ACIT 19(3), MUMBAI V. JUPITER CONSTRUCTION, MUMBAI

ITA 795/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79078 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2008-2009
• Appeal Filed On: 30-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOURYA PRATAP
• Keywords: Capital asset; Business income; Date of conversion

Judgement Text

, , INCOME TAX APPELLATE TRIBUNAL MUMBAI - J BENCH MUMBAI , , / , BEFORE S/SH. VIJAY PAL RAO, JUDICIAL MEMB ER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 795/MUM/2013, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR2008-09 DCIT 19(3), ROOM NO. 305, 3 RD FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI-400012 VS. M/S JUPITER CONSTRUCTION, PLANET, 2 ND FLOOR, 10 TH TURNER ROAD, BANDRA (WEST) MUMBAI-400050 PAN: AAAFJ1783H ( #$ / APPELLANT) ( %&#$ / RESPONDENT) #$ ' / APPELLANT BY : SHRI MOURYA PRATAP %&#$ ( ' / RESPONDENT BY : SHRI K. GOPAL ! ! ! ! ( (( ( )* )* )* )* / DATE OF HEARING :03-06-2014 +,' ( )* / DATE OF PRONOUNCEMENT :04- 06- 2014 ! ! ! ! , 1961 ( (( ( 254 )1( )-) )-) )-) )-) . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) ! ! ! ! PER RAJENDRA,A.M: CHALLENGING THE ORDER DATED 30.11.2012 OF THE CIT(A )-30,MUMBAI,ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: (1)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO ALLOW LOSS FROM BUSINESS OR PROFESSION AFTER HOLDING THAT DURING YEAR, THE ASSESSEE HAD BUSINESS ACTIVITY IGNORING THE FACTS THAT CONVERSIO N OF THE CLOSING STOCK BEING THE UNSOLD FLATS AND OFFICES INTO CAPITAL ASSET ON THE SAME BOOK VALUE,T HEREBY GENERATING NO INCOME, DOES NOT QUALIFY BY ANY STRETCH OF ARGUMENT TO BE BUSINESS OR PROFESSI ON IN NATURE AND FURTHER, IT IS SEEN THAT NO BUSINESS HAVE BEEN CARRIED OUT BY THE ASSESSEE IN T HE YEAR UNDER CONSIDERATION AS WELL AS IN SUBSEQUENT YEARS ALSO, BY ITSELF THE A.O. HAS RIGHT LY DISALLOWED OF BUSINESS LOSS. (2)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO TAKE THE TWO RECEIPTS IN RESPECT OF RE FUND OF EXCESS BANK PROCESSING CHARGES OF RS.4,87,500/-AND CESSATION OF LIABILITY OF RS.3,15, 959/- U/S 41(1) OF THE I.T. ACT 1961 UNDER THE HEAD INCOME FROM BUSINESS WITHOUT APPRECIATING TH E FACTS THAT THE NATURE OF THE OTHER CREDITS BEING REFUND OF EXCESS PROCESSING CHARGES AND CESSA TION OF LIABILITY DOES NOT QUALIFY BY ANY STRETCH OF ARGUMENT TO BE BUSINESS OR PROFESSION IN NATUR E AND NONE OF THE EXPENSES ARE RELATABLE TO ANY OF THE RECEIPTS I.E. INCURRED TO EARN OF SUCH RECEI PTS. (3)THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET-ASIDE AND THAT OF THE AO BE RESTORED. (4)THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF BUILDER S, CONSTRUCTORS AND SUPPLIERS OF BUILDING MATERIALS,FILED ITS RETURN OF INCOME ON 23.03.2009 DECLARING TOTAL INCOME OF RS. 1,46,710/-. AO COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT ON 2 1.12.2010 DETERMINING THE INCOME OF THE ASSESSEE AT RS. 51,64,480/-. 2 ITA NO. 795/MUM/2013 M/S JUPITER CONSTRUCTION 3. DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT ASS ESSEE HAD CONVERTED THE CLOSING STOCK; BEING THE UNSOLD FLATS AND OFFICE PREMISES;INTO CAP ITAL ASSET.HE FURTHER FOUND THAT ASSESSEE HAD SHOWN REFUND OF EXCESS PROCESSING CHARGE OF RS. 4,8 7,000/-, THAT IT HAD SHOWN INCOME OF RS. 3,15, 959/- AS INCOME U/S.41 OF THE ACT,THAT IT WAS CLAIM ED THAT IT WAS CESSATION OF LIABILITY RELATING TO THE EARLIER YEARS.CONSIDERING THE ABOVE FACTS,AO HE LD THAT ASSESSEE HAS NOT EARNED ANY INCOME FROM BUSINESS/PROFESSION DURING THE YEAR UNDER CONS IDERATION, THAT CONVERSION OF STOCK INTO CAPITAL ASSET DID NOT GENERATE ANY INCOME,THAT REFUND OF PR OCESSING CHARGES AND CESSATION OF LIABILITY DID NOT QUALIFY TO BE HELD AS BUSINESS INCOME,THE RENTA L INCOME RECEIVED BY THE ASSESSEE FROM THE PROPERTY,CONVERTED FROM STOCK-IN-TRADE TO CAPITAL A SSET,HAD BEEN OFFERED AS INCOME FROM HOUSE PROPERTY,THAT LOSS CLAIMED BY THE ASSESSEE UNDER TH E HEAD BUSINESS AND PROFESSION HAD TO BE DISALLOWED.HE ISSUED A SHOW CAUSE NOTICE TO THE ASS ESSEE.VIDE ITS LETTER DATED 09.12.2010,ASSESSEE -FIRM ARGUED THAT EXCESS INTEREST REFUND AND CESSAT ION OF LIABILITY WERE ACTIVITIES IN NATURE OF BUSINESS/PROFESSION,THAT SUSPENSION OF BUSINESS COU LD NOT BE HELD AS CESSATION OF BUSINESS. AO WAS OF THE OPINION THAT EXPENSES CLAIMED TO HAVE BE EN INCURRED BY THE ASSESSEE WERE NOT RELATABLE TO ANY OF THE RECEIPTS. FINALLY,HE HELD THAT LOSS F ROM BUSINESS/PROFESSION WAS TO BE DISALLOWED AND SET OFF CLAIMED BY THE ASSESSEE AGAINST THE INCOME FROM HOUSE PROPERTY COULD NOT BE ALLOWED. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE TRIBUNAL (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,FAA HELD THAT OPENING S TOCK WAS CONVERTED INTO CAPITAL ASSET DURING THE YEAR,THAT ON CONVERSION OF THE STOCK-IN-TRADE IN CAPITAL ASSET IN NOVEMBER 2007, THE PROJECT HAD ACHIEVED ITS FINALITY,THAT SINCE A CONVERSION W AS DONE DURING THE YEAR, IT COULD NOT BE SAID THAT ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS ACTIVITY, THAT AO WAS NOT TRYING IN HOLDING THAT LOSS FROM BUSINESS/PROFESSION WAS NOT ALLOWABLE. HE DIRE CTED THE AO TO ALLOW THE LOSS FROM BUSINESS AND PROFESSION. REFERRING TO THE ORDER OF THE PRUDE NTIAL INSURANCE COMPANY LTD.(19 TAXMANN. COM.292-MUMBAI),HE HELD THAT AO SHOULD ALLOW SET OF F OF LOSS FROM BUSINESS/PROFESSION FROM INCOME FROM HOUSE PROPERTY. 5. BEFORE US,DR SUPPORTED THE ORDER OF THE AO.AR CONTE NDED THAT THE ASSESSEE HAD CONVERTED STOCK-IN-TRADE INTO CAPITAL ACCOUNT IN THE MONTH OF NOVEMBER 2007 THAT IT HAD CARRIED OUT BUSINESS ACTIVITIES IN THE YEAR UNDER REFERENCE, THAT THE PR OJECT HAD ACHIEVED ITS FINALITY ON CONVERSION OF STOCK-IN-TRADE INTO CAPITAL ASSET, THAT ASSESSEE HA D RIGHTFULLY SET OFF BUSINESS LOSS AGAINST THE INCOME SHOWN UNDER THE HEAD INCOME FROM HOUSE PROPE RTY U/S.71 OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT DURING THE YEAR UNDER APPEAL THE ASSESSEE HAD CONVERTED THE ST OCK IN TRADE IN TO CAPITAL ASSET AND THE UNSOLD FLATS AND OFFICE PREMISES BECAME THE CAPITAL ASSET OF THE ASSESSEE.CONVERSION WAS ESSENTIALLY SALE OF THE ASSETS AND THAT IS THE REASON WE HOLD THAT T HE ASSESSEE WAS CARRYING ON BUSINESS IN THE YEAR UNDER CONSIDERATION.FROM THE RECORD IT IS CLEAR THA T CONVERSION OF STOCK IN TRADE WAS NOT AT MARKET VALUE. BUT,FOR THAT REASON WE CANNOT HOLD THE VIEW THAT THERE WAS NO BUSINESS IN THE YEAR.FAA WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE HAD CARRIED OUT BUSINESS DURING THE YEAR.IN THESE CIRCUMSTANCES,WE ARE OF THE OPINION,THAT BUSINESS L OSS CLAIMED BY THE ASSESSEE HAS RIGHTLY BEEN ALLOWED BY THE FAA.AO IS DIRECTED TO CONSIDER THE M ARKET VALUE OF THE STOCK IN TRADE ON THE DATE OF CONVERSION TO ARRIVE AT THE CORRECT BUSINESS INC OME AND ALLOW THE SET OFF OF LOSS AS DIRECTED EARLIER.WITH THESE OBSERVATIONS,GROUND OF APPEAL NO .1 IS DECIDED AGAINST THE AO. 3 ITA NO. 795/MUM/2013 M/S JUPITER CONSTRUCTION 7. NEXT GROUND OF APPEAL IS ABOUT DIRECTION GIVEN BY T HE FAA TO THE AO IN RESPECT OF REFUND OF EXCESS BANK PROCESSING CHARGES AND CESSATION OF LIA BILITIES U/S. 41 OF THE ACT UNDER THE HEAD BUSINESS INCOME AS STATED IN PARA-3,AO HAD HELD THA T REFUND OF PROCESSING CHARGES(RS.4.87 LAKHS) AND CESSATION OF LIABILITIES (RS.3.15 LAKHS) COULD NOT BE ALLOWED AS NO BUSINESS WAS CARRIED OUT BY THE ASSESSEE.DURING THE APPELLATE PROCEEDINGS FAA H ELD THAT REFUND OF BANK PROCESSING CHARGES AND SUNDRY BALANCES RETURNED BACK COULD NOT BE TAXE D UNDER THE HEAD INCOME FROM OTHER SOURCES, THAT BOTH THE AMOUNTS SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. 8. BEFORE US,DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTE D THE ORDER OF THE AO.DR STATED THAT BANK PROCESSING CHARGES RECEIVED FOR THE EARLIER YEARS W ERE OFFERED FOR TAXATION FOR THE YEAR UNDER CONSIDERATION,THAT AO HAD ADMITTED THAT INCOME ON C ESSATION OF LIABILITY PERTAIN TO SECTION 41 OF THE ACT,THAT ASSESSEE HAD RIGHTLY CLAIMED THE INCOM E UNDER THE HEAD INCOME FROM BUSINESS/ PROFESSION.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE HAVE ALREADY HELD THAT ASSESSEE WAS CARRYING ON BUSINESS DURING THE YEAR UNDER APPEAL.THEREFORE, BOTH THE ITEMS ARE TO BE TREATED AS PART OF THE BUSINESS INCOME OF THE ASSESSEE.GROUND NO.2 IS DECIDED AGAINST THE AO. AS A RESULT, APPEAL F ILED BY THE AO STANDS DISMISSED. /)0 !1) * 2 3 ( - ! 4 ( ) 56 . ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH JUNE,2014. . ( +,' 7 8! 04 TWU TWUTWU TWU , 2014 , ( - : SD/- SD/- ( / VIJAY PAL RAO ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 8! /DATE: 04.06.2014 SK . . . . ( (( ( %) %) %) %) ; ') ; ') ; ') ; ') / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT (A) / < = , 4. THE CONCERNED CIT / < = 5. DR J BENCH, ITAT, MUMBAI / >- %)! , . . . 6. GUARD FILE/ - / &) &) &) &) %) %)%) %) //TRUE COPY// .! / BY ORDER, ? / 5 DY./ASST. REGISTRAR , /ITAT, MUMBAI