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Case Law Details

Case Name : Rajesh Kumar Adukia Vs DCIT (ITAT Ranchi)
Appeal Number : ITA No. 14/Ran/2018
Date of Judgement/Order : 30/10/2019
Related Assessment Year : 2013-14
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Rajesh Kumar Adukia Vs DCIT (ITAT Ranchi)

Income from Sell of Flats after Construction after 26 Years of  Land purchase – Business Income or Capital Gain?

In the present case, undisputedly, the land was purchased on 10.11.1981 and after passage of 26 years, the owners of land applied for permission/sanction of constructing the building on 17.2.2007 and got sanction on 4.5.2007. Subsequently, the construction was started on 19.6.2009, which was partly completed during the financial year 2012-13 and fully completed during financial year 2013-14 pertaining to assessment year 2014-15. On careful reading of the assessment order and first appellate order, I am unable to see any evidence to show that either during the preceding financial year or during subsequent financial year, the assessee had ever under taken any activity of construction and selling of flats excepts activity of developing the land, constructing the building and selling the same, which is under assessment in assessment year 2013-14. In the totality of the facts and circumstances of the case, I have no hesitation to hold that the development and construction of flats on the land purchased before 26 years is only act of the assessee with an intention to enhance the value of capital asset before selling the same and same cannot be treated as adventure in the nature of trade and thus, the income deriving on selling of flats cannot be treated as business income from partnership firm. I am satisfied with the contention of the assessee that it was only instance when the assessee applied for sanction of construction of flat for the last purchase of land and building on 10.11.1981 and no other instances have been brought on record showing that the assessee was in the regular business of construction and selling of flats. Therefore, the view and findings recorded by the CIT(A) in the first appellate order cannot be held as sustainable and thus, I dismiss the same. Accordingly, I direct the Assessing Officer to treat the income from selling of flats as capital gains.

Whether the authorities below are right in dismissing the claim of the assessee u/s. 54F of the Act on the ground that residential flat was not constructed after the date of transfer and they were constructed alongwith saleable flats?

ITAT observed that the AO has denied exemption u/s.54F of the Act on the ground that residential flat was not constructed after the date of transfer of saleable flats. Therefore, he held that the assessee is not entitled for exemption u/s. 54F of the Act. At thus juncture, I take cognizance of CBDT Circular No.791 dated 2.6.2000 (supra), which clarified that for the purpose of claiming deduction u/s. 54EA/54EB/54EC, the date of transfer shall be the date on which the stock-in-trade is sold or otherwise transferred by the assessee and not on the date of conversion of the capital asset into stock-in-trade. In the present case, the assessee has constructed 12 flats out of which 4 flats were sold in the assessment year 2013-14 and partial capital gain was accrued to the assessee during this period. From the table submitted by the assessee and not disputed by the department, it is clearly discernible that the assessee has incurred huge expenditure of Rs.1,91,22,401/- and Rs.1,92,80,023/- during financial year 2012-13 relevant to assessment year 2013-14 and obviously, this cost has been incurred by the assessee towards construction of flats, which were kept by him for his residential purposes and for claiming exemption u/s.54F of the Act. Therefore, ITAT have no hesitation that the assessee is very much entitled for claiming exemption u/s.54F of the Act out of income accrued to him on sale of flats during present assessment year 2012-13. Consequently, they direct the AO to allow exemption u/s.54F of the Act to the assessee and recalculate the capital gain while giving appeal effect in pursuance to this order.

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