ITA Nos. 5687/Mum/2001 and 3/Mum/2002 are cross appeals by assessee and revenue respectively for asst. yr. 1998-99 and are directed against order of CIT(A), Mumbai, dt. 31st Oct., 2001. We have heard arguments of both sides and have also perused records. relevant facts, in short, as ascertainable from orders of authorities below and other records are that assessee is partnership firm, which came into existence on 3rd Aug., 1981, partnership deed having been executed on 29th Dec., 1981. object of assessee-firm was to carry on business of construction of buildings, sale/purchase and development of land, effecting repairs and renewal to buildings and render allied service, etc., and such other business as may be mutually agreed upon by partners in terms of agreement dt. 12th Nov., 1981. assessee-firm agreed to purchase piece of land together with structures standing thereon admeasuring 15,000 sq. mts. lying and situated at Andheri Kurla Road, Mumbai, from owner Miss G.D. Coomana for aggregate consideration of Rs. 11 lakhs. original owner executed deed of confirmation on 28th June, 1982 confirming agreement for sale and it was registered with Sub-Registrar of Assurances. said property was reserved initially for recreation garden and portion of said property was encroached upon authorisedly. property was also affected by provisions of Urban Land (Ceiling and Regulation) Act, 1976. physical possession of said property since date of its acquisition was with one M/s Krishnakumar & Co. assessee-firm underwent various changes in its constitution from time to time. New partners were admitted, profit-sharing ratios were revised and some of old partners retired. However, terms and conditions of partnership, as evidenced in subsequent deed dt. 1st April, 1993 and 30th Dec., 1993, continued to be more or less similar to those contained in original deed of partnership dt. 29th Dec., 1981. On 24th March, 1994, another deed of partnership was executed clarifying that activity of assessee-firm was only with respect to letting out of property. assessee took steps to obtain physical possession and paid Rs. 5 crores to M/s Krishnakumar & Co. On receipt of said amount, deed of release was executed on 28th March, 1994 whereby said M/s Krishnakumar & Co. relinquished all their right, title, interest and claim in said property in favour of appellant. One, Mr. Bashir Ahmed was also claiming ownership of said property through adverse possession and this was also settled in terms Consent Terms dt. 14th July, 1997 filed in Suit No. 1250 of 1997 on payment of compensation of Rs. 1.08 crores. Payment of compensation of Rs. 90 lakhs to M/s Lotus Trading Co. and M/s G.K. Enterprises was also claimed to have been made to obtain surrender of their tenancy rights. property in question was claimed as held and shown in books of account as investment; and in balance sheet it was shown as asset from very beginning. In Revenue records, said property was shown as held for agriculture use and absolutely no attempt was made by appellant, after acquisition, to convert same to non-agriculture use. Subsequently, after quite sometime appellant made efforts to clear all legal hurdles, perfect title and sell property in question. During previous year relevant to asst. yr. 1988-99, appellant agreed to sell said property to M/s Hotel Leela Venture Ltd. for aggregate consideration of Rs. 56.20 crores by executing memorandum of understanding dt. 27th June, 1997. conveyance deed was executed on 19th Jan., 1998 after obtaining clearances from appellate authority. assessee filed return of income for asst. yr. 1998-99, year under appeal, declaring transfer of said property as its long-term capital asset, resulting in capital gains and returning taxable long-term capital gain of Rs. 25.93 crores after claiming various expenses, indexed cost of acquisition and cost of improvement thereof. Order under s. 143(3) was passed on 30th March, 2000 determining total income at Rs. 40.55 crores treating transactions of purchase of land by appellant on 12th Nov., 1981 and its subsequent sale on 27th June, 1997 as adventure in nature of trade and charging gains arising therefrom under head Profits and gains of business or profession . AO also disallowed claim of compensation payments of Rs. 50 lakhs to M/s Lotus Trading Co. and payment of Rs. 40 lakhs t o M/s G.K. Enterprises. In his assessment order AO placed reliance on t o M/s G.K. Enterprises. In his assessment order AO placed reliance on original partnership deed dt. 29th Dec., 1981 as also on various deeds of reconstitution of partnership, dt. 1st April, 1993 and 13th Dec., 1993. supplementary partnership deed dt. 23rd March, 1994, purchase deed of property dt. 12th Nov., 1981 and release deed dt. 28th March, 1994. Aggrieved by AO s assessment order, assessee preferred appeal before CIT(A), who granted partial relief to assessee by holding that assessee acquired land in question as asset in year 1981 constituting investment of partnership firm and it was only in March, 1996, when appellant made application for commencement certificate and development permission, that asset in question got converted into stock-in-trade. Therefore, year ending 31st March, 1996 is to be taken as year in which conversion of asset into stock-in-trade took place. Under these circumstances, AO will have to compute capital gain by working out fair market value as on 31st March, 1996. difference between sale consideration realized on 19th Jan., 1998, amounting to Rs. 56.2 crores and fair market value on 31st March, 1996 as reduced by admissible expenses ( s already considered in assessment order) would constitute Business Income. learned CIT(A) also directed AO that for arriving at FMV AO will take inflation index of 281 as on 31st March, 1996, with reference to inflation index of 331 on sale price of Rs. 56.2 crores in asst. yr. 1998-99; and that cost of acquisition and cost of improvement will have to be indexed for computing capital gain in year of conversion i.e., asst. yr. 1996-97, which will suffer tax in current year in view of provisions of s. 45(2) of IT Act, 1961. learned CIT(A), thus, treated land as investment till 25th March, 1996 (the date on which application was made by assessee to BMC for IOD), conversion thereof into stock-in-trade on said date. Hence, aggrieved by impugned appellate order of learned CIT(A), both assessee as well as revenue are in appeal before Tribunal. In ITA No. 5687/Mum/2001, assessee has raised following grounds of appeal before Tribunal: "1. On facts and circumstances of case and in law, learned CIT(A) erred in holding that it was case of conversion of investment into stock-in-trade on 25th March, 1996 and erred in not appreciating that transaction was purely case of transfer of capital asset. On facts and circumstances of case and in law, learned CIT(A) erred in not allowing expenses incurred on development during asst. yrs. 1983-84 to 1993-94 amounting to Rs. 3,90,931 duly accounted for and reflected in balance sheets on respective dates. On facts and circumstances of case and in law, learned CIT(A) erred in not allowing payments made to two tenants, viz., Lotus Trading Co. and G.K. Enterprises amounting to Rs. 50 lakhs and Rs. 40 lakhs respectively, towards compensation charges. CIT(A) erred in not appreciating that it was necessary cost to be incurred in order to hand over vacant possession of property to buyer. On facts and circumstances of case and in law, learned CIT(A) erred in charging interest under ss. 234A and 234B. 5. appellant craves leave to add, amend and/or alter any of grounds of appeal if need be. appellant prays that on grounds stated above, they may be granted relief by allowing claim of capital gains made by appellants after allowing deductions for development expenses amounting to Rs. 3,90,931 incurred during asst. yrs. 1983-84 to 1993-94 and compensation payments amounting to Rs. 90 lakhs." In ITA No. 3/Mum/2002, Revenue has raised following grounds of appeal before Tribunal: "1(i) On facts and circumstances of case and in law, learned CIT(A) erred in directing to treat plot of land situated at Andheri Kurla Road, Mumbai, as investment up to 25th March, 1996, date on which assessee- firm made application to Municipal Corporation of Greater Bombay for development, permission and grant of commencement certificate and, therefore, part of sale consideration was capital gain and part of same as trading receipt. (ii) While doing so, learned CIT(A) completely failed to appreciate that (ii) While doing so, learned CIT(A) completely failed to appreciate that plot in question was central to partnership deed and business of said partnership was singly venture partnership limited to development of above-referred property. (iii) learned CIT(A) failed to appreciate that totality of facts, i.e., purpose enumerated in purchase agreement dt. 12th Nov., 1981, terms and conditions of partnership deed and subsequent act of assessee-firm in getting plot cleared from all encumbrances and development thereof, proves beyond doubt that plot in question was business asset right from inception of firm. (iv) learned CIT(A) also failed to appreciate that plot was always intended to be used and was always used also as business asset notwithstanding fact that assessee-firm had shown as investment in capital asset in its books of account. (v) While deciding issue, learned CIT(A) has completely ignored terms of purchase agreement of plot, objects of partnership deed and activities carried out in plot of land by assessee-firm. (i) On facts and circumstances of case and in law, learned CIT(A) erred in directing to adopt reverse route of indexation for arriving at FMV as on 31st March, 1996. (ii) While doing so learned CIT(A) completely failed to appreciate that reverse route of indexation cannot be adopted for arriving FMV as after 25th March, 1996 asset had become business asset (as per his own finding) and t h e sale price of Rs. 56.20 crores was arrived at after considering development of plot like approval from BMC approval for NA and exemption under Urban Land Ceiling Act. (iii) learned CIT(A) failed to appreciate simplistic formula of reverse indexation route for arriving at FMV of flort as on 31st March, 1996 cannot be adopted on facts and circumstances of this case. (iv) learned CIT(A) also failed to appreciate that by way of adopting reverse route of indexation value of capital gain was unrealistically inflated. (v) On facts and circumstances of case and in law, learned CIT(A) ought to have directed AO to refer matter to Valuation Officer under s. 55A of IT Act once he gave finding that plot in question was investment up to 25th March, 1996." First we take up ground No. 1 of assessee along with ground No. 1 of revenue as both these grounds are interconnected. issue involved therein is as to whether gain on sale of land is assessable as capital gains or as business income? AO treated solitary transaction of purchase and sale of land as adventure in nature of trade; AO, therefore, treated gain on sale of land by assessee to be taxable as business income and assessed same accordingly. learned CIT(A) held that land was investment up to 25th March, 1996 and on that date it was converted into stock-in-trade of business carried on by assessee and he, therefore, directed AO to compute/tax capital gains up to aforesaid date and thereafter up to date of sale as business income. learned Authorised Representative of assessee has contended that letting out of property is main activity/object of assessee, though selling and letting out both are mentioned in various partnership deeds. In this regard, he has referred to paras 4 and 5 of partnership deed dt. 29th Dec., 1981 (p. 310 paper book), para 3 of partnership deed dt. 1st April, 1993 (p. 296 paper book), para 3 of partnership deed dt. 30th Dec., 1993 (p. 274 paper book), para 1 of supplementary partnership deed dt. 24th March, 1994 (p. 268 paper book) and para 3 of partnership deed dt. 28th Jan., 1998 (p. 249 paper book) contending that letting out of property has been specifically provided therein. He has contended that assessee s contentions have been mentioned on pp. 14 and 15 of AO s assessment order and on pp. 5, 7 and 10 to 12 of learned CIT(A) s appellate order. He has specifically drawn our attention to discussions made by learned CIT(A) in para 5.2 of his appellate order. He has contended that this was solitary transaction of purchase of land by assessee and that till date of sale on 27th June, 1997, for as long as gap of 16 years. assessee made no development activity. He has contended that simply because of assessee s name containing, within itself, word construction , assessee s business activity should not be taken as that of development during said period. He has contended that simply because of getting permission (IOD) from BMC, property/land does not become assessee s stock-in-trade of business and that even after getting said permission, this land/property still remains assessee s investment, capital asset. Referring to s. 45 learned Authorised Representative of assessee has contended that same provides that any profit or gain arising from transfer of capital asset shall be chargeable to IT under head Capital gain . He has contended that s. 2(14) defines Capital Asset as "capital asset means property of any kind held by assessee, whether or not connected with his business or profession, but does not include (i) any stock-in-trade, consumable stores or raw materials held for purposes of his business or profession. . . ." Thus as evident from above, even business asset can be capital asset if it is not stock-in-trade of business and income from sale of said business asset can be assessed as capital gains. He has contended that objection of AO that assessee was carrying on business activity and, therefore, gain on transfer of land is business income is not relevant. He has also contended that in order to determine whether transaction of sale of land has resulted in capital gain or business income, issue which needs to be decided is whether land constituted stock-in-trade (as alleged by AO) or whether land was investment (as contended by assessee and as reflected in books of account of assessee) and not whether assessee carried on business activity or not. He has contended that aforesaid land was shown as investment in books of assessee since past 16 years, and no construction/development activity was carried out on aforesaid land. He has contended that aforesaid land was sold after period of 16 years and assessee has not indulged in any other activity of purchase/sale of land, i.e., aforesaid transaction is solitary transaction. He has contended that assessee had purchased land for purpose of construction of building and letting out same as mentioned in various partnership deeds; and partnership deed dt. 24th March, 1994 clarifies that activity of appellant-firm was only with respect to letting out clarifies that activity of appellant-firm was only with respect to letting out of property. He has contended that partners are even otherwise having rental income; that aforesaid land cannot be treated as stock-in-trade and in turn, gain on sale of land to be business income merely because assessee is builder or is engaged in business of properties or because its object, as specified in memorandum of association or partnership deed, is to deal in land and properties. learned Authorised Representative of assessee has placed reliance on following decisions: CIT vs. Rajasthan Mines Ltd. (1970) 78 ITR 45 (SC) CIT vs. Nathuram Ramnarayan (P) Ltd. (1984) 43 CTR (Bom) 1: (1985) 151 ITR 767 (Bom) Fort Properties (P) Ltd. vs. CIT (1993) 115 CTR (Bom) 355: (1994) 208 ITR 232 (Bom) CIT vs. National Properties Ltd. (1978) 113 ITR 793 (Cal) CIT vs. Kasturi Estates (P) Ltd. (1966) 62 ITR 578 (Mad) P.K.N. Co. Ltd. vs. CIT (1963) 47 ITR 195 (Mad) [affirmed in CIT vs. P.K.N. Co. Ltd. (1966) 60 ITR 65 (SC)] D.L.F. Housing & Construction (P) Ltd. vs. CIT (1982) 29 CTR (Del) 199: (1983) 141 ITR 806 (Del) D.L.F. United Ltd. vs. CIT (1985) 49 CTR (Del) 126: (1986) 158 ITR 342 (Del) Madanmohan Mangaldas vs. ITO (1980) 35 TTJ (Ahd) 134 M. Raman Pillai vs. CIT (1964) 51 ITR 829 (Ker) P.J. Udani vs. CIT (1967) 63 ITR 766 (AP) Roshanlal Agarwal vs. Asstt. CIT (2002) 123 TAXMAN 47 (Mum) (Mag) Heritage Estates (P) Ltd. vs. ITO (1985) 11 ITD 519 (Bom) CIT vs. S.S. Thiagarajan (1981) 129 ITR 115 (Mad) CIT vs. Premji Gopalbhai (1978) 1978 CTR (Guj) 137: (1978) 113 ITR 785 (Guj). learned Authorised Representative of assessee has drawn our specific attention to decision of Fort Properties (P) Ltd. vs. CIT (supra), CIT vs. National Properties Ltd. (supra), CIT vs. Kasturi Estates (P) Ltd. (supra), D.L.F. Housing & Construction (P) Ltd. vs. CIT (supra) contending that therein though business of assessee was to deal in properties as result of which property was reflected in books of account as stock-in-trade yet it was held that property constituted capital asset resulting in capital gains and not business income taking into consideration that sale was isolated transaction and that land was held for long duration (10 years). He has also drawn our specific attention to cases of M. Raman Pillai vs. CIT (supra), P.J. Udani vs. CIT (supra) and Roshanlal Agarwal vs. Asstt. CIT (supra) contending that therein though assessees were builders/contractors, it was held that transaction of sale of land being solitary transaction resulted in capital gains and not business income. It is, therefore, submitted that as transaction of land, in case of present assessee, was solitary transaction and as land was held for period of 16 years and as said land was reflected as investment in balance sheet, said land constituted capital asset, sale of which resulted in capital gains and not business income. learned Authorised Representative of assessee has contended that as assessee wanted to construct building on land for purpose of letting it out, land would definitely be only capital asset and not stock-in-trade. He has, however, also contended that even if intention of assessee was to construct and sell building, yet in view of above-mentioned submissions it cannot be held that land was stock-in-trade. Referring to AO s finding on p. 28 of his order that "Had partners or assessee-firm itself been engaged in activity/business different from sale/purchase of land(s), then said activities of assessee-firm might have been termed as capital investment", he has contended that partners of assessee-firm are having rental income also which fact is undisputed as evident from p. 14 of assessment order. He has contended that it may also be noted that as in case of assessee, even in case of Fort Properties (P) Ltd. vs. CIT (supra) object clause in memorandum of association specified selling as well as letting of land and buildings. He has contended in above-mentioned case, despite aforesaid object and despite fact that land was shown as stock-in-trade in books of account, jurisdictional High Court held that it was capital asset and not stock-in-trade by taking into account fact that purchase and sale of land was solitary transaction as is also in case of present assessee. He has accordingly contended that objection of AO is not only legally unsustainable, but also factually incorrect. He has contended that learned CIT(A) has held that on 25th March, 1996 when assessee made application for IOD, capital asset was converted into stock-in-trade by virtue of provisions of s. 45(2). Referring to case of Ramesh Chandra Kanhaiyalal vs. ITO (2002) 122 TAXMAN 36 (Ind) (Mag), he has contended that Tribunal has held therein that conversion under s. 45(2) took place when assessee obtained licence of coloniser. He has, accordingly, contended that in view of above, Departmental appeal is liable to be dismissed, i.e., whole gain on transfer of land cannot be treated as business income. He has contended that as regards issue that assessee has spent Rs. 11.54 crores on development, it may be clarified that out of aforesaid amount, Rs. 7.63 crores have been paid as tenant compensation, Rs. 1.43 crores have been incurred on interest expenditure, Rs. 56 lakhs have been incurred on brokerage, Rs. 4,95,500 on stamping and registration charges, Rs. 15 lakhs on service charges, Rs. 12,77,286 on legal and professional fees and Rs. 46,52,800 on earth and debris filling charges. In this regard, he has referred to pp. 153 & 193 of paper book being MoU and deed of conveyance which clearly show that land was sold without being developed. learned Authorised Representative of assessee has contended that unlike as in case of assessee, wherein sale of land is solitary transaction, in case before Indore Bench 13 plots of land were sold; and in case before Indore Bench, assessee had incurred cost of improvement for construction of road, garden, drainage, etc., whereas, in case of present assessee, no construction/development has been done. He has accordingly contended that instead of following Indore Bench decision for applying s. 45(2) and for holding that land was converted to stock-in-trade on date of application for IOD, judgment of jurisdictional High Court in case of Fort Properties (P) Ltd. vs. CIT (supra) should be followed wherein though land was reflected as stock-in-trade, it was held to be capital asset resulting in capital gains as it was solitary transaction. He has contended that similar view has been taken in D.L.F. Housing & Construction (P) Ltd. vs. CIT (supra) wherein though land was shown as stock-in-trade, it was held to be capital asset resulting in capital gains as it was solitary transaction. He has also relied on D.L.F. Housing & Construction (P) Ltd. vs. CIT (supra) and D.L.F. United Ltd. vs. CIT (supra) wherein though land was purchased for purpose of development, it was held to be capital asset as no development had taken place. He has also contended that land, which is capital asset, does not become stock-in-trade merely because assessee applies for IOD or gets N.A. permission or gets plans approved, or builds compound wall around land or improves land by removal of debris. He has also cited following decisions in his support: Deep Chandra & Co. vs. CIT 1975 CTR (All) 28: (1977) 107 ITR 716 (All); Shyamala Pictures (P) Ltd. vs. CIT (1983) 33 CTR (Mad) 99: (1983) 142 ITR 115 (Mad); CIT vs. V.A. Trivedi (1988) 72 CTR (Bom) 199: (1988) 172 ITR 95 (Bom); ITO vs. Remy Perfumes (P) Ltd. (1990) 32 ITD 398 (Mad); ITO vs. N.R.P. Ltd. (1982) 1 ITD 64 (Bom); Mrs. Gayatri Khanna vs. Dy. CIT (2002) 124 TAXMAN 72 (Del) (Mag); Sri Gajalakshmi Ginning Factory Ltd. vs. CIT (1952) 22 ITR 502 (Mad). He has contended that if intention of assessee is to construct building on land for purpose of selling it, land does not constitute stock- in-trade till building is constructed. In support of above, he has placed reliance on decision of Pune Bench of Tribunal in case of Shanti Builders vs. Joint CIT (2002) 74 TTJ (Pune) 578 asst. yr. 1997-98, copy of which has been filed on record, and has specifically referred to pp. 31, 47, 48 and 49 of said decision. He has, accordingly, contended that entire gain on transfer of land should be assessed as capital gains. As against above, learned Departmental Representative has referred to p. 2 of assessment order contending that assessee has been incurring various expenses on this property from 1992-93 to 1998-99. He has taken us through various pages of assessment order and in particular pp. 5 to 9 thereof and contended that assessee had purchased this land to construct building and then to let it out and that intention of assessee was not to invest in capital asset but was rather to do something like adventure in nature of trade or business and thus to earn profits. He has contended that AO has elaborately dealt with matter and has discussed relevant facts including various clauses in various partnership deeds mentioning business of assessee-firm as buying/selling/developing/letting out immovable properties and also single venture business. Referring to p. 9 of assessment order, he has contended that AO has given finding that there was regular scheme on part of assessee to earn profits. Referring to pp. 19 and 20 of assessment order he has contended that AO has duly discussed decisions cited by learned Authorised Representative of assessee before AO and has drawn his finding that despite various changes in constitution of partnerships, different partners still are those persons who have been engaged in business of real estate and that various partnership deeds indicate that business of assessee-firm has been purchase/sale/development, etc., of land/immovable property. Referring to p. 21 of assessment order, learned Departmental Representative has drawn our attention to following para contained in assessment order: "When person acquires land with view to selling it later after developing it, he is carrying on activity resulting in profit and activity can only be described as business venture." He has referred to p. 23 of assessment order and contending that AO has relied on P.M. Mohammad Mira Khan vs. CIT (1969) 73 ITR 735 (SC) and Khan Bahadur Ahmed Alauddin & Sons vs. CIT (1968) 68 ITR 573 (SC) and has given his comments in respect of fact-situation of case in hand in light of legal principles laid down in said two decisions. He has contended that AO has noted that present assessee has, after purchasing land, further improved same by purchasing occupancy rights from M/s Krishan Kumar & Co. for consideration of Rs. 5 crores and by incurring huge expenses o n negotiations with tenants for their eviction, earth levelling and removable of debris. He has also specifically referred to findings/observations of AO on pp. 26, 27, 28 & 29 of assessment order. He has drawn our specific attention to p. 29 of assessment order wherein AO has mentioned as under: "The assessee had undertaken following activities on said plot of land from date of purchase in year 1981 to year of sale in 1998: (i) occupancy rights over land were purchased for Rs. 5 crores in year 1994. (ii) land was got converted into non-agricultural land, in year 1996, as nearly 60 per cent of land purchased was originally agricultural land. (iii) Permission was obtained from Urban Land Ceiling Authorities. (iv) Plans for development of plot were got approved from BMC. (v) land was got levelled and debris was got removed. (vi) Tenants were got removed. (vii) Compound wall was erected. above activities of assessee-firm constitute development of s i d plot. Therefore, said activities of assessee-firm fall within adventure in nature of trade or business, in view of judgment in case of Raja J. Rameshwar Rao vs. CIT (1961) 42 ITR 179 (SC), cited earlier. Further, it has also been held that even solitary transaction can constitute adventure in nature of trade or business." Referring to p. 30 of AO, learned Departmental Representative has contended that assessee has spent sum of Rs. 11.50 crores in various financial years from 1993-94 to 1997-98 on this property and has drawn our attention to AO s conclusion to following effect: "It is quite clear that activity of purchase, development and sale of land by assessee falls within adventure in nature of trade or business. Therefore, surplus arising from same is hereby being taxed under head Profits and gains of business or profession ." learned Departmental Representative has contended that learned CIT(A) has come to middle path in his conclusion as he has drawn in para 6.3 on p. 12 of his impugned order but learned CIT(A) s reasoning does not bear with facts. He has contended that assessee s intention had all along been to develop, construct and sell property since very beginning and it is not that it is only on obtaining of IOD that assessee changed/formed its intention to develop property. He has contended that merely obtaining of IOD does not show change of intention on that day and that prior thereto purchase of land by assessee does not become investment in capital asset. He has contended that AO has considered various partnership deeds and has come to finding that assessee s intention was always of doing business of buying and selling real estate. He has contended that mere fact of there being this solitary transaction does not make it investment. He has contended that it has been organised and systematic activity of assessee to purchase this land, develop it and then to sell it. learned Departmental Representative has contended that various decisions cited by learned Authorised Representative of assessee are distinguishable on facts. He has elaborated facts of abovementioned decision of Tribunal, Pune in case of Shanti Builders (supra) and has tried (sic) to show that same is quite distinguishable from instant case on facts. learned Departmental Representative has emphatically placed reliance on Vitta Kristappa vs. ITO (2005) 92 TTJ (Hyd)(TM) 38: (2005) 92 ITD 1 (Hyd)(TM) and contended that Tribunal has also considered Indian Hume Pipe Co. Ltd. vs. CIT (1992) 107 CTR (Bom) 95: (1992) 195 ITR 386 (Bom) at para 12 of its order; and he has specifically drawn our attention to last portion of para 11 on p. 23 of order. He has supported order of AO. In rejoinder, learned Authorised Representative of assessee has contended that expenses incurred by assessee for getting land vacated by occupants and on removal of debris and levelling of earth cannot be treated as development. Regarding learned CIT(A) s basis for taking date of 25th March, 1996 (para 5.1), he has contended that during that year assessee got part of land converted from agricultural to non-agricultural but assessee s purpose in that regard was to raise construction thereon for letting out and not for sale; and all this makes only assessee s investment in asset and not stock-in-trade. He has contended that various activities referred to have taken place after March, 1996. We have considered rival contentions, relevant material on record as also cited decisions. From perusal of record we find that AO treated land as stock-in- trade because partnership deed states that business of assessee- firm is construction of buildings, purchase and development of land; purchase deed also states that assessee-firm shall be entitled to develop said property and construct and complete building thereon, partners of appellant-firm are engaged in business of real estate, development and construction. In opinion of AO had partners of appellant-firm been engaged in activity/business different from sale/purchase of lands, then said activities of assessee-firm might have been termed as capital investment. As per AO assessee has undertaken various activities enumerated on p. 29 of assessment order, which constitute development. AO has relied on Raja J . Rameshwar Rao vs. CIT (1961) 42 ITR 179 (SC). Also appellant has incurred various expenses such as salary expenses, interest expenses, bonus expenses, etc. assessee has claimed expenditure of Rs. 11.54 crores for development during financial years 1993-94, 1995-96, 1996-97 and 1997-98. aforesaid activities show that assessee was carrying on business. We find from perusal of record that for drawing his conclusion that gain on sale of land is allowable partly as capital gains and partly as business income, learned CIT(A) rendered his discussion/finding in paras 5.1 and 5.2 of his order, in short, are as under: "Insofar as object clause of partnership deed is concerned, no conclusion can properly be based solely on objects or powers mentioned therein. They are relevant matters, which should be taken into account and kept in view in determining character of transaction carried on. objects and powers are there to carry on trade or business but their existence does not ipso facto mean that they have been used. What is necessary is to examine intrinsic nature and character of transaction itself in light, of course, of objects and powers of company and surrounding circumstances and facts. In case of Deepchandra & Co. vs. CIT 1975 CTR (All) 28: (1977) 107 ITR 716 (All), it was held that mere fact that person invested money for purpose of reselling whenever suitable opportunity arises does not give sufficient ground to hold that transaction is in nature of trade. Court further observed that if partnership was really constituted for trading, one would have expected some other or similar purchases of land by firm for purpose of selling them at higher price after development. Similarly, in case of Janaki Ram Bahadur vs. CIT (1965) 57 ITR 21 (SC), it was observed that appellant made profitable bargain when he purchased property and granting further that appellant had when he purchased it had desire to sell property, if favourable offer as forthcoming, these could not without other circumstances justify inference that appellant intended by purchasing property to start venture in nature of trade. Absence of advertisement inviting offers for purchasing property, and absence of brokers in negotiations for sale are circumstances, which lead to no positive inference. Till financial year 1996-97 no development was carried out. Most of activity during this period related to keeping and securing better title to property, fencing of property including incurring of expenses on security, etc. property was shown as asset, i.e., as investment in balance sheet ever since date of purchase. plans for building were got passed during financial year 1996-97 when large part of property which was agricultural was got converted to non-agricultural land. Getting property cleared from all encumbrances does not necessarily lead to conclusion that it was Business Asset. Getting better title, strengthening title and preserving title are activities that any reasonable person will do to safeguard his investment." learned CIT(A) s further discussion/finding in paras 6 to 6.3 of his impugned appellate order, in short, is as under: "The occupancy right over land was purchased for Rs. 5 crores in year 1994 and subsequently part of land which was originally agricultural was converted into non-agricultural land. These facts have not been disputed by AO. appellant obtained permission from ULC authorities, got plan for development of plot, approved from BMC, levelled land, did removal of debris, removal of tenants and got compound wall erected. payment for purchase of occupancy right is attributed only for obtaining better title and cannot be said to be activity for development. conversion of land to non-agricultural was made in July 1997 as is evident from letter issued to appellant from office of Collector, Mumbai Suburban District on 15th July, 1997. Application under ULC are required to be made irrespective of whether one would like to develop land or sell land as investment. appellant was required to furnish copy of application so made, furnish copy of commencement certificate, etc., and it is noticed that plans were approved by Greater Bombay Municipal Corporation vide their letter CE/6080/WS/AK, dt. 2nd Nov., 1996. It is further noticed that appellant had made application as early as on 25th March, 1996 for development permission and grant of commencement certificate to carry out development and building permission to erect building. BMC of Greater Bombay issued Commencement Certificate/Building permit vide letter dt. 5th Aug., 1997 in respect of land in favour of assessee. levelling work was done only during financial year 1997-98 and that was point of time when tenants were also removed. Thus, it is clear that by making application to Municipal Corporation of Greater Bombay on 25th March, 1996 for Development permission and grant o f commencement certificate, appellant took decision to go ahead and start working on plot of land which was till that time held by them as investment. Under these circumstances, it is clear that, it was only around 25th March, 1996 that appellant in fact converted long-term asset into his stock-in-trade. bulk of expenses incurred thereafter clearly confirm, that after 25th March, 1996, appellant was holding on to land in question, only as his stock-in-trade and not as capital asset. To my mind, it is case covered by provisions of s. 45(2). Thus, looking into totality of circumstances, I am of view that land in question acquired as asset in year 1981 constituted investment of partnership firm and it was only in March 1996, when appellant made application for commencement certificate and development permission, that asset in question got converted into stock-in-trade. Therefore, year ending 31st March, 1996 is to be taken as year in which conversion of asset into stock-in-trade took place. Under these circumstances, AO will have to compute capital gain by working out FMV as on 31st March, 1996. difference between sale consideration realised on 19th Jan., 1998, amounting to Rs. 56.2 crores and FMV on 31st March, 1996 as reduced by admissible expenses (as already considered in assessment order) would constitute business income. capital gain computed as on 31st March, 1996 and business income computed as mentioned, would together form part of taxable income of assessee." In P.M. Mohammad Mira Khan vs. CIT (1969) 73 ITR 735 (SC), assessee had entered into agreement with one AVG for purchase of vast areas of land forming part of estate for Rs. 6 lakhs, paid Rs. 11,000 and balance of Rs. 5.89 lakhs was to be paid before 25th Sept., 1955. One of terms of agreement was that sale deed was to be executed in favour of either appellant or his nominees. It was found that appellant did not have t h e resources either to buy or to cultivate estate himself. assessee divided estate into 23 plots and arranged for sale of 22 plots to different purchasers for sum of Rs. 5,18,500 and 23rd plot was retained by appellant himself. In circumstances, it was held that transactions of appellant constituted adventure in nature of trade and were in course of profit-making scheme. However, this case is distinguishable from instant case on facts and particularly in view of fact that in cited case assessee did not have resources to buy or cultivate land himself and so divided land into number of plots and retained only one plot with himself and sold rest all; there was also one of terms of agreement that assessee s vendor will execute sale deed in favour of assessee s nominees. All these facts emphatically showed that by entering into transaction assessee had intention of earning profits only. In Khan Bahadur Ahmed Alauddin & Sons vs. CIT (supra), assessee had purchased large areas of lands and buildings from government and resold parts of lands and buildings within short time. assessee had taken loans to pay purchase money on interest far in excess of income from property. In circumstances it was held that it was adventure in nature of trade and was in course of profit-making scheme. Obviously decision is distinguishable on facts from present case. In Vitta Kristappa vs. ITO (supra), assessee individual had purchased land from his HUF. He applied to Municipalities for approval of layout plan to convert land into 25 plots and duly paid conversion charges and licence fee and subsequently got approval. assessee incurred expenses on levelling and demarcation, and sold 7 out of 25 plots. assessee filed his return showing capital gains accrued on sale of above-mentioned plots. assessee had submitted that assessee had purchased land from HUF to set up oil mill submitted that assessee had purchased land from HUF to set up oil mill s he had good experience and after purchase of said land he came to know that, that land was not suitable for starting industry for reason that Municipality did not permit setting up of industry in area as per master plan of municipalities. assessee did not place any material on record to show that any attempt to set up oil industry on land in question was made and also no site plan or date on which action was initiated to set up industry in that plot or similar particulars relating to firm V were placed on record. In circumstances it was held that property was purchased and sold under well-thought out scheme to make profit, and, thus, it was clear case of adventure in nature of trade. As seen above, we find that assessee s transaction was solitary transaction of assessee during entire period of 16 years; after purchase of land/property same was reflected in assessee s books of account as investment/asset; assessee sold this land after long intervening period of 16 years; no construction of building nor development activity as such was made, and activity done was removal of debris, levelling of earth and raising of boundary wall and partnership deed dt. 24th March, 1994 clarified that activity of assessee-firm was only with respect of letting out of property. fact that assessee s business activity also included effecting repairs and renewal to buildings and render allied service speaks lot to corroborate and establish assessee s intention underlining its activities being of letting out property. Such activities do not contradict/controvert assessee s intention of investment and holding property as capital asset as same do well spell out safeguarding, securing and preserving of property and not necessarily business activity till 25th March, 1996 when assessee made move and took material/substantive step of applying to BMC for commencement certificate and development permission reflecting dominant intention to earn profits. In our opinion, considering all these facts, nature of activity and period involved along with all other facts and circumstances of case, discussions made by authorities below together with contentions raised by rival representatives, as also legal position emerging from various cited decisions, we find that assessee s act of purchase of property in March, 1981 was only investment in capital asset and land/property was held by assessee up to 25th March, 1996 as capital asset and it was on 25th March, 1996 or around thereto that assessee converted its capital asset into stock-in-trade by making application to BMC for commencement certificate and development permission, as has been held by learned CIT(A), and rightly so. As such, we agree and find no fault with finding/conclusion drawn by learned CIT(A) in para 6.3 of his impugned appellate order to following effect "Therefore, year ending 31st March, 1996 is to be taken as year in which conversion of asset into stock-in-trade took place. Under these circumstances, AO will have to compute capital gain by working out FMV as on 31st March, 1996. difference between sale consideration realised on 19th Jan., 1998, amounting to Rs. 56.2 crores and FMV on 31st March, 1996 as reduced by admissible expenses (as already considered in assessment order) would constitute business income. capital gain computed as on 31st March, 1996 and business income computed as mentioned, would together form part of taxable income of assessee." This disposes of ground No. 1 in assessee s appeal together with ground No. 1 in revenue s appeal. Ground No. 2 of assessee has not been pressed by learned Authorised Representative of assessee and so same is dismissed accordingly. Regarding ground No. 3, learned Authorised Representative of assessee has contended that assessee had paid Rs. 50 lakhs to M/s Lotess Trading Co. and Rs. 40 lakhs to M/s G.K. Enterprises by way of compensation for vacating property. He has contended that payments were made through cheques and supportive evidence was also furnished on record; and in this regard he has referred to pp. 213 to 245 paper book. As against this, learned Departmental Representative has supported orders of authorities below contending that assessee could not establish genuineness of payment and so same was rightly disallowed. We have considered rival contentions as also relevant material on record. From perusal of record we find that learned CIT(A) has elaborately discussed matter pertaining to each of two aforesaid recipients and has found payments to be non-genuine. learned CIT(A) has also found that M/s Lotess Trading Co. was alleged to be sub-tenant of tenant Shri John Paul Cornello whereas Shri Cornello denied this fact of sub- tenant of recipient M/s Lotess Trading Co. in his statement recorded under s. 131 of Act and even pleaded ignorance about so-called sub-tenant. He has also found that payment of Rs. 50 lakhs was not deposited in bank account of M/s Lotess Trading Co. but in bank account of somebody else. We also find that assessee did not avail of opportunity to cross-examine John Paul Cornello. Similarly learned CIT(A) also found that cheque for payment of Rs. 40 lakhs allegedly made to M/s G.K. Enterprises, proprietary concern of Shri T.S. Nikam, as compensation for their tenancy was not deposited in account of Shri T.S. Nikam but in name of somebody else and soon after deposit cash was withdrawn. Despite several letters assessee did not furnish address of M/s G.K. Enterprises nor did assessee furnished reply to show-cause notice regarding anomaly of deposit of payment. learned CIT(A) observed that this compensation payment was claimed to reduce tax liability. As such, considering all facts and circumstances of case, we agree with conclusion drawn by learned CIT(A) in this regard and so we decline to interfere with impugned order of learned CIT(A) on this count. Ground No. 4 of assessee pertains to charging of interest under ss. 234A and 234B. learned Authorised Representative of assessee has submitted that this issue is consequential. learned Departmental Representative has supported orders of authorities below. Considering rival contentions, we direct AO to accord consequential relief, if any, to assessee. Ground No. 5 of assessee is general. Ground No. 6 of assessee is not independent/separate ground but comprises ground Nos. 2 and 3, which have already been disposed of by us above and so no specific decision on this ground No. 6 is called for. In result, assessee s appeal No. 5687/Mum/2001 is partly allowed as indicated above. As regards IT Appeal No. 03/Mum/2002 being revenue s appeal, ground No. 1 has already been dealt with and disposed of by us above while dealing with inter-related ground No. 1 of assessee in assessee s appeal. Ground No. 2 of revenue disputes determination of FMV of property s on 25th March, 1996 by reverse indexation as has been done by learned C I T ( ) . learned Departmental Representative has contended that determination of fair market value of property by applying reverse indexation has not been approved by E Bench of ITAT, Mumbai, in case of Shakti Insulated Wires Ltd. vs. Jt. CIT (2003) 79 TTJ (Mumbai) 796: (2003) 87 ITD 56 (Mumbai). He has contended that for determination of FMV learned CIT(A) should have restored matter back to AO to refer to DVO. As against this, learned Authorised Representative of assessee has contended that if for determination of FMV as on 31st March, 1996 matter is to be sent back to AO, then instead of referring matter to DVO, AO should consider valuation report of Government approved valuer and determine FMV and that assessee will obtain Valuation report of Government approved valuer and furnish same to AO. We have considered rival contentions as also relevant material on record. Considering all facts and circumstances of case, we direct AO to permit assessee to obtain Government approved valuer s report regarding valuation of this property as on 31st March, 1996 and furnish same before AO, who will consider same and determine FMV in accordance with law. We order accordingly. In result, revenue s appeal No. 3/Mum/2002 is allowed in part as indicated above. *** VIJAY CONSTRUCTION CO. v. DEPUTY COMMISSIONER OF INCOME TAX