SUMATILAL & SONS, MUMBAI V. ACIT 23(1), NAVI MUMBAI

ITA 8091/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78878 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 21-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 24-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: H S RAHEJA
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income
• Section: 143(3); 50C

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI P.M.JAGTAP (AM) AND VIVEK VARMA, (JM) . . , , ./I.T.A.NO.8091 AND 8090/MUM/2010 ( / ASSESSMENT YEARS: 2005-06 AND 2006-07) M/S SUMANTILAL AND SONS, M.P.SHAHS BUNGALOW, CAMA LANE, GHATKOPAR, MUMBAI-400086 / VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE23(1), VASHI, NAVI MUMBAI ./ ./PAN/GIR NO. : AAMFS6518D ( # / APPELLANT) .. ( $%# / RESPONDENT) # / APPELLANT BY : SHRI H S RAHEJA $%# ' /RESPONDENT BY : SHRI PITAMBAR DAS ' ) / DATE OF HEARING : 5.5.2014 ' ) /DATE OF PRONOUNCEMENT : 9. 5.2014 / O R D E R PER P.M.JAGTAP,AM: THESE TWO APPEALS FILED BY ASSESSEE FOR ASSESSME NT YEARS 2005-06 AND 2006- 07 INVOLVE SOME COMMON ISSUES AND THE SAME, THEREF ORE, HAVE BEEN HEARD TOGETHER ARE BEING DISPOSED OFF BY A SINGLE CONSOLIDATED ORD ER. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E FOR ASSESSMENT YEAR 2005-06 WHICH IS DIRECTED AGAINST THE ORDER OF LD.CIT(A)-33 , MUMBAI DATED 17.9.2010. 3. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSH IP FIRM WHICH ENTERED INTO AN AGREEMENT WITH M/S SHREE CHINTAMANI ENTERPRISES F OR THE DEVELOPMENT OF ITS IMMOVABLE PROPERTY. AS PER THE SAID AGREEMENT, TH E ASSESSEE WAS ENTITLED TO RECEIVE FROM THE DEVELOPER 37% OF THE AREA TO BE CONSTRUCTE D ON ITS PROPERTY. DURING THE YEAR I.T.A.NO.8091 AND 8090/MUM/2010 2 UNDER CONSIDERATION, THE ASSESSEE SOLD SOME OF THE CONSTRUCTED AREA RECEIVED BY IT FROM THE DEVELOPER IN THE FORM OF ALLOTMENT OF FLATS FOR A TOTAL CONSIDERATION OF RS.74,88,500/-. THE BALANCE CONSTRUCTED AREA WA S SHOWN BY THE ASSESSEE IN THE BALANCE-SHEET AS CLOSING STOCK AT COST AT RS.29,07 ,000/-. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION ON 31.10.2005, T HE INCOME ACCRUED FROM THE SALE OF CONSTRUCTED AREA /FLATS WAS DECLARED BY THE ASSESSE E AS ITS BUSINESS INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED T HAT THE CONSTRUCTED AREA (FLATS) WAS SURRENDERED BY THE ASSESSEE TO THE DEVELOPER ONLY F OR THE TOTAL CONSIDERATION OF RS.74,88,500/-. ACCORDING TO HIM, THE SAID CONSTRUC TED AREA (FLATS) RECEIVED BY ASSESSEE FROM THE DEVELOPER WAS IN THE NATURE OF CAPITAL AS SET IN THE HANDS OF ASSESSEE AND THE INCOME ARISING FROM TRANSFER OF THE SAID ASSET WAS CHARGEABLE TO TAX AS CAPITAL GAINS AND NOT BUSINESS INCOME. HE, THEREFORE, BROUGHT TO TAX SUCH INCOME COMPUTED AT RS.28,12,500/-, AFTER REDUCING THE COST OF THE FLA TS SOLD AMOUNTING TO RS.46,76,000/- FROM THE SALE CONSIDERATION OF RS.74,88,500/-, IN THE HANDS OF THE ASSESSEE AS SHORT TERM CAPITAL GAINS (STCG) IN THE ASSESSMENT COMPLE TED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) VIDE ORDER DATED 28.12.2007. 4. AGAINST THE ORDER PASSED BY THE ASSESSING OFFIC ER U/S 143(3) OF THE ACT, APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A ) AND THE FOLLOWING SUBMISSIONS WERE MADE ON ITS BEHALF BEFORE THE LD. CIT(A) ON THE IS SUES IN DISPUTES: 1. THE APPELLANT IS A PARTNERSHIP FIRM WHICH WAS ENGAGED IN THE BUSINESS OF DYEING, PROCESSING AND FINISHING OF ART SILK FABR ICS SINCE 1972, AT ITS MANUFACTURING UNIT AT N C CHOPRA INDUSTRIAL ESTAT E , KANJURMARG, MUMBAI-18. THIS PROPERTY WAS TAKEN ON TENANCY BASIS FROM LANDL ORD SHRI NIHALCHAND CHOPRA; 2. THE APPELLANT ENTERED INTO AN AGREEMENT DATED 13 TH MAY 1994 TO PURCHASE THIS PROPERTY FROM THE LANDLORD FOR A CONS IDERATION OF RS.9,00,000/-, THEREBY ENTITLING THE APPELLANT M/S SUMATILAL SONS LEGAL OWNERSHIP OF THE SAID PROPERTY. BUT UNFORTUNATELY THE LANDLORD EXPIRED ON 7 TH FEBRUARY, 1996 WITHOUT EXECUTING CONVEYANCE DEED OF THE SAID PROPERTY. TH E SAID CONVEYANCE DEED WAS FINALLY EXECUTED BY THE LEGAL HEIRS OF LATE SHRI N IHALCHAND CHOPRA I.E. BY MRS. ANITA V SHETH, MRS SARITA M MEHRA, AND MRS. SANGITA R. MANCHANDA ON 25 TH JUNE, 1996; I.T.A.NO.8091 AND 8090/MUM/2010 3 3. AS PER MEMORANDUM OF UNDERSTANDING DATED 22 ND JANUARY, 2002, DEVELOPMENT AGREEMENT DATED 27 TH MAY, 2003 AND CLARIFICATORY AGREEMENT DATED 31 ST DECEMBER 2004 ENTERED INTO BY THE APPELLANT WITH M /S CHINTAMANI ENTERPRISES (HEREINAFTER REFERRED TO AS DEVELOPER ), THE DEVELOPMENT RIGHT OF ITS AFORESAID PROPERTY AT N C CHOPRA INDUSTRIAL ESTAT E WAS TRANSFERRED TO THE DEVELOPER; 4. AS CONSIDERATION FOR TRANSFER OF THE DEVELOPMENT RIGHTS, THE OWNERS WERE ENTITLED TO CONSTRUCT PREMISES/FLATS/SHOPS/GARAGES /BASEMENT IN THE PROPOSED BUILDING TO EXTENT OF 37% OF TOTAL PERMISSIBLE BUI LT-UP AREA EQUIVALENT TO APPROX. 8435 SQ.FT. 5. THE APPELLANT RECEIVED DEPOSIT OF RS.23,13,000/ - AS PER DEVELOPMENT AGREEMENT DATED 27 TH MAY, 2003 WITH CONDITIONS THAT THE SAID AMOUNT WIL L BE ADJUSTED AGAINST SALE OF AREA OF 1950 TO THE DEVELO PER; 6. THE CONSIDERATION FOR TRANSFER U/S 50C R.W.S. 4 7 OF THE IT ACT, 1961 WAS TAKEN AS ADJUDICATED VALUE CERTIFIED U/S 32(1)(A)(B ) (41) OF THE BOMBAY STAMPS ACT, 1959, WHICH WAS RS.75,63,000/-. THE INCOME A RISING FROM TRANSFER OF DEVELOPMENT RIGHTS WAS ACCORDINGLY OFFERED AS LONG TERM CAPITAL GAINS;. 7. THIS AMOUNT OF RS.75,63,000/- WAS DEEMED TO BE C OST OF 8435 SQ.FT OF BUILT UP AREA TO WHICH THE APPELLANT WAS ENTITLED T O AS PER THE DEVELOPMENT AGREEMENT. THE ENTIRE BUILT UP AREA OF 8435 SQ.FT WAS SOLD BY THE APPELLANT IN AY 2005-06 AND AY 2006-07 AND THE INCOME ARISING FROM SALE, AFTER REDUCING THE COST OF RS.75,63,000/- WAS OFFERED FOR TAX AS I NCOME FROM BUSINESS IN AY 2005-06 AND AY 2006-07. SUMMARIZED DETAIL REGARDIN G YEAR OF SALE AND AREA SOLD IN EACH YEAR IS AS UNDER : OPENING STOCK SALE DETAILS CLOSING STOCK AY AREA IN SQ.FT. RS. AREA IN SQ.FT. AREA IN SQ.FT. AREA IN SQ.FT. RS. 2005-06 8435 75,63,000 1950 2500000 1320 4986500 TOTAL (A) 5270 7486500 3165 29070000 2006-07 3165 29070000 3165 6392500 0 0 VALUE OF TDR - 1300000 TOTAL (B) 3165 7692500 0 0 GRAND TOTAL 8435 15179000 8. THE APPELLANT INCURRED THE FOLLOWING EXPENSES TO COMPLETE THE ENTIRE PROJECT. THE EXPENSES CLAIMED BY THE ASSESSEE PERTA INING IT TO AY 2005-06 ARE AS UNDER : S NO PARTICULARS AMOUNT 1 SUNDRY EXPENSES 75900 2 INTEREST TO BANK 7283 3 TELEPHONE EXPENSES 2918 4 BANK CHARGES 447 5 TRAVELLING EXPENSES 68500 6 STAMP DUTY 106410 7 SALARY 180000 8 INTEREST TO PARTNER 785133 I.T.A.NO.8091 AND 8090/MUM/2010 4 EXPENSES AS MENTIONED ABOVE ARE VERY MUCH NECESSARY TO CARRY OUT THE WORK JUST TO APPROACH TO THE LAWYER, ADVOCATE AND CHART ERED ACCOUNTANT. INTEREST TO PARTNERS IS GIVEN ON CAPITAL BALANCE ACCOUNT, WHICH IS CLEARLY MENTIONED IN THE BALANCE SHEET FILED ALONG WITH RETURN OF INCOME. T HE EXPENSES ARE ADMISSIBLE UNDER THE IT ACT TO EARN THE INCOME SHOWN IN THE INCOME TAX RETURN OF THE ASSESSEE; EVEN THE AO IS HIMSELF CONSIDERING HE COT OF FLATS SOLD AFTER ADJUSTING THE CLOSING STOCK VALUED AS PER NORMAL BUSINESS PRINCIP LES; THE AO HAS WRONGLY TAKEN THE VALUE OF SALE OF FLAT S AT RS.74,88,500/- BY IGNORING THE FACT THAT RS.25,00,000/- WAS ADDED TO THE ASSESSEES INCOME FOR AY 2004-05. PLEASE REFER TO OUR LETTER DATED 1.12. 2007, ADDRESSED TO AO COPY ENCLOSED. THE AFORESAID SUM OF RS.74,88,500/- IS I NCLUSIVE OF SUM OF RS.2500,000/- THUS THERE IS A DOUBLE TAXATION OF TH E SAME AMOUNT. WITHOUT PREJUDICE TO THE ABODE, WE STATE THAT THE AO HAS TAKEN THE INCOME AS SHORT TERM CAPITAL GAIN, WHICH IS ENTIREL Y WRONG FOR THE FOLLOWING REASONS: (I) THE ASSESSEE IS GETTING 37% CONSTRUCTED AREA FROM THE BUILDER IN THE DEVELOPMENT AGREEMENT. THUS THE COST OF CONSTR UCTION OF FLAT OF 37% AREA CONSIDERED BY THE ASSESSEE IS RS.75,63,000 /- (2) THE ASSESSEE CONTINUES TO BE THE OWNER OF 37% CONSTRUCTED AREA ON ITS OWN LAND . WHAT IS TRANSFERRED BY THE ASSESS EE IS ITS RIGHT IN 37% AREA. THE FLATS WERE NOT CONSTRUCTED AND READY WHE N THE ASSESSEE HAD TRANSFERRED ITS RIGHTS TO THE DEVELOPER FOR THE CON SIDERATION. THE TRANSFER OF 37% CONSTITUTES OF BOTH RIGHT IN LAND OVER WHICH FLATS ARE CONSTRUCTED AND ALSO THE RIGHT IN CONSTRUCTED FLAT. SO THE LAN D, WHICH IS BELONGING TO THE ASSESSEE IS AND WAS A LONG TERM CAPITAL ASSET A ND CONTINUES TO BE LONG TERM ASSET. THUS, THE GAIN MADE BY THE ASSE SSEE IS NOT A SHORT TERM CAPITAL GAINS BUT ACTUALLY A LONG TERM CAPITAL GAIN 5. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE, THE LD. CIT(A) NOTED DOWN THE FOLLOWING ASPECTS E MERGING IN THE CASE OF THE ASSESSEE : (I) THE CONSIDERATION AS ADJUDICATED U/S 32(1)(A) (B) (41) OF THE BOMBAY STAMP ACT, 1959 AND U/S 50C WAS RS.75,63,000/- FOR 8435 SQ. FT. THE APPELLANT RECEIVED RS.25,00,000/- AS SECURITY DEPOSIT WITH TH E CONTENTION THAT THE SAME WILL BE REFUNDED, IF APPELLANT WANTS TO HAVE ITS EN TIRE 37% SHARE OF BUILT UP AREA WHICH IT WAS ENTITLED FOR IN CASE FOR EXERCISI NG THE OPTION OF NOT REFUNDING THIS 25 LAKHS. THE SHARE OF APPELLANT WAS 8435 SQ . BUILT UP AREA WHICH WAS CONSIDERATION FOR SALE OF LAND. THE CONDITION WAS T HAT THE BUILT UP AREA OF 1950 SW. FT WILL BE DEDUCTED FROM 8435 SQ. FT I.E. 6484 SQ.FT WILL BE GIVEN TO THE APPELLANT. AGAINST THIS RS.25,00,000/- SECURITY D EPOSIT THE APPELLANT HAS CLAIMED TO HAVE RECEIVED ONLY RS.23,13,000/- DURING THE YEAR PERTAINING TO ASSESSMENT YEAR 2004-05. I.T.A.NO.8091 AND 8090/MUM/2010 5 (II) THIS AMOUNT OF RS.25,00,000/- WAS TAXED BY THE AO IN THE ASSESSMENT YEAR 2004-05 AGAINST WHICH THE APPELLANT PREFERRED AN APPEAL AND FINALLY THE HONBLE ITAT, MUMBAI, IN PARA NO.4 OF IS ORDER DEC IDED THAT THIS AMOUNT PERTAINS TO AY 2005-06 AS PER THE TERMS AND CONDIT IONS OF CLAUSE 3 OF CLARIFICATION AGREEMENT DATED 31.12.2004 AND ALSO O N THE BASIS OF LETTER GIVEN BY M/S CHINTAMANI ENTERPRISES, THE BUILDER. IT IS AL SO SEEN FROM PARA NO.4 OF THE SAID ORDER THE ASSESSEE HAS EXERCISED NOT TO REFUND THE INTEREST FREE DEPOSIT AND INSTEAD HAD REQUESTED THE DEVELOPER TO DEDUCT AN D AREA OF 1950 SQ. FT. FROM THEIR SHARE OF 37% OF TOTAL PERMISSIBLE BUILT UP A REA I.E. 8435 SQ. FT. TO WHICH APPELLANT WAS ENTITLED IN TERMS OF CLAUSE 3 OF THE DEVELOPMENT AGREEMENT ENTERED BY THE APPELLANT WITH THE DEVELOPER; (III) HOWEVER, THE APPELLANT HAS FINALLY RECEIVED TOTAL 8635 SQ. FT AREA IN TOTO WHICH HE HAS SOLD ALSO IN THE ASSESSMENT YEAR 2005 -06 AND 2006-07. THE APPELLANT SOLD 5270 SQ. FT IN AY 2005-06 AND BALA NCE 3165 SQ. FT IN ASSESSMENT YEAR 2006-07 WHICH ARE REFLECTED IN DETAIL GIVEN B Y APPELLANT ITSELF IN THE GROUND OF APPEAL NO.7; (IV) THEN IT IS ALSO A MATTER OF RECORD THAT THE APPELLA NT HAS NOT REFUNDED RS.25,00,000/- RECEIVED AS SECURITY DEPOSIT TILL T HE AY 2006-07 WHEN THE APPELLANT CLAIMED THAT THE PROJECT IS FINALLY COMP LETE AND SOLD OUT THE COMPLETE BUILT UP AREA; (V) THE SECURITY DEPOSIT OF RS.25,00,000/- WAS IN LIEU OF 1950 SQ. FT AREA THUS GIVING A RATE OF RS.1282/- PER SQ. FT. WHEREAS THE CONSIDERATION REFLECTED BY THE APPELLANT OF RS.75,63,000/- FOR 8435 SQ. FT A REA GIVES A RATE OF RS.897 PER SQ. FT . SINCE THE APPELLANT HAS NOT REFUNDED THE S ECURITY DEPOSIT OF RS.25,00,000/- WHICH IS OVER AND ABOVE THE VALUE AD JUSTED U/S 50C AT RS.75,63,000/- THE APPELLANT FIRM HAS ACTUALLY RECE IVED RS.75,63,000/- + RS.23,13,000/- I.E. AN AMOUNT OF RS.98,76,000/- (VI) THE APPELLANT HAS SHOWN THE BUILT UP AREA OF 1950 SQ. FT. WHICH WAS PRICED AT RS.25,00,000/- AS PER THE AGREEMENT ENTE RED BY THE APPELLANT WITH M/S CHINTAMANI ENTERPRISES. THIS WAS SOLD AT RS.2 5,00,000/- ONLY BACK TO M/S CHINTAMANI ENTERPRISES ONLY I.E. WITHOUT EVEN A P ROFIT OF RS.1 ON THIS AREA. THOUGH DURING THE SAME PERIOD AND WITH THE SAME PAR TY, THE APPELLANT HAS ENTERED INTO SALE TRANSACTION OF ANOTHER 3320 SQ. FT FOR RS.49,86,500/- WHICH GIVES A RATE OF RS.1501/- PER SQ. FT. IN AY 2006-07 THE APPELLANT HAS SOLD BALANCE 3165 SQ. FT. AREA FOR RS.63,92,500/- I.E. @ 2019/- (VII) THE APPELLANT HAS SHOWN INCOME FROM SALE OF LAND AS LONG TERM CAPITAL GAIN WHEREAS IT HAS SHOWN INCOME FROM SALE OF FLAT AS BUSINESS INCOME AND HAS DEBITED VARIOUS EXPENSES IN THE NAME OF BUSINESS E XPENDITURE 6. ON THE BASIS OF ABOVE FACTS/ASPECTS NOTED BY HIM , THE LD. CIT(A) ISSUED AN ENHANCEMENT NOTICE TO THE ASSESSEE AND AFTER TAKING INTO CONSIDERATION THE REPLY FILED BY THE ASSESSEE TO THE SAID NOTICE, THE LD. CIT(A) HELD THAT A SUM OF RS.23,13,000/- ON ACCOUNT OF SECURITY DEPOSIT HAVING BEEN RECEIVED BY THE ASSESSEE OVER AND ABOVE I.T.A.NO.8091 AND 8090/MUM/2010 6 THE CONSIDERATION RECEIVED IN THE FORM OF CONSTRUCT ED AREA/FLATS, THE CONSIDERATION RECEIVED BY ASSESSEE TO THAT EXTENT WAS LIABLE TO BE ENHANCED WHILE COMPUTING LTCG ARISING FROM THE SALE OF IMMOVABLE PROPERTY. AC CORDINGLY, HE ENHANCED THE INCOME OF THE ASSESSEE TO THAT EXTENT ON THIS ISSUE. THE LD. CIT(A) ALSO FOUND THAT THE BUILT UP AREA OF 1950 SQ. FT. WAS SOLD/SURRENDERED BY THE AS SESSEE TO M/S CHINTAMANI ENTERPRISES IN LIEU OF RS.25,00,000/- THUS GIVING A RATE OF RS.1282/- PER SQ. FT. AS AGAINST ANOTHER 3320 SQ. FT AREA SURRENDERED T O THE SAID DEVELOPER AT RS.1501/- PER SQ. FT. SINCE NO SATISFACTORY EXPLANATION COULD BE OFFERED BY THE ASSESSEE IN RESPECT OF THIS DIFFERENCE IN RATE, THE AMOUNT OF RS.4,27,050 /- (1950 ST.FT. X 219 PER SE.) WAS ADDED BY THE LD. CIT(A) ENHANCING THE INCOME OF THE ASSESSEE TO THAT EXTENT. THE LD. CIT(A) ALSO UPHELD THE ACTION OF THE AO IN TREATING THE INCOME ARISING FROM THE SALE OF CONSTRUCTED AREA/ALLOTTED FLATS AS STCG OF THE ASSE SSEE AND CONSEQUENTLY CONFIRMED THE DISALLOWANCE MADE BY AO ON ACCOUNT OF VARIOUS EXPE NSES CLAIMED BY ASSESSEE UNDER THE HEAD PROFIT AND GAINS OF THE BUSINESS OR PROFE SSION. 7. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSES SEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF ITO AND IN TREATING THE BUSINESS INCOME OF THE APPELLANT AS A SHORT TERM CAPITAL GAI N; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN NOT ALLOWING THE EXPENSES INC URRED WHOLLY AND EXCLUSIVELY BY THE APPELLANT WAS THE PURPOSE OF THIS BUSINESS AND IN EARNING THE SAID INCOME; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF ITO AND IN TAKING THE CONSIDERATION OF THE SALE OF FACTS AT RS.74,88,50 0/- BY IGNORING THE FACT THAT A SUM OF RS.25,00,000/- WAS ALREADY OFFERED TO TAX IN THE ASSESSMENT YEAR 2005- 06 ITSELF; 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN MAKING AN ADDITION/ ENHANCEMEN T OF INCOME OF RS.23,13,000/- HOLDING THE SAID AMOUNT WAS IN ADDIT ION TO THE SUM OF RS.75,63,000/- DECLARED BY THE APPELLANT; I.T.A.NO.8091 AND 8090/MUM/2010 7 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED AND ENHANCING INCOME OF THE APPE LLANT BY A SUM OF RS.4,27,050/- BY ENHANCING THE SURRENDER VALUE OF 1950 SQ. FT. AT RS.219 PER SQUARE FOOT AND HOLDING THAT THE SUM OF RS.25,00, 000/- AGREED AS PER AGREEMENT WAS INADEQUATE AND A SHEER ADJUSTMENT OF 1950 SQ. FT AREA SOLD WITHOUT SHOWING ANY PROFIT; 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF AO IN TREATING THE INCOME AS SHORT TERM CAPITAL GAIN IGNORING THE FACT THAT THE TRANSF ER THE LAND WAS ALSO ALONG WITH THE FLATS WHEN THE RIGHT IN THE LAND WAS HELD BY TH E APPELLANT FOR MORE THAN THREE YEARS AND HENCE THE GAIN THERE FROM WAS LIABL E TO BE ASSESSED AS LONG TERM CAPITAL GAIN 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORDS. AS REGARDS THE ISSUE INVOLVED IN GROUND NO.1 RELATING TO HEAD OF INCOME UNDER WHICH THE PROFIT ARISING FROM THE SALE OF CONSTRUCTED AREA/ALLOTTED FLATS IS CHARGEABLE TO TAX IN THE HANDS OF ASSESSEE, WE FULL Y AGREE WITH THE VIEW OF THE AUTHORITIES BELOW THAT CONSTRUCTED AREA/ALLOTTED FL ATS RECEIVED BY THE ASSESSEE AS CONSIDERATION FROM THE DEVELOPER AGAINST TRANSFER O F ITS IMMOVABLE PROPERTY WERE IN THE NATURE OF CAPITAL ASSETS AND THE PROFIT ARISING FRO M THE SALE THEREOF WAS CHARGEABLE TO TAX IN THE HANDS OF ASSESSEE AS CAPITAL GAIN AND NO T BUSINESS INCOME. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSE E HAS ALSO NOT BEEN ABLE TO PUT FORTH ANY CONTENTION OR MATERIAL TO SHOW THAT THE SURREND ER OF CONSTRUCTED AREA /ALLOTTED FLATS TO THE DEVELOPERS CONSTITUTED BUSINESS ACTIVITY OF THE ASSESSEE. WE, THEREFORE, UPHOLD THE ACTION OF THE AUTHORITIES BELOW ON THIS ISSUE A ND DISMISS GROUND NO.1 OF ASSESSEES APPEAL. 9. AS REGARDS THE ISSUE RAISED IN GROUND NO.2 R ELATING TO DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF VARIOUS EXPENSES, WE ARE OF THE VIEW THAT THIS ISSUE IS CONSEQUENTIAL TO THE ISSUE INVOLVED IN GROUND NO.1 IN AS MUCH AS CORRESPONDING INCOME HAVING BEEN HELD TO BE CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE AS STCG, THE DEDUCTION ON ACCOUNT OF EXPENSES INCURRED BY TH E ASSESSEE ON COST OF IMPROVEMENT OF THE ASSETS SOLD OR IN CONNECTION WITH THE TRAN SFER OF CAPITAL ASSETS ONLY CAN BE I.T.A.NO.8091 AND 8090/MUM/2010 8 ALLOWED. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT SOME OF THE EXPENSES CLAIMED BY THE ASSESSEE ARE FALLING I N THIS CATEGORY. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF AO WITH A DIRECT ION TO VERIFY THE CLAIM OF ASSESSEE ON THIS ISSUE AND DECIDE THE SAME IN ACCORDANCE WITH LAW. GROUND NO.2 OF ASSESSEES APPEAL IS ACCORDINGLY TREATED AS PARTLY ALLOWED FOR STATISTIC AL PURPOSES. 10. AS REGARDS THE ISSUE INVOLVED IN GROUND NOS.3 AND 4, IT IS OBSERVED THAT ALTHOUGH THE AMOUNT OF RS.25 LAKHS ON ACCOUNT OF SECURITY DEPOSITS ADJUSTED AGAINST THE SURRENDER OF CONSTRUCTED AREA /ALLOTTED FLATS T O THE BUILDER WAS OFFERED BY THE ASSESSEE AS ITS INCOME IN THE RETURN OF INCOME FOR ASSESSMENT YEAR 2005-06, THE SAME WAS ADDED TO ITS TOTAL INCOME BY THE AO FOR AY 200 4-05 ALSO. THIS ISSUE THEREFORE WAS RAISED BY ASSESSEE IN ITS APPEAL FOR ASSESSMENT YEA R 2004-05 AND VIDE ITS ORDER DATED 27.7.2009 PASSED IN ITA NO.6518/MUM/2007 , THE CO -ORDINATE BENCH OF THE TRIBUNAL UPHELD THE STAND OF THE ASSESSEE THAT THE AMOUNT O F RS.25 LAKHS WAS CHARGEABLE TO TAX IN THE HANDS OF ASSESSEE IN ASSESSMENT YEAR 2005-0 6 AND NOT IN ASSESSMENT YEAR 2004- 05. AS REGARDS ENHANCEMENT MADE BY LD. CIT(A) ON THIS ISSUE BY TAKING THE AMOUNT OF SECURITY DEPOSIT OF RS.23,13,000/- AS ADDITIONAL SA LE CONSIDERATION, WE FIND THAT THE ENHANCEMENT ON THIS ISSUE WAS MADE BY LD. CIT(A) O N THE WRONG PRESUMPTION THAT THE AMOUNT OF SECURITY DEPOSIT WAS RECEIVED BY THE ASSE SSEE IN ADDITION TO THE CONSTRUCTED AREA/ALLOTTED FLATS RECEIVED FROM THE DEVELOPER. AS A MATTER OF FACT, THE LD. CIT(A) HIMSELF TOOK NOTE OF THE FACT AT PAGE 5 OF THE IMPU GNED ORDER THAT THE SECURITY DEPOSIT WAS RECEIVED BY ASSESSEE IN LIEU OF 1950 SQ. FT. AREA. HE HOWEVER, OVERLOOKED THE FACT THAT THE AMOUNT OF SECURITY DEPOSIT RECEIVED BY THE ASSESSEE WAS ADJUSTED AGAINST THE SALE CONSIDERATION OF RS.74,86,500/- RECEIVABLE AG AINST THE AREA OF 5270 SQ.FTL INCLUDING THE AREA OF 1950 SQ. FT SURRENDERED DUR ING THE YEAR UNDER CONSIDERATION AND WHAT THE ASSESSEE ACTUALLY RECEIVED WAS ONLY RS.49, 86,500/-. THE ASSESSEE THUS HAD NOT RECEIVED THE AMOUNT OF SECURITY DEPOSIT OVER AN D ABOVE CONSTRUCTED AREA OF 8635 I.T.A.NO.8091 AND 8090/MUM/2010 9 SQ FT. AND SINCE THE SAID SECURITY DEPOSIT WAS ADJ USTED AGAINST THE AREA OF 1950 SURRENDERED BY THE ASSESSEE, THE CONSIDERATION RECE IVED BY THE ASSESSEE WAS ONLY TO THE EXTENT OF 8435 SQ. FT BUILT UP AREA, THE VALUE OF W HICH WAS ALREADY DECLARED BY THE ASSESSEE WHILE COMPUTING THE LTCG ARISING FROM THE SALE OF LAND. WE, THEREFORE, HOLD THAT THE ADDITION MADE BY LD. CIT(A) ON THIS ISSUE BY WAY OF ENHANCEMENT IS NOT SUSTAINABLE AND DELETING THE SAME, WE ALLOW GROUN D NOS.3 AND 4 OF THE ASSESSEES APPEAL. 11. AS REGARD GROUND NO.5 RELATING TO ENHANCEMENT OF RS.4,27,050/- MADE BY LD. CIT(A), IT IS OBSERVED THAT SECURITY DEPOSIT OF RS.25,00,000/- WAS RECEIVED BY ASSESSEE FROM THE DEVELOPER AS PER THE DEVELOPMENT AGREEMENT ON THE CONDITION THAT THE ASSESSEE WOULD HAVE AN OPTION TO ADJUST THE SAME BY SURRENDERING THE CONSTRUCTED AREA OF 1950 SQ.FT. ALLOTTED TO IT. THE RATE FOR S URRENDERING THE AREA OF 1950 SQ. FT IN THE CASE OF ADJUSTMENT OF SECURITY DEPOSIT THUS WAS FIX ED AT THE TIME OF EXECUTION OF DEVELOPMENT AGREEMENT AND THERE WAS NO CASE OF MAKING ANY ENHANCEMENT ON THE PART OF LD. CIT(A) BY ADOPTING THE HIGHER RATE AT WHICH OTHER CONSTRUCTED AREAS WAS SURRENDERED BY THE ASSESSEE TO THE DEVELOPER IN THE YEAR UNDER CONSIDERATION. WE, THEREFORE, DELETE THE ADDITION MADE BY LD. CIT(A) ON THIS ISSUE BY WAY OF ENHANCEMENT AND ALLOW GROUND NO.5 OF THE ASSESSEES APPEAL. 12. GROUND NO.6 RAISED BY THE ASSESSEE IN ITS APPE AL FOR THE ASSESSMENT YEAR 2005- 06 IS NOT PRESSED FOR BY THE LD. COUNSEL FOR THE AS SESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESS ED. I.T.A.NO.8090/MUM/2010( AY:2006-07) THIS APPEAL IS DIRECTED AGAINST THE ORDER OF LD. C IT(A)-33, MUMBAI DATED 17.9.20210. GROUNDS OF APPEAL RAISED BY THE ASSESS EE IN THIS APPEAL READ AS UNDER : I.T.A.NO.8091 AND 8090/MUM/2010 10 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF ITO AND IN TREATING THE BUSINESS INCOME OF THE APPELLANT AS A SHORT TERM CAPITAL GAI N; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN NOT ALLOWING THE EXPENSES INC URRED WHOLLY AND EXCLUSIVELY BY THE APPELLANT WAS THE PURPOSE OF THIS BUSINESS AND IN EARNING THE SAID INCOME; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF AO I N TREATING THE INCOME AS SHORT TERM CAPITAL GAIN IGNORING THE FACT THAT THE TRANSF ER THE LAND WAS ALSO ALONG WITH THE FLATS WHEN THE RIGHT IN THE LAND WAS HELD BY T HE APPELLANT FOR MORE THAN THREE YEARS AND HENCE THE GAIN THERE FROM WAS LIABL E TO BE ASSESSED AS LONG TERM CAPITAL GAIN 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. AS REGARDS THE ISSUE INVOLVED IN GROUND NO.1 RAISED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07, IT IS OBS ERVED THAT THE ISSUE INVOLVED THEREIN IS SIMILAR TO THAT OF GROUND NO.1 OF THE ASSESSEE S APPEAL FOR THE ASSESSMENT YEAR 2005- 06 WHICH HAS ALREADY BEEN DECIDED BY US. FOLLOWIN G OUR CONCLUSION DRAWN IN THE ASSESSMENT YEAR 2005-06, WE UPHOLD THE ACTION OF AU THORITIES BELOW IN TREATING THE PROFIT ARISING FROM SALE OF CONSTRUCTED AREA/ALLOTT ED FLATS IN THE HANDS OF THE ASSESSEE AS STCG AND DISMISS GROUND NO.1 OF ASSESSEES APP EAL. 14. AS REGARDS THE ISSUE INVOLVED IN GROUND NO.2 R AISED BY THE ASSESSEE IN ITS APPEAL FOR THE ASSESSMENT YEAR 2006-07, IT IS OBSE RVED THAT THE ISSUE INVOLVED THEREIN IS SIMILAR TO THAT OF GROUND NO.2 OF THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2005- 06 WHICH HAS ALREADY BEEN DECIDED BY US. FOLLOWIN G OUR CONCLUSION DRAWN IN THE ASSESSMENT YEAR 2005-06, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO VERIFY THE CLAIM OF ASSESSEE FOR DEDUCTION ON ACCO UNT OF EXPENSES AGAINST THE INCOME FROM STCG AFTER NECESSARY VERIFICATION. GROUND NO. 3 OF ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2006-07 IS THUS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. I.T.A.NO.8091 AND 8090/MUM/2010 11 15. GROUND NO.3 RAISED BY THE ASSESSEE IN ITS APPE AL FOR THE ASSESSMENT YEAR 2006- 07 IS NOT PRESSED FOR BY THE LD. COUNSEL FOR THE AS SESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESS ED. 16. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9TH MAY , 2014 ' - . 9TH MAY, 2014 ' SD SD ( / VIVEK VARMA ) ( . . / P.M.JAGTAP) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: ON THIS 9TH DAY OF MAY, 2014 . . ./ SRL , SR. PS ' #$&' (' / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT /APPLICANT 2. $%# / THE RESPONDENT. 3. 3 ( ) / THE CIT(A)- 4. 3 / CIT 5. $5 , ) 5 , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) ) 5 , /ITAT, MUMBAI