YOGESH SANGHVI, MUMBAI V. JCIT 25(3), MUMBAI

ITA 4803/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0366 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 22-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 24-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARJU GARODIA
• Assessee Lawyers: VIMAL PUNMYA
• Keywords: Capital asset; Business income; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH, MUMBAI , , , BEFORE SHRI RAJENDRA, AM AND SHRI RAM LAL NEGI, JM ./ ITA NO. 4803 / MUM/ 201 5 ( / ASSESSMENT YEAR: 2011 - 12 ) SHRI YOGESH SANGHVI, 1203, MAITRY RESIDENCY TOWER - I, POISAR GYMKHANA ROAD, MAHAVIR NAGAR, KANDIVALI (WEST), MUMBAI - 400067 VS. THE JOINT COMMISSIONER OF INCOME TAX - 25(3), MUMBAI ./ ./ PAN/GIR NO. : AAOPS 6571 Q ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI VIMAL PUNMYA (AR) /REVENUE BY : MS. ARJU GARODIA (DR) / DATE OF HEARING : 22 /05 /2017 / DATE OF PRONOUNCEMENT : 21 /08 /2017 / O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE A SSESSEE AGAINST ORDER DATED 05/06/2015 PASSED BY THE LD. CIT (A) - 45, MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 2011 - 12, WHEREBY THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER DATED 25/03/2014 PASSED U/S 143 ( 3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME OF RS. 1,57,18,182/ - . THE APPELLANT HAD BOOKED OFFICE NO 504 AND 505 IN SANJAR ENCLAVE FOR USING THE SAME AS OFFICE PREMISES AND AS PER THE TERMS OF THE 2 ITA NO. 4803/MUM/2015 ASSESSMENT YEAR: 2011 - 12 AGREEMENT CONSIDERATION WAS PAID. T HE SAID OFFICES WERE SOLD AND THE CAPITAL GAINS THEREON WAS OFFERED FOR TAXATION UNDER THE HEAD SHORT TERM CAPITAL GAINS. SIMIL ARLY, THE ASSESSEE HAD PURCHASED A TENANTED PROPERTY AT ANDHERI VIDE DEED OF CONVEYANCE DATED 10.08.2007. THE SAID PROPERTY WAS SOLD BY THE ASSESSEE DURING THE FINANCIAL YEAR RELEVANT TO THE A.Y. UNDER CONSIDERATION AND COMPUTED THE GAIN AS LONG TERM CAPI TAL GAINS. THE AO AFTER HEARING THE ASSESSEE TREATED BOTH THE TRANSACTION AS ASSESSEES PART OF BUSINESS AND COMPUTED THE GAIN AS INCOME FROM BUSINESS AND TRADE AND DETERMINED THE TOTAL INCOME AT RS. 2,10,80,170/ - . 3. THE ASSESSEE CHALLENGED THE ASSESSME NT ORDER BY PREFERRING APPEAL BEFORE THE LD. CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE AFFIRMED THE ACTION OF AO AND DISMISSED THE APPEAL OF THE ASSESSEE, HOWEVER, HELD THAT ONCE THE ASSETS ARE TREATED AS STOCK IN TRADE THEN THE SECTION 50 C OF T HE ACT WOULD NOT APPLY. 4. STILL A GGRIEVED BY THE ORDER OF LD. CIT (APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUNDS: - GROUND NO.1 HE LD. CIT (A) HAS ERRED IN TREATING THE SALE OF OFFICE NO. 504 AND OFFICE NO 505 AT SANJAR ENCLAVE, KANDIVALI AS ADVENTURE IN THE NATURE OF TRADE THEREBY TREATING IT AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAINS. GROUND NO.2 THE LD. CIT (A) HAS ERRED IN TREATING THE LONG TERM CAPITAL GAINS ON SALE OF TENANTED PROPERTY (WITH LAND) AT ANDHERI AS ADVENTURE IN THE NATURE OF TRADE THEREBY TREATING IT AS BUSINESS INCOME. THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT: 1. THE ASSESSEE HAS SOLD THE PREMISES AFTER A PERIOD OF THREE YEARS. 3 ITA NO. 4803/MUM/2015 ASSESSMENT YEAR: 2011 - 12 2. THE ASSESSEE IS ENTITLED T O INDEXATION ON THE COST OF ACQUISITION. 5. BEFORE US, T HE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO PRESS GROUND NO 1. HENCE , WE DISMISS GROUND NO 1 OF THE APPEAL AS NOT PRESSED. 6. AS REGARDS GROUND NO.2 THE LEARNE D COUNSEL SUBMITTED THAT THE PROPERTY IN QUESTION WAS SOLD AFTER A PERIOD OF MORE THAN THREE YEARS. IT IS CLEARLY MENTIONED IN THE CONVEYANCE DEED THAT THE POSSESSION OF THE PROPERTY WAS TAKEN BY THE APPELLANT ALONG WITH ALL RIGHTS, TITLE AND INTERESTS IN THE PROPERTY. THE PROPERTY WAS PURCHASED AS AN INVESTMENT WITH THE VIEW TO USE THE SAME AS BUSINESS HOUSE AND THE ASSESSEE HAS SHOWN THE SAME UNDER THE HEAD INVESTMENTS IN THE BOOKS OF ACCOUNT. SINCE , THE ASSESSEE COULD NOT SUCCEED GETTING THE TENETS VACAT ED , THE SAID PROPERTY WAS SOLD AFTER A PERIOD OF MORE THAN THREE YEARS . THE REFORE, THE LEARNED CIT(A) HAS WRONGLY AFFIRMED THE FINDINGS OF THE AO . MOREOVER, T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN CHEMICALS FOR MORE THAN 25 YEARS AND HAD NEVE R ENGAGED IN ANY OTHER BUSINESS INCLUDING REAL ESTATE. THE LEARNED COUNSEL RELYING UPON THE DECISION OF THE HON ABLE BOMBAY HIGH COURT RENDERED IN CIT VS. NASIK ROAD DEOLALI VYAPARI SAHAKARI BANK LTD. 76 TAXMANN.COM 78 (BOMBAY) AND HON ABLE HIGH COURT OF D ELHI RENDERED IN COMMISSIONER OF INCOME TAX VS. I. K. INTERNATIONAL (P) LTD 20 TAXMANN.COM 197 (DELHI) SUBMITTED THAT THE IMPUGNED ORDER IS NOT IN ACCORDANCE WITH THE PRINCIPLES OF LAW L AID DOWN IN THE AFORESAID CASES, THEREFORE, THE SAME IS ERRONEOUS AND LIABLE TO BE SET ASIDE. 7. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE ORDER PASSED BY THE LD. CIT (A) SUBMITTED THAT EVIDENCE ON RECORD ESTABLISH THAT THE SOLE INTENTION OF THE ASSESSEE WAS TO RESELL THE PROPERTY AND TO EARN THE PROFIT AS THE ASSESSEE NEVER TOOK POSSESSION OF THE PROPERTY 4 ITA NO. 4803/MUM/2015 ASSESSMENT YEAR: 2011 - 12 IN QUESTION. THE LD. DR FURTHER SUBMITTED THAT THERE IS NO MERIT IN THE APPEAL OF THE ASSESSE AND THE SAME IS LIABLE TO BE DISMISSED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO CAREFU LLY PERUSED THE MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE. WE NOTICE THAT THE ASSESSEE HAS SHOWN THE SAID PROPERTY UNDER THE HEAD INVESTMENT IN BOOKS OF ACCOUNT S INCLUDING IN THE BALANCE SHEET . ADMITTEDLY, THE PROPERTY IN QUESTION WAS SOLD AFTER A PERIOD OF THREE YEARS FROM THE DATE OF PURCHASE OF THE SAME INCLUDING THE TENANCY RIGHTS. IT IS ALSO AN ADMITTED FACT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN CHEMICALS FOR MORE THAN 25 YEARS AND THE APPEL LANT DID NOT HAVE ANY TRANSACTION OF SALE OF PROPERTY IN THE PREVIOUS YEAR EXCEPT THE PROPERTY IN QUESTION. IN OUR CONSIDERED OPINION, T HE FACT S THAT THE ASSESSEE HAD EARLIER ENTERED IN TO A MOU WITH M/S FRIENDS DEVELOPMENT CORPORATION TO TRANSFER THE SAME AND RECEIVED AN AMOUNT OF RS. 1,75,00,000/ - AND SHOWN THE AMOUNT AS AMOUNT RECEIVED AS ADVANCE RECEIVED FROM CUSTOMER; SUBSEQUENT CANCELLATION OF THE SAID MOU AND EXECUTION OF CONVEYANCE FOR SELLING THE SAME TO M/S FORTUNE DEVELOPERS FOR RS. 2,31,00,000 / - ARE NOT SUFFICIENT TO BRING THE TRANSACTION UNDER THE HEAD BUSINESS. WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE CONTENTION OF THE AO THAT THE ASSESSEE INTENDED TO MAXIMIZE PROFIT IN SHORT SPAN OF TIME IS BASELESS BECAU SE OF THE FACT THAT IN THAT CASE THE APPELLANT WOULD NOT HAVE WAITED FOR FURTHER PERIOD OF TWO YEARS AND SOLD THE PROPERTY AT A PRICE LOWER THAN AGREED IN M O U I.E. FOR RS. 2.31 CRORES AS AGAINST RS. 3 CRORES . THE FINDINGS OF THE AUTHORITIES BELOW THAT THE ASSESSEES INTENTION WAS TO MAXIMISE PROFIT IN SHORT SPAN OF TIME IS BASED ON MERE SUSPICION AND CONJECTURE S AND THEREFORE ERRONEOUS. 5 ITA NO. 4803/MUM/2015 ASSESSMENT YEAR: 2011 - 12 9. IN CIT VS. NASIK ROAD DEOLALI VYAPARI SAHAKARI BANK LTD. (SUPRA ) THE HONBLE BOMBAY HIGH COURT HAS DECIDED THE SIMILA R ISSUE IN FAVOUR OF THE ASSESSEE. THE ISSUE BEFORE THE HONBLE COURT WAS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN ACCEPTING THE CLAIM OF THE ASSESSEE THAT PROFIT ON SALE OF THE PLOT OF LAND BE ASS ESSED UNDER THE HEAD OF 'CAPITAL GAINS' EVEN THOUGH THE RECEIPT FROM SALE OF THE SAID PLOT OF LAND WAS SHOWN BY THE A SSESSEE AS BUSINESS RECEIPTS?'. IN FACT T HE ASSESSEE - BANK HAD PURCHASED A PLOT OF LAND WITH A VIEW TO CONSTRUCT ITS ADMINISTRATIVE BUILDING . LATER ON, IT WAS DECIDED NOT TO CONSTRUCT SAID BUILDING AND SOLD THE PLOT. THE ASSESSEE, IN ITS RETURN, CLAIMED THAT THE SALE OF PLOT OF LAND WAS A SALE OF CAPITAL ASSET AND SUBJECT TO LONG - TERM CAPITAL GAIN. HOWEVER, IT HAD CREDITED THE CONSIDERATION RE CEIVED ON SALE OF PLOT TO THE PROFIT AND LOSS ACCOUNT. BUT, IT OMITTED TO REDUCE THE SAID AMOUNT WHILE ARRIVING AT ITS TAXABLE INCOME UNDER THE HEAD OF BUSINESS INCOME . THE A O HELD THAT THE PROFIT/GAIN ON THE SALE OF PLOT OF LAND WOULD BE ASSESSED AS A BUS INESS INCOME AND NOT UNDER THE HEAD CAPITAL GAIN. ON APPEAL, THE C IT(A ) UPHELD THE ORDER OF THE A O . ON FURTHER APPEAL TO THE HIGH COURT , T HE HONBLE HIGH COURT HELD THAT SINCE THE BUSINESS OF THE ASSESSEE WAS NOT OF TRADING IN PLOTS OF LAND , THEREFORE, TH E AMOUNTS RECEIVED ON SALE OF PLOT OF LAND WHICH WAS ORIGINALLY PURCHASED FOR CONSTRUCTION OF ADMINISTRATIVE BUILDING COULD NEVER BE TAXED AS A BUSINESS INCOME. ACCORDINGLY, THE HOBLE HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL 10. HENCE, APPLYING THE P RINCIPLES OF LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE DISCUSSED ABOVE, WE HOLD THAT THE LD. CIT(A) HAS WRONGLY HELD THE TRANSACTION AS ADVENTURE IN THE NATURE OF TRADE AND TREATED THE LONG TERM CAPITAL GAIN AS BUSINESS INCOME. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE 6 ITA NO. 4803/MUM/2015 ASSESSMENT YEAR: 2011 - 12 AND DIRECT THE AO RECOMPUTED THE INCOME OF THE ASSESSEE TREATING THE PROFIT ON SALE OF THE PROPERTY AS LONG TERM CAPITAL GAIN. IN THE RESULT APPEAL FILED BY THE ASSES SEE FOR ASSESSMENT YEAR 2011 - 2012 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST . AUGUST , 2017. SD/ - SD/ - ( RAJENDRA ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 21 / 0 8 / 2017 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI