THE ITO WD 18(2)(1), MUMBAI v. M/S. VRINDA SHARAD BAL, MUMBAI

ITA 2968/MUM/2008 | 2005-2006
Pronouncement Date: 25-02-2011 | Result: Partly Allowed

Appeal Details

RSA Number 296819914 RSA 2008
Assessee PAN AEZPB8307E
Bench Mumbai
Appeal Number ITA 2968/MUM/2008
Duration Of Justice 2 year(s) 9 month(s) 23 day(s)
Appellant THE ITO WD 18(2)(1), MUMBAI
Respondent M/S. VRINDA SHARAD BAL, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 25-02-2011
Date Of Final Hearing 13-10-2010
Next Hearing Date 13-10-2010
Assessment Year 2005-2006
Appeal Filed On 02-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI D.K. AGARWAL (J.M.) AND SHRI PRAMOD KUM AR (A.M.) ITA NO.2968/MUM/2008 ASSESSMENT YEAR : 2005-2006 I.T.O. WARD - 18(2)(1) PIRAMAL CHAMBERS ROOM NO. 110 IST FLOOR LALBAUG PAREL MUMBAI 400 012. VS. M RS. VRINDA SHARAD BAL A-7 KAMDAR BLDG. GOKHALE ROAD (S) MUMBAI 400 028. PAN : AEZPB 8307E (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. ASHIMA GUPTA RESPONDENT BY : SHRI ARVIND SONDE & SHRI S.A. MUKADAM O R D E R PER D.K. AGARWAL J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DATED 11.2.2008 PASSED BY THE LEARNED CIT(A) FOR TH E ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE AN INDIVIDUAL OWNS TWO PROPRIETORSHIP CONCERN VIZ. (I) M/S SHREE BAL DEVELOPERS AND (II) SHREE BAL LAND DEVELOPERS WHICH ARE ENGAGED IN THE BUSINESS OF PROMOTERS BUILDERS AND LAND DEVELOPERS. THE RETUR N OF INCOME WAS FILED DECLARING TOTAL INCOME AT ` ` 2 19 309/-. HOWEVER THE ASSESSMENT WAS COMPLETED AT AN INCOME OF ` 61 40 830/- VIDE ORDER DATED 28.12.2007 ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 2 PASSED U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). ON APPEAL THE LD. CIT(A) ALLOWED THE APPEAL. 3. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE RE VENUE IS IN APPEAL BEFORE THE US. 4. GROUNDS NO. (I) & (II) READ AS UNDER:- (I) THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. (II) IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DIRECTING THE AO TO TREAT THE RENT AS BUSINESS INC OME WITHOUT APPRECIATING THE FACT THAT THE AO HAS CORRECTLY ASS ESSED THE INCOME AT RS. 48 89 194/- ON ACCOUNT OF RENT RECEIV ED BY SUB- LETTING THE UNOWNED LEASED BUILDING UNDER THE HEAD INCOME FROM OTHER SOURCES BESIDES IGNORING THE AOS FINDINGS O F THE DISCREPANCIES IN EXPENSES FURNISHED BY THE ASSESSEE . 5. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDING IT WAS INTER ALIA OBSERVED BY THE A.O THAT DURING THE YEAR THE ASSESSEE IS FOUND TO HAVE CREDI TED ` 77 67 693/- ON ACCOUNT OF BUSINESS CENTRE RECEIPTS (RENT RECEIVED) IN BUSINESS CENTRE P&L A/C OF M/S SHREE BAL DEVELOPERS AND M/S SHREE B AL LAND DEVELOPERS. THE ASSESSEE HAS OFFERED A NET INCOME OF ` 1 33 438/- ON ACCOUNT OF SUB-LETTING OF PREMISES UNDER BOTH THE P ROPRIETARY CONCERNS. THE ASSESSEE HAD TAKEN TWO BUILDINGS ON RENT FROM V ARIOUS PARTIES AND AFTER COMPLETING THE INTERIOR FURNISHING AND FIXTU RES THE SAME HAS BEEN SUB-LET TO VARIOUS PARTIES ON RENTAL BASIS. THE AO FURTHER OBSERVED THAT THE ASSESSEE WAS IN THE BUSINESS OF PROMOTERS BUIL DERS AND LAND DEVELOPERS AND THEREFORE THE INCOME DERIVED FROM TH E ACTIVITY OF SUB- ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 3 LETTING OF UNITS AGAINST TWO PROPERTIES WOULD BE CO NSIDERED AS INCOME FROM OTHER SOURCES PARTICULARLY BECAUSE THE ASSESSE E WAS NOT THE OWNER OF SUCH PREMISES. A SHOW CAUSE NOTICE IN THIS REGA RD HAD BEEN ISSUED TO THE ASSESSEE AND IN REPLY IT WAS INTER ALIA SUBM ITTED BY THE ASSESSEE THAT THE ASSESSEE HAS TAKEN TWO BUILDINGS ON RENT O N LEAVE AND LICENCE BASIS VIZ. THE KAPIL TOWERS IN KAPIL COMPLEX FROM M /S PANKAJ DYES & CHEMICALS P. LTD. AND M/S MANROE IMPEX PVT. LTD; TH EN AFTER COMPLETING THE INTERIORS AND FURNITURE AND FIXTURES THE SAME HAS BEEN SUB-LET TO VARIOUS PARTIES ON RENTAL BASIS AND IN SUPPORT THE ASSESSEE HAS ALSO FURNISHED COPIES OF LEAVE AND LICENCE AGREEMENTS MA DE BETWEEN THE INDIVIDUAL TENANTS. THE A.O. AFTER CONSIDERING THE ASSESSEES EXPLANATION WAS OF THE VIEW THAT IN VIEW OF THE PROVISIONS OF S ECTION 56(2)(III) THE INCOME EARNED BY THE ASSESSEE FROM SUB-LETTING OF T HE PROPERTIES SHALL BE ASSESSED AS INCOME FROM OTHER SOURCES AFTER ALLOWIN G DEDUCTION U/S 57(III) OF THE ACT AND ACCORDINGLY HE ASSESSED THE INCOME FROM SUBLETTING ` 48 89 194/- AS INCOME FROM OTHER SOURCES. ON APPEA L THE LD. CIT(A) CONSIDERING THE PAST HISTORY OF THE CASE THAT INCOM E HAD BEEN UNIFORMLY ACCEPTED AS BUSINESS INCOME AND IN THE ABSENCE OF A NY CONTRARY MATERIAL AVAILABLE ON RECORD HELD THAT PROVISIONS OF SECTION 56(2)(III) ARE NOT APPLICABLE TO THIS SITUATION DIRECTED THE A.O. TO TREAT THE SAID INCOME AS BUSINESS INCOME AND ALSO DIRECTED THE A.O. TO ALLOW THE EXPENSES UNDER THE HEAD INCOME FROM BUSINESS. ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 4 6. AT THE TIME OF HEARING THE LEARNED D.R. SUBMIT THAT SINCE THE ASSESSEE HAD RECEIVED THE INCOME OF ` 48 89 194/- ON ACCOUNT OF RENT RECEIVED BY SUB-LETTING THE UN-OWNED LEASED BUILDIN G THEREFORE THE A.O. WAS JUSTIFIED IN ASSESSING THE SAID INCOME AS INCOM E FROM OTHER SOURCES AND THE LD. CIT(A) HAS ERRED IN TREATING THE SAME A S BUSINESS INCOME AND ALLOWING THE EXPENSES. SHE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE A.O. BE RESTORED. 7. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE A SSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND THE LD. CIT(A) FURTHER SUBMITS THAT THERE IS NO DISPUTE THAT ASSESSEE IS THE LESSEE (TENANT) AND NOT OWNER OF SUCH PREMISES. THE ASSESSEE AFTER TAKING THE PROPERTY ON LEASE SUBLET THE SAID PROPERTY TO V ARIOUS PARTIES ON RENTAL BASIS THEREFORE THE LD. CIT(A) WAS FULLY JUSTIFIE D IN HOLDING THAT THE INCOME OF THE SAID PROPERTY IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. RELIANCE WAS ALSO PLACED ON THE DECI SION IN THE CASE OF S.G. MERCANTILE CORPORATION P. LTD. VS. CIT (1972) 83 ITR 700 (SC) WHEREIN IT HAS BEEN HELD THAT ON THE FACTS THE TAK ING OF THE PROPERTY ON LEASE AND SUB-LETTING PORTIONS THEREOF WAS PART OF THE BUSINESS AND TRADING ACTIVITY OF THE APPELLANT AND THE INCOME OF THE APPELLANT FELL U/S 10 OF THE ACT. HE THEREFORE SUBMITS THAT THE ORD ER PASSED BY THE LD. CIT(A) BE UPHELD. ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 5 8. HAVING CAREFULLY HEARD THE SUBMISSIONS OF RIVAL PARTIES AND PERUSING THE RELEVANT MATERIAL AVAILABLE ON RECORD WE FIND THAT THE FACTS ARE NOT IN DISPUTE IN AS MUCH AS IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS TAKEN THE PROPERTY ON LEASE AND AFTER COMPLETING THE INTERIORS FURNITURE AND FIXTURES SUBLET THE SAME T O VARIOUS PARTIES ON RENTAL BASIS AS PER THE LEAVE AND LICENCE AGREEMENT . THE A.O. HAS TREATED THE INCOME FROM RENT ARISING FROM SUB-LETTING OF TH E PROPERTY AS INCOME FROM OTHER SOURCES SUBJECT TO DEDUCTION ALLOWABLE U /S 57(III) OF THE ACT. HOWEVER THE LD. CIT(A) AFTER CONSIDERING THE PAST RECORDS OF THE CASE DIRECTED THE A.O. TO ASSESS THE SAME AS INCOME FROM BUSINESS AND ALLOWED THE EXPENDITURE AS BUSINESS EXPENDITURE. I N THE CASE OF S.G. MERCANTILE CORPORATION P. LTD. (SUPRA) IT HAS BEE N HELD:- (HEAD NOTES): (I) THAT SINCE THE APPELLANT-COMPANY WAS NOT THE OWNER OF THE PROPERTY OR ANY PART THEREOF NO QUESTION OF MAKING THE ASSESSMENT UNDER SECTION 9 AROSE; (II) THAT THE DEFINITION OF BUSINESS IN SECTION 2 (4) WAS OF WIDE AMPLITUDE AND IT COULD EMBRACE WITHIN ITSELF DEALIN G IN REAL PROPERTY AS ALSO THE ACTIVITY OF TAKING A PROPERTY ON LEASE SE TTING UP A MARKET THEREON AND LETTING OUT SHOPS AND STALLS IN THE MAR KET; (III) THAT ON THE FACTS THE TAKING OF THE PROPERT Y ON LEASE AND SUBLETTING PORTIONS THEREOF WAS PART OF THE BUSINES S AND TRADING ACTIVITY OF THE APPELLANT AND THE INCOME OF THE APPELLANT FE LL UNDER SECTION 10 OF THE ACT; AND (IV) THAT WHERE AS IN THIS CASE THE INCOME COULD APPROPRIATELY FALL UNDER SECTION 10 AS BEING BUSINESS INCOME NO RESOR T COULD BE MADE TO SECTION 12. THE LIABILITY TO TAX UNDER SECTION 9 OF THE INCOME TAX ACT 1922 IS OF THE OWNER OF THE BUILDINGS OR LAND APPURTENANT T HERETO. IN CASE THE ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 6 ASSESSEE IS THE OWNER OF THE BUILDINGS OR LANDS APP URTENANT THERETO HE WOULD BE LIABLE TO PAY TAX UNDER SECTION 9 EVEN IF THE OBJECT OF THE ASSESSEE IN PURCHASING THE LANDED PROPERTY WAS TO P ROMOTE AND DEVELOP A MARKET THEREON. IT WOULD ALSO MAKE NO DIFFERENCE IF THE ASSESSEE WAS A COMPANY WHICH HAD BEEN INCORPORATED WITH THE OBJECT OF BUYING AND DEVELOPING LANDED PROPERTIES AND PROMOTING AND SETT ING UP MARKET THEREON. THE RESIDUARY HEAD OF INCOME CAN BE RESORTED TO ON LY IF NONE OF THE SPECIFIC HEADS IS APPLICABLE TO THE INCOME IN QUEST ION; IT COMES INTO OPERATION ONLY AFTER THE PRECEDING HEADS ARE EXCLUD ED. IN THE ABSENCE OF ANY DISTINGUISHABLE FEATURES BROU GHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE APEX COURT (SUPRA) AND THE CONSISTENT VIEW HOLD THAT THE INCO ME FROM SUB-LETTING OF THE PROPERTY IS PART OF THE BUSINESS ACTIVITY OF TH E ASSESSEE AND ACCORDINGLY THE LD. CIT(A) WAS FULLY JUSTIFIED IN A SSESSING THE SAME AS INCOME FROM BUSINESS AND IN ALLOWING THE EXPENSES C LAIMED BY THE ASSESSEE AS BUSINESS EXPENDITURE. THE GROUNDS TAKE N BY THE REVENUE ARE THEREFORE REJECTED. 9. GROUND NO. (III) READS AS UNDER:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD . CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST RS. 27 14 825 /- WITHOUT APPRECIATING THE FACT THAT THE AO HAS CORRECTLY REA LLOCATED THE INTEREST AMONG THE VARIOUS PROJECTS ON PRO-RATA BASIS TO AR RIVE AT THE CORRECT INCOME OF EACH PROJECT AS PER PROVISIONS OF SEC. 4 OF I.T. ACT 1961AS THE REALLOCATED INTEREST HAS DIRECT NEXUS WITH THE PROJ ECTS COMPLETED DURING THE YEAR. 10. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE HAS CLAIMED TO HAVE PAID/INCURRED AN EXPENDITURE OF ` 35 86 041/- ON ACCOUNT OF INTEREST ON FIVE PROJECTS OF M/S SHREE BAL ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 7 DEVELOPERS AND ` 40 68 848/- ON ACCOUNT OF INTEREST ON THIRTEEN PRO JECTS OF M/S SHREE BAL LAND DEVELOPERS. THE ASSESSEE VIDE LETTER DATED 3.12.2007 HAS GIVEN THE BASIS ON WHICH INTEREST HAS BEEN ALLOCATED TO DIFFERENT PROJECTS. HOWEVER THE A.O. WAS OF THE V IEW THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD. HE APPORTIONED THE INTEREST AFTER TAKING INTO ACCOUNT THE WORK IN PROGRESS OF ALL THE PROJECTS AT THE BEGINNING OF THE YEAR. ON APPEAL BEFORE THE LD. CI T(A) IT WAS CONTENDED BY THE ASSESSEE THAT THE A.O. HAS NEITHER DISCUSSED THE REASON/BASIS OF RE-ALLOCATION OF INTEREST AS ADOPTED BY THE ASSESSE E NOR HAS ASSIGNED ANY REASON FOR REJECTING THE MANNER IN WHICH THE INTERE ST HAS BEEN ALLOCATED TO VARIOUS PROJECTS. IT WAS ALSO BROUGHT TO THE NO TICE OF THE LD. CIT(A) THAT THE PROJECT AT S. NO. 5 (M/S SHREE BAL DEVELOP ERS NAMELY WANWORIE SITE) WHEREBY THE INTEREST CLAIM HAS BEEN REDUCED T O THE EXTENT OF ` 17 86 446/-. THIS HAS BEEN DONE ON PRO-RATA BASIS. BUT IF THE SAME ARGUMENT IS APPLIED TO SHALINI RESIDENCY (SR. 12) O F SHREE BAL LAND DEVELOPERS THE ALLOCATION WORKS OUT TO THE INCREAS ED LEVEL OF ` 82 855/-. HOWEVER THE ASSESSEE HAS NOT ACTUALLY ADOPTED THIS ALLOCATION TO THE SHALINI RESIDENCY. THUS THERE ARE TWO STANDARDS AD OPTED FOR THE SAME TYPE OF FACTS. IT WAS FURTHER CONTENDED THAT THERE IS NO ALLEGATION OF DIVERSION OF FUNDS OR THAT THE PAYMENT OF INTEREST IS NOT GENUINE. THE LD. CIT(A) AFTER CONSIDERING THE MATERIAL AVAILABLE ON RECORD WHILE OBSERVING THE ORDER PASSED BY THE A.O. IS NON-SPEAKING ORDER AND KEEPING IN VIEW THAT THERE IS NO ALLEGATION OF DIVERSION OF FUNDS O R GENUINENESS OF ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 8 PAYMENT OF INTEREST IS NOT DOUBTED HELD THAT RE-ALL OCATION CANNOT BE UPHELD AT ANY GROUNDS AND ACCORDINGLY DELETED THE D ISALLOWANCE OF ` 27 14 825/- MADE BY THE A.O. 11. AT THE TIME OF HEARING THE LD. D.R. SUPPORTS T HE ORDER OF THE A.O. 12. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMIT THAT INTEREST HAS BEEN CLAIMED BY THE ASSESSEE ON PROJECT-WISE AND THERE I S NO ALLEGATION OF DIVERSION OF FUNDS OR THAT THE PAYMENT OF INTEREST IS NOT GENUINE THEREFORE THE A.O. WAS NOT JUSTIFIED IN NOT ALLOWI NG THE CLAIM OF INTEREST TO THE ASSESSEE AND THEREFORE THE ORDER PASSED BY T HE LD. CIT(A) BE UPHELD. 13. WE HAVE CAREFULLY HEARD THE SUBMISSIONS OF THE RIVA L PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE LD. CIT(A) AFTER CONSIDERING THE MATERIAL AVAILABLE ON RECORD AND KE EPING IN VIEW THAT THERE IS NO ALLEGATION OF THE A.O. OF DIVERSION OF FUNDS OR THAT THE INTEREST IS NOT GENUINE DELETED THE DISALLOWANCE OF INTERES T MADE BY THE A.O. IN THE ABSENCE OF ANY CONTRARY MATERIAL BROUGHT ON REC ORD BY THE REVENUE AGAINST THE FINDINGS OF THE LD. CIT(A) WE ARE OF T HE VIEW THAT THE ORDER PASSED BY THE LD. CIT(A) DOES NOT CALL FOR ANY INTE RFERENCE ON THIS ACCOUNT AND ACCORDINGLY THE GROUND TAKEN BY THE REVENUE IS REJECTED. 14. GROUND NO. (IV) READS AS UNDER:- ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 9 IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD . CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION AT RS. 27 74 369/- WITHOUT APPRECIATING THE FACT THAT THE RELEVANT ASSET IS NO T OWNED BY THE ASSESSEE. 15. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT HAS BEEN OBSERVED BY THE LD. CIT(A) THAT THE A.O. HAS NOT GIVEN REASON WHATS OEVER FOR CURTAILING THE DEPRECIATION CLAIMED BY THE ASSESSEE. ACCORDING TO THE LD. CIT(A) IT SEEMS TO BE A CASE OF MERE OMISSION BY THE A.O. HE NCE HE DIRECTED THE A.O. TO GRANT DEPRECIATION WHICH WAS INADVERTENTLY DISALLOWED THE AMOUNT OF ` 21 74 369/-. 16. AT THE TIME OF HEARING THE LEARNED D.R. SUPPOR TS THE ORDER OF THE A.O. 17. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE VERY FAIRLY SUBMITS THAT HE HAS NO CASE ON THIS ISSUE THEREFOR E THE ORDER PASSED BY THE LD. CIT(A) IN ALLOWING THE DEPRECIATION BE REVE RSED AND THAT OF THE A.O. BE RESTORED. 18. HAVING CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE RELEVANT MATERIAL AVAILABLE ON REC ORD AND IN THE ABSENCE OF ANY SUPPORTING MATERIAL PLACED ON RECORD BY THE LEARNED COUNSEL FOR THE ASSESSEE WE ARE OF THE VIEW THAT T HE LD. CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE A.O. TO ALLOW THE DEPREC IATION WITHOUT ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 10 APPRECIATING THE FACTS OF THE CASE THAT THE RELEVAN T ASSET IS NOT OWNED BY THE ASSESSEE. ACCORDINGLY THE ORDER PASSED BY THE LD. CIT(A) IS REVERSED AND THAT OF THE A.O. IS RESTORED. THE GROUND TAKEN BY THE REVENUE IS THEREFORE ALLOWED. 19. GROUNDS NO. (V) AND ADDITIONAL GROUND READ AS U NDER:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD . CIT(A) ERRED IN DELETING THE DISALLOWANCE OF LONG TERM CAPITAL LOSS AT ` 74 16 287/- WITHOUT APPRECIATING THE FACT THAT THE PROJECT ASS ET VIZ LAND OF WANWORIE PROJECT WAS SHOWN AS CURRENT ASSET SINCE ITS COMM ENCEMENT AND WIP A/C WAS CARRIED FORWARD TO NEXT YEAR BY FOLLOWING P ROJECT COMPLETION METHOD AND ALSO IGNORED THE FACT THAT THE WANWORIE PROJECT WAS SHOWN BY THE ASSESSEE AS BUSINESS ASSET AND HAS BEEN UNIF ORMLY ASSESSED AS SUCH. ADDITIONAL GROUND : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE A.O. TO TREAT THE WANWARI PROJECT IS LONG TERM CAPITAL ASSET AND THE CALCULATION OF CAPITAL GAIN MAY BE DO NE AS PER THE DIRECTIONS OF THE ITAT MUMBAI IN CASE OF V. MAHESH REPORTED IN 19 SOT 130 IN WHICH IT HAS BEEN HELD THAT COST OF ACQUISI TION WILL NOT INCLUDE THE INTEREST COMPONENT AFTER THE ACQUISITION OF ASS ET. THEREFORE THE ORDER OF THE CIT(A) MAY BE RESTRICTED TO THE EXTENT THAT LONG TERM CAPITAL LOSS SHOULD BE CALCULATED EXCLUDING THE INTEREST COMPONE NT OF THE ASSET. 20. BRIEF FACTS OF THE ISSUE ARE THAT IT WAS INTER ALIA OBSERVED BY THE A.O. THAT THE ASSESSEE HAS DECLARED A PROFIT OF ` 20 28 660/- FROM WANWORIE PROJECT. HOWEVER VIDE LETTER DATED 3.12. 2007 THE ASSESSEE STATED THAT HE HAS OFFERED A PROFIT OF ` 20 28 659/- FROM THIS PROJECT AND HAS REVISED THE CLAIM BY CONSIDERING THE WANWORIE P ROJECT AS LONG TERM CAPITAL ASSET AND ACCORDINGLY REVISED COMPUTATION O F INCOME WAS FILED SHOWING AN INCOME OF ` 4 24 132/- INTER ALIA CLAIMING A LONG TERM CAPITAL ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 11 LOSS OF ` ` 74 16 287/- ON SALE OF DEVELOPMENT RIGHTS TO BAL A ND JHALA ASSOCIATES. THE ASSESSEE HAS ALSO FILED REVISED WOR KING OF WIP AND REVISED ALLOCATION OF INTEREST PAID AMONGST THE VAR IOUS PROJECT. HOWEVER THE A.O. HAS NOT ACCEPTED THE ASSESSEES EXPLANATIO N FOR THE FOLLOWING REASONS:- (I) VALUE OF THE PROJECT HAS BEEN SHOWN BY THE ASSE SSEE AT THE BEGINNING OF THE YEAR AS OPENING WIP AND AFTER CAPI TALISING ALL OF THE EXPENSES IN THIS CONNECTION THE SAME WAS SHOWN AS C LOSING WIP FROM YEAR TO YEAR. (II) THE FACT AS ABOVE CAN BE SEEN FROM THE P&L ACC OUNT OF THE PROJECT FURNISHED ALONG WITH THE RETURN OF INCOME. (III) THE SUDDEN TWIST OF THE ASSESSEE TO CLAIM AS LTCG/LOSS IN THIS REGARD IS NOTHING BUT A DEVICE TO AVOID OR REDUCE T HE TAX LIABILITY. (IV) SINCE THE COMMENCEMENT OF PROJECT THE ASSESSE E IS SHOWING SAID PROJECT UNDER CURRENT ASSETS AND WIP A/C IS CARRIED FORWARD TO NEXT YEAR ON THE BASIS OF COMPLETION CONTRACT METHOD. THEREF ORE IT IS THE BUSINESS OF THE ASSESSEE TO CONSTRUCT DWELLING UNITS HENCE THE REVISE CLAIM OF THE ASSESSEE AS THE WANWORIE PROJECT REJECTED. HENCE THE A.O. REJECTED THE REVISED CLAIM OF THE A SSESSEE AND RECOMPUTED THE PROFIT OF THE WANWORIE PROJECT AT ` 30 94 425/-. 21. ON APPEAL BEFORE THE LD. CIT(A) IT WAS CONTEND ED BY THE ASSESSEE THAT THE ASSESSEE IS NOT A DEALER IN THE REAL ESTAT E. HIS BUSINESS IS NOT OF BUYING AND SELLING OF THE PLOT OF LAND BUT IN THE B USINESS OF DEVELOPING OF THE REAL ESTATE. SINCE THIS LAND WAS ACQUIRED SOME 10 YEARS BACK AND THE SAME HAS BEEN TRANSFERRED WITHOUT ANY ALTERNATION O R ADDITIONS. IT IS ALSO CLEAR THAT IT WAS BEING HELD AS A CAPITAL ASSET FRO M THE VERY BEGINNING. THEREFORE IN VIEW OF THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 12 CASE OF FORT PROPERTIES PVT. LTD. V. CIT 208 ITR 2 32 THE SAME SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM CAPITAL GAIN. THE LD. CIT(A) AFTER CONSIDERING THE ASSESSEES SUBMISSION AND THE DECIS ION OF HONBLE JURISDICTIONAL HIGH COURT WHILE HOLDING THAT THE FA CTS OF THE ASSESSEES CASE ARE SIMILAR TO THE FACTS OF THE CITED CASE DI RECTED THE A.O. TO ACCEPT THE DECLARATION OF CAPITAL LOSS IN CONNECTION WITH THE TRANSACTION AND DELETED THE DISALLOWANCE OF LONG TERM CAPITAL LOSS TO THE EXTENT OF ` 74 16 287/-. 22. AT THE TIME OF HEARING THE LD. D.R. WHILE RELY ING ON THE ORDER OF THE A.O. FURTHER SUBMITS THAT THE PROJECT KNOWN AS WANW ORIE PROJECT WAS SHOWN BY THE ASSESSEE AS CURRENT ASSET SINCE ITS CO MMENCEMENT AND WIP ACCOUNT WAS CARRIED FORWARD TO NEXT YEAR BY FOL LOWING PROJECT COMPLETION METHOD. SHE ALSO PLACED ON RECORD A COP Y OF BALANCE SHEET FOR THE YEARS 31 ST MARCH 2001 AND 31 ST MARCH 2003 TO SHOW THE SAID PROJECT WAS SHOWN AS WIP. THEREFORE THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF LONG TERM CAPITAL LOSS OF ` 74 16 287/-. SHE FURTHER SUBMIT THAT THE LD. CIT(A) HAS ALSO ERRED IN DIRECT ING THE A.O. TO TREAT THE WANWORIE PROJECT AS LONG TERM CAPITAL ASSET AND IN ALLOWING THE INTEREST AS CAPITAL EXPENDITURE IGNORING THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF ITO VS. VIKRAM SADANAD [2007] 18 SO T 130 (MUMBAI). SHE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE A.O. BE RESTORED. ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 13 23. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSION AS SUBMITTED BEFORE THE A.O. AND LD. CIT(A) FURTHER SUBMITS THAT LAND WAS ACQUIRED IN FI NANCIAL YEAR 1995-96 AND THE SAME WAS TRANSFERRED WITHOUT ANY ALTERNATIO N OR ADDITIONS. HE FURTHER SUBMITS THAT THE BUSINESS OF THE ASSESSEE I S OF PURCHASE AND DEVELOPING OF REAL ESTATE AND THE ASSESSEE IS NOT A DEALER IN THE REAL ESTATE. IN OTHER WORDS THE ASSESSEE IS NOT IN THE BUSINESS OF BUYING AND SELLING OF PLOTS. THE LD. COUNSEL FOR THE ASSESSEE WHILE REFERRING TO PAGE 61 OF THE PAPER BOOK TO SHOW THAT THE LAND WAS PURC HASED IN F/Y 1995- 96 AND ASSESSEE HAD INCURRED EXPENSES ON REGISTRATI ON STAMP DUTY FENCING & INTEREST AND NO OTHER EXPENSES HAS BEEN I NCURRED ON THE SAID LAND TO PROVE THAT THE ASSESSEE HAS NOT CARRIED ON ANY ACTIVITY ON THE SAID PLOT OF LAND AND THE SAID PLOT OF LAND WAS SOL D AS IT IS IN THE YEAR UNDER CONSIDERATION THEREFORE FOLLOWING THE RATIO OF THE DECISION OF FORT PROPERTIES PVT. LTD. (SUPRA) THE LD. CIT(A) WAS FU LLY JUSTIFIED IN TREATING THE SALE TRANSACTION AS CAPITAL GAIN AND IN DELETIN G THE DISALLOWANCE OF LONG TERM CAPITAL LOSS. THE LD. COUNSEL FOR THE AS SESSEE WHILE DISTINGUISHING THE DECISION IN THE CASE OF VIKRAM S ADANAD (SUPRA) ON THE GROUND THAT IN THE SAID CASE THE ASSESSEE ACQUIRED SHARES BY INVESTING BORROWED FUNDS INTEREST PAID BY THE ASSESSEE FOR T HE PERIOD COMMENCING FROM THE DATE OF ACQUISITION OF SHARES TILL THE DAT E OF SALE WAS HELD NOT FORM PART OF THE COST OF ACQUISITION ON THE GROUND THAT THE INTEREST WAS ALREADY ALLOWED AS DEDUCTION AGAINST THE DIVIDEND I NCOME AND IF AGAIN ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 14 ACCEPTED IT WOULD AMOUNT TO DOUBLE DEDUCTION I.E. U/S 57 AS WELL AS U/S 48 OF THE INCOME TAX ACT 1961. IN THE ASSESSEES C ASE THE FACTS ARE ENTIRELY DIFFERENT AND NO DOUBLE DEDUCTION WAS ALLO WED THEREFORE THE DECISION RELIED ON BY THE LD. D.R. IS DISTINGUISHAB LE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE THEREFORE SUBMIT THAT THE ORDER PASSED BY THE LD. CIT(A) BE UPHELD. 24. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THERE IS NO DISPUTE THAT THE ASSESSEE IS ENGAGED IN THE BUSINES S AS PROMOTERS DEVELOPERS AND LAND DEVELOPERS. IT IS ALSO NOT IN DISPUTE THAT THE LAND OF WANWORIE PROJECT WAS SHOWN BY THE ASSESSEE IN ITS B OOKS OF ACCOUNT UNDER THE HEAD CLOSING WIP ALONG WITH WIP OF OTHER PROJECTS. DURING THE YEAR UNDER CONSIDERATION THE SAID LAND WAS TRANSFE RRED TO M/S BAL AND JHALA ASSOCIATES FOR A TOTAL CONSIDERATION OF ` 3 16 35 600/-. THE ASSESSEE VIDE REVISED COMPUTATION OF INCOME CLAIMED THAT THE DIFFERENCE BETWEEN PURCHASE PRICE AND SALE PRICE OF LAND SHOUL D BE TREATED AS LONG TERM CAPITAL GAIN AND ACCORDINGLY THE ASSESSEE AFTE R APPLYING INDEXATION COST WORKED OUT/CLAIMED LONG TERM CAPITAL LOSS OF ` 74 16 287/-. HOWEVER THE A.O. OBSERVED THAT SINCE THE COMMENCEM ENT OF THE PROJECT THE ASSESSEE IS SHOWING SAID PROJECT UNDER CURRENT ASSET AND WIP IS CARRIED FORWARD TO NEXT YEAR ON THE BASIS OF COMPLE TION CONTRACT METHOD HELD THAT IT IS THE BUSINESS OF THE ASSESSEE TO CON STRUCT DWELLING UNIT AND ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 15 HENCE HE WORKED OUT PROFIT FROM THIS PROJECT AT ` 30 94 425/- VIDE CALCULATION APPEARING AT PAGE 3 OF THE ASSESSMENT O RDER. ON APPEAL THE LD. CIT(A) WHILE AGREEING WITH THE APPELLANTS PLEA THAT IN RESPECT OF THE PROJECT IN QUESTION THE APPELLANT IS A HOLDER OF T HE CAPITAL ASSET PARTICULARLY BECAUSE THE APPELLANT IS NOT A DEALER IN THE REAL ESTATE AS SUCH I.E. HE IS NOT IN THE BUSINESS OF BUYING AND S ELLING PLOT OF LAND BUT IN THE BUSINESS OF DEVELOPING OF REAL ESTATE HELD THAT SINCE THE PLOT WAS NOT DEVELOPED IT IS CLEAR THAT IT WAS BEING HELD A S A CAPITAL ASSET FROM THE VERY BEGINNING FOLLOWED THE RATIO OF THE DECISION IN THE CASE OF FORT PROPERTIES PVT. LTD. VS. CIT (1994) 208 ITR 232 (BO M) DIRECTED THE A.O. TO ACCEPT THE DECLARATION OF CAPITAL LOSS IN CONNEC TION WITH THIS TRANSACTION AND ACCORDINGLY DELETED THE DISALLOWANC E OF LONG TERM CAPITAL LOSS OF ` 74 16 287/-. 25. DURING THE COURSE OF HEARING THE LEARNED COUNS EL FOR THE ASSESSEE DRAWS OUR ATTENTION TO PAGE 61 OF THE ASSESSEES PA PER BOOK TO SHOW THE COMPUTATION OF LONG TERM CAPITAL GAINS/LOSS. AFTER CONSIDERING THE SAME WE OBSERVE THAT (I) THE LAND WAS PURCHASED IN TWO F INANCIAL YEARS I.E. IN F/Y 1995-96 FOR ` 68 68 388/- AND IN F/Y 1997-98 FOR ` 30 72 833/- AGGREGATING TO ` 99 41 221/- WHEREAS AS PER THE ASSESSEES LETTER DATED 11/12/2007 THE ASSESSEE HAD PURCHASED RIGHTS IN RES PECT OF LAND AT WANWORIE PROJECT AT SURVEY NO. 58/3 OF 17400 SQ. MT R. FROM SHELAR FAMILY DURING F/Y 1995-96 (II) IN THE BALANCE SHEE TS FOR THE EARLIER YEARS ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 16 THE WANWORIE PROJECT WAS SHOWN AS WIP AND IN THE BA LANCE SHEET FOR THE YEAR UNDER CONSIDERATION THE CLOSING OF WIP OF WAN WORIE PROJECT HAS BEEN SHOWN AT ` 4 77 684/- UNDER SCHEDULE K OF THE BALANCE SHEET A S ON 31.3.2005 OF M/S SHREE BAL DEVELOPERS (III) THE AS SESSEE APART FROM INTEREST EXPENSES HAS ALSO INCURRED OTHER EXPENSES AGGREGATING TO ` 12 06 209/- DURING THE F/YS 1995-96 TO 2003-04 THE DETAILS OF WHICH ARE NOT ON RECORD AND HAVE NOT BEEN EXAMINED EITHER BY THE A.O. OR BY THE LD. CIT(A) (IV) IN THE BALANCE SHEET FOR THE Y EAR UNDER CONSIDERATION WE FIND THAT THIS WAS NOT AN ISOLATED TRANSACTION O F PURCHASE OF PLOT OF LAND. THERE ARE VARIOUS PLOTS OF LAND IN BOTH THE BALANCE SHEETS OF HIS PROPRIETORSHIP CONCERNS AND THERE IS NO MATERIAL ON RECORD TO SHOW THE NATURE OF TRANSACTION OF ALL THESE PLOTS I.E. WHETH ER THEY WERE ACQUIRED BY THE ASSESSEE AS A CAPITAL ASSET OR AS A STOCK-IN-TR ADE. 26. IN THE ABSENCE OF ANY RELEVANT MATERIAL AVAILAB LE ON RECORD AND IN THE INTEREST OF JUSTICE WE CONSIDER IT FAIR AND RE ASONABLE THAT THE MATTER SHOULD GO BACK TO THE FILE OF THE A.O. AND ACCORDIN GLY WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS AC COUNT AND SEND BACK THE MATTER TO THE FILE OF THE A.O. TO DECIDE THE SA ME AFRESH IN THE LIGHT OF OUR ABOVE OBSERVATIONS AND ACCORDING TO LAW INCLUDI NG THE DECISIONS RELIED ON BY BOTH THE PARTIES (SUPRA) AFTER PROVIDI NG REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GRO UNDS TAKEN BY THE REVENUE ARE THEREFORE PARTLY ALLOWED FOR STATISTICA L PURPOSES. ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 17 27. IN THE RESULT THE REVENUES APPEAL STANDS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 25 TH DAY OF FEBRUARY 2011. SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER SD/- (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI DATED 25 TH FEBRUARY 2011. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-XVIII MUMB AI 4. COMMISSIONER OF INCOME TAX M.C. XVIII- MUM BAI 5. DEPARTMENTAL REPRESENTATIVE BENCH F MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI ITA NO.2968/MUM/2008 MRS. VRINDA SHARAD BAL 18 1 DRAFT DICTATED ON 14.2.11 18.2.11 21.2.11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 15.2.11 21.2.11 23.2.11 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS