Embassy Brindavan Developers, Bangalore V. CIT, Bangalore

ITA 42/BANG/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5497 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 14-01-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G R REDDY CIT DRI
• Assessee Lawyers: G S SITARAMAN
• Keywords: Capital asset; Business income; Business expenditure; Opportunity of being heard; Date of conversion
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NOS.596 (BANG)/2013 & 42(BANG) 2015 (ASSESSMENT YEARS : 2008-09) M/S EMBASSY BRINDAVAN DEVELOPERS, 1 ST FLOOR, EMBASSY POINT, NO.105, INFANTRY ROAD, BANGALORE-560 001 AABFE7944G APPELLANT VS THE COMMISSIONER OF INCOME TAX, BANGALORE-IV, BANGALORE RESPONDENT ASSESSEE BY : SHRI G. S. SITARAMAN, CA REVENUE BY : SHRI G.R.REDDY, CIT DR-I DATE OF HEARING : 17-04-2017 DATE OF PRONOUNCEMENT : 21-04-2017 O R D E R PER SHRI A.K.GARODIA, AM OUT OF THIS BUNCH OF TWO APPEALS, WHICH ARE FILED BY THE ASSESEE FOR THE SAME ASSESSMENT YEAR, IT IS SEEN THAT ONE A PPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT, BANGALORE- IV, BANGALORE DATED 05-03-2013 PASSED BY HIM U/S 263 OF THE IT ACT, 196 1 AND THE REMAINING APPEAL IS DIRECTED AGAINST THE ORDER OF T HE LD. CIT(A)-V, BANGALORE DATED 12-09-2014 AND THIS APPEAL IS ARISI NG OUT OF THE ITA NOS.596(B)/13 & 42(B)2015 2 ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) R.W.S. 263 OF THE IT ACT, 1961. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . 2. FIRST WE TAKE UP APPEAL OF THE ASSESSEE ARISING IN COURSE OF PROCEEDINGS U/S 263 OF THE IT ACT I.E. IN ITA NO.59 69B)/2013. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE A S UNDER; 1. THE CIT, BANGALORE-IV ERRED IN BOTH IN LAW AN D ON THE FACTS OF THE CASE IN SETTING ASIDE THE ASSES SMENT. 2. HE ERRED IN HOLDINGS THAT THE PURCHASE AND SALE OF LAND SHOULD BE TREATED AS AN ADVENTURE IN THE NATUR E OF TRADE AND NOT AS CAPITAL GAINS. 3. HE FAILED TO APPRECIATE THAT AO HAS ASSESSED IT AS CAPITAL GAINS, AFTER CONSIDERING ALL THE MATERIAL F URNISHED BY THE APPELLANT DURING THE ASSESSMENT AND THAT, THEREFORE, PROVISION OF SEC.263 WOULD NOT APPLY. 4. THE APPELLANT THEREFORE, PRAYS THAT THE ORDER PASSED U/S 263 MAY BE ANNULLED AND THAT THE ASSESSMENT ORDER MAY BE RESTORED. 3. IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT ON PAGE-10 OF THE PAPER BOOK IS THE COPY OF NOTICE DATED 09-08 -2010ISSUED BY THE AO IN COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND AS PER POINT NO.8 & 9 OF THIS NOTICE, A QUERY WAS RAISED REGARDING TH E DETAILS OF LTCG ALONG WITH COPY OF PURCHASE & SALE DEEDS AND THE AS SESSEE WAS ALSO ASKED THE PROVIDE PROOF OF EXPENSES INCURRED ON TRA NSFER OF ASSETS FOR EARNING CAPITAL GAINS. AT THIS JUNCTURE, THE BENCH WANTED TO KNOW AS ITA NOS.596(B)/13 & 42(B)2015 3 TO WHETHER ANY QUERY WAS RAISED BY THE AO ON THIS A SPECT OF THE MATTER AS TO WHETHER THIS INCOME IS ASSESSABLE UNDER THE H EAD INCOME FROM CAPITAL GAINS OR INCOME FROM BUSINESS. IN REPLY, IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT NO SUCH SPECIFIC QUERY WAS RAISED BY THE AO BUT HE EXAMINED THE CLAIM OF THE ASSESSEE REGARDING THE LTCG DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME AND THEREFO RE, A VIEW HAS BEEN FORMED BY THE AO WHICH IS A POSSIBLE VIEW AND THERE FORE, THE LD. CIT CANNOT REPLACE HIS OWN VIEW IN PLACE OF THE VIEW OF THE AO BY EXERCISING HIS POWERS U/S 263 OF THE IT ACT, 1961. IN SUPPORT OF THIS CONTENTION, HE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOU NCEMENTS; 1) CIT VS KELVINATOR INDIA LTD. 256 ITR 1 (DEL.) 2) MALABAR INDUSTRIAL CO. LTD. VS CIT 243 ITR 83 (S C) 4. AS AGAINST THIS, THE LD. DR OF THE REVENUE SUPP ORTED THE ORDER OF THE LD. CIT. HE ALSO SUBMITTED THAT IT IS NOTED BY THE CIT IN PARA-8 OF HIS ORDER THAT THE PROPERTY IN QUESTION WAS CLAIMED AS STOCK IN TRADE IN PREVIOUS YEARS AND A FINDING HAS BEEN GIVEN BY THE CIT THAT AS PER THE PROVISIONS OF THE ACT, STOCK IN TRADE CANNOT BE CON SIDERED AS A CAPITAL ASSET AND THEREFORE, A PROFIT ON SALE OF LAND IN QU ESTION CANNOT BE ASSESSED AS CAPITAL GAIN. HE HAS ALSO DRAWN OUR AT TENTION TO PARA-11 OF THE ORDER OF THE LD. CIT AND POINTED OUT THAT IN TH IS PARA, IT IS NOTED BY THE LD. CIT THAT THE ASSESSMENT ORDER DOES NOT SPEA K ABOUT THE EXACT NATURE OF THE EXPENSES TO THE TUNE OF RS.13,01,77,3 00/- CLAIMED OUT OF THE CAPITAL GAINS OFFERED TO TAX WHICH IS MARKED AS ANNEXURE-3 IN THE ITA NOS.596(B)/13 & 42(B)2015 4 ASSESSMENT ORDER. THE BENCH WANTED TO SEE ANNEUXRE -3 AND IN REPLY, LD. AR OF THE ASSESSEE SUBMITTED A COPY OF THE SAME AS PER WHICH IT IS SEEN THAT THESE EXPENSES INCLUDE RS.1099.98 LAKHS B EING COMPENSATION PAID TO SANJAY GODHAWATH, RS.127.85 LACS BEING INTE REST PAID TO BRINDAVAN BEVERAGES PVT. LTD., RS. 90,000/- BEING P ROFESSIONAL CHARGES TO ANUP SHAH, RS.11.24 LACS BEING PROFESSIONAL CHAR GES TO AHIR CONSULTANCY, RS.33.71 LACS BEING BROKERAGE TO DAULA T CHHABRIA AND RS.28.09 LACS BEING BROKERAGE TO SADHAWANI INTERNA TIONAL. 5. HE ALSO PLACED RELIANCE ON THE FOLLOWING JUDICI AL PRONOUNCEMENTS:- A) RAMPYARI DEVI SARAOGI VS CIT 67 ITR 84(SC) B) CIT VS INFOSYS TECHNOLOGIES LTD. 341 ITR 293(KAR .) C) SWARUP VEGETABLE PRODUCTS VS CIT 187 ITR 412(ALL D.) D) MALABAR INDUSTRIAL CO. LTD. VS CIT 243 ITR 83 ( SC) 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THERE IS NO DISPUTE ON THIS ASPECT THAT THE PROPERTY IN Q UESTION WAS ALWAYS SHOWN BY THE ASSESSEE IN THE PREVIOUS YEARS AS STOC K-IN TRADE AND THIS IS NOT THE CASE OF THE ASSESSEE THAT AT ANY POINT O F TIME BEFORE THE SALE OF SUCH STOCK IN TRADE, IT WAS CONVERTED INTO CAPIT AL ASSET BECAUSE IF THAT IS THE CASE THEN IT HAS TO BE SHOWN THEN ON TH E DATE OF SUCH CONVERSION, PROFIT EARNED BY THE ASSESSEE TILL THE DATE OF CONVERSION BEING THE MARKET VALUE OF PROPERTY ON THAT DATE AND COST OF PROPERTY HAS TO BE ASSESSED AS BUSINESS INCOME AND ONLY FURT HER ACCRETION IN ITA NOS.596(B)/13 & 42(B)2015 5 VALUE OF PROPERTY AFTER SUCH CONVERSION CAN BE TAKE N AS CAPITAL GAIN. IN THE PRESENT CASE, THERE IS NO SUCH CLAIM OF THE ASS ESSEE REGARDING CONVERSION OF STOCK IN-TRADE IN TO CAPITAL ASSET. THE CLAIM OF THE ASSESSEE IS THIS THAT THE PROPERTY IN QUESTION WAS NO DOUBT SHOWN AS STOCK-IN TRADE IN ALL THE PREVIOUS YEARS BUT BECAUS E NO EXPENSES WERE INCURRED AND NO STEP WAS TAKEN TO COMMENCE THE BUSI NESS OF DEALING IN REAL ESTATE, THE BUSINESS HAS NOT BEEN COMMENCED AN D THEREFORE, THE STOCK-IN TRADE HAS TO BE CONSTRUED AS CAPITAL ASSET FROM DAY ONE. WE FIND NO MERIT IN THIS CLAIM OF THE ASSESSEE BECAUSE AS PER THE P&L ACCOUNT FOR THE YEAR ENDING 31-03-2007 AVAILABLE ON PAGE-20 OF THE PAPER BOOK, THE ASSESSEE HAS INCURRED AN EXPENDITUR E OF RS.267,540/- ON ACCOUNT OF PROFESSIONAL AND CONSULTANCY CHARGES AND THE SAME WAS SHOWN AS NET LOSS FOR THAT YEAR. AS PER THE DETAIL S OF EXPENSES OF RS.13,01,77,300/- IN ANNEXURE-3 BROUGHT ON RECORD AND WHICH IS REFERRED TO BY THE LD. CIT IN PARA-11 OF HIS ORDER, IT IS SEEN THAT THIS INCLUDES PROFESSIONAL CHARGES OF RS.12,13,600/- OUT OF WHICH A PART OF RS.2,67,540/- WAS INCURRED DURING THE FY 2006-07 WH ICH WAS CLAIMED AS BUSINESS EXPENSES IN THAT YEAR. AS PER SCHEDULE ANNEXED TO BALANCE SHEET AS ON 31-03-2005 AVAILABLE ON PAGE-29 OF THE PAPER BOOK, THE VALUE OF LAND UNDER THE HEADING INVENTORIES IS SH OWN AT RS.2,64,30,250/- AND AS PER SCHEDULE-3 ANNEXED TO B ALANCE SHEET AS ON 31-03-2006 AVAILABLE ON PAGE-25 OF THE PAPER BOO K, THE VALUE OF LAND UNDER HEADING INVENTORIES IS SHOWN AT RS.2,6 9,63,010/- WHICH MEANS THAT THERE IS ADDITION OF RS.5,32,760/- IN T HE VALUE OF LAND ITA NOS.596(B)/13 & 42(B)2015 6 DURING FINANCIAL YEAR ENDING ON 31-03-2006. HENCE, IT IS SEEN THAT THIS CONTENTION IS NOT FACTUALLY CORRECT THAT NO EXPENSE S WAS INCURRED BY THE ASSESSEE IN RESPECT OF LAND ACQUIRED DURING THE FIN ANCIAL YEAR 2004-05. THIS CONTENTION BEING FACTUALLY INCORRECT, NO DISCU SSION IS CALLED FOR IN RESPECT OF VARIOUS JUDGMENTS CITED BY LD.AR OF THE ASSESSEE IN SUPPORT OF THIS CONTENTION THAT WHEN NO EXPENSE WERE INCURR ED IN RESPECT OF LAND, IT CANNOT BE CONSIDERED AS STOCK-IN TRADE AND IT SHOULD BE ACCEPTED AS CAPITAL ASSET. 7. NOW, WE EXAMINE THE APPLICABILITY OF THE JUDGME NT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF MALABAR INDUSTRIAL CO. LTD( SUPRA) ON WHICH RELIANCE HAS BEEN PLACED BY BOTH S IDES. IN PARA-10 OF THIS JUDGMENT, IT IS NOTED BY THE HONBLE APEX COUR T THAT THE AO HAD ACCEPTED THE ENTRY IN THE STATEMENT OF ACCOUNT FILE D BY THE ASSESSEE IN THE ABSENCE OF ANY SUPPORTING MATERIAL AND WITHOUT MAKING ANY ENQUIRY AND UNDER THESE FACTS, IT WAS HELD THAT THE ASSESSMENT ORDER PASSED BY THE AO WAS ERRONEOUS. IN THE PRESENT CA SE ALSO, NO ENQUIRY WAS MADE BY THE AO ON THIS ASPECT THAT WHETHER THE INCOME IN QUESTION IS ASSESSABLE UNDER THE HEAD BUSINESS INCOME OR UNDER THE HEAD CAPITAL GAINS AND THEREFORE, IN OUR CONSIDERED OPINION, THIS JUDGMENT OF THE HONBLE APEX COURT IS SQUARELY APPL ICABLE AND BY RESPECTFULLY FOLLOWING THIS JUDGMENT OF THE HONBLE APEX COURT, WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER PASSED BY T HE CIT U/S 263 OF THE IT ACT, 1961. ITA NOS.596(B)/13 & 42(B)2015 7 8. IN THE RESULT, APPEAL OF THE ASSESSEE IN THE P ROCEEDINGS U/S 263 OF THE IT ACT IS DISMISSED. 9. NOW, WE TAKE UP THE SECOND APPEAL OF THE ASSESS EE FOR THE SAME YEAR IN THE PROCEEDINGS U/S 143(3) R.W.S. 263 OF THE IT ACT, 1961. IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THA T AS PER THE IMPUGNED ORDER PASSED BY THE LD. CT(A), IT IS HELD BY HIM THAT AS PER ORDER PASSED BY THE LD., CIT U/S 263 OF THE IT ACT, A CATEGORICAL FINDING HAS BEEN GIVEN THAT THE RECEIPTS CANNOT BE ASSESSED AS CAPITAL GAINS IN THE FACTS OF THE PRESENT CASE AND IT HAS TO BE ASSE SSED AS PROFITS AND GAINS FROM BUSINESS AND PROFESSION AND THEREFORE, I N VIEW OF CONCLUSIVE FINDING OF CIT IN THE ORDER PASSED BY HIM U/S 263 OF THE ACT, THIS APPEAL OF THE ASSESSEE IS NOT ADMISSIBLE AND NOT MA INTAINABLE. THEREAFTER, HE SUBMITTED THAT IN THE ORDER PASSED B Y LD. CIT U/S 263 OF THE ACT, HE HAS NOT DECIDED THE ISSUE REGARDING TAX ABILITY OF THIS INCOME UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION . HE HAS SET ASIDE THE ASSESSMENT TO THE AO FOR RE-DOING THE SAM E AND THEREFORE, THE ISSUE ON MERIT HAS TO BE DECIDED BY THE LD. CIT(A) AND SINCE THIS HAS NOT BEEN DONE BY THE LD. CIT(A), THE MATTER HAS TO BE RESTORED BACK TO HIS FILE FOR DECISION ON MERIT. 10. THE LD. DR OF THE REVENUE SUPPORTED THE ORDER OF THE LD. CIT(A). 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE LD. CIT(A) HAS FOLLOWED THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT ITA NOS.596(B)/13 & 42(B)2015 8 RENDERED THE CASE OF CIT VS GEO INDUSTRIES & INSECT ICIDES (I)PVT. LTD 234 ITR 541 AND THE RELEVANT PORTION OF THIS JUDGME NT HAS BEEN RE- PRODUCED BY THE LD. CIT(A) IN HIS ORDER. AS PER T HE SAME, IN THAT CASE, THE COMMISSIONER IN HIS ORDER PASSED U/S 263 OF THE ACT HAS SET ASIDE THE ASSESSMENT ORDER FOR TWO YEARS I.E. 1974-75 & 1 975-76 AND DIRECTED THE ITO TO MAKE A FRESH ASSESSMENT IN ACCO RDANCE WITH THE LAW SO AS TO EXCLUDE THE LOSSES OF THE CASHEW DEPARTMEN T AND HESSAIN DEPARTMENT, IF ANY, AFTER GIVING ADEQUATE OPPORTUNI TY TO THE ASSESSEE. HENCE, IT IS SEEN THAT AS PER THE FACTS OF THAT CAS E, THERE WAS SPECIFIC DIRECTION TO ITO BY THE LD. CIT TO THE EFFECT THAT THE AO HAS TO EXCLUDE LOSSES OF CASHEW DEPARTMENT AND HESSAIN DEPARTMENT, IF ANY, AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE. HENC E, IT IS SEEN THAT IN THAT CASE, THE DIRECTION TO THE AO WAS SPECIFIC FOR EXCLUSION OF LOSSES FOR TWO DEPARTMENTS AND ONLY FOR THE PURPOSE OF VERIFYI NG THE ACTUAL AMOUNT OF LOSSES OF THESE TWO DIVISIONS, THE AO WAS REQUIRED TO QUANTIFY AFTER GIVING OPPORTUNITY TO THE ASSESSEE. IN THE PRESENT CASE, THERE IS NO SUCH SPECIFIC DIRECTION BY THE LD. CIT TO THE AO AND THE DIRECTION OF THE CIT IN THE PRESENT CASE IS AS UNDE R; I HEREBY CANCEL THE ASSESSMENT ORDER AND SET ASIDE THE ASSESSMENT THUS MADE FOR RE-DOING THE SAME. 12. IN ADDITION TO THIS DIRECTION, THE LD. CIT HAS GIVEN SOME OTHER DIRECTIONS ALSO THAT THE AO SHOULD VERIFY THE VERAC ITY OF COMPENSATION ITA NOS.596(B)/13 & 42(B)2015 9 CLAIMED TO HAVE BEEN PAID TO SHRI SANJAY GODHATH. H ENCE, THE FACTS BEING DIFFERENT, THIS JUDGMENT OF THE HONBLE MADRA S HIGH COURT FOLLOWED BY THE LD.CIT (A) IS NOT APPLICABLE IN THE PRESENT CASE IN OUR HUMBLE OPINION. WE THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER BACK TO HIS FILE FOR A DECISION ON MERIT AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.596(B)/2013 IS DISMISSED AND THE SECOND APPEAL O F THE ASSESSEE IN ITA NO.42(B0/2015 IS ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. (VIJAY PAL RAO) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE: D A T E D : .04.2017 AM * COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR, ITAT, BANGALORE ITA NOS.596(B)/13 & 42(B)2015 10 1. DATE OF DICTATION 2. , , DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICT ATING MEMBER .. 3. !' # . $ %# / $ %# # & DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/SR .PS. 4. ''() & * + DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTAT ING MEMBER FOR PRONOUNCEMENT 5. * . %# / # . . %# # + DATE ON WHICH THE ORDER COMES BACK TO THE PS/SR.PS .. 6 * !', + DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. ! !', ' , - ) IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. .% / 0 + DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. * 1'2 / 34 & 5 + DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT 10. 0 6 / + DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 11. * 7 & 0 8 + THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. !) * 9() & 0 9() /#5 . + THE DATE ON WHICH THE FILE GOES TO DESPATCH SECTION FOR DESPATCH OF THE TRIBUNAL ORDER 13. * 9() + DATE OF DESPATCH OF ORDER .