2023 (1) TMI 665 - AT - Income Tax

Correct head of income - Profit or loss derived from sale of land - capital gains OR income from business or profession - HELD THAT - Assessee was in the business of construction and real estate development. It was also not in dispute that the assessee had held the impugned land sold for the AY 2003-04 as stockin- trade in the books of accounts for the earlier assessment years. Although, the assessee claims to have converted stock-in-trade into investment for the AY 2002-03, but no evidence has been furnished before us to justify its case in light of provisions of Sec.45(2) - assessee has held many lands and classified as stock-in-trade. Therefore it is very clear that the assessee was acquired the impugned land held for the AY 2003-04, for the purpose of commercial exploitation and further, the conduct of the assessee, including accounting in the books of accounts is also supports the case of the AO that the impugned land was held as stock-in-trade. Therefore, in our considered view, profit or loss derived from sale of land held as stock-in-trade is assessable under the head income from business or profession as assessed by the AO, but not assessable under the head capital gains as claimed by the assessee. Although, the assessee claims to have converted stock-in-trade into investment, but there is no evidence with the assessee to prove its case in light of provisions of Sec.45(2) because the assessee has not satisfied the conditions prescribed therein and also computed business profits towards conversion of stock-in-trade into capital assets. Assessee has computed profit or loss derived from sale of land under the head capital gains to derive the benefit of indexation, otherwise, all evidences including accounting system clearly suggest that impugned land sold by the assessee was stock-in-trade and profit or loss derived from sale of said land is assessable under the head income from business or profession . There is no error in the reasons given by the AO as well as the Ld.CIT(A) to assess profit or loss derived from sale of land under the head income from business or profession and thus, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the assessee.

Summary

Issues:
1. Condonation of delay in filing appeal.
2. Classification of land as stock-in-trade or investment.
3. Assessment of profit or loss from sale of land under the head 'income from business or profession' or 'capital gains'.

Condonation of delay in filing appeal:
The appeal filed by the assessee was initially barred by limitation. The assessee filed a petition for condonation of delay, citing reasonable cause for the delay. After considering the reasons provided by the assessee, the Tribunal deemed the delay as condonable and admitted the appeal for adjudication.

Classification of land as stock-in-trade or investment:
The assessee, engaged in construction and real estate development, had sold land to a third party. The Assessing Officer (AO) considered the land as stock-in-trade, assessing profit or loss under 'income from business'. The assessee claimed the land was an investment, computing profit or loss under 'capital gains'. The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating lack of evidence for conversion from stock-in-trade to investment. The Tribunal agreed with the lower authorities, emphasizing the absence of evidence to support the conversion claim. The Tribunal concluded that the land was held as stock-in-trade, hence profit or loss from its sale falls under 'income from business or profession'.

Assessment of profit or loss from sale of land:
The dispute centered on whether profit or loss from the land sale should be treated as 'income from business or profession' or 'capital gains'. The assessee argued for capital gains due to the land's conversion to investment status and a Joint Development Agreement. The Revenue contended that the land was stock-in-trade, lacking evidence for the conversion. The Tribunal upheld the lower authorities' decision, stating the assessee failed to meet conditions under Sec.45(2) of the Act for conversion. Despite the assessee's indexation claim, the Tribunal found no error in assessing the profit or loss under 'income from business or profession'. The appeal was dismissed, affirming the assessment under the business income category.