2023 (5) TMI 284 - SC - Income Tax

Supreme Court remands case to ITAT for reevaluation, emphasizing comprehensive assessment of transaction nature.

Commissioner of Income Tax - 8 Mumbai Versus Glowshine Builders & Developers Pvt. Ltd.

The Supreme Court remanded the case back to the ITAT for reevaluation, emphasizing the need for a comprehensive assessment of the transaction's nature, ... Characterization of gain on sale of property - nature of transaction - transfer of capital assets or transfer of stock in trade - as argued 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 u/s 143(3) - ITAT concluded that what was sold by the assessee was part of its inventory and not a capital asset also confirmed by HC - HELD THAT:- 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. 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 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 ultimately for the ITAT to take an appropriate decision in accordance with law and on its own merits as above. Issues Involved:1. Nature of the transaction (Stock in Trade vs. Capital Asset)2. Applicability of Section 50C of the Income Tax Act3. Assessment Year of the transaction4. Validity of the rectification deed and its impact on the transaction valueSummary:Nature of the Transaction (Stock in Trade vs. Capital Asset):The Assessing Officer (AO) treated the transaction as a transfer of capital assets, noting that there were no sales or significant expenses in the years 2006-07 to 2009-10, and thus the transaction was considered a capital asset transfer. The ITAT, however, held that the transaction was stock in trade, based on the assessee's consistent recording of inventory in its balance sheets from 1996-97 to 2007-08. The Supreme Court observed that the ITAT did not adequately examine the AO's findings or verify the total sales over the relevant years, and emphasized that multiple factors like frequency and volume of trade should be considered to determine the nature of the transaction.Applicability of Section 50C of the Income Tax Act:The AO applied Section 50C, which pertains to the valuation of capital assets, treating the transaction as short-term capital gains. The ITAT disagreed, ruling that the transaction related to stock in trade, thus Section 50C was not applicable. The Supreme Court noted that the ITAT did not sufficiently address whether the differential amount from the rectification deed should be considered as income.Assessment Year of the Transaction:The AO and the Commissioner of Income Tax (Appeals) [CIT (A)] held that the transaction should be assessed in the Assessment Year (AY) 2009-10. The ITAT found that the transaction, based on the Memorandum of Understanding (MOU) dated 27.12.2007, was already declared in AY 2008-09. The Supreme Court highlighted that the ITAT failed to address the AO's findings regarding the timing and nature of the transaction.Validity of the Rectification Deed and Its Impact on the Transaction Value:The AO questioned the validity of the rectification deed dated 30.05.2008, which reduced the transaction value from Rs. 15,94,06,500/- to Rs. 5,24,27,354/-. The ITAT accepted the rectification deed and the reduced transaction value, without thoroughly examining the refund of the differential amount. The Supreme Court pointed out that the ITAT did not adequately consider whether the differential amount should be treated as income.Conclusion:The Supreme Court quashed the judgments of the High Court and the ITAT, remanding the matter back to the ITAT for a fresh decision. The ITAT is instructed to re-examine the nature of the transaction, the applicability of Section 50C, the appropriate assessment year, and the impact of the rectification deed, taking into account the observations made by the Supreme Court.