Principal Commissioner Of Income Tax, Jaipur-2, Jaipur V. Assam Roller Flour Mills Ltd.

ITA/88/2018

AI Insights

The case revolves around the assessment of long-term capital gains by the Income Tax Department from the sale of land by M/s Assam Roller Flour Mills Ltd. The original assessment under section 143(3) was completed on 23.12.2008, but later, it was found that income amounting to Rs. 5,69,55,130 had escaped taxation. A reassessment under section 147 was conducted, leading to a tax assessment of Rs. 7,82,45,942 on long-term capital gains. The main legal contention was regarding the valuation of the land for tax purposes, specifically the cost of acquisition and the fair market value as on 01-04-1981. The tribunal and the High Court's decisions favored the assessee, rejecting the department's valuation and acceptance of the assessee's reported values.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 812926 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 13-03-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: PRATEEK KEDAWAT
• Keywords: Assessment; Capital Gain Tax; Income Tax; Long Term Capital Gain; Valuation
• Section: 147; 148; 143(3); 48; 45(2); 50C; 45

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 88/2018 Principal Commissioner Of Income Tax, Jaipur-2, Jaipur Raj ----Appellant Versus M/s Assam Roller Flour Mills Ltd., Geeta Path, Suraj Nagar, West Civil Lines, Jaipur ----Respondent For Appellant(s) : Mr. Prateek Kedawat for Mr. R.B. Mathur HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 13/03/2018 1. By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed the appeal of the department and cross objection of the assessee was partly allowed by modifying the order of AO as well as CIT(A). 2. Counsel for the appellant has framed following substantial questions of law:- i) Whether on the facts and in law the ITAT was justified in law in deleting the addition made on account of Long Term Capital Gain without appreciating the provision of section 45 and 45(2) of the Act and the computation made u/s. 48 of the Act. (ii) Whether in the facts and circumstances of the case, the Tribunal was justified in considering the cost of land as on 01-04-1981 at Rs.11877300/- without appreciating the fact that the value of the said property was only of Rs.11648/- as on 01.04.1981 as per books of account of partnership firm and after taken over (2 of 6) [ITA-88/2018] by the company, the land had been valued at Rs.5657400/- only 1992-93. (iii) Whether in the facts and circumstances of the case, the Tribunal was justified that the fair market value of the land as on 01.04.1981 can be more at Rs. 11877300/- when the assessee itself has determined the land’s market value at Rs.5657400/- in F.Y. 1992-93 (duly reflected in balance sheet for A.Y. 1993-94 to A.Y. 2004- 05). 3. The facts of the case are that the assessment was originally completed u/s 143(3) on 23.12.2008. Subsequently, it comes to the notice of the Assessing officer that the income on account of long term capital gains amounting to Rs. 5,69,55,130/- has escaped taxation and notice u/s 148 was issued. After disposing off the objection raised by the assessee, assessment proceedings were completed u/s 147 wherein AO brought to tax long term capital gains of Rs. 7,82,45,942/-. The Assessing Officer considered sales consideration u/s 50C as determined by the DVO and Sub-Registrar at Rs. 7,83,10,852/-. And regarding cost of acquisition, the Assessing Officer noted that the original cost of land in the books of erstwhile partnership firm, Assam Roller Flour Mills was shown at Rs. 11,648/- and accordingly, he computed the indexed cost of acquisition at Rs. 55,910/- and after giving allowance for the same, brought to tax long term capital gains of Rs 7,82,45,942/-in the hands of the assessee. 4. Counsel for the appellant contended that the firm was taken over by the company and first time on 20.1.1981 assests were transferred as on 1.4.1981. (3 of 6) [ITA-88/2018] 4.1 Counsel for the appellant has taken us to the order of the AO wherein it has been observed as under:- “The assessee has filed the objection for the reason recorded u/s 147 and the same are disposed off through the letter dt. 3.10.2011. Further the assessee required to explain as why fair sale consideration value should not be taken as determined by the sub registrar. On considering the submission of the assessee the matter was referred to the district valuation officer for the Valuation u/s 50C of the IT Act. The district valuation officer has assessed the value of land at Rs.7,83,01,852/- accordingly show cause was issued to assessee as under. (B) Sale consideration of the Land:- The sub- registrar as well as the District Valuation Officer has taken the value of the land of Rs.7,83,01,852/- as on 8.7.2005 in view of the facts the capital gain should not be assessed as under:- Fair market value of the land: Rs.7,83,01,852/- Less: Indexation cost of the land: 55,910/- Capital Gain: Rs.7,82,45,942/- The A/R of the assessee vide letter dt. 26.12.2011 submitted that M/s. Assam roller flour mills a partnership firm purchased the land under consideration in 1962 and the firm was taken over by the company, therefore the fair market value as on 1.4.1981 was determine the registered valuer and opt the same for the purpose of the calculation of the capital gain. He has also submitted that the value enhance by sub registrar from Rs.7,57,00,000/- to Rs.7,83,01,852/- and collect the stamp duty therein without the knowledge of the assessee hence the fair market value of Rs.7,57,00,000/- as declared by the assessee is correct. The submission of the assessee is not found tenable as the facts in details discussed in show cause notice and therefore the long term capital gain is assessed as under:- Cost of the land as on 1.4.1981 Rs.11,648/- Indexed cost 11,648 X 480/100 Rs. 55,910/- Sales consideration u/s 50C (as determine)” By the DVO and sub-registrar Rs.7,83,10,8502/- Long term capital Gain : Rs. 7,82,45,942/- (4 of 6) [ITA-88/2018] Therefore long term capital gain is taken at Rs.7,82,45,942/- which is added to the income of the assessee.” 4.2 He further contended that AO while considering the matter rightly assessed the income observing as under:- “On perusal of the minutes of the settlement commission held on 25.4.2005 and on that basis the assessee has claimed the said expenses, revealed that a case of theft of energy was pending against the assessee and detected during the year 1994 and electric connection was disconnected thereafter, therefore the total amount of compounding charges were offered by assessee of Rs.22.50 lacs and the compounding charges amounting to Rs.22.50 lacs have been assessed against the assessee and the settlement commission agreed to settle the case on the certain term and condition. Further letter No.JPD/Dy. CE (CP&RE)/SE©/F. D-28 dt. 4.6.2008 revealed that during the year under consideration the assessee has made the payment of Rs.6,90,922/- only. Further it is pertinent to mention that the entire amount of payment was made for compounding of the theft case which was pending against the assessee. In these circumstances it is clear that this amount is paid by the assessee for compounding of the theft case and also violation of the electricity rules and law and this is nothing but an amount of penalty. Hence, the claim of the assessee is not acceptable and rejected and added back to the income of the assessee.” 4.3 He contended that CIT(A) while considering the matter has rightly held in favour of the department to the aforesaid extent. However, the tribunal has committed serious error in allowing the appeal observing as under:- 8. Section 45(2) provides that “Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way (5 of 6) [ITA-88/2018] of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.” 11. Further, it is noted that in compliance thereof, the assessee company has worked out long term capital loss of Rs. 4,52,640/- taking into consideration the full value of the consideration at Rs. 5,65,58,400/- as per valuation report dated 30.03.2005. The cost of acquisition was taken at Rs. 1,18,77,264/- as on 01.04.1981 as per valuation report dated 20.3.2005 and indexed cost thereof was computed at Rs 5,70,11,040. Since the partnership firm was succeeded by the assessee company, the cost of acquisition was determined as on 1.4.1981 in terms of provisions of section 49(1)(iii)(a) read with section 55(2)(b)(ii) as the partnership firm acquired the land prior to 1.4.1981. Further, the ld AR drawn our attention to the show-cause notice issued by ld CIT u/s 263 and subsequent order dropping the said proceedings and submitted that the valuation as on 1.4.1981 so determined by the assessee at Rs. 1,18,77,264/- has been accepted by the ld CIT and there is nothing in the reassessment order where the AO has again disputed the said value. The valuation so determined as on 1.4.1981 based on the valuation report has thus not been disputed by the Revenue nor any other DVO valuation have been brought on record. and we accordingly confirm the findings of the ld CIT(A) in this regard. 12. Further, since the stock-in-trade has been finally sold, the profit on sale of such stock-in- trade is to be brought to tax as business income in the year under consideration. As per the sale deed dated 18.07.2005, the land was sold to M/s Suncity Projects Pvt. Ltd. for a consideration of Rs. 7,57,00,000/- which was duly credited in the profit/loss account and offered to tax in the return of income after taking into consideration stock-in-trade of Rs 5,65,58,400 and other business expenses. The ld. CIT(A) has also returned a finding that the (6 of 6) [ITA-88/2018] assessee has offered a net profit of Rs. 1,13,02,091/- as business income in the return of income which has been accepted by the Revenue in the original assessment proceedings. 17. We have heard the rival submissions and perused the material available on record. As per letter dated 4.1.2006 of JVVNL, the assessee has paid an amount of Rs 6,90,922 through cheque and an amount of Rs 4,39,262 has been adjusted against bank guarantee, in total Rs 11,30,184 has thus been paid by the assessee. It consists of Rs 470,184 towards past dues at on the date of disconnection and fuel surcharge arrears and interest on late payment and balance towards the compounding charges relating to theft case. Accordingly, electricity dues totaling to Rs 470,184 is hereby allowed as settled and crystallized during the year and the balance is sustained on account of infraction of law. In the result, cross objection no. 2 is partly allowed. 5. In our considered opinion, in the previous year, the income of Rs. 1,18,77,264/- has already been accepted and the Tribunal has not committed any error in calculating the amount of Rs. Rs.1,13,02,091/- as business income. Therefore, no substantial question of law arises. 6. The appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J Brijesh 84. "