M/s. Hariom Associates, Raigad V. Income-tax Officer,

ITA 1516/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9283 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 11-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Keywords: Business income; Cost of acquisition
• Section: 148

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO. 1 516 /P U N/201 6 / ASSESS MENT YEAR : 20 0 9 - 1 0 M/S. HARIOM ASSOCIATES, SHOP NO.3, SHRINARPURE APPARTMENT, SHIVAJI ROAD LINE, PANVEL, DIST. RAIGAD - 410206 . / APPELLANT PAN: A AGFH4993R VS. THE INCOME TAX OFFICER , WARD 2, PANVEL . / RESPONDENT / APPELLANT BY : NONE / RESPONDENT BY : S HRI MUKESH JHA / DATE OF HEARING : 1 5 . 0 2 .201 8 / DATE OF PRONOUNCEMENT: 26 . 0 2 .201 8 / ORDER PER SUSHMA CHOWLA, J M : TH E APPEA L FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - 2 , THANE , DATED 31 . 0 5 .20 1 6 RELATING TO ASSESSMENT YEAR 20 0 9 - 1 0 AGAINST ORDER PASSED UNDER SECTION 1 4 3(3) R.W.S. 147 OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . ITA NO. 1516 /P U N/20 1 6 M/S. HARIOM ASSOCIATES 2 2. THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT - APPEAL HAS ERRED IN LAW AND ON FACTS IN SUSTAINING / CONFIRMING ADDITION / DISALLOWANCE FOR COMPENSATION / PAID TO K.S. DEVANI RS.5,00,000/ - . 2. THE LEARNED CIT - APPEAL HAS ERRED IN LAW AND ON FACTS BY NOT CON SIDERING LONG TERM CAPITAL GAIN OF RS.413324 RETURNED BY ASSESSEE AND THUS CONFIRMING BUSINESS INCOME AS DECIDED BY A.O. IN HIS ORDER. 3. THE LEARNED CIT - APPEAL HAS ERRED IN LAW AND ON FACTS BY NOT CONSIDERING SUBMISSION OF ASSESSEE IN HIS ORDER. 4. THE LEARNED CIT - APPEAL HAS ERRED IN LAW AND ON FACTS BY NOT CONSIDERING WITH REASONING THE DECISION OF SUPREME COURT AND H.C AND OTHER SUBMITTED IN COURSE OF HEARING BY SIMPLY STATING THAT SAME ARE NOT RELEVANT. 3. DESPITE SERVICE OF NOTICE, NONE APPEARED ON BEHALF OF THE ASSESSEE. THE APPEAL OF ASSESSEE WAS ADJOURNED ON DIFFERENT DATES, WHEREIN NONE WAS PRESENT ON BEHALF OF ASSESSEE. LAST AND FINAL OPPORTUNITY OF HEARING WAS GIVEN TO THE ASSESSEE. HOWEVER, THE ASSESSEE FAILED TO APPEAR AND ALSO DID NOT FI LE ANY APPLICATION FOR ADJOURNMENT. ACCORDINGLY, THE APPEAL IS DECIDED EX PARTE ASSESSEE AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE. 4. THE FIRST ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE ADDITION OF 5 LAKHS. 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. FOR THE YEAR UNDER CONSIDERATION, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED TO THE ASSESSEE, WHO DID NOT FURNISH ITA NO. 1516 /P U N/20 1 6 M/S. HARIOM ASSOCIATES 3 THE RETURN OF INCO ME WITHIN PRESCRIBED TIME. SUBSEQUENTLY, RETURN OF INCOME WAS FURNISHED IN WHICH THE ASSESSEE DECLARED INCOME FROM LONG TERM CAPITAL GAINS. THE ASSESSEE HAD SOLD THE PROPERTY FOR 35 LAKHS, OUT OF WHICH SALES EXPENSES OF 5,65,000/ - WAS CLAIMED. FURT HER, THE ASSESSEE HAD ALSO IN ADDITION TO INDEXED COST OF ACQUISITION ALSO SHOWN IMPROVE MENT COST. THE ASSESSEE WAS SHOW CAUSED AS TO WHY SAID PROFIT SHOULD NOT BE CONSIDERED AS BUSINESS INCOME. THE EXPLANATION OF ASSESSEE IN THIS REGARD WAS THAT IT HAD PURCHASED THE SAID PLOT ON 07.07.2005 FOR 19,53,390/ - AND THE SAME WAS SOLD ON 07.08.2008 FOR 60,80,000/ - VIDE REGISTERED SALE DEED. HOWEVER, THE PROPERTY WAS UNDER LITIGATION AND THE ASSESSEE RECEIVED 35 LAKHS ONLY. SINCE THERE WAS NO ACTIVITY IN THE PARTNERSHIP FIRM, THE PROFIT EARNED TH EREOF WAS SHOWN AS CAPITAL GAINS. IN REPLY TO THE QUERY RAISED VIS - - VIS SALE EXPENSES OF 5,65,000/ - , THE ASSESSEE POINTED OUT THAT 5 LAKHS WAS PAID TO MR. KISANKUMAR SADORMAL DEVANI FOR CONFIRMATION OF AGREEMENT AS THE PROPERTY WAS IN LITIGATION, 6 5,000/ - WAS EXPLAINED TO BE PAID AS BROKERAGE AGAINST SALE OF THE PLOT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD PURCHASED THE LAND FROM MR. KISANKUMAR SADORMAL DEVANI AND HIS BROTHER AND THE DOCUMENT WAS SIGNED BY MR. KISANKUMAR SADORMAL DEVANI BOTH ON HIS OWN BEHALF AND AS POWER OF ATTORNEY HOLDER OF HIS BROTHER. AFTER RETAINING THE LAND FOR CERTAIN PERIOD, THE PROPERTY WAS SOLD FOR CONSIDERATION OF 60,80,000/ - . THE REGISTERED SALE DEED HAD TWO CONFIRMING PARTIES I.E. MR. SURESH S. DEVANI AND SHRI N.D. NAYAK AND MR. KISANKUMAR SADORMAL DEVANI WAS NOT A CONFIRMING PARTY. THE BREAKUP OF 60,80,000/ - WAS AMONGST THE ASSESSEE AT 35 LAKHS, SHRI SURE SH S. DEVANI AT 21 LAKHS AND SHRI N.D. NAYAK AT 4,80,000/ - . THERE IS NO DISPUTE IN THIS REGARD. HOWEVER, THE DISPUTE IS WITH REGARD TO CLAIM OF PAYMENT ITA NO. 1516 /P U N/20 1 6 M/S. HARIOM ASSOCIATES 4 OF 5 LAKHS TO SHRI KISANKUMAR SADORMAL DEVANI. THE ASSESSEE FILED AN AFFIDAVIT - CUM - DECLARATION MADE BY SHRI KISANKUMAR SADORMAL DEVANI, WHICH IS ENCLOSED AS ANNEXURE - A TO THE ASSESSMENT ORDER. THE ASSESSING OFFICER NOTED THE CONTENTS OF SAID AFFIDAVIT, WHICH TALKED OF AN AGREEMENT BETWEEN THE ASSESSEE AND SHRI KISANKUMAR SADORMAL DEVANI, DATED 03.0 5.2005, WHERE HE HAD AGREED TO PURCHASE FLAT ADMEASURING 1000 SQ.FT. BUILT UP AREA IN THE BUILDING PROPOSED TO BE CONSTRUCTED BY M/S. HARIOM ASSOCIATES ON THE SAID PLOT I.E. PLOT WHICH WAS PURCHASED BY THE ASSESSEE. HE FURTHER STATED THAT THERE WAS NO SUC H CLAUSE IN ANY OF THE AGREEMENTS ENTERED INTO BETWEEN THE PARTIES THAT THE ASSESSEE WOULD PROVIDE FLAT TO SHRI KISANKUMAR SADORMAL DEVANI. THE COPY OF PURCHASE DEED IS ENCLOSED AS ANNEXURE - B TO THE ASSESSMENT ORDER. IN THE ABSENCE OF THE SAME, EXPENDITU RE ON ACCOUNT OF PAYMENT OF 5 LAKHS WAS FOUND TO BE BASELESS AND NOT IN CONSONANCE WITH THE PURCHASE / SALE DEED OF THE PROPERTY AND HENCE, THE SAME WAS DISALLOWED IN THE HANDS OF ASSESSEE. 6. THE SECOND ISSUE WHICH WAS DECIDED BY THE ASSESSING OFFICER WAS WHETHER INCOME DECLARE D FROM SALE OF LAND IS TO BE ASSESSED AS CAPITAL GAINS OR INCOME FROM BUSINESS. THE ASSESSING OFFICER NOTED THAT THE NATURE OF BUSINESS CARRIED ON BY THE PARTNERSHIP FIRM WAS LAND DEVELOP ER AND BUILD ER. THE ASSESSEE HAD DEVELOPED THE LAND BY EXPENDIN G SUM OF 2 LAKHS. THE ASSESSING OFFICER THUS, HELD THAT THE ASSESSEE WAS TRADING IN LAND WHERE PURCHASE AND SALE OF LAND WAS INCIDENTAL TO THE BUSINESS. THUS, THE INCOME ARISING ON SALE OF LAND WAS TREATED AS BUSINESS INCOME IN THE HANDS OF ASSESSEE. ITA NO. 1516 /P U N/20 1 6 M/S. HARIOM ASSOCIATES 5 7. BEFO RE THE CIT(A), THE ASSESSEE FILED WRITTEN SUBMISSIONS WHICH ARE REPRODUCED UNDER PARA 5 AT PAGES 6 TO 8 OF THE APPELLATE ORDER. THE CASE OF ASSESSEE BEFORE THE CIT(A) WAS THAT THE LAND WAS PURCHASED FOR CONSTRUCTION OF RESIDENTIAL FLATS WITH AN AIM TO SELL THEM TO PROSPECTIVE BUYERS; BUT DUE TO MULTIPLE LITIGATIONS, THE ASSESSEE COULD NOT START ANY CONSTRUCTION ACTIVITY ON THE SAID LAND AND THE FIRM REMAINED INOPERATIVE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED ON SEVERAL DECISIONS TO POINT OUT THAT PROFIT IN SUCH TRANSACTIONS COULD NOT BE TREATED AS BUSINESS INCOME. IN RESPECT OF PAYMENT TO MR. KISANKUMAR SADORMAL DEVANI, IT WAS POINTED OUT THAT BECAUSE OF HARASSMENT BY MR. KISANKUMAR SADORMAL DEVANI, MATTER HAD TO BE SETTLED AN D SUM OF 5 LAKHS WAS PAID BY THE ASSESSEE. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER ON BOTH COUNTS IN THE ABSENCE OF ANY EVIDENCE BEING FILED BY THE ASSESSEE. 8. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 9. THE FIRST ISSUE RAISED IS IN REL ATION TO THE CLAIM OF EXPENDITURE OF COMPENSATION PAID TO MR. KISANKUMAR SADORMAL DEVANI OF 5 LAKHS. THE BASIS FOR CLAIMING THE SAID EXPENDITURE WA S AN UNDERSTANDING BETWEEN THE PARTIES. THE ASSESSEE HAD PURCHASED THE SAID PLOT OF LAND WHICH HA D BEEN S OLD BY IT, FROM MR. KISANKUMAR SADORMAL DEVANI AND HIS BROTHER. THERE WERE SOME LITIGATIONS ON THE SAID PLOT OF LAND, ON WHICH THE ASSESSEE HAD ALSO CLAIMED COST OF IMPROVEMENT AT 2 LAKHS. THE ASSESSEE HA D FILED AN AFFIDAVIT OF MR. KISANKUMAR SADORMAL DEVANI TO ESTABLISH ITS CASE OF PAYMENT OF 5 LAKHS. HOWEVER, AS NOTED EARLIER, IN THE ABSENCE OF ANY CLAUSE IN THE ITA NO. 1516 /P U N/20 1 6 M/S. HARIOM ASSOCIATES 6 AGREEMENT TO PURCHASE THE SAID PLOT VIS - - VIS ALLOTMENT OF ANY FLAT IN THE PROPOSED BUILDING OR PAYMENT OF ANY COMPENSATION, MERELY BECAUS E THE AMOUNT OF 5 LAKHS HA D BEEN PAID BY THE ASSESSEE TO MR. KISANKUMAR SADORMAL DEVANI DOES NOT ESTABLISH THAT THE SAME WA S TO BE ALLOWED AS EXPENDITURE IN THE HANDS OF ASSESSEE. THE SAID EXPENDITURE WA S NOT AS PER THE UNDERSTANDING BETWEEN THE PARTIES AND THEREFORE, THERE IS NO MERIT IN CLAIM OF EXPENSES OF PAYMENT OF 5 LAKHS TO MR. KISANKUMAR SADORMAL DEVANI AND THE SAME IS REJECTED. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, DISMISSED. 10. NOW, COMING TO SECOND GROUND OF APPEAL I.E . WHETHER INCOME IS TO BE ASSESSED AS BUSINESS INCOME OR INCOME FROM CAPITAL GAINS. THE SAID ASSET WAS PURCHASED BY PARTNERSHIP FIRM WHICH WAS ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPER. THE LAND COULD NOT BE DEVELOPED BECAUSE OF CERTAIN LITIGA TIONS. HOWEVER, THE ASSESSEE HAS CLAIMED THAT IT HAD CARRIED OUT CERTAIN ACTIVITIES, ON WHICH IT HAD SPENT SUM OF 2 LAKHS. THOUGH THE SAID EXPENDITURE HAS NOT BEEN ALLOWED IN THE HANDS OF ASSESSEE BUT THE QUESTION WHICH ARISES IS WHETHER WHERE THE ASSE SSEE HAD INITIATED ACTIVITIES OF CARRYING ON THE BUSINESS BY PURCHASING PLOT OF LAND, CAN THE BUSINESS OF PARTNERSHIP FIRM BE SAID TO HAVE BEEN STARTED. THE INTENTION OF PARTIES WA S CLEAR FROM THE FORMATION OF PARTNERSHIP FIRM AND THEREAFTER, PURCHASE OF PLOT OF LAND FOR DEVELOPMENT. MERELY BECAUSE THE SAME COULD NOT BE DEVELOPED AND WAS SOLD PERSE , DOES NOT MEAN THAT IT IS NOT THE BUSINESS ACTIVITY OF THE ASSESSEE OF HAVING PURCHASE D PLOT OF LAND AND HAVING SOLD THE SAME. IN THE ENTIRETY OF THE ABOVE SA ID FACTS AND CIRCUMSTANCES, WHERE THE INTENTION OF ASSESSEE WAS TO CARRY ON ITA NO. 1516 /P U N/20 1 6 M/S. HARIOM ASSOCIATES 7 THE BUSINESS ACTI VITY OF BUILDER AND DEVELOPER AND IN THAT CONTEXT IT HAVING PURCHASED THE PLOT OF LAND AND SOLD THE SAME, THEN THE GAIN ARISING THEREFROM IS TO BE TREATED AS BUSI NESS INCOME OF ASSESSEE. ACCORDINGLY, THE ORDER OF CIT(A) IS UPHELD AND THE GROUND OF APPEAL NO.2 IS THUS, DISMISSED. 1 1 . IN THE RESULT, APPEAL OF ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THIS 26 TH DAY OF FEBRUARY , 201 8 . SD/ - (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 26 TH FEBRUARY , 201 8 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 2 , THANE ; 4. THE PR. CIT - 2 , THANE ; 5. 6. , , , - / DR SMC , ITAT, PUNE; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE