ACIT, NCC 4(1), CHENNAI vs. M/S MASTER DEVELOPERS, CHENNAI

This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 5, Chennai, dated 13.03.2020 relevant to the assessment year 2010-11. The grounds raised by the Revenue are as under:

Facts are, in brief, that the assessee is engaged in the business of real estate and land promotion and filed its return of income for the assessment year 2010-11 admitting total income of ₹.43,45,868/-. The case was selected for scrutiny and the assessment was completed under section 143(3) of the Act, 1961 [“Act” in short] dated 19.03.2013 assessing total income of the assessee at ₹.54,35,068/- by making an addition of ₹.10,89,200/-. Subsequently, the assessing Officer issued notice under section 148 of the Act dated 30.03.2017 and reopened the assessment. In response to the notice issued by the Assessing Officer, the assessee filed return of income on 22.04.2017 and also submitted that the land which was purchase was in the nature of agricultural land and the same was capital asset and hence subjected to long term capital gains. Cost of improvement of ₹.14,98,000/- was duly supported by bills and sufficient proof produced at the time of scrutiny. It was further submitted that the land at Kossapur was purchased in the year 2006 as investment asset only with the intention of holding it for long term and the land was never purchase with the intention of business. Moreover, the said land has been regularly right from 2006 onwards disclosed in our books as fixed asset and not as stock-in-trade. The Assessing Officer has considered the above submissions of the assessee and he has noted that the land was transferred only as an agricultural land and the assessee’s contention that the improvement was carried out in February, 2010 by site cleaning, levelling work by JCB for 1 acre, sectioning and formation of site & complete cement fencing with barbed wire laying including materials and labours, etc. at the cost of ₹.14,98,000/- was not sustainable. The Assessing Officer came to the above conclusion for the reason that the Valuation Officer has noted that the subject property is an agricultural land and the land is situated far away from Theyambakkam village link road and does not have proper approach road to reach the site. Also, no basic civic amenities are available nearby. Comparable sale instances are not available for the similar agricultural land properties in the same locality during the relevant period. Further, the Valuation Officer has reported that the property is remaining as vacant land as on 32.01.2013. Accordingly, the Assessing Office disallowed the development expenses claimed by the assessee and also held that the capital gain accruing from the transfer was “income from business” instead of “long term capital gains”.

On appeal, the ld. CIT(A) has considered the entire issue and also valuation officer’s report and noted that the assessee has discharged its onus to substantiate the expenditure claimed on account of cost of land improvement to the tune of ₹.14,98,000/- and also held that the gain arising out of transfer of land are in the nature of long term capital gains and not business income and deleted the addition made by the Assessing Officer.

Aggrieved, the Revenue is in appeal before the Tribunal. Referring to the grounds of appeal, the ld. DR has submitted that the assessee firm is engaged in the business of real estate and during the year in question, the act of the assessee in purchasing land, developing the same and selling the same at higher cost shows that the intention of the assessee is business only and not investment.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. We find that the Assessing Officer has passed the assessment order under section 143(3) r.w.s. 147 of the Act dated 13.11.2017 on the basis of the Valuation Officer’s report and came to a conclusion that the land sold by the assessee is far away from the Theyambakkam village link road and does not have proper approach road to reach the site. Also, no basic civic amenities are available nearby. Comparable sale instances are not available for the similar agricultural land properties in the same locality during the relevant period and therefore, the development expenses claimed by the assessee cannot be allowed. The case of the assessee is that it had developed the land and sold it. After examining the materials available on record, the ld. CIT(A) has observed that the subject property was disclosed as fixed asset in the Balance Sheet of the firm and not as stock-in-trade at the time of purchase. After considering the submissions of the assessee that section 2(14) of the Act defines capital asset as any kind of property held by the assessee whether or not connected with business or profession of the assessee. The ld. CIT(A) has further observed that the impugned property is remaining as vacant land on the date of inspection on 23.01.2013 has no relevance as the land improvement cost pertains to the previous year ending 31.03.2010 i.e., during the previous year 2009-10 relevant to the impugned assessment year 2010-11. The ld. CIT(A) has further observed that without verifying the claim made by the assessee that the land improvement was carried out in February, 2010 in the form of site cleaning, levelling work of land by JCB, sectioning and formation of site & complete cement fencing with barbed wire laying including materials & labour, etc. the disallowance of such cost is not called for, in fact, in the original assessment proceedings, the Assessing Officer has verified these costs. Therefore, by considering the entire facts and circumstances of the case, the ld. CIT(A) has rightly deleted the addition made by the Assessing Officer. Thus, we find no reason to interfere with the order passed by the ld. CIT(A).

In the result, the appeal filed by the Revenue is dismissed. Order pronounced on 22nd February, 2023 at Chennai.