DCIT, New Delhi V. Shri Vivek Khushalani, New Delhi

ITA 776/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4936 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 06-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOTRU
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NOS.776 & 777/DEL/2013 A.YRS. : 2009-10 & 2010-11 DCIT, CIRCLE 3(1), NEW DELHI VS. SH. VIVEK KHUSHALANI, 48, PASCHIMI MARG, VASANT VIHAR, NEW DELHI (PAN: AAIPK4824G) (ASSESSEE) (RESPONDENT) REVENUE BY : SH. SHRAVAN GOTRU, SR. DR ASSESSEE BY : SH. ANIL BHALLA, CA ORDER PER H.S. SIDHU : JM THE REVENUE HAS FILED THESE 02 APPEALS AGAINST THE IMPUGNED ORDERS BOTH DATED 01.11.2012 OF THE LD. CIT(A)-VI, NE W DELHI RELEVANT TO ASSESSMENT YEARS 2009-10 & 201-11 RESPECT IVELY. SINCE THE ISSUE INVOLVED IN THESE APPEALS ARE COMMON AND ID ENTICAL, HENCE, THE APPEALS WERE HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE, B Y DEALING WITH ASSESSMENT YEAR 2009-10. 2. THE GROUNDS RAISED IN THESE APPEALS ARE SIMILAR AND COMMON, EXCEPT THE DIFFERENT IN FIGURES, HENCE, FOR THE SAKE OF BREVITY, WE ARE 2 ONLY REPRODUCING THE GROUNDS IN RESPECT OF ASSESSMEN T YEAR 2009- 010 AS UNDER:- 1. WHETHER THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION AMOUNTING TO RS. 6,42,25,228/- MADE BY THE AO ON ACCOUNT OF AMOUNT RECEIVED BEING ADVENTURE IN THE NATURE OF TRADE. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) O F APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THI S APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR 2009 -10 ON 29.7.2009 DECLARING AN INCOME OF RS. 87,74,691/-. THE ASSESSEE HAS LAND IN VILLAGE BHONDSI 2 KANAL 16 MARLA, IN ME HANDERWARA 110 KANAL 11 MARLA AND IN GHAMRAJ 64 KANAL 15 MARIA AGG REGATING TO 176 KANAL 42 MARIA (WHICH IS 22 ACRE 2 KANAL 2 MARI A) AND WHICH TRANSLATES TO 22.2625 ACRES. THESE LANDS ARE CONTIGUOU S TO EACH OTHER. THIS LAND ALONG WITH LAND OF OTHER FAMILY MEMBE RS WAS GIVEN ON LEASE TO ONE COMPANY NAMELY M/S. PROGRESSIVE BUIL DING ESTATE PRIVATE LIMITED (HEREINAFTER 'PROGRESSIVE') WHICH HAD 50% SHAREHOLDING OF KHUSHALANI FAMILY ARID THE BALANCE 50% OF UPPAL 3 HOUSING LIMITED. PROGRESSIVE HAVE PAN AAECP7966P AND ASSESSED AT WARD NO. 5(2), NEW DELHI. PROGRESSIVE WAS INCORPO RATED FOR THE PURPOSES OF DEVELOPMENT OF IT/ITES SPECIAL ECONOMIC ZONE, WHICH WAS TO' BE THE RESPONSIBILITY OF UPPAL HOUSING LIMITE D, ADVANCED A SUM OF RS.6,42,25,228/- AS SECURITY DEPOSIT IN THE C OURSE OF HAVING RECEIVED THE LAND ON LEASE FROM THE ASSESSEE. OTHER M EMBERS OF KHUSHALANI FAMILY ALSO RECEIVED SUCH SECURITY DEPOSI TS. 3.1 AN MOU HAD BEEN ENTERED INTO BETWEEN THE ASSESS EE, OTHER MEMBERS OF THE FAMILY AND PROGRESSIVE WHEREBY IT WA S PROPOSED THAT PROGRESSIVE WILL APPLY TO CONVERT THE LAND INTO AN IT/ITES SPECIAL ZONE, AND WHICH RESPONSIBILITY WAS CAST UPON TO UPPAL HOUSING LIMITED. ON GETTING THE LAND NOTIFIED, THE MOU PROVIDED, THAT LEASE DEED WOULD TERMINATE AND THAT LAND WILL BE P URCHASED BY PROGRESSIVE FROM THE ASSESSEE. THE SEZ NOTIFICATION WAS MADE ON 17.11.2008, HOWEVER, THEREAFTER AS THE SEZ NOTIFIED AR EAS HAD LOST ITS DEMAND NO FURTHER ACTION WAS TAKEN IN THIS RESPECT BY THE PARTIES CONCERNED. 3.2 THE AO WAS OF THE OPINION THAT THE AMOUNT OF RS.6,42,25,228/- RECEIVED AS SECURITY DEPOSIT AGAINST LEASE BY THE APPELLANT FROM PROGRESSIVE IS IN FACT AN AMOUNT RECEIV ED AGAINST SALE OF LAND AND HELD THAT BECAUSE PROGRESSIVE WAS, AFTER OBTAINING 4 THE APPROVAL OF SEZ NOTIFICATION, GOING TO DERIVE INC OME FROM ALLOTMENT OF PLOTS/SHOPS/STALLS AND THEREFORE THE AM OUNT RECEIVED AS SECURITY DEPOSIT WAS ON ACCOUNT OF BUSINESS AND TRADIN G OPERATIONS OF THE ASSESSEE AND THEREFORE TAXABLE AS A RECEIPT ON A CCOUNT OF ADVENTURE IN THE NATURE OF TRADE. AO ADDED A SUM OF RS. 6,45,25,228/- TO THE TOTAL INCOME DECLARED BY THE ASS ESSEE AND COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT ON 16. 12.2011 AT AN INCOME OF RS. 7,29,99,919/-. AGAINST THE ASSESSM ENT ORDER, ASSESSEE APPEALED BEFORE THE LD. CIT(A)-VI, NEW DEL HI, WHO VIDE HIS IMPUGNED ORDER DATED 01.11.2012 HAS ALLOWED THE A PPEAL OF THE LD. CIT(A)-VI, NEW DELHI. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. LD. DR RELIED UPON THE ORDER OF THE AO AND REITE RATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL. 5. ON THE CONTRARY, LD. COUNSEL OF THE ASSESSEE HAS RELIED UPON THE ORDER OF THE LD. CIT(A) AND STATED HE HAS PASSED A WELL REASONED ORDER WHICH DOES NOT NEED ANY INTERFERENCE. DURING THE HEARING, LD. COUNSEL OF THE ASSESSEE HAS FILED A SMA LL PAPER BOOK CONTAINING PAGES 1 TO 65 IN WHICH HE HAS ATTACHED THE COPY OF SUBMISSION FILED BEFORE CIT(A) IN REGARD TO ADDITIO N ON ACCOUNT OF SECURITY DEPOSIT; COPY OF MEMORANDUM OF UNDERSTANDIN G DATED 5 31.3.2008; COPY OF AGREEMENT TO LEASE DATED 31.3.20 08 WITH PROGRESSIVE BUILDESTATE PVT. LTD.; COPY OF LEASE DEED DATED 17.4.2008 OF AGRICULTURAL LAND IN THE VILLAGE OF GH AMRAOJ, GURGAON WITH PROGRESSIVE BUILDESTATE PVT LTD; COPY OF LEASE DA TED 17.4.2008 OF AGRICULTURAL LAND IN THE VILLAGE OF BHONDSI, GURG AON WITH PROGRESSIVE BUILDESTATE PVT. LTD.; COPY OF LEASE DEED DATED 17.4.2008 OF AGRICULTURAL LAND IN THE VILLAGE OF ME HANDWARA, GURGAON WITH PROGRESSIVE BUILDESTATE PVT LTD.; COPY OF ADDITIONAL SUBMISSION FILED BEFORE CIT(A) IN REGARD TO ADDITION ON ACCOUNT OF SECURITY DEPOSIT; EXTRACT SHOWING THE RECEIPT OF RS. 6, 42,25,228/- AS SECURITY DEPOSIT AND COPY OF THE BANK STATEMENT; COPY O F THE BALANCE SHEET OF MR. VIVEK KHUSHALANI AS ON 31 ST MARCH, 2009 AND COPY OF THE BALANCE SHEET OF PROGRESSIVE BUILDESTATE PVT. LTD. AS ON 31 ST MARCH, 2009. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEV ANT RECORDS, ESPECIALLY THE IMPUGNED ORDER. WE FIND THAT IN THIS CASE, THE ASSESSEE OWNED 22.2625 ACRES OF LAND. HIS FAMILY MEMBERS AND GROUP COMPANY ALSO OWNED AGRICULTURAL LAND AGGREGATI NG TO 60.0625 ACRES. THE ENTIRE FAMILY GOT TOGETHER AND LEA SED LAND TO M/S. PROGRESSIVE. IT WAS THE INTENTION OF THE COMPANY M/S. PROGRESSIVE TO GET APPROVAL OF SEZ ZONE AND THEN SEL L. IN THIS BEHALF, AN APPLICATION WAS MADE WITH THE HELP OF UPPA L HOUSING 6 LIMITED TO ACHIEVE THE OBJECTIVE. THE LEASE WAS GIVE N BY ASSESSEE ON 31.03.2008 FOR RS.1,11,350/- PER ANNUM. APART FR OM IT, THE ASSESSEE ALSO RECEIVED SECURITY DEPOSIT FROM M/S. PRO GRESSIVE AGAINST THE LAND GIVEN ON LEASE AMOUNTING TO RS.6,42 ,25,228/-. THE APPROVAL FOR CREATION OF IT/ITES SPECIAL ZONE WAS OB TAINED ON 17.11.2008. AS PER THE AGREEMENT, ON RECEIPT OF THE A PPROVAL THE ASSESSEE WAS TO SELL HIS SHARE OF LAND FOR RS.56.748 8 CRORE. HOWEVER, NO FURTHER TRANSACTION TOOK PLACE AMONG THE PARTIES AFTER OBTAINING APPROVAL FOR SETTING UP OF IT/ITES SPECIAL Z ONE. THERE IS NO EVIDENCE ON RECORD TO SHOW THAT ANY LAND WAS EVER TRANSFERRED BY THE ASSESSEE OR ANY OTHER MEMBER OF THE FAMILY BY AN AGREEMENT TO SELL OR A SALE DEED. THE ASSESSEE CONTIN UED TO OWN THE LAND AND HAD NOT SOLD OR EXECUTED ANY SALE DEED OR A GREEMENT TO SELL. A PERUSAL OF THE AFORESAID, ESTABLISH THAT NO R IGHT HAS BEEN CREATED IN ANYONE'S FAVOUR BY THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR BY ENTERING INTO THE IMPUGNED AGREEM ENT REGARDING HIS LAND. MERELY RECEIPT OF SECURITY DEPOSI T CANNOT BE SAID TO HAVE RESULTED IN ANY ACCRUAL OF INCOME. THUS, FROM THE FACTS STATED ABOVE, IT IS CRYSTAL CLEAR THAT THE AO HAS ERRED IN FORMING HIS OPINION THAT SOME RIGHTS HAVE BEEN CREATED BY THE IMP UGNED AGREEMENT. THE AO HAS HELD THAT BECAUSE THE ASSESSEE H AD GIVEN THE LAND ON LEASE AND BECAUSE PROGRESSIVE ESTATE PRIV ATE LIMITED 7 WAS TO EVENTUALLY EARN FROM ALLOTMENT OF PLOTS & SHOP S/STALLS/SUCH INCOME WILL BE ESSENTIALLY PART OF BUSINESS AND TRADI NG OPERATION OF ASSESSEE BECAUSE IT WILL BE PART OF BUSINESS OPERATIO NS OF M/S PROGRESSIVE BUILDESTATE PVT. LTD. (AS THE ASSESSEE HA S RECEIVED RS.6,42,25,228/- AS SECURITY DEPOSIT FOR CREATING RI GHTS IN ALL THEIR OPERATIONS) THEREFORE RS.6,42,25,228/- IS A RECEIPT IN THE NATURE OF TRADE. HOWEVER, NO MATERIAL HAS BEEN BROUGHT ON RECOR D BY THE AO TO INDICATE THAT ANY PURCHASE/SALE OF THE IMPUGNED LAND HAS TAKEN PLACE. WE FURTHER FIND THAT THE AO HAS WRONGLY CONCLUDE D THAT SINCE M/S. PROGRESSIVE IS DERIVING INCOME FROM ALLOTMENT OF PLOTS AND SHOPS/STALL WHICH ACCORDING TO HIM ALSO RESULTS IN T HE ASSESSEE DERIVING INCOME FROM BUSINESS AND TRADING OPERATIONS , THEREFORE RECEIPT OF SECURITY DEPOSIT IN THE HANDS OF THE ASSE SSEE IS INCOME FROM BUSINESS IN THE CATEGORY ADVENTURE IN THE NATURE OF TRADE. THIS LOGIC IS PERVERSE BECAUSE IN THIS CASE NO CHANGE REG ARDING THE OWNERSHIP RIGHTS ON LAND HAS TAKEN PLACE. THE COMPAN Y HAS NOT ACTED UPON AFTER THE RECEIPT OF THE APPROVAL FOR SEZ NO TIFICATION. NO ACTION HAS BEEN TAKEN BY THE COMPANY FOR DEVELOPMENT O F LAND LET ALONE ANY ACTION OF ALLOTMENT OF PLOTS AND SHOPS/STALLS AS OBSERVED BY THE AO. FOR CARRYING OUT BUSINESS OF PURCHASE AND SALE OF LAND/PLOTS ETC., THE COMPANY HAS TO FIRST ACQUIRE THE LAN D FROM THE ASSESSEE BY PURCHASING AND THEN IT HAS TO DEVELOP THE LAND AND 8 SELL/ALLOT PLOTS AND SHOPS. NOTHING HAS BEEN DONE BY THE COMPANY OR THE ASSESSEE TO COME TO A CONCLUSION THAT AN ACTIVITY HA S BEEN UNDERTAKEN WHICH ACTIVITY HAS RESULTED IN A PROFIT AN D WHICH ACTIVITY IS IN THE ADVENTURE IN THE NATURE OF TRADE AND SUCH SALE AND PROFIT THEREON IS TAXABLE. WE FURTHER NOTE THAT AN INCOME C AN BE ASSESSED AS PER THE INCOME TAX ACT 1961,UNDER THE FOLLOWING HE ADS:- - SALARIES - INCOME FROM HOUSE PROPERTY - PROFITS AND GAINS OF BUSINESS OR PROFESSION. - CAPITAL GAINS - INCOME FROM OTHER SOURCES HOWEVER, IN THE PRESENT CASE, IT WASD OBSERVED THAT TH E IMPUGNED INCOME SOUGHT TO BE TAXED BY THE AO DOES NO T FALL IN ANY OF THE 'HEADS OF INCOME'. THE AO HAS ATTEMPTED TO TAX I T UNDER THE HEAD INCOME FROM BUSINESS. A PERUSAL OF SECTION 28 AND ITS APPLICATION TO THE FACT BRINGS OUT VERY CLEARLY THAT THE ASSESSEE HAS NOT CARRIED OUT ANY ACTIVITY WHICH TANTAMOUNT TO CARRYI NG OUT OF BUSINESS. MERE RECEIPT OF SECURITY DEPOSIT BY THE ASSES SEE CANNOT BE SAID TO BE A PROFIT ARISING OUT OF AN 'ADVENTURE IN TH E NATURE OF TRADE' IN THE HANDS OF THE ASSESSEE. THE AO. HAS TRI ED TO ASSESS A 9 RECEIPT OF SECURITY DEPOSIT AS INCOME ARISING OUT OF AN ADVENTURE IN THE NATURE OF TRADE. HOWEVER, TO DEEM SUCH A TRANSACTION TO BE AN 'ADVENTURE IN THE NATURE OF TRADE', THERE SHOULD HAV E BEEN A PURCHASE AND SALE OF LAND. NO MATERIAL EVIDENCE IS A VAILABLE ON RECORD TO SHOW THAT THE ASSESSEE HAS SOLD ANY LAND DU RING THE YEAR. THE GAIN, IF ANY WOULD HAVE ARISEN NLY AS AND WHEN THE ASSESSEE WOULD HAVE SOLD THE LAND. ONLY AT THAT POINT OF TIME TH E GAIN ON SUCH SALE OF LAND COULD HAVE BEEN QUESTIONED AS TO W HETHER IT IS A CAPITAL GAIN OR A PROFIT ARISING OUT OF 'ADVENTURE IN THE NATURE OF TRADE'. THE FACT THAT THE COMPANY M/S. PROGRESSIVE WAN TED TO ACQUIRE THE LAND FROM THE ASSESSEE, DEVELOP IT AND THE N SELL PROVES THAT THE BUSINESS IF AT ALL WOULD BE DONE BY THE COMPA NY M/S. PROGRESSIVE, AND BY NO STRETCH OF IMAGINATION CAN ASS ESSEE BE DOING BUSINESS, BECAUSE THE ASSESSEE WAS TO MERELY SELL THE LAND WHICH WAS PURCHASED IN THE YEAR 1991-92 AND 1992-93, WHICH WOULD HAVE RESULTED IN A CAPITAL GAIN. WE FURTHER FIND THAT IT HAS BEEN HELD BY THE HON'BLE APEX COURT IN THE CASE OF LAHORE ELECTRIC SUPPLY 60 ITR 1 (SC) THAT BUSINESS AS CONTEMPLATED IN SECTION 28 IS AN ACTIVITY CAPABLE OF PRODUCING PROFIT WHICH CAN BE TAXED. ORDIN ARILY, THE EXPRESSION 'BUSINESS' CONNOTES A CONTINUOUS ACTIVITY I N CARRYING ON A TRADE OR A ACTION. FURTHER INGREDIENT OF A BUSINESS IS THAT IT MUST BE CARRIED ON WITH A PROFIT MOTIVE. TO REGARD AN ACTI VITY AS BUSINESS 10 THERE MUST BE A COURSE OF DEALINGS EITHER ACTUALLY CO NTINUED OR CONTEMPLATED TO BE CONTINUED WITH A PROFIT MOTIVE. IN A CASE WHERE A TRANSACTION UNDER EXAMINATION IS NOT IN THE LINE O F THE BUSINESS OF THE ASSESSEE, AND IS AN ISOLATED OR A SINGLE INSTANCE OF A TRANSACTION, THE BURDEN LIES ON THE AO TO BRING THE CASE WITHIN THE WORDS OF THE STATUTE, NAMELY, THAT IT WAS AN ADVENTURE IN THE NATURE OF TRADE. HOWEVER, THE AO HAS NOT ONLY TO ESTABLISH THAT THE TRA NSACTION IS AN ADVENTURE BUT IT HAS TO GO FURTHER AND ESTABLISH THAT IT I S IN THE NATURE OF TRADE. IN ORDER TO HOLD THAT AN ACTIVITY IS I N THE NATURE OF AN ADVENTURE, THERE MUST BE POSITIVE MATERIALS TO PR OVE THAT THE ASSESSEE INTENDED TO TRADE IN SUCH AN ACTIVITY. MOREOVE R, THE EXPRESSION 'ADVENTURE IN THE NATURE OF TRADE' APPEARIN G IN THE DEFINITION OF 'BUSINESS' POSTULATES THE EXISTENCE OF CERTAIN ELEMENTS IN THE ADVENTURE WHICH IN LAW WOULD INVEST IT WITH THE CHARACTER OF TRADE OR BUSINESS. IN THIS REGARD, IT IS OBSERVED THA T THE A.O. HAS ERRED IN THE PRESENT CASE IN TAXING THE RECEIPT OF SE CURITY DEPOSIT AS AN INCOME IN THE REALM OF 'ADVENTURE IN THE NATURE OF TRADE' BECAUSE THERE HAS TO BE AT FIRST A TRANSACTION IN THE NATURE OF PURCHASE OR SALE RESULTING IN A GAIN OR PROFIT. ON TH E CONTRARY, THERE HAS BEEN NO SUCH TRANSACTION/ AND THUS THERE IS NO GAI N OR PROFIT. IN THE ABSENCE OF THESE TWO IMPORTANT INGREDIENTS IT CANNOT BE SAID THAT THERE HAS BEEN TAXABLE INCOME. ON THESE FACTS AND 11 CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION ON ACCOUNT OF IMPUGNED RECEIPT OF SECURITY DEPOSIT OF RS 6,42,25,228/- AS I NCOME OF THE ASSESSEE AS ADVENTURE IN THE NATURE OF TRADE, WHICH DO ES NOT NEED ANY INTERFERENCE ON OUR PART, HENCE, WE UPHOLD THE ORD ER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND REJECT THE GROUN D IN DISPUTE RAISED BY THE REVENUE. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE DEP ARTMENT STANDS DISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 01/09/2017. SD/- SD/- [PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 01/09/2017 SRBHATNAGAR COPY FORWARDED TO: - 1. ASSESSEE - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHE S