TMI Blog2017 (4) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... out there being any material on record. Applying the test of reasonable prudence, when aforesaid facts and circumstances are apparent and if the Tribunal has taken the view that entries in the books of account or statement given by the assessee to the property as stock-in-trade and not as fixed assets/investments/capital assets, could be said as genuine mistake or error, such view on the part of the Tribunal cannot be said to be ex facie unreasonable view or that no person with reasonable prudence would take such a view. As such, we are of the considered opinion that a view on the basis of facts placed before the Tribunal could be said as one possible view and not an impossible view by applying the test of reasonable prudence. Finding recorded by the Tribunal is not perverse to the record nor we have found that finding recorded or the view taken by the Tribunal is not an impossible view - I. T. A. Nos. 157 of 2011 with 145, 146 of 2011, 183, 349 and 350 of 2014 - - - Dated:- 3-11-2016 - Jayant Patel And Aravind Kumar, JJ. For the Commissioner : K. V. Aravind with E. I. Sanmathi, Advocates For the Assessee : Chythanya K. K., Advocate JUDGMENT Jayant Pate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings in respect of the assessee in the month of September 2006 and, thereafter, notice under section 153A of the Act was issued to the assessee and the assessee during the month of January 2007 filed revised returns declaring business loss of ₹ 1,05,77,033 and business income and capital gains at ₹ 56,97,511. The Assessing Officer in the assessment proceedings found that the difference shown out of the sale of property could not be termed as capital gains and could be termed as only business income and ultimately based on the same, concluded the assessment proceedings by calculating the amount of tax payable with interest. The matter was carried in appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) ultimately concurred with the view taken by the assessing authority and dismissed the appeal of the assessee. In the further appeal to the Tribunal, the Tribunal after considering the submissions made by both sides, observed at paragraphs 10 to 11.9.2 as under : 10. We have carefully considered the rival submissions, meticulously perused the relevant records, various judicial pronouncements on which either party had pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrective steps were duly taken and, accordingly, furnished the returns of income for the respective assessment years under dispute, incidentally, in pursuance of notices under section 153A of the Act and offered the surplus under the head 'capital gains'. 11.3 Brushing aside the contentions put forth by the assessee, the Assessing Officer went ahead in treating the surplus amounts so offered by the assessee as 'business income' and taxed accordingly for the assessment years under consideration. 11.4 It could be seen that the subject property was acquired by the assessee with a sole intention of investment only and also setting up of an unit for the software companies. To implement its intention of STPI unit, it had set in motion way back in 2000 itself. As put-forth by the assessee, there was no scope for further expansion of its units in the existing surplus land in its possession, its intention of selling away its surplus piece of land, the parties who were in the wings came forward and, accordingly, the areas ad-measuring 291360 sq. ft., 304920 sq. ft. and 130680 sq. ft. were sold to Embassy Constructions, Texas Instruments and Cognizant Technology Sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue-the issue before the hon'ble Jurisdictional court was, in brief, that : 'The assessees were brothers. They purchased agricultural lands and used for the same purpose and thereafter got the land converted for non-agricultural purpose. The assessees then converted the land into building sites and started selling the sites year after year. Whether the finding of the Tribunal that the surplus arising out of the sale of sites is only a realization of capital and not an adventure in the nature of trade or business is correct in law ? No. The assessees did not sell any land in the condition in which they bought it. They made convenient building sites and sold the same. They did not even dis pose of all the sites in one year. They went on selling the sites year after year realizing more and more profits. The fact that all the asses sees started converting their lands into building sites almost simultaneously itself is an indication of their intention to trade in the lands as a venture. They made it commercially more attractive by converting and dividing into plots. The inevitable inference is that they had no intention to hold the lands as an investment. They dealt with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset into stock-in-trade. Apart from the fact that one can be a dealer in real estate in respect of some properties and may hold some other properties as investment our conclusion in this case is that the subsidiary company (assessee) has not been a dealer in real estate at all. It was also observed : The mere fact that the subsidiary company (assessee) showed it as stock-in-trade in its balance sheet and valued it at ₹ 57,50,000 on August 31, 1967, also does not make any difference as it is only a part of the scheme to avoid capital gains tax. Needless to mention, in matters like this one has to take into account the cumulative effect of all facts and circumstances and not individual facts and circumstances by itself . The above findings have been arrived at by the Tribunal on a proper consideration of the facts and circumstances of the case and the evidence on record. No fault can be found with the above finding of the Tribunal that in the instant case, the acquisition of the property by the assessee was as a capital asset and it did not form part of the stock-in-trade of the assessee. This court, therefore, has to accept the same and it cannot go behind i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter . . . 11.9.1 From the facts presented before us it is evident that the assessee-company had purchased land in C. V. Nagar from Raja Bag mane extending to 52 acres for the purpose of setting up a Software Technological Park. It is pertinent to note that if the property was intended to be only sold then there was no necessity of it being transferred to the assessee-company incurring unnecessary cost, since Raja Bagmane and associates are holding substantial interest in the asses see-company. Therefore, the basic purpose for the purchase of land by the assessee-company could only be to develop a STPI. After purchasing the land way back in 1996 and complying with all the initial requirements, the assessee-company made an application to the State and Central Government for grant of approval to set up a software park during the year 2000. It is very relevant to note the nature of the project for it to be construed as a fixed assets/investment to the company or stock-in-trade. Softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respective appeals. 9. It was contended by learned counsel appearing for the Revenue that, the fact that the assessee treated the property of the land in the books of accounts as stock-in-trade/inventory and the fact that the assessee considered the difference as business income and that the land was stock- in-trade and filed returns as that of business income are sufficient evidence to show that it was, in reality, a business income . He submitted that it is only after the search proceedings when the opportunity was available to the assessee, it has filed revised returns and a contrary stand is made by showing the land as capital asset and the difference is considered as that of a capital gain . He submitted that the Assessing Officer as well as the Commissioner of Income-tax (Appeals) had rightly negative the claim of the assessee and it treated the income as that of business income as per the returns filed earlier i.e. prior to the search proceedings and he, therefore, submitted that the Tribunal has not properly considered the evidence on record and it ought to have disallowed the claim of the assessee as that of capital gain and ought to have confirmed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting the finding of facts, unless such finding is perverse to the record or the Tribunal has taken a view which is impossible by applying normal prudence. 13. We may also record that whether particular property can be considered as a stock-in-trade or a part of inventory or whether it can be treated as capital asset though a question may be touching to law but would essentially depend upon consideration of so many factual aspects germane to record the conclusion. At this stage, we may usefully refer to decision of the Division Bench of High Court of Gujarat in case of CIT v. Rewashanker A. Kothari reported in [2006] 283 ITR 338 (Guj) wherein the question arose for various tests on the basis of which a finding can be recorded as to whether the asset is a stock-in-trade or an inventory or a capital asset . In the said decision at paragraphs 9 to 11 it was observed thus (page 343) : Upon examination of the aforesaid record, the Tribunal recorded that the assessee had given an effective answer to the show-cause notice and thereafter, proceeded to record the following findings : (1) There was a large time-gap between the dates of acquisition of the shares and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject matter of transaction during the time the asset was with the assessee. Has it been treated as stock-in-trade, or has it been shown in the books of account and balance-sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in cases of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e initial intention of the company to hold these assets as fixed assets/investments. 16. In our considered view, the aforesaid finding of fact so recorded by the Tribunal cannot be termed as perverse to the record because learned counsel for the Revenue has not been able to show or satisfy the court that any of the aforesaid finding of fact is not supported by the record or Tribunal has recorded such finding of fact without there being any material on record. 17. Applying the test of reasonable prudence, when aforesaid facts and circumstances are apparent and if the Tribunal has taken the view that entries in the books of account or statement given by the assessee to the property as stock-in-trade and not as fixed assets/investments/capital assets, could be said as genuine mistake or error, such view on the part of the Tribunal cannot be said to be ex facie unreasonable view or that no person with reasonable prudence would take such a view. As such, we are of the considered opinion that a view on the basis of facts placed before the Tribunal could be said as one possible view and not an impossible view by applying the test of reasonable prudence. 18. In view of the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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