No bar in law for a person dealing in land to also have investment in land. Assessee can hold same class of assets as investment and also as stock in trade. SC dismissed SLP of the Revenue
ABCAUS Case Law Citation:
ABCAUS 3222 (2020) (01) SC
The Respondent was a partnership firm, engaged in the business of building construction and land developers. During the course of scrutiny proceedings, the Assessing Officer noted that the Respondent had shown long term capital gains on account of sale of plot. This plot was a part of land purchased by the Respondent previously and the conveyance was made later. A part of the purchased property had been developed by construction of buildings. The remaining portion of the property had been sold by the Respondent in the relevant to Assessment Year and after deducting the expenditure, the Respondent had offered long term capital gains on the sale of land.
However, the Assessing Officer (AO) was of the view that as the business of the Respondent Assessee was construction, the plot of land sold should be treated as its stock in trade and the income/gain arising on the same should be taxed under the head ‘income from business’ and not as capital gain.
Being aggrieved with the order passed by the AO, the assessee filed appeal to the Commissioner of Income Tax (Appeals) who found that:
(i) Respondent had shown sufficient compliance with the CBDT Circular No. 4 of 2007 dated 16th June, 2007 to justify that the plot was held by it as an investment;
(ii) The plot was shown in its books of account as an investment and not as stock in trade;
(iii) The conversion of land as investment was accepted by the Revenue in the earlier Assessment Orders passed under Section 143(3) of the Act;
(iv) The Statement of purchasers of the land that the land purchased was agricultural land and they had obtained necessary permission to make it non agricultural;
(v) The plot of land was valued at cost year after year and not at cost or market price whichever is lower as applicable as stock in trade.
Therefore, the CIT(A) allowed appeal of the Respondent.
The Revenue being aggrieved by the order of the CIT(A), filed an appeal to the Tribunal which by the impugned order confirmed the fact that, land had been shown in its books of account as investment. The Tribunal also observed that in the earlier Assessment Year, an Inspector was deputed by the Assessing Officer to verify the correctness of the status of the land i.e. an investment or not. On inspection, the Inspector reported that no construction was carried out on the plot of land which was held as an investment.
On the above facts, the Tribunal upheld the finding of fact by the CIT(A).
On further appeal, the Hon’ble High Court observed that both the CIT(A) as well as the Tribunal had come to a concurrent finding of fact on examination of the record, that plot of the land had been held by the Respondent as investment which was evident from the books of account, balance sheet of the Appellant and the treatment given to it in its accounts. This finding of fact was further confirmed by the visit of the Inspector. The Hon’ble High Court stated that the Revenue completely ignored the fact that, it is always open to an assessee to hold the same class of assets as investment and also as stock in trade. There is no bar in law for a person dealing in land to also have investment in land. Thus, the Hon’ble High Court dismissed the appeal of the Revenue.
Subsequent to dismissal of the appeal by the High Court the Revenue filed a Special Leave Petition before the Hon’ble which has been dismissed.
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