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CA Pratibha Goyal | Sep 19, 2022 | Views 5678

Land cannot be Capital Asset when assessee has not incurred any ‘cost of acquisition’: ITAT

Land cannot be Capital Asset when assessee has not incurred any ‘cost of acquisition’: ITAT

Briefly stated, the relevant material facts are as follows. The assessee before us is an individual and has filed his return of income on 22.11.2011 declaring total income at Rs 62,16,890/-. Subsequently, assessee has filed revised return of income on 22.10.2012 declaring total income at Rs 65,95,420/-. The said return of income was processed under section 143(1) of the Income Tax Act accepting the income returned. In revised return, the assessee has shown the profit from sale of two plots of land amounting to Rs.3,78,533/-. The revised return has not been accepted by the assessing officer, as the original return was filed belatedly. The assessee`s case was selected for scrutiny under CASS and after issuing formal notices u/s 143(2), 142(1) along with questionnaire etc. the Assessing Officer finalized the assessment by passing an assessment order on under section 143(3) of the Act on 30.03.2014. The assessing officer held that assessee has neither sold the land as part of AOP (Association of Persons) nor he has done any business of land trading. Therefore, assessing officer was of the view that it is the capital gain in the hands of the assessee. Besides, assessee has not disclosed this LTCG in the original return of income, hence it is undisclosed capital gain of the assessee. During the assessment proceedings, the assessee submitted its reply dated 17.02.2014 and other submissions. However, assessing officer rejected the contention of the assessee and made two additions under the head Long Term Capital Gain (LTCG) in respect of two properties one at Rs No. 547 Vesu and another property at R S no. 550 at Vesu, as follows:

(i) Undisclosed LTCG on the sale of land at Vesu-547: Rs.39,60,335

(ii) Undisclosed LTCG on the sale of land at Vesu-550: Rs.14,38,98115

Therefore, Assessing Officer made total addition to the tune of Rs.14,78,58,450/- (Rs.39,60,335 + Rs.14,38,98,115).

Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has treated the transaction in land as business income instead of Long Term Capital Gain and allowed the assessee`s appeal partly. Aggrieved, the Revenue is in appeal before us.

Learned Departmental Representative (ld.DR) for the Revenue argues that income derived by the assessee from the sale of these two lands is in the nature of Long Term Capital Gain (LTCG) and not the business income. He pointed out that these properties were shown in the balance sheet as fixed assets instead of ‘stock in trade’ in the return of income filed for previous years. He further pointed out that assessee had deliberately not disclosed the sale of the two lands in the original return of income when the sale was effected before the filing of the return and reflected the same as business profit in the revised return after receiving notice u/s 143(2) to avoid capital gain tax and continuously changed his stand with regard to incidence of tax without providing supporting documentary evidences. Therefore, ld DR prays the Bench that order passed by the assessing officer may be upheld.

On the other hand, Ld. Counsel for the assessee defended the order passed by the Ld. CIT(A).

ITAT Order:

14. We have gone through the above findings of ld CIT(A) and observed that the transactions were done by the assessee and the real investment in the transaction was carried out by Shri. Dharmeshbhai Patel (in short SDP). The assessee and Shri. Dharmeshbhai Patel (SDP) entered into an arrangement wherein, Shri. Dharmeshbhai Patel (SDP) provided the money required to buy such property, physical possession of which, is not possible in the name of assessee. Therefore these properties would be later sold for profit and the profit is shared at ratio of 10:90 after recovering the investment made by Shri. Dharmeshbhai Patel (SDP). We note that no investment is made by the assessee. The assessee has not incurred any ‘cost of acquisition’. Hence, the lands cannot be called as his capital assets. The assessee has only allowed his name to be used in the transactions and has personally involved in the making of these deals. The income earned by the assessee is not an appreciation of his investment, but it is consideration for being part of the arrangement to earn profit from transactions involving lands. The income earned is towards his personal involvement and for time contributed. There is no transfer of capital asset by the assessee. For this reason too the income earned by the assessee cannot be said to be capital gains. It is evident from the bank account, the amounts invested by Shri. Dharmeshbhai Patel (SDP) and 90% the profit made on two transactions is remitted to his account. Shri. Dharmeshbhai Patel (SDP) has disclosed the profit made from these two transactions in his return of income under the head “Business Income” which is accepted u/s 143(3) vide order dated 26.03.2013. Since the 90% of the profit arising from these transactions has already been taxed as “Business Income” by the Department. Principles of uniformity demands that the balance 10% also to be taxed as “Business Income” in the hands of the assessee. Considering these facts, we do not find any infirmity in the order of ld CIT(A). That being so, we decline to interfere with the order of Ld. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.

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