2018 (4) TMI 279 - AT - Wealth-tax

Valuation of vacant land at Shaikpet Village - assessee have claimed the property as exempt under section 2(ea) of Wealth Tax Act on the ground that the asset is stock-in-trade - Held that - On identical facts in the case of Shri Devineni Avinash, the same issue has come up before this Tribunal 2017 (12) TMI 480 - ITAT VISAKHAPATNAM as held that the impugned asset is not stock-in-trade as claimed by the assessee The asset is not a commercial asset and not exempt u/s 2(ea) of Wealth Tax Act and accordingly we uphold the orders of the CWT(A) and dismiss the appeals of the assessee.

Summary

Issues Involved:
1. Valuation of vacant land at Shaikpet Village.
2. Classification of the property as stock-in-trade under Section 2(ea) of the Wealth Tax Act.
3. Impact of civil litigation and injunction orders on the classification of the property.

Detailed Analysis:

1. Valuation of Vacant Land at Shaikpet Village:
The primary issue revolves around the valuation of a 1195 sq. yard house site at Shaikpet Village, Rangareddy District. The assessees declared the property value at ?5,97,50,000/-. However, the Assessing Officer (AO) collected information from the sub-registrar office and determined the value at ?7,17,71,100/-, bringing the difference to wealth tax.

2. Classification of the Property as Stock-in-Trade under Section 2(ea) of the Wealth Tax Act:
The assessees claimed the property as exempt under Section 2(ea) of the Wealth Tax Act, arguing it was stock-in-trade. They supported this by stating they had entered into a development agreement with M/s Vulcon Project Developers Pvt. Ltd. However, the AO rejected this claim, noting that no business activities were conducted on the property, and it was declared as a fixed asset in the balance sheet. The ITAT upheld this view, referencing a similar case (Shri Devineni Avinash) where it was determined that merely entering into a development agreement does not convert the asset into stock-in-trade. The Tribunal emphasized that the assessee failed to provide evidence supporting the claim that the property was a business asset.

3. Impact of Civil Litigation and Injunction Orders on the Classification of the Property:
The assessees contended that the property was under a court injunction (O.S.No.248 of 2003) which mandated maintaining the status quo, thus preventing any construction. They argued this should exempt the property under Section 2(ea) of the Wealth Tax Act. The AO and the Commissioner of Wealth Tax (Appeals) [CWT(A)] disagreed, stating that an interim court order does not equate to a legal prohibition on construction. The ITAT referenced a jurisdictional High Court decision, which clarified that an interim order from a civil court does not constitute a prohibition under any law for the area. Therefore, the property could not be excluded from the definition of an asset under Section 2(ea).

Conclusion:
The ITAT dismissed the appeals, affirming that the property at Shaikpet Village does not qualify as stock-in-trade and is not exempt under Section 2(ea) of the Wealth Tax Act. The valuation determined by the AO was upheld, and the civil litigation did not impact the asset's classification for wealth tax purposes. The Tribunal's decision was consistent with previous rulings and jurisdictional High Court interpretations, ensuring the property was correctly included in the wealth tax assessment.