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TMI Blog2023 (5) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... n light of the observations made here-in-above and to take into consideration the relevant factors while considering the transaction as stock in trade or as sale of capital assets or business transaction. The High Court has also failed to appreciate that even in the event of acceptance of claim made by the assessee, including the assertion was shown in the tax return in the earlier AY i.e., 2008-09, the differential amount on account of reduction in sale consideration of development rights was to be assessed in the current year as either capital gain or business income. The present appeal succeeds in part. The impugned judgment and order passed by the High Court and that of the ITAT are hereby quashed and set aside and the matter is remitted back to the ITAT to consider the appeal afresh in accordance with law and on its own merits, while taking into consideration the observations made here-in-above and to take an appropriate decision on whether the transaction in question is the sale of capital assets or sale of stock in trade and other aspects referred here-in-above. It is observed that we have not expressed anything on merits in favour of either of the parties. It is ultim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce dated 10.10.2011 under Section 142(1). The assessee was requested to explain as under: (i) You are aware that perusal of AIR information, copy of 'Development Agreement' dt. 06.05.2008 revealed that you had entered into Development Agreement with M/s. Kirit City Homes Mau, Pvt. Ltd in respect of various properties as detailed in the said agreement. It is also seen that you had received Rs. 13,94,06,500/on account of granting/allowing development rights assigned. (ii) As per the agreement, the transaction is dt. 06.05.2008, so this transaction falls under the A.Y. 2009-10 whereas you had offered this transaction in the A.Y. 2008-09. Please explain the logic and basis thereof (iii) Perusal of the 'Development Agreement' dt. 06.05.2008, you had claimed to had received the entire sale proceeds of Rs. 15,94,06,500/- . In this regard, you are requested to furnish the details of sale proceeds received mode there details of proceeds realized, etc in respect of sale proceeds of Rs. 15,94,06,500/-. Please also furnish the copy of 'Bank Book' / 'Cash Book' reflecting the receipts and narrations thereof alongwith copy of the bank account st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim, the CIT (A) also discarded the claim of the assessee that value of the transfer of development rights was reduced from Rs. 15,94,06,500/-to Rs. 5,24,27,354/- 2.2 The assessee filed an appeal before the ITAT. The ITAT, after examining the chart submitted by the assessee pertaining to opening balance and closing balance for the assessment years 1996-97 to 2007-08 held that the assessee in all these years showed inventory and expenses. Consequently, ITAT held that the assessee is engaged in the business of building and development. The ITAT further noted that the assessee showed the cost of land along with related expenditure as work in progress/inventory since 1999-2000 and the assessment orders were subsequently made under Section 143(3) of the IT Act, wherein the AO accepted the nature of business of the assessee. Therefore, ITAT concluded that what was sold by the assessee was part of its inventory and not a capital asset. The ITAT also held that the assessee has reduced the sale consideration from Rs. 15,94,06,500/- to Rs. 5,24,27,354/- during FY 2007-08 on the basis of MOU dated 27.12.2007 and the said amount of the income has already been declared in the AY 2008-09 i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary, a reference was made to the MOU dated 27.12.2007 for a total consideration of Rs. 5,24,27,354/-. It is submitted that the ITAT without examining the true nature of transaction and entry made in the books of accounts of the assessee simpliciter confirmed that the transactions pertained to earlier years i.e., Assessment Year 2008-09 and the reduction of amount arising out of the Development Agreement dated 06.05.2008 and Rectification dated 30.05.2008 was due to mistake. 4.1 It is further submitted by Shri Balbir Singh, learned ASG, that the ITAT failed to take into account the fact that the entry made and reflected in the Ledger Account of the assessee as on 31.03.2008 was on account of a third party i.e., SICCL and that too for a total of Rs. 15,94,06,500/-. Further, the ITAT did not even question the factum of refund of differential amount of Rs. 10,69,79,146/-to the purchaser on account of Rectification Deed dated 30.05.2008. That the ITAT has failed to appreciate that the moment the receipt of amount is received and recorded in the books of accounts of the assessee, unless shown to be refunded/returned, is to be treated as income in the hands of the recipient. 4.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecords produced before the Assessing Officer. Therefore, the order of the High Court holding that there was no substantial question of law involves is illegal and perverse. 4.5 It is further submitted that the High Court has failed to appreciate that, even in the event of acceptance of claim made by the assessee, including the assertion that Rs. 5,24,27,354/-was shown in the tax return for the earlier Assessment Year i.e., 2008-09, the differential amount of Rs. 10,69,79,146/-on account of reduction in the sale consideration of development rights is to be assessed in the current year as either as capital gain or business income. This is without prejudice to the submission that the Assessing Officer has correctly assessed the income in his Assessment Order dated 29.11.2011. 4.6 Making the above submissions, it is prayed that the present appeal be allowed and the order passed by the ITAT as well as the High Court be set aside and the order of the Assessing Officer be restored. 5. Shri S.K. Bagaria, learned Senior Advocate appearing on behalf of the assessee has taken us to the findings recorded by the High Court as well as the ITAT. It is submitted that the assessee is engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of the land was determined proportionately. iii. On 02/01/2008 necessary entries were passed debiting the account of KCH but crediting the account of one M/s SICCL. The assessee owed SICCL a sum of Rs 8.10 crores and it therefore directed KCH to pay the consideration directly to SICCL. iv. Corresponding entries relating to the aforesaid transaction were also made in the accounts of SICCL. v. On 02/01/2008 possession of the land was also handed over. vi. The aforesaid events took place during the financial year 2007-08 relating to assessment year 2008-09. In that assessment year, the assessee offered to tax the income arising out of the aforesaid transaction under the head business income . vii. In the development agreement dated 06/05/2008 the sale consideration was incorrectly mentioned as Rs 15,94,06,500/-and on realising the mistake, a Deed of Rectification of executed on 30/05/2008. This deed of rectification was registered with the office of the Sub Registrar, Vasai. 5.4 Shri Bagaria, learned Senior Advocate has also taken us to the following further facts recorded and findings given by the ITAT a) The aforesaid 50.16 acres of land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts relating to MOU dated 27/12/2007, necessary entries being made in the books of accounts on 02/01/2008, debiting the account of KCH and crediting the account of SICCL, mistake in the development agreement dated 06/05/2008 and its being corrected by the said registered deed of rectification were also mentioned. g) It was found that since 1999-2000 the assessee was showing cost of land along with other related expenditures as work in progress/inventory in the balance sheets and its Income Tax Returns for several intervening years as the above were assessed under Section 143 (3) wherein the nature of the assessee's business was accepted by the assessing officer. It was held that what was sold by the assessee was part of its inventory and not a capital asset and the tribunal decided the matter by taking into consideration these undisputed facts. 5.5 It is submitted that based on the aforesaid facts and findings, the ITAT has rightly held that the impugned transaction related to transfer of stock in trade and that the assessee had shown stock in trade/inventories year after year in its balance sheets and its contention was accepted by the Assessing Officer and twice t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Senior Advocate appearing on behalf of the assessee that the assessment order simply referred to AIR data. As recorded in the assessment order itself the assessee had submitted that the transaction in question was duly offered to tax in assessment year 2008-09 reflecting its consideration at Rs. 5,24,27,354/. The MOU relating to the said transaction was already before the assessing officer and the consideration of Rs. 5,24,27,354/was duly mentioned in the MOU. In the Development Agreement, there was a mistake in mentioning the consideration and on realizing the error, within a short period of 24 days, the aforesaid Deed of Rectification was entered into and was duly registered. The said consideration of Rs. 5,24,27,354/was correctly mentioned in the MOU which was before the Assessing Officer as well as before the CIT (Appeals). The amount mentioned in the Deed of Rectification, rectifying the mistake in the Development Agreement also mentioned the same consideration and the said Deed of Rectification was duly registered with the Sub-Registrar, Vasai with whom the Development Agreement was also registered. It is important to mention that if the Department intended to dispute the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent appeal. 6. Heard learned counsel appearing on behalf of the respective parties at length. 7. In the present case, the AO treated the transaction as capital assets. ITAT has reversed the said findings and held that the transaction was stock in trade. It appears that the AO specifically recorded the findings on examining the balance sheets for the AY 2006-07 to 2009-10 that there was not even a single sale during all these years and that there were negligible expenses and the transaction in question was the only transaction i.e., transfer of development rights in respect of land and consequently, it was held that the transaction was one of transfer of capital assets and not one of transfer of stock in trade. However, the ITAT after examining the opening and closing balance for the AY 1996-97 to 2007-08 observed that in multiple years, inventory was shown in the balance sheet, without discussing the claim of the assessee and held that the transaction in question is sale of stock in trade. It appears that ITAT has neither dealt with the findings given by the AO nor verified/examined the total sales made by the assessee during the relevant time and during the previous years. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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