2023 (11) TMI 435 - AT - Income Tax

Addition u/s 56(2)(vii)(b) - difference between circle rate and actual amount paid for purchase of land - Assessee argued that land was purchased for the purpose of business and the same was shown as stock in trade as brother of assessee being co-owner was under treatment for some serious illness during F.Y. 2016-17 and impugned addition has been made by recording incorrect facts and findings and in violation of principles of natural justice - HELD THAT - The land was purchased by assessee and his brother on 10.12.2013 during F.Y. 2013-14 and even after laps of 3 years up to A.Y. 2015-16 except signing MOU no other action had been taken by the assessee and his brother showing their intention to develop the land as a business venture. Expect signing an MOU, there is no action or evidence on record by the assessee and his co-owner brother after laps of three years till his co-owner brother fall ill. There is no other documentary evidence to show that the Shri Safdar Hussain Khan brother is continuously sick till date. There is no action or efforts by the assessee and his brother before illness of his co-owner brother to show that the assessee and his brother formed any partnership firm or LLP entity or Company for said business venture and showing any action to apply for any approvals or permissions from the Government Authorities regarding development of land as a Multistory Commercial/Residential Project. Therefore, we are inclined to hold that the benefit of order of Ashok Agarwal HUF 2020 (8) TMI 94 - ITAT JAIPUR is not available for the assessee in the present case. We reach to a logical conclusion that the AO was right in making addition by invoking provision under section 56(2)(vii) of the Act as a land in question was a capital asset and the same was not kept as stock-in-trade by the assessee and his co-owner brother. Appeal of assessee is dismissed.

Summary

Issues Involved:

1. Addition of Rs. 74,55,500/- under Section 56(2)(vii)(b) of the Income Tax Act.
2. Classification of purchased land as stock-in-trade versus capital asset.
3. Validity and implications of the Memorandum of Understanding (MOU).

Summary:

Issue 1: Addition of Rs. 74,55,500/- under Section 56(2)(vii)(b) of the Income Tax Act

The assessee contended that the addition of Rs. 74,55,500/- under Section 56(2)(vii)(b) was erroneous as the land was purchased for business purposes and shown as stock-in-trade. The assessee relied on the ITAT Jaipur Bench's decision in CIT vs. Shri Ashok Agarwal HUF, arguing that properties shown as stock-in-trade should not fall under the ambit of Section 56(2)(vii). However, the AO and CIT(A) held that the land was a capital asset, not stock-in-trade, as no independent evidence was provided to substantiate the claim. The addition was upheld based on the difference between the circle rate and the actual amount paid.

Issue 2: Classification of Purchased Land as Stock-in-Trade versus Capital Asset

The assessee argued that the land was intended for a commercial/residential project, as evidenced by an MOU with his brother, and should be treated as stock-in-trade. The AO and CIT(A) found that no substantial actions were taken towards developing the land as a business venture, and the land remained unsold for several years. The CIT(A) noted that there was no evidence of efforts to find prospective buyers, indicating the land was not held as stock-in-trade. Consequently, the land was classified as a capital asset, triggering Section 56(2)(vii).

Issue 3: Validity and Implications of the Memorandum of Understanding (MOU)

The assessee presented an MOU dated 10.12.2013, outlining future plans to develop the land. However, the AO and CIT(A) dismissed the MOU as self-serving and insufficient to prove the land was stock-in-trade. The CIT(A) emphasized that the MOU did not lead to any concrete steps towards development, and the land was not approved by the Khurja Development Authority. The MOU was deemed inadequate to alter the classification of the land from a capital asset to stock-in-trade.

Conclusion:

The Tribunal concluded that the AO was justified in making the addition under Section 56(2)(vii) as the land was a capital asset, not stock-in-trade. The appeal was dismissed, and the addition of Rs. 74,55,500/- was upheld. The Tribunal found no merit in the assessee's arguments and determined that the MOU and other evidence presented did not substantiate the claim that the land was stock-in-trade.