SANJAY J AHUJA, MUMBAI V. ITO 19(3)(4), MUMBAI

ITA 5731/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1664 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 11-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KARDA M
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Depreciation; Question of law; Capital receipt
• Section: 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI RAMLAL NEGI, JUDICIAL MEMBER ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) SHRI SANJAY J. AHUJA, 202, FLAT NO.11, SHAHNAJ BUILDING, NEW NEW INDIA BANK, S.V.ROAD, BANDRA (WEST), MUMBAI 400 050 PAN:ADEPA 2739H ...... AP PELLANT VS. THE INCOME TAX OFFICER 19(3)(4), PIRAMAL CHAMBERS, PAREL MUMBAI 400 011 .... RESP ONDENT APPELLANT BY : SHRI HARIDAS BHAT RESPONDENT BY : SHRI A.K.KARDAM DATE OF HEARING : 17/10/2016 DATE OF PRONOUNCEMENT : 09/12/2016 ORDER PER B.R.BASKARAN,A.M: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 14- 07-2014 PASSED BY LD CIT(A)-30, MUMBAI AND IT RELAT ES TO THE ASSESSMENT YEAR 2010-11. THE ASSESSEE IS AGGRIEVED BY THE DEC ISION OF LD CIT(A) IN CONFIRMING THE DECISION TAKEN BY THE AO IN RESPECT OF COMPUTATION OF CAPITAL GAIN AND DISALLOWANCE OF DEPRECIATION ON WINDMILL. 2. THE FACTS RELATING TO THE ABOVE SAID ISSUES A RE STATED IN BRIEF. THE ASSESSEE IS PROPRIETOR OF M/S SANJAY AHUJA PROPERTY TRADE AND M/S SANJAY 2 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) AHUJA PROPERTY TRADE WIND MILL. HE FILED HIS RETUR N OF INCOME DECLARING NIL INCOME. THE AO NOTICED THAT THE ASSESSEE HAS CREDI TED A SUM OF RS.1,44,90,542/- AS PROFIT ON SALE OF LAND AND HAS OFFERED THE SAME AS BUSINESS INCOME. THE AO REJECTED THE CLAIM OF THE ASSESSEE THAT HE IS A TRADER IN PROPERTIES AND ACCORDINGLY TOOK THE VIEW THAT THE PROFIT ON SALE OF PROPERTY IS ASSESSABLE AS CAPITAL GAIN. THE AO ALS O APPLIED THE PROVISIONS OF SEC.50C AND ACCORDINGLY ENHANCED THE AMOUNT OF SALE CONSIDERATION. THE AO ALSO DISALLOWED THE CLAIM OF PAYMENT OF COMPENSATIO N OF RS.47,52,000/- AGAINST THE PROFIT ON SALE OF PROPERTY. THE AO ALS O NOTICED THAT THE ASSESSEE HAS INSTALLED A WIND MILL DURING THE YEAR UNDER CON SIDERATION. THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED HIGHER RATE OF DEPREC IATION OF 80% ON ALL THE EXPENSES INCURRED FOR INSTALLING THE MACHINERY. TH E AO TOOK THE VIEW THAT THE HIGHER RATE OF DEPRECIATION IS ADMISSIBLE ON WIND M ILL ASSEMBLY AND BLADES AND NOT ON OTHER ITEMS. ACCORDINGLY HE RESTRICTED THE HIGHER RATE OF DEPRECIATION OF 80% ON THE ABOVE SAID ITEMS AND ALL OWED DEPRECIATION AT NORMAL RATE OF 15% ON THE REMAINING ITEMS. 3. THE LD CIT(A) CONFIRMED THE ORDER PASSED BY T HE AO ON THE ABOVE SAID ISSUES AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. THE FIRST ISSUE RELATES TO THE HEAD UNDER WHI CH THE PROFIT ARISING ON SALE OF LAND IS ASSESSABLE. THE FACTS RELATING TO THE ABOVE SAID ISSUE HAS BEEN NARRATED AS UNDER BY THE ASSESSEE BEFORE THE AO:- THE ASSESSEE HAS PURCHASED THE RIGHTS IN TENANTED BUILDING NAMELY TWILIGHT, A G + TWO STOREY BUILDING, CONSISTING O F 725 SQ. YARDS SITUATED AT BANDRA BEING PLOT NO.401 OF TOWN PLANNI NG SCHEME III OF BANDRA BEING NEW SURVEY NO.F/63, REGISTRATION SUB D ISTRICT BANDRA BEING PLOT NO.401 ON 15 TH ROAD, BANDRA FROM THE LANDLORD MR. NOEL RICHARD PEREIRA THROUGH A CONVEYANCE DEED DATED 12 TH DAY OF OCTOBER, 3 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) 2004 FOR A CONSIDERATION OF RS.10.00 LACS. THE ASS ESSEE FURTHER STATED THAT THE ASSESSEE SUBSEQUENTLY ENTERED INTO A JOINT VENTURE AGREEMENT FOR REDEVELOPMENT OF THE TENANTED BUILDING WITH ONE MR. SUMEET GIDWANI ON 18.11.2004. DUE TO DISPUTE BETWEEN TENA NTS, THE ASSESSEE MOVED COURT FOR VACATING THE TENANTS AND AFTER TWO YEARS OF PERSUATION, THERE WAS NO SOLUTION. THEREFORE, MR. SUMEET GIDWA NI QUIT THE JOINT VENTURE THROUGH A DEED OF CANCELLATION DATED 10-10- 2008. IT IS FURTHER STATED THAT THE ASSESSEE HAS TO PAY AN AMOUNT OF RS .47,52,000/- TO MR. SUMEET GIDWANI FOR RELINQUISHMENT OF HIS RIGHT. TH E ASSESSEE BEING DESPERATE WITH ALL THE ABOVE FACTS STARTED SEARCHIN G FOR A PROSPECTIVE BUYER WHO CAN BUY THE RIGHTS IN TENANTED PROPERTY F ROM THE ASSESSEE ON AS IS WHERE IS BASIS ALONG WITH LEGAL CASE TO PROCEED FURTHER. THERFORE, THE PROPERTY HAS BEEN ULTIMATELY SOLD TO M/S STARLIGHT HOSPITALITY PVT LTD ONE OF THE GROUP COMPANY OF M/S DIWAN BUILDERS, FOR A CONSIDERATION OF RS.2 CRORES, VIDE DEED OF CONVEN UANCE ON 28.05.2009. THE ASSESSEE ALSO SUBMITTED TO THE AO THAT HE HAS B EEN PURCHASING SHOPS AND RENTING THEM OUT FOR COMMERCIAL EXPLOITATION AN D ACCORDINGLY CLAIMED THAT HE IS DEALING IN PROPERTY BUSINESS REGULARLY. 5. HOWEVER, THE AO TOOK THE VIEW THAT THE ASSESS EE HAS PURCHASED THE PROPERTY IN 2004 AND SOLD IT IN 2010, MEANING THERE BY, THE ASSESSEE HAS INTENDED TO HOLD THE PROPERTY FOR SOME TIME AND THE N SELL IT AT PROFIT. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE ASSESSEE HAS HELD THE LAND AS A CAPITAL ASSET AND ACCORDINGLY ASSESSED THE PROFIT U NDER THE HEAD CAPITAL GAINS. SINCE THE STAMP DUTY VALUE SHOWN IN THE CON VEYANCE DEED WAS RS.5.27 CRORES, THE AO ADOPTED THE SAME U/S 50C OF THE ACT. 4 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) 6. WE HEARD THE PARTIES ON THIS ISSUE. THE QUEST ION BEFORE US IS THE HEAD OF INCOME UNDER WHICH THE PROFIT ARISING ON SALE OF LA ND IS ASSESSABLE. THERE SHOULD NOT BE ANY DISPUTE THAT THE ANSWER TO THE SA ME WOULD DEPEND UPON THE FACT AS TO WHETHER THE ASSESSEE HELD THE LAND A S HIS CAPITAL ASSET OR AS HIS TRADING ASSET. THE CONTENTION OF THE ASSESSEE IS T HAT HE HELD THE SAME AS HIS TRADING ASSET AND FURTHER HE WAS CARRYING ON ACTIVI TIES IN REAL ESTATE AND HE HAS ALSO MAINTAINED SEPARATE BOOKS OF ACCOUNT. HOW EVER, THE AO HAS TAKEN THE VIEW THAT THE ASSESSEE HAS HELD THE ASSET AS CA PITAL ASSET, SINCE THE INTENTION OF THE ASSESSEE WAS HELD BY THE AO TO BE OF MAKING PROFIT BY HOLDING THE SAME FOR SOME TIME AND THEN SELL IT. 7. BEFORE US, THE LD A.R PLACED HIS RELIANCE ON THE DECISION RENDERED BY HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CAS E OF SMT. BHANUMATI A SANGHAVI VS. CIT (1979)(119 ITR 0069) TO CONTEND TH AT THE ASSESSEE HAS HELD THE PROPERTY AS HIS COMMERCIAL ASSET ONLY. THE FOL LOWING OBSERVATIONS MADE BY THE HONBLE JURSDICTIONAL HIGH COURT WOULD BE RE LEVANT TO UNDERSTAND THE POINTS THAT SHOULD BE TESTED TO DETERMINE THE NATUR E OF ASSET. IN CONNECTION WITH THIS SUBMISSION, OUR ATTENTION WAS DRAWN TO THE OBSERVATIONS TO BE FOUND IN JANKI RAM BAHADUR RAM V S. CIT (1965) 57 ITR 21 (SC) : TC12R.356. IT WAS OBSERVED BY THE SUPREME COURT IN THE ABOVE DECISION THAT THE QUESTION WHETHER PROFIT IN A TRANSACTION HAD ARISEN OUT OF AN ADVENTURE IN THE NATURE OF TRADE W AS A MIXED QUESTION OF LAW AND FACT. IT WAS FURTHER OBSERVED THAT THE N ATURE OF THE TRANSACTION MUST BE DETERMINED ON A CONSIDERATION O F ALL THE FACTS AND CIRCUMSTANCES WHICH ARE BROUGHT ON THE RECORD OF TH E IT AUTHORITIES. THE RELEVANT OBSERVATIONS WHICH NEED NOT BE EXTRACT ED ARE TO BE FOUND AT PAGES 24 TO 26 OF THE ITR. IN JANKI RAM'S CASE ( SUPRA), IT WAS OBSERVED THAT BARRING THE EXPECTATION OF PROFIT AND REALISATION OF PROFIT BY SALE OF THE PROPERTY, THERE WAS NO EVIDENCE BEAR ING ON THE INTENTION WITH WHICH THE ASSESSEE HAD PURCHASED THE PROPERTY. IT WAS SUBMITTED THAT THE MATTER BEFORE US WAS IDENTICAL AND A SIMIL AR CONCLUSION WAS REQUIRED TO BE REACHED. THE SUPREME COURT HAD OCCAS ION TO CONSIDER A SIMILAR QUESTION IN A LATER DECISION IN P.M. MOHAMM ED MEERAKHAN VS. CIT (1969) 73 ITR 735 (SC) : TC12R.383. IT HAS BEEN OBSERVED IN THE 5 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) AFORESAID DECISION THAT IT IS NOT POSSIBLE TO EVOLV E ANY SINGLE LEGAL TEST OR FORMULA WHICH CAN BE APPLIED IN DETERMINING WHET HER A TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE OR NOT. THE ANS WER TO THE QUESTION MUST NECESSARILY DEPEND IN EACH CASE ON THE TOTAL I MPRESSION AND EFFECT OF ALL THE RELEVANT FACTORS AND CIRCUMSTANCES PROVE D THEREIN AND WHICH DETERMINE THE CHARACTER OF THE TRANSACTION. WE NOTICE THAT THE IMPUGNED QUESTION SHOULD BE DECI DED ON THE BASIS OF ALL FACTS AND CIRCUMSTANCES WHICH ARE BROUGHT ON RECORD . 8. IN THE INSTANT CASE, WE NOTICE THAT THE ASSES SEE HAS PURCHASED RIGHTS IN A TENANTED PROPERTY IN THE IMPUGNED BUILDING ON 12-10 -2004 FROM THE LAND LORD. IMMEDIATELY THEREAFTER, I.E., ON 18.11.2004 (ABOUT A MONTH), THE ASSESSEE ENTERED INTO A JOINT VENTURE AGREEMENT WITH MR. SUM EET GIDWANI FOR REDEVELOPMENT OF PROPERTY. HENCE, THE INTENTION AT THE DATE OF PURCHASE WAS TO REDEVELOP THE PROPERTY AND SELL IT. HOWEVER, TH E ABOVE SAID PLAN COULD NOT BE EXECUTED, SINCE LEGAL DISPUTES AROSE BETWEEN THE TENANTS AND SINCE THE MATTER WAS GETTING PROLONGED, THE JOINT VENTURE AGR EEMENT WAS AGREED TO BE TERMINATED ON 10-10-2008 (AFTER FOUR YEARS) AND SHR I SUMEET GIDWANI WAS CONSTRAINED TO QUIT THE JOINT VENTURE BY TAKING COM PENSATION. THE EVENTS NARRATED ABOVE SHOW THAT THE ASSESSEE WAS PURSUING THE MATTER OF REDEVELOPMENT OF PROPERTY, WHICH ALSO SHOWS THAT TH E INTENTION OF THE ASSESSEE WAS TO TAKE THIS ACTIVITY AS HIS BUSINESS VENTURE. ULTIMATELY THE ASSESSEE CHOSE TO GET RID OF THIS VENTURE AND HENCE SOLD THE PROPERTY IN THE YEAR 2009. 9. WE NOTICE THAT THE ASSESSING OFFICER HAS TAK EN COGNIZANCE OF DATE OF PURCHASE AND DATE OF SALE ONLY IN ORDER TO DETERMIN E THE INTENTION OF THE ASSESSEE. THE AO ALSO TOOK THE VIEW THAT THE IMPUG NED TRANSACTION WAS AN ISOLATED TRANSACTION. FOLLOWING OBSERVATIONS MADE BY THE AO ARE RELEVANT IN THIS REGARD:- 6 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) .....AND THE TENANTED PROPERTY WAS PURCHASED IN 20 04. THERE WAS HARDLY ANY OTHER PROPERTY PURCHASED OR SOLD BY THE ASSESSEE AFTER THAT DATE, EVEN THOUGH THE ASSESSEE IS CLAIMED THAT HE H AS PURCHASED ONE MORE PROPERTY IN MAY 2010. THIS IS SO, BECAUSE THE ASSESSEE SOLD THE ABOVE TENANTED BUILDING IN THE CURRENT YEAR, THE PR OCEEDS MUST HAVE BEEN INVESTED IN ANOTHER PROPERTY IN MAY, 2010. TH IS ALONE WILL NOT PROVE THAT THE ASSESSEE IS IN THE BUSINESS OF BUYIN G AND SELLING PROPERTY FREQUENTLY. THE FIRST PROPERTY WAS PURCHASED IN 20 04 AND SOLD IN 2010 THIS CLEARLY INDICATES THAT THE ASSESSEE IS JUST A GENUINE INVESTOR IN REAL ESTATE AND NOTHING MORE, FROM THE PROCEEDS HE BOUGH T ANOTHER PROPERTY SUBSEQUENTLY. THEREFORE, THE CLAIM OF THE ASSESSEE THAT HE DEALS IN PROPERTY BUSINESS HAS ANY RELEVANCE. THE ASSESSEE HAS NOT SHOWN ANY BUSINESS INCOME FROM THE PROPERTY DEAL IN THE EARLIER YEARS NOR SHOWN ANYTHING IN THE SUBSEQUENT YEAR ALSO. AS HAS BEEN DISCUSSED EARLIER, THE PUNE PROPERTY IS RENTED OUT AND ASSESSEE EARNING THE RENT AND THE SAME HAS BEEN DECLARED AS BUSINESS INCOME. HOWEVER, THE SAME OUGHT TO HAVE SHOWN AS INCOME FRO M HOUSE PROPERTY, THIS ISSUE HAS BEEN DEALT SEPARATELY. TH E ASSESSEE PURCHASED THE PROPERTY WITH AN INTENTION TO HOLD IT FOR SOME TIME AND ENJOYS ITS INCOME AND THEN SELLS IT AT A PROFIT, IT WOULD BE C LEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT FROM AN ADVENTURE IN THE N ATURE OF TRADE.... WE NOTICE THAT THE AO DID NOT CONSIDER OR DISCUSS A NYTHING ABOUT THE JOINT VENTURE AGREEMENT ENTERED BY THE ASSESSEE FOR DEVEL OPMENT OF PROPERTY. THE LD CIT(A) UPHELD THE VIEW TAKEN BY THE AO ONLY FOR THE REASON THAT THE ASSESSEE DID NOT ACTUALLY EXPLOIT THE PROPERTY COMM ERCIALLY. FOLLOWING OBSERVATIONS MADE BY LD CIT(A) AT PAGE 21 IN PARA 3 .3.4 MAKE THIS POINT CLEAR:- .....THUS FROM THE STAGE WHEN THE PROPERTY WAS PUR CHASED BY THE APPELLANT FROM MR. NOEL PEREIRA AND SOLD TO STARLIG HT HOSPITALITY PVT LTD, IT WAS NEVER COMMERCIALLY EXPLOITED BY THE APPELLAN T SO AS TO FALL UNDER THE DEFINITION OF BUSINESS. THE JOINT VENTURE AG REEMENT WITH MR. GIDWANI WAS A FAILED ADVENTURE WHICH NEVER TOOK OFF AND CANNOT BE CHARACTERISED AS ABUSINESS VENTURE. THE APPELLANT UPTO THE DATE OF THE SALE OF THE PROPERTY TO M/S STARLIGHT HOSPITALITY P VT LTD WAS THE SOLE OWNER OF THE PROPERTY WHICH HE PURCHASED FOR RS.10 LAC AND SOLD IT FOR RS.2 CRORES. IT IS ALSO IMPORTANT TO NOTE HERE THA T THE PROPERTY WAS ALREADY UNDER LITIGATION WHEN THE APPELLANT FILED A SUIT BEFORE THE BOMBAY HIGH COURT FOR EJECTION OF TENANTS FROM THE PROPERTY AND SHRI 7 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) GIDWANI OPTED OUT OF THE VENTURE VIDE DEED OF CANCE LLATION ON THE GROUND THAT THE ABOVE PROPERTY COULD NOT BE COMMERC IALLY EXPLOITED. 10. THE LD A.R CONTENDED THAT THE INTENTION OF TH E ASSESSEE AT THE TIME OF PURCHASE OF PROPERTY IS RELEVANT AND EVEN A SINGLE TRANSACTION COULD BE A CASE OF ADVENTURE IN THE NATURE OF TRADE. IN THIS REGARD , HE PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HARBANS SINGH VS. CIT (1981)(132 ITR 0077), WHEREIN IT WAS HELD THAT THE TRANSACTION OF PURCHASE AND DEVELOPMENT OF LAND WIT H A VIEW TO RESELL, THOUGH A SINGLE TRANSACTION CONSTITUTED ADVENTURE IN THE N ATURE OF TRADE GIVING RISE TO CHARGEABLE BUSINESS INCOME. IT IS PERTINENT TO NOT E THAT THE HONBLE PUNJAB AND HARYANA HIGH COURT HAS FOLLOWED THE PRINCIPLES LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF G.VENKATASWAMI NAIDU & CO. VS. CIT (1959)(35 ITR 594) AND RELEVANT DISCUSSIONS ARE EXTRACTED BEL OW, FOR THE SAKE OF CONVENIENCE:- THE CRITERIA TO DETERMINE AS TO WHEN A RECEIPT BY SALE OF LAND WOULD BE A REVENUE RECEIPT OR CAPITAL RECEIPT WAS LAID DOWN BY THE SUPREME COURT IN G. VENKATASWAMI NAIDU & CO. VS. CIT (1959) 35 ITR 594 (SC), IN THE FOLLOWING TERMS (HEADNOTE) : 'IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOL D IT, ENJOYS ITS INCOME FOR SOME TIME, AND THEN SELLS IT AT A PROFIT , IT WOULD BE A CLEAR CASE OF CAPITAL ACCRETION AND NOT PROFITS DER IVED FROM AN ADVENTURE IN THE NATURE OF TRADE. CASES OF REALISAT ION OF INVESTMENTS CONSISTING OF PURCHASE AND RESALE, THOU GH PROFITABLE, ARE CLEARLY OUTSIDE THE DOMAIN OF ADVENTURES IN THE NATURE OF TRADE. IN DECIDING THE CHARACTER OF SUCH TRANSACTIO NS SEVERAL FACTORS ARE RELEVANT, SUCH AS, E.G., WHETHER THE PU RCHASER WAS A TRADER AND THE PURCHASE OF THE COMMODITY AND ITS RE SALE WERE ALLIED TO HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT ; THE NATURE AND QUANTITY OF THE COMMODITY PURCHASED AND RESOLD ; ANY ACT SUBSEQUENT TO THE PURCHASE TO IMPROVE THE QUALITY O F THE COMMODITY PURCHASED AND THEREBY MAKE IT MORE READIL Y RESALEABLE, ANY ACT PRIOR TO THE PURCHASE SHOWING A DESIGN OR PURPOSE, THE INCIDENTS ASSOCIATED WITH THE PURCHASE AND RESALE ; THE SIMILARITY OF THE TRANSACTION TO OPERATIONS USU ALLY ASSOCIATED 8 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) WITH TRADE OR BUSINESS ; THE REPETITION OF THE TRAN SACTION ; THE ELEMENT OF PRIDE OF POSSESSION. A PERSON MAY PURCHA SE A PIECE OF ART, HOLD IT FOR SOME TIME AND IF A PROFITABLE OFFE R IS RECEIVED SELL IT. DURING THE TIME THAT THE PURCHASER HAD ITS POSS ESSION HE MAY BE ABLE TO CLAIM PRIDE OF POSSESSION AND AESTHETIC SATISFACTION; AND IF SUCH A CLAIM IS UPHELD THAT WOULD BE A FACTO R AGAINST THE TRANSACTION BEING IN THE NATURE OF TRADE. THE PRESE NCE OF ALL THESE RELEVANT FACTORS MAY HELP THE COURT TO DRAW AN INFE RENCE THAT A TRANSACTION IS IN THE NATURE OF TRADE, BUT IT IS NO T A MATTER OF MERELY COUNTING THE NUMBER OF FACTS AND CIRCUMSTANC ES PRO AND CON ; WHAT IS IMPORTANT TO CONSIDER IS THEIR DISTIN CTIVE CHARACTER. IN EACH CASE, IT IS THE TOTAL EFFECT OF ALL RELEVAN T FACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION. 4. IN CASES WHERE THE PURCHASE HAS BEEN MADE SOLELY AND EXCLUSIVELY WITH THE INTENTION TO RESELL AT A PROFIT AND THE PU RCHASER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OT HERWISE ENJOYING OR USING IT, THE PRESENCE OF SUCH AN INTENTION IS A RE LEVANT FACTOR AND UNLESS IT IS OFFSET BY THE PRESENCE OF OTHER FACTOR S IT WOULD RAISE A STRONG PRESUMPTION THAT THE TRANSACTION IS AN ADVEN TURE IN THE NATURE OF TRADE. EVEN SO, THE PRESUMPTION IS NOT CONCLUSIVE; AND IT IS CONCEIVABLE THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCE S IN THE CASE, THE COURT MAY, DESPITE THE SAID INITIAL INTENTION, BE I NCLINED TO HOLD THAT THE TRANSACTION WAS NOT AN ADVENTURE IN THE NATURE OF T RADE. THE PRESUMPTION MAY BE REBUTTED.' AGAIN, IN RAJA J. RAMESHWAR RAO VS. CIT (1961) 42 I TR 179 (SC) IT WAS RULED (HEADNOTE) : 'EVEN A SINGLE VENTURE MAY BE REGARDED AS IN THE NA TURE OF TRADE OR BUSINESS. WHEN A PERSON ACQUIRES LAND WITH A VIEW T O SELLING IT LATER AFTER DEVELOPING IT, HE IS CARRYING ON AN ACTIVITY RESULTING IN PROFIT, AND THE ACTIVITY CAN ONLY BE DESCRIBED AS A BUSINESS VE NTURE. WHERE THE PERSON GOES FURTHER AND DIVIDES THE LAND INTO PLOTS , DEVELOPS THE AREA TO MAKE IT MORE ATTRACTIVE AND SELLS THE LAND NOT A S A SINGLE UNIT AND AS HE BOUGHT IT, BUT IN PARCELS, HE IS DEALING WITH LA ND AS HIS STOCK-IN- TRADE, HE IS CARRYING ON BUSINESS AND MAKING PROFIT . 5. THE PRESENT CASES ARE, THEREFORE, FULLY COVERE D BY THE RULE LAID DOWN IN RAJA J RAMESHWAR RAOS CASE (SUPRA) BECAUSE HERE ALSO, ACCORDING TO THE FACTS FOUND, THE ASSESSEE SOON AFT ER PURCHASING THE LAND DEVELOPED IT INTO RESIDENTIAL SITES AND STARTE D SELLING PLOTS WITHIN TWO YEARS OF THE PURCHASE. THE CONCLUSION ON THESE FACTS WOULD BE IRRESISTIBLE THAT HE ACQUIRED THE LAND WITH A VIEW TO SELLING IT LATER ON 9 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) AFTER DEVELOPING IT, AND THE ACTIVITY, THEREFORE, C AN BE DESCRIBED ONLY AS BUSINESS VENTURE. IN THE CASE OF G.VENKATASWAMI NAIDU & CO. CASE, THE ASSESSEE THEREIN PURCHASED THE FOUR PLOTS DURING TWO YEARS WITH THE SOLE INTENTION TO SELL THEM TO THE MILLS AT A PROFIT AT A LATER DATE AND THIS I NTENTION WAS HELD TO BE THE DECIDING FACTOR IN HOLDING THAT IT WAS A CASE OF AD VENTURE IN THE NATURE OF TRADE. IN THE INSTANT CASE ALSO, WE HAVE NOTICED EARLIER T HAT THE ASSESSEE WAS NOT IDLE AFTER PURCHASING THE LAND. BEFORE EXPIRY OF TWO MONTHS PERIOD FROM THE DATE OF PURCHASE, HE HAS ENTERED INTO A JOINT V ENTURE AGREEMENT FOR DEVELOPMENT OF THE PROPERTY, WHICH FACT, IN OUR VIE W, SHOWS THAT THE INTENTION OF THE ASSESSEE WAS NOT TO KEEP THE PROPERTY AS A C APITAL ASSET, BUT TO EXPLOIT THE SAME AS A COMMERCIAL ASSET WITH A VIEW TO MAKE THE PROFIT. THE SUBSEQUENT LEGAL COMPLICATIONS HAVE PARALYSED THE P ROJECT OF THE ASSESSEE AND HENCE THE PROJECT COULD NOT BE EXECUTED. THESE FACTS HAVE NOT BEEN DISPUTED AND HENCE WE ARE OF THE VIEW THAT THE LD C IT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE IMPUGNED ASSET IS A CAPITAL ASSET FOR THE REASON THAT IT WAS NOT ACTUALLY EXPLOITED COMMERCIALLY. IN OUR VIEW, ACTUAL EXPLOITATION SHOULD NOT THE LONE DECIDING FACTOR. IN OUR VIEW THE COND UCT OF THE ASSESSEE, WHICH IS DISCUSSED ABOVE, WOULD SHOW THAT THE ASSESSEE HA S INTENDED TO COMMERCIALLY EXPLOIT THE PROPERTY BY DEVELOPING IT AND HE HAS BEEN PURSUING THE SAME THEREAFTER FOR MANY YEARS. HENCE, IN OUR CONSIDERED VIEW, THE INTENTION OF THE ASSESSEE, FROM THE VERY BEGINNING, WAS TO EXPLOIT THE PROPERTY AS A COMMERCIAL ASSET AND NOT TO HOLD IT A S A CAPITAL ASSET. ACCORDINGLY WE ARE OF THERE IS MERIT IN THE CLAIM O F THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ASSESS THE PROFIT ARISING ON SALE OF IMPUGNED PROPE RTY AS BUSINESS INCOME OF THE ASSESSEE. 10 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) 11. THE NEXT ISSUE CONTESTED BY THE ASSESSEE WAS WITH REGARD TO APPLICATION OF PROVISIONS OF SEC. 50C OF THE ACT TO THE IMPUGNE D TRANSACTION. THE AO APPLIED THE PROVISIONS OF SECTION 50C, SINCE HE HEL D THE PROPERTY AS A CAPITAL ASSET. THE LD CIT(A) ALSO UPHELD THE SAME. IN THE PRECEDING PARAGRAPHS, WE HAVE SET ASIDE THE ABOVE SAID VIEW TAKEN BY THE TAX AUTHORITIES AND WE HAVE HELD THAT THAT THE IMPUGNED PROPERTY WAS NOT A CAPI TAL ASSET. HENCE THE QUESTION OF APPLICATION OF PROVISIONS OF SEC. 50C D OES NOT ARISE. ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY THE TAX AUTHORITI ES ON THIS ISSUE. 12. THE NEXT ISSUE CONTESTED BY THE ASSESSEE REL ATES TO THE DISALLOWANCE OF CLAIM FOR DEDUCTION OF RS.47.52 LAKHS PAID BY THE A SSESSEE TO SHRI GIDWANI UPON CANCELLATION OF JOINT VENTURE AGREEMENT. THE ASSESSEE PAID THE ABOVE SAID AMOUNT ON CANCELLATION OF THE AGREEMENT AND CL AIMED THE SAME AS DEDUCTION. SINCE THE AO CONSIDERED THE PROPERTY AS A CAPITAL ASSET AND SINCE THE INCOME TAX RETURN DETAILS OF THE RECIPIENT WERE NOT FILED, THE AO DISALLOWED THE CLAIM. THE LD CIT(A) HAS ALSO CONFIRMED THE SA ME. 13. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. A PERUSAL OF THE ORDER PASSED BY LD CIT(A) WOULD SHOW THAT THE TAX AUTHORITIES ARE NOT DISPUTING THE EXISTENCE OF JOINT VENTURE AG REEMENT AND THE CANCELLATION THEREOF. IN FACT, THE ASSESSEE HAS FU RNISHED COPY OF BOTH THE AGREEMENTS IN THE PAPER BOOK AND THEY HAVE ALSO BEE N FILED BEFORE THE TAX AUTHORITIES. WE HAVE EARLIER HELD THAT THE ASSESSE E HAS CARRIED OUT THE ACTIVITY OF PURCHASE OF PROPERTY AS A COMMERCIAL VE NTURE AND HE HAS ALSO PAID THE COMPENSATION ON CANCELLATION OF THE JOINT VENTU RE AGREEMENT. HENCE, IN OUR VIEW, THE COMPENSATION WAS PAID BY THE ASSESSEE IN THE COURSE OF CARRYING ON HIS COMMERCIAL ACTIVITIES AND THE SAME WOULD GO TO INCREASE THE VALUE OF STOCK IN TRADE, BEING THE PROPERTY HERE. ACCORDINGLY WE DIRECT THE AO TO TREAT THE SAME AS INCREMENTAL COST TO STOCK IN T RADE AND COMPUTE THE PROFIT ACCORDINGLY. 11 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) 14. THE LAST ISSUE CONTESTED BY THE ASSESSEE RE LATES TO THE RATE OF DEPRECIATION ADMISSIBLE ON WIND MILL ACCESSORIES. THE ASSESSEE HAD CAPITALISED EXPENDITURE ON TOWER, CIVIL FOUNDATION, ERECTION & COMMISSIONING, CONSULTANCY FEE, FREIGHT CHARGES, FINANCE CHARGES, WARRANTY EXPENSES ETC AS PART OF WIND MILL COST AND CLAIMED DEPRECIATION @ 8 0%. THE AO HOWEVER ALLOWED DEPRECIATION ON THE ABOVE SAID ITEMS AT 15% AND ALLOWED DEPRECIATION AT 80% ONLY ON WINDMILL ASSEMBLY AND B LADES. THE LD CIT(A) ALSO CONFIRMED THE SAME. 15. THE LD A.R SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS FULLY SUPPORTED BY THE FOLLOWING DECISIONS:- (A) THE CIT, PUNE VS. COOPER FOUNARY PVT LTD (ITA NO.1326 OF 2010)(BOM) (B) CIT VS. K K ENTERPRISES (2014)(108 DTR (RAJ) 0109) (C) ACIT VS. SUMA SHILPA LIMITED (2015)(44 CCH 05 14)(PUNE) 16. WE HEARD LD D.R AND PERUSED THE RECORD. THE HONBLE RAJASTHAN HIGH COURT HAS HELD IN THE CASE OF K K ENTERPRISES (SUPR A) THAT THE COST INCURRED IN CIVIL WORK AND FOUNDATION, ELECTRICAL ITEMS, COMPON ENTS IN INSTALLATION AND COMMON POWER EVACUATION WHILE INSTALLING WINDMILLS, WHICH HAVE NO USE OTHER THAN FOR THE PURPOSE OF THE FUNCTIONING OF THE WIND MILL WOULD BECOME CLOSELY INTERCONNECTED AND ARE PART AND PARCEL OF THE WINDM ILL AND, THEREFORE, ELIGIBLE FOR HIGHER RATE OF DEPRECIATION. 17. THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT HAS HELD IN THE CASE OF COOPER FOUNDARY PVT LTD (SUPRA) THAT THE EXPENDITUR E INCURRED ON CEMENT FOUNDATION OR REINFORCED CEMENT CONCRETE FOUNDATION IS TO BE INCLUDED IN THE COST OF THE WINDMILL WHILE GRANTING DEPRECIATION AT 80% ON THE WINDMILL. WHILE UPHOLDING THE VIEW TAKEN BY THE TRIBUNAL, THE BOMBAY HIGH COURT 12 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) NOTICED THAT THE TRIBUNAL HAS FOLLOWED THE DECISION RENDERED BY IT IN THE CASE OF CIT VS. HERDILLA CHEMICALS LTD (1995)(216 ITR 74 2), WHICH WAS, IN TURN, RENDERED BY FOLLOWING THE DECISION RENDERED BY HON BLE SUPREME COURT IN THE CASE OF CHALLAPALLI SUGARS LTD VS. CIT (98 ITR 167) , WHEREIN IT WAS HELD THAT THE EXPENSES RELATING TO INSTALLATION AND EVEN INTE REST ON BORROWED CAPITAL FOR ACQUIRING PLANT AND MACHINERY SHOULD BE TREATED AS PART OF COST OF MACHINERY. 18. IN THE INSTANT CASE, WE NOTICE THAT THE CONS ULTANCY FEE, FREIGHT CHARGES, WARRANTY EXPENSES, FINANCE CHARGES ARE CONNECTED WI TH THE PURCHASE OF WIND MILL BEFORE IT IS READY TO COMMENCE ITS OPERATIONS. THE CIVIL FOUNDATION, ERECTION & COMMISSIONING, 40 MTR TOWER ARE PART OF WIND MILL, WITHOUT WHICH THE WIND MILL WOULD NOT FUNCTION. HENCE, IN VIEW O F THE DECISIONS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THERE IS MERIT IN TH E CLAIM OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CI T(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW DEPRECIATION AT THE HIGHER R ATE OF 80% ON THE REST OF THE ITEMS BY CONSIDERING THE SAME AS PART OF COST O F WIND MILL. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/12/2016 SD/- SD/- ( RAMLAL NEGI) (B.R.BASKARAN) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED /12/2016 VM , SR. PS 13 ITA NO.5731/MUM/2014 (ASSESSMENT YEAR 2010-11) 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