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Income Tax Appellate Tribunal, SURAT BENCHES, SURAT
Before: Shri Amarjit Singh
IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCHES, SURAT Before: Shri Amarjit Singh, Accountant Member And Ms. Madhumita Roy, Judicial Member ITA No. 1222 /Ahd/2016 Assessment Year 2004-05
Chandrasinh Ramsinh The ITO, Parmar, Parmarwadi, Sayli Silvassa Ward, Road, Silvassa, Dadra & Vs Silvassa-396191 Nagar Haveli-396230 (Respondent) PAN: AIYPP9167f (Appellant)
Revenue by: Ms. Anupma Singla, Sr. D.R. Assessee by: Shri Hiren Vepari, A.R. Date of hearing : 20-11-2018 Date of pronouncement : 12-02-2019 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee’s appeal for A.Y. 2004-05, arises from order of the CIT(A), Valsad dated 03-03-2016, in proceedings under section 143(3) r.w.s. 254 of the Income Tax Act, 1961; in short “the Act”.
The assessee has raised following grounds of appeal:- “(I) Reopening of assessment: The learned Commissioner of Income-tax (Appeals) ought to have held that reopening was bad in law because (i) no income had escaped assessment as neither u/s.45(2) nor u/s.45(3), transfer had taken place during the year resulting in capital gain and
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(ii) no new material was received but reopening was done on the basis of notes attached with return of income and reappraisal, (II) Determination of long term capital gain at Rs.83,23,674: (1) On the facts and circumstances of the case and as per law, the learned Commissioner of Income-tax (Appeals) erred in confirming determination of capital gain at Rs.83,23,674 because (i) the land in question had nil cost and therefore, there was no question of charge of capital gain on transfer of such and (ii) when the appellant had converted land into stock-in-trade and such stock-in-trade was introduced in partnership, there was no question of any transfer resulting into capital gains u/s.45(3)of the Act. (2) The appellant further submits that the learned Commissioner of Income-tax (Appeals) ought to have adjudicated on the issue regarding transfer u/s.45(2)/45(3) of the Act particularly when the above issue was disputed by the appellant before the Income-tax Appellate Tribunal who directed it to be considered and was never conceded as observed by the learned Commissioner of Income-tax (Appeals) in the first round. (3) Without prejudice to the above, even if it is held that provisions of section 45(3) of the Act applied, as per that provision the value had to be taken as was recorded in the books of accounts which was nil. (III) Working of capital gain: (1) Without prejudice to the above, the appellant submits that there was no justification for determining fair market value or transfer price at Rs.2000 when such value was much less as determined by the report of the approved valuer which has not been controverted. (2) On the facts and circumstances of the case and as per law, the valuation has been wrongly made.”
The brief fact of the case is that assessee is an individual deriving income from partnership firm M/s. C.N. Builder and Developer, interest income and income from agriculture. The assessee has filed return of income on 30th October, 2014. Subsequently, the case was reopened u/s. 147 of the act and notice u/s. 148 of the act was issued and served upon the assessee on 26th August, 2008. The assessee was also provided with the reason for reopening the assessment which is reproduced as under:- “In this case the assessee filed return of income on 30/10/2004 declaring total income at Rs. Nil On verification of the return of income it is seen that the assessee has converted 14300 Sq. Mtrs of Agriculture land into Non Agriculture Land on 25/5/2000 and thereafter converted the same into stock in trade. Out of this land 4960 Sq. Mtrs of Land., has been transferred to the Partnership Firm M/s. C.N. Builders & Developers, Siivassa on 18/10/2003, as capital contribution. As per Section 45(2) r.w.s 2(47), conversion of property into stock-in-trade-and thereafter transfer of such property as the capital contribution amounts-to -transfer within the meaning of Section 2(47) liable for Long Term Capital Gain. The land in question for this year was become the property of the assessee before 1981 and therefore, provisions of Section 55(2)(b)(i) which reads as under are applicable to the assessee:- (i) where the capital asset became the property of the assessee before 1st day of April, 1981 , means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 1981 , at the option of the assessee; In A.Y.2004-05, the fair market value of the land per sq.meter in the 'nearest vicinity was taken at Rs.72/- as on 1/1/1981 as per Revenue Authorities Certificate, and accordingly, the fair market value of 4960
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Sq.Mtr. of land which was transferred by the asses-see to M/s. C.N. Builders & Developers as on 1/1/1981 is Rs.357120/- which is the cost of acquisition of the land and therefore, the indexed cost of acquisition as on 18/10/2003, i.e. as on date of transfer is Rs.357120/- x 4.63 i.e. Rs.1653465/- only, In A.Y.2005-G6, relevant to F.Y.2004-05, the assessee has sold the land in the nearest vicinity at Rs.2108/- per Sq. Meter. Considering 5% increase in fair market value" AY.2005-06, the market value for F.Y.2003-04 relevant to A.Y.2004-05, is taken at Rs.2000/- per Sq. Meter, and accordingly the market value of 4950 Sq. Meters of Land transferred to M/s. C.N. Builders comes to Rs.99,20,000/- and therefore, Long Term Capita! Gain to the extent of Rs.82,66,535/- (Rs.99,20,000/- minus Rs.16,53,465/-) has escaped assessment. I have therefore, reason to believe that income to the extent of Rs.82,66,535/- has escaped assessment within the meaning of Section 147 of the Act and hence it requires proceedings to be initiated u/s.147 of the IT. Act; 1961. Accordingly notice u/s.148 of the IT. Act, 1961 is hereby issued. Sd/- (MOHANAN. D), ITO, Vapi Ward-1, Vapi” The assessing officer noticed that the assessee has converted 14,300 Sq. Mt. of agricultural land in to non agricultural land on 25.05.2000 and thereafter converted the same into stock in trade. Out of this land the assessee has transferred 4,960 sq. meter of land to M/s. C.N. Builder and Developer on 18.10.2003 as capital contribution. The above mentioned fact has been disclosed by the assessee in the notes forming part of return of income for assessment year 2004-05. On verification, the assessing officer noticed that the assessee has made conversion of capital asset into stock in trade by way of disclosure in assessment year 2004-05. Therefore, the assessing officer observed that as per section 45(2) r.w.s. 2(47) conversion of property into stock in trade and thereafter transfer of such property as capital contribution amount to transfer within the meaning of section 2(47) which is liable to long term capital gain. The assessee has responded that the transfer of stock of land to the firm does not amount to transfer and therefore not liable to capital gain tax. The assessing officer has not accepted the explanation of the assessee and stated that the assesee was liable to pay capital gain tax on conversion of land into stock in trade. The value of consideration would be the fair market value as on date of conversion of the land into stock in trade. The payment of capital gain tax would be the previous year in which such
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stock in trade was sold or otherwise transferred by the assessee. Assessing officer has stated that the assessee has transferred the land to the firm as capital contribution and the firm in turn has constructed a building on the said land and sold the same in subsequent years. It is also stated that the firm has also claimed deduction u/s. 80IB(10) of the income tax act and section 45(2) clearly speaks out that when the stock in trade is either sold or otherwise transferred would make the assessee liable for capital gain tax. The assessee has responded that the value of asset recorded in the books as capital introduction by the assessee was taken at nil value therefore, the assessee was not liable for any tax. The assessing officer has not accepted the explanation of the assessee and stated that the sale consideration for the purpose of determining the capital gain tax would be the fair market value as on date of conversion of land into stock in trade. The land was converted into stock in trade in assessment year 2004-05. The assessing officer stated that the assessee had sold the similar land in the nearest vicinity for an average price of 2180/- per sq. mt in subsequent years. Assuming a 5% increase in fair market value the assessing officer has stated that the fair market value of the land for assessment year 2004-05 would come to 2000/- per sq. met, therefore, he has determined the fair market value of land 4960 sq. mt to the amount of Rs. 99,20,000/-. Further has he has accepted the cost of land taken by the assessee to the amount of Rs. 3,57,120/- and after providing indexation the cost of the land was determined at Rs. 15,96,326. Consequently, an amount of Rs. 83,23,674/- was added to the total income of the assessee as income from capital gain.
The assessee has preferred appeal before the ld. CIT(A).
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The ld. CIT(A) has partly allowed the appeal of the assessee stating that if the land cost is taken at Rs. 600 per sq. mt. as determined by the registered valuer the GP is 34% whereas if the rate is taken at Rs. 2,000/- .the GP is about 19.5% comparatively in the lower side. After taking into consideration the aforesaid facts the CIT(A) has assigned the rate for land at Rs. 900/- per sq. mt. on the date of transfer of the aforesaid land as to the firm.
The assessee preferred appeal before the ITAT. Before ITAT, the assessee has raised additional ground of appeal that reopening was bad in law and the order was required to be quashed stating that no material had come before the assessing officer as reopening was done on the basis of notes attached with the return of income. Thereafter, the ITAT vide ITA No. 2988/Ahd/2010 on 11Octobr, 2013 had restored matter back to the file of assessing officer for fresh adjudication in the light of procedure laid down by the Hon’ble Apex Court in the case of GKN Drive-Shalts vs. ITO 259 ITR 90 and jurisdictional high court decision in the case of Garden Finance Ltd. vs. CIT 268 ITR 48 and M& M Export Vs. DCIT 23 DTR 356 (Gujarat).
Thereafter, the assessing officer had made assessment u/s. 143(3) r.w.s. 254 of the act on 9th March, 2015 reiterating the same facts and determined the total income from capital gain at same amount at Rs. 83,23,674/- in the set aside assessment proceedings.
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Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of assessee.
During the course of appellate proceedings, the ld. counsel has submitted paper book containing submission made before the assessing officer and ld. CIT(A). It was also contended that the value of the asset recorded in the books as capital introduction by the assessee was taken as nil which was not liable for any income tax. He has also raised objection for reopening of assessment by the assessing officer stating that the reopening was done on verification of the return of income. He has further stated that even if consideration were to be considered for introduction of land it can be Rs. 600 per sq. mt. and not Rs. 2000 per sq. mt. as adopted by the assessing officer. He has also mentioned that while disposing the appeal in the first round, the ld. CIT(A) has adopted the value at Rs. 900 per sq. per mt. and in the second round the ld. CIT(A) has incorrectly sustained at Rs. 2000 reiterating the same submission and facts. On the other hand, ld. departmental representative has supported the order of lower authorities and stated that it is very clearly established by the assessing officer and ld. CIT(A) in their finding that conversion of property into stock in trade and transfer of such property is amount to transfer within the meaning of section 2(47)liable for long term capital gain. She has also stated that assessee has sold the land in the nearest vicinity at Rs. 210 per sq. mt in assessment year 2005-06 relevant to assessment year 2004-05, therefore, the determining of long term capital gain at Rs. 8266335/- by taking the market value of the land at Rs. 2000 was correctly done by the assessing officer. She has further stated that assessing officer has not done any infirmity in reopening of the
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assessment in the case of the assessee and the return of income was processed u/s. 143(1) of the act and assessing officer has not verified any information.
We have heard the rival contentions and perused the material on record. Regarding reopening of the assessment, we observe that the assessing officer has noticed from the computation of income that the assessee had transferred non-agricultural land measuring 4960 sq, mtrs as stock in trade to the partnership firm M/s. C.N. Builders Developer without disclosing any long term capital gain. However, the assessee had not shown any long term capital gain under the provision of section 45(2) r.w.s. 2(47) and section 55(2)(b)(i) of the act. Therefore, the assessing officer observed that there was under reporting of income from long term capital gain of Rs. 82,66,535/-. We observed there was no material on record which could have clarified the impugned discrepancy of incorrect reporting of income by the assessee. Therefore, we are of the view that the assessing officer was having reasons of to believe that income chargeable to tax has escaped assessment for the year under consideration. After considering the above facts and circumstances as elaborated supra we justify the findings of the ld. CIT(A) that the assessing officer reopened the assessment with valid reason. Therefore, the appeal of the assessee on this issue is dismissed.
Regarding 2nd and 3rd grounds of appeal of the assessee, the assessing 11. officer has held that non-agricultural land of 4960 kg mtrs held as stock in trade by the assessee was brought as capital contribution to the firm M/s. C.N. Builders and Developer on 18-10-2003.
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With the assistance of representatives of both the sides we have gone through the material on record and gist of the facts observed are as under:-
(a) The assessee has transferred land to the partnership firm as his capital introduction in the firm. The said land was property of the assessee which he has converted into stock in trade in the earlier 2002 prior to assessment year 2004-05.
(b) The transfer of land into stock in trade was not reflected in the balance sheet of the assessee for the year 2002 when the said conversion was made. The said disclosure was made in notes of accounts only in assessment year 2004-05 and this fact was never disclosed prior to assessment year 2004-05.
(c) The assessee had converted the land into stock in trade but the assessee was neither engaged in any business of trading of land or dealing in land till date of conversion.
(d) The transferred of the capital asset into stock could be revealed only in assessment year 2004-05 when the said land was transferred to the partnership M/s C.N. Builder & Developer as his business contribution at nil value and the profit of the firm which was eligible for deduction u/s. 80IB(10) of the act. The Ld. Counsel has quoted a number of judicial pronouncement but he has not demonstrated how these are applicable to the facts of the case of the assessee as we have gone through these judgments placed in the paper book and observed that facts of the case of the assessee are distinguishable.
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In the light of the above facts the assessing officer and ld. CIT(A) determined the fair market value of land on the basis of sale of another land in the vicinity of the land which was transferred to the partnership firm. The assessing officer has not made any reference under section 55 A of the act to the Departmental valuation officer to deter mine the actual fair market value of the impugned land . According to the provision of section 55A of the act as reproduces as under the assessing officer under various circumstances may refer the valuation of the capital asset to a Valuation officer.
55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the [Assessing] Officer may refer the valuation of capital asset to a Valuation Officer— (a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the [Assessing] Officer is of opinion that the value so claimed [is at variance with its fair market value]; (b) in any other case, if the [Assessing] Officer is of opinion— (i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such per- centage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf ; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the [Assessing] Officer under sub-section (1) of section 16A of that Act. Explanation.—In this section, "Valuation Officer" has the same meaning, as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957)"
The assessee has submitted a report from a registered valuer who determining the fair market value of the aforesaid land at Rs.6,00 per square meters. However the assessing officer has adopted the fair market value of the said land at Rs.2,000 per square meters on the ground that assessee had sold the similar land in the nearest vicinity for an average price of 2180/- per sq. mt in subsequent years. Assuming a 5% increase in fair market value the assessing officer has stated that the fair market value of the land for
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assessment year 2004-05 would come to 2000/- per sq. met, therefore, he has determined the fair market value of land 4960 sq. mt to the amount of Rs. 99,20,000/-. After considering the above facts we are of the view that assessing officer has not made efforts to adopt the actual fair market value pertaining to the aforesaid land as he had not made any reference to the Valuation officer to arrive at the relevant fair market value of the asset. In the light of the above fact and circumstances we consider that learned CIT appeal in his earlier order dated 21st July 2010 has considered these facts in detail and applied the rate at Rs.900/ per Sq. Mts. on the date of transfer to the firm as capital asset. After considering the facts as reported above in this order we observe that impugned land forming stock-in-trade of assessee was transferred as a capital contribution by assessee therefore profits or gains arising from transfer of this asset would be chargeable to tax as assessee's income of previous year in which such transfer has taken place. Keeping in view the undisputed fact that the lower authority has failed to make any reference to the Valuation Officer u/s 55A of the act to determine the fair market value of the asset we direct the assessing officer to adopt rate of Rs 900/- per sq. mts for the value of the impugned land as determined by the Ld.CIT(A) in his order dated 21st July 2010.Accordingly this ground of appeal of the assessee is partly allowed. 12. In the result the appeal of the assessee is partly allowed. Order pronounced in the open court on 12-02-2019
Sd/ Sd/- (MADHUMITA ROY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER
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Ahmedabad : Dated 12/02/2019 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, सूरत