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2018 (12) TMI 457

Validity of reopening of assessment - assessee had not disclosed any capital gain on conversion of his capital asset into business asset in the relevant financial year - reasons to believe - Held that:- The provisions of section 45(2) make it clear that even if there is conversion of capital asset into stock in trade, the capital gains shall arise to an assessee only in the year in which such converted stock in trade is sold. Admittedly the alleged stock in trade was not sold by the assessee in .....

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or the purpose of computing capital gains at ₹ 34,87,820/- by considering full value of consideration figure at ₹ 2,33,24,000/-, made totally unwanted and irrelevant observations in his appellate order by observing that the assessee shall be liable for business income at ₹ 5,15,12,180/- ( 5,50,00,000 – 34,87,820) in the year in which land is sold. In any case on merits, we hold that the capital gains arise only in the year in which possession of the land was handed over to the .....

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9. - Reliance in this regard is placed on Chaturbhuj Dwarkadas Kapadia of Bombay vs CIT [2003 (2) TMI 62 - BOMBAY HIGH COURT]. We hold that pursuant to the development agreement dated 13.9.2006 and handing over of possession of land in Asst Year 2008-09 by the assessee to the developer, the developer has already been entitled to 50% superstructure portion together with ownership of land thereon in Asst Year 2008-09 itself. Title is already held with developer in Asst Year 2008-09 itself. Th .....

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a [ in short the ld AO] under section 147 / 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 25.03.2015 and 30.03.2015 respectively for the Assessment Years 2007-08 and 2009-10 respectively. both the appeals are taken together and disposed off by this common order for the sake of convenience. ITA No. 2353/Kol/2016 - Asst Year 2007-08 2. The preliminary issue raised by the assessee in this appeal is as to whether the ld CITA was justified in upholding the validity of reopening of asse .....

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tered into a Development Agreement dated 13.9.2006 with M/s Kokra Develepors Pvt Ltd for construction of building on his ancestral land. It was agreed that assessee and developer would share 50% each of constructed portion and all construction and other related costs would be borne by the Developer. No construction activities were taken up / completed by 31.3.2007. The ld AO showcaused the assessee vide office letter dated 17.3.2015 mentioning as under:- As per details of valuation by the valuer .....

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6,180) or the valuation of the said property valued by the district valuation officer is not treated as your income from long term capital gains for the financial year 2006-07 relating to assessment year 2007- 08. The assessee objected to the determination of valuation of property at ₹ 5.5 crores which was only based on an estimate and also informed the ld AO that the valuation officer of income tax department had visited the premises in Bhiwani on 19.3.2015 and all the documents and infor .....

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available for the year 2005- 06 is ₹ 10,000/-; and the area of the property is 5500 Sq. yard; thereby taking the preliminary valuation of the property to ₹ 5.50 Crores. Whatever, the valuation officer said in his report; it has to be considered as there is no other option to judge the value of the property. The assessee as well as the A.O. is not the authority to take such decision for estimating the property value. That's why the matter was passed to the District Valuation Offic .....

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y Shankar Halwasiya respectively and actual date of handing over of possession by land owners to developer was on 29.10.2007, falling in Asst Year 2008-09. It was specifically argued that the possession of the land was not handed over by the assessee to the developer in Financial year 2006-07 and hence there is no transfer within the meaning of section 2(47) of the Act read with section 53A of Transfer of Property Act, 1882. Hence at the first instance, there cannot be any capital gains in Asst .....

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ived at on sale of land to developer which is appurtenant to his constructed area. Sale consideration will be cost of construction of constructed portion allotted to land owner and difference will be long term capital gain or loss. Here there cannot be any question of throwing or converting any investment into stock in trade as no investment was made by land owner and he has no stock in trade or doing any trading business. Further it is a case of getting ancestral property developed, hence to al .....

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ivity. The ld CITA held that the development agreement effectively amounts to transfer agreement and possession was handed over by the assessee to the developer granting permission to the developer to enter upon the land and do construction thereon. According to ld CITA, the date of development agreement dated 13.9.2006 determines the date of transfer and that the actual date of taking physical possession or the instances of possessory acts exercised was not very relevant. He held that the fact .....

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s holding as a capital asset. He may convert such a plot of land into stock in trade and thereafter, by way of development of plot of land, he may construct residential or commercial building units on the sae. Such a course of action will provide an advantage to such a person, because he will not be required to pay capital gains tax immediately on the date of conversion of capital asset into stock in trade. He may, in view of provisions of section 45(2) of the Act make payment of capital gains t .....

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o pay tax on the business income by way of profit realized by him, as a difference between the sale price of stock in trade and market value of capital asset on the date of its conversion into stock in trade. 8. The ld CITA keeping in view the aforesaid observations, held that capital gains of the assessee is determined at ₹ 34,87,820/- for Asst Year 2007-08. Remaining addition made by the ld AO on account of capital gains of ₹ 5,15,12,180/- ( 5,50,00,000 - 34,87,820) is hereby delet .....

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on 29.10.2007 falling in Asst Year 2008-09. The temporary permission granted by the assessee to the developer to enter upon the land for the purpose of inspection of the land and prepare a building plan and start construction thereon does not fall within the ambit of possession as contemplated in section 53A of the Transfer of Property Act, 1882. Hence we hold that there was no transfer in Asst Year 2007-08 in the facts of the instant case. We find that the ld AO had recorded reasons for reopeni .....

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not sold by the assessee in Asst Year 2007-08. It is not the case of the revenue also that any stock in trade was sold by the assessee in Asst Year 2007-08. Hence there cannot be any capital gains in Asst Year 2007-08 even on alleged conversion of capital asset into stock in trade. Hence we hold that the basis of reopening pursuant to reasons recorded, fails on all force of law. We hold that the reopening was made in the instant case based on incorrect assumption of facts by the ld AO. 10.1. Ev .....

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in which possession of the land was handed over to the developer pursuant to the provisions of section 2(47)(v) of the Act read with Section 53A of the Transfer of Property Act, 1882. Reliance in this regard is placed on the decision of Hon ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay vs CIT reported in 260 ITR 491 (Bom). 10.2. Hence we hold that the reopening made by the ld AO based on absolute incorrect assumption of facts deserves to be quashed. Accordingly, the .....

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t agreement dated 13.9.2006, the developer could not complete the construction during the year and only some shops were constructed. 4 shops were allotted to the developer and land appurtenant thereto of 253.33 sq.yards was transferred to developer out of total 2550 sq.yards, originally agreed as his share and construction was not fully complete on balance land. The assessee executed transfer deeds for 4 shops to the developer in consequence of the development agreement with the developer for to .....

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ty cannot be treated as stock in trade in his hands. 14. The ld AO however, disregarded all these contentions and held that 50% of sale proceeds of land attributable to 4 shops transferred to the developer pursuant to transfer deed becomes business income of the assessee and accordingly added a sum of ₹ 26,60,000/- (53,20,000 * 50%) as undisclosed income from business of the assessee. 15. The ld CITA observed in his order as under:- "During the course of appellate proceeding the appel .....

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aining shops which are left with the appellant will be treated as NIL and the market value as on date of sale will be reduced by the stamp value of land on the date of conversion of assets into stock in trade as mentioned in AY 2006-07 and differential will be the business profit of the appellant. Therefore except capital gain on this transfer of land no business profit was to be charged. Therefore, the addition made as a business profit in the hands of the appellant is hereby deleted and the AO .....

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ssessee had only entered into development agreement dated 13.9.2006 for construction of multi storied building. The entire cost of construction is to be borne by the developer. The consideration for the assessee would be 50% of constructed portion which includes shops to be built thereon. We find that during the year under appeal, the assessee had just executed transfer deeds for the lands proportionate to the 4 shops allotted to the developer. It was also specifically mentioned before the ld AO .....

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only in Asst Year 2008-09. Reliance in this regard is placed on the decision of Hon ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay vs CIT reported in 260 ITR 491 (Bom). We hold that pursuant to the development agreement dated 13.9.2006 and handing over of possession of land in Asst Year 2008-09 by the assessee to the developer, the developer has already been entitled to 50% superstructure portion together with ownership of land thereon in Asst Year 2008-09 itself. T .....

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