RAJESH G. KAPADIA HUF, MUMBAI V. ITO 16(1)(4), MUMBAI

ITA 3242/MUM/2010

• Counselvise Citation: 324219914 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 22-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B SENTHIL KUMAR
• Keywords: Business income
• Section: 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: MUMBAI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.3242/MUM/2010 (ASSESSMENT YEAR: 2005-06) SHRI RAJESH G. KAPADIA HUF, 27 TH FLOOR, STERLING TOWER, H.G. MARG, GAMDEVI, MUMBAI -400 007 ....... APPELLANT VS INCOME-TAX OFFICER WD 16(1)(4), MUMBAI ..... RESPONDENT PAN: AAEHR 0591 K APPELLANT BY: SHRI JITENDRA SANGHVI RESPONDENT BY: DR. B. SENTHIL KUMAR DATE OF HEARING: DATE OF PRONOUNCEMENT: 22.06.2011 16.09.2011 O R D E R PER R.S. PADVEKAR, JM: THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING TH E IMPUGNED ORDER OF THE LD. CIT -16 MUMBAI PASSED U/S.263 OF T HE I.T. ACT, 1961 FOR THE A.Y. 2005-06. THE ASSESSEE HAS TAKEN THE F OLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX, CITY -1 6 MUMBAI (CIT) ERRED IN PASSING ORDER U/S.263 SETTING ASIDE THE ASSESSMENT ORDER U/S.143(3) DATED 18.6.2007 PASSED BY THE ASSESSING OFFICER HOLDING THE SAME AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. YOUR APPELLANT SUBMITS THAT UNDER THE FACT AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE THE ORDER UND ER ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 2 SECTION 263 IS ILLEGAL, BAD-IN-LAW AND THE SAME OUG HT TO BE CANCELLED. 2. THE LEARNED CIT ERRED IN HOLDING THAT THE ORDER OF ASSESSMENT PASSED BY THE ASSESSING OFFICER IS ERRON EOUS AND THEREFORE PREJUDICIAL TO THE INTEREST OF THE RE VENUE. YOUR APPELLANT SUBMITS THAT UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE THE ORDER OF ASSESSMENT IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. YOUR APPELLANT THEREFORE SUBM ITS THAT THE ORDER OF THE CIT SETTING ASIDE THE ORDER OF ASS ESSMENT OUGHT TO BE CANCELLED. 3. THE LEARNED CIT ERRED IN HOLDING THAT THE AMOUNT OF RS 60,00,000/- RECEIVED BY THE APPELLANT FOR SURRENDER ING OF BENEFICIAL RIGHT, TITLE AND INTEREST IN DEVELOPMENT OF PROPERTY IS TO BE TAXED AS BUSINESS INCOME AS AGAINST THE SA ME OFFERED TO TAX AS LONG TERM CAPITAL GAIN BY THE APP ELLANT AND THEREBY DISALLOWING EXEMPTION U/S.54EC. YOUR APPELLANT SUBMITS THAT UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE THE LEARNED C IT OUGHT NOT TO HAVE HELD THAT THE PROCEEDS RECEIVED ON SURR ENDER OF DEVELOPMENT RIGHTS ARE TO BE TAXED AS BUSINESS INCO ME BUT OUGHT TO HAVE HELD THAT THE SALE PROCEEDS ARE TAXAB LE AS LONG TERM CAPITAL GAINS AND ALLOWED EXEMPTION U/S.5 4EC. 4. THE LEARNED CIT ERRED IN TREATING THE TRANSACTIO N OF SURRENDER OF BENEFICIAL RIGHT, TITLE AND INTEREST I N THE PROJECT UNDERTAKEN BY M/S. FLOREAT INVESTMENT LTD. AS ADVE NTURE IN NATURE OF TRADE AND HEREBY HOLDING THE PROFIT O N THE SAID TRANSACTION AS BUSINESS INCOME AS OPPOSED TO T HE ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 3 SAME BEING OFFERED AS CAPITAL GAIN BY THE APPELLANT AND ACCEPTED BY THE ASSESSING OFFICER. YOUR APPELLANT SUBMITS THAT THE PROFIT ON THE TRAN SACTION WAS CORRECTLY DECLARED AS CAPITAL GAIN BY THE APPEL LANT AND ACCEPTED BY THE ASSESSING OFFICER AND THEREFORE THE CIT WAS INCORRECT IN DIRECTING THE ASSESSING OFFICER TO TREAT THE SAME AS BUSINESS INCOME. 5. THE LEARNED CIT ERRED IN TREATING THE TRANSACTIO N AS ADVENTURE IN NATURE OF TRADE BASED ON FOLLOWING I NCORRECT CONCLUSIONS:- I) THE APPELLANT WAS HOLDING BENEFICIAL RIGHT, TITLE A ND INTEREST IN THE LAND TO THE EXTENT OF 10% II) THE APPELLANT HAS ENTERED INTO JOINT VENTURE ACTIVI TY WITH M/S. FLOREAT INVESTMENT LTD. YOUR APPELLANT, THEREFORE, SUBMITS THAT CIT HAS PR OCEEDED ON INCORRECT APPRAISAL OF THE FACTS AND THEREFORE T HE ORDER OF CIT TREATING THE TRANSACTION AS BUSINESS INCOME OUG HT TO BE QUASHED. 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE-HUF FILED THE RETURN OF INCOME FOR THE A.Y . 2005-06 DECLARING TOTAL INCOME OF ` 5,31,990/- ON 23.8.2005. THE RETURN FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT W AS COMPLETED U/S.143(3) DETERMINING TOTAL INCOME OF THE ASSESSEE AT RS 5,93,013/- (AND NOT ` 1,61,660/- AS MENTIONED IN THE ORDER). THE LD. CI T INITIATED THE PROCEEDINGS U/S.263 AS HE WAS OF THE OPINION THAT THE ASSESSMENT ORDER IN THE CASE OF THE ASSESSEE PASSED U/S.143(3) OF THE ACT DATED NIL IS ERRONEOUS AND ALSO PREJUDICIAL IN THE INTEREST OF THE ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 4 REVENUE. THE REASONS GIVEN BY THE LD. CIT FOR EXERC ISING THE POWERS U/S.263 IN THE SHOW-CAUSE NOTICE DATED 25.2.2010 AR E AS UNDER:- 2. ON EXAMINATION OF RECORDS THE FOLLOWING ISSUE C AME TO LIGHT: DURING THE YEAR YOU HAVE ENTERED INTO AN AGREEMENT DATED 21.06.2004 WHICH IS STATED TO BE FOR SALE OF DEVELO PMENT RIGHTS. AS PART OF YOUR SHARE, YOU HAVE RECEIVED A SUM OF ` 66,00,000/- AND CLAIMED THE SAME AS LTCG AND INVEST ED IN BONDS SPECIFIED U/S.54EC OF THE ACT. ON GOING T HROUGH VARIOUS CLAUSES OF THE AGREEMENT DATED 21.06.2004, IT IS OBSERVED THAT THE BASIC STRUCTURE OF THE AGREEMENT IS IN THE NATURE OF AREA SHARING BETWEEN THE LAND LORDS I.E . YOURSELF AND THE DEVELOPER. AS SUCH THIS TRANSACTI ON ATTAINS THE CHARACTER OF AN ADVENTURE IN THE NATUR E OF TRADE AND THE RECEIPT THERE FROM IS LIABLE TO BE T AXED UNDER THE HEAD INCOME FROM BUSINESS. THE EXEMPTION CLAIM ED U/S.54EC IS NOT ALLOWABLE AGAINST SUCH BUSINESS INC OME AND AS A CONSEQUENCE THE ENTIRE AMOUNT RECEIVED IS REQUIRED TO BE TAXED AS BUSINESS INCOME OF THE ASSE SSEE. A.O. HAS HOWEVER DID NOT EXAMINE THE ISSUE ON THESE ISSUE. 3. THE ASSESSING OFFICER WHILE COMPLETING THE ASSES SMENT HAS NOT TAKEN THE ABOVE ISSUE INTO CONSIDERATION. THIS HAS RESULTED IN UNDER ASSESSMENT OF TAXABLE INCOME FOR THE YEAR. THUS, THE ASSESSMENT ORDER PASSED BY THE ASS ESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE WITHIN THE MEANING OF SECTION 263 OF THE IN COME TAX ACT, 1961. 3. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S. FLOREAT INVESTMENTS LTD. (IN SHORT M/S. FLOREAT) DATED 6.1. 1998 FOR ACQUIRING 10% OF THE BENEFICIAL RIGHTS, TITLE AND INTEREST IN THE PROPERTY TAKEN BY ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 5 M/S. FLOREAT FOR THE DEVELOPMENT FROM THE OWNERS, N AMELY SHRI VALLABHDAS JETHBHAI & OTHERS SITUATED AT GAMDEVI MU MBAI. M/S. FLOREAT HAS ENTERED INTO THE AGREEMENT WITH SHRI VA LLABHDAS JETHBHAI AND OTHERS WHO WERE OWNERS OF THE LAND WITH 10 BUIL DINGS TO DEVELOP THE SAID PROPERTY AND ASSESSEE-HUF WITH OTHER TWO E NTERED IN TO AGREEMENT TO ACQUIRE 10% BENEFICIAL INTEREST AND TI TLE IN THE PROPERTY TAKEN FOR DEVELOPMENT BY THE M/S. FLOREAT. AS PER THE TERMS OF AGREEMENT, M/S. FLOREAT AGREED TO ASSIGN BENEFICIAL RIGHT, TITLE AND INTEREST, EXCLUDING AREA TO BE ALLOTTED TO THE OWN ERS AND TENANTS/ OCCUPANTS AND THE ASSESSEE AGREED TO PAY ` 56,21,210/- WHICH WAS 10% OF THE PROPORTIONATE COST OF THE LAND. AS PER FURTHER TERMS OF THE AGREEMENT, THE ENTIRE DEVELOPMENT WAS TO BE CARRIED OUT BY M/S. FLOREAT AND THE ASSESSEE AGREED TO BEAR 10% OF THE COST OF CONSTRUCTION AND OTHER EXPENSES TOWARDS THE PAYMENT S TO THE TENANTS /OCCUPANTS. M/S. FLOREAT AGREED TO PAY 10% SHARE I N THE DEVELOPED PROPERTY BY WAY OF ALLOTMENT OF THE FLATS AND PARKI NG SPACES IN THE STRUCTURES/BUILDING TO BE CONSTRUCTED ON THE SAID P ROPERTY PROPOSED TO BE DEVELOPED. IT APPEARS THAT THE PROPERTY WAS TO BE DEVELOPED IN PHASE MANNER AND IF THE ASSESSEE KEEPS COMMITMENT O F THE PAYMENT OF THE 10% OF THE COST OF CONSTRUCTION AND OTHER EX PENDITURE INCURRED BY M/S. FLOREAT THEN THE ASSESSEE WAS ENTITLED TO G ET 10% BENEFICIAL RIGHT AND TITLE IN THE SAID PROPERTY BY WAY OF ALLO TMENT OF THE FLATS AND PARKING SPACES. IT IS PERTINENT TO NOTE HERE THAT APART FROM THE ASSESSEE IN THE CAPACITY OF THE KARTA OF THE HUF, T HE ASSESSEE HIMSELF IN THE INDIVIDUAL CAPACITY AND HIS DAUGHTER MISS BR INDA R. KAPADIA WERE ALSO PARTIES TO THE AGREEMENT WITH M/S. FLOREA T. THE PHASE-I OF THE PROJECT WAS COMPLETED BY M/S. FLOREAT BY CONSTR UCTION OF WING-A AND WING-B ON THE PROPERTY/LAND TAKEN FOR DEVELOPME NT AND M/S. FLOREAT ALLOTTED 10% SHARES OUT OF THE AVAILABLE FR EE-SALE AREA IN THE FIRST PHASE I.E. ALLOTTED FLAT ON 23 RD FLOOR OF THE STERLING TOWER AND ENTIRE PARKING P-1 AND P-2 AS WELL AS BASEMENT IN W ING-A AND THE SAME WAS RETAINED BY THE ASSESSEE AND OTHER PARTIES . BUT FLAT ALLOTTED ON 13 TH FLOOR OF THE STERLING TOWER WAS SOLD BY ASSESSEE . AFTER THE ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 6 FIRST PHASE OF THE PROJECT, THE ASSESSEE DECIDED TO TERMINATE/ RELINQUISH THE PRINCIPAL AGREEMENT AND ASSESSEE GAV E-UP ALL THE RIGHT, TITLE AND INTEREST VESTED IN HIM IN THE PROPERTY AC QUIRED FROM M/S. FLOREAT VIDE AGREEMENT DATED 6.1.1998. AS A PART O F THE CONSIDERATION, THE ASSESSEE AND OTHERS WERE PAID AN AGGREGATE SUM OF ` 3 CRORE IN THE FOLLOWING RATIO:- I) RAJESH G. KAPADIA HUF -50% II) RAJESH G. KAPADIA (INDIVIDUAL) -22% III) MISS BRINDA R. KAPADIA -28% PLUS IN ADDITION TO ABOVE AMOUNT, M/S, FLOREAT ALSO AGREED TO GIVE TWO FLATS HAVING SUPER BUILT UP AREA OF 2200 SQ.FT APPROX. IN THE PROPOSED EXTENSION TO THE STERLING TOWERS (PHASE I). IT WAS ALSO AGREED THAT IF THE SUPER-BUILT UP AREA IS MORE THAN 2200 SQ.FT THEN THE ASSESSEE AND OTHER TO PAY RS 8,000/- PER SQ.FT. OF THE EXCESS SUPER- BUILT AREA AND IF IT IS LESS THAN 2200 SQ.FT. THEN M/S. FLOREAT WOULD PAY @ RS 2200/- OF THE SHORT FALL TO THE ASSESSEE AND O THERS. THE AMOUNT RECEIVED BY THE ASSESSEE WAS INVESTED IN THE SPECIF IED SECURITY BONDS U/S.54EC AND SAME WAS CLAIMED AS EXEMPT IN THE RETU RN FILED BY THE ASSESSEE. THE A.O. IN THE ASSESSMENT ORDER ALSO AL LOWED THE CLAIM OF THE ASSESSEE AND THERE IS NO DISCUSSION ON THIS ISS UE. IN THIS BACKGROUND, THE LD. CIT, MUMBAI WAS OF THE OPINION THAT THE TRANSACTION OF INVESTMENT IN THE PROPERTY TAKEN FOR DEVELOPMENT BY M/S. FLOREAT PARTAKES A CHARACTER OF AN ADVENTURE IN THE NATURE OF THE TRADE AND THE RECEIPT OF ` 66 LAKHS (SHARE OF THE ASSESSEE) I.E. 22% IS A BUSINESS INCOME AND CANNOT BE ASSESSED UNDER THE HE AD CAPITAL GAINS. 4. AFTER HEARING THE ASSESSEE, THE LD. CIT PASSED T HE ORDER U/S.263 OF THE ACT DATED 23.06.2010 BY HOLDING THAT THE AMOUNT OF ` 66 LAKH BEING THE AMOUNT RECEIVED FOR SURRENDERING OF BENEFICIAL RIGHT, TITLE AND INTEREST IN PROPERTY FROM M/S. FLOREAT I S TO BE TREATED AS RECEIPTS ON ACCOUNT OF ADVENTURE IN THE NATURE OF TRADE AND, THEREFORE, ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 7 THE SAME IS TO BE TAXED AS A BUSINESS INCOME AND NO T LONG-TERM- CAPITAL-GAIN AS CLAIMED BY THE ASSESSEE AND HENCE E XEMPTION CLAIMED U/S.54EC IS NOT ALLOWABLE. THE LD. CIT FURTHER HEL D THAT THE ASSESSMENT ORDER PASSED U/S.143(3) OF THE ACT DATED 18.06.2007 IN THE ASSESSEES OWN CASE FOR THE A.Y. 2005-06 IS BOT H ERRONEOUS AND PRE-JUDICIAL TO THE INTEREST OF THE REVENUE AND HEN CE, HE SET ASIDE THE ASSESSMENT ORDER WITH THE DIRECTION TO THE A.O. REF RAMED THE ASSESSMENT AFRESH. NOW, THE ASSESSEE HAS CHALLENGE D THE ORDER OF THE LD. CIT MUMBAI BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. THE LD. COUNSEL SUBMITS THAT THERE AR E TWO BASIC MANDATES WHICH MUST BE FULFILLED BY THE LD. CIT BEF ORE EXERCISING THE POWERS U/S.263 OF THE ACT. HE ARGUES THAT THE ENTI RE DEVELOPMENT OF THE PROPERTY WAS EXECUTED BY M/S. FLOREAT AND ACCEP T CONTRIBUTING THE MONEY TO THE EXTENT OF THE 10% OF THE PROJECT COST, THE ASSESSEE HAS NO OTHER ROLE TO PLAY. HE ARGUES THAT IN CASE OF OT HER TWO PERSONS I.E. RAJESH G. KAPADIA IN HIS INDIVIDUAL CAPACITY AND MR S. BRINDA R. KAPADIA. THE A.O. ACCEPTED THAT THE AMOUNT RECEIVE D FROM M/S. FLOREAT FOR SURRENDERING THE RIGHTS AND INTEREST IN THE SAID PROPERTY IS TO BE ASSESSED AS A CAPITAL-GAIN AND ONLY IN THE CA SE OF THE PRESENT ASSESSEE-HUF DIFFERENT APPROACH IS ADOPTED. HE SUB MITS THAT IN THE CASE OF RAJESH G. KAPADIA (INDIVIDUAL) THE A.O. MAD E THE ASSESSMENT U/S.143(3) R.W.S. 147, THE A.O. HAS ASSESSED THE AM OUNT RECEIVED FROM M/S. FLOREAT AS SHORT-TERM-CAPITAL-GAIN UNDER THE H EAD CAPITAL-GAIN. HE ARGUES THAT THE ASSESSEE IS ONLY INVESTOR AND NO THING IS THERE TO SHOW THAT THE ASSESSEE HAD ANY INTENTION TO DO ANY TRADING ACTIVITY. HE ARGUES THAT IT IS COMMON IN THE REAL ESTATE THAT THE INVESTOR INVESTS THE MONEY FOR GETTING THE APPRECIATION OF THE INVES TMENT AND AN INVESTMENT MADE BY THE INVESTOR CANNOT BE TREATED A S AN ADVENTURE IN THE NATURE OF THE TRADE. THE ASSESSEE HAS SOLD ONL Y ONE FLAT IN THE A.Y. 2001-02 AND CAPITAL GAIN WAS OFFERED AND THE SAME W AS ALSO ACCEPTED BY THE A.O. SO FAR AS FLAT NO. I.E. 2102-A IS CONC ERNED, THE ASSESSEE ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 8 LET-OUT THE SAME AND RECEIVING THE RENT / LICENSE F EE. NOTHING IS THERE TO SUGGEST THAT THE PERMISSION OF THE LD. CIT IS CO RRECT. HE, THEREFORE, PLEADED FOR CANCELING THE ORDER PASSED U/S.263 OF T HE ACT. THE LD. COUNSEL RELIES ON THE FOLLOWING PRECEDENTS:- (I) MALABAR INDUSTRIAL CO. LTD. VS. CIT -243 ITR 83 (SC) (II) CIT VS. GABRIEL INDIA LTD. -203 ITR 108 (BO M) (III) CIT VS. VIKAS POLYMERS -194 TAXMAN 57 (DEL ) 6. WE HAVE ALSO HEARD THE LD. D.R. WHO SUPPORTED TH E ORDER OF THE LD. CIT MUMBAI. 7. AS PER THE FACTS BEFORE US, THE ASSESSEE AS KAR TA OF THE HUF ALONG WITH TWO OTHER MEMBERS OF THE HUF ENTERED INT O AN AGREEMENT WITH M/S. FLOREAT DATED 06.01.1998 AND ACQUIRE BENE FICIAL RIGHT, TITLE AND INTEREST TO THE EXTENT OF 10% OF THE TOTAL PROJ ECT UNDERTAKEN BY M/S. FLOREAT FOR DEVELOPMENT BY ENTERING INTO THE D EVELOPMENT AGREEMENT WITH THE OWNERS NAMELY VALLABHADAS JETHAB HAI AND OTHERS, COPY OF THE AGREEMENT WITH M/S. FLOREAT AND OTHER TWO ARE PLACED AT PAGE NO.16 TO 22 OF THE PAPER-BOOK. WE F IND THAT AS PER CLAUSE (E) IN THE RECITAL M/S. FLOREAT UNDERTAKES T O CARRY OUT THE DEVELOPMENT IN ACCORDANCE WITH THE PLANS APPROVED I N BEST MANNER AND KEEP THE ACCOUNT OF THE ENTIRE EXPENDITURE AND THE ASSESSEE HAS TO CONTRIBUTE 10% OF THE EXPENDITURE WHICH WAS PERT AINING TO THE CONSTRUCTION AS WELL AS SETTLEMENT OF THE TENANTS A ND OTHER OCCUPANTS. THE TITLE FOR CONSIDERATION OF PAYMENT OF THE 10% O F THE COST OF THE PROJECT FLOREAT AGREED TO ASSIGN RIGHTS IN THE 10% OF AVAILABLE AREAS TO THE ASSESSEE. AS PER THE AGREEMENT ON RECORD, WE F IND THAT THE PROJECT IS TO BE COMPLETED IN THE BEST MANNER. NOTHING IS THERE TO SUGGEST THAT THE ASSESSEE HAS NO ACTIVE ROLE IN THE EXECUTI ON OF THE PROJECT, SAVE PAYMENT OF THE MONEY TO THE EXTENT OF 10% COMM ITTED INCLUSIVE OF ALL THE COST AND IN CONSIDERATION THEREOF THE AS SESSEE HAD TO GET 10% OF THE TITLE, RIGHT IN THE UNDIVIDED PROPERTY. SUBSEQUENTLY, THE ASSESSEE DECIDED TO BACK-UP FROM THE SAID PROJECT A FTER COMPLETION OF ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 9 THE FIRST PHASE AND ACCORDINGLY THE AGREEMENT WAS R EACHED BETWEEN THE M/S. FLOREAT AND THE ASSESSEE AND OTHERS. IN C ONSIDERATION FOR GIVING-UP / RELINQUISHMENT OF RIGHTS, TITLES AND IN TEREST IN THE PROPERTY IN FAVOUR OF M/S. FLOREAT AND M/S. FLOREAT AGREED T O PAY ` 3 CRORES TO THE ASSESSEE AND OTHER TWO FAMILY MEMBERS + 2 FLATS HAVING AGGREGATE SUPER-BUILT UP AREA OF APPROXIMATELY 2200 SQ.FT. C OPY OF THE AGREEMENT RELATING SHOWING THE RIGHT AND TITLE DATE D 21.06.2004 WITH M/S. FLOREAT IS PLACED AT PAGE NO.23 TO 30 OF THE P APER-BOOK. 8. NOW, SHORT ISSUE IN CONTROVERSY IS WHETHER TRANS ACTION PARTAKES THE CHARACTER OF THE FINANCIAL IN THE NATURE OF THE TRADE. WE FIND THAT THERE IS NO OTHER REASON GIVEN BY THE LD. CIT FOR E XERCISING THE POWERS U/S.263. 9 IT IS WELL SETTLED PRINCIPAL OF LAW THAT TO EXER CISE THE POWERS U/S.263, AS RIGHTLY ARGUED BY THE LD. COUNSEL, TWO MANDATES MUST BE FULFILLED: (I) THE ORDER WHICH IS SUBJECTED TO THE REVERSIONARY JURISDICTION AND MUST BE ERRONEOUS AND (II) THE SAI D ORDER SHOULD BE PRE-JUDICIAL TO THE INTEREST OF THE REVENUE. IN TH E CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA), THE HONBLE SUPREME CO URT HAS HELD AS UNDER:- THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSE QUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RE SULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY T HE ITO IS UNSUSTAINABLE IN LAW. ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 10 10 IN THE CASE GABRIEL INDIA LTD. (SUPRA) WHILE EX PLAINING TERM ERRONEOUS THEIR LORDSHIPS HAVE HELD AS UNDER:- THE POWER OF SUO MOTU REVISION UNDER SUBSECTION (1 ) IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REVISION UNDER THIS SUB-SECTION, VIZ., (I) THE ORDER IS ERRONEOUS; (II) BY VIRTUE OF THE ORDER BEING ERRONE OUS PREJUDICE HAS BEEN CAUSED TO THE INTERESTS OF THE REVENUE. IT HAS , THEREFORE, TO BE CONSIDERED FIRSTLY AS TO WHEN AN ORDER CAN BE SA ID TO BE ERRONEOUS. WE FIND THAT THE EXPRESSIONS 'ERRONEOUS' , 'ERRONEOUS ASSESSMENT' AND 'ERRONEOUS JUDGMENT' HAVE BEEN DEFI NED IN BLACKS LAW DICTIONARY. ACCORDING TO THE DEFINITION, 'ERRONEOUS' MEANS 'INVOLVING ERROR; DEVIATING FROM THE LAW'. 'E RRONEOUS ASSESSMENT' REFERS TO AN ASSESSMENT THAT DEVIATES F ROM THE LAW AND IS, THEREFORE, INVALID, AND IS A DEFECT THAT IS JURISDICTIONAL IN ITS NATURE, AND DOES NOT REFER TO THE JUDGMENT OF T HE ASSESSING OFFICER IN FIXING THE AMOUNT OF VALUATION OF THE PR OPERTY. SIMILARLY, 'ERRONEOUS JUDGMENT' MEANS 'ONE RENDERED ACCORDING TO COURSE AND PRACTICE OF COURT, BUT CONTRARY TO LAW, UPON MI STAKEN VIEW OF LAW ; OR UPON ERRONEOUS APPLICATION OF LEGAL PRINCIPLES '. 11. IN THE CASE OF VIKAS POLYMERS, THE HONBLE HIGH COURT OF DELHI HAS AGAIN INTERPRETED THE TERM ERRONEOUS AFTER RE FERRING TO THE DECISIONS IN THE CASE OF MALABAR INDUSTRIAL CO. LTD . (SUPRA) AND GABRIEL INDIA LTD. (SUPRA) AND HELD AS UNDER:- 14. FROM THE ABOVE, IN OUR CONSIDERED OPINION IT IS CLEAR THAT IN THE ULTIMATE ANALYSIS IT IS A PRE-JUDICIAL THAT THE COMMISSIONER MUST GIVE REASONS TO JUSTIFY THE EXERCISE OF SUO MO TU REVISIONAL POWERS BY HIM TO REOPEN A CONCLUDED ASSESSMENT. A BARE ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 11 REITERATION BY HIM THAT THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER EST OF THE REVENUE, WILL NOT SUFFICE. THE EXERCISE OF THE POWER BEING QUASI-JUDICIAL IN NATURE, WILL NOT SUFFICE. THE EXERCISE OF THE POWE R BEING QUASI- JUDICIAL IN NATURE, THE REASONS MUST BE SUCH AS TO SHOW THAT THE ENHANCEMENT OR MODIFICATION OF THE ASSESSMENT OR CA NCELLATION OF THE ASSESSMENT OR DIRECTIONS ISSUED FOR A FRESH ASS ESSMENT WERE CALLED FOR, AND MUST IRRESISTIBLY LEAD TO THE CONCL USION THAT THE ORDER OF THE INCOME-TAX OFFICER WAS NOT ONLY ERRONE OUS BUT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THUS, WHILE THE INCOME- TAX OFFICER IS NOT CALLED UPON TO WRITE AN ELABORAT E JUDGMENT GIVING DETAILS REASONS IN RESPECT OF EACH AND EVERY DISALLOWANCE, DEDUCTION, ETC. IT IS INCUMBENT UPON THE COMMISSION ER NOT TO EXERCISE HIS SUM MOTU REVISIONSAL POWERS UNLESS SUP PORTED BY ADEQUATE REASONS FOR DOING SO. 12. WE FURTHER FIND THAT IN THE CASE OF SHRI RAJESH G. KAPADAI (INDIVIDUAL) IN THE A.Y. 2005-06, THE ORIGINAL ASSE SSMENT WAS COMPLETED U/S.143(3), IN THAT CASE ALSO THE SHARE O F THE IMPUGNED RECEIPT FROM M/S. FLOREAT WAS TREATED AS LONG-TERM- CAPITAL-GAIN AND ALSO CLAIM OF THE DEDUCTION/EXEMPTION U/S.54EC WAS ALLOWED. SUBSEQUENTLY, ASSESSMENT WAS RE-OPENED FOR WITHDRAW ING CLAIM OF DEDUCTION U/SEC, 54EC AS WELL AS SHORT ASSESSMENT O F CAPITAL GAINS TO EXTENT OF ` 88 LACS. IN RE-ASSESSMENT PROCEEDINGS ITSELF, THE A.O. DID NOT DISTURB ORIGINAL ASSESSMENT I.E. CLAIM OF DEDUC TION/EXEMPTION UNDER SEC. 54EC AND QUANTUM OF CAPITAL GAINS. 13. SO AS PRESENT CASE IS CONCERNED, LD. CIT HAS HE LD THAT THE TRANSACTION OF INVESTMENT WITH M/S. FLOREAT FOR ACQ UIRING 10% BENEFICIAL INTEREST AND TITLE IN THE PROPERTY TAKEN FOR DEVELOPMENT IS IN ADVENTURE IN THE NATURE OF TRADE AND HENCE, NO BENE FIT OF INVESTMENT UNDER SEC. 54EC CAN BE AVAILED BY ASSESSEE. MUCH WA TER HAS FLOWN IN DEFINING AND EXPLAINING PHRASE HOW TRANSACTION CAN BE TREATED AS ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 12 ADVENTURE IN THE NATURE OF TRADE BUT THERE IS N O FIT TO JACKET FORMULA TO DECIDE PARTICULAR TRANSACTION AS ADVENTURE IN N ATURE OF TRADE AS MANY FACTORS AND FACTS ARE RELEVANT. AS PER RECORD BEFORE US, WHAT WE FIND THAT ASSESSEE WITH OTHER TWO ENTERED IN TO AGR EEMENT WITH M/S. FLOREAT TO ACQUIRED 10% BENEFICIAL INTEREST AND TIT LED IN THE SAID PROPERTY AND AGREED TO BEAR PROPORTIONATE COST. IN RETURN, ASSESSEE HAS TO GET 10% RIGHT AND TITLED FROM DEVELOPED PROP ERTY BY M/S. FLOREAT. AS PER AGREEMENT ON COMPLETION OF FIRST PH ASE, ASSESSEE WAS ALLOTTED AGREED PORTION IN CONSTRUCTED BUILDING IN NATURE OF 2 FLATS AND PARKING SPACES. ONE FLAT WAS SOLD BY ASSESSEE A NOTHER FLAT WAS LET OUT. NO WHERE IT IS ON RECORD THAT ANY TIME ASS ESSEE HAS ANY INTENTION TO DO ANY TRADE OR BUSINESS IN REAL ESTAT E. FOR RELINQUISHMENT OF BENEFICIAL RIGHT AND TITLE IN THE PROPERTY IN FAVOUR OF M/S. FLOREAT, ASSESSE WAS PAID COMPENSATION. ENTIRE TRANSACTION PERTAINS TO ACQUISITION OF RIGHTS IN FORM OF TITLE IN IMMOVABLE PROPERTY AND IN OUR OPINION IT IS IN NATURE OF INVESTMENT ON LY AND NOT ADVENTURE IN NATURE OF TRADE. WE, THEREFORE, HOLD T HAT THE ASSESSMENT ORDER WHICH IS SUBJECT MATTER OF REVISION UNDER SEC . 263 OF THE ACT IS NOT AT ALL ERRONEOUS, WHICH IS ONE OF MANDATORY CONDITIONS TO BE FULFILLED FOR EXERCISE OF REVISIONARY POWER UNDER SAID PROVISION. WE ACCORDINGLY CANCEL ORDER PASSED UNDER SEC.263 OF TH E ACT. 14. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 6TH SEPTEMBER 2011. SD/- SD/- ( R.S. SYAL ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATED : 16TH SEPTEMBER 2011 ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 13 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT 16, MUMBAI. 4) THE CIT- MC CONCERNED.., MUMBAI. 5) THE D.R. D BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 3242/MUM/2010 SHRI RAJESH G. KAPADIA HUF 14 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 0509.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 09.09.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER