TMI Blog2022 (9) TMI 1142X X X X Extracts X X X X X X X X Extracts X X X X ..... ness income, is enhancement in the facts and circumstances of this case and it is also a fact that no opportunity wasgiven to the assessee before such enhancement. This failure to issue show cause goes to the root of the issue of powers of CIT(A) of enhancement. Therefore, it is held that the treatment by CIT(A) of Capital Gain as Business Income is bad in law and not sustainable. Similarly, the treatment of lease rent as business income is bad in law and not sustainable. Accordingly, the ground number 1,5,6,7 of the Assessee are allowed. Difference in revenue recognition from the Hotel Building - HELD THAT:- It is important to mention here that the assessee for the same reason also reduced the cost for AY 2011-12 and the department has accepted it. It is the same project, the revenue of which was offered on project completion method for AY 2010-11 and 2011-12. It is fact as demonstrated by the assessee by the Registered Conveyance deed that the Total Cost was reduced by the purchaser as Purchaser decided to complete remaining construction on his own cost. Therefore, there was reduction in the cost. It also means the expenditure to that extent will be reduced for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2 of the assessee is dismissed. - Shri S. S. Viswanethra Ravi, Hon ble JM And Dr. Dipak P. Ripote, Hon ble AM For the Assessee : Shri Dharmesh Shah AR For the Revenue : Shri Naveen Gupta DR ORDER PER DR. DIPAK P. RIPOTE, AM: These two appeals filed by the assessee are directed against the separate orders of ld. Commissioner of Income Tax(Appeals)-1, Pune dated 30. 01. 2015 and 09. 06. 2016 for the Assessment Years 2010-11 and 2011-12 respectively. 2. The Assessee in ITA No. 403/PUN/2015 for the A. Y. 2010-11 has raised following grounds of appeal: 1. The Ld. CIT(A) has erred in law and in facts enhancing the income from sale of Matrix IT Building by changing the head of income from Capital Gains to Business income without complying with the principles of natural justice and without giving any opportunity of hearing. 2. The Ld. CIT(A) has erred in law and in facts in assessing the income from sale of Matrix IT Building at Rs 1,79,78,415/- as part of business income. a. The Ld. CIT(A)-haserred in law and in facts in not appreciating that the income from sale of 'Matrix IT Building was liable to be asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argeable to tax under the head Income from Business' as against the head Income from House Property shown by the assessee. 7. The Ld. CIT(A) has erred in holding that the assessee is not eligible for standard deduction of Rs. 1,36,67,376/- claimed in the total Income while declaring the income from Matrix I. T Building under the head Income from House Property'. 8. The Ld. CIT(A)) has erred in law and in facts in holding that the assessee is not eligible to claim deduction of maintenance expenses of Rs. 50,39,563/- against the maintenance charges received from the tenants. 9. The Ld. CIT(A)) has erred in law and in facts in confirming the disallowance u/s. 14A the Act to the extent of Rs. 20,10,855/-. 10. The Ld. CIT(Appeals) has erred in upholding the charging of interest u/s 234B, 234C and 234D of the Income Tax Act, 1961. 11. The assessee prays leave to add to above grounds to amend or delete any of the above grounds of appeal. 3. Brief facts of the case, the assessee Angelica Properties Pvt Ltd has been amalgamated merged into Vascon Engineers Ltd. The assessee is in the business of construction development. There is a R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 1,50,00,000/- 1,67,75,549/- Total 104,90,00,000/- 117,31,70,040/- There is one more addition of Rs. 3,89,26,200/- with reference to the building called Hotel Tower . 4. Aggrieved by the said additions, the assessee filed appeal before the Commissioner of Income Tax (Appeal). The CIT(A) held that the profit arising from sale of impugned immovable property (Matrix IT Building) is liable to be assessed as Business Income and not Capital gain. The CIT(A) arrived at the business profit as under : Profits from Sale of Land Building 1. Sale of Land Building (excluding Rs. 1,50,00,000/- offered in the next year) 103,40,00,000 Less: Brokerage Paid for sale of Matrix Building. 1,31,12,501/- Less: Other expenses attributable to Matrix Building. 1,86,804/- Net Sale. Consideration (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 634-643 of PB No. 3] e. ITO v. Angel Cement Pvt. Ltd. [88 ITR(T) 616] [Page 644-662 of PB No. 3] 7. 4. Without prejudice, it is submitted that even if the enhancement carried out by the Ld. CIT(A) is held to be within his powers, the said enhancement has been carried out without complying with the provisions of s. 251(2) of the Act which requires the Appellate authority to provide an opportunity to the assessee to show cause as to why the enhancement should not be carried out. In this regard, it is submitted that although the assessee was asked to explain whether the treatment of the transaction can be given as a stock in trade, the order sheet notings submitted before the Hon ble Tribunal and enclosed at Page 569 of PB No. 3 shows that no effective opportunity of hearing as envisaged u/s. 251(2) was granted to the Appellant asking them to show cause as to why an enhancement should not be carried out. In fact, w. r. t treatment of rental income as business income, the assessee was never informed of any such intention or action by the Ld. CIT (A). 7. 5. It is submitted that before carrying out any enhancement of income, it was duty of the Ld. CIT(A) to quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht in the land and agreement dated 13. 02. 2008 with Apeejay Surendra Park Hotels Ltd. for sale of the Hotel building. [Para 6. 4. 3 and 6. 4. 4] b. The company has stated at Note 12 of the annual accounts for A. Y. 2010-11 that the company is primarily engaged in the business of real estate development and that the said business is the only reportable segment of the company. [Para 6. 4. 6] c. The Appellant company has purchased the development rights and not the land per se from the owners. [Para 6. 4. 6] d. The appellant has held the Hotel building for a short period [Para 6. 4. 6] e. If the asset was held as stock in trade, the same should have been declared under the Wealth Tax Act. [Para 6. 4. 6] f. The development rights in the land were not held as investments nor classified as investments in the balance sheet [Para 6. 4. 7] 9. Based on the above, the Ld. CIT(A) held that the various agreements executed by the Appellant clearly demonstrate that the intention of the Appellant had always been to exploit the property as a developer and not to hold the property for a longer period for capital appreciation. He accordingly held that the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntures were valued at cost and not at market price. Hence, this was an indication which proves that the asset was being treated as a capital asset. The Hon ble High Court therefore held that the loss on sale of the debentures was to be treated as capital loss and not business loss. 8. Further, the land and the building have been consistently reflected under the head Fixed Assets since inception by the Appellant company. The said disclosure of the asset and the manner of such disclosure in the financial statements clearly proves that the asset was held by the Appellant as a capital asset and not stock in trade. In this regard, the Appellant relies on the following financial statements: a. Profit and loss and balance sheet for A. Y. 2007-08 [Page 174-178 of PB No. 2] b. Profit and loss and balance sheet for A. Y. 2008-09 [Page 179-182 of PB No. 2] c. Profit find loss and balance sheet for A. Y. 2009-10 [Page 183-188 of PB No. 2] 9. The Appellant further submits that with the intention to develop the I-T Park and operate the same, the Appellant had also made an application before the Ministry for approval and permission for constructing I-T Park. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. 2017 [Page No. 409-447 of PB No. 2] 7. 3. Written submissions on Ground No. 4 of the Appellant s Appeal 1. In connection with the Ground No. 4 challenging the addition of Rs. 3,89,26,200/- on account of difference in Revenue recognised by the appellant from the Hotel Building, we state and submit as under: 2. In the orders passed, the aforesaid issue has been discussed by the Ld. A. O. at Para 4-4. 18 of the assessment order and by the Ld, CIT(A) at para 7-7. 3. 5, page 21-33 of his order. The Ld. A. O. observed that the income was offered by appellant on Percentage Completion Method. As such, on the Total Estimated Contract Value (hereinafter referred to as 'ECV' of Rs. 136,62,50,000, the appellant had applied 39. 89%, being the proportion of work completed on the said Estimated Total Contract Value. Accordingly, the profit during the year was determined at Rs 6,82,57,060/-. In the similar manner, the profit was also derived in the subsequent year based on % of work completed till 31. 03. 2011 and the profit from the project, in excess of what was offered during the year under appeal, was offered in the next year. The Ld. A. O. observed that while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, the said issue was undisputedly be revenue neutral. The courts have consistently held that any issue which is revenue neutral should not be disputed by the Department more so when it does not have any overall tax impact. In this regard, reliance is placed on the following decisions: a. CIT v. Excel Industries Ltd. [358 ITR 295] (Para 32) b. CIT v. Millennium Estates (P. ) Ltd. [93 Taxmann. com 41 (Bom. )] (Para 10) 9. In light of the above, the Appellant humbly submits that presuming without admitting that the stand of the Ld. A. O. is correct, the aforesaid addition being revenue neutral with kindly be deleted since no prejudice wras caused to the Department. 5. Without prejudice to the above, on merits of the issue, the said addition was factually and legally unwarranted. 6. The Appellant submits that due to delay in the construction activity on part of the Appellant and for several other reasons, the contractee had insisted on reducing and revising the Estimated Contract Value agreed between them. These negotiations were being carried out since a long period of time and the discussions were documented immediately upon close of the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting principle, such contingencies are to be taken into account. While deciding the same and allowing the loss in the year of claim, the Hon ble Tribunal relied upon Para- 8. 2 of AS- 4 which permitted the existence to be made in the financial statements for the events occurring after the balance sheet date. The copy of the said decision is enclosed herewith. 9. The Hon ble Tribunal, in the case of ACIT v. Allied Gems Corporation (Bombay) [55 ITR (Trib. ) 198 (Mum. )], has also taken an identical review relying upon AS-4 and allowing the deduction considering the events occurring after the balance sheet date. 8. Submission by the Ld. Departmental Representative: 8. 1 Written submission of the DR is reproduced as under : The appellant submitted that the aforesaid enhancement of income, by rejecting the treatment of the transactions of capital gains and treating the same as business income is beyond the powers conferred u/s. 251 of the Act. In this regard, the appellant has relied on the decision of Hon ble Jaipur Tribunal in the case of Jagdish Narayan Sharma v. ITO [65 ITR (Trib. ) 194]. However, as pointed out during the course of hearing, the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly interpreted in that case. 3. As per the section 251(1) of the Act, there is no fetter on the power of the CIT(A) in making enhancement. In this regard, reliance was made upon the decision of Hon ble Supreme Court in the case of CIT v. NirbheramDeluram [91 Taxman 181] during the course of hearing, wherein the Hon ble Supreme Court has held that the additions made by AAC on account of unexplained hundi loans, which have not been considered by the ITO, was justified. In the said case, the concerned year was assessment year 1956-57. The ITO completed the assessment by his order dated 11th March, 1957. During the assessment proceedings for the succeeding year, the ITO noticed certain entries relating to hundi loans which were not genuine and which could be considered as income from undisclosed sources for the assessment year 1956-57. Reassessment proceedings were started and in these proceedings, the ITO considered twelve bogus entries ostensibly relating to hundi loans and he assessed the amount of undisclosed income at Rs. 2,45,000 by working out the peak credit . In the appeal preferred by the assessee, the AAC, on scrutiny of the cash book, discovered ten more bogus entri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise, an appellate authority while hearing the appeal against the order of a subordinate authority, has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitation, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. (p. 693) Taking note of the decision in Gurjargravures (P. ) Ltd. 's case (supra), the Court has said: ... Apparently, this view taken by the two Judge Bench of this Court appears to be in conflict with the view taken by the three Judge Bench of this Court in Kanpur Coal Syndicate case [1964] 53 ITR 225. It appears from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT [2019] 111 taxmann. com 93 (Allahabad). In that case, AO completed assessment and made three additions. In appeal, the CIT(A) deleted two additions but examined the labour register including bills, vouchers and ledger accounts as well as details of sundry creditors and enhanced the income of by Rs. 26. 50 lacs which included disallowances to the extent of 50% of wage expenses claimed by appellant in profit and loss account and 50% of sundry creditors appearing in balance sheet of the assessee. The Hon ble Court took a view that the power of Commissioner (Appeals) cannot be restricted on the ground of new source of income, as Section 251 clearly envisages the power of the appellate authority for considering and deciding any material arising out of proceedings in which order appealed against was passed. In the present case, all the materials looked upon by the appellate authority was before the assessing authority, as such the Commissioner (Appeals) rightly proceeded to decide the same as it arose out of the proceedings of assessment and upheld the decision. Similar view was taken in the case of Kashi Nath Candiwala 144 Taxman 840 (Allahabad). 7. The appellant has also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. 2 There are two instances, where the Ld. CIT(A) has changed the head of the Income. In first case the Assessee offered the sale of land as Capital gain and AO also taxed it as Capital gain but the Ld. CIT(A) held it as Business Income. The question before CIT(A) was Valuation U/s 50C. Second Instance, the Assessee offered income of Rs,4,77,20,760/- as Rent received from Matrix as Income from House Property and AO also treated it as Income from House Property, but the Ld. CIT(A) held it as Business Income. 10. 3 The ld. Authorised Representative(ld. AR) for the assessee explained that the Assessing Officer(AO) has assessed income as Capital Gain. However, the ld. CIT(A) treated the same income as Income from Business . The Assessee has shown Rental Income, the AO assessed it as Rental Income, but the CIT(A) held it as Income from Business. The ld. AR further submitted that the ld. CIT(A) failed to provide opportunity of being heard while changing the Head of Income. The Ld. AR submitted that before enhancement the CIT(A) should have issued show cause notice u/s 251(2) which is a mandatory condition. The ld. AR invited our attention to the copy of the order sheet entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated the impugned business income as positive income. The Assessee gets fixed deduction under the head Income From House Property without any evidence of repairs but once the Income is treated as business income the deductions is not automatic. Thus, there is definitely enhancement. Therefore, the CIT(A) was duty bound to follow procedure laid down in Section 251(2) of the Act. For the sake of convenience, the Section 251 is reproduced here under : 251. (1) In disposing of an appeal, the [* * *] [Commissioner (Appeals)] shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment [* * *]; [( aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by, the Settlement Commission, in the course of the proceeding before it and such other material as may be brought on his record, confirm, reduce, enhance or annul the assessment;] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The Assessing Officer accepted the computation of Long Term Capital Gain in the hands of assessee; however, denied the deduction claimed under section 54F of the Act on the ground that the new asset was not purchased through registered documents and even till date of assessment order, the sale deed was not executed and balance consideration was still payable. The assessee filed appeal against the said order of Assessing Officer and made claim for allowing deduction under section 54F of the Act. In this regard, additional evidences of payment of balance consideration and sale deed being registered in the year 2013 was filed. The aforesaid additional evidence was confronted to Assessing Officer and he was asked to submit remand report. In the said report, the Assessing Officer was of the view that the development rights which have been sold by assessee does not imply that the assessee was the owner of the said land. The Assessing Officer was of the opinion/ view that gain arising from transaction had to be assessed as income from other sources and such proposition was made in the remand report. The Assessing Officer also held that the assessee, in such circumstances, was not enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come but was also enhancing the assessment, since income which is assessed in the hands of assessee as per direction of CIT (A) had worked out at Rs. 49,41,225/- as against income assessed by the Assessing Officer under the head Long Term Capital Gain at Rs. 48,75,610/-. The second aspect is rate of tax. In case income is assessed under the head Long Term Capital Gain, the rate of tax is lower than the rate applied when the income is being assessed as business income. In view thereof in not giving an opportunity or any show cause notice of enhancement as required under section 251(2) of the Act, the order of CIT (A) suffers from infirmity and the same cannot be sustained. 15. Another point to be noted here is that when income was assessed under the head Long Term Capital Gain, then rate of tax was lower than the rate applied when the income was being assessed as business income. Regarding second aspect, the Ld. DR for the Revenue submitted that where issue of different head of income had arisen, assessibility was done by the Assessing Officer, then notice had to be issued by Assessing Officer, when remand report was called for his comments. It may be pointed out herein in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re met only if opportunity to represent is given in view of proposed action. The demands of natural justice are not met even if the very person proceeded against has furnished the information on which the action is based, if it is furnished in a casual way or for some other purpose. We do not suggest that the opportunity need be a 'double opportunity' that is, one opportunity on the factual allegations and another on the proposed penalty. Both may be rolled into one. But the person proceeded against must know that he is being required to meet the allegations which might lead to a certain action being taken against him Unquote. 10. 8. Thus, as observed by Lordship, the person must be made aware about the allegations so that he gets proper opportunity to rebut it. In this case the Department has not brought on record any document to prove that the Ld. CIT(A) had issued to the assessee to explain the assessee the intention of CIT(A) to treat the income as Business Income, which was assessed by the AO as Capital Gain and Income from House property. It is mandatory for the Ld. CIT(A) to show cause the assessee before making any enhancement. In this case we have already h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO asked the assessee for the reason. Assessee submitted that due to delay in the project the scope of work had been reduced by the Purchaser. The Assessee submitted copies of some Emails written by the purchaser to the assessee. The AO rejected the assessee s submission and calculated the revenue on the Cost of Contract as mentioned in the registered Agreement. The CIT(A) upheld it. 13. 1. DR s written submission : 6. In fact, the claim of the appellant is against the basic concept of the Percentage Completion Method (PCM) itself, which is claimed to be followed by it. As per PCM, at the close of the year, estimates of the total revenue of project and total cost are made; the sales, expenses and the profit for the year are recognized accordingly and then, in the subsequent yar, again this process of such estimation is repeated, considering the change in facts during that year, if any, and so on, until the project is complete. In the present case, at the end of the year present year on 31. 3. 2010, there is not even a whisper of any such proposed reduction in estimates and therefore, the estimate of TCV can not be reduced in the year under consideration and the cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 10. 03. 2014 for A. Y. 2011-12 passed u/s 143(3) of the Act. [Page 351-360 of PB No. 1]. Under these circumstances, it was not justified on part of the Ld. AO to deny the revision of the estimated contract value during the year under appeal and take a self-contradicting stand. 8. Further, admittedly, the Appellant is liable to tax on the income earned out of the project which is carried on over a period of years. The profit from the said project is therefore required to be offered on periodical basis by applying percentage of completion method. It is submitted that the addition made by the Ld. AO during the year under consideration is therefore revenue neutral inasmuch as and excess profit determined for the year under consideration will result into reduction of the profit in the subsequent year, i. e. A. Y. 2011-12. Since the tax rate for both the years are identical in case of the Appellant company, the said issue was undisputedly be revenue neutral. The courts have consistently held that any issue which is revenue neutral should not be disputed by the Department more so when it does not have any overall tax impact. In this regard, reliance is placed on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the Circumstances of the case and in law the Learned CIT(A) was erred in confirming the Addition made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 amounting to Rs. 25,65,002/-. 3. The Appellant craves leave to add, alter, amend and/or withdraw any of the grounds of appeal at any time as when the occasion demands. 4. All the aforesaid grounds of appeal are independent in the alternative and without prejudice to one another. Additional Grounds of appeal: 1. The Ld. Commissioner of Income-tax (Appeals) has erred in law and in facts in treating the income from sale of immovable property as business income as against the income from capital gains offered by the appellant and also duly assessed by the Assessing Officer as such. 2. The Ld. Commissioner of Income-tax (Appeals) ought to have appreciated that the Assessing Officer was unjustified in invoking s. 50C of the Act while determining the income from capital gains thereby making addition of Rs. 17,75,749/-. 19. Now we take up Assessee s Appeal in ITA No 1738/Pune /2016 AY 2011-12. The CIT(A) has merely followed the order for AY 2010-11. 20. First issue is treatmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence of earning rental income in AY 2009-10 from the impugned Asset, demonstrates the same. The impugned asset was hold for almost around four years. 22. Hon ble Bombay High Court in the case of Pr. CIT vs Jogani and Dialani Land Developers and Builders,[2020] 117 taxmannn. com 139 (Bom. ) in which Hon ble Bombay High Court has observed as under : Quote, We find that, both the CIT(A) as well as the Tribunal have come to a concurrent finding of fact on examination of the record, that 2. 10 lakh sq. mtrs of land has been held by the Respondent as investment. This, it found is evident from the books of account, balance sheet of the Appellant and the treatment given to it in its accounts. This finding of fact was further confirmed by the visit of the Inspector who was deputed by the Assessing Officer to verify the correctness of the Respondent's claim that the 2. 10 lakh sq. mtr of land was being held as an investment as no construction activity was carried out on the same. The submission made on behalf of the Appellant completely ignores the fact that, it is always open to an assessee to hold the same class of assets as investment and also as stock-in-trade. Ther ..... 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