Dharam Builders & Developers P Ltd, Mumbai V. ITO 2(1)(2), Mumbai

CO 186/MUM/2008

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 8147 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 1 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-12-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 16-10-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Capital asset; Business income; Opportunity of being heard; Cost of acquisition; Fair market value; Difference of opinion; Tax effect; Reason to believe; Change of opinion
• Section: 45(2); 148; 2; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.2548/M/2006 (ASSESSMENT YEAR 1999-2000) INCOME TAX OFFICER, WARD 2(1)(2) AAYAKAR BHAVAN, ROOM NO. 575, 5 TH FLOOR, MUMBAI 400 020. .. APPELLANT VS. DHARAM BUILDERS & DEVELOPERS PVT. LTD., ESPLANADE SCHOOL BUILDING, 160, D.N. ROAD, IST FLOOR, FORT MUMBAI 400 001. PA N NO. AAABCD 1057E .. RESPONDENT C.O. NO.186/M/2008 (ASSESSMENT YEAR 1999-2000) DHARAM BUILDERS & DEVELOPERS PVT. LTD., 550/B, NANAPETH, PUNE 411 002. .. APPELLANT PA N NO. AAABCD 1057E VS. INCOME TAX OFFICER, WARD 2(1)(2), AAYAKAR BHAVAN, ROOM NO. 575, 5 TH FLOOR, MUMBAI 400 020 . .. RESPONDENT ASSESSEE BY : SRI DHARMESH SHAH DEPARTMENT BY : MS. ANN KAPTHUAMA DATE OF HEARING : 12-12-2012 DATE OF PRONOUNCEMENT : 14-12-2012 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE AND CO FILED BY TH E ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 14-02-2006 OF THE CIT(A)-II MUMBAI RELATING TO ASSESSMENT YEAR 1999-2000. FOR THE SAKE OF CONVENI ENCE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPER. IT FILED ITS RE TURN OF INCOME ON 30-08-99 DECLARING TOTAL INCOME AT RS.1,25,83,630/-. SINCE THE ASSESSEE COMPANY HAS SHOWN BUSINESS INCOME AS LONG TERM CAPITAL GAIN THE AO IS SUED NOTICE U/S.148 BY 2 RECORDING THE FOLLOWING REASONS WHICH HAS BEEN SUPP LIED TO THE ASSESSEE AND A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE 6. : TO, THE PRINCIPAL OFFICER, DHARAM BUILDERS & DEVELOPERS P. LTD., ESPLANADE SCHOOL BUILDING IST FLOOR, 160, R.N. ROAD, FORT MUMBAI 01 SUB : NOTICE U/S.148 REASONS IN WRITING. REF : YOUR LETTER DT.13/4/04 NO.39/04/M/KVM/04 DURING THE YEAR THE ASSESSEE HAD CONVERTED THE LAND INTO STOCK IN TRADE AND PART OF THE SAME WAS SOLD DURING THE YEAR FOR A CONSIDERATION OF RS.1,68 ,66,905/-. THE DIFFERENCE OF SALE CONSIDERATION AND COST OF STOCK IN TRADE WAS TREATE D AS BUSINESS INCOME AND THE DIFFERENCE OF CONVERSION OF COST OF STOCK IN TRADE AND ACTUAL COS T WAS TREATED AS LONG TERM CAPITAL GAIN. FROM THE AGREEMENT FOR THE PURCHASE OF LAND, IT IS NOTIC ED THAT THE LAND WAS PURCHASED WITH THE INTENTION OF DEVELOPING AND NOT AS AN INVESTMENT. HENCE, THE INCOME REALISED ON TRANSFER/SALE OF THE PROPERTY SHOULD BE TAXABLE AS BUSINESS INCOME AND NOT AS CAPITAL GAIN AS COMPUTED. I, THE REFORE, HAVE REASON TO BELIEVE THAT THE INCOME AS ASSESSED AT A LOW RATE. ACCORDINGLY THE ASSESSM ENT FOR THE A.Y. 1999-00 AS RE-OPENED U/S.147 OF THE I.T. ACT. TAX EFFECT - RS. 18,11,317/- SD/- (P.K. GAUR) I.T.O. 2(1)(2) MUMBAI IN RESPONSE TO THE SAME THE ASSESSEE COMPANY STATED THAT THE RETURN FILED ON 30-08- 99 SHOULD BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE U/S.148 OF THE INCOME TAX ACT. THE ASSESSEE COMPANY OBJECTED TO THE RE-OPENI NG OF THE ASSESSMENT U/S.148. THE AO REJECTED SUCH OBJECTIONS AND PROCEEDED TO CO MPLETE THE ASSESSMENT. 3. THE AO NOTED THAT IN THE FINANCIAL YEAR 1995-96 AND 1997-98 THE ASSESSEE COMPANY PURCHASED IMMOVABLE PROPERTY AT LOHEGAON, P UNE. THE BALANCE SHEET FOR THE YEAR ENDING 31-03-1998 REFLECT THIS LAND AS INV ESTMENT AT RS.25,60,065/-. FOR THE IMPUGNED ASSESSMENT YEAR UNDER CONSIDERATION TH E ASSESSEE CONVERTED THIS LAND AS STOCK IN TRADE REVALUING THE SAME AT RS.2,10,22, 092/-. PART OF THIS LAND WAS SOLD FOR RS.1,68,66,905/-. THE CLOSING STOCK HAS BEEN S HOWN AT RS.72,29,449/-. THE ASSESSEE COMPANY COMPUTED THE LONG TERM CAPITAL GAI N OF RS.1,15,75,986/- ON THE SOLD PORTION OF LAND SEPARATELY ON ACCOUNT OF REVAL UATION ON CONVERSION TO STOCK IN 3 TRADE. TO COMPUTE THE BUSINESS INCOME. THE ASSESSE E REDUCED THE REVALUED PRICE FROM SALE CONSIDERATION WITH OTHER EXPENSES AND DET ERMINED THE BUSINESS PROFIT OF RS.10,39,029/-. THE AO NOTED THAT ASSESSEE IS A BU ILDER AND DEVELOPER. THE SAID IMMOVABLE PROPERTY WAS ACQUIRED BY THE ASSESSEE VID E VARIOUS DEVELOPMENT AGREEMENTS AND SALE DEEDS. FROM THE DOCUMENTS PROD UCED BEFORE HIM THE AO NOTED THAT IT HAS BEEN CLEARLY MENTIONED IN THE AGR EEMENTS THAT THE LAND IS PURCHASED BY THE ASSESSEE COMPANY FOR DEVELOPMENT I N ACCORDANCE WITH PERMISSIONS OR SANCTIONS TO BE OBTAINED BY THEM OR ENTRUST THE DEVELOPMENT TO DEVELOPERS BY UTILISING PROVISIONS OF TDR OR TO REC EIVE BENEFITS FROM LOCAL AUTHORITIES IN LIEU OF LAND OR CARRY OUT CONSTRUCT ION IN THE PROPERTY AND SALE AVAILABLE FLATS/UNITS. HE THEREFORE CAME TO THE CO NCLUSION THAT ALL THESE ACTIVITIES ARE CLEARLY BUSINESS ACTIVITIES OF A BUILDER/DEVELO PER. HE REJECTED THE CONTENTION OF THE ASSESSEE THAT SINCE THE SAME IS A RESERVE PLOT , DEVELOPMENT IS NOT POSSIBLE AND HENCE ITS ACQUISITION IS NOT A BUSINESS ACTIVITY ON THE GROUND THAT THIS IS A CLEAR CONTRADICTION BY THE ASSESSEE. HE OBSERVED THAT AS PER THEIR CONVENIENCE THE ASSESSEE IS CONVERTING THE PURPORTED INVESTMENT IN LAND TO STOCK IN TRADE IN ASSESSMENT YEAR 1999-2000 WHEN THEY INTEND TO SELL THE LAND. THEREFORE, THE ASSESSEE IS TRYING TO EXTRACT DOUBLE BENEFITS FROM THIS, I.E. ON LONG TERM CAPITAL GAINS THE ASSESSEE IS PAYING LESSER RATE OF TAX AND FROM THE BUSINESS INCOME OTHER EXPENSES ARE REDUCED. FURTHER, THE ASSESSEE HAS AL SO SET SIGHTS ON THE TDR/FSI RECEIVABLE FROM THE LOCAL AUTHORITIES. ACCORDING T O THE AO PURCHASE/SALE OF TDR IS A BUSINESS ACTIVITY OF A BUILDER/DEVELOPER. 3.1 REJECTING THE CONTENTION OF THE ASSESSEE THAT I T HAS SHOWN THE LAND AS INVESTMENT IN ITS BOOKS OF ACCOUNT IN THE PAST THE AO NOTED THAT MERE RECORDING OF AN ENTRY IN ACCOUNT BOOKS DOES NOT CONFER UPON THE ASSESSEE ANY IMMUNITY FROM THE PROVISIONS OF INCOME TAX ACT AND THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT BINDING ON THE AO IN THE ASSESSMENT PROCEEDINGS. RELYING ON THE 4 DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORN ALKALI CHEMICALS AND FERTILISERS LTD. VS. CIT REPORTED IN 227 ITR 17 2 AND THE DECISION IN THE CASE OF EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. VS . CIT REPORTED IN 42 ITR 49 THE AO HELD THAT THE TRANSACTION OF IMMOVABLE PROPE RTY BY THE ASSESSEE IS A BUSINESS TRANSACTION. HE ACCORDINGLY DETERMINED TH E INCOME OF THE ASSESSEE AT RS.1,50,79,310/- AS AGAINST RS.1,25,83,630/- DECLAR ED BY THE ASSESSEE. 4. BEFORE THE CIT(A) THE ASSESSEE CHALLENGED THE RE -OPENING OF THE ASSESSMENT AS WELL AS TREATING THE LONG TERM CAPITAL GAIN AS B USINESS INCOME BY THE AO. 5. SO FAR AS THE ISSUE RELATING TO RE-OPENING OF TH E ASSESSMENT THE LEARNED CIT(A) UPHELD THE ACTION OF THE AO BY HOLDING AS UN DER : I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT . THE ASSESSING OFFICER HAD RE- OPENED THE ASSESSMENT ON 31-3-04. THE SAID RE-OPENI NG WAS BASED ON THE AGREEMENT FOUND DURING THE COURSE OF WEALTH TAX PROCEEDINGS O F THE APPELLANT WHICH INDICATED THAT THE LAND COULD BE USED FOR CONSTRUCTION AND DEVELOP MENT. THE ASSESSING OFFICER HAD PRIMA FACIE BELIEF THAT SINCE THE LAND WAS CAPABLE OF BEING USED FOR DEVELOPMENT AND CONSTRUCTION AS PER THE AGREEMENT WHICH, COUPLED WI TH THE FACT THAT THE APPELLANT WAS ALSO ENGAGED IN THE BUSINESS OF DEVELOPMENT AND CON STRUCTION, THE SAID LAND SHOULD BE TREATED AS STOCK IN TRADE AND RESULTING PROFIT FROM THE SAME SHOULD BE TREATED AS BUSINESS INCOME. IN MY OPINION THE ASSESSING OFFICER IS ONLY REQUIRED TO HAVE A REASON TO BELIEVE AND NOT REASON WITH CONCRETE EVIDENCE IN ORDER TO R E-OPEN AN ASSESSMENT. ONCE THE PRIMA FACIE BELIEF IS FORMED, WHICH IS RATIONAL AND REASO NABLE, THE ASSESSMENT CAN BE RE-OPENED VALIDLY. I AM THEREFORE CONVINCED TO HOLD THAT HE R EOPENING OF THE ASSESSMENT IS VALID. CONSEQUENTLY, THE APPELLANTS GROUND FAILS. 6. SO FAR AS THE TREATMENT OF LONG TERM CAPITAL GAI N FROM SALE OF LAND AS BUSINESS INCOME BY THE AO THE LEARNED CIT(A) ALLOWED THE CLA IM OF THE ASSESSEE BY HOLDING AS UNDER : I HAVE GONE THROUGH' THE SUBMISSIONS OF THE APPELL ANT AND THE ARGUMENTS RAISED BEFORE ME. I FIND FORCE IN THE ARGUMENTS OF THE AR. THE AP PELLANT HAS SHOWN THE SAID LAND AS INVESTMENT IN THEIR BALANCE SHEET. I HAVE ALSO GONE THROUGH THE AGREEMENT FOR PURCHASE OF LAND. THE SAID AGREEMENT DOES NOT SUGGEST THAT T HE SAID LAND WAS PURCHASED BY THE APPELLANT FOR THE PURPOSE OF CONSTRUCTION AND DEVEL OPMENT. NEVERTHELESS, THE LAND IN QUESTION CANNOT BE TREATED AS THE STOCK IN TRADE AS THE SAME LACKS THE ATTRIBUTES OF THE 5 STOCK IN TRADE. I AGREE WITH THE AR THAT THE STOCK IN TRADE WOULD BE SOMETHING IN WHICH AN ASSESSEE WOULD INVEST TO SELL QUICKLY TO MAKE PROFI T. A LAND WHICH WOULD NOT HAVE FETCHED THE ASSESSEE ANY PROFIT FROM ITS BUSINESS COULD NOT HAVE BEEN KEPT AS STOCK IN TRADE. A PRUDENT BUSINESSMAN WOULD NOT HAVE PURCHASED ANY ST OCK IN TRADE TO RETAIN IT FOR A LONGER PERIOD. IT IS COMMON PRACTICE PREVAILING IN THE BUILDING LINE THAT PREMISES UNDER CONSTRUCTION ARE SOLD IMMEDIATELY WHEN THE PROJECT IS COMMENCED. IT IS ALSO NOT UNCOMMON THAT LAND ONE PURCHASED IS ALSO PUT TO CON STRUCTION SO THAT THE BUILDER CAN RELEASE THE FUNDS BLOCKED IN THE LAND. IN THE PRESE NT CASE, THE LANDS WERE PURCHASED DURING THE FINANCIAL YEAR 1994-95 WHICH SHOWS THAT ALMOST 5 YEARS HAD ELAPSED AND NO CONSTRUCTION ACTIVITY WAS CARRIED OUT NOR ANY PROFI T WAS EARNED. FURTHER, THE SAID ASSET WAS ALSO VALUED ALL THE YEARS AT COST AND NOT AT CO ST OR MARKET PRICE WHICHEVER IS LOWER, WHICH IS THE METHOD OF ACCOUNTING FOR VALUING STOCK IN TRADE. EVEN THIS FACT SUPPORTS THE VIEW THAT THE ASSET WAS ALWAYS INTENDED TO BE HELD AS INVESTMENT. IT IS NOT IN DISPUTE THAT THERE IS NO SINGLE ELEMENT BROUGHT ON RECORD BY THE ASSESSING OFFICER TO PROVE THAT THE APPELLANT HAD PURCHASED THE PLOT OF LAND WITH THE I NTENTION TO SELL THE SAME AND TREAT THE SAME AS STOCK IN TRADE. THE ASSESSING OFFICER HAS F AILED TO PROVE THAT THE APPELLANT EVER INTENDED TO CARRY OUT ANY ACTIVITY WHICH IS ADVENTU RE IN THE NATURE OF TRADE WITH THE HELP OF THE SAID LAND. THE LAND WAS ADMITTEDLY UNDER RES ERVATION. THE PROPERTY COULD NOT HAVE BEEN DEVELOPED DUE TO THE RESTRICTIONS ON THE SAME. SUCH A RESERVED PLOT OF LAND COULD NEVER BE FOR THE PURPOSE OF BUSINESS OF A BUILDER. THE APPELLANT CONVERTED THE SAID INVESTMENT IN STOCK IN TRADE ONLY WHEN HE RECEIVED TDR AGAINST THE PLOT OF LAND. THE TDRS ARE FREELY TRADABLE. THIS TDR HAD ALL THE ATT RIBUTES OF THE STOCK IN TRADE AND HENCE THE APPELLANT WAS RIGHT IN CONVERTING THE SAME TO STOCK IN TRADE. THIS ALSO SUPPORTS THE CASE OF THE APPELLANT THAT THE LAND WAS RIGHTLY TRE ATED AS INVESTMENT. IN VIEW OF THE ABOVE SUBMISSIONS AND CONTENTIONS, I AM OF THE VIEW THAT THE TREATMENT GIVEN BY THE APPELLANT TO THE LAND WAS CO RRECT. THE GROUND OF APPEAL IS THEREFORE ALLOWED. THE AO IS THEREFORE DIRECTED TO ACCEPT THE TREATMENT GIVEN BY THE APPELLANT TO THE LAND PURCHASED AS INVESTMENT. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE FILED THE APPEAL BEFORE THE TRIBUNAL BY TAKING THE FOLLOWING GROUNDS : 1. THE CIT(A) HAS ERRED IN DISAPPROVING THE ASSESS ING OFFICERS TREATMENT OF THE PURCHASE AND SALE OF LAND AS A THROUGH AND THROUGH BUSINESS DEAL. 2. THE CIT(A) HAS ERRED IN OVERLOOKING THE FACT THA T THE ASSESSEE HAD ALWAYS BEEN A BUILDER AND DEVELOPER AND ITS INVESTMENT IN LAND WA S IN THE NATURE OF PURCHASE OF STOCK FOR ITS TRADE, IN THE ABSENCE OF ANY CONTRADICTIONS . 3. THE CIT(A) OUGHT TO HAVE FOUND THAT, GIVEN THE S HORT TERM FROM 1995 TO 1998, THE SO-CALLED INVESTMENT AND THE SUBSEQUENT CONVERSI ON AS STOCK WERE MERE DEVICES TO AVOID HIGHER TAX LIABILITY. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 6 7.1 THE REVENUE HAS ALSO TAKEN THE FOLLOWING ADDITI ONAL GROUND WHICH IS AS UNDER : WITHOUT PREJUDICE TO THE GROUND NO. 1 TO 3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ALLOWING THE CLAIM OF EXPENSES OF RS. 19,62,971/- WITHOUT APPRECIATING THE FACT THAT DURING THE COURSE OF ASS ESSMENT PROCEEDING, THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM WITH SUPPORTING DOCUMENTA RY EVIDENCE. 8. THE ASSESSEE HAS ALSO FILED A C.O. BY TAKING THE FOLLOWING TWO GROUNDS : 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN ACTS IN UPHOLDING THE E-OPENING OF ASSESSMENT U/S.147 OF THE ACT AND NOT HOLDING THAT THE ASSESSMENT ORDER WAS BAD IN LAW AND INVALID. 2. THE CIT(A) HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THAT THE NOTICES ISSUED BY THE ASSESSING OFFICER WERE INVALID AND VO ID AB-INITIO. 9. AFTER HEARING BOTH THE SIDES, THE ADDITIONAL GRO UND RAISED BY THE REVENUE IS ACCEPTED FOR ADJUDICATION. 10. THE LEARNED DR STRONGLY RELIED ON THE ORDER OF THE AO. SHE SUBMITTED THAT THE ASSESSEE IS A BUILDER AND DEVELOPER. THE SALE DEED PRODUCED BY THE ASSESSEE IN THE PAPER BOOK FROM PAGE NO.19 ONWARDS SHOW THE DEE D AS DEVELOPMENT AGREEMENT. THEREFORE, NOTWITHSTANDING THE ENTRIES IN THE BOOKS OF ACCOUNT AND INTENTION OF THE ASSESSEE THE PROFIT ON SALE OF SUC H LAND SHOULD BE TREATED AS BUSINESS INCOME AS HELD BY THE AO. SHE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE SET-ASIDE AND THAT OF THE ORDER OF TH E AO BE RESTORED. 11. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE LAND IN QUESTION WAS PURCHASED DURING THE YEAR 1994-95 AND WAS CONSISTENTLY SHOWN AS INVE STMENT IN THE BOOKS OF ACCOUNT. REFERRING TO THE COPY OF THE WEALTH TAX A SSESSMENT ORDER FOR A.Y. 1998- 99, A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE NO S. 7 TO 9 HE SUBMITTED THAT THE AO HAS ASSESSED SUCH INCOME TREATING THE SAME AS IN VESTMENT AND NOT AS STOCK IN TRADE. HE SUBMITTED THAT SIMILAR ORDERS HAVE BEEN PASSED FOR A.YS. 1996-97 & 7 1997-98 IN THE WEALTH TAX ASSESSMENT. THEREFORE, O NCE THE AO HAS HELD THE SAME TO BE INVESTMENT FOR WEALTH TAX PURPOSE HE CANNOT T REAT THE SAME AS STOCK IN TRADE OR BUSINESS INCOME FOR INCOME TAX PURPOSE. THEREFO RE, THE VERY ISSUE OF NOTICE U/S.148 BY THE AO WAS NOT CORRECT AND AMOUNTS TO A CHANGE OF OPINION. 12. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT BORROWED ANY MONEY SO AS TO GIVE THE NOMENCLATURE AS BUSINESS INCOME. FURTHER, THERE WAS NO INTENTION TO DEVELOP THE PROPERTY AS IT WAS NOT CAPABLE OF BEING DEVELOPED AS IT WAS A RESERVED PLOT. REFERRING TO THE DECISION OF THE MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF VANDIT DEVELOPERS (INDIA) PVT. LTD. VIDE ITA NO. 71 69/M/2004 ORDER DATED 26-11- 2007 FOR A.Y. 2001-02 HE SUBMITTED THAT UNDER IDENT ICAL FACTS AND CIRCUMSTANCES IN THE CASE OF SISTER CONCERN OF THE ASSESSEE THE TRIB UNAL HAS DISMISSED THE APPEAL FILED BY THE REVENUE AND UPHELD THE DECISION OF THE CIT(A) TREATING THE INCOME FROM CONVERSION OF SUCH LAND TO STOCK IN TRADE AS I NCOME FROM CAPITAL GAIN. HE ALSO RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. TATA HOUSING DEVELOPMENT COMPANY LTD. REPO RTED IN 48 DTR 452 AND THE DECISION IN THE CASE OF ACIT VS. KHETAN KUMAR A . SAHA REPORTED IN 242 ITR 83. 13. SO FAR AS THE CO OF THE ASSESSEE IS CONCERNED T HE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE REASONS RECORDED BY THE AO ACCORDING TO WHICH HE HAS RELIED ONLY ON THE PURCHASE AGREEMENT AND CAME TO T HE CONCLUSION THAT INCOME HAS ESCAPED ASSESSMENT. THE LEARNED COUNSEL FOR THE AS SESSEE REFERRED TO THE CHRONOLOGY OF EVENTS WHICH ARE AS UNDER : DATE REMARKS 17-10-2002 WEALTH TAX ASSESSMENTS RE-OPENED FOR A.Y . 1996-97, 1997-98, AND 1998-99 TO TAX THE PROPERTIES ON THE GROUND THAT THEY ARE REFL ECTED AS CAPITAL ASSETS TILL A.Y. 1998-99 AND THEREAFTER CONVERTED INTO STOCK IN TRADE. 17-12-2002 RETURN OF WEALTH FILED BY THE APPELLANT REFLECTING THE ASSET AS INVESTMENTS. 31-03-2004 THE ASSESSMENT FOR A.Y. 1996-97, 1997-98 AND 1998-99 COMPLETED ASSESSING THE PROPERTIES AS ASSETS U/S.2(EA). HOWEVER, THE V ALUE OF THE ASSET WAS DETERMINED AT SUBSTANTIALLY HIGHER FIGURE RESULTING INTO ENHANCEMENT OF NET WEALTH. 8 13.1 HE SUBMITTED THAT WHEN THE AO IN THE WEALTH TA X ASSESSMENT HAS HELD THAT THE LAND IN QUESTION WAS A CAPITAL ASSET AND IS AN INVESTMENT AND HAS NOT TREATED THE SAME AS STOCK IN TRADE, THEREFORE, ON THE VERY SAME DAY THE AO AFTER PASSING THE WEALTH TAX ASSESSMENT ORDER CANNOT HELD THE SAME AS STOCK IN TRADE. THEREFORE, IT IS A CLEAR CASE OF CHANGE OF OPINION AND THEREFORE THE NOTICE ISSUED U/S.148 IS NOT PROPER AND INVALID. FOR THIS PROPOSITION HE RELIED ON THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT IN CASE OF SIEMENS INFORMATION SY STEM LTD. VS. ACIT REPORTED IN 295 ITR 333, THE DECISION IN THE CASE O F CARTINI INDIA LTD. VS. ACIT & OTHERS REPORTED IN 224 CTR 82 AND THE DECISION IN T HE CASE OF PURITY TEXTILE PVT. LTD. VS. ACIT & ANOTHER REPORTED IN 325 ITR 459. H E ALSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. REPORTED IN 320 ITR 561. 14. THE LEARNED DR ON THE OTHER HAND RELIED ON THE ORDER OF THE CIT(A) REGARDING THE VALIDITY OF NOTICE ISSUED U/S.148 OF THE INCOME TAX ACT. SHE SUBMITTED THAT THE ORIGINAL ASSESSMENT WAS COMPLETE D U/S.143(1) AND THEREFORE THERE IS NO QUESTION OF CHANGE OF OPINION. REFERRI NG TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK B ROKERS PVT. LTD. VS. ACIT REPORTED IN 284 ITR 593 SHE SUBMITTED THAT ISSUE O F NOTICE U/S.148 IS FULLY JUSTIFIED. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE B Y BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER B OOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US BY BOTH THE SIDES. SO FAR AS THE GROUNDS RAISED BY THE REV ENUE IS CONCERNED WE FIND 31-03-2004 THE INCOME-TAX ASSESSMENTS RE-OPENED ON THE GROUND THAT THE PROPERTIES ARE STOCK IN TRADE SINCE BEGINNING AND THE PROFIT FROM SALE OF THE SAME IS BUSINESS INCOME. 31-03-2005 THE INCOME-TAX ASSESSMENT ORDER PASSED R EJECTING THE PLEA THAT THE PROPERTIES WERE CAPITAL ASSETS. 9 IDENTICAL ISSUE HAD COME BEFORE THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF VANDIT DEVELOPERS COMPANY LTD. (SUPRA) AND THE TRIB UNAL UPHELD THE ORDER OF THE CIT(A) BY HOLDING AS UNDER : 9. THE LEARNED CIT(A) ON REAPPRECIATION OF THE EVI DENCE HELD THAT ACCORDING TO SECTION 45(2) OF THE INCOME-TAX ACT THE PROFITS OR GAINS ARISING FROM TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO A S TOCK-IN-TRADE OF THE BUSINESS CARRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME-TAX AS AN INCO ME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRE D BY HIM AND FOR THE PURPOSE OF SECTION 48 THE FAIR MARKET VALUE OF THE ASSET ON THE DATE O F SUCH CONVERSION SHALL BE DEEMED TO BE THE FULL VALUE OF THE ASSET ON THE DATE OF SUCH CON VERSION SHALL BE DEEMED TO THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS RESULT OF A TRANSFER OF THE CAPITAL ASSET. LEARNED CIT(A) FURTHER FOUND THAT TILL THE DATE THI S LAND WAS CONVERTED INTO STOCK-IN- TRADE, THE DEPARTMENT HAS NO OBJECTION TO IT. THE ASSESSEE WHILE WORKING OUT THE PROFIT ON SALE OF TDR HAD TAKEN THE FAIR MARKET VALUE OF T HE ASSET AS ON THE DATE OF THE CONVERSION AS COST OF ACQUISITION AND OFFERED THE D IFFERENCE BETWEEN THE SALE PRICE AND COST OF ACQUISITION AS A BUSINESS INCOME. THE AS SESSEE ALSO OFFERED THE DIFFERENCE BETWEEN FAIR MARKET VALUE AS ON THE DATE OF CONVERS ION AND INDEXED COST PURCHASED AS A LONG TERM CAPITAL GAIN AS PER PROVISIONS OF SECTION 45(2) OF THE INCOME-TAX ACT. 10. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATI VE WE HAVE GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE THAT THE LAND WAS P URCHASED IN 1995 WHICH WAS SHOWN AS AN INVESTMENT TILL ASSESSMENT YEAR 1999-2000. DEPA RTMENT HAS NOT RAISED ANY OBJECTION. ASSESSEE WAS AWARE THAT IT COULD NOT ABLE TO DEVELO P THIS LAND, THE ONLY THING WAS TDR WOULD BE AVAILABLE TO IT. HENCE, TILL THE DATE OF C ONVERSION ASSESSEE HAS CALCULATED ANY LONG TERM CAPITAL GAIN. AFTER THE DATE OF CONVERSIO N ASSESSEE ITSELF OFFERED THE PROFIT ON SALE OF TDR AS A BUSINESS INCOME. WE DO NOT FIND A NY WRONG IN THIS COMPUTATION BECAUSE IT WAS NEVER A BUSINESS INVESTMENT IN THE PAST. TH US, THERE IS NO MERIT IN THIS GROUND OF APPEAL. IT IS REJECTED. 16. WE FURTHER FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT WHEN IN THE WEALTH TAX ASSESSMENT THE SAME AO HAS TREATED THE LAND IN QUESTION AS INVESTMENT AND AS A CAPITAL ASSET, T HEREFORE, HOLDING THE SAME TO BE STOCK IN TRADE FROM THE VERY BEGINNING IS UNCALLED FOR. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE CIT(A) AND CONSIDERING THE FACT THE TRIBUNAL IN THE CASE OF THE SISTER CONCERN OF T HE ASSESSEE UNDER IDENTICAL FACTS 10 AND CIRCUMSTANCES HAS TREATED SUCH INCOME AS CAPITA L GAIN, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A). WE ACCORDINGLY UPHOLD THE SAME. GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 17. SO FAR AS THE ADDITIONAL GROUND RAISED BY THE R EVENUE IS CONCERNED, WE FIND THE AO DISALLOWED THE FOLLOWING EXPENSES ON THE GRO UND THAT INSPITE OF SEVERAL OPPORTUNITIES THE ASSESSEE DID NOT FURNISH ANY DETA ILS OF EXPENSES OR BOOKS OF ACCOUNT DURING THE COURSE OF HEARING: 1. PROFESSIONAL FEES RS.6,38,421 2. INTEREST RS.4,16,847 3. BROKERAGE RS.8,57,703 4. ADVERTISING EXPENSES RS. 50,000 18. IN APPEAL THE LEARNED CIT(A) DELETED THE ADDITI ON ON THE GROUND THAT THE ENTIRE ASSESSMENT PROCEEDINGS WERE COMPLETED DURING A SHORT SPAN OF TIME WITH TWO HEARINGS, I.E. ON 02-03-2005 AND 21-03-2005 AND THE AO DID NOT PROPOSE ANY DISALLOWANCE WHICH HE MIGHT BE CONTEMPLATING BEFORE THE ASSESSEE AND DID NOT CALL FOR ASSESSEES OBJECTIONS FOR THE CONTEMPLATED DISA LLOWANCE. HE THEREFORE CONCLUDED THAT ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WAS NOT GIVEN AND THAT THE REQUIRED DETAILS AND THE EVIDENCE HAD BEEN FILED BY THE ASSESSEE DURING THE ASSESSEE PROCEEDINGS. 19. IN OUR OPINION, THE CIT(A) SHOULD HAVE EXAMINED THE DETAILS IF THE SAME WERE FILED BEFORE THE AO AND SHOULD HAVE DECIDED TH E ISSUE BY PASSING A SPEAKING ORDER. IN THE INSTANT CASE, THE SAME HAS NOT BEEN DONE. IT IS THE SETTLED PROPOSITION OF LAW THAT THE POWER OF THE CIT(A) ARE CO-TERMINUS WITH THAT OF THE POWERS OF THE ASSESSING OFFICER. IF ACCORDING TO THE CIT(A) ADEQ UATE OPPORTUNITY OF HEARING WAS NOT GIVEN TO THE ASSESSEE HE SHOULD HAVE ATLEAST CA LLED FOR A REMAND REPORT FROM THE AO OR HE COULD HAVE HIMSELF GONE THROUGH THE DETAIL S. THE PAPER BOOK FILED BY THE ASSESSEE BEFORE US ALSO DO NOT CONTAIN SUFFICIE NT DETAILS OF SUCH EXPENSES SO AS 11 TO TAKE AN INDEPENDENT VIEW. UNDER THESE CIRCUMSTA NCES, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE CIT(A) WITH TH E DIRECTION TO EXAMINE THE DETAILS AND DECIDE THE ISSUE AS PER LAW. WE HOLD AND DIREC T ACCORDINGLY. THE ADDITIONAL GROUND RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 20. SO FAR AS THE C.O. FILED BY THE ASSESSEE CHALLE NGING THE VALIDITY OF THE RE- ASSESSMENT PROCEEDINGS WE FIND THE ORIGINAL ASSESSM ENT IN THE INSTANT CASE WAS COMPLETED U/S.143(1). THEREFORE, THE AO HAD NO OCC ASION TO APPLY HIS MIND. IN THE CASE OF RAJESH JHAVERI STOCK BROKERS PVT. LTD. VS. ACIT REPORTED IN 284 ITR 593 THE HONBLE SUPREME COURT AFTER CONSIDERING THE HISTORY OF THE PROVISIONS OF S. 143(1) HELD THAT THE INTIMATION U/S.143(1)(A) CA NNOT BE TREATED TO BE AN ORDER OF ASSESSMENT. THERE BEING NO ASSESSMENT U/S.143(3), T HE QUESTION OF CHANGE OF OPINION FOR THE PURPOSES OF S. 147, AS CONTENDED, D ID NOT ARISE. THE SUPREME COURT FURTHER HELD THAT THE SCOPE AND EFFECT OF S. 147, A S SUBSTITUTED WITH EFFECT FROM APRIL 1, 1989, AS ALSO S. 148 TO S. 152, WERE SUBST ANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION . UNDER THE OLD PROVISIONS OF S. 147, SEPARATE CLAUSES (A) AND (B) LAID DOWN THE CIR CUMSTANCES UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS C OULD BE ASSESSED OR REASSESSED. TO CONFER JURISDICTION U/S.147(A), TWO CONDITIONS W ERE REQUIRED TO BE SATISFIED: FIRSTLY, THE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME, PROFIT OR GAINS CHARGEABLE TO INCOME TAX HAVE ESCAPED ASSESSM ENT, AND SECONDLY, HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT HA S OCCURRED BY REASON OF EITHER OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BO TH THESE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE ASS ESSING OFFICER COULD HAVE JURISDICTION TO ISSUE NOTICE U/S.148 READ WITH S. 1 47(A). BUT UNDER THE SUBSTITUTED S. 147, EXISTENCE OF ONLY THE FIRST CONDITION SUFFICES . IN OTHER WORDS, IF THE ASSESSING 12 OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE T HAT INCOME HAS ESCAPED ASSESSMENT, IT CONFERS JURISDICTION TO REOPEN THE A SSESSMENT. WE THEREFORE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) UPHOLD ING THE RE-ASSESSMENT PROCEEDINGS INITIATED BY THE A.O. THE VARIOUS DECI SIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NO T APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE THE ORIGINAL ASSESSMENT IN THE I NSTANT CASE WAS COMPLETED U/S.143(1) AND NOT U/S.143(3). THEREFORE, RESPECTF ULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE RAJESH JHAVERI ST OCK BROKERS PVT. LTD. (SUPRA) WE UPHOLD THE RE-ASSESSMENT PROCEEDINGS INITIATED B Y THE AO. GROUND RAISED BY THE ASSESSEE IN THE C.O. IS ACCORDINGLY DISMISSED. 21. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE C.O. FILED BY THE ASSESSEE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 14 TH DAY OF DECEMBER, 2012. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 14 TH DECEMBER 2012 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-II, MUMBAI 4. CIT, MUMBAI CITY, MUMBAI 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE