The Assistant Commissioner of Income Tax, Circle-1(1), Guntur V. Puppala Gopi Krishna, Guntur

MA 5/VIZ/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0298 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 07-08-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 25-07-2024
• Assessment Year: misc
• Appeal Filed On: 15-04-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: CONVERTING IT INTO VARIOUS PLOTS; IT CAN BE
• Keywords: Capital asset; Business income; Capital Gains
• Section: 263

Judgement Text

आयकर अपीलीय अधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्वूरु आरएल रेड्डी, न्याधयक सदस्य एिं श्री एस बालाकृष्णन, लेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER एम.ए. नं. / M.A. NO. 05/VIZ/2024 [आईटीए सं. से उत्पन्न. /ARISING OUT OF ITA No. 82/VIZ/2021 (A.Y. 2016-17)] Asst. Commissioner of Income Tax Circle – 1(1) C.R. Buildings, Kannavarithota Guntur – 522201 Andhra Pradesh v. Puppala Gopi Krishna D.No. 26-10-1 SBI PB Branch Building Upside Nagarampalem, Guntur – 522004 Andhra Pradesh [PAN :ADNPP4577H] (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri G.V.N. Hari, AR राजस्व का प्रतततितित्व/ Department Represented by : Dr. Aparna Villuri, Sr.AR सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 26.07.2024 घोषणा की तारीख/Date of Pronouncement : 08.08.2024 आदेश /O R D E R PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER: 1. This Miscellaneous Application is filed by the revenue against the order of Tribunal in ITA No. 82/Viz/2021 dated 17/10/2023. M.A. NO. 05/VIZ/2024 Puppala Gopi Krishna Page No. 2 2. At the outset, Ld. Departmental Representative [hereinafter in short “Ld. DR”] argued that the Tribunal has not considered the fact that assessee has sub-divided the plots and hence it is in the adventure of the trade and should be considered as the business income as observed by the Ld. Principal Commissioner of Income tax [hereinafter in short “Ld.Pr.CIT”] vide its order passed under section 263 of Income Tax Act, 1961 (in short ‘Act’). It is therefore pleaded that to this extent there is a mistake apparent on record in the order of the Tribunal and that the order may be recalled. 3. Per contra, Ld. Authorized Representative [hereinafter in short “Ld.AR”] relied on the order of the Tribunal. 4. We have heard both the sides. It is an undisputed fact that in the instant case assessee has offered Long Term Capital Gains from sale of land sub-divided into 27 plots. It was pleaded during the Appellate Proceedings that the assessee has not converted land into stock-in-trade but has resorted to sell the land by sub-dividing it into various parts in order to fetch higher prices. The Tribunal has observed that merely by selling the entire land after dividing into various parts, without altering the character of the land, cannot be considered as adventure nature of trade as contemplated by the Ld. Pr.CIT. The Tribunal while passing the M.A. NO. 05/VIZ/2024 Puppala Gopi Krishna Page No. 3 order relied on the case of the Hon’ble High Court of Madras in the case of CIT v. Kasturi Estates (P.) Ltd., [1966] 62 ITR 0578 which is reproduced below: - “5. We have heard rival submissions and perused the material available before us as well as the orders of the Ld. Revenue Authorities. It is an undisputed fact that the assessee’s case was selected for limited scrutiny ‘whether capital gains / loss on sale of property has been correctly shown in the return of income’ and accordingly on verification of the ITR filed by the assessee for the AY 2016-17, the Ld. AO observed that the assessee has not shown any capital gains on sale of vacant site instead offered the income under ‘other sources’. Further, on observing that the assessee had entered into multiple sale and purchasetransactions during the year, the Ld. AO called for the details of such transactions and only after verifying the computation statement and the relevant documents submitted by the assessee the Ld. AO accepted the assessee’s offer of net long term capital gains of Rs. 1,04,74,973/-. With respect to the treatment whether the income to be assessed as capital gains or business income arising out of the sale of the land by the assessee by converting it into various plots, it can be noted from the documents submitted before us that the assessee has not converted the land into stock-in-trade, but has only sub- divided the land into parts to fetch a higher market price on the sale of the same. Therefore, it can be safely concluded that the assessee has not converted the land into stock-in-trade as the assessee has resorted to sell it to difference buyers by sub-dividing it into various parts to fetch higher price. Merely by selling the entire land after dividing it into various parts, without altering the character of land, cannot be considered as an adventure in the nature of trade as contemplated by the Ld. Pr. CIT. On the identical issue the Hon’ble High Court of Madras in the case of CIT vs. Kasturi Estates (P) Ltd (supra) held that: “Where one concerned with a gain made out of purchase and sale of lands, whether it is an accretion to capital or capital profits may depend on particular facts and circumstances. The transaction itself should be looked at to see if it is essentially of a commercial character. A purchase M.A. NO. 05/VIZ/2024 Puppala Gopi Krishna Page No. 4 and sale of land may be of that character but not necessarily so. If a person is systematically engaged in a series of transactions of purchase and sale of lands with a view to make profits out of them, that may indicate that he is occupied in a trading activity. But it is well settled that ownership of land by itself is not a trade. And so a person may purchase property, hold and enjoy it, derive income from it and, when there is appreciation in its value, sell it at an enhanced price. That will not be a trade or an adventure in the nature of trade.......”. Under identical circumstances, this Bench of the Tribunal has taken a similar view in the case of SNF (India) Pvt Ltd., Visakhapanam vs. ACIT in I.T.A. No.211/Viz/2022 (AY:2014-15), dated 01/06/2023. Further, the Hon’ble Madras High Court in the case of CIT vs. A. Mohammed Mohideen [1988] 74 CTR 129 (Mad.) held that “plotting and developing of land before sale by itself would not establish that the person concerned was indulging in the trading activity. Revenue has to establish by positive evidence that the purchase and sale of property was with the view to earn profits through trading transaction.” In the present case also, the assessee has sub-divided the land into parts to fetch a higher market price on the sale of the same and at the same time the Revenue also could not bring on record any evidence to prove that the assessee held the capital asset as stock in trade and the purchase and sale of property was with a view to earn profits through trading transactions. Further, the Ld. AO after making necessary enquiries and thorough examination / verification of the documents and the computation statement submitted by the assessee accepted the net long term capital gains offered by the assessee in his revised return of income. Further, it is noted that the Ld. Pr. CIT ought to change the character of the income ie., from capital gains to business income. However, the Hon’ble Madras High Court in the case of CIT vs. Kasturi Estates (P) Ltd (supra) has clearly held that when the asset is held as a capital asset by the assessee, where the intention of the assessee is to derive higher profits by dividing it into plots cannot alter the nature of income earned by the assessee. In the instant case, we find that the assessee is not engaged in systematic series of transactions of purchase and sale of land but, however has divided the land into plots only to derive higher profits in the M.A. NO. 05/VIZ/2024 Puppala Gopi Krishna Page No. 5 nature of capital gains and has offered the same while filing the revised return of income which was also not disputed by the Ld. AO. Considering all these facts as well as respectfully following the decision of the Hon’ble Madras High Court in the case of CIT vs. Kasturi Estates (P) Ltd (supra); decision of the Hon’ble Madras High Court in the case of CIT vs. A. Mohammed Mohideen and also the decision of this Tribunal in the case of SNF (India) Pvt Ltd (supra), we are of the considered opinion that the direction given by the Ld. Pr. CIT to the Ld. AO to re-do the assessment by invoking the provisions of section 263 of the Act is not in sustainable in law. Therefore, we hereby set-aside the order of the passed by the Ld. Pr. CIT U/s. 263 of the Act and allow the grounds raised by the assessee.” 5. Considering the facts and circumstances of the case and by relying on the judicial pronouncements, this Tribunal has come to the conclusion that in the instant case the sale of land should be computed as income from capital gain and not as business income and accordingly we find no mistake in the order of the Tribunal dated 17.10.2023. We therefore dismiss the application filed by the revenue. 6. In the result, Miscellaneous Application filed by the revenue is dismissed. Order pronounced in the open court on 08 th August, 2024. Sd/- (द ु व्वूरु आर.एलरेड्डी) (DUVVURU RL REDDY) न्याधयक सदस्य/JUDICIAL MEMBER Sd/- (एस बालाकृष्णन) (S. BALAKRISHNAN) लेखा सदस्य /ACCOUNTANT MEMBER Dated :. 08.08.2024 Giridhar, Sr.PS M.A. NO. 05/VIZ/2024 Puppala Gopi Krishna Page No. 6 आदेशकीप्रतिललपिअग्रेपिि/ Copy of the order forwarded to:- 1. निर्ााररती/ The Assessee : Puppala Gopi Krishna D.No. 26-10-1 SBI PB Branch Building Upside Nagarampalem, Guntur – 522004 Andhra Pradesh 2. राजस्व / The Revenue : Asst. Commissioner of Income Tax Circle – 1(1) C.R. Buildings, Kannavarithota Guntur – 522001 Andhra Pradesh 3. The Principal Commissioner of Income Tax 4. निभागीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, निशाखापटणम /DR,ITAT, Visakhapatnam 5. The Commissioner of Income Tax 6. गार्ा फ़ाईल / Guard file //True Copy// आदेशािुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam