Victory Alloys Steels Ltd.,, Hyderabad vs Assessee

Victory Alloys Steels Ltd Dy. Commissioner of Hyderabad Vs. Income Tax, Circle 3(3) PAN- AABCV 9188 L Hyderabad (Appellant) (Respondent)

For Assessee : Shri P. Raviseshagiri Rao For Revenue : Smt. G. Aparna Rao

Date of Hearing : 26.03.2015 Date of Pronouncement : 27.03.2015

ORDER

Per Smt. Asha Vijayaraghavan, J.M.

This is an appeal filed by the assessee directed against the

order of the CIT - III Hyderabad dated 25th March, 2013 passed

for A.Y 2007-08.

2. The assessee herein M/s Victory Alloys Steels Ltd

alongwith Shri Mahindra Vaddineni & Smt. Devasena Vaddineni

and ShriVenkatappaiah Naidu Vaddineni owned land

admeasuring ac.85.25gts between F.Y. 2000-01 and 2003-04 at

Medchal for an aggregate consideration of Rs.2,35,36,015. It

was seen that the assessee along with three other land owners

promoted a venture by the name of 'Fabel County' with an

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intention to develop the land into plots and towards this end they

made suitable applications before the concerned Urban

Development Authority. Land use conversion fee as well as lay-

out fee, for conversion of the land from agricultural to residential

use and also for getting the layout plan approved, was paid. Out

of the total land holding of ac.85.28 guntas the total land

developed was ac.63.10 guntas and 112. Sq. yards equivalent to

306242 sq. yds. As per the HUDA approved plan, the net plot

area was 167802 sq. yds and the same was sold/ agreed to sale

and the details are as under :

Land in sq. Whom the land was sold to Sale yards consideration 60743 Victory Avenue P Ltd @ Rs.1800 Rs.10,93,55,600 oer sq. yard 67563 i.Sri V. Brahmananda Reddy Rs.5,35,00,000 (20706 sq.yards) ii.M/a.Lakshmi Venkateswara Estates P Ltd (26,879 sq.yards) iii. Sri P. Srinivasa Sarma (19978 sq.yards) iv. Other curstomers (834 sq.yds)

3. Survey operation under section 133A were conducted in

the business premises of M/s. Victory Transformers and

Switchgears Ltd., and group on 28.02.2008. During that it was

found that assessee herein had derived gains by sale of lands

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which they admitted to tax later. Accordingly, assessee herein

have filed return of income, admitting long term capital gains.

A.O. has examined the claim and assessed the same.

4. Ld. CIT, having noticed the assessment orders and

documents, has issued notices under section 263 asking

assessee why the capital gain should not be taxed as business

income and why the gain on agreement with M/s Victory

Avenues Ltd., (VAPL) should not be taxed entirely in the year

under consideration as against the income offered to the extent

of sales made by VAPL. Even though, Ld. CIT raised the issue of

taxing the gains as business income on the sale of lands at

Medchal, he, however, accepted that the same has to be taxed

under the head "Long Term Capital Gains" only. To that extent,

A.O. stand was accepted. However, on assessing the quantum of

gains, the Ld. CIT directed as under :

"5. I have perused the detailed submission made by the assessee as well all documents on record. I am convinced that the land which was purchased between years 2000-01 to 2003-04 was a capital asset with an intention to hold on to the same. Mere application for change of land use shall not change the nature of the asset in the absence of any work carried out by the assessee to improve the land or to make such changes as would indicate that the assessee is now in the business of real estate. Hence, the assessment order u/s 143(3) r.w.s.147 dt.19.11.201O is found to be in order as far as the sale of 67563 sq. yds to Mr. V.

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Brahmananda Reddy and others for a consideration of Rs.5,35,00,000 is concerned. However, as mentioned earlier, there is a second limb to this land transaction. Vide agreement for sale-cum-GPA, the assessee and his group have sold 60742 sq. yds of land to a company incorporated with express purpose of developing the land, plotting the same and selling it to prospective buyers. This agreement for sale-cum-GPA was entered into with VAPL on 26.2.2007, wherein it is clearly mentioned that the possession for entire 60742 sq. yds of land has been handed over to the said concern i.e. VAPL. An amount of RS.50 lakhs has also been received as advance consideration while the balance has to be received over a period of time. The total consideration fixed for this plot of land is Rs.1800 per sq. yd. i.e. Rs.10,93,55,600. This transaction clearly falls within the ambit of transfer as defined under sec.2(47)(v) ITA. No. 1034 & 1035/Hyd/2014 Mr. Venkatappaiah Naidu Vaddineni & Mr. Mahendra Vaddineni of the I.T. Act, 1961. It is clear that 60745 sq. yds of land was sold to VAPL on a price which was determined in the agreement for sale-cum-GPA, possession was handed over to the buyer company and part of the consideration was received as advance. If the assessee was intending to trade in the plots of land proposed to be developed by VAPL, the assessee and his group would then have either kept the sales consideration flexible to take benefit of the natural appreciation in the price of land over the period of sale or in the alternate would receive part or whole consideration in the form of developed plots of land. However, the assessee as stated earlier, has on the date of agreement decided the consideration to be received which is Rs.1800 per sq. yd end hence the assessee has transferred his capital asset being his share in 60742 sq. yds of [end to VAPL. The assessee and his group has however offered surplus from sale of only 19574 sq. yds of land instead of the entire sales consideration for 60742 sq. yds of lend, The' Assessing Officer has accepted this computation of capital gains and hence his order is held to be erroneous in as much as it is prejudicial to the interests. of revenue. The assessment order

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dt.29.11.201O is hence set-aside with a direction to the Assessing Officer to compute the capital gains arising from sale of 60743 sq. yds of land to VAPL by holding that the capital gains on the entire parcel of land has arisen in AY 2007-08 and hence the entire sales consideration of Rs.10,93,55,600 should be brought to tax in AY 2007-08. In the case of the assessee, his proportionate share out of total sales consideration of Rs.10,93,55,600 should be adopted against which the cost of acquisition as determined by the Assessing Officer in his assessment order dt.29.11.2010 should be allowed".

5. Aggrieved, the assessee raised the following grounds of

appeal:

"1. The order of the ld CIT is erroneous both on facts and in law.

2. The ld CIT erred in holding that there is any error in the order of assessment passed u/s 143(3) r.w.s. 147 of the I.T. act by the Dy. Commissioner of Income Tax, Circle 3(3) Hyderabad. The ld CIT ought to have seen that there is neither an error nor any prejudice caused to the department so as to enable him to invoke the provisions of section 263 of the I.T. Act.

3. The ld CIT erred in holding that there was under

assessment of the sale consideration received during the year under consideration and further erred in directing the AO to determine the sale consideration at Rs.10,93,55,600".

6. We find that this issue is covered in the case of the co-

owner of the land by the Coordinate Bench in the case of

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Venkatappaiah Naidu Vaddineni and Mahendra Vaddineni in ITA

Nos. 1034 & 1035/Hyd/2014 for the A.Y 2007-08 wherein it has

been held as follows:

"8. Coming to the issues of bringing to tax the entire gain on agreement with VAPL, we are of the opinion that the stand of CIT cannot be supported. First of all, the agreement with VAPL is a GPA agreement without handing over possession. This stand gets support by the stamp duty paid and accepted by Registration authority. The agreement was registered as GPA agreement and not as a sale agreement. Thus on facts the agreement cannot be considered as sale agreement so as to bring entire capital gain tax in the impugned year. Moreover, there was a statement from Manager of VAPL recorded by A.O. during survey which indicate that there were lot of unsold plots and detailed statement was recorded about sale of various plots and how the monies are accounted. This indicates that the said VAPL is only acting as an agent in sale of property and it did not acquire the property. Therefore, stand of CIT that the land/property in question was sale cannot be accepted. Lastly, the CIT himself accepted that gains on sale of Medchal land has to be assessed under the head "Long term capital gains". The gain is taxable at the rate of 20% only. Whether it is taxed in A.Y. 2007-08 or in later years, the tax rate is at 20% only. Thus, there is no prejudice caused to Revenue. Therefore, the twin conditions for invoking jurisdiction under section 263 have not been satisfied. For these reasons, we are of the opinion that the orders of CIT cannot be justified and so they are accordingly set aside.

9. In the result, assessees appeals are allowed.

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7. Respectfully following the above decision, we allow the

appeal filed by the assessee.

Order pronounced in the Open Court on 27th March, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 27th March, 2015.

Vnodan/sps Copy to:

1. Shri S. Rama Rao, Advocate, Flat No.102, Shriyas Elegance, H.No.3-6-643, street No.9 Himayatnagar, Hyderabad 500029

2. Dy. Commissioner of Income Tax Circle 3(3) Hyderabad

3. The CIT-III Hyderabad

4. The DR, ITAT, Hyderabad

5. Guard File

By Order

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