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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the CIT(A) -10, Chennai dated 28.01.2016 and pertains to Assessment Year 2007-08.
Shri K.Meenakshi Sundaram, the learned representative for the assessee submitted that the assessee is engaged in the business of export of leather. The assessee has also sold the leather in the domestic markets. For the purpose of expansion of business, the assessee purchased 74 cents of land in Survey No.22, Nemilicherry Village, Pallavaram Municipality, Chennai.
The assessee sold the land during the year under consideration. In order to overcome the financial crisis, the land was sold for Rs.28,05,000/-. The resultant profit on sale of the land was offered for taxation under the head income from business. However, the assessing officer assessed the profit on sale of the land as Short Term Capital Gain by applying the provisions of Section 50C of the Act. The CIT(A) called for a remand report from the Assessing Officer. The Assessing Officer during the remand proceedings found that there was inconsistency in the assessee’s claim regarding the usage of the land. The assessee has also claimed that 74 cents of land purchased by the assessee was a vacant agricultural land. The learned representative for the assessee could not produce any material. On the basis of the so called remand report filed by the Assessing Officer, the CIT(A) refused to admit the additional material filed by the assessee. The CIT(A) confirmed the order of the Assessing Officer holding that the land in question is a capital asset. The claim of the assessee that it is a agricultural land was not considered by the CIT(A).
Referring to the order of the CIT(A), the learned representative for the assessee submitted that the CIT(A) admitted that the assessee has purchased the agricultural land. However, he found that the agricultural land was kept for commercial purpose. According to the learned representative for the assessee, the CIT(A) find that it is an agricultural land and the land was not used for any commercial purpose even though there was an intention to use the same for commercial purpose. The CIT(A) is not justified in confirming the order of the Assessing Officer.
On the contrary, Shri Sahadevan, the learned department representative submitted that the assessee’s claim that the land in question was a depreciable business asset, therefore, the profit on sale of the land has to be assessed as ‘business profit’. Referring to the order of the CIT (A), the learned department representative submitted that Section 41(5) of the Income Tax Act refers to profit and gain arising from transfer of capital asset. Since capital asset was transferred, the CIT (A) found that the profit has to be assessed as ‘capital gain’. Therefore, the provision of Section 50C is squarely applicable.
We have considered the rival submissions on either side and also perused the material available on record. The assessee admittedly engaged in the business of export of leathers and also sale of leather in the domestic market. It is not the case of the assessee that he is engaged in the business of real estate. Initially, the assessee purchased the land for expansion of his leather business. Therefore, the land purchased by the assessee is a capital asset. It is not the stock in trade of the assessee. The assessee might have intended to carry on his business by using the land. Due to financial crisis, the assessee was forced to sell the land during the year under consideration.
Therefore, this Tribunal is of the considered opinion that when the land was purchased as a capital asset, the profit on sale of such land has to be treated as capital gain. The matter would be standing in different footing if the assessee treated the land in question as a stock in trade. As observed earlier, it is not the case of the assessee that the land in question is a stock in trade. Therefore, for the purpose of computing the capital gain, the provisions of Section 50C would come into operation.
In view of the above, the Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed.
In the result, the appeal of the assessee stands dismissed.
Order pronounced on 06th September, 2016 at Chennai.