2017 (9) TMI 1696 - HC - Income Tax

Capital gain computation - Value of sale consideration - Held that - The assessee has sold the land to 32 persons as stated whereas the Ao has mainly relied upon the statement of Smt. Mithlesh Gupta which has no evidentiary value. The assessee Shri LK. Gupta, Chartered Accountant had submitted the affidavits of 7 persons which were admitted by the ld. CIT(A) as an additional evidence and the AO was required to verify the veracity of the same as per direction of the CIT(A). The remand report was submitted by the AO and counter comments by the assessee at PB 52. The AO in the remand proceedings has taken the statement of 5 persons except Shri Gauri Shankar and Shri Balwant Kumar whose statements were recorded later on and are on record. All the 7 persons have confirmed to have purchased the land ₹ 200/- per sq. yard and no defect in the same has been pointed out by any of the authorities below. We appreciate the submissions of the assessee Shri L.K. Gupta, that other purchasers of the land have not been examined by the AO and no step has been taken in this regard by any of the authorities below. Therefore, in such circumstances and facts of the case, the AO is not justified in taking the value of the land at ₹ 900/-per sq. yard. CIT(A) who has gone a step ahead to invoke the Provisions of Section 145(3) of the Act which was not even invoked by the AO and valuing the rate of sale of land at ₹ 600/- per sq. yard is without any material on record and purely on surmises and conjectures. Rate of sale of land adopted by the assessee is directed to be accepted. Therefore, capital gain as declared by the assessee is directed to be accepted. - Decided in favour of assessee

Issues Involved:
1. Whether the land sold by the assessee should be treated as a business asset or a capital asset.
2. Whether the sale consideration should be treated as business income or capital gains.
3. Whether the Assessing Officer (AO) was justified in treating the land as stock-in-trade.
4. Whether the sale consideration of the land was correctly valued by the AO.
5. Whether the forfeited advance of ?10.00 lacs should be adjusted against the cost of the land.
6. Whether interest under sections 234A, 234B, and 234C of the Income Tax Act should be charged.

Detailed Analysis:

1. Nature of the Asset:
The primary issue was whether the land sold by the assessee was a business asset or a capital asset. The AO treated the land as stock-in-trade, asserting that the assessee's intention was to commercially exploit the land. The CIT(A) upheld this view, citing systematic planning and division of land into plots for sale as indicative of a business venture. However, the Tribunal reversed this finding, noting that the land was sold as a whole initially and only divided into plots when it could not be sold otherwise. The Tribunal emphasized the absence of any material evidence showing the assessee's intention to treat the land as stock-in-trade.

2. Treatment of Sale Consideration:
The AO treated the sale consideration as business income, based on the surrounding circumstances and the systematic division of the land into plots. The CIT(A) supported this view, referencing similar judgments where land division and sale were considered business activities. The Tribunal, however, concluded that the sale of land was not a business venture but a capital asset, thereby treating the proceeds as capital gains. The Tribunal highlighted that the assessee had filed wealth tax returns for the land, indicating its treatment as a capital asset.

3. Justification of AO's Treatment:
The AO's treatment of the land as stock-in-trade was based on the systematic division of land and the intention to sell it in smaller plots. The CIT(A) supported this view, citing the assessee's long-term plan to exploit the land commercially. The Tribunal disagreed, stating that the division into plots was a subsequent action due to the inability to sell the land as a whole. The Tribunal found no evidence of the assessee obtaining permissions to act as a colonizer or any material indicating the conversion of the land into stock-in-trade.

4. Valuation of Sale Consideration:
The AO valued the land at ?900 per sq. yard, based on statements from purchasers and the rates provided by the Sub-Registrar and UIT, Bharatpur. The CIT(A) reduced this valuation to ?600 per sq. yard, considering the surrounding circumstances and the affidavits submitted by the assessee. The Tribunal further reduced the valuation to ?200 per sq. yard, as declared by the assessee, citing the lack of material evidence to support a higher valuation. The Tribunal criticized the reliance on the statement of a single purchaser and the absence of detailed examination of other purchasers.

5. Forfeited Advance:
The AO treated the advance of ?10.00 lacs received and allegedly forfeited as reducing the cost of the land to nil. The CIT(A) upheld this view, noting the absence of documentary proof to counter the forfeiture claim. The Tribunal, however, dismissed this treatment, emphasizing that the statement regarding forfeiture was not cross-examined and that a later letter from the buyer contradicted the forfeiture claim. The Tribunal found no justification for treating the advance as forfeited and reducing the land's cost to nil.

6. Charging of Interest:
The AO directed the charging of interest under sections 234A, 234B, and 234C as per rules. The CIT(A) upheld this direction, rejecting the assessee's plea based on a Supreme Court decision. The Tribunal did not specifically address this issue in detail, focusing instead on the primary issues of asset nature and sale consideration valuation.

Conclusion:
The Tribunal's judgment favored the assessee, reversing the findings of the AO and CIT(A) on key issues. The land was treated as a capital asset, and the sale consideration was accepted as declared by the assessee. The advance was not considered forfeited, and the valuation of the land was significantly reduced. Consequently, the appeals were dismissed, and the issues were resolved in favor of the assessee.

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