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Income Tax Appellate Tribunal, KOLKATA BENCH “C”, KOLKATA
Before: SHRI RAJESH KUMAR, HON’BLE & SHRI SONJOY SARMA, HON’BLE
IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCH “C”, KOLKATA BEFORE SHRI RAJESH KUMAR, HON’BLE ACCOUNTANT MEMBER AND SHRI SONJOY SARMA, HON’BLE JUDICIAL MEMBER Assessment Year: 2007-08 ITO, Ward-8(2), Kolkata M/s. Enterpreneurs Pvt. Ltd. Plot No. A-3, Block-GP, Infinity vs Tower-II, Sector-V, Salt Lake City, Kolkata-700 091. PAN: AAACE 6368 G (Appellant) (Respondent) Present for: Assessee by : Shri Rajat Agarwal, CA Revenue by : Shri G. Hukugha Sema, CIT Date of Hearing : 02.02.2023 Date of Pronouncement : 27.03.2023 O R D E R PER SONJOY SARMA, JM:
This appeal filed by the revenue against the order of ld. CIT(A)-11, Kolkata dated 08.06.2018 arising out of assessment order passed u/s 147/143(3) of the Act relevant to assessment year 2007-08. The assessee has taken the following grounds of appeal: “i. For that facts and circumstances of the case and in law the Ld. CIT(A) has erred in treating the expenses for purchase of land of Rs.7,57,30,000/- as revenue expenses instead of capital expenditure. Purchase of land is capital expenditure. ii. For that facts and circumstances of the case and in law the Ld. CIT(A) has erred in ignoring the fact that during the course of re-assessment proceedings it is found that assessee shown Cost of land for Rs.7,57,30,000/- as per Schedule J of the P/L Account. The same expenses claimed as expenditure under the head 'Cost of Project' in its P/L Account. However, in course of assessment assessee stated that the said amount had been wrongly shown as cost of land instead of cost of built up area purchased from M/s. Classic Real Estate Developers Pvt. Ltd. iii. For that facts and circumstances of the case and in law the Ld. CIT(A) has erred in ignoring the fact that during the course of re-assessment the assessee while explaining such a major mistake in final accounts did not submit any purchase documents/agreements etc. to substantiate of its claim that built up area was purchased from M/s. Classic Real Estate Developers Pvt. Ltd. Moreover, at the same time assessee has claimed to have received an amount of Rs.29,53,47o/- as rent from the M/s. Classic Real Estate Developers Pvt. Ltd. during F.Yr.2006-07 which was also not substantiated with documents. Therefore, it was concluded at the time of re-assessment that the said build up area was not purchased at all, it was purchase of land only.
M/s. Enterpreneurs Pvt. Ltd. A.Y. 2007-08 iv. That the appellant craves leave to add/or alter, amend, modify or rescind the grounds hereinabove before or hearing of this appeal.”
Brief facts of the case are that the assessee is a private limited company and engaged in the business of manpower supply and real estate activity. The return of income was filed by the assessee on 20.10.2007 declaring a total income of Rs. 51,92,537/- and the assessment was completed u/s 143(3) on 30.10.2009 at Rs. 52,48,717/-. Subsequently to the above notices u/s 148 and 143(2) were issued upon the assessee and in response to such notice, ld. AR of the assessee appeared before the ld. AO from time to time and he had also filed his written submission before the ld. AO and requested to drop the proceeding initiated u/s 147 of the Act. The ld. AO after considering the submission made by the assessee, however he had not convinced with such prayer made by the AR and frame the assessment order as under: “As per Schedule J of the Profit & Loss Account, cost of the land has been shown as Rs. 7,57,30,000/-. The assessee submitted that the assessee company had purchased units having total area of 30292 sq ft @ Rs. 2500/- per square feet at a cost of Rs. 7,57,30,000/- in Vipul Tech Square project situated at Sector 43, Gurgoan, Haryana and claimed the same as expenditure under the head Cost of Project' in its Profit & Loss account. The assessee claimed that built up area was purchased from Ms. Classic Real Estate Developers Private Limited and the space was sold during the F.Y. 2006-07 to different parties. The assessee received rent of Rs. 29,53,470/- from M/s Classic Real Estate Developers Private Limited. Assessee failed to submit any purchase document in support of his claim that the built up area was purchased during the year. Therefore, it is concluded that the said built up area was not purchased at all, it was purchase of land only. As purchase of land is Capital Expenditure, this should be capitalized. So, the amount of Rs. 7,57,30,000/- is disallowed and added back to the total income of the assessee.”
Dissatisfied with the above order, assessee preferred an appeal before the ld. CIT(A) where the appeal of the assessee was allowed and the ld. CIT(A) by observing as follows: “10. In ground no. 2, the appellant has challenged the AO's action in treating the land worth RS. 7,57,30,000/- as capital asset of the appellant and has disallowed the same. The appellant had clarified before the A.O that the asset in question was not actually a land but was actually a built up area which had been purchased from M/s. Classic Real Estate Developers Pvt. Ltd. In this regard the appellant had submitted a Certificate from its Auditor who clarified the fact that the asset in question was not land but was actually a built up area. Copy of Agreement (MoU) dated 08.04.2006 between M/s. Classic Real Estate Developers Pvt. Ltd and M/s. Entrepreneurs (Calcutta) Pvt. Ltd were submitted by the appellant. The asset in question has been addressed as "Super area" which means a constructed area and not any land. The business of the appellant is also stated to be a real estate business. So, it is evident that super area of 31,455 sq. ft. (as per the M/s. Enterpreneurs Pvt. Ltd. A.Y. 2007-08 agreement) was bought by the appellant and the same is to be sold off. Naturally, this had to be treated as stock-in-trade. Apart from this, I find that the A.O has not treated the earnings out of the sale of this asset to be capital gain. Therefore, the pertinent question that comes to my mind is that if the A.O did not question the character of income on the sale of thís asset, how he could have questioned the character of expenditure on this asset. It is not the case of the A.O that he will treat the expenditure on an asset as capital expenditure and will accept the income on the same as revenue income.
In view of the factual submissions made by the appellant and also in view of the facts discussed by me in the pre-paragraph, l hold that the reassessment proceedings this case were db initio void as they were caused by a change of opinion and that even on merits the A.O was found to be mistaken in treating the super area purchased and sold by the appellant as land and treating it again as a capital expenditure. Therefore, the appeal filed by the appellant is allowed.”
Aggrieved by the above order, revenue is in appeal before the Tribunal. At the time of hearing ld. DR submitted before this bench, ld. CIT(A) has erred in treating the expenses for purchase of land of Rs. 7,57,30,000/- as revenue expenses instead of capital expenditure and the ld. CIT(A) erred in deciding the issue as the assessee did not able to submit any purchase documents/agreements before the ld. AO during the course of reassessment proceeding. Therefore, the findings of ld. CIT(A) is not in accordance with law and the order passed by the ld. CIT(A) required to be set aside and sustained the addition made by the AO. On the other hand, ld. AR has supported the order passed by the ld. CIT(A) by stating that the order passed by the ld. CIT(A) is a reasoned order and while passing the order, the ld. CIT(A) categorically stated about the copy of the agreement MoU dated 08.04.2006 between M/s. Classic Real Estate Developers Pvt. Ltd. and M/s. Enterpreneurs (Calcutta) Pvt. Ltd. were duly submitted before the ld. CIT(A). He further contended that the business of the assessee stated to be a real estate business and it is evident that super area of 31,455 sq. ft. as per the agreement was brought by the assessee and same has been sold off and in such circumstances, it has to be treated as stock-in-trade. Besides that the ld. CIT(A) also contended that the AO has not treated the earnings out of sale of alleged assets to be capital gain and in such circumstances, the AO could not have questioned the character of expenditure of this asset. The ld. CIT(A) while passing the order also viewed that the AO cannot treat the expenditure on asset as a capital expenditure and at the same time he had accepted the income on the same transaction as revenue income in the case of assessee. Therefore, ld. CIT(A) rightly set aside the order passed by the AO.
M/s. Enterpreneurs Pvt. Ltd. A.Y. 2007-08 5. We after hearing the rival submission of the parties and perused the material available on record. We noticed that the ld. CIT(A) while passing the order categorically stated about the copy of agreement (MoU) dated 08.04.2016 stated to be executed between the parties i.e. M/s. Classic Real Estate Developers Pvt. Ltd. and M/s. Enterpreneurs (Calcutta) Pvt. Ltd. as submitted by the assessee before the ld. CIT(A) and from the findings of the ld. CIT(A), it is come to our notice that the business of the assessee also stated to be real estate business, therefore, super area of 31455 sq. ft. as per the agreement treated as stock-in-trade. Besides that, we noticed that the ld. AO has not treated the earnings of the assessee out of sale of asset to be capital gain. In such a situation, the ld. AO could not have right to question the character of expenditure on the assets. Accordingly, we are of the view that the ld. AO cannot treat the same transaction on one aspect, he treated it as a capital expenditure and another aspect it is a revenue income. Therefore, we sustained the order passed by the ld. CIT(A) and grounds taken by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 27.03.2023