UNITED BUILDERS,MUMBAI vs. ACIT 25(2), MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the assessee order of Ld. Commissioner of Income Tax(Appeals)-35, Mumbai, {(in short ‘CIT(A)’}, dated 24.05.2013 passed against assessment order 2 United Builders u/s 143(3) r.w.s. 263 of the Act, dated 31.12.12 for the A.Y.2007-08 on the following grounds: “

2. THE LD CIT(A) ERRED IN NOT ALLOWING THE CLAIM OF THE APPELLANT THAT THE INCOME EARNED BY THE APPELLANT ON SALE OF LAND WAS CAPITAL GAIN.

3. THE LD CIT(A) ERRED IN NOT ALLOWING SET OFF OF LONG TERM CAPITAL LOSS OF RS. I8,77,377- FOR THE ASSESSMENT YEAR 2006-07 AGAINST THE LONG TERM CAPITAL GAIN FOR THE ASSESSMENT YEAR 2007-08.

4. THE LD CIT(A) ERRED AND DISALLOWED THE CLAIM OF THE APPELLANT WITHOUT GOING TO THE FACTS OF THE CASE AND RELEVANT CASE LAWS SUBMITTED AT THE TIME OF HEARING.

5. YOUR APPELLANT RESERVES THE RIGHT TO ADD, ALTER OR DELETE THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF THE HEARING.”

2. During the course of hearing, arguments were made by Shri Vijay Mehta, Authorised Representative (AR) on behalf of the Assessee and by Shri E. Shreedhar, Departmental Representative (DR) on behalf of the Revenue.

3. Ground Nos. 1 & 2 address the common issue of treatment of profit earned by the assessee on sale of land as business income by the AO as against capital gain as was claimed by the assessee in the return of income. We have heard the arguments made by both sides and also gone through the orders passed by lower authorities as well as documentary evidences shown to us. The brief background is that assessee is a firm and filed its return of income on 31.7.2007 and the assessment was completed u/s 143(3) vide assessment order dt 16.12.2009. Thereafter, the assessment order was reviewed by the Commissioner of Income Tax u/s 263 dated 20.12.2011, wherein the original assessment order 3 United Builders was set side and AO was directed to consider various aspects to determine the character of income to be assessed under the head income from ‘business’ or ‘capital gains’. Consequently, the AO passed the order u/s 143(3) read with section 263 dated 31.12.2012, wherein he treated the impugned income as ‘income from business’, mainly on the ground that the firm was incorporated with the intention of dealing in the business of sale and purchase of immovable properties and/or to develop the immovable properties etc. The relevant portion of the assessment order is reproduced below: “During the course of proceedings, the assessee was 5. asked to submit partnership deed and the copies of returns of income filed from A.Y.1996-97 to 2006-07. As per direction of the Hon'ble CIT, the partnership deed of the assessee has been duly verified and from which it is noticed that the firm was incorporated with the intention of dealing in the business of selling and purchasing immovable properties and or to develop the immovable properties and to sell the flats units, commercial premises, office contracted thereon. From the same, it is clear that the assessee firm was incorporated with an intention to deal in properties. Therefore, it is clear that the investment shown by the assessee is nothing but its stock in trade. This fact is further strengthened by the fact that 6. the assessee firm had not filed the returns of income for A.Y.1996-97 to A.Y.2005-06. The assessee firm had submitted only balance sheets for these AYs. From which it is clear that the assessee has not done any activity in the firm for these years and the stock in trade was shown as an investment to get the benefit of indexation. The balance sheet filed by the assessee firm for A.Y.1996-97 to A.Y.2005-06 could not be relied upon and riot authenticated documents as the assessee firm failed to file the return of income for these years and the assessee firm has no documentary evidence in the form of returns to prove 4 United Builders that the properties were investments only and not stock-in-trade. As far as the return of income for A.Y.2006-07 is concerned, the case of the assessee for A.Y2006-07 was not picked up for scrutiny and accepted u/s 143(1) of the Act only. It is pertinent to mention here that the 7. assessee firm has claimed several expenses such as staff salary, watchman salary, bank charges, accounting charges, leveling expenses, conveyance expenses and included such expenses in the cost of the properties which clearly indicates that the assessee firm had purchased these properties as an stock in trade and not investment. Considering these facts, the capital gains 8. shown by the assessee firm are treated as business income of the assessee and reworked out as under: Sales Price Rs.2,00,00,000/- Less i) Cost of land Rs.43,55,000/ ii)Various exps Claimed Rs.11,79,195 TotalRs.55,33,195/- Business income Rs.1,44,66,805/- 3.1. Being aggrieved, the assessee filed an appeal before Ld. CIT(A) and made exhaustive submissions to establish that the land was part of investment and resultant profit was income from business. But Ld. CIT(A) did not agree with the submissions of the assessee and endorsed the observations of the AO and dismissed the appeal of the assessee. 3.2. Being aggrieved, the assessee filed an appeal before the Tribunal. The Ld. Counsel of the assessee made exhaustive submission to demonstrate that impugned land was investment. 3.3. Per contra, Ld. DR was not able to bring any contrary material on record. But, he strongly relied upon the orders of the lower authorities.

5 United Builders 3.4. We have gone through the orders of the lower authorities as well as entire material brought before us. It is noted that the assessee firm was constituted on 11.10.1994. The assessee made purchase of two pieces of lands as under: i. Charkop Land On 06.01.1995 ii. Kandivali Land on 27.07.1996 The land located at Kandivali was sold in A.Y. 2006-07 and income from the same was disclosed under the head ‘income from capital gains’ which was accepted as such by the department. 3.5. During the year under consideration, the assessee sold remaining piece of land located at Charkop to one buyer and disclose resultant income under the head ‘income from capital gains’. It was accepted as such by the AO in the original assessment order passed u/s 143(3), but in view of the order passed in pursuance to direction of the CIT u/s 263, the AO changed its stand and treated the impugned income as income from business. 3.6. In our considered view, action of the lower authorities is factually incorrect and contrary to law. The assessee had disclosed both the pieces of land (located at two different places) as part of investment in its balance sheet. It is further stated by the assessee that no expenses have been incurred on development of this land. It is further stated that neither any plan was prepared and submitted for approval from the local authorities nor any other step whatsoever was taken towards development of the impugned land. These facts have not been negated by any of the lower authorities i.e. the AO, the CIT or 6 United Builders CIT(A). It has been submitted by the assessee that the assessee firm was not having any taxable income, and therefore no returns were filed for any year prior to A.Y. 2006- 07. In these circumstances, we find that merely because no return was filed by the assessee in earlier years in absence of any taxable income, the character of land would not automatically get changed from ‘investment’ to ‘stock-in-trade’. The other allegation of the AO is also without any basis and legal substance wherein it was stated that the assessee firm was constituted for the main object of development and trading in immovable properties, therefore, the impugned land should also be necessarily characterised as part of stock-in- trade. We find no basis for such a bald allegation. It is well settled law that a person can plan its affairs in such a manner so as to minimize its tax burden and there would be nothing wrong in it, so long as approach of a taxpayer is not bogus or false and no tax evasion is perpetuated. In the facts brought before us, nothing has been brought on record by the lower authorities to counter the factual assertions made by the assessee. The assessee has consistently kept these amounts as part of ‘investments’ since last so many years. No business at all has been done by the assessee firm. Its income has never been assessed under the head income from business. Nothing has been shown to indicate if the assessee ever treated the impugned land as part of the ‘stock-in-trade’ at any point of time in the past decade, and the assessment order has been passed merely on the basis of surmises and conjecture which have no place in the eyes of law. We do not find any 7 United Builders justification on the part of lower authorities to re-characterise the income earned from sale of land as ‘income from business’. The assessee had rightly shown the same as ‘income under the head capital gains’. Therefore, addition made by the AO is directed to be deleted and Ground Nos. 1 & 2 are allowed.

8 United Builders 5. Ground Nos. 4 & 5. These grounds are general and do not need any specific adjudication and thus dismissed.

Order pronounced in the open court on 29th July, 2016.