Shri Kanmal Kishanlal HUF, Indore v. The Income Tax Officer, 2(2), Indore

ITA 436/IND/2010 | 2006-2007
Pronouncement Date: 07-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 43622714 RSA 2010
Assessee PAN AAEHK7596F
Bench Indore
Appeal Number ITA 436/IND/2010
Duration Of Justice 1 year(s) 7 month(s) 9 day(s)
Appellant Shri Kanmal Kishanlal HUF, Indore
Respondent The Income Tax Officer, 2(2), Indore
Appeal Type Income Tax Appeal
Pronouncement Date 07-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 07-02-2012
Date Of Final Hearing 24-10-2011
Next Hearing Date 24-10-2011
Assessment Year 2006-2007
Appeal Filed On 28-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH J.M. AND SHRI R.C.SHARM A A.M. PAN NO. : AAEHK7596F I.T.A.NO. 436/IND/2010 A.Y. : 2006 - 07 SHRI KANMAL KISHANMAL HUF 8-B GULMARG COLONY INDORE. VS INCOM E - TAX OFFICER 2(2) INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI MANJEET SACHDEVA ADV. RESPONDENT BY : SHRI ARUN DEWAN SR. DR DATE OF HEARING : 4.01.2012 DATE OF PRONOUNCEMENT : 7 .02.2012 O R D E R PER R. C. SHARMA A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 25.3.2010 FOR THE ASSESSMENT YEAR 2 006-07 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME -TAX ACT 1961. -: 2: - 2 2. FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED BY THE ASSESSEE :- 1. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE VALUATI ON AS ON 1.4.1981 AS COMPUTED BY THE ASSESSING OFFICER OF THE PROPERTY UNDER CONSIDERATION BY NOT ACCEPTING THE VALUATION ADOPTED BY THE APPELLANT AS PER THE VALUER REPORT. 2. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE UNSCIENTIFIC METHOD OF VALUATION ADOPTED BY THE ASSESSING OFFICER. 3. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE BUSINES S INCOME AT RS. 10 43 719/- AS COMPUTED BY THE ASSESSING OFFICER AS AGAINST LOSS OF RS. 44 985/- A S CLAIMED BY THE APPELLANT. 4. THE LD. CIT(A) ERRED IN ACCEPTING THE COMPARISON OF THE PROPERTIES MADE BY THE ASSESSING OFFICER WHICH WERE NOT COMPARABLE. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. -: 3: - 3 4. FACTS OF THE CASE ARE THAT THE ASSESSEE OWNED A RESIDENTIAL HOUSE PROPERTY ADMEASURING 3280 SQ. FT. AT 6 BADA SARAFA INDORE. AN AGREEMENT TO CONSTRUCT THE BUILDING ON THAT PROPERTY WAS ENTERED INTO BY THE APPELLANT WITH M/S KRISHNA BUILDERS INDORE AND A COMMERCIAL COMPLEX W AS BUILT UP THEREON. AS PER THE MEMORANDUM OF UNDERSTANDING THE BUILDER SHALL CONSTRUCT THE BUILDING AND IN VIEW OF COST OF CONSTRUCTION BORN BY THEM THE BUILDER WILL GET 35% OUT OF SALE PRICE OF SHOPS/RESIDENCE AND THE APPELLANT WILL GET 65% TOWARDS CONSIDERATION OF THE SALE VALUE. TOTAL 51 S HOP WERE CONSTRUCTED ON IT OUT OF THESE SHOPS 16 SHOPS WERE SOLD DURING THE YEAR. THE APPELLANT WORKED OUT CAPITAL G AIN ON THE SAME BUT DID NOT SHOW BUSINESS INCOME ON THE SALE O F SHOPS. ON THE BASIS OF MATERIAL AVAILABLE ON RECORD THE AO NOTED THAT CAPITAL GAIN WAS TO BE ARRIVED AT ON THE DATE OF CONVERSION OF LAND IN STOCK IN TRADE AND AFTER THAT ON THE SALE O F SHOPS IT HAD BUSINESS INCOME WHICH WERE NOT SHOWN IN THE RETURN OF INCOME. 5. DURING ASSESSMENT PROCEEDING THE ASSESSEE SUBMITTED THAT IT DECIDE TO CONSTRUCT A RESIDENTIAL CUM -: 4: - 4 COMMERCIAL COMPLEX AT THIS PLOT. BEFORE CONSTRUCTIO N IT DECIDED TO CONVERT THE SAID PROPERTY IN TO STOCK IN TRADE W.E.F. 01-04-2005. THE CONVERSION COST OF THE PROPERTY AS ON 01-04- 2005 WAS TAKEN ON THE BASIS OF GUIDE LINES. THE LON G TERM CAPITAL GAIN THUS AROSE ON THE DATE OF CONVERSION W OULD BE CHARGEABLE AS CAPITAL GAIN U/S 45(2) OF THE ACT. TH E ACQUISITION COST OF THE LAND AS ON 01-04-81 WAS WORKED OUT AS PER SECTION 55(2) OF THE INCOME-TAX ACT BY THE REGISTERED VALUE R AT RS.19 41 033/-. TOTAL CONSTRUCTED AREA OF THE BUILD ING WAS 11718 SQ.FT. 65 % OF THE SAME WAS OF THE ASSESSEE AS PER AGREEMENT. A CHART OF WORKING OF LONG TERM CAPITAL GAIN WAS SUBMITTED BY THE APPELLANT BEFORE THE ASSESSING OF FICER WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER IN PA RA 6 OF HER ORDER. 6. THE ASSESSING OFFICER FOUND THAT THE SUBMISSIONS O F THE ASSESSEE IS NOT ACCEPTABLE AS ON GOING THROUGH THE DETAILS AVAILABLE WITH THE DEPARTMENTAL VALUATION CELL THE PROPERTY SITUATED AT 76 BADA SARAFA INDORE (ADDRESS OF THE ASSESSEE IS 66 BADA SARAFA INDORE ) HAS BEEN VALUED AT RS. 2 80 PER SQ.FT. ON 28.5.82. COMPARATIVE FIGURES PROVIDED BY THE OFFICE OF -: 5: - 5 DEPARTMENTAL VALUATION CELL INDORE (ANNEXURE-A) OF OTHER PROPERTIES SHOWS THAT THE SALE OF RS. 500/- AS GIVE N BY THE VALUER OF THE ASSESSEE WAS NOT IN EXISTENCE IN ANY COMMERCIAL AREA OF INDORE AT THAT TIME . 7. THE ASSESSING OFFICER HAS TAKEN THE FAIR MARKET VAL UE OF THE SAID PROPERTY 66 BADA SARAFA INDORE IS WO RKED OUT BY ADOPTING RATE OF LAND OF RS. 170.30 PER SQ.FT. BEIN G AVERAGE RATE OF SALE INSTANCES (280+60.60). FAIR MARKET VAL UE OF LAND THUS WORKS OUT TO RS. 5 58 584. LONG TERM CAPITAL G AIN ON THIS PROPERTY IS COMPUTED AS UNDER :- FAIR MARKET V ALUE OF LAND AS ON 1.4.81 32000 X 170.30 =5 58 584+2 71 033 8 29 617 - VALUE AS GIVEN BY ASSESSEE S VALUER 10 70 000 + 2 71 033 19 41 033 - FIR MARKET VALUE OF LAND ON THE DATE OF CONVERSION 1 21 36 000 - - INDEX COST = 8 29 617X497/100 41 23 196 - LONG TERM CAPITAL GAIN 80 12 804 HENCE THE AMOUNT OF LONG TERM CAPITAL GAIN WILL BE TAKEN AT RS. 80 12 804/- AS DISCUSSED ABOVE AND WILL BE A DDED TO THE TOTAL INCOME OF THE ASSESSEE. -: 6: - 6 8. THE ASSESSING OFFICER ALSO OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS F ILED DETAILS OF SALE VALUE AT RS. 30 65 595 AS WELL AS C OST OF SHOPS AT RS. 1 21 36 000/- AND CLOSING STOCK AMOUNTING TO RS. 98 25 421/-. IN VIEW OF THE ABOVE DISCUSSION IT IS CLEAR THAT THE ASSESSEE HAS BUSINESS INCOME (65%) OUT OF SALE PROC EEDS OF SHOPS OF BADA SARAFA INDORE THEREFORE BUSINESS I NCOME WILL BE TAKEN AS UNDER :- SALE VALUE OF THE SHOPS 30 65 595 ADD : CLOSING STOCK 58 66 524 89 32 119 LESS: FAIR MARKET VALUE 78 88 400 10 43 719 HENCE THE BUSINESS INCOME WILL BE TAKEN AT RS. 10 43 719 AS DISCUSSED ABOVE AND WILL BE ADDED TO T HE TOTAL INCOME OF THE ASSESSEE. 9. BY THE IMPUGNED ORDER THE LD. CIT(A) CONFIRMED TH E ADDITION MADE BY THE ASSESSING OFFICER AND THE ASSE SSEE IS IN FURTHER APPEAL BEFORE US. -: 7: - 7 10. IT WAS CONTENDED BY THE LD. AUTHORIZED REPRESENTAT IVE THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN COM PUTING THE LONG TERM CAPITAL GAIN BY TAKING THE FAIR MARKET VA LUE OF THE PROPERTY. HE FURTHER SUBMITTED THAT THE ASSESSING O FFICER INSTEAD OF REFERRING TO THE DEPARTMENTAL VALUER HIM SELF REJECTED THE VALUATION REPORT OF A GOVT. APPROVED V ALUER AND REPLACED SUCH VALUE WITH HIS OWN VALUATION ARRIVED BY THE ASSESSING OFFICER IN AN UNSCIENTIFIC MANNER AND TOO K THE AVERAGE RATE AS PER PAGE NO.6 PARA 3 OF THE ASSESSM ENT ORDER FOR VALUATION. THE ASSESSING OFFICER CALCULATED THE AVERAGE RATE OF RS.170.30 BY THE AVERAGE OF RS.280 OF THE P ROPERTY SITUATED AT BADA SARAFA AND RS.60.60 OF ANOTHER PRO PERTY SITUATED AT BADA SARAFA. WHILE IT NOT PRACTICAL THA T THE RATES OF THE PROPERTY ARE DETERMINED BY THE TAKING THE AV ERAGE OF THE OTHER PROPERTIES SITUATED IN THE SAME AREA. 11. HE FURTHER DREW OUR ATTENTION TO THE FACT THAT THE ASSESSING OFFICER HAS MENTIONED RATE OF RS. 280/- P ER SQ.FT. OF ONE OF THE PROPERTY SITUATED AT 76 BADA SARAFA AND RS.60.60 PER SQ. FT. OF THE OTHER PROPERTY SITUATED AT BADA SARAFA THAT IS WHEN THERE IS SUCH HIGH VARIATION IN THE VALUE -: 8: - 8 PROPERTY SITUATED IN THE SAME AREA THEN WHY IT IS N OT POSSIBLE THAT THE VALUE OF THE PROPERTY ON QUESTION OF THE A SSESSEE CAN BE RS.500/- SQ. FT ESPECIALLY WHEN THERE IS SUCH H IGH VARIATION IN THE VALUE OF THE PROPERTY SITUATED IN THE SAME AREA. 12. HE FURTHER SUBMITTED THAT THE LEARNED ASSESSING OFFICER ERRED IN ADOPTING THE RATE OF LAND AT RS.170.30 SQ. FT. WHILE THE DETAILS CALLED FROM THE DEPARTMENTAL VALUATION CELL BY THE LEARNED ASSESSING OFFICER ITSELF SHOWED THAT THE RATE OF PR OPERTY AT 76 BADA SARAFA IS VALUED AT RS.280 PER SQUARE FEET AS MENTI ONED AT PAGE NO 5 OF THE ORDER. WITHOUT ACCEPTING THE RATE AS PROVIDE D BY THE DEPARTMENTAL VALUATION CELL IT IS SUBMITTED THAT TH E LEARNED ASSESSING OFFICER SHOULD HAVE ADOPTED THE RATE AS G IVEN BY THE DEPARTMENTAL VALUATION CELL INSTEAD OF ADOPTING THE VALUATION OF THE LAND JUST ON ITS OWN PRIVATE ESTIMATES. 13. WITH REGARD TO THE BUSINESS INCOME COMPUTED BY THE ASSESSING OFFICER THE CONTENTION OF THE LD. AUTHOR IZED REPRESENTATIVE WAS THAT THE PROPERTY AT 66 BADA SARAFA WAS -: 9: - 9 AN ANCESTRAL PROPERTY AND WAS USED FOR THE SELF RES IDENCE OF THE MEMBERS OF THE FAMILY SINCE ITS ACQUISITION. LA TER ON THE SAID PROPERTY WAS LAID ON RENT. 14. THE ASSESSEE USED THE SAID PROPERTY MAINLY FOR THE SELF RESIDENCE OF THE MEMBERS OF THE FAMILY AND SIN CE THE AREA GOT CONGESTED AND BECAME NOT SUITABLE FOR THE SELF RESIDENCE THE ASSESSEE DECIDED TO SALE THE PROPERTY THAT THE RENTAL INCOME DERIVED FROM THE PROPERTY WAS OFFERED BY THE ASSESSEE AS INCOME FROM HOUSE PROPERTY AND WAS BEIN G ASSESSED AS SUCH BY THE DEPARTMENT SINCE MANY YEARS . THAT AFTER CONVERSION OF THE SAID PROPERTY INTO STOCK IN TRADE WITH EFFECT FROM 01.04.2005 THE INCOME FROM THE SAID PR OPERTY IS TAXABLE AS CAPITAL GAIN UPTO THE DATE IT WAS HELD A S CAPITAL ASSETS AND BUSINESS INCOME AFTER THE DATE OF CONVER SION. 15. AS PER LD. AUTHORIZED REPRESENTATIVE THE LD. ASSESSING OFFICER FAILED TO APPRECIATE THE BUSINESS LOSS OF RS. 44 984/- AS CALCULATED ABOVE BY THE ASSESSEE AN D ERRED IN CALCULATING THE BUSINESS PROFIT OF RS. 10 43 719 /-.THE LEARNED ASSESSING OFFICER AFTER ACCEPTING THE SALES PROCEED -: 10: - 10 OF RS.30 65 595/- AND FAIR MARKET VALUE OF THE PROP ERTY AS ON 01.04.2005 THE DATE OF CONVERSION OF RS. 1 21 36 000/- ERRED IN CALCULATING THE BUSINESS INCOME AT RS. 10 43 719/- .THE LEARNED ASSESSING OFFICER WHILE CALCULATING TH E BUSINESS INCOME ERRED IN TAKING 65% OF THE FAIR MAR KET VALUE OF THE PROPERTY AS ON 01.04.2005 WHICH COMES TO RS.78 88 400/-(65% OF RS.L 21 36 000/-) AND ALSO ER RED IN TAKING CLOSING STOCK AT 65% WHICH COMES TO RS.58 66 524/- (65% OF RS. 90 25 421/-). THE SHARE OF BUILDER WAS 35% AS PER CLAUSE NO.2 & 3 OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE BUILDER AND IT WAS IN THE SALES PROCEEDS AND NOT IN THE VALUE OF THE L AND. THE 35% SHARE OF THE BUILDER IN SALE PROCEED WAS BECAUS E OF THE FACT THAT ALL THE COST OF CONSTRUCTION WAS TO BE BO RNE BY THE BUILDER. THUS THE LEARNED ASSESSING OFFICER ERRED IN TAKING THE 65% OF THE FAIR MARKET VALUE AND CLOSING STOCK ON THE P ART OF THE ASSESSEE AND CALCULATED THE BUSINESS INCOME WHICH I S NOT BASED ON THE FACTS OF THE CASE. 16. ON THE OTHER HAND THE LD. SENIOR DR RELIED ON THE -: 11: - 11 ORDERS OF THE AUTHORITIES BELOW AND CONTENDED THAT THE ASSESSING OFFICER HAS MADE ADDITION AFTER DISCUSSIN G THE ISSUE IN GREAT DETAIL WITH THE ASSESSEE AND THE AD DITION SO MADE WAS AS PER LAW. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW AND FOUND FROM RECORD THAT DURING THE YEAR THE ASSESSE E HAD NOT ONLY CONVERTED ITS CAPITAL ASSETS INTO STOCK IN TRADE BUT ALSO CONSTRUCTED AND SOLD SOME OF THE SHOPS. THE ASSESSING OFFICER HAS COMPUTED CAPITAL GAINS ON THE DATE OF CONVERSION OF CAPITAL ASSETS INTO STOCK IN TRADE . HOWEVER WHILE TAKING THE FAIR MARKET VALUE AS ON 1 ST APRIL 1981 THE ASSESSING OFFICER WITHOUT GIVING ANY REAS ON REJECTED THE REGISTERED VALUERS REPORT FOR PLEA FO R TAKING FAIR MARKET VALUE AT RS. 500/- PER SQ.FT. HE HAS AL SO NOT MADE ANY REFERENCE TO THE DVO FOR ASCERTAINING THE FAIR MARKET VALUE. THE ASSESSING OFFICER HAS REFERRED TO VARIOUS RATES IN RESPECT OF PROPERTY SITUATED IN NE ARBY AREA AS DETERMINED BY THE REGISTERING AUTHORITY FOR STAM P DUTY PURPOSES WHICH INDICATED THE RATE OF RS. 280/- IN RESPECT -: 12: - 12 OF PROPERTY SITUATED AT 70 BADA SARAFA. HOWEVER T HE ASSESSING OFFICER HAS TAKEN THE VALUATION AT RS. 25 0/- IN RESPECT OF THE PROPERTY WHICH WAS SITUATED AT 17 SITLAMATA BAZAR. SINCE THE PROPERTY WAS SITUATED IN BADA SARAFA IT WILL BE APPROPRIATE TO TAKE RATE OF PROPERTY SITUATED AT BADA SARAFA WHICH IS RS. 280/- PER SQ. FT. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO REC OMPUTE THE LONG TERM CAPITAL GAIN BY TAKING THE FAIR MARKE T VALUE OF PROPERTY AT RS. 280/- AS ON 1 ST APRIL 1981 IN PLACE OF RS. 250/- TAKEN BY HIM. IN TERMS OF PROVISIONS OF S ECTION 45(2) CAPITAL GAINS IS LIABLE TO TAX AS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK IN TRADE IS SOLD AND TRANSFERRED BY ASSESSEE. WE DIRECT ACCORDINGLY. 18. IN RESPECT OF CALCULATION OF BUSINESS INCOME WE FOUND THAT ASSESSING OFFICER HAS DULY TAKEN INTO AC COUNT THE SALE VALUE OF THE SHOPS DURING THE YEAR CLOSIN G STOCK AND THE FAIR MARKET VALUE. THUS BUSINESS INCOME OF RS. 10 43 719/- AS ARRIVED BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD.CIT(A) APPEARS TO BE CORRECT AN D DOES NOT REQUIRE ANY INTERFERENCE ON OUR PART. -: 13: - 13 19. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWE D IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 7 TH FEBRUARY 2012. (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 7 TH FEBRUARY 2012. CPU* 1.7