2013 (12) TMI 946 - AT - Income Tax

Stamp duty valuation - stock in trade - Held that - The assessee has disclosed the property in trial balance for all the years from 2000-01 to 2005-06 as part of stock in trade - The assessee was in the business of construction and development rights purchased by the assessee is part of stock in trade - The assessee could not get possession of the said property till the date the assessee transferred his rights in the said property to M/s Jajodia and Patel Properties - The assessee has treated the said property as stock in trade - The provisions of section 50C are applicable only in respect of capital asset, being land or building or both and there is no reference that the said provisions is applicable to stock in trade - The sale value as per agreement for sale of development rights under the facts and circumstances of the case is genuine - Decided against revenue.

Summary

Issues Involved:
1. Determination of whether the property under consideration is a capital asset subject to Section 50C of the Income-tax Act.

Detailed Analysis:

Issue 1: Determination of whether the property under consideration is a capital asset subject to Section 50C of the Income-tax Act.

Relevant Facts:
- The assessee sold a property for Rs. 12,85,000 to M/s Jajodia and Patel Properties, while the market value as per stamp duty valuation was Rs. 4,99,50,000.
- The Assessing Officer (AO) questioned why capital gains should not be computed as per Section 50C of the Income-tax Act.
- The assessee contended that the property was purchased for development purposes, which is the business of the assessee, and thus treated as stock in trade, not a capital asset.

Assessee's Arguments:
- The property was acquired along with other family members in 1992 and 1993.
- The property was always treated as stock in trade, not a capital asset, and thus Section 50C should not apply.
- The property was in litigation, and the assessee never received possession.
- The rights to acquire the property were transferred to M/s Jajodia and Patel Properties due to prolonged litigation.

Assessing Officer's Findings:
- The property was not reflected in the trial balance for the financial year 2005-06, indicating it was not considered stock in trade.
- The assessee was in possession of the property, as evidenced by a letter from the assessee's advocate.
- The transfer of property to M/s Jajodia and Patel Properties was to avoid prolonged litigation, but one of the partners was the assessee's son, indicating a non-arm's length transaction.
- The property was fully paid for, and the transfer was a sale of the property, not just rights, thus avoiding higher stamp duty and capital gains tax.

CIT(A)'s Decision:
- The rights in the property were held as stock in trade, not capital assets.
- The property was part of the assessee's business as a developer, consistently treated as stock in trade.
- The valuation report by the DVO supported the assessee's claim, considering the property was under multiple litigations and encumbrances.
- The AO's assertion that the property was a capital asset was contrary to the facts on record.
- The provisions of Section 50C apply only to capital assets, not stock in trade.

Tribunal's Findings:
- The property was disclosed in trial balances as stock in trade from 2000-01 to 2005-06.
- The property was affected by numerous litigations, and the assessee did not have possession.
- The agreements were on stamp paper and not registered, indicating no valid transfer of rights.
- The assessee treated the property as stock in trade, and Section 50C does not apply to stock in trade.
- The sale value as per the agreement dated 16th June 2006 was genuine.

Conclusion:
- The Tribunal upheld the CIT(A)'s decision that the provisions of Section 50C are not applicable to the property under consideration as it was treated as stock in trade.
- The appeal of the department was dismissed.

Order Pronouncement:
- The order was pronounced in the open Court on 23rd August, 2013.

In summary, the Tribunal confirmed that the property in question was stock in trade and not a capital asset, thus Section 50C of the Income-tax Act was not applicable. The department's appeal was dismissed, and the CIT(A)'s order was upheld.