M/S PARMAR PROPERTIES PVT. LTD, Pune V. ACIT,Cir.4, Pune

ITA 351/PUN/2010

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7160 (ITAT-PUNE)
• Duration Of Justice: 7 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-08-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 08-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR CHAWARE; ACHAL SHARMAADDL
• Assessee Lawyers: M G RATHI
• Keywords: Capital asset converted into stock in trade; Capital asset; Business income; Charitable institution; Principle of natural justice; Opportunity of cross examination; Cost of acquisition; Valuation report
• Section: 45(2); 143(3); 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 344 /P U N/201 0 / ASSESSMENT YEAR : 20 05 - 06 M/S. PARMAR PROPERTIES PVT. LTD., OFF - 2A, WING - 1, THACKERS HOUSE, 2418, EAST STREET, PUNE 411001 . / APPELLANT PAN: AABCP1016F VS. THE ADDL. COMMISSIONER OF INCOM E TAX, RANGE 4, PUNE . / RESPONDENT . / ITA NO. 528 /P U N/201 0 / ASSESSMENT YEAR : 20 05 - 06 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE . / APPELLANT VS. M/S. PARMAR PROPERTIES PVT. LTD., OFF - 2A, WING - 1, THACKERS HOUSE, 2418, EAST STREET, PUNE 411001 . / RESPONDENT PAN: AABCP1016F . / ITA NO. 351 /P U N/201 0 / ASSESSMENT YEAR : 20 0 3 - 0 4 M/S. PARMAR PROPERTIES PVT. LTD., OFF - 2A, WING - 1, THA CKERS HOUSE, 2418, EAST STREET, PUNE 411001 . / APPELLANT PAN: AABCP1016F VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE . / RESPONDENT ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 2 . / ITA NO. 527 /P U N/201 0 / ASSESSMENT YEAR : 20 03 - 04 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE . / APPELLANT VS. M/S. PARMAR PROPERTIES PVT. LTD., OFF - 2A, WING - 1, THACKERS HOUSE, 2418, EAST STREET, PUNE 411001 . / RESPONDENT PAN: AABCP1016F . / ITA NO. 547 /P U N/201 1 / ASSESSMENT YEAR : 20 07 - 08 M/S. PARMAR PROPERTIES PVT. LTD., OFF - 2A, WING - 1, THACKERS HOUSE, 2418, EAST STREET, PUNE 411001 . / APPELLANT PAN: AABCP1016F VS. THE ADDL. COMMISSIONER OF IN COME TAX, RANGE 4, PUNE . / RESPONDENT . / ITA NO. 640 /P U N/201 1 / ASSESSMENT YEAR : 20 0 7 - 0 8 THE DY . COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE . / APPELLANT VS. M/S. PARMAR PROPERTIES PV T. LTD., OFF - 2A, WING - 1, THACKERS HOUSE, 2418, EAST STREET, PUNE 411001 . / RESPONDENT PAN: AABCP1016F ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 3 . / ITA NO. 1585 /P U N/201 1 / ASSESSMENT YEAR : 20 08 - 09 M/S. PARMAR PROPERTIES PVT. LTD., OFF - 2A, WING - 1 , THACKERS HOUSE, 2418, EAST STREET, PUNE 411001 . / APPELLANT PAN: AABCP1016F VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE . / RESPONDENT . / ITA NO. 156 /P U N/201 2 / ASSESSMENT YEAR : 20 08 - 09 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE . / APPELLANT VS. M/S. PARMAR PROPERTIES PVT. LTD., OFF - 2A, WING - 1, THACKERS HOUSE, 2418, EAST STREET, PUNE 411001 . / RESPONDENT PAN: AABCP1016 F . / ITA NO. 1584 /P U N/201 1 / ASSESSMENT YEAR : 20 04 - 05 M/S. PARMAR PROPERTIES PVT. LTD., OFF - 2A, WING - 1, THACKERS HOUSE, 2418, EAST STREET, PUNE 411001 . / APPELLANT PAN: AABCP1016F VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE . / RESPONDENT ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 4 . / ITA NO. 1223 /P U N/201 0 / ASSESSMENT YEAR : 20 06 - 07 M/S. PARMAR PROPERTIES PVT. LTD., OFF - 2A, WING - 1, THACKERS HOUSE, 2418, EAST STREET, PUNE 411001 . / APPELLANT PAN: AABCP1016F VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 4, PUNE . / RESPONDENT ASSESSEE BY : S /S HRI KISHORE PHADKE AND M.G. RATHI REVENUE BY : S /S HRI ANIL KUMAR CHAWARE AND ACHAL SHARMA, AD DL.CIT / DATE OF HEARING : 1 0 .0 8 . 2017 / DATE OF PRONOUNCEMENT: 08 . 1 1 .201 7 / ORDER PER SUSHMA CHOWLA, J M : OUT OF THIS BUNCH OF APPEAL S , FOUR CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST SEP ARATE ORDER S OF CIT (A) - I I, PUNE , RELATING TO ASSESSMENT YEAR S 2003 - 04, 2005 - 06, 20 0 7 - 0 8 AND 2008 - 09 AGAINST RESPECTIVE ORDER S PASSED UNDER SECTION 143(3) R.W.S. 263 / 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . THE ASSESSEE ALSO FILED TWO APP EALS AGAINST SEPARATE ORDERS OF CIT (A) - II, PUNE, RELATING TO ASSESSMENT YEAR S 2004 - 05 AND 2006 - 07 AGAINST RESPECTIVE ORDERS PASSED UNDER SECTION 143(3) R.W.S. 263 / 143(3) OF THE ACT. ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 5 2 . THE BUNCH OF APPEALS RELAT ING TO THE SAME ASSESSEE WERE HEARD TOGETH ER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. THE ISSUE INVOLVED IN THIS BUNCH OF APPEALS IS SIMILAR AND WE PROCEED TO DECIDE THE PRESENT BUNCH OF APPEALS BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . 3. FIRST, WE TAKE UP THE LEAD ORDER IN ASSESSMENT YEAR 2005 - 06, SINCE ORIGINALLY THE RELIEF WAS GRANTED IN ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 AND FOR THE FIRST TIME, THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2005 - 06. HOW EVER, BOTH IN ASSESSMENT YEARS 2003 - 04 AND 2004 - 05, CONSEQUENT TO THE ORDER PASSED BY THE ASSESSING OFFICER, 263 PROCEEDINGS WERE TAKEN UP AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) R.W.S. 263 OF THE ACT, WHICH IN TURN, HAS BEEN DECIDED BY THE C IT(A), AGAINST WHICH THE ASSESSEE AND THE REVENUE ARE IN APPEAL. 4 . FIRST, WE SHALL TAKE THE FACTS AND ISSUES IN ITA NO.344/PUN/2010 I.E. APPEAL FILED BY THE ASSESSEE AND IN ITA NO.528/PUN/2010 FILED BY THE REVENUE. 5 . THE ASSESSEE IN ITA NO.344/PUN/2010 , RELATING TO ASSESSMENT YEAR 2005 - 06 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(A) II PUNE ERRED IN LAW AND FACTS IN DISMISSING THE APPEAL OF THE APPELLANT AND IN HOLDING THAT THE APPELLANT IS NOT ELIGIBLE TO CLAIM DEDUCTION OF RS.1,7 0,96,381/ - U/S 80IB(10) OF THE ITA, 1961. HE OUGHT TO HAVE CONSIDERED THE FACTS ON PROPER MERITS. 2. THE LEARNED CIT(A) II, PUNE ERRED IN LAW IN NOT APPRECIATING THAT THE OPPORTUNITY OF CROSS EXAMINATION OF PARTIES/CUSTOMERS, ETC. WAS NOT PROVIDED TO THE APPELLANT. HE OUGHT TO HAVE APPRECIATED THAT UNDER THE PRINCIPLE OF NATURAL JUSTICE, AN OPPORTUNITY OUGHT TO HAVE BEEN GRANTED TO THE APPELLANT. ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 6 3. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE EARLIER GROUNDS, THE LEARNED CIT(A) - II, PUNE ERRED IN LAW IN N OT APPRECIATING THE ALTERNATE GROUND OF APPELLANT FOR GRANT OF PROPORTIONATE DEDUCTION WITH REFERENCE TO THE AREA WHICH SATISFIED THE CONDITIONS U/S 80IB(10) OF THE ITA, 1961. 4. THE LEARNED CIT(A) II PUNE ERRED IN LAW AND ON FACTS IN TAXING THE AMOUNT OF CAPITAL GAIN AS BUSINESS INCOME. HE OUGHT TO HAVE CONSIDERED THE FACTS ON PROPER MERITS. 6 . THE REVENUE IN ITA NO.528/PUN/2010, RELATING TO ASSESSMENT YEAR 2005 - 06 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN NOT CONFIRMING THE ADDITION OF RS.2,23,76,500/ - MADE FOR THIS ASSESSMENT YEAR ON ACCOUNT OF THE AS SESSEES BUSINESS INCOME AND INSTEAD IN DIRECTING THE ASSESSING OFFICER TO RE - WORK OUT THE PROFIT ASSESSABLE TO TAX FOR THIS ASSESSMENT YEAR AS SUCH BUSINESS INCOME. 3. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN DELETING THE ADDITIO N OF RS.2,37,75,142/ - MADE IN THE ASSESSMENT ON ACCOUNT OF UNDISCLOSED PROFIT REPRESENTED BY INCREASE IN WORK - IN - PROGRESS. 4. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 7 . THE FIRST ISSUE RAISED BY THE ASSESSEE BY WAY OF GROUNDS OF APPEAL NO.1, 2 AND 3 IS AGAINST THE CLAIM OF DEDUCTION UNDER SECTION 80IB(10) OF THE ACT. 8 . BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF REAL ESTATE PROJECTS. THE ASSESSEE WAS ENGAGED IN THE DEVELOPMENT OF LAND AND CONSTRUCTION OF RESIDENTIAL AND COMMERCIAL BUILDINGS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CONSTRUCTED TWO P ROJECTS NAMELY, PARMAR GARDEN IN WANAWADI, PUNE CITY, PUNE AND KPCT COMMERCIAL COMPLEX AT WANAWADI, PUNE. THE ASSESSEE CLAIMED THE DEDUCTION UNDER SECTION 80IB(10) OF THE ACT IN RESPECT OF PROJECT NAMED PARMAR GARDEN. THE SAID PROJECT WAS COMPLETED IN MA RCH, 2003. THE ASSESSING OFFICER NOTED THAT THE CLAIM OF DEDUCTION UNDER SECTION ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 7 80IB(10) OF THE ACT WAS DISALLOWED IN ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 IN RESPECT OF PROFITS OF PARMAR GARDEN AND HENCE, THE SAME WAS ALSO DISALLOWED IN THE HANDS OF ASSE SSEE IN THE INSTANT ASSESSMENT YEAR ALSO. 9 . THE CIT(A) ALSO FOLLOWING THE EARLIER ORDERS OF CIT(A) IN ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80IB(10) OF THE ACT. 10 . THE ASSESSEE IS IN APPEAL AGAINST THE ORD ER OF CIT(A). 1 1 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ITA NOS.234/PUN/2009 AND 569/PUN/2009, RELATING TO ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 AND VIDE ORDER DATED 22.03. 2017, THE ASSESSEE WAS HELD TO BE ENTITLED TO PROPORTIONATE DEDUCTION UNDER SECTION 80IB(10) OF THE ACT IN RESPECT OF UNITS WHICH FULFILS THE CONDITIONS LAID DOWN OF HAVING BUILT UP AREA OF 1500 SQ.FT. 1 2 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE FAIRLY ADMITTED THAT SIMILAR ISSUE WAS RAISED IN ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 IN RESPECT OF PARMAR GARDEN PROJECT, WHICH HAS BEEN DECIDED BY THE TRIBUNAL. 1 3 . FOLLOWING THE SAME PARITY OF REASONING, AS IN THE ORDERS OF TRIBUNAL IN EARLI ER YEARS, WE HOLD THAT THE ASSESSEE IS ENTITLED TO PRORATA DEDUCTION UNDER SECTION 80IB(10) OF THE ACT. ACCORDINGLY, WE HOLD SO. THE FIRST ISSUE RAISED BY THE ASSESSEE BY WAY OF GROUNDS OF APPEAL NO.1 TO 3 IS THUS, ALLOWED. ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 8 1 4 . NOW, COMING TO THE SECOND ISSUE RAISED WHICH IS AGAINST THE ORDER OF AUTHORITIES BELOW IN ASSESSING INCOME FROM CAPITAL GAINS OFFERED BY THE ASSESSEE AS BUSINESS INCOME. 1 5 . BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE CLAIMS TO HAVE PURCHASED LAND / DEVELOPMENT RIGHTS AT S.NO.16, HISSA NO.1, SITUATED AT WANAWRI, ADMEASURING 11600 SQ.MTRS. I.E. 1 HEC. 16 ARES, THROUGH AGREEMENT OF ASSIGNMENT ON 03.06.1993. THE SAID LAND WAS RESERVED FOR A PARK AND DP ROAD AS PER THE DEVELOPMENT PLAN IN FORCE, WHEN THE ORIGINAL VENDORS S OLD THE LAND TO THE ORIGINAL PURCHASER ON 18.03.1984 . SUBSEQUENTLY, THE ORIGINAL PURCHASER ASSIGNED HIS RIGHTS IN LAND AND DEVELOPMENT TO THE ASSESSEE ON 03.06.1993. FURTHER, REVISED DEVELOPMENT PLAN OF PUNE CITY CANCELLED THE RESERVATION FOR PARK BUT RE SERVED THE LAND FOR DISPENSARY AND MATERNITY HOME, WITH RESERVATION OF DP ROAD BEING CONTINUED. THE ASSESSEE FILED A NOTE IN THIS REGARD IN THE STATEMENT OF INCOME ENCLOSED ALONG WITH RETURN OF INCOME. THE ASSESSEE FURTHER EXPLAINED THAT AFTER NECESSARY APPROVALS WERE OBTAINED, THE ASSESSEE CONVERTED THIS PROPERTY INTO STOCK - IN - TRADE IN THE YEAR ENDING 31.03.2002 AND THE MARKET VALUE ON THE DATE OF SUCH CONVERSION WAS RS.6,29,00,000/ - , AS PER THE REPORT OF REGISTERED VALUER AND THE SAME WAS TRANSFERRED TO KPCT CONTRACT ACCOUNT, BEING THE PROPOSED COMMERCIAL PROJECT KPCT. THE ASSESSEE FURTHER POINTED OUT AS PER SECTION 45(2) OF THE ACT, TH E PROFITS ARISING FROM TRANSFER BY WAY OF CONVERSION OF CAPITAL ASSET INTO STOCK - IN - TRADE OF BUSINESS SHALL BE CHARGEAB LE TO TAX AS HIS INCOME OF PREVIOUS YEAR IN WHICH THE STOCK - IN - TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM. THE TOTAL SALEABLE AREA TO BE CONSTRUCTED UNDER THE PROJECT WAS 1,68,373 SQ.FT. BUT WAS INCREASED TO 2,37,260 SQ.FT. BY PURCHASE OF ADDITIONAL FS I THROUGH PURCHASE OF TDR AT RS.60 LAKHS. THE BUILDING PLAN WAS THUS, REVISED ON 01.01.2004 DUE TO ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 9 THE INCREASE IN CONSTRUCTION AREA. OUT OF THIS AREA, 29,755 SQ.FT. WAS TO BE LEFT FOR HOSPITAL PROJECT, TO BE GIVEN TO PMC, FREE OF COST. HENCE, THE DEEME D SALEABLE AREA WAS 2,07,505 SQ.FT. THE ASSESSEE THUS, COMPUTED LONG TERM CAPITAL GAINS IN ASSESSMENT YEAR 2005 - 06 I.E. IN THE YEAR WHEN PART OF CONSTRUCTED AREA WAS SOLD. THE TOTAL DEEMED CONSIDERATION UNDER SECTION 45(2) OF THE ACT FOR 2,07,505 SQ.FT. WAS ADOPTED AT RS.6.29 CRORES, OUT OF WHICH INDEXED COST OF ACQUISITION OF RS.9,13,980/ - WAS DEDUCTED AND THE LONG TERM CAPITAL GAINS OF RS.6,19,86,020/ - WAS WORKED OUT. SINCE THE ASSESSEE HAD EXECUTED SALE AGREEMENT FOR AREA AGGREGATING TO 62,805 SQ.FT. UPTO 31.03.2005 I.E. INCLUDING 39,805 SQ.FT. UPTO 31.03.2004, THE PROPORTIONATE LONG TERM CAPITAL GAINS ON RS.6.19 CRORES WAS WORKED OUT AT RS.1,87,61,148/ - . THE ASSESSEE HAD ALREADY OFFERED LONG TERM CAPITAL GAINS UPTO ASSESSMENT YEAR 2004 - 05 AT RS.1.24 CRORES AND THE BALANCE LONG TERM CAPITAL GAINS FOR THE YEAR UNDER CONSIDERATION WAS OFFERED AT RS.63,46,268/ - . 16. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE BASIC AND CORE ISSUE WAS WITH REGARD TO THE DISCLOSURE OF CAPITAL GAINS BY THE ASSESSEE, I.E. WHETHER THE ASSESSEE ACQUIRED ANY CAPITAL ASSET ORIGINALLY IN THE FIRST PLACE AS PER SECTION 2(14) OF THE ACT AND WHETHER THERE WAS ANY TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT. THE ASSESSEE WAS SHOW CAUSED AND ASKED TO EXPLAIN THE SITUATION. THE ASSESSING OFFICER NOTED THAT THE SAID ASSET WAS NOT APPEARING AS CAPITAL ASSET IN THE BALANCE SHEET FOR THE YEAR ENDING 31.03.2002 OR BEFORE. IN REPLY, THE ASSESSEE EXPLAINED THAT THE LAND ON WHICH KPCT PROJ ECT WAS CONSTRUCTED WAS APPEARING IN THE BALANCE SHEET AS FIXED ASSET FROM 1994 TO 31.03.2001. THE SAME WAS CONVERTED INTO STOCK - IN - TRADE DURING THE YEAR ENDING 31.03.2002 AND THE SAME WAS NOT APPEARING IN THE FIXED ASSETS. ANOTHER COMMUNICATION WAS FILE D BEFORE ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 10 THE ASSESSING OFFICER, IN WHICH IT WAS EXPLAINED THAT M/S.PARMAR CONSTRUCTION, A PROPRIETARY CONCERN OF KC PARMAT (HUF) PURCHASED THE SAID LAND ON 18.03.1984, SINCE THE FIRM WANTED TO CLOSE ITS ACTIVITIES AND THE ASSESSEE COMPANY WANTED TO HAVE IT S OWN PREMISES, VIDE AGREEMENT DATED 03.06.1993, THE SAID LAND WAS PURCHASED BY THE ASSESSEE FOR HAVING POSH CORPORATE OFFICE AND SET UP ITS OWN ENTITY IN THE CORPORATE WORLD. THE INTENTION OF THE ASSESSEE WAS TO USE THE BUILDING MAINLY FOR ITS OFFICE AND SURPLUS SPACE, IF ANY, TO BE LEASED OUT, WHICH WAS EVIDENT FROM THE FACT THAT THE ASSESSEE HELD THE LAND AS FIXED ASSETS RIGHT FROM THE YEAR ENDING 31.03.1994 TO 31.03.2002. IT WAS FURTHER ARGUED BY THE ASSESSEE THAT THE LAND WAS RESERVED BY THE PMC FOR DEVELOPMENT PURPOSES AND COULD NOT BE CONSTRUCTED UPON. HOWEVER, THE ASSESSEE PURSUED THE MATTER WITH THE PMC AND MADE APPLICATION FOR DEVELOPING THE LAND. VIDE AGREEMENT DATED 29.12.2001, ACCORDING TO WHICH, THE ASSESSEE COMPANY COULD DEVELOP THE LAND B Y HANDING OVER CERTAIN PORTIONS OF PREMISES TO THE PMC, FREE OF COST AND IT WAS AT THAT TIME I.E. DURING FINANCIAL YEAR 2002 - 03, THE ASSESSEE TRANSFERRED THE CAPITAL / FIXED ASSETS AS STOCK - IN - TRADE AND RE - VALUED THE SAME AT RS.6.29 CRORES. THE ASSESSEE A LSO POINTED OUT THAT DURING SCRUTINY PROCEEDINGS FOR EARLIER YEARS I.E. ASSESSMENT YEARS 2003 - 04 AND 2004 - 05, THE CONCEPT OF PAYING CAPITAL GAINS TAX ON THE LAND SOLD IN PROPORTION AS CAPITAL GAINS HAD BEEN EXPLAINED AND ACCEPTED. HE FURTHER STRESSED THAT ON THE SAME SET OF FACTS AND THERE BEING NO CHANGE IN THE CIRCUMSTANCES, THERE IS NO MERIT IN ADOPTING THE VIEW WHICH HAS ALREADY BEEN ACCEPTED. HE ALSO MADE REFERENCE TO THE CBDT CIRCULAR NO.4/2007, DATED 15.06.2007 WITH REGARD TO RECOGNIZING SHARES AS CAPITAL ASSET AND ALSO STOCK - IN - TRADE, TO CONTEND THAT PRIMARILY IT DEPEND ED ON THE INTENTION OF THE ASSESSEE WHETHER AN ASSET IS CAPITAL ASSET OR STOCK - IN - TRADE OR BUSINESS ASSET. THE ASSESSING OFFICER WAS OF THE VIEW THAT FROM THE FACTS STATED BY THE LE ARNED ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 11 AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELATED TO THE ACQUISITION OF LAND, INTENTION OF ASSESSEE, CHARACTER OF LAND AND NATURE OF ASSET WAS FACTUALLY INCORRECT AND SELF CONTRADICTORY. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CLAIMED THAT THE LAND WAS RESERVED BY THE PMC ON THE DATE OF ACQUIRING DEVELOPMENT RIGHTS AND THAT CONSTRUCTION COULD NOT BE MADE ON THE LAND AND AT THE SAME TIME, THE ASSESSEE CLAIMS THAT IT INTENDED TO CONSTRUCT POSH CORPORATE OFFICE FOR ITS OWN USE. FURTHER, THE C LAIM OF ASSESSEE THAT IT PURCHASED LAND IN 1993 WAS ALSO FACTUALLY INCORRECT, WHEREIN THE ASSESSEE PURCHASED DEVELOPMENT RIGHTS IN THE LAND THROUGH ASSIGNMENT DEED DATED 03.06.1993, SUCH DEVELOPMENT RIGHTS OF LAND WERE PURCHASED BY KC PARMAT, AS PROPRIETOR OF M/S. PARMAR CONSTRUCTION IN 1984 FROM THE LANDLORDS, AS BUSINESS ASSET, WHEN THE LAND WAS RESERVED FOR PARK AND 60 WIDE DP ROAD. HE FURTHER REFERRED TO THE REVISED DEVELOPMENT PLAN NOTIFIED IN EXTRAORDINARY GAZETTE ON 05.01.1987 SUBMITTED BY THE ASSE SSEE VIDE LETTER DATED 13.12.2007 AND POINTED OUT THAT THE SAME WAS NOT A DRAFT AT ALL ; IT CLEARLY PROVIDED THAT THE LAND COULD BE DEVELOPED WITH THE CONDITION THAT THE DEVELOPER SHALL CONSTRUCT AND HANDOVER 25% OF PERMITTED BUILT UP AREA IN THE CONSTRUCTE D BUILDING TO THE PMC, FREE OF COST. THUS, ON THE DATE OF ACQUIRING THE DEVELOPMENT RIGHTS I.E. 03.06.1996, THE LAND HAD NO RESTRICTION OF DEVELOPMENT AND COMMERCIAL EXPLOITATION OF 75% OF PERMISSIBLE BUILT UP AREA OF ABOUT 1,68,000 SQ.FT. OR ABOUT 1,26,0 00 SQ.FT. FURTHER, THE ASSESSING OFFICER OBSERVED THAT THERE WAS NO CHANGE IN DEVELOPMENT OF LAND, WHEN THE PERMISSION TO DEVELOP THE LAND WAS ACCORDED TO THE ASSESSEE BY THE PMC VIDE CERTIFICATE DATED 10.02.2000. 1 7 . THE NEXT CLAIM OF THE ASSESSEE THA T IT HELD LAND FOR EIGHT YEARS WAS HELD TO BE NOT RELEVANT, WHERE THE VERY NATURE OF PROPERTY PURCHASED WAS A COMMERCIAL ASSET AND NOT CAPITAL ASSET. THE FACT THAT THE ASSESSEE HAD SHOWN ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 12 IT AS FIXED ASSET IN ITS ACCOUNTS WAS HELD TO BE NOT RELEVANT TO DEC IDE THE ISSUE. THE ASSIGNMENT DEED DATED 03.06.1993, CLAUSE (1) WAS ALSO INDICATED THAT THE ASSIGNOR HAD DEVELOPMENT RIGHTS AS BUSINESS ASSETS AND IT WAS SPECIFICALLY MENTIONED THAT PROFIT OF RS.1 LAKH TO THE ASSIGNOR WAS INCLUDED IN THE TOTAL CONSIDERATI ON OF RS.5,23,500/ - . THE ASSESSING OFFICER ALSO BRUSHED ASIDE THE PLEA OF ASSESSEE THAT IT HAD DISCLOSED CAPITAL GAINS ON ACCOUNT OF CONVERSION OF CAPITAL ASSET INTO STOCK - IN - TRADE DURING SCRUTINY ASSESSMENT FOR ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 ON THE GROUND THAT THE SAME DID NOT DEBAR EXAMINATION OF THE ISSUE AS TO WHETHER THERE WAS CAPITAL ASSET IN THE FIRST PLACE OR WHETHER DEVELOPMENT RIGHTS OF LAND ACQUIRED BY ASSIGNMENT WAS COMMERCIAL ASSET IN THE HANDS OF ASSESSEE. HE FURTHER OBSERVED THAT THE SAID ISSUE WAS NOT EXAMINED BY THE ASSESSING OFFICER IN EARLIER YEARS. THEN THE ASSESSING OFFICER REFER RED TO THE AGREEMENT DATED 18.03. 1984 , UNDER WHICH THE DEVELOPMENT RIGHTS OF PROPERTY WERE ACQUIRED BY SHRI K.C. PARMAR FROM DR. VINAYAK M. BAVADEKAR AN D SHRI VASANT M. BAVADEWAR. THE TERMS OF AGREEMENT PROVIDED THE PURCHASER TO G ET AS PART OF CONSIDERATION ONE RESIDENTIAL UNIT ADMEASURING 1000 SQ.FT. IN THE CONSTRUCTED BUILDING AFTER DEVELOPMENT OF LAND OR RS.1 LAKH, WHICH WAS INCLUDED IN THE AGREED CON SIDERATION OF RS.4,23,500/ - . AS PER CLAUSE (3), PURCHASER WAS ENTITLED TO DEVELOP AND CONSTRUCT BUILDING THEREON FOR USING RESIDENTIAL AND COMMERCIAL UNITS AFTER OBTAINING NECESSARY PERMISSIONS AND CLEARANCES FROM THE COMPETENT AUTHORITIES. SIMILARLY, OT HER CLAUSES ALSO REFERRED TO THE DEVELOPMENT AND ITS SALE THEREAFTER. THE ASSESSING OFFICER VIDE PARA 15.13 THUS, OBSERVED THAT THE DEVELOPMENT RIGHTS IN THE LAND WERE ENSHRINED IN THE AGREEMENT DATED 18.03.1984 , WHICH WAS ASSIGNED BY SHRI K.C. PARMAR TO THE ASSESSEE COMPANY BY DEED OF ASSIGNMENT DATED 03.06.1993 FOR CONSIDERATION OF RS.5,23,500/ - . THE SAID LAND WAS UNDER RESERVATION FOR DISPENSARY AND MATERNITY HOME, AS ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 13 PER DEVELOPMENT PLAN NOTIFIED BY THE GOVERNMENT OF MAHARASHTRA IN GAZETTE DATED 05.01 .1987, WHICH ALLOWED THE DEVELOPMENT OF LAND WITH CERTAIN CONDITIONS MENTIONED THEREIN. THE REVISED PLAN NOTIFIED VIDE GAZETTE NO.39, DATED 30.09.1993 REITERATES THE CONDITIONS. THE ASSESSING OFFICER THUS, OBSERVED THAT THE OWNERS PERMITTED TO DEVELOP TH E AMENITIES SUBJECT TO HIS HANDING OVER THE CORPORATION FREE OF CHARGE BUILT UP AREA OF 25% OF THE TOTAL RESERVED LAND IN CASE OF MH OR HOSPITAL. HOWEVER, THE OWNER SHALL BE ENTITLED TO HAVE FULL PERMISSIBLE FSI OF THE PLOT FOR OTHER PERMISSIBLE USE RS OF THE PLOT. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE IN ITS BALANCE SHEET FOR ASSESSMENT YEAR 1994 - 95 HAD SHOWED THE LAND VALUED AT RS.5,23,500/ - AS ITS CAPITAL ASSET AND FOR ASSESSMENT YEAR 1995 - 96 HAD SHOWED THE LAND AS CAPITAL ASSET VALUED A T RS.2,05,23,500/ - AND HAD ISSUED BONUS SHARES TO THE EQUITY HOLDERS. THE ASSESSEE IN ASSESSMENT YEAR 2000 - 01 HAD DECLARED THE DEVELOPMENT RIGHTS IN LAND AS CURRENT ASSETS ( SCHEDULE H TO THE BALANCE SHEET), VALUED AT RS.2,05,23,500/ - . THE ASSESSING OFFIC ER FURTHER POINTED OUT THAT THE ASSESSEE HAD ENTERED INTO AGREEMENT TO SELL THE SHOPS, ETC. IN KPCT PROJECT, WANAWARI AND HAD RECEIVED ADVANCES DURING FINANCIAL YEAR 2000 - 01 WHICH ARE TABULATED AT PAGE 49 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER THU S, OBSERVED THAT THE PLANNING FOR CONSTRUCTION OF COMMERCIAL COMPLEX KPCT WAS COMPLETE AND MARKETING/SELLING OF SHOPS STARTED DURING ASSESSMENT YEAR 2000 - 01. EVEN THE COPY OF COMMENCEMENT CERTIFICATE / PERMISSION TO CARRY OUT THE DEVELOPMENT OF PROPOSED P ROJECT ISSUED BY THE PMC WAS 10.02.2000 . THE PERMISSION HAD CERTAIN CONDITIONS OF HANDING OVER NECESSARY BUILT UP AREA TO THE PMC. THE ASSESSING OFFICER FURTHER REFERRED TO THE BUILDING CONSTRUCTION COMMENCEMENT CERTIFICATE DATED 25.10.2001 WHICH WAS ISS UED BY THE PMC IN PURSUANCE TO THE APPLICATION OF THE ASSESSEE DATED 15.12.1999. THE ASSESSING OFFICER THUS, OBSERVED THAT THE LAYOUT SANCTION WHICH WAS PRE - ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 14 REQUISITE FOR THE DEVELOPMENT OF LAND WAS MADE BY DECEMBER, 1999 AND PRIOR TO BOOKING OF SHOPS IN 2000. THE AGREEMENT DATED 28.12.2001 WAS WITH THE PMC FOR HANDING OVER THE BUILT UP AREA. THE ASSESSING OFFICER NOTED THAT SUBSEQUENTLY, THE LAND WAS RE - VALUED AT RS.6,29,00,000/ - AS ON 31.03.2002 BY REGISTERED VALUER AND WAS INCLUDED IN THE WORK IN PROG RESS FOR THE FIRST TIME AS ON 31.03.2002. THE ASSESSING OFFICER THUS, CONCLUDED SAYING THAT THE DEVELOPMENT RIGHTS WERE PUT TO COMMERCIAL USE DURING FINANCIAL YEAR 1999 - 2000 FOR THE KPCT PROJECT. HE FURTHER QUESTIONED AS TO WHY THE DEVELOPMENT RIGHTS WER E NOT VALUED DURING FINANCIAL YEAR 1999 - 2000 OR 2000 - 01 INSTEAD OF FINANCIAL YEAR 2001 - 02 CLAIMING THAT THERE WAS CONVERSION OF IT AS STOCK IN TRADE OR CURRENT ASSET, FROM CAPITAL / FIXED ASSET. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE DID NOT WAI T FOR EIGHT YEARS AS CLAIMED BY IT, BEFORE STARTING BUSINESS VENTURE AT KPCT PROJECT, BY DEVELOPING THE LAND, THOUGH THE ACTUAL CONSTRUCTION OF THE BUILDING MAY HAVE STARTED DURING THE FINANCIAL YEAR 2001 - 02 WAS HELD TO BE AN AFTERTHOUGHT. THE ASSESSING O FFICER THUS, HELD AS UNDER: - IN NUTSHELL, A PROPERTY WHICH DOES NOT YIELD TO ITS OWNER AN INCOME OR PERSONAL ENJOYMENT, BY VIRTUE OF ITS OWNERSHIP IS MORE LIKELY TO BE HAVE BEEN ACQUIRED WITH THE OBJECT OF A DEAL, AND HENCE THE NATURE OF PROPERTY IS RELEV ANT. THE MOTIVE OF ACQUIRING A PROPERTY CAN BE INFERRED FROM SUBSEQUENT CONDUCT AND SURROUNDING CIRC IN THE ABSENCE OF DIRECT EVIDENCE OF THE ASSESSEES INTENTIONS, AND IF NECESSARY, IN THE FACE OF HIS OWN EVIDENCE. WHERE THERE IS NO PRIDE OF POSSESSION, SUCH PROPERTY IS ACQUIRED FOR EARNING PROFIT BY SALE, AND IS A TRADING TRANSACTION. WHERE THE PROPERTY IS USED IN A BUSINESS VENTURE, PERIOD OF HOLDING IS NOT RELEVANT. 1 8 . IT WAS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT IT IS ALSO A TRITE LAW TH AT THE WAY ENTRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNTS, IS NOT DETERMINATIVE OR CONCLUSIVE OF THE NATURE OF TRANSACTION OR THE PROFITS EARNED BY THE ASSESSEE, AND THE ASSESSING OFFICER IS NOT BOUND TO ACCEPT SUCH ENTRIES. IT IS THE TRUE NATUR E OF A TRANSACTION AND NOT THE HEAD UNDER WHICH IT IS ENTERED IN THE ACCOUNT BOOKS AS WOULD BE DECISIVE IN DETERMINING ITS TAXABILITY. THE ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 15 ASSESSING OFFICER FURTHER COMPARED THE TRANSACTION OF ACQUISITION OF DEVELOPMENT RIGHTS BY THE ASSESSEE FROM SHRI K. C. PARMAR IN RESPECT OF KPCT PROJECT WITH ACQUISITION OF DEVELOPMENT RIGHTS FROM DIRECTOR MR. VIKAS K. PARMAR IN RESPECT OF PARMAR GARDEN PROEJCT AND FOUND IT TO BE THE SAME. THE ASSESSING OFFICER FURTHER OBSERVED THAT FROM THE TERMS OF DEVELOPMENT AGREEM ENT OF 1984 OR ITS SUBSEQUENT ASSIGNMENT IN 1993 NOR THE SUBSEQUENT CONDUCT OF THE ASSESSEE SUPPORT THE INTENTION TO BUILD A POSH CORPORATE OFFICE. HOWEVER, THE ASSESSEES INTENTION WAS TO CONSTRUCT A RESIDENTIAL OR COMMERCIAL COMPLEX, AS EARLY AS IN 1997 IS REFLECTED IN ASSESSEES OWN DOCUMENT. THE ASSESSING OFFICER THUS, HELD THAT THE DEVELOPMENT RIGHTS ACQUIRED BY THE ASSESSEE IN RESPECT OF BOTH THE PROJECTS WERE INTENDED TO BE USED FOR ASSESSEES BUSINESS OF PROMOTERS, DEVELOPERS AND BUILDERS, WAS CLE AR FROM VARIOUS DOCUMENTS BUT SINCE THE PARMAR GARDEN PROJECT WAS UNDERGONE, KPCT PROJECT REMAINED A VENTURE AT PLANNING STAGE TILL 31.03.1999. THE ASSESSING OFFICER THUS, REJECTED THE ARGUMENT OF ASSESSEE THAT THE ASSE T WAS KEPT UNDER FIXED ASSET AS UN EX PL OITED FOR EIGHT YEARS AND HENCE, NOT COMMERCIAL ASSET, WAS REJECTED BY THE ASSESSING OFFICER. THUS, WHERE THE DEVELOPMENT RIGHTS WERE ACQUIRED FOR THE BUSINESS OF ASSESSEE WHICH WAS COMMERCIAL ASSET AND HAD AS COMMERCIAL ASSET, THEN THE SAME IS TO BE AS SESSED AS INCOME FROM BUSINESS. THE ASSESSING OFFICER THEREAFTER, COMPUTED INCOME FROM BUSINESS AFTER CONSIDERING THE CONSTRUCTION EXPENSES INCURRED ON KPCT PROJECT, ADVANCES RECEIVED AND INCREASE IN WORK IN PROGRESS VALUED BY THE ASSESSEE, AFTER EXCLUDIN G THE INCREASED VALUE OF DEVELOPMENT RIGHTS IN THE LAND, TO DETERMINE THE ACTUAL PROFITS ACCRUING TO THE ASSESSEE . AS BOOKINGS WERE MADE FOR SEVERAL YEARS, THE PROFITS AS REPRESENTED BY INFLATED VALUE OF WORK IN PROGRESS (ON ACCOUNT OF RE - VALUATION OF DEV ELOPMENT RIGHTS, SAME WAS ALLOCATED FOR FIRST THREE YEARS BEGINNING WITH ASSESSMENT YEAR 2003 - 04), TOTALLING ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 16 RS.6,23,76,500/ - . CONSEQUENTLY, AN ADDITION ON ACCOUNT OF PROFITS FROM KPCT PROJECT AT RS.2,23,76,500/ - WAS MADE IN THE HANDS OF ASSESSEE. ANOTHE R RELATED ISSUE WHICH WAS CONSIDERED BY THE ASSESSING OFFICER WAS DIFFERENCE IN WORK IN PROGRESS AND THE PROFIT ELEMENT SHOWN AS INCOME AND EXPENDITURE ACCOUNT. THE ASSESSING OFFICER TABULATED THE DETAILS FOR THREE ASSESSMENT YEARS AND AS THE ASSESSEE COU LD NOT RECONCILE THE DIFFERENCE IN INCREASED WIP VALUE, THE ASSESSING OFFICER OBSERVED THAT THE ACTUAL INCREASE IN WIP WAS NOT BEING CORRECTLY SHOWN IN THE ACCOUNTS AND ACTUAL PROFITS AS PER THE ASSESSEES OWN METHOD OF ACCOUNTING WERE NOT BEING REFLECTED. THE DIFFERENCE BETWEEN THE AMOUNTS WAS ADDED TO THE TOTAL INCOME AS UNDISCLOSED PROFITS AT RS.2,37,75,142/ - IN THE YEAR UNDER CONSIDERATION AND BALANCE IN ASSESSMENT YEARS 2003 - 04 AND 2004 - 05. 1 9 . BEFORE THE CIT(A), THE ASSESSEE POINTED OUT THAT ALL THE OBSERVATIONS OF THE ASSESSING OFFICER WERE WRONG AND INCORRECT AND HE DEMONSTRATED THE SAME BY WAY OF TABULATED DETAILS AND POINTED OUT THAT THE RIGHTS BECAME COMMERCIALLY VIABLE NATURE ONLY IN AY 2002 - 03 AFTER PERMISSION BY THE PMC THROUGH AGREEMENT WITH COMMISSIONER ON 28.12.2001. HE THUS, POINTED OUT THAT THERE WAS NO PERMISSION TO COMMERCIALLY EXPLOIT THE SAID DEVELOPMENT RIGHTS PRIOR TO THAT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THIS REGARD WERE INCORRECT. 20 . THE SECOND PLEA RAISED WAS THAT UNDER 1987 RULES, THE DEVELOPMENT OF LAND WAS PROHIBITED EXCEPT FOR THE PURPOSE OF DISTRICT MATERNITY HOME AND DP ROAD. THE SECOND ALTERNATE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE CIT(A) WAS THAT THE MANNER OF SEPARATING THE INCREASED WORK IN P ROGRESS VALUE AMOUNTING TO RS.6.23 CRORES IN THREE ASSESSMENT YEARS WAS OBJECTIONABLE SINCE AT THE END OF YEAR 31.03.2008, 57% OF TOTAL AREA STILL REMAINED TO BE SOLD. ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 17 HE THUS, PRAYED THAT ONLY ON THE BASIS OF AREA SOLD FROM YEAR TO YEAR, THE ASSESSEE WAS OFFERING LONG TERM CAPITAL GAINS ON ACCOUNT OF CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE AND IT WAS THIS AMOUNT WHICH AT BEST COULD BE OBJECTED TO, BY THE ASSESSING OFFICER . THE ASSESSEE FILED THE CALCULATIONS IN THIS REGARD, WHICH ARE TABULATED AT PAGE 19 OF THE APPELLATE ORDER. THE CIT(A) ASKED THE ASSESSING OFFICER TO EXAMINE AND SUBMIT HIS COMMENTS ON THE EXPLANATION DATED 20.02.2009 ALONG WITH CALCULATION ENCLOSED. THE ASSESSING OFFICER IN THE REMAND REPORT DID NOT OFFER ANY COMMENTS ON THE C ONTENTIONS MADE BY THE ASSESSEE. HOWEVER, HE COPIED PARA BY PARA OF THE ASSESSMENT ORDER FROM 19.72 TO 19.95. THE ASSESSEE ON RECEIPT OF COPY OF REPORT OF THE ASSESSING OFFICER POINTED THE SAME TO THE CIT(A), WHICH WAS NOTED BY HIM. THE ASSESSEE ALSO PO INTED OUT THAT NO SPECIFIC COMMENTS WERE MADE WITH REGARD TO ASSESSEES EXPLANATION. THE CIT(A) POINTED THE SAME TO THE ASSESSING OFFICER, WHO IN TURN, SENT A COMPARATIVE WORKING OF CAPITAL GAINS AND THAT OF BUSINESS INCOME WHICH IS REPRODUCED AT PAGE 21 OF THE APPELLATE ORDER. THE CIT(A) NOTES THAT THE ASSESSING OFFICER HAS MERELY GIVEN A CHART WITH COMPARATIVE CALCULATION OF CAPITAL GAINS VIS - A - VIS BUSINESS INCOME. HOWEVER, HE HAS FAILED TO EXPLAIN AS TO HOW THE ADHOC ALLOCATION OF PROFIT ARISING FROM SALE OF LAND / FSI WAS TO BE MADE IN THREE YEARS ONLY AS DONE IN THE ASSESSMENT ORDER. THE CIT(A) THEN, REFERRED TO THE FACTUAL ASPECTS OF THE CASE AND TOOK NOTE OF THE DEVELOPMENT RULES DATED 05.01.1987 AND ITS MODIFICATION IN 1997 . THE CIT(A) WAS OF TH E VIEW THAT THOUGH THE DEVELOPMENT OF LAND WAS MADE POSSIBLE BY WAY OF GAZETTE NOTIFICATION DATED 03.07.1997, BUT IT WAS ALREADY ENVISAGED IN 1993, WHEN THE ASSESSEE ENTERED INTO ASSIGNMENT DEED WITH SHRI K.C. PARMAR TO ACQUIRE THE DEVELOPMENT RIGHTS. HEN CE, IT WAS DECISION OF THE ASSESSEE TO ACQUIRE THE DEVELOPMENT RIGHTS OF PARTICULAR PIECE OF LAND SINCE IT WAS INCORPORATED TO CONDUCT THE BUSINESS OF DEVELOPER, BUILDER, ETC. REFERRING ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 18 TO PARA 15.17 OF THE ASSESSMENT ORDER, THE CIT(A) FURTHER OBSERVED TH AT THE ASSESSEE MADE AN APPLICATION DATED 15.12.1999 TO THE PMC FOR SANCTION OF LAYOUT PLAN AND COMMENCEMENT CERTIFICATE TO DEVELOP THE PROPOSED LAYOUT WAS ALSO ISSUED BY THE PMC ON 10.02.2000. THE ASSESSEE PAID DEVELOPMENT CHARGES OF RS.3,13,200/ - ON 04. 02.2000 TO THE PMC. HE FURTHER REFERRED TO THE ASSESSEE ENTERING INTO AGREEMENT TO SELL THE SHOPS IN KPCT PROJECT DURING THE MONTHS OF NOVEMBER AND DECEMBER, 2000 AND THE BUILDING COMMENCEMENT CERTIFICATE OBTAINED BY THE ASSESSEE ON 25.10.2001. THE CIT(A ) OBSERVED THAT THE ASSESSEE HAD NOT BEEN ABLE TO CONTRADICT THE SAME IN HIS SUBMISSIONS AND THE EXPLANATION GIVEN IN THIS REGARD WAS NOT TENABLE IN LAW. FURTHER, THE CIT(A) ALSO NOTED AND UPHELD THE CONTENTION OF ASSESSING OFFICER THAT THE MOTIVE OF ACQU IRING THE PROPERTY COULD BE INFERRED FROM THE SUBSEQUENT CONDUCT WHICH HAD NOT BEEN DISPUTED BY THE ASSESSEE. THE CIT(A) THUS, HELD THAT THE ASSESSING OFFICER WAS CORRECT IN HOLDING THAT THE IMPUGNED DEVELOPMENT RIGHTS IN PARTICULAR LAND AT WANAWARI WERE HELD BY THE ASSESSEE AS BUSINESS ASSET SINCE THE BEGINNING, ON WHICH KPCT COMMERCIAL PROJECT WAS CONSTRUCTED LATER. THUS, THE DECISION OF ASSESSING OFFICER IN TAKING SUM OF RS. 6.23 CRORES AS BUSINESS INCOME INSTEAD OF CAPITAL GAINS AS CLAIMED BY THE ASSES SEE, WAS UPHELD TO THIS EXTENT. HOWEVER, THE CONTENTION OF ASSESSEE THAT ADHOC DISTRIBUTION OF PROFIT INTO THREE ASSESSMENT YEARS FROM ASSESSMENT YEAR 2003 - 04 TO 2005 - 06 WAS FOUND TO BE VALID. THE CIT(A) NOTED THAT THE ASSESSING OFFICER BY MAKING THIS AL LOCATION HAD BROUGHT SUM OF RS.2.23 CRORES TO TAX IN THE YEAR UNDER APPEAL, WHEREAS THE CASE OF ASSESSEE WAS THAT PROFIT ON SALE OF CORRESPONDING PART OF THE DEVELOPMENT RIGHTS IN LAND COULD NOT BE ASSUMED WITHOUT ACTUAL SALE OF COMMERCIAL UNITS HAVING TAK EN PLACE; WHERE THE PROFITS HAD TO BE TAXED IN ACCORDANCE WITH THE ACCEPTED PRINCIPLES OF ACCOUNTANCY. THE CIT(A) THUS, REJECTED THE ADHOC ALLOCATION OF PROFIT OVER THE PERIOD OF THREE ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 19 YEARS MADE BY THE ASSESSING OFFICER. SINCE THE ASSESSING OFFICER HAD FAILED TO COMMENT ON THE WORKING OF BUSINESS INCOME VIS - A - VIS CAPITAL GAINS IN THREE YEARS, IN ITS REMAND REPORT, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO WORK OUT THE PROFIT ATTRIBUTABLE TO THE SALE OF CORRESPONDING PORTION OF DEVELOPMENT RIGHTS, WHIC H WAS INCLUDED AS PART OF SALE PROCEEDS OF KPCT PROJECT IN THE YEAR, WHICH WAS LIABLE TO BE TAXED AS BUSINESS INCOME OF THE YEAR. 21. THE CIT(A) REFERRING TO THE ADDITION OF RS.2,37,75,142/ - AS UNDISCLOSED INCOME NOTED THE OBSERVATIONS OF THE ASSESSING OFFICER AND WRITTEN SUBMISSIONS AND EXPLANATION FILED BEFORE HIM BY THE ASSESSEE AND OBSERVED THAT THE ASSESSING OFFICER IN THE REMAND REPORT HAS FAILED TO GIVE COMMENTS ON EXPLANATION OF THE ASSESSEE. HE NOTED THAT THE ASSESSING OFFICER HAD GIVEN THE YEA RWISE DETAILS OF CONSTRUCTION EXPENSES, CUMULATIVE CONSTRUCTION EXPENSES, AND INCREASE IN WIP AND THEN THE DIFFERENCE BETWEEN THE INCREASE IN THE WIP. THE ASSESSING OFFICER HAD WORKED OUT THE ACTUAL INCREASE IN WIP TAKING THE DIFFERENCE OF THE CLOSING WIP OF THE YEAR AND CUMULATIVE CONSTRUCTION EXPENSES INCURRED TILL THAT YEAR; AND HAS ARRIVED AT A FIGURE OF DIFFERENCE IN THE INCREASE IN THE WIP AS COMPUTED BY HIM, WITH REFERENCE TO THE INCREASE IN WIP AS SHOWN IN SCHEDULE - N BY THE ASSESSEE. THE CIT(A) NO TED THAT THE ASSESSEE HAD ADOPTED PERCENTAGE COMPLETION METHOD IN RESPECT OF HIS KPCT COMMERCIAL PROJECT AND HAD OFFERED PROFITS ON THE WORK DONE DURING DIFFERENT YEARS. FOR THIS, THE OPENING WIP HAD BEEN ADDED TO THE CONSTRUCTION COST INCURRED DURING THE YEAR AND THE PROFITS WERE ESTIMATED AND THEN THE FIGURES OF CLOSING WIP WAS ARRIVED AT. THIS WAS THE BASIS OF ASSESSEES WORKING GIVEN IN SCHEDULE - N OF THE BALANCE SHEET. THE DIFFERENCE BETWEEN THE CLOSING WIP AND THE SUM OF OPENING WIP AND THE COST INC URRED DURING THE YEAR WAS THE PROFIT FOR THE YEAR WHICH HAD ALREADY BEEN OFFERED BY THE ASSESSEE IN EVERY YEAR. THE CIT(A) ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 20 THUS, OBSERVED THAT THE ASSESSING OFFICER HAD NOT CONSIDERED THE METHOD OF ACCOUNTING OF ASSESSEE BUT HAD WORKED OUT THE DIFFERENCE BETWEEN CLOSING WIP OF PARTICULAR YEAR AND CUMULATIVE CONSTRUCTION EXPENSES INCURRED FOR ALL THE YEARS. HE FURTHER OBSERVED THAT BY MAKING THIS CALCULATION EVERY YEARS DIFFERENCE WOULD BE THE SUM OF THE PROFITS SHOWN IN THE EARLIER YEARS WHICH WOULD ALSO INCREASE CUMULATIVELY. THEREFORE, THE ISSUE WAS THAT THE EARLIER YEARS PROFIT, WHICH HAD ALREADY BEEN INCLUDED IN THE CLOSING WIP OF THE PARTICULAR YEAR, ALSO COMES TO BE ADDED REPEATEDLY TILL THIS ASSESSMENT YEAR; SINCE FROM THE CLOSING WIP OF ASSESSME NT YEAR 2005 - 06 WHICH WAS RS.2780.639 LAKHS, CUMULATIVE EXPENSES INCURRED UPTO ASSESSMENT YEAR 2005 - 06 OF RS.1846.9 LAKHS HAD BEEN DEDUCTED WHICH GAVE THE FIGURE OF RS.933.75 LAKHS; WHEREAS, THE INCREASE IN WIP FOR ASSESSMENT YEAR 2005 - 06 ITSELF WAS COMPUT ED AT RS.695.98 LAKHS BY THE ASSESSEE. THE ASSESSING OFFICER THUS, INFERRED THAT THE DIFFERENCE OF THESE TWO FIGURES I.E. RS.933.74 ( - ) RS.695.99 I.E. RS.237.75 LAKHS WAS TO BE ASSESSED AS INCOME FOR INCREASE IN WIP AS UNDISCLOSED PROFIT FOR ASSESSMENT YE AR 2005 - 06. THE CIT(A) CONCLUDED BY HOLDING THAT THE METHOD OF CALCULATION ADOPTED BY THE ASSESSING OFFICER HAD GOT NO REASONABLE LOGIC AND IT WAS JUST A ARITHMETIC CALCULATION, IN WHICH THE ELEMENT OF PROFIT DECLARED IN THE EARLIER YEARS ON THE BASIS OF PERCENTAGE COMPLETION METHOD WAS AGAIN COMING BACK INTO THE COMPUTATION OF UNDISCLOSED PROFIT IN THE SUBSEQUENT YEARS; WHEN THE DIFFERENCE OF THE CLOSING WIP OF THE SUBSEQUENT YEAR AND THE CUMULATIVE EXPENSES INCURRED WAS TAKEN INTO CONSIDERATION. IN VIEW THEREOF, THE EXPLANATION OF ASSESSEE WAS FOUND TO BE ACCEPTABLE AND THE ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED. 22 . BOTH THE ASSESSEE AND THE REV ENUE ARE IN APPEAL AGAINST THE RESPECTIVE PORTIONS OF THE ORDER OF CIT(A). ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 21 2 3 . THE LEARNED AUTHOR IZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE EVENTS DATES FILED AS PART OF THE NOTINGS IN PAPER BOOK - 2, WHEREIN THE DATE - WISE DOCUMENTS ARE ALSO ENCLOSED. THE FIRST PLEA RAISED BY THE ASSESSEE WAS THAT ONLY AFTER THE DC RULES DATED 30.07.1997, THE ASSESSEE CHANGED THE USE OF LAND. HE THEN, POINTED OUT THAT THE LAYOUT PLAN WAS DATED 10.02.2000 AND THE BUILDING PLAN WAS SANCTIONED ON 25.10.2001 , COPY OF WHICH IS PLACED AT PAGE 58 OF THE PAPER BOOK. ON 28.12.2001, AGREEMENT WAS ENTERED INTO WITH THE PMC THAT 25% OF BUILT UP AREA WOULD BE HANDED OVER TO THE PMC, FREE OF COST. HE REFERRED TO ENGLISH TRANSLATION OF THE SAID DOCUMENT PLACED AT PAGES 59 TO 62 OF THE PAPER BOOK WITH FACTS AT PAGE 60 OF THE PAPER BOOK. HE THUS, POINTED OUT THAT THE AGREEM ENT WAS ENTERED INTO WITH THE PMC, AFTER WHICH THE ASSESSEE GOT THE RIGHT TO DEVELOP THE LAND WHICH WAS IN ASSESSMENT YEAR 2002 - 03. HENCE, THE ASSESSEE THEREAFTER, CONVERTED THE CAPITAL ASSET INTO BUSINESS ASSET. HE REFERRED TO THE PROVISIONS OF SECTION 45(2) OF THE ACT AND POINTED OUT THAT THE CAPITAL GAINS ON SUCH CONVERSION INTO STOCK IN TRADE WOULD ARISE WHEN THE CONSTRUCTED PORTION IS SOLD. HOWEVER, BOTH THE AUTHORITIES BELOW TREATED THE SAME AS BUSINESS ASSET RIGHT FROM THE BEGINNING ON THE GROUND THAT THE ASSESSEE WAS DEVELOPER AND WHATEVER WAS ACQUIRED BY DEVELOPER WAS BUSINESS ASSET. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT FIRST QUESTION WHICH ARISES IS WHETHER EACH BUSINESSMAN WHATEVER HE ACQUIRES IS BUSINESS ASS ET OR NOT. IN THIS REGARD, HE PLACED RELIANCE ON CBDT CIRCULAR DATED 15.06.2000 IN THE CASE OF STOCK BROKERS, WHEREIN THE HOLDING OF SHARES AS STOCK IN TRADE AND INVESTMENT BY BUSINESSMAN HAS BEEN RECOGNIZED. THE NEXT OBSERVATION OF THE ASSESSING OFFICER WAS THAT ENTRIES IN THE BOOKS OF ACCOUNT WERE NOT DECISIVE. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN CIT VS. GOPAL PUROHIT (2011) 336 ITR 287 (BOM) AND THE HON'BLE SUPREME COURT IN CIT VS. ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 22 GOPAL PUROHIT RE PORTED IN 336 ITR 287 (SC) , WHEREIN IT WAS HELD THAT IF AN ASSET WAS SHOWN AS INVESTMENT, THEN IT CANNOT BE BUSINESS INCOME. IN THIS REGARD, HE CLAIMED THAT WHERE THE ASSESSEE HAS SHOWN IT AS ITS INVESTMENT, THE SAME MERITS TO BE ACCEPTED. HE FURT HER REF ERRED TO THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN DCIT VS. SHREE SHREEMAL BUILDERS (2015) 67 SOT 295 (MUMBAI) , WHICH IN TURN, HA D REFERRED TO THE DECISION IN CIT VS. GOPAL PUROHIT (SUPRA) AND CBDT CIRCULAR. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE BENCH OF TRIBUNAL IN NARSINGHDAS SURAJMAL PROPERTIES (P) LTD. VS. ACIT (2015) 173 TTJ 697 ( GUWHATI ) , WHEREIN THE ASSESSEE WAS REAL ESTATE DEVELOPER, WHICH WAS HAVING BOTH CAPITAL ASSETS AND ST OCK IN TRADE. THE NEXT OBSERVATION OF AUTHORITIES BELOW IN THE CASE OF ASSESSEE WAS THAT TRANSACTION COULD BE AN ADVENTURE IN THE NATURE OF TRADE. IN THIS REGARD, HE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN CIT VS. SHAHROOQ ALI KHAN (2015) 370 ITR 246 (KAR) , WHEREIN IT HAS BEEN HELD THAT WHEREVER THE ASSESSEE COULD HOLD PROPERTY FOR LONG TIME, THEN IT WAS CAPITAL ASSET. IN THIS REGARD, IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THA T WHEN THE ASSESSEE ACQUIRED PROPERTY FOR ABOUT RS.5 LAKHS, THEN IT WAS NOT HIS INTENTION TO S ELL IT, WHICH IS CLEAR FROM THE FACT THAT NO DEVELOPMENT TOOK PLACE ON THE SAID PROPERTY FOR MANY YEARS. THE NEXT CONTENTION RAISED BY THE LEARNED AUTHORIZED REP RESENTATIVE FOR THE ASSESSEE WAS THAT THE BOOKS OF ACCOUNT OF ASSESSEE HAVE NOT BEEN CHALLENGED AND THE ENTRIES IN THE BOOKS OF ACCOUNT HAVING BEEN ACCEPTED, THERE IS NO QUESTION OF ASSESSING THE WHOLE GAIN AS BUSINESS INCOME. HE FURTHER POINTED OUT THAT THE ASSESSEE HAS STARTED SELLING THE PROJECT IN ASSESSMENT YEAR 2003 - 04 BUT NO ADDITION WAS MADE ON THIS COUNT THOUGH ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. IT WAS IN ASSESSMENT YEAR 2005 - 06 FOR THE FIRST TIME, THE ISSUE WAS RAISED AND ADDITION ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 23 WAS MADE CONSEQUENT THERETO FOR ASSESSMENT YEARS 2003 - 04 AND 2004 - 05, THE COMMISSIONER BY EXERCISING HIS JURISDICTION UNDER SECTION 263 OF THE ACT, SET ASIDE THE ASSESSMENT. HE REFERRED TO THE APPEALS IN THE BUNCH OF APPEALS AND POINTED OUT THAT ON MERITS AGAINST THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 263 OF THE ACT, THE ASSESSEE WAS IN APPEAL. THE ASSESSEE BY WAY OF GROUND OF APPEAL NO.4 HAS RAISED THIS ISSUE. 2 4 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OU T THAT IN ALL THE YEARS UNDER APPEAL STARTING FROM ASSESSMENT YEARS 2006 - 07 TO 2008 - 09 AND ALSO IN ASSESSMENT YEARS 2003 - 04 AND 2004 - 05, WHICH IS THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 263 OF THE ACT, SIMILAR GROUNDS OF APPEAL HAVE BEEN RAISED AS IN ASSESSMENT YEAR 2005 - 06. 2 5 . THE REVENUE IS ALSO IN APPEAL AGAINST THE DIRECTIONS OF CIT(A) IN RE - COMPUTING THE BUSINESS INCOME IN THE HANDS OF ASSESSEE BY WAY OF GROUND OF APPEAL NO.2. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THIS ISSU E RELIED ON THE ORDERS OF ASSESSING OFFICER AND THE CIT(A) AND POINTED OUT THAT THE SAME HAS BEEN DELIBERATED UPON EXTENSIVELY BY THE AUTHORITIES BELOW. 2 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE VIDE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE AND THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS IN RESPECT OF ADDITION OF RS.2,23,76,500/ - MADE ON ACCOUNT OF ALLEGED PROFIT OF KPCT PROJECT BY THE ASSESSING OFFICER. THE ASSESSEE HAD ACQUIRED THE DEVELOPMENT RIGHTS OF LAND AT SR.NO.16/1/1, AT WAWADI, PUNE ON 03.06.1993 FOR RS.5,23,500/ - . THE SAID LAND WAS RESERVED FOR PARK AND THE DP ROAD AS PER DEVELOPMENT PLAN IN FORCE. IN 1984, THE SAID ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 24 LAND WAS ACQUIRED BY KP PARMAR, HUF, WHEREIN PART OF THE LAND WAS RESERVED FOR PARK. ON 31.01.1985, PLAN SHOWING SURPLUS LAND OUT OF SR.NO.1/2, 1/3 AND OF S.NO.16 OF WANAWADI, DEMARCATED THE AREA UNDER DP RESERVATION FOR PARK AND DP ROAD WAS APPROVED ; COPY OF THE SAID APPROVED PLAN IS PLACED AT PAGE 53 OF THE PAPER BOOK - 2. UNDER THE R EVISED DP RULES, WHICH CAME INTO EFFECT FROM 05.01.1987, THE SAID PLOT OF LAND WAS RESERVED FOR DISPENSARY AND MATERNITY HOME AND ALSO 60 WIDE DP ROAD. THE REVISED DEVELOPMENT PLAN WAS NOTIFIED IN EXTRAORDINARY GAZETTE ON 05.01.1987. THE ASSESSEE HAS PO INTED OUT THAT THE PLAN SHOWING RESERVATION OF DHM 11 LAND AT WANWADI WAS PASSED ON 30.01.1991, COPY OF WHICH IS PLACED AT PAPER BOOK - 2. THE ASSESSEE ACQUIRED THE RESERVED LAND FROM HUF ON 03.06.1993 ; COPY OF THE SAID AGREEMENT BETWEEN THE ASSESSEE AND KC PARMAR FOR TRANSFER OF LAND IS PLACED AT PAGES 15 TO 22 OF THE PAPER BOOK. THEREAFTER, AGAIN, THERE WAS AN AMENDMENT PROPOSED IN THE DC RULES, DATED 30.09.1993 BUT THE NEW DC RULES WERE PASSED ON 03.07.1997 ; COPY OF WHICH IS PLACED AT PAGES 33 TO 35 OF T HE PAPER BOOK. REFERENCE WAS MADE TO EARLIER PROPOSED DC RULES FOR WHICH DIRECTIONS WERE ISSUED ON 08.07.1993 BUT THE DC RULES WERE PROPOSED ON 30.09.1993 AND CERTAIN MODIFICATIONS AND PARTIAL MODIFICATIONS TO THE REGULATIONS AS ENLISTED IN THE SCHEDULE W ERE HELD TO BE NECESSARY AND WERE SANCTIONED TO BE MADE APPLICABLE WITH IMMEDIATE EFFECT. THE EARLIER DC RULES DATED 05.01.1987 WERE THUS, MODIFIED UNDER APPENDIX R - 7, WHICH DEALT WITH DISPENSARY, MATERNITY HOMES AND HOSPITAL. IT WAS PROPOSED THAT THE SI TES FOR MATERNITY HOMES AND HOSPITALS SHALL BE ALLOWED TO BE DEVELOPED FOR THE DESIGNATED PURPOSES BY THE OWNER/S OR THROUGH PUBLIC INSTITUTIONS REGISTERED UNDER THE PUBLIC CHARITABLE INSTITUTIONS ACT. THE MODIFICATION WAS THAT (A) PMC MAY ACQUIRE, DEVELO P AND MAINTAIN THE AMENITY AS RESERVATION OR (B) OWNER MAY BE PERMITTED TO DEVELOP THE AMENITY SUBJECT TO HIS HANDING OVER TO THE ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 25 CORPORATION, FREE OF CHARGE, OF BUILT UP SPACE / AREA, 15% OF THE TOTAL RESERVED AREA OF DISPENSARY IN NON - CONGESTED AREAS, SE CTORS (I) TO (IV) AND 25% OF THE TOTAL RESERVED AREA OF MATERNITY HOME OR HOSPITAL IN SECTORS (II) TO (VI), AS MAY BE APPLICABLE. THE OWNERS WERE ENTITLED TO HAVE FULL PERMISSIBLE FSI OF THE PLOT OF PERMISSIBLE USER OF THE PLOT WITHOUT TAKING INTO ACCOUNT THE AREA UTILIZED FOR CONSTRUCTING THE AMENITY FOR MATERNITY HOME AND HOSPITAL. THE COP Y OF DC RULES IS PLACED AT PAGES 32 TO 35 OF THE PAPER BOOK - 1. UNDER THE EARLIER DC RULES I.E. POSITION IN 1987, THE AREAS WHICH WERE MARKED FOR MATERNITY HOME AND DI SPENSARY RESERVATION CONTINUED AND DEVELOPMENT WAS ALLOWED AS PER NOTE 7 I.E. T HE AREAS THAT PROVIDE WITH SITES OF MATERNITY HOMES AND HOSPITALS SHALL BE ALLOWED FOR DEVELOPMENT FOR THE DESIGNATED PURPOSES BY THE OWNERS OR THROUGH PUBLIC INSTITUTIONS. THE SAID OLD DC RULES ARE PLACED AT PAGES 11 TO 14 OF THE PAPER BOOK - 1. 27. THE CASE OF THE ASSESSEE BEFORE US IS THAT SINCE 05.01.1987 I.E. THE OPERATION OF OLD DC RULES, THE ASSESSEE WAS NOT PERMITTED TO DEVELOP THE LAND WHICH WAS RESERVED FOR THE PURPOS E OF MATERNITY HOME AND THE DP ROAD. ON THE OTHER HAND, THE CASE OF REVENUE HERE IS THAT UNDER THE DC RULES, 1987 I.E. NOTIFICATION DATED 05.01.1987, THE ASSESSEE WAS READY TO DEVELOP THE SAID PIECE OF LAND AND HENCE, IT WAS BUSINESS ASSET ACQUIRED BY THE ASSESSEE IN 1993. ON THE OTHER HAND, THE ASSESSEE CLAIMS THAT ONLY AFTER REVISED DC RULES WHICH WERE DATED 30.07.1997, THE ASSESSEE WAS ALLOWED THE CHANGE OF USER OF LAND AND COULD DEVELOP THE PLOT OF LAND AFTER TAKING REQUISITE PERMISSIONS. IN THIS REG ARD, FIRST PERMISSION TAKEN BY THE ASSESSEE OF THE APPROVAL OF LAYOUT WHICH WAS PASSED BY THE PMC ON 10.02.2000, COPY OF SANCTION OF PMC FOR THE LAYOUT PLAN IS PLACED AT PAGE 55 OF THE PAPER BOOK AND THE APPROVED LAYOUT PLAN, UNDER WHICH THE AREA IS DEMARC ATED, IS PLACED AT PAGE 56 OF THE PAPER ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 26 BOOK. THE BUILDING PLANS FOR CONSTRUCTION ON THE SAID PLOT OF LAND WERE SANCTIONED BY THE PMC ON 25.10.2001, COPY OF WHICH IS PLACED AT PAGE 57 OF THE PAPER BOOK AND COPY OF SANCTIONED BUILDING PLAN DATED 25.10.2001 IS PLACED AT PAGE 58 OF THE PAPER BOOK. THEREAFTER, THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 25.12.2001 WITH THE PMC, COPY OF WHICH IS PLACED AT PAGES 36 TO 49 OF THE PAPER BOOK - 1 AND THE ENGLISH TRANSLATION AT PAGES 59 TO 62 OF THE PAPER BOOK - 2 . THE PERUSAL OF COVENANTS OF THE SAID AGREEMENT REFLECTS THE FACTUAL ASPECTS OF THE CASE. IT TALKS OF AREA OF 11,600 SQ.MTRS. OF PLOT AT WANAWARI, UNDER WHICH AS PER CLAUSE (C), THE FACTUAL ASPECTS OF THE CASE ARE AS UNDER: - C) AS PER THE JURISDICTIONAL S ANCTIONED DEVELOPMENT PLAN OF PUNE MUNICIPAL CORPORATION, THE SAID LAND FALLS UNDER HOSPITAL ZONE & DMH ZONE (FOR THE PURPOSE OF MATERNITY) AND THE SELLER NO 2 IS WILLING TO CONSTRUCT BUILDING CONTAINING VARIOUS FLOORS & HENCE CONSTRUCTION PLANS HAS BEEN P RESENTED BEFORE PURCHASER. FURTHER, PURCHASER HAS TAKEN POLICY DECISION WITH RESPECT TO PROPERTIES COVERED UNDER HOSPITAL ZONE & DMH ZONE (FOR THE PURPOSE OF MATERNITY) VIDE MEETING NO VIDE RESOLUTION NO.559 DATED 22/02/1988 & DECISION GIVEN BY URBAN DEV ELOPMENT DEPARTMENT OF GOVERNMENT OF MAHARASHTRA VIDE ITS LETTER NO.TPS1891 /196/CR18/91 DATED 08/04/1991 AS PER CLAUSE NO.47 OF MRTP ACT 1966 & AS PER SANCTION GIVEN BY PUNE MUNICIPAL CORPORATION VIDE LETTER DATED 02/09/2001. WHILE SANCTIONING THE BUILDIN G PLAN ON THE SAID LAND, THE PURCHASER WILL SANCTION ADDITIONAL FSI OF 25% I.E. 2609.14 SQ MTRS OUT OF THE TOTAL FSI TO BE SANCTIONED. THE SAID CONSTRUCTION AREA ON ADDITIONAL FSI WHICH IS PRESCRIBED IN DETAIL IN ANNEXURE - 2, HEREINAFTER MENTIONED AS PRESC RIBED AREA. THE SELLER 2 WILL CONSTRUCT AND HANDOVER THE POSSESSION OF THE SAID PRESCRIBED AREA WITHOUT ANY CONSIDERATION, WITHIN 2 YEARS FROM THE DATE OF THE AGREEMENT. AS AGAINST THE SAME, SELLER NO1 SHOULD BE GRANTED TO CONSTRUCT & SALE THE COMMERCIAL TENEMENTS ON THE SAID LAND AND PURCHASER WILL RELINQUISH THE DEVELOPMENT RIGHT IN THE SAID LAND. THE BUILDING PLANS FOR ABOVE MENTIONED CONSTRUCTION HAVE BEEN SUBMITTED & ACCORDINGLY, THE SELLER & BUYER AGREE FOLLOWING TERMS & CONDITIONS. 2 8 . THE P ERUSAL OF SAID CLAUSE (C) REFLECTS THAT THE PMC HAD TAKEN A POLICY DECISION WITH RESPECT TO PROPERTIES COVERED UNDER HOSPITALS ZONE AND DMH ZONE (FOR THE PURPOSE OF MATERNITY) ON DIFFERENT DATES AND IT ALSO TALKS ABOUT SANCTION GIVEN BY THE PMC VIDE LETTER DATED 02.09.2001. AS PER AGREEMENT, THE ADDITIONAL FSI WAS SANCTIONED WHILE SANCTIONING BUILDING PLAN ON THE SAID LAND. IT WAS ALSO AGREED THAT AGAINST THE GRANT OF PERMISSION TO CONSTRUCT AND ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 27 SELL THE COMMERCIAL TENEMENTS ON THE SAID LAND, THE PURCHASE R I.E. PMC WOULD RELINQUISH THE DEVELOPMENT RIGHTS IN THE SAID LAND AND THE SELLER WAS TO CONSTRUCT AND HANDOVER THE POSSESSION OF PRESCRIBED AREA WITHOUT ANY CONSIDERATION WITHIN STIPULATED PERIOD. BOTH THE PARTIES THEREUNDER AGREED TO THE TERMS AND COND ITIONS IN SPIRIT OF THE BASIC UNDERTAKING. THE AGREEMENT WITH PMC IS DATED 28.12.2001, UNDER WHICH 25% OF CONSTRUCTED AREAS WAS TO BE HANDED OVER TO THE PMC , FREE OF COST . THE SAID EVENT HAS TAKEN PLACE IN ASSESSMENT YEAR 2002 - 03. ANOTHER ASPECT WHICH N EEDS TO BE KEPT IN MIND IS THE NA ORDER RECEIVED ON 28.02.2002, UNDER WHICH AGAINST THE LAND ADMEASURING 11,600 SQ.MTRS. , NA PERMISSION WAS APPLIED FOR AND THE SAME WAS GRANTED SUBJECT TO PAYMENT OF CHARGES. THE SAID ORDER ALSO REFERS TO THE CONSTRUCTION OF BUILDING FOR WHICH PLANS HAVE BEEN SANCTIONED BY THE PMC ON 10.02.2000. THE COPY OF THE NA ORDER DATED 28.02.2002 IS PLACED AT PAGES 65 AND 66 OF THE PAPER BOOK - 2. THE ASSESSEE THUS, CLAIMS THAT SINCE IT HAD GOT THE PERMISSION TO CONSTRUCT AND DEVELOP THE SAID AREA ONLY ON 28.12.2001 AND WHERE THE ASSESSEE HAD SHOWN THE INVESTMENT IN THE RESERVED PLOT OF LAND AS ITS CAPITAL ASSET FOR THE YEARS FROM THE DATE OF INVESTMENT TO 31.03.2001, THEN THE SAME IS CAPITAL ASSET IN THE HANDS OF ASSESSEE. BECAUSE O F RESERVATION ON THE SAID LAND BY THE PMC FOR THE PURPOSE OF RESERVATION OF MATERNITY HOME, THE SAID LAND COULD NOT BE CONSTRUCTED UPON. THE DC RULES NOTIFIED IN THE GAZETTE ON 05.01.1987 WERE ONLY DRAFT AND THE DEVELOPMENT FOR MATERNITY HOME AND HOSPITAL WAS ALLOWED ONLY TO THE OWNERS OR THROUGH PUBLIC INSTITUTIONS REGISTERED UNDER THE PUBLIC CHARITABLE INSTITUTIONS. IN SUCH SCENARIO, THE ASSESSEE HAD NO AUTHORITY FOR DEVELOPING THE SAID LAND AS ON THAT DATE. 29. WE FIND MERIT IN THE PLEA OF ASSESSEE IN THIS REGARD I.E. UNDER THE OLD DC RULES, THERE WAS AN EMBARGO FOR CARRYING OUT ANY KIND OF CONSTRUCTION ON THE ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 28 SAID LAND. FIRST OF ALL, THE LAND WAS RESERVED FOR MATERNITY HOME AND DP ROAD. SECONDLY, THE CONSTRUCTION, IF ANY, HAD TO BE CARRIED OUT BY THE OWNERS OR PUBLIC CHARITABLE INSTITUTIONS AND THE ASSESSEE DID NOT FULFIL EITHER OF THE TWO CONDITIONS. THE QUESTION WHICH IS TO BE ADDRESSED IN THE PRESENT APPEAL IS WHEN THE ASSESSEE PURCHASED THE LAND IN 1993, WHETHER IT WAS BUSINESS ASSET PURCHASED BY THE ASSESSEE. THE FIRST STAND OF THE REVENUE IS THAT THE INVESTMENT WAS MADE IN PIECE OF LAND WHICH WAS READY FOR DEVELOPMENT AND SINCE THE ASSESSEE IS DEVELOPER, THEN WHATEVER WAS ACQUIRED BY THE ASSESSEE WAS BUSINESS ASSET. WE HAVE ALREADY REFERRED TO DIFFERENT EVENTS IN RELATION TO THE SAID PIECE OF LAND AND PERMISSION TO CARRY OUT THE DEVELOPMENT WAS GIVEN ONLY AS PER REVISED DC RULES, WHICH WERE ISSUED ON 03 .07.1997. TILL THE AFORESAID DATE, THERE WAS AN EMBARGO ON CONSTRUCTION / DEVELOPMENT OF PIECE OF LAND WHICH WAS RESERVED FOR MATERNITY HOME AND DP ROAD. IN VIEW OF THE SAID EMBARGO, THE ASSESSEE WAS NOT IN A POSITION TO DEVELOP THE SAID LAND. ONLY AFTER NEW DC RULES WERE ISSUED, THE ASSESSEE SOUGHT PERMISSION FROM THE PMC TO DEVELOP THE SAM E. THE FIRST STEP WHICH WAS THE APPROVAL OF LAYOUT PLAN BY THE PMC ON 10.02.2000 AND THEREAFTER, THE APPROVED BUILDING PLAN DATED 25.10.2001 BUT THE PERMISSION TO BUILD FACTUALLY CAME VIDE AGREEMENT ENTERED INTO BETWEEN THE PMC AND THE ASSESSEE DATED 28.1 2.2001. TILL THE SAID AGREEMENT, UNDER WHICH TERMS WERE AGREED UPON FOR HANDING OVER 25% OF THE CONSTRUCTED AREA TO THE PMC, FREE OF COST , THE ASSESSEE COULD NOT HAVE CARRIED OUT ANY CONSTRUCTION ON THE SAID PROJECT. CONSEQUENTLY, WE FIND NO MERIT IN THE STAND OF AUTHORITIES BELOW IN HOLDING THAT DEVELOPMENT RIGHTS IN THE PIECE OF LAND WHICH WERE ACQUIRED BY THE ASSESSEE IN 1993 WERE ITS BUSINESS ASSETS. THE SECOND ASPECT WHICH NEEDS TO BE KEPT IN MIND IS THE NA ORDER DATED 28.02.2002, WHICH GIVES PERMIS SION FOR CHANGE IN USER OF THE AGRICULTURAL LAND INTO NON - AGRICULTURAL PURPOSES. UNDER THE SAID ORDER, NOT ONLY THE ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 29 PERMISSION IS GIVEN BUT CERTAIN CHARGES HAVE ALSO TO BE PAID. THE ASSESSEE PAID THOSE CHARGES ON 29.01. 2001 , CONSEQUENT TO WHICH NA ORDER W AS PASSED. HENCE, THE SAID ASSET BECAME AVAILABLE FOR DEVELOPMENT ON PASSING OF SUCH NA ORDER, WHICH ADMITTEDLY, IS IN ASSESSMENT YEAR 2002 - 03. 30 . NOW, THE SECOND STAND TAKEN BY THE ASSESSEE IS THAT IT IS NOT CORRECT TO SAY THAT WHATEVER A BUSINESSMAN A CQUIRES IS HIS BUSINESS ASSET. IN THIS REGARD, HE HAS REFERRED TO HIS DECLARATION OF THE SAID ASSET AS PART OF HIS FIXED ASSET AND NOT AS STOCK IN TRADE FOR THE PAST MORE THAN EIGHT YEARS. IT WAS ONLY IN FINANCIAL YEAR 2002 - 03, THE LAND HELD AS CAPITAL / FIXED ASSET FOR THE PAST EIGHT YEARS WAS CONVERTED INTO STOCK IN TRADE. THE ASSESSEE IS THE BEST PERSON TO RECOGNIZE HIS INVESTMENT AS BEING IN THE CAPITAL FIELD OR AS PART OF HIS BUSINESS ASSETS. THE TOTAL INVESTMENT MADE BY THE ASSESSEE ON 03.06.1996 WAS ABOUT RS.5 LAKHS AND THE SAME WAS RECOGNIZED AS CAPITAL / FIXED ASSET. THE SAME WAS NOT INCLUDED BY THE ASSESSEE AS PART OF ITS STOCK IN TRADE THOUGH THE ASSESSEE, ADMITTEDLY WAS CARRYING ON THE BUSINESS OF DEVELOPER AND BUILDER. THE CONCEPT OF HOLDI NG ASSETS AS INVESTMENT OR STOCK IN TRADE BY BUSINESSMAN IS RECOGNIZED BY THE CBDT ALSO , VIDE ITS CIRCULAR DATED 15.06.2007 IN RESPECT OF STOCK BROKERS. 31 . THE NEXT ASPECT OF THE ISSUE IS THAT THE ENTRIES IN BOOKS OF ACCOUNT ARE SACROSANCT. WHERE THE ASSESSEE HAD RECOGNIZED THE LAND AS ITS CAPITAL OR FIXED ASSET OR NOT PART OF STOCK IN TRADE, THEN SUCH ENTRIES CANNOT BE BRUSHED ASIDE BY THE ASSESSING OFFICER OR THE CIT(A). THE SAID PRINCIPLE HAS BEEN ACCEPTED BY THE HONBLE HIGH COURT OF BOMBAY IN CIT VS. GOPAL PUROHIT (SUPRA), WHICH HAS BEEN APPROVED BY THE HON'BLE SUPREME COURT AND IT HAS BEEN HELD THAT WHERE AN ASSET HAS BEEN SHOWN AS INVESTMENT BY THE ASSESSEE, THEN THE SAME ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 30 DOES NOT BECOME BUSINESS ASSET. IN THE FACTS OF THE CASE BEFORE US, THE A SSESSEE HAD SHOWN THE SAID ASSET AS INVESTMENT AND NOT AS PART OF ITS STOCK IN TRADE. HENCE THE SAID DECLARATION MADE BY THE ASSESSEE CANNOT BE TINKERED WITH. IN THIS REGARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN DCI T VS. SHREE SHREEMAL BUILDERS (SUPRA) AND IN NARSINGHDAS SURAJMAL PROPERTIES (P) LTD. VS. ACIT (SUPRA). IN THE SAID FACTS AND CIRCUMSTANCES, WHERE THE ASSESSEE HAS ADMITTEDLY, SHOWN THE ASSETS AS NOT PART OF ITS STOCK IN TRADE, THEN SUCH DECLARATION MADE BY THE ASSESSEE, WHICH ADMITTEDLY, HAS BEEN ACCEPTED FOR THE PAST MORE THAN EIGHT YEARS, CANNOT BE DISTURBED BY THE ASSESSING OFFICER OR THE CIT(A) ON THE GROUND THAT WHATEVER BUSINESSMAN ACQUIRES IS BUSINESS ASSET. WE FIND NO MERIT IN THE ORDERS OF AUTHO RITIES BELOW IN THIS REGARD AND REVERSE THE SAME. 3 2. THE NEXT STAND OF AUTHORITIES BELOW IN DENYING THE CLAIM OF ASSESSEE WAS HOLDING THAT EXERCISE UNDERTAKEN BY THE ASSESSEE WAS AN ADVENTURE IN NATURE OF TRADE. THERE IS NO MERIT IN STAND OF AUTHORITIES BELOW IN THIS REGARD, WHERE IN THE FACTS OF THE CASE, THE PERSON ACQUIRES A PROPERTY AND HOLDS THE SAME FOR A PERIOD OF TIME AND NO DEVELOPMENT TAKES PLACE ON THE SAME AND IN THE BOOKS OF ACCOUNT, THE ASSESSEE DOES NOT DECLARE THE SAME AS STOCK IN TRADE, WHICH BOOKS OF ACCOUNT HAD NOT BEEN DISTURBED, THEN IT IS NOT CORRECT TO COME TO THE CONCLUSION THAT THE EXERCISE UNDERTAKEN BY THE ASSESSEE WAS ADVENTURE IN NATURE. WE REVERSE THE FINDINGS OF AUTHORITIES BELOW IN THIS REGARD. ONCE IT IS HELD THAT THE AS SESSEE HAD ACQUIRED CAPITAL ASSET AND THE ASSESSEE CONVERTS THE SAME INTO STOCK IN TRADE BY RE - VALUING THE PIECE OF LAND ON THE BASIS OF VALUATION REPORT, THEN CAPITAL GAINS ARISING ON SUCH CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE, IS TO BE ASSESSED IN THE HANDS OF ASSESSEE UNDER THE PROVISIONS OF SECTION 45(2) OF THE ACT. THE ASSESSEE ADMITTEDLY, ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 31 STARTED DEVELOPING THE PROPERTY IN ASSESSMENT YEAR 2002 - 03 BUT THE FIRST PART OF SALE WAS MADE IN ASSESSMENT YEAR 2003 - 04 AND THEREAFTER, IN EACH YEARS. ACCORDINGLY, AS PER PROVISIONS OF SECTION 45(2) OF THE ACT, THE CAPITAL GAINS ON CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE, IS TO BE RECOGNIZED IN THE YEAR IN WHICH THE ASSET OR ANY PART OF IT IS SOLD. IN THE CASE OF ASSESSEE, WHERE THE DEVELOPED AS SET IS SOLD PARTLY IN VARIOUS YEARS, THEN CAPITAL GAINS UNDER SECTION 45(2) OF THE ACT IS TO BE CHARGED PROPORTIONATELY IN EACH OF THE YEARS IN WHICH PORTION OF THE CAPITAL ASSET CONVERTED INTO STOCK IN TRADE IS SOLD. THE ASSESSEE HAS DECLARED THE INCOME FROM BUSINESS ON SALE OF PORTIONS OF CONSTRUCTED AREA WHICH IS NOT IN DISPUTE. IN VIEW OF THE TOTALITY OF FACTS, WE FIND NO MERIT IN STAND OF AUTHORITIES BELOW TO HOLD THAT IT HAD STARTED SELLING PART OF THE PROJECT IN 2000. 33 . BEFORE PARTING, WE MAY AL SO TAKE INTO CONSIDERATION THAT FIRST DECLARATION OF LONG TERM CAPITAL GAINS UNDER SECTION 45(2) OF THE ACT BY THE ASSESSEE IN ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 IN WHICH YEARS, THE SAME WAS ACCEPTED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT OR DER PASSED UNDER SECTION 143(3) OF THE ACT. HOWEVER, FOR THE FIRST TIME IN ASSESSMENT YEAR 2005 - 06, THE SAID POSITION OF THE ASSESSEE WAS DISTURBED AND THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PROFITS WHICH WERE DETERMINED ON THE VALUE OF WORK - IN - PR OGRESS, BEING ON ACCOUNT OF REVALUATION OF DEVELOPMENT RIGHTS WAS ALLOCATED TO THREE YEARS BEGINNING FROM ASSESSMENT YEAR 2003 - 04. THERE IS NO MERIT IN THE SAID STAND OF THE ASSESSING OFFICER IN ALLOCATING THE BUSINESS PROFITS ON ACCOUNT OF REVALUATION OF DEVELOPMENT RIGHTS IN THREE YEARS AS AGAINST THE FACTS OF THE CASE WHERE DEVELOPED ASSET HAS BEEN SOLD IN VARIOUS YEARS. THE CIT(A) HAS NOT AGREED WITH THE SAID STAND OF THE ASSESSING OFFICER AGAINST WHICH, THE REVENUE IS IN APPEAL. WE FIND NO MERIT IN THE STAND OF REVENUE IN THIS REGARD, IN VIEW OF OUR ACCEPTING THE CLAIM OF ASSESSEE UNDER SECTION 45(2) ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 32 OF THE ACT. ONCE THE STAND OF ASSESSEE OF ASSESSING THE GAINS AS LONG TERM CAPITAL GAINS UNDER SECTION 45(2) OF THE ACT IS ACCEPTED, THEN THE CONSEQUEN T THERETO , IS THAT NO ADDITION CAN BE MADE ON ACCOUNT OF INCREASE IN WORK - IN - PROGRESS. HOWEVER, THE BUSINESS INCOME AS DECLARED BY THE ASSESSEE ON SALE OF DEVELOPED PORTION OF PROJECT IS TO BE ASSESSED IN THE HANDS OF ASSESSEE. THE ASSESSEE HAS DEVELOPED COMMERCIAL PROJECT I.E. KPCT AND THE BUSINESS PROFITS ARE DIRECTED TO BE ASSESSED IN THE RESPECTIVE YEARS AS DECLARED BY THE ASSESSEE. IN VIEW THEREOF, WE HOLD THAT INCOME DECLARED BY THE ASSESSEE AS CAPITAL GAINS UNDER SECTION 45(2) OF THE ACT IS TO BE ASSESSED AS SUCH AND NOT AS BUSINESS INCOME WHICH HAS BEEN ASSESSED BY THE AUTHORITIES BELOW. SECONDLY, THERE IS NO MERIT IN GROUNDS OF APPEAL RAISED BY THE REVENUE AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITION ON ACCOUNT OF MISMATCHING OF WORK - IN - PROGRESS. REVERSING THE ORDER OF CIT(A) WITH REGARD TO TAXING THE PART OF SALE PROCEEDS OF KPCT PROJECT IN THE YEAR AS BUSINESS INCOME OF THE YEAR, WE DIRECT THE ASSESSING OFFICER TO ASSESS THE SAME AS LONG TERM CAPITAL GAINS UNDER SECTION 45(2) OF THE AC T PROPORTIONATELY AND ALSO INCLUDE BUSINESS PROFITS ON THE PORTION SOLD BY THE ASSESSEE . CONSEQUENTLY, THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS ALLOWED AND THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE AGAINST THE ORDER OF CIT(A) IN NOT CONFI RMING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ASSESSEES BUSINESS INCOME BY ALLOCATING THE PROFITS OVER A PERIOD OF THREE YEARS IS THUS, DISMISSED. THE GROUND OF APPEAL NO.3 RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF UNDISCLOSED PROFITS REPRESENTED BY INCREASE IN WORK - IN - PROGRESS ALSO STANDS DISMISSED. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS GENERAL AND THE SAME IS ALSO DISMISSED. ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 33 3 4 . THE ASSESSEE IN ASSESSMENT YEARS 2006 - 0 7, 2007 - 08 AND 2008 - 09 HAS RAISED BOTH THE ISSUES OF CLAIM OF DEDUCTION UNDER SECTION 80IB(10) OF THE ACT AND CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE AND ITS ASSESSABILITY UNDER SECTION 45(2) OF THE ACT. FURTHER, EVEN IN THE SECOND ROUND OF PROCEE DINGS I.E. IN THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 263 OF THE ACT RELATING TO ASSESSMENT YEARS 2003 - 04 AND 2004 - 05, BOTH THE ISSUES HAVE BEEN RAISED I.E. CLAIM OF DEDUCTION UNDER SECTION 80IB(10) OF THE ACT AND TAXABILITY OF GAINS ARISING ON CONVER SION OF CAPITAL ASSET INTO STOCK IN TRADE UNDER SECTION 45(2) OF THE ACT. OUR DECISION IN ASSESSMENT YEAR 2005 - 06 SHALL APPLY MUTATIS MUTANDIS TO ALL THE APPEALS OF ASSESSEE. 3 5 . FURTHER, THE REVENUE IS IN APPEAL IN ASSESSMENT YEAR 2003 - 04 AGAINST THE OR DER OF CIT(A) IN DELETING THE ADDITIONS MADE ON ACCOUNT OF WORK - IN - PROGRESS RELATED ADDITION AND ALSO AGAINST DELETION OF ADHOC ALLOCATION OF REVALUATION AMOUNT FOR THREE YEARS I.E. ASSESSMENT YEAR 2003 - 04 ALSO. OUR DECISION IN ASSESSMENT YEAR 2005 - 06 SHA LL APPLY MUTATIS MUTANDIS TO THE ISSUES RAISED BY THE REVENUE IN ASSESSMENT YEAR 2003 - 04. 3 6 . BEFORE PARTING, IT MAY ALSO BE POINTED OUT THAT THOUGH SIMILAR ADDITIONS AS IN ASSESSMENT YEARS 2003 - 04 AND 2005 - 06 WERE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF WORK - IN - PROGRESS AND ALSO ON ACCOUNT OF ALLOCATION OF REVALUATION AMOUNT IN ASSESSMENT YEARS 200 4 - 0 5 AND 200 6 - 0 7 AND THE CIT(A) HAS GIVEN RELIEF ON TH ESE COUNTS , BUT THE REVENUE HAS NOT CHALLENGED THE ORDER OF CIT(A) IN ASSESSMENT YEARS 2004 - 05 AND 200 6 - 07. ONCE THE STAND HAS BEEN ACCEPTED IN ASSESSMENT YEARS 2004 - 05 AND 2006 - 07, THEN SIMILAR CHALLENGE CANNOT BE MADE IN OTHER YEARS I.E. ASSESSMENT YEARS 2003 - 04 AND 2005 - 06. ACCORDINGLY, WE HOLD SO. ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 34 3 7 . NOW, COMING TO THE APPEAL FILED BY THE REVENUE IN ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, WHERE THE ISSUE RAISED IS IN RESPECT OF RENTAL INCOME AND THE HEAD UNDER WHICH THE SAME IS TO BE ASSESSED. WE REFER TO THE FACTS AND ISSUES IN ITA NO.640/PUN/2011, RELATING TO ASSESSMENT YEAR 2007 - 08 FOR ADJUDICATION OF ISSUE. 3 8 . BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD RETAINED SOME SHOPS AND UNITS IN THE PROJECT KPCT AS OWNER. THE ASSESSEE HAD RENTED OUT THE SAME AND HAD DECLARED THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSES SING OFFICER WAS OF THE VIEW THAT THE INCOME FROM LETTING OUT THE UNSOLD PREMISES TILL THEY GOT SOLD WAS AN ACTIVITY WHICH WAS INCIDENTAL TO THE BUSINESS OF ASSESSEE. FURTHER, THE ASSESSEE HAD CLAIMED EXPENSES IN RESPECT OF MARKETING OF KPCT MALL AND OTHE R RELATED EXPENSES SINCE THE UNSOLD PORTION OF ENTIRE PROJECT WAS SHOWN AS WORK - IN - PROGRESS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INCOME THEREFORE, REPRESENTS EXPLOITATION OF COMMERCIAL ACTIVITY IN THE FORM OF STOCK IN TRADE AND THE RENTALS DERI VED THEREFROM HELD IN IMPROVING THE MARKETABILITY OF THE STOCK IN TRADE. THE ASSESSING OFFICER THUS, HELD THAT THE INCOME OF RS.2,26,82,650/ - WAS TO BE TREATED AS INCOME FROM BUSINESS AS AGAINST THE INCOME FROM HOUSE PROPERTY SHOWN BY THE ASSESSEE. 3 9 . B EFORE THE CIT(A), THE ASSESSEE EXPLAINED THAT IT WAS THE OWNER OF PROPERTY AND THE INVESTMENT WAS NOT MADE BY TAKING ANY LOANS. FURTHER, IT WAS NOT PROVIDING ANY SERVICES WITH RESPECT TO THE SHOPS AND UNITS. RELIANCE WAS PLACED ON SEVERAL DECISIONS IN TH IS REGARD BEFORE THE CIT(A). IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT DIRECT CONSTRUCTION EXPENSES WERE CLAIMED AT ABOUT RS.75 LAKHS AND THE OVERHEAD EXPENSES WERE CLAIMED AT ABOUT RS.88 ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 35 LAKHS WHICH ALL RELATED TO CONSTRUCTION ACTIVITY. HENCE, NO EXPEN SES WERE INCURRED WHICH WERE CLAIMED AGAINST THE INCOME OFFERED UNDER THE HEAD INCOME FROM PROPERTY. THE ASSESSEE ALSO EXPLAINED THAT FOR RECOGNITION OF SALES, IT FOLLOWED THE COMPLETION CONTRACT METHOD I.E. SALES REVENUE IS BOOKED AS SOON AS THE POSSES SION WAS GIVEN. AS REGARDS THE UNSOLD UNITS / TENEMENTS, THE ASSESSEE FOLLOWED PERCENTAGE COMPLETION MODEL FOR DECLARING PROFITS FROM YEAR TO YEAR AND THE PROFITS ON UNSOLD UNITS / TENEMENTS WERE OFFERED TO TAX ON THE BASIS OF WORK COMPLETED. IN OTHER WO RDS, THERE WAS MATCHING OF EXPENSES WITH THE OFFERINGS IN TERMS OF SALES REVENUE FOR SOLD TENEMENTS ALONG WITH PROFIT ON UNSOLD TENEMENTS. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD OFFERED SUM OF RS.1.25 CRORES AS PROFITS FROM CONSTRUCTION ACTIVIT Y. THE ASSESSEE ALSO THEN, REFERRED TO VARIOUS DECISIONS WHICH HE WAS RELYING ON OF THE APEX COURT AND THE SPECIAL BENCH . 40. THE CIT(A) NOTED THE EXPLANATION OF ASSESSEE REGARDING EXPENSES BOOKED DURING THE YEAR ON ACCOUNT OF CONSTRUCTION AND OVERHEAD AND ALSO PERCENTAGE COMPLETION METHOD BEING FOLLOWED BY THE ASSESSEE, WHEREIN THE PROFITS WAS OFFERED ON THE BASIS OF SAID METHOD WITH CORRESPONDING EXPENDITURE DULY TAKEN INTO ACCOUNT. THE CIT(A) RELIED ON THE RATIO LAID DOWN BY THE APEX COURT IN S.G. M ERCANTILE CORPORATION P. LTD. VS. REPORTED IN 83 ITR 700 (SC), WHEREIN IT WAS HELD THAT THE INCOME DERIVED FROM PROPERTY WHICH WAS OWNED BY THE ASSESSEE BUT WAS EXPLOITED FOR PROMOTING AND MARKING THEREON, THEN THE SAME WOULD NOT BE TAXED UNDER THE HEAD B USINESS INCOME. FURTHER, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN SHAMBHU INVESTMENT PVT. LTD. VS. CIT REPORTED IN 263 ITR 143 (SC), WHERE IF THE INTENTION WAS TO EXPLOIT IMMOVABLE PROPERTY BY WAY OF COMPLEX, COMMERCIAL ACTIVITIES, THEN IT WAS TO BE HELD AS BUSINESS INCOME ; BUT IF THE PRIMARY OBJECT OF ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 36 THE ASSESSEE WAS TO LET OUT THE PROPERTY BY ANY PORTION THERETO, THEN THE SAME HAD TO BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY. REFERENCE WAS ALSO MADE TO TH E RATIO LAID DOWN BY THE SPECIAL BENCH IN THE CASE OF ATMA RAM PROPERTIES REPORTED IN 102 TTJ (DEL) (SB) 345, WHEREIN IT WAS HELD THAT EVEN IF THE PROPERTY WAS HELD AS STOCK IN TRADE IN ITS CAPACITY AS TRADER, THE RENTAL INCOME WAS NOT EARNED BY IT IN THE CAPACITY OF TRADER. THE CIT(A) IN THIS REGARD CONSIDERED THE EXPLANATION OF ASSESSEE BEFORE THE ASSESSING OFFICER THAT DUE TO LACK OF PROPER MARKET FOR SHOPS CONTAINED IN KPCT PROJECT, SOME OF UNSOLD SHOPS WERE LET OUT IN THE CAPACITY OF LANDLORD. THE CI T(A) ALSO NOTED THE PLEA OF ASSESSEE THAT IN CASE IF THE CONTENTION OF THE ASSESSING OFFICER REGARDING EXPENSES BOOKED FOR MARKETING OF THE PROJECT WAS FOUND CORRECT, THEN THE SAME MAY NOT BE ALLOWED AS DEDUCTION IN COMPUTING THE BUSINESS INCOME. FOLLOWIN G THE RATIO LAID DOWN BY THE APEX COURT AND THE SPECIAL BENCH IN THE CASE OF ATMA RAM PROPERTIES (SUPRA), THE CIT(A) HELD THAT RENTAL INCOME IS TO BE ASSESSED AS INCOME FROM PROPERTY. 41 . THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 42 . THE LEAR NED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. 4 3. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REL YING ON THE CASE LAWS AS RELIED UPON BEFORE THE CIT(A), FURTHER POINTED OUT THAT THE ISSUE IS NOW STANDS COVERED BY THE FOLLOWING DECISIONS: - A) THE HONBLE SUPREME COURT DECISION IN RAJ DADARKAR & ASSOCIATES VS. ACIT, JUDGMENT DATED 09.05.2017 B) CIT VS. SANE & DOSHI ENTERPRISES (2015) 377 ITR 165 (BOM) C) CIT VS. ANSAL HOUSING & CONSTRUCTION (2 016) 241 TAXMAN 418 (DEL) ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 37 44 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE APPEAL FILED BY THE REVENUE IS AGAINST ASSESSABILITY OF RENTAL INCOME RECEIVED BY THE ASSESSEE IN RESPECT OF UNSOLD SHOPS IN THE KPCT PROJECT. THE ASSESSEE HAD CLAIMED THE SAID RENTAL INCOME UNDER THE HEAD INCOME FROM PROPERTY. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAME IS ASSESSABLE AS INCOME FROM BUSINESS. THE CIT(A) RELYING ON DIFFERENT DECISIONS OF THE APEX C OURT AND THE SPECIAL BENCH IN THE CASE OF ATMA RAM PROPERTIES (SUPRA), HELD THAT THE SAME IS ASSESSABLE AS INCOME FROM PROPERTY. THE APEX COURT IN SHAMBHU INVESTMENT PVT. LTD. VS. CIT (SUPRA) HAD LAID DOWN THE LAW OF LAND HOLDING THAT IF THE PRIMARY OBJ ECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY WAS TO LET OUT THE SAME, THEN THE SAME IS TO BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY. HOWEVER, WHERE THE INTENTION WAS TO EXPLOIT IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITY, THEN IN THAT EVENT IT HAD TO BE HELD AS BUSINESS INCOME. SIMILAR PROPOSITION WAS LAID DOWN BY THE SPECIAL BENCH IN THE CASE OF ATMA RAM PROPERTIES (SUPRA). 4 5 . WE FURTHER FIND THAT THE HONBLE HIGH COURT OF BOMBAY IN CIT VS. SANE & D OSHI ENTERPRISES (SUPRA) CONSIDERED THE CASE OF DEVELOPER, WHEREIN THE UNSOLD FLATS OR UNITS WERE GIVEN ON LEASE BY THE SAID FIRM, THE RENTAL INCOME RECEIVED FROM THE SAID UNSOLD FLATS OR UNITS WERE DECLARED AS INCOME FROM HOUSE PROPERTY. HOWEVER, THE ASS ESSING OFFICER WAS OF THE VIEW THAT THE LEASING OF UNSOLD UNITS WAS NOTHING BUT A TRANSACTION TO GENERATE BUSINESS INCOME. THE CIT(A) AND THE TRIBUNAL ALLOWED THE CLAIM OF ASSESSEE, AGAINST WHICH THE REVENUE WAS IN APPEAL BEFORE THE HONBLE HIGH COURT OF BOMBAY. AFTER HEARING THE SUBMISSIONS OF ASSESSEE AND RELYING ON DIFFERENT DECISIONS, THE HONBLE HIGH COURT OF BOMBAY HELD THAT THE TREATMENT GIVEN IN THE BOOKS OF ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 38 ACCOUNT BY THE ASSESSEE AS STOCK IN TRADE WOULD NOT, THEREFORE, ALTER THE CHARACTER OR NAT URE OF THE INCOME AS HELD BY THE APEX COURT. THE HONBLE HIGH COURT HELD THAT THE SAID INCOME IS TO BE ASSESSED UNDER THE HEAD INCOME FROM PROPERTY IN THE HANDS OF ASSESSEE. 4 6 . SIMILAR PROPOSITION HAS BEEN LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN CIT VS. ANSAL HOUSING & CONSTRUCTION (SUPRA), WHERE THE LETTING OUT OF THE PROPERTY WAS NOT PART OF BUSINESS AND OBJECT OF THE ASSESSEE AND IN CASE THE SAME ASSETS ARE LET OUT, THEN THE SAME IS TO BE ASSESSED AS INCOME FROM PROPERTY. 47. APPLYING T HE SAID PRINCIPLE LAID DOWN BY THE HONBLE HIGH COURT OF BOMBAY IN CIT VS. SANE & DOSHI ENTERPRISES (SUPRA) AND THE HONBLE HIGH COURT OF DELHI IN CIT VS. ANSAL HOUSING & CONSTRUCTION (SUPRA) AND ALSO THE SPECIAL BENCH OF TRIBUNAL AND THE APEX COURT IN EAR LIER DECISIONS, WE HOLD THAT RENTAL INCOME RECEIVED BY THE ASSESSEE ON LETTING OUT UNSOLD SHOPS IS TO BE ASSESSED AS INCOME FROM PROPERTY IN THE HANDS OF ASSESSEE. THE CIT(A) HAS ALREAD Y DIRECTED THAT IN CASE ANY EXPENDITURE IN RELATION TO THE MARKETABI LITY OF THE SAID UNSOLD SHOPS IS DEBITED BY THE ASSESSEE, THEN THE SAME IS NOT TO BE ALLOWED IN THE HANDS OF ASSESSEE, AGAINST WHICH THE ASSESSEE IS NOT IN APPEAL. IN VIEW THEREOF, WE FIND NO MERIT IN THE STAND OF THE ASSESSING OFFICER IN THIS REGARD. AP PLYING THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF BOMBAY IN CIT VS. SANE & DOSHI ENTERPRISES (SUPRA) , EVEN IF THE ASSET IS IN STOCK IN TRADE OF ASSESSEE, THEN TILL THE TIME IT IS UNSOLD AND HAS BEEN EXPLOITED BY LETTING OUT, THEN THE SAID INCOME IS T O BE ASSESSED IN THE HANDS OF ASSESSEE AS INCOME FROM PROPERTY. ACCORDINGLY, WE HOLD SO. UPHOLDING THE ORDER OF CIT(A), WE ITA NO. 351 /P U N/20 10 ITA NO.527/PUN/2010 M/S. PARMAR PROPERTIES PVT. LTD. 39 DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE BOTH IN ASSESSMENT YEARS 2007 - 08 AND 2008 - 09. 4 8 . IN THE RESULT, ALL THE AP PEALS OF ASSESSEE ARE ALLOWED AND THE APPEALS OF REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THIS 08 TH DAY OF NOVEMBER , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 08 TH NOVEMBER , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE A PPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - I I, PUNE ; 4. / THE CIT - I I, PUNE ; 5. , , / DR A, ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE