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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
आदेश / O R D E R
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-15, Chennai, dated 28.12.2017, and pertains to assessment year 2003-04.
We find that appeal filed by assessee is barred by limitation for which necessary petition for condonation of delay explaining the reasons for the delay has been filed. The learned counsel submitted that assessee could not file appeal within the time allowed under the Act, therefore delay may be condoned. Having heard both sides and considered the petition filed by the assessee for condonation of delay, we are of the considered view that reasons given by assessee for not filing the appeal within the time allowed under the Act comes under reasonable cause as provided under the Act for condonation of delay and hence, delay in filing of above appeal is condoned and appeal filed by the assessee is admitted for adjudication.
The assessee has raised the following grounds of appeal:
1. The order of The Commissioner of Income Tax (Appeals) - 15, Chennai dated 28.12.2017 in I.T.A.No.757/2013-14/CIT(A)-15 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case.
2. The CIT (Appeals) erred in sustaining the computation erf business profits from the transactions of sale of land to M/s.Macro Marvel Limited in rejecting the claim for computing the long term capital gains in relation thereto as well as reported by the Appellant in the ROI without assigning proper reasons and justification.
3. The CIT (Appeals) failed to appreciate that the treatment of the capital asset as stock-in- trade without examining the financial statements and further without examining the explanation offered in treating the capital asset as investment was wrong, erroneous, unjustified, incorrect and not sustainable in law, thereby vitiating the business profit computation.
4. The CIT (Appeals) went wrong in recording the findings in this regard in para 4.3.2 of the impugned order without assigning proper reasons and justification.
The CIT (Appeals) erred in restricting the disallowance of trading loss in para 5.3.2 of the impugned order which resulted in the cascading impact on the computation of taxable total income without assigning proper reasons and justification.
6. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.
7. The Appellant craves leave to file additional grounds/arguments at the time of hearing.
The brief facts of the case are that the assessee company is engaged in the business of construction and development of properties. During the financial year relevant to AY 2003-04, the assessee company had transferred a land at Vadapalani to M/s.Macro Marvel Projects Ltd., Chennai, for a consideration of Rs.2.46 crs. and computed long term capital loss at Rs.10,58,177/- after claiming indexed cost of acquisition. During the course of assessment proceedings, the AO noticed that the assessee main business activity is construction and real estate development and further, the assessee has classified land sold for the impugned assessment year as stock-in-trade up to AY 2002-03. However, from AY 2002-03, the land has been converted into investment and treated as capital asset.
Therefore, opined that profit or loss derived from sale of asset is assessable under the head ‘income from business’ and hence, called upon the assessee to furnish necessary details, including explanation to justify its case. In response, the assessee submitted that although, it is in the business of real estate development, but in so far as impugned land is concerned, the same has been treated as investment and further, a Joint Development Agreement was entered into with third party for development of said land and thus, it has rightly computed capital gain/loss from sale of land. The AO, however, was not convinced with the explanation furnished by the assessee and according to the AO, the nature of the asset sold by the assessee, is stock-in-trade, and any profit/loss derived from transfer of said asset is assessable under business profit and thus, rejected the arguments of the assessee and assessed profit or loss derived from sale of land under the head ‘income from profit/gains of business’ as against assessee admission under the head ‘income from capital gains’.
5. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee submitted that although, the land has been classified as stock-in-trade in the books of accounts up to AY 2001-02, but from AY 2002-03, the same has been converted into investment, because, the assessee had entered into a Joint Development Agreement with third party for development of the land at Vadapalani. Further, the assessee transferred the entire land to the nominees of third party during the financial year relevant to AY 2003-04 and accordingly, admitted profit or loss derived from sale of land under the head ‘capital gains’. The ld.CIT(A) after considering relevant submissions of the assessee and also taken note of various facts observed that the assessee was in the business of construction and real estate development.
Further, the assessee has classified all land held by it under the head ‘capital assets’ as stock-in-trade, including the impugned land sold in the relevant assessment year. Further, the assessee has not filed any evidences to prove that it has complied with relevant provisions when the land has been converted from stock-in-trade into investment. Therefore, the Ld.CIT(A) opined that profit or loss derived from sale of land is assessable under the head ‘business income’, but not under the head ‘capital gains’ as claimed by the assessee. Therefore, rejected the arguments of the assessee and upheld the findings of the AO. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us.
The Ld.AR for the assessee submitted that substance over form needs to be seen while assessing any income or expenditure. If you go by substance over form, in the present case, the assessee has rightly considered profit or loss from sale of land under the head ‘capital gains’.
Because, the land has been held as investment for the impugned assessment year and further, the assessee has entered into a Joint Development Agreement for development of land with third party.
Therefore, any profit or loss derived from sale of land, needs to be assessed under the head ‘capital gains’, but not under the head ‘income from business or profession’.
The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), submitted that there is no dispute with regard to the fact that the assessee’s main business activity was construction and real estate development. It was also not in dispute that the assessee held various properties as stock-in-trade, including impugned land sold for the assessment year. Although, the assessee claims to have converted stock- in-trade into investment for the AY 2002-03, but there is no evidence with the assessee to justify its arguments that it has satisfied conditions prescribed u/s.45(2) of the Act. Therefore, the AO has rightly assessed profit or loss under the head ‘income from business’ and their orders should be upheld.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from the record clearly indicate that the assessee was in the business of construction and real estate development. It was also not in dispute that the assessee had held the impugned land sold for the AY 2003-04 as stock- in-trade in the books of accounts for the earlier assessment years.
Although, the assessee claims to have converted stock-in-trade into investment for the AY 2002-03, but no evidence has been furnished before us to justify its case in light of provisions of Sec.45(2) of the Act. Further, the assessee has held many lands and classified as stock-in-trade.
Therefore, from the above facts, it is very clear that the assessee was acquired the impugned land held for the AY 2003-04, for the purpose of commercial exploitation and further, the conduct of the assessee, including accounting in the books of accounts is also supports the case of the AO that the impugned land was held as stock-in-trade. Therefore, in our considered view, profit or loss derived from sale of land held as stock-in-trade is assessable under the head ‘income from business or profession’ as assessed by the AO, but not assessable under the head ‘capital gains’ as claimed by the assessee. Further, although, the assessee claims to have converted stock-in-trade into investment, but there is no evidence with the assessee to prove its case in light of provisions of Sec.45(2) of the Act, because the assessee has not satisfied the conditions prescribed therein and also computed business profits towards conversion of stock-in-trade into capital assets. Hence, we are of the considered view that the assessee has computed profit or loss derived from sale of land under the head ‘capital gains’ to derive the benefit of indexation, otherwise, all evidences including accounting system clearly suggest that impugned land sold by the assessee was stock-in-trade and profit or loss derived from sale of said land is assessable under the head ‘income from business or profession’. Therefore, we are of the considered view that there is no error in the reasons given by 7 :: the AO as well as the Ld.CIT(A) to assess profit or loss derived from sale of land under the head ‘income from business or profession’ and thus, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the assessee.
In the result, appeal filed by the assessee is dismissed.
Order pronounced on the 11th day of January, 2023, in Chennai.