TaxTMI 
TaxTMI 
2014 (4) TMI 280
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....ory land in 1994 part of which was converted into close-in-stock in 2006. The total area of the factory land purchased was 36272 sq.mtr. Out of this, land admeasuring 25282 sq.mtr. was converted into stock in trade with effect from 10.04.2006. The assessee entered into agreement with Spun Contra Developers for the purpose of development of the said 25282 sq.mtr. land by signing a development agreement on 18.11.2006. During the A.Y.2008-09, documents for 42 plots admeasuring 15310.41 sq.mtr. have been executed for sale of plots in favour of buyers for a total amount of Rs.577.81 lakh. The assessee claimed LTCG of Rs.219.05 lakh on the sale proceeds after claiming deduction u/s.54EC and 54G of the Act. Out of the above claim, disallowance of Rs.297.70 lakh i.e. deduction claimed u/s.54G and computed the taxable LTCG at Rs.528.97 lakh was determined in the Assessment Order 143(3). However, the land sold being stock in trade of the assessee company who is doing the business of real estate, any income arising out of sale of the same is not a capital gain, but is an 'income from business' and hence provisions of Capital Gain would not be applicable in terms of definition of Capital asset....
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....would be the capital gain in the hands of the seller but would be charged during the year under which the stock-in-trade is disposed of. This precise question was raised by the Assessing Officer during the scrutiny assessment. The petitioner had made elaborate submissions. Only after being satisfied about the claim of the petitioner, such surplus was treated as a capital gain. The Assessing Officer, however, rejected the petitioner's claim for deduction under section 54G of the Act. Any attempt on the part of the Assessing Officer, now to revisit the issue would not be permissible. 6. Counsel also submitted that even otherwise the very premise of treating such consideration as a business income is not supported by the provisions of section 45(2) of the Act. He further pointed out that profit derived upon sale of the land by plotting it out was offered for tax by the partnership. 7. On the other hand learned counsel Mr.K.M.Parikh for the Revenue opposed the petition contending that this issue was never examined by the Assessing Officer in the original assessment. His sole inquiry was with respect to the petitioner's claim under section 54G of the Act. 8. From the record it ....
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....ized by the developer firm over and above Rs.351 is offered for taxation business income by the developer firm. It may please further be noted that the sale deed is executed in favour of the buyer by the assessee and that the developer firm is only a confirming party. The capital asset is sold during A.Y.2008-2009. The capital gain arising there from is offered for taxation for A.Y.2008-2009. The capital gain arising there from is offered for taxation for A.Y.2008-2009 under Section 45(2). Section 2(47) (iv) talks of transfer and Section 45(2) talks of chargeability of capital gain of the said transfer in the year in which the capital asset is sold. The assessee has correctly worked out the capital gain and has offered for taxation." 10. Under such circumstances, the Assessing Officer in the reasons recorded has expressed a belief that the land sold being stock-in-trade of the assessee company any income arising out of such sale, cannot be treated as a capital gain, but must be treated as an income of the business. This very question was examined by the Assessing Officer in the original scrutiny assessment in the following manner:- (A) On 16.11.2010 the Assessing Officer wrot....
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.... noted that what is transferred is factory land which is capital asset and not a business asset. When capital asset is transferred the gain arising there from is capital gain and not business income. 7.2 When the capital gain is offered for taxation, the assessee is entitled to deduction under Sec.54G and 54EC subject to fulfillment of the conditions. The assessee has fulfilled all the conditions laid down in Sec.54G and 54EC and therefore the question of treating Rs.5,77,81,269 as business income does not arise." (C) On 22.12.2010 the petitioner once again wrote to the Assessing Officer and stated as under:- "1. It is stated in the above referred notice that book value of the land which was converted into stock in trade at the value of Rs.8,61,745 and the same was sold for Rs.9.00 Crore [approximately]. Out of which , the land worth Rs.5,20,193 [Book Value] was sold for Rs.5,77,81,269 and the profit on this was of Rs.5,66,74,604 which the company has treated as capital gain. But according to Section 28, the same is the business income. 1.1 It is also stated in the above referred notice that according to Section 45(2), the deduction under Section 54G and 54EC is not all....
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....ase where the asset is converted by the owner thereof into, or is treated by him as, stock in trade of a business carried on by him, such conversion or treatment. It therefore follows that the conversion of capital asset into stock in trade amounts to transfer. Therefore, the capital gain as arisen on conversion is chargeable under Section 45(1) but Section 45(2) provides exception. It provides that notwithstanding anything contained in Section 45(1), the capital gain shall be chargeable not in the year of conversion but in the year in which the converted land is sold. It therefore follows that Section 45(2) charges the profit on sale of converted land as capital gain tax in the year in which the converted land is sold. Section 45(2) does not provide that it shall not be charged as capital gain tax. When the profit is charged under capital gain tax, the deduction under Sec.54G and 54EC is allowable." (D) The Assessing Officer passed order of assessment on 27.12.1010 and disallowed the petitioner's claim of deduction under section 54G of the Act observing as under: "3.4 I have considered the reply of the assessee. The same is not tenable. The assessee has claimed exemption ....
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....ory provisions of section 54G." 11. From the above documents it can be seen that during the scrutiny assessment, the claim of the petitioner for treating the income as capital gain was throughly scrutinized by the Assessing Officer. In his notice dated 16.12.2010, he pointedly inquired with the petitioner why the sum of Rs.5.77 crores (rounded off) and the profit arising out of the said sum was treated as capital gain. According to the Assessing Officer in terms of section 28 of the Act, it was the petitioner's business income. His second contention was that in any case the deduction under section 54G of the Act was not allowable. The petitioner filed detailed replies on 21.12.2010 and on 22.12.2010. In such replies, he tried to persuade the Assessing Officer on both counts, that is, on the question of treating the income as capital gain and simultaneously justifying the petitioner's claim for deduction under section 54G of the Act. The petitioner pointed out that having converted its capital asset into stock-intrade, under section 45(2) of the Act the income upto the point of such conversion should be treated as long term capital gain. In various places in the said two communic....
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....owever, silently, accepted the petitioner's stand. Within four years also reopening would not be allowed in terms of the decision of the Supreme Court in the case of Commissioner of Income-tax vs. Kelvinator of India Ltd.(supra), in which it was held and observed as under:- "6. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se rea....
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.... is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim....