Income Tax Appellate Tribunal - Delhi
Edward Keventer (Successors) (P) Ltd., ... vs Department Of Income Tax on 22 December, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'B ' NEW DELHI)
BEFORE SHRI U. B. S. BEDI, JUDICIAL MEMBER
And
Shri T. S. KAPOOR , ACCOUNTANT MEMBER
ITA No. 1242 / Del/ 2011
(Assessment Year 2006-07 )
ACIT, Circle 10(1), Vs. M/s. Edward Keventer
New Delhi (Successors)(P) Ltd.,
1-E, Jhandewalan Extn.,
Naaz Cinema Complex,
New Delhi 110 055
PAN : AAACE0465E
(Appellants) (Respondents)
Assessee by : Shri Pradeep Dinodia & Shri R K Kapoor, CA
Department by: Dr. Sudha Kumar, Sr. DR
ORDER
PER U B S BEDI, JUDICIAL MEMBER:
This appeal of the department is directed against the order passed by Ld. CIT(A) V, New Delhi dated 22.12.2010 relevant to assessment year 2006-07 whereby the following two effective grounds have been raised:
"1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding revised return as a valid return by in- spite of the fact that it was clearly established by the A.O. that return was revised only after the inquiries conducted by the Investigation wing and not that the assessee discovers any omission or any wrong statement suo moto which is contrary to the provisions of Section 139(5) of the Act.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleted the addition of Rs.42,7045,205/- made by 2 I.T.A. Nos.1242 /DEL/2011 the A.O. as business income and further directed to treat the same as income from capital gain of Rs.28,52,86,536/- as disclosed by the assessee company in its revised return."
2. The facts indicate that the original return of income was filed by the assessee on 29.11.2006 declaring the total income of Rs.35,12,740/-. The above return of income was subsequently revised on 09.08.2007. The facts in brief are that the company carried on the business of sale of milk and milk products since 1946. The original return of income was filed by the assessee on 29.11.2006 declaring a total income of Rs.35,12,740/-. The above return of income was subsequently revised on 09.08.2007 (wrongly stated by A.O. in his order as 06.08.2007) declaring a total income of Rs.28,87,99,274/-. The original return of income was duly processed u/s 143(1) of the I. T. Act, 1961 sometime in January 2008. Notice u/s 143(2) dated 23.11.2007 of the I. T. Act, 1961 was claimed to be received by the assessee on 03.12.2007. Further notice u/s 142(1) dated 06.06.2008 along with detailed questionnaire was received by the assessee on 12.06.2008. It is stated by the A.O. in para 2 of his order that in compliance to the said notices, the A.Rs of the assessee company appeared from time to time and filed necessary details. It is also stated by the A.O. that the books of accounts and supporting vouchers were produced and were examined on test check basis and the case was discussed with the A.Rs from time to time. The A.O. has made an addition on a/c of sale of land of Rs.45,69,76,403/- in the assessment order passed u/s 143(3).
3. Aggrieved with the order of the A.O., the assessee company filed appeal before the first appellate authority whereby besides challenging the action of the A.O. in not considering the revised return filed by the assessee on 09.08.2007. The assessee has also challenged the action of the A.O. in not treating the transfer of land as capital gain but as business profit shown 3 I.T.A. Nos.1242 /DEL/2011 in the revised return and not allowing the benefit of cost of indexation correctly as per law. The assessee has also challenged the charging of interest u/s 234B of the Act. Ld. CIT(A) decided the issue in relation to revised return and directed to treat the sale of land as income arose from the capital gain and directed the A.O. to recalculate the interest u/s 234B of the I. T. Act, 1961 after giving appeal effect to his order.
4. Against the order of Ld. CIT(A), the Department has come up in appeal before the Tribunal and agitated all the points as dealt with by Ld. CIT(A). While relying upon the order of the A.O., it was pleaded for setting aside the order of Ld. CIT(A) and restoring that of the A.O. It was further submitted that the revised return was wrongly filed when material was gathered during the course of investigation proceedings and it was noted by the investigation department that the assessee M/s. Dalmia Promoters and Developers Pvt. Ltd. and another group of companies of Dalmia group as provided by DLF group of industries entered into an MOU with Balarpur Industries Ltd. on 25.02.1989 and through subsequent MOU dated 20.07.1991 to develop the land owned by the assessee after the assessee obtained necessary permissions form Land and Development Officer and NDMC and other authorities. As per the said MOU, both the assessee and Dalmia Promoters & Developers Pvt. Ltd. paid a compensation of Rs.27 crores to Ballarpur Industries Ltd. as compensation to cancel and relinquish all its rights and entitlements. Further, an inquiry in the matter was conducted on BILT as revised return of income for assessment year 2006-07 included a sum of Rs.21.15 crores as its income on account of compensation from EKL. In the case of EKL, from the balance sheet as on 31.03.2006, it was observed that in Schedule 8 under the head 'current liabilities' it had shown a sum of Rs.45,67,76,403/- as advance against agreement to sell. So 4 I.T.A. Nos.1242 /DEL/2011 revision of return by the assessee was because of investigation and it was not voluntary action on the part of the assessee. Therefore, the A.O. was justified in rejecting the revised return and Ld. CIT(A) is not correct in reversing the order of the A.O. It was thus urged for reversal of the order of Ld. CIT(A) on this issue.
5. Ld. counsel for the assessee filed his written submissions on this issue as under:
"The assessment year under consideration is assessment year 2006-07 and as per the provisions o Section 139(5) of the I. T. Act, 1961, an assessee could revise the return up[ to 31st March, 2008. The assessee revised the return of income on 6th August, 2007, which is very much within the statutory period allowed by the Act.
The Ld. CIT(A) has also found out that although the A.O. is treating the revised return as an invalid yet he is taxing the transaction disclosed in the revised return and is merely changing the head of income from long term capital gains to business profits.
CIT(A) has also held that it is assessee who is required to be satisfied about the omission or wrong statement in the return and the law has given the assessee a right to revise the return. The only limitation u/s 139(5) is regarding the time limit. It has been held that the A.O. cannot get into the reasons of the assessee's discovery of omission or wrong statement. The discovery of omission has to be by the assessee and the law has given a right to every tax payer to revise its return, if in the opinion of the assessee there is an omission or wrong statement.
CIT(A) on appreciation of all the facts including the fact that the return has been revised prior to issue of notice for scrutiny which were on 23rd November, 2007, whereas the revision had taken place on 6th August, 2007, the CIT(A) has held that the revision of return was valid.
Reliance is also placed on the judgement of Hon'ble Punjab & Haryana High Court in the case of CIT Vs Rama Polycot Ltd. 347 ITR 466 wherein it has been held that when a return is revised to withdraw exemption u/s 10B earlier claimed in the original return, the same is required to be accepted as a valid revised return.5 I.T.A. Nos.1242 /DEL/2011
All the facts that led to the revision of return has been properly noted by Ld. CIT(A) at pages 4&5 of his order.
It, is therefore prayed by the assessee that the order of the CIT(A) on this issue may be upheld and it may please be held that he assessee had validly revised its return."
6. After having heard both the sides and perusing the material on record in the light of case laws cited by rival sides on the first issue, we find that Ld. CIT(A) has decided this issue in favour of the assessee as per para 3 & 4 of his order which is reproduced below:
"3. I have carefully considered the reasons given in the assessment order as well as the written submission and arguments for the appellant and I am afraid that the A.O. has not given a valid reason for declaring the revised return to be a non-est. I am of the view that the assessee can revise the return and it is only for the assessee to discover if in his opinion there is any omission or a wrong statement in it. Once the assessee is satisfied that there has been an omission or wrong statement in the return, it is his option to furnish a revised return, the only limitation being that the revision can only be done within a particular time span. The A.O. cannot get into the reasons of the assessee's discovery of omission or wrong statement. These words are not qualified in section 139(5). The discovery has to be by the assessee himself and not by the A.O. Therefore, it is a statutory right of every taxpayer to revise his return as he deems fit if in his opinion there has been omission or wrong statement in the original return. The A.O. cannot get into the assessee/s belief that there was an omission or wrong statement. He cannot add the words bonafide to the error used in section 139(5) of the Income Tax Act. It is not an error alone for which a return can be revised, but it can also be due to an omission or wrong statement in the original return. The reasons why there was an omission or wrong statement is not conditionality for revision of return u/s 139(5). An event about the proposed sale of property has taken place during the year and the assessee had received almost the entire amount towards the proposed the sale as advance except a sum of Rs.1 lakhs each from the two persons. In the wisdom of the assessee such event was to be accounted for in the next financial year, i.e. in assessment year 2007-08 when the proposed sale transaction was to be registered. However, on being pointed out 6 I.T.A. Nos.1242 /DEL/2011 that the transaction/ event amounted to a transfer and the assessee had omitted to treat the same as a transfer in the original return, it corrected the omission by revising the return as per assessee's rights u/s 139(5) of the Income Tax Act within the time allowed by the act.
4. Now coming to the dates. The first notices issued for assessment u/s 143(2) and 142(1) were much after the date of revision of return and it was on 23.11.2007 claimed to have been received by the assessee on 03.12.2007. The processing of the original return was also done subsequent to the revision of return some time in Jan., 2008.However it is seen that notice has been issued by investigation wing on 20/6/07. Therefore, in my view, the fact that the matter was under investigation and the report of the Inv. Wing, as mentioned by the A.O. is dated 30th April 2008 may be relevant for penalty u/s 271(
1)( c). The fact of the matter is that the return was -revised and filed within the time allowed by the act and needed to be taken into cognizance while framing the assessment. In fact, it is seen that the revised return has been taken into account by the A.O. and he has taxed the transaction of sale in the year under consideration except that he has changed the head of income from 'income from long-term capital gains'-to 'income from profits and gain of business.' Therefore, even though the A.O. states in para 3 of his order, it is not a valid return, but, in fact, he does use the information contained in the revised return for the purpose of assessment. Taking the entirety of facts into consideration, I have no hesitation to hold the return was validly revised by the assessee under provisions of sec. 139(5) of the Act."
7. From the perusal of the above noted conclusion of Ld. CIT(A) we find that a just and appropriate view of the matter which is not only based on strong foundation but it finds support from proper reasoning has been taken as such, we are not inclined to interfere in the order passed by Ld. CIT(A), which is found to be in accordance with the relevant provisions of law and the same is upheld while dismissing the first ground of appeal of the revenue.
7 I.T.A. Nos.1242 /DEL/20118. Regarding the 2nd issue, Ld. D.R., while relying upon the order of the A.O., has pleaded for setting aside the order of Ld. CIT(A) and to restore that of the A.O. It was further submitted that the intention to hold or to sell is to be seen from the facts of the case. Since the A.O. has established that it was in the nature of business as the same was sold in part and while relying on the decision in the case of in 42 ITR 179 (S.C.) and in the case of Nanda & Co. as reported in 35 ITR 594 it was held that it was in the nature of business, as such A.O. was justified to treat the same as such. And Ld. CIT(A) was not justified in his action, so, the A.O.'s order should be restored.
9. Ld. Counsel for the assessee submitted that there was no real estate object in the transaction when it was in occupation since 1952 but the property was not developed at all and it was sold as it is, so it is sale of capital asset and moreover there was 50 year's gap. The issue under dispute was, as to whether the sale of two bungalows to Smt. Sheela Agarwal and Niranjan Koirala could result in capital gains or business income. The facts have been noted by the CIT(A) at Page 8 of the order wherein it has been noticed that the properties which have been sold were always in possession of the buyers for the last 50 years and the same has been sold to sitting tenants without any development. This is also revealed by the Agreement to Sell as per the Paper Book Pages 47, 49, 76 and 78.
The fact that these properties had always been shown as fixed assets and never as stock-in-trade is evidenced by the Balance Sheet of the assessee as per Paper Book Page 30 & 34. The fact that the asset has been shown as capital assets for the last more than 50 years is duly noticed by the CIT(A) in Para 9 Page 12 of the order.
8 I.T.A. Nos.1242 /DEL/20119.1 The fact that even in the so called development agreement these properties were never the subject matter of development is also duly noticed by the CIT (A) in Page 13 Para 11 of the order. The fact that the finding of the Assessing Officer that the assessee is doing business in real estate are not supported by any evidence is fully noticed by the CIT(A) towards the end of Para 13 Page 14 of his order and the CIT(A) has appropriately distinguished the judgements relied upon by the Assessing Officer in Para 14, 15, 16 and 17 of the order. The CIT (A) has also considered Circular NO.4 dated 15th June, 2007 issued by the CBDT which basically talks about the transaction of shares. After consideration of all the facts and circumstances as well as the legal position on this issue, the CIT (A) has come to the conclusion that the profit arising from the transfer of said property was taxable under the head capital gains while following judgements as relied upon:
170 Taxman 483 (Delhi) CIT v. Gulmohar Finance Ltd. 173 Taxman 1 (Delhi) CIT v. Essjay Enterprises Pvt. Ld. (Delhi). 320 ITR 307 (Delhi.) CIT v. DCM Ltd. In this case the SLP has been dismissed by the Hon'ble Supreme Court as reported in 320 ITR (St.) 18-19. 325 ITR 316 (Delhi) CIT v. H.B. Stock Holdings Ltd.
327 ITR 445 (Delhi) CIT v. Rohit Anand.
329 ITR 1 (Guj.) DCIT v. Radhe Developers India Ltd. & Another. 135 ITD 441 (Delhi ITAT) Delhi-in the case of Delhi Apartments Pvt.
Ltd. Now confirmed by Hon'ble Delhi High Court as reported in 2013-TIOL-195-HC-Delhi (Copy enclosed)"
9.2 It was thus pleaded for confirmation of the impugned order passed by Ld. CIT(A).
10. We have heard both the sides, considered the material on record as well as the case law cited by the rival sides and find that Ld. CIT(A) has dealt with this issue in a very appropriate manner and concluded it in para 12-19 of his order while discussing the facts of the case in the light of 9 I.T.A. Nos.1242 /DEL/2011 various decisions cited by Ld. counsel for the assessee to hold that profit on sale of land in question was to be taxed as capital gain in view of the facts of the case as well as various judicial pronouncements and since the A.O. has not the benefit of examining the case for allowing the sale transaction as capital gain, he was directed to examine the very claim in this regard and calculate capital gain as made by the assessee in the revised return and to allow the same according to law. Relevant portion of the order from para 12-19 are reproduced below:
"12. I have carefully gone through the facts of the case as mentioned by the A.O. in his order of assessment, the paper book filed by the assessee and various submissions filed by him before the A.o. and before me. To decide this controversy, it is necessary to examine the facts of this case once again.
13. The first significant point noticed which is not challenged by the A.O., but in fact, has been stated by the A.O. on page 5 last paragraph, is that the assessee continues to hold this asset in its fixed assets schedule right from 1952. The assessee company has not borrowed any funds to buy this asset. The assessee company has not entered into any transaction of purchase and sale of land or plots regularly and continuously over the last 50 years or so. In fact, no other sale or purchase has been attempted or noticed by the A.a. either before or after this transaction upto the date of assessment. This is an isolated transaction entered into by the assessee with two sitting occupiers of two properties belonging to the assessee on as is where is basis. The two purchasers were in occupation of these properties and were residing in these for the last many years. It is seen that the assessee company tried to develop other properties other than these two residential bungalows unsuccessfully before as the regulatory approval from the NDMC was not forthcoming and as submitted by the appellant, the matter is sub-judice before the Hon'ble Delhi High Court. Till the regulatory approval is granted no development could commence on the rest of the property. In fact, as stated by the assessee before the A.O., the cancellation charges of the previous agreements paid by the assessee company have been shown under the head 'project development expenditure'. Now coming to the 10 I.T.A. Nos.1242 /DEL/2011 profit and loss account, there is no sale or purchase of property or land whatsoever. Therefore, the A.O's findings that the assessee is doing business in real estate are not supported by any evidence on record. The only significant income is interest received of RS.35,96,213 and miscellaneous receipt of RS.60,000. There are insignificant expenses relating to salary and wages, rates and taxes, audit fee, etc. There is no business activity undertaken by. the assessee during the year under consideration. The conclusion that can lead from these facts is that the assessee sold the asset held by it for over four decades to the existing and the gain that arose from this transaction was nothing but a long-term capital gain. The assessee has filed, as noticed by the A.O., a valuation report by the Government approved valuer valuing the cost of the asset as on 01.04.1981 and has worked out long-term capital gains thereon. In the above computation, the fair market value of the entire land measuring 22.95 acres was taken at RS.26.89 crores as on 1.4.1981 on the basis of the report of Approved Valuer. As per the Balance Sheet of EKL on 30.6.1981,the opening balance of leasehold rights in the said property was shown at Rs.2,75,538/- and there was an addition of Rs.43,24,462/-on account of revaluation of these rights during the year ending 30th June, 1981 and the closing balance was shown at Rs.46 lacs. However it is seen that the basis of revaluation of leasehold rights during the year ended 30/6/81 was not before the A.O.
14. As far as the judgements cited by the A.O. are concerned, I find that these are not applicable to the facts of the appellant, in the first case of CIT v. M. Krishna Rao 120 ITR 101, the Hon'ble Andhra Pradesh High Court observed that the intention of the assessee at the time of purchase of the property was an important criterion to determine the true nature of the transaction. In that case, the person who owned the property after having received the permission to convert land into building sites by the panchayat, converted land into building sites and sold plots thereafter for two assessment years, i.e. 1968-69 and 1969-70. The Hon'ble High Court held that the intention of the assessee in that case was to convert the property into plots and this intention was there even when he purchase this property from the original owner. Therefore, it was in line with business and was in the nature of trade.
15. The second case relied upon by the A.O. was of Raja J. Rameshwar Rao v. CIT 42 ITR 179. Here again the issue before the 11 I.T.A. Nos.1242 /DEL/2011 Hon'ble Supreme Court was that when a person acquires land with a view to sell it later after developing it, he carries on a business venture. The person in that case went further and divided the land into plots, developed the area to make it more attractive and sold the land not as a single unit but in parcels, he is dealing with' land as stock-in- trade and carrying on business to make a profit.
16. The third case of G. Venkatswmi Naidu & Co. v. CIT 35 ITR 594, here again the appellant before the Hon'ble Supreme Court purchased four plots of land with the sole intention of selling them to mills at a profit. It could raise the presumption in favour of trading it as a venture in the nature of trade.
17. The next judgement of CIT v. V.A. Trivedi 172 ITR 95, the Hon'ble Bombay High Court held that it is not possible to evolve a single test or formula which can be applied in determining whether a transaction is an adventure in the nature of trade or not. Again, the Hon'ble Bombay High Court held that the original intention of the party in purchasing the property, the magnitude of the transactions of purchases, the nature of property, the length of its ownership and frequency and multiplicity of transactions offer a valuable guide in determining whether the assessee is carrying on a trading activity or not.
18. On an analysis of the case law given by the A.O. in his order, it is clear that these do not fit into the facts of the case at hand. The intention of the assessee at the time of purchase of this property in 1952 was to establish a diary farm in which it would produce milk and trade in milk and has held this asset as a fixed asset in its books right from 1952 onwards. No contrary fact has been brought on record by the A.O. Successive assessments right from the date of purchase have accepted the treatment of this asset as a fixed asset in the books of the assessee. There has been no sale and purchase of land by the assessee right from inception till date of these two transactions. There is no frequency; there is no multiplicity of the transactions. The magnitude of transactions of purchase is also not there. The original intention of the assessee in purchasing the property is clear, i.e. to hold it as a fixed asset. Looking at all the criteria I have no hesitation in holding that the two residential bungalows sold on 27th May 2005 and to existing occupiers of these 12 I.T.A. Nos.1242 /DEL/2011 lands by the assessee would lead to only· 'long-term capital gain' and not income under the head 'business'. The assessee's reliance on judgement of Hon'ble Delhi High Court in the case of PNB Finance & Industries Ltd. 2010-TIaL-730-HC-Delhi-IT and Circular of the Board is well placed and is assessee on the proposition that when an asset is held in capital field, the profit on its sale is necessarily to be treated as capital gains, squarely cover the issue involved in favour of the assessee. I may in particular refer to one of the judgement as reported in 170 Taxman 483 in the case of CrT v. Gulmohar Finance Ltd. wherein the Hon'ble Delhi High Court has held:
"It was noted by the Tribunal that in earlier assessment years, the assessee had shown the shares held in BT Tech Net Ltd. as investment right from the date of purchase and this was shown as such in the balance sheet of the assessee, which was filed along with the return of income. No objection was taken to this position in the earlier years. However, the Commissioner has now decided that it was not an investment without there being any change in facts and therefore, the Tribunal held that there was no occasion for the Commissioner to take a contrary view than what was disclosed and accepted on earlier occasions.
Even on merits, the Tribunal came to the conclusion that the shares held by the assessee in BT Tech Net Ltd. were an investment and therefore, any profit earned on the sale thereof is required to be treated as capital gains. Whether the shares were held by the assessee as an investment or stock-in-trade is a matter of fact and we do not find any perversity in the view taken by the Tribunal that the shares were held as investment.
19. The Assessing Officer has himself observed on page 5 in paragraph (vi) reproduced earlier in this order that the land in question is held as a fixed asset. Having so found by the A.O. himself, I have no hesitation in holding that profit on sale of the same was to be taxed as capital gain in view of the facts of the case as well as various judicial-pronouncements. I, therefore, reverse the findings of the A.O. and direct that the transaction be taken to be long-term capital gain and taxed accordingly. However as noted in para 13 on page 15 of this order, the A.O. has not had the benefit of examining the case for allowing the sale transaction as CIT(A) 13 I.T.A. Nos.1242 /DEL/2011 Gains, the A.O. is therefore, directed to examine and the claim and calculation of capital gains offered by the assessee in the revised return and allow the same as admissible as per the provisions of the act."
11. After pursuing the discussion held by Ld. CIT(A) in the light of relevant provisions of law, case law cited and findings given by Ld. CIT(A) as above, we are of the view that he has taken a just and proper view in the matter. Since no infirmity or flaw has been pointed out or found in the conclusion as drawn by Ld, CIT(A), therefore, we are not inclined to interfere in the order passed by Ld. CIT(A) in this regard. As such, while upholding the order of Ld. CIT(A) on this issue, we dismiss this ground of appeal of the Department.
12. In the result, the appeal of the revenue is dismissed.
13. Order pronounced in the open court on 18th Nov., 2013.
Sd./- Sd./- (T.S. KAPOOR) (U.B.S.BEDI) Accountant Member Judicial Member Dated: 18th Nov., 2013 Sp. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A)-XXV, New Delhi AR, ITAT, 5. CIT(ITAT), New Delhi NEW DELHI