TMI Blog2020 (4) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... the enquiry as well as the enquiry conducted by the AO by issuing notices u/s 133(6) of the Act were not considered by the ld. CIT(A). Therefore, ignoring the relevant facts which are necessary to arrive to the conclusion whether subsequent enquiry and audit objection would constitute a tangible material to form the belief that income assessable to tax has escaped assessment, would render the impugned order of the ld. CIT(A) as not sustainable. Accordingly we set aside this issue to the record of the ld. CIT(A) to re-adjudicate the same after considering the audit objection as well as enquiry conducted by the AO by issuing notices u/s 133(6) of the Act. Ground No. 1 and 2 of the Revenue are allowed for Statistical purposes. Addition u/s 45(2) - conversion of capital asset into stock in trade - assessee was having the business assets in the form of Cinema Hall and was engaged in exhibiting the films then the decision taken by the assessee to discontinue the earlier business by dismantling the cinema hall building and converting the land use for development of commercial complex amounts to conversion of capital asset into stock in trade - Addition deleted by the ld. CIT(A) - HE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king the correct indexed cost of acquisition. Ground No. 3 of the Revenue is partly allowed for Statistical purposes. Non Service of notice issued u/s 148 - HELD THAT:- As far as the issuance of notice is concerned, the same is not in dispute when the AO has issued the said notice and sent the same through Regd.Post on 31-03-2015. Only dispute is regarding service of notice. Parties have taken their respective stands on this issue. However, there is no dispute that the assessee in response to said notice has filed the return of income and also participated in the reassessment proceedings, therefore, the issue has to be decided after considering the provisions of Section 292BB of the Act. Since the ld. CIT(A) has not adjudicated upon both these issues, therefore, the grounds raised by the assessee in the C.O. are set aside to the record of the ld. CIT(A) for adjudication after providing adequate opportunity of hearing to the assessee - ITA No. 406/JP/2018, C.O. No. 11/JP/2018, ITA No. 407/JP/2018, C.O. No. 12/JP/2018 - - - Dated:- 20-2-2020 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri H.M. Singhvi, CA For the Revenue : Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hall to Multistoried Commercial Complex comprising of shops, showrooms and other commercial space. The assessee entered into a Development Agreement dated 12-12-2001 with M/s. Golcha Buildtech Pvt. Ltd. (for short GBT ). As per terms and conditions of the said agreement , the assessee has contributed the land to the project whereas the Developer has agreed to bear all the costs of constructions including obtaining the necessary approvals and permissions from the local authorities. The parties have agreed to have 50% 50% shares in the constructed commercial complex and were free to sell the same. The assessee also received inter alia a sum of ₹ 2.00 crores as on the date of agreement which is non-refundable. The commercial complex was completed during the year under consideration and there was sale of shops and showrooms by the assessee. The assessee filed its return of income on 29-03-2010 as belated return u/s 139 of the Act and declared the total income at ₹ 2,00,29,760/-. The assessment was completed u/s 143(3) of the Act on 3-12-2010 whereby the AO accepted the returned income of the assessee. Thereafter the AO reopened the assessment by issuing notice u/s 148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has actually converted its capital asset into stock in trade by converting the land use after demolition of Cinema Hall Building and entered into a Development Agreement for construction of multistoried commercial complex. Therefore, the provisions of section 45(2) are clearly applicable in the case of the assessee. After receipt of audit objections , the AO has also conduced the enquiry by issuing notices / letters dated 01-09-2014 as well as 25-09-2014 u/s 133(6) of the Act . Thus the information gathered by the AO from the audit objection as well as through enquiry conducted, constitutes the tangible material to form the belief that income assessable to tax has escaped assessment. The ld. DR further contended that the ld. CIT(A) has failed to ignore these facts while arriving to the conclusion that reopening of the assessment is based on same facts and material already available in the assessment record. Thus the ld. DR has submitted that order passed by the ld. CIT(A) ignoring the relevant material facts is not sustainable in law. The ld. DR has referred to reasons recorded by the AO as well as the audit objection and submitted that there was a tangible material which came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice u/s 148 of the Act on 31-03-2015 which is clearly after the expiry of 4 years from the end of the Assessment Year under consideration. The assessee has challenged the validity of reopening of the assessment on the ground that there is no failure on the part of the assessee to disclose fully and truly all materials facts necessary for assessment and consequently the proviso to section 147 is applicable. The assessee also referred to the notice issued by the AO u/s 142(1) of the Act and reply thereto. It is pertinent to note that the AO while passing the original assessment u/s 143(3) of the Act on 3-12-2010 has taken up the issue in the scrutiny only regarding the interest income from the business of loans and advances. Therefore, the bare reading of the assessment order dated 3-12-2010 does not reveal that any enquiry was conducted by the AO on the issue of nature of income arising from the arrangement of development of commercial complex after demolition of Cinema Hall Building on the land in question. For ready reference, we reproduce the assessment order dated 3-12-2010 passed u/s 143(3) as under:- The assessee e-filed return of income without digital signatur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore I am satisfied that the penalty provisions under section 271F of Income Tax Act, 1961 are applicable against the assessee. Penalty proceedings u/s. 271F of the Income Tax Act, 1961 are initiated separately. After discussion returned income is accepted. Assessed at ₹ 2,00,29,760.00. Issue demand notice and challan. Issue necessary forms. ITNS 150 is part of this order. Penalty proceedings under section 271B and 271F are being initiated separately. Sd/- (K.C. Gupta) Asstt. Commissioner of Income Tax (OSD),Jaipur On perusal of the above scrutiny assessment order dated 3-12-2010, it is clear that the AO has taken up only two issues of not furnishing tax audit report as required u/s 44AB of the Act and filing belated return of income and consequently initiated penalty proceedings u/s 271B and 271F of the Act respectively. Apart from these two issues, the AO has not made any reference to any reply filed by the assessee. Thus it is manifest from the said assessment order that the AO has not conducted the bare minimum enquiry on the issue of conversion of capital asset into stock in trade. It is a very brief and cryptic assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry was conducted but the assessment order was passed accepting the returned income. Therefore, the question of conducting any enquiry on this issue does not arise The ld. CIT(A) has decided this issue by presuming the fact that no new facts were brought to the knowledge of the AO after completing the scrutiny assessment u/s 143(3) of the Act. The relevant concluding para s Nos. (xii) and (xiii) of ld. CIT(A) s order on this issue are as under:- (xii) Therefore, in view of the above discussion and looking to the totality of facts and circumstances of the case, it is held that the initiation of proceedings u/s 147 of the Act by the AO for the year under consideration was not in conformity with the provisions of section 147 of the Act. Further, the assessment was reopened after 4 years from the end of the relevant assessment year, which was earlier completed u/s 143(3) of the Act, therefore, proviso to the section 147 of the Act is clearly applicable to the facts of the instant case under consideration. The AO has neither stated that there was default on the part of the appellant to disclose material facts truly and fully, which are necessary for its assessment nor it is di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to form the belief that income assessable to tax has escaped assessment, would render the impugned order of the ld. CIT(A) as not sustainable. Accordingly, in the facts and circumstances of the case, we set aside this issue to the record of the ld. CIT(A) to re-adjudicate the same after considering the audit objection as well as enquiry conducted by the AO by issuing notices u/s 133(6) of the Act. Needless to say that the Revenue be given appropriate opportunity of hearing of appeal before passing the fresh order. Thus Ground No. 1 and 2 of the Revenue are allowed for Statistical purposes. 4.1 The Ground No. 3 of the Revenue is regarding the addition made by the AO u/s 45(2) of the Act on account of conversion of capital asset into stock in trade which was deleted by the ld. CIT(A). 4.2 The ld. DR has submitted that when the assessee was having the business assets in the form of Cinema Hall and was engaged in exhibiting the films then the decision taken by the assessee to discontinue the earlier business by dismantling the cinema hall building and converting the land use for development of commercial complex amounts to conversion of capital asset into stock in trade. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sheet as on 31-03- 2001, the cinema hall building was shown as fixed asset. The activities of the assessee of construction of commercial complex and sale of shops/ offices are not in the nature of trade or business but it is in the nature of capital asset. Section 45(2) of the Act is applicable in a situation where there is transfer by way of conversion by owner of capital asset into stock in trade of business or the owner has treated such capital asset as stock in trade of business. Therefore, to attract the provisions of Section 45(2), there must be a positive act on the part of the owner to transfer the asset by way of conversion into stock in trade or treating such capital asset as stock in trade of business. In the absence of such positive act on the part of the owner of the capital asset, the provision of section 45(2) does not apply. There is no such material in this regard on record to show that the assessee has transferred the capital asset by conversion of the same into stock in trade or has treated such capital asset as stock in trade of business. In support of his contentions, the ld.AR of the assessee relied on following decisions. (i) CIT vs Express News Papers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement and to secure due performance of the Developer s obligations under this agreement. The security deposit shall be refunded on completion of the new building and making over of the owner s allocation to the owner inhabitable condition in the new building or builder will adjust this security amount of ₹ 2.50 crores by way of buy-back of the part of the owner s allocation in the property at the rate mutually settled between parties. Developer has also agreed to pay to Owner a sum of ₹ 2.00 Crores (Rupees Two Crores only) as consideration money (Non adjustable , Non Refundable). The Developer has given a sum of ₹ 2.50 crores to the assessee by way of interest free security deposit as performance security/ guarantee. However, the said security was to be refunded on completion of the project/ complex. Apart from the said security, a sum of ₹ 2.00 crores was also paid by the Developer to the assessee towards the consideration of transfer of land in question in favour of the Developer. As per clause 11 of the agreement, the parties were to share the constructed area in the manner specified therein which is reproduced as under 11. That th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be used for business of the assessee or as investment of the assessee. It is not a case of exploitation of the capital asset for carrying out the business but it is a case of selling of the property in question itself after developing it and then selling the shops/offices and other space individually as an independent unit and not the entire share of the assessee in commercial complex as one unit. Therefore, the entire arrangement and exercise of converting the land use for development of commercial complex and sale of the same is nothing but activity in the nature of trade and business involving risks and rewards to be borne by the assessee, as a result of such exercise. Thus entering into such venture of developing commercial complex is enduring in nature and therefore, it cannot be regarded as investment on the part of the assessee. The assessee and the Developer were having their own exclusive and independent right to sell each and every shops/offices as well as other commercial space. Hence, the intention of the assessee is established that the assessee decided to sell the land in question not as a capital asset but by converting the same into stock in trade in the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tains two components of income i.e. one is capital gain on account of conversion of capital asset into stock in trade u/s 45(2) of the Act and another is business income on account of sale of stock in trade. The computation of capital account would be based on the consideration being fair market price as on the date of conversion being in the year 2001 though the same will be assessed to tax in the year under consideration when the assessee has finally sold the stock in trade. Therefore, the said finding of the ld. CIT(A) is contrary to the undisputed material facts of discontinue the existing business of exhibiting films in the cinema hall, demolition of cinema hall building and conversion of land use to commercial complex for sale constitute a positive act on the part of the assessee to establish the conversion of capital asset into stock in trade. 4.4.1 During the course of hearing, it was noted that as per Development Agreement dated 12-12-2001, the land in question was transferred in the name of the assessee by the JDA in the year 1995 whereas the index cost was claimed by the assessee by taking the date of acquisition as prior to 01-04-1981. This point was specifically p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice of notice u/s 148 and ld. CIT(A) erred in para 3.2.2. page74 that it is an academic in nature. (3) Because the ld. CIT(A) erred in not deciding the Ground No. 3 relating to not providing the copy of the reasons recorded by AO before issue of notice u/s 148 in spite of the request. 6.1 The assessee has raised the issue of validity of service of notice u/s 148 of the Act as well as the copy of the reasons was not supplied to the assessee. 6.2 We have heard the ld.AR as well as the ld. DR and considered the relevant materials available on record. The grievance of the assessee is against non-adjudication of these issues by the ld. CIT(A). As regards the service of notice issued u/s 148 of the Act, we note that the AO issued notice through registered post and assessee has filed the copy of the notice issued u/s 148 of the Act dated 31-03-2015 alongwith postal receipt. Therefore, as far as the issuance of notice is concerned, the same is not in dispute when the AO has issued the said notice and sent the same through Regd.Post on 31-03-2015. Only dispute is regarding service of notice. Parties have taken their respective stands on this issue. However, there is no dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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