COMMISSIONER OF INCOME TAX 8 MUMBAI vs. GLOWSHINE BUILDERS AND DEVELOPERS PVT. LTD. MANAGING DIRECTOR

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.  2565 OF 2022 Commissioner of Income ...Appellant(s) Tax 8 Mumbai Versus Glowshine Builders &

…Respondent(s) Developers Pvt. Ltd. J U D G M E N T M.R. SHAH, J. 1. Feeling   aggrieved   and   dissatisfied   with   the impugned   judgment   and   order   dated 04.09.2017   passed   by   the   High   Court   of Judicature at Bombay in Income Tax Appeal No. 1756 of 2014, by which, the High Court has dismissed the said appeal preferred by Page 1 of 44 Digitally signed by R Natarajan Date: 2023.05.04 16:38:34 IST Reason: Signature Not Verified

the   Revenue,   thereby   confirming   the   order passed by the Income Tax Appellate Tribunal, “G” Bench, Mumbai (hereinafter referred to as the ITAT) by which the addition made by the Assessing Officer (AO) of Rs. 15,94,06,500/­ was deleted, the Revenue has preferred the present appeal. 2. The dispute pertains to the Assessment Year (AY) 2009­10 i.e., Financial Year (FY) 2008­ 09. The assessee entered into an agreement dated   06.05.2008   with   one   M/s   Kirit   City Homes Pvt. Ltd. The development rights in a property   at   Vasai   were   sold   for   a   total consideration   of   Rs.   15,94,06,500/­.   It appears   that   as   per   paragraph   6   of   the development agreement and as per the receipt of   the   deed,   consideration   of   Rs. 15,94,06,500/­ was agreed and received by Page 2 of 44

the   assessee.   During   assessment,   it   was noticed by the AO that the aforesaid was not disclosed   while   filing   the   return  of   income. The   assessee   did   not   enter   the   aforesaid income into his profit and loss account. The assessee was asked to explain the transaction as it was not appearing in its profit and loss account.   The   agreement   dated   06.05.2008 was also furnished to the assessee along with the   notice.   In   response,   the   assessee   vide letter   dated   04.10.2011   stated   that   the transaction   was   duly   offered   to   tax   in   AY 2008­09   reflecting   a   consideration   of   Rs. 5,24,27,354/­. The assessee also stated that it had entered into a “rectification deed” with the   said   party   on   30.05.2008.   By   the   said ratification, it was claimed that the value of the development rights was reduced from Rs. Page 3 of 44

15,94,06,500/­ to Rs. 5,24,27,354/­. As the transaction   was   pertaining   to   AY   2009­10, the   assessee   was   served   a   further   notice dated 10.10.2011 under Section 142(1). The assessee was requested to explain as under: ­ (i) “You   are   aware   that   perusal   of   AIR information,   copy   of   'Development Agreement'   dt.   06.05.2008   revealed that

you

had

entered

into "Development   Agreement"   with   M/s. Kirit   City   Homes   Mau,   Pvt.   Ltd   in respect of various properties as detailed in the said agreement. It is also seen that

you

had

received

Rs. 13,94,06,500/­

account

of granting/allowing   development   rights assigned. (ii) As per the agreement, the transaction is dt. 06.05.2008, so this transaction falls under the A.Y. 2009­10 whereas you had offered this transaction in the A.Y. 2008­09. Please explain the logic and basis thereof (iii) Perusal of the 'Development Agreement' dt. 06.05.2008, you had claimed to had received the entire sale proceeds of Rs. 15,94,06,500/ ­. In this regard, you are requested to furnish the details of sale proceeds received mode there details of proceeds realized, etc in respect of sale proceeds of Rs. 15,94,06,500/­. Please also furnish the copy of 'Bank Book' / 'Cash Book' reflecting the receipts and Page 4 of 44

narrations   thereof   alongwith   copy   of the bank account statement reflecting credits thereof. (iv) Vide   'Deed   of   rectification'   dt. 30.05.2008, you had claimed to have revised

the

value

from

Rs. 15,94,06,500/­   to   Rs.   5,24,27,354/­. In this regard, please explain whether you   had   refunded   the   differential amount. If yes, please furnish the mode and   details   thereof   with   supporting documentary evidences. (v) Vide   'Deed   of   rectification'   dt. 30.05.2008, you had claimed to have revised

the

value

from

Rs. 15,94,06,500/­   to   Rs.   5,24,27,354/­. In this regard please furnish the basis thereof   with   supporting   documentary evidences. (vi) Considering the above, I am of the view that   for   the   above   transaction, provisions of section 50C of the I.T. Act 1961 are clearly applicable despite the reduction in your agreement value. In this   regard,   you   are   requested   to explain   as   to   why   the   provisions   of section 50C of the I.T. Act should not be initiated as well as please explain as to why the sale proceeds should not be treated at Rs. 15,94,06,500/­. (vii) Perusal of all the documents furnished by you in respect of above transactions, I am of the view that the transaction definitely   belongs   to   this   year   and market   value   u/s.   50C   should   be considered as the sale consideration. In Page 5 of 44

this regard, please explain as to why the treatment as mentioned above does not be made applicable in your case. In view of the above, it is proposed to treat the transaction for this year and to add the sale proceeds of Rs. 15,94,06,500/­ in   your   hands.   You   are   requested   to furnish your explanation, if any, with supporting documentary evidences.” 2.1 The assessee replied to the same and with regard   to   the   applicability   of   provision   of Section   50C,   the   assessee   stated   that   the assessee had sold its stock in trade and not the assets. The AO made the addition of Rs. 15,94,06,500/­ by treating the same as short term capital gains and consequently, added the same to the income for the year under consideration.   The   Commissioner,   IT (Appeals), Mumbai dismissed the appeal and confirmed the addition made by the AO and upheld   the   view   of   the   AO   to   treat   the transaction as income for capital gains for the Page 6 of 44

AY 2009­10. The CIT (A) also discarded the submissions   made   by   the   assessee   that transfer of development rights were made in FY   2008­09   pursuant   to   the   MOU   dated 27.12.2007.   In   the   absence   of   proof   to buttress   such   claim,   the   CIT   (A)   also discarded the claim of the assessee that value of   the   transfer   of   development   rights   was reduced   from   Rs.   15,94,06,500/­   to   Rs. 5,24,27,354/­ 2.2 The assessee filed an appeal before the ITAT. The   ITAT,   after   examining   the   chart submitted   by   the   assessee   pertaining   to opening balance and closing balance for the assessment years 1996­97 to 2007­08 held that the assessee in all these years showed inventory and expenses. Consequently, ITAT Page 7 of 44

held   that   the   assessee   is   engaged   in   the business   of   building   and   development.   The ITAT further noted that the assessee showed the   cost   of   land   along   with   related expenditure   as   work   in   progress/inventory since 1999­2000 and the assessment orders were   subsequently   made   under   Section 143(3) of the IT Act, wherein the AO accepted the   nature   of   business   of   the   assessee. Therefore, ITAT concluded that what was sold by the assessee was part of its inventory and not a capital asset. The ITAT also held that the   assessee   has   reduced   the   sale consideration from Rs. 15,94,06,500/­ to Rs. 5,24,27,354/­   during   FY   2007­08   on   the basis of MOU dated 27.12.2007 and the said amount   of   the   income   has   already   been declared in the AY 2008­09 i.e., FY 2007­08 Page 8 of 44

and   therefore,   such   income   cannot   be declared in AY 2009­10 i.e., FY 2008­09. The ITAT also confirmed and/or agreed with the assessee that the sale consideration was Rs. 5,24,27,354/­ only. Based on these findings, the ITAT reversed the findings of the AO as well as the CIT (A) and allowed the appeal by deleting the addition made by the AO of Rs. 15,94,06,500/­. 2.3 The Revenue preferred an income tax appeal before   the   High   Court   by   way   of   ITA   No. 1756/2014. By the impugned judgment and order, the High Court has dismissed the said appeal filed by the Revenue by holding that none   of   the   questions   proposed   by   the Revenue are substantial questions of law. Page 9 of 44

2.4 Feeling   aggrieved   and   dissatisfied   with   the impugned judgment and order passed by the High   Court   dismissing   the   appeal,   the Revenue has preferred the present appeal.

rights.   It   is   submitted   that   firstly,   the assessee  vide  its   letter   dated   25.11.2011 submitted the Ledger Account in respect of development   agreement.  The   perusal  of   the said   Ledger   Account   revealed   that   the assessee claimed to have received income of Rs.   15,94,06,500/­   from   a   development agreement on 31.03.2008 and the said entry was reversed on the same day by passing a rectification   entry   on   31.03.2008   itself. Therefore, it was reflected that the aforesaid payment was paid by the purchasing party on 31.03.2008 to an entity SICCL and all these entries   were   reflected   on   the   same   date. Based   on   the   Ledger   furnished   by   the assessee, pertinent questions were raised by the Assessing Officer which included reason Page 11 of 44

of rectification and confirmation of the fact that   the   differential   amount   of   Rs 10,69,79,146/­   was   refunded   to   the purchaser.   However,   perusal   of   the   order passed by the ITAT reflects that the fact of receipt of money on 31.03.2008 was not even discussed. On the contrary, a reference was made   to   the   MOU   dated   27.12.2007   for   a total consideration of Rs. 5,24,27,354/­. It is submitted that the ITAT without examining the   true   nature   of   transaction   and   entry made in the books of accounts of the assessee simpliciter   confirmed   that   the   transactions pertained   to   earlier   years   i.e.,   Assessment Year 2008­09 and the reduction of amount arising   out   of   the   Development   Agreement dated   06.05.2008   and   Rectification   dated 30.05.2008 was due to mistake. Page 12 of 44

4.1 It is further submitted by Shri Balbir Singh, learned ASG, that the ITAT failed to take into account   the   fact   that   the   entry   made   and reflected   in   the   Ledger   Account   of   the assessee as on 31.03.2008 was on account of a third party i.e., SICCL and that too for a total of Rs. 15,94,06,500/­. Further, the ITAT did not even question the factum of refund of differential amount of Rs. 10,69,79,146/­ to the   purchaser   on   account   of   Rectification Deed dated 30.05.2008.  That  the ITAT has failed   to   appreciate   that   the   moment   the receipt of amount is received and recorded in the books of accounts of the assessee, unless shown   to   be   refunded/returned,   is   to   be treated   as   income   in   the   hands   of   the recipient. Page 13 of 44

4.2 Secondly, balance sheets for the Assessment Years 2006­07 to 2009­10 were examined by the Assessing Officer and it was recorded that there was not even a single sale during all these   years   and   there   were   negligible expenses and the transaction in question was the   only   transaction   i.e.,   transfer   of development   rights   in   respect   of   land   and consequently, it was held that the transaction was that of transfer of capital asset and not that of transfer of stock in trade. However, the   ITAT   in   its   order,   after   examining   the opening   and   closing   balance   for   the   year 1996­97 upto 2007­08 held that in multiple years   there   was   inventory   shown   in   the Balance   Sheet   and   since   subsequent assessment orders were made under Section 143(3)   of   the   Income   Tax   Act,   without Page 14 of 44

disputing the claim of assessee, held that the transaction   in   question   is   sale   of   stock   in trade. It is contended that the ITAT neither dealt with the findings given by the Assessing Officer nor verified/examined the total sales made   by   the   assessee   during   the   relevant year   and   during   the   previous   years. Therefore, the ITAT as well as the High Court have materially erred in holding that, merely because   the   entry   made   in   the   books   of accounts involved recording of inventory, the transaction in question becomes sale of stock in trade. That, it is well settled that in order to examine whether a particular transaction is   sale   of   capital   asset   or   business transaction, multiple factors like frequency of trade, volume of trade, nature of transaction over   the   years   etc.   are   required   to   be Page 15 of 44

examined. However, in the present case, the ITAT without examining any of the relevant factors   confirmed   that   the   transaction   was transfer of stock in trade. 4.3 It is further submitted that the ITAT without any basis and solely on the basis of claim made   by   the   assessee,   contrary   to   the accounts   produced   before   the   Assessing Officer,   agreed   that   the   transaction   was reflected   as   sale   in   the   tax   return   for   the Assessment

Year

2008­09.

That, interestingly, the ITAT did not even question as   to   what   happened   to   the   differential amount of Rs. 10,69,79,146/­ on account of reduction of sale value of development rights. 4.4 It is further submitted by Shri Balbir Singh, learned ASG, that the High Court has failed to examine the inherent contradiction in the Page 16 of 44

order   of   the   ITAT   and   that   the   claim   was allowed   by   the   Tribunal,   contrary   to   the records   produced   before   the   Assessing Officer. Therefore, the order of the High Court holding   that   there   was   no   substantial question   of   law   involves   is   illegal   and perverse. 4.5 It is further submitted that the High Court has   failed   to   appreciate   that,   even   in   the event   of   acceptance   of   claim   made   by   the assessee,   including   the   assertion   that   Rs. 5,24,27,354/­ was shown in the tax return for the earlier Assessment Year i.e., 2008­09, the differential amount of Rs. 10,69,79,146/­ on   account   of   reduction   in   the   sale consideration of development rights is to be assessed   in   the   current   year   as   either   as capital   gain   or   business   income.   This   is Page 17 of 44

without prejudice to the submission that the Assessing Officer has correctly assessed the income   in   his   Assessment   Order   dated 29.11.2011. 4.6 Making the above submissions, it is prayed that the present appeal be allowed and the order passed by the ITAT as well as the High Court   be   set   aside   and   the   order   of   the Assessing Officer be restored. 5. Shri   S.K.   Bagaria,   learned   Senior   Advocate appearing on behalf of the assessee has taken us to the findings recorded by the High Court as well as the ITAT. It is submitted that the assessee   is   engaged   in   the   business   of building and development of properties since the   year   1999­2000.   That   the   assessee's balance   sheets   show   that   it   had   work­in­ progress/inventories   year   after   year,   since Page 18 of 44

1999­2000. The same has been accepted by the   department   all   these   years;   even   after scrutiny assessments under Section 143(3) of the Income Tax Act, 1961. 5.1 It is submitted that the assessee had entered into an MOU dated 27.12.2007 with M/s Kirit City   Homes   Private   Limited,   whereby, Development   Rights   in   a   property   at   Vasai were   sold   for   a   total   consideration   of   Rs. 5,24,27,354/­.   That   the   said   MOU   was   on record before the lower authorities and has been referred in the Assessment Order as well as   in   the   order   passed   by   the   CIT   (A).   In connection with the said transaction, detailed findings   were   given   by   the   Income   Tax Appellate Tribunal (Tribunal/ITAT) and these were also duly considered by the High Court. The findings given by the Tribunal were pure Page 19 of 44

findings of facts and therefore, the High Court has   rightly   dismissed   the   appeal   after considering the facts and the tribunal’s order and by holding that no substantial question of law arises in the matter. 5.2 Shri   S.K.   Bagaria,   learned   Senior   Advocate has taken us to the following facts recorded by the High Court in the impugned judgment and order: ­ a) It   is   a   common   ground   that   the assessee   is   in   the   business   of building   and   development   of properties. There was no change in the activities of the assessee during the year under consideration. b) For the year ending 31/03/2006 the assessee disclosed inventories at Rs 8.66 crores Page 20 of 44

c) For   the   year   ending   31/03/2007 there was no change and the same figure   of   Rs   8.66   crores   was disclosed. d) For   the   year   ending   31/03/2008 (assessment   year   2008­09),   the assessee   showed   sale   of   land development

rights

Rs 5,24,27,354/­ and the cost of land was shown at Rs 5,21,37,454/­. 5.3 It is submitted that in connection with the aforesaid   transaction   during   financial   year 2007­08,   the   High   Court   has   further considered   the   following   facts   in   the impugned judgment and order: ­ i. In   MOU   dated   27/12/2007   with KCH transfer of development rights was for the said total consideration of Rs 5,24,27,354/­. Page 21 of 44

ii. The   assessee   was   holding   50.16 acres   of   land,   out   of   which   27.44 acres of land was the subject matter of   the   aforesaid   MOU   dated 27/12/2007. Total cost of the land was determined proportionately. iii. On   02/01/2008   necessary   entries were passed debiting the account of KCH   but   crediting   the   account   of one M/s SICCL. The assessee owed SICCL a sum of Rs 8.10 crores and it therefore directed KCH to pay the consideration directly to SICCL. iv. Corresponding entries relating to the aforesaid   transaction   were   also made in the accounts of SICCL. v. On   02/01/2008   possession   of   the land was also handed over. vi. The   aforesaid   events   took   place during the financial year 2007­ 08 Page 22 of 44

relating   to   assessment   year   2008­ 09.   In   that   assessment   year,   the assessee  offered to tax the  income arising   out   of   the   aforesaid transaction   under   the   head "business income". vii. In the development agreement dated 06/05/2008 the  sale consideration was   incorrectly   mentioned   as   Rs 15,94,06,500/­ and on realising the mistake, a Deed of  Rectification  of executed on 30/05/2008. This deed of   rectification   was   registered   with the   office   of   the   Sub   Registrar, Vasai. 5.4 Shri   Bagaria,   learned   Senior   Advocate   has also taken us to the following further facts recorded and findings given by the ITAT: ­ Page 23 of 44

a) The   aforesaid   50.16   acres   of   land was acquired by the assessee in the financial year 1996­97. The tribunal gave year wise details from 1996­97 which   clearly   showed   that   the acquisition of land was in financial years 1996­97 and 2004­05. During the financial year 2007­ 08, cost of the inventory was Rs. 9,53,06,475/­ and   the   tribunal   gave   a   definite finding   that   "the   above   inventory represents the cost of 50.16 acres of land out of which 27.44 acres has been   sold   vide   Memorandum   of Understanding dated 27/12/2007". b) The assessee was showing work in progress   under   the   head   current assets   and   loans   and   advances   in Page 24 of 44

the   balance   sheets   filed   with   the Department and in the Income Tax Returns.   The   tribunal   considered the year­wise position and gave the following findings for different years. c) For   assessment   year   2001­02   the assessee's   Return   was   selected   for scrutiny   assessment   and   the assessment   was   completed   under section   143   (3)   vide   order   dated 11/09/2003, wherein, the assessing officer gave a categorical finding that the   assessee   was   engaged   in   the business   of   builder   and   developer, erectors,   construction   of   building, houses,   apartments,   ownership flats. Work in  progress  of Rs 7.66 crores   was   also   mentioned   in   the Page 25 of 44

assessment order and it covered cost of   land   and   various   expenses including  land  development, stamp charges etc. d) For financial year 2002­03, work in progress   was   shown   at   Rs.   8.51 crores. e) For   financial   years   2003­04   and 2004­05   (year   ending   31/03/2004 and 31/03/2005), inventories were shown at Rs 8.58 crores and Rs 8.66 crores

respectively.

For

the assessment year 2005­06 (financial year   2004­05)   the   assessee   was again

subjected

to scrutiny assessment and its assessment was completed under Section 143 (3) by order   dated   30/11/2007   and   the assessing

officer

again Page 26 of 44

acknowledged   the   business   of   the assessee   as   that   of   builder   and developer,   erectors,   construction   of building,

houses,

apartments, ownership   flats.   The   assessing officer specifically found that there was   no   change   in  the   activities   of the assessee during the year under consideration. f) For the financial years 2006­07 and 2007­08 the inventories were shown at Rs 8.66 crores and there was no change. For the financial year 2007­ 08   (year   ending   31/03/2008)   the assessee   had   shown   sale   of   land development

right

Rs. 5,24,27,354/­ and cost of the said land was shown at Rs 5,21,37,454/­ Page 27 of 44

The   facts   relating   to   MOU   dated 27/12/2007,   necessary   entries being made in the books of accounts on   02/01/2008,   debiting   the account   of   KCH   and   crediting   the account   of   SICCL,   mistake   in   the development

agreement

dated 06/05/2008 and its being corrected by   the   said   registered   deed   of rectification were also mentioned. g) It was found that since 1999­2000 the   assessee   was   showing   cost   of land   along   with   other   related expenditures

work

in progress/inventory   in   the   balance sheets and its Income Tax Returns for several intervening years as the above were assessed under Section Page 28 of 44

143   (3)   wherein   the   nature   of   the assessee's business was accepted by the   assessing   officer.   It   was   held that what was sold by the assessee was part of its inventory and not a capital   asset   and   the   tribunal decided   the   matter   by   taking   into consideration   these   undisputed facts. 5.5 It is submitted that based on the aforesaid facts and findings, the ITAT has rightly held that   the   impugned   transaction   related   to transfer   of   stock   in   trade   and   that   the assessee

had

shown

“stock

in trade/inventories”   year   after   year   in   its balance   sheets   and   its   contention   was accepted by the Assessing Officer and twice the   assessments   were   completed   under Page 29 of 44

Section 143(3). It is submitted that ultimately the Tribunal concluded the issues as under: ­ a) The impugned transaction related to transfer of stock in trade and that the   assessee   had   been   showing "stock   in   trade/inventories"   year after year in its balance sheets and its contention was accepted by the assessing   officer   and   twice   the assessments were completed under Section 143(3). b) The   said   transaction   had   taken place   during   the   financial   year 2007­08   pertaining   to   assessment year   2008­09.   The   assessee   had shown the sale consideration as also the cost of land in its balance sheet and   profit   and   loss   account   filed with the   Return of   Income  for  the Page 30 of 44

said assessment year 2008­09. Even in   the   abstract   from   AST,   the assessing   officer   had   referred   the said sale as part of the return for assessment year 2008­09. c) Considering the MOU and the Deed of   Rectification,   the   consideration was Rs 5.24 crores. The assessing officer

completed

assessments simply   by   relying   on   AIR   data received from the office of the Sub­ Registrar,   Vasai   but   failed   to consider   the   Deed   of   Rectification registered   by   the   same   Sub­ Registrar and did not even care to verify the figure from the said Sub­ Registrar, Vasai. d) Perusal   of   balance   sheets   of   the assessee   since   1999­2000   clearly Page 31 of 44

showed that the assessee had been showing

work

in progress/inventories year after year and   apportioned   the   cost   in proportion   to   the   part   of   the   land transferred and the cost of the land was  as  per  the  cost  shown  in the Return   of   Income   for   assessment year 2008­09. e) Since   the   impugned   transaction related   to   the   business   of   the assessee and was to be assessed as such   under   the   head   "profit   and gains of business or profession" the provisions   of   section   50C   of   the Income   Tax   Act,   1961   were   not applicable to the facts of the case.

Page 32 of 44

5.6 It   is   submitted   that   the   above   findings recorded by the ITAT which were upheld by the High Court are pure findings of facts and therefore,   no   substantial   question   of   law arises in the matter. Therefore, it is prayed that no interference of this Court against the findings recorded on material and evidence is called for. Reliance is placed on the decision of this Court in the case of Mantri Techzone Private   Limited   Vs.   Forward   Foundation and Ors.; (2019) 18 SCC 494. 5.7 It   is   further   submitted   by   Shri   Bagaria, learned Senior Advocate appearing on behalf of   the   assessee   that   the   assessment   order simply referred to AIR data. As recorded in the assessment order itself the assessee had submitted   that   the   transaction   in   question Page 33 of 44

was duly offered to tax in assessment year 2008­09   reflecting   its   consideration   at   Rs. 5,24,27,354/­. The MOU relating to the said transaction was already before the assessing officer   and   the   consideration   of   Rs. 5,24,27,354/­   was   duly   mentioned   in   the MOU. In the Development Agreement, there was   a   mistake   in   mentioning   the consideration   and   on   realizing   the   error, within a short period of 24 days, the aforesaid Deed   of   Rectification   was   entered   into   and was duly registered. The said consideration of Rs. 5,24,27,354/­ was correctly mentioned in the   MOU   which   was   before   the   Assessing Officer  as well as  before the  CIT (Appeals). The   amount   mentioned   in   the   Deed   of Rectification,   rectifying   the   mistake   in   the Development Agreement also mentioned the Page 34 of 44

same   consideration   and   the   said   Deed   of Rectification   was   duly   registered   with   the Sub­Registrar,   Vasai   with   whom   the Development Agreement was also registered. It   is   important   to   mention   that   if   the Department   intended   to   dispute   the valuation,   it   could   have   easily   referred   the matter to the valuation officer but it did not do   so.   Not   only   this,   as   recorded   by   the tribunal, the development agreement as well as   the   deed   of   rectification   were   both registered with the same Sub­Registrar, Vasai but the income tax officer did not make any enquiry from the said Sub­Registrar. 5.8 It is further submitted that with regard to the nature   of   business   of   the   assessee,   the income tax officer proceeded as if there must be regular transactions of purchase and sale Page 35 of 44

every   year.   Firstly,   the   income   tax Department   itself   had   accepted   that   the assessee's   business   was   of   builder   and developer, erectors, construction of buildings, houses etc and the assessments on that basis were completed year after year including the assessments   under   Section   143   (3)   for different years as mentioned above. Secondly, the regularity and frequency itself depends on the nature of business and nothing prevents the   assessee   from   buying   plots   of   land, holding them as stock in trade, developing or continuing to hold as it is and then entering into the transactions of sale or disposal or transfer at an appropriate time. Reliance in this   regard   is   placed   on   the   judgement reported   in  (1961)   42   ITR   179   (Raja   J. Page 36 of 44

Rameshwar   Rao   Vs.   Commissioner   of Income Tax, Hyderabad) wherein it was held inter   alia  that,   "no   doubt,   this   was   only   a single venture; but even a single venture may be   regarded   as   in   the   nature   of   trade   or business."   As   regards   the   applicability   of Section   50C   of   Income   Tax   Act,   it   is submitted that when the land in question was held by and transferred by the assessee as stock   in   trade   and   not   as   capital   asset, Section 50C could have no application at all. In the income tax return for assessment year 2008­09 (during which the relevant events as mentioned above took place) the transaction in question was duly offered to tax under the head   "profit   and   gains   of   business   and profession". All these facts were considered by Page 37 of 44

the tribunal and findings of fact as mentioned above were given. 5.9 Making the above submissions that the High Court is correct in holding that the Tribunal’s findings  were  findings  of  fact supported  by written   documents   and   corroborating materials   and   that   there   was   nothing perverse   in   the   tribunal’s   findings   and   the case did not involve any substantial question of   law,   it   is   prayed   to   dismiss   the   present appeal. 6. Heard learned counsel appearing on behalf of the respective parties at length. 7. In   the   present   case,   the   AO   treated   the transaction   as   capital   assets.   ITAT   has reversed the said findings and held that the transaction   was   stock   in   trade.   It   appears that the AO specifically recorded the findings Page 38 of 44

on examining the balance sheets for the AY 2006­07 to 2009­10 that there was not even a single   sale  during   all  these   years   and   that there   were   negligible   expenses   and   the transaction   in   question   was   the   only transaction   i.e.,   transfer   of   development rights in respect of land and consequently, it was   held   that   the   transaction   was   one   of transfer   of   capital   assets   and   not   one   of transfer of stock in trade. However, the ITAT after   examining   the   opening   and   closing balance   for   the   AY   1996­97   to   2007­08 observed   that   in   multiple   years,   inventory was   shown   in   the   balance   sheet,   without discussing the claim of the assessee and held that   the   transaction   in   question   is   sale   of stock   in   trade.   It   appears   that   ITAT   has neither dealt with the findings given by the Page 39 of 44

AO   nor   verified/examined   the   total   sales made   by   the   assessee   during   the   relevant time and during the previous years. Merely on the basis of recording of the inventory in the books   of   accounts,   the   transaction   in question would not become stock in trade. As per   the   settled   position   of   law   in   order   to examine whether a particular transaction is sale   of   capital   assets   or   business   expense, multiple factors like frequency of trade and volume of trade, nature of transaction over the years etc., are required to be examined. From the order passed by the ITAT, it appears that the ITAT has without examining any of the   relevant   factors   confirmed   that   the transaction was transfer of stock in trade. 7.1 The High Court has also failed to appreciate that even in the event of acceptance of claim Page 40 of 44

made by the assessee, including the assertion that Rs. 15,94,06,500/­ was shown in the tax return   in   the   earlier   AY   i.e.,   2008­09,   the differential amount of Rs. 10,69,79,146/­ on account of reduction in sale consideration of development rights was to be assessed in the current year as either capital gain or business income.   At   this   stage,   it   is   required   to   be noted that as per the claim of the assessee and   the   entry   made   and   reflected   in   the ledger   account   of   the   assessee   as   on 31.03.2008, an amount of Rs. 15,94,06,500/­ was   paid   to   a   third   party   i.e.,   SICCL. However,   thereafter,   according   to   the assessee there was a rectification deed dated 30.05.2008   and   the   amount   was   reduced from

Rs.

15,94,06,500/­

Rs. 5,24,27,354/­.   The   ITAT   has   not   even Page 41 of 44

questioned the factum of refund of differential amount   of   Rs.   10,69,79,146/­   to   the purchaser   on   account   of   rectification   deed dated   30.05.2008.   The   ITAT   ought   to   have appreciated that the moment the receipt of amount is received and recorded in the books of accounts of the assessee unless shown to be refunded/returned, it is to be treated as income   in   the   hands   of   the   recipient. However,  the   ITAT   has  also  not considered the aforesaid aspect. 7.2 In   view   of   the   above   and   as   observed hereinabove, the ITAT has not considered the relevant   aspects/relevant   factors   while considering   the   transaction   in   question   as stock   in   trade   and   has   not   considered   the relevant aspects as above which as such were required  to  be  considered by the  ITAT, the Page 42 of 44

matter is required to be remanded to the ITAT to consider the appeal afresh in light of the observations made hereinabove and to take into consideration the relevant factors while considering the transaction as stock in trade or   as   sale   of   capital   assets   or   business transaction. 8. In   view   of   the   above   and   for   the   reasons stated above, the present appeal succeeds in part.   The   impugned   judgment   and   order passed   by   the   High   Court   and   that   of   the ITAT are hereby quashed and set aside and the matter is remitted back to the ITAT to consider the appeal afresh in accordance with law and on its own merits, while taking into consideration   the   observations   made hereinabove   and   to   take   an   appropriate decision   on   whether   the   transaction   in Page 43 of 44

question is the sale of capital assets or sale of stock   in   trade   and   other   aspects   referred hereinabove. It is observed that we have not expressed   anything   on   merits   in   favour   of either of the parties. It is ultimately for the ITAT   to   take   an   appropriate   decision   in accordance with law and on its own merits as above. ………………………………….J. [M.R. SHAH] ………………………………….J. [B.V. NAGARATHNA] NEW DELHI; MAY 04, 2023 Page 44 of 44