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2018 (2) TMI 1643 - AT - Income TaxAddition on the sale of plot of land under the head Profits & Gains of Business or Profession - Held that - Although the land was agricultural land and situated in the limits of city of Dausa. It was developed into 23 plots of various sizes and sold during the year. The nature of land had gone irreversible change from agricultural to residential plots, therefore, we are agree with the finding of the ld. CIT(A) that this was an adventure in the nature of trade and income has to be taxed under the head profit and gains of business and profession . Provisions of Section 45(2) provides that the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. Apparently these provisions of Act have not been taken into consideration by the ld. CIT(A), therefore, in the interest of justice and equity, the Bench find deem it fit to restore the issue back to the file of the ld. CIT(A) to give effect to the provisions of Section 45(2) - Decided partly in favour of assessee for statistical purposes only.
Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961. 2. Treatment of sale of land as "Profits & Gains of Business or Profession" versus "Capital Gains". Detailed Analysis: 1. Reopening of Assessment under Section 147: The assessee did not press this ground of appeal; hence, it was dismissed as not pressed. 2. Treatment of Sale of Land: Background: The assessee inherited agricultural land in Dausa Khurd, which was developed into 23 residential plots under the "Bhagwati Nagar Residential Scheme" and sold without registered sale deeds for a total consideration of ?24,15,600. The assessee declared a Long Term Capital Gain (LTCG) of ?85,258 after indexation and deduction of improvement/dalali expenses. The Assessing Officer (AO) invoked Section 50C of the Income Tax Act, 1961, estimating LTCG at ?58,60,918 based on the prevailing DLC rate. The CIT(A) sustained an addition of ?23,39,100 under the head "Profits & Gains of Business or Profession," treating the transaction as an "adventure in the nature of trade." Arguments by the Assessee: - The sale was not registered; hence, DLC rates should not apply. - The amendment to Section 50C to include "assessable" value was effective from 01/10/2009, whereas the sale occurred in FY 2006-07. - The AO did not refer the property valuation to the DVO, making the invocation of Section 50C unjustified. - The transaction should be treated as a capital gain, not as an adventure in the nature of trade, citing various judicial precedents. CIT(A)'s Findings: - The CIT(A) analyzed the nature of the transaction and concluded that the development and sale of the plots under a residential scheme indicated a business motive, thus falling under "adventure in the nature of trade." - The CIT(A) applied the parameters set by the Hon'ble Supreme Court in G. Venkataswamy Naidu vs. CIT, which include the nature of the commodity, the purchaser's intention, and subsequent actions to improve the commodity, among others. - The CIT(A) noted that the assessee had developed the agricultural land into residential plots, indicating a business purpose and maximizing asset value. ITAT's Decision: - The ITAT agreed with CIT(A) that the development and sale of plots were an adventure in the nature of trade, thus taxable under "Profits & Gains of Business or Profession." - The ITAT considered various case laws cited by the assessee but found them not applicable due to differing facts. - The ITAT noted that Section 45(2) of the Act, which deals with the conversion of capital assets into stock-in-trade, was not considered by the CIT(A). This section mandates that the fair market value of the asset on the date of conversion should be deemed as the full value of consideration for calculating capital gains. Conclusion: The ITAT sustained the CIT(A)'s findings but restored the issue to the CIT(A) to apply the provisions of Section 45(2) correctly. The appeal was partly allowed for statistical purposes. Order Pronounced: The order was pronounced in the open court on 22/02/2018.
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