Rng 1 itx105.13.doc rt IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ou INCOME TAX APPEAL NO.105 OF 2013 Commissioner of Income Tax-III .. Appellant vs C Saffire Hotels Pvt.Ltd .. Respondent Mr.Tejveer Singh for Appellant Mr.Percy Pardiwalla Sr.Counsel i/b RMG Law Associates for Respondent h CORAM: M.S.SANKLECHA AND G.S.KULKARNI, JJ ig DATE: 2ND MARCH, 2015 P.C. H This Appeal by revenue under section 260 of Income Tax Act, 1961 challenges order dated 30.9.2011 passed by Income Tax y Appellate Tribunal (for short 'the Tribunal'). relevant Assessment year ba is 2003 04. om 2. appellant revenue has raised following questions of law for our consideration: B 1. Whether on facts and in circumstances of case and in law, Tribunal is correct in accepting plea of assessee for invoking of section 45 (2) of Act in relation to computation of income arising from conversion/treatment of land into stock in trade of its construction business and profits thereon ? ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:39 ::: Rng 2 itx105.13.doc rt 2. Whether on facts and in circumstances of case and in law Tribunal is correct in setting aside case to file of Assessing Officer to decide year of conversion ou or treatment of land into stock in trade inspite of fact that assessee company is involved in construction business and land under construction was purchased for construction business only ? C 3. Whether on facts and in circumstances of case and in law, Tribunal is correct in holding that onus was on Assessing Officer to corroborate his assertion that h there was cash component received by assessee in sale transaction with purchaser ignoring documentary ig evidence fund during course of survey under section 133A of Act ? H Re: Question nos.1 & 2 3. respondent assessee is engaged in business of developing y property and declared income of Rs.35.59 lacs. respondent ba assessee claimed to be following project completion method and no premises has been sold during relevant Assessent year. During om assessment proceedings respondent assessee's contention that no premises had been sold was found to be incorrect. Thus, by order dated 23.1.2006 Assessing Officer enhanced income by Rs.2.61 crores B being undisclosed income. 4. In appeal before CIT (Appeals) respondent assessee took ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:39 ::: Rng 3 itx105.13.doc up alternative stand viz that even if Assessing Officer is correct in rt determining that property had been sold during year yet portion ou of undisclosed income is assessable as capital gains in as much as land originally was capital asset of assessee company which had C been formed to run hotel. Therefore, provisions of section 45 (2) of Act were attracted when land (capital asset) was converted into h stock in trade. It is at that time same to be brought to tax although ig payable when stock in trade was sold. CIT (Appeals) did not accept above submission of assessee and upheld order dated H 23.3.2006 of Assessing Officer. y 5. On further appeal, Tribunal by impugned order on basis ba of facts found that during course of assessment proceedings before lower authorities evidence was brought on record which indicated that om respondent assessee was incorporated in 1970. Its main object was to carry on its business of running hotel and for which purpose land in question was acquired as capital asset. It was only later that land in B question was utilized as part of its stock in trade for purpose of carrying on its business of construction. aforesaid conclusion was ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:39 ::: Rng 4 itx105.13.doc reached by placing reliance upon permission of Government of rt India Tourism Department dated 21.8.1971 evidencing approval for ou proposed construction of hotel building. Further evidence was led before Tribunal in form of commencement certificate issued in C 1972 by Pune Municipal Corporation for undertaking basic initial construction work for hotel project. Thus, Tribunal by h impugned order held that provisions of section 45 (2) of Act in ig present facts would be applicable. H 6. Further, on issue as to date on which capital asset was converted into stock in trade was concerned, respondent assessee y contended that 1993 be treated as year while revenue contended that ba 1989 be treated as year conversion into stock in trade. impugned order restored this issue of date of conversion into stock in trade to om Assessing Officer to decide on basis of evidence produced before it. 7. grievance of revenue to impugned order is that it B places reliance on Commencement Certificate dated 15.6.1972 issued by Pune Municipal Corporation which was produced only before ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:39 ::: Rng 5 itx105.13.doc Tribunal and thus same could not be relied upon. Besides, it is rt emphasized that respondent assessee inspite of being in construction ou business has been showing land as capital asset in its Balance Sheet. In these circumstances, it is submission on behalf of revenue that C section 45 (2) of Act is in applicable as assessee is in business of construction. Consequently, it is also submitted that there was no h occasion for Tribunal to restore issue to Assessing Officer to ig determine relevant Assessment year in which capital asset was converted into stock in trade. H 8. We find that impugned order of Tribunal has on facts found y that respondent assessee was incorporated in year 1970 with ba main object of establishment of its hotel. There was evidence before lower authorities in form of letter dated 21.8.1971 from om Government of India, Department of Tourism granting approval to its proposed hotel and acquisition of lands in question was for that purpose. Besides, there was also opinion of Company Secretary in B 1993 advising respondent assessee that it could utilize land in its new business of development of land construction. Therefore, even if one ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:39 ::: Rng 6 itx105.13.doc ignores fresh evidence which was in form of Commencement rt Certificate dated 15.6.1972 issued by Pune Municipal Corporation ou during course of hearing before Tribunal, result would be no different. fact that land and its buildings were treated by C respondent assessee as capital asset as according to them project was not completed looses all significance, once revenue does not accept h same and proceeds to hold that property had been sold in subject ig Assessment year and same has to be subjected to tax. On aforesaid finding, issue of conversion of capital asset into stock in trade would H arise and require consideration. impugned order on facts has found land was originally capital asset which has later been converted into y stock in trade. Thus, section 45 (2) of Act is applicable. ba 9. However, capital gains on conversion of capital assets into om stock in trade is payable only in year in which assessee ultimately sells such stock in trade yet for purpose of computing capital gains date of conversion would have to be determined. This exercise has to be B carried out by Assessing Officer after considering evidence to be led before it. Thus, no fault can be found with above direction of ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:39 ::: Rng 7 itx105.13.doc Tribunal as it is consequence of finding of fact arrived at by rt Tribunal that land in question was originally held as capital asset and ou was later converted into stock in trade. C 10. In view of above, so far as Question nos. 1 and 2 are concerned view of Tribunal is possible and reasonable view on basis of h appreciation of facts. Thus, no substantial question of law arises for ig our consideration. Therefore, we see no reason to entertain Question nos. 1 and 2. Appeal dismissed as regards Questions nos. 1 and 2. H Re: Question No.3: y ba 11. As result of survey proceedings, Assessing Officer sought to bring to tax amount of Rs.27.31 lacs as concealed income on account of om certain cash transactions. This was on basis of certain documents found during course of survey. It was on basis of documents it was found that respondent assessee had paid stamp duty of sale of B particular flat, from which it was inferred that same amount of consideration was received in cash. This was on basis that normally ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:40 ::: Rng 8 itx105.13.doc stamp duty is paid by buyer. However, above allegation was rt denied by Director of respondent assessee during course of ou assessment proceedings. However, Assessing Officer did not accept same and amount of Rs.27.31 lacs was added to returned C income as undisclosed income in Assessment order dated 23.3.2006. h 12. In appeal, Commissioner of Income Tax (Appeals) upheld ig assessment order on basis of registered document of sale showing consideration of only Rs.2.11 crores instead of Rs.2.44 crores as in H other cases. On further appeal, Tribunal, on facts on record noticed that in sale agreement dated 24.11.2001 stated y consideration is Rs.2.11 crores. same was accepted by ba Appropriate Authority as evident by certificate of clearance under section 269 UL (3) of Act in Form No.37 1 was issued. Tribunal om reached finding of fact on examination of documents that there is no corroboration to stand of Assessing Officer that there was cash element of Rs.27.31 lacs involved in sale of flat at Rs.2.11 crores. B 13. We find that above findings of Tribunal are finding of fact ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:40 ::: Rng 9 itx105.13.doc and lower authorities without any basis drew inference that rt amount of Rs.27.31 lacs was amount received in cash by ou respondent assessee. We find that aforesaid conclusions reached by Tribunal is possible and reasonable view. Thus, no substantial question C of law arises for our consideration. Therefore, question nos. 3 is dismissed. h 14. Accordingly, Appeal dismissed. No order as to costs. ig (G.S.KULKARNI, J) (M.S.SANKLECHA, J) H y ba om B ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:40 ::: Rng 10 itx105.13.doc rt ou C h ig H y ba om B ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:40 ::: Rng 11 itx105.13.doc rt ou C h ig H y ba om B ::: Uploaded on - 09/03/2015 ::: Downloaded on - 13/02/2016 12:03:40 ::: Commissioner of Income-tax-III v. Saffire Hotels Pvt.Ltd