UNITED BUILDERS, MUMBAI V. ACIT 25(2), MUMBAI

ITA 4864/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2338 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: F
• Assessment Year: 2007-2008
• Appeal Filed On: 24-06-2013
• Court: TRIBUNAL
• Department Lawyers: E SHREEDHAR
• Keywords: Business income
• Section: 143(3); 2

Judgement Text

, , F , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4864/MUM/2013 ASSESSMENT YEAR: 2007-08 UNITED BUILDERS, UNIT NO.17B WING, GANJAWALA APARTMENT, S.V. RD. BORIVALI(W) MUMBAI -400 092 / VS. A CIT 25(2) BANDRA KURLA COMPLEX, BANDRA MUMBAI-51 (REVENUE ) (RESPOND ENT ) P.A. NO. AABFU9292J ASSESSEE BY SHRI VIJAY MEHTA (AR) REVENUE BY SHRI E.SHREEDHAR (DR) / DATE OF HEARING: 05/07/2016 / DATE OF ORDER: 29/07/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS)-35, MUMBAI, {(I N SHORT CIT(A)}, DATED 24.05.2013 PASSED AGAINST ASSESSME NT ORDER UNITED BUILDERS 2 U/S 143(3) R.W.S. 263 OF THE ACT, DATED 31.12.12 FO R THE A.Y.2007-08 ON THE FOLLOWING GROUNDS: 1.THE LD CIT (A) ERRED IN HOLDING THAT THE INC OME EARNED ON SALE OF LAND BY THE APPELLANT IS A BUSINESS INCOME. 2. THE LD CIT(A) ERRED IN NOT ALLOWING THE CLAIM OF THE APPELLANT THAT THE INCOME EARNED BY THE APPELLANT ON SALE OF LAND WAS CAPITAL GAIN. 3. THE LD CIT(A) ERRED IN NOT ALLOWING SET OFF OF L ONG TERM CAPITAL LOSS OF RS. I8,77,377- FOR THE ASSESSMENT YEAR 2006-07 AGAINST THE LONG TERM CAPITAL GAIN FOR THE ASSESSMENT YEAR 2007-08. 4. THE LD CIT(A) ERRED AND DISALLOWED THE CLAIM OF THE APPELLANT WITHOUT GOING TO THE FACTS OF THE CASE AND RELEVANT CASE LAWS SUBMITTED AT THE TIME OF HEARING. 5. YOUR APPELLANT RESERVES THE RIGHT TO ADD, ALTER OR DELETE THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF THE HEARING. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI VIJAY MEHTA, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI E. SHREEDHAR, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. 3. GROUND NOS. 1 & 2 ADDRESS THE COMMON ISSUE OF TREATMENT OF PROFIT EARNED BY THE ASSESSEE ON SALE OF LAND AS BUSINESS INCOME BY THE AO AS AGAINST CAPITAL GAIN AS WAS CLA IMED BY THE ASSESSEE IN THE RETURN OF INCOME. WE HAVE HEARD THE ARGUMENTS MADE BY BOTH SIDES AND ALSO GONE THROUGH THE ORDERS PASSED BY LOWER AUTHORITIES AS WELL AS DOCUMENTARY EVIDENCES SHOWN TO US. THE BRIEF BACKGR OUND IS THAT ASSESSEE IS A FIRM AND FILED ITS RETURN OF INC OME ON 31.7.2007 AND THE ASSESSMENT WAS COMPLETED U/S 143( 3) VIDE ASSESSMENT ORDER DT 16.12.2009. THEREAFTER, THE ASS ESSMENT ORDER WAS REVIEWED BY THE COMMISSIONER OF INCOME TA X U/S 263 DATED 20.12.2011, WHEREIN THE ORIGINAL ASSESSME NT ORDER UNITED BUILDERS 3 WAS SET SIDE AND AO WAS DIRECTED TO CONSIDER VARIOU S ASPECTS TO DETERMINE THE CHARACTER OF INCOME TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR CAPITAL GAINS. CON SEQUENTLY, THE AO PASSED THE ORDER U/S 143(3) READ WITH SECTIO N 263 DATED 31.12.2012, WHEREIN HE TREATED THE IMPUGNED I NCOME AS INCOME FROM BUSINESS, MAINLY ON THE GROUND THAT T HE FIRM WAS INCORPORATED WITH THE INTENTION OF DEALING IN T HE BUSINESS OF SALE AND PURCHASE OF IMMOVABLE PROPERTIES AND/OR TO DEVELOP THE IMMOVABLE PROPERTIES ETC. THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS REPRODUCED BELOW: 5. DURING THE COURSE OF PROCEEDINGS, THE ASSESSEE WAS ASKED TO SUBMIT PARTNERSHIP DEED AND THE COPIES OF RETURNS OF INCOME FILED FROM A.Y.1996-97 TO 2006-07 . AS PER DIRECTION OF THE HON'BLE CIT, THE PARTNERSHI P DEED OF THE ASSESSEE HAS BEEN DULY VERIFIED AND FROM WHICH IT IS NOTICED THAT THE FIRM WAS INCORPOR ATED WITH THE INTENTION OF DEALING IN THE BUSINESS OF SELLING AND PURCHASING IMMOVABLE PROPERTIES AND OR TO DEVELOP THE IMMOVABLE PROPERTIES AND TO SELL THE FLATS UNITS, COMMERCIAL PREMISES, OFFICE CONTRACTED THEREON. FROM THE SAME, IT IS CLEAR THAT THE ASSESS EE FIRM WAS INCORPORATED WITH AN INTENTION TO DEAL IN PROPERTIES. THEREFORE, IT IS CLEAR THAT THE INVESTM ENT SHOWN BY THE ASSESSEE IS NOTHING BUT ITS STOCK IN T RADE. 6. THIS FACT IS FURTHER STRENGTHENED BY THE FACT THAT THE ASSESSEE FIRM HAD NOT FILED THE RETURNS OF INCO ME FOR A.Y.1996-97 TO A.Y.2005-06. THE ASSESSEE FIRM H AD SUBMITTED ONLY BALANCE SHEETS FOR THESE AYS. FROM WHICH IT IS CLEAR THAT THE ASSESSEE HAS NOT DONE AN Y ACTIVITY IN THE FIRM FOR THESE YEARS AND THE STOCK IN TRADE WAS SHOWN AS AN INVESTMENT TO GET THE BENEFIT OF INDEXATION. THE BALANCE SHEET FILED BY THE ASSES SEE FIRM FOR A.Y.1996-97 TO A.Y.2005-06 COULD NOT BE RELIED UPON AND RIOT AUTHENTICATED DOCUMENTS AS THE ASSESSEE FIRM FAILED TO FILE THE RETURN OF INCOME F OR THESE YEARS AND THE ASSESSEE FIRM HAS NO DOCUMENTARY EVIDENCE IN THE FORM OF RETURNS TO PROV E UNITED BUILDERS 4 THAT THE PROPERTIES WERE INVESTMENTS ONLY AND NOT STOCK-IN-TRADE. AS FAR AS THE RETURN OF INCOME FOR A.Y.2006-07 IS CONCERNED, THE CASE OF THE ASSESSEE FOR A.Y2006-07 WAS NOT PICKED UP FOR SCRUTINY AND ACCEP TED U/S 143(1) OF THE ACT ONLY. 7. IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE FIRM HAS CLAIMED SEVERAL EXPENSES SUCH AS STAFF SALARY, WATCHMAN SALARY, BANK CHARGES, ACCOUNTING CHARGES, LEVELING EXPENSES, CONVEYANCE EXPENSES AND INCLUDED SUCH EXPENSES IN THE COST OF THE PROPERTIES WHICH CLEARLY INDICATES THAT THE ASSESSEE FIRM HAD PURCHASED THESE PROPERTIES AS AN STOCK IN TRADE AND NOT INVESTMENT. 8. CONSIDERING THESE FACTS, THE CAPITAL GAINS SHOWN BY THE ASSESSEE FIRM ARE TREATED AS BUSINESS INCOME OF THE ASSESSEE AND REWORKED OUT AS UNDER: SALES PRICE RS.2,00,00,00 0/- LESS I) COST OF LAND RS.43,55,000/ II)VARIOUS EXPS CLAIMED RS.11,79,195 TOTALRS.55,33,195/- BUSINESS INCOME RS.1,44,66,805/- 3.1. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE LD. CIT(A) AND MADE EXHAUSTIVE SUBMISSIONS TO ESTABLISH THAT THE LAND WAS PART OF INVESTMENT AND RESULTANT PROFIT WA S INCOME FROM BUSINESS. BUT LD. CIT(A) DID NOT AGREE WITH TH E SUBMISSIONS OF THE ASSESSEE AND ENDORSED THE OBSERV ATIONS OF THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE. 3.2. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE TRIBUNAL. THE LD. COUNSEL OF THE ASSESSEE MADE EXHA USTIVE SUBMISSION TO DEMONSTRATE THAT IMPUGNED LAND WAS INVESTMENT. 3.3. PER CONTRA, LD. DR WAS NOT ABLE TO BRING ANY CONTR ARY MATERIAL ON RECORD. BUT, HE STRONGLY RELIED UPON TH E ORDERS OF THE LOWER AUTHORITIES. UNITED BUILDERS 5 3.4 . WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTH ORITIES AS WELL AS ENTIRE MATERIAL BROUGHT BEFORE US. IT IS NOTED THAT THE ASSESSEE FIRM WAS CONSTITUTED ON 11.10.1994. TH E ASSESSEE MADE PURCHASE OF TWO PIECES OF LANDS AS UN DER: I. CHARKOP LAND ON 06.01.1995 II. KANDIVALI LAND ON 27.07.1996 THE LAND LOCATED AT KANDIVALI WAS SOLD IN A.Y. 2006 -07 AND INCOME FROM THE SAME WAS DISCLOSED UNDER THE HEAD INCOME FROM CAPITAL GAINS WHICH WAS ACCEPTED AS SUCH BY T HE DEPARTMENT. 3.5. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SOLD REMAINING PIECE OF LAND LOCATED AT CHARKOP TO ONE B UYER AND DISCLOSE RESULTANT INCOME UNDER THE HEAD INCOME FR OM CAPITAL GAINS. IT WAS ACCEPTED AS SUCH BY THE AO IN THE O RIGINAL ASSESSMENT ORDER PASSED U/S 143(3), BUT IN VIEW OF THE ORDER PASSED IN PURSUANCE TO DIRECTION OF THE CIT U/S 263 , THE AO CHANGED ITS STAND AND TREATED THE IMPUGNED INCOME A S INCOME FROM BUSINESS. 3.6. IN OUR CONSIDERED VIEW, ACTION OF THE LOWER AUTHOR ITIES IS FACTUALLY INCORRECT AND CONTRARY TO LAW. THE ASSESS EE HAD DISCLOSED BOTH THE PIECES OF LAND (LOCATED AT TWO D IFFERENT PLACES) AS PART OF INVESTMENT IN ITS BALANCE SHEET. IT IS FURTHER STATED BY THE ASSESSEE THAT NO EXPENSES HAVE BEEN I NCURRED ON DEVELOPMENT OF THIS LAND. IT IS FURTHER STATED THAT NEITHER ANY PLAN WAS PREPARED AND SUBMITTED FOR APPROVAL FROM T HE LOCAL AUTHORITIES NOR ANY OTHER STEP WHATSOEVER WAS TAKEN TOWARDS DEVELOPMENT OF THE IMPUGNED LAND. THESE FACTS HAVE NOT BEEN NEGATED BY ANY OF THE LOWER AUTHORITIES I.E. THE AO , THE CIT OR UNITED BUILDERS 6 CIT(A). IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE FIRM WAS NOT HAVING ANY TAXABLE INCOME, AN D THEREFORE NO RETURNS WERE FILED FOR ANY YEAR PRIOR TO A.Y. 2006- 07. IN THESE CIRCUMSTANCES, WE FIND THAT MERELY BEC AUSE NO RETURN WAS FILED BY THE ASSESSEE IN EARLIER YEARS I N ABSENCE OF ANY TAXABLE INCOME, THE CHARACTER OF LAND WOULD NOT AUTOMATICALLY GET CHANGED FROM INVESTMENT TO STO CK-IN-TRADE. THE OTHER ALLEGATION OF THE AO IS ALSO WITHOUT ANY BASIS AND LEGAL SUBSTANCE WHEREIN IT WAS STATED THAT THE ASSE SSEE FIRM WAS CONSTITUTED FOR THE MAIN OBJECT OF DEVELOPMENT AND TRADING IN IMMOVABLE PROPERTIES, THEREFORE, THE IMP UGNED LAND SHOULD ALSO BE NECESSARILY CHARACTERISED AS PART OF STOCK-IN- TRADE. WE FIND NO BASIS FOR SUCH A BALD ALLEGATION. IT IS WELL SETTLED LAW THAT A PERSON CAN PLAN ITS AFFAIRS IN S UCH A MANNER SO AS TO MINIMIZE ITS TAX BURDEN AND THERE WOULD BE NOTHING WRONG IN IT, SO LONG AS APPROACH OF A TAXPAYER IS N OT BOGUS OR FALSE AND NO TAX EVASION IS PERPETUATED. IN THE FAC TS BROUGHT BEFORE US, NOTHING HAS BEEN BROUGHT ON RECORD BY TH E LOWER AUTHORITIES TO COUNTER THE FACTUAL ASSERTIONS MADE BY THE ASSESSEE. THE ASSESSEE HAS CONSISTENTLY KEPT THESE AMOUNTS AS PART OF INVESTMENTS SINCE LAST SO MANY YEARS. NO BUSINESS AT ALL HAS BEEN DONE BY THE ASSESSEE FIRM. ITS INCO ME HAS NEVER BEEN ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. NOTHING HAS BEEN SHOWN TO INDICATE IF THE ASSESSEE EVER TRE ATED THE IMPUGNED LAND AS PART OF THE STOCK-IN-TRADE AT AN Y POINT OF TIME IN THE PAST DECADE, AND THE ASSESSMENT ORDER H AS BEEN PASSED MERELY ON THE BASIS OF SURMISES AND CONJECTU RE WHICH HAVE NO PLACE IN THE EYES OF LAW. WE DO NOT FIND AN Y UNITED BUILDERS 7 JUSTIFICATION ON THE PART OF LOWER AUTHORITIES TO R E-CHARACTERISE THE INCOME EARNED FROM SALE OF LAND AS INCOME FROM BUSINESS. THE ASSESSEE HAD RIGHTLY SHOWN THE SAME AS INCOME UNDER THE HEAD CAPITAL GAINS. THEREFORE, ADDITION MADE BY TH E AO IS DIRECTED TO BE DELETED AND GROUND NOS. 1 & 2 ARE AL LOWED. 4. GROUND NO. 3: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN NOT ALLOWING THE BENEFIT OF SET OFF OF BROUGHT FORWARD LONG TERM CAPITAL LOSS. IT W AS SUBMITTED BEFORE US THAT THOUGH THE RETURN FOR A.Y. 2006-07 W AS FILED ON 30 TH OCTOBER 2006 I.E. WITHIN THE TIME LIMIT EXTENDED B Y THE CENTRAL BOARD OF DIRECT TAXES VIDE ITS NOTIFICATION DATED 24 TH JULY 2006, BUT THE AO OMITTED TO GRANT THE BENEFIT OF SET OFF OF BROUGHT FORWARD LONG TERM CAPITAL LOSS UNDER SOME E RRONEOUS ASSUMPTION OF FACTS WITH REGARD TO TIME LIMIT OF FI LING OF RETURN AND ACTUAL DATE OF FILE OF RETURN. 4.1. WE FIND THAT IT IS A MATTER OF PROPER VERIFICATION OF FACTS AND THEREFORE, THIS ISSUE IS SENT BACK TO THE FILE OF THE AO TO VERIFY THE REQUISITE FACTS WITH REGARD TO ACTUAL DA TE OF FILING OF RETURN AND EXTENDED DUE DATE OF FILING OF RETURN AN D CLAIM MADE BY THE ASSESSEE IN THE RETURN OF INCOME FILED IN A.Y. 2006-07 WITH RESPECT TO CARRY FORWARD OF LONG TERM CAPITAL LOSS. THE AO SHALL GIVE OPPORTUNITY OF HEARING TO THE ASS ESSEE TO FILE REQUISITE DETAILS AND DOCUMENTS BEFORE DECIDING THI S ISSUE AFRESH AFTER CONSIDERING ENTIRE MATERIAL BROUGHT ON RECORD BY THE ASSESSEE. THE ASSESSEE IS FREE TO RAISE ALL LEG AL AND FACTUAL ISSUES IN THIS REGARD. THUS, WITH THESE DIRECTIONS THIS ISSUE IS SENT BACK TO THE FILE OF THE AO AND THEREFORE GROUN D NO.3 MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. UNITED BUILDERS 8 5. GROUND NOS. 4 & 5. THESE GROUNDS ARE GENERAL AND DO NOT NEED ANY SPECIFIC ADJUDICATION AND THUS DISMISSED. 6. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND WITH RESPECT TO JURISDICTIONAL VALIDITY OF ORDER PASSED U/S 263 AS WELL AS ORDER PASSED U/S 143(3) READ WITH SECTION 2 63. SINCE WE HAVE ALLOWED THE RELIEF TO THE ASSESSEE ON MERIT S, THEREFORE, WITH THE CONSENT OF THE PARTIES WE DO NOT FIND IT A PPROPRIATE TO GO INTO THE ADDITIONAL GROUND AT THIS STAGE BY TREA TING IT AS INFRUCTUOUS. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2016. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED : 29 /07/2016 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -. / (01 , * % 012 , / DR, ITAT, MUMBAI 6. / 34 5 / GUARD FILE. / BY ORDER, ) -% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI