THE ACIT, CIRCLE-2(2),, AHMEDABAD vs. SHRI BHARAT C. PATHAK,, AHMEDABAD

This is an appeal filed by the Revenue against the order dated 26.03.2018 passed by the CIT(A)-10, Ahmedabad for the Assessment Year 2014-15.

The Revenue has raised the following ground of appeal :

The assessee filed return of income on 31.12.2014 declaring total income of Rs.12,07,79,012/-. During the assessment proceedings, the Assessing Officer observed that the assessee sold 3 pieces of land situated at Sanathal. On the sale consideration received in respect of the said immovable property, the assessee worked out Long Term Capital Gain and Short Term Capital Gain and offered the appreciation as income under the head capital gain after claiming the cost of Page 2 of 3 acquisition. The Assessing Officer held that the assessee is actively and frequently engaged in sale and purchase of various immoveable properties particularly land. The assessee is also partner in the firm namely Sanskruti Developers which is carrying on the business of land development and construction. The show-cause notice dated 09.12.2016 was issued to the assessee which was replied by the assessee on 16.12.2016. The Assessing Officer on verification of Balance Sheet for previous year observed that the assessee had shown closing stock in the form of stock-in-trade amounting to Rs.2,50,89,161/-. During the year under consideration, the assessee had shown Rs.4,16,48,427/- as closing stock of stock-in-trade. Thus, the Assessing Officer noted that the assessee had purchased land amounting to Rs.1,65,59,266/- in this year as well. Thus, the assessee continuously made purchases of land year to year and shows it as stock-in-trade and thus it cannot be said as investment. The Assessing Officer passed assessment order thereby making addition of Rs.1,10,56,478/- and income from Profits & Gains of Business & Profession Rs.9,08,00,252/- and Rs.2,38,95,450/-. Thus, the Assessing Officer assessed total income of Rs.12,65,59,205/-

Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee.

The Ld. D.R. submitted that during the year under consideration 3 lands were sold and on 2 lands the assessee claimed Long Term Capital Gain and on one land the assessee claimed Short Term Capital Gain. There was increase in stock-in-trade during the year under consideration which demonstrated that the assessee is in the business of making investment in land which can be seen from the Balance Sheet as well. The Ld. D.R. further submitted that the CIT(A) erred in deleting the addition in respect of Long Term Capital Gain of Rs.9,08,00,252/- and Short Term Capital Gain of Rs.2,38,95,450/- as the business income of the assessee.

The Ld. A.R. submitted that the CIT(A) has taken cognisance of all the material available on record and particularly the assessee was not at all dealing in land particularly for his professional purpose but has strategic investment in the properties and sold it at the time of utilising the investment. Thus, the gain which was credited to the assessee was a strategic movement and cannot be held as business and Page 3 of 3 profession. The Hon’ble High Court of Bombay in the case of Gopal Purohit, 336 ITR 287, has clearly held that in relation to the shares and securities, profit on sale of shares held in investment portfolio was liable to capital gains. In the present case, the capital gain was received by the assessee as the investment was in land and was rightly sold during the A.Y. and claimed as Long Term Capital Gain and Short Term Capital Gain. The Ld. A.R. relied upon the order of the CIT(A).

We have heard both the parties and perused the material available on record. The assessee at no point of time held that the land was stock-in-trade and thus this cannot be termed as stock-in-trade. The Assessing Officer’s observation that the land is a stock-in-trade has no footing as such. The CIT(A) has rightly observed that the assessee has not sold any land as no income shown under the capital gain i.e. in A.Ys. 2011-12, 2012-13 & 2013-14. Thus, it is clear that the assessee is not trading in land but is a mere investor. We further observed that the assessee has sold 2 lands in this particular year after almost 8 years which is strategic investment. Thus, the assessee has rightly shown this as Long Term Capital Gain. The CIT(A) has given a detailed finding and there is no need to interfere with the same.

In the result, appeal of the Revenue is dismissed.