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2015 (9) TMI 953

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..... al income under the head ‘house property income’. The assessee was not carrying out any business,that the built up area was not stock in trade and that he was entitled to the benefit of inflation index - Decided in favour of the assessee. - ITA No.8711 & 8712 - - - Dated:- 28-8-2015 - Sh. Joginder Singh and Rajendra, JJ. For The Assessee : Ms. Ritika Agarwal For The Revenue : Shri Jeetendra Kumar-DR ORDER PER RAJENDRA, AM Challenging the order dated 1.11.10 of the CIT(A)-6,Mumbai the assessee has raised following Grounds of Appeal for the above mentioned tow AYs.: ITA No.8711/Mum/2010 The appellant individual is aggrieved by the order passed by Id. CIT(A)-VI. Mumbai u/s 143(3) r.w.s.147 and 143(3) of the Income- tax Act. 1961 and is in appeal: 1 BECAUSE. ld. CIT(A) erred in law and on facts in upholding the decision of the ld. AO in treating the built-up area as stock in trade and rejecting the appellant's contention that he never carried out any business activity and the built up area received from M.s Romell Developers being part of the compensation for transfer of part land was in the nature of capital asset. 2. BECAUSE .....

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..... the assessee at ₹ 1,26,94,959/-. 2.Effective ground of appeal is about treating the built up area of a property as stock-in-trade instead of part of the capital asset and disallowing benefit of indexation on capital gains.Breif facts of the case are that a survey action u/s. 133A of the Act was carried out at the premises of Asha Khatiwala (AK),the siser-in-law of the assessee on 2.2.2006, wherein some documents relating to transaction of sale of property by assessee jointly held with AK were found.During the course of survey it was found that assessee alongwith AK was owning land at Vakola, Santacruz, that both were having 50% share, that the property was purchased by Hiralal Kathiwal on 25.1.54, that by an indenture dated 1.9.1997 the said property was transferred in favour of Hiralal Kathiwal (HUF), that on 11 .2.2000 the members and co-partners of said property by mutual agreement dt.11.2.2000 dissolved the HUF,that eight members become co-owners of the property,that on 18.2. 2000 share of Prakash Kathiwal was purchased by AK for ₹ 17.10 lacs, that on 21.3.00 seven(7)co-owners except Bharat Khatiwala signed the deed of release,that through the release relinquish .....

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..... re in the nature of trade, that 22.5% of land held by him on which the building was constructed would partake the colour of investment converted into stock in trade, that Long Term Capital Gain(LTCG) was attracted. The AO calculated LTCG at ₹ 10.26 lacs. He further held that assessee had sold two flats in the year under appeal. Vide his order sheet noting dt.18. 12.2007, he asked the assessee as to why sale of flats should not be treated as business income. The assessee filed the detailed submission in that regard but the AO did not agree with him. He held that the transaction could not be considered as capital gain, that the assessee had sold the flat to buyers as the First seller, that the assessee s intention was to earn profits, that the activity was not an isolated activity, that he had been selling the flats in earlier years also, that the entire exercise taken up by the assessee was adventure in the nature of trade and was for realization of sales value of flat. He calculated the business income of the assessee at ₹ 24.74 lacs. 3. Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).After considering the .....

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..... of Vakola property released/ relinquished their rights in favour of the assessee and AK,vide release deed 21.3. 2000,that both the co-owneres entered into MOU with RPPL on 21.11.2000, that they received an amount of ₹ 25 lacs each from RPPL in instalments as deposit against final consideration for transfer of land for the purpose of redevelopment,that on 28.8.01 they entered into a development agreement with RPPL,that it was agreed by both the sides that the owners would surrender 55% of the land through RPPL and would received built up area as set out in the agreement apart from ₹ 25 lacs cash consideration,that due to disputes between the co-owners and the developer a conciliator they appointed,that vide deed dated 5.4.2004 the parties signed new fresh development agreement,that as per the new deed the assessee and AK were to receive ₹ 70. lacs,that AK gave up her claim on 9 flats in lieu of enhancement of cash consideration by 2.20 crores,that the assessee ultimately received 9 units from the developer,that a survey u/s. 133 A of the Act took place at the premises of AK,that the AO re-opened the assessments for the AY.s. 2002-03 and 2003-04,that the AO treated .....

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..... coowners entered into agreements with various buyers and sold the flats during the previous year relevant to AY.s. 1993-94 to 1995-96.During the AY.1995-96 the three co-owners sold 18631 sq. ft. of built up are against total consideration of ₹ 4,72,98,075 and declared capital loss at ₹ 31,30,663 each after considering the inflation index.In the original assessment proceedings, the AO was of the view that development of plot, construction of flats and sale thereof amounted to an adventure in the nature of trade. Matter travelled up to the Tribunal,who held that it was not a case of an adventure in the nature of trade and accordingly, directed the AO to compute the cost of acquisition as well as the income under the head capital gains .In the fresh assessment proceedings,the AO rejected the cost of acquisition @ ₹ 1,450 per sq. ft. adopted by assessee.He adopted the cost of acquisition of the entire property at ₹ 6,10,000 as per the wealth-tax record.The the indexed cost of acquisition was worked out to ₹ 3,30,060.He worked out the share of the assessee at ₹ 1,56,56,005 under the head capital gain.Matter was again agitated before the Tribunal by .....

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..... uisition, we may point out that indexing is allowed only with reference to long-term capital assets. We are concerned with the property comprising of two different capital assets acquired at different point of time. As far as land is concerned, admittedly, it is long-term capital asset and consequently, cost of acquisition which may be determined by the AO as per our direction would further be enhanced as per the rule of indexation. However there is some confusion regarding the date of acquisition of 56 per cent built up area. As pointed out earlier, we are informed by the learned counsel for the assessee that possession of flats were taken in financial year 1991-92 but there is no material before us in support of the same. This will be verified by the AO and then determine the period of holding. If it is found that it is longterm capital asset then indexed cost would also be determined otherwise no indexation would be allowed. 14. In view of the above discussion, the orders of the CIT(A) are modified and the matter is restored to the file of AO for determination of the cost of acquisition/indexed cost of acquisition and also the capital gain assessable to tax in accordance w .....

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