TaxTMI 
TaxTMI 
2002 (10) TMI 268
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.... 20 % 3. Mr. Narain Motiram Gidwani 20 % 20 % 4. Mr. Satramdas Kiratrai Kripalani 3 % 40 % 5. Master Naresh alias Ramesh Sajan Advani (Minor) 6 % Nil 6. Master Lachman Sajan Advani (Minor) 5 % Nil 7. Master Jai Doulat Advani (Minor) 6 % Nil 8. Master Lalit Doulat Advani (Minor) 5 % Nil 9. Baby Gitanjali Gul Advani (Minor) 5 % Nil 10. Baby Sangita Gul Advani (Minor) 5 % Nil 11. Master Prakash Parpati Advani (Minor) 5 % Nil 100 % 100 % 2. This firm purchased on 29th March, 1973, a property named Petit hall comprising of constructed bungalows and outhouses on land admeasuring 33,339 sq. mtrs., situated at Nos. 66 and 67, Civil Lines, Haveli, Pune, for a sum of Rs. 18,15,260. This property was purchased by the assessee-firm with the view to develop the plot as a builder. However, on account of a variety of reasons there was very little further activity on this plot of land. Inspecting Asstt. Commissioner (Acquisition) initiated proceedings for acquisition of this plot of land under Chapter XX-A of the IT Act by notification under s. 269D of the Act o....
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....espective authorities on 30th March, 1979, 2nd April, 1979, and 5th April, 1979. Final order was also passed on 8th April, 1979, acquiring the plot of land w.e.f., 15th May, 1979. Aggrieved by these orders, the assessee filed writ petition in Bombay High Court, being special civil application No. 1225 of 1979. Thereupon Hon'ble High Court by its judgment dt. 4th Oct., 1988, set aside the competent authority's order dt. 28th March, 1978, the appellate order dt. 28th Jan., 1979, and notification under s. 10 of ULCA, and remanded the proceedings to the competent authority to be kept pending till the hearing and final disposal of the applications under ss. 20 and 21 of ULCA. Subsequently, the Hon'ble High Court passed another order on 2nd Nov., 1988, in continuation of previous order dt. 4th Oct., 1988, whereby it was directed that the competent authority should initially proceed to make the requisite declaration under s. 8 of the ULCA and pass order under s. 8(4) thereof. The applications under ss. 20 and 21 should thereafter be taken up for consideration and determination. Thereafter, on 20th Jan., 1995, Collector, Pune, made an order under s. 126(4) of Maharashtra Regional & Town Pl....
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....ner of the firm Shri N.M. Gidwani has sold 20 per cent of his share in the property during the year. As the consideration is not known to the firm it is not included in above computation." This return of income was processed under s. 143(1)(a) of the Act on 29th Dec., 1997, without any adjustment. Demand of Rs. 4,00,834 was raised on account of interest only after adjusting advance tax of Rs. 2,98,00,000. This demand was paid by the assessee on 20th Jan., 1998. However, an attachment order under s. 281B was passed on 16th Jan., 1998. Subsequently, a revised return of income was filed on 11th Feb., 1998. In this revised return capital gain arising out of consideration receded by Mr. N.M. Gidwani was incorporated. It was stated that the long-term capital gain of Rs. 18,41,97,000 arose on the consideration of Rs. 21 crores received by Gidwani group. But the entire capital gain was offset by deduction available on account of investments made under s. 54EB of the Act and, therefore, the total income of the assessee-firm remained unchanged at Rs. 14,89,92,770 as per the original return of income. This revised return of income was processed by the learned AO under s. 143(1B) on 20th Fe....
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.... of the assessee that income arising on transfer of development rights in the plot of land in question to M/s Amar Avinash Associates was chargeable to tax under the head "Capital gains". The learned AO, on the other hand, rejected the assessee's claim of deduction under ss. 54EA and 54EB amounting to Rs. 18,41,97,000. The AO also did not accept the contention of the assessee that for the purpose of working out capital gains chargeable to tax the indexed cost of acquisition as per market value on 1st April, 1981, should be determined at a sum of Rs. 12,90,15,000. According to him such indexed cost of acquisition correctly worked out to Rs. 68,62,500 only. Furthermore, the AO did not accept the assessee's contention of expenditure incurred in the form of compensation paid claimed at Rs. 2,77,95,225 and allowed deduction in this respect to the extent of Rs. 48 lakhs only. In this manner the learned AO worked out capital gains chargeable to tax at Rs. 47,82,39,890 from out of total sale consideration of Rs. 49 crore. 7. In view of the provisions of Chapter XX-C of the Act, Form 371 being statement under s. 269UC of the Act was filed by Choitirmal group on 23rd Sept., 1995, declarin....
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....unicipal Transport bus depot. 3. There were differences in the partners which had stopped commercial activity of the firm. The partners could not carry out the objective of the firm because of the following: (i) The property was acquired by Urban Land Ceiling authorities on 5th July, 1976. The order of Urban Land Ceiling authorities states that 'After examining the record of the file, the proposed public purpose for which the land is required and after examining the exemption application of M/s Shanti Builders under s. 20(1)(a) of the Urban Land (Ceiling and Regulation) Act, 1976, for construction of houses for weaker section of the society, I am satisfied that the said land is required for the public purpose of Chapter-III and Chapter-IV of the Urban Land (Ceiling and Regulation) Act, 1976, I, therefore, do not permit M/s Shanti Builders to continue to hold such land for the purpose of construction of houses for weaker sections of the society'. The order itself had compelled the partners to change the objective of the firm. (ii) In addition to above the differences in the partners increased from 1976 had also compelled them to change the basic objective of developing Peti....
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....r if any special exertions are made to find or attract purchasers, such as the opening of an office or large scale advertising, there is some evidence of dealing. For, when there is an organized effort to obtain profit, there is a source of taxable income. But if nothing at all is done, the suggestion tends the other way. 5. The circumstances that were responsible for the realization. There may be some explanation, such as sudden emergency of opportunity calling for ready money, the negatives the idea that any plan of dealing prompted the original purchases. Motive-There are cases in which the purpose of the transaction of purchase and sale is clearly discernible. Motive is never irrelevant in any of these cases. What is desirable is that it should be realized clearly that it can be inferred from surrounding circumstances, in the absence of direct evidence of the seller's intentions, and even if necessary, in the face of his own evidence. The Supreme Court in the cases of G. Venkataswami Naidu & Co. vs. CIT (1959) 35 ITR 594 (SC) and Jankiram Bahaduram vs. CIT (1965) 57 ITR 21 (SC) had also laid down similar tests for determining the nature of transaction. The Court furthe....
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....od of time. From the above it can be seen that the transaction carried out by Shanti Builders fulfils all the above tests and hence the income is not adventure in the nature of trade. The mere circumstance that the purchase of property had been made with borrowed capital could not lead to the conclusion regarding intention of the purchaser. M.C. Cherian vs. CIT (1964) 51 ITR 631 (Mad). I have considered assessee's argument. I have also gone through the communication amongst the partners as submitted by the assessee. On going through the correspondences, it is very clear that though initial objective was to develop the plot with a business motive, subsequently, and more precisely vide letter from Chhotirmal to Narain M. Gidwani, it is very clear that they have decided that no commercial activity will be carried out and it can be definitely said that it becomes an investment as against stock-in-trade after the property was acquired under ULC and disputes arose amongst the partners. The relevant extract of the communication of the above referred letter dt. 15th April, 1979, is reproduced as under: 'The property has been acquired under the Urban Land Ceiling Act, 1976, cann....
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....d and respective certificates from appropriate authority were obtained. If the income out of these agreements is considered to be taxable in the hands of the firm the corresponding investments by the partners for benefit under ss. 54EA & 54EB are also to be given effect to, even though separately made by one of the partners. (d) The other two groups of partners have filed revised return of income in February, 1998, claiming deductions for the investments of Rs. 18,41,97,000. On denial of deductions for the investments so made they have also filed applications under s. 154. Under these circumstances it cannot be said that there is no authorization for these investments by other partners. (e) On consideration of above facts the investments made under ss. 54EA and 54EB should be allowed as deduction in the hands of the firm. (f) Once the investments are considered in the hands of the firm the question of income out of these investments becomes relevant. This has to be considered in the light of following facts: (i) All the investments are made after 31st March, 1997, and, as such, the question of income on these investments is not relevant for asst. yr. 1997-98 and for the....
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....entire property has been held as belonging to the firm by the AO. AO has accordingly brought to tax the capital gain in the hands of the firm. This position has now become final. Naturally, the consequences of this action of AO should follow. Accordingly, the investments made by Shri N.M. Gidwani have to be considered as investments of the firm/investments made on behalf of the firm. Ultimately, all partners in three groups offered total sales proceeds for taxation in the hands of firm. Considering submissions of the assessee, the AO is directed to hold the investment made by Shri N.M. Gidwani, partner, as investments of the firm and allow deduction under ss. 54EA and 54EB of the IT Act, 1961, accordingly. As regards taxability of income arising out of the investment, the AO is directed to tax it in the year of receipt in the hands of the firm." 10. As pointed out earlier, the assessee had filed two applications under s. 264 on 17th Jan., 2000 and 7th Feb., 2000, respectively. The assessee's application filed on 7th Feb., 2000, was decided by the learned CIT as per his order dt. 28th March, 2000, as detailed in foregoing paragraph. The assessee's petition dt. 17th Jan., 20....
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....5 of Partnership Act as well as the following judgments: (a) Addanki Narayanappa vs. Bhaskara Krishnappa AIR 1906 SC 1300 (b) CIT vs. Ambar Corpn. (1974) 95 ITR 178 (Raj) and CIT vs. Dewas Cine Corporation (1968) 68 ITR 240 (SC) (c) Ajudhya Prasad Ram Prasad vs. Shamsundar AIR 1947 Cal 13 and Mohd. Abdul Sattar vs. State of Andhra AIR 1958 AP 558 Clauses 3, 8, 9, 10, 11, 12 and 13 of the partnership deed as well as ss. 7, 39, 40, 43, 44 and 46 of Partnership Act established that the act of the partners in case of the assessee-firm in selling the partnership assets in group of 40 per cent, 40 per cent and 20 per cent was an act prohibited by the Partnership Act itself. Even if sold separately, the fund would belong to the firm. The partners could not have sold it on their own as the property was not their personal property since they had not dissolved the partnership as provided in the law. In the case of the assessee-firm there was no dissolution of partnership nor had the accounts been settled in view of any dissolution of the partnership. Since the original asset purchased by the firm was trading asset for the purpose of business it retained the character of a trading....
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....act that in the initial years the assessee had paid only sum of Rs. 9,54,486 as against the entire cost of the plot at Rs. 18,50,260. According to him the assessee was asked to produce the bank account of the firm but the assessee only produced a letter from Dena Bank, Colaba Causeway, Bombay, dt. 8th Feb., 1977, informing M/s Shantinagar Builders that the bank had received the letter from Shri N.M. Gidwani instructing to revoke the instructions about operating the account and that the partners could not be allowed to operate the account unless and until fresh instructions were received signed by all the partners. According to the learned CIT this letter pertained to M/s Shantinagar Builders and not the assessee-firm. The assessee had purposely not produced the details of the bank accounts although specifically asked for during the proceedings under s. 263. Enquiry should have been conducted by the AO as to the operation of the bank account and its relevance to the income earned by the firm. 14. The learned CIT did not accept the arguments of the assessee that while issuing certificates under s. 230A and attachments of the property under s. 281B, and subsequent withdrawal of att....
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....nd not business income. For this reason the learned CIT also found the judgments Chunnilal Onkarmal (P) Ltd. vs. CIT (1996) 135 CTR (MP) 1 : (1997) 224 ITR 233 (MP) and CIT vs. Vippy Solvex Products (P) Ltd. (1997) 228 ITR 587 (MP), relied upon by the assessee to be distinguishable. For similar reason the learned CIT also did not see force in the contention of the assessee that the assessee having been permitted to withdraw its appeal, the assessment order could not be a subject to s. 263 as the issue had been considered by the CIT(A). The issues before CIT(A) were also limited only to the benefit of s. 54EA/EB. Hence, there was no question of merger as far as the issue in the proceedings under s. 263 was concerned. 16. The learned CIT did not see any force in the contention of the assessee that the AO had applied his mind while finalizing assessment order under s. 143(3) on 5th April, 1999. The basis on which the assessee had contented that income was chargeable to tax under the head "Capital gain" and not under the head "Profits and gains of business or profession" was not justified. In view of the position of the facts mentioned in the partnership deed and the sequence of eve....
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....of flats and conducting allied activities of dealing in real estate business. The same land sold in 1996 was only the nature of trading asset and the gains arising there-from were nothing but 'Profits and gains from business or profession'. 17. According to the learned CIT the AO while completing the assessment under s. 143(3) had not considered the following facts: "(i) The nature of the land being sold is basically a trading asset. (ii) The character of the land being that of a trading asset right upto the end. (iii) The intention of the firm in holding the asset is to earn profits. (iv) The risk taken by the assessee-firm throughout this period shows the inherent nature of a business activity. (v) The eagerness with which the partners faced the litigations and the constraints brought about by the ULC Act and the PMT shows their intention to maximise their returns by holding on to the property inspite of ULC restrictions. They could dispose off land except the surplus land under the ULC Act and this Act did not prevent them from conducting business. They could have utilised the full FSI. (vi) The lack of intention to dissolve the firm as per statutory provisi....
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....Revenue, following the Supreme Court's decision in case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC). (iii) That there was prima facie material on record to show that tax which was lawfully exigible had not been imposed or that by application of relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed as held in the case of CIT vs. Gabriel India Ltd. (1993) 114 CTR (Bom) 81 : (1993) 203 ITR 108 (Bom). (iv) That the above analysis now making the facts clear and evident, there is no question of any direction to the AO being vague as pointed out to be essential in the case of Garden Silk Mill vs. CIT (1996) 135 CTR (Guj) 399 : (1996) 221 ITR 861 (Guj). (v) That the power under s. 263 being of a very wide amplitude and if a prima facie opinion is formed that the order is erroneous and prejudicial to the interest of Revenue, then a valid action under s. 263 can be ordered as held in the case of CIT vs. Seshasayee Paper & Boards (2000) 242 ITR 490 (Mad). (vi) That the error in taxing the sale proceeds of the land held as business asset as income from capital gains instead of taxin....
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....after 1996 on the land shows that the provision of the ULC Act did not prohibit the assessee from carrying out construction activity or even sell the land which is within the limits prescribed under the ULC Act subject to the satisfaction of the provisions of the Act. (v) Even the sale of the land if it is done by the partner, such a transaction will only be on behalf of the firm. None of the partners could claim any specific share of the asset as his own. The asset belongs to the firm and held by it as a business asset only. In addition, reference may be made to paras 13 to 21 of this order. The AO has overlooked the above facts and as well as the law of theland and passed the assistant order which is prejudicial and erroneous in the interest of Revenue inasmuch as the AO failed to consider the facts, circumstances and the legal position, and as such the assistant order passed by the AO under s. 143(3) dt. 5th April, 1999, is hereby set aside with directions to the AO to consider all the facts mentioned in the above order and other material which may come to his notice during the course of investigation and to pass a fresh assessment order bringing to tax, the total sale pro....
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....n order under s. 143(1B) was made on 20th Feb., 1998. In this order the exemption claimed by the assessee under ss. 54EA and 54EB amounting to Rs. 18,41,97,000 was disallowed and huge demand of Rs. 5,23,11,629 was raised. For the purpose of recovery of this demand, a notice under s. 226(3) was issued to UTI on 24th Feb., 1998, and the investment bonds made by Gidwani group were attached. Another proposal under s. 281B was made by the AO in this context and approved by the CIT on 31st March, 1998. Simultaneously, the provisional attachment made by the AO of land earlier vide order dt. 11th Feb., 1998, was lifted and that too had been approved by the CIT by his letter dt. 31st March, 1998. Thereafter, the AO also made a proposal for continuation of attachment under s. 281B on 29th Sept., 1998, as the provisional attachment earlier made was valid only for 6 months. After completion of assessment under s. 143(3) on 5th April, 1999, the AO addressed a letter to the then CIT, Pune, on 13th April, 1999. The learned counsel, referred to the complete copy of this letter at pp. 16 to 18 of the paper book, Vol. 111. In this letter, the AO recounted the history of the earlier attachment orders....
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....on the decision of Tribunal, Mumbai Bench 'A', in the case of Savani Transport Ltd. vs. Dy. CIT (1997) 60 ITD 513 (Mumbai); of Pune Bench in the case of J.R. Agrawal vs. Dy. CIT (2000) 67 TTJ (Pune) 72 : (2000) 75 ITD 270 (Pune); of Bombay Bench in the case of Trustees of Parsee Panchayat Funds & Properties vs. Director of IT (Exemption) (1996) 55 TTJ (Bom) 605 : (1996) 57 ITD 328 (Bom) and the judgment ofHon'ble Calcutta High Court in the case of CIT vs. Hastings Properties (2001) 171 CTR (Cal) 626 : (2002) 253 ITR 124 (Cal). 21. The learned counsel then argued that once the CIT had made an order under s. 264 in respect of an assessment order under s. 143(3), it was no longer open to the CIT to invoke his jurisdiction under s. 263 of the Act. He argued that such position is inbuilt in the language of s. 264 itself. The provisions of s. 264(1) clearly mandate that they do not apply to an order to which s. 263 applies. In other words the CIT excludes the application of provisions of s. 263 when he decides to make an order under s. 264. In the instant case the learned CIT passed an order under s. 264 on 28th March, 2000. By virtue of that order the learned CIT-I, Pune, ruled out t....
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....ril, 2000. Such an order was not susceptible to revision under s. 263 at all. In support of this contention the learned counsel for the assessee placed reliance on the following judgments: (a) Chunnilal Onkarmal (P) Ltd. vs. CIT (b) CIT vs. Vippy Solvex Products (P). Ltd. (c) CIT vs. K.L. Rajput (1987) 59 CTR (MP)(FB) 65 : (1987) 164 ITR 197 (MP)(FB) (d) Collector of Customs vs. East India Commercial Co. AIR 1963 SC 1124 (e) Bhagwandas Kevaldas vs. N.D. Mehrotra (1959) 36 ITR 538 (Bom) (f) Gopal Chandra Sen vs. ITO (1963) 50 ITR 87 (Cal) (g) Kunhayammed & Ors. vs. State of Kerala & Anr. (2000) 162 CTR (SC) 97 : (2000) 245 ITR 360 (SC) (h) Ambabai & Ors. vs. Gopal AIR 2001 SC 2003 (i) Festo Elgi (P) Ltd. vs. CIT (2000) 158 CTR (Mad) 134 : (2000) 246 ITR 705 (Mad) Elaborating still further on the doctrine of merger, the learned counsel for the assessee argued that the order merges as a whole and wherever intended otherwise legislature had provided for it. He placed reliance on the Supreme Court judgment in the case of Hindustan Aeronautical Ltd. vs. CIT (2000) 160 CTR (SC) 524 : (2000) 243 ITR 808 (SC) in this respect. The theory of merger applied even w....
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....(1996) 56 ITD 330 (Pune) (x) Jhulelal Land Development Corpn. vs. Dy. CIT (l996) 56 ITD 345 (Bom) (xi) S.R. Venkatraraman vs. Union of India AIR 1979 SC 49 (xii) Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) (xiii) 56 ITD 173 (Mumbai) (sic) 23. The learned counsel for the assessee argued that the impugned order under s. 263 made by the CIT was bad in law for want of jurisdiction to invoke the provisions of s. 263 of the Act and, therefore, liable to be quashed. Without prejudice to this contention the learned counsel further argued that the impugned order was liable to be quashed also for the reason that the assessment order under s. 143(3) made by the AO on 5th April, 1999, was, on merits fully justified. From the facts of the case it was patent that the only intention of the assessee-firm in relation to the immovable property purchased by it was to develop the same by way of construction of multi-storey buildings on the plot of land and to resale the flats thus constructed in the multi-storey buildings. However, immediately after the purchase of the property there were number of developments which thwarted the assessee from carr....
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....200 to 228 of Vol. I of the paper book filed by the assessee. These documents related to period from 9th Dec., 1976 to 12th Aug., 1989, and showed that considerable amount of bickering between Shri N.M. Gidwani on the one hand, and other partners, on the other hand, had started soon after filing of statement under s. 6 of the Urban Land (Ceiling & Regulation) Act, 1976. By the letter dt. 9th Dec. 1976, Shri N. M. Gidwani was asked to represent his case before competent authority to the extent of his 20 per cent share only and not to represent other partners in the case. This stand was reiterated in another letter dt. 11th Feb., 1977, addressed to Shri N.M. Gidwani. There was also considerable exchange of correspondence between the advocates on the two sides. Shri N.M. Gidwani filed during April, 1979, a suit against the other partners in the Court of the Civil Judge, Senior Division, Pune being regular Civil Suit No. 653 of 1979. Thereafter, a letter was addressed to Shri N.M. Gidwani by other partners on 15th April, 1979, which, inter alia contained the following paragraph: "The property has been acquired under the Urban Land Ceiling and Act 1976, cannot be developed now and lo....
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....t was assumed that the land acquired some business attributes initially, the business purpose got completely aborted and sterilized due to the course of events. The assessee could never commence business in real estate as was intended initially and finally what happened was merely a case of realization of the asset by way of a single transaction of transfer. 27. The learned counsel for the assessee argued that the impugned order under s. 263 made by the CIT was full of inaccuracies, factual errors and wrong assumption of facts as a consequence of which the inferences drawn and ultimate finding arrived at by the learned CIT were completely vitiated and erroneous. The learned counsel for the assessee argued that the learned CIT arrived at an incorrect understanding of the partnership deed itself. In the impugned order he had at several places relied upon the fact that the assessee was a dealer in land which was completely devoid of any ground reality. While in the preamble of the partnership deed dt. 1st Feb., 1973, "dealers in land" was also mentioned among several things, relevant cl. 6 of the partnership deed, in this respect was quite clear. This cl. 6 is as under: "The bus....
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....received by the assessee-firm on demolition. Thus, there was no business expenditure incurred by the assessee-firm. Certain amount was shown in the balance sheet as received from purchasers. The same in fact was in the nature of loan and was subsequently refunded. Thus, no expenditure had been incurred towards construction on the plot. The CIT thus committed gross error of fact in treating the land in question as a trading asset. Fourthly, the learned CIT committed further error in holding that only 5009 sq. mtrs. of land was surplus without affecting the FSI and, therefore, the assessee could have done the construction activity even during the earlier period and sold the flats or even the land. The fact was that in view of the orders passed by various authorities, the entire land was surplus till the fresh order was made on 18th April, 1996. The entire land had been declared surplus by the order of the competent authority in writing as early as on 28th March, 1978. The assessee's appeal to Collector and appellate authority was also dismissed or 20th Jan., 1979. The application made by the assessee under s. 20 of ULCA and declaration under s. 21(1) of ULCA had also been rejected....
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....siness asset only. In the instance of a transaction, the onus to prove that the transaction was an adventure in the nature of trade would be on Revenue not on assessee. The mere circumstance that the assessee's explanation that the transaction was an investment not being acceptable would not be sufficient to discharge the burden of the Department. For this the learned counsel placed reliance on the judgment of Hon'ble High Court in the case of Tribuvandas Vallabhadas vs. CIT. He also placed reliance on the judgment reported in Saroj Kumar Mazumdar vs. CIT and Dalmia Cement Ltd. vs. CIT. 31. The learned counsel further argued that it was not true state of affairs that an asset acquired as a business asset shall always be construed to be a business asset only. In the event of sterilization of stock-in-trade subsequent receipts would amount to capital receipts. In support of this contention the learned counsel for the assessee placed reliance on Supreme Court judgment in the case of Universal Radiators vs. CIT (1993) 112 CTR (SC) 61 : (1993) 201 ITR 800 (SC) and CIT vs. Canara Bank Ltd. (1967) 63 ITR 328 (SC). Further, the learned counsel argued that it is the nature of the asset a....
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....his treatment given by the assessee had indicated that the land in question was to be used as trading asset. 34. The learned Departmental Representative argued that the facts of the case speak for themselves. The assessee purchased the land in question in 1973 approx. measuring 33,000 sq. mtr. by making an investment of 10 lakhs. This gave the average cost of Rs. 15,000 per sq. mtr. only. When the land was finally sold it fetched the price of about Rs. 37 per sq. mtr. There was price appreciation of about 500 times in 24 years. By no stretch of imagination such astronomical rise in value could have taken place on account of passage of time. Such astronomical price appreciation could happen only if there was a major improvement of title in the intervening period. The assessee purchased the property for a song only because there were considerable hurdles in the development of the property. It was purchased with the intention of removal of the hurdles and that was precisely what happened over the course of years. In these circumstances it could not be said that the assessee was prevented by unforeseen developments. It was an admitted fact that the plot was encumbered by tenants and....
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....to the learned Departmental Representative there was no force in the contention of the assessee that after having passed an order under s. 264 the CIT was precluded from passing an order under s. 263. He compared the language of the provisions of s. 264 with that of s. 263 and argued that while there was a bar in the provisions of s. 264, there was no such bar in the provisions of s. 263. In the circumstances, there could be a question about the validity of s. 264 order but the order passed under s. 264 could not have any bearing on the powers of the CIT under s. 263. It was because in the provisions of s. 263 there was absolutely no restriction. According to the contentions of the assessee the CIT was required to satisfy himself before passing an order under s. 264 that the provisions of s. 263 did not apply. Thus, the CIT should become an investigator every time an application under s. 264 was made. That was not the function of CIT while deciding upon the petitions under s. 264 made by the assessee. While deciding the assessee's application, CIT was concerned with the issue as to whether investments made by one of the partners in-his own name could be considered to be made by the....
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....e property was purchased for the purpose of business. The firm was constituted to deal with this land. Facts of the case were, therefore, very clear. However, once the AO started on wrong assumption of facts he proceeded to make an erroneous order. The wrong assumption on the part of the AO was that the property was in the nature of an investment, or the trading asset which subsequently became a mere investment. In the case of a firm the dominant intention had to be business. This aspect was overlooked by the AO. He also overlooked that in the initial assessment years the assessee had collected deposits from purchasers. The property as purchased was full of difficulties. It took long time to remove the encumbrances. How could the time taken make the trading asset a capital investment? It was the case of a firm doing business. The AO, therefore, embarked upon an enquiry which was not called for. The learned Departmental Representative placed reliance on the judgment reported in CIT vs. McMillan & Co. (1958) 33 ITR 182 (SC) in support of this argument. 40. The learned Departmental Representative further argued that there was no force in the case of the assessee that over the cours....
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....to say that the assessee-firm removed all the obstacles. Reservation of Pune Municipal Transport and notification issued by Collector, Pune, under s. 126(4) of Maharashtra Regional & Town Planning Act, 1966, acquiring substantial part of the property had continued even on the date of agreements to sale of land in question by various partners of the firm. Thus, fact of the matter was that all the hindrances and encumbrances came subsequently and the same could not be completely removed even as on the date of sale. 44. The learned counsel for the assessee argued that it was fundamental mistake to consider that land in question was a trading asset of the firm. It was only intended to be used for the purpose of business but the business could not even be started. All along the holding of the property by the firm was nothing but a passive holding as a capital asset on account of various acquisition proceedings and acquisition orders. The learned counsel for the assessee referred to development agreement dt. 8th April, 1996, at pp. 111 to 143 and pointed out that memorandum of understanding was signed with M/s Amar Avinash Associates on 1st June, 1995. Even no objection certificates u....
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....ned counsel for the assessee argued that nothing much turned upon some deposits received in the very initial years. These deposits were in fact loans because the assessee had not taken any further steps at all for developing the property. The assessee soon started refunding these loans and by August, 1976, all the advances had been refunded. 49. The learned counsel for the assessee also argued that it was not correct to say that escalation in the price of the property was entirely attributable to removal of hurdles. There could be any number of factors for increase in the price of property and the contentions of the learned Departmental Representative in this respect were merely guess work not supported by any objective data or analysis of surrounding facts. 50. We have carefully perused the impugned order under s. 263 and other material on record and considered the rival submissions. In our considered opinion the impugned order is not sustainable and liable to be quashed on several counts as elaborately discussed in the subsequent paragraphs. 51. In our view the learned CIT did not have jurisdiction to revise the assessment order in this case for each of the three reasons....
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....y/ /1999-2000 Office of the CIT-I Pune Dt. 19.4.1999 To: The Jt. CIT, Special Range-3 Pune Sub: Lifting of prohibitory attachment under s. 281B of the IT Act, 1961 Please refer to your letter No. Pn /JCSR-3/810/99-2000 dt. 13.4.99. 2. After discussion, I am directed to intimate as under: (a) The arrangements made for disputed demands under s. 143(1)(a) are satisfactory (b) The CIT agrees with the AO's findings in view of actions since, 1979 of no developments. (c) The proposal of lifting attachment is approved, as suggested in your letter. Sd/-. (R.MTADAS) ITO (Tech.) For CIT-1, Pune" 52. In the face of this evidence we are unable to accept the contentions of the learned CIT in the impugned order and his findings in this regard in para 43 of the impugned order. Respectfully following the judgment of Hon'ble Calcutta High Court in the case of CIT vs. Hastings Properties (2001) 171 CTR (Cal) 626 : (2002) 253 ITR 124 (Cal) and the decisions of the Tribunal relied upon by the assessee, mentioned at para 20 of this order, we hold that the assessment order was not open to revision under s. 26....
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....der s. 264 in March, 2000, was made thereafter. At any rate we find that in this order under s. 264 the learned CIT once again referred to the fact that the assessee-firm could not conduct any business of development of the property. This aspect has been discussed in para 3 of the order under s. 264 in the following words: "The above firm was formed for development of the property of 4, Sadhu Waswani Path, Pune. Due to disputes, no business was carried out. Ultimately, the land was subject to provisions of Urban Ceiling Act, 1976. Later on land was sold for 49 crores. The amount was received by 3 groups, separately by 3 separate sale deeds. The Gidwani group received 21 crores and balance of Rs. 28 crores were received by other two groups. Gidwani group did not agree for sale earlier. Later on, the purchaser gave higher price and occupied the entire land and as a result the sale of entire property was concluded". Obviously, the learned CIT satisfied himself first that the income arising to the assessee was not the business income. In the impugned order the learned CIT has interpreted the findings of his predecessor, "this position has now become final. Naturally, the conseque....
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....sor CIT, by exercise of his powers under s. 263, cannot interfere with the order of his predecessor irrespective of his reasons for doing so. "The successor who considered himself abler cannot on that score undo what his predecessor had done". 56. We also see considerable force in the contention of the assessee that the AO having considered all the facts and circumstances of the case in a judicial manner and having arrived at his conclusion in the proper manner cannot be said to have made an erroneous order only because the CIT subsequently takes a different view of the matter. This position in law has been succinctly stated in the judgment of Hon'ble Mumbai High Court in the case of CIT vs. Gabriel India Ltd. at p. 115 in the following manner: "It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the CIT the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the CIT with....
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.... 15th April, 1979, and (c) no activity whatsoever had been carried out to develop the plot in question. On consideration of this office note we do not find that the learned AO acted on inadequate or insufficient grounds or that the view taken by him is such that he was not supposed to take or no reasonable person could have taken. In these circumstances, we find that the learned CIT has in the impugned order termed the order passed by the AO as erroneous simply because he did not feel satisfied with the conclusions as drawn by the AO. 58. In short we hold that the learned CIT did not have jurisdiction under s. 263 to revise the assessment order in question for the following reasons: (i) The assessment order was made by the AO under close supervision of the then CIT. (ii) The assessment order made by the AO had already merged in respect of the very same issues, in the order of earlier CIT under s. 264. (iii) The assessment order as made by the AO cannot, in the eyes of law, be held erroneous. 59. Thus, we hold that in the instant case the learned CIT did not have jurisdiction to invoke the provisions of s. 263 of the Act. However, during the course of hearing before u....
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....not affect this elementary position. The judgment of Hon'ble Supreme Court in the case of A.L.A. Firm vs. CIT is related to the assets that were admittedly stock-in-trade of that firm. There is no authority and it is humbly submitted there could not be an authority for the proposition that every asset acquired by a firm has to be stock-in-trade by virtue of having been acquired by a firm. The same is the position in respect of the judgment of Hon'ble Supreme Court in the case of Lakshminarayan Ram Gopal & Sons (P) Ltd. vs. The Government of Hyderabad on which so much reliance was placed by the learned Departmental Representative during the course of his arguments. In that judgment legal principle laid down is only that when a partnership firm comes into existence, unlike a company, it an be predicated of it that it carries on a business. That judgment does not deal with the nature of the business assets. 60. In the impugned order under s. 263 the learned CIT has objected to what he considered to be the illegality exhibited by the partners of the assessee-firm in disposing of what they called their respective shares in the property by way of separate agreements to sale with M/s A....
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....ns made by the assessee under s. 20 of ULCA in August, 1976, the assessee submitted that the land was purchased for "the specific purpose of construction of a housing colony for the middle-class families as also for housing a charitable hospital" and that the "partnership was formed only for the purpose of constructing ownership flats and disposing them off and for no other purpose". In our considered opinion, in the absence of any material to the contrary, the only just and fair conclusion would be that the land was acquired by the assessee for the purpose of carrying on business of construction of ownership flats thereon and to make profit on sale of such ownership flats. As a matter of fact this factual position the learned CIT also accept, as would be seen from his observations in para 85 of the impugned order. In this paragraph the learned CIT has, inter alia, observed as under: "The subject-matter of realization is in respect of vast area of land which the assessee had intended to use for the purpose of construction of flats, hospital and even a college. The assessee had not purchased the land for enjoyment or for personal use but with an intention to conduct business ther....
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....ul. On consideration of the matter we do not see much force in these contentions of Revenue. At the outset these are in the nature of conjectures and surmises on the part of Revenue. Secondly, there is a patent mistake in this argument inasmuch as the acquisition under Urban Land Ceiling Act could not have been in the contemplation of the assessee at the time of purchase of the property in 1973. According to the assessee it was not aware of PMT reservation which it came to know only subsequent to purchase and further the assessee had not anticipated acquisition proceedings from IT Department under the provisions of Chapter XX-A of IT Act, 1961. Thirdly, as the learned counsel for the assessee argued there was nothing to show that the enormous price was attributable to removal of these difficulties. For example, it could be owing to growth in the importance of location as well. Fourthly, the learned counsel's argument that even at the time of the assessee's agreements to sale both the constraints of ULCA acquisition and PMT reservation had not been solved is factually correct. Finally, it is a matter of record that serious differences and disputes among the partners arose as early a....