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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 788/JP/2012
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 788/JP/2012 fu/kZkj.k o"kZ@Assessment Year :2006-2007 cuke The ACIT, M/s Assam Roller Flour Mills Ltd., Vs. Circle-4, Geeta Path, Suraj Nagar, Jaipur. West Civil Lines, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCA9996N vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@CO No. 73/JP/2012 (Arising out of ITA No. 788/JP/2012) fu/kZkj.k o"kZ@Assessment Year :2006-2007 cuke M/s Assam Roller Flour Mills Ltd., The ACIT, Vs. Geeta Path, Suraj Nagar, Circle-4, West Civil Lines, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCA9996N vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Ram Sanwara (C.S.) jktLo dh vksj ls@ Revenue by : Smt. Roli Agarwal (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 18/09/2017 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 20/09/2017 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the Revenue and the cross objection by the assessee against the order of ld. CIT(A)-II, Jaipur dated 25.07.2012
2 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
wherein the Revenue has taken the following grounds of appeal as under:- “On the facts and in the circumstances of the case and in law the Ld. CIT(Appeals) has erred in deleting addition of Rs. 7,82,45,942/- made by the AO on account of long term capital gain without appreciating the facts and circumstances of the case.”
In its cross-objection, the assessee has taken the following grounds of appeal:- “1. That under the facts and circumstances of the case, the Ld. DCIT, Circle-4, Jaipur and Ld. C.I.T. (Appeals) II Jaipur have erred in holding that issuing the notice u/s 148 of Income Tax Act, 1956 for A.Y. 2006-07 was valid. 2. That under the facts and circumstances of the case, The Ld. D.C.I.T. Circle-4, Jaipur and Ld. C.I.T. (Appeals) II Jaipur have erred disallowing Rs. 1790922/- paid to JVVNL on account of Compounding Charges.”
Briefly the facts of the case are that the assessment was originally completed u/s 143(3) on 23.12.2008. Subsequently, it comes to the notice of the Assessing officer that the income on account of long term capital gains amounting to Rs. 5,69,55,130/- has escaped taxation and notice u/s 148 was issued. After disposing off the objection raised by the assessee, assessment proceedings were completed u/s 147 wherein AO brought to tax long term capital gains of Rs. 7,82,45,942/-. The Assessing Officer considered sales consideration u/s 50C as determined by the DVO and Sub-Registrar at Rs. 7,83,10,852/-. And regarding cost of acquisition, the Assessing Officer noted that the original cost of land in the books of erstwhile partnership firm, Assam
3 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
Roller Flour Mills was shown at Rs. 11,648/- and accordingly, he computed the indexed cost of acquisition at Rs. 55,910/- and after giving allowance for the same, brought to tax long term capital gains of Rs 7,82,45,942/-in the hands of the assessee.
Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer and the relevant findings of the ld. CIT(A), which are under challenged before us, are contained at paras 4.1 and 4.2 of his order which are reproduced as under:- “4.1 I have duly considered the submissions of the appellant. The appellant is a limited company engaged in the business of real estate and financing. The appellant company had converted its own property i.e. land into stock in trade after valuation. The land measuring 7 bhiga and 9 biswa was valued at Rs. 5,65,58,400/- in AY 2005-06. During the year under reference, the said land was sold to M/s Suncity Projects Pvt Ltd for Rs. 7,57,00,000/- as per sale deed. The appellant company took the cost of acquisition at Rs. 1,18,77,300/- as on 01.04.81 on the basis of report of the registered valuer and same was enhanced to Rs. 5,70,11,400/- after indexation. Thus capital loss of Rs. 4,52,640/- (Rs. 5,65,58,400/- Rs 5,70,11,400/-) was claimed in the return of income. The AO did not allow the benefit of indexation on the ground that the land in question was not acquired before 01.04.81 as the assessee company was incorporated on 20.01.82. It was noticed by the AO that the land was registered in the name of assessee company on 01.01.92. Since the original value of land was Rs. 11,648/-, the AO after allowing benefit of indexation took the cost of acquisition at Rs. 55,910/-. The AO further noticed that the Sub Registrar had adopted the value of land at Rs. 7,83,01,852/- for the purpose of stamp duty. The AO after invoking provisions of section 50C
4 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
worked out the capital gain at Rs. 7,82,45,942/- which was brought to tax in the hands of assessee company. On careful consideration of facts, I am inclined to accept the arguments of the appellant company. The value of land in the books of account of partnership firm i.e. M/s Assam Roller Floor Mills as on 01.04.81 was at Rs. 11,648/-. The said land along with other assets became the property of the company on its succession on 01.02.1982. The succession was lock, stock & barrel. All the partners of the erstwhile firm M/s Assam Roller Floor Mills became the shareholders of M/s Assam Roller Floor Mills Ltd. As per the provisions of section 49(i)(iii)(a), in case of any succession, inheritance or devaluation, the cost of acquisition was to be calculated as per the provisions of section 55(2)(b)(ii). The said section provides that where the capital asset became the property of the assessee by any of the modes specified in sub section (1) of section 49 and the capital asset became the property of previous owner before 01.04.1981, the cost of acquisition would be the cost of capital asset to the previous owner or the fair market value of the asset as on 01.04.81 at the option of the assessee. The partnership firm had purchased this land in 1962 from Sh. Hari Singh at a purchase consideration of Rs. 11,648/-. On succession, the shares were allotted to the erstwhile partners of the firm in proportion of their capital. The appellant had also obtained valuation report from the registered valuer for the purpose of determining the fair market value of the land as on 01.04.1981. Therefore in view of these specific provisions, the appellant company had rightly claimed the benefit of indexation on the fair market value of the land as on 01.04.1981. Since the land was converted into stock in trade in AY 2005-06, the AO was not right in applying the provisions of section 50C in the present case. The land was appearing as stock in trade as on 01.04.2006 in the books of account. The capital gain/loss had already accrued to the assessee company in AY 2005-06 when the land was converted from capital asset to stock in trade as per the provisions of section 45(2). The profits on the
5 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
sale of business asset held by the appellant would constitute business income and not short term capital gain. Since the income is being assessed as business income, the provisions of section 50C will not have any application as held by Hon’ble Madras High Court in the case of CIT Vs Thiruvengadam Investment Pvt. Ltd. (320 ITR 345) and Hon’ble Mumbai Tribunal in the case of Inderlok Hotels Pvt. Ltd. Vs ITO (122 TTJ 145). Therefore the AO was not justified in enhancing the sale consideration from Rs. 7,57,00,000/- to Rs. 7,83,01,852/- for computing capital gain. 4.2 It is further noticed by the undersigned that the CIT II, Jaipur vide this notice dated 11.11.2010 had initiated proceedings U/s 263 of the IT Act on this issue. In response, the appellant company replied vide letter dated 12.01.2011 and submitted various details/documents. Subsequently the CIT II, Jaipur had dropped the proceedings U/s 263 vide his order dated 08.03.2011 on this issue. Further the appellant company had offered the difference of Rs. 1,13,02,091/- as business income as per return of income and same was accepted by the department in the original assessment. On the sale of this asset, the AO had again charged capital gains to tax which tantamounted to double addition. I therefore direct the AO to delete the addition of Rs. 7,82,45,945/- on account of capital gain. This ground of appeal is allowed.”
From the perusal of the order of the ld. CIT(A), it is noted that the land was converted into stock-in-trade in A.Y. 2005-06 and it was valued at Rs. 5,65,58,400/-. It was accordingly held by the ld. CIT(A) that the capital gain/ loss had already accrued to the assessee in A.Y. 2005-06 when the land was converted from capital asset to stock-in- trade. Accordingly, profit on the sale of business asset (stock-in-trade) would constitute business income and not short term capital gain and
6 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
accordingly provisions of section 50C were held not applicable. Further the ld. CIT(A) held that the erstwhile partnership firm has brought this land in the year 1962 from Shri Hari Singh at purchase consideration of Rs. 11,648/- and since the partnership firm was succeeded by the assessee company, the cost of acquisition has to be determined in terms of provisions of section 49(i)(iii)(a) read with section 55(2)(b)(ii). Accordingly, the cost of acquisition would be cost of asset to the previous owner or the fair market value of the asset as on 01.04.1981, at the option of the assessee. Further, the ld. CIT(A) has held that the appellant company has already offered profit on sale of stock-in-trade of Rs. 1,13,02,091/- as business income as per return of income and same was accepted by the Revenue in the original assessment and AO had again charged capital gains tax which amounts to double taxation.
The issue for consideration therefore is whether the capital asset has been converted into stock-in-trade of business carried on by the assessee as claimed by the assessee and upheld by the ld CIT(A). Where the answer to the said issue is in affirmative, whether the provisions of section 45(2) would be applicable and not the provisions of section 50C as invoked by the Assessing officer. In our view, the second issue is no more rest-integra in view of the decision of Hon’ble Madras High Court in case of Thiruvengadam Investment Pvt. Ltd reported in 320 ITR 345.
A related issue which arise for consideration is determination of cost of acquisition and whether there is any infirmity in the order of ld CIT(A) where he has upheld the action of the assessee in taking cost of
7 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
acquisition as on 1.4.1981 invoking the provisions of provisions of section 49(i)(iii)(a) read with section 55(2)(b)(ii).
Section 45(2) provides that “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.”
Regarding conversion of capital asset into stock-in-trade, the Assessing officer has given the following findings in the original assessment order passed u/s 143(3) of the Act which reads as under: “3. Assessee is a limited company who is engaged in the business of Real Estate & financing business. Notice of extra-ordinary general meeting held on 21.09.2004 seeking members’ approval for commencement of real estate business by changing in the object clause of Memorandum of the Company. Assessee has filed copy of form number 23, dated 21.09.2004 for registration of resolutions & agreements. Copy of Registration number 243333, dated 27.09.2004 was also filed by the assessee. Therefore, the Board of Directors of the Company has identified real estate development as one of the business of the company. Company has converted its own property in stock in
8 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
trade after valuation. The Company has made cost of valuation of Rs. 5,65,58,400/- of total measuring area 7 Bhiga 9 Biswa and comes 18852.80 sq. mtrs. During the year under consideration assessee has sold the above mentioned land of M/s Suncity Projects Pvt. Ltd. in Rs. 7,57,00,000/-.”
So long as the assessee has taken some positive steps in terms of conversion or treatment of capital asset into stock-in-trade of a business carried on by him, the provisions of section 45(2) are satisfied. The above findings of the Assessing officer remain uncontroverted before us which shows due compliance of provisions of section 45(2) of the Act. In the reassessment proceedings, there is no wisper by Assessing officer that based on any additional information, he holds a different opinion on the matter. It is also not the case of the Revenue that fair market value of the asset on the date of conversion so determined by the assessee at Rs. 5,65,58,400/- is not correct or the matter was referred to the DVO who has determined a different valuation or for that matter, why the valuation has increased from Rs. 5,65,58,400/- to Rs 7,57,00,000 in a short span of last than a year when the asset was converted into stock-in-trade and subsequently sold.
Further, it is noted that in compliance thereof, the assessee company has worked out long term capital loss of Rs. 4,52,640/- taking into consideration the full value of the consideration at Rs. 5,65,58,400/- as per valuation report dated 30.03.2005. The cost of acquisition was taken at Rs. 1,18,77,264/- as on 01.04.1981 as per
9 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
valuation report dated 20.3.2005 and indexed cost thereof was computed at Rs 5,70,11,040. Since the partnership firm was succeeded by the assessee company, the cost of acquisition was determined as on 1.4.1981 in terms of provisions of section 49(1)(iii)(a) read with section 55(2)(b)(ii) as the partnership firm acquired the land prior to 1.4.1981. Further, the ld AR drawn our attention to the show-cause notice issued by ld CIT u/s 263 and subsequent order dropping the said proceedings and submitted that the valuation as on 1.4.1981 so determined by the assessee at Rs. 1,18,77,264/- has been accepted by the ld CIT and there is nothing in the reassessment order where the AO has again disputed the said value. The valuation so determined as on 1.4.1981 based on the valuation report has thus not been disputed by the Revenue nor any other DVO valuation have been brought on record. and we accordingly confirm the findings of the ld CIT(A) in this regard.
Further, since the stock-in-trade has been finally sold, the profit on sale of such stock-in-trade is to be brought to tax as business income in the year under consideration. As per the sale deed dated 18.07.2005, the land was sold to M/s Suncity Projects Pvt. Ltd. for a consideration of Rs. 7,57,00,000/- which was duly credited in the profit/loss account and offered to tax in the return of income after taking into consideration stock-in-trade of Rs 5,65,58,400 and other business expenses. The ld. CIT(A) has also returned a finding that the assessee has offered a net profit of Rs. 1,13,02,091/- as business income in the return of income which has been accepted by the Revenue in the original assessment proceedings.
10 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
In light of above discussions and in the entirety of facts and circumstances of the case, we donot see any infirmity in the order of the ld CIT(A) and the same is hereby confirmed. The ground of appeal of the Revenue is thus dismissed.
Now, coming to the first cross objection filed by the assessee wherein the assessee has challenged the issuance of notice u/s 148 of the Act. Since we have already decided the matter on merit, it becomes academic and we don’t think it is necessary to adjudicate the same.
Regarding the second cross objection relating to disallowance of Rs. 17,90,922/- paid to JVVNL on account of compounding charges, the ld AR reiterated the submissions made before the ld CIT(A) which are as under: “The assessee had claimed an amount of Rs. 17,90,922/- to JVVNL towards settlement of dues of JVVNL. The entire issue of electricity had been settled during the year. The assessee company had paid the amount as per JVVNL letter dated 04.01.2006. The liabilities had crystallized, settled and adjusted during the year. The details of payment made by cheques to JVVNL, Jaipur were as per their acknowledgement letter dated 04.01.2006. The payment pertained to electricity arrears of the previous years paid in consequence of final settlement and as such were claimed in the year. As the matter was in dispute and litigation in High Court was pending but after the settlement payment was made during this assessment year 2006-07. The break-up as under:-
11 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
a. Principal due Rs. 15,134/- b. Charges due to non payment Rs. 15,788/- c. Compounding charges Rs. 11,00,000/- d. Principal Due Rs. 4,00,000/- e. Charges due to non payment Rs. 2,60,000/- .................................. Total Rs. 17,90,922/- .....................................
The assessee company also submitted copy of minutes of Corporate Level Settlement Committee dated 12.05.2005. From the above, it was clear that the committee in its meeting held on 25.04.2005 approved the proposal. Therefore, the amount was determined/settled in the year under consideration, and deserved to be allowed. It was submitted that compounding charges were demanded by RSEB on the basis of three shifts working as meter was defective and correct consumption was not recorded. The assessee company disputed this and ultimately settlement was reached on the basis of two shifts working. Thus compounding charges were nothing but consumption of electricity charges which were allowable as business expenditure. This issue had been raised at ITAT which had sent the case back to AO who after examining it disallowed for the reasons mentioned in the reassessment order. It was prayed to delete the impugned addition.”
The relevant finding of the ld. CIT(A) is reproduced as under:- “5.1 I have duly considered the submissions of the appellant. On going through the appellate order dated 26.11.2009 passed by CIT(A)-III, Jaipur relating to original assessment, it is seen
12 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur
that the counsel of appellant had conceded before him that compounding charges also included penalty of Rs. 11,00,000/- paid to JVVNL and same was not an allowable expenditure. The minutes of the corporate level settlement committee meeting held on 25.04.2005 have also been perused by the undersigned and it is seen that a case of theft of electricity was detected by the JVVNL against the appellant company in the year 1994. As a result of theft, the connection of the appellant company was disconnected. The compounding charges were computed on the basis that the assessee company was running its plant in three shifts. During the course of meeting held on 25.04.2005, the corporate level settlement committee decided to levy compounding charges on the basis that the assessee company was running its plant in two shifts. Since the penalty and compounding charges of Rs. 17,90,922/- were paid for infraction of law, the expenditure in question is not an allowable expenditure. The addition of Rs. 17,90,922/- made by the AO is confirmed. This ground of appeal is dismissed.” 17. We have heard the rival submissions and perused the material available on record. As per letter dated 4.1.2006 of JVVNL, the assessee has paid an amount of Rs 6,90,922 through cheque and an amount of Rs 4,39,262 has been adjusted against bank guarantee, in total Rs 11,30,184 has thus been paid by the assessee. It consists of Rs 470,184 towards past dues at on the date of disconnection and fuel surcharge arrears and interest on late payment and balance towards the compounding charges relating to theft case. Accordingly, electricity dues totaling to Rs 470,184 is hereby allowed as settled and crystallized during the year and the balance is sustained on account of infraction of law. In the result, cross objection no. 2 is partly allowed.
13 ITA No. 788/JP/12 & CO No. 73/JP/2012 ACIT Vs. Assam Roller Flour Mills Ltd. Jaipur In the result, the appeal of the Revenue is dismissed and cross objection of assessee is partly allowed.
Order pronounced in the open court on 20/09/2017.
Sd/- Sd/- ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 20/09/2017. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- ACIT, Circle-4, Jaipur. 2. izR;FkhZ@ The Respondent- M/s Assam Roller Flour Mills Ltd., Geeta Path, Suraj Nagar, West Civil Lines, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 788/JP/2012, CO No. 73/JP/2012} vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत