DCIT Cir 2(1), V. The Hindustan Spinning & Weaving Mills Ltd,

ITA 5744/MUM/2003

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3367 (ITAT-MUMBAI)
• Duration Of Justice: 13 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 24-02-2014
• Assessment Year: misc
• Appeal Filed On: 22-08-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S SENT H IL KUMARAN
• Assessee Lawyers: K K VED
• Keywords: Capital asset; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.5744/M/03 ASSESSMENT YEAR: 1998-99 DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) AAYAKAR BHAVAN, ROOM NO.575, 5 TH FLOOR, M.K.ROAD, MUMBAI -20 VS. M/S. HINDOOSTAN SPG. & WVG. MILLS LTD., SIR VITHALDAS CHAMBERS 16, BOMBAY SAMACHAR MARG, FORT, MUMBAI 400 001 PAN : AAACT 4057 F (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI K. K. VED, A.R. REVENUE BY : SHRI S. SENTHIL KUMARAN, D.R. DATE OF HEARING : 09.06.2016 DATE OF PRONOUNCEMENT : 31.08.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENU E AGAINST THE ORDER DATED 25.06.2003 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 1998-99. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: '1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE A.O. TO ALLOW VRS EXPEND ITURE OF RS.4,18,05,537/- AS REVENUE EXPENDITURE WHICH WAS TREATED AS CAPITAL EX PENDITURE BY AO IN VIEW OF SUPREME COURT DECISION IN THE CASE OF ASSAM BENG AL CEMENT CO. LTD. VS. CIT (1955) 27 ITR 34, 45 AND ALSO ARVIND MILLS LTD. (1992) 197 ITR 422.' 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE A.O. TO DELETE THE ADDIT ION MADE TO CLOSING STOCK IN RESPECT OF CONVERSION VALUE OF FLAT FROM CAPITAL ASSET INTO STOCK IN TRADE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE AMOUNT OF RS.1.52 CRO RES REPRESENTING THE PROPORTIONATE PROFIT FROM PROPERTY DEVELOPMENT BUSI NESS TO BE EXCLUDED FROM THE COMPUTATION OF TOTAL INCOME. ITA NO.5744/M/03 M/S. HINDOOSTAN SPG. & WVG. MILLS LTD. 2 3. THE ASSESSEE IS A LIMITED COMPANY AND IT FILED I TS RETURNS OF INCOME FOR A.Y. 1998-99 DURING NOVEMBER, 1998 DECLARING LOSS O F RS.17,17,19,140/-. THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT U NDER SECTION 143(3) WAS COMPLETED VIDE ASSESSING OFFICERS (HEREINAFTER REF ERRED TO AS THE AO) ORDER DATED 23.03.2001. CERTAIN ADJUSTMENTS AND DISALLOW ANCES WERE MADE BY THE AO AND LOSS WAS RECOMPUTED AT RS.10,45,17,509/-. A GGRIEVED, THE ASSESSEE FILED JUST APPEAL BEFORE THE LD. CIT(A) AND CONTEST ED THE DISALLOWANCES AND ADJUSTMENTS. 4. THE APPEAL WAS FINALLY ALLOWED IN FAVOUR OF THE ASSESSEE VIDE LD. CIT(A)S ORDER DATED 25.06.2003. AGGRIEVED BY THE STAND OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. THE FIRST GROUND OF APPEAL RELATES WITH VRS EXPE NDITURE CLAIMED BY THE ASSESSEE. AN AMOUNT OF RS.4,18,65,537/- WAS PAID B Y THE ASSESSEE AS VRS EXPENDITURE AND A PORTION OF THIS EXPENDITURE WAS D EBITED TO PROFIT & LOSS ACCOUNT. BUT THE SAME WAS CLAIMED IN FULL AS REVEN UE EXPENDITURE IN COMPUTATION OF INCOME. AO TREATED THE SAME AS ADVA NTAGE OF A CAPITAL NATURE AND DISALLOWED THE SAME IN FULL. LD. CIT(A) ALLOWE D THE SAME IN FULL RELYING UPON ITS ORDER FOR A.Y. 1996-97 IN ASSESSEES OWN C ASE ON IDENTICAL ISSUE. 6. WE NOTICE THAT IDENTICAL ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY ITAT IN ASSESSEES OWN CASE FOR A.YS. 1 996-97 & 1997-98 VIDE ITA NOS.3822/M/03 & 3823/M/03 DATED 30.06.2016. RE SPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE, THIS APPEAL IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. 7. THE SECOND GROUND OF APPEAL RELATES WITH ADDITIO N MADE TO CLOSING STOCK IN RESPECT OF CONVERSION VALUE OF FLAT FROM CAPITAL ASSET INTO STOCK IN TRADE. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH A DEVEL OPER DURING A.Y. 1994-95 TO DEVELOP ITS LANDS AND ACCORDING TO AGREEMENT THE ASSESSEE WAS TO RECEIVE ITA NO.5744/M/03 M/S. HINDOOSTAN SPG. & WVG. MILLS LTD. 3 SOME CASH CONSIDERATION AND SOME BUILT UP FLATS ON PAYMENT OF COST OF CONSTRUCTION OF THOSE FLATS. THE ASSESSEE RECEIVED THE BUILT UP FLATS DURING THE ASSESSMENT YEAR IN QUESTION AND TREATED THE SAME AS PART OF STOCK-IN-TRADE IN THE BOOKS OF ACCOUNT SHOWN AT ITS COST IN THE CLOSING S TOCK. HOWEVER, IN COMPUTATION OF THE INCOME, CLAIMED THAT THE FLAT WA S CONVERTED INTO STOCK IN TRADE FROM INVESTMENT DURING THE YEAR. HE, HOWEVER , REMOVED THE VALUE OF THE FLAT FROM THE CLOSING STOCK. ON BEING ASKED TO EXP LAIN, THE ASSESSEE SUBMITTED THAT THE PROFIT OF CONVERSION OF A CAPITAL ASSET IN TO STOCK IN TRADE WAS TAXABLE IN THE YEAR OF THE TRANSFER OR THE SALE OF ITS STOCK I N TRADE BY VIRTUE OF PROVISION OF SECTION 45(2). THE AO, HOWEVER, OBSERVED THAT THE FLAT WAS ALREADY A PART OF STOCK IN TRADE AND SHOWN AT ITS COST IN THE CLOSING STOCK. HAVING CHOSEN TO TREAT THE SAME AS STOCK, IT WAS NOT OPEN TO THE ASSESSEE TO TREAT IT IN ANY DIFFERENT MANNER FOR THE PURPOSE OF DETERMINATION OF TAXABLE INCOME. HE OBSERVED THAT THIS DEVICE WAS INTRODUCED BY THE ASSESSEE TO REDUC E THE VALUE OF THE FLAT FROM CLOSING STOCK AND THEREBY TO REDUCE THE TAXABLE INC OME OR INCREASE BUSINESS LOSSES. 8. LD. CIT(A) DELETED THE ADDITIONS HOLDING THE SAM E BEING NOTIONAL PROFIT ON CONVERSION OF INVESTMENT INTO STOCK IN TRADE AND HELD THE SAME TO BE TAXABLE ONLY IN THE YEAR OF SALE AS PER PROVISION OF SECTIO N 45(2). HE HELD THAT THE LAND CONTINUED TO BE CAPITAL ASSET. HE HELD THAT THE NO TIONAL PROFIT ON CONVERSION CANNOT BE TAXED IN THE YEAR OF CONVERSION BUT IT WA S TAXABLE ONLY IN THE YEAR OF SALE OF SUCH ASSET. BEING AGGRIEVED BY THE ABOVE F INDINGS OF THE LD. CIT(A), THE REVENUE HAS COME IN APPEAL BEFORE US. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORD. WE HAVE ALSO GONE THROUGH THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 1994-95 IN THE CASE OF THE ASSESSEE. ADMITTED LY, THE LAND IN QUESTION WAS CONVERTED AS STOCK IN TRADE IN THE YEAR 1993. THIS FACTUAL POSITION HAS ALREADY BEEN NOTED AND UPHELD BY THE TRIBUNAL IN THE CASE O F ASSESSEE FOR A.Y. 1994- 95. SINCE THEN THE LAND CONTINUED TO BE STOCK IN T RADE. ANY FLAT BUILT ON THE ITA NO.5744/M/03 M/S. HINDOOSTAN SPG. & WVG. MILLS LTD. 4 LAND WAS ALSO PART OF THE STOCK IN TRADE. THE ASSE SSEE IN THE BOOKS OF ACCOUNT HAS RIGHTLY INVENTORISED THE SAME. THERE WAS NO JU STIFICATION ON THE PART OF THE ASSESSEE TO REMOVE IT FROM THE CLOSING STOCK IN THE COMPUTATION OF INCOME. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE AO WHILE TREATING THE FLAT IN QUESTION AS PART OF THE CLOSING STOCK. 10. SO FAR AS THE FINDING OF THE LD. CIT(A) THAT TH E PROFIT/INCOME ON CONVERSION OF THE INVESTMENT INTO STOCK IN TRADE IS TAXABLE ONLY IN THE YEAR OF SALE AS PER PROVISIONS OF SECTION 45(2), IS CONCERN ED; THE ASSESSEE IS LIABLE TO RETURN THE CORRESPONDING CAPITAL GAINS AS ON THE DA TE OF CONVERSION OF INVESTMENT INTO THE STOCK IN TRADE ON THE SALE OF S UCH CONVERTED STOCK IN TRADE AS HELD BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE IN ITS ORDER DATED 13.05.11 PASSED IN ITA NO.3820/M/2003 FOR A.Y. 1994-95. WE DIRECT THE AO TO FOLLOW THE ORDER DATED 13.05.11 FOR A.Y. 1994-95, SO FAR A S THE TAXATION OF THE CAPITAL GAINS ON ACCOUNT OF CONVERSION OF INVESTMENT INTO S TOCK IN TRADE IS CONCERNED. 11. SO FAR AS THE ADDITION MADE BY THE AO ON ACCOUN T OF TREATING THE FLATS AS PART OF THE STOCK IN TRADE IS CONCERNED, WE DO NOT FIND ANY INFIRMITY IN THE SAME AND THE SAID ADDITION IS CONFIRMED. 12. THE LAST GROUND OF APPEAL RELATES WITH EXCLUSIO N OF AN AMOUNT OF RS.1.52 CRORES WHICH REPRESENT PROPORTIONATE PROFIT FROM PR OPERTY DEVELOPMENT BUSINESS FROM THE COMPUTATION OF TOTAL INCOME. DUR ING THE ASSESSMENT YEAR, THE ASSESSEE OFFERED A SUM OF RS.1.52 CRORES AS PRO PORTIONATE PROFIT FROM PROPERTY DEVELOPMENT ACTIVITY CARRIED ON BY IT. TH E LD. CIT(A) NOTED THAT ENTIRE PROFIT FROM TRANSFER OF DEVELOPMENTS RIGHTS IN THE LAND WERE ALREADY BROUGHT TO TAX BY THE DEPARTMENT IN ASSESSMENT YEAR 1994-95. AS FULL AMOUNT WAS ALREADY TAXED IN A.Y. 1994-95, THE ASSESSEE RAI SED ADDITIONAL GROUND BEFORE LD. CIT(A) TO EXCLUDE THE SAID AMOUNT FROM C OMPUTATION OF TOTAL INCOME SO AS TO AVOID DOUBLE TAXATION. THE PLEA OF THE ASSESSEE WAS ACCEPTED BY LD. CIT(A) AND RELIEF OF RS.1.52 CRORES WAS PROV IDED TO THE ASSESSEE. ITA NO.5744/M/03 M/S. HINDOOSTAN SPG. & WVG. MILLS LTD. 5 DURING THE PROCEEDINGS BEFORE US, WE NOTICE THAT T HE LD. CIT(A)S ORDER FOR A.Y. 1994-95 ON THIS ISSUE HAS BEEN REVERSED BY THE TRIBUNAL VIDE ORDER DATED 13.05.2011. ACCORDINGLY, THE ASSESSEE IS NOT ENTITLED FOR THIS ADDITIONAL RELIEF OF RS.1.52 CRORES AND THE APPEAL OF REVENUE IS ALLOWED ON THIS ISSUE. 13. IN NUTSHELL, THE APPEAL OF REVENUE IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.08.2016. SD/- SD/- (G.S. PANNU) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 31.08.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.