ANGELINA,CHENNAI vs. ITO, CHENNAI

These appeals by the assessees are directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)- 15, Chennai both dated 31.01.2017 in 14/CIT(A)-15/2013-14 passed u/s.250(6) r.w.s.143(3) & 144 of the Act & ITA No.642/2013-14/CIT(A)-15/A.Y. 2009-10 passed u/s.250(6) r.w.s.143(3) of the Act. Since the issue in both these appeals is identical and related to the same land jointly sold by the assessees, both the appeals are heard and disposed off together for the sake of convenience.

The assessees has raised several grounds in their appeal, however the crux of the issue is that the Ld.CIT(A) has erred in confirming the order of the Ld.AO who had treated the gain arising out of the sale of their land being stock-in-trade as short-term capital gain and not profit from business as claimed by the assessees and further wrongly invoked the provisions of Section 50C of the Act, while computing the short-term capital gain.

The brief facts of the case are that the assessees are husband and wife engaged in the business of construction contractors, filed their return of income for the relevant assessment year 2009-10 on 17.04.2009 & 02.03.2010, admitting total income of Rs.8,36,333/- & Rs.2,26,500/- respectively. Initially the return was processed U/s.143(1) of the Act. Subsequently the case was selected for scrutiny and finally order U/s.143(3) of the Act was passed on 28.12.2011 in the case of both the assessees, wherein the Ld.AO assessed short- term capital gain of Rs.17,23,478/- in the hands of each of the assessees towards sale of a property at Padur, Kancheepuram District jointly held by them as against profit from business claimed by the assessees.

During the course of scrutiny assessment, it was observed by the Ld.AO that the assessee along with her husband had sold the aforesaid property for sale consideration of Rs.23,62,500/- vide sale deed dated 11.08.2008, Doc. No.5955 at Tiruporur, Sub-Registrar’s office. The Ld.AO had obtained the sale deed from the Sub-Registrar’s office U/s.133(6) of the Act. Since the assessees had not declared the gain arising out of the sale of the land and had not produced any evidence towards expenditure incurred on the land such as improvement cost, etc., the Ld.AO computed the short-term capital gain of the assessees based on the materials available before him by invoking the provisions of Section 50C of the Act as follows:-

On appeal, the Ld.CIT(A) confirmed the order of the Ld.AO concurring with the views expressed by the Ld.AO in his order.

At the outset, I find that the core issue is with respect to the invoking of the provisions of Section 50C of the Act, thereby adopting the sale value at the guideline value/market value at Rs.43,49,100/-. In order to escape the rigor of the provisions of Section 50C of the Act, the assessees might have claimed before the Ld.Revenue Authorities that the asset has to be treated as stock-in-trade. The Revenue would also have rejected the claim of the assessees by holding that the asset sold is not stock-in-trade, in order to invoke the provision of Section 50C of the Act. However, on perusing the sale deed dated 20th September 2006, Doc. No.8393 registered at Tiruporur Sub- Registrar office page No.14 “Schedule of Property”, I find that the land sold by the assessees is ‘Grama natham land’. If the land is classified as ‘grama natham’, then the assessee will not have complete right on the land as in the case of proper patta land. The guideline value recorded in the register with Sub-Registrar attributes only to proper patta land and the same is also adapted to grama natham land without giving any leverage. Therefore with respect to the grama natham land, the same market/guideline value cannot be adopted. It is pertinent to mention that the bare and unutilized land in the outskirts of cities like Chennai which is owned by none is known as Grama natham. It is a piece of land actually belongs to none. There is no legal proof of the ownership of such land. Buying a Grama natham land can be risky at times and has a lesser value than the proper patta land, though legally one can build a house on such land while enjoying possession of such land. Because of the above stated reasons the liquidity value of Grama natham land is less compared to proper patta land. Further there will be only few buyers for such properties. Even if a person is in possession of Grama natham land, though applying for patta is feasible but not easy to obtain the same. Grama natham land can be used only for building residential house and agricultural activities, however it cannot be used for commercial purposes. Moreover in the case of the assessees, the Ld.AO has not obtained the valuation report from the DVO U/s.50C of the Act.

In the result, the appeals of both the assessee are allowed as indicated herein above.