9911796707
TMI Blog2022 (9) TMI 1142X X X X Extracts X X X X X X X X Extracts X X X X ..... ess income, is enhancement in the facts and circumstances of this case and it is also a fact that no opportunity wasgiven to the assessee before such enhancement. This failure to issue show cause goes to the root of the issue of powers of CIT(A) of enhancement. Therefore, it is held that the treatment by CIT(A) of Capital Gain as Business Income is bad in law and not sustainable. Similarly, the treatment of lease rent as business income is bad in law and not sustainable. Accordingly, the ground number 1,5,6,7 of the Assessee are allowed. Difference in revenue recognition from the Hotel Building - HELD THAT:- It is important to mention here that the assessee for the same reason also reduced the cost for AY 2011-12 and the department has accepted it. It is the same project, the revenue of which was offered on project completion method for AY 2010-11 and 2011-12. It is fact as demonstrated by the assessee by the Registered Conveyance deed that the Total Cost was reduced by the purchaser as Purchaser decided to complete remaining construction on his own cost. Therefore, there was reduction in the cost. It also means the expenditure to that extent will be reduced for the assessee as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed. X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. CIT(A) has erred in holding that the assessee is not eligible for standard deduction of Rs. 1,36,67,376/- claimed in the total Income while declaring the income from Matrix I. T Building under the head 'Income from House Property'. 8. The Ld. CIT(A)) has erred in law and in facts in holding that the assessee is not eligible to claim deduction of maintenance expenses of Rs. 50,39,563/- against the maintenance charges received from the tenants. 9. The Ld. CIT(A)) has erred in law and in facts in confirming the disallowance u/s. 14A the Act to the extent of Rs. 20,10,855/-. 10. The Ld. CIT(Appeals) has erred in upholding the charging of interest u/s 234B, 234C and 234D of the Income Tax Act, 1961. 11. The assessee prays leave to add to above grounds to amend or delete any of the above grounds of appeal. " 3. Brief facts of the case, the assessee Angelica Properties Pvt Ltd has been amalgamated & merged into Vascon Engineers Ltd. The assessee is in the business of construction &development. There is a Registered Development Agreement dated 31/10/2006 between Clover Resorts Pvt Ltd (vendor no. 1), Vascon Engineers Pvt Ltd (vendor no. 2) and Angelica Properties Pvt Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) arrived at the business profit as under : Profits from Sale of Land & Building 1. Sale of Land & Building (excluding Rs. 1,50,00,000/- offered in the next year) 103,40,00,000 Less: Brokerage Paid for sale of Matrix Building. 1,31,12,501/- Less: Other expenses attributable to Matrix Building. 1,86,804/- Net Sale. Consideration (a) 102,07,00,695 Less: Cos of acquisition of land (40,08,75,414/-) & building (60,18,46,866/-) as shown by the appellant 100,27,22,280 Business profit from sale of land & Building 1,79,78,415 5. The ld. CIT(A) also held that since the income is assessed as Business Income, section 50C will not be applicable. The CIT(A) also gave direction in the order for AY 2010-11 to assess the balance consideration in AY 2011-12 as business income and not as capital gain as claimed by assessee. 6. Aggrieved by the order of CIT(A), the assessee filed appeal before this tribunal. 7. Submission of the Ld. AR : 7. 1 Written Submissions on Ground No. 1 of the Appellant's Appeal: 2. In connection with the Ground No. 1 challenging the enhancement of income by the Ld. CIT(A), we state and submit as under. 7. In the aforesaid grounds raised befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is submitted that before carrying out any enhancement of income, it was duty of the Ld. CIT(A) to quantify the amount of enhancement and also provide reasons and basis for carrying out the said enhancement so as to enable the assessee to file its submissions. In this regard, reliance is placed on the decision of the Hon'ble Pune Tribunal in the case of Naresh Sunderlal Chug v. ITO [171 ITD 116] [Page 570-577 of PB No. 3]. Thus, the enhancement made by the Ld. CIT(A) is beyond jurisdiction. 7. 6. In the present case, as explained earlier, the issue of treatment of the transactions of sale of assets and rental income as business income was never a subject matter of assessment and that no application of mind was ever, was made by the Ld. A. O. either in the said year or in any of the earlier years. Since the issue raised by the Ld. CIT(A) was never subject matter of examination or assessment by the Ld. A. O., even in light of the said decision of the Hon'ble Supreme Court relied by the Ld. CIT(DR), the Ld. CIT(A) would not have carried out enhancement on account of the same. 7. 7. In any case, the aforesaid decision has been considered while deciding identical issues in cases of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciation. He accordingly held that the income from the sale of land and building should be treated as business income. The propositions and submissions of the assessee 4. It is submitted that the aforesaid land was acquired by the Appellant for constructing the Hotel and an I-T park buildings with the intention to operate 1 and manage the same and earn rental income out of the same. It was never 1 intended to construct both the buildings as a builder and developer so as to earn profit from sale of its units. We submit that the judiciary has time and again clarified that a trader can also make investments and that every investment made by a trader cannot be treated as part of the business transaction. The Appellant refers to the following circulars and instructions which, though were rendered in the context of shares and securities, were equally applicable to the assets like land and building: a. Instructions No. 1827 dated 31. 08. 1989 issued by CBDT [Page 391- 393 of PB No. 2] b. Circular no. 4/2007 dated 15. 06. 2007 [Page 394-396 of PB No. 2] c. Circular no. 6/2016 dated 29. 02. 2016 [Page 397-398 of PB No. 2] 5. In the above circulars and instructions, CBDT has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted to the appellant on 03. 03. 2007. [Page 171- 173 of PB No. 2] If the Appellant was engaged in construction of the building and selling the same, they would not have taken the task of applying for operating and maintaining the I-T Park and getting the requisite approvals. As a Trader, the Appellant would have only intended to construct and sell the property with the intention to maximise profit out of the same. 10. In fact, with the intention to earn rental income, the Appellant had also entered into Leave and License agreements with some of the parties giving a larger area of the building on licence basis. The leave and license agreements executed by the Appellant with companies like Oriflame India Pvt. Ltd. on 09. 01. 2009 [Page 113-130 of PB No. 2] and Emerson Electric Company (India) Pvt. Ltd. [Page i3i-i70of PB No. 2] on 24. 05. 2007 much before the construction of building was completed proves that the intentions of the Appellant were always to construct the building and give it on rent. If the Appellant intended to construct the building and sell the same with the profit motive, it would not have entered into a leave and license agreements with the parties. This is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had reduced Rs. 10 crore on account certain anticipated damages resulting into downward revision in the Total ECV. According to him, the said deduction was without any basis and therefore the revenue offered by the appellant on the Revised ECV applying the Percentage of Completion @ 39. 89% was incorrect. Accordingly, he rejected the said reduction of the Total ECV by Rs. 10 Crores and enhanced the income by applying the Percentage Completion method on the original ECV thereby making an addition of Rs. 3,89,26,200/- on account of suppressed revenue. 3. At the outset, it is submitted that the aforesaid addition made by the Ld. A. O. is legally not tenable. The Appellant submits that the revision of the Total ECV was not allowed by the Ld. A. O. during the year under appeal on the ground that the changes in the accounting estimates were based on the documentary evidences like letters, emails, etc. which were exchanged in the subsequent period and therefore the same cannot be taken into account for the year under consideration. However, on the identical facts, the revision in the estimated contact value was allowed during A. Y. 2011-12 at Rs. 8,00,00,000/-. Even the said revision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 07. 04. 2010. In this email, it has been clearly pointed out that an amendment to the original agreement would be prepared whereby the Appellant would grant a discount of Rs. 3,75,00,000/- and the contract value would be further reduced on account of certain work which has been agreed to be carried out by the contractee and further discounts would be granted on appointment of Structural Consultants. The said communication thereafter wns supplemented by a draft agreement dated 15. 04. 2010 wherein several discounts being offered by the Appellant were referred to. It is submitted that subsequent to exchanging these emails, there were further emails and letters communicated to the party on 11. 10. 2010 and 08. 12. 2010. 7. It is submitted that since negotiations were going on between the parties and the Appellant apprehended that the contract revenue would be reduced drastically, the ECV was revised by reducing Rs. 10 crores from the original value. The revision in the Total Estimated Contract Value was in line with the various Accounting Standard applicable to the appellant. 8. In this regard, reliance is placed on the decision in the case of Canara Housing Development Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the subject-matter of notice issued under s. 148 nor the subsequent return filed by the assessee nor the subject-matter of assessment order passed by the AO for the concerned AY 2007-08. In fact, the impugned sale transactions relating to sale of land by the assessee to his two daughters-in-law for a total consideration of Rs. 1,62,72,000 was the subject-matter of reopening of assessment for preceding A. Y. 2006-07, whereby these transactions were identified, the case was reopened and the AO, while passing the assessment order for A. Y. 2006-07, has discussed the taxability of such transaction in the body of the assessment order and brought the same to tax. It is therefore a case where the impugned transactions were subject-matter of assessment and arising out of the assessment order for asst. yr. 2006-07 and not that of asst. yr. 2007- 08. Further, this was not even a case of substantive and protective addition. The CIT(A), while adjudicating the matter for A. Y. 2006-07 had determined that the said transaction pertains to A. Y. 2007-08 and not to A. Y. 2006-07 and deleted the additions in A. Y. 2006-07 and brought the same to tax in A. Y. 2007-08. On these facts, it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO and were neither mentioned in the return nor in the order of assessment. On these facts, the Hon'ble ITAT as well as the Hon'ble High Court held that the AAC had no jurisdiction to consider the new entries which were not considered at all by the ITO and to add the amount of Rs. 2,30,000 to the total income of the assessee since these constituted new sources of income, which were not the subject-matter of assessment before the ITO and, therefore, it was not open in appeal to consider these sources and to assess them. On these facts, the Hon'ble Supreme Court held as under: "3. In Jute Corpn. of India Ltd. 's case (supra) this Court has referred to the earlier decision of this Court in CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225, which was also a decision of a three Judge Bench wherein the scope of section 31(3)(a) of the Indian Income-tax Act, 1922 [which was almost identical to section 251(1)(a) of the 1961 Act] was considered and it was held: " If an appeal lies, section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under section 31(3)(a), in disposing of such an appeal, the Appellate Assistant Commissioner may, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not brought to the notice of the Bench in Gurjargravures (P. ) Ltd. [1978] 111 ITR 1 (SC). In the circumstances, the view of the Larger Bench in Kanpur Coal Syndicate case [1964] 53 ITR 225 (SC) holds the field.... " (p. 694) 4. Having regard to the decision in Jute Corpn. of India Ltd. 's case (supra), it must be held that the High Court was in error in holding that the appellate power conferred on the AAC under section 251 was confined to the matter which had been considered by the ITO and the AAC exceeded his jurisdiction in making an addition of Rs. 2,30,000 on the basis of the other 10 items of hundis which had not been explained by the assessee. This means that even if question No. 2 is answered in the affirmative, question Nos. 1 and 3 must be answered in the negative. The appeal is, therefore, allowed, the impugned judgment of the High Court insofar as it relates to question Nos. 1 and 3, is set aside and the said questions are answered in the negative, i. e., in favour of the revenue and against the assessee. " 5. I could not find any more recent decision of the Hon'ble Supreme Court on this issue. As mentioned above, the entries under consideration were f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant as business income. In this regard, the appellant has filed a copy of note sheet of the CIT(A). In this regard, it is submitted that the CIT(A) has mentioned in para 6. 4. 5 of the order that opportunity was given to the assessee to explain why the entire transaction of acquiring development rights in the property, development of commercial complex on the land and sale of matrix building and hotel building should not be treated as adventure in the nature of trade and the resulting income be not treated as business income. The reply submitted by the assessee was also considered and filed as Page No. 1-2 of the paper book filed on 11. 1. 2021, wherein at para 3, the assessee has also referred to this query. Therefore, before taking a view, on this matter, opportunity was given to the appellant to explain its case. 8. Further, in the literal sense, even there is no enhancement. On sale of the Matrix building, the AO has assessed at Long Term Capital Gain of Rs. (-) 4,10,30,399/- and Short Term capital gains of Rs. 9,89,70,961/-, while the CIT(A) assessed it at Business income of Rs. 1,79,78,415 only. Therefore, there is no enhancement but there is decrease in Income. Even the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Per contra, the ld. Departmental Representative(ld. DR) for the Revenue took us through the order of the ld. CIT(A), mainly para 6. 4. 5 at page 14. In the said para, the ld. CIT(A) has categorically mentioned that "In view of this, an opportunity was given in the present proceedings to the appellant to explain as to why the entire transaction of acquiring development rights in the subject property, development of commercial complex on the land and sale of Matrix building and Hotel building should not be treated as an adventure in the nature of trade and the income from the activity should not be assessed as business income. " 10. 5. We specifically asked the ld. DR to show us the evidence that a specific question was asked to the appellant before treating the income as Adventure in the nature of trade other than what is mentioned by the CIT(A) in his order. The DR could not produce any document to substantiate the recital mentioned by the CIT(A) in his order that opportunity was provided. Once the assessee has made a statement that no opportunity was provided by the CIT(A) before treating the income as adventure in the nature of trade and the AR substantiated his argument by fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fit. (2) The [Commissioner (Appeals)] shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. As per the section 251(2) of the Act, CIT(A) shall issue a show cause notice before enhancing income. There is no specific format prescribed by the Act for the show cause u/s 251(2) of the Act. But, as per the Section 251(2) of the Act, the CIT(A) shall issue a formal written show cause to the assessee before enhancement, the show cause may be on the order sheet also but it should be a written show cause specifying his intention of enhancement clearly identifying the issue and reasons for the same. In this case there is no such show cause issued by the Ld. CIT(A) before enhancement. The Ld. DR has relied on the email of the assessee addressed to Ld. CIT(A) which refers to some requestmade by CIT(A), however, it is not a sufficient show cause for the purpose of Section 251(2) of the Act. Also, the CIT(A) had not raised any question before treating the Lease rent as business income. However, there is no direct evidence to prove that CIT(A) had asked relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... points raised by Assessing Officer, the assessee stated that "other point of the remand report were not relevant to the assessment order since all the documents were provided at the time of original assessment. " 14. The CIT (A) after receiving the submission of assessee, remand report of Assessing Officer and comment of assessee, went on to decide the issue as to assessibility of gain arising on transfer of development rights. It may be pointed out herein itself, the said issue of assessibility of capital gain was completed before the Assessing Officer who accepted the stand of assessee that the said gain was to be assessed as income from capital gains. There was no dispute about the assessibility of gains as income from Long Term Capital Gain. The only dispute was that whether against such gains, the assessee could claim deduction under section 54F of the Act on account of investment in new asset. In this regard, action of the CIT (A) in holding that the said income on sale of development rights was to be treated as adventure in the nature of trade/ business income, was not correct as per provisions of the Act. The powers of CIT (A) are coterminous with the power of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess income, no notice whatsoever, was given by CIT (A). Accordingly, we hold that the enhancement made by CIT (A) does not survive. Thus, we reverse the order of CIT (A). The income was assessed in the hands of assessee as income from Long Term Capital Gain. The CIT (A) vide Para15 and 16 has decided the issue of entitlement of claim under section 54F of the Act and held the assessee to be eligible for said claim. The Revenue is not in appeal against the order of CIT (A). Accordingly, we direct the Assessing Officer to allow claim of assessee under section 54F of the Act. The grounds of appeal raised by assessee are thus, allowed. " Unquote. 10. 7. ITAT MumbaiH Bench in the case of M/S Smart Infocom vs ITO in ITA 2836/M/2015 AY 2010-2011 vide order dated 18/1/2017 has held as under : Quote "6. Regarding the addition on account of commission of Rs. 53,166/-, it is the argument of the Ld. Counsel for the assessee that the CIT(A) enhanced assessment to that extent without giving a notice or an opportunity to the assessee. In this regard, Ld. AR brought our attention to the provisions of section 251(2) of the Act and submitted that sub-section (2) mandates the CIT(A) to not to enhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancement. This failure to issue show cause goes to the root of the issue of powers of CIT(A) of enhancement. Therefore, for the reasons discussed,respectfully following the ITAT Pune and ITAT Mumbai(supra)'s decision, it is held that the treatment by LD. CIT(A) of Capital Gain as Business Income is bad in law and not sustainable. Similarly, the treatment of lease rent as business income is bad in law and not sustainable. Accordingly, the ground number 1,5,6,7 of the Assessee are allowed. 11. Ground Number 2 : This ground becomes academic in nature as we have held the ground number 1 in favor of the assessee. Hence, the ground number 2 is dismissed as not adjudicated. 12. Ground Number 3 : We have already held that changing the head of income from Capital gain to business income by Ld. CIT(A) is bad in law. Hence, the question of treatment of Asset as Stock in Trade does not arise. Hence, the ground number 3 becomes academic in nature. Hence the ground number 3 is dismissed as unadjudicated. 13. Ground Number 4 : It is regarding addition of Rs. 3,89,26,200/- on account of difference in revenue recognition from the Hotel Building. The Assessee referred as Developer had entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent negotiation made later on after the close of the year i. e. after 31. 3. 2010, are to be accounted, there should be disclosure of this fact. However, as discussed above, nothing is mentioned anywhere in the financial statements, notes to account, Tax audit report or in the Director's report about such change in TCV or the reduction made by the appellant. These facts show that the intention of the appellant was to hide the fact of this reduction made by him, as it was without any basis and was made only to reduce the Sales to be recognized and the profit thereon. 8. Further, as discussed above, even in the documents filed, which pertain to period after 31. 3. 2010, nowhere any proposal or estimate for reduction of Rs. 10 Crore was mentioned. In the internal mail dated 07. 4. 2010, proposed reduction of only Rs. 3. 75 Crore was mentioned and in the later documents also (the estimation of reduction was not final even upto December 2010), the reduction was only Rs. 3. 75 Crore (The reduction of 4. 75 Crore is for reduction in scope of work reducing the cost also). Therefore, the action of the appellant in reducing the TCV by Rs. 10 Crore was absolutely without any basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/1/2014, the Assessee entered into registered Conveyance Deed ( page 312-336 of PB) in which clause C, D speaks about reduction in the cost because the Assessee could not complete the construction within the time, therefore, the purchaser decided to complete the remaining construction of its own and accordingly they reduced the value to 80,64,87,500/- after negotiation. It is important to mention here that the assessee for the same reason also reduced the cost for AY 2011-12 and the department has accepted it. It is the same project, the revenue of which was offered on project completion method for AY 2010-11 and 2011-12. It is fact as demonstrated by the assessee by the Registered Conveyance deed that the Total Cost was reduced by the purchaser as Purchaser decided to complete remaining construction on his own cost. Therefore, there was reduction in the cost. It also means the expenditure to that extent will be reduced for the assessee as the assessee do not have to complete the construction. Therefore, the % of completion will accordingly change. Therefore, we direct the AO to recalculate the Revenue from this activity by taking into consideration the reduced Cost taking into co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs were called as "Matrix IT Building" and "Hotel Tower". On 31/12/2009,the assessee entered into an registered agreement with Leon Realtors Pvt Ltd. for sale of "Matrix IT Building" for total consideration of Rs. 104,90,00,000/-. The assessee offered the said amount for Capital Gain Tax in two years for AY 2010-11 and AY 2011-12. The AO also taxed it as Capital Gain. The AO calculated the Capital gain based on the Stamp Duty value as per Section 50C as the valuation report from Departmental Valuer was not received in time. The CIT(A) held the transaction as adventure in the nature of trade and directed AO to treat it as business income. Aggrieved by the same the assessee filed appeal before this tribunal. 21. The CIT(A) had treated the transaction as business activity because the Assessee was a developer and according to CIT(A), the assessee always hand intention to develop the said property and earn profit. However, on careful consideration of facts, it is observed that the assessee had shown this land as an Fixed Asset in the Balance sheet for earlier years. There was scrutiny Assessment in earlier years and AO has not made any addition on this aspect means the AO had accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s investment. Therefore, respectfully following the Hon'ble Jurisdictional High Court, we are of the opinion that the impugned Sale is to be Taxed as Capital gain and not as Adventure in the nature of trade. Therefore, we uphold the order of the AO. 24. The AO had referred the issue to the departmental valuer for valuation. The Departmental Valuer submitted the report after completion of the assessment, the DVO valued it at Rs. 110,02,22,000/-, as mentioned in the order of CIT(A). Therefore, the AO is directed to calculate the Capital gain taking into consideration the valuation done by the DVO. Accordingly, the additional ground number 1 of the Assessee for AY 2011-12 is allowed. 24. 1. As regards to the revenue recognition under percentage completion method for the hotel building, our findings in ITA No. 403/PUN/2015 shall apply mutatis mutandis to this appeal. Accordingly, this ground is allowed for statistical purposes. 24. 2. Ground Number 2 is regarding addition made u/s 14A rwrule 8D. The assessee had shown exempt income of Rs. 1,47,78,594/-. The AO recorded his satisfaction in the assessment order. The AO asked assessee to substantiate that no expenditure was incurred fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
