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2016 (8) TMI 854
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....g the claim of Long Term Capital Loss of Rs. 13,10,06,344/- by selling the Shares of Rs. 7.90 cr to a related person at Rs. 79 lakhs by completely ignoring the fact that it was 'Colourable Transaction' to reduce the tax burden of Long Term Capital Gain, claimed in the same assessment year, as establish by the A.O. in the assessment order and held by the Hon'ble supreme Court in plethora of judicial pronouncements that 'Colourable transaction' cannot be allowed as Tax Planning? 3. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,26,06,025/- made on account of Bad Debt without appreciating the fact that the above amount was a loan which was never offered for tax in any earlier assessment year? 4. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. 5. That the grounds of appeal are without prejudice to each other." 3. Briefly stated, the facts of this case as emanating from the first appellate order are that the appellant company was engaged in the business of trading in shares. The return of income for the A.Y. 2009-10 was filed on 30.09.2009 declarin....
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....R further pointed out that the assessee tried to develop the property by entering into various agreements one after the other viz: i) agreement with legal heir Dr. Raghu Nath ii) Tata Housing in 1988, iii) Ansal Properties & Inds. Ltd [APIL] in 1995 iv) Verka Investments in 1995 and so on. Therefore, the intention of the assessee can be clearly inferred from its conduct. The ld. DR further drew our attention towards relevant operative part of the assessment order and submitted that during the search and seizure operation u/s 132 of the Act conducted at the office of the assessee company on 29.8.2000 and consequent assessment order passed u/s 158BC of the Income-tax Act, 1961 ['the Act' for short] on 27.09.2002, it was noted that the assessee was engaged in the business of real estate and wanted to develop the said property in a 'A' class ultra-modern centrally air conditioned building. The ld. DR further pointed out that the assessee invested in the property as a part of its business and not for the purpose of its investment in business. Therefore, the consideration which has accrued to the assessee against sale of 25% development righ....
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....ear 1987 and sale agreement was registered in favour of the assessee by the legal heirs of Dr. Raghunath on 30.1.1987. The ld. DR also drew our attention towards assessee's paper book page 244 and submitted that in the assessment order for A.Y 1988-89 passed u/s 143(3) of the Act, short term capital gain of Rs. 4,17,60,000/- was assessed. The ld. DR further submitted that during the appellate proceedings before the ld. CIT(A) against the said assessment order, the assessee in its written submissions filed before the first appellate authority, it was submitted that the AO has erred grossly in omitting to consider the fact that the assessee company had entered into construction contract on 25.6.1987 with THDCL for construction of multi storey blocks in the course of carrying on its real estate business and selling/leasing the build-up places in its share. The ld. DR vehemently pointed out that the assessee cannot take a different stand for the year under consideration for the same property without any logical cause or reasoning. The ld. DR also pointed out that the assessee is taking its stand on convenience and choice which are being changed time and again and it is not clear till d....
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....ounsel further pointed out that admittedly and undisputedly the property was sold in F.Y. 2008-09 relevant to A.Y 2009-10. The AO issued notice on 26.12.2011 u/s 142(1) of the Act alongwith notice u/s 143(3) of the Act seeking relevant information. 6.1 The ld. AR further took us through para 7.1 at page 20 of the first appellate order and vehemently contended that the assessment order does not suggest that at any stage of assessment the assessee was informed or required about this issue i.e. taxing the income on sale of property a business income as against long term capital gain as declared by the assessee. Therefore, the assessee was asked to submit relevant information during the assessment proceedings. The ld. AR further pointed out that additional evidence consisting of Board Resolution, etc passed by the assessee company which depicts the intention of the assessee to give treatment to the advance given against the said property and shifting of the registered office etc, could not be furnished before the AO due to the reason that the AO, at any stage of assessment proceedings did not inform his intention and did not issue any show cause notice enquiring about the issue of b....
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....ors. The ld. AR further pointed out that the main object of the assessee company, in entering into various agreements with collaborators, was only to ensure availability of a modernized office space for the assessee and because the various agreements with collaborators could not see the light of completion due to reasons beyond the control of the assessee. Therefore, the assessee company also paid penalty to developers as compensation in lieu of cancellation of agreement which again goes to show the bonafide intention of the assessee and supports this fact that the assessee, since the very beginning treated the said property as investment and shown the same as fixed assets in its books of account. The ld. Sr. counsel also pointed out that as per the proposition laid down by the Hon'ble High Court in the case of CIT Vs. Central News Agency [supra] as relied on by ld. CIT-DR, the third test, which is frequently applied as to how the assessee dealt with the subject matter of transaction during the time the asset was with the assessee. The ld. Counsel also pointed out that before any conclusion an enquiry is required as to whether the property had been treated as stock in trade or ....
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....rew our attention towards pages 355 to 364 of the assessee's paper book - II i.e. written submission dated 4.5.2012 and submitted that even the contentions of all the developers/collaborators agreement entered into by the assessee with various collaborators shows the intention of the assessee to develop a modernized well equipped and air conditioned office space for the assessee company which cannot be held adventure in the nature of trade. 6.8 Lastly, the ld. AR placed his reliance on the recent decision of the Hon'ble High Court of Delhi in the case of Shanti Banerjee [deceased] by the legal heirs Vs. DCIT passed on 17.11.2015 in ITA No. 299/2003 and submitted that as per paras 4 to 9 of this order, the present issue is covered in favour of the assessee by this decision as there was no material on record from which it could be said that the assessee ever had the intention to exploit the said property as commercial venture. 6.9 The ld. Senior Counsel parted with his argument with the final submission that merely because developers/collaborators agreement were entered into by the assessee with various parties does not show that the assessee had intention to exploit the sa....
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.... dated 4.6.1980, 20.8.1984 and 21.9.1986. But this analogy is not acceptable as there is no provision in the Act for treating the onego purchase of property and its sale at one parameter and for treating the property which was acquired by the assessee by vacating the same from the occupant tenants or trespassers etc and by settling other issues. The main point to be enquired and examined for determination of nature of income is that how the assessee treated the property in its books of accounts during the period when the property was with the assessee. 7.2 It is also relevant to consider the contention of the ld. DR that as per the nature of the business of the assessee company as noted by the AO in para III of assessment order it is clear that as per memorandum and articles of association inter alia clause (3) the main business object of the assessee is dealing in sale and purchase of property income arose therefrom has to be treated as business income. The ld. Sr. Counsel has pointed out that as per letter of the assessee submitted to the AO on 21.11.2011 the assessee was mainly dealing in the sale and purchases of shares and even if it is presumed, not accepted, that in the m....
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....6A of the Income-tax Rules, 1962 [for short, 'the Rules']. The said relevant paras shows that the ld. CIT(A) called for remand report from the AO regarding admissibility and merits of the proposed additional evidence and on receipt of remand report the assessee was also allowed to submit its rejoinder to the remand report. The ld. DR could not controvert these contentions of the para 6.7 of the impugned first appellate order wherein the ld. CIT(A) has noted that the AO has not objected to admission of additional evidence except by contending that the assessee has given sufficient time during assessment proceedings. At this juncture, it is relevant to consider the contention of the ld. Sr. Counsel that he AO did not show his intention to treat the long term capital gains as business income hence on this controversy that the assessee was not allowed to place his explanation supporting this stand by relevant documentary evidence and therefore these were not submitted during the assessment proceedings. The ld. Sr. Counsel further pointed out that thus the assessee was prevented by said sufficient reasons in furnishing relevant evidence during assessment proceedings. Therefore, the same....
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.... judicata does not apply to tax proceedings. He further contended that the said order of the ld. CIT(A) dated 9.5.2003 [supra] has been discussed by ITAT 'D' Bench order dated 10.10.2004 passed in IT(SS)A Nos. 321 & 322/Del/2013 hence this demolished conclusion of the AO cannot be taken as supportive of the finding of the AO in the present case. 8.3 From further consideration of the impugned order the ld. CIT(A) we note that on merits the first appellate authority granted relief to the assessee with the following findings and conclusion: "7.2 Examining the merits of the case, it is observed that the AO's main reason t treat the transactions of sale of the property i.e 27, Curzon Road, New Delhi appears to be impression the AO had that the appellant was trying to explore the possibility of having the property developed by various developers i.e. APIL TATA & VERKA. Such actions on the part of the appellant have been considered as business activities. The AO has referred also to clause 31 of the memorandum & articles of the company to draw such inferences. Reference has also been made to the report in form 3 CD of the Act to arrive at the conclusion by the AO that appellan....
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....d assets and since then have been continuously been shown as fixed assets. Regarding clause 31 in the memorandum & articles of association, it has been explained with the help of case laws that such a clause reflects an overall authority in which assessee can engage on its incorporation. The actual business carried on has to be decided on the actual available facts as per records. It is further explained by the appellant that subsequent act of the AO (during WT proceedings) of treating the property as capital asset and not stock in trade further and completely fortifies the claim of the appellant that this property was a capital assets as defined in section 2(14) of the Act and was not held as taxable as stock in trade held for more than 10 years under the W.T Act. It has been submitted that there cannot be two treatments to the same item, one under the Income Tax Act and second under the W.T. Act. It is observed that through out the assessment order although the AO had been building up a case of treating the gain as business income, at no stage during the assessment proceeding, the AO appeared to have raised a Specific query about his intention to treat the amount as business inco....
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....ement with TATA goes against the findings of AO as on this agreement the AO held the asset as capital asset in A.Y. 1988-89 and prepared to treat income as Capital Gain. For the same asset, the treatment was capital gains in AY 88-89 and "business profit" during this year. Such differential treatment raises a debatable issue and interpretation should go in favour of the appellant. 7.6 The clause in memorandum & articles, referred by AO can be seen in view of the decision of Hon'ble SC in the case of CIT Vs P K N Co. Ltd (1966) 60 ITR 65 (SC). Wherein it is held that "The incidental sale of uneconomical or inconvenient plots of land could not convert what was essentially an investment into a business transaction in real estate. Existence of power in the memorandum of association to sell or turn into account, dispose of or deal with the properties and rights of all kinds had no decisive bearing on the question whether the profits arising there, from were capital accretion or revenue. The profits arising from the sale of the properties were not taxable income. The question whether in purchasing and selling' land the taxpayer enters upon a business activi....
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....the courts have applied to determine the character of transaction is the intention of the tax payer which cannot be gathered or interpreted for known but the same can be gathered from the surrounding circumstances. In our opinion also, the most important relevant factor is the treatment given by the assessee at the time of acquisition of property during the time when property was with the assessee and at the time of sale of property which can be gathered only on evaluation of financial statements, balance sheet and supporting documentary evidence. In the present case, neither the AO nor the ld. DR could demolish the contention of the ld. Sr. counsel that the assessee entered into an agreement to purchase the said property i.e. land with a semi construction building therein for a total consideration of Rs. 75 lakhs with an object to build building on the said property to be used as a registered /corporate office of the assessee. Accordingly, the assessee reflected the subject property as fixed asset in the books of account and continued to show the same as fixed asset in its annual accounts till it was sold till F.Y. 2008-09. The ld. Sr. Counsel strenuously pointed out that when the....
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....rtaken an 'adventure' in the nature of trade warranting the receipt to be treated as business income. 11. The issue, it appears, is no longer res integra. In G. Venkataswami Naidu and Co. v. CIT [1959] 35 ITR 594, the Supreme Court observed that while a single "plunge" in the waters of trade may be enough, a mere purchase of property "if that is all that is involved in the plunge may fall short of anything in the nature of trade". It was emphasised that what might be in the nature of trade would depend on the facts and circumstances of a particular case. 12.The expression 'adventure in the nature of trade' was again considered by the Supreme Court in Raja Bahadur Kamakhya Narain Singh v CIT [1970] 77 ITR 253. It was observed that if a transaction was in the ordinary line of the assessee's business, there would be no difficulty in concluding that it was a trading transaction. But where it was not, the facts had to be carefully assessed to determine if it was in the nature of trade. 13. On more or less similar facts, this Court held in favour of the Assessee in Commissioner of Income Tax v R.V. Gupta [2002]261 (Del). In that case the Ass....
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.... where the construction and sale of the flats do not change the character of the asset and there was no material to show that the assessee ever had the intention to exploit the plot as a commercial venture, the transaction cannot be characterised as an adventure in the nature of trade" leading to the resultant receipts as business income in her hand. The relevant operative paras 17 and 18 of this order is being reproduced below for the sake of completeness in our findings: "The Court finds that merely because the Assessee approached the builder for constructing the flats on the portion apart from the already constructed portion, would not make the transaction an 'adventure in the nature of trade.' All that the Assessee had received from the sale of the flats was a residential flat of the value of Rs. 5,32,855 and Rs. 4 lakhs in cash as a result of the agreement entered into with the builder. As explained by this Court in Shanti Banerjee (deceased) by LRs (supra), after considering the decision in G. Venkataswami Naidu & Co. v. CIT (1959) 35 ITR 594, Raja Bahadur Kamakhya Narain Singh v. CIT (1970) 77 ITR 253 and CIT v. R.V. Gupta (2002) 258 ITR 261, where the const....
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....pers and the assessee was under compelling situation to agree with these agreements as confirming party to save and protect its rights in the said property but this also do not tag the transaction as 'adventure in the nature of trade'. The ld. DR could not assist us as to why the AO gave different treatment in the wealth tax proceedings treating the same as capital asset except by stating that the principle of res judicata does not apply to the tax proceedings and we also agree to this settled and well accepted proposition. But there is rule of consistency which says that the revenue authorities are not allowed to take a different view point on the similar facts and circumstances of the case unless there are reasonable causes substantiated by radical, material and important notable change in the facts and circumstances of the case or there is some change or amendment in the provisions of the Act which could really empower and enable the revenue authorities to take a different view from the earlier view but he AO has not brought out any such material or cause to establish the changed stand wherein he treated the same property as stock in trade to tax the income accrued therefrom as ....
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....ng the relevant A.Y [or during some any other earlier financial period] it has to be held that same fact continue to A.Y 2009-10. It is relevant to note that the AO has not raised any objection and has not disputed the sale price and cost [including indexation] and only dispute for our consideration was with regard to head of income under which it is taxable. On the basis of foregoing discussion, we are inclined to hold that in the totality of the facts and circumstances of the case as noted and observed above, the treatment given by the assessee to the property from its acquisition to sale i.e. during the period when the property was within the assessee it is amply clear that the assessee shown the said property as investment in capital asset and the AO could not establish that it was ever held as stock in trade or one point of time during the period of acquisition it was converted from capital asset to stock in trade. In this situation, we decline to accept and approve the conclusion of the AO to treat the income from sale of said property as business income. 10. Per contra, we are of the considered opinion that the finding and conclusion of the ld. CIT(A) in the impugned firs....
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.... the AO contended that considering the fact that no delivery of shares sold was given during the year and shares were never transferred in the name of the buyer Shri Lalit Jain and the fact that the shares was repurchased by the assessee company in the next financial year the AO was quite justified and correct in dismissing the claim of LTCL of the assessee. 11.1. The ld. DR also drew our attention to the relevant paras 8.10 to 8.12 of the impugned first appellate order and submitted that the ld. CIT(A) granted relief to the assessee without any reasonable cause and thus the same is not sustainable and thus the same may be dismissed by restoring that of the AO. 12. Per contra, the ld. Senior counsel for the assessee contended that from the assessee's paper book page 439 it is apparent that the shares were transferred in the name of Shri Lalit Jain during the F.Y. 2008-09 on 29.03.2010. The ld. Sr. counsel also took us through relevant paras 8.10 to 8.12 of the impugned first appellate order and contended that the conclusion of the ld. CIT(A) are based on proper appreciation of facts and relevant circumstances which is quite justified and sustainable. The ld. AR also pointed o....
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....cheques totalling Rs. 79 lakhs and advancing of loans and repayment of different and detached transaction with the aforesaid impugned transaction of sale of shares. On the allegation of the AO regarding repurchase or buy back of these shares, the ld. Sr. Counsel strongly supporting the first appellate order submitted that the assessee submitted copies of accounts, balance sheets to substantiate that till date of hearing of the appeal the shares were not repurchased buy the assessee from Shri Lalit Jain then how the genuine and real transaction can be alleged as sham transaction or colourable device to reduce tax liability. 12.6 Lastly, the ld. Sr counsel pointed out that the AO never enquired about the status in the register/roll of shareholders maintained by the allotter PFL and KFL and the name of the registered share holder of the said shares after redemption from the said allotter companies and in this situation baseless conclusion of the AO was rightly demolished by the ld. CIT(A) on the basis of logical observation and findings as noted in para 8.7 to 8.11 of the impugned first appellate order. 13. On careful consideration of the above noted rival submissions of both th....
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....00-01 and 200102 and the same was rightly rejected by the ld. CIT(A) and we concur with his conclusion. 13.2 The ld. CIT(A) also considered the allegation of the AO regarding that the shares were not transferred in the name of Shri Lalit Jain. The ld. CIT(A) further considered the details and copies of share certificates which were duly endorsed and transferred in favour of the buyer which establish the factum of the transfer of the said shares in the name of the buyer Shri Lalit Jain. Even in the retracted statement of Shri Lalit Jain recorded on 26.12.2011 deponent admitted that he obtained physical delivery of shares which again the support the conclusion of the ld. CIT(A) that the allegation of the AO regarding the non transfer of shares in the name of the buyer is not supported by a strong evidence against the assessee. We are also in agreement with the conclusion of the ld. CIT(A) that the shares were sold on 24.3.2008 and Board of Directors passed resolution on 15.3.2008 approving the sale of shares as the action taken by the company can be ratified by the company subsequently and thus in our opinion no adverse inference can be drawn against the assessee on this fact and ....
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....ically received by the buyer immediately after such sale and that reason to make investments including distinctive number of shares had been admitted by the buyer Shri Lalit Jain in his statement. On the basis of foregoing discussion, we are of the considered view that the assessee could very well substantiate the fats indicating the genuineness of the transaction by submitting all relevant facts and documents showing that the assessee actually sold these shares against consideration of Rs. 79 lakhs and the same was paid by the buyer through two account payee cheques and shares were physically handed over to the buyer and the same were transferred in the name of the buyer on 29.3.2011. 13.7 Per contra, the AO failed to demonstrate and establish that the assessee had given financial support in the form of interest free loans to Shri Lalit Jain for the purchase of shares to the effect the paper or sham transaction with an intention to reduce tax liability. Furthermore, the allegation of the AO, that the assessee repurchased these shares in the next financial period, has no legs to stand in the absence of any further enquiry from the allotter companies viz PFL and KFL regarding sta....
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....man Construction Corporation Ltd for a sum of Rs. 75 lakhs thus suffering a loss of Rs. 2.26 crores which the assessee had rightly claimed as deduction u/s 36(1)(vii) of the Act. The ld. Sr. Counsel pointed out that w.e.f 1.4.1989, in order to obtain a deduction in relation to bad debts it is not necessary for the assessee to establish that the debts, in fact, has become irrecoverable and it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee to substantiate the claim of bad debts. Further, placing reliance on the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. Tulip Star Hotels Ltd reported as 57 DTR 210 [Del], the ld. AR submitted that the loan advanced by the assessee to VHEL Industries Ltd was part of inter corporate deposit [ICD] and it could clearly be treated as bad debt which qualifies for deduction u/s 36(1)(vii) of the Act and the embargo put by clause (i) of sub-section (2) of section 36 of the Act could not have come in the way of assessee in view of the finding that the money was lent in the ordinary course of business of the assessee. 13.12 Lastly, the ld. AR placed reliance on the decision....
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....he Act. Otherwise, if the loans/advanced has not been given in the regular course of business of the assessee, then the bad debts pertaining to said loans/advances cannot be allowed. The ld. DR also drew our attention that in the case of CIT Vs. Tulip Star Hotels [supra] where the company was engaged in the money lending business and the claim of bad debts were held to be allowable which is not the facts of the present case. 14. On a careful consideration of the above noted arguments of both the sides, at the very outset, we note that the assessee explained its stand by way of filing letter dated 14.12.2011 and submitted as under: "During the year under assessment the assessee had entered into tripartite agreement and deed of assignment with M/s Hanuman Consumer Construction P Ltd. and M/s VHEL Industries P Ltd. according to which the debit outstanding from M/s VHEL Industries Ltd. to the assessee company were assigned to M/s Hanuman Consumer Construction P Ltd. As per the deed of assignment the entire debt of 73,01,06,027/- was assigned to M/s Hanuman Consumer Construction P Ltd. for 775,00,000/- and thus suffered a loss of 72,26,06,027/-." "Whereas the confir....
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....amount in question was given by way of ICD, it is to be treated as debt arid such debt having become bad, it qualifies for deduction u/s. 36(l)(vii) of the Income Tax Act, It was also held that provisions of clause (i) of Section 36(2) do not come in the way of the assessee since the money was lent in the ordinary course of money lending carricd.aut on the assessee. Claim of debts not recoverable has already been covered by the amendment in the provision of Section 36(l)(vii) of the Income 'Fax Act w.e.f. 1.04.1989 "that in order to obtain a deduction in relation to back debt, it is not necessary for the assessee to establish that the debt in fact has become irrecoverable and it is enough if the bad debt is written off as irrecoverable in the account of the assessee." Similar issue came up before the Id. ITAT in the case of M/s. Hindusthan MI Swaco Limited, vs. DC IT Bharluch, Circle, Bharuch. Ahmadabad Bench-A, ITA No. 3774/AHD/2008, where the learned Member have held that " This being the position, we find that in the present case, the facts are identical with the facts in the case of Poysha Oxygen Pvt. Ltd. (supra). Hence, by respectfully following....