2023 (2) TMI 965 - AT - Income Tax

Tribunal adjusts property rate for tax calculation but upholds capital gains addition. Failure to prove land conversion.

The Tribunal partly allowed the assessee's appeal by directing the AO to adopt the Jantri rate of Rs.1,800 per sq. mt. for computing the Long Term Capital ... Long Term Capital Gains - claim and proof of conversion of agriculture land into stock-in-trade - capital asset u/s 2(14) - contention of the assessee that the point when agriculture land is converted into stock-in-trade, no capital gains takes place since neither agriculture land beyond 8 kms nor stock-in-trade comes to fall within the meaning of section 2(14) - HELD THAT:- As noted that even circumstantial evidence does not suggest that land has been converted into stock in trade as claimed by assessee. AO was correct in holding that assessee has not provided any accounting entries passed in the books of account for year 2011-12 wherein above land are classified as stock in trade in 02/07/2011 and even such lands are not shown as stock in trade for years 2012, 2013 and so on. The assessee was required to disclose such lands as stock in trade in books of account and in ITR filed by it on year to year basis. Had assessee been actually converted land into stock in trade, he would have obtained audit report u/s 44AB of the Act, filed audit report, disclosed sale of land as turnover and remaining land if any as stock in trade and failure to obtain such audited books of account clearly prove that entire theory of conversion of agricultural land as stock in trade is baseless and after thought - dismiss the appeal of the assessee. Computation of LTCG - Transfer value determination - AO ought to have accepted the measurement at Rs.1,800/- per sq. mt. against Rs.1950/- per sq. mt as transfer value when the valuation difference is less than 10% - HELD THAT:- We note that amendment in third proviso to section 50C of the Act was held to be retrospectively applicable in the case of Maria Fernandes Chery (2021 (1) TMI 620 - ITAT MUMBAI] - We note that as per assessee the measurement is at Rs.1,800 per sq. mt. However, as per Revenue, the measurement is at Rs.1950 per sq. mt, as transfer value. We note that difference between both the measurement is 8.33%, which is less than 10%. Such tolerance limit is allowable as per provisions of third proviso to section 50C of the Act. Therefore, we direct the assessing officer to consider measurement at the rate of Rs.1,800 per sq. mt. to compute the long term capital gain. Hence, we allow the additional ground raised by the assessee. Issues Involved:1. Addition of Rs.2,44,28,561 as Long Term Capital Gains.2. Miscellaneous: Incorrect determination of Jantri rate.Issue-wise Detailed Analysis:1. Addition of Rs.2,44,28,561 as Long Term Capital Gains:The primary issue pertains to the addition of Rs.2,44,28,561 as Long Term Capital Gains. The assessee contended that the conversion of agricultural land into stock-in-trade was effected by an MoU dated 02-07-2011, and hence, the land was no longer a capital asset as per Section 2(14) of the Income Tax Act, 1961. The assessee argued that the land was converted into non-agricultural land and subsequently sold, and therefore, no capital gains should be applicable.The Assessing Officer (AO) rejected this claim, stating that the MoU was merely an intention and not a final document. The AO noted that there were no accounting entries or references in the balance sheet indicating the conversion of land into stock-in-trade. The AO also pointed out that the MoU was not notarized and hence lacked evidentiary value. Consequently, the AO treated the land as a capital asset and computed the Long Term Capital Gains as Rs.2,44,28,561.The CIT(A) upheld the AO's decision, emphasizing that the assessee did not provide sufficient evidence to prove the conversion of land into stock-in-trade. The CIT(A) stated that no significant event had occurred to justify the change in the nature of the asset. The CIT(A) also noted that the assessee did not make any development on the land or show it as stock-in-trade in subsequent financial years.The Tribunal agreed with the CIT(A) and AO's findings, stating that the circumstantial evidence did not support the assessee's claim of conversion. The Tribunal highlighted that the assessee failed to disclose the land as stock-in-trade in the books of account or file an audit report under Section 44AB of the Act. Therefore, the Tribunal confirmed the addition of Rs.2,44,28,561 as Long Term Capital Gains.2. Miscellaneous: Incorrect determination of Jantri rate:The assessee raised an additional ground regarding the incorrect determination of the Jantri rate, arguing that the AO should have accepted the rate of Rs.1,800 per sq. mt. instead of Rs.1,950 per sq. mt. The assessee contended that the difference in valuation was less than 10%, which should be allowable as per the third proviso to Section 50C of the Act.The Tribunal admitted this additional ground for adjudication, noting that the difference between the two rates was 8.33%, which falls within the allowable tolerance limit of 10%. The Tribunal referred to the decision of the Mumbai Tribunal in the case of Maria Fernandes Chery, which held that the amendment in the third proviso to Section 50C is retrospectively applicable. Consequently, the Tribunal directed the AO to consider the measurement at Rs.1,800 per sq. mt. for computing the Long Term Capital Gain.Conclusion:The Tribunal partly allowed the assessee's appeal by directing the AO to adopt the Jantri rate of Rs.1,800 per sq. mt. for computing the Long Term Capital Gain, while confirming the addition of Rs.2,44,28,561 as Long Term Capital Gains based on the failure to substantiate the conversion of agricultural land into stock-in-trade. The order was pronounced on 22/02/2023.