M/S DHARANI DEVELOPERS PRIVATE LIMITED,ALWARPET, CHENNAI vs. ACIT, COMPANY CIRCLE 1(4), NUNGAMBAKKAM CHENNAI

This appeal filed by the assessee is directed against separate orders of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi, all dated 31.01.2023 relevant to the assessment years 2008-09, 2012-13, 2013-14, 2016-17, and 2017-18.

Brief facts of the case are that the assessee is engaged in the business of property development and filed its return of income for the assessment years under appeal. The first ground raised by the assessee for consideration is whether the income earned out of sale of property has to be treated as business income or capital gains. During the course of assessment proceedings, the Assessing Officer asked the assessee to explain the nature of lands sold and the reason as to why it should not be taxed under the head 'Business'. The assessee explained that these lands were purchased long back in 1994-95 and till now they are held only as investments, and that only recently, the assessee has decided to use those lands for construction purposes. It was further submission before the Assessing Officer that only three transactions of undivided share of lands on this property were registered and resultant capital gains on the sale of lands were offered as income and that the expenditure incurred on the project towards the construction were held as work in progress only and not debited to profit and loss account and that it is only at the initial stage of project. After considering the submissions of the assessee, the Assessing Officer was of the opinion that the assessee is in the business of property development viz., construction of buildings and since the project itself has started any income arising out of these should only be offered under the head "income from business". It was further observed that the period of holding of the land is not relevant since ultimately the lands were used only for construction purposes, which is the assessee's business. Thus, the Assessing Officer held that the profits out of the sale of the lands as profits from business. Accordingly, the Assessing Officer taxed it under the head income from business' to the extent of ₹.9,25,317/- for the assessment year 2008-09. Similar addition was also made for the assessment year 2012-13, 2013-14, 2016-17 and 2017-18. On appeal, the ld. CIT(A) confirmed the assessment order for all the assessment years under appeal.

On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the land was purchased way back in 1994-95. Up to the assessment year 2008-09, the lands were held as investment and not as stock in trade. Therefore, the income arising out of sale of property has to be treated as income from capital gains and not as a business income.

On the other hand, the ld. DR has submitted that the assessee has not filed any details as to when the asset was converted into stock-in- trade. Therefore, the Assessing Officer has treated income as business income.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The case of the assessee is that the assessee was holding the asset for long period and 4 therefore, it has to be treated as income from capital gains. The case of the Assessing Officer is that the assessee was engaged in the business of property development and therefore, it has to be treated as business income. We find that the assessee has not filed any details before the Assessing Officer or ld. CIT(A) or even before the Tribunal as to when the asset was converted into stock-in-trade. Therefore, the assessee has furnish the details, such as how long the asset was treated as long term capital gain and when the assessee has converted the property into stock-in-trade and accordingly up to conversion of the property, the Assessing Officer has to treat it as capital asset and after conversion of the property, it has to be treated as business asset. In this case, neither the assessee nor the Assessing Officer properly computed the property of the assessee. Thus, we set aside the orders of the ld. CIT(A) on this issue and remit the matter back to the file of the Assessing Officer to examine and compute the property under section 45(2) of the Act keeping in view of the above observation and decide the issue afresh in accordance with law after affording reasonable opportunity of being heard to the assessee. Thus, the ground raised by assessee is allowed for statistical purposes for all the assessment years under appeal.

The next common ground raised in the appeals of the assessee for 5 the assessment years 2012-13 and 2013-14 relates to upholding of disallowance made under section 14A of the Act. The assessee has admitted to have earned dividend income of ₹.1,01,938/- and ₹.29,16,801/- in the assessment years 2012-13 and 2013-14 respectively. However, the Assessing Officer determined the disallowance under section 14A of the Act at ₹.58,02,576/- and ₹.49,07,221/- for the assessment years 2012-13 and 2013-14 respectively. On appeal, the ld. CIT(A) upheld the disallowance made under section 14A of the Act.

The next ground raised in the assessment year 2008-09 relates to 7 confirming the disallowance made under section 14A of the Act when the assessee has not earned any dividend income from investments made in earlier years to the extent of ₹.56,292/-. On appeal, the ld. CIT(A) confirmed the disallowance made under section 14A of the Act.

The next ground raised in the appeal of the assessee for the assessment year 2008-09 relates to confirmation of disallowance of fee paid to ROC. The assessee has paid ₹.3,30,000/- to ROC for increasing the authorized share capital. By following the decision in the case of Brooke Bond India Ltd. v. CIT 225 ITR 798, the Assessing Officer has held that this expenditure is not allowable a it is capital in nature and accordingly disallowed ₹.3,30,000/- and brought to tax. On appeal, by following the decision in the case of Punjab State Industrial Corporation v.