2015 (12) TMI 1797 - AT - Income Tax

Land sale treated as Long Term Capital Gain due to investment holding over 20 years; Assessee entitled to indexation benefits.

ACIT-16 (3), Mumbai Versus Jogani & Dialani Land Developers & Builders

The Tribunal upheld the CIT(A)'s decision that the income from the sale of land should be treated as Long Term Capital Gain (LTCG) due to the land being ... Long Term Capital Gain on sale of land - HELD THAT:- The appellant's case does not call for any interference in so far as treatment of land as investment is concerned. Therefore, the action of the AO in interfering with the entries made w.e.f. 1.4.2000 was completely uncalled for without bringing anything to the contrary on record to suggest that the appellant was a dealer in land. The said piece of land has been held for over 20 years without any development potential or even laying of an inch of brick on the same and therefore, in all fairness, claim made by the appellant regarding LTCGs cannot be faulted. Gain arising on sale of plot as capital gains rather than business income  - HELD THAT:-  Plots held for development purposes were shown separately in the assessee’s Balance Sheet as WIP and the plots held for investment were shown as investment even in the balance sheets for A.Y.2006-07 to 2008-09. We also found that these plots were always valued at cost year after year and not at cost or market price whichever was lower and hence, the same could not be treated as stock in trade. The detailed finding recorded by CIT(A) to the effect that land was held as investment, is as per material on record. We, therefore, do not find any reason to interfere in the findings of the CIT(A). Nothing was brought on record by DR to controvert the finding of the CIT(A). No reason to interfere in the findings of CIT(A) so as to tax the gain arising on sale of plot as capital gains rather than business income -  Revenue is dismissed. Issues Involved:1. Treatment of income from the sale of land as Long Term Capital Gain (LTCG) vs. Business Income.2. Entitlement to indexation benefits and concessional tax rate under Section 112 of the Income Tax Act.3. Validity of accounting treatment and entries in the books of accounts.4. Consistency in the treatment of land as an investment in previous assessment years.Issue-wise Detailed Analysis:1. Treatment of Income from Sale of Land as LTCG vs. Business Income:The primary issue was whether the income derived from the sale of land should be treated as Long Term Capital Gain (LTCG) or Business Income. The assessee, a partnership firm engaged in building construction and land development, claimed the income as LTCG, asserting the land was held as an investment. The Assessing Officer (AO) contended it should be treated as Business Income, arguing the land was purchased for business purposes. The CIT(A) observed that the land was consistently shown as an investment in the books of accounts from 1.4.2000 and held for over 20 years without any development, supporting the assessee's claim. The Tribunal upheld CIT(A)'s decision, noting that the land was shown as an investment in the balance sheets for AYs 2006-07 and 2008-09, and the AO had accepted this treatment in previous assessments.2. Entitlement to Indexation Benefits and Concessional Tax Rate under Section 112:The AO denied the assessee the benefits of indexation and the concessional tax rate under Section 112, as he treated the income as Business Income. However, the CIT(A) allowed these benefits, affirming the land was an investment and thus eligible for LTCG treatment. The Tribunal agreed, emphasizing that the land was held as an investment and not as stock-in-trade, making the assessee entitled to indexation and the concessional tax rate.3. Validity of Accounting Treatment and Entries in the Books of Accounts:The AO questioned the accounting treatment, suggesting the land should have been treated as stock-in-trade. The CIT(A) and the Tribunal found the accounting entries made on 1.4.2000 to show the land as an investment were valid. The Tribunal highlighted that the treatment of land as an investment was consistently maintained in the books of accounts and accepted in previous assessments. Judicial precedents, such as the Supreme Court's rulings in Sir Kikabhai Premchand and Bai Shirinbai K. Kooka, supported the assessee's right to treat an asset as an investment.4. Consistency in the Treatment of Land as an Investment in Previous Assessment Years:The Tribunal noted the consistency in the treatment of the land as an investment in the assessee's books of accounts and previous assessments. The AO had accepted this treatment in scrutiny assessments for AYs 2006-07 and 2008-09. The Tribunal emphasized the principle of consistency, stating that the department could not change the treatment of the land without any contrary evidence. The statements of the purchasers and the inspection report confirmed the land was non-agricultural and held as an investment.Conclusion:The Tribunal upheld the CIT(A)'s decision, affirming the land was held as an investment and the income from its sale should be treated as LTCG, entitling the assessee to indexation benefits and the concessional tax rate under Section 112. The appeal of the Revenue was dismissed.Order Pronouncement:The order was pronounced in the open court on 16th December 2015.