Asha Housing Enterprises, Bangalore V. DCIT, Bangalore

ITA 810/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8510 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-02-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 12-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SWATI S PATIL
• Assessee Lawyers: H N KHINCHA
• Keywords: Reopening of assessment; Capital asset; Business income; Cost of acquisition; Difference of opinion; Change of opinion; Capital Gains
• Section: 143(3); 147; 148; 132; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 810/BANG/2009 ASSESSMENT YEAR : 2003-04 ASHA HOUSING ENTERPRISES, NO.221, NAGARTHPET, BANGALORE 560 002. : APPELLANT VS. THE DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 1(1), BANGALORE. : RESPONDENT APPELLANT BY : SHRI H.N. KHINCHA, C.A. RESPONDENT BY : SMT. SWATI S. PATIL, CIT(DR) O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE FIRM IS DIRECTED AGAINS T THE ORDER OF THE LD. CIT (A)-VI, BANGALORE, IN ITA NO.91/ACIT CC1(1) /BLRE/CIT(A)-VI/08-09 DATED: 6.7.2009 FOR THE ASSESSMENT YEAR 2003-04. 2. IN THE GROUNDS OF APPEAL, THE ASSESSEE FIRM (T HE ASSESSEE IN SHORT) HAS RAISED EIGHT GROUNDS WHICH ARE IN THE NA TURE OF EXHAUSTIVE AND ILLUSTRATIVE. ON A CAREFUL PERUSAL, THE CRUXES OF THE GRIEVANCES INVOLVED ARE ITA NO.810/BANG/09 PAGE 2 OF 27 ON TWIN ISSUES WHICH, FOR THE SAKE OF CLARITY, ARE REFORMULATED, IN A CONCISE MANNER, AS UNDER: (I) THE AO HAD ERRED IN ASSUMING JURISDICTION FOR ISSU ANCE OF A NOTICE U/S 148 OF THE ACT AND THAT THE LD. CIT(A) ALSO ERRED IN CONFIRMING THE SAME; & (II) THE AO HAD ERRED IN HOLDING THAT THE INCOME WAS ASS ESSABLE AS INCOME FROM BUSINESS FOR THE ASST. YEAR UNDER DISP UTE AND THAT THE CIT(A) ALSO ERRED IN CONFIRMING THE SAME; - ON A PROPER APPRECIATION OF EVIDENCE, THE ASSESSEE HAD RIGHTLY OFFERED THE INCOME AS CG IN THE AY 2005-06 WHICH RE QUIRES TO BE ACCEPTED. BRIEF FACTS: 3. THERE WAS AN ACTION U/S 132 OF THE A CT IN RESPECT OF MANTRI GROUP OF CASES ON 8/2/2006 IN WHICH A NUMBER OF INC RIMINATING DOCUMENTS WERE SAID TO HAVE BEEN UNEARTHED, SOME OF WHICH, AC CORDING TO THE AO, PERTAINING TO TRANSACTION BETWEEN MANTRI GROUP OF C ASES AND THE ASSESSEE. SUBSEQUENTLY, NOTICES U/S 153C OF THE ACT WAS ISSUE D FOR THE AYS 2000-01 TO 2005-06. IN RESPONSE, THE ASSESSEE HAD QUESTION ED THE JURISDICTION OF THE AO U/S 153C OF THE ACT ON THE GROUND THAT THE D OCUMENTS UNEARTHED BY THE REVENUE DID NOT PERTAIN TO THE ASSESSEE ETC. CO NSEQUENT UPON THE THOROUGH EXAMINATION OF THE SEIZED MATERIALS FOUND DURING THE SEARCH PROCEEDINGS IN MANTRI GROUP OF CASES, THE PROCEEDIN GS INITIATED U/S 153C OF THE ACT AGAINST THE ASSESSEE FOR THE AYS 00-01 TO 0 5-06 WERE SHELVED. 4. HOWEVER, ACCORDING TO THE REVENUE, THE CONTENTS OF THE DOCUMENTS AND EVIDENCES GATHERED IN THE SEARCH PROCEEDINGS OF MANTRI GROUP OF CASES AND ON THE BASIS OF WHICH, AFTER RECORDING THE REAS ONS FOR RE-OPENING OF THE ASSESSMENTS FOR THE AYS 2003-04, 04-05 AND 05-06, N OTICES U/S 148 OF THE ACT WERE ISSUED, CALLING UPON THE ASSESSEE TO FURNI SH ITS RETURNS OF INCOME ITA NO.810/BANG/09 PAGE 3 OF 27 FOR THE SAID AYS. IN COMPLIANCE, THE ASSESSEE HAD FURNISHED ITS RETURNS OF INCOME, DECLARING NIL INCOME FOR THE AYS 2003-04 AND 2004-05 AND RS.118536691/- FOR THE AY 2005-06, AS ADMITTED IN THE ORIGINAL RETURNS. WHILE FURNISHING THE RETURNS OF INCOME, THE ASSESSE E VIDE ITS LETTER DT.16.7.2007 SOUGHT THE REASONS RECORDED FOR REOPEN ING OF THE ASSESSMENTS IN QUESTION AND SUBSEQUENTLY, IN ITS LE TTER DATED 25.9.2007 HAD OBJECTED TO THE REOPENING OF THE ASSESSMENTS U/ S 147 OF THE ACT. 4.1. ACCORDING TO THE IMPUGNED ORDER OF THE AO, TH E OBJECTIONS RAISED BY THE ASSESSEE HAVE BEEN DISPOSED OFF VIDE ORDER SHEET NOTING OF THE FILE DT.26.6.2008, THE EXTRACT OF WHICH WAS THAT WHILE REOPENING OF ASSESSMENT U/S 147 OF THE IT AC T FOR THE A.Y 2003- 04 TO 2005-06, DETAILED REASONS ARE GIVEN FOR SUCH REOPENING OF ASSESSMENTS U/S 147 OF THE IT ACT AND THE COPY OF T HE SAME WAS FURNISHED TO THE AR OF THE ASSESSEE FIRM. THUS, TH E REASONS CITED THEREON FOR REOPENING THE ASSESSMENT U/S 147 SQUARE LY DISPOSE OFF THE OBJECTIONS RAISED BY THE AR OF THE ASSESSEE REGARDI NG REOPENING OF THE ASSESSMENT. THEREFORE, OBJECTIONS RAISED STAND DIS POSED OFF IN THIS REGARD. 4.2. AFTER ANALYZING THE FACTS OF THE ISSUES AT LE NGTH AND ALSO CONSIDERING THE FORCEFUL CONTENTIONS PUT-FORTH BY THE ASSESSEE, THE AO, FOR THE REASONS SET-OUT IN THE IMPUGNED ASSESSMENT ORDER, HAD HELD THAT 30. IN THE INSTANT CASE, THE ASSESSEE FIRM IS ENTR USTED TO CARRY ON THE BUSINESS OF REAL ESTATE WHICH INCLUDES LONG TERM RE AL ESTATE INVESTMENTS. THEREFORE, THE SALE OF LAND BY THE AS SESSEE FIRM IS IN LINE WITH ITS BUSINESS ACTIVITY FOR WHICH IT WAS CREATED AND THEREFORE INCOME ARISING THEREON IS HELD AS BUSINESS INCOME AND TAXE D UNDER THE HEAD OF INCOME NAMELY PROFITS AND GAINS OF BUSINESS OR PRO FESSION AND THE SAME IS COMPUTED AS UNDER: SALE CONSIDERATION RECEIVED RS.122500000 LESS: COST OF LAND AND IMPROVEMENT 2591228 NET INCOME 119908772 ITA NO.810/BANG/09 PAGE 4 OF 27 ADD: DISALLOWANCE AS DISCUSSED IN ASST.ORDER DT:3.8.06 152480 NET RECEIPTS (BUSINESS INCOME) 120061252 5. AGGRIEVED, THE ASSESSEE WENT BEFORE THE CIT (A ) WITH TWIN ISSUES, NAMELY (I) CHALLENGING THE ISSUANCE OF NOTICE U/S 148 OF THE A CT WITHOUT JURISDICTION; - WHEN THE REASONS RECORDED FOR THE ISSUANCE OF NOTIC E AND REOPENING OF THE ASSESSMENT WAS OBJECTED TO; THE AO HAD FAILED TO PASS A SPEAKING ORDER; & (II) THE AO HAD ERRED IN TAXING THE INCOME U NDER CONSIDERATION FOR THE AY UNDER APPEAL. 5.1. AFTER DUE CONSIDERATION OF THE SPIRITED ARGUM ENTS PUT-FORTH BY THE LD. A.R COUPLED WITH LENGTHY WRITTEN SUBMISSIONS AND AL SO THE REMAND REPORT OF THE AO, THE LD. CIT(A) HAD OBSERVED THUS 9.THUS, IN ALL THE CASES CITED BY THE AUTHORI ZED REPRESENTATIVE, NO ORDER HAS BEEN PASSED AT ALL ON OBJECTIONS RAISED SEPARATELY WHEREAS IN THIS CASE AN ORDER HAD BEEN P ASSED AND OBJECTIONS HAVE BEEN CONSIDERED AND DISPOSED OFF. THE AUTHORIZED REPRESENTATIVE PLEADS THAT THE ORDER IS NOT SPEAKIN G. BUT, I FIND IT OTHERWISE. THE ORDER IS QUOTED BELOW: WHILE REOPENING OF ASSESSMENT U/S 147 OF THE IT AC T FOR THE A.Y 2003-04 TO 2005-06, DETAILED REASONS ARE GIVEN FOR SUCH REOPENING OF ASSESSMENTS U/S 147 OF THE IT ACT AND THE COPY OF T HE SAME WAS FURNISHED TO THE AR OF THE ASSESSEE FIRM. THUS, TH E REASONS CITED THEREON FOR REOPENING THE ASSESSMENT U/S 147 SQUARE LY DISPOSE OFF THE OBJECTIONS RAISED BY THE AR OF THE ASSESSEE REGARDI NG REOPENING OF THE ASSESSMENT. THEREFORE, OBJECTIONS RAISED STAND DIS POSED OFF IN THIS REGARD. 10. NO DOUBT, THE ORDER IS BRIEF BUT IT CONTAINS THE REASONS OF REJECTION OF THE OBJECTIONS. IT HIGHLIGHTS THAT TH E REASONS RECORDED ARE SO ELABORATE THAT IT COVER ALL ISSUES RAISED IN THE OBJECTION AND, THEREFORE, IT IS NOT NECESSARY TO REPEAT IT. THE R EASONS FOR RE-OPENING HAS BEEN MADE PART OF THE ASSESSMENT ORDER VIDE PAR A 8 (PAGES 2, 3 & 4) OF AY 2003-04. IT SPELLS OUT THE REASONS EXPLIC ITLY. THE MAIN OBJECTIONS WERE (1) THERE WAS NO RATIONAL CONNECTIO N BETWEEN THE ITA NO.810/BANG/09 PAGE 5 OF 27 REASONS RECORDED AND THE FORMATION OF THE BELIEF TH AT THE INCOME HAS ESCAPED ASSESSMENT AND (2) SECONDLY, THE REOPENING WAS THE RESULT OF CHANGE OF OPINION ONLY. I FIND BOTH THESE OBJECTIO NS HAVE BEEN TAKEN CARE OF, IF ONE ANALYZES THE REASONS RECORDED. ORI GINAL ASSESSMENT WAS COMPLETED U/S 143(3) OF I.T.ACT ON 3.8.2006. I N THAT ASSESSMENT, THE AO ACCEPTED THE HEAD OF INCOME SHOWN BY THE APP ELLANT I.E., CAPITAL GAINS BECAUSE PROFIT FROM SALE OF LAND WA S SHOWN. WHEREAS SEARCH CONDUCTED ON 8.2.2006 IN MANTRI GROUP REVEAL ED THAT THEY HAD BEEN GIVEN GENERAL POWER OF ATTORNEY BY THE APPELLA NT TO DEVELOP THE LAND TO CONSTRUCT FLATS THEREON VIDE SEIZURE MEMO N O.A-2/MDIL/07 PAGE 39 TO 46) AND SUBSEQUENT ENQUIRY CONDUCTED ON THE SEIZED PAPER LED THE AO TO FORM A BELIEF THAT THE ASSESSEE IS EA RNING SUBSTANTIAL INCOME FROM THE BUSINESS OF REAL ESTATE AND NOT FRO M CAPITAL GAINS RESULTING IN ESCAPEMENT OF INCOME. I FIND HAD THER E BEEN NO SEIZURE OF THE GENERAL POWER OF ATTORNEY AT THE PLACE OF MANTR I GROUP, THE ESCAPEMENT OF INCOME WOULD NOT HAVE COME TO LIGHT. THUS, NEW INFORMATION BROUGHT OUT THROUGH SEARCH IN OTHERS P REMISES AND DEEP INVESTIGATION CONDUCTED THEREON JUSTIFIES THAT THER E WAS NO MERE CHANGE OF OPINION BUT A RATIONAL CONNECTION BETWEEN REASONS AND THE BELIEF AS TO ESCAPEMENT OF INCOME. HENCE, I HOLD T HAT THE ORDER REJECTING THE OBJECTIONS IS SPEAKING ONE. IT IS OF TEN QUOTED THAT BREVITY IS THE SOUL OF WIT AND KNOWLEDGE WHILE ELABORATION IS THE MOTHER OF CONFUSION. THE AO BY BEING BRIEF HAS HIT THE BULL S EYE BY POINTING OUT THAT THE RECORDED REASONS DISPOSES OF ALL THE ISSUE S OF OBJECTIONS. HENCE, I DISMISS THIS GROUND OF APPEAL AND DENY TO ANNUAL THE ASSESSMENT ORDER. 5.2. IN RESPECT OF THE SECOND ISSUE, AFTER GIVING DUE WEIGHT-AGE TO THE SUBMISSIONS OF THE ASSESSEE AND ALSO DUE CONSID ERATION OF THE REMAND REPORT OF THE AO, THE LD. CIT (A) HAD OBSERVED THUS 13IN MY VIEW, SO FAR AS THE HEAD OF INCO ME IS CONCERNED THE AO IS JUSTIFIED IN TAXING THE RECEIPT S UNDER THE HEAD BUSINESS REJECTING THE CLAIM OF THE APPELLANT. I STAND BY THE SIDE OF THE AO WHEN HE CONCLUDES THAT THE VERY CONSTITUTION OF THE FIRM WAS FOR DOING BUSINESS IN LAND I.E. TO PURCHASE AND SELL IT OR SELL IT AFTER DEVELOPING AND CONSTRUCTING COMPLEXES THEREON. A P ERUSAL OF PARTNERSHIP DEED JUSTIFIES SUCH A STAND. THIS FACT UM OF NATURE OF BUSINESS MENTIONED IN THE PARTNERSHIP DEED OF THE A PPELLANT FIRM DISTINGUISHES IT FROM THE FACTS OF THE CASE LAW OF SOHAN KHAN (304 ITR 194) CITED SUPRA. THE REVENUE IN THAT CASE COULD N OT PROVE THAT SOHAN KHAN WAS DEALING IN REAL ESTATE AND THEREFORE EVEN IF THE LAND WERE SOLD THROUGH A SERIES OF TRANSACTIONS, THE COURT HE LD THE INCOME ARISING THERE-FROM AS CAPITAL GAINS BECAUSE IN THE ABSENC E OF SUCH PROOF IT ITA NO.810/BANG/09 PAGE 6 OF 27 WAS CONCLUDED THAT THE PARCELS OF LANDS WERE NOT ST OCK-IN-TRADE BUT CAPITAL ASSET. SUCH IS NOT THE CASE HERE. THE IN TENTION AS REFLECTED PARTNERSHIP DEED IS GLARINGLY TO DEAL IN REAL ESTAT ES. THAT IS WHY THE MOMENT IT WAS FORMED IN SEPTEMBER, 1992, IT PURCHAS ED URBAN LAND IN NOVEMBER 1992 AND ALSO SOLD A PART OF IT. IN OTHER WORDS, THE LAND WAS NEVER PURCHASED WITH AN INTENTION TO USE IT AS INVESTMENT AND DERIVE BENEFIT THERE-FROM. I CONCLUDE THAT FROM TH E VERY BEGINNING IT WAS KEPT AS STOCK-IN-TRADE. GROUNDWORK WAS CONTINU ED AS WELL AS MARKET STUDIES BY WHICH THESE PRUDENT PARTNERS OF T HE APPELLANT FIRM COULD VISUALIZE THAT THE HEYDAY OF REAL ESTATE BUSI NESS WAS ON THE ANVIL AND, THEREFORE, THEY PATIENTLY WAITED UP-TO 2001. IN 2002, IT WAS DECIDED TO SELL THE PROPERTY FOR RS.12.25 CRORES TO M/S. ABHISHEK DEVELOPERS RECEIVING RS.5.25 CRORES FORTHWITH ON 24 .6.2002. ON 22.6.2002, AN AGREEMENT FOR SALE HAD ALREADY BEEN E XECUTED BEFORE RECEIVING THE FIRST INSTALLMENT OF RS.5.25 CRORES A ND THE TERMS AND CONDITIONS THEREIN HAD ALREADY STIPULATED THE MODE AND DATE OF PAYMENT ETC. BUT A GENERAL POWER OF ATTORNEY EXECU TED ON 21.9.02 GAVE UNFETTERED POWERS TO THE PERSONS OF MANTRA GRO UP ALSO INTERESTED IN ABHISHEK DEVELOPERS VIZ., SUSHIL MANTRI AND SMT. SNEHAL MANTRI GIVING UNFETTERED POWERS TO UTILIZE THE LAND WITHOU T OBTAINING ANY FURTHER NO OBJECTION FROM THE APPELLANT. IF THAT B E NOT EQUATED WITH TRANSFER I WONDER WHAT ELSE WOULD MEAN TRANSFER. I CONCLUDE THAT THERE WAS VIRTUALLY ABSOLUTE TRANSFER OF THE PROPER TY ON THE DATE OF EXECUTION OF THE GPA. THE CONDITIONS NARRATED IN THIS POA WAS SUCH THAT NOTHING LESS THAN OWNERSHIP COULD BE ASCRIBED TO THE PURCHASERS? I DO NOT CONSIDER HERE TO REPEAT THE TERMS OF THE G PA BECAUSE SUCH HAS BEEN DONE IN PARA 22 OF (PAGE 7 & 8) OF THE ASSESSM ENT ORDER OF AY 03- 04. OWNERSHIP IN COMMON PARLANCE MEANS THE ENJOYM ENT OF A PROPERTY IN ITS OWN RIGHT TO THE EXCLUSION OF OTHER S EVEN BARRING THE POWER AND RIGHT TO ALIENATE SUCH PROPERTY WITH OR W ITHOUT CONSIDERATION. THE ANALYSIS OF TERMS OF THE GPA ST ATES UNEQUIVOCALLY THAT THE PURCHASES WOULD NOT ONLY HAVE THE RIGHT TO ENJOY OR UTILIZE THE PROPERTY, THEY HAVE ALSO BEEN ASSIGNED THE POWER TO CONVEY BY WAY OF SALE. HEN ONE MAY QUESTION WHAT WAS THE NECESSITY O F REGISTRATION OF A SALE DEED IN AY 06-07 I.E., 20.6.05 AND WHAT IS ITS LEGAL IMPLICATION? THE REGISTRATION WAS ONLY A RATIFICATION OF WHAT HA D BEEN STATED IN THE POA AND IT WAS A LEGAL NECESSITY BECAUSE THEREBY TH E STATE GETS REVENUE IN THE SHAPE OF STAMP DUTY AND IT IS NECESS ARY TO REGISTER A SALE OF PURCHASE OF AN IMMOVABLE PROPERTY OF VALUE OF MO RE THAN RS.100/- AS PER S.17 OF THE INDIAN REGISTRATION ACT. THUS, A SALE DEED REGISTERED IN NO WAY PROVES THE PRIVILEGE OF OWNERSHIP OR OTHE RWISE OR MAKES THE TRANSFER COMPLETE. IT ONLY SYMBOLIZES THE FACT OF COMPLETE TRANSFER IN THE ABSENCE OF OTHER DOCUMENTS. HERE IS NOT SUCH C ASE. HOWEVER, LET IT BE SO, BUT THIS HAS BEEN DONE IN AY 06-07 BUT THE A R HAS PLEADED THAT THE OWNERSHIP GOT TRANSFERRED ONLY IN AY 05-06 AND THAT IS WHY THE APPELLANT SHOWED THE INCOME IN AY 05-06. THUS, THE RE IS EQUIVOCATION ITA NO.810/BANG/09 PAGE 7 OF 27 AND PARADOX IN THE ARGUMENT OF THE AR AS TO TRANSFE R OF OWNERSHIP. IN ONE PLACE IT WAS ARGUED THAT TRANSFER OF OWNERSHIP WAS COMPLETED ONLY ON THE DATE OF REGISTRATION OF SALE DEED AND IN OTH ER PLACE, IT WAS ARGUED THAT SUCH TRANSFER OF OWNERSHIP TOOK PLACE O NLY ON THE DATE OF RECEIPT OF LAST INSTALLMENT OF SALE PRICE. I, THER EFORE, CONCLUDE THAT THE DATE OF FIRST GPA I.E., 21.9.02 WAS THE DATE OF REA L TRANSFER OF OWNERSHIP. I HAVE, BESIDE THE REASONS ELABORATED A BOVE, ANOTHER STRONG REASON TO DRAW SUCH INFERENCE. IT IS OFTEN STATED POSSESSION IS 9/10 OF OWNERSHIP. THROUGH THE GPA COMPLETE POSSESS ION OVER THE PROPERTY WAS ADMITTEDLY HANDED OVER TO THE PURCHASE RS AND THAT IS WHY THEY STARTED DEVELOPING THE LAND ITSELF IN 2002 AND CONSTRUCTION OF A COMPLEX NAMED MANTRI CLASSICS IN 2003. HAD THERE B EEN AN IOTA OF DOUBT AS TO THEIR OWNERSHIP, THE PURCHASERS WOULD N OT HAVE STARTED SUCH ADVENTURE OF MASSIVE CONSTRUCTION A FEW MONT HS AFTER THE EXECUTION OF POA BUT WOULD HAVE WAITED TILL THE EXE CUTION OF SALE THROUGH A REGISTERED DEED. BESIDES, I NOTE THAT TH E DEED OF SALE AGREEMENT, UPON WHICH THE AR RELIES TOO MUCH TO ARG UE THAT CLAUSES THEREIN STIPULATE THE TRANSFER OF OWNERSHIP AND POS SESSION AFTER FULL AND FINAL PAYMENT BY THE PURCHASERS AND, THEREFORE, THE OWNERSHIP WAS TRANSFERRED ONLY IN AY 05-06, IS DATED 22.6.02. WH EREAS THE GPA IN FAVOUR OF THE PURCHASERS GIVING THAT UNFETTERED AND ABSOLUTE OWNERSHIP AND POSSESSION TO DEAL WITH THE PROPERTY IN WHATSOE VER MANNER THEY LIKED HAD BEEN EXECUTED ON 21.9.06. WHAT IS BEING POINTED OUT BY ME IS THAT WHEN THERE ARE MORE THAN ONE DOCUMENT DEALI NG WITH SAME OR SIMILAR SUBJECT, THE LATEST ONE IS NORMALLY TAKEN C OGNIZANCE UNLESS THE SAME IS PROVED O BE FORGED ONE OR EXECUTED WITH MAL A-FIDE INTENTION. IN THIS CASE THE LAST ONE WAS THE GPA DATED: 21 .9.02 BECAUSE I HAVE HELD ABOVE THAT THE SALE DEED REGISTERED ON 20.6.05 WAS EXECUTED WITH MALA-FIDE INTENTION AND AN AFTER THOUGHT. THUS, OW NERSHIP, I CONCLUDE, HAD BEEN TRANSFERRED IN THE AY 03-04 THROUGH THE AB SOLUTE TERMS OF GPA AND THUS HOLD THE ACTION OF THE AO JUSTIFIED IN ASSESSING THE INCOME IN THE AY 03-04 SUBSTANTIVELY UNDER THE HEAD BUSINESS INCOME. WHILE COMING TO SUCH CONCLUSION, I DISREG ARD THE ARGUMENT OF THE AR THAT FOR EACH RECEIPT OF AN INSTALLMENT, AS PER THE TERMS OF THE AGREEMENT OF SALE, A SEPARATE POA WAS EXECUTED AND, THEREFORE, THE POA EXECUTED ON 24.5.04 SHOULD BE CONSIDERED INSOMU CH AS SUCH POWERS OF ATTORNEY DT.21.9.02 COULD BE SEIZED BY TH E SEARCH PARTY WHILE CONDUCTING SEARCH IN THE PREMISES OF MANTRI GROUP, THE TRUTHFULNESS OF WHICH HAS STATUTORY SUPPORT. THUS, THE PROTECTIVE ASSESSMENT OF AY 2005-06 GOES AND GROUNDS OF APPEALS OF AY 2003-04 A RE DISMISSED. 6. AGITATED, THE ASSESSEE HAS COME UP WITH THE P RESENT APPEAL. DURING THE COURSE OF HEARING, THE LD. A R HAD ARGUED AT LENGTH WITH REGARD TO THE MANNER IN WHICH THE OBJECTIONS R AISED BY THE ASSESSEE ITA NO.810/BANG/09 PAGE 8 OF 27 FOR RE-OPENING OF THE ASSESSMENT U/S 147 OF THE ACT HAS BEEN DEALT WITH BY THE ASSESSING OFFICER. THE SUBSTANCES OF THE ARGUM ENTS OF THE LD. AR ARE SUMMARIZED AS UNDER: (I) THE ORDER OF THE AO WAS BAD, WITHOUT JURISDICTION A ND AGAINST THE PROVISIONS OF LAW AND EVEN AGAINST THE DICTUM O F THE APEX COURT; - THE AO HAD ERRED IN ASSUMING JURISDICTION AND ISSUA NCE OF NOTICE U/S 148 OF THE ACT; - THE CIT(A) HAD ALSO ERRED IN CONFIRMING THE SAME AS THE CONDITIONS PRECEDENT FOR THE ISSUANCE OF NOTICE U/S 148 OF THE ACT BEING ABSENT, THE ISSUE OF NOTICE AND CONSE QUENT ALL CONNECTED PROCEEDINGS HAVE BECOME VOID-AB-INITIO AN D WERE LIABLE TO BE QUASHED - THE AO HAVING NOT PASSED A SPEAKING ORDER AGAINST T HE OBJECTIONS RAISED FOR RE-OPENING OF THE ORDER BECAM E BAD IN LAW AND THAT THE LD.CIT(A)HAD MISERABLY ERRED IN HO LDING THAT THE ORDER OF THE AO CONSEQUENT TO THE OBJECTIO N RAISED WAS A SPEAKING ORDER; - THERE BEING NO SPEAKING ORDER, THE FINDING OF THE C IT(A) WAS WRONG AND HIS IMPUGNED ORDER IS LIABLE TO BE QU ASHED; - RELIES ON THE CASE LAWS: (A) GKN DRIVESHAFTS (INDIA) LTD. V. ITO 259 ITR 19 (SC) (B) KAMLESH SHARMA V. ITP 281 ITR 377 (DELHI) (C) ALLANA COLD STORAGE LTD. V. ITO 287 ITR 1 (BOM) (D) ARVIND MILLS LTD. V. ACIT 270 ITR 469 (BOM) (E) DELHI TOURISM & TRANSPORT DEV. CORPORATION LTD. V. ACIT 141 TAXMAN 361 6.2. ON THE OTHER HAND, THE LD. D R WAS VERY VEHE MENT IN HER STAND THAT THE AO HAD IN FACT RECORDED THE REASONS IN AN EXHAUSTIVE AND AN ILLUSTRATIVE MANNER WHICH WAS DULY COMMUNICATED TO THE ASSESSEE AND CONSEQUENT UPON THE ASSESSEES OBJECTIONS, THE AO H AD DULY DISPOSED OFF OF THE SAID OBJECTIONS IN THE ORDER SHEET NOTING OF THE FILE DT: 26/6/2008 WHICH HAD ALSO BEEN MADE AS A PART OF THE ASSESSMEN T ORDER, WHICH, IN HER ITA NO.810/BANG/09 PAGE 9 OF 27 VIEW, SHOULD BE CONSTRUED AS A SPEAKING ORDER. IT W AS, FURTHER, PLEADED THAT THE CIT (A) HAD INDEED DWELT WITH THE ISSUE ELABORA TELY AND CAME TO A CONCLUSION WHICH REQUIRES NO FURTHER CONSIDERATION AT THIS STAGE. 7. ON A PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT THE AO HAS STATED THAT 14. VIDE LETTER DATED: 25/9/07, ASSESSEE FIRM FILED A DETAILED LETTER RAISING OBJECTIONS TO THE REOPENING OF ASSESSMENTS U/S 147 OF THE I.T. ACT. THE OBJECTIONS RAISED BY THE ASSESSEE FIRM HA VE BEEN DISPOSED OFF VIDE ORDER SHEET NOTING OF THE FILE DATED: 26/6/08 . THE EXTRACT OF THE NOTING IS GIVEN AS UNDER: WHILE REOPENING OF ASSESSMENT U/S 147 OF THE IT AC T FOR THE AY 2003-04 TO 2005-06, DETAILED REASONS ARE GIVEN FOR SUCH REOPENING OF ASSESSMENTS U/S 147 OF THE IT ACT AND THE COPY OF T HE SAME WAS FURNISHED TO THE AR OF THE ASSESSEE FIRM. THUS, THE REASONS CITED THEREON FOR REOPENING THE ASSESSMENT US 147 SQUAREL Y DISPOSE OFF THE OBJECTIONS RAISED BY THE AR OF THE ASSESSEE REGARDING REOPENING OF THE ASSESSMENT. THEREFORE, OBJECTIONS RAISED STAND DISPOSED OFF IN THIS REGARD. 7.1. ON A PLAIN READING OF THE ABOVE, WE FIND TH AT A VITAL ISSUE HAS BEEN DEALT WITH BY THE AO IN A LACKLUSTRE AND SLIP- SHOD MANNER WHICH IS QUITE CONTRARY TO THE SPIRIT OF THE RULING OF THE H IGHEST JUDICIARY OF THE COUNTRY IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD. V. INCO ME-TAX OFFICER AND OTHERS REPORTED IN (2003) 259 ITR 19 WHEREIN THE HO NBLE COURT IN ITS WISDOM HAS HELD THAT WHEN A NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961, IS ISSUED, THE PROPER COURSE OF ACTION FOR THE NOTICE IS TO FILE THE RETURN AND, IF HE SO DESIRES, TO SEEK REASONS FOR I SSUING THE NOTICES. THE ASSESSING OFFICER IS BOUND TO FURNISH REASONS W ITHIN A REASONABLE TIME. ON RECEIPT OF REASONS, THE NOTICEE IS ENTITLED TO FILE OBJECTIONS TO ISSUANCE OF NOTICE AND THE ASSES SING OFFICER IS BOUND TO DISPOSE OF THE SAME BY PASSING A SPEAKING ORDER . ITA NO.810/BANG/09 PAGE 10 OF 27 7.2. TURNING TO THE REASONING OF THE LD. CIT (A), WE FIND THAT THE CIT (A) HAD STATED THAT 9. THE ISSUE RAISED AT (1) ABOVE IS CRUCIAL TO THE LIFE OF ASSESSMENT ORDER AND THAT WAS DECIDED AT FIRST DURI NG THE COURSE OF APPELLATE HEARING AND IT WAS INFORMED TO THE AUTHORIZED REPRE SENTATIVE THAT THE ORDER, THOUGH A BRIEF ONE, CATERS TO ALL CONDITIONS OF A S PEAKING ORDER AND THEREFORE HE WAS CALLED UPON TO ARGUE THE CASE ON MERITS. THIS HAS BEEN DONE PRECISELY WITHOUT GOING INTO THE MERITS OF THE ISSU E. HE, FURTHER, WENT ON TO ADD THAT 9..THE AUTHORIZED REPRESENTATIVE PLEADS THAT THE ORDER IS NOT SPEAKING. BUT I FIND IT OTHERWISE. THE ORDER IS QUOTED BELOW: WHILETHEREFORE OBJECTIONS RAISED STAND DI SPOSED OFF IN THIS REGARD. 10. NO DOUBT THE ORDER IS BRIEF BUT IT CONTAINS T HE REASONS OF REJECTION OF THE OBJECTIONS. IT HIGHLIGHTS THAT THE REASONS RECORDED ARE SO ELABORATE THAT IT COVERS ALL ISSUES RAISED IN THE O BJECTION AND THEREFORE IT IS NOT NECESSARY TO REPEAT IT. THE REASONS FOR RE-OPENING HAS BEEN MAD PART OF THE ASSESSMENT ORDER VIDE PARA 8 (PAGES 2, 3 & 4) OF AY 2003-04. IT SPELLS OUT THE REASONS EXPLICITLY. TH E MAIN OBJECTIONS WERE (1) THERE WAS NO RATIONAL CONNECTION BETWEEN THE RE ASONS RECORDED AND THE FORMATION OF THE BELIEF THAT THE INCOME HAS ESC APED ASSESSMENT AND (II) SECONDLY THE REOPENING WAS THE RESULT OF CHANG E OF OPINION ONLY. I FIND BOTH THESE OBJECTIONS HAVE BEEN TAKEN CARE OF, IF ONE ANALYSES THE REASONS RECORDED.. 7.3. ACCORDING TO THE LAW LEXICON, SPEAKING ORDER MEANS AN ORDER WHICH CONTAINS MATTER WHICH IS EXPLANATORY OR ILLUSTRATIVE OF THE MERE DIRECTION WHICH IS GIVEN BY IT IS SOMETIMES THUS CA LLED. THUS, THE REVENUE CANNOT LEGITIMIZE THE WAYWARD MANNER IN WHICH THE I SSUE HAS BEEN DEALT WITH. ITA NO.810/BANG/09 PAGE 11 OF 27 7.4. CONSIDERING PROS AND CONS OF THE ISSUE, THE B ENCH WAS OF THE FIRM VIEW THAT THE OBJECTIONS RAISED BY THE ASSESSEE FOR THE ISSUANCE OF NOTICE U/S 148 OF THE ACT FOR REOPENING OF THE ASSESSMENT HAS NOT BEEN DISPOSED OFF BY PASSING A SPEAKING ORDER BY THE AO IN CONFO RMITY WITH THE RULING OF THE HONBLE SUPREME COURT IN THE CASE GKN DRIVESHAF TS (INDIA) LTD. REFERRED SUPRA AND THUS THE ISSUE REQUIRES TO BE REMITTED BACK ON THE FILE OF THE AO FOR FRESH CONSIDERATION AND SOUGHT THE CO MMENTS OF THE RIVAL PARTIES PRESENT DURING THE COURSE OF HEARING. THE L D. AR IMMEDIATELY CAME UP WITH A SUBMISSION THAT HE WAS NOT PRESSING THIS GROUND AND PASSIONATELY PLEADED THAT THE OTHER GROUND RAISED BE DECIDED ON MERITS. 7.5. IN VIEW OF THE SUBMISSION OF THE LD. A.R, THE FIRST GROUND RAISED BY THE ASSESSEE THE OBJECTION FOR ISSUANCE OF NOTICE U/S 148 OF THE ACT FOR REOPENING OF THE ASSESSMENT U/S 147 HAS NOT BEEN DI SPOSED OFF BY A SPEAKING ORDER IS DISMISSED AS NOT PRESSED. 8. LET US NOW PROCEED TO CONSIDER THE ASSESSEES O THER GRIEVANCE THAT THE AO WAS NOT JUSTIFIED IN BRINGI NG TO TAX THE SALE CONSIDERATION OF RS.12.25 CRORES UNDER THE HEAD PR OFITS AND GAINS OF BUSINESS OR PROFESSION FOR THE ASSESSMENT YEAR UND ER DISPUTE. 8.1. THE ISSUE, IN BRIEF, IS THAT THE ASSESSEE HAD PURCHASED THE LANDS SITUATED AT SHINVAGULU VILLAGE, BANGALORE ON 12.11.1992. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT OF SALE ON 2 2.6.2002 WITH M/S. ABHISHEK DEVELOPERS FOR A SALE CONSIDERATION OF RS. 12.25 CRORES AND ON THE DATE OF AGREEMENT, THE ASSESSEE WAS IN RECEIPT OF RS.5.25 CRORES AS ITA NO.810/BANG/09 PAGE 12 OF 27 PART OF SALE CONSIDERATION. THE YEAR-WISE BREAK UP OF THE ENTIRE CONSIDERATION PAID AS PER THE TERMS OF THE AGREEMEN T IS AS UNDER: FINANCIAL YEAR AMOUNT 2002-03 RS.8.25 CRORES 2003-04 RS.2.00 CRORES 2004-05 RS.2.00 CRORES 8.2. THE ASSESSEE FURNISHED ITS ROI U/S 139 OF THE ACT ON 23.3.06 FOR THE AY 2005-06 ADMITTING THE ABOVE TRANSACTIONS AND OFFERED THE INCOME ARISING OUT OF THE ABOVE MENTIONED TRANSACTI ON AS LTCG FOR THE AY 05-06. 8.3. CONSEQUENT TO THE INQUIRIES, THE REVENUE WAS OF THE VIEW THAT THE ASSESSEE HAD NOT DISCLOSED THE INCOME ACCR UING DURING THE FY RELEVANT TO THE AY 03-04 AND THAT EVEN THE INCOME A DMITTED IN THE ROI FOR THE AY 05-06 WAS WRONG AS THE SAME WAS DISCLOSED AS LTCG INSTEAD OF BUSINESS INCOME. 8.4. AFTER EXAMINING THE CONTENTIONS OF THE ASSESS EE AND ALSO ANALYZING THE MATERIAL EVIDENCES, THE AO HAD ARRIVE D AT A CONCLUSION THAT (I) THE PROPERTY IN QUESTION WAS DEEMED TO HAVE BEEN TR ANSFERRED TO ABHISHEK DEVELOPERS DURING THE FY 02-03 AND, THUS, INCOME ON THE SAID TRANSFER OF THE PROPERTY ACCRUES IN THE FY 02-03 ONLY; (II) THE INCOME ACCRUED IN VIEW OF THE ABOVE TRANSACTION WAS BUSINESS INCOME - NOT LTCG DECLARED BY THE ASSESSEE IN THE R OI FOR AY 05- 06 AS THE ASSET IN QUESTION WAS A BUSINESS ASSET. 8.5. FOR THE DETAILED ANALYZES MADE AND NARRATED I N THE ASSESSMENT ORDER, THE AO HAD COME TO THE CONCLUSION THAT ITA NO.810/BANG/09 PAGE 13 OF 27 25. ON THE VERY LAND REGARDING WHICH POWER OF ATTO RNEY WAS EXECUTED BY THE ASSESSEE FIRM AS MENTIONED ABOVE, M/S. ABHISHEK DEVELOPERS COMMENCED CONSTRUCTION OF RESIDENTIAL PROJECT NAMEL Y MANTRI CLASSIC DURING THE MONTH OF AUGUST, 2003 AND COMPLETED THE PROJECT DURING THE MONTH OF MARCH, 2005. 26. THEREFORE, IT IS CLEAR THAT THE PROPERTY HAS BE EN TRANSFERRED OR DEEMED TO HAVE TRANSFERRED DURING THE FINANCIAL YEAR 2002-03 AS ALL RISKS, REWARDS AND POSSESSION WAS TRANSFERRED TO THE POWER OF ATTORNEY HOLDERS IN THE FINANCIAL YEAR 2002-03. THEREFORE THE INCOME ARISES/ACCRUES T O THE ASSESSEE FIRM ON ACCOUNT OF TRANSFER OF THE SAID PROPERTY IS REQUIRE D TO BE OFFERED TO TAX IN THE YEAR 2002-03 AND THEREFORE ACCORDINGLY ASSESSED TO TAX .. 30. IN THE INSTANT CASE, THE ASSESSEE FIRM IS ENTRU STED TO CARRY ON THE BUSINESS OF REAL ESTATE WHICH INCLUDES LONG TERM REAL ESTATE INVESTMENTS. THEREFORE, THE SALE OF LAND BY THE ASSESSEE FIRM IS IN LINE WI TH ITS BUSINESS ACTIVITY FOR WHICH IT WAS CREATED AND THEREFORE INCOME ARISING T HEREON IS HELD AS BUSINESS INCOME AND TAXED UNDER THE HEAD OF INCOME NAMELY PROFITS AND GAINS OF BUSINESS OR PROFESSION. 8.6. ACCORDINGLY, THE AO HAD COMPUTED THE TAXABLE INCOME AT RS.120061250/- AFTER ALLOWING COST OF LAND AND IMPR OVEMENT ETC. 9. ON APPEAL, THE LD. CIT (A), AFTER GIVING DUE WE IGHT-AGE TO THE CONTENTION OF THE ASSESSEE, PERUSAL OF RELEVANT REC ORDS AND DISCUSSING THE ISSUE IN AN ELABORATE MANNER, HAS OBSERVED THUS - 13.THROUGH THE GENERAL POWER OF ATTORNEY COMPLETE POSSESSION OVER THE PROPERTY WAS ADMITTEDL Y HANDED OVER TO THE PURCHASERS AND THAT IS WHY THEY STARTED DEVELOP ING THE LAND ITSELF IN 2002 AND CONSTRUCTION OF A COMPLEX NAMED MANTRI CLA SSICS IN 2003. HAD THERE BEEN AN IOTA OF DOUBT AS TO THEIR OWNERSH IP, THE PURCHASERS WOULD NOT HAVE STARTED SUCH ADVENTURE OF MASSIVE CO NSTRUCTION A FEW MONTHS AFTER THE EXECUTION OF POWER OF ATTORNEY BUT WOULD HAVE WAITED TILL THE EXECUTION OF SALE THROUGH A REGISTERED DEE D. BESIDES, I NOTE THAT THE DEED OF SALE AGREEMENT, UPON WHICH THE AUTHORIZ ED REPRESENTATIVE RELIES TOO MUCH TO ARGUE THAT CLAUSES THEREIN STIPU LATE THE TRANSFER OF OWNERSHIP AND POSSESSION AFTER FULL AND FINAL PAYME NT BY THE ITA NO.810/BANG/09 PAGE 14 OF 27 PURCHASERS GIVING THE UNFETTERED AND ABSOLUTE OWNER SHIP AND POSSESSION TO DEAL WITH THE PROPERTY IN WHATSOMANNE R THEY LIKED HAD BEEN EXECUTED ON 21.9.06. WHAT IS BEING POINTED OU T BY ME IS THAT WHEN THERE ARE MORE THAN ONE DOCUMENT DEALING WITH SAME OR SIMILAR SUBJECT, THE LATEST ONE IS NORMALLY TAKEN COGNIZANC E UNLESS THE SAME IS PROVED TO BE FORGED ONE OR EXECUTED WITH MALAFIDE I NTENTION. IN THIS CASE THE LAST ONE WAS THE GPA DATED 21.9.02 BECAUSE I HAVE HELD ABOVE THAT THE SALE DEED REGISTERED ON 20.6.05 WAS EXECUT ED WITH MALA-FIDE INTENTION AND AN AFTER THOUGHT. THUS OWNERSHIP, I CONCLUDE, HAD BEEN TRANSFERRED IN THE AY 03-04 THROUGH THE ABSOLUTE TE RMS OF GPA AND THUS HOLD THE ACTION OF AO JUSTIFIED IN ASSESSING T HE INCOME IN THE AY 03-04 SUBSTANTIVELY UNDER THE HEAD BUSINESS INCOME . WHILE COMING TO SUCH CONCLUSION, I DISREGARD THE ARGUMENT OF THE AR THAT FOR EACH RECEIPT OF AN INSTALMENT, AS PER THE TERMS OF THE A GREEMENT OF SALE, A SEPARATE POWER OF ATTORNEY WAS EXECUTED AND THEREFO RE THE POA EXECUTED ON 24.5.04 SHOULD BE CONSIDERED INSOMUCH A S SUCH POA WERE NOT FOUND IN THE COURSE OF SEARCH, BUT ONLY ONE GPA DT: 21.9.02 COULD BE SEIZED BY THE SEARCH PARTY WHILE CONDUCTING SEAR CH IN THE PREMISES OF MANTRI GROUP, THE TRUTHFULNESS OF WHICH WAS STAT UTORY SUPPORT. 10. BEFORE US, THE LD. AR REITERATED MORE OR LESS WHAT HAS BEEN CONTENDED BEFORE THE FIRST APPELLATE AUTHORITY. IN FURTHERANCE, IT WAS VEHEMENTLY ARGUED THAT (I) AS PER THE AGREEMENT, THE SALE WAS TO BE COMPLETED WITHIN 24 MONTHS FROM 22.6.2002; (II) AS PER CLAUSE 5.1., THE ORIGINAL DOCUMENTS OF TITLE DEED WERE KEPT IN ESCROW WHO WAS REQUIRED TO HAND OVER THE ORIGINAL DOCUMENTS TO THE PURCHASER ONLY ON THE RECEIPT OF T HE ENTIRE SALE CONSIDERATION; (III) CLAUSE 6 CLEARLY PROVIDES THAT THE VENDOR SHALL DE LIVER THE VACANT POSSESSION OF THE SCHEDULE PROPERTY TO THE P URCHASER ON THE DATE OF SALE AND AGAINST THE PAYMENT OF THE ENT IRE SALE CONSIDERATION; (IV) THE LAST AND FINAL INSTALMENT OF SALE CONSIDERATION WAS RECEIVED DURING THE FY 04-05 RELEVANT TO THE AY 05-06; (V) THE TRANSFER HAVING TAKEN PLACE ONLY IN THE PREVIOU S YEAR RELEVANT TO THE AY 05-06, THE ASSESSEE HAD OFFERED THE INCOME FROM THIS TRANSACTION FOR THE AY 05-06; (VI) THE ASSESSEE HAD EXECUTED POA IN FAVOUR OF THE PURC HASERS ONLY FOR THE PURPOSE OF ENSURING THE SAFETY OF THE AMOUNTS RECEIVED FROM THE PURCHASERS. THE POA DID NOT HAVE ANY ITA NO.810/BANG/09 PAGE 15 OF 27 MATERIAL EFFECT OF TRANSFERRING ANY PORTION OF LAND TO THE BUYER OR IN ANY WAY CONCLUDING THE SALE. THE VERY FACT T HAT THE POA EXECUTED SHOWS THAT THE OWNERSHIP REMAINED WITH THE ASSESSEE ONLY; (VII) THE POA EXECUTED ON 24.4.05 WAS IN RELATION TO THE ENTIRE LAND OF 137976 SFT. NONE OF THE PSOA WERE IN FAVOUR OF THE PURCHASERS ABHISHEK DEVELOPERS BUT, WERE IN FAV OUR OF SUSHIL MANTRI, SNEHAL MANTRI AND H.S.GIRISH GUPTA W HO WERE ACTING ON BEHALF OF THE ASSESSEE; (VIII) THE RECITAL IN THE POA DT: 24.4.04 GOES TO PROVE EX PLICITLY THAT WHEREAS WE ARE THE ABSOLUTE OWNERS OF ALL THAT PIEC E AND PARCEL OF CONVERTED LAND (IX) SUPPLEMENTAL AGREEMENT EXECUTED ON 24.6.2002, MAKES IT UNAMBIGUOUSLY CLEAR THAT IV. NOW THIS SUPPLEMENTAL AGREEMENT WITNESSES AS FO LLOWS: (1) THE VENDORS AT THE REQUEST OF THE PURCHASERS, HAVE PERMITTED BY WAY OF A LICENCE TO ENTER UPON THE SCH EDULE PROPERTY AND TO DO WORK OF CONSTRUCTION IN THE PORT ION THEREOF SET OUT IN GREEN OUTLINE IN THE PLAN ANNEXE D HERETO BEING THE PORTION OF THE SCHEDULE A PROPERTY ENTI RELY AT THEIR RISK AS TO COST AND CONSEQUENCES WITHOUT ANY RIGHT OF REIMBURSEMENT OF THE COST OF CONSTRUCTION. (2) THE LICENSE HEREBY GRANTED TO THE PURCHASERS BY THE VENDORS IS ON THE SPECIFIC CONDITION, ASSURANCE AND UNDERTA KING BY THE PURCHASERS THAT THE SAME SHALL NOT BE CONSTRUED OR DEEMED TO BE POSSESSION OR CLAIM TO BE POSSESSION U NDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT BY THE PURCHASERS UNDER ANY AGREEMENT FOR SALE WITH REGARD S TO THE PORTION IN WHICH THE LICENCE IS GRANTED FOR CON STRUCTION; (3) THE LICENCE HEREBY GRANTED TO THE PURCHASERS BY THE VENDORS IS ON THE SPECIFIC ASSURANCE THAT ALL ACTS, DEEDS A ND THINGS DONE BY THE PURCHASERS PURSUANT TO THIS LICENCE SHA LL BE THE RESPONSIBILITY OF THE PURCHASERS AND SHALL BE DONE ENTIRELY AT THE RISK AS TO COST AND CONSEQUENCES OF THE PURC HASERS AND THAT THE PURCHASERS SHALL KEEP THE VENDORS FULL Y INDEMNIFIED AGAINST ANY COST, CLAIM, ACTIONS, PROCE EDINGS ETC., IN TERMS OF THE SEPARATE INDEMNITY EXECUTED B Y THE PURCHASERS IN FAVOUR OF THE VENDORS. (X) THE AO HAD RELIED ONLY ON THE POA EXECUTED BY THE A SSESSEE TO CONCLUDE THAT THE TRANSFER OF LAND TOOK PLACE IN TH E PREVIOUS ITA NO.810/BANG/09 PAGE 16 OF 27 YEAR RELEVANT TO THE AY 03-04. HOWEVER, HE HAD FAI LED TO CONSIDER THE FACT THAT - THE AGREEMENT WAS ENTERED INTO WITH ABHISHEK BUILDE RS; - THE POA WAS IN FAVOUR SUSHIL MANTRI, SMT.SNEHAL MAN TRI AND GUPTA - AS PER THE POA, THE AGENT HAD ACTED AS AGENT OF THE ASSESSEE AS WAS CLEAR FROM THE WORDING OUR AGENTS AT MANY PLACES IN THE POA. THE POA WAS ISSUED FOR ON BEHALF OF THE ASSESSEE AND NOT FOR THE BENEFITS/ADVANTAGE OF THE PROPOSED BUYER (XI) THE MERE EXECUTION OF GPA DOES NOT MEAN THAT THERE WAS A TRANSFER OF PROPERTY WHICH NEEDS CONVEYANCE OR HAND ING OVER THE POSSESSION OF THE PROPERTY; & (XII) THE AO HAD USED THE WORD DEEMED TO HAVE BEEN TRAN SFERRED. THERE CAN BE NO QUESTION OF DEEMING ANY TRANSFER, B UT, THE TRANSFER HAS TO BE ACTUAL TRANSFER AND IN TERMS OF LAW. 10.1 DURING THE COURSE OF HEARING, THE LD. A.R FURN ISHED A PAPER BOOK CONTAINING 1 176 PAGES WHICH CONSISTS OF, INTER ALIA, COPIES OF (I) FINANCIAL STATEMENT, (II) WRITTEN SUBMISSION MA DE BEFORE THE CIT(A), (III) REJOINDER TO REMAND REPORT ETC., SUBSEQUENTLY, THE LD.A.R CAME UP WITH A PAPER BOOK-II WHICH CONTAINED COPIES OF (I) BALANCE SHEETS FOR THE AYS 93- 94 05-06; & (II) SALE AGREEMENTS WITH ABHISHEK DE VELOPERS AND OTHER CORRESPONDENCES. 10.2. ON THE OTHER HAND, THE LD. D R WAS MOR E EMPHATIC IN HER RESOLVE THAT THE AO HAD, IN FACT, DEALT WITH THE ISSUE IN A N INVESTIGATION ANGLE AND BROUGHT ON RECORD WITH EVIDENCE TO THWART THE ASSES SEES CLAIM WHICH HAS BEEN SUSTAINED BY THE FIRST APPELLATE AUTHORITY IN A JUDICIOUS MANNER. IT WAS, THEREFORE, PLEADED THAT THE STAND OF THE AUTHO RITIES BELOW REQUIRES TO BE UPHELD. ITA NO.810/BANG/09 PAGE 17 OF 27 11. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT RECORDS AND ALSO DOCUMENTARY EVIDENCE PRODUCED BY THE LD. A.R DURING THE COURSE OF HEARING. 11.1. THE AO, AFTER ANALYZING ALL THE MATERIAL EVID ENCED GATHERED AND CONSIDERING THE ASSESSEES SUBMISSION, CAME TO A CONCLUSION THAT 21.THE PROPERTY IN QUESTION IS DEEMED TO HAVE BEEN TRANSFERRED TO M/S. ABHISHEK DEVELOPERS DURING THE FINANCIAL YEAR 2002-03 ITSELF. THEREFORE, INCOME ON THE SAID TRAN SFER OF THE PROPERTY ACCRUES TO THE ASSESSEE IN THE FINANCIAL YEAR 2002- 03 ONLY. 11.2. ON A CAREFUL READING OF THE WORDING OF THE A O, WE FIND THAT THE AO WAS OF THE VIEW THAT THE PROPERTY IN QUESTION IS DEEMED TO HAVE BEEN TRANSFERRED TO M/S. ABHISHEK DEVELOPER S DURING THE FINANCIAL YEAR 2002-03 ITSELF. PERHAPS, HE WAS NOT VERY EMPHATIC IN HIS RESOLVE THAT THE PROPERTY IN QUESTION HAS BEEN TRAN SFERRED TO ABHISHEK DEVELOPERS DURING THE FY 2002-03, THAT WAS THE REAS ON WHY, THE AO HAD IN A SUAVE WAY USED THE WORD DEEMED TO DRIVE HOME HIS POINT. 11.3. DEEMED - ITS VARIOUS MEANINGS ARE TO DEEM IS TO HOLD IN BELIEF, ESTIMATION, OR OPINION; TO JUDGE, A DJUDGE, DECIDE, CONSIDER TO BE; TO HAVE OR TO BE OF AN OPINION ETC., 11.4. ON A PERUSAL OF THE AGREEMENT OF SALE EXECUT ED ON 22.6.2002 BETWEEN ASHA HOUSING ENTERPRISES AND ABHI SHEK DEVELOPERS, THE FOLLOWING SIGNIFICANT FEATURES WERE EMERGED: (I) THE VENDORS ARE IN POSSESSION AND ENJOYMENT AND PER SONAL OCCUPATION OF THE SCHEDULE PROPERTY; ITA NO.810/BANG/09 PAGE 18 OF 27 (II) THE SCHEDULE OF PAYMENT OF CONSIDERATION OF RS.12.2 5 CRORES WAS EARMARKED IN THE FOLLOWING MANNER: RS.5.25 CRORES ON 22.6 .2002 RS.1.00 CRORE ON 24.9 .2002 RS.1.00 CRORE ON 24.12.2002 RS.1.00 CRORE ON 24.3 .2003 RS.1.00 CRORE ON 24.4 .2003 RS.1.00 CRORE ON 24.5 .2003 RS.1.00 CRORE ON 24.4 .2004 RS.1.00 CRORE ON 24.5 .2004 THUS, THE SALE SHALL BE COMPLETED WITHIN 23 (TWENTY THREE) MONTHS FROM THIS DATE, SUBJECT TO THE TERMS OF THIS AGREEMENT; (III) THE VENDORS SHALL BEAR AND PAY ALL RATES, TAXES AND CESSES IN REGARD TO THE SCHEDULE PROPERTY UP-TO THE DATE OF S ALE AND REGISTRATION OR UP-TO THE DATE OF PAYMENT OF THE E NTIRE SALE CONSIDERATION. THE SECURING OF THE KHATA FROM THE CORPORATION OF CITY OF BANGALORE SHALL ALSO BE DONE BY THE VEND ORS AT THEIR OWN COST. HOWEVER, THE PURCHASER WILL ARRANGE TO C OMPLETE THE FORMALITIES TO SECURE THE KHATA FOR THE VENDORS; (IV) POSSESSION: THE VENDORS SHALL DELIVER THE VACANT POSSESSION OF THE SCHEDULE PROPERTY TO THE PURCHASER ON THE DATE OF SALE AND AGAINST TH E PAYMENT OF THE ENTIRE SALE CONSIDERATION; (V) IN ITS SUPPLEMENTAL AGREEMENT EXECUTED ON 24.6. 2002, IT WAS RESOLVED THAT IV.NOW THIS SUPPLEMENTAL AGREEMENT WITNESSES AS FO LLOWS: 1) THE VENDORS AT THE REQUEST OF THE PURCHASERS, HAVE PERMITTED BY WAY OF A LICENCE TO ENTER UPON THE SCHEDULE PROP ERTY AND TO DO WORK OF CONSTRUCTION IN THE PORTION THEREOF S ET OUT IN GREEN OUTLINE IN THE PLAN ANNEXED HERETO BEING THE PORTION OF THE SCHEDULE A PROPERTY ENTIRELY AT THEIR RISK AS TO COST AND CONSEQUENCES WITHOUT ANY RIGHT OF REIMBURSEMENT OF THE COST AND CONSEQUENCES WITHOUT ANY RIGHT OF REIMBURSEMENT OF THE COST OF CONSTRUCTION. THE SAI D AREA MARKED IN GREEN OUTLINE IS SET OUT IN SCHEDULE B HERETO; 2) THE LICENCE HEREBY GRANTED TO THE PURCHASERS BY THE VENDORS IS ON HE SPECIFIC CONDITION, ASSURANCE AND UNDERTAK ING BY THE PURCHASERS THAT THE SAME SHALL NOT BE CONSTRUED OR DEEMED TO BE POSSESSION OR CLAIM TO BE POSSESSION UNDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT BY THE PURCHASERS UNDER ANY AGREEMENT FOR SALE WITH REGARD S TO THE PORTION IN WHICH THE LICENCE IS GRANTED FOR CONSTRU CTION; ITA NO.810/BANG/09 PAGE 19 OF 27 3) THE LICENCE HEREBY GRANTED TO THE PURCHASERS BY THE VENDORS IS ON THE SPECIFIC ASSURANCE THAT ALL ACTS, DEEDS A ND THINGS DONE BY THE PURCHASERS PURSUANT TO THIS LICENCE SHA LL BE THE RESPONSIBILITY OF THE PURCHASERS AND SHALL BE DONE ENTIRELY AT THE RISK AS TO COST AND CONSEQUENCES OF THE PURCHAS ERS AND THAT THE PURCHASERS SHALL KEEP THE VENDORS FULLY IN DEMNIFIED AGAINST ANY COST, CLAIM, ACTIONS, PROCEEDINGS ETC., IN TERMS OF THE SEPARATE INDEMNITY EXECUTED BY THE PURCHASER S IN FAVOUR OF THE VENDORS; AS PER THE LAW LEXICON: LICENCE MEANS AN AUTHORITY TO DO SOMETHING WHICH WOULD OTHERWISE BE INOPERATIVE, WRONGFUL OR ILLEGAL; A FORMAL PERMISSI ON FROM A CONSTITUTED AUTHORITY TO DO SOMETHING LICENSE PERMISSION OR AUTHORITY TO DO A PARTICULAR THING. A LICENSE IN RESPECT TO REAL ESTATE IS DEFINED TO BE AN AUTHORIT Y TO DO A PARTICULAR ACT OR SERIES OF ACTS ON ANOTHERS LAND WITHOUT POSSESS ING ANY ESTATE THEREIN. A LICENSE IS DESCRIBED BY JONES IN HIS BOOK ON EA SEMENTS AS A PERSONAL AND REVOCABLE PRIVILEGE TO DO SOME ACT OR SERIES OF ACTS UPON THE LANDS OF ANOTHER WITHOUT POSSESSING ANY ESTATE THEREIN. IT GIVES IMMUNITY TO THE LICENSEE WHILE ACTING UNDER THE PRIVILEGE BUT CONFE RS NOT VESTED RIGHT BY WHICH HE CAN RIGHTFULLY ENJOY IT CONTRARY TO THE WI LL OF THE GRANTOR. 11.5. AS RIGHTLY ARGUED BY THE LD.A.R, CLAUSE 6 EX PLICITLY AVERS THAT THE VENDOR SHALL DELIVER THE VACANT POSSESSION OF T HE SCHEDULE PROPERTY TO THE PURCHASER ON THE DATE OF SALE AND AGAINST THE P AYMENT OF THE ENTIRE SALE CONSIDERATION. EVEN IN SUPPLEMENTAL AGREEMENT EXECUTED ON 24.6.2002, IT WAS STATED THAT THE VENDORS AT THE REQUEST OF THE PURCHASERS, HAVE PERMITTED BY WAY OF A LICENCE TO E NTER UPON THE SCHEDULE PROPERTY AND TO DO WORK OF CONSTRUCTION IN THE PORT ION THEREOF SET OUT IN GREEN OUTLINE IN THE PLAN AND THAT THE LICENCE H EREBY GRANTED TO THE PURCHASERS BY THE VENDORS IS ON SPECIFIC CONDITION, ASSURANCE AND UNDERTAKING BY THE PURCHASERS THAT THE SAME SHALL N OT BE CONSTRUED OR DEEMED TO BE POSSESSION OR CLAIM TO BE POSSESSION UNDER SE CTION 53A OF ITA NO.810/BANG/09 PAGE 20 OF 27 THE TRANSFER OF PROPERTY ACT BY THE PURCHASERS UND ER ANY AGREEMENT FOR SALE WITH REGARDS TO THE PORTION IN WHICH THE LICEN CE IS GRANTED FOR CONSTRUCTION. 11.6. FOR READY REFERENCE, WE SHALL REPRODUCE EXTR ACT OF S.53A OF TRANSFER OF PROPERTY ACT, 1882: WHERE ANY PERSON CONTRACTS TO TRANSFER FOR CONSIDE RATION ANY IMMOVABLE PROPERTY BY WRITING SIGNED BY HIM OR ON H IS BEHALF FROM WHICH THE TERMS NECESSARY TO CONSTITUTE THE TRANSFE R CAN BE ASCERTAINED WITH REASONABLE CERTAINTY, AND THE TRANSFEREE HAS, IN PART PERFORMANCE OF THE CONTRACT TAKEN POSSESSION OF THE PROPERTY OR ANY PART THEREOF, OR THE TRANSFEREE, BEING ALREADY IN POSSESSION, CONTINUES IN POSSESSION IN P ART PERFORMANCE OF THE CONTRACT AND HAS DONE SOME ACT IN FURTHERANCE O F THE CONTRACT, AND THE TRANSFEREE HAS PERFORMED OR IS WILLING TO P ERFORM HIS PART OF THE CONTRACT, THEN, NOTWITHSTANDING THAT WHERE THER E IS AN INSTRUMENT OF TRANSFER, THAT THE TRANSFER HAS NOT BEEN COMPLETED IN THE MANNER PRESCRIBED THEREFORE BY THE LAW FOR THE TIME BEING IN FORCE, THE TRANSFEROR OR ANY PERSON CLAIMING UNDER HIM ANY RIG HT IN RESPECT OF THE PROPERTY OF WHICH THE TRANSFEREE HAS TAKEN OR CONTI NUED IN POSSESSION, OTHER THAN A RIGHT EXPRESSLY PROVIDED BY THE TERMS OF THE CONTRACT: PROVIDED THAT NOTHING IN THIS SECTION SHALL AFFECT THE RIGHTS OF A TRANSFEREE FOR CONSIDERATION WHO HAS NO NOTICE OF T HE CONTRACT OR OF THE PART PERFORMANCE THEREOF. 11.7. THIS GIVES A CLEAR INDICATION THAT THE ASSES SEE WAS PHYSICAL POSSESSION OF THE PROPERTY IN QUESTION. 11.8. THE FOLLOWING VITAL ISSUES HAVE BEEN OVERLOO KED BY THE AO WHILE DECIDING THE ISSUE: (I) THE ASSESSEE HAD ENTERED INTO AGREEMENT OF SALE WI TH M/S.ABHISHEK BUILDERS FOR THE SALE OF LAND IN QUEST ION; (II) THE POWER OF ATTORNEY GIVEN BY THE ASSESSEE WAS IN FAVOUR OF SUSHIL MANTRI, MRS.SNEHAL MANTRI AND GUPTA TO ACT A S AGENTS ON ITA NO.810/BANG/09 PAGE 21 OF 27 BEHALF OF THE ASSESSEE. THEY WERE NOT THE PARTNERS OF M/S.ABHISHEK BUILDERS WHO WERE THE PURCHASERS OF TH E LAND; (III) THE EXECUTION OF A GPA CAN NOT BE CONSTRUED THAT TH ERE WAS A TRANSFER OF PROPERTY; 11.9. THE AO WAS NOT HAVING ANY CONCLUSIVE EVIDENC E TO SHOW THAT THE POSSESSION OF THE PROPERTY WAS INDEED HANDED OV ER TO ABHISHEK BUILDERS DURING THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR UNDER DISPUTE AND THEREFORE, TAXING OF INCOME FROM THE T RANSACTION IN LAND ASSESSED FOR THE A.Y UNDER APPEAL CANNOT BE SUSTAIN ED; 11.10. SINCE THE REVENUE HAS NOT COME UP WITH ANY DISCREET DOCUMENTARY EVIDENCE TO SUGGEST THAT THE ASSESSEE H AD EARNED INCOME FROM THE TRANSACTION OF LAND DURING THE AY 2003-04, WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE REVENUE; 11.11 THE FOLLOWING FACTS EMERGES ON PERUSING THE FINANCIAL STATEMENTS SUBMITTED BY THE ASSESSEE ON 4.2.2010. (I) DURING THE PREVIOUS YEAR ENDING 31.3.93, THE AS SESSEE HAS DISCLOSED IN ITS BALANCE SHEET THE LAND UNDER THE H EAD PROPERTY AS AN ASSET, AMOUNTING TO RS.11,62,779. FOR THE SUBSEQUE NT YEARS THE ASSESSEE HAS DISCLOSED THE SAME ON A SIMILAR MANNER AND THEY ARE LISTED OUT AS FOLLOWS: YEAR ENDED AMOUNT 31.3.1994 12,62,775 31.3.1995 12,64,275 31.3.1996 12,68,590 31.3.1997 12,68,795 31.3.1998 12,69,100 ITA NO.810/BANG/09 PAGE 22 OF 27 31.3.1999 12,69,200 31.3.2000 12,69,360 31.3.2001 9,35,425 31.3.2002 10,90,450 31.3.2003 11,02,136 31.3.2004 11,01,336 DURING THE PERIOD 1.4.04 TO 31.3.05 PROPERTY WAS SOLD (II) DURING THE PERIOD 1.4.2000 TO 31.3.2001, THE A SSESSEE HAD SOLD A PORTION OF THE PROPERTY FOR RS.24,04,178. THE COST ATTRIBUTED FOR THIS PORTION OF THE LAND WAS RS.3,33,935 AND THE SAME WAS EXCLUD ED FROM THE TOTAL INVESTMENT OF RS.12,69,200 AS IT STOOD ON 31.3.2000 . THUS, FOR THE YEAR ENDED 31.3.2001, THE VALUE OF THE LANDED PROPERTY W AS REDUCED TO RS.9,35,425 IN THE BALANCE SHEET. (III) AS A RESULT FOR THE A.Y. 2001-02, THE ASSESS EE HAD COMPUTED IN ITS RETURN OF INCOME LONG TERM CAPITAL GAINS OF RS.11,8 0,196 AFTER GIVING EFFECT TO INDEXED COST OF ACQUISITION AS PER THE PROVISION S OF THE ACT AND THE DUE TAX WAS PAID ON 28.9.2001 (PAGE 15 OF THE PAPERBOOK DATED 4.2.2010). (IV) THIS RETURN OF INCOME FOR THE A.Y. 2001-02 WA S ACCEPTED BY THE REVENUE AND NOT DISPUTED. (V) THE BALANCE PORTION OF THE LAND WAS SOLD FOR R S.12.25 CRORES AND THE INCOME ARISING OUT OF SUCH TRANSFER IS NOW HELD BY THE AO AS BUSINESS INCOME AND THEREBY TAKING A CONTRARY VIEW. (VI) THE FIRM APPEARS TO HAVE NOT CONDUCTED ANY OT HER ACTIVITY OTHER THAN HOLDING THE LAND OF INVESTMENT, BORROWINGS AND LEND ING. ITA NO.810/BANG/09 PAGE 23 OF 27 11.12 ON PERUSING THE ABOVE FACTS, IT IS CLEAR THA T THE FIRM HAD PURCHASED THE LANDED PROPERTY AND HELD IT AS INVEST MENT WAY BACK FROM 1994 AND BEYOND UNTIL THE YEAR IT WAS SOLD. TWO PO RTIONS OF THE SAME LAND IS SOLD ON TWO ASSESSMENT YEARS, ONE DURING THE A.Y . 2001-02. FOR THE A.Y. 2001-02, THE REVENUE HAS NOT DISPUTED THAT THE INCOME ARISING OUT OF SALE OF PROPERTY DOES NOT FALL UNDER THE HEAD LONG TERM CAPITAL GAINS. BEING SO, IT IS NOT APPROPRIATE FOR THE REVENUE TO HOLD T HE INCOME ARISING OUT OF THE SALE OF THE OTHER PORTION OF THE SAME PROPERTY AS B USINESS INCOME, WHEN ALL THE FACTS REMAIN THE SAME. A FIRM INVOLVED IN REAL ESTATE BUSINESS CAN HOLD LAND AS INVESTMENT AND/OR AS STOCK IN TRADE. THIS DECISION HAS TO BE TAKEN ONLY BY THE FIRM AND ITS MANAGEMENT AND NOT BY THE ASSESSING OFFICER. THE AO IS NOT RIGHT TO DEEM THE ASSET OF THE FIRM TO BE STOCK IN TRADE ACCORDING TO HIS WHIMS AND FANCIES. THE FIRM WOULD HAVE VARI OUS BUSINESS PLANS AND PROPOSITIONS BY WHICH IT WOULD HAVE THOUGHT PROPER TO HOLD THE LAND AS INVESTMENTS. THIS VIEW IS FURTHER FORTIFIED BY THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF PARESH D .SHAH V. JOINT COMMISSIONER OF INCOME- TAX 2 ITR (TRIB) 311 (MUM) THE GIST OF THE SAME IS REPRODUCED HEREBELOW. THE ASSESSEE SHOWED SURPLUS EARNED ON SALE OF INVE STMENTS AS SHORT-TERM CAPITAL GAINS. THE ASSESSEE EXPLAINED T HAT HE WAS CARRYING ON THE BUSINESS OF TRADING IN SHARES AND S ECURITIES AND THAT THE MAIN TRADING WAS OF SECURITIES AND BONDS WITH C O-OPERATIVE BANK. THE ASSESSEE HAD ALSO MADE INVESTMENT IN MUT UAL FUNDS, FIXED DEPOSITS, SHARES ETC. DURING THE ACCOUNTING YEAR 2 003-04, THE RESERVE BANK OF INDIA BANNED THE TRADING OF INDIVID UALS WITH CO- OPERATIVE BANK AND AS SUCH HE HAD STOPPED TRADING I N SECURITIES. THE ASSESSING OFFICER OBSERVED THAT THE INVESTMENT WAS NOT FOR THE ITA NO.810/BANG/09 PAGE 24 OF 27 PURPOSE OF EARNING DIVIDEND BUT FOR REALIZING QUICK PROFITS THROUGH SALE OF SHARES. IT WAS ALSO OBSERVED THAT THE NATU RE AND SCALE OF ACTIVITY REMAINED THE SAME AS IN EARLIER YEARS. TH EREFORE HE TREATED THE GAIN AS BUSINESS INCOME OF THE ASSESSEE. THE C OMMISSIONER (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFI CER. ON FURTHER APPEAL: HELD, ALLOWING THE APPEAL, THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF TRADING IN SHARES AS WELL AS THE INVESTMENT IN SHARES. BOTH THESE ACTIVITIES WERE DONE IN THE PAST AND THE PROFIT ON ACCOUNT OF TRADING WAS SHOWN AS BUSINESS INCOME AND PROFIT ON ACCOUNT OF INVESTMENT WAS SHOWN AS SHORT-TERM CAPIT AL GAINS OR LONG-TERM CAPITAL GAINS. DURING THE YEAR THE ASSESS EE HAD STOPPED TRADING ACTIVITY AND A MAJOR PORTION OF THE STOCK W AS SOLD DURING THE YEAR UNDER CONSIDERATION AND THE BUSINESS PROFIT WA S OFFERED FOR TAXATION. THE STOCK TRANSFERRED TO INVESTMENT ACCO UNT WAS SOLD IN THE SUBSEQUENT YEAR. THERE WAS NO BAN ON CARRYING OUT BOTH THE ACTIVITIES, TRADING IN SHARES AND INVESTMENT IN SHA RES TOGETHER. WHATEVER SALES WERE MADE THAT WERE ON ACCOUNT OF IN VESTMENT, THE DETAILS WERE PLACED ON RECORD. THEREFORE, THE CAPI TAL GAINS OFFERED ON ACCOUNT OF SALE OF INVESTMENT WAS CORRECT AND TH E ASSESSING OFFICER SHOULD HAVE ACCEPTED IT. THE ASSESSING OFF ICER WAS TO CONSIDER THE PROFIT SHOWN ON ACCOUNT OF SALE OF INV ESTMENT AS SHORT- TERM CAPITAL GAINS OR LONG-TERM CAPITAL GAINS AS TH E CASE MAY BE. 11.13. IN VIEW OF THE FOREGOING FACTS AND CIRCUMST ANCES OF THE ISSUE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAD HELD THE LAND AS INVESTMENT ONLY AND THAT THE ENTIRE TRANSACTION WAS IN THE NATURE OF INVESTMENT ONLY. TO SUPPORT ITS VIEW, THE ASSESSEE HAS PLACED STRONG RELIANCE ON THE FINDING OF THE HONBLE RAJASTHAN HI GH COURT IN THE CASE OF CIT V. SOHAN KHAN AND MOHAN KHAN REPORTED IN (2008) 304 ITR 194 . IN ITA NO.810/BANG/09 PAGE 25 OF 27 THAT CASE, THE ASSESSEE PURCHASED A LARGE EXTENT OF LAND IN 1970 UNDER A VALID DOCUMENT. THE LAND WAS UNDER THE CLOUD OF CE ILING LAWS AND AFTER IT GOT CLEARED THERE-FROM, THE ASSESSEE PREPARED A SIT E PLAN SHOWING THE LAND TO BE DIVIDED INTO DIFFERENT PLOTS AND PLOTS WERE A CCORDINGLY SOLD. THE ASSESSEE FILE HIS ROI DECLARING THE PARTICULAR INCO ME AS CAPITAL GAINS. THE AO FOUND THAT THE PROFITS FROM THE SALE WERE NOT TO BE TAXED AS CG BUT THAT THE TRANSACTION WAS IN THE NATURE OF TRADE ON THE G ROUND THAT THE LAND SURROUNDING THE ORIGINAL LAND WAS OWNED BY HIS NEAR RELATIVES AND FAMILY MEMBERS AND THAT THE PURCHASERS WERE IMPRESSED BY T HE FACT THAT ALL THE LAND BELONGED TO THE SAME FAMILY AND WAS BEING PLAN NED AND SOLD TOGETHER AND AT NO STAGE THE HUGE PROPERTY WAS USED FOR PERS ONAL PURPOSES, THE INTENTION BEING TO GAIN PROFIT ONLY. THE CIT(A) AS WELL AS THE TRIBUNAL HELD THAT THE SALE PROCEEDS WERE TO BE CONSIDERED AS CG. ON APPEALS, THE HONBLE COURT DISMISSING THE APPEALS HELD THAT THE MOST SIGNIFICANT CONSIDERATION TO CONCLUDE WHETHER THE TRANSACTION G AVE RISE TO CAPITAL GAINS OR NOR WOULD BE THE REGULARITY OF TRANSACTIONS OF P URCHASE AND SALE. THE MERE FACT THAT THERE WAS A SERIES OF TRANSACTIONS O F SALE ONLY BY SELLING PART OF THE LAND, PURCHASE IN ONE GO, OR PURCHASED ONCE UPON A TIME, PIECEMEAL, WOULD NOT RENDER THE ACTIVITY OF SALE AN ADVENTURE IN THE NATURE OF TRADE. THERE WAS NOTHING TO SHOW THAT THE LAND WAS PURCHAS ED WITH THE INTENTION TO SELL IT AT A PROFIT, OR WITH REQUISITE INTENTION, T O BRING IT WITHIN THE PARAMETERS OF STOCK-IN-TRADE. IT WAS ALSO NOT S HOWN THAT THE ASSESSEE WAS A REGULAR DEALER IN REAL ESTATE. THE TRANSACTION WAS OF A CAPITAL ASSET ONLY ITA NO.810/BANG/09 PAGE 26 OF 27 AND NOT A TRANSACTION OF ANY STOCK-IN-TRADE. THE REFORE, THE SALE PROCEEDS WERE LIABLE TO BE TAXED AS CAPITAL GAINS. WITH DUE REGARDS, WE WOULD LIKE TO POINT OUT THAT R ATIO LAID DOWN BY THE HONBLE COURT REFERRED SUPRA IS DIRECTLY APPLICABLE TO THE FACTS OF THE ISSUE ON HAND. 12. IN AN OVER ALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AS DELIBERATED UPON IN THE FORE-GOING PAR AGRAPHS, WE ARE OF THE UNANIMOUS VIEW THAT THE AO WAS NOT JUSTIFIED IN TRE ATING THE INCOME AS BUSINESS INCOME IN THE ASSESSMENT YEAR UNDER DISP UTE AND THAT THE INCOME SO OFFERED AS CAPITAL GAINS BY THE ASSESSEE IS TO BE ASSESSED IN THE ASSESSMENT YEAR 2005-06. IT IS ORDERED ACCORDINGLY . 13. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH, 2010. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 31 ST MARCH, 2010. DS/- ITA NO.810/BANG/09 PAGE 27 OF 27 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.