HIRAVANTI V SHAH, MUMBAI V. DCIT CIR 22(2), NAVI MUMBAI

ITA 625/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5121 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 12-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 21-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: SHAILESH N DOSHI
• Keywords: Capital asset; Business income
• Section: 143(3); 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL H HH H BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . . . !' !' !' !' , # # # # $% $% $% $% BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA, AM , AM , AM , AM ./ I.T.A I.T.A I.T.A I.T.A. NO. . NO. . NO. . NO.625/MUM/2011 625/MUM/2011 625/MUM/2011 625/MUM/2011 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2008-09) SMT. HIRAVANTI V. SHAH, 5 TH FLOOR, KRUSHAL COMMERCIAL COMPLEX, G. M. ROAD, CHEMBUR (W), MUMBAI-400089 / VS. COMMISSIONER OF INCOME TAX- 22(2), VASHI RAILWAY STATION COMPLEX, TOWER NO. 6, 3 RD FLOOR, VASHI NAVI MUMBAI-400703 %( # ./ ) ./ PAN/GIR NO. :AAMPS9120K ( (* / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( +,(* / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) & && & -. -. -. -. 0 1 0 1 0 1 0 1 /ASSESSEE BY : SHRI SHAILESH N. DOSHI % % % % 0 1 0 1 0 1 0 1 / REVENUE BY : SHRI A. C. TEJPAL 0 00 0 .# .# .# .# / DATE OF HEARING : 12 TH NOVEMBER 2013 23' 23' 23' 23' 0 00 0.# .# .# .# /DATE OF PRONOUNCEMENT: 20 TH NOVEMBER 2013 $4 / O R D E R PER : , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E REVISION ORDER PASSED U/S 263 OF THE INCOME TAX ACT DATED 23.11.20 10 OF COMMISSIONER OF INCOME TAX FOR THE ASSESSMENT YEAR 2008-09. 2. IN THIS CASE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT ON 25.3.2010 WHEREBY THE ASSESSING OFFICER ACCEPTED THE RETURN INCOME OF ` 1,82,79,554/-. SUBSEQUENTLY THE COMMISSIONER ON VERIFICATION OF RECORD FOUND THAT THE ASSESSEE HAS OFFERED LONG TERM CAPITAL GAINS OF ` 33,08,816/- ON SALE OF FLAT. THE COMMISSIONER NOTICED THAT THE ASSESSEE WAS NEVER IN POSSESSION OF THE SA ID FLAT AND THE ITA NO.625/M/2011 SMT. HIRAVANTI V. SHAH 2 BUILDER WAS IN ABSOLUTE POSSESSION DURING THE SAID PERIOD THEREFORE, THE GAIN ARISING OUT OF THE TRANSFER OF RIGHT OF ALLOTM ENT OF FLAT OUGHT TO HAVE BEEN TAXED AS INCOME FROM OTHER SOURCES INSTEAD OF LONG TERM CAPITAL GAIN. ACCORDINGLY, THE COMMISSIONER ISSUED A SHOW-C AUSE NOTICE U/S 263 ON 4.10.2010. AFTER CONSIDERING THE REPLY OF TH E ASSESSEE THE COMMISSIONER HAS HELD THAT THE ORDER PASSED BY THE A.O IS ERRONEOUS AS WELL AS PRE-JUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, THE COMMISSIONER SET ASIDE THE ASSESSMENT ORDER WITH TH E DIRECTION OF THE A.O TO EXAMINE EACH OF THE ISSUE AND TO FRAME ASSES SMENT AFRESH. WHILE PASSING THE IMPUGNED ORDER THE COMMISSIONER H AS HELD THAT THE TRANSACTION OF PURCHASE AND SALE IS IN THE NATURE O F SPECULATIVE TRANSACTION AND WOULD BE A BUSINESS PROFIT. 3. BEFORE US THE LD. A.R HAS SUBMITTED THAT THE ASS ESSEE WAS ALLOTTED THE FLAT NO. 603 AT 6 TH FLOOR IN BUILDING KNOWN AS NEW PURNIMA, GHATKOPAR(E), MUMBAI VIDE ALLOTMENT LETTER DATED 6. 9.2003. HE HAS REFERRED THE PAYMENTS OF DETAILS MADE BY THE ASSESS EE AND SUBMITTED THAT ON 6.9.2003 THE ASSESSEE MADE THE PAYMENT OF ` 7,00,000/- TOWARDS THE CONSIDERATION OF THE FLAT AND SUBSEQUEN TLY ON VARIOUS DATES THE ASSESSEE MADE THE PAYMENT TOTAL AMOUNTING TO ` 27,50,000/-. HE HAS SUBMITTED THAT ON 1.8.2007 THE ASSESSEE SOLD TH E SAID FLAT FOR A CONSIDERATION OF ` 75,00,000/- WHICH RESULTED A CAP ITAL GAIN OF ` 33,08,816/- OFFERED BY THE ASSESSEE AS LONG TERM CA PITAL GAIN. THE LD. A.R HAS REFERRED LETTER DATED 22.1.2010 ALONG WITH COMPUTATION OF CAPITAL GAIN AS WELL AS OTHER DETAILS FILED DURING THE COURSE OF ITA NO.625/M/2011 SMT. HIRAVANTI V. SHAH 3 ASSESSMENT PROCEEDING TO EXPLAIN THE CAPITAL GAIN A RISING FROM THE SALE OF THE FLAT IN QUESTION. HE HAS FURTHER SUBMITTED T HAT THE ASSESSEE HAS AGAIN SUBMITTED LETTERS DATED 24.2.2010 AND 15.3.20 10 WHEREIN THE QUERY OF THE A.O HAS BEEN EXPLAINED REGARDING THE L ONG TERM CAPITAL GAIN ON SALE OF THE FLAT IN QUESTION. THUS, THE LD. A.R HAS CONTENDED THAT WHEN THE A.O AFTER CONDUCTING AN INQUIRY HAS A CCEPTED THE CLAIM OF THE ASSESSEE WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) THEN THE COMMISSIONER CANNOT TAKE A DIFFERENT VIEW U/S 263. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISIO NS: CIT VS GABRIAL INDIA LTD. 203 ITR 108 (BOM) MALABAR INDUSTRIAL CO. LTD. VS CIT 243 ITR 83 (SC) CIT VS ARVIND JEWELLERS 259 ITR 502 (GUJ) CIT VS SUNBEAM AUTO LTD. 332 ITR 167 (DEL) 4. THE LD. A.R HAS THUS, SUBMITTED THAT THE A.O HAS SPECIFICALLY RAISED QUERY ON THIS ISSUE DURING THE COURSE OF ASS ESSMENT PROCEEDING AND CALLED FOR VARIOUS DETAILS AND AS A RESULT THER EOF THE ASSESSEE HAS FILED VARIOUS DOCUMENTS AND DETAILED NOTE ON LONG T ERM CAPITAL GAIN ON TRANSFER OF RIGHT IN THE FLAT VIDE LETTERS DATED 22.1.2010, 24.2.2010 AND 15.3.2010. HE HAS SUBMITTED THAT THIS RECORD SH OWS THAT THE A.O HAS COMPLETED ASSESSMENT AFTER CONDUCTING PROPER IN QUIRY AND VERIFICATION. THE A.O HAS TAKEN A POSSIBLE VIEW AND THEREFORE, THE CIT CANNOT TAKE A DIFFERENT VIEW. THE LD. A.R HAS THEN CONTENDED THAT IN THE SHOW-CAUSE NOTICE THE COMMISSIONER HAS RAISED THE I SSUE OF TREATMENT OF LONG TERM CAPITAL GAIN AS INCOME FROM OTHER SOUR CES WHEREAS WHILE ITA NO.625/M/2011 SMT. HIRAVANTI V. SHAH 4 GIVING THE FINDING IN THE IMPUGNED ORDER HE HAS HEL D THAT THE SURPLUS ARISING FROM SALE OF RIGHTS IN THE FLAT IS SPECULAT IVE PROFIT ASSESSABLE AS BUSINESS INCOME. THUS, THE LD. A.R HAS SUBMITTED TH AT THE IMPUGNED ORDER IS NOT SUSTAINABLE BECAUSE THE CONCLUSION DRA WN IN THE REVISION PROCEEDINGS ARE DIFFERENT FROM THE REASONS FOR THE REVISION PROCEEDINGS SET OUT IN THE SHOW-CAUSE NOTICE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF MUMBAI TRIBUNAL IN CASE OF SYNERGY ENTREPRENEUR SOLUTIONS (P) LTD. VS DCIT 46 SOT 111. HE HAS ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN CASE OF GEOMET RIC SOFTWARE SOLUTIONS CO. LTD. VS ACIT 32 SOT 428 AND SUBMITTED THAT IT HAS BEEN HELD THAT THE COMMISSIONER CANNOT TRAVEL BEYOND THE REASONS GIVEN IN THE SHOW-CAUSE NOTICE TO THE ASSESSEE FOR THE PROPO SED REVISION. THE NEXT CONTENTION OF THE LD. A.R IS REGARDING THE NAT URE OF INCOME AND SUBMITTED THAT THE A.O IS NOT ERRONEOUS IN LAW BY A CCEPTING THE CLAIM OF THE ASSESSEE OF LONG TERM CAPITAL GAIN ARISING FROM TRANSFER OF RIGHT/INTEREST IN THE PROPERTY BEING CAPITAL ASSET. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISIO NS: CIT VS TATA SERVICES LTD. 122 ITR 594 (BOM) CIT VS VIJAY FLEXIBLE CONTAINERS 186 ITR 693 (BOM) K. R. SHRINATH VS ACIT 268 ITR 436 (MAD) 5. THUS, THE LD. A.R HAS SUBMITTED THAT WHEN THE A. O TOOK A REASONABLE/POSSIBLE VIEW BASED ON FACT, EVIDENCE AN D MATERIAL ON RECORD, THE CIT HAS NO JURISDICTION TO INTERFERE BY INVOKING THE PROVISIONS OF SECTION 263. THE LD. A.R HAS ALSO POINTED OUT TH AT THE OBSERVATION OF ITA NO.625/M/2011 SMT. HIRAVANTI V. SHAH 5 THE CIT ARE ALSO FACTUALLY INCORRECT. THE CIT HAS R EFERRED A LETTER DATED 7.10.2004 AND STATED THAT THE SAME BUILDER HAS ALLO TTED A DIFFERENT FLAT HAVING DIFFERENT AREA. THE LD. A.R HAS REFERRED THE LETTER DATED 7.10.2004 AND SUBMITTED THAT THE FLAT IS SAME AND I T IS NOT A FRESH ALLOTMENT BUT CONFIRMATION OF THE ALLOTMENT MADE BY THE INITIAL LETTER DATED 6.9.2003. THUS, THE LD. A.R HAS SUBMITTED THA T THE IMPUGNED ORDER IS BASED ON CONSIDERATION OF WRONG FACTS THER EFORE IS NOT SUSTAINABLE. 6. ON THE OTHER HAND, THE LD. D.R HAS SUBMITTED THA T THE ASSESSEE WAS ALLOTTED ONLY A RAW FLAT AND NO POSSESSION WAS GIVEN TO THE ASSESSEE TILL THE ASSESSEE TRANSFERRED/SURRENDERED THE ALLOTMENT IN FAVOUR OF THIRD PARTY. THUS, THERE IS NO TRANSFER O F ANY CAPITAL ASSET IN TERMS OF SECTION 2(47) OF THE INCOME TAX ACT. HE HA S FURTHER SUBMITTED THAT THE A.O HAS MADE NO INQUIRY DURING THE ASSESSM ENT PROCEEDINGS THEREFORE, THE ISSUE HAS NOT BEEN EXAMINED BY THE A .O. THE ASSESSMENT ORDER IS ERRONEOUS FOR WANT OF INQUIRY BECAUSE THER E IS NO INQUIRY AT ALL ON THIS ISSUE. HE HAS RELIED UPON THE DECISION OF H ONBLE SUPREME COURT IN CASE OF MALABAR INDUSTRIAL CO. LTD. 243 ITR 83 A ND SUBMITTED THAT THE LACK OF INQUIRY ITSELF RENDERS THE ASSESSMENT ORDER ERRONEOUS AND PRE- JUDICIAL TO THE INTEREST OF THE REVENUE. HE HAS ALS O RELIED UPON THE IMPUGNED ORDER OF THE COMMISSIONER. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE RELEVANT RECORD. THE IMPUGNED REVISION ORDER IS NOT SUSTAINABLE INTER ALIA ON THE GROUND OF INITIATING THE PROCEEDI NG ON THE REASON OF ITA NO.625/M/2011 SMT. HIRAVANTI V. SHAH 6 TREATING THE CAPITAL GAIN AS INCOME FROM OTHER SOUR CES AND THE CONCLUSION DRAWN IN THE REVISION ORDER BY TREATING THE CAPITAL GAIN AS SPECULATIVE PROFIT BEING BUSINESS INCOME. THUS, THE RE IS A CLEAR AND WIDE DEPARTURE IN THE REASONS FOR INITIATING THE RE VISION PROCEEDINGS AND CONCLUSION DRAWN BY THE COMMISSIONER WHILE PASSING THE IMPUGNED ORDER. THE COMMISSIONER HAS RECORDED THE QUESTION R AISED IN THE NOTICE U/S 263 IN PARA 2 AS UNDER: 2. THE FOLLOWING QUESTION WAS RAISED IN THE NOTICE U/S.263 OF THE ACT: ON VERIFICATION OF THE RECORDS, IT IS SEEN THAT YO U HAVE OFFERED LONG TERM CAPITAL GAINS OF RS. 33,08,816/ @ 20% ON SALE OF FLAT. IN THIS REGARD, IT IS SEEN THAT YOU HAD FURNI SHED ONLY ALLOTMENT LETTER DATED 06.09.2003 FROM THE BUILDERS M/S. SHUBHAMSAI ENTERPRISES WHEREIN IT IS MENTIONED THAT THE FLAT IN THE PROPOSED BUILDING NEW PURNIMA HAD BEEN ALLOTTED TO YOU FOR A CONSIDERATION OF RS. 34,51,000/-. SUBSEQUENTL Y, YOU HAD TRANSFERRED THE RIGHT OF ALLOTMENT OF THE SAID FIAT TO MR. KUNNOTH MANNUR SANTOSH & MR. KUNNOTH MANNUR KRISHNA N NAMBOODIRI FOR A CONSIDERATION OF RS. 75,00,000/- B Y A SIMPLE LETTER DATED 01.08.2007. THOUGH THERE FOR A PERIOD OF MORE THAN 36 MONTHS WHICH HAS ELAPSED FROM THE TIME WHEN THE FLAT WAS ALLOTTED TO YOU TO THE TIME WHEN IT WAS TRANSFE RRED BY YOU TO OTHER PARTY. YOU WERE NEVER IN POSSESSION OF THE SAID FLAT. DURING THE SAID PERIOD, THE BUILDER WAS IN ABSOLUTE POSSESSION OF THE SAID FLAT ALLOTTED TO YOU. FURTHER YOU YOURS ELF VIDE LETTER DATED 15.03.2010 ON RECORD HAVE STATED THAT THE PAY MENT MADE IN CONNECTION WITH THE ALLOTMENT OF THE SAID F LAT HAS BEEN SHOWN AS ADVANCE. SINCE THE SAID ASSET CAN ONL Y BE CONSIDERED AS FIXED ASSETS ON TAKING POSSESSION OF THE FLAT AFTER MAKING FULL PAYMENTS. THUS AT THE TIME OF TRA NSFER OF RIGHT OF ALLOTMENT OF THE FLAT BY YOU, YOU WERE NOT IN ABSOLUTE POSSESSION OF THE FLAT. THESE FACTS CLEARLY SHOW TH AT DURING THE SAID PERIOD, THE BUILDER WAS IN ABSOLUTE POSSESSION OF THE SAID FLAT ALLOTTED TO YOU. THEREFORE THE GAIN ARISING OU T OF THE TRANSFER OF RIGHT OF ALLOTMENT OF FLAT OUGHT TO HAV E BEEN TAXED AS INCOME FROM OTHER SOURCES @ 30% INSTEAD OF LONG TERM CAPITAL GAIN @ 20% SINCE THERE WAS NO ACTUAL TRANSF ER OF FIXED ASSETS. ITA NO.625/M/2011 SMT. HIRAVANTI V. SHAH 7 8. IT IS CLEAR FROM THE SHOW-CAUSE NOTICE THAT THE REASON FOR INITIATION OF PROCEEDINGS U/S 263 WAS TREATING THE CAPITAL GAI N AS INCOME FROM OTHER SOURCES. WHILE CONCLUDING THE FINDINGS THE CO MMISSIONER HAS RECORDED THE REASONS AND CONCLUSION IN PARA 5 OF TH E IMPUGNED ORDER AS UNDER: 5. THE WHOLE EXERCISE OF THE ASSESSEE IS TO BOOK T HE FLATS AT THE CONSTRUCTION STAGE AND WITHOUT ACTUALLY BUYING THE WHOLE FLAT BUT SELLING THIS BOOKING AT A SUBSEQUENT DATE WITHOUT GETTING THE POSSESSION OF THE FLAT. THE WHOLE EXERC ISE IS SPECULATIVE IN NATURE WITH AN EYE TO MAKE QUICK PRO FITS. IT CANNOT BE SAID TO BE LONG TERM CAPITAL GAIN TRANSAC TIONS WHEN THE ASSESSEE FIRST BOOKS THE FLATS AND THEN WI THOUT MAKING THE FULL PAYMENTS OF THE FLATS AND SUBSEQUEN TLY SELLS THE ALLOTMENT OF THE FLAT. SUCH A GAIN WOULD NOT BE LONG TERM CAPITAL GAIN WHERE AS IN THE INSTANT CASE THE ASSES SEE ENTERS INTO A SPECULATIVE TRANSACTION INVESTMENT FOR MAKIN G A QUICK PROFIT. IT IS MORE IN THE NATURE OF ADVENTURE AND T RADE AND WOULD BE A BUSINESS PROFIT. 9. IT IS MANIFEST FROM THE SHOW-CAUSE NOTICE AND PA RTICULARLY THE UNDERLINE PORTION THAT AT THE TIME OF ISSUING THE S HOW-CAUSE NOTICE THE COMMISSIONER FOUND THE CAPITAL GAIN OFFERED BY THE ASSESSEE HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES WHEREAS THE C ONCLUSION DRAWN WHILE PASSING THE ORDER, THE COMMISSIONER HAS HELD THAT THE CAPITAL GAIN IS ARSING OUT OF SPECULATIVE TRANSACTION AND T HEREFORE, TO BE ASSESSED AS BUSINESS PROFIT. THIS IS A CLEAR DEPART URE OF CONCLUSION FROM THE REASON FOR INITIATING THE REVISION PROCEEDINGS THEREFORE, IN VIEW OF THE DECISION OF CO-ORDINATE BENCH IN CASE OF SYNERG Y ENTREPRENEUR SOLUTIONS (P) LTD. VS DCIT (SUPRA) AS WELL AS GEOME TRIC SOFTWARE SOLUTIONS CO. LTD. VS ACIT (SUPRA) THE IMPUGNED ORD ER IS NOT SUSTAINABLE ITA NO.625/M/2011 SMT. HIRAVANTI V. SHAH 8 AND LIABLE TO BE SET ASIDE. ACCORDINGLY WE SET ASID E THE REVISION ORDER OF THE COMMISSIONER. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF NOVEMBER 2013 SD/- SD/- ( . . !' ) # $% (N. K. BILLAIYA) ACCOUNTANT MEMBER ( ) & $% (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 20 TH NOVEMBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI