TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 965
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.... the transferred land u/s45(2) of the Act, particularly when the agriculture land converted into stock-in-trade in the year 2011 was not a capital asset within the meaning of Section 2(14) of the Act. (3) The CIT(A) misconstrued the facts by incorrectly interpreting the conversion date of agriculture land into the stock-in-trade by considering an event anterior to the intent of the assessee. (4) On the facts and circumstances of the case, the learned CIT(A) having been driven by the extraneous consideration, the appeal needs to be allowed. (II) Miscellaneous: The assessee craves leave to add, alter or vary any of the grounds of appeal." 3. The relevant material facts, as culled out from the material on record, are as follows. The assessee before us is a non-resident (Individual) and filed his return of income on 15.09.2015 declaring total income at Rs.3,45,720/-. The case of the assessee was selected for scrutiny through CASS and accordingly notice u/s 143(2) of the Act was issued. Thereafter, notices u/s 142(1) were issued on 09.06.2017, 29.08.2017, 08.09.2017. The Penalty notice u/s. 271(l)(b) was also issued on 08.09.2017. The assessee with other persons have transferre....
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....basis assessee has submitted his affidavit dated 29th October, 2011, above lands were converted into non-agricultural lands. The assessee has contended before Assessing Officer that date of affidavit i.e. 29th October, 2011 being date of conversion of capital asset into stock-in-trade, as alleged by Assessing Officer is misplaced because fate of intention is decided on the date of MoU. However, this contention of assessee was not accepted by Assessing Officer on the ground that MoU is merely an intention of the contracting parties and it is not a final document. The Assessing Officer has further stated that assessee has not submitted any accounting entry passed in the books of account for such conversion on the date of MoU. The Assessing Officer has also stated that while filing the return of income for AY 2012-13 or subsequent year, or in balance sheet there is no reference to stock-in-trade which clearly proves that no such conversion has taken place. The Assessing Officer has also referred to application of conversion of agricultural land into stock-in-trade made by assessee and other commission-owners on 7th February, 2011 and contended that even though assessee has claimed tha....
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....at block No. 344 Rs.2,71,939/- (Rs.59,221/- *1024/223) Rs.38,848/- (l/7th share of assessee) Rs.38,848/- Less: Indexed cost of purchase in respect of land at block No. 345 Rs.15,56,255/- (Rs.3,38,911/- *1024/223) Rs.3,11,251/- (l/5th share of assessee) Rs.3,11,251/- Long Term Capital gains taxable in A.Y. 2015-16 Rs.2,44,28,561/- 1. Purchase cost of land at block No.344 as per deed dated 12.11.1992: Rs.59,221/- 2. Purchase cost of land at block No. 345 as per deed dated 26.03.1992: Rs.3,38,911/- 3. Cost Inflation index for F.Y. 2014-15: 1024 4. Cost Inflation index for F.Y. 1992-93: 223 Hence, the long term capital gains of Rs.2,44,28,561/- worked out as above was treated as undisclosed long term capital gains of assessee and added to the total income of the assessee. 4. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before Ld. CIT(A) who has confirmed the action of the Assessing Officer. 5. Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before us. 6. Learned Counsel for the assessee, pleads that the prime controversy is regarding the point of conversion of rural agriculture land (within the e....
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....efore the State Government Authorities. These documents vest with the AO and not disputed. On 2-7-2011, the assessee with the others entered into the MoU (paper book page No.29 to 34) to undertake business on the land that they have been holding since 19 years, (clearly spelling their intention to undertake the business). The assessee was party No.3 amongst the 13 parties to the MoU. Relevant text of two of the conditions of the MoU are translated in English below for better appreciation of the facts are as follows: a. Clause 1 of the MoU: To convert into stock-in-trade, each of the members will adopt current industrial jantry/market value. Accordingly, as per this MoU, all the members stated herein have converted agriculture land into stock-in-trade. To effect that, all the members would be executing an affidavit. b. Clause 5 of the MoU: After entering into this MoU, the respective member shall not be in a position to take independent decision of its land. In future, only collective decision will be taken for the land. It is the contention of the assessee that the point when agriculture land is converted into stock-in-trade, no capital gains takes place since neither agricul....
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....y in the accounting year of the said conversion and is not finding any place in the balance sheet or return of income of the said financial year. The notarized affidavit was made on 29.10.2011 declaring the conversion of agricultural land into stock-in-trade on 02.07.2011, which is nothing but a colourable device. What were sold to M/s Shanti Integrated Textile Park Limited were not agricultural lands, but capital assets as they were non-agricultural lands on the date of sale i.e. 15.12.2017. Further the land sold was also not stock-in-trade as returns of income filed by assessee and balance sheets do not support the theory of assessee and hence question of business income also not arises on the transfer of the said lands. 11. The ld DR further pointed out that Jantri rate as on date of sale to M/s Shanti Integrated Textile Park Limited was Rs.1950/- and not Rs.1,800/- as contended by the assessee, in his submission dated 22.12.2017, as the Addl. Superintendent of Stamps, Gujarat has considered the market value of the lands at the rate of Rs. 1,950/- per sq. mt. Therefore, the conversion of assets into stock-in-trade through affidavit/MoU in the absence of any corresponding accoun....
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....set can be converted into stock in trade. It is also found that assessee has even not made any development in land subsequently nor made any plotting of the land non entered into development agreement with builders to develop housing projector commercial project which can support the claim of assessee that he has decided to carry out business activity on such land. Mere converting agricultural land into non-agricultural land does not mean that land held by assessee become stock in trade. It is pertinent to note that even circumstantial evidences does not suggest that land has been converted into stock in trade as claimed by assessee. The 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 year 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 actually converted land into stock in trade, he would have obtained audit report u/s 44AB of the Act, filed audit report, disclosed....
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....see. The assessee has made mere tax arrangement by which assessee convert his capital assets stock in trade and value his capital assets on FMV and by valuing land at FMV, he was not required to pay tax and ultimately selling the land at FMV only by which even he was not required to pay profit on business income. Reliance is also placed on decision of Hon'ble Rajasthan High Court in the case of CIT Vs Sohan Khan & Mohan Khan [2008] 304 ITR 194 has held as under: "Section 45 of the Income-tax Act, 1961 -Capital gains - Chargeable as - Assessment, year 1994-95 - Where land was purchased in 1970, and after cloud of land ceiling laws, was cleared and other adjoining lands had been developed, it was decided to be sold in piecemeal by earmarking plots, nonetheless sale transaction would remain a disposal of capital asset only, and not a transaction of any 'stock-in-trade' so as to be described as 'Adventure in nature of trade' and therefore, it was liable to be taxed only as capital gain" In the present case, assessee was holding the land as agricultural asset, converted land into non-agricultural and sold in year under consideration and gain cannot be held as adventure in nature....
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.... or the probability that the site in question may appreciate in value, but would not necessarily land itself to the inference that the transaction was a venture in the nature of trade. (iii) CIT Vs. Rewashanker A. Kothari [2006] 155 Taxman 214 (Guj.) The Hon'ble court has observed that the tests laid down by various decisions of the Apex Court indicate that, in each case, it is the total effect of all the relevant factors and circumstances that determine the character of the transaction. Each case has to be determined on the total impression created on the mind of the court by all the facts and circumstances disclosed in a particular case. One of the principal tests is whether the transaction is related to the business normally carried on by an assessee. It is equally well-settled that, merely because the original purchase was made with the intention to re-sell, if an enhanced price could be obtained, that by itself is not enough to infer that assessee is carrying on business. (iv) Ajitkumar T Patel, ITA No.826/AHD/2010 dated 13/09/2010 "11. In the light of detailed foregoing discussion and on consideration of the evidences placed on record as well as in view of the leg....
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....pages, original copy not provided in assessment proceedings. Even assessee has entered into various agreements in current year as well as in earlier assessment year and all such agreements are notarized and same are discussed in assessment order whereas above referred MoU is not notarized which also suggest that it is an afterthought. The claim of assessee that MoU required each co-owner to file separate Affidavit regarding such conversion and preparing such affidavit by assessee on 29/10/2011 to give effect of MoU dated 02/07/2011 is nothing but colourable device and to claim that capital assets are converted into stock in trade before obtaining NA permission is incorrect as no evidences / circumstantial evidences are brought on record by assessee or events have triggered which can support contention of assessee that intention of holding land as capital assets have charged in FY 2011-12. Even AO has not observed that land was converted into stock in trade on the date of Affidavit but on the contrary, he at para 3.12 has observed that "it cannot be assumed that the assessee converted into agricultural land into stock in trade on 02/07/2011 in the circumstances when the sanctity of ....
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....ital of assessees in share business stood substantially reduced after transaction in question was over - Whether all transactions question being by interested parties, principles of McDowell &Co. Ltd vs. CTO [1985] 154 ITR 148 (SC) were attracted to facts and transaction being colourable device to avoid tax arising on capital gains, Assessing Officer was right in brining gains to capital gains tax -Held, yes. Reliance is also placed on ratio of decision of Hon'ble Allahabad High Court in the case of CIT Vs. Carlton Hotel (P.) Ltd. [2017] 88 taxmann.com 257 wherein it is held as under: "Section 2(47), read with section 45, of the Income-tax Acts, 1961 - Capital gains Transfer (Firm in the case of) Assessment year 2004-05 Assessee company entered into partnership with one SICCL and SIA -Towards capital contribution in stock of firm, assessee contributed land, valued as per books, at cost of Rs.7.81 crores - Assistant Commissioner held that there was transfer of land to partnership firm, thus, worked out capital gain in hands of assessee - It was noted that contribution of assessee was 88 per cent of total capital but it was assigned only 5 per cent profit sharing in firm - Pa....
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....ain. With regards to contention of assessee that AO was incorrect in considering JANTRI value at Rs.1950 Sq meter as against 1800 Sq meter considered by assessee, it is observed that the AO has considered such value on the basis of report received from Additional Superintendent of Stamps, Gujarat received in assessment proceedings. The AO on the basis of such report has considered FMV of block no 344 at Rs.1,92,46,500 (assessee's share at Rs.27,49,500) as against sale value mentioned in sale deed at Rs.1,77,66,000. Here, it is pertinent to refer to paper book page no 59 submitted by assessee in appellate proceedings which referrers to letter issued by Office of Superintendent of Stamp to buyers and such letter is forming part of sale deed wherein it is clearly stated that fair market value of the property is Rs.1,92,46,500 which is exactly the same figure as is considered by AO while computing income from capital gains. Similar is the case for block no 345 wherein assessee has executed sale deed at Rs.10,16,73,000 but letter issued by stamp authority forming part of sale deed and part of paper book page no. 108 states that fair market value of the property is Rs.11,01,45,800 and su....