Income Tax Act, 1961 – s.142, 143 – Non-disclosure of amount – Dispute related to the Assessment year (AY) 2009-10 i.e. Financial Year (FY) 2008-09 – Assessee entered into an agreement whereby development rights in a property were sold at a Rs. 15,94,06,500/– However, AO noticed that the aforesaid amount was not disclosed by assessee while filing the return of income – Explanation sought from assessee – In response, the assessee stated that the aforesaid transaction was duly offered to tax in AY 2008--09 reflecting a consideration of Rs. 5,24,27,354/- – It was claimed that a rectification deed was entered into whereby the value of development rights was reduced 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 treating the same as short term capital gains – The Commissioner confirmed the order made by the AO – ITAT reversed the said finding and held that the transaction was stock in trade – Also, confirmed that the sale consideration was Rs.5,24,27,354/- only – Appeals were dismissed by the High Court – On appeal, held: ITAT has neither dealt with the findings given by the AO nor verified/examined the total sales made by the assessee during the relevant time and during the previous years ITAT after examining opening and closing balance for the AY 1996-97 to 2007-08 held that the transaction was sale in stock in trade – Merely on the basis of recording of the inventory in the books of accounts, the transaction in question would not become stock in trade – As assessee claimed that rectification deed was entered into entered into and the amount was reduced from Rs.15,94,06,500/- to Rs.5,24,27,354/- – ITAT did not question the factum of refund of differential amount of Rs.10,69,79,146/- – ITAT ought to have appreciated that the moment the receipt of amount is received and recorded in the books of accounts of the assessee unless shown to be refunded/returned, it is to be treated as income in the hands of the recipient – ITAT failed to consider relevant aspects while considering transaction in question – Hence, the matter is required to be remanded to the ITAT to consider the appeal afresh – Impugned judgment and order passed by the High Court and that of the ITAT are hereby quashed and set aside.
Partly allowing the appeal, the Court
HELD : 1. In the present case, the AO treated the transaction as capital assets. ITAT has reversed the said findings and held that the transaction was stock in trade. It appears that the AO specifically recorded the findings on examining the balance sheets for the AY 2006-07 to 2009-10 that there was not even a single sale during all these years and that there were negligible expenses and the transaction in question was the only transaction i.e., transfer of development rights in respect of land and consequently, it was held that the transaction was one of transfer of capital assets and not one of transfer of stock in trade. However, the ITAT after examining the opening and closing balance for the AY 1996-97 to 2007-08 observed that in multiple years, inventory was shown in the balance sheet, without discussing the claim of the assessee and held that the transaction in question is sale of stock in trade. It appears that ITAT has neither dealt with the findings given by the AO nor verified/examined the total sales made by the assessee during the relevant time and during the previous years. Merely on the basis of recording of the inventory in the books of accounts, the transaction in question would not become stock in trade. As per the settled position of law in order to examine whether a particular transaction is sale of capital assets or business expense, multiple factors like frequency of trade and volume of trade, nature of transaction over the years etc., are required to be examined. From the order passed by the ITAT, it appears that the ITAT has without examining any of the relevant factors confirmed that the transaction was transfer of stock in trade. [Para 7][1019-C-F]
2. The High Court has also failed to appreciate that even in the event of acceptance of claim made by the assessee, including the assertion that Rs. 15,94,06,500/- was shown in the tax return in the earlier AY i.e., 2008-09, the differential amount of Rs. 10,69,79,146/- on account of reduction in sale consideration of development rights was to be assessed in the current year as either capital gain or business income. At this stage, it is required to be noted that as per the claim of the assessee and the entry made and reflected in the ledger account of the assessee as on 31.03.2008, an amount of Rs. 15,94,06,500/- was paid to a third party i.e., SICCL. However, thereafter, according to the assessee there was a rectification deed dated 30.05.2008 and the amount was reduced from Rs. 15,94,06,500/- to Rs. 5,24,27,354/-. The ITAT has not even questioned the factum of refund of differential amount of Rs. 10,69,79,146/- to the purchaser on account of rectification deed dated 30.05.2008. The ITAT ought to have appreciated that the moment the receipt of amount is received and recorded in the books of accounts of the assessee unless shown to be refunded/returned, it is to be treated as income in the hands of the recipient. However, the ITAT has also not considered the aforesaid aspect. [Para 7.1][1019-G-H]
3. In view of the above and as observed hereinabove, the ITAT has not considered the relevant aspects/relevant factors while considering the transaction in question as stock in trade and has not considered the relevant aspects as above which as such were required to be considered by the ITAT, the matter is required to be remanded to the ITAT to consider the appeal afresh in light of the observations made hereinabove and to take into consideration the relevant factors while considering the transaction as stock in trade or as sale of capital assets or business transaction. [Para 7.2][1020-D]
4. In view of the above and for the reasons stated above, the present appeal succeeds in part. The impugned judgment and order passed by the High Court and that of the ITAT are hereby quashed and set aside and the matter is remitted back to the ITAT to consider the appeal afresh in accordance with law and on its own merits. [Para 8][1020-E-F]
Mantri Techzone Private Limited v. Forward Foundation and Ors. (2019) 18 SCC 494; Raja J.Rameshwar Rao v. Commissioner of Income Tax, Hyderabad (1961) 42 ITR 179 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.