VIDYAVIHAR CONTAINERS LTD, MUMBAI V. DCIT CIR 10(2), MUMBAI

ITA 1086/MUM/2010

• Counselvise Citation: 108619914 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 25-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUSUM INGALE
• Assessee Lawyers: SHRIARVINDSONDE
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Cost of acquisition; Date of conversion; Fair market value; Commercial expediency; Unabsorbed depreciation
• Section: 45(2); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI. BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI P.M. JAGTAP, ACCOUNTANT MEMBER 1. I.T.A. NO. 1086/MUM/2010 ASSESSMENT YEAR : 2006-07. 2. I.T.A. NO. 30/MUM/2006 ASSESSMEN T YEAR : 2002-03. 3. I.T.A. NO. 7730/MUM/2007 ASSESSMENT YEAR : 2004-05. VIDHYAVIHAR CONTAINERS LTD., DY./ASSTT/ADDL. COMMISSIONER BAJAJ BHAVAN, 3 RD FLOOR, VS. OF INCOME-TAX, 10(2), 226, NARIMAN POINT, MUMBAI. MUMBAI 400 021. PAN : AAACN 0291R. APPELLANT. RESPONDENT. 4. I.T.A. NO. 108/MUM/2008 ASSESSMENT YEAR : 2004-05. DY. COMMISSIONER OF INCOME-TAX, VIDYAVIHAR CONTAINERS LTD., 10(2), MUMBAI. VS. MUMBAI. APPELLANT. RESPONDENT ASSESSEE BY : SHRIARVINDSONDE. DEPARTMENT BY : SMT. KUSUM INGALE. DATE OF HEARING :25-08-2011 DATE OF PRONOUNCEMENT : 2 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 O R D E R. PER P.M. JAGTAP, A.M. : OUT OF THESE FOUR APPEALS, TWO APPEALS BEING ITA N OS. 1086/MUM/2010 AND 30/MUM/2006 ARE THE APPEALS FILED BY THE ASSESSEE FOR A.Y. 2006-07 AND A.Y. 2002-03 WHEREAS THE OTHER TWO APPEALS BEING ITA NOS . 7730/MUM/2007 AND 108/MUM/2008 ARE CROSS APPEALS FILED FOR A.Y. 2004- 05. SINCE THE ISSUES INVOLVED THEREIN ARE INTERLINKED, THE SAME HAVE BEEN HEARD T OGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER. 2. WE SHALL FIRST TAKE UP THE APPEAL OF THE ASSESSE E FOR A.Y. 2006-07 BEING ITA NO.1086/MUM/2010 WHICH IS DIRECTED AGAINST THE ORDE R OF LEARNED CIT(A)-22, MUMBAI DATED 16-12-2009. IN GROUND NO.1 OF THIS A PPEAL, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) I N CONFIRMING THE COMPUTATION OF LONG TERM CAPITAL GAINS AS MADE BY THE A.O. AT RS.61,03,28,546/- IN RESPECT OF TRANSFER OF LAND. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH WAS EARLIER ENGAGED IN THE BUSINESS OF MANUFACTURING OF CONTAINERS. THE SA ID BUSINESS WAS DISCONTINUED SOMETIME IN THE YEAR 1999 AND ALL THE STAFF AND WOR KERS EMPLOYED THEREIN WERE REMOVED. THEREAFTER, THE ASSESSEE COMPANY ENGAGED I TSELF IN DISPOSING OFF THE PLANT AND MACHINERY AS WELL AS CONTAINERS MANUFACTU RED IN THE EARLIER YEAR AND LYING IN STOCK. IT CLAIMED TO HAVE CONVERTED THE F ACTORY LAND HAVING ORIGINAL COST OF ACQUISITION OF RS.9,11,881 INTO STOCK IN TRADE IN T HE PREVIOUS YEAR RELEVANT TO A.Y. 2005-06. THE FAIR MARKET VALUE OF THE SAID LAND AS ON 1.4.1981 WAS ADOPTED BY THE ASSESSEE AT RS.9,40,83,190 ON THE BASIS OF VALUATIO N REPORT. WHILE JUSTIFYING ITS CLAIM FOR THE SAID CONVERSION IN TERMS OF PROVISION OF SECTION 45(2), THE ASSESSEE COMPANY SUBMITTED BEFORE THE A.O. THAT IT HAD PASSE D A SPECIAL RESOLUTION IN THE 3 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 EXTRAORDINARY GENERAL BODY MEETING OF THE SHAREHOLD ERS HELD ON 12.9.1994 APPROVING THE COMMENCEMENT OF THE BUSINESS OF REAL ESTATE DEVELOPMENT. IT WAS SUBMITTED THAT IN FURTHERANCE OF ITS INTENTION TO V ENTURE INTO THE BUSINESS OF REAL ESTATE DEVELOPMENT, THE ASSESSEE COMPANY MADE AN AP PLICATION FOR CHANGE IN USER OF LAND FROM INDUSTRIAL TO COMMERCIAL IN 1996 WHICH WAS GRANTED ON 4.3.1997. THE ASSESSEE COMPANY THEN SOUGHT AMENDMENT TO THE SAID PERMISSION FORM COMMERCIAL TO RESIDENTIAL WHICH WAS RECEIVED ON 28.7.1998. TH E PERMISSION FROM CIVIL AVIATION AUTHORITY FOR CONSTRUCTION OF BUILDING ON THE LAND UPTO MAXIMUM HEIGHT WAS ALSO RECEIVED ON 4.11.1997.PERMISSION FROM URBA N LAND CEILING AUTHORITY WAS ALSO CLAIMED TO BE OBTAINED BY THE ASSESSEE COMPANY FOR REDEVELOPMENT OF THE LAND IN THE MONTH OF MARCH, 1999. THE PERMISSION AS SOU GHT BY THE ASSESSEE FOR REDEVELOPMENT OF THE PROPERTY AND CHANGE OF USER IN THE MONTH OF JAN., 2002 WAS ALSO STATED TO BE GRANTED BY COLLECTOR, MUMBAI SUBU RBAN DISTRICT THEREBY PERMITTING THE ASSESSEE TO DEVELOP THE LAND FOR RES IDENTIAL PURPOSES WITH COMMERCIAL USE AND ITS SALE THEREAFTER. IT WAS SUB MITTED THAT AFTER OBTAINING ALL THESE APPROVALS/PERMISSIONS, THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY PASSED THE RESOLUTION IN THE MEETING HELD ON 29.5.2 004 CONVERTING THE LAND INTO STOCK IN TRADE AT ITS BOOK VALUE. IT WAS CONTENDED THAT THE ASSESSEE COMPANY THUS HAD ALREADY COMMENCED ACTIVITIES FOR EXPLOITATION A ND DEVELOPMENT OF THE LAND FOR COMMERCIAL PURPOSES AS PART OF ITS BUSINESS AND THE CONVERSION OF THE SAID LAND HELD AS CAPITAL ASSET INTO STOCK IN TRADE WAS VALID AND THE CONDITIONS STIPULATED IN SECTION 45(2) WERE DULY SATISFIED. 4. THE STAND OF THE ASSESSEE RELATING TO THE VALID CONVERSION OF LAND INTO STOCK IN TRADE WAS NOT FOUND ACCEPTABLE BY THE A.O. ACCO RDING TO HIM, THE ASSESSEE 4 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 COMPANY HAD OBTAINED CHANGE OF USER OF THE FACTORY LAND FROM INDUSTRIAL TO COMMERCIAL FINALLY VIDE ORDER DT.16.5.2005 ISSUED B Y THE COLLECTOR, MUMBAI SUBURBAN DISTRICT. HE FOUND THAT IMMEDIATELY AFTER OBTAINING THE SAID PERMISSION, THE ASSESSEE COMPANY HAD ENTERED INTO AN AGREEMENT WITH M/S. GAMMON NEELKANTH REALTY CORPORATION (GNRC) TRANSFERRING TH E DEVELOPMENT IN THE SAID LAND FOR A CONSIDERATION OF CONSTRUCTED AREA OF 2,1 9,000 SQ. FT. BUILT UP AREA (I.E. 336 FLATS) ALONG WITH PARKING PLACES. M/S. GNRC HA D ALSO AGREED TO REIMBURSE THE AMOUNT OF RS.23 CRORES PAYABLE BY THE ASSESSEE TO T HE COLLECTOR, MUMBAI SUBURBAN DISTRICT FOR GRANTING PERMISSION TO CHANGE THE USE OF THE LAND. ON PERUSAL OF THE DEVELOPMENT AGREEMENT DT.24.6.2005 A S WELL AS SUPPLEMENTARY DEVELOPMENT AGREEMENT DT.7.7.2005, THE A.O. NOTED T HAT THE PROPERTY OF THE ASSESSEE WAS TO BE DEVELOPED BY M/S.GNRC ON ITS OWN COST AND RISK. HE ALSO NOTED THAT THE ASSESSEE COMPANY WAS ENTITLED TO REC EIVE ONLY THE CONSIDERATION AS PER THE AGREEMENT AND THERE WAS NO INTEREST OF THE ASSESSEE COMPANY IN THE PROJECT EXCEPT GETTING THE STIPULATED CONSIDERATION IN THE FORM OF CONSTRUCTED FLATS. HE ALSO NOTED THAT THE ASSESSEE VIDE AN AGREEMENT DT.4 .8.2005 HAD SOLD THE SAID CONSTRUCTED FLATS FOR A GUARANTEED CONSIDERATION OF RS.83.50 CRORES TO M/S. R.T. EXPORTS PVT. LTD. 5. AFTER HAVING TAKEN INTO CONSIDERATION ALL THE FA CTS OF THE CASE AS NOTED ABOVE, THE A.O. HELD THAT THE FACTORY LAND BELONGING TO TH E ASSESSEE WHICH WAS HELD AS A CAPITAL ASSET COULD NOT HAVE BEEN CONVERTED INTO ST OCK IN TRADE PRIOR TO THE PERMISSION OF THE GOVERNMENT IN RESPECT OF CHANGE O F USER OF THE SAID LAND. HE HELD THAT PRIOR TO THE SAID PERMISSION, THE LAND CO NTINUED TO REMAIN A CAPITAL ASSET IRRESPECTIVE OF THE FACT THAT A RESOLUTION WAS PASS ED BY THE ASSESSEE COMPANY 5 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 CONVERTING THE CAPITAL ASSET INTO STOCK IN TRADE. ACCORDING TO THE A.O., THE STATE GOVERNMENT BEING OWNER OF THE LAND ALONE HAD THE AU THORITY TO ALLOW SUCH CONVERSION. HE HELD THAT THE BUSINESS OF DEVELOPME NT OF THE LAND WAS THAT OF M/S. GNRC AND NOT OF THE ASSESSEE COMPANY. HE ALSO HELD THA T THERE WAS NO CONVERSION OF FACTORY LAND INTO STOCK IN TRADE FOR THE BUSINESS CARRIED ON BY THE ASSESSEE COMPANY AND IT WAS A SIMPLE CASE OF TRANSF ER OF THE SAID LAND AS A CAPITAL ASSET BY THE ASSESSEE COMPANY FOR STIPULATED CONSID ERATION IN TERMS OF THE DEVELOPMENT AGREEMENT. HE HELD THAT THE CONVERSION OF FACTORY LAND INTO STOCK IN TRADE CLAIMED BY THE ASSESSEE IN HIS BOOKS OF ACCOU NT THUS WAS A NULLITY AND IT WAS NOT ENTITLED FOR THE BENEFITS AVAILABLE U/S.45(2). HE HELD THAT THE TRANSFER OF DEVELOPMENT RIGHTS OF THE FACTORY LAND BY THE ASSES SEE TO M/S. GNRC THUS WAS A TRANSFER OF CAPITAL ASSET WITHIN THE MEANING OF SEC TION 2(47) AND THE PROFIT ARISING FROM SUCH TRANSFER WAS CHARGEABLE TO TAX IN THE HAN DS OF THE ASSESSEE AS LONG TERM CAPITAL GAINS U/S.45. ACCORDINGLY, SUCH CAPITAL GA IN WAS WORKED OUT BY HIM AT RS.61,03,28,546 AFTER REDUCING THE INDEXED COST OF ACQUISITION OF THE LAND OF RS.45,46,71,454 FROM THE AGGREGATE SALE CONSIDER ATION OF RS. 106.50 CRORES ( RS.83.50 CRORES AS SALE CONSIDERATION OF FLATS RE CEIVABLE FROM M/S.R.T. EXPORTS PVT. LTD. + RS.23 CRORES RECEIVED FROM M/S.GNRC TOW ARDS REIMBURSEMENT OF CONVERSION CHARGES PAID TO COLLECTOR, MUMBAI SUBURB AN DISTRICT) AND THE SAME WAS BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE IN THE ASSESSMENT COMPLETED U/S.143(3) VIDE ORDER DT.30.12.2008. 6. AGAINST THE ORDER PASSED BY THE A.O. U/S. 143(3) , AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT (A) AND THE SUB MISSIONS MADE BEFORE THE A.O. IN SUPPORT OF ITS CLAIM FOR CONVERSION OF FACTORY L AND INTO STOCK IN TRADE WERE 6 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 REITERATED ON BEHALF OF THE ASSESSEE BEFORE THE LEA RNED CIT(A). IT WAS ALSO SUBMITTED THAT PERMISSION FOR CHANGE OF USER OF LAN D HAD NOTHING TO DO WITH THE DECISION OF THE ASSESSEE COMPANY TO CONVERT ITS LAN D INTO STOCK IN TRADE. IT WAS CONTENDED THAT THE PROVISIONS OF SECTION 45(2) DEAL WITH ONLY THE MODE OF COMPUTATION OF CAPITAL GAINS AND BUSINESS INCOME AR ISING ON SALE OF AN ASSET WHICH IS CONVERTED INTO STOCK IN TRADE PRIOR TO ITS SALE AND IT DOES NOT PRESCRIBE ANY CONDITION WHICH ARE REQUIRED TO BE FULFILLED AT THE TIME OF CONVERSION OF ITS ASSET INTO STOCK IN TRADE. IT WAS CONTENDED THAT THE CON VERSION OF LAND BY THE ASSESSEE COMPANY INTO STOCK IN TRADE WAS VALID AND THE PROVI SIONS OF SECTION 45(2) WERE CLEARLY APPLICABLE. IT WAS URGED BY THE ASSESSEE T HAT THE A.O. MAY THEREFORE BE DIRECTED TO RECOMPUTE THE LONG TERM CAPITAL GAINS I N ACCORDANCE WITH THE PROVISIONS OF SECTION 45(2). 7. THE LEARNED CIT(A) DID NOT FIND MERIT IN THE SUB MISSIONS MADE ON BEHALF OF THE ASSESSEE AND PROCEEDED TO UPHOLD THE ACTION OF THE A.O. IN COMPUTING THE LONG TERM CAPITAL GAINS CHARGEABLE TO TAX IN THE HANDS O F THE ASSESSEE AFTER DEALING WITH VARIOUS CONTENTIONS RAISED BY THE ASSESSEE ELABORAT ELY IN HIS IMPUGNED ORDER AS UNDER : 2.4 I HAVE GONE THROUGH THE ASSESSMENT ORDER, PER USED THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO DISCUSSED. THE CASE WITH THE A/R OF THE APPELLANT. THE A.O. IN THE ASSESSMENT ORDER HAS DIS CUSSED IN DETAIL AS TO HOW THE LAND OWNED BY THE APPELLANT WAS NOT CONVERTED I NTO STOCK IN TRADE AND WAS ONLY A CAPITAL ASSET IN THE HANDS OF THE APPELL ANT AND AS TO HOW THE PROVISIONS U/S. 45(2) ARE NOT APPLICABLE TO THE APP ELLANTS CASE. BEFORE ME THE SUBMISSIONS MADE BEFORE THE A.O. BEEN REITERATE D. ACCORDINGLY, THE SAME IS DEALT WITH AS UNDER: 7 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 (I) THE APPELLANT CLAIMED THAT APPELLANT CONTINUED ITS BUSINESS ACTIVITY OF SALE OF CONTAINERS LYING IN THE STOCK. HOWEVER, THE RE IS NO EVIDENCE PRODUCED BY IT THAT ANY BUSINESS WAS CARRIED OUT BY IT AFTER THE YEAR 999. (II) THE APPELLANT CLAIMED THAT THE RESOLUTION PASS ED BY THE MEMBERS OF APPELLANT ON 12.09.1994 APPROVED THE COMMENCEMENT O F BUSINESS OF DEVELOPMENT. HOWEVER, MERELY BY PASSING SUCH RESOLU TION WITHOUT PERMISSION OF THE COLLECTOR (WHICH WAS RECEIVED ON 16.O5.2005) NO PURPOSE IS SERVED SINCE RESOLUTION IS NOT ENFORCEABLE AND N O ACTION COULD HAVE BEEN TAKEN BY THE APPELLANT IN PURSUANCE THEREOF. IN FAC T THIS IS THE REASON WHY THE AGREEMENT FOR SALE OF LAND COULD BE MADE ONLY ON 20 .04.2005. ACCORDINGLY, EXISTENCE OF SUCH RESOLUTION BEFORE THE PERMISSION GRANTED BY THE COLLECTOR IS MERELY A PIECE OF PAPER. SIMILARLY, PERMISSIONS TAKEN FROM B M C IS ALSO OF NO RELEVANCE SINCE THE SAME WAS SUBJECT TO COLLE CTORS APPROVAL. THE RELEVANT PARA OF THE LETTER DATED 04.03.1997 ISSUE4 BY THE 13 M C READS AS UNDER: THAT NOC FROM THE ADDL. COLLECTOR & CA. ULC GREATE R MUMBAI SHALL BE OBTAINED AND THE CONDITIONS THEREUNDER SHALL BE COM PLIED WITH. SIMILAR IS THE FATE OF OTHER PERMISSIONS STATED TO HAVE BEEN APPLI ED FOR FROM CIVIL AVIATION AUTHORITY AND ULC AUTHORITIES. (III) THE APPELLANT HAS FURTHER CLAIMED THAT IN ITS OWN CASE HONBLE IIAT, PUNE HAD ALLOWED CONVERSION OF ITS LAND INTO STOCK IN TRADE. THIS CONTENTION OF THE APPELLANT IS NOT CORRECT. THE OBSERVATION OF HONBLE ITAT IN THE SAID ORDER ARE REPRODUCED AS UNDER : THE TIME OF TAXABILITY IS POSTPONED TO THE YEAR I N WHICH SUCH AN ASSET IS EVENTUALLY SOLD. THE AMENDED PROVISIONS C AME INTO EFFECT FROM 1/4/85 AND APPLICABLE TO THE A.Y. 1985-86 AND SUBSEQUENT YEARS. THESE PROVISIONS WOULD HAVE NO APPLICATION TO A CAS E WHERE CONVERSION OF AN ASSET TAKES PLACE IN THE YEAR RELE VANT TO THE A. Y. 1984-85 OR EARLIER YEARS. IN LAW THE LD. CIT(A) WAS RIGHT IN HOLDING THAT THE RE/C VAN! CAPITAL GAINS CANNOT BE BROUGHT TO THE T AX FOR THE A. 8 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 Y 1985-86 BECAUSE TILE TRANSFER OF ASSET TOOK PLACE IN THE YEAR WHEN THE AMENDED PROVISIONS NOT ON STATUTE. FROM THE ABOVE IT MAY BE NOTED THAT THE ISSUE RELAT ES TO THE PRE AMENDED PERIOD OF CONVERSION OF STOCK IN TRADE IN THIS CASE WHILE IN THE APPELLANT CASE IT HAS BEEN HELD THAT THERE IS NO CONVERSION OF STO CK IN TRADE. THUS, THE FACTS OF THE TWO CASES BEING DIFFERENT, THE RATIO OF THE JUDGEMENT OF HONNLE ITAT AS ABOVE IS NOT APPLICABLE, TO THE FACTS OF THE APP ELLANT CASE. (IV) THE APPELLANT HAS ALSO TAKEN PLEA THAT CONVERS ION TOOK PLACE IN YEAR ENDING 31 .03.2005 RELEVANT TO A.Y. 2005-2006 WHERE THE SAME HAS BEEN ACCEPTED BY THE A.O. THE CONTENTION OF THE APPELLAN T IS NOT CORRECT SINCE AS HELD BY A.O. NO SUCH CONVERSION HAS TAKEN PLACE. AL SO, NO SUCH FINDING IS GIVEN BY A.O. IN ASSESSMENT ORDER FOR A.Y. 2005-200 6. FURTHER THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS. (V) THE APPELLANT FURTHER STATED THAT THE DECISION TAKEN BY THE APPELLANT COMPANY TO CONVERT LAND INTO STOCK IN TRADE AS PE R RESOLUTION DATED 29.05.1994, THE CONVERSION TOOK PLACE AND IT WAS TH E PREROGATIVE OF THE APPELLANT TO DECIDE THE PARTICULAR ASSET AS FIXED ASSET OR STOCK IN TRADE FOR WHICH NO PERMISSION WAS REQUIRED UNDER ANY LAW. IT WAS ALSO STATED THAT PERMISSION GRANTED BY COLLECTOR BROUGHT BETTER PRIC E TO THE APPELLANT AND WAS NEVER HURDLE FOR SUCH SALE. HOWEVER, I DO NOT A GREE WITH THE CONTENTION OF THE APPELLANT SINCE HAD THIS BEEN THE CASE, THE LAND COULD HAVE BEEN SOLD BEFORE THE PERMISSION FROM COLLECTOR WAS RECEIVED O N 1605.2005. THE FACT THAT THE LAND COULD BE SOLD ONLY ON 24.06.2005 AS P ER AGREEMENT ENTERED INTO WITH MIS. GAMON NEELKANTH REALTY CORPORATION ITSELF PROVED THE FACT THAT TILE RESOLUTION WAS MEANINGLESS WHICH COULD HAVE NO T BEEN GIVEN EFFECT TO (VI) THE APPELLANT HAS ALSO DISPUTED THAT THE A 0 HAS WRONGLY STATED THAT THE APPELLANT HAS NO INTEREST AND ROLE IN THE DEVEL OPMENT IN THE PROJECT, SINCE THE PROCUREMENT OF SALE OF CONSTRUCTION AREA AND P ROFIT/LOSS ARISING OUT OF SUCH SALE ARE TO BE BORNE, BY THE APPELLANT AND DEV ELOPERS HAVE NO STAKE. HOWEVER, THE APPELLANT COULD NOT SUBSTANTIATE THIS CLAIM BY ANY DOCUMENTARY EVIDENCE ON THE CONTRARY AS PER AGREEMENT THE RISK IS SOLELY OF DEVELOPER I.E. 9 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 M/S GAMON NEELKANTH REALTY CORPORATION AND THE APPE LLANTS INTEREST IS ONLY IN CASH OF RS. 23 CRORES AND 336 FLATS ALONG WITH 200 PARKING, PLACES. BEYOND THIS THERE IS NO INTEREST OF THE APPELLANT AND HENCE THE RISK IS TOTALLY THAT OF THE DEVELOPER. IN VIEW OF THE ABOVE DISCUSSION IT MAY BE NOTED TH AT THERE IS NO BUSINESS ACTIVITY IN THE COMPANY SINCE 1999. THIS WAS ADMITT ED BY THE APPELLANT IN PARA 1 OF ITS LETTER DATED 22.12.2008. THE APPELLAN T TRANSFERRED THE DEVELOPMENT RIGHTS OF THE LAND TO M/S GAMON NEELKAN TH REALITY CORPORATION FOR CONSIDERATION AS REFERRED TO ABOVE. THE DEVELOPMENT WAS TO BE MADE BY M/S GAMON NEELKANTH REALITY CORPORATION ON THEIR OWN COST AND RISK. THE APPELLANT HAD NO RIGHT IN THE PROFIT /LOSS IN THE DEVELOPMENT OF THE SAID LAND EXCEPT RECEIVING CONSIDERATION AS DE CIDED AT THE TIME OF DEVELOPMENT RIGHT VIDE AGREEMENT DATED 24.06.2005. THUS, THE BUSINESS OF DEVELOPMENT OF LAND CANNOT BE CLAIMED BY THE APPELL ANT TO ITS BUSINESS AS THE SAME WAS THAT OF DEVELOPER. FROM THIS IT IS CLEAR T HAT THE APPELLANT DID NOT CONVERTED THE FACTORY LAND INTO STOCK IN TRADE OF A BUSINESS CARRIED ON BY IT BUT SIMPLY TRANSFERRED THE LAND OR A CONSIDERATION . THUS THE CONVERSION, IF ANY, INTO STOCK IN TRADE TOOK PLACE WHEN THE LAND W AS TAKEN OVER BY THE DEVELOPER AND THUS THE STOCK IN TRADE IS TO BE TREA TED IN THE HANDS OF M/S GAMON NEELKANTH REALITY CORPORATION AND NOT IN THE HANDS OF THE APPELLANT. IN VIEW OF THIS, THE APPELLANT HAS NOT FULFILLED TH E CONDITIONS PRESCRIBED U/S 45(2) SINCE NO BUSINESS WAS CARRIED OUT BY IT, THER E WAS NO CONVERSION OF LAND INTO STOCK IN TRADE OF ITS BUSINESS, AND THE B USINESS OF DEVELOPMENT IS EXCLUSIVELY THAT OF THE DEVELOPER AND NOT THAT OF T HE APPC1LAN.. ACCORDINGLY, I AM OF THE CONSIDERED OPINION THAT A.O. WAS JUSTIF IED IN HOLDING THAT A TRANSFER OF DEVELOPMENT RIGHT OF THE FACTORY LAND B Y THE APPELLANT TO THE DEVELOPER IS TRANSFER OF CAPITAL ASSET UNDER THE PR OVISION OF SECTION 2(47) AND THE INCOME ON SUCH TRANSFER IS CHARGEABLE TO AS CAP ITAL GAINS U/S. 45 OF THE IT. ACT. 10 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 8. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET INVITED OUR ATTENTION TO PAGE NO. 20 AND 21 OF HIS PAPER BOOK TO SHOW THAT T HE COMMENCEMENT OF REAL ESTATE BUSINESS` AS NEW BUSINESS WAS APPROVED BY TH E SHAREHOLDERS OF THE ASSESSEE COMPANY IN THE EXTRAORDINARY GENERAL MEETING HELD O N 12 TH SEPT.,1994. HE THEN INVITED OUR ATTENTION TO THE LETTER DATED 04-03-199 7 RECEIVED BY THE ASSESSEE COMPANY FROM BRIHANMUMBAI MAHANAGAR PALIKA INFORMIN G THE ASSESSEE THAT ITS REQUEST TO GRANT PERMISSION FOR THE DEVELOPMENT OF INDUSTRIAL ZONE LAND FOR COMERCIAL USER COULD BE CONSIDERED SUBJECT TO COMPL IANCE OF CERTAIN TERMS AND CONDITIONS. HE ALSO INVITED OUR ATTENTION TO A COPY OF SIMILAR LETTER RECEIVED FROM THE OFFICE OF ADDITIONAL COLLECTOR PLACED AT PAGE N O. 64 ON 21-12-1998 REGARDING GRANT OF PERMISSION FOR REDEVELOPMENT OF PROPERTY S UBJECT TO COMPLIANCE OF CERTAIN TERMS AND CONDITIONS. HE THEN INVITED OUR ATTENTION TO A COPY OF PROPOSAL SUBMITTED BY THE ASSESSEE COMPANY TO THE COLLECTOR, MUMBAI SU BURBAN DISTRICT ON 11-01- 2001 PLACED AT PAGE NOS. 36 TO 41 OF HIS PAPER BOOK SEE KING PERMISSION FOR REDEVELOPMENT OF THE PROPERTY. HE SUBMITTED THAT AF TER COMPLETING ALL THESE FORMALITIES TO SECURE THE PERMISSIONS FOR REDEVELOP MENT OF PROPERTY, THE LAND WAS CONVERTED INTO STOCK IN TRADE BY A RESOLUTION PASSE D AT THE MEETING OF BOARD OF DIRECTORS OF THE ASSESSEE COMPANY ON 29 TH MAY, 2004. HE INVITED OUR ATTENTION TO THE CERTIFIED COPY OF THE SAID RESOLUTION PLACED AT PAGE NO. 42 OF HIS PAPER BOOK. 9. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED T HAT ALTHOUGH FINAL ORDER GIVING PERMISSION TO THE REDEVELOPMENT WAS ISSUED B Y THE COLLECTOR, MUMBAI SUBURBAN DISTRICT ON 16 TH MAY, 2005, THE ASSESSEE COMPANY WAS NOT REQUIRED T O WAIT FOR SUCH ORDER FOR CONVERTING THE LAND HELD AS CAPITAL ASSET INTO STOCK IN TRADE. HE CONTENDED THAT THE OPTION WAS WITH THE ASSESSEE COMPANY TO CONVERT THE LAND INTO STOCK IN TRADE FOR ITS BUSINESS OF REAL ESTATE DEVELOPMENT AND SINCE THE SAID 11 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 BUSINESS HAD ALREADY COMMENCED BY THE ASSESSEE ON P ASSING THE SPECIAL RESOLUTION BY ITS SHAREHOLDERS AND ON TAKING FURTHER STEPS TO MAKE THE LAND FIT FOR DEVELOPMENT, THE CONVERSION OF LAND INTO STOCK IN T RADE BY RESOLUTION PASSED IN THE MEETING OF BOARD OF DIRECTORS ON 29-05-2004 WAS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 45(2). HE SUBMITTED THAT THE SAID CONVERSION, HOWEVER, HAS NOT BEEN ACCEPTED BY THE AUTHORITIES BELOW SIMPLY O N THE GROUND THAT FINAL APPROVAL FOR REDEVELOPMENT OF PROPERTY WAS ISSUED BY THE COL LECTOR ON 16-05-2005 AS, ACCORDING TO THEM, CONVERSION OF LAND INTO STOCK IN TRADE WAS NOT POSSIBLE WITHOUT COLLECTORS APPROVAL. IN THIS REGARD, HE TOOK US TH ROUGH THE COPY OF FINAL ORDER ISSUED BY THE COLLECTOR ON 16-06-2005 PLACED AT PAG E NOS. 92 TO 98 OF HIS PAPER BOOK AND SUBMITTED THAT ALL THE STEPS REQUIRED FOR CONVERSION OF AGRICULTURAL LAND INTO COMMERCIAL LAND AND SUBSEQUENTLY FROM COMMERCI AL TO RESIDENTIAL PURPOSE HAD ALREADY BEEN TAKEN BY THE ASSESSEE PRIOR TO THE SAI D ORDER. HE CONTENDED THAT THE CONVERSION OF LAND INTO STOCK IN TRADE BY THE ASSES SEE COMPANY FOR ITS REAL ESTATE DEVELOPMENT BUSINESS THUS WAS POSSIBLE AND PERMISSI BLE EVEN PRIOR TO THE ORDER ISSUED BY THE COLLECTOR ON 16 TH MAY, 2005 AND THERE WAS NO JUSTIFICATION IN THE ACTION OF THE AUTHORITIES BELOW IN NOT RECOGNISING THE SAID CONVERSION FOR WANT OF THE SAID ORDER. HE CONTENDED THAT EVEN IF IT IS ASS UMED FOR THE SAKE OF ARGUMENT THAT THE CONVERSION OF LAND INTO STOCK IN TRADE WAS NOT POSSIBLE PRIOR TO 16 TH MAY, 2005 WHEN THE ORDER WAS ISSUED BY THE COLLECTOR AS HELD BY THE AUTHORITIES BELOW, THE SAID DATE CAN BE TAKEN AS THE DATE OF CONVERSION AN D THE ASSESSEE HAS NO OBJECTION FOR THE SAME. HE SUBMITTED THAT THE LAND CONVERTED INTO STOCK IN TRADE WAS SUBSEQUENTLY SOLD BY THE ASSESSEE IN THE PREVIOUS Y EAR RELEVANT TO ASSESSMENT YEAR 2006-07 AND THE LONG TERM CAPITAL GAIN ARISING FROM CONVERSION OF LAND INTO STOCK IN TRADE IS PAYABLE ONLY IN THAT YEAR AS PER THE PR OVISIONS OF SECTION 45(2). HE CONTENDED THAT ALL THE EFFORTS MADE BY THE ASSESSEE TO CHANGE THE USER OF LAND FROM 12 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 INDUSTRIAL TO COMMERCIAL AND THEN COMMERCIAL TO RES IDENTIAL ITSELF CONSTITUTED A BUSINESS ACTIVITY AND EVEN IN ITS BOOKS OF ACCOUNT, THE LAND WAS TREATED AS STOCK IN TRADE BY THE ASSESSEE COMPANY AFTER ITS CONVERSION. HE CONTENDED THAT THERE WAS THUS SUFFICIENT EVIDENCE TO SHOW THAT THE LAND EARL IER HELD BY THE ASSESSEE AS CAPITAL ASSET WAS CONVERTED BY IT INTO STOCK IN TRADE WITHI N THE MEANING OF SECTION 45(2). 10. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AFTER CONVERSION OF LAND INTO STOCK IN TRADE, AN AGREEMENT FOR DEVELOPMENT O F PROPERTY WAS ENTERED INTO BY THE ASSESSEE COMPANY WITH GAMMON NEELKANTH REALITY CORPORATION ON 24-06- 2005. HE INVITED OUR ATTENTION TO THE COPY OF THE S AID AGREEMENT PLACED IN HIS PAPER BOOK AND POINTED OUT THAT THE ASSESSEE COMPANY WAS TO GET CERTAIN CONSTRUCTED AREA IN THE BUILDINGS WHICH WERE TO BE CONSTRUCTED BY GA MMON NEELKANTH REALITY CORPORATION IN THE PROJECT DEVELOPED ON THE SAID LA ND. HE SUBMITTED THAT ANOTHER AGREEMENT DATED 04-08-2005 WAS ENTERED INTO BY THE ASSESSEE COMPANY WITH R.T. EXPORTS LTD. FOR SALE OF THE CONSTRUCTED AREA WHICH WAS TO BE RECEIVED BY IT FROM GAMMON NEELKANTH REALITY. HE SUBMITTED THAT THE LAN D HELD AS CAPITAL ASSET THUS WAS CONVERTED BY THE ASSESSEE COMPANY INTO STOCK IN TRADE ON 29-05-2004 GIVING RISE TO A LONG TERM CAPITAL GAIN AND SINCE THE CONV ERTED STOCK WAS SOLD BY IT IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07, THE SAID LONG TERM CAPITAL GAIN WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE COMPANY IN THAT YEAR. HE SUBMITTED THAT THE DIFFERENCE BETWEEN THE CONSIDERA TION RECEIVABLE BY THE ASSESSEE AGAINST THE SALE OF CONSTRUCTED AREA FROM M/S R.T. EXPORTS LTD. AND THE FAIR MARKET VALUE OF LAND ON THE DATE OF CONVERSION WAS CHARGEA BLE TO TAX IN THE HANDS OF THE ASSESSEE AS BUSINESS PROFIT IN ASSESSMENT YEAR 2006 -07 ITSELF AS AGREEMENT FOR SALE OF CONSTRUCTED AREA WAS ENTERED INTO BY THE ASSESSE E COMPANY WITH M/S R.T. EXPORTS LTD. ON 04-08-2005. 13 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 11. IN SUPPORT OF THE CASE OF THE ASSESSEE THAT THE BUSINESS OF REAL ESTATE DEVELOPMENT HAD ALREADY BEEN COMMENCED PRIOR TO THE DATE OF CONVERSION OF LAND INTO STOCK IN TRADE IN VIEW OF THE VARIOUS STEPS AL READY TAKEN AND THAT THE CONVERSION OF LAND INTO STOCK IN TRADE AS ON 29-05- 2004 FOR THE SAID BUSINESS WAS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 45(2), TH E LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS: ESTATE OF LATE N.J.PATEL VS. DCIT 17 SOT 543, ACIT VS. JEHANGIR T. NAGREE 23 SOT 512, JEHANGIR H.C. JEHANGIR VS. ITO 27 SOT 124, TEJ PRATAP SINGH VS. ACIT 127 ITD 303 (DELHI) AND R. GOPINATH (HUF) VS. ACIT 133 TTJ 595. 12. THE LEARNED DR SUBMITTED THAT THE IMPORTANT QUE STION THAT ARISES IN THE PRESENT CASE IS WHETHER THERE WAS CONVERSION OF LAN D HELD BY THE ASSESSEE INTO STOCK IN TRADE WITHIN THE MEANING OF SECTION 45(2) AND IF SO, WHEN SUCH CONVERSION HAD TAKEN PLACE. SHE INVITED OUR ATTENTION TO THE C OPY OF ORDER ISSUED BY THE COLLECTOR PLACED AT PAGE NO. 99 OF ASSESSEES PAPER BOOK AND POINTED OUT THAT THE ASSESSEE COMPANY HAD ONLY THE OCCUPANCY OR LEASE RI GHTS IN THE LAND AND IT DID NOT HAVE ANY OWNERSHIP RIGHT THEREIN. SHE CONTENDED THA T IT WAS POSSIBLE FOR THE ASSESSEE TO CONVERT SUCH OCCUPANCY OR LEASE RIGHTS IN THE LAND INTO STOCK IN TRADE. SHE SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 45(2), THE CONVERSION INTO STOCK IN TRADE MUST BE FOR THE BUSINESS CARRIED ON BY THE ASSESSEE. SHE CONTENDED THAT THERE WAS, HOWEVER, NO BUSINESS OF REAL ESTATE DEVE LOPMENT CARRIED ON BY THE ASSESSEE SO AS TO SAY THAT THE CONVERSION OF LAND I NTO STOCK IN TRADE WAS FOR THE PURPOSE OF THE SAID BUSINESS. SHE SUBMITTED THAT AL L THE STEPS TAKEN BY THE ASSESSEE COMPANY WERE FOR THE LIMITED PURPOSE OF REALIZATION OF ITS CAPITAL ASSET VALUE I.E. 14 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 RIGHTS IN THE LAND. SHE SUBMITTED THAT THE BUSINESS OF THE ASSESSEE AS SHOWN IN THE RETURN OF INCOME WAS DEALING IN CONTAINERS AND NOT THAT OF BUILDERS OR DEVELOPERS. SHE SUBMITTED THAT THE BUSINESS OF MANUFACTURING OF CONTAINERS CARRIED ON EARLIER BY THE ASSESSEE COMPANY WAS CLOSED AND ASSETS OF TH E SAID BUSINESS WERE BEING DISPOSED OF INCLUDING THE LAND. SHE CONTENDED THAT THE INTENTION OF THE ASSESSEE COMPANY THUS WAS TO SELL OR DISPOSE OF THE ASSETS O F THE SAID BUSINESS INCLUDING THE LAND. SHE CONTENDED THAT THE CLAIM OF THE ASSESSEE OF CONVERSION OF LAND INTO STOCK IN TRADE THUS WAS NOT BONAFIDE AND GENUINE AND THE AUTHORITIES BELOW ARE FULLY JUSTIFIED IN REJECTING THE SAME. SHE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF FORT PROPERTIES PVT. LTD. VS. CIT 208 ITR 232 TO CONTEND THAT A SIMILAR NATURE OF TRANSACTION IN THAT CASE WAS HE LD TO BE NOT A BUSINESS TRANSACTION BY THE HONBLE JURISDICTIONAL HIGH COURT. AS REGARD S THE VARIOUS DECISIONS OF THE TRIBUNAL RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IN SUPPORT OF THE ASSESSEES CASE, THE LEARNED DR SUBMITTED THAT THE FACTS INVOLVED IN THE SAID CASE ARE ENTIRELY DIFFERENT FROM THE FACTS OF THE PRESEN T CASE INASMUCH AS THE ASSESSEES THEREIN WERE OWNERS OF THE PROPERTY. SHE CONTENDED THAT THE LAND IN THE PRESENT CASE WAS A CAPITAL ASSET OF THE ASSESSEE COMPANY AN D THE SAME REMAINED TO BE CAPITAL ASSET EVEN ON THE DATE OF SALE. SHE CONTEND ED THAT THE ENTIRE INCOME ARISING FROM THE SALE OF THE SAID CAPITAL ASSET THUS WAS CH ARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE COMPANY UNDER THE HEAD LONG TERM CAPITAL GAIN AS RIGHTLY HELD BY THE AUTHORITIES BELOW. 13. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT OCCUPANCY RIGHTS AND LEASE RIGHTS IN THE PROPERTY A RE ALSO CAPITAL ASSETS AND CONVERSION THEREOF INTO STOCK IN TRADE IS POSSIBLE AND PERMISSIBLE. HE INVITED OUR ATTENTION TO THE RELEVANT BALANCE SHEET OF THE ASSE SSEE COMPANY PLACED AT PAGE NO. 15 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 216 OF HIS PAPER BOOK AND POINTED OUT THAT THE PROP ERTY WAS SHOWN AS STOCK IN TRADE BY THE ASSESSEE ON 31-01-2005 ITSELF. HE SUBM ITTED THAT THERE IS NO EVASION OF TAX IN THE PRESENT CASE AS ALLEGED BY THE REVENUE A UTHORITIES SINCE THE ENTIRE AMOUNT OF GAIN IS BEING OFFERED TO TAX BY THE ASSESSEE AND THE DISPUTE IS ONLY RELATING TO THE HEAD OF INCOME. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE CLAIM O F THE ASSESSEE OF HAVING CONVERTED ITS LAND INTO STOCK IN TRADE AS PER THE PROVISIONS OF SECTION 45(2) HAS NOT BEEN ACCEPTED BY THE AUTHORITIES BELOW AND THE ISSUE RAI SED BEFORE US IN THIS CONTEXT IS WHETHER THERE WAS SUCH CONVERSION WITHIN THE MEANIN G OF SECTION 45(2) AS CLAIMED BY THE ASSESSEE. THE PROVISIONS OF SECTION 45(2) DE AL WITH THE MANNER AND METHOD OF COMPUTING PROFITS OR GAINS ARISING FROM THE TRAN SFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM, AS STOCK IN TRADE. AS PROVIDED IN SECTION 45(2), SUCH PROFITS OR GAINS, NOTWITHSTA NDING ANYTHING CONTAINED IN SECTION 45(1), SHALL BE CHARGEABLE TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH SUCH STOCK IN TRADE IS S OLD OR OTHERWISE TRANSFERRED BY HIM AND, FOR THE PURPOSES OF SECTION 48, THE FAIR M ARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEME D TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET. IN THE PRESENT CASE, THE CLAIM OF THE ASSESSEE FOR CON VERSION OF LAND INTO STOCK IN TRADE WITHIN THE MEANING OF SECTION 45(2) HAS NOT BEEN AC CEPTED BY THE AUTHORITIES BELOW MAINLY ON THE GROUND THAT THERE WAS NO BUSINESS OF REAL ESTATE DEVELOPMENT ACTUALLY CARRIED ON BY THE ASSESSEE AND SUCH CONVER SION WAS CLAIMED TO BE MADE BY THE ASSESSEE EVEN BEFORE THE FINAL ORDER GRANTING PERMISSION FOR THE REDEVELOPMENT OF THE PROPERTY WAS ACCORDED BY THE COLLECTOR. 16 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 15. IN SUPPORT OF THE ASSESSEES CLAIM OF HAVING CO MMENCED AND CARRIED ON THE BUSINESS OF REAL ESTATE DEVELOPMENT, THE LEARNED C OUNSEL FOR THE ASSESSEE HAS EXPLAINED BEFORE US THE VARIOUS STEPS TAKEN BY THE ASSESSEE FOR THE DEVELOPMENT OF PROPERTY WHICH WAS EARLIER HELD AS CAPITAL ASSET AN D IT WOULD BE WORTHWHILE TO ENUMERATE THE SAID STEPS IN THE CHRONOLOGICAL ORDER AS UNDER : 12 TH SEPT., 1994: RESOLUTION PASSED IN THE EXTRAORDINARY GENERAL MEET INGS OF THE SHAREHOLDERS OF THE ASSESSEE COMPANY ACCORDING THE CONSENT TO THE COMM ENCEMENT OF NEW BUSINESS, NAMELY, TO DEVELOP AND TURN TO ACCOUNT ANY LAND ACQ UIRED BY THE COMPANY OR IN WHICH THE COMPANY IS INTERESTED AND IN PARTICULAR B Y SURVEY, LAYING OUT AND REPAIRING THE SAME FOR BUILDING PURPOSES, DESIGNING , CONSTRUCTING ETC. AND TO ENTER INTO CONTRACTS AND ARRANGEMENTS OF ALL KINDS WITH B UILDERS, TENANTS AND OTHERS. 7 TH OCT., 1994: CERTIFIED TRUE COPY OF THE SPECIAL RESOLUTION UNANI MOUSLY PASSED BY THE SHAREHOLDERS AT THE EXTRAORDINARY GENERAL MEETING H ELD ON 12 TH SEPT., 1994 FILED WITH THE REGISTRAR OF COMPANIES IN THE PRESCRIBED F ORM. 4 TH MARCH, 1997. PERMISSION SOUGHT BY THE ASSESSEE FOR THE DEVELOPME NT ON THE INDUSTRIAL ZONE LAND FOR COMMERCIAL USER GRANTED BY EXECUTIVE ENGINEER, DEVELOPMENT PLAN, 17 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 BRIHAMMUMBAI MAHANAGAR PALIKA SUBJECT TO COMPLIANCE OF CERTAIN TERMS AND CONDITIONS. 21 ST DECEMBER, 1998: LETTER ISSUED BY THE ADDITIONAL COLLECTOR, ULC, GRA TER MUMBAI IN CONNECTION WITH PERMISSION FOR DEVELOPMENT OF PROPERTY SOUGHT BY TH E ASSESSEE SUBJECT TO CERTAIN TERMS AND CONDITIONS. THE ASSESSEE WAS ADVISED TO A PPROACH GBMC TO GET THE REDEVELOPMENT PROPOSAL APPROVED WITH AN UNDERTAKING THAT THE SAID CONDITIONS ARE ACCEPTABLE TO IT. 11 TH JANUARY, 2002: PROPOSAL/SCHEME SUBMITTED TO THE COLLECTOR, MUMBAI SUB-URBAN DISTRICT SEEKING PERMISSION FOR THE REDEVELOPMENT OF THE PROPERTY. 15 TH JANUARY, 2004: APPLICATION SUBMITTED BY THE ASSESSEE TO THE COMMIS SIONER OF LABOUR, GOVT. OF MAHARASHTRA FOR ISSUE OF NO OBJECTION CERTIFICATE F OR DEVELOPMENT OF ITS FACTORY LAND. 29 TH MAY, 2004: RESOLUTION PASSED IN THE MEETING OF BOARD OF DIRECT ORS OF THE ASSESSEE COMPANY CONVERTING THE LAND OWNED BY IT INTO STOCK IN TRADE . 18 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 30 TH JULY, 2004. NO OBJECTION CERTIFICATE ISSUED BY THE LABOUR COMMI SSIONER TO MCGD COMMUNICATING ITS NO OBJECTION TO GRANT PERMISSION FOR DEVELOPMENT OF LAND AS SOUGHT BY THE ASSESSEE. 16 TH MAY, 2005: ORDER ISSUED BY COLLECTOR, MUMBAI SUB URBAN DISTRIC T GRANTING PERMISSION TO THE ASSESSEE FOR CHANGE OF USER FROM ORIGINAL INDUSTRIA L TO THAT OF RESIDENTIAL AND THE PROPOSAL OF THE ASSESSEE FOR DEVELOPMENT OF ITS PRO PERTY WAS FINALLY APPROVED SUBJECT TO CERTAIN TERMS AND CONDITIONS INCLUDING T HE PAYMENT OF 50% OF UNEARNED INCOME. 16. THE DIFFERENT STEPS TAKEN BY THE ASSESSEE IN TH E MATTER OF DEVELOPMENT OF ITS LAND AS ENUMERATED ABOVE CLEARLY SHOW THAT THE BUSI NESS OF REAL ESTATE DEVELOPMENT HAD NOT ONLY BEEN JUST COMMENCED BY THE ASSESSEE BY TAKING THE FIRST STEP OF PASSING THE SPECIAL RESOLUTION IN THE SHAREHOLDERS MEETING AUTHORIZING IT TO COMMENCE THE SAID BUSINESS, BUT EVEN THE SAME WAS CARRIED ON BY IT BY TAKING FURTHER STEPS TO MAKE THE SAID LAND FIT FOR REDEVE LOPMENT WHICH INVOLVED OBTAINING THE PERMISSIONS FROM THE CONCERNED AUTHOR ITIES. THE SAID PERMISSIONS WERE REQUIRED FOR THE REDEVELOPMENT OF THE LAND OWN ED BY THE ASSESSEE COMPANY AND THE SAID STEPS, IN OUR OPINION, THEREFORE WERE TAKEN BY THE ASSESSEE COMPANY FOR REDEVELOPMENT OF ITS PROPERTY AS A PART OF ITS NEW BUSINESS ACTIVITY OF REAL ESTATE DEVELOPMENT. IT IS NO DOUBT TRUE THAT AFTER TAKING ALL THE STEPS TO MAKE THE PROPERTY FIT FOR REDEVELOPMENT, THE ASSESSEE COMPANY LATER O N ENTERED INTO A DEVELOPMENT 19 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 AGREEMENT THEREBY ENTRUSTING THE REMAINING DEVELOPM ENT WORK TO ANOTHER PARTY AND GETTING CONSIDERATION IN THE FORM OF CONSTRUCT ED AREA IN THE PROPOSED BUILDING. HOWEVER, IT CANNOT BE SAID ON THE BASIS OF THIS STE P TAKEN BY THE ASSESSEE THAT REAL ESTATE DEVELOPMENT BUSINESS WAS NEVER CARRIED ON BY THE ASSESSEE. IN OUR OPINION, THIS STEP WAS ONLY ONE OF THE STEPS INVOLVED IN THE REAL ESTATE DEVELOPMENT BUSINESS CARRIED ON BY THE ASSESSEE AND SINCE THE EARLIER ST EPS INVOLVED IN THE SAID BUSINESS WERE TAKEN BY THE ASSESSEE COMPANY ON ITS OWN DURIN G THE PERIOD SPANNING OVER 7 TO 8 YEARS, THERE WAS A BUSINESS OF REAL ESTATE DEV ELOPMENT CARRIED ON BY THE ASSESSEE. IN OUR OPINION, ALL THE STEPS TAKEN BY T HE ASSESSEE WHICH WERE VERY MUCH PART OF THE BUSINESS ACTIVITIES INVOLVED IN REAL ES TATE DEVELOPMENT ARE SUFFICIENT TO SHOW THAT THE BUSINESS OF REAL ESTATE DEVELOPMENT W AS COMMENCED AND CARRIED ON BY THE ASSESSEE AND EVEN THE STEP FINALLY TAKEN BY IT TO ENTRUST THE REMAINING DEVELOPMENT WORK TO A THIRD PARTY WAS A PART OF THA T BUSINESS WHICH WAS DONE AS A MATTER OF COMMERCIAL EXPEDIENCY. 17. THE AO HAS TREATED ALL THESE STEPS TAKEN BY THE ASSESSEE TO MAKE ITS PROPERTY FIT FOR REDEVELOPMENT AS NOTHING BUT STEPS TAKEN BY THE ASSESSEE FOR DISPOSAL OF ITS PROPERTY. WE FIND IT DIFFICULT TO ACCEPT THIS STAND OF THE REVENUE AUTHORITIES. IN OUR OPINION, IT CANNOT BE LOST SIGHT OF THAT A SPECIAL RESOLUTION WAS PASSED BY THE SHAREHOLDERS OF THE ASSESSEE COMPANY AUTHORIZING CO MMENCEMENT OF NEW BUSINESS, NAMELY, REAL ESTATE DEVELOPMENT BUSINESS IN THE YEA R 1996 ITSELF AND IN FURTHERANCE TO THE SAME, VARIOUS STEPS WERE TAKEN BY THE ASSESS EE COMPANY TO MAKE ITS PROPERTY FIT FOR REDEVELOPMENT. THE USER OF THE LAND WAS GOT CONVERTED INITIALLY FROM INDUSTRIAL TO COMMERCIAL AND THEN COMMERCIAL TO RES IDENTIAL. OTHER PERMISSIONS REQUIRED FOR REDEVELOPMENT OF PROPERTY WERE ALSO SO UGHT AND OBTAINED BY COMPLYING WITH THE NECESSARY REQUIREMENTS AND ONLY AFTER TAKING ALL THESE STEPS, 20 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 THE PROPERTY WAS CONVERTED INTO STOCK IN TRADE. THE FIRST PHASE OF REAL ESTATE DEVELOPMENT THUS WAS COMPLETED BY THE ASSESSEE WHIC H HAD STARTED FROM THE SPECIAL RESOLUTION PASSED BY THE SHAREHOLDERS AUTHO RIZING THE COMPANY TO CARRY ON THE REAL ESTATE DEVELOPMENT AND ENDED WITH CONVERS ION OF THE LAND INTO STOCK IN TRADE AFTER MAKING IT FIT FOR REDEVELOPMENT. TAKING INTO CONSIDERATION ALL THE STEPS TAKEN BY THE ASSESSEE COMPANY IN THIS PHASE SPANNIN G OVER THE PERIOD OF 6 TO 8 YEARS WHICH VERY MUCH FORMED PART OF THE ACTIVITY OF REAL ESTATE DEVELOPMENT, WE ARE OF THE VIEW THAT THE REAL ESTATE BUSINESS WAS D ULY COMMENCED AND CARRIED ON BY THE ASSESSEE. 18. THE REVENUE AUTHORITIES HAVE LAID GREAT EMPHAS IS ON THE FACT THAT AS PER THE DEVELOPMENT AGREEMENT, THE ASSESSEE COMPANY HAD ENTRUSTED THE DEVELOPMENT WORK TO A THIRD PARTY FOR FIXED CONSIDE RATION IN THE FORM OF CONSTRUCTED AREA IN THE PROPOSED BUILDING. ACCORDIN G TO THEM, THE ASSESSEE HAS NOT TAKEN ANY RISK WHICH A PERSON CARRYING ON THE REAL ESTATE DEVELOPMENT BUSINESS WOULD NORMALLY TAKE. THEY, HOWEVER, HAVE IGNORED A VITAL FACT THAT THE MAJOR RISK INVOLVED IN THE REAL ESTATE DEVELOPMENT IS THE SALE OF TENEMENTS OF THE PROJECT AND COMPLETION OF THE SAID PROJECT. THE ASSESSEE HAVING RECEIVED CONSIDERATION IN THE FORM OF CONSTRUCTED AREA, THE RISK OF SALE OF THE S AID AREA WAS UNDERTAKEN BY THE ASSESSEE ITSELF. MOREOVER, THE SAID SALE WAS ALWAYS SUBJECT TO COMPLETION OF THE PROJECT AND IT, THEREFORE, CANNOT BE SAID THAT THER E WAS NO RISK UNDERTAKEN BY THE ASSESSEE COMPANY. IN ANY CASE, AS ALREADY HELD BY U S, THE VARIOUS ACTIVITIES FORMING PART OF THE INITIAL PHASE OF DEVELOPMENT OF PROPERT Y HAVING BEEN UNDERTAKEN BY THE ASSESSEE COMPANY ITSELF, THE REAL ESTATE BUSINESS W AS ALREADY CARRIED ON BY THE ASSESSEE AND MERELY BECAUSE THE SUBSEQUENT WORK OF DEVELOPMENT OF PROPERTY WAS 21 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 ENTRUSTED BY IT TO A THIRD PARTY, IT CANNOT BE SAID THAT THE REAL ESTATE BUSINESS WAS NEVER CARRIED ON BY THE ASSESSEE. 19. HAVING HELD THAT THE BUSINESS OF REAL ESTATE DE VELOPMENT WAS DULY CARRIED ON BY THE ASSESSEE, THE NEXT QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER THERE WAS A CONVERSION OF ITS PROPERTY BY THE ASSESSEE COMPAN Y INTO STOCK IN TRADE WITHIN THE MEANING OF SECTION 45(2). AS ALREADY NOTED, WHAT SE CTION 45(2) ENVISAGES THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAP ITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOCK IN TRADE OF A BUSINESS CARRIED ON B Y HIM. IN THE PRESENT CASE, AS DEMONSTRATED BY THE LEARNED COUNSEL FOR THE ASSESSE E, THE LAND WAS TREATED BY THE ASSESSEE COMPANY AS STOCK IN TRADE IN ITS BOOKS OF ACCOUNT FOR THE YEAR ENDED 31- 3-2005 AND GOING BY THIS TREATMENT ITSELF, THERE WA S A TRANSFER OF THE LAND BY WAY OF CONVERSION BY THE ASSESSEE INTO STOCK IN TRADE. BES IDES THIS, A RESOLUTION WAS ALSO PASSED BY THE BOARD OF DIRECTORS OF THE ASSESSEE CO MPANY ON 29 TH MAY, 2004 CONVERTING THE LAND INTO STOCK IN TRADE. THE REVENU E AUTHORITIES, HOWEVER, HAVE NOT ACCEPTED THIS CONVERSION ON THE GROUND THAT THE FIN AL ORDER GRANTING APPROVAL TO THE REDEVELOPMENT OF ASSESSEES PROPERTY WAS ISSUED BY THE COLLECTOR ONLY ON 16-05- 2005. ONE OF THE CONTENTIONS RAISED BY THE LEARNED DR IN THIS REGARD IS THAT THE ASSESSEE WAS HAVING ONLY OCCUPANCY AND LEASEHOLD RI GHTS IN THE LAND AND CONVERSION OF SUCH RIGHTS INTO STOCK IN TRADE WAS N OT POSSIBLE. HOWEVER, AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE PROPERTY IS A BUNDLE OF RIGHT AND WHATEVER RIGHTS THE ASSESSEE COMPANY HAD IN THE PROPERTY CONSTITUTED ITS CAPITAL ASSETS AND CONVERSION THEREOF INTO STOCK IN TRADE WAS POSSIBLE AND PERMISSIBLE. THE RIGHTS BEING CAPITAL ASSETS WHICH COULD BE COMMERCIALLY EXPLOITED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT, IN OUR OPINION, COULD BE CONVERTED INTO STOCK IN TRADE BY THE ASSESSEE AS OWNER THEREOF NOT WITHSTANDING THE FACT THAT THE 22 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 PERMISSIONS REQUIRED FOR FURTHER DEVELOPMENT OR RED EVELOPMENT THEREOF WERE AWAITED AT THAT STAGE. IT IS QUITE USUAL IN THE REA L ESTATE DEVELOPMENT BUSINESS THAT A DEVELOPER PURCHASES EVEN AN AGRICULTURAL LAND FOR D EVELOPING THE RESIDENTIAL PROJECTS THEREON AND THE SAME IS TREATED AS STOCK I N TRADE SUBJECT TO OBTAINING OF THE REQUIRED PERMISSIONS. 20. THE ISSUE AS TO WHETHER THE ASSESSEE HAS CARRIE D ON A PARTICULAR ACTIVITY AS A BUSINESS ACTIVITY OR NOT DEPENDS UPON THE INTENTION OF THE ASSESSEE AND SUCH INTENTION CAN BE GATHERED FROM THE CONDUCT OF THE A SSESSEE. IN THE PRESENT CASE, THE CONDUCT OF THE ASSESSEE IN PASSING A SPECIAL RESOLU TION IN THE MEETING OF SHAREHOLDERS AUTHORIZING COMMENCEMENT OF NEW BUSINE SS OF REAL ESTATE DEVELOPMENT, THE SUBSEQUENT STEPS TAKEN TO MAKE ITS PROPERTY FIT FOR DEVELOPMENT/REDEVELOPMENT, THE AGREEMENT ENTERED IN TO WITH THE THIRD PARTY FOR FURTHER DEVELOPMENT OF THE PROPERTY IN CONSIDERATIO N OF ALLOTMENT OF CERTAIN CONSTRUCTED AREA AND SALE OF THE CONSTRUCTED AREA S O ALLOTTED CLEARLY SHOW THAT IT WAS NOT A CASE OF DISPOSAL OF ITS CAPITAL ASSET BY THE ASSESSEE SIMPLICITOR BUT THE INTENTION OF THE ASSESSEE WAS TO DEVELOP ITS PROPER TY AS A COMMERCIAL ACTIVITY WHICH, IN OUR OPINION, CONSTITUTED AN ADVENTURE IN THE NATURE OF TRADE. IN THE CASE OF FORT PROPERTIES PVT. LTD. (SUPRA) CITED BY THE LEAR NED DR, FACTS INVOLVED WERE ALTOGETHER DIFFERENT INASMUCH AS THE LAND HELD AS C APITAL ASSET BY ITS HOLDING COMPANY WAS ACQUIRED BY A SUBSIDIARY COMPANY AND TH E SAME WAS SOLD TO A THIRD PARTY AT A LOSS OF RS.2.5 LAKH WHICH WAS CLAIMED AS TRADING LOSS. THERE WAS, HOWEVER, NO EVIDENCE PRODUCED BY THE ASSESSEE TO SH OW THAT THIS CAPITAL ASSET WAS CONVERTED INTO STOCK IN TRADE BY AN OVERT ACT AND IN THE ABSENCE OF SUCH EVIDENCE, IT WAS HELD BY THE HONBLE BOMBAY HIGH COURT THAT T HE LOSS ON SALE OF LAND WAS A CAPITAL LOSS. ON THE OTHER HAND, IN ONE OF THE DEC ISIONS OF THE TRIBUNAL CITED BY THE 23 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 LEARNED COUNSEL FOR THE ASSESSEE RENDERED IN THE CA SE OF TEJPRATAP SINGH VS. ACIT 127 ITD 303, A SIMILAR ISSUE WAS INVOLVED WHEREIN T HE ASSESSEE WHO WAS THE OWNER OF A PLOT OF LAND HAD ENTERED INTO COLLABORA TION AGREEMENT WITH S FOR DEVELOPMENT OF THE SAID LAND ON 02-05-1987. IN TERM S OF THE SAID AGREEMENT, THE ASSESSEE WAS TO GET 60% OF CONSTRUCTION TO BE MADE ON LAND FROM S IN LIEU OF SURRENDER OF 40% OF THE PLOT OF LAND. THE CONSTRUCT ION WORK WAS STARTED BY S ON 25-02-1992 AND FINALLY COMPLETED IN THE YEAR 2000. THEREAFTER THE ASSESSEE ISSUED IRREVOCABLE POWER OF ATTORNEY IN FAVOUR OF S ON 10-09-2003 TO SELL THE CONSTRUCTED AREA ALLOCATED TO HIM. IN THESE FACTS A ND CIRCUMSTANCES INVOLVED IN THE SAME CASE, THE DELHI BENCH OF ITAT HELD THAT PROPER TY OF THE ASSESSEE STOOD CONVERTED INTO STOCK IN TRADE ON 02-05-1987 WHEN T HE AGREEMENT BETWEEN THE ASSESSEE AND S WAS SIGNED. IT WAS HELD THAT SUCH A CONVERSION WOULD AMOUNT TO TRANSFER U/S 2(47)(IV) AND THE CAPITAL GAIN ARISING FROM THE SAID TRANSFER WOULD BE TAXABLE U/S 45(2) IN YEAR OF ITS SALE ON THE BASIS OF FAIR MARKET VALUE ON THE DATE OF CONVERSION. IT WAS ALSO HELD THAT THE PROFIT ARISIN G ON ACCOUNT OF TRANSFER OF STOCK IN TRADE REPRESENTING DIFFERENCE BETWEEN FAIR MARKET V ALUE OF BUILT UP AREA ALLOTTED TO THE ASSESSEE AND FAIR MARKET VALUE OF CAPITAL ASSET ON ITS DATE OF CONVERSION INTO STOCK IN TRADE WOULD BECOME TAXABLE AS BUSINESS PRO FITS IN THE RELEVANT ASSESSMENT YEAR. IN OUR OPINION, THE DECISION OF THE COORDINAT E BENCH OF THE TRIBUNAL IN THE CASE OF TEJ PRATAP SINGH (SUPRA) CITED BY THE LEARN ED COUNSEL FOR THE ASSESSEE IS SQUARELY APPLICABLE TO THE ISSUE INVOLVED IN THE PR ESENT CASE. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE BUSINESS OF REAL ESTATE DEVELOPMENT WAS DULY CARRIED ON BY THE ASSESSEE AND THE CONVERSION OF ITS PROPERTY BY THE ASSESSEE INTO STOCK IN TRADE OF THE SAID BUS INESS AS PER THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS ON 29 TH MAY, 2004 WAS AS PER THE PROVISIONS OF SECTION 45(2). THE PROFIT OR GAINS ARISING FROM THE TRANSFE R BY WAY OF SUCH CONVERSION THUS 24 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 WAS CHARGEABLE TO TAX AS THE INCOME OF THE ASSESSEE UNDER THE HEAD CAPITAL GAINS OF THE YEAR UNDER CONSIDERATION SINCE THE SAID STOC K IN TRADE WAS ADMITTEDLY SOLD BY HIM IN THAT YEAR. WE, THEREFORE, DIRECT THE AO TO R ECOMPUTE THE CAPITAL GAIN BY ADOPTING THE FAIR MARKET VALUE OF THE SAID PROPERTY ON THE DATE OF SUCH CONVERSION AS FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCR UING AS A RESULT OF TRANSFER OF THE CAPITAL ASSET. GROUND NO.1 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. 21. THE NEXT ISSUE INVOLVED IN GROUND NO.2 OF THE A SSESSEES APPEAL RELATES TO THE DISALLOWANCE OF RS.23 CRORES MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF AMOUNT PAID FOR OBTAINING THE PERMISSION FOR CHANGE IN USER OF LAND. 22. THE ASSESSEE HAD PAID AN AMOUNT OF RS.23 CRORES TO GOVERNMENT OF MAHARASHTRA ON ACCOUNT OF CHANGE OF USER OF LAND FR OM INDUSTRIAL TO COMMERCIAL. THE SAID AMOUNT WAS RECOVERED BY THE ASSESSEE FROM M/S GAMMON NEELKANTH REALITY CORPORATION IN TERMS OF THE DEVELOPMENT AGR EEMENT. IN THE PROFIT & LOSS ACCOUNT, THE SAID AMOUNT WAS CREDITED BY THE ASSESS EE AS INCOME FROM PROPERTY DEVELOPMENT ACTIVITY AND THE SAME AMOUNT WAS DEBIT ED TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF PAYMENT TO COLLECTOR TOWARDS PERMISSION FOR REDEVELOPMENT OF LAND AND CHANGE OF USER THEREOF. BEFORE THE AO, IT WAS EXPLAINED BY THE ASSESSEE THAT THE LAND HAVING BEEN CONVERTED INTO STOCK IN T RADE IN THE EARLIER YEAR, THE PAYMENT TO COLLECTOR, MUMBAI SUB URBAN DISTRICT MAD E IN THE YEAR UNDER CONSIDERATION WAS CLAIMED AS THE EXPENDITURE INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS WITHIN THE MEANING OF SECT ION 37(1). ALTERNATIVELY, IT WAS SUBMITTED THAT IF THE AMOUNT REIMBURSED BY THE DEV ELOPERS IS TREATED AS PART OF THE CONSIDERATION RECEIVED, THE DEDUCTION IN RESPECT TH EREOF BE GRANTED IN TERMS OF THE 25 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 PROVISIONS OF SECTION 48 BEING COST OF IMPROVEMENT OF THE ASSET OR EXPENDITURE INCURRED IN CONNECTION WITH THE TRANSFER. KEEPING I N VIEW HIS DECISION THAT THERE WAS NO BUSINESS OF REAL ESTATE DEVELOPMENT ACTUALLY CARRIED ON BY THE ASSESSEE, THE AO DECLINED TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS.23 CRORES PAID TO THE COLLECTOR AS BUSINESS EXPENDITURE U/S 37(1). HE ALSO DISALLOWED THE ALTERNATIVE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE SAID AMOUNT IN COMPUTATION OF CAPITAL GAINS U/S 48 HOLDING THAT THE SAID AMOU NT PAID BY THE ASSESSEE WAS NOT IN THE NATURE OF COST OF IMPROVEMENT OF THE CAPITAL AS SET OR EXPENSES INCURRED IN CONNECTION WITH THE TRANSFER OF CAPITAL ASSET. ON A PPEAL, THE LEARNED CIT(APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE AO ON THIS I SSUE FOR THE SAME REASONS AS GIVEN BY THE AO. 23. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED BEFORE US THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE BEFORE THE AUTHORITIES BELOW. HE CONTENDED THAT IF THE AMOUNT OF RS.23 CRORES RECOVE RED FROM THE DEVELOPER IS TO BE TREATED AS PART OF CONSIDERATION, THE SAME IS TO BE ALLOWED AS DEDUCTION WHILE COMPUTING THE LONG TERM CAPITAL GAIN BEING COST OF IMPROVEMENT OR EXPENSES INCURRED IN CONNECTION WITH TRANSFER OF LAND. IN SU PPORT OF THIS CONTENTION, HE HAS RELIED ON THE DECISIONS OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. ABRAR ALVI 247 ITR 312 AND IN THE CASE OF CIT VS. SHAKUNT ALA KANTILAL 190 ITR 56 AS ALSO THAT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF MARHURDAS MANGALDAS PAREKH VS. CIT 126 ITR 669. 24. THE LEARNED DR, ON THE OTHER HAND, STRONGLY REL IED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE AND SUBMITTED THAT THE SAME ARE WELL REASONED AND WELL DISCUSSED. 26 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE SUM OF RS.23 CRORES WAS PAID BY THE ASSESSEE TO COLLECTOR FOR CHANGE IN THE USER OF LAN D FROM INDUSTRIAL TO COMMERCIAL AND THE SAME, THEREFORE, IN OUR OPINION, CONSTITUTE D COST OF IMPROVEMENT OF THE LAND SINCE THE LAND AS A RESULT OF THE SAID EXPENDI TURE HAD BECOME FIT FOR DEVELOPMENT/REDEVELOPMENT. THIS ASPECT WAS VITAL IN DETERMINING THE FAIR MARKET VALUE OF THE LAND AND IF THE SAID AMOUNT WAS PAID B Y THE ASSESSEE PRIOR TO THE DATE OF CONVERSION OF LAND INTO STOCK IN TRADE, THIS ASP ECT IS BOUND TO HAVE A DIRECT BEARING ON THE DETERMINATION OF FAIR MARKET VALUE O F THE LAND AS ON THE DATE OF CONVERSION. IN THE CIRCUMSTANCES, THE SUM OF RS.23 CRORES PAID BY THE ASSESSEE BEING IN THE NATURE OF COST OF IMPROVEMENT OF THE L AND, IN OUR OPINION, IS LIABLE TO BE ALLOWED AS DEDUCTION WHILE COMPUTING THE LONG TE RM CAPITAL GAIN ARISING FROM THE CONVERSION OF THE LAND INTO STOCK IN TRADE. HOW EVER, IF THE SAID AMOUNT WAS PAID BY THE ASSESSEE AFTER THE DATE OF CONVERSION O F LAND INTO STOCK IN TRADE, THE SAME WILL CONSTITUTE ITS EXPENDITURE INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF ITS REAL ESTATE DEVELOPMENT BUSINESS AND THE SAME HAVING BEEN RECOVERED FULLY FROM THE DEVELOPER, THERE WILL BE N O EFFECT OF THIS ASPECT ON THE DETERMINATION OF INCOME OF THE ASSESSEE FROM THE BU SINESS OF REAL ESTATE DEVELOPMENT AS THE INCOME AND EXPENDITURE WILL GET SQUARED OF. ACCORDINGLY, WE DIRECT THE AO TO CONSIDER AND ALLOW THE CLAIM OF TH E ASSESSEE ON THIS ISSUE DEPENDING ON THE DETERMINATION OF FAIR MARKET VALUE OF THE ASSESSEES PROPERTY AS ON THE DATE OF CONVERSION INTO STOCK IN TRADE. GROU ND NO.2 IS ACCORDINGLY TREATED AS ALLOWED. 27 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 26. THE ISSUE RAISED IN GROUND NO. 3 OF THE ASSESSE ES APPEAL RELATES TO ITS CLAIM FOR SET OFF OF UNABSORBED DEPRECIATION CARRIED FORW ARD FROM EARLIER YEARS AGAINST THE INCOME OF THE CURRENT YEAR. 27. THE ASSESSEE IN ITS RETURN OF INCOME HAD DISCLO SED UNABSORBED DEPRECIATION OF RS.5.32 CRORES PERTAINING TO ASSESSMENT YEARS 19 93-94 TO 2001-02 AND THE SAME WAS CLAIMED TO BE SET OFF AGAINST THE INCOME OF THE CURRENT YEAR. SINCE THE BUSINESS OF THE ASSESSEE AS CARRIED ON IN THE EARLIER YEARS HAD BEEN DISCONTINUED AND THE SAME WAS NOT CARRIED ON IN THE CURRENT YEAR, THE CL AIM OF THE ASSESSEE FOR SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO EARLIER YEARS WAS DISALLOWED BY THE AO RELYING INTER ALIA ON THE PROVISIONS OF SECTION 32( 2) AS AMENDED WITH EFFECT FROM 01-04-2002. RELYING ON THIS AMENDED LAW WHICH, ACCO RDING TO HIM, WAS APPLICABLE TO THE YEAR UNDER CONSIDERATION, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO THE EA RLIER YEARS. ON APPEAL, THE LEARNED CIT(APPEALS) UPHELD THE ACTION OF THE AO ON THIS ISSUE. 28. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE HAS FAIRLY AND FRANKLY AGREED THAT THIS ISSUE IS SQUA RELY COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF MU MBAI SPECIAL BENCH OF ITAT IN THE CASE OF DY. CIT VS. TIMES GUARANTY LTD. REP ORTED IN 40 SOT 14 (MUM.) (SB) WHEREIN IT WAS HELD THAT PROVISION CONTAINED I N SECTION 32(2) AS SUBSTITUTED BY THE FINANCE ACT, 2001 IS SUBSTANTIVE AND THE SAME I S APPLICABLE PROSPECTIVELY WITH EFFECT FROM ASSESSMENT YEAR 2002-03 ONWARDS. IT WAS HELD THAT BROUGHT FORWARD UNABSORBED DEPRECIATION OF EARLIER YEARS CANNOT BE INCLUDED WITHIN THE SCOPE OF SECTION 32(2) AND THE ASSESSEE CANNOT CLAIM SET OFF OF THE SAME AGAINST INCOME OF THE SUBSEQUENT YEARS I.E. ASSESSMENT YEAR 2002-03 O NWARDS. RESPECTFULLY FOLLOWING 28 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 THE SAID DECISION OF THE SPECIAL BENCH OF ITAT, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) CONFIRMING THE DISALLOWANC E MADE BY THE AO ON ACCOUNT OF ASSESSEES CLAIM FOR SET OFF OF UNABSORBED DEPRE CIATION PERTAINING TO THE EARLIER YEARS AND DISMISS GROUND NO. 3 OF THE ASSESSEES AP PEAL. 29. THE ISSUE RAISED IN GROUND NO.4 OF THE ASSESSEE S APPEAL RELATES TO THE DISALLOWANCE OF RS.11,04,95,264/- MADE BY THE AO ON ACCOUNT OF INTEREST PAID BY THE ASSESSEE COMPANY TO ITS HOLDING COMPANY. 30. THE ASSESSEE COMPANY HAD TAKEN A LOAN OF RS.66. 13 CRORES FROM ITS HOLDING COMPANY M/S MUKUND LTD. IN THE YEAR 1995. UPTO ASSE SSMENT YEAR 2005-06, THE ASSESSEE HAD NOT BEEN ACCOUNTING FOR THE INTEREST P AYABLE ON SUCH LOAN IN ITS BOOKS OF ACCOUNT. THE SAME, HOWEVER, WAS BEING CLAIMED AS EXPENDITURE IN THE COMPUTATION OF TOTAL INCOME FOR INCOME-TAX PURPOSES . IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE, HOWEVER, DEBITED THE INTEREST ON THE LOAN TAKEN FROM M/S MUKUND LTD. IN THE PROFIT & LOSS ACCOUNT AND C LAIMED IT AS DEDUCTION. WHILE EXAMINING THIS ISSUE, THE AO NOTICED THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH INTEREST HAD ALL ALONG BEEN DISALLOWED IN THE EARLIER YEARS ON VARIOUS GROUNDS INCLUDING THE GROUND THAT THE BUSINESS FOR WHICH TH E SAID LOAN HAD BEEN TAKEN WAS DISCONTINUED SINCE 1998. SINCE THERE WAS NO CHANGE IN THE FACTUAL POSITION IN THE YEAR UNDER CONSIDERATION, THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF INTEREST WAS DISALLOWED BY HIM. HE NOTED THAT THE F UNDS BORROWED BY THE ASSESSEE COMPANY FROM ITS HOLDING COMPANY WERE NOT UTILIZED FOR THE PURPOSE OF CARRYING ON ANY BUSINESS BUT THE SAME WERE UTILIZED FOR THE PURPOSE OF CLOSURE OF THE BUSINESS. ON APPEAL, THE LEARNED CIT(APPEALS) CONFI RMED THE DISALLOWANCE OF INTEREST MADE BY THE AO HOLDING THAT THE BUSINESS O F THE ASSESSEE WAS DISCONTINUED 29 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 SINCE 1998-99 AND THERE BEING NO ACTIVITY OF THE SA ID BUSINESS CARRIED ON IN THE YEAR UNDER CONSIDERATION, THE INTEREST PAID BY THE ASSES SEE WAS NOT ALLOWABLE AS BUSINESS EXPENDITURE. 31. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT EVEN THOUGH THE BUSINESS CARRIED ON BY THE ASSESSEE IN THE EARL IER YEARS WAS DISCONTINUED, IT HAD COMMENCED NEW BUSINESS. HE CONTENDED THAT IT WAS TH US A CASE OF CHANGE OF BUSINESS OF THE ASSESSEE AND THE ACTIVITY RELATING TO NEW BUSINESS HAVING BEEN CARRIED ON IN THE YEAR UNDER CONSIDERATION, THE ASS ESSEE WAS ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF INTEREST EXPENDITURE BEING BUSINESS EXPENDITURE. HE ALSO CONTENDED THAT EVEN CLOSING DOWN OF EARLIER BUSINES S WAS A PART OF BUSINESS ACTIVITY OF THE ASSESSEE AND THE INTEREST EXPENDITURE INCURR ED BY THE ASSESSEE FOR THE PURPOSE OF SUCH CLOSING DOWN OF BUSINESS IS ALLOWABLE AS A BUSINESS EXPENDITURE. 32. THE LEARNED DR, ON THE OTHER HAND, STRONGLY REL IED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. HE CONTENDED THAT THE BUSINESS ACTIVITY FOR WHICH THE AMOUNT WAS BORR OWED BY THE ASSESSEE COMPANY FROM ITS HOLDING COMPANY HAD BEEN CLOSED BY THE ASS ESSEE IN THE EARLIER YEARS AND THERE BEING NO ACTIVITY OF THE SAID BUSINESS CARRIE D ON IN THE YEAR UNDER CONSIDERATION, INTEREST PAID ON THE LOAN BORROWED F ROM HOLDING COMPANY WAS NOT AN ALLOWABLE BUSINESS EXPENDITURE AS RIGHTLY HELD B Y THE AUTHORITIES BELOW. 33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE LOAN FR OM ITS HOLDING COMPANY WAS BORROWED BY THE ASSESSEE IN THE YEAR 1995 FOR ITS B USINESS OF MANUFACTURING WHICH WAS BEING CARRIED ON THEN. THE SAID BUSINESS, HOWEV ER, WAS DISCONTINUED IN THE 30 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 YEAR 1998-99 AND THERE WAS NO ACTIVITY RELATING TO THE SAID BUSINESS CARRIED ON BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THE L OAN BORROWED BY THE ASSESSEE COMPANY FROM ITS HOLDING COMPANY THUS WAS NOT UTILI ZED BY THE ASSESSEE FOR THE BUSINESS CARRIED ON BY IT IN THE YEAR UNDER CONSIDE RATION AND THE SAME, THEREFORE, CANNOT BE ALLOWED AS DEDUCTION AS RIGHTLY HELD BY T HE AUTHORITIES BELOW. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE LOAN BORROWED FROM ITS HOLDING COMPANY WAS UTILIZED BY THE ASSESSEE COMPAN Y FOR THE PURPOSE OF CLOSURE OF ITS EARLIER BUSINESS AS NOTED BY THE AO HIMSELF IN THE ASSESSMENT ORDER. HE HAS CONTENDED THAT SINCE CLOSING DOWN OF EARLIER BUSINE SS IS ALSO A PART OF BUSINESS ACTIVITY OF THE ASSESSEE COMPANY, INTEREST PAID BY IT TO THE HOLDING COMPANY SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. IN OUR OPINION, EVEN IF THIS PROPOSITION PUT FORWARD BY THE LEARNED COUNSEL FOR THE ASSESSEE IS ACCEPTED FOR THE SAKE OF ARGUMENT, THE ACTIVITY OF CLOSING DOWN OF EARLIER BUSINESS HAD TAKEN PLACE IN THE EARLIER YEAR AND NOT IN THE YEAR UNDER CONSIDERATIO N AND ITS CLAIM FOR DEDUCTION ON ACCOUNT OF INTEREST PAID TO HOLDING COMPANY, THEREF ORE, CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. WE, THEREFORE, FIND NO IN FIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) CONFIRMING THE DISALLOWANC E OF INTEREST PAID BY THE ASSESSEE COMPANY TO ITS HOLDING COMPANY AND UPHOLD ING THE SAME ON THIS ISSUE, WE DISMISS GROUND NO. 4 OF THE ASSESSEES APPEAL. 34. THE ISSUE RAISED IN GROUND NO.5 OF THE ASSESSEE S APPEAL RELATES TO THE HEAD OF INCOME UNDER WHICH INTEREST RECEIVED BY THE ASSE SSEE IS CHARGEABLE TO TAX. 35. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE COMPANY HAD TAKEN FRESH LOANS AMOUNTING TO RS.56.88 CRORES FROM ITS HOLDING COMPANY M/S MUKUND LTD. AND THE SAME WERE ADVANCED TO FOUR COMPANIES BELONG ING TO THE SAME GROUP. THE 31 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 ASSESSEE HAD PAID INTEREST OF RS.69,75,937/- ON TH E LOANS TAKEN FROM MUKUND LTD. AND RECEIVED INTEREST OF RS.77,13,358/- ON THE ICD GIVEN TO FOUR GROUP COMPANIES. THE NET INTEREST INCOME OF RS.7,54,421/- EARNED BY THE ASSESSEE COMPANY WAS DECLARED BY IT AS BUSINESS INCOME CLAIMING THAT GRA NTING OF INTER-CORPORATE DEPOSITS WAS ITS COMMERCIAL ACTIVITY CARRIED ON IN AN ORGANI ZED MANNER. THIS CLAIM OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO. ACCORD ING TO HIM, THE ASSESSEE WAS NOT IN THE BUSINESS OF FINANCE OR MONEY BLENDING. HE FOUND THAT THE ASSESSEE HAD SIMPLY PROCURED LOANS FROM ITS HOLDING COMPANY AND THE SAME WERE INVESTED IN THE ICDS GIVEN TO FOUR OTHER GROUP COMPANIES. HE HELD T HAT THERE WAS NO ENTERPRISE OR EFFORTS INVOLVED IN THIS ACTIVITY AND THE INCOME EA RNED FROM THE SAID ACTIVITY IN THE FORM OF INTEREST WAS NOT THE BUSINESS INCOME OF THE ASSESSEE. HE HELD THAT THE SAME WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. ON APPEAL, THE LEARNED CIT(APPEALS) UPHELD THE ACTION OF THE AO ON THIS ISSUE OBSERVING THAT TAKING OF LOAN FROM IT S 100% HOLDING COMPANY AND ADVANCING THE LOAN AMOUNT TO FOUR OTHER GROUP COMPA NIES COULD NOT BE TREATED AS BUSINESS ACTIVITY OF THE ASSESSEE COMPANY BY ANY ST RETCH OF IMAGINATION. 36. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS NOT BEEN ABLE TO EXPLAIN AS TO HOW THE TAKING OF LOAN BY THE ASSESSE E COMPANY FROM ITS HOLDING COMPANY AND ADVANCING THE SAME TO FOUR OTHER GROUP COMPANIES IN THE FORM OF ICDS CAN CONSTITUTE BUSINESS ACTIVITY OF THE ASSESS EE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THERE IS NOTHING BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE COMPANY WAS IN THE BUSINESS OF FINANCE OR MONEY LENDING IN THE YEAR UNDER CONSIDERATION. WE ARE, THEREFORE, OF THE VIEW THAT THE NET INTERES T INCOME EARNED BY THE ASSESSEE FROM INVESTING THE AMOUNT BORROWED FROM ITS HOLDING COMPANY IN THE ICDS OF 32 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 OTHER GROUP COMPANIES IS CHARGEABLE TO TAX IN THE H ANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES AS RIGHTLY HELD BY THE AO AND THE LEARNED CIT(APPEALS) WAS FULLY JUSTIFIED IN UPHOLDING THE DECISION OF THE AO ON THIS ISSUE. THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON T HIS ISSUE IS, THEREFORE, UPHELD DISMISSING GROUND NO. 5 OF THE ASSESSEES APPEAL. 37. THE ISSUE RAISED IN GROUND NO. 6 OF THE ASSESSE ES APPEAL RELATES TO ITS CLAIM FOR SET OFF OF CARRIED FORWARD LOSS WHICH HAS BEEN DISALLOWED BY THE AUTHORITIES BELOW. 38. ALTHOUGH THE ISSUE RELATING TO ITS CLAIM FOR SE T OFF OF CARRIED FORWARD BUSINESS LOSS OF EARLIER YEARS WAS NOT DISCUSSED BY THE AO I N THE ASSESSMENT ORDER, THE SAID ISSUE WAS SPECIFICALLY RAISED BY THE ASSESSEE BEFOR E THE LEARNED CIT(APPEALS) CLAIMING THAT IT WAS ENTITLED FOR SET OFF OF BUSINE SS LOSSES RELATING TO ASSESSMENT YEARS 1998-99 TO 2005-06. THIS CLAIM OF THE ASSESSE E, HOWEVER, WAS NOT ACCEPTED BY THE LEARNED CIT(APPEALS) ON THE GROUND THAT THE SAME WAS NOT MADE BEFORE THE AO. HE ALSO HELD THAT THE THEORY OF THE ASSESSEE OF CONVERSION OF STOCK IN TRADE, IN ANY CASE, WAS NOT ACCEPTABLE AND THERE BEING NO BU SINESS CARRIED ON BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION, THERE WAS NO QUESTION OF SET OFF OF LOSSES RELATING TO THE EARLIER YEARS. 39. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUT SET, INVITED OUR ATTENTION TO THE DETAILS OF CARRIED FORWARD BUSINESS LOSSES RELATING TO EARLIER YEAR GIVEN ON PAGE NO. 6 OF HIS PAPER BOOK AND SUBMITTED THAT THE SAID DET AILS WERE FILED BEFORE THE AO ON 23-12-2008 ITSELF I.E. WELL BEFORE THE COMPLETION O F ASSESSMENT ON 31-12-2008. HE ALSO INVITED OUR ATTENTION TO THE COPY OF REPLY FIL ED BY THE ASSESSEE ON 23-12-2008 33 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 PLACED AT PAGE NO. 7 TO 18 OF HIS PAPER BOOK TO POI NT OUT THAT A SPECIFIC QUERY WAS RAISED BY THE AO ON THIS ISSUE. HE SUBMITTED THAT THE LAND DEVELOPED BY THE ASSESSEE WAS ITS BUSINESS ASSET AND ALTHOUGH PROFIT ARISING FORM EXPLOITATION OF THE SAID BUSINESS ASSET COMMERCIALLY WAS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS, THE SAME WAS IN THE NATURE OF PROFIT OF ASS ESSEES BUSINESS. HE CONTENDED THAT THE ASSESSEE, THEREFORE, WAS ENTITLED FOR SET OFF OF CARRIED FORWARD BUSINESS LOSSES AGAINST THE SAID PROFIT. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. COC ANAD RADHASWAMI BANK LTD. 57 ITR 306. 40. THE LEARNED DR, ON THE OTHER HAND, STRONGLY REL IED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. 41. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE ALREADY HELD WHILE DECI DING THE MAIN ISSUE RAISED IN GROUND NO.1 OF THIS APPEAL THAT PROFIT ARISING FROM TRANSFER OF LAND BY WAY OF CONVERSION INTO SOCK IN TRADE IS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD CAPITAL GAINS BEING THE DIFFERENCE BETWE EN THE FAIR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF CONVERSION AS REDUCED BY COST OF ACQUISITION AND OTHER DEDUCTIONS PERMISSIBLE U/S 48. IN OUR OPINION, THIS INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN CANNOT BE SET OFF AGAINST CARRI ED FORWARD BUSINESS LOSSES AS THE SAME CANNOT BE TREATED AS PROFITS AND GAINS OF THE BUSINESS OF THE ASSESSEE. THE CONTENTION RAISED BY THE LEARNED COUNSEL FOR THE AS SESSEE IN THIS REGARD RELYING ON THE DECISION OF HONBLE SUPREME COURT REPORTED IN T HE CASE OF CIT VS. COCANAD RADHASWAMI BANK LTD. (SUPRA), IN OUR OPINION, CANNO T BE ACCEPTED AS THE INTEREST INCOME IN THE SAID CASE WAS FOUND TO BE RELATABLE T O THE BUSINESS OF THE ASSESSEE 34 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 ALTHOUGH THE SAME WAS CHARGEABLE TO TAX UNDER THE S PECIFIC HEAD INCOME FROM OTHER SOURCES. IN THE PRESENT CASE, THE LAND UNDIS PUTEDLY WAS THE CAPITAL ASSET OF THE ASSESSEE AND THE PROFIT ARISING FROM TRANSFER O F THE SAID CAPITAL ASSET BY CONVERSION INTO STOCK IN TRADE CANNOT BE TREATED AS IN THE NATURE OF PROFITS OF BUSINESS OF THE ASSESSEE AS SOUGHT TO BE CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE. IT WAS ONLY THE PROFIT ARISING FROM SALE OF STOCK IN TRADE THAT COULD BE TREATED AS PROFITS OF THE BUSINESS OF THE ASSESSEE OF REAL ESTATE DEVELOPMENT TO THE EXTENT OF DIFFERENCE BETWEEN THE SALE PRICE AND FAI R MARKET VALUE OF THE LAND ON THE DATE OF CONVERSION AS ALREADY HELD BY US AND TO THA T EXTENT ONLY THE ASSESSEE WOULD BE ENTITLED TO CLAIM THE SET OFF OF CARRIED FORWARD BUSINESS LOSSES. WE, THEREFORE, DIRECT THE AO TO CONSIDER THE CLAIM OF THE ASSESSEE FOR SET OFF OF BROUGHT FORWARD LOSSES AGAINST THE INCOME OF THE ASSESSEE TO THAT E XTENT ONLY AND THAT TOO AFTER VERIFYING THE DETAILS OF CARRIED FORWARD LOSSES REL ATING TO EARLIER YEARS FROM THE RELEVANT RECORD. GROUND NO. 6 OF THE ASSESSEES APP EAL IS ACCORDINGLY TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 42. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2002-03 BEING ITA NO. 30/MUM/2006 WHICH IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS)-X, MUMBAI DATED 24-11-2005. 43. THE ISSUE RAISED IN GROUND NO.1 OF THIS APPEAL RELATES TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APP EALS) ON ACCOUNT OF INTEREST AND OTHER EXPENSES. 44. IN ITS COMPUTATION OF TOTAL INCOME, THE ASSESSE E COMPANY HAD CLAIMED DEDUCTION ON ACCOUNT OF INTEREST OF RS.5,47,35,846/ - PAID ON FIXED PERIOD LOAN, 35 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 INTEREST OF RS.4,09,24,204/- PAID ON THE LOAN TAKEN FROM ITS HOLDING COMPANY AND RATES AND TAXES AMOUNTING TO RS.22,31,490/- AS BUSI NESS EXPENDITURE. THE AO, HOWEVER, DISALLOWED THE CLAIM OF THE ASSESSEE FOR T HE SAID DEDUCTIONS. ACCORDING TO HIM, THE BUSINESS IN RESPECT OF WHICH THE SAID E XPENSES WERE INCURRED BY THE ASSESSEE I.E. MANUFACTURING AND HANDLING OF CONTAIN ERS HAD ALREADY BEEN CLOSED BY THE ASSESSEE AND WHATEVER ACTIVITIES THAT HAD BEEN CARRIED ON IN THE YEAR UNDER CONSIDERATION WERE IN CONNECTION WITH THE SAID CLOS URE OF BUSINESS. HE NOTED THAT THE ASSESSEE HAD ALREADY LAID OFF ITS STAFF AND EVE N THE FIXED ASSETS WERE BEING DISPOSED OF. HE HELD THAT THE BUSINESS OF THE ASSES SEE COMPANY THUS WAS CLOSED FOR ALL PRACTICAL PURPOSES AND ACCORDINGLY THE EXPENSES CLAIMED BY THE ASSESSEE RELATING TO CLOSED BUSINESS ON ACCOUNT OF INTEREST ETC. WERE DISALLOWED BY HIM. ON APPEAL, THE LEARNED CIT(APPEALS) CONFIRMED THE SAID DISALLOWANCE MADE BY THE AO AFTER HAVING FOUND THAT THE ASSESSEE COMPANY HAD ST OPPED ITS ACTIVITY OF MANUFACTURING THE CONTAINERS WHICH WAS ITS PRINCIPA L BUSINESS. HE FOUND THAT THE ASSESSEE COMPANY WAS ALSO TRYING TO REDEVELOP ITS L AND WHICH CLEARLY INDICATED THAT THE MANUFACTURING BUSINESS WAS CLOSED PERMANENTLY W ITHOUT ANY INTENTION TO REVIVE THE SAME. 45. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE RAISED AN ALTOGETHER NEW CONTENTION. HE POINTED OUT FROM T HE COMPUTATION OF TOTAL INCOME PLACED ON PAGE NO.1 OF HIS PAPER BOOK THAT A SUM OF RS.18,42,423/- WAS OFFERED BY THE ASSESSEE AS ITS INCOME U/S 41. HE ALSO POINTED OUT THAT THE LOSS OF RS.7,41,72,071/- AS COMPUTED BY THE ASSESSEE IN THE COMPUTATION OF INCOME WAS TAKEN BY THE AO AS STARTING POINT IN THE COMPUTATIO N OF TOTAL INCOME MADE BY HIM ON PAGE NO.7 OF THE ASSESSMENT ORDER. HE SUBMITTED THAT THE INCOME DECLARED BY THE ASSESSEE AMOUNTING TO RS.18,42,423/- THUS WAS A SSESSED TO TAX BY THE AO. HE 36 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 INVITED OUR ATTENTION TO THE PROVISIONS OF SECTION 41(1) AND EXPLANATION BELOW SUB- SECTION (2) OF SECTION 41 AND SUBMITTED THAT THE B USINESS IN THE RELEVANT YEAR IS DEEMED TO BE IN EXISTENCE FOR THE APPLICABILITY OF SECTION 41. HE CONTENDED THAT WHEN THE INCOME OFFERED BY THE ASSESSEE U/S 41 WAS BROUGHT TO TAX BY THE AO IN ITS HANDS, THE BUSINESS WAS DEEMED TO BE IN EXISTENCE A ND, THEREFORE, THE EXPENSES CLAIMED BY THE ASSESSEE IN RELATION TO THE SAID BUS INESS WERE ALLOWABLE AS IF THE SAID BUSINESS WAS IN EXISTENCE. IN SUPPORT OF THIS CONTE NTION, HE RELIED INTER ALIA, ON THE DECISIONS OF HONBLE ANDHRA PRADESH HIGH COURT IN T HE CASE OF CIT VS. VARANGAL INDUSTRIES P. LTD. 110 ITR 756, KERALA HIGH COURT I N THE CASE OF CIT VS. OFFICIAL LIQUIDATOR NEW ERA MANUFACTURING CO. LTD. 109 ITR 2 62 AND ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. RAMPUR TIMBER TERNARY CO. LTD. 89 ITR 150. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO CONTENDED THA T THE CLAIM OF THE ASSESSEE FOR VARIOUS EXPENSES MAY ALTERNATIVELY BE CONSIDERED IN RELATION TO REAL ESTATE BUSINESS BY ADDING THE SAME TO THE VALUE OF WORK IN PROGRESS . 46. THE LEARNED DR SUBMITTED THAT THE DEEMING FICTI ON CREATED IN SECTION 41(1) IS LIMITED TO BRING CERTAIN INCOME TO TAX UNDER THE HEAD PROFITS & GAINS OF BUSINESS IRRESPECTIVE OF WHETHER THE BUSINESS OF THE ASSESSEE IS IN EXISTENCE OR NOT. HE CONTENDED THAT THE SAID DEEMING FICTION CAN NOT BE EXTENDED TO CLAIM AND ALLOW ALL EXPENSES IGNORING THE FACT THAT THERE WAS NO SUCH BUSINESS CARRIED ON BY THE ASSESSEE AS IS THE POSITION IN THE PRESENT CASE . 47. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT IN SUPPORT OF THE CASE OF THE ASSESSEE ON THIS ISSUE THAT EXPENSES INCURRED IN RELATION TO THE BUS INESS ALREADY CLOSED DOWN SHOULD BE ALLOWED AS A RESULT OF INCOME BROUGHT TO TAX U/S 41 WHICH CREATES A DEEMING 37 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 FICTION ABOUT THE EXISTENCE OF THE SAID BUSINESS, T HE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON EXPLANATION BELOW SECTION 41(2). IN O RDER TO APPRECIATE THE EXACT EFFECT OF THE SAID EXPLANATION, IT IS RELEVANT TO R EFER TO THE PROVISIONS OF SUB- SECTIONS (1) AND (2) OF SECTION 41 WHICH ARE REPROD UCED HEREUNDER ALONG WITH EXPLANATIONS THERETO: 41. PROFITS CHARGEABLE TO TAX.--(1) WHERE AN ALLOW ANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINA FTER REFERRED TO AS THE FIRST- MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVI OUS YEAR,-- (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LO SS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY B Y WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERS ON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND G AINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION I N RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENC E IN THAT YEAR OR NOT; OR (B) THE SUCCESSOR IN BUSINESS HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF WHICH L OSS OR EXPENDITURE WAS INCURRED BY THE FIRST-MENTIONED PERSON OR SOME BENE FIT IN RESPECT OF THE TRADING LIABILITY REFERRED TO IN CLAUSE (A) BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY THE SUCCESSOR IN BU SINESS OR THE VALUE OF BENEFIT ACCRUING TO THE SUCCESSOR IN BUSINESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION, AND ACCORD INGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR. EXPLANATION 1.--FOR THE PURPOSES OF THIS SUB-SECTIO N, THE EXPRESSION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF' SHALL INCLUDE THE R EMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY THE FIRST MENT IONED PERSON UNDER CLAUSE (A) 38 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 OR THE SUCCESSOR IN BUSINESS UNDER CLAUSE (B) OF TH AT SUB-SECTION BY WAY OF WRITING OFF SUCH LIABILITY IN HIS ACCOUNTS. EXPLANATION 2.--FOR THE PURPOSES OF THIS SUB-SECTIO N, 'SUCCESSOR IN BUSINESS' MEANS-- (I) WHERE THERE HAS BEEN AN AMALGAMATION OF A COMPA NY WITH ANOTHER COMPANY, THE AMALGAMATED COMPANY; (II) WHERE THE FIRST-MENTIONED PERSON IS SUCCEEDED BY ANY OTHER PERSON IN THAT BUSINESS OR PROFESSION, THE OTHER PERSON; (III) WHERE A FIRM CARRYING ON A BUSINESS OR PROFES SION IS SUCCEEDED BY ANOTHER FIRM, THE OTHER FIRM. (IV) WHERE THERE HAS BEEN A DEMERGER, THE RESULTING COMPANY. (2) WHERE ANY BUILDING, MACHINERY, PLANT OR FURNITU RE,-- (A) WHICH IS OWNED BY THE ASSESSEE ; (B) IN RESPECT OF WHICH DEPRECIATION IS CLAIMED UND ER CLAUSE (I) OF SUB- SECTION (1) OF SECTION 32 ; AND (C) WHICH WAS OR HAS BEEN USED FOR THE PURPOSES OF BUSINESS,IS SOLD, DISCARDED, DEMOLISHED OR DESTROYED AND THE MONEYS P AYABLE IN RESPECT OF SUCH BUILDING, MACHINERY, PLANT OR FURNITURE, AS TH E CASE MAY BE, TOGETHER WITH THE AMOUNT OF SCRAP VALUE, IF ANY, EXCEEDS THE WRITTEN DOWN VALUE, SO MUCH OF THE EXCESS AS DOES NOT EXCEED THE DIFFERENC E BETWEEN THE ACTUAL COST AND THE WRITTEN DOWN VALUE SHALL BE CHARGEABLE TO I NCOME-TAX AS INCOME OF THE BUSINESS OF THE PREVIOUS YEAR IN WHICH THE MONE YS PAYABLE FOR THE BUILDING, MACHINERY, PLANT OR FURNITURE BECAME DUE. EXPLANATION.--WHERE THE MONEYS PAYABLE IN RESPECT O F THE BUILDING, MACHINERY, PLANT OR FURNITURE REFERRED TO IN THIS S UB-SECTION BECOME DUE IN A PREVIOUS YEAR IN WHICH THE BUSINESS FOR THE PURPOSE OF WHICH THE BUILDING, 39 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 MACHINERY, PLANT OR FURNITURE WAS BEING USED IS NO LONGER IN EXISTENCE, THE PROVISION OF THIS SUB-SECTION SHALL APPLY AS IF THE BUSINESS IS IN EXISTENCE IN THAT PREVIOUS YEAR . 48. IT IS MANIFEST FROM THE ABOVE PROVISION THAT E XPLANATION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IS IN THE CONTEXT OF SUB-SECTION (2) OF SECTION 41 WHICH DEALS WITH THE MONEY PAYABLE IN RESPECT OF DI SPOSAL OF CERTAIN ASSETS IF IT EXCEEDS THE WRITTEN DOWN VALUE AS FURTHER EXPLAINED IN SECTION 41(2). EXPLANATION TO SECTION 41(2) CLARIFIES THAT THE PROVISION OF SU B-SECTION (2) OF SECTION 41 SHALL APPLY AS IF THE BUSINESS IS IN EXISTENCE IN THAT PR EVIOUS YEAR WHEN THE MONEYS BECOME PAYABLE IN RESPECT OF DISPOSAL OF CERTAIN AS SETS. THE APPLICABILITY OF THE SAID EXPLANATION THUS IS LIMITED ONLY IN THE CONTEX T OF SUB-SECTION (2) OF SECTION 41 AND THE SAME IS NOT APPLICABLE IN THE CASES COVERED BY SUB-SECTION (1) OF SECTION 41. IN THE PRESENT CASE, A PERUSAL OF THE COMPUTATI ON OF TOTAL INCOME PLACED AT PAGE NO.1 OF THE ASSESSEES PAPER BOOK SHOWS THAT THE IN COME WAS OFFERED BY THE ASSESSEE ON ACCOUNT OF EXCESS PROVISION WRITTEN B ACK AND SUNDRY CREDITORS BALANCE WRITTEN BACK AND ITS CASE THUS WAS COVERED U/S 41(1) AND NOT U/S 41(2) INVOLVING DISPOSAL OF CERTAIN CAPITAL ASSETS RESULT ING IN MONEYS PAYABLE AS ENVISAGED IN SECTION 41(2). EXPLANATION TO SECTION 41(2) CREATING DEEMING FICTION ABOUT THE EXISTENCE OF BUSINESS THUS IS NOT APPLICA BLE TO THE CASE OF THE ASSESSEE AND THE RELIANCE OF THE LEARNED COUNSEL FOR THE ASSESSE E ON THE SAID EXPLANATION AS WELL AS THE VARIOUS JUDICIAL DECISIONS RENDERED IN THAT CONTEXT, IN OUR OPINION, IS CLEARLY MIS-PLACED. EVEN OTHERWISE, THE ISSUE INVOLVED IN T HE CASES CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WAS MAINLY RELATING TO THE ASSESSEES CLAIM FOR BENEFIT OF UNABSORBED DEPRECIATION WHICH, AS HELD BY THE HONB LE ALLAHABAD HIGH COURT IN THE CASE OF RAMPUR TIMBER AND TERNARY CO. LTD. (SUP RA), COULD BE AVAILED OF BY AN 40 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 ASSESSEE IN ANY SUBSEQUENT YEAR WITHOUT SATISFACTIO N OF THE PRE CONDITIONS ATTACHED TO SUB-SECTION (1) OF SECTION 32 AND IT WAS NOT NEC ESSARY THAT IN SUCH SUBSEQUENT YEAR THE ASSESSEE ACTUALLY CARRIED ON THE BUSINESS AND THE ASSETS IN QUESTION WAS USED FOR THE PURPOSE OF ASSESSEES BUSINESS. IN THE PRESENT CASE, THE ISSUE IS NOT RELATING TO THE ASSESSEES CLAIM FOR BENEFIT OF UNA BSORBED DEPRECIATION BUT THE SAME IS FOR THE ALLOWANCE OF EXPENDITURE SUCH AS INTERES T ETC. WHICH CAN BE ALLOWED ONLY SUBJECT TO SATISFACTION OF THE PRE CONDITIONS STIPU LATED IN THE RELEVANT PROVISIONS OF SECTION 36(1)(III) AND ONE OF THE SUCH CONDITIONS I S THAT THE FUNDS BORROWED ARE ACTUALLY UTILIZED BY THE ASSESSEE FOR THE PURPOSE O F ITS BUSINESS CARRIED ON IN THE RELEVANT YEAR. WE, THEREFORE, FIND NO MERIT IN THE CONTENTION RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN SUPPORT OF THE ASSESSEE S CASE ON THIS ISSUE AND REJECTING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE LEARN ED CIT(APPEALS) CONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTER EST AND OTHER EXPENSES ON THE GROUND THAT THE BUSINESS IN RESPECT OF WHICH THEY H AD BEEN INCURRED WAS NOT IN EXISTENCE IN THE YEAR UNDER CONSIDERATION. GROUND N O. 1 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2002-03 IS ACCORDINGLY DISMISSE D. AS REGARDS THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT THESE EXPENSES INCURRED BY THE ASSESSEE MAY BE ALLOWED IN RELATION TO REAL ESTATE DEVELOPMENT BUSINESS, IT IS OBSERVED THAT THERE IS NOTHING BROUGHT ON RECORD ON BEHALF OF THE ASSESSEE TO SHOW THAT ANY OF THE SAID EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSE E FOR THE PURPOSE OF REAL ESTATE BUSINESS. WE, THEREFORE, FIND NO BASIS TO ALLOW EVE N THE ALTERNATIVE RELIEF SOUGHT BY THE ASSESSEE ON THIS ISSUE. 49. THE ISSUE RAISED IN GROUND NO.2 OF THIS APPEAL RELATES TO THE DISALLOWANCE OF RS.2,50,000/- MADE BY THE AO AND CONFIRMED BY THE L EARNED CIT(APPEALS) ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES PAID FOR VALUATION OF LAND. 41 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 50. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH IT IS CLAIMED BY THE A SSESSEE IN ITS GROUND THAT VALUATION OF LAND WAS DONE IN CONNECTION WITH LAND DEVELOPMENT ACTIVITY, IT IS OBSERVED FROM PAGE NO. 6 OF THE LEARNED CIT(APPEAL S) IMPUGNED ORDER THAT BY ASSESSEES OWN SUBMISSION, IT HAD CREATED CHARGE ON THE LAND IN FAVOUR OF UTI BANK LTD. AS COLLATERAL SECURITY AT THE REQUEST OF HOLDING COMPANY WHICH IN TURN HAD ADVANCED RS.50 CRORES TO THE ASSESSEE COMPANY. IT WAS CLAIMED BY THE ASSESSEE THAT THE EXPENDITURE ON VALUATION OF THE LAND THUS WAS IN THE COURSE OF CARRYING THE BUSINESS AND THE SAME SHOULD BE ALLOWED AS A DEDUCT ION. THE STAND NOW TAKEN BY THE ASSESSEE IN THE GROUND THUS IS CONTRARY TO THE STAND TAKEN BEFORE THE LEARNED CIT(APPEALS) AND THERE BEING NOTHING BROUGHT ON REC ORD BEFORE US TO SPECIFICALLY ESTABLISH THAT THE VALUATION OF LAND WAS MADE IN CO NNECTION WITH THE LAND DEVELOPMENT ACTIVITY, WE FIND NO MERIT IN THIS GROU ND RAISED BY THE ASSESSEE. THE SAME IS ACCORDINGLY DISMISSED. 51. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 BEING ITA NO. 7730/MUM/2007 WHICH IS DIRECTED AGAIN ST THE ORDER OF LEARNED CIT(APPEALS)-X, MUMBAI DATED 16-10-2007. 52. AS SUBMITTED BY THE LEARNED REPRESENTATIVES OF BOTH THE SIDES, THE ISSUES INVOLVED IN THIS APPEAL AS RAISED IN GROUND NOS. 1 AND 2 ARE SIMILAR TO THE ISSUES INVOLVED IN GROUND NOS. 1 AND 2 OF THE ASSESSEES A PPEAL FOR ASSESSMENT YEAR 2002- 03 WHICH HAS ALREADY BEEN DISPOSED OF BY US. AS ALL THE MATERIAL FACTS RELATING TO THE SAID ISSUES AS INVOLVED IN THE ASSESSMENT YEAR UNDER CONSIDERATION AS WELL AS THE ARGUMENTS OF BOTH THE SIDES ARE SIMILAR TO ASS ESSMENT YEAR 2002-03, WE FOLLOW 42 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 OUR CONCLUSION DRAWN IN ASSESSMENT YEAR 2002-03 AND DISMISS BOTH THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL. 53. NOW WE SHALL TAKE UP THE CROSS APPEAL OF THE RE VENUE FOR ASSESSMENT YEAR 2004-05 BEING ITA NO. 108/MUM/2008. 54. IN GROUND NO. 1 OF THIS APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS .2.38 CRORES MADE BY THE AO IN RESPECT OF ADVANCE RECEIVED FROM M/S GAMMON NEELKAN TH REALTY CORPORATION AGAINST PROPOSED DEVELOPMENT OF PROPERTY. 55. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE COMPANY CLAIMED TO HAVE RECEIVED A SUM OF RS.2.38 CRORES FROM M/S GAMMON NE ELKANTH REALTY CORPORATION AS SECURITY DEPOSIT IN ADVANCE AGAINST DEVELOPMENT OF ITS PROPERTY. BEFORE THE AO, IT WAS SUBMITTED BY THE ASSESSEE THAT AS PER THE SU PPLEMENTARY DEVELOPMENT AGREEMENT DATED 07-07-2005, M/S GAMMON NEELKANTH R EALTY CORPORATION HAD AGREED TO GIVE A SECURITY DEPOSIT OF RS.38 CRORES A ND THE AMOUNT OF RS.2.38 CRORES RECEIVED IN THE YEAR UNDER CONSIDERATION WAS ADJUST ED AGAINST THE SAID DEPOSIT. THE AO, HOWEVER, FOUND THAT THE SUM OF RS.2.38 CRORES P AID BY THE DEVELOPERS TO ESCROW AGENT WAS SUBSEQUENTLY PAID BY ESCROW AGENT TO THE ASSESSEE COMPANY. ACCORDING TO HIM, AS PER THE SUPPLEMENTARY AGREEMEN T EXECUTED SUBSEQUENTLY, THE SUM OF RS.2.38 CRORES SHOULD HAVE BEEN HELD BY THE ESCROW AGENT. THE AO ALSO NOTED THAT THE DEVELOPER HAD AGREED TO REIMBURSE CE RTAIN EXPENSES INCURRED BY THE ASSESSEE IN TERMS OF THE DEVELOPMENT AGREEMENT AND THE SUM OF RS.2.38 CRORES PAID BY THE DEVELOPER TO THE ASSESSEE WAS ACTUALLY ON AC COUNT OF SUCH REIMBURSEMENT OF EXPENSES. ACCORDING TO HIM, EVEN THE SECURITY DEPOS IT AMOUNT OF RS.38 CRORES 43 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 AGREED TO BE PAID BY THE DEVELOPER TO THE ASSESSEE WAS EXORBITANT AND EXCESSIVE GOING BY THE NORMAL BUSINESS NORMS. HE, THEREFORE, CONCLUDED THAT THE AMOUNT OF RS.2.38 CRORES PAID TO THE ASSESSEE BY THE DEVELOPE R WAS NOTHING BUT PART OF SALE CONSIDERATION AND THE SAME WAS BROUGHT TO TAX BY H IM IN THE HANDS OF THE ASSESSEE UNDER THE HEAD CAPITAL GAINS. 56. THE MATTER WAS CARRIED BEFORE THE LEARNED CIT(A PPEALS) AND ELABORATE SUBMISSION IN WRITING WAS FILED BY THE ASSESSEE BEF ORE HIM CHALLENGING THE ADDITION OF RS.2.38 CRORES MADE BY THE AO ON ACCOUNT OF SECU RITY DEPOSIT AMOUNT TREATING THE SAME AS SALE CONSIDERATION OF PROPERTY. FROM TH E SAID SUBMISSION, THE LEARNED CIT(APPEALS) NOTED THE FOLLOWING RELEVANT FACTS : I) IN THE FINANCIAL YEAR 2003-04 THE APPELLANT STA RTED NEGOTIATIONS WITH THE DEVELOPERS, M/S GAMMON NEELKANTH, FOR DEVELOPME NT OF ITS PROPERTY, AND RECEIVED AN ADVANCE OF RS.2.38 CRORES. II) IN THE F.Y. 2003-04, IT ENTERED INTO AN AGREEME NT WITH THE ABOVE DEVELOPERS, VIDE AGREEMENT DATED 24-06-2005. AS PER THE TERMS OF THE AGREEMENT, THE DEVELOPERS WOULD BE DEVELOPING THE O WNERS PROPERTY, AS PER THE SCHEDULE GIVEN IN THE SAID AGREEMENT. BY WAY OF CONSIDERATION FOR RIGHTS TO DEVELOP THE PROPERTY THE OWNERS (APPELLANT) WERE ENTITLED TO RECEIVE 2,19,000 SQ.FT. OF RESIDENTIAL FLATS, ALONG WITH PA RKING SPACE. THE ENTIRE COST OF CONSTRUCTION WAS TO BE BORNE BY THE DEVELOPERS. AS PART OF THE AGREEMENT THE OWNERS WERE ALSO LIABLE TO BE COMPENSATED FOR C ERTAIN EXPENSES INCURRED BY THEM, AS DEFINED IN PARA 5.2 OF THE AGREEMENT. F URTHER, AS PER PARA 20.8 OF THE AGREEMENT, THE DEVELOPER WAS LIABLE TO FURNISH A SECURITY WITHIN ONE MONTH FROM EFFECTIVE DATE. THE PARTIES AGREE THAT THE SUCH SECURITY IN AN AGREED FORM AND MANNER SHALL BE PROVIDED WITHIN A P ERIOD OF NOT MORE THAN ONE MONTH FROM THE EFFECTIVE DATE ON SUCH TERMS AND CONDITIONS AND IN SUCH MANNER AS THE PARTIES MAY MUTUALLY AGREE. III) SUBSEQUENTLY A SUPPLEMENTARY AGREEMENT WAS ENT ERED INTO; PURSUANT TO THE TERMS AND CONDITIONS LAID DOWN IN THE AFORES AID AGREEMENT. ACCORDINGLY, IN ADDITION TO OTHER TERMS AND CONDITI ONS, IN ACCORDANCE WITH 44 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 PARA 20.8, CITED SUPRA, IN THE SUPPLEMENTARY AGREEM ENT, SECURITY OF RS.38 CRORES WAS PROVIDE FOR. IT WAS ALSO LAID DOWN IN T HIS AGREEMENT THAT THIS SECURITY SHALL BE REFUNDED OUT OF THE SALE PROCEEDS , TO BE DEPOSITED IN THE ESCROW ACCOUNT, AS PER THE PRESCRIBED SCHEDULE. THE ESCROW ACCOUNT, CONTAINING THE SALE PROCEEDS, WAS TO BE OPERATED BY THE ESCROW AGENTS MENTIONED SUPRA. 57. THE LEARNED CIT(APPEALS) ALSO FOUND THAT EXPENS ES TO THE TUNE OF RS.23.80 CRORES INCURRED BY THE ASSESSEE WERE SEPARATELY REI MBURSED BY THE DEVELOPERS AND THE AMOUNT OF RS.2.38 CRORES WAS NOT ON ACCOUNT OF REIMBURSEMENT OF ANY EXPENSES AS ALLEGED BY THE AO. HE ALSO FOUND THAT E SCROW AGENTS WERE REQUIRED TO HOLD ONLY THE SALE PROCEEDS OF OWNERS PREMISES AS P ER THE AGREEMENT AND NOT THE SECURITY DEPOSIT AMOUNT. HE FURTHER FOUND THAT THE AMOUNT OF RS.2.38 CRORES WAS SUBSEQUENTLY ADJUSTED AGAINST THE TOTAL SECURITY DE POSIT OF RS.38 CRORES AGREED TO BE PAID BY THE DEVELOPER TO THE ASSESSEE AS PER THE SU PPLEMENTARY AGREEMENT AND THE SAID SECURITY DEPOSIT WAS FULLY REFUNDED BY THE AS SESSEE TO THE DEVELOPERS SUBSEQUENTLY. HE, THEREFORE, HELD THAT THERE WAS NO BASIS FOR THE AO TO TREAT THE AMOUNT OF RS.2.38 CRORES AS PART OF SALE CONSIDERAT ION AND TO BRING THE SAME TO TAX IN THE HANDS OF THE ASSESSEE AS CAPITAL GAIN ESPECI ALLY WHEN THERE WAS NO TRANSFER OF ANY PROPERTY BY THE ASSESSEE IN THE YEAR UNDER CONS IDERATION. HE, THEREFORE, DELETED THE ADDITION MADE BY THE AO ON THIS ISSUE. 58. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE AMOUNT OF RS.2.38 CRORES IN QUESTION RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONS IDERATION WAS FOUND TO BE NOT AGAINST REIMBURSEMENT OF ANY EXPENSES BY THE LEARNE D CIT(APPEALS). HE ALSO FOUND THAT THE SAID AMOUNT WAS SUBSEQUENTLY ADJUSTE D AGAINST THE TOTAL SECURITY 45 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 DEPOSIT OF RS.38 CRORES AGREED TO BE PAID BY THE DE VELOPERS TO THE ASSESSEE AS PER THE SUPPLEMENTARY AGREEMENT AND THIS ENTIRE AMOUNT OF RS.38 CRORES WAS REFUNDED BY THE ASSESSEE TO THE DEVELOPER. ON THESE FINDINGS OF FACTS RECORDED BY THE LEARNED CIT(APPEALS) AFTER VERIFYING THE RELEVANT DETAILS A ND DOCUMENTS FURNISHED BY THE ASSESSEE, HE CAME TO THE CONCLUSION THAT THE AMOUNT OF RS.2.38 CRORES WAS NOT A PART OF SALE CONSIDERATION AS ALLEGED BY THE AO AND THE SAME WAS NOT CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD CA PITAL GAIN AS THERE WAS NO TRANSFER OF ASSET BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. AT THE TIME OF HEARING BEFORE US, THE LEARNED DR HAS NOT BEEN ABLE TO BRING ANYTHING ON RECORD TO CONTROVERT OR REBUT THESE FINDINGS OF FACTS RECORDE D BY THE LEARNED CIT(APPEALS) WHILE GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. THIS BEING THE POSITION AND HAVING REGARD TO ALL THE FACTS OF THE CASE AS EMANATING FR OM THE RECORD, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT( APPEALS) DELETING THE ADDITION OF RS.2.38 CRORES MADE BY THE AO ON ACCOUNT OF SECU RITY DEPOSIT TREATING THE SAME AS PART OF SALE CONSIDERATION AND UPHOLDING THE SAM E ON THIS ISSUE, WE DISMISS GROUND NO. 1 OF THE REVENUES APPEAL. 59. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.2.66 CR ORES MADE BY THE AO IN RESPECT OF COMMISSION INCOME ALLEGEDLY ACCRUED TO THE ASSES SEE ON A CHARGE OF RS.133 CRORES CREATED ON ITS LAND IN FAVOUR OF UTI BANK LT D. AS COLLATERAL SECURITY. 60. THE UTI BANK LTD. HAD SANCTIONED BANK GUARANTEE LIMITS TO CDS, WHICH WAS AWARDED THE CONTRACT FOR CONSTRUCTION OF TWO ROAD S ECTIONS IN UTTAR PRADESH UNDER THE GOLDEN QUARDRILATERAL SCHEME OF GOVERNMENT OF INDIA FUNDED BY WORLD BANK AND N.H.A.I. THE CDS SUB CONTRACTED THIS PROJECT TO M/S MUKUND LTD. WHICH WAS 46 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 ACTING AS A PROJECT EXECUTOR WITH TECHNICAL KNOW HO W AND OTHER CIVIL ENGINEERING SERVICES PROVIDED BY CDS. THE CREDIT LIMITS AVAILED BY CDS FROM THE UTI BANK WERE PRIMARILY SECURED BY COLLATERAL SECURITY OF I TS PROPERTY MORTGAGED BY THE ASSESSEE COMPANY AT THE REQUEST OF M/S MUKUND LTD. THE AO NOTICED THAT THE ASSESSEE COMPANY HAD NOT CHARGED ANY COMMISSION OR OTHER CHARGES FOR OFFERING ITS PROPERTY AS COLLATERAL SECURITY TO THE UTI BAN K. HE NOTED THAT THE UTI BANK WAS CHARGING A COMMISSION AT THE RATE OF 2% FOR GIV ING BANK GUARANTEES AND THE OVERALL LIMITS AGGREGATING TO RS.133 CRORES GIVEN B Y THE SAID BANK TO CDS/M/S MUKUND LTD. WERE SECURED BY THE COLLATERAL SECURITY OF THE ASSESSEES PROPERTY MORTGAGED TO THE BANK. ACCORDING TO THE AO, THE ASS ESSEE COMPANY THUS HAD FORGONE A COMMISSION OF 2% WHICH IT COULD HAVE CHAR GED FROM M/S MUKUND LTD. FOR OFFERING ITS PROPERTY AS SECURITY BY WAY OF MOR TGAGE. HE, THEREFORE, WORKED OUT SUCH COMMISSION AT RS.2.66 CRORES AND ADDED THE SAM E TO THE TOTAL INCOME OF THE ASSESSEE. 61. THE MATTER WAS CARRIED BEFORE THE LEARNED CIT(A PPEALS) AND IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE HIM THAT THE CHARGE ON THE PROPERTY OF ASSESSEE COMPANY WAS CREATED DURING THE PREVIOUS YE AR RELEVANT TO ASSESSMENT YEAR 2002-03 AND THERE WAS NO ADDITION MADE ON ACCOUNT O F ANY NOTIONAL COMMISSION WHICH THE ASSESSEE SHOULD HAVE CHARGED BUT DID NOT CHARGE ACTUALLY. IT WAS SUBMITTED THAT INCOME-TAX IS LEVIABLE ON INCOME EAR NED BY THE ASSESSEE AND IF THERE IS NO INCOME WHICH HAS BEEN ACTUALLY EARNED BY THE ASSESSEE, THERE CAN BE NO LIABILITY TO TAX ON SUCH HYPOTHETICAL INCOME. IT WA S CONTENDED THAT THE INCOME SOUGHT TO BE TAXED IN THE HANDS OF THE ASSESSEE MUS T HAVE ARISEN TO HIM AND THE INCOME THAT COULD HAVE BEEN EARNED BUT NOT EARNED O R MATERIALIZED, CANNOT BE ASSESSED TO TAX. KEEPING IN VIEW THIS SUBMISSION MA DE BY THE ASSESSEE AND THE 47 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF C IT VS. SHOORJIVALLABHDAS AND CO. 46 ITR 144 (SC), CIT VS. A. RAMAN AND CO. 67 IT R 11 CITED IN SUPPORT, THE LEARNED CIT(APPEALS) HELD THAT THE ADDITION MADE BY THE AO ON ACCOUNT OF COMMISSION AMOUNT OF RS.2.66 CRORES BEING ONLY A NO TIONAL INCOME AND NOT REAL INCOME WAS NOT SUSTAINABLE. ACCORDINGLY, THE SAID A DDITION WAS DELETED BY HIM. 62. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT ITS PROPERT Y WAS OFFERED AS COLLATERAL SECURITY BY THE ASSESSEE FOR THE BANK GUARANTEE LIMITS AVAIL ED BY CDS/M/S MUKUND LTD. IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2002- 03 AND THERE WAS NO ADDITION MADE ON ACCOUNT OF ANY COMMISSION INCOME IN THAT YE AR WHICH THE ASSESSEE HAD ALLEGEDLY FOREGONE. IT IS ALSO OBSERVED THAT THERE IS NOTHING BROUGHT ON RECORD TO SHOW THAT ANY SUCH COMMISSION WAS AGREED TO BE PAID TO THE ASSESSEE EITHER BY M/S MUKUND LTD. OR BY CDS. THE COMMISSION INCOME THUS W AS NOT ACCRUED TO THE ASSESSEE AND THERE BEING NO SUCH INCOME REALLY EARN ED BY THE ASSESSEE, WE FIND OURSELVES IN AGREEMENT WITH THE LEARNED CIT(APPEALS ) THAT THE ADDITION MADE BY THE AO ON ACCOUNT OF SUCH NOTIONAL OR HYPOTHETICAL INCOME WAS NOT SUSTAINABLE. IT IS BY NOW WELL SETTLED THAT INCOME WHICH HAS ACCRUE D AND ARISEN TO THE ASSESSEE IS CHARGEABLE TO TAX IN HIS HANDS AND THE INCOME WHICH COULD HAVE BEEN EARNED BY THE ASSESSEE BUT NOT ACTUALLY EARNED OR MATERIALIZED C ANNOT BE ASSESSED TO TAX. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE AND THE LEGAL POSITION EMANATING FROM THE JUDGMENTS OF HONBLE SUPREME COURT RELIED UPON BY T HE LEARNED CIT(APPEALS), WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE AO ON ACCOUNT OF NOTIONAL OR HYPOTHETICAL INCOME IN THE FORM OF COMMISSION WHICH HAD NEVER BEEN ACTUALLY ACCRUED OR ARISEN TO THE ASSESSEE WAS NOT SUSTAINAB LE AND THE LEARNED CIT(APPEALS) WAS FULLY JUSTIFIED IN DELETING THE SAME. IN THAT V IEW OF THE MATTER, WE UPHOLD THE 48 ITA NO.1086/MUM/2010 ITA NO. 30/MUM/2006 ITA NO.7730/MUM/2007 ITA NO. 108/MUM/2008 IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING R ELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO.2 OF THE REVENUES APP EAL. 63. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2006-07 IS PARTLY ALLOWED WHEREAS THE APPEALS OF THE ASSESSEE FOR ASS ESSMENT YEARS 2002-03 AND 2004-05 AND REVENUES APPEAL FOR ASSESSMENT YEAR 20 04-05 ARE DISMISSED. ORDER PRONOUNCED ON THIS 21 ST DAY OF OCT.2011. SD/- SD/- (D. MANMOHAN) (P.M.JAGTAP) VICE PRESIDENT. ACCOUNTANT MEMBER. MUMBAI, DATED : 21 ST OCT., 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, J-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI