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TMI Blog2020 (5) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose and continued to be shown as closing stock for all the years. The assessee is into the business of acquiring and sale of plot and colonizers. On going through the Memorandum and Articles of Association, conduct and business affairs of the assessee, and on perusal of the books of accounts of the assessee, it cannot to be said to be an income arising out of capital gains and has been rightly treated as business income by the ld. CIT (A). Whether the capital gains are eligible to avail its exemption? - Since, the income earned has been already adjudicated on merits to be taxed as business income , it is hereby clarified that the treatment proposed by the assessee to consider the proceeds of the sale of land under the head Long Term Capital Gains and subsequent exemption from taxation cannot be held to be valid in the eyes of law. Disallowance u/s 40(a)(ia) - CIT-A uphold addition on the grounds that the assessee is not a new company and been in the business of land transactions from 1997 and the provisions of TDS are clearly defaulted by the assessee - HELD THAT:- In the absence of any evidences contra, putforth by the assessee, we hereby decline to interfere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why the claim of exemption on sale of agricultural land should be not disallowed. In reply to the show cause the assessee explained that it had already filed revised computation for long term capital gains, and paid tax on the same. It was also claimed that the land was incorrectly disclosed as stock in trade instead of the investment in the balance sheet. The land has been purchased with an intention to earn profit and has been sold after a long period of thirteen years and was, therefore, a long term investment. It was stated that the main reason for the sale of land was the notice received from Revenue Department to surrender the possession of land as it was an encroachment on the Gaon Sabha Land hence the AO was requested to treat the sale as long term capital gains as the land was a capital asset in the hands of the assessee. Revised balance sheet was filed before the AO on 19.3.2014. However, the AO was not convinced with this argument as the assessee has in the balance sheet itself shown the asset in question as stock of the current year filed along with the original return of income, but also in the previous years. As per the AO the Gujarat High Court in the case of Rewash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been made in the last five years. It is only when the department specifically issued the show cause notice as to why the profits may not be assessed as business income rather than long term capital gains as shown in the return, that the appellant tried to change its stand. The memorandum of association clearly stated that the appellant is engaged in the dealing in land and other properties. Hence, the claim of the assessee that the income resulted from long term capital gains was rejected and the amount of ₹ 9,63,74,327/- was treated as business income. 5. The assessee has challenged this finding of the A. O before the ld. CIT ( A). 6. Before the ld. CIT (A), the assessee reiterated the arguments that the said land is shown as closing stock of the property which proves that it is being hold as long term investment. It was argued that the AO has wrongly treated the closing stock as stock-in-trade. It was argued that the assessee was under the impression that the agricultural land is fully exempt from LTCG and hence NIL return was filed. It was argued that the assessee revised the ITR and declared the profit on sale of land as Long Term Capital Gains. It was argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l land for ₹ 10 crores from where they derived the surplus/ profit of ₹ 9,63,74,327/- and claimed its exemption by treating the capital asset u/ s 2(14 ) of Income Tax Act, 1961 while the learned A. O. has treated it as business income . That during the course of Assessment proceedings, the learned A. O. deputed Income Tax Inspector (ITI) to give the status of land who reported that the concerned land falls within 8 km from the jurisdiction of municipal corporation, therefore, it does not fall u/ s 2(14) of Income Tax Act, 1961. The appellant company objected that ITI is not the competent authority to give such certification. That ITI has neither approved valuer nor technical person nor is holder of any qualification to give such certification. The learned AO did not exaggerated this issue, however he treated the profit as business income giving the contention that the appellant company theirselves has shown as stock-in- trade under the head Current Assets . That to strengthen his observation he stated on page-2 of an assessment order that the assessee deals in purchase and sales of property . He further stated on page 9 that the assessee has shown their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling tube-well, boundary walls, etc. and has sold it after the lapse of 13 years. This factor has been considered by 382 ITR 175 (27 -30 ) Jammu Kashmir High Court 387 ITR 248 (31 -33) Karnataka High Court 333 ITR 445 (34 -37) Delhi High Court It is submitted that even the books of accounts/Balance Sheet is not conclusive in determining the nature of income as held by 336 ITR 287 (38 -40) Bombay High Court That without prejudice to above the clerical omission deserves to be over ruled in view of the Circular No.14/ XL-35 /11- 04-55 where they held Officers of the department must not take advantage of ignorance of an assessee to his rights particularly where some refund or relief is due to assessee. Copy of circular placed on Page 78 of Paper Book. The said circular has been followed giving the reference of the said circular by 243 ITR 56 (41 -60) Supreme Court 150 ITR 460 (61 -64) Bombay High Court It will be relevant to state here that the CIT (Appeal) to strengthen his order has cited 2 cases where the facts are absolutely different to the appellant's case as in cited cases the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the part of the registrar to give the status of land, thus, where the appellant company sold the concerned land on 29/01/2011 the status/ structure type is given on Page 107 as agricultural land . Further on Page 110 it has been specifically stated concerned land is recorded in the revenue records. It is submitted that where the agricultural land is sold at nominal value that can be registered even in the Court of Tehsildar but where the quantum is high l ike in the instant case that is to be executed in the regular office of the registrar by filing the prescribed Form A which is to be duly certified by the registrar giving the status of land as it is given on page 117. Further girdwari always given where the land is recorded in revenue estate that has been placed on the record on page 53 to 59. Where above such factors are available it is to be treated as agricultural land as held by 404 ITR 173 (92 -95) Madras High Court 409 ITR 196 (96 -100) Gujarat High Court Addition of ₹ 2,00, 000/- related to brokerage It has been added by the learned Assessing Officer. Giving the contention that TDS has not been deducted on su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi High Court Commissioner of Income Tax vs Jubilant Securities Pvt. Ltd. 333 ITR 445 From the very beginning it had been valuing at cost and not on the basis of cost or market price which was lower at the end of relevant accounting years. (iii) The Jammu and Kashmir High Court Commissioner of Income Tax vs Smaa Enterprises Pvt. Ltd. 382 ITR 175 It is an admitted fact that the assessee hold stock in trade but without placing any material particularly where it has always been shown as stock from the very beginning.------- The claim of the revenue is doing stock-in-trade is without any basis and no material was brought on record to show that the assessee had been valuing its holding at the end of the year on FIFO method or at cost or market price whichever is lower. B. Holding Period Gujarat High Court Commissioner of Income Tax vs Tejas Securities 393 ITR 132 The Commissioner of Income Tax ( Appeal) and the Appellate Tribunal had rightly came to the conclusion considering the holding period etc. and had specifically held that the transaction could not be said to be frequent transaction of purchase and sale with a view to earn quick profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. The ld. DR relied on the orders of the ld. CIT (A). 16. Heard the arguments of both the parties and perused the material available on record. Adjudication as to whether the income earned by the assessee constitute business income or Long Term Capital Gains: 17. We find that the assessee has always shown it as closing stock of agricultural land in the balance sheets. The contention of the assessee that it has always been shown at cost while in stock-in-trade it is always at cost or market price whichever is lower. The arguments of the assessee that since the land have been always valued at cost doesn t give any credence to treat them as capital asset. Even in closing stock or stock-in-trade, the valuation is always as per the market price or the cost price whichever is lower. There is no proof that the cost price has gone down so as to take it at a lower price. Hence, the assessee s contention is that since the land is always valued at cost not at market price cannot be accepted. The period of holding for 13 years cannot be considered to treat the land as investments as it is not the case that all the unsold stock-in- trade should always been treated as investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrangement for sharing profits, union of interest, joint venture, reciprocal concession or co-operation with persons or companies carrying on or engaged in any business or transaction which this company is authorized to carry on. 19. We have also perused the case laws submitted by the assessee. The case CIT Vs Tejas Securities 393 ITR 132 (Guj.), Deepa Ben Shah Vs DCIT 397 ITR 687, CIT Vs dealt with Short Term Capital Gains Vs business income in case of share transaction by a broker. Neither the facts nor the ratio is applicable to the instant case as that case deals with various parameters laid down by the CBDT as to how the holding period of the shares be considered. The case of CIT Vs Amit Modi 334 ITR 192 (P H) also deals with the treatment of surplus arising on the sale of shares by an assessee taking into consideration of multiple factors for inferring whether a particular transactions is an adventure in the nature of trade or not. Similarly, the case of CIT Vs SMAA Enterprises 382 ITR 175 deals with treatment of shares made out of own funds. Similarly, the case of Telestar Investment 387 ITR 248 and Jubilant Securities Pvt. Ltd. 333 ITR 445 have been perused and found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n objects of the company are to acquire purchase take on lease are otherwise any land building, structures plot to act as real estate agents in connection with buildings schemes and also to be colonizers to sale plots and flats. Having acquired the land as stock-in-trade, the land continued to be held for business purpose and continued to be shown as closing stock for all the years. The assessee is into the business of acquiring and sale of plot and colonizers. Hence, on going through the Memorandum and Articles of Association, conduct and business affairs of the assessee, and on perusal of the books of accounts of the assessee, it cannot to be said to be an income arising out of capital gains and has been rightly treated as business income by the ld. CIT ( A). Adjudication as to whether the capital gains are eligible to avail its exemption: 22. Since, we have already ruled that the income derived by the assessee is business income but not capital gains , any adjudication as to whether the capital gains are eligible for exemption or not would be only academic in nature. As a ground to this extent has been taken by the assessee, the same is being adjudicated as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchase and at the time of sale as well as at the time of sale cannot escape the rigors of taxation. 26. Since, the income earned has been already adjudicated on merits to be taxed as business income , it is hereby clarified that the treatment proposed by the assessee to consider the proceeds of the sale of land under the head Long Term Capital Gains and subsequent exemption from taxation cannot be held to be valid in the eyes of law. 27. Regarding the disallowance of ₹ 2,00,000 /- u/s 40 (a)(ia), the assessee claimed to have paid brokerage to a person namely, Sh. Sunder Singh. The assessee submitted that since this is the first year of business transaction in the absence of TAN, no TDS could be deducted. The ld. CIT ( A) upheld the disallowance u/s 40(a)(ia) on the grounds that the assessee is not a new company and been in the business of land transactions from 1997 and the provisions of TDS are clearly defaulted by the assessee. In the absence of any evidences contra, putforth by the assessee, we hereby decline to interfere with the order of the ld. CIT (A) on this issue. 28. In the result, the appeal of the assessee is dismissed. Order Pronounced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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