Kishan House Builders Association, Bangalore v. DCIT, Bangalore

ITA 809/BANG/2009 | 2003-2004
Pronouncement Date: 31-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 80921114 RSA 2009
Assessee PAN EMBER2002A
Bench Bangalore
Appeal Number ITA 809/BANG/2009
Duration Of Justice 7 month(s) 19 day(s)
Appellant Kishan House Builders Association, Bangalore
Respondent DCIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 31-03-2010
Date Of Final Hearing 04-02-2010
Next Hearing Date 04-02-2010
Assessment Year 2003-2004
Appeal Filed On 12-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.809/BANG/2009 ASSESSMENT YEAR : 2003-04 KISHAN HOUSE BUILDERS ASSOCIATION NO.221 NAGARATHPET BANGALORE 560 052. : APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1(1) BANGALORE. : RESPONDENT APPELLANT BY : SHRI H.N. KHINCHA C.A. RESPONDENT BY : SMT. SWATI S. PATIL CIT(DR) O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE FIRM IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT (A)-VI BANGALORE IN ITA NO.89/ACIT CC 1(1 )/BLORE/CIT(A)-VI/08- 09 DATED: 7.7.2009 FOR THE ASSESSMENT YEAR 2003-04. ITA NO.809/BANG/09 PAGE 2 OF 26 2. IN THE GROUNDS OF APPEAL THE ASSESSEE FIRM (TH E ASSESSEE IN SHORT) HAS RAISED EIGHT GROUNDS WHICH ARE IN THE NATURE OF EXHAUSTIVE AND ILLUSTRATIVE MANNER. ON A CAREFUL PERUSAL THE CRU XES OF THE GRIEVANCES INVOLVED ARE IN TWIN ISSUES WHICH FOR THE SAKE OF CLARITY ARE REFORMULATED IN A CONCISE MANNER AS UNDER: (I) THE AO HAD ERRED IN ASSUMING JURISDICTION FOR ISSU ANCE OF A NOTICE U/S 148 OF THE ACT AND THE LD. CIT(A) HAS AL SO ERRED IN CONFIRMING THE SAME; & (II) THE AO HAD ERRED IN HOLDING THAT THE INCOME WAS ASS ESSABLE AS INCOME FROM BUSINESS FOR THE ASST. YEAR UNDER DISP UTE AND THAT THE CIT(A) HAD ALSO ERRED IN CONFIRMING THE SAME; - ON PROPER APPRECIATION OF EVIDENCE THE ASSESSEE HA D RIGHTLY OFFERED THE INCOME AS CAPITAL GAINS IN THE AY 2005- 06 WHICH REQUIRES TO BE ACCEPTED. 3. BRIEFLY STATED THE FACTS ARE THAT THERE WAS A N ACTION U/S 132 OF THE ACT IN RESPECT OF MANTRI GROUP OF CASES ON 8/2/2006 IN WHICH A NUMBER OF INCRIMINATING DOCUMENTS WERE SAID TO HAVE BEEN UNEA RTHED SOME OF WHICH ACCORDING TO THE AO PERTAINING TO TRANSACTION BETW EEN MANTRI GROUP OF CASES AND THE ASSESSEE. SUBSEQUENTLY NOTICES U/S 153C OF THE ACT WAS ISSUED FOR THE AYS 2000-01 TO 2005-06. IN RESPONSE THE ASSESSEE HAD QUESTIONED THE JURISDICTION OF THE AO U/S 153C OF T HE ACT ON THE GROUND THAT THE DOCUMENTS UNEARTHED BY THE REVENUE DID NOT PERT AIN TO THE ASSESSEE ETC. CONSEQUENT UPON THE THOROUGH EXAMINATION OF TH E SEIZED MATERIALS FOUND DURING THE SEARCH PROCEEDINGS IN MANTRI GROUP OF CASES THE PROCEEDINGS INITIATED U/S 153C OF THE ACT AGAINST T HE ASSESSEE FOR THE AYS 00-01 TO 05-06 WERE SHELVED. ITA NO.809/BANG/09 PAGE 3 OF 26 4. HOWEVER ACCORDING TO THE REVENUE THE CONTENT S OF THE DOCUMENTS AND EVIDENCES GATHERED IN THE SEARCH PROCEEDINGS OF MANTRI GROUP OF CASES AND ON THE BASIS OF WHICH AFTER RECORDING THE REAS ONS FOR RE-OPENING OF THE ASSESSMENTS FOR THE AYS 2003-04 04-05 AND 05-06 N OTICES U/S 148 OF THE ACT WERE ISSUED CALLING UPON THE ASSESSEE TO FURNI SH ITS RETURNS OF INCOME FOR THE SAID AYS. IN COMPLIANCE THE ASSESSEE HAD FURNISHED ITS RETURNS OF INCOME DECLARING NIL INCOMES FOR THE AYS 2003-04 AND 2004-05 AND RS.156845979/- FOR THE AY 2005-06 AS ADMITTED IN TH E ORIGINAL RETURNS. WHILE FURNISHING THE RETURNS OF INCOME THE ASSESSE E VIDE ITS LETTER DT.16.7.2007 SOUGHT THE REASONS RECORDED FOR REOPEN ING OF THE ASSESSMENTS IN QUESTION AND SUBSEQUENTLY IN ITS LE TTER DATED 3.10.2007 HAD OBJECTED TO THE REOPENING OF THE ASSESSMENTS U/ S 147 OF THE ACT. 4.1. ACCORDING TO THE IMPUGNED ORDER OF THE AO THE OBJECTIONS RAISED BY THE ASSESSEE HAVE BEEN DISPOSED OFF VIDE ORDER SHEET NOTING OF THE FILE DT.26.6.2008 THE EXTRACT OF WHICH WAS THAT WHILE REOPENING OF ASSESSMENT U/S 147 OF THE IT AC T FOR THE A.Y 2003- 04 TO 2005-06 DETAILED REASONS ARE GIVEN FOR SUCH REOPENING OF ASSESSMENTS U/S 147 OF THE IT ACT AND THE COPY OF T HE SAME WAS FURNISHED TO THE AR OF THE ASSESSEE FIRM. THUS TH E REASONS CITED THEREON FOR REOPENING THE ASSESSMENT U/S 147 SQUARE LY DISPOSE OFF THE OBJECTIONS RAISED BY THE AR OF THE ASSESSEE REGARDI NG REOPENING OF THE ASSESSMENT. THEREFORE OBJECTIONS RAISED STAND DIS POSED OFF IN THIS REGARD. 4.2. AFTER ANALYZING THE FACTS OF THE ISSUES AT LENGTH AND ALSO CONSIDERING THE FORCEFUL CONTENTIONS PUT-FORTH BY T HE ASSESSEE THE AO FOR THE REASONS SET-OUT IN THE IMPUGNED ASSESSMENT ORDE R HAD HELD THAT 32. IN THE INSTANT CASE THE ASSESSEE FIRM IS NOT AUTHORIZED TO MAKE INVESTMENTS BY VIRTUE OF THE VERY RECONSTITUTION OF THE FIRM. THE ITA NO.809/BANG/09 PAGE 4 OF 26 ASSESSEE FIRM WAS CONSTITUTED SOLELY FOR THE PURPOS E OF CARRYING ON REAL ESTATE BUSINESS. THEREFORE THE ACTIVITY OF THE F IRM CANNOT BE SAID TO BE INVESTMENT. IN VIEW OF THESE FINDINGS THE SALE OF LAND BY THE ASSESSEE FIRM IS IN LINE WITH ITS BUSINESS ACTIVITY FOR WHI CH IT WAS CREATED AND THEREFORE INCOME ARISING THEREON IS HELD AS BUSINES S INCOME AND TAXED UNDER THE HEAD OF INCOME NAMELY PROFITS AND GAINS OF BUSINESS OR PROFESSION AND THE SAME IS COMPUTED AS UNDER: SALE CONSIDERATION RECEIVED RS.166500000 LESS: COST OF LAND 7203964 NET RECEIPTS (BUSINESS INCOME) 159296036 5. AGGRIEVED THE ASSESSEE WENT BEFORE THE CIT (A ) WITH TWIN ISSUES NAMELY (I) CHALLENGING THE ISSUANCE OF NOTICE U/S 148 OF THE A CT WITHOUT JURISDICTION; - WHEN THE REASONS RECORDED FOR THE ISSUANCE OF NOTIC E AND REOPENING OF THE ASSESSMENT WAS OBJECTED TO; THE AO HAD FAILED TO PASS A SPEAKING ORDER; & (II) THE AO HAD ERRED IN TAXING THE INCOME UNDER C ONSIDERATION FOR THE AY UNDER APPEAL. 5.1. AFTER DUE CONSIDERATION OF THE SPIRITED ARGUMENTS PUT-FORTH BY THE LD. A.R COUPLED WITH LENGTHY WRITTEN SUBMISS IONS AND ALSO THE REMAND REPORT OF THE AO THE LD. CIT(A) HAD OBSERVE D THUS 9.THUS IN ALL THE CASES CITED BY THE AUTHORI ZED REPRESENTATIVE NO ORDER HAS BEEN PASSED AT ALL ON OBJECTIONS RAISED SEPARATELY WHEREAS IN THIS CASE AN ORDER HAD BEEN P ASSED AND OBJECTIONS HAVE BEEN CONSIDERED AND DISPOSED OFF. THE AUTHORIZED REPRESENTATIVE PLEADS THAT THE ORDER IS NOT SPEAKIN G. BUT I FIND IT OTHERWISE. THE ORDER IS QUOTED BELOW: WHILE REOPENING OF ASSESSMENT U/S 147 OF THE IT AC T FOR THE A.Y 2003-04 TO 2005-06 DETAILED REASONS ARE GIVEN FOR SUCH REOPENING OF ASSESSMENTS U/S 147 OF THE IT ACT AND THE COPY OF T HE SAME WAS FURNISHED TO THE AR OF THE ASSESSEE FIRM. THUS TH E REASONS CITED THEREON FOR REOPENING THE ASSESSMENT U/S 147 SQUARE LY DISPOSE OFF THE OBJECTIONS RAISED BY THE AR OF THE ASSESSEE REGARDI NG REOPENING OF THE ITA NO.809/BANG/09 PAGE 5 OF 26 ASSESSMENT. THEREFORE OBJECTIONS RAISED STAND DIS POSED OFF IN THIS REGARD. 10. NO DOUBT THE ORDER IS BRIEF BUT IT CONTAINS THE REASONS OF REJECTION OF THE OBJECTIONS. IT HIGHLIGHTS THAT TH E REASONS RECORDED ARE SO ELABORATE THAT IT COVER ALL ISSUES RAISED IN THE OBJECTION AND THEREFORE IT IS NOT NECESSARY TO REPEAT IT. THE R EASONS FOR RE-OPENING HAS BEEN MADE PART OF THE ASSESSMENT ORDER VIDE PAR A 8 (PAGES 2 3 & 4) OF AY 2003-04. IT SPELLS OUT THE REASONS EXPLIC ITLY. THE MAIN OBJECTIONS WERE (1) THERE WAS NO RATIONAL CONNECTIO N BETWEEN THE REASONS RECORDED AND THE FORMATION OF THE BELIEF TH AT THE INCOME HAS ESCAPED ASSESSMENT AND (2) SECONDLY THE REOPENING WAS THE RESULT OF CHANGE OF OPINION ONLY. I FIND BOTH THESE OBJECTIO NS HAVE BEEN TAKEN CARE OF IF ONE ANALYZES THE REASONS RECORDED. NO R ETURNS WERE FILED EARLIER TO THE DATE OF SEARCH I.E. 8.2.2006.ONLY O N 31.3.06 RETURNS WERE FILED FOR THE AYS 2003-04 2004-05 AND 2005-06 WITH ITO WARD 9(1) SHOWING INCOME OF RS. NIL NIL AND RS.1568845 979 RESPECTIVELY. IN AY 2005-06 ONLY INCOME FROM CAPITAL GAINS WAS SH OWN BECAUSE IT WAS CONSIDERED THAT SALE OF LAND WAS EFFECTED IN TH AT YEAR. WHEREAS SEARCH CONDUCTED ON 8.2.2006 IN MANTRI GROUP REVEAL ED THAT THEY HAD BEEN GIVEN GENERAL POWER OF ATTORNEY BY THE APPELLA NT TO DEVELOP THE LAND TO CONSTRUCT FLATS THEREON AND SUBSEQUENT ENQU IRY CONDUCTED ON THE SEIZED PAPER LED THE AO TO FORM A BELIEF THAT T HE ASSESSEE IS EARNING SUBSTANTIAL INCOME FROM THE BUSINESS OF REAL ESTATE AND NOT FROM CAPITAL GAINS RESULTING IN ESCAPEMENT OF INCOME. I FIND HAD THERE BEEN NO SEIZURE OF THE GENERAL POWER OF ATTORNEY AT THE PLACE OF MANTRI GROUP THE ESCAPEMENT OF INCOME WOULD NOT HAVE COME TO LIGHT. THUS NEW INFORMATION BROUGHT OUT THROUGH SEARCH IN OTHER S PREMISES AND DEEP INVESTIGATION CONDUCTED THEREON JUSTIFIES THAT THERE WAS NO MERE CHANGE OF OPINION BUT A RATIONAL CONNECTION BETWEEN REASONS AND THE BELIEF AS TO ESCAPEMENT OF INCOME. HENCE I HOLD T HAT THE ORDER REJECTING THE OBJECTIONS IS SPEAKING ONE. IT IS OF TEN QUOTED THAT BREVITY IS THE SOUL OF WIT AND KNOWLEDGE WHILE ELABORATION IS THE MOTHER OF CONFUSION. THE AO BY BEING BRIEF HAS HIT THE BULL S EYE BY POINTING OUT THAT THE RECORDED REASONS DISPOSES OF ALL THE ISSUE S OF OBJECTIONS. HENCE I DISMISS THIS GROUND OF APPEAL AND DENY TO ANNUL THE ASSESSMENT ORDER. 5.2. IN RESPECT OF THE SECOND ISSUE AFTER GIVING DUE WEIGHT- AGE TO THE SUBMISSIONS OF THE ASSESSEE AND ALSO DUE CONSIDERATION OF THE REMAND REPORT OF THE AO THE LD. CIT (A) HAD OBSERV ED THUS ITA NO.809/BANG/09 PAGE 6 OF 26 13IN MY VIEW SO FAR AS THE HEAD OF INCO ME IS CONCERNED THE AO IS JUSTIFIED IN TAXING THE RECEIPT S UNDER THE HEAD BUSINESS REJECTING THE CLAIM OF THE APPELLANT. I STAND BY THE SIDE OF THE AO WHEN HE CONCLUDES THAT THE VERY CONSTITUTION OF THE FIRM WAS FOR DOING BUSINESS IN LAND I.E. TO PURCHASE AND SELL IT OR SELL IT AFTER DEVELOPING AND CONSTRUCTING COMPLEXES THEREON. A P ERUSAL OF PARTNERSHIP DEED JUSTIFIES SUCH A STAND. THIS FACT UM OF NATURE OF BUSINESS MENTIONED IN THE PARTNERSHIP DEED OF THE A PPELLANT FIRM DISTINGUISHES IT FROM THE FACTS OF THE CASE LAW OF SOHAN KHAN (304 ITR 194) CITED SUPRA. THE REVENUE IN THAT CASE COULD N OT PROVE THAT SOHAN KHAN WAS DEALING IN REAL ESTATE AND THEREFORE EVEN IF THE LAND WERE SOLD THROUGH A SERIES OF TRANSACTIONS THE COURT HE LD THE INCOME ARISING THERE-FROM AS CAPITAL GAINS BECAUSE IN THE ABSENC E OF SUCH PROOF IT WAS CONCLUDED THAT THE PARCELS OF LANDS WERE NOT ST OCK-IN-TRADE BUT CAPITAL ASSET. SUCH IS NOT THE CASE HERE. THE IN TENTION AS REFLECTED PARTNERSHIP DEED IS GLARINGLY TO DEAL IN REAL ESTAT ES. THAT IS WHY THE MOMENT IT WAS FORMED IN 1.7.1991 IT PURCHASED URBA N LAND IN NOVEMBER 1992. IN OTHER WORDS THE LAND WAS NEVER PURCHASED WITH AN INTENTION TO USE IT AS INVESTMENT AND DERIVE BEN EFIT THERE-FROM. I CONCLUDE THAT FROM THE VERY BEGINNING IT WAS KEPT A S STOCK-IN-TRADE. GROUNDWORK WAS CONTINUED AS WELL AS MARKET STUDIES BY WHICH THESE PRUDENT PARTNERS OF THE APPELLANT FIRM COULD VISUAL IZE THAT THE HEYDAY OF REAL ESTATE BUSINESS WAS ON THE ANVIL AND THERE FORE THEY PATIENTLY WAITED UP-TO 2001. IN 2002 IT WAS DECIDED TO SELL THE PROPERTY FOR RS.16.65 CRORES TO M/S. ABHISHEK DEVELOPERS RECEIVI NG RS.3 CRORES FORTHWITH ON 13.5.2002. ON 22.6.2002 AN AGREEMENT FOR SALE HAD ALREADY BEEN EXECUTED BEFORE RECEIVING THE FIRST IN STALLMENT OF RS.3 CRORES AND THE TERMS AND CONDITIONS THEREIN HAD ALR EADY STIPULATED THE MODE AND DATE OF PAYMENT ETC. BUT A GENERAL POWER OF ATTORNEY EXECUTED ON 13.5.02 GAVE UNFETTERED POWERS TO THE P ERSONS OF MANTRI GROUP ALSO INTERESTED IN ABHISHEK DEVELOPERS VIZ. SUSHIL MANTRI AND SMT.SNEHAL MANTRI TO UTILIZE THE LAND WITHOUT OBTAI NING ANY FURTHER NO OBJECTION FROM THE APPELLANT. IF THAT BE NOT EQUAT ED WITH TRANSFER I WONDER WHAT ELSE WOULD MEAN TRANSFER. I CONCLUDE T HAT THERE WAS VIRTUALLY ABSOLUTE TRANSFER OF THE PROPERTY ON THE DATE OF EXECUTION OF THE GPA. THE CONDITIONS NARRATED IN THIS POA WAS SUCH THAT NOTHING LESS THAN OWNERSHIP COULD BE ASCRIBED TO THE PURCHA SERS. I DO NOT CONSIDER HERE TO REPEAT THE TERMS OF THE GPA BECAUS E SUCH HAS BEEN DONE IN PARA 23 OF (PAGES 6 7 & 8) OF THE ASSESSME NT ORDER OF AY 05- 06. OWNERSHIP IN COMMON PARLANCE MEANS THE ENJOYM ENT OF A PROPERTY IN ITS OWN RIGHT TO THE EXCLUSION OF OTHER S EVEN BARRING THE POWER AND RIGHT TO ALIENATE SUCH PROPERTY WITH OR W ITHOUT CONSIDERATION. THE ANALYSIS OF TERMS OF THE GPA ST ATES UNEQUIVOCALLY THAT THE PURCHASES WOULD NOT ONLY HAVE THE RIGHT TO ENJOY OR UTILIZE THE PROPERTY THEY HAVE ALSO BEEN ASSIGNED THE POWER TO CONVEY BY WAY OF SALE. HENCE ONE MAY QUESTION WHAT WAS THE NECESSITY OF REGISTRATION OF ITA NO.809/BANG/09 PAGE 7 OF 26 A SALE DEED IN AY 06-07 I.E. 20.6.05 AND WHAT IS I TS LEGAL IMPLICATION? THE REGISTRATION WAS ONLY A RATIFICATION OF WHAT HA D BEEN STATED IN THE POA AND IT WAS A LEGAL NECESSITY BECAUSE THEREBY TH E STATE GETS REVENUE IN THE SHAPE OF STAMP DUTY AND IT IS NECESS ARY TO REGISTER A SALE OF PURCHASE OF AN IMMOVABLE PROPERTY OF VALUE OF MO RE THAN RS.100/- AS PER S.17 OF THE INDIAN REGISTRATION ACT. THUS A SALE DEED REGISTERED IN NO WAY PROVES THE PRIVILEGE OF OWNERSHIP OR OTHE RWISE OR MAKES THE TRANSFER COMPLETE. I THEREFORE CONCLUDE THAT THE DATE OF FIRST GPA I.E. 13.5.02 WAS THE DATE OF REAL TRANSFER OF OWNERSHIP. I HAVE BESIDE THE REASONS ELABORATED ABOVE ANOTHER STRONG REASON TO DRAW SUCH INFERENCE. IT IS OFTEN STATED POSSESSION IS 9/10 O F OWNERSHIP. THROUGH THE GPA COMPLETE POSSESSION OVER THE PROPERTY WAS A DMITTEDLY HANDED OVER TO THE PURCHASERS AND THAT IS WHY THEY STARTED DEVELOPING THE LAND ITSELF IN SEPTEMBER 2002 AND CONSTRUCTION OF A COMP LEX NAMED MANTRI RESIDENCY IN 2003. HAD THERE BEEN AN IOTA OF DOUBT AS TO THEIR OWNERSHIP THE PURCHASERS WOULD NOT HAVE STARTED SU CH ADVENTURE OF MASSIVE CONSTRUCTION A FEW MONTHS AFTER THE EXECU TION OF POA BUT WOULD HAVE WAITED TILL THE EXECUTION OF SALE THROUG H A REGISTERED DEED. BESIDES I NOTE THAT THE DEED OF SALE AGREEMENT UP ON WHICH THE AR RELIES TOO MUCH TO ARGUE THAT CLAUSES THEREIN STIPU LATE THE TRANSFER OF OWNERSHIP AND POSSESSION AFTER FULL AND FINAL PAYME NT BY THE PURCHASERS AND THEREFORE THE OWNERSHIP WAS TRANSF ERRED ONLY IN AY 05-06 IS DATED 13.5.02. WHEREAS THE GPA IN FAVOUR OF THE PURCHASERS GIVING THAT UNFETTERED AND ABSOLUTE OWNERSHIP AND P OSSESSION TO DEAL WITH THE PROPERTY IN WHATSOEVER MANNER THEY LIKED H AD BEEN EXECUTED ON 13.5.02. WHAT IS BEING POINTED OUT BY ME IS TH AT WHEN THERE ARE MORE THAN ONE DOCUMENT DEALING WITH SAME OR SIMILAR SUBJECT THE ONE WHICH IS EXECUTED SUBSEQUENTLY GETS NO OR LESS REC OGNITION IN THE EYE OF LAW. IN THIS CASE EVIDENTLY THE SALE AGREEMENT WAS EXECUTED FIRST AND ON THE SAME DAY SUBSEQUENTLY GENERAL POWER OF ATTOR NEY WAS EXECUTED AND THEREFORE THE TERMS AND CONDITIONS ENUMERATED I N GPA WAS STRICTLY ADHERED TO BY THE PURCHASERS TO GO FOR CON STRUCTION WORK THEREON. THEREFORE I HOLD THE GPA IN NO UNCERTAIN TERMS TRANSFERS OWNERSHIP AS WELL AS POSSESSION TO ATTORNEY PURCHAS ERS ELABORATED BY ME ABOVE. THUS OWNERSHIP I CONCLUDE HAD BEEN TR ANSFERRED IN THE AY 03-04 THROUGH THE ABSOLUTE TERMS OF GPA AND THUS HOLD THE ACTION OF THE AO JUSTIFIED IN ASSESSING THE INCOME IN THE AY 03-04 SUBSTANTIVELY UNDER THE HEAD BUSINESS INCOME. WH ILE COMING TO SUCH CONCLUSION I DISREGARD THE ARGUMENT OF THE AR THAT FOR EACH RECEIPT OF AN INSTALLMENT AS PER THE TERMS OF THE AGREEMENT O F SALE A SEPARATE POA WAS EXECUTED AND THEREFORE THE POA EXECUTED O N 13.5.02 SHOULD BE CONSIDERED INSOMUCH AS SUCH POWERS OF ATTORNEY D T.13.5.02 COULD BE SEIZED BY THE SEARCH PARTY WHILE CONDUCTING SEARCH IN THE PREMISES OF MANTRI GROUP. THUS THE PROTECTIVE ASSESSMENT OF A Y 2005-06 GOES. GROUNDS OF APPEALS OF AY 2003-04 ARE THUS DISMISSED . ITA NO.809/BANG/09 PAGE 8 OF 26 6. AGITATED THE ASSESSEE HAS COME UP WITH THE PRE SENT APPEAL. DURING THE COURSE OF HEARING THE LD. A R HAD ARGUE D AT LENGTH WITH REGARD TO THE MANNER IN WHICH THE OBJECTIONS RAISED BY THE ASSESSEE FOR RE- OPENING OF THE ASSESSMENT U/S 147 OF THE ACT HAS BE EN DEALT WITH BY THE ASSESSING OFFICER. THE SUBSTANCES OF THE ARGUMENTS OF THE LD. AR ARE SUMMARIZED AS UNDER: (I) THE ORDER OF THE AO WAS BAD WITHOUT JURISDICTION A ND AGAINST THE PROVISIONS OF LAW AND EVEN AGAINST THE DICTUM O F THE APEX COURT; - THE AO HAD ERRED IN ASSUMING JURISDICTION AND ISSUA NCE OF NOTICE U/S 148 OF THE ACT; - THE CIT(A) HAD ALSO ERRED IN CONFIRMING THE SAME AS THE CONDITIONS PRECEDENT FOR THE ISSUANCE OF NOTICE U/S 148 OF THE ACT BEING ABSENT THE ISSUE OF NOTICE AND CONSE QUENT ALL CONNECTED PROCEEDINGS HAVE BECOME VOID-AB-INITIO AN D WERE LIABLE TO BE QUASHED - THE AO HAVING NOT PASSED A SPEAKING ORDER AGAINST T HE OBJECTIONS RAISED FOR RE-OPENING OF THE ORDER BECAM E BAD IN LAW AND THAT THE LD. CIT(A)HAD MISERABLY ERRED IN H OLDING THAT THE ORDER OF THE AO CONSEQUENT TO THE OBJECTIO N RAISED WAS A SPEAKING ORDER; - THERE BEING NO SPEAKING ORDER THE FINDING OF THE C IT(A) WAS WRONG AND HIS IMPUGNED ORDER IS LIABLE TO BE QU ASHED; - RELIES ON THE CASE LAWS: I. GKN DRIVESHAFTS (INDIA) LTD. V. ITO 259 ITR 19 (SC) II. KAMLESH SHARMA V. ITP 281 ITR 377 (DELHI) III. ALLANA COLD STORAGE LTD. V. ITO 287 ITR 1 (BOM) IV. ARVIND MILLS LTD. V. ACIT 270 ITR 469 (BOM) V. DELHI TOURISM & TRANSPORT DEV. CORPORATION LTD. V. ACIT 141 TAXMAN 361 ITA NO.809/BANG/09 PAGE 9 OF 26 6.1. ON THE OTHER HAND THE LD. D R WAS VERY VE HEMENT IN HER STAND THAT THE AO HAD IN FACT RECORDED THE REASONS IN AN EXHAUSTIVE AND AN ILLUSTRATIVE MANNER WHICH WAS DULY COMMUNICATED TO THE ASSESSEE AND CONSEQUENT UPON THE ASSESSEES OBJECTIONS THE AO H AD DULY DISPOSED OFF OF THE SAID OBJECTIONS IN THE ORDER SHEET NOTING OF THE FILE DT: 26/6/2008 WHICH HAD ALSO BEEN MADE AS A PART OF THE ASSESSMEN T ORDER WHICH IN HER VIEW SHOULD BE CONSTRUED AS A SPEAKING ORDER. IT W AS FURTHER PLEADED THAT THE CIT (A) HAD INDEED DWELT WITH THE ISSUE ELABORA TELY AND CAME TO A CONCLUSION WHICH REQUIRES NO FURTHER CONSIDERATION AT THIS STAGE. 7. ON A PERUSAL OF THE ASSESSMENT ORDER WE FIND THAT THE AO HAS STATED THAT 15. VIDE LETTER DATED: 3/10/07 ASSESSEE FIRM FILE D A DETAILED LETTER RAISING OBJECTIONS TO THE REOPENING OF ASSESSMENTS U/S 147 OF THE I.T. ACT. THE OBJECTIONS RAISED BY THE ASSESSEE FIRM HA VE BEEN DISPOSED OFF VIDE ORDER SHEET NOTING OF THE FILE DATED: 26/6/08 . THE EXTRACT OF THE NOTING IS GIVEN AS UNDER: WHILE REOPENING OF ASSESSMENT U/S 147 OF THE IT AC T FOR THE AY 2003-04 TO 2005-06 DETAILED REASONS ARE GIVEN FOR SUCH REOPENING OF ASSESSMENTS U/S 147 OF THE IT ACT AND THE COPY OF T HE SAME WAS FURNISHED TO THE AR OF THE ASSESSEE FIRM. THUS THE REASONS CITED THEREON FOR REOPENING THE ASSESSMENT US 147 SQUAREL Y DISPOSE OFF THE OBJECTIONS RAISED BY THE AR OF THE ASSESSEE REGARDING REOPENING OF THE ASSESSMENT. THEREFORE OBJECTIONS RAISED STAND DISPOSED OFF IN THIS REGARD. 7.1. ON A PLAIN READING OF THE ABOVE WE FIND THA T A VITAL ISSUE HAS BEEN DEALT WITH BY THE AO IN A LACKLUSTRE AND SLIP- SHOD MANNER WHICH IS QUITE CONTRARY TO THE SPIRIT OF THE RULING OF THE H IGHEST JUDICIARY OF THE COUNTRY IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD. V. INCO ME-TAX OFFICER AND ITA NO.809/BANG/09 PAGE 10 OF 26 OTHERS REPORTED IN (2003) 259 ITR 19 WHEREIN THE HO NBLE COURT IN ITS WISDOM HAS HELD THAT WHEN A NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT 1961 IS ISSUED THE PROPER COURSE OF ACTION FOR THE NOTI CE IS TO FILE THE RETURN AND IF HE SO DESIRES TO SEEK REASONS F OR ISSUING THE NOTICES. THE ASSESSING OFFICER IS BOUND TO FURNISH REASONS WITHIN A REASONABLE TIME. ON RECEIPT OF REASONS THE NOTICEE IS ENTITLED TO FILE OBJECTIONS TO ISSUANCE OF NOTICE A ND THE ASSESSING OFFICER IS BOUND TO DISPOSE OF THE SAME B Y PASSING A SPEAKING ORDER . 7.2. TURNING TO THE REASONING OF THE LD. CIT (A) WE FIND THAT THE CIT (A) HAD STATED THAT 9. THE ISSUE RAISED AT (1) ABOVE IS CRUCIAL TO THE LIFE OF ASSESSMENT ORDER AND THAT WAS DECIDED AT FIRST D URING THE COURSE OF APPELLATE HEARING AND IT WAS INFORMED TO THE AUTHOR IZED REPRESENTATIVE THAT THE ORDER THOUGH A BRIEF ONE CATERS TO ALL CONDIT IONS OF A SPEAKING ORDER AND THEREFORE HE WAS CALLED UPON TO ARGUE THE CASE ON MERITS. THIS HAS BEEN DONE PRECISELY WITHOUT GOING INTO THE MERITS O F THE ISSUE. HE FURTHER WENT ON TO ADD THAT 9..THE AUTHORIZED REPRESENTATIVE PLEADS THAT THE ORDER IS NOT SPEAKING. BUT I FIND IT OTHERWISE. THE ORDER IS QUOTED BELOW: WHILETHEREFORE OBJECTIONS RAISED STAND DI SPOSED OFF IN THIS REGARD. 10. NO DOUBT THE ORDER IS BRIEF BUT IT CONTAINS T HE REASONS OF REJECTION OF THE OBJECTIONS. IT HIGHLIGHTS THAT THE REASONS RECORDED ARE SO ELABORATE THAT IT COVERS ALL ISSUES RAISED IN THE O BJECTION AND THEREFORE IT IS NOT NECESSARY TO REPEAT IT. THE REASONS FOR RE-OPENING HAS BEEN MADE PART OF THE ASSESSMENT ORDER VIDE PARA 8 (PAGE S 2 3 & 4) OF AY 2003-04. IT SPELLS OUT THE REASONS EXPLICITLY. TH E MAIN OBJECTIONS WERE (1) THERE WAS NO RATIONAL CONNECTION BETWEEN THE RE ASONS RECORDED AND THE FORMATION OF THE BELIEF THAT THE INCOME HAS ESC APED ASSESSMENT AND (II) SECONDLY THE REOPENING WAS THE RESULT OF CHANG E OF OPINION ONLY. I ITA NO.809/BANG/09 PAGE 11 OF 26 FIND BOTH THESE OBJECTIONS HAVE BEEN TAKEN CARE OF IF ONE ANALYSES THE REASONS RECORDED.. 7.3. ACCORDING TO THE LAW LEXICON SPEAKING ORDER MEANS AN ORDER WHICH CONTAINS MATTER WHICH IS EXPLANATORY OR ILLUSTRATIVE OF THE MERE DIRECTION WHICH IS GIVEN BY IT IS SOMETIMES THUS CA LLED . THUS THE REVENUE CANNOT LEGITIMIZE THE WAYWARD MANNER IN WHICH THE I SSUE HAS BEEN DEALT WITH. 7.4. CONSIDERING PROS AND CONS OF THE ISSUE THE BENCH WAS OF THE FIRM VIEW THAT THE OBJECTIONS RAISED BY THE ASSESSE E FOR THE ISSUANCE OF NOTICE U/S 148 OF THE ACT FOR REOPENING OF THE ASSE SSMENT HAS NOT BEEN DISPOSED OFF BY PASSING A SPEAKING ORDER BY THE AO IN CONFORMITY WITH THE RULING OF THE HONBLE SUPREME COURT IN THE CASE GKN DRIVESHAFTS (INDIA) LTD. REFERRED SUPRA AND THUS THE ISSUE REQUIRES T O BE REMITTED BACK ON THE FILE OF THE AO FOR FRESH CONSIDERATION AND SOUGHT T HE COMMENTS OF THE RIVAL PARTIES PRESENT DURING THE COURSE OF HEARING. THE LD. AR IMMEDIATELY CAME UP WITH A SUBMISSION THAT HE WAS NOT PRESSING THIS GROUND AND PASSIONATELY PLEADED THAT THE OTHER GROUND RAISED B E DECIDED ON MERITS. 7.5. IN VIEW OF THE SUBMISSION OF THE LD. A .R THE FIRST GROUND RAISED BY THE ASSESSEE THE OBJECTION FOR ISSUANCE OF NOTICE U/S 148 OF THE ACT FOR REOPENING OF THE ASSESSMENT U/S 147 HAS NOT BEEN DI SPOSED OFF BY A SPEAKING ORDER IS DISMISSED AS NOT PRESSED. ITA NO.809/BANG/09 PAGE 12 OF 26 8. LET US NOW PROCEED TO CONSIDER THE ASSESSEES OTHER GRIEVANCE THAT THE AO WAS NOT JUSTIFIED IN BRINGING TO TAX TH E SALE CONSIDERATION OF RS.15.92 CRORES UNDER THE HEAD PROFITS AND GAINS O F BUSINESS OR PROFESSION FOR THE ASSESSMENT YEAR UNDER DISPUTE. 8.1. THE ISSUE IN BRIEF IS THAT THE ASSESSEE HAD PURCHASED THE LANDS SITUATED AT KALENA AGRAHARA VILLAGE BEGUR HOBLI B ANGALORE DURING 1992. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT OF SALE ON 13.5.2002 WITH M/S. ABHISHEK DEVELOPERS FOR A SALE CONSIDERATION O F RS.16.65 CRORES AND ON THE DATE OF AGREEMENT THE ASSESSEE WAS IN RECEI PT OF RS.3 CRORES AS PART OF SALE CONSIDERATION. THE BALANCE SUM OF RS.1 3.65 CRORES THE YEAR- WISE BREAK UP OF THE ENTIRE CONSIDERATION PAID AS P ER THE TERMS OF THE AGREEMENT IS AS UNDER: FINANCIAL YEAR AMOUNT 2002-03 RS.81187500 2003-04 RS.67950000 2004-05 RS.17362500 8.2. THE ASSESSEE FURNISHED ITS RETURN OF INCOME U/S 139 OF THE ACT ON 31.3.06 FOR THE AY 2005-06 ADMITTING THE ABOVE TRAN SACTIONS AND OFFERED THE INCOME ARISING OUT OF THE ABOVE MENTIONED TRANS ACTION AS LTCG FOR THE AY 05-06. 8.3. CONSEQUENT TO THE INQUIRIES THE REVENUE WA S OF THE VIEW THAT THE ASSESSEE HAD NOT DISCLOSED THE INCOME ACCRUING DURI NG THE FY RELEVANT TO THE AY 03-04 AND THAT EVEN THE INCOME ADMITTED IN T HE RETURN OF INCOME FOR THE AY 05-06 WAS WRONG AS THE SAME WAS DISCLOSED AS LONG TERM CAPITAL GAINS INSTEAD OF BUSINESS INCOME. ITA NO.809/BANG/09 PAGE 13 OF 26 8.4. AFTER EXAMINING THE CONTENTIONS OF THE ASS ESSEE AND ALSO ANALYZING THE MATERIAL EVIDENCES THE AO HAD ARRIVE D AT A CONCLUSION THAT (I) THE PROPERTY IN QUESTION WAS DEEMED TO HAVE BEEN TR ANSFERRED TO ABHISHEK DEVELOPERS DURING THE FY 02-03 AND THUS INCOME ON THE SAID TRANSFER OF THE PROPERTY ACCRUES IN THE FY 02-03 ONLY; (II) THE INCOME ACCRUED IN VIEW OF THE ABOVE TRANSACTION WAS BUSINESS INCOME - NOT LTCG DECLARED BY THE ASSESSEE IN THE R OI FOR AY 05- 06 AS THE ASSET IN QUESTION WAS A BUSINESS ASSET. 8.5. FOR THE DETAILED ANALYZES MADE AND NARRATE D IN THE ASSESSMENT ORDER THE AO HAD COME TO THE CONCLUSION THAT 26. ON THE VERY LAND REGARDING WHICH POWER OF AT TORNEY WAS EXECUTED BY THE ASSESSEE FIRM AS MENTIONED ABOVE M /S. ABHISHEK DEVELOPERS COMMENCED CONSTRUCTION OF RESID ENTIAL PROJECT NAMELY MANTRI RESIDENCY DURING THE MONTH OF SEPTEMBER 2002 AND COMPLETED THE PROJECT DURING TH E MONTH OF MARCH 2005. 27. THEREFORE IT IS CLEAR THAT THE PROPERTY HAS BEEN TRANSFERRED OR DEEMED TO HAVE TRANSFERRED DURING THE FINANCIAL YEAR 2002-03 AS ALL RISKS REWARDS AND POSSESSION WAS TRANSFERRE D TO THE POWER OF ATTORNEY HOLDERS IN THE FINANCIAL YEAR 200 2-03. THEREFORE THE INCOME ARISES/ACCRUES TO THE ASSESSEE FIRM ON ACCOUNT OF TRANSFER OF THE SAID PROPERTY IS REQUIRE D TO BE OFFERED TO TAX IN THE YEAR 2002-03 AND THEREFORE ACCORDINGL Y ASSESSED TO TAX .. 32. IN THE INSTANT CASE THE ASSESSEE FIRM IS NOT AUTHORIZED TO MAKE INVESTMENT BY VIRTUE OF THE VERY CONSTITUTION OF THE FIRM. THE ASSESSEE FIRM WAS CONSTITUTED SOLELY FOR THE PU RPOSE OF CARRYING ON REAL ESTATE BUSINESS. THEREFORE THE A CTIVITY OF THE FIRM CANNOT BE SAID TO BE INVESTMENT. IN VIEW OF TH ESE FINDINGS THE SALE OF LAND BY THE ASSESSEE FIRM IS IN LINE WI TH ITS BUSINESS ITA NO.809/BANG/09 PAGE 14 OF 26 ACTIVITY FOR WHICH IT WAS CREATED AND THEREFORE INC OME ARISING THEREON IS HELD AS BUSINESS INCOME AND TAXED UNDER THE HEAD OF INCOME NAMELY PROFITS AND GAINS OF BUSINESS OR PRO FESSION. 8.6. ACCORDINGLY THE AO HAD COMPUTED THE TAXABL E INCOME AT RS.15 92 96 040/- AFTER ALLOWING COST OF LAND. 9. ON APPEAL THE LD. CIT (A) AFTER GIVING DUE WEIGHT-AGE TO THE CONTENTION OF THE ASSESSEE PERUSAL OF RELEVANT REC ORDS AND DISCUSSING THE ISSUE IN AN ELABORATE MANNER HAS OBSERVED THUS - 13.THROUGH THE GENERAL POWER OF ATTORNEY COMPLETE POSSESSION OVER THE PROPERTY WAS ADMITTEDL Y HANDED OVER TO THE PURCHASERS AND THAT IS WHY THEY STARTED DEVELOP ING THE LAND ITSELF IN SEPTEMBER 2002 AND CONSTRUCTION OF A COMPLEX NAMED MANTRI RESIDENCY IN 2003. HAD THERE BEEN AN IOTA OF DOUBT AS TO THEIR OWNERSHIP THE PURCHASERS WOULD NOT HAVE STARTED SU CH ADVENTURE OF MASSIVE CONSTRUCTION A FEW MONTHS AFTER THE EXECUTI ON OF POWER OF ATTORNEY BUT WOULD HAVE WAITED TILL THE EXECUTION O F SALE THROUGH A REGISTERED DEED. BESIDES I NOTE THAT THE DEED OF SALE AGREEMENT UPON WHICH THE AUTHORIZED REPRESENTATIVE RELIES TOO MUCH TO ARGUE THAT CLAUSES THEREIN STIPULATE THE TRANSFER OF OWNERSHI P AND POSSESSION AFTER FULL AND FINAL PAYMENT BY THE PURCHASERS AND THEREFORE THE OWNERSHIP WAS TRANSFERRED ONLY IN AY 2005-06 IS DA TED 13.5.2002. WHEREAS THE GENERAL POWER OF ATTORNEY IN FAVOUR OF THE PURCHASERS GIVING THAT UNFETTERED AND ABSOLUTE OWNERSHIP AND P OSSESSION TO DEAL WITH THE PROPERTY IN WHATSOMANNER THEY LIKED HAD BE EN EXECUTED ON 13.5.02. WHAT IS BEING POINTED OUT BY ME IS THAT W HEN THERE ARE MORE THAN ONE DOCUMENT DEALING WITH SAME OR SIMILAR SUBJ ECT THE ONE EXECUTED FIRST AND ON THE SAME DAY SUBSEQUENTLY GEN ERAL POWER OF ATTORNEY WAS EXECUTED AND THEREFORE THE TERMS AND C ONDITIONS ENUMERATED IN GENERAL POWER OF ATTORNEY WAS STRICTL Y ADHERED TO BY THE PURCHASERS TO GO FOR CONSTRUCTION WORK THEREON . THEREFORE I HOLD THE GENERAL POWER OF ATTORNEY IN NO UNCERTAIN TERMS TRANSFERS OWNERSHIP AS WELL AS POSSESSION TO ATTORNEY PURCHAS ERS ELABORATED BY ME ABOVE. SUBSEQUENTLY THUS OWNERSHIP I CONCLUDE HAD BEEN TRANSFERRED IN THE AY 03-04 THROUGH THE ABSOLUTE TE RMS OF GPA AND THUS HOLD THE ACTION OF AO JUSTIFIED IN ASSESSING T HE INCOME IN THE AY 03-04 SUBSTANTIVELY UNDER THE HEAD BUSINESS INCOME . WHILE COMING TO SUCH CONCLUSION I DISREGARD THE ARGUMENT OF THE AR THAT FOR EACH RECEIPT OF AN INSTALLMENT AS PER THE TERMS OF THE AGREEMENT OF SALE A SEPARATE POWER OF ATTORNEY WAS EXECUTED AND THEREFO RE THE POA ITA NO.809/BANG/09 PAGE 15 OF 26 EXECUTED ON 13.5.02 SHOULD BE CONSIDERED INSOMUCH A S SUCH POA WERE NOT FOUND IN THE COURSE OF SEARCH BUT ONLY THE GPA DT: 13.5.02 COULD BE SEIZED BY THE SEARCH PARTY WHILE CONDUCTING SEAR CH IN THE PREMISES OF MANTRI GROUP. THUS THE PROTECTIVE ASSESSMENT OF AY 2005-06 GOES. GROUNDS OF APPEALS OF AY 2003-04 ARE THUS DISMISSED . 10. BEFORE US THE LD. AR REITERATED MORE OR LESS WHAT HAS BEEN CONTENDED BEFORE THE FIRST APPELLATE AUTHORITY. IN FURTHERANCE IT WAS VEHEMENTLY ARGUED THAT (I) FROM 1992 TO 2002 THE LAND WAS KEPT AS AN INVESTMEN T WITHOUT ANY ACTIVITY; - AS PER THE AGREEMENT (CL.3) THE SALE WAS TO BE C OMPLETED WITHIN 24 MONTHS FROM 13.5.2002; (II) AS PER CLAUSE 5.1. THE ORIGINAL DOCUMENTS OF TITLE DEED WERE KEPT IN ESCROW WHO WAS REQUIRED TO HAND OVER THE ORIGINAL DOCUMENTS TO THE PURCHASER ONLY ON THE RECEIPT OF T HE ENTIRE SALE CONSIDERATION; (III) CLAUSE 6 CLEARLY PROVIDES THAT THE VENDOR SHALL DE LIVER THE VACANT POSSESSION OF THE SCHEDULE PROPERTY TO THE P URCHASER ON THE DATE OF SALE AND AGAINST THE PAYMENT OF THE ENT IRE SALE CONSIDERATION; (IV) THE LAST AND FINAL INSTALMENT OF SALE CONSIDERATION WAS RECEIVED DURING THE FY 04-05 RELEVANT TO THE AY 05-06; (V) THE TRANSFER HAVING TAKEN PLACE ONLY IN THE PREVIOU S YEAR RELEVANT TO THE AY 05-06 THE ASSESSEE HAD OFFERED THE INCOME FROM THIS TRANSACTION FOR THE AY 05-06; (VI) SUITS WERE FILED AGAINST THE ASSESSEE AND THESE SUI TS (OS NOS: 768/02 AND 366/2003) WERE DECREED AS PER WHICH AMOU NTS WERE PAYABLE TO THE LANDLORDS TOTALING TO RS.42 LAK HS. OF THESE SUMS THE LAST INSTALMENT OF RS.1.80 LAKHS WAS PAID TO THEM ON 27.8.04 IN THE PREVIOUS YEAR RELEVANT TO THE AY 0 5-06; - IN VIEW OF THESE FACTS THE TRANSFER HAVING TAKEN P LACE ONLY IN THE PREVIOUS YEAR RELEVANT TO THE AY 05-06 AND T HUS THE ASSESSEE OFFER THE INCOME FROM THIS TRANSACTION FOR THE AY 05-06; (VII) THE ASSESSEE HAD EXECUTED POA IN FAVOUR OF THE PURC HASERS ONLY FOR THE PURPOSE OF ENSURING THE SAFETY OF THE AMOUNTS RECEIVED FROM THE PURCHASERS. THE POA DID NOT HAVE ANY MATERIAL EFFECT OF TRANSFERRING ANY PORTION OF LAND TO THE BUYER ITA NO.809/BANG/09 PAGE 16 OF 26 OR IN ANY WAY CONCLUDING THE SALE. THE VERY FACT T HAT THE POA EXECUTED SHOWS THAT THE OWNERSHIP REMAINED WITH THE ASSESSEE ONLY; (VIII) THE POA EXECUTED ON 24.4.04 WAS IN RELATION TO THE ENTIRE LAND OF 8 A 15 GUNTAS. NONE OF THE PSOA WERE IN FAVOUR OF THE PURCHASERS ABHISHEK DEVELOPERS BUT WERE IN FAV OUR OF SUSHIL MANTRI SNEHAL MANTRI AND H.S.GIRISH GUPTA W HO WERE ACTING ON BEHALF OF THE ASSESSEE; (IX) THE RECITAL IN THE POA DT: 24.4.04 GOES TO PROVE EX PLICITLY THAT WHEREAS WE ARE THE ABSOLUTE OWNERS OF ALL THAT PIEC E AND PARCEL OF CONVERTED LAND (X) SUPPLEMENTAL AGREEMENT EXECUTED ON 13.5.2002 MAKES IT UNAMBIGUOUSLY CLEAR THAT NOW THIS SUPPLEMENTAL AGREEMENT WITNESSES AS FOLLO WS: (1) THE VENDORS AT THE REQUEST OF THE PURCHASERS HAVE PERMITTED BY WAY OF A LICENCE TO ENTER UPON THE SCH EDULE PROPERTY AND TO DO WORK OF CONSTRUCTION IN THE PORT ION THEREOF SET OUT IN GREEN OUTLINE IN THE PLAN ANNEXE D HERETO BEING THE PORTION OF THE SCHEDULE A PROPERTY ENTI RELY AT THEIR RISK AS TO COST AND CONSEQUENCES WITHOUT ANY RIGHT OF REIMBURSEMENT OF THE COST OF CONSTRUCTION. (2) THE LICENSE HEREBY GRANTED TO THE PURCHASERS BY THE VENDORS IS ON THE SPECIFIC CONDITION ASSURANCE AND UNDERTA KING BY THE PURCHASERS THAT THE SAME SHALL NOT BE CONSTRUED OR DEEMED TO BE POSSESSION OR CLAIM TO BE POSSESSION U NDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT BY THE PURCHASERS UNDER ANY AGREEMENT FOR SALE WITH REGARD S TO THE PORTION IN WHICH THE LICENCE IS GRANTED FOR CON STRUCTION; (3) THE LICENCE HEREBY GRANTED TO THE PURCHASERS BY THE VENDORS IS ON THE SPECIFIC ASSURANCE THAT ALL ACTS DEEDS A ND THINGS DONE BY THE PURCHASERS PURSUANT TO THIS LICENCE SHA LL BE THE RESPONSIBILITY OF THE PURCHASERS AND SHALL BE DONE ENTIRELY AT THE RISK AS TO COST AND CONSEQUENCES OF THE PURC HASERS AND THAT THE PURCHASERS SHALL KEEP THE VENDORS FULL Y INDEMNIFIED AGAINST ANY COST CLAIM ACTIONS PROCE EDINGS ETC. IN TERMS OF THE SEPARATE INDEMNITY EXECUTED B Y THE PURCHASERS IN FAVOUR OF THE VENDORS. (XI) THE AO HAD RELIED ONLY ON THE POA EXECUTED BY THE A SSESSEE TO CONCLUDE THAT THE TRANSFER OF LAND TOOK PLACE IN TH E PREVIOUS YEAR RELEVANT TO THE AY 03-04. HOWEVER HE HAD FAI LED TO CONSIDER THE FACT THAT - THE AGREEMENT WAS ENTERED INTO WITH ABHISHEK BUILDE RS; ITA NO.809/BANG/09 PAGE 17 OF 26 - THE POA WAS IN FAVOUR SUSHIL MANTRI SMT.SNEHAL MAN TRI AND GUPTA - AS PER THE POA THE AGENT HAD ACTED AS AGENT OF THE ASSESSEE AS WAS CLEAR FROM THE WORDING OUR AGENTS AT MANY PLACES IN THE POA. THE POA WAS ISSUED FOR ON BEHALF OF THE ASSESSEE AND NOT FOR THE BENEFITS/ADVANTAGE OF THE PROPOSED BUYER (XII) THE MERE EXECUTION OF GPA DOES NOT MEAN THAT THERE WAS A TRANSFER OF PROPERTY WHICH NEEDS CONVEYANCE OR HAND ING OVER THE POSSESSION OF THE PROPERTY; & (XIII) THE AO HAD USED THE WORD DEEMED TO HAVE BEEN TRAN SFERRED. THERE CAN BE NO QUESTION OF DEEMING ANY TRANSFER B UT THE TRANSFER HAS TO BE ACTUAL TRANSFER AND IN TERMS OF LAW. 10.1 DURING THE COURSE OF HEARING THE LD. A.R FURNISHED A PAPER BOOK CONTAINING 1 155 PAGES WHICH CONSISTS OF INTER A LIA COPIES OF (I) FINANCIAL STATEMENT (II) WRITTEN SUBMISSION MADE BEFORE THE CIT(A) (III) REJOINDER TO REMAND REPORT ETC. SUBSEQUENTLY THE LD. A.R CAME UP WITH A PAPER BOOK- II WHICH CONTAINED COPIES OF (I) BALANCE SHEETS FOR THE AYS 92-93 05-06; & (II) SALE AGREEMENTS WITH ABHISHEK DEVELOPERS AND OTHER CORRESPONDENCES. 10.2. ON THE OTHER HAND THE LD. D R WAS MOR E EMPHATIC IN HER RESOLVE THAT THE AO HAD IN FACT DEALT WITH THE ISSUE IN A N INVESTIGATION ANGLE AND BROUGHT ON RECORD WITH EVIDENCE TO THWART THE ASSES SEES CLAIM WHICH HAS BEEN SUSTAINED BY THE FIRST APPELLATE AUTHORITY IN A JUDICIOUS MANNER. IT WAS THEREFORE PLEADED THAT THE STAND OF THE AUTHO RITIES BELOW REQUIRES TO BE UPHELD. 11. WE HAVE DULY CONSIDERED THE RIVAL SUBMIS SIONS PERUSED THE RELEVANT RECORDS AND ALSO DOCUMENTARY EVIDENCE PROD UCED BY THE LD. A.R DURING THE COURSE OF HEARING. ITA NO.809/BANG/09 PAGE 18 OF 26 11.1. THE AO AFTER ANALYZING ALL THE MATERIAL E VIDENCED GATHERED AND CONSIDERING THE ASSESSEES SUBMISSION CAME TO A CO NCLUSION THAT 22.THE PROPERTY IN QUESTION IS DEEMED TO HAVE BEEN TRANSFERRED TO M/S. ABHISHEK DEVELOPERS DURING THE FINANCIAL YEAR 2002-03 ITSELF. THEREFORE INCOME ON THE SAID TRAN SFER OF THE PROPERTY ACCRUES TO THE ASSESSEE IN THE FINANCIAL YEAR 2002- 03 ONLY. 11.2. ON A CAREFUL READING OF THE WORDING OF THE AO WE FIND THAT THE AO WAS OF THE VIEW THAT THE PROPERTY IN QUESTION IS DEEMED TO HAVE BEEN TRANSFERRED TO M/S. ABHISHEK DEVELOPERS D URING THE FINANCIAL YEAR 2002-03 ITSELF. PERHAPS HE WAS NOT VERY EMPHATIC IN HIS RESOLVE THAT THE PROPERTY IN QUESTION HAS BEEN TRANSFERRED TO ABHISHEK DEVELOPERS DURING THE FY 2002-03 THAT WAS THE REAS ON WHY THE AO HAD IN A SUAVE WAY USED THE WORD DEEMED TO DRIVE HOME HIS POINT. 11.3. DEEMED - ITS VARIOUS MEANINGS ARE TO DEEM IS TO HOLD IN BELIEF ESTIMATION OR OPINION; TO JUDGE ADJUDGE DECIDE CONSIDER TO BE; TO HAVE OR TO BE OF AN OPINION ETC. 11.4. ON A PERUSAL OF THE AGREEMENT OF SALE E XECUTED ON 13.5.2002 BETWEEN KISHAN HOUSE BUILDERS ASSOCIATION AND ABHIS HEK DEVELOPERS THE FOLLOWING SIGNIFICANT FEATURES WERE EMERGED: (I) THE VENDORS WERE IN POSSESSION AND ENJOYMENT AND PE RSONAL OCCUPATION OF THE SCHEDULE PROPERTY; (II) THE SCHEDULE OF PAYMENT OF CONSIDERATION OF RS.16.6 5 CRORES WAS EARMARKED IN THE FOLLOWING MANNER: RS.3.00 CRORES ON 13.5 .2002 AND THE BALANCE SUM O F RS.13.65 CRORES WERE TO BE PAID IN EIGHT EQUAL QUARTERLY IN STALLMENTS COMMENCING FROM FIRST INSTALLMENT TO BE PAID ON 13. 8.2002 AND ITA NO.809/BANG/09 PAGE 19 OF 26 THE SALE SHALL BE COMPLETED WITHIN 24 MONTHS FROM T HIS DATE SUBJECT TO THE TERMS OF THE AGREEMENT. (III) THE VENDORS SHALL BEAR AND PAY ALL RATES TAXES AND CESSES IN REGARD TO THE SCHEDULE PROPERTY UP-TO THE DATE OF S ALE AND REGISTRATION OR UP-TO THE DATE OF PAYMENT OF THE E NTIRE SALE CONSIDERATION. THE SECURING OF THE KHATA FROM THE CORPORATION OF CITY OF BANGALORE SHALL ALSO BE DONE BY THE VEND ORS AT THEIR OWN COST. HOWEVER THE PURCHASER WILL ARRANGE TO C OMPLETE THE FORMALITIES TO SECURE THE KHATA FOR THE VENDORS; (IV) POSSESSION: THE VENDORS SHALL DELIVER THE VACANT POSSESSION OF THE SCHEDULE PROPERTY TO THE PURCHASER ON THE DATE OF S ALE AND AGAINST THE PAYMENT OF THE ENTIRE SALE CONSIDERATIO N; (V) IN ITS SUPPLEMENTAL AGREEMENT EXECUTED ON 13.5.2002 IT WAS RESOLVED THAT IV. NOW THIS SUPPLEMENTAL AGREEMENT WITNESSES AS F OLLOWS: 1) THE VENDORS AT THE REQUEST OF THE PURCHASERS HAVE PERMITTED BY WAY OF A LICENCE TO ENTER UPON THE SCHEDULE PROP ERTY AND TO DO WORK OF CONSTRUCTION IN THE PORTION THEREOF S ET OUT IN GREEN OUTLINE IN THE PLAN ANNEXED HERETO BEING THE PORTION OF THE SCHEDULE A PROPERTY ENTIRELY AT THEIR RISK AS TO COST AND CONSEQUENCES WITHOUT ANY RIGHT OF REIMBURSEMENT OF THE COST AND CONSEQUENCES WITHOUT ANY RIGHT OF REIMBURSEMENT OF THE COST OF CONSTRUCTION. THE SAI D AREA MARKED IN GREEN OUTLINE IS SET OUT IN SCHEDULE B HERETO; 2) THE LICENCE HEREBY GRANTED TO THE PURCHASERS BY THE VENDORS IS ON HE SPECIFIC CONDITION ASSURANCE AND UNDERTAK ING BY THE PURCHASERS THAT THE SAME SHALL NOT BE CONSTRUED OR DEEMED TO BE POSSESSION OR CLAIM TO BE POSSESSION UNDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT BY THE PURCHASERS UNDER ANY AGREEMENT FOR SALE WITH REGARD S TO THE PORTION IN WHICH THE LICENCE IS GRANTED FOR CONSTRU CTION; 3) THE LICENCE HEREBY GRANTED TO THE PURCHASERS BY THE VENDORS IS ON THE SPECIFIC ASSURANCE THAT ALL ACTS DEEDS A ND THINGS DONE BY THE PURCHASERS PURSUANT TO THIS LICENCE SHA LL BE THE RESPONSIBILITY OF THE PURCHASERS AND SHALL BE DONE ENTIRELY AT THE RISK AS TO COST AND CONSEQUENCES OF THE PURCHAS ERS AND THAT THE PURCHASERS SHALL KEEP THE VENDORS FULLY IN DEMNIFIED AGAINST ANY COST CLAIM ACTIONS PROCEEDINGS ETC. IN TERMS OF THE SEPARATE INDEMNITY EXECUTED BY THE PURCHASER S IN FAVOUR OF THE VENDORS; ITA NO.809/BANG/09 PAGE 20 OF 26 AS PER THE LAW LEXICON: LICENSE MEANS AN AUTHORITY TO DO SOMETHING WHICH WOULD OTHERWISE BE INOPERATIVE WRONGFUL OR ILLEGAL; A FORMAL PERMISSI ON FROM A CONSTITUTED AUTHORITY TO DO SOMETHING LICENSE PERMISSION OR AUTHORITY TO DO A PARTICULAR THING. A LICENSE IN RESPECT TO REAL ESTATE IS DEFINED TO BE AN AUTHORIT Y TO DO A PARTICULAR ACT OR SERIES OF ACTS ON ANOTHERS LAND WITHOUT POSSESS ING ANY ESTATE THEREIN. A LICENSE IS DESCRIBED BY JONES IN HIS BOOK ON EA SEMENTS AS A PERSONAL AND REVOCABLE PRIVILEGE TO DO SOME ACT OR SERIES OF ACTS UPON THE LANDS OF ANOTHER WITHOUT POSSESSING ANY ESTATE THEREIN. IT GIVES IMMUNITY TO THE LICENSEE WHILE ACTING UNDER THE PRIVILEGE BUT CONFE RS NOT VESTED RIGHT BY WHICH HE CAN RIGHTFULLY ENJOY IT CONTRARY TO THE WI LL OF THE GRANTOR. 11.5. AS RIGHTLY ARGUED BY THE LD. A R CLAUSE 6 E XPLICITLY AVERS THAT THE VENDOR SHALL DELIVER THE VACANT POSSESSION OF T HE SCHEDULE PROPERTY TO THE PURCHASER ON THE DATE OF SALE AND AGAINST THE P AYMENT OF THE ENTIRE SALE CONSIDERATION. EVEN IN SUPPLEMENTAL AGREEMENT EXECUTED ON 13.5.2 002 IT WAS STATED THAT THE VENDORS AT THE REQUEST OF THE PURCHASERS HAVE PERMITTED BY WAY OF A LICENCE TO ENTER UPON THE SCH EDULE PROPERTY AND TO DO WORK OF CONSTRUCTION IN THE PORTION THEREOF SET OUT IN GREEN OUTLINE IN THE PLAN AND THAT THE LICENCE HEREBY GRANTED TO THE PURCHASERS BY THE VENDORS IS ON SPECIFIC CONDITION ASSURANCE AND UND ERTAKING BY THE PURCHASERS THAT THE SAME SHALL NOT BE CONSTRUED OR DEEMED TO BE POSSESSION OR CLAIM TO BE POSSESSION UNDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT BY THE PURCHASERS UNDER ANY AGREEMENT FOR SALE WITH REGARDS TO THE PORTION IN WHICH THE LICENCE IS GRANTED FOR CONSTRUCTION. 11.6. FOR READY REFERENCE WE SHALL REPRODUCE EXTR ACT OF S.53A OF TRANSFER OF PROPERTY ACT 1882: ITA NO.809/BANG/09 PAGE 21 OF 26 WHERE ANY PERSON CONTRACTS TO TRANSFER FOR CONSIDE RATION ANY IMMOVABLE PROPERTY BY WRITING SIGNED BY HIM OR ON H IS BEHALF FROM WHICH THE TERMS NECESSARY TO CONSTITUTE THE TRANSFE R CAN BE ASCERTAINED WITH REASONABLE CERTAINTY AND THE TRANSFEREE HAS IN PART PERFORMANCE OF THE CONTRACT TAKEN POSSESSION OF THE PROPERTY OR ANY PART THEREOF OR THE TRANSFEREE BEING ALREADY IN POSSESSION CONTINUES IN POSSESSION IN P ART PERFORMANCE OF THE CONTRACT AND HAS DONE SOME ACT IN FURTHERANCE O F THE CONTRACT AND THE TRANSFEREE HAS PERFORMED OR IS WILLING TO P ERFORM HIS PART OF THE CONTRACT THEN NOTWITHSTANDING THAT WHERE THER E IS AN INSTRUMENT OF TRANSFER THAT THE TRANSFER HAS NOT BEEN COMPLETED IN THE MANNER PRESCRIBED THEREFORE BY THE LAW FOR THE TIME BEING IN FORCE THE TRANSFEROR OR ANY PERSON CLAIMING UNDER HIM ANY RIG HT IN RESPECT OF THE PROPERTY OF WHICH THE TRANSFEREE HAS TAKEN OR CONTI NUED IN POSSESSION OTHER THAN A RIGHT EXPRESSLY PROVIDED BY THE TERMS OF THE CONTRACT: PROVIDED THAT NOTHING IN THIS SECTION SHALL AFFECT THE RIGHTS OF A TRANSFEREE FOR CONSIDERATION WHO HAS NO NOTICE OF T HE CONTRACT OR OF THE PART PERFORMANCE THEREOF. 11.7. THIS GIVES A CLEAR INDICATION THAT THE ASSES SEE WAS PHYSICAL POSSESSION OF THE PROPERTY IN QUESTION. 11.8. THE FOLLOWING VITAL ISSUES HAVE BEEN OVERLO OKED BY THE AO WHILE DECIDING THE ISSUE: (I) THE ASSESSEE HAD ENTERED INTO AGREEMENT OF SALE WI TH M/S. ABHISHEK BUILDERS FOR THE SALE OF LAND IN QUESTION; (II) THE POWER OF ATTORNEY GIVEN BY THE ASSESSEE WAS IN FAVOUR OF SUSHIL MANTRI MRS. SNEHAL MANTRI AND GUPTA TO ACT AS AGENTS ON BEHALF OF THE ASSESSEE. THEY WERE NOT THE PARTNERS OF M/S. ABHISHEK BUILDERS WHO WERE THE PURCHASERS OF THE LA ND; (III) THE EXECUTION OF A GPA CAN NOT BE CONSTRUED THAT TH ERE WAS A TRANSFER OF PROPERTY; 11.9. THE AO WAS NOT HAVING ANY CONCLUSIVE EVIDENC E TO SHOW THAT THE POSSESSION OF THE PROPERTY WAS INDEED HANDED OV ER TO ABHISHEK ITA NO.809/BANG/09 PAGE 22 OF 26 BUILDERS DURING THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR UNDER DISPUTE AND THEREFORE TAXING OF INCOME FROM THE T RANSACTION IN LAND ASSESSED FOR THE A.Y UNDER APPEAL CANNOT BE SUSTAIN ED; 11.10. SINCE THE REVENUE HAS NOT COME UP WITH A NY DOCUMENTARY EVIDENCE TO SUGGEST THAT THE ASSESSEE HAD EARNED IN COME FROM THE TRANSACTION OF LAND DURING THE AY 2003-04 WE ARE U NABLE TO AGREE WITH THE CONTENTION OF THE REVENUE; 11.11. THE FOLLOWING FACTS EMERGE ON PERUSING TH E FINANCIAL STATEMENTS SUBMITTED BY THE ASSESSEE ON 4.2.2010. (I) DURING THE PREVIOUS YEAR-ENDING 31.3.9 2 THE ASSESSEE HAS DISCLOSED IN ITS BALANCE SHEET THE LAND UNDER THE H EAD PROPERTY AS AN ASSET AMOUNTING TO RS.6 99 602/-. FOR THE SUBSEQU ENT YEARS THE ASSESSEE HAS DISCLOSED THE SAME ON A SIMILAR MANNER AND THEY ARE LISTED OUT AS FOLLOWS: YEAR ENDED AMOUNT 31.3.1993 9 85 621 31.3.1994 20 03 964 31.3.1995 20 03 978 31.3.1996 20 04 079 31.3.1997 20 04 129 31.3.1998 20 04 299 31.3.1999 20 04 339 31.3.2000 20 04 379 31.3.2001 20 04 379 31.3.2002 20 04 389 31.3.2003 22 11 578 31.3.2004 64 21 678 DURING THE PERIOD PROPERTY WAS SOLD FOR 1.4.04 TO 31.3.05 RS.16.65 CRORES. (II) THE FIRM APPEARS TO HAVE NOT CONDUCTED ANY OTHER ACTIVITY OTHER THAN HOLDING THE LAND AS INVESTMENT. ITA NO.809/BANG/09 PAGE 23 OF 26 ON PERUSING THE ABOVE FACTS IT IS CLEAR THAT THE F IRM HAD PURCHASED THE LANDED PROPERTY AND HELD IT AS INVESTMENT WAY BACK FROM 1992 AND UNTIL THE YEAR IN WHICH WAS SOLD. THUS IT IS NOT APPROPRIA TE FOR THE REVENUE TO HOLD THAT THE INCOME ARISING OUT OF THE SALE OF THE PROP ERTY AS BUSINESS INCOME. A FIRM INVOLVED IN REAL ESTATE BUSINESS CAN HOLD LA ND AS INVESTMENT AND/OR AS STOCK-IN-TRADE. THIS DECISION HAS TO BE TAKEN O NLY BY THE FIRM AND ITS MANAGEMENT AND NOT BY THE ASSESSING OFFICER. THE A O IS NOT RIGHT TO DEEM THE ASSET OF THE FIRM TO BE STOCK-IN-TRADE ACCORDIN G TO HIS WHIMS AND FANCIES. THE FIRM WOULD HAVE VARIOUS BUSINESS PLAN S AND PROPOSITIONS TO WHICH IT WOULD HAVE THOUGHT PROPER TO HOLD THE LAND AS INVESTMENTS. THIS VIEW IS FURTHER FORTIFIED BY THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF PARESH D SHAH V. JCIT 2 ITR (TRIB) 311 (MUM) THE G IST OF THE SAME IS REPRODUCED HERE-BELOW: THE ASSESSEE SHOWED SURPLUS EARNED ON SALE OF INVE STMENTS AS SHORT- TERM CAPITAL GAINS. THE ASSESSEE EXPLAINED THAT HE WAS CARRYING ON THE BUSINESS OF TRADING IN SHARES AND SECURITIES AND TH AT THE MAIN TRADING WAS OF SECURITIES AND BONDS WITH CO-OPERATIVE BANK. THE ASSESSEE HAD ALSO MADE INVESTMENT IN MUTUAL FUNDS FIXED DEPOSIT S SHARES ETC. DURING THE ACCOUNTING YEAR 2003-04 THE RESERVE BAN K OF INDIA BANNED THE TRADING OF INDIVIDUALS WITH CO-OPERATIVE BANK AND AS SUCH HE HAD STOPPED TRADING IN SECURITIES. THE ASSESSIN G OFFICER OBSERVED THAT THE INVESTMENT WAS NOT FOR THE PURPOSE OF EARN ING DIVIDEND BUT FOR REALIZING QUICK PROFITS THROUGH SALE OF SHARES. IT WAS ALSO OBSERVED THAT THE NATURE AND SCALE OF ACTIVITY REMAINED THE SAME AS IN EARLIER YEARS. THEREFORE HE TREATED THE GAIN AS BUSINESS I NCOME OF THE ASSESSEE. THE COMMISSIONER (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. ON FURTHER APPEAL: HELD ALLOWING THE APPEAL THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF TRADING IN SHARES AS WELL AS THE INVEST MENT IN SHARES. BOTH THESE ACTIVITIES WERE DON IN THE PAST AND THE PROFI T ON ACCOUNT OF TRADING WAS SHOWN AS BUSINESS INCOME AND PROFIT ON ACCOUNT OF INVESTMENT WAS SHOWN AS SHORT-TERM CAPITAL GAINS OR LONG-TERM CAPITAL GAINS. DURING THE YEAR THE ASSESSEE HAD STOPPED T RADING ACTIVITY SAND ITA NO.809/BANG/09 PAGE 24 OF 26 A MAJOR PORTION OF THE STOCK WAS SOLD DURING THE YE AR UNDER CONSIDERATION AND THE BUSINESS PROFIT WAS OFFERED F OR TAXATION. THE STOCK TRANSFERRED TO INVESTMENT ACCOUNT WAS SOLD IN THE SUBSEQUENT YEAR. THERE WAS NO BAN ON CARRYING OUT BOTH THE A CTIVITIES TRADING IN SHARES AND INVESTMENT IN SHARES TOGETHER. WHATEVER SALES WERE MADE THAT WERE ON ACCOUNT OF INVESTMENT THE DETAILS WER E PLACED ON RECORD. THEREFORE THE CAPITAL GAINS OFFERED ON ACCOUNT OF SALE OF INVESTMENT WAS CORRECT AND THE ASSESSING OFFICER SHOULD HAVE A CCEPTED IT. THE ASSESSING OFFICER WAS TO CONSIDER THE PROFIT SHOWN ON ACCOUNT OF SALE OF INVESTMENT AS SHORT-TERM CAPITAL GAINS OR LONG-TERM CAPITAL GAINS AS THE CASE MAY BE. 11.12. IN VIEW OF THE FOREGOING FACTS AND C IRCUMSTANCES OF THE ISSUE WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAD HELD THE LAND AS INVESTMENT ONLY AND THAT THE ENTIRE TRANSACTION WAS IN THE NATURE OF INVESTMENT ONLY. TO SUPPORT ITS VIEW THE ASSESSEE HAS PLACED STRONG RELIANCE ON THE FINDING OF THE HONBLE RAJASTHAN HI GH COURT IN THE CASE OF CIT V. SOHAN KHAN AND MOHAN KHAN REPORTED IN (2008) 304 ITR 194. IN THAT CASE THE ASSESSEE PURCHASED A LARGE EXTENT OF LAND IN 1970 UNDER A VALID DOCUMENT. THE LAND WAS UNDER THE CLOUD OF CE ILING LAWS AND AFTER IT GOT CLEARED THERE-FROM THE ASSESSEE PREPARED A SIT E PLAN SHOWING THE LAND TO BE DIVIDED INTO DIFFERENT PLOTS AND PLOTS WERE A CCORDINGLY SOLD. THE ASSESSEE FILE HIS ROI DECLARING THE PARTICULAR INCO ME AS CAPITAL GAINS. THE AO FOUND THAT THE PROFITS FROM THE SALE WERE NOT TO BE TAXED AS CG BUT THAT THE TRANSACTION WAS IN THE NATURE OF TRADE ON THE G ROUND THAT THE LAND SURROUNDING THE ORIGINAL LAND WAS OWNED BY HIS NEAR RELATIVES AND FAMILY MEMBERS AND THAT THE PURCHASERS WERE IMPRESSED BY T HE FACT THAT ALL THE LAND BELONGED TO THE SAME FAMILY AND WAS BEING PLAN NED AND SOLD TOGETHER AND AT NO STAGE THE HUGE PROPERTY WAS USED FOR PERS ONAL PURPOSES THE INTENTION BEING TO GAIN PROFIT ONLY. THE CIT(A) AS WELL AS THE TRIBUNAL HELD ITA NO.809/BANG/09 PAGE 25 OF 26 THAT THE SALE PROCEEDS WERE TO BE CONSIDERED AS CG. ON APPEALS THE HONBLE COURT DISMISSING THE APPEALS HELD THAT THE MOST SIGNIFICANT CONSIDERATION TO CONCLUDE WHETHER THE TRANSACTION G AVE RISE TO CAPITAL GAINS OR NOR WOULD BE THE REGULARITY OF TRANSACTIONS OF P URCHASE AND SALE. THE MERE FACT THAT THERE WAS A SERIES OF TRANSACTIONS O F SALE ONLY BY SELLING PART OF THE LAND PURCHASE IN ONE GO OR PURCHASED ONCE UPON A TIME PIECEMEAL WOULD NOT RENDER THE ACTIVITY OF SALE AN ADVENTURE IN THE NATURE OF TRADE. THERE WAS NOTHING TO SHOW THAT THE LAND WAS PURCHAS ED WITH THE INTENTION TO SELL IT AT A PROFIT OR WITH REQUISITE INTENTION T O BRING IT WITHIN THE PARAMETERS OF STOCK-IN-TRADE. IT WAS ALSO NOT S HOWN THAT THE ASSESSEE WAS A REGULAR DEALER IN REAL ESTATE. THE TRANSACTION W AS OF A CAPITAL ASSET ONLY AND NOT A TRANSACTION OF ANY STOCK-IN-TRADE. THE REFORE THE SALE PROCEEDS WERE LIABLE TO BE TAXED AS CAPITAL GAINS. WITH DUE REGARDS WE WOULD LIKE TO POINT OUT THAT RATIO LAID DOWN BY THE HONBLE COURT REFERRED SUPRA IS DIRECTLY APP LICABLE TO THE FACTS OF THE ISSUE ON HAND. 12. IN AN OVER ALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AS DELIBERATED UPON IN THE FORE-GOING PARAGRAPHS WE ARE OF THE UNANIMOUS VIEW THAT THE AO WAS NOT JUSTIFIED IN TREATING THE INCOME AS BUSINESS INCOME IN THE ASSESSMENT YEAR UNDER DISPUTE AND THAT THE INCOME SO OFFERED AS CAPITAL GAINS BY THE ASSESSEE IS TO BE ASSESSED IN THE ASSESSMENT YEAR 2005-06. IT IS ORDERED ACCORDINGLY . 13. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED . ITA NO.809/BANG/09 PAGE 26 OF 26 PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH 2010. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 31 ST MARCH 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.