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Facts
The assessee filed its return for AY 2015-16, which was selected for scrutiny. The AO treated the sale of land amounting to Rs. 1,59,22,402/- as business income, arguing that the assessee was involved in the systematic development and sale of plots. The assessee contended that the land was held as a fixed asset and in the immediately preceding AY 2014-15, similar transactions were accepted as capital gains by the department.
Held
The Tribunal observed that the land was consistently shown as a fixed asset in the balance sheet and the department had accepted gains from similar sales as capital gains under Section 143(3) in the previous assessment year. Applying the rule of consistency, the Tribunal ruled that the income should be treated as capital gains, thereby deleting the addition made by the AO.
Key Issues
Whether income from the sale of land should be classified as business income or long-term capital gains, particularly when the department had previously accepted similar transactions as capital gains.
Sections Cited
143(2), 142(1), 129, 131, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri Pradip Kumar Choubey&Shri Sanjay Awasthi]
This is the appeal preferred by the assessee against the order of Learned Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 22.02.2024 for AY 2015-16.
Brief facts of the case of the assessee are that the assessee filed return of income for AY 2015-16 declaring total income of Rs. 1,31,12,560/-. The case of the assessee was selected for scrutiny, notice u/s 143(2) was issued, subsequently due to change in incumbency notice u/s 142(1) read with Section 129 of the Act was issued and subsequent statement was also recorded u/s 131 of the Act. During the year under consideration, the AO observed from the audit report that the business of the assessee is a real estate dealing with purchase and sale of land as per Memorandum of Article. The assessee was requested to explain as to why the sale of the property should not be treated as business of the assessee. The assessee filed reply. The AO after considering the submission made by the assessee observed that the assessee had purchased / acquired the land in the FY 2012-13 measuring 115203 sq. ft and thereafter the assessee engaged in the systematic process of development of the land and incurred sufficient expenditure. The AO has further observed that the activity of the assessee in dividing land into plots and not selling it as single unit as purchased. The AO has observed that the activity of the assessee is spreading over more than one year and a sole object of acquiring land was to sale it at a higher price to earn profit and he determined the profit earned from the sale of 29597 sq. ft. of land during FY 2014-15 and made an addition of Rs. 15922402.73/- on account of business income from the sale of land.
Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee has been dismissed.
Being aggrieved and dissatisfied the assessee preferred an appeal before us.
Assessment Year: 2015-16 Dynamic Dealers Pvt. Ltd.
The Ld. A.R challenges the very impugned order thereby submitting that the Ld. CIT(A) was not justified in treating the income of Rs. 1,59,22,402/- arising from the sale of land held as fixed asset and not stock-in-trade as business income instead of long- term capital gains offered to tax @ 20%. The Ld. A.R further submits that during FY 2014-15 the assessee effected six transaction as against land held by them and the total value of such sales have been disclosed in the ITR filed by the assessee company for AY 2015-16. It has further been argued that total number of plot sold for the company during FY 2014-15 was six only and this fact has been revealed in the account and ITR as well. The Ld. A.R further submits that for all the four years whether before or after the change in the management of the company, land has been sold as capital asset of the company and has clustered new account head- fixed asset. For none of the years, the land has been sold as current asset or stock-in-trade. Hence, the question of business income / profit against the sale of such land does not arise. Moreover, during the course of scrutiny assessment for AY 2014-15 DCIT, Kolkata on this issue explained the views reflected in the accounts of the company and considered the surplus on sale of land as capital gains for AY 2014-15. He has cited a decision passed by ITAT, Vishakhapatnam in M.G. Gopal , Vijaywada vs. DCIT in [2024] (8) TMI 175 (ITAT-Vishakhapatnam).
Contrary to that the Ld. D.R supports the impugned order thereby submitting that from the very beginning the intention of the assessee as discussed by the AO in his assessment order which is an important and decisive factor/inductive in the nature of trade conducted in the land with business and dealing with purchase and sale of the land. He has relied on the decision of Hon’ble Supreme Court passed in the case of P. M. Mohammed Meerakhan vs. CIT [1979] 73 ITR 735 (SC) and Karanpura Development Company ltd. vs. Cit reported in 44 ITR 362 (SC).
Upon hearing the submissions of the counsel of the respective parties, we have gone through the order passed by the lower authorities and the paper books filed by the assessee. The main ground of the assessee is with regard to addition of Rs. 1,59,22,402/- on account of business income from sale of land. Looking at the audited balance sheet as filed by the assessee, we find that the assessee had purchased and acquired the said Assessment Year: 2015-16 Dynamic Dealers Pvt. Ltd. land in FY 2012-13 measuring 115203 sq. ft. and showed it under the head fixed asset in its audited balance sheet. It is further pertinent to mention here that immediately preceding year (AY 2014-15), the assessee had sold a portion of land and offered the same for tax under head capital gains @ 20% and that can be verified from the computation of income for AY 2014-15 submitted by the assessee along with ITR, audited books of account. It is important to mention here that this was accepted by the department as no addition was made by treating the said sale of a fragment of the same land in question under the head business income and disallowing the claim of offering the gains from the said sales under the head capital gains in the immediately preceding AY 2014-15. This fact has been established from the assessment order for AY 2014-15 where no such addition under the head business income was made in a section 143(3) of the Act. It is further important to mention herein that on perusal of the audited books of account for FY 2014-15 and FY 2013-14 (extract of audited profit and loss account annexed at paper book) was along with FY 2013-14 and FY 2012-13 the assessee company has shown no income from any business in the sector of real estate, rather the only source of income in interest received on advancement of unsecured loans. The Ld. A.R has vehemently argued that the department ought to follow the rule of consistency and the department ought not be allowed to blow hot and cold in the same breadth. There is no denying to this fact that the department has accepted the sale of portion of such land as sale of fixed asset vide its 143(3) order dated 17.12.2016 immediately preceding AY 2014-15 and accepted the gains to be offered @ 20% taxability under the head capital gains.
Keeping in view the above discussion, we find substance in the argument of the ld. Counsel of the assessee that the department ought to follow the rule of consistency as in the present case department has accepted the sale of a portion of such land as sale of fixed asset and accepted the gains to be offered @20% taxability under the head capital gains. Considering the present facts of the case as the facts of the present case has completely distinguishable from the facts of the cited decision of the department.
Assessment Year: 2015-16 Dynamic Dealers Pvt. Ltd. Accordingly, the appeal of the assessee is hereby allowed and the addition made by the AO confirmed by the Ld. CIT(A) are hereby directed to be deleted.
In the result, the appeal filed by the assessee is allowed.
Order is pronounced in the open court on 30th June, 2025
Sd/- Sd/- (Sanjay Awasthi /संजय अव�थी) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 30th June, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- Dynamic Dealers Pvt. Ltd., C/o, Subash Agarwal & Associates, Advocates, Siddha Gibson, 1, Gibson lane, Suite 213, 2nd Floor, Kolkata-700069 2. Respondent – DCIT, Circle-10(1), Kolkata 3. Ld. CIT(A)- NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)