ACIT RG 25(3), MUMBAI V. DATTANI DEVELOPMENT, MUMBAI

ITA 5075/MUM/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2279 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 17-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Opportunity of being heard; Principle of natural justice; Rule of consistency; Cost of acquisition; Fair market value; Valuation report
• Section: 45(2); 143(3); 50C; 2(14)

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.5075 /MUM/2010 ( / ASSESSMENT YEAR : 2007-08) THE ACIT 25(3), C-11, R. NO. 308, PRATYAKSH KAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (EAST), MUMBAI 400 051. / V. M/S DATTANI DEVELOPMENT, 100, SHREEJI DARSHAN, 1ST FLOOR, S.V. ROAD, KANDIVALI (WEST), MUMBAI 400 067. ./ PAN : AABFD4969Q ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI MUKESH JAIN, DR ASSESSEE BY : MISS AARTI SATHE / DATE OF HEARING : 09-05-2016 / DATE OF PRONOUNCEMENT : 27-07-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE, BEING ITA NO. 5 075/MUM/2010, IS DIRECTED AGAINST THE ORDER DATED 29-03-2010 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 35, MUMBAI (HEREINAFTER CA LLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2007-08, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDER DATED 29-12-2009 PASSED BY THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1961 (HEREINAFTER CALLED THE ACT). ITA 5075/MUM/2010 2 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE BEF ORE INCOME TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) IN THE MEMO OF APPEAL FILED WITH THE TRIBUNAL READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ID.CIT(A) HAS ERRED IN DECIDING THAT SECTION 5OC IS N OT APPLICABLE FOR TRANSFER OF DEVELOPMENT RIGHTS AND DELETING THE ADDITION OF RS. 2,49,20,949/- UNDER THE HEAD CAPITAL GAINS AND ACCEPTI NG THE INCOME/LOSS OFFERED UNDER THE HEAD BUSINESS 2. THE ID. CIT(A) DELETED THE ADDITION WITHOUT APPRECI ATING THE FACT THAT DEVELOPMENT RIGHTS ARE PART INALIENABLE OF ANY LA ND OR BUILDING. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED . 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/143(3) READ WITH SECTION 143(2) OF TH E ACT, IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE HAS PURCHASED AND SOLD L AND AND HAS INCURRED LOSS. THE ASSESSEE PURCHASED LAND FOR RS. 26,35,00 0/- AND ON WHICH THE EXPENSES FOR DEVELOPMENT OF THE SAME WAS CLAIMED FO R RS. 20,29,541/- AND THE CONVEYANCE DEED FOR THE SAID LAND WAS EXECUTED IN THE ASSESSMENT YEAR 2007-08. IT WAS OBSERVED BY THE A.O. FROM THE BALAN CE SHEET AS ON 31 ST MARCH, 2006, THAT THE ASSESSEE IS SHOWING THE ADVAN CE FOR THE LAND AS UNDER:- INVESTMENT IN PROPERTIES AS PER SCHEDULE VI PROPERTY AT BORIVALI RITA WALTER REBELLOW 650250.00 CATHERINE FONSECA 650250.00 JOYCE REBELLOW 370083.00 ROCKY REBELLOW 675250.00 ITA 5075/MUM/2010 3 SIDNEY REBELLOW 145083.00 SMITA REBELLOW 145084.00 IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAD MAD E INVESTMENT IN THE LAND AND FOR THIS, ADVANCES HAVE BEEN PAID TO THE OWNERS OF THE LAND AND THE ASSESSEE GOT THE DEED OF CONFIRMATION IN ITS NAME O NLY VIDE REGISTERED AGREEMENT DATED 9 TH JANUARY, 2007 IN THE ASSESSMENT YEAR 2007-08. THE ASSESSEE WAS SHOWING THE INVESTMENT AS ADVANCE TO T HE OWNERS OF THE LAND. HOWEVER, THIS INVESTMENT WAS TAKEN TO P&L ACCOUNT I N THE ASSESSMENT YEAR 2007-08 WHEN IT IS ACTUALLY SOLD. SINCE THE ASSESS EE HAS TREATED THE LAND AS INVESTMENT IN THE EARLIER YEARS, IT WAS OBSERVED BY THE AO THAT THE GAIN/LOSS SHOULD HAVE BEEN TREATED AS CAPITAL GAIN/LOSS. HOW EVER, THE ASSESSEE TREATED THE SALE OF SUCH LAND AS BUSINESS TRANSACTION AND T OOK IT INTO P&L ACCOUNT AND THERE WAS NO TRACE OF CONVERSION OF CAPITAL ASS ET INTO STOCK-IN-TRADE AS THERE WAS NO INCOME/LOSS SHOWN UNDER THE HEAD CAPIT AL GAIN. THE ASSESSEE WAS SHOW CAUSED AS TO WHY U/S 50C OF THE ACT , THE MARKET VALUE SHOULD NOT BE TAKEN FOR THE PURPOSE OF GAIN ON SALE OF LAND. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE THAT THE LAND IS HELD AS STOCK-IN-TRAD E. THE ASSESSEE RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CA SE OF K.R. PALANIAMY V. UNION OF INDIA REPORTED IN (2009) 306 ITR 61 (MAD.) . THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF D EVELOPMENT OF PROPERTY OF EVERY DESCRIPTION OF LAND AND OTHER REAL ESTATE PRO PERTY. THE PARTNERSHIP FIRM IS CARRYING ON THE ABOVE BUSINESS SINCE 1980 AND HA S BEEN ASSESSED TO TAX AS SUCH AND THE REVENUE HAS ACCEPTED THE CONTENTIONS O F THE ASSESSEE AND WHENEVER THE ASSESSEE HAS SOLD LAND ALONG WITH DEVE LOPMENT RIGHTS, THE SAME HAS BEEN TREATED AS BUSINESS INCOME. THE ASSESSEE SUBMITTED THAT THE PROPERTIES MENTIONED IN SCHEDULE VI TO THE ACCOUNTS WERE BUSINESS ASSETS THOUGH THE NOMENCLATURE IS USED AS INVESTMENT IN P ROPERTIES. THE ASSESSEE SUBMITTED THAT THE PROPERTY IN QUESTION SOLD DURING THE YEAR ENDED 31 ST MARCH 2007 WAS PURCHASED IN THE YEAR 1994 AND THE C OPIES OF THE AGREEMENT ITA 5075/MUM/2010 4 WERE SUBMITTED DURING THE COURSE OF ASSESSMENT PROC EEDINGS. THE ASSESSEE SUBMITTED THAT THE PROPERTY CONSISTED OF 10 PLOTS O UT OF WHICH THREE PLOTS WERE SURRENDERED AND REMAINING SEVEN PLOTS RETAINED . THE THREE PLOTS WERE SURRENDERED AS THEY WERE NOT HAVING MARKETABLE TITL E AND AS SUCH COULD NOT BE SOLD/TRANSFERRED FREELY. THE INTENTION OF THE AS SESSEE WAS TO HOLD THE ASSET AS A CURRENT ASSET AND NOT AS INVESTMENT. THE ASSE SSEE DREW THE ATTENTION OF THE REVENUE TO THE CLAUSE 12(A) OF THE TAX AUDIT RE PORT WHEREIN THE ASSESSEE HAS SHOWN METHOD OF VALUATION OF CLOSING STOCK EMPL OYED WHICH CLEARLY INDICATES THAT THE LAND WAS INCLUDED THEREIN AND WA S VALUED AT COST. THE ASSESSEE SUBMITTED THAT MERE CLASSIFICATION OR NOME NCLATURE DOES NOT CHANGE CHARACTER OF THE ASSET WHICH WAS HELD AS BUSINESS A SSET. THUS, IT WAS SUBMITTED THAT DEVELOPMENT RIGHTS WERE HELD BY THE ASSESSEE AS BUSINESS ASSETS AND WERE CONSISTENTLY VALUED AT COST AND THE PROFITS ARISING THERE-FROM HAD BEEN OFFERED AS BUSINESS PROFITS. IT WAS SUBMI TTED THAT IN THE PAST ALSO THE REVENUE HAS ACCEPTED THE INCOME ARISING FROM SA LE OF LAND AND DEVELOPMENT RIGHTS WHICH WERE ASSESSED AS BUSINESS INCOME. IT WAS SUBMITTED THAT SINCE THE LAND WAS HELD AS BUSINESS ASSET, HENCE, THE SAID LAND DOES NOT FALL WITHIN THE PURVIEW OF CAPITAL AS SET AS PER SECTION 2(14) OF THE ACT. ONCE THE ASSET IS EXCLUDED FROM THE DEFIN ITION OF CAPITAL ASSET, THE PROVISIONS OF SECTION 50C OF THE ACT WERE NOT APPLI CABLE WAS THE SUBMISSIONS OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT, WITH OUT PREJUDICE TO THE ABOVE, IF THE REVENUE IS TREATING THE SAID PROPERTY AS CAP ITAL ASSET, THE ASSESSEE WILL CHALLENGE THE VALUATION DONE BY THE STAMP DUTY AUTH ORITIES AS THE GEOGRAPHICAL DISADVANTAGE OF THE LAND HAD NOT BEEN TAKEN INTO ACCOUNT, HENCE, THE ASSESSEE REQUESTED THE AO TO REFER THE M ATTER TO THE DEPARTMENTAL VALUATION OFFICER(DVO) FOR PROPER VALUATION. THE AS SESSEE ALSO SUBMITTED THE CLARIFICATORY LETTER FROM THE TAX AUDITORS IN RESP ECT OF CLAUSE 12(A) OF THE TAX AUDIT REPORT FOR THE YEAR ENDED 31-03-2007 WHEREBY THE AUDITORS HAS CERTIFIED VIDE CLARIFICATION DATED 22 ND DECEMBER,2009 WHICH READS AS UNDER:- ITA 5075/MUM/2010 5 RAJU C. JOSHI &ASSOCIATES CHARTERED ACCOUNTANTS G/722, SUNDERDHAM, RAMBAUG LANE, OFF S. V. ROAD, PO ISAR, BORIVALI (WEST), MUMBAI - 400 092. TEL NOS: 91-22-2808 1948,2807 1484. MOBILE: [phone] E-MAIL: [e-mail]@GMAIL.COM THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 25(3), BANDRA, MUMBAI RESPECTED SIR, RE: TAX AUDIT REPORT FOR THE YEAR ENDED MARCH 31, 2 007 IN THE CASE OF M/S DATTANI DEVELOPMENTS (PAN: AABFD4969Q) WITH REFERENCE TO THE ABOVE WE LIKE TO DRAW YOUR KI ND ATTENTION TO THE REPLY AGAINST CLAUSE 12(A) OF THE ABOVE REFERRE D TAX AUDIT REPORT FOR THE YEAR ENDED MARCH 31, 2007, WHEREIN IT HAS BEEN STATED THAT THE ABOVE REFERRED ASSESSEE DOES NOT HAVE ANY CLOSING S TOCK AND IN CASE OF JOINT VENTURES THE CLOSING STOCK IN TRADE OF LAND I S VALUED AT COST. WE WISH TO CLARIFY THAT THE REFERRED ASSESSEE ARE B UILDERS, DEVELOPERS AND DEALERS IN REAL ESTATE AND THEY DID NOT HAVE ANY CLOSING STOCK OF FINISHED GOODS AS ON MARCH 31, 2007, HENCE THE REMARK AGAINST THE SAID CLAUSE. THE REFERRED ASSESSEE HAS ALWAYS HELD LAND FOR THE PURPOSES OF DEVELOPMENT/SALE AND TREATED THE SA ME AS BUSINESS ASSET AND NOT AS CAPITAL ASSET AND VALUED THE SAME AT COST. THE ABOVE REFERRED TAX AUDIT REPORT MAY BE READ SUBJECT TO TH E CORRECTION/CLARIFICATION AS MENTIONED HEREINABOVE. WE HOPE YOU WILL FIND THE ABOVE INFORMATION IN ORDE R. THANKING YOU, ITA 5075/MUM/2010 6 YOURS FAITHFULLY, FOR RAJU C. JOSHI & ASSOCIATES CHARTERED ACCOUNTANTS SD/- RAJU C. JOSHI PLACE : MUMBAI DATE : DECEMBER 22, 2009 WHILE IN TAX AUDIT REPORT DATED 09-10-2007 IN CLAUS E 12-(A), IT WAS MENTIONED BY THE SAME TAX-AUDITORS EARLIER AS UNDER :- (A) METHOD OF VALUATION OF CLOSING STOCK EMPLOYED IN THE PREVIOUS YEAR. (B) DETAILS OF DEVIATION, IF ANY, FROM THE METHOD OF VALUATION PRESCRIBED UNDER SECTION 145A, AND THE EFFECT THEREOF ON THE PROFIT OR LOSS THE ASSESSEE DOES NOT HAVE ANY STOCK. HOWEVER, THE ASSESSEE IS A CO-VENTURER IN DATTANI DEVELOPMENT# 7 & PARTNER IN DATTANI FOUNDATION MAIN. THE METHOD OF VALUATION OF CLOSING STOCK IN TRADE FOLLOWED BY THE JOINT VENTURE IS AS UNDER: 1. WORK-IN-PROGRESS: AT COST PLUS 6% 2. LAND: AT COST NO DEVIATION. THE A.O. CONSIDERED THE REPLY OF THE ASSESSEE WHICH WAS NOT ACCEPTABLE TO THE AO WHEREBY THE A.O. OBSERVED THAT THE ASSESSEE IN I TS BOOKS OF ACCOUNT HAD SHOWN THE ADVANCE PAID TO THE OWNERS OF THE PROPERT Y AS INVESTMENT ONLY AND NOT AS STOCK-IN-TRADE. THE INTENTION OF THE ASS ESSEE WHETHER THE LAND IS HELD AS INVESTMENT OR STOCK-IN-TRADE IS REFLECT ED FROM BOOKS OF ACCOUNTS OF ITA 5075/MUM/2010 7 THE ASSESSEE. THE AO OBSERVED THAT THE ASSESSEE HA S NOT CONVERTED INVESTMENT INTO STOCK-IN-TRADE AS THE ASSESSEE HAS NOT BOOKED ANY CAPITAL GAIN ON THE FAIR MARKET VALUE U/S 45(2) OF THE ACT. IT WAS OBSERVED BY THE AO FROM THE AUDIT REPORT OF THE ASSESSEE AS ON 31 ST MARCH, 2007 IN COLUMN 12(A) OF PART B, THAT THERE IS NO STOCK HELD WITH THE ASS ESSEE, THE SAME IS REPRODUCED AS UNDER:- THE ASSESSEE DOES NOT HAVE ANY STOCK. HOWEVER THE ASSESSEE IS A CO- VENTURER IN DATTANI DEVELOPMENT #7 & PARTNER IN DAT TANI DEVELOPMENT MAIN. THE METHOD OF VALUATION OF CLOSING STOCK IN TRADE FOLLOWED BY JOINT VENTURE IS AS UNDER:- 1. WORK IN PROGRESS AT COST PLUS 6% 2. LAND AT COST THUS AS PER THE AO THE CONTENTION OF THE ASSESSEE I S NOT TRUE AS IS EVIDENT FROM THE AUDIT REPORT. THE STOCK MENTIONED IN THE AUDIT REPORT IS OF JOINT VENTURE UNDERTAKEN BY THE ASSESSEE. THE A.O. OBSERV ED THE FOLLOWING:- ON PERUSAL OF THE PARTNERSHIP DEED OF THE FIRM, TH E FOLLOWING IS OBSERVED:- THE BUSINESS OF PARTNERSHIP IS AND WILL BE TO UNDER TAKE, EXECUTE AND TO PURCHASE LAND AND TO CONSTRUCT THE BUILDING OR BUILDINGS THEREON AND CARRY ON THE CONTRACT WORKS OF CONSTRUC TION OF BUILDING STRUCTURES, CANALS, IRRIGATION, BRIDGES, F ACTORIES, WORKSHOP WAREHOUSE, INDUSTRIAL ESTATE FACTORY SHEDS AND ALSO THE WORK OF SITES SUPERVISION OF CONSTRUCTION WORK ON P ERCENTAGE BASIS ETC. THUS IT WAS OBSERVED BY THE AO THAT IT WAS NOT MEN TIONED IN THE PARTNERSHIP DEED THAT THE ASSESSEE WAS IN THE BUSINESS OF SALE/ PURCHASE OF LAND. THE ASSESSEE IS ONLY PURCHASING LAND FOR CONSTRUCTION T O BE UNDERTAKEN AND HENCE THE ASSESSEES SUBMISSION WAS NOT CORRECT AS PER THE OBSERVATIONS OF THE AO. THE ASSESSEE HAS NOT CARRIED OUT ANY DEVEL OPMENTAL WORK AS NO IOD/CC WAS TAKEN FOR THE SAID LAND TO DEVELOP ANY P ROJECT ON IT WHEREAS THE IOD(INTIMATION OF DISAPPROVAL) AND CC(COMMENCEMENT CERTIFICATE) WERE THE PRELIMINARY REQUIREMENT FOR DEVELOPING A PROJECT IN MUMBAI. THUS, NO ITA 5075/MUM/2010 8 DEVELOPMENT HAS BEEN DONE TO SHOW THAT THE ASSESSEE WAS IN THE BUSINESS OF DEVELOPING THE BUILDING ON THE LAND WHICH IS THE BU SINESS OF THE ASSESSEE AND ONLY LEGAL EXPENSES HAVE BEEN INCURRED WITH RESPECT TO THIS LAND ACQUIRED BY THE ASSESSEE AND INTEREST WAS PAID. THE ASSESSEE S UBMITTED A LETTER BEFORE THE A.O. FROM THEIR AUDITOR STATING AS CLARIFICATOR Y LETTER ON AUDIT REPORT WHICH IS AS FOLLOWS:- WE WISH TO CLARIFY THAT THE REFERRED ASSESSEE ARE BUI LDERS, DEVELOPERS AND DEALERS IN REAL ESTATE AND THEY DID NOT HAVE CLOS ING STOCK OF THE FINISHED GOOD AS ON 31.03.07, HENCE THE REMARK AGAIN ST THE SAID CLAUSE. THE REFERRED ASSESSEE HAS ALWAYS HELD LAND FOR THE PURPOSE OF DEVELOPMENT/SALE AND TREATED THE SAME AS BUSINESS ASSE T AND NOT AS CAPITAL ASSET AND VALUED THE SAME AT COST. THE ABOVE RE FERRED TAX AUDIT REPORT MAY BE READ SUBJECT TO THE CORRECTION/CLARIFICA TION AS MENTIONED HEREIN ABOVE. THE A.O. OBSERVED FROM THE ABOVE STATEMENT OF THE A UDITORS THAT THE AUDIT IS AN STATUTORY AUDIT AND THE AUDIT REPORT HAS A LEGAL SANCTITY , AND HENCE A POST DATED CLARIFICATION/CORRECTION BY THE CHARTERED ACC OUNTANT WHICH HAS A POTENTIAL TO GIVE THE OPPOSITE INTERPRETATION TO WH AT WAS CONTAINED ORIGINALLY IN TAX-AUDIT REPORT CANNOT BE ACCEPTED. THE AUDITO RS CLARIFICATION WAS REJECTED BY THE A.O. AS THE COLUMN 12(A) IN AUDIT R EPORT REFERS TO THE METHOD OF VALUATION OF THE CLOSING STOCK IRRESPECTIVE OF W HETHER IT IS LAND OR FINISHED GOODS. IT WAS ALSO OBSERVED BY THE AO THAT THERE I S A LEGAL MECHANISM FOR CONVERTING CAPITAL ASSET INTO STOCK-IN-TRADE AS PRO VIDED U/S 45(2) OF THE ACT AND A MERE CLARIFICATION CANNOT BE ACCEPTED TO CONV ERT THE PURPORTED CAPITAL ASSET IN TO STOCK IN TRADE. THE ASSESSES RELIANCE ON THE DECISION OF HONBLE HIGH COURT OF MADRAS HIGH COURT IS ALSO DISTINGUIS HABLE WHEREBY THE HONBLE COURT HELD THAT AS PER THE SCHEME OF THE AC T, THE CAPITAL AND TRADING ASSET ARE DIFFERENT AND IN THE INSTANT CASE THE ASS ESSEE HAD SOLD THE LAND ITA 5075/MUM/2010 9 WHICH WAS NEVER KEPT AS STOCK-IN-TRADE AND AS SUCH IT IS A CAPITAL ASSET AND HENCE DOES NOT SUPPORT THE CONTENTION OF THE ASSESS EE. THE ASSESSEES REQUEST FOR REFERRING THE MATTER TO THE DVO WAS ALSO REJECT ED BY THE A.O. AS THE REQUEST WAS MADE AT THE FAG-END OF THE ASSESSMENT P ROCEEDINGS I.E. ON 23 RD DECEMBER, 2009 WHEREAS THE ASSESSMENT PROCEEDINGS U /S 143(3) READ WITH SECTION 143(2) WERE GETTING TIME BARRED ON 31 ST DECEMBER, 2009 AND PROPER VALUATION COULD NOT BE DONE IN SUCH A SHORT PERIOD OF TIME. THUS, IT WAS OBSERVED BY THE A.O. THAT THE LAND WHICH WAS SOLD D URING THE YEAR WAS A CAPITAL ASSET AND THE TAX THEREON SHOULD BE COMPUTE D U/S 50C OF THE ACT AND THE GAIN THEREON SHALL BE SHORT TERM CAPITAL GAIN S INCE THE DEED OF CONFIRMATION WAS EXECUTED IN THE ASSESSMENT YEAR 20 07-08 ITSELF AND THE FOLLOWING COMPUTATIONS AS PER SECTION 50C OF THE AC T WAS MADE BY THE AO VIDE ASSESSMENT ORDER DATED 29-12-2009 PASSED BY TH E AO U/S 143(3) OF THE ACT, WHICH ARE AS UNDER:- NAME OF BUYER PRICE AT WHICH SOLD (RS . ) VALUE AS PER VALUATION AU THORITY (RS . ) DIFFERENCE AMOUNT (RS.) RUSHI CONSTRUCTION 30,00,000 1,84,13,500 1,54,13,50 0 NITESH ENTERPRISES 10,00,000 50,38,000 40,38,000 KIRAN PATEL EDUCATION TRUST 18,00,000 1,16,55,000 98,55,000 TOTAL (DIFFERENCE) 2,93,06,500 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 29-12-20 09 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE FILED ITS FIRST APPEAL BEFORE THE LEARNED CIT(A). 5. BEFORE THE LEARNED CIT(A) , THE ASSESSEE SUBMITT ED THAT THE ASSESSEE TRANSFERRED THE DEVELOPMENT RIGHTS FOR A CONSIDERAT ION OF RS. 58 LACS TO THE FOLLOWING THREE PARTIES:- 1. M/S RUSHI CONSTRUCTIONS RS. 30,00,000/- 2. M/S NITISH ENTERPRISES RS. 10,00,000/- ITA 5075/MUM/2010 10 3. M/S KIRAN EDUCATION TRUST RS. 18,00,000/- TOTAL RS. 58,00,000/- ============ IT WAS SUBMITTED THAT THE AMOUNT OF INCOME WAS OFFE RED FOR TAXATION UNDER THE HEAD INCOME FROM BUSINESS AFTER DEDUCTING THE C OST OF PROPERTY AND DEVELOPMENT EXPENSES AND THE A.O. ERRED IN APPLYING SECTION 50C OF THE ACT AS THE ASSESSEE HAD ALWAYS ADMITTED THE INCOME IN R ESPECT OF PROPERTIES SHOWN UNDER THE HEAD INVESTMENT IN PROPERTIES IN THE BALANCE SHEET IN THE PAST AS THE INCOME FROM BUSINESS AND THE SAME WAS N OT DISPUTED BY THE A.O. IN THE ASSESSMENT ORDER. THE ASSESSEE ARGUED THAT AS PER THE PRINCIPLE OF CONSISTENCY, THE A.O. OUGHT TO HAVE ASSESSED THE IN COME ONLY UNDER THE HEAD BUSINESS AND NOT UNDER THE HEAD CAPITAL GAINS. IT W AS SUBMITTED THAT THE ASSESSEE PURCHASED THE PROPERTY FOR THE PURPOSE OF DEVELOPMENT AND AS PER SALE AGREEMENT DATED 15 TH AUGUST, 1994, THE ASSESSEE WAS AUTHORISED TO SELL THE FLATS, SHOPS, GARAGE ETC. WHICH MIGHT BE CONSTR UCTED ON THE SAID PROPERTIES WHICH PROVED THAT THE LAND WAS PURCHASED ONLY FOR BUSINESS PURPOSE. IT WAS SUBMITTED THAT THE ASSESSEE AGREED TO PURCHASE THE LAND WHICH WAS HAVING DEFECTIVE TITLE AND THE PROPERTY W AS OCCUPIED WITH TENANTS AND ASSESSEE DID NOT OBTAIN VACANT POSSESSION OF TH E LAND WHEN IT ENTERED INTO SALE AGREEMENT IN YEAR 1994. IT WAS SUBMITTED THAT THE SELLER HAD ALREADY ENTERED INTO SALE AGREEMENT WITH M/S SWEET HOME AND THE ASSESSEE PURCHASED THE PROPERTY WHICH COULD NOT HAVE BEEN FO R INVESTMENT PURPOSE AND SINCE THE ASSESSEE IS IN THE DEVELOPMENT , THIS PROPERTY WAS PURCHASED EVEN THOUGH THE TITLE OF THE LAND WAS NOT CLEAR AND APPROACH ROAD WAS ALSO NOT THERE. THE ASSESSEE WAS SO CONFIDENT OF REMOVI NG ALL THE DEFECTS AND PURCHASED THE PROPERTY WHICH SHOWS THAT THE INTENTI ON OF THE ASSESSEE WAS TO USE THE PROPERTY FOR BUSINESS PURPOSE. IT WAS SUBMI TTED THAT MERELY BECAUSE THE ADVANCES PAID TO THE OWNERS WERE SHOWN UNDER TH E HEAD INVESTMENT IN PROPERTY , THE A.O. APPLIED SECTION 50C OF THE ACT WHEREAS IN RESPECT OF OTHER PROPERTIES SHOWN UNDER THE HEAD INVESTMENT THE AS SESSEE ADMITTED BUSINESS INCOME. IT WAS SUBMITTED THAT THE INTENTION OF THE ASSESSEE IS VERY CLEAR FROM ITA 5075/MUM/2010 11 THE SALE AGREEMENT AND IT IS NOT TO BE SEEN FROM TH E BALANCE SHEET IN WHICH THE SAME IS SHOWN AS AN ASSET AND THE MERE NOMENCLA TURE USED IN THE BALANCE SHEET WOULD NOT ALTER THE NATURE OF PROPERT Y AND THE SAME IS TO BE GATHERED FROM THE PURCHASE AGREEMENT DATED 15 TH AUGUST, 1994 AND KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY , THE PROFIT/L OSS IS TO BE ASSESSED ONLY UNDER THE HEAD INCOME FROM BUSINESS. WITHOUT PREJUD ICE, THE ASSESSEE CONTENDED THAT THE ASSESSEE ENTERED INTO ONLY DEVEL OPMENT AGREEMENT ON 17 TH FEBRUARY, 2007 BASED ON WHICH THE A.O. APPLIED PROV ISIONS OF SECTION 50C OF THE ACT IGNORING THE FACT THAT IT WAS NOT AN ABSOLU TE SALE DEED. IT WAS FURTHER CONTENDED BY THE ASSESSEE THAT THE ASSESSEE SIGNED THE DEVELOPMENT AGREEMENT ONLY AS A CONFIRMING PARTY AS THE ASSESSE E HAD ENTERED INTO AGREEMENT DATED 15 TH AUGUST, 1994 FOR PURCHASE OF LAND FROM THE OWNERS. IT WAS SUBMITTED THAT SECTION 50C OF THE ACT IS APPLIC ABLE FOR SALE OF LAND OR BUILDING WHEREAS IN THE PRESENT CASE ASSESSEE ENTER ED INTO DEVELOPMENT AGREEMENT, THEREFORE, SECTION 50C OF THE ACT IS NOT APPLICABLE. TO SUPPORT ITS CONTENTIONS, THE ASSESSEE RELIED UPON THE DECISION OF ITAT, MUMBAI TRIBUNAL IN THE CASE OF SMT. KISHORI SHARAD GAITONDE IN ITA NO. 1561/MUM/2009 FOR THE ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 27 TH NOVEMBER, 2009 WHEREIN IT WAS HELD THAT SECTION 50C OF THE ACT IS APPLICAB LE ONLY IN RESPECT OF TRANSFER OF CAPITAL ASSETS BEING LAND OR BUILDING OR BOTH RE GISTERED BY SALE DEED AND IT IS NOT APPLICABLE FOR TRANSFER OF TENANCY RIGHTS, T HOUGH THE SAME IS CAPITAL ASSET BUT NOT BEING CAPITAL ASSET I.E. LAND OR BUIL DING OR BOTH. THE LEARNED CIT(A) CONSIDERED THE SUBMISSION OF TH E ASSESSEE AND THE ORDER OF THE A.O. AND OBSERVED THAT THE ASSESSEE HAS ENTE RED INTO AGREEMENT DATED 15 TH AUGUST, 1994 FOR PURCHASE OF LAND FROM MR. REBELLO AND OTHERS FOR A TOTAL CONSIDERATION OF RS. 7,50,000/- WHEREIN THE AGREEME NT WAS UNREGISTERED. THE PAYMENTS MADE TO MR. REBELLO AND OTHERS BY THE ASSE SSEE WERE ACCOUNTED IN THE BALANCE SHEET UNDER THE HEAD INVESTMENT IN PRO PERTIES. THE ASSESSEE HAS ALSO REGISTERED THE DEED OF CONFIRMATION IN ITS NAM E IN RESPECT OF THE PROPERTY ITA 5075/MUM/2010 12 MENTIONED IN THE AGREEMENT DATED 15.8.94 ON 9 TH JANUARY, 2007. MR. REBELLO AND OTHERS IN THE CAPACITY OF LAND OWNERS AND THE A SSESSEE AS CONFIRMING PARTY ENTERED INTO DEVELOPMENT AGREEMENT DATED 17 TH FEBRUARY, 2007 WITH THE DEVELOPER AND RECEIVED THE CONSIDERATION. THE REGIS TERED DEED DATED 17 TH FEBRUARY, 2007 IS NOT AN ABSOLUTE SALE DEED BUT ONL Y DEVELOPMENT AGREEMENT AND THE PURCHASER OBTAINED IRREVOCABLE POWER OF ATT ORNEY FROM MR. REBELLO AND OTHERS. ALTHOUGH THE AMOUNTS PAID IN RESPECT O F THIS PROPERTY WAS SHOWN UNDER THE HEAD INVESTMENT IN PROPERTY, THE ASSESS EE WAS ADMITTING INCOME UNDER THE HEAD INCOME FROM BUSINESS IN RESPECT OF ALL OTHER PROPERTIES WHICH WERE SHOWN UNDER THE HEAD AS INVESTMENT IN PROPERT IES INCLUDING MANU NIVAS AND WHICH WAS NOT DISPUTED BY THE A.O.. IT W AS OBSERVED FROM THE AGREEMENT DATED 15 AUGUST, 1994 THAT THE PROPERTY W AS NOT FREE FROM ENCUMBRANCES AND THE SELLER HAD ALREADY AGREED TO S ELL THE SAME LAND TO M/S. SWEET HOME AND MR. REBELLO AND OTHERS HAD EXECUTED POWER OF ATTORNEY DATED 29 TH DECEMBER, 1979 IN FAVOUR OF M/S SWEET HOME . THE AO OBSERVED THAT THE PROPERTY WAS NOT IN THE POSSESSION AND OCCUPATI ON OF MR. RABELLO AND OTHERS. THERE WAS NO APPROACH ROAD . THE LEARNED CI T(A) OBSERVED THAT THE ABOVE DEFECTS IN THE LAND IS CLEAR FROM THE VARIOUS CLAUSES OF AGREEMENT DATED 15 TH AUGUST, 1994 WHICH ARE REPRODUCED AS UNDER:- (H) SUNDER SHANKAR THAKUR, MORESHWAR SHANKAR THAKU R, RAGHUNATH SHANKAR THAKUR AND LALIYA HEERA SHOIR CLA IM TO BE THE TENANTS (KULS) OF THE SAID PROPERTY. (I)THE VENDORS HAVE INFORMED THE PURCHASERS THAT UN DER THE REVISED DEVELOPMENT PLAN OF R WARD SANCTIONED BY THE STATE GOVERNMENT IN THE YEAR 1993, THE PORTION OF THE PRO PERTY IS RESERVED FOR PUBLIC PURPOSE OF GARDEN AS SHOWN WASH ED IN GREEN ON THE PLAN ANNEXED THERETO , FOR SECONDARY SCHOOL AS SHOWN WASHED IN RED ON THE PLAN ANNEXED HERETO, FOR THE P URPOSE OF HOUSING FOR DISHOUSED AS SHOWN WASHED IN ORANGE ON THE PLAN ANNEXED HERETO, FOR JUNCTION OF D.P.ROAD AND 44 WID E D.P.ROAD AS SHOWN IN BURNT SIENNA COLOUR ON THE PLAN ANNEXED HERETO, REST OF THE SAID PROPERTY CAN BE USED FOR THE PURPOSE OF RESIDENCE. ITA 5075/MUM/2010 13 (L) THE VENDORS HAVE LEARNT THAT THE SAID ROCKY AN THONY REBELLO AND THE SAID STANLEY REBELLOW HAVE BY AN AG REEMENT DATED 28TH DECEMBER, 1979 AGREED TO SELL THE ENTIRE PROPERTY TO M/S SWEET HOME, A PARTNERSHIP CONCERN CONSISTING OF SMT. SAVITA K SHAH AND SHRI RAMJI H.C. SHAH HAVING THEIR OFFICE AT 7/8, NILKANTH ROSHAN NAGAR, CHANDAVARKAR LANE, BORIVALI( WEST), BOMBAY 400092 , AT OR FOR THE CONSIDERATION AND ON THE TERMS AND CONDITIONS RECORDED THEREIN THOUGH THEY WERE NO T THE ABSOLUTE OWNERS AND EACH ONE HAS ONLY 1/4 TH UNDIVIDED SHARE, RIGHT, TITLE INTEREST IN SAID PROPERTY AND PURPORTE D TO PUT THE SAID SWEET HOME IN POSSESSION THEREOF AND THE SAID SWEET HOME HAS PUT UP ITS BOARD AND SECURITY GUARD ON THE SAID PRO PERTY. (O) IN THE SAID AGREEMENT IT IS PROVIDED THAT THE V ENDORS WILL HAND OVER THE ORIGINAL TITLE DEEDS ETC. TO THE ADVO CATES FOR THE SAID SWEET HOME. HOWEVER, THE TITLE DEEDS ARE NOT H ANDED OVER TO THE ADVOCATES FOR THE SAID SWEET HOME; (P) THE SAID ROCKY REBELLO AND THE SAID STANLEY HAV E ALSO EXECUTED A POWER OF ATTORNEY DATED 29 TH DECEMBER,1979. THE VENDORS WILL TERMINATE THE SAME; (Q) THE VENDERS HAVE REPRESENTED TO THE PURCHASERS THAT SAVE AND EXCEPT AS PROVIDED HEREIN TILE SAID AGREEMENT I S NOT ACTED UPON AND THE SAME WAS ABANDONED BY THE SAID ROCKY R EBELLO AND THE SAID STANLEY JOSEPH REBELLO AND THE SWEET H OME AND THERE IS NO COMMUNICATION OR CORRESPONDENCE OF ANY NATURE WHATSOEVER FROM THE SAID M/S SWEET HOME; 3. THE VENDOR HAS INFORMED THE PURCHASERS AS FOLLOWS:- (A) THE VENDORS AND THEIR THREE CO-OWNERS VIZ. SAID ROCKY REBELLO, CATHERIN LESLIE FONSECA AND RITA WAITER REBELLO, AR E NOT IN POSSESSION AND OCCUPATION OF THE SAID PROPERTY; (N) THAT THERE IS NO PROPER RIGHT OF WAY AND ACCESS AVAILABLE TO THE SAID PROPERTY FROM THE PUBLIC ROAD. THE PURCHAS ERS SHALL AT THEIR OWN COSTS AND EXPENSES OBTAIN NECESSARY RIGHT OF WAY AND ACCESS TO THE SAID PROPERTY.' IT WAS OBSERVED BY THE LEARNED CIT(A) FROM THE AGRE EMENT THAT THE ASSESSEE AGREED TO PURCHASE THE LAND FOR THE PURPOSE OF CONS TRUCTING FLATS, SHOPS, ITA 5075/MUM/2010 14 GARAGE ETC. AS PER CLAUSE 7 OF THE AGREEMENT. AS PE R CLAUSE 16 OF THE AGREEMENT, THE ASSESSEE WAS ENTITLED TO PUT UP AND / OR ERECT SIGN BOARDS UPON THE PROPERTY AS ALSO TO ISSUE ADVERTISEMENTS F OR ANNOUNCING SALE OF FLATS, TENEMENTS, PREMISES, SHOPS , OPEN PLOTS ON O WNERSHIP BASIS. FURTHER, AS PER CLAUSE 17 OF THE AGREEMENT, THE ASSESSEE WAS TO DEAL WITH AND SETTLE THE CLAIMS OF THE SAID TENANTS/KULS AND THE VENDERS SHALL NOT BE RESPONSIBLE FOR THE SAME. THUS, IT WAS OBSERVED BY THE LEARNED CIT(A) FROM THE VARIOUS CLAUSES OF THE AGREEMENT THAT THE LAND WAS PURCHASED ONLY FOR THE PURPOSE OF CONSTRUCTING FLATS/SHOPS, GARAGE ETC. AN D NOT WITH AN INTENTION TO HOLD IT AS AN INVESTMENT. THE LEARNED CIT(A) OBSERV ED THAT THE INTENTION OF THE ASSESSEE REGARDING THE HEAD OF INCOME IN WHICH PROF IT IS ASSESSABLE IS TO BE GATHERED FROM VARIOUS CLAUSES OF THE AGREEMENT AND NOT BASED ON THE NOMENCLATURE USED IN THE BALANCE SHEET AND ALTHOUGH THE ASSESSEE HAD SHOWN THE EXPENSES INCURRED ONLY UNDER THE HEAD INV ESTMENT IN PROPERTIES IN THE BALANCE SHEET BUT THIS ALONE WILL NOT DECIDE THE NATURE OF ASSET AS TO WHETHER IT IS BUSINESS OR INVESTMENT. THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED TO TAX UNDER THE HEAD BUSINESS IN THE EARLIER YEARS, WHICH WAS NOT DISPUTED BY THE A.O. IN THE ASSESSEES CASE , THE PROFIT AND LOSS HAS CONSISTENTLY BEEN ASSESSED UNDER THE HEAD BUSINESS AND THERE WAS NO REASON TO CHANGE THE SAME IN THIS ASSESSMENT YEAR. THE LD . CIT(A) OBSERVED THAT THE CONTENTION OF THE A.O. IS IN-CORRECT THAT THE PURCH ASE OF LAND WAS NOT MENTIONED IN THE PARTNERSHIP DEED AS IT WAS SPECIFI CALLY MENTIONED THAT THE BUSINESS OF THE PARTNERSHIP WAS TO PURCHASE LAND AN D CONSTRUCTION OF BUILDING THEREON. FURTHER THE CONTENTION OF THE A. O. THAT ASSESSEE DID NOT CONVERT THE INVESTMENT AS STOCK-IN-TRADE WHEREAS AS PER THE AUDIT REPORT THERE WAS NO STOCK WITH THE ASSESSEE WERE ALSO NOT CORRECT AS THE ASSESSEE HAS CONSISTENTLY BEEN ADMITTING THAT THE PROFIT OR LOSS IN RESPECT OF THE PROPERTIES SHOWN UNDER THE HEAD INVESTMENT IN THE B ALANCE SHEET UNDER THE HEAD BUSINESS. THE LD. CIT(A) RELIED ON THE DECISIO N OF THE TRIBUNAL IN THE CASE OF JANAK S. RANGWALLA V. ACIT, 11 SOT 627 AND THE DECISION OF HONBLE ITA 5075/MUM/2010 15 SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT, [1992] 193 ITR 321 HOLDING THAT THOUGH THE PRINCIPLE OF RES JUDICATA D OES NOT APPLY TO THE INCOME TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT AND TO MAINTAIN THE CONSISTENCY THE SAME VIEW SHOULD BE AD OPTED FOR THE SUBSEQUENT YEARS. THUS THERE WAS NO JUSTIFICATION TO BRING TO THE TAX THE AFORESAID BUSINESS INCOME UNDER THE HEAD CAPITAL GA INS DURING THIS YEAR. IT WAS ALSO OBSERVED THAT THE ASSESSEE HAS ENTERED INT O AGREEMENT FOR PURCHASE OF LAND ON 15 TH AUGUST, 1994 THOUGH THERE WERE DEFECTS IN THE PROP ERTY AND OBTAINED THE DEED OF CONFIRMATION REGISTERED ON 9 TH JANUARY, 2007 AND TRANSFERRED THE DEVELOPMENT RIGHT AS A CONFIRMING P ARTY ON 17 TH FEBRUARY, 2007. THE DEVELOPMENT AGREEMENT CANNOT BE CONSTRUE D AS SALE DEED AND SECTION 50C OF THE ACT IS APPLICABLE ONLY IN RESPEC T OF SALE DEED IN RESPECT OF LAND OR BUILDING OR BOTH. THE ASSESSEE HAD RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF SMT. KISHORI SHARAD GAITOND E IN ITA NO. 1561/MUM/2009 FOR THE ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 27 TH NOVEMBER, 2009 WHEREBY THE TRIBUNAL HELD THAT SECTI ON 50C OF THE ACT IS APPLICABLE ONLY WHEN THE LAND OR BUILDING OR BOTH A RE REGISTERED BY SALE DEED AND IT WOULD NOT BE APPLICABLE FOR TRANSFER OF TENA NCY RIGHT EVEN THOUGH IT IS A CAPITAL ASSET AS THE SAME IS NOT LAND OR BUILDING O R BOTH. THUS, THE LD. CIT(A) HELD THAT SECTION 50C OF THE ACT IS NOT APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION AND THE AO ERRED IN TAKING THE VALUE ADOPTED OR ASSESSED BY THE AUTHORITY OF A STATE GOVERNMENT / THE STAMP VALUATION FOR THE PURPOSES OF CAPITAL GAINS ON TRANSFER OF A TENANCY RIGHTS OR DEVELOPMENT RIGHTS AS SECTION 50C OF THE ACT IS APPLICABLE TO T RANSFER OF LAND OR BUILDING OR BOTH. THE LEARNED CIT(A) DIRECTED THE A.O. TO DELET E THE ADDITION OF RS. 2,49,20,949/- MADE BY THE A.O. UNDER THE HEAD CAPIT AL GAINS AND DIRECTED THE AO TO ACCEPT THE INCOME/LOSS OFFERED BY THE ASS ESSEE UNDER THE HEAD BUSINESS VIDE APPELLATE ORDERS OF THE LEARNED CIT(A ) DATED 29-03-2010. 6. AGGRIEVED BY THE APPELLATE ORDER DATED 29-03-2 010 PASSED BY THE LEARNED ITA 5075/MUM/2010 16 CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNA L. 7. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS TRA NSFERRED LAND DURING THE PREVIOUS YEAR WHICH WAS HELD AS CAPITAL ASSET B Y THE ASSESSEE SINCE 1994 AND THE LD. CIT(A) ERRED IN DECIDING THAT THE SECTI ON 50C OF THE ACT IS NOT APPLICABLE FOR TRANSFER OF DEVELOPMENT RIGHT AND DE LETING THE ADDITION OF RS. 2,49,20,949/- MADE BY THE AO UNDER THE HEAD CAPITAL GAIN AND ACCEPTING THE INCOME OFFERED BY THE ASSESSEE UNDER THE HEAD INCOM E FROM BUSINESS. THE LD. D.R. CONTENDED THAT THE A.O. RIGHTLY TREATED THE TR ANSFER OF LAND AS CAPITAL ASSET U/S 2(14) OF THE ACT AND BROUGHT TO TAX GAINS ARISING THERE-FROM UNDER THE HEAD INCOME FROM CAPITAL GAIN BY APPLYING THE P ROVISIONS OF SECTION 50C OF THE ACT. THE LD. DR RELIED UPON THE ASSESSMENT O RDER OF THE AO. THE LD. D.R. ALSO CONTENDED THAT LAND HELD BY THE ASSESSEE WAS NOT A BUSINESS ASSET BUT INVESTMENT MADE BY THE ASSESSEE AND RIGHTLY HEL D BY THE AO AS CAPITAL ASSET. IT WAS SHOWN CONSISTENTLY BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS/BALANCE SHEET AS INVESTMENT IN PROPERTIES SINCE 1994 WHEN IT WAS ACQUIRED. IT WAS A TRANSFER OF DEVELOPMENT RIGHTS W HICH IS A CAPITAL ASSET. THE GAIN ARISING THERE-FROM ON TRANSFER WAS RIGHTLY TRE ATED AS CAPITAL GAIN BY THE AO AND NOT BUSINESS INCOME OF THE ASSESSEE BY THE A O. THE A.O. HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 50C OF THE ACT AN D ADOPTED THE VALUE AS DETERMINED BY STAMP DULY VALUATION AUTHORITIES AS F ULL VALUE OF CONSIDERATION FOR THE PURPOSES OF COMPUTING CAPITAL GAINS CHARGEA BLE TO TAX. THE LD. D.R. RELIED ON THE ASSESSMENT ORDER OF THE A.O. AND SUBM ITTED THAT THERE WERE DEFECTS IN THE TITLE OF THE SAID LAND WHEREBY THE S ELLERS HAVE ALREADY ENTERED INTO AGREEMENT TO SELL DATED 28-12-1979 WITH SWEET HOMES . IT IS STATED IN THE AGREEMENT THAT THE ORIGINAL TITLE DEEDS WILL BE HAN DED OVER TO THE ADVOCATES FOR SWEET HOMES BUT THE SAME WERE NOT HANDED OVER B Y THE SELLERS. THE SELLERS HAVE EXECUTED POWER OF ATTORNEY DATED 29-12 -1979 IN FAVOUR OF SWEET HOMES AND THE SELLERS ARE ALSO NOT IN POSSESSION AN D OCCUPATION OF THE PROPERTY AND THIS PROPERTY DOES NOT HAVE APPROACH R OAD AND ALSO THERE IS NO ITA 5075/MUM/2010 17 RIGHT OF WAY AND ACCESS TO THE SAID PROPERTY. THE S AID LAND WAS ALSO HAVING TENANTS/KULS . HE SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF PURCHASE AND SALE OF LAND AND CONSTRUCTION OF BUILDING THERE ON BUT IN THE INSTANT CASE NO CONSTRUCTION WAS EVER DONE BY THE ASSESSEE SINCE 1994 WHEN AN UNREGISTERED AGREEMENT WAS EXECUTED BY RABELLOS IN FAVOUR OF THE ASSESSEE. THE ASSESSEE DID NOT HAD ANY INTENTION TO DEVELOP T HE LAND AS IT WAS SUFFERING FROM SEVERAL DEFECTS AND ENCUMBRANCES. THE ASSESSEE MADE INVESTMENT IN THE LAND CARRYING SEVERAL DEFECTS WITH A VIEW TO EARN G AINS WITH EFFLUX OF TIME AS WELL BY REMOVAL OF DEFECTS IN THE TITLE OF THE LAND . SECTION 50C OF THE ACT WAS RIGHTLY BEEN INVOKED BY THE A.O. . THE ASSESSEE TRA NSFERRED THE DEVELOPMENT RIGHT IN THE LAND FOR A CONSIDERATION OF RS. 58 LAC S WHILE THE STAMP DUTY VALUE FOR THE TRANSFER OF DEVELOPMENT RIGHT IS RS. 3,51,0 6,500/- THUS THERE IS A DIFFERENCE OF RS.2,93,06,500/- BETWEEN THE SALE CON SIDERATION AND THE STAMP DUTY VALUATION WHICH IS BROUGHT TO TAX BY THE REVEN UE UNDER THE HEAD INCOME FROM CAPITAL GAINS AFTER PROVIDING FOR DEDUCTIONS O N ACCOUNT OF COST OF ACQUISITION/IMPROVEMENT ETC.. IT WAS SUBMITTED BY LEARNED DR THAT THE LD. CIT(A) ERRED IN ACCEPTING THE GAINS ON SALE OF LAND AS OFFERED BY THE ASSESSEE AS BUSINESS INCOME. THE LD. CIT(A) RELIED ON THE D ECISION OF THE TRIBUNAL IN THE CASE OF SMT. KISHORI SHARAD GAITONDE FOR THE AS SESSMENT YEAR 2005-06 DATED 27 TH NOVEMBER, 2009 TO COME TO THE CONCLUSION THAT SECT ION 50C OF THE ACT IS NOT APPLICABLE IN THE CASE OF TRANSFER OF DE VELOPMENT RIGHTS. IT IS SUBMITTED BY LEARNED DR THAT SECTION 50C OF THE ACT IS APPLICABLE ON TRANSFER OF DEVELOPMENTAL RIGHT. THE A.O. HAS RIGHTLY APPLI ED THE PROVISIONS OF SECTION 50C OF THE ACT TO THE TRANSFER OF DEVELOPMENT RIGHT S EXECUTED BY THE ASSESSEE. THE LD. DR RELIED ON THE DECISION OF THE ITAT, MUMB AI IN ARIF AKHTAR HUSSAIN V. ITO REPORTED IN 45 SOT 257(MUM). IT IS SUBMITTED THAT THE ASSESSEE VIDE AGREEMENT DATED 17 TH FEBRUARY, 2007 ENTERED INTO WITH RUSHI CONSTRUCTIO N FOR TRANSFER OF DEVELOPMENT RIGHTS WHEREIN THE TOTA L CONSIDERATION WAS RS. 30 LACS AND AS AGAINST THE SALE CONSIDERATION OF RS 30 LACS , THE STAMP DUTY VALUE WAS RS.1,84,13,500/- AND HENCE THE GAIN ARISI NG WAS CHARGEABLE TO TAX ITA 5075/MUM/2010 18 UNDER THE HEAD CAPITAL GAINS BASED ON STAMP DUTY VA LUATION AS PER PROVISIONS OF SECTION 50C OF THE ACT. IT WAS SUBMITTED THAT TH ERE WAS PART PERFORMANCE OF THE AGREEMENT WITH RUSHI CONSTRUCTION TOOK PLACE W HEREBY RS.29.50 LACS WAS PAID TO THE ASSESSEE BY RUSHI CONSTRUCTION IN T HE RELEVANT PREVIOUS YEAR WHILE BALANCE OF RS. 50000/- IS STILL PAYABLE AND T HE POSSESSION OF THE LAND WAS HANDED TO RUSHI CONSTRUCTION BY THE ASSESSEE IN PART PERFORMANCE OF THE CONTRACT AS CONTEMPLATED U/S 53A OF THE TRANSFER OF PROPERTY ACT,1882 READ WITH SECTION 2(47) OF THE ACT WHEREBY TRANSFER TOOK PLACE AND HENCE CAPITAL GAIN IS CHARGEABLE TO TAX IN THE IMPUGNED ASSESSMEN T YEAR. THE SAID AGREEMENT WITH RUSHI CONSTRUCTIONS IS PLACED AT PAP ER BOOK PAGE 306-685. THE LD. CIT(A) ERRED IN HOLDING IT AS A BUSINESS IN COME AND HOLDING THAT TRANSFER OF DEVELOPMENT RIGHTS IS NOT COVERED UNDER THE PROVISIONS OF SECTION 50C OF THE ACT . THE LD. D.R. SUBMITTED THAT ASSES SEE MADE AN INVESTMENT IN LAND IN 1994 WITH A VIEW TO MAKE GAINS WITH EFFLUX OF TIME AND BY REMOVAL OF DEFECTS IN THE SAID LAND. NO APPROVAL HAS BEEN OBT AINED BY THE ASSESSEE FOR CONSTRUCTION ON THIS LAND IN THE FORM OF IOD AND CC FROM THE AUTHORITIES SINCE 1994 WHEN THE INTEREST IN THE SAID LAND WAS A CQUIRED BY THE ASSESSEE THE INTENTION OF THE ASSESSEE SINCE BEGINNING WAS T O HOLD THE LAND AS AN INVESTMENT SINCE IT ACQUIRED INTEREST IN THE LAND I N THE YEAR 1994. THE ASSESSEE HAS NOT INCURRED ANY DEVELOPMENT CHARGES O N THIS PROPERTY SINCE 1994 WHEN IT ACQUIRED INTEREST IN THE SAID LAND. T HE LD. D.R. RELIED ON THE ASSESSMENT ORDER OF THE A.O. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE IS A PARTNERSHIP FIRM. THE ASSESSEE IS IN THE BUSINESS OF DEVELOPMENT OF PROPERTIES. THE DEVELOPMENT RIGHT HAS BEEN TRANSFE RRED HENCE SECTION 50C OF THE ACT CANNOT BE INVOKED AS THERE IS NO TRANSFER O F LAND OR BUILDING OR BOTH RELYING ON DECISION OF ITAT, MIUMBAI IN THE CASE OF KISHORI SHARAD GAITONDE (SUPRA) . BY AN AGREEMENT DATED 28TH DECEMBER, 1979 , THE OWNERS AGREED TO SELL THE ENTIRE PROPERTY TO M/S SWEET HOME, A PARTN ERSHIP CONCERN. THE POWER ITA 5075/MUM/2010 19 OF ATTORNEY WAS ALSO EXECUTED IN FAVOUR OF SWEET HO MES BY THE OWNERS ON 29- 12-1979. THE OWNERS DID NOT HAD THE POSSESSION NOR WAS HAVING THE OCCUPATION OF THE PROPERTY WHEN THE ASSESSEE ACQUIR ED INTEREST IN THE SAID LAND. THERE WERE TENANTS/KUL IN THE PROPERTY. THE T ITLE OF THE PROPERTY HAD SEVERAL ENCUMBRANCES AND DEFECTS AND HENCE THE ASSE SSEE WHO ACQUIRED INTEREST IN THE LAND VIDE AGREEMENT DATED 15-08-199 4 WAS NOT OWNER OF THE SAID LAND. THE LD. COUNSEL FOR THE ASSESSEE DREW O UR ATTENTION TO THE COPY OF PURCHASE AGREEMENT DATED 15 TH AUGUST, 1994 WITH THE OWNERS WHICH IS PLACED AT PAPER BOOK PAGE NO. 1 TO 94. THE LD. COUNSEL SU BMITTED THAT THERE IS AN AGREEMENT WITH KIRAN PATEL EDUCATION TRUST ENTERED INTO ON 19 TH JANUARY, 1997 BY THE ASSESSEE, COPY OF WHICH IS PLACED AT PA PER BOOK PAGE NO. 95 TO 117 WHEREBY THE DEVELOPMENT RIGHT HAS BEEN SOLD/ TR ANSFERRED TO KIRAN PATEL EDUCATION TRUST BY THE ASSESSEE AND THE CONSIDERATI ON WAS RECEIVED. THE SAID LAND WAS EARLIER SHOWN AS INVESTMENT IN THE BOOKS O F ACCOUNT SINCE ACQUISITION IN 1994 BUT THE GAIN ARISING FROM SALE OF LAND TO KIRAN PATEL EDUCATION TRUST WAS CHARGED TO TAX AS BUSINESS INCO ME. ALTHOUGH, THE BUSINESS OF THE ASSESSEE IS DEVELOPMENT OF LAND WHI LE THE LAND WAS SHOWN AS INVESTMENT IN ITS BOOKS OF ACCOUNTS/BALANCE SHEET. THE ASSESSEE HAS PLACED COPY OF ASSESSMENT ORDERS U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEARS 1993-94, 1995-96, 2006-07 WHICH ARE PLACED IN THE F ILE, WHEREBY THE LD. COUNSEL SHOWED THAT THE ASSESSEE IS REGULARLY ASSES SED TO TAX UNDER THE HEAD INCOME FROM BUSINESS BY THE REVENUE IN THE ASSESSME NTS FRAMED U/S 143(3) OF THE ACT AND THE ASSESSEES BUSINESS IS OF BUILDE RS AND DEVELOPERS. THE ASSESSEE HAS PLACED COPY OF REGISTERED IRREVOCABLE GENERAL POWER OF ATTORNEY DATED 21-06-2005 VIDE PAPER BOOK PAGE 118 TO 126 GI VEN BY REBELLO FAMILY IN FAVOUR OF MR. MANISH A. DATTANI WITH RESPECT TO THI S LAND. IT IS ALSO SUBMITTED THAT FROM THE TAX AUDIT REPORT CLEARLY STATED THAT ASSESSEE IS VALUING THE LAND AT COST. THE ASSESSEE IS HOLDING THE LAND FOR THE PURPOSES OF DEVELOPMENT AND SALE AND NOT AS CAPITAL ASSET AND THE SAME HAS BEEN VALUED AT COST. THE ASSESSEE ALSO DREW OUR ATTENTION TO THE PARTNERSHIP DEED CLAUSE NO. 3 WHICH ITA 5075/MUM/2010 20 IS PLACED AT PAPER BOOK PAGE 810 WHEREBY IT IS WRIT TEN IN THE PARTNERSHIP DEED THAT THE BUSINESS OF THE PARTNERSHIP IS AND WILL BE THAT OF INVESTORS AND REALTORS AND TO UNDERTAKE, EXECUTE AND TO PURCHASE LANDS AND CONSTRUCT BUILDING OR BUILDINGS THEREON AND CARRY ON THE CONT RACT WORKS OR CONSTRUCTIONS OF BUILDING, STRUCTURE, CANALS, IRRIG ATION, BRIDGES, FACTORIES, WORKSHOP, WAREHOUSES, INDUSTRIAL ESTATES, FACTORY S HEDS AND ALSO THE WORK OF SITE SUPERVISION OF CONSTRUCTION WORKS ON PERCENTAG E BASIS ETC., SELLING FLATS, SHOPS, GARAGES, OFFICE AND OTHER TENEMENTS OR BUILD ING AND/OR ANY PART THEREOF ON OWNERSHIP OR OTHER BASIS OR SUCH OTHER B USINESS OR BUSINESS AS THE PARTNERS MAY FROM TIME TO TIME DECIDE. THUS , THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED BU SINESS OF DEVELOPMENT OF LAND AND CONSTRUCTION OF BUILDING AND THE SAID LAND CANNOT BE TREATED AS CAPITAL ASSET. THE LD. COUNSEL HAS ALSO DREW OUR A TTENTION TO THE SALE DEED OF DEVELOPMENT RIGHTS AND CONVEYANCE DEED WHICH WAS RE GISTERED IN FAVOUR OF THE RUSHI CONSTRUCTIONS, WHICH ARE PLACED AT PAPER BOOK PAGE 306 TO 710 FOR TRANSFER OF THE INTEREST IN LAND AND SUBMITTED THAT SECTION 50C OF THE ACT IS NOT APPLICABLE TO THE ASSESSEE AS THE ASSESSEE HAS NOT TRANSFERRED LAND OR BUILDING OR BOTH. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DETAILED WRITTEN SUBMISSIONS WERE SUBMITTED AND THE SAME MAY BE CONSIDERED WHEREBY IT IS SUBMITTED THAT ASSESSEE IS NOT THE OW NER OF THE PROPERTY WHO ACQUIRED THE DEVELOPMENT RIGHT AND THE LEARNED CIT( A) HAS RIGHTLY BROUGHT TO TAX INCOME ARISING FROM TRANSFER OF DEVELOPMENT RIG HTS AS BUSINESS INCOME. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON TH E ORDERS OF THE LEARNED CIT(A). THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS:- 1. ITA NO. 2519/AHD/2009 FOR A.Y. 2006-07 ORDER DATED 13.4.2012 IN THE CASE OF ITO V. SHRI YASIN MOOSA GODIL 2. ITA NO. 1561/M/09 FOR A.Y. 2005-06 ORDER DATED 27.1 1.2009 IN THE CASE OF SMT. KISHORI SHARAD GAITONDE V. ITO ITA 5075/MUM/2010 21 3. ITA NO. 1459/KOL/2011 FOR A.Y. 2008-09 ORDER DATED 29.2.2012 IN THE CASE OF DCIT V. TEJINDER SINGH. 4. IN THE CASE OF ATUL G. PURANIK V. ITO IN ITA NO. 30 51/MUM/2010 FOR A.Y. 2006-07 ORDER DATED 13.5.2011 (2011) 58 DT R (MUMBAI) (TRIB) 208. THUS, IT IS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. THE ASSESSEE IS NOT THE OWNER OF T HE LAND. THE ASSESSEE HAS SOLD THE DEVELOPMENT RIGHT AS PART OF ITS BUSINESS AND INCOME IS TO BE ASSESSED AS BUSINESS INCOME AND PROVISIONS OF SECTI ON 50C OF THE ACT HAS NO APPLICATION . THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO SUBMITTED WRITTEN SUBMISSIONS TO DISTINGUISH THE CASE LAWS RELIED UPO N BY THE REVENUE WHICH ARE DULY CONSIDERED BY US. 9. IN THE REJOINDER, THE LD. D.R. SUBMITTED THAT TH E ASSESSEE IS THE OWNER OF THE LAND AND THE GAINS ARE TO BE CHARGED AS CAPI TAL GAIN. THE LD. D.R. ALSO RELIED UPON THE FOLLOWING CASE LAWS IN SUPPORT OF H IS CONTENTION:- 1. IN THE CASE OF CHHEDA HOUSING DEVELOPMENT V. BIB IJAN SHAIKH FARID AND OTHERS (BOMBAY HIGH COURT) 2007 (3) MHLJ 402. 2. IN THE CASE OF ARIF AKHTAR HUSSAIN V. ITO, 45 SO T 257 (ITAT, MUMBAI) 3. IN THE CASE OF CHIRANJEEV LAL KHANNA V. ITO IN I TA NO. 6170/MUM/2008 (ITAT, MUMBAI). 4. IN THE CASE OF ARLETTE RODRIGUES V. ITO IN ITA N O. 343/MUM/2010 (ITAT, MUMBAI) 5. IN THE CASE OF ACIT V. MANUBHAI SHETH LARGER (HUF) IN ITA NO. 5775/MUM/2008 (ITAT, MUMBAI) AND 6. IN THE CASE OF SHAVO NORGREN (P) LTD. V. DCIT, 33 T AXMANN.COM 491 (ITAT, MUMBAI) ITA 5075/MUM/2010 22 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL PLACED ON RECORD AND ALSO GONE THROUGH THE CASE LAW S CITED BY BOTH THE SIDES. WE HAVE OBSERVED THAT THE ASSESSEE IS A PARTNERSHIP FIRM, COPY OF DEED OF PARTNERSHIP IS PLACED AT PAPER BOOK PAGE 806-828 FI LED WITH THE TRIBUNAL. THE OBJECTS OF PARTNERSHIP ARE MENTIONED IN CLAUSE 3 OF THE PARTNERSHIP DEED WHEREBY THE BUSINESS OF THE PARTNERSHIP IS THAT OF INVESTORS AND REALTORS AND TO UNDERTAKE, EXECUTE AND TO PURCHASE LANDS AND CONSTRUCT BUILDING OR BUILDINGS THEREON AND CARRY ON THE CONTRACT WORKS O R CONSTRUCTIONS OF BUILDING, STRUCTURE, CANALS, IRRIGATION, BRIDGES, F ACTORIES, WORKSHOP, WAREHOUSES, INDUSTRIAL ESTATES, FACTORY SHEDS AND A LSO THE WORK OF SITE SUPERVISION OF CONSTRUCTION WORKS ON PERCENTAGE BAS IS ETC., SELLING FLATS, SHOPS, GARAGES, OFFICE AND OTHER TENEMENTS OR BUILD ING AND/OR ANY PART THEREOF ON OWNERSHIP OR OTHER BASIS OR SUCH OTHER B USINESS OR BUSINESS AS THE PARTNERS MAY FROM TIME TO TIME DECIDE. THE ASSESSEE HAD PURCHASED THE TITLE AND INTEREST I N THE LAND FROM THE REBELLO FAMILY IN 1994. THE PURCHASE AGREEMENT DATED 15-08 -1994 ARE PLACED IN PAPER BOOK PAGE 1-94 FILED WITH THE TRIBUNAL. THE L AND SO PURCHASED BY THE ASSESSEE FROM THE REBELLO FAMILY IN THE YEAR 1994 W AS SUBJECT TO SEVERAL ENCUMBRANCES AND DEFECTS WHICH ARE ALSO LISTED IN T HE PURCHASE AGREEMENT DATED 15-08-1994 . THE SAID LAND WAS ALSO OCCUPIED BY TENANTS/KULS WHO ARE HAVING CLAIMS IN THE SAID LAND. THE SAID REBELLO F AMILY EARLIER SOLD THE LAND IN THE YEAR 1979 TO SWEET HOMES AND ALSO HANDED O VER POSSESSION TO THEM . THE SAID SWEET HOMES MADE PART PAYMENTS UNDER THE S AID AGREEMENT TO SALE EXECUTED BY REBELLO FAMILY IN FAVOUR OF SWEET HOME S IN THE YEAR 1979. THE REBELLO FAMILY HAD ALSO EXECUTED THE POWER OF ATTOR NEY IN 1979 IN FAVOUR OF SWEET HOMES WITH RESPECT TO THIS LAND. THE SAID A GREEMENT TO SALE ENTERED INTO BETWEEN REBELLO FAMILY AND SWEET HOMES IN TH E YEAR 1979 WAS NOT YET BEEN CANCELLED BY THE SWEET HOMES. THERE WAS ALSO NO APPROACH ROAD AS WELL NO RIGHT TO WAY /ACCESS WITH RESPECT TO THE AFORE-S AID LAND. IT WAS ALSO IN THE ITA 5075/MUM/2010 23 NEW REVISED DEVELOPMENT PLAN OF R WARD SANCTIONED BY THE STATE GOVERNMENT IN THE YEAR 1993 WHEREBY THE PORTION OF THE PROPERT Y WAS RESERVED FOR PUBLIC PURPOSES OF GARDEN, SECONDARY SCHOOL, HOUSES FOR DI SHOUSED , ROADS AS WELL FOR RESIDENTIAL PURPOSES. THE ASSESSEE HAD ALSO NO T UNDERTAKEN ANY DEVELOPMENT OR CONSTRUCTION OF THE BUILDING ON THE SAID LAND SINCE IT ACQUIRED INTEREST AND TITLE IN THE LAND IN THE YEAR 1994 TIL L THE DATE OF SALE BY THE ASSESSEE. NO APPROVAL WAS EVEN TAKEN BY THE ASSESS EE FROM THE GOVERNMENT FOR DEVELOPMENT OF THE SAID LAND OR CONSTRUCTION OF BUILDING THEREOF SINCE INTEREST AND TITLE IN THE LAND WAS ACQUIRED BY THE ASSESSEE IN THE YEAR 1994 TILL THE DATE OF SALE BY THE ASSESSEE. THE ASSESSE E WAS FULLY AWARE THAT THE LAND IS HAVING SEVERAL ENCUMBRANCES/DEFECTS IN ITS TITLE AT THE TIME OF ITS ACQUISITION IN THE YEAR 1994 ITSELF WHICH DULY FIND MENTIONED IN THE PURCHASE AGREEMENT DATED 15-08-1994. THE SAID LAND WAS CARR IED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS/BALANCE SHEET AS INVESTMENT IN PROPERTIES SINCE ITS ACQUISITION IN THE YEAR 1994 TILL THE DATE OF SALE , AND WAS NEVER EVER REFLECTED AS STOCK IN TRADE IN ITS BOOKS OF ACCOUNTS/BALANCE SHEET. THE ASSESSEE DID NOT SPENT ANY AMOUNT ON THE LAND DEVELOPMENT OR CON STRUCTION OF BUILDING THEREON AFTER ITS ACQUISITION APART FROM SPENDING O N LEGAL CHARGES AND PAYMENT OF INTEREST. THE ASSESSEE SOLD DEVELOPMENT RIGHTS IN THE LAND FOR RS 58 LACS DURING RELEVANT PREVIOUS YEAR TO THREE DIFF ERENT PARTIES AS AGAINST STAMP DUTY VALUE ADOPTED BY THE AUTHORITIES OF RS.3 .51 CRORES. IN-FACT ON PERUSAL OF THE DEVELOPMENT AGREEMENTS READ ALONG WI TH AND IN CONJUNCTION WITH THE CONVEYANCE/CONFIRMATION DEEDS EXECUTED BY THE ASSESSEE IN FAVOUR OF THE BUYERS, IT IS CLEAR THAT THE ASSESSEE IN-FACT S OLD THE LAND WITH ALL ATTACHED RIGHTS OF OWNERSHIP TO THE BUYERS FOR RS.58 LACS WI TH FURTHER RIGHTS TO SELL, CONSTRUCT ETC. IN FAVOUR OF THE BUYERS. THESE DEVEL OPMENT AGREEMENTS ALONG WITH CONVEYANCE DEED/CONFIRMATION DEEDS ENTERED INT O BY THE ASSESSEE WITH THE THREE PARTIES ARE PLACED IN PAPER BOOK PAGE 95- 787 . THUS, IF THE FACTS AND CIRCUMSTANCES ARE SEEN IN TOTALITY , IT IS CRYSTAL CLEAR THAT THE ASSESSEE MADE AN INVESTMENT IN THE YEAR 1994 BY ACQUIRING INTERES T IN THE LAND KNOWING FULLY ITA 5075/MUM/2010 24 WELL THAT THERE ARE SEVERAL ENCUMBRANCES/DEFECT IN THE LAND SO ACQUIRED BY THE ASSESSEE FROM REBELLO FAMILY AND THE ASSESSEE C AN GAIN PROFITS BY WAY OF APPRECIATION IN THE VALUE OF LAND WITH EFFLUX OF TI ME AS WELL BY REMOVING DEFECTS / ENCUMBRANCES WITH WHICH THE LAND WAS THEN SADDLED WITH AT THE TIME OF ACQUISITION OF TITLE AND INTEREST IN THE LA ND AND ALSO KNOWINGLY WELL THAT IN THE REVISED DEVELOPMENT PLAN OF R WARD SA NCTIONED BY THE STATE GOVERNMENT, THE PORTION OF THE LAND IS RESERVED FOR SECONDARY SCHOOL AND RESIDENTIAL PURPOSES . THE ASSESSEE WAS FULLY AWA RE AT THE TIME OF ACQUISITION IN THE YEAR 1994 ITSELF THAT THE DEVELOPMENT OF LAN D AND CONSTRUCTION OF BUILDING THEREON IN NEAR FUTURE IS NOT POSSIBLE IN VIEW OF SEVERAL ENCUMBRANCES AND DEFECTS IN THE TITLE OF THE LAND W ITH WHICH THE LAND WAS SADDLED WITH , BUT THE ASSESSEE WAS FULLY AWARE THA T THE ASSESSEE CAN EARN PROFITS FROM THIS INVESTMENT IN LAND BY WAY OF APPR ECIATION IN THE VALUE OF LAND WITH EFFLUX OF TIME AS WELL WITH REMOVAL OF DE FECTS AND ENCUMBRANCES WITH WHICH LAND WAS SADDLED WITH KEEPING IN VIEW AL SO THAT THE DEVELOPMENT PLAN OF R WARD WAS SANCTIONED BY THE STATE GOVERN MENT IN THE YEAR 1993 WHEREBY THERE WAS RESERVATION EARMARKED FOR SOME PO RTION OF THIS LAND FOR SECONDARY SCHOOL AND RESIDENTIAL ZONE . THUS, WE A RE OF THE CONSIDERED VIEW, THE INVESTMENT WAS MADE BY THE ASSESSEE IN THE YEAR 1994 FOR ACQUIRING THIS LAND FROM REBELLO FAMILY AS INVESTMENT FOR LONG TER M BASIS BY THE ASSESSEE KNOWING FULLY WELL THAT THE LAND IS SUFFERING FROM SEVERAL ENCUMBRANCES AND DEFECTS IN ITS TITLE AS SET OUT ABOVE , WITH AN OBJ ECTIVE TO MAKE LONG TERM GAINS ON APPRECIATION IN VALUE OF LAND DUE TO EFFLUX OF T IME AND ALSO BY REMOVING DEFECTS AND ENCUMBRANCES IN THE LAND. THE ASSESSEE WAS ALSO FULLY AWARE THAT THERE WAS NO POSSIBILITY OF DEVELOPMENT AND CONSTRU CTION OF BUILDING ON THE LAND IN THE IMMEDIATE NEAR FUTURE DUE TO SEVERAL EN CUMBRANCES AND DEFECTS IN THE TITLE OF THE LAND WITH WHICH THE LAND WAS SA DDLED WITH AS SET OUT ABOVE. THE ASSESSEE THEREFORE REFLECTED THE SAID LAND AS INVESTMENT IN PROPERTIES IN ITS BOOKS OF ACCOUNTS SINCE THE YEAR 1994 TILL IT W AS SOLD AS INTENTION WAS ALWAYS TO HOLD THE LAND FOR A LONG PERIOD OF TIME T O EARN GAINS BY WAY OF ITA 5075/MUM/2010 25 APPRECIATION IN THE VALUE OF THE LAND. THE ASSESSEE HAS ALSO NOT DEMONSTRATED THAT THERE WAS ANY PROJECT CONCEIVED BY THE ASSESSE E TO BE UNDERTAKEN ON THIS LAND FOR CONSTRUCTION OR DEVELOPMENT NOR ANY APPROV ALS WERE EVEN APPLIED FOR WITH THE GOVERNMENT FOR DEVELOPMENT/CONSTRUCTION ON THE SAID LAND DESPITE THE LAND BEING RETAINED FOR ALMOST 12-13 YEARS BY T HE ASSESSEE. KEEPING IN VIEW THE RATIO OF DECISIONS CITED BY LEARNED DR AS DETAILED ABOVE AND OVERALL FACTS AND CIRCUMSTANCES OF THE CASE IN TOTALITY, WE ALSO FIND THAT SECTION 50C OF THE ACT IS CLEARLY APPLICABLE EVEN TO THE SALE O F DEVELOPMENT RIGHTS IN THE LAND AS WAS HELD IN THE DECISIONS RELIED UPON BY TH E LEARNED DR AS DETAILED ABOVE , MORE-SO WE HAVE ALREADY HELD THAT IN-FACT THE ASSESSEE HAS NOT ONLY SOLD DEVELOPMENT RIGHTS IN THE LAND BUT THE ASSESSE E SOLD THE ENTIRE LAND WITH OWNERSHIP RIGHTS IN THE LAND IF THE DEVELOPMENT AGR EEMENT ARE READ IN CONJUNCTION WITH DEED OF CONFIRMATION / CONVEYANCE EXECUTED BY THE ASSESSEE WHICH ARE PLACED IN PAPER BOOK FILED WITH THE TRIBU NAL. THUS, THE LAND WHICH WAS SOLD DURING THE PREVIOUS YEAR BY THE ASSESSEE, THUS KEEPING IN VIEW OUR ABOVE DISCUSSIONS IN THE LIGHT OF FACTS AND CIRCUMS TANCES OF THE CASE, WAS A CAPITAL ASSET WITHIN THE PROVISIONS OF SECTION 2(14 ) OF THE ACT AND THE VALUATION OF THE LAND AS PER STAMP DUTY VALUATION A UTHORITIES AS PER SECTION 50C OF THE ACT WAS RIGHTLY ADOPTED BY THE AO AS FUL L VALUE OF CONSIDERATION BUT IN OUR CONSIDERED VIEW THE GAINS ARISEN TO THE ASSESSEE IN THE INSTANT CASE THEREON SHALL HOWEVER BE LONG TERM CAPITAL GAINS AS THE INTEREST AND TITLE IN THE LAND HAS BEEN ACQUIRED BY THE ASSESSEE IN THE Y EAR 1994 ITSELF FROM REBELLO FAMILY AND THE ASSESSEE SHALL ALSO BE ENTIT LED FOR BENEFIT OF COST INFLATION INDEXATION WHILE COMPUTING COST OF ACQUIS ITION AND IMPROVEMENT THEREON AS PER PROVISIONS OF SECTION 48 OF THE ACT . THUS, TO THE EXTENT IT WAS HELD BY THE AO THAT GAINS ARISING FROM THE SALE OF THE LAND IN THE INSTANT CASE TO BE SHORT TERM CAPITAL GAINS AS CONFIRMED/SUSTAIN ED BY LEARNED CIT(A) ARE REVERSED BY US VIDE THIS ORDER BY HOLDING THAT THE GAINS ARISING FROM SALE OF THIS LAND ARE LONG TERM CAPITAL GAINS AND NOT SHORT TERM CAPITAL GAINS AS HELD BY AUTHORITIES BELOW AS THE INTEREST AND TITLE IN T HE LAND WAS ACQUIRED BY THE ITA 5075/MUM/2010 26 ASSESSEE IN THE YEAR 1994 ITSELF AND HELD BY THE A SSESSEE FOR MORE THAN THIRTY SIX MONTHS IN ACCORDANCE WITH PROVISIONS OF SECTION 2(29A) READ WITH SECTION 2(42A) OF THE ACT . HOWEVER, THE ASSESSEE HAS CONT ENDED DURING THE ASSESSMENT PROCEEDINGS BEFORE THE AO THAT IF THE A. O. IS ADOPTING THE VALUATION AS ADOPTED BY STAMP DUTY AUTHORITIES BY A PPLYING PROVISIONS OF SECTION 50C OF THE ACT, THE ASSESSEE IN THAT CASE I S CHALLENGING THE VALUATION DONE BY STAMP DUTY AUTHORITIES AND REQUESTED THE A. O. TO REFER THE MATTER TO DVO U/S 50C(2) OF THE ACT FOR FINDING OUT THE CORRE CT VALUE OF THE LAND SO SOLD BY THE ASSESSEE WHICH IN-FACT IS THE MANDATE OF SEC TION 50C(2) OF THE ACT , AND IN OUR CONSIDERED VIEW THE ASSESSEE RIGHTLY EXE RCISED ITS RIGHT AND INVOKED THE PROVISIONS OF SECTION 50C(2) OF THE ACT TO REFER THE MATTER TO DVO ALBEIT THIS PLEA WAS TAKEN BY THE ASSESSEE FOR THE FIRST TIME ON 23-12-2009 WHICH WAS AT THE FAG-END OF THE ASSESSMENT PROCEEDI NGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT BEING GETTING TIME-BARRED ON 31-12-2009 UNDER THE PROVISIONS OF SECTION 153(1) OF THE ACT. HENCE, KE EPING IN VIEW THE INTEREST OF JUSTICE AND FAIR PLAY, IN OUR CONSIDERED VIEW THIS MATTER/ISSUE NEEDS TO BE SET ASIDE AND RESTORED TO THE FILE OF THE A.O. FOR DE-N OVO DETERMINATION OF THE ISSUE ON MERITS AFTER REFERRING THE MATTER TO DVO F OR VALUATION REPORT AND THEREAFTER THE AO SHALL COMPLETE THE ASSESSMENT DE- NOVO ON MERITS AFTER CONSIDERING THE EVIDENCES/EXPLANATIONS SUBMITTED BY THE ASSESSEE IN ITS DEFENSE , VALUATION REPORT OF DVO AS WELL THE VALUE ADOPTED BY THE STAMP DUTY AUTHORITIES TO ARRIVE AT THE FULL VALUE OF CONSIDER ATION TO COMPUTE CAPITAL GAINS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM CAPI TAL GAINS UNDER CHAPTER IV-E OF THE ACT. NEEDLESS TO SAY THAT THE A.O. SHAL L PROVIDE PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LA W. WE ORDER ACCORDINGLY. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA N0. 5075/MUM/2010 FOR THE ASSESSMENT YEAR 2007-08 IS AL LOWED FOR STATISTICAL PURPOSES. ITA 5075/MUM/2010 27 ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JULY , 2016. # $% &' 27-07-2016. ( ) SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 27-07-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI D BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI