ACIT, Central Circle 1(1), Pune V. Mrs. Deepa Ghanshyam Sukhwani, Pune

ITA 972/PUN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76215 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 16-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Assessee Lawyers: VIPIN GUJARATHI
• Keywords: Business income; Earning of tax free income
• Section: 153A; 80IB; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NOS.972, 973 & 2179/PN/2012 (A.YS. 2006-07, 2007-08 & 2005-06) DCIT, CENTRAL CIRCLE 1(1), PUNE APPELLANT VS. MRS. DEEPA GHANSHYAM SUKHWANI PROP. M/S. SUKHWANI CONSTRUCTION COMPANY, 32, SUKHWANI CHAMBERS, STATION ROAD, PIMPRI, PUNE - 411018 PAN: AMJPS7216H RESPONDENT ASSESSEE BY : SHRI VIPIN G UJARATHI DEPARTMENT BY : SHRI P.L. PATHADE DATE OF HEARING : 24.02.2014 DATE OF ORDER : 28.02.2014 ORDER PER BENCH: ALL THE APPEALS FILED BY THE REVENUE PERTAIN TO TH E SAME ASSESSEE FOR DIFFERENT ASSESSMENT YEARS. SO THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLI DATED ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ITA NO.972/PN/2012, THE REVENUE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF TREATMENT OF SHORT TERM CAPITAL GAIN OF RS. 1,12,76 ,335/- AS BUSINESS INCOME OF THE ASSESSEE, WHICH WAS MADE BY THE ASSESSING OFFICER KEEPING IN VIEW THE REGULARITY AN D FREQUENCY OF THE SHARE TRANSACTIONS OF THE ASSESSEE . 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) HAS ERRED IN GRANTING RELIEF TO THE A SSESSEE ON THE ISSUE OF REDUCTION OF DEDUCTION U/S 80IB (10), THOUGH THERE WAS CLEAR INFLATION OF EXPENSES BY THE ASSESS EE FOR NON- 80IB (10) PROJECT AND INFLATION OF PROFIT FOR 80IB( 10) PROJECT BY THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) HAS ERRED IN GRANTING RELIEF TO THE A SSESSEE ON THE ISSUE OF REDUCTION OF DEDUCTION U/S 801B (10), THOUGH THE ASSESSEE HAD NO PLAUSIBLE EXPLANATION FOR VERY HIGH PROFITABILITY FOR 80IB(10) PROJECT AND LOW PROFITAB ILITY FOR NON- 80IB(10) PROJECT, THOUGH, BOTH THESE PROJECTS ARE SITUATED ON ADJOINING PLOT OF LAND, WITH IDENTICAL LAND COST AND CONSTRUCTED AROUND SAME TIME. 4. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, AN D MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE, DEVELOPMENT AND BUILDING CONSTRUCTION. THE FIRST I SSUE IS WITH REGARD TO ADDITION ON ACCOUNT OF TREATMENT OF SHORT TERM CAPITAL GAIN OF 1,12,76,335/-. THE ASSESSEE HAS DISCLOSED INCOME FROM HOUSE PROPERTY, DIVIDEND AND BANK INTEREST, CAPITAL GAINS ON SALE OF SHORES ALONG WITH BUSINESS INCOME FROM SUKHWANI CONSTRUCTI ON COMPANY AND SUKHWANI PROPERTIES, THE PROPRIETARY CONCERNS O F THE ASSESSEE. THE ASSESSING OFFICER TREATED THE SHORT TERM CAPITA L GAIN ON SALE OF SHARES OF 1,12,76,335/- AS BUSINESS INCOME. IN ADDITION TO THE SAME, THE ASSESSING OFFICER HAS ALSO REDUCED THE DE DUCTION U/S.80IB(10) BY 40,00,000/-. THE ASSESSING OFFICER HAS HELD THAT THE SHORT TERM CAPITAL GAIN OF 1,12,76,335/- AS BUSINESS INCOME BY OBSERVING AS UNDER: 5. AFTER DISCUSSION, THE ISSUES ARISING IN THIS CA SE ARE DECIDED AS UNDER:- TRADING IN SHARES 5.1 FROM THE RECORDS, IT IS SEEN THAT DURING THE YEAR U NDER CONSIDERATION, THE ASSESSEE HAS TRADED IN SHARES 3 FREQUENTLY. ON ACCOUNT OF PURCHASE AND SALE OF SHA RES, THE ASSESSEE HAS CLAIMED SHORT TERM CAPITAL GAINS O F RS.1,12,76,335/-. BESIDES THIS, THE ASSESSEE HAS C LAIMED LONG TERM CAPITAL GAIN / LOSS OF RS. NIL/-. LOOKING AT THE FREQUENCY OF THE TRANSACTIONS, THE ASSESSEE WAS ASK ED TO CLARIFY AS TO WHY THE PROFIT ON ACCOUNT OF PURCHASE S AND SALES OF SHARES SHOULD NOT BE TAXED AS A TRADING PR OFIT. IN RESPONSE, THE ASSESSEE HAS CONTENDED AS UNDER: 5.2 BESIDES THE ABOVE, THE ASSESSEE'S HUSBAND CONTENDED THAT ALL THESE SHARES HAVE COME IN TO D'MAT ACCOUNT AND HAVE BEEN SOLD AFTER A CONSIDERABLE TIME. HE FURTHER ST ATED THAT AS THE INVESTMENTS IN SHARES HAVE BEEN SHOWN AS INVESTMENTS, THE PROFIT EARNED NEEDS TO BE TAXED AS CAPITAL GAINS ONLY IN VIEW OF THE CENTRAL BOARD OF DIRECT TAXES'S CIRCULAR. 5.3 I HAVE CAREFULLY CONSIDERED THE VERSIONS OF THE ASS ESSEE. THE ASSESSEE HAS DEALT IN A FEW SHARES DURING EARLI ER YEARS AND THEREFORE THE PROFIT WAS TAXED AS CAPITAL GAINS , AS CLAIMED BY THE ASSESSEE. HOWEVER, THE FACT DURING T HE YEAR IS THAT THERE ARE IN ALL 410 PURCHASES / SALES TRAN SACTIONS DURING THE YEAR. THERE ARE SOME TRANSACTIONS, WHICH CLEARLY SHOW THAT THESE ARE THE TRADING TRANSACTION S. IN THESE TRANSACTIONS, THE MOTIVE OF MAKING PROFIT IMMEDIATELY AFTER THE PURCHASE IS VERY CLEAR. THERE FORE, IT IS DIFFICULT TO SAY THAT THE ASSESSEE IS AN INVESTO R IN SHARES AT LEAST FROM THIS YEAR ONWARDS. HOWEVER, TO BE JUD ICIOUS, WHEREVER THE ASSESSEE HAS HELD SHARES FOR OVER A YE AR, THE CLAIM OF LONG TERM CAPITAL GAINS/LOSS HAS BEEN ACCE PTED. 5.4 FREQUENT TRANSACTIONS IN SHARES WITH A MOTIVE OF MA KING QUICK MONEY CAN ONLY BE TERMED AS TRADING THOUGH IT IS CLAIMED THAT IT IS AN INVESTMENT. THEREFORE, LOOKIN G AT THE FREQUENCY OF TRANSACTIONS AND THE MOTIVE, THE CLAIM OF SHORT TERM CAPITAL GAINS IS NOT ACCEPTED AND THE AM OUNT SHOWN AS S.T.C.G. IS TAXED AS TRADING PROFIT / BUSI NESS INCOME OF THE ASSESSEE, AMOUNTING TO RS.1,12,76,335 /-.' 3.1 THE MATTER WAS CARRIED BEFORE THE FIRST APPELLA TE AUTHORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED BY THE ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) DELETED THE ADDITION ON ACCOUNT OF TREATMENT OF SHORT TERM CAPITAL GAINS OF 1,12,76,335/- AS BUSINESS INCOME OF THE ASSESSEE. THE SAME HAS B EEN OPPOSED BEFORE US ON BEHALF OF REVENUE, INTER ALIA SUBMITTE D THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF TR EATMENT OF SHORT 4 TERM CAPITAL GAIN OF 1,12,76,335/- AS BUSINESS INCOME OF THE ASSESSEE, SO THE ORDER OF CIT(A) ON THE ISSUE BE SE T ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED, WHO MADE THE ADD ITION KEEPING IN VIEW THE REGULARITY AND FREQUENCY OF THE SHARE TRAN SACTIONS OF THE ASSESSEE. 3.2 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS DECLARED SHOR T TERM CAPITAL GAIN OF 1,12,76,335/- WHICH HAS BEEN HELD TO BE ASSESSABLE UNDER THE HEAD BUSINESS BY THE ASSESSING OFFICER ON THE G ROUND THAT FREQUENCY OF THE TRANSACTIONS WHICH IS AT 412 IN TH IS ASSESSMENT HAS REACHED HIGHER PROPORTION AND THEREFORE, AT LEAST F ROM THIS ASSESSMENT YEAR, THE NATURE OF THE ACTIVITY HAS CHA NGED AND HAS BECOME SIMILAR TO A.Y. 2007-08 WHEREIN THE ASSESSEE HAS HERSELF TREATED THE SAME AS BUSINESS. IT HAS BEEN THE CLAI M OF THE ASSESSEE THAT THIS ONLY ON THE BASIS OF NUMBER OF TRANSACTIO NS ADVERSELY INFERRED SHOULD NOT HAVE BEEN DRAWN BY THE ASSESSIN G OFFICER. THE CIT(A) FURTHER OBSERVED THAT THE SHARES TRANSACTION S ACTIVITY OF BUSINESS IS A MIXED QUESTION OF FACT AND LAW, WHICH COULD NOT BE DECIDED ONLY ON THE STRENGTH OF ONLY ONE OR FEW PAR A METERS. THIS ISSUE IS ONE OF THE VEXED ISSUES WHICH SHOULD BE DE CIDED AFTER CONSIDERING NUMEROUS PARA METERS SET OUT BY THE DIF FERENT JUDICIAL PRONOUNCEMENTS AND ALSO IN THE LIGHT OF CIRCULAR OF THE BOARD ON THE ISSUE. ONLY ON THE STRENGTH OF NUMBER IT IS DIFFIC ULT TO CONCLUDE THAT THE FINDING OF THE ASSESSING OFFICER, WHICH JUSTIFI ED. THE ASSESSEE HAS UNDISPUTEDLY ESTABLISHED THAT THE TRANSACTIONS DISC LOSED UNDER THE HEAD INVESTMENT AND THEREFORE, SAME SHOULD BE REJEC TED ONLY BY WAY OF BRINGING COGENT REASONING FOR THE SAME. THE A SSESSEE HAS CLAIMED THAT NO BORROWED FUNDS HAVE BEEN UTILIZED F OR INVESTING IN SHARES. ONLY SAVINGS MADE IN REAL ESTATE BUSINESS ARE CLAIMED TO BE INVESTED IN THE SHARES. THE QUANTUM OF TRANSACTION S IN SHARES IS MUCH LESSER THAN THE QUANTUM OF TRANSACTIONS CARRIE D OUT IN RELATION TO REAL ESTATE BUSINESS. IN THIS BACKGROUND, THE C IT(A) HAS RIGHTLY OBSERVED THAT THE STAND OF THE ASSESSING OFFICER WA S NOT JUSTIFIED AND 5 THE SAME WAS NOT SUSTAINED. THIS REASONED FACTUAL FINDING OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE, WHO HAS DELETE D THE ADDITION MADE ON ACCOUNT OF TREATMENT OF SHORT TERM CAPITAL GAIN OF 1,12,76,335/- AS BUSINESS INCOME OF ASSESSEE. WE U PHOLD THE SAME. 4. THE NEXT ISSUE IS WITH REGARD TO DEDUCTION U/S.8 0IB(10) OF I.T. ACT. THE ASSESSING OFFICER HAS DEALT THE ISSUE AS UNDER: 6. ADJUSTMENTS OF PROFIT BETWEEN THE 80IB AND NON 80IB BUILDING PROJECTS DUE TO DIFFERENCE IN COST OF CONS TRUCTION: 6.1. THE ASSESSEE HAS DEVELOPED TAX FREE 80-IB PROJECT AT VALLABHNAGAR. THE SALEABLE AREA OF THE ASSESSEE IS AT 64728 SQ. FT. THE PROJECT HAS COMMENCED DURING THE A.Y. 2 003-04 AND IS COMPLETE DURING THE A. Y. 2007-08. IN AND AROUND THIS PERIOD THE ASSESSEE HAS ALSO A DEVELOPED TAXABLE PROJECT H AVING SALEABLE AREA OF 55072. THE PROJECT HAS COMMENCED D URING A. Y. 2004-05 AND IS COMPLETE DURING THE A. Y. 2007-08 . IT WAS NOTICED THAT THE PROFITABILITY IN THE TAXABLE PROJE CT WAS MUCH LOWER WHEN COMPARED WITH THAT OF EXEMPT PROJECT. TH EREFORE, THE ASSESSEE WAS ASKED TO WORK OUT THE COST OF CONS TRUCTION FOR BOTH THE PROJECTS I.E. TAXABLE PROJECT AND EXEMPT P ROJECT. ON THE BASIS OF THE DETAILS FURNISHED, IT IS SEEN THAT THE COST OF CONSTRUCTION OF TAXABLE PROJECT IS AT RS. 790 PER S Q. FT. WHEREAS THE COST OF CONSTRUCTION OF EXEMPT PROJECT IS AT RS .534 PER SQ. FT. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THERE IS SUCH A HUGE VARIATION IN THE COST OF CONSTRUCTION IN THE TAXABL E PROJECT AND TAX FREE PROJECT. IN RESPONSE, THE ASSESSEE HAS CON TENDED AS UNDER :- THE DIFFERENCE IN CONSTRUCTION COST IS DUE TO THE F OLLOWING FACTS:- 1) A-3 SILVER OAK PROJECT IS ON MAIN ROAD AND IS HAVING GROUND PLUS 6 FLOORS (TOTAL 7 FLOORS) WHEREA S THE SUKHWANI PROPERTIES (80IB PROJECT) IS HAVING 3 BUILDINGS OF GROUND PLUS 3 FLOORS (TOTAL 4 FLOORS) AND 2 BUILDINGS OF GROUND PLUS 5 FLOORS (TOTAL 6 FLOORS ). BUILDINGS OF 4 FLOORS ARE WITHOUT LIFT. FURTHER A 3 , SILVER OAK PROJECT BEING ON MAIN ROAD IS HAVING MUCH BETTER ELEVATION AS COMPARED TO 80IB PROJECT. I WISH TO STATE THAT 80IB PROJECT IS NOT SITUATED O N MAIN ROAD. 80IB PROJECT IS HAVING MAINLY 1 BHK FLATS AND THERE ARE NO 3 BHK FLATS. A-3 SILVER OAK PROJECT IS CONSTRUCTED CONSIDERING HIGHER MIDDLE GROUP AND IS HAVING 2 BHK AND 3 BHK FLATS ONLY. IN 6 VIEW OF THIS FACT THE AMENITIES AND OTHER FITTINGS ARE OF HIGH STANDARD. 2) A-3 SILVER-OAK PROJECT IS HAVING SHOPPING ON GROUND FLOOR AND THE HEIGHT OF SHOPS IS 16 FTS. AND THERE IS MEZZANINE FLOOR IN SHOPS. FURTHER THERE I S PAVED PLATFORM IN FRONT OF SHOPS. ALL THIS HAS AD DED TO THE COST OF CONSTRUCTION. I WISH TO POINT OUT THAT THERE IS NO SHOPPING IN 80IB PROJECT. 3) THE MAJOR CONSTRUCTION OF 80IB PROJECT WAS DONE IN F.Y. 2003-04 AND F.Y. 2004-05 WHEREAS CONSTRUCTION OF A-3, SILVER OAK PROJECT WAS MAINLY DONE IN F.Y. 2004-05 AND F.Y. 2005-06. THERE WAS STEEP RISE IN PRICES OF BUILDING MATERIAL IN F.Y. 2 004- 05 AND 2005-06 E.G. AVERAGE PRICES OF STEEL PER KG IN F.Y. 2003-04 WAS RS 17 TO 187- AND IN F.Y. 05-06, I T IS RS 26 TO 277- (NEARLY 60% RISE). CEMENT PRICES PER BAG IN F.Y. 03-04 WAS RS 115/- TO 121/-, WHEREAS I N F.Y. 2005-06 IT IS RS 190/- TO 2007- (NEARLY 68% RI SE) AND ALSO THE LABOUR COST IN F.Y. 2005-06 WAS ALSO ROSE DUE TO OVERALL BOOM IN CONSTRUCTION ACTIVITY. IN VIEW OF THE ABOVE FACTS, COST OF CONSTRUCTION OF 80 IB PROJECT AND A-3 SILVER OAK PROJECT CAN NOT BE COMPARED. BASED ON FACTS OF THE INDIVIDUAL SCHEMES THE CONSTRUCTION COST SHOWN IS CORRECT.' 6.2 I HAVE CAREFULLY CONSIDERED THE ASSESSEE'S VERSIONS ABOVE. IT IS TRUE THAT THE TAXABLE PROJECT IS START ED A YEAR LATER AND IS ALSO COMPLETED A YEAR LATER. THIS WILL DEF INITELY HAVE AN IMPACT ON THE COST OF THE CONSTRUCTION. IT IS TRUE THAT THERE IS AN ESCALATION IN PRICE OF CEMENT AND STEEL. BUT, KEEPI NG IN VIEW THE FACT THAT THERE IS DIFFERENCE OF ONLY ONE YEAR IN C OMMENCEMENT / COMPLETION, THE VARIATION IN COST OF CONSTRUCTION IS SUBSTANTIAL. 6.3 THE ASSESSEE CONTENDS THAT SPECIFICATIONS WERE HIGHER. MAY BE IT IS TRUE. EVEN THE PROJECT HAS STARTED A YEAR LATER. DUE TO ESCALATION IN REAL ESTATE, PRICE IN AND AROUND PUNE INCREASE IN COST OF CONSTRUCTION SHOULD HAVE B EEN OFF SET BY THE HIGHER SELLING RATE AND THERE SHOULD NOT HAV E BEEN ANY IMPACT ON THE PROFIT MARGIN. IF THE CONTENTIO N THAT SPECIFICATION WERE BETTER IT SHOULD HAVE FETCHED BE TTER PRICE AND MARGIN. HOWEVER, THE SAME IS NOT THE FACT IN THE C ASE OF THE ASSESSEE. THEREFORE, THERE IS NO MERIT IN ASSESS EE'S SAY IN THIS REGARD. 7 6.4 THE ASSESSEE COULD NOT PROVE THE CONTENTIO NS THAT THE ESCALATION IN PRICE OF CEMENT AND STEEL C OSTED THE ASSESSEE SO MUCH. THE ASSESSEE COULD HAVE SUBSTAN TIATED COST OF CONSTRUCTION BY SHOWING THE QUANTITY WISE CONSUM PTION OF CEMENT AND STEEL PER SQ. FT. THE ASSESSEE HAS NOT DONE THE SAME. 6.5 ON FACTS, THE DIFFERENCE IN COST OF CONSTRUCTION OV ER RS.250 IS UNJUSTIFIED. THIS CAN HAPPEN IF MATERIAL COST PERTAINING TO EXEMPT PROJECT HAS BEEN SHIFTED TO TH E TAXABLE PROJECT AND MAY BE PRECISELY FOR THIS REASON THERE IS A HUGE INCREASE IN THE COST OF CONSTRUCTION OF TAXABLE PRO JECT. THOUGH ON THE BILLS, THE ASSESSEE HAS PRECISELY MARKED THE PROJECT TO WHICH EXPENDITURE PERTAINS TO, IT IS DIFFICULT TO B ELIEVE THAT THERE IS SUCH AN INCREASE IN COST OF CONSTRUCTION MORE SO IN THE ABSENCE OF QUANTITY DETAILS REGARDING CONSUMP TION MATERIAL FOR BOTH THE PROJECTS. 6.6 THEREFORE, ON FACTS I AM UNABLE TO ACCEPT THE VERSI ON OF THE ASSESSEE THAT THE COST OF CONSTRUCTION OF TA XABLE PROJECT IS AT RS.790. 6.7 THEREFORE TO ARRIVE AT THE CORRECT INCOME OF EACH PROJECT THERE IS NO OTHER OPTION BUT TO RESORT TO E STIMATION AND ADOPTING A FAIR COST OF CONSTRUCTION FOR THE EXEMPT PROJECT WHICH OTHERWISE APPEARS TO BE RIDICULOUSLY ON THE L OWER SIDE. THIS LOWER COST OF CONSTRUCTION HAS AN EFFECT OF IN FLATING TAX FREE INCOME. BESIDES THIS, THE ASSESSEE HAS EVEN DEBITED THE FINANCE COST TO THE TAXABLE PROJECT. THIS ACT OF THE ASSESS EE ALSO ENHANCES THE TAX FREE INCOME. TAKING INTO CONSIDERA TION ALL THESE FACTS, PREVAILING COST OF CONSTRUCTION IN AND AROUND THE YEARS UNDER REFERENCE THE COST OF COST CONSTRUCTION IS ADOPTED AT RS.650 FOR TAX FREE PROJECT AS AGAINST RS.534/-A DOPTED BY THE ASSESSEE. THIS WILL HAVE AN EFFECT OF REDUCING THE INCOME OF TAX FREE PROJECT BY 116 PR SQ. FT. THEREFORE, THE DISAL LOWANCE OUT OF THE EXEMPT INCOME ON THIS COUNT WORKS OUT TO RS.75, 08,448 (64728 X 116). BESIDES THIS, IT HAS BEEN BROUGHT OU T THAT MOST OF THE EXPENSES LIKE FINANCE COST, ADMINISTRATIVE C OST HAVE BEEN DEBITED TO TAXABLE PROJECT. THIS ALSO HAS AN EFFE CT IN REDUCING TAXABLE INCOME AND THEREBY ENHANCING TAX FREE INCOM E. THE SAME CANNOT BE ACCEPTED. KEEPING IN VIEW THIS ISSUE ALSO THE DISALLOWANCE OUT OF 80-1B INCOME IS ADOPT ED AT RS.80,00,000/-. 6.8 THIS PORTION OF THE INFLATED EXEMPT PROFIT NEEDS TO BE TAXED IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HA S CLAIMED A HUGE EXEMPT PROFIT DURING A. Y. 2006-07. THE TAXABL E PROJECT IS COMPLETE DURING A. Y. 2007-08 AND SUBSTANTIAL INCOM E HAS BEEN SHOWN IN THIS PROJECT DURING A. Y. 2007-08. TH EREFORE, AN ADDITION PROPOSED ON ACCOUNT OF INFLATION OF 80-IB INCOME IS 8 DISTRIBUTED AMONGST THE 2 YEARS I.E. 2006-07 AND 20 07-08. ACCORDINGLY, I MAKE AN ADDITION OF RS.40,00,000 AND RS.40,00,000 FOR THE A. YS. 2006-07 AND 2007-08, RE SPECTIVELY. IN VIEW OF THIS, A PENAL PROCEEDING U/S 271(1)(C) I S BEING INITIATED.' 4.1 THE MATTER WAS CARRIED BEFORE THE FIRST APPELLA TE AUTHORITY, WHEREIN, VARIOUS CONTENTIONS WERE RAISED BY THE ASS ESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) GRANTED PARTIAL REL IEF TO THE ASSESSEE. THE RELIEF GRANTED BY CIT(A) HAS BEEN OPPOSED BEFOR E US ON BEHALF OF REVENUE, INTER ALIA SUBMITTED THAT THE CIT(A) HAS E RRED IN GRANTING RELIEF TO THE ASSESSEE ON THE ISSUE OF REDUCTION OF DEDUCTION U/S 80IB (10), THOUGH THERE WAS CLEAR INFLATION OF EXPENSES BY THE ASSESSEE FOR NON- 80IB (10) PROJECT AND INFLATION OF PROFIT FOR 80IB(10) PROJECT BY THE ASSESSEE. THE ASSESSEE HAS NO POSSIBLE EXPLANA TION FOR VERY HIGH PROFITABILITY OF SEC. 80IB(10) PROJECT AND LOW PRO FITABILITY OF NON 80IB(10) OF PROJECT THOUGH BOTH THESE PROJECTS WERE ADJOURNING SITUATED WITH IDENTICAL COST OF LAND CONSTRUCTION T HEREON, SO THE ORDER OF CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. ON THE OTHER HAND, THE AUTHORIZED REPRESENTATIVE HA S SUPPORTED THE ORDER OF CIT(A). 4.2 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS SHOWN PROFIT FROM CONSTRUCTION ACTIVITY FROM TWO PROJECTS, ONE OF WHICH IS ELIGIBL E FOR DEDUCTION U/S.80IB(10) AND OTHER WAS NOT. THE ASSESSING OFFI CER HAS OBSERVED THAT THE PROFITABILITY SHOWN WAS TAXABLE PROJECT WA S MUCH LOWER THAN EXEMPT PROJECT. IN VIEW OF THIS, THE ASSESSEE WAS CALLED TO WORK OUT THE SAME AND SUBMIT THE COST OF CONSTRUCTION OF BOT H THE PROJECTS. IT WAS FOUND THAT THE COST IN TAXABLE PROJECT IS 790 PER SQ.FT. WHEREAS THE SAME IN THE EXEMPT PROJECT AT 534 PER SQ.FT. IN THIS REGARD, THE STAND OF THE ASSESSEE HAS BEEN THAT THE SILVER OAK PROJECT (NON-80IB) IS SITUATED ON THE MAIN ROAD HAVING GROUND + 6 FLOO RS AND THE SUKHWANI PROPERTIES (80IB PROJECT) COMPRISED OF 3 B UILDINGS OF GROUND + 3 FLOORS AND TWO BUILDINGS OF GROUND + 5 F LOORS. IT WAS 9 STATED THAT NO LIFT HAS BEEN PROVIDED IN G+ 3 BUILD INGS, MOST OF THE FLATS OF SUKHWANI PROPERTIES ARE OF 1 BHK HAVING LE SSER AMENITIES AND QUALITY PRODUCTS AS THESE ARE MEANT FOR A DIFFE RENT CATEGORY OF CUSTOMERS. AS AGAINST THIS, THE SILVER OAK PROJECT WAS CLAIMED TO BE ON THE MAIN ROAD HAVING BETTER ELEVATION, BETTER AM ENITIES INTENDED FOR HIGHER MIDDLE CLASS PEOPLE ALONG WITH LIFTS, ET C. IT WAS ALSO STATED ON BEHALF OF ASSESSEE THAT THE SILVER OAK PROJECT H AS COMMERCIAL USER ON THE GROUND FLOOR AND THE MEZZANINE FLOOR. IT WAS ALSO CLAIMED THAT SUKHWANI PROJECT STARTED EARLIER AND T HEREFORE, THE BUILDING MATERIALS USED THEREIN WERE AVAILABLE THEN AT A LOWER COST AT THE RELEVANT POINT OF TIME. THE ASSESSING OFFICER OF THE VIEW THAT THE EXPLANATION WITH REGARD TO DIFFERENT MARGINS SHOWN BY THE ASSESSEE IN TWO PROJECTS WAS NOT JUSTIFIED. ACCORDING TO TH E ASSESSING OFFICER, THE DIFFERENCE OF COST OF CONSTRUCTION OF 250 PER SQ.FT. WAS NOT JUSTIFIED AND THE REASON FOR THE SAME WAS ALLEGED T HAT THE COST OF EXEMPT PROJECT SHIFTED TO NON-EXEMPT PROJECT. IN S PITE OF THE FACT THAT THE BILLS FOR EXPENSES HAVE BEEN PRECISELY MAR KED PROJECT-WISE AND ACCOUNTED ACCORDINGLY, THE ASSESSING OFFICER HE LD THAT THE COST OF CONSTRUCTION FOR EXEMPT PROJECT SHOULD BE TAKEN AT FOR DIFFERENT PROJECTS AND PROCEEDED TO COMPUTE THE INCOME OF DIF FERENT PROJECTS BY ALTERING THE COST OF CONSTRUCTION DECLARED IN TH E BOOKS. THE ASSESSING OFFICER THEREFORE, HELD THAT THE COST OF CONSTRUCTION FOR THE EXEMPT PROJECT SHOULD BE TAKEN AT 650 PER SQ.FT. AS AGAINST THE COST OF 534 PER SQ.FT. SHOWN BY THE ASSESSEE ON THE BASIS O F PREVAILING COST OF CONSTRUCTION IN AND AROUND THAT YEAR. ACCO RDINGLY, HE INCREASED THE COST BY 116 PER SQ.FT. WHICH WAS COMPUTED FOR THE ENTIRE AREA OF PROJECT COMPRISING OF 64,728 SQ.FT. AT 75,08,448/-. THE ASSESSING OFFICER ALSO ADDED CERTAIN COST LIKE FINANCE COST, ADMINISTRATIVE COST ETC. WHICH WAS ALSO FOUND TO HA VE BEEN ONLY LOADED ON THE NON-80IB PROJECT TO ARRIVE AT THE LUM P SUM FIGURE AT 80 LAKHS. AS THIS WAS HELD TO BE REPRESENTING THE INFLATED PROFIT OF EXEMPT PROJECT, HE DECIDED TO REDUCE THE PROFIT IN A.Y. 2006-07 AND 2007-08 EQUALLY. THE ULTIMATE IMPACT WAS LOWER DED UCTION U/S.80IB 10 BY 40 LAKHS IN A.Y. 2006-07 AND 2007-08. IN APPEAL, T HE CIT(A) OBSERVED THAT THE ASSESSMENT COMPLETED AFTER SURVEY U/S.143(3) R.W.S 153A AND FROM THE ASSESSMENT ORDER, IT WAS AL SO OBSERVED THAT NO MATERIAL WAS FOUND DURING SEARCH INCLUDING A CON FESSION THAT THE COST OF PROJECT HAS BEEN ALTERED. THE ASSESSING OF FICER HAS CALLED FOR REASONS FOR LOWER COST FOR CONSTRUCTION SHOWN IN RE SPECT OF EXEMPT PROJECT AND THE EXPLANATIONS SUBMITTED WERE GENERAL LY FOUND TO BE ACCEPTABLE BY THE ASSESSING OFFICER BUT HE WAS OF T HE VIEW THAT THOSE EXPLANATIONS COULD NOT JUSTIFY THE HIGHER MARGIN OF PROFIT OF EXEMPT PROJECT. THE ASSESSING OFFICER WAS NOT CONSISTENT WHILE DEALING WITH THE ISSUE AT HAND. THE FINDING OF THE ASSESSING OF FICER IS NOT BASED ON COGENT REASONING AND EVIDENCE, SAME HAS BEEN MAD E ON THE BASIS OF PRESUMPTION AND SUSPICIONS AND NOT ON HARD FACTS AND EVIDENCES. THE ASSESSING OFFICER COULD NEITHER ESTABLISH THE J USTIFICATION GIVEN FOR LOWER COST OF CONSTRUCTIONS FOR EXEMPT PROJECT, AS INCORRECT NOR COULD DEMONSTRATE THAT THE EXPENDITURE OF EXEMPT PR OJECT WAS SHIFTED TO NON EXEMPT PROJECT AND THEREFORE THE FIN DING OF THE ASSESSING OFFICER COULD NOT BE JUSTIFIED. THE ONLY VALID OBJECTION MADE BY THE ASSESSING OFFICER, RELATES TO INCLUSION OF ENTIRE ADMINISTRATIVE COST AND THE FINANCE COST TO THE NON EXEMPT PROJECT. HOWEVER, HE HAS NOT QUANTIFIED THE SAME PROPERLY. FROM THE DISCUSSION AVAILABLE IN THE ASSESSMENT ORDER, IT CO ULD ONLY BE INFERRED THAT SUCH DISALLOWANCE COULD BE OF 4,91,552/- ( 80,00,000 - 75,08,448) FOR BOTH THE YEARS I.E. A.Y 2006-07 AND 2007-08. MOREOVER, THE ASSESSEE HAS ALSO NOT MADE A NY SUBMISSION ON THIS COMPUTATION AND DISALLOWANCE. AS THIS APPR OACH OF THE ASSESSING OFFICER WAS FOUND REASONABLE, THE SAME WA S SUSTAINED BY CIT(A). IN VIEW OF THE ABOVE, THE ASSESSING OFFICE R WAS RIGHTLY DIRECTED TO CHECK THE EXPENDITURE OF AMOUNT OF ADMI NISTRATIVE AND FINANCE EXPENSES WHICH HAVE BEEN LOADED IN NON EXEM PT PROJECT, IF THOSE ARE RELATABLE TO BOTH THE PROJECTS AND ALLOCA TE THE SAME, IF FOUND SO ON THE BASIS OF TURNOVER, IN APPEAL ON BEH ALF OF ASSESSEE. THIS REASONED FINDING OF CIT(A) NEEDS NO INTERFEREN CE FROM OUR SIDE 11 WHO HAS GIVEN THE PARTIAL RELIEF TO THE ASSESSEE AS FAR AS THE CLAIM OF DEDUCTION U/S.80IB(10) AS DISCUSSED ABOVE. 5. AS A RESULT, THE APPEAL OF REVENUE IS DISMISSED. 6. IN ITA NO.973/PN/2012, THE REVENUE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 01. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) HAS ERRED IN GRANTING RELIEF TO THE ASSESSEE ON THE ISSUE OF REDUCTION OF DEDUCTION U/S 80IB (10), THOUGH THERE WAS CLEAR INFLATION OF EXPENSES BY THE ASSESSEE FOR NON- 80IB (10) PROJECT AND INFLATION O F PROFIT FOR 80IB(10) PROJECT BY THE ASSESSEE. 02. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) HAS ERRED IN GRANTING RELIEF TO THE ASSESSEE ON THE ISSUE OF REDUCTION OF DEDUCTION U/S 80IB (10), THOUGH THE ASSESSEE HAD NO PLAUSIBLE EXPLANAT ION FOR VERY HIGH PROFITABILITY FOR 80IB(10) PROJECT AND LO W PROFITABILITY FOR NON-80IB(10) PROJECT, THOUGH, B OTH THESE PROJECTS ARE SITUATED ON ADJOINING PLOT OF LAND, WI TH IDENTICAL LAND COST AND CONSTRUCTED AROUND SAME TIM E. 03. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 04. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, AN D MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 6.1 THE ISSUE IN THIS APPEAL HAS TAKEN CARE BY US I N PARA 4 OF THIS ORDER WHICH HAS BEEN DEALT FOR BOTH THE YEARS. ACC ORDINGLY, THE ORDER OF CIT(A) ON THE ISSUE IS UPHELD. 7. AS A RESULT, THE APPEAL OF REVENUE IS DISMISSED. 8. IN ITA NO.2179/PN/2012, THE REVENUE HAS FILED TH E APPEAL ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) WAS JUSTIFIED IN HOLDING THE AMOUNT OF RS.19 ,43,796 AS SHORT TERM CAPITAL GAIN ON SALE AND PURCHASE OF SHARES 12 AS AGAINST THE ACTION OF THE A.O. IN HOLDING THE SA ME AS BUSINESS INCOME. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER A NY OF THE ABOVE GROUNDS OF APPEAL. 8.1 THE ASSESSING OFFICER HAS MADE ADDITION OF 19,43,796/- AS SHORT TERM CAPITAL GAIN ON SALE AND PURCHASE OF SHA RES, WHICH WAS DELETED BY THE CIT(A). A SIMILAR ISSUE AROSE IN A. Y. 2006-07, WHEREIN VIDE PARA 3 OF THIS ORDER, WE HAVE DECIDED THE ISSU E IN FAVOUR OF ASSESSEE. FACTS BEING SIMILAR, SO FOLLOWING THE SA ME REASONING, THIS ISSUE IS ALSO DECIDED IN FAVOUR OF ASSESSEE FOR THE REASONS INDICATED ABOVE. 9. AS A RESULT, THE APPEAL OF REVENUE IS DISMISSED. 10. IN THE RESULT, ALL THREE APPEALS FILED BY THE R EVENUE ARE DISMISSED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF FEBRUARY, 2014. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 28 TH FEBRUARY, 2014 GCVSR COPY TO:- 1. DEPARTMENT 2. ASSESSEE 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE DR, A BENCH, I.T.A.T., PUNE. 6. GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE