M.LAKSHMI,COIMBATORE vs. ITO, COIMBATORE

This appeal by the assessee is directed against the order passed by the learned Commissioner of Income Tax(Appeals)-1, Coimbatore, order dated 23.02.2017 in Appeal No.140/15-16 for the assessment year 2012-13 passed U/s. 250(6) r.w.s. 143(3) of the Act.

The assessee has raised several grounds in her appeal however the crux of the issue is that the Ld.CIT(A) has erred in confirming the addition made by the Ld.AO amounting to Rs.53,03,690/- towards the value of closing stock.

The brief facts of the case are that the assessee is an individual engaged in the business of real estate, filed her return of income for the assessment year 2012-13 on 30.01.2013 admitting total income of Rs.7,89,250/-. Initially the return was processed U/s.143(1) of the Act and subsequently the case was selected for scrutiny under CASS and notice U/s.143(2) of the Act was issued on 08.08.2013. Finally assessment order was passed U/s.143(3) of the Act on 30.03.2015 wherein the Ld.AO made addition of Rs.53,03,690/- towards the value of closing stock and Rs.8,61,570/- being the sale value not disclosed in the return of income.

The lone issue before us for consideration is whether the value of closing stock of land determined by the Ld.AO at Rs.53,03,690/-, which was not disclosed by the assessee in her return of income by stating that the plots of land situated at CRM Semmozhi Nagar extending to 19,793 sq.ft., and Santosh Avenue extending to 35,421 sq.ft., does not have any realizable value is appropriate. The Ld.Revenue Authorities were of the view that the value of closing stock of land cannot be treated as ‘nil’ and thereafter worked out the value of the land at Rs.345 per sq.ft., being the value of the land sold on earlier instance and further added an amount of Rs.153.41 per sq.ft., being the development expenses incurred by the assessee and thereby arrived at the value as Rs.53,03,690/-. Thus the Ld.AO made addition of Rs.53,03,690/- being the value of closing stock of land not disclosed in the return of income which was further confirmed by the Ld.CIT(A).

Before us the Ld.AR reiterated the submissions made before the Ld.Revenue Authorities on the earlier instances and further pleaded that the value of the land held by the assessee at Semmozhi Nagar and Santhosh Avenue is ‘Nil’ as it did not have any realizable value. It was therefore pleaded that the addition made by the Ld.Revenue Authorities may be deleted. The Ld.DR on the other hand argued in support of the orders of the Ld.Revenue Authorities and pleaded for confirming the same.

We have heard the rival submissions and carefully perused the materials available on record. We do not find any merit in the submission of the Ld.AR that the value of the closing stock of land held by the assessee at Semmozhi Nagar and Santhosh Avenue is ‘nil’. Land is not depreciable asset and there is no evidence on record to show that the closing stock of land held by the assessee has inherent disadvantages which leads to non-utilization of those lands. Further it is evident and not disputed that the assessee had incurred development cost of Rs.153.41 per sq.ft.,. When the assessee had incurred expenditure towards development of the land, definitely it is only with a view for bringing the land to marketable conditions. However we find that the Ld.Revenue Authorities had estimated the value of the land at Rs.345 per sq.ft., being the sale price of the land sold in the earlier instance and also included the development cost of Rs.153.41 per sq.ft.,. We do not find any merit in the same. The sale value of the land will fluctuate from one plot to another due to various reasons. Therefore the earlier sale value of the land cannot be taken as a decisive factor to estimate the value of land that remains to be sold viz., the closing stock of land. Further when the development cost is also added to the earlier sale price of the land then the value of land becomes inflated. Moreover according to prudent accounting principles which is generally accepted is to value the closing stock at cost or market price whichever is less. In this situation, in the case of the assessee, it would be appropriate to value the closing stock of land based on the market value determined by the State Government Authorities in the Revenue records. Hence we hereby direct the Ld.AO to value the closing stock of land as per the market value stated in the Revenue records of the State Government Authorities or the actual cost of the land including development charges whichever is less. It is ordered accordingly.

In the result, the appeal filed by the assessee is partly allowed.