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TMI Blog2018 (12) TMI 457X X X X Extracts X X X X X X X X Extracts X X X X ..... m basis. The ld AO failed to appreciate that ultimately some portion of land was even held by the assessee. In any case, 5500 sq.yard of land was never sold in full by the assessee. The total value determined by the DVO at a later stage i.e during first appellate stage was fixed at ₹ 2,33,24,000/- for entire 5500 sq.yard of land. The ld CITA having agreed to the said consideration value for the purpose of computing capital gains at ₹ 34,87,820/- by considering full value of consideration figure at ₹ 2,33,24,000/-, made totally unwanted and irrelevant observations in his appellate order by observing that the assessee shall be liable for business income at ₹ 5,15,12,180/- ( 5,50,00,000 – 34,87,820) in the year in which land is sold. In any case on merits, we hold that the capital gains arise only in the year in which possession of the land was handed over to the developer pursuant to the provisions of section 2(47)(v) r.w.s. 53A of the Transfer of Property Act, 1882. Reliance in this regard is placed on the decision of Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay vs CIT [2003 (2) TMI 62 - BOMBAY HIGH COURT ] Hence we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Years 2007-08 and 2009-10 respectively. both the appeals are taken together and disposed off by this common order for the sake of convenience. ITA No. 2353/Kol/2016 Asst Year 2007-08 2. The preliminary issue raised by the assessee in this appeal is as to whether the ld CITA was justified in upholding the validity of reopening of assessment in the facts and circumstances of the case. The inter connected issue involved therein is as to whether any capital gains did arise to the assessee in Asst Year 2007-08 in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee is an individual and had filed his return of income for the Asst Year 2007-08 on 8.9.2007 declaring total income of ₹ 1,43,510/-. The return was processed u/s 143(1) of the Act. Later the assessment was sought to be reopened by the ld AO on the ground that the assessee had not disclosed any capital gain on conversion of his capital asset into business asset in the relevant financial year. Notice u/s 148 of the Act was issued and served on the assessee. In response to the said notice, the assessee stated vide letter dated 3.4.2014 that the original ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aded by the assessee before the ld AO to keep the reassessment proceedings in abeyance till the receipt of the report from district valuation officer. 4. The ld AO observed in his order as under:- Since this is a time barring case and the assessment proceedings have to be completed within the stipulated time. Rather depending on the assessee's submission, it is inevitable to substantiate with the preliminary report provided by the department's valuation officer. The assessee's contention for objection on the preliminary report by the valuation officer is not tenable as because it is an expert opinion. The preliminary report by the District Valuation Officer is estimated and duly reported to this office on 07/11/2014 is as under: The circle rates for the above mentioned property available for the year 2005- 06 is ₹ 10,000/-; and the area of the property is 5500 Sq. yard; thereby taking the preliminary valuation of the property to ₹ 5.50 Crores. Whatever, the valuation officer said in his report; it has to be considered as there is no other option to judge the value of the property. The assessee as well as the A.O. is not the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land owner. Here when land appurtenant to constructed portion allotted to developer is sold, there will be long term capital gain when land is ancestral, value as on 1.4.1981 will be the original cost and indexation cost to be arrived at on sale of land to developer which is appurtenant to his constructed area. Sale consideration will be cost of construction of constructed portion allotted to land owner and difference will be long term capital gain or loss. Here there cannot be any question of throwing or converting any investment into stock in trade as no investment was made by land owner and he has no stock in trade or doing any trading business. Further it is a case of getting ancestral property developed, hence to allege that assessee has thrown his property into stock in trade is beyond all relevant provisions of the Act. Whenever the developers portion will be sold to him, the assesee may have capital gain on sale of ancestral land. 6. The ld CITA observed that final valuation of land for Financial Year 2006-07 of Departmental Valuation Officer (DVO), Rohtak vide their report dated 30.3.2015 was ₹ 2,33,24,000/-. The indexed cost of acquisition for the assessee afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l provide an advantage to such a person, because he will not be required to pay capital gains tax immediately on the date of conversion of capital asset into stock in trade. He may, in view of provisions of section 45(2) of the Act make payment of capital gains tax at the time of sale of such capital asset, after its conversion into stock in trade. Besides, such an assessee will have another advantage by way of reduction of his tax liability in respect of the gains resulted by him, by way of difference between the market value of capital asset on the date of its conversion into stock in trade and the cost of such capital asset. In other words, he will be required to pay capital gains tax in respect of such gains in place of normal tax, which is definitely higher than the capital gains tax. Thus the tax liability of the assessee in such a case will be two fold as follows:- 1. He will be required to pay capital gains tax on the amount of difference between the market value of the capital assets on the date of its conversion into stock in trade and cost of such capital asset. He will have an additional advantage as such capital gains tax will be required to be paid only at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income had escaped assessment for which assessment was reopened. At the outset, we hold that there is no conversion of capital asset into stock in trade by the assessee pursuant to development agreement dated 13.9.2006. The possession of the land is to be transferred only after obtaining the sanction of the building plan which happened on 29.10.2007 falling in Asst Year 2008-09. Even otherwise, the provisions of section 45(2) of the Act make it clear that even if there is conversion of capital asset into stock in trade, the capital gains shall arise to an assessee only in the year in which such converted stock in trade is sold. Admittedly the alleged stock in trade was not sold by the assessee in Asst Year 2007-08. It is not the case of the revenue also that any stock in trade was sold by the assessee in Asst Year 2007-08. Hence there cannot be any capital gains in Asst Year 2007-08 even on alleged conversion of capital asset into stock in trade. Hence we hold that the basis of reopening pursuant to reasons recorded, fails on all force of law. We hold that the reopening was made in the instant case based on incorrect assumption of facts by the ld AO. 10.1. Even on merits, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction and other related costs would be borne by the developer. On the basis of aforesaid development agreement dated 13.9.2006, the developer could not complete the construction during the year and only some shops were constructed. 4 shops were allotted to the developer and land appurtenant thereto of 253.33 sq.yards was transferred to developer out of total 2550 sq.yards, originally agreed as his share and construction was not fully complete on balance land. The assessee executed transfer deeds for 4 shops to the developer in consequence of the development agreement with the developer for total value of ₹ 53,20,000/- (assessee s 50% share is ₹ 26,60,000/-) as per transfer deeds dated 17.11.2008. The assessee stated that this consideration of ₹ 53,20,000/- was meant only for the limited purpose of stamp duty valuation on transfer of proportionate land pertaining to 4 shops allotted to the developer. The assessee further clarified before the ld AO that equivalent constructed area has been handed over to him by the developer as remaining 50% of constructed area as per terms and conditions of development agreement dated 13.9.2006 and the same was under his possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted and the AO is directed to compute the LTCG and tax it to the portion of land transferred to the developer. The ground of appeal is partly allowed. It is further seen that the building is completed in the year itself as it has been transferred to the developer but the appellant has not shown sale of any shop of his share, therefore neither capital gain has been paid nor business profit has been given. The AO is directed to ascertain the ALV of the constructed shop which are in the share of the appellant as per amended provision and deemed rental income may be worked out and taxed accordingly. The business profit and capital gain should also be charged after ascertaining the sale of these shops year-wise. 7. In the result the appeal of the appellant is partly allowed. 16. Aggrieved, the assessee is in appeal before us. 17. We have heard the rival submissions. At the outset, we hold that there was no conversion of capital asset (i.e land) of the assessee into stock in trade at any time. The assessee had only entered into development agreement dated 13.9.2006 for construction of multi storied building. The entire cost of construction is to be borne by the deve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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