ADDL CIT 8(3), MUMBAI V. SUN SHINE REALTORS P. LTD, MUMBAI

ITA 1233/MUM/2010

• Counselvise Citation: 123319914 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 21-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS MITHALI SRIDHARAN
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Capital asset; Business income; Maximum Marginal Rate; Deemed to accrue or arise in india; Fair market value; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 1233/MUM./2010 (ASSESSMENT YEAR : 2005-06 ) DY. COMMISSIONER OF INCOME TAX CIRCLE-8(3), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S SUN SHINE REALTORS PVT. LTD. CHANDRA VILLA, NEHRU ROAD VILE PARLE (E), MUMBAI 400 057 PAN AADCM6213B .... RESPONDENT REVENUE BY : MRS. MITHALI SRIDHARAN ASSESSEE BY : MR. VIJAY MEHTA DATE OF HEARING 28.12.2011 DATE OF ORDER 13.01.2012 O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE REVENUE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 4 TH DECEMBER 2009, PASSED BY THE COMMISSIONER (APPEALS)-XVIII, MUMBAI, FOR ASSESSMENT YEAR 2005-0 6. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW THE EXPENSES U/S.37 WITHOUT APPRECIATING THE FACTS OF THE CASE THAT THE INCOME IS OF THE NATURE OF CAPITAL GAIN AND THE A.O. HAD CORRECTLY T AXED THE SAME AS CAPITAL GAIN. SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN TREATING THE ACCRUED INCOME OF RS.2,31,47,564/- AS NOTIONAL INCOME AND EXCLUDING I T FROM TAX NET, WITHOUT APPRECIATING THE FACTS OF THE CASE. FACTS IN BRIEF :- 2. THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUS INESS OF UNDERTAKING REAL ESTATE DEVELOPMENT AND CONSTRUCTIO N IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 28 TH SEPTEMBER 2005, DECLARING TOTAL INCOME OF ` 6,32,86,190 . THE ASSESSEE PURCHASED LAND AT LONAWALA AND COMMENCED CONSTRUCTION DURING THE YEAR 2004-05. 3. AS A PART OF ITS BUSINESS, REAL ESTATE DEALINGS, DE VELOPMENT AND CONSTRUCTION, THE ASSESSEE COMPANY ASSOCIATED ALONG WITH ANOTHER WELL- KNOWN DEVELOPER NAMAN FOR THE PURPOSE OF JOINT BIDD ERS AND ALLOTMENT OF PLOTS OF LAND AT MMRDA. THE NAMAN GROUP, THROUGH IT S CONCERN SHREE NAMAN DEVELOPER LTD. (FOR SHORT NDL ) AND THE ASSESSEE SUN SHINE REALTORS PVT. LTD. (FOR SHORT SRL ) BID FOR THREE PLOTS OF LAND AT MMRDA. BOTH THE PARTIES MADE APPLICATIONS TO MMRDA AS JOIN T BIDDERS IN JANUARY 2004. BOTH THE PARTIES MADE INITIAL DEPOSITS AS REQ UIRED FOR BIDDING OF PLOTS. ON 28 TH MAY 2004, MMRDA ACCEPTED THE APPLICATIONS AND IN P RINCIPLE AGREED TO ALLOT THE PLOTS WHICH WERE THREE IN NUMBERS. IN TERMS OF THE COMMITMENT GIVEN BY THE JOINT APPLICANTS AS WELL AS THE REQUIR EMENTS OF MMRDA REGULATIONS SRL AND NDL FORMED SPECIAL PURPOSE VEHI CLES (FOR SHORT SPV ), WHICH WERE THREE COMPANIES. EACH PLOT WAS AGREED TO BE ALLOTTED BY MMRDA TO EACH OF THE SPVS. THE NAMES OF SPVS WERE (I) NAM AN KBC CONSTRUCTION PVT. LTD. ( NCPL ); (II) NAMAN BKC REALTORS PVT. LTD. ( NRPL ) AND (III) NAMAN BKC PROPERTIES PVT. LTD. ( NPPL ). ALL THESE THREE COMPANIES WERE FLOATED AROUND MAY 2004 AND PLOTS WERE ALLOTTED BY MMRDA ON 27 TH AUGUST 2004. THE PLOT NUMBERS WERE C-30, C-31 AND C-32. AS PER THE CONDITIONS MENTIONED IN THE LETTER OF ALLOTMENT, THE JOINT VEN TURE PARTNERS HAD TO PAY 50% OF THE LEASE PREMIUM WITHIN THE MONTH OF ALLOTM ENT WHILE THE BALANCE WERE PAYABLE WITHIN A PERIOD OF TWO MONTHS. THE DET AILS OF THE ASSESSEES STAKE IN EACH OF THE SPVS IS AS FOLLOWS:- SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 3 PLOT NO. SPV % OF STAKE BY ASSESSEE % OF STAKE BY NAMAN DEV. AREA OF PLOT (SQ.MTRS.) C-30 NAMAN BKC CONSTRUCTION PVT. LTD. (NCPL) 90% 10% 4556 C-31 NAMAN BKC REALTORS PVT. LTD. (NRPL) 30% 70% 3443 C-32 NAMAN BKC PROPERTIES PVT. LTD. (NPPL) 10% 90% 3443 4. SRL AND NDL EXECUTED JOINT VENTURE AGREEMENT IN RES PECT OF EACH OF THE SPV ENTITY. AS PER THE JOINT VENTURE AGREEMENT, (I) BOTH SRL AND NDL HAD AN OBLIGATION OF CONTRIBUTING PROPORTIONATELY, PREMIUM AMOUNTS AS WELL AS CONSTRUCTION COST IN THE EVENT OF THE CONCERNED JOINT VENTURE COMPANY, DECIDED TO UNDERTAKE DEVELOPMENT OF THE PROJECT; (I I) NEITHER SRL NOR NDL CAN OFFER ITS SHARE HOLDINGS IN THE SPV FOR SALE TO ANY OTHER PERSONS, WITHOUT THE CONSENT IN WRITING OF THE OTHER SHAREHOLDER; (I II) IN THE EVENT OF THE MAJORITY PARTNER IN THE SPV DECIDING TO EXIT FROM T HE PROJECT, THEN THE MAJORITY PARTNER COULD COMPEL THE MINORITY PARTNER TO EXIT IN FAVOUR OF A NEW PURCHASER; (IV) IF A MINORITY SHARE HOLDER IN THE S PV IS NOT DESIROUS OF MEETING ITS OBLIGATION UNDER THE AGREEMENT, THEN IT IS REQUIRED TO OFFER ITS MINORITY SHAREHOLDING, TO THE MAJORITY SHAREHOLDER AT PAR, IN CASE THE MAJORITY SHAREHOLDER WAS WILLING TO UNDERTAKE THE D EVELOPMENT OF THE PROJECT. AS IS EVIDENT FROM THE TABLE GIVEN ABOVE, THE ASSESSEE IS A MAJORITY SHAREHOLDER IN NCPL AND IS MINORITY SHAREHOLDER IN NRPL AND NPPL. 5. THE FACTS OF THE FIRST ISSUE BEFORE US ARE BROUGHT OUT BY THE ASSESSING OFFICER AT PARA-3.2/PAGE-3, OF THE ASSESSMENT ORDER . THE SAME IS EXTRACTED FOR READY REFERENCE:- 3.2 AS AGAINST THE MAIN OBJECT THE CIRCUMSTANCES WH ICH LED TO THE RECEIPT OF GAIN OF RS.7.65 CRORES ON SALE OF SHARES ARE DESCRIBED IN BRIEF AS FOLLOW: DURING THE YEAR THE ASSESSEE FORMED A JOINT VENTURE COMPANY NAMELY NAMAN BKC CONSTRUCTION P LTD ALONGWITH ANOTHER COMP ANY SHREE NAMAN DEVELOPERS LTD. THE ASSESSEE COMPANY HELD 90, 000 EQUITY SHARES VALUED AT RS.9,00,000/- IN THE PAID UP CAPIT AL OF NAMAN BKC CONSTRUCTION P LTD AND THE BALANCE 10,000 SHARES VA LUED AT RS.1,00,000/- WERE HELD BY SHREE NAMAN DEVELOPERS L TD. THE JOINT VENTURE COMPANY, NAMAN BKC CONSTRUCTION P LTD WAS A LLOTTED A PLOT OF SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 4 LAND ADMEASURING 4556.17 SQ.METRES SITUATED AT G BL OCK BANDRA KURLA COMPLEX, MUMBAI-400 051 BY THE MUMBAI METRO REGION DEVELOPMENT AUTHORITY(MMRDA) ON LEASE FOR A PERIOD OF 80 YEARS ON PAYMENT OF DEPOSIT OF RS.7,00,000/-. AFTER ALLOTMENT OF THE PL OT ON 26.08.04, FURTHER PREMIUM OF RS.41,08,50,000/-WAS PAYABLE TO MMRDA BY NAMAN BKC CONSTRUCTION P LTD. HOWEVER INSTEAD OF PA YING THE PREMIUM AND ACQUIRING THE ALLOTTED PLOT THE ASSESSE E AND SHREE NAMAN DEVELOPERS LTD SOLD THEIR RESPECTIVE SHARES H OLDING TO K RAHEJA CORPORATION P LTD BY WAY OF AN AGREEMENT FOR SALE O F SHARES MADE ON 23.09.04. THE ASSESSEE COMPANY RECEIVED CONSIDERATI ON RS.860 PER SHARE FROM K. RAHEJA CORPORATION P LTD. THE TOTAL C ONSIDERATION RECEIVED ON THIS TRANSACTION IS OF RS.7,74,00,000/- WHICH AS REDUCED BY RS.9,00,000 (COST OF SHARES) RESULTED IN GAIN OF RS .7,65,00,000/WHICH HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT AS ABOVE. DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE ALSO ADVANCED LOANS ON WHICH THE INTEREST INCOME EARNED BY THE ASSESSEE HAS BEEN CRE DITED TO THE PROFIT AND LOSS ACCOUNT. IN EFFECT, THE ASSESSEE HAS TREAT ED THE INCOME FROM THE SALE OF THE SHARES REPRESENTING RIGHT TO ACQUIR E THE PLOT OF MMRDA ALONGWITH THE ATTACHED DEVELOPMENT RIGHTS AND THE I NTEREST INCOME EARNED BY THE ASSESSEE AS BUSINESS INCOME. 3.3 HENCE VIDE LETTER DATED 20.0 1.2006 THE THEN AO DCIT RANGE 8(3), MUMBAI ISSUED A SHOW CAUSE NOTICE TO THE ASSE SSEE AS TO WHY THE INCOME FROM SALE OF SHARES SHOULD NOT BE TREATED AS CAPITAL GAINS AND INTEREST SHOULD NOT BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AS UNDER: ON VERIFICATION OF THE AUDIT REPORT AT PARA NO.8, IT IS MENTIONED THAT YOU ARE ENGAGED IN THE BUSINESS OF CONSTRUCTION OF BUILDING AND DEVELOPMENTS, SALES AN D DELAYING IN REAL ESTATE WHEREAS IN THE PROFIT AND L OSS ACCOUNT YOU HAVE SHOWN SALE OF SHARES AND NET GAIN THEREON AT RS.7.65 CRORES AND INTEREST ON LOAN AT RS.16,09,563/- AND DEBITED VARIOUS EXPENDITURE UNDE R VARIOUS HEADS TREATING THE SAME AS BUSINESS EXPENDI TURE AND BUSINESS INCOME. SHOW CAUSE WHY THE INCOME ON ACCOUNT OF SHARES SHOU LD NOT BE ASSESSED AS INCOME FROM CAPITAL GAINS AND IN TEREST UNDER THE HEAD INCOME FROM OTHER SOURCES . 6. SUBSEQUENTLY, AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS NOT EA RNED PROFIT OUT OF ANY REGULAR ACTIVITY WHICH MAY BE TERMED AS BUSINESS . HE OBSERVED THAT FOR THE ASSESSMENT YEAR 2004-05, NO INCOME HAD BEEN DECLARE D BY THE ASSESSEE IN VIEW OF THE FACT THAT CONSTRUCTION ACTIVITY OF THE ASSESSEE HAS NOT COMMENCED. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE PARTICIPATED IN A FORMATION OF A JOINT VENTURE OF A COMPANY BY ACQU IRING 90% SHARE OF THE COMPANY AND THE ASSESSEES RIGHT TO ACQUIRE THE PLO T OF LAND ARE REPRESENTED SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 5 BY THE ASSESSEES SHARES IN THE JOINT VENTURE COMPA NY. HE HELD THAT THE PROFIT ACCRUED OUT OF THE SALE OF SHARES, IS CAPITA L GAINS AND NOT BUSINESS INCOME. 7. COMING TO THE SECOND ISSUE, THE FACTS ARE BROUGHT O UT AT PARAS-4.1 AND 4.2, OF THE ASSESSMENT ORDER, WHICH IS EXTRACTED AS FOLLOWS:- 4.1 IN ADDITION TO THE AFORESAID PLOT NO. C-3D, TH E ASSESSEE HAD ENTERED INTO 2 OTHER AGREEMENTS WITH SHREE NAMAN DE VELOPERS LTD. FOR FORMATION OF 2 OTHER JOINT VENTURE COMPANIES FO R BIDDING PLOT NO.C- 3 1 AND C-32 AT THE SAME LOCATION IN BANDRA KURLA C OMPLEX. THE HOLDINGS IN THESE COMPANIES WERE TRANSFERRED BY THE ASSESSEE COMPANY TO ASSOCIATE COMPANIES OF SHREE NAMAN DEVEL OPERS LTD AFTER ALLOTMENT OF THE PLOTS AT FACE VALUE, UNLIKE IN THE CASE OF SALE OF ITS SHARES OF M/S. NAMAN BKC CONSTRUCTION(P) LTD(PLOT N O.C-30) TO K RAHEJA CORPORATION P LTD . THEREFORE, THE ASSESSEE WAS ASKED TO CLARIFY THIS DIFFERENCE IN PRICING OF ITS SHARES IN THE 3 J OINT VENTURE COMPANIES BY ISSUE OF LETTER DATED 05.12.2007 AS UNDER:- IT IS SEEN FROM THE DETAILS FURNISHED BY YOU DURING THE ASSESSMENT PROCEEDINGS, THAT YOU HAD ENTERED INTO AGREEMENTS W ITH M/S.NAMAN DEVELOPERS LTD FOR FORMING 3 DIFFERENT COMPANIES WH ICH RESPECTIVELY BID FOR THREE PLOTS OF MMRDA AND YOUR SHARES IN THE SAID COMPANIES WERE TRANSFERRED TO OTHER COMPANIES AFTER ALLOTMENT OF THE RESPECTIVE PLOTS. THE RELEVANT DETAILS ARE TABULATED AS UNDER: PLOT NO. AREA / AMOUNT PAYABLE TO MMRDA(RS.) JV COMPANY NO.OF SHARES HELD BY ASSESSEE/ FACE VALUE ( ` ) PURCHASER AND CONSIDERATION RECEIVED (RS.) C-30 4556.16 SQ. METRES 41,08,50,000 NAMAN BKC CONSTRUCTIONS PLTD 90,000(90%) 9,00,000 K RAHEJA CORPORATION P LTD RS.7,74,00,000/- @ ` 860 PER SHARE C-31 3443.04 SQ. METRES 32,32,08,000 NAMAN BKC REALTORS P LTD 30,000(30%) 30,00,000 SS INFRASTRUCTURE(P) LTD 30,00,000 @RS.10/- PER SHARE C-32 3443.04 SQ.MTRS 28,00,08,000 NAMAN BKC PROPERTIES P. LTD. 1,000(10%) 10,000 SS BUILDCON (P) LTD. 10,000 @ ` 10 PER SHARE IN THIS CONNECTION, YOU ARE REQUESTED TO FURNISH TH E FOLLOWING DETAILS/EXPLANATIONS: SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 6 A) WHY WAS NO PREMIUM CHARGED ON SALE OF SHARES HEL D BY YOU IN M/S.NAMAN BKC REALTORS (F) LTD AND M/S.NAMAN BKC PR OPERTIES (F) LTD. WHICH HELD THE RIGHTS TO PURCHASE AND DEVELOP PLOTS NO. C-32 AND C-33 RESPECTIVELY, ALTHOUGH THE TRANSACTION OF SALE OF SHARES HELD BY YOU IN M/S.NAMAN BKC CONSTRUCTIONS P LTD ON THE SAM E DATE WAS DONE AT A PREMIUM OF RS. 860 PER SHARE AS AGAINST FACE V ALUE OF RS. 10 PER SHARE. 4.2 THE ASSESSEE REPLIED VIDE LETTER DATED 14.12.20 07 AS UNDER: AS SUBMITTED TO YOUR HONOUR 3,00,000 SHARES OF NAM AN BKC REALTORS PUT LTD (NRPL) AND 1000 SHARES OF NAMAN BKC PROPERT IES PUT LTD (NPPL) HAVE BEEN TRANSFERRED BY US TO SS INFRASTRUC TURE P LTD(SSIFL) AND S S BUILDCORI P LTD (SSBPL)AT PAR VALUE. IN THI S REGARD WE HAVE ALREADY FURNISHED COPIES OF SHAREHOLDERS AGREEMENTS DATED 17TH SEPTEMBER 2004 AS ARE APPLICABLE TO NRPL AND NPPL, WE DRAW YOUR PARTICULAR ATTENTION TO THE CLAUSE NO.11 FROM THE S HAREHOLDERS AGREEMENT DATED 17TH SEPTEMBER, 2004 AS RELEVANT TO NRPL. IN THE EVENT OF DEFAULT IN PROVIDING TIMELY FUNDS T O THE COMPANY(NRPL) FOR THE PURPOSE SPECIFIED HEREIN BY SUNSHINE FOR AN Y REASON WHATSOEVER THEN NAMAN SHALL HAVE FIRST OPTION TO TA KEOVER/ACQUIRE ALL THE EQUITY SHARE HOLDING OF SUNSHINE IN THE SAID CO MPANY(NRPL)IN THE NAME OF ITS NOMINEE AND NAMAN SHALL MAKE GOOD THE S HORTFALL IN FUNDS AND IN WHICH EVENT SUNSHINE SHALL BE ENTITLED TO FI XED LUMP SUM OF RS.30,00,000(RUPEES THIRTY LACS ONLY) FROM NAMAN OR ITS NOMINEES IN LIEU OF HAVING AGREED TO TRANSFER ITS SHAREHOLDING IN THE COMPANY AND WHICH LUMP SUM AMOUNT SHALL BE IN FULL AND FINAL SE TTLEMENT OF ALL CLAIMS/DEMANDS/RIGHTS/INTEREST/SHARE OF SUNSHINE. VIDE LETTER DATED 22.09, OF THE ASSESSEE HAD EXPRES SED ITS INABILITY TO CONTRIBUTE ITS COMMITMENT OF RS. 10.18 CRORES TO NR PL. AS A RESULT THE CALL OPTION OF SNMDL. WAS TRIGGERED AND THE ASSESSE E WERE REQUIRED TO AND HAS ACCORDINGLY THEREUPON TRANSFERRED SHARES IN NRPL AT PAR VALUE TO SSIPL. COPY OF THE LETTER DATED 22.09.04 IS FURN ISHED TO YOU ON 13.12.2007. COPY IS ENCLOSED ONCE AGAIN AT PAGE(3) OF THIS LETTER. SIMILAR PROVISION IS APPLICABLE IN RESPECT OF NPPL. REFER CLAUSE NO.11 OF SHAREHOLDERS AGREEMENT RELEVANT TO NPPL. (COPY OF L ETTER DATED 22.09.O4 VIDE WHICH THE ASSESSEE EXPRESSED ITS INAB ILITY TO CONTRIBUTE ITS COMMITMENT TO NPPL IS ENCLOSED HEREWITH AT PAGE 3) SSIPL AND SSBPL ARE ASSESSED TO TAX UNDER AAICS1 653A AND AAI CS1 655 G RESPECTIVELY SHOULD YOUR HONOUR REQUIRE WE CAN MAKE AVAILABLE SSIPL AND SSBPL.S CONFIRMATION CONFIRMING ACQUISITION OF SHARES AS AFORESAID. 8. THE REPLY OF THE ASSESSEE WAS CONSIDERED AND NUMERA TED, BROUGHT OUT AT PARA-4.4, OF THE ASSESSMENT ORDER, WHICH IS EXTR ACTED AS FOLLOWS:- 4.4 THE MAIN ARGUMENTS OF THE ASSESSEE CAN BE SUMM ARIZED AS UNDER: SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 7 (I) PLOT NO.C-30 HAD A LOCATIONAL ADVANTAGE OVER C- 31 AND C-32 AND, THEREFORE, HAD BETTER MARKETABILITY. THIS CONTENTIO N IS NOT CORRECT TO THE EXTENT THAT BETTER MARKETABILITY OF C-30 WOULD NOT MEAN THAT TRANSFER OF RIGHT TO ACQUIRE PLOT NOS.C-31 AND C-32 WOULD NOT RESULT IN ANY PROFIT AT ALL. MOREOVER, AS EXPLAINED LATER THI S ASPECT HAS BEEN TAKEN INTO ACCOUNT INTO COMPUTATION OF FULL VALUE O F CONSIDERATION I.E. ACTUAL CONSIDERATION RECEIVED BY COMPUTING IT ON TH E BASIS OF RESPECTIVE PREMIUM AMOUNTS PAYABLE TO MMRDA FOR THE THREE PLOTS WHICH HAVE FACTORED IN THE RELATIVE LOCATIONAL ADVA NTAGE/DISADVANTAGE. (II) THERE WAS A CLAUSE IN THE RESPECTIVE JOINT VEN TURE AGREEMENTS WHICH PROVIDED FOR WITHDRAWAL BY THE ASSESSEE WITHO UT MAKING ANY PROFIT/LOSS ON ITS SHARE, IF IT WAS UNABLE TO CONTR IBUTE ITS SHARE OF INVESTMENT. THIS ARGUMENT IS NOT ACCEPTABLE AS THE SAID CLAUSE AND THE LETTERS GIVEN BY THE ASSESSEE TO SHREE NAMAN DEVELO PERS LTD ARE SELF SERVING PIECES OF EVIDENCE IN SUPPORT OF ITS CLAIM. IT HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS DUR GA PRASAD MORE REPORTED IN 82 ITR 540 THAT IN A CASE WHERE THE PAR TY RELIES ON SELF SERVING RECITALS IN A DOCUMENT, IT IS FOR THAT PART Y TO ESTABLISH THE TRUTH OF THESE RENTALS AND THE ASSESSING OFFICER CAN LOOK BEYOND SUCH SELF SERVING DOCUMENTS. IT WAS ALSO HELD IN THE CASE OF SUMATI DAYAL VS CIT REPORTED IN 214 ITR 81 BY THE HONBLE SUPREME C OURT HELD THAT CONCLUSION ARRIVED AT AFTER CONSIDERING THE SURROUN DING CIRCUMSTANCES AND APPLYING THE TEST OF HUMAN PROBABILITIES WAS CO RRECT IN THE INCOME-TAX PROCEEDINGS. THE ASSESSEES EXPLANATION IS NOT ACCEPTABLE AS IT IS CLEAR FROM THE TRANSACTIONS CARRIED OUT WI TH K RAHEJA CORPORATION P LTD THAT THE PLOTS OF LAND NAMELY C3 0, C-3 1 & C-32 COMMANDED PREMIUM OVER AND ABOVE THE PRICE CHARGED BY THE MMRDA FOR THE ABOVE PLOTS. THE ASSESSEES CONTENTIO N THAT IT HAD TO WITHDRAW FROM THE PROPOSED PLAN OF DEVELOPING PLOT NOS C-31 & C-32 BECAUSE OF LACK OF FUNDS IS NOT ACCEPTABLE BECAUSE IT IS A KNOWN FACT THAT THE PLOT OF LAND WAS EASILY SALEABLE AT A HIGH ER PRICE. FURTHER, FUNDS WERE ALSO READILY AVAILABLE WITH THE ASSESSEE FROM THE CONSIDERATION OF RS.7.74 CRORES PAID BY M/S. K RAHE JA CORPORATION P LTD AND PREFERENCE SHARE CAPITAL OF RS.5.65 CRORES RAISED LATER DURING THE YEAR. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT THE SHARES HAD TO BE TRANSFERRED IN VIEW OF ITS INABILITY TO M EET THE COST CANNOT BE ACCEPTED. (III) THE ASSESSEE RECEIVED APPROXIMATELY 50% OF TH E TOTAL GAINS MADE OF PLOTS NO.C-30, C-31 AND C-32. WHILE IN THE FIRST PLACE, THIS CONTENTION CONTRADICTS THE ASSESSEES OTHER CONTENT IONS, THIS CONTENTION IS ALSO NOT FACTUALLY CORRECT AS CAN BE READILY APPRECIATED FROM THE RESPECTIVE PLOT AREAS AND SHARE HOLDING TA BULATED ABOVE. 9. THE ASSESSING OFFICER REJECTED THE SAME AND COMPUTE D SHORT TERM CAPITAL GAIN BY HOLDING AS FOLLOWS:- 4.6 IN VIEW OF THE ABOVE FACTS AND ESTABLISHED PRO POSITION OF LAW THE ACTUAL CONSIDERATION I.E. THE FULL VALUE OF CONSIDE RATION RECEIVED WAS MUCH MORE THAN THE APPARENT CONSIDERATION IN RESPEC T OF THE ASSESSEE COMPANYS SHARE IN THE JOINT VENTURE COMPANIES WHIC H WERE ALLOTTED SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 8 RIGHTS OF PLOT NO.C-31 AND C32. THE ACTUAL CONSIDER ATION RECEIVED CAN BE REASONABLY COMPUTED AS FOLLOWS: AMOUNT PAYABLE TO MMRDA FOR PLOT NO.C-30 = RS.41,08,50,000/- CONSIDERATION PAID BY K RAHEJA CORPORATION P LTD @RS.860 PER SHARE (FOR ENTIRE PLOT I.E.1,00,000 SHARES IN NAMAN BKC CONSTRUCTIONS P LTD) = RS. 8,60,00,0 00/- RATIO OF CONSIDERATION RECEIVED TO AMOUNT PAYABLE TO MMRDA = 8600 41085 = 1720 8217 10. ALTERNATIVELY, THE ASSESSING OFFICER HELD THAT THE AMOUNT OF ` 2,31,47,564, IS TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME , IN CASE THE APPELLATE AUTHORITIES COME TO A CONCLUSION THAT THE INCOME IN QUESTION FROM SALE OF SHARES IN JOINT VENTURE COMPANIES IS I NCOME ASSESSABLE UNDER THE HEAD PROFIT & GAINS OF BUSINESS . 11. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS) UPHELD THE CONTENTIONS OF THE ASSESSEE THAT THE INCOME IN QUES TION IS TO BE ASSESSED TO TAX UNDER THE HEAD INCOME FROM BUSINESS . 12. INSOFAR AS THE SECOND ISSUE IS CONCERNED, THE COMMI SSIONER (APPEALS) HELD THAT NO NOTIONAL INCOME CAN BE BROUGHT TO TAX. SHE HELD THAT IT IS LEGALLY WELL SETTLED THAT WHAT IS TO BE TAXED UNDER THE ACT , IS INCOME WHICH IS ACCRUED OR RECEIVED. SHE OBSERVED THAT THE ASSESSIN G OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD THAT THE ASSESSEE HAD RECEIV ED ANY ADDITIONAL AMOUNT OVER AND ABOVE THE AMOUNT RECORDED IN THE BOOKS OF ACCOUNT. SHE RELIED ON A NUMBER OF CASE LAWS AND UPHELD THE CONTENTIONS OF THE ASSESSEE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIB UNAL. 13. LEARNED DEPARTMENTAL REPRESENTATIVE, MRS. MALATHI S RIDHARAN, REPRESENTING THE REVENUE, TOOK THIS BENCH THROUGH T HE FACTS OF THE CASE AND SUBMITTED THAT SHE IS NOT STRONGLY DISPUTING THE FI NDINGS OF THE COMMISSIONER (APPEALS) THAT THE INCOME IN QUESTION IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS . NEVERTHELESS, SHE SUBMITTED THAT THE REASON GIVEN BY THE SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 9 COMMISSIONER (APPEALS) FOR COMING TO A CONCLUSION T HAT THE INCOME IN QUESTION IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS , IS FACTUALLY INCORRECT. SHE REFERRED TO THE JOINT VENT URE AGREEMENTS AND ARGUED THAT THE FINDINGS OF THE COMMISSIONER (APPEALS) THA T CHRONOLOGY OF THE EVENTS CLEARLY INDICATE THAT THE ASSESSEE HAD NO IN TENTION TO CONSTRUCT BUILDINGS ON ANY OF THE PLOTS ALLOTTED BY THE MMRD, WAS FACTUALLY INCORRECT. SHE POINTED OUT THAT THE VERY PURPOSE OF ENTERING I NTO A JOINT VENTURE FORMING SPVS AND GETTING THE PLOT FROM MMRDA WAS TO DEVELOP AND CONSTRUCT ON THE PROPERTY. SHE SPECIFICALLY DREW THE ATTENTIO N OF THE BENCH TO CLAUSE 7 OF THE JOINT VENTURE AGREEMENT. 14. COMING TO GROUND NO.2, THE LEARNED DEPARTMENTAL REP RESENTATIVE STRONGLY DISPUTED THE CONCLUSIONS DRAWN BY THE COMM ISSIONER (APPEALS). SHE SUBMITTED THAT ALL THE THREE PLOTS WERE ALLOTTED TO THE SPVS AT THE SAME TIME AND WERE LOCATED AT THE SAME PLACE. SHE EXPRESSED S URPRISE AS TO HOW THE SHARES IN SPVS, NRPL AND NPPL WHICH GOT ALLOTTED PL OTS NO.C-31 AND C-32, WERE TRANSFERRED AT FACE VALUE AND WHEREAS THE SHAR ES IN NCPL WHICH GOT ALLOTTED AS PLOT NO.C-30, WAS TRANSFERRED TO K. RAH EJA CORP. PVT. LTD. AT A HUGE PREMIUM. SHE REFERRED TO PARA-4.1 OF THE ASSES SMENT ORDER AND THE REPLY OF THE ASSESSEE AT PARA-4.2 AND CONCLUSION DR AWN BY THE ASSESSING OFFICER AT PARA-4.5 AND 4.6 OF THE ASSESSMENT ORDER AND RELIED ON THE SAME. SHE SUBMITTED THAT IN THE JOINT VENTURE AGREEMENT I N THE CASE OF NCPL, THERE WAS NO CLAUSE ON SALE OF MINORITY SHAREHOLDING AT P AR VALUE AND WHEREAS IN THE JOINT VENTURE AGREEMENT IN THE CASE OF NRPL AND NNPL, THIS CLAUSE WAS SURPRISINGLY INCLUDED. THUS, SHE SUBMITTED THAT THE SE ARE SELF-SERVING DOCUMENTS. SHE VEHEMENTLY CONTENDED THAT THERE IS N O LOGICAL REASON TO HAVE SUCH A VARIATION IN THE CLAUSES IN THREE SPVS. ON A QUERY FROM THE BENCH AS TO WHETHER SRL AND NDL ARE SISTER CONCERNS OR CONCERNS OF THE SAME GROUP. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THESE TWO GROUPS ARE NOT RELATED CONCERN. SHE RELIED ON T HE DECISION OF E BENCH OF THE TRIBUNAL IN ITA NO.614/BOM./1987, IN ITO V/S MONT BLANC PROPERTIES AND INDUSTRIES PVT. LTD., ORDER DATED 20 TH APRIL 1994, AND SUBMITTED THAT THE BENCH HAS TAKEN INTO ACCOUNT ALL THE PREVAILING CIR CUMSTANCES AND UPHELD THE ADDITIONS MADE ON THE BASIS OF MARKET PRICE. SHE AL SO RELIED ON THE JUDGMENT SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 10 OF HON'BLE JURISDICTIONAL HIGH COURT IN MONT BLANC PROPERTIES & INDUSTRIES PVT. LTD. V/S ITO, 240 ITR 154 (BOM.) AND ARGUED THAT TH E DECISION OF THE TRIBUNAL HAS BEEN UPHELD BY THE HIGH COURT. 15. LEARNED COUNSEL, MR. VIJAY MEHTA, REPRESENTING THE ASSESSEE, SUBMITTED THAT THE BUSINESS OF THE ASSESSEE IS THAT OF REAL ESTATE AND CONSTRUCTION. IN PURSUANCE OF ITS OBJECT, IT HAS ST ARTED EFFORTS TO GET ALLOTTED PLOTS FROM MMRDA. FOR THIS PURPOSE, HE SUBMITTED TH AT THE ASSESSEE HAD COLLABORATED AND GOT ASSOCIATED WITH NAMAN GROUP AN D THE EFFORTS OF BOTH THE PARTIES FRUCTIFIED IN THE ALLOTMENT OF PLOTS ON 24 TH AUGUST 2004. HE POINTED OUT THAT THREE JOINT VENTURES SPVS WERE ALL OTTED PLOTS OF LAND ON 24 TH AUGUST 2004, AND THE SHARES WERE ALLOTTED ON 19 TH SEPTEMBER 2004 AND FIVE DAYS THEREAFTER I.E., ON 23 RD SEPTEMBER 2004, THE ASSESSEE HAS SOLD THE SHARES TO K. RAHEJA CORP. PVT. LTD. HE SUBMITTED TH AT THE ENTIRE PROCESS CLEARLY DEMONSTRATES THAT WHAT WAS EARNED WAS INCOM E FROM BUSINESS AND NOT INCOME UNDER THE HEAD CAPITAL GAINS . HE CONTENDED THAT THE VALUE OF SHARES ALLOTTED TO THE ASSESSEE COMPANY AT PAR ON 1 9 TH SEPTEMBER 2004, WAS THE SAME, AS THE VALUE OF SHARES SOLD ON 23 RD SEPTEMBER 2004, AS THERE WAS NO GREAT DEVELOPMENT WITHIN A PERIOD OF FIVE DA YS. HE SUBMITTED THAT THE CULMINATION OF ASSETS OVER A PERIOD OF TIME RES ULTED IN THE ASSESSEES EARNING PROFITS. HE POINTED OUT THAT THE EXPENDITUR E CLAIMED WAS MINIMAL. 16. ON GROUND NO.2, THE LEARNED COUNSEL SUBMITTED THAT NOWHERE IN THE ASSESSMENT ORDER, THERE IS A FINDING THAT THE ASSES SEE COMPANY HAS RECEIVED OR WAS TO RECEIVE ANY AMOUNT IN EXCESS THAN WHAT IS RECORDED IN THE BOOKS OF ACCOUNT. THUS, HE SUBMITTED THAT WHEN THERE IS N OT EVEN AN ALLEGATION IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS RECEIVED OR IS ENTITLED TO AN AMOUNT GREATER THAN WHICH IS RECORDED IN THE BOOKS OF ACCOUNT, THEN THERE IS NO ACCRUAL OF INCOME AND THE ADDITION IN QUESTION C ANNOT BE MADE. HE SUBMITTED THAT THE ADDITION OF NOTIONAL INCOME CANN OT BE PERMITTED. FOR THIS PURPOSE, HE RELIED ON THE FOLLOWING CASE LAWS. ANI ANU DEVELOPERS PVT. LTD. V/S ITO, ITA NO.6074/M UM./2006, ORDER DATED 22 ND JANUARY 2009, SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 11 RUPEE FINANCE & MANAGEMENT PVT. LTD. V/S ACIT, (200 8) 22 SOT 174 (MUM.); INDIA FINANCE AND CONSTRUCTION CO. P. LTD. V/S DCIT , 200 ITR 710 (BOM.) CIT V/S SMT. NANDINI NOPANY, 230 ITR 679 (CAL.). 17. ON THE SECOND ISSUE, THE LEARNED COUNSEL ARGUED THA T FROM THE JOINT VENTURE AGREEMENT BETWEEN THE PARTIES IT IS CLEAR A ND WHEN NAMAN WANTED TO DEVELOP THE PROPERTY, THE ASSESSEE AS MINORITY S HAREHOLDER IN TWO COMPANIES I.E., NRPL AND NNPL, HAD TO SURRENDER HIS SHARES AT PAR IF THE ASSESSEE DOES NOT FULFILL THE CONDITIONS OF THE AGR EEMENT. HE POINTED OUT THAT NAMAN GROUP AND THE ASSESSEE GROUP WERE NOT RELATED PARTIES AND THE AGREEMENTS WERE AT ARMS LENGTH. HE SUBMITTED THAT PURCHASE OF ALL THE THREE PLOTS WERE A SINGLE ACTIVITY FOR THE ASSESSEE THOUGH IT WAS DEVISED AND STRUCTURED THROUGH THREE DIFFERENT SPVS AND THAT A HOLISTIC VIEW HAS TO BE TAKEN AND THE ENTIRE VENTURE HAS RESULTED IN HUGE P ROFITS TO THE ASSESSEE WHICH WAS OFFERED TO TAX. HE RELIED ON THE ORDER OF THE COMMISSIONER (APPEALS) AND SUPPORTED THE SAME. 18. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE P APERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOW S:- 19. COMING TO THE FIRST ISSUE AS TO WHETHER THE INCOME DERIVED FROM SALE MADE TO K. RAHEJA CORP. P. LTD., IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR UNDER THE HEAD INCOME FROM CAPITAL GAINS , WE OBSERVE THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NO T DISPUTED THE CONCLUSIONS DRAWN BY THE COMMISSIONER (APPEALS). LE ARNED DEPARTMENTAL REPRESENTATIVE WAS ONLY AGGRIEVED BY CERTAIN FACTUA L INACCURACIES IN THE ORDER PASSED BY THE COMMISSIONER (APPEALS) BUT HAS NOT DISPUTED THE CONCLUSIONS DRAWN. 20. IN ANY EVENT, WE FIND THAT THE ASSESSEE IS IN THE B USINESS OF REAL ESTATE AND HAS, IN THE PREVIOUS, UNDERTAKEN ACTIVITY OF CO NSTRUCTION OF BUNGALOW IN LONAWALA. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS A BUILDER AND DEVELOPER AS SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 12 WELL AS A DEALER IN REAL ESTATE. THE ASSESSEE ALONG WITH THE NAMAN GROUP VENTURED JOINTLY TO BID FOR THE ALLOTMENT OF PLOTS OF LAND AT MMRDA. THE JOINT BIDDING WAS SUCCESSFUL AND THREE PLOTS WERE ALLOTTE D. THE MODUS-OPERANDI ADOPTED BY THE JOINT BIDDERS WAS TO FLOAT THREE SPV S IN THE FORM OF COMPANIES AND TO OBTAIN THE ALLOTMENT OF LAND IN TH E NAME OF THESE COMPANIES. SHARES WERE ALLOTTED TO THEM IN THESE CO MPANIES AND WITHIN FIVE DAYS OF ALLOTMENT, THE ASSESSEE ALONG WITH ITS JOIN T BIDDERS I.E., NAMAN GROUP SOLD THEIR SHARES IN SPVS ENTITY NCPL TO K. R AHEJA CORP. PVT. LTD. FROM THE ABOVE FACTS, IT IS CLEAR THAT WHAT WAS UNDERTAK EN BY THE ASSESSEE WAS A BUSINESS ACTIVITY AND NOT AN INVESTMENT IN A CAPITA L ASSET. AS THE REVENUE HAS NOT STRONGLY DISPUTED THE FINDINGS OF THE COMMI SSIONER (APPEALS), AND THE CONCLUSIONS DRAWN BY HER ON THIS ASPECT, WE DO NOT ELABORATE FURTHER ON THIS ISSUE. SUFFICE IT TO SAY, WE UPHOLD THE CONCLU SION OF THE COMMISSIONER (APPEALS) AND DISMISS GROUND NO.1, RAISED BY THE RE VENUE. 21. COMING TO GROUND NO.2, WHICH IS ON THE ISSUE OF TAX ABILITY OF NOTIONAL INCOME, WE FIND THAT THE UNDISPUTED FACTS ARE THAT THE ASSESSEE AND NAMAN GROUP ARE NOT RELATED PARTIES. THE TERMS AND CONDIT IONS OF THE BUSINESS BETWEEN THESE TWO ENTITIES ARE DOCUMENTED BY WAY OF AGREEMENTS. THE ASSESSEE COMPANY IS MINORITY SHAREHOLDER IN NRPL & NPPL AND WHEREAS IT IS MAJORITY SHAREHOLDER IN NCPL. CLAUSE-11 OF THE AGRE EMENT BETWEEN THE ASSESSEE AND NDL FOR PLOTS NO.C-31 AND C-32, RELATA BLE TO NRPL AND NPPL RESPECTIVELY, WHICH READS AS FOLLOWS:- 11. IN THE EVENT OF DEFAULT IN PROVIDING TIMELY FUN DS TO THE COMPANY FOR THE PURPOSE SPECIFIED HEREIN BY SUNSHINE FOR AN Y REASONS WHATSOEVER, THEN NAMAN SHALL HAVE FIRST OPTION TO T AKEOVER / ACQUIRE ALL THE EQUITY SHARE HOLDING OF SUNSHINE IN THE SAI D COMPANY IN THE NAME OF ITS NOMINEE AND NAMAN SHALL MAKE GOOD THE S HORTFALL IN FUNDS AND IN WHICH EVENT SUNSHINE SHALL BE ENTITLED TO FI XED LUMP SUM OF ` 30,00,000 (RUPEES THIRTY LACS ONLY) FROM NAMAN OR I TS NOMINEES IN LIEU OF HAVING AGREED TO TRANSFER ITS SHAREHOLDING IN THE COMPANY AND WHICH LUMP SUM AMOUNT SHALL BE IN FULL AND FINAL SE TTLEMENT OF ALL CLAIMS / DEMAND RIGHTS / INTEREST / SHARE OF SUNSHI NE. CONSEQUENTLY, THE PARTIES HERETO WAIVE ALL THE REQUIREMENTS / PRO CEDURES PRESCRIBED UNDER ARTICLES OF ASSOCIATION OF THE COMPANY FOR TR ANSFER OF THE SHARES . 22. THE SALE HAS TAKEN PLACE IN TERMS OF THIS AGREEMEN T. THE ASSESSING OFFICER HAS NOTIONALLY CALCULATED THE PROFITS WHICH THE ASSESSEE, ACCORDING TO SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 13 THE ASSESSING OFFICER, OUGHT TO HAVE EARNED IN THE SALE OF THESE SHARES AND BROUGHT THE SAME TO TAX. NO ENQUIRIES WHATSOEVER WE RE DONE WITH EITHER NAMAN GROUP OR THE ASSESSEE GROUP. THERE IS NO INVE STIGATION OR MATERIAL BROUGHT ON RECORD TO SUGGEST THAT THE PRICE FOR WHI CH THE SHARES IN THE NRPL AND NPPL WERE SOLD, WAS HIGHER THAN WHAT WAS RECORD ED IN THE BOOKS OF ACCOUNT. THERE IS NOT EVEN AN ALLEGATION THAT UNACC OUNTED MONEY HAS PASSED. ON THESE FACTS, WE EXAMINE THE LEGAL POSITI ON OF THE FOLLOWING CASE LAWS RELIED UPON BY THE ASSESSEE. RUPEE FINANCE & MANAGEMENT PVT. LTD. V/S ACIT, (200 8) 22 SOT 174 (MUM.); THERE IS NO ALLEGATION MUCH LESS, ANY EVIDENCE TO S HOW THAT THESE ASSESSEES HAD RECEIVED MONIES IN EXCESS OF AM OUNTS OF SALE CONSIDERATION RECORDED AND DISCLOSED IN THE TR ANSACTION FOR THE SALE OF SHARES. THE FIRST APPELLATE AUTHORITY H AD RIGHTLY NOTED THAT UNDER SECTION 48 THE STARTING POINT FOR COMPUT ATION OF CAPITAL GAINS IS THE AMOUNT OF FULL VALUE OF CONSID ERATION RECEIVED OR ACCRUING AS A RESULT OF A TRANSFER OF T HE CAPITAL ASSET. THE FIRST APPELLATE AUTHORITY HAD RIGHTLY OBSERVED THAT WHAT IN FACT NEVER ACCRUED OR WAS NEVER RECEIVED CANNOT BE COMPUTED AS CAPITAL GAIN. HE RIGHTLY HELD THAT IT IS MANIFES T THAT THE CONSIDERATION FOR THE TRANSFER OF CAPITAL ASSET IS WHAT THE TRANSFER RECEIVES IN LIEU OF ASSETS HE PARTS WITH, I.E., MONEY OR MONIES WORTH AND EXPRESSION FULL CONSIDERATION CANN OT BE CONSTRUED AS HAVING REFERENCE TO THE MARKET VALUE O F THE ASSETS TRANSFERRED BUT REFERS TO THE PRICE BARGAINED FOR B Y THE PARTIES AND IT CANNOT REFER TO THE ADEQUACY OF THE CONSIDER ATION. HE ALSO RIGHTLY OBSERVED THAT THE LEGISLATURE HAS USED THE WORDS FULL VALUE OF THE CONSIDERATION AND NOT FAIR MARKET VA LUE OF THE ASSETS TRANSFERRED. HE RECORDED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS RECEIVED MORE THAN WHAT HAS BEEN DISCLOSED IN T HE BOOKS AND UNDER THESE CIRCUMSTANCES THE DIFFERENCE CANNOT BE BROUGHT TO TAX UNDER THE HEAD CAPITAL GAINS. THE TRIBUNAL FULLY AGREED WITH THESE FINDINGS AND THE APPEALS FILED BY THE RE VENUE FAILED. INDIA FINANCE AND CONSTRUCTION CO. P. LTD. V/S DCIT , 200 ITR 710 (BOM.); THE LAW DOES NOT OBLIGE A TRADER TO MAKE THE MARIMU M PROFIT THAT HE CAN, OUT OF HIS TRADING TRANSACTIONS. INCOM E WHICH ACCRUES TO A TRADER IS TAXABLE IN HIS HANDS. INCOME WHICH HE COULD HAVE BUT HAS NOT EARNED IS NOT MADE TAXABLE A S INCOME ACCRUED TO HIM. CIT V/S SMT. NANDINI NOPANY, 230 ITR 679 (CAL.). HELD, THAT THE GENUINENESS OF THE TRANSACTION OF SA LE AND PURCHASE OF SHARES BETWEEN THE ASSESSEE AND V GO. HAD NOT BEEN DOUBTED BY THE SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 14 DEPARTMENT. THIS WAS NOT A CASE WHERE ANY UNDERSTAT EMENT OF VALUE OR MISSTATEMENT OF VALUE OF THE SHARES SOLD WAS MAD E BY THE ASSESSEE. THIS WAS A CASE WHERE THE ASSESSEE HAD SO LD THE SHARES AT A VALUE ADMITTEDLY LOWER TITAN THE MARKET PRICE. THER E WAS NO EVIDENCE DIRECT OR INFERENTIAL, NOR WAS THERE ANY FINDING BY ANY INCOME-TAX AUTHORITY THAT THE ASSESSEE RECEIVED THE DIFFERENCE BETWEEN THE BOOK VALUE AND MARKET VALUE OF SHARES SOLD. THEREFORE, T HE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE ORDER OF THE COMMISSIONE R OF INCOME-TAX (APPEALS) IN DELETING THE ADDITION OF RS.7,57,076 O N ACCOUNT OF TRANSFER OF SHARES MADE BY THE ASSESSEE TO V CO. 23. COMING TO THE DECISION RELIED UPON BY THE LEARNED D EPARTMENTAL REPRESENTATIVE IN MONT BLANC (SUPRA), WE FIND THAT THE FACTS ARE ENTIRELY DIFFERENT. THE ASSESSEE, IN THAT CASE, HAD ADMITTED TO HAVE RECEIVED IN RECEIVING BLACK MONEY IN RESPECT OF SALE OF FLAT IN THE BUILDING GRAND PARADI . THERE IS NO SUCH ADMISSION OR MATERIAL IN THIS C ASE. IT WAS ALSO FOUND THAT IN THE EARLIER YEARS, FLATS WERE SOLD IN THE HIGHER RATES AND IN THE LATER RATES, THE FLATS WERE SOLD AT A LOWER RATE. B ASED ON THESE ADMISSIONS AND EVIDENCES, THE TRIBUNAL CAME TO THAT CONCLUSION . IN THE PRESENT CASE, THERE IS NO ENQUIRY OR INVESTIGATION WHATSOEVER AND NOT EVEN A FINDING THAT A PRICE GRATER THAN WHAT WAS MENTIONED IN THE BOOKS O F ACCOUNT WAS CHARGED BY THE ASSESSEE OR PAID BY NAMAN GROUP. THE ADDITIO N HAS BEEN MADE JUST BECAUSE IN THE OPINION OF THE ASSESSING OFFICER, TH E FAIR MARKET VALUE IS HIGHER THAN THE SALE PRICE. 24. COMING TO THE DECISION IN MONT BLANC (SUPRA), THE I SSUE BEFORE THE HIGH COURT WAS ENTIRELY DIFFERENT. THE QUESTION WAS MAINTAINABILITY OF A WRIT PETITION AGAINST AN ORDER OF THE TRIBUNAL REFUSING TO RECALL THE EARLIER ORDER UNDER SECTION 256(2) OF THE ACT. THIS IS NOT A JUDG MENT UPHOLDING THE ORDER PASSED BY THE TRIBUNAL. 25. COMING THE DECISION OF THE TRIBUNAL IN ANI ANU DEVE LOPERS PVT. LTD., WHEREIN, ONE OF US (A.M) IS A PARTY, IT WAS HELD AS FOLLOWS:- 8. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED WE HOLD AS FOLLOWS. 8.1 THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS NO T CHARGED ANY RENT FROM BALAJI INTERNATIONAL SCHOOL. IT IS NOT A CASE OF SUPPRESSION OF SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 15 INCOME. THE OTHER UNDISPUTED FACT IS THAT THE SCHOO L ITSELF HAS COMMENCED ITS ACTIVITY FROM THE IMPUGNED ASSESSMENT YEAR 2002-03. WHEN THE ASSESSEE HAS NOT CHARGED OR EARNED ANY INC OME DURING THE IMPUGNED ASSESSMENT YEAR, IN OUR CONSIDERED OPINION , IT IS NOT RIGHT ON THE PART OF THE AUTHORITIES TO ASSUME A PARTICULAR INCOME AND THEN BRING IT TO CHARGE ON THE GROUND THAT CERTAIN INCOM E HAS ACCRUED OR ARISEN IN THE CASE OF THE ASSESSEE. UNDER SECTIONS 22 & 23 OF THE INCOME-TAX ACT WHEN INCOME IS ASSESSED UNDER THE HE AD INCOME FROM HOUSE PROPERTY, THE ACT SPECIFICALLY PROVIDES FOR DEEMING OF INCOME NO SUCH PARALLEL PROVISION IS AVAILABLE WHEN INCOME IS ASSESSED UNDER OTHER HEADS THE HONBIE GAUHATI HIGH COURT IN THE CA SE OF KESHRICHAND JAISUKHLAL VS CIT (SUPRA), ON PAGE THE REPORTED D ECISION HAS OBSERVED AS FOLLOWS: THERE IS NO FINDING OF FACT TO THE EFFECT THAT ACT UALLY THE LOAN HAD BEEN GRANTED TO THE MANAGING DIRECTOR OR ANY OTHER PERSO N ON INTEREST, OR THAT INTEREST HAD ACTUALLY BEEN COLLECTED AND THE C OLLECTION OF THE INTEREST WAS NOT REFLECTED IN THE ACCOUNTS. THE FIN DING OF THE INCOME- TAX OFFICER IS THAT THE ASSESSEE OUGHT TO HAVE COLL ECTED INTEREST. IN OTHER WORDS. THE VIEW OF THE INCOME-TAX OFFICER, WH ICH HAS BEEN ACCEPTED BY THE TRIBUNAL, WAS THAT THE ASSESSEE, AS A GOOD BUSINESS CONCERN, SHOULD NOT HAVE GRANTED INTEREST-FREE LOAN , OR SHOULD HAVE INSISTED ON PAYMENT OF INTEREST. IF THE ASSESSEE HA D NOT BARGAINED FOR. INTEREST, OR HAD NOT COLLECTED INTEREST, WE FAIL TO SEE HOW THE INCOME- TAX AUTHORITIES CAN FIX A NOTIONAL INTEREST AS DUE, OR COLLECTED BY THE ASSESSEE. OUR ATTENTION HAS NOT BEEN INVITED TO ANY PROVISION OF THE INCOME-TAX ACT EMPOWERING THE INCOME-TAX AUTHORITIE S TO INCLUDE IN THE INCOME INTEREST WHICH WAS NOT DUE OR NOT COLLEC TED LN THIS VIEW, WE ANSWER QUESTION NO.(II) IN THE NEGATIVE, THAT IS, I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 8.2 THE HONBLE D BENCH OF THE DELHI TRIBUNAL IN T HE CASE OF HCL EMPLOYEES & INVESTMENT CO LTD V/S ACIT (SUPRA) HELD AS FOLLOWS: THE LAW BRINGS TO TAX INCOME WHICH THE ASSESSEE HA S EARNED BUT NOT THE INCOME WHICH THE ASSESSEE COULD HAVE EARNED. IT IS FOR THE REVENUE TO PLACE ON RECORD EVIDENCE THAT ANYTHING O VER AND ABOVE THE STATED CONSIDERATION IS RECEIVED IF THE REVENUE SEE KS TO TAX THE DIFFERENCE BETWEEN THE SALE CONSIDERATION AND THE M ARKET PRICE. IN THE ABSENCE OF SUCH EVIDENCE, NO ADDITION CAN BE SUSTAI NED AS HELD BY THE SUPREME COURT IN THE CASE OF K.P. VARGHESE V. ITO [ 1981] 131 ITR 597 / 7 TAXMAN 13 (SC). 8.3 THE HONBLE GAUHATI HIGH COURT IN THE CASE OF H IGHWAY CONSTRUCTION 199 TR 702 (GAUH.) HAVE TAKEN THE VIEW THAT NO INCOME CAN BE BROUGHT TO TAX ON NOTIONAL BASIS. IN THE CAS E ON HAND, AS NO RENTAL INCOME HAS ACCRUED OR ARISEN TO THE ASSESSEE DURING THE ASSESSING YEAR AND AS THE ASSESSING OFFICE HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE ASSESSEE HAS ACTUALLY EARNED CERTAIN INCOME WHICH WAS NOT DISCLOSED TO THE REVENUE, IN O UR CONSIDERED OPINION, THE REVENUE IS IN ERROR IN BRINGING TO TAX DEEMED INCOME FROM RENT UNDER THE HEAD INCOME FROM BUSINESS OR PROFES SION 8.4 COMING TO THE PRINCIPLES IN THE CASE OF MCDOWEL L & CO (SUPRA) WE FIND THAT M/S BALAJI INTERNATIONAL SCHOOL HAS NO T EARNED ANY INCOME SUN SHINE REALTORS PVT. LTD. ITA NO.1233/MUM./2010 16 EITHER FOR THE FINANCIA YEAR ENDED 31-03-2003 OR 20 04 AND THUS THE QUESTION OF DIVERTING TAXABLE INCOME TO NON TAXABLE ENTITIES SIMPLY DOES NOT ARISE. TAX CANNOT BE LEVIED ON INCOME ON T HE GROUND THAT THE ASSESSEE OUGHT TO HAVE EARNED THIS INCOME. IN VIEW OF THE ABOVE DISCUSSION WE ALLOW GROUND 1 OF THE ASSESSEE AND DE LETE THE ADDITION IN QUESTION. 26. APPLYING THE PROPOSITIONS LAID DOWN IN THE CASE LAW S CITED ABOVE TO THE FACTS OF THE PRESENT CASE, WE UPHOLD THE FOLLOWING FINDINGS OF THE COMMISSIONER (APPEALS). 7.8 IT IS LEGALLY WELL SETTLED THAT WHAT IS TO BE T AXED UNDER THE ACT, IS THE INCOME WHICH IS ACCRUED OR RECEIVED. NO NOTIONA L INCOME CAN BE BROUGHT TO TAX. SIMILARLY, THE INCOME WHICH THE ASS ESSEE COULD HAVE RECEIVED BUT NOT RECEIVED IS ALSO NOT TAXABLE IN AB SENCE OF ANY MATERIAL BROUGHT ON RECORD BY THE A.O. THAT ADDITIONAL AMOUN T IS RECEIVED OVER AND ABOVE THE AMOUNT RECORDED IN THE BOOKS OF ACCOU NT. 7.9 IN VIEW OF THE ABOVE DISCUSSION, THE ADDITION M ADE BY THE A.O ON ACCOUNT OF SHORT TERM CAPITAL GAIN OF ` 2,31,47,564, IS PURELY NOTIONAL NEITHER ACCRUED NOR RECEIVED BY APPELLANT AND NOT IN ACCORDANCE WITH THE JUDICIAL PRECEDENTS AND THE SAM E IS DELETED. 27. THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED . 28. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JANUARY 2012 SD/- B.R. MITTAL JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 13 TH JANUARY 2012 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, E BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI