C I T, Ajmer Income Tax Department, Ajmer v. M/S. Aditya Mills Ltd., Madanganj, Kishangarh, District Ajmer

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR 1. D.B. Income Tax Appeal No. 935 / 2008 C I T, Ajmer Income Tax Department, Ajmer. ----Appellant Versus M/s. Aditya Mills Ltd., Madanganj, Kishangarh, District Ajmer. ----Respondent Connected With 2. D.B. Income Tax Appeal No. 936 / 2008 C I T, Ajmer Income Tax Department, Ajmer. ----Appellant Versus M/s. Aditya Mills Ltd., Madanganj, Kishangarh, District Ajmer. ----Respondent 3. D.B. Income Tax Appeal No. 270 / 2009 C I T, Ajmer Income Tax Department, Ajmer. ----Appellant Versus M/s. Aditya Mills Ltd., Madanganj, Kishangarh, District Ajmer. ----Respondent 4.D.B. Income Tax Appeal No. 271 / 2009 C I T, Ajmer Income Tax Department, Ajmer. ----Appellant Versus M/s. Aditya Mills Ltd., Madanganj, Kishangarh, District Ajmer. ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain with Ms. Shiva GoyalFor Respondent(s) : Mr. P.K. Kasliwal with Mr. Priyesh Kasliwal _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGHJudgment 26/08/2017 1.In all these appeals, common question of law and facts areinvolved hence they are decided by this common judgment. 2.By way of these appeals, the appellant has assailed thejudgment and order of the Tribunal whereby Tribunal has allowedthe appeal of the assessee. 3.This court while admitting the appeals framed followingsubstantial question of law:- 3.1Appeal No.935/2008 admitted on 6.1.2009 “i. Whether on the facts and in thecircumstances of the case the tribunal wasjustified in deleting the addition ofRs.5,18,628/- which was even upheld by theCIT(A), made by the Assessing Officer on theground of difference in valuation of the landby relying upon the valuation done byValuation Officer? ii. Whether the Tribunal was justified inignoring the valuation made by the ValuationOfficer under Section 55A of the Act, simplyby relying upon its own order passed forassessment year 2002-2003 and resultantlydeleting the addition of Rs.5,18,628/-.” 3.2Appeal No.936/2008 admitted on 6.1.2009 “i. Whether on the facts and in thecircumstances of the case the tribunal wasjustified in deleting the addition ofRs.97,60,528/- which was even upheld bythe CIT(A), made by the Assessing Officer onthe ground of difference in valuation of theland by relying upon the valuation done byValuation Officer? ii. Whether the Tribunal was justified inignoring the valuation made by the ValuationOfficer under Section 55A of the Act, simplyby relying upon its own order passed forassessment year 2002-2003 and resultantlydeleting the addition of Rs.97,60,528/-.” 3.3Appeal No.270/2009 admitted on 8.4.2009 “Whether on the facts and circumstances ofthe case the Tribunal was justified in deletingthe addition of Rs.2,33,32,430/-, made onaccount of difference in valuation of land,without discussing the facts by simplyreferring to its order passed for assessmentyear 2002-03, ignoring the fact that for theassessment year 2002-03 the provisions ofSection 50C were not applicable, whereas forthe assessment year 2005-06 the provisionsof Section 50C were duly applicable?” 3.4Appeal No.271/2009 admitted on 13.4.2009 “Whether on the facts and in thecircumstances of the case the Tribunal wasjustified in deleting the addition ofRs.37,34,584/-, made on account ofdifference in valuation of land, withoutdiscussing the facts by simply referring to itsorder passed for assessment year 2002-03,ignoring the fact that for the assessment year2002-03 the provisions of Section 50C werenot applicable, whereas for the assessmentyear 2006-07 the provisions of Section 50Cwere duly applicable?” 3.4Appeal No.271/2009 admitted on 13.4.2009 “Whether on the facts and in thecircumstances of the case the Tribunal wasjustified in deleting the addition ofRs.37,34,584/-, made on account ofdifference in valuation of land, withoutdiscussing the facts by simply referring to itsorder passed for assessment year 2002-03,ignoring the fact that for the assessment year2002-03 the provisions of Section 50C werenot applicable, whereas for the assessmentyear 2006-07 the provisions of Section 50Cwere duly applicable?” 4.Counsel for the appellant contended that earlier decisionwhich was sought to be relied upon by the tribunal in ITANo.36/JP/2006 decided on 13.7.2007, the tribunal held as under:- “5. With the bare reading of Provisions ofSection 50C and Section 2(14) of the Act, It isevident that Section 50C is applicable on thetransfer a capital asset computed under thehead capital gains. The plots sold by theassessee are essentially the part of stock intrade and is a sale in the normal course ofbusiness. Therefore, the Section 50C of theAct cannot be made applicable on the sale ofstock in trade in the normal course of businessand the AO is not justified in referring thematter to the DVO u/s 50C of the Act underthe head computation of income from capitalgains. The AO has not disputed the capitalgain as declared by the assessee u/s 45(2) ofthe Act. Therefore, the additions made by theAO on account of the sale of plots is notjustified and the same is directed to bedeleted. The observation of the ld. CIT(A) thatSection 142A empowers the AO to make thereference to DVO is against the Provisions ofSection 142A of the Act, which for the sake ofconvenience is reproduced as under:- "142A(1) For the purpose of making anassessment or reassessment under this Act,where an estimate of the value of anyinvestment referred to in Section 69 or Section89B or the value of the bullion, jewellery orother valuable article referred to in Section69A of Section 69B is required to be made, theAssessing Officer may require the ValuationOfficer to made an estimate of such value andreport the same to him." 4.1However, though the appeal has gone having low tax effect, the provisions of Section 45(2) reads as under:- “Section 45(2) of the Income- Tax Act, 1961 (2)10Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of acapital asset into, or its treatment by him as,stock- in- trade of a business carried on by himshall be chargeable to income- tax as his incomeof the previous year in which such stock- in- tradeis sold or otherwise transferred by him and, forthe purposes of section 48, the fair market valueof the asset on the date of such conversion ortreatment shall be deemed to be the full value ofthe consideration received or accruing as a resultof the transfer of the capital asset.]” 4.2Provisions of 50C has come into force w.ef. 1.4.2003 andthose transactions are for subsequent year, therefore, it iscontended that the matter is required to be remitted back to thetribunal. 5.Counsel for the respondent contended that all thetransactions are much prior to 1.4.2003 when provisions ofSection 50C came into effect. 6.He has relied upon the following decisions:- 6.1 In Commissioner of Income Tax vs. ThiruvengadamInvestments (P.) Ltd. (2010) 320 ITR 345 (Madras) whereinMadras High Court held as under:- 4.2Provisions of 50C has come into force w.ef. 1.4.2003 andthose transactions are for subsequent year, therefore, it iscontended that the matter is required to be remitted back to thetribunal. 5.Counsel for the respondent contended that all thetransactions are much prior to 1.4.2003 when provisions ofSection 50C came into effect. 6.He has relied upon the following decisions:- 6.1 In Commissioner of Income Tax vs. ThiruvengadamInvestments (P.) Ltd. (2010) 320 ITR 345 (Madras) whereinMadras High Court held as under:- “7. It is not in dispute that the activity of theassessee is property promoter. It can begathered from the facts available on recordthat the assessee has obtained power ofattorney from the owner of the property andpaid a sum of Rs. 3,19,49,496 to the owner ofthe property and also incurred expenditure in asum of Rs. 2,55,87,815 in connection with thesaid property for the assessment year 2004-05and the balance of Rs. 63,61,681 during theassessment year 2004-05. The amounts sopaid were shown under the head "Loans andadvances" in the balance-sheet and not underthe head "Fixed assets". Later on, the property was sold to M/s. MRF Limited for a sum of Rs.5 crores by a deed of conveyance, in which, theassessee represented the owner in the capacityof the power of attorney. The Assessing Officer,in order to determine the value of the property,has invoked the provisions of Section 50Cofthe Act and thereby brought the entire amountto Rs. 6,94,45,920. The appellate authority hasdeleted that portion of the order of theAssessing Officer taking the sale considerationat Rs. 6,94,45,920 as against Rs. 5 crores theapparent sale consideration shown in the saledeed. The Tribunal also, taking note of thefacts stated above, has come to the conclusionthat invocation of Section 50Cof the Act is notwarranted as the property was never held bythe assessee as capital asset and as per theaccounts also, the amount given to the ownerof the property has been shown as loans andadvances thereby the property has beentreated as business asset and not as capitalasset. The invocation of Section 50Cof the Actas can be seen from the provisions of the Actcan be made in order to find out the true valueof the capital asset. In the very facts andcircumstances of the case, the property in thehands of the assessee was treated as businessasset and not as capital asset, there is noquestion of invoking the provisions ofSection 50Cof the Act, which is, as alreadystated, pertaining to determining the full valueof the capital asset. The Tribunal has taken inaid the observation of the Mumbai Bench in thecase of Interlok Hotels P. Ltd. v. ITO: [2009]122 TTJ (Mumbai) 145, which, in ourconsidered view, is in consonance with thestatutory provisions and is well in accordancewith law.” 6.2 In Commissioner of Income Tax-5, Mumbai vs. NeelkamalRealtors & Electors India (P.) Ltd. (2017) 79 taxmann 238(Bombay) wherein Bombay High Court held as under:- “3. Regarding question No. (i): "(a) The respondent - assessee is abuilder/developerfollowingtheprojectcompletion method of accounting. During theprevious year relevant to the assessment yearthe respondent - assessee offered net profit ofRs. 3.63 crores on completion of a projectcalled 'Orchid Towers'. 6.2 In Commissioner of Income Tax-5, Mumbai vs. NeelkamalRealtors & Electors India (P.) Ltd. (2017) 79 taxmann 238(Bombay) wherein Bombay High Court held as under:- “3. Regarding question No. (i): "(a) The respondent - assessee is abuilder/developerfollowingtheprojectcompletion method of accounting. During theprevious year relevant to the assessment yearthe respondent - assessee offered net profit ofRs. 3.63 crores on completion of a projectcalled 'Orchid Towers'. (b) During the assessment proceedings, therespondent was asked to furnish party-wisedetails of flats sold with details of name andaddresses of the buyers, area of flat sold, totalsale consideration, date of agreement, date ofreceipt of first payment etc. On the perusal ofdetails as furnished, the Assessing Officerconcluded that there were variations in pricescharged by the assessee to different customers.Therefore, by order dated 30th December, 2011made addition of Rs. 15.22 lakhs on the basis ofdifference between the rates charged in respectof similar flats. Thereafter as a consequence torectification application made by the assessee,the Assessing Officer reduced the addition ofRs. 4.45 crores. (c) Being aggrieved the respondent - assesseefiled an appeal to the Commissioner of IncomeTax [CIT (A)]. By order dated 11th December,2012 the CIT (A) sustained the addition to Rs.8.53 crores. This on completely new ground,namely, value of the flats had to be considerednot on the basis of consideration received buton application of the provisions ofsection 50Cas well as section 56(2)(vii)(b)(ii)of the Act. (d) Being aggrieved the respondent - assesseefiled a further appeal to the Tribunal. Theimpugned order of the Tribunal holds thatSection 50Cof the Act which has been invokedby the CIT (A) would have no application in thefacts of the present case. This in view of thefact that section50Cis part of Chapter IV-E ofthe Act dealing with the head 'Capital gains'.The aforesaid provision is applicable only forpurpose of computing the income chargeableunder the head 'Capital gains'. It would have noapplication in determining income underChapter IV-D of the Act under the head 'Profitsand gains of business or profession'. Further,the impugned order holds that section56(2)(vii)(b)(ii)of the Act would have no applicationas it applies to an individual or Hindu Undivided Family (HUF). The Assessee here is neither anindividual or HUF. Moreover, the impugned orderholds that section56(2)(vii)(b)(ii)of the Actseeks to levy tax in the hands of the transfereeof the flat i.e. purchase of flat withoutconsideration or for consideration which is lessthan stamp duty value of the property in excessof Rs. 50,000/-. In this case section 56(2)(vii)(b) (ii)of the Act is sought to be appliedadmittedly to a transferor. Moreover, theimpugned order records the fact thatsection 56of the Act which refers to incomefrom other source i.e. not chargeable underother heads of income. In the present facts theconsideration received on sale of flats wasoffered as income under the head 'Profits andgains of business or profession'. Further, theimpugned order also holds that the AssessingOfficer without giving any reason did not acceptthe explanation offered by the assessee fordifference in consideration received fromdifferent customers with regard to sale of flatsin "Orchid Towers" and allowed the appeal ofthe respondent – assessee. (e) Ms. Bharucha, learned counsel for theRevenue urges that section50Cof the Act hasbeen correctly invoked to sustain an addition ofRs. 8.53 crores. The stamp duty valuation ofthe flats would correctly reflect the saleconsideration being received in respect of allflats. (e) Ms. Bharucha, learned counsel for theRevenue urges that section50Cof the Act hasbeen correctly invoked to sustain an addition ofRs. 8.53 crores. The stamp duty valuation ofthe flats would correctly reflect the saleconsideration being received in respect of allflats. (f) It is self evident from reading ofsection 50Cof the Act that it would not haveany application while determining 'Profits andgains of business or profession'. This is so as itsapplication is only limited to computation ofincome chargeable under the head 'Capitalgains' as is evident from specific reference insub-4/9 section (1) of section50of the Act tosection 48of the Act i.e. mode of computationof capital gains. In fact section 50Cof the Actas observed by the impugned order is placed aspart of the Chapter IV-E under the head 'capitalgains', it can only govern the valuation of theproperty to determine capital gains and cannotgovern valuation of transfer of assets (otherthan a capital asset) i.e. stock in trade. Thisview is further strengthened by the fact thatsection 43CAhas been introduced into the Actw.e.f. 1st April, 2014 which governs taking offull value of consideration for transfer of assets other than capital assets on the basis of stampduty valuation. This section43CAof the Actfinds a place as a part of Chapter IV-D - Profitsand gains of business or profession. Therefore,with effect from 1st April, 2014 the stamp dutyvaluation of assets sold could be taken as fullvalue of consideration. Our above view thatsection 50Cof the Act has no application tovalue stock in trade is also a view taken byAllahabad High Court in Commissioner ofIncome Tax v. Ken Construction and Colonizers(P) Ltd. MANU/UP/0860/2012: (2012) 208Taxman 478. Similarly the Madras High Court inCommissioner of Income Tax v. ThiruvengadamInvestments P. Ltd.MANU/TN/3496/2009:(2010) 320 ITR 345 has also held thatsection 50Cof the Act cannot be invoked toarrive at full consideration of sale of businessasset. We see no reason not to adopt the viewsof the above two High Courts to the presentfacts. (g) So far application of section 56(2)(vii)(b)(ii)of the Act is concerned, it is self evidentthat it only applies to individuals and HinduUndivided Family. Moreover, it seeks to tax thetransferee of the property for having givenconsideration for which is less than the stampvalue by Rs. 50,000/- or more for purchase ofthe property. Thus, the observations of theTribunal that it has no application isunexceptional. (h) Lastly, the finding of Tribunal that theAssessing Officer did not deal with explanationoffered by the assessee justifying the differencein prices of similar flats, is a finding of fact. Thishas not been shown to be perverse. (i) In the above view question (i) as formulateddoes not give rise to any substantial question oflaw and thus not entertained." 6.3 In Commissioner of Income Tax-II vs. Kan Construction and Colonizers (P.) Ltd. (2012) 20 taxmann 381 (All.) whereinAllahabad High Court held as under:- “The Commissioner of Income-tax (Appeals)and the Tribunal on analysis of the facts of thecase have reached to the conclusion thatsection 50Chas no application as it was a caseof transfer of plots which was stock in trade. Anincome earned from such transaction is liable tobe taxed as income from business activity.Alternatively, the finding recorded by theTribunal which is last fact finding court, in thisregard is essentially a finding of fact or at themost is a mixed question of fact, but it is not asubstantial question of law to warrant theinterference under section260Aof the IncomeTax Act. 6.3 In Commissioner of Income Tax-II vs. Kan Construction and Colonizers (P.) Ltd. (2012) 20 taxmann 381 (All.) whereinAllahabad High Court held as under:- “The Commissioner of Income-tax (Appeals)and the Tribunal on analysis of the facts of thecase have reached to the conclusion thatsection 50Chas no application as it was a caseof transfer of plots which was stock in trade. Anincome earned from such transaction is liable tobe taxed as income from business activity.Alternatively, the finding recorded by theTribunal which is last fact finding court, in thisregard is essentially a finding of fact or at themost is a mixed question of fact, but it is not asubstantial question of law to warrant theinterference under section260Aof the IncomeTax Act. At the end, the learned counsel for theappellant had prayed time to file a copy ofbalance sheet and sought adjournment. Thesaid request was made at the fag-end of theargument. The memo of the appeal does notcontain any ground. It contains 'statements offacts', 'substantial question of law' and 'prayer'.No grievance appears to have been raisedtherein with regard to misreading of balancesheet either by the Tribunal or by theCommissioner of Income-tax (Appeals). Therebeing no grievance to the observations of theTribunal that in the balance sheet also the landhas been disclosed as stock in trade, the prayerfor time to file copy of the balance sheet wasdeclined. There is no merit in the appeal. Theappeal is dismissed by holding that on the factsof the present case, the Tribunal has rightlyheld that the provisions of section50Care notapplicable with respect of sale of land as sale ofland was not capital asset.” 6.4 In Commissioner of Income Tax vs. Mukesh and KishorBarot Co-owners (2013) 215 taxman 151 (Guj.) wherein GujaratHigh Court held as under:- “2. In Appeal before the CIT(A), the CIT(A)revered the decision of the Assessing Officer andheld that Section50Cof the Act would have noapplicability when question of capital gain didnot arise. Reliance was placed on the decision ofthe Delhi High Court in case of CIT v. Smt. Nilofer I. Singh, MANU/DE/1886/2008: (2009)309 ITR 233/176 Taxman 252. 3. Revenue thereupon approached the Tribunal.Tribunal confirmed the view of the CIT(A),making following observations:- Rival submissions were considered. Undoubtedly,the lands in question sold were in stock-in-trade.As a matter of fact, in the assessment order,A.O. himself mentioned that assessee is a dealerin plots. Therefore, Section50Cof the I.T. Act,1961 has no application. Keeping in view thetotally of the facts and circumstances of thecase, we are of the view that learned CIT(A) hasgiven cogent reasons for deleting the addition ofRs. 59,00,252/- made by A.O. on account ofalleged suppression of sale proceeds of landwhich were held as stock-in-trade. We,therefore, inclined to upheld the order of learnedCIT(A). 3. Revenue thereupon approached the Tribunal.Tribunal confirmed the view of the CIT(A),making following observations:- Rival submissions were considered. Undoubtedly,the lands in question sold were in stock-in-trade.As a matter of fact, in the assessment order,A.O. himself mentioned that assessee is a dealerin plots. Therefore, Section50Cof the I.T. Act,1961 has no application. Keeping in view thetotally of the facts and circumstances of thecase, we are of the view that learned CIT(A) hasgiven cogent reasons for deleting the addition ofRs. 59,00,252/- made by A.O. on account ofalleged suppression of sale proceeds of landwhich were held as stock-in-trade. We,therefore, inclined to upheld the order of learnedCIT(A). 5. Thus, Section50Cof the Act gives rise to adeeming fiction and such deeming fiction is to beapplied in case of computation of capital gainunder Section48of the Act. It is well knownthat a deeming fiction provided by the statutehas to be applied for the purpose of which it isprovided and no other. In the present case, ifthe Assessing Officer had utilized jantry rate asa starting point, to enquire further and ascertainthe true market value of the land so sold andhaving brought some evidence in this direction,surely, the case of the Revenue would have beenjustified. We have perused the order of theAssessing Officer in detail. Except for makingreference to the jantry rates and pointing outthat the jantry rate is 2.2 times higher than thesale consideration disclosed by the assessee, theAssessing Officer has brought no evidence onthe record to establish that the sale deed did notreflect the full sale consideration. In otherwords, all that the assessee did was to apply adeemingfictionprovidedunderSection 50Cwithout admitting so, it was not indispute that the plot was held as "stock in trade"and therefore sale thereof gives rise to thebusiness income and not to capital gain. In theresult, Tax Appeal is dismissed.” 7.Taking into consideration the reasoning adopted by thetribunal in para no.5 as reproduced above and looking to theSection 50C which apply only in case of authority under StampValuation, State Government DVO will not be covered under thissection. 7.1In that view of the matter, matter is required to be decidedby this court. 7.2In view of the above, we are in complete agreement with theview taken by the tribunal, the issues are answered in favour ofthe assessee and against the department. 8.The appeals stand dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Brijesh 54-57.