Jeeva Vadivelu, Bangalore V. ACIT, Bangalore

ITA 255/BANG/2011

• Counselvise Citation: 25521114 RSA 2011
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 10-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SARAVANAN B JT
• Assessee Lawyers: R E BALASUBRAMANIYAN
• Keywords: Business income; Depreciation; Additional evidence; Cost of acquisition; Date of conversion; Fair market value
• Section: 45(2); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NOS.255/BANG/2011 ASSESSMENT YEAR : 2007-08 SMT. JEEVA VADIVELU, NO.1, DODDABOMMASANDRA VIDYARANYAPURA MAIN ROAD, BANGALORE 560 097. PAN : ACNPJ 9668E VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(1), BANGALORE. APPELLANT RESPONDENT ITA NOS.306/BANG/2011 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(1), BANGALORE. VS. SMT. JEEVA VADIVELU, NO.1, DODDABOMMASANDRA VIDYARANYAPURA MAIN ROAD, BANGALORE 560 097. PAN : ACNPJ 9668E APPELLANT RESPONDENT ASSESSEE BY : SHRI R.E. BALASUBRAMANIYAN, C.A. REVENUE BY : SHRI SARAVANAN B., JT. CIT(DR) DATE OF HEARING : 21.08.2012 DATE OF PRONOUNCEMENT : 07.09.2012 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA 255/BANG/2011 IS AN APPEAL BY THE ASSESSEE, W HILE ITA 306/BANG/2011 IS AN APPEAL BY THE REVENUE. BOTH TH ESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 22.11.2010 OF THE CIT(APPEALS)-III, BANGALORE RELATING TO A.Y. 2007-08. ITA NOS.255 & 306/BANG/11 PAGE 2 OF 22 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS FOLLOWS:- THE APPELLANT OBJECTS TO THE ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS) -III, BANGALORE, ON THE GROUND S THAT: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS ERRONEOUS AND OPPOSED TO FACTS AND LAW IN AS MUCH AS THE RIGHT OF THE APPELLANT TO TREAT AN ASSET AS INVESTMENT OR STOCK IN TRADE WAS NOT RECOGNIZED. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN NOT CONSIDERING GAINS ON SALE OF PROPERTY HELD FOR MORE THAN THREE YEARS AS LONG TERM CAPITAL GAINS. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN NOT ALLOWING THE FAIR MARKET VALUE OF THE APARTMENTS AS ON THE DATE OF ENTERING INTO THE JOINT VENTURE AGRE EMENT TO BE DEDUCTED FROM THE SALE CONSIDERATION. 4. THE ACTION OF THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) IN UPHOLDING THE UNSUBSTANTIATED CONTENTI ON OF THE ASSESSING OFFICER THAT THE APPELLANT WAS IN RECEIPT OF ON MONEY IS ERRONEOUS INASMUCH AS HE HAS HIMSELF RECORDED A FINDING OF FACT TO THE CONTRARY. THE APPELLANT PRAYS FOR LEAVE TO ADD, MODIFY, DELET E OR INTRODUCE ADDITIONAL GROUNDS OF APPEAL AT ANY TIME BEFORE THE APPEAL IS DISPOSED OFF. 3. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS:- 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE AND IS BASED MERELY ON CONJUNCTUR E AND SURMISES. 2. THE CIT (A) ERRED IN LAW AND ON THE FACTS OF TH E CASE IN HOLDING THE ENTIRE ADDITIONAL TURNOVER OF RS.83,60, 865 CAN NOT BE CONSIDERED AS PROFIT AND ALLOWING FURTHER EXPENDITU RE OF RS.41,80,432/- UNDER THE HEAD INCOME FROM BUSINESS, ON ESTIMATION BASIS WITHOUT ANY PROOF REGARDING ADDITI ONAL EXPENDITURE OVER AND ABOVE THE EXPENDITURE ALLOWED BY THE AO. ITA NOS.255 & 306/BANG/11 PAGE 3 OF 22 3. THE CIT(A) ERRED IN DISTURBING THE TRADING ACC OUNT REDRAWN BY THE AO AND ALLOWING A GROSS MARGIN OF 50 % OF ADDITIONAL RECEIPTS OF RS.83,60,865/-, ESPECIALLY W HEN THE OPENING STOCK, THE PURCHASES, THE SALES AND THE CLO SING STOCK HAVE BEEN WORKED OUT BY THE AO BASED ON THE FACTS OF THE CASE. THERE IS NO MATERIAL ON RECORD TO JUSTIFY THE RELIEF OF R S.41,80,432/- GIVEN BY THE CIT(A). 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT( A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND TH AT OF THE ASSESSING OFFICER MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND, I OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 4. THE FACTS AND CIRCUMSTANCES GIVING RISE TO THE A BOVE APPEALS ARE AS FOLLOWS. THE ASSESSEE IS AN INDIVIDUAL. SHE WAS ORIGINALLY CARRYING ON BUSINESS OF TRADING IN TIMBER AND GRANITES UNDER TH E NAME AND STYLE, MAHESH TIMBERS & GRANITES. THE ASSESSEE WAS ALSO P URCHASING AND SELLING PROPERTIES. FOR THE A.Y. 2007-08, THE ASSE SSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF Q 13,02,725. THE ASSESSEE FILED AUDITORS REPORT U/S. 44AB OF THE ACT ALONG WITH THE RETURN O F INCOME, WHEREIN THE NATURE OF BUSINESS HAS BEEN DESCRIBED BY THE AUDITO RS AS DEALER IN TIMBER AND GRANITES. ALONG WITH THE RETURN OF INCOME, TH E AUDITED PROFIT & LOSS ACCOUNT AND THE BALANCE SHEET AS ON 31.03.2007 WERE ALSO FILED. THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE AS ON 31.03.2003 AND THE TRADING ACCOUNT AS ON THAT DATE WAS AS FOLLOWS:- ITA NOS.255 & 306/BANG/11 PAGE 4 OF 22 PROFIT & LOSS A/C FOR THE YEAR ENDED 31ST MARCH 200 1 INCOME: RUPEES GROSS PROCEEDS 19,044,615.00 ------------------ TOTAL 19,044,615.00 ------------------ EXPENDITURE DIRECT EXPENSES 3 15,202,400.00 ADMINISTRATIVE EXPENSES 4 1,888,294.00 FINANCIAL CHARGES 5 74,691.25 DEPRECIATION 2 175,375.00 ------------------- TOTAL 17,340,850.25 ------------------- NET PROFIT TRANSFERRED TO CAPITAL ACCOUNT 1.803.76 4.75 FURTHER, SCHEDULE 3 OF THE P & L ACCOUNT ATTACHED T O THE RETURN OF INCOME WAS AS FOLLOWS:- SCHEDULE 3 DIRECT EXPENSES: OPENING STOCK 48,600.00 ADD: PURCHASES 13,379,600.00 13,428,200.00 LESS: CLOSING STOCK 161,750.00 13,266,450.00 5. THE ASSESSING OFFICER WANTED TO VERIFY THE CORRE CTNESS OF THE TRADING, PROFIT & LOSS ACCOUNT AS ON 31.03.2007 FIL ED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME. THE ASSESSEE COULD NOT SUBSTANTIATE THE OPENING STOCK DISCLOSED IN THE TRADING ACCOUNT. TH E ASSESSEE COULD NOT ALSO SUBSTANTIATE THE PURCHASES OF Q 1,33,79,600 DISCLOSED IN THE TRADING ACCOUNT, BUT COULD SUBSTANTIATE ONLY PURCHASES TO T HE TUNE OF Q 89,84,950. THE CLOSING STOCK ALSO COULD NOT BE SUBSTANTIATED B Y THE ASSESSEE. IN VIEW ITA NOS.255 & 306/BANG/11 PAGE 5 OF 22 OF THE ABOVE DISCREPANCIES, THE AO REJECTED THE BOO KS OF ACCOUNT AS NOT COMPLETE AND CORRECT BY EXERCISING HIS POWERS U/S. 145 OF THE INCOME TAX ACT, 1961 (THE ACT). THE AO, THEREAFTER, WORKED OU T A TRADING, PROFIT & LOSS ACCOUNT ON THE BASIS OF TRANSACTIONS THAT THE ASSES SEE INDULGED IN DURING THE PREVIOUS YEAR. 6. DURING THE PREVIOUS YEAR, THE ASSESSEE HAD ENTER ED INTO FOLLOWING TRANSACTIONS(CATEGORIZED AS A, B AND C) :- A. PROPERTY BOUGHT AND SOLD WITHIN THE PREVIOUS Y EAR UNDER ASSESSMENT . ___________________________________________________ _________ ITA NOS.255 & 306/BANG/11 PAGE 6 OF 22 7. ON THE BASIS OF THE ABOVE DETAILS, THE AO PROCEE DED TO RECAST THE TRADING & PROFIT & LOSS ACCOUNT OF THE ASSESSEE. A S CAN BE SEEN FROM THE AFORESAID THREE CHARTS WHICH DEPICT THE SALES DONE BY THE ASSESSEE DURING THE PREVIOUS YEAR, THE TOTAL SALES WERE Q 1,06,83,750. THE TRADING ACCOUNT FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCO ME HOWEVER SHOWED SALES TO THE TUNE OF Q 1,90,44,615, THE DIFFERENCE VIZ., A SUM OF Q 83,60,865 WAS PRESUMED BY THE AO TO BE ON-MONEY RECEIVED BY T HE ASSESSE IN THE TRANSACTION OF SALE SHOWN IN THE BOOKS OF ACCOUNTS. IT WAS THE STAND OF THE ASSESSEE BEFORE THE AO THAT THE FINANCIAL STATEMENT S WERE PREPARED BY A C.A., AND THAT THE ASSESSEE DOES NOT KNOW THE BASIS ON WHICH THE C.A. HAD GIVEN THE SALES FIGURE IN THE AUDITED TRADING, PROF IT & LOSS ACCOUNT FILED ALONG WITH THE RETURN. IT WAS THE CASE OF THE ASS ESSEE THAT THE ASSESSEE WAS NOT AN EDUCATED LADY AND NOT AWARE OF THE FINER ASPECTS OF ACCOUNTANCY. IT WAS THE PLEA OF THE ASSESSEE THAT THE CA DID NOT COOPERATE WITH THE ASSESSEE AND ALSO DID NOT APPEAR BEFORE THE AO TO GIVE ITA NOS.255 & 306/BANG/11 PAGE 7 OF 22 EXPLANATION OF VARIOUS ASPECTS OF THE TRADING, PROF IT & LOSS ACCOUNT FILED ALONG WITH THE RETURN OF INCOME. 8. THE ASSESSEE WAS ALSO BEEN ENGAGED IN THE BUSINE SS OF TIMBER AND GRANITES. THIS BUSINESS HAD BEEN DISCONTINUED IN T HE YEAR 2003. THOUGH THE ASSESSEE TRIED TO PLEAD BEFORE THE AO THAT THE DIFFERENCE IN THE RECEIPTS VIZ., Q 83,60,865 COULD BE SALE PROCEEDS OF TIMBER BUSINES S, BUT THE ASSESSEE COULD NOT SUBSTANTIATE THE SAME. THE AO T HEREFORE ADOPTED THE SALES FIGURE AT A SUM OF Q 1,90,44,615 AS DISCLOSED IN THE TRADING, PROFIT & LOSS ACCOUNT FILED ALONG WITH THE RETURN OF INCOME. 9. WITH REGARD TO THE OPENING STOCK, THE AO NOTICED THAT THE ASSESSEE PURCHASED 6 PROPERTIES AS STATED IN PART B OF THE L IST OF TRANSACTIONS DONE BY THE ASSESSEE DURING THE PREVIOUS YEAR REPRODUCED IN THE EARLIER PART OF THIS ORDER. THESE PROPERTIES HAD BEEN PURCHASED MU CH EARLIER TO THE PREVIOUS YEAR AND THE COST OF ACQUISITION BY THE AS SESSEE WAS A SUM OF Q 10,16,165. THE ASSESSEE HAD CLAIMED THAT SHE HAD I NCURRED THE FOLLOWING EXPENSES ON THE AFORESAID PROPERTIES:- 10. THE ASSESSEE COULD NOT SUBSTANTIATE THE EXPENSE S INCURRED ON CONSTRUCTION OF COMPOUND WALL, CONVERSION CHARGES A ND FILLING OF MUD, ITA NOS.255 & 306/BANG/11 PAGE 8 OF 22 THEREFORE THE AO ALLOWED A SUM OF Q 5,43,319 AS EXPENSES INCURRED ON THE AFORESAID 6 PROPERTIES AND THUS ARRIVED AT THE OPEN ING STOCK OF Q 15,59,484 (10,16,165 + 5,43,319). 11. AS FAR AS THE PURCHASES ARE CONCERNED, THE AO F OUND THAT THE ASSESSEE COULD FURNISH EVIDENCE OF PURCHASES DURING THE YEAR ONLY TO THE EXTENT OF Q 89,84,950. THEREFORE HE DID NOT ACCEPT THE PURCHA SES OF Q 1,33,79,600 GIVEN IN THE TRADING & PROFIT & LOSS AC COUNT FILED ALONG WITH THE RETURN OF INCOME. THE AO ADOPTED THE PURCHASES DUR ING THE YEAR OF Q 89,84,950. 12. AS FAR AS THE CLOSING STOCK IS CONCERNED, THE A O FOUND THAT DURING THE PREVIOUS YEAR, THE ASSESSEE HAD MADE PURCHASES OF Q 89,84,950 AND OUT OF SUCH PURCHASES, SALES WERE MADE TO THE EXTEN T OF Q 25,18,585. THIS WILL BE EVIDENT FROM A PERUSAL OF PART A OF THE LIS T OF PROPERTIES PURCHASED AND SOLD BY THE ASSESSEE DURING THE PREVIOUS YEAR, WHICH WE HAVE GIVEN IN THE EARLIER PART OF THIS ORDER. 13. AFTER EXCLUDING THE AFORESAID SALES FIGURE, THE AO ARRIVED AT A CLOSING STOCK OF Q 64,66,365. THE AO RECAST THE TRADING & PROFIT & L OSS ACCOUNT AND DETERMINED THE INCOME AS FOLLOWS:- THUS THE GROSS PROFIT OF THE ASSESSEE WAS ARRIVED A T RS. 1,49,66,546/-. THE ASSESSEE HAD DEBITED CERTAIN EXPENDITURE IN THE PROFIT AND LOSS ITA NOS.255 & 306/BANG/11 PAGE 9 OF 22 ACCOUNT. THE FOLLOWING EXPENDITURE DEBITED TO THE P & L ACCOUNT BY THE ASSESSEE WAS CONSIDERED AND ALLOWED AS DEDUCTION TO ARRIVE AT THE NET PROFIT. 14. BEFORE THE AO, ONE OF THE STAND TAKEN BY THE AS SESSEE WAS THAT IN RESPECT OF PART B OF THE LIST OF PROPERTIES PURCHAS ED AND SOLD BY THE ASSESSEE GIVEN IN THE EARLIER PART OF THIS ORDER, T HE PROPERTIES WERE NOT HELD AS STOCK-IN-TRADE BUT WERE HELD AS INVESTMENTS AND WERE PURCHASED LONG BACK WITHOUT ANY INTENTION OF DOING BUSINESS IN THO SE PROPERTIES. THE ASSESSEE THEREFORE SUBMITTED THAT THE PROPERTIES HA VE TO BE CONSIDERED AS INVESTMENTS AND CAPITAL GAIN ON THE SALE OF THESE P ROPERTIES HAVE TO BE COMPUTED. THIS PLEA WAS REJECTED BY THE AO AND HE HELD THAT THE PROPERTIES WERE HELD BY THE ASSESSEE ONLY AS STOCK- IN-TRADE AND THAT THE ASSESSEE ACQUIRED THESE PROPERTIES ONLY WITH AN INT ENTION TO DO BUSINESS. 15. THE ASSESSEE ALSO SUBMITTED THAT IN RESPECT OF THE PART B AND PART C OF THE LIST OF PROPERTIES PURCHASED AND SOLD BY THE ASSESSEE DURING THE PREVIOUS YEAR SET OUT IN EARLIER PART OF THIS ORDER , THE SAME WERE CONVERTED AS STOCK-IN-TRADE ONLY DURING THE PREVIOUS YEAR AND THEREFORE AS PER THE PROVISIONS OF SECTION 45(2) OF THE ACT, THE PROFIT ON THIS TRANSACTION SHOULD ITA NOS.255 & 306/BANG/11 PAGE 10 OF 22 BE TAXED PARTLY AS LONG TERM CAPITAL GAIN AND PARTL Y AS BUSINESS INCOME. SINCE THE COST OF THE PROPERTY AND SALE VALUE OF PR OPERTIES WERE SIMILAR THERE WAS NO BUSINESS INCOME AND ONLY CAPITAL GAIN HAD TO BE COMPUTED. THIS PLEA WAS ALSO REJECTED BY THE AO. 16. ANOTHER PLEA PUT FORTH BY THE ASSESSEE BEFORE T HE AO WAS THAT IN RESPECT OF TRANSACTIONS STATED IN PART C OF THE CHA RT GIVEN IN THE EARLIER PART OF THIS ORDER, THE SAME COMPRISED OF 5 FLATS WHICH WAS SOLD DURING THE PREVIOUS YEAR. THE ASSESSEE SUBMITTED THAT IT OWNE D A PIECE OF LAND. THE ASSESSEE ENTERED INTO JOINT DEVELOPMENT AGREEMENT D ATED 20.10.03 WITH M/S. NOVA HAMLET LTD. AS PER THE JOINT DEVELOPMENT AGREEMENT, THE TOTAL BUILT UP AREA THAT COULD BE CONSTRUCTED ON THE PIEC E OF LAND OWNED BY THE ASSESSEE WAS 28,880 SQ.FT. THE ASSESSEE AGREED TO SELL 70% OF UNDIVIDED SHARE OF LAND OF THE PIECE OF PROPERTY OWNED BY HER TO THE DEVELOPER IN CONSIDERATION OF THE DEVELOPER CONSTRUCTING AND DEL IVERING 8 APARTMENTS MEASURING TOTAL AREA OF 8664 SQ.FT. TO THE ASSESSEE . THE 5 FLATS SOLD BY THE ASSESSEE DURING THE PREVIOUS YEAR WERE OUT OF THE 8 FLATS WHICH THE ASSESSEE WAS TO GET FROM THE DEVELOPER. THE ASSESS EE SUBMITTED THAT THE COST OF ACQUISITION OF 5 FLATS SHOULD BE ALLOWED AS A DEDUCTION IN COMPUTING THE BUSINESS INCOME OF THE ASSESSEE. THIS PLEA OF THE ASSESSEE WAS ALSO REJECTED BY THE ASSESSEE. 17. AGGRIEVED BY THE AFORESAID ACTION OF THE AO, TH E ASSESSEE FILED APPEAL BEFORE THE CIT(APPEALS). BEFORE THE CIT(A), THE ASSESSEE EXPLAINED AS TO HOW THE CA REFUSED TO HANDLE THE CA SE OF THE ASSESSEE AND ALSO HOW THE ASSESSEE WAS NOT IN A POSITION TO EXPLAIN THE BASIS ON WHICH THE CA HAD FILED THE TRADING & PROFIT & LOSS ACCOUNT FILED ALONG WITH ITA NOS.255 & 306/BANG/11 PAGE 11 OF 22 THE RETURN OF INCOME. THE ASSESSEE AGAIN REITERATE D THE PLEA THAT SHE HAD TAKEN BEFORE THE AO. THE ASSESSEE HOWEVER ADMITTED THAT THE BUSINESS OF DEALING IN TIMBER AND GRANITE WAS DISCONTINUED LONG BACK AND THAT THE ONLY BUSINESS WAS THE BUSINESS OF PURCHASE AND SALE OF P ROPERTY CARRIED ON BY THE ASSESSEE DURING THE PREVIOUS YEAR. THE SUBMISS IONS OF THE ASSESSEE BEFORE THE CIT(A) WERE AS FOLLOWS:- 1. AS FAR AS TRANSACTIONS SET OUT IN PART-A OF TH E CHART SET OUT IN THE EARLIER PART OF THIS ORDER, THE ASSESSEE CONCEDED THAT THE AO HAS TAKEN THE CORRECT STAND. 2. IN RESPECT OF TRANSACTIONS IN PART-B OF THE CHA RT SET OUT IN THE EARLIER PART OF THIS ORDER, THE ASSESSEE CONTENDED THAT THE ASSESSEE WAS HOLDING THE PROPERTIES FOR A VERY LONG TIME, WITH SOME BEING HELD FOR MORE THAN 10 YEARS AND AS SUCH, THEY SHOULD BE TAXED AS LONG TERM CAPITAL GAINS WITH IND EXATION AND NOT AS BUSINESS PROFITS. 3. IN RESPECT OF THE TRANSACTIONS IN PART-C OF THE CHART SET OUT IN THE EARLIER PART OF THIS ORDER, THE ASSESSEE SUBMIT TED THAT COST OF THE LAND WHICH WAS GIVEN AWAY FOR JOINT DEVELOPMENT HAS NO RELEVANCE IN ARRIVING AT THE GAIN ON THE TRANSFER O F THE HOUSES WHICH THE ASSESSEE OBTAINED AS HER SHARE OF JOINT D EVELOPMENT. IT WAS CONTENDED THAT THE ASSESSEE ENTERED INTO A J OINT DEVELOPMENT AGREEMENT IN THE YEAR 2003 WITH A DEVEL OPER AND AS A CONSIDERATION OF PARTING WITH 70% OF HER INTER EST IN THE LAND, THE ASSESSEE OBTAINED THE APARTMENTS WHICH WERE SOL D DURING THE YEAR. IT WAS CONTENDED THAT, BY PUTTING THE DE VELOPER IN POSSESSION OF THE LAND IN PART PERFORMANCE OF THE S AID DEVELOPMENT AGREEMENT, THE TRANSFER OF THE LAND I S DEEMED TO HAVE TAKEN PLACE WITHIN THE MEANING OF THE SECTION 2(47)(V) OF THE INCOME TAX ACT AND THE COMMITMENT ON THE PART O F THE DEVELOPER TO HAND OVER THE SPECIFIED NUMBER OF APAR TMENTS TO THE ASSESSEE AT THE END OF THE PROJECT SHOULD BE TR EATED AS THE CONSIDERATION FOR THE SAID TRANSFER OF THE LAND. IT WAS CONTENDED THAT THE COST OF ACQUISITION OF THE APARTMENTS SOLD BY THE ASSESSEE DURING THE YEAR SHOULD BE TAKEN AS THE FAI R MARKET VALUE OF THESE APARTMENTS IN 2003 AND NOT THE COST OF THE LAND AS TAKEN BY THE AO. 4. THE ASSESSEE FURTHER SUBMITTED THAT THE INACCUR ACIES IN THE ACCOUNTS WERE NEVER DENIED BY THE ASSESSEE SINCE SH E WAS UNDER THE BONA FIDE BELIEF THAT THE CHARTERED ACCOU NTANT TO WHOM SHE ENTRUSTED THE WORK WOULD HAVE DONE EVERYTH ING CORRECTLY. THE ASSESSING OFFICER IN HIS ORDER HAS A LSO RECORDED A ITA NOS.255 & 306/BANG/11 PAGE 12 OF 22 CLEAR FINDING OF FACT THAT THE ACCOUNTS AND FINANCI AL STATEMENTS FURNISHED BY THE ASSESSEE ARE NOT RELIABLE AND HAS PROCEEDED TO COMPLETE THE ASSESSMENT TO THE BEST OF HIS JUDGEMEN T. AS SUCH, THE ASSESSING OFFICERS VIEW THAT THE PROPERTIES SO LD BY THE ASSESSEE DURING THE YEAR WERE NOT SHOWN AS INVESTME NTS IN THE BALANCE SHEET OF THE ASSESSEE IS NOT REASONABLE. IT WAS SUBMITTED THAT HE CANNOT FOR HIS OWN CONVENIENCE, P LACE RELIANCE UPON A DOCUMENT WHICH HE HIMSELF HAD FOUND TO BE UNRELIABLE. HAVING ONCE REJECTED THE ACCOUNTS AS UN RELIABLE AND PROCEEDED TO MAKE AN ASSESSMENT TO THE BEST OF HIS JUDGEMENT, HE SHOULD HAVE BROUGHT TO TAX, THE TRANSACTIONS THA T CAME TO HIS NOTICE, UNDER THE PROPER HEADS OF INCOME. 5. THE ASSESSEE ALSO OBJECTED TO THE ADDITION OF RS.83,60,865 TO THE TURNOVER CONSIDERED BY THE AO A S UNREASONABLE. IT WAS ARGUED THAT ONCE THE ACCOUNTS SUBMITTED BY THE ASSESSEE ARE REJECTED AS FABRICATED AND UNRE LIABLE, IT IS NOT OPEN TO THE AO TO RELY UPON THE SAME STATEMENTS AGAIN ACCORDING TO HIS CONVENIENCE. TOWARDS THIS, THE ASS ESSEE RELIED UPON THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT REPORTED IN (1998) 232 ITR 776 , WHICH HAS BEEN REFERRED TO IN 316 ITR 127 BY THE PUNJAB & HARYANA HIGH COURT. 5.4. IN THE ALTERNATIVE, IT WAS PLEADED THAT EVEN IF IT IS ASSUMED THAT THE ASSESSEE RECEIVED ON MONEY DURIN G THE COURSE OF REAL ESTATE TRANSACTIONS, THEN IT FOLLOWS THAT THE ASSESSEE WOULD HAVE ALSO PAID SIMILAR AMOUNTS AT TH E TIME OF PURCHASE. ACCORDINGLY, IT WAS SUBMITTED THAT THE AM OUNT TO BE BROUGHT TO BE TAX, IF ANY SHOULD ONLY BE A REASONAB LE GROSS MARGIN AND NOT THE ENTIRE AMOUNT AS HELD BY THE AO. IT WAS ALSO SUBMITTED THAT IT WAS INCUMBENT UPON THE INCOME TAX AUTHORITIES TO LEVY AND COLLECT ONLY THAT TAX THAT CAN BE CONSI DERED FAIR AND JUST AND THE STATUTE DOES NOT ENVISAGE THAT THE CIT IZEN SHOULD BE TAXED AT A HIGHER AMOUNT, EVEN IF THE ASSESSEE HAS ERRONEOUSLY DECLARED A HIGHER AMOUNT. IN SUPPORT OF HIS ARGUMEN TS, RELIANCE WAS PLACED UPON THE DECISION OF THE GUJARAT HIGH CO URT IN THE CASE OF S.R. KOSHTI V CIT (276 ITR 1.65), WHICH IN TURN HAS RELIED UPON A FEW DECISIONS OF THE SUPREME COURT. 18. THE LD. CIT(APPEALS) FIRSTLY HELD THAT IT WAS N OT POSSIBLE TO ACCEPT THAT THE PROPERTIES SOLD BY THE ASSESSEE WERE HELD AS INVESTMENT AND NOT AS STOCK-IN-TRADE OF THE BUSINESS OF THE CARRIED ON BY HER. IN THIS REGARD, THE CIT(A) WAS ALSO OF THE VIEW THAT THE DETAILS GI VEN BY THE ASSESSEE WERE SKETCHY AND INCOMPLETE AND THAT THROWING THE ENTIRE BLAME ON THE CA ITA NOS.255 & 306/BANG/11 PAGE 13 OF 22 CANNOT SAVE THE ASSESSEE. FROM THE CONCLUSIONS ARR IVED AT BY THE AO, HE WAS OF THE VIEW THAT THE SALES DECLARED IN THE PROF IT & LOSS ACCOUNT HAVE TO BE EXPLAINED ONLY BY THE ASSESSEE. HE HELD THAT TH ERE WAS A PRACTICE OF RECEIVING ON-MONEY IN REAL ESTATE TRANSACTIONS AND THAT THE CA WOULD HAVE TAKEN THESE INTO ACCOUNT WHILE PREPARING THE ANNUAL STATEMENTS. THE CIT(A) ALSO HELD THAT THE ASSESSEE SHOULD HAVE TAKE N DUE CARE OF HER AFFAIRS AND CANNOT PLEAD TOTAL IGNORANCE. THE CIT( A) WAS HOWEVER OF THE VIEW THAT ONLY 50% OF THE ADDITIONAL TURNOVER SHOWN IN THE PROFIT & LOSS ACCOUNT SHOULD BE CONSIDERED AS INCOME EARNED BY TH E ASSESSEE AND IN THIS REGARD HE GAVE THE FOLLOWING REASONS:- 5.7. HOWEVER, IT MUST ALSO BE NOTED THAT THE APPE LLANT HAS BEEN A VICTIM OF SOME AVOIDABLE PROFESSIONAL MISGUIDANCE AND HAS BEEN MADE TO SUFFER FOR THE SAME. ON THE ISSUE OF A SSESSABLE PROFITS FROM THE ADDITIONAL TURNOVER, I AM IN AGREE MENT WITH THE AR THAT THE ENTIRE ADDITIONAL TURNOVER AMOUNT OF RS .83,60,865 TAKEN BY THE AO CANNOT BE CONSIDERED AS PROFITS. A PERUSAL OF THE TRANSACTIONS RECORDED AT GUIDANCE VALUE OF THE REGI STERING AUTHORITY DURING THE YEAR WOULD SHOW THAT THE APPEL LANT HAS BEEN MAKING A MINIMUM OF 7% GROSS MARGIN ON THE PRO PERTIES BOUGHT AND SOLD DURING THE SAME YEAR AND A GROSS MA RGIN OF ANYWHERE FROM 10% TO 75% ON PROPERTIES HELD FOR MOR E THAN 3 YEARS. THIS WOULD OBVIOUSLY NOT INCLUDE THE ON MON EY COMPONENT IN THE HANDS OF THE APPELLANT. THE APPELL ANT AS NOTED EARLIER HAS BEEN INVESTING IN PROPERTIES ONLY IN TH E OUTSKIRTS OF BANGALORE. AS SUCH, THE GROSS PROFIT MARGIN IN RESP ECT OF DIFFERENT PROPERTIES ALSO APPEARS TO DEPEND ON THE LEVEL OF U RBANIZATION AND GROWTH OF THE CITY IN THAT DIRECTION AND HENCE NOT CONSISTENT WITH THE PERIOD OF HOLDING. AT THE SAME TIME, SHE HAS CA RRIED OUT SOME DEVELOPMENTAL WORK LIKE LAND FILLINGS, CONVERSION, BETTERMENT, CONSTRUCTION OF WALLS ETC, WHICH WOULD HAVE THEIR O WN COSTS. CONSIDERING THAT THESE ACTIVITIES WERE CARRIED OUT IN THE SEMI URBAN AREAS, THROUGH UNORGANIZED LABOUR, IT IS POSS IBLE THAT PROPER BILLS AND VOUCHERS MAY NOT BE READILY AVAILABLE FOR THE SAME. THE DECISIONS RELIED UPON BY THE AR ALSO SEEM TO SUPPOR T THE VIEW THAT, WHERE THE ASSESSEE RUNS THE RISK OF BEING OVE R ASSESSED DUE TO MISTAKE OR MISCONCEPTION, THEN IT WOULD BE OPEN TO THE ITA NOS.255 & 306/BANG/11 PAGE 14 OF 22 AUTHORITIES TO USE THEIR POWERS AND BRING TO TAX TH E CORRECT AMOUNT. 5.8. IN VIEW OF THE FOREGOING DISCUSSIONS AND BASE D ON THE DECISIONS CITED AND CONSIDERED, I WOULD THEREFORE H OLD THAT THE ENDS OF JUSTICE CAN BE SAID TO HAVE BEEN MET IF A G ROSS PROFIT MARGIN OF 50% OF THE ADDITIONAL TURNOVER OF RS.83,6 0,865 IS TREATED AS INCOME IN THE HANDS OF THE APPELLANT. TH E APPELLANT HERSELF HAS SHOWN A GROSS PROFIT MARGIN OF 7% TO 75 % AS SHOWN IN PARA TABLES DESCRIBED IN PARA 2 OF THIS ORDER. T HE RESULTS SHOWN BY THE APPELLANTS BOOKS ARE NOT RELIABLE AND THE AO HAS RIGHTLY REJECTED THEM UNDER SECTION 145 OF THE ACT. HOWEVER, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE AR OF THE APPELLANT, IT WOULD BE REASONABLE AND JUST TO APPLY A GROSS PROFIT MARGIN OF 50% OF THE ADDITIONAL TURNOVER OF RS.83,6 0,865 AS INCOME IN THE HANDS OF THE APPELLANT. THIS PROFIT M ARGIN SHALL ALSO COVER AS AN ESTIMATE ANY LEAKAGES OF UNEXPLAIN ED INVESTMENT MADE BY THE APPELLANT IN ORDER TO EARN THE TURNOVER OF RS.83,60,865/-. SUCH A MARGIN IS JUSTIFIED AND REAS ONABLE CONSIDERING THE GP MARGIN SHOWN BY THE APPELLANT AN D INCREASING THE SAME BY THE ON MONEY COMPONENT WHICH THE APPELLANT WOULD HAVE RECEIVED. ACCORDINGLY, I WOULD HOLD THAT AN AMOUNT OF RS.41,80,432/- IS THE AMOUNT WHICH SHO ULD BE ADDED AS NET TAXABLE INCOME IN THE HANDS OF THE APP ELLANT. SINCE THE ASSESSING OFFICER HAS ALREADY ALLOWED DEPRECIAT ION TO THE EXTENT OF RS.1,75,375/- AND OTHER EXPENSES OF RS.38 ,99,025/- AS CLAIMED BY THE APPELLANT, NO FURTHER DEDUCTIONS NEE D TO BE CONSIDERED. THE OTHER ITEMS TAXED BY THE AO ARE SUS TAINED. 5.9. ACCORDINGLY, I DELETE A SUM OF RS.41,80,432/- AND SUSTAIN THE REMAINING AMOUNT OF RS.63,10,678 (NET TAXABLE I NCOME ASSESSED @ RS.1,04,91,11O - RS.41,80,432) AS NET TA XABLE INCOME. 19. THUS, THE LD. CIT(APPEALS) ALLOWED PARTIAL RELI EF TO THE ASSESSEE. 20. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS) IN N OT TREATING THE SALE OF PART B PROPERTIES AS GIVING RISE TO INCOME UNDER TH E HEAD CAPITAL GAINS AND NOT ALLOWING THE COST OF CONSTRUCTION OF THE 5 FLATS SOLD BY THE ASSESSEE DURING THE PREVIOUS YEAR AS GIVEN IN PART C OF THE CHART AND NOT DELETING THE ENTIRE ADDITION OF Q 83,60,865, THE ASSESSEE HAS PREFERRED THE PRESENT ITA NOS.255 & 306/BANG/11 PAGE 15 OF 22 APPEAL BEFORE THE TRIBUNAL. AGGRIEVED BY THE ORDER OF THE CIT(A) IN REDUCING ADDITION ON ACCOUNT OF ON-MONEY FROM Q 83,60,865 TO Q 41,80,432, THE REVENUE IS IN APPEAL BEFORE THE TRIB UNAL. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE WILL D EAL WITH THE ISSUES IN SERATIUM. (A) WHETHER THE SALE OF PROPERTIES DESCRIBED IN PA RT B OF THE CHART COULD GIVE RISE TO BUSINESS INCOME OR INCOME UNDER THE HEAD CAPITAL GAINS ? 22. ON THE ABOVE ISSUE, THE LD. COUNSEL FOR THE ASS ESSEE HAS FILED AN AFFIDAVIT BEFORE US. IN THE AFFIDAVIT SO FILED, TH E ASSESSEE HAS SUBMITTED THAT THE ITEMS OF PROPERTIES GIVEN IN PART B OF THE CHAR T WERE ACQUIRED WITHOUT ANY INTENTION OF HOLDING THEM AS STOCK-IN-TRADE, BU T WITH AN INTENTION TO HOLD THEM AS INVESTMENTS. IT HAS FURTHER BEEN STATED TH AT THE CA FOR THE REASONS BEST KNOWN TO HIM HAS DECLARED THE TRANSACTIONS IN RESPECT OF THE AFORESAID PROPERTIES AS BUSINESS TRANSACTIONS. 23. WE HAVE CONSIDERED THE AFFIDAVIT FILED BY THE A SSESSEE AND ARE OF THE VIEW THAT THE SAME CANNOT BE SUFFICIENT TO HOLD THAT THE PROPERTIES IN PART B OF THE CHART WERE HELD BY THE ASSESSEE ONLY AS INVESTMENTS. IN THIS REGARD, WE FIND THAT IN THE SUBMISSIONS DATED 05.10 .10 FILED BY THE ASSESSEE BEFORE THE CIT(A), THE ASSESSEE HAS CLEARL Y MENTIONED THAT THE LANDS WERE PURCHASED WITH AN INTENTION OF HOLDING T HEM TILL SUCH TIME THERE WAS A PROSPECT OF MAKING PROFITS. IT HAS ALSO BEEN MENTIONED THAT WHEN THERE WAS READY PURCHASER FOR THE PROPERTY, THEY WO ULD BE PURCHASED AND SOLD WITHIN A SHORT SPAN OF TIME. EVEN IN RESPECT OF THE PROPERTY THAT WAS ITA NOS.255 & 306/BANG/11 PAGE 16 OF 22 GIVEN FOR JOINT DEVELOPMENT, THE ASSESSEE HAS MENTI ONED THAT THEY WERE HELD WITH A VIEW TO MAKE PROFITS AT A TIME WHEN THE RE WERE GOOD PROSPECTS. IN OUR OPINION, THE INTENTION AT THE TIME OF PURCHA SE AS TO, WHETHER THE PROPERTY IS INVESTMENT OR STOCK-IN-TRADE, IS THE MO ST RELEVANT AND IMPORTANT CRITERION. THE INTENTION OF THE ASSESSEE APPEARS CLEAR THAT EVEN AT THE TIME OF ACQUISITION OF THE PROPERTIES, SELLING THE SAME AT A PROFIT WAS THE MOTIVE. WE THEREFORE HOLD THAT THE PROPERTIES WERE HELD AS STOCK-IN-TRADE BY THE ASSESSEE AND NOT AS INVESTMENTS. CONSEQUENTLY THE SALE PROCEEDS OF THE PROPERTIES MENTIONED IN PART B OF THE CHART HAVE TO BE TREATED AS SALE PROCEEDS/RECEIPTS OF THE BUSINESS OF BUYING AND SEL LING OF PROPERTIES OF THE ASSESSEE. IN THAT EVENT THE INCLUSION OF THE SALE PROCEEDS OF THESE PROPERTIES IN THE PROFIT AND LOSS ACCOUNT AS RECEIP TS BY THE AO IS UPHELD. (B) WHETHER THE SALE OF FLATS AS STATED IN PART C OF THE CHART GIVEN EARLIER, SHOULD BE TREATED AS GIVING RISE TO CAPITA L GAINS OR INCOME FROM BUSINESS ? (C) IN CASE THE SALE OF PROPERTIES SET OUT IN PAR T C OF THE CHART IS TREATED AS GIVING RISE TO INCOME FROM BUSINESS, WHETHER THE ASSESSEE WILL BE ENTITLED TO DEDUCTION ON ACCOUNT OF COST OF CONSTRU CTION OF THE FLATS? 24. ON THE ISSUE (B) REFERRED TO ABOVE, WE HAVE ALR EADY HELD THAT THE SALE OF 5 FLATS WILL BE TREATED AS BUSINESS DONE IN THE COURSE OF BUSINESS OF THE ASSESSEE AND THEREFORE THEY HAVE TO BE TREATED AS SALE PROCEEDS OF THE BUSINESS AND NOT GIVING RISE TO CAPITAL GAINS. 25. AS FAR AS ISSUE (C) IS CONCERNED, WE FIND THE F OLLOWING FACTS FROM THE RECORD. THE ASSESSEE HAD ENTERED INTO JOINT DEVELO PMENT AGREEMENT DATED ITA NOS.255 & 306/BANG/11 PAGE 17 OF 22 20.10.03 WHEREBY IT WAS AGREED THAT 70% OF THE LAND WILL BE GIVEN TO THE DEVELOPER AND THE ASSESSEE WOULD RETAIN 30% OF THE LAND. OUT OF CONSTRUCTIONS PUT UP BY THE DEVELOPER, THE ASSESSEE WILL BE ENTITLED TO 8664 SQ.FT. OF BUILT UP AREA IN THE FORM OF 8 FLATS IN C ONSIDERATION FOR THE ASSESSEE SELLING TO THE DEVELOPER 70% OF THE LAND AREA. 26. THE LD. COUNSEL FOR THE ASSESSEE HAD SUBMITTED BEFORE US THAT IN CASE OF JOINT DEVELOPMENT, THE TRANSFER WOULD BE DE EMED TO HAVE TAKEN PLACE WHEN THE TRANSFEREE GETS THE RIGHT TO MAKE US E OF THE LAND OR ENJOY ITS USUFRUCTS. IT WAS FURTHER SUBMITTED THAT THE INTEN TION SHOULD BE THAT THE PROPERTY SHOULD PASS IRRESPECTIVE OF THE PAYMENT OF CONSIDERATION. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO THE DECISION OF THE HYDERABAD BENCH OF THE ITAT IN THE CASE OF MAYA SHENOY V. CIT 124 TTJ 692 HYD . THE TRIBUNAL IN THE AFORESAID CASE AFTER ANALYZING THE PROVISIONS OF THE TRANSFER OF PROPERTY ACT CAME TO THE CONCLUSION THAT WHEN PO SSESSION IS HANDED OVER IN PART PERFORMANCE OF AN AGREEMENT FOR SALE A ND IF THE ASSESSEE HAS RIGHT TO RECEIVE THE CONSIDERATION, THERE WOULD BE AN EFFECTIVE TRANSFER. 27. FURTHER REFERENCE WAS ALSO MADE BY THE LD. COUN SEL FOR THE ASSESSEE TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ DWARKADAS KAPADIA V. CIT 260 ITR 491 (BOM) FOR THE PROPOSITION THAT WHEN THE POSSESSION OF THE PROPERT Y IS HANDED OVER TO THE DEVELOPER, TRANSFER WOULD TAKE PLACE IN A JOINT DEV ELOPMENT AGREEMENT. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE ALSO DREW OUR ATTENTION TO THE JOINT DEVELOPMENT AGREEMENT WHEREBY THE DEVELOPER W AS GIVEN A LICENCE TO ENTER UPON THE PROPERTY FOR THE PURPOSE OF DEVELOPM ENT. REFERENCE WAS ALSO MADE TO CLAUSE 19.1 AND 20 OF THE JOINT DEVELO PMENT AGREEMENT ITA NOS.255 & 306/BANG/11 PAGE 18 OF 22 WHEREBY THE DEVELOPER HAD RIGHT TO SELL 70% OF THE UNDIVIDED SHARE OF LAND. IT WAS SUBMITTED BY HIM THAT TRANSFER IF AT ALL, HAD TAKEN PLACE ON 20.10.03 I.E., THE DATE OF JOINT DEVELOPMENT AGREEMENT FALLI NG WITHIN THE ASSESSMENT YEAR 2004-05. 28. IT WAS FURTHER SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT WHILE COMPUTING INCOME ON SALE OF 5 FLATS WHICH CAM E TO THE SHARE OF THE ASSESSEE, THE COST OF CONSTRUCTION SHOULD BE ALLOWE D AS DEDUCTION BY SHOWING THE SAME IN THE DEBIT SIDE OF THE TRADING A CCOUNT. IN THIS REGARD, THE LD. COUNSEL ALSO FILED A REPORT OF THE REGISTER ED VALUER, A COPY OF WHICH IS PLACED AT PAGES 101 TO 113 OF THE ASSESSEES PAPERB OOK. THE REGISTERED VALUER HAS GIVEN A VALUATION OF ESTIMATED COST AT Q 625/SQ.FT. TO BE DEBITED TO THE TRADING ACCOUNT. THE ASSESSEE HAS ALSO FILE D APPLICATION TO ADMIT THE VALUERS REPORT AS ADDITIONAL EVIDENCE. IT HAS BEE N SUBMITTED THAT THE CA DUE TO HIS PROFESSIONAL NEGLIGENCE AND LACK OF COOP ERATION HAD NOT GIVEN THE PAPERS TO THE ASSESSEE. THEREFORE THE ASSESSEE COULD NOT FILE THESE DOCUMENTS BEFORE THE LOWER AUTHORITIES. 29. THE LD. DR SUBMITTED THAT THE PROPERTY IN QUEST ION SHOULD BE CONSIDERED AS FALLING WITHIN THE PARAMETERS OF SECT ION 45(2) OF THE ACT. ACCORDING TO HIM, THE PROPERTY WAS ORIGINALLY INVES TMENT AND LATER ON WAS BROUGHT IN AS STOCK-IN-TRADE OF THE BUSINESS BY THE ASSESSEE AND THEREFORE UNDER THE PROVISIONS OF SECTION 45(2) OF THE ACT, C APITAL GAIN HAS TO BE COMPUTED BY REDUCING FROM THE FAIR MARKET VALUE AS ON THE DATE OF CONVERSION INTO STOCK-IN-TRADE AND COST OF ACQUISIT ION OF THE PROPERTY. THE REMAINING SUM HAS TO BE TAXED AS BUSINESS INCOME. HE THEREFORE ITA NOS.255 & 306/BANG/11 PAGE 19 OF 22 SUBMITTED THAT TAXING THE GAIN ON SALE OF FLATS OBT AINED UNDER THE JOINT DEVELOPMENT AGREEMENT IN THIS YEAR WAS JUSTIFIED. 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT T HE OUTSET, WE REJECT THE ARGUMENT OF THE LD. DR REGARDING APPLICABILITY OF SECTION 45(2) OF THE ACT. AS WE HAVE ALREADY HELD, THE ASSESSEE EVEN AT THE TIME OF ACQUIRING THESE PROPERTIES HAD THE INTENTION OF CARRYING ON T HE BUSINESS IN THOSE PROPERTIES. THEREFORE THEY WERE TO BE TREATED AS S TOCK-IN-TRADE AND NOT AS INVESTMENTS. THE QUESTION OF THE SAME HAVING BEEN CONVERTED AS STOCK-IN- TRADE OF BUSINESS DOES NOT ARISE. 31. AS FAR AS COMPUTATION OF INCOME ON SALE OF 5 FL ATS IS CONCERNED, WE ARE OF THE VIEW THAT THE REVENUE AUTHORITIES HAVE P ROCEEDED TO COMPUTE THE INCOME OF THE ASSESSEE INCORRECTLY. IN OUR VIEW, I N THE A.Y. 2004-05, THERE WOULD BE INCOME ARISING OUT OF JOINT DEVELOPMENT AG REEMENT DATED 20.10.03. SUCH INCOME WOULD HAVE TO BE ARRIVED AT BY REDUCING FROM THE VALUE OF 8664 SQ.FT. OF BUILT UP AREA WHICH THE ASS ESSEE WAS TO RECEIVE FROM THE DEVELOPER THE MARKET VALUE OF 70% OF THE LAND A S ON THE DATE OF THE JOINT DEVELOPMENT AGREEMENT. THIS CONCLUSION IS ON THE BASIS THAT A SALE BY THE ASSESSEE TO THE DEVELOPER HAD HAPPENED DURING T HE PREVIOUS YEAR RELEVANT TO A.Y. 2004-05. IT APPEARS THAT THE REVE NUE HAS NOT TAKEN ANY STEPS TO TAX THE INCOME FOR THE A.Y. 2004-05. WE ARE NOT, HOWEVER, CONCERNED AT THIS STAGE ON THE ABOVE ASPECT. WE AR E NOW CONCERNED WITH THE QUESTION AS TO WHETHER THE ASSESSEE SHOULD GET THE BENEFIT OF COST OF CONSTRUCTION OF THE 5 FLATS SOLD DURING THE PREVIOU S YEAR. IN OUR VIEW, THE ASSESSEE SHOULD BE ALLOWED THE AFORESAID BENEFIT. ADMITTEDLY, THE ASSESSEE HAD TO PAY A COST FOR ACQUIRING THESE 5 FL ATS. THE ASSESSING ITA NOS.255 & 306/BANG/11 PAGE 20 OF 22 OFFICER IN THE ORDER OF ASSESSMENT HAS NOT GIVEN AN Y COST TO THESE FLATS. IN OUR VIEW, THEREFORE THE COST OF 5 FLATS HAS TO BE W ORKED OUT AND FOR THIS PURPOSE OF WORKING OUT THE COST OF ACQUISITION OF 5 FLATS, THE MATTER IS REMANDED TO THE ASSESSING OFFICER. THE AO WILL VER IFY THE COST FROM THE DEVELOPER, WHO DEVELOPED THE PROPERTIES AND ARRIVE AT THE COST OF 8664 SQ.FT. THIS COST SHOULD BE DEBITED TO THE TRADING ACCOUNT. THE ASSESSEE HAS RETAINED 3 FLATS OUT OF 8 FLATS AND WE DIRECT T HE COST OF THESE 3 FLATS LYING IN THE STOCK WITH THE ASSESSEE HAS TO BE ADDED AS P ART OF THE CLOSING STOCK IN THE TRADING ACCOUNT. SIMILARLY, 30% OF THE VALU E OF THE LAND (RETAINED BY THE ASSESSEE) SHOULD ALSO BE SHOWN AS COST IN THE D EBIT SIDE OF THE PROFIT AND LOSS ACCOUNT. THE VALUE FOR THIS PURPOSE WILL BE 30% OF THE VALUE FOR WHICH THE ASSESSEE PURCHASED THE ENTIRE PROPERTY WH ICH WAS GIVEN FOR JOINT DEVELOPMENT. OUT OF THE 30% UNDIVIDED SHARE OF LAND RETAINED BY THE ASSESSEE, THE VALUE ATTRIBUTABLE TO THE EXTENT OF U NDIVIDED SHARE OF LAND SOLD BY THE ASSESSEE (ALONG WITH THE 5 FLATS) SHOUL D BE SHOWN AS RECEIPT ON THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT. THE AO IS DIRECTED TO WORK OUT THE TRADING ACCOUNT BY FOLLOWING THE AFORESAID PROCEDURE AND IN ACCORDANCE WITH LAW AND THE DIRECTIONS GIVEN EARLIE R. THUS, ISSUE (C) IS DECIDED ACCORDINGLY. (D) WHETHER A SUM OF Q 83,60,865 SHOULD BE CONSIDERED AS SALES IN THE TRADING ACCOUNT? 32. ON THE ABOVE ISSUE, WE FIND THAT THE ASSESSEE H AD PLEADED THAT THE FIGURES GIVEN BY THE CA COULD NOT BE EXPLAINED BY H ER. THE CA WHO PREPARED THE TRADING, PROFIT & LOSS ACCOUNT ALSO DI D NOT ASSIST THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS. THIS ASP ECT IS ACCEPTED EVEN ITA NOS.255 & 306/BANG/11 PAGE 21 OF 22 BY THE CIT(A). THE SALE AS REFLECTED IN THE DOCUME NTS AVAILABLE ON THE RECORD IS ONLY TO THE TUNE OF IS Q 1,06,83,750. THE AO HAS ACCEPTED THE SALES FIGURE AS SHOWN IN THE TRADING, PROFIT & LOSS ACCOUNT FILED ALONG WITH THE RETURN OF INCOME. WHEN IT COMES TO PURCHASES, THE AO HAS NOT TAKEN THE PURCHASES AS REFLECTED IN THE TRADING & PROFIT & LOSS ACCOUNT FILED ALONG WITH THE RETURN OF INCOME. BESIDES THE ABOVE, THER E IS NO EVIDENCE ON RECORD TO SHOW THAT THE ASSESSEE HAD IN FACT RECEIV ED A SUM OF Q 83,60,865. THE ONLY BASIS FOR THE AO HAS BEEN THE TRADING & PROFIT & LOSS ACCOUNT FILED ALONG WITH THE RETURN OF INCOME. THE AO REJECTED THE BOOKS OF ACCOUNT AS UNRELIABLE, BUT HAS HOWEVER CHOSEN TO AC CEPT THE SALES FIGURE AS REFLECTED THEREIN, BECAUSE IT SUITS THE PURPOSE OF THE REVENUE. THIS APPROACH, IN OUR VIEW, IS UNACCEPTABLE. AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE, THERE IS NO EVIDENCE ON RECORD TO SHO W THAT THE ASSESSEE WAS IN RECEIPT OF A SUM OF Q 83,60,865. THE RELIANCE PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF K.P. VARGHESE V. ITO 131 ITR 597 SC AND THE KARNATAKA HIGH COURT DECISION IN THE CASE OF N. SEENAPPA V. CIT 163 ITR 253 (KARN) FULLY SUPPORT THE PLEA OF THE ASSESSEE IN THIS REG ARD. 33. ANOTHER REASON GIVEN BY THE REVENUE AUTHORITIES FOR UPHOLDING THE AFORESAID ADDITION IS THAT THERE IS A PRACTICE OF O N-MONEY PREVAILING IN REAL ESTATE TRANSACTIONS. IN OUR VIEW, WITHOUT EVIDENCE ON RECORD, JUST ON THE BASIS OF PRACTICE PREVAILING IN THE TRADE, ADVERSE INFERENCE CANNOT BE DRAWN AGAINST THE ASSESSEE. ITA NOS.255 & 306/BANG/11 PAGE 22 OF 22 34. WE ARE, THEREFORE, OF THE VIEW THAT THE SALES F IGURE AS REFLECTED IN THE TRADING ACCOUNT SHOULD BE REDUCED BY A SUM OF Q 83,60,865. 35. THE AO IS DIRECTED TO RECAST THE TRADING, PROFI T & LOSS ACCOUNT AS DRAWN BY HIM WITH THE MODIFICATIONS AS STATED IN TH IS ORDER AND WORK OUT THE INCOME OF THE ASSESSEE. 36. THUS, THE APPEAL OF THE ASSESSEE IS PARTLY ALLO WED, WHILE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF SEPTEMBER, 2012. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 7 TH SEPTEMBER , 2012. DS/- COPY TO: 1. ASSESSEE 2. REVENUE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.