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12-04-2019, Challa Ramakrishna Anantapur, Section 45(2), Tribunal Hyderabad

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1 week 1 day ago #9138 by amit
Section - 45(2), 23(5), 263, 2(47)(v)
Order Date - 12-04-2019
Favouring - Assessee
Court - Tribunal Hyderabad
Appellant - Challa Ramakrishna Anantapur
Respondent - ACIT
Justice - P. Madhavi Devi JM & S.Rifaur Rahman AM
Citation - 419Taxpundit173
Appeal No. - ITA No.955/Hyd/2018
Asstt. Year - 2013-14

Order

PER : P. Madhavi Devi

This is assessee’s appeal for the A.Y 2013-14 against the order of the Pr. CIT, Kurnool, dated 20.03.2018.

2. Brief facts of the case are that the assessee, an individual, filed his return of income for the A.Y 2013-14 on 19.03.2014, admitting a total income of Rs.1,50,16,090/-. The case was selected for scrutiny under CASS and accordingly, the AO completed the assessment by bringing to tax, (i) short term capital gain; (ii) long-term capital gains; and (iii) income from other sources and arrived at the total taxable income of Rs.2,26,59,354/-. Aggrieved by the same, the assessee preferred his appeal before the CIT (A).

3. Meanwhile, the Pr. CIT, Kurnool u/s 263 of the I.T. Act, perused the assessment order and observed that the assessee, along with his brother Shri C. Seetharam Babu, had purchased 24,960 sft of converted land (agricultural land converted to non-agricultural land) in survey No.16, situated at Anantapura Village of Bangalore vide Registered Sale Deed Document No.3153/2011-12, dated 07.09.2011 and that he had held it as a capital asset as on 31.03.2012, but converted the same to stock-in-trade in his books of account in the financial year 2012-13, and that in the same financial year, the assessee and his brother entered into a registered joint development agreement vide document No.779/2012-13 dated 16.05.2012 with M/s. Sri Sai Developers, Bangalore. He observed that as per Para 5 of the JDA, the assessee and his brother are entitled to 39% of the undivided share of land; super built up area and car parking area etc., while the Developer was entitled to 61% of the undivided share of land, super bu lt up area and car parking area etc. He observed that the conversion of capital asset into stock-in-trade and entering into JDA is in the same year and therefore, attracts the provisions of section 45(2) of the Act. Therefore, he was of the opinion that the assessee ought to have offered the short term capital gain to tax on conversion of capital asset to stock-in-trade in the relevant A.Y and further that since the assessee’s share value from the JDA has also accrued on account of transfer of 61% of land to the developer, the same should also be brought to tax in the A.Y 2013-14. He also observed that the assessee is in possession of vacant flats received vide the JDA dated 19.08.2011 with M/s. D.M. Builders, which was held as stock-in-trade as on 31.03.2013, but that the assessee has not offered the income from house property from these flats. Therefore, according to the Pr. CIT, the order passed u/s 143(3), dated 31.03.2016 is erroneous in so far as the above issue is concerned and it is also prejudicial to the interest of the Revenue. He, therefore, issued a show-cause notice to the assessee and in reply to the same, the assessee filed its objections as under:

i) That the assessee, along with his brother, has purchased 24,960 sft of converted land and thereafter, entered into a registered joint development agreement
vide document No.779/2012-13 dated 16.05.2012 with M/s. Sri Sai Developers, Bangalore in the previous year relevant to the A.Y 2016-17 and as such, capital gains thereon arose u/s 45(2) in the assessment year 2016- 17. Further, it also submitted that the additions made by the AO are the subject matter of appeal before the CIT (A) regarding the chargeability of the STCG in the A.Y 2013 14 and since the issue is pending for adjudication before the CIT (A), the AO may be directed to submit before the CIT (A) for enhancement of short term capital gain. It is also submitted that since the AO has taken one of the possible views in computing the short term capital gain, the Pr. CIT does not have jurisdiction u/s 263 and in support of the same, the assessee relied upon the judgment of the Hon'ble Andhra Pradesh High Court in the case of CIT vs. Usha Kiran Movies Ltd (2014) 363 ITR 165 (A.P).

ii) Vide JDA with M/s. Sri Sai Developers, the assessee and his brother are having 39% of the rights of the super built up are, car parking etc., and income would arise only at the time of exercising the rights and since the assessee exercises his right in the previous year relevant to the A.Y 2016-17, the same is taxable in the same A.Y.

iii) The assessee is not in possession of vacant flats received vide JDA dated 19.08.2011 The assessee received 24 residential flats, out of which, 22 were sold in the financial year 2012-13, and the remaining flatswere sold in the subsequent years. However, the new provision u/s 23(5) is applicable only w.e.f. 1.4.2018 and therefore, the said income cannot be brought to tax in the A.Y 2013-14

4. The Pr. CIT considered the above objections of the assessee and held that:

i) The provisions of section 45(2) speaks about capital gain arising out of the transfer by way of the conversion of the capital asset into stock-in-trade which shall be chargeable to Income Tax in the previous year in which such stock in trade is sold or otherwise transferred by him. The CIT held that since the assessee has entered into JDA in the same financial year in which the capital asset was converted into stock-in-trade, as the

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