COMMISSIONER OF INCOME TAX 8 MUMBAI versus GLOWSHINE BUILDERS & DEVELOPERS PVT. LTD on 4 May 2023

[2023] 7 S.C.R.

ACOMMISSIONER OF INCOME TAX 8 MUMBAI

v.

GLOWSHINE BUILDERS & DEVELOPERS PVT. LTD.

(Civil Appeal No. 2565 of 2022)

BMAY 04, 2023

[M. R. SHAH AND B. V. NAGARATHNA, JJ.]

Income Tax Act, 1961 – s.142, 143 – Non-disclosure of amount– Dispute related to the Assessment year (AY) 2009-10 i.e. FinancialYear (FY) 2008-09 – Assessee entered into an agreement wherebyCdevelopment rights in a property were sold at a Rs. 15,94,06,500/-– However, AO noticed that the aforesaid amount was not disclosedby assessee while filing the return of income – Explanation soughtfrom assessee – In response, the assessee stated that the aforesaidtransaction was duly offered to tax in AY 2008--09 reflecting aDconsideration of Rs. 5,24,27,354/- – It was claimed that a rectificationdeed was entered into whereby the value of development rights wasreduced from Rs. 15,94,06,500/- to Rs. 5,24,27,354/- – However,the addition of Rs. 15,94,06,500/- was made by the AO by treatingthe same as short term capital gains – The Commissioner confirmedthe order made by the AO – ITAT reversed the said finding and heldEthat the transaction was stock in trade – Also, confirmed that thesale consideration was Rs.5,24,27,354/- only – Appeals weredismissed by the High Court – On appeal, held: ITAT has neitherdealt with the findings given by the AO nor verified/examined thetotal sales made by the assessee during the relevant time and duringFthe previous years ITAT after examining opening and closing balancefor the AY 1996-97 to 2007-08 held that the transaction was sale instock in trade – Merely on the basis of recording of the inventory inthe books of accounts, the transaction in question would not becomestock in trade – As assessee claimed that rectification deed wasentered into entered into and the amount was reduced fromGRs.15,94,06,500/- to Rs.5,24,27,354/- – ITAT did not question thefactum of refund of differential amount of Rs.10,69,79,146/- – ITATought to have appreciated that the moment the receipt of amount isreceived and recorded in the books of accounts of the assesseeunless shown to be refunded/returned, it is to be treated as incomeHin the hands of the recipient – ITAT failed to consider relevant aspects COMMISSIONER OF INCOME TAX 8 MUMBAI v. GLOWSHINEBUILDERS & DEVELOPERS PVT. LTD.

while considering transaction in question – Hence, the matter isrequired to be remanded to the ITAT to consider the appeal afresh –Impugned judgment and order passed by the High Court and thatof the ITAT are hereby quashed and set aside.

Partly allowing the appeal, the Court

Conclusion

HELD : 1. In the present case, the AO treated thetransaction as capital assets. ITAT has reversed the said findingsand held that the transaction was stock in trade. It appears thatthe AO specifically recorded the findings on examining the balancesheets for the AY 2006-07 to 2009-10 that there was not even asingle sale during all these years and that there were negligibleexpenses and the transaction in question was the only transactioni.e., transfer of development rights in respect of land andconsequently, it was held that the transaction was one of transferof capital assets and not one of transfer of stock in trade. However,the ITAT after examining the opening and closing balance forthe AY 1996-97 to 2007-08 observed that in multiple years,inventory was shown in the balance sheet, without discussingthe claim of the assessee and held that the transaction in questionis sale of stock in trade. It appears that ITAT has neither dealtwith the findings given by the AO nor verified/examined the totalsales made by the assessee during the relevant time and duringthe previous years. Merely on the basis of recording of theinventory in the books of accounts, the transaction in questionwould not become stock in trade. As per the settled position oflaw in order to examine whether a particular transaction is saleof capital assets or business expense, multiple factors likefrequency of trade and volume of trade, nature of transaction overthe years etc., are required to be examined. From the order passedby the ITAT, it appears that the ITAT has without examining anyof the relevant factors confirmed that the transaction was transferof stock in trade. [Para 7][1019-C-F]

2. The High Court has also failed to appreciate that even inthe event of acceptance of claim made by the assessee, includingthe assertion that Rs. 15,94,06,500/- was shown in the tax returnin the earlier AY i.e., 2008-09, the differential amount of A

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ARs. 10,69,79,146/- on account of reduction in sale considerationof development rights was to be assessed in the current year aseither capital gain or business income. At this stage, it is requiredto be noted that as per the claim of the assessee and the entrymade and reflected in the ledger account of the assessee as on31.03.2008, an amount of Rs. 15,94,06,500/- was paid to a thirdBparty i.e., SICCL. However, thereafter, according to the assesseethere was a rectification deed dated 30.05.2008 and the amountwas reduced from Rs. 15,94,06,500/- to Rs. 5,24,27,354/-. TheITAT has not even questioned the factum of refund of differentialamount of Rs. 10,69,79,146/- to the purchaser on account ofCrectification deed dated 30.05.2008. The ITAT ought to haveappreciated that the moment the receipt of amount is receivedand recorded in the books of accounts of the assessee unlessshown to be refunded/returned, it is to be treated as income inthe hands of the recipient. However, the ITAT has also notconsidered the aforesaid aspect. [Para 7.1][1019-G-H]D

3. In view of the above and as observed hereinabove, theITAT has not considered the relevant aspects/relevant factorswhile considering the transaction in question as stock in tradeand has not considered the relevant aspects as above which asEsuch were required to be considered by the ITAT, the matter isrequired to be remanded to the ITAT to consider the appeal afreshin light of the observations made hereinabove and to take intoconsideration the relevant factors while considering thetransaction as stock in trade or as sale of capital assets or businesstransaction. [Para 7.2][1020-D]

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4. In view of the above and for the reasons stated above,the present appeal succeeds in part. The impugned judgmentand order passed by the High Court and that of the ITAT arehereby quashed and set aside and the matter is remitted back tothe ITAT to consider the appeal afresh in accordance with lawGand on its own merits. [Para 8][1020-E-F]

Mantri Techzone Private Limited v. Forward Foundationand Ors. (2019) 18 SCC 494; Raja J.Rameshwar Raov. Commissioner of Income Tax, Hyderabad (1961) 42ITR 179 – referred to.

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2565of 2022.

From the Judgment and Order dated 04.09.2017 of the High Courtof Judicature at Bombay in ITA No. 1756 of 2014.

Balbir Singh, ASG, Rupesh Kumar, Ms. Swarupama Chaturvedi,Devashish Bharukha, Raj Bahadur Yadav, Advs. for the Appellant.

S. K. Bagaria, Sr. Adv., Ujjwal A. Rana, Himanshu Mehta forM/s Gagrat and Co., Advs. for the Respondent.

The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 04.09.2017 passed by the High Court of Judicature atBombay in Income Tax Appeal No. 1756 of 2014, by which, the HighCourt has dismissed the said appeal preferred by the Revenue, therebyconfirming the order passed by the Income Tax Appellate Tribunal, “G”Bench, Mumbai (hereinafter referred to as the ITAT) by which the additionmade 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) 2009-10i.e., Financial Year (FY) 2008-09. The assessee entered into an agreementdated 06.05.2008 with one M/s Kirit City Homes Pvt. Ltd. Thedevelopment rights in a property at Vasai were sold for a totalconsideration of Rs. 15,94,06,500/-. It appears that as per paragraph 6of the development agreement and as per the receipt of the deed,consideration of Rs. 15,94,06,500/- was agreed and received by theassessee. During assessment, it was noticed by the AO that the aforesaidwas not disclosed while filing the return of income. The assessee did notenter the aforesaid income into his profit and loss account. The assesseewas asked to explain the transaction as it was not appearing in its profitand loss account. The agreement dated 06.05.2008 was also furnishedto the assessee along with the notice. In response, the assessee videletter dated 04.10.2011 stated that the transaction was duly offered to A

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Atax in AY 2008-09 reflecting a consideration of Rs. 5,24,27,354/-. Theassessee also stated that it had entered into a “rectification deed” withthe said party on 30.05.2008. By the said ratification, it was claimed thatthe value of the development rights was reduced from Rs. 15,94,06,500/- to Rs. 5,24,27,354/-. As the transaction was pertaining to AY 2009-10,the assessee was served a further notice dated 10.10.2011 under SectionB142(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 youhad entered into “Development Agreement” with M/s. KiritCCity Homes Mau, Pvt. Ltd in respect of various propertiesas detailed in the said agreement. It is also seen that youhad 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, sothis transaction falls under the A.Y. 2009-10 whereas youDhad offered this transaction in the A.Y. 2008-09. Pleaseexplain the logic and basis thereof

(iii) Perusal of the ‘Development Agreement’ dt. 06.05.2008,you had claimed to had received the entire sale proceedsof Rs. 15,94,06,500/ -. In this regard, you are requested toEfurnish the details of sale proceeds received mode theredetails of proceeds realized, etc in respect of sale proceedsof Rs. 15,94,06,500/-. Please also furnish the copy of ‘BankBook’ / ‘Cash Book’ reflecting the receipts and narrationsthereof alongwith copy of the bank account statementFreflecting credits thereof.

(iv) Vide ‘Deed of rectification’ dt. 30.05.2008, you had claimedto have revised the value from Rs. 15,94,06,500/- to Rs.5,24,27,354/-. In this regard, please explain whether youhad refunded the differential amount. If yes, please furnishGthe mode and details thereof with supporting documentaryevidences.

(v) Vide ‘Deed of rectification’ dt. 30.05.2008, you had claimedto have revised the value from Rs. 15,94,06,500/- to Rs.5,24,27,354/-. In this regard please furnish the basis thereofHwith supporting documentary evidences.

(vi) Considering the above, I am of the view that for the aboveAtransaction, provisions of section 50C of the I.T. Act 1961are clearly applicable despite the reduction in youragreement value. In this regard, you are requested to explainas to why the provisions of section 50C of the I.T. Actshould not be initiated as well as please explain as to whyBthe sale proceeds should not be treated at Rs. 15,94,06,500/-.

(vii) Perusal of all the documents furnished by you in respect ofabove transactions, I am of the view that the transactiondefinitely belongs to this year and market value u/s. 50Cshould be considered as the sale consideration. In thisregard, please explain as to why the treatment as mentionedabove does not be made applicable in your case. In view ofthe above, it is proposed to treat the transaction for thisyear and to add the sale proceeds of Rs. 15,94,06,500/- inyour hands. You are requested to furnish your explanation,if any, with supporting documentary evidences.”

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2.1 The assessee replied to the same and with regard to theapplicability of provision of Section 50C, the assessee stated that theassessee had sold its stock in trade and not the assets. The AO madethe addition of Rs. 15,94,06,500/- by treating the same as short termcapital gains and consequently, added the same to the income for theyear under consideration. The Commissioner, IT (Appeals), Mumbaidismissed the appeal and confirmed the addition made by the AO andupheld the view of the AO to treat the transaction as income for capitalgains for the AY 2009-10. The CIT (A) also discarded the submissionsmade by the assessee that transfer of development rights were made inFY 2008-09 pursuant to the MOU dated 27.12.2007. In the absence ofproof to buttress such claim, the CIT (A) also discarded the claim of theassessee that value of the transfer of development rights was reducedfrom Rs. 15,94,06,500/- to Rs. 5,24,27,354/- E

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2.2 The assessee filed an appeal before the ITAT. The ITAT,after examining the chart submitted by the assessee pertaining to openingbalance and closing balance for the assessment years 1996-97 to 2007-08 held that the assessee in all these years showed inventory andexpenses. Consequently, ITAT held that the assessee is engaged in thebusiness of building and development. The ITAT further noted that the H

Aassessee showed the cost of land along with related expenditure as workin progress/inventory since 1999-2000 and the assessment orders weresubsequently made under Section 143(3) of the IT Act, wherein the AOaccepted the nature of business of the assessee. Therefore, ITATconcluded that what was sold by the assessee was part of its inventoryand not a capital asset. The ITAT also held that the assessee has reducedBthe sale consideration from Rs. 15,94,06,500/- to Rs. 5,24,27,354/- duringFY 2007-08 on the basis of MOU dated 27.12.2007 and the said amountof the income has already been declared in the AY 2008-09 i.e., FY2007-08 and therefore, such income cannot be declared in AY 2009-10i.e., FY 2008-09. The ITAT also confirmed and/or agreed with theCassessee that the sale consideration was Rs. 5,24,27,354/- only. Basedon these findings, the ITAT reversed the findings of the AO as well asthe CIT (A) and allowed the appeal by deleting the addition made by theAO of Rs. 15,94,06,500/-.

2.3 The Revenue preferred an income tax appeal before the HighDCourt by way of ITA No. 1756/2014. By the impugned judgment andorder, the High Court has dismissed the said appeal filed by the Revenueby holding that none of the questions proposed by the Revenue aresubstantial questions of law.

2.4 Feeling aggrieved and dissatisfied with the impugned judgmentEand order passed by the High Court dismissing the appeal, the Revenuehas preferred the present appeal.

3. Shri Balbir Singh, learned ASG has appeared on behalf of theRevenue and Shri S.K. Bagaria, learned Senior Advocate has appearedon behalf of the assessee.F

4. Shri Balbir Singh, learned ASG appearing on behalf of theRevenue has vehemently submitted that the High Court has failed toappreciate that the order of the ITAT was perverse and contrary tofacts on record. It is submitted that the ITAT failed to appreciate thatthe assessee has taken contrary stands before the assessing authorityGand the Tribunal, on account of sale of development rights. It is submittedthat firstly, the assessee vide its letter dated 25.11.2011 submitted theLedger Account in respect of development agreement. The perusal ofthe said Ledger Account revealed that the assessee claimed to havereceived income of Rs. 15,94,06,500/- from a development agreementon 31.03.2008 and the said entry was reversed on the same day byH

passing a rectification entry on 31.03.2008 itself. Therefore, it wasreflected that the aforesaid payment was paid by the purchasing partyon 31.03.2008 to an entity SICCL and all these entries were reflected onthe same date. Based on the Ledger furnished by the assessee, pertinentquestions were raised by the Assessing Officer which included reasonof rectification and confirmation of the fact that the differential amountof Rs 10,69,79,146/- was refunded to the purchaser. However, perusalof the order passed by the ITAT reflects that the fact of receipt ofmoney on 31.03.2008 was not even discussed. On the contrary, areference was made to the MOU dated 27.12.2007 for a totalconsideration of Rs. 5,24,27,354/-. It is submitted that the ITAT withoutexamining the true nature of transaction and entry made in the books ofaccounts of the assessee simpliciter confirmed that the transactionspertained to earlier years i.e., Assessment Year 2008-09 and the reductionof amount arising out of the Development Agreement dated 06.05.2008and Rectification dated 30.05.2008 was due to mistake.

4.1 It is further submitted by Shri Balbir Singh, learned ASG, thatthe ITAT failed to take into account the fact that the entry made andreflected in the Ledger Account of the assessee as on 31.03.2008 wason 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 ofrefund of differential amount of Rs. 10,69,79,146/- to the purchaser onaccount of Rectification Deed dated 30.05.2008. That the ITAT hasfailed to appreciate that the moment the receipt of amount is receivedand recorded in the books of accounts of the assessee, unless shown tobe refunded/returned, is to be treated as income in the hands of therecipient.

4.2 Secondly, balance sheets for the Assessment Years 2006-07to 2009-10 were examined by the Assessing Officer and it was recordedthat there was not even a single sale during all these years and therewere negligible expenses and the transaction in question was the onlytransaction i.e., transfer of development rights in respect of land andconsequently, it was held that the transaction was that of transfer ofcapital asset and not that of transfer of stock in trade. However, theITAT in its order, after examining the opening and closing balance forthe year 1996-97 upto 2007-08 held that in multiple years there wasinventory shown in the Balance Sheet and since subsequent assessmentorders were made under Section 143(3) of the Income Tax Act, without ABC

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Adisputing the claim of assessee, held that the transaction in question issale of stock in trade. It is contended that the ITAT neither dealt with thefindings given by the Assessing Officer nor verified/examined the totalsales made by the assessee during the relevant year and during theprevious years. Therefore, the ITAT as well as the High Court havematerially erred in holding that, merely because the entry made in theBbooks of accounts involved recording of inventory, the transaction inquestion becomes sale of stock in trade. That, it is well settled that inorder to examine whether a particular transaction is sale of capital assetor business transaction, multiple factors like frequency of trade, volumeof trade, nature of transaction over the years etc. are required to beCexamined. However, in the present case, the ITAT without examiningany of the relevant factors confirmed that the transaction was transferof stock in trade.

4.3 It is further submitted that the ITAT without any basis andsolely on the basis of claim made by the assessee, contrary to the accountsDproduced before the Assessing Officer, agreed that the transaction wasreflected as sale in the tax return for the Assessment Year 2008-09.That, interestingly, the ITAT did not even question as to what happenedto the differential amount of Rs. 10,69,79,146/- on account of reductionof sale value of development rights.

E4.4 It is further submitted by Shri Balbir Singh, learned ASG, thatthe High Court has failed to examine the inherent contradiction in theorder of the ITAT and that the claim was allowed by the Tribunal, contraryto the records produced before the Assessing Officer. Therefore, theorder of the High Court holding that there was no substantial question oflaw involves is illegal and perverse.F

4.5 It is further submitted that the High Court has failed toappreciate that, even in the event of acceptance of claim made by theassessee, including the assertion that Rs. 5,24,27,354/- was shown in thetax return for the earlier Assessment Year i.e., 2008-09, the differentialamount of Rs. 10,69,79,146/- on account of reduction in the saleGconsideration of development rights is to be assessed in the current yearas either as capital gain or business income. This is without prejudice tothe submission that the Assessing Officer has correctly assessed theincome in his Assessment Order dated 29.11.2011.

4.6 Making the above submissions, it is prayed that the presentappeal be allowed and the order passed by the ITAT as well as the HighCourt be set aside and the order of the Assessing Officer be restored.

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5. Shri S.K. Bagaria, learned Senior Advocate appearing on behalfof the assessee has taken us to the findings recorded by the High Courtas well as the ITAT. It is submitted that the assessee is engaged in thebusiness of building and development of properties since the year 1999-2000. That the assessee’s balance sheets show that it had work-in-progress/inventories year after year, since 1999-2000. The same hasbeen accepted by the department all these years; even after scrutinyassessments under Section 143(3) of the Income Tax Act, 1961.

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5.1 It is submitted that the assessee had entered into an MOUdated 27.12.2007 with M/s Kirit City Homes Private Limited, whereby,Development Rights in a property at Vasai were sold for a totalconsideration of Rs. 5,24,27,354/-. That the said MOU was on recordbefore the lower authorities and has been referred in the AssessmentOrder as well as in the order passed by the CIT (A). In connection withthe said transaction, detailed findings were given by the Income TaxAppellate Tribunal (Tribunal/ITAT) and these were also duly consideredby the High Court. The findings given by the Tribunal were pure findingsof facts and therefore, the High Court has rightly dismissed the appealafter considering the facts and the tribunal’s order and by holding that nosubstantial question of law arises in the matter.

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5.2 Shri S.K. Bagaria, learned Senior Advocate has taken us tothe following facts recorded by the High Court in the impugned judgmentand order: - F

a)It is a common ground that the assessee is in the businessof building and development of properties. There was nochange in the activities of the assessee during the year underconsideration.

b)For the year ending 31/03/2006 the assessee disclosedinventories at Rs 8.66 croresG

c)For the year ending 31/03/2007 there was no change andthe same figure of Rs 8.66 crores was disclosed.

d)For the year ending 31/03/2008 (assessment year 2008-09), the assessee showed sale of land development rights H

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[2023] 7 S.C.R.

at Rs 5,24,27,354/- and the cost of land was shown at Rs5,21,37,454/-.

5.3 It is submitted that in connection with the aforesaid transactionduring financial year 2007-08, the High Court has further considered thefollowing facts in the impugned judgment and order: -

i.In MOU dated 27/12/2007 with KCH transfer ofdevelopment rights was for the said total consideration ofRs 5,24,27,354/-.

ii.The assessee was holding 50.16 acres of land, out of which27.44 acres of land was the subject matter of the aforesaidMOU dated 27/12/2007. Total cost of the land wasdetermined proportionately.

iii.On 02/01/2008 necessary entries were passed debiting theaccount of KCH but crediting the account of one M/sSICCL. The assessee owed SICCL a sum of Rs 8.10 croresand it therefore directed KCH to pay the considerationdirectly to SICCL.

iv.Corresponding entries relating to the aforesaid transactionwere 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 year2007- 08 relating to assessment year 2008-09. In thatassessment year, the assessee offered to tax the incomearising out of the aforesaid transaction under the head“business income”.

vii.In the development agreement dated 06/05/2008 the saleconsideration was incorrectly mentioned as Rs 15,94,06,500/- and on realising the mistake, a Deed of Rectification ofexecuted on 30/05/2008. This deed of rectification wasregistered with the office of the Sub Registrar, Vasai.

5.4 Shri Bagaria, learned Senior Advocate has also taken us tothe following further facts recorded and findings given by the ITAT: - a)The aforesaid 50.16 acres of land was acquired by theassessee in the financial year 1996-97. The tribunal gave year

wise details from 1996-97 which clearly showed that theacquisition of land was in financial years 1996-97 and 2004-05. During the financial year 2007- 08, cost of the inventorywas Rs. 9,53,06,475/- and the tribunal gave a definite findingthat “the above inventory represents the cost of 50.16 acresof land out of which 27.44 acres has been sold videMemorandum of Understanding dated 27/12/2007”.

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b)The assessee was showing work in progress under the headcurrent assets and loans and advances in the balance sheetsfiled with the Department and in the Income Tax Returns.The tribunal considered the year-wise position and gave theCfollowing findings for different years.

c)For assessment year 2001-02 the assessee’s Return wasselected for scrutiny assessment and the assessment wascompleted under section 143 (3) vide order dated 11/09/2003,wherein, the assessing officer gave a categorical finding thatthe assessee was engaged in the business of builder anddeveloper, erectors, construction of building, houses,apartments, ownership flats. Work in progress of Rs 7.66crores was also mentioned in the assessment order and itcovered cost of land and various expenses including landdevelopment, stamp charges etc.

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d)For financial year 2002-03, work in progress was shown atRs. 8.51 crores.

e)For financial years 2003-04 and 2004-05 (year ending 31/03/2004 and 31/03/2005), inventories were shown at Rs 8.58crores and Rs 8.66 crores respectively. For the assessmentyear 2005-06 (financial year 2004-05) the assessee was againsubjected to scrutiny assessment and its assessment wascompleted under Section 143 (3) by order dated 30/11/2007and the assessing officer again acknowledged the businessof the assessee as that of builder and developer, erectors,construction of building, houses, apartments, ownership flats.The assessing officer specifically found that there was nochange in the activities of the assessee during the year underconsideration.

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Af)For the financial years 2006-07 and 2007-08 the inventorieswere shown at Rs 8.66 crores and there was no change. Forthe financial year 2007-08 (year ending 31/03/2008) theassessee had shown sale of land development right at Rs.5,24,27,354/- and cost of the said land was shown at Rs5,21,37,454/- The facts relating to MOU dated 27/12/2007,Bnecessary entries being made in the books of accounts on02/01/2008, debiting the account of KCH and crediting theaccount of SICCL, mistake in the development agreementdated 06/05/2008 and its being corrected by the said registereddeed of rectification were also mentioned.C

g)It was found that since 1999-2000 the assessee was showingcost of land along with other related expenditures as work inprogress/inventory in the balance sheets and its Income TaxReturns for several intervening years as the above wereassessed under Section 143 (3) wherein the nature of theDassessee’s business was accepted by the assessing officer.It was held that what was sold by the assessee was part ofits inventory and not a capital asset and the tribunal decidedthe matter by taking into consideration these undisputed facts.

5.5 It is submitted that based on the aforesaid facts and findings,Ethe ITAT has rightly held that the impugned transaction related to transferof stock in trade and that the assessee had shown “stock in trade/inventories” year after year in its balance sheets and its contention wasaccepted by the Assessing Officer and twice the assessments werecompleted under Section 143(3). It is submitted that ultimately the Tribunalconcluded the issues as under: -F

a)The impugned transaction related to transfer of stock in tradeand that the assessee had been showing “stock in trade/inventories” year after year in its balance sheets and itscontention was accepted by the assessing officer and twicethe assessments were completed under Section 143(3).G

b)The said transaction had taken place during the financial year2007-08 pertaining to assessment year 2008-09. The assesseehad shown the sale consideration as also the cost of land inits balance sheet and profit and loss account filed with theReturn of Income for the said assessment year 2008-09. EvenH

COMMISSIONER OF INCOME TAX 8 MUMBAI v. GLOWSHINEBUILDERS & DEVELOPERS PVT. LTD. [M. R. SHAH, J.]

in the abstract from AST, the assessing officer had referredthe said sale as part of the return for assessment year 2008-09.

c)Considering the MOU and the Deed of Rectification, theconsideration was Rs 5.24 crores. The assessing officercompleted assessments simply by relying on AIR datareceived from the office of the Sub- Registrar, Vasai but failedto consider the Deed of Rectification registered by the sameSub-Registrar and did not even care to verify the figure fromthe said Sub-Registrar, Vasai.

d)Perusal of balance sheets of the assessee since 1999-2000clearly showed that the assessee had been showing work inprogress/inventories year after year and apportioned the costin proportion to the part of the land transferred and the costof the land was as per the cost shown in the Return of Incomefor assessment year 2008-09.

e)Since the impugned transaction related to the business of theassessee and was to be assessed as such under the head“profit and gains of business or profession” the provisions ofsection 50C of the Income Tax Act, 1961 were not applicableto the facts of the case.

5.6 It is submitted that the above findings recorded by the ITATwhich were upheld by the High Court are pure findings of facts andtherefore, no substantial question of law arises in the matter. Therefore,it is prayed that no interference of this Court against the findings recordedon material and evidence is called for. Reliance is placed on the decisionof 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 Advocateappearing on behalf of the assessee that the assessment order simplyreferred to AIR data. As recorded in the assessment order itself theassessee had submitted that the transaction in question was duly offeredto tax in assessment year 2008-09 reflecting its consideration at Rs.5,24,27,354/-. The MOU relating to the said transaction was alreadybefore the assessing officer and the consideration of Rs. 5,24,27,354/-was duly mentioned in the MOU. In the Development Agreement, therewas a mistake in mentioning the consideration and on realizing the error, A

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Awithin a short period of 24 days, the aforesaid Deed of Rectificationwas entered into and was duly registered. The said consideration of Rs.5,24,27,354/- was correctly mentioned in the MOU which was beforethe Assessing Officer as well as before the CIT (Appeals). The amountmentioned in the Deed of Rectification, rectifying the mistake in theDevelopment Agreement also mentioned the same consideration andBthe said Deed of Rectification was duly registered with the Sub-Registrar,Vasai with whom the Development Agreement was also registered. It isimportant to mention that if the Department intended to dispute thevaluation, it could have easily referred the matter to the valuation officerbut it did not do so. Not only this, as recorded by the tribunal, theCdevelopment agreement as well as the deed of rectification were bothregistered with the same Sub-Registrar, Vasai but the income tax officerdid not make any enquiry from the said Sub-Registrar.

5.8 It is further submitted that with regard to the nature of businessof the assessee, the income tax officer proceeded as if there must beDregular transactions of purchase and sale every year. Firstly, the incometax Department itself had accepted that the assessee’s business was ofbuilder and developer, erectors, construction of buildings, houses etc andthe assessments on that basis were completed year after year includingthe assessments under Section 143 (3) for different years as mentionedabove. Secondly, the regularity and frequency itself depends on the natureEof business and nothing prevents the assessee from buying plots of land,holding them as stock in trade, developing or continuing to hold as it isand then entering into the transactions of sale or disposal or transfer atan appropriate time. Reliance in this regard is placed on the judgementreported in (1961) 42 ITR 179 (Raja J. Rameshwar Rao Vs.FCommissioner of Income Tax, Hyderabad) wherein it was held interalia that, “no doubt, this was only a single venture; but even a singleventure may be regarded as in the nature of trade or business.” Asregards the applicability of Section 50C of Income Tax Act, it is submittedthat 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 noGapplication at all. In the income tax return for assessment year 2008-09(during which the relevant events as mentioned above took place) thetransaction in question was duly offered to tax under the head “profitand gains of business and profession”. All these facts were consideredby the tribunal and findings of fact as mentioned above were given.

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5.9 Making the above submissions that the High Court is correctin holding that the Tribunal’s findings were findings of fact supported bywritten documents and corroborating materials and that there was nothingperverse in the tribunal’s findings and the case did not involve anysubstantial question of law, it is prayed to dismiss the present appeal.

6. Heard learned counsel appearing on behalf of the respectiveparties at length.

7. In the present case, the AO treated the transaction as capitalassets. ITAT has reversed the said findings and held that the transactionwas stock in trade. It appears that the AO specifically recorded thefindings on examining the balance sheets for the AY 2006-07 to 2009-10that there was not even a single sale during all these years and that therewere negligible expenses and the transaction in question was the onlytransaction i.e., transfer of development rights in respect of land andconsequently, it was held that the transaction was one of transfer ofcapital assets and not one of transfer of stock in trade. However, theITAT after examining the opening and closing balance for the AY 1996-97 to 2007-08 observed that in multiple years, inventory was shown inthe balance sheet, without discussing the claim of the assessee and heldthat the transaction in question is sale of stock in trade. It appears thatITAT has neither dealt with the findings given by the AO nor verified/examined the total sales made by the assessee during the relevant timeand during the previous years. Merely on the basis of recording of theinventory in the books of accounts, the transaction in question would notbecome stock in trade. As per the settled position of law in order toexamine whether a particular transaction is sale of capital assets orbusiness expense, multiple factors like frequency of trade and volume oftrade, nature of transaction over the years etc., are required to beexamined. From the order passed by the ITAT, it appears that the ITAThas without examining any of the relevant factors confirmed that thetransaction was transfer of stock in trade.

7.1 The High Court has also failed to appreciate that even in theevent of acceptance of claim made by the assessee, including the assertionthat Rs. 15,94,06,500/- was shown in the tax return in the earlier AY i.e.,2008-09, the differential amount of Rs. 10,69,79,146/- on account ofreduction in sale consideration of development rights was to be assessedin the current year as either capital gain or business income. At thisstage, it is required to be noted that as per the claim of the assessee and A

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Athe entry made and reflected in the ledger account of the assessee as on31.03.2008, an amount of Rs. 15,94,06,500/- was paid to a third partyi.e., SICCL. However, thereafter, according to the assessee there wasa rectification deed dated 30.05.2008 and the amount was reduced fromRs. 15,94,06,500/- to Rs. 5,24,27,354/-. The ITAT has not even questionedthe factum of refund of differential amount of Rs. 10,69,79,146/- to theBpurchaser on account of rectification deed dated 30.05.2008. The ITATought to have appreciated that the moment the receipt of amount isreceived and recorded in the books of accounts of the assessee unlessshown to be refunded/returned, it is to be treated as income in the handsof the recipient. However, the ITAT has also not considered the aforesaidCaspect.

7.2 In view of the above and as observed hereinabove, the ITAThas not considered the relevant aspects/relevant factors while consideringthe transaction in question as stock in trade and has not considered therelevant aspects as above which as such were required to be consideredDby the ITAT, the matter is required to be remanded to the ITAT to considerthe appeal afresh in light of the observations made hereinabove and totake into consideration the relevant factors while considering thetransaction as stock in trade or as sale of capital assets or businesstransaction.

E8. In view of the above and for the reasons stated above, thepresent appeal succeeds in part. The impugned judgment and order passedby the High Court and that of the ITAT are hereby quashed and setaside and the matter is remitted back to the ITAT to consider the appealafresh in accordance with law and on its own merits, while taking intoconsideration the observations made hereinabove and to take anFappropriate decision on whether the transaction in question is the sale ofcapital assets or sale of stock in trade and other aspects referredhereinabove. It is observed that we have not expressed anything onmerits in favour of either of the parties. It is ultimately for the ITAT totake an appropriate decision in accordance with law and on its ownGmerits as above.

Ankit Gyan

(Assisted by : Abhishek Pratap Singh and Tamana, LCRAs)

Appeal partly allowed.

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