2019 (12) TMI 250 - AT - Income Tax

Nature of land - capital asset or stock in trade - assessment u/s 153A - Assessee has declared the plot as capital asset - But after search, the same was shown as stock in trade and shown the income as business income - adventure in the nature of trade or not - whether the assessee is entitled in law to take a different position about the character of income in the return filed under section 153A of the Act or not - assessee submitted that, the assessee and the co-owners got the said land converted into non-agricultural land in August 2008 i.e. barely few months later and put up the residential housing plot scheme known as 'Krish Villa' while providing for common infrastructure and internal roads. Held that - The narrated sequential action clearly seeks to pronounce the indomitable intention of the appellants to acquire/approach land parcels with commercial motives. From the real, substantive and systematic course of activity or conduct with a set purpose clearly underscores the real intent of the assessee. The concrete material on record leaves no manner of doubt that the acquisition of land under sale was induced by commercial spirit. At this juncture, it will be pertinent to observe that the intention of the assessee is to be judged not with reference to the income declared under a particular head of income as prescribed in the statute, but is required to be decided on the basis of commercial principles. The assessee has moved swiftly and did everything possible to exploit the divided land commercially at the first available opportunity. This type of activity cannot be, in our considered opinion, regarded as capital acquisition taxable under the head 'capital gains'. Such organized course of commercial exploitation of land portfolio carries all trappings of adventure in the nature of trade, commerce etc. and thus falls within the ambit of expression 'business' as defined under section 2(13) of the Act. In so far as the taxability of an income under the appropriate head is concerned, the question is answered by the Hon'ble Gujarat High Court in the case CIT v. Pranjay Mercantile Ltd. 2014 (2) TMI 793 - GUJARAT HIGH COURT In the light of the decision of the Hon'ble Gujarat High Court, it is trite that the income of the assessee is to be assessed under different heads enumerated in Section as per the true nature and character of income and not merely on the basis of classification given by the assessee. We thus find considerable merit in the plea of the assessee herein for eligibility of claim of the assessee for taxability of profits arising on sale of plots under the head 'business income' as claimed in the return filed under section 153A of the Act. We however now turn to the yet another related aspect in controversy. It is the case of the Revenue that the provisions of Section 153A of the Act are for the benefit of the Revenue in the light of the decision of the Hon'ble Supreme Court in case of Sun Engineering Works 1992 (9) TMI 1 - SUPREME COURT . - It is thus claimed on behalf of the Revenue that assessee is not permitted to make a fresh claim or alter its original stand to its advantage in the course of assessment proceedings pursuance to search. We do not see any force in such plea either. The decision of the Hon'ble Supreme Court in Sun Engineering (supra) was rendered in the context of Section 147 of the Act which seeks to assess the chargeable income escaped assessment. Assessee is not prevented from making a claim to its advantage in the proceedings under section 153A of the Act unlike Section 147 of the Act. - Decided in favor of assessee.

Issues Involved:

1. Classification of land as 'capital asset' versus 'stock-in-trade'.
2. Applicability of Section 50C of the Income-tax Act.
3. Legitimacy of revising the head of income in returns filed under Section 153A.
4. Interpretation of Section 153A in the context of search assessments.

Issue-wise Detailed Analysis:

1. Classification of Land as 'Capital Asset' versus 'Stock-in-Trade':

The primary issue revolves around whether the land at Thaltej, Ahmedabad, should be treated as a 'capital asset' or 'stock-in-trade'. The assessee initially declared the land as a 'capital asset' and reported gains as 'capital gains' in the original returns filed under Section 139. However, post-search, the assessee reclassified the land as 'stock-in-trade' and reported gains as 'business income' in the returns filed under Section 153A. The AO and CIT(A) maintained that the land was a 'capital asset', citing the consistent treatment of similar transactions in previous years and the lack of business formalities such as professional tax number, TAN, and sales tax registration. The Tribunal, however, accepted the assessee's claim, noting the systematic development and sale of the land, including conversion to non-agricultural use, obtaining necessary permissions, and incurring development expenses, indicating a commercial motive. The Tribunal concluded that the land was held as 'stock-in-trade' and the gains should be taxed as 'business income'.

2. Applicability of Section 50C of the Income-tax Act:

Section 50C applies when the consideration received on the transfer of a capital asset is less than the value adopted by the stamp valuation authority. The AO applied Section 50C, treating the land as a 'capital asset' and adopting the stamp duty value as the sale consideration, resulting in higher tax liability. The CIT(A) upheld this view, stating that the assessee's reclassification of the land post-search was a mala fide attempt to avoid the provisions of Section 50C. The Tribunal, however, ruled that since the land was held as 'stock-in-trade' and not a 'capital asset', Section 50C was not applicable.

3. Legitimacy of Revising the Head of Income in Returns Filed Under Section 153A:

The AO and CIT(A) argued that Section 153A is not meant for revising or rectifying mistakes in the original returns but for assessing undisclosed income. They relied on the Supreme Court's decision in Sun Engineering Works, which held that reassessment proceedings under Section 147 are for the benefit of the Revenue and not for the assessee. The Tribunal, however, distinguished between Sections 147 and 153A, noting that Section 153A assessments are not limited to undisclosed income but encompass the total income of the assessee. The Tribunal cited judicial precedents, including the Gujarat High Court's decision in Kirit Dahyabhai Patel, which held that returns filed under Section 153A are akin to those filed under Section 139, allowing the assessee to make fresh claims or correct errors.

4. Interpretation of Section 153A in the Context of Search Assessments:

The Tribunal emphasized that Section 153A assessments are comprehensive and not confined to undisclosed income. It noted that the provision begins with a non-obstante clause, overriding other sections like 147, and mandates the AO to assess or reassess the total income of the assessee. The Tribunal referred to the Gujarat High Court's decision in Kirit Dahyabhai Patel and the Calcutta High Court's decision in Shrikant Mohta, which supported the view that returns filed under Section 153A are to be treated as returns under Section 139, allowing for fresh claims and corrections.

Conclusion:

The Tribunal allowed the appeals, accepting the assessee's revised classification of the land as 'stock-in-trade' and the gains as 'business income'. It ruled that Section 50C was not applicable and upheld the assessee's right to revise the head of income in returns filed under Section 153A. The decision underscores the comprehensive nature of Section 153A assessments and the assessee's right to correct errors or make fresh claims in such returns.

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