Loading judgment…
Facts
The assessee treated the gain on sale of land as business income, but the AO considered it as capital gains and applied Section 50C, adopting the stamp duty value as sale consideration. The CIT(A) upheld the AO's order. The assessee also claimed a business loss, which was denied by the lower authorities.
Held
The Tribunal held that the gain on sale of land was to be treated as short-term capital gain. However, it found that Section 50C was not correctly applied by the AO as it should consider the stamp duty value on the date of the agreement for sale, not the sale deed registration. The claim for business loss was rejected due to lack of evidence of business activity.
Key Issues
Whether the gain on sale of land is business income or capital gains, and the applicability of Section 50C based on the date of agreement vs. registration; admissibility of business loss claim.
Sections Cited
143(3), 50C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI TR SENTHIL KUMAR & SHRI NARENDRA PRASAD SINHA
PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against the order of National Faceless Appeal Centre(NFAC), Delhi [hereinafter referred to as ‘CIT(A)’], dated 28.03.2025 for the Assessment Year (A.Y.) 2012-13 in the proceeding u/s 143(3) of the Income Tax Act.
The brief facts of the case are that the assessee had filed his return of income for A.Y. 2012-13 on 30.07.2011 declaring total income of Rs. 85,860/-. The case was taken up for scrutiny. In the course of assessment, the AO found that the assessee had purchased a piece of land on 21.01.2011 at a cost of Rs.30 Lakhs, which was sold on 24.11.2011 for a Kamleshbhai Manubhai Patel Vs. DCIT, AY- 2012-13 2 consideration of Rs.35 Lakhs. The gain derived by the assessee on the sale of this land was disclosed under the head “Income from business”. According to the AO, the gain derived on sale of land was assessable to tax under the head ‘capital gain’. The AO had applied the provision of section 50C of the Act, to compute the short-term capital gain derived by the assessee on the sale of land. It was found that the stamp duty paid on the sale of land was at jantri value of Rs. 1.37 crores. Accordingly, the AO had taken the sale consideration of land at Rs.1.37 crores and worked out STCG of Rs.1,05,22,850/- which was added to income. Further, the AO had also disallowed the claim for deduction of interest made by the assessee under the head income from business. The assessment was completed under section 143(3) on 18.03.2015 at total income of Rs.1,07,58,980/-.
Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:
1. The Ld. CIT (Appeals), National Faceless Appeal Centre (NFAC) has erred in law and in facts in confirming the action of the Ld. AO in not accepting the returned income of Rs 85,860/- and assessing the income at Rs. 1,07,58,981/ The Ld A.O may please be directed to accept the returned income.
2 (i) The Ld. CIT (Appeals), National Faceless Appeal Centre (NFAC) has erred in law and in facts in confirming the action of the Ld. A.O in holding – Kamleshbhai Manubhai Patel Vs. DCIT, AY- 2012-13 3 a) That the appellant is not engaged in the business of trading in land and real estate, b) That the sale of land at Survey No. 279, 281/2 during the year is the sale of a capital asset and not business asset as claimed, c) That the transaction of sale of land at Survey No. 279, 281/2 was liable to be taxed as capital gains as against business income, d) That the consideration on sale of capital asset is to be substituted based on the value quantified for the levy of stamp duty on the date of conveyance of the land as against on the date when agreement for sale is executed, e) That the consideration for the sale of land was to be substituted at Rs. 137,00,000/-as against Rs.35,00,000/- declared by invoking the provisions of sec 50C and the capital gains was to be determined at Rs. 105,22,850/-.
The above findings and the taxation of the transaction of land as capital gain being erroneous in law and in facts is prayed to be cancelled and income from sale of land as offered by the appellant may please be directed to be accepted.
(ii) Without prejudice to the above, the appellant prays that in the event of the transaction being held and confirmed as that of the sale of a capital asset, the Ld. A.O ought to have followed and applied the provisions of sec 50C(2) mandating a reference to the Valuation Officer where the value adopted is higher than the declared.
3. The CIT(A), NFAC has further erred in law and in facts in confirming the action of the Ld AO in holding that the appellant has not conducted any business during the year and consequently denying the claim of loss from the business as quantified at Rs. 57,87,633/- in the return of income. The Ld. A.O. may please be directed to allow the loss as claimed.
Kamleshbhai Manubhai Patel Vs. DCIT, AY- 2012-13 4 4 Your appellant craves liberty to add, alter, amend, substitute or withdraw any of the ground(s) of appeal hereinabove contained.
Shri Deepak Shah, the Ld. AR of the assessee submitted that the first ground taken by the assessee is general in nature. Hence, the ground no.-1 as taken by the assessee is dismissed.
Ground no. - 2 pertains to addition of Rs.1,05,22,850/- on account of short term capital gain on sale of land. The Ld. AR submitted that the finding given by the AO that the assessee was not engaged in business of trading in land was not correct. He explained that the investment made by the assessee in purchase of land was disclosed as stock-in-trade in the balance sheet and, therefore, the intention of the assessee all along was to do trading in land. He explained that the land at survey number 279, 281/2 sold during the year was not a capital asset but stock-in-trade of the assessee. Under the circumstances, the provision of section 50C of the Act was not at all applicable to the facts of the present case. The Ld. AR has drawn our attention to the assessment order passed by the AO for the A.Y 2014-15, wherein the fact that the assessee was engaged in the business of dealing in land and real estate was duly acknowledged. He, therefore, requested that the addition of Rs.1,05,22,850/- on account of short term capital gain was patently wrong and should be deleted. As an alternate argument, the Ld. AR submitted that addition made by the AO was not correct even if the transaction was considered as short term capital gain. The Ld. AR explained that the land was purchased on 21.01.2011 for a consideration of Rs. 30 lakhs and at the time of purchase of the land the jantri rate was Rs. 29.50 lakhs only. The land was sold by the assessee on 11.04.2011 vide registered banakhat and the jantri rate Kamleshbhai Manubhai Patel Vs. DCIT, AY- 2012-13 5 on the date of executing the banakhat was also Rs. 29.50 lakhs. In view of this fact, no addition was called for under section 50C of the Act, as the AO was required to consider the jantri rate on date of agreement and not on the date of execution of sale deed. According to the Ld. AR, since the jantri rate on the date of purchase and the date of registered banakhat was same, no addition was called for even under the provision of section 50C of the Act.
Per Contra, Shri Abhijit, the Ld. Sr. D.R submitted that merely because the assessee had shown the investment in land as stock-in-trade in the balance sheet, the transaction cannot be categorised as business transaction. He explained that the assessee was a partner in a firm which was engaged in the business of real estate. The investment made by the partnership firm in land are reflected in partner’s name. Therefore, the stock-in-trade of land appearing in the balance sheet being actually owned/acquired from the funds of the partnership firm cannot be ruled out. The Ld. Sr. DR submitted that from the P&L account of the preceding year as well as the subsequent year, there was no evidence of any land trading activity being carried out by the assessee. Therefore, the AO had rightly held that the single transaction of sale of land made during the year was liable to tax under the head ‘capital gain’ and not under the head ‘business’. The Ld. Sr. DR further submitted that once the transaction of the assessee was liable to be assessed as short term capital gain, the AO had rightly invoked the provision of section 50C of the Act. As regards working out the sale consideration by adopting the jantri value as on date of agreement, the Ld. Sr. DR submitted that the matter may be set aside to the AO for this purpose with suitable direction.
Kamleshbhai Manubhai Patel Vs. DCIT, AY- 2012-13 6 8. We have considered the rival submissions. From the copy of return and computation of income brought on record in the paper book filed by the assessee, it is found that the assessee derived income from salary, income from house property, income from share in partnership firm, income from other source including rental income from machinery, plants etc. This apart the assessee had also disclosed income from business and profession wherein loss of Rs. 59,37,901/- was claimed. According to the assessee he was engaged in the business of trading of land and the investment made in the land was disclosed as stock-in-trade in the balance sheet. Merely because the investment in purchase in land was disclosed as stock-in-trade in the balance sheet it does not automatically lead to the conclusion that the assessee had carried on business and derived income from business. The conduct of actual carrying on business of purchase and sale of land was required to be demonstrated in order to establish that the assessee was engaged in such activity. From the P&L account for financial year 2010-11 brought on record in the paper-book, it is found that there was no sale of land during that year. The assessee had opening land stock of Rs.2,89,35,358/- and another land was purchased for consideration of Rs.2,37,06,580/- and the entire investment of Rs.5,26,41,938/- in land was reflected as closing stock. In the subsequent year i.e. financial year 2012-13 also, there was no trading activity of land as the opening stock as well as the closing stock was identical at Rs.5,05,68,088/-. The business activity carried out by the assessee was examined by the AO in the course of assessment proceeding for A.Y. 2014-15 and the following finding was given by the AO in this regard:
During the course of assessment proceedings, it is seen that the assessee has reflected loss of Rs.3,27,171/- out of his income from business and profession. Perusal of profit Kamleshbhai Manubhai Patel Vs. DCIT, AY- 2012-13 7 and loss account reveals that during the year, the assessee had reflected opening stock of Rs.5,05,68,088/- which remained closing stock too by the end of the year as on 31.03.2014. There were no purchase account or direct expenses or direct incomes, therefore, the gross profit was NIL. However, it was seen that the assessee has reflected indirect incomes at Rs 3,39,581/- which mainly comprised of interest income and rent including shop rent income. After excluding such rental income and PPF interest income which is exempt, the assessee had claimed loss by claiming depreciation at Rs.1,64,219/- which was restricted to Rs.83,230/-. However the interest though debited in the profit and loss account for arriving loss was credited as income from other sources amounting to Rs 2,04,181/-. Similarly, income from house property has been reflected which was also shown as indirect income in the profit and loss account. Thus, loss was claimed at Rs.3,27,171 only. But since the assessee has not reflected any turnover during the year and there is no gross profit accruing, therefore, the salary expenses, telephone expenses and depreciation claimed on depreciable assets like vehicles and furniture etc cannot be allowed as deduction. Since the loss claimed by the assessee is mainly due to depreciation and salary expenses and some amount of telephone expenses, these cannot be termed as related with business purpose since during the year, the assessee has not indulged into any business activity of sale and purchase of land. There is NIL sales account and similarly, there is NIL purchase account.”
It is thus found that the AO had given a categorical finding in the assessment order for A.Y. 2014-15 that no business activity was carried on by the assessee and, therefore, expenses claimed on account of salary, telephone, depreciation, etc. were all disallowed. No evidence has been brought on record that this finding of the AO was challenged by the assessee. In the current year, the only transaction made by the assessee was sale of land for Rs. 35 lakhs, which was purchased 11 months earlier for a consideration of Rs.30 lakhs, and the gain derived by the assessee in this transaction was disclosed under the head income from business. On the other hand, the AO had treated this gain as income from capital gains. Taking a holistic view of the activities carried on by the assessee and the findings given in the assessment order for A.Y. 2014-15, we are not inclined to interfere with the order of the AO that the income derived by the assessee on sale of land was liable to tax as short term capital
The assessee had contended that the land was sold vide registered banakhat dated 11.04.2011. As per proviso to section 50C(1) of the Act, where the date of agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, then the value adopted or assessed by the stamp valuation authority on the date of agreement shall be taken for the purpose of computing full value of consideration for such transfer. In the present case the agreement for sale was made vide registered banakhat dated 11.04.2011. Therefore, the AO was required to adopt the jantri value of the property as on 11.04.2011 and not on the date of which the sale deed was executed. According to the assessee there was a considerable difference in the jantri value as on date of agreement and as on date of sale deed. In view of this fact, we deem it proper to set aside the matter to the file of the Jurisdictional AO with a direction to determine the jantri value of the property as on date of registered banakhat i.e. as on 11.04.2011 in order to work out the sale consideration in accordance with the provision of section 50C of the Act. If found necessary, the matter may be referred to the Valuation Officer for this purpose. The assessee may also be allowed a proper opportunity of being heard in respect of the sale consideration as determined on the basis of jantri value as on the date of banakhat. In the result, the ground taken by the assessee is partly allowed for statistical purpose.
Kamleshbhai Manubhai Patel Vs. DCIT, AY- 2012-13 9 11. Ground No. 3 pertains to allowing the business loss of Rs. 57,87,633/-. The Ld. AR submitted that the loss was derived mainly on account of interest charges and other expenses which was wrongly disallowed by the AO. Per contra, the Ld. Sr. DR supported the order of lower authorities on this issue.
We have considered the rival submissions. The assessee had worked out business loss of Rs.57,87,633/- after taking into account various expenses as debited to P&L account. As regarding claim of business in land dealing, we have already given our finding earlier. The asssessee had disclosed direct income of Rs. 18,62,700/- on account of “profit on cancelled rights”. The exact nature of this receipt was not explained and no evidence has been brought on record to establish that this receipt was in the nature of business income. Similarly, the assessee has also not explained the rate difference of Rs. 5 lakhs in “Tarshali land” which was claimed as a deduction in the trading account. Further, the assessee has not controverted the finding given by the AO that out of unsecured loan of Rs. 817.41 lakhs, an amount of Rs.337.48 lakhs was deployed for earning of exempt income. No material has been brought on record to establish that the assessee was actually carrying on any business activity and that the expenses debited in the P&L account were laid out wholly and exclusively towards earning of business income, if any. In view of these facts, we do not find any reason to interfere with the findings of the AO and the decision of Ld. CIT(A) on this issue. Therefore, the ground taken by the assessee is rejected.
In the final result, the appeal of the Assessee is partly allowed for statistical purpose.
Order pronounced in the Court on 05/02/2026 at Ahmedabad.