Safire Hotel Pvt.Ltd., V. Asstt.CIT,Cir.-6, Pune,

ITA 971/PUN/2007

• Counselvise Citation: 97124514 RSA 2007
• Duration Of Justice: 4 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 20-07-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A S SINGH
• Assessee Lawyers: MRS DEEPA KHARE
• Keywords: Capital asset; Business income; Income from undisclosed sources; Opportunity of being heard; Additional evidence; Cost of acquisition; Date of conversion; Fair market value
• Section: 45(2); 143(3); 133A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 971/PN/07 (ASSTT. YEAR: 2003-04) SAFIRE HOTEL P. LTD., .. APPELLANT 39/1A WELLESLEY ROAD, SANGAM BRIDGE, PUNE PAN AACCS 5896B VS. ASSTT. COMMISSIONER OF INCOME-TAX, .. RESPONDENT CIR. 6, PUNE AND I.T.A. NO. 973/PN/07 (ASSTT. YEAR: 2003-04) ASSTT. COMMISSIONER OF INCOME-TAX, .. APPELLANT CIR. 6, PUNE VS SAFIRE HOTEL P. LTD., .. RESPONDENT PUNE ASSESSEE BY: MRS DEEPA KHARE DEPARTMENT BY: SHRI A S SINGH ORDER PER G.S. PANNU, AM THE CAPTIONED APPEALS EACH BY THE REVENUE AND THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A COMPOSITE ORDER FOR THE SAKE OF BREVITY. 2. BOTH THE APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, PUNE DATED 1.3.2007 WHICH, IN TURN, HAVE ARISEN FROM AN ORDER DATED 23. 03.2006 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF TH E INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESS MENT YEAR 2003-04. 2 3. WE SHALL FIRST TAKE UP THE ASSESSEES APPEAL IN ITA NO 971/PN/07 FOR THE ASSESSMENT YEAR 2003-04. GROUND NOS. 1 & 2 RAISED IN THIS APPEAL READ AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD CIT(A)-II, PUNE ERRED IN CONFIRMING THE ORDER OF THE AO HOLDING THAT INCO ME IN RESPECT OF THE DEVELOPMENT OF PLOT IS CHARGEABLE TO TAX IN THE YEA R UNDER CONSIDERATION, EVEN THOUGH AS PER THE PROJECT COMPLETION METHOD CONSIST ENTLY FOLLOWED IN THE PAST AND ACCEPTED BY THE DEPARTMENT, IT WAS TAXABLE ONLY IN THE LATER YEAR OF COMPLETION OF THE PROJECT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD CIT(A)-II, PUNE ERRED IN HOLDING THAT EVEN IF IT IS TREATED THAT THE ASSE SSEE HAS STARTED DEVELOPMENT OF REAL ESTATE, STILL IT WILL NOT BE ELIGIBLE FOR TREA TING THE MARKET VALUE OF THE PLOT OF LAND ON THE DATE OF CONVERSION INTO STOCK-IN-TRADE AS COST OF THE STOCK-IN-TRADE. 4. THE BRIEF FACTS ARE THAT THE ASSESSEE, A COMPANY, IS EN GAGED IN THE BUSINESS OF DEVELOPING PROPERTY SITUATED AT SAFIRE PARK, GALLERIA NO 4, PUNE- MUMBAI ROAD, SHIVAJINAGAR. IT IS ALSO CONSTRUCTING FLAT S FOR THE USE OF COMMERCIAL PURPOSE AS WELL AS SELLING THE FLATS. THE COMPANY HAD AL SO UTILIZED PART OF THE PROPERTY CONSTRUCTED BY STARTING A BUSINESS CLUB FROM WHI CH IT SHOWED RENTAL INCOME AS BUSINESS CLUB RECEIPT IN THE PROFIT & LOSS ACCOUNT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THA T THE ASSESSEE HAD NOT SHOWN ANY PROFITS FROM CONSTRUCTION BUSINESS ON THE PL EA THAT IT WAS FOLLOWING PROJECT COMPLETION METHOD. AS PER ASSESSEE, PROFIT OR LOSS WOULD ARISE OUT OF THE SALE OF THE PREMISES, ONLY AFTER COMPLETION OF THE ENT IRE PROJECT. HOWEVER, THE ASSESSING OFFICER FOUND OUT VARIOUS DEFECTS IN THE METHOD O F ACCOUNTING FOLLOWED BY THE ASSESSEE DUE TO WHICH, ACCORDING TO THE ASSESSING OFFI CER, THE COMPANY WAS NOT SHOWING THE CORRECT PROFITS. THE ASSESSING OFFICER FO UND THAT THE COMPLETION CERTIFICATE IN RESPECT OF THE PROPERTY WAS TA KEN FROM PUNE MUNICIPAL CORPORATION IN MARCH & NOVEMBER, 2000, WHICH MEANT TH AT IN ASSESSMENT YEAR 2001-02 THE INCOME OF THE ASSESSEE SHOULD HAVE BEEN ASSESSE D AS THE PROJECT WAS COMPLETE. THE ASSESSEE ITSELF ADMITTED THAT SALE OF 2 691.100 SQ. MTS. (LATER ON 3474 SQ. MTS) OF THE PROPERTY HAS ALREADY BEEN EFF ECTED AND POSSESSION ALSO GIVEN AND IT HAD RECEIVED AN AMOUNT OF RS 5,08,77,40 0/-. THE COMPANY GAVE DIFFERENT FIGURES OF TOTAL BUILT-UP AREA APPROVED AN D BUILT-UP AREA CONSTRUCTED AND SOLD BY IT. THE ASSESSING OFFICER ALSO NOTED THAT BEING IN CONSTRUCTION BUSINESS, 3 INSTEAD OF SHOWING STOCK-IN-TRADE, THE ASSESSEE COMPANY WAS SHOWING THE PROPERTY AS FIXED ASSET IN THE BALANCE SHEET. THE CONST RUCTION MADE DURING THE YEAR WAS SHOWN AS ADDITION TO THE FIXED ASSETS AND THE S ALES DURING THE YEAR WERE SHOWN AS DEDUCTIONS. THE ASSESSEE CONTENDED THAT IT WA S NOT SHOWING THE COMPLETION OF THE PROJECT, BECAUSE CERTAIN PORTION OF THE BUILDING WAS INCOMPLETE AND NOT SOLD. HOWEVER, ON ENQUIRIES MADE BY THE ASSESSIN G OFFICER, IT WAS FOUND THAT COMPLETED, BUT UNSOLD PORTION OF THE BUILDING WA S GIVEN ON RENT, WHICH WAS SHOWN AS BUSINESS INCOME BY THE ASSESSEE. RELYING ON THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF BRITISH PAINTS IND IA LTD. 188 ITR 44 (SC), THE ASSESSING OFFICER OBSERVED THAT HE IS ENTITLED TO TAKE RECOURSE TO PROVISO TO SECTION 145 OF THE ACT. AS THE ASSESSEE COULD NOT PROVIDE CERTAIN INFORMATION CALLED FOR BY THE ASSESSING OFFICER, AN ACTION UNDER SECTION 133A WAS TAKEN AT THE BUSINESS PREMISES OF THE ASSESSEE ON 17.2.2006. DURING THE COURSE OF SURVEY, THE ASSESSING OFFICER COLLECTED THE REQUIRED DATA A ND AFTER CONSIDERING THE SUBMISSIONS DATED 23.2.2006 THAT THE SALE OF PROPERT Y HAS TAKEN PLACE IN FINANCIAL YEARS 2000-01, 2002-03 AND 2004-05, HE PREP ARED THE TRADING AND PROFIT & LOSS ACCOUNT FOR THE FINANCIAL YEARS 2000-01, 20 01-02 AND 2002-03 AND ACCORDINGLY ASSESSED A SUM OF RS 1,99,12,053/- AS UNDISCLOSED INCOME FROM THE CONSTRUCTION BUSINESS FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION AS PER DETAILS IN PARA 6.5 OF THE ORDER. THE ASSESSEE REWORKED ON INCO ME OF RS 2,61,20,714/- AS A RESULT OF THE SURVEY FOR THE FINANCIAL YEARS 2000- 01, 2002-03 AND 2004-05. IN THE WORKING OF THIS UNDISCLOSED INCOME, ASSESSEE CLAIMED A CAPITAL GAIN OF RS 1,91,81,794/- AND BUSINESS PROFIT/LOSS OF RS 39,38,920/- FOR THE AFORESAID YEARS, AND THUS AS PER THE ASSESSEE THE TOTAL UNDISCLOSED INCOME W AS RS 2,61,20,714/-. THE AFORESAID WORKING WAS NOT ACCEPTED BY THE ASSESSING OFFICER, WHO TREATED THE ENTIRE INCOME AS INCOME FROM BUSINESS. 5. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), THE ASSESSEE MADE VARIOUS SUBMISSIONS. THE COMMISSIONER OF INCOME- 4 TAX (APPEALS) PROCEEDED TO CONSIDER AS TO WHAT WAS THE METHOD BEING FOLLOWED BY THE ASSESSEE FOR REVENUE RECOGNIT ION AND WHEN WAS THE PROJECT COMPLETED. IT WAS NOTED THAT THE CO MPLETION CERTIFICATE IN RESPECT OF THE PROPERTY WAS TAKEN FR OM PUNE MUNICIPAL CORPORATION IN MARCH AND NOVEMBER, 2000. THE ASSESS EE HAD ADMITTED SALE OF 2691.100 SQ.MTS. OF PROPERTY AND H AD ALREADY GIVEN POSSESSION TO DIFFERENT BUYERS. THE SOLD PROPERTY W AS BEING USED BY THE BUYERS FOR THEIR BUSINESS AND THE UNSOLD PROPER TY WAS GIVEN BY THE ASSESSEE ON RENT AND RENTAL INCOME WAS BEING EA RNED. DURING THE COURSE OF SURVEY PROCEEDINGS UNDER SECTION 133A OF THE ACT, THE ASSESSEE ITSELF ADMITTED THAT THE PROJECT WAS COMPL ETE AND THE INCOME WAS LIABLE TO TAX AND WORKING OF TAXABILITY OF INCOME FROM THE BUSINESS OF CONSTRUCTION WAS GIVEN VIDE LETTER DT 2 3.2.2006. ACCORDING TO THE COMMISSIONER OF INCOME-TAX (APPEAL S), THEREFORE, THERE APPEARED NO CONFUSION REGARDING THE FACT THAT THE PROJECT WAS COMPLETE IN FINANCIAL YEAR 2000-01. ACCORDING TO TH E COMMISSIONER OF INCOME-TAX (APPEALS), UNDER THE COMPLETED CONTR ACT METHOD OR PROJECT COMPLETION METHOD, THE PROFIT FROM A PROJ ECT IS EFFECTIVELY ACCOUNTED FOR ONLY IN THE YEAR IN WHICH THE PROJECT IS SUBSTANTIALLY COMPLETED. ACCORDING TO HIM, IN PRACTICE, AT THE EN D OF THE YEAR, THE WORK-IN-PROGRESS IS SIMPLY CARRIED FORWARD AT COST AND SALE OVERHEADS WHICH COULD NOT BE CONTRACTUALLY ATTRIBUTABLE TO THE PROJECT COST HAVE TO BE DEBITED TO THE PROFIT & LOSS ACCOUNT, WHICH MAY RESULT INTO LOSS. IN THE YEAR OF COMPLETION OF THE PROJECT, THE PROFIT OF THE PROJECT IS ACCOUNTED FOR AND THE LOSS ON ACCOUNT OF OVERHEADS, IF ANY ARE SET OFF. THE COMMISSIONER OF IN COME-TAX (APPEALS) HELD THAT THE ASSESSEE COMPANY WHICH WAS FOLLOWING COMPLETED CONTRACT METHOD WAS UNDISPUTEDLY LIABLE TO TAX WHEN THE SALE OF THE PR OPERTY WAS EFFECTED. HE FURTHER OBSERVED THAT DURING THE COURSE OF SURVEY PROCEE DINGS AND IN THE SUBMISSIONS DATED 23.2.2006, THE ASSESSEE HAD ADMITTED THA T THE SALE OF THE 5 PROPERTY HAS TAKEN PLACE IN FINANCIAL YEARS 2000-01, 2 002-03 AND 2004-05. THE COMMISSIONER OF INCOME-TAX (APPEALS) CONCLUDED THAT THE TRADING AND PROFIT & LOSS ACCOUNT WAS PREPARED BY THE ASSESSING OFFICER ON THE BA SIS OF THE INFORMATION AND MATERIAL COLLECTED DURING THE COURSE OF SURVEY AND THERE WAS NO DISPUTE ABOUT THE FIGURE OF SALES AND THE YEAR IN WHICH SUCH INCOME IS TAXABLE. ACCORDINGLY, THE COMMISSIONER OF INCOME-TAX (APPEALS) UPH ELD THE WORKINGS OF THE ASSESSING OFFICER AND AFFIRMED THAT THE SAME ARE ASSE SSABLE AS PROFITS AND GAINS OF BUSINESS AND PROFESSION. 6. ANOTHER PERTINENT DISPUTE IN THIS APPEAL RELATES T O THE TAXABILITY OF THE CAPITAL GAIN. ACCORDING TO THE ASSESSING OFFICER, THE INC OME FROM THE SALE OF THE PROJECT IS ENTIRELY BUSINESS INCOME. IN THE COURSE OF ASSESSM ENT PROCEEDINGS, THE ASSESSEE HAD RAISED A FRESH PLEA THAT A PORTION OF THE I NCOME IS ASSESSABLE AS CAPITAL GAINS INASMUCH AS THE LAND WAS A CAPITAL ASSET FOR THE ASSESSEE COMPANY AND THE PROVISIONS OF SECTION 45(2) OF THE ACT WERE ATTR ACTED WHEN IT WAS CONVERTED INTO STOCK-IN-TRADE. IN THIS REGARD, ASSESSEE COMP ANY GAVE THREE DIFFERENT WORKINGS TO SHOW HOW THE INCOME FROM THE SALE OF THE PROJECT COULD BE BIFURCATED IN CAPITAL GAINS AND BUSINESS PROFITS. IN THE F IRST WORKING, THE ASSESSEE HAD BIFURCATED THE SALE CONSIDERATION FOR LAND AND FOR THE SUPER-STRUCTURE. ON SALE CONSIDERATION OF LAND, THE ASSESSEE OFFERED TO PAY CA PITAL GAINS TAX AND ON THE REMAINING AMOUNT AS BUSINESS INCOME. THE SECOND WORKING WAS GIVEN BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS BEFOR E THE COMMISSIONER OF INCOME-TAX (APPEALS). THE BASIS OF THIS WORKING WAS DIFFER ENT FROM THE WORKING GIVEN TO THE ASSESSING OFFICER, EVEN THOUGH IN THIS WORKIN G ALSO THE ASSESSEE RESORTED TO PROVISIONS OF SECTION 45(2) OF THE ACT. THE T HIRD WORKING WAS ALSO GIVEN TO THE COMMISSIONER OF INCOME-TAX (APPEALS) BY T HE ASSESSEE VIDE ITS LETTER DATED 31.1.2007. IN ALL THESE THREE WORKINGS, T HE ASSESSEE HAS APPLIED DIFFERENT METHODS TO COMPUTE THE INCOME FROM CAPITAL GAINS AND THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE COMMISSIONER OF INCOME- TAX (APPEALS) HAS ANALYSED IN DETAIL THE THREE WORKINGS GIVEN BY THE ASSESSE E AND CAME TO A 6 CONCLUSION THAT THE ASSESSEE COMPANY SUBMITTED VARIOUS FIGU RES TO REDUCE THE TAX LIABILITY AFTER IT WAS FOUND THAT THE ASSESSEE WAS LI ABLE TO PAY TAX AFTER THE PROJECT WAS COMPLETED. HE FURTHER HELD THAT IF THE LAN D WAS A FIXED ASSET, THE ONUS WAS ON THE ASSESSEE COMPANY TO TREAT THE SAME IN ITS B OOKS OF ACCOUNT AS AND WHEN IT WAS CONVERTED INTO STOCK-IN-TRADE AND PAY CAP ITAL GAIN TAX AS PER THE PROVISIONS OF SECTION 45(2) OF THE ACT. ACCORDING TO THE COMMISSIONER OF INCOME- TAX (APPEALS), THE ASSESSEE COMPANY WAS NOT CORRECT IN INVO KING THE PROVISIONS OF SECTION 45(2) OF THE ACT. HE ACCORDINGLY HELD THAT TH E PROFITS WORKED OUT IN THE TRADING ACCOUNT PREPARED BY THE ASSESSING OFFICER WERE TH E CORRECT PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE COMMISSIONER OF INCOME- TAX (APPEALS), THUS, DECIDED THE ISSUES AGAINST THE ASSESSEE AND UPHELD THE ACTION OF THE ASSESSING OFFICER, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEF ORE US. 7. BEFORE US, RIVAL PARTIES HAVE MADE THEIR SUBMISSIONS . ON BEHALF OF THE ASSESSEE, A DETAILED PAPER BOOK HAS BEEN FILED, INTER ALI A, INCLUDING A REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCE WHICH WAS HITHERTO NOT FURNISHED BEFORE THE LOWER AUTHORITIES. SUCH ADDITIONAL EVIDENCE IS IN SUPP ORT OF ASSESSEES CLAIM THAT A PORTION OF INCOME IS ASSESSABLE AS CAPITAL GAINS IN TERMS O F THE PROVISIONS OF SECTION 45(2) OF THE ACT. FURTHER, ADDITIONAL EVIDENCE IS ALSO SOUGHT TO BE FURNISHED WITH REGARD TO ADDITION WHICH HAS BEEN MAD E AS UNACCOUNTED INCOME IN RESPECT OF THE SALE OF COMMERCIAL SPACE TO M/S ANUBHUT I ESTATE P. LTD. IN SUPPORT OF ADMISSION OF SUCH ADDITIONAL EVIDENCES, THE PL EA SET UP BY THE ASSESSEE IS THAT THE SAME ARE VITAL AND CRUCIAL TO DECIDE TH E ISSUES IN THEIR CORRECT PERSPECTIVE. THE LEARNED DEPARTMENTAL REPRESENTA TIVE, APPEARING FOR THE REVENUE, HAS SOUGHT TO DEFEND THE ACTION OF THE LOWER AUTHORITIES ON THE BASIS OF THE REASONING CONTAINED IN THE RESPECTIVE ORDERS AND H AS ALSO SOUGHT TO ASSAIL THE REQUEST OF THE ASSESSEE FOR ADMISSION OF ADDITIONAL EV IDENCE. IN THIS BACKGROUND, WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT RECORD. 7 8. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE HAS AT TH E OUTSET SUBMITTED THAT IN THE RETURN OF INCOME THE ASSESSEE HAD NOT DECLAR ED ANY INCOME FROM THE CONSTRUCTION AND SALE OF THE COMMERCIAL PROPERTY AS ACCORDI NG TO THE ASSESSEE THE SAME WAS NOT COMPLETED. IN THE COURSE OF ASSESSMENT PR OCEEDINGS, A SURVEY ACTION UNDER SECTION 133A WAS CONDUCTED ON 17.6.2006. D URING THE ASSESSMENT PROCEEDINGS ITSELF, THE ASSESSEE HAD AGREED TO THE STAND O F THE ASSESSING OFFICER THAT CERTAIN INCOME WAS LIABLE TO BE OFFERED W ITH REGARD TO THE CONSTRUCTION AND SALE OF COMMERCIAL PROPERTY, ON THE BASIS OF HANDIN G OVER OF THE POSSESSION OF CERTAIN UNITS OF THE COMMERCIAL BUILDING HAVING BEEN SOLD. A TENTATIVE TRADING & PROFIT & LOSS ACCOUNT WAS PREPARED AND THE ENTIRE INCOM E HAS BEEN ASSESSED BY THE ASSESSING OFFICER AS BUSINESS INCOME, WHEREAS THE PLEA SET UP BY THE ASSESSEE IS THAT A PORTION OF THE INCOME WHICH IS RELATABL E TO LAND BE ASSESSED AS CAPITAL GAINS. IN THIS BACKGROUND, IT IS SOUGHT TO BE EM PHASIZED THAT THE MAIN PLEA OF THE ASSESSEE IN THE CAPTIONED PROCEEDINGS BEFORE THE TRIBUNAL ON THE ASPECT OF ASSESSMENT OF INCOME FROM CONSTRUCTION AND SALE OF COMMERCIAL PROPERTY, IS TO THE EFFECT THAT A PORTION OF INCOME B E ASSESSED AS CAPITAL GAINS, HAVING REGARD TO THE PROVISIONS OF SECTION 45(2) OF THE ACT. IN THIS CONNECTION, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE WAS INCORPORAT ED AS A COMPANY UNDER THE COMPANIES ACT, 1956 ON 19.1.1970 TO RUN A H OTEL PROJECT AND ACCORDINGLY, THE LAND IN QUESTION WAS ACQUIRED. THE ASSESSE E ALSO SOUGHT PERMISSION FROM THE GOVERNMENT OF INDIAS TOURISM DEPA RTMENT ON 21.8.1971 AND ALSO OBTAINED FROM PUNE MUNICIPAL CORPORATION SANCT ION OF ITS PLANS FOR CONSTRUCTION OF A HOTEL BUILDING ON 25.5.1972. A COMMEN CEMENT CERTIFICATE WAS ALSO OBTAINED FROM THE PUNE MUNICIPAL CORPORATION ON 15.6.1972 AND THE ASSESSEE COMPANY UNDERTOOK THE BASIC INITIAL CONSTRUCTION WOR K UPTO THE PLINTH LEVEL. HOWEVER, DUE TO CERTAIN LEGAL DIFFICULTIES THE CONSTRUCTION COULD NOT BE CONTINUED AND SUBSEQUENTLY THE ASSESSEE COMPANY DECIDED TO ABANDON THE HOTEL PROJECT. IN THE MEANTIME THE LAND WAS UTILIZED FOR EARNING RENTAL INCOME WHILE THE CONSTRUCTION WORK REMAINED AS IT IS AND NO OTH ER COMMERCIAL ACTIVITY 8 WAS CARRIED OUT. IT WAS ONLY SUBSEQUENTLY IN 1990 THAT T HE ASSESSEE COMPANY DECIDED TO DEVELOP THE LAND INTO A COMMERCIAL COMPLEX A ND SELL IT. ACCORDINGLY, IT IS CONTENDED THAT THE CONSTRUCTION OF COMMERCIAL COMPLEX AND SALE THEREOF ACQUIRES A CHARACTER OF BUSINESS AND, THEREFORE, AT THAT ST AGE, THE ASSESSEE CAN BE SAID TO HAVE CONVERTED ITS CAPITAL ASSET, I.E. LAND I NTO STOCK-IN-TRADE. IT WAS POINTED OUT THAT ALL ALONG THE LAND HAS BEEN CONSIDERE D AS A FIXED ASSET IN THE BALANCE SHEET AND, THEREFORE, ONCE IT WAS DECIDED TO E XPLOIT THE LAND COMMERCIALLY AND TO EARN OPTIMUM PRICE FOR THE LAND BY CONSTRUCTING A COMMERCIAL COMPLEX AND SELLING THEREOF, THE HITHERTO CA PITAL ASSET WAS DEEMED TO HAVE BEEN CONVERTED INTO STOCK-IN-TRADE. FOR THIS REA SON, SECTION 45(2) CAME INTO PLAY AND, THEREFORE, IN THE RESPECTIVE YEARS OF ULTIMATE SALE OF UNITS, THE EXCESS OF THE FAIR MARKET VALUE OF THE LAND ON THE DAT E OF CONVERSION INTO STOCK-IN- TRADE OVER THE COST OF ACQUISITION, IS LIABLE TO BE ASSE SSED AS CAPITAL GAINS UNDER SECTION 45(2) OF THE ACT. THE LEARNED COUNSEL SUBMITTED THAT THE LOWER AUTHORITIES HAVE WRONGLY DENIED SUCH BENEFIT TO THE ASSESSEE. 9. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE HAS CONTENDED THAT THE PLEA OF THE ASSESSEE HAS BEEN RIGHTL Y NEGATED BY THE LOWER AUTHORITIES SINCE IT WAS AN AFTERTHOUGHT. MOREOVER, AS P ER THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR INVOKING SECTION 45(2) OF THE ACT THE ONUS WAS ON THE ASSESSEE AND THE ASSESSEE HAS FAILED TO DISCHARGE THE SAME IN THE PRESENT CASE. IN PARTICULAR, IT IS POINTED OUT THAT IN THE RELEVANT YEAR IN WHICH THE ASSET IS STATED TO HAVE BEEN CONVERTED INTO STOCK-IN-TRADE , THE SAID TREATMENT WAS NOT REFLECTED IN THE ACCOUNT BOOKS. IT WAS, THEREFORE, CO NTENDED THAT THE LAND IN QUESTION WAS ACQUIRED BY THE ASSESSEE SINCE INCEPTION FOR UN DERTAKING CONSTRUCTION BUSINESS ONLY AND IT IS LIABLE TO BE TREATED AS STOCK-IN-TRADE SINCE BEGINNING. 10. IN REPLY, THE LEARNED COUNSEL SUBMITTED THAT COMM ENCEMENT CERTIFICATE OF HOTEL PROJECT DATED 15.6.1972 AND THE PLAN SANCTION LE TTER DATED 25.5.1972 ISSUED BY THE PUNE MUNICIPAL CORPORATION CLEARLY SHOWED THAT INITIALLY THE LAND WAS 9 ACQUIRED FOR SETTING UP A HOTEL BUSINESS AND NOT FOR I TS CONSTRUCTION BUSINESS, WHICH WAS STARTED MUCH LATER. THEREFORE, IT WAS ONLY SUBSE QUENTLY THAT THE LAND CAN BE SAID TO HAVE BEEN CONVERTED INTO STOCK-IN-TRADE FO R THE PURPOSES OF CONSTRUCTION BUSINESS. THE LEARNED COUNSEL EMPHASIZED THA T THE AFORESAID DOCUMENTS WHICH WERE HITHERTO NOT BEFORE THE LOWER AUT HORITIES BE ADMITTED FOR CONSIDERATION AS ADDITIONAL EVIDENCE AS THE SAME ARE VIT AL TO DECIDE THE ISSUE IN QUESTION. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. TH E SUBSTANTIVE DISPUTE IN THE PRESENT APPEAL AS ARTICULATED BEFORE THE TRIBUNAL RELATES TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 45(2) OF THE ACT WHILE COMPUTING THE INCOME OF THE ASSESSEE FROM THE CONSTRUCTION ACTIVITY UNDE RTAKEN BY IT. BEFORE WE GO ON TO CONSIDER THE MERITS OF SUCH CLAIM, A BRIEF REF ERENCE TO THE BACKGROUND WHICH HAS CULMINATED IN THE ARTICULATION OF THIS DISPUTE BEFORE US IS NECESSARY. IN THIS CASE, THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 WHICH FILED A RETURN OF INCOME FO R THE ASSESSMENT YEAR 2003-04 ON 14.11.2003 DECLARING AN INCOME OF RS 32,59 ,340/-. IN THE RETURN OF INCOME SO FILED, THE ONLY INCOME DECLARED WAS RENTALS FRO M RUNNING OF BUSINESS CLUB AND OTHER MISCELLANEOUS RECEIPTS. THE ASSESSEE WAS ALSO U NDERTAKING CONSTRUCTION OF A BUILDING ON A LAND OWNED BY IT AT SA FFIRE PARK, GALLERIA, PUNE- MUMBAI ROAD, SHIVAJINAGAR, PUNE. THE ASSESSEE WAS CONSTRUCT ING A COMMERCIAL COMPLEX AND SELLING FLATS/UNITS THEREOF. A PORTION OF S UCH COMMERCIAL COMPLEX WAS READY WHICH WAS BEING UTILIZED BY THE ASSESSEE FOR RUN NING A BUSINESS CLUB. HOWEVER, THE INCOME FROM THE CONSTRUCTION OF THE COMM ERCIAL COMPLEX AND SALE OF SOME OF THE UNITS THEREON WAS NOT DECLARED BY THE ASSE SSEE, AS ACCORDING TO IT, THE CONSTRUCTION OF THE COMMERCIAL COMPLEX WAS NOT COM PLETE AS PLANNED. THE SAID CONSTRUCTION ACTIVITY WAS BEING CARRIED OUT FROM THE EARLIER YEARS AND IT HAS CONTINUED BEYOND THE INSTANT YEAR ALSO. THE ASSESSING OFF ICER DIS-AGREED WITH THE TREATMENT GIVEN BY THE ASSESSEE FOR NOT OFFERING AN Y INCOME FROM THE CONSTRUCTION ACTIVITY. IN FACT, IN THE COURSE OF ASSESSMENT PROCEEDINGS A SURVEY 10 ACTION UNDER SECTION 133A OF THE ACT WAS ALSO UNDERTAKEN AT THE BUSINESS PREMISES OF THE ASSESSEE ON 17.2.2006 AND IN TERMS THEREO F THE FACTUAL ASPECTS RELATING TO THE CONSTRUCTION ACTIVITY WERE CULLED OUT, EXAMINED AND PUT TO THE ASSESSEE. ON THE BASIS OF SUCH ENQUIRIES AND VERIFICATION EX ERCISE DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD PARTLY CONSTRUCTED THE COMMERCIAL COMPLEX AND ALSO SOLD SOM E OF THE FINISHED UNITS AND HANDED OVER POSSESSION TO THE CUSTOMERS STARTING FROM THE FINANCIAL YEAR 2000-01 ONWARDS. THE ASSESSING OFFICER ALSO FOUND THA T THE PUNE MUNICIPAL CORPORATION HAD ISSUED COMPLETION CERTIFICATE IN THE MON THS OF MARCH & NOVEMBER, 2000. CONSIDERING THE TOTALITY OF CIRCUMSTANCE S, THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS LIABLE TO COMPUTE INCOME FROM ITS CONSTRUCTION ACTIVITY AS BUSINESS INCOME AND ACCORDINGLY, HE REWORKED SUCH INCOME FOR THE ASSESSMENT YEARS STARTING FROM THE YEAR OF SALE OF UNITS BY PREPARING REVISED TRADING & PROFIT & LOSS ACCOUNT. AS A RESULT, FOR THE YE AR UNDER CONSIDERATION THE ASSESSING OFFICER COMPUTED THE BUSINESS PROFITS AT RS. 1,99, 12,053.THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALSO SINCE UPHELD SUCH STAND OF THE ASSESSING OFFICER. NOW, BEFORE US, THE APPELLANT DOES NOT DISPUTE THE INCIDENCE OF TAX ON THE PROFITS OF THE CONSTRUCTION ACTIVITY CORR ESPONDING TO THE EVENT OF SALE AND GIVING POSSESSION OF COMMERCIAL UNITS TO THE CUSTOMERS. I T IS ALSO NOT DISPUTED THAT THE PROFITS FROM THE CONSTRUCTION OF COMME RCIAL UNITS AND SALE THEREOF IS LIABLE TO BE ASSESSED AS BUSINESS INCOME. HOWEVER, THE PLEA SET UP IS WITH REGARD TO THE PROFIT OR SURPLUS EMBEDDED IN SUCH SA LES WHICH CORRESPOND TO THE LAND IN QUESTION. AS PER THE ASSESSEE, A PORTION OF PROFIT OR SURPLUS ATTRIBUTABLE TO THE LAND IS TO BE ASSESSED AS CAPITAL GAI NS SINCE THE LAND WAS ACQUIRED AND HELD BY THE ASSESSEE HITHERTO, AS A CAPITAL A SSET. IT IS IN THIS BACKGROUND THE PROVISIONS OF SECTION 45(2) OF THE ACT HAV E BEEN PRESSED INTO SERVICE BY THE ASSESSEE. SECTION 45(2) OF THE ACT READS AS U NDER: (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOCK-IN-TRADE OF A BUSINESS CA RRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME-TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WH ICH SUCH STOCK-IN-TRADE IS SOLD OR 11 OTHERWISE TRANSFERRED BY HIM AND, FOR THE PURPOSES OF SECION 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATME NT SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. SECTION 45(1) PROVIDES FOR TAXATION OF PROFITS AND GAI NS ARISING FROM THE TRANSFER OF A CAPITAL ASSET AND IT IS PRESCRIBED THAT SUCH INCOME IS TO B E TAXED IN THE YEAR IN WHICH THE TRANSFER TOOK PLACE. THE PROVISIONS OF SUB-SECTI ON (2) OF SECTION 45 EXTRACTED ABOVE PROVIDE AN EXCEPTION TO SECTION 45(1) W ITH REGARD TO THE YEAR OF TAXABILITY OF SURPLUS ON TRANSFER OF A CAPITAL ASSET IN A SPECIFIC CIRCUMSTANCE. SUB- SECTION (2) OF SECTION 45 PROVIDES THAT PROFITS AND GAINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INT O OR ITS TREATMENT BY HIM AS STOCK-IN-TRADE OF BUSINESS CARRIED ON BY HIM SHALL BE CHA RGEABLE TO TAX AS CAPITAL GAINS IN THE YEAR IN WHICH SUCH STOCK-IN-TRADE IS SOL D OR OTHERWISE TRANSFERRED BY HIM AND NOT IN THE YEAR OF CONVERSION. HOWEVER, FOR THE PURPOSES OF COMPUTING CAPITAL GAINS THE FAIR MARKET VALUE OF THE CAPITAL ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT IS DEEMED TO BE THE FULL VA LUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF THE CAPIT AL ASSET. IN NUT-SHELL, THE PROVISIONS OF SUB-SECTION (2) OF SECTION 45 PRESCRIBE FOR T AXING THE CAPITAL GAIN ON CONVERSION OF A CAPITAL ASSET INTO STOCK-IN-TRADE, BUT BY POSTPONING SUCH TAXATION TO THE YEAR IN WHICH THE ASSESSEE ULTIMATELY SELLS SUCH STOCK -IN-TRADE. IN THE INSTANT CASE, AS PER THE ASSESSEE THE LAND IN QUESTION WAS HITHERTO A CAPITAL ASSET WHICH HAS BEEN ACQUIRED IN THE YEAR 1971 FOR THE P URPOSES OF A HOTEL PROJECT. IN THIS CONNECTION, WE HAVE PERUSED THE MEMORA NDUM OF ASSOCIATION OF THE ASSESSEE COMPANY, A COPY OF WHICH HAS BEEN PLACED AT PA GES 25 TO 54 OF THE PAPER BOOK. THE ASSESSEE COMPANY HAS BEEN INCORPORATED AS A COMPANY UNDER THE COMPANIES ACT, 1956 ON 19.11.1970 AND THE MAIN OBJECTS RELATE TO CARRYING ON THE BUSINESS OF HOTEL, RESTAURANT, LODGING, BOARDING ETC. THE ASSESSEE HAS ALSO FURNISHED A LETTER DATED 21.8.1971 ISSUED BY THE DEPARTMENT OF TOURISM, GOVERNMENT OF INDIA, PLACED AT PAGE 81 O F THE PAPER BOOK, EVIDENCING APPROVAL FOR ITS PROPOSED HOTEL PROJECT AT T HE IMPUGNED LAND. THE AFORESAID MATERIAL, WHICH WAS BEFORE THE LOWER AUTHORI TIES, SUPPORTS THE PLEA OF 12 THE ASSESSEE THAT IT WAS INCORPORATED FOR THE PURPOSES OF SETTING UP A HOTEL PROJECT AT THE IMPUGNED LAND. AT PAGES 83 TO 84 OF T HE PAPER BOOK IS PLACED A COPY OF OPINION DATED 6.11.1993 ISSUED BY ONE MR H M M IRASDAR, COMPANY SECRETARY, ADVISING THE COMPANY ON THE FEASIBILITY OF THE ASSESSEES PROPOSAL TO CARRY ON A NEW BUSINESS OF DEVELOPMENT OF LAND, BUILDING S AND PROPERTIES OF ALL KINDS INCLUDING COMMERCIAL AS WELL AS RESIDENTIAL COMPLEXES. AT PAGE 91 OF THE PAPER BOOK IS ALSO PLACED A COPY OF A RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY ON 1.1.1994 RE-STATING THE VALUE OF IMPUGNED LAND AND OTHER ASSETS IN TERMS OF THE VALUATION REPOR T ISSUED BY A REGISTERED VALUER. ON THIS BASIS, IT IS SOUGHT TO BE ARGUED THAT TH E ASSESSEE SUBSEQUENTLY CONVERTED ITS HITHERTO CAPITAL ASSET IN THE SHAPE OF LAN D AS STOCK-IN-TRADE FOR ITS CONSTRUCTION BUSINESS. IN ORDER TO SUPPORT ITS PLEA THAT T HE LAND WAS HITHERTO A CAPITAL ASSET FOR THE PURPOSE OF SETTING UP A HOTEL PRO JECT, THE ASSESSEE HAS FURNISHED THE FOLLOWING ADDITIONAL EVIDENCES: (I) COMMENCEMENT CERTIFICATE DATED 15.6.1972 ISSUED BY PUNE MUNICIPAL CORPORATION OF THE HOTEL PROJECT. (II) LETTER OF PUNE MUNICIPAL CORPORATION DATED 25.0 5.1972 REGARDING CONSTRUCTION OF HOTEL PROJECT AT FINAL PLOT NO. 61A, AT BOMBAY-PUNE ROAD. 12. IN OUR CONSIDERED OPINION, THE TWIN EVIDENCES WHICH ARE SOUGHT TO BE RELIED UPON BY THE ASSESSEE DESERVE TO BE CONSIDERED. FI RSTLY, THE BONA FIDES OF THE EVIDENCES ARE NOT IN DISPUTE, INASMUCH AS THE SAME H AVE BEEN ISSUED BY THE GOVERNMENTAL AUTHORITIES. FURTHER-MORE, IT IS ALSO UND ENIABLE THAT THE TWO EVIDENCES HAVE A BEARING TO DECIDE THE NATURE OF THE L AND IN QUESTION, AS CANVASSED BY THE ASSESSEE AND WE, THEREFORE, FIND THE SAME TO BE ADMISSIBLE FOR A SUBSTANTIAL CAUSE OF DETERMINING THE ISSUES IN A JUSTIF IABLE AND APPROPRIATE MANNER. ACCORDINGLY, WE HAVE PERUSED THE ADDITIONAL EVIDENCES, COPIES OF WHICH HAVE BEEN PLACED IN THE SUPPLEMENTARY PAPER BOOK AND F IND THAT THE INITIAL INTENTION OF THE ASSESSEE WAS TO CONSTRUCT A HOTEL BUILDI NG ON THE IMPUGNED LAND AFTER ITS ACQUISITION IN 1971. THE LETTER DATED 25.5. 1972 ISSUED BY THE PUNE MUNICIPAL CORPORATION CLEARLY ENTAILS SEEKING OF PERMISSIO N BY THE ASSESSEE FOR 13 CONSTRUCTION OF A HOTEL BUILDING. THE ASSESSEE HAS ALSO REF ERRED TO ITS BALANCE SHEET STARTING FROM FINANCIAL YEAR 1989-90 TO POINT O UT THAT SOME ACTIVITY OF CONSTRUCTION WAS ALSO STARTED IN THIS REGARD. ON THE BASIS O F EVIDENCE AND MATERIAL ON RECORD, WE, THEREFORE, AGREE WITH THE SU BMISSION PUT-FORTH BY THE ASSESSEE THAT THE LAND IN QUESTION WAS TREATED AS A CAPITA L ASSET BY THE ASSESSEE AFTER ITS ACQUISITION IN 1971 FOR THE PURPOSES OF SETTING UP THE HOTEL PROJECT. THERE IS ALSO NO DISPUTE TO THE ASSERTION MADE BY THE ASSESSEE TO THE EFFECT THAT EVEN AFTER OBTAINING APPROVALS FOR SUCH HO TEL PROJECT, THE SAID HOTEL PROJECT DID NOT FRUCTIFY ON THE IMPUGNED LAND. IN FACT , IN THE ACCOUNT BOOKS OF THE ASSESSEE THE TREATMENT ACCORDED TO THE IMPUGNED LAND IS TH AT OF A CAPITAL ASSET. THEREFORE, WE PROCEED FURTHER ON THE PREMISE THAT THE IMPUGNED LAND WAS A CAPITAL ASSET IN THE HANDS OF THE ASSESSEE AT THE TIME OF ITS ACQUISITION AND WAS SOUGHT TO BE PUT TO USE ALSO AS A CAPITAL ASSET FOR THE PURPOSES OF ITS PROPOSED HOTEL PROJECT. IN THIS MANNER, IN OUR VIEW, THE ASSESSEE SATISFIES THE PRELIMINARY INGREDIENT OF SECTION 45(2) OF THE ACT TO THE EFFECT T HAT THE ASSET IN QUESTION WAS A CAPITAL ASSET INITIALLY. 13. THE OTHER NECESSARY CONDITION OF SECTION 45(2) IS TH E CONVERSION OR TREATMENT OF SUCH CAPITAL ASSET INTO ITS STOCK-IN-TRADE OF BUSINESS CARRIED ON BY THE ASSESSEE. ON THIS ASPECT, WE FIND CONVERGENCE IN THE STA NDS OF THE ASSESSEE AND THE REVENUE INASMUCH AS IT IS NOT DISPUTED THAT THE SUBSEQUENT ACTIVITY CARRIED ON BY THE ASSESSEE OF CONSTRUCTING A COMMERCIAL SUPE RSTRUCTURE ON THE SAID LAND AND SALE THEREOF IS A BUSINESS ACTIVITY. THUS, THE ASSESSEE IS TO BE VIEWED AS HAVING CONVERTED OR TREATED ITS HITHERTO HELD CAPITAL ASSET, I.E. LAND, AS STOCK-IN-TRADE OF ITS BUSINESS OF CONSTRUCTION ACTIVITY. THE ONLY DIFFERENCE NOW REMAINS BETWEEN THE ASSESSEE AND THE REVENUE IS THE YEAR IN WHICH THE SAID CONVERSION OR TREATMENT AS STOCK-IN-TRADE HAS TAKEN PLACE . IN A DETAILED SUBMISSION ON THIS ASPECT, THE ASSESSEE CANVASSED BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE US THAT 1993 BE TREATED AS THE YEAR I N WHICH THE SAID LAND WAS TREATED AS STOCK-IN-TRADE. THE REVENUE HAS DISPUTED THIS ASPECT BY POINTING OUT 14 THAT THE YEAR OF CONVERSION/TREATMENT AS STOCK-IN-TRADE B E 1989 AS AGAINST 1993 CANVASSED BY THE ASSESSEE. IN THIS CONNECTION, THOUGH THE ASSE SSEE DOES NOT DISPUTE THAT THE PUNE MUNICIPAL CORPORATION SANCTIONED THE PLANS FOR THE CONSTRUCTION OF COMMERCIAL COMPLEX IN 1990, SO HOWEVER, IT IS SUBMITTED THAT THE EFFECTIVE STEPS TO START CONSTRUCTION WERE TAKEN UP ONLY IN 1993 WHEN CERTAIN DISPUTES IN THE TITLE OF THE LAND WERE RESOLVED. WE HA VE CONSIDERED THE RIVAL STANDS ON THIS ISSUE AND FIND THAT THE ASSESSING OFFICER H AS NOT DEALT WITH THIS ISSUE EVIDENTLY BECAUSE HE DISMISSED THE PLEA OF THE ASSESSE E FOR PARTIAL ASSESSMENT OF INCOME AS CAPITAL GAIN, AT THE THRESHOLD. TH E COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALSO NOT APPRECIATED THE PLEA OF THE ASSESSEE FOR PARTIAL ASSESSMENT OF INCOME AS CAPITAL GAIN. SO, HOWEVE R, THE COMMISSIONER OF INCOME-TAX (APPEALS), IN PARA 6.5 OF THE IMPUGNED ORD ER WHILE DEALING WITH AN ALTERNATIVE PLEA OF THE ASSESSEE OBSERVED THAT EVEN IF THERE WAS ANY CONVERSION INTO STOCK IN TRADE IT SHOULD HAVE BEEN IN THE YEAR 1989-90. IN OUR V IEW, IN ORDER TO RESOLVE THE CONTROVERSY RELATING TO THE YEAR OF CONV ERSION OR TREATMENT OF LAND INTO STOCK-IN-TRADE, THE SAME BE REVISITED BY THE ASSESSING OFFICER AFTER CONSIDERING THE MATERIAL ON RECORD, AS SUCH AN ISSUE IS PRI MARILY A MATTER RELATING TO FACTUAL APPRECIATION. CONSEQUENT TO THE DETERMINAT ION OF THE YEAR OF CONVERSION OR TREATMENT OF LAND INTO STOCK-IN-TRADE, THE ASSESSING OFFICER SHALL RE- COMPUTE THE INCOME ASSESSABLE UNDER THE RESPECTIVE HEADS OF INCOME, NAMELY, BUSINESS INCOME AND CAPITAL GAINS. IN CARRYING OUT THE A FORESAID EXERCISE, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPOR TUNITY OF BEING HEARD AND TO PRODUCE ALL NECESSARY EVIDENCE IN SUPPORT O F ITS STAND. AFTER CONSIDERING THE MATERIAL AND EVIDENCE PUT-FORTH BY THE ASSESSEE, THE ASSESSING OFFICER SHALL RE-COMPUTE THE INCOME OF THE ASSESSEE KEEPING IN MIND OUR AFORESAID DISCUSSION, AS PER LAW. IN THE RESULT, THE ASSESSEE HAS TO SUCCEED IN ITS PLEA FOR INVOKING OF SECTION 45(2) OF THE ACT IN RELAT ION TO THE COMPUTATION OF INCOME ARISING FROM THE CONVERSION/TREATMENT OF LAND IN TO STOCK-IN-TRADE OF ITS 15 CONSTRUCTION BUSINESS AND PROFITS THEREON. THUS, ON THIS P URPOSE, THE ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 14. THE LAST GROUND IN THE APPEAL OF THE ASSESSEE RELAT ES TO AN ADDITION OF RS 27,31,635/- AS CONCEALED INCOME ON ACCOUNT OF CERTAIN CAS H TRANSACTIONS CLAIMED TO BE EMERGING FROM CERTAIN DOCUMENTS FOUND DUR ING THE COURSE OF SURVEY CARRIED OUT UNDER SECTION 133A OF THE ACT. THE RE LEVANT DISCUSSION IN THIS REGARD IS CONTAINED IN PARAS 7 TO 7.3 OF THE ASSESSMENT ORDER. AS PER THE ASSESSING OFFICER, THE TRANSACTION OF SALE OF FIRST FLOOR A T SAFFIRE PARK, GALLERIA, WAKADEWADI, PUNE, WAS FINALIZED AT RS 2,44,20,000/-, WHICH CONTAINED. THE ASSESSING OFFICER ALSO NOTICED THAT IN THIS CASE THE STAMP DU TY OF RS 27,43,143/- WAS PAID BY THE SELLER, WHICH IS NORMALLY PAID BY THE P URCHASER OF THE PROPERTY. AS PER THE ASSESSING OFFICER, CASH OF RS 27,37,675/- WAS TAKEN FROM THE CUSTOMERS AND IN LIEU THEREOF, THE ASSESSEE SELLER PAID TH E STAMP DUTY. THE DIRECTOR OF THE ASSESSEE WAS ALSO EXAMINED BY THE ASSESSING O FFICER. THE ASSESSEE DENIED RECEIPT OF CASH. HOWEVER, THE SAID PLEA WAS REJECTED BY THE ASSESSING OFFICER, AS ACCORDING TO HIM, THE CALCULATIONS FOU ND RECORDED IN THE PAPERS EXAMINED DURING THE COURSE OF SURVEY SHOWED A CASH COMPONENT OF RS 27,31,675/- IN THE TRANSACTION AND ACCORDINGLY, THE SAM E WAS ADDED TO THE RETURNED INCOME AS CONCEALED INCOME. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALSO UPHELD THE ADDITION BY OBSERVING THA T THE PLEA OF THE ASSESSEE THAT THE DOCUMENTS FOUND DURING THE SURVEY WAS A ME RE PROPOSAL WHICH DID NOT ACTUALLY MATERIALIZE. THE COMMISSIONER O F INCOME-TAX (APPEALS) HOWEVER HAS CONCLUDED THAT THE DOCUMENTS SHOW THAT THE D EAL WAS FINALIZED AS THE AMOUNT SHOWN IN THE REGISTERED DOCUMENT WAS ONLY R S 2,11,100,100/- INSTEAD OF RS 2,44,20,000/- FOUND IN THE DOCUMENTS. AG AINST SUCH SUSTENANCE OF ADDITION, ASSESSEE IS IN APPEAL BEFORE US. 14. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERRED TO COPIES OF AGREEMENT DATED 24.11.2001 BETWEEN ASSESSEE AND CUSTOME R M/S ANUBHUTI ESTATE P.LTD. WHEREIN THE STATED CONSIDERATION IS RS 2, 11,01,1000/- AND ALSO THE 16 CERTIFICATE OF CLEARANCE UNDER SECTION 269UL(3) OF THE ACT IN FORM NO 37-I ISSUED BY THE APPROPRIATE AUTHORITY, AHMEDABAD WITH REGARD TO THE IMPUGNED TRANSACTION. IT WAS CONTENDED THAT ON THE BASIS OF THE AF ORESAID DOCUMENTS, THE STAGTED CONSIDERATION HAS EVEN BEEN APPROVED BY THE IN COME-TAX AUTHORITIES AND THERE IS NO UNA COUNTED CONSIDERATION. MOREOVER, IT IS CO NTENDED THAT THERE IS NO MATERIAL TO SHOW THAT ANY CONSIDERATION OTHER THAN T HE STATED CONSIDERATION HAS BEEN RECEIVED BY THE ASSESSEE. 15. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UP ON THE ORDERS OF THE AUTHORITIES BELOW TO POINT OUT THAT THE ASSESSEE HAS RE CEIVED CASH COMPONENT AS EVIDENCED BY THE DOCUMENTS FOUND DURING THE SURVEY AND , THEREFORE, THE ADDITION HAS BEEN RIGHTLY SUSTAINED BY THE COMMISSIONER OF INCOME- TAX (APPEALS). 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. ON THIS ASPECT, WE FIND THAT THE ENTIRE CASE HAS BEEN SET UP BY THE REVEN UE ON THE BASIS OF CERTAIN DOCUMENTS FOUND AT THE TIME OF SURVEY WHICH MENTIONED A CASH OF RS 27,31,675/- IN THE TRANSACTION FOR THE SALE OF THE FIRST FLOOR AS SA FFIRE PARK, GALLERIA AT WAKADWADI, PUNE. THE ASSESSING OFFICER NOTES THAT THE A SSESSEE WAS ALSO EXAMINED WITH RESPECT TO THE DOCUMENTS FOUND. THE RELE VANT EXTRACT OF THE STATEMENT HAS BEEN REPRODUCED IN PARA 7.2 OF THE ASSESSM ENT ORDER. WE HAVE PERUSED THE SAME AND FIND THAT THERE IS NO CORROBORATIO N TO THE PLEA OF THE ASSESSING OFFICER THAT A CASH OF RS 27,31,675/- WAS INVOLVE D IN THE SAID TRANSACTION. IN FACT, THE REASONING SET UP BY THE ASSESSING OFFICER IS THAT IN THIS CASE STAMP DUTY OF RS 27,43,143/- HAS BEEN PAID BY THE ASSESSEE SELLER WHICH IS NORMALLY PAID BY THE PURCHASER AND THAT IT IS THIS CO MPONENT WHICH HAS BEEN RECOVERED BY THE ASSESSEE IN CASH OF RS 27,31,675/- OUTSIDE THE BOOKS OF ACCOUNT. IN OUR VIEW, THERE IS NO MATERIAL ON RECORD TO CORROBORATE THE AFORESAID ASSERTION OF THE ASSESSING OFFICER AND IN FACT, AT NO STAGE HAS THE PURCHASER COMPANY, I.E. ANUBHUTI ESTATE P LTD. BEEN EXAMINED. EVEN THE CLEARANCE IN FORM NO. 37-I AT THE STATED CONSIDERATION ALSO PRIMA FA CIE SUPPORTS THAT THE TRANSACTION HAS BEEN CARRIED OUT THE STATED CONSIDERATION . UNDER THESE 17 CIRCUMSTANCES, THE ONUS WAS CLEARLY ON THE ASSESSING OFFICER TO CORROBORATE HIS ASSERTION THAT THERE WAS CASH COMPONENT RECEIVED BY THE ASSE SSEE IN THE IMPUGNED SALE TRANSACTION WITH M/S ANUBHUTI ESTATE P LT D. CONSIDERING THE TOTALITY OF CIRCUMSTANCES, THE MATERIAL AND EVIDENCE ON RECORD, WE DO NOT FIND ANY JUSTIFICATION FOR THE COMMISSIONER OF INCOME-TAX (APPEA LS) TO HAVE SUSTAINED SUCH ADDITION. THE SAME IS HEREBY DELETED. THUS, ON THIS GROUND THE ASSESSEE SUCCEEDS. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. 16. WE SHALL NOW TAKE UP REVENUES APPEAL, VIDE ITA NO 973/PN/07. THE FIRST ISSUE RAISED IN THIS APPEAL RELATES TO THE ASSESSEES CLAIM O F DEDUCTION TOWARDS PAYMENT OF INTEREST OF RS 87,54,172/- TO THE COSMOS BAN K. IT APPEARS THAT THE ASSESSING OFFICER CONSIDERED THE PAYMENT OF RS 20LAKHS TO T HE COSMOS CO-OP. BANK AS THE COST OF THE PROJECT. IN APPEAL BEFORE THE C OMMISSIONER OF INCOME-TAX (APPEALS), THE ASSESSEE VIDE ITS SUBMISSIONS DATED 31.1.2007 FILED DETAILS OF PAYMENTS MADE TO COSMOS BANK AS UNDER: AY 2000-01 RS 13,35,712/- AY 2001-02 RS 1,35,00,000/- AY 2003-04 RS 1,25,00,000/- IT WAS SUBMITTED BEFORE THE COMMISSIONER OF INCOME-TAX ( APPEALS) THAT FOR THE ASSESSMENT YEAR2003-04 AS PER PROVISIONS OF SECTION 43B, IN TEREST OF RS 87,54,172/- SHOULD BE ALLOWED TO THE ASSESSEE COMPANY AN D NOT RS 20 LAKHS AS MENTIONED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE COMMISSIONER OF INCOME-TAX (APPEALS) OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE NEVER CLAIMED THIS AMOUNT AS DEDU CTION AND THAT THE ASSESSEE IS ENGAGED IN LEGAL BATTLE WITH COSMOS BANK AND TH E MATTER IS SUB JUDICE. THE ASSESSEE DID NOT FURNISH ANY DOCUMENTARY EVIDENCE TO PROVE ITS CLAIM THAT THE ENTIRE PAYMENTS MADE BY IT TO THE BANK WERE ON ACCOUNT OF INTEREST. THE COMMISSIONER OF INCOME-TAX (APPEALS) ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO MAKE ENQUIRIES FROM THE BANK AND TO WORK OUT THE INTEREST AND PRINCIPAL 18 AMOUNT PAID BY THE ASSESSEE TO THE BANK AND IF THE ASSESSING OFFICER IS SATISFIED THAT THE PAYMENTS ARE ON ACCOUNT OF INTEREST AND NOT RE PAYMENT OF PRINCIPAL AMOUNT, THEN TO ALLOW THE SAME IN THE YEAR IN WHICH THE PAYMENT WAS MADE, AS ACCORDING TO THE COMMISSIONER OF INCOME-TAX (APPEALS), TH E ASSESSEE WAS ENTITLED FOR DEDUCTION OF INTEREST WHILE COMPUTING THE NET PROFIT. THE REVENUE HAS COME UP IN APPEAL BEFORE US AGAINST THIS DECISION OF THE COMMISSIONER OF INCOME-TAX (APPEALS). 17. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIV E HAS REFERRED TO THE GROUNDS OF APPEAL PREFERRED BY THE REVENUE IN THIS G ROUND: (1) THE LD CIT(A) GROSSLY ERRED IN ENTERTAINING TH E ASSESSEES CLAIM OF DEDUCTION TOWARDS PAYMENT OF INTEREST OF RS 87,54,172/- TO TH E COSMOS BANK AND IN ISSUING DIRECTION TO THE AO TO ALLOW THE INTEREST TO THE EX TENT OF ACTUAL PAYMENT AND IN THE YEAR IN WHICH THE PAYMENT WAS MADE. (2) THE LD CIT (A) GROSSLY ERRED IN FAILING TO APPR ECIATE THE ASSESSEE HAD NEVER CLAIMED THE DEDUCTION OF RS 87,54,172/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ALSO DID NOT FURNISH ANY DOCUMENTAR Y EVIDENCE, EVEN IN THE COURSE OF THE APPEAL PROCEEDINGS IN SUPPORT OF THE IMPUGNED FRESH CLAIM. 18. AS PER THE REVENUE, THE COMMISSIONER OF INCOME-TAX (APP EALS) WAS NOT JUSTIFIED IN ENTERTAINING THE ASSESSEES PLEA FOR CLAIM OF DEDUCTION TOWARDS PAYMENT OF INTEREST OF RS 87,54,172/- TO THE BANK BECA USE THE ASSESSEE HAD NOT RAISED SUCH A CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDING S. ON THE CONTRARY, THE LEARNED COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT NO FRESH CLAIM WAS RAISED BEFORE THE COMMISSIONER OF INCOME-TAX (A PPEALS), INASMUCH AS THE ASSESSEE WAS FOLLOWING A PROJECT COMPLETION METHOD IN THE BOOKS OF ACCOUNT AND THE ENTIRE EXPENDITURE WAS SHOWN IN WORK-IN-PROGRE SS. THERE WAS A DISPUTE BETWEEN THE BANK AND THE ASSESSEE AND THE LITIGATION WA S IN THE COURTS. NEVERTHELESS, IT WAS SUBMITTED THAT A FACTUAL NOTE ON T HE CLAIM OF INTEREST WAS ANNEXED WITH THE RETURN OF INCOME AND IN THIS REGARD, REFERENCE HAS BEEN MADE TO NOTE NO. 2 OF NOTES ON ACCOUNTS FORMING PART OF THE BALANCE SHEET OF THE ASSESSEE, COPY OF WHICH HAS BEEN PLACED AT PAGE 149 OF THE PAPER BOOK. THE LEARNED COUNSEL HAS POINTED OUT THAT SUBSEQUENT TO T HE DIRECTIONS OF THE COMMISSIONER OF INCOME-TAX (APPEALS), THE ASSESSING OFFICE R CARRIED OUT A 19 VERIFICATION EXERCISE AND ALLOWED DEDUCTION OF RS 67,54, 172/- VIDE ORDER DATED 7.3.2008. 19. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. I N THIS REGARD, WE DO NOT FIND ANY INFIRMITY IN THE CONCLUSION OF THE COMMI SSIONER OF INCOME-TAX (APPEALS) IN DIRECTING THE ASSESSING OFFICER TO EXAMINE T HE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF INTEREST PAID TO THE BANK. QUITE CLEARLY, IN THE RETURN OF INCOME ASSESSEE DID NOT MAKE SUCH A CLAIM, SO HOWEVER, I N THE DOCUMENTS ATTACHED TO THE RETURN OF INCOME, THE COMPLETE FACTUA L ASPECT HAS BEEN NARRATED WHEREIN THE LITIGATION WITH THE BANK HAS BEEN BROUGHT OUT. THE ASSESSEE HAS ALSO SUBMITTED THE AMOUNT APPROPRIATED BY THE BANK TOWARDS ITS DUES IN THE COURSE OF THE LITIGATION. IN VIEW OF THE AFORESAID MATERIAL O N RECORD, THE CLAIM SET UP BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) H AS RIGHTLY BEEN ENTERTAINED. IN ANY CASE, WE FIND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) DID NOT STRAIGHTWAY ALLOW ANY RELIEF BUT DIRECTED THE ASSESSING OFFICER TO MAKE NECESSARY ENQUIRIES FROM THE BANK AND WORK OUT THE CLAIM OF INTEREST ADMISSIBLE TO THE ASSESSEE IN TERMS OF LAW. CONSIDERING THE ENTIRETY OF CIRCUMSTANCES, WE FIND NO JUSTIFICATION TO INTERFERE WITH THE DIRECTION S OF THE COMMISSIONER OF INCOME- TAX (APPEALS) WHICH ARE JUST AND PROPER. THUS ON THIS GR OUND, REVENUE HAS TO FAIL. 20. THE NEXT ISSUE IS WITH REGARD TO THE ASSESSEES CLAIM OF REGISTRATION EXPENSES OF RS 21,41,861/-. BEFORE THE COMMISSIONER OF I NCOME-TAX (APPEALS), IT WAS SUBMITTED BY THE ASSESSEE THAT THE SALE CONSIDERATION INCLUDED THE COST OF REGISTRATION EXPENSE OF RS 21,41,861/-, WHICH WAS NOT TA KEN INTO CONSIDERATION BY THE ASSESSING OFFICER WHILE CALCULATING THE GROSS PROFIT AT RS 2,05,34,325/-. IT WAS THUS CONTENDED BY THE ASSESSEE THAT THE GROSS PROFIT HAS TO BE REDUCED BY RS 21,41,861/-, BEING THE REGISTRATION EXPENSES. THE CO MMISSIONER OF INCOME-TAX (APPEALS) ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO EXAM INE THIS FACT AND AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE A SSESSEE, TO ALLOW THE CLAIM IF 20 THE SAME WAS FOUND TO BE CORRECT. AGAINST THIS DIRECTION O F THE COMMISSIONER OF INCOME-TAX (APPEALS), REVENUE IS IN APPEAL BEFORE US. 21. WE HAVE CAREFULLY CONSIDERED THE RIVAL STANDS ON THI S ASPECT AND HAVE ALSO GONE THROUGH THE ORDER OF THE COMMISSIONER OF INC OME-TAX (APPEALS).IN THIS REGARD, THE OBSERVATIONS OF THE COMMISSIONER OF INCOME -TAX (APPEALS) CONTAINED IN PARA 11 OF HIS ORDER ARE RELEVANT IS NOTEWORTHY: 11. IN GROUND NO.5, THE APPELLANT HAS TAKEN A PLEA THAT THE AO HAS WORKED OUT THE GP AT RS 2,05,34,325/-. IT IS SUBMITTED THAT THE SA LE CONSIDERATION INCLUDES THE COST OF REGISTRATION EXPENSES OF RS 21,41,861/- AND THE AO HAS NOT TAKEN INTRO CONSIDERATION THE SAID REGISTRATION EXPENSES WHILE CALCULATING THE GR OSS PROFIT. THE APPELLANT HAS PLEADED THAT THE GROSS PROFIT HAS TO BE REDUCED BY RS 21,41 ,861/-, BEING THE REGISTRATION EXPENSES. THE FURTHER DIRECTED TO EXAMINE THIS FACT AND AFTER GIVING OPPORTUNITY TO THE APPELLANT ALLOW THE CLAIM, IF THE SAME IS FOUND TO BE CORRECT. FROM THE ABOVE, WE FIND THAT THE COMMISSIONER OF INCOM E-TAX (APPEALS) DID NOT STRAIGHTWAY ALLOW ANY RELIEF BUT DIRECTED THE ASSESSING OF FICER TO EXAMINE THE FACTUAL ASPECT OF THE RELIEF CLAIMED BY THE ASSESSEE. CONSID ERING THE ENTIRETY OF CIRCUMSTANCES, WE FIND NO JUSTIFICATION TO INTERFERE WITH THE FACTUAL DIRECTIONS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WHICH ARE JUST A ND PROPER. THUS ON THIS GROUND, REVENUE HAS TO FAIL. 22. IN THE RESULT, REVENUES APPEAL FAILS AND IS DISMISSED . DECISION PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER, 2011. SD/- SD/- (I C SUDHIR) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE: DATED: 30 TH SEPTEMBER, 2011 B COPY OF THE ORDER IS FORWARDED TO : 1. SAFIRE HOTEL P LTD. PUNE 2. ACIT, C IR.6 PUNE, PUNE 3. THE CIT(A)-II, PUNE 4. THE CITIII, PUNE 5. THE D.R, B BENCH, PUNE 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE