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2016 (8) TMI 854 - ITAT DELHI

2016 (8) TMI 854 - ITAT DELHI - TMI - Income from sale of property - business income or capital income - Held that:- In the absence of any facts indicating that the assessee has converted capital asset into ‘stock in trade during the relevant A.Y [or during some any other earlier financial period] it has to be held that same fact continue to A.Y 2009-10. It is relevant to note that the AO has not raised any objection and has not disputed the sale price and cost [including indexation] and only di .....

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t establish that it was ever held as stock in trade or one point of time during the period of acquisition it was converted from capital asset to stock in trade. In this situation, we decline to accept and approve the conclusion of the AO to treat the income from sale of said property as business income. - Per contra, we are of the considered opinion that the finding and conclusion of the ld. CIT(A) in the impugned first appellate order are quite justified, correct and sustainable and we are .....

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e actually transferred in the name of the buyer Shri Lalit Jain on 29.3.2009 and also that the shares were physically received by the buyer immediately after such sale and that reason to make investments including distinctive number of shares had been admitted by the buyer Shri Lalit Jain in his statement. On the basis of foregoing discussion, we are of the considered view that the assessee could very well substantiate the fats indicating the genuineness of the transaction by submitting all rele .....

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the effect the paper or sham transaction with an intention to reduce tax liability. Furthermore, the allegation of the AO, that the assessee repurchased these shares in the next financial period, has no legs to stand in the absence of any further enquiry from the allotter companies viz PFL and KFL regarding status of share holders pertinent to these shares by the AO and the fact was also fairly accepted by the ld. DR during arguments. Hence above noted allegations levelled against the assessee, .....

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entire facts and circumstances of the case and the nature of transaction held that the bad debts arose from inter corporate deposit is allowable deduction u/s 36(1)(vii) of the Act and the rider created by the Legislature u/s 36(2)(i) does not come into play in the facts and circumstances of the case as the assessee advanced interest bearing loan to VHEL Industries under normal course of business which was actually inter corporate deposits. Accordingly, we are unable to see any valid reason to i .....

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nst the order of the CIT(A)-IX, New Delhi, dated 30/09/2013 for A.Y 2009-10. 2. The Revenue has raised the following grounds of appeal: 1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in holding that the income earned on sale of property is taxable under the head income from Capital Gains and not as Business Income completely ignoring the intention of the assessee which was not to hold the property as investment as discussed in detail in the assessmen .....

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in plethora of judicial pronouncements that Colourable transaction cannot be allowed as Tax Planning? 3. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 2,26,06,025/- made on account of Bad Debt without appreciating the fact that the above amount was a loan which was never offered for tax in any earlier assessment year? 4. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. 5. That the .....

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selected for scrutiny and statutory notice u/s 143(2) dated was issued and served. The assessment was completed u/s 143(3) vide order dated 30.12.2011 by the AO at the income of ₹ 110,48,92,459/- making the various additions as below: (i) Profit on sale of property at Curzon Road Rs.1,11,28,77, (ii) Bad debt written off ₹ 2,25,00,00 (iii) U/s 14A ₹ 33,18,235/ (iv) Profit on sale of property at ₹ 18,50,000/ (v) STT ₹ 7,173/- Besides, above additions/disallowances, th .....

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tion on sale of some of the shares, which it had all along held as investments. The A.O has noted the difference & reasons for revising the return of its income. In any case, there is no dispute on this fact about revision of the return of income and the AO has taken into cognizance the revised return while passing his order and appellant has disputed the facts only on the merits of the issue. 3.2 Aggrieved, the assessee carried the matter before the first appellate authority and appeal of t .....

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ntered into an agreement for development of a multi storey project at the property situated at 27, Curzon Road, New Delhi [hereinafter referred to as the property ]. The ld. DR further pointed out that the assessee tried to develop the property by entering into various agreements one after the other viz: i) agreement with legal heir Dr. Raghu Nath ii) Tata Housing in 1988, iii) Ansal Properties & Inds. Ltd [APIL] in 1995 iv) Verka Investments in 1995 and so on. Therefore, the intention of th .....

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lop the said property in a A class ultra-modern centrally air conditioned building. The ld. DR further pointed out that the assessee invested in the property as a part of its business and not for the purpose of its investment in business. Therefore, the consideration which has accrued to the assessee against sale of 25% development rights in the said property is liable to be assessed under the head property and gains of business or profession . The ld. DR also pointed out the relevant clause in .....

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002 passed u/s 158BC of the Act for the block period of 1.4.1990 to 29.8.2000, the assessee s total undisclosed income under the head profits and gains of business and profession was assessed at ₹ 31 crores and as per the relevant para 2 of the assessment order, the same was accrued to the assessee out of agreement transferred of 25% development rights to M/s MIPL. Therefore, the same cannot be treated as long term capital gain [LTCG] from the same property. 5.2 The ld. DR also drew our at .....

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r of the transaction and intention of the assessee company was in purchasing and selling the properties. Therefore, income arising out of the said property has to be assessed as income from business and profession. The ld. DR pointed out that the conclusion recorded by the ld. CIT(A) in this regard at page 20 of the impugned first appellate order are not sustainable. The ld. DR also contended that the ld. CIT(A) entertained the documents at the appellate stage without any legal basis and reason .....

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Act, short term capital gain of ₹ 4,17,60,000/- was assessed. The ld. DR further submitted that during the appellate proceedings before the ld. CIT(A) against the said assessment order, the assessee in its written submissions filed before the first appellate authority, it was submitted that the AO has erred grossly in omitting to consider the fact that the assessee company had entered into construction contract on 25.6.1987 with THDCL for construction of multi storey blocks in the course .....

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tock in trade or investment at the time of original agreement with the legal heirs of original allottee, Dr. Raghunath. The ld. DR further drew our attention towards relevant para 8(i) at running page 12 [assessee s Paper Book I, page 160] of agreement dated 19.5.1980 between the legal heirs of Dr. Raghunath and the assessee and submitted that from the very beginning the assessee company had definite plan to construct a multi storied building on the said property. Therefore, when the business of .....

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eated as an investment in property and income arising from the sale of the said property was righty assessed as income from the business and profession by the AO. The ld. DR placing reliance on the decision of the Hon'ble High Court of Delhi in the case of CIT Vs. Central News Agency Pvt. Ltd. Reported at 373 ITR 399 [Del] submitted that the test to determine whether profits from sale are assessable as business income has to be decided on various counts but it is the main parameter that whet .....

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at the grounds of the Revenue are not in accordance with the provisions of section 253(2) of the Act as the same has been framed in the form of a question. However, the ld. Sr. Counsel further submitted that the grounds of appeal as per Form No. 36 of the Revenue may be decided as per its letter and spirit. The ld. Sr. Counsel further pointed out that admittedly and undisputedly the property was sold in F.Y. 2008-09 relevant to A.Y 2009-10. The AO issued notice on 26.12.2011 u/s 142(1) of the Ac .....

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on during the assessment proceedings. The ld. AR further pointed out that additional evidence consisting of Board Resolution, etc passed by the assessee company which depicts the intention of the assessee to give treatment to the advance given against the said property and shifting of the registered office etc, could not be furnished before the AO due to the reason that the AO, at any stage of assessment proceedings did not inform his intention and did not issue any show cause notice enquiring a .....

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held that the said land pertaining to the said property did not represent stock in trade and was capital asset and not liable to W.T. Act. 6.3 The ld. AR further drew our attention towards pages 349 to 350 of assessee s Paper Book - II and submitted that before the ld. CIT(A), the assessee in its supplementary written submissions dated 4.5.2012 explicitly mentioned that when the execution of the documents for transfer of the said property from Dr. Raghunath/ his legal heirs to the assessee comp .....

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always disclosed under the head fixed assets continuously in all the subsequent years. The ld. AR reiterated its written submissions dated 4.5.2012 made before the first appellate authority and submitted that during the period 1987 till date of sale of subject property during the relevant F.Y, the assessee treated the same as fixed assets and thus entered into a collaboration agreement with certain developers to construct commercial building thereon in lieu of retaining specific area in the con .....

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into various agreements with collaborators, was only to ensure availability of a modernized office space for the assessee and because the various agreements with collaborators could not see the light of completion due to reasons beyond the control of the assessee. Therefore, the assessee company also paid penalty to developers as compensation in lieu of cancellation of agreement which again goes to show the bonafide intention of the assessee and supports this fact that the assessee, since the ve .....

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re any conclusion an enquiry is required as to whether the property had been treated as stock in trade or shown in the books of account and balance sheet as investment/fixed assets, and out-come of the said enquiry is relevant to decide the issue. The ld. Sr. Counsel vehemently contended that if the said enquiry was made by the AO on the documentary evidence such as balance sheet, profit and loss account and books of account of the assessee, then certainly the outcome would be that the assessee .....

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was with the assessee. 6.6 The ld. Sr. counsel drew our attention towards the proposition laid down by the Hon'ble Supreme Court in the case of Raja Bahadur Kamakya Vs. CIT reported at 77 ITR 253 [SC] and submitted that where a person is selling his investment realised on enhanced price excess over his price is not profit assessable to tax under the head of business income. The ld. AR also contended that in this judgment, their Lordships held that if the transaction is in ordinary line of as .....

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a transaction in the nature of trade or adventure. The ld. AR also placed reliance on the decision of the Hon'ble Supreme Court in the case of Karamchand Thapar Vs. CIT reported at 82 ITR 899 [SC] and submitted that the manner of disclosure in the balance sheet though not conclusive but it is very relevant circumstances for determining that whether the said property was kept as stock in trade or as in investment/fixed asset in the books of account of the assessee. 6.7 The ld. AR further drew .....

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ecision of the Hon'ble High Court of Delhi in the case of Shanti Banerjee [deceased] by the legal heirs Vs. DCIT passed on 17.11.2015 in ITA No. 299/2003 and submitted that as per paras 4 to 9 of this order, the present issue is covered in favour of the assessee by this decision as there was no material on record from which it could be said that the assessee ever had the intention to exploit the said property as commercial venture. 6.9 The ld. Senior Counsel parted with his argument with the .....

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ment/fixed assets in the books of accounts of the assessee since its acquisition and the AO also treated the same as investment in the W.T. assessment proceedings for A.Ys 2004-05 to 2008-09. 7. We have heard the arguments of both the sides and carefully perused the relevant material placed on record before us. On careful consideration of the above noted submissions and contentions of both the sides, at the outset, from the relevant operative part of the assessment order on the issue, we observe .....

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into freehold property from leasehold. On 28.4.2008, agreements between the assessee and the VERKA was cancelled lifting riders on the title of the assessee and finally on 28.4.2008 the assessee sold the said property for a consideration of ₹ 200 crores which gave birth to the issue of business income as held by the AO, v/s long term capital gain as claimed by the assessee and allowed by the ld. CIT(A) by passing the impugned order. In the next para, the AO also tabulated the cost of acqui .....

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roperty, which have been mentioned in agreements dated 19.5.1980 and supplementary agreements dated 4.6.1980, 20.8.1984 and 21.9.1986. But this analogy is not acceptable as there is no provision in the Act for treating the onego purchase of property and its sale at one parameter and for treating the property which was acquired by the assessee by vacating the same from the occupant tenants or trespassers etc and by settling other issues. The main point to be enquired and examined for determinatio .....

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income arose therefrom has to be treated as business income. The ld. Sr. Counsel has pointed out that as per letter of the assessee submitted to the AO on 21.11.2011 the assessee was mainly dealing in the sale and purchases of shares and even if it is presumed, not accepted, that in the memorandum and articles of association one more object of sale and purchase of property is mentioned, then also if as per provisions of the Act the assessee can have two portfolios for shares and securities viz. .....

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as II.1 to II.6 it is amply clear that in paras II.6 the AO has noted that the company has declared results from sale and purchase of shares for F.Y. 2006-07 to 2009-10 which shows that the main business activity of the assessee is purchase and sale of shares. We are of the opinion that the objects mentioned in the memorandum and articles of association do not determine the nature of income the main object of the assessee may change from time to time as per feasibility of business activities. Th .....

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d IV.16 he directly jumped to the conclusion without any adjudication on the explanation and documentary evidence submitted by the assessee, that the income from sale of property is assessable and taxable under the head of Income from business and profession instead of long term capital gain [LTCG] as claimed by the assessee. This is not a right and correct approach for drawing a meaningful and justified sustainable conclusion by a quasi judicial authority. 7.4 At the same time, when we analyse .....

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report. The ld. DR could not controvert these contentions of the para 6.7 of the impugned first appellate order wherein the ld. CIT(A) has noted that the AO has not objected to admission of additional evidence except by contending that the assessee has given sufficient time during assessment proceedings. At this juncture, it is relevant to consider the contention of the ld. Sr. Counsel that he AO did not show his intention to treat the long term capital gains as business income hence on this con .....

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posed several queries to the assessee but he never show caused the assessee asking that why income accrued from sale of said property be not treated as business income hence this is a sufficient cause which prevented the assessee in filing the relevant documents and evidence which was submitted before the ld. CIT(A) as additional evidence. We are of the opinion that the ld. CIT(A) rightly admitted the same by properly following the provisions of Rule 46A and this objection of the ld. DR in this .....

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not stock in trade but was a mere invest of assessee in the property and the same was held as an investment. This conclusion of the AO in Wealth Tax proceedings have not been controverted by the ld. DR and thus we are in agreement with the conclusion of the ld. CIT(A) in this regard that the AO himself in the Wealth tax proceedings held that the said property did not represent stock in trade but was capital asset and thus liable to Wealth tax Act. 8.1 Obviously, capital assets includes investmen .....

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firmed by the ld. CIT(A) by observing that the amount in question was not really in the nature of advance of but the appellant had derived the right to receive the amount in the course of its business. In this regard, the ld. Sr. Counsel pointed out that the principle of res judicata does not apply to tax proceedings. He further contended that the said order of the ld. CIT(A) dated 9.5.2003 [supra] has been discussed by ITAT D Bench order dated 10.10.2004 passed in IT(SS)A Nos. 321 & 322/Del .....

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sion the AO had that the appellant was trying to explore the possibility of having the property developed by various developers i.e. APIL TATA & VERKA. Such actions on the part of the appellant have been considered as business activities. The AO has referred also to clause 31 of the memorandum & articles of the company to draw such inferences. Reference has also been made to the report in form 3 CD of the Act to arrive at the conclusion by the AO that appellant is engaged in the business .....

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pon the appellant by the ongoing disputes between the legal heirs of Dr. Raghunath and APIL. It is argued that the agreement with Verka came into existence because APIL assigned/sold its development rights to Verka and appellant had to by force of law get into such arrangements. Since, the APIL had sold the development rights to Verka, the appellant also entered into a Joint Development Agreement ( JDA ), with Verka on 4th April, 1995, whereby both the parties mutually agreed to develop the subj .....

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nt in the relevant A.Y. Finally nothing was held taxable due to subsequent event of cancellation of the agreement with TATA. It has thus been submitted when the transaction of development in respect of this property in AY 1988-89 was held to be giving rise to capital gains, it can by no stretch of imagination, be treated as business income when the same property is sold 20 years after that event. It has further been submitted that the appellant has always disclosed this asset under the head fixe .....

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of association, it has been explained with the help of case laws that such a clause reflects an overall authority in which assessee can engage on its incorporation. The actual business carried on has to be decided on the actual available facts as per records. It is further explained by the appellant that subsequent act of the AO (during WT proceedings) of treating the property as capital asset and not stock in trade further and completely fortifies the claim of the appellant that this property .....

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sed a Specific query about his intention to treat the amount as business income. There is no pointed query in this regard. 7.4 It can be seen that there is no dispute on the legal preposition that even a single transaction can be treated as an adventure in the nature of trade and profit arising there from can be taxed as business income. However, the most important factor that the courts have applied to determine the character of the transaction is the intention of the taxpayer. It is also obser .....

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nt rights tantamount to business is erroneous. In any case, every time the appellant has made such payments, the same have been added to the cost of fixed assets only. There is no challenge to this fact as well. Therefore, judgments of Hon ble High Court of Delhi in CIT Vs DCM Ltd (2010) 320 ITR 307 clearly covers the issue in favour of appellant. It is held that - "That the flat had been held as a capital asset. The Tribunal had held that the decision to sell the property was necessitated .....

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ppellant has got into development agreements with APIL, Verka and TATA, it can be seen that such agreements are based on existing dispute between legal heirs of Dr. Raghunath & APIL. It was APIL who assigned its right in favour of Verka wherein appellant had to agree as confirming party. Thus AO s findings that appellant got into these development agreements to carry on the business as a developer or dealer of land are not supported by any fact. The development agreement with TATA goes again .....

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d (1966) 60 ITR 65 (SC). Wherein it is held that The incidental sale of uneconomical or inconvenient plots of land could not convert what was essentially an investment into a business transaction in real estate. Existence of power in the memorandum of association to sell or turn into account, dispose of or deal with the properties and rights of all kinds had no decisive bearing on the question whether the profits arising there, from were capital accretion or revenue. The profits arising from the .....

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a transaction is also not decisive 7.6 In the W.T. assessment orders for AY 2005-06 to AY 2008-09 it is accepted that the property does not represent stock in trade. This is contrary to AO s own , findings in the assessment order under appeal where AO is treating the property as stock in trade. Although, principle of resjudicata is not always applicable to income tax proceedings, the glaring facts cannot be ignored. In the absence of any facts, -seating that the appellant has converted 'Capi .....

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under the head Capital gains". Accordingly, appellant would be entitled to the benefit of cost inflation index on the cost incurred by it on purchase of the property as per law. In the facts and circumstances of the case and as per law, this ground of appeal is allowed and AO is directed to treat the income as Capital Gain . 8.4 The ld. Sr. Counsel pointed out that regarding clause No. 31 in the Memorandum and Articles of Association of the assessee, such a clause reflects and creates an ov .....

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important factor that the courts have applied to determine the character of transaction is the intention of the tax payer which cannot be gathered or interpreted for known but the same can be gathered from the surrounding circumstances. In our opinion also, the most important relevant factor is the treatment given by the assessee at the time of acquisition of property during the time when property was with the assessee and at the time of sale of property which can be gathered only on evaluation .....

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ted the subject property as fixed asset in the books of account and continued to show the same as fixed asset in its annual accounts till it was sold till F.Y. 2008-09. The ld. Sr. Counsel strenuously pointed out that when the AO himself in the Wealth Tax proceedings held the said property is not stock in trade and the same is investment and fixed capital then it is not open for the AO to take a different view on the same property without any change in the facts and circumstances of the case. In .....

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pital asset of the assessee also shown the same as fixed asset since its acquisition till date of sale hence in totality of the facts and circumstances of the case it cannot be held that the property was acquired as stock in trade kept as stock in trade thus the income accrued therefrom, is business income. 9.1 At this stage it would be profitable to consider the dicta laid down by the Hon'ble Jurisdictional High Court of Delhi in the case of Shanti Banerjee Vs. DCIT [supra] wherein speaking .....

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ld not show that it was an adventure in the nature of trade . In this decision, their Lordships after considering all the relevant propositions of Hon'ble Supreme Court and Hon'ble High Courts almost settled the issue. The relevant operative para, being words of wisdom and light house in our path of dispensing justice, are being respectfully reproduced below: 10. The principal question to be decided is whether in the facts and circumstances of the case, it may be said that having sold tw .....

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d in the plunge may fall short of anything in the nature of trade". It was emphasised that what might be in the nature of trade would depend on the facts and circumstances of a particular case. 12.The expression 'adventure in the nature of trade' was again considered by the Supreme Court in Raja Bahadur Kamakhya Narain Singh v CIT [1970] 77 ITR 253. It was observed that if a transaction was in the ordinary line of the assessee's business, there would be no difficulty in concludi .....

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lats on the said plot and for meeting cost of construction he and his brother entered into agreement to sell with friends in respect of four of them and retained the remaining two for their own use. The question was whether the transaction was an adventure in the nature of trade and therefore the profits accruing therefrom were to be taxed under the head "income from business or profession." This Court was of the view that there was no change in the character of the said plot from the .....

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ursuant to collaboration agreement in respect of the property owned by her since 1956, it would not render the transaction as an 'adventure in the nature of trade' leading to the resultant receipt as business income in her hand. Further the Assessee offered the long term capital gains arising out from the same flats to tax and filed her return on that basis. 15. Consequently, the question is answered in the negative i.e. in favour of the Assessee and against the Revenue. The impugned ord .....

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IT [supra] and other relevant decision on the subject reiterated the said proposition as was rendered in the case of Shanti Banerjee [supra] after considering the facts of that case held that where the construction and sale of the flats do not change the character of the asset and there was no material to show that the assessee ever had the intention to exploit the plot as a commercial venture, the transaction cannot be characterised as an adventure in the nature of trade leading to the resultan .....

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e of ₹ 5,32,855 and ₹ 4 lakhs in cash as a result of the agreement entered into with the builder. As explained by this Court in Shanti Banerjee (deceased) by LRs (supra), after considering the decision in G. Venkataswami Naidu & Co. v. CIT (1959) 35 ITR 594, Raja Bahadur Kamakhya Narain Singh v. CIT (1970) 77 ITR 253 and CIT v. R.V. Gupta (2002) 258 ITR 261, where the construction and sale of the flats do not change the character of the asset and there was no material to show tha .....

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the agreement entered into by the Assessee with the builder and the consequent sale of the flats by the builder on behalf of the Assessee was an adventure in the nature of the trade. 18. Accordingly, the question framed is answered in the negative i.e. in favour of the Assessee and against the Revenue. 9.3 In the light of the proposition when we evaluate the impugned first appellate order of the ld. CIT(A), as reproduced above, then we note that the assessee since the beginning i.e. from the dat .....

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umstance to determine the main character of the transaction. We may point out that the other assessee has to make some payments to meet the liability of performance of conduct arising out of relevant contracts and agreements pertaining to fixed assets but it does not make the transaction as business transaction or adventure in the nature of trade . It may be a corroborative or surrounding fact being important element to determination of real character of transaction but not a sole basis to concl .....

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trade . The ld. DR could not assist us as to why the AO gave different treatment in the wealth tax proceedings treating the same as capital asset except by stating that the principle of res judicata does not apply to the tax proceedings and we also agree to this settled and well accepted proposition. But there is rule of consistency which says that the revenue authorities are not allowed to take a different view point on the similar facts and circumstances of the case unless there are reasonabl .....

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income from long term capital gain as claimed by the assessee. The ld. DR could not controvert the observation of the ld. CIT(A) that for the same asset, the AO treated the gains as capital gain for A.Y 1988-89 and as business income for A.Y 2009-10 and such differential treatment raised a debatable issue which should go in favour of the assessee. 9.5 In the case of CIT Vs. PKN Co. Ltd reported as [1966] 60 ITR 65 [SC] as relied by the ld. CIT(A) to support his conclusion regarding main business .....

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e assessment order that the financial results of the assessee from A.Y 2006-07 to 2009-10 shows the income from sale and purchase of shares then one instance of sale of a property which was acquired approximately 30 years back kept as investment in fixed assets in the audited accounts of the assessee and after sorting out various disputes between the legal heirs of the original owner Dr. Raghunath and various developers i.e. TATA, AIPL & VERKA the assessee could be able to get the complete r .....

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in trade, which could empower the AO to tax the income accrued on sale of such property as business income instead of long term capital gain validly dismissing the claim of the assessee. Thus, we are also in agreement with the conclusion of the ld. CIT(A) that in the absence of any facts indicating that the assessee has converted capital asset into stock in trade during the relevant A.Y [or during some any other earlier financial period] it has to be held that same fact continue to A.Y 2009-10. .....

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property was within the assessee it is amply clear that the assessee shown the said property as investment in capital asset and the AO could not establish that it was ever held as stock in trade or one point of time during the period of acquisition it was converted from capital asset to stock in trade. In this situation, we decline to accept and approve the conclusion of the AO to treat the income from sale of said property as business income. 10. Per contra, we are of the considered opinion tha .....

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ed that in the year 1998 the assessee purchased redeemable preference shares of M/s Pan Foods Pvt. Ltd [PFL] and M/s Kayam Foods [P] Ltd [KFL] and invested a sum of ₹ 7.90 crores. The ld. DR further submitted that after 11 years in A.Y 2009-10 the assessee sold these shares @ 10% of face value for ₹ 79 lakhs as against face value of 7.90 crores. The ld. DR vehemently contended that the assessee advanced interest free loan to Mr. Lalit Jain [the purchaser of the said hares] in the for .....

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rom the two allotter companies i.e M/s PFL & KFL regarding redemption of said shares as to whether the shares were redeemed and if redeemed, then who was the ultimate beneficiary either the allottee assessee company or the buyer Shri Lalit Jain. The ld. DR also took us through para V-17 of assessment order and contended that admittedly the assessee had given interest free loans to Shri Lalit Jain, his wife Smt Neelam Jain and M/s Tina Organics Pvt. Ltd a company run by Shri Lalit Jain. The l .....

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considering the fact that no delivery of shares sold was given during the year and shares were never transferred in the name of the buyer Shri Lalit Jain and the fact that the shares was repurchased by the assessee company in the next financial year the AO was quite justified and correct in dismissing the claim of LTCL of the assessee. 11.1. The ld. DR also drew our attention to the relevant paras 8.10 to 8.12 of the impugned first appellate order and submitted that the ld. CIT(A) granted relief .....

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t the conclusion of the ld. CIT(A) are based on proper appreciation of facts and relevant circumstances which is quite justified and sustainable. The ld. AR also pointed out that section 73 of the Act is not applicable to the present case as there was no speculative transaction by the assessee as the shares was physically handed over to the purchaser Shri Lalit Jain and the same were also transferred in the name of Shri Lalit Jain immediately after the sale by the assessee. 12.1 Placing reliance .....

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ransferred in the name of the buyer on 29.3.2009 and henceforth the buyer Shri Lalit Jain became the absolute owner of the said shares. 12.3 The ld. AR further submitted that after claiming indexation, the assessee rightly claimed LTCL of ₹ 13,10,06,344/- which is allowable and the ld. CIT(A) was quite justified in allowing the same. 12.4 The ld. AR further contended that such shares were held by the assessee for more than ten years and during the instant year [F.Y. 2008-09] the assessee a .....

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g perverse findings and only on the basis of statements of Shri Lalit Jain recorded on 26.12.2011 which had been retracted by him. 12.5 The ld. AR further contended that the ld. CIT(A), in para 8.6 has properly considered the submissions of the assessee and also the allegations of the AO has been properly rebutted by the assessee and the first appellate authority has also considered the same while granting relief to the assessee. The ld. Senior Counsel also contended that the assessee received s .....

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he appeal the shares were not repurchased buy the assessee from Shri Lalit Jain then how the genuine and real transaction can be alleged as sham transaction or colourable device to reduce tax liability. 12.6 Lastly, the ld. Sr counsel pointed out that the AO never enquired about the status in the register/roll of shareholders maintained by the allotter PFL and KFL and the name of the registered share holder of the said shares after redemption from the said allotter companies and in this situatio .....

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s were give to the buyer Shri Lalit Jain and the so called sold shared were not transferred in the name of the buyer Shri Lalit Jain and the same were repurchased by the assessee company in the next financial Year. Hence, the AO held that the sale of shares transaction is not genuine transaction and has been used as colourable device to reduce tax liability. 13.1 Per contra, from the operative paras 8.6 to 8.11 of order of the ld. CIT(A), we observe that the ld. CIT(A) granted relief to the asse .....

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d during F.Y. 2007-08 ending on March 2008 and only debit balance of ₹ 9 lakhs was outstanding on 31.3.2008 against Shri Lalit Jain. The ld. CIT(A) also noted that the buyer Shri Lalit Jain paid sale consideration of ₹ 79 lakhs to the assessee through two separate cheques totalling ₹ 79 lakhs. The transaction of advance was expected much earlier i.e. before 7-8 years upto F.Y. 2007-08 and the transaction of sale of shares was independently undertaken in F.Y. 2008-09 and these t .....

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gs of the AO are baseless that the assessee had treated the amount received as consideration from the sale of shares against recovery of amount earlier given as advance during F.Y. 2000-01 and 200102 and the same was rightly rejected by the ld. CIT(A) and we concur with his conclusion. 13.2 The ld. CIT(A) also considered the allegation of the AO regarding that the shares were not transferred in the name of Shri Lalit Jain. The ld. CIT(A) further considered the details and copies of share certifi .....

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ainst the assessee. We are also in agreement with the conclusion of the ld. CIT(A) that the shares were sold on 24.3.2008 and Board of Directors passed resolution on 15.3.2008 approving the sale of shares as the action taken by the company can be ratified by the company subsequently and thus in our opinion no adverse inference can be drawn against the assessee on this fact and the transaction of sale of shares was undertaken without approval of the Board of directors. 13.3 On the observation of .....

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ays from the date of transaction. 13.4 So far as the allegation that Shri Lalit Jain in his statement recorded on 26.12.2011 had admitted that he had resold the shares to the appellant company but he retracted his statements on the next day i.e. 27.12.2011 and undisputedly the AO received the same letter on 29.12.2011. To support the contention of this letter, Shri Lalit Jain also filed copes of accounts and balance sheet to substantiate that the statement recorded on 26.12.2011 was factually in .....

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e buyer Shri Lalit Jain resold the shares to the assessee during the next financial period and to demolish details as per balance sheet and the statements of account filed by Shri Lalit Jain alongwith the said letter dated 27.12.2011 supporting the fact that he never resold these shares to the assessee. 13.6 In view of the above noted observations we are in agreement with the conclusion of the ld. CIT(A) that the transaction of sale of shares had actually taken place with Shri Lalit Jain and he .....

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ssion, we are of the considered view that the assessee could very well substantiate the fats indicating the genuineness of the transaction by submitting all relevant facts and documents showing that the assessee actually sold these shares against consideration of ₹ 79 lakhs and the same was paid by the buyer through two account payee cheques and shares were physically handed over to the buyer and the same were transferred in the name of the buyer on 29.3.2011. 13.7 Per contra, the AO faile .....

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ent to these shares by the AO and the fact was also fairly accepted by the ld. DR during arguments. Hence above noted allegations levelled against the assessee, by the AO, were rightly demolished by the ld. CIT(A) and his conclusion in this regard is valid and sustainable. We are unable to see any valid reason to interfere with the conclusion of the ld. CIT(A) in this regard on this issue and thus we uphold the same. Accordingly, Ground No. 2 of the revenue being devoid of merits is dismissed. G .....

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corporate deposit [ICD] which qualifies for deduction u/s 36(1)(vii) of the Act and the ld. CIT(A) also allowed the claim of the assessee by treating the same as inter corporate deposit which is a wrong conclusion. 13.9 The ld. DR vehemently disputed the conclusion of the ld. CIT(A) in para 9.6 page 35 of the impugned order and submitted that the loss accrued to the assessee due to assignment of debit outstanding from M/s VHEL was capital loss which has arisen from interest bearing inter corpora .....

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2011 and 14.12.2011 and categorically explained that M/s VHEL Industries Ltd borrowed money by way of short term advance/loans/bill discount and agreed to pay a sum of ₹ 3 crores. The ld. AR further explained that during the year under assessment, the assessee company had assigned its debts of ₹ 3 crores recoverable from M/s VHEL Industries Ltd to Hanuman Construction Corporation Ltd for a sum of ₹ 75 lakhs thus suffering a loss of ₹ 2.26 crores which the assessee had rig .....

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e case of CIT Vs. Tulip Star Hotels Ltd reported as 57 DTR 210 [Del], the ld. AR submitted that the loan advanced by the assessee to VHEL Industries Ltd was part of inter corporate deposit [ICD] and it could clearly be treated as bad debt which qualifies for deduction u/s 36(1)(vii) of the Act and the embargo put by clause (i) of sub-section (2) of section 36 of the Act could not have come in the way of assessee in view of the finding that the money was lent in the ordinary course of business of .....

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e would ultimately augment the working capital of the assessee. Therefore, placing of ICDs is in the usual course of business and a company doing so need not be in money lending business. If placing of ICDs is in the normal course of business, the loss arising therefrom cannot be anything else but arising in the usual course of business. It was the judgment of the assessee that the debt due from Shaw Wallace has become irrecoverable. It was not without any reason that the assessee judged the deb .....

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same. Therefore, considering the facts of the case, the claim of the assessee for deduction of ₹ 1 crore is allowed. 13.13 The ld. Sr. Counsel vehemently contended that the assessee offered interest receipts from VHEL Industries I Ltd for tax a business income in the earlier years and the AO while disallowing the claim of the assessee did not make any addition with regard to the interest of ₹ 1,06,027/- accrued thereon as bad debt. Therefore, the ld. Sr. Counsel submitted that the is .....

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nced has not been given in the regular course of business of the assessee, then the bad debts pertaining to said loans/advances cannot be allowed. The ld. DR also drew our attention that in the case of CIT Vs. Tulip Star Hotels [supra] where the company was engaged in the money lending business and the claim of bad debts were held to be allowable which is not the facts of the present case. 14. On a careful consideration of the above noted arguments of both the sides, at the very outset, we note .....

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7/- was assigned to M/s Hanuman Consumer Construction P Ltd. for 775,00,000/- and thus suffered a loss of 72,26,06,027/-." "Whereas the confirming party had taken Inter Corporate Deposits payable on 17.11.96, 17.12.96 & 17.01.97 from the Assignor where under the Confirming Party borrowed^ money by way of short terms deposits/loan/bill discounting and agreed to pay a sum of 7300 lacs, the details of which are as under: Amount Period Due Date 100 Lacs 163 days 17.11.1996 100 Lacs 193 .....

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oney lending activity as the assessee company is not in the business of money lending. The judgement relied upon the assessee company are not applicable in the instance case as the facts are different in this case. Reliance is placed on following judgements: "(12) Assessee's claim for bad debt of a loan given by him was held not allowable as the assessee was found to be not a money-lender [K.J. Somaiya & Sons Pr. Ltd. v. CIT, (1985) 155 ITR 605 (Bom)]. (14) The loan written off as b .....

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In this regard we have to submit as under: As explained earlier, during the year under assessment the assessee company had assigned its debt of ₹ 3 crore recoverable from VHEL Industries Ltd. to Hanuman Construction Corporation Ltd. of ₹ 75,00,000/- thus suffering a loss of ₹ 2,25,000,00/- which the assessee has rightly claimed as deduction u/s. 36(2) of the Income Tax Act. 1961. Delhi High Court in the case of M/s. Tulip Star Hotels has held that, when the amount in question .....

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.1989 "that in order to obtain a deduction in relation to back debt, it is not necessary for the assessee to establish that the debt in fact has become irrecoverable and it is enough if the bad debt is written off as irrecoverable in the account of the assessee." Similar issue came up before the Id. ITAT in the case of M/s. Hindusthan MI Swaco Limited, vs. DC IT Bharluch, Circle, Bharuch. Ahmadabad Bench-A, ITA No. 3774/AHD/2008, where the learned Member have held that " This bein .....

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The assessee also gets support from the following judgment 1) 1TW Sugar India Ltd. vs. DC IT 110 TTJ 117(HYD) 2) Poysha Oxygen (P). Ltd. vs. ACIT 10 SOT 711 (Del.) 3) C1T vs. Tulip Star Hotels Ltd. 57 DTR 210 (Del). H.C. 4) TRF Ltd. CIT 323 ITR 397 (SC) Also enclosed please find complete detail of legal and professional charges. 14.2 From the operative part of the assessment order, we note that the AO mainly disallowed the claim of the assessee of bad debts by observing that the assessee s clai .....

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rt fall of ₹ 2.25 lakhs which was claimed by the assessee as deduction u/s 36(2)/36(1)(vii) of the Act. The assessee also contended that rider created by clause (i) to section 36(2) of the Act does not come in the way of the assessee since the money was lent in the ordinary course of money lending carried out on the assessee which is an inter corporate deposit [ICD] and in view of the order of the Hyderabad ITAT Bench in the case of ITW Signode I Ltd [supra] the claim of the assessee is al .....

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