TMI Blog2009 (11) TMI 976X X X X Extracts X X X X X X X X Extracts X X X X ..... on sale of land. The net profit out of sale of flats was shown at loss of ₹ 5,89,396/-. The gross sale during the year includes the sales effected in different projects i.e (i) Seema Gardens A2 (ii) Seems Garden B1 B2; (iii) Manish Park Phase 3 and (iv) Mira Plaza. 2.2 The assessee firm is not following completion method of accounting; however, the income is shown as soon as the possessions of flats or shops are given. The work in progress includes completed flats and shops unsold and also under construction. 2.3 During the course of assessment proceedings, the assessee was asked to produce project wise details of construction activity such as cost of the project, details of expenses incurred etc., along with the project wise trading account since inception of the projects. The ld AR, who appeared before the AO furnished the valuation of work-in-progress in respect of the projects. However, it was stated that the assessee firm was not maintaining project wise trading account since inception of the projects. In order to cover-up the discrepancies on account of non preparation of project wise trading account, the assessee agreed to an adhoc addition of ₹ 2.5 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee firm is engaged in the business of construction and development. The firm has acquired various lands by way of development rights which have been consistently shown as fixed assets since their purchases. The land in question was acquired in the year 1987 and since then it has been consistently shown as fixed assets. In support of this contention, balance sheets of the assessee as on 31.3.1999 to 31.3.2003 were filed. It was explained that the assessee has treated the said land as fixed assets. The development rights were acquired; however, the business activity was not carried out on the said land due to disputes, non clearance of Urban Land Ceiling Act etc. The main activity of the concern is to construct shops/flats on the land acquired; however, the said business activity did not take place in this case. The said land has been sold without carrying out constructions. It was stated that if the constructions would have taken place the business profits would have arisen. 2.8 It was submitted that the sale of development rights without carrying out construction, is capital receipts as decided by the Bombay High Court in the case of Arial Insulated Pvt Ltd (2002) CTR. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said land could not be developed for some difficulties and the assessee chose to dispose the land, will not change the character of the asset from business asset to a capital asset. Therefore, he held that the lose/gain on such sale of such asset will always be business profits or loss and not capital gain as portrayed by the assessee. 3 After taking into consideration that the entire amount as per the agreement has to be taken into consideration for the year under consideration; therefore, the contention of the assessee that part payment has been received and part payment has been shown as investment in NABAD capital gain scheme for claiming exemption/s 54EC were not accepted by the AO. Accordingly, the entire amount as per sale agreement was treated as business income by reducing the purchase price of ₹ 99,28,521/- and the balance was added to the income of the assessee. 4 The assessee preferred appeal before the CIT(A). Contention raised before the AO were reiterated before the CIT(A). It was explained that the assessee had acquired the land from one Shri Subhash Ganpat Shinde way back in 1987 vide sale agreement dated 28.7.1987. The property had consisted of 16- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 756 (P H). 5.1 It was further explained that Pune Bench of the Tribunal in the case of Shanti Builders in 88 TTJ 519 have decided similar issue in favour of the assessee by which on similar facts and circumstances, the sale of land was held as sale of capital asset liable for capital gain. The ratios of these decisions have been discussed at pages 18 to 22 of the compilation. 5.2 Further reliance was placed on various case laws mentioned in the compilation; copies of which are also placed in the compilation. Further reliance was also placed on various copies of relevant evidences placed in on the compilation. On the other hand, the ld DR strongly placed reliance on the orders of the authorities below. Further reliance was also placed on the decision of the Tribunal in the case of M/s Laxmi Development Corporation, Mumbai decided in ITA No.4577/Mum/2008 and other vide order dated 6.5.2009. It was also submitted that facts of these case are similar to the facts of the case of the assessee; therefore, the order of the CIT(A) is liable to be confirmed. 6 We have heard the rival submissions and considered them carefully. We have also perused the relevant material on which o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd could not be developed as construction was not allowed on the same at any time the assessee held it. These facts were well known to the assessee when it made investment in it. In support of its contention, attention of the Bench is drawn on pages 22 of the paper book. 6.2.4 It is further submitted that it may be appreciated that the other plot was a small plot of 2200 mtrs and no portion there from was surplus land to be vested with the Govt. Therefore, the said plot was built-able and accordingly was developed and treated the same under the business activity . 6.3 The ld counsel of the assessee further explained that the plot was released by the competent authority form the ULCA vide its order dated 15.3.2001 by following the judgment of the Hon ble Supreme Court in the case of Hatya Mohamedi Begum vs State of UP. It was explained that it is also mentioned therein that the said judgment, which was delivered after 23.9.1996. Thus, it is clear that as on the date of its purchase, the assessee never purchased the said plot with an intention to build thereon as the same was not built able at all. The only purpose to purchase the same was to hold it as a long term investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties i.e. the assessee and the seller; therefore, the formalities could not be completed. When they were completed, purchase consideration was paid and the plot in question was registered in the name of the assessee. Even there was no permission to develop the lands; therefore, there were difficulties to construct any shops or flats on the plot. Therefore, the plot was sold as is where is condition has explained. From these facts also it is seen that the plot in question was a capital asset and consideration of the same is liable for capital gain. 7.1 We have seen the judgment in the case of Shanti Builders placed on record and found that similar facts are involved in that case also. 7.2 The decision of the Shanti Builders again has been considered in the case of Gas Property Developers in ITA No.5260/Mum/07 vide order dated 24th Nov 2009, in which one of us is party. The facts in the case of Gas Property Developers were also found similar to the facts in the case of Shanti Builders (supra) and after consideration of various other decisions of the Apex Court as well as other High Courts; the issue was decided in favour of the assessee. The Tribunal has analysed various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of land in its raw form cannot be compared or equated with the sale of a land developed with constructed flats and with housing societies. 10.6 On an overall analysis of the main isues disussed at length, it appears that the appellant s case is more or less squarely covered with the Shanti Builders vs JCIT 88 TTJ 519 (Pune and Janki Ram Bahadur Ram vs CIT 57 ITR 21 (SC). In the tabular form the facts of the appellant s case has been compared at page nos 16 to 18, para no 7.5 of this order. The facts of the appellant s case are found to be squarely covered by the above mentioned two cases. 10.7 The undersigned finds that the AO has, at many places, doubted that the land in question was not the asset of the appellant firm and according to him it still belonged to the partner i.e M/s Bombay Gas CO P Ltd. In this connection, even if it is so, the AO has not explained, how in such a situation any surplus on the sale of land in question belonging to a partner, can be taxed in the hand of the firm. Therefore, the AO was not entitled to tax it either as business or as the long term capital gains in the hands of the firm and therefore, he should have taxed the same, in such a si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transfer of land in the hands of the assessee firm cannot partake the character of adventure in nature. The word adventure in nature is self explanatory. If anything is taken as adventure in nature then the some adventure should be there. However, in the present case, as stated above, no adventure has taken place because the assessee could not do anything on the land received by it. The expenses incurred by the assessee are merely on account of municipality tax and on account of security services. The land in question is as valuable asset; therefore, the same has to be protected. Municipality tax is a statutory liability; therefore, that has to be paid and the remaining expenses are minor in nature and on account of those expenses, which again are incurred in capital assets, it cannot be viewed or held that any adventure has taken place. The ratio of various case laws has been explained by the ld counsel of the assessee as above and after going through the ratio of these decisions, it s seen that the asset purchased by the assessee remains capital asset. Neither any adventure activity was started nor any advance was taken on account of sale of any flat. 6.3 Even no agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the present case. 10.2 It is also a matter of fact that gain earned by the assessee is on account of appreciation of the value of land and not because of any development work or construction activity. 10.3 Keeping in view of these facts and circumstances and in view of the decision of the coordinate Bench of the Tribunal, we hold that the ld CIT(A) was justified in treating the sale of the land as capital asset allowable for capital gain and not sale of stock in trade assessable under the head business . Accordingly, we confirm the order of the ld CIT(A). 11 In the result, the appeal of the department is dismissed. 8 We have also seen the copy of the order of the Tribunal in the case of Laxmi Develoment Corporation (supra) relied upon by the ld DR and found that the facts are distinguishable. In this case the assessee being partnership firm was engaged in purchase and sale of lands. In that case, the land was shown in opening stock and also in closing stock. In that case, the assessee had purchased the land admeasuring 40,375 sq.ft in 1981 and has been shown as stock in trade; part of the plot was sold in AY 1999-00; part of the plot was sold in AY 2001-02 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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