IN HIGH COURT OF DELHI AT NEW DELHI ITA 251/2016 SARAS METALS PVT. LTD. ..... Appellant Through: Mr. Akhilesh Kumar, Arun Kumar Agarwal & Mr. Akarsh Garg, Advocates. versus COMMISSIONER OF INCOME TAX-3 & ANR. ..... Respondents Through: Mr. Ashok Manchanda & Mr. Raghvendra Singh, Advocates. CORAM: JUSTICE S.MURALIDHAR JUSTICE PRATHIBA M. SINGH JUDGMENT 04.07.2017 Dr. S. Muralidhar, J.: 1. This is appeal by Assessee under Section 260A of Income Tax Act, 1961 ( Act ) against order dated 6th May, 2015 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 2770/Del/2013 for Assessment Year ( AY ) 2009-10. 2. Appellant/Assessee was incorporated on 15th December, 1986. There was change of management on 29th May, 2005. According to Assessee, by resolution of its Board of Directors dated 24th October, 2005 it decided to commence business of dealing in immovable property in terms of Clauses 45 and 46 of Other Objects of Memorandum of Association ( MOA ). Clauses 45 and 46 of MOA read as under: ITA 251/2016 Page 1 of 7 45. To acquire by purchase, exchange, hire or otherwise and mortgage let on hire or dispose of lands and property of any tenure or interest in same. 46. To erect and construct houses, buildings or works of every description on any land of company or upon any other lands or property and to pull down, rebuild, enlarge, deal, alter and improve existing houses, buildings or works thereon to convert and appropriate any such land into and for roods, streets, squares, gardens and other conveniences. 3. It is stated that in view of above decision, Assessee purchased plot in Noida. Another freehold plot in Vasundhara, Ghaziabad was purchased on 3rd March, 2006. Assessee maintains that in showed these plots as inventories under current assets and as stock in its balance sheet and profit and loss accounts. After few months, plot in Noida was sold and deducted from stock. It is stated that assessment for AY 2008-09 during which earlier transaction took place attained finality. 4. Assessee states that it showed property at Vasundhara, Ghaziabad as its stock-in-trade in subsequent year as well. Sometime in December, 2008 and January 2009, Assessee learnt that some unauthorised persons had illegally taken possession of said plot. Assessee states that it lodged complaint dated 7th January, 2009 at Indirapuram Police Station in Ghaziabad seeking help to regain peaceful possession of property. It is claimed that since said property was in adverse possession, Assessee was compelled to sell it in March 2009 for value much below market value. ITA 251/2016 Page 2 of 7 5. For AY 2009-10, Assessee filed its return declaring income as Nil . return was picked up for scrutiny. By assessment order dated 30th December, 2011, Assessing Officer ( AO ) made addition of Rs. 39,04,000 invoking Section 50C of Act. AO rejected Assessee s stand that property in question which was sold had been held by it as stock in trade . In particular, AO noted that said plot had been shown to be purchased by Assessee on 1st March, 2006 for Rs. 30 lakhs. It was sold three years later at same price. However, value of property calculated as per circle rate worked out to Rs. 69,04,000. AO concluded that Assessee had shown its assets as stock in trade in order to avoid Section 50C of Act. reply given by Assessee was vague and unacceptable. Accordingly, plot of land was treated as investment of Assessee and Section 50C of Act was applied to arrive at net short term capital gain of Rs.39,04,000, which was then added to income of Assessee. 6. Assessee then went in appeal before Commissioner of Income Tax (Appeals) [ CIT(A) ]. By order dated 1st March, 2013, while dismissing appeal, CIT(A) inter alia observed that merely showing of plot under head of investments with no other supporting document did not substantiate claim of Assessee. transaction had resulted in short term capital gains. ITA 251/2016 Page 3 of 7 7. Before ITAT, it was argued by Assessee that invocation of Section 50C of Act by AO was based on irrelevant considerations and without any supporting material. Alternatively, it was submitted that since plot was held as investment for more than three years, there could only be long term capital gain by indexing cost in terms of Section 48 of Act. 8. ITAT held that resolution passed by Assessee s Board of Directors did not enable Assessee to sell property even in terms of Clauses 45 and 46 of MOA. Only two properties were held by Assessee. One had been sold in AY in question. ITAT noted that main object for which company was incorporated was to carry on business of manufacturing, processing, importing, exporting and dealing in all kinds of ferrous and non-ferrous material meant for any industrial and non-industrial use and to carry on business of casting, fabrication, cold or hot rolling, re-rolling, sheeting, stamping, pressing etc. of all kinds of steel and other metals. In that view of matter, it was held that Assessee had sold property in question only as investor. appeal was, accordingly, dismissed. 9. This Court has heard submissions of Mr. Akhilesh Kumar, learned counsel appearing for Assessee and Mr. Ashok Manchanda, learned counsel appearing for Revenue. 10. categorical factual finding in assessment order of AO that ITA 251/2016 Page 4 of 7 plot was sold for Rs. 30 lakhs whereas value of property at time of sale calculated using circle rate as Rs. 69,04,000 was unable to be satisfactorily controverted by learned counsel for Assessee. He repeatedly urged that it was only because property was under adverse possession that Assessee had to go in for distress sale. Interestingly, this was not set out as one of grounds by Assessee either before CIT(A) or ITAT. It is not even clear whether copy of complaint dated 7th January, 2009 filed before police at Ghaziabad was produced before AO. Be th33at as it may, it is significant that while complaint was made on 7th January, 2009, sale took place within short time thereafter on 7th March, 2009. This shows that Assessee was not really serious about taking steps to regain possession of property. This solitary complaint before police is hardly convincing explanation for so- called distress sale of property. 11. Having carefully perused concurrent factual findings of AO, CIT(A) and ITAT based on materials placed before them, Court is in agreement with conclusion reached that Assessee failed to place relevant and satisfactory materials before authorities in support of its claim that property should have been treated as its stock in trade and not as investment. mere passing of resolution by Board of Directors regarding commencing of new line of business or mere inclusion of property in question in its stock in trade in its accounts will not relieve Assessee from satisfying Income Tax Authorities of genuineness of sale of property as stock in trade . ITA 251/2016 Page 5 of 7 12. Learned counsel for Assessee sought to rely on decisions in Commissioner of Income Tax v. Sutlej Cotton Mills Supply Agency Limited (1975) 100 ITR 706 (SC) and decisions in Commissioner of Income Tax-II v. Kan Construction and Colonizers (P) Ltd. (2012) 20 taxmann.com 381 (All.); Commissioner of Income Tax v. Thiruvegadam Investments (P) Ltd. (2010) 320 ITR 345 (Madras); Commissioner of Income Tax v. Mukesh & Kishor Barot Co-owners (2013) 33 taxmann.com 87 (Gujarat) and Commissioner of Income Tax (Central ) v. Express Securities (P) Ltd. (2013) 40 taxmann.com 427 (Delhi). 13. In Commissioner of Income Tax v. Sutlej Cotton Mills Supply Agency Limited (supra) Supreme Court noted that difficulty arises where transaction is outside Assessee s line of business and then, it must depend upon facts and circumstances of each case whether transaction is in nature of trade. Thus, while neither continuity of similar transactions is necessary to constitute such transaction as adventure in nature of trade it will depend on facts and circumstances of every case whether Assessee has been able to demonstrate, by placing relevant materials that transaction undertaken by it was, in fact, in nature of trade. 14. other decisions cited by learned counsel for Assessee turned on their own facts. For instance, in Commissioner of Income Tax (Central) v. Express Securities (P) Ltd. (supra), on facts it was noticed that Revenue had accepted treatment of shares as inventories in ITA 251/2016 Page 6 of 7 previous years. 15. In present case, there were only two properties shown as stock in trade by Assessee. mere fact that sale of property in earlier AY and resultant reduction of stock in trade was not questioned by AO will not relieve Assessee from having to demonstrate that sale of plot in question in AY under consideration was not by way of investment resulting in short term capital gains. 16. Court is unable to find anything perverse in factual and concurrent determination of AO, CIT(A) and ITAT that plot in question was investment of Assessee and not its stock in trade . 17. No substantial question of law arises from impugned order of ITAT. appeal is, accordingly, dismissed. S. MURALIDHAR, J PRATHIBA M. SINGH, J JULY 04, 2017/b nesh ITA 251/2016 Page 7 of 7 Saras Metals Pvt. Ltd. v. Commissioner of Income-tax-3 & Anr