SANJAY BAJPAI THROUGH LEGAL HEIR SARITA BAJPAI, RAIPUR,RAIPUR vs. ACIT, CIRCLE-3(1), RAIPUR, RAIPUR

The assessee has raised following grounds of appeal: “1. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals), NFAC has erred in confirming the addition of Rs.2,12,80,946/- made by the Id. Assessing Officer on account of alleged closing stock of land pertaining to roads/gardens without appreciating the facts of the case in their entirety.

Submission of Ld. Authorised Representative of Assessee : The Ld. AR for the assessee submitted that the assessee is into the business of purchasing large tracts of land, developing the same into saleable plots after preparing and obtaining approval of layout plans from the appropriate local authorities and sales thereof. The ultimate purpose of small plots bought by the buyers is construction of houses. Therefore, the assessee has to carry out his operations strictly under the regulatory mechanism of Town and Country Planning Department, Govt. of Chhattisgarh, which ensures systematic and proper development of urban areas into townships and settlements. Under the statutory requirements, a layout plan is approved only when requisite provision for Internal Roads, Drainage, Common Gardens, Parks, etc. is made. The land areas covered by these civic amenities are not saleable. Ld. AR further submitted that as per business practice, once layout plot is approved, the appellant commences earmarking roads, garden, etc. as per approved layout plan, conducts filling and   evelling, developing, constructing morrum roads, drainage, etc. to facilitate easy identification of plots and to enable buyers to select plot numbers as per their choice. He submitted that the appellant maintains quantitative details and follows mercantile system of accounting right from the beginning and makes valuation of closing stock is made at cost price and it is verifiable from Audit Report, therefore, since the roads, gardens, etc. are not saleable and registration thereof cannot be made to any of the buyers, value of the same including development expenses, being direct in nature, are excluded from the value of closing stock. This exclusive method is consistently and regularly followed from past several years. However, in sale price the proportionate cost of land, proportionate cost of road/ garden development, land filling expenses, relatable to the area sold during a year received from customers is included. Receipts from the same are separately credited to the Trading and Profit & Loss A/c. He further submitted that the assessee had purchased agricultural lands and prior to commencement of development activities, diversion of lands for change in land use is required therefore observation of Id. Assessing Officer that lands were Rot diverted is correct. However, it is also true that before diversion of such lands, these were let out to farmers for agricultural activity. He submitted that as per clause (a) of section 2(1A) of the Act, “agricultural income” means any rent or revenue derived from land which is situated in India and is used for agricultural purposes. Therefore, any rent received from letting out of land used for is agricultural purposes is agricultural income. There is no distinction regarding classification of land whether treated as stock-in- trade or as fixed assets, which will be relevant for classifving nature of income derived from such land. In other words, presentation of land in the balance sheet is not deciding factor for categorizing its nature of income. Regarding ground No. 4, he submitted that assessee has not earned any income from any investments except interest income of Rs.3,078/- from term deposit credited in profit & loss account. To support his above contentions, Ld. AR relied on various judgements:

Ld. Sr. DR vehemently argued and supported the order of the Ld. AO and Ld. CIT(A).

We have heard both the parties and perused the records.

Ground No. 1: In this case Ld. AO has made addition of Rs.2,12,80,946/- to the closing stock on account of under valuation. Admittedly, the assessee derived income from business of real estate development and trading of plots, flats and shops and accordingly earned the income. During the course of assessment proceedings, it was noted by Ld. AO that the assessee has sold 15,04,467 sq. ft. of land, the assessee also claimed that out of which 3,05,583 sq. ft. land was consumed in development of roads and gardens. The Ld. AO considered the value of 3,05,583 sq. ft. of land in the valuation and made addition of Rs.2,12,80,946/-. According to the Ld. AO, the assessee has not included 3,05,583 sq. ft. of land in the closing stock. It was submitted before the Ld. AO by the assessee that the assessee had consumed that land in the development of roads and gardens, therefore, the said land was not available for sale, hence, it cannot be considered as closing stock. It was also submitted during the assessment proceedings by the assessee that the assessee has been following this method consistently. For earlier years and subsequent year also, there has been no addition. In this case, the assesse had considered 3,05,583 sq. ft. of land as not saleable land, therefore, the assessee had not considered the value of the said land under closing stock. It is also a fact that consistently the assessee had followed the same method of accounting. The Ld. AO has not disturbed the opening stock of the assessee. It is a fact that the area under gardens and roads cannot be sold to any purchaser. Also, it was required for Ld. AO to follow the principles of consistency. The AO has not disturbed the earlier year’s assessment.

Ground No. 2: Ground No. 2 is regarding the addition of Rs.3,00,000/- on account of agricultural income. The assessee has pleaded that the assessee had given certain agricultural land on lease to the farmers and earned Rs.3,00,000/- of rent, therefore, the assessee claimed the same as an agricultural income. It has been noted by the Ld. AO that no evidence has been filed by the assessee.

Ground No. 3: Ground No. 3 is regarding the addition made under section 14A of the Act. It is an admitted fact mentioned in the order of the Ld. CIT(A) that during the year, there is no exempt income earned by the assessee. Once the assessee has not earned any exempt income in the year no addition can be made under section 14A of the Act. In this facts and circumstances of the case, we direct the Ld. AO to delete the addition of Rs.11,71,730/- made under section 14A of the Act.

It was submitted during the appellate proceedings before this Tribunal that the assessee did not wish to press the grounds No. 5 to 7. No pleading made regarding grounds No. 5 to 7 as the assessee was not pressing the same, accordingly, the grounds No. 5 to 7 are dismissed as not pressed.

Grounds No. 8 and 9 are general in nature, therefore, needs no adjudication. Accordingly, these grounds are dismissed.

In the result, the appeal of the assessee is partly allowed.