TMI Blog2023 (2) TMI 965X X X X Extracts X X X X X X X X Extracts X X X X ..... closed sale of land as turnover and remaining land if any as stock in trade and failure to obtain such audited books of account clearly prove that entire theory of conversion of agricultural land as stock in trade is baseless and after thought - dismiss the appeal of the assessee. Computation of LTCG - Transfer value determination - AO ought to have accepted the measurement at Rs.1,800/- per sq. mt. against Rs.1950/- per sq. mt as transfer value when the valuation difference is less than 10% - HELD THAT:- We note that amendment in third proviso to section 50C of the Act was held to be retrospectively applicable in the case of Maria Fernandes Chery ( 2021 (1) TMI 620 - ITAT MUMBAI] - We note that as per assessee the measurement is at Rs.1,800 per sq. mt. However, as per Revenue, the measurement is at Rs.1950 per sq. mt, as transfer value. We note that difference between both the measurement is 8.33%, which is less than 10%. Such tolerance limit is allowable as per provisions of third proviso to section 50C of the Act. Therefore, we direct the assessing officer to consider measurement at the rate of Rs.1,800 per sq. mt. to compute the long term capital gain. Hence, we allow the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s share was Rs.2.28,72,600. The assessee has not offered any capital gain or business income on sale of above land. The assessee vide letter dated 22nd December, 2017 has stated that above lands were acquired in the year 1992, agricultural lands were converted into stock-in-trade, stock-in-trade was converted into non-agricultural land and sales were made hereafter. The assessee has stated that before obtaining permission for conversion of agricultural land into non-agricultural land, capital asset was converted into stock-in-trade at Jantri value of Rs.2,28,72,600/-. When there is such conversion, assessee is not liable for tax either at the time of conversion or at the time of sale, because, agricultural land is itself converted as stock-in-trade from capital asset. As per provisions of Section 45(2) of the Act when capital asset is converted into stock-in-trade and such stock-in-trade is sold subsequently, assessee is required to compute income i.e. (i) difference between fair value of the asset and original cost is liable for capital gain, and (ii) difference between sale value and FMV on the date of conversion is liable as business income. On this basis assessee has ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans that above land was not converted into stock-in-trade on the date of MoU. The Assessing Officer has referred to various agreements executed by assessee and other co-owners and claimed that all the documents are duly notarized whereas MoU referred by the assessee is not notarized hence there is no sanctity of such document and MoU is an afterthought. On this basis Assessing Officer has rejected assessee s clam for conversion of land into stock-in-trade on 2nd July 2011. The Assessing Officer has also observed that assessee in its written submission has stated that Jantri rate has remained static from 2nd July, 2011 to 15th December, 2014 hence there is no business income. This contention of assessee was rejected by AO on the ground that as per letter dated 8th December, 2014 given by state Competent Authority, Jantri rate is 1950 per sq. mtr. The market value of stock-in-trade is 1,92,46,500 for non-agricultural land being Block No.344 and Rs.11,01,45,800 for land at Block No.345 as against consideration of Rs.1,77,66,000/- and Rs.10,16,73,000/- shown by assessee and other co-owners in their return of income. On this basis Assessing Officer worked out market value of the land at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, the assessee carried the matter in appeal before Ld. CIT(A) who has confirmed the action of the Assessing Officer. 5. Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before us. 6. Learned Counsel for the assessee, pleads that the prime controversy is regarding the point of conversion of rural agriculture land (within the exceptions carved out u/s 2(14) of the Act) into stock-in-trade. Based on the facts of the case and legal position, the issue is whether what was converted in the financial year 2011-12 into stock-in-trade was a rural agriculture land (within the exceptions cared out u/s 2(14) of the Act) and it was already a capital asset as stated by the Assessing Officer. The ld Counsel stated that Agriculture land at Block No.344 at Navi Pardi village was purchased on 12-11-1992 by the assessee s mother Smt. Shantaben Haribhai Gajera. The agriculture land at Block No.345 at Navi Pardi village was purchased on 26.03.1993 by the assessee alongwith his brother. Somewhere in 1990s, the shares were re-aligned within the family and that the assessee was allotted 12707 sq./mts. of agriculture land. For a period of 19 years since its purchase, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. Clause 5 of the MoU: After entering into this MoU, the respective member shall not be in a position to take independent decision of its land. In future, only collective decision will be taken for the land. It is the contention of the assessee that the point when agriculture land is converted into stock-in-trade, no capital gains takes place since neither agriculture land beyond 8 kms nor stock-in-trade comes to fall within the meaning of section 2(14). The value adopted by the assessee for converting the agriculture land into stock-in-trade was the prevalent stamp authority rate which is Rs.1800 per sq.mt. even today. 8. The ld Counsel further stated that intent to do the business changes the character of the property. To demonstrate that the character of the property was changed from agriculture land to stock-in-trade. The above string of events and evidence are sufficient to prove that the assessee converted his agriculture land into stock-in-trade before 11-8-2011 when the land came to be converted into non-agriculture land. 9. About additional ground raised by the assessee, Learned Counsel submitted that such additional ground relates to incorrect determination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegrated Textile Park Limited was Rs.1950/- and not Rs.1,800/- as contended by the assessee, in his submission dated 22.12.2017, as the Addl. Superintendent of Stamps, Gujarat has considered the market value of the lands at the rate of Rs. 1,950/- per sq. mt. Therefore, the conversion of assets into stock-in-trade through affidavit/MoU in the absence of any corresponding accounting entry in the books of account is considered as an afterthought and hence not genuine. In view of the same, the transaction between the assessee (with other persons) and M/s Shanti Integrated Textile Park Limited in respect of non-agricultural lands is considered as sale of capital assets generating capital gains. Hence, long term capital gains on sale of land to M/s Shanti Integrated Textile Park Limited is taxable in the hands of the assessee for the year under consideration. This way, ld DR supported the order passed by the Assessing Officer. 12. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We note that ld CIT(A) has passed very elaborate and speaking order. The findings of ld CIT(A), which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n trade in 02/07/2011 and even such lands are not shown as stock in trade for year 2012, 2013 and so on. The assessee was required to disclose such lands as stock in trade in books of account and in ITR filed by it on year to year basis. Had assessee actually converted land into stock in trade, he would have obtained audit report u/s 44AB of the Act, filed audit report, disclosed sale of land as turnover and remaining land if any as stock in trade and failure to obtain such audited books of account clearly prove that entire theory of conversion of agricultural land as stock in trade is baseless and after thought. Even otherwise, as discussed in preceding paras, claim of assessee for conversion of asset into stock in trade is mere afterthought as no event has happens which can prove that assessee wanted to enter into any business of land dealing. The assessee has not brought any evidences to prove that there is frequent purchase and sell of land in support of his contention that by converting land into stock in trade, he carries out business of land dealing at regular interval. Reliance is also placed on decision of Hon'ble Rajkot ITAT in the case of Shailesh Gangaram Ramani Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sposal of capital asset only, and not a transaction of any stock-in-trade so as to be described as Adventure in nature of trade and therefore, it was liable to be taxed only as capital gain In the present case, assessee was holding the land as agricultural asset, converted land into non-agricultural and sold in year under consideration and gain cannot be held as adventure in nature of trade. Reliance is also placed on following decisions in support of observation made hereinabove that not even has happens which justify conversion of agricultural land into stock in trade and selling of land is required to be taxed as income from capital gain. (i) Deep Chandra Co. vs. CIT (107 ITR 716)[Allahabad] The Hon'ble Court has opined that the question whether profit earned in any transaction had arisen out of adventure in the nature of trade is a mixed question flaw and facts and such a question fall within the realm exclusive facts of each case. The mere fact that the land is purchased with a view to re-selling under favourable conditions does not by itself give rise to a circumstance to hold that the land was purchased with the intention to enter into a trade. The condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttled that, merely because the original purchase was made with the intention to re-sell, if an enhanced price could be obtained, that by itself is not enough to infer that assessee is carrying on business. (iv) Ajitkumar T Patel, ITA No.826/AHD/2010 dated 13/09/2010 11. In the light of detailed foregoing discussion and on consideration of the evidences placed on record as well as in view of the legal propositions laid down by the Hon'ble courts, we hereby hold that the asset in question was not purchased with the object to enter into the trade of land-dealing, because after this transaction or before this transaction there was no evidence of any such activity ever carried out by this assessee. We have also perused the expenses incurred by the assessee and the nature of those expenses are mainly towards payment of legal charges, or prescribed fees for consolidation the plots, or for the conversion of the agricultural land into non-agricultural land. Known fact is that in a land trade, generally the land is parceled out into small plots and thereafter marketed. Such an activity has not been carried by this assessee. Even there was no systematic or repetitive buying or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which can support contention of assessee that intention of holding land as capital assets have charged in FY 2011-12. Even AO has not observed that land was converted into stock in trade on the date of Affidavit but on the contrary, he at para 3.12 has observed that it cannot be assumed that the assessee converted into agricultural land into stock in trade on 02/07/2011 in the circumstances when the sanctity of MoU is questionable Mere selling the land at substantially higher value to Shanti Integrated Textile Park Limited does not prove that assessee has converted land into stock in trade. The assessee has claimed to have entered into MoU and converting agricultural land into stock in trade is arrangement entered into by assessee and other co owners so that no tax is paid to government even though assessee has earned huge income by selling land. As explained by the Supreme Court in Vodafone International Holdings B.B. 341 ITR 1 the question whether a scheme is a colourable or an artificial device would have to be considered in the context of the surrounding facts. The issue whether transaction pertaining to sale of shares of a non-resident holding company which resulted in tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship with one SICCL and SIA -Towards capital contribution in stock of firm, assessee contributed land, valued as per books, at cost of Rs.7.81 crores Assistant Commissioner held that there was transfer of land to partnership firm, thus, worked out capital gain in hands of assessee It was noted that contribution of assessee was 88 per cent of total capital but it was assigned only 5 per cent profit sharing in firm Partnership deed showed that assessee had a little role in partnership business -Business of partnership was to be exclusively carried out by SICCL There was no right to assessee on name and goodwill of firm -Whether value of land contributed by assessee in stock of firm was much higher as against its negligible profit sharing in firm, entire transaction of contribution to partnership was a sham, and an attempt to device a method to avoid capital gain tax on transfer of land to firm Held, yes [Para 86] [In favour of revenue] Reliance is also placed on decision of Hon'ble Delhi ITAT in the case of AO Vs. Shiva Gases [SOT 2] herein it is held as under: Section 28(i) of the Income-tax Act, 1961 Business loss/deductions Allowable as Assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly stated that fair market value of the property is Rs.1,92,46,500 which is exactly the same figure as is considered by AO while computing income from capital gains. Similar is the case for block no 345 wherein assessee has executed sale deed at Rs.10,16,73,000 but letter issued by stamp authority forming part of sale deed and part of paper book page no. 108 states that fair market value of the property is Rs.11,01,45,800 and such value is also considered by AO while computing income from capital gains. Thus, claim of assessee for adopting incorrect JANTRI value by AO is rejected. Thus, entire addition for Rs22,44,28,561/- is upheld and the related grounds of appeal are dismissed. 13. We have gone through the above findings of ld CIT(A) and noted that even circumstantial evidence does not suggest that land has been converted into stock in trade as claimed by assessee. The AO was correct in holding that assessee has not provided any accounting entries passed in the books of account for year 2011-12 wherein above land are classified as stock in trade in 02/07/2011 and even such lands are not shown as stock in trade for years 2012, 2013 and so on. The assessee was required to d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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