NIRANJAN INVESTMENTS P.LTD, MUMBAI v. ITO 3(3)4, MUMBAI

ITA 776/MUM/2011 | 2007-2008
Pronouncement Date: 19-11-2014 | Result: Allowed

Appeal Details

RSA Number 77619914 RSA 2011
Assessee PAN AAACC2041G
Bench Mumbai
Appeal Number ITA 776/MUM/2011
Duration Of Justice 3 year(s) 9 month(s) 23 day(s)
Appellant NIRANJAN INVESTMENTS P.LTD, MUMBAI
Respondent ITO 3(3)4, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-11-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 19-11-2014
Date Of Final Hearing 12-08-2014
Next Hearing Date 12-08-2014
Assessment Year 2007-2008
Appeal Filed On 27-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG (JM) . . ./I.T.A. NO.773/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) CLASSIC COMMERCIAL SERVICES PVT.LTD. 514 DALAMAL TOWER 211 F P J MARG NARIMAN POINT MUMBAI-400021 / VS. INCOME TAX OFFICER 3(1)3 AAYAKAR BHAVAN MUMBAI-400020. ( / APPELLANT) .. ( / RESPONDENT) ./ ./PAN/GIR NO. : AAACC2041G ./I.T.A. NO.774/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) BESTO FARMS PVT.LTD. 514 DALAMAL TOWER 211 F P J MARG NARIMAN POINT MUMBAI-400021 / VS. INCOME TAX OFFICER 3(3)4 AAYAKAR BHAVAN MUMBAI-400020. ( / APPELLANT) .. ( / RESPONDENT) ./ ./PAN/GIR NO. : AAACB2113N ./I.T.A. NO.775/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) SUPRIYA FARMS PVT.LTD. 514 DALAMAL TOWER 211 F P J MARG NARIMAN POINT MUMBAI-400021 / VS. INCOME TAX OFFICER 3(3)4 AAYAKAR BHAVAN MUMBAI-400020. ( / APPELLANT) .. ( / RESPONDENT) ./ ./PAN/GIR NO. : AAACS7946N ITA. NO773/MUM/2011 AND OTHER THREE APPEALS 2 ./I.T.A. NO.776/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) NIRANJAN INVESTMENTS PVT.LTD. 514 DALAMAL TOWER 211 F P J MARG NARIMAN POINT MUMBAI-400021 / VS. INCOME TAX OFFICER 3(3)4 AAYAKAR BHAVAN MUMBAI-400020. ( / APPELLANT) .. ( / RESPONDENT) ./ ./PAN/GIR NO. : AAACN2588D ! / ASSESSEES BY SHRI CHETAN A KARIA ' ! /REVENUE BY SHRI PREMANAND J # $ ' %& / DATE OF HEARING : 21.10.2014 '( ' %& /DATE OF PRONOUNCEMENT : 19.11.2014 / O R D E R PER B.R.BASKARAN ACCOUNTANT MEMBER: ALL THESE APPEALS FILED BY THE RESPECTIVE ASSESSEE S ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-7 MUMBAI IN THEIR R ESPECTIVE HANDS AND ALL OF THEM ARE RELATED TO THE ASSESSMENT YEAR 2007-08. S INCE IDENTICAL ISSUES ARE URGED IN THESE APPEALS ALL OF THEM WERE HEARD TOGE THER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E. SINCE THE FACTS PREVAILING IN ALL THE CASES ARE IDENTICAL WE SHALL DISCUSS TH E FACTS PREVAILING IN THE CASE OF M/S CLASSIC COMMERCIAL SERVICES PVT LTD TAKING THE SAME AS THE LEAD CASE. 2. THE ISSUE URGED BEFORE US IS WHETHER THE LD CIT( A) WAS JUSTIFIED IN CONFIRMING THE ASSESSMENT OF GAIN ARISING ON SALE O F AGRICULTURAL LAND AS BUSINESS PROFIT BY REJECTING THE CLAIM OF THE ASS ESSEES THAT THE SAME IS NOT LIABLE FOR TAXATION. 3. THE LD COUNSEL APPEARING FOR THE ASSESSEE SUBM ITTED THAT ALL THESE ASSESSEES HAVE PURCHASED AGRICULTURAL LAND AND HAVE CARRIED OUT BASIS ACTIVITIES ITA. NO773/MUM/2011 AND OTHER THREE APPEALS 3 LIKE SECURING FENCING ETC. ALL THESE LANDS WERE C ONTINUED TO BE USED FOR AGRICULTURAL PURPOSES BY THE AGRICULTURISTS WHO RE TAINED THE INCOME ARISING THEREFROM. THE LD COUNSEL SUBMITTED THAT THESE COMP ANIES HAVE BEEN INCORPORATED WITH ALTOGETHER DIFFERENT OBJECTIVES N OT CONNECTED WITH THE REAL ESTATE ACTIVITIES AND IN THIS REGARD THE LD COUNSE L ALSO INVITED OUR ATTENTION TO THE OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATION OF EACH OF THE COMPANIES TO SUBSTANTIATE THE SAID CLAIM. THE LD COUNSEL FURTHE R SUBMITTED THAT THESE COMPANIES HAVE NEVER CARRIED ON THE BUSINESS OF PUR CHASE AND SALE OF LAND IN THE PAST. HE SUBMITTED THAT THE ASSESSEE NAMED M/S CLASSIC COMMERCIAL SERVICES P LTD HAD PREVIOUSLY PURCHASED A LAND IN T HE YEAR 1985 AND IT HAS BEEN HOLDING THE SAME TILL DATE. THE LD COUNSEL SUBMITT ED THAT THE DIRECTORS OF THE ASSESSEE COMPANIES ARE ENGAGED IN THE BUSINESS OF D EVELOPMENT OF LANDS. HENCE THE ASSESSING OFFICER HAS PRESUMED THAT THES E COMPANIES HAVE ALSO PURCHASED THE IMPUGNED LANDS FOR DEVELOPING THEM. T HE AO HAS FURTHER OBSERVED THAT THE ASSESSEE COMPANIES HAVE BORROWED FUNDS FOR PURCHASING THE LAND. HE SUBMITTED THAT THE ASSESSEE COMPANIES HAV E TAKEN FUNDS FROM THE DIRECTORS WHICH IS THE USUAL PRACTICE IN ANY COMPA NY AND NOT FROM OUTSIDERS SINCE THERE IS A FLEXIBILITY IN OBTAINING FUNDS FRO M THE DIRECTORS. THE LD COUNSEL SUBMITTED THAT THERE IS NO INSTANCE TO SHOW THAT TH ESE COMPANIES HAVE CARRIED ON THE ACTIVITY OF PURCHASE AND SALE OF LAND AS THEIR BUSINESS ACTIVITY IN THE PAST. ACCORDINGLY THE LD COUNSEL SUBMITTED THAT THESE CO MPANIES HAVE PURCHASED THE AGRICULTURAL LANDS TO TREAT THEM AS INVESTMENT ASSE T ONLY. THE LD COUNSEL FURTHER SUBMITTED THAT THE LANDS PURCHASED BY THE ASSESSEE COMPANIES WERE NOTIFIED BY THE STATE GOVERNMENT AS SPECIAL ECONOMIC ZONE AND HENCE THESE COMPANIES HAD NO OTHER OPTION BUT TO SELL THE LAND TO THE CON CERNED AUTHORITY WITHIN SHORT PERIOD FROM THE DATE OF PURCHASE. THE LD COUNSEL S UBMITTED THAT THESE COMPANIES COULD NOT HAVE AVOIDED SALE OF LAND AND H ENCE THE SHORT PERIOD OF HOLDING CANNOT CHANGE THE INTENTION OF THE PARTIES TO HOLD THE AGRICULTURAL LAND AS AN INVESTMENT. 4. ON THE CONTRARY THE LD D.R SUBMITTED THAT TH ESE ASSESSEES HAVE HELD THE LAND FOR LESS THAN A YEAR AND FURTHER THEY THEM SELVES DID NOT CARRY ON ANY AGRICULTURAL ACTIVITY THEREON. HENCE THE INTENTION OF THE ASSESSEES WAS TO HOLD THESE LANDS AS STOCK IN TRADE ONLY AND ACCORDINGL Y THE PROFIT REALIZED ON THEIR ITA. NO773/MUM/2011 AND OTHER THREE APPEALS 4 SALE IS LIABLE TO TAXED AS BUSINESS INCOME. THE LD D.R SUBMITTED THAT THE STATE GOVERNMENT HAS NOT PURCHASED THESE LANDS ON COMPULS ORY ACQUISITION INSTEAD THESE ASSESSEES HAVE SOLD THEM VOLUNTARILY TO THE A UTHORITY FOR SEZ PURPOSES. ACCORDINGLY HE SUPPORTED THE ORDERS PASSED BY LD C IT(A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE RECORD. ON A CAREFUL PERUSAL OF THE ASSESSMENT ORDERS AS WELL AS THE ORD ERS PASSED BY LD CIT(A) WE NOTICE THAT BOTH OF THEM HAVE PRESUMED THAT THE MAI N ACTIVITY OF THE ASSESSEES HEREIN IS DEALING CONSTRUCTION AND DEVELOPMENT OF PROPERTIES. ON THE OTHER HAND THE LD A.R HAS SUBMITTED THAT THE OBJECTIVE O F THESE COMPANIES ARE DIFFERENT AND FURTHER THEY HAVE NOT CARRIED ON ANY ACTIVITY OF PURCHASE AND SALE OF LAND IN THE EARLIER. HOWEVER IT IS FURTHER SUBMIT TED THAT THE DIRECTORS ARE ENGAGED IN PURCHASE DEVELOPMENT AND SALE OF LAND AND HENCE IT APPEARS THAT THERE IS MIX UP IN THE MIND OF TAX AUTHORITIES ON THIS FACTU AL ASPECT. 6. WE ALSO NOTICE THAT THERE IS NO DISPUTE BETWEE N THE PARTIES THAT THE IMPUGNED LANDS ARE AGRICULTURAL LANDS SITUATED IN V ILLAGES AND FURTHER THEY DO NOT FALL UNDER THE DEFINITION OF CAPITAL ASSET GIVEN U/S 2(14) OF THE ACT. THIS VERY MUCH EVIDENT FROM THE OBSERVATIONS MADE BY THE ASSE SSING OFFICER IN PARAGRAPH 11.2 OF THE ASSESSMENT ORDER OF M/S CLASSIC COMMERC IAL SERVICES (P) LTD WHEREIN THE AO HAS OBSERVED THAT SINCE THE LAND FA LL UNDER THE DEFINITION OF AGRICULTURE LAND IT CANNOT BE CONSIDERED AS CAPITA L ASSET AND THEREFORE ASSESSEES CLAIM OF NOT BEING HIT BY THE PROVISIONS OF TAXABILITY UNDER CAPITAL GAIN HAS TO BE ACCEPTED. IN ALL OTHER THREE CASES ALSO THE ASSESSING OFFICER HAS EXPRESSED SIMILAR VIEWS IN PARAGRAPHS 7 & 10 OF THE ASSESSMENT ORDERS PASSED IN THEIR RESPECTIVE HAND. HOWEVER THE ASSESSING O FFICER HAS TAKEN THE VIEW THAT THE ACTIVITY OF PURCHASE AND SALE OF AGRICULTURAL L AND INDULGED IN BY THESE ASSESSEES ARE IN THE NATURE OF ADVENTURE IN THE NA TURE OF TRADE AND ACCORDINGLY CONCLUDED THAT THE PROFIT ARISING IN THEIR HANDS ON SALE OF LAND WOULD BE ASSESSABLE AS BUSINESS PROFITS. ACCORDINGLY THE ASSESSING OFFICER HAS ASSESSED THE SAME AS BUSINESS INCOME IN THEIR RESPE CTIVE HANDS. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAD PLACED RELIANCE ON TH E FOLLOWING CASE LAWS BEFORE THE AO BUT THE ASSESSING OFFICER HAS HELD THAT THE SE CASE LAWS ARE DISTINGUISHABLE:- ITA. NO773/MUM/2011 AND OTHER THREE APPEALS 5 (A) RACHCHODBHAI BAHIJIBHAI PATEL VS. CIT (1971)( 81 ITR 446)(GUJ) (B) M.S.SRINIVASA NAICKER VS ITO (2007)(292 ITR 4 81)(MAD) (C) ITO VS. RANI RATNESH KUMARI (1980)(123 ITR 34 3)(ALL) 7. IN THE APPELLATE PROCEEDINGS THE LD CIT(A) CO NCURRED WITH THE VIEW TAKEN BY THE ASSESSING OFFICER AND HELD THAT WHOLE OF THE ASSESSMENT ORDER SHOULD BE READ AS PART OF HIS ORDER. FURTHER THE LD CIT(A) ALSO MADE REFERENCE TO TWO CLAUSES OF THE SALE AGREEMENT WHEREIN THE SELLERS HAD MADE A REFERENCE TO SOME PLANS OF MMRDA TO DEVELOP TOWNSHIP AND ALSO T O THE PERMISSIONS TO BE OBTAINED. THE LD CIT(A) ACCORDINGLY INFERRED THAT THE CLEARANCES/NOC REFERRED TO IN THOSE CLAUSES RELATE TO BASIC AGRICULTURE C HARACTER OF LAND. FURTHER THE LD CIT(A) NOTICED THAT THE MEMORANDUM OF UNDERSTANDING ENTERED BETWEEN THE ASSESSEES AND M/S MUMBAI SEZ LTD REFERS TO UNREGIST ERED AGREEMENTS. ACCORDINGLY THE LD CIT(A) INFERRED THAT THE ASSESS EE NEITHER PURCHASED ANY LAND NOR CARRIED ON ANY AGRICULTURAL ACTIVITY BUT IT WA S SIMPLE CASE OF GIVING SOME ADVANCE MONEY IN THE NORMAL COURSE OF BUSINESS ACTI VITY WHICH HAS RESULTED IN GENERATION OF SOME INCOME. THE LD CIT(A) HAS FURTH ER HELD THAT THERE IS NO SALE OF LAND ALSO AND THE ASSESSEE HAS TRANSFERRED SOME INTEREST IN LAND. ACCORDINGLY THE LD CIT(A) UPHELD THE ORDERS PASSED BY THE ASSESSING OFFICER. 8. WE NOTICE THAT THE LD CIT(A) HAS PROCEEDED ON A NEW LINE OF THOUGHT AND CONCLUDED THAT THERE WAS NO PURCHASE OR SALE OF LAN D AND FURTHER HELD THAT IT WAS A SIMPLE CASE OF GIVING ADVANCE IN THE COURSE OF BU SINESS ACTIVITY. FIRST OF ALL WE NOTICE THAT THE BUSINESS ACTIVITY OF THE ASSESSEES IS NOT GIVING OF ADVANCES. EVEN IF IT IS CONSIDERED TO BE SO FOR A MOMENT THE ADV ANCE SHOULD BE RETURNED BACK BY THE SAME PERSON WHO HAD RECEIVED THE ADVANCE. I F THE ASSESSEE HAD NOT ACQUIRED INTEREST IN THE LAND THERE WAS NOT NECESS ITY FOR THE MUMBAI SEZ LTD TO ENTER INTO MOU WITH THE ASSESSEE. THOUGH THE LD CIT (A) THAT THE ASSESSEE HAS TRANSFERRED SOME INTEREST IN THE LAND HE COULD N OT ELABORATE FURTHER ABOUT THE NATURE OF INTEREST. THERE SHOULD NOT BE ANY DISPUT E THAT A PERSON CANNOT SELL INTEREST ON LAND WITHOUT FIRST ACQUIRING IT. THU S IT IS SEEN THAT THERE IS APPARENT CONTRADICTION IN THE OBSERVATIONS MADE BY LD CIT(A) AND HENCE THOSE OBSERVATIONS ARE LIABLE TO BE REJECTED AS MERE SURM ISES. WITH REGARD TO THE CLAUSES OF SALE AGREEMENT REFERRED TO BY LD CIT(A) IT ONLY STATES ABOUT THE ITA. NO773/MUM/2011 AND OTHER THREE APPEALS 6 SITUATION WHICH INDUCED THE SELLERS TO SELL THE LAN DS AND IN OUR VIEW IT MAY NOT EXPLAIN THE INTENTION OF THE PURCHASERS. 9. THE QUESTION THAT REQUIRES CONSIDERATION IS ABO UT THE INTENTION OF THE PARTIES AT THE TIME OF ACQUIRING THE LANDS IN QUEST ION. THE TAX AUTHORITIES HAVE HELD THAT THESE ASSESSEES HAD INTENTION TO MAKE PRO FIT BY SELLING THEM. WE HAVE ALREADY SEEN THAT THEY HAVE REACHED THIS CONCLUSION ON THE UNDERSTANDING THAT THESE ASSESSEES ARE ENGAGED IN THE REAL ESTATE BUSI NESS. HOWEVER THE LD A.R SUBMITTED THAT THE ASSESSEE NAMED M/S CLASSIC COMME RCIAL SERVICES P LTD WAS FORMED WITH THE OBJECTIVE OF PROVIDING VARIOUS TYPE S OF SERVICES; THE ASSESSEES M/S BESTO FARMS (P) LTD AND M/S SUPRIYA FARMS (P) L TD WERE FORMED WITH THE OBJECTIVE OF ENTERING INTO THE BUSINESS OF FARMING AND M/S NIRANJAN INVESTMENTS P LTD WAS FORMED WITH THE OBJECTIVE OF INVESTING IN S HARES AND SECURITIES. THUS IT IS SEEN THAT THE TAX AUTHORITIES HAVE PROCEEDED ON WRONG UNDERSTANDING. FURTHER IN THE CASE OF M/S CLASSIC COMMERCIAL SERV ICES PVT LTD THE ASSESSING OFFICER HAS OBSERVED THAT THE SAID ASSESSEE HAD CAR RIED ON SIMILAR ACTIVITIES OF PURCHASE AND SALE OF LAND IN EARLIER YEARS. HOWEVE R THE LD A.R STRONGLY DISPUTED THE SAID OBSERVATION BY SAYING THAT THE SA ME IS CONTRARY TO THE FACTS AVAILABLE ON RECORD. 10. THUS IT IS SEEN THAT THE TAX AUTHORITIES HAVE PROCEEDED TO ASSESS THE INCOME AS BUSINESS INCOME OF THE ASSESSEE ON WRONG UNDERSTANDING OF FACTS. FURTHER THEY WERE INFLUENCED BY THE FACT THAT THE ASSESSEES HAVE SOLD THE LANDS WITHIN A PERIOD OF ONE YEAR FROM THE DATE OF PURCHA SE. HOWEVER THE SUBMISSION OF THE ASSESSEES WAS THAT THEY WERE CONSTRAINED TO SELL THE LANDS TO MUMBAI SEZ LTD AS PER THE NOTIFICATION ISSUED BY THE STATE GOV ERNMENT. WITH REGARD TO THE CONTENTION OF THE VOLUNTARY SALE THE ASSESSEES HAV E SUBMITTED THAT THEY HAVE ONLY ADHERED TO THE NOTIFICATION ISSUED BY THE STAT E GOVERNMENT. OTHERWISE THESE LANDS WOULD BE ACQUIRED ON COMPULSORY BASIS. IN OUR VIEW THESE FACTORS WILL NOT SHOW THAT THE ASSESSEES HAD INTENTION TO S ELL THE LANDS TO MAKE PROFIT WHEN THEY WERE PURCHASED. 11. ON THE CONTRARY THESE ASSESSEES HAVE SUBMITT ED THAT THEY HAVE SECURED AND FENCED THESE LANDS. FURTHER THE AGRICULTURISTS WERE PERMITTED TO CARRY ON ITA. NO773/MUM/2011 AND OTHER THREE APPEALS 7 AGRICULTURAL ACTIVITIES THEREIN. FURTHER THEY DID NOT CARRY ON ANY OTHER ACTIVITY CONNECTED WITH THE DEVELOPMENT OF LANDS. WE NOTICE THAT THE ASSESSING OFIFCER HAS REJECTED THESE CONTENTIONS WITHOUT BRINGING ANY MATERIAL TO THE CONTRARY. 12. HENCE ON A CONSPECTUS OF THE MATTER WE ARE OF THE VIEW THAT THE TAX AUTHORITIES HAVE NOT BROUGHT ANY MATERIAL TO SHOW T HAT THESE ASSESSEES HAD INTENTION TO HOLD THE AGRICULTURAL LANDS AS THEIR T RADING ASSET WHICH WOULD HAVE WARRANTED THE GAIN ARISING ON THEIR SALE AS BUSINES S INCOME. THEY HAVE ALSO NOT BROUGHT ANY MATERIAL TO CONTRADICT THE SUBMISSIONS MADE BY THE ASSESSEES. WE HAVE ALSO SEEN THAT THESE ASSESSEES WERE CONSTRAINE D TO SELL THE LANDS TO MUMBAI SEZ LTD IN VIEW OF THE NOTIFICATION ISSUED B Y THE STATE GOVERNMENT WITHIN ONE YEAR FROM THE DATE OF PURCHASE. THUS I T IS SEEN THAT THESE ASSESSEES WERE CONSTRAINED TO SELL THE LANDS AND THERE IS NOT HING ON RECORD TO SHOW THAT IN FACT THEY INTENDED TO SELL THE LANDS WITHIN SHORT PERIOD FROM THE DATE OF THEIR PURCHASE. WE HAVE ALREADY NOTICED THAT THE ASSESSI NG OFFICER HIMSELF HAVE ACCEPTED THE FACT THAT THE IMPUGNED LANDS WERE AGRI CULTURAL LANDS AND THEY WILL NOT FALL IN THE CATEGORY OF CAPITAL ASSET AS DEFI NED U/S 2(14) OF THE ACT. UNDER THESE SET OF FACTS WE ARE OF THE VIEW THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN TREATING THE GAINS ARISING ON TRANSFER OF LAND AS B USINESS PROFITS. ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY LD CIT(A) ON THIS IS SUE AND DIRECT THE ASSESSING OFFICER NOT TO ASSESS THE GAINS ARISING ON SALE OF IMPUGNED LANDS AS BUSINESS PROFITS. 13. IN THE RESULT ALL THE APPEALS FILED BY THE AS SESSEES ARE ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 19TH NOV 2014. '( # )* + 19TH NOV 2014 ( ' $ - SD SD/- ( /SANJAY GARG) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ) # $ MUMBAI: 19TH NOV 2014. ITA. NO773/MUM/2011 AND OTHER THREE APPEALS 8 . . ./ SRL SR. PS !'#$ %$&' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. # .% ( ) / THE CIT(A)- CONCERNED 4. # .% / CIT CONCERNED 5. /0 %1 & 1 ) # $ / DR ITAT MUMBAI CONCERNED 6. 2 3$ / GUARD FILE. 4 # / BY ORDER TRUE COPY 5 (ASSTT. REGISTRAR) & 1 ) # $ /ITAT MUMBAI