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TMI Blog2015 (10) TMI 2173X X X X Extracts X X X X X X X X Extracts X X X X ..... ts books of accounts on 1-4-2006 when the book entry was passed and hence the said asset at best can be held to be Investment w.e.f. 01-04-2006. The contention of the assessee that it has shown income from rent of these unsold flats as Income from house property and hence the sale proceeds of the said flat shall be chargeable to tax as Income from Capital Gain is again erroneous. Hon ble Bombay High Court has held in the case of CIT v. Sane and Doshi Enterprises in (2015 (4) TMI 882 - BOMBAY HIGH COURT) that in case of real estate developers , income from rent from unsold stock has to be assessed to tax as Income from House Property . The assessee has also rightly offered to tax income from rent as Income from House Property but that will not change character of the asset from business trading asset ie WIP to investment unless the assessee manifest its intention by taking steps to change the character of the said asset by amending its books of accounts and also bringing the same on record with Revenue which in the instant case was done by the assessee on 01-04-2006. We, therefore, upheld the order of Assessing Officer and reverse the order of CIT(A). hence, The gain f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Vijay Shankar Assessee By Shri Prakash Pandit Date of hearing 18.08.2015 Date of pronouncement 24.09.2015 30.12.2009 u/s 143(3) of the Act for the assessment year 2007-08. The Revenue has raised the following grounds of appeals:- 1) On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in holding that the consideration on sale of premises of ₹ 2,99,83,446/- viz. 7th Floor of Span Centre is Long Term Capital Gain and not Business Income made by AO in his assessment order, ignoring the fact that :- (a) The assessee has never ever treated the work in progress /cost of unsold flats as an investment item in the Balance Sheet except in the current assessment year. In all the project of the assessee, the assessee has always taken the work in progress / cost of unsold flats in the P L A/c., as is the normal method of accounting of a Builder / Developer. (b) As per Balance Sheet with the I.T. return for AY. 2006-07, the assessee carried work-in-progress of ₹ 64,41,344/- with investment at Nil. (c) The construction of 8th floor of Span Centre which first made its appearance in the work in progress of AY. 2003-04 cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment, the capital gain arising on sale should be treated as Long Term Capital Gain as the said capital asset is held for more than 36 months and as such the sale of 7th Floor, Span Centre was not sale of unsold stock. The assessee contended that these three floors i.e for basement, ground floor and 7th floor was given on rent since January 1998 itself till the assessment year under consideration and income thereto from rental are offered as Income from house property . The assessee contended that this also shows the intention of the assessee for nine years that it held these assets with an objective for giving on rent which shows that the assessee has treated the same as an Investment. However, inadvertently it continued as Work in Progress(hereinafter called WIP ) in the books of accounts of the assessee. The assessee also submitted that it is regularly paying maintenance charges and taxes in connection with these flat. The Assessing Officer after considering the reply of assessee, held that the contention of the assessee that investment in 7th floor is treated as Investment from financial year 1999-00, is factually incorrect. The Assessing Officer analyzed the P L Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see carried the matter to the CIT(A) and contended that during the financial year 1994-95, the assessee undertook the development and construction of commercial project viz. Span Centre . This commercial project was initially sanctioned for construction of basement + Ground Floor+ 4 Storey building. Except for the basement and ground floor, during the construction stage of the project itself, the assessee sold outright on ownership basis all the commercial units in the building and offered to tax profit earned on sale of the commercial units in the building on the project completion basis in the return of income filed with the Revenue for assessment year 1998-99 as Income from Business . The assessee stated that basement and ground floor were retained by the assessee with an intention to give them on long lease and to earn returns on investments. The assessee contended that the part of the basement was also used by the assessee for his own office. Assessee contended that since January 1998 onwards , it continued to let out the above property to various parties. The assessee contended that when the construction was still in progress and the assessee undertook further developments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the assessee held that the Assessing Officer held the same to be business income only on the ground that the assessee has reflected the same as WIP in its books of accounts . The CIT(A) held that the books of account though relevant cannot be considered as conclusive evidence if the facts suggest otherwise. The CIT(A) also held that it is not necessary that the assessee being a developer or builder could not hold the Investment in these flats. The CIT(A) held that what is important is the motive of the assessee whether it was to exploit the property or the same was temporarily let out till the same was sold. The assessee has already entered into various agreements for the sale of other flats of Span Centre while in the case of 7th floor, it had entered into long term lease to hold the business premise for a long period of time as Investment and not as stock in trade which in this case , the flat at 7th Floor Span Centre is held for about nine years. The CIT(A) held that this premises on 7th floor should be treated as Investment even though nomenclature is WIP because the assessee has given it on lease for a very long period and the intention was to hold the property. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act which , inter-alia , defines capital asset as excluding stock in trade. He also contended that even if the said conversion of stock in trade ie WIP to capital asset is allowed as was done by the assessee as on 01.04.2006, the same should not be treated as long term capital gain as it is held for less than 36 months to be calculated from the date of conversion in the books of accounts of the assessee on 01.04.2006 and it should be treated as short term capital gain as the same is held for less than 36 months till it was sold. He also drew our attention to the Judgment of Hon ble Delhi High Court in the case of CIT Vs. Splendor Construction [ITA No. 1977 of 2010] whereby the Hon ble High Court of Delhi has held as under:- 9. In the facts and circumstances of the present case, we cannot agree with the approach adopted by the Tribunal. We are of the opinion that the Tribunal has side tracked the main issue. It was a case where the land in question was purchased in the financial year 1998-99. Thereafter, it was shown in the balance sheet as stock in trade . However, during the financial year in question when the land was sold, the same have been converted by the assessee fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. Vs. CIT 208 ITR 232(Bom.) and also on CIT v.Mogul Line Limited 46 ITR 590(Bom). He submitted that there is an error in the books of accounts and the assessee cannot be penalized for the same. He submitted that the motive of the assessee is very important. He relied upon the decision of Hon ble Supreme Court in Dalmia Cement Limited v. CIT 105 ITR 633(SC) and orders of Pune Tribunal in ITO v. Beguio Investments Private Limited 127 TTJ 423(Pune). The assessee also submitted that if the income from property is taxed under the Income from house property then on sale of such property it could only be taxed as Income from Capital Gains. The assessee relied upon the judgment of Hon ble Calcutta High Court in CIT Vs. Estate of Omprakash Jhunjhunwala 253 ITR 153(Cal). He also placed reliance on the decision of Amritsar Bench of the Tribunal in the case of ACIT Vs. Janak Raj Chauhan [102 TTJ 316(Asr.)] and other judgments to support this contention.The assessee contended that principle of consistency is applicable to the income tax proceedings and hence the income from sale of this property can only be taxed under the head Income from Capital Gains . The assessee relied upon the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The income earned by the assessee from salaries as defined under the Act are chargeable to tax under this head as per applicable provisions. 2. Income from house property- Income earned by the assessee from letting out property is chargeable to tax under this head as per applicable provisions. 3. Income from Business and Profession- Income earned by the assessee from Business and profession is chargeable to tax under this head as per applicable provisions. 4. Income from Capital Gains- Income earned by the assessee from sale of capital assets is chargeable to tax under this head as per applicable provisions. 5. Income from other sources- Income earned by the assessee which cannot be brought to tax under the above four heads and which is as defined under this head is chargeable to tax under this head as per applicable provisions. The scheme of the act contemplates and postulate applicability of various provisions as contained in relevant sections of the heads of income to compute the income of the assessee in the manner specified in the said sections as per the provisions contained thereat. The income is to be computed strictly as per scheme of the Act and provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to avoid payment of full taxes by changing the complexion of the earnings made on the sale of the property. The Assessing Officer, however, still allowed the change but then was right in holding that the period of holding the asset was reckoned from the date when it was converted as investment from stock in trade and not from the date when the land was purchased. Therefore, the gain was to be treated as short term capital gain. The assessee, under the garb long term capital gain wanted to pay lesser tax. It had thus clearly furnished inaccurate particulars of income. 10. The issue was not debatable, as held by the Tribunal in the impugned order. No doubt, appeal was admitted. However, the Tribunal has glossed over a very important and fundamental fact. In quantum proceedings, appeal filed by the assessee i.e. ITA 662/2009 came up for admission on 16th September, 2009. On the same date, appeal was admitted, arguments heard and orders were dictated in the Court dismissing the appeal there and then. In this factual backdrop, when order of the Assessing Officer in quantum proceedings was sustained by all successive authorities and this Court also dismissed the appeal at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from House Property . The assessee has also rightly offered to tax income from rent as Income from House Property but that will not change character of the asset from business trading asset ie WIP to investment unless the assessee manifest its intention by taking steps to change the character of the said asset by amending its books of accounts and also bringing the same on record with Revenue which in the instant case was done by the assessee on 01-04-2006.it is also seen that the Hon ble Delhi High Court in CIT Vs. Splendor Construction (supra) has clearly held that conversion of stock in trade to investment just before the sale of property with a view to avoid the payment of full taxes by changing complexion of earning made on the sale of property is not for the genuine reason and hence held that it cannot be treated as Long Term Capital Gain as assessee wanted to reduce tax liability which is not permitted . The case in hand is similar to that decided by the Hon ble Delhi High Court in Splendor Construction(supra), which is discussed above and we also, Respectfully, hold that the same change as done by the assessee changing the character of the work in progress/unsold st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessing officer disallowed the said expenditure on the ground that the assessee had claimed statutory deductions towards repairs and maintenance on the rental value income from house property in earlier years. 9. Aggrieved by the order of assessing officer, the assessee carried the matter to CIT(A) and reiterated its contentions as raised before assessing officer. The CIT(A) held that the expenditure has been incurred by the assessee on the capital item and hence the same has to be considered as cost of improvement of the asset while computing the capital gain, since the premises have been sold by the assessee inclusive of the assets so acquired , as narrated above the cost has been embedded in the sales consideration and accordingly, on both counts, assessee deserves to succeed and ₹ 5,00,000/- was to be deducted from gross sale consideration of ₹ 3,14,60,000/- before working out the long term capital gains on sale of office premise. Accordingly, the CIT(A) allowed the appeal of assessee. 10. Aggrieved by the decision of CIT(A), the Revenue is in appeal before us. 11. The Ld. DR relied upon the order of assessing officer. 12. The assessee reiterated ..... 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