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Facts
The assessee, a builder, reported income from sale of flats as business income. The AO reopened the case, treating the sale of flats as a capital asset transfer and making an addition under the head capital gains, leading to alleged double taxation. The first appellate order was ex-parte.
Held
The Tribunal found the assessee's submissions to be factual and requiring verification to avoid double taxation. The matter was remitted back to the AO for verification, ensuring the assessee gets a fair opportunity to be heard.
Key Issues
Whether the sale of flats by a builder should be treated as business income or capital gains, and whether reopening the assessment under Section 147 was justified.
Sections Cited
147, 148, 50C, 43CA, 44AB, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
Assessment Year: 2017-18 New Laxmi Enterprises The Income Tax Officer, 702, Laxmi Narayan Apartments, Ward 41(4)(3), Mumbai Rane Compound, Natvar Nagar Vs. Road No. 1, Jogeshwari East, Mumbai - 400060 (PAN : AADFN2479B) (Appellant) (Respondent) Present for: Assessee : Shri Amit Kothari, CA Revenue : Shri Leyaqat Ali Aafaqui, Sr. AR Date of Hearing : 05.08.2025 Date of Pronouncement : 12.08.2025 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide order no. ITBA/NFAC/S/250/2024-25/1073736005(1), dated 26.02.2025 passed against the assessment order by Assessment Officer, MUM-W- (404)(93), u/s. 147/148 of the Income-tax Act (hereinafter referred to as the “Act”), dated 21.05.2023 for Assessment Year 2017-18.
Grounds taken by the assessee are reproduced as under: " 1) The Learned Commissioner of Income Tax (Appeals) ered in upholding the addition of Rs. 1,58,23,513 without appreciating the fact that the Appellant is a builder and the flats sold were stock in trade which is chargeable to tax under the head Business Income and not Capital Gains. 2) The Learned Commissioner of Income Tax (Appeals) ought to have considered that out of the addition of Rs 1,58,23,513, sale value of flats of Rs. 1,56,42,514 New Laxmi Enterprises. AY 2017-18 is reflected in the Profit and Loss account for the year ended 31st March, 2017. Addition on account of Sale of Flats under the head Capital Gains would amount to double Taxation. 3) The Learned Commissioner of Income Tax (Appeals) ought to have considered the fact that the value of Sale of Flats was less than the Stamp Duty Valuation (by Rs. 2,00,988) was allowed as per Section 43CA. 4) On the fact and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in considering initiation of assessment under section 147 as justified which is bad in law.”
The issue raised by the assessee in this appeal relates to addition made on account of sale of flats made by the assessee which has already been offered to tax under the head business income, though Ld. AO made the addition under the head capital gains amounting to double taxation.
Brief facts of the case are that assessee is a partnership firm carrying on business as builders under the firm name and style of M/s. New Lakshmi Enterprises. Assessee filed its original return of income on 02.12.2017 reporting total income at Rs. 1,75,660/- as income from business on sale of flats by following percentage completion method. Case of the assessee was reopened by issuing notice u/s. 148 by applying provisions of Section 50C. According to the assessee, it follows percentage completion method from year to year and has reported all its business transactions of sale of flats under the head business income, though Ld. AO has reopened the case by considering sale of flats as transfer of capital assets, bringing the same to tax under the head capital gain. According to the assessee, its account is subjected to tax audit u/s. 44AB and the nature of business is duly reported in its tax audit report as “Builders”.
Assessee submitted that its audited profit and loss account reflects revenue receipt of Rs. 2,43,49,223/- which includes sale of flats alleged to be capital transaction by the Ld. AO on which income has been assessed to tax under the head capital gain leading to double New Laxmi Enterprises. AY 2017-18 taxation. According to the assessee, case was reopened on a wrong premise by recording the reasons that there is infringement of provisions of Section 50C relating to immovable property transactions. Ld. AO observed that assessee firm sold number of properties during the year and no capital gain was offered in the return of income filed by it, leading to escapement of income. He thus completed the assessment by making an addition of Rs. 1,58,23,513/- on account of variation in respect of sale consideration not declared in the return under the head income from short term capital gains.
5.1. Before the Ld. CIT(A), assessee could not make its effective representation and the appeal was dismissed ex-parte. Before us, Ld. Counsel for the assessee referred to its audited profit and loss account placed at page no.1 of the paper book as well as copies of ledger account for sale of flat and Form 3CD to demonstrate nature of business undertaken by the assessee as well as reporting of the business transaction done by it which evidently establishes that assessee has reported the alleged transaction of sale of flats as business transactions and profit relating thereto has been duly offered to tax as business income.
We find that the submissions made by the assessee are factual and needs a verification so was to avoid bringing to tax the same transaction twice. Ld. AO has reopened the case on the premise that sale transaction of flats suffers from infringement of provisions of Section 50C and thus brings to tax, these transactions under the head capital gains. Contrary to this, claim of the assessee is that it has already reported all the sale transactions as business transactions and offered to tax the profit element as business income for which relevant documentary evidences were placed on record. Since the issue needs a verification of the factual position corroborated by the documentary New Laxmi Enterprises. AY 2017-18 evidences, in the interest of justice and fair play, we find it appropriate to remit the matter back to the file of Ld. AO, more importantly, when the first appellate order is an ex-parte order. Needless to say, assessee be given reasonable opportunity of being heard to make any further submission, if so required. Ld. AO is directed to verify the claim and allow the same in accordance with provisions of law. Accordingly, grounds raised by the assessee are allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order is pronounced in the open court on 12th August, 2025