M/S. PREM HASHMATRAI LALWANI, MUMBAI V. THE ADDL CIT RG 20(2), MUMBAI

ITA 2246/MUM/2007

• Counselvise Citation: 224619914 RSA 2007
• Duration Of Justice: 4 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 20-03-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RK GUPTA
• Keywords: Capital asset; Business income; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER ITA NO. 2246/MUM./2007 (ASSESSMENT YEAR : 2003-04 ) DATE OF HEARING: 5.5.2011 MR. PREM HASHMATRAI LALWANI 202, MAGNUM OPUS JUHU VERSOVA LINK ROAD SEVEN BUNGLOWS, ANDHERI (W) MUMBAI 400 061 AANPL3772F .. APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE-20(2), MUMBAI .... RESPONDENT ASSESSEE BY : MR. VIPUL B. JOSHI A/W MR. SAMEER G. DALAL REVENUE BY : MR. R.K. GUPTA O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL IS PREFERRED BY THE ASSESSEE, IS DIRECT ED AGAINST THE IMPUGNED ORDER DATED 19 TH DECEMBER 2006, PASSED BY THE COMMISSIONER (APPEALS)-XX, MUMBAI, FOR ASSESSMENT YEAR 2003-04. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS A N INDIVIDUAL DERIVING INCOME UNDER THE HEADS PROFITS & GAINS OF BUSINESS , CAPITAL GAINS AND INCOME FROM OTHER SOURCES . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND CONSTRUCTION OF PROPERTIES. HE IS C ARRYING ON DEVELOPMENT AND CONSTRUCTION ACTIVITIES IN HIS INDIVIDUAL CAPAC ITY IN PROPRIETARY FIRMS UNDER THE NAME AND STYLE OF BEMESAL BUILDERS , ASIAN DEVELOPMENT MR. PREM HASHMATRAI LALWANI ITA NO.2246/MUM./2007 2 CORPORATION , AND LEELA ENTERPRISES . THE ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS, WHETHER THE INCOME FROM SALE OF TDRS MADE BY THE ASSESSEE IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR UNDER THE HEAD CAPITAL GAINS . THE ASSESSEES CLAIM IS THAT IT SHOULD BE ASSESSE D UNDER THE HEAD INCOME FROM CAPITAL GAINS . THE ASSESSING OFFICER OBSERVED THAT THE SALE OF TDRS AMOUNTED TO ` 1,06,57,007 AND LAND AND PLOT DEVELOPMENT EXPENSES AMOUNTING TO ` 37,36,649, WAS SHOWN IN THE TRADING AND PROFIT & LOSS ACCOUNT OF BEMISAL BUILDERS AS A BUSINESS TRANSACTIONS. THE ASSESSING OFFICER, AT PAGE-3 OF THE ASSESSMENT ORDE R, HELD AS FOLLOWS:- ASSESSEES CONDUCT SHOWS THAT HE IS CARRYING ON CON STRUCTION AND DEVELOPMENT BUSINESS IN A SYSTEMATIC AND ORGANISED MANNER CONTINUOUSLY. EVEN THE ASSESSEE HIMSELF ADMITTED BU SINESS RECEIPTS AND EXPENDITURE. IT IS FURTHER OBSERVED THAT THE AU DIT REPORT OF M/S. BEMISAL BUILDERS IN RESPECT OF ACCOUNTING POLICIES OF REVENUE RECOGNITION STATES AS UNDER:- REVENUE RECOGNITION:- REVENUE IS RECOGNISED ON COMPLETION OF CONSTRUCTIO N OF BUILDING CONSIDERING THE ACCOUNTING POLICIES, CONDUCT OF TH E ASSESSEE AND ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IN HIS B OOKS OF ACCOUNT, IT IS CLEAR THAT THE PROFIT ON SALE OF TDR IS NOT LONG TERM CAPITAL GAIN BUT BUSINESS INCOME. IN VIEW OF FOREGOING DISCUSSION, I HOLD THAT GAIN ON SALE OF TDR AMOUNTING TO ` 69,20,358 IS BUSINESS INCOME AND IT IS TAXED ACCORDINGLY. 3. ON APPEAL, THE FIRST APPELLATE AUTHORITY, AT PARA-2 .3, HELD AS FOLLOWS:- 2.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE APPELLANTS SUBMISSIONS. AS I FIND THE CRUCIAL ISSUE HERE IS WH AT BUSINESS THE APPELLANT IS ENGAGED IN. TO THIS END, I FIND THAT A PPELLANT IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT THIS I S VERY CLEAR FROM THE BUSINESS ACTIVITIES OF THE PROPRIETARY FIRMS M/ S. ASIAN DEVELOPMENT CORPORATION AND M/S. BEMISAL BUILDERS. BOTH THESE F IRMS ARE ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT. AS POINTED OUT BY THE ASSESSING OFFICER, IT IS ALSO IMPORTANT TO NOTE THA T NONE OF THE PROPRIETARY FIRMS IS ENGAGED IN MANUFACTURING ACTIV ITY. ACCORDINGLY, THE APPELLANT BEING ENGAGED IN THE BUSINESS OF CONS TRUCTION AND DEVELOPMENT, THE SALE OF TDR WILL ALSO CONSTITUTE A BUSINESS ACTIVITY OF THE APPELLANT. I AGREE WITH THE ASSESSING OFFICER T HAT BEING IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT, THE APPEL LANT CANNOT TAKE THE STAND THAT THE SALE OF TDR WILL LEAD TO CAPITAL GAINS. TO THE APPELLANT, THE TDR WAS IN THE NATURE OF STOCK IN TR ADE. THIS FINDS ENDORSEMENT IN APPELLANTS OWN CONDUCT IN SHOWING T HE SALE PROCEEDS MR. PREM HASHMATRAI LALWANI ITA NO.2246/MUM./2007 3 OF TDR AND LAND AND PLOT DEVELOPMENT EXPENSES IN TH E TRADING AND PROFIT & LOSS ACCOUNT OF M/S. BEMISAL BUILDERS AS A BUSINESS TRANSACTION. AFTER HAVING HIMSELF RECOGNIZED THE PR OCEEDS AND THE RELATED EXPENSES AS A BUSINESS TRANSACTION, THE APP ELLANT CANNOT CLAIM THAT THE RESULTANT PROFIT WILL BE TAXABLE AS CAPITA L GAINS. THE AUDIT REPORT OF M/S. BEMISAL BUILDERS ON THE REVENUE RECO GNITION METHOD ALSO CONFIRMS THAT THE PROFIT ON SALE OF TDR ARISES OUT OF BUSINESS TRANSACTION. IN THE LIGHT OF ALL THESE FACTS AND TH AT THE PROFIT ON SALE OF TDR ARISES OUT OF BUSINESS TRANSACTION. IN THE LIGH T OF ALL THESE FACTS AND CIRCUMSTANCES, I FIND THAT THE ASSESSING OFFICE R HAS RIGHTLY HELD THAT THE GAIN ON SALE OF TDR IS APPELLANTS BUSINES S INCOME. THE APPELLANTS OTHER ARGUMENT ABOUT THERE BEING NO COS T OF ACQUISITION OF TDR IS NOT RELEVANT SINCE THE RECEIPT IN THE CASE I S TAXABLE AS BUSINESS INCOME AND NOT AS CAPITAL GAINS. THE DECISIONS RELI ED UPON BY THE APPELLANT IN SUPPORT OF HIS SUBMISSIONS ARE RELATED TO COMPUTATION OF CAPITAL GAINS AND ARE, THEREFORE, NOT APPLICABLE TO THE FACTS IN THE APPELLANTS CASE. IN APPELLANTS CASE, AS DISCUSSED ABOVE, THE GAIN IS NOT TAXABLE AS CAPITAL GAINS. IN THE LIGHT OF THE F ORGOING FACTS AND CIRCUMSTANCES, THIS GROUND OF APPEAL IS DISMISSED. 4. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL RAISING FOLLOWING GROUNDS OF APPEAL:- THE LEARNED CIT(A) ERRED IN CONFIRMING TREATMENT O F SURPLUS RECEIVED ON TRANSFER OF DEVELOPMENT RIGHTS (POPULARLY KNOWN AS TDR) AS BUSINESS INCOME INSTEAD OF LONG TERM CAPITAL GAIN. 5. LEARNED COUNSEL FOR THE ASSESSEE FILED ADDITION GRO UND, WHICH READS AS FOLLOWS 1. THE APPELLANT SUBMITS THAT THE INCOME ARISING ON TRANSFER OF THE CAPITAL ASSET, BEING TDR, WAS NOT LIABLE TO BE TAXE D AS CAPITAL GAIN AS THERE WAS NO COST OF ACQUISITION WITHIN THE MEANING OF SECTION 48 OF THE ACT. 2. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT SU BMITTED THAT IF AT ALL THE INCOME WAS LIABLE TO BE TAXED AS CAPITAL GAIN, THE BENEFIT OF INDEXATION SHOULD BE GRANTED TO THE APPELLANT. 6. LEARNED COUNSEL FILED PAPER BOOK RUNNING INTO 81 PA GES. HE ALSO FILED A NOTE ON THE CASE. 7. BEFORE US, MR. VIPUL B. JOSHI, LEARNED COUNSEL FOR THE ASSESSEE, SUBMITS THAT THE FACT THAT THE ASSESSEE WAS IN CONS TRUCTION BUSINESS WAS NOT A CONCLUSIVE FACTOR TO DECIDE WHETHER THE INCOME DE RIVED FROM THE SALE OF TDR WAS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS OR UNDER THE HEAD MR. PREM HASHMATRAI LALWANI ITA NO.2246/MUM./2007 4 INCOME FROM BUSINESS . HE TOOK THIS BENCH TO PARA-2.2 / PAGE-2 OF THE COMMISSIONER (APPEALS)S ORDER WHICH GIVES THE FACT S OF THIS CASE AND SUBMITS THAT THE LAND WAS ORIGINALLY ACQUIRED IN TH E YEAR 1984 AND AT THE TIME OF PURCHASE, THE LAND WAS RESERVED AS RECREATI ON GROUND AND NO CONSTRUCTION ACTIVITY WAS PERMITTED ON THE SAME. HE SUBMITTED THAT THE SAME WAS SURRENDERED AND THE ASSESSEE OBTAINED DEVE LOPMENT RIGHT CERTIFICATES BY WAY OF TDRS AND ON THE SALE OF THES E TDRS, CERTAIN INCOME WAS DERIVED. HE SUBMITS THAT THE ASSESSEE, OVER THE YEARS, HAS BEEN HOLDING ASSETS AS INVESTMENTS AND HE HAD SOLD PROPERTY IN T HE YEARS 2002-03, 2003- 04, 2004-05 AND 2005-06 AND HAS DECLARED THE INCOME FROM SALE OF PROPERTY UNDER THE HEAD LONG TERM CAPITAL GAIN . HE FILED A CHART AND FURTHER POINTS OUT THAT IN THE YEAR 2006-07, THE PLOTS AT MALAD AN D NADHAL WERE SOLD AND OFFERED TO TAX AS CAPITAL GAINS AND THE SAME WAS AC CEPTED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT. HE TOOK TH IS BENCH TO THE VARIOUS BALANCE SHEETS FILED BY THE ASSESSEE FOR DIFFERENT YEARS BEFORE THE ASSESSING OFFICER AND POINTS OUT THAT THE LAND AND PROPERTY W AS BEING SHOWN AS FIXED ASSETS IN ALL THE YEARS. HE REFERS TO PAGES-51, 62, 79, 57 AND 55 AND TRIED TO DEMONSTRATE THAT DISCLOSURE WAS MADE AS INVESTMENT IN ALL THE YEARS. HE FURTHER SUBMITS THAT WHEN IN THE EARLIER ASSESSMENT YEAR, INCOME ON SALE OF SOME PLOTS WAS ACCEPTED AS CAPITAL GAINS, THE QUEST ION OF TREATING THE SAME AS INCOME FROM BUSINESS IN THIS YEAR DOES NOT ARISE . HE FURTHER SUBMITS THAT ENTRIES IN THE BOOKS OF ACCOUNT IS OF NO RELEVANCE AND FOR THE SAME, HE RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN KEDARNA TH JUTE MFG. CO. LTD. V/S CIT, (1971) 82 ITR 363 (SC) AND THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN FORT PROPERTIES PVT. LTD. V/S CIT, (1 994) 208 ITR 232 (BOM.). ADDITIONALLY, HE SUBMITS THAT, AS THERE IS NO COST OF ACQUISITION, THE QUESTION OF DETERMINATION OF CAPITAL GAINS DOES NOT ARISE. 8. LEARNED DEPARTMENTAL REPRESENTATIVE, MR. R.K. GUPTA , ON THE OTHER HAND, CONTROVERTED THE SUBMISSIONS AND POINTED OUT THAT THE DEVELOPMENT EXPENDITURE IN QUESTION WAS CLAIMED IN THE FIRM BEM ISAL BUILDERS. HE POINTS OUT THAT IN THE PERSONAL ACCOUNT OF MR. PREM H. LAL WANI, THESE ASSETS WERE NOT DISCLOSED AND THE ASSETS IN QUESTION WAS A BUSI NESS ASSET DISCLOSED IN THE CASE OF BEMISAL BUILDERS, WHICH WAS DOING BUSIN ESS OF BUILDERS AND MR. PREM HASHMATRAI LALWANI ITA NO.2246/MUM./2007 5 CONTRACTORS. HE SUBMITS THAT THE FACT THAT THE ASSE SSEE IS IN THE BUSINESS OF CONSTRUCTION IS NOT IN DISPUTE. HE RELIED ON THE OR DERS OF THE AUTHORITIES BELOW AS WELL AS DISCLOSURE MADE BY THE ASSESSEE IN ITS OWN BOOKS OF ACCOUNT. ON THE ALTERNATIVE GROUND, THE LEARNED DEP ARTMENTAL REPRESENTA- TIVE SUBMITS THAT THE ASSESSEE HAS PURCHASED A PLOT OF LAND AND THIS PLOT OF LAND WAS SURRENDERED AND TDRS OBTAINED. HENCE, THE ARGUMENT THAT THERE IS NO COST OF ACQUISITION, IS FACTUALLY INCORRECT. 9. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD, ORDERS OF THE AUTHORITIES BELOW, AND THE CASE LAWS CITED BEFO RE US, WE HOLD AS FOLLOWS:- 10. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. IT IS ALSO ENGAGED IN T HE BUSINESS OF EXPORT OF WALL CLOCK AND CASSEROLES. THE ASSESSEE HAS PROPRIE TARY FIRMS WHICH ARE ENGAGED IN THE BUSINESS OF CONSTRUCTION. ONE SUCH F IRM IS BEMISAL BUILDERS. WE OBSERVE FROM THE PERSONAL BALANCE SHEET OF THE A SSESSEE THAT CERTAIN ASSETS ARE LISTED AS INVESTMENTS. IN THE PROPRIETAR Y CONCERNS BALANCE SHEET, CERTAIN BUSINESS ASSETS ARE SHOWN. AT PAGE-38 OF TH E PAPER BOOK, THE BALANCE SHEET AS ON 31 ST MARCH 2003, IS GIVEN. UNDER ASSETS SIDE, INVESTMENT IN IMMOVABLE PROPERTIES IS DISCLOSED IN APPENDIX.IN. AT PAGES-46 & 47, SCHEDULE-IN, READS AS FOLLOWS:- UPDATED BALANCES OF A/C UNDER INVEST. IN IMMOVABLE PROP . A/CODE ACCOUNT HEAD DEBIT CREDIT 77 SHOP NO.5 AT NEELAM APARTMENT MUMBAI 71000.00 78 OFFICE AT NEELAM APARTMENT, MUMBAI 9700.00 79 PLOT AT ISAMBA-ISAMBA VIL 227299.00 80 PLOT AT KAMSHET-KAMSHET 316511.60 81 PLOT AT KHARI MACHINE KHARI 165934.00 82 PLOT AT KONDIVITA, MUMBAI 163232.00 83 PLOT AT MIDC AREA, MUMBAI 66947.00 TOTAL ` 1128623.60 00 MR. PREM HASHMATRAI LALWANI ITA NO.2246/MUM./2007 6 A/CODE ACCOUNT HEAD DEBIT CREDIT TOTAL B/F 1128623.68 00 84 FLAT AT KAVITA APARTMENT 850000.00 85 PLOT AT VAPI-GUJARAT 31000.00 87 PLOT AT VIRAR-MAHARASHTRA 110175.00 88 PLOT AT 130-B, HISSA NO.50, LONAWALA 130949.00 89 PLOT NO.130 PART-A, LONAWALA 66561.45 90 SHOP AT ASHOK SHOPING CENTRE, MUMBAI 900000.00 93 SHOP NO.3, AT NEELAN APARTMENT, MUMBAI 62000.00 95 PROPERTY AT MALAD-MUMBAI 1040055.55 97 PLOT AT KANDIVALLI 411667.00 4731031.60 00 THE PLOT ON WHICH TDRS HAVE BEEN OBTAINED, IS NOT A PART OF THIS APPENDIX. THUS, THE ASSESSEE HAS NOT SHOWN THIS PLO T AS A PERSONAL INVESTMENT. INVESTMENT IN PROPRIETARY/ PARTNERSHIP FIRMS IS GIVEN IN APPENDIX.I AND THE SAME IS EXTRACTED BELOW FOR READ Y REFERENCE:- UPDATED BALANCES OF A/C UNDER INV. IN PROP./PART.FI RMS A/CODE ACCOUNT HEAD DEBIT CREDIT 151 ASIAN DEVP. CORP. MUMBAI 15244100.38 152 ASIAN HOTELS CORP. MUMBAI 10000.00 156 UTILEX EXPORTS MUMBAI 9664115.94 157 LEELA ENTERPRISES, MUMBAI 385907.78 158 NEDL EXPORT, MUMBAI 143994.05 181 BEMISAL BUILDERS 83996.96 GRAND TOTAL 15398094.43 10134020.60 HERE, THE ASSESSEE HAS SHOWN THE INVESTMENT IN BEM ISAL BUILDERS AS A BUSINESS INVESTMENT AND NOT AS A PERSONAL INVESTMEN T. THE BUSINESS ASSETS OF THE PROPRIETARY CONCERNS ARE NOT SHOWN AS ASSETS OF THE ASSESSEE, ONLY THE MR. PREM HASHMATRAI LALWANI ITA NO.2246/MUM./2007 7 NET INVESTMENT IN THE CONCERN IS DISCLOSED. COMING TO THE TRADING ACCOUNT, PROFIT & LOSS ACCOUNTS AND BALANCE SHEET OF BEMISAL BUILDERS, THIS PLOT OF LAND, FOR THE ASSESSMENT YEAR 2000-01, IS DISCLOSED AS APPENDIX.LP AT PAGE- 57 OF THE PAPER BOOK, WHICH IS EXTRACTED BELOW FOR READY REFERENCE:- UPDATED BALANCES OF A/C UNDER LAND PROP. DEVP. EXP ENSES A/CODE ACCOUNT HEAD DEBIT CREDIT 37362 PLOT DEVMT EXP. 1225 (PART) RG 1727199.00 37364 ADV. FOR PLOT-1225 (PART) RG 1109450.00 GRANT TOTAL 2836649.00 00 AFTER SALE IN THE ASSESSMENT YEAR 2003, THE SALE A MOUNT SHOWN AS INCOME IN THE PROFIT & LOSS ACCOUNT AND EXPENDITURE INCURRED ON LAND AND PLOT DEVELOPMENT IS DEBITED IN PROFIT & LOSS ACCOUN T. FOR THE OTHER YEARS ALSO, THE LAND IN QUESTION HAS BEEN SHOWN UNDER THE HEAD LAND AND PROPERTY DEVELOPMENT EXPENSES . THUS, TO CLAIM THAT THE ABOVE LAND WAS AN INVESTMENT AND NOT A TRADING ASSET OF THE ASSESSEE, IN OUR OPINION, IS AGAINST THE FACTS OF THE CASE. THUS, WE FULLY AGREE WITH TH E CONCLUSION DRAWN BY THE FIRST APPELLATE AUTHORITY AT PARA-2.3, WHICH IS ALR EADY EXTRACTED ABOVE AND DISMISS THE PLEA OF THE ASSESSEE. INCOME ARISING ON SALE OF TDR, IN OUR OPINION, HAS RIGHTLY BEEN BROUGHT TO TAX UNDER THE HEAD INCOME FROM BUSINESS . THIS GROUND OF APPEAL IS, THUS, DISMISSED. 11. COMING TO THE ADDITIONAL GROUND RAISED BY THE ASSES SEE, THE FACT REMAINS THAT THE ASSESSEE PURCHASED A PLOT OF LAND FROM BOMBAY MUNICIPAL CORPORATION FOR A PARTICULAR COST AND THEREAFTER, I NCURRED CERTAIN EXPENDITURE ON THE SAME. NOW TO CLAIM THAT THERE WAS NO COST IS FACTUALLY INCORRECT. THIS GROUND IS DEVOID OF MERIT AND, CONSEQUENTLY, THE SA ME IS DISMISSED AS SUCH. IN ANY EVENT, AS THE INCOME IS TO BE ASSESSED AS BU SINESS INCOME, THIS GROUND IS INFRUCTUOUS. MR. PREM HASHMATRAI LALWANI ITA NO.2246/MUM./2007 8 12. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MAY 2011 SD/- ASHA VIJAYRAGHAVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 20 TH MAY 2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, C BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI