ACIT, Cir.-2, Nashik V. M/s. Tribhuvanlal Kalya & Co., Nashik

ITA 991/PUN/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1657 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-02-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 08-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D N PARAKH
• Keywords: Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! # $% , & ' BEFORE SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM ( / ITA NO. 991/PN/2010 ) * +* / ASSESSMENT YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2, NASHIK ....... / APPELLANT ) / V/S. M/S. TRIBHUVANLAL KALYA AND COMPANY, 3-4, TARAKUNJ APARTMENT, 1 ST FLOOR, ADGAON NAKA, NASHIK-422003 PAN : AACFT7304E / RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI D.N. PARAKH / DATE OF HEARING : 09-05-2016 / DATE OF PRONOUNCEMENT : 05-07-2016 , / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, NASHIK DATED 21-0 4-2010 FOR THE ASSESSMENT YEAR 2006-07. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF WHOLESALE TRADI NG OF HIGH 2 ITA NO. 991/PN/2010, A.Y. 2006-07 EXPLOSIVE BLASTING AND EXCAVATION CONTRACTS. THE ASSESSE E FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 31 -10-2007 DECLARING TOTAL LOSS OF ` 51,73,986/-. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED TH AT THE ASSESSEE HAS CLAIMED BUSINESS LOSS OF ` 67,22,876/- ON SALE OF DEVELOPMENT RIGHTS OVER LAND. THE ASSESSEE ALONG WITH ON E MRS. VASANTI SHANKAR HAD ENTERED INTO DEVELOPMENT AGREEMENT ON 08-04-2002 IN RESPECT OF LAND ADMEASURING 10,355.85 SQ. MT RS. COMPRISING IN S. NO. 17, POT HISSA NO. 5, 6 & 7 AT VILLAGE D EOLALI, DISTT.- NASHIK FOR TOTAL CONSIDERATION OF ` 4,40,00,000/-. THE SHARE OF THE ASSESSEE IN THE JOINT VENTURE WAS 45% AND THE INVESTME NT MADE BY THE ASSESSEE IN THE SAID JOINT VENTURE WAS ` 2,00,24,000/-. SUBSEQUENTLY, THE PROJECT DID NOT TAKE OFF AND THE LAND ALONG WITH DEVE LOPMENT RIGHTS WAS SOLD ON 15-09-2005 FOR ` 3,54,00,000/-. THE ASSESSEE CLAIMED THE LOSS FROM SALE OF DEVELOPMENT RIGHTS IN THE LAND AS BUSINES S LOSS. THE ASSESSING OFFICER HELD THAT THE LOSS ON SALE OF DEVELOPMENT RIGHTS IS LONG TERM CAPITAL LOSS AND NOT BUSINESS LOSS AS C LAIMED BY THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 05-12-2008, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) ACCEPTE D THE CLAIM OF THE ASSESSEE AND ALLOWED THE SALE OF DEVELOPMENT R IGHTS IN LAND AS BUSINESS LOSS. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI D.N. PARAKH REPRESENTING THE DEPARTMENT SUBMITTE D THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN COMIN G TO THE CONCLUSION THAT THE LOSS ON SALE OF DEVELOPMENT RIGHTS IN LA ND IS 3 ITA NO. 991/PN/2010, A.Y. 2006-07 BUSINESS LOSS. THE CO-OWNER OF THE ASSESSEE IN HER RET URN OF INCOME HAS CLAIMED THE LOSS ON SALE OF DEVELOPMENT RIGHTS AS CA PITAL LOSS. THE PRESENT LAND TRANSACTION WAS THE ONLY TRANSACTION INVOLVING SALE AND PURCHASE OF LAND ENTERED INTO BY THE ASSESSEE. PRI OR TO THIS TRANSACTION OR THEREAFTER, THE ASSESSEE HAS NOT ENTERE D INTO ANY TRANSACTION WITH RESPECT TO SALE AND PURCHASE OF LAND. T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF WHOLESALE TRADING OF EXPLOSIVE PRODUCTS AND NOT IN THE BUSINESS OF LAND DEVELOPMENT. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW FROM RECO RDS THAT ANY DEVELOPMENT ACTIVITY WAS CARRIED OUT ON THE LAND IN QUEST ION. THE LD. DR PRAYED FOR REVERSING THE FINDINGS OF COMMISSIONER OF INCO ME TAX (APPEALS) ON THIS ISSUE. 4. ON THE OTHER HAND SHRI C.H. NANIWADEKAR APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE FINDINGS OF COMMIS SIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THE LD. AR SUBMITTED TH AT THE DEVELOPMENT AGREEMENT WAS ENTERED INTO BETWEEN MRS. VA SANTI SHANKAR AND MR. TRIBHUVANLAL (PROPRIETOR OF ASSESSEE FIRM) O N THE ONE HAND AS DEVELOPERS AND THE OWNERS OF THE LAND ON TH E OTHER. THE NASHIK ROAD DEVLALI VYAPARI SAHAKARI BANK (HEREINAFTER REFE RRED TO AS BANK) WAS THE CONFIRMING PARTY. THE OWNERS OF THE LAND HAD TAKEN LOAN FROM THE AFORESAID BANK AND ACCORDINGLY THE LAND IN Q UESTION WAS MORTGAGED WITH THE BANK. THE OWNERS PROMISED TO DISCHA RGE THEIR LIABILITY. ON THE ASSURANCE OF OWNERS OF LAND, THE BANK GAV E CONSENT FOR ENTERING INTO THE DEVELOPMENT AGREEMENT. LATER ON N O PAYMENT WAS MADE BY THE OWNERS OF THE LAND TO THE BANK AND TH E BANK WITHDREW ITS CONSENT. THE ASSESSEE ALONG WITH MRS. VASAN TI SHANKAR HAD INTENTION TO CONSTRUCT RESIDENTIAL-CUM-COMMERCIAL COM PLEX ON THE 4 ITA NO. 991/PN/2010, A.Y. 2006-07 LAND IN QUESTION. THE ASSESSEE RIGHT FROM THE BEGINNING HA D SHOWN THE LAND AS STOCK IN TRADE IN ITS BOOKS. THE LD. AR CONTENDE D THAT THE ASSESSING OFFICER HAS ERRED IN HOLDING THAT THE ASSESSEE W AS NOT ENGAGED IN LAND DEVELOPMENT BUSINESS. IN THE NOTES TO T HE COMPUTATION OF INCOME AND ALSO IN FORM 3CD I.E. TAX AUDIT R EPORT IT IS CLEARLY MENTIONED THAT THE ASSESSEE IS IN LAND BUSINESS. FURTHER, THE PROPRIETOR OF FIRM IS A PROMOTER DIRECTOR OF T.K. INFRASTRUCT URE PVT. LTD., A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIE S ACT, 1956. ONE OF THE MAIN OBJECTS OF THE SAID COMPANY IS LAND DEVELO PMENT. THE LD. AR IN SUPPORT OF HIS SUBMISSIONS PLACED ON RECORD A COP Y OF MEMORANDUM AND ARTICLE OF ASSOCIATION OF THE AFORESAID COMP ANY. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAD ALSO BORR OWED FUNDS FROM THE BANK TO PURCHASE LAND DEVELOPMENT RIGHTS AND THE INTEREST ON THE FUNDS BORROWED WAS ALSO CAPITALIZED TO THE STOCK IN TRADE. THE ASSESSEE HAD CARRIED OUT CERTAIN DEVELOPMENT ACTIVITIES S UCH AS LEVELING OF LAND. THE EXPENDITURE ON LEVELING OF LAND WAS ALSO CAPITA LIZED BY THE ASSESSEE IN STOCK IN TRADE. THE CONSTRUCTION/DEVELOPMEN T WORK COULD NOT TAKE OFF ON THE LAND PRIMARILY FOR TWO REASONS : I. THE LAND WAS MORTGAGED WITH THE BANK. AFTER INITIALLY GIVIN G THE CONSENT, THE BANK HAD WITHDRAWN THE CONSENT AS THE OW NERS OF LAND FAILED TO REPAY THE LOAN AMOUNT. II. THE TOTAL AREA OF LAND UNDER DEVELOPMENT AGREEMENT W AS 10,355.85 SQ. MTRS. OUT OF WHICH 2156 SQ. MTRS. WAS AGRICULTU RAL LAND. THE OWNERS OF THE LAND HAD AGREED TO CONVERT THE AGRICULTURAL LAND INTO NON-AGRICULTURAL WITHIN TWO MONTHS FROM THE EXECUTION OF DEVELOPMENT AGREEMENT, WHICH THEY FAILED T O COMPLY WITH. 5 ITA NO. 991/PN/2010, A.Y. 2006-07 4.1 THE LD. AR SUBMITTED THAT THE FACTS AND THE DOCUMENT S ON RECORD WOULD CLEARLY SHOW THAT THE INTENTION OF ASSESSEE RIGHT FR OM THE BEGINNING WAS TO HOLD THE LAND AS BUSINESS ASSET AND NOT AS INVESTMENT. ONCE, A PARTICULAR ASSET IS QUALIFIED TO BE A B USINESS ASSET BY APPLYING PURPOSE TEST, THE ASSET DOES NOT CEASE TO BE A BUSINESS ASSET MERELY BECAUSE THE ASSET COULD NOT BE USED FOR THE INTENDED PURPOSE DUE TO REASONS BEYOND THE CONTROL. THE LD. AR SUBMITTED THAT THE TREATMENT GIVEN BY THE OTHER CO-OWNER IS NOT BIND ING ON THE ASSESSEE. IF THE OTHER CO-OWNER TREATED THE LOSS AS CAPITAL LOSS THEN IT IS NOT NECESSARY THAT THE ASSESSEE SHOULD ALSO TREAT LOSS AS CAPITAL LOSS. THE REVENUES RELIANCE ON THE OTHER CO-OWNERS CASE IS TOTALLY MISPLACED. 4.2 THE LD. AR SUBMITTED THAT THE ASSESSEES TREATMENT OF LAND AS STOCK-IN-TRADE HAS NEVER BEEN DISTURBED BY THE REVENU E IN THE PAST. IN THE ASSESSMENT YEAR 2005-06, THE ASSESSMENT ORDER WA S PASSED U/S. 143(3). IT WAS CATEGORICALLY SUBMITTED TO THE ASSESSING OFFICER THAT THE ASSESSEE IS ALSO ENGAGED IN THE LAND BUSINESS. EVEN IN TH E SUBSEQUENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2008-09 THE ASSES SING OFFICER HAS HIMSELF ADMITTED IN ORDER PASSED U/S. 143(3), THAT THE ASSESSEE IS ENGAGED IN THE LAND BUSINESS. IT IS ONLY IN THE IMPUGNED ASSESSMENT YEAR THAT THE ASSESSING OFFICER HAS DISPUTED THE FACT MER ELY FOR THE REASON THAT THE ASSESSEE HAS CLAIMED LOSS. THE LD. AR PR AYED FOR APPLYING THE PRINCIPLE OF CONSISTENCY. TO BUTTRESS THE CONTENTIONS, RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COU RT OF INDIA IN THE CASE OF RADHASOAMI SATSANG VS. COMMISSIONER OF INCO ME TAX REPORTED AS 193 ITR 321 (SC). THE LD. AR TO ASSERT HIS SUBMISSION 6 ITA NO. 991/PN/2010, A.Y. 2006-07 THAT A SINGLE TRANSACTION CAN BE TREATED AS ADVENTURE IN THE NATURE OF TRADE PLACED RELIANCE ON THE FOLLOWING CASE LAWS : I. KHAN BAHADUR AHMED ALLADIN & SONS VS. CIT, 68 ITR 573 (SC); II. G. VENKATASWAMI NAIDU & CO. VS. CIT, 35 ITR 594 (SC); III. P.M. MOHAMMED MEERAKHAN VS. CIT, 73 ITR 735 (SC); IV. BHOGILAL H. PATEL VS. CIT, 74 ITR 692 (BOM); V. TRIBHUVANDAS VALLABHDAS VS. CIT, 61 ITR 518 (BOM); VI. GURDIAL NARAIN DAS & CO. VS. CIT, 50 ITR 633 (BOM); VII. V. RAMANATHAN VS. CIT, 51 ITR 640 (MAD); VIII. DCIT VS. RAJESH BUILDERS IN ITA NO. 3980/MUM/2009. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE ONLY ISSUE RAISED BY THE DEPARTMENT IN APPEAL IS, WHETHER THE LOSS OF ` 67,22,876/- ON SALE OF LAND IS A BUSINESS LOSS OR CAPITA L LOSS. THE FACTS NARRATED ABOVE ARE NOT IN DISPUTE. THE ASSESSEE HAS CLAIMED THE LOSS ON SALE OF DEVELOPMENT RIGHTS AS BUSINESS LOSS. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAD ACQUIRED THE DEVELOPMENT RIGHTS IN LAND AS A BUSINESS VENTURE. THE ASSESSEE RIGHT FROM THE BEGINNING HAS SHOWN THE LAND AS STOCK IN TRADE IN BOOKS OF ACCOUNT. THE EXPENDITURE INCURRED BY THE ASSESSEE FOR LEVELING OF LA ND ETC. HAVE BEEN CAPITALIZED. IN THE EARLIER ASSESSMENT YEARS THE AS SESSING OFFICER HAS ACCEPTED THE TREATMENT GIVEN BY THE ASSESSEE IN T REATING THE LAND AS STOCK IN TRADE. DURING THE PERIOD RELEVANT TO THE AS SESSMENT YEAR UNDER APPEAL THE ASSESSEE SOLD THE DEVELOPMENT RIGHTS IN THE LAND AND SUFFERED LOSS. THE ASSESSING OFFICER REJECTED THE CONTENTI ONS OF THE ASSESSEE AND HELD THE LOSS AS LONG TERM CAPITAL LOSS ON TWO GR OUNDS : 7 ITA NO. 991/PN/2010, A.Y. 2006-07 I. THE ASSESSEE IS NOT ENGAGED IN THE LAND DEVELOPMENT BUS INESS THIS IS THE SOLE TRANSACTION ENTERED INTO BY THE ASSESSEE. II. THE CO-OWNER OF THE ASSESSEE HAS TREATED THE LOSS ARIS ING FROM SALE OF DEVELOPMENT RIGHTS AS CAPITAL LOSS. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) H AS REVERSED THE FINDINGS OF ASSESSING OFFICER AND HELD THE LOSS ON SALE OF LAND DEVELOPMENT RIGHTS AS BUSINESS LOSS. THE REVENUE IN APPEAL HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) A ND THE LD. DR HAS PRAYED FOR RESTORING THE ORDER OF ASSESSING OFFIC ER ON THIS ISSUE. 6. AFTER PERUSING THE DOCUMENTS ON RECORD AND APPRECIAT ING THE FACTS OF THE CASE WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER HAS ERRED IN HOLDING THE LOSS ARISING ON SALE OF DEVELO PMENT RIGHTS AS CAPITAL LOSS. 7. A PERUSAL OF THE DEVELOPMENT AGREEMENT DATED 08-04- 2002 AT PAGES 1 TO 30 OF THE PAPER BOOK CLEARLY SHOWS THAT TH E INTENTION OF THE ASSESSEE WAS TO DEVELOP THE LAND AND EXPLOIT IT FOR COMME RCIAL PURPOSE. CLAUSES 6 AND 10 OF THE AGREEMENT CLEARLY SPELL OUT THAT THE ASSESSEE INTENDED TO CONSTRUCT COMMERCIAL AND RESIDENTIAL BUILDING ON THE LAND IN QUESTION. A FURTHER PERUSAL OF CLAUSE 7 OF THE DEVELOPM ENT AGREEMENT REVEAL THAT PART OF THE LAND FOR WHICH DEVELOPM ENT RIGHTS WERE ACQUIRED BY THE ASSESSEE JOINTLY WITH MRS. VASANTI SHANKAR WAS AGRICULTURAL LAND. THE OWNERS OF THE LAND HAD AGREED TO O BTAIN NECESSARY PERMISSIONS FOR CONVERSION OF LAND FROM AGRICULTUR AL TO NON- AGRICULTURAL. THUS, THE DEVELOPMENT AGREEMENT ITSELF SHOW S THAT THE 8 ITA NO. 991/PN/2010, A.Y. 2006-07 RIGHTS IN LAND ARE TRANSFERRED FOR EXPLOITING THE SAME FOR C OMMERCIAL PURPOSE. 8. FURTHER, THE REVENUE HAS NOT DISPUTED THE FACT THAT THE ASSESSEE IN ITS BOOKS OF ACCOUNT RIGHT FROM BEGINNING HAS SHOWN T HE LAND AS STOCK IN TRADE. DURING THE SCRUTINY ASSESSMENT PROCEED INGS FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSING OFFICER ACCEPTED THAT THE ASSESSEE IS ENGAGED IN LAND DEVELOPMENT BUSINESS AND NO QUERY WAS RAISED FOR TREATING THE LAND AS STOCK IN TRADE. THE PRIN CIPLE OF CONSISTENCY IN TREATING THE LAND AS STOCK IN TRADE HAS T O BE FOLLOWED. THE LD. AR OF THE ASSESSEE HAS PLACED ON RECORD A COPY OF THE MEMORANDUM AND ARTICLE OF ASSOCIATION OF M/S. T.K. INFRASTRUC TURE PVT. LTD., A SISTER CONCERN OF THE ASSESSEE. A PERUSAL OF MEM ORANDUM & ARTICLES OF ASSOCIATION SHOW THAT ONE OF THE MAIN OBJECTS OF THE COMPANY WAS LAND DEVELOPMENT. THE PROPRIETOR OF THE ASS ESSEE FIRM IS ONE OF THE PROMOTER DIRECTOR OF THE AFORESAID COMPANY. THUS, THE FINDINGS OF THE ASSESSING OFFICER THAT THE ASSESSEE IS NOT E NGAGED IN THE LAND DEVELOPMENT BUSINESS ARE NOT BASED OF PROPER APPRE CIATION OF THE FACTS. THE PRESENT LAND TRANSACTION MAY BE THE FIRST TR ANSACTION OF THE ASSESSEE FIRM BUT THE SISTER CONCERN OF THE ASSESSEE IS ALREADY ENGAGED IN SIMILAR BUSINESS. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS NOT CONNECTED IN ANY WAY WITH LAND DEVELOPMENT ACTIVITIES. 9. THE SECOND GROUND FOR MAKING ADDITION BY ASSESSING OFFIC ER WAS THAT THE CO-OWNER OF THE ASSESSEE IN ITS RETURN OF INCOM E HAS DECLARED LOSS AS CAPITAL LOSS. AS HAS BEEN STATED EARLIER THAT A C LOSE SCRUTINY OF DEVELOPMENT AGREEMENT CLEARLY SHOWS THAT THE ASSESSEE HAD ENTERED INTO DEVELOPMENT AGREEMENT FOR CONSTRUCTION OF RESIDENTIAL AND 9 ITA NO. 991/PN/2010, A.Y. 2006-07 COMMERCIAL BUILDING ON THE LAND IN QUESTION. THE CO-OWNER O F THE ASSESSEE MAY HAVE SHOWN THE LOSS ARISING FROM SALE OF DEV ELOPMENT RIGHTS AS CAPITAL LOSS INADVERTENTLY OR OUT OF IGNORANCE, B UT IT WOULD NOT BIND THE ASSESSEE TO GIVE THE SAME TREATMENT IN ITS BOO KS OF ACCOUNT, WHEN THE FACTS ON RECORD DISTINCTLY INDICATE THAT THE DE VELOPMENT RIGHTS WERE ACQUIRED BY ASSESSEE AS BUSINESS VENTURE. WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF COMMISSIONER OF INCOME TAX (APP EALS) ADMITTING THE CLAIM OF THE ASSESSEE ON THIS ISSUE. HENCE , NO INTERFERENCE IS CALLED FOR IN THE IMPUGNED ORDER. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED BEING DEVOID OF ANY MERIT. ORDER PRONOUNCED ON TUESDAY, THE 05 TH DAY OF JULY, 2016. SD/- SD/- (PRADIP KUMAR KEDIA) (VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; !' / DATED : 05 TH JULY, 2016 RK ,-#./0+. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. # # $ () / THE CIT(A)-II, NASHIK 4. # # $ / THE CIT-I, NASHIK 5. '() *+ , # *+ , , ,-. , / DR, ITAT, B BENCH, PUNE. 6. )/0 12 / GUARD FILE. // ' // TRUE COPY// #3 / BY ORDER, 4 *. / PRIVATE SECRETARY, # *+ , / ITAT, PUNE