PUSHP HOLDINGS LTD, MUMBAI V. ITO 7(1)(4), MUMBAI

ITA 5877/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8337 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 23-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A PANT
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Fair market value
• Section: 143(3); 50C

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER . / ITA NO. 5877 /MUM./ 2010 ( / ASSESSMENT YEAR : 2007 08 ) PUSHP HOLDINGS LTD. 20/26, TAWA LANE, A.R. STREET MUMBAI 400 003 .. / APPELLANT V/S INCOME TAX OFFICER WARD 7(1) 4, AA YAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACP6000G / REV E NUE BY : SHRI R.A. PANT / ASSESSEE BY : SHRI MA YUR KISNADWALA / DATE OF HEARING 06 .08.2014 / DATE OF ORDE R 22.08.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 9 TH MARCH 2010, PASSED BY THE LEARNED COMMISSIONER (APPEALS) XIII, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3), FOR THE ASSESSMENT YEAR 2007 08 , ON THE FOLLOWING GROUNDS: PUSHP HOLDINGS LTD. 2 1 . THE LEARNED CIT(A) ERRED IN TREA TING INCOME FROM SALE OF PROPERTY AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME WHICH HAS BEEN ACCEPTED AS STOCK IN TRADE BY THE TAX DEPARTMENT UNDER SECTION 143(3) OF THE ACT IN THE EARLIER YEAR. BESIDE THIS, THE ASSESSEE HAS ALSO RAISED FOLLOWING AS ADD ITIONAL GROUND: 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN STATING THAT THE PROVISIONS OF SECTION 50C ARE APPLICABLE EVEN IF INCOME IS TREATED AS BUSINESS INCOME. 2 . FACTS IN BRIEF : THE ASSESSEE COMPANY I S MAINLY ENGAGED IN TH E TRADING OF BATTERIES, BAGS AND VARIOUS INNUMERABLE ITEMS. DURING THE YEAR, THE ASSESSEE COMPANY HAS SOLD AN IMMOVABLE PROPERTY BEING OFFICE PREMISE ADMEASURING 920 SQ.FT. , LOCATED AT OFFICE NO.301, 3 RD FLOOR, STANDARD HOUSE 83, M.K. ROAD, MUMBAI, FOR SUM OF ` 25 LAKHS ON 31 ST MARCH 2006. THE SAID PROPERTY WAS PURCHASED ON 23 RD NOVEMBER 2000, AT ` 25,01,410. IN THE COMPUTATION, THE ASSESSEE HAD SHOWN LOSS OF ` 1,410, ON THE SALE TRANSACTION AND CLAIMED IT AT TRADING LOSS DURING THE YE AR. THE ASSESSING OFFICER NOTED THAT IN THE SALE DEED FILED BY THE ASSESSEE, THE STAMP AUTHORITY HAVE VALUED THE SAID PROPERTY AT A FAIR MARKET VALUE OF ` 66,10,000. THE ASSESSING OFFICER OBSERVED THAT THE SALE CONSIDERATION SHOWN BY THE ASSESSEE IS NOWHER E NEAR THE MARKET VALUE AND EVEN AFTER THE FIVE YEARS, THE VALUE OF THE PROPERTY HAS NOT INCREASED WHICH IS QUITE IMPROBABLE. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE HAD SUBMITTED THAT THE SAID OFFICE PUSHP HOLDINGS LTD. 3 PREMISE WAS PURCHASED WITH THE INTENTION OF DOING TRADING AND, ACCORDINGLY, IT WAS SHOWN AS STOCK IN TRADE IN THE ACCOUNTS. THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION ON THE GROUND THAT THE ASSESSEE COMPANY HAS NOT DONE ANY TRADING IN THE IMMOVABLE PROPERTY SINCE ITS INCEPTION AND UPTI LL DATE , EXCEPT FOR THIS PROPERTY. THOUGH THE ASSESSEE HAS RELIED UPON ITS INCIDENTAL OBJECT OF MEMORANDUM OF ASSOCIATION , H OWEVER, ITS MAIN OBJECT AND PRIMARY ACTIVITY WAS TO CARRY ON BUSINESS OF SHARES, DEBENTURE, ETC. FURTHER, THE SALE AND PURCHASE ACTI VITIES OF ONE IMMOVABLE PROPERTY IS NOT IN THE NATURE OF BUSINESS ADVENTURE AS THE SALE DEED WAS ENTERED INTO BY THE ASSESSEE ON 31 ST MARCH 2006, I.E., AFTER A GAP OF MORE THAN FIVE YEARS. THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HAD THIS TRANSACTION BEEN TRADING ACTIVITY, THE ASSESSEE WOULD HAVE OFFERED IT AS INCOME OR LOSS IN THE EARLIER YEAR WHEN THE ACTUAL TRANSACTION HAS TAKEN PLACE , BECAUSE IN THIS YEAR , ONLY COMPLETION OF FORMALITIES OF REGISTRATION AND HANDING OVER THE PRO PERTY TO THE PURCHASE PARTY WAS DONE. THE TRANSACTION HAD OTHERWISE TAKEN PLACE IN THE EARLIER YEAR. THUS, HE HELD THAT IT IS NOTHING BUT SALE OF A CAPITAL ASSET AND IT HAS TO BE TAXED UNDER THE HEAD CAPITAL GAIN , ACCORDINGLY, H E ADOPTED THE VALUE OF SAL E CONSIDERATION AS PER SECTION 50C, WHICH WAS DETERMINED AT ` 66,10,000, AND WORKED OUT LONG TERM CAPITAL GAIN OF ` 34,12,285. PUSHP HOLDINGS LTD. 4 3 . BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAD ALSO TAKEN A PLEA THAT IN THE CASE OF SALE CONSIDERATION BEING TREATED AS BUSINES S INCOME OR LOSS, THEN PROVISION OF SECTION 50C, WILL NOT APPLY. HOWEVER, SUCH A CONTENTION WAS REJECTED ON THE GROUND THAT THE SAME IS TAXABLE UNDER THE HEAD CAPITAL GAIN . THE ASSESSING OFFICER OTHERWISE ALSO HELD THAT SECTION 50C WOULD APPLY FOR CONSID ERING THE MARKET VALUE EVEN IF IT IS TO BE TREATED AS BUSINESS INCOME. 4 . IN THE FIRST APPEAL, LEARNED COMMISSIONER (APPEALS) TOO CONFIRMED THE ASSESSEES CONTENTION AND HELD THAT INTENTION OF THE ASSESSEE WAS NOT TRADING IN THE IMMOVABLE PROPERTY BUT INVEST MENT IN THE CAPITAL ASSET, THEREFORE, THE SAME HAS BEEN RIGHTLY BEEN TAXED UNDER THE HEAD CAPITAL GAIN . HOWEVER, WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER, THE LEARNED COMMISSIONER (APPEALS) HAS NOT EXAMINED THE ENTIRE ISSUE PROPERLY. 5 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAD PURCHASED THIS OFFICE PREMISE IN THE FINANCIAL YEAR 2000 01 FOR ` 25,01,410, AND THE SAME WAS TREATED AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT. IN SUPPORT OF HIS CONTENTION, HE DREW OUR ATTENTION TO THE AUDITED ACCOUNTS FOR THE YEAR ENDING 31 ST MARCH 2001, WHEREIN THE ASSESSEE HAD SHOWN THE IMMOVABLE PROPERTY ADMEASURING 920 SQ.FT. AS STOCK IN TRADE WHICH WAS VALUED AT ` 25,01,410. ONCE THE PROERTY WAS SOLD IN THIS FINANCIAL YEAR, IT WAS SHOWN UNDER T HE TRADING ACCOUNT AND PUSHP HOLDINGS LTD. 5 WHATEVER LOSS WAS INCURRED WAS SHOWN AS TRADING LOSS. IN THE EARLIER ASSESSMENT YEAR, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) AND THE SAID PROPERTY BEING STOCK IN TRADE, HAS NOT BEEN DISTURBED. THUS, THE SALE OF STOCK IN TR ADE SHOULD BE TREATED AS BUSINESS INCOME OR LOSS AND IT CANNOT BE TAXED UNDER THE HEAD CAPITAL GAIN. 6 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE SOLE TRANSACTION OF BUYING AND SELLING OF A PROPERTY CANNOT BE HELD AS TRADI NG ACTIVITY AND THAT TO BE WHEN THE PROPERTY HAS BEEN SOLD AFTER A GAP OF ALMOST SIX YEARS. FURTHER, MERELY SHOWING THE PROPERTY AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT CANNOT BE SAID TO BE SACROSANCT OR FINAL SO AS TO TREAT IT AS BUSINESS ASSET. HE THUS STRONGLY RELIED UPON THE FINDINGS AND OBSERVATION OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 7 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. IT IS UND ISPUTED FACT THAT THE ASSESSEE HAD SHOWN SOLE TRANSACTION OF IMMOVABLE PROPERTY WHICH WAS PURCHASED IN THE YEAR 2000 AND SOLD IN THE YEAR 2006. APART FROM THIS TRANSACTION, THE ASSESSEE HAS NOT PURCHASED OR SOLD ANY IMMOVABLE PROPERTY. FOR CLASSIFYING ANY ACTIVITY AS TRADING OR BUSINESS ACTIVITY THERE HAS TO BE SOME KIND OF SYSTEMATIC OR ORGANISED COURSE OF ACTIVITY . ONE STRAY TRANSACTION CANNOT LEAD TO CONCLUSION THAT THE ASSESSEE IS ENGAGED IN THE ACTIVITY OF THE BUSINESS. PUSHP HOLDINGS LTD. 6 THE CRUCIAL POINT WHICH IS TO BE SEEN IS , WHAT WAS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE SAID PROPERTY. THIS INTENTION CAN BE GAUGED IN CASE OF A COMPANY, WHETHER THERE WAS ANY BOARD RESOLUTION PASSED BY THE BOARD OF DIRECTORS FOR CARRYING OUT ANY BUSINESS IN THE S ALE AND PURCHASE OF THE PROPERTY AND WHETHER IT HAS BEEN MENTIONED IN THE DIRECTORS REPORT AT THE TIME OF PURCHASE OF THE PROPERTY . THESE ARE ONLY ONE OF THE ILLUSTRATIVE EXAMPLE F OR LOOKING INTO THE INTENTION OF THE PARTY , WHETHER IT HAS PURCHASED THE GOOD / ASSET FOR THE PURPOSE OF TRADING OR DOING BUSINESS OR FOR THE PURPOSE OF INVESTMENT. ENTRIES IN THE BOOKS OF ACCOUNT CAN ONLY BE CORROBORATIVE EVIDENCE FOR SUCH A CONTENTION AND NOT A CONCLUSIVE PROOF. THE LEARNED COMMISSIONER (APPEALS) HAS NOT EXAMINED THIS ISSUE IN PROPER PERSPECTIVE AND, THEREFORE, WE ARE OF THE OPINION THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS) , TO PASS A FRESH ORDER AFTER CONSIDERING THE ENTIRE FACTS AND MATERIAL INCLUDING WHAT WAS THE INTENTION OF THE ASSESSEE FROM THE RECORDS AT THE TIME OF PURCHASING THE SAID PROPERTY. IF THE ASSESSEE IS UNABLE TO SATISFY, THEN ADVERSE INFERENCE CAN BE DRAWN. THUS, THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER (APPEALS) IS SET ASIDE AND THE MATTER IS RESTORED BACK TO HIM TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING DUE AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE AND PREFERABLY DECIDE THE SAME WITHIN THE PERIOD OF SIX MONTHS FROM THE DATE OF RECEIPT OF THIS ORDER. PUSHP HOLDINGS LTD. 7 8 . 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 19 TH AUGUST 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 19 TH AUGUST 2014 SD/ - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 19 TH AUGUST 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI