TMI Blog2019 (12) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... rial on record leaves no manner of doubt that the acquisition of land under sale was induced by commercial spirit. At this juncture, it will be pertinent to observe that the intention of the assessee is to be judged not with reference to the income declared under a particular head of income as prescribed in the statute, but is required to be decided on the basis of commercial principles. The assessee has moved swiftly and did everything possible to exploit the divided land commercially at the first available opportunity. This type of activity cannot be, in our considered opinion, regarded as capital acquisition taxable under the head 'capital gains'. Such organized course of commercial exploitation of land portfolio carries all trappings of adventure in the nature of trade, commerce etc. and thus falls within the ambit of expression 'business' as defined under section 2(13) of the Act. In so far as the taxability of an income under the appropriate head is concerned, the question is answered by the Hon'ble Gujarat High Court in the case CIT v. Pranjay Mercantile Ltd. [ 2014 (2) TMI 793 - GUJARAT HIGH COURT] In the light of the decision of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.03.2013 153A r.w.s. 143(3) of the Income-tax Act, 1961 83/Ahd/15 -Do- 2009-10 -Do- -Do- -Do- 84/Ahd/15 -Do- 2010-11 -Do- -Do- -Do- 889/Ahd/15 -Do- 2011-12 -Do- -Do- 143(3) of the Act 79/Ahd/15 Darshnaben Harshadbhai Savalia 2008-09 -Do- -Do- 153A r.w.s. 143(3) of the Act 80/Ahd/15 -Do- 2009-10 -Do- -Do- -Do- 81/Ahd/15 -Do- 2010-11 -Do- -Do- -Do- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 'plot at Thaltej' of ₹ 1,00,28,418/- (1/3rd share) as 'Investment/Capital' asset at the time of filing of return prior to search under section 139 of the Act. However, the position was altered in the return of income filed subsequent to search and the aforesaid co-ownership land (other co-owners namely Smt. Darshnaben H. Savalia and Smt. Kapilaben S. Savalia) was shown as 'stock-in-trade/current asset' (instead of capital asset) in the return filed pursuant to notice under section 153A of the Act. As a consequence of such change in the classification and characterization of land held by the assessee at the end of the FY 2007-08 concerning AY 2008-09, the resultant gains arising on sale of plot/land were also declared as 'business income' (as against the capital gains in the return filed prior to search) in the respective returns filed pursuant to search action. The AO observed that the assessee has sold the land or a part thereof in AYs. 2009-10, 2010-11 and 2011-12 and the gains thereon have been declared under the head 'business income' in respective assessment years whereas the gains from such sale was earlier shown to be capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is contrary to the mandate of law. The plots/land shown to be held as 'trading asset' in the revised return under section 153A of the Act were sold in the later year at a price below the stamp duty rate. The assessee has simply indulged in mis-representation of facts with a view to label the transactions to be of business nature to escape the application of Section 50C of the Act. It was further noted that the assessee was engaged in the similar kind of activity in the previous years and also in the subsequent years (Shilaj land) where the assessee has declared income by way of capital gains on sale of plot. The AO thus observed that the activity of sale of plots in Krish Villa cannot be treated differently. The AO accordingly declined to accept the change in the nature and character of investment in Krish Villa plot and income arising therefrom. The AO accordingly treated Krish Villa, Thaltej land as capital asset in tune with original return and declined the revised claim of assessee to treat the same as stock-in-trade for AY 2008-09 and consequent profit arising from sale of plot as business income of the assessee. In essence, the AO thus treated the land at Thaltej a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing the assets as capital assets and receipt from the sale of plot as capital gain only. It is clear that the AO discussed and referred the assessment order just to .show the intention of the assessee and prove that she intentionally and deliberately shown the same as capital assets and capital gain and did not commit a bona fide mistake. Thus the argument of the appellant hold no merit. 10.3 Now the question arises as to whether the appellant can revise the head of income declared in the original returns of income filed u/s 139 of the Act for AY 2008-09 to AY 2010-11 after the search in the return of income filed u/s 153A of the Act where the period of filing of revised return has already been over, on the ground that due to bona fide mistake, receipt from sale of Krish Villa plots was shown as capital gain though the true nature of the activities are adventure in nature. 10.4 It is seen that the original return u/s 139 of the Act for Ays. 2008-09, A.Y.2009-10 and A.Y 2010-11 were filed on 05.12.2008, 30.10.2009 and 12.10.2010 and the capital assets and the profit from sale of 13 plots of Krish Villa was shown as short term capital gain in both years and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully well about her activities, shown/declared income from sale of Krish Villa plot as capital gain in the return of income filed u/s 139 of the Act. 10.7 The facts and records shows that it was a conscious decision on part of the appellant to show development charge as cost of land and income from sale of Krish Villa plot as capital gain. It can be seen that this is not an isolated incidence as the same treatment was given in AY 2008-09 to 2010-11 before the search and nature of assets was changed after the search therefore cannot be accepted as bona fide mistake committed. Had it been a bona fide mistake appellant would have revised the original return filed u/s 139 of the Act by way of filing a revised return but the fact is that the appellant did not revise any of the return of income within the prescribed time prior to date of search carried out on 06.01.2011. 10.8 Therefore the basic contention of the appellant that the actual nature of transaction is adventure in the nature of trade and due to the bona fide mistake same was wrongly shown as capital gain in the original return of income filed under section 139 of the IT act in Ays. 2008-09, 2009-10, 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year falling within such six assessment years : Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) of section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside. Explanation.-For the removal of doubts, it is hereby declared that,- (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search assessment u/s 153A of the IT Act as both sections fundamentally deal with the escaped and undisclosed income. The Hon'ble Supreme Court held that Since the proceedings under section 147 are for the benefit of the revenue and not an assessee and are aimed at gathering the 'escaped income' of an assessee, the same cannot be allowed to be converted as 'revisional' or 'review' proceedings at the instance of the assessee, thereby making the machinery unworkable. It was specifically mentioned in para 39 that the AO is not empower to entertain such claim and held that the ITO cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under section 147 . 10.15 The principle laid down by the Hon'ble Supreme Court are as under- 38. Although, section 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under section 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the item sought to be taxed as 'escaped income'. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view the object and purpose of the proceedings under section 147 which are for the benefit of the revenue and not an assessee, an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to 'escaped income', and re-agitate the concluded matters. Even in cases where the claims of the assessee during the course of reassessment proceedings related to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of 'reassessment' cannot be reduced beyond the income originally assessed. 40. It would be seen that whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by permitting the assessee to reagitate, in the reassessment proceedings under section 147(a), the finally concluded assessment proceedings and to grant to him relief in respect of items not only earlier rejected, but also unconnected with the escapement of income by assuming as if the original assessment had not been concluded or was 'still open'. 43. Therefore, our answer to the question formulated by the High Court and noticed in the earlier part of this judgment is that in the reassessment proceedings it is not open to an assessees to seek a review of the concluded item, unconnected with the escapement of income, for the of computation of the escaped income. 10.16 The exact issue as agitated by the appellant i.e. revision of mistake committed in the original return u/s 139 and thereafter rectifying in return filed u/s 153A of the IT Act, has been decided by the Hon'ble ITAT B Bench Delhi in the case of Charchit Agarwal v. ACIT*, Central Circle 12, New Delhi [2009] 34 SOT 348 (Delhi). The hon'ble ITAT B Bench Delhi has considered and decided the issue of mistake committed in the original return and thereafter rectifying in return filed u/s 153A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the 'total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in which such search was conducted or requisition was made. The assessee had valued the closing stock for assessment years 2000-01 to 2005-06 on average cost method which has resulted in reduction of taxable income in all the years ranging from ₹ 8,975 in assessment year 2001-02 to ₹ 9,00,797 in assessment year 2005-06. The contention of the assessee that in the case of jewellers, it is impossible to value the closing stock on the basis of market cost as the items of closing stock cannot be identified with reference to various purchases made during the year. However, the fact remains that the assessee had been valuing the closing stock at cost as certified by tax auditors. It is a fact that all the assessee are required to maintain the stock registers during the course of normal business activities. It is not difficult to identify the items purchased, the date of purchase and their costs. Hence we do not find any substance in the argument of the assessee that it is impossible to value the closing stock at actual cost particularly in view of the fact that the assessee had been valuing the closing stock at cost price from very beginning of the business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 005-06 have been accepted under section 143(1) and, therefore, in view of the decision of Hon'ble Supreme Court in the case of Sun Engg. Works (P.) Ltd. (supra), the assessee cannot be permitted to claim the benefit of closing stock by changing the method of valuation as it becomes favourable to the assessee. 13. We have also gone through the other decisions relied upon by the Id. AR of the assessee but do not find any decision which is direct on the issue before us. During the course of hearing, ld. AR of the assessees could not cite a single case law accordingly to which assessee could have filed returns for earlier years revising the valuation of closing stock for which assessments had already been finalized. Therefore, in view of above discussions in search proceedings under section 153A, which are for the benefit of the revenue, assessee is not permitted to value the closing stock for concluded years at average cost price. Accordingly, the Assessing Officer as well as Commissioner of Income-tax (Appeals) was justified in rejecting the change in method of valuation adopted by the assessee for all these years. Hence, we do not find any infirmity in the order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as per the finding given in A.Ys. 2008-09 and 2009-10, the claim of the appellant in A.Ys. 2010-11 and 2011-12 of changing the nature of income from capital gain to business income is not allowed and action of the AO of treating the 1/3rd profit from sale of plots as Short Term Capital Gain u/s 50C of the Act against the business income shown by the appellant is confirmed. 10.21 Based on the decision given in the case of Darshanaben Savalia for A.Ys. 2008-09 to AY 2011-12 being facts and circumstances and submissions are identical, the findings of the AO treating the assets and income as capital assets and capital gains in A.Y. 2008-09 to A.Y. 2011-12 and treating the profit (being 1/3 share) from sale of plots as Short Term Capital Gain u/s 50C of the Act against the business income shown by the appellant are confirmed. In nutshell, the Findings of capital assets and amount of short term capital gain u/s 50C of the Act confirmed in each case are as follows: Sl. No. Name of the appellant Findings confirmed 1/3rd share of Short term capital gain u/s 50C confirmed in the hand of each a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived commencement letter from Ahmedabad Municipal Corporation (AMC) dated 07.02.2009. The lay out plan of plotting done by the assessee alongwith other two co-owners in the aforesaid scheme 'Krish Villa' dated 07.02.2009 was also referred to and relied upon. A broacher of the residential housing scheme (Krish Villa) was also stated to be published for sale to public. It was pointed out that development was carried out on the said parcels of land and expenditure were incurred in the subsequent FY 2008-09 onwards and the residential housing plot scheme was completed in March 2011 or thereabout. The sub-divided plots in the said scheme were sold to respective members by executing the conveyance deed from FY 2008-09 till FY 2010-11. It was pointed out that the above sequence of event and continuity in action and scale of activity would clearly show the eminent intent of the assessee and co-owners to reap business profits by exploration with commercial motive. Consequently, the mistake committed in the return filed earlier was corrected and the income was realigned from the head 'capital gains' to 'business income' having regard to the true nature of activity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leaned AR thereafter referred to the provisions of Section 153A of the Act and submitted that in view of specific provisions of Section 153A of the Act, the return of income filed in response to notice under section 153A of the Act is to be considered as return filed under section 139 of the Act. The learned AR for the assessee relied upon the decision of the Hon'ble Gujarat High Court in the case of Kirit Dahyabhai Patel v. Asstt. CIT [2017] 80 taxmann.com 162 for the proposition that return filed under section 153A of the Act acquires the colour and tenor of return filed under section 139 of the Act. The learned AR also referred to the decision of the Hon'ble Bombay High Court rendered in the case of CIT v. B. G. Shirke Construction Technology (P.) Ltd. [2017] 79 taxmann.com 306/246 Taxman 300/395 ITR 371 where Hon'ble High Court echoed the similar view and held that return filed under section 153A(1) of the Act is akin to a return furnished under section 139 of the Act and therefore provisions of Act as applicable in the case of return filed in regular course under section 139(1) of the Act would also continue to apply in case of return filed under section 153A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 336 (Bombay) etc. It was thus contended that the assessee was entitled and duty bound to report true income under proper head in the return filed under section 153A of the Act which assessee did. 9. The learned DR for the Revenue, on the other hand, relied upon the orders of the AO and CIT(A) and submitted that the in view of the reasoned order, no interference thereof is called for. The learned DR referred to the decision of the Hon'ble MP High Court in the case of CIT v. Suresh Chand Goyal [2007] 163 Taxman 54/[2008] 298 ITR 277 (MP) to submit that selling of own land after plotting it out in order to secure proper price is not an adventure in nature of trading or business. It was further pointed out that the assessee is not entitled to take advantage of its own wrong, if any, in the return filed in pursuance of search proceedings. It was submitted that such returns are intended for the benefit of the Revenue and not for the benefit of the assessee. For this proposition, the learned DR for the Revenue relied upon the decision of CIT v. Sun Engineering Works (P.) Ltd. [1992] 64 Taxman 442/198 ITR 297 (SC). 10. We have carefully considered the rival submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins arising in the process gives rise to business income having regard to the inclusive definition of Section 2(13) of the Act r.w.s. 28 of the Act. On perusal of the sequence of event narrated on behalf of the assessee at length as noted in preceding paras, we observe that the assessee as acted in a synchronized manner with continuity. As noted, the land was converted into non-agricultural land to pave the way for its commercial utilization. The component authorities were approached immediately on purchase of land for conversion and demarcation of layout. The assessee has demonstrated carrying out development of the land parcels and incurring of expenditure thereon. The Collector's letter granting permission for conversion and commencement letter from AMC proves the case in point towards commercial motive. The layout plan suggests the demarcation of common infrastructure and internal roads in the housing plot scheme named 'Krish Villa'. It is also observed that the appellants herein have sold the plot in the said scheme to different members spanning over FY 2008-09 to FY 2010-11 after putting up the residential housing plot scheme as approved. The appellants have issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e action of the assessee coincide with a normal behaviour of a person indulged in a commercial act. A person intending to hold a land of this value for its own exploitation and enjoyment would not ordinarily engage himself in a quite contradictory conduct and the governing features narrated above cannot be brushed aside and primacy cannot be accorded to the entries made to the books of account/return of income. The conduct of the assessee unequivocally shows the intention of the assessee and attendant facts clearly points out that the assessee was interested in exploiting commercial opportunity for quick gains in a very short time horizon. In the light of the sequential events noted above, the claim of the Revenue that land was intended for investment as personal use and for appreciation with efflux of time as capital asset is utterly improbable. It is apparent that the action of the Revenue was simply guided by considerations of the revenue alone to collect more taxes by holding the income to be taxable under the head 'capital gains' and consequently, bringing the transactions under the umbrella of Section 50C of the Act. At this stage, we also note the assertions made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to revise its position in departure with the original stand (taken in the return filed under section 139 of the Act prior to search) and claim the profits and gains arising from development and sale of land parcels as chargeable under section 28 of the Act under the head 'Profits Gains' of business as against initial claim of its chargeability under section 45 of the Act under the head 'capital gains' or not. The question is no longer res integra. In so far as the taxability of an income under the appropriate head is concerned, the question is answered by the Hon'ble Gujarat High Court in the case CIT v. Pranjay Mercantile Ltd. [2014] 43 taxmann.com 193/223 Taxman 10/361 ITR 462 (Guj). In the light of the decision of the Hon'ble Gujarat High Court, it is trite that the income of the assessee is to be assessed under different heads enumerated in Section as per the true nature and character of income and not merely on the basis of classification given by the assessee. 12. We now turn to another aspect as to whether the assessee is entitled to revise its claim and alter its original position in accordance with law or not. The Hon'ble Gujarat Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter its original stand to its advantage in the course of assessment proceedings pursuance to search. We do not see any force in such plea either. The decision of the Hon'ble Supreme Court in Sun Engineering (supra) was rendered in the context of Section 147 of the Act which seeks to assess the chargeable income escaped assessment. Keeping in view the object and purpose of the proceedings under section 147 of the Act, it was held by the Hon'ble Supreme Court that such provision is enacted for the benefit of Revenue and not the assessee. In total contrast to Section 147/148, a special procedure has been provided under Chapter XIV for assessment in search cases. The assessments of search cases are required to be made as per Section 153A of the Act. Unlike Section 147, the scope of Section 153A of the Act is not necessarily relatable to only undisclosed income. The scheme of assessment under section 153A of the Act appears to be quite different qua Section 147 of the Act on the face of it. Section 153A of the Act begins with non-obstante clause which has an override effect over Section 147 of the Act among others. At this point, it will relevant to take note of the decision ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness income of the assessee. 17. In view of discussion in length on identical fact situation, the case of assessee merits acceptance for treating the profits on sale of land/plot to be 'business income' as per return filed under section 153A of the Act instead of 'capital gains' . 18. In the result, all the appeals of the assessee for AYs. 2009-10 to 2011-12 are allowed. I.T.(SS)A. Nos. 79, 80, 81 888/Ahd/2015 - AYs. 2008-09, 2009-10, 2010-11 2011-12) in case of Darshnaben Harshadbhai Savalia I.T.(SS)A. Nos. 76, 77, 78 887/Ahd/2015 AYs. 2008-09, 2009-10, 2010-11 2011-12) in case of Smt. Kapilaben S. Savalia. 19. The other assessee, namely, Smt. Darshnaben Harshadbhai Savalia and Smt. Kapilaben S. Savalia are also the co-owners of the same land parcels as discussed in the case of Smt. Bhanuben Kantiben Savalia (supra). Therefore, observations made in Smt. Bhanuben Kantiben Savalia shall apply mutatis mutandis in other appeals relating to other assessees as noted above. 20. In view of discussion in length on identical fact situation, the case of assessee merits acceptance for treating the profits on sale of land ..... X X X X Extracts X X X X X X X X Extracts X X X X
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