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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 ..... 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 Rs. 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 return filed may be treated as a return in response to notice u/s 148 of the Act. The brief facts of the dispute regarding the capital gains are that the assessee entered into a Development Agreement dated 13.9.2006 with M/s Kokra Develepors Pvt Ltd for construction of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 Rs. 10,000/-; and the area of the property is 5500 Sq. yard; thereby taking the preliminary valuation of the property to Rs. 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 authority to take such decision for estimating the property value. That's why the matter was passed to the District Valuation Officer and I compel to rely on the report, as it is one & only basis to complete the assessment proceedings. Considering all of the above, the difference amount of Rs. 3,51,63,820/- (Rs. 5,50,00,000/- which is valued o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 2,33,24,000/-. The indexed cost of acquisition for the assessee after taking cost inflation index for financial year 2006-07 was Rs. 1,98,36,180/- as has been worked out by the ld AO in his order. The ld CITA observed that the assessee's argument for not giving possession of land to developer in financial year 2006-07 is not acceptable on the ground that security deposit of Rs. 50 lacs was given to the assessee by the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of sale of such stock in trade. 2.The assessee will be required to pay tax on the business income by way of profit realized by him, as a difference between the sale price of stock in trade and market value of capital asset on the date of its conversion into stock in trade. 8. The ld CITA keeping in view the aforesaid observations, held that capital gains of the assessee is determined at Rs. 34,87,820/- for Asst Year 2007-08. Remaining addition made by the ld AO on account of capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ld AO estimated the value of 5500 sq.yard of land at Rs. 5,50,00,000/- based on estimated value quoted by the DVO on an interim 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. Moreover, the total value determined by the DVO at a later stage i.e during first appellate stage was fixed at Rs. 2,33,24,000/- for entire 5500 sq.yard of land. The ld CITA having agreed to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the development agreement with the developer for total value of Rs. 53,20,000/- (assessee's 50% share is Rs. 26,60,000/-) as per transfer deeds dated 17.11.2008. The assessee stated that this consideration of Rs. 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 possession and not sold / let out during the financial year 2008-09 and in future, whenever his portion were sold out / let out, resultant gain / loss would be duly accounted for by him in his income tax returns. The assessee also clarified that he is not dealing in any construction activity and has no Shri Bijay Shankar Halwasiya trade license to deal in such type of construction activity and hence property cannot be treated as stock in trade in his hands. 14. The ld AO however, disregarded all these contentions and held that 50% of sale proceeds of land at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked 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 developer. The consideration for the assessee would be 50% of constructed portion which includes shops to be built thereon. We find that during the year under appeal, the assessee had just executed transfer deeds for the lands proportionate to the 4 shops allotted to the developer. It was also specifically mentioned before the ld AO that the said transfer deeds were executed only for the limited purpose of fixing stamp duty on transfer of proportionate land attributable to 4 shops allotted to the developer. Actually we find that the assessee held 5500 sq.yards of land in total and had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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