ADDL 19(1), MUMBAI V. SPAN ASSOCIATGES, MUMBAI

ITA 678/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101116 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Department
• Bench Allotted: H
• Next Hearing Date: 18-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2011
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Rule of consistency; Date of conversion; Fair market value
• Section: 45(2); 143(3); 2(14); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H MUMBAI. BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO 678 /MUM/201 1 ASSESSMENT YEAR: - 2007 - 08 . THE ACIT, CIRCLE 19(1) - 1, ROOM NO. 322, 3 RD FLOOR, PIRAMAL CHAMBERS, LALBAUG, MUMBAI 400 012. V. M/S SPAN ASSOCIATES 11 TH GROUND FLOOR, SPAN CENTRE, SOUTH AVENUE ROAD, SANTACRUZ, MUMBAI 54. PAN/GIR NO. AAAFS3887K APPELLANT RESPONDENT ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER PASSED U/S 250 OF THE INCOME TAX ACT ,1961(HEREINAFTER CALLED THE ACT) BY C OMMISSIONER OF I NCOME T AX (A PPEALS ) - 30,MUMBAI (HEREINAFTER CALLED THE CIT(A)) DATED 30.11.2010 AGAINST THE ASSESSMENT ORDER DATED REVENUE BY SHRI VIJAY SHANKAR ASSESSEE BY SHRI PRAKASH PANDIT DATE OF HEARING 18 .08.2015 DATE OF PRONOUNCEMENT 24 .0 9 .2015 2 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 2 OF 24 30.12.2009 U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2007 - 08 . THE REVENUE HAS RA ISED THE FOLLOWING GROUND S OF APPEAL S : - 1 ) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE CONSIDERATION ON SALE OF PREMISES OF RS.2,99,83,446/ - VIZ. 7 TH FLOOR OF SPAN CENTRE IS LONG TERM CAPITAL GAIN AND NOT BUSINESS INCOME MADE BY A O IN HIS ASSESSM ENT ORDER, IGNORING THE FACT TH AT : - (A) THE ASSESSEE HAS NEVER EVER TREATED THE WORK IN PROGRESS / COST OF UNSOLD FLATS AS AN INVESTMENT ITEM IN THE BALANCE SHEET EXCEPT IN THE CURRENT ASSESSMENT YEAR. IN ALL THE PROJECT OF THE ASSESSEE, THE ASSESSEE HAS ALWAYS TAKEN THE WORK IN PROGRESS / COST OF UNSOLD FLATS IN THE P&L A/C. , AS IS THE NORMAL METHOD OF ACCOUNTING OF A BUILDER / DEVELOPER. (B) AS PER BALA NCE SHEET WITH THE I. T. RETURN FOR AY. 2006 - 07, THE ASSESSEE CARRIED WORK - IN - PROGRESS OF RS.64,41,344/ - WITH INVESTMENT AT NIL. (C) THE CONSTRUCTION OF 8 TH FLOOR OF SPAN CENTRE WHICH FIRST MADE ITS APPEARANCE IN THE WORK IN PROGRESS OF AY. 2003 - 04 CONT INUED TO BE WORK- IN - PROGRESS TILL AY. 2006 - 07. 2) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE EXPENDITURE INCURRED ON COST OF IMPROVEMENT OF PROPERTY OF R S .5,00,000/ - WHILE COMPUTING LONG TERM CAPITAL GAINS WHICH WAS DISALLOWED BY THE AO, IGNORING THE FACT THAT : - (A) THE LIST OF IMPROVEMENT COST CONTAINS AIR 'CONDITIONERS, WORK STATIONS OFFICE TABLE, WORKING TABLE, CONFERENCE ROOM WITH TUBS, CHAIRS AND GLASS PARTITIONS TUBE LIGHTS, SMOKE DETECTORS, SPOT LIGHTS, ELECTRICAL SWITCHBOARDS, TELEPHONE LINES, PANTRY ETC. DO NOT FORM WITHIN THE DEFINITION OF 'COST OF ANY IMPROVEMENT' AS DEFINED U/S.55(1 )(B)(2) OF THE I. T. ACT. (B) THE ASSESSEE HAS ALREADY CLAIMED 30% DEDUCTION FOR REPAIRS AND MAINTENANCE AS DEDUCTION FROM ITS PROPERTY IN EARLIER YEARS 3.THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET - ASIDE AND THAT OF THE A.O. BE RESTORED . 3 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 3 OF 24 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPER OF BUILDING PROJECT S . THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007 - 08 DECLARING TO TAL INCOME OF RS. 4,18, 02,339/ - . THE ASSESSEE HAS CONSTRUCTED SEVERAL BUILDING S INCLUDING J S TOWERS AND SPAN C ENTRE . THE ASSESSEE WAS OFFERING FOR TAX INCOME FROM THE SALE OF THESE BUILDING PROJECTS. DURING THE ASSESSMENT YEAR, THERE WAS A SALE OF OFFICE PREMISES ON 7 TH FLOOR OF THE BUILDING SPAN CENTRE FOR RS.2,99,83,446/ - AND THE INCOME THEREOF WAS OFFERED BY THE ASSESSEE FOR TAXATION AS LONG TERM CAPITAL GAIN INSTEAD OF OFFERING THE SAME AS BUSINESS INCOME . THE A SSESSING O FFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THIS I NCOME SHOULD NOT BE TREATED AS B USINESS INCOME AS AGAINST THE INCOME FROM CAPITAL GAINS AS DECLARED BY THE ASSESSEE. THE ASSESSEE EXPLAINED IN REPLY TO SHOW CAUSE NOTICE THAT THE PROJECT SPAN CENTRE WAS COMPLETED IN FINANCIAL YEAR 199 7 - 98 AND THE RE WERE NO UNSOLD FLATS IN THE SAID PROJECT. HOWEVER THE 7 TH FLOOR AND THE BASEMENT WAS T REATED BY THE ASSESSEE AS ITS I NVESTMENT FROM THE FINANCIAL YEAR 1999 - 2000 I.E. ASSESSMENT YEAR 2000 - 01. SUBSEQUENTLY, WHEN THE CONSTRUCTION OF 8 TH FLOOR WAS COMPLETED IN THE YEAR 2005 - 06 , THE SAME WAS ALSO TREATED AS I NVESTMENT. THE ASSESSEE CONTENDED THAT SINCE THE 7 TH FLOOR OF BUILDING SPAN CENTRE HAS BEEN TREATED AS I NVESTMENT, THE CAPITAL GAIN ARISING ON SALE SHOULD BE TREATED AS LONG TERM C APITAL GAIN AS THE SAID CAPITAL 4 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 4 OF 24 ASSET IS HELD FOR MORE THAN 36 MONTHS AND AS SUCH THE SALE OF 7 TH FLOOR, SPAN CENTRE WAS NOT SALE OF UNSOLD STOCK. THE ASSESSEE CONTENDED THAT THESE THREE FLOORS I.E FOR BASEMENT, GROUND FLOOR AND 7 TH FLOOR WAS GIVEN ON REN T SINCE JANUARY 1998 ITSELF TILL THE ASSESSMENT YEAR UNDER CONSIDERATION AND INCOME THERETO FROM RENTAL ARE OFFERED AS I NCOME FROM HOUSE PROPERTY . THE ASSESSEE CONTENDED THAT THIS ALSO SHOWS THE INTENTION OF THE ASSESSEE FOR NINE YEARS THAT IT HELD THESE ASSETS WITH AN OBJECTIVE FOR GIVING ON RENT WHICH SHOWS THAT THE ASSESSEE HAS TREATED THE SAME AS AN I NVESTMENT. HOWEVER, INADVERTENTLY IT CONTINUED AS W ORK IN P ROGRESS(HEREINAFTER CALLED WIP ) IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE . THE ASSESSEE ALSO SUBMITTED THAT IT IS REGULARLY PAYING MAINTENANCE CHARGES AND TAXES IN CONNECTION WITH THESE FLAT. THE A SSESSING O FFICER AFTER CONSIDERING THE REPLY OF ASSESSEE, HELD THAT THE CONTENTION OF THE ASSESSEE THAT INVESTMENT IN 7 TH FLOOR IS TREATED AS I NVESTMENT FROM FINANCIAL YEAR 1999 - 00, IS FACTUALLY INCORRECT. THE A SSESSING O FFICER ANALYZED THE P&L ACCOUNT S FOR LAST TEN YEARS STARTING FROM THE YEAR ENDING 31.03.1998 TO THE YEAR ENDING 31.03.2007 AND HELD THAT THE ASSESSEE HAS ALWAYS TAKEN THE UNSOLD STOCK OF SPAN CENTRE AS WIP AS BUSINESS TRADING STOCK AND NOW THE ASSESSEE IS TREATING THIS WIP I.E. 7 TH FLOOR OF SPAN CENTRE AS I NVESTMENT W . E . F . 01 - 04 - 2006 WHICH IS AN AFTERTHOUGHT FOR THE PURPOSE OF AVOIDING TAX LIABILITY, WHEREBY AN ATTEMPT IS MADE TO TREAT 5 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 5 OF 24 IT AS LONG TERM CAPITAL GAIN IN STEAD OF DECLARING THE GAIN AS I NCOME FROM BUSINESS . THE A SSESSING O FFICER ALSO REFERRED TO THE AUDIT REPORT UNDER THE ACT IN PRESCRIBED FORM NO. 3C D AT POINT 11 , WHEREBY THE AUDITORS OF THE ASSESSEE HAVE SUBMITTED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THERE IS NO CHANGE IN THE METHOD OF ACCOUNT ING EMPLOYED VIS - A - VIS METHOD OF ACCOUNTING EMPLOYED FOR IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE A SSESSING O FFICER ALSO HELD THAT THE ASSESSEE HAS ATTEMPTED TO ALTER THE FIGURE OF TOTAL ASSET OF BALANCE SHEET AS ON 31.03.2006 IN THE AUDITED ACCOUNTS OF 31.03.2007 , WHICH WAS INCREASED FROM RS. 3,26,57,060/ - TO RS. 3,39,37,506/ - I.E. A DIFFERENCE OF RS. 12,80,446/ - AND HENCE , THE ASSESSEE IS TRYING TO MANIPULATE THE BALANCE - SHEET FIGURE TO SEEK THE BENEFIT OF LONG TERM CAPITAL GAIN BY SHOWING THE OPENING BALANCE AS INVESTMENT INSTEAD OF B USINESS TRADING A SSET BEING WIP . THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE IS REG ULARLY SHOWING THE INCOME FROM SALE OF THESE BUILDING PROJECTS AS ITS INCOME FROM BUSINESS . THE ASSESSING OFFICER ALSO HELD THAT THE MAINTENANCE CHARGES WITH RESPECT TO THESE FLATS ARE PAYABLE BY THE LESSEE ALFA BUSINESS CENTRE AS PER AGREEMENT ENTERED B Y THE ASSESSEE WITH THE LESSEE. THE A SSESSING O FFICER REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT EVEN IF THE ASSESSEE HAS O FFERED THE INCOME OF RENTAL AS I NCOME FROM HOUSE PROPERTY BUT THE SAME DOES NOT CHANGE THE CHARACTER OF THE ASSET FROM B EING A BUSINESS TO AN INVESTMENT AND THE A SSESSING O FFICER HELD THAT THE SAME TO BE CHARGEABLE TO TAX AS 6 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 6 OF 24 INCOME FROM BUSINESS. THE ASSESSING OFFICER ALSO OPINED THAT EVEN IF THE SAME IS TO BE TREATED AS INVESTMENT , IT SHOULD BE TREATED WEF 1 ST APRIL 2006 WHEN THE VALUE OF PROPERTY IS TRANSFERRED IN THE BOOKS OF ACCOUNTS FROM WIP TO INVESTMENT AND THE GAIN THEREOF FROM SALE OF THE FLAT IS TO BE HELD TO BE SHORT TERM CAPITAL GAIN. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE CIT(A) AND C ONTENDED THAT DURING THE FINANCIAL YEAR 1994 - 95, THE ASSESSEE UNDERTOOK THE DEVELOPMENT AND CONSTRUCTION OF COMMERCIAL PROJECT VIZ. SPAN CENTRE . THIS COMMERCIAL PROJECT WAS INITIALLY SANCTIONED FOR CONSTRUCTION OF BASEMENT + GROUND FLOOR+ 4 STOREY BUIL DING . E XCEPT FOR THE BASEMENT AND GROUND FLOOR, DURING THE CONSTRUCTION STAGE OF THE PROJECT ITSELF, THE ASSESSEE SOLD OUTRIGHT ON OWNERSHIP BASIS ALL THE COMMERCIAL UNITS IN THE BUILDING AND OFFERED TO TAX PROFIT EARNED ON SALE OF THE COMMERCIAL UNITS IN THE BUILDING ON THE PROJECT COMPLETION BASIS IN THE RETURN OF INCOME FILED WITH THE REVENUE FOR ASSESSMENT YEAR 1998 - 99 AS INCOME FROM BUSINESS . THE ASSESSEE STATED THAT BASEMENT AND GROUND FLOOR WERE RETAINED BY THE ASSESSEE WITH AN INTENTION TO GIVE THEM ON LONG LEASE AND TO EARN RETURNS ON INVESTMENTS. THE ASSESSEE CONTENDED THAT THE P ART OF THE BASEMENT WAS ALSO USED BY THE ASSESSEE FOR HIS OWN OFFICE. ASSESSEE CONTENDED THAT SINCE JANUARY 1998 ONWARDS , IT CONTINUED TO LET OUT THE ABOVE PROPERTY TO VARIOUS PARTIES . THE A SSESSEE CONTENDED THAT WHEN THE CONSTRUCTION WAS STILL IN PROGRESS AND THE ASSESSEE UNDERTOOK FURTHER 7 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 7 OF 24 DEVELOPMENTS RIGHTS DUE TO CHANGE IN DEVELOPMENT REGULATION OF THE GOVERNMENT AND BY ACQUIRING SUCH TRANSFERABLE DEVELOPMENT RI GHTS FROM THE MARKET, THE ASSESSEE CONSTRUCTED FURTHER ADDITIONAL FLOORS VIZ 5 TH TO 7 TH FLOORS ON THE BUILDING SPAN CENTRE . THE ASSESSEE CONTENDED THAT THE RIGHTS FOR CONSTRUCTION OF 5 TH AND 6 TH FLOOR WERE SOLD BY THE ASSESSEE BUT IT RETAINED THE 7 TH FL OOR ON BUILDING SPAN CENTRE . SIMILARLY, THE ASSESSEE ALSO RETAINED THE RIGHT OF DEVELOPMENT OF 8 TH FLOOR. THE ASSESSEE LEASED OUT 7 TH FLOOR VIDE AGREEMENT DATED 1 ST NOVEMBER 1996. THE A SSESSEE SUBMITTED THAT THE PROFIT FOR THE WHOLE PROJECT OF CONSTRUC TION OF BUILDING SPAN CENTRE IS ALREADY OFFERED TO TAX IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 1998 - 99 ON PROJECT COMPLETION METHOD BASIS . THE A SSESSEE STATED THAT THE COST OF CONSTRUCTION OF BASEMENT, GROUND FLOOR & 7 TH FLOOR OF SPAN CENTRE OF RS. 22,57,000/ - APPEARED IN THE BALANCE SHEET AS ON 31.03.1998 WHICH HAS CONTINUED TO REMAIN SAME TILL THE DATE OF SALE OF OFFICE PREMISES ON 7 TH FLOOR , SPAN CENTRE IN THE ASSESSMENT YEAR 2007 - 08 AND THERE IS NO ALTERATION I N THESE FIGUR ES SINCE THEN . THE ASSESSEE CONTENDED THAT IT IS IMPORTANT TO SEE THE INTENTION FOR HOLDING THE ASSET WHICH IN THIS CASE IS CAPITAL ASSET AND NOT STOCK IN TRADE . THE CHARACTER OF ASSET AND HOLDING OF THESE ASSET FOR NINE YEARS SHOWS THA T THERE WAS NO INTE NTION TO SELL THESE ASSETS AND INTENTION WAS TO EXPLOIT THESE PREMISES TO EARN INCOME AND HENCE THEY ARE I NVESTMENT S . THE ASSESSEE CONTENDED THAT THE ASSESSEE SHOULD HAVE TRANSFERRED THE COST OF CONSTRUCTION OF THIS WIP TO I NVESTMENT IN ITS 8 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 8 OF 24 BOOKS OF ACC OUNTS BUT THE SAME WAS NOT DONE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE WHICH IS NOW BEEN DONE WEF 01 - 04 - 2006 . ASSESSEE SUBMITTED THAT I T IS OFFERING RENTAL INCOME AS I NCOME FROM HOUSE PROPERTY AND HENCE IT CANNOT BE CLASSIFIED AS STOCK IN TRADE , IT IS ALSO PAYING ALL MAINTENANCE CHARGES, MUNICIPAL CHARGES WITH RESPECT TO THESE PREMISES ALTHOUGH THE SAME IS RECOVERED FROM TENANTS . THE ASSESSEE ALSO SUBMITTED THAT IT HAS MADE INVESTMENTS IN THE BUSINESS OUT OF ITS OWN FUNDS AND NO BORROWED FUNDS ARE USED AND HENCE THE ASSESSEE IS NOT UNDER ANY COMPULSION TO SELL THESE FLATS. THE ASSESSEE SUBMITTED THAT IF TWO VIEWS ARE POSSIBLE, THEN ONE FAVORABLE TO THE ASSESSEE SHOULD BE ADOPTED. THE CIT(A) AFTER CONSIDERING THE REPLIES AND CASE LAWS RELIED UPON BY THE ASSESSEE HELD THAT THE A SSESSING O FFICER HELD THE SAME TO BE BUSINESS INCOME ONLY ON THE GROUND THAT THE ASSESSEE HAS REFL ECTED T HE SAME AS WIP IN ITS BOOKS OF ACCOUNTS . THE CIT(A) HELD THAT THE BOOKS OF ACCOUNT THOUGH RELEVANT CANNOT BE CONSIDERED AS CONCLUSIVE EVIDENCE IF THE FACTS SUGGEST OTHERWISE. THE CIT(A) ALSO HELD THAT IT IS NOT NECESSARY THAT THE ASSESSEE BEING A D EVEL OPER OR BUILDER COULD NOT HO LD THE I NVESTMENT IN THESE FLATS . THE CIT(A) HELD THAT WHAT IS IMPORTANT IS THE MOTIVE OF THE ASSESSEE WHETHER IT WAS TO EXPLOIT THE PR OPERTY OR THE SAME WAS TEMPORARILY LET OUT TILL THE SAME WAS SOLD. THE ASSESSEE HAS ALREADY ENTERED INTO VARIOUS AGREEMENTS FOR THE SALE OF OTHER FLATS OF SPAN CENTRE WHILE IN THE CASE OF 7 TH FLOOR, IT HAD 9 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 9 OF 24 ENTERED INTO LONG TERM LEASE TO HOLD THE BUSINESS PREMISE FOR A LONG PERIOD OF TIME AS I NVES TMENT AND NOT AS STOCK IN TRADE W HICH IN THIS CA SE , THE FLAT AT 7 TH FLOOR SPAN CENTRE IS HELD FOR ABOUT NINE YEARS. THE CIT(A) HELD THAT THIS PREMISE S ON 7 TH FLOOR SHOULD BE TREATED AS I NVESTMENT EVEN THOUGH NOMENCLATURE IS WIP BECAUSE THE ASSESSEE HAS GIVEN IT ON LEASE FOR A VERY LONG PERIOD AND THE INTENTION WAS TO HOLD THE PROPERTY. HENCE THE CIT(A) HELD THAT THE INCOME FROM SALE OF PREMISES 7 TH FLOOR OF SPAN CENTRE SHOULD BE TREATED AS LONG TERM CAPITAL GAIN . 4. AGRRIEVED, THE REVENUE IS IN APPEAL BEFO RE US. 5. BEFORE US, THE LD. DR CONTENDED THAT THE ASSESSEE IS IN THE BUSINESS OF B UILDER S AND PROPERTY DEVELOPMENT AND THE ASSESSEE HAS CONSTRUCTED THIS BUILDING SPAN CENTRE WITH THE OBJECTIVE OF SELLING THE SAME. HE ALSO SUBMITTED THAT THE ASSESSEE HAS REGULARLY SHOWING THIS UNSOLD STOCK WITH RESPECT TO THE PROJECT SPAN CENTRE AS WIP . HE ALSO DREW OUR ATTENTION TO THE BALANCE SHEET AND P ROFIT & L OSS ACCOUNT FOR THE YEA R ENDING 31.03.1999 WHEREBY THE CLOSING WORK IN PROGRESS WAS SHOWN AT RS. 4,61,28,079/ - . HE ALSO DREW OUR ATTENTION TO THE SCHEDULE OF WIP W HEREBY THE WIP OF RS. 22,57,000/ - IS APPEARING UNDER THE HEAD SPAN CENTRE . THE LD. DR SUBMITTED THAT THE ASSESSE E HAS SINCE THE YEAR 1998 - 99 SHOWING THE SAID UNSOLD STOCK OF FLATS AS WIP CONSISTENTLY WHILE IN THE INSTANT YEAR ON 10 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 10 OF 24 01.04.2006, THEY HA VE CHANGED THE NOMENCLATURE TO I NVESTMENT AND IN THE VERY SAME YEAR I.E. FINANCIAL YEAR 2006 - 07, THIS FLAT AT 7 TH FLOOR , SPAN CENTRE HAS BEEN SOLD. THIS CHAN GE IN NOMENCLATURE FROM WIP TO I NVESTMENT AS ON 01.04.2006 IS BEING DONE BY ASSESSEE PURPOSELY WITH AN OBJECTIVE TO AVOID TAXES BY TREATING IT AS LONG TERM CAPITAL GAIN TO AVAIL THE COST INFLATION INDEX AS WE LL AS LOWER RATE OF TAXATION AS APPLICABLE TO LONG TERM CAPITAL GAINS . THE LD. DR ALSO STATED THAT THE ASSESSEE HAS MADE AN ADMISSION WHEREBY THE ASSESSEE HAS ADMITTED BEFORE THE AUTHORITIES BELOW THAT IT HAS COMMITTED AN ERROR BY USING THE WRONG NOMENCLATURE AS WIP AND NOT CONVERTING THE PROPERTY FROM WIP TO I NVESTMENT IN ITS BOOKS OF ACCOUNTS WHICH ITSELF BIND THE ASSESSEE AND ASSESSEE IS LIABLE TO PAY TAX ON THE PROFIT FROM SALE OF THIS UN SOLD STOCK VIZ. 7 TH FLOOR AT SPAN CENTRE UNDER THE HEAD INCOME FROM B USINESS . THE LD. DR DREW OUR ATTENTION TO THE ORDERS DATED 29 TH JULY 2005 PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998 - 99 IN ITA NO. 4842/MUM/01 AND ITA/4792/M UM/2011 WHEREBY THE ASSESSEE HAS PLEADED BEFORE THE TRIBUNAL THAT THE UNSOLD STOCK OF THE SPAN CENTRE PROJECT IS WIP BEING TRADING BUSINESS ASSET AND SHOULD BE TREATED AS CLOSING STOCK OF BUSINESS TO BE VALUED AT COST PRICE OR MARKET PRICE OR AT T HE LOWER OF THE TWO. HE DR EW OUR ATTENTION TO SECTION 2(14) OF THE ACT WHICH , INTER - ALIA , DEFINES CAPITAL ASSET AS EXCLUDING STOCK IN TRADE. HE ALSO CONTENDED THAT EVEN IF THE SAID CONVERSION OF STOCK IN TRADE IE WIP TO CAPITAL ASSET IS ALLOWED AS WAS D ONE BY THE ASSESSEE AS ON 11 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 11 OF 24 01.04.2006, THE SAME SHOULD NOT BE TREATED AS LONG TERM CAPITAL GAIN AS IT IS HELD FOR LESS THAN 36 MONTHS TO BE CALCULATED FROM THE DATE OF CONVERSION IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE ON 01.04.2006 AND IT SHOULD BE TREATE D AS SHORT TERM CAPITAL GAIN AS THE SAME IS HELD FOR LESS THAN 36 MONTHS TILL IT WAS SOLD . HE ALSO DREW OUR ATTENTION TO THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SPLENDOR CONSTRUCTION [ITA NO. 1977 OF 2010] WHEREBY THE HONBLE HIGH C OURT OF DELHI HAS HELD AS UNDER: - 9. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE CANNOT AGREE WITH THE APPROACH ADOPTED BY THE TRIBUNAL. WE ARE OF THE OPINION THAT THE TRIBUNAL HAS SIDE TRACKED THE MAIN ISSUE. IT WAS A CASE WHERE THE LAND IN Q UESTION WAS PURCHASED IN THE FINANCIAL YEAR 1998 - 99. THEREAFTER, IT WAS SHOWN IN THE BALANCE SHEET AS 'STOCK IN TRADE'. HOWEVER, DURING THE FINANCIAL YEAR IN QUESTION WHEN THE LAND WAS SOLD, THE SAME HAVE BEEN CONVERTED BY THE ASSESSEE FROM 'STOCK IN TRADE ' TO 'INVESTMENT'. OBVIOUSLY, THIS CHANGE IN THE BOOKS OF ACCOUNTS, JUST BEFORE THE SALE OF THE PROPERTY, WAS MADE TO AVOID PAYMENT OF FULL TAXES BY CHANGING THE COMPLEXION OF THE EARNINGS MADE ON THE SALE OF THE PROPERTY. THE ASSESSING OFFICER, HOWEVER, S TILL ALLOWED THE CHANGE BUT THEN WAS RIGHT IN HOLDING THAT THE PERIOD OF HOLDING THE ASSET WAS RECKONED FROM THE DATE WHEN IT WAS CONVERTED AS 'INVESTMENT' FROM 'STOCK IN TRADE' AND NOT FROM THE DATE WHEN THE LAND WAS PURCHASED. THEREFORE, THE GAIN WAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. THE ASSESSEE, UNDER THE GARB 'LONG TERM CAPITAL GAIN' WANTED TO PAY LESSER TAX. IT HAD THUS CLEARLY FURNISHED INACCURATE PARTICULARS OF INCOME. 10. THE ISSUE WAS NOT DEBATABLE, AS HELD BY THE TRIBUNAL IN THE IMPUGNED ORDER. NO DOUBT, APPEAL WAS ADMITTED. HOWEVER, THE TRIBUNAL HAS GLOSSED OVER A VERY IMPORTANT AND FUNDAMENTAL FACT. IN QUANTUM PROCEEDINGS, APPEAL FILED BY THE ASSESSEE I.E. ITA 662/2009 CAME UP FOR ADMISSION ON 16TH SEPTEMBER, 2009. ON THE SAME DATE, APPEAL WAS ADMITTED, ARGUMENTS HEARD AND ORDERS WERE DICTATED IN THE COURT DISMISSING THE APPEAL THERE AND THEN. IN THIS FACTUAL BACKDROP, WHEN ORDER OF THE ASSESSING OFFICER IN QUAN TUM PROCEEDINGS WAS SUSTAINED BY ALL SUCCESSIVE AUTHORITIES AND THIS COURT ALSO 12 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 12 OF 24 DISMISSED THE APPEAL AT THE ADMISSION STAGE, ALBEIT AFTER ADMITTING THE SAME, IT CANNOT BE SAID THAT THE ISSUE WAS DEBATABLE. 11. WE THUS, ANSWER BOTH THE QUESTIONS OF LAW IN F AVOUR OF THE REVENUE AND AGAINST THE ASSESSEE AND AS A CONSEQUENCE ALLOW THIS APPEAL PARTIALLY AND SET ASIDE THE ORDER OF THE TRIBUNAL AND RESTORE THAT OF THE ASSESSING OFFICER LIMITING THE PENALTY ON THE AFORESAID GROUND. 6. THE ASSESSE ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE HAS LET OUT THIS 7 TH FLOOR AT SPAN CENTRE SINCE ITS CONSTRUCTION AND INCOME FROM HOUSE PROPERTY SINCE BEGINNING HAS BEEN OFFERED FOR TAXATION AS I NCOME FROM HOUSE PROPERTY WHICH HAS BEEN ALSO ASSESSED BY R EVENUE U/S 143(3) OF THE ACT READ WITH SECTION 143(2) OF THE ACT FOR ASSESSMENT YEARS 2004 - 05,2005 - 06 AND 2006 - 07 . THE ASSESSEE SUBMITTED THAT ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT CONCLUSIVE AND IT IS IMPORTANT TO SEE THE REAL INTENT ION WHERE THE FLA T WAS HELD AS I NVESTMENT FROM THE INITIAL STAGE OR NOT. THE ASSESSEE RELIED UPON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF FORT PROPERTIES (P.) LTD. VS. CIT 208 ITR 232 (BOM.) AND ALSO ON CIT V.MOGUL LINE LIMITED 46 ITR 590(BOM) . HE SUBMITTED THAT THERE IS AN ERROR IN THE BOOKS OF ACCOUNTS AND THE ASSESSEE CANNOT BE PENALIZED FOR THE SAME. HE SUBMITTED THAT THE MOTIVE OF THE ASSESSEE IS VERY IMPORTANT. HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN DALMIA CEMENT LIMITED V. CI T 105 ITR 633(SC) AND ORDERS OF PUNE TRIBUNAL IN ITO V. BEGUIO INVESTMENTS PRIVATE LIMITED 127 TTJ 423(PUNE). THE ASSESSEE ALSO SUBMITTED THAT IF THE INCOME FROM PROPERTY IS TAXED UNDER THE INCOME FROM HOUSE PROPERTY THEN ON SALE 13 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 13 OF 24 OF SUCH PROPERTY IT COULD ONLY BE TAXED AS INCOME FROM CAPITAL GAINS. THE ASSESSEE RELIED UPON THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN CIT VS. ESTATE OF OMPRAKASH JHUNJHUNWALA 253 ITR 153(CAL) . HE ALSO PLACED RELIANCE ON THE DECISION OF AMRITSAR BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. JANAK R AJ CHAUHAN [102 TTJ 316 (ASR.) ] AND OTHER JUDGMENTS TO SUPPORT THIS CONTENTION . THE ASSESSEE CONTENDED THAT PRINCIPLE OF CONSISTENCY IS APPLICABLE TO THE INCOME TAX PROCEEDINGS AND HENCE THE INCOME FROM SALE OF THIS PROPERTY CAN O NLY BE TAXED UNDER THE HEAD INCOME FROM CAPITAL GAINS . THE ASSESSEE RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN RADHASAOMI SATSANG 193 ITR 321(SC) . THE ASSESSEE STATED THAT IF THERE ARE TWO VIEWS POSSIBLE, THEN THE VIEW FAVOURABLE TO THE ASSESS EE SHOULD BE ADOPTED AND THE ASSESSEE RELIED UPON THE JUDGMENT OF CIT V. MADHO PD. JATIA (1976) 105 ITR 179(SC). THE ASSESSSEE SUBMITTED THAT THE BUSINESS MAN CAN HOLD BOTH STOCK IN TRADE AND CAPITAL ASSET AT THE SAME TIME AND THERE IS NO BAR ON SUCH HOLDI NG. THE ASSESSEE ALSO RELIED UPON THE ORDER OF CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD AND ALSO THE CASE LAWS RELIED UPON BY BOTH THE PARTIES . WE HAVE OBSERVED THAT THE ASSESSEE IS A BUILDER AND IS IN THE BUSINESS OF DEVELOPMENT OF PROPERTIES. THE ASSESSEE HAS CONSTRUCTED THE BUILDING CALLED SPAN CENTRE AND OTHER PROPERTIES WITH THE INTENTION OF SELLING THE SAME. THE ASSESSEE IS OFFERING THE 14 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 14 OF 24 INCOME FROM SALE OF THESE PROPERTIES UNDER THE HEAD INCOME FROM BUSINESS. THE ASSESSEE SOLD OUT MOST OF THE FLATS AT SPAN CENTRE PROJECT WHILE THE FLATS AT BASEMENT, GROUND FLOOR AND 7 TH FLOOR WERE RETAINED BY THE ASSESSEE AS BEING UNSOLD STOCK. ASS ESSEE CONTENDED THAT THESE ARE THE BUSINESS TRADING ASSET S AND HELD AS SUCH IN THE BOOKS OF ACCOUNTS AS BUSINESS TRADING ASSETS SINCE THE IR CONSTRUCTION WHEREBY THE COST OF CONSTRUCTION AT RS. 22.57 LACS WAS CARRIED AS THE COST OF FLATS AT SPAN CENTRE IN ITS BOOKS OF ACCOUNTS AS WIP BEING UNSOLD TRADING STOCK TILL ASSESSMENT YEAR 2006 - 07 . WE HAVE OBSERVED THAT ASSESSEE HAS DURING THE ASSESSMENT YEAR 2007 - 08, ON 01.04.2006 HAS TRANSFERRED THESE FLATS FROM WIP TO INVESTMENT WHICH HAS BEEN ADMITTED BY THE ASSESSEE. THE ASSESSEE DURING THE PERIOD FROM THE DATE OF CONSTRUCTION TILL ASSESSMENT YEAR 2006 - 07 WAS TREATING THESE ASSETS AS WIP BEING UNSOLD TRADING STOCK IN ITS BOOKS OF ACCOUNTS AND IN - FACT DURING THE LITIGATION WIT H THE DEPARTMENT IN ITA NO. 4842 /MUM/2001 AND ITA/4792/MUM/2001 FOR ASSESSMENT YEAR 1998 - 99 , THE ASSESSEE HAS CONTENDED AND PLEADED BEFORE THE TRIBUNAL THAT THESE ARE ITS WIP BEING UNSOLD FLATS BEING TRADING STOCK . IT IS PERTINENT TO MENTION HERE THAT UNDER THE SCHEME OF INCOME TAX A CT, 1961 , THE INCOME OF THE ASSESSEE IS CHARGEABLE TO TAX UNDER THE HEADS AS SPECIFIED UNDER THE INCOME TAX ACT,1961. THERE ARE FIVE DIFFERENT HEADS OF INCOME UNDER WHICH THE INCOME IS CHARGEABLE TO TAX AS UNDER: 15 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 15 OF 24 1. INCOME FROM SALARIES. THE INCOME EARNED BY THE ASSESSEE FROM SALARIES AS DEFINED UNDER THE ACT ARE CHARGEABLE TO TAX UNDER THIS HEAD AS PER APPLICABLE PROVISIONS. 2. INCOME FROM HOUSE PROPERTY - INCOME EARNED BY THE ASSESSEE FROM LETTING OUT PROPERTY IS CHARGEABLE TO TAX UNDER THIS HEAD A S PER APPLICABLE PROVISIONS. 3. INCOME FROM BUSINESS AND PROFESSION - INCOME EARNED BY THE ASSESSEE FROM BUSINESS AND PROFESSION IS CHARGEABLE TO TAX UNDER THIS HEAD AS PER APPLICABLE PROVISIONS. 4. INCOME FROM CAPITAL GAINS - INCOME EARNED BY THE ASSESSEE FROM SALE OF CAPITAL ASSETS IS CHARGEABLE TO TAX UNDER THIS HEAD AS PER APPLICABLE PROVISIONS. 5. INCOME FROM OTHER SOURCES - INCOME EARNED BY THE ASSESSEE WHICH CANNOT BE BROUGHT TO TAX UNDER THE ABOVE FOUR HEADS AND WHICH IS AS DEFINED UNDER THIS HEAD I S CHARGEABLE TO TAX UNDER THIS HEAD AS PER APPLICABLE PROVISIONS. THE SCHEME OF THE ACT CONTEMPLATES AND POSTULATE APPLICABILITY OF VARIOUS PROVISIONS AS CONTAINED IN RELEVANT SECTIONS OF THE HEADS OF INCOME TO COMPUTE THE INCOME OF THE ASSESSEE IN THE MANNER 16 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 16 OF 24 SPECIFIED IN THE SAID SECTIONS AS PER THE PROVISIONS CONTAINED THEREAT . THE INCOME IS TO BE COMPUTED STRICTLY AS PER SCHEME OF THE ACT AND PROVISIONS CONTAINED THERE - AT BY THE ASSESSEE TO BRING TO THE TAX , THE CORRECT INCOME IN THE HANDS OF THE CORRECT ASSESSEE FOR THE CORRECT ASSESSMENT YEAR AT THE CORRECT RATES OF TAXES, SO THAT CORRECT AMOUNT OF TAX IS PAID TO THE REVENUE. IN THE INSTANT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS AS BUILDERS AND PROPERTY DEVELOPMENT. THE ASSESSEE IS O FFERING TO TAX INCOME FROM THESE PROJECTS UNDER THE HEAD INCOME FROM BUSINESS. THE ASSESSEE IS ALSO REFLECTING UNSOLD STOCK OF FLATS AS WIP BEING BUSINESS TRADING ASSETS. THE COMPUTATION OF SUCH INCOME WILL FALL UNDER THE HEAD INCOME FROM BUSINESS AND P ROFESSION AND THE RELEVANT PROVISIONS AND MANNER OF COMPUTING BUS INESS INCOME IS STIPULATED U/S 28 TO 44DB OF THE ACT AND THE BUSINES S INCOME SHALL BE COMPUTED ACCORDINGLY AS PER PROVISIONS OF SAID SECTIONS . FOR COMPUTING THE INCOME UNDER THE HEAD CAPITAL GAINS, THE RELEVANT PROVISION S AS CONTAINED IN SECTION 45 TO 55A OF THE ACT GETS ATTRACTED AND CAPITAL GAIN CHARGEABLE TO INCOME TAX SHALL BE COMPUTED ACCORDINGLY AS PER THE AFORE - STATED PROVISIONS OF SECTION S . SCHEME OF COMPUTING THE INCOME UNDER HEAD INCOME FROM BUSINESS IS ALTOGETHER DIFFERENT FROM THE SCHEME OF COMPUTING CAPITAL GAINS CHARGEABLE TO INCOME TAX AND CONSEQUENTLY TAX IMPLICATIONS VARY ACCORDINGLY . THUS, IT IS FOR THE ASSESSEE TO BRING ON RECORD WITH THE REVENUE AS TO THE MOTIVE OF HOL DING OF THE ASSETS IN THE RETURN OF INCOME FILED WITH THE REVENUE AND ASSESSEE CANNOT AT ITS WHIMS AND 17 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 17 OF 24 FANCY TREAT THE ASSET AS TRADING BUSINESS ASSET OR CAPITAL ASSET TO SUIT ITS CONVENIENCE BECAUSE TAX IMPLICATIONS ACCORDINGLY VARY. OUR VIEW IS FORTIFIED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SPLENDOR CONSTRUCTION [ITA NO. 1977 OF 2010] WHEREBY THE HONBLE HIGH COURT OF DELHI HAS HELD AS UNDER: - 9. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE CANNOT AGREE WITH THE APPROACH ADOPTED BY THE TRIBUNAL. WE ARE OF THE OPINION THAT THE TRIBUNAL HAS SIDE TRACKED THE MAIN ISSUE. IT WAS A CASE WHERE THE LAND IN QUESTION WAS PURCHASED IN THE FINANCIAL YE AR 1998 - 99. THEREAFTER, IT WAS SHOWN IN THE BALANCE SHEET AS 'STOCK IN TRADE'. HOWEVER, DURING THE FINANCIAL YEAR IN QUESTION WHEN THE LAND WAS SOLD, THE SAME HAVE BEEN CONVERTED BY THE ASSESSEE FROM 'STOCK IN TRADE' TO 'INVESTMENT'. OBVIOUSLY, THIS CHANGE IN THE BOOKS OF ACCOUNTS, JUST BEFORE THE SALE OF THE PROPERTY, WAS MADE TO AVOID PAYMENT OF FULL TAXES BY CHANGING THE COMPLEXION OF THE EARNINGS MADE ON THE SALE OF THE PROPERTY. THE ASSESSING OFFICER, HOWEVER, STILL ALLOWED THE CHANGE BUT THEN WAS RIGH T IN HOLDING THAT THE PERIOD OF HOLDING THE ASSET WAS RECKONED FROM THE DATE WHEN IT WAS CONVERTED AS 'INVESTMENT' FROM 'STOCK IN TRADE' AND NOT FROM THE DATE WHEN THE LAND WAS PURCHASED. THEREFORE, THE GAIN WAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. TH E ASSESSEE, UNDER THE GARB 'LONG TERM CAPITAL GAIN' WANTED TO PAY LESSER TAX. IT HAD THUS CLEARLY FURNISHED INACCURATE PARTICULARS OF INCOME. 10. THE ISSUE WAS NOT DEBATABLE, AS HELD BY THE TRIBUNAL IN THE IMPUGNED ORDER. NO DOUBT, APPEAL WAS ADMITTED. HOW EVER, THE TRIBUNAL HAS GLOSSED OVER A VERY IMPORTANT AND FUNDAMENTAL FACT. IN QUANTUM PROCEEDINGS, APPEAL FILED BY THE ASSESSEE I.E. ITA 662/2009 CAME UP FOR ADMISSION ON 16TH SEPTEMBER, 2009. ON THE SAME DATE, APPEAL WAS ADMITTED, ARGUMENTS HEARD AND ORDE RS WERE DICTATED IN THE COURT DISMISSING THE APPEAL THERE AND THEN. IN THIS FACTUAL BACKDROP, WHEN ORDER OF THE ASSESSING OFFICER IN QUANTUM PROCEEDINGS WAS SUSTAINED BY ALL SUCCESSIVE AUTHORITIES AND THIS COURT ALSO DISMISSED THE APPEAL AT THE ADMISSION S TAGE, ALBEIT AFTER ADMITTING THE SAME, IT CANNOT BE SAID THAT THE ISSUE WAS DEBATABLE. 11. WE THUS, ANSWER BOTH THE QUESTIONS OF LAW IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE AND AS A CONSEQUENCE ALLOW THIS APPEAL PARTIALLY AND SET ASIDE THE ORDER OF THE TRIBUNAL AND RESTORE THAT OF THE ASSESSING OFFICER LIMITING THE PENALTY ON THE AFORESAID GROUND. 18 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 18 OF 24 OUR VIEW IS FURTHER FORTIFIED BY THE EXISTENCE OF SECTION 45(2) OF THE ACT WHICH READS AS UNDER: SECTION 45 3 [(2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (1), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOCK - IN - TRADE OF A BUSINESS CARRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME - TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK - IN - TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM AND, FOR THE PURPOSES OF SECTION 48 , THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATI ON RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET.] THE CONTENTION OF THE ASSESSEE THAT IT HARDLY MATTERS HOW THE SAME IS REFLECTED IN ITS BOOKS OF ACCOUNTS IS ERRONEOUS AS THE LAW POSTULATE BURDEN ON THE ASSESSEE TO REFLECT THE CHANGE FROM STOCK OF UNSOLD STOCK TO INVESTMENT . THE ASSESSEE BEING IN THE BUSINESS OF BUILDERS AND OFFERING THE INCOME THEREOF AS BUSINESS INCOME, ANY UNSOLD ST OCK OF FLAT WILL BE PRESUMED TO BE BUSINESS TRADING ASSET AND ASSESSABLE AS SUCH. THE ASSESSEE HAS ALSO SHOWN THE SAME AS TRADING BUSINESS ASSET IN ITS BOOKS OF ACCOUNTS AS WIP FROM YEAR TO YEAR TILL 31 - 3 - 2006. THE ASSESSEE HAS MANIFESTED ITS INTENTION TO CONVERT THE SAID TRADING BUSINESS ASSET INTO INVESTMENT IN ITS BOOKS OF ACCOUNTS ON 1 - 4 - 2006 19 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 19 OF 24 WHEN THE BOOK ENTRY WAS PASSED AND HENCE THE SAID ASSET AT BEST CAN BE HELD TO BE INVESTMENT W . E . F . 01 - 04 - 2006. THE CONTENTION OF THE ASSESSEE THAT IT HAS SHOWN INCOME FROM RENT OF THESE UNSOLD FLATS AS I NCOME FROM HOUSE PROPERTY AND HENCE THE SALE PROCEEDS OF THE SAID FLAT SHALL BE CHARGEABLE TO TAX AS INCOME FROM C APITAL G AIN IS AGAIN ERRONEOUS. HONBLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF CIT V. SANE AND DOSHI ENTERPRISES IN (2015) 232 TAXMANN 452 THAT IN CASE OF REAL ESTATE DEVELOPERS , INCOME FROM RENT FROM UNSOLD STOC K HAS TO BE ASSESSED TO TAX AS I NCOME FROM H OUSE P ROPERTY . THE ASSESSEE HAS ALSO RIG HTLY OFFE RED TO TAX INCOME FROM RENT AS INCOME FROM HOUSE P ROPERTY BUT THAT WILL N OT CHANGE CHARACTER OF THE ASSET FROM BUSINESS TRADING ASSET IE WIP TO INVESTMENT UNLESS THE ASSESSEE MANIFEST ITS INTENTION BY TAK ING STEPS TO CHANGE THE CHARACTER OF THE SAID ASSET BY AMENDING ITS BOOKS OF ACCOUNTS AND ALSO BRINGING THE SAME ON RECORD WITH REVENUE WHICH IN THE INSTANT CASE WAS DONE BY THE ASSESSEE ON 01 - 04 - 2006.I T IS ALSO SEEN THAT THE HONBLE DELHI HIGH COURT IN CIT VS. SPLENDOR CONSTRUCTION (SUPR A) HAS CLEARLY HELD THAT CONVERSION OF STOCK IN TRADE TO INVESTMENT JUST BEFORE THE SALE OF PROPERTY WITH A VIEW TO AVOID THE PAYMENT OF FULL TAXES BY CHANGING COMPLEXION OF EARNING MADE ON THE SALE OF PROPERTY IS NOT FOR THE GENUINE REASON AND HENCE HELD THAT IT CANNOT BE TREATED AS LONG TERM CAPITAL GAIN AS ASSESSEE WANTED TO REDUCE TAX LIABILITY WHICH IS NOT PERMITTED . THE CASE IN HAND IS 20 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 20 OF 24 SIMILAR TO THAT DECIDED BY THE HONBLE DELHI HIGH COURT IN SPLENDOR CONSTRUCTION(SUPRA) , WHICH IS DISCUSSED ABOVE AN D WE ALSO , RESPECTFULLY, HOLD THAT THE SAME CHANGE AS DONE BY THE ASSESSEE CHANGING THE CHARACTER OF THE WORK IN PROGRESS/UNSOLD STOCK OF FLATS TO I NVESTMENT WHICH IS JUST BEFORE THE SALE OF PROPERTY WAS DONE BY THE ASSESSEE NOT FOR BONA - FIDE PURPOSES BU T TO PAY LOWER RATE OF TAXES AND AVAIL THE BENEFIT OF COST INFLATION INDEX . WE, THEREFORE, UPHELD THE ORDER OF A SSESSING O FFICER AND REVERSE THE ORDER OF CIT(A). HENCE, THE GAIN FROM SALE OF 7 TH FLOOR, SPAN CENTRE WAS RIGHTLY BROUGHT TO TAX BY ASSESSING OFFICER AS I NCOME FROM BUSINESS OR ALTERNATIVELY, EVEN IF IT IS ASSUMED THAT THE ASSESSEE TREATMENT OF THE SAID ASSET AS INVESTMENT IS ACCEPTED FOR GENUINE PURPOSES THEN ALSO THE SAME WAS DONE O N 01 - 04 - 2006 AND THE ASSET WAS SOLD THEREAFTER IMMEDIATELY WITHIN THE ASSESSMENT YEAR 2007 - 08 AND HENCE THE ASSET WAS HELD FOR LESS THAN 36 MONTHS AS INVESTMENT AS SUCH AND THE GAIN ARISING THEREOF ON SALE OF SUCH ASSET SHALL BE CHARGEABLE TO TAX AS IN COME FROM SHORT TERM CAPITAL GAIN BUT THE SAME CANNOT BE BROUGHT TO TAX AS INCOME FROM LONG TERM CAPITAL GAIN . WE ORDER ACCORDINGLY. 8. GROUND NO. 2 RELATES TO DISALLOWANCE OF EXPENDITURE INCURRED ON COST OF IMPROVEMENT OF PROPERTY OF RS. 5,00,000/ - W HILE COMPUTING THE CAPITAL GAIN. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS PAID RS. 5,00,000/ - TO THE ERSTWHILE TENANT WHILE ACQUIRING FROM THE TENANT M/S RAFT SOFTWARE PVT. LTD. ITS ASSETS LIKE 21 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 21 OF 24 AIR CONDITIONERS, WORK STATION, OFFICE TABLES, WORKING TABLES, METER ROOM, ELECTRICAL FITTING, BATHROOM TOILET FITTINGS, SMOKE DETECTORS, PANTRY ETC. WHICH WAS ACQUIRED BY THE TENANT OUT OF ITS OWN FUNDS. THE TENANT OF THE ASSESSEE , HENCE, SOLD THESE ASS ETS TO THE ASSESSEE FOR CONSIDERATION OF RS.5,00,000.00 AT THE TIME OF VACATING THE PREMISES THE ASSESSEE HAS SOLD THE SAID PREMISE AT 7 TH FLOOR OF SPAN CENTRE IN ASSESSMENT YEAR 2007 - 08 AND HAS ADDED RS. 5,00,000/ - TOWARDS THE EXPENSES INCURRED FOR IMPR OVEMENT OF PROPERTY. THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME AS HOW THE SAME IS TREATED AS IMPROVEMENT OF THE PROPERTY SOLD. THE ASSESSEE CONTENDED THAT THESE ASSETS WERE ACQUIRED FROM THE TENANT AT THE TIME OF VACATION OF THE OFFICE ON 24.04.2006, WHE REBY THE SAID TENANT LEFT BEHIND THE SAID ASSETS WHICH WAS TAKEN OVER BY THE ASSESSEE FOR RS.5,00,000.00 AND HENCE IT IS A IMPROVEMENT IN THE PROPERTY OTHERWISE AS AN ALTERNATIVE, THE SAME SHOULD BE REDUCED FROM THE SALE CONSIDERATION BEING THE REPAYMENT /R ECOUPMENT OF THE EXPENDITURE I NCURRED BY THE ASSESSEE. THE ASSESSING OFFICER DISALLOWED THE SAID EXPENDITURE ON THE GROUND THAT THE ASSESSEE HAD CLAIMED STATUTORY DEDUCTIONS TOWARDS REPAIRS AND MAINTENANCE ON THE RENTAL VALUE INCOME FROM HOUSE PROPERTY I N EARLIER YEARS. 9. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER , THE ASSESSEE CARRIED THE MATTER TO CIT(A) AND REITERATED ITS CONTENTION S AS RAISED BEFORE ASSESSING OFFICER . THE CIT(A) HELD THAT THE EXPENDITURE HAS BEEN 22 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 22 OF 24 INCURRED BY THE ASSESSEE ON THE CAPITAL ITEM AND HENCE THE SAME HAS TO BE CONSIDERED AS COST OF IMPROVEMENT OF THE ASSET WHILE COMPUTING THE CAPITAL GAIN, SINCE THE PREMISES HAVE BEEN SOLD BY THE ASSESSEE INCLUSIVE OF THE ASSETS SO ACQUIRED , AS NARRATED A BOVE THE COST HAS BEEN EMBEDDED IN THE SALES CONSIDERATION AND ACCORDINGLY, ON BOTH COUNTS, ASSESSEE DESERVES TO SUCCEED AND RS. 5,00,000/ - WAS TO BE DEDUCTED FROM GROSS SALE CONSIDERATION OF RS. 3,14,60,000/ - BEFORE WORKING OUT THE LONG TERM CAPITAL GAI NS ON SALE OF OFFICE PREMISE. ACCORDINGLY, THE CIT(A) ALLOWED THE APPEAL OF ASSESSEE. 10. AGGRIEVED BY THE DECISION OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 11. T HE LD . DR RELIED UPON THE ORDER OF ASSESSING OFFICER. 12. THE ASSESSEE REITERATED ITS SUBMISSIONS AS ADVANCED BEFORE AUTHORITIES BELOW AND RELIED UPON THE ORDERS OF CIT(A). 1 3 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE OBSERVED THAT ASSESSEES TENANT M/S R AFT SOFTWARE PVT. LTD. HAS INSTALLED VARIOUS ASSETS LIKE AIR CONDITIONERS, WORK STATION, OFFICE TABLES, WORKING TABLES, METER ROOM, ELECTRICAL FITTING, BATHROOM TOILET FITTINGS, SMOKE DETECTORS, PANTRY ETC., AT ITS OWN COST AND WHILE LEAVING/VACA TING THE PREMISE ON 23 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 23 OF 24 24.04.2006 , T HE ASSESSEE PAID RS. 5,00,000/ - TO SAID TENANT RAFT SOFTWARE PVT LTD ACQUIRE ALL THESE ASSETS FROM THE TENANT AT THE TIME OF VACATION OF TENANT FOR WHICH THE PAYMENT WAS MADE BY CHEQUE. THE ASSESSEE, THEREAFTER, SOLD THE PREMISE F OR RS. 3,14,60,000/ - WHICH INCLUDED THE SAID ASSETS ACQUIRED BY THE ASSESSEE ON 24.04.2006 FROM ITS TENANT . WE ALSO HOLD THAT THESE ASSETS ARE NOT TOWARDS THE COST OF THE IMPROVEMENT OF THE PROPERTY AS THERE IS NO IMPROVEMENT IN TH E PROPERTY ITSELF BY INSTALLING AIR CONDITIONERS, WORK STATION, OFFICE TABLES, WORKING TABLES, METER ROOM, ELECTRICAL FITTING, BATHROOM TOILET FITTINGS, SMOKE DETECTORS, PANTRY ETC. HOWEVER, SINCE THE ASSESSEE HAS ACQUIRED THESE ASSETS DURING THE ASSESSMENT YEAR UNDER REFEREN CE AND THE SALE CONSIDERATION OF THE SAID PREMISES INCLUDE THE PRICE TOWARDS THESE ASSETS SO ACQUIRED , IT WILL BE JUST AND FAIR THAT THE SALE CONSIDERATION OF RS. 3,14,60,000/ - IS REDUCED BY THIS AMOUNT TO ARRIVE AT THE NET SALE CONSIDERATION(AFTER EXCLU DING RECOUPMENT OF THIS EXPENDITURE OF RS.5,00,000.00) SO THAT NO PREJUDICE IS CAUSED TO THE ASSESSEE. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THE SAME IS HEREBY UPHELD BUT SUBJECT TO OUR HOLDING IN THE PRECEDING PARAS THA T THE INCOME FROM SALE OF THE FLAT AT 7 TH FLOOR, SPAN CENTRE SHALL BE CHARGED TO TAX AS INCOME FROM BUSINESS. THUS, THE REVENUE FAILS O N THIS GROUND OF APPEAL . WE ORDER ACCORDINGLY 1 4 . IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALLOWED. 24 ITA NO 678/MUM/2011 ASSESSMENT YEAR: - 2007 - 08. . PAGE 24 OF 24 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF SEPTEMBER 2015. SD/ - SD/ - (AMIT SHUKLA) (RAMIT KOCHAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) MUMBAI DATED 24 - 0 9 - 2015 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, H BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI