COMMISSIONER OF INCOME TAX 8 MUMBAI versus GLOWSHINE BUILDERS & DEVELOPERS PVT. LTD
[2023] 7 S.C.R. 1004, Supreme Court of India, 2023
Outcome: Unknown
Segment: Ratio
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SUPREME COURT REPORTS
[2023] 7 S.C.R.
COMMISSIONER OF INCOME TAX 8 MUMBAI
v.
GLOWSHINE BUILDERS & DEVELOPERS PVT. LTD.
(Civil Appeal No. 2565 of 2022)
MAY 04, 2023
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Income Tax Act, 1961 – s.142, 143 – Non-disclosure of amount
– Dispute related to the Assessment year (AY) 2009-10 i.e. Financial
Year (FY) 2008-09 – Assessee entered into an agreement whereby
development rights in a property were sold at a Rs. 15,94,06,500/-
– However, AO noticed that the aforesaid amount was not disclosed
by assessee while filing the return of income – Explanation sought
from assessee – In response, the assessee stated that the aforesaid
transaction was duly offered to tax in AY 2008--09 reflecting a
consideration of Rs. 5,24,27,354/- – It was claimed that a rectification
deed was entered into whereby the value of development rights was
reduced from Rs. 15,94,06,500/- to Rs. 5,24,27,354/- – However,
the addition of Rs. 15,94,06,500/- was made by the AO by treating
the same as short term capital gains – The Commissioner confirmed
the order made by the AO – ITAT reversed the said finding and held
that the transaction was stock in trade – Also, confirmed that the
sale consideration was Rs.5,24,27,354/- only – Appeals were
dismissed by the High Court – On appeal, held: 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
ITAT after examining opening and closing balance
for the AY 1996-97 to 2007-08 held that the transaction was sale in
stock in trade – Merely on the basis of recording of the inventory in
the books of accounts, the transaction in question would not become
stock in trade – As assessee claimed that rectification deed was
entered into entered into and the amount was reduced from
Rs.15,94,06,500/- to Rs.5,24,27,354/- – ITAT did not question the
factum of refund of differential amount of Rs.10,69,79,146/- – ITAT
ought to have appreciated 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, it is to be treated as income
in the hands of the recipient – ITAT failed to consider relevant aspects
[2023] 7 S.C.R. 1004
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while considering transaction in question – Hence, the matter is
required to be remanded to the ITAT to consider the appeal afresh –
Impugned judgment and order passed by the High Court and that
of the ITAT are hereby quashed and set aside.
Partly allowing the appeal, the Court
HELD : 1. 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. Merely on the basis of recording of the
inventory in the books of accounts, the transaction
in question
would not become stock in trade. As per the settled position of
law in order to examine whether a particular transaction is sale
of capital assets or business expense, multiple factors like
frequency of trade and volume of trade, nature of transaction over
the years etc., are required to be examined. From the order passed
by the ITAT, it appears that the ITAT has without examining any
of the relevant factors confirmed that the transaction was transfer
of stock in trade. [Para 7][1019-C-F]
2. The High Court has also failed to appreciate that even in
the event of acceptance of claim made by the assessee, including
the assertion that Rs. 15,94,06,500/- was shown in the tax return
in the earlier AY i.e., 2008-09, the differential amount of
COMMISSIONER OF INCOME TAX 8 MUMBAI v. GLOWSHINE
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[2023] 7 S.C.R.
Rs. 10,69,79,146/- 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. At this stage, it is required
to be noted that as per the claim of the assessee and the entry
made and reflected in the ledger account of the assessee as on
31.03.2008, an amount of Rs. 15,94,06,500/- was paid to a third
party i.e., SICCL. However, thereafter, according to the assessee
there was a rectification deed dated 30.05.2008 and the amount
was reduced from Rs. 15,94,06,500/- to Rs. 5,24,27,354/-. The
ITAT has not even questioned 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. The ITAT ought to have
appreciated 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, it is to be treated as income in
the hands of the recipient. However, the ITAT has also not
considered the aforesaid aspect. [Para 7.1][1019-G-H]
3. In view of the above and as observed hereinabove, the
ITAT has not considered the relevant aspects/relevant factors
while considering the transaction in question as stock in trade
and has not considered the relevant aspects as above which as
such were required to be considered by the ITAT, the matter is
required to be remanded to the ITAT to consider the appeal afresh
in light of the observations made hereinabove 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. [Para 7.2][1020-D]
4. In view of the above and for the reasons stated above,
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. [Para 8][1020-E-F]
Mantri Techzone Private Limited v. Forward Foundation
and Ors. (2019) 18 SCC 494; Raja J.Rameshwar Rao
v. Commissioner of Income Tax, Hyderabad (1961) 42
ITR 179 – referred to.
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2565
of 2022.
From the Judgment and Order dated 04.09.2017 of the High Court
of Judicature at Bombay in ITA No. 1756 of 2014.
Balbir Singh, ASG, Rupesh Kumar, Ms. Swarupama Chaturvedi,
Devashish Bharukha, Raj Bahadur Yadav, Advs. for the Appellant.
S. K. Bagaria, Sr. Adv., Ujjwal A. Rana, Himanshu Mehta for
M/s Gagrat and Co., Advs. for the Respondent.
The Judgment of the Court was delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 04.09.2017 passed by the High Court of Judicature at
Bombay in Income Tax Appeal No. 1756 of 2014, by which, the High
Court has dismissed the said appeal preferred by the Revenue, thereby
confirming the order passed by the Income Tax Appellate Tribunal, “G”
Bench, Mumbai (hereinafter referred to as the ITAT) by which the addition
made by the Assessing Officer (AO) of Rs. 15,94,06,500/- was deleted,
the Revenue has preferred the present appeal.
2. The dispute pertains to the Assessment Year (AY) 2009-10
i.e., Financial Year (FY) 2008-09. The assessee entered into an agreement
dated 06.05.2008 with one M/s Kirit City Homes Pvt. Ltd. The
development rights in a property at Vasai were sold for a total
consideration of Rs. 15,94,06,500/-. It appears that as per paragraph 6
of the development agreement and as per the receipt of the deed,
consideration of Rs. 15,94,06,500/- was agreed and received by the
assessee. During
assessment, it was noticed by the AO that the aforesaid
was not disclosed while filing the return of income. The assessee did not
enter the aforesaid income into his profit and loss account. The assessee
was asked to explain the transaction as it was not appearing in its profit
and loss account. The agreement dated 06.05.2008 was also furnished
to the assessee along with the notice. In response, the assessee vide
letter dated 04.10.2011 stated that the transaction was duly offered to
COMMISSIONER OF INCOME TAX 8 MUMBAI v. GLOWSHINE
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tax in AY 2008-09 reflecting a consideration of Rs. 5,24,27,354/-. The
assessee also stated that it had entered into a “rectification deed” with
the said party on 30.05.2008. By the said ratification, it was claimed that
the value of the development rights was reduced from Rs. 15,94,06,500/
- to Rs. 5,24,27,354/-. As the transaction was pertaining to AY 2009-10,
the assessee was served a further notice 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 statement
reflecting credits thereof.
(iv)
Vide ‘Deed of rectification’ dt. 30.05.2008, you had claimed
to have revised the value from Rs. 15,94,06,500/- to Rs.
5,24,27,354/-. In this regard, please explain whether you
had refunded the differential amount. If yes, please furnish
the mode and details thereof with supporting documentary
evidences.
(v)
Vide ‘Deed of rectification’ dt. 30.05.2008, you had claimed
to have revised the value from Rs. 15,94,06,500/- to Rs.
5,24,27,354/-. In this regard please furnish the basis thereof
with supporting documentary evidences.
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(vi)
Considering the above, I am of the view that for the above
transaction, provisions of section 50C of the I.T. Act 1961
are clearly applicable despite the reduction in your
agreement value. In this regard, you are requested to explain
as to why the provisions of section 50C of the I.T. Act
should not be initiated as well as please explain as to why
the sale proceeds should not be treated at Rs. 15,94,06,500/
-.
(vii)
Perusal of all the documents furnished by you in respect of
above transactions, I am of the view that the transaction
definitely belongs to this year and market value u/s. 50C
should be considered as the sale consideration. In this
regard, please explain as to why the treatment as mentioned
above does not be made applicable in your case. In view of
the above, it is proposed to treat the transaction for this
year and to add the sale proceeds of Rs. 15,94,06,500/- in
your hands. You are requested to furnish your explanation,
if any, with supporting documentary evidences.”
2.1 The assessee replied to the same and with regard to the
applicability of provision of Section 50C, the assessee stated that the
assessee had sold its stock in trade and not the assets. The AO made
the addition of Rs. 15,94,06,500/- by treating the same as short term
capital gains and consequently, added the same to the income for the
year under consideration. The Commissioner, IT (Appeals), Mumbai
dismissed the appeal and confirmed the addition made by the AO and
upheld the view of the AO to treat the transaction as income for capital
gains for the AY 2009-10. The CIT (A) also discarded the submissions
made by the assessee that transfer of development rights were made in
FY 2008-09 pursuant to the MOU dated 27.12.2007. In the absence of
proof to buttress such claim, 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
COMMISSIONER OF INCOME TAX 8 MUMBAI v. GLOWSHINE
BUILDERS & DEVELOPERS PVT. LTD. [M. R. SHAH, J.]
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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., FY
2007-08 and therefore, such income cannot be declared in AY 2009-10
i.e., FY 2008-09. The ITAT also confirmed and/or agreed with the
assessee that the sale consideration was Rs. 5,24,27,354/- only. Based
on these findings, the ITAT reversed the findings of the AO as well as
the CIT (A) and allowed the appeal by deleting the addition made by the
AO of Rs. 15,94,06,500/-.
2.3 The Revenue preferred an income tax appeal before the High
Court by way of ITA No. 1756/2014. By the impugned judgment and
order, the High Court has dismissed the said appeal filed by the Revenue
by holding that none of the questions proposed by the Revenue are
substantial questions of law.
2.4 Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court dismissing the appeal, the Revenue
has
preferred the present appeal.
3. Shri Balbir Singh, learned ASG has appeared on behalf of the
Revenue and Shri S.K. Bagaria, learned Senior Advocate has appeared
on behalf of the assessee.
4. Shri Balbir Singh, learned ASG appearing on behalf of the
Revenue has vehemently submitted that the High Court has failed to
appreciate that the order of the ITAT was perverse and contrary to
facts on record. It is submitted that the ITAT failed to appreciate that
the assessee has taken contrary stands before the assessing authority
and the Tribunal, on account of sale of development rights. It is submitted
that firstly, the assessee vide its letter dated 25.11.2011 submitted the
Ledger Account in respect of development agreement. The perusal of
the said Ledger Account revealed that the assessee claimed to have
received income of Rs. 15,94,06,500/- from a development agreement
on 31.03.2008 and the said entry was reversed on the same day by
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passing a rectification entry on 31.03.2008 itself. Therefore, it was
reflected that the aforesaid payment was paid by the purchasing party
on 31.03.2008 to an entity SICCL and all these entries were reflected on
the same date. Based on the Ledger furnished by the assessee, pertinent
questions were raised by the Assessing Officer which included reason
of rectification and confirmation of the fact that the differential amount
of Rs 10,69,79,146/- was refunded to the purchaser. However, perusal
of the order passed by the ITAT reflects that the fact of receipt of
money on 31.03.2008 was not even discussed. On the contrary, 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 Secondly, balance sheets for the Assessment Years 2006-07
to 2009-10 were examined by the Assessing Officer and it was recorded
that there was not even a single sale during all these years and 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 that of transfer of
capital asset and not that of transfer of stock in trade. However, the
ITAT in its order, after examining the opening and closing balance for
the year 1996-97 upto 2007-08 held that in multiple years there was
inventory shown in the Balance Sheet and since subsequent assessment
orders were made under Section 143(3) of the Income Tax Act, without
COMMISSIONER OF INCOME TAX 8 MUMBAI v. GLOWSHINE
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disputing the claim of assessee, held that the transaction in question is
sale of stock in trade. It is contended that the ITAT neither dealt with the
findings given by the Assessing Officer nor verified/examined the total
sales made by the assessee during the relevant year and during the
previous years. Therefore, the ITAT as well as the High Court have
materially erred in holding that, merely because the entry made in the
books of accounts involved recording of inventory, the transaction in
question becomes sale of stock in trade. That, it is well settled that in
order to examine whether a particular transaction is sale of capital asset
or business transaction, multiple factors like frequency of trade, volume
of trade, nature of transaction over the years etc. are required to be
examined. However, in the present case, the ITAT without examining
any of the relevant factors confirmed that the transaction was transfer
of stock in trade.
4.3 It is further submitted that the ITAT without any basis and
solely on the basis of claim made by the assessee, contrary to the accounts
produced before the Assessing Officer, agreed that the transaction was
reflected as sale in the tax return for the Assessment Year 2008-09.
That, interestingly, the ITAT did not even question as to what happened
to the differential amount of Rs. 10,69,79,146/- on account of reduction
of sale value of development rights.
4.4 It is further submitted
by Shri Balbir Singh, learned ASG, that
the High Court has failed to examine the inherent contradiction in the
order of the ITAT and that the claim was allowed by the Tribunal, contrary
to the records 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.
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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 engaged in the
business of building and development of properties since the year 1999-
2000. That the assessee’s balance sheets show that it had work-in-
progress/inventories year after year, since 1999-2000. The same has
been accepted by the department all these years; even after scrutiny
assessments under Section 143(3) of the Income Tax Act, 1961.
5.1 It is submitted that the assessee had entered into an MOU
dated 27.12.2007 with M/s Kirit City Homes Private Limited, whereby,
Development Rights in a property at Vasai were sold for a total
consideration of Rs. 5,24,27,354/-. That the said MOU was on record
before the lower authorities and has been referred in the Assessment
Order as well as in the order passed by the CIT (A). In connection with
the said transaction, detailed findings were given by the Income Tax
Appellate Tribunal (Tribunal/ITAT) and these were also duly considered
by the High Court. The findings given by the Tribunal were pure findings
of facts and therefore, the High Court has rightly dismissed the appeal
after considering the facts and
the tribunal’s order and by holding that no
substantial question of law arises in the matter.
5.2 Shri S.K. Bagaria, learned Senior Advocate has taken us to
the following facts recorded by the High Court in the impugned judgment
and order: -
a)
It is a common ground that the assessee is in the business
of building and development of properties. There was no
change in the activities of the assessee during the year under
consideration.
b)
For the year ending 31/03/2006 the assessee disclosed
inventories at Rs 8.66 crores
c)
For the year ending 31/03/2007 there was no change and
the same figure of Rs 8.66 crores was disclosed.
d)
For the year ending 31/03/2008 (assessment year 2008-
09), the assessee showed sale of land development rights
COMMISSIONER OF INCOME TAX 8 MUMBAI v. GLOWSHINE
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at Rs 5,24,27,354/- and the cost of land was shown at Rs
5,21,37,454/-.
5.3 It is submitted that in connection with the aforesaid transaction
during financial year 2007-08, the High Court has further considered the
following facts in the impugned judgment and order: -
i.
In MOU dated 27/12/2007 with KCH transfer of
development rights was for the said total consideration of
Rs 5,24,27,354/-.
ii.
The assessee was holding 50.16 acres of land, out of which
27.44 acres of land was the subject matter of the aforesaid
MOU dated 27/12/2007. Total 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 was acquired by the
assessee in the financial year 1996-97. The tribunal gave year
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wise details from 1996-97 which clearly showed that the
acquisition of land was in financial years 1996-97 and 2004-
05. During the financial year 2007- 08, cost of the inventory
was Rs. 9,53,06,475/- and the tribunal gave a definite finding
that “the above inventory represents the cost of 50.16 acres
of land out of which 27.44 acres has been sold vide
Memorandum of Understanding dated 27/12/2007”.
b)
The assessee was showing work in progress under the head
current assets and loans and advances in the balance sheets
filed with the Department and in the Income Tax Returns.
The tribunal considered the year-wise position and gave the
following findings for different years.
c)
For assessment year 2001-02 the assessee’s Return was
selected for scrutiny assessment and the assessment was
completed under section 143 (3) vide order dated 11/09/2003,
wherein, the assessing officer gave a categorical finding that
the assessee was engaged in the business of builder and
developer, erectors, construction of building, houses,
apartments, ownership flats. Work in progress of Rs 7.66
crores was also mentioned in the assessment order and it
covered cost of land and various expenses including land
development, stamp charges etc.
d)
For financial year 2002-03, work in progress was shown at
Rs. 8.51 crores.
e)
For financial years 2003-04 and 2004-05 (year ending 31/03/
2004 and 31/03/2005), inventories were shown at Rs 8.58
crores and Rs 8.66 crores respectively. For the
assessment
year 2005-06 (financial year 2004-05) the assessee was again
subjected to scrutiny assessment and its assessment was
completed under Section 143 (3) by order dated 30/11/2007
and the assessing officer again acknowledged the business
of the assessee as that of builder and developer, erectors,
construction of building, houses, apartments, ownership flats.
The assessing officer specifically found that there was no
change in the activities of the assessee during the year under
consideration.
COMMISSIONER OF INCOME TAX 8 MUMBAI v. GLOWSHINE
BUILDERS & DEVELOPERS PVT. LTD. [M. R. SHAH, J.]
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f)
For the financial years 2006-07 and 2007-08 the inventories
were shown at Rs 8.66 crores and there was no change. For
the financial year 2007-08 (year ending 31/03/2008) the
assessee had shown sale of land development right at Rs.
5,24,27,354/- and cost of the said land was shown at Rs
5,21,37,454/- The facts 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 the assessments were
completed under Section 143(3). It is submitted that ultimately the Tribunal
concluded the issues as under: -
a)
The impugned transaction related to transfer of stock in trade
and that the assessee had been showing “stock in trade/
inventories” year after year in its balance sheets and its
contention was accepted by the assessing officer and twice
the assessments were completed under Section 143(3).
b)
The said transaction had taken place during the financial year
2007-08 pertaining to assessment year 2008-09. The assessee
had shown the sale consideration as also the cost of land in
its balance sheet and profit and loss account filed with the
Return of Income for the said assessment year 2008-09. Even
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in the abstract from AST, the assessing officer had referred
the said sale as part of the return for assessment year 2008-
09.
c)
Considering the MOU and the Deed of Rectification, the
consideration was Rs 5.24 crores. The assessing officer
completed assessments simply by relying on AIR data
received from the office of the Sub- Registrar, Vasai but failed
to consider the Deed of Rectification registered by the same
Sub-Registrar and did not even care to verify the figure from
the said Sub-Registrar, Vasai.
d)
Perusal of balance sheets of the assessee since 1999-2000
clearly showed that the assessee had been showing work in
progress/inventories year after year and apportioned the cost
in proportion to the part of the land transferred and the cost
of the land was as per the cost shown in the Return of Income
for assessment year 2008-09.
e)
Since the impugned transaction related to the business of the
assessee and was to be assessed as such under the head
“profit and gains of business or profession” the provisions of
section 50C of the Income Tax Act, 1961 were not applicable
to the facts of the case.
 5.6 It is submitted that the above findings recorded by the ITAT
which were upheld by the High Court are pure findings of facts and
therefore, no substantial question of law arises in the matter. Therefore,
it is prayed that no interference of this Court against the findings recorded
on material and evidence is called for. Reliance is placed on the decision
of this Court in the case of Mantri Techzone Private Limited Vs.
Forward Foundation and Ors.; (2019) 18 SCC 494.
5.7 It is further submitted by Shri Bagaria, learned 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,
COMMISSIONER OF INCOME TAX 8 MUMBAI v. GLOWSHINE
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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
valuation, it could have easily referred the matter to the valuation officer
but it did not do so. Not only this, as recorded by the tribunal, the
development agreement as well as the deed of rectification were both
registered with the same Sub-Registrar, Vasai but the income tax officer
did not make any enquiry from the said Sub-Registrar.
5.8 It is further submitted that with regard to the nature of business
of the assessee, the income tax officer proceeded as if there must be
regular transactions of purchase and sale every year. Firstly, the income
tax Department itself had accepted that the assessee’s business was of
builder and developer, erectors, construction of buildings, houses etc and
the assessments on that basis were completed year after year including
the assessments under Section 143 (3) for
different years as mentioned
above. Secondly, the regularity and frequency itself depends on the nature
of business and nothing prevents the assessee from buying plots of land,
holding them as stock in trade, developing or continuing to hold as it is
and then entering into the transactions of sale or disposal or transfer at
an appropriate time. Reliance in this regard is placed on the judgement
reported in (1961) 42 ITR 179 (Raja J. Rameshwar Rao Vs.
Commissioner of Income Tax, Hyderabad) wherein it was held inter
alia that, “no doubt, this was only a single venture; but even a single
venture may be regarded as in the nature of trade or business.” As
regards the applicability of Section 50C of Income Tax Act, it is submitted
that when the land in question was held by and transferred by the assessee
as stock in trade and not as capital asset, Section 50C could have no
application at all. In the income tax return for assessment year 2008-09
(during which the relevant events as mentioned above took place) the
transaction in question was duly offered to tax under the head “profit
and gains of business and profession”. All these facts were considered
by the tribunal and findings of fact as mentioned above were given.
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5.9 Making the above submissions that the High Court is correct
in holding that the Tribunal’s findings were findings of fact supported by
written documents and corroborating materials and that there was nothing
perverse in the tribunal’s findings and the case did not involve any
substantial question of law, it is prayed to dismiss the present 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. Merely on the basis of recording of the
inventory in the books of accounts, the transaction in question would not
become stock in trade. As per the settled position of law in order to
examine whether a particular transaction is sale of capital assets or
business expense, multiple factors like frequency of trade and volume of
trade, nature of transaction over the years etc., are required to be
examined. From the order passed by the ITAT, it appears that the ITAT
has without examining any of the relevant factors confirmed that the
transaction was transfer of stock in trade.
7.1 The High Court has also failed to appreciate that even in the
event of acceptance of claim made by the assessee, including the assertion
that Rs. 15,94,06,500/- was shown in the tax return in the earlier AY i.e.,
2008-09, the differential amount of Rs. 10,69,79,146/- 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. At this
stage, it is required to be noted that as per the claim of the assessee and
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the entry made and reflected in the ledger account of the assessee as on
31.03.2008, an amount of Rs. 15,94,06,500/- was paid to a third party
i.e., SICCL. However, thereafter, according to the assessee there was
a rectification deed dated 30.05.2008 and the amount was reduced from
Rs. 15,94,06,500/- to Rs. 5,24,27,354/-. The ITAT has not even questioned
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. The ITAT
ought to have appreciated 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, it is to be treated as income in the hands
of the recipient. However, the ITAT has also not considered the aforesaid
aspect.
7.2 In view of the above and as observed hereinabove, the ITAT
has not considered the relevant aspects/relevant factors while considering
the transaction in question as stock in trade and has not considered the
relevant aspects as above which as such were required to be considered
by the ITAT, the matter is required to be remanded to the ITAT to consider
the appeal afresh in light of the observations made hereinabove 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.
8. In view of the above and for the reasons stated above, 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 hereinabove 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
hereinabove. It is observed that we have not expressed anything on
merits in favour of either of the parties. It is ultimately for the ITAT to
take an appropriate decision in accordance with law and on its own
merits as above.
Ankit Gyan
Appeal partly allowed.
(Assisted by : Abhishek Pratap Singh and Tamana, LCRAs)