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Facts
The assessee sold immovable property. The Assessing Officer (AO) re-opened the case, treated the sale proceeds as capital gains, and made an addition. The CIT(A) upheld the addition. The assessee appealed to the Tribunal, raising grounds related to the validity of reassessment proceedings and the classification of the property as stock-in-trade.
Held
The Tribunal restored grounds challenging the validity of reassessment proceedings (including non-issuance of notice u/s 143(2)) to the CIT(A) for fresh adjudication. The Tribunal found that the CIT(A) had not properly adjudicated these grounds. The other grounds related to the classification of the property were dismissed.
Key Issues
Whether the reassessment proceedings were validly initiated, particularly regarding the issuance of notice u/s 143(2), and whether the property sold was stock-in-trade or a capital asset.
Sections Cited
147, 148, 143(3), 143(2), 50C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW
Before: SHRI KUL BHARAT & SHRI NIKHIL CHOUDHARY
PER KUL BHARAT, VICE PRESIDENT.: This appeal, by the assessee, is directed against the order of the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, dated 21.09.2022, pertaining to the assessment year 2013-14. The assessee has raised the following grounds of appeal: - “Because, 1.1 the NFAC/Id. CIT(A) has erred in law and on facts in not dealing with the issue of validity of reassessment proceedings, in pursuance of which the assessment order dated 28.12.2018 had been passed by the Id. Assessing Officer under section 143(3) r.w.s. 147 of the Act; 1.2. the NFAC/Id. CIT(A) has erred in law and on facts in not dealing with the ground related to ‘non-issuance’ of notice under section 143(2), which was jurisdictional ground and had gone to the very root of the regular assessment order dated 28.12.2018, passed under section 143(3) r.w.s. 147 of the Act; 1.3 on a due consideration of the fact of ‘non-issuance’ of such notice, which is borne out from the assessment records, the assessment order Page 2 of 8 itself, was non-est in law and the NFAC/Id. CIT(A) on a due consideration of such fact, the assessment order dated 28.12.2018 is liable to be annulled; 2. proceedings under section 147 (by issue of notice under section 148) cannot be said to have been validly initiated, as the “reasons recorded” and other background material, on which such “reasons recorded” had been founded, had not been made available to the appellant within the stipulated time as prescribed by Central Board of Direct Taxes (CBDT), New Delhi, as per categorical instructions issued by it. WITHOUT PREJUDICE TO THE AFORESAID 3. the authorities below have erred in law and on facts in taking the sale value of ‘stock-in-trade’ (partly sold on 20.12.2012 and partly on 28.12.2012 in different lots) for considerations aggregating Rs.3,41,08,000/- and in treating such sales as sale of ‘capital asset’; 4, looking to the facts and circumstances of the case that a) initially the property in question admeasuring
4. Bighas (approx) had been acquired by the appellant along-with his cousin sardar Manmeet Singh; b) on the plot of land so purchased, a petrol pump had been installed under a franchise agreement with ‘Bharat Petroleum Corporation Ltd.; c) the adjoining plot of land admeasuring about four acres, situated at village Kader Patari, Pargana Hadha, District Unnao, (so purchased by the appellant) had been developed at a cost of Rs.90 Lacs so as to convert the same into ‘stock in trade’ of ‘Real Estate Business’; d) owing to continued losses, the agency (petrol pump) had been terminated by ‘Bharat Petroleum Corporation Ltd. itself in the year 2007/2008 and ever since then the petrol pump had been lying dry; e) during the year 2007/2008, the appellant had purchased share of his cousin also, at a cost of Rs.10,50,300/-; and f) it was the ‘property’ so converted into stock-in-trade of Realty _ business of the appellant, that had been sold through separate sale deeds, executed on 20.12.2012 and 28.12.2012, in favour of Sri Hari Prasad Jaiswal and his family members, and accordingly the property, that had been subject matter of ‘transfer’, was in the nature of stock-in-trade developed at a considerable cost, as an adventure in the nature of trade, and provisions of “section 50C were not applicable to the same (at the time of sale); 5. the authorities below have erred in law and on facts in computing/upholding the computation of Long Term Capital Gain at Rs.1,56,21,620/- by treating the sale plots of land as sale of capital asset simpliciter (instead of treating the same as stock-in-trade); 6. the order appealed against is contrary to facts, law and principles of Natural justice.”
At the time of hearing, no one attended the proceedings on behalf of the assessee. Despite multiple opportunities, there is no Page 3 of 8 representation on behalf of the assessee. The application seeking adjournment has been filed on behalf of the assessee. It is also noted that Shri P.K. Kapoor, Ld. Authorized Representative of the assessee had withdrawn his authority on 03.12.2024. Thereafter, on two occasions, the application seeking adjournment was filed today neither any application seeking adjournment has been filed nor anybody attended the proceedings. Under these facts, despite having given adequate opportunity for representing his case, the assessee has opted not to appear before this Tribunal. Therefore, the appeal is being taken up for hearing in the absence of the assessee and same will be decided on the basis of materials available on record.
3. The facts giving rise to the present appeal are that in this case, the Assessing Officer was having information regarding sale of immovable property by the assessee below the circle rate. Therefore, the case of the assessee was re-opened u/s 147 of the Act. The statutory notices u/s 148 of the Act was issued. In response thereto, the Ld. Authorized Representative of the assessee attended the proceedings and filed return of income claiming loss of Rs.19,86,380/-. Thereafter, the Assessing Officer made assessment by making addition of Rs.1,56,21,620/-. Aggrieved against this, the assessee preferred an appeal before the Ld. CIT(A) who sustained the addition and dismissed the appeal of the assessee. Now, the assessee is in appeal before this Tribunal.
The assessee has taken multiple grounds against the impugned addition but only effective ground relates to treatment of sale proceeds of the pieces of land as gain arising out of sale of capital assets. It was stated before the lower authorities by the assessee that land in question was stock-in-trade and the assessee was in the business of sale and purchase of real estate.
Apropos to the grounds of appeal against the addition, the Ld. Departmental Representative (DR) supported the orders of the lower authorities and contended that the onus was on the assessee to prove that the land in question was stock-in-trade. The assessee grossly failed to submit requisite evidences in support of such claim. Therefore, the authorities were justified to make addition by treating the surplus as capital gain.
We have heard the Ld. DR and perused the material available on records. So far question of treating the surplus arising out of sale of immovable properties is concerned, we do not find any good reason to disturb the finding of Ld. CIT(A). The onus is on the assessee to prove the acquisition conversion of properties for business purpose. The assessee has failed to bring on record supporting evidence. No evidence has been filed suggesting that the land in question was in fact stock in trade. Therefore, finding of authorities below is sustained on this issue. It is transpired from records that the assessee had also challenged the validity of the assessment proceedings on the ground that the requisite notice u/s 143(2) of the Act was not issued to the assessee. It is also stated that these grounds were taken by the assessee before Ld. CIT(A) who failed to dispose of these grounds. We find that the Ld. CIT(A) has decided the grounds of appeal in para no. 5 to 5.1.4 of the impugned order. For the sake of clarity, the finding of the Ld. CIT(A) is reproduced as under: - “5.0 Decision on Grounds of appeal
1. and Reasons thereof: In this appeal, as many as 7. Grounds were raised. Ground no. 4 to.6 all taken together challenge addition of Rs.1,56,21,620/- on account of, LTCG on sale of land and the amount of addition being computed as Sale consideration’ was, Page 5 of 8 replaced by Stamp duty Value u/s 50 C of the Act. Ground No: 7 challenges non granting of proper opportunity. Ground no.1 to 3 challenge the reopening proceedings. After grounds challenging the one and single addition of Rs.1,56,21,620 i.e. Grounds 4 to, 6, the other grounds would be taken up for adjudication. 5.1 Ground no. 4 to 6 are related to one another and challenge addition of Rs.1,56,21,620 on account of LTCG on sale of land as the difference between shown sale consideration and stamp duty value u/s 50C of the Act. 5.1.1 The Ld. AO discussed the related addition in Para 2 of the impugned order dated 28.12.2018. The discussion is as under: “02. In response to the notice U/s 148 of the IT. Act, 1961, Shri Anil Keswani, Advocate appeared and filed power of attorney and ITR in compliance to the notice u/s 148, along with computation of income, declaring income of Rs. Nil (loss Rs, 19,86,380/-) Later on Notices U/s 143(2) & 142(1) of the Income Tax Act, 1961 were issued and duly served upon the assessee. Shri Anil Keswani, Authorized Representative attended the proceedings from time to time and submitted the necessary documents/evidences/written submissions as were required in questionnaire.
The assessee is an individual and earned income from Capital Gain, during the year. The relevant evidences in support of its income have also been produced by the assessee, which are placed on record.
4. During the course of assessment proceedings, assessee was asked to produce the details regarding sale & purchase of property alongwith investment thereon. Assessee’s vide his reply has submitted that during the year under consideration he had sold immovable property situated at Gram Kader Patari Pargana Hadha distt Unnao in two part, vide sale deeds dated 20.12.2018 for Rs.1,20,00,000/- and Rs.45,00,000/- and the circle value of the properties was Rs.2,55,54,000/and Rs.82,54,000/- respectively. - He submitted the copies of Sale/purchase deeds, and computation of capital gain which are placed on record. On going through the same, it is noticed that the assessee has computed capital gain taking sale consideration as received value of the property, which is not acceptable sale consideration as received and not at the circle value of the property, which is not acceptable. 05.During the course of assessment proceedings, vide reply dated 27.12.2018, the assessee submitted that the land purchased by him was converted from agricultural to commercial for use as petrol pump. But due to loss and closure of petrol pump, the assessee started the business of ploting on said land and converted it to stock-in-trade, to sell it accordingly in later years. However the assessee was unable to furnish any supporting evidences in support of his submission. In view of above, Long Term Capital Gain in the hands of the assessee is computed as below: Sale Consideration of property (as per stamp value) (as per sale deed dated 27.12.2012) Rs.2,58,54,000 Sale Consideration of property (as per Stamp Value (as per sale deed dated 27.12.2012) Rs.82,54,000 Gross Consideration Rs.3,41,08,000 Less: I Cost of acquisition of property Page 6 of 8 (Part purchased in 2004-05) Rs.9,99,800/- Assessee’s share (1/2) Rs.4,99,900 Index Cost of Acquisition 499900 x 852/480 Rs.8,87,323 ii Cost of acquisition of property (Part purchased in 2007-8) Index Cost of Acquisition 1050300 x 852/551 Rs.16,24,057 Less: Cost of improvement incurred in 2004-05 Rs.90,00,000 Index Cost of improvement 9000000 x 852/480 Rs.1,59,75,000 Total Long Term Capital Gain Rs.1,56,21,620 06. Accordingly, assessment is completed u/s 147/143(3) of the Income Tax Act, 1961 on total income of Rs. 1,56,21,620. 5.1.2 In this regard, out of submission of the appellant (reproduced entirely in Para no. 4 supra), following points being relevant for adjudication of the impugned addition of Rs.1, 56,21,620 are as under: i. That, as per submission, the appellant was an individual, who had been carrying transport business in past. As he could not fare well in the transport business, he had purchased a big plot of land admeasuring about four bighas, situated at Village; Kader Patari, Pargana Hadha, Tehsil and District Unnao, to venture into real estate business. ii. That, he also got a petrol pump allotted by BPCL (Bharat Petroleum Corporation Ltd) after developing the entire property and converting the same into stock-in-trade. Also further, that during the financial year 2007- 08, he had even purchased 1/2 share of his cousin one Sardar Manmeet Singh to expand and recognize his 'Realty Business’. iii That, as the chance would have it, he did not succeed in that venture too, because of uncertainty and heavy losses incurred in the Petrol pump business. Owing to such losses, the BPCL had stopped supplies of petroleum products (to be sold at the said petrol pump) as a result of which his financial condition became more stringent and he suffered severally, both mentally and physically. iv. That, owing to bad physical and mental condition he had to be admitted to Regency Hospital at Kanpur where he remained in the care of medical specialist. 5.1.3 All the facts and circumstances related to the impugned addition of Rs.1,56,21,620 are duly considered. It is found that appellant's main contention, besides his related personal mental and physical health, in relation to the impugned addition; is that the sold asset i.e. LAND was his Stock in trade as it was part of his business of selling plots of land from the 4 acre land purchased initially as site for “Petrol pump of BPCL. However, the Id. A.O did not accept as no supporting evidence was produced in the impugned Asst. proceedings. In the Asst. Order the A.O. mentioned that even assessee got made construction for Rs.90,00,000/- on the said land. The indexed value of this investment of Rs.90,00,000/- was claimed as part of cost of improvement and was allowed also by AO. However, had to conclude that: “He submitted the copies of Sale/purchase deeds, and computation of capital gain which are placed on record. On going through the same, it is noticed that the assessee has computed capital gain taking sale consideration as received and not at the circle value of the property, which is not acceptable.” Even in these appeal proceedings after availing himself of more than 1 opportunity nothing in this regarding business of selling plots of land from Page 7 of 8 the 4 acre land purchased initially as site for Petrol pump of BPCL could be uploaded. 5.1.4 Thus, In light of the above discussion, it is found that the action of Ld. AO in making the impugned addition of Rs.1,56,21,620/- is sustainable in the facts of the case and in law. The action of Ld AO is ,therefore, confirmed and Ground no. is , thus, dismissed.”
From the above finding of the Ld. CIT(A), it is evident that having recorded the fact that the ground nos. 1 to 3 challenged the validity of the re-opening proceeding but the Ld. CIT(A) did not adjudicate the ground nos. 1 to 3 as raised before him. One of the grounds of the appeal before Ld. CIT(A) was related to non- issuance of requisite notice u/s 143(2) of the Act by AO. This fact ought to have been verified by the Ld. CIT(A). If it is found to be correct, then entire proceedings are vitiated. Therefore, we deem it fit and proper and to sub-serve the interest of principles of natural justice to restore the ground nos. 1 to 3 raised in Form No. 35 to the Ld. CIT(A) to decide all these grounds afresh. Therefore, Ground nos. 1.1 to 2 of this appeal is allowed for statistical purposes and rest of other grounds is dismissed.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 30/06/2025.