ITO,Ward 5(3), Pune V. Shri Subhash B. Sanas, Pune

ITA 61/PUN/2007

• Counselvise Citation: 6124514 RSA 2007
• Duration Of Justice: 7 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-10-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 11-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Assessee Lawyers: HARI KISHAN
• Keywords: Business income; Question of law; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S.PADVEKAR, JUDICIAL MEMBER ITA NO.61/PN/2007 (ASSESSMENT YEAR: 2003-04) ITO, WARD-5(3), PUNE .. APPELLANT VS. SHRI SUBHASH B. SANAS, SANAS PLAZA, SHUKRAWAR PETH, PUNE 411002 PAN NO.ADWPS9368Q .. RESPONDENT ASSESSEE BY : SHRI HARI KISHAN REVENUE BY : SHRI B.C. MALAKAR DATE OF HEARING : 16-10-2014 DATE OF PRONOUNCEMENT : 31-12-2014 ORDER PER G.S. PANNU, A.M. : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, PUNE DA TED 03-10-2006 WHICH, IN TURN, HAS ARISEN FROM ORDER DATED 21-03-2 006 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOM E-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2003-04. 2. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1) THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) GROSSLY ERRED IN DELETING THE ADDITION OF RS .45,52,700/- MADE IN THE ASSESSMENT UNDER THE HEAD 'BUSINESS' / 'ADVENTU RE IN THE NATURE OF TRADE WITH REFERENCE TO SALE OF FOUR PLOTS, AND IN HOLDING THAT SUCH SALE WAS ON ACCOUNT OF INVESTMENT AND, THEREFORE, THE PR OFIT ON THE SALE WOULD BE ASSESSABLE UNDER THE HEAD 'LONG TERM CAPIT AL GAINS' AS HAD BEEN RETURNED BY THE ASSESSEE. 2 ITA NO 61/PN/2007 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) GROSSLY ERRED IN FAILING TO APPRECIATE THAT THE ASSESSEE HAD MADE PURCHASES EVIDENTLY WITH THE INTENTION OF USIN G THE PLOTS AS STOCK-IN-TRADE AND THE SALE OF SUCH PLOTS COULD ONL Y BE SEEN AS BUSINESS TRANSACTION. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) ERRED IN FAILING TO APPRECIATE THAT AFTER PU RCHASING THE PLOTS THE ASSESSEE HAD ALSO DEVELOPED THE SAME AND THEREFORE, IT COULD NOT BE SAID THAT THE PLOTS HAD NOT BEEN INTENDED AS STOCK- IN-TRADE. 5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) GROSSLY ERRED IN DELETING THE ADDITION OF RS .31,27,500/- MADE IN THE ASSESSMENT WITH REFERENCE TO THE ADVANCE FROM M /S. MANTRI CONSTRUCTION SHOWN BY THE ASSESSEE AS A LIABILITY T O THIS CONCERN, MERELY ON THE TECHNICAL GROUND THAT THE TRANSACTION TO WHICH THE ABOVE ADVANCE PERTAINED, I.E. TRANSFER OF A PROPERTY AT S HIVAJINAGAR, HAD TAKEN PLACE IN MARCH 1997 AND, THEREFORE, SECTION 2 (47)(V) WHICH CAME INTO EFFECT FROM 1/4/1998 WOULD NOT APPLY. THE CIT (A) OUGHT TO HAVE EXAMINED ALL THE FACTS RELEVANT TO THE TRANSFER. 3. ALTHOUGH, REVENUE HAS RAISED MULTIPLE GROUNDS OF APPEAL BUT THE DISPUTE IS WITH REGARD TO TWO ISSUES. FIRSTLY, THE REVENUE IS AGGRIEVED BY THE ACTION OF THE CIT(A) IN TREATING T HE INCOME EARNED BY THE ASSESSEE ON SALE OF PLOTS AT KONDHWA, PUNE AS A N INCOME ASSESSABLE UNDER THE HEAD CAPITAL GAINS AS AGAINS T THE STAND OF THE ASSESSING OFFICER THAT SUCH INCOME WAS ASSESSABLE A S INCOME FROM BUSINESS. THE SECOND GRIEVANCE OF THE REVENUE IS AGAINST THE ACTION OF THE CIT(A) IN DELETING THE ADDITION OF RS.31,27, 500/- WHICH, AS PER THE ASSESSING OFFICER, WAS LIABLE TO BE ASSESSED AS SAL E CONSIDERATION OF SALE OF PROPERTY AT SHIVAGINAGAR, PUNE. 4. IN THE ABOVE BACKGROUND RIVAL PARTIES HAVE MADE THEIR SUBMISSIONS. ON BEHALF OF THE RESPONDENT ASSESSEE VOLUMINOUS PAPER BOOKS HAVE BEEN FILED, WHICH, INTER-ALIA, CONTAIN M ATERIAL AND DOCUMENTS WHICH WERE BEFORE THE LOWER AUTHORITIES. THE RIVAL SUBMISSIONS HAVE BEEN HEARD AND THE RELEVANT MATERI AL PERUSED IN ORDER TO DISPOSE OF THE CAPTIONED APPEAL OF THE REV ENUE. 3 ITA NO 61/PN/2007 5. FIRSTLY, IN RELATION TO THE CHARACTER OF INCOME EARNED ON SALE OF PLOTS AT KONDHWA, PUNE THE RELEVANT FACTS ARE AS FO LLOWS. THE RESPONDENT ASSESSEE IS AN INDIVIDUAL WHO IS, INTER- ALIA, STATED TO BE ENGAGED IN THE BUSINESS OF BUILDER UNDER THE NAME A ND STYLE OF ITS PROPRIETARY CONCERN M/S. SANAS BUILDERS. APART THE REFROM, THE RETURN OF INCOME FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 20 03-04 SHOWS THAT ASSESSEE EARNED INCOME BY WAY OF INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND UNDER THE HEAD INCOME FROM OTH ER SOURCES. IN THE RETURN OF INCOME FILED, ASSESSEE HAD DECLARED SALE OF FOUR PLOTS AT KONDHWA, PUNE ON 30-08-2002 FOR A TOTAL CONSIDERATI ON OF RS.60 LAKHS. AS THE SAID PLOTS WERE ACQUIRED BY THE ASSESSEE IN FEBRUARY AND APRIL, 1995, ASSESSEE CLAIMED THE INCOME ARISING ON SALE O F SUCH PLOTS AS AN INCOME ASSESSABLE UNDER THE HEAD CAPITAL GAINS. THE NET LONG TERM CAPITAL GAIN ON SALE OF THE AFORESAID PLOTS WAS COM PUTED AT RS.35,35,016/- AND AFTER SETTING OFF THE BROUGHT FO RWARD SHORT TERM CAPITAL LOSS FOR THE EARLIER YEARS AND ADDING THE S HORT TERM CAPITAL GAIN FOR THE YEAR UNDER CONSIDERATION, THE NET INCOME UN DER THE HEAD CAPITAL GAINS WAS DECLARED AT RS.11,35,963/-. FOR THE PRES ENT, WE ARE CONCERNED WITH THE LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE ON SALE OF PLOTS AT KONDHWA, PUNE AMOUNTING TO RS.35,3 5,016/- . FOR VARIOUS REASONS, THE ASSESSING OFFICER DISAGREED WI TH THE ASSESSEE THAT THE TRANSACTION OF SALE OF PLOTS AT KONDHWA WA S TO BE ASSESSED AS CAPITAL GAINS. 6. FIRSTLY, AS PER THE ASSESSING OFFICER, THE ASSES SEE ACQUIRED THE DEVELOPMENT RIGHTS IN THE SAID PLOTS IN TERMS OF TH E AGREEMENT DATED 07- 02-1995 WITH THE OWNERS OF THE PLOT. SECONDLY, THE ASSESSING OFFICER NOTED THAT THE SAID PURCHASE OF DEVELOPMENT RIGHTS OF THE PLOTS WAS REFLECTED IN THE FINANCIAL STATEMENTS OF HIS PROPRI ETARY CONCERN M/S. 4 ITA NO 61/PN/2007 SANAS BUILDERS. THIRDLY, AS PER THE ASSESSING OFFI CER, AGREEMENT TO PURCHASE THE DEVELOPMENT RIGHT IN THE ABOVE PLOTS W AS ENTERED INTO BY THE ASSESSEE IN THE CAPACITY OF A BUILDER. FOURTHL Y, THE ASSESSING OFFICER CONCLUDED THAT ASSESSEE PURCHASED THE DEVEL OPMENT RIGHTS FOR THE PURPOSE OF ACQUIRING STOCK-IN-TRADE FOR THE BUS INESS OF HIS PROPRIETARY CONCERN, ON WHICH ASSESSEE HAD CARRIED OUT DEVELOPMENT WORK PRIOR TO ITS SALE. FIFTHLY, IT WAS NOTED BY T HE ASSESSING OFFICER THAT AT THE TIME OF PURCHASE THE PLOTS WERE IN AGRICULTU RAL ZONE AND SUBSEQUENTLY CONVERTED INTO RESIDENTIAL ZONE AND TH AT THE ASSESSEE ALSO OBTAINED A NO OBJECTION CERTIFICATE DATED 17-0 8-2002 UNDER THE URBAN LAND CEILING LAWS (ULC) PRIOR TO ITS SALE. F OR ALL THE ABOVE REASONS, THE ASSESSING OFFICER HELD THAT THE PROPER TY IN QUESTION WAS A STOCK-IN-TRADE OF ASSESSEES CONSTRUCTION BUSINESS AND THEREFORE PROFIT ARISING ON SALE OF SUCH PROPERTY WAS LIABLE TO BE T AXED UNDER THE HEAD INCOME FROM BUSINESS AND NOT AS CAPITAL GAINS. AS A CONSEQUENCE, THE ASSESSING OFFICER COMPUTED THE BUSINESS INCOME ON SALE OF PLOT AT RS.45,52,700/- ON THE BASIS OF SALE CONSIDERATION O F RS.60 LAKHS MINUS COST OF ACQUISITION OF RS.14,47,300/-. THE CIT(A) HAS DISAGREED WITH THE ASSESSING OFFICER AND INSTEAD UPHELD ASSESSEES PLEA THAT THE PROPERTY IN QUESTION WAS NOT HIS STOCK-IN-TRADE OF THE BUSINESS OF CONSTRUCTION AND INSTEAD IT WAS AN INVESTMENT AND T HEREFORE GAIN ARISING ON SALE OF SUCH A PROPERTY WAS LIABLE TO BE TAXED U NDER THE HEAD INCOME FROM CAPITAL GAINS. AGAINST THE AFORESAID DECISION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 7. NOTABLY, THE STAND OF THE ASSESSEE BEFORE THE LO WER AUTHORITIES WAS THAT THOUGH THE LAND WAS SHOWN IN THE FINANCIAL STATEMENTS OF THE PROPRIETARY CONCERN, M/S. SANAS BUILDERS BUT THE SA ME WAS SHOWN AS INVESTMENT IN THE BALANCE SHEET SINCE ITS DATE OF A CQUISITION AND NOT 5 ITA NO 61/PN/2007 TREATED AS STOCK-IN-TRADE. ASSESSEE EXPLAINED THAT SINCE ACQUISITION IN FINANCIAL YEAR 1994-95 AND TILL ITS SALE DURING THE YEAR UNDER CONSIDERATION, THE SAID PROPERTY WAS REFLECTED AS A N INVESTMENT IN THE RESPECTIVE BALANCE SHEETS FOR ALL THE INTERVENING Y EARS. IT WAS ALSO CONTENDED THAT THE PROPERTY WAS PURCHASED BY THE AS SESSEE IN HIS INDIVIDUAL NAME AND NOT IN THE NAME OF THE PROPRIET ARY CONCERN AND THAT THE FUNDS WHICH WERE UTILIZED TO PURCHASE THE PROPE RTY WERE ALSO OUT OF HIS PERSONAL BANK ACCOUNT AND NOT FROM THE BANK ACC OUNT OF THE PROPRIETARY CONCERN. IT WAS ALSO CONTENDED BY THE ASSESSEE THAT THERE WAS NO DEVELOPMENT ACTIVITY CARRIED OUT DURING THE PERIOD OF HOLDING OF THE LAND AND THAT ONLY AN EXPENDITURE OF RS.7,300/- WAS SPENT WHICH WAS PRIMARILY FOR ITS UPKEEP AND MAINTENANCE ONLY. 8. BEFORE CIT(A), IT WAS ALSO POINTED OUT THAT THE CONVERSION FROM AGRICULTURAL ZONE TO RESIDENTIAL ZONE WAS DONE IMME DIATELY PRIOR TO ITS SALE, BUT THE SAID LAND WAS ACTUALLY CONVERTED INTO NON-AGRICULTURAL LAND ONLY ON 06-01-2004 WHICH WAS MUCH AFTER THE DATE OF THE SALE BY THE ASSESSEE WHICH WAS ON 08-03-2002. IT WAS CLAIMED B Y THE ASSESSEE THAT THE LAND WAS SOLD AS IT WAS ACQUIRED AND IN TH E INTERREGNUM NO DEVELOPMENT ACTIVITY WAS CARRIED OUT. WITH RESPECT TO THE ACQUISITION BY WAY OF PURCHASE OF DEVELOPMENT RIGHTS, ASSESSEE SUB MITTED THAT IT WAS A PURCHASE OF PLOTS SIMPLISTER, BUT IT WAS CARRIED OUT AS A PURCHASE OF DEVELOPMENT RIGHTS IN ORDER TO SAVE ON THE REGISTRA TION CHARGES PAYABLE. IN ANY CASE, IT WAS POINTED OUT THAT THE AGREEMENT DID NOT ENVISAGE ANY DEVELOPMENT OF PLOTS BY THE ASSESSEE AND INDEED THE RE IS NO MATERIAL TO SUGGEST THAT ANY DEVELOPMENT ACTIVITY WAS CARRIED O UT ON THE SAID PROPERTY BEFORE ITS SALE BY THE ASSESSEE. IT WAS A LSO POINTED OUT BY THE ASSESSEE THAT A MAJOR SOURCE OF INCOME FOR THE PAST DECADE WAS THE RENTAL INCOMES AS WAS EVIDENT FROM THE RESPECTIVE R ETURNS OF INCOME, 6 ITA NO 61/PN/2007 AND THE BUSINESS OF CONSTRUCTION WAS VERY LESS. TH E CIT(A) HAS ACCEPTED THE AFORESAID PLEAS OF THE ASSESSEE. 9. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE A PPEARING FOR THE REVENUE HAS PRIMARILY RELIED UPON THE REASONING TAKEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER WHICH WE HAVE ALREADY NARRATED IN THE EARLIER PARAS, AND IS NOT BEING REP EATED FOR THE SAKE OF BREVITY. THE LD. DEPARTMENTAL REPRESENTATIVE FURTH ER POINTED OUT THAT THE BUSINESS OF CONSTRUCTION WAS BEING CARRIED OUT BY THE ASSESSEE IN ITS PROPRIETARY CONCERN UNDER THE NAME AND STYLE OF M/S. SANAS BUILDERS AND THEREFORE THE SAID TRANSACTION OF PURCHASE OF P LOTS AND SALE THEREOF WAS TO BE UNDERSTOOD AS A TRANSACTION DONE IN THE C OURSE OF CARRYING ON OF BUSINESS. THEREFORE, ACCORDING TO HIM, THE INCO ME ON ACCOUNT OF SALE OF THE IMPUGNED PLOTS WAS LIABLE TO BE ASSESSE D AS BUSINESS INCOME. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IT IS A TRITE LAW THAT WHETHER OR NOT A PARTICULAR TRANSACTION GI VES RISE TO INCOME ASSESSABLE UNDER THE HEAD BUSINESS OR UNDER THE H EAD CAPITAL GAINS IS AN ISSUE INVOLVING MIXED QUESTION OF LAW AND FAC TS. OSTENSIBLY, THERE ARE A PLETHORA OF JUDGEMENTS WHICH DEAL WITH SUCH A CONTROVERSY. HOWEVER, WITHOUT CONTROVERSION IT CAN BE SAFELY UND ERSTOOD THAT EACH CASE HAS TO BE DECIDED HAVING REGARD TO ITS PECULIA R FACTS AND CIRCUMSTANCES. AS PER THE HONBLE SUPREME COURT IN THE CASE OF SAROJ KUMAR MAZUMDAR VS. CIT, 37 ITR 242 (SC), NO UNIVERS AL TEST CAN BE LAID DOWN TO DETERMINE WHETHER A GIVEN TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE OR OTHERWISE. IN THE PRESENT C ASE, THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE ASSESSMENT YEA R UNDER CONSIDERATION, A COPY OF WHICH HAS BEEN PLACED IN T HE PAPER BOOK AT 7 ITA NO 61/PN/2007 PAGES 25 AND 26 ITSELF SHOWS THAT ONE OF THE ACTIVI TIES OF THE ASSESSEE IS CONSTRUCTION ACTIVITY CARRIED OUT IN HIS PROPRIE TARY CONCERN, M/S. SANAS BUILDERS. IT IS ALSO EVIDENT THAT ASSESSEE HAS PRE PARED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR HIS PROPRIETARY CON CERN SEPARATELY THAN HIS PERSONAL BALANCE SHEET AND PROFIT AND LOSS ACCO UNT. IN SUCH A SITUATION, A PRESUMPTION WAS DRAWN BY THE ASSESSING OFFICER THAT THE IMPUGNED TRANSACTION OF SALE OF LAND WAS A BUSINESS TRANSACTION, SINCE ONE OF THE ACTIVITIES OF THE ASSESSEE WAS UNDERTAKI NG CONSTRUCTION ACTIVITY. NEVERTHELESS, SUCH A PRESUMPTION IS NOT CONCLUSIVE, BUT IS REQUIRED TO BE ESTABLISHED HAVING REGARD TO THE COM PLETE ATTENDANT FACTS AND CIRCUMSTANCES OF THE CASE. WHAT SUCH A PRESUMP TION IMPLIES IS THAT THE ONUS IS ON THE ASSESSEE TO SAY THAT SUCH A N INCOME IS NOT TO BE ASSESSED AS BUSINESS INCOME BUT IS LIABLE TO BE A SSESSED AS INCOME UNDER THE HEAD CAPITAL GAINS. THEREFORE, IN THE PRESENT CASE, ONE WILL HAVE TO EXAMINE WHETHER OR NOT THE ASSESSEE HAS BEE N ABLE TO DISCHARGE THE BURDEN CAST ON HIM THAT THE IMPUGNED INCOME WAS LIABLE TO BE ASSESSED AS CAPITAL GAINS. WE HAVE INFERRE D THE ABOVE BASED ON THE PARITY OF REASONING LAID DOWN BY THE HONBLE SU PREME COURT IN THE CASE OF SAROJ KUMAR MAZUMDAR (SUPRA). 11. IN THIS BACKGROUND, WE MAY NOW EXAMINE THE FACT S OF THE PRESENT CASE. IN THIS CASE, AS PER THE ORDERS OF THE AUTHO RITIES BELOW AND THE MATERIAL ON RECORD, IT TRANSPIRES THAT ASSESSEE PUR CHASED FOUR PORTIONS OF A LARGER PIECE OF LAND BY FOUR SEPARATE AGREEMEN TS IN FEBRUARY AND APRIL, 1995. THE ASSESSEE ACQUIRED THE LAND BY WAY OF A DEVELOPMENT AGREEMENTS AND SUCH AN ACQUISITION WAS REFLECTED I N THE BALANCE SHEET OF THE PROPRIETARY CONCERN AS INVESTMENTS. SINCE THE TIME OF ACQUISITION AND UPTO ITS SALE DURING THE YEAR UNDER CONSIDERATION, I.E. FOR A PERIOD OF 7 YEARS, THE SAID PROPERTY WAS REFLECTE D AS INVESTMENTS IN 8 ITA NO 61/PN/2007 THE BALANCE SHEET OF THE PROPRIETARY CONCERN. ON T HIS ASPECT, THERE IS NO DISPUTE BUT THE ASSESSING OFFICER HAS OBSERVED T HAT THE PROPERTY HAS BEEN HELD AS STOCK-IN-TRADE. WE ARE UNABLE TO APPR ECIATE THE AFORESAID ASSERTION OF THE ASSESSING OFFICER AS THE SAME IS N OT BASED ON ANY MATERIAL ON RECORD. NOTABLY, IN THE BALANCE SHEETS FILED BY THE ASSESSEE PERTAINING TO ASSESSMENT YEARS 1995-96 TO 2002-03, I.E. STARTING FROM THE YEAR OF ACQUISITION UPTO THE YEAR PRIOR TO ITS SALE, THE SAID PROPERTY HAS BEEN SHOWN AS INVESTMENT AND NOT AS A STOCK-IN- TRADE. 12. THE OTHER ASPECT TAKEN BY THE ASSESSING OFFICER TO TREAT THE PROPERTY AS STOCK-IN-TRADE IS THAT IT WAS NOT A CAS E OF AN OUTRIGHT PURCHASE OF LAND BUT IT WAS A CASE WHERE ACQUISITIO N IS BY WAY OF ACQUIRING DEVELOPMENT RIGHTS. FURTHER, AS PER THE ASSESSING OFFICER, SUCH A TRANSACTION WAS ALLIED TO ASSESSEES EXISTIN G BUSINESS OF CONSTRUCTION/BUILDERS. THE AFORESAID TWIN ASSERTIO NS OF THE ASSESSING OFFICER ARE LIABLE TO BE EXAMINED IN THE CONTEXT OF THE EXPLANATION FURNISHED BY THE ASSESSEE. THE ASSESSEE EXPLAINED THAT THE PROPERTY WAS ACQUIRED BY WAY OF A DEVELOPMENT AGREEMENT TO S AVE ON THE REGISTRATION CHARGES. IF IT WAS TO BE ACQUIRED BY WAY OF AN OUTRIGHT PURCHASE OF URBAN LAND, IT WOULD HAVE INVOLVED HIGH ER CHARGES FOR GETTING THE AGREEMENT REGISTERED. SECONDLY, IT WAS POINTED OUT THAT THE AGREEMENT ITSELF DOES NOT ENVISAGE ANY DEVELOPMENT BY THE ASSESSEE. IT WAS ALSO POINTED OUT THAT DURING THE PERIOD OF H OLDING OF THE LAND BY THE ASSESSEE THERE WAS NO DEVELOPMENT PLAN SUBMITTE D TO ANY OF THE LOCAL AUTHORITIES TO REFLECT ANY INTENTION FOR DEVE LOPMENT. IT WAS ASSERTED THAT NO BUILDING PLAN OR LAYING OF INTERNA L ROADS, ETC. WAS DONE BY THE ASSESSEE. ONLY AN EXPENDITURE OF RS.7,300/- WAS SPENT ON REMOVAL OF WEEDS AND GRASS FROM THE LAND IN ASSESSM ENT YEAR 1999- 9 ITA NO 61/PN/2007 2000, WHICH COULD NOT REFLECT ANY DEVELOPMENT ACTIV ITY. IT WAS CONTENDED THAT INCURRENCE OF SUCH AN EXPENDITURE CA NNOT BE CONSTRUED AS A DEVELOPMENT EXPENDITURE OR TO SAY THAT IT REFL ECTS ANY INTENTION OF THE ASSESSEE TO UNDERTAKE DEVELOPMENT OF SUCH LAND AS STOCK-IN-TRADE. THE ASSESSEE ALSO SUBMITTED THAT THE EXPENSE OF RS. 7,300/- INCURRED IN ASSESSMENT YEAR 1999-2000 WAS TAKEN AS A PART OF TH E COST OF INVESTMENT AND NOT DEBITED IN THE PROFIT AND LOSS A CCOUNT OF THE PROPRIETARY CONCERN. FACTUALLY SPEAKING, ON ALL TH ESE ASPECTS, THERE IS NO DISPUTE. IN-FACT, THERE IS NOTHING TO SUGGEST T HAT DURING THE PERIOD OF HOLDING OF LAND BY THE ASSESSEE, ANY ACTIVITY WAS U NDERTAKEN, WHICH COULD IMPLY THAT THE ASSESSEE WAS DEALING IN SUCH L AND AS STOCK-IN- TRADE OR FOR THE PURPOSES OF DEVELOPMENT WITH A BUS INESS INTENTION. THE MERE NOMENCLATURE OF THE AGREEMENT FOR ACQUISITION AS A DEVELOPMENT AGREEMENT BY ITSELF IS NOT CONCLUSIVE TO SAY THAT THE INTENTION OF THE ASSESSEE WAS TO TREAT THE SAID PURCHASE AS A PURCHA SE OF STOCK-IN- TRADE. THE FACTUAL MATRIX WHICH HAS PREVAILED DURI NG THE PERIOD OF HOLDING OF LAND BY THE ASSESSEE FOR 7 YEARS DOES NO T SUGGEST THAT ANY DEVELOPMENT ACTIVITY WAS CARRIED OUT ON THIS LAND. THE FINDINGS OF THE CIT(A) ARE ON THE ABOVE LINES, AND IN OUR VIEW THE SAME CANNOT BE FAULTED. THE ASSERTIONS OF THE ASSESSING OFFICER T O THE CONTRARY ARE MERE BALD ASSERTIONS. AT THIS POINT OF TIME, WE MA Y ALSO NOTICE A PERTINENT POINT BROUGHT OUT BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES WHICH IS TO THE EFFECT THAT THOUGH PLOTS IN QUESTIO N WERE SHOWN IN THE BALANCE SHEET OF THE PROPRIETARY CONCERN AS INVESTM ENT, YET THE PAYMENT FOR ACQUISITION WAS MADE FROM THE PERSONAL BANK ACCOUNT OF THE ASSESSEE. THE ASSESSEE POINTED OUT THE AFORESA ID FEATURE TO BRING OUT HIS INTENTION AT THE TIME OF PURCHASE OF THE PR OPERTY, WHICH ACCORDING TO HIM, WAS ACQUIRED FOR THE PURPOSE OF I NVESTMENT. IN OUR VIEW, IT IS QUITE WELL UNDERSTOOD THAT A BUILDER/DE ALER IN REAL ESTATE CAN 10 ITA NO 61/PN/2007 ALSO MAKE INVESTMENTS FOR CAPITAL APPRECIATION, AS DISTINCT FROM PURCHASE OF STOCK-IN-TRADE FOR EARNING BUSINESS PRO FITS. IN THE PRESENT CASE, THE FACTUAL MATRIX, WHICH PREVAILED DURING TH E PERIOD OF 7 YEARS IN WHICH ASSESSEE HELD THE PROPERTY, SHOW THAT NONE OF THE ACTIVITIES WHICH ARE NORMALLY ASSOCIATED WITH A DEVELOPER OF L AND WERE CARRIED OUT BY THE ASSESSEE. IN-FACT, IF THE ASSESSEE HAD TREA TED SUCH LAND AS STOCK-IN-TRADE, IT IS INCONCEIVABLE THAT ANY OF THE DEVELOPER-RELATED ACTIVITIES, LIKE, SUB-PLOTTING OR PREPARATION OF DE VELOPMENT PLANS, ETC. WOULD NOT HAVE BEEN CARRIED OUT BY THE ASSESSEE. 13. FURTHER, ONE OF THE POINTS RAISED BY THE ASSESS ING OFFICER WAS THAT A NO OBJECTION CERTIFICATE WAS OBTAINED BY THE ASSESSEE UNDER THE URBAN LAND CEILING LAWS PRIOR TO ITS SALE AND THAT THE LAND WAS GOT CONVERTED FROM AGRICULTURE ZONE TO RESIDENTIAL ZONE AND THEREFORE IT WAS TO BE TREATED AS A BUSINESS TRANSACTION. IN TH IS CONTEXT, THE CIT(A) HAS NOTED THAT THE PLOTS WERE INITIALLY SHOWN IN TH E AGRICULTURAL ZONE WHICH GOT CONVERTED INTO RESIDENTIAL ZONE AND A NO OBJECTION CERTIFICATE WAS OBTAINED JUST BEFORE THE SALE OF LA ND EVEN THOUGH THE LANDS WERE ACTUALLY CONVERTED INTO NON-AGRICULTURAL USE ONLY ON 06-01- 2004, WHICH WAS MUCH AFTER THE DATE OF SALE BY THE ASSESSEE. AS PER THE CIT(A), THE OBTAINING OF NOC AS PER ULC AUTHORI TIES BEFORE SALE WAS FOR THE PURPOSE OF GETTING A HIGHER PRICE FOR T HE PROPERTY AND ASSESSEE CANNOT BE FAULTED FOR GETTING THE BETTER P RICE FOR HIS INVESTMENT. THE CIT(A) HAS ALSO INFERRED THAT MERE LY BECAUSE THE AGRICULTURAL PLOTS WERE CONVERTED INTO RESIDENTIAL ZONE PRIOR TO ITS SALE IN AUGUST 2002 WITHOUT ANY INTENT OF DEVELOPMENT WO ULD NOT MAKE THE TRANSACTION AS A BUSINESS VENTURE. IN OUR CONSIDER ED OPINION, THE AFORESAID INFERENCES OF THE CIT(A) CANNOT BE FAULTE D AND THE SAME INDEED ARE BORNE OUT OF THE MATERIAL ON RECORD. AT THIS POINT, WE MAY 11 ITA NO 61/PN/2007 ALSO OBSERVE THAT EVEN FOR AN INVESTOR, THE STEPS T AKEN BY HIM TO MAXIMIZE HIS PROFIT ON SALE OF INVESTMENT WOULD NOT RENDER SUCH PROFIT TO BE LOOKED UPON AS BUSINESS PROFITS. THE INTENT TO M AXIMIZE THE GAIN ON SALE OF INVESTMENT CANNOT, BY ITSELF, REFLECT ANY I NTENTION OF MAKING BUSINESS PROFITS UNLESS THE FACTUAL MATRIX DEMONSTR ATES SO. IN THE PRESENT CASE, ASSESSEE HELD THE PLOTS FOR A PERIOD OF 7 YEARS AND JUST BEFORE THE SALE OF LAND IN AUGUST, 2002, THE LANDS GOT CONVERTED INTO RESIDENTIAL ZONE. HOWEVER, THIS CONVERSION WAS NOT FOLLOWED UP BY ANY KIND OF DEVELOPMENT ACTIVITY ON SUCH LANDS BY THE A SSESSEE AND THEREFORE IT CANNOT BE SAID THAT THE AFORESAID ASPE CT SHOWS THE INTENTION OF THE ASSESSEE TO HOLD THE SAID PROPERTY AS A STOC K-IN-TRADE. FOR ALL THE ABOVE REASONS, IN OUR VIEW, THE FACTS AND CIRCUMSTA NCES OF THE CASE MADE OUT BY THE ASSESSEE ESTABLISH THAT THE INTENTI ON OF THE ASSESSEE FOR ACQUIRING THE AFORESAID PROPERTY WAS TO HOLD IT AS INVESTMENT AND NOT AS STOCK-IN-TRADE. THEREFORE, IN OUR VIEW, T HE CIT(A) MADE NO MISTAKE IN HOLDING THAT THE GAIN ON SALE OF SUCH PR OPERTY IS LIABLE TO BE ASSESSED AS INCOME FROM CAPITAL GAINS AND NOT AS A BUSINESS INCOME. THUS, WE AFFIRM THE ORDER OF THE CIT(A) ON THIS ISS UE AND ACCORDINGLY REVENUE FAILS IN ITS APPEAL. 14. THE OTHER GROUND IN THIS APPEAL RELATES TO AN A DDITION OF RS.31,27,500/-. THE RELEVANT FACTS IN THIS CONTEXT ARE THAT ASSESSEE WAS FOUND TO HAVE ENTERED INTO AN AGREEMENT TO SALE DATED 02-03-1987 WITH RESPECT TO A PROPERTY SITUATED AT SHIVAJINAGAR , PUNE WHEREBY ASSESSEE TRANSFERRED HIS RIGHT, TITLE AND INTEREST IN THE SAID PROPERTY TO M/S. MANTRI CONSTRUCTIONS FOR A STATED CONSIDERATIO N OF RS.31,27,500/-. ASSESSEE HAD SINCE RECEIVED A SUM OF RS.29,77,248/- AND THE BALANCE OF RS.1,50,252/- WAS STILL OUTSTANDING. THE ASSESS ING OFFICER NOTED THAT THE SAID SUM OF RS.29,77,248/- WAS SHOWN IN THE BAL ANCE SHEET AS AN 12 ITA NO 61/PN/2007 ADVANCE RECEIVED FROM M/S. MANTRI CONSTRUCTIONS. T HE ASSESSING OFFICER WAS OF THE OPINION THAT SINCE THE AGREEMENT TO SALE WAS ENTERED INTO LONG TIME BACK, THERE WAS A COMPLETE TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT AND THAT THE ASSESSEE S HOULD HAVE DISCLOSED THE CAPITAL GAINS ON THE TRANSFER OF SUCH LAND IN T HE YEAR IN WHICH THE TRANSFER TOOK PLACE AND POSSESSION OF THE PROPERTY WAS GIVEN OVER. SINCE THE ASSESSEE HAD FAILED TO DO SO, HE TREATED THE ADVANCE SHOWN IN THE BALANCE SHEET AS A SALE CONSIDERATION RECEIV ED BY THE ASSESSEE AND ALONG WITH THE OUTSTANDING BALANCE OF RS.1,50,2 52/- HE TREATED THE ENTIRE STATED CONSIDERATION OF RS.31,27,500/- AS IN COME OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE C IT(A) HAS DELETED THE ADDITION BY NOTICING THAT TRANSFER COULD BE I NFERRED ONLY ON EXECUTION OF THE CONVEYANCE DEED AS HELD BY THE HON BLE SUPREME COURT IN THE CASE OF ALAPATI VENKATARAMAIAH VS. CI T REPORTED IN 57 ITR 185 (SC) AND THAT IN THE PRESENT CASE THE CONVEYANC E DEED WAS NOT YET EXECUTED. WITH REGARD TO THE REFERENCE TO SECTION 2(47) OF THE ACT BY THE ASSESSING OFFICER, THE CIT(A) OBSERVED THAT THE PROVISIONS OF CLAUSE (V) OF SECTION 2(47) OF THE ACT, WHICH WERE RELIED UPON, CAME INTO EFFECT FROM 01-04-1988 WHEREAS THE TRANSACTION IN QUESTION WAS ENTERED ON 20-03-1987. THEREFORE, ACCORDING TO THE CIT(A), CL AUSE (V) OF SECTION 2(47) OF THE ACT DID NOT HELP THE CASE OF THE ASSES SING OFFICER. THE CIT(A) HAS MADE THE FOLLOWING DISCUSSION WHILE DELE TING THE ADDITION :- 4.2 I HAVE GONE THROUGH THE FACTS OF THE CASE FROM THE ASSESSMENT ORDER AND ALSO FROM THE SUBMISSIONS MADE BY THE APP ELLANT. THE PROPERTY AT SHIVAJI NAGAR WAS TRANSFERRED WITH ALL RIGHTS, TITLE AND INTEREST FOR A TOTAL CONSIDERATION OF RS.31,37,500/ - OUT OF WHICH, THE APPELLANT HAD ALREADY RECEIVED A SUM OF RS.29,77,24 8/-, WHICH WAS SHOWN AS ADVANCE. AS PER THE TERMS OF THE AGR EEMENT, THE TRANSFEREE M/S.MANTRI CONSTRUCTION HAD BEEN AUTHORI ZED FOR DEVELOPMENT OF THE PROPERTY. THE ASSESSING OFFICER HELD THAT THE PROPERTY HAD ALREADY BEEN TRANSFERRED WITHIN THE ME ANING OF SECTION 2(47) OF THE INCOME TAX ACT, 1961 AND THE LIABILITY OF RS.29,77,248/- WAS DISALLOWED WHILE THE BALANCE AMOUNT OF RS.1,50, 252/- RECEIVABLE 13 ITA NO 61/PN/2007 WAS ALSO HELD TO HAVE ACCRUED TO THE APPELLANT. A M ERE AGREEMENT TO SELL MAY BE CONSTRUED AS TRANSFER, WHEN ACCOMPANIED BY POSSESSION IN VIEW OF THE EXTENDED DEFINITION OF TRANSFER UNDE R SECTION 2(47) OF THE ACT. WHERE THE AGREEMENT PROVIDES FOR SALE TO THE N OMINEE OF THE VENDEE IN CIRCUMSTANCES, WHERE THERE IS ALSO NO TRA NSFER OF POSSESSION, EVEN WHERE THERE IS POSSESSION, THERE I S NO SALE, SINCE THE DATE OF SALE CANNOT BE ANTERIOR TO THE DATE OF EXEC UTION OF THE DEED OF CONVEYANCE AS HELD IN MECCANE INDUSTRIES LTD. VS. C IT REPORTED IN 254 ITR 175(MAD.). IN THIS CASE, THE CONVEYANCE WAS EXE CUTED TO A NOMINEE, A THIRD PARTY, SEVEN YEARS LATER. THE EXTE NDED MEANING OF TRANSFER TO INCLUDE POSSESSION WITHIN THE MEANING O F SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882, WAS ASSIGNED BY THE FINANCE ACT, 1987, WITH EFFECT FROM THE ASSESSMENT YEAR 1988-89. BOTH THE DATE OF AGREEMENT AS WELL AS DATE OF EXECUTION IN THE CASE BEFORE THE HIGH COURT WAS PRIOR TO THE AMENDED DEFINITION, SO THAT THERE WAS LITTLE DIFFICULTY IN DECIDING THE ISSUE WITH REFERENCE TO THE PRE-EXISTING LAW, THAT THE TRANSFER COULD BE INFERRED ONLY ON CONVE YANCE ON THE BASIS OF THE DECISIONIN ALAPATI VENKATARAMIAH VS. CIT REPO RTED IN 57 ITR 185 (SC). ALSO, AS PER THE EXPLANATORY NOTE ON THE PRO VISIONS OF THE FINANCE ACT, 1987 VIDE CIRCULAR NO.495 DATED 22-9- 1987, THE DEFINITION OF THE WORD 'TRANSFER' HAS BEEN STATED T O BE WIDER TO INCLUDE CERTAIN TRANSACTION AND IT WAS CLARIFIED BY THE BOA RD THAT THE EXISTING DEFINITION OF THE WORD TRANSFER IN SECTION 2(47) DOES NOT INCLUDE TRANSFER OF CERTAIN RIGHT ACCRUING TO A PURCHASER, BY WAY OF BECOMING A MEMBER OF OR ACQUIRING SHARES IN A CO-OPERATIVE SOC IETY, COMPANY, OR ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT W HEREBY SUCH PERSON ACQUIRES ANY RIGHT IN ANY BUILDING WHICH IS EITHER BEING CONSTRUCTED OR WHICH IS TO BE CONSTRUCTED. TRANSACT IONS OF THE NATURE REFERRED TO ABOVE ARE NOT REQUIRED TO BE REGISTERED UNDER THE REGISTRATION ACT, 1908. SUCH ARRANGEMENTS CONFER TH E PRIVILEGES OF OWNERSHIP WITHOUT TRANSFER OF TITLE IN THE BUILDING AND ARE A COMMON MODE OF ACQUIRING FLATS PARTICULARLY IN MULTI-STORE YED CONSTRUCTIONS IN BIG CITIES. THE DEFINITION ALSO DOES NOT COVER CASE S WHERE POSSESSION IS ALLOWED TO BE TAKEN OR RETAINED IN PART PERFORMA NCE OF A CONTRACT, OR THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSF ER OF PROPERTY ACT, 1882. NEW SUB-CLS, (V) & (VI) HAVE BEEN INSERTED IN SECTION 2(47) TO PREVENT AVOIDANCE OF CAPITAL GAINS LIABILITY BY REC OURSE TO TRANSFER OF RIGHTS IN THE MANNER REFERRED TO ABOVE. IN VIEW OF THIS FACTUAL & LEGAL POSITION, THE GROUND NO.2 OF THE APPEAL IS ALLOWED AGAINST THE AFORESAID, REVENUE IS IN APPEAL BEFORE US. BEFORE US THE LD. DEPARTMENTAL REPRESENTATIVE POINTED OUT THA T THE VERIFICATION EXERCISE CONDUCTED BY THE ASSESSING OFFICER WITH M/ S. MANTRI CONSTRUCTION SHOWED THAT THE DEVELOPMENT OF THE SAI D PROPERTY AND THE UNITS CONSTRUCTED THEREON WERE SOLD BY THE SAID CON CERN TO THE ULTIMATE USERS. THEREFORE, THE SAID AMOUNT OUGHT TO HAVE BE EN OFFERED FOR TAX 14 ITA NO 61/PN/2007 BY THE ASSESSEE AS THE PROPERTY IN QUESTION STOOD T RANSFERRED TO THE BUYER. 15. ON THE OTHER HAND, THE LD. COUNSEL FOR THE RESP ONDENT-ASSESSEE HAS RELIED UPON THE ORDER OF THE CIT(A) IN SUPPORT OF THE CASE OF THE ASSESSEE. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE ASSESSING OFFICER HAS BROUGHT TO TAX THE IMPUGNED S UM ON THE BASIS OF AN AGREEMENT TO SALE DATED 20-03-1987 IN TERMS OF W HICH POSSESSION OF THE PROPERTY WAS HANDED-OVER TO M/S. MANTRI CONSTRU CTIONS. AS PER THE ASSESSING OFFICER, AS A CONSEQUENCE OF THE SAID AGR EEMENT, THE DEVELOPER M/S. MANTRI CONSTRUCTION HAD UNDERTAKEN D EVELOPMENT OF THE PROPERTY BY CONSTRUCTION BUILDING THEREON WHICH WAS SOLD TO THE ULTIMATE CUSTOMERS. ACCORDING TO THE ASSESSING OFFICER, THE ARRANGEMENT SHOWED THAT THERE WAS A TRANSFER WITHIN THE MEANI NG OF SECTION 2(47) OF THE ACT AND THEREFORE, ASSESSEE WAS LIABLE TO DISCL OSE CAPITAL GAINS ON SUCH TRANSACTION IN THE YEAR IN WHICH THE TRANSFER TOOK PLACE AND POSSESSION WAS GIVEN. IN THIS CONTEXT, THE CIT(A) HAS NOTICED THAT CLAUSE (V) OF SECTION 2(47) OF THE ACT, WHICH PERMI TS ANY TRANSACTION INVOLVING ALLOWING OF THE POSSESSION OF AN IMMOVABL E PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTRACT REFERRED TO SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882, TO BE UN DERSTOOD AS A TRANSFER HAS COME INTO THE STATUTE FROM 01-04-198 8 AFTER INSERTION BY THE FINANCE ACT, 1987. THUS, ACCORDING TO THE CIT( A), THIS CLAUSE WOULD NOT GOVERN THE TRANSACTION REFLECTED BY THE AGREEME NT TO SALE DATED 20- 03-1987, WHICH IS PRIOR TO ITS INSERTION BY THE FIN ANCE ACT, 1987. MOREOVER, THE CIT(A) RELIED UPON THE JUDGEMENT OF H ONBLE SUPREME COURT IN THE CASE OF ALAPATI VENKATARAMAIAH (SUPRA) TO SAY THAT 15 ITA NO 61/PN/2007 TRANSFER FOR THE PURPOSE OF ACCRUAL OF CAPITAL GA INS TAKES PLACE ONLY ON EXECUTION OF THE TRANSFER DEED BY THE OWNER, WHICH IN THE PRESENT CASE WAS NOT DONE. THEREFORE, FOR THE ABOVE TWO REASONS , HE DELETED THE ADDITION. NONE OF THE AFORESAID ASPECTS HAVE BEEN DISPUTED BY THE REVENUE BEFORE US. IN ANY CASE, WE FIND THAT THE I NSTANT YEAR IS NEITHER THE YEAR IN WHICH THE IMPUGNED AGREEMENT HAS BEEN E NTERED INTO AND NOR IT IS THE YEAR IN WHICH POSSESSION HAS BEEN GIV EN OR ANY CONSIDERATION RECEIVED. THEREFORE, WE FIND NO JUST IFIABLE REASON WITH THE ASSESSING OFFICER TO BRING TO TAX THE IMPUGNED SUM IN THE INSTANT ASSESSMENT YEAR. THUS, FOR ALL THE AFORESAID REASO NS, WE AFFIRM THE CONCLUSION DRAWN BY THE CIT(A) AND AS A RESULT REVE NUE FAILS ON THIS ASPECT ALSO. 17. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER, 2014. SD/- SD/- (R.S.PADVEKAR) (G.S. PA NNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 31 ST DECEMBER, 2014 SATISH/SUJEET COPY TO:- 1. ASSESSEE; 2. DEPARTMENT; 3. THE CIT (A)-II, PUNE; 4. THE CIT-II, PUNE ; 5. THE DR, A BENCH, I.T.A.T., PUNE; 6. GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE