capital gain and an amount of Rs. 1,55,18,956/- was declared as income from capital gain in the income tax return. The AO while completing the assessment, retained this amount plus added Rs. 2,75,92,786/- as IT(SS)A No.55/PUN/2022 M/s. Shatrunjay Parks & Resorts Ltd. 6 profit on sale of these lands as business income. In this manner, the total income computed by the AO was Rs. 4,31,11,946/- taxing the same income twice which is not permissible in the Act. The assessee had declared profit of Rs. 2,66,81,518/- in its financial statement on account of sale of land. The AO, without pointing out any defect in such computation of profit declared in the profit & loss account and in the computation of income under the head „LTCG on sale of land‟, taxed the same income twice, once as LTCG and also as business income. Therefore, the addition of Rs. 2,75,92,786/- made by the AO on account of profit from sale of land which has already been considered by the assessee while computing the income from LTCG was directed to be deleted by the ld. CIT(A). 7. Reference can be made to the decision of Hon'ble Madhya Pradesh High Court in the case of CIT v. Jawahar Development Association [1981] 127 ITR 431 (MP), wherein it was held that transaction of purchase and sale of land cannot be assumed without anything more, to be an adventure in the nature of trade. In the case of CIT v. Sushila Devi Jain [2003] 259 ITR 671 (P&H), the Hon'ble Punjab & Haryana High Court had observed that when the land was acquired on the basis of a will on the death of her husband and she sold the same in parcels because the huge area could not be sold in one transaction, such an activity could not amount to trade or business within the meaning of the Act. Similarly, it was the opinion of the IT(SS)A No.55/PUN/2022 M/s. Shatrunjay Parks & Resorts Ltd. 7 Courts in CIT v. Suresh Chand Goyal [2007] 209 CTR 410 (MP) and Ram Saroop Saini, (HUF) v. ACIT [2007] 15 SOT 470 (ITAT-Del]) that selling of own land after plotting it out in order to secure a better price is not in the nature of trade or business of the assessee. Taking guidance from these judicial pronouncements, it is clear and precise that what amounts to business income or LTCG is an issue that has to be determined by facts and circumstances of each case and the conduct and intention of the assessee and the relevant documents on record. In the present case before us, the assessee has declared a chart before the ld. CIT(A) and ongoing through the chart, it was observed that the contention of the AO that frequency of purchase and sale of land by the assessee during the last 05 to 06 years was very high, proved to be factually incorrect, since apart from the sale of land during the current assessment year only a small portion of land was sold in A.Y. 2007-08 which was declared as STCG and that was accepted by the AO accordingly. There was no sale and purchase besides that sale during the entire period of A.Y. 2006-07 to A.Y.2011- 12. Similarly, all throughout the assessee has shown lands as fixed assets and not as stock-in-trade in his financial statements. This was never disputed by the AO in earlier assessment years. The AO without pointing out any relevant reason for such deviation suddenly cannot hold the land under consideration, as stock-in-trade of the assessee. We also observe that ld. CIT(A) has rectified one of the blatant mistake committed in the assessment order by the AO that for the sale IT(SS)A No.55/PUN/2022 M/s. Shatrunjay Parks & Resorts Ltd. 8 of same land, AO had included the income as per return of income offered by assessee and had also added Rs. 2,75,92,786/- again on the same profit from sale of land as business income and this was rightly deleted by the ld. CIT(A). Therefore, we do not find any infirmity with the findings of the ld. CIT(A). The grounds of appeal of the Revenue are dismissed. 7 In the result, appeal of the Revenue stands dismissed. Order pronounced in open Court on 20 th July, 2023. Sd/- Sd/- (R.S. SYAL) (PARTHA SARATHI CHAUDHURY) VICE PRESIDENT JUDICIAL MEMBER Dated : 20 th July, 2023 vr/- Copy to : 1. The Appellant. 2. The Respondent. 3. The Pr. CIT concerned. 5. The DR, ITAT, “B” Bench Pune. 6. Guard File. By Order // TRUE COPY // Senior Private Secretary ITAT, Pune.