ACIT, Circle-2(2), Hyderabad V. M/s Hotel Kamal Private Limited, Secunderabad

ITA 619/HYD/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9039 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 30-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: J J VARUN
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Reassessment proceedings
• Section: 143(3); 153A; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.619/HYD/2013 ASSESSMENT YEAR 2007-2008 ACIT, CIRCLE 2(2) HYDERABAD. VS. M/S. HOTEL KAMAL P. LTD., SECUNDERABAD-500003. PAN AABCH0409A (APPELLANT) (RESPONDENT) CROSS OBJECTION NO.40/HYD/2013 ARISING OUT OF ITA.NO.619/HYD/2013 ASSESSMENT YEAR 2007-2008 M/S. HOTEL KAMAL P. LTD., SECUNDERABAD-500003. PAN AABCH0409A VS. ACIT, CIRCLE 2(2) HYDERABAD. (CROSS OBJECTOR) (RESPONDENT) FOR REVENUE : MR. D. SUDHAKAR RAO FOR ASSESSEE : MR. J.J. VARUN DATE OF HEARING : 19.11.2014 DATE OF PRONOUNCEMENT : 02.01.2015 ORDER PER B. RAMAKOTAIAH, A.M. THE APPEAL BY REVENUE AND CROSS OBJECTION BY ASSESSEE ARE AGAINST THE ORDER OF LD. CIT(A) DATED 05.02.2013. REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL. 2. THE CIT(A) ERRED ON FACTS AND IN LAW IN HOLDING TH AT THE SALE OF PROPERTY BY THE ASSESSEE IS NOT ADVENT URE IN THE NATURE OF TRADE. 3. THE CIT(A) ERRED ON FACTS AND IN LAW IN HOLDING THA T EVEN WHEN THE ASSESSEE HAD GAINS MUCH MORE THAN 2 ITA.NO.619/HYD/2013 & CO.NO.40/HYD/2013 M/S. HOTEL KAMAL P. LTD., SECUNDERABAD. BUSINESS INCOME WITHIN 3 MONTHS OF ACQUISITION PROPERTY AND ITS SALE, THE TRANSACTION IS NOT ADVE NTURE IN THE NATURE OF TRADE. 4. THE CIT(A) ERRED ON FACTS IN LAW IN HOLDING THAT TH E ASSET IS BUSINESS ASSET DESPITE THAT FACT THAT THE ASSESSEE NEVER PUT THE PREMISES TO BUSINESS USE AND THE PREMISES WAS SOLD BY HIM WITHIN 3 MONTHS AFTER PURCHASE. 5. THE CIT(A) ERRED ON FACTS AND IN LAW IN APPRECIATIN G THE FACT THAT THE BUILDING PURCHASED AND SOLD BY TH E ASSESSEE WAS MEANT FOR RUNNING SOFTWARE DEVELOPMENT UNITS WHICH IS NOT THE BUSINESS OF THE ASSESSEE. 6. THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATION THE FACT THAT THE ASSESSEE PURCHASED S AID PROPERTY WITH VIEW THAT REALIZE CAPITAL GAINS AS ADMITTEDLY THE ASSESSEE REDUCED INTEREST BURDEN BY WAY SALE OF THE PROPERTY AND IN LIGHT OF THIS THE S ALE BECOME ADVENTURE IN NATURE OF TRADE. 1.1. THE CROSS OBJECTION IS ON REOPENING THE ASSESSMENT UNDER SECTION 147 WHICH IS NOT PRESSED. WE HAVE HEARD LD. COUNSEL AND LD. D.R. LD. COUNSEL PLACED O N RECORD THE DOCUMENTS OF PURCHASE, SALE, COMPANY ANNUAL ACC OUNTS AND COMPUTATION DETAILS FILED WITH RETURN OF INCOM E. 2. THERE IS ONLY ONE ISSUE IN APPEAL AND THAT RELATES TO THE TREATMENT OF PROFIT ON SALE OF PROPE RTY CONSIDERED AS BUSINESS PROFITS BY AO. THE FACTS ARE THAT THE ASSESSEE IS A COMPANY WHICH IS IN THE BUSINESS OF RUNNING RESTAURANTS AND HOTELS. A SEARCH AND SEIZUR E OPERATION WAS CONDUCTED ON THE PREMISES OF ASSESSEE ON 27.09.2006. IN RESPONSE TO NOTICE UNDER SECTION 153 A ASSESSEE FILED RETURN OF INCOME AND THE RELEVANT OR DER UNDER SECTION 143(3) READ WITH SECTION 153A WAS PAS SED ON 31.12.2008. SUBSEQUENTLY, THE ASSESSMENT WAS REOPENED UNDER SECTION 147 OF THE INCOME TAX ACT WIT H 3 ITA.NO.619/HYD/2013 & CO.NO.40/HYD/2013 M/S. HOTEL KAMAL P. LTD., SECUNDERABAD. THE ISSUE OF NOTICE UNDER SECTION 148 ON 31.03.2011 . THE A.O. NOTICED THAT DURING THE FINANCIAL YEAR REL EVANT TO THE ASSESSMENT YEAR, ASSESSEE ALONG WITH OTHERS HAD PURCHASED A BUILDING WITH A BUILT-UP AREA OF 77612 FT. FOR A CONSIDERATION OF RS.21,51,99,517. ASSESSEES SHARE IN THIS PROPERTY WAS 60% AT A COST OF RS.12.95 CROR E. THIS PROPERTY WAS SHOWN IN THE FIXED ASSETS OF THE COMPANY AND REFLECTED IN THE RELEVANT SCHEDULE. DUR ING THE YEAR, ASSESSEE SOLD FOURTH FLOOR OF THE BUILDIN G WITH A SUPER BUILT-UP AREA OF 15522 FT. THIS WAS SOLD TO M/S. BHARATI AIRTEL FOR A CONSIDERATION OF RS.11,87,43,3 00. THE COST OF THE AREA SOLD ACCORDING TO ASSESSEE WAS RS.4,41,13,524. ASSESSEE REDUCED THIS COST OF ACQUISITION FROM THE FIXED ASSETS AND IN THE DEPREC IATION SCHEDULE, IT CLAIMED DEPRECIATION IN RESPECT OF THE BALANCE OF NEWLY ACQUIRED ASSET. HOWEVER IN INCOME TAX COMPUTATION ASSESSEE REDUCED THE SALE CONSIDERATION FROM THE COST AND CLAIMED DEPRECIATION ONLY ON BALA NCE OF COST. THIS WAS ACCEPTED IN ORIGINAL ASSESSMENT. HOWEVER, A.O. IN THE REASSESSMENT PROCEEDINGS HELD THAT THE TRANSACTION OF PURCHASE OF PROPERTY AND SELLING ONE FLOOR OF THAT PROPERTY WAS IN THE NATURE OF BUSINES S BEING ADVENTURE IN NATURE OF TRADE. 3. DURING THE COURSE OF APPEAL PROCEEDINGS BEFORE THE LD CIT(A) ASSESSEE STATED THAT IT HAD PURCHASED THE ENTIRE BUILDING CONSISTING OF FIVE FLOORS AND HAD USED THE BUILDING FOR BUSINESS PURPOSE. INITIALLY, IT HAD GI VEN THE SAID FLOOR ON RENT AND THE RENT RECEIVED HAD BEEN D ECLARED IN THE INCOME TAX RETURNS. ASSESSEE IS IN THE BUSIN ESS OF RUNNING RESTAURANTS. IT TOOK A CONTRACT FOR THE SUP PLY OF FOOD AND OTHER MATERIALS TO ITS TENANT. THE SUPPLY OF FOOD 4 ITA.NO.619/HYD/2013 & CO.NO.40/HYD/2013 M/S. HOTEL KAMAL P. LTD., SECUNDERABAD. AND ITS RESULTANT REVENUES WERE ALSO DISCLOSED IN T HE INCOME TAX RETURNS. IN ORDER TO REPAY A PORTION OF THE HIGH INTEREST LOAN ONE FLOOR OF THE BUILDING WAS SOLD WH EREAS THE REST OF THE BUILDING CONTINUED TO BE USED FOR B USINESS PURPOSE. ASSESSEE STATED THAT IT WAS NEVER ITS INTE NT TO USE THE ASSETS AS STOCK IN TRADE AND SELLING A SMAL L PORTION OF THE ASSET TO REDUCE INTEREST BURDEN WAS A VALID FINANCIAL PLANNING WHICH EVERY BUSINESS IS SUPPOSED TO DO. 4. LD. CIT(A) ANALYSED THE PRINCIPLES LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF MR. G. VENKATA SWAMI NAIDU & CO. VS. CIT 35 ITR 594, DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DEEPAK JYOTI & AARTI TRUS T VS. CIT 284 ITR 453 AND THE COORDINATE BENCH OF HYDERABAD I TAT IN THE CASE OF OM INTERNATIONAL IN ITA.NO.786 & 787/HY D/2003 DATED 08.09.2006. HE CONCLUDED THAT : 4.7. FROM THE ABOVE RATIOS, IT EMERGES THAT VARIOU S FACTS INCLUDING THE NATURE OF THE BUSINESS OF THE APPELLA NT, THE NATURE OF ACTIVITY CARRIED OUT PERTAINING TO THE AS SET, THE LINE OF BUSINESS OF ASSESSEE PROVIDE AN INDICATION TO THE INTENT OF AN ASSESSEE PERTAINING TO THE CAPITAL ASS ET. IT IS THIS INTENT COUPLED WITH THE NATURE OF ACTIVITY CAR RIED BY AN ASSESSEE WHICH WILL DETERMINE WHETHER THE TRANSA CTION CAN BE CLASSIFIED AS BUSINESS OR WILL REST WITHIN T HE FOUR WAILS OF TRANSFER OF CAPITAL ASSET. 4. APPLYING THE ABOVE PRINCIPLE TO THE FACTS OF CAS E, LD. CIT(A) ALLOWED ASSESSEE CONTENTIONS BY STATING AS U NDER : 4.8. COMING TO THE FACTS OF THE CASE OF THE APPELLANT, IT IS CLEAR AND THAT THE APPELLANT IS IN THE BUSINESS OF RUNNING OF RESTAURANTS AND HOTELS. IT I S NOT IN THE BUSINESS OF TRADING IN REAL ESTATE. FURT HER, A BIG BUILDING CONSISTING OF FIVE FLOORS WAS PURCHASED. IN THIS BUILDING THE APPELLANT ALSO RAN ITS BUSINESS OF SUPPLY OF FOOD AND BEVERAGES WHICH IS I TS 5 ITA.NO.619/HYD/2013 & CO.NO.40/HYD/2013 M/S. HOTEL KAMAL P. LTD., SECUNDERABAD. PRINCIPAL BUSINESS. MOREOVER, THE APPELLANT DID NOT MAKE ANY RENOVATION OR IMPROVEMENTS TO THE BUILDING WHICH WOULD ATTRACT A HIGHER PRICE IN SALE. THE SAI D BUILDING WAS ALSO REGISTERED WITH THE APPROPRIATE AUTHORITIES AND WAS PROVIDED WITH A VAT CERTIFICATE OF REGISTRATION FOR THE SALE OF FOOD AND BEVERAGES IN THE BUILDING. EVEN IN THE FORESEEABLE FUTURE THE BUILDING WAS NOT SOLD. ONLY ONE FLOOR OF THE BUILDI NG WAS SOLD AND THE ARGUMENT OF THE APPELLANT THAT THI S WAS DONE FOR REPAYING A PORTION OF THE HIGH INTERES T BANK LOAN APPEARS TO BE VALID. SUCH AN ACT IS A PAR T OF ANY GOOD FINANCIAL MANAGEMENT WHEREBY A BUSINESS ENTERPRISE STRIVES TO LOWER ITS INTEREST BURDEN. 4.9. I FIND THAT THE ASSESSING OFFICER HAS QUOTED THE CASE PERTAINING TO THE HONOURABLE BOMBAY HIGH COURT IN 284 ITR 453 AS I HAVE ALSO DISCUSSED ABOVE WHERE THE HONOURABLE COURT HAS CLEARLY HELD THAT TH E FACT THAT THE PROPERTY WAS SOLD WITHIN A SHORT TIME BY ITSELF DOES NOT INDICATE THAT THE TRANSACTION WAS I N THE NATURE OF TRADE. IT HAS ALSO TO BE SEEN WHETHER THE TRANSACTION IS ISOLATED OR FORMS A PART OF A SE RIES OF TRANSACTIONS WHICH INDICATE AN ADVENTURE IN THE NATURE OF GREAT. GOING BY THE VERY PRINCIPLES PROVI DED IN THE ASSESSMENT ORDER IT IS CLEAR THAT THIS WAS O NLY ONE SMALL PORTION OF AN ISOLATED TRANSACTION. 4.10. FROM THE ABOVE FACTS AND CIRCUMSTANCES IT IS CLEAR THAT IT CANNOT BE INFERRED FROM THE ONL Y FACT THAT ONE FLOOR WAS SOLD WITHIN THREE MONTHS OF THE PURCHASE OF THE ENTIRE BUILDING THAT THE TRANSACTIO N WAS IN THE NATURE OF TRADE. IN FACT AS DISCUSSED ABOVE THE INTENT OF THE APPELLANT IS VERY CLEAR THA T THE ASSET WAS PURCHASED FOR BUSINESS PURPOSE AND BUSINESS WAS ACTUALLY CARRIED ON IN THESE PREMISES. THEREFORE, I AGREE WITH THE ARGUMENT OF THE APPELLA NT THAT THE TRANSACTION OF PURCHASE OF BUILDING AND TH E SALE OF ONLY ONE FLOOR OF THE BUILDING CANNOT BE TA KEN AS A BUSINESS TRANSACTION I.E ADVENTURE IN THE NATU RE OF TRADE. THE APPELLANT HAS RIGHTLY SHOWN THE ASSET S AS A CAPITAL ASSET AND CLAIMED DEPRECIATION ON THAT . THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. HOWEVER, SINCE THE APPELLANT HAS HELD THE ASSET ONL Y FOR THREE MONTHS THE. ASSESSING OFFICER IS TO ALLOW DEPRECIATION KEEPING THIS PERIOD IN VIEW. THE APPELLANT GETS RELIEF ACCORDINGLY. 6 ITA.NO.619/HYD/2013 & CO.NO.40/HYD/2013 M/S. HOTEL KAMAL P. LTD., SECUNDERABAD. 5. AFTER CONSIDERING RIVAL CONTENTIONS, WE DO NO T FIND ANY MERIT IN REVENUE GROUNDS. FIRST OF ALL, THE PRO PERTY CONSISTING OF 5 FLOORS WAS PURCHASED BY COMPANY ALO NG WITH THE INDIVIDUALS WHO HAPPENED TO BE DIRECTOR/SHARE HOLDER/FAMILY MEMBERS. THERE IS NO DISPUTE TO THE F ACT THAT THE PROPERTY IS A COMMERCIAL PROPERTY IN INFOCITY DEV ELOPED BY APIIC. THE SAME WAS PURCHASED FOR BUSINESS PURPOSES AND USED AS SUCH. IT IS ALSO A FACT THAT ASSESSEE SOLD 4 TH FLOOR AND ACCOUNTED THE GAIN AS PROFIT ON SALE OF FIXED ASSET S IN P & L ACCOUNT. HOWEVER, IN INCOME TAX COMPUTATION, THE GA IN IS ADJUSTED IN THE DEPRECIATION SCHEDULE AS PART OF BL OCK OF ASSETS. ASSESSEE ADDED ASSET COST AT RS.12.95 CRORE S AND DELETED RS.11.87 CRORES IN THE BLOCK OF ASSETS THER EBY, CLAIMING DEPRECIATION ONLY ON THE BALANCE AMOUNT. THIS WORK ING ADOPTED BY ASSESSEE IN I.T. COMPUTATION IS IN ACCOR DANCE WITH PROVISIONS OF I.T. ACT MORE PARTICULARLY, SEC.43(6) . THUS, A.O. AT THE TIME OF ORIGINAL ASSESSMENT U/S. 153A CONSEQUEN T TO SEARCH HAS ACCEPTED THE SAME. THERE IS NO MATERIAL TO TREAT THE TRANSACTION AS ADVENTURE IN NATURE OF TRADE, AFT ER ASSESSMENT WAS COMPLETED. THEREFORE, WE UPHOLD THE ORDER OF C IT(A) AND DISMISS THE REVENUE GROUNDS. 6. IN THE RESULT, APPEAL OF REVENUE AND CROSS OBJECTIONS OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02.01.2015. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 02 ND JANUARY, 2015 VBP/- 7 ITA.NO.619/HYD/2013 & CO.NO.40/HYD/2013 M/S. HOTEL KAMAL P. LTD., SECUNDERABAD. COPY TO 1. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(2), HYDE RABAD. 2. M/S. HOTEL KAMAL P. LTD., 9-1-167/168, SAROJINI DEV I ROAD, SECUNDERABAD 500 003. 3. CIT(A)-III, HYDERABAD 4. CIT-II, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD.