SHIVKUMAR RADHESHYAM SHARMA,,NASHIK vs. INCOME-TAX OFFICER,,

आदेश / ORDER

PER D. KARUNAKARA RAO, AM :

This is the appeal filed by Assessee against the order of CIT (Appeal)- 2, Nashik, dated 04.03.2016 for the Assessment year 2011-12.

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“1. On the facts and in the circumstances of the case and in law, the Lower Authorities has erred in making an addition of Rs.45,60,000/- as Short Term Capital Gain as against business income of Rs.7,70,000/- shown from sale of plot of land which was held by the assessee as stock in trade in the joint venture with other co-owners. 2. On the facts and in the circumstances of the case and in law, the Lower Authorities has erred in treating the asset held as stock in trade as capital asset without appreciating the transaction in its entirety, such action therefore needs to be quashed. 3. On the facts and in the circumstances of the case and in law, the Lower Authorities has erred in applying the provisions of section 50C to the stock in trade without considering the fact that such transaction do not come in the ambit of term Capital Asset, therefore, no addition is warranted. The appellant craves for to leave, add, alter, modify, delete above ground of appeal before or at the time of hearing, in the interest of natural justice.”

the business of trading, brokerage/commission of iron and steel, cement

etc. The assessee filed return of income declaring total income of

Rs.8,64,460/-. Thereafter, the Assessing Officer made assessment

u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’)

and determined the total income of assessee at Rs.46,54,460/-. The

Assessing Officer made addition on account of Short Term Capital Gain

amounting to Rs.45,60,000/-. The facts relating to this addition include

that the assessee owned share of plot of land admeasuring 1660 Sq. mtr.

located at Nashik (Survey No.272/3/3). The assessee purchased this land

on 31.12.2007 and his share of cost being 50%, works out to

Rs.12,30,000/-. Subsequently, the said plot of land was sold in the year

under consideration for sum of Rs.40,00,000/-. During assessment

proceedings, on finding that the assessee’s failure to offer any capital gains

on this transaction, the Assessing Officer held the asset in question is not

stock-in-trade and treated the same as investment asset. Eventually,

Assessing Officer invoked the provisions of Section 50C of the Act. As per

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Registration Authority, the value of the property is Rs.1,15,80,000/- as

against Rs.40,00,000/- shown in the Sale Deed. Accordingly, the Assessing

Officer held the asset sold as a ‘Capital Asset’ and 50% of the gain accrued

pertains to the assessee was treated as “Short Term Capital Gain”. Further,

Assessing Officer rejected the assessee’s claim as the business profits. The

sale of immovable property does not constitute a business transaction.

Eventually, Assessing Officer made addition of Rs.45,60,000/- in the year

under consideration under the head “Capital gains”. Para 8 and 9 of the

assessment order are relevant in this regard and for the sake of

completeness, the same are extracted as under:

“8. The submission given by the assessee dated 05.02.2014 was duly considered. The contention of the assessee that he has shown the amount of Rs.12,30,000/- as stock in Hand in the earlier years financial statements, is not proved by the assessee. He could not able to produce the balance sheet showing the above plot as Stock in Trade in any of the previous years Balance Sheet. Moreover, in the Balance Sheet as on 31.03.2009, the assessee has shown this plot in his fixed assets. This clearly shows the intention of the assessee that by showing this transaction as the business transaction, he will be evading the Capital Gain tax on the sale of this plot. Since the assessee has not done any business of purchase/ sale of the lands during the period of three years i.e. F.Y. 2008-09, 2009-10 and 2010-11, except this property. Also the character of the transaction shown in the financial statements for these years is also not indicating it as stock in trade. Therefore, I am of the considered view that the sale of plot of 1660 Sq. mtr. located at Survey No. 272/3/3, Nashik for the sale of consideration of Rs.1,15,80,000/- on 11.10.2010 is not to be treated as Business Transaction, but is to be brought to the tax under the head Capital Gain. As the property was held for the period 31.12.2007 to 11.10.2010, i.e. less than the period of 36 months, the Short Term Capital Gain has arised from the sale of this property and needs to be brought to tax. The assessee has shown the profits from the sale of immovable property as the business income instead of offering the Capital Gain derived from the sale of this property, to tax. Thus, the assessee has furnished the inaccurate particulars of his income for the A.Y.2011-12. Hence, the penalty proceedings u/s. 271(1)(c) will be initiated separately. 9. The Short Term Capital Gain on the sale of flat by the assessee is computed as under : Cost of Acquisition of the Flat : Rs.23,16,000/- Add: Stamp Duty Rs.1,15,800/- Registration fee Rs. 23,580/-

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Other Expenses Rs. 4,620/-

Net Cost of the Plot: Rs.24,60,000/- Sale consideration of the plot: Rs.1,15,80,000/- (Applying section 50C of the Act.) Short Term Capital Gain Earned: Rs.91,20,000/- 50% Share of the assessee in STCG Rs.45,60,000/-”

CIT(A). During First Appellate proceedings, the assessee could not improve

his case. The main issue before the First Appellate Authority relates to the

intention of the assessee when the assessee first purchased the said plot of

the land worth Rs.12.30 Lakhs. The assessee could not demonstrate that

the asset purchased by the assessee constitutes ‘Business Asset’ or a Stock-

in–Trade. The CIT(A) discussed this issue elaborately vide para 10 of his

order and examined the financial statement and held that the impugned

asset was ‘Fixed Asset’ and not a ‘Stock-in-Trade’. Contents of Para 10 of

the CIT(A)’s order is relevant in this regard and same is extracted as under:

“10. I have carefully considered the facts of the case and rival contentions. On perusal of the same it has been noticed at the outset that the contentions raised by the appellant were reasonably rebutted by the A.O. in the assessment order. In order to decide whether the assessee had earned business income or capital gain of sale of plot/land, the intention of the purchaser at the time of purchase was relevant. This proposition of law is supported by the decision of Hon'ble Supreme Court in the following cases. i) CIT Vs. PVK Co. Ltd. (1966) 66 ITR 65 (SC) ii) Janki Ram Bahadur Ram Vs. CIT (1965) 57 ITR 21 (SC) iii) Sarojkumar Mazumdar Vs. CIT (1959) 37 ITR 242(SC) The decisions relied on by the appellant are not applicable to the facts of the case under appeal, as in the said decisions the assessee had transferred plot which was stock in trade of the assessee, whereas in the case under appeal the impugned plot was not stock in trade but fixed asset.

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From the balance sheets filed by the appellant for Assessment Years 31/03/2008 and 31/03/2009 it has been noticed that the impugned plot was shown along with other fixed assets and was not shown as stock in trade. It has also been noticed that the return of income for A.Y. 2010-11 was filed by the appellant on 22/10/2011 i.e. after sale of the impugned plot of land on 11/10/2010 and in the said balance sheet for A.Y. 2010-11 the appellant had shown the impugned plot as stock in trade. It is evident that after sale of the plot on 11/10/2010 the appellant was aware about the applicability of provisions of section 50C and hence the appellant had accordingly shown the impugned plot as stock in trade in the balance sheet filed after entering into the sale deed. Further the appellant had also claimed that in the sale deed it has been mentioned that "since sellers are not in the position to develop the plots therefore they are selling this plot." In this regard also it is evident that at the time of sale of plot on 11/10/2010 the appellant was aware about the applicability of provisions of section 50C and hence the appellant had accordingly mentioned the above preamble in the sale deed. In view of the above facts of the case what is relevant to decide the issue under appeal is the intention of the appellant at the time of purchase of the impugned plot in view of the above mentioned decision of Hon'ble Supreme Court. In the case under appeal the intention of the appellant at the time of purchase of plot is supported by the balance sheets as at 31/03/2008 and 31/03/2009, wherein the appellant had shown the impugned plot as fixed asset. Further there is no circumstantial evidence in favour of the appellant, supporting his contention as during 2007 to 2011, the appellant has not pointed out that he had entered into any other transaction in real estate. Further the contention of the appellant that there was oral agreement of joint venture for developing the impugned plot is not supported by any documentary evidence and hence cannot be accepted. In view of the above facts and discussion, I am of the considered view that the A.O. is justified in rejecting the contention of the appellant that the impugned transaction is business transaction. The A.O. is therefore justified in assessing short term capital gain on sale of plot at Rs.45,60,000/- as against business income declared by the appellant at Rs.7,70,000/-. The addition of Rs.37,90,000/- is therefore confirmed. Ground Nos. 1, 2 & 3 are dismissed.”

before us raising grounds as extracted above.

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case and submitted that the assessee purchased the said land along with

two other co-owners namely, Shri Prakash S. Diyalani and Navin Amrutlal

Tulshiyani HUF. He further stated that the said two co-owners treated their

share of interest in the land as “Business Asset” and filed copies of

assessment order and concerned Balance Sheet in the case of Navin

Amrutlal Tulshiyani HUF where the share of land is shown as ‘Closing

Stock’. Further, he brought our attention to Balance Sheet as on 31st

March, 2008 and mentioned the said plot located at Nashik (Survey

No.272/3/3) was shown as “asset” with a value of Rs.12,30,000/-. Contents

of page 66 of the paper book are relevant in this regard. Further, bringing

our attention to the subsequent year’s balance sheet i.e. as on 31st March,

2009, Ld. Counsel submitted that the land is never categorized as “Fixed

Asset” (Page No. 59 of the Paper book). In this regard, Ld. Counsel

submitted that categorization of the asset merely as an ‘Asset’ in the year of

acquisition i.e. assessment year 2008-09 must not be decided as an

‘Capital Asset’ and against the assessee. Further, Ld. Counsel reiterated the

other arguments made before the Revenue Authorities. Ld. Counsel for the

assessee prayed for treating the asset as “Business Asset” or stock-in-trade

and requested for not invoking the provisions of section 50C of the Act in

respect of the said plot of land. He further mentioned the provisions of

section 43CA of the Act are not in statute at the relevant point i.e.

assessment year 2011-12. This amendment is brought under statute in

Finance Act, 2013 w.e.f. 01.04.2014.

of Assessing Officer and the CIT(A). Ld. DR submitted that the asset in

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question was never the “Stock-in-Trade”; but it is a “fixed asset”. The same

is evident from the financial statement relevant to assessment year 2008-09

and 2009-10. Bringing our attention the paper book i.e. Balance Sheet for

said financial years, Ld. DR submitted that the assessee never categorized

the said asset as “Business Asset” i.e. closing stock for claiming the profit

on sale of it as “Business Income”. Ld. DR further submitted that the

provision of section 50C of the Act is squarely applicable to the “Capital

Asset” of this kind and therefore, order of CIT(A) should be confirmed in full.

by the assessee on 11.10.2010. There is no dispute on (i) the extent of share

in the land located at Nashik, (ii) the assessee owns 50% (iii) purchase cost

of the same is undisputedly Rs.12,30,000/- (iv) Rs.1,15,80,000/- is the fair

market value as per Registration Authorities and the assessee held the land

for a period of around 34 months. We have also considered the fact that

assessee is a commission agent. Coming to the Balance Sheet entries by the

assessee, we find the “asset” is shown in the Balance Sheet not as “Closing

stock”. Along with other fixed assets, assessee enlisted the present land i.e.

plot of land at Nashik as one of the asset. The said asset is shown in the

Balance Sheet along with Flat at Sarvottam Society, Land at Chandsi,

Agricultural land, land at Gotheghar etc. Similar entries are made in

financial statement for both the financial years 2008-09 and 2009-10.

the case of Navin Amrutlal Tulsani HUF for assessment year 2011-12 and

found the same is not useful in any way because the asset was already sold

in the year under consideration. The Ld. Counsel could not file return of

income for the other co-owners. The Ld. Counsel for the assessee should

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have filed Balance Sheet, if any, for the assessment year 2008-09 and 2009-

10 for knowing the initial intention of the co-owners of the asset too. Thus,

copy of return filed by the Ld. Counsel in the case of Shri Navin Amrutlal

Tulshiyani HUF is of no assistance. In any case, the intention of the co-

owner can vary and the same is not binding on the assessee. Therefore, we

are of the opinion that initial intention of the assessee is showing the

impugned asset along with other co-owners as ‘Capital Asset’ only.

Accordingly, the asset acquired by the assessee should be considered as

“Capital Asset” only. There is no way to consider the said entry of the land

i.e. “Plot of land at Nashik, Survey No. 272/3/3 valued Rs.12,30,000/- as

“closing stock”. The provisions of section 43CA of the Act cannot be invoked

as advanced by the Ld. Counsel before us and the same is not relevant for

the assessment year under consideration. Accordingly, we are of the opinion

that decisions of the AO/CIT(A) is fair and reasonable in this regard and the

same does not call for any interference. Relevant paragraphs are already

extracted in the preceding paragraphs of the order. Accordingly, grounds

raised by the assessee are dismissed.

In the result, appeal of the assessee is dismissed. 10.

Order pronounced on this 26th day of September, 2018.

Sd/- Sd/- (�वकास अव�थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

पुणे / Pune; �दनांक / Dated : 26th September, 2018. SB

9 ITA No. 749/PUN/2016 A.Y.2011-12

आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeal)-2, Nashik. 4. The Pr. CIT-2, Nashik. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.