TMI Blog2016 (5) TMI 1462X X X X Extracts X X X X X X X X Extracts X X X X ..... r Land as LTCG in place of business income. - Decided in favor of assessee. - ITA No.6692/Mum/2013 - - - Dated:- 25-5-2016 - SHRI R.C.SHARMA, AM SHRI RAM LAL NEGI, JM For the Appellant : Shri A.V.Sonde For the Respondent : Shri P.Nagendra Kumar ORDER PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)-Mumbai, dated 11-9-2013, for the assessment year 2010-11, in the matter of order passed u/s.143(3) of the I.T.Act 2. In this appeal, the assessee is aggrieved for treating the profit earned on sale of land as business income rather than capital gains offered by the assessee. The assessee is also aggrieved for confirming disallowance of ₹ 15 lakhs being expenses incurred for transfer of property at Badlapur. 3. Rival contentions have been heard and record perused. Facts of the case are that the assessee is a partnership firm, engaged in the business of development and construction. The firm came into existence in the year 1987, it purchased land at two places one at Lalbaug and the other one at Badlapur. The assessee undertook project at Lalbaug land in the year 1993 and offered its income on its completio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xation as well as rate of tax chargeable on capital gains. 4. By the impugned order CIT(A) confirmed the action of AO by disregarding the MOU executed in the year 1998. Against this order of CIT(A) assessee is in further appeal before us. 5. As per ld. AR the 'Accounting Standard - 2 Valuation of Inventories' issued by the Institute of Chartered Accountants Of India deals with valuation of Inventories in case of builders. The AS - 2 Para 6 defines Cost of Inventories as under: 6. The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in. bringing the inventories to their present location and condition. Further Para 12 of AS - 2 deals with Other Cost relating to inventories and provides as under: 12. Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and conditions and are, therefore, usually not included in the cost of inventories In view of the above, it was contended that para 12 of AS - 2 specifically provides that interest and other borrowing costs are not to be included in the cost of inventories, as the same are not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er authorities. It was argued that assessee had treated the land and the cost capitalized as work-in-progress, therefore, the AO was correct in treating the profit accrued on its sales as business profit rather than capital gains. 8. We have considered rival contentions and carefully gone through the orders of authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. AR ld. DR during the course of hearing before us. From the record we found that assessee has purchased land at Lalbaug in the year 1988 to 1990, at the time of purchase its object was to construct building thereon. However, due to difficulty faced with respect to construction of building on the land take at Lalbaug, the assessee decided not to undertake any construction activity on the Badlapur land. Accordingly, an MOU was executed in the year 1998 on a stamp paper of ₹ 500/-, wherein both partners mutually decided not to carry on any business activity on the land at Badlapur and it was also decided that land at Badlapur shall be treated as investment of the assessee firm at the cost as appearing in the balance she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court has clearly held in the case of Kedarnath Jute Mfg. Co. Ltd. Vs. CIT [82 ITR 363] that the entries in books of accounts are not conclusive and that the true nature of income/expense is determinative in deciding the taxability of income or allowability of an expense. 11. If we consider the surrounding circumstances and conduct of the assessee to verify the true nature of Badlapur Land ignoring the accounting entries in books of accounts then it borne out that: a) The assessee had acquired land at Badlapur in the year 1988 to 1990 and there was no development and construction activity undertaken by the assessee on Badlapur land from last 20 years. No builder/businessman keeps the land undeveloped for such a long period of time b) The assessee has capitalised the interest cost and other expenses to the Cost of Badlapur Land, which is in consistence with treatment to a Capital Asset. c) The capitalization of interest cost is also in conformity with Provisions of Income Tax Act applicable to a Capital Asset. d) Capitalisation of interest cost is neither in conformity with the accounting of inventories prescribed in AS-2 nor in compliance to the provisions of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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