2021 (8) TMI 82 - AT - Income Tax

Assessment of Long Term Capital Gain U/sec 45(2) - conversion of land as stock-in-trade - sale of land after plotting - HELD THAT - the assessee is making a claim to value the stock-in-trade only on the value of saleable plots which are stock-in-trade. The assessee s claim to compute long term capital gain with reference to saleable plot is revenue neutral in as much as on the sale of plots as business income the resultant income would be much higher and would be taxed at a higher rate. Moreover the road and peripheral development in isolation have no market value. In our considered opinion, this claim of the assessee would be revenue neutral. As held by the Hon ble Supreme Court in the case of Excel Industries Ltd. 2013 (10) TMI 324 - SUPREME COURT when on an issue the tax effect is neutral, the same should not be agitated. In this view of the matter, in our considered opinion, this claim of the assessee by way of the ground raised above is allowable and accordingly, we allow the same. This is more so when assessee is not pressing the other grounds relating to cost of improvement, etc.

Summary

Issues involved:
Assessment of Long Term Capital Gain u/sec 45(2)

Detailed Analysis:
The appeal concerns the assessment of Long Term Capital Gain u/sec 45(2) on the sale of land. The appellant contested the computation of Long Term Capital Gain by the ld.CIT(A)-34, Mumbai, for the assessment year 2013-14. The appellant raised multiple grounds of appeal, including the calculation of the notional sale consideration and the indexed cost of improvement of the land. The appellant specifically challenged the computation of the notional sale consideration and the valuation of the stock-in-trade based on the saleable plot area. The appellant emphasized that the value of the stock-in-trade should be determined solely based on the saleable plots, excluding roads and peripheral development areas. The appellant sought to compute the long term capital gain with reference to the saleable plot area, asserting that the inclusion of roads and peripheral development areas would inflate the capital gain without a corresponding increase in actual profit upon sale. The appellant contended that such an approach would be revenue neutral as the resultant income from selling plots as business income would be taxed at a higher rate compared to long term capital gains.

The Assessing Officer (AO) noted the conversion of agricultural land into non-agricultural land for business purposes by the appellant. The AO considered the entire chunk of land as converted into non-agricultural land and insisted on valuing the fair market value of the entire land for computing long term capital gains. However, the appellant argued that only the proportionate cost for the saleable plot area should be considered for the long term capital gain calculation. The AO's position was that the roads and peripheral development were integral parts of the saleable plots and should be factored into the valuation. The ld. CIT(A) upheld the AO's view.

Upon reviewing the case, the ITAT Mumbai observed that the appellant's claim to value the stock-in-trade based only on the saleable plots was revenue neutral. The ITAT emphasized that while the inclusion of roads and peripheral development areas would increase the capital gain, the resultant profit upon selling the plots would be smaller, ultimately being taxed at a higher rate as business income. The ITAT referred to the Hon'ble Supreme Court's decision in Excel Industries Ltd., highlighting that when the tax effect is neutral, the claim should not be contested. Consequently, the ITAT allowed the appellant's claim to compute long term capital gain with reference to the saleable plot area, considering it revenue neutral and permissible. The ITAT partially allowed the appeal in favor of the appellant, emphasizing the revenue-neutral nature of the claim and the absence of pressing other grounds related to cost of improvement.

In conclusion, the ITAT Mumbai's judgment addressed the appellant's challenge regarding the computation of Long Term Capital Gain, emphasizing the revenue-neutral aspect of valuing the stock-in-trade based solely on the saleable plot area. The judgment underscored the tax implications and neutrality of the appellant's claim, ultimately allowing the appeal partially in favor of the appellant.