SHRI DEEPAK SURESH GADGE,NAGPUR V. DY. CIT, CIRCLE-1 , NAGPUR

ITA 23/NAG/2018

AI Insights

The case involves Shri Deepak Gadge, who was a partner in the erstwhile firm M/s. Vinayak Builders & Developers, Nagpur, which entered into a development agreement with M/s. Sandeep Dwellers Pvt. Ltd. The firm was dissolved on 31/03/2012, and Shri Gadge took over its assets and liabilities. The dispute arose when the Assessing Officer treated the income from the sale of these assets as business income, while Shri Gadge claimed it as capital gains. The Tribunal examined whether the income should be classified as capital gains or business income, considering the nature of the transactions and the intentions behind them.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 474362 (ITAT-NAGPUR)
• Duration Of Justice: 6 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 29-10-2024
• Assessment Year: 2013-2014
• Appeal Filed On: 25-01-2018
• Other Referred Cases: Smt. Laxmi Jain v/s DCIT, Fort Properties Pvt. Ltd. v/s CIT, G. Venkataswami Naidu and Co. v. CIT, Khan Bahadur Ahmed Alladin and Sons v. CIT, Janki Ram Bahadur Ram v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHAY Y. MARATHE
• Assessee Lawyers: MANOJ G. MORYANI; MS. SANDEEP DWELLERS
• Keywords: Set aside; Business income; Capital asset; Sale consideration of property below Jantri Value; Cost of acquisition; Bonafide belief; Capital receipt; Capital Gains; Competent authority; Capital asset converted into stock in trade
• Section: 143(3); 208; 45(2); 234B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI K.M. ROY, ACCOUNTANT, MEMBER ITA no.23/Nag./2018 (Assessment Year : 2013–14) Shri Deepak Gadge G–2, Pravav Apartment 2nd Lane, Behind The Hitvada Press Dhantoli, Nagpur 440 012 PAN – ABZPG6643J ……………. Appellant v/s Dy. Commissioner of Income Tax Circle–1, Nagpur ……………. Respondent Assessee by : Shri Manoj G. Moryani Revenue by : Shri Abhay Y. Marathe Date of Hearing – 07/11/2024 Date of Order – 28/11/2024 O R D E R PER K.M. ROY, A.M. The present appeal has been filed by the assessee challenging the impugned order dated 10/08/2017, passed by the learned Commissioner of Income Tax (Appeals)–1, Nagpur, [―learned CIT(A)‖], for the assessment year 2013–14. 2. The assessee has raised following grounds:– ―1. On the facts and circumstances of the case the learned CIT(A) erred in confirming the addition, therefore order passed is illegal, invalid and bad in law. 2. On the facts and circumstances of the case the learned CIT(A) erred in confirming the case in bringing to tax entire amount received from M/s. 2 Shri Deepak Gadge Sandeep Dwellers Pvt. Ltd. including a sum received by erstwhile partnership firm M/s. Vinayak Builders and Developers amount of Rs. 6,52,75,227/- as income from business in the hands of the assessee, Therefore the addition confirmed by CIT(A) is unjustified, unwarranted and excessive. 3. On the facts and circumstances of the case the learned CIT(A) ought to have accepted the assessing officer was not correct in bringing to tax whole amount received from M/s. Sandeep Dwellers Pvt. Ltd. as Business income and confirming the disallowance of Rs. 40,09,499/- towards cost of indexation, therefore the addition confirmed by the CIT(A) are invalid and bad in law.. 4. On the facts and circumstances of the case the learned CIT(A) erred confirming income shown as business income and not capital gain, therefore the addition conformed by the CIT()A are illegal, in valid and bad in law. 5. The appellant denies liability of interest U/s. 234A, 234B and 234C of the Income Tax Act, 1961, without prejudice the levy of interest is unjustified, unwarranted and excessive. 6. The appellant craves leave to amend or alter any ground or grounds of appeal or raise any ground or grounds at the time of hearing of the appeal‖ 3. Fact in Brief:- The assessee derives income from real estate development and trading. The assessee has been a partner in erstwhile firm M/s. Vinayak Builder & Developers. Later on, the other partners relinquished their rights by coming out the firm from time–to–time. On 31/03/2012, the assessee remained the sole/single partner in the said firm i.e., M/s. Vinayak Builders & Developers, which has become the proprietorship concern of the assessee for and from the assessment year 2012-13. Accordingly, all the assets of the erstwhile firm have been transferred into the books of the assessee w.e.f. 01/04/2012. The return of income filed by the assessee on 30/03/2014, declaring total income of ` 7,90,46,060, consisting of business income of ` 3,29,80,879, capital gains of ` 4,59,13,000 and income from other sources of ` 2,32,205, alongwith agricultural income of ` 6,14,000 claimed as exempt. During the course of assessment proceedings, while verifying unsecured loans given to the assessee by M/s. Sandeep Dwellers 3 Shri Deepak Gadge Pvt. Ltd. through its Director, Shri Gaurav Agarwal, a copy of Agreement of Development dated 14/08/2009, been filed by Shri Gaurav Agarwal. As per this agreement, the erstwhile firm, through the assessee has entered into agreement for development of land bearing Khasra no.92(1), City Survey no.207/1, situated at Mouza Hazaripad, Nagpur, for building flats/residential houses thereon. The said land has been purchased by the firm, through the assessee as partner, vide purchase deed dated 05/09/2008, and correction deed dated 02/07/2009 for ` 22,50,000. According to the Assessing Officer, this land has been taken by the assessee into stock for previous year in his books of accounts. Since the assessee is engaged in the business of property trading and developers, the Assessing Officer has asked the assessee to show cause as to why the sale proceeds of this land and flats at ` 6,85,03,000, be not assessed as his business income in place of capital gain taken by the assessee. In response, the assessee, vide letter dated 14/03/2016, and as incorporated by the Assessing Officer in the assessment order vide Para–9 / Page-16, has submitted that since he has not undertaken any activities in relation to development of the said land and as per legal advice, profits been show mistakenly as capital gains for the year under consideration though he has been regularly showing income from such type of transaction as his business income only. On the basis of assessee’s own admission and after discussing the terms of agreement, the assessee’s computation of income, conduct of business affairs by the erstwhile firm along with the assessee, the Assessing Officer has assessed the sale proceedings of land/flats as business income of the assessee in place of capital gains shown by the assessee and taxed accordingly at prescribed rates. Consequently, benefit of indexation of ` 4 Shri Deepak Gadge 40,09,499, as claimed by the assessee in declaring long term capital gain has also been disallowed by the Assessing Officer. The assessee being not satisfied with the order passed by the Assessing Officer, carried the matter before the first appellate authority. 4. Before the learned CIT(A), the assessee made a detailed submission which was reproduced in the first appellate order at Page-3 to 5, and for ready reference, the same is extracted hereunder :– ―The appellant was a partner in erstwhile firm M/s. Vinayak Builders & Developers, Nagpur upto 31/03/2012. M/s. Vinayak Builderrs & Developers, Nagpur had entered into an agreement for development of its land situation at Mouza Hazaripahad, Nagpur with M/s. Sandeep Dwellers Pvt. Ltd., Nagpur on 14th of August 2009 and according to the said agreement assessee firm was entitled for 50% share in sale proceeds towards cost of land owned by it. All partners retired from the partnership firm w.e.f. 31/03/2012 and appellant was in receipts of various assets of the firm including value of closing work in progress amounting to Rs. 17,75,67,699/- as his share. Erstwhile firm had also received on advance of Rs. 6,52,75,227/- towards its share out of sale of flats which was also taken over by the appellant in his books as on 01/04/2012. During the year under consideration various sale deeds were executed and appellant share in such sale deeds worked out to Rs. 6,85,03,200/-. Since the amount of Rs. 6,52,75,227/- was already received by the firm, balance amount of Rs. 32,27,973/- was received by the appellant during the year ended 31/03/2013 The appellant disclosed income from capital gain in respect of above transactions as under:– In view of the above position of law, the appellant disclosed inform from ―Capital Gains‖ on sale of capital assets as detailed below Total sale consideration Rs. 6,85,03,200/- Less : Indexed Cost of Acquisition Rs. 2,25,90,000/- Capital Gain Rs. 4,59,13,200/- Income tax Officer vide order under section 143(3) dated 21/03/2016 determined the income at Rs. 8,34,77,850/- as against the returned income of Rs. 7,90,46,080/-. While framing the order, the A.O. assessed income from aforesaid transactions as Income from Business as against income from Capital Gains and accordingly disallowed benefit of indexation claimed by the assessee amounting to Rs.44,41,78/-. 5 Shri Deepak Gadge During the course of assessment proceedings, appellant sought opinions from various tax consultants and there were divergent opinions regarding correct head of income where income should be taxed and therefore appellant accepted the contention to the effect that the income should have been offered for taxation as business income and furnished a letter to that effect before A.O. Having revisited the entire matter and gone through the judicial pronouncements as well as accounting principles it was gathered that as per cardinal principals of law anything received on dissolution of the firm amounts to receipts of ―Capital Assets‖ in the hands of recipient as it represents assets received towards his capital contribution in the firm and accordingly assets received upon dissolution of the firm would be having characteristic of a capital asset and cannot be treated as stock in trade unless specifically converted thereto and therefore further sale of the property would amount to sale of Capital Assets liable for tax as a ―Capital Gain‖. If at all assesse intends to continue business activities, he will have to convert capital assets into stock in trade and final profit arising on subsequent sale will have to be bifurcated into capital gain and business income as provided in section 45(2) of the Income Tax Act, 1961. It is respectfully submitted that no business activities were required to be carried on in respect of assets sold under consideration as the project was almost complete in all respects as on 31/03/2012 and as such it cannot be even presumed that appellant has converted his capital assets into stock in trade so as to tax income under income from business. Even it is presumed that the appellant had converted his capital asset into stock in trade, Assessing Officer‘s action in charging to tax entire income as business income is not correct. In view of above it respectfully submitted that the appellant had correctly shown income under the head income from capital gains and therefore action of the Assessing Officer is to be set aside. 3.1 The appellant has further submitted that the erstwhile firm M/s. Vinayak Builders & Developers, Nagpur executed an agreement with M/s. Sandeep Dwellers Pvt. Ltd. Nagpur for development of its land on which a project named ―Omkar Gaurav‖ was launched having two phases. 1st Phase was completed in all respect during the year ended 31.03.2012 only but sale deeds were executed in the previous year relevant to A.Y. 2013-14 i.e. after the date of dissolution and accordingly income was shown under the income from capital gains. 2nd phase was completed after the dissolution of the firma and therefore income on sale of 2nd phase were shown as income from business‖ 5. The learned CIT(A), considering the submissions of the assessee, dismissed the appeal of the assessee. The observations of the learned CIT(A) at Page-5 To 8 of his order are reproduced below:– ―Appellant‘s submissions alongwith assessment order and records have been considered carefully. There is no denying the fact that the assets of the 6 Shri Deepak Gadge erstwhile firm viz. M/s. Vinayak Builders & Developers been taken over by the appellant. In fact, while explaining high value of closing stock in response to AO‘s query, the appellant himself has categorically submitted and admitted, vide letter dated 01.12.2015, that the assets and liabilities of the firm have been incorporated in his books as on 31.03.2012. As a result, the stock in hand of this firm has been included in his hands and the total stock position stood as under:– Entity Stock as on 31.03.2013 (Rs.) Deepak Gadge 12,14,30,390/- Shree Vinayak Builders & Developers 17,75,67,699 Total 29,89,98,089 Thus, the land of Hazaripahad in question has been converted into current assets/stock-in-trade by the appellant and not a capital asset liable for capital gains. In response to AO‘s further questionnaire/notice dtd. 08.03.2016, the appellant has against categorically submitted that the his share of income on sale of property is his business income only. The relevant portion of the appellant‘s reply dtd. 14.03.2016 is reproduced as under for better appreciation of facts :- ―6. During the year under consideration the assessee received a sum of Rs. 6,85,03,000/- from Sandeep Dwellers Pvt. Ltd. Nagpur towards assessee‘s share out of sale proceeds of flats. The said income case to be shown as income from capital gains due to misunderstanding of the fact discussed with the tax consultant. The assessee was regularly showing income from such type of transactions under the head ―Income from Business‖ only. However, having discussed the matter with the persons under the same type of transactions, it was given to understand that whenever property was given to Developer for its development, income from the property is to be shown as income from ―Capital Gains‖ having concessional rate of income tax and therefore the assessee was under bonafide belief that correct treatment of showing income is under the head ―Income from Capital Gains‖ and accordingly it came to be shown as Capital Gains. The assessee was also under impression that since he was not doing any activities in relation to development of property, Income there from cannot be taxed as business income. However, assessee is now realized his genuine mistake as the assessee was not in know of technical aspects of the accounting treatment that the property was shown as stock in trade and therefore its income will have to shown as income from business only. You are therefore requested to treat the income of Rs. 4,59,13,000/- as income from business only as increased by the amount of Rs. 40,09,499/- being indexation benefit claimed instead of income from ―Capital Gains.‖ 4.1 Further while giving break-up details of his business income as per his audited balance sheet and books of accounts, the appellant has against submitted as under 7 Shri Deepak Gadge ―Break up of income of Rs. 14,76,30,883 as shown in Profit & Loss Account:– Sale of Flats 6,85,03,200 Sale of TDR 7,64,19,620 Sale of Metal & Murum 27,08,063 Total 14,76,30,883 ======== 4.2 It is apparent from above that the income arisen on sale of immovable property, which has been taken by the appellant himself as his stock-in-trade, is liable to be assessed as appellant‘s income only. It is to be borne in mind that the business of both the erstwhile firm and the appellant is trading property, builder and real estate development only. There has been an agreement for development of the said land through the appellant, albeit as partner of the erstwhile firm, whereby owner is entitled to 50% of the total sale proceeds including the cost of the land, immediately on receipt of the share from the prospective customers. There has been payment of Rs. 75,00,000/- as per debit note submitted by the appellant to the developer company for escalation in cost of the project. Thus, the appellant is found engaged in systematic and continuous business activity. It is a settled proposition of law that ultimately, it is the intention with which the person deal in the particular transaction, would be the decisive factor. Relevant facts & circumstances actually determine the character of the transaction. In deciding this character, several factors are relevant, such as whether the purchaser was a trader & the purchase of the commodity & its resale were allied to his unual trade or business or incidental to it; the nature & quantity of the commodity purchased & resold; any act subsequent to the purchase to improve the quality of the commodity purchased & thereby make it more readily resaleable; any act prior to the purchase showing design or purchase; the incidents associated with the purchase & resale; the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction; the element of pride of possession. In case where the purchase has been made solely & exclusively with the intention to resell at a profit & the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor & unless it is offset by the presence of other factors, it would raise a strong presumption that the transaction is a business transaction or adventure in the nature of trade. 4.3 After perusal of entire material on record and keeping in view facts of the case. AO is found justified in assessing the income from sale of property as appellant‘s business income for the year under consideration. Since it has been held to be business income, the appellant gets no benefit of indexation of Rs. 40,09,499/- as claimed by him while deciding the income as capital gains. 5.0 In the result, the appeal is dismissed.‖ 6. We have given a thoughtful consideration to the arguments made by the rival parties and perused the material available on record. Keeping in view the overall facts and circumstances of the case, we find that the assessee was 8 Shri Deepak Gadge a partner with M/s. Vinayak Builders & Developers, Nagpur, (―the firm‖). The said firm had entered into an agreement of development in respect of its land situated at Mouza-Hazaripahad, Nagpur, as on 14/08/2009 along with M/s. Sandeep Dweller P. Ltd., Nagpur. According to the said agreement, in consideration of allowing developer to develop the land, the said firm was to get 50% of total receipts received by the developer. As per the agreement, the firm was also liable to incur certain expenditures. During the course of appellate proceeding, the learned Counsel furnished year wise break–up of the amount received from Developer and expenses which was incurred by the firm as under:– Year ended Expenses Amount received from M/s. Sandeep Dweller Pvt. Ltd. Nagpur 31.03.2010 Rs. 26,12,226/- Rs. 1,19,22,643/- 31.03.2011 Rs. 23,64,042/- Rs. 2,83,95,770/- 31.03.2012 Rs. 2,45,704/- Rs. 2,49,56,814/- Total Rs. 52,21,972/- Rs. 6,52,75,227/- 7. The said firm was dissolved on 31/03/2012, and the assessee took over the assets and liabilities of the firm, particularly, value of opening work in progress and advances received against the flats from M/s. Sandeep Dweller P. Ltd., Nagpur, amounting to ` 19,83,12,441 and ` 6,52,75,227 respectively. The firm had almost completed work in respect of Phase-1 through the developer and as such upon dissolution of the firm, the firm should have been liable to pay tax on the market value of the work in progress of that phase which would be equal to the amount received by the firm i.e., ` 6,52,75,227, within the meaning of section 45(4) of the Act. Accordingly, in the hands of the assessee, the cost would have been ` 6,52,75,227, for the purpose of 9 Shri Deepak Gadge computing income as against a sum of ` 1,81,48,232, taken by the assessee for the purpose of computing capital gain tax. We further find that the said firm was liable to be taxed as per provision of section 45(4) of the Act for the assessment year 2012-2013 and the assessee ought to have filed its return of income taking into consideration the cost at ` 6,52,75,227, as against ` 1,81,48,232, taken by the assessee. The income in question was undoubtedly liable to be taxed as a capital gain only thought in the hands of firm, since the amount received was capital receipt of the assessee and as such genuine and bona fide action of the assessee in showing income under the head ―Capital Gains‖ in the hands of the assessee for the assessment year 2013-2014 should not be met with severe below by charging to tax and income under the head ―Income from Business‖. Before us, the learned Counsel for the assessee placed reliance on the decision of the Co–ordinate Bench of the Tribunal, Mumbai Bench in Smt. Laxmi Jain v/s DCIT, [2004] 89 ITD 470 (Mum.). 8. We have gone through order of the CIT(A) as well as case laws relied upon by the learned Counsel for the assessee in support of his arguments and we find that the partnership firm was dissolved on 31/03/2012, and the market value of the properties owned by the firm were taken into consideration before allotting properties to assessee which were capital receipt. At the time when the dissolution took place, the statute did not provide for treating transfer of property from the firm to the assessee as a ‗transfer‘ within the meaning of section 45 of the Act. Though under section 45(4) of the Act, the legislature used the expression ‗distribution of capital 10 Shri Deepak Gadge asset on the dissolution of the firm or otherwise‘ for the purpose of determining the cost of acquisition of the property by the partner, the legislature had covered in the cases of dissolution of a partnership firm. The provisions of section 49(1)(ii)(b) of the Act conspicuously omits the expression ‗otherwise‘ though it covers ‗distribution of assets on the dissolution of firm‘. In other words, the deeming provision, whereby the cost of previous owner is taken as cost of acquisition by the person who acquired the property, is not made applicable to cases where a partner received property from firm on retirement. The mode of computation of income chargeable under the head ‗Capital Gains‘ whereby the full consideration received as a result of transfer of the capital asset should be taken into consideration out of which the appellant is entitled to deduction, amongst others, the cost of acquisition of the asset and the cost of any improvement thereto. In our considered opinion, the normal meaning of the term ‗cost of acquisition‘ is the market value on the date when the assessee acquired the property by obtaining exclusive interest in the assets on which, hitherto, he was having a share interest. We also find that wherever the legislature intended to substitute the market value to the cost for the previous owner of the property acquired the capital asset, it was provided specifically. Similarly, when there is dissolution of partnership firm, the erstwhile assessee received the assets whereby a share interest in a property is converted into an exclusive interest as capital receipt. It is admitted fact that the when the assessee invested his land to the firm, the said investment was capital asset and the land being capital investment given to M/s. Sandeep Dwellers Pvt. Ltd. and the capital asset received on dissolution of firm will be treated as 11 Shri Deepak Gadge capital gain and not the income from business. For such observations, the judgment of the Bombay High Court in Fort Properties Pvt. Ltd. v/s CIT, [1994] ITR 208 ITR 232 (Bom.) also supported the case of the assessee wherein it has been held that – ―It is a transaction of transfer of capital asset-As such, the profit or gains therefrom would be assessable to capital gains tax under s. 45.‖ 9. In the instant case, the sole dispute for consideration is whether the income is to be charged as capital gain or business income. While the learned Departmental Representative expressed that the assessee was engaged in the business of real estate and hence the order of the authorities below need not be disturbed. On the other hand, the learned Counsel for the assessee vehemently submitted that the correct head of income is ―Capital Gain‖ only and reiterated the submissions made before the authorities below. The ratio laid down by the Hon’ble Jurisdictional High Court in Fort Properties Pvt. Ltd. (supra) had elaborately delineated the issue vide Para–19 to 25 of the judgment which is reproduced below:– ―19. It is, thus, clear that in the instant case the property in question was acquired by the assessee from its holding company as a capital asset and after its acquisition it was not converted by the assessee as its stock-in-trade. In other words, it was retained by the assessee as a capital asset. 20. We now turn to the next limb of the argument of counsel for the assessee that the sale of property by the assessee to the Bank of Maharashtra was in the course of its business or was an adventure in the nature of trade. In support of this contention reliance is placed on the objects clause of the assessee-company. It is submitted that the object of the assessee was to deal in real estate and in that view of the matter, the sale of the property by it should be held to be in the course of its business or an adventure in the nature of trade. The further submission of counsel so that the fact that the sale of the property in question was the sole transaction of sale by the assessee or that the sale took place soon after the purchase is not inconsistent with the theory of adventure in the nature of trade. A number of decisions are referred to in support of this proposition. strong reliance is placed on the 12 Shri Deepak Gadge observations of the Supreme Court in G. Venkataswami Naidu and Co. v. CIT (1959) 35 ITR 594 to the effect that even an isolated transaction can be an adventure in the nature of trade. 21. We have carefully considered the above submission of counsel for the assessee. The question whether a transaction is an adventure in the nature of trade or not has been the subject-matter of several judicial decisions. It appears to be the well-settled legal position that no principle can be evolved which would govern the decision of all cases in which the character of the impugned transactions falls to be considered. As observed by the Supreme Court in G. Venkataswami Naidu and Co. v. CIT [1959] 35 ITR 594 [at page 609) : \"...... it is impossible to evolve any formula which can be applied in determining the character of isolated transactions which come before the courts in tax proceedings. It would besides be inexpedient to make any attempt to evolve such a rule or formula. Generally speaking, it would not be difficult to decide whether a given transaction is an adventure in the nature of trade or not. It is the cases on the borderline that cause difficulty. \" 22. The Supreme Court gave the following illustration (at page 609) : \"If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital accretion and not profit derived from an adventure in the nature of trade. \" 23. These observations were reiterated by the Supreme Court in Khan Bahadur Ahmed Alladin and Sons v. CIT [1968] 68 ITR 573 in the following words (at page 581) : \"..... it is not possible to evolve any legal test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not. The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein and which determine the character of the transaction...... \" 24. It is, thus, clear that a decision regarding the character of the impugned transaction will depend on the totality of the facts and circumstances of the case and the cumulative effect thereof. No single fact has decisive significance. No undue emphasis should be placed on a particular observation in any decision as it has to be understood in the light of the totality of the facts of that case. As observed by the Supreme Court in Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (at page 25) : \"No useful purpose would be served by entering upon a detailed analysis and review of the observations made in the light of the relevant facts, for no single fact has decisive significance, and the question whether a transaction is an adventure in the nature of trade must depend upon the collective effect of all the relevant materials brought on the record. \" 25. It should also be always kept in mid that there is a material distinction between transactions in commercial commodities and transactions of purchase of land. So far as a transaction of purchase of land is concerned, it has been held by the Supreme Court in Janki Ram Bahadur Ram's case [1965] 57 ITR 21 (at page 26 of the ITR 57) : 13 Shri Deepak Gadge \"...... a transaction of purchase of land cannot be assumed without more to be a venture in the nature of trade.\" 10. From the issue in hand, it is manifest that the assessee was never involved in the business of real estate development. The firm who was so dealing, was dissolved and the assessee had remained a passive investor throughout. He did not venture into any business activity on his own. Entries in the books of account are not relevant to determine the substance of the transaction. The learned CIT(A) had misdirected himself by holding the same as business income because after elaborately discussing, he had come to his conclusion abruptly. Both the authorities below missed the wood for the trees and failed to holistically arrive at the real intention of the assessee. The firm and the assessee are different entities and upon dissolution of the firm, there is a cessation of business activities and the assessee had never done any business of his own. We are further fortified by the provisions of section 45(5A) of the Act which is narrated below:– ―(5A) Notwithstanding anything contained in sub-section (1), where the capital gain arises to an assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both, under a specified agreement, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority; and for the purposes of section 48, the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by 47[any consideration received in cash or by a cheque or draft or by any other mode] shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset : Provided that the provisions of this sub-section shall not apply where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion, and the capital gains shall be deemed to be the income of the previous year in which such transfer takes place and the provisions of this Act, other than the provisions of this sub-section, shall apply for the purpose of determination of full value of consideration received or accruing as a result of such transfer. Explanation.—For the purposes of this sub-section, the expression— 14 Shri Deepak Gadge (i) \"competent authority\" means the authority empowered to approve the building plan by or under any law for the time being in force; (ii) \"specified agreement\" means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash; (iii) \"stamp duty value\" means the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of an immovable property being land or building or both.‖ 11. Though the section is introduced from the assessment year 2018–19, the intention for introducing the provision is clear and the law has given a statutory recognition to the fact that income from development of a real estate project is taxable as capital gain. Thus, the assessee is successful in pleading that the income is taxable as capital gain with consistent deduction towards indexed cost of acquisition for ` 40,09,499. Accordingly, grounds no.1 to 4, raised by the assessee are allowed. 12. Ground no.5, relates to charging of interest under section 234A, 234B and 234C of the Act. 13. Charging of interest being consequential and mandatory in nature, the Assessing Officer is directed to give consequential effect while computing the income of the assessee keeping in view my finding as aforesaid. 14. In the result, appeal filed by the assessee partly allowed. Order pronounced in the open Court on 28/11/2024 Sd/- V. DURGA RAO JUDICIAL MEMBER Sd/- K.M. ROY ACCOUNTANT MEMBER NAGPUR, DATED: 28/11/2024 15 Shri Deepak Gadge Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur "