Capital Gain cannot arise in respect of a Null and Void Transfer: ITAT deletes Addition [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has held that a null and void transfer of land does not form capital gain and additional short term capital gain was not sustainable.

The assessee filed his return of income declaring a total income of Rs.71,690/-.  A search and survey were found and seized which revealed that the assessee had purchased agricultural land for a consideration of Rs.17,76,06,000/-.  It was also revealed that the assessee had entered into a partnership firm in the name and style of M/s. Vallabh Developers with M/s Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. and the land was introduced by the assessee in the partnership firm as stock-in-trade for a value of Rs.22,41,00,000/-.  The assessee accordingly agreed to offer the capital gain arising from the said transaction in his return of income for the AY 2012-13. It was further submitted by the assessee that the land in question was never converted as stock-in-trade and introduced as capital contribution in the firm of M/s. Vallabh Developers, also pointed out that the land in question was agricultural as of 18.03.2010, and no transfer of property or the land in question within the meaning of Section 2(47) of the Act in the previous year relevant to AY 2010-11 and there was no question of taxability of any capital gain.

The assessee treated the value as the sale consideration and after deducting the cost of acquisition to the assessee amounting to Rs.17,76,06,000/- and stamp duty paid at the time of transfer of land in the name of the assessee amounting to Rs.1,04,78,760/-, made out a short term capital gain chargeable to tax in the hands of the assessee for the year under consideration at Rs.3,60,15,240/-. Addition to that extent on account of short-term capital gain was made by the Assessing Officer to the total income of the assessee in the assessment completed under Section 143(3) of the Act.

The assessee submitted that the said transfer was held to be null and void ab initio by the CIT(A) vide his impugned order on the ground that both the partners of the partnership firm were not agriculturists.  

The appellant Revenue contended that if both the persons of the partnership firm are agriculturists, then the partnership firm is regarded as an agriculturist and the assessee is one of the two partners is an agriculturist while the position as regards the other partner is not clear. 

It was observed that the land in question remained to be an agricultural land till 11.01.2011 when it was converted into non-agricultural land and viewed that there was no valid transfer of land in question by the assessee to the partnership firm of M/s. Vallabh Developers in the year under consideration giving rise to any capital gain and the transfer of the said land.

The Tribunal consists of Shri P M Jagtap, vice-president and Shri Siddhartha Nautiyal, judicial member upheld the impugned order of the CIT(A) deleting the addition of Rs.3,60,15,240/- made by the Assessing Officer on account of short term capital gain and dismissed the appeal of the Revenue. Shri R.R. Makwana represented the assessee and Shri Mukund Bakshi represented the revenue.

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