Sanjay Bajpai Vs ACIT (ITAT Raipur)
The ITAT Raipur considered the assessee’s appeal for AY 2012-13 against the CIT(A), NFAC order dated 07.11.2025 arising from an assessment under Section 143(3) dated 25.03.2015. The assessee was engaged in purchasing large tracts of land, developing them into saleable plots and selling them. The appeal challenged additions and disallowances concerning closing stock, agricultural income, Section 14A, Section 36(1)(iii), development and project expenses, indirect expenses and depreciation under Section 38(2). Regarding the closing stock, the Assessing Officer had added Rs.2,12,80,946/- by including 3,05,583 sq. ft. of land used for roads and gardens in the valuation. The assessee submitted that such land was not saleable under the approved layout and that the same accounting method had been consistently followed. The Tribunal noted that land used for roads and gardens could not be sold to purchasers and, under Section 145A, inventory is valued at the lower of actual cost or net realisable value. It held that the net realisable value of that portion was Nil and directed deletion of the Rs.2,12,80,946/- addition.
Regarding the Rs.3,00,000/- agricultural income addition, the assessee claimed that agricultural land had been leased to farmers and the rent received constituted agricultural income. However, the Tribunal noted that no specific evidence had been filed before either the Assessing Officer or CIT(A) and confirmed the addition.
For Section 14A, the Tribunal noted that the assessee had earned no exempt income during the year. It therefore directed deletion of the Rs.11,71,730/- addition under Section 14A. Grounds concerning the Rs.13,65,855/- disallowance under Section 36(1)(iii), Rs.2,00,000/- development and project expenses, Rs.2,31,718/- indirect expenses and Rs.47,980/- depreciation under Section 38(2) were not pressed by the assessee and were dismissed as not pressed. General grounds were also dismissed. The appeal was consequently partly allowed. The order was pronounced on 30.07.2026.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
This is an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi, passed under section 250 of the Income Tax Act, 1961 (`the Act’) for the Assessment Year (AY) 2012-13 on 07.11.2025 emanating from assessment order under section 143(3) of the Act, dated 25.03.2015.
2. The assessee has raised following grounds of appeal:
“1. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals), NFAC has erred in confirming the addition of Rs.2,12,80,946/- made by the Id. Assessing Officer on account of alleged closing stock of land pertaining to roads/gardens without appreciating the facts of the case in their entirety.
2. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals), NFAC has erred in confirming addition of Rs.3,00,000/-made by the Id. Assessing Officer on account of agricultural income without appreciating the facts of the case in their entirety.
3. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals), NFAC has erred in confirming the disallowance of Rs.11,71,730/- made by the Id. Assessing Officer u/s. 14A of the Income-tax Act, 1961 without appreciating the facts of the case in their entirety.
4. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals), NFAC has erred in confirming disallowance of Rs.13,65,855/- made by the Id. Assessing Officer u/s. 36(1)(iii) of the Income-tax Act, 1961 without appreciating the facts of the case in their entirety.
5. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals), NFAC has erred in confirming the ad hoc disallowance of Rs.2,00,000/- made by the Id. Assessing Officer out of Development and project expenses without appreciating the facts of the case in their entirety.
6. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals), NFAC has erred in confirming ad hoc disallowance of Rs.2,31,718/- made by the Id. Assessing Officer out of indirect expenses without appreciating the facts of the case in their entirety.
7. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals), NFAC has erred in confirming ad hoc disallowance of Rs.47,980/-, being (10%) of depreciation claimed, as made by the Id. Assessing Officer u/s. 38(2) of the Income-tax Act, 1961 without appreciating the facts of the case in their entirety.
8. The impugned order is bad in law and on facts.
9. The appellant reserves the right to add, alter, omit or amend all or any of the grounds of appeal in the interest of justice.”
3. Submission of Ld. Authorised Representative of Assessee :
The Ld. AR for the assessee submitted that the assessee is into the business of purchasing large tracts of land, developing the same into saleable plots after preparing and obtaining approval of layout plans from the appropriate local authorities and sales thereof. The ultimate purpose of small plots bought by the buyers is construction of houses. Therefore, the assessee has to carry out his operations strictly under the regulatory mechanism of Town and Country Planning Department, Govt. of Chhattisgarh, which ensures systematic and proper development of urban areas into townships and settlements. Under the statutory requirements, a layout plan is approved only when requisite provision for Internal Roads, Drainage, Common Gardens, Parks, etc. is made. The land areas covered by these civic amenities are not saleable. Ld. AR further submitted that as per business practice, once layout plot is approved, the appellant commences earmarking roads, garden, etc. as per approved layout plan, conducts filling and leveling, developing, constructing murdrum roads, drainage, etc. to facilitate easy identification of plots and to enable buyers to select plot numbers as per their choice. He submitted that the appellant maintains quantitative details and follows mercantile system of accounting right from the beginning and makes valuation of closing stock is made at cost price and it is verifiable from Audit Report, therefore, since the roads, gardens, etc. are not saleable and registration thereof cannot be made to any of the buyers, value of the same including development expenses, being direct in nature, are excluded from the value of closing stock. This exclusive method is consistently and regularly followed from past several years. However, in sale price the proportionate cost of land, proportionate cost of road/ garden development, land filling expenses, relatable to the area sold during a year received from customers is included. Receipts from the same are separately credited to the Trading and Profit & Loss A/c. He further submitted that the assessee had purchased agricultural lands and prior to commencement of development activities, diversion of lands for change in land use is required therefore observation of Id. Assessing Officer that lands were Rot diverted is correct. However, it is also true that before diversion of such lands, these were let out to farmers for agricultural activity. He submitted that as per clause (a) of section 2(1A) of the Act, “agricultural income” means any rent or revenue derived from land which is situated in India and is used for agricultural purposes. Therefore, any rent received from letting out of land used for is agricultural purposes is agricultural income. There is no distinction regarding classification of land whether treated as stock-in-trade or as fixed assets, which will be relevant for classifying nature of income derived from such land. In other words, presentation of land in the balance sheet is not deciding factor for categorizing its nature of income. Regarding ground No. 4, he submitted that assessee has not earned any income from any investments except interest income of Rs.3,078/- from term deposit credited in profit & loss account. To support his above contentions, Ld. AR relied on various judgements:
(i) CIT vs. Wintac Ltd. (2014) 360 ITR 0614 (Kar)
(ii) UCO Bank vs. CIT reported in 240 ITR 355 (SC)
(iii) CIT vs. Bilahari Investment P. Ltd. 299 ITR 1 (SC)
(iv) CIT vs. Jagatjit Industries Ltd. (2011) (Del HC)
(v) Berger Paints India Ltd. Vs. CIT (2004) 266 ITR 99 (SC)
(vi) Uma Charan Shaw & Bros vs. CIT (1959) 37 ITR 271 (SC)
4. Ld. Sr. DR vehemently argued and supported the order of the Ld. AO and Ld. CIT(A).
Finding and Analysis :-
5. We have heard both the parties and perused the records.
6. Ground No. 1: In this case Ld. AO has made addition of Rs.2,12,80,946/- to the closing stock on account of under valuation. Admittedly, the assessee derived income from business of real estate development and trading of plots, flats and shops and accordingly earned the income. During the course of assessment proceedings, it was noted by Ld. AO that the assessee has sold 15,04,467 sq. ft. of land, the assessee also claimed that out of which 3,05,583 sq. ft. land was consumed in development of roads and gardens. The Ld. AO considered the value of 3,05,583 sq. ft. of land in the valuation and made addition of Rs.2,12,80,946/-. According to the Ld. AO, the assessee has not included 3,05,583 sq. ft. of land in the closing stock. It was submitted before the Ld. AO by the assessee that the assessee had consumed that land in the development of roads and gardens, therefore, the said land was not available for sale, hence, it cannot be considered as closing stock. It was also submitted during the assessment proceedings by the assessee that the assessee has been following this method consistently. For earlier years and subsequent year also, there has been no addition. In this case, the assesse had considered 3,05,583 sq. ft. of land as not saleable land, therefore, the assessee had not considered the value of the said land under closing stock. It is also a fact that consistently the assessee had followed the same method of accounting. The Ld. AO has not disturbed the opening stock of the assessee. It is a fact that the area under gardens and roads cannot be sold to any purchaser. Also, it was required for Ld. AO to follow the principles of consistency. The AO has not disturbed the earlier year’s assessment.
As per section 145A of the Act the Inventory shall be valued at Lower of Actual cost or Net Realisable value. In this case it is a fact that Assessee cannot sale the Land which was used for Garden Road etc. Therefore, the Net Realisable Value of that part of the land is Nil. Therefore, the Assessee has rightly not considered it in the closing stock.
In these facts and circumstances of the case, there is no merit in the addition of Rs.2,12,80,946/-, accordingly, we direct the Ld. AO to delete the addition of Rs.2,12,80,946/- made in the hands of the assessee.
7. Ground No. 2: Ground No. 2 is regarding the addition of Rs.3,00,000/- on account of agricultural income. The assessee has pleaded that the assessee had given certain agricultural land on lease to the farmers and earned Rs.3,00,000/- of rent, therefore, the assessee claimed the same as an agricultural income. It has been noted by the Ld. AO that no evidence has been filed by the assessee. Similarly, during the appellate proceedings before Ld. CIT(A) no specific evidence has been filed. In these facts and circumstances of the case, we confirm the addition of Rs.3,00,000/- made by the Ld. AO.
8. Ground No. 3: Ground No. 3 is regarding the addition made under section 14A of the Act. It is an admitted fact mentioned in the order of the Ld. CIT(A) that during the year, there is no exempt income earned by the assessee. Once the assessee has not earned any exempt income in the year no addition can be made under section 14A of the Act. In this facts and circumstances of the case, we direct the Ld. AO to delete the addition of Rs.11,71,730/- made under section 14A of the Act.
9. It was submitted during the appellate proceedings before this Tribunal that the assessee did not wish to press the grounds No. 5 to 7. No pleading made regarding grounds No. 5 to 7 as the assessee was not pressing the same, accordingly, the grounds No. 5 to 7 are dismissed as not pressed.
10. Grounds No. 8 and 9 are general in nature, therefore, needs no adjudication. Accordingly, these grounds are dismissed.
11. In the result, the appeal of the assessee is partly allowed.
Order pronounced on this 30th day of July, 2026.
