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Asstt. Commissioner of Income Tax, Circle – 2, Nashik Versus M/s. Tribhuvanlal Kalya and Company

2016 (7) TMI 532 - ITAT PUNE

Loss on sale of land - ‘Business Loss’ or ‘Capital Loss’ - Held that:- Revenue has not disputed the fact that the assessee in its books of account right from beginning has shown the land as stock in trade. During the scrutiny assessment proceedings 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 principle of consistency in treating the land as stock in tra .....

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development business are not based of proper appreciation of the facts. The present land transaction may be the first transaction 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. - The second ground for making addition by Assessing Officer was that the co-owner of the assessee in its return of income has declared loss as capital loss .....

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ate that the Development Rights were acquired by assessee as business venture. We do not find any infirmity in the findings of Commissioner of Income Tax (Appeals) admitting the claim of the assessee on this issue. Hence, no interference is called for in the impugned order. - Decided against revenue - ITA No. 991/PN/2010 - Dated:- 5-7-2016 - SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Assessee : Shri C.H. Naniwadekar For The Revenue : Shri D.N. Parakh ORDER PER VIKAS AWASTHY, .....

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scrutiny assessment proceedings the Assessing Officer observed that the assessee has claimed business loss of ₹ 67,22,876/- on sale of Development Rights over land. The assessee along with one Mrs. Vasanti Shankar had entered into Development Agreement on 08-04-2002 in respect of land admeasuring 10,355.85 Sq. Mtrs. comprising in S. No. 17, Pot hissa No. 5, 6 & 7 at village Deolali, Distt.- Nashik for total consideration of ₹ 4,40,00,000/-. The share of the assessee in the joint .....

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e assessment order dated 05-12-2008, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) accepted the claim of the assessee and allowed the sale of Development Rights 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 submitted that the Commissioner of Income Tax (Appeals) has erred in coming to t .....

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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 records that any development activity was carried out on the land in question. The ld. DR prayed for reversing the findings of Commissioner of Income 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 Commissioner of Income Tax (Appeals) on .....

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their liability. On the assurance of owners of land, the Bank gave consent for entering into the Development Agreement. Later on no payment was made by the owners of the land to the Bank and the Bank withdrew its consent. The assessee along with Mrs. Vasanti Shankar had intention to construct residential-cum-commercial complex on the land in question. The assessee right from the beginning had shown the land as stock in trade in its books. The ld. AR contended that the Assessing Officer has erre .....

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cord a copy of Memorandum and Article of Association of the aforesaid company. The ld. AR further submitted that the assessee had also borrowed 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 such as leveling of land. The expenditure on leveling of land was also capitalized by the assessee in stock in trade. The construction/development work could .....

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t, which they failed to comply with. 4.1 The ld. AR submitted that the facts and the documents on record would clearly show that the intention of assessee right from the beginning was to hold the land as business asset and not as investment. Once, a particular asset is qualified to be a business 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 .....

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). It was categorically submitted to the Assessing Officer that the assessee is also engaged in the land business. Even in the subsequent assessment year i.e. assessment year 2008-09 the Assessing 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 merely for the reason that the assessee has claimed loss. The ld. AR prayed for applying the Principle .....

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); 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 representatives of rival sides and have perused the orders of the authorities below. The only issue raised by the Department in app .....

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land etc. have been capitalized. In the earlier assessment years the Assessing Officer has accepted the treatment given by the assessee in treating the land as stock in trade. During the period relevant to the assessment year under appeal the assessee sold the Development Rights in the land and suffered loss. The Assessing Officer rejected the contentions of the assessee and held the loss as Long Term Capital Loss on two grounds : i. The assessee is not engaged in the land development business .....

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ficer on this issue. 6. After perusing the documents on record and appreciating 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 Development 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 the intention of the assessee was to develop the land and exploit it for commercial purpose. Clauses 6 and 10 of the agreement clearly spell ou .....

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nd are transferred for exploiting the same for commercial purpose. 8. Further, the Revenue has not disputed the fact that the assessee in its books of account right from beginning has shown the land as stock in trade. During the scrutiny assessment proceedings 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 principle of consistency in treating the land as .....

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