Shri S. Elango, CHENNAI V. ACIT, CHENNAI

ITA 3095/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4508 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 07-11-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Business income; Business expenditure; Cost of acquisition; Assessment record

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER, AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS.3095 & 3096/MDS/2016 /ASSESSMENT YEARS: 2012-13 & 2013-14 SHRI S. ELANGO, NO.281, PRECISION PLAZA II FLOOR, ANNA SALAI, CHENNAI-600 002. VS. THE ASST. COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-3, CHENNAI. [PAN: AACPE 6397 G ] ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.S.SRIDHAR, ADV. /RESPONDENT BY : MR.SHIVA SRINIVAS, JCIT /DATE OF HEARING : 31.03.2017 /DATE OF PRONOUNCEMENT : 30.05.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST T HE ORDERS DATED 31.08.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 4, CHENNAI, IN ITA NO.68 & 129/2015-16/AYS 2012-13 & 2013-14/CIT(A)-4 FOR THE AYS 2012- 13 & 2013-14. BOTH THE APPEALS ARE CLUBBED TOGETHE R AND HEARD TOGETHER AND DISPOSED OFF IN COMMON ORDER AS UNDER: ITA NOS.3095 & 3096/MDS/2016 :- 2 -: A) ITA NOS.3095/MDS/2016-A.Y 2012-13 2.0 THE ASSESSEE RAISED TOTAL 8 GROUNDS IN THIS APP EAL AND GROUND NOS.1 & 8 ARE GENERAL IN NATURE WHICH DO NOT REQUIRE SPEC IFIC ADJUDICATION. 3.0 GROUND NOS.2 TO 4 ARE RELATED TO THE ASSESSMENT OF BUSINESS INCOME INSTEAD OF LONG TERM CAPITAL GAINS ADMITTED BY THE ASSESSEE GROUND NOS.5 & 6 ARE RELATED TO THE DEDUCTION U/S.54F OF INCOME TAX ACT. NO ARGUMENT ADVANCED IN RESPECT OF GROUND NO.7 WHICH RELATES TO THE INSUFFICIENT OPPORTUNITY. ON VERIFICATION OF THE ASSESSMENT ORD ER AND LD.CIT(A)S ORDER, SUFFICIENT OPPORTUNITIES WERE AFFORDED TO TH E ASSESSEE. THEREFORE, WE DO NOT FIND ANY MERIT IN THE ASSESSEES ARGUMENT THAT SUFFICIENT OPPORTUNITY WAS NOT GIVEN. THEREFORE, GROUND NO 7 I S DISMISSED AS NOT PRESSED. 4.0 GROUND NOS.2 TO 4 ARE RELATED TO THE ASSESSMENT OF BUSINESS INCOME AGAINST THE ASSESSEES CLAIM OF LONG TERM CAPITAL G AINS. DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y 2012-13 THE ASSE SSEE SOLD THE FOLLOWING PROPERTIES CONSISTING OF PLOTS: DATE OF PURCHASE 1. KALAYARASI GARDEN 07.09.2006 2. PLOT NO.21/22, GOLDEN AVENUE 29.08.2008 3. PLOT NO.46 MONEY PLANT 07.02.2008 4. PLOT NO.47, PUSHPATHANATHA NAGAR 16.06.2006 5. MEVALURKUPPAM LAND 04.01.2005 4.1 THE ASSESSEE SOLD THE ABOVE PROPERTIES ON VARIO US DATES AND RECEIVED THE TOTAL SALE CONSIDERATION OF RS.5,93,38 ,950/-. THE ASSESSEE ADMITTED THE ABOVE INCOME UNDER THE HEAD LONG TERM CAPITAL GAINS AND ITA NOS.3095 & 3096/MDS/2016 :- 3 -: CLAIMED THE DEDUCTION U/S.54F OF IT ACT. THE AO AS SESSED THE LONG TERM CAPITAL GAINS OFFERED BY THE ASSESSEE UNDER THE HEA D BUSINESS INCOME STATING THAT, THE ASSESSEE IS ENGAGED ACTIVELY IN H IS PERSONAL CAPACITY IN THE BUSINESS OF REAL ESTATE AND THE COMPANY IN WHIC H HE IS THE MD IS SOLELY ENGAGED IN THE BUSINESS OF REAL ESTATE DEVEL OPMENT. THE PARTICULAR SPHERE ENGAGED BY BOTH THE ASSESSEE AND HIS COMPANY IN THE FIELD OF REAL ESTATE IS TO DEVELOP VACANT HOUSING SITES IN THE OU TSKIRTS OF CHENNAI CITY AND SELL THEM TO VARIOUS CUSTOMERS. THE ASSET SOLD DURING THE YEAR, THE PROFIT FROM WHICH WAS CLAIMED AS DEDUCTION U/S.54F, WERE ALSO RELATED TO VACANT HOUSING SITES AND VACANT LAND EXPLOITED BY T HE ASSESSEE IN THE SAME FASHION AS IT WERE UNDERTAKEN IN RESPECT OF TH E STOCK-IN-TRADE HELD BY M/S. ABHI ESTATES AND M/S. ABHI ESTATES PVT LTD. THE AO WAS OF THE VIEW THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.54F, SINCE THE ASSET SOLD WAS IN THE NATURE OF STOCK-IN-TRADE AND IT WAS SUPPORTED BY NON-DECLARATION OF ASSETS UNDER WEALTH TAX ON THE T RANSFERRED ASSETS DURING THE PERIOD OF ITS HOLDING, THOUGH THE SAME A RE QUALIFIED AS TAXABLE ASSETS WITHIN THE MEANING OF S.2(EA) OF WEALTH TAX ACT. THE AO DURING THE ASSESSMENT PROCEEDINGS, CONDUCTED SCRUTINY U/S.133A ON 12-12-05, AND DURING THE COURSE OF SURVEY PROCEEDINGS, VARIOUS MA TERIALS IN RESPECT OF THE TRANSFERRED ASSETS WERE FOUND. THE INFORMATION INFERRED FROM THE RECORDS GATHERED AT THE TIME OF SURVEY AND POST SUR VEY OPERATIONS WAS COMMUNICATED TO THE ASSESSEE WITH ALL THE EVIDENCES TO DISALLOW THE DEDUCTION U/S.54F AND TREAT THE PROFIT AS BUSINESS INCOME. AND IN RESPONSE, THE AR APPEARED BEFORE THE AO ON VARIOUS OCCASIONS AND ITA NOS.3095 & 3096/MDS/2016 :- 4 -: SUBMITTED THE CORRESPONDING DETAILS AND EXPLANATIO NS TO SUPPORT THAT THE CLAIM OF DEDUCTION U/S.54F. THE ASSESSEE EXPLAINED THAT HE IS MAINTAINING TWO PORTFOLIOS OF ACCOUNTS FOR THE LANDS, ONE AS ST OCK-IN-TRADE AND THE OTHER AS THE PERSONAL ASSETS. THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS IN POSSESSION OF 2.74 ACRES OF VACANT LAND AT M EVALURKUPPAM VILLAGE, SRIPERAMBUDUR TALUK. STARTING FROM THE DATE 30/04/2 011, THE ASSESSEE STARTED DRAWING FUNDS FROM THE COMPANY IN WHICH HE HAS SUBSTANTIAL STAKE AND FOR THE YEAR HE HAD DRAWN A SUM OF RS.4,09,50,0 00.IN ORDER TO THWART THE ATTEMPTS TO INCOME THE PROVISIONS OF S.2(22)(E) HE ROUTED THE PROPERTY SALE OF 2.74 ACRES THROUGH THE COMPANY AND SQUARED OFF THE DEBT. WHILE THE NEW ASSET HAS BEEN PURCHASED ON 01/ 07/2011, THE SALE TO THE COMPANY WAS CONCLUDED MUCH LATER. THEREFORE, TH E COMPANY WAS ONLY USED AS A CONDUIT TO THE SALE TRANSACTION. THE AO F URTHER OBSERVED THAT, THE FACT THAT THE COMPANY WAS ONLY A TOOL IN THE A SSESSEES ACT TO OBTAIN A SHELTER FROM THE PROVISIONS OF S.2(22)(E) AND ALS O TREAT THE TRANSACTION AS SALE OF CAPITAL ASSET IS SUBSTANTIATED BY THE DO CUMENTS IN THE FORM OF APPROVAL OBTAINED TO LAY OUT THE PROPERTY AND SUBSE QUENT SALE DEEDS. ALL THESE DOCUMENTS BEAR THE NAME OF SHRI S. ELANGO IN HIS INDIVIDUAL CAPACITY AND NOT IN HIS CAPACITY AS DIRECTOR OF THE COMPANY. THE AO NOTICED THAT AN MOU WAS ENTERED INTO ON 01/11/2007 TO SELL THE S AME PROPERTY @RS.36,20,000/. THE MARKET VALUE OF THE PROPERTY HA D NOT UNDERGONE ANY CHANGE AND HENCE THE VALUE OF THE PROPERTY ON THE D ATE OF TRANSFER SHOULD ALSO REMAIN THE SAME. INSTEAD THE ASSESSEE HAS RECE IVED RS.4.09 CR. THE TRANSACTIONS ARE PROVEN TO BE NOT AT ARMS LENGTH A ND A BENEFIT OF ITA NOS.3095 & 3096/MDS/2016 :- 5 -: RS.3,72,80,000/- IS PASSED ON BY THE COMPANY TO THE DIRECTOR AND SUBSTANTIAL STAKE HOLDER BEING THE EXCESSIVE AMOUNT PAID AS CONSIDERATION OVER AND ABOVE THE MARKET VALUE OF THE PROPERTY. T HIS VALUE OF BENEFIT, SQUARELY FALLS UNDER THE PROVISIONS OF S.2(24)(IV) AND NEEDS TO BE BROUGHT TO TAX U/S.28. THUS FOR THIS AMOUNT, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.54F. HOWEVER THE ASSESSEE HAS EXPLO ITED THE ASSET BY CONVERTING IT INTO A RESIDENTIAL LAYOUT AND THEREAF TER SELLING IT. HENCE THE ENTIRE GAIN INCLUDING THIS BENEFIT OF RS.3,72,82,00 0/- SHOULD BE BROUGHT TO TAX AS BUSINESS PROFIT. THE AO DURING THE ASSESSMEN T OBSERVED THAT , AFTER LARGE SCALE PURCHASES OF LAND THE ASSESSEE HAS UNDE RTAKEN THE ACTIVITY OF OBTAINING THE NECESSARY APPROVAL OF THE LOCAL AUTHO RITY/CMDA FOR HIS LAYOUT AND DIVISION INTO PLOTS AND HAD SUBSEQUENTLY UNDERTAKEN THE SALE OF SUCH PLOTS. THE ASSESSEE OPERATES ONLY IN THE FIELD OF REAL ESTATE AND THUS THE DOMINANT INTENTION EXPRESSED FROM THE DOCUMENTS AND THE FINDING IN THIS CASE, DURING THE CURRENT YEAR AND THAT OF THE PAST IS THAT THE LAND HELD BY THE ASSESSEE IS TOWARDS GARNERING LARGER PROFITS BY VENTURING INTO REAL ESTATE IN THE NATURE OF TRADE. THE AO RELIED ON TH E DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. SUTLEJ COTTON M ILLS SUPPLY AGENCY LTD. REPORTED IN 100 ITR 706, WHERE IN IT WAS HELD THAT IF THE DOMINANT INTENTION OF THE ASSESSEE WAS TO MAKE PROFIT BY RES ALE OF ASSETS AND NOT TO MAKE AN INVESTMENT, AS IS EXHIBITED IN THE ASSESSEE S CASE, THIS EXERCISE NEEDS TO BE CATEGORIZED AS AN ADVENTURE IN THE NATU RE OF TRADE ONLY. ACCORDINGLY, THE ENTIRE GAINS ON THIS TRANSACTION O F IS TREATED AS BUSINESS PROFITS AND TAXED AT NORMAL RATES. ACCORDINGLY, THE AO ASSESSED THE LONG ITA NOS.3095 & 3096/MDS/2016 :- 6 -: TERM CAPITAL GAINS CLAIMED BY THE ASSESSEE AS BUSIN ESS INCOME. THE AO ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SHRI RAMESWARAN V. CIT REPORTED IN 42 ITR 117 (SC) AND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF G. VENKATA SWAMY NAIDU .V. CIT 35 ITR 594. THE AO REJECTED THE DEDUCTION CLAI MED BY THE ASSESSEE U/S.54F OF IT ACT AMOUNTING TO RS.5,24,35,289/- AND COMPUTED THE BUSINESS INCOME AT RS.6,37,30,650/- AGAINST THE RET URNED INCOME OF RS.9,0,57,646/-. 5.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) CONFIRMED THE O RDER OF THE AO HOLDING THAT THE CONSIDERATION RECEIVED ON SALE OF THE PLOT S WAS BUSINESS INCOME, AS PER THE DISCUSSION MADE IN LD.CIT(A) ORDER IN PA RA NO.14.1 TO 14.2 & 14.4 ARE AS UNDER: 14.1. CONTRARY TO THE ABOVE FINDINGS OF THE AO, THE APPELLANT CONTENDED THAT DURING THE YEAR UNDER CONSIDERATION, HE HAD SOLD FIVE PLOTS OF LAND AS MENTIONED AT PARA 2.2 OF THE WRITTEN SUBMISSION FILED ON 31.08.2016 BEFORE THE C IT(A)-4. AND THE FIRST THREE ASSETS WERE SHOWN UNDER THE HEAD OF FIXED ASSETS IN THE BALANCE SHEET OF THE PROPRIETARY CONCERN M/S.ABL ESTATES AND THE OTHER TWO ASSETS WERE SHOWN IN HIS PERSONAL BOOKS. IT WAS FURTHER CONTENDED THAT ALL THESE PROPERTIES WERE SHOWN SEPA RATELY UNDER FIXED ASSETS BECAUSE THEY HAVE ALL ALONG BEEN TREATED AS INVESTMENTS AND STOC K IN TRADE HAS BEEN SHOWN SEPARATELY UNDER CURRENT ASSETS. HOWEVER, IN VIEW OF THE FACTU AL MATRIX OF THE CASE, AS DISCUSSED IN DETAIL IN THE ASSESSMENT ORDER, THIS CONTENTION OF THE ASSESSEE WAS RIGHTLY REJECTED BY THE AO. 14.2 BEFORE ARRIVING AT A PARTICULAR CONCLUSION, I AM OF THE OPINION THAT THE FOLLOWING RELEVANT ISSUES NEED TO BE ANSWERED TO ASCERTAIN WH ETHER A PARTICULAR TRANSACTION FALLS UNDER THE CATEGORY OF INVESTMENT OR STOCK IN TRA DE: I. WHETHER THE ASSESSEE HAS BEEN TRANSACTING AT SHORT INTERVALS? II. WHETHER THE WAY IN WHICH THE TRANSACTION WAS ORGANI ZED WAS TYPICAL OF A LAND DEALER? III. WHETHER THE LAND WAS SUITABLE FOR OR RIGHT FOR THE IMMEDIATE DEVELOPMENT? IV. WHETHER THE INTENTION OF THE ASSESSEE AT THE MOMENT OF THE ACQUISITION OF ASSET WAS TO DEVELOP AND SELL? V. WHETHER THE INFRASTRUCTURE DEVELOPED BY THE ASSESSE E ENHANCED THE VALUE OF THE ASSET? VI. WHETHER ASSESSEE HAD UNDERTAKEN CERTAIN PREPARATORY ACTIVITIES TO MAKE THE ASSET FEASIBLE FOR SALE AS STOCK IN TRADE? ITA NOS.3095 & 3096/MDS/2016 :- 7 -: 14.4 CONSIDERING THE FACTS AVAILABLE IN THE ABOVE DISCUSSED CASE LAWS AND THE JUDGMENTS RELIED ON BY THE AO, IT IS APPARENT THAT THE IMPUGN ED TRANSACTIONS HELD BY THE PRESENT ASSESSEE ARE IN THE NATURE OF TRADE AND THE ASSETS WERE HELD IN THE NATURE OF STOCK IN TRADE. IN VIEW OF THIS; I AM OF THE CONSIDERED OPINION THA T THE FINDINGS GIVEN BY THE AO ARE JUSTIFIED AND, HENCE, THE ACTION OF THE AO IS CONFIR MED. 6.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE AS SESSEE IS ON APPEAL BEFORE US. APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND MAINTAIN ED TWO PORTFOLIOS FOR INVESTMENTS AS WELL AS STOCK IN TRADE. THE ASSESSE E IS PERMITTED TO MAINTAIN TWO PORTFOLIOS AND CERTAIN ASSETS WERE KEP T FOR THE PURPOSE OF INVESTMENTS AND BALANCE ASSETS WERE USED FOR THE PU RPOSE OF BUSINESS. THE ASSESSEE IS ALSO MAINTAINING TWO SETS OF ACCOUN TS PERSONAL AS WELL AS BUSINESS. IN THE PERSONAL ACCOUNTS, THE ABOVE ASSE TS WERE SHOWN AS INVESTMENT FROM THE DATE OF PURCHASE AND SOLD THE ASSETS AFTER HOLDING FOR MORE THAN THREE YEARS INTACT, AND NO IMPROVEMEN TS OR THE BUSINESS ACTIVITY WAS CARRIED ON IN THE ABOVE ASSETS. EXCEP T IN THE CASE OF PROPERTY NO.5 THE ASSESSEE HAS NOT EVEN APPLIED FOR THE APPR OVAL TO DTCP IN THE REMAINING CASES. IN THE CASE OF PROPERTY NO.5, THE ASSESSEE HAS HAD APPLIED FOR THE APPROVAL OF DTCP AND NO FURTHER ACT ION WAS TAKEN TO MAKE ANY IMPROVEMENTS. FURTHER, THE LD.AR ALSO SUBMITT ED THAT IN THE BALANCE SHEET, PROPERTIES WERE REPORTED IN THE INVESTMENT B UT NOT IN THE STOCK IN TRADE. THE EXPENDITURE RELATING TO PURCHASE OF PLO TS WAS NEVER DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE LD.AR ALSO SUBMIT TED THAT THE INTENTION OF THE ASSESSEE WAS TO MAKE THE INVESTMENT OF PROPERTI ES BUT NOT TO DEAL THE ASSETS FOR THE PURPOSE OF BUSINESS. IT WAS ALSO SU BMITTED BY THE LD.AR ITA NOS.3095 & 3096/MDS/2016 :- 8 -: THAT THE ASSESSEE ALSO FILED WEALTH TAX RETURNS DEC LARING THE ABOVE ASSETS. ACCORDINGLY, THE LD.AR ARGUED THAT THE ASSESSEE HAS RIGHTLY ADMITTED THE SALE PROCEEDS UNDER THE HEAD CAPITAL GAINS AND BOTH THE LOWER AUTHORITIES HAVE COMMITTED THE ERROR IN ASSESSING THE SALE CONS IDERATION UNDER THE HEAD BUSINESS INCOME. THE SOLE ACTION OF THE ASSES SEE OF OBTAINING THE APPROVAL FROM THE DTCP CANNOT BE HELD TO BE A BUSIN ESS ACTIVITY OR ADVENTURE IN THE NATURE OF TRADE. 6.1 ON THE OTHER HAND, THE LD.AR ARGUED THA T THE ASSESSEE IS ONE OF THE LEADING REALTOR IN CHENNAI FREQUENTLY PURCHASIN G AND SELLING THE LANDS AND HAVE PLENTY OF LAND BANK IN HIS POSSESSION. TH E ASSESSEE IS IN THE HABIT OF PURCHASING THE LANDS, DEVELOPING AND SELLI NG IT. THOUGH THE ASSESSEE HAS CLAIMED THAT THE WEALTH TAX RETURNS WE RE FILED, IT WAS FILED BY THE ASSESSEE ONLY AFTER THE SALE OF THE PLOTS IN MAY, 2012 I.E. AFTER THE COMPLETION OF FY WHICH IS UNDER CONSIDERATION WITH AN INTENTION TO EVADE THE TAXES. MERE TREATMENT OF THE PROPERTIES AS THE INVESTMENTS SHOULD NOT BE SOLE CRITERION TO DETERMINE THE CAPITAL GAINS OR BUSINESS INCOME. THE ENTIRE FACTS SHOULD BE CONSIDERED IN HOLISTIC MANNE R. THOUGH THE ASSESSEE DECLARED THE ABOVE PROPERTIES AS INVESTMENTS IN TH E BALANCE SHEET THE SAME WAS NOT VERIFIED BY THE AO WHICH FACT WAS NOT BORN OUT FROM THE ASSESSMENT RECORDS. THEREFORE, THE LD.DR CONTENDED THAT THE AO HAS RIGHTLY ASSESSED THE INCOME UNDER THE HEAD BUSINESS INCOME AND NO INTERFERENCE IS CALLED FOR. ITA NOS.3095 & 3096/MDS/2016 :- 9 -: 7.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSEE HAS PURCHASED THE ABOVE FIVE PROPERTI ES AND SOLD THE SAME FOR A CONSIDERATION OF RS.5,93,38,950/-. THE NET CONSIDERATION AFTER REDUCING THE COST OF ACQUISITION WAS CLAIMED AS DED UCTION U/S.54F OF IT ACT. THE ASSESSEE HAS NOT DEBITED THE PURCHASE CON SIDERATION TO THE PROFIT AND LOSS ACCOUNT AND HOLDING THE PROPERTIES AS IN VESTMENTS FOR MORE THAN THREE YEARS AND THERE WAS NO DISPUTE . AS PER THE BALANCE SHEET FILED BEFORE US, THE ASSESSEE HAS SHOWN THE PROPERTIES UN DER THE INVESTMENT IN THE PERSONAL BALANCE SHEET OF THE ASSESSEE. BY SHO WING THE PROPERTIES AS INVESTMENTS, THE ASSESSEE HAS DECLARED HIS INTENTIO N AS INVESTMENT BUT NOT AS A BUSINESS ASSET. THE ASSESSEE IS MAINTAINI NG TWO VERTICALS, ONE FOR BUSINESS PURPOSE AND THE OTHER FOR PERSONAL ACC OUNTS AND THE ASSESSEE IS PERMITTED TO MAINTAIN TWO SETS OF BOOKS OF ACCOU NTS FOR THE PURPOSE OF BUSINESS AND THE OTHER FOR THE PURPOSE OF INVESTMEN TS. THOUGH, THE ASSESSEE IS DEALING IN REAL ESTATE, THE PROPERTIES KEPT FOR INVESTMENT SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAINS BUT NOT UNDER THE HEAD BUSINESS INCOME. THE LD.AR OF THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME- TAX * V.N.S.S. INVESTMENTS (P.) LTD. [2007] 158 TAXMAN 13 (MADRAS), WHICH SUPPORTS THIS VIEW OF THE ASSESSEE. IN THE INSTAN T CASE, THE ASSESSEE HAS PURCHASED THE ASSETS ON DIFFERENT DATES AND SOL D AFTER THREE YEARS AND NO IMPROVEMENT OR BUSINESS ACTIVITY WAS CARRIED ON IN RESPECT OF THE ITA NOS.3095 & 3096/MDS/2016 :- 10 -: ABOVE PROPERTIES. THE PURCHASE OF THE LAND AND THE SALE OF THE LAND IS EVIDENCED BY THE SALE DEED PRODUCED BY THE ASSESSEE IN THE PAPER BOOK IN PAGE NO.39-48. ONLY IN THE CASE OF MEVALURKUPP AM, THE ASSESSEE HAS OBTAINED APPROVAL FROM DTCP. NO OTHER ACTIVITY WAS CARRIED ON BY THE ASSESSEE IN MEVALURKUPPAM. THE SOLE ACTIVITY OF T AKING THE APPROVAL FROM DTPC CANNOT MAKE THE INVESTMENT ACTIVITY AS A BUSINESS ACTIVITY. AS STATED BY THE AO IN THE ASSESSMENT ORDER, AFTER PUR CHASING THE PROPERTIES, THE ASSESSEE HAS NOT MADE ANY PLOTS SEG REGATED INTO PLOTS AND TAKEN UP THE DEVELOPMENT OF THE PLOTS. THE AO HAS NOT MADE OUT ANY CASE THAT THE ASSESSEE HAS DEVELOPED THE PLOTS FOR THE PURPOSE OF BUSINESS AND DEBITED THE BUSINESS EXPENDITURE. FROM THE ABO VE FACTS, IT IS CLEAR THAT THE ASSESSEE HAS PURCHASED THE PLOTS FOR THE P URPOSE OF INVESTMENT AND HELD AS INVESTMENTS FOR MORE THAN THREE YEARS A ND NO BUSINESS ACTIVITY WAS CARRIED ON AND NO BUSINESS EXPENDITURE WAS DEBITED BY THE ASSESSEE. THOUGH, THE ASSESSEE HAS NOT DECLARED TH E WEALTH TAX RETURNS IN THE RELEVANT ASSESSMENT YEARS, THAT CANNOT BE A REASON FOR TAXING THE CAPITAL GAINS AS BUSINESS INCOME. IT APPEAR SOME O F THE ASSETS WERE AGRICULTURAL LAND AND EXEMPTED FROM WEALTH TAX . T HESE FACTS WERE NOT CONTROVERTED BY THE LD. DR WITH ANY EVIDENCE. FOR N ON PAYMENT OF WEALTH TAX, THE DEPARTMENT IS FREE TO TAKE THE PERMISSIBLE ACTION UNDER THE WEALTH TAX ACT FOR NON-FILING THE RETURNS OR FOR NO N-DECLARING THE RETURN OF WEALTH. THE FACTS OF THE CASE SHOW THAT THE RESULT ANT CONSIDERATION SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAINS BUT NOT UN DER THE HEAD BUSINESS INCOME. HOWEVER, THE LD. DR DURING THE APPEAL ARGU ED THAT THERE WAS NO ITA NOS.3095 & 3096/MDS/2016 :- 11 -: FINDINGS BY THE AO IN THE ASSESSMENT ORDER WITH RES PECT TO BALANCE SHEETS FILED BEFORE THIS TRIBUNAL WITH REGARD TO TWO PORTF OLIOS OF ACCOUNTS AND DECLARING UNDER INVESTMENTS IN PERSONAL ACCOUNTS AS WELL AS BUSINESS ACCOUNTS AND THIS ASPECT NEEDS FURTHER VERIFICATION . THE LD. A.R HAS NOT OBJECTED FOR REMITTING THE ISSUE BACK TO THE FILE O F AO FOR VERIFICATION OF THE DECLARATION OF ASSETS AS INVESTMENTS IN PERSONAL BA LANCE SHEETS AND NOT CLAIMING THE EXPENDITURE RELATED TO THE ASSETS IN T HE PROFIT AND LOSS ACCOUNT. THEREFORE, WE REMIT THE MATTER BACK TO TH E FILE OF THE AO TO VERIFY WHETHER THE ASSETS SOLD IN QUESTION WERE DEC LARED IN THE BALANCE SHEET UNDER THE HEAD INVESTMENTS OR STOCK IN TRADE WHETHER THE ASSESSEE DEBITED TO THE PURCHASE CONSIDERATION TO THE PROFIT AND LOSS ACCOUNT OR ANY OTHER EXPENDITURE RELATING TO THE CAPITAL GAIN ASSE TS WAS CLAIMED OR EXPENDITURE OR NOT. IF THE ASSETS DECLARED IN THE BALANCE SHEET UNDER THE HEAD INVESTMENTS AS PER THE FOREGOING DISCUSSION, T HE GAINS SHOULD BE ASSESSED AS CAPITAL GAINS OTHERWISE THE SAME SHOULD BE BROUGHT TO THE TAX UNDER THE BUSINESS INCOME. ACCORDINGLY, WE DIRECT THE AO TO DECIDE THE MATTER AFRESH AS PER THE ABOVE DISCUSSION. THE APPE AL OF THE ASSESSEE ON THIS GROUND IS ALOOWED FOR STATISTICAL PURPOSES. 8.0 GROUND NO. 5 AND 6 ARE RELATED TO REJECTION O F CLAIM MADE U/S.54F OF IT ACT. 8.1 THE LD.CIT(A) HAS NOT ADJUDICATAED THE CLAIM OF THE ASSESSEE U/S.54F OF IT ACT, SINCE THE INCOME OF THE ASSESSE E WAS ASSESSED UNDER ITA NOS.3095 & 3096/MDS/2016 :- 12 -: THE HEAD BUSINESS INCOME AND THE SAME WAS CONFIRMED BY THE CIT(A). WE HAVE REMITTED THE ISSUE OF ASSESSMENT OF INCOME AS BUSINESS OR CAPITAL GAINS TO THE FILE OF THE AO WITH SPECIFIC DIRECTIO NS IN EARLIER PARAGRAPHS. THE ASSESSING OFFICER SHOULD DECIDE THE NATURE OF I NCOME IN THE LIGHT OF THE DISCUSSION MADE IN THE EARLIER PARAGRAPHS AND DEC IDE THE ISSUE OF DEDUCTION U/S.54F OF IT ACT ON THE FACTS AND LAW S UBJECT TO SATISFACTION OF THE CONDITIONS LAID DOWN UNDER SECTION.54F OF IT ACT. ACCORDINGLY, WE SET-ASIDE THE ISSUE TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH ON MERITS. THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.3096/MDS/2016 AY 2013-14: 9.0 DURING THE PREVIOUS YEAR RELEVANT TO THE AY 201 3-14, THE ASSESSEE SOLD THE FOLLOWING PROPERTIES: SL. NO ADDRESS AND DESCRIPTION OF THE LANDS SOLD DATE OF PURCHASE DATE OF SALE CAPITAL GAIN SALE VALUE COST OF INDEXATION COST OF ACQUISITIO N 1 P.NO.31 C.V.RAMAN NAGAR 25.05.06 30.05.12 2417179 2856880 439701 267846 2 P.NO.29 ABINATH AVENUE PHASE II 12.09.06 16.04.12 5259556 5448650 189094 99208 3 LANDS AT VARADARAJAP URAM 10.03.08 25.06.12 22838544 42500000 19662489 1271500 0 10.04.08 25.06.12 6954699 12375000 5420301 3702600 28.01.08 25.06.12 47918954 62625000 14706046 9510600 ITA NOS.3095 & 3096/MDS/2016 :- 13 -: 10.0 THE ASSESSEE DECLARED THE SALE PROCEEDS AS CA PITAL GAINS. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND PURCHASED LAND OF 13.67 ACRES. THE PURCHASER OBTAINED APPROVAL FROM DTCP, DEVELOPED THE LAND INT O PLOTS AT VARADARAJAPURAM AND SOLD 9.00 ACRES OF THE TOTAL 13 .67 ACRES. THE AO HAS VIEWED THAT SUCH LARGE QUANTITIES ARE OBVIOUSLY NO T INTENDED FOR SELF CONSUMPTION. ACCORDING TO AO THE LAND PURCHASED WAS DEVELOPED, SEGMENTED INTO SMALLER PLOTS AND THEN SOLD. THEY AR E EXACTLY SIMILAR TO THE OPERATIONS USUALLY ASSOCIATED WITH REAL ESTATE TRADE OR BUSINESS. THE ASSESSEE HAS REPEATED THE PURCHASE AND SALE TRANSAC TIONS OF THE SIMILAR NATURE, METHOD AND QUANTITY IN THE PRECEDING YEAR A S WELL AS IN THE YEAR UNDER CONSIDERATION AND THE TRANSACTION IS NOT AN I SOLATED ONE. 11.0 THE ASSESSEE NEGATED ALL THE OBSERVATIONS MAD E BY THE AO WITH REGARD TO PLOTTING , INTENTION, DEVELOPING, THE U SE OF THE LAND AND OBTAINING THE APPROVAL FROM DTCP. THE ASSESSEE ALS O OBJECTED FOR OBSERVATIONS OF THE AO WITH REGARD TO SALE OF THE LAND THAT IT WAS DEVELOPED, AND PLOTTED. THE LD A.R SUBMITTED THAT T HE LANDS WERE SOLD INTACT AND NO IMPROVEMENT WAS MADE NO EXPENDITURE WAS INCURRED AND BUSINESS ACTIVITY WAS CARRIED ON IN THE SAID LANDS . THE ASSESSEE MAINTAINED TWO PORTFOLIOS OF ACCOUNTS, ONE FOR PERS ONAL AND OTHER FOR BUSINESS PURPOSE. IN THE PERSONAL BOOKS OF ACCOUNT S THREE PROPERTIES WERE RECORDED AND THE TWO PROPERTIES WERE SHOWN AS FIXED ASSETS IN FIRMS BOOKS. THE FACTS OF THE CASE ARE IDENTICAL TO THAT OF THE AY 2012-13. ITA NOS.3095 & 3096/MDS/2016 :- 14 -: SINCE THE FACTS ARE IDENTICAL TO THE AY 2012-13, WE HOLD THAT THE CAPITAL GAINS ON ACCOUNT OF SALE OF THE ABOVE FIVE PROPERTI ES REQUIRED TO BE ASSESSED AS CAPITAL GAINS BUT NOT UNDER THE HEAD BU SINESS INCOME AS PER OUR OBSERVATION IN THE APPEAL FOR THE A.Y.2012-13. AT THE TIME OF APPEAL HEARING, THE LD.DR BROUGHT TO OUR NOTICE THAT THE C ORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN THE BALANCE SHEET FILED BEF ORE THIS TRIBUNAL IN THE PAPER BOOK REQUIRE VERIFICATION FROM THE ASSESSMENT RECORDS. WE AGREE WITH THE LD. DR THAT FURTHER VERIFICATION OF FACTS IS NECESSARY IN THIS CASE. THE LD.AR DID NOT OBJECT FOR REMITTING THE ISSUE TO THE FILE OF THE AO FOR FURTHER VERIFICATION OF THE FACTS IN THE LIGHT OF T HE DISCUSSION MADE IN THE APPEAL ORDER FOR A.Y 2012-13 WITH REGARD TO MAINTAI NING TWO SETS OF BOOKS OF ACCOUNTS AND DECLARATION OF ASSETS AS INVESTMEN TS OR NON-BUSINESS ASSETS IN RESPECTIVE OF BOOKS OF ACCOUNTS. ACCORDI NGLY, WE REMIT THE MATTER BACK TO THE FILE OF THE AO FOR LIMITED PURPO SE OF VERIFYING THE FACT OF REPORTING THE ASSETS IN THE PERSONAL BOOKS AND BUSI NESS ACCOUNTS FOR INVESTMENT OR BUSINESS PURPOSE. ACCORDINGLY WE DIRE CT THE AO TO MAKE FURTHER VERIFICATION OF FACTS AND DECIDE THE ISSUE A FRESH ON MERITS IN THE LIGHT OF DISCUSSION MADE IN THE A.Y 2012-13. 12.0 THE ISSUE WITH REGARD TO THE DEDUCTION U/S.5 4F OF IT ACT ALSO REMITTED BACK TO THE FILE OF THE AO AS DISCUSSED IN THIS ORDER FOR THE AY 2012-13. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NOS.3095 & 3096/MDS/2016 :- 15 -: 13.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR THE A YS 2012-13 & 2013-14 ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY, 2017, AT CHENNAI. SD/- (DUVVURU RL REDDY) /JUDICIAL MEMBER SD/- (D.S.SUNDER SINGH) * /ACCOUNTANT MEMBER /CHENNAI, + /DATED: 30 TH MAY, 2017. TLN ,- .- /COPY TO: 1. /APPELLANT 4. / /CIT 2. /RESPONDENT 5. - /DR 3. / ( ) /CIT(A) 6. /GF