Vascon Engineers Ltd (Successor to Angelica Properties Pvt. Ltd.), Pune V. Additional Commissioner of Income-tax, Pune

ITA 403/PUN/2015

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4248 (ITAT-PUNE)
• Duration Of Justice: 7 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Keywords: Reopening of assessment; Sale consideration of property below Jantri Value; Capital asset; Business income; Depreciation; Principle of natural justice; Earning of tax free income; Source of fund; Cost of acquisition; Valuation report; Assessment record; Reassessment proceedings; Rule 8D; Set aside; Capital Gains
• Section: 148; 143(3); 50C; 54F; 14A; 251; 48; 13; 119; 22

Judgement Text

आयकरअपीलीय अिधकरण “ए” ᭠यायपीठपुणे मᱶ। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI S.S.VISWANETHRA RAVI, HON’BLE JM AND DR. DIPAK P. RIPOTE, HON’BLE AM आयकरअपीलसं. / ITA No: 403/PUN/2015 िनधाᭅरणवषᭅ / Assessment Year : 2010-11 Vason Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 301, Phoenix, Opp.Residency Club, Bund Garden Road, Pune – 411037. PAN: AAFCA 8644 J Vs TheAdditional Commissioner of Income Tax, Range1, Pune. Appellant/ Assessee Respondent /Revenue आयकरअपीलसं. / ITA No: 1738/PUN/2016 िनधाᭅरणवषᭅ / Assessment Year : 2011-12 Angelica Properties Pvt. Ltd., Opp. Grand Hyatt Hotel, Vimannagar, Puune – 411 014. PAN: AAFCA 8644 J Vs The Deputy Commissioner of Income Tax, Circle-1(1), Pune. Appellant/ Assessee Respondent /Revenue Assessee by Shri Dharmesh Shah – AR Revenue by Shri Naveen Gupta – DR Date of hearing 24/06/2022 Date of pronouncement 22/09/2022 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: These two appeals filed by the assessee are directed against the separate orders of ld.Commissioner of Income Tax(Appeals)-1, Pune dated 30.01.2015 and 09.06.2016 for the Assessment Years 2010-11 and 2011-12 respectively. 2. The Assessee in ITA No.403/PUN/2015 for the A.Y.2010-11 has raised following grounds of appeal: “1. The Ld. CIT(A) has erred in law and in facts enhancing the income from sale of ‘Matrix IT Building’ by changing the head of income from Capital Gains to Business income without complying with the principles of natural justice and without giving any opportunity of hearing. ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 2 2. The Ld. CIT(A) has erred in law and in facts in assessing the income from sale of ‘Matrix IT Building’ at Rs 1,79,78,415/- as part of business income. a. The Ld. CIT(A)-haserred in law and in facts in not appreciating that the income from sale of 'Matrix IT Building’ was liable to be assessed as income under the head 'Capital Gains' and not as business income. b. The Ld. CIT(A) has erred in law and in facts in not appreciating that the income from short term capital gains of Rs 44,74,512/- offered on account of conversion of the Park Hotel from Fixed Asset to Inventory ought to have been accepted. c. The Ld. CIT(A) has erred in law and in facts in treating the development rights and buildings held by the appellant as stock in trade. d. The Ld. CIT(A) has erred in law and in facts in not appreciating that the income from long term capital gains of Rs (-) 4,10,30,399/- as shown in the return of income ought to have been accepted by Assessing Officer. e. The Ld. CIT(A) has erred in law and in facts in not appreciating that the income from short term capital gains of Rs 20,36,683/- as shown in the return of income ought to have been accepted by Assessing Officer. f. The Ld. CIT(A) has erred in law and in facts in disallowing the deduction claimed by the appellant under the head business income. 3. The Ld. CIT(A) has erred in law and in facts in directingthe Assessing Officer to revise the income from various years by considering the assets as stock in trade. a. The Ld. CIT(A) has erred in law and in facts in determining the business income of the appellant at Rs.1,50,00,000/- in A.Y.2011-12 without appreciating that the said year was not in dispute before him. b. The Ld. CIT(A) has erred in law and in facts in directing the Assessing Officer to disallow depreciation claimed by the appellant in the earlier years as the assets have now been held to be stock in trade by the Ld. CIT(A). 4. The Ld. CIT(A) has erred in law and in facts in confirming the addition of Rs.3,89,26,200/- made by the Assessing Officer on account of difference in Revenue recognized by the assessee from the Hotel Building. 5. The Ld. CIT(A) has erred in enhancing the income of the assessee by changing the head of income from ‘Income from House Property' to ‘Income from Business' as shown by the assessee in respect of rental income and maintenance charges without complying with the principles of natural justice and without giving any opportunity of hearing. 6. The Ld. CIT(A) has erred in law and in facts in holding that rental income and maintenance charges of Rs.4,94,31,708/- is chargeable to tax under the head ‘Income from Business' as against the head ‘Income from House Property’ shown by the assessee. 7. The Ld. CIT(A) has erred in holding that the assessee is not eligible ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 3 for standard deduction of Rs.1,36,67,376/- claimed in the total Income while declaring the income from Matrix I.T Building under the head ‘Income from House Property'. 8. The Ld. CIT(A)) has erred in law and in facts in holding that the assessee is not eligible to claim deduction of maintenance expenses of Rs.50,39,563/- against the maintenance charges received from the tenants. 9. The Ld. CIT(A)) has erred in law and in facts in confirming the disallowance u/s. 14A the Act to the extent of Rs. 20,10,855/-. 10. The Ld. CIT(Appeals) has erred in upholding the charging of interest u/s 234B, 234C and 234D of the Income Tax Act, 1961. 11. The assessee prays leave to add to above grounds to amend or delete any of the above grounds of appeal.” 3. Brief facts of the case, the assessee Angelica Properties Pvt Ltd has been amalgamated & merged into Vascon Engineers Ltd. The assessee is in the business of construction &development . There is a Registered Development Agreement dated 31/10/2006 between Clover Resorts Pvt Ltd (vendor no.1), Vascon Engineers Pvt Ltd (vendor no.2) and Angelica Properties Pvt Ltd (developers) and 22 individuals (confirming parties). Vendor number 2 i.e. Vascon Engineers P Ltd had acquired 100% share holding of Vendor no.1 and filed a petition number 557 of 2006 for amalgamation before Hon’ble Bombay High Court.Pursuant to the said Registereddevelopment agreement dated 31/10/2006, the assessee i.e. Angelica Properties Pvt Ltd started developing and constructing two independent buildings. These buildings were called as “Matrix IT Building” and “Hotel Tower”. During FY 2009-10 the assessee entered into an registered agreement with Leon Realtors Pvt Ltd.for sale of “Matrix IT Building” for total consideration of Rs.104,90,00,000/- The assessee claimed that the revenue from the said sale transaction was recognised in two years i.e. AY 2010-11 and 2011-12 as under : ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 4 AY Sale Consideration Recognised (Rs) 2010-11 1,03,40,00,000/- 2011-12 1,50,00,000/- Total 1,04,90,00,000/- The Income Tax department came in possession of information that assessee has entered into Sale of Immovable property during AY 2011-12 of Rs.117,31,70,040/-. The department issued notice to the assessee and called for explanation. The Assessee explained that assessee had sold the property for consideration of Rs.104,90,00,000/- , however, the Stamp authority has valued the property for stamp duty purpose at Rs.117,31,70,040/-.Since the assessee objected to the value decided by the Stamp Authority, during the assessment proceedings the assessing officer made a reference to the Valuation officer. However, the valuation report was not received before the completion of assessment. The Assessing Officer calculated the Long Term Capital Gain taking the sale consideration at Rs.117,31,70,040/- for two assessment years as under : AY Sale consideration disclosed in the Return of Income Sale consideration for the purpose of Section 48 r.w.s 50C 2010-11 103,40,00,000/- 115,63,94,491/- 2011-12 1,50,00,000/- 1,67,75,549/- Total 104,90,00,000/- 117,31,70,040/- ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 5 There is one more addition of Rs.3,89,26,200/- with reference to the building called “Hotel Tower”. 4. Aggrieved by the said additions, the assessee filed appeal before the Commissioner of Income Tax (Appeal).The CIT(A) held that the profit arising from sale of impugned immovable property (Matrix IT Building) is liable to be assessed as Business Income and not Capital gain. The CIT(A) arrived at the business profit as under : Profits from Sale of Land & Building 1. Sale of Land & Building (excluding Rs.1,50,00,000/- offered in the next year) 103,40,00,000 Less: Brokerage Paid for sale of Matrix Building. 1,31,12,501/- Less: Other expenses attributable to Matrix Building. 1,86,804/- Net Sale. Consideration (a) 102,07,00,695 Less: Cos of acquisition of land (40,08,75,414/-) & building (60,18,46,866/-) as shown by the appellant 100,27,22,280 Business profit from sale of land & Building 1,79,78,415 5. The ld.CIT(A) also held that since the income is assessed as Business Income, section 50C will not be applicable. The CIT(A) also gave direction in the order for AY 2010-11 to assess the balance consideration in AY 2011-12 as business income and not as capital gain as claimed by assessee. 6. Aggrieved by the order of CIT(A), the assessee filed appeal before this tribunal. 7. Submission of the Ld. AR : 7.1 Written Submissions on Ground No.1 of the Appellant’s Appeal: ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 6 2. In connection with the Ground No.1 challenging the enhancement of income by the Ld.CIT(A), we state and submit as under. 7. In the aforesaid grounds raised before the Hon’ble Tribunal, the Appellant has challenged action of the Ld. CIT(A) in enhancing the income of the Appellant by : i) rejecting the claim of indexed cost of acquisition allowable while computing the income from capital gains, ii) treating the transactions on account of transfer of land and building as part of the business income instead of capital gains, iii) applying a higher tax rate applicable to the business income instead of capital gains iv) Treating rental income from these assets as business income as against Income from House Property 7.1. In this regard, reliance is placed on the decision of the Hon’ble Delhi Tribunal in the case of Bikram Singh v. DCIT [48 ITR (Trib.) 689] [Page 663-674 of PB No.41. 7.2. Reliance is also placed on the decision of Hon’ble Jaipur Tribunal in the case of Trimurti Buildcon Pvt. Ltd. v. ITO [87 ITR (Trib) 505 ] [Page 725-747 of PB No. 4]. 7.3. In the similar manner, reliance is also placed on the following decisions: a. CIT v. Shapoorji Pallonji Mistry [44 ITR 891 (SC)] [Page 748-753 of PB No. 4] b. CIT v. B. P. Sherafudin [399 ITR 524 (Ker.)] [Page 754-769 of PB No. 4] c. Hari Mohan Sharma v. ACIT [110 Taxmann.com 119 (Del.)] [Page 578- 594 of PB No. 3] d. CIT v. Rai Bahadur Hardutroy Motilal Chamaria [66 ITR 443 (SC)][Page 634-643 of PB No. 3] e. ITO v. Angel Cement Pvt. Ltd. [88 ITR(T) 616] [Page 644-662 of PB No.3] 7.4. Without prejudice, it is submitted that even if the enhancement carried out by the Ld. CIT(A) is held to be within his powers, the said enhancement has been carried out without complying with the provisions of s. 251(2) of the Act which requires the Appellate authority to provide an opportunity to the assessee to show cause as to why the enhancement should not be carried out. In this regard, it is submitted that although the assessee was asked to explain whether the treatment of the transaction can be given as a stock in trade, the order sheet notings submitted before the Hon’ble Tribunal and enclosed at Page 569 of PB No. 3 shows that no effective opportunity of hearing as envisaged u/s. 251(2) was granted to the Appellant asking them to show cause as to why an enhancement should not be carried out. In fact, w.r.t treatment of rental income as business income, the assessee was never informed of any such intention or action by the Ld. CIT (A). ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 7 7.5. It is submitted that before carrying out any enhancement of income, it was duty of the Ld. CIT(A) to quantify the amount of enhancement and also provide reasons and basis for carrying out the said enhancement so as to enable the assessee to file its submissions. In this regard, reliance is placed on the decision of the Hon’ble Pune Tribunal in the case of Naresh Sunderlal Chug v. ITO [171 ITD 116] [Page 570-577 of PB No. 3]. Thus, the enhancement made by the Ld. CIT(A) is beyond jurisdiction. 7.6. In the present case, as explained earlier, the issue of treatment of the transactions of sale of assets and rental income as business income was never a subject matter of assessment and that no application of mind was ever, was made by the Ld. A.O. either in the said year or in any of the earlier years. Since the issue raised by the Ld. CIT(A) was never subject matter of examination or assessment by the Ld. A.O., even in light of the said decision of the Hon’ble Supreme Court relied by the Ld. CIT(DR), the Ld. CIT(A) would not have carried out enhancement on account of the same. 7.7. In any case, the aforesaid decision has been considered while deciding identical issues in cases of Jagdish Narayan Sharma (Supra), B. P. Sheraffudin(Supra) and Hari Mohan Sharma (Supra). Hence, no adverse view can be taken based on the said decision since the Hon’ble Tribunal in several cases decided the issue in favour of assessee after taking into account the findings of Hon’ble Supreme Court. 7.2. Written submissions on Ground No. 2 of the Appellant’s Appeal 1. In connection with the Ground No. 2 challenging the treatment of income from sale of land and building as ‘Business income’ as against the Income from ‘Capital Gains’ offered by the appellant, we state and submit as under: 2. In the order passed by the Ld. CIT(A), the aforesaid issue has been discussed at para 6-6.4.13, page 4-21 of his order. The Ld. CIT(A) has treated the sale of land and building pertaining to the Matrix I-T Park as a business transaction and not a transaction under the head capital gains. He has also treated conversion of the Hotel Building in A.Y. 2009-10 from capital asset to stock in trade as non-genuine and assessed the income therefrom as business income. The reasons given by the Ld. CIT(A) are as follows: a. The Appellant has represented itself is a developer as evident from the development agreement dated 31.10.2006 for purchase of the development right in the land and agreement dated 13.02.2008 with Apeejay Surendra Park Hotels Ltd. for sale of the Hotel building. [Para 6.4.3 and 6.4.4] b. The company has stated at Note 12 of the annual accounts for A.Y. 2010-11 that the company is primarily engaged in the business of real estate development and that the said business is the only reportable segment of the company. [Para 6.4.6] c. The Appellant company has purchased the development rights and not the land per se from the owners. [Para 6.4.6] d. The appellant has held the Hotel building for a short period [Para 6.4.6] e. If the asset was held as stock in trade, the same should have been declared under the Wealth Tax Act. [Para 6.4.6] ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 8 f. The development rights in the land were not held as investments nor classified as investments in the balance sheet [Para 6.4.7] 9. Based on the above, the Ld. CIT(A) held that the various agreements executed by the Appellant clearly demonstrate that the intention of the Appellant had always been to exploit the property as a developer and not to hold the property for a longer period for capital appreciation. He accordingly held that the income from the sale of land and building should be treated as business income. The propositions and submissions of the assessee 4. It is submitted that the aforesaid land was acquired by the Appellant for constructing the Hotel and an I-T park buildings with the intention to operate 1 and manage the same and earn rental income out of the same. It was never 1 intended to construct both the buildings as a builder and developer so as to earn profit from sale of its units. We submit that the judiciary has time and again clarified that a trader can also make investments and that every investment made by a trader cannot be treated as part of the business transaction. The Appellant refers to the following circulars and instructions which, though were rendered in the context of shares and securities, were equally applicable to the assets like land and building: a. Instructions No. 1827 dated 31.08.1989 issued by CBDT [Page 391- 393 of PB No. 2] b. Circular no. 4/2007 dated 15.06.2007 [Page 394-396 of PB No. 2] c. Circular no. 6/2016 dated 29.02.2016 [Page 397-398 of PB No. 2] 5. In the above circulars and instructions, CBDT has clarified that it is possible for a taxpayer to have 2 portfolios, i.e. an investment portfolio comprising of securities which are treated as capital asset and a trading portfolio comprising of stock in trade which are to be treated as trading assets. 6. In the present case, admittedly, the land was acquired by the Appellant with the intention to hold the same as a capital asset and earn rental income out of the same. In fact, several actions of the Appellant and the treatment of the asset in the books does not suggest that the said land was acquired with the intention to construct buildings on the same and sell with a profit. 7. In the present case, the asset has been reflected as part of the fixed assets and not as part of the stock in trade in all the past years. Further, the said asset has been valued at cost and not at market value. If the asset was intended to be held as a stock in trade, the same would have been valued at cost of market price whichever is lower. The Hon’ble Bombay High Court in the case of CIT v. Motichand Constructions Co. Pvt. Ltd. [261 ITR 70] had held that the financial statements as well as the computation filed by the assessee indicated that the debentures were valued at cost and not at market price. Hence, this was an indication which proves that the asset was being treated as a capital asset. The Hon’ble High Court therefore held that the loss on sale of the debentures was to be treated as capital loss and not business loss. 8. Further, the land and the building have been consistently reflected under the head ‘Fixed Assets’ since inception by the Appellant company. The said disclosure of the asset and the manner of such disclosure in the financial statements clearly proves that the asset was held by the Appellant as a capital asset and not stock in trade. In this regard, the Appellant relies ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 9 on the following financial statements: a. Profit and loss and balance sheet for A.Y. 2007-08 [Page 174-178 of PB No. 2] b. Profit and loss and balance sheet for A.Y. 2008-09 [Page 179-182 of PB No. 2] c. Profit find loss and balance sheet for A.Y. 2009-10 [Page 183-188 of PB No. 2] 9. The Appellant further submits that with the intention to develop the I-T Park and operate the same, the Appellant had also made an application before the Ministry for approval and permission for constructing I-T Park. The said approval was granted to the appellant on 03.03.2007. [Page 171- 173 of PB No. 2] If the Appellant was engaged in construction of the building and selling the same, they would not have taken the task of applying for operating and maintaining the I-T Park and getting the requisite approvals. As a Trader, the Appellant would have only intended to construct and sell the property with the intention to maximise profit out of the same. 10. In fact, with the intention to earn rental income, the Appellant had also entered into Leave and License agreements with some of the parties giving a larger area of the building on licence basis. The leave and license agreements executed by the Appellant with companies like Oriflame India Pvt. Ltd. on 09.01.2009 [Page 113-130 of PB No. 2] and Emerson Electric Company (India) Pvt. Ltd. [Page i3i-i70of PB No. 2] on 24.05.2007 much before the construction of building was completed proves that the intentions of the Appellant were always to construct the building and give it on rent. If the Appellant intended to construct the building and sell the same with the profit motive, it would not have entered into a leave and license agreements with the parties. This is because by executing such agreements and giving certain rights to the parties under the leave and license agreement, an encumbrance was created by the Appellant which could have been a hurdle for the Appellant to sell the title-free property. 9.1. At the juncture, the Appellant relies on the decision in the case of CIT v. Rcwashankcr A. Kothari [283 ITR 338 (Guj.)] [Page 361-368 of PB No. 2] wherein the Hon’ble High Court had laid down certain principles and tests to determine as to whether an assessee can be said to be carrying on business [Para 11, Page 367 of PB No. 2]. If the aforesaid tests laid down by the Hon’ble High Court at para-11 are considered and applied to the facts of the present case, it would transpire that the treatment of the land and building was correctly given as capital asset and not stock in trade. 9.2. The Appellant next relies upon the decision of the Hon’ble Karnataka High Court in the case of CIT and another v. Bagmane Developers P. Ltd. L392 ITR 379] [Page 369-383 of PB No. 2]. 9.3. Hon’be Pune Tribunal in the case of Parmar Properties Pvt. Ltd., and others v. Addl. CIT [ITA No.344/Pun/2010] dated 18.11.2017 [Page No.409-447 of PB No.2] 7.3. Written submissions on Ground No. 4 of the Appellant’s Appeal 1. In connection with the Ground No. 4 challenging the addition of Rs. 3,89,26,200/- on account of difference in Revenue recognised by the appellant from the Hotel Building, we state and ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 10 submit as under: 2. In the orders passed, the aforesaid issue has been discussed by the Ld. A.O. at Para 4-4.18 of the assessment order and by the Ld, CIT(A) at para 7-7.3.5, page 21-33 of his order. The Ld. A.O. observed that the income was offered by appellant on Percentage Completion Method. As such, on the Total Estimated Contract Value (hereinafter referred to as ‘ECV’) of Rs.136,62,50,000, the appellant had applied 39.89%, being the proportion of work completed on the said Estimated Total Contract Value. Accordingly, the profit during the year was determined at Rs 6,82,57,060/-. In the similar manner, the profit was also derived in the subsequent year based on % of work completed till 31.03.2011 and the profit from the project, in excess of what was offered during the year under appeal, was offered in the next year. The Ld. A.O. observed that while determining the Total ECV at Rs. 136.62 Cr., the appellant had reduced Rs. 10 crore on account certain anticipated damages resulting into downward revision in the Total ECV. According to him, the said deduction was without any basis and therefore the revenue offered by the appellant on the Revised ECV applying the Percentage of Completion @ 39.89% was incorrect. Accordingly, he rejected the said reduction of the Total ECV by Rs. 10 Crores and enhanced the income by applying the Percentage Completion method on the original ECV thereby making an addition of Rs. 3,89,26,200/- on account of suppressed revenue. 3. At the outset, it is submitted that the aforesaid addition made by the Ld. A.O. is legally not tenable. The Appellant submits that the revision of the Total ECV was not allowed by the Ld. A.O. during the year under appeal on the ground that the changes in the accounting estimates were based on the documentary evidences like letters, emails, etc. which were exchanged in the subsequent period and therefore the same cannot be taken into account for the year under consideration. However, on the identical facts, the revision in the estimated contact value was allowed during A.Y. 2011-12 at Rs. 8,00,00,000/-. Even the said revision in the estimate was based on the documentary evidences which were dated 20.0g.2011, i.e. subsequent to the end of the financial year relevant to A.Y. 2011-12. This is evident from the assessment order dated 10.03.2014 for A.Y. 2011-12 passed u/s. 143(3) of the' Act. [Page 351-360 of PB No. 1]. Under these circumstances, it was not justified on part of the Ld. A.O. to deny the revision of the estimated contract value during the year under appeal and take a self-contradicting stand. 4. Further, admittedly, the Appellant is liable to tax on the income earned out of the project which is carried on over a period of years. The profit from the said project is therefore required to be offered on periodical basis by applying percentage of completion method. It is submitted that the addition made by the Ld. A.O. during the year under consideration is therefore revenue neutral inasmuch as and excess profit determined for the year under consideration will result into reduction of the profit in the subsequent year, i.e. A.Y. 2011-12. Since the tax rate for both the years are identical in case of the Appellant company, the said issue was undisputedly be revenue ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 11 neutral. The courts have consistently held that any issue which is revenue neutral should not be disputed by the Department more so when it does not have any overall tax impact. In this regard, reliance is placed on the following decisions: a. CIT v. Excel Industries Ltd. [358 ITR 295] (Para 32) b. CIT v. Millennium Estates (P.) Ltd. [93 Taxmann.com 41 (Bom.)] (Para 10) 9. In light of the above, the Appellant humbly submits that presuming without admitting that the stand of the Ld. A.O. is correct, the aforesaid addition being revenue neutral with kindly be deleted since no prejudice w r as caused to the Department. 5. Without prejudice to the above, on merits of the issue, the said addition was factually and legally unwarranted. 6. The Appellant submits that due to delay in the construction activity on part of the Appellant and for several other reasons, the contractee had insisted on reducing and revising the Estimated Contract Value agreed between them. These negotiations were being carried out since a long period of time and the discussions were documented immediately upon close of the year which is evident from the emails addressed by the Appellant to the contractee on 06.04.2010 and 07.04.2010. In this email, it has been clearly pointed out that an amendment to the original agreement would be prepared whereby the Appellant would grant a discount of Rs. 3,75,00,000/- and the contract value would be further reduced on account of certain work which has been agreed to be carried out by the contractee and further discounts would be granted on appointment of Structural Consultants. The said communication thereafter wns supplemented by a draft agreement dated 15.04.2010 wherein several discounts being offered by the Appellant were referred to.It is submitted that subsequent to exchanging these emails, there were further emails and letters communicated to the party on 11.10.2010 and 08.12.2010. 7. It is submitted that since negotiations were going on between the parties and the Appellant apprehended that the contract revenue would be reduced drastically, the ECV was revised by reducing Rs. 10 crores from the original value. The revision in the Total Estimated Contract Value was in line with the various Accounting Standard applicable to the appellant. 8. In this regard, reliance is placed on the decision in the case of Canara Housing Development Company v. JCIT [165 ITD 76 [Bang.)] wherein the Hon’ble Tribunal had approved the reliance on the AS- 4and observed that in the case of joint development agreement, the profitability depends on the progress of the construction activity. The Hon’ble Tribunal therefore observed that the profitability of the company can be very well judged in advance whether the assessee will be able to fulfil its commitment within the time provided in the agreement which falls subsequent to the relevant year. The Hon’ble Tribunal therefore observed that when the assessee realised that the status of construction of the project ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 12 under JDA has not reached the stage as expected and therefore it was not possible to deliver the completed property within the specified time, the assessee is free to take a decision to protect its business interests and minimise the loss which would be suffered by it in future. The Hon’ble Tribunal therefore observed that though the event of final amount of compensation happened after the closing of the financial year under consideration, as the prudent and conservative accounting principle, such contingencies are to be taken into account. While deciding the same and allowing the loss in the year of claim, the Hon’ble Tribunal relied upon Para- 8.2 of AS- 4 which permitted the existence to be made in the financial statements for the events occurring after the balance sheet date. The copy of the said decision is enclosed herewith. 9. The Hon’ble Tribunal, in the case of ACIT v. Allied Gems Corporation (Bombay) [55 ITR (Trib.) 198 (Mum.)], has also taken an identical review relying upon AS-4 and allowing the deduction considering the events occurring after the balance sheet date. 8. Submission by the Ld.Departmental Representative: 8.1 Written submission of the DR is reproduced as under : “The appellant submitted that the aforesaid enhancement of income, by rejecting the treatment of the transactions of capital gains and treating the same as business income is beyond the powers conferred u/s. 251 of the Act. In this regard, the appellant has relied on the decision of Hon’ble Jaipur Tribunal in the case of Jagdish Narayan Sharma v. ITO [65 ITR (Trib.) 194]. However, as pointed out during the course of hearing, the facts of that case are entirely different. In that case, the issue of sale of land by the assessee to his two daughters-in-law was neither the subject-matter of notice issued under s. 148 nor the subsequent return filed by the assessee nor the subject-matter of assessment order passed by the AO for the concerned AY 2007-08. In fact, the impugned sale transactions relating to sale of land by the assessee to his two daughters-in-law for a total consideration of Rs. 1,62,72,000 was the subject-matter of reopening of assessment for preceding A. Y. 2006-07, whereby these transactions were identified, the case was reopened and the AO, while passing the assessment order for A. Y. 2006-07, has discussed the taxability of such transaction in the body of the assessment order and brought the same to tax. It is therefore a case where the impugned transactions were subject-matter of assessment and arising out of the assessment order for asst. yr. 2006-07 and not that of asst. yr. 2007- 08. Further, this was not even a case of substantive and protective addition. The CIT(A), while adjudicating the matter for A.Y. 2006-07 had determined that the said transaction pertains to A.Y. 2007-08 and not to A.Y. 2006-07 and deleted the additions in A.Y. 2006-07 and brought the same to tax in A.Y. 2007-08. On these facts, it was held that since this was a new source of income, which has been discovered by the CIT(A) while adjudicating the matter for earlier year and not a matter arising out of the assessment proceedings for ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 13 the concerned year. The facts of the present case are entirely different and impugned transaction pertains to this year, part of the assessment record for this year and the facts available in assessment record as well as the issue considered by the AO only were considered by the CIT(A) while deciding the issue. Therefore, the facts of the case relied upon are entirely different. 2. Regarding the case of Trimurti Buildcon Pvt. Ltd. relied upon by the appellant, in that case the Hon’ble ITAT has taken a view that issues which do not arise from the assessment order are not to be considered and after discussing the position in detail including opportunity to be given, the merits of the issue were considered while deciding the issue. In the case of Bikram Singh v. DCIT, similar issue was involved but in my humble opinion, the legal position has not been correctly interpreted in that case. 3. As per the section 251(1) of the Act, there is no fetter on the power of the CIT(A) in making enhancement. In this regard, reliance was made upon the decision of Hon’ble Supreme Court in the case of CIT v. NirbheramDeluram [91 Taxman 181] during the course of hearing, wherein the Hon’ble Supreme Court has held that the additions made by AAC on account of unexplained hundi loans, which have not been considered by the ITO, was justified. In the said case, the concerned year was assessment year 1956-57. The ITO completed the assessment by his order dated 11th March, 1957. During the assessment proceedings for the succeeding year, the ITO noticed certain entries relating to hundi loans which were not genuine and which could be considered as income from undisclosed sources for the assessment year 1956-57. Reassessment proceedings were started and in these proceedings, the ITO considered twelve bogus entries ostensibly relating to hundi loans and he assessed the amount of undisclosed income at Rs. 2,45,000 by working out the "peak credit". In the appeal preferred by the assessee, the AAC, on scrutiny of the cash book, discovered ten more bogus entries totalling Rs. 2,30,000 and added the same as income from undisclosed sources. These entries were not at all considered by the ITO and were neither mentioned in the return nor in the order of assessment. On these facts, the Hon’ble ITAT as well as the Hon’ble High Court held that the AAC had no jurisdiction to consider the new entries which were not considered at all by the ITO and to add the amount of Rs. 2,30,000 to the total income of the assessee since these constituted new sources of income, which were not the subject- matter of assessment before the ITO and, therefore, it was not open in appeal to consider these sources and to assess them. On these facts, the Hon’ble Supreme Court held as under: “3. In Jute Corpn. of India Ltd.'s case (supra) this Court has referred to the earlier decision of this Court in CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225, which was also a decision of a three Judge Bench wherein the scope of section 31(3)(a) of the Indian Income-tax Act, 1922 [which was ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 14 almost identical to section 251(1)(a) of the 1961 Act] was considered and it was held: " If an appeal lies, section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under section 31(3)(a), in disposing of such an appeal, the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income-tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is coterminous with that of the Income-tax Officer. He can do what the Income- tax Officer can do and also direct him to do what he has failed to do'." (p. 693) After referring to these observations, this Court in Jute Corpn. of India Ltd. 's case (supra)has stated: "The above observations are squarely applicable in the interpretation of section 251(l)(a)of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminous with that of the Income-tax Officer, and if that is so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income-tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise, an appellate authority while hearing the appeal against the order of a subordinate authority, has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitation, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer." (p. 693) Taking note of the decision in Gurjargravures (P.) Ltd. 's case (supra) , the Court has said: "... Apparently, this view taken by the two Judge Bench of this Court appears to be in conflict with the view taken by the three Judge Bench of this Court in Kanpur Coal Syndicate case [1964] 53 ITR 225. It appears from the report of the decision in the Gujarat case that the three Judge Bench decision in Kanpur Coal Syndicate case [1964] 53 ITR 225 (SC) was not brought to the notice of the Bench in Gurjargravures (P.) Ltd. [1978] 111 ITR 1 (SC). In the circumstances, the view of the Larger Bench in Kanpur Coal Syndicate case [1964] 53 ITR 225 (SC) holds the field...." (p. 694) 4. Having regard to the decision in Jute Corpn. of India Ltd.'s case (supra), it must be held that the High Court was in error in ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 15 holding that the appellate power conferred on the AAC under section 251 was confined to the matter which had been considered by the ITO and the AAC exceeded his jurisdiction in making an addition of Rs. 2,30,000 on the basis of the other 10 items of hundis which had not been explained by the assessee. This means that even if question No. 2 is answered in the affirmative, question Nos. 1 and 3 must be answered in the negative. The appeal is, therefore, allowed, the impugned judgment of the High Court insofar as it relates to question Nos. 1 and 3, is set aside and the said questions are answered in the negative, i.e., in favour of the revenue and against the assessee.” 5. I could not find any more recent decision of the Hon’ble Supreme Court on this issue. As mentioned above, the entries under consideration were found by AAC on scrutiny of the cash book, which were not at all considered by the ITO and were neither mentioned in the return nor in the order of assessment, but the same was part of assessment record. On these facts, the Hon’ble Supreme Court has held that the High Court was in error in holding that the power of AAC u/s 251 were confined to the matter considered by the AO and even addition made on those entries, which were not found by the AO and thus not considered by him for assessment, was held within power of AAC to make addition u/s 251 of the Act. In the present case, the transactions were considered by the AO, these were part of the assessment records as well as the addition made by the AO, which was challenged by the appellant. Therefore, the CIT(A) was well within his jurisdiction in taking a view regarding the taxability of these transactions in holding the same as business income in place of income from capital gains. 6. Reliance is also made on a recent decision of Hon’ble Allahabad High Court in the case of S. D Traders vs. CIT [2019] 111 taxmann.com 93 (Allahabad). In that case, AO completed assessment and made three additions. In appeal, the CIT(A) deleted two additions but examined the labour register including bills, vouchers and ledger accounts as well as details of sundry creditors and enhanced the income of by Rs.26.50 lacs which included disallowances to the extent of 50% of wage expenses claimed by appellant in profit and loss account and 50% of sundry creditors appearing in balance sheet of the assessee. The Hon’ble Court took a view that the power of Commissioner (Appeals) cannot be restricted on the ground of new source of income, as Section 251 clearly envisages the power of the appellate authority for considering and deciding any material arising out of proceedings in which order appealed against was passed. In the present case, all the materials looked upon by the appellate authority was before the assessing authority, as such the Commissioner (Appeals) rightly proceeded to decide the same as it arose out of the proceedings of assessment and upheld the decision. Similar view was taken in the case of Kashi Nath Candiwala 144 Taxman 840 (Allahabad). ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 16 7. The appellant has also taken a ground that no opportunity was given by the CIT(A) for the enhancement of income by considering the income from capital gains shown by the appellant as business income. In this regard, the appellant has filed a copy of note sheet of the CIT(A). In this regard, it is submitted that the CIT(A) has mentioned in para 6.4.5 of the order that opportunity was given to the assessee to explain why the entire transaction of acquiring development rights in the property, development of commercial complex on the land and sale of matrix building and hotel building should not be treated as adventure in the nature of trade and the resulting income be not treated as business income. The reply submitted by the assessee was also considered and filed as Page No. 1-2 of the paper book filed on 11.1.2021, wherein at para 3, the assessee has also referred to this query. Therefore, before taking a view, on this matter, opportunity was given to the appellant to explain its case. 8. Further, in the literal sense, even there is no enhancement. On sale of the Matrix building, the AO has assessed at Long Term Capital Gain of Rs. (-) 4,10,30,399/- and Short Term capital gains of Rs. 9,89,70,961/-, while the CIT(A) assessed it at Business income of Rs. 1,79,78,415 only. Therefore, there is no enhancement but there is decrease in Income. Even the total income assessed by the AO is Rs. 25,04,27,874, while as per the CIT(A) Order, the total income of the appellant is Rs. 18,71,33,742. So there is net reduction in income as per the CIT(A) order compared to the assessment order both in respect to the impugned sale transaction as well as for the overall total Income and in literal sense, there is no enhancement of income and the issues raised by the assessee do not arise.” ITA No.403/PUN/2015 for A.Y.2010-11: 9. For the sake of convenience, we take the appeal in ITA No.403/PUN/2015 for the A.Y. 2010-11 as lead case. FINDINGS : 10. We have heard both the parties, perused the material available on record and have gone through the orders of the Lower Authorities carefully. 10.1 The First Ground of Appeal raised by the assessee is regarding not giving opportunity of hearing by the ld.CIT(A) before enhancement by ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 17 changing the head of Income, and thus, violated the provision of the Act, Section 251(2) and principle of natural justice. 10.2 There are two instances, where the Ld.CIT(A) has changed the head of the Income. In first case the Assessee offered the sale of land as Capital gain and AO also taxed it as Capital gain but the Ld.CIT(A) held it as Business Income. The question before CIT(A) was Valuation U/s 50C. Second Instance , the Assessee offered income of Rs,4,77,20,760/- as Rent received from Matrix as Income from House Property and AO also treated it as Income from House Property, but the Ld.CIT(A) held it as Business Income. 10.3 The ld.Authorised Representative(ld.AR) for the assessee explained that the Assessing Officer(AO) has assessed income as Capital Gain. However, the ld.CIT(A) treated the same income as ‘Income from Business’. The Assessee has shown Rental Income, the AO assessed it as Rental Income, but the CIT(A) held it as Income from Business.The ld.AR further submitted that the ld.CIT(A) failed to provide opportunity of being heard while changing the Head of Income. The Ld.AR submitted that before enhancement the CIT(A) should have issued show cause notice u/s 251(2) which is a mandatory condition.The ld.AR invited our attention to the copy of the order sheet entry maintained by the ld.CIT(A) to explain that from the order sheet one can understand that no show cause was issued by the CIT(A) before enhancement of income or no opportunity was provided. ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 18 10.4 Per contra, the ld.Departmental Representative(ld.DR) for the Revenue took us through the order of the ld.CIT(A), mainly para 6.4.5 at page 14. In the said para, the ld.CIT(A) has categorically mentioned that “In view of this, an opportunity was given in the present proceedings to the appellant to explain as to why the entire transaction of acquiring development rights in the subject property, development of commercial complex on the land and sale of Matrix building and Hotel building should not be treated as an adventure in the nature of trade and the income from the activity should not be assessed as business income.” 10.5. We specifically asked the ld.DR to show us the evidence that a specific question was asked to the appellant before treating the income as Adventure in the nature of trade other than what is mentioned by the CIT(A) in his order. The DR could not produce any document to substantiate the recital mentioned by the CIT(A) in his order that opportunity was provided. Once the assessee has made a statement that no opportunity was provided by the CIT(A) before treating the income as adventure in the nature of trade and the AR substantiated his argument by filling copy of the order sheet maintained by the CIT(A) which clearly shows that no show cause was issued or no query was raised by CIT(A), then the onus shifts to the Department to prove by documentary evidence.The department failed to prove that opportunity was granted to the assessee before the enhancement. In this case the Ld.DR submitted that there is no enhancement and CIT(A) has merely held the income as Income from Business instead of Capital gain. However, we do not agree with the submission of ld.DR . The ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 19 AO had assessed the impugned income as Long-Term capital gain and Short- Term capital Gain, whereas the CIT(A) held the impugned income as Income from business. The Tax rate for Business income is more than that for capital gain. While calculating Long term Capital gain (LTCG), the assessee can take advantage of indexation of cost of acquisition , which is not available under the head Business income. The AO had assessed the LTCG for land at loss. The CIT(A) had calculated the impugned business income as positive income. The Assessee gets fixed deduction under the head ‘Income From House Property’ without any evidence of repairs but once the Income is treated as business income the deductions is not automatic . Thus, there is definitely enhancement. Therefore, the CIT(A) was duty bound to follow procedure laid down in Section 251(2) of the Act. For the sake of convenience, the Section 251 is reproduced here under : 251. (1) In disposing of an appeal, the [* * *] [Commissioner (Appeals)] shall have the following powers— (a ) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment [* * *]; [( aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by, the Settlement Commission, in the course of the proceeding before it and such other material as may be brought on his record, confirm, reduce, enhance or annul the assessment;] (b ) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c ) in any other case, he may pass such orders in the appeal as he thinks fit. (2) The [Commissioner (Appeals)] shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. As per the section 251(2) of the Act, CIT(A) shall issue a show cause notice before enhancing income. There is no specific format prescribed by the ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 20 Act for the show cause u/s 251(2) of the Act. But, as per the Section 251(2) of the Act, the CIT(A) shall issue a formal written show cause to the assessee before enhancement, the show cause may be on the order sheet also but it should be a written show cause specifying his intention of enhancement clearly identifying the issue and reasons for the same. In this case there is no such show cause issued by the Ld.CIT(A) before enhancement. The Ld.DR has relied on the email of the assessee addressed to Ld.CIT(A) which refers to some requestmade by CIT(A), however, it is not a sufficient show cause for the purpose of Section 251(2) of the Act. Also, the CIT(A) had not raised any question before treating the Lease rent as business income. However, there is no direct evidence to prove that CIT(A) had asked relevant questions to the assessee. Therefore, we are of the opinion that the CIT(A) had failed to give a reasonable opportunity of showing cause against the enhancement. 10.6. The ITAT Pune Bench in the case of NareshSunderalal Chug vs ITO 171 ITD 116 has held as under : Quote “We have heard the rival contentions and perused the record. In the facts of the present case, the assessee had declared income under the head Long Term Capital Gain and claimed deduction under section 54F of the Act. The assessee had purchased development rights of plot of land. Since the same could not be developed by the assessee, the said rights were transferred by way of deed which was executed by land owner in the name of buyer, with the assessee as consenting party. The assessee had declared gain arising on the said transfer as Long Term Capital Gain. Further, the assessee had made investment in new asset and had claimed deduction under section 54F of the Act. The Assessing Officer accepted the computation of Long Term Capital Gain in the hands of assessee; however, denied the deduction claimed under section 54F of the Act on the ground that the new asset was not purchased through registered documents and even till date of assessment order, the sale deed was not executed and balance consideration was still payable. The assessee filed appeal against the said order of Assessing Officer and made claim for allowing deduction under section 54F of the Act. In this regard, additional evidences of payment of balance consideration and sale deed being registered in the year 2013 was filed. The aforesaid additional evidence was confronted to Assessing Officer and he was asked to submit remand report. In the said report, the Assessing Officer was of the view that the development rights which have been sold by assessee does not imply that the assessee was the owner of the ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 21 said land. The Assessing Officer was of the opinion/ view that gain arising from transaction had to be assessed as income from other sources and such proposition was made in the remand report. The Assessing Officer also held that the assessee, in such circumstances, was not entitled to claim deduction under section 54F of the Act. The CIT (A) gave a copy of remand report to the assessee and asked for his comments. The assessee commented on non-allowance of claim of deduction under section 54F of the Act and in respect of other points raised by Assessing Officer, the assessee stated that "other point of the remand report were not relevant to the assessment order since all the documents were provided at the time of original assessment." 14. The CIT (A) after receiving the submission of assessee, remand report of Assessing Officer and comment of assessee, went on to decide the issue as to assessibility of gain arising on transfer of development rights. It may be pointed out herein itself, the said issue of assessibility of capital gain was completed before the Assessing Officer who accepted the stand of assessee that the said gain was to be assessed as income from capital gains. There was no dispute about the assessibility of gains as income from Long Term Capital Gain. The only dispute was that whether against such gains, the assessee could claim deduction under section 54F of the Act on account of investment in new asset. In this regard, action of the CIT (A) in holding that the said income on sale of development rights was to be treated as adventure in the nature of trade/ business income, was not correct as per provisions of the Act. The powers of CIT (A) are coterminous with the power of Assessing Officer. In other words, the CIT (A) has wide power while deciding the appeal. However, as per Clause (2) of Section 251 of the Act, it is provided that the CIT (A) shall not enhance an assessment or a penalty or reduce the amount of refund, unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. The Explanation talks about the power of CIT (A) in deciding the appeal and stresses that he may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the CIT (A) by the appellant. In view of the said provisions, the CIT (A) has power to decide any matter arising out of the proceedings but the said power has to be exercised after giving reasonable opportunity to the assessee to show cause against such enhancement or reduction. The CIT (A) was not only changing the head of income but was also enhancing the assessment, since income which is assessed in the hands of assessee as per direction of CIT (A) had worked out at Rs.49,41,225/- as against income assessed by the Assessing Officer under the head Long Term Capital Gain at Rs.48,75,610/-. The second aspect is rate of tax. In case income is assessed under the head Long Term Capital Gain, the rate of tax is lower than the rate applied when the income is being assessed as business income. In view thereof in not giving an opportunity or any show cause notice of enhancement as required under section 251(2) of the Act, the order of CIT (A) suffers from infirmity and the same cannot be sustained. 15. Another point to be noted here is that when income was assessed under the head Long Term Capital Gain, then rate of tax was lower than the rate applied when the income was being assessed as business income. Regarding second aspect, the Ld. DR for the Revenue submitted that where issue of different head of income had arisen, assessibility was done by the Assessing Officer, then notice had to be issued by Assessing Officer, when remand report was called for his comments. It may be pointed out herein in itself that after assessing income as Long Term Capital Gain, Assessing Officer proposed to assess income as income from other sources, as per his comment in the remand report, which was confronted to the assessee; but when the income was assessed as business income, no notice whatsoever, was given by CIT (A). Accordingly, we hold that the enhancement made by CIT (A) does not survive. Thus, we reverse the order of CIT (A). The income was assessed in the hands of assessee as income from Long Term Capital ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 22 Gain. The CIT (A) vide Para15 and 16 has decided the issue of entitlement of claim under section 54F of the Act and held the assessee to be eligible for said claim. The Revenue is not in appeal against the order of CIT (A). Accordingly, we direct the Assessing Officer to allow claim of assessee under section 54F of the Act. The grounds of appeal raised by assessee are thus, allowed. ” Unquote. 10.7. ITAT MumbaiH Bench in the case of M/S Smart Infocom vs ITO in ITA 2836/M/2015 AY 2010-2011 vide order dated 18/1/2017 has held as under : Quote “6. Regarding the addition on account of commission of Rs.53,166/-, it is the argument of the Ld. Counsel for the assessee that the CIT(A) enhanced assessment to that extent without giving a notice or an opportunity to the assessee. In this regard, Ld. AR brought our attention to the provisions of section 251(2) of the Act and submitted that sub-section (2) mandates the CIT(A) to not to enhance the assessment unless reasonable opportunity of showing cause against the enhancement, if any, in the assessment is granted. In our view, this issue is now settled and the additions of this kind are unsustainable in law in view of the judgements in the caes of (i) Bikram Sing vs. DCIT, ITAT Delhi, ITA No.3522/Del/2013; (ii) Apex Court judgement in the case of CIT vs. Shapoorji Pallonji Mistry, 44 ITR 891 (SC) and (iii) CIT vs. Rai Bahadur Hardutroy Motilal Chamania (66 ITR 443). Admittedly, the CIT(A) made this enhancement of assessment without granting opportunity to the assessee. Effect of this failure results in deletion of the enhancement. Accordingly, this part of the ground is allowed in favour of the assessee. ”Unquote . Their Lordship in the case of S. L. Kapoor vs Jagmohan &Ors on 18 September, 1980 1981 AIR 136 has observed as under : Quote , “ In our view, the requirements of natural justice are met only if opportunity to represent is given in view of proposed action. The demands of natural justice are not met even if the very person proceeded against has furnished the information on which the action is based, if it is furnished in a casual way or for some other purpose. We do not suggest that the opportunity need be a 'double opportunity' that is, one opportunity on the factual allegations and another on the proposed penalty. Both may be rolled into one. But the person proceeded against must know that he is being required to meet the allegations which might lead to a certain action being taken against him...” Unquote. 10.8. Thus, as observed by Lordship, the person must be made aware about the allegations so that he gets proper opportunity to rebut it. In this case the Department has not brought on record any document to prove that the Ld.CIT(A) had issued to the assessee to explain the assessee the intention of CIT(A) to treat the income as Business Income, which was assessed by the ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 23 AO as Capital Gain and Income from House property. It is mandatory for the Ld.CIT(A) to show cause the assessee before making any enhancement. In this case we have already held that changing the head of income from Capital Gain to Business Income and changing income from house property to business income, is enhancement in the facts and circumstances of this case and it is also a fact that no opportunity wasgiven to the assessee before such enhancement. This failure to issue show cause goes to the root of the issue of powers of CIT(A) of enhancement. Therefore, for the reasons discussed ,respectfully following the ITAT Pune and ITAT Mumbai(supra)’s decision , it is held that the treatment by LD.CIT(A) of Capital Gain as Business Income is bad in law and not sustainable .Similarly, the treatment of lease rent as business income is bad in law and not sustainable. Accordingly, the ground number 1,5,6,7 of the Assessee are allowed. 11. Ground Number 2 : This ground becomes academic in nature as we have held the ground number 1 in favor of the assessee. Hence, the ground number 2 is dismissed as not adjudicated. 12. Ground Number 3 : We have already held that changing the head of income from Capital gain to business income by Ld.CIT(A) is bad in law. Hence, the question of treatment of Asset as Stock in Trade does not arise. Hence, the ground number 3 becomes academic in nature. Hence the ground number 3 is dismissed as unadjudicated. 13. Ground Number 4 : It is regarding addition of Rs.3,89,26,200/- on account of difference in revenue recognition from the Hotel Building. ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 24 The Assessee referred as Developer had entered into an registered agreement dated 13 Feb 2008 (page 222 to 311 of Paper book)with ApeejaySurrendra Park Hotel Ltd (purchaser) for construction of a hotel building and Sale , on the land taken by the assessee for development .The purchaser agreed to pay total purchase price of Rs.146,62,50,000/- to the developer means to the Assessee, at the per square feet rate mentioned in the Agreement for the proposed area mentioned in the agreement. As per the agreement, the area may change based on the approved final plan and accordingly consideration would change.The assessee in the return of income offered income from this activity based on percentage completion method. The Assessee decided that 39.89% work was completed hence offered 39.89% of Contract Value as revenue , however, in the computation , the assessee reduced the Contract Value from 146,62,50,000/- to 136,62,50,000/- i.e by Rs.10 crores . The AO asked the assessee for the reason. Assessee submitted that due to delay in the project the scope of work had been reduced by the Purchaser . The Assessee submitted copies of some Emails written by the purchaser to the assessee . The AO rejected the assessee’s submission and calculated the revenue on the Cost of Contract as mentioned in the registered Agreement. The CIT(A) upheld it. 13.1. DR’s written submission : 6. In fact, the claim of the appellant is against the basic concept of the Percentage Completion Method (PCM) itself, which is claimed to be followed by it. As per PCM, at the close of the year, estimates of the total revenue of project and total cost are made; the sales, expenses and the profit for the year are recognized accordingly and then, in the subsequent yar, again this process of such estimation is repeated, considering the change in facts during that year, if any, and so on, until the project is complete. In the present case, at the end of the year present year on 31.3.2010, there is not even a whisper of any such proposed reduction in estimates and therefore, the estimate of TCV can not be reduced in the year under ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 25 consideration and the change, if any, is to be considered in the subsequent year. Therefore, the action of the appellant in making such reduction is against the method claimed to be followed by it and also not as per accounting standards, as discussed above. 7. Further, even for the sake of argument, though not correct, the subsequent negotiation made later on after the close of the year i.e. after 31.3.2010, are to be accounted, there should be disclosure of this fact. However, as discussed above, nothing is mentioned anywhere in the financial statements, notes to account, Tax audit report or in the Director’s report about such change in TCV or the reduction made by the appellant. These facts show that the intention of the appellant was to hide the fact of this reduction made by him, as it was without any basis and was made only to reduce the Sales to be recognized and the profit thereon. 8. Further, as discussed above, even in the documents filed, which pertain to period after 31.3.2010, nowhere any proposal or estimate for reduction of Rs.10 Crore was mentioned. In the internal mail dated 07.4.2010, proposed reduction of only Rs.3.75 Crore was mentioned and in the later documents also (the estimation of reduction was not final even upto December 2010), the reduction was only Rs.3.75 Crore (The reduction of 4.75 Crore is for reduction in scope of work reducing the cost also). Therefore, the action of the appellant in reducing the TCV by Rs.10 Crore was absolutely without any basis. 13.2. AR’s written submission : 7. At the outset, it is submitted that the aforesaid addition made by the Ld. AO is legally not tenable. The Appellant submits that the revision of the Total ECV was not allowed by the Ld. AO during the year under appeal on the ground that the change in the accounting estimates were based on the documentary evidences like letters, emails, etc. which were exchanged in the subsequent period and therefore the same cannot be taken into account for the year under consideration. However, on the identical facts, the revision in the estimated contract value was allowed during A.Y. 2011-12 at Rs.8,00,00,000/-. Even the said revision in the estimate was based on the documentary evidences which were dated 20.09.2011, i.e. subsequent to the end of the financial year relevant to A.Y. 2011-12. This is evident from the assessment order dated 10.03.2014 for A.Y. 2011-12 passed u/s 143(3) of the Act. [Page 351-360 of PB No.1]. Under these circumstances, it was not justified on part of the Ld. AO to deny the revision of the estimated contract value during the year under appeal and take a self-contradicting stand. 8. Further, admittedly, the Appellant is liable to tax on the income earned out of the project which is carried on over a period of years. The profit from the said project is therefore required to be offered on periodical basis by applying percentage of completion method. It is submitted that the addition made by the Ld. AO during the year under consideration is therefore revenue neutral inasmuch as and excess profit determined for the year under consideration will result into reduction of the profit in the subsequent year, i.e. A.Y. 2011-12. Since the tax rate for both the years are identical in case of the Appellant company, the said issue was undisputedly be revenue neutral. The courts have consistently held that any issue which is revenue neutral should not be disputed by the Department more so when it does not have any overall tax impact. In this regard, reliance is placed on the following decisions : a. CIT v. Industries Ltd. [358 ITR 295] )Para 32). b. CIT v. Millenium Estates (P.) Ltd. [93 Taxmann.com 41 (Bom.)] (Para 10). ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 26 14. Findings : The Registered Agreement dated 13/2/2008 was not having any clause of reduction in Cost except on verification of actual area based on the approved plan. However, on 10/1/2014, the Assessee entered into registered Conveyance Deed ( page 312-336 of PB) in which clause C, D speaks about reduction in the cost because the Assessee could not complete the construction within the time, therefore, the purchaser decided to complete the remaining construction of its own and accordingly they reduced the value to 80,64,87,500/- after negotiation. It is important to mention here that the assessee for the same reason also reduced the cost for AY 2011-12 and the department has accepted it. It is the same project , the revenue of which was offered on project completion method for AY 2010-11 and 2011-12. It is fact as demonstrated by the assessee by the Registered Conveyance deed that the Total Cost was reduced by the purchaser as Purchaser decided to complete remaining construction on his own cost. Therefore, there was reduction in the cost . It also means the expenditure to that extent will be reduced for the assessee as the assessee do not have to complete the construction. Therefore, the % of completion will accordingly change. Therefore, we direct the AO to recalculate the Revenue from this activity by taking into consideration the reduced Cost taking into consideration the registered conveyance deed. Thus, the matter is remitted back to the file of the AO for recalculation.Accordingly, Assessee’s ground number 4 is allowed for statistical purpose. 15. Ground Number 8 and 9: These grounds not pressed by the Assessee’s Authorised representative. Hence, dismissed as not pressed. ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 27 16. Ground Number 10 and 11 are general and no adjudication is required. Hence dismissed. 17. Thus, the assessee’s Appeal in ITA No.403/Pune /2015 is partly allowed. ITA No 1738/Pune /2016 : 18. The assessee raised the following grounds of appeal in ITA No.1738/PUN/2016 :- “1. On the facts and in the Circumstances of the case and in law the Learned CIT(A) was erred in confirming the Order passed by the Assessing Officer vide order dated 10 th March, 2014. 2. On the facts and in the Circumstances of the case and in law the Learned CIT(A) was erred in confirming the Addition made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 amounting to Rs.25,65,002/-. 3. The Appellant craves leave to add, alter, amend and/or withdraw any of the grounds of appeal at any time as when the occasion demands. 4. All the aforesaid grounds of appeal are independent in the alternative and without prejudice to one another. Additional Grounds of appeal: 1. The Ld. Commissioner of Income-tax (Appeals) has erred in law and in facts in treating the income from sale of immovable property as business income as against the income from capital gains offered by the appellant and also duly assessed by the Assessing Officer as such. 2. The Ld. Commissioner of Income-tax (Appeals) ought to have appreciated that the Assessing Officer was unjustified in invoking s. 50C of the Act while determining the income from capital gains thereby making addition of Rs.17,75,749/-.” 19. Now we take up Assessee’s Appeal in ITA No 1738/Pune /2016 AY 2011-12. The CIT(A) has merely followed the order for AY 2010-11. ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 28 20. First issue is treatment of Capital Gain as Business Income by CIT(A). It is a fact that vide agreement dated 31/10/2006 the assessee Angelica Properties Pvt Ltd acquired the development right for the impugned land 23778.5 Sq.meters bearing Survey number CTS 4/1, Final Plot No.64/A Sangamwadi, at Shivaji Nagar Pune for Rs.100 crores. Angelica Properties Pvt Ltd started developing and constructing two independent buildings. These buildings were called as “Matrix IT Building” and “Hotel Tower”. On 31/12/2009 ,the assessee entered into an registered agreement with Leon Realtors Pvt Ltd. for sale of “Matrix IT Building” for total consideration of Rs.104,90,00,000/-. The assessee offered the said amount for Capital Gain Tax in two years for AY 2010-11 and AY 2011-12. The AO also taxed it as Capital Gain . The AO calculated the Capital gain based on the Stamp Duty value as per Section 50C as the valuation report from Departmental Valuer was not received in time.The CIT(A) held the transaction as adventure in the nature of trade and directed AO to treat it as business income. Aggrieved by the same the assessee filed appeal before this tribunal. 21. The CIT(A) had treated the transaction as business activity because the Assessee was a developer and according to CIT(A) , the assessee always hand intention to develop the said property and earn profit. However, on careful consideration of facts, it is observed that the assessee had shown this land as an Fixed Asset in the Balance sheet for earlier years. There was scrutiny Assessment in earlier years and AO has not made any addition on this aspect means the AO had accepted that the land is Fixed Asset. The AO had not rejected the books of the earlier years, which were audited books, demonstrate ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 29 that the AO had accepted the books. The Land was shown at the value at which it was purchased. The stock in trade is always shown at the cost or market price whichever is lower. The assessee had entered into Lease & License Agreement withOriflame India Pvt Ltd on 9/1/2009 and Emerson Electric Company India Pvt Ltd on 24/5/2007 to lease the part of the proposed ‘Matrix IT Building’ being developed by the assessee. The Assessee had also shown in the return of income for AY 2009-10 the Rental Income from the impugned property. All these facts demonstrate that Assessee always had intention to keep the impugned asset as investment. The clinching evidence of earning rental income in AY 2009-10 from the impugned Asset, demonstrates the same. The impugned asset was hold for almost around four years. 22. Hon’ble Bombay High Court in the case of Pr.CIT vs Jogani and Dialani Land Developers and Builders ,[2020] 117 taxmannn.com 139 (Bom.) in which Hon’ble Bombay High Court has observed as under : Quote, “We find that, both the CIT(A) as well as the Tribunal have come to a concurrent finding of fact on examination of the record, that 2.10 lakh sq. mtrs of land has been held by the Respondent as investment. This, it found is evident from the books of account, balance sheet of the Appellant and the treatment given to it in its accounts. This finding of fact was further confirmed by the visit of the Inspector who was deputed by the Assessing Officer to verify the correctness of the Respondent's claim that the 2.10 lakh sq. mtr of land was being held as an investment as no construction activity was carried out on the same. The submission made on behalf of the Appellant completely ignores the fact that, it is always open to an assessee to hold the same class of assets as investment and also as stock-in- trade. There is no bar in law for a person dealing in land to also have investment in land. Thus, there is no substance in the above submission.”unquote. 23. Therefore, the proposition of law laid down by the Hon’ble High Court is that there is no bar in law for a person dealing in land to also have investment in land. In the case under consideration analysis of facts leads to only one inference that the assessee had kept the impugned asset as ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 30 investment.Therefore, respectfully following the Hon’ble Jurisdictional High Court, we are of the opinion that the impugned Sale is to be Taxed as Capital gain and not as Adventure in the nature of trade. Therefore, we uphold the order of the AO. 24. The AO had referred the issue to the departmental valuer for valuation . The Departmental Valuer submitted the report after completion of the assessment , the DVO valued it at Rs. 110,02,22,000/-, as mentioned in the order of CIT(A).Therefore, the AO is directed to calculate the Capital gain taking into consideration the valuation done by the DVO. Accordingly, the additional ground number 1 of the Assessee for AY 2011-12 is allowed. 24.1. As regards to the revenue recognition under percentage completion method for the hotel building, our findings in ITA No.403/PUN/2015 shall apply mutatis mutandis to this appeal. Accordingly, this ground is allowed for statistical purposes. 24.2. Ground Number 2 is regarding addition made u/s 14A rwrule 8D. The assessee had shown exempt income of Rs. 1,47,78,594/- . The AO recorded his satisfaction in the assessment order. The AO asked assessee to substantiate that no expenditure was incurred for earning the exempt income. There were interest expenses debited in the P&L a/c. The AO observed that the assessee has not maintained separate books for investments. The AO therefore, applied Rule 8D to arrive at the disallowance. It is fact that the assessee has not maintained any separate books. The assessee failed to establish that it has not incurred any expenditure for earning the exempt income. Therefore, we are of the opinion that the AO has rightly applied rule 8D to calculate the ITA No.403/PUN/2015 ITA No.1738/PUN/2016 Vascon Engineers Ltd., (Formerly Angelica Properties Pvt. Ltd.,) 31 disallowance. Hence the same is upheld. Therefore, the ground number 2 of the assessee is dismissed. 25. Accordingly, appeal in ITA No.1738/PUN/2016 is partly allowed. 26. To sum up, both the appeals of the assessee are partly allowed. Order pronounced in the open Court on 22 nd September, 2022. Sd/- Sd/- (S.S.VISWANETHRA RAVI) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 22 nd September, 2022/ SGR*/Sujeet आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-1, Nashik. 4. The Pr. CITconcerned. 5. िवभागीयᮧितिनिध,आयकरअपीलीयअिधकरण, “ए” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकरअपीलीयअिधकरण, पुणे/ITAT,Pune.