DCIT, Circle-14(1), Hyd, Hyderabad V. P. Vara Prasad Rao, Hyd, Hyderabad

ITA 763/HYD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6148 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SITHARAM
• Keywords: Business income; Audit objection; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 763/HYD/2015 ASSESSMENT YEAR: 2008-09 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 14(1), HYDERABAD. VS. SRI P. VARA PRASAD RAO, HYDERABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SITHARAM ASSESSEE BY : NONE DATE OF HEARING 23-12-2015 DATE OF PRONOUNCEMENT 22 -01-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)- 4, HYDERABAD, DATED 27.02.2015 FOR AY 2008-09. 2. NONE APPEARED ON BEHALF OF THE RESPONDENT-ASSESS EE AT THE TIME OF HEARING OF THIS APPEAL. HOWEVER, WE PROCEE D TO DISPOSE OF THIS APPEAL AFTER HEARING THE LD. DR AND ON MERITS OF THE CASE. 3. BRIEFLY THE FACTS OF THE CASE ARE, ASSESSEE AN I NDIVIDUAL DERIVING INCOME FROM HOUSE PROPERTY, BUSINESS, CAPITAL GAINS AND OTHER SOURCES HAD FILED HIS RETURN OF INCOME FOR THE AY 2008-09 ON 30/09/2008 ADMITTING TAXABLE INCOME AT RS. 1,02,87, 343/- AND AN ORDER U/S 143(3) WAS PASSED ON 24/12/2010 ACCEPTING INCOME RETURNED BY THE ASSESSEE. 2 ITA NO. 763/HYD/2015 SHRI P. VARA PRASD RAO 3.1 SUBSEQUENTLY, THE AO NOTICED THAT THE INCOME CH ARGEABLE TO TAX HAD ESCAPED ASSESSMENT AND, THEREFORE, A NOTICE U/S 148 WAS ISSUED. THEREAFTER, A NOTICE U/S 143(2) WAS ISSUED AND AFTE R HEARINGS WITH THE ASSESSEE, THE ASSESSMENT WAS COMPLETED BY AO U/S 14 3(3) RWS 147 OF THE INCOME-TAX ACT, 1961 (IN SHORT ACT) BY MAK ING AN ADDITION OF RS. 91,01,026 AND RS. 33,038/- ON ACCOUNT OF INCOME FROM LONG TERM CAPITAL GAINS TREATED AS BUSINESS INCOME AND LOSS O N SALE OF ASSET RESPECTIVELY. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) AND FILED ELABORATE WRITTEN SUBMISSIONS BEFORE HIM, WHICH WERE EXTRACTED BY THE CIT(A) IN HIS ORDER FROM PAGES 3 T O 17 OF THE ORDER. 4.1 AS REGARDS INITIATION OF REASSESSMENT PROCEEDIN GS, BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE AO HAD DEA LT WITH THE OBJECTIONS RAISED BY THE ASSESSEE IN THE ASSESSMENT ORDER. THE BASIC CONTENTION RAISED BY THE ASSESSEE WAS THAT THE ASSE SSEE HAD TREATED THE INVESTMENT AS ASSET AND ON 'TRANSFER' BY WAY OF DEVELOPMENT AGREEMENT THE ASSESSEE HAS SHOWN INCOME FROM CAPITA L GAINS(LONG TERM). THE SAME WAS SUBJECTED TO SCRUTINY AND THE A O AFTER OBTAINING ALL THE DETAILS REGARDING THE TRANSACTIONS, HAD ACC EPTED THE SAME AND COMPLETED ASSESSMENT U/ S. 143(3). THE PRESENT PROC EEDINGS HAD BEEN INITIATED IN VIEW OF AUDIT OBJECTION. SINCE AL L THE MATERIAL IS ON THE RECORD, INITIATION OF REASSESSMENT PROCEEDINGS ON THE BASIS OF SAME MATERIAL HOLDING THAT THERE IS ESCAPEMENT OF I NCOME AS THE INCOME ARISING FROM TRANSFER OF THE 'ASSET' IS TO B E ASSESSED AS 'BUSINESS INCOME' IS ON' CHANGE OF OPINION' . THERE IS NO FRESH OR FURTHER MATERIAL WITH THE AO TO COME TO SUCH CONCLU SION AND THE SAME IS LIABLE TO BE STRUCK DOWN. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) QUASHED THE REASSESSMENT PROCEEDINGS MADE BY THE AO U/S 147 BY OBSERVING AS UNDER: 7. I HAVE CONSIDERED THE ASSESSMENT ORDER, SUBMIS SION OF THE ASSESSEE AND THE MATERIAL ON RECORD. IT IS SEEN T HAT THE ASSESSEE HAS 3 ITA NO. 763/HYD/2015 SHRI P. VARA PRASD RAO SHOWN THE CAPITAL GAINS ON TRANSFER OF ASSET IN RE TURN OF INCOME. THE SAME WAS SCRUTINIZED AFTER PLACING ALL THE DETAILS REGA RDING THE TRANSACTION ON RECORD, IT WAS ACCEPTED. BASED ON THE SAME MATERIA L ASSESSMENT WAS RE- OPENED AFTER RECORDING THE REASONS. THERE IS NO FR ESH MATERIAL BEFORE AO EXCEPT THE DETAILS FILED DURING THE PROCEEDINGS U/ S. 143(3). RELYING ON THE RATIO LAID DOWN IN THE CASE OF CIT VS KELVINATOR INDIA LTD. (320 ITR 561), THE REOPENING, HELD BAD IN LAW. FURTHER, TO ASSESS THE GAINS ARISING ON TRANSFER OF ASSET AS BUSINESS INCOME AS AGAINST TH E CAPITAL GAIN WOULD ONLY AMOUNT TO CHANGE OF OPINION, WHICH ALSO CANNO T BE BASIS FOR REOPENING OF THE ASSESSMENT. ON THIS ACCOUNT ALSO THE INITIATION OF REASSESSMENT PROCEEDINGS FAILS. ACCORDINGLY, GROUN DS 2 TO 4 ARE TREATED AS ALLOWED. 6. AS REGARDS THE ASSESSMENT OF GAINS AS BUSINESS I NCOME, THE ASSESSEE SUBMITTED AS FOLLOWS: A. THE SITE SITUATED AT MADINAGUDA, HYDERABAD WAS HELD BY THE ASSESSEE AS AN ASSET FROM THE DATE OF PURCHASE. TH IS IS EVIDENCED BY THE ENTRIES REFLECTED IN THE BALANCE SHEETS OF THE ASSESSEE. B. THE ASSESSEE'S INTENTION IN ACQUISITION OF THE SITE WAS THAT TO RETAIN THE SAME AS AN ASSET. THE ASSESSEE NEVER TR EATED THE LAND AS STOCK IN TRADE. C. THE ASSESSEE OBTAINED PERMISSION FOR CONSTRUCTI ON OF FLATS FROM THE CONCERNED AUTHORITY WITH A VIEW TO HOLD T HEM FOR HIMSELF AND HIS FAMILY MEMBERS HOWEVER, HE DID NOT UNDERTAKE THE CONSTRUCTION WORK AS HE WAS NOT HAVING EITHER NECESSARY RESOURCES OR MANPOWER TO EXECUTE THE SAME. D. THEREFORE, THE ASSESSEE ENTERED INTO A DEVELOPM ENT AGREEMENT WITH M/S. NOON HOMES & RESORTS PVT. LTD FOR CONSTRUCTION OF FLATS. THE ASSESSEE WAS ALLOTTED W ITH CONSTRUCTED FLATS IN LIEU OF THE OWNERSHIP OF LAND FOREGONE BY HIM IN FAVOR OF M/S. NOON HOMES & RESORTS PVT LTD. 6.1 THE AO DID NOT AGREE WITH THE ASSESSEE IN VIEW OF THE FOLLOWING: A. THE INTENTION TO OBTAIN MUNICIPAL PERMISSION IN 2007, BY ASSESSEE'S OWN ADMISSION, WAS FOR CONSTRUCTION OF FLATS. THIS 4 ITA NO. 763/HYD/2015 SHRI P. VARA PRASD RAO STATED INTENTION SHOWS THAT THE ACTIVITY THAT ASSE SSEE CONTEMPLATED WAS ADVENTURE IN THE NATURE OF TRADE, BUT NOT AS MERE PASSIVE INVESTMENT ACTIVITY. B. HAVING VENTURED TO CONSTRUCT FLATS WITH HIS OWN FINANCIAL STRENGTH, ASSESSEE ADMITS THAT HE COULD NOT EXECUT E THE PROJECT ON HIS OWN. THIS PROVES THAT THE PROJECT UNDERTAKE N IS BEYOND HIS MEANS AND THAT THIS IS NOT A MERE INVESTMENT P ROPOSITION OUT OF HIS AVAILABLE FUNDS BUT AN 'ADVENTURE' C. ASSESSEE HAD ENTERED INTO A DEVELOPMENT AGREEME NT WITH M/S. NOON HOMES PVT. LTD., WHICH HANDED OVER THE F LATS IN SEMI-FINISHED STAGE ONLY. IT WAS ONLY THE SUPER ST RUCTURE THAT WAS HANDED OVER TO ASSESSEE. THE CRUCIAL COMPONENT OF VALUE ADDITION TO IMPROVE MARKETABILITY OF THE FLATS WAS UNDERTAKEN BY THE ASSESSEE HIMSELF THIS ACTIVITY OF ASSESSEE CAR RYING ON THE DEVELOPMENT WORK HIMSELF SHOWS THAT THE ACTIVITY N EEDS TO BE CLASSIFIED AS 'TRADE' AND NOT INVESTMENT. 7. THE CIT(A) ALLOWED THE GROUND OF ASSESSEE BY OBS ERVING AS UNDER: THE CONTENTION OF THE ASSESSEE AND THE FACTS BROUGH T OUT IN THE ASSESSMENT ORDER ARE CONSIDERED. THE ASSESSEE CONT ENTS THAT THE PROPERTY WAS BROUGHT IN 1999 AND WAS HELD AS A SSET AND ALSO SHOWN AS ASSET IN BALANCE SHEET ALSO. THE CON TENTION OF THE AO IS THAT THE ASSESSEE HAS APPLIED FOR PERMIS SION FROM MUNICIPALITY ALONG WITH A NEIGHBORING PLOT OWNER A ND IS RECEIVING SEMI FINISHED CONSTRUCTED AREA WHICH SHO WS THAT THE SAME IS 'ADVENTURE IN NATURE OF TRADE'. IT IS SEEN THAT BEFORE TRANSFER UNDER CONSIDERATION ONLY ACTION OF THE AS SESSEE WITH REGARD TO THAT PROPERTY IS APPLICATION FOR MUNICIP AL PERMISSION FOR CONSTRUCTION. THIS ITSELF CANNOT MAKE THE TRAN SACTION 'ADVENTURE IN NATURE OF TRADE'. THE IMPROVEMENTS O F SEMI CONSTRUCTED AREA BY ASSESSEE AT A LATER DATE DO NO T CHANGE THE CHARACTER OF TRANSACTION. HENCE, IT IS HELD THAT T HE TRANSACTION IN QUESTION CANNOT BE TREATED AS 'ADVENTURE IN NATURE OF TRADE' AND WOULD RISE TO CAPITAL GAINS AS ADMITTED BY ASSESSE E. ACCORDINGLY, THE GROUND OF APPEAL OF ASSESSEE IS A LLOWED. 5 ITA NO. 763/HYD/2015 SHRI P. VARA PRASD RAO 8. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL: 1. WHETHER, IN THE CIRCUMSTANCES AND FACTS OF THE C ASE, THE CIT(A) IS CORRECT IN HOLDING THAT THE REOPENING AS SESSMENT PROCEEDINGS ARE NOT VALID. 2. WHETHER, IN THE CIRCUMSTANCES AND FACTS OF THE CASE, THE CIT(A) IS CORRECT IN HOLDING THAT ASSESSEES ACTIV ITY IS NOT AN ADVENTURE IN THE NATURE OF TRADE. 9. LD. DR SUBMITTED THAT THE ASSESSEE HAD CONFIRMED TO AO THE INTENTION TO OBTAIN MUNICIPAL PERMISSION IN 2007 SH OWS THE ACTIVITY THAT ASSESSEE CONTEMPLATED WAS ADVENTURE IN THE NAT URE OF THE TRADE, BUT, NOT AS MERE PASSIVE INVESTMENT ACTIVITY. HE AL SO SUBMITTED THAT HAVING VENTURED TO CONSTRUCT FLATS WITH HIS OWN FIN ANCIAL STRENGTH, ASSESSEE ADMITS THAT HE COULD NOT EXECUTE THE PROJE CT AS HIS OWN. THIS PROVES THAT THE PROJECT UNDERTAKEN WAS BEYOND HIS MEANS AND THAT THIS WAS NOT A MERE INVESTMENT PROPOSITION OUT OF HIS AVAILABLE FUNDS BUT AN ADVENTURE. 9.1 LD. DR ALSO SUBMITTED THAT THE ASSESSEE HAD ENT ERED INTO A DEVELOPMENT AGREEMENT WITH M/S NOON HOMES PVT. LTD. WHICH HANDED OVER THE FLATS IN SEMI-FINISHED STAGE ONLY. IT WAS ONLY THE SUPER STRUCTURE THAT WAS HANDED OVER TO ASSESSEE. THE CRU CIAL COMPONENT OF VALUE ADDITION TO IMPROVE MARKETABILITY OF THE F LATS WAS UNDERTAKEN BY THE ASSESSEE HIMSELF. THIS ACTIVITY OF ASSESSEE CARRYING ON THE DEVELOPMENT WORK HIMSELF SHOWS THAT THE ACTIVITY NE EDS TO BE CLASSIFIED AS TRADE AND NOT INVESTMENT. HE ALSO S UBMITTED THAT ASSESSEE VENTURES WITHOUT PROFIT MOTIVE ALSO BE TRE ATED AS ADVENTURE IN TRADE. 10. LD. AR BESIDES RELYING ON THE ORDER OF THE CIT( A) SUBMITTED THAT THE ASSESSEE HAS TREATED THE INVESTMENT AS ASSET AN D ON TRANSFER BY WAY OF DEVELOPMENT AGREEMENT THE ASSESSEE HAS SHOWN INCOME FROM LONG TERM CAPITAL GAINS. THE SAME WAS SUBJECTED TO SCRUTINY AND THE AO AFTER OBTAINING ALL THE DETAILS REGARDING THE TR ANSACTIONS, HAS ACCEPTED THE SAME AND COMPLETED THE ASSESSMENT U/S 143(3). LD. AR 6 ITA NO. 763/HYD/2015 SHRI P. VARA PRASD RAO POINTED OUT THAT THE PROCEEDINGS U/S 147 WERE INITI ATED BY THE AO BASED ON THE AUDIT OBJECTION. SINCE ALL THE MATERIA L IS ON RECORD, INITIATION OF SUCH PROCEEDINGS ON THE BASIS OF SAME MATERIAL HOLDING THAT THERE IS ESCAPEMENT OF INCOME AS THE INCOME AR ISING FROM TRANSFER OF THE ASSET IS TO BE ASSESSED AS BUSINE SS INCOME IS ON THE CHANGE OF OPINION AS THERE IS NO FRESH OR FURTHER M ATERIAL WITH THE AO TO COME TO SUCH CONCLUSION AND THE SAME IS LIABLE T O BE QUASHED. THE LD. AR SUBMITTED THAT SINCE THE LD. CIT(A) HAS RIGH TLY QUASHED THE REASSESSMENT PROCEEDINGS, THE ORDER OF THE CIT(A) M AY BE UPHELD. 11. CONSIDERING THE SUBMISSIONS OF BOTH THE COUNSEL S AND MATERIAL FACTS ON RECORD, WE ARE OF THE VIEW THAT THE AO HAD COMPLETED THE ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT AFTER CON SIDERING ALL THE MATERIALS SUBMITTED BY THE ASSESSEE. LATER, THE AO REOPENED THE ASSESSMENT U/S 147 RELYING ON THE SAME MATERIALS SU BMITTED BY THE ASSESSEE. THERE WAS NO FRESH MATERIAL OR ANY INFORM ATION WHICH GIVES THE IMPRESSION THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. THE INITIATION OF REASSESSMENT PROCEEDI NGS U/S 147 OF THE ACT ON THE BASIS OF THE SAME MATERIAL ON RECORD AND HOLDING THERE WAS ESCAPEMENT OF INCOME AS THE INCOME AROSE FROM T RANSFER OF THE ASSET IS TO BE ASSESSED AS BUSINESS INCOME IS ON CHANGE OF OPINION. IT WAS HELD IN THE CASE OF PHOOL CHAND BAJRANGLAL V S. ITO, [1993] 203 ITR 456 (SC), WHERE THE AO COMES INTO POSSESSION OF FRESH INFORMATION OR NEW FACTS, WHICH LEAD HIM TO FORM A REASONABLE BELIEF THAT INCOME HAS ESCAPED ASSESSMENT, HE CAN REOPEN T HE ASSESSMENT. IN THE PRESENT CASE, AO HAD NOT FOUND ANY FRESH INF ORMATION NOR NEW FACTS. 11.1 IT WAS ALSO HELD IN THE CASE OF TRACTBEL INDUS TRY ENGG. VS. ASST. DIT [2011] 64 DTR 344 (DEL.), DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS CALLED UPO N TO GIVE INFORMATION AND DETAILS REGARDING THE NATURE OF BUS INESS ACTIVITIES IN INDIA, IT WAS STATED IN THE LETTER THAT THE ASSESSE E DOES NOT HAVE ANY PE IN INDIA. AO IN ORIGINAL ASSESSMENT ACCEPTED THE CONTENTION OF 7 ITA NO. 763/HYD/2015 SHRI P. VARA PRASD RAO ASSESSEE. REASSESSMENT ON THE GROUND THAT THE ASSES SEE HAD PE IN INDIA ON THE SAME FACTS WAS HELD TO BE NOT JUSTIFIE D AND LIABLE TO BE QUASHED. IN THE PRESENT CASE ALSO, THE AO HAD ACCEP TED THE CONTENTION OF ASSESSEE I.E. TREATING THE INCOME AS CAPITAL GAINS AND THE SOURCE OF INCOME WAS REASSESSED AND INTENDED TO TREAT THE INCOME AS BUSINESS INCOME. IT CLEARLY ESTABLISHES T HAT THE AO HAS CHANGED HIS OPINION, THEREFORE, THE REOPENING OF AS SESSMENT DESERVES TO BE QUASHED. 12. SINCE THE GROUND NOS. 2 IS QUASHED, THE GROUND NO. 3 BECOMES INFRUCTUOUS AND, HENCE, NOT ADJUDICATED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 22-01-2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 22 ND JANUARY, 2016 KV COPY TO:- 1) DCIT, CIRCLE 14(1), 6 TH FLOOR, C BLOCK, ROOM NO. 635, IT TOWERS, AC GUARDS, HYDERABAD. 2) SHRI P. VARA PRASAD RAO, 8-2-674/2/2A-104, WHITE HOUSE, ROAD NO. 13, BANJARA HILLS, HYDERABAD. 3) CIT(A)- 4, HYDERABAD 4) CIT 6, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 8 ITA NO. 763/HYD/2015 SHRI P. VARA PRASD RAO DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER