9911796707
TMI Blog2023 (1) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... to appreciate the facts that the assessee firm has declared income due to sale of land as LTCG, which was shown as Work in Progress in the balance sheet of the assessee firm and which was capital contribution of the partners and further the objective of the firm was doing business in real estate which were analysed/examined by the Assessing officer and rightly treated the sale proceeds as the business income to the extent of Rs. 9,10,73,460/-. 3. On the facts and circumstances of the case and in law, the ld. CIT(A), Surat ought to have upheld the order of the Assessing officer. It is, therefore, prayed that the order of the ld. CIT(A)-1, Surat may be set aside and that of the Assessing officer's order may be restored. 4. On the facts and circumstances of the case and in law, the appellant craves its right to add, alter, amend, deleted, any of the ground or grounds of appeal." 2. Brief facts of the case are that the assessee is a partnership firm, engaged in the business of construction and development of property. The assessee filed its return of income for the A.Y. 2014-15 on 25/07/2014 declaring income of long term capital gain of Rs. 8,70,33,120/-. The case was selected fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current business asset. The concept of substance over form must be seen as per its present status since its acquisition and nor merely by its classification in financial statement. Capital gain was offered to tax in the firm only because of the said journal entry in the books of the firm. The assessee also relied on certain case laws. 3. The reply of assessee was not accepted by the Assessing officer by taking a view that the assessee had mainly countered that the asset in question is a capital investment and not a business asset. The Assessing Officer held that in the case under consideration, the assessee is a partnership firm, the partners have introduced land as current business asset in the firm, the balance sheet of the firm shows it as WIP, the matter ends without any further question mark. The assessee-frim had himself categorized the asset as business asset. The Assessing Officer held that the assessee is trying to put in that the asset is a capital asset. The formation of partnership with objects of doing business in real estate and reflecting the asset as business WIP are major factors which cannot be ignored. Though, the assessee had not commenced any business activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation of value of land was only due to efflux of time and not on account of any business activity. The Assessing Officer treated the land as business asset merely for the reasons that in unaudited balance sheet of the firm, the land was classified under "Work in Progress". The accounts of firm are not subject to any audit and are prepaid by accountant who has mistakenly classified the land under WIP without verifying the terms of partnership deed. Merely the land was classified as WIP, would not mean that it is a current business asset. As per the concept of substance over form, an asset should be viewed as per the latest status since its acquisition and not merely by its classification in the unaudited financial statements. Thus, the land cannot be treated as stock in trade of the firm, hence, the gain on sale of land was offered to tax as capital gain and not as an income from business of profession. To support such submission, the assessee relied on certain case laws. 5. The assessee again vide its submission dated 25/2/2020 and 28/02/2020 repeated almost similar submission that the accountant of the firm has wrongly shown the land in the balance sheet as WIP. The assessee fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht as a capital by the partners in A.Y. 2007-08. The partnership deed provides that the land will be treated as an asset of the firm on its being registered in the name of firm. The registration in the name of firm was not happened till date of sale. The sale was executed by partners as a seller. However, the capital gain offered in the hand of assessee firm as land was shown as WIP in income tax return. The assessee explained that the WIP was shown due to mistake of accountant but the intention of assessee firm was to hold it as capital asset which is evident from their conduct. It was also argued that if the assessee firm intended to treat the land as stock in trade, it would not have held it for seven years and would have developed into layout divided into smaller plots and sold it. The ld. CIT(A) held that the land was not developed, no layout or plotting was done. A compound wall was built for protection against encroachment or illegal occupation. The incremental and FSI charges were paid in F.Y. 2010-11 and 2011-12. No other activities were made in the impugned land for seven years. The ld. CIT(A) on the basis of his observation held that the long holding period and absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l contribution. The ld. CIT-DR for the revenue submits that once the partners have introduced the said land as a business asset in the firm, the balance sheet of the firm shown it was a WIP. No further question should be raised in respect of nature of asset and the matter should come to an end without any further doubt or question mark. On perusal of copy of balance sheet, it is clear that the assessee had himself categorised the asset as business asset. The partnership was constituted with the object of doing real estate business and reflecting the asset as a business WIP are major factors which cannot be ignored. The assessee may had not commenced any business activity but introduction of land as capital contribution and holding of land and making payments to Surat Municipal Corporation as incremental charges and FSI charges were definitely for the purpose of business. Non-execution of business will not convert the stock in trade into capital asset automatically. The entries in the books of account and final balance sheet did not show any intention of partners of converting the stock into capital asset. Hence, the income arises on account of sale of WIP cannot be treated as long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shbhai Gadhiya and Bharatbhai Patel in their individual capacity. The firm was constituted vide partnership deed dated 23/01/2004. The partners of the assessee firm agreed to introduce the agricultural land in their firm as capital contribution. However, for the purpose of effectively transferring the agricultural land in their firm, certain legal formalities were to be carried out by the partners of the firm. Such formalities are recorded in the various recitals/clauses of partnership deed. The assessee firm never undertook any business on such agricultural land. No financial activities resulting transaction of single rupee was carried out with any person to exploit the said agricultural land so as to treat it as adventure in the nature of land. The agricultural land was converted into non-agricultural land in 2007. The partners of the firm never intended the process of legally transferring the agricultural land so as the name of firm is recorded in Form 7/12 extract in the office of revenue authorities. As per law, the partnership firm cannot start business unless the impugned land is registered in the name of firm. After conversion of land into non-agricultural land, the firm ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Goyal (2007) 163 Taxman 54 (MP), * Automobile Products of India Ltd. (1983) 140 ITR 159 (Bom), * Gordhandas Trikambhai Patel (1979) 118 ITR 81 (Guj), * Kettlewell Bullen & Co. Ltd. (1964) 53 ITR 261 (SC), * Tribhuvandas Vallabhdas s CIT (1966) 61 ITR 518, * G. Venkataswami Naidu & Co. Vs CIT (1959) 35 ITR 594, * Vasupujya Properties Pvt. Ltd. and Ors. Vs ITO (ITA 912 to 923/PN/2002) (Pune Trib) order dated 31/05/2006. 11. At the time of making submissions, the ld AR for the assessee relied on the following case laws; * CIT Vs India Discount Co. (1975) 75 ITR 191 SC, * Smt. Indiramati Bai & Others Vs ACIT (1983) 200 ITR 594-SC, * Raja J. Rameshwar Rao Vs CIT (1961) 42 ITR 0179 SC, * CIT Vs Suresh Chand Goel (2007) 164 TAXMAN 54 (MP HC) and * Hariom Associates Vs ITO (ITA No. 1516/Pun/2016). 12. We have considered the rival submissions of both the parties and have also gone through the orders of the lower authorities carefully. We have also deliberated on the various case laws relied upon by the lower authorities as well as by the ld. AR of the assessee. We find that in the return of income, the assessee firm had shown capital gain on sale of impugned land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y firm is treated as capital gain in the hands of firm. 14. The word 'business' has been defined under section 2(13) of Income-tax Act, which include any trade, commerce or manufacture or any adventure or concern in the nature of trade. It is settled position under law that even a single transaction or activity can also be a part of business, if it bears a clear indication of trade. If we examine the facts of the present case, we find that the order of ld. CIT(A) is contrary to the facts of the case. There is no dispute that partners of the assessee-firm introduced the impugned land as their capital contribution, which was certainly for the purpose of business. The assess-firm has incurred expenses for boundary wall, paid incremental and FSI charges in the office of Surat Municipal Corporation, such expenses were incurred for the purpose of business. Such expenses were debited in the profit and loss account of the assessee-firm and not in the individual hand of the partners of assessee-firm. Surprisingly, the sale deed of the land was executed by partners of the assessee-firm. Again, no capital gain is shown in the hand of the partners for the reasons best known to them. Despite t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
