Shri Balmukunddas Ranchhoddas Jariwala, HUF, Surat V. The Income tax Officer,Ward-3(3), Surat

ITA 3102/AHD/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1783 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 21-10-2004
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Business income

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH BAHMEDABAD BEFORE S/SHRI H. L. KARWA, JM (NOW VP) AND P. K. BANSAL, A.M. ITA NO.3102/AHD/2004 ASST. YEAR:2001-02 BALMUKUNDDAS RANCHHODDAS JARIWALA- HUF, 3PATWA COLONY ESTATE, OLD UMARA JAKAT NAKA,ATHWALINES, SURAT-395007 V/S . INCOME-TAX OFFICER, WD 3(3), SURAT. PAN NO.AABHB 5074 N (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI J.P. SHAH, AR RESPONDENT BY:- SHRI H.P. MEENA, ADDL.CIT, DR O R D E R PER P. K. BANSAL, ACCOUNTANT MEMBER. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 16.08.2004 BY TAKING THE FOLLOWING EFF ECTIVE GROUNDS OF APPEAL:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE DISALLOWANCE OF THE BENEFIT OF INDEXATION OF COST O F ACQUISITION U/S 48 OF THE ACT TO THE TUNE OF RS.3,55,108 ON SAL E OF CAPITAL ASSET BEING PLOT SITUATED AT GHOD DOD ROAD, SURAT. 2 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ADDITION OF RS.7,00,785/- ON ACCOUNT OF PROFITS ALL EGED TO HAVE BEEN EARNED FROM ALLEGED ADVENTURE IN THE NATURE OF TRADE ON SALE OF CAPITAL ASSET BEING PLOT SITUATED AT GHOD D OD ROAD, SURAT. 2. SINCE BOTH THESE GROUNDS ARE INTERRELATED, WE DI SPOSE OF THEM TOGETHER. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE SOLD A PLOT OF LAND SITUATED AT GHOD-DOD ROAD, SURAT FOR RS.10,51, 000/-OUT OF WHICH THE ASSESSEE HAD OFFERED AN AMOUNT OF RS.2,62,750/- AS INCOME IN THE ASSESSMENT YEAR 1996-97. IN ASSESSMENT YEAR 1996-97 THE ASSESSEE HAD NOT CLAIMED ANY IDEXATION. HOWEVER DURING THE YEAR UNDER CONSIDERATION, ASSESSEE CLAIMED INDEXATION OF RS.3,55,108 AND OFFE RED CAPITAL GAIN OF RS.4,33,142/-. THE ASSESSING OFFICER DID NOT ALLOW THE INDEXATION STATING THAT THE INDEXATION IS NOT ALLOWABLE ON THE SALE OF BUSINESS ASSET AND IT WAS ALLOWABLE ONLY ON THE SALE OF CAPITAL ASSET. T HE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO EXPLAIN AS TO WHY SUM OF RS.7,00,785/- SHOULD NOT BE ADDED TO HIS INCOME. THE ASSESSEE EXP LAINED BEFORE THE ASSESSING OFFICER THAT THE PLOT IN QUESTION WAS PUR CHASED FOR RESIDENTIAL CONSTRUCTION. AFTER APPROVAL OF PLAN FROM SURAT MUN ICIPAL CORPORATION ON 20.8.93 THE PROPERTY WAS HANDED OVER TO T.P. DESAI, PROP. OF PARIJAT CONSTRUCTION ON 8.8.94. THE ASSESSEE WAS TO GET FLA TS IN EXCHANGE OF THE PLOT. THE ASSESSEE OFFERED THE CAPITAL GAIN DURING THE YEAR UNDER CONSIDERATION BECAUSE POSSESSION OF SIX FLATS WAS G IVEN TO THE PURCHASERS OF FLAT DURING THE YEAR UNDER CONSIDERATION. THEREF ORE, THE TRANSFER AS PER SECTION 2(47) OF THE I.T. ACT TOOK PLACE DURING THE YEAR. IT WAS ALSO EXPLAINED THAT THE PROPERTY WAS DEVELOPED BY PARIJA T CONSTRUCTION BY ITS OWN FUNDS. IT WAS ALSO STATED THAT THE ASSESSEE WAS ENTITLED FOR INDEXATION AS PER PROVISO TO SECTION 48 OF THE IT ACT. THE ASS ESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. HE FOUND THA T THE ASSESSEE WAS THE 3 OWNER OF THE PROPERTY SITUATED AT GHOD-DOD ROAD, SU RAT. THE TOWN PLANNER OF SMC GRANTED PERMISSION TO DEVELOP THE PR OPERTY TO SMT. PALLAVIBEN & OTHERS VIDE THEIR RAJA CHITTHI DATED 2 0.8.1993.THE ASSESSEE HANDED OVER THE POSSESSION OF THE LAND TO PARIJAT C ONSTRUCTION UNDER AN AGREEMENT WHEREBY PARIJAT CONSTRUCTION WAS TO DEVEL OP AND SELL THIS PROPERTY AS PER PLAN APPROVED BY SURAT MUNICIPAL CO RPORATION. M/S PARIJAT CONSTRUCTION DEVELOPED THE PROPERTY AND THE REAFTER SOLD THE FLATS TO THIRD PARTIES. THE ASSESSEE OFFERED THE INCOME RECE IVED FOR TAXATION AS AND WHEN IT WAS RECEIVED BY HIM. IN FACT THE RIGHT TO D EVELOP THE PROPERTY PERTAINS TO THE ASSESSEE BUT THE SAME WAS GIVEN TO M/S PARIJAT CONSTRUCTION UNDER AN AGREEMENT. THE ASSESSING OFFI CER HELD THAT THE RIGHT TO SELL THE PROPERTY IS OF THE ASSESSEE WHICH WAS GIVEN TO PARIJAT CONSTRUCTION AND SINCE THIS IS EXTINGUISHMENT, THER EFORE, THE SAME AMOUNTED TO TRANSFER. AS PER THE AGREEMENT, PARIJAT CONSTRUCTION WAS ALLOWED TO ENTER INTO THE PLOT AND MAKE CONSTRUCTIO N THEREON. THIS ALSO CONSTITUTE ALLOWING THE ENJOYMENT OF IMMOVABLE PROP ERTY TO OTHER PERSON WHICH IS CERTAINLY TRANSFER IN TERMS OF SECTION 2(4 7)(VI) OF THE IT ACT. THUS HE WAS OF THE OPINION THAT THE ASSESSEE HAS TR ANSFERRED HIS PLOT TO M/S PARIJAT CONSTRUCTION VIDE AGREEMENT DATED 8.8.9 4. THE ASSESSING OFFICER HELD THAT WHEN SMT. PALLAVIBAN & OTHERS APP LIED FOR PERMISSION TO DEVELOP THE APARTMENT ON PLOT TO SMC THE PLOT WA S CONVERTED INTO STOCK-IN-TRADE, THEREFORE IT CEASED TO BE CAPITAL A SSET IN THE HANDS OF THE OWNER. THE ASSESSEE THEREAFTER DEVELOPED THE PLOT W ITH THE HELP OF M/S PARIJAT CONSTRUCTION AND GOT CONSTRUCTED APARTMENT ON THE SAME WHICH IS CERTAINLY A BUSINESS OPERATION. THE ASSESSEE HAD SH OWN THE MONEY RECEIVED ON SALE OF TWO FLATS IN ASSESSMENT YEAR 19 96-97 AND OFFERED THE AMOUNT RECEIVED FOR TAXATION WITHOUT CLAIMING THE I NDEXATION. THIS SHOWED THAT IN ASSESSMENT YEAR 1996-97 THE ASSESSEE HAD DEVELOPED THE PROPERTY FOR BUSINESS PURPOSE AND FOR THIS VERY REA SON HE HAD NOT CLAIMED 4 INDEXATION. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER DID NOT ALLOW INDEXATION. THE ASS ESSING OFFICER ALSO MENTIONED THAT ASSESSEE HAS OFFERED AMOUNT FOR TAXA TION AS AND WHEN HE RECEIVED HIS PART OF SALE CONSIDERATION IN THE PROP ERTY. IN VIEW OF THE FACT THAT ASSESSEE HAS BEEN MAINTAINING HIS BOOKS OF ACC OUNTS ON CASH SYSTEM, THEREFORE, THE AMOUNT RECEIVED DURING THE YEAR UNDE R CONSIDERATION WAS ASSESSABLE IN THIS YEAR ON THE BASIS OF CASH SYSTEM . THE ALSO HELD THAT THE TRANSACTION WAS ADVENTURE IN THE NATURE OF TRADE AN D ASSESSABLE AS BUSINESS INCOME. IN VIEW OF THE ABOVE FACTS AND CIR CUMSTANCES OF THE CASE, THE ASSESSING OFFICER ASSESSED SUCH OF RS.7,0 0,785/- AS BUSINESS PROFIT. 3. THE ASSESSEE BEING AGGRIEVED BY SUCH ACTION OF T HE ASSESSING OFFICER WENT IN APPEAL BEFORE CIT(A) THE ASSESSEE A ND THROUGH HIS AUTHORISED REPRESENTATIVE HAD SUBMITTED WRITTEN SUB MISSION. THE CIT(A) HAS DULY CONSIDERED THE WRITTEN SUBMISSION AND HAS GIVEN HIS DETAILED FINDINGS VIDE PARA 3 OF HIS APPELLATE ORDER WHEREIN HE HAS HELD AS UNDER :- AFTER PERUSAL OF THE AGREEMENT, I AM OF THE VIEW T HAT THE PLOT WAS INTENDED TO BE USED FOR RESIDENTIAL PURPOSE BUT THE AREA OF PLOT WAS MORE AND THEREFORE THE APPELLANT GOT PERMISSION FOR CONSTRUCTION OF AN APARTMENT ON THE PLOT AS PER SCHEME OF THE SMC. IN VIEW OF SUCH FACTS OF THE CASE, THE ASSESSING OFFICER CAME TO TH E CONCLUSION THAT THE APPELLANT HAD USED THE PLOT FOR BUSINESS PURPOS E. IN VIEW OF THESE FACTS, THE ASSESSING OFFICER HELD THAT IT WAS NOT ACTUALLY SALE OF CAPITAL ASSET BUT SALE OF COMMERCIAL ASSET RESUL TING INTO BUSINESS INCOME AND NOT CAPITAL GAIN. IN MY OPINION, THE CON TENTION OF THE ASSESSING OFFICER APPEARS TO BE CORRECT IN VIEW OF THE FACT THAT THE PLOT IN QUESTION GOT CONVERTED INTO A COMMERCIAL PR OPERTY AS AND WHEN THE APPELLANT DECIDED TO DEVELOP THE SAME INTO A COMMERCIAL PROPERTY EITHER THROUGH HIMSELF OR THROUGH M/S PARI JAT CONSTRUCTION. THERE IS NO DOUBT ABOUT THE FACT THAT THE PROPERTY IN QUESTION WAS GIVEN TO M/S PARIJAT CONSTRUCTION FOR COMMERCIAL DEVELOPMENT AND THE SAME WAS ACTUALLY DONE BY M/S P ARIJAT 5 CONSTRUCTION. ALTHOUGH, THE AGREEMENT BETWEEN M/S P ARIJAT CONSTRUCTION AND THE APPELLANT HAS BEEN EXECUTED IN SUCH A WAY THAT IT GIVES COLOUR OF NON-COMMERCIAL TRANSACTION BUT THE SA\UM AND SUBSTANCE OF THE AGREEMENT IS THAT THE APPELLAN T TRANSFERRED ITS PROPERTY AFTER GETTING PERMISSION FROM THE SMC FOR CONSTRUCTION OF A RESIDENTIAL CUM COMMERCIAL COMPLEX. THE WHOLE TRA NSACTION HAS TO BE VIEWED IN PROPER PERCEPTIVE. WHEN VIEWED FROM THIS ANGLE, IT CERTAINLY APPEARS TO BE A COMMERCIAL TRANSACTION AN D NOT A SALE OF CAPITAL ASSET. I CONSIDER IT A COMMERCIAL TRANSACTI ON BECAUSE IN MY OPINION, THE APPELLANT COULD GET A FLAT OF THE VALU E OF RS.10,51,000/- IN EXCHANGE OF RELINQUISHING THE DEV ELOPMENT RIGHT TO M/S PARIJAT CONSTRUCTION WHICH MAY BE PARTLY COS T OF LAND AND PARTLY THE SHARE OF PROFIT IN THE VENTURE. IF IT WA S SOLD AS A CAPITAL ASSET, IT WOULD NOT HAVE BEEN POSSIBLE FOR THE APPE LLANT TO GET THE VALUE OF RS.10,51,000/-. IT IS ALSO FOUND THAT THE APPELLANT HAS PUT HIS SIGNATURE ON ALL THE SALE DEEDS EXECUTED BY M/S PARIJAT CONSTRUCTION. SINCE IT HAS BEEN HELD THAT THIS IS A TRANSFER OF BUSINESS ASSET, THE IDEXATION IS NOT ALLOWABLE. ACC ORDINGLY, THE NON-ALLOWANCE OF INDEXATION BY THE ASSESSING OFFICE R IS JUSTIFIED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THR OUGH THE MATERIAL ON RECORD ALONG WITH THE ORDERS OF AUTHORITIES BELO W. WE HAVE ALSO TAKEN INTO CONSIDERATION THE CASE LAWS CITED BEFORE US. A FTER CAREFUL CONSIDERATION, WE ARE OF THE VIEW THAT THE CIT(A) H AS DULY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND FACTS OF THE CASE A ND THEREAFTER HE HAS GIVEN ELABORATE FINDINGS ON THE ISSUE. WE AGREE WIT H THE OBSERVATIONS OF CIT(A) THAT THE WHOLE TRANSACTION HAS TO BE VIEWED IN PROPER PERCEPTIVE. WHEN VIEWED FROM THIS ANGLE, IT CERTAINLY APPEARS T O BE A COMMERCIAL TRANSACTION AND NOT A SALE OF CAPITAL ASSET. I CONS IDER IT A COMMERCIAL TRANSACTION BECAUSE IN MY OPINION, THE APPELLANT CO ULD GET A FLAT OF THE VALUE OF RS.10,51,000/- IN EXCHANGE OF RELINQUISHIN G THE DEVELOPMENT RIGHT TO M/S PARIJAT CONSTRUCTION WHICH MAY BE PART LY COST OF LAND AND PARTLY THE SHARE OF PROFIT IN THE VENTURE. IF IT WA S SOLD AS A CAPITAL ASSET, IT WOULD NOT HAVE BEEN POSSIBLE FOR THE APPELLANT TO G ET THE VALUE OF RS.10,51,000/-. IT IS ALSO FOUND THAT THE APPELLANT HAS PUT HIS SIGNATURE ON 6 ALL THE SALE DEEDS EXECUTED BY M/S PARIJAT CONSTRUC TION. SINCE IT HAS BEEN HELD THAT THIS IS A TRANSFER OF BUSINESS ASSET, THE IDEXATION IS NOT ALLOWABLE. ACCORDINGLY, THE NON-ALLOWANCE OF INDEXATION BY THE ASSESSING OFFICER IS JUSTIFIED. THE CIT(A) HAS RIGHTLY UPHELD THE ORDER OF THE ASSESSING OFFICER. IN OUR VIEW NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A). WE UPHOLD THE SAME. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT ON 18 /12 /2009 SD/- SD/- (H. L. KARWA) (P. K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER (NOW VICE PRESIDENT) AHMEDABAD, DATED : 18/12/2009 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD