M/s Sai Aravind Builders Pvt. Ltd., Visakhapatnam v. The ACIT, Circle-4(1), Visakhapatnam

ITA 1/VIZ/2010 | 2005-2006
Pronouncement Date: 02-12-2010 | Result: Dismissed

Appeal Details

RSA Number 125314 RSA 2010
Bench Visakhapatnam
Appeal Number ITA 1/VIZ/2010
Duration Of Justice 11 month(s) 1 day(s)
Appellant M/s Sai Aravind Builders Pvt. Ltd., Visakhapatnam
Respondent The ACIT, Circle-4(1), Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 02-12-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 02-12-2010
Date Of Final Hearing 04-10-2010
Next Hearing Date 04-10-2010
Assessment Year 2005-2006
Appeal Filed On 01-01-2010
Judgment Text
ITA 1/VIZ/09 M/S. SAI ARAVIND BUILDERS PVT LTD VSKP IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 1/ VIZAG/ 20 1 0 ASSESSMENT YEAR : 2005 - 06 SAI ARVIND BUILDERS PVT. LTD VISAKHAPATNAM ACIT CIRCLE - 4(1) VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO.AAGCS 3645A APPELLANT BY: SHRI C. SUBRAHMANYAM CA RESPONDENT BY: SHRI D.S. SUNDER SINGH DR ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER : - THIS APPEAL I S PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) ON VARIOUS GROUNDS. DURING THE COURSE OF HEARING THE ASSESSEE OPTED NOT TO PRESS GROUND NO.1. REST OF THE GROUNDS RELATE TO AN ISSUE WHETHER THE PROFIT SOLD ON SALE OF LAND IS TO BE ASSESSED UN DER THE HEAD `CAPITAL GAINS OR AS A BUSINESS PROFIT. 2. THE FACTS BORNE OUT IN THIS REGARD ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS IN THE BUSINESS OF CONSTRUCTION AND SALE OF FLATS. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING INCOM E AT RS.5 55 610/ - . THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT AND THERE AFTER ASSESSMENT WAS REOPENED U/S 147 OF THE ACT AND ASSESSMENT WAS COMPLETED BY MAKING AN ADDITION OF RS.20 16 472/ - . THE ADDITION AROSE ON ACCOUNT OF DIFFERENCE IN T REATMENT OF SALE OF VACANT LAND. ACCORDING TO THE ASSESSEE THE GAIN ON SALE OF LAND IS LIABLE FOR CAPITAL GAIN TAX WHEREAS ACCORDING TO THE A.O. THE SALE OF LAND RESULTS IN BUSINESS PROFIT. 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT THE ASSESSEE HAS PURCHASED VACANT LAND DURING THE YEAR 1995 - 96 FOR A CONSIDERATION OF RS.22 33 528/ - AS BUSINESS INVESTMENT. THIS LAND WAS SOLD FOR A CONSIDERATION OF RS.45 LAKHS DURING THE IMPUGNED ASSESSMENT YEAR. ON BEHALF OF THE ASSE SSEE IT WAS CONTENDED THAT ASSET WAS ITA 1/VIZ/09 M/S. SAI ARAVIND BUILDERS PVT LTD VSKP 2 PURCHASED FOR INVESTMENT PURPOSE ALMOST ABOUT MORE THAN 10 YEARS BACK. THE ASSESSEE HAD NO INTENTION TO CONSTRUCT THE FLAT ON THIS LAND. WHEREAS THE SAID ASSET HAS BEEN TREATED AS BUSINESS ASSET BEING PURCHASED FOR THE PURPOSE OF CONSTRUCTION OF FLATS AND TO EARN BUSINESS PROFIT BY THE A.O. 4 . IT WAS FURTHER CONTENDED BEFORE THE CIT(A) THAT THE A.O. HAS TAKEN AN ADVERSE VIEW IN THE MATTER FOR THE REASON THAT ABOVE SAID LAND IS APPEARING UNDER THE HEAD `CURRENT ASS ET THEREFORE IT WAS HELD THAT PROFIT ON SALE OF THE SAID PLOT RESULTED IN THE BUSINESS PROFIT. WHEREAS THE ENTRIES IN THE BOOKS OF THE ACCOUNTS OR THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IS NOT DECISIVE OF THE REAL NATURE OF THE TRANSACTION AND HE PLACED A RELIANCE UPON THE VARIOUS JUDGEMENTS OF TH E SUPREME COURT AND HIGH COURTS. 5 . THE CIT(A) RE - EXAMINED THE ISSUE IN THE LIGHT OF ASSESSEES CONTENTION BUT WAS NOT CONVINCED WITH IT AND HE CONFIRMED THE ADDITIONS MADE BY THE A.O. AFTER HAVING OB SERVED THAT NO DOUBT THE ENTRIES IN THE BOOKS OF ACCOUNT DOES NOT DETERMINE THE ASSESSABILITY OF THE INCOME UNDER THE HEAD. H E WAS NOT INCLINED TO ACCEPT THE ARGUMENTS OF THE ASSESSEE FOR THE REASONS THAT OVER ALL FACTS ARE TO BE TAKEN INTO ACCOUNT. IF THE ASSESSEES CONTENTIONS ARE ACCEPTED THEN EVERY CONSTRUCTION COMPANY WHO DOES NOT CARRY OUT ANY CONSTRUCTION ACTIVITY ON THE LAND PURCHASED AND SOLD THE INCOME EARNED THERE FROM WOULD ONLY BE TREATED AS CAPITAL GAIN AND NOT AS A BUSINESS PROFIT. 6 . TH E RELEVANT OBSERVATION OF THE CIT(A) ARE EXTRACTED HEREUNDER: I HAVE GONE THROUGH THE CONTENTION OF THE APPELLANT AS WELL AS THAT OF THE A.O. IN THE INSTANT CASE UNDER CONSIDERATION THE APPELLANT HAS CLAIMED THAT INCOME DERIVED FROM SALE OF LAND SHOU LD BE TREATED AS `CAPITAL GAIN BY VIRTUE OF THE FACT THAT THE ASSET WAS PURCHASED FOR INVESTMENT PURPOSE ALMOST TEN YEARS AGO AND THE APPELLANT HAD NO INTENTION TO CONSTRUCT FLATS ON SUCH LAND. THE SAID ASSET HAS BEEN SHOWN AS BUSINESS ASSET I.E. STOCK IN TRADE. IT IS AN ADMITTED FACT THAT THE APPELLANT IS IN THE BUSINESS OF DEVELOPMENT AND CONSTRUCTION. IT IS TRUE THAT THE BUSINESS NORMALLY INCLUDE THE REGULAR ACTIVITIES CARRIED OUT TO EARN PROFITS BUT IT IS EQUALLY WELL SETTLED THAT EVEN AN ISOLATED TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT CAN ALSO BE REGARDED AS ADVENTURE IN THE NATURE OF TRADE LIABLE TO BE TAXED AS `BUSINESS PROFIT. IN THE INSTANT CASE LOOKING INTO THE FACTS IT IS CLEAR THAT THE SAID PLOT WAS ITA 1/VIZ/09 M/S. SAI ARAVIND BUILDERS PVT LTD VSKP 3 PURCHASED IN A REGULAR CO URSE OF BUSINESS AND WITH THE INTENTION TO CONSTRUCT FLATS AND TO EARN PROFIT. IT WILL NOT BE OUT OF PLACE TO MENTION HERE THAT THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND BUYING PLOTS IS THE REGULAR BUSINESS ACTIVITY OF THE APPEL LANT COMPANY. ONLY FOR THE REASON THAT THE LAND WAS PURCHASED TEN YEARS AGO AND NO CONSTRUCTION ACTIVITY WAS CARRIED OUT ON SUCH LAND DOES NOT ENTITLE THE APPELLANT TO CLAIM THE INCOME EARNED ON SALE OF SUCH PLOT AS `CAPITAL GAIN PARTICULARLY FOR THE RE ASON THAT THE SAID PLOT OF LAND HAS BEEN SHOWN AS `CURRENT ASSET I.E. STOCK IN TRADE WHICH MAKES THE INTENTION CLEAR THAT THE LAND WAS PURCHASED AND KEPT AS STOCK IN TRADE FOR THE PURPOSE OF CONSTRUCTION ONLY. THE SOLE OBJECTIVE WAS TO KEEP SUCH ASSET A S STOCK IN TRADE WITH THE INTENTION TO DEVELOP AND TO SELL THE SAME TO EARN PROFIT. THEREFORE BUYING THE PLOT WAS PART OF THE BUSINESS STRATEGY. THE CURRENT ASSET WAS SHOWN AS STOCK IN TRADE CLEARLY INDICATE THAT THE APPELLANT COMPANY HAD PURCHASED THE LAND AS A BUSINESS VENTURE AS OTHERWISE THERE WAS NO NEED FOR KEEPING THE PLOT OF LAND AS `STOCK IN TRADE`. FOR A COMPANY WHO IS ENGAGED IN THE BUSINESS OF CONSTRUCTION THE PERIOD OF RETENTION OF THE PLOT AND NON CONSTRUCTION OF THE BUILDING ON SUCH PLOT IS NOT THE DETERMINING FACTOR FOR TREATING THE INCOME AS CAPITAL GAIN. IF THE APPELLANTS CONTENTION IS ACCEPTED THEN EVERY CONSTRUCTION COMPANY WHO DOES NOT CARRY OUT ANY CONSTRUCTION ACTIVITY ON THE LAND PURCHASED AND SOLD THE INCOME EARNED THERE FRO M WOULD ONLY BE TREATED AS `CAPITAL GAINS` AND NOT AS `BUSINESS PROFIT`. NO DOUBT THAT ENTRIES IN THE BOOKS DOES NOT DETERMINE THE ASSESSIBILITY OF INCOME UNDER THE ACT BUT CONSIDERING THE OVERALL FACTS OF THE CASE AND KEEPING IN VIEW THE NATURE OF BUSIN ESS WHICH IS CONSTRUCTION I AM NOT INCLINED TO ACCEPT THE ARGUMENT OF THE APPELLANT COMPANY THAT MERELY FOR THE REASON THE SAID PLOT WAS PURCHASED TEN YEARS AGO AND NO CONSTRUCTION ACTIVITY WAS CARRIED OUT THE INCOME EARNED FROM SUCH SALE OF THE SAID PLO T CAN ONLY BE TREATED AS `CAPITAL GAIN` AND AS SUCH A.OS ACTION IN TREATING THE INCOME AS BUSINESS INCOME IS CONFIRMED. 7 . NOW THE ASSESSEE IS BEFORE US AND REITERATED ITS CONTENTIONS. IT WAS ALSO CONTENDED ON BEHALF OF THE ASSESSEE THAT HE WAS NOT EN GAGED IN THE BUSINESS OF SALE AND PURCHASE OF LAND . H E WAS INVOLVED IN CONSTRUCTION AND SALE OF FLATS. THEREFORE THE PLOT WAS PURCHASED WITH THE INTENTION OF INVESTMENT AND NOT TO KEEP THE PLOT AS A STOCK IN TRADE. THEREFORE THE GAIN EARNED ON SALE OF THE PLOT IS TO BE ASSESSED UNDER THE HEAD `CAPITAL GAIN . THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO PLACED A RELIANCE UPON THE FOLLOWING JUDGEMENTS: ANKITA DEPOSITS AND ADVANCES PVT. LTD. VS. CIT 6 TAXMANN.COM 83 (HP) ITA 1/VIZ/09 M/S. SAI ARAVIND BUILDERS PVT LTD VSKP 4 8 . THE LD. D.R. ON THE OTHER HA ND HAS SUBMITTED THAT IN ORDER TO DETERMINE THE NATURE OF TRANSACTION THE INTENTION OF THE ASSESSEE AT THE TIME OF INVESTMENT IS TO BE SEEN. IT HAS BEEN REPEATEDLY HELD BY THE APEX COURT AND THE VARIOUS HIGH COURTS THAT THE INTENTION OF THE ASSESSEES CAN BE GATHERED FROM THE CIRCUMSTANCES UNDER WHICH THE ASSET WAS PURCHASED. EVEN A SINGLE TRANSACTION IS SUFFICIENT TO DECIDE THE NATURE OF INVESTMENT. IN THE INSTANT CASE ASSESSEE IS ADMITTEDLY INVOLVED IN CONSTRUCTION BUSINESS AND THIS TYPE OF BUSINESS LA ND IS ONE OF THE BUSINESS ASSET TO BE KEPT IN STOCK IN TRADE. UNDISPUTEDLY THE ASSESSEE HAS PURCHASED THE LAND ABOUT 10 YEARS BACK BUT IT WAS ALWAYS KEPT IN THE STOCK IN TRADE TILL IT IS SOLD. HAD IT BEEN THE INTENTION OF THE ASSESSEE TO TREAT THE PLOT O F LAND AS AN INVESTMENT IT COULD HAVE BEEN PLACED UNDER THE HEAD `CAPITAL ASSET OF THE COMPANY. BUT IT WAS ALWAYS KEPT AS A STOCK IN TRADE. THEREFORE THE REVENUE HAS RIGHTLY TREATED THE PROFIT EARNED ON SALE OF THE LAND AS A BUSINESS PROFIT. THE LD. D .R. FURTHER CONTENDED THAT IF THE ASSESSEE HAD AN INTENTION TO TRANSFER ITS ASSET FROM A STOCK IN TRADE TO THE CAPITAL ASSET IT SHOULD HAVE BEEN DONE BEFORE THE SALE OF THE PLOT OF LAND . THEREAFTER THE ASSESSEE CAN CLAIM THIS PLOT TO BE THE PART OF A CAP ITAL ASSET . BUT THIS WAS NOT DONE INTENTIONALLY BY THE ASSESSEE. THEREFORE THE IMPUGNED TRANSACTION IS PURELY COMMERCIAL TRANSACTION AND THE PROFIT EARNED ON THE SALE OF PLOT WAS RIGHTLY ASSESSED TO BE THE BUSINESS PROFIT BY THE REVENUE. 9 . HAVING HE ARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE RECORD WE FIND THAT SINCE DAY ONE WHEN THE PLOT WAS PURCHASED IT WAS KEPT UNDER THE HEAD `STOCK IN TRADE. THOUGH THE ASSESSEE CLAIMED THAT HE WAS NOT ENGAGED IN SALE/PURCHASE OF LAND THAT IS W HY THE PLOT SHOULD BE TREATED AS A PART OF THE CAPITAL ASSET BUT WE ARE UNABLE TO UNDERSTAND IF THAT BE THE CASE WHY THE ASSESSEE HAS KEPT THIS LAND AS A PART OF A STOCK IN TRADE. WE FIND FORCE IN THE CONTENTION OF THE REVENUE THAT IF THE ASSESSEE REALLY INTENDED TO KEEP THIS PLOT AS A CAPITAL ASSET HE COULD HAVE MADE THE PROPER ENTRIES AT THE RELEVANT POINT OF TIME WHEN HE REALIZED HIS MISTAKE . THERE AFTER THE GAIN EARNED ON THE SALE OF THIS PLOT CAN BE CONSIDERED TO BE A CAPITAL GAIN. WE HAVE CAREFULL Y EXAMINED THE JUDGEMENT REFERRED TO BY THE ASSESSEES BUT THEY ALL ARE DISTINGUISHABLE ON THE FACTS. IT HAS BEEN REPEATEDLY HELD BY THE APEX ITA 1/VIZ/09 M/S. SAI ARAVIND BUILDERS PVT LTD VSKP 5 COURT AND VARIOUS HIGH COURTS THROUGH THE JUDICIAL PRONOUNCEMENTS THAT THE INTENTION OF THE ASSESSEE AT THE TIME O F INVESTMENT IN THE IN THE ASSET IS A DECISIVE FACTOR TO DECIDE THE NATURE OF TRANSACTION AND THE INTENTION OF ASSESSEE CAN ONLY BE GATHERED FROM THE SURROUNDING CIRCUMSTANCES AND THE ACTS AND DEEDS OF THE ASSESSEES. IN THE INSTANT CASE THOUGH THE PLOT WA S PURCHASED 10 YEARS BACK BUT IT WAS KEPT TILL THE DATE OF SALE AS A PART OF THE STOCK IN TRADE. IF THE ASSET WAS INTENTIONALLY TREATED BY THE ASSESSEE AS A PART OF THE STOCK IN TRADE HOW HE CAN BE ALLOWED TO TREAT THE SAME ASSET AS A PART OF THE CAPITAL ASSET AT THE TIME OF SALE OF THE PLOT OF LAND. WE ALSO AGREE WITH THIS OBSERVATION OF THE CIT(A) THAT IF THE ASSESSEES CONTENTIONS ARE ACCEPTED E VERY CONSTRUCTION COMPANY WHO DOES NOT CARRY OUT ANY CONSTRUCTION ACTIVITY ON THE LAND PURCHASE D AND S OLD THE INCOME EARNED THERE - FROM WOULD ONLY BE TREATED AS ` CAPITAL GAINS AND NOT AS A BUSINESS PROFIT. SINCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) WE CONFIRM THE SAME. 10 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISMISSED. PRONOUNCE D IN THE OPEN COURT ON 2.12 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 2 ND DECEMBER 20 10 COPY TO 1 ACIT VISAKHAPATNAM 2 M/S . SAI ARAVIND BUILDERS PVT. LTD. C/O SRI C. SUBRAHMANYAM CHARTERED ACCOUNTANT 102 LAKSHMI APARTMENTS FACOR LAYOUT WALTAIR UPLANDS VISAKHAPATNAM - 530 003. 3 THE CIT VISAKHAPATNAM 4 THE CIT(A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM