Mahesh Chandra Gupta, Kanpur V. The Commissioner of Income Tax (Central), Kanpur

ITA 441/LKW/2014

• Counselvise Citation: 44123714 RSA 2014
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 26-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M DIXIT
• Keywords: Capital asset; Business income
• Section: 54F; 142(1); 54; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS.441 TO 447/LKW/2014 A.YRS.:2005 - 06 TO 2011 - 12 SHRI MAHESH CHANDRA GUPTA, 102,202,302,402, SATYA APARTMENT, ALLENGANJ, KANPUR. PAN:ABVPG1655R VS. C.I.T. (CENTRAL), KANPUR. (APPELLANT) (RESPONDENT) ITA NOS.448 TO 454/LKW/2014 A.YRS.:2005 - 06 TO 2011 - 12 SMT. SANGEETA GUPTA, 102,202,302,402, SATYA APARTMENT, ALLENGANJ, KANPUR. PAN:ABVPG1656N VS. C.I.T. (CENTRAL), KANPUR. (APPELLANT) (RESPONDENT) ITA NOS.467 TO 473/LKW/2014 A.YRS.:2005 - 06 TO 2011 - 12 SMT. KALPANA GUPTA, W/O SHRI BRIJ MOHAN GUPTA, 54/27, NAYAGANJ, KANPUR. PAN:ABVPG1654N VS. C.I.T. (CENTRAL), KANPUR. (APPELLANT) (RESPONDENT) ITA NOS.491 TO 497/LKW/2014 A.YRS.:2005 - 06 TO 2011 - 12 SMT. LAXMI DEVI GUPTA, PROP. M/S SUPER CHEM. 54/27, NAYA GANJ, KANPUR. PAN:AALPD7390P VS. C.I.T. (CENTRAL), KANPUR. (APPELLANT) (RESPONDENT) APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY SHRI K. M. DIXIT, CIT, D.R. DATE OF HEARING 0 7 /0 8 /2014 2 ITA NOS.460 TO 466/LKW/2014 A.YRS.:2005 - 06 TO 2011 - 12 SHRI BRIJ MOHAN GUPTA, 501, YOG TOWER, VIP ROAD, KANPUR. PAN:AHKPG8642F VS. C.I.T. (CENTRAL), KANPUR. (APPELLANT) (RESPONDENT) ITA NOS.498 TO 504/LKW/2014 A.YRS.:2005 - 06 TO 2011 - 12 SHRI PURUSHOTTAM DAS GUPTA, 54/27, NAYA GANJ, KANPUR. PAN: ABVPG8498G VS. C.I.T. (CENTRAL), KANPUR. (APPELLANT) (RESPONDENT) ITA NOS.505 TO 511/LKW/2014 A.YRS.:2005 - 06 TO 2011 - 12 SHRI DINESH KUMAR GUPTA, 54/27, NAYA GANJ, KANPUR. PAN:AAQPG9711Q VS. C.I.T. (CENTRAL), KANPUR. (APPELLANT) (RESPONDENT) O R D E R PER BENCH: ALL THESE APPEALS ARE FILED BY SEVEN DIFFERENT ASSESSEE S EACH FOR SEVEN DIFFERENT ASSESSMENT YEARS AS NOTED ABOVE AND ARE DIRECTED AGAINST RESPECTIVE SEPARATE ORDERS OF LEARNED CIT (CENTRAL), KANPUR U/S 263 OF THE ACT. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY SHRI K. M. DIXIT, CIT, D.R. DATE OF HEARING 05/09/2014 DATE OF PRONOUNCEMENT 2 5 /09/2014 3 2. THE ASSESSEES HAVE RAISED SO MANY GROUNDS BUT THE ONLY GRIEVANCE OF THE ASSESSEES IN ALL THESE APPEALS IS ONE AND SAME I.E. THE ORDER PASSED BY LEARNED CIT U/S 263 IS WITHOUT JURISDICTION, BAD IN LAW AND SHOULD BE QUASHED. 3. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT AS HAS BEEN NOTED BY LEARNED CIT IN HIS ORDER, THE DISPUTE IS REGARDING A PROPERTY OW NED BY THESE SEVEN CO - OWNERS. HE FURTHER SUBMITTED THAT THESE SEVEN CO - OWNERS HAD ENTERED INTO A MEMORANDUM OF UNDERSTANDING WITH M/S FLOWMORE BUILDERS (P) LTD., KANPUR WITH AN INTENTION TO CONSTRUCT A MULTISTORIED RESIDENTIAL BUILDING COMPLEX FOR WHICH 5 3% OF THE CONSTRUCTED AREA WAS TO BE GIVEN TO M/S FLOWMORE BUILDERS (P) LTD. AND THESE SEVEN CO - OWNERS WERE ENTITLED TO GET REMAINING 47% OF THE CONSTRUCTED AREA. HE FURTHER SUBMITTED THAT TOTAL 74 FLATS WERE CONSTRUCTED BY THE BUILDER AND THE POSSESSION 43 FLATS WAS TAKEN BY THE BUILDER AND THE POSSESSION OF REMAINING 31 FLATS WAS GIVEN TO THESE SEVEN CO - OWNERS ALONGWITH THE LAND IN THE SAME PROPORTION. HE ALSO SUBMITTED THAT THESE FLATS WERE CONSTRUCTED IN TERMS OF THE MOU AND WERE SOLD BY THE BUILDER M/S FLOWMORE BUILDERS (P) LTD. AND THESE ASSESSEES SEPARATELY TO THE VARIOUS PARTIES DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2010 - 11 AND 2011 - 12. HE FURTHER SUBMITTED THAT ALTHOUGH THESE SEVEN ASSESSEES HAD NOT DECLARED ANY INCOME ON ACCOUNT OF THIS TRANSACTION I.E. SALE OF FLATS AND TRANSFER OF 53% OF THE TOTAL LAND AREA TO THE BUILDER BUT IN THE ASSESSMENT ORDER FOR THESE TWO ASSESSMENT YEARS, THE ASSESSING OFFICER HAS BROUGHT THIS INCOME TO TAX UNDER THE HEAD LONG TERM CAPITAL GAIN AND HAS ALSO ALLOWED DEDUCTION U/S 54 AFTER MAKING DETAILED ENQUIRIES AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD. HE ALSO SUBMITTED THAT THE ONLY OBJECTION OF CIT IS THAT THIS INCOME IS TAXABLE AS BUSINESS INCOME AND NOT AS INCOME FROM LONG TERM CAPITAL GAIN. HE 4 SUBMITTED THAT IN THIS REGARD ALSO , AS PER LETTER DATED 14/03/201 3, THE ASSESSING OFFICER HAS MADE ENQUIRY FROM THESE ASSESSEES THAT AS PER THIS MOU BETWEEN THESE ASSESSEES AND THE BUILDER, THESE ASSESSEES HAVE CONVERTED THE CAP ITAL ASSET INTO STOCK IN TRADE BY ALLOWING A RESIDENTIAL COMPLEX HAVING SEVERAL FLATS TO BE CONSTRUCTED THEREON. HE SUBMITTED THAT SINCE QUERY WAS MADE BY THE ASSESSING OFFICER IN COURSE OF ASSESSMENT PROCEEDINGS ON THIS ASPECT ALSO THAT THE ASSESSEE HAS CONVERTED TH IS LAND INTO STOCK IN TRADE, IT IS APPARENT THAT THE ASSESSING OFFICER HAD MADE ENQUIRY ON THIS ASPECT ALSO THAT WHETHER THE INCOME ON THIS ACCOUNT IS TAXABLE UNDER THE HEAD LONG TERM CAPITAL GAIN OR UNDER THE HEAD BUSINESS INCOME AND ALTHOUGH THE ASSESSING OFFICER HAS ASSESSED THE INCOME AS LONG TERM CAPITAL GAIN BUT STILL, IT CANNOT BE SAID THAT THERE IS ANY LACK OF ENQUIRY OR LACK OF APPLICATION OF MIND BY THE ASSESSING OFFICER AND THEREFORE, THESE ASSESSMENT ORDERS CANNOT BE HELD TO BE ERRO NEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE PLACED RELIANCE ON SEVERAL JUDICIAL PRONOUNCEMENTS BUT MAINLY ON A JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS COMMISSIONER OF INCOME - TAX AS REPORTE D IN [2000] 243 ITR 83 (SC) . 4. AS AGAINST THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS PASSED BY LEARNED CIT U/S 263 OF THE ACT. HE SUBMITTED THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS RIGHTLY HELD BY CIT AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST O F THE REVENUE AND THEREFORE, HIS ORDER SHOULD BE CONFIRMED. HE ALSO SUBMITTED THAT NO SPECIFIC QUERY WAS MADE BY THE ASSESSING OFFICER AS TO WHETHER THIS ACTIVITY IS AN ADVENTURE IN THE NATURE OF TRADE. HE ALSO SUBMITTED THAT THE ASSESSING OFFICERS VIEW IS NOT A PLAUSIBLE VIEW. 5 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL , WE ARE OF THE CONSIDERED OPINION THAT THIS IS BY NOW A SETTLED POSITION OF LAW THAT FOR INVOKING THE PROVISIONS OF SECTION 263, TWO CONDITIONS ARE TO BE SATISFIED THAT T HE ASSESSMENT ORDER IS ERRONEOUS AND THE SAME IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS PER THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA), IT WAS HELD THAT THE PHRASE PREJUDICIAL TO THE INTERE ST OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. WE REPRODUCE HEREIN BELOW THE RELEVANT PARA AS UNDER: THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN AN INCOME - TAX OFFICER AD OPTED ONE OF THE COURS ES PERMIS SIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME - TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME - TAX OFFICER IS UNSUSTAINABLE IN LAW. IT HAS BEEN HELD BY THIS COURT THAT WHERE A SUM NOT EARNED BY A PERSON IS ASSESSED AS INCOME IN HIS HANDS ON HIS SO OFFERING, THE ORDER PASSED BY THE ASSESSING OFFICER ACCEPTING THE SAME AS SUCH WILL BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. RAMPYARI DEVI SARAOGI V. CIT [1968] 67 ITR 84 ( SC) AND IN SMT. TARA DEVI AGGARWAL V. CIT [1973] 88 ITR 323 (SC). 5.1 FROM THE ABOVE PARA FROM THIS JUDGMENT OF HON'BLE APEX COURT, IT IS SEEN THAT IT WAS HELD BY HON'BLE APEX COURT THAT IF THE ASSESSING OFFICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCO ME - TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME - TAX OFFICER IS UNSUSTAINABLE 6 IN LAW. THIS IS ALSO A SETTLED POSITION OF LAW THAT IF NO ENQUIRY WAS MADE BY THE ASSESSING OFFICER OR IF THERE IS NO APPLICATION OF MIND BY THE ASSESSING OFFICER THEN ALSO , THE ASSESSMENT ORDER CAN BE CONSIDERED AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERES T OF REVENUE. NOW WE EXAMINE THE FACTS OF THE PRESENT CASE AS TO WHETHER ENQUIRY WAS MADE BY THE ASSESSING OFFICER OR NOT AND WHETHER THERE WAS APPLICATION OF MIND OR NOT BY THE A.O. IN THIS REGARD, WE FEEL THAT THE ENQUIRY MADE BY THE ASSESSING OFFICER AS PER LETTER DATED 14/03/2013, AS AVAILABLE ON PAGE NO. 210 TO 212 OF THE PAPER BOOK, IS VERY MUCH RELEVANT AND HENCE, THE SAME IS REPRODUCED BELOW: OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 10/503, ALLENGANJ, LAXMI NIWAS, KANPUR DATED: 14.03,2013 PAN:ABVPG1655R TO, SHRI MAHESH CHAND GUPTA, 102,202,302 & 402, SATYA APARTMENT, ALLEN GANJ, KANPUR. SIR, SUB: NOTICE U/S 142(1) / 153A/153C OF THE INCOME TAX ACT, 1961 FOR THE AY 2005 - 06 - REGARDING PLEASE REFER TO ABOVE MENTIONED PROCEEDINGS WHICH ARE GOING ON IN YOUR CASE. 1 . AS PER MEMORANDUM OF UNDERSTANDING (MOU) DATED 21.02.2005 SIGNED BETWEEN 1. SMT LAXMI DEVI GUPTA, 2. SHRI PURSHOTTAM DAS GUPTA, 3 SHRI DINESH KUMAR GUPTA 4. SHRI MA HESH CHANDRA GUPTA, 5. SHRI BRIJ MOHAN GUPTA 6. SMT. SANGEETA GUPTA AND SMT. KALPANA GUPTA AND M/S FLOW MORE BUILDERS, YOU ALONG WITH 06 OTHER CO - OWNERS OF THE LAND HAVE DEPOSITED A SUM OF RS.36,36,167/ - WITH THE STATE GOVERNMENT FOR CONVERSION OF LEASE HO LD RIGHT INTO FREE HOLD. PLEASE MENTION HOW MUCH AMOUNT WAS CONTRIBUTED BY YOU FOR THIS PAYMENT. PLEASE ALSO FURNISH EVIDENCE IN THIS REGARDS. 7 2 . AS PER MOU DATED 21.02.2005, 47% OF CONSTRUCTED AREA AND LAND IN THE SAME PROPORTION WAS TO BE TAKEN OVER BY THE 07 CO - OWNERS WHEREAS REMAINING 53% OF CONSTRUCTED AREA AND LAND IN THE SAME PROPORTION WAS TO BE HANDED OVER TO THE BUILDER M/S FLOWMORE BUILDERS. HOWEVER, IN THE COMPLETION AGREEMENT DATED 13 TH DAY OF AUGUST 2009, THE RATIO OF CONSTRUCTED AREA AND LAND T O BE ALLOTTED TO EACH PARTY WAS CHANGED AND AS PER THE COMPLETION AGREEMENT THE CONSTRUCTED AREA AND THE LAND IN THE SAME PROPORTION WAS TO BE TAKEN OVER BY THE 07 CO - OWNERS AT 41.9% AND REMAINING AREA OF 58.059% WAS TO BE HANDED OVER TO THE BUILDER M/S FL OWMORE BUILDERS. PLEASE FURNISH THE COPY OF SUCH AGREEMENT VIDE WHICH RATIO OF CONSTRUCTED AREA AND LAND WAS CHANGED BETWEEN THE TWO PARTIES AS MENTIONED ABOVE. PLEASE FURNISH A COPY OF SAID AGREEMENT. 3 . FOR THIS EXTRA SHARE OF THE CONSTRUCTED AREA AND LAND , THE BUILDER M/S FLOW - MORE BUILDERS HAS PAID AN AMOUNT OF RS . 59,00,000/ - TO THE KDA ON BEHALF OF THE 07 CO - OWNERS FOR PURCHASE OF ADDITIONAL FAR. THIS CLEARLY SHOWS THAT THE AMOUNT RELATING TO YOU OUT OF RS.59,00,000/ - WAS ASSESSABLE AND TAXABLE IN YOUR H ANDS IN THE RELEVANT ASSESSMENT YEAR. PLEASE FURNISH THE DETAILS OF AMOUNTS RECEIVED BY YOU AND IN WHICH ASSESSMENT YEAR THE SAME HAS BEEN OFFERED FOR TAXATION BY YOU. PLEASE STATE THE BASIS OF INTER - SE DISTRIBUTION OF RS.59,00,000/ - AMONGST YOU (07 CO - OWN ERS). PLEASE FURNISH RELEVANT DOCUMENTARY EVIDENCES IN THIS REGARDS. 4 . PLEASE FURNISH COPY OF PURCHASE DEED VIDE WHICH THE ABOVE LAND WAS PURCHASED BY YOU 07 CO - OWNERS SO THAT YEAR OF PURCHASE MAY BE EXAMINED. 5 . IN THE COMPLETION AGREEMENT THERE IS REFERENC E TO FIRST PARTIES. PLEASE CLARIFY WHICH PE RSONS ARE BEING REFERRED TO BY THE NOMENCLATURE FIRST PARTIES . 6 . IN THE RETURN FILED BY YOU FOR THE AY 2005 - 06, U/S 153A/153C OF THE I.T. ACT, YOU HAVE NOT SHOWN ANY CAPITAL GAIN ON THE TRANSFER OF YOUR LAND ALONG WITH OTHER CO - OWNERS TO M/S FLOW MORE BUILDERS. THE SAID COMPANY HAS BUILT SEVERAL FLATS ON THE ABOVE PLOT OF LAND AND THE FLATS HAVE BEEN DISTRIBUTED AMONGST THE 07 CO - OWNERS OF THE LAND AND THE BUILDER M/S FLOW MORE BUILDERS. THE MEMORANDUM OF UNDERSTAND ING DATED 21 ST FEB, 2005 SIGNED BETWEEN THE 07 CO - OWNERS OF THE LAND NAMELY 1. SMT LAXMI DEVI GUPTA, 2. SHRI PURSHOTTAM DAS GUPTA, 3 SHRI DINESH KUMAR GUPTA 4. SHRI MAHESH CHANDRA GUPTA, 5 SHRI BRIJ 8 MOHAN GUPTA 6. SMT. SANGEETA GUPTA AND SMT. KALPANA GUPTA AND M/S FLOW MORE BUILDERS HAS BEEN SIGNED BY WAY OF WHICH THE LAND HAS BEEN TRANSFERRED TO THE BUILDER AND THE BUILDER HAS CONSTRUCTED FLATS ON THE SAID PLOT OF LAND. CLAUSE 2, CLAUSE 3 AND CLAUSE 6 OF THE SAID MOU READ AS UNDER: - ( 1 ) THAT THE SECOND PARTY SHALL PREPARE PLAN OF THE PROPOSAL MULTI STORY RESIDENTIAL COMPLEX IN ACCORDANCE OF THE RULES AND BYE - LAWS OF THE KANP U R DEVELOPMENT AUTHORITY WITH ITS OWN EXPENSES AND SHALL SUBMIT THE SAME TO KANP U R DEVELOPMENT AUTHORITY IN THE NAME OF THE FIRST PARTY FO R SANCTION. THE EXPENSES IN PREPARING THE PLAN AS WELL AS IN OBTAINING THE SANCTION SHALL BE BORNE BY THE SECOND PARTY. ( 2 ) THAT IMMEDIATELY AFTER THE SANCTION OF THE MAP, THE FIRST PARTY SHALL DELIVER THE ACTUAL PHYSICAL AND VACANT POSSESSION OF THE PREMISES TO THE SECOND PARTY WHO SHALL COMMENCE THE DEVELOPMENT AND CONSTRUCTION FROM THE DATE OF RECEIVING POSSESSION OR FROM THE DATE OF SANCTION OF THE MAP / PLAN WHICHEVER IS HERE. ( 3 ) THAT IN CONSIDERATION OF THE DEVELOPMENT OF LAND AND CONSTRUCTION TO BE RAISED A T ITS OWN COST AND RESPONSIBILITY TO BE TAKEN/ BORNE BY THE SECOND PARTY, THE SECOND PARTY SHALL BE ENTITLED TO GET 53% CONSTRUCTED AREA (SALEABLE / UNSALABLE LIKE PARKING, OPEN LAND ETC.) AS WELL AS LAND IN THE SAME PORTION AND SHALL ALSO BE ENTITLED TO N EGOTIATE TO SELL THE SAME AND TO RECEIVE THE ADVANCE MONEY, SALE CONSIDERATION AND TO ISSUE RECEIPT AND TO EXECUTE THE AGREEMENT TO SELL SALE DEEDS ETC IN THE SAME MANNER THE FIRST PARTY SHALL ALSO BE ENTITLED TO GET 47% CONSTRUCTED AREA (SALEABLE / UNSALA BLE LIKE OPEN LAND, PARKING ETC.] AS WELL AS LAND IN THE SAME PROPORTION AND SHALL BE ENTITLED.TO NEGOTIATE TO SELL, TO SELL THEIR PORTION AND TO RECEIVE THE ADVANCE MONEY, SALE CONSIDERATION AND TO ISSUE RECEIPTS AND TO FURTHER EXECUTE THE AGREEMENT TO SE LL, SALE DEES ETC. FROM A CLOSE PERUSAL OF THE ABOVE PARAGRAPHS OF MOU IT IS VERY CLEAR THAT YOU HAVE TRANSFERRED PORTION OF YOUR LAND TO THE BUILDER M/S FLOWMORE BUILDERS WHICH EVENTUALLY COMES WITHIN THE PURVIEW OF 'TRANSFER' AS DEFINED IN SECTION 2(47) OF THE I.T. ACT. EVEN OTHERWISE IN THE MOU IT HAS BEEN CLEARLY MENTIONED AT PAGE NO. 03 PARA - 2 THAT PARTIES OF THE FIRST PART (07 CO - OWNERS) HAVING AN INTENTION TO CONSTRUCT A RESIDENTIAL BUILDING COMPLEX ON THE SAID PREMISES NO. 12/482, MAC - ROBERTGANJ, KANPUR.............. 9 THE MENTION OF THESE FACTS IN THE MOU CLEARLY PROVES THAT YOU HAVE CONVERTED YOUR CAPITAL ASSET (LAND) INTO STOCK IN TRADE BY ALLOWING A RESIDENTIAL COMPLEX HAVING SEVERAL FLATS TO BE CONSTRUCTED THEREON. THEREFORE, SUCH CONVERSION I S COVERED UNDER TRANSFER AS PROVIDED U/S 2 (47 ) OF THE INCOME TAX ACT, 1961 AND THEREFORE THE TRANSACTION IS LIABLE FOR CAPITAL GAINS. YOU ARE THEREFORE REQUIRED TO SHOW CAUSE WHY THE TRANSFER OF THE ABOVE LAND MAY NO T BE CONSIDERED FOR CAPITAL GAINS BY TAKING CIRCLE RATE OF THE LAND IN THE ASSESSMENT YEAR 2005 - 06 . YOU ARE FURTHER REQUIRED TO STATE HOW MUCH AMOUNT BELONGED TO YOU OUT OF TOTAL A MOUNT OF RS.59,00,000/ - PAID BY M/S FLOWMORE BUILDERS TO THE KANPUR DEVELOPMENT AUTHORITY ON YOUR BEHALF. THE D ATE FIXED FOR COMPLIANCES 15.03.2013 AS THE MATTER IS TIME BARRING IN NATURE AND IT IS NOT POSSIBLE TO GIVE YOU ANY MORE TIME. SD/. ( N. C. UPADHYAYA) ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE - 1, KANPUR 5.2 FROM THE ABOVE LETTER OF THE ASSESSING OFFICER, WRITTEN TO THESE ASSESSEES, IT IS SEEN THAT THIS QUERY WAS ALSO MADE BY THE ASSESSING OFFICER THAT AS PER THIS MOU , THE ASSESSEE HAS CONVERTED THE CAPITAL ASSET (LAND) INTO STOCK IN TRADE BY ALLOWING CONSTRUC TION OF RESIDENTIAL FLATS THEREON. IT GOES TO SHOW THAT EVEN ON THIS ASPECT , QUERY WAS MADE AND MIND WAS APPLIED BY THE A.O. THAT THE INCOME ARISING OUT OF THIS MOU IS TAXABLE AS BUSINESS INCOME OR CAPITAL GAIN BECAUSE WHEN THE ASSESSING OFFICER SAYS THA T THE ASSESSEE HAS CONVERTED CAPITAL ASSET INTO STOCK IN TRADE BY WAY OF ENTERING INTO MOU, IT IS OBVIOUS THAT ANY PROFIT ARISING OUT OF SALE OF STOCK IN TRADE IS TAXABLE AS BUSINESS INCOME ONLY. IN ANY CASE , TILL THE DATE OF SUCH CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE, INCOME ACCRUING TO THE ASSESSEE BEING THE DIFFERENCE BETWEEN COST OF ASSET AND MARKET VALUE OF THE ASS E T ON THE DATE OF SUCH CONVERSION IS TAXABLE AS CAPITAL GAIN ONLY AND INCOME ACCRUING AFTER THE DATE OF SUCH CONVER SION INTO STOCK IN TRADE IS TO BE ASSESSED AS BUSINESS INCOME. IN VIEW OF THIS QUERY, IT CANNOT BE SAID THAT NO QUERY WAS MADE BY THE ASSESSING OFFICER ON THIS ASPECT AND THERE 10 IS NO APPLICATION OF MIND BY ASSESSING OFFICER BECAUSE THE ASSESSING OFFICER H AS REFERRED TO A JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS SMT. K. G. RUKMINIAMMA [2011] 331 ITR 211 (KAR) AND ALSO A JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - T AX VS GITA DUGGAL [2013] 257 ITR 153 (DEL) IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION U/S 54 OF THE ACT. IN THE CASE OF GITA DUGGAL (SUPRA), THE FACTS ARE THAT THE ASSESSEE IN THAT CASE WAS OWNER OF A HOUSE PROPERTY WITH BASEMENT AND TWO FLOOR S AND THE A SSESSEE ENTERED INTO AN AGREEMENT FOR DEVELOPMENT OF THE PROPERTY. IN THAT CASE , THE ASSESSEE TRANSFERRED 22.5% TO DEVELOPER. THE ASSESSEE DECLARED LONG TERM CAPITAL GAIN ALONG WITH THE RETURN OF INCOME AND THE ASSESSING OFFICER TOOK THE VIEW THAT THE CO ST OF CONSTRUCTION INCURRED BY DEVELOPER SHOULD ALSO BE INCLUDED IN TOTAL SALE CONSIDERATION. THE ASSESSING OFFICER ADDED PART OF COST OF CONSTRUCTION AND COMPUTED TOTAL SALE CONSIDERATION. THE ASSESSING OFFICER REJECTED THE ASSESSEES CLAIM FOR DEDUCTIO N U/S 54 AND 54F IN RESPECT OF USE FOR FIRST AND SECOND FLOOR HOLDING THAT THEY WERE SEPARATE AND INDEPENDENT RESIDENTIAL UNITS HAVING SEPARATE ENTRANCES AND COULD NOT BE CONSIDERED AS ONE UNIT TO ENABLE THE ASSESSEE TO CLAIM THE DEDUCTION . UNDER THESE FACTS, IT WAS HELD THAT DEDUCTION IS ALLOWABLE TO THE ASSESSEE U/S 54 & 54F OF THE ACT. THESE FACTS GO TO SHOW THAT UNDER SIMILAR CIRCUMSTANCES, THE INCOME WAS TAXED AS LONG TERM CAPITAL GAIN AND THE SAME WAS APPROVED BY HON'BLE DELHI HIGH COURT BY HOLDING THAT DEDUCTION U/S 54 & 54F IS ALLOWABLE. IN THE CASE OF SMT. K. G. RUKMINIAMMA (SUPRA) ALSO, THE FACTS WERE SIMILAR. IN THAT CASE, THE ASSESSEE HAD A RESIDENTIAL PROPERTY AT BASAVANAGUDI , AT GOVINDAPPA ROAD, BASAVANAGUDI, BANGALORE, ME ASURING 30' X 110'. THE ASSESSEE ENTERED INTO A JOINT DEVELOPMENT AGREEMENT WITH A BUILDER TO DEVELOP THE PROPERTY. THE BUILDER AGREED TO CONSTRUCT RESIDENTIAL APARTMENTS AND AGREED TO DELIVER FOUR FLATS REPRESENTING 48 % SHARE TO THE ASSESSEE AND THE BALA NCE 11 52% TO THE BUILDER. THE INCOME UNDER THESE FACTS WAS ALSO TAXED BY THE ASSESSING OFFICER AS INCOME FROM LONG TERM CAPITAL GAIN BUT THE CLAIM OF THE ASSESSEE FOR GRANT OF DEDUCTION U/S 54F WAS REJECTED BY THE ASSESSING OFFICER. THE ASSESSEE WAS ALLOWE D SUCH DEDUCTION BY CIT(A) AND THE ORDER OF CIT(A) WAS CONFIRMED BY THE TRIBUNAL. THE REVENUE PREFERRED FURTHER APPEAL BEFORE HON'BLE KARNATAKA HIGH COURT AND THERE ALSO , THE APPEAL OF THE REVENUE WAS DISMISSED. HENCE, IT IS SEEN THAT UNDER SIMILAR FACTS IN THIS CASE ALSO, THE INCOME WAS TAXED UNDER THE HEAD LONG TERM CAPITAL GAIN AND THIS WAS INDIRECTLY APPROVED BY HON'BLE HIGH COURT ALSO BECAUSE THE ASSESSEES CLAIM FOR DEDUCTION U/S 54 AND 54F WAS ALLOWED. IN ANY CASE, IT CANNOT BE SAID THAT THE VIEW TAKEN BY ASSESSING OFFICER THAT THE INCOME IS TAXABLE AS LONG TERM CAPITAL GAIN IS NOT A POSSIBLE VIEW AS HAS BEEN ARGUED BY LEARNED D.R. OF THE REVENUE. 6. CONSIDERING THE ABOVE DISCUSSION, IT IS SEEN THAT ENQUIRY WAS ALSO MADE BY THE ASSESSING OFFICER AND THERE IS APPLICATION OF MIND BY THE ASSESSING OFFICER ALSO AND VIEW TAKEN BY THE ASSESSING OFFICER IS NOT AN IMPOSSIBLE VIEW AND THEREFORE, AS PER SETTLED LEGAL POSITION AS PER THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA), THE TWIN CONDITIONS REQUIRED TO INVOKE THE PROVISIONS OF SECTION 263 ARE NOT GETTING SATISFIED AND HENCE , THE ORDERS OF CIT U/S 263 ARE WITHOUT JU RISDICTION AND ACCORDINGLY, THE SAME ARE HEREBY QUASHED. 7. IN ALL THESE CASES, SOME OTHER ARGUMENTS WERE ALSO RAISED BY THE LEARNED AR OF THE ASSESSEE THAT THERE ARE SOME TECHNICAL DEFECTS SUCH AS A COMMON NOTICE WAS ISSUED BY CIT U/S 263 FOR ALL THE SEV EN ASSESSMENT YEARS AND NO SEPARATE NOTICE WAS ISSUE FOR EACH ASSESSMENT YEAR AND ORDER OF CIT IS NOT VALID BECAUSE OF THIS ALSO. AS PER ABOVE PARA , WE HAVE ALREADY HELD AND DECIDED THAT ON MERIT, THE TWIN CONDITIONS OF ASSESSMENT 12 ORDER BEING ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE ARE NOT GETTING SATISFIED AND FOR THIS REASON, WE HAVE HELD THAT THE ORDER S OF CIT U/S 263 ARE WITHOUT JURISDICTION AND THE SAME HA VE BEEN QUASHED. HENCE, THE OTHER OBJECTIONS RAISED BY LEARNED A.R. OF THE ASSESSEE ARE OF ACADEMIC INTEREST ONLY. THIS ACADEMIC ASPECT IS NOT BEING DECIDED BY US AND THE SAME IS LEFT OPEN FOR A DECISION IN A SUITABLE CASE . 8. IN THE RESULT, ALL THE SE 49 A PPEALS OF SEVEN DIFFERENT ASSESSEES ARE ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 5 /09/2014 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR