ACIT, CHENNAI V. Hansa Vision India Pvt. Ltd., CHENNAI

ITA 943/CHNY/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8659 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-06-2016
• Assessment Year: 2001-2002
• Appeal Filed On: 10-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Gift

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.943/MDS/2013 ' (' / ASSESSMENT YEAR : 2001-02 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI - 600 034. V. M/S HANSA VISION INDIA PVT. LTD., (FORMERLY TIRUVENGADAM INVESTMENTS PVT. LTD.), 605-606, ANNA SALAI, SOUTH INDIAN FILM CHAMBER BUILDING, 2 ND FLOOR, THOUSAND LIGHTS, CHENNAI - 600 006. PAN : AABCT 3770 E (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT ,-*+ . / / RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE 0 . 1$ / DATE OF HEARING : 14.06.2016 2!( . 1$ / DATE OF PRONOUNCEMENT : 24.08.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, CHE NNAI, DATED 23.01.2013 AND PERTAINS TO ASSESSMENT YEAR 2001-02. 2 I.T.A. NO.943/MDS/13 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF PROJECT EXPENSES CLAIMED BY THE ASS ESSEE. 3. SHRI A.V. SREEKANTH, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF DEALING IN SHARES AND PROPERTY DEVELOPMENT. IN FACT, THE A SSESSEE WAS CONSTRUCTING BUILDING COMPLEXES AND LETTING THEM ON RENT. THE ASSESSEE IS DECLARING RENTAL INCOME FOR THE PURPOSE OF TAXATION. THE ASSESSEE WAS DEVELOPING A PROPERTY AT GREAMS RO AD, CHENNAI. ACCORDING TO THE LD. D.R., THERE WAS LITI GATION WHICH WAS ALMOST EXTENDED UPTO FIFTEEN YEARS. IN THE PROCESS , THE ASSESSEE INCURRED HEAVY LEGAL AND PROFESSIONAL CHARGES. ULT IMATELY, THE ASSESSEE SUCCEEDED. IN FACT, THE ASSESSEE ACQUIRED 10 GROUNDS AND 304 SQ.FT. OF LAND FROM THE LEGAL HEIR OF SHRI ABDUL KHADER. ACCORDING TO THE LD. D.R., THE ASSESSEE WAS CONSIDE RING VARIOUS OPTIONS INCLUDING CONSTRUCTION OF A COMMERCIAL BUIL DING AND LETTING IT TO TENANTS OR DISPOSING OF THE VACANT LAND. FINALL Y, THE PROJECT WAS ABANDONED AND THE ASSESSEE HAD WRITTEN OFF THE ENTI RE EXPENDITURE AS BUSINESS LOSS. 4. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBM ITTED THAT THE ASSESSEE FOLLOWED THE PROJECT COMPLETION METHOD . SINCE THE 3 I.T.A. NO.943/MDS/13 PROJECT AT GREAMS ROAD WAS NOT AT ALL COMMENCED AND AFTER LITIGATION, THE ASSESSEE WAS ABLE TO ACQUIRE ONLY T HE LAND, THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE CONS IDERED AS CAPITAL IN NATURE. THE EXPENDITURE INCURRED BY THE ASSESSEE BEFORE STARTING THE CONSTRUCTION IS ONLY ON THE CAPITAL FI ELD AND ABANDONMENT OF THE PROJECT CANNOT BE A REASON FOR C LAIMING THE LOSS. ACCORDING TO THE LD. D.R., HAD THE PROJECT N OT BEEN ABANDONED AS CLAIMED BY THE ASSESSEE, THE ASSESSEE WOULD HAVE DEVELOPED THE PROPERTY AND LET OUT THE SAME TO VARI OUS TENANTS AND DERIVED RENTAL INCOME. THE PROPERTY IN THAT CASE I S ONLY A CAPITAL ASSET. THEREFORE, ACCORDING TO THE LD. D.R., THE A SSESSEE INCURRED THE EXPENDITURE FOR THE PURPOSE OF ESTABLISHING A C APITAL ASSET. HENCE THE LOSS SUFFERED BY THE ASSESSEE CANNOT BE A LLOWED AS REVENUE LOSS. THE LD. D.R. PLACED HIS RELIANCE ON THE JUDGEMENT OF APEX COURT IN HASIMARA INDUSTRIES LIMITED V. CIT (2 30 ITR 927). 5. ON THE CONTRARY, SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT ADMITTEDLY, THE ASSESSEE I S ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND DEVELOPMENT O F PROPERTY. IN THE COURSE OF BUSINESS ACTIVITY, THE ASSESSEE ATTEM PTED TO ACQUIRE A PROPERTY AT GREAMS ROAD, CHENNAI. IN FACT, ACCORDI NG TO THE LD. 4 I.T.A. NO.943/MDS/13 COUNSEL, THE ASSESSEE ENTERED INTO A JOINT DEVELOPM ENT AGREEMENT. DUE TO VARIOUS FORMALITIES IN STARTING THE CONSTRUC TION, THERE WAS A DELAY IN THE PROJECT. ACCORDING TO THE LD. COUNSEL , IN FACT, THE PROPERTIES WERE RECONSTITUTED AS A SINGLE UNIT IN T HE YEAR 1990 AND AN APPLICATION WAS SUBMITTED TO CHENNAI METROPOLITA N DEVELOPMENT AUTHORITY FOR CONSTRUCTION OF THREE-STORIED BUILDIN G. IN FACT, THE APPLICATION WAS REJECTED BY CHENNAI METROPOLITAN DE VELOPMENT AUTHORITY ON THE GROUND THAT THE PROPERTY WILL BE A FFECTED BY HIGH CAPACITY MASS TRANSIT SYSTEM PROPOSED BY GOVERNMENT OF TAMIL NADU. ACCORDING TO THE LD. COUNSEL, IN VIEW OF THE DELAY IN STARTING THE PROJECT, ONE OF THE CO-OWNERS OF THE PROPERTY C ANCELLED THE AGREEMENT ON 20.10.1998. 6. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT ONE OF THE CO-OWNERS SHRI G.M. KHALEELULLAH ALSO FILED A CIVIL SUIT. WHEN THE SUIT WAS PENDING, SHRI KHALEELULLAH WENT TO COM PROMISE THE MATTER. SUBSEQUENTLY, ACCORDING TO THE LD. COUNSEL , AN AGREEMENT WAS ENTERED INTO ON 08.12.1993 WHEREIN SHRI KHALEEL ULLAH WAS PAID AN ADDITIONAL SUM ALONG WITH ADDITIONAL BUILT UP AR EA. BASED ON THE ASSURANCE OF SHRI G.M. KHALEELULLAH, THE GOVERNMENT OF TAMIL NADU BY A GOVERNMENT ORDER DATED 03.04.1996, GRANTED PER MISSION FOR 5 I.T.A. NO.943/MDS/13 CONSTRUCTION OF MULTI-STORIED BUILDING IN THE PROPE RTY. ACCORDING TO THE LD. COUNSEL, EVEN THOUGH THERE WAS AN AGREEMENT TO WITHDRAW THE SUIT, IN FACT, SHRI KHALEELULLAH DID NOT WITHDR AW THE SUIT WHICH WAS PENDING BEFORE THE HIGH COURT. AGAIN, SHRI KHA LEELULLAH RAISED DISPUTE STATING THAT HE WAS NOT WILLING TO GIFT HIS LAND AS IT WOULD AFFECT HIS INTEREST IN THE PROPERTY. HE CLAIMED FO R THE COMPENSATION. BECAUSE OF VARIOUS DISPUTES, ACCORDING TO THE LD. C OUNSEL, THE ASSESSEE COULD NOT SUCCEED IN THE PROJECT. ULTIMAT ELY, THE ASSESSEE WAS ABLE TO ACQUIRE 10 GROUNDS AND 304 SQ. FT. FROM SHRI G.M. ABDUL KHADER. 7. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT SINCE THE ASSESSEE WAS IN THE BUSINESS OF DEVELOPING PROP ERTIES, AFTER CONSIDERING THE VARIOUS ASPECTS, THE ASSESSEE THOUG HT THAT DEVELOPING THE LAND, WHICH WAS ACQUIRED FROM SHRI A BDUL KHADER, MAY NOT YIELD ANY PROFIT, ACCORDINGLY, DECIDED TO S ELL THE LAND. IN THAT PROCESS, THE ASSESSEE HAS SUFFERED LOSS. ACCO RDING TO THE LD. COUNSEL, THE ASSESSEE CLAIMED THE LOSS AS REVENUE L OSS WHILE COMPUTING THE TAXABLE INCOME. HOWEVER, THE ASSESSI NG OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT IT IS A CAPITAL LOSS. ACCORDING TO THE LD. COUNSEL, WHEN T HE ASSESSEE IS IN 6 I.T.A. NO.943/MDS/13 THE BUSINESS OF DEVELOPING PROPERTY AND LETTING OUT THE SAME ON RENT, THE LOSS SUFFERED BY THE ASSESSEE IN THE PROC ESS OF DEVELOPING THE LAND HAS TO BE ALLOWED AS REVENUE LOSS. REFERR ING TO THE JUDGEMENT OF MADRAS HIGH COURT IN THE ASSESSEE'S OW N CASE FOR ASSESSMENT YEAR 2004-05, REPORTED IN 320 ITR 345, T HE LD. COUNSEL SUBMITTED THAT WHEN THE ASSESSEE WAS IN THE BUSINES S OF PROPERTY DEVELOPMENT, THE PROPERTY HAS TO BE TREATED AS BUSI NESS ASSET AND NOT AS CAPITAL ASSET. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE A SSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN S HARES AND PROPERTY DEVELOPMENT. FROM THE ORDERS OF THE LOWER AUTHORITIES IT APPEARS THAT THE ASSESSEE CLAIMED A SUM OF ` 81,95,892/- UNDER THE HEAD BUILDING PROJECT EXPENSES. THE ASSESSEE HAS ALSO CLAIMED ANOTHER SUM OF ` 30,87,438/- TOWARDS INTEREST FOR GREAMS ROAD PROJECT. THE ASSESSEE ENTERED INTO A JOINT DEVELOP MENT AGREEMENT WITH FOUR INDIVIDUALS FOR DEVELOPMENT OF PROPERTY A T GREAMS ROAD. THE ASSESSEE COULD NOT GET THE APPROVAL FROM CHENNA I METROPOLITAN DEVELOPMENT AUTHORITY FOR VARIOUS REASONS. ULTIMAT ELY, THE 7 I.T.A. NO.943/MDS/13 GOVERNMENT OF TAMIL NADU BY AN ORDER DATED 03.04.19 96, PERMITTED THE ASSESSEE FOR CONSTRUCTION OF MULTI-STORIED BUIL DING. IT APPEARS THERE WAS DISPUTE AMONG THE LAND OWNERS AND THE ASS ESSEE HAD TO PAY ADDITIONAL COMPENSATION APART FROM CONSTRUCTED AREA. AFTER LAPSE OF ALMOST 15 YEARS, THE ASSESSEE WAS ABLE TO ACQUIRE 10 GROUNDS AND 304 SQ.FT. THROUGH ONE OF THE CO-OWNERS , NAMELY, SHRI G.M. ABDUL KHADER. THE ASSESSEE, FOR THE REASON BE ST KNOWN TO IT, DECIDED TO SELL THE PROPERTY INSTEAD OF DEVELOPING THE SAME. IN THAT PROCESS, THE ASSESSEE SUFFERED A LOSS. THE ASSESSE E CLAIMED THE LOSS AS REVENUE LOSS WHILE COMPUTING THE TAXABLE IN COME. HOWEVER, THE ASSESSING OFFICER FOUND THAT IT IS NOT A REVENUE LOSS, IT IS ONLY CAPITAL LOSS. THEREFORE, IT CANNOT BE ALLO WED WHILE COMPUTING THE TOTAL INCOME. 9. THE CIT(APPEALS), HOWEVER, BY PLACING RELIANCE O N THE JUDGEMENT OF MADRAS HIGH COURT IN CIT V. TIRUVENGAD AM INVESTMENTS PRIVATE LIMITED (2010) 320 ITR 345, FOU ND THAT THE LOSS SUFFERED BY THE ASSESSEE IN THE PROJECT HAS TO BE A LLOWED AS REVENUE LOSS, AND ACCORDINGLY, ALLOWED THE CLAIM OF THE ASSESSEE. THE ASSESSEE APPARENTLY IS DEVELOPING THE PROPERTY AND LETTING OUT THE SAME AND RECEIVING RENTAL INCOME. HOWEVER, IN THIS CASE THE 8 I.T.A. NO.943/MDS/13 ASSESSEE HAS ENTERED INTO A JOINT DEVELOPMENT AGREE MENT FOR THE PURPOSE OF DEVELOPING THE PROPERTY. THEREFORE, IT HAS TO BE ASCERTAINED WHETHER THE LAND AND BUILDING IS TREATE D AS CAPITAL ASSET BY THE ASSESSEE FOR RECEIVING RENTAL INCOME OR IT I S A STOCK-IN-TRADE FOR SELLING THE LAND AND BUILDING. A COPY OF THE D EVELOPMENT AGREEMENT SAID TO BE ENTERED INTO BETWEEN THE PARTI ES IS NOT AVAILABLE ON RECORD. IF THE ASSESSEE CONSTRUCTED O NLY THE BUILDING AND LET OUT THE SAME TO VARIOUS PERSONS FOR RENT, T HEN THE LAND AND BUILDING HAS TO BE TREATED AS CAPITAL ASSET BECAUSE THE ASSESSEE IS NOT TREATING THE LAND AND BUILDING AS STOCK-IN-TRAD E. THE ASSESSEE IS EXPLOITING THE LAND AND BUILDING BY LETTING OUT ONL Y THE BUILDING TO THE TENANTS. IF THE ASSESSEE HAS ENTERED INTO A JOINT DEVELOPMENT AGREEMENT AS CLAIMED FOR THE YEAR UNDER CONSIDERATI ON AND SELLING THE LAND AND BUILDING AFTER DEVELOPING OF THE PROJE CT, THEN NATURALLY, THE LAND AND BUILDING HAS TO BE TREATED AS STOCK-IN -TRADE IN THE HANDS OF THE ASSESSEE. FOR THE PURPOSE OF DETERMIN ING THE LAND AT GREAMS ROAD EITHER AS STOCK-IN-TRADE OR CAPITAL ASS ET, THE DEVELOPMENT AGREEMENT AND OTHER RELATED DOCUMENTS N EED TO BE EXAMINED. 9 I.T.A. NO.943/MDS/13 10. IN THE ABSENCE OF ANY MATERIAL AVAILABLE ON REC ORD, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THIS MAT TER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE- EXAMINE THE MATTER AFRESH IN THE LIGHT OF THE DEVELOPMENT AGREE MENT AND THE NATURE OF BUSINESS OF THE ASSESSEE AND THEREAFTER, DECIDE THE ISSUE IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE O PPORTUNITY TO THE ASSESSEE. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 24 TH AUGUST, 2016 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 24 TH AUGUST, 2016. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-III, CHENNAI 4. 0 81 /CIT-I, CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.