TMI Blog2010 (10) TMI 1108X X X X Extracts X X X X X X X X Extracts X X X X ..... e on account of purchase of various items. Whatever bills and vouchers produced were verified by the Assessing Officer with the project wise expenditure statement. It was explained to the assessee that in case of missing bills, if the same were not submitted, the same will not be considered as expenditure. The Assessee and his C.A. agreed before the Assessing Officer that no further bills are available for verification. The Assessing Officer thereafter determined such bogus purchases at Rs. .41,28,262/- and added the same to the total income of the assessee. 4. Before the CIT(A), it was submitted that the bills and vouchers for a sum of Rs. .41,28,262/- could not be produced before the Assessing Officer since these were misplaced. However, complete details were furnished before the Assessing Officer by explaining the necessity of the said expenses. It was further submitted that the materials were received at different sites and the records are also kept there for future reference and verifications. It was submitted that during movement of record to office for payment and thereafter its return to the site for future reference, sometimes it results into misplacement of files or bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned without incurring the expenditure. We do not find any sound reasoning given by the CIT(A). It is the settled proposition of law that for claiming any expenditure as genuine, the onus is always on the assessee to produce evidence to the satisfaction of the Assessing Officer that the expenditure is wholly and exclusive for the purposes of the business. In the instant case, we find, the assessee has failed to discharge the onus cast on it. Merely because the payments are made by account payee cheque, the same, in our opinion, cannot be accepted as genuine business expenditure in absence of supporting details to substantiate the genuineness of such expenditure. In the instant case, although it was stated by the Assessing Officer that cross verification may be provided before allowing the claim as genuine, we find the CIT(A) has not directed the assessee for such cross verification. We find the assessee has already expressed its inability to produce the missing bills/vouchers on the ground that the same are misplaced/not available. Under these circumstances, remanding the matter back to the file of the Assessing Officer also will not serve any purpose. Considering the totality o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale of Land is to be considered as business income. Except the issues raised in Assessment Year 2004-05 and matter is pending in ITAT Mumbai. 10. The Assessing Officer noted that the assessee entered into an agreement with Satyam builders for sale of land at Pimpri 5 acres and 22 guntas out of S.No.109/110. The agreement registered with stamp duty on 18.08.2004 states that full value is Rs. .4,60,00,000/- out of which assessee received ₹ 3,43,25,000/- during the Assessment Year. This is also a development agreement and is taxed for Assessment Year 2005-06. 10.1 From the agreement of sale registered on 09.02.2005, the Assessing Officer noted that the assessee has sold the property bearing S.No.13 Hissa No.1, about 17000 sq.meters situated at Village Kondwa, Khwd Taluka, Haveli Dist. Pune and granted and assigned the development right in favour of developers being M/s. Brahma Builders for a consideration of ₹ 3,31,04,300/- and received advance of Rs. .1,10,34,550/-. 10.2 During the year the assessee had returned certain land purchased from Waghire. As per court order of Civil Judge, Pune dated 04.08.2004 the assessee has returned certain land to Waghire. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration is agreed to be paid in instalment over the period of 2 to 4 years. v. Such instalment received is shown as advance against sale of Land. vi. On receipt of full sale consideration absolute possession of Land will be given to the customer. vii. The advance received will be transferred to sale. The assessee has registered and paid stamp duty on all documents. The agreement clearly state that the buyer being developer has got possession of property. Moreover, the assessee is following mercantile system of accounting. The amount receivable on account of any deed registered in current year becomes taxable on accrual basis. The flat sale is to be taxed on percentage completed basis but land deal cannot be taken on percentage basis. Therefore the entire sales receipts is to be offered as revenue during the year under consideration. U/s.271(1)(c) is initiated for furnishing inaccurate particulars of income. 11.4 The Assessing Officer deferred from the contention of the assessee because the audit report of the assessee firm has stated that the assessee was carrying on the activity of construction and developments of buildings. According to the Assessing Officer the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands is received. The Assessing Officer has placed great reliance on this letter beside others in arriving at his conclusion that the profit on sale of land was taxable as business income. 12.1 It was submitted that the facts of the case have not been properly appreciated by the Assessing Officer. It was submitted that the assessee and 8 other persons entered into a tripartite agreement with M/s. Satyam Builders on 18-08-2004. This agreement was regarding a plot of agricultural land within the Registration Sub Division of Haveli Dist., Pune, and within the limits of Pimpri Chinchwar Municipal Corporation at Pimpri Waghere bearing Survey Nos.109/4B, 109/9, 109/4A, 110/5 and 110/4B. It was submitted that the said agricultural plot of land besides having several restrictive covenants, was also not declared as non-agricultural by the local authorities and therefore could not be developed at all in any manner as on the date of purchase by the assessee, an important aspect totally ignored by the authorities below while holding that the same was purchased for construction. It was submitted that no prudent businessman acquires as a rotating stock which right at the day one cannot be use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities independently, were not shown separately forming part of the stock in trade. It was argued that the addition was made by the Assessing Officer on the basis of a Development Agreement which was registered in the Office of the local Sub-Registrar on 18-08-2004, although factually the Agreement was made on 26-07-2003, when a payment of ₹ 15 lakhs was made by the buyer to the assessee which is mentioned in the said Agreement as on 31-03-2004. Therefore, the date of this transaction has to be taken as 26-07-2003 and not 18-08-2004 on which date the said agreement was registered. Therefore, the transaction did not fall within this year and therefore could not at all be taken cognizance of on this account itself if the contention of the Assessing Officer as regards the date of sale is accepted. Various case laws were also cited before the CIT(A) and it was submitted that for a proper appreciation of law, the provisions of sec. 53A of the Transfer of Property Act, 1882, have to be understood to decide this case. Referring to a number of decisions, it was submitted that the assessee being a builder and developer can buy a property for the purposes of business as well as for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eveloped. It was accordingly submitted that the findings for the preceding assessment year cannot be followed in this assessment year. 13. In appeal, the learned CIT(A) held that the profit of transfer of said land has to be treated as capital gain. While doing so he noted that the Assessing Officer has not questioned the affidavit of Mr. Sharma, where Sharma has stated that the assessee never agreed that the income be taxed as business income. She noted that the assessee has never withdrawn his claim that income was taxable under capital gain. She noted that the counsel of the assessee had in principle agreed to the contention of the Assessing Officer that it was a business income. The Department had considered the same as business income for Assessment Year 2004-05 however, it was clearly stated by the counsel that the issue was pending before the ITAT, Mumbai. According to the CIT(A), it is a well-known rule of law that instead of simply relying on the declaration made by the assessee or his Authorised Representative, it is the duty of the Assessing Officer to analyse the same and give his findings accordingly. This is because the assessee has an option to retract from the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng assessment of the said surplus as business profits. According to her, if the later is ignored then the other reason has no legal footing to support. She relied on the decision of the Hon ble Allahabad High Court in the Deep Chandra Co 107 ITR 716, according to which the burden lies on the revenue to establish that the profit earned on a transaction was revenue realization and not capital gains. This onus cannot be discharged by surmises and by merely rejecting the explanation of assessee. There is no law or practice that a dealer in a particular commodity cannot hold that very commodity as investment. Referring to CBDT Circular No.4 dated 15.06.2007 he observed that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio to be treated as capital assets and trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. Referring to the decision of the Bombay High Court in the case of late Shri N.G. Patel, the decision of the Delhi Bench of the Tribunal in the case of Splendour construction (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in case of withdrawal of these conditions, the consideration was to be enhanced accordingly. The developer had no right to transfer his rights to a third party though he was permitted to engage contractors etc but the overall responsibility was of the developer. In short, assessee had no right in present as no development right existed at that point of time. The assessee acquired a future contingent right to develop the property if it was released by the appropriate State authority for housing for weaker section. On the date of agreement, there was nothing available for transfer to the assessee as the area of land within the permissible ceiling limit was retained by the owners and surplus land was required to be surrendered to the government. Thus he was of the opinion that on the facts and circumstances of the case, there is no possibility of any builder buying such right as a business venture. There is a fundamental and basic difference between business asset and investment, though both are acquired with profit in mind. Profit on any business asset is derived by putting in entrepreneurship, labour and skill. On the other hand, the profit on investment is dependent upon favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary documents to state his case. As discussed in details in the case of Satyam Builders the same principles would apply for this piece of land. It is therefore being held that the plot was a capital asset and any transactions on it is be considered under the head capital gains to be taxed in the year the transfer takes place within the meaning of sec. 2(47) of the I T Act i.e. as and when the possession of the land is handed over and the sale agreement concluded. On the same reasoning as is given for the earlier ground of appeal for sale of the plot of land to Satyam Builders and holding the same conclusion arrived at therein the assessing offer accordingly is directed to tax the surplus arising on transfer of the said plot of Brahman Builders as long term capital gain in the assessment year relevant to the previous year when the last instalment other than the amount to be received at the time of execution of the conveyance deed as mentioned in the development agreement is received by the appellant. The alternative submissions that even if it is presumed that both the transactions were business transactions, the entire agreed considerate could not be taxed in one year become now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that Gulab Waghire and others have granted the development rights in favour of the assessee M/s. Rajesh Builders for an area admeasuring 12 acres 7 gunthas from out of the said land vide Articles of Agreement dated 21-10-2003 registered at the Office of the Sub-Registrar Haveli V at Serial No.7227. They have also executed a Power of Attorney in favour of the nominees of the Developers duly registered at Serial No. 7228 on the same day. 19. He submitted that the assessee is in the business of development of property, the development right was given for the purpose of development to the assessee. Therefore, the assessee acquired first right for the purpose of development only. It can never be a capital asset since the property was acquired by the assessee for the purpose of development whose business is that of construction of shops and flats and developers. Referring to page no. 4 of the assessment order, the ld. D.R. drew the attention of the Bench to the various decisions relied on by the AO to the proposition that the sale of land by the assessee in the instant case has to be assessed as business income. Referring to page 230 of the paper book read with para 4 of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts of the said property to the first party i.e. Rajesh Builders. Referring to the said page, he further drew the attention of the Bench to the 4th para, according to which the consenting party has obtained the non-agricultural use of the said property from the Collectorate, Pune, vide two separate orders issued under No.PRN/SR/640/90 dated 27-11-1990and No.PRN/NA/SR/494/91 dated 09- 03-1992. He submitted that the above facts negate the finding of the CIT(A). He submitted that since the conversion has taken place much before, the finding of the CIT(A) is incorrect and contrary to facts. He submitted that the CIT(A) has not examined the facts properly. In fact, he did not do the proper verification which the AO has done. He submitted that the assessee is developer, acquired land for development and transferred the development rights for development only. Therefore, the income therefrom has to be treated as business income. The acquisition of such development rights was stock in trade and remains as stock in trade only. 22. As regards the ground of appeal nos. 7 and 11, which relate to the year of taxability of the profit arising on sale of land to Satyam Builders and Brahma Buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all during the relevant period due to non-receipt of the full sale consideration. The ld. D.R. further submitted that the assessee itself has accepted this income during this years since the agreement was made and registered during this year and possession was given during this year. Therefore, the income being revenue in nature has to be brought to tax during this year only. He accordingly supported the order of the AO. 23. The ld. counsel for the assessee Shri S C Gupta on the other hand, strongly relied on the order of the CIT(A). He submitted that the AO disallowed the claim of the assessee on the basis of the letter of the Chartered Accountant. Referring to para 2.1.1 at page 3 of the CIT(A) s order, where the concerned part of the letter written by the Chartered Accountant is incorporated including the decision of the Bombay High Court in the case of Chaturbhai Dwarkadas Kapadia, he submitted that the CIT(A) has rightly held that the letter of the assessee or its subsequent withdrawal should have no effect on the case which should be examined on merits to arrive at the correct income under the correct head of taxation. 24. So far as the sale of land to Satyam Builder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that even if the said plot of land was acquired as a business asset in the beginning, yet it got converted into a capital asset as it got sterilised. When the asset is sterilised, it got converted into a capital asset and only capital gains tax could be chargeable. For this proposition, he relied on the following decisions: 1. CIT vs. Canara Bank Ltd. (63 ITR 328) (SC). 2. Universal Radiators (201 ITR 800) (SC). 3. CIT vs. Anand Lamps (207 ITR 733) (Raj.). 4. Banarsi Das Gupta vs. CIT (1977) 106 ITR 559 (All.). He submitted that the Tribunal in the assessee s own case has already decided the issue in favour of the assessee. Referring to page 232 of the paper book, which is balance-sheet as on 31-03-2005, he submitted that on the assets side the assessee has shown the land. Referring to page 239 of the paper book, which is the balance sheet as on 31-03-2004, he submitted that land has been shown under the head assets . Referring to page 93 of the paper book, he submitted that the agreement has been made on 14-03-1988 between Mukand G. Jagtap and the assessee. Referring to page 94 of the paper book, he submitted that the land was under Urban Land Ceiling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt rights and sell such development rights etc. Therefore, the entire activity is that of business activity and the income therefrom has to be treated as business income. He submitted that mere entries in the books of account are not decisive and the nature and character of the transaction is material 28. As regards the contention of the ld. counsel for the assessee that the order of the Tribunal in the assessee s own case for the preceding year has to be followed, he submitted that the case was decided by the Tribunal on the basis of its own facts for that year. It was a separate property and documents of that year are not given. Further, the order passed by the Tribunal is not a good and correct order. Therefore, the same need not be followed. 29. The ld. counsel for the assessee, while winding up his arguments, submitted that if the Bench is not going to follow the order of the Tribunal in the assessee s own case in the preceding assessment year, then the matter may be referred to a Special Bench. 30 We have considered the rival submissions made by both the sides, perused the orders of the authorities below and the paper book filed on behalf of the assessee. We have als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration has not been received by the assessee during the impugned assessment year; therefore, it cannot be brought to tax under the head capital gain in this year. Further, it is also the submission of the ld counsel for the assessee that in view of the decision of the Tribunal in assesee s own case in the immediately preceding assessment year, this issue is covered in favour of the assessee and it has to be followed. 32 We have considered the rival submissions and the order of the Tribunal in assessee s own case in the immediately preceding assessment year. It is the settled proposition of law that principles of res-judicata do not apply to Income Tax Proceedings and every assessment year is separate and independent. In the instant case, we find, the assessee before the CIT(A) has also pleaded that the facts of each plot of land are different and an issue decided on facts in one year cannot be applied in the subsequent year on another plot of land unless all the facts are similar. The relevant portion of the observations of the CIT(A) at page 16 of her order containing the submission by the assessee before her reads as under: He also pleaded that the facts of eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee s own case in the immediately preceding assessment cannot be followed. Undisputedly the order of the Tribunal was not available before the CIT(A) when she passed the order. Precisely for this purpose, the assessee appears to have stated before her that the facts of the case in the impugned assessment year are different from the preceding assessment year which the CIT(A) has agreed. Now, since the Tribunal has given a favourable order in favour of the assessee, the counsel is making a u-turn by asking the Bench to follow the order of the Tribunal which in our opinion is not justified. Therefore, the arguments of the ld counsel for the assessee that in case the order of the preceding year is not followed, the matter may be referred to the Special Bench does not find any force. Accordingly, the request of the ld counsel for the assessee to refer the matter to the Special Bench is rejected. 35 Now, coming to the merits of the case, we find the agreement of plot at survey no. 109 110 between the assessee firm and Satyam Builders has been registered on 18.8.2004. Similarly, the development agreement dated 2.2.05 entered between the assessee firm and Brahma Builders for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and/or loss whatsoever out of the said schemes and/or non-sanction of the said schemes shall be of the developers alone. 35.5 Similarly from the copy of the agreement between Mr Mukund G Jagtap and M/s Rajesh Builders dated 14.3.88 (PB 93 onwards) and relating to the land transferred to M/s Brahma Builders we find clause I of the said agreement reads as under: The owner herein entrust the development rights of the said plot in favour of Developers and ultimately sale, transfer and convey in favour of Dinanath Co-op Housing Society (proposed) the buildings and land constructed thereon as under: a) PHASE A: That the Developer shall construct on the Phase A on the surplus land out of the said plot for the benefit of the members of the Dinanath Coop Hsg Socy (Proposed) and hand over total built-up of 30,960 sq.ft area to the proposed society. The area of the each flat is 430 sq.ft built-up and the total flats are 72 to be allowed of 30,960 sq.ft built-up will be decided by the owner and the developer mutually.-The specification to be provided in each flat is attached herewith: b) PHASE B That the Developer shall construct under Phase B under free h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment rights to M/s Satyam Builders. 35.9 A combined reading of the various clauses of the agreement starting from the beginning till the date of transfer of the development rights to Satyam Builders and Brahman Builders for the purpose of development by the assessee firm which itself is engaged in the business of developers gives an impression in the mind that the land was acquired for the purpose of business, transferred as a business asset and therefore, the surplus has to be assessed as business income only. We, therefore, don t find any sound reasoning in the order of the CIT(A) that it is for the assessing officer to discharge the onus that the property sold to M/s Satyam Developers was not a business asset. 35.9.1 We find the CIT(A) while accepting the contention of the assessee that the mode of purchase of land is capital asset has observed as under: Entering into a development deed and obtaining physical possession of land while the PoA for all other legal purposes resting with the seller is a policy followed by land investors in and around Mumbai and has been an accepted policy However, we do not find any sound reasoning in the above observation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said land and are well and sufficiently entitled to develop/sell land or part or parts thereof to any third party for their own benefit. AND WHEREAS THE First party with consent of the owners are now desirous of developing a portion of the said land admeasuring 102650 sq.ft and which portion of 102650 sq. Ft is hereinafter referred to as the said property more particularly described in the schedule II hereunder and duly earmarked on the annexed plain and have therefore agreed to grant the development rights to the Developers herein on terms and conditions herein below stipulated. From the above, it is clear that the land was not agricultural as per the order of the collector, Pune and therefore, the finding of the CIT(A) is based on wrong appreciation of facts. The various case laws relied on by the CIT(A) are distinguishable and based on facts of those case, they cannot be applied to the facts of the present case. As already mentioned earlier, the decision of the Tribunal in assesee s own case is not applicable since the facts are different, a finding given by the CIT(A) on the basis of the admission by the assessee. In the case of Shanti Builders (88 TTJ 519, Pun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efund due 38,429/- We find the agreements were made and registered during this year and the possession has been given during this year which is evident from the clauses of the agreement. The assessee is following mercantile system of accounting. Therefore, the income has to be brought to tax during this year only. The finding of the CIT(A) that the possession was not given, in our opinion is incorrect. In this view of the matter, we are of the considered opinion that the Assessing Officer was justified in adding the surplus on transfer of land to Satyam Builders and Brahma Builders as business income to be taxed during the impugned assessment year. Accordingly, the order of the CIT(A) on this issue is set aside and the grounds of appeal nos 3 to 11 are allowed. 36 Ground no.12 reads as under: On the facts and circumstances of the case and in law, the ld CIT(A) has erred in directing to treat the surplus of Rs. . 49,03,620/- received from Balkrishna Raghunath Waghare on account of return of land without appreciating the fact that land transaction entered into by the assessee are solely with the propose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongly considered it as business income. It was submitted that a mistake of assessee in not disclosing income correctly can be corrected and the same should be allowed. It is definitely legal right of every assessee to correct his mistakes and make fresh legal claim even if he has shown income in his voluntary return of income. The decision of the jurisdictional Bombay High Court in the case of Mr. Balmukund Acharya vs. DCIT reported in 2009-TIOL- 05-HC-MUM-IT cited before the CIT(A). It was submitted that the Apex Court and the various High Courts have ruled that the authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. If particular levy is not permitted under the Act, tax cannot be levied applying the doctorine of estoppel. It was submitted that on merits also, the case must go in favour of the assessee since the surplus was taxable as capital gains. The decisions of Bombay High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck in trade of the appellant to render any income from it taxable u/s.28 of the I.T. Act. In fact as the appellant was not the owner of the land one cannot term the land as capital asset in the hands of the appellant. In fact what was a capital asset was the acquired assignable rights. In the balance sheet of the assessee for the concerned year, the assessee has declared holding of 5 plots of land as on 31.03.2004 along with three plots of land shown under the head current assets. The said land does not feature in the balance sheet at all. Therefore, to correctly appreciate the nature of transactions it would be necessary to rely on the judgments delivered by the Hon ble Courts in such a case. I find the case of the appellant is squarely covered by the following judgments of Bombay High Court: i) CIT vs Vijay Flexible Containers (1990_ 186 ITR 693 (Bom) The appellant assessee firm entered into agreement of purchase of immovable property and paid earnest money. Subsequently, in settlement of a suit for specific settlement of agreement of sale filed by the appellant assessee firm, is received compensation interest. Whether such amount is assessable as capital gains? Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) and 111 ITD 259. 37.1 The ld counsel for the assessee on the other hand while supporting the order of the CIT(A) submitted that it is a civil suit filed by the assessee since the land was under the Urban Land Ceiling Act and possession thereof was never transferred to the assessee, ownership of the same was always with the owners. Therefore, the compensation received for giving up the right, title and interest in the said property has to be treated as a capital receipt and not brought to tax as business income. 38 We have considered the rival submissions made by both the sides. Perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case received the amount of ₹ 70,00,000/-from the defendants towards full and final settlement of the claim made by it. Clause 4of the said agreement (PB Page 223) shows that the plaintiff has relinquished all its rights, title and in interest acquired by it. It is the submission of the ld counsel for the assessee that due to filing of a civil suit and since the land was under ULCA and since ..... X X X X Extracts X X X X X X X X Extracts X X X X
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