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TMI Blog2010 (3) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... that the income was assessable as income from business for the assessment year under dispute and that the CIT(A) also erred in confirming the same ; -on a proper appreciation of evidence, the assessee had rightly offered the income as capital gain in the asst. yr. 2005-06 which requires to be accepted. Brief facts: 3. There was an action under s. 132 of the Act in respect of Mantri Group of cases on 8th Feb., 2006 in which a number of incriminating documents were said to have been unearthed, some of which, according to the AO, pertaining to transaction between Mantri Group of cases and the assessee. Subsequently, notices under s. 153C of the Act was issued for the asst. yrs. 2000-01 to 2005-06. In response, the assessee had questioned the jurisdiction of the AO under s. 153C of the Act on the ground that the documents unearthed by the Revenue did not pertain to the assessee etc. Consequent upon the thorough examination of the seized materials found during the search proceedings in Mantri Group of cases, the proceedings initiated under s. 153C of the Act against the assessee for the asst. yrs. 2000-01 to 2005-06 were shelved. 4. However, according to the Revenue, the contents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income 11,99,08,772 Add: disallowance as discussed in asst. order dt. 3-8-2006 1,52,480 Net receipts (business income) 12,00,61,252" 5. Aggrieved, the assessee went before the CIT(A) with twin issues, namely: (i) challenging the issuance of notice under s. 148 of the Act without jurisdiction; - when the reasons recorded for the issuance of notice and reopening of the assessment was objected to; the AO had failed to pass a speaking order; and (ii) the AO had erred in taxing the income under consideration for the assessment year under appeal. 5.1 After due consideration of the spirited arguments put-forth by the learned Authorised Representative coupled with lengthy written submissions and also the remand report of the AO, the learned CIT(A) had observed thus: "9. ................Thus, in all the cases cited by the Authorised Representative, no order has been passed at all on objections raised separately whereas in this case an order had been passed and objections have been considered and disposed of. The Authorised Representative pleads that the order is not speaking. But, I find it otherwise. The order is quoted below: 'While reopening of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting the objections is speaking one. It is often 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 issues 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 weightage to the submissions of the assessee and also due consideration of the remand report of the AO, the learned CIT(A) had observed thus: "13. ......In my view, so far as the head of income is concerned the AO is justified in taxing the receipts 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 perusal of partnership deed justifies such a stand. This factum of nature of business mentioned in the partnership deed of the appellant firm distinguishes it from the facts of the case law of CIT vs. Sohan Khan (2008) 7 DTR (Raj) 361 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of terms of the GPA states 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 a sale deed in asst. yr. 2006-07 i.e., 20th June, 2005 and what is its legal implication? The registration was only a ratification of what had been stated in the POA and it was a legal necessity because thereby the State gets revenue in the shape of stamp duty and it is necessary to register a sale of purchase of an immovable property of value of more than ₹ 100 as per s. 17 of the Indian Registration Act. Thus, a sale deed registered in no way proves the privilege of ownership or otherwise or makes the transfer complete. It only symbolizes the fact of complete transfer in the absence of other documents. Here is not such case. However, let it be so, but this has been done in asst. yr. 2006-07 but the Authorised Representative has pleaded that the ownership got transferred only in asst. yr. 2005-06 and that is why the appellant showed the income in asst. yr. 2005-06. Thus, there is equivocation and paradox in the argument o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, as per the terms of the agreement of sale, a separate POA was executed and, therefore, the POA executed on 24th May, 2004 should be considered in so much as such powers of attorney dt. 21st Sept., 2002 could be seized by the search party while conducting search in the premises of Mantri Group, the truthfulness of which has statutory support. Thus, the protective assessment of asst. yr. 2005-06 goes and grounds of appeals of asst. yr. 2003-04 are dismissed." 6. Agitated, the assessee has come up with the present appeal. During the course of hearing, the learned Authorised Representative had argued at length with regard to the manner in which the objections raised by the assessee for reopening of the assessment under s. 147 of the Act has been dealt with by the AO. The substances of the arguments of the learned Authorised Representative are summarized as under: (i) the order of the AO was bad, without jurisdiction and against the provisions of law and even against the dictum of the apex Court; - the AO had erred in assuming jurisdiction and issuance of notice under s. 148 of the Act; - the CIT (A) had also erred in confirming the same as the conditions precedent fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orised Representative of the assessee firm. Thus, the reasons cited thereon for reopening the assessment under s. 147 squarely dispose of the objections raised by the Authorised Representative of the assessee regarding reopening of the assessment. Therefore, objections raised stand disposed of in this regard." 7.1 On a plain reading of the above, we find that 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 highest judiciary of the country in the case of GKN Driveshafts (India) Ltd. vs. ITO (supra) wherein the Hon'ble Court in its wisdom has held that: "When a notice under s. 148 of the IT Act, 1961, is issued, the proper course of action for the notice is to file the return and, if he so desires, to seek reasons for issuing the notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order." 7.2 Turning to the reasoning of the learned CIT(A), we find that the CIT(A) had stated that "9. The issue rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleaded that the other ground raised be decided on merits. 7.5 In view of the submission of the learned Authorised Representative, the first ground raised by the assessee-the objection for issuance of notice under s. 148 of the Act for reopening of the assessment under s. 147 has not been disposed of by a speaking order-is dismissed as not pressed. 8. Let us now proceed to consider the assessee's other grievance that the AO was not justified in bringing to tax the sale consideration of ₹ 12.25 crores under the head "Profits and gains of 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 Shinvagulu village, Bangalore on 12th Nov., 1992. The assessee had entered into an agreement of sale on 22nd June, 2002 with M/s Abhishek Developers for a sale consideration of ₹ 12.25 crores and on the date of agreement, the assessee was in receipt of ₹ 5.25 crores as part of sale consideration. The year-wise break-up of the entire consideration paid as per the terms of the agreement is as under: Financial year Amount 2002-03 ₹ 8.25 crores 2003-04 ₹ 2.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore income arising thereon is held as business income and taxed under the head of income namely 'Profits and gains of business or profession...." 8.6 Accordingly, the AO had computed the taxable income at ₹ 12,00,61,250 after allowing cost of land and improvement etc. 9. On appeal, the learned CIT(A), after giving due weightage to the contention of the assessee, perusal of relevant records and discussing the issue in an elaborate manner, has observed thus: "13. ..........Through the general power of attorney complete possession over the property was admittedly handed over to the purchasers and that is why they started developing the land itself in 2002 and construction of a complex named Mantri Classics in 2003. Had there been an iota of doubt as to their ownership, the purchasers would not have started such adventure of massive construction a few months after the execution of power of attorney but would have waited till the execution of sale through a registered deed. Besides, I note that the deed of sale agreement, upon which the Authorised Representative relies too much to argue that clauses therein stipulate the transfer of ownership and possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d offered the income from this transaction for the asst. yr. 2005-06; (vi) the assessee had executed POA in favour of the purchasers 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 or in any way concluding the sale. The very fact that the POA executed shows that the ownership remained with the assessee only; (vii) the POA executed on 24th April, 2005 was in relation to the entire land of 1,37,976 sq. ft. None of the POAs were in favour of the purchasers-Abhishek Developers-but, were In favour of Sushil Mantri, Smt. Snehal Mantri and H.S. Girish Gupta who were acting on behalf of the assessee; (viii) the recital in the POA dt. 24th April, 2004 goes to prove explicitly that "whereas we are the absolute owners of all that piece and parcel of converted land............" (ix) supplemental agreement executed on 24th June, 2002, makes it unambiguously clear that: IV. Now this supplemental agreement witnesses as follows: (1) The vendors at the request of the purchasers, have permitted by way of a licence to enter upon the schedule prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the CIT(A), (iii) rejoinder to remand report etc., Subsequently, the learned Authorised Representative came up with a paper book-II which contained copies of (i) balance sheets for the asst. yrs. 1993-94-2005-06; and (ii) sale agreements with Abhishek Developers and other correspondences. 10.2 On the other hand, the learned Departmental Representative was more emphatic in her resolve that the AO had, in fact, dealt with the issue in an investigation angle and brought on record with evidence to thwart the assessee's claim which has been sustained by the first appellate authority in a judicious manner. It was, therefore, pleaded that the stand of the authorities below requires to be upheld. 11. We have duly considered the rival submissions, perused the relevant records and also documentary evidence produced by the learned Authorised Representative during the course of hearing. 11.1 The AO, after atialyzing all the material, evidence gathered and considering the assessee's submission, came to a conclusion that: "21. .........The property in question is deemed to have been transferred to M/s Abhishek Developers during the financial year 2002-03 itself. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchasers, have permitted by way of a licence to enter upon the schedule property and to do work of construction in the portion thereof set out in green outline in the plan annexed hereto being the portion of the Sch. '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 said area marked in green outline is set out in Sch. 'B' hereto; (2) The licence hereby granted to the purchasers by the vendors is on the specific condition, assurance and undertaking by the purchasers that the same shall not be construed or deemed to be possession or claim to be possession under s. 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; (3) The licence hereby granted to the purchasers by the vendors is on the specific assurance that all acts, deeds and things done by the purchasers pursuant to this licence shall be the responsibility of the purchasers and shall be done entirely at the risk as to cost and consequences of the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t performance of the contract taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there 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 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." 11.7 This gives a clear indication that the assessee was in physical possession of the property in question. 11.8 The following vital issues have been overlooked by the AO while deciding the issue: (i) the assessee had entered into an agreement of sale with M/s Abhishek Builders for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., 2001 (p. 15 of the paper book dt. 4th Feb., 2010). (iv) This return of income for the asst. yr. 2001-02 was accepted by the Revenue and not disputed. (v) The balance portion of the land was sold for ₹ 12.25 crores and the income arising out of such transfer is now held by the AO as business income and thereby taking a contrary view. (vi) The firm appears to have not conducted any other activity other than holding the land of investment, borrowings and lending. 11.12 On perusing the above facts, it is clear that the firm had purchased the landed property and held it as investment way back from 1994 and beyond until the year it was sold. Two portions of the same land is sold on two assessment years, one during the asst. yr. 2001-2002. For the asst. yr. 2001-02, the Revenue has not disputed that the income arising out of sale of property does not fall under the head long-term capital gains. Being so, it is not appropriate for the Revenue to hold the income arising out of the sale of the other portion of the same property as business income, when all the facts remain the same. A firm involved in real estate business can hold land as investment and/or as stock-in-trade. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains or long-term capital gains as the case may be." 11.13 In view of the foregoing facts and circumstances 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 Hon'ble Rajasthan High Court in the case of CIT vs. Sohan Khan (2008) 7 DTR (Raj) 361 : (2008) 304 ITR 194 (Raj). In that case, the assessee purchased a large extent of land in 1970 under a valid document. The land was under the cloud of ceiling laws and after it got cleared therefrom, the assessee prepared a site plan showing the land to be divided into different plots and plots were accordingly sold. The assessee filed his return of income declaring the particular income as capital gains. The AO found that the profits from the sale were not to be taxed as capital gain but that the transaction was in the nature of trade on the ground that the land surrounding the original land was owned by his near relatives and family members and that the purchasers were impressed by the fact that all the land belonged to the same f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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