SUNITA ADUKIA,RANCHI vs. DCIT CIR-2, RANCHI

The above captioned appeals have been filed by two assessees

against the separate orders of the Commissioner of Income Tax(Appeals)-

Ranchi both dated 16.10.2017 for the assessment year 2013-14.

that the facts and circumstances of both the appeals are identical and

P a g e 1 | 17 similar as the land on which construction of flat was done was purchased by

Smt. Asha Devi Adukia on 10.11.1981 jointly with Rajesh Adukia, who

gifted her part of the land with building to her son Prakash Kumar Adukia

on 20.11.2006. For the sake of convenience of adjudication, we are taking

up the appeal in ITA No.14/Ran/2018 in the case of Rajesh Kumar Adukia

as a lead case to decide the controversy.

as under:

“i) For that search and seizure operation was initiated against the assessee u/s 132 of IT Act on 19.01.2017. as per second proviso to section 153 A(l) of income tax act. The assessment order passed by Assessing Officer for A/Y 2013-14 and for which appeal was pending has abated on the date search is initiated i.e 19.01.2017. Order passed by Honourable CIT (appeal) dated 16.10.2017 is a void order. The order is passed on assessment which has abated. Assessee brought this fact in the notice of learned CIT (appeal).Assessee request Honourable ITAT to treat the order of CIT (appeal) as well as assessment order as cancelled since, Assessee's income for A/Y- 2013-14 is being reassessed u/s 153A of income tax act.

(ii) For that the Ld. CIT (A), Ranchi erred in treating the activity of self construction of building on owned land and selling subsequently as adventure in the nature of trade and ignored our ground of appeal. The Ld. CIT (A) erred in treating income as business income instead of long term capital gain. It is the capital assets of the assessee and should be treated as capital gain.

(iii) For that the Ld. CIT (A), Ranchi erred in calculating profit earned from sale of flats by arbitrary enhancing the value of unsold flats at market rate instead of cost price. (iv) For that the order passed u/s 143(3) of the Income Tax Act, 1961, treating the Long Term Capital Gains as Short Term Capital Gain is bad in law as well as in facts and against the Principles of natural justice and therefore liable to be set aside.

P a g e 2 | 17 (iv) For that the order passed u/s 143(3) of the Income Tax Act, 1961, treating the Long Term Capital Gains as Short Term Capital Gain is bad in law as well as in facts and against the Principles of natural justice and therefore liable to be set aside..

(v) For that the learned Assessing Officer erred in law as well as in facts of the case, while treating the Long Term Capital Gain as Short Terms Capital Gain and failed to appreciate the fact the assessee had sold one composite unit of flat and not land and flat separately. For all practical purposes, flat and land cannot be separated.

(vi) For that the learned Assessing Officer erred in treating the flats as Short Term Capital Asset. The learned Assessing Officer had done a self contradictory addition. The learned Assessing Officer in Principle had accepted the flats was constructed in Financial Year 2009-10. Also the learned Assessing Officer had accepted that flat was sold in Financial Year 2012-13 (A.Y. 2013-14). The period between Financial Year 2009-10 to Financial Year 2012-13 is 48 months. Thus flats had to be treated as Long Term Capital Asset.

(vii) The learned Assessing Officer erred in law in applying stamp duty value to calculate the capital gain without referring the case to DVO. Even the assessee had objected that the stamp duty value was higher than the market value.

(viii) For that the learned Assessing Officer also failed to consider the submission of the assessee and intention of the assessee in respect of long term capital asset.

(ix) For that the learned Assessing Officer was not justified in disallowing the deduction u/s 54 of the Income Tax Act, 1961 from the long term capital gain so determined in the assessment order and misinterpreted the provision of income tax act as stipulated in section 54.

(x) For that the learned Assessing Officer was not justified in charging interest u/s 234A, 234B and 234C of the Income Tax act, 1961, keeping in view of the order passed by the Hon'ble Jharkhand High Court in the case of Ajay Prakash Verma in T.A.No. 38 of 2010.

(xi) For that the appellant craves for leave to add, delete, amend or modify any ground before or at the time of appellate proceedings.”

P a g e 3 | 17

income on 31.3.2014 declaring total income of Rs.17,12,450/-. The income

of the assessee includes income from partnership firm, house property and

other sources and long term capital gain from sale of flats. The assessee

alongwith Smt Asha Devi Adukia purchased a land with building on

10.11.1981. Smt. Asha Devi Adukia gifted her part of the land with building

to Prakash Kumar Adukia on 20.11.2006. Thereafter, the assessee

alongwith Prakash Kumar Adukia decided to develop and construct flat after

demolishing the old structure on the land and constructed 12 flats. For

constructing the flat on total area of 44,298 sq. ft from the financial year

2009-2010 to 2013-14, an amount of Rs.5,92,54,714/- was incurred. Out of

12 flats, four flats were sold in the assessment year 2013-14 at the rate of

Rs.66,00,000/- per flat and 2 flats were sold in assessment year 2014-15 at

the rate of Rs.78,00,000/- per flat. The Assessing Officer calculated the

long term capital at Rs.10,70,123/- and short term capital gain at

Rs.25,34,024/- and assed the total income at Rs.53,16,597/-.

adventure in nature of trade as defined under section 2(13) of the Act and

that profits arising therefrom are chargeable to tax under the head “profits

and gains of business or profession” under section 28 of the Act. The ld

CIT(A) enhanced the income to Rs.1,63,60,920/- and took the closing cost

of balance 8 flats at Rs.78,00,000/- per flat at which 2 flats have been sold

P a g e 4 | 17 in the next financial year in place of cost incurred in the construction.

Accordingly, the claim of deduction under section 54F was not allowed

against the income from sale proceeds of the flat. Hence, the assessee is in

appeal before the Tribunal.

of self-constructed building on own land and selling the flats subsequently

as adventure in nature of trade and ignoring the fact that it was one time

venture. He submitted that neither before nor subsequently, the assessee

had undertaken such kind of activity of construction of flats and selling the

same. Placing the reliance on various decisions including the decisions of

Hon’ble Supreme Court in the case of Saroj Kumar Mazumdar vs CITA, 37

ITR 242 (SC), in the case of Janaki Ram, Bahadur Ram vs CIT, 57 itr 21

(SC) and Hon’ble Bombay High Court in the case of CIT vs. Anandlal

Becharlal & co. 107 ITR 677 (Bom), ld A.R. submitted that the nature of

transaction must be determined on consideration of all the facts and

circumstances, which are brought on record of the authorities below. Ld

A.R. submitted that Hon’ble Supreme Court in the case of Janaki Ram

Bahadur Ram (supra) has held that the transaction of purchase of land

cannot be assumed without more to be venture in the nature of trade. The

mere fact that the owner of an immovable property takes steps to enhance

its value before selling, it does not amount to an adventure in the nature of

trade. Ld A.R. strenuously contended that there is no iota of evidence that

P a g e 5 | 17 either pre-proceeding period or subsequent period, the assessee undertook

any other project or business of construction of flats and selling the same

as regular business. Therefore, the CIT(A) was not correct and justified in

holding the activities of construction of flat and further selling part of the

same as adventure in nature of trade.

CIT(A) submitted that in the case of ITO v.s vs. Ch.

Atchaiah (1966) 218 ITR 239 (SC), the Hon’ble apex Court held that the

AO must tax the right person and the right person alone and ‘right person'

means the person who is liable to be taxed, according to law, with respect

to a particular income. Ld D.R. submitted that the CIT(A) was right in

taxing the income of the assessee from sale of flats as business income

treating the activities of construction and selling the flat as adventure in

nature of trade. Therefore, ld DR submitted that the CIT(A) was right in

treating the sale as adventure in the nature of trade and taxing the income

as business income of the assessee.

I respectfully observe that in the case of vs. Ch. Atchaiah (supra) in the

relevant para as reproduced by the CIT(A) in para 5.22, Their Lordships

speaking for the apex court held that the Assessing Officer can and he must

tax the right person and the right person alone. Bu ‘right person’ is meant

the person who is liable to be taxed according to law, with respect to a P a g e 6 | 17 particular income. For this proposition, Their Lordships categorically held

that merely because a wrong person is taxed with respect to a particular

income, the Assessing Officer is not precluded from taxing the right person

with respect to that income. In my humble understanding, this proposition

rendered by Hon’ble Supreme Court enlightens tax authorities and the

Tribunal rendering the proposition that the Assessing Officer is empowered

to tax the right person and merely because a wrong person is taxed, the

Assessing Officer is not debarred in taxing in the hands of right person For

this proposition, I am unable to see any observations of Hon’ble Supreme

Court regarding taxing an income as business income as adventure in the

nature of trade in a particular and peculiar facts and circumstances.

Therefore, I take respectful cognizance of this proposition that the right

person should be taxed and with respect to a particular income and the

expression of wrong persons is obviously used as the opposite of the

expression of ‘right person’.

adjudication. First of all, I observe that Hon’ble Delhi High Court in the case

of Shanti Banerjee vs DCIT in ITA No.299/2003 order dated 17.11.2015, as

vehemently relied by ld A.R., held that where there was no material on

record from which it could be said that the assessee ever had the intention

to exploit the plot as a commercial venture. Merely because six flats had

been constructed out of which four were sold to friends, it would not show

P a g e 7 | 17 that it was ‘ an adventure in the nature of trade’ . It was held by Hon’ble

High Court that merely because the assessee sold two plots that fell to her

share pursuant to collaboration agreement in respect of the property owned

by her since 1956, it would not render the transaction as an ‘adventure in

the nature of trade’ leading to the resultant receipt as business income in

the hands of the assessee. Similar view has been expressed by Hon’ble

Bombay High Court in the case of CIT vs. Anandlal Becharlal & Co. (supra),

wherein, it was held that a solitary transaction of purchase of land by the

assessee firm, doing business of jewellers, for purposes of building houses

for partners and its sale six years later due to the unhealthy conditions of

the locality, could not constitute an adventure in the nature of trade,

especially when the land is not ordinarily a commercial commodity.

1o At thus juncture, I also find it necessary to take cognizance

of the decision of Hon’ble Supreme Court in the case of Saroj Kumar

Mazumdar (supra), wherein, it was held that in a case where a transaction

under examination is not in the line of the business of the assessee and is

an isolated or a single instance of a transaction, the burden lies on the

revenue to bring the case within the words of the statute, namely, that it

was an adventure in the nature of trade. Similar view has been expressed

by Hon’ble Supreme Court in another decision in the case of Janaki Ram

Bahadur Ram (supra), wherein, Their Lordships observed that a transaction

of purchase of land cannot be assumed without more to be venture in the

P a g e 8 | 17 nature of trade. The mere fact that the owner of an immovable property

takes steps to enhance its value before selling, it does not amount to an

adventure in the nature of trade.

on 10.11.1981 and after passage of 26 years, the owners of land applied for

permission/sanction of constructing the building on 17.2.2007 and got

sanction on 4.5.2007. Subsequently, the construction was started on

19.6.2009, which was partly completed during the financial year 2012-13

and fully completed during financial year 2013-14 pertaining to assessment

year 2014-15. On careful reading of the assessment order and first

appellate order, I am unable to see any evidence to show that either during

the preceding financial year or during subsequent financial year, the

assessee had ever under taken any activity of construction and selling of

flats excepts activity of developing the land, constructing the building and

selling the same, which is under assessment in assessment year 2013-14.

In the totality of the facts and circumstances of the case, I have no

hesitation to hold that the development and construction of flats on the land

purchased before 26 years is only act of the assessee with an intention to

enhance the value of capital asset before selling the same and same cannot

be treated as adventure in the nature of trade and thus, the income

deriving on selling of flats cannot be treated as business income from

partnership firm. I am satisfied with the contention of the assessee that it

P a g e 9 | 17 was only instance when the assessee applied for sanction of construction of

flat for the last purchase of land and building on 10.11.1981 and no other

instances have been brought on record showing that the assessee was in

the regular business of construction and selling of flats. Therefore, the view

and findings recorded by the CIT(A) in the first appellate order cannot be

held as sustainable and thus, I dismiss the same. Accordingly, I direct the

Assessing Officer to treat the income from selling of flats as capital gains.

the income accrued to the assessee from selling of four flats in the present

assessment year 2013-14 is long term capital gain or short term capital

gain. On this issue, ld A.R. has contended that the Assessing Officer has

bifurcated the receipts from selling of flats in long term capital gain as well

as short term capital gains. Ld A.R. explained that the part of sale

consideration out of total sale consideration on sale of flats has been

treated as long term capital gain and construction receipts has been treated

as short term capital gain in spite of the fact that the authorities below have

accepted that the expenses on improvement and construction of the land

and building has been started during financial year 2009-2010 and

completed in 2013-14. Ld A.R. also contended that the land and building

was capital assets and the entire amount of receipts should be treated as

long term capital gain.

P a g e 10 | 17

synopsis filed by the assessee and submitted that the assessee sold four

flats during financial year 2012-13 relevant to assessment year 2013-14 and

construction was started from financial year 2009-2010 but the substantial

amount of construction has been invested during financial years 2010-2011,

2011-12, 2012-13 and 2013-14 and out of total cost of construction shown

by the assessee of Rs.5,92,54,714/-, only a meagre amount of

Rs.51,98,963/- have been expensed during financial year 2009-2010.

Therefore, the entire income accrued to the assessee from the sale of flats

cannot be treated as long term capital gain. Ld D.R. submitted that the AO

was right in bifurcating the income in two parts i.e. income from sale of

land and income from sale of flats as long term capital gain and short term

capital gain, respectively. Therefore, the orders of lower authorities may

kindly be upheld.

considered view that so far as treating partial income on proportionate basis

on sale of land attributable to each flat as long term capital is correct action

of the Assessing Officer and I am unable to see any ambiguity, perversity

and valid reason to interfere with the same.

sale of flat is concerned for assessment year 2013-14 as per section 45 of

the Act as applicable for financial year 2012-13 i.e. previous year under P a g e 11 | 17 consideration, for claiming capital gain, it was the onus of the assessee to

show that after acquiring the property, he held the same for minimum

period of three years and thereafter same was sold. In this situation, the

capital gain earned therefrom should be treated as long term capital gain.

Undisputedly, the construction map was approved on 4.5.2007 and the

assessee started the construction on 19.6.2009, which was partly completed

during financial year 2012-13 pertaining to assessment year 2013-14 and

fully completed in the subsequent assessment year 2014-15. From the

table submitted by the assessee in the written synopsis, it has not been

disputed and controverted by ld D.R. that out of total construction cost of

Rs. 5,92,54,714/-, only Rs.51,90,963/- has been expenses during financial

year 2009-2010, which is less than 10% of total expenses of construction.

In this situation, I am inclined to hold that maximum cost of expenditure

was incurred during financial year 2012-13 and 2013-14 and four flats have

been sold by the assessee during financial year 2012-13 pertaining to

assessment year 2013-14. Therefore, I am of the opinion that when the

construction of flats and sale of the same was completed during financial

year 2012-13, then the holding period of such capital asset cannot be

treated as more than three years on the date of sale. In this situation, the

income accrued to the assessee from sale of flats cannot be treated as long

term capital gain and the AO was right in treating the said income as short

P a g e 12 | 17 term capital gain. Accordingly, this ground of the assessee being devoid of

merits, is dismissed.

whether the authorities below are right in dismissing the claim of the

assessee u/s. 54F of the Act on the ground that residential flat was not

constructed after the date of transfer and they were constructed alongwith

saleable flats.

exemption u/s.54F of the Act as the income earned or accrued to the

assessee from sale of flats has been utilised for the purpose of construction

of flats kept by the assessee for his residential purpose. Ld A.R. further

drawn my attention towards judgment of Special Bench of ITAT Kolkata in

the case of Octavius Steel & Co. ltd vs ACIT, 83 ITD 087 (Kol) (SB) and

CBDT circular No.791 dated 2.6.2000 and submitted that for the purpose of

claiming deduction u/s. 54EA/54EB/54EC, the date of transfer shall be the

date on which the stock-in-trade is sold or otherwise transferred by the

assessee and not on the date of conversion of the capital asset into stock-

in-trade. Ld A.R. submitted that on conversion of capital asset into stock-in-

trade, there is no profit as no can make profit out of himself and this

situation is now clarified by the legislature by introducing provisions of

section 45(2) of the Act, which provides that for taxation where the

converted stock-in-trade is sold and difference between the market value P a g e 13 | 17 on the date of conversion and actual cost is the capital gain, then the

difference on transfer or sale of capital asset shall be the date of transfer of

stock -in-trade and not the date on which capital asset was converted into

stock-in-trade.

and submitted that residential flat on which exemption u/s.54F has been

claimed by the assessee was not constructed after the date of transfer but

constructed alongwith saleable flats. Therefore, the exemption was righty

disallowed by the AO. Ld D.R. further contended that as the CIT(A) treated

the income from sale of flats as income from business or profession,

therefore, exemption u/s.54F of the Act cannot be allowed to the assessee

out of business income.

may point out that since in earlier part of this order, I have held that the

activity of construction and sale of flat was not in the adventure in nature of

trade and income accrued to the assessee from sale of flats has to be

treated as long term capital gain and thus, ground of disallowance of

exemption u/s.54F of the Act by the Assessing Officer cannot be held as

sustainable. Further, from the relevant part of the assessment order, I

observe that the AO has denied exemption u/s.54F of the Act on the ground

that residential flat was not constructed after the date of transfer of

P a g e 14 | 17 saleable flats. Therefore, he held that the assessee is not entitled for

exemption u/s. 54F of the Act.

dated 2.6.2000 (supra), which clarified that for the purpose of claiming

deduction u/s. 54EA/54EB/54EC, the date of transfer shall be the date on

which the stock-in-trade is sold or otherwise transferred by the assessee

and not on the date of conversion of the capital asset into stock-in-trade.

Further, Special Bench of ITAT Kolkata in the case of Octavius Steel & Co.

Ltd (supra) has held that on conversion of capital asset into stock-in-trade,

there is no profit as no can make profit out of himself. Further, as per

amended sub-section(2) of section 45 of the Act, which was inserted by the

Taxation Legislation (Amendment Act), 1984 w.e.f. 1.4.1985,

notwithstanding anything contained in sub-section (1), the profits or gains

arising from the transfer by way 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. Therefore, in view of above CBDT circular and order of Special

Bench of Kolkata Bench of the Tribunal in the case of Octavius Steel & Co.

P a g e 15 | 17 Ltd (supra), I have no hesitation to hold that the Assessing Officer was also

not correct in denying benefit of section 54F of the Act to the assessee on

the ground that residential flat was not constructed after the date of

transfer but alongwith saleable flats.

out of which 4 flats were sold in the assessment year 2013-14 and partial

capital gain was accrued to the assessee during this period. From the table

submitted by the assessee and not disputed by the department, it is clearly

discernible that the assessee has incurred huge expenditure of

Rs.1,91,22,401/- and Rs.1,92,80,023/- during financial year 2012-13

relevant to assessment year 2013-14 and obviously, this cost has been

incurred by the assessee towards construction of flats, which were kept by

him for his residential purposes and for claiming exemption u/s.54F of the

Act. Therefore, I have no hesitation that the assessee is very much entitled

for claiming exemption u/s.54F of the Act out of income accrued to him on

sale of flats during present assessment year 2012-13. Consequently, I

direct the AO to allow exemption u/s.54F of the Act to the assessee and re-

calculate the capital gain while giving appeal effect in pursuance to this

order.

234B, I find that Hon'ble Jharkhand High Court in the case of Ajay Prakash

Verma Vs. ITO(2010) TA No 38 of 2010 reported in 2013(1) TMI 140, has P a g e 16 | 17 held that the revenue can levy the interest only on the total income

declared in the return of income and not on the income. Therefore, the AO

is directed to delete the interest levied u/s. 234A and 234B of the Act as the

same has been charged on the assessed income.

ITA No.15/Ran/18-Sunita Adukia.

Order pronounced in the open court under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 on / 10/2019. Sd/- (Chandra Mohan Garg) JUDICIALMEMBER Ranchi; Dated 30/10/2019 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellants : Rajesh Kumar Adukia/Sunita Adukia, Vyapar Bhawan, Lalji Hirji Road, S.N.G. Road, Ranchi 2. The Respondent. DCIT, Circle-2, Ranchi 3. The CIT(A)-Ranchi 4. Pr.CIT- Ranchi 5. DR, ITAT, Ranchi 6. Guard file. By order //True Copy//

Sr. Pvt. Secretary, ITAT, Cuttack

P a g e 17 | 17