TMI Blog2019 (5) TMI 1554X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, the assessee correctly offered the same as long term capital gains/loss as per Law. The Orders of the authorities below thus are not sustainable in law. Assessee, alternatively also submitted that since Ansal obtained an injunction in July, 2009, therefore, the same would also be beyond 36 moths and as such, it would support the explanation of assessee that land in question was capital asset in nature. In that event the book entry made on 06.04.2012 would not be relevant. We agree with the alternate contention of the Assessee that when everything was brought to the notice of the Court and it came to the knowledge of both the parties that no business activity or construction could be carried out in the impugned land and Hon ble Delhi High Court granted injunction in July, 2009, therefore, from that date it would be very clear that impugned land would not be having character of stock in trade. Therefore, alternative contention of assessee is also accepted. In view of the above facts, we set aside the orders of the authorities below and delete the entire addition. - Decided in favour of assessee. - ITA.No.7386/Del./2018 - - - Dated:- 27-5-2019 - Shri Bhavnesh Sain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent Investment. It was also submitted that the book profit earned on sale of land amounting to ₹ 7.22 crores have been duly shown in P L A/c under the head Extra Ordinary Item . The Long Term Capital Loss works out to ₹ 17,88,28,787/- after computing the indexed cost of such land as per the provisions of I.T. Act, 1961. However, the long term capital loss has not been claimed in the income tax return due to late filing of the income tax return. The assessee company has computed the tax liability under section 115JB of the I.T. Act (MAT) on the book profit of ₹ 7.22 crores earned on sale of land and has duly discharged it's tax liability. Similar explanation have been submitted in last year assessment proceedings i.e. A.Y. 2013-14. 2.2. The A.O. however, did not found the explanation of assessee to be satisfactory. The A.O. noted that assessee has claimed that sale of capita! assets (land) is assessable as long term capital gain/loss under the provisions of Section 45 of the income Tax Act, 1961. To make such claim, the basic test to qualify is, whether the asset was a long term capital asset. The A.O. referred to section 2(14) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation) AHCL refused to honour scheduled payments as per the MOU. Later on, obtained an interim injunction on 03.07.2009 from Hon ble Delhi High Court against disposing of any of the assessee s movable/immovable assets and the matter was finally dismissed by the Hon'ble Delhi High Court vide order dated 29.05.2012 holding that the matter was beyond its jurisdiction. While AHCL challenged the aforesaid order, yet it entered into a Memorandum of Settlement dated 19.11.2012 and pursuant to a Joint Application by AHCL and the Assessee in the Delhi High Court, it was disposed of vide order dated 23.11.2012. Till this time, land was reflected as stock-in- trade in the books of the assessee company as land was being procured for transfer to AHCL. It was only on 06.04.2012, the assessee passed a Board Resolution, pursuant to which, required entries were passed in its books of account during F.Y. 2012-2013 relevant to A Y. 2013-14 treating the said land as non-current investment. Thereafter, part of the land was sold in A Y. 2013-14 and assessee claimed long term capital gains on the said sale of land in the relevant A.Y.2013-14. During the year under consideration also, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the books of accounts, the asset was always in the nature of a capital asset and had acquired the status of a capital asset from the date of purchase because as per Notification of the Ministry of Defence (supra), assessee was barred by raising any construction activity therein. 3.2. The Ld. CIT(A), however, did not accept the contention of the assessee and noted that land remains as stock in trade in the books of account of the assessee from the date of the acquisition itself. This land was converted into investment in A.Y. 2013-2014. On perusal of the Board Resolution of the assessee company, it was observed that these investments were previously shown as stock in trade which were converted into capital asset. Therefore, the Ld. CIT(A) following his order for A.Y. 2013-2014 rejected the claim of assessee and dismissed the appeal of assessee. 4. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has submitted that these lands were held as stock in trade. However, after execution of MOU between assessee and Ansals and at the time of submitting the proposed design plans before the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot consider nature of the land because of the Notification issued by the Ministry of Defence and stay granted by the Hon ble Delhi High Court. He has submitted that book entries are not relevant and relied upon Judgment of the Hon ble Supreme Court in the case of Canara Bank Ltd., (supra) and Judgment of Hon ble Delhi High Court in the case of DLF Housing and Construction Pvt. Ltd., (supra). Learned Counsel for the Assessee referred to PB-2 which is Notification of Ministry of Defence Dated 11.11.2014. PB-14 is injunction order granted by Hon ble Delhi High Court Dated 03.07.2009. PB-38 and 39 are the details from A.Y. 2006-2007 to 2015-2016 to show that assessee has earned agricultural income and from A.Ys. 2010-2011 to 2015- 2016 assessee has shown agricultural income from same land in the return of income. Details of the same are also filed to show that land was not used for any business purposes. He has submitted that no construction have been done on the property in question. Therefore, merely because land was shown as stock in trade in the books of account was not relevant. Even after grant of stay, the assessee could not have done any construction in the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the land described in the Schedule below, being land lying in the vicinity of Valla Ammunition Dump, District Amritsar in the State of Punjab, in order that the said land may be kept free from buildings and other obstructions from the date of publication of this notification. 2. A sketch plan, of the land may be inspected in the office of Deputy Commissioner, Amritsar, in the State of Punjab. SCHEDULE All the land comprised in the area lying within the distance of one thousand yards from the crest of the outer parapet of the works of defence, namely, Valla Ammunition Dump, District Amritsar in the State of Punjab. 6.1. The lands of the assessee admittedly falls within the distance of the above Notification and as such, assessee shall have to keep the land free from building and other constructions from the date of publication of this Notification. This Notification was in force when assessee procured the impugned land and as such, assessee was bound by the Notification of Ministry of Defence. No business activity thus could have been carried out in the impugned land. The assessee could not have carried out any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n profit or loss to the assessee. 6.2. The Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., 227 ITR 172 (SC) in which it was held as under : Book entries are not determinative of income of assessee. When the question is, whether a receipt of money is taxable or not, or whether certain deductions from that receipts are permissible in Law or not, the question has to be decided according to the Principles of Law, but not in accordance with the Accounting Practice . 6.2. The Honorable Supreme Court in the case of CIT, Mysore vs. Canara Bank Ltd., (1967) 63 ITR 328 (SC) held as under : The respondent-bank had opened a branch in Karachi on November 15, 1946. After the partition of India in 1947, the currencies of the two Dominions of India and Pakistan continued to be at par until there was a devaluation of the Indian rupee on September 18, 1949. On that date the respondent had a sum of ₹ 3,97,221 at the Karachi branch belonging to its head office. As Pakistan did not devalue its currency the parity between the Indian rupee and the Pakistan rupee ceased to exist. The exchange rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India in the previous year relevant to the year for which assessment is made or the income that accrues or arise or is deemed to accrue or arise in India during such year. The computation of such income is to be made in accordance with method of accounting regularly employed by the assessee. If income does not result at all there cannot be a tax even though in bookkeeping an entry is made about a hypothetical income which does not materialize. 6.4. Considering the facts of the case in the light of above decisions, it is clear that even if assessee company has shown the impugned land as stock in trade in the books of account, but, there was a complete bar on assessee as per the Notification of the Ministry of Defence (supra) to raise any construction therein and as such assessee could not have done any business activity on the aforesaid land in question. Therefore, merely because impugned land have been shown as stock in trade in the books of account would not be relevant. It s true character appears to be of capital asset in nature and in case it is transferred subsequently, only capital gain/loss shall have to be computed in accordance with Law. The land was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Tribunal has also found that the asset cannot be acquired first as non-capital asset at one point of time and again as capital asset at different point of time. The Tribunal further observed that there can be only one acquisition of asset, i.e. when the assessee acquired it for the first time irrespective of the character at that point of time. In fact, the Tribunal has observed as follows:- 19. On a careful consideration of the issue, my answer to the first question is in the affirmative. The matter appears to me to be concluded by the judgment of the Hon'ble Bombay High Court in Keshavji Karsondas , case (supra). It was held therein that an asset cannot be acquired first as a non-capital asset at one point of time and again as a capital asset at a different point of time. There can be only one acquisition of an asset and that when the assessee acquires it for the first time, irrespective of its character at that point of time. It was therefore, held that what is relevant for the purpose of capital gains is the cost of acquisition and not the date at which the asset became a capital asset. The decision of the Gujarat High Court in Ranchhodbhai Bhaijibhai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the above, the first date of acquisition, i.e. 20.12.2006, has to be treated as date of acquisition of capital asset. The actual date of sale of the property is 21.01.2010, which is beyond 36 months from the date of original acquisition. Hence, the asset has to be treated as long term capital asset. Therefore, the profit on sale of such land has to be treated as long term capital gain. Hence the assessee is eligible for deduction under Section 54F of the Act subject to the compliance with the conditions prescribed in Section 54F of the Act. In view of the above, we are unable to uphold the order of the lower authority. Therefore, the orders of the lower authorities are set aside. The Assessing Officer is directed to treat the profit on sale of the land as long term capital gain and examine whether the assessee has complied with the conditions prescribed in Section 54F of the Act. If the assessee has complied with the conditions prescribed in Section 54F of the Act, then the assessee is eligible for deduction under Section 54F of the Act. 6. In the result, the appeal of the assessee is allowed. 6.5. The Hon ble Delhi High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was being dealt with as a capital Investment. Capital is the source of income and income is the fruit of capital, Judging from this aspect also, it is difficult to hold that the lands in question partook of the nature of stock-in-trade. 6.6. The assessee, therefore, rightly contended that findings of the A.O. is incorrect because the capital asset was acquired way back in F.Y. 2006-2007 which is accepted by the A.O, as such, on date of sale period of holding would be beyond 36 months. Therefore, benefit of indexation should be allowed as the asset was acquired way back in F.Y. 2006-2007. Considering the facts and circumstances of the case, it is clear that impugned land remain as capital asset because of the peculiar facts and circumstances of the case noted above as per Notification of the Ministry of Defence (supra). Therefore, on account of transfer of the same to AHCL by way of Settlement of the Dispute in the Hon ble Delhi High Court, the assessee correctly offered the same as long term capital gains/loss as per Law. The Orders of the authorities below thus are not sustainable in law. 7. Learned Counsel for the Assessee, alternatively also s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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