DCIT Vs Shivaji Bhagwanrao Jadhav (ITAT Pune)
The issue under consideration is whether Capital Gain will be taxable in the year when consideration for sale of land received irrespective of the possession of the land?
In the present case, the assessee along with his wife purchased about 80 Acres 3 Guntha of land at Village Gevrai Taluka. As per the assessee, the possession of land was not given by the assessee in the assessment year 2008-09. As per the assessee, the land was sold on 23-4-2010 and the capital gain was offered to tax in the relevant assessment year 2011-12. According to the assessee, the asset so purchased on 27-1-2006 was eventually sold only on 23-4-2010, although, the agreement was entered on 2-6-2007. Otherwise, the assessee received the consideration to the extent more than 97.88% by the end of the assessment year 2008-09 itself. It was the view of the AO that gains/profits were taxable in the assessment year 2008-09 due to the fact that 97.88% of the consideration was received in the assessment year 2008-09 only.
ITAT states that the year of possession of land, payment of entire consideration and the compliance to the conditions stated in the agreement are the relevant factors that decides the year of taxation. In the present case, these events happened only in the assessment year 2011-12 and not in the current assessment year 2008-09. Accordingly, ITAT are of the opinion that the year of taxation in the assessment year 2011-12 offered by the assessee and not assessment year 2008-09 as considered by the Assessing Officer in the assessment. Therefore, the relevant issue is decided in favour of the assessee in respect of year of taxation.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the Revenue against the order of CIT(A)-12, Pune dated 27.02.2015 for the Assessment Year 2008-09.
2. The grounds raised by the Revenue are as under :-
“1. On the facts and circumstances of the case, the Ld. CIT(A) was not justified in deleting the addition made by the Assessing Officer on account of business profits on sale of land in A.Y. 2008-09 by holding the same as long term capital gain to be taxed in A.Y. 2011- 12 without appreciating the fact that the sale transaction was actually an adventure in the nature of trade as against the capital gain declared by the applicant in the later year.
2. On the facts and circumstances of the case, the Ld. CIT(A) was not justified in deleting the addition made by the A.O. on account of income from let out properties without appreciating that municipal value does not represent the fair rent which a property can fetch if let out. It is computed very mechanically by the corporation and is not revised periodically.
3. The order of Ld. CIT(A) may be vacated and that of the Assessing Officer be restored.
4. The appellant crave leave to add, alter, amend, and modify any of the above grounds of appeal.”
3. During the proceedings before us, the Revenue filed the additional grounds and the same are extracted as follows:-
“1. On the facts and the circumstances of the case, the Ld. CIT(A) was not justified in allowing the appeal of the assessee by ignoring the Explanation 2 of Section 2(47) of the Income-tax Act, 1961 wherein it was held that transfer includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily by way of any agreement.
2. On the facts and the circumstances of the case, the Ld. CIT(A) was not justified in holding that the transaction of capital gain as declared by the assessee be accepted despite the fact that 97% of the total sale consideration was received in the A.Y. 2008 -09 and therefore the tax incidence would be in the A.Y. 2008-09 by virtue of provision of section 2(47) and section 45 of the Income-tax Act, 1961.”
4. Further, the Revenue raised another additional ground, which is as under :-
“On facts & circumstances of the case, without prejudice to the earlier grounds raised, the assessee should pay capital gains tax for A.Y. 2008-09 as 97% of the total sale consideration was received by assessee in A.Y. 2008-09 and as per Explanation 2 of section 2(47) of the Income-tax Act, 1961 wherein it was held that transfer includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily by way of any agreement.”
5. On noting that the Assessing Officer’s case is to tax the entire gains earned on sale of lands as “business income”, before us, ld. DR for the Revenue fairly submitted that the aforesaid additional grounds, that proposes to tax the gains as capital gains as already offered by the assessee in the return of income, are not pressed. Further, ld. DR submitted the appeal should be decided on the basis of regular/original grounds only. Accordingly, we proceed to dismiss all the additional grounds as not pressed/withdrawn and proceed to restrict our adjudication with regular grounds of appeal only.
6. Facts relating to regular grounds: Briefly stated the relevant facts relating to proper ‘head of income’ and taxation of the gains in the assessment year 2008-09, include that the assessee is an individual and a core person of Shraddha Group of cases. There was a search and seizure action u/s 132 of the Act on the assessee on 08.09.2010 (A.Y. 2011-12). The said action resulted into the discovery and surrender of undisclosed income of Rs.10.99 crores. The same was subsequently retracted. Otherwise, the search action resulted in the seizure of incriminating documents. The assessment was completed u/s 143(3) r.w.s. 153A of the Act. One of the additions made by the Assessing Officer in the assessment, relates to the taxability of the profits on account of sale of land at Gevrai. The Assessing Officer made addition of Rs.5,43,85,990/- on account of the said Gevrai land. Further, the Assessing Officer made another addition on account of deemed income from let out properties at Rs.5,35,641/-. Thus, the assessment was completed and the assessed income of Rs.5,75,08,361/- against the returned income of Rs.25,86,730/-.
7. The background facts relating to the above-said addition on account of ‘Gevrai’ land include that the assessee along with his wife purchased about 80 Acres 3 Guntha of land at Village Gevrai Taluka, Dist. Aurangabad. Out of that, the assessee purchased 32.15 Acres of land in the name his sons Shri Amit Jadhav and Shri Ajay Jadhav for a sum of Rs.36,14,010/-. There is “Visar Pavati” (VP) found during search action in support of the sale. The relevant stamp paper was purchased on 01.02.2007. Bundle No.4, at pages 70 to 74 of the Paper Book contains the relevant Visar Pavati. The search resulted discovery of another agreement dated 02.06.2007 vide Bundle No.14 at pages 177 to 181 of the Paper Book. These agreements were registered between Shri Ajay Shivajirao Jadhav, Shri Amit Shivajirao Jadhav, and Smt. Meera Shivajirao Jadhav on one side and Shri Sanjeevkumar Harkchand Kankariyaon on the other side. Further, these parties sold the said land to Mr. Abbdul Kalik Abdul Karim Barudgar, Mr. Rafik Makbul Kureshi for an agreed price of Rs.9,49,57,325/-. As per the assessee, the possession of land is not given by the assessee in the assessment year 2008-09. In fact, on the request of Shri Sanjay Kankariya, rest of land was sold to Mr. Abbdul Kalik Abdul Karim Barudgar and Mr. Rafik Makbul Kureshi on 23.04.2010 for said sum of Rs.9,49,57,325/-. The “long term capital gain” on the said sale of land was offered to tax in the returns of the assessee as well as his wife. Thus, as per the assessee, the land was sold on 23.04.2010 and the capital gain was offered to tax in the relevant assessment year 2011-12. The transaction involved is not a business transaction as held by the Assessing Officer in the assessment. According to the assessee, the asset so purchased on 27.01.2006 was eventually sold only on 23.04.2010, although, the agreement was entered on 02.06.2007. Otherwise, the assessee received the consideration to the extent more than
by the end of the assessment year 2008-09 itself.
8. Before the Assessing Officer: In the assessment, the Assessing Officer mentioned that (i) considering the facts that the assessee received major part of the consideration (97.88%) in the year under consideration; (ii) considering the business motive of the assessee; (iii) considering the assessee’s mala-fide plan to reduce the payment of taxes by way of ‘long term capital gains’; and, (iv) considering the land business background of the assessee, the present transaction of sale of land should be only considered as an “adventure in nature of trade”. Further, it is the view of the Assessing Officer that gains/profits are taxable in the assessment year 2008-09 due to the fact that 97.88% of the consideration was received in the assessment year 2008-09 only. Thus, the Assessing Officer rejected the assessee’s decision to offer gains on (i) capital gains and (ii) offer of the same in the assessment year 2011- 12 on the basis of date of registration of the land. Therefore, the head of income as well as the year of taxation are the issues raised by the Assessing Officer in the assessment.
9. Before the CIT(A): During the first appellate proceedings, the assessee made elaborate discussions and justified the assessee’s offer of gains to taxation under the head of “capital gains”. Further, assessee submitted that the balance amount was received in the year of registration i.e. assessment year 2011-12. The contents of para 2.8.1 to 2.8. 8 are relevant in this regard.
10. In these paragraphs, the CIT(A) extracted the observation of the Assessing Officer as well as the written submissions of the assessee. The assessee defended that the transactions with regard to the sale of land that Gevrai is a capital gain transaction only and not the business transaction. Further, the assessee also submitted that the sale of transaction of the same is completed in the relevant year 2011-12. In para 2.8.3 of the CIT(A)’s order, the assessee narrated that he never offered any business income on account of sale of land in the past year or in the future. Therefore, as per the assessee, treating the transaction of sale of land as the adventure in the nature of trade, should not arise. Referring to Gevrai land in particular and the book entries thereof, assessee submitted that the said asset was originally shown in the books from the assessment year 2006-07 onwards as an item of “fixed assets” in the balance sheet. In support, the assessee furnished the ‘balance sheet’ for the assessment years 2006-07, 2007-08 etc. The assessee relied on the ‘principle of consistency’ as laid down by the Jurisdictional High Court in the case of CIT vs. Gopal Purohit, 336 ITR 287 as approved by the Apex Court submitted that the claim of investment in land (fixed asset) was accepted by the assessee over the assessment years is the past. Further, referring to the Assessing Officer’s mis-reading of the date relating to the purchase of the land, the assessee pointed out that the Assessing Officer considered 01.02.2007 as purchase date of the said land. Referring to the document, assessee stated that the date of purchase of the land is 27.01.2006. Thus, difference of 13 months has to be added in the period of holding on the capital assets. Relying on the Visar Pavati, the fact that the possession of land was not given to Mr. Kankariya was also demonstrated. Mentioning that the assessee held the land for the period more than 3 years i.e. from 27.01.2006 to 23.04.2010, the assessee argued that the asset involved in the “long term capital assets” and eventually sold in the assessment year 2011-12 after holding period of more than 3 years. Against the Assessing Officer’s decision of treating the transaction of sale of land as an ‘adventure in the nature of trade’, the assessee relied on the various other judgements including that of the Hon’ble Supreme Court judgement in the case of G. Venkataswami Naidu vs. CIT, 35 ITR 594 (SC). The contents of para 2.8.1 to 2.8.8 of the order of the CIT(A) are relevant in this regard. In these paragraphs, the CIT(A) held that the property in question was consistently figuring in the Balance Sheet as a fixed asset. Further, CIT(A) appreciated the contention of the assessee that (i) assessee never traded the lands; (ii) erroneous assumption of facts on holding period of the asset more than 3 years; (iii) the land possession was not passed to Mr. Kankaria as per the ‘Visar Pavati’ of assessee; and, (iv) mala-fide arrangement for paying the lessor taxes under the head capital gains. Thus, the claim of the assessee was accepted. Therefore, the principle of consistency was upheld by the CIT(A). The contents of para 2.8.7 and 2.8.8 of the order of the CIT(A) are extracted hereunder :-
“2.8.7 The learned A.O. has not examined the fact, which would indicate the Appellant’s intention at the time of purchase, whether he further developed the land, relevant factors affecting decision to sell. As against it, the Appellant has held the property in his balance sheet for a year and this is the Appellant’s only transaction of the land trading.
2.8.8 In view of the above discussion, I do not find any material brought out by the learned A.O. to justify to hold that the transaction is ‘adventure in nature of trade’. I hold that the transaction of capital gain be accepted as declared by the Appellant.”
11. Regarding the other addition on account of deemed income from let out properties of Rs.5,35,641/-, relevant facts include that the Assessing Officer noticed that the assessee lives in a row house 43/44, Himali Society, Erandwane, Pune. The Assessing Officer invoked the provisions relating to the Self Occupied Property and the ALV for other vacant properties and estimated ALV of the same at Rs.5,62,892/-. Rejecting the assessee’s offer of Rs.27,251/- against the ALV, the Assessing Officer added the balance amount of Rs.5,35,641/-.
12. In the first appellate proceedings, the CIT(A) confirmed the addition made by the Assessing Officer as per the discussion given in para 2.5.1 to 2.5.5 read with para 2.9.1 of the order of the CIT(A). For the sake of completeness, the contents of para 2.5.5 are extracted hereunder :-
“2.5.5 However, the municipal valuation should be of the A.Y. concerned, in absence of the municipal ARV of the relevant A.Y., the learned AO’s action would be justified. Accordingly, I confirm the addition with respect to the property, if the ARV of the particular property is not of the AY concerned and delete the addition made by the learned AO, if the ARV is of the relevant assessment year.”
Arguments on the two Issues – Year of Taxation & Head of Income
13. “Year of taxation” and proper “head of income” for taxing the gains are the two issues for adjudication by us. Regarding the issue of year of taxation, the assessee made the following written submission :-
“Respondent assessee contends that the correct year of taxation of Capital Gain of GEORAI Land is AY 2011-12 and not AY 2008-09 as held by the learned AO, on following points:
a) Sale Deed was executed on 23/04/2010 i.e. in AY 2011-12.
b) Possession of Land was handed over to Purchasers only on execution of Sale Deed.
c) Sale Deed was executed in the favour of Mr. Abdul Barudgar and Mr. Rafiq Qureshi and not in favour of Mr. Sanjeev kumar Kankariya with whom VISARPAVATI was executed.
d) Transaction in the hands of Mrs. Meerabai Jadhav (wife of respondent assessee, who was also the joint seller of GEORAI Land) has been accepted by the I-T Authorities in AY 2011-12. Copy of return of income and computation of income is attached herewith as Annexure-2.
Respondent assessee in this regard is placing reliance on following judicial pronouncement wherein it has been held that transfer takes place only after possession is given:
i) CIT Vs. Talwalkars Fitness Club – 409 ITR 37 (Bombay)
ii) CIT Vs. Cochin Stock Exchange Ltd. – 363 ITR 382 (Kerala)
iii) Ratna Trayi Reality Services (P.) Ltd. Vs. ITO – 356 ITR 493 (Gujarat)
iv) CIT Vs. Delhi Apartments (P.) Ltd.– 352 ITR 322 (Delhi)
v) Avtar Singh Vs. ITO – 270 ITR 92 (MP)
vi) CIT Vs. Umiya Investments – 33 taxmann.com 266 (Gujarat) Copies of above referred cases are attached herewith as Annexure-3.”
14. Regarding the head of income, the assessee made the following written submission :-
“Respondent assessee contends that the income from GEORAI Land should be taxed under the head ‘Capital Gains’ and not under the head ‘Profits and Gains from Business or Profession on following points:
a) GEORAI Land is held as Fixed Assets in the Books of Accounts. The audited accounts of various years are already placed on record, wherein, GEORAI land appears as Fixed Asset (and not as any stock-in-trade / Current asset) .
b) Real estate transactions executed in past and future years has been disclosed as Capital Gain by respondent assessee and the same is accepted by the I-T Authorities. (Details already submitted as Annexure-1 of Synopsis-1).
c) Transaction by Mrs. Meerabai Jadhav (wife of respondent assessee, who was also the joint seller of GEORAI Land) has been disclosed as Capital Gain and the same has been accepted by the I-T Authorities. Copy of return of income and computation of income is attached herewith as Annexure-2.
Respondent assessee in this regard is placing reliance on following judicial pronouncement (apart from one referred in earlier Synopsis) wherein it has been held that principal of consistency should be followed:
i) CIT Vs. Quest Investment Advisors (P.) Ltd. – 409 ITR 545 (Bombay) Copy of above referred case is attached herewith as Annexure-4.”
15. Regarding the rejoinder to contentions of the ld. DR, the ld. Counsel furnished the following written submission :-
“During the hearing on 19/07/2017, the learned DR supported the order of the learned AO on following points and the rejoinder to the same is as follows:
