The ACIT, Cochin V. Mr.John Augusty Poomkudy, Cochin

MA 17/COCH/2015

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 4250 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 2 month(s) 26 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 09-05-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 13-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: P K SASIDHARAN
• Keywords: Business income
• Section: 143(3)

Judgement Text

MP NO.17/C/2015 & ITA NO . 559/C/2011 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M MISCELLANEOUS PETITION NO. 17/COCH/2015 ARISING OUT OF ITA NO . 559/COCH/2011 (ASST YEAR 2008 - 09 ) THE ASSTT COMMR OF INCOME T A X CORPORATE CIRCLE 1(2), KOCHI VS SHRI JOHN AUGUSTY POOMKUDY F - 11 LINK HEIGHTS PANAMBILLY NAGAR KOCHI 683 036 ( AP PLICANT ) (RESPONDENT) PAN NO. AFRPP0746A ASSESSEE BY SHRI P K S A SIDHARAN REVENUE BY SHRI K P GOPAKUMAR, SR DR DATE OF HEARING 6 TH MAY 2016 DATE OF PRONOUNCEM ENT 9 TH , MAY 2016 OR D ER PER GEORGE GEORGE. K. J M: THIS MISCELLANEOUS PETITION FILED BY THE REVENUE ARISES OUT OF THE TRIBUNAL ORDER DATED 6.6.2014 IN ITA NO.559/COCH/2011. 2 BRIEF FACTS , LEADING TO THE MISCELLANEOUS PETITION , ARE AS FOLLOWS: THE ASSESSEE FILED HIS RETURN OF INCOME F OR THE AY 2008 - 09 ON 7.3.2009 DECLARING TOTAL INCOME OF RS. 1,11,13,450/ - . T HE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I T ACT ON 30.12.2010 DETERMINING A TOTAL INCOME OF RS.27,92,02,355/ - . IN THE RETURN OF INCOME, THE ASSESSEE HAD DECLARED AN AMOUNT OF RS 21,81,38,900/ - BEING SALE C ONSIDERATION FROM SALE OF LANDS . IT WAS MP NO.17/C/2015 & ITA NO . 559/C/2011 2 CLAIMED THAT THIS SALE CONSIDERATION WAS EXEMPT FROM CAPITAL GAINS AS THE LANDS IN QUESTION WERE AGRICULTURAL LANDS. THE AO, HOWEVER, TREATED CONSID ERATION A S BUSINESS INCOME FROM SALE OF NON - AGRICULTURAL LAND AND DETERMINED THE PROFIT FOR SUCH BUSINESS TRANSACTION A T RS. 21,36, 63,654/ - AFTER REDUCING THE P URCHASE COST OF RS.44,65,246/ - . AGGRIEVED BY THE ASSESSMENT ORDER , THE ASSESSEE FILED APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A), VIDE ORDER DATED 29.7.2011 HELD THAT THE PROFIT ON SALE OF LAND COULD NOT BE TAXED AS BUSINESS INCOME . THE CIT(A) FURTHER HELD THAT THE LANDS IN QUESTION WERE NOT AGRICULTURAL LAND, EXIGIBLE TO CAPITAL GAIN . 3 AGGRIEVED BY THE CIT(A) S ORDER, THE REVENUE FILED APPEAL TO THE ITAT. THE APPEAL OF THE REVENUE WAS DISPOSED OFF VIDE ORDER DATED 6.6.2014 ALONG WITH OTHER CASES. AGGRIEVED BY THE O RDER OF TH E TRIBUNAL DATED 6.6.2014 , T HE REVENUE HAS FILED THIS MISCELLANEOUS PETITION. THE RELEVANT PORTION OF THE C ONTENTION RA ISED BY THE REVENUE IN ITS MISCELLANEOUS PETITION FILED READ AS UNDER: I) THE RE VENUE S CONTENTION WAS THAT THE ORIGINAL INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF LAND WAS ONLY TO SELL T H E SA M E SO AS TO MAK E PROFIT HAS NOT BEEN ADJUDICATED UPON BY THE HO N BLE ITAT. IN VIEW OF THE ABOVE FACTS THIS MISCELLANEOUS APPLICATION IS BEING FILED ON DIRECTIONS FROM THE CIT(A), KOCHI AND IT I S URGED THAT THE ORDER OF THE ITA T HAS A MISTAKE APPARENT FROM THE RECORD NAMELY NON - ADJUDICATION OF THE DEPARTMENTS DISTINCT GROUND OF APPEAL IN THE CASE OF JOHN A POOMKUDY BY TREATING THE ISSUE AS A COMMON ISSUE ARISING WITH OTHER CONNECTED CASES. IT I S B ROUGHT TO THE KIND NOTICE OF THE TRIBUNAL THAT IN THE CONNECTED CASES, THE AO TO O K A DIFFERENT STAND FROM THE STAND TAKEN IN THE JOHN A POOMKUDY. IN THOSE CASES THE AO HELD THAT THE LAND SOLD BY THEIR ASSESSEE WAS NON AGRICULTURAL LAND, BUT THE AO DID NOT TREAT THE TRANSACTION AS MP NO.17/C/2015 & ITA NO . 559/C/2011 3 BUSINESS TRANSACTION . CONSEQUENTLY THE GROUND OF APPEAL IN THE CASE OF JOHN POOMKUDY IS DIFFERENT FROM THE GROUND IN THE CONNECTED CASES. IT IS REQUESTED THAT THE MISCELLANEOUS APPLICATION MAY KINDLY BE PUT UP FOR DECISION OF THE HON BLE MEMBERS. II) IN THE FACTS AND CIRCUMSTANCES OF THE CASE, DISCUSSED ABOVE, IT IS PRAYED THAT THE HON BLE ITAT MAY APPRECIATE THE ABOVE SUBMISSIONS AND CONSIDER THIS MISCELLANEOUS PETITION AS MAINTAINABLE BEFORE THE TRIBUNAL AND PASS APPROPRIATE ORDER. 3 .1 THE LD AR PRESENT WAS DULY HEARD. 4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE REVENUE HAD R A ISED THE FOLLOW ING SPECIFIC GROUND BEFORE THE TRIBUNAL: II . THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) - II ERRED IN DELETION OF ADDITION MADE BY THE ASSESSING OFFICER , TREATING THE INCOME ON SALE OF LAND AS INCOME FROM REAL ESTATE BUSINESS AND COULD NEVER BE TERMED AS PART OF AGRICULTURE OR AGRICULTURAL INCO ME BY ANY STANDARD . THE COMMISSIONER OF INCOME TAX (APPEAL} - II HAS ALSO FAILED TO CONSIDER THE FACT THAT THE ORIGINAL INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF LAND WAS ONLY TO SELL THE SAME SO AS TO MAKE PROFIT . THE CIT (APPEAL) - II HAS IGN6 RED THE OBSERVATIONS MADE BY THE ASSESSING OFFICER THAT THE ASSESSE HAD NEVER UNDER TAKEN ANY AGRICULTURAL OPERATIONS ON THE SAID LAND IN QUESTION . IT IS NOTED THAT THE GUIDELINES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF SMT . SARIFABIBI MOHAMMED IBRAHIM & OTHERS IS APPLICABLE IN THIS CASE (204 ITR631 (SC)) . 4.1 THE TRIBUNAL DISPOSED OFF THE APPEAL VIDE ORDER DATED 6.6.2014 ALONG WITH OTHER CASES. IN THE OT HER CASES, THE AO HELD THAT THE LAND S SOLD BY THE ASSESSEE WERE NOT AGRICULTURAL LAN DS . THE AO HOWEVER, IN OTHER CASES DID NOT TREAT THE TRANSACTION AS BUSINESS TRANSACTION. IN THE INSTANCE CASE , THE AO HELD THAT THE MP NO.17/C/2015 & ITA NO . 559/C/2011 4 ASSESSEE PURCH ASED THE IMPUGNED LAND WITH A SPECIFIC INTENTION FOR TRADING AND TO MAKE PROFITS OUT OF SALE OF LANDS AND HENCE THE PROFITS ON SALE OF LAND W ERE TO BE TREATED AS NOTHING BUT BUSINESS PROFIT. ON PERUSAL OF THE TRIBUNAL S COMMON ORDER DATED 6.6.2014, WE FIND THAT THE SPECIFIC PLEA OF THE REVENUE THAT THE ORIGINAL INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF LAND , WAS ONLY TO SELL THE SAME SO AS TO MAKE PROFIT , HAS NOT BEEN ADJUDICATED BY THE TRIBUNAL . THEREFORE WE ALLOW THE MISCELLANEOUS PETITION FILED BY THE REVENUE AND HEAR THE APPEAL IN ITA NO.559/COCH/2011 , TO WHICH BOTH THE PARTIES AGREED . 5 IN THE RESULT, THE MISCELLANEOUS PETITION FILED BY THE REVENUE IS ALLOWED. ITA NO.559/COCH/2011 6 NOW WE SHALL TAKE UP FOR ADJUDICATION THE SPECIFIC PLEA IN ITA NO.559/COCH / 2011. TO ADJUDICATE THE REVENUE S SPECIFIC PLEA, IT IS NECESSARY TO REPRODUCE THE FINDINGS OF THE CIT(A), WHICH READ AS UNDER: 8 . AFTER DETAILED EXAMINATION OF THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE SUBMISSIONS OF THE APPELLANT , THE ISSUE TO BE DECIDED IS CENTERED AROUND THE INTENTION OF THE APPELLANT WHILE PURCHAS I NG THE LAND . ASSESS I NG OFFICER HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO ESTABLISH THAT THE APPELLANT WAS ENGAGED IN THE REAL ESTATE TRADE IN THE PAST . MAJOR PORTION OF THE PROPERT I ES WERE PURCHASED ABOUT 15 YEARS AGO . THE APPELLANT ALSO SUBMITTED THAT AFTER THE PURCHASE O F THESE PROPERTIES , HE HAD NEVER SOLD ANY PORTION EARLIER THE APPELLANT HAD ENTERED INTO AN AGREEMENT FOR SALE WITH AN INDIVIDUAL AND ULTIMATELY THE TRANSFER OF THE PROPERTIES IN THE NAME OF THE BUILDER WAS AS NOMINATED BY THE PARTY WHO HAD CONTRACTED F OR THE PURCHASE . THERE WAS NOTHING ON RECORD TO SHOW THAT THE APPELLANT HAD THE INTENTION OF TRADING IN LAND AND IF HE HAD THE IDEA OF TRAD I NG HE WOULD NOT HAVE CONTRACTED WITH A MIDDLE MAN TO SELL THE LAND .IT HAS TO BE PRESUMED THAT THE APPELLANT WAS NOT WELL AWARE OF THE MOVEMENTS IN THE REAL ESTATE TRADE AND THE INTENTIONS OF THE PERSONS IN THE FIELD .HE HAS SOLD WHAT - EVER LAND W AS PURCHASED EARLIER WITH SOME MP NO.17/C/2015 & ITA NO . 559/C/2011 5 ADDITIONAL LAND PURCHASED DURING THE PRECEDING TWO YEARS TO THE BUILDERS .IT I S IMPORTANT TO NOTE THAT THE APPELLANT IS NOT THE ONLY PERSON WHO WAS PARTY TO THE AGREEMENT . THERE ARE OTHER OWNERS OF LAND IN THE NEARB Y AREA WHO ALSO AGREED TO SELL THE PROPERTIES AND PRICES FOR DIFFERENT PROPERTIES WERE DIFFERENT . IF THE APPELLANT WAS IN THE COMMA ND OF THE SITUATION HE WOULD HAVE SOLD THE ENTIRE PROPERTY COVERED BY THE DOCUMENT AT A UNIFORM PRICE , THEREBY ELIMINATING THE SMALL HOLDERS FROM THE FIELD . 8 . 1 THE APPELLANT HAD FURTHER SUBMITTED THAT HE OR HIS COMPANIES HAVE NEVER BEFORE ENGAGED IN REAL ESTATE TRADE .SELLING OF LAND PURCHASED YEARS BACK TO A SINGLE PARTY CANNOT BE CONSIDERED AS ADVENTURE IN THE NATURE OF TRADE .TO CON STITUTE TRADING ACTIVITY THERE SHOULD BE FREQUENT PURCHASES AND SALES OR AT LEAST MULTIPLE TRANSACTIONS DURING A PA RTICULAR PER I OD .THERE HAS BEEN SEVERAL INSTANCES WHERE THE COURTS HAVE OCCASIONS TO CONSIDER THE NATURE OF TRANSACTIONS THAT WOULD FALL UNDER A DVENTURE IN THE NATURE OF TRADE . THE APPELLANT HAD NEVER TREATED PROPERTIES AS HIS TRADING ASSETS I N THE PAST . THE APPELLANT HAS ALSO NOT CLA I MED ANY EXPENSES IN CONNECTING WITH RUNN I NG A TRADE CONCERN . THERE HAS BEEN NO ATTEMPT ON THE PART OF THE APPELLANT TO BUY LARGE VOLUME OF LAND AND SELL IT BY DIVIDING INTO SMALL PIECES . WHAT FACTUALLY HAPPENED IN THIS PA RTICULAR CASE IS THAT THE PROPERTIES PURCHASED BEFORE 15 YEARS ALONG WITH SOME LAND PURCHASED DURING THE PRECEDING 3 YEARS WERE SOLD TO A BUILDER IN PERFORMANCE OF A CONTRACT WITH ANOTHER I NDIV I DUAL .FROM THE ABOVE IT IS EVIDENT THAT THE TRANSACTIONS OF SALE OF LAND BY THE APPELLANT DURING THE YEAR CANNOT BE CONSIDERED AS A TRADING TRANSACTION . SO THAT THE PROFIT FROM THE SALE OF LAND CAN BE ASSESSED AS A BUSINESS INCOME . 8 . 2 THE APPELLANT HAD ALSO RAISED CERTAIN OBJECTIONS WITH REGARD TO THE COMPUTAT ION OF THE BUSINESS PROFIT .ONE I MPORTANT ISSUE RAISED IS REGARDING THE VALUATION OF OPENING STOCK . THE APPELLANT'S CONTENTION IS THAT EVEN I F FOR ARGUMENT' S SAKE IT IS ACCEPTED THAT THE APPELLANT WAS DURING THE YEAR CARRYING ON TRADE IN REAL ESTATE, TH E PROPERTIES PURCHASED IN 1992 - 93 ETC AND HELD BY THE ASSESSEE AS AN INVESTMENT SHOULD BE VALUED APPLYING THE PROVISIONS OF SECTIO N 45 ( 2) OF THE INCOME TAX ACT . THE ASSESSING OFFICER HAS SIMPLY ADOPTED THE COST OF PROPERTY BEFORE 15 YEARS AS THE VALUE OF THE OPENING STOCK AS ON 01.04 . 2007 .AS THERE WAS NO PREVIOUS INSTANCE WHERE IT WAS HELD THAT THE INVESTMENT IN REAL ESTATE WAS BEING HELD BY THE APPELLANT AS STOCK IN TRADE .IT HAS TO BE PRESUMED THAT THE CONVERSION OF INVESTMENT IN TO STOCK IN TRADE TOOK PLACE AT SOME POINT OF TIME .WITHOUT MP NO.17/C/2015 & ITA NO . 559/C/2011 6 VALUING THE OPENING STOCK AND CLOSING STOCK , THE PROFIT IN A TRADING ACTIV I TY CANNOT BE ASCERTAINED .THE DETERMINATION O F THE PROFIT FROM THE TRADING ACTIVITIES WILL HAVE TO BE DONE AFTER TAKING INTO CONSIDERATION THE VALUE OF OPEN I NG STOCK ,THE PURCHASES , THE SALES AND THE VALUES OF CLOSING STOC K. EVEN THOUGH THE ASSESSING OFF ICER HAS HELD - THAT THE TRANSACTION IS IN THE NATURE OF TRADING, HE HAS NOT ATTEMPTED - TO VALUE THE OPENING OR CLOSING STOCK WHILE DETERMINING THE PROF I T .IN OTHER WORDS THE METHOD OF COMPUTAT I ON ADOPTED BY THE ASSESSING OFFICER IS THE ONE FOR DETERMINING THE CAPITAL GAINS, AND NOT TRADING PROFIT . IN VIEW OF THE ' ABOVE IT HAS TO BE HELD THAT THE PROFIT ON SALE OF PROPERTIES IN THE INSTANCE CASE CANNOT BE ASSESSED A S INCOME FROM BUSINESS . 8.3 AS IT IS HELD THAT THE PROFIT ON SALE OF LAND CAN NOT BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS NO FINDING IS GIVEN ON THE APPLICABILITY OF THE PROVISIONS OF SECTION 45 (2) OF THE INCOME TAX ACT. 7 FROM THE ABOVE FINDINGS OF THE CIT(A), IT IS CLEAR THAT HE HAS COME TO A DEFINITE/ CATEGORICAL FINDING THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE , AT THE TIME PURCHASE OF LAND OR SUBSEQUENTLY HAD ANY INTENTION OF TRADING IN LAN DS AND TO MAKE PROFIT OUT OF IT. THE CIT (A) HEL D THAT THE MAJOR PORTION OF THE LANDS WAS PURCHASED ABOUT 15 YEARS AGO AND THE SAME WAS SOLD TO AN INDIVIDUAL, WHO LATER TRANSFERRED THE PROPERTY TO THE BUILDER. THIS CATEGORICAL FINDING , AT PARAS 8 TO 8.3 , OF THE CIT(A) HAS NOT DISPELLED BY THE REVENUE BY PRODUCING ANY DOCUMENTARY EVIDENCE / MATERIAL. THEREFORE, WE UPHOLD THE FINDING OF THE CIT(A) THAT THE AS SESSEE HAD NOT UNDERTAKEN ANY LAND TRANSACTION, WHICH HAS GIVEN RISE TO ANY BUSINESS PROFITS. THEREFORE, TH E FINDINGS OF THE CIT ( A) IS CONFIRMED AND THE SPECIFIC PLEA OF THE REVENUE IS REJECTED. 8 IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. MP NO.17/C/2015 & ITA NO . 559/C/2011 7 9 TO SUM - UP, I ) THE MISCELLANEOUS PETITION F ILED BY THE REVENUE IS ALLOWED AND II ) THE APPEAL BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF MAY 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 9 TH , M AY 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN