Principal Commissioner Of Income Tax, Jaipur-2, Jaipur Raj v. M/S Assam Roller Flour Mills Ltd., Geeta Path, Suraj Nagar, Westcivil Lines, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 88/2018 Principal Commissioner Of Income Tax, Jaipur-2, Jaipur Raj ----Appellant Versus M/s Assam Roller Flour Mills Ltd., Geeta Path, Suraj Nagar, WestCivil Lines, Jaipur ----Respondent For Appellant(s) : Mr. Prateek Kedawat for Mr. R.B. Mathur HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 13/03/2018 Judgment 1.By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has dismissedthe appeal of the department and cross objection of the assesseewas partly allowed by modifying the order of AO as well as CIT(A). 2.Counsel for the appellant has framed following substantialquestions of law:- i) Whether on the facts and in law the ITAT wasjustified in law in deleting the addition made onaccount of Long Term Capital Gain withoutappreciating the provision of section 45 and45(2) of the Act and the computation made u/s.48 of the Act. (ii) Whether in the facts and circumstances ofthe case, the Tribunal was justified inconsidering the cost of land as on 01-04-1981at Rs.11877300/- without appreciating the factthat the value of the said property was only ofRs.11648/- as on 01.04.1981 as per books ofaccount of partnership firm and after taken over (iii) Whether in the facts and circumstances ofthe case, the Tribunal was justified that the fairmarket value of the land as on 01.04.1981 canbe more at Rs. 11877300/- when the assesseeitself has determined the land’s market value atRs.5657400/- in F.Y. 1992-93 (duly reflected inbalance sheet for A.Y. 1993-94 to A.Y. 2004-05). 3.The facts of the case are that the assessment was originallycompleted u/s 143(3) on 23.12.2008. Subsequently, it comes tothe notice of the Assessing officer that the income on account oflong term capital gains amounting to Rs. 5,69,55,130/- hasescaped taxation and notice u/s 148 was issued. After disposingoff the objection raised by the assessee, assessment proceedingswere completed u/s 147 wherein AO brought to tax long termcapital gains of Rs. 7,82,45,942/-. The Assessing Officerconsidered sales consideration u/s 50C as determined by the DVOand Sub-Registrar at Rs. 7,83,10,852/-. And regarding cost ofacquisition, the Assessing Officer noted that the original cost ofland in the books of erstwhile partnership firm, Assam Roller FlourMills was shown at Rs. 11,648/- and accordingly, he computed theindexed cost of acquisition at Rs. 55,910/- and after givingallowance for the same, brought to tax long term capital gains ofRs 7,82,45,942/-in the hands of the assessee. 4.Counsel for the appellant contended that the firm was takenover by the company and first time on 20.1.1981 assests weretransferred as on 1.4.1981. wherein it has been observed as under:- “The assessee has filed the objection for thereason recorded u/s 147 and the same aredisposed off through the letter dt. 3.10.2011.Further the assessee required to explain as whyfair sale consideration value should not be takenas determined by the sub registrar. Onconsidering the submission of the assessee thematter was referred to the district valuationofficer for the Valuation u/s 50C of the IT Act. Thedistrict valuation officer has assessed the value ofland at Rs.7,83,01,852/- accordingly show causewas issued to assessee as under. -(B) Sale consideration of the Land:The sub- registrar as well as the District Valuation Officerhas taken the value of the land ofRs.7,83,01,852/- as on 8.7.2005 in view of thefacts the capital gain should not be assessed asunder:- Fair market value of the land: Rs.7,83,01,852/-Less: Indexation cost of the land: 55,910/- Capital Gain: Rs.7,82,45,942/- -(B) Sale consideration of the Land:The sub- registrar as well as the District Valuation Officerhas taken the value of the land ofRs.7,83,01,852/- as on 8.7.2005 in view of thefacts the capital gain should not be assessed asunder:- Fair market value of the land: Rs.7,83,01,852/-Less: Indexation cost of the land: 55,910/- Capital Gain: Rs.7,82,45,942/- The A/R of the assessee vide letter dt.26.12.2011 submitted that M/s. Assam roller flourmills a partnership firm purchased the land underconsideration in 1962 and the firm was taken overby the company, therefore the fair market valueas on 1.4.1981 was determine the registeredvaluer and opt the same for the purpose of thecalculation of the capital gain. He has alsosubmitted that the value enhance by sub registrarfrom Rs.7,57,00,000/- to Rs.7,83,01,852/- andcollect the stamp duty therein without theknowledge of the assessee hence the fair marketvalue of Rs.7,57,00,000/- as declared by theassessee is correct. The submission of the assessee is not foundtenable as the facts in details discussed in showcause notice and therefore the long term capitalgain is assessed as under:- Cost of the land as on 1.4.1981 Rs.11,648/-Indexed cost 11,648 X 480/100Rs. 55,910/-Sales consideration u/s 50C (as determine)” By the DVO and sub-registrar Rs.7,83,10,8502/-Long term capital Gain : Rs. 7,82,45,942/- 4.2He further contended that AO while considering the matter rightly assessed the income observing as under:- “On perusal of the minutes of the settlementcommission held on 25.4.2005 and on thatbasis the assessee has claimed the saidexpenses, revealed that a case of theft ofenergy was pending against the assessee anddetected during the year 1994 and electricconnection was disconnected thereafter,therefore the total amount of compoundingcharges were offered by assessee of Rs.22.50lacs and the compounding charges amountingto Rs.22.50 lacs have been assessed againstthe assessee and the settlement commissionagreed to settle the case on the certain termand condition. Further letter No.JPD/Dy. CE(CP&RE)/SE©/F. D-28 dt. 4.6.2008 revealedthat during the year under consideration theassessee has made the payment ofRs.6,90,922/- only. Further it is pertinent tomention that the entire amount of paymentwas made for compounding of the theft casewhich was pending against the assessee. In these circumstances it is clear that thisamount is paid by the assessee forcompounding of the theft case and alsoviolation of the electricity rules and law andthis is nothing but an amount of penalty.Hence, the claim of the assessee is notacceptable and rejected and added back to theincome of the assessee.” 4.3He contended that CIT(A) while considering the matter hasrightly held in favour of the department to the aforesaid extent.However, the tribunal has committed serious error in allowing theappeal observing as under:- 8. Section 45(2) provides that “Notwithstandinganything contained in sub-section (1), theprofits or gains arising from the transfer by way of conversion by the owner of a capital assetinto, or its treatment by him as stock-in-tradeof a business carried on by him shall bechargeable to income-tax as his income of theprevious year in which such stock-in-trade issold or otherwise transferred by him and, forthe purposes of section 48, the fair marketvalue of the asset on the date of suchconversion or treatment shall be deemed to bethe full value of the consideration received oraccruing as a result of the transfer of the capitalasset.” 8. Section 45(2) provides that “Notwithstandinganything contained in sub-section (1), theprofits or gains arising from the transfer by way of conversion by the owner of a capital assetinto, or its treatment by him as stock-in-tradeof a business carried on by him shall bechargeable to income-tax as his income of theprevious year in which such stock-in-trade issold or otherwise transferred by him and, forthe purposes of section 48, the fair marketvalue of the asset on the date of suchconversion or treatment shall be deemed to bethe full value of the consideration received oraccruing as a result of the transfer of the capitalasset.” 11. Further, it is noted that in compliancethereof, the assessee company has worked outlong term capital loss of Rs. 4,52,640/- takinginto consideration the full value of theconsideration at Rs. 5,65,58,400/- as pervaluation report dated 30.03.2005. The cost ofacquisition was taken at Rs. 1,18,77,264/- ason 01.04.1981 as per valuation report dated20.3.2005 and indexed cost thereof wascomputed at Rs 5,70,11,040. Since thepartnership firm was succeeded by the assesseecompany, the cost of acquisition wasdetermined as on 1.4.1981 in terms ofprovisions of section 49(1)(iii)(a) read withsection 55(2)(b)(ii) as the partnership firmacquired the land prior to 1.4.1981. Further, theld AR drawn our attention to the show-causenotice issued by ld CIT u/s 263 and subsequentorder dropping the said proceedings andsubmitted that the valuation as on 1.4.1981 sodetermined by the assessee at Rs.1,18,77,264/- has been accepted by the ld CITand there is nothing in the reassessment orderwhere the AO has again disputed the said value.The valuation so determined as on 1.4.1981based on the valuation report has thus not beendisputed by the Revenue nor any other DVOvaluation have been brought on record. and weaccordingly confirm the findings of the ld CIT(A)in this regard. 12. Further, since the stock-in-trade has beenfinally sold, the profit on sale of such stock-in-trade is to be brought to tax as business incomein the year under consideration. As per the saledeed dated 18.07.2005, the land was sold toM/s Suncity Projects Pvt. Ltd. for aconsideration of Rs. 7,57,00,000/- which wasduly credited in the profit/loss account andoffered to tax in the return of income aftertaking into consideration stock-in-trade of Rs5,65,58,400 and other business expenses. Theld. CIT(A) has also returned a finding that the assessee has offered a net profit of Rs.1,13,02,091/- as business income in the returnof income which has been accepted by theRevenueintheoriginalassessmentproceedings. 17. We have heard the rival submissions andperused the material available on record. As perletter dated 4.1.2006 of JVVNL, the assesseehas paid an amount of Rs 6,90,922 throughcheque and an amount of Rs 4,39,262 has beenadjusted against bank guarantee, in total Rs11,30,184 has thus been paid by the assessee.It consists of Rs 470,184 towards past dues aton the date of disconnection and fuel surchargearrears and interest on late payment andbalance towards the compounding chargesrelating to theft case. Accordingly, electricitydues totaling to Rs 470,184 is hereby allowedas settled and crystallized during the year andthe balance is sustained on account of infractionof law. In the result, cross objection no. 2 ispartly allowed. 5.In our considered opinion, in the previous year, the incomeof Rs. 1,18,77,264/- has already been accepted and the Tribunalhas not committed any error in calculating the amount of Rs.Rs.1,13,02,091/- as business income. Therefore, no substantialquestion of law arises. 6.The appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J Brijesh 84.