PASHMIINA HOLDINGS LTD, MUMBAI V. ACIT (OSD) CIR 2(2), MUMBAI

ITA 2691/MUM/2010

• Counselvise Citation: 269119914 RSA 2010
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 07-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: NITESH JOSHI
• Keywords: Business income; Depreciation; Earning of tax free income; Cost of acquisition; Wholly owned subsidiary; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI B.R. MITTAL, J.M. AND SHRI RAJENDRA SINGH, A.M. ITA NO. : 2691/M/2010 ASSESSMENT YEAR : 2006-07 PASHMINA HOLDINGS LIMITED NEW HIND HOUSE, NAROTTAM MORARJEE MARG, BALLARD ESTATE MUMBAI-400 001. PAN NO: AAACP 4177 E ASSTT. COMMISSIONER OF INCOME TAX (OSD), CIRCLE-2(2) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI V.V. SHASTRI DATE OF HEARING : 06.03.2012 DATE OF PRONOUNCEMENT : 16.03.2012 O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 11.1.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING NATURE OF IN COME ARISING TO THE ASSESSEE ON ACCOUNT OF SALE OF PROPERTIES. 2. FACTS IN BRIEF ARE THAT THE AO DURING THE ASSESSMENT P ROCEEDINGS NOTED THAT THE ASSESSEE WHICH WAS A 100% SUBSIDIARY OF M/S. RAYMOND LTD. HAD CREDITED PROFIT OF RS.31,55,215/- ON ACCOUNT OF SALE ITA NO. 2691/M/10 A.Y.06-07 2 OF PROPERTY WHICH IN P&L ACCOUNT WHICH HAD BEEN SHOWN A S BUSINESS INCOME BUT SUBSEQUENTLY IN THE COMPUTATION OF INCOME, TH E ASSESSEE HAD COMPUTED THE INCOME FROM SALE OF PROPERTY AS LONG T ERM CAPITAL LOSS OF RS.27,26,887/- AFTER INDEXATION. FROM THE DETA ILS OF TRANSACTIONS IN LAND FILED BY THE ASSESSEE, AO NOTED THAT THE ASSESSEE IN MARCH 2002 HAD PURCHASED AGRICULTURAL LAND BEING GAT NO. 50 AND GAT NO.51 WITH FARM HOUSE. THE ASSESSEE HAD ALSO SPENT RS.1,67,08,079/- ON IMPROVEMENT OF THE PROPERTY AND TOTAL INVESTMENT WAS RS.6,29,26,022/-. SUBSEQUENTLY, ASSESSEE PUR CHASED FURTHER LAND IN THE SAME AREA BEING GAT NO.411, 412 AND 413 ON 19.12.2004 AND GAT NO. 410 ON 17.3.2004 WITH A TOTA L COST OF ACQUISITION OF RS.3,49,805/-. THEREAFTER ASSESSEE SPENT RS.1,36,70,028/- ON IMPROVEMENT OF THESE PROPERTIES AN D RS.1,33,690/- ON ELECTRICAL INSTALLATION MAKING THE TOT AL INVESTMENT OF RS.1,41,28,533/- IN RESPECT OF THESE FOUR PROPERTIES. T HE ASSESSEE SOLD GAT NO.50 AND 51 ALONG WITH FARM HOUSE AND IMPRO VEMENT FOR A SUM OF RS.6,53,81,000/- AND GAT NO.410 TO 413 FOR A SU M OF RS.1,46,19,000/- TO M/S. AVANI AGRICULTURAL FARMS PRIVATE LIMITED AT NEW HIND HOUSE, BALLARD ESTATE, MUMBAI ON 28.9.2005. T HERE WAS THUS PROFIT OF RS.24,54,878/- IN RESPECT OF GAT NO.50 A ND 51 AND PROFIT OF RS.4,90,467/- IN RESPECT OF GAT NO. 411 TO 413.THE TOTAL PROFIT ON SALE OF PROPERTY CAME TO RS.29,45,445/-. THE ASSESSEE H AD ALSO ITA NO. 2691/M/10 A.Y.06-07 3 PURCHASED GAT NO.416 ON 2.9.2005 AND GAT NO.333 AND G AT NO.414 ON 28.9.2005 IN THE SAME AREA FOR RS.26,14,466/- WHICH WA S ALSO SUBSEQUENTLY SOLD FOR RS.21,48,000/-, THERE BEING THUS L OSS OF RS.4,66,666/-. 2.1 THE ASSESSEE SUBMITTED THAT IT HAD PURCHASED DIFFERENT PROPERTIES AS PART OF INVESTMENT AND THEREFORE INCOME F ROM THE SAME HAD BEEN DECLARED AS CAPITAL GAIN. THE ASSESSEE ALSO SUBMIT TED THAT LOSS OF RS.4,66,466/- ON ACCOUNT OF GAT NO.333, 414 AND 416 WHICH WAS ON ACCOUNT OF STAMP DUTY AND REGISTRATION CHARGES WHI CH WERE SUBSEQUENTLY RECOVERED FROM THE BUYERS AND THEREFORE TH ERE WAS NO LOSS. THE AO HOWEVER DID NOT ACCEPT THE SUBMISSION MADE BY THE ASSESSEE. IT WAS OBSERVED BY HIM THAT THE ASSESSEE HAD SYSTEMATICALLY PURCHASED THE DIFFERENT PROPERTIES WITH A VIEW TO SELLING THE SAME TO SOME OTHER PARTY AND, THEREFORE, IT WAS NO T AN INVESTMENT. THE ASSESSEE HAD ALSO NOT USED THE AGRICULTUR AL LANDS FOR AGRICULTURAL PURPOSES AS NO BASIC AGRICULTURAL OPERATIONS WERE PERFORMED ON THE SAID LANDS AND NO AGRICULTURAL INCOME WAS SHOWN. THE AO, THEREFORE, TREATED THE INCOME OF RS.29,45,445 /- AS BUSINESS INCOME. THE LOSS OF RS.4,66,466/- SHOWN BY THE ASSESSEE IN RESPECT OF GAT NO.333, 414 AND 416 WAS DISALLOWED AS ASSESSEE HAD ITSELF CLAIMED THAT THE LOSS WAS ON ACCOUNT OF STAMP DUTY AND REG ISTRATION CHARGES WHICH HAD BEEN RECOVERED FROM THE BUYERS. ITA NO. 2691/M/10 A.Y.06-07 4 2.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT IT HAD ACQUIRED CERTAIN LAND ALONG WITH S UPER STRUCTURE AND CARRIED OUT SUBSTANTIAL IMPROVEMENT WHICH WAS SHOWN AS IN VESTMENT IN BOOKS OF ACCOUNT. THE PROPERTY HAD BEEN SHOWN AS FI XED ASSET IN THE BOOKS OF ACCOUNT AND ON SUPER STRUCTURES, DEPRECIATION HAD BEEN CLAIMED IN THE BOOKS OF ACCOUNT UNDER COMPANIES ACT, THO UGH NO SUCH DEPRECIATION WAS ACTUALLY CLAIMED IN COMPUTATION OF IN COME. PROPERTIES HAD NEVER BEEN TREATED AS STOCK-IN-TRADE. IT WAS ALSO SUBMITTED THAT ONCE PROPERTY WAS READY, THE SAME WAS LET OUT. INCOME HAD BEEN DECLARED FOR TAX UNDER THE HEAD INCOM E FROM HOUSE PROPERTY. INVESTMENT WAS THUS MADE WITH SOLE OBJECTIVE OF EARNING RENTAL INCOME AND NOT WITH A VIEW TO EARNING PROFIT. THE PROPERTIES HAD BEEN HELD FOR FAIRLY LONG PERIOD AND WERE NOT SOLD I MMEDIATELY. THE INCOME THEREFORE HAD BEEN RIGHTLY SHOWED AS CAPITAL GAI N. CIT(A) WAS HOWEVER NOT SATISFIED BY THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT THE ASSESSEE WAS ENGAGED IN SYSTEMATIC BUSINESS ACTIV ITY OF SELLING AND PURCHASING OF PROPERTIES WHICH WAS ALSO ONE O F THE OBJECTS IN THE MEMORANDUM OF ASSOCIATION. THE ASSESSEE HAD MADE RE GULAR PURCHASES OF AGRICULTURAL LANDS AND BUILDING APPURTENANT THERETO AND AFTER MAKING SUBSTANTIAL IMPROVEMENTS AND INSTALLING EL ECTRICAL FITTINGS HAD SOLD OUT THE SAME TO THE SAME PARTY. CIT(A) FURTHE R OBSERVED THAT ENTRY IN THE BOOKS OF ACCOUNT WERE NO CONCLUSIVE. THE IN TENTION OF THE ITA NO. 2691/M/10 A.Y.06-07 5 ASSESSEE WAS ONLY TO MAKE PROFIT ON SALE OF THESE PROPERT IES AFTER ENHANCING ITS MARKETABILITY. CIT(A) THEREFORE UPHELD THE ORDER OF THE AO TREATING THE ACTIVITIES AS BUSINESS ACTIVITIES AND INCO ME AS BUSINESS INCOME. CIT(A) PLACED RELIANCE ON THE JUDGMENT OF HON 'BLE SUPREME COURT IN THE CASE OF P.M. MOHAMMED MEERA KHAN VS. CIT (73 ITR 735) , JUDGMENT OF HONBLE HIGH COURT OF MADHYA PRADESH IN THE CASE OF CIT VS. JAWAHAR DEVELOPMENT ASSOCIATION (127 ITR 43 1) AND SEVERAL OTHER JUDGMENTS FOR ARRIVING AT THE SAID CONCLUSI ON. AGGRIEVED BY THE SAID DECISION, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE REITE RATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES THAT VARIOUS P ROPERTIES PURCHASED BY THE ASSESSEE WERE PART OF THE INVESTMENT ACTIV ITY WHICH HAD ALSO BEEN FOUND AS FIXED ASSET IN THE BALANCE SHEET AS ON 31.3.2003 A COPY OF WHICH WAS PLACED IN THE PAPER BOOK. PROPERTIES HAD BEEN PURCHASED FROM 15.5.2002 TO 20.9.2005 AND SUB STANTIAL PORTION HAD BEEN SOLD ON 20.9.2005 AND BALANCE SMALL P ORTION ON 9.11.2005. THE ASSESSEE HAD ALSO RENTED THE PROPERTY AND HAD SHOWN RENTAL INCOME FROM ASSESSMENT YEAR 2004-05 ONWARDS WHICH A LSO SHOWED THAT PROPERTIES WERE HELD AS INVESTMENT. IT WAS CLARIFIED THAT THOUGH THE ASSESSEE HAD CLAIMED DEPRECIATION IN THE P&L A CCOUNT UNDER THE COMPANIES ACT, NO DEPRECIATION HAD ACTUALLY BEEN CLAIMED IN THE COMPUTATION OF INCOME. IT WAS HOWEVER AGREED THAT ALL PROPERTIES ITA NO. 2691/M/10 A.Y.06-07 6 WERE SOLD TO THE SAME PARTY. THE LD. AUTHORISED REPR ESENTATIVE ARGUED THAT TRUE NATURE OF TRANSACTION HAS TO BE UNDER STOOD FROM THE INTENTION OF THE ASSESSEE FROM THE TIME OF ORIGINAL PU RCHASE I.E. THE YEAR 2002 WHICH WAS CLEARLY TO EARN RENTAL INCOME AS ASSESSE E HAD LET OUT THE PROPERTIES. HE PLACED RELIANCE ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF JANKI RAM BAHADUR RAM VS. CIT (57 ITR 21) AND THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NATHURAM RAMNARAYAN PVT. LTD. (151 ITR 767). 3.1 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW THAT PURCHASE OF VARIOUS PLOTS AND STRUCTURES IN THE SAME AREA AND SELLING IT TO ONE PARTY WAS A COMMERCIAL VENTURE OF THE ASSESSEE. THE MEMORANDUM OF ASSO CIATION OF THE COMPANY ALSO PROVIDED FOR DEALING IN LANDS. T HE MANNER IN WHICH THE ASSESSEE PURCHASED DIFFERENT PLOTS FROM DIFFERENT OWNERS IN THE SAME LOCALITY AND SOLD AFTER MAKING SUBSTANTIAL IMP ROVEMENTS CLEARLY SHOWED THAT THE AIM OF THE ASSESSEE WAS TO ACQUIRE LARGER PROPERTY FOR SALE TO ONE PARTY AFTER ENHANCING THE MA RKETING POTENTIAL. ENTRY IN THE BOOKS OF ACCOUNT WAS NOT CONCLUSIVE REGARDING ANY TRANSACTION. IT WAS ACCORDINGLY URGED THAT THE TREATMEN T GIVEN BY THE AUTHORITIES BELOW TO THE TRANSACTION AS BUSINESS VENTURE SH OULD BE UPHELD. ITA NO. 2691/M/10 A.Y.06-07 7 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NATURE OF INCOME EARNED BY THE ASSESSEE FROM SALE OF VARIOUS PIECES OF LAND, THE SUPER STRUCTURE AND IMPROVEMENTS MADE THERETO. THE ASSESSEE HAS TREATED THE INCOME AS CAPITAL GAIN TREATING THE PURCHASES OF LAN D ETC. AS INVESTMENT. THE AO TREATED THE ACTIVITIES OF THE ASSESSEE AS BUSINESS ACTIVITY AND ASSESSED INCOME AS BUSINESS INCOME WHICH HAS ALSO BE EN UPHELD BY CIT(A). THE WORD BUSINESS IS A TERM OF WIDE IMPORT AND REFERS TO ANY SYSTEMATIC, ORGANIZED ACTIVITY TO ACHIEVE A SET OBJECTIVE. HOWEVER, EVEN A SINGLE AND ISOLATED TRANSACTION CAN SOMETI MES BE CONSIDERED AS ADVENTURE IN THE NATURE OF TRADE. THE I NTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE IS AN IMPORTANT CONSIDERATI ON IN DECIDING THE TRUE NATURE OF THE TRANSACTION, BUT THE I NTENTION HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSESSEE IN DEALIN G WITH THE PURCHASE SUBSEQUENTLY AND ENTRY IN THE BOOKS OF ACCOUNT I S NOT CONCLUSIVE. EACH CAUSE HAS TO BE EVALUATED BASED ON ITS OWN FACTS AND CIRCUMSTANCES. THE NEXUS OF THE TRANSACTION WITH THE BUSIN ESS BEING CARRIED ON BY THE ASSESSEE IS ALSO RELEVANT IN DECIDING THE TRUE NATURE OF THE TRANSACTION. IN THE PRESENT CASE, THE ASSESSEE COMPA NY HAD BEEN FORMED TO CARRYOUT BUSINESS AND ONE OF THE MAIN OB JECTIVES AS MENTIONED IN THE MEMORANDUM OF ASSOCIATION WAS TO ACQUIR E , PURCHASE, LEASE OR OTHERWISE AGRICULTURAL LAND FOR FARMI NG, TAKEN ON ITA NO. 2691/M/10 A.Y.06-07 8 LEASE OR BE INTERESTED IN ANY IMMOVABLE PROPERTY OF A NY TENURE WHETHER FREE HOLD, LEASE HOLD OR ANY OTHER RIGHTS THE REIN AND BUILDING USED ETC. THE VARIOUS TRANSACTIONS ENTERED INTO BY THE ASSESSEE FOR PURCHASE AND SALE OF LAND HAVE TO BE SEEN IN THE LIGHT OF THE SAID BUSINESS OBJECTIVE. 4.1 THE ASSESSEE IN THIS CASE PURCHASED GAT NOS. 50 AND 51 I N 2002 AND SPENT SUBSTANTIAL AMOUNT OF RS.1,67,08,079/- ON IMP ROVEMENT. THEREAFTER IN MARCH 2004, THE ASSESSEE 2004 THE ASSESSEE PUR CHASED GAT NOS. 410 TO 413 IN THE SAME LOCALITY FOR A SUM OF RS .3,49,805/- AND THEREAFTER SPENT HUGE AMOUNT OF RS.1,36,70,028/- ON IMPROVEMENT OF THESE PROPERTIES AND A FURTHER SUM OF R S.1,33,690/- ON ELECTRICAL INSTALLATIONS. THE ASSESSEE PURCHASED FURTHER GATS BEING NOS. 416, 333 AND 414 IN SEPT. 2005 AND LAST TRANSACTIO N BEING ON 28.9.2005. THE ASSESSEE HAD SOLD ALL THE PROPERTIES TO O NLY ONE BUYER I.E. M/S. AVANI AGRICULTURAL FARMS PRIVATE LIMITED. A LL THE GATS EXCEPT GAT NOS. 416, 333 AND 414 WERE SOLD ON 28.9.2005 FOR RS.6,53,81,000/- AND RS .1,46,19,000/-. ONLY SMALL PORTION CONSISTING OF GAT NO.416, 333 AND 414 WAS SOLD ON 8.11.2005 FOR A SUM OF RS.26,14,466/- TO THE SAME PARTY. A CAREFUL ANALYSIS O F THE ENTIRE TRANSACTIONS SHOWS THAT THE ASSESSEE HAD BEEN AIMING TO ACQU IRE LARGER PROPERTY CONSISTING OF SEVERAL PLOTS IN THE SAME A REA OWNED BY DIFFERENT PERSONS. THE ASSESSEE HAD ALSO BEEN MAKING IMPR OVEMENTS ITA NO. 2691/M/10 A.Y.06-07 9 AND ONCE THE LAST PURCHASE WAS MADE ON 28.9.2005, THE PL OTS AND SUPERSTRUCTURES WERE SOLD TO ONE BUYER ON THE SAME DATE E XCEPT FOR A SMALL PORTION WHICH WAS ALSO SOLD TO THE SAME BUYER SUBSEQU ENTLY. 4.2 THUS, THE INTENTION OF THE ASSESSEE WAS TO PURCHASE SEVE RAL GATS WITH A VIEW TO CONSOLIDATE INTO ONE FOR SALE TO SOME PA RTY FOR PROFIT. HAD THE INTENTION OF THE ASSESSEE BEEN TO MAKE INVESTMENT THE ASSESSEE WOULD NOT HAVE SOLD THE PROPERTY IMMEDIATELY ON COMPLETION OF THE ACQUISITION. THE ARGUMENTS OF THE LD. AR THA T THE ASSESSEE HAD ALSO LET OUT THESE PROPERTIES AND HAD EARNED RENTAL IN COME WHICH HAD BEEN OFFERED AS HOUSE PROPERTY INCOME DOES NOT CHANGE T HE NATURE OF COMMERCIAL VENTURE ENTERED INTO BY THE ASSESSEE. IT IS A SETTLED LEGAL POSITION THAT NATURE OF INCOME AND HEAD OF INCOME ARE DIFFERENT. EVEN IN RESPECT OF COMMERCIAL PROPERTY OWNED BY ASSESSEE IN CASE SO ME RENTAL INCOME IS RECEIVED, THE INCOME FROM RENT HAS TO B E COMPUTED UNDER THE HEAD HOUSE PROPERTY WHICH IS A SPECIFIC HEA D OF INCOME FOR SUCH INCOME BUT THE NATURE OF INCOME WOULD REMAIN BUSIN ESS INCOME. THE RENTAL INCOME IN THIS CASE HAS BEEN RECEIVED BY THE A SSESSEE WHICH WAS ONLY A TEMPORARY ACTIVITY OF THE ASSESSEE TILL T HE ACQUISITION OF THE LARGER PROPERTY WAS COMPLETED BECAUSE AS SOON AS T HE PURCHASES WERE COMPLETE, THE PROPERTY HAD BEEN SOLD MAKI NG IT CLEAR THAT IT WAS NOT THE INTENTION OF THE ASSESSEE TO HOLD THE PROPERTY FOR INVESTMENT AND TO EARN INCOME FROM SUCH INVESTMENT. THE REFORE, ITA NO. 2691/M/10 A.Y.06-07 10 CONSIDERING THE ENTIRE SURROUNDING CIRCUMSTANCES AND KEEPI NG IN MIND OBJECTIVES OF THE ASSESSEE IN THE MOA, WE SEE NO INFIRMITY IN THE CONCLUSION DRAWN BY THE AUTHORITIES BELOW THAT ACQUIRING VARIOUS GATS BY THE ASSESSEE MAKING OF IMPROVEMENTS AND SELLING ALL T HE GATS TO THE SAME PERSON WAS A BUSINESS ACTIVITY OF THE ASSESSEE. 4.3 THE LD. AR FOR THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF JANKI RAM BAHADUR RAM (SUPRA), WHICH IN OUR VIEW IS DISTINGUISHABLE. IN THAT CASE THE ASSESSEE WAS A DEALER IN IRON AND SCRAP AND HARDWARE AND H AD PURCHASED A JUTE PRESSING FACTORY QUITE UNRELATED TO HIS BUSINESS AND SAME HAD BEEN SOLD WITHIN A PERIOD OF ONE YEAR ON PRO FIT. THE HON'BLE SUPREME COURT HELD THAT EXCEPT THE PROFIT MOTIVE IN THE TRANSACTION WHICH WAS NOT A CONCLUSIVE CRITERIA, THERE WAS NO MATERIA L TO INDICATE ANY COMMERCIAL VENTURE. THE PRESENT CASE IS DIFFERENT IN WHICH THE ASSESSEE IN A SYSTEMATIC AND ORGANISED MANNER, HAD ACQUIRED DIFFERENT PROPERTIES IN THE SAME LOCALITY WITH A VIEW TO SELLIN G THE SAME AFTER IMPROVEMENT TO THE SAME BUYER WHICH WAS IN TUNE WITH ITS BUSINESS OBJECTIVES MENTIONED IN MOA. THE JUDGMENT OF HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. NATHURAM RAMNARAYAN PVT. LTD. (SUPRA), RELIED UPON BY THE LD. AR IS ALSO DISTINGUISHABLE. IN THAT CASE THE ASSESSEE WHO WAS SELLING AGENT OF T GROUP, HAD TAKEN PERM ISSION FOR CONSTRUCTION OF STAFF QUARTERS FOR T GROUP. THE ASSESSEE HA D ACQUIRED ITA NO. 2691/M/10 A.Y.06-07 11 PLOT AND ALSO DEVELOPED IT AND DIVIDED INTO SMALLER P LOTS FOR DIFFERENT PURPOSES SUCH AS PLAY GROUND ETC. THE ASSESSEE HOWEVER SUBSEQUENTLY SOLD THE PLOTS AND INCOME WAS SHOWN AS CAPITAL GAIN. THE REVENUE HAD TREATED INCOME AS BUSINESS INCOME. THE A SSESSEE HAD EXPLAINED THAT IT HAD SOLD PLOTS BECAUSE IT HAD SUFF ERED HUGE LOSS DUE TO THE FACT THAT SEVERAL OTHER SELLING AGENTS HAD B EEN APPOINTED BY T GROUP AND, THEREFORE, SALE DID NOT CONSTITUTE ADVENT URE IN THE NATURE OF TRADE. THE HONBLE HIGH COURT HELD THAT THE FINDI NG OF THE TRIBUNAL ON THE FACTS OF THE CASE THAT THE SALE WAS NOT ADVENTURE IN THE NATURE OF TRADE WAS NOT PERVERSE. THE CASE IS OBVIOUSLY DIFFER ENT AS IN THAT CASE ASSESSEE HAD TO SELL PLOT IN VIEW OF LOSS INCURRED AND N OT AS PART OF BUSINESS ACTIVITY. 4.4 IN VIEW OF THE FOREGOING DISCUSSION AND FOR THE RE ASONS GIVEN EARLIER, WE ARE OF THE VIEW THAT INCOME FROM SALE OF VARIOUS PROPERTIES BY THE ASSESSEE HAS TO BE CONSIDERED AS BUSINESS INCOME. THE O RDER OF CIT(A) IS ACCORDINGLY UPHELD. 5. GROUND NO.2 AND 3 RELATE TO DISALLOWANCE OF EXPENSE S UNDER SECTION 14A OF THE INCOME TAX ACT. GROUND NO.2 IS IN REL ATION TO DISALLOWANCE OF EXPENSES UNDER SECTION 14A IN THE NORMAL COMPUTATION OF INCOME WHEREAS GROUND NO.3 IS IN RELATION TO COMPUTA TION OF INCOME IN WHICH DISALLOWANCE UNDER SECTION 14A HAS BEEN MADE WH ILE ITA NO. 2691/M/10 A.Y.06-07 12 COMPUTING BOOK PROFIT U/S. 115JB. THE ASSESSEE HAD INCOME FROM MUTUAL FUND OF RS.21,24,322/- WHICH WAS EXEMPT UNDER SECTION 10(35) AND DIVIDEND INCOME OF RS .49,964/- WHICH WAS EXEMPT UNDER SECTION 10(34). THE ASSESSEE HAD CLAIMED TOTAL EXPENSES OF RS.1,29,146/- ON ACCOUNT OF PROFESSIONAL FEES, REMUNERATI ON TO AUDITORS AND MISCELLANEOUS EXPENSES. THE AO MADE DISALLO WANCE OF EXPENSES UNDER SECTION 14A AS PER RULE 8D WHICH CAME TO RS.2,72,155/-. SINCE EXPENSES ACTUALLY INCURRED WERE LE SS THAN RS.2,72,155/-, THE AO DISALLOWED RS.1,29,146/- BOTH IN COMPUTATION OF INCOME UNDER NORMAL PROVISIONS AS WELL AS IN THE COMPUTAT ION OF BOOK PROFIT. IN APPEAL THE ORDER OF AO WAS CONFIRMED BY CIT(A) AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5.1 WE HAVE HEARD BOTH PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALL OWANCE OF EXPENSES RELATING TO EXEMPT INCOME UNDER SECTION 14A OF THE INCOME TAX ACT. UNDER THE PROVISIONS OF SECTION 14(2), 14(3), D ISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME IS REQUIRED TO BE MA DE AS PER METHOD PRESCRIBED BY THE GOVERNMENT. THE GOVERNMENT H AS SINCE NOTIFIED RULE 8D FOR COMPUTATION OF EXPENSES DISALLOWAB LE UNDER SECTION 14A. HOWEVER HONBLE HIGH COURT OF BOMBAY IN CASE OF GODREJ AND BOYCE MFG. CO. VS. DCIT (328 ITR 81) , HAVE HELD THAT RULE 8D IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09. IN RESPECT O F PRIOR ITA NO. 2691/M/10 A.Y.06-07 13 PERIOD, THE HONBLE HIGH COURT HAVE HELD THAT EXPENSES BOTH DIRECT AND INDIRECT HAVE TO BE DISALLOWED ON A REASONABLE BASIS AFT ER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. IN THE PRESENT CASE, ASSESSMENT YEAR INVOLVED IS ASSESSMENT YEAR 2006-07 AND THER EFORE RULE-8D CAN NOT BE APPLIED. WE THEREFORE SET ASIDE T HE ORDER OF CIT(A) AND RESTORE THE ISSUE TO THE AO FOR PASSING FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF JUDGMENT OF HONB LE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ AND BOYCE MFG. CO. (SUPRA), AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 16.3.2012 SD/- SD/- (B.R. MITTAL) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 16.3.2012. JV. ITA NO. 2691/M/10 A.Y.06-07 14 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.