DCIT 22(2), NAVI MUMBAI V. RAJESH BUILDER, MUMBAI

ITA 6624/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55085 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 09-06-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 30-12-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G K NAIR
• Assessee Lawyers: VINOD KUMAR BINDAL; GAURAV BANSAL
• Keywords: Rejection of books of accounts; Capital asset; Business income; Depreciation; Principle of natural justice; Competent authority

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NOS.6624 & 6625/MUM/2009 ASSESSMENT YEARS 2002-03 & 2006-07 THE DCIT-22(2), 4 TH FLOOR, TOWER 6, VASHI RLY. STN BLDG., VASHI, NAVI MUMBAI-400 703 VS. M/S. RAJESH BUILDERS, 1/1, GHANSHYAM BAUG, CAMA LANE, HANSOTI ROAD, GHATKOPAR (W), MUMBAI-400 086 PAN-AAEFR6687G (APPELLANT) (RESPONDENT) APPELLANT BY : SHR I G.K. NAIR RESPONDENT BY: SHRI VINOD KUMAR BINDAL & SHRI GAURAV BANSAL DATE OF HEARING : 15.6.2011 DATE OF PRONOUNCEMENT: 30 TH AUGUST, 2011 O R D E R PER ASHA VIJAYARAGHAVAN (JM) THESE APPEALS PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDERS DATED 27.10.2009 PASSED BY THE LD. CIT(A)-33 FOR TH E ASSESSMENT YEARS 2002-03 & 2006-07. ITA NO. 6624/MUM/2009 A.Y. 2002-03 2. THE ONLY ISSUE IN THE REVENUES APPEAL IS THE DE CISION OF THE CIT(A) TO TREAT OF PROFIT ON SALE OF ASSESSEES LAND AT PIMPR I AS CAPITAL GAINS INSTEAD OF BUSINESS PROFITS AS HELD BY THE ASSESSING OFFICER. RAJESH BUILDERS 2 3. THE CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSE E HOLDING AS UNDER: THE DETAILS OF THE SAID PLOT WAS SUBMITTED FOR ASSE SSMENT YEAR 2005-06 AND AFTER EXAMINING THE SAME THE LD CIT(A) XXII VI DE ORDER DATED 9.3.2009 HAS HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE ORDER OF THE ASSE SSING OFFICER AND THE CONTENTION OF THE APPELLANT ALONG WITH THE JUDG MENT CITED AND THE DOCUMENTS SUBMITTED I FIND THAT THE DECISION TAKEN B Y THE CIT(A) IN THE CASE OF THE APPELLANT ASSESSE FOR THE AY 2004-0 5 CANNOT BE APPLIED IN THIS ASSESSMENT YEAR WITHOUT LOOKING INTO THE FA CTS AND WHICH ARE ADMITTEDLY DIFFERENT IN THIS YEAR HAS BEEN EXPLAINE D HEREIN ABOVE. THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS AND FACTS IN EACH ASSESSMENT YEAR NEED TO BE EXAMIN ED FRESH WITHOUT BEING INFLUENCED FROM THE DECISIONS IN THE EARLIER ASSESSMENT YEARS. IF IT IS APPARENT FROM THE ASSESSMENT ORDER THAT THE A SSESSING OFFICER DECIDED THE CASE WITHOUT INVESTIGATION AND WITHOUT ANALYSING ALL THE FACTS OF THE CASE SIMPLY ON THE BASIS OF THE ASSESS MENTS DONE IN THE PREVIOUS YEAR AND ON RELYING ON THE LETTER SUBMITTE D BY THE LD. AR OF THE APPELLANT . HIS MAIN REASONS FOR HOLDING IT TO BE BUSINESS INCOME ARE THAT (1) THE APPELLANT ASSESSE IS A BUILDER DEV ELOPER AND THEREFORE HIS INVESTMENT IN LAND WAS FOR THE BUSINESS PURPOSE (2) THE LETTER OF COUNSEL CONCEDING ASSESSMENT OF THE SAID SURPLUS AS BUSINESS HAS NO LEGAL FOOTING TO SUPPORT. IT HAS BEEN HELD BY THE H ONBLE ALLAHABAD HIGH COURT IN DEEP CHANDRA & CO 107 ITR 716, THE B URDEN LIES ON THE REVENUE TO ESTABLISH THAT THE PROFIT EARNED ON A TR ANSACTION WAS REVENUE REALIZATION AND NOT CAPITAL GAINS. THIS ON US CANNOT BE DISCHARGE BY SURMISES AND BY MERELY REJECTING THE E XPLANATION OF APPELLANT ASSESSE. THERE IS NO LAW OR PRACTICE THAT A DEALER IN A PARTICULAR COMMODITY CANNOT HOLD THAT VERY COMMODIT Y AS INVESTMENT. ALMOST ALL JEWELLERS BUY GOLD AND JEWELLERY FOR THE IR PERSONAL AND FAMILY USE BESIDES FOR THEIR BUSINESS NECESSITIES. IN FAC T THE CBDT ITSELF VIDE CIRCULAR NO. 4 DATED 15.6.2007 HAS HELD THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS I.E. AN INVESTMENT POR TFOLIO TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO COMPRISIN G OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN APPELLANT ASSESSE HAS TWO PORTFOLIOS THE APPELLANT ASSESSE MAY HAVE I NCOME UNDER BOTH HEADS I.E CAPITAL GAINS AS WELL AS BUSINESS INCOME. ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE PRINCIPLES SHOULD GUIDE THEM IN DETERMINING INCOME HEAD. THE ASSESSING OFFICERS ARE FURTHER ADV ISED THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE CHARACTER OF THE ASSET. ALONG WITH THE ABOVE IF ONE LOOKS INTO THE JUDGMENT IN THE CAS E OF LATE SHRI. NG. PATEL DELIVERED BY THE HONBLE MUMBAI HIGH COURT AN D THAT OF SPLENDOUR CONSTRUCTION (P) LTD VS ITO IN IT APPEAL NO 325 (DELHI) OF RAJESH BUILDERS 3 2007 BY THE HONBLE ITAT DELHI BENCH IT CAN SAFELY BE SAID THAT THE CONCERNED LAND WOULD NOT FALL UNDER THE HEAD STOCK IN TRADE BUT IS LIABLE TO BE TREATED AS CAPITAL ASSET AS IN A SIMIL AR SET O CIRCUMSTANCES THE INCOME ARISING FROM SUCH SALE OF LAND HAS BEEN TAKEN TO BE CAPITAL GAINS HOLDING THAT AS NO BUSINESS WAS CARRIED ON TH E LAND IT WAS A CAPITAL ASSET IN THE HANDS OF THE APPELLANT ASSESSE AND WOULD QUALIFY AS STOCK IN TRADE ONLY WHEN OFFICIAL APPROVAL TO TRADE ON IT WOULD BE GRANTED. THE PRESUMPTION OF THE ASSESSING OFFICER I FIND HAS BEEN SUCCESSFULLY REBUTTED BY THE APPELLANT IN HIS SUBMI SSIONS REPRODUCED EARLIER. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDI CTIONAL HONBLE HIGH COURT AND THE OTHER HONBLE COURTS AND SEEING TO T HE FACTS OF THE CASE I AM IN AGREEMENT WITH THE CONTENTION OF THE APPELLA NT WHEN HE SAYS THAT AN ASSET ACQUIRED BY THE APPELLANT CANNOT ALWA YS BE TREATED AS BUSINESS ASSET BUT IT IS FOR THE ASSESSING OFFICER TO PROVE THAT THE SAME IS STOCK IN TRADE IF THE APPELLANT CONTENDS THAT IT IS AN INVESTMENT I FIND IN THIS CASE BESIDES STATING THAT THE CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED THE ASSESSING OFFICER HAS MADE NO INVES TIGATION TO PROVE THAT THE CONCERNED LAND WOULD QUALIFY UNDER THE HE AD STOCK IN TRADE AND THAT IT WAS INVOLVED UNDER ANY BUSINESS ACTIVI TY OF THE APPELLANT. IT IS A WELL KNOWN FACT THAT BUSINESS ENTERPRISE CAN HAVE TWO TYPES OF ASSETS AND THERE IS NO BAR ON BUSINESS ENTERPRISES TO INVEST IN IMMOVABLE ASSETS THROUGH SURPLUS GENERATED FROM THE BUSINESS. IT IS NOT NECESSARY THAT THE ASSET ACQUIRED IF IT IS SIMI LAR TO THE PROPERTY USED AS STOCK IN TRADE WOULD AUTOMATICALLY FALL UND ER THE CATEGORY STOCK IN TRADE. FOR EG A PERSON DEALING IN THE BUSI NESS OF JEWELLERY CAN ALSO INVEST IN JEWELLERY. SIMILARLY THERE IS NO BAR ON DEVELOPER OF LAND TO ACQUIRE PROPERTY AS AN INVESTMENT. IF THE ASSET S O ACQUIRED ARE A DISPUTED ASSETS TO EXPLAIN UNDER WHICH CATEGORY IF WOULD FALL IT IS FOR A PERSON RAISING THE DISPUTE TO DISCHARGE THE ONUS OF ESTABLISHING THE CLAIM. IN THIS CASE IT WAS FOR THE ASSESSIN G OFFICE R TO DISCHARGE THE ONUS TO ESTABLISH THAT THE SAID PROPERTY SOLD TO M/ S SATYAM DEVELOPER WAS ACTUALLY STOCK IN TRADE IN THE HANDS OF THE APP ELLANT AND NOT A BUSINESS ASSET AND THE APPELLANT WAS CONDUCTING AN ONGOING BUSINESS ACTIVITY ON IT. SIMPLY BY DENYING THE CONTENTION OF THE APPELLANT THE ONUS IS NOT DISCHARGED. FOR A TRANSACTION UNDERTAK EN BY A DEVELOPER OF ANY LAND IT IS VERY NECESSARY TO EXAMINE EACH CASE SEPARATELY AND TO DETERMINE THE CHARACTER OF THE LAND BEFORE ARRIVING AT ANY CONCLUSION REGARDING THE HEAD OF INCOME UNDER WHICH THE INCOME OF SUCH LAND WOULD FALL. SIMPLY BECAUSE IN THE IMMEDIATELY PRECE DING YEAR THE SALE OF LAND WAS CONSIDERED AS BUSINESS INCOME IT IS NOT NECESSARY THAT THE SALE OF LAND IN THE CURRENT YEAR WOULD FALL AUTOMAT ICALLY UNDER THE SAME HEAD AS IN A DEVELOPERS CASE EACH PLOT OF LAND WILL HAVE A DISTINCTIVE IDENTITY OF EITHER STOCK OR INVESTMENT. IT WAS OR THE ASSESSING OFFICER TO ESTABLISH THAT IT WAS A BUSINE SS INCOME AND THAT HAS NOT BEEN DONE. I FIND THAT ASSESSING OFFICER HA S NOT BROUGHT ON RECORD ANYTHING TO SAY THAT THE APPELLANT WAS INVOL VED IN THE RAJESH BUILDERS 4 DEVELOPMENT OF THIS LAND FROM WHICH BUSINESS PROFIT S COULD BE GENERATED. IT IS A UNIVERSALLY ACCEPTED RULE OF AC COUNTANCY THAT THE BUSINESS ENTERPRISE CAN HOLD ASSETS AS STOCK IN TRA DE AS WELL AS LONG TERM INVESTMENT IN ITS BALANCE SHEET HOWEVER FOR A BUSINESS ENTERPRISES THERE IS NO FORMAT AVAILABLE IN THE BAL ANCE SHEET TO DIFFERENTIATE INVESTMENT AND STOCK IN TRADE IT IS A WELL SETTLED LAW THAT THE WAY OF THE ENTRIES ARE MADE BY THE APPELLANT I N HIS BOOKS OF ACCOUNTS IS NOT DETERMINE OF THE QUESTION WHETHER T HE ASSET HELD IS A CAPITAL ASSET OR A STOCK IN TRADE. THE ENTRIES ARE NOT CONCLUSIVE AS HELD IN THE CASE OF FORT PROPERTIES LTD VS CIT (1993) 11 5 CTR (BOM) 355. THE TRUE NATURE OF TRANSACTION IN EACH CASE NEEDS T O BE SEEN WHAT IS TO BE SEEN IS THAT COMMODITY THE APPELLANT DEALS WITH WHETHER HE IS A TRADER OF LAND OR WHETHER HE IS A TRADER OF THE DEV ELOPMENT HE DOES ON LAND. THIS WOULD MEAN TWO DISTINCTIVE TYPES OF BUSI NESSES. THE ASSESSING OFFICER IN THIS CASE HAS SIMPLY RELIED ON THE APPELLANT NAME AND STYLE O COMING TO A CONCLUSION THAT ALL LAND OW NED BY IT IS STOCK IN TRADE. THE ASSESSING OFFICER HAS NOT CONSIDERED TH E FACT THAT THE APPELLANT IS NOT A TRADER OF LAND BUT IS A DEVELOPE R THE OWNERSHIP OF LAND HAS BEEN LONG AND THE ASSESSING OFFICER HAS A CCEPTED THIS FACT. THE TIME GAP BETWEEN THE PURCHASE AND SALE WOULD HA VE SOME INDICATION ON THE NATURE OF TRANSACTION NO PRUDENT BUSINESS FIRM WOULD KEEP STOCK LOCKED UP FOR SUCH A LONG TIME. QUICK R OTATION OF STOCK IS THE MAIN BASIS OF A BUSINESS IT IS ONLY INVESTMENTS THAT ARE RETAINED FOR A LONG PERIOD AND THEN TRANSACTION WOULD RESULT IN CAPITAL GAINS. ENTERING INTO A DEVELOPMENT DEED AND OBTAINING PHYS ICAL POSSESSION OF LAND WHILE THE POA FOR ALL OTHER LEGAL PURPOSE REST ING WITH THE SELLER IS A POLICY FOLLOWED BY LAND INVESTORS IN AND AROUND M UMBAI AND HAS BEEN AN ACCEPTED POLICY. THEREFORE THE APPELLANT C ONTENTION ON THIS ISSUE REGARDING THE MODE OF PURCHASE OF LAND IS ACC EPTABLE. THE EXECUTION OF THE DEVELOPMENT DEED TRANSFERS THE PRO PERTY TO THE PURCHASER GIVING THE PURCHASER TO EARN CAPITAL RECE IPT ON IT U/S 45 OF THE IT ACT. THE HONBLE SUPREME COURT IN THE CASE OF G VENKATSWAMI NAIDU & CO. 35 ITR 594 THE HONBLE COURT HAD SET PA RAMETERS TO DECIDE THE HEAD OF INCOME WHEREIN IT HAD BEEN STAT ED THAT DISTINCTIVE CHARACTER NEEDS TO BE CONSIDERED AND NO PRESUMPTION CAN BE MADE. I FIND IN THIS CASE THE ASSESSING OFFICER HAS STRONGL Y PRESUMED THE HEAD OF INCOME WITHOUT CONSIDERING ANY OF THE DISTINCTIV E CHARACTER OF THE TRANSACTION HOWEVER IN THIS CASE THE FACT THAT IT I S A PARTNERSHIP FIRM CARRYING ON BUSINESS OF DEVELOPMENT OF PROPERTY WHA T WOULD BE REQUIRED IS EXAMINATION OF THE ISSUE WHETHER THE CO NCERNED PLOT WAS HELD AS STOCK IN TRADE OR CAPITAL ASSET.. THAT IS THE STATUS OF THE PLOT NEEDS TO BE ADDRESSED IT IS A WELL KNOWN FACT THAT ALL PROPERTIES ACQUIRED BY AN APPELLANT ASSESSE WHO IS A DEVELOPER OF PROPERTIES NEED NOT NECESSARILY BE STOCK IN TRADE. A PERSON CANHOL D PROPERTY IN DUAL CAPACITY IE AS A BUSINESSMAN OR AS A INVESTOR.. TH ERE IS NO BAR ON THIS IN VSREM FIRM V CIT (1963) 47 ITR 702(MAD) IT HAS B EEN HELD THAT IT WOULD NOT BE JUSTIFICATION TO INFER THAT THE CAPITA L ASSET HAS ACQUIRED HELD THAT IT WOULD NOT BE JUSTIFICATION TO INFER TH AT THE CAPITAL ASSET HAS RAJESH BUILDERS 5 ACQUIRED THE CHARACTER OF STOCK IN TRADE MERELY FRO M THE FACT THAT THE APPELLANT ASSESSE HAS DEALT WITH THE SIMILAR PROPE RTY AS A TRADING COMMODITY. THOUGH THE TESTS FOR DETERMINING THE ISS UE HAVE BEEN LAID DOWN BY VARIOUS JUDICIAL DECISIONS IT HAS ALSO BEEN SAID THAT EACH CASE NEEDS TO BE DECIDED ON FACTS PECULIAR TO IT IN THIS CASE IT IS TO BE SEEN WHAT THE INTENTION OF THE APPELLANT AT THE TIME OF PURCHASE WAS AND THE SUBSEQUENT DEVELOPMENT. IT IS SEEN THAT AFTER P URCHASE NO DEVELOPMENT HAS RESULTED IT HAS BEEN REFLECTED IN T HE BALANCE SHEET AS AN INVESTMENT ALSO UNLIKE IN PROPERTIES ACQUIRED WI TH THE INTENTION TO DEVELOP THE APPELLANT HAS TAKEN CONVEYANCE OF PROPE RTY IN ITS NAME AND STATING DUTY HAS BEEN INCURRED. AS SUCH THE EV ENTS DO NOT INDICATE THAT THIS PARTICULAR PLOT WAS ACQUIRED OR TREATED A S STOCK IN TRADE, THE NORMAL CHARACTERISTICS OF A TRANSACTION OF TRADE AR E ABSENT. THEREFORE THOUGH THE APPELLANT IS A BUILDER THIS PLOT OF LAND UNDER QUESTION WOULD QUALIFY AS A CAPITAL ASSET FOR THE SAID BUSINESS TH E PLOT HAS NOT BEEN ACQUIRED OUT OF BORROWED FUNDS BUT INTERNAL ACCRUAL S WERE INVESTED IN PURCHASE OF THE SAID PROPERTY. THE PROPERTY STANDS REFLECTED IN ITS ORIGINAL COST AS INVESTMENT IN THE BALANCE SHEET SI NCE PURCHASE MERELY BECAUSE THERE HAS BEEN NO DEVELOPMENT EFFECTED ON I T AND THE PROPERTY IS SOLD OFF WOULDNOT MEAN THAT IT WAS ACQU IRED FOR TRADE AS STOCK IN TRADE IT IS NOT THAT THE PLOT HAS BEEN DIV IDED AND SOLD. IN THE CASE OF SPLENDOR CONSTRUCTION P. LTD VS ITO (ITA 32 5/D/2007 OCT 24 TH 2008) THE HONBLE ITAT DELHI BENCH F NEW DELHI HAS ACCEPTED THE FACT THAT LAD HELD AS STOCK IN TRADE CAN BE CONVERTED TO CAPITAL ASSET AND THE ONLY QUESTION WOULD BE WHETHER THE CAPITAL GAI NS ARISING IS LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN. EACH YEAR BEING A SELF CONTAINED UNITS HAS TO BE SEEN ACCORDINGLY THEREFOR E THE CHARACTER OF LAND AND THE HISTORY OF THE SAME NEEDS TO BE EXAMIN ED ENTIRE SALE CONSIDERATION DEPOSITED IN CAPITAL GAINS EXEMPTION BONDS SHOWS INN THAT LAND SOLD WAS NOT FROM BUSINESS ANGLE TO RAIS E FUNDS FOR AN ONGOING BUSINESS. THUS THERE IS NO ROTATION OF CAP ITAL THERE IS NO BAR ON THE APPELLANT TO CONVERT A LONG TERM INVESTMENT INTO STOCK IN TRADE AND VICE VERSA THE INCOME TAX ACT RECOGNIZES THE CO NVERSION OF LONG TERM ASSETS INTO STOCK IN TRADE AND SIMILARLY THE L AW RECOGNIZES THE CONVERSION OF CAPITAL ASSETS INTO CIRCULATING STOC K IN TRADE THE CHARACTER OF PROPERTY IS DETERMINED ON THE WILL OF THE APPELLANT. THE APPELLANT MAY ACQUIRE PROPERTY AS STOCK IN TRADE BU T MAY DECIDE NOT TO EXPLOIT IT IN ITS BUSINESS BUT RETAIN IT AS AN INVE STMENT. THE CONDUCT OF THE APPELLANT SHOULD BE APPARENT. I FIND THAT THE BA LANCE SHEER OF THE APPELLANT DECLARES LAND UNDER TWO CATEGORIES (1) ON WHICH CONSTRUCTION ETC IS BEING UNDERTAKEN AND (2) LAND WHICH NO WORK HAS BEEN UNDERTAKEN FOR LONG, THIS DECLARATION RENDERS THE C ASE OF THE APPELLANT TRANSPARENT REGARDING LEGAL FORMALITIES ON THESE PI ECE OF LAND THEN APPELLANT I FIND IS NOT BARRED BY ANY LAW SO AS TO N OT CONSIDER THEM AND TAKEN ACTION ACCORDINGLY THESE LEGAL FORMALITIE S ARE NOT BUSINESSACTIVITIES. THE LAND I FIND AT THE TIME OF PURCHASE COULD NOT BE DEVELOPED. IT WAS RIDDLED WITH VARIOUS RULES AND LE GAL POSITIONS PREVENTING ANY DEVELOPMENT. THE APPELLANT CONTENTI ON THAT IT WAS RAJESH BUILDERS 6 BROUGHT AS AN INVESTMENT IN ANTICIPATION OF CHANGED CIRCUMSTANCES IN FUTURE CANNOT BE DOUBTED. THE APPELLANT ASSESSEE HAVE IS A DEVELOPER AND BUI LDER OF SHOPS FLATS ETC THE FACTS OF THE DISPUTED TRANSACTIONS HAVE TO BE EXAMINED IN THIS BACKDROP TO ASCERTAIN THE TRUE NATURE OF TRANSACTIO N THE PLOT OF LAND IN QUESTION AT THE TIME OF THE ORIGINAL AGREEMENT WAS AGRICULTURAL LAND AND NO CONSTRUCTION WAS POSSIBLE WITHOUT USAGE CONV ERSION THE VENDORS HAD ALREADY FILED PRESCRIBED RETURNS UNDER ULCA IN RESPECT OF THEIR RESPECTIVE HOLDINGS AFTER ENACTMENT THERE WER E AFFECTIVE AND SUBSISTING ORDERS OF THE COMPETENT AUTHORITY U/S 8( 4) OF THE ULCA DECLARING A PART OF THE SAID LAND AS SURPLUS VIDE H IS ORDER PASSED ON 30.5.1978. SINCE VARIOUS OWNERS ALSO OWNED DIFFERE NT OTHER PLOTS OF LAND LAND ADMEASURING AN AREA IN EXCESS OF THE LI MIT PRESCRIBED UNDER THE ULCA AND TO GET OVER THE ACQUISITION BY THE GOV ERNMENT MADE APPLICATION UNDER SEC 20/21 OF THE SAID ACT FOR PER MISSION TO RETAIN SURPLUS LAND FOR THE PURPOSES OF CONSTRUCTION OF DW ELLING UNITS FOR THE WEAKER SECTION OF THE SOCIETY AFTER THE ORDER OF TH E ULCA AUTHORITIES VENDORS WERE LEFT WITH SMALL PORTION OF LAND WITH THEM AND THE BALANCE SURPLUS LAND FACTUALLY VESTED WITH THE GOVE RNMENT OR COULD HAVE BEEN DEALT WITH OTHER MANNER PRESCRIBED UNDER THE ULCA IF AND ONLY IF PERMITTED BY THE AUTHORITIES THIS AGREEMENT WITH THE APPELLANT ASSESSEE WAS ONLY IN RESPECT OF THE PLOT OF LAND WH ICH WAS SURPLUS UNDER THE ULCA AND THE AREA OF LAND WHICH THE OWNER S WERE PERMITTED TO RETAIN OR WOULD BE PERMITTED TO RETAIN IN THEIR OWN RIGHTS WAS NOT COVERED BY THIS AGREEMENT THE AGREED CONSIDERATION WAS DECIDED ON THE BASIS THAT SOME PART OF THE PLOT OF LAND AFTER DEVELOPMENT AND ABOUT 10% FLATS WERE REQUIRED TO BE GIVEN TO GOVERN MENT AT THE STIPULATED CONDITIONS AND IN CASE OF WITHDRAWAL OF THESE CONDITIONS THE CONSIDERATION WAS TO BE ENHANCED ACCORDINGLY THE DE VELOPER HAD NO RIGHT TO TRANSFER HIS RIGHTS TO A THIRD PARTY THOUG H HE WAS PERMITTED TO ENGAGE CONTRACTORS ETC BUT THE OVERALL RESPONSIBILI TY WAS OF THE DEVELOPER. IN SHORT APPELLANT ASSESSEE HAD NO RIGHT IN PRESENT AS NO DEVELOPMENT RIGHT EXISTED AT THAT POINT OF TIME THE APPELLANT ASSESSE ACQUIRED A FUTURE CONTINGENT RIGHT TO DEVELOP THE P ROPERTY IF IT WAS RELEASED BY THE APPROPRIATE STATE AUTHORITY FOR HOU SING FOR WEAKER SECTION. ON THE DATE OF AGREEMENT THERE WAS NOTHING AVAILABLE FOR TRANSFER TO THE APPELLANT ASSESSEE AS THE AREA OF L AND WITHIN THE PERMISSIBLE CEIING LIMIT WAS RETAINED BY THE OWNERS AND SURPLUS LAND WAS REQUIRED TO BE SURRENDERED TO THE GOVERNMENT TH US ON THE FACTS AND CIRCUMSTANCES OF THE CASE I SEE NO POSSIBILITY OF ANY BUILDER BUYING SUCH RIGHT AS A BUSINESS VENTURE. THERE IS A FUNDAM ENTAL AND BASIC DIFFERENCE BETWEEN BUSINESS ASSET AND INVESTMENT TH OUGH BOTH ARE ACQUIRED WITH PROFIT IN MIND. PROFIT ON ANY BUSINES S ASSET IS DERIVED BY PUTTING IN ENTREPRENEURSHIP LABOUR AND SKILL ON THE OTHER HAND THE PROFIT ON INVESTMENT IS DEPENDENT UPON TIME AND FAV OURABLE MARKET CONDITIONS. PROFIT IN THE PRESENT TRANSACTION WAS NOT DEPENDENT UPON BUILDING SKILL OF THE APPELLANT ASSESSEE BUT ON GOV ERNMENT APPROVAL RAJESH BUILDERS 7 AND SETTLING OF DISPUTES ETC AS SUCH THE LAND IN QU ESTION TILL IT RECEIVE FULL CLEARANCE OF THE COMPETENT AUTHORITY COULD N OT BE CONSIDERED FOR ANY BUSINESS PURPOSE AND AS SUCH COULD NOT BE A PAR T OF APPELLANT STOCK IN TRADE BUT COULD ONLY BE TERMED AS AN INVES TMENT. IN VIEW OF THE ABOVE SEEING TO THE HISTORY OF THE CA SE AND THE FINDING THAT THE CASE IS COVERED UNDER THE PRONOUNCEMENT OF THE HONBLE COURT INCLUDING THE JURISDICTIONAL COURT. I HAVE NO HESIT ATION IN SAYING THAT THIS PLOT OF LAND SOLD WOULD CLASSIFY AS AN CAPITAL ASSET AND SURPLUS ARISING FROM ITS SALE WOULD SQUARELY FALL UNDER THE HEAD CAPITAL GAINS, THEREFORE THE CONTENTION OF THE APPELLANT FOR TH IS YEAR VIDE WHICH HE HAS STATED THAT THE LAND WAS A CAPITAL ASSET IN HIS HANDS IS ACCEPTED. AS THE FACTS OF THE CASES IN THIS YEAR ARE SIMILAR TO THAT OF ASST. YEAR 2005-06 WHEREIN ACCORDING TO THE ORDER OF THE LD CI T(A) XXII MUMBAI DATED 9.3.2009 IT IS HELD THAT SURPLUS ON TRANSACTI ON OF THE SAID LAND IS NOT THE BUSINESS INCOME BUT CAPITAL GAINS AS DECLAR ED BY THE APPELLANT IN THIS YEAR TOO, THE CONTENTION OF THE APPELLANT I S ACCEPTED AS THE ISSUE IS RELATED TO THE SAME LAND AT PIMPRI. 4. WE FIND THAT THE ITAT MUMBAI , IN ASSESSEES OWN CASE FOR A.Y 2004- 05, IN ITA NO 5262/MUM/07 DATED 26.11.2009 HAD HELD THAT THE PROFIT FROM SALE OF SURPLUS LAND SHOULD BE ASSESSED AS CAPITAL GAINS WHEREAS THE ITAT IN THE ASSESSEES OWN CASE FOR THE SUBSEQUENT YEAR 200 5-06, IN ITA NO 3980/MUM/2009 DATED 13.10.2010 HAS HELD THAT WHAT W AS TRANSFERRED TO M/S. SATYAM BUILDERS WAS ONLY DEVELOPMENT RIGHTS AND HEN CE THE PROFIT SHOULD BE ASSESSED AS BUSINESS INCOME. WHILE COMING TO THIS C ONCLUSION, THE ITAT HAS HELD THAT EACH PLOT OF LAND IS DIFFERENT, WHILE DIS AGREEING WITH THE DECISION OF THE ITAT IN THE CASE OF THE ASSESSEE FOR THE IMMEDI ATELY PRECEDING A.Y 2004- 05. IN VIEW OF THESE TWO DECISIONS OF THE ITAT IN A SSESSEES OWN CASE FOR THE TWO SUCCESSIVE ASSESSMENT YEARS, IT IS ESSENTIAL TH AT THE FACTS ABOUT THE PROPERTY TRANSFERRED ARE BROUGHT ON RECORD. WE FIND THAT NEITHER THE AO NOR THE LD. CIT(A) HAS EXAMINED THE NATURE OF THE PROPE RTY TRANSFERRED BEFORE COMING TO THE CONCLUSION WHETHER THE PROFITS ARISIN G THEREFROM IS CAPITAL GAINS OR BUSINESS PROFITS. WE THEREFORE DEEM IT FIT TO SE T ASIDE THE MATTER TO THE FILES OF THE ASSESSING OFFICER TO REDO THE ASSESSME NT DENOVO, AFTER EXAMINING THE FACTS AND KEEPING IN MIND THE DECISIONS OF THE ITAT IN ASSESSEES OWN RAJESH BUILDERS 8 CASE AND AFTER GIVING THE ASSESSEE REASONABLE OPPOR TUNITY TO PRESENT THEIR CASE. 5. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSES. ITA NO. 6625/M/09- A.Y. 2006-07 6. THE ASSESSEE HAD FILED RETURN ON INCOME DECLARIN G TOTAL INCOME @ RS.1,18,84,927/-. THE RETURN WAS ASSESSED U/S.143( 3). DURING THE YEAR THE ASSESSEE WAS HAVING 3 PROJECTS, VIZ. PIMPRI, KOTHRU D AND KONDHWA. PIMPRI PROJECT WAS EXEMPTED UNDER U/S.80 IB (10) OF THE I. T ACT 1961. SALES WERE AFFECTED ONLY IN KOTHRUD PROJECT AND KONDHWA WAS IN COMPLETE. THE AO DISALLOWED THE EXPENSES INCURRED ON KONDHWA PROJECT AMOUNTING TO RS.11,12,450/- DEBITED TO KOTHRUD PROJECT. THE ASS ESSING OFFICER ADDED EXPENSES OF RS.2,56,855/- RELATING TO PIMPRI PROJEC T DEBITED TO KOTHRUD PROJECT. THE AO MADE ALLOCATION OF EXPENSES ON THE BASIS OF PROJECTS AND DISALLOWED EXPENSES OF RS.9,13,918/-. THE AO IN TH E ASSESSMENT ORDER HAS STATED AS UNDER: IT WAS SEEN FROM THE RETURN OF INCOME FILED BY THE ASSESSEE THAT IT HAD BIFURCATED ITS RECEIPTS AND EXPENDITURE UNDER TWO DIFFERENT HEADS 1) PIMPRI AND 2) OTHERS. IT WAS EXPLAINED DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THAT PIMPRI PROJECT WAS ELIG IBLE FOR DEDUCTION U/S.80 IB AND THE PROJECT WAS NOT COMPLETED DURING T HE YEAR THEREFORE ENTIRE EXPENDITURE (DIRECT AND INDIRECT) WAS CAPITA LIZED AND SHOWN AS CLOSING WIP. AMONG THE OTHERS THERE WERE ALL OTHER PROJECTS HOWEVER THE SALES HAVE BEEN BOOKED ONLY IN SEEMA GARDEN AND RAHUL PARK PROJECTS AT KOTHRUD. THERE WERE TWO OTHER PROJECTS MANISH PLAZA AND MANISH PARK AT KONDHWA IN WHICH FINISHED STOCK WAS LYING AS SUCH (IT WAS STATED BY THE ASSESSEE THAT THE OPENING STOCK I S SAME AS THE CLOSING STOCK) AND NO SALES WERE BOOKED DURING THE YEAR. HOWEVER, ON EXAMINATION OF EXPENSES DEBITED UNDER THE HEAD OTHE R IT WAS SEEN THAT CERTAIN EXPENSES BELONGING TO PIMPRI AND KONDHWA WE RE DEBITED IN THIS ACCOUNT WHERE AS NO INCOME WAS OFFERED IN RESP ECT OF THESE PROJECTS. EXPENSES IN RESPECT OF KONDHWA PROJECT D EBITED UNDER HEAD OTHERS ARE ENCLOSED AS ANNEXURE-1 TO THIS ASSESSM ENT ORDER. TOTAL AMOUNT OF THESE EXPENSES IS RS.11,12,450/-. SINCE THESE EXPENSES RELATE TO KONDHWA PROJECT AGAINST WHICH NO SALE HAS BEEN BOOKED RAJESH BUILDERS 9 DURING THE YEAR, THE SAME IS BEING ADDED TO THE CLO SING STOCK OF KONDHWA PROJECTS. THIS WILL RESULT IN INCREASE OF TAXABLE BUSINESS PROFIT FROM KOTHRUD PROJECT BY AMOUNT OF RS.11,12,450/-. PENALTY PROCEEDINGS U/S.271(1)(C) ARE ALSO INITIATED FOR CO NCEALMENT OF INCOME AND FILING INACCURATE PARTICULARS OF INCOME. IT IS ALSO SEEN THAT CERTAIN EXPENSES BELONGING TO P IMPRI PROJECT HAVE ALSO BEEN DEBITED UNDER HEAD OTHERS. THE LIST OF ALL SUCH EXPENSES AMOUNTING TO RS.2,56,855/- IS ENCLOSED TO THIS ASSE SSMENT ORDER AS ANNEXURE-II. THE AMOUNT OF RS.2,56,855/- IS THEREFO RE TRANSFERRED FROM HEAD OTHERS TO THE HEAD PIMPRI AND CLOSING STOCK OF PIMPRI IS INCREASED BY THAT AMOUNT. THIS WILL RESULT IN INCR EASE OF TAXABLE BUSINESS PROFIT FROM KOTHRUD PROJECT BY AMOUNT OF R S.2,56,855/-. PENALTY PROCEEDINGS U/S.271(1)(C) ARE ALSO INITIATE D FOR CONCEALMENT OF INCOME AND FILING INACCURATE PARTICULARS OF INCOME. FROM THE DETAILS OF TDS PAYMENTS, IT WAS NOTICED TH AT TDS AMOUNT OF RS.8,172/- ON LABOUR CHARGES RELATED TO JANUARY & F EBRUARY, 06 HAS BEEN PAID AFTER MARCH 2006. THEREFORE, LABOUR CHAR GES OF RS.4,00,588/- DEBITED TO P&L ACCOUNT ARE DISALLOWED U/S.40(A)(IA) OF THE IT ACT. AMOUNT OF RS.55,000/- OUT OF THESE LAB OUR CHARGES PERTAIN TO KOTHRUD PROJECT AND THE BALANCE AMOUNT OF RS.3,4 5,588/- PERTAIN TO PIMPRI PROJECT. SINCE TOTAL WIP UNDER PIMPRI PROJEC T HAS BEEN CAPITALIZED, THE AMOUNT OF WIP ALLOWED TO BE CARRIE D FORWARD FOR THE PROJECT IS REDUCED BY RS.3,45,588/- AMOUNT OF RS.5 5,000/- IS BEING ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IT IS SEEN FROM THE MISCELLANEOUS EXPENSES DEBITED T O P&L ACCOUNT THAT FOLLOWING EXPENSES OF PERSONAL NATURE WERE DEB ITED THEREIN. (I) 29.11.2005 RS.4,100/- SCHOOL FEES FOR THE SON OF TH E PARTNER (II) 12.11.2005 RS.16,500/- JEWELLERY PURCHASED (NO BILL PRODUCED). SINCE AMOUNT OF RS.4,100/- HAS BEEN DEBITED UNDER K OTHRUD PROJECT THE SAME IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S.271(1)(C) ARE ALSO INITIATED FOR CONCEALMENT OF INCOME AND FILING INACCURATE PARTICULARS OF INCOME. AMOUNT OF RS.16, 500/- HAS BEEN DEBITED UNDER PIMPRI PROJECT THEREFORE CLOSING WIP TO THE PR OJECT IS REDUCED BY RS.16,500/-. IT IS SEEN THAT THERE ARE CERTAIN EXPENSES OF GENERA L NATURE WHICH ARE NOT SPECIFIC TO ANY PROJECT. IT IS SEEN THAT IN MAJ ORITY OF SUCH EXPENSES HAVE BEEN DEBITED UNDER HEAD OTHERS AND THUS THEY HAVE THE EFFECT OF REDUCING THE TAXABLE INCOME. IT IS SEEN FROM THE P& L ACCOUNT THAT MAJORITY OF THE PURCHASES ARE AGAINST PIMPRI SITE T HEREFORE THESE EXPENSES ARE BEING ALLOCATED IN THE RATIO OF PURCHASES FOR B OTH SITES I.E. 1/5 TH FOR OTHERS AND 4/5 TH FOR PIMPRI. WORKING OF THE AMOUNTS: RAJESH BUILDERS 10 HEAD OF EXPENSES TOTAL AMOUNT DEBITED 1/5 TH OF THE TOTAL AMOUNT FOR OTHERS 4/5 TH OF THE TOTAL AMOUNT ALLOCATED TO PIMPRI AMOUNT ACTUALLY DEBITED UNDER OTHERS AMOUNT DISALLOWABLE OUT OF EXPENDITURE DEBITED UNDER OTHERS (1) (2) (3) (4) (5) (5) (3) SALARY AND WAGES 982983 196597 786386 737237 589789 CAR INSURANCE CHARGES 22352 4470 17882 16764 12294 ACCOUNT WRITING CHARGES 48000 9600 38400 12000 2400 CONVEYANCE 73007 14601 58406 54755 40154 STAFF WELFARE 80552 16110 64442 65275 49165 INTEREST ON CAR LOAN 18977 3795 15182 14233 10438 MISCELLANEOUS 39553 7911 31642 10500 2589 DEPRECIATION 376525 75305 301220 282394 207089 TOTAL 913918 THEREFORE, AMOUNT OF RS.9,13,918/- IS BEING REDUCED OUT OF EXPENSES DEBITED UNDER HEAD OTHERS AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. CLOSING WIP OF THE PIMPRI PROJECT IS ENHA NCED BY THE AMOUNT. 7. BEFORE THE LD. CIT(A), ON APPEAL, THE ASSESSEE R AISED FOLLOWING ADDITIONAL GROUNDS OF APPEAL. THE ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING THE FOLLOWING ADDITIONS WITHOUT AFFORDING THE ASSESSEE ANY OPPORTUNITY TO EXPLAIN THE NATURE OF SAID EXPENSES. THUS, THE ADD ITIONS HAVE BEEN IGNORING ALL THE PRINCIPLES OF NATURAL JUSTICE AND SHOULD BE DELETED. A) KONDHWA PROJECT EXPENSES RS.11,12,450/- B) KOTHRUD PROJECT EXPENSES RS. 2,56,855/- C) LABOUR CHARGES RS. 55,000/- D) PERSONAL EXPENSES RS. 4,100/- 8. THE LD. CIT(A) CALLED FOR THE REMAND REPORT OF T HE ASSESSING OFFICER. THE ASSESSING OFFICER OBJECTED TO THE RAISING OF AD DITIONAL GROUNDS BY THE ASSESSEE. IN REPLY, THE ASSESSEE, VIDE LETTER DT.23 .9.09 OBJECTED TO THE ASSESSING OFFICERS OBSERVATION WITH RESPECT TO THE RAISING OF ADDITIONAL RAJESH BUILDERS 11 GROUNDS. THE LD. CIT(A) HELD THAT THE REMAND REPOR T OF THE ASSESSING OFFICER IS SILENT ON THE TECHNICAL ISSUES AND NO FURTHER IN VESTIGATION IS DONE. THE LD. CIT(A) FURTHER HELD THAT IN THE STATEMENT OF FACTS OF THE ASSESSEE THESE ISSUES FIND MENTION AS SUCH THE ADDITIONAL GROUNDS OF APPE AL BECOME PART OF THE APPEAL FILED AND ACCEPTED THE SAME. WITH RESPECT T O THE MERITS, THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE ORDER OF THE ASSES SING OFFICER, REMAND REPORT OF THE ASSESSING OFFICER AND THE SUBM ISSIONS MADE BY THE ASSESSEE. AS REGARDS THE ADDITION OF RS.9,13,9 18/-, IT IS SEEN THAT THE ASSESSING OFFICER HAS TRIED TO CORRELATE THE PU RCHASE AND THE EXPENSES. TOTAL PURCHASES SHOWN BY THE ASSESSEE IN THE YEAR ARE AT RS.1,26,87,005/- OUT OF WHICH RS.1,01,48,145/- PERT AIN TO PIMPRI SITE AND RS.25,38,860/- PERTAIN TO OTHER SITES. THE ASS ESSING OFFICER HAS HELD 4/5 OF THE PURCHASES AND OTHER EXPENSES SHOULD BE ALLOCATED TO THE PIMPRI SITE AND THEREBY ANY EXCESS AMOUNTS THAT IS DEBITED FOR OTHER SITES (WITH RATIONALE BETWEEN PIMPRI & OTHER SITES) SHOULD BE THE DISALLOWANCES AND ACCORDINGLY HE HAS WORKED OUT THE CHART AS REPRODUCED ABOVE AND DISALLOWED AN AMOUNT OF RS.9,1 3,918/- ADDING IT TO THE TOTAL INCOME OF THE ASSESSEE AND ENHANCING T HE WIP OF THE PIMPRI SITE BY THIS AMOUNT. I HAVE CAREFULLY CONSI DERED THIS POINT AND I FIND THAT THE ASSESSING OFFICER HAS ACCEPTED THE EX PENSES IN TOTALITY AND NOT MADE ANY DISALLOWANCE REGARDING THE SAME. HE IS OF THE OPINION THAT THE WIP OF THE PIMPRI SITE HAS BEEN NOT WORKED OUT IN A CORRECT MANNER AND THEREBY THE INCOME THAT HAS TO B E OFFERED FOR TAXATION FROM PIMPRI SITE HAS NOT BEEN DONE CORRECT LY. DURING THE STATE OF THE REMAND REPORT, NO FINDING ON THIS HAS BEEN G IVEN. THE ASSESSEE ON THE OTHER HAND HAS VEHEMENTLY ARGUE D THAT THESE EXPENSES SO DEBITED ARE FIXED EXPENSES AND CA NNOT BE CORRELATED TO THE PURCHASES WHICH ARE DIRECT EXPENSES AND THER E IS NO RATIONALE TO ALLOCATE THESE EXPENSES AS THE ASSESSING OFFICER HA S DONE. I FIND THAT THE CONTENTION OF THE ASSESSEE CARRIES WEIGHT ON TH IS ISSUE. AT BEST, THE ASSESSING OFFICER SHOULD HAVE TAKEN INTO ACCOUN T THE PURCHASES AND INVESTIGATED INTO THE SAME BEFORE COMING TO THE CONCLUSION THAT THE WIP HAS BEEN LESS CALCULATED. THE EXPENSES DEB ITED, I FIND, ARE ACTUALLY FIXED AND SOME OF THEM LIKE CAR INSURANCE CHARGES, INTEREST ON CAR LOAN AND DEPRECIATION ARE RELATABLE. I FIND THA T THE ASSESSING OFFICER HAS MADE NO INVESTIGATION INTO THE FACT WHE THER CAR FOR WHICH INSURANCE CHARGES, INTEREST AND DEPRECIATION HAS BE EN CLAIMED AND ALLOCATED TO THE PIMPRI SITE OR THE OTHER SITES WER E ACTUALLY USED IN PIMPRI OR IN ANY OTHER SITES AND INVESTIGATION INTO THIS WOULD HAVE GIVEN INDICATION REGARDING THE CORRECTNESS OF THE EXPENSE S DEBITED BY THE ASSESSEE. MERE ADHOC DISALLOWANCE ON ASSUMPTIONS A ND SURMISES RAJESH BUILDERS 12 CANNOT BE ACCEPTED AND UPHELD ESPECIALLY IF THE BOO KS OF ACCOUNTS HAVE NOT BEEN REJECTED. IN THE REMAND REPORT SUBMI TTED BY THE ASSESSING OFFICER, IT IS SEEN THAT THE ASSESSING OF FICER HAS NOT GIVEN ANY JUSTIFICATION FOR THE DISALLOWANCE MADE AT RS.9 ,13,918/- IN THE CASE OF THE ASSESSEE AND HE HAS ALSO NOT REBUTTED THE CO NTENTION OF THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION, THE DIS ALLOWANCE SO MADE AT RS.9,13,918/- CANNOT BE SUSTAINED AND IS HEREBY DELETED AS I FIND THAT IT IS MADE ON THE BASIS OF CONJECTURE ONLY WIT HOUT ANY INVESTIGATION TO SUPPORT IT. 9. AGGRIEVED THE DEPARTMENT IS ON APPEAL BEFORE US. WE HEARD BOTH PARTIES. WE FIND THAT DURING THE REMAND REPORT NO FINDING HAS BEEN GIVEN BY THE ASSESSING OFFICER WITH RESPECT TO THE WORKING O F WIP OF PIMPRI SITE. THE ASSESSING OFFICER HAS NOT TAKEN INTO ACCOUNT THE PU RCHASES AND INVESTIGATED INTO THE SAME WHILE COMING TO THE CONCLUSION THAT T HE WIP HAS BEEN CALCULATED AT A LOWER AMOUNT. THE ASSESSING OFFICE R SHOULD HAVE GONE INTO THE DETAILS REGARDING THE CORRECTNESS OF THE EXPENS ES DEBITED BY THE ASSESSEE BUT HAS MERELY MADE AN ADHOC DISALLOWANCE. THE ASS ESSING OFFICER HAS ACCEPTED THE BOOKS OF ACCOUNTS AND THEREFORE IS NOT JUSTIFIED IN MAKING DISALLOWANCE OF RS.9,13,918/- ON MERE SURMISES AND ASSUMPTIONS WITHOUT MAKING ANY INVESTIGATION OR BRINGING ON RECORD ANY EVIDENCE / DOCUMENT TO CONTRADICT THE SUBMISSION/ ACCOUNTING OF THE ASSESS EE AND SUPPORT HIS DISALLOWANCE. UNDER THESE CIRCUMSTANCES WE CONFIRM THE ORDER OF CIT(A) AND DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE. 10. THE NEXT GROUND OF APPEAL RELATES TO ADDITION O F RS.11,20,450/- AND RS.2,56,855/- TO THE PROFIT OF KOTHRUD PROJECT AND PIMPRI PROJECT RESPECTIVELY. 11. IN PARA 3,4 & 5 OF THE ASSESSMENT ORDER, THE ASS ESSING OFFICER HAS STATED AS UNDER: THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONSTRUCTION OF SHOPS AND FLATS AND DEVELOPERS. AF TER GOING THROUGH THE RETURN OF INCOME, COPY OF ACCOUNTS AND DETAILS CALLED FOR, THE RAJESH BUILDERS 13 ASSESSEES TOTAL INCOME IS BEING COMPUTED SUBJECT T O THE REMARKS IN THE SUBSEQUENT PARAS. IT WAS SEEN FROM THE RETURN OF INCOME FILED BY THE ASSESSEE THAT IT HAD BIFURCATED ITS RECEIPTS AND EX PENDITURE UNDER TWO DIFFERENT HEADS 1) PIMPRI AND 2) OTHERS. IT WAS EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS THAT PIMPRI PROJECT WAS ELIGIBLE FOR DEDUCTION U/S.80 IB AND THE PROJECT WAS NOT COMPLETED DURING THE YEAR THEREFORE ENTIRE EXPENDITURE (DIRECT AND INDIRECT) WAS CAPITALIZED A ND SHOWN AS CLOSING WIP. AMONG THE OTHERS THERE WERE ALL OTHER PROJECTS HOWEVER THE SALES HAVE BEEN BOOKED ONLY IN SEEMA GA RDEN AND RAHUL PARK PROJECTS AT KOTHRUD. THERE WERE TWO OTH ER PROJECTS MANISH PLAZA AND MANISH PARK AT KONDHWA IN WHICH FI NISHED STOCK WAS LYING AS SUCH (IT WAS STATED BY THE ASSES SEE THAT THE OPENING STOCK IS SAME AS THE CLOSING STOCK) AND NO SALES WERE BOOKED DURING THE YEAR. HOWEVER, ON EXAMINATION OF EXPENSES DEBITED UNDER THE HEAD OTHER IT WAS SEEN THAT CERTA IN EXPENSES BELONGING TO PIMPRI AND KONDHWA WERE DEBITED IN THI S ACCOUNT WHERE AS NO INCOME WAS OFFERED IN RESPECT OF THESE PROJECTS. EXPENSES IN RESPECT OF KONDHWA PROJECT DEBITED UNDE R HEAD OTHERS ARE ENCLOSED AS ANNEXURE-1 TO THIS ASSESSM ENT ORDER. TOTAL AMOUNT OF THESE EXPENSES IS RS.11,12,450/-. SINCE THESE EXPENSES RELATE TO KONDHWA PROJECT AGAINST WHICH NO SALE HAS BEEN BOOKED DURING THE YEAR, THE SAME IS BEING ADDE D TO THE CLOSING STOCK OF KONDHWA PROJECTS. THIS WILL RESUL T IN INCREASE OF TAXABLE BUSINESS PROFIT FROM KOTHRUD PROJECT BY AMO UNT OF RS.11,12,450/-. PENALTY PROCEEDINGS U/S.271(1)(C) ARE ALSO INITIATED FOR CONCEALMENT OF INCOME AND FILING INAC CURATE PARTICULARS OF INCOME. RAJESH BUILDERS 14 IT IS ALSO SEEN THAT CERTAIN EXPENSES BELONGING TO P IMPRI PROJECT HAVE ALSO BEEN DEBITED UNDER HEAD OTHERS. THE LIST OF ALL SUCH EXPENSES AMOUNTING TO RS.2,56,855/- IS ENC LOSED TO THIS ASSESSMENT ORDER AS ANNEXURE-II. THE AMOUNT OF RS.2, 56,855/- IS THEREFORE TRANSFERRED FROM HEAD OTHERS TO THE HEAD PIMPRI AND CLOSING STOCK OF PIMPRI IS INCREASED BY THAT AM OUNT. THIS WILL RESULT IN INCREASE OF TAXABLE BUSINESS PROFIT FROM KOTHRUD PROJECT BY AMOUNT OF RS.2,56,855/-. PENALTY PROCEE DINGS U/S.271(1) ARE ALSO INITIATED FOR CONCEALMENT OF I NCOME AND FILING INACCURATE PARTICULARS OF INCOME. 12. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE LD. CIT(A) AND CIT(A) ASKED FOR REMAND REPORT FROM THE ASSESSING O FFICER. IN THE REMAND REPORT, THE AO BESIDES OBJECTING THAT THE ADDITIONA L GROUNDS SHOULD NOT BE ACCEPTED DID NOT GIVE ANY FINDING ON THE ISSUE. TH E LD. CIT(A) HELD AS FOLLOWS: I HAVE CAREFULLY EXAMINED THE ORDER OF THE ASSESSI NG OFFICER AND THE SUBMISSION MADE BY THE ASSESSEE. I FIND TH AT THE ASSESSEES VERSION OR EXPLANATION CANNOT BE REJECTED. I FIND T HAT THE ASSESSING OFFICER HAS MADE THE ADJUSTMENT TO THE ACCOUNTING M ETHODS ADOPTED BY THE ASSESSEE WITHOUT REJECTING THE BOOKS OF ACCO UNTS OR THE ACCOUNTING METHOD ADOPTED BY THE ASSESSEE. I ALSO F IND THAT THE ASSESSEES CONTENTION THAT HE HAS NOT BEEN CONFRONT ED AT ALL DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THIS ISSUE IS S UBSTANTIATED BY EVIDENCE. I FIND THAT THE CONTENTION OF THE ASSESSE E THAT MOST OF THE EXPENSES INCURRED WERE ON TRANSPORTATION OF MATERIA L LIKE, PAINTING, IRON GRILLS, TILES, ETC CANNOT BE REJECTED AS ANNEX URE 1 AND 2 ATTACHED WITH THE ASSESSMENT ORDER INDICATES LIKEWISE. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD AS TO WHY THESE EXPENSES WERE NOT APPLICABLE TO THE PROJECTS WHEREIN THEY HAVE BEEN D EBITED. HE HAS ALSO NOT DISCUSSED THE VALUE ADDITION MADE IN THE A CCOUNTS OF THE ASSESSEE ON ACCOUNT OF THE SALES MADE DURING THE YE AR BY TAKING INTO CONSIDERATION, THE CLOSING AND OPENING STOCK OF THE ASSESSEE. HE HAS NOT CONFRONTED OR REBUTTED THE ARGUMENTS OF THE ASS ESSEE THAT SOME OF THE MATERIAL BOUGHT IN THE SITE LIKE KONDHWA AND PI MPRI WERE USED TO COMPLETE THE FLAT FOR WHICH THE SALES HAD BEEN COM PLETED IN OTHER SITES ON WHICH WORK WAS GOING ON. HE HAS ALSO NOT REBUTTED THE ARGUMENTS BY THE ASSESSEE BY ANY NEGATIVE FINDING T HAT MATERIAL AVAILABLE AT KONDHWA AND PIMPRI WERE ALSO USED BY T HE KOTHRUD SITES ALSO. IN FACT, THERE IS NO DISCUSSION REGARDING THE CLOSING STOCK RAJESH BUILDERS 15 AVAILABLE AND THE FRESH PURCHASES MADE IN THE VARIO US SITES BY THE ASSESSING OFFICER. BEFORE MAKING ANY CHANGE IN THE ACCOUNTING PROCEDURE OF THE ASSESSEE, THE ASSESSING OFFICER IS REQUIRED TO REJECT THE BOOKS OF ACCOUNTS AND THE TRADING RESULTS BY SP ECIFIC EXAMPLES SHOWING THAT THEY ARE UNRELIABLE. IN THIS CASE, A DETAILED INVESTIGATION INTO THE WIP REGISTER WAS REQUIRED TO BE DONE. I FI ND FROM THE READING OF THE ASSESSING OFFICERS ORDER THAT THIS HAS NOT BEEN DONE. THE ASSESSING OFFICER HAS ASSUMED THAT THE ASSESSEE HAS NOT RECORDED PURCHASES AND STOCK CORRECTLY. IN VIEW OF THIS, I FIND THAT THE ADDITION MADE BY THE ASSESSING OFFICER IN RESPECT OF THE ABO VE AMOUNTS CANNOT BE SUSTAINED. THE ADDITION SO MADE IS THEREFORE, D ELETED AND THE GROUND OF APPEAL ON THIS ISSUE IS ALLOWED. 13. AGGRIEVED THE REVENUE IS ON APPEAL. WE HEARD BO TH PARTIES. WE FIND THAT THE AO HAS NOT INVESTIGATED AND FOUND ANY BASI S/REASONS AS TO WHY THE EXPENSES INCURRED BY THE ASSESSEE WERE NOT APPLICAB LE TO THE PROJECTS WHEREIN THEY HAVE BEEN DEBITED, NEITHER HAS HE CONS IDERED THE CLOSING & OPENING STOCK OF THE ASSESSEE. THE AO HAS NOT BROU GHT IN ANY EVIDENCE TO DISPROVE THAT SOME OF THE MATERIALS BOUGHT IN THE S ITE LIKE PIMPRI AND KONDHWA WERE USED TO COMPLETE THE FLATS AT KOTHRUD FOR WHICH THE SALES HAVE BEEN COMPLETE WHILE IN OTHER SITES WORK WAS GOING O N. THE AO NEITHER INVESTIGATED INTO THE WIP REGISTER NOR REJECTED THE BOOKS OF ACCOUNTS. HE HAS NOT BROUGHT OUT ANY SPECIFIC REASON OR EVIDENCE TO CONTRADICT THE SUBMISSION AND ACCOUNTING OF THE ASSESSEE. THE AO MERELY ON AS SUMPTION THAT THE ASSESSEE HAS NOT RECORDED PROJECTS AND SALES CORREC TLY, CANNOT MAKE THE ADDITIONS. HENCE, WE CONFIRM THE ORDER OF LD. CIT( A) AND DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE. 14. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED ON THIS 30 TH DAY OF AUGUST, 2011 SD/- SD /- (PRAMOD KUMAR) (ASHA VIJAYAR AGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH AUGUST, 2011 RJ RAJESH BUILDERS 16 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI RAJESH BUILDERS 17 DATE INITIALS 1. DRAFT DICTATED ON: 12.8.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 16.08.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: