TMI Blog2023 (7) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... inating material on record to justify such disallowance. The said disallowance has been made by the AO without making reference to any incriminating material which is evident from the assessment order. Correct head of income - sale of investment property - intention of the assessee - Nature of gain or profit on sale of 6 out of 7 flats sold by the assessee - Profit and Gains of Business or Profession OR Income from Capital Gain - HELD THAT:- Intention shown from the main object clause of memorandum of Association and conduct of the assessee shown from the accounting treatment and period of holding of the apartments are also another factor showing as investor looking to earn income from rental and appreciation in the value of assets held by it. In view of above facts we hold that conduct of the assessee is more like to earn the lease rent from the property and not to exploit these properties as business assets. Assessee has not undertaken any other projects of similar nature which could even remotely indicate that the assessee had intention and mindset of a businessman looking to earn profits by taking risks and engaging in multiple activities at once. The position th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 69C of the Act by the Assessing Officer and sustained by ld CIT [A] is reversed and addition is directed to be deleted. Disallowance u/s 14A r.w.r. 8D - Suo moto disallowance made by assessee - sufficiency of own funds - HELD THAT:- Assessee had sufficient non-interest bearing funds to cover the amount of investment in mutual funds which yielded exempt income. Accordingly, presumption is available that the investment was made by the assessee out of its own funds and no interest bearing funds were utilized and no expenditure incurred in order to earn exempt income. This leads to a conclusion that no interest disallowance is warranted under the provisions of section 14A r.w.r. 8D of the Act. Administrative expenses u/r 8D (2) (iii) - We direct the ld AO to restrict the disallowance to the extent of only 0.5% of average of exempt income yielding investments. In this case the average of such mutual fund investments - Therefore, we partly allow the appeal of the assessee. - Shri Prashant Maharishi, AM And Ms. Kavitha Rajagopal, JM For the Revenue : Smt Shailja Rai, CIT DR For the Assessee : Shri Sashi Tulsiyan, AR ORDER PER BENCH:- 01. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case and in law, the Ld. CIT (A) erred in upholding the disallowance made by the Ld. AO u/s 14A of the Act to the extent of exempt income earned by the Appellant. (vi) The Appellant prays that the disallowance u/s 14A of the Act read with rule 8D be deleted or appropriately reduced. 03. The ld AO has raised following Grounds of Appeal: For A.Y. 2015-16: i. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals)-50, Mumbai, has erred in treating the proceeds received on sale of flats under consideration as capital gain, without appreciating the facts that the Investigation Wing has carried out thorough investigation to determine the actual object of the assessee company and the information unearthed by the Investigation Wing during the course search leads to the finding that intention of the assessee was never to lease out the property but merely work as a builder and developer. ii. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals)-50, Mumbai, has erred in not appreciating that on similar grounds in the assessee s own case, he has confirmed the action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and in law, the Ld. CIT (A) was right in restricting the disallowance u/s 14A to the extent of exempt income earned by the assessee which is contrary to CBDT Circular No. 5/2014 which clarifies that Rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. 04. During the course of hearing assessee made a prayer for admission of Additional Ground of Appeal for A.Y. 2017-18 and A.Y. 2018-19 which are identical reads as under: That in the facts and in the circumstances of the case and in law, the Ld. CIT-(A) erred in directing the Assessing Officer to treat the unsold flat as Stock-in-Trade instead of Investment which was not the subject matter of assessment thereby travelling beyond the scope of assessment. 05. After hearing the parties we find that it is a connected issue to the main issue in appeal. No fresh facts are required to be adjudicated. It is challenge to the power of the ld CIT (A) to give a direction which was not subject matter of appeal before him. Therefore this ground of appeal is admitted. 06. On perusal of grounds of appeal raised by the parties, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Aurum Platz Pvt. Ltd. w.e.f. 04.02.2011 and also altered its Memorandum of Association on 17.02.2011. c. The main object clause of the assessee company after the alteration of MOA read as under: To own and let out apartments in the building situated at C. S. No. 406, Part-I bearing D ward no. 2574(3), Street No. 58-70, 6A, Chowpatty Road of Malabar Hill Division at Pandita Ramabai Road, Babulnath Cross Lane, Mumbai 400007 also known as Aurum Platz for rent. d. The assessee company, before altering its MOA, in line with its objects had already purchased a plot of land on 31.01.2008 at C. S. No. 406, Part-I bearing D ward no. 2574(3), Street No. 58-70, 6A, Chowpatty Road of Malabar Hill Division at Pandita Ramabai Road, Babulnath Cross Lane, Mumbai 400007 which was shown as investments in its Audited Financial Statements. e. Assessee Company commenced the construction of the building on the said piece of land on 25.02.2010 and the occupation certificate of the project was received by the company on 05.09.2013. The project was finally named as 7, Marine Drive which consisted of 7 duplex apartments in the 20 storied building. The total cost of construction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that since there was no prospective tenant in sight, it had to sell one of the apartments to recoup a part of the investment made by it towards the construction of the building. j. The LD AO was of the view that the conduct of the assessee company was not in line with the main object clause of the company and that the assessee company was operating as a builder and developer and not as an investor. k. Accordingly, he denied the claim of the assessee company of taxing the proceeds from sale of flats under the head Capital Gains and brought the said proceeds to tax under the head Profits and Gains from Business and Profession . 12. The Assessing Officer also disallowed the interest claim of the assessee u/s 36(1)(iii) amounting to Rs. 11,23,58,808/- on the ground that amount of investment at the year-end is higher than the amount of interest-bearing loans taken by the assessee, therefore there is presumption that interest bearing funds have been used for non interest bearing investments. 13. Consequently assessment order us/ 153 A rws 143(3) of the Act was passed on 30/12/2019 determining the business income of the assessee and total income at Rs. 19,09,96,845/-. So th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... piece of additional evidence was submitted by the Ld. DR during the course of hearing on 08.03.2023 in the form of Memorandum of Association of the assessee company entered at the time of its incorporation. 16. The Ld. AR opposed the admissibility of these Additional Evidences and also the relevance and evidentiary value of the documents comprising such additional evidences. It was submitted that Rule 27 of the ITAT Rules does not provide for any application of additional evidence and that merely filing a letter admitting inadvertent error was not reason enough to rectify the mistake made by the revenue. That an affidavit should have been filed in terms of Rule 10 of ITAT Rules. It was also argued by the Ld. AR that the documents sought to be admitted under the garb of additional evidence were nothing but part of regular records and books of accounts maintained by the assessee which could have been very well called for by issue of notice dated 142(1) during the course of assessment proceedings. These documents did not relate to any undisclosed income of the assessee unearthed during the course of search proceedings and accordingly they cannot be termed as incriminating evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch proceedings leads to finding that intention of the assessee was never to lease out the apartments but act as a builder and developer. 20. We are not in agreement with the contention of the Ld CIT DR, for the reason that the treatment of income received from sale of apartments as business income of the assessee, was made by the AO based on the regular books of accounts maintained by the assessee and details called for during the course of assessment proceedings u/s 153A of the Act. There was no reference of any incriminating material found during the course of search in the assessment order. 21. There is nothing on record which suggests that there was any undisclosed income earned by the assessee based on any material found during the year. 22. Even otherwise , the Ld CIT DR has submitted Board Resolution dated 26, November 2013 , escrow agreement, undertakings to lenders and security package where in the company intends to borrow money from IFCI limited. For this purposes various formalities are carried out, same is also reflected in its books of accounts. Naturally for borrowing, escrow accounts are to be opened and fixed deposits are to be pledged, further securitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance. The said disallowance has been made by the AO without making reference to any incriminating material which is evident from the assessment order. 26. Accordingly we confirm the decision of LD CIT (A) and dismiss appeal of LD AO. ITA No. 2301/MUM/2021 [A.Y. 2016-17] [By the LD AO] 27. This appeal was also filed by the revenue challenging the order of Commissioner (Appeals)-50, Mumbai dated 30.08.2021. The Grounds of Appeal raised by the revenue, the facts of case in the present appeal are identical to the Grounds raised, facts of the case in ITA No. 2300/MUM/2021 for A.Y. 2015-16 with the only difference of quantum of addition/ disallowances made. Thus, for the reason given by us in ITA No. 2300/MUM/2021 for A.Y. 2015-16 , the present appeal ITA No. 2301/MUM/2021 for A.Y. 2016-17 , order of the ld CIT (A) is confirmed and appeal of the ld AO is dismissed. ITA Nos. 2004 2005/MUM/2021 For A.Y. 2017-18 and A.Y. 2018-19 By Assessee 28. Now we come to appeals filed by the assessee in ITA Nos. 2004 2005/MUM/2021 for A.Y. 2017-18 and A.Y. 2018-19 respectively, challenging the order of Commissioner (Appeals)-50, Mumbai wherein he has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a typical builders and developers. Rather, these flats were sold over a substantially long period of 4 different assessment years which is a clear indication of the intention of the assessee of holding the said apartments as investment and not as stock in trade. v. Holding Period during which the flats were held by the assessee company from the date of commencement of construction and receipt of occupancy certificate were tabulated as follows: Assessment Year Date of Agreement Time lapsed from the date of commencement of Construction Time lapsed from the date of receipt of occupation certificate Apartment No. 2015-16 July 11, 2014 4 years, 5 months 10 months 5 2016-17 May 07, 2015 5 years, 3 months 1 year, 8 months 3 2016-17 June 12, 2015 5 years, 4 months 1 year, 9 months 6 2016-17 December 29, 2015 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of trade i.e. there was no bulk purchase, no advertisement for sale of its properties, no similar venture was entered by the assessee and the properties were held for long span of time and thus the income on sale of flats was not chargeable under the head Profits and Gains of Business or Profession . In support of this contention, the Ld. AR relied on the decision of Hon ble Bombay High Court in the case of Ashok Kumar Jalan vs. CIT reported at 187 ITR 316 (Bom.), Hon ble Delhi High Court in the case of CIT vs. Dr. Indu Bala Chhabra 132 taxman 45 wherein the Hon ble Court observed that income from sale of shops cannot be treated as business income as no prudent person would wait for ten or twenty years to dispose of a property. xv. Even as per the provisions of Section 2(14) of the Act which defines Capital Asset , Section 2(29A) which defines Long term Capital Asset and Section 2(42A) which defines Short Term Capital Asset the period of holding of the properties in question before they were sold was more than 36 months as is evident from the above-mentioned chart and accordingly, the gains arising on sale of such assets was squarely covered by the provisions of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flats, i.e. bear shell sale of flats iii. That the first flat was sold on 11.07.2014 and from perusal of the sale agreement, it can be seen that a declaration dated 10.06.2014 was filed by the assessee-company under the Maharashtra Apartment Ownership Act, 1970 through which the purchasers were granted proportionate share in common areas of the building apart from proportionate undivided interest in land. iv. That the work of elevators and windows were completed in 2015, thus the assessee company cannot claim that the units at 7, Marine Drive were meant to be leased out when the building itself was incomplete v. That approximately 40% of payments to contractors were made after F.Y. 2013-14 i.e. after receipt of occupancy certificate. vi. That the assessee had received advance towards flat prior to provision of water connection in the building which meant that the assessee had no intention of renting the flats since no person who has intention to lease the flats will offer it for sale prior to water connection being provided. vii. That the assessee did not make any efforts to lease out the flats in the building. 32. Against these findings, the Ld. AR has filed su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment that construction activity included in the other object clause will cover the sale of flats of the project specified under the main object clause is devoid of merit and is not sustainable. Even otherwise, for the sake of argument if it is assumed that the assessee had entered into other construction activity even in that case it would not affect the main purpose of the assessee company which was to own and lease out the flats in the building named 7, Marine Drive . It is important to understand that there is no restriction on an assessee to engage in investment as well as business of the same product / commodity. The CBDT in the Circular No. 4/2007 dated 15.06.2007 (Copy attached at Page Nos. 1-2 of the Paper book-II) has clarified in the cases of sale of shares, a tax payer can hold both investment portfolio wherein the shares are held as an capital asset as well as a trading portfolio wherein the tax payer holds the shares as stock-in-trade . The relevant portion of the aforesaid circular is reproduced hereunder for ready reference: CBDT also wishes to emphasize that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building were fully designed as per the highest standards carrying a clear intention that as an investor, the Assessee Company would furnish the common areas as per rational standards whereas the specific units would be furnished in accordance with the preferences of prospective lessee. Thus, the flats in the apartment were not fully furnished in order to accommodate the choice and preference of prospective lessees. If a standard furnishing was provided in the apartments then it would have restricted the prospective lessees, since in such high end flats the per month rent payments run into lakhs of rupees which can only be afforded by high net worth clients who prefer the furnishing to their specific choice and liking. It is also pertinent to mention that, going by the logic given by the department that the assessee had no intention of leasing the flats due to the reason that flats were not furnished then in that case the assessee could not have sold the said unfurnished apartments. This is because whether a person approaches the assessee as a buyer or a lessee the ultimate purpose of the said person would be to stay in such apartment which is not possible in an unfurnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g sold. The relevant provisions of the Maharashtra Apartment Ownership Act, 1970 are reproduced below for ready reference: Section 13 of the Maharashtra Apartment Ownership Act, 1970 - Declarations, Deeds of Apartments and copies of floor plans to be registered. 13. (1) The Declaration and all amendments thereto and the Deed of Apartment in respect of each apartment and the floor plans of the buildings referred to in subsection (2) shall all be registered under the [Registration Act, 1908]. (2) Simultaneously with the registration of the Declaration there shall be filed along with it a set of the floor plans of the building showing the layout, location, apartment numbers and dimensions of the apartments, stating the name of the building or that it has no name, and bearing the verified statement of an architect certifying that it is an accurate copy of portions of the plans of the building as filed with and approved by the local authority within whose jurisdiction the building is located. If such plans do not include a verified statement by such architect that such plans fully and accurately depict the layout, location, apartment numbers and dimensions of the apartments as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or leasehold 1[and whether any lease of the land is to be granted in accordance with the second proviso to section 2 of this Act]; (b) Description of the building stating the number of storeys and basements, the number of apartments and the principal materials of which it is or is to be constructed; (c) The apartment number of each apartment, and a statement of its location, approximate area, number of rooms, and immediate common area to which it has access, and any other data necessary for its proper identification; (d) Description of the common areas and facilities; (e) Description of the limited common areas and facilities, if any, stating to which apartments their use is reserved; (f) Value of the property and of each apartment, and the percentage of undivided interest in the common areas and facilities, appertaining to each apartment and its owner for all purposes, including voting; and a statement that the apartment and such percentage of undivided interest are not encumbered in any manner whatsoever on the date of the Declaration ; (g) Statement of the purposes for which the building and each of the apartments are intended and restricted as to use; .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the building was supposed to be owned by the Assessee Company and flats were to be leased out based on the likings and preferences of prospective lessees and therefore it first installed one elevator and basic windows structure in each of the flats. Also, as stated above the Ld. A.O. had himself accepted the fact that one lift was installed in 2013 i.e. before the receipt of occupancy certificate and only the second lift i.e. P2 was completed in 2015. A building can very well function with one lift and there is no such mandate that all the lifts in the building should be always in perfect working condition so as to lease out the flats. However unable to lease out the apartments, there was no choice with the Assessee Company but to upgrade the buildings with the hope that it would be able to lease out in future and therefore the basis windows were replaced by aluminum windows in each of the apartment for which the expenditure was incurred by the assessee. Even otherwise, the Ld. A.O. did not consider that the Occupation Certificate was already received by the Assessee Company on 05.09.2013 only after installation of first lift and basic windows in all the flats. The only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .21 Crores and also skipped the payments made in F.Y. 2009-10 and 2011-12. If these payments would have been considered then the percentage of payments made after the receipt of occupancy certificate would have been significantly reduced. The Ld. A.O. cannot pick and choose the figures as per his convenience to suit his case and ignoring the complete picture. The Actual Expenditure incurred by the assessee over the years from the time the land was first acquired which was capitalized in the books of accounts is given in the table below which was also reproduced by the Ld. A.O. in Para 6.12 of his assessment order: F.Y. Nature of Expenditure Amount (Rs.) 2008-09 Land Purchase 13,21,53,000 2009-10 Construction Cost 2,05,000 2010-11 Construction Cost 2,06,51,632 2011-12 Construction Cost 2,60,74,804 2012-13 Construction Cost 4,45,42,406 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the above facts it is evident that only 11.31% of total construction cost was actually incurred in F.Y. 2014-15 which is an insignificant amount as compared to the cost of construction incurred before the occupancy certificate was received by the assessee. Therefore, it is submitted that the contention of the department is based on erroneous and incomplete set of facts and thus cannot be used against the assessee for alleging that the sale of flats were adventure in the nature of trade and not a capital gain transaction. F. Submission with respect to the application and receipt of water connection in the building after the receipt of occupancy certificate: It is submitted that the assessee had applied for permission of the water connection in the building on 30.10.2013 (Copy of the application letter is attached at Page Nos. 127-128 of the Paper book-I). The approval for water connection was received by the assessee vide letter signed by the local authority on 31.01.2014 (Copy of the said letter is attached at Page No. 129-130 of the Paper book-I). These documents in relation to the application and approval of water connection were submitted during the course of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to lease the apartments. Therefore, if the Ld. A.O. alleges that apartment cannot be leased out without water connection, then in that case the apartment cannot be sold without a working water connection. This fact was not at all considered by the Ld. A.O. while passing the assessment order and he conveniently chose to ignore this crucial aspect in an immovable property transaction. In fact, if the apartment could be sold without a water connection then it could have also been leased and water connection could have been put by the time the lessee would have come to live there. Thus, it is submitted that this contention of the Ld. A.O. does not have any bearing on the treatment of flats and consequent treatment of gains arising on sale of such flats. Moreover, the pipeline fittings and connection for the purpose of water supply to each and every flat was already completed at the time of construction of the building and before the receipt of occupancy certificate since it is a part of structure of the building and cannot be done separately after the construction of building is completed. In fact, the occupancy certificate of the building would not have been granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces that determine the character of the transaction. No one rule of thumb or yardstick can be established to determine the nature of transaction. Each case has to be determined on the total impression created by all the facts and circumstances of a particular case. One of the principal tests is the intention of the assessee and the conduct of the assessee over the period for which the asset is held by the assessee. If the asset is sold since an enhanced price could be obtained, that by itself is not enough to infer that an assessee is carrying on business. In the case of Pari Mangaldas Girdhardas v. CIT reported at 1977 CTR (Guj.) 647 (Copy attached at Page Nos. 171-192 of the Paper book-II), the Hon ble Gujarat High Court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business, as under: ... a) The first test is whether the initial acquisition of the subject- matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to utilization of land was to hold it as an investment and earn rental income out of the same once the building was constructed. Therefore, the assessee has satisfied the criteria laid down in this test. b. Second Test- Subsequent Sale: As explained earlier, the assessee had sold its first flat on 11.07.2014 i.e. after 10 months from the date of receipt of occupation certificate. This was done by the assessee with a view to recover part of the huge investment made by it since there were no inquiries from any tenants to take the land on lease. Also, due to the prime location of the property the assessee received inquiries from prospective buyers. Thus, the initial sale of flat was done to recoup the investment which does not change the fact that the main object of the assessee was still to lease out the flats in the building. Therefore, the assessee has satisfied the criteria laid down in this test. c. Third Test- Treatment of asset by the assessee: It is an undisputed fact that the assessee from the very beginning i.e. from the time when the land was purchased till date when the last of the flats is held by the assessee has classified it as an investment in its financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from the communication letters with broker as referred to in Para 24 above. The first apartment was sold by the assessee vide agreement dated 11.07.2014 which is after a long gap of 6.5 years from the date of acquisition of land which was done because there was no option left with the assessee as there was no prospective tenant in sight for leasing the flat and this was the only flat sold in A.Y. 2015-16. Further, the assessee sold 3 flats in A.Y. 2016-17 and one flat each in A.Y. 2017-18 and A.Y. 2018-19. The assessee had waited for a substantial period of time before selling each of the flats to see if any of these flats can be leased out. Moreover, as discussed earlier the last apartment is still held by the assessee as an investment from which the assesee is earning a rental income of Rs. 3,00,000/- per month from October, 2018 (A.Y. 2019-20) till date. The above facts clearly show that there was no volume, frequency, continuity or regularity with respect to purchase and sale as the time gap between the first purchase and first sale is a substantial gap of 6.5 years which is in complete contradiction to a normal behavior of typical businessmen. No prudent businessman w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit did not mean that when the assessee purchased the shares, it was with an intention to sell them at a profit. (4) That an investor may sell the shares when he gets a good price for the shares. (5) That the assessee had shares in 25 to 30 companies and the value of the total holding was between Rs. 57,000 and Rs. 63,000, which was a very small amount considering the number of companies in which the shares were held, thus, denoting that the assessee was a small investor. (6) That the numbers of transactions are not many every year and the assessee could not be said to indulge in several transactions of purchase and sale every year. 10. It has further been held that total fact of relevant factors and circumstances determining the character of the transaction and the volume, frequency continued and regularity of transactions of parties and sale on goods has also be taken into account. It has been held that the aforesaid question is a question of fact it has to be determined in the fact situation of the case. 11. In the light of aforesaid settled legal principles, the facts of the case may be examined. Admittedly, the properties were acquired by the assessee in the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock in trade. Thus in the present case no doubt assessee has shown the constructed property as investment but that is not determinative at all whether the income from sale of such asset is chargeable to tax as capital gain or business income. All surrounding facts need to be examined and appraised. There are no straight jacket formulae or principles which fit in to all situations to give the answer. 34. In Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC) It was noted that the difficulty arises where the transaction is outside the assessee's line of business and then, it must depend upon the facts and circumstances of each case whether the transaction is in the nature of trade . Thus, while neither continuity of similar transactions is necessary to constitute such a transaction as adventure in the nature of trade it will depend on the facts and circumstances of every case whether the assessee has been able to demonstrate, by placing relevant materials that the transaction undertaken by it was, in fact, in the nature of trade. 35. We also find that Honourable Karnataka High court in Commissioner of Income Tax (Central) Vs Bagmane Developers (P.) Ltd.* [2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. The nature of the commodity was made with the intention to re-sell, if an enhanced price could be obtained, that by itself is not enough to infer that an assessee is carrying on business. However, though profit motive in entering into a transaction is not decisive, if the facts and circumstances indicate that the purchase of the asset factor for inferring that the transaction was in the nature of business. 11. In the case of Pari Mangaldas Girdhardas v. CIT [1977] 6 CTR 647 (Guj.), after analyzing various decisions of the Apex Court, this Court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject- matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r water connection it is mandatory to have building occupation certificate so water connection was applied after obtaining OC 37. Now whether the intention of the assessee was to hold the apartments as investment or to sell them to earn profit and whether the conduct of the assesee is that of a businessman or that of an investor. As regards the intention of the assessee, it is observed that the assessee had intention of holding the apartments as investment and leasing it to the tenants to earn rental income which is substantiated by the documentary evidences submitted before us in the form of Memorandum of Association of the assessee company, correspondence letters with the broker, audited financial statements of the company wherein the land building are capitalized and treated as investment and also the fact that the said asset was held by the assessee for a very long duration. With respect to the conduct of the assessee company i.e. the question whether the act of sale of apartments by the assessee is an adventure in the nature of trade or income from capital gains can be decided in light of the tests laid down by various judicial precedents. These tests act as a yardsti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o incriminating material was found by the department which has already been discussed at length. As such there being no change in facts and circumstances of the case and in law, there is no reason to deviate from such stand taken by both the parties. Where an inquiry has been made in the earlier assessments years and income was inferred as capital gain, there can be no jurisdiction to assess the income as business income in subsequent years, merely saying that it was decided wrongly in those years. There could have been an action u/s 147 or u/s 263 of the Act, if it is wrong. 43. We find that the assessee company did not engage in any other such real estate project and therefore there is no volume, frequency, continuity or regularity with respect to purchase and sale. Only because the assessee company has sold apartments does not mean that they are engaged in business activities. There is only one time purchase of land and only one project was conducted on such land which was sold apartment by apartment spanning over a number of years and out of which even today one apartment remains unsold. 44. Even the Hon ble Bombay High Court in the case of Ashok Kumar Jalan (supra) held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al practice in case of builders and developers. As against this, the assessee had been holding the land and the property for more than 6.5 years from the date of acquisition of land in F.Y. 2007-08 before being forced to sell one of the apartments in the month of July, 2014. Furthermore, with respect to the Memorandum of Association entered at the time of incorporation of the assessee company which was submitted by the Ld. DR before us, enforces the contention of the assessee and works in the favour of the assessee rather than revenue. This can be explained with the terms of the main object clause and objects incidental or ancillary to the main object clause of the said memorandum. The relevant paras are: Main Object Clause: 2. To carry on the business of owners of lands, flats maisonattes, dwelling houses, shops, offices, industrial estates, lessees of lands, flats and other immovable properties and for these purposes to purchase, take on lease or otherwise acquire and hold any lands or Buildings of any tenure or description wherever situated, or rights or interests therein or connected therewith, to prepare building sites, and to construct, re-construct, pull down, ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Date of Commencement of Construction 25.02.2010 - 3. Receipt of Occupancy Certificate 05.09.2013 5 years, 8 months 4. Sale of First apartment 11.07.2014 6 years, 6 months 5. Sale of Second apartment 07.05.2015 7 years, 4 months 6. Sale of Third apartment 12.06.2015 7 years, 5 months 7. Sale of Fourth apartment 29.12.2015 7 years, 11 months 8. Sale of Fifth apartment 19.01.2017 9 years 9. Sale of Sixth apartment 21.09.2017 9 years, 8 months Last flat is still held by the assessee and still classified as an investment in its books of accounts. Above event chart shows period of holding of the apartments is one of the factor which shows conduct of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the Assessing Officer for assessment year 2003-04. The Tribunal by impugned order while applying rule of consistency held that it is not permissible for the revenue to agitate the same issue when in the earlier assessment year 2003-04 the same being taxable as capital gains has been accepted by the revenue. In that view of the matter, we see no reason to entertain the questions (c) and (d). 48. In Assistant Commissioner of Income-tax v. Shree Ami Office Owner s Association [2023] 148 taxmann.com 130 (Ahmedabad Trib) coordinate bench on identical facts and circumstances has held as under :- 10. The second issue for consideration before us is whether in the instant set of facts, it can be held that the above sale of property was capital gains or adventure in the nature of trade and hence taxable as business income. We are in agreement with the order of Ld. CIT (Appeals), wherein he has held that the mere fact that the assessee AOP purchased the land and made construction thereon itself would not be sufficient to hold that income earned on such sale of property would qualify as business income . We note that it was on 19-01-1994 that initially the assessee taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Grounds raised, facts of the case and the law applicable in ITA No. 2004/MUM/2021 for A.Y. 2017-18 with the only exception of quantum of addition/ disallowances made. Therefore, the decision rendered in relation to ITA No. 2005/MUM/2021 for A.Y. 2017-18 shall apply mutatis mutandis to the appeal filed by the assessee for A.Y. 2018-19. Accordingly, the present appeal bearing ITA No. 2005/MUM/2021 for A.Y. 2018-19 is hereby allowed and we direct the AO to treat the income from sale of property as income under the head Capital Gains . Addition of Rs. 20,00,000/- u/s 69C of the Act [ITA No. 2005/MUM/2021]: 52. The facts of the case in brief in relation to this addition are that a word document was found from the computer of accountant Ms. Supriya Rajeshirke during the course of search action u/s 132 of the Act conducted in case of the assessee group. The said word document contained a declaration that one Mr. Vishal Singh, the administration manager was carrying cash of Rs. 20,00,000/- for purposes of payment for purchases. The statement of Shri Vishal Singh was recorded u/s. 132(4) of the Act wherein he stated that the document pertained to delivery of cash on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 132(4), the said amount was allegedly paid to one Mr. Nazir for electrical works. It was also submitted that the said document was unsigned, undated and it there was nothing in the said document which could conclusively prove that such expenditure was incurred by the assessee. Further, the department also failed to identify any person by the name Nazir to whom such payment was allegedly made. This being the case, the statement cannot be relied upon for making any addition especially when no corroborative evidence was placed by the department to prove that any such payment was actually made. In support of his claim, the Ld. AR has relied on the decision of Hon ble Supreme Court in case of Central Bureau of Investigation vs. V.C. Shukla wherein the Hon ble Apex Court observed that even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness; fix a liability upon a person. He also relied up on another decision of Hon ble Supreme Court in case of Common Cause (A Registered Society) vs. Union of India, 245 taxman 214 (SC). Further, the Ld. AR also relied on the decision of Hon ble Bombay High Court in the case of Lavanya Land P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no question of any signature or handwriting , to that extent the argument of the ld AR is rejected. But no doubt same also needs to be corroborated. Decision of Hon ble Bombay High Court in case of Lavanya Land Pvt. Ltd. (supra) is also directly applicable to the facts of the case at hand. In that particular case, the Hon ble Court had observed that the department had not placed on record any evidence to prove that huge amounts of cash had actually exchanged hands. In the present case also, there is no material on record to show that payment of Rs. 20,00,000/- was actually made to a person named Nazir as mentioned by Mr. Vishal Singh in his statement recorded u/s 132(4) of the Act which was subsequently retracted. Accordingly, the addition of Rs. 20,00,000/- made u/s 69C of the Act by the Assessing Officer and sustained by ld CIT [A] is reversed and addition is directed to be deleted. Disallowance u/s 14A r.w.r. 8D of the Act for A.Y. 2018-19 [ITA No. 2005 2302/MUM/2021]: 59. The facts of the case are that during the year under consideration, the assessee had earned income of Rs. 18,25,272/- being dividend income from the investment made in mutual funds which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over, it was also contended that the AO overlooked the fact that the assessee had sufficient amount of own funds to make investment in mutual funds which yielded exempt income. In this regard, the Ld. AR submitted a comparative chart showing the position of own funds and investments both at the beginning and at the end of the year. The said chart is reproduced below: Assessment Year Position of the shareholders fund as on 31st March, 2017 (Rs.) Position of the shareholders fund as on 31st March, 2018 (Rs.) Opening Balance of Investment in Exempt Income Yielding Mutual Funds as on 1st April, 2017 Closing Balance of Investment in Exempt Income Yielding Mutual Funds as on 31st March, 2018(Rs.) 2018-19 65,54,24,318/- 80,56,97,958/- 15,50,00,002/- Nil 61. From the above chart it is evident that the assessee had sufficient amount of own funds to cover the investment made in mutual funds which yielded exempt income. In support of this contention the Ld. AR relied upon the decision of Hon ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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