Fortune Builders & Developers, Mangalore v. ACIT, Mangalore

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE DR. O.K NARAYANAN VICE PRESIDENT AND SMT. P MADHAVI DEVI JUDICIAL MEMBER ITA NOS.654 621 & 622/BANG/2010 (ASST. YEARS 2005-06 TO 2007-08) M/S FORTUNE BUILDERS & DEVELOPERS FORTUNE FALNIR MANGALORE-575 001. . APPELLANT VS. THE ASST. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE MANGALORE. . RESPONDENT APPELLANT BY : SHRI S PARTHASARATHI ADVOCATE RESPONDENT BY : SHRI G.V GOPALA RAO COMMISSIONER OF INCOME-TAX O R D E R PER DR. O.K NARAYANAN VICE PRESIDENT THESE THREE APPEALS ARE FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEARS ARE 2005-06 2006-07 AND 2007-08. THESE APPEALS ARE DIRECTED AGAINST THE ORDERS OF THE CIT(A) VI AT BANGALORE DATED 1.12.2009 AND 11/03/2010. THE APPEALS ARISE OUT OF THE ASSESSMENTS COMPLETED U/S 143(3) READ WITH SEC. 153C OF INCOME -TAX 1961. ITA NOS.654 621 & 622/B/10 2 2. FIRST WE WILL CONSIDER THE APPEAL FOR THE ASSES SMENT YEAR 2005- 06 IN ITA NO.654/BANG/2010. 3. A SEARCH WAS CONDUCTED U/S 132 IN THE RESIDENTIA L PREMISES OF MR. V KURUNAKARAN PARTNER OF THE FIRM ON 7 TH NOV 2006 AND ALSO IN THE RESIDENTIAL PREMISES OF PROF. ABDUL GARFFA MAN AGING DIRECTOR OF CAMPUS CONSTRUCTION CO. PVT. LTD. THE IMPUGNED AS SESSMENT HAS BEEN COMPLETED ON THE BASIS OF THE DETAILS COLLECTE D IN THE COURSE OF SEARCH AND THE ENQUIRIES MADE THEREAFTER. 4. AS FAR AS THIS PARTICULAR ASSESSMENT YEAR IS CON CERNED THE ASSESSEE HAD SOLD A PART OF ITS BUILDING FOR A CONS IDERATION OF RS.15 66 000/- TO TWO PARTIES. THE ASSESSEE FIRM OFFERED THE RESULTANT INCOME FOR THE ASSESSMENT YEAR 2006-07. BUT THE A SSESSING OFFICER HELD THAT THE RELEVANT INCOME SHOULD BE ASSESSED IN THE IMPUGNED ASSESSMENT YEAR 2005-06. THIS IS FIRST DISPUTE IN THIS APPEAL. 5. IT IS TO BE SEEN THAT THE PROPERTY SOLD BY THE A SSESSEE WAS NOT COMPLETED AND THIS FACT HAS BEEN APPRECIATED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ITSELF. IN SUCH CIRCUMSTAN CES THE ARGUMENT OF THE ASSESSEE FIRM THAT THE SALE WAS CONCLUDED ON CO MPLETION OF THE ITA NOS.654 621 & 622/B/10 3 CONSTRUCTION OF THE PROPERTY CARRIES MUCH WEIGHT. IN THESE CIRCUMSTANCES WE FIND THAT THE ASSESSEE IS JUSTIFI ED IN OFFERING THE RESULTANT INCOME FOR TAXATION IN THE ASSESSMENT YEA R 2006-07. THE ASSESSING AUTHORITY IS NOT JUSTIFIED IN BRINGING TH E SAME TO TAXATION FOR THE IMPUGNED ASSESSMENT YEAR 2005-06. THIS ISSUE I S DECIDED IN FAVOUR OF THE ASSESSEE. 6. THE NEXT GROUND RAISED BY THE ASSESSEE IS THAT T HE SURPLUS HAS BEEN TAXED BY THE ASSESSING AUTHORITY AS BUSINESS I NCOME TREATING THE SALE OF SHOP PROPERTIES IN THE NATURE OF ADVENTURE IN TRADE AGAINST THE CLAIM OF THE ASSESSEE THAT THE INCOME IS ONLY CAPIT AL GAINS. 7. WE CONSIDERED THIS ISSUE. THE ASSESSEE FIRM HAS CONSTRUCTED A HUGE COMPLEX AND THE SHOP ROOMS WERE HELD BY THE AS SESSEE IN ITS NAME AND OWNERSHIP. WHEREVER THE SHOP ROOMS ARE NO T SOLD OUT THE ASSESSEE IS HOLDING THEM AS OWNER AND COLLECTING RE NT AND OFFERING THE SAME AS HOUSE PROPERTY INCOME FOR TAXATION. THE AS SESSEE ALSO SELLS SOME OF THE PROPERTIES IN DIFFERENT AREAS AS AND W HEN OCCASION ARISES. AS THE ASSESSEE HAS BEEN HOLDING THE PROPERTY AS OW NER AND EARNING INCOME BY WAY OF RENT AND THE INCOME BEING ASSESSED AS INCOME FROM HOUSE PROPERTY WE HAVE TO SEE THAT THE SURPLUS AR ISING ON SALE OF THE ITA NOS.654 621 & 622/B/10 4 INDIVIDUAL UNITS HAVE TO BE TREATED AS CAPITAL GAIN S IN THE HANDS OF THE ASSESSEE FIRM. WHETHER IT IS SHORT-TERM CAPITAL GA INS OR LONG TERM CAPITAL GAINS WILL DEPEND UPON THE FACTS OF THE TR ANSACTIONS. WE DO NOT APPROVE THE APPROACH OF THE ASSESSING AUTHORITY TO TREAT THE SALE OF SHOP PROPERTIES AS BUSINESS INCOME TREATING THE SAL E INSTANCES AS ADVENTURE IN THE NATURE OF TRADE. THIS ISSUE IS AL SO DECIDED IN FAVOUR OF THE ASSESSEE. 8. THE THIRD SET OF GROUND RAISED BY THE ASSESSEE I S AGAINST THE LOSS OF RS.37 261/- SALE OF LAND OF RS.29 246/- PROFIT FROM SALE OF BUILDING WAS RS.8 67 811/- AND PROFIT WAS OF RS.64 000/- FRO M CONSTRUCTION ACTIVITY. IN RESPECT OF THESE ADDITIONS AND ADJUST MENTS THE ASSESSING AUTHORITY HAS NOT CONSIDERED THE FACTS IN ITS ENTIR ETY AS THREE ASSESSMENTS YEARS ARE INVOLVED TOGETHER AND ALL THE RELEVANT FACTS HAVE TO BE RECONCILED IN A COMPREHENSIVE MANNER SO THAT THERE IS NO DUPLICATION EITHER AGAINST THE REVENUE OR AGAINST THE ASSESSEE. THEREFORE THESE ISSUES ARE REMITTED BACK TO THE AS SESSING OFFICER FOR FRESH CONSIDERATION AFTER GIVING THE ASSESSEE FIRM AN OPPORTUNITY OF BEING HEARD. ITA NOS.654 621 & 622/B/10 5 9. NEXT WE WILL CONSIDER THE APPEAL FOR THE ASSESSM ENT YEAR 2006- 07 IN ITA NO.621/BANG/2010. 10. THE FIRST ISSUE RAISED BY THE ASSESSEE FIRM IS AGAINST THE ADDITION OF RS.50 LAKHS MADE FOR THE ASSESSMENT YEAR 2006-07 . THIS ISSUE IS TO BE RECONSIDERED BY THE ASSESSING OFFICER IN THE LIG HT OF OUR ORDER PASSED IN APPEAL FILED BY M/S CAMPUS CONSTRUCTION P VT. LTD. FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 OF EVEN DATE. 11. THE NEXT ISSUE IS WHETHER THE SURPLUS OF SALE O F SHOP ROOMS ARE TO BE TREATED AS CAPITAL GAINS OR BUSINESS INCOME. WE HAVE ALREADY DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE WHILE DEALING WITH THE APPEAL FILED FOR THE ASSESSMENT YEAR 2005-06 THAT T HE SURPLUS COULD BE TREATED AS CAPITAL GAINS. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 12. NEXT POINT IS REGARDING THE PROFIT OF RS.8.97 L AKHS TAXED BY THE ASSESSING AUTHORITY FOR THE IMPUGNED ASSESSMENT YEA R 2006-07. ITA NOS.654 621 & 622/B/10 6 13. THIS PROFIT HAS ALREADY BEEN CONFIRMED BY US FO R THE ASSESSMENT YEAR 2005-06. THEREFORE THIS DUPLICATION MADE FOR THE IMPUGNED ASSESSMENT YEAR 2006-07 IS DELETED. 14. THE REMAINING ISSUES ARE SENT BACK TO THE ASSES SING AUTHORITY FOR FRESH CONSIDERATION AFTER HEARING THE ASSESSEE AS HELD FOR THE ASSESSMENT YEAR 2005-06. 15. LASTLY WE WILL CONSIDER THE APPEAL FOR THE ASSE SSMENT YEAR 2007-08 IN ITA NO.622/BANG/2010. 16. THE FIRST ISSUE IS REGARDING THE ADDITION OF RS .50 LAKHS. THIS ISSUE IS REMITTED BACK TO THE ASSESSING OFFICER TO DECIDE IN THE LIGHT OF OUR ORDER PASSED IN THE APPEAL FILED BY M/S CAMPUS CONSTRUCTION CO. PVT. LTD. FOR THE ASSESSMENT YEAR 2006-07. 17. THE NEXT ISSUE IS WHETHER SURPLUS EARNING OUT O F THE SALE OF PROPERTY WAS CAPITAL GAINS OR BUSINESS INCOME. WE HAVE ALREADY HELD THE SURPLUS IN THE NATURE OF CAPITAL GAINS AS DISCU SSED IN OUR ORDER PASSED IN THE APPEAL FOR THE ASSESSMENT YEAR 2005-0 6. THE ASSESSING OFFICER IS DIRECTED TO FOLLOW THAT. ITA NOS.654 621 & 622/B/10 7 18. OTHER ISSUES ARE REMITTED BACK TO THE ASSESSING AUTHORITY FOR FRESH CONSIDERATION AFTER HEARING THE ASSESSEE. 19. WE ALSO MAKE IT CLEAR THAT WHILE REFRAMING THE ASSESSMENTS AS DIRECTED BY US THE ASSESSING OFFICER IS FURTHER DI RECTED THAT ADJUSTMENT WILL BE MADE ONLY ON SUBSTANTIVE BASIS A ND ALL THE PROTECTIVE ASSESSMENTS WILL BE WITH DRAWN. 20. IN RESULT THESE APPEALS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON TUESDAY THE 22ND DAY OF FEBRUARY 2011 AT BANGALORE. SD/- SD/- (P MADHAVI DEVI) (DR. O.K NARAYANAN) JUDICIAL MEMBER VICE PRESIDENT