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TMI Blog2012 (9) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... in not considering gains on sale of property held for more than three years as Long term Capital Gains. 3. The Learned Commissioner of Income Tax (Appeals) erred in not allowing the fair market value of the Apartments as on the date of entering into the Joint Venture Agreement to be deducted from the sale consideration. 4. The action of the Learned Commissioner of Income Tax (Appeals) in upholding the unsubstantiated contention of the Assessing officer that the Appellant was in receipt of 'on money' is erroneous inasmuch as he has himself recorded a finding of fact to the contrary. The Appellant prays for leave to add, modify, delete or introduce additional Grounds of Appeal at any time before the Appeal is disposed off." 3. The grounds of appeal raised by the revenue read as follows:- "1. The order of the Learned CIT(A) is opposed to law and facts of the case and is based merely on conjuncture and surmises. 2. The CIT (A) erred in law and on the facts of the case in holding the entire additional turnover of ₹ 83,60,865 can not be considered as profit and allowing further expenditure of ₹ 41,80,432/- under the head Income from Business, on estimation basis without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transactions that the assessee indulged in during the previous year. 6. During the previous year, the assessee had entered into following transactions(categorized as A, B and C) :- A. Property bought and sold within the Previous Year under assessment. B. sale of Properties acquired in the preceding years and sold during the year under assessment. C. Sale of Apartments obtained as a consideration for giving land for joint Development. 7. On the basis of the above details, the AO proceeded to recast the trading & profit & loss account of the assessee. As can be seen from the aforesaid three charts which depict the sales done by the assessee during the previous year, the total sales were Q 1,06,83,750. The trading account filed by the assessee along with the return of income however showed sales to the tune of Q 1,90,44,615, the difference viz., a sum of Q 83,60,865 was presumed by the AO to be on-money received by the assesse in the transaction of sale shown in the books of accounts. It was the stand of the assessee before the AO that the financial statements were prepared by a C.A., and that the assessee does not know the basis on which the C.A. had given the sales figure in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious year, which we have given in the earlier part of this order. 13. After excluding the aforesaid sales figure, the AO arrived at a closing stock of Q 64,66,365. The AO recast the trading & profit & loss account and determined the income as follows:- Thus the gross profit of the assessee was arrived at ₹ 1,49,66,546/-. The assessee had debited certain expenditure in the profit and loss account. The following expenditure debited to the P & L account by the assessee was considered and allowed as deduction to arrive at the net profit. Gross Profit ₹ 1,49,66,546 Direct Expenses (other then trading items) ₹ 19,36,040 Administrative Expenses ₹ 18,88,294 Financial charges ₹ 74691 Depreciation Rs, 1,75,375 Net Profit ₹ 1,08,92,146 Total ₹ 1,49,66,546 ₹ 1,49,66,546 14. Before the AO, one of the stand taken by the assessee was that in respect of Part B of the list of properties purchased and sold by the assessee given in the earlier part of this order, the properties were not held as stock-in-trade but were held as investments and were purchased long back without any intention of doing business in those properties. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the trading & profit & loss account filed along with the return of income. The assessee again reiterated the plea that she had taken before the AO. The assessee however admitted that the business of dealing in timber and granite was discontinued long back and that the only business was the business of purchase and sale of property carried on by the assessee during the previous year. The submissions of the assessee before the CIT(A) were as follows:- 1. As far as transactions set out in Part-A of the Chart set out in the earlier part of this order, the Assessee conceded that the AO has taken the correct stand. 2. In respect of transactions in Part-B of the Chart set out in the earlier part of this order, the Assessee contended that the Assessee was holding the properties for a very long time, with some being held for more than 10 years and as such, they should be taxed as Long Term Capital Gains with indexation and not as Business Profits. 3. In respect of the transactions in Part-C of the Chart set out in the earlier part of this order, the Assessee submitted that cost of the land which was given away for joint development has no relevance in arriving at the gain on the transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Andhra Pradesh High Court in the case of Indwell Constructions vs. CIT reported in (1998) 232 ITR 776, which has been referred to in 316 ITR 127 by the Punjab & Haryana High Court. 5.4. In the alternative, it was pleaded that even if it is assumed that the Assessee received 'on money' during the course of real estate transactions, then it follows that the Assessee would have also paid similar amounts at the time of purchase. Accordingly, it was submitted that the amount to be brought to be tax, if any should only be a reasonable gross margin and not the entire amount as held by the AO. It was also submitted that it was incumbent upon the Income tax authorities to levy and collect only that tax that can be considered fair and just and the statute does not envisage that the citizen should be taxed at a higher amount, even if the assessee has erroneously declared a higher amount. In support of his arguments, reliance was placed upon the decision of the Gujarat High Court in the case of S.R. Koshti v CIT (276 ITR 1.65), which in turn has relied upon a few decisions of the Supreme Court." 18. The ld. CIT(Appeals) firstly held that it was not possible to accept that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adily available for the same. The decisions relied upon by the AR also seem to support the view that, where the assessee runs the risk of being over assessed due to mistake or misconception, then it would be open to the authorities to use their powers and bring to tax the correct amount. 5.8. In view of the foregoing discussions and based on the decisions cited and considered, I would therefore hold that the ends of justice can be said to have been met if a Gross Profit margin of 50% of the additional turnover of ₹ 83,60,865 is treated as income in the hands of the Appellant. The appellant herself has shown a Gross Profit margin of 7% to 75% as shown in Para Tables described in Para 2 of this order. The results shown by the Appellant's books are not reliable and the AO has rightly rejected them under section 145 of the Act. However, after considering the submissions made by the AR of the Appellant, it would be reasonable and just to apply a Gross Profit margin of 50% of the additional turnover of ₹ 83,60,865 as income in the hands of the Appellant. This profit margin shall also cover as an estimate any leakages of unexplained investment made by the appellant in order t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only as investments. In this regard, we find that in the submissions dated 05.10.10 filed by the assessee before the CIT(A), the assessee has clearly mentioned that the lands were purchased with an intention of holding them till such time there was a prospect of making profits. It has also been mentioned that when there was ready purchaser for the property, they would be purchased and sold within a short span of time. Even in respect of the property that was given for joint development, the assessee has mentioned that they were held with a view to make profits at a time when there were good prospects. In our opinion, the intention at the time of purchase as to, whether the property is investment or stock-in-trade, is the most relevant and important criterion. The intention of the assessee appears clear that even at the time of acquisition of the properties, selling the same at a profit was the motive. We therefore hold that the properties were held as stock-in-trade by the assessee and not as investments. Consequently the sale proceeds of the properties mentioned in Part B of the chart have to be treated as sale proceeds/receipts of the business of buying and selling of properti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a joint development agreement. In this regard, the ld. counsel for the assessee also drew our attention to the joint development agreement whereby the developer was given a licence to enter upon the property for the purpose of development. Reference was also made to clause 19.1 and 20 of the joint development agreement whereby the developer had right to sell 70% of the undivided share of land. It was submitted by him that 'transfer' if at all, had taken place on 20.10.03 i.e., the date of joint development agreement falling within the assessment year 2004-05. 28. It was further submitted by the ld. counsel for the assessee that while computing income on sale of 5 flats which came to the share of the assessee, the cost of construction should be allowed as deduction by showing the same in the debit side of the trading account. In this regard, the ld. counsel also filed a report of the registered valuer, a copy of which is placed at pages 101 to 113 of the assessee's paperbook. The registered valuer has given a valuation of estimated cost at Q 625/sq.ft. to be debited to the trading account. The assessee has also filed application to admit the valuer's report as additional evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see should be allowed the aforesaid benefit. Admittedly, the assessee had to pay a cost for acquiring these 5 flats. The Assessing Officer in the order of assessment has not given any cost to these flats. In our view, therefore the cost of 5 flats has to be worked out and for this purpose of working out the cost of acquisition of 5 flats, the matter is remanded to the Assessing Officer. The AO will verify the cost from the developer, who developed the properties and arrive at the cost of 8664 sq.ft. This cost should be debited to the trading account. The assessee has retained 3 flats out of 8 flats and we direct the cost of these 3 flats lying in the stock with the assessee has to be added as part of the closing stock in the trading account. Similarly, 30% of the value of the land (retained by the Assessee) should also be shown as cost in the debit side of the profit and loss account. The value for this purpose will be 30% of the value for which the Assessee purchased the entire property which was given for joint development. Out of the 30% undivided share of land retained by the Assessee, the value attributable to the extent of undivided share of land sold by the assessee (along w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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