ACIT 28 (2), NAVI MUMBAI V. M/S NEEL SIDDHI DEVELOPERS, NAVI MUMBAI

ITA 30/MUM/2020

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9574 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-08-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 01-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Cost of acquisition; Competent authority; Capital Gains
• Section: 2; 143(3); 54F; 2(14); 205; 207; 208; 48; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM & SHRI S RIFAUR RAHMAN, AM आयकरअपीलसं./ I.T.A. No.30/Mum/2020 (निर्धारणवर्ा / Assessment Year: 2011-12) The Assistant Commissioner of Income Tax 28(2), Mumbai Room No.307, 3 rd Floor, Tower No.6, Vashi Railway Station Complex, Navi Mumbai- 400 703 बिधम/ Vs. M/s Neel Siddhi Developers 2nd Floor, The emerald Plot No. 195/B, Sec-12, Vashi, Navi Mumbai- 400 703 स्थायीलेखासं./जीआइआरसं./PAN No. AAGFN2744N (अपीलाथी/Appellant) : (प्रत्यथी / Respondent) अपीलाथीकीओरसे/ Appellant by : Ms. Ritika Agarwal. प्रत्यथीकीओरसे/Respondent by : Shri. Chetan M. Kacha, Sr. AR. सुनवाईकीतारीख/ Date of Hearing : 03.08.2022 घोषणाकीतारीख / Date of Pronouncement : 28.10.2022 आदेश / O R D E R Per Amit Shukla, Judicial Member: The aforesaid appeal has been filed by the Revenue against order dated 22.10.20-19, passed by the Ld. CIT (A)-26, Mumbai for the quantum of assessment passed u/s. 143(3) for AY 2011-12. The Revenue has taken as many as 8 grounds in its appeal memo. From the grounds raised by the Revenue the three main grounds are culled out which are as under: a. Challenging the order of the CIT(A) in holding the transaction of sale of land at Nagpur to be taxable under the head "Capital Gain instead of "Income from Business and Profession"; b. Challenging the order of CIT(A) rejecting the alternate ground of Revenue that the aforesaid transaction of sale of land be brought to tax not as "long term capital gain" but as "short term capital gain", and c. Challenging the order of CIT(A) upholding the action of the Assessecoffering business income by applying "project completion method" instead of "percentage completion method.” Facts of the Case: 2. The undisputed facts relevant to the aforesaid grounds as available in the assessment order and the CIT(A) order are that, the Assessee is a partnership firm engaged in the development of real estate into residential and commercial complex. The Assessee had purchased a land at Mihan, Nagpur for a total consideration of Rs. 25 crores vide Sale Deed dated 31.12.2007. Prior to execution of the said Sale Deed, the Assessee had entered into an Memorandum of Understanding ("MOU") dated 14.07.2006 with M/s. Commercial Explosives (India Ltd.), the Original Vendor along with which an advance amount of Rs.5.00 crores was paid. A copy of the said MOU appears at Page pages 27 to 33 of PB. 3. As per the prior Resolution dated 01.06.2006 passed by the Assessee appearing at page 227of PB, the said land was acquired for the purpose of development of a project which it proposed to lease out for earning rental income. However, due to various impediments the said land could not be developed. The said impediments are listed at pages 19 to 22 of the CIT (A)'s order and enlisted hereunder for sake of brevity: a. Delay in Mutation of the Name in Revenue Records; b. Reservation on the said Land for DP roads on certain portion of the land, c. Existence of Natural Nalla withSize, Shape and position of Natural NALLA which was passing through the said land did not tally with the City Survey Plans; d. Outstanding Property Tax for the period from 01.04.2000 to 01.04.2008 demanding a sum of Rs.75,41,073/- and Rs.51,04,922/-; e. Non Agricultural Permissiongranted in 1960 was revoked by the Tehsildar; f. Claim of Nagpur Improvement Trustcovering CT Survey No.326 owned by the Assessee, and g. Title Dispute with Claimants- a claim made by one Deepak Deshmukh & others on certain portion of the said land. 4. The facts and circumstances led to the sterilization of project for the development and construction of the land. Thus, the Assessee sold the said land on 15.12.2010 relevant to impugned AY 2011-12 for a total consideration of Rs 46.55 crores. The Assessee disclosed a gain of Rs.17,37,73,307/-in its P&L account on the sale of said land after adjusting for expenses of transaction and further, offered for taxation as Long Term Capital Gain Rs.12,15,10,183/- after indexation of cost of acquisition in its return of income. Copy of return of income, statement of income along with the audited balance sheet for the impugned AY 2011-12 is appearing at page 159 to 207 of PB. 5. During the course of assessment, the AO did not agree with the mode and manner of computation of income in respect of such land as shown by the Assessee in its return of income. He held in para no. 4 of his assessment order that such sale of the land business income" He further held that without prejudice, the said gain is not Long Term Capital Gain since the holding period was within 3 years when calculated from the date of Purchase vide Sale Deed on 31.12.2007 to date of sale being 15.12.2010 6. In the first appeal, the CIT (A) reversed the opinion of the AO and restored the computation of income under the head "Capital Gain" He further treated the gain as "Long Term Capital Gain" on the basis that MOU was executed much earlier on 14.07.2006 and hence, that should be the date of acquisition. The Revenue is in appeal before us challenging the said order of the CIT (A). Business Income Vs. Capital Gain: 7. The first ground of the Revenue is that the sale of land at Nagpur by the Assessee is a transaction in the nature of adventure in trade and hence, liable to be taxed under the head "Income from Business and Profession" and not under the head "Capital Gain" as offered by the Assessee. The reasons provided by the AO in his assessment order are summarised hereunder: a. The said land was shown as "Stock in trade" in the balance sheet of the Assessee; b. The Assessee is engaged in the business of development of real estate and without land no development can start. Hence, the argument of Assessee that it is not dealing in buying and selling of land is incorrect; c. As per partnership deed, the Assessee is in the business of developing real estate (Copy of Partnership Deed is at Page 208 211 of PB). d. Intention at the time of acquisition of land is more important than subsequent non utilization of said land, e. The Assessee was aware of the various problems and difficulties which lay ahead and hence, it cannot be accepted that the said land was not developable 8. Before the CIT (A), the Assessee made detailed submissions which form part of paper book filed before us and appear at page 01 to 25 of the PB. The Assessee's submission are summarised hereunder: a. The Assessee is a partnership firm engaged in the activity of construction and development of real estate. For this purpose, the Assessee acquired a parcel of land at Nagpur for a total consideration of Rs.25 crores as evidenced by Sale Deed executed on 31.12.2007.The Assessee could not develop the said land due to procedural and legal tangles as have been chronicled. There is no finding by ld AO nor there is any evidence to lead that the Assessee was engaged in any manner in "trading" of land. A copy of partnership deed was submitted which at para 5 enlists the activities for the purpose of which the Assessee firm was constituted. b. In this case, the Assessee had acquired the said land for the purpose of development and not for trading. The Assessee was also desirous of holding a large part of constructed premises for its own use and/ or leasing the constructed premises as per the object clause of the deed of partnership. Hence, it cannot be presumed that the Assessee would have disposed of the said land along with the construction thereon. This fact was also observed by the AO in his show cause notice dated 22.01.2014 which is appearing at pages 223 to 226 of the PB. Therefore, there is no dispute to the fact that there was no intention for the Assessee to trade in the said land so as to treat it as "stock-in- trade". However, the activity of development could not commence due to legal and procedural issues. Thus, the said land remained in the dormant state in which it was acquired c. The Assessee had reclassified the said land as "investment" as on 01.04.2010. This fact has not been controverted by the AO in his order. Hence, even if it is assumed the classification of the land in books is an important criteria, yet the said land stood classified as "investments" as on 01.04.2010. This fact is borne out from the copy of ledger account submitted before the AO for its verification. d. The definition of the term "capital asset" as laid down u/s. 2(14) of the Income-tax Act, 1961 states that a "capital asset" means: "property of any kind" held by the assessee whether or not connected with his business or profession.........” Therefore, even if the land is purchased for the purpose of business (and it is not to be traded in) then it will be capital asset. The expression "stock-in-trade" as referred to in section 2(14) per force implies the existence of a business. In this case, though the Assessee was in the real estate development business, the development of the said land in question could not commence due to litigation and procedural difficulties. Hence, the Assessee had to sell the said land as such without starting the development activity, the purpose for which it was acquired having failed. e. The simplest method of determining whether an item of property is "stock-in-trade" or a "capital asset is by applying the functional test. If the property is an item which is "traded" by the assessee, it would be "stock-in-trade" but if the property constitutes the 'means' through which he carries on his business, the same cannot be his "stock-in-trade" and hence, by default, it would constitute his "capital asset" Reliance is placed on the decision of Hon'ble Gujarat High Court in the case of H Mohmed & Co v. CIT (1977) 107 ITR 637(Guj) wherein it has been held that what an assessee deals in is his "stock-in-trade" and what he deals with is "capital asset". f. The contention of the AO that the land was a business asset and hence, the gain on its sale is taxable under the head "Business income" is contrary to the decision of Hon'ble Supreme Court in the case of CIT vs. Express Newspapers Ltd. (SC) [1964] 53 ITR 260. It has been held by Apex Court that: “....The fact that the capital gains are connected within the capital assets of the business cannot make them the profit of the business. They are only deemed to be income of the previous year and not the profits or gains rising from the business during that year". g. The stand of the AO is also contrary to the scheme of Income Tax Act, 1961. Section 50 of the Income Tax Act taxes gain on sale of business assets of the assessee under the head "Capital Gain" even though it is depreciable asset used for the purpose of business. Therefore, to say that the gain on sale of business asset is taxable under the head "business income" is contrary to provisions of section 50 and if accepted, it would render section 50 nugatory. h. The AO's contention that there is no connection between asset becoming sterile and capital gain. This is in contrast to decision of supreme court in the case of Universal radiators vs. CIT (1993) 201 ITR 800 (SC). i. Further, the AO has not appreciated the facts correctly. A perusal of the chronology of the events reveal that a litigation as regard the title of the land commenced after the Assessee had acquired the land on 31.12.2007. Kindly refer letter dated 26.09.2008 written by the Assessee to the Commissioner Nagpur Municipal Corporation wherein this fact is highlighted. Since the litigation on title would have had impact on the permissions and future development, there was no sense in commencing the project. Therefore, the partners mutually decided to abandon the project and move out instead of being tied up in litigation and especially in Nagpur a different city far from Navi Mumbai. j. The stand of the AO is contradictory as he has himself accepted the books of accounts wherein the land stood classified as "investment" as on 01.04.2010 much prior to payment of advance tax in December, 2010. k. The Mumbai ITAT has in the case of Rajesh Builders for A.Y. 2004 05 upheld the gain on sale of land as taxable under the head "Capital Gain". Therefore, the decision of AY 2004-05 in Rajesh Builders case which has attained finality may kindly be followed in view of rule of precedence has laid down by Mumbai High Court in the case of Bank of Baroda vs. HC Shrivastava (2002) 256 ITR 385 (Bom.) I. It is important to mention that the Assessee did not deal in past or in subsequent years and is a solitary transaction of the purchase and sale of land. 9. The CIT(A) has in Para 6.2 from page nos. 7- 22, summarised the arguments of the Assessee and thereafter, allowed the claim of the Assessee as per reasoning provided in para 6.5 of the appeal order being impugned before us which are stated hereunder: a. The provisions of section 2(14) of the Act defines the term "capital asset". It states that property "whether connected to business or not" is "capital asset". Hence, even if an asset is connected to business, the gain on the sale is "capital gain". Even section 50 of the Income Tax Act lay down that the gain on the sale of depreciable asset used for the purpose of business is to be taxed under the head "capital gain" Therefore, according to the CIT(A), the AO had taken a myopic view of the matter by holding that merely because an asset is a business asset, the gain on its sale will be taxed as business income. b. The AO has himself recorded a finding that the said land was classified as "stock in trade" in the books of the Assesseein the earlier years. The question is whether such classification in books is be all and end all of the matter. Supreme Court in the case of G. Venkataswami Naidu & Co. vs. CIT (1959 35 ITR 594 (SC) held that all attendant facts and circumstances of the case is to be seen to determine whether the income is capital gain or business income No one test or formula can be applied as a thumb rule. The same sentiment has been echoed by the Mumbai High Court in the case of Fort Properties (P) Ltd vs. CIT (1994) 208 ITR 232 (Bom.) wherein the Hon'ble Mumbai High Court treated the loss on sale of property classified as "stock in trade" as "capital loss" instead of "business loss". In the present case, the Department had taken a stand that even if the asset was classified as "stock in trade" yet the loss on its sale is not "business loss" but is a "capital loss". The Department had contended that the Assessee was though a real estate company, yet it did not carry out the business on the said land and hence, mere classification in books of accounts as "stock in trade" is not final. In the impugned case, the AO has contended exactly the opposite which is against the law laid down by the Bombay High Court in the case of Fort Properties (1994) 208 ITR 232 (Bom). Therefore, mere fact that the said land was classified as "stock in trade" in books in earlier years is not determinative of the fact that the gain on its sale is to be taxed as business income. C. The AO has himself admitted the fact that the said land was acquired for the purpose of development and not sale as such. The said land could not be developed for various reasons as highlighted by the Assessee. Therefore, it cannot be said that the business of development was carried out by the Assessee or that the income earned is from the business of development of real estate. d. The AO has also not countered the claim of the Assessee that this is a solitary transaction of sale of land by the Assessee and that they have never sold the land in past. e. The AO has relied upon the ITAT decision in the case of Rajesh Builders for A.Y. 2005-06 wherein the hon'ble ITAT has held that the gain on sale of development rights is taxable as business income and not capital gain. On the other hand, the Assessee has produced the decision of hon'ble ITAT in the same case for A.Y. 2004-05 wherein the hon'ble ITAT has held that even in the case of real estate developer, the land acquired for the purpose of development shall be capital asset, if it is sold without development and the gain on such sale is taxable as "capital gain". In fact, the said decision of the jurisdictional ITAT is on all fours with the facts of the Assessee's case. 10. Before us, the ld. DR challenged the action of the CIT(A) and relied on the order of the AO. He reiterated what is stated by the AO in the order. His main contention is that since the Assessee is a real estate developer, any purchase and sale of land is a business. transaction and hence, liable to be taxed under the head business income. 11. In her counter the Ld AR for the Assessee submitted that a businessman can have same asset as a "trading asset" and also as an "investment" The Id AR further submitted that the sale of land by the Assessee as an isolated transaction which was triggered as multiple impediments arose and hence, the Assessee had to shelve the idea of developing the said land Thus, the asset acquired by the Assessee became sterile She stated that even if the intention at the time of acquisition is to be seen, then too the assessee never intended to sell the said land after development but retain the same for earning rental income Hence, the purpose of acquiring the said land was always to hold the said land as "investment". She further relied upon the Resolution dated 01.06.2007 appearing on page 227 of the PB, passed by the partners of the Assessee detailing the reasons for acquiring the said land. 12. She further argued that since the facts remain undisputed by the Revenue, the decision on head of income as determined by CIT (A) cannot be interfered with. She also placed reliance on the decision of Bombay High Court in the case of Fort Properties (supra) wherein the hon'ble High Court has held that all attendant circumstances has to be seen before one can draw a conclusion whether the gain was assessable as "business income" or "capital gain". Merely because the Assessee had shown the asset as "stock in trade", it cannot be said that the gain was taxable under the head "Income from Business". She further pointed out the decision of the Hon'ble Delhi High Court in the case of D.L.F. Hsg & Constn. P.Ltd. v. CIT (1983) 141 ITR 815-824 (Delhi) as mentioned in the submission filed before the CIT(A) and reproduced in the said order at sub para (p) on page no. 16 The hon'ble Delhi High Court has held as under: "The expression "in the nature of trade" as used in s.2(4) of the Act apparently postulates the existence of certain elements in the adventure which, in law, would invest it with the character of a trade or business and the answer to the question whether a particular transaction is in the nature of trade cannot be decided on the basis of any single test or formula. The burden of proving that a particular transaction is in the nature of trade shall be, in the case of agricultural land, on the Revenue and not on the assessee. It bears repetition that in the instant case the assesseedid not take any step to develop the lands in question on the normal lines of its business with a view to parcel it out into plots as sites for houses and commercial buildings". 12. She further took us through the CIT(A) order wherein the decision of Pune ITAT in the case of Shanti Builders vs JCIT (Pune) (2004) 88 TTJ 519 is mentioned holding that even if the land was acquired for the purpose of development and because of its sterilization it cannot be developed, the gain on sale has to be treated as capital gain and not as business income. The Pune ITAT held a under: "At the outset, we are not impressed by the arguments of the learned commissioner in the impugned order as well as of the learned Departmental Representative during the course of hearing before us that the Assesse being a firm the income was required to be brought to tax under the head "Profits and gains of business or profession" and not under the head "capital gains". The thrust of the arguments in this respect is that the firm is essentially constituted to carry on business and, therefore, any asset acquired by the firm cannot be anything but business assets. This argument overlooks the basic fact that business asset held by a firm can be in the form of a capital asset as well. For example, if a firm acquires plant and machinery for the purpose of its manufacturing activity such plant and machinery would be capital asset in the hands of the firm and any subsequent sale of such plant and machinery by the firm would only amount to transfer of a capital asset. The fallacy in the arguments of revenue in this respect lies in the fact that it is assumed that a business asset has to be a trading asset only which is not the correct position under the well established principles of accountancy. A business asset whether in the hands of the firm or an individual or a company or any other entity carrying on business can comprise of capital assets as well as trading assets. Where the transfer is of a capital asset it would give rise to income chargeable to tax under the head capital gain and where the transfer is of a trading asset such receipts are to be considered under the head "Profits and gains of business or profession. What is, therefore, required to be determined in the instant case is not as to whether the land in question was a business asset of the firm but whether it was a capital asset or a trading asset in the hands of the firm." 13. She further relied upon the decision of Mumbai ITAT in the case of Rajesh Builders for AY 2004-05 which is mentioned in sub para (r) on page 17 of the CIT(A) order. The ld AR also referred to various judgments on the issues of "capital asset vs. stock in trade" and "capital gain vs business income", specifically Bagmane Developers (P) Ltd. [2017] 392 ITR 379 (Karnataka). Decision 14. We have considered the submissions of the Ld. DR and the counter arguments of the Ld. AR of the Assessee and perused the assessment order and the CIT (A) order as well as material referred to before us. We find that the AO has in his order made contradictory observations. On one hand, he has stated that the business of the Assessee was that of "development" of the land and on the other hand, accepted the fact that the said land was sold as such without any development. In an earliest decision, while deciding the head of income, the Apex Court has in the case of G. Venkataswami Naidu & Co. us. CIT (1959) 35 ITR 594 (SC) held that all attendant facts and circumstances of the case is to be seen to determine whether the income is "capital gain" or "business income" 15. The CBDT too has in their Circular no. 4/2007 dated 15.06.2007accepted that a businessman can have two separate portfolios, one as a "trading portfolio" and another for "holding investments" 16. Thus, when we look at all attendant facts which remain undisputed that: a. the land was purchased with the intention of development for the purpose of leasing out constructed area and not sale of land, b. the land could not be developed due to various impediments as listed by the AO and CIT(A) in their order, c. the land was purchased by the Assessee with its own funds and not borrowed funds, d. the land sale is an isolated transaction, e. the land was classified as "investment" in the books of accounts as on 01.04.2010 which is accepted by the AO. Thus, we do not find any reason to differ from the view taken by the CIT(A). The assessee has used its capital to purchase the said land and what is recovered is the said capital. The transaction cannot be treated to be an adventure in the nature of trade since the transaction of sale was forced upon the assessee due to circumstances which are enlisted hereinabove. This transaction cannot be classified as an adventure in the nature of trade. It was not a transaction which was actively intended at the time of acquisition of land. 17. The judgments of courts relied upon by the ld. AR for the Assessee is squarely applicable to the facts of the case on hand. The Ld. DR of the Assessee has not brought on record any contra decision or shown that the decisions relied upon by the Assessee and as relied upon by the CIT (A) are over ruled. Further, the ld. DR has neither raised any additional argument other than what the AO has stated and already dealt with by the CIT (A) in an elaborate order nor stated as to why the findings and reasoning of CIT(A) is incorrect either on facts or in law. Hence, we uphold the order of CIT(A) on this ground and hold that the Assessee has rightly offered the gain on sale of Nagpur land under the head "Capital Gain" Long Term v. Short Term Capital gain: 18. The next ground of the Revenue is challenging the action of CIT (A) in upholding the capital gain on sale of aforesaid Nagpur land as "long term capital gain" instead of "short term capital gain" 19. The undisputed facts are that the Assessee entered into an MOU dated 14.07.2006 with M/s Commercial Explosives (India Ltd.), the original vendor of the land at Mihan, Nagpur. As per the terms of the said MOU, the Assessee was required to pay an amount of Rs.25 croresto purchase the said land. A copy of the said MOU appears on pages 27 to 33 of the PB. Simultaneously, with the execution of the MOU the Assessee paid Rs.25 lacs out of total consideration. 20. The Id. DR vehemently challenged the action of the CIT(A) and relied upon the decision of SC in the case of Suraj Lamps and Industries Pvt. Ltd (2009) 7 SCC 363 to contend that no rights in the asset can get created unless the conveyance is registered and stamp duty is paid. The Id. DR further relied upon the judgment in the case of Alapati Venkataramiah [1996] AIR 115, [1965] SCR (3) 567 and vociferously argued that in the context of Section 53A of the Transfer of Property Act, the date of acquisition of the said land is to be reckoned from the date of Sale Deed which in the instant case was on 31.12.2007. The SC judgment in the case of Balbir Singh [2018] 12 SCC 354 was also referred to. The Ld. DR also pointed out that the said MOU was cancellable as per 4 of the said MOU upon which the amount paid by the Assessee was refundable to the Assessee. Hence, as per the ld. DR, the said MOU was not a concluded contract. 21. In her counter, the ld. AR countered each of these cases giving reference to the facts of the present case. The ld AR argued that these decisions are not applicable for determining the period of holding an asset under the Income Tax Act. She stated that section 2(42A) which defines the term "Short term capital asset" uses the phrase "held" and not "owned" or "purchased" She further stated that the valuable and enforceable rights of the Assessee got created when MOU was executed on 14.07.2006 in pursuance to a Resolution passed by the Board of the Original Vendor. She drew our attention to copy of the said resolution appearing on page 34 of the PB. She further showed that part payment of Rs.5.00 crores was made. She argued that the said MOU created an enforceable right of the Assessee and hence, it's a "property" as covered in the definition of Capital Asset u/s. 2(14) of the Act and hence, the date of acquisition would be the date of MOU She relied upon the decision of SC in the case of Sanjeev Lal [2014] 306 ITR389 (SC) for this proposition. 22. She further relied upon para no.8.3 on pages 33 onwards of the CIT(A)'s order where the clear undisputed findings of facts and law are given by the CIT(A) while upholding the applicability of "Long Term Capital Gain". In particular in para (iii) page 31,the CIT(A) has observed that the MOU granted right of termination of contract only to the Assessee and not to the Vendor Company and therefore, the said Contract was specifically enforceable at the behest of the assessee only. This is a valuable right and hence, a "property". The ld. AR has relied upon following decisions, synopsis of which was filed during the course of hearing: a. Sanjeev Lal vs CIT (2014) 105 DTR (SC) 305 b CIT vs. Ramkrishnan (2014) 48 Taxmann.com 55 (Delhi) c. CIT vs. Tata Services Ltd 122 ITR 594 (Bom) d. Simka Hotels and Resorts vs DCIT (2013) 85 DTR 249 (Delhi) 23. She stated that further payment and registration of the sale deed is merely a follow up action and does not create a fresh right in the property. It merely formalises the right which is already created. She vehemently argued that the Assessee has a right to claim specific performance of the written contract in the form of MOU, if the vendor breaches the terms of the said MOU. She further relied upon page no. 235 of the PB wherein resolution passed by the Board of Directors of the Original Vendor has clearly concluded the contract and authorised the persons named therein to execute the said MOU Decision: 24. After considering the rival submissions onthe issue involved here, we find that, this tribunal in the case of Anita D.Kanjani Vs. ACIT (2017) 163 ITD 451 (Mum) held that the decision of Suraj Lamps & Industries Pvt. Ltd.Vs. State of Haryana (Supra) is inapplicable while calculating holding period u/s. 2(42A) of the Income Tax Act. The Tribunal held and observed as under: The AO relied upon the judgement of Hon'ble Supreme Court in the case of M/s Suraj Lamps & Industries Pvt Ltd vs State of Haryana 304 ITR 1 (SC) wherein it was held that transfer of an immovable property is effective only from the date on which it is registered with the Sub Registrar, which is competent authority to register the documents for transfer of immovable properties. Accordingly, the AO computed the period of holding of the asset from the date of registration of the agreement with the office of Sub Registrar and found that the said property was 'short term capital asset' Consequently, the resultant gain was assessed as short term capital gain. 4. Being aggrieved, assessee filed appeal before Ld. CIT(A) and made detailed submissions to argue the point that the impugned property was held for more than 36 months as per law, therefore, it should be held as 'long term capital asset' Ld. CIT(A) did not agree with the submissions of the assessee and confirmed the action of the AO. Still being aggrieved, assessee filed appeal before the Tribunal 5. During the course of hearing, the Ld Counsel of the assessee made detailed arguments. Twofold arguments were made by him before us. It was firstly argued that period of holding should be computed from the date of allotment of the property as per section 2(42A). In support of his claim, reliance was placed on the following judgments: 1. Madhu Kaul v. CIT (2014) 363 ITR 54 (P&H HC) 2 CIT v. K Ramakrishnan (2014) 363 ITR 59 (Del HC) 3. CIT v. SR Jeyashankar (2015) 373 ITR120 9Mad HC) 4. CIT v. A Suresh Rao (2014) 223 Taxmann 228 (Kar HC) 5. Vinod Kumar Jain v. CIT (2012) 344 ITR 501 (P&H_HC) 6. CIT v. Jitendra Mohan (2007) 165 Taxman 524 (Del HC) 7 CIT v. Panchand Gandhi (2005) 279 ITR52 (Guj HC) 8. CIT v. Anilaben Upendra Shah (2003) 262 ITR 657 (Guj) 9. Lahar Singh Siroya v. ACIT (2016) 138 DTR 331 (Kar-HC) 10. Vijay Harmilapurkar v. DCIT ITA No.6048/M/2013 11. ACIT v. Vandana Rana Roy ITA No.6173/M12011 12. Meena Hernani vs ITO ITA No.5998/M/2010 13. Sneha Bimal Parekh v. CIT ITA No.5489/M/2015 14. Surnatichand TolamalGoutiu. DCIT ITA No.2009/M/2013 15.Circular No. 471, dated 15-10-1986 162 ITR(St)41 16. Circular: No. 672, dated 16-12-1993 205 ITR(St) 47 ... 8. We have gone through the facts and circumstances of the case, orders passed by the lower authorities, submissions made and judgments relied upon before us by both the sides. The chronology of relevant events in this regard is as under: 1. Date of allotment of office unit to the Assessee 11-04-2005 2. Date of signing of the agreement to sell 28-12-2007 3. Date of registration of the aforesaid property with the Registrar 24- 04-2008 4. Date of sale of aforesaid property - 11-03-2011 The AO has computed the holding period from the date of registration, i.e. 24-04-2008 and accordingly it was held that when the property was sold on 11-03-2011 it was held for less than 36 months and, therefore, it was 'short term capital asset'. On the other hand, assessee has claimed that the property was held by the assessee since when allotment letter was issued to the assesse of the said property, i.e, on 11-04-2005; when the property was duly identified and part payment was made. It was alternatively argued that in any case, if the date of transfer of property is to be taken as the beginning point of holding period, then the date of signing of the agreement i.e 28-12-2007 should be taken into account and not the date of registration of the agreement in terms of section 47 of Registration Act, 1908 as has also been clarified by the Hon'ble Supreme Court in the above mentioned two judgments 9. With a view to resolve this dispute, we have firstly analysed the provisions of section 2/42A) which defines 'short term capital asset' as under:- "Section 2(42A) in the Income Tax Act, 1961 (42A) "short-term capital asset" means a capital asset held by an assesse for not more than thirty- six months immediately preceding the date of its transfer": Perusal of aforesaid definition shows that the legislature has used the expression 'held' It is further noted by us that in various other allied or similar sections, the legislature has preferred to use the expression acquired' or 'purchased' e.g. in section 54/ 54F Thus, it shows that the legislature was conscious while making use of this expression. The expressions like 'owned' has not been used for the purpose of determining the nature of asset as short term capital asset or long term capital asset. Thus, the intention of the legislature is clear that for the purpose of determining the nature of capital gain, the legislature was concerned with the period during which the asset was held by the assessee for all practical purposes on de facto basis. The legislature was apparently not concerned with absolute legal ownership of the asset for determining the holding period. Thus, we have to ascertain the point of time from which it can be said that assesseestarted holding the asset on de facto basis. 10. It is noted that the letter of allotment was issued to the assesse on 11-04-2005, the letter of allotment makes a mention of the identity of the flat as office unit No.107, located at First Floor of Everest Grande. It also makes a mention that total consideration of the said property is a sum of Rs.29,64,000/- out of which a sum of Rs.5 lakhs was paid by the assesse on 04-04-2005 by cheque No.539104 as part payment against the said office unit. It is further noted by us that Hon'ble Karnataka High Court in the case of CIT us A Suresh Rao 223 Taxmann 228 (Kar) dealt with similar issue wherein the significance of the expression 'held' used by the legislature has been analysed and explained at length. Hon'ble High Court analysed various provisions of the Act pertaining to computation of capital gain under various situations and also circulars issued by the CBDT on this issue. Relevant portion of the observation wherein the issue before us has been properly analysed is reproduced hereunder: 12. "The definition as contained in Section 2 (42A) of the Act, though uses the words, "a capital asset held an assessefor not more than thirty-six months immediately preceding the date of its transfer", for the purpose of holding an asset, it is not necessary that, he should be the owner of the asset, with a registered deed of conveyance conferring title on him. In the light of the expanded definition as contained in Section 2(47), even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assesse is put in possession of an immovable property or he retained the same in part performance of the contract under Section 53-A of the Transfer of Property Act, it amounts to transfer. No registered deed of sale is required to constitute a transfer. Similarly, any transaction whether by way of becoming a member of or acquiring shares in a cooperative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of any immovable property, also constitutes transfer and the assessee is said to hold the said property for the purpose of the definition of 'short-term capital gain'. In fact, the Circular No.495 makes it clear that transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are common mode of acquiring flats particularly in multi storied constructions in big cities. The aforesaid new subclauses (v) and (vi) have been inserted in Section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above. A person holding the Power of Attorney is authorized the powers of owner, including that of making construction though the legal ownership in such cases continues to be with the transferor. The intention of legislature is to treat even such transactions as transfers and the capital gain arising out of such transactions are brought to tax. Further, the Circular No.471 goes to the extent of clarifying that for the purpose of Income-tax Act, the allottee gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow up action and taking the delivery of possession is only a formality. In case of construction agreements, the tentative cost of construction is already determined and the agreement provides for payment of cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in installments does not affect the legal position. Therefore, in construing such taxation provisions, what should be the approach of the courts and the interpretation to be placed is clearly set out by the Apex Court in the case of Smt. Saroj Aggarwal vs CIT 156 ITR 497 wherein it is held as under:- "Facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Where it is possible to draw two inferences from the facts and where there is no evidence of any dishonest or improper motive on the part of the assessee, it would be just and equitable to draw such inference in such a manner that would lead to equity and justice Too hyper technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered. Courts should, whenever possible unless prevented by the express language by any section or compelling circumstances of any particular case, make a benevolent and justice oriented inference. Facts must be viewed in the social milieu of a country" Therefore, keeping the aforesaid principles in mind, when we look at Section 48, the language employed is unambiguous. The intention is very clear. When a capital asset is transferred, in order determine the capital gain from such transfer, what is to be seen is, out of full value of the consideration received or accruing, the cost of acquisition of the asset, the cost of improvement and any expenditure wholly or exclusively incurred in connection with such transfer is to be deducted. What remains thereafter is the capital gain. It is not necessary that after payment of cost of acquisition, a title deed is to be executed in favour of the assessee Even in the absence of a title deed, the assesseeholds that property and therefore, it is the point of time at which he holds the property, which is to be taken into consideration in determining the period between the date of acquisition and date of transfer of such capital gain in order to decide whether it is a short-term capital gain or a long-term capital gain." Thus, from the aforesaid judgment, it is clear that for the purpose of holding an asset, it is not necessary that the assesseeshould be the owner of the asset based upon a registration of conveyance conferring title on him. 11. Similarly, in the case of Madhu Kaul (supra), the Hon'ble Punjab & Haryana High Court analysed various circulars and provisions of the Act that on allotment of flat and making first installment the assesseewas conferred with a right to hold a flat which was later identified and possession delivered on later date. The mere fact that possession was delivered later, would not detract from the fact that assessee (allottee) was conferred a right to hold the property on issuance of an allotment letter. The payment of balance amount and delivery of possession are consequential acts that relate back to and arise from the rights conferred by the allotment letter upon the assessee. ... 13. In the case of Vinod Kumar Jain vs CIT 344 ITR 501 it was held by Hon'ble Punjab & Haryana High Court that conjoined reading of section 2(14), 2(29A) and 2(42A) clarifies that holding period of the assessee starts from the date of issuance of allotment letter. Since allottee gets title of the property on the issuance of allotment letter and payment of first installment is only a consequential action upon which delivery of possession flows. Even if the sale deed or agreement to sell is executed or registered subsequently but the assesseealways had a right in the property since the date of issuance of allotment letter. Therefore, it can be said that assessee held the property immediately from the date of allotment letter. 14. In the case of CIT vs K Ramakrishnan (supra), Hon'ble Delhi High Court analysed the provisions of the Act and held that date of allotment is relevant for the purpose of computing holding period and not the date of registration of conveyance deed. Similarly in the case of CIT us S.R. Jeyashankar(supra), Hon'ble Madras High Court took a similar view following the aforesaid judgment and held that holding period shall be computed from the date of allotment. It is noted by us that similar view has been taken by other High Courts in the judgments which have been relied upon by the Ld. Counsel before us and mentioned in earlier part of our order. 15. In the assessment order, the Ld. AO has placed reliance upon the judgment of Hon'ble Supreme Court in the case of Suraj Lamps & Industries Pvt Ltd (supra) for the proposition that transfer of a property shall be effective only on registration of conveyance deed in view of section 54 of Transfer of Property Act. In our view, it is a settled proposition of law and there is no dispute on that. The absolute legal ownership of an immovable property shall take place in terms of various provisions of Transfer of Property Act which needs to be read with provisions of section 2(47) of Income-tax Act, 1961 for the purpose of computing tax liability arising on account of sale/ purchase of immovable properties under Income-tax Act. But the issue here before us is different. As discussed earlier, the holding period is to be determined in terms of section 2(42A) of the Act which has been reproduced and discussed above. The issue of transfer of ownership is not the issue to be decided here for computing the holding period. Therefore, we find that application of the ratio of aforesaid judgment would not be appropriate here. 16. Thus, respectfully following the judgements of various High Courts wherein this very issue has been analysed in detail as discussed above at length, we find that holding period should be computed from the date of issue of allotment letter If we do so, the holding period becomes more than 36 months and consequently, the property sold by the assesseewould be long term capital asset in the hands of the assesseeand the gain on sale of the same would be taxable in the hands of the assesseeas Long Term Capital Gain We direct accordingly." 25. A similar view has been taken by the Karnataka High Court in the case of CIT vs. A. Suresh Rao [2014] 41 taxmann.com 475 (Karnataka) as under: The definition as contained in section 2(42A) though uses the words, 'a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer, for the purpose of holding an asset, it is not necessary that, he should be the owner of the asset, with a registered deed of conveyance conferring title on him. In the light of the expanded definition as contained in section 2(47), even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assesseeis put in possession of an immovable property or he retained the same in part performance of the contract under section 53A of the Transfer of Property Act, it amounts to transfer. No registered deed of sale is required to constitute a transfer. 26. The above decision of Mumbai ITAT in the case of Anita D Kanjani (supra) has been followed in the case of ACIT vs. Kiran G Gadhia ITA No. 4021/Mum/2015where too it is held that the decision of SC in Suraj Lamps (supra) is inapplicable when it comes to determining the period of holding for computing the capital gain under the Income Tax Act. In the said decision this ITAT had held as under: "9... We find that an identical issue has been considered by the Coordinate Bench of this Tribunal in the case of Anita D Kanjani Vs. ACIT in ITA No.2291/Mum/2015 dated 13.02.2017, wherein the Coordinate Bench after analyzing various decisions of High Courts held that the holding period is to be determined in terms of section 2(42A) of the Act and therefore holding period should be computed from the date of allotment letter issued by the builder. It was also held that the issue of transfer of ownership is not the issue to be decided for computing the holding period but holding period is to be determined in terms of section 2(42A) of the Act, in view of various judgments. 27. Applying the above law in the facts of this case, we observe that: a. The Assessee had made a payment of Rs.5 crores out of total consideration of Rs. 25 crores after the execution of MOU. b. The MOU contains a termination clause only at the behest of the Assessee and not the Original Vendor. c. The resolution dated 21.06.2006 passed by Original Vendor prior to execution of the MOU contains a resolution that the special resolution shall be passed by the Vendor Company after compliance of all formalities for finalising the sale transaction. d. Accordingly, the Original Vendor Company had passed a AGM resolution dated 24.09.2007 (appearing at Page 34-35 of the PB) wherein the original vendor has accepted the sale transaction and authorised the board to execute the Sale Deed. 28. Accordingly, we are of the opinion that the date of finality of contract is the date of this AGM resolution dated 24/09/2007 passed by the Vendor Company and not the date of MOU as submitted by the Ld. AR of the Assessee. Although as stated by CIT(A) in his order, the MOU grants right of termination only to the Assessee, yet a company operates through resolutions and hence, the date when the AGM resolution was passed, the contract became binding on the Vendor Company giving unfettered rights to the Assesseehere to purchase the property. Hence, we direct the AO to take the said date of resolution being 24.09.2007 as the date of when the property can be said to be heldby the Assesseefor the purpose of section 2(42A) of the Act and compute the long term capital gain accordingly. To that extent, the order of the CIT(A) stands modified. This ground is partly allowed. Project Completion Method Vs Percentage Completion Method 29. The Assessee is a real estate developer engaged in the business of developing housing projects in and around Navi Mumbai The Assessee filed its return of income for AY 2011-12 interalia declaring income under the "project completion method for its project named "Amarante" at Kalaomboli, Navi Mumbai which had commenced on 09.03.2010. During the course of assessment, the AO rejected the "project completion method" followed by the Assessee andsubstituted the said method with "percentage completion method" thereby, making an addition of Rs.2,08,36,527/-. 30. Before the CIT(A), the Assessee challenged the said rejection of project completion method and consequential addition to income The CIT(A) allowed the appeal of the Assessee upholding the validity of the Project Completion Method. 31. Before us, the Revenue has challenged the relief given by the CIT(A). The ld DR relied upon the order of the AO to submit that project completion method is not a valid method for computation of income as it defers the income for the year. On the other hand, the Id. AR supported the order of the CIT(A) and placed reliance on the authorities mentioned on page nos. 37 and 39 of the CIT(A)'s order to submit that the "project completion method" was an acceptable method. She also submitted that the Assessee and its sister concerns have been following project completion method for several years and that project profit for "Amarante" has already been offered in the year of completion, for which a chart is appearing on page 38 of the CIT(A) order. 32. We have considered the rival arguments and perused the orders of AO andthe CIT(A) The CIT(A) has in para 9 3 of his order dealt with the issue succinctly. We are accordingly, of the view that Project Completion Method consistently followed by the Assessees a valid method for computing taxable income. Merely because percentage completion is a better method as per AO, does not make project completion method as invalid. The choice as to which accounting method to be followed is with the Assessee. Moreover, the AO has not rejected the books of accounts or invoked section 145 of the Act before rejecting the accounting method followed by the Assessee. The decision of Bombay High Court in the case of Aditya Builders [2017] 79 taxmann.com 394 (Bombay) is squarely applicable to the facts of the case here. 33. More importantly, the entire exercise is tax neutral as the Assessee has offered the income of the project under project completion method in A.Y.s 2013-14 to 2017-18 as detailed in page 38 of the CIT(A)'s order, which is accepted by the Revenue. Hence, we uphold the order of CIT (A) in this ground and dismiss this ground of the Revenue. Orders pronounced in the open court on 28.10.2022. Sd/ Sd/- (Prashant Maharishi) (Amit Shukla) Accountant Member Judicial member मुंबई Mumbai: ददनांक Dated 28.10.2022 आदेशकी प्रदतदलदप अग्रेदषत Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent 3. आयकर आयुक्त (अपील) / The CIT(A) 4. आयकर आयुक्त / CIT- concerned 5. दवभागीयप्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई/ DR. ITAT, Mumbai 6. गार्ड फाईल Guard File आदेशधिुसधर / BY ORDER. उप/सहधयक पंजीकधर (Dy. / Asstt.Registrar) आयकर अपीलीय अनर्करण, मुंबई / ITAT, Mumbai