TaxTMI 
TaxTMI 
2015 (10) TMI 2173
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....ess Income made by AO in his assessment order, ignoring the fact that :- (a) The assessee has never ever treated the work in progress /cost of unsold flats as an investment item in the Balance Sheet except in the current assessment year. In all the project of the assessee, the assessee has always taken the work in progress / cost of unsold flats in the P&L A/c., as is the normal method of accounting of a Builder / Developer. (b) As per Balance Sheet with the I.T. return for AY. 2006-07, the assessee carried work-in-progress of Rs. 64,41,344/- with investment at Nil. (c) The construction of 8th floor of Span Centre which first made its appearance in the work in progress of AY. 2003-04 continued to be work- inprogress till AY. 2006-07. 2) "On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in allowing the expenditure incurred on cost of improvement of property of Rs. 5,00,000/- while computing Long Term Capital Gains which was disallowed by the AO, ignoring the fact that :- (a) The list of improvement cost contains Air 'Conditioners, Work Stations Office Table, Working Table, Conference Room with tubs, chairs and glass partitions....
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....lso shows the intention of the assessee for nine years that it held these assets with an objective for giving on rent which shows that the assessee has treated the same as an Investment. However, inadvertently it continued as Work in Progress(hereinafter called 'WIP') in the books of accounts of the assessee. The assessee also submitted that it is regularly paying maintenance charges and taxes in connection with these flat. The Assessing Officer after considering the reply of assessee, held that the contention of the assessee that investment in 7th floor is treated as Investment from financial year 1999-00, is factually incorrect. The Assessing Officer analyzed the P&L Accounts for last ten years starting from the year ending 31.03.1998 to the year ending 31.03.2007 and held that the assessee has always taken the unsold stock of 'Span Centre' as WIP as business trading stock and now the assessee is treating this WIP i.e. 7th floor of 'Span Centre' as Investment w.e.f. 01-04-2006 which is an afterthought for the purpose of avoiding tax liability, whereby an attempt is made to treat it as 'Long Term Capital Gain' instead of declaring the gain as 'Income from business'. The Assessi....
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....he commercial units in the building on the project completion basis in the return of income filed with the Revenue for assessment year 1998-99 as 'Income from Business'. The assessee stated that basement and ground floor were retained by the assessee with an intention to give them on long lease and to earn returns on investments. The assessee contended that the part of the basement was also used by the assessee for his own office. Assessee contended that since January 1998 onwards , it continued to let out the above property to various parties. The assessee contended that when the construction was still in progress and the assessee undertook further developments rights due to change in development regulation of the government and by acquiring such transferable development rights from the market, the assessee constructed further additional floors viz 5th to 7th floors on the building 'Span Centre'. The assessee contended that the rights for construction of 5th and 6th floor were sold by the assessee but it retained the 7th floor on building 'Span Centre'. Similarly, the assessee also retained the right of development of 8th floor. The assessee leased out 7th floor vide agreement dat....
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.... was to exploit the property or the same was temporarily let out till the same was sold. The assessee has already entered into various agreements for the sale of other flats of 'Span Centre' while in the case of 7th floor, it had entered into long term lease to hold the business premise for a long period of time as Investment and not as stock in trade which in this case , the flat at 7th Floor Span Centre is held for about nine years. The CIT(A) held that this premises on 7th floor should be treated as 'Investment' even though nomenclature is WIP because the assessee has given it on lease for a very long period and the intention was to hold the property. Hence the CIT(A) held that the income from sale of premises 7th floor of Span Centre should be treated as 'Long Term Capital Gain'. 4. Agrrieved, the Revenue is in appeal before us. 5. Before us, the Ld. DR contended that the assessee is in the business of Builder's and Property Development and the assessee has constructed this building 'Span Centre' with the objective of selling the same. He also submitted that the assessee has regularly showing this unsold stock with respect to the project 'Span Centre' as WIP . He also dre....
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....lso drew our attention to the Judgment of Hon'ble Delhi High Court in the case of CIT Vs. Splendor Construction [ITA No. 1977 of 2010] whereby the Hon'ble High Court of Delhi has held as under:- "9. In the facts and circumstances of the present case, we cannot agree with the approach adopted by the Tribunal. We are of the opinion that the Tribunal has side tracked the main issue. It was a case where the land in question was purchased in the financial year 1998-99. Thereafter, it was shown in the balance sheet as 'stock in trade'. However, during the financial year in question when the land was sold, the same have been converted by the assessee from 'stock in trade' to "investment". Obviously, this change in the books of accounts, just before the sale of the property, was made to avoid payment of full taxes by changing the complexion of the earnings made on the sale of the property. The Assessing Officer, however, still allowed the change but then was right in holding that the period of holding the asset was reckoned from the date when it was converted as 'investment' from 'stock in trade' and not from the date when the land was purchased. Therefore, the gain was to be treated as....
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....use property then on sale of such property it could only be taxed as Income from Capital Gains. The assessee relied upon the judgment of Hon'ble Calcutta High Court in CIT Vs. Estate of Omprakash Jhunjhunwala 253 ITR 153(Cal). He also placed reliance on the decision of Amritsar Bench of the Tribunal in the case of ACIT Vs. Janak Raj Chauhan [102 TTJ 316(Asr.)] and other judgments to support this contention.The assessee contended that principle of consistency is applicable to the income tax proceedings and hence the income from sale of this property can only be taxed under the head 'Income from Capital Gains'. The assessee relied upon the judgment of Hon'ble Supreme Court in Radhasaomi Satsang 193 ITR 321(SC) . The assessee stated that if there are two views possible, then the view favourable to the assessee should be adopted and the assessee relied upon the judgment of CIT v. Madho Pd. Jatia (1976) 105 ITR 179(SC). The assesssee submitted that the business man can hold both stock in trade and capital asset at the same time and there is no bar on such holding. The assessee also relied upon the order of CIT(A). 7. We have considered the rival submissions and carefully perused the ....
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....al assets is chargeable to tax under this head as per applicable provisions. 5. Income from other sources- Income earned by the assessee which cannot be brought to tax under the above four heads and which is as defined under this head is chargeable to tax under this head as per applicable provisions. The scheme of the act contemplates and postulate applicability of various provisions as contained in relevant sections of the 'heads of income' to compute the income of the assessee in the manner specified in the said sections as per the provisions contained thereat. The income is to be computed strictly as per scheme of the Act and provisions contained there-at by the assessee to bring to the tax , the correct income in the hands of the correct assessee for the correct assessment year at the correct rates of taxes, so that correct amount of tax is paid to the Revenue. In the instant case, the assessee is engaged in the business as Builders and Property Development. The assessee is offering to tax income from these projects under the head 'Income from Business'. The assessee is also reflecting unsold stock of flats as WIP being business trading assets. The computation of such inc....
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....rate particulars of income. 10. The issue was not debatable, as held by the Tribunal in the impugned order. No doubt, appeal was admitted. However, the Tribunal has glossed over a very important and fundamental fact. In quantum proceedings, appeal filed by the assessee i.e. ITA 662/2009 came up for admission on 16th September, 2009. On the same date, appeal was admitted, arguments heard and orders were dictated in the Court dismissing the appeal there and then. In this factual backdrop, when order of the Assessing Officer in quantum proceedings was sustained by all successive authorities and this Court also dismissed the appeal at the admission stage, albeit after admitting the same, it cannot be said that the issue was debatable. 11. We thus, answer both the questions of law in favour of the Revenue and against the assessee and as a consequence allow this appeal partially and set aside the order of the Tribunal and restore that of the Assessing officer limiting the penalty on the aforesaid ground." Our view is further fortified by the existence of Section 45(2) of the Act which reads as under: "Section 45 ^3[(2) Notwithstanding anything contained in sub-section (1),....
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....rly held that conversion of stock in trade to investment just before the sale of property with a view to avoid the payment of full taxes by changing complexion of earning made on the sale of property is not for the genuine reason and hence held that it cannot be treated as Long Term Capital Gain as assessee wanted to reduce tax liability which is not permitted . The case in hand is similar to that decided by the Hon'ble Delhi High Court in Splendor Construction(supra), which is discussed above and we also, Respectfully, hold that the same change as done by the assessee changing the character of the work in progress/unsold stock of flats to 'Investment' which is just before the sale of property was done by the assessee not for bona-fide purposes but to pay lower rate of taxes and avail the benefit of cost inflation index . We, therefore, upheld the order of Assessing Officer and reverse the order of CIT(A). hence, The gain from sale of 7th Floor, Span Centre was rightly brought to tax by assessing officer as 'Income from business' or alternatively, even if it is assumed that the assessee treatment of the said asset as investment is accepted for genuine purposes then also the same wa....
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.... premises have been sold by the assessee inclusive of the assets so acquired , as narrated above the cost has been embedded in the sales consideration and accordingly, on both counts, assessee deserves to succeed and Rs. 5,00,000/- was to be deducted from gross sale consideration of Rs. 3,14,60,000/- before working out the long term capital gains on sale of office premise. Accordingly, the CIT(A) allowed the appeal of assessee. 10. Aggrieved by the decision of CIT(A), the Revenue is in appeal before us. 11. The Ld. DR relied upon the order of assessing officer. 12. The assessee reiterated its submissions as advanced before authorities below and relied upon the orders of CIT(A). 13. We have considered the rival submissions and perused the relevant material on record. We have observed that assessee's tenant M/s Raft Software Pvt. Ltd. has installed various assets like Air Conditioners, Work Station, Office Tables, Working Tables, Meter Room, Electrical Fitting, Bathroom Toilet Fittings, Smoke Detectors, Pantry etc., at its own cost and while leaving/vacating the premise on 24.04.2006 , the assessee paid Rs. 5,00,000/- to said tenant Raft Software Pvt Ltd acquire all these....