Dy.CIT, Circle-16(2), Hyderabad V. M/s Maheswari Plaza Resorts Limited, Hyderabad

ITA 892/HYD/2013

• Counselvise Citation: 89222514 RSA 2013
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 29-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: C P RAMASWAMI
• Keywords: Capital asset; Business income; Earning of tax free income; Commercial expediency
• Section: 143(3); 14A

Judgement Text

ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 1 OF 13 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.892/HYD/2013 (ASSESSMENT YEAR: 2006-07) DY. COMMISSIONER OF INCOME TAX, CIRCLE 16(2) HYDERABAD VS. M/S. MAHESHWARI PLAZA RESORTS LTD HYDERABAD PAN: AABCM 6346 D (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI RAJAT MITRA, (DR ) ASSESSEE BY: SHRI C.P. RAMASWAMI, ADVOCATE DATE OF HEARING: 24/12/2014 DATE OF PRONOUNCEMENT: 25/02/2015 O R D E R PER ASHA VIJAYARAGHAVAN, J.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORD ER OF THE CIT (A)-V HYDERABAD DATED 14.02.2013 RELATING TO A .Y 2006- 07. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LI MITED COMPANY, ENGAGED IN CONSTRUCTION AND RUNNING OF HOTELS . FOR A.Y 2006-07, ASSESSEE FILED ITS RETURN OF INCOME ON 20.04 .2007 ADMITTING TOTAL INCOME OF RS.2,61,18,812/-. ASSESSMENT U/S 143(3) WAS COMPLETED DETERMINING TOTAL INCOME AT RS.6,10,49,592/- BY MAKING CERTAIN ADDITIONS. ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 2 OF 13 3. THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A). THE CIT (A) ALLOWED THE APPEAL PARTLY. IN THE SAID APPEAL ORDE R, THE ADDITIONS OF RS.2.00 LAKHS WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE ADDITIONS OF RS.45,01,777, RS.1,22,54,000 AND RS.1,26,00,000 WERE DECIDED IN FAVOUR OF REVENUE. O N THE ISSUE OF ADDITION OF RS.2,10,60,000 TOWARDS DIFFERENCE IN PROFIT ON SALE OF SHOP IN GROUND FLOOR, THE CIT (A) REMANDED THE ISS UE TO THE FILE OF THE AO WITH THE FOLLOWING OBSERVATIONS: KEEPING IN VIEW ALL THE ABOVE LEGAL PRONOUNCEMENTS AND FACTS OF THE CASE, I HOLD THAT THERE IS NO DOUB T THAT BASED ON EVIDENCE AND HUMAN PROBABILITY THE AREA IN QUESTION WAS SOLD TO THE BROTHER OF THE DIRECTOR MR . ASHOK KUMAR MALPANI IS AT THE RATE AT LEAST RS.2000 /- PER SQ.FOOT ON THE MINIMUM SALE RATE OF ADJOINING A REAS. IT WAS NOT DIFFICULT FOR THE APPELLANT TO OBTAIN TH E UNACCOUNTED FOR CONSIDERATION IN CASH AS THE PURCHA SER MR. ASHOK KUMAR MALPANI WAS A BROTHER OF A DIRECTOR AND ALSO A CLOSE BUSINESS ASSOCIATE IN THE PROJECT. THEREFORE, THE AO IS CORRECT IN HOLDING THAT THE AC TUAL SALE RATE WAS MUCH HIGHER THAN WHAT WAS SHOWN BY THE APPELLANT. HOWEVER, INSTEAD OF SALE RATE OF RS.2,250/- SQ.FOOT THE AO IS DIRECTED TO APPLY A SA LE RATE 2,000. AS ALREADY DISCUSSED THE AO IS ALSO DIRECTED TO VERIFY WHETHER THERE IS ANY DUPLICATE ADDITION WITH RESPECT TO GROUND NOS. 4, 5, 6 & 7 OF THE APPEAL. 4. AGAINST THE DECISION OF THE LD CIT (A), BOTH THE DEPARTMENT AND THE ASSESSEE PREFERRED APPEAL BEFORE THE ITAT. D URING APPELLATE PROCEEDINGS BEFORE THE TRIBUNAL, THE ASSESS EE PREFERRED AN ADDITIONAL GROUND PLEADING THAT THE TRANSACTIONS OF SALE MADE DURING THE YEAR BY THE COMPANY RELEVANT TO THE SUBJECT A .Y ARE PART OF FAMILY AGREEMENT AND NO CAPITAL GAINS AROSE OU T OF THE SALES MADE. THE TRIBUNAL AFTER GOING THROUGH THE SAM E, VIDE ORDER IN ITA NO.571/HYD/2010 REMANDED THE MATTER BACK TO THE FILE OF THE AO WITH THE FOLLOWING OBSERVATIONS: ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 3 OF 13 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE NOW CLAIMS BEFORE THIS TRIBUNAL THAT THE T RANSFER WAS MADE DUE TO FAMILY ARRANGEMENT IN ORDER TO SETT LE THE FAMILY DISPUTES. THE LEARNED COUNSEL FOR THE ASSESS EE ALSO PLACED HIS RELIANCE ON VARIOUS JUDGMENTS OF THE APE X COURT. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE LO WER AUTHORITIES HAD NO OCCASION TO CONSIDER THIS ISSUE. BOTH THE COUNSELS, FOR THE ASSESSEE AND THE DEPARTMENT, HAVE NO OBJECTION TO REMIT BACK THE MATTER TO THE FILE OF T HE ASSESSING OFFICER. IN OUR CONSIDERED OPINION, SINCE THE LOWER AUTHORITIES HAD NO OCCASION TO CONSIDER THIS ISSUE, THE MATTER NEEDS TO BE CONSIDERED BY THE ASSESSEE AT THE FIRST INSTANCE. S INCE THE ISSUE OF FAMILY ARRANGEMENT GOES TO THE ROOT OF THE MATTE R, THE OTHER ISSUES RAISED BY THE ASSESSEE IN THE APPEAL H AVE ALSO TO BE RECONSIDERED BY THE ASSESSING OFFICER. 6. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND REMIT BACK THE ENTIRE ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL CONSIDER THE I SSUE ON THE BASIS OF THE MATERIALS THAT MAY BE FILED BY THE ASS ESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. WE MAKE IT CLEAR THAT WE ARE NOT EXPRESSING ANY OPINION ON THE MERIT OF THE APPEAL. THE ASSESSING OFFICER HAS TO RECONSIDER THE ENTIRE ISSUE IN ACCORDANCE WITH LAW WITHOUT BEING INFLUENC ED BY ANY OF THE OBSERVATIONS MADE BY THIS TRIBUNAL IN THIS O RDER OR OF THE CIT(A) IN THE IMPUGNED ORDER. 5. CONSEQUENT TO THE DIRECTIONS OF THE TRIBUNAL, THE AO INITIATED ASSESSMENT PROCEEDINGS AND PASSED AN ORDER D ATED 30.12.2011 BY MAKING THE FOLLOWING ADDITIONS: I) DISALLOWANCE OF 40(A)(IA) OF RS.2,71,729 II) DISALLOWANCE OF INTEREST OF RS.45,01,777 III) EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME OF RS.2.00 LAKHS. IV) BUSINESS PROFIT OF SHOPS SOLD OF RS.1,22,54,0 00 V) DIFFERENCE IN PROFIT ON SALE OF SHOP IN GROUND FLOOR OF MMP MALL OF RS.2,10,60,000 ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 4 OF 13 VI) DIFFERENCE IN PROFIT ON SALE OF SHOPS IN 2 ND , 3 RD & 4 TH FLOORS IN MPM MALL OF RS.1,26,00,000. 6. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.12.2011 THE ASSESSEE PREFERRED APPEAL BEFORE THE C IT (A). THE ASSESSEE RAISED GROUND NO.3 BEFORE THE CIT (A) WHICH IS AS FOLLOWS: 3. THE LD AO GROSSLY ERRED IN DISALLOWING INTEREST PAID ON BORROWED CAPITAL FOR AN AGGREGATE SUM OF RS.45,01,777 AS EXPENSES INCURRED EXEMPTED INCOME IN TOTAL DISREGARD OF THE PROVISIONS OF SECTION 14A R.W. RULE 8D AND ALSO OF THE DECISION OF THE HON'BL E ITAT IN THE CASE OF THIS APPELLANT IN ITS ORDER DAT ED 31 OCTOBER, 2011 IN ITA NO.1705/HYD/2008 FOR THE A.Y 2005-06. HE OUGHT TO HAVE ALLOWED THE INTEREST CLAIMED IN TERMS OF SECTION 36(I)(III). 7. WITH RESPECT TO GROUND NO.3 ON DISALLOWANCE OF INTE REST OF RS.45,01,777/- PAID ON BORROWED CAPITAL U/S 14A R.W. S. RULE 8D, AO OBSERVED THAT THE ASSESSEE, OUT OF INTEREST BEARING FU NDS, HAD INVESTED RS.4.00 CRORES TOWARDS SHARE APPLICATION MONE Y IN ITS SISTER CONCERN M/S MAHESHWARI MEGA VENTURES LTD AND AL SO HAD GIVEN LOANS/ADVANCES OF ABOUT 60% TO THE FAMILY MEMBER S AND RELATIVES OF THE DIRECTORS OF THE ASSESSEE COMPANY OUT O F THE TOTAL ADVANCES OF RS.10.11 CRORES WITHOUT CHARGING ANY INTE REST, AO DISALLOWED INTEREST OF RS.45,01,777/-. IN DOING SO T HE AO RELIED ON THE OBSERVATIONS OF THE PREDECESSOR CIT(A) IN THE APPELLATE ORDER FOR THE A.Y 2005-06 WHEREIN THE DISALLOWANCE SO MADE FOR A.Y 2005-06 WAS CONFIMED IN THE APPELLATE ORDER. AS THERE WAS NO CHANGE IN THE FACTS OF THE CASE FOR THE PRESENT YEAR, THE AO DISALLOWED INTEREST OF RS.45,01,777/-. ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 5 OF 13 8. IN THIS CONNECTION, THE LD CIT (A) HELD AS FOLLOWS AT PARA 7.1 7.1. IT IS PERTINENT TO MENTION HERE THAT AGAINST THE CONFIRMATION OF DISALLOWANCE OF INTEREST BY THE CIT (A) FOR THE A.Y 2005-06, THE TRIBUNAL ADJUDICATGED THIS ISS UE IN ITA NO.1705/HYD/2008 AND HELD AS UNDER: 75. WE HEARD BOTH PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE IS IN THE BUSINESS OF RUNNIN G A STAR HOTEL, NAMELY, QUALITY INN RESIDENCY AT HYDERABAD FOR THE L AST SEVERAL YEARS, WHEREAS MAHESHWARI MEGA VENTURE, WHICH IS TH E SISTER CONCERN IS IN THE PROCESS OF SETTING UP A FIVE STAR HOTEL AT AMEERPET, HYDERABAD. OUT OF RS.8.37 CORES WHICH WAS WORKED OUT BY THE ASSESSING OFFICER AS INTEREST FREE ADVANCES, RS.4 C RORES WAS ADVANCED TO M/S. MAHESWARI BUILDERS MERGED WITH ASH ISH BUILDERS TO FORM A NEW ENTITY, NAMELY, MAHESHWARI MEGA VENTU RE, SO AS TO ENABLE THE SAID CONCERN TO MOBILIZE FUNDS TO PURCHA SE LAND AND BALANCE RS.4 CRORES WAS ADVANCED TOWARDS SHARE APPL ICATION MONEY. IN CIT V/S. HERO CYCLES LTD. (323 ITR 518), HON'BLE PUNJAB AND HARYANA HIGH COURT HAS HELD AS FOLLOWS- 'HELD, DISMISSING THE APPEAL, THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTEREST AND THE IN VESTMENT IN THE SHARES AND FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IN VIEW OF THIS FINDING OF FACT, DISALLOWANCE UNDER SECTION1 4A WAS NOT SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, WAS A QUESTION OF FACT. THE C ONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITUR E WAS ALWAYS INCURRED WHICH MUST BE DISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED COULD NOT BE ALLO WED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY THE M ANDATE OF SECTION 14A, COULD NOT BE ACCEPTED. DISALLOWANCE UN DER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE AN D WHERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITU RE HAD BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND. CONSEQUENTLY, THE DISALLOWANCE WAS NOT PERMISSIBLE. ' THE SAME VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF ACIT V/S. SUN INVESTMENT (8 ITR (TRIB) 33). RELYING ON T HE RATIO LAID DOWN IN THE ABOVE CASES, THIS ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER, TO VERIFY WHETHER ANY EXEMPTED I NCOME HAS BEEN EARNED BY THE ASSESSEE DURING THE PREVIOUS YEAR REL EVANT TO ASSESSMENT YEAR UNDER CONSIDERATION ON THE INVESTME NT TOWARDS SHARE APPLICATION MONEY AND DECIDE THE ISSUE IN ACC ORDANCE WITH LAW, AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. 76. AS FOR THE BALANCE AMOUNT OF INTEREST FREE ADVA NCE OF RS.4.37 CRORES ADVANCED BY THE ASSESSEE, WE FIND THAT THE A SSESSEE ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 6 OF 13 COMPANY, WHICH IS HAVING EXPERIENCE AND EXPERTISE I N RUNNING A STAR HOTEL IS INTERESTED IN THE NEW VENTURE IN AS M UCH AS IT WAS FELT THAT THE ASSESSEE WOULD BE BENEFITTED MAXIMUM BY BE ING A PART OF A HOTEL CHAIN. THE RUNNING OF A CHAIN OF HOTELS BELON GING TO A GROUP IS QUITE IN VOGUE AND THE ADVANCE HAS BEEN PROMPTED ON THE PRINCIPLES OF BUSINESS PRUDENCE AND COMMERCIAL EXPE DIENCY. HENCE, IN THE LIGHT OF THE DECISION OF THE APEX COURT IN T HE CASE OF SA BUILDERS (SUPRA), INTEREST IS DEDUCTIBLE AS THE AMO UNT IS ADVANCED TO A SUBSIDIARY COMPANY/SISTER CONCERN, AS A MEASUR E OF COMMERCIAL EXPEDIENCY. IN ATHERTON V/S. BRITISH INS ULATED AND HELSBY CABLES LTD. (1925) 10 TC 155, IT WAS HELD BY THE HOUSE OF LORDS THAT IN ORDER TO CLAIM A DEDUCTION, IT IS ENO UGH TO SHOW THAT THE MONEY IS EXPENDED NOT OF NECESSITY AND WITH A V IEW TO DIRECT AND IMMEDIATE BENEFIT, BUT VOLUNTARILY AND ON GROUN DS OF COMMERCIAL EXPEDIENCY AND IN ORDER TO INDIRECTLY FA CILITATE THE CARRYING ON THE BUSINESS. SAME VIEW WAS ALSO EXPRES SED BY THE APEX COURT IN EASTERN INVESTMENTS LTD. V/S. CIT(20 ITR 1); AND CIT V/S. CHANDULAL KESHAVLALA AND CO. (38 ITR 601). 77. IN VIEW OF THE ABOVE DISCUSSION, WHILE WE SET A SIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER INSOFAR AS IT REL ATED TO INVESTMENT IN SHARE APPLICATION MONEY OF RS.4 CRORES, WE DELETE T HE DISALLOWANCE RELATABLE TO BALANCE AMOUNT OF INTEREST FREE ADVANC ES OF RS.4.37 CRORES . 7.2 GOING BY THE ABOVE DECISION OF THE HON'BLE TRIBUNAL, THE ISSUE OF INVESTMENT OF RS.4.00 CRORES PERTAINING TO THE PREVIOUS A.Y 2005-06 WAS SET ASID E AND THE BALANCE INTEREST RELATABLE TO INTEREST FREE ADVANCES TO RELATIVES AND FAMILY MEMBERS WAS DIRECT ED TO BE DELETED. ACCORDINGLY, AS THE AMOUNT OF RS.4.0 0 CRORES ADVANCED TO SISTER CONCERN PERTAIN TO EARLIE R A.Y, FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, THE I NTEREST DISALLOWED AT RS.45,01,777/- FOR THE SUBJECT A.Y ON THE LOANS ADVANCED TO RELATIVES/FAMILY MEMBERS IS DIREC TED TO BE ALLOWED. THUS, THIS GROUND OF APPEAL IS ALLOW ED . 9. AGAINST THE ORDER OF THE CIT (A), THE DEPARTMENT HAS PREFERRED APPEAL AND GROUND NO.2 OF THE DEPARTMENTAL A PPEAL READ AS FOLLOWS: 2. THE CIT (A) OUGHT TO HAVE APPRECIATED THE DISALLOWANCE OF THE EXPENDITURE OF RS.45,01,777 CLAIMED BY THE ASSESSEE AS FINANCE CHARGES/INTEREST DEBITED TO THE P&L A/C. ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 7 OF 13 10. WE FIND NO INFIRMITY IN THE ORDER OF THE CIT (A) AS HE HAS ONLY FOLLOWED THE ORDER OF THE ITAT IN ITA NO.1705/HY D/2008 FOR THE AY 2005-06 IN THE ASSESSEES OWN CASE. HENCE THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 11. WITH RESPECT TO GROUND NOS. 3 & 4, RELATING TO LONG TERM CAPITAL GAINS OF RS.1,00,07,133/- TREATED AS BUSINESS INCOME AT RS.1,22,54,400/-, IT WAS OBSERVED THAT THE ASSESSEE HAD SOLD ITS LET OUT SHOPS AND OFFERED IT UNDER LONG TERM CAPITAL GAI NS. THE AO TREATED THE SALE OF ASSETS AS ITS BUSINESS INCOME AN D BROUGHT TO TAX AN AMOUNT OF RS.1,22,54,400/-. ON THIS, DURING THE COURSE OF SCRUTINY PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESS EE, AS UNDER: COMPANY HAS INITIALLY CAPITALIZED THE BUILDING AS INVESTMENT IN THE YEAR 2001-02 WITH AN INTENTION TO HOLD THE SAME AS AN ASSET FOR LONG RUN AND RECEIVE RENTALS IN THE NATURE OF REGULAR INCOME ON THE SAME . THE SAME PROPERTY WAS LEASED OUT TO M/S PANTALOON RETAIL INDIA LTD AND M/S BENNET COLOMAN & CO. LTD WITH THE SAID INTENTION OF EARNING RENTALS. THE INT ENTION THE COMPANY IS FURTHER WITNESSES IN THE BALANCE SHE ET AS THE SAME WAS PRESENTED AS AN INVESTMENT IN BUILDING, AS CAPITAL ASSET SINCE THAT YEAR. HENCE T HE INCOME GENERATED ON THE SALE OF THE SAME SHOULD BE TREATED AS CAPITAL GAIN AND NOT AS A BUSINESS INCOM E. AN AMOUNT OF RS.1,34,83,600/- IS SHOWN UNDER THE HEAD INVESTMENTS CAPITALIZED. 12. ON THIS THE AO OBSERVED JUST BECAUSE AN ENTRY IS MADE IN ITS BOOKS OF ACCOUNTS TO SHOW THE PROPERTY AS INVESTME NT IN BUILDING, IT CANNOT IMPRESS THAT IT IS A CAPITAL ASSET. HE FURTHER OBSERVED THAT THE ASSESSEE IS IN THE BUSINESS OF CONSTRU CTION AND HELD THE TRANSACTION AS BUSINESS TRANSACTION AND BROUGH T THE ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 8 OF 13 SALE CONSIDERATION TO TAX AS BUSINESS INCOME. ASSESSEE REITERATED DURING THE APPELLATE PROCEEDINGS THAT THE SHOPS SO LET OUT BY THE COMPANY WERE SHOWN AS INVESTMENTS IN THEIR BOOKS AND SINCE THE INVESTMENT WAS SOLD, THE SAME WAS OFFERED AS CAPITAL GAINS. ASSESSEE BROUGHT OUT THE POSITION OF SHOPS REFLECTED IN THEIR BOOKS OF ACCOUNTS FROM THE VERY BEGINNING AND CLAIMED THAT LONG TERM GAINS ARE CORRECTLY ADMITTED. ASSESSEE FURTHER REL IED ON THE CASE OF RADHO SWAMY SATSANG 193 ITR 321 (SC) WHEREIN IT WAS HELD THAT CONSISTENCY IS A VIRTUE TO BE FOLLOWED BOTH BY THE ASSESSEE AND THE REVENUE. 13. THE LD CIT (A) IN THIS CONNECTION HELD AS UNDER: 9.2 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. I FIND MERIT IN THE SUBMISSIONS OF THE APPELLANT. ONCE AN ASSET IS TREA TED AS INVESTMENT AND REFLECTED AS SUCH IN THE BOOKS OF ACCOUNTS OVER A PERIOD OF TIME, THIS TREATMENT CANN OT BE CHANGED BY THE AO WITHOUT VALID BASIS. THOUGH THE APPELLANT IS IN THE BUSINESS OF CONSTRUCTION, THERE IS NO BAR IN TREATING AN ASSET BUILD BY IT AS INVESTMENT. KEEPING THE MARKETABILITY OF THE PORTION OF BUILDIN G, THE APPELLANT IS FREE TO TREAT A PORTION OF THE BUILDIN G AS INVESTMENT AND DO BUSINESS WITH THE REST OF THE BUILDING, BY SELLING IT. AS SUBMITTED BY THE APPELL ANT, WHEN THIS TREATMENT, AS APPEARING IN THE BALANCE SH EET FILED YEAR AFTER YEAR, IS ACCEPTED BY THE DEPARTMEN T TILL LAST YEAR, THERE IS NO POINT IN CHANGING THE TREATM ENT FOR THE SUBJECT ASSESSMENT YEAR WITH THE ONLY REASO N THAT IT WAS SOLD. ACCORDINGLY I DIRECT THE AO TO DE LETE THIS ADDITION. 14. ON FURTHER APPEAL BEFORE US, WE HEARD BOTH THE P ARTIES AND WE FIND THAT THE SHOPS LET OUT BY THE COMPANY WERE SHOWN AS INVESTMENT IN THE BOOKS AND WHEN THE INVESTMENT WERE SOL D THE ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 9 OF 13 SAME WERE OFFERED AS CAPITAL GAINS. AN AMOUNT OF RS.1 ,34,83,600 WAS SHOWN UNDER THE HEAD INVESTMENT CAPITALIZED. RELY ING ON THE DECISION OF RADHASWAMY SATSANG (193 ITR 321) WHER EIN IT WAS HELD THAT CONSISTENCY IS A VIRTUE TO BE FOLLOWED BOTH BY THE ASSESSEE AND THE REVENUE AND APPLYING THE RATIO OF TH E DECISION IN 193 ITR 321 AND TAKING INTO CONSIDERATION THAT THE SHOPS HAVE BEEN REFLECTED IN THE BOOKS OF ACCOUNTS FROM THE VERY BEGINNING, WE ARE OF THE OPINION THAT THE INCOME GENER ATED ON THE SALE OF THE SAME SHOULD BE TREATED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. WE CONFIRM THE ORDER OF THE CIT (A) IN DELETING THE ADDITION. GROUND NOS. 3 & 4 OF APPEAL OF THE REVE NUE ARE DISMISSED. 15. GROUND NO.5 RELATES TO THE ADDITIONS MADE TOWARDS PR OFIT ON SALE OF GROUND FLOOR RS.2,10,06,000/- AND PROF IT ON SALE OF SHOPS IN 2 ND , 3 RD AND 4 TH FLOORS RS.1,26,00,000/-. IN THIS REGARD ASSESSEE SUBMITTED BEFORE THE CIT (A) THAT THE TRANSACTIONS MADE I.E. SALE ON GROUND FLOOR AND 2 ND , 3 RD AND 4 TH FLOORS OF MPM MALL SHOULD BE VIEWED FROM A FAMILY SETTLEMENT ANGLE. ACCO RDING TO THE ASSESSEE, MEMBERS OF MALPANI FAMILY HAD COME TO A N UNDERSTANDING OF SETTLING THEIR PROPERTIES AND IT IS IN P URSUANCE OF THIS SETTLEMENT OF ASSETS BETWEEN MEMBERS OF FAMILY A ND THEY HAD SOME TRANSACTIONS/EXCHANGE OF PROPERTIES AND THOSE ARRANGEMENTS SHOULD BE VIEWED FROM THIS ANGLE AND NOT AS A GENERAL TRANSACTION. HENCE, DURING THE APPELLATE PROC EEDINGS, THE ASSESSEE ALONG WITH AN AIDE MEMOIRE, FILED A COPY O F DEED OF FAMILY ARRANGEMENT EVIDENCING THE ARRANGEMENT ENTERE D INTO BY THE FAMILY MEMBERS OF MALPANI. ACCORDING TO THIS AGRE EMENT, DIRECTORS OF THE ASSESSEE COMPANY EXCHANGED SOME PRO PERTIES AND IN THE PROCESS, THE GROUND FLOOR IS TO BE GIVEN TO SRI ASHOK ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 10 OF 13 KUMAR MALPANI, 2 ND , 3 RD AND 4 TH FLOORS WERE TO BE HANDED OVER TO SRI GIRISH MALPANI, MANISH MALPANY AND ASHISH MALPA NI. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE AO HAD OVERLOOKED THIS ARRANGEMENT AND WRONGLY RELIED ON THE CASE OF MUMBAI BENCH IN THE CASE OF RUPEE FINANCE AND MANAGEMENT (P) LTD VS. A CIT RENDERED BY ITAT (120 ITD 539). CONTRADICTING THE ABO VE, THE ASSESSEE PLACED RELIANCE ON THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. KAY ARR ENTERPRISES AND OTHERS (2 99 ITR 348) WHEREIN IT WAS HELD AS FOLLOWS: IT IS SETTLED LAW THAT WHEN PARTIES ENTER INTO A F AMILY ARRANGEMENT, THE VALIDITY OF THE FAMILY ARRANGEMENT IS NOT TO BE JUDGED WITH REFERENCE TO WHETHER THE PART IES WHO RAISED DISPUTES OR RIGHTS OR CLAIMED RIGHTS IN CERTAIN PROPERTIES HAD IN LAW ANY SUCH RIGHT OR NOT . THERE WAS A TRANSFER OF SHARES BETWEEN THE ASSESSEE FIRM WHICH CONSISTED OF ITS PARTNERS, WHO WERE FAMI LY MEMBERS. CERTAIN NEW SHARES WERE ACQUIRED IN EXCHANGE FOR OLD SHARES, AS ALSO SOME CONSIDERATION IN CASH. THE ASSESSEES CONTENDED THAT THE TRANSFER WAS CONSEQUENT TO A FAMILY ARRANGEMENT. BUT THE AO AFTE R ANALYZING THE FACTS OF THE CASE AND THE LEGAL ASPEC TS CONCLUDED THAT THERE WAS A TRANSFER INVOLVED AND TH US SUBJECTED IT TO CAPITAL GAINS TAX. ON APPEAL BY THE ASSESSEE THE COMMISSIONER (APPEALS) UPHELD THE ORDE R OF THE AO. THE TRIBUNAL ALLOWING THE APPEAL BY THE ASSESSEE ON THE GROUND THAT THE REARRANGEMENT OF SHAREHOLDING IN THE COMPANY TO AVOID POSSIBLE LITIGATION AMONG FAMILY MEMBERS WAS A PRUDENT ARRANGEMENT, WHICH WAS NECESSARY TO CONTROL THE COMPANY EFFECTIVELY BY THE MAJOR SHAREHOLDERS TO PRODUCE BETTER PROSPECTS AND ACTIVE SUPERVISION, ACCORDINGLY HELD THAT SUCH FAMILY ARRANGEMENT COULD NOT BE HELD TO BE A TRANSFER WHICH WAS EXIGIBLE TO CAPITAL GAIN TAX. ON APPEAL BY THE REVENUE: HELD, DISMISSING THE APPEAL THAT THE TRIBUNAL HAD RIGHTLY FOUND THAT THE TRANSFER OF SHARES BY WAY OF FAMILY ARRANGEMENT WOULD NOT ATTRACT CAPITAL GAINS TAX, AS THE SAME WAS A PRUDENT ARRANGEMENT TO AVOID ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 11 OF 13 POSSIBLE LITIGATION AMONG THE FAMILY MEMBERS AND WA S MADE VOLUNTARILY AND NOT INDUCED BY ANY FRAUD OR COERCION AND THEREFORE, COULD NOT BE DOUBTED. THE TRIBUNAL WAS JUSTIFIED IN ARRIVING AT THE CONCLUSIO N THAT THE FAMILY ARRANGEMENT AMONG THE ASSESSEES DID NOT AMOUNT TO ANY TRANSFER AND HENCE WAS NOT EXIGIBLE T O CAPITAL GAINS TAX 16. THE LD CIT (A) HELD AS UNDER: 10.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. GOING BY THE FACTS INVOLVED, I SEE THERE IS MERIT IN THE SUBMISSIONS O F THE APPELLANT. WHEN AN ARRANGEMENT IS MADE BETWEEN THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY, THE RATES SO ADOPTED FOR THIS PURPOSE CANNOT BE COMPARE D TO PREVAILING MARKET RATES AND UNLESS IT WAS PROVED TH AT CONSIDERATION IN EXCESS OF WHAT WAS MENTIONED IN TH E SALE DEED HAS BEEN PARTED BY THE PURCHASER, THE DIFFERENCE IN RATES CANNOT BE ADOPTED FOR THE PURPO SE OF CAPITAL GAINS. THEREFORE, THE COMPARABLE RATES OF T HE ADJACENT SHOPS SOLD BY THE APPELLANT CANNOT BE CRIT ERIA TO THE SALE TRANSACTIONS EFFECTED WITHIN THE MEMBER S OF FAMILY OF THE DIRECTORS, AS PART OF ARRANGEMENT BET WEEN THEMSELVES. ACCORDINGLY, I DIRECT THE AO TO ADOPT T HE RATES AS ADMITTED BY THE APPELLANT IN THE COMPUTATI ON AND DELETE THE ADDITIONS SO MADE. 17. WE HEARD BOTH THE PARTIES. WE HAVE PERUSED THE CO PY OF THE DEED OF FAMILY ARRANGEMENT FILED BY THE ASSESSEE E VIDENCING THE ARRANGEMENT ENTERED INTO BY THE FAMILY MEMBERS OF M ALPANI FAMILY. ACCORDING TO THIS AGREEMENT, DIRECTORS OF THE AS SESSEE COMPANY EXCHANGED SOME PROPERTIES AND IN THE PROCESS THE GROUND FLOOR IS TO BE GIVEN TO SHRI AHOK KUMAR MALPAN I AND 2 ND , 3 RD AND 4 TH FLOORS WERE TO BE HANDED OVER TO SHRI GIRISH MALPANI , SHRI MANISH MALPANI AND SHRI ASHISH MALPANI RESPECTI VELY. THE CIT (A) HAS HELD THAT WHEN AN ARRANGEMENT IS MADE BETW EEN THE ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 12 OF 13 FAMILY MEMBERS, BEING DIRECTORS OF THE COMPANY, THE RA TE SO ADOPTED FOR THIS PURPOSE CANNOT BE COMPARED TO PREVAIL ING MARKET RATE AND THE DIFFERENCE IN RATE CANNOT BE ADOPTE D FOR THE PURPOSE OF CAPITAL GAINS. IN FACT, THE CIT (A) RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS . KAY ARRT ENTERPRISES (299 ITR 348), THE WHEREIN THE HIGH C OURT HELD THAT THE TRIBUNAL HAD RIGHTLY FOUND THAT THE TRANSFER OF SHARES BY WAY OF FAMILY ARRANGEMENT WOULD NOT ATTRACT CAPITAL GAINS TAX, AS THE SAME WAS A PRUDENT ARRANGEMENT TO AVOID POSSIBL E LITIGATION AMONG THE FAMILY MEMBERS AND WAS MADE VOLUNTARILY A ND NOT INDUCED BY ANY FRAUD OR COERCION AND THEREFORE, COU LD NOT BE DOUBTED. THE TRIBUNAL WAS JUSTIFIED IN ARRIVING AT THE CONCLUSION THAT THE FAMILY ARRANGEMENT AMONG THE ASSESSEES DID NOT AMOUNT TO ANY TRANSFER AND HENCE WAS NOT EXIGIBLE TO CAPIT AL GAINS TAX 18. FURTHER IN THE CASE OF SHRI SACHIN P. AMBULKAR VS. ITO IN ITA NO.7542/MUM/2007, WHERE THE JUDICIAL MEMBER WAS ONE OF THE MEMBERS PASSING THE ORDER, IT HAS BEEN HELD AS FOL LOWS: 20. THEREFORE, IN OUR OPINION FOLLOWING THE RATIO OF THE DECISION OF THE SUPREME COURT IN THE CASE OF MATURI PULLAIAH & ANOTHER VS. MATURI NARASIMHAM & OTHERS, WE HOLD THAT AS THERE IS NO TRANSFER OF ASSETS IN A FA MILY ARRANGEMENT AND THE AMOUNT RECEIVED BY THE ASSESSEE IS ALSO PART OF THE FAMILY ARRANGEMENT AND NOT TOWA RDS TRANSFER OF ANY CAPITAL ASSET, THERE CAN BE NO LEVY OF CAPITAL GAIN TAX. IN A FAMILY SETTLEMENT THERE IS O NLY A READJUSTMENT OF THE PRE-EXISTING JOINT INTEREST AS SEPARATE INTEREST AND THERE IS NO TRANSFER LEADING TO LIABILITY TO CAPITAL GAINS. IN THE CIRCUMSTANCES TH E ORDER OF THE LOWER AUTHORITIES ASSESSING THE AMOUNT RECEI VED UNDER A FAMILY ARRANGEMENT AS CAPITAL GAINS IS ERRONEOUS AND DELETE THE ADDITION AND WE ALLOW THE ASSESSEES APPEAL. ITA NO.892 OF 2013 MAHESHWARI PLAZA RESORTS LTD HYD ERABAD PAGE 13 OF 13 19. HENCE WE CONFIRM THE ORDER OF THE CIT (A) WHEREIN HE HAS DIRECTED THE AO TO ADOPT THE RATES AS ADMITTED BY THE ASS ESSEE IN THE COMPUTATION AND TO DELETE THE ADDITION MADE IN THIS R EGARD. HENCE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMIS SED. 20. IN THE RESULT THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH FEBRUARY, 2015. SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 25 TH FEBRUARY, 2015. VNODAN/SPS COPY TO: 1. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 16(2) RO OM NO.611, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 2. M/S. MAHESHWARI PLAZA RESORTS LTD., MODEL HOUSE, PA NJAGUTTA, HYDERABAD 3. THE CIT(A)-V HYDERABAD 4. THE CIT IV, HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER