LATE PURAN RATILAL MEHTA THROUGH ITS LEGAL HEIR MADHU P. MEHTA, MUMBAI V. ACIT 23(3), MUMBAI

ITA 1320/MUM/2011

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9034 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-12-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 14-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Cost of acquisition; Date of conversion; Fair market value; Valuation report
• Section: 45(2); 143(3); 147; 154

Judgement Text

1 LATE PURAN RATILAL MEHTA IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI G MANJUNATHA (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA NO 1320/MUM/2011 - AY 2001-02 ITA NO 1321/MUM/2011 - AY 2002-03 ITA NO 1322/MUM/2011 - AY 2003-04 ITA NO 1323/MUM/2011 - AY 2004-05 ITA NO 1324/MUM/2011 - AY 2005-06 ITA NO 1325/MUM/2011 - AY 2006-07 LATE PURAN RATILAL MEHTA THROUGH LEGAL HEIR MADHU P MEHTA, C/O SHANKARLAL JAUIN & ASSOCIATES, 12, ENGINEER BLDG 2656, PRINCESS STREET, MUMBAI-400 002 PAN : AAGPM7686Q VS ACIT, CIR.23(3), MUMBAI APPELLANT RESPONDEDNT ITA NO 1274/MUM/2011 - AY 2001-02 ITA NO 1275/MUM/2011 - AY 2002-03 ITA NO 1276/MUM/2011 - AY 2003-04 ITA NO 1277/MUM/2011 - AY 2004-05 ITA NO 1278/MUM/2011 - AY 2005-06 ITA NO 1279/MUM/2011 - AY 2006-07 ITA NO 6646/MUM/2012 - AY 2008-09 ITO 23(1) / ACIT, CIR.23(3), MUMBAI VS LATE PURAN RATILAL MEHTA THROUGH LEGAL HEIR MADHU P MEHTA, C/O SHANKARLAL JAUIN & ASSOCIATES, 12, ENGINEER BLDG 2656, PRINCESS STREET, MUMBAI-400 002 PAN : AAGPM7686Q APPELLANT RESPONDEDNT 2 LATE PURAN RATILAL MEHTA ASSESSEE BY SHRI S.L. JAIN REVENUE BY SHRI ABI RAMA KARTIKEYAN DATE OF HEARING 08-10-2018 DATE OF PRONOUNCEMENT 05-12-2018 O R D E R PER BENCH, AM : THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE DIRECTED AGAINST SEPARATE, BUT IDENTICAL ORDERS OF THE CIT(A)-23, MUMBAI DATED 29-10-2010 AND 31-08-2012. SINCE ALL THE APPEALS P ERTAIN TO A SINGLE ASSESSEE AND ALSO THE ISSUES ARE IDENTICAL, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COM MON ORDER. 2. THE ASSESSMENT FOR AY 2005-06 WAS COMPLETED U/S 143(3) OF THE I.T. ACT, 1961, VIDE ORDER DATED 31-12-2007. FOLLOWING THE F INDINGS ARRIVED AT IN THE ASSESSMENT ORDER, ASSESSMENTS FOR AYS 2001-02 TO 20 04-05 WERE REOPENED U/S 147 OF THE ACT AND ASSESSMENTS WERE COMPLETED U/S 1 43(3) R.W.S. 147 OF THE ACT ON 05-12-2008. THE ASSESSMENT FOR THE AY 2006- 07 WAS COMPLETED U/S 143(3) ON 29-12-2008 FOLLOWING THE FINDINGS IN ASSE SSMENT ORDER FOR AY 2005- 06. THE BASE YEAR IN WHICH THE CORE ISSUE ARISES F OR CONSIDERATION IS AY 2005- 06 WHICH IS CHALLENGED IN ITA NO.1324/MUM/2011 BY T HE ASSESSEE AND I.T.A. NO.1278/MUM/2011 BY THE DEPARTMENT . IN ALL THESE APPEALS, THE ISSUES INVOLVED ARE COMMON IN NATURE. 3 LATE PURAN RATILAL MEHTA 3. THE REVENUE, THROUGH ITS APPEALS, MORE OR LESS T AKEN COMMON GROUNDS OF APPEAL FOR ALL ASSESSMENT YEARS. FOR THE SAKE O F BREVITY, GROUNDS OF APPEAL TAKEN FOR AY 2005-06 IN ITA NO.1278/MUM/2011 ARE RE PRODUCED HEREUNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT CAPITAL GAINS TAX WILL ARISE IN A.Y.2008-09. IN DOING SO, THE LD.CIT(A) FAILED TO APPRECIATE THAT THE ASS ESSEE HAD RECEIVED ADVANCE FOR FLAT AND HANDED OVER POSSESSION OF THE FLAT. THE LD.CIT(A) FAILED TO APPRECIATE THAT MERELY BECAUSE AGREEMENT FOR SALE IS NOT REGISTERED DOE: NOT MEAN THAT THERE HAS BEEN NO SAL E. THE PROVISIONS OF SECTION 45(2) ARE HENCE APPLICABLE 2. THE LD.CIT(A) ERRED IN DELETING THE ADDITION MAD E ON ACCOUNT OF CAPITAL GAINS. THE LD.CIT(A) ERRED IN HOLDING THAT THE PROJ ECT WAS COMPLETED IN ASST.YEAR 2008-09 AND THAT THI ASSESSEE WAS FOLLOWI NG PROJECT COMPLETION METHOD. 3. THE LD.CIT(A) ERRED IN DIRECTING THAT THE COST O F CONSTRUCTION OF 26 FLATS CONSTRUCTED B BHOOMI DEVELOPERS AND HANDED OVER TO THE ASSESSEE IN LIEU OF 19,600 SQ.FT. GIVEN TO BHOOMI DEVELOPERS, BE TAK EN FOR THE PURPOSE OF COMPUTING THE FAIR MARKET VALUE OF LAND CONVERTED I NTO STOCK IN TRADE. THOUGH THE LD.CIT(A) HELD THAT THE YEAR OF CONVERSI ON OF ASSET INTO STOCK IN TRADE IS 1994, THE LD.CIT(A) FAILED TO APPRECIAT E THAT THE ASSESSING OFFICER HA RIGHTLY WORKED THE COST OF CONSTRUCTION AT '3007- PER SQ.FT. WHICH IS THE RATE AS IN THE YEAR 1994. 4. THE ASSESSEE, IN HIS APPEAL ALSO HAS TAKEN MORE OR LESS COMMON GROUNDS OF APPEAL FOR ALL ASSESSMENT YEARS UNDER APPEALS. FOR THE SAKE OF BREVITY, GROUND OF APPEAL TAKEN FOR AY 2005-06 IN ITA NO.132 4/MUM/2011 ARE REPRODUCED HEREUNDER:- 1. LD. CIT(A) ERRED IN HOLDING THAT LAND W AS CONVERTED INTO STOCK IN TRADE BY THE I- APPELLANT ON 2-2-94 WITHOUT PROPERLY APPRECIATING T HE FACT THAT APPELLANT OBTAINED IOD FROM MUNICIPAL CORPORATION ON 9-1-97, CC ON 6-5-98 AND ENTERED INTO AN AGREEMENT OF DEVELOPMENT OF PART OF THE LAND ON 17-8-98 AND USER OF LAND WAS CHANGED FROM INDUSTRIAL TO RESIDENTIAL ON 12-3-96. 2. LD. CIT(A) ERRED IN CONFIRMING METHOD OF VALUATI ON OF LAND ON THE DATE OF CONVERSION AT STAMP DUTY VALUE OF THE FLATS AS REDUCED BY COST OF CONSTRUCTION AS INCURRED BY THE DEVELOPER, WITHOUT PROPERLY APPRECIATING THE FACT T HAT CORRECT VALUE OF THE LAND CANNOT BE ARRIVED AT BY PROCESS OF REDUCING MARKET PRICE OF T HE FLATS BY COST OF CONSTRUCTION. 3. THE LD. CIT(A) ERRED IN NOT CONSIDERING VALUATIO N REPORT OF THE REGISTERED VALUER VALUING THE LAND AS ON 30-9-98 AT RS.10,68,77,880/- WHILE E VALUATING THE VALUE OF THE LAND ON THE DATE OF CONVERSION. 4. THE APPELLANT PRAY THAT CORRECT DATE OF CONVERSI ON OF LAND INTO STOCK IN TRADE AND CORRECT VALUE ON DATE OF SUCH CONVERSION BE DETERMI NED. 4 LATE PURAN RATILAL MEHTA 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PROPRIETOR OF M/S POWERLINE PRODUCTS & M/S VENUS TILES & MARBLES, GOT LEASEHOLD RIGHTS OF LAND IN 1975 ON ASSIGNMENT BASIS ADMEASURING 15,000 SQ.Y DS. THE ASSESSEE WAS RUNNING A FACTORY ON THIS LAND. SUBSEQUENTLY, OUT OF THE TOTAL LAND, THE ASSESSEE DECIDED TO TAKE 80,000 SQ.FT. FOR THE PROJ ECT AND HENCE, CONVERTED INTO STOCK IN TRADE. THE ASSESSEE HAS APPLIED FOR PERMISSION FROM MCGM FOR PLAN SANCTION ON 02-02-1994. DUE TO SOME LITIGATIO N ON THE LAND, SUBSEQUENTLY, HE HAS WRITTEN A LETTER TO MCGM TO KE EP HIS APPLICATION IN ABEYANCE AS A RESULT OF WHICH MCGM HAD ISSUED IOD C ERTIFICATE ON 09-01-1997. FURTHER, THE MCGM HAD ISSUED COMMENCEMENT CERTIFICA TE FOR CONSTRUCTION OF PROJECT ON 06-05-1998. THE ASSESSEE HAD ENTERED IN TO A CONSTRUCTION AGREEMENT WITH M/S BHOOMI DEVELOPERS FOR DEVELOPMEN T OF LAND AND CONSTRUCTION OF HOUSING PROJECT, VIZ. MAPLE HEIGHT, A-WING. AS PER AGREEMENT, THE DEVELOPER HAS TO DEVELOP 40,000 SQ.FT. BUILDING . THE ASSESSEE HAS ENTERED INTO DEVELOPMENT AGREEMENT WITH M/S BHOOMI DEVELOPE RS ON 17-08-1988 WHERE, IN LIEU OF DEVELOPMENT RIGHTS, THE ASSESSEE WAS ENTITLED TO 26 FLATS WITH BUILT UP AREA OF 20,400 SQ.FT. WHEREAS THE DEVELOPE R WAS ENTITLED FOR 25 FLATS WITH A BUILT UP AREA OF 19,600 SQ.FT. OUT OF THE T OTAL AREA OF LAND, THE ASSESSEE HAS GIVEN PART OF LAND TO M/S BHOOMI DEVELOPERS IN PURSUANCE TO A DEVELOPMENT AGREEMENT FOR DEVELOPMENT OF BUILDING A -WING AND THE BALANCE 5 LATE PURAN RATILAL MEHTA PART WAS RETAINED BY THE ASSESSEE FOR CONSTRUCTION OF BUILDING B-WING. THE ASSESSEE HAS STARTED RECEIVING ADVANCE FROM PROSPEC TIVE BUYERS OF FLATS RIGHT FROM AY 2001-02 ONWARDS. BUT THE ASSESSEE, NEITHER SHOWED ANY INCOME IN RESPECT OF DEVELOPMENT AND SALE OF FLATS FOR AY 200 1-02 ONWARDS, NOR COMPUTED CAPITAL GAIN IN RESPECT OF CONVERSION OF C APITAL ASSET INTO STOCK IN TRADE IN TERMS OF SECTION 45(2) OF THE I.T. ACT, 19 61. 6. THE ASSESSMENT FOR AY 2005-06 WAS TAKEN UP FOR S CRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED TH AT EVEN THOUGH THE ASSESSEE WAS DEVELOPING A HOUSING PROJECT AND RECEI VING ADVANCE FROM PROSPECTIVE BUYERS OF FLAT, NO INCOME HAS BEEN OFFE RED FOR TAXATION AND HENCE, ISSUED A SHOW CAUSE NOTICE ASKING AS TO WHY INCOME SHALL NOT BE ESTIMATED @15% ON TOTAL WORK IN PROGRESS SHOWN IN THE BOOKS O F ACCOUNT. IN RESPONSE TO SHOW CAUSE NOTICE, ASSESSEE, VIDE HIS LETTER DATED 17-11-2007 SUBMITTED THAT HE WAS FOLLOWING PROJECT COMPLETION METHOD FOR RECO GNITION OF REVENUE AND ACCORDINGLY, WHATEVER ADVANCE RECEIVED FROM THE CUS TOMERS, HAS BEEN SHOWN AS LIABILITIES IN ITS BOOKS OF ACCOUNT. THE ASSESS EE FURTHER CONTENDED THAT THE PROJECT HAS BEEN COMPLETED, IN ALL RESPECTS, DURING AY 2008-09 AND THE INCOME FROM THE PROJECT HAS BEEN OFFERED FOR TAXATION, WHE N THE PROJECT HAS BEEN COMPLETED. THE ASSESSEE FURTHER CONTENDED THAT HE WAS A DEVELOPER OF HOUSING PROJECTS AND AS PER THE PROVISIONS OF SECTI ON 80IB(10), THE PROFIT 6 LATE PURAN RATILAL MEHTA DERIVED FROM HOUSING PROJECT IS ELIGIBLE FOR EXEMPT ION AND ACCORDINGLY, NO INCOME HAS BEEN OFFERED FOR TAXATION FROM THE HOUSI NG PROJECT. THE AO, AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE AND ALSO ON ANALYSIS OF PROVISIONS OF SECTION 45(2) OF THE I.T. ACT, 1961 HELD THAT THE A SSESSEE CONVERTED HIS PLOT OF LAND INTO STOCK IN TRADE ON 02-02-1994, WHEN HE HAD FILED AN APPLICATION FOR PLAN SANCTION BEFORE MCGM. THE AO FURTHER OBSERVE D THAT ALTHOUGH THE ASSESSEE HAS FILED AN APPLICATION FOR KEEPING IN AB EYANCE THE PLAN SANCTION FOR SOME REASONS, BUT FACT REMAINS THAT HE WAS HAVING A N INTENTION TO DEVELOP A HOUSING PROJECT ON THE IMPUGNED LAND BY FILING APPL ICATION BEFORE MCGM, THEREFORE, THE DATE ON WHICH THE ASSESSEE HAS FILED APPLICATION SHALL BE TAKEN AS THE DATE OF CONVERSION OF CAPITAL ASSET INTO STO CK IN TRADE WITHIN THE MEANING OF SECTION 45(2) OF THE I.T. ACT, 1962. AC CORDINGLY, THE AO COMPUTED LONG TERM CAPITAL GAIN FROM CONVERSION OF CAPITAL A SSET INTO STOCK IN TRADE BY TAKING THE VALUE OF FLAT AS ON 02-02-1994. HOWEVER , AS PER THE PROVISIONS OF SECTION 45(2), THE SAID LONG TERM CAPITAL GAIN WILL BE TAXED AS AND WHEN THE STOCK IN TRADE IS SOLD. ACCORDINGLY, REOPENED THE ASSESSMENT FOR THE ASSESSMENT YEARS 2001-02 TO 2004-05 AND TAXED LONG TERM CAPITAL GAIN ON PROPORTIONATE BASIS, ON THE BASIS OF ADVANCE RECEIV ED FROM CUSTOMERS TOWARDS SALE OF FLAT. INSOFAR AS COMPUTATION OF LONG TERM CAPITAL GAIN, THE AO HAS TAKEN READY RECKONER RATE OF COMPLETED FLAT AS ON THE DAT E OF CONVERSION, I.E. ON 02- 7 LATE PURAN RATILAL MEHTA 02-1994 AND DEDUCTED THE ESTIMATED COST OF CONSTRUC TION OF RS.300 PER SQ.FT. TO ARRIVE AT A MARKET VALUE OF LAND. THE AO, BY TA KING INTO ACCOUNT THE MARKET VALUE OF THE LAND, COMPUTED LONG TERM CAPITAL GAIN BY ADOPTING COST OF ACQUISITION OF RS.3,24,59,208 AS ON 01-04-1981, WHI CH IS FURTHER BASED ON THE REPORT OF THE GOVERNMENT APPROVED VALUER AND THEN A PPLIED INDEXED COST OF ACQUISITION BY TAKING THE INDEXATION BENEFIT AND DE TERMINED LONG TERM CAPITAL GAIN OF RS.4,54,90,393. THOUGH, THE AO HAS DISCUSS ED THE TAXABILITY OF CAPITAL GAIN FOR AY 2005-06, BY MISTAKE, THE SAME HAS NOT B EEN TAXED AND ACCORDINGLY AN ORDER U/S 154 DATED 23-04-2008 HAS BEEN PASSED A ND TAXED CAPITAL GAIN BY TAKING ADVANCE RECEIVED ON PROPORTIONATE BASIS. SU BSEQUENTLY, ON THE BASIS OF FINDINGS RECORDED FOR AY 2005-06, THE EARLIER ASSES SMENT FOR AYS 2001-02 TO 2004-05 WERE REOPENED AND THE RESULTANT CAPITAL GAI N ON CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE HAS BEEN WORKED OUT ON TH E BASIS OF ADVANCE RECEIVED FROM THE CUSTOMERS. 7. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS REITERATED ITS SUBMISSIONS MADE BEFORE THE AO TO ARGUE THAT THE CO NVERSION OF CAPITAL ASSET INTO STOCK IN TRADE HAS TAKEN PLACE IN AY 1998-99 W HEN THE ASSESSEE HAS GOT PLAN SANCTIONED FROM MCGM BUT NOT ON THE DATE OF AP PLICATION FILED FOR GETTING IOD. THE ASSESSEE FURTHER CONTENDED THAT HE HAS FI LED AN APPLICATION ON 02-02- 8 LATE PURAN RATILAL MEHTA 1994 AND THAT THE SAID APPLICATION HAS BEEN KEPT IN ABEYANCE WHICH IS EVIDENT FROM THE FACT THAT THE IOD HAS BEEN ISSUED ON 09-01 -1997 AND ALSO THE CERTIFICATE OF COMMENCEMENT WAS ISSUED ON 06-05-199 8. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S BHOOMI DEVELOPER S ON 17-04-1998 FOR DEVELOPMENT OF A-WING AND ALSO ENTERED INTO A DEVEL OPMENT AGREEMENT ON17- 08-1998. ALL THESE FACTORS GO TO PROVE AN UNDISPUT ED FACT THAT THE CONVERSION HAS NOT BEEN TAKEN PLACE ON 02-02-1994. THEREFORE, THE AO WAS ERRED IN HOLDING THAT THE ASSESSEE HAS CONVERTED HIS CAPITAL ASSET INTO STOCK IN TRADE ON 02-02-1994. INSOFAR AS COMPUTATION OF LONG TERM CA PITAL GAIN BY TAKING COST OF ACQUISITION AS ON 01-04-1981, ASSESSEE SUBMITTED TH AT WHEN THE REGISTERED VALUER HAS ARRIVED AT A VALUATION OF THE LAND AS ON 30-03-1998 AT RS.10,68,77,880, THE VALUATION OF PLOT OF LAND AS O N 02-02-1994 CANNOT BE RS.12,46,90,860. 8. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO BY RELYING UPON CERTAIN JUDICIAL PRECEDENTS, H ELD THAT WHEN ASSESSEE HAS FILED APPLICATION FOR OBTAINING IOD ON 02-02-1994, CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE AS ENVISAGED U/S 45(2) IS SAID TO HAVE TAKEN PLACE ON 02-02- 1994. THE LD.CIT(A) FURTHER OBSERVED THAT ALTHOUGH THE ASSESSEE HAS FILED AN APPLICATION FOR KEEPING IN ABEYANCE THE APPLICATION FILED FOR OBTAINING IOD, THE FACT REMAINS THAT WHEN HE HAD APPLIED FOR OBTAINING IOD WITH AN INTENTION TO 9 LATE PURAN RATILAL MEHTA COMMENCE ITS BUSINESS ACTIVITY OF DEVELOPMENT OF PR OJECT, THE CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE AS ENVISAGED U/S 45(2) SAID TO HAVE TAKEN PLACE ON THAT DATE. THEREFORE, THERE IS NO ERROR IN THE FINDING OF THE AO THAT THE CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE HAS BEEN TAKEN PLACE ON 02-02- 1994. WHAT IS RELEVANT FOR THE PURPOSE OF DETERMIN ATION OF DATE OF CONVERSION IS THE INTENTION OF THE ASSESSEE, BUT NOT THE DATES ON WHICH THE ASSESSEE HAS FILED AN APPLICATION. IN THIS CASE, THE ASSESSEE W AS INTENDED TO CONVERT THE PLOT OF LAND INTO STOCK IN TRADE BY CONSTRUCTING RESIDEN TIAL PREMISES / FLATS ON 02-02- 1994 WHICH IS EVIDENCED BY THE FACT THAT HE HAS MOV ED AN APPLICATION, THEREFORE, SUBSEQUENT EVENTS OF OBTAINING IOD ON 09 -01-1997 AND COMMENCEMENT CERTIFICATE ON 06-05-1998 IS A FOLLOW UP ACTION WHICH IS IRRELEVANT TO DECIDE THE DATE OF CONVERSION. INSOF AR AS COMPUTATION OF LONG TERM CAPITAL GAIN ON CONVERSION OF CAPITAL ASSET IN TO STOCK IN TRADE, THE LD.CIT(A) HELD THAT THE COST OF LAND HAS TO BE ARRI VED AT ON THE BASIS OF EITHER THE FAIR MARKET VALUE OF THE LAND AS ON THE DATE OF CONVERSION OR COST OF CONSTRUCTION INCURRED BY THE DEVELOPER OF A CONCERN ED BUILDING WHEREAS THE AO HAS TAKEN AN ESTIMATED AMOUNT OF RS.300 PER SQ.F T. TOWARDS BUILDING WITHOUT ANY BASIS. THE LD.CIT(A) FURTHER OBSERVED THAT ALTHOUGH THE AO HAD SOUGHT DETAILS FROM M/S BHOOMI CONSTRUCTION TOWARDS COST OF CONSTRUCTION OF BUILDING, IN VIEW OF NON RECEIPT OF REQUIRED INFORM ATION, WENT ON TO ESTIMATE 10 LATE PURAN RATILAL MEHTA THE COST OF CONSTRUCTION WITHOUT ANY BASIS. THEREF ORE, DIRECTED THE AO TO DETERMINE THE COST OF CONSTRUCTION ON THE BASIS OF COST INCURRED BY THE DEVELOPER TO ARRIVE AT MARKET VALUE OF LAND AND ACC ORDINGLY SET ASIDE THE ISSUE TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH. SIMILARLY, THE QUESTION OF TAXABILITY OF CAPITAL GAIN U/S 45(2) FOR THE LAND C ONVERTED INTO STOCK IN TRADE WAS DISCUSSED AND HELD THAT IN VIEW OF THE PROJECT COMPLETED FOR AY 2008-09, THE CAPITAL GAIN PAYABLE AS PER THE PROVISIONS OF S ECTION 45(2) WILL ALSO COME INTO PLAY AT THE TIME WHEN THE FLATS ARE SOLD IN AY 2008-09. ACCORDINGLY, HELD THAT LONG TERM CAPITAL GAIN COMPUTED ON CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE IS TAXABLE IN THE YEAR IN WHICH THE REVENU E FROM THE PROJECT HAS BEEN DISCLOSED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. SINCE THE ASSESSEE HAS SHOWN TO HAVE COMPLETED THE PROJECT IN ALL RESPECT IN AY 2008-09 AND THE RESULTANT INCOME HAS BEEN OFFERED TO TAX, HELD THAT CAPITAL GAIN ALSO WILL BE TAXED IN THE AY 2008-09. 9. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE A S WELL AS THE REVENUE ARE IN APPEALS BEFORE US. 10. THE LD.DR SUBMITTED THAT THE LD.CIT(A) WAS ERRE D IN HOLDING THAT CAPITAL GAIN TAX WILL ARISE IN AY 2008-09 IN RESPECT OF CON VERSION OF CAPITAL ASSET INTO STOCK IN TRADE AS PER THE PROVISIONS OF SECTION 45( 2) WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD RECEIVED ADVANCE FOR FLA T AND HANDED OVER 11 LATE PURAN RATILAL MEHTA POSSESSION OF THE FLAT TO THE BUYERS MUCH BEFORE AY 2008-09. THE LD.CIT(A) FAILED TO APPRECIATE THE FACT THAT MERELY BECAUSE T HE AGREEMENT FOR SALE IS REGISTERED DOES NOT MEAN THAT THERE HAS BEEN NO SAL E. THE PROVISIONS OF SECTION 45(2) AND RESULTANT CAPITAL GIN WILL COME I NTO OPERATION WHEN THE ASSESSEE HAS SOLD THE FLATS. IN THIS CASE, THE FLA TS HAVE BEEN SOLD TO THE PROSPECTIVE BUYERS AND ACCORDINGLY, THE AO WAS RIGH T IN COMPUTING LONG TERM CAPITAL GAIN ON PROPORTIONATE BASIS ON THE BASIS OF ADVANCE RECEIVED FROM THE BUYERS. THE LD.DR FURTHER SUBMITTED THAT THE LD.CI T(A) WAS ERRED IN HOLDING THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION M ETHOD FOR RECOGNITION OF REVENUE AND ACCORDINGLY CAPITAL GAIN ON CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE IS TAXABLE IN THE YEAR WHEN THE BUSINESS I NCOME WAS OFFERED TO TAX. WHEN THE FACTS GATHERED BY THE AO UNDISPUTEDLY PROV E THAT THE ASSESSEE HAS DEFERRED RECOGNITION OF INCOME ON SOME GROUNDS, EVE N THROUGH THE PROJECT HAS BEEN COMPLETED IN ALL RESPECTS MUCH BEFORE AY 2008- 09, THE LD.CIT(A) WAS ERRED IN UPHOLDING THAT THE ACTION OF THE AO IN TAX ING LONG TERM CAPITAL GAIN FOR AY 2001-02 TO 2006-07 WHEN THE ASSESSEE HAS RECEIVE D ADVANCE FROM THE CUSTOMERS AND HANDED OVER THE POSSESSION OF THE FLA T. THE LD.DR FURTHER SUBMITTED THAT THE LD.CIT(A) ERRED IN DIRECTING THE AO TO ADOPT COST OF CONSTRUCTION INCURRED BY M/S BHOOMI DEVELOPERS TO A RRIVE AT FAIR MARKET VALUE 12 LATE PURAN RATILAL MEHTA OF THE LAND AS ON THE DATE OF CONVERSION OF STOCK I N TRADE, IGNORING THE FACT THAT THE AO HAS RIGHTLY APPLIED R.300 PER SQ.FT. WHICH I S THE RATE AS IN THE YEAR 1994. 11. THE LD.AR FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT WHEN THE LD.CIT(A) HAD ACCEPTED THE FACT THAT THE ASSESSEE H AD OBTAINED IOD ON 09-01- 1997 AND C.C. ON 06-05-1998 AND ENTERED INTO AN AGR EEMENT FOR DEVELOPMENT OF PART OF THE LAND ON 17-08-1998, ERRED IN CONCLUD ING THAT CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE HAS TAKEN PLACE O N 02-02-1994 WHEN THE ASSESSEE HAD FILED AN APPLICATION BEFORE MCGM FOR O BTAINING IOD. THE LD.AR FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSE E, THOUGH FILED AN APPLICATION BEFORE MCGM ON 02-02-1994, THE LAND IN QUESTION WAS AN INDUSTRIAL LAND UPTO 12-03-1996 BEFORE CONVERSION O F LAND INTO RESIDENTIAL LAND BY THE REVENUE AUTHORITIES. THE MCGM HAS GRANTED IOD ON 09-01-1997 AND ALSO PERMITTED TO START CONSTRUCTION ON 06-05-1998. WHEN ALL THESE EVIDENCES UNDISPUTEDLY PROVE THE FACT THAT THE CAPITAL ASSET WAS NOT CONVERTED INTO STOCK IN TRADE BEFORE 02-02-1994, THE LD.CIT(A) WENT ON T O GIVE A FINDING THAT THE CAPITAL ASSET WAS CONVERTED INTO STOCK IN TRADE ON 02-02-1994 WITHOUT ANY BASIS. THE LD.AR FURTHER SUBMITTED THAT DATE OF CO NVERSION IS NOT THE DATE ON WHICH THE ASSESSEE INTENDED TO COMMENCE ITS BUSINES S, BUT IT WILL BE THE DATE ON WHICH THE ASSET BECOMES CAPABLE OF BEING USED AS STOCK IN TRADE. IN THIS REGARD HE RELIED UPON THE DECISION OF ITAT, MUMBAI BENCHES IN THE CASE OF 13 LATE PURAN RATILAL MEHTA ESTATE OF LATE NJ PATEL VS DCIT (2007) 17 SOT 543. THE ASSESSEE ALSO RELIED UPON THE DECISION OF VIDHYADHAR CONTAINERS LTD VS D CIT 30 CCH 547. 12. THE LD.AR FURTHER SUBMITTED THAT THE LAND WAS T REATED AS FACTORY BUILDING UPTO 31-03-1998 AND ONLY AFTER GETTING PER MISSION FROM THE CONCERNED AUTHORITIES, THE ASSESSEE HAS CONVERTED I TS CAPITAL ASSET INTO STOCK IN TRADE, THEREFORE, THE LOWER AUTHORITIES WERE ERRED IN CONCLUDING THAT CONVERSION HAD TAKEN PLACE ON 02-02-1994. INSOFAR AS DETERMINATION OF LONG TERM CAPITAL GAIN BY TAKING FAIR MARKET VALUE OF TH E LAND, THE LD.AR SUBMITTED THAT THE AO HAS TAKEN READY RECKONER RATE OF CONSTR UCTED FLAT AS ON 02-02-1994 @ RS.1,560 PER SQ.FT. AND THE SAME HAS BEEN REDUCED BY ESTIMATED COST OF CONSTRUCTION OF RS.300 PER SQ.FT. TO ARRIVE AT MARK ET VALUE OF RS.12,46,90,860. THE AO, ON THE BASIS OF ESTIMATED FAIR MARKET VALUE OF THE LAND, COMPUTED LONG TERM CAPITAL GAIN OF RS.4,54,90,393 BY REDUCING IND EXED COST OF ACQUISITION OF RS.7,92,00,467 BY TAKING FAIR MARKET VALUE OF THE L AND AS ON 01-04-1981. THE AO HAS TAKEN ESTIMATED COST OF CONSTRUCTION WITHOUT APPRECIATING THE FACT THAT THE LAND VALUE CANNOT BE DETERMINED BY REVERSE WORK ING READY RECKONER RATE BY ADOPTING ESTIMATED COST OF CONSTRUCTION. THE CO ST OF LAND CAN BE EITHER DETERMINED ON THE BASIS OF READY RECKONER RATE AS O N THE DATE OF CONVERSION OR ACTUAL COST INCURRED BY THE DEVELOPER FOR CONSTRUCT ION OF BUILDING. M/S BHOOMI DEVELOPERS HAS FILED REQUISITE DETAILS VIDE LETTER DATED 20-04-2011 AS PER 14 LATE PURAN RATILAL MEHTA WHICH, COST OF CONSTRUCTION PER SQ.FT. HAS BEEN ARR IVED AT RS.591. THEREFORE, THE AO WAS ERRED IN TAKING RS.300 PER SQ.FT. TOWARD S COST OF CONSTRUCTION. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE SOLITARY DISPUTE IN THIS GROUP OF APPE ALS FOR AYS 2001-02 TO 2006- 07 IS COMPUTATION OF LONG TERM CAPITAL GAIN ON CONV ERSION OF CAPITAL ASSET INTO STOCK IN TRADE AND THE YEAR IN WHICH SUCH CAPITAL G AIN IS TAXABLE IN THE HANDS OF THE ASSESSEE. THE AO HAS TAKEN 02-02-1994 AS THE D ATE OF CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE. THE ASSESSEE HA S CHALLENGED THE DATE OF CONVERSION ADOPTED BY THE AO FOR THE REASON THAT CO NVERSION HAD NOT TAKEN PLACE ON 02-02-1994, BECAUSE ALTHOUGH THE ASSESSEE HAD INTENDED TO DEVELOP THE PROPERTY AS STOCK IN TRADE, BECAUSE OF REGULATO RY REASONS AND CERTAIN LEGAL DISPUTES, THE IOD HAS BEEN ISSU-05-1998 BY THE MCGM . THEREFORE, WITHOUT ANY AUTHORITY OF IOD AND COMMENCEMENT CERTIFICATE, THE BUSINESS CANNOT HAVE TAKEN PLACE BY MERELY FILING AN APPLICATION FOR OBT AINING IOD. WE DO NOT FIND ANY MERIT IN THE ARGUMENT OF THE ASSESSEE FOR THE R EASON THAT THE DATE OF CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE SHA LL BE DETERMINED EITHER ON THE BASIS OF ENTRY PASSED IN THE BOOKS OF ACCOUNT OF TH E ASSESSEE OR THE INTENTION OF THE ASSESSEE TO EXPLOIT THE CAPITAL ASSET INTO S TOCK IN TRADE FOR ITS BUSINESS PURPOSE. IN THIS CASE, UNDISPUTEDLY, THE ASSESSEE HAS NOT PASSED ANY ENTRY IN HIS BOOKS OF ACCOUNT FOR CONVERTING ITS CAPITAL ASS ET INTO STOCK IN TRADE. BUT, 15 LATE PURAN RATILAL MEHTA THE ASSESSEE INTENDED TO DEVELOP THE IMPUGNED LAND INTO A STOCK IN TRADE BY FILING AN APPLICATION FOR IOD BEFORE MCGM ON 02-02- 1994 WHICH IS THE DATE ON WHICH CONVERSION OF CAPITAL ASSET INTO STOCK IN TRA DE SAID TO HAVE TAKEN PLACE. ALTHOUGH THE IOD HAS BEEN ISSUED ON 09-01-1997 AND COMMENCEMENT CERTIFICATE HAS BEEN ISSUED ON 05-09-1998, WHAT IS RELEVANT TO DETERMINE THE DATE OF CONVERSION IS THE INTENTION OF THE ASSESSEE TO COMMERCIALLY EXPLOIT THE PROPERTY WHICH IS ON 02-02-1994. THOUGH THE ASSESS EE HAS RELIED UPON CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF CO-OR DINATE BENCH IN THE CASE OF LATE SHRI N.J. PATEL (SUPRA), WE FIND THAT THE FACT S ARE ENTIRELY DIFFERENT FROM THAT OF ASSESSEES CASE, THEREFORE, WE ARE OF THE C ONSIDERED VIEW THAT THE LOWER AUTHORITIES WERE RIGHT IN COMING TO THE CONCL USION THAT THE CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE SAID TO HAVE BEEN TAKEN PLACE ON 02-02-1994. 14. COMING TO THE COMPUTATION OF LONG TERM CAPITAL GAIN ON CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE. THE AO HAS TAKE N READY RECKONER RATE AS ON THE DATE OF CONVERSION, I.E. ON 02-02-1994 AND THEN REDUCED ESTIMATED COST OF CONSTRUCTION OF RS.300 PER SQ.FT. FOR ARRIVING AT T HE FAIR MARKET VALUE OF THE LAND FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN. TH E AO HAS TAKEN R.1,560 PER SQ.FT. READY RECKONER RATE OF CONSTRUCTED FLATS AS ON 02-02-1994 AND THEN REDUCED RS.300/- PER SQ.FT. ESTIMATED COST OF CONST RUCTION AND ARRIVED AT THE MARKET VALUE OF THE LAND OF RS.12,46,90,860. FURTH ER, ON THE BASIS OF ESTIMATED 16 LATE PURAN RATILAL MEHTA MARKET VALUE, THE AO HAS REDUCED INDEXED COST OF AC QUISITION BY TAKING INTO ACCOUNT FAIR MARKET VALUE OF THE LAND AS ON 01-04-1 981 AT RS.3,24,59,208 TO DETERMINE LONG TERM CAPITAL GAIN OF RS.4,54,90,393. THE FAIR MARKET VALUE TAKEN BY THE AO IS BASED ON THE VALUATION REPORT OF GOVERNMENT APPROVED VALUER AND THIS HAS BEEN SUPPLIED BY THE ASSESSEE T O THE AO. THERE IS NO DISPUTE WITH REGARD TO THE VALUE DETERMINED BY THE AO AS ON 01-04-1981. THE ONLY DISPUTE IS WITH REGARD TO THE DEDUCTION OF COS T OF CONSTRUCTION FROM THE RECKONER VALUE TO ARRIVE AT FAIR MARKET VALUE OF L AND. THE LD.CIT(A) HAD GIVEN A FINDING THAT THE FAIR MARKET VALUE OF THE LAND AS O N THE DATE OF CONVERSION CAN BE DETERMINED EITHER ON THE BASIS OF READY RECKONER RATE OR THE COST OF CONSTRUCTION INCURRED BY THE DEVELOPER. ALTHOUGH, THE AO HAS SOUGHT DETAILS OF CONSTRUCTION FROM THE DEVELOPER, IN ABSENCE OF ANY DETAILS SUPPLIED BY THE DEVELOPER, WENT ON TO DECIDE THE VALUE OF THE LAND BY REDUCING THE ESTIMATED COST OF CONSTRUCTION OF RS.300 PER SQ.FT. THEREFOR E, THE LD.CIT(A) HAS DIRECTED THE AO TO DETERMINE THE FAIR MARKET VALUE OF THE LA ND BY OBTAINING COST OF CONSTRUCTION INCURRED BY THE DEVELOPER. THE ASSESS EE CLAIMS THAT M/S BHOOMI DEVELOPERS HAS FILED REQUISITE DETAILS VIDE THEIR L ETTER DATED 20-04-2011, AS PER WHICH COST OF CONSTRUCTION PER SQ.FT. WORKS OUT TO RS.591, AS AGAINST THE AOS ADOPTION OF RS.300 PER SQ.FT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LD.CIT(A) WAS RIGHT IN DIRECTING THE AO TO DETE RMINE THE FAIR MARKET VALUE 17 LATE PURAN RATILAL MEHTA OF THE LAND BY TAKING COST OF CONSTRUCTION INCURRED BY THE DEVELOPER. SINCE THE DEVELOPER HAS SUBMITTED REQUISITE DETAILS IN RESPEC T OF COST OF CONSTRUCTION, THE AO IS DIRECTED TO ADOPT THE COST OF CONSTRUCTIO N INCURRED BY THE DEVELOPER IN PLACE OF ESTIMATED CONSTRUCTION COST TAKEN TO AR RIVE AT FAIR MARKET VALUE OF THE LAND ACCORDINGLY, THE GROUND TAKEN BY THE REVEN UE AS WELL AS THE ASSESSEE ARE REJECTED. 15. THE NEXT QUESTION THAT CAME UP FOR OUR CONSIDER ATION FROM THIS GROUP OF APPEALS INCLUDING APPEAL FOR AY 2008-09 IS YEAR OF TAXABILITY OF LONG TERM CAPITAL GAIN AS ENVISAGED U/S 45(2) OF THE INCOME-T AX ACT, 1961. THE AO HAS TAKEN DATE OF CONVERSION AS 02-02-1994 AND THEN COM PUTED LONG TERM CAPITAL GAIN BY TAKING READY RECKNONER RATE OF CONSTRUCTED FLAT AS ON THE DATE OF CONVERSION AND DETERMINED LONG TERM CAPITAL GAIN OF RS.4,54,90,393. ACCORDING TO THE AO, ALTHOUGH THE LONG TERM CAPITAL GAIN ENVISAGED U/S 45(2) IS PAYABLE AS AND WHEN THE ASSESSEE HAS SOLD THE PROPE RTIES, BUT IN THIS CASE, THE ASSESSEE HAS DELIBERATELY POSTPONED RECOGNITION OF REVENUE FROM ITS PROJECT BY GIVING SOME UNPLAUSIBLE REASONS, THEREFORE, HE CAME TO THE CONCLUSION THAT LONG TERM CAPITAL GAIN COMPUTED AS PER THE PROVISIO NS OF SECTION 45(2) SHALL BE CHARGEABLE TO TAX PROPORTIONATELY, ON THE BASIS OF ADVANCE RECEIVED FROM CUSTOMERS. ACCORDINGLY, THE AO HAS REOPENED ASSESS MENTS U/S 147 FOR AYS 2001-02 TO 2004-05 AND CHARGED LONG TERM CAPITAL GA IN DERIVED ON CONVERSION 18 LATE PURAN RATILAL MEHTA OF CAPITAL ASSET INTO STOCK IN TRADE. THE AO ALSO COMPUTED LONG TERM CAPITAL GAIN FOR AY 2006-07 ON THE BASIS OF FINDINGS GIVEN FOR AY 2005-06. IN TOTO, THE AO HAS COMPUTED LONG TERM CAPITAL GAIN DERIVED FROM CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE PROPORTIONATELY FOR AYS 2 001-02 TO 2006-07 ON THE BASIS OF ADVANCE RECEIVED FROM CUSTOMERS. IT IS TH E CLAIM OF THE ASSESSEE THAT HE IS FOLLOWING PROJECT COMPLETION METHOD FOR RECOG NITION OF REVENUE FROM THE PROJECT AND ACCORDINGLY, THE BUSINESS INCOME HAS BE EN OFFERED FOR TAXATION IN AY 2008-09. THE ASSESSEE FURTHER CONTENDED THAT AS PER THE PROVISIONS OF SECTION 45(2), LONG TERM CAPITAL GAIN DERIVED FROM CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE SHALL BE PAYABLE IN THE YEAR IN WHICH SUCH STOCK IN TRADE HAS BEEN SOLD. SINCE THE PROJECT HAS BEEN COMPLETE IN ALL RESPECTS IN AY 2008-09 AND REVENUE FROM THE PROJECT HAS BEEN RECOGNISED, T HE CAPITAL GAIN SHALL BE PAYABLE IN RESPECT OF THE PROJECT IN THE YEAR IN WH ICH SUCH CAPITAL ASSET HAS BEEN SOLD, I.E. IN AY 2008-09. 16. HAVING HEARD BOTH THE SIDES, WE FIND MERIT IN T HE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT IT IS AN UNDISPUTED FA CT THAT THE ASSESSEE HAS NOT DECLARED ANY BUSINESS INCOME IN AYS 2001-02 TO 2006 -07. THOUGH THE ASSESSEE HAS RECEIVED ADVANCE FROM CUSTOMERS, THE SAID ADVAN CE HAS BEEN SHOWN AS LIABILITY IN ITS BOOKS OF ACCOUNT PENDING REGISTRAT ION OF SALE DEEDS TO THE CUSTOMERS BECAUSE THE PROJECT HAD NOT BEEN COMPLETE D. IT IS ALSO AN 19 LATE PURAN RATILAL MEHTA UNDISPUTED FACT THAT THE ASSESSEE HAS PROVED WITH N ECESSARY EVIDENCE THAT THE SAID PROJECT HAS BEEN COMPLETED IN ALL RESPECTS IN AY 2008-09. IT IS ALSO AN UNDISPUTED FACT THAT CAPITAL GAIN ON CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE IS PAYABLE ONLY IN THE YEAR IN WHICH THE ASSE SSEE ULTIMATELY SELLS SUCH STOCK IN TRADE. IN THIS CASE, ON PERUSAL OF FACTS, THERE IS NO DOUBT, WHATSOEVER WITH REGARD TO COMPLETION OF PROJECT IN AY 2008-09. THIS FACT HAS NOT BEEN DISPUTED BY THE AO. THEREFORE, WE ARE OF THE CONSI DERED VIEW THAT THE LD.CIT(A) WAS RIGHT IN COMING TO THE CONCLUSION THA T THE PROJECT HAS BEEN COMPLETED IN AY 2008-09 AND ACCORDINGLY, THE ASSESS EE HAS RIGHTLY RECOGNISED REVENUE FROM THE PROJECT IN THE YEAR IN WHICH THE P ROJECT HAS BEEN COMPLETED. THIS BEING SO, AS PER THE PROVISIONS OF SECTION 45( 2), THE CAPITAL GAIN DERIVED FROM CONVERSION OF CAPITAL ASSET INTO STOCK IN TRAD E SHALL BE CHARGEABLE TO TAX IN THE YEAR IN WHICH SUCH STOCK IN TRADE HAS BEEN SOLD . SINCE THESE TWO EVENTS, I.E. COMPLETION OF PROJECT AND RECOGNITION OF REVEN UE FROM THE PROJECT HAS TAKEN PLACE IN AY 2008-09, THE RESULTANT CAPITAL GA IN DERIVED FROM CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE IS ALSO TAXABL E IN AY 2008-09. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO REAS ON TO INTERFERE WITH THE FINDINGS OF THE LD.CIT(A) AND HENCE, WE ARE INCLINE D TO UPHOLD THE FINDINGS OF LD.CIT(A) AND REJECT GROUND TAKEN BY THE REVENUE IN ALL APPEALS. 20 LATE PURAN RATILAL MEHTA 17. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM DEPARTMENTAL APPEAL FOR AY 2008-09 IS DISALLOWANCE OF DEDUCTION CLAIMED U/S 80IB(10) IN RESPECT OF HOUSING PROJECT. THE AO HAS DISALLOWED DEDUCTION CLAIMED U/S 80IB(10) ON THE GROUND THAT THE ASSESSEE HAS NOT FU LFILLED THE CONDITIONS LAID DOWN TO CLAIM SUCH DEDUCTION AS THE COMMENCEMENT OF CONSTRUCTION OF THE HOUSING PROJECT WAS STARTED BEFORE 01-10-1998 AND A LSO THE COMPLETION OF THE PROJECT WAS NOT COMPLETE IN ALL RESPECTS BEFORE 31- 03-2008. THE PROVISIONS OF SECTION 80IB(10) STIPULATES THAT IN ORDER TO GET DE DUCTION, THE ELIGIBLE PROJECT SHOULD BE COMMENCED ON OR AFTER 01-10-1998 AND THE PROJECT SHOULD BE COMPLETED ON OR BEFORE 31-01-2008. IN THIS CASE, T HE ASSESSEE HAS COMMENCED ITS CONSTRUCTION MUCH BEFORE THAT DATE WHICH IS EVI DENT FROM THE FACT THAT THE MCGM ISSUED COMMENCEMENT CERTIFICATE ON 06-05-1998 AND THE ASSESSEE HAS SPENT AMOUNT TOWARDS DEVELOPMENT OF LAND, I.E FILLI NG UP OF PLOT PROVIDING TRENCH AND CUTTERS AND RAISING COMPOUND WALL, ETC. THE AO FURTHER OBSERVED THAT EVEN THOUGH THE PROVISION MANDATES COMPLETION OF PROJECT ON OR BEFORE 31-03-2008, ON PERUSAL OF DETAILS IT IS CLEAR THAT THE ASSESSEE HAS NOT COMPLETED THE PROJECT. THE MCGM HAS NOT ISSUED OCC UPATION CERTIFICATE. THEREFORE, THE CLAIM MADE BY THE ASSESSEE U/S 80IB( 10) IS NOT IN ACCORDANCE WITH THE SAID PROVISIONS AND ACCORDINGLY DENIED THE BENEFIT OF DEDUCTION. 21 LATE PURAN RATILAL MEHTA 18. IT IS THE CLAIM OF THE ASSESSEE THAT THE PROJEC T HAS BEEN STARTED ON 05-10- 1998 EVEN THOUGH IOD HAS BEEN ISSUED BY MCGM ON 09- 01-1997 AND COMMENCEMENT CERTIFICATE ISSUED ON 06-05-1998. THE PROJECT STATED TO HAVE BEEN COMMENCED ONLY WHEN THE ASSESSEE HAS STARTED P HYSICAL CONSTRUCTION ACTIVITY WHICH HAPPENED IN THIS CASE ON 05-10-1998. THEREFORE, THE FIRST OBJECTION OF THE AO THAT THE PROJECT WAS STARTED BE FORE 01-10-1998 IS NOT BASED ON ANY EVIDENCE. IN THIS REGARD, THE ASSESSE E HAS FURNISHED A CERTIFICATE FROM THE ARCHITECT WHERE IT WAS STATED THAT A-WING OF THE BUILDING COMMENCED ON 05-10-1998. THE ASSESSEE FURTHER STATED THAT TH E BUILDING HAS BEEN COMPLETED IN ALL RESPECTS BEFORE 31-03-2008. EVEN THOUGH THE ASSESSEE COULD NOT GET OCCUPATION CERTIFICATE FROM THE MCGM WHICH IS BECAUSE OF CERTAIN LEGAL HURDLES IN VIEW OF THE NATURE OF LAND ON WHICH THE BUILDING WAS CONSTRUCTED. OTHERWISE, THE ASSESSEE HAS OBTAINED ALL OTHER FORM ALITIES INCLUDING PERMISSION FROM FIRE FIGHTING DEPARTMENT OF MUNICIPAL CORPORAT ION, CERTIFICATE FOR LIFT OPERATION FROM MUNICIPAL CORPORATION AND ALSO FURNI SHED ARCHITECTS CERTIFICATE FOR COMPLETION OF BUILDING ON 27-11-2007. THE ASSE SSEE ALSO FILED COPIES OF POSSESSION LETTER ISSUED TO OCCUPANTS OF THE BUILDI NG ALONG WITH CERTIFICATE OF CIVIL ENGINEER DATED 14-01-2008 IN ORDER TO PROVE T HAT THE BUILDING HAS BEEN COMPLETED IN ALL RESPECTS. MERELY FOR THE REASON T HT OC HAS NOT BEEN ISSUED BY MCGM, IT CANNOT BE SAID THAT THE BUILDING HAS NOT B EEN COMPLETED WITHIN THE 22 LATE PURAN RATILAL MEHTA STIPULATED TIME. IN THIS REGARD, THE ASSESSEE HAS RELIED UPON VARIOUS JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HINDUSTAN SAMUH AWAS LTD 62 TAXMAN.COM.175 (BOM). 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD.CIT(A) HAS NEGATED THE OBSERVATIONS MADE BY THE AO FOR DENIAL OF DEDUCTION U/S 80IB(10). ALTHOUGH, THE AO HAS MA DE OBSERVATIONS WITH REGARD TO THE DATE OF COMMENCEMENT OF PROJECT AND A LSO THE DATE OF COMPLETION OF PROJECT TO DENY THE BENEFIT, THE LD.C IT(A) GAVE A CATEGORICAL FINDING THAT THE CONSTRUCTION OF THE PROJECT HAS BE EN STARTED ON OR AFTER 01-10- 1998 AND THE PROJECT HAS BEEN COMPLETED ON OR BEFOR E 31-03-2008. THE LD.CIT(A) HAS TAKEN SUPPORT FROM VARIOUS DETAILS FI LED BY THE ASSESSEE INCLUDING ARCHITECTS CERTIFICATE, AS PER WHICH A-WING OF THE BUILDING HAS COMMENCED ON 05-10-1998. EVEN THOUGH, THE ASSESSEE HAS DONE CER TAIN WORKS IN THE SITE BEFORE 01-10-1998 WHICH HAS BEEN DONE, IN ORDER TO COMPLY WITH THE DIRECTIONS OF MCGM WHICH STIPULATES THAT BEFORE ISS UE OF CERTIFICATE OF COMMENCEMENT, THE ASSESSEE HAS TO MAKE THE LAND SUI TABLE FOR CONSTRUCTION BY CARRYING OUT NECESSARY FILLING AND OTHER WORKS. THE BASIC WORKS CARRIED OUT BY THE ASSESSEE INCLUDING CONSTRUCTION OF COMPOUND WALL AND FILLING UP OF LAND CANNOT BE CONSIDERED AS COMMENCEMENT OF CONSTRUCTIO N OF THE BUILDING. THE SAID TWO WORKS HAVE BEEN DONE BEFORE ISSUE OF COMME NCEMENT CERTIFICATE BY 23 LATE PURAN RATILAL MEHTA MCGM ON 06-05-1998. IN FACT, THE ACTUAL CONSTRUCTI ON WORK HAS BEEN COMMENCED ON 05-10-1998 AS PER THE CERTIFICATE OF A RCHITECT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS INCORREC T IN OBSERVING THAT THE PROJECT WORK HAS BEEN STARTED BEFORE 01-10-1998. 20. COMING TO THE DATE OF COMPLETION OF PROJECT. A CCORDING TO THE AO, THE PROJECT HAS NOT BEEN COMPLETED BEFORE 31-03-2008 AS PER THE REQUIREMENT OF PROVISIONS OF SECTION 80IB(10). THE AO HAS GIVEN T HIS FINDING ON THE SOLE BASIS OF NO OC CERTIFICATE FROM MCGM. ON THE OTHER HAND, THE ASSESSEE HAS FILED ENORMOUS DETAILS INCLUDING CERTIFICATE BY FIRE FIGH TING DEPARTMENT, CERTIFICATE FOR LIFT OPERATION FROM MUNICIPAL CORPORATION, ARCH ITECTS CERTIFICATE FOR COMPLETION OF BUILDING ON 27-11-2007, COPIES OF POS SESSION LETTER ISSUED TO THE BUYERS OF THE FLAT AND ALSO CERTIFICATE OF COMPLETE OF CIVIL ENGINEER DATED 14-01- 2008. ON PERUSAL OF DETAILS FILED BY THE ASSESSEE, WE FIND THAT THE PROJECT HAS BEEN COMPLETED BEFORE 31-03-2008. INSOFAR AS OCCUP ATION CERTIFICATE, THOUGH IT IS NECESSARY TO OBTAIN OCCUPATION CERTIFICATE FR OM MCGM AFTER COMPLETION OF THE PROJECT, IN THIS CASE, ON PERUSAL OF DETAILS, I T IS VERY CLEAR THAT THE ASSESSEE HAS FILED AN APPLICATION BEFORE MCGM FOR ISSUE OF O CCUPATION CERTIFICATE ON 19- 05-2005 IN CASE OF A-WING OF THE BUILDING. IN RESP ECT OF B-WING, THE DETAILS FILED BY THE ASSESSEE INCLUDING VARIOUS PERMISSIONS OBTAINED FROM CONCERNED DEPARTMENTS, IT IS ABUNDANTLY CLEAR THAT THE BUILDI NG HAS BEEN COMPLETED IN ALL 24 LATE PURAN RATILAL MEHTA RESPECTS BEFORE 31-03-2008. THE ASSESSEE HAS GIVEN REASONS FOR NOT OBTAINING OC FROM THE MUNICIPAL CORPORATION AS PER WHICH THER E WAS AN ONGOING DISPUTE BETWEEN THE AUTHORITIES AND THE LAND OWNERS IN RESP ECT OF NATURE OF LAND BEFORE THE HONBLE HIGH COURT BECAUSE OF WHICH, THE ASSESSEE COULD NOT GET OC FROM THE MUNICIPAL CORPORATION AUTHORITIES. HOWEVE R, ALL OTHER REQUIRED PERMISSIONS, INCLUDING FIRE FIGHTING CLEARANCE AND LIFT OPERATION HAS BEEN ISSUED BY MUNICIPAL CORPORATION AFTER ENSURING THAT THE BU ILDING HAS BEEN COMPLETED AND FIT FOR OCCUPATION. THEREFORE, WE ARE OF THE C ONSIDERED VIEW THAT MERELY FOR THE REASON THAT OC WAS NOT ISSUED BY MUNICIPAL CORPORATION, THE AO CANNOT IGNORE ALL OTHER EVIDENCES FILED BY THE ASSESSEE TO PROVE THAT THE SAID PROJECT HAS BEEN COMPLETED WITHIN THE STIPULATED TIME AS PE R THE PROVISIONS OF SECTION 80IB(10) OF THE INCOME-TAX ACT, 1961. THIS LEGAL P ROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS HINDUSTAN SAMUH AWAS (SUPRA), WHERE IT WAS HELD THAT COMPLETI ON OF HOUSING PROJECT IS A PHYSICAL ACT WHICH CAN BE DEMONSTRATED ON THE SPOT AND ALSO THROUGH CERTIFICATE ISSUED BY AN ARCHITECT. THE HONBLE GU JARAT HIGH COURT IN THE CASE OF ITO VS SAKET CORPORATION 234 TAXMN.COM 435 (GUJ) HELD THAT WHEN THE BUILDING IS COMPLETED IN ALL RESPECTS, OBTAINING OC IS NOT A MANDATORY REQUIREMENT IN ORDER TO ASCERTAIN WHETHER THE BUILD ING WAS COMPLETED OR NOT FOR THE PURPOSE OF DEDUCTION U/S 80IB(10) OF THE IN COME-TAX ACT, 1961. THE 25 LATE PURAN RATILAL MEHTA ITAT, PUNE BENCH IN THE CASE OF RUNWAL MOTEL HOUSIN G PVT LTD IN ITA NO.1015/PN/2011 HAD CONSIDERED SIMILAR ISSUE IN THE LIGHT OF NON ISSUE OF OCCUPATION CERTIFICATE BY MUNICIPAL AUTHORITIES AND AFTER CONSIDERING RELEVANT FACTS, HELD THAT WHEN THE ASSESSEE HAS HANDED OVER POSSESSION OF THE FLAT TO THE BUYERS, MERELY FOR NON RECEIPT OF COMPLETION CE RTIFICATE, DEDUCTION CANNOT BE DENIED. THE LD.CIT(A), AFTER APPRISING ALL FACT S, HELD THAT THE ASSESSEE HAS FULFILLED CONDITIONS PRESCRIBED U/S 80IB(10) IN ORD ER TO BE ELIGIBLE FOR DEDUCTION FOR ELIGIBLE PROFITS. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD.CIT(A) AND HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND REJECT GROUND TAKEN BY THE REVENUE. 21. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FOR AY 2008-09 IS CHARGEABILITY OF INTEREST RECEIPT FROM BANK FD. TH E ASSESSEE HAS EARNED INTEREST ON FDR KEPT IN BANK AND THE SAME HAS BEEN DEDUCTED FROM THE COST OF CONSTRUCTION TO ARRIVE AT NET EXPENDITURE INCURRED FOR THE PROJECT. ACCORDING TO THE ASSESSEE, INTEREST EARNED ON FDR IS A BUSINESS RECEIPT AS IT HAS PARKED SURPLUS FUNDS GENERATED FROM BUSINESS IN BANKS IN O RDER TO EARN INTEREST INCOME AND REDUCE CONSTRUCTION EXPENSES. SINCE THE RE IS A DIRECT NEXUS BETWEEN INTEREST EARNED FROM FDR AND BUSINESS ACTIV ITY OF THE ASSESSEE, HE HAS RIGHTLY TREATED INTEREST INCOME AS PART OF ITS BUSINESS RECEIPTS. THE AO HAS ASSESSED INTEREST EARNED ON FDRS UNDER THE HEAD IN COME FROM OTHER SOURCES 26 LATE PURAN RATILAL MEHTA ON THE GROUND THAT THE NATURE OF ACTIVITY, WHICH DE CIDES THE HEAD OF INCOME, WHETHER IT IS ASSESSABLE UNDER THE HEAD INCOME FRO M OTHER SOURCES OR INCOME FROM BUSINESS OR PROFESSION. THE AO FURTH ER OBSERVED THAT MERELY BECAUSE THE ASSESSEE HAS USED ITS BUSINESS FUNDS TO EARN INTEREST INCOME, THE CHARACTER OF THE RECEIPTS CANNOT BE CHANGED WHEN AS SESSEES MAIN BUSINESS ACTIVITY IS CONSTRUCTION AND DEVELOPMENT OF FLATS. THE AO HAS ANALYSED THE FUND FLOW POSITION OF THE ASSESSEE TO COME TO THE C ONCLUSION THAT THE FUNDS DEPLOYED IN FDR IS ARISING OUT OF PROFIT DERIVED FR OM THE PROJECT AND HENCE, RESULTANT INTEREST INCOME IS ASSESSABLE UNDER THE H EAD INCOME FROM OTHER SOURCES. 22. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED M ATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS EARNED INTEREST INCOME ON FDRS KEPT IN BANK AND TREATED THE SAME AS PART OF ITS BUSINESS RECEIPTS. ACCORDING TO THE ASSESSEE, IT HAS PARKED SURPLUS FUNDS GENERATED FROM BUSINESS IN ORDER TO MAXIMISE RECEIPTS AND REDUCE CONSTRUCTION COST, THEREFORE, T HERE IS A DIRECT NEXUS BETWEEN INTEREST INCOME AND BUSINESS ACTIVITY OF TH E ASSESSEE AND HENCE, INTEREST EARNED FROM FDRS IS ASSESSABLE UNDER THE H EAD INCOME FROM BUSINESS OR PROFESSION. 23. HAVING HEARD BOTH THE SIDES, WE DO NOT FIND ANY MERIT IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT A PARTICULAR RE CEIPT IS ASSESSABLE UNDER A 27 LATE PURAN RATILAL MEHTA PARTICULAR HEAD OF INCOME SHALL BE DECIDED ON THE B ASIS OF NATURE OF RECEIPT WITH REFERENCE TO THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE IS IN THE BUSINESS OF DEVELOPMENT AND CONS TRUCTION OF FLATS. ALTHOUGH THE FUNDS GENERATED FROM BUSINESS ARE SOURCED TO FD RS KEPT IN BANK, THE INTEREST INCOME EARNED FROM FDRS CANNOT BE CONSIDER ED AS BUSINESS RECEIPTS WHEN THE ASSESSEES MAIN ACTIVITY IS NOT LENDING MO NEY FOR INTEREST. THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE DEVELOPM ENT AND CONSTRUCTION. HE HAD KEPT SURPLUS FUNDS AVAILABLE WITH HIM IN THE BA NK IN SHORT TERM FDR IN ORDER TO EARN CERTAIN INTEREST INCOME. THEREFORE, IN ORDER TO FIX A PARTICULAR RECEIPT UNDER PARTICULAR HEAD OF INCOME, THERE SHOU LD BE DIRECT NEXUS BETWEEN THE RECEIPT AND THE ACTIVITY CARRIED OUT BY THE ASS ESSEE. IF A PARTICULAR RECEIPT IS GENERATED OUT OF ITS MAIN ACTIVITY OF CARRYING OUT CONSTRUCTION OF BUILDINGS AND FLATS, THEN OBVIOUSLY, THE SAID RECEIPT FALLS WITHI N THE HEAD INCOME FROM BUSINESS OR PROFESSION. IF SURPLUS FUND NOT REQUI RED IMMEDIATELY FOR BUSINESS PURPOSE IS KEPT IN BANK FDRS TO EARN INTEREST, OBVI OUSLY, THE SAID INTEREST INCOME CANNOT BE CONSIDERED AS PART OF ASSESSEES M AIN BUSINESS ACTIVITY. IN THIS CASE, THE AO HAS BROUGHT OUT CLEAR FACTS THAT THE ASSESSEE HAS DEPLOYED ITS PROFIT DERIVED FROM BUSINESS ACTIVITY IN SHORT TERM FIXED DEPOSIT IN ORDER TO EARN INTEREST INCOME. THE LD.CIT(A) HAS ALLOWED RE LIEF TO THE ASSESSEE BY FOLLOWING THE HONBLE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS LOK 28 LATE PURAN RATILAL MEHTA HOUSING 308 ITR 356(BOM). WE FIND THAT THE FACTS O F THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT ARE THAT THE ASSESSEE HAS BORROWED LOANS FOR THE PURPOSE OF BUSINESS AND WHEN FUNDS WERE NOT IMMEDIA TELY REQUIRED FOR BUSINESS, PARKED SURPLUS FUNDS IN SHORT TERM FD TO RECOUP INTEREST PAYABLE ON LOANS. UNDER THOSE FACTS, THE HONBLE COURT CAME T O THE CONCLUSION THAT INTEREST EARNED FROM SHORT TERM FD IS PART OF BUSIN ESS RECEIPT OF THE ASSESSEE. IN THIS CASE, ON PERUSAL OF FACTS, WE FIND THAT THE AO HAS ARRIVED AT A CONCLUSION THAT THE ASSESSEE HAS NOT BORROWED ANY FUNDS AND WH ATEVER FUNDS DEPLOYED IN SHORT TERM FD ARE GENERATED OUT OF HIS OWN BUSINESS PROFITS. THE ASSESSEE FAILED TO CONTROVERT THE FINDINGS OF THE AO WITH AN Y DETAILS. UNDER THESE FACTS, THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TOTGAR CO- OPERATIVE SALES SOCIETY LTD VS ITO (2010) 322 ITR 2 83 (SC) WILL SQUARELY APPLY, WHERE IT WAS HELD THAT THE PARLIAMENT HAS INCLUDED SPECIFIC BUSINESS PROFIT INTO THE DEFINITION OF THE WORD INCOME. THEREFORE, ON E IS REQUIRED TO GIVE A PRECIOUS MEANING TO THE WORDS PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN THE INSTANT CASE, WHEN WE APPLY THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE SAID CASE, WE FIND THAT INTEREST EARNE D ON SHORT TERM FD COULD NOT BE SAID TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE ASSESSEE, MAINLY CARRYING ON THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF FLA TS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS RIGHT IN ASSESS ING INTEREST EARNED ON 29 LATE PURAN RATILAL MEHTA FDR UNDER THE HEAD INCOME FROM OTHER SOURCES. TH E LD.CIT(A), WITHOUT APPRECIATING THESE FACTS DIRECTED THE AO TO ASSESS INTEREST UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION, AS CLAIMED BY THE ASSESSEE. HENCE, WE REVERSE THE FINDING OF THE LD.CIT(A) AND RESTORE TH E ASSESSMENT OF INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 24. IN THE RESULT, APPEALS FILED BY THE ASSESSEE IN ITA NOS 1320 TO 1325/MUM/2011 ARE DISMISSED AND APPEALS FILED BY TH E REVENUE IN ITA NOS 1274 TO 1277/MUM/2011 AND ITA NOS 1278 & 1279/MUM/2 011 ARE ALSO DISMISSED. THE APPEAL FILED BY THE REVENUE IN ITA 6646/MUM/2012 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 -12-2018. SD/- SD/- (RAVISH SOOD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 05 TH DECEMBER, 2018 PK/- 30 LATE PURAN RATILAL MEHTA COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI