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TMI Blog2011 (12) TMI 380X X X X Extracts X X X X X X X X Extracts X X X X ..... ile the appeal, but equally the procedural rule should not be interpreted in a manner so as to confer a relief on the appellant to which he is not entitled. Regarding addition of Rs. 16,93,42,000/-, made by the AO on account of income accrued on advance received for sale of land - Held that: The twin conditions of execution of written agreement and handing over of the possession have to be cumulatively satisfied in order to bring the case within the ambit of section 2(47)(v) read with section 53A of the Transfer of Property Act - Therefore, it is held that the property has not been transferred in this year. It has also not been sold in this year. Since the transaction of transfer has not taken place in this year, nothing can be brought to tax as business income in this year. In this view of the matter, the money received is only an advance, which will get taxed as and when the transaction actually takes place. This happened in the immediately succeeding year. - Decided against the revenue. Regarding Capital or business income - lands had been shown as fixed assets in the balance sheet of the assessee - Held that:- entry in the books of account is not conclusive in deciding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 3 of the assessment order. These lands were sold to A.B. Towers Pvt. Ltd. on 04.09.2006, the succeeding year, for a sum of Rs. 18.00 crore. In this year, a sum of Rs. 5.00 crore was received as advance. The assessee did not offer any amount for taxation in respect of this sale transaction. However, the AO brought the profit on sale of land to tax in this year. The profit has been computed at Rs. 16,93,42,000/-. This addition has been deleted by the ld. CIT(Appeals) in the impugned order. 2.2 Further, the assessee had sold two pieces of land in this year. The gains arising from the sale were shown as long-term capital gain ("LTCG" for short). The LTCG was computed at Rs. 3,01,65,287/-. The AO considered the transaction to be in the nature of business. Therefore, the income was taxed under the head "profits and gains of business or profession". The income was computed under this head at Rs. 3,07,82,342/-. In the impugned order, this finding has also been reversed and the AO has been directed to compute the profit under the head "capital gains". 2.3 Aggrieved by these findings, the revenue is in appeal before us. 3. The case of the ld. CIT, DR in respect of ground no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use. The order is non-speaking in this matter and does not mention the clause(s) of Rule 46A, under which the evidence has been admitted. After admitting evidence, the ld. CIT(A) did not grant any further opportunity to the AO to rebut the evidences filed by the assessee. It is argued that the finding of no opportunity granted by the AO is factually incorrect. In any case, having admitted the evidence, he ought to have granted a further opportunity to the AO for rebutting the evidence. 3.1 In reply, the ld. counsel for the assessee submitted that this case is not a case of tax evasion as business income from sale of land has been offered for taxation in the immediately succeeding year. There is no dispute about computation of such income also. The assessee had only received advance of Rs. 5.00 crore in this year for sale of land, which was held as stock-in-trade. The revenue has not taken up any specific ground against admission of additional evidence. The additional evidence was not required as such to decide the issue at hand. It was filed on the directions of ld. CIT(A) in support of the stand of the assessee that income arose in the immediately succeeding year as the transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Building Plans for the construction of motel on the land land vide Khasra No. 30/18, 30/19/1, 30/23, 30/14/2, 30/19/2, 30/20 of village Kapashera, Delhi on its own account on 28/10/2005 much before an understanding was reached with M/s A.B. Towers Ltd. for its sale. 3. Copy of sanctioned building plan dated 11.08.2006 issued by MCD is enclosed at page no. 20 to 20. 4. Copy of receipt no. 198016 dt. 04.08.06 for payment of Rs. 34,93,500/- as conversion/permission charges to MCD is enclosed at page no. 19 to 19. There is no official correspondence with the company but the charges have been paid as per rates notified by the Delhi Government vide pages enclosed at page no. 21 to 22 and the whole process was completed through the services of M/s Group Interiors Architects Town Planners, E-40, Greater Kailash Enclave-I, New Delhi, New Delhi-110048. B. That, we draw your kind attention to the following judgment of Delhi High Court in the case of Commissioner of Income-tax Vs. Meatles Ltd. (1992) 84 ITR 37 wherein it has been held that sale of immovable property has to be effected within the meaning of section 54 of Transfer of Property Act, 1882 by way of registered instrument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be relevant for our purpose, in which it is mentioned that the discretion is to be exercised to advance substantial justice only, when no negligence, inaction or want of bona fide is imputable to the assessee. This paragraph is reproduced overleaf:- "9.7. This apart, an assessee cannot adduce additional evidence as of right. Rule 46A merely enables admittance of evidence subject to fulfillment of its pre-conditions, which embody the rule of equity that a person should not suffer if he was prevented by "sufficient cause" for making a compliance. No doubt the word "sufficient" should receive a liberal construction so as to advance substantial justice, but as observed by the Hon'ble Supreme Court in AIR 1968 SC 222 in the case of Sarpanch, Lonand Gram Panchayat v. Ram Giri Gosavi Anr. ( supra ), the discretion is to be exercised to advance substantial justice only "when no negligence, nor inaction nor want of bona fide is imputable to the appellant". We find that the claim of the appellant for admission of additional evidence is not advanced on any judicial principles, as laid down by the Hon'ble Supreme Court in the case cited above. Further, a Constitution Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 200 (Delhi). It has been held that in a case where the appeal involves inter-connected grounds having impact on one another, the matter should be considered in a broad perspective. It is true that the appellant should not be made to suffer on account of failure of respondent to file the appeal, but equally the procedural rule should not be interpreted in a manner so as to confer a relief on the appellant to which he is not entitled. In the case of National Thermal Power Co. Ltd. v. CIT , [1998] 229 ITR 383, it has held that Tribunal has no doubt powers to allow or not to allow the parties to raise a new ground. However, where all the facts are on record and the question is purely of law, there is no reason why such a ground should not be allowed to be raised. 4.5 Coming to the facts of this case, the new ground regarding admission of additional evidence is not really material in the face of the submission of the ld. counsel that the same may, if the bench thinks fit, be ignored for deciding the appeal, however, we are of the view that the ld. CIT(Appeals) ought to have considered the facts of the case and Rule 46A in detail before admitting the additional evidence. But th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant authorities of the real estate in the name of buyer) or when the seller enter into an agreement for sale and gives possession of real estate to the buyer under the agreement. All significant risks and rewards of ownership are also considered to be transferred, if the seller has entered into legally enforceable agreement for sale with the buyer and various other conditions mentioned in AS-9 are satisfied even though legal title has not passed. The case of the AO is that the transaction of sale of land does not involve any activity to be done by the owner. Therefore, the risks in the property pass to the buyer at the time of agreement of sale, whether it is written or oral. It is his case that the risks passed to the buyer when the advance of Rs. 5.00 crore was received. Therefore, the whole of the amount of sale consideration, Rs. 16,93,42,000/-, becomes taxable in this year on accrual basis. As mentioned earlier, the crisp finding of the ld. CIT(Appeals) is that there is no agreement of sale or MOU. The sale deed has been registered on 04.09.2006, a date falling in the immediately succeeding year. The transaction has been disclosed in that year and the AO has also taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the possession is given to the buyer or if he is in possession already, such possession is allowed to be retained. No agreement for sale has been signed in this year. Possession has also not been handed over to the buyer in this year. Therefore, no income accrues merely on account of receipt of the advance. It is also submitted that the Accounting Standards have been misread by the AO. These standards merely reiterate the position of law mentioned above. Therefore, it is argued that no amount can be brought to tax in respect of this transaction in the assessment of this year. 6. We have considered the facts of the case and submissions made before us. The facts are that the assessee received advance of Rs. 5.00 crore in respect of the sale of land to be made to A.B. Towers Pvt. Ltd. No agreement for sale is on record. No evidence regarding handing over the possession is also on record. The sale deed has been registered in the next year. The case of the ld. CIT, DR is that circumstances show that the agreement for sale must have been executed and possession handed over to the buyer. The arguments are that nobody will part with huge sum of Rs. 5.00 crore without any written a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned that it is now well settled that the way in which entries are made by an assessee in its books of account is not determinative of question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries, which are not inconformity with proper accountancy principles, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether, in fact, it has resulted in profit or loss to the assessee. 6.3 In the case of M. Syamala Rao v. CIT , [1998] 234 ITR 140. In this case, the vendor had already given possession of the agricultural land at the time of agreement of sale in the year 1962 to the vendee but no formal transfer of title was made by the vendor in favour of the vendee due to some unavoidable circumstances. The document was registered on 8.6.1979. The Hon'ble Court came to the conclusion that the registration of the document relates back to the date on which the agreement of sale was executed in favour of the assessee by the owner. Therefore, the assessee has to be deemed to be the owner of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued 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 the contract or of the part performance thereof." 6.6 The case of the ld. counsel is based upon these two provisions. For our purpose, clauses (i) and (v) of sub-section (47) of section 2 are relevant. Under clause (i), a transaction of sale, exchange or relinquishment of the asset amounts to transfer. The instant transaction is one of sale. The transaction in immovable property of the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been delivered in this year. The twin conditions of execution of written agreement and handing over of the possession have to be cumulatively satisfied in order to bring the case within the ambit of section 2(47)(v) read with section 53A of the Transfer of Property Act. None of these conditions are satisfied. Therefore, it is held that the property has not been transferred in this year. It has also not been sold in this year. Since the transaction of transfer has not taken place in this year, nothing can be brought to tax as business income in this year. In this view of the matter, the money received is only an advance, which will get taxed as and when the transaction actually takes place. This happened in the immediately succeeding year. Thus, ground no. 2 is dismissed. 7. Ground no. 3 is that the ld. CIT(A) erred in directing the AO to assess the income of Rs. 3,07,82,342/- under the head "capital gains" instead of treating the same as business income. 7.1 In the year under consideration the assessee sold two pieces of land situated at village Samalka on which LTCGs of Rs. 2,88,37,792/- and Rs. 13,27,495/- were computed and offered for tax under the head "capital gains" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance has been placed on the decision in the case of G. Venkataswamy Naidu Co. v. CIT , [1959] 35 ITR 594 (SC). Some other cases were also relied upon, which shall be discussed along with this case at appropriate place (infra). Therefore, it is argued that not only the impugned order is incorrect on the facts of the case but it is also perverse. 7.4 In reply, the ld. counsel submitted that the prime criterion for classifying an asset as a fixed asset or stock-in-trade has to be gathered from the intention of the assessee at the time of its acquisition. The assessee has been showing the asset as investment for last 10 years or so. This fact remains undisputed. In the intervening period, the land has been used for agricultural purposes. Similar facts were obtained in the proceedings of assessment year 2005-06 for another piece of land, in which profit on sale of land was offered for taxation and taxed under the head "capital gains". The ld. CIT(Appeals) has relied on this order. Therefore, it is argued that he rightly came to the conclusion that the impugned profits are liable to be taxed under the head "capital gains" only. 8. We have considered the facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hased and sold is land and generally such property is subject matter of investment. However, the assessee is a firm and it is not part of its ordinary business to make investment in land. Besides, when the first purchase was made it was difficult to treat it as investment because it was a very small piece of land and it could yield no return whatsoever. This gives the clue that the purchase was the first step taken by the assessee in execution of a well-considered plan to acquire open plots near the mills with a view to sell them to the mills at a profit. It is further mentioned that just as the conduct of the purchaser subsequent to the purchase of a commodity in improving or converting it so as to make it readily resalable is a relevant factor, so would his conduct prior to the purchase will be relevant if it is shown as a design and a purpose. As and when plots adjoining the mills were available for sale, the assessee carried out his plan and consolidated his holdings of plots. The assessee is a managing the Janardana Mills Ltd. and so probably it was thought fit to purchase the first piece of land in the name of benamidar so that there would be no criticism of subsequent sale t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt answered the question against the assessee. Thus, the matter reached to the apex court. After examining various cases, the Hon'ble Court mentioned that it is not possible to evolve any legal test or formula which can be applied to all cases in determining whether a transaction is an adventure in the nature of trade or not. The facts of the case are that the assessee-company was a managing agent of several joint stock companies. It started an asbestos company in 1946 and laminated products in 1947. The Government of Hyderabad had 50% share holdings in both these companies. Negotiation for purchase of brengun factory in the outskirts of Hyderabad commenced in December, 1946. The Additional Financial Advisor to the Government of India informed Alladin brothers that Government of India had decided to sell the factory as the war had ended and it was going cheap. It was agreed that the factory-price should be fixed at Rs. 27.00 lakh and stores-price at Rs. 9.00 lakh. The assessee asked for some time for making the payment and it was agreed that the price should be paid in four monthly installments. The agreement of sale was made subject to the condition that Hyderabad Government was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra ), the conduct of the assessee of carving four plots out of the land and selling them individually leads to a clear inference that the intention was to develop the land and sell the same. There is no intention of development of the land in this case. In the case of Hema chand Hira chand Shah ( supra ), the lands were sold soon after purchase ostensibly because after purchase it was observed that carrying on agricultural operations will not be economical. The facts of this case are also distinguishable. The assessee has carried on agricultural operations on the lands and held it for more than 10 years. It is no doubt true that the MOA permits the assessee to carry on the business of purchase and sale of land. It had, in fact, carried on such business also. However, there is no bar on an investor in land to deal in land and vice-versa. Thus, an assessee could be trader as well as investor in land simultaneously, depending upon what his intention is and how he treats the asset in question. In this case, the land was purchased and shown as asset in the balance-sheet. The land was used for agricultural purposes. It was held for a long period of time. There is no evidence that bor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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