Commissioner of Income Tax 8 Mumbai vs Glowshine Builders and Developers Pvt. Ltd.

Commissioner of Income ...Appellant(s) Tax 8 Mumbai Versus

Glowshine Builders & …Respondent(s) Developers Pvt. Ltd.

JUDGMENT

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

Signature Not Verified No. 1756 of 2014, by which, the High Court Digitally signed by R Natarajan Date: 2023.05.04 16:38:34 IST Reason: has dismissed the said appeal preferred by

Page 1 of 44 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/­ on 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.

3. Shri Balbir Singh, learned ASG has appeared

on behalf of the Revenue and Shri S.K.

Bagaria, learned Senior Advocate has

appeared on behalf of the assessee.

4. Shri Balbir Singh, learned ASG appearing on

behalf of the Revenue has vehemently

submitted that the High Court has failed to

appreciate that the order of the ITAT was

perverse and contrary to facts on record. It is

submitted that the ITAT failed to appreciate

that the assessee has taken contrary stands

before the assessing authority and the

Tribunal, on account of sale of development

Page 10 of 44 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 at 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 at 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 as 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/­ to 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