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* IN THE 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 an appeal by the Assessee under Section 260A of the Income Tax
Act, 1961 (`Act') against the order dated 6th May, 2015 passed by the
Income Tax Appellate Tribunal (`ITAT') in ITA No. 2770/Del/2013 for the
Assessment Year (`AY') 2009-10.
2. The Appellant/Assessee was incorporated on 15th December, 1986. There
was a change of management on 29th May, 2005. According to the Assessee,
by a resolution of its Board of Directors dated 24th October, 2005 it decided
to commence the business of dealing in immovable property in terms of
Clauses 45 and 46 of "Other Objects" of the Memorandum of Association
(`MOA'). Clauses 45 and 46 of the 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 the same.
46. To erect and construct houses, buildings or works of every
description on any land of the 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 the above decision, the Assessee purchased a
plot in Noida. Another freehold plot in Vasundhara, Ghaziabad was
purchased on 3rd March, 2006. The 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 a few months, the plot in Noida was
sold and deducted from the stock. It is stated that the assessment for the AY
2008-09 during which the earlier transaction took place attained finality.
4. The Assessee states that it showed the property at Vasundhara, Ghaziabad
as its stock-in-trade in the subsequent year as well. Sometime in December,
2008 and January 2009, the Assessee learnt that some unauthorised persons
had illegally taken possession of the said plot. The Assessee states that it
lodged a complaint dated 7th January, 2009 at the Indirapuram Police Station
in Ghaziabad seeking help to regain peaceful possession of the property. It is
claimed that since the said property was in adverse possession, the Assessee
was compelled to sell it in March 2009 for a value much below the market
value.
ITA 251/2016 Page 2 of 7
5. For AY 2009-10, the Assessee filed its return declaring income as `Nil'.
The return was picked up for scrutiny. By the assessment order dated 30th
December, 2011, the Assessing Officer (`AO') made an addition of Rs.
39,04,000 invoking Section 50C of the Act. The AO rejected the Assessee's
stand that the property in question which was sold had been held by it as
`stock in trade'. In particular, the AO noted that the said plot had been
shown to be purchased by the Assessee on 1st March, 2006 for Rs. 30 lakhs.
It was sold three years later at the same price. However, the value of the
property calculated as per the circle rate worked out to Rs. 69,04,000. The
AO concluded that the Assessee had shown its assets as `stock in trade' in
order to avoid Section 50C of the Act. The reply given by the Assessee was
vague and unacceptable. Accordingly, the plot of land was treated as
investment of the Assessee and Section 50C of the Act was applied to arrive
at a net short term capital gain of Rs.39,04,000, which was then added to the
income of the Assessee.
6. The Assessee then went in appeal before the Commissioner of Income
Tax (Appeals) [`CIT(A)']. By an order dated 1st March, 2013, while
dismissing the appeal, the CIT(A) inter alia observed that merely showing
of the plot under the head of investments with no other supporting document
did not substantiate the claim of the Assessee. The transaction had resulted
in short term capital gains.
ITA 251/2016 Page 3 of 7
7. Before the ITAT, it was argued by the Assessee that the invocation of
Section 50C of the Act by the AO was based on irrelevant considerations
and without any supporting material. Alternatively, it was submitted that
since the plot was held as an investment for more than three years, there
could only be a long term capital gain by indexing the cost in terms of
Section 48 of the Act.
8. The ITAT held that the resolution passed by the Assessee's Board of
Directors did not enable the Assessee to sell the property even in terms of
Clauses 45 and 46 of the MOA. Only two properties were held by the
Assessee. One had been sold in the AY in question. The ITAT noted that the
main object for which the company was incorporated was to carry on the
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 the 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 the matter, it was held that the
Assessee had sold the property in question only as an investor. The appeal
was, accordingly, dismissed.
9. This Court has heard the submissions of Mr. Akhilesh Kumar, learned
counsel appearing for the Assessee and Mr. Ashok Manchanda, learned
counsel appearing for the Revenue.
10. The categorical factual finding in the assessment order of the AO that
ITA 251/2016 Page 4 of 7
the plot was sold for Rs. 30 lakhs whereas the value of the property at the
time of sale calculated using the circle rate as Rs. 69,04,000 was unable to
be satisfactorily controverted by the learned counsel for the Assessee. He
repeatedly urged that it was only because the property was under adverse
possession that the Assessee had to go in for a distress sale. Interestingly,
this was not set out as one of the grounds by the Assessee either before the
CIT(A) or the ITAT. It is not even clear whether a copy of the complaint
dated 7th January, 2009 filed before the police at Ghaziabad was produced
before the AO. Be th33at as it may, it is significant that while the complaint
was made on 7th January, 2009, the sale took place within a short time
thereafter on 7th March, 2009. This shows that the Assessee was not really
serious about taking steps to regain possession of the property. This solitary
complaint before the police is hardly a convincing explanation for the so-
called distress sale of the property.
11. Having carefully perused the concurrent factual findings of the AO, the
CIT(A) and the ITAT based on the materials placed before them, the Court
is in agreement with the conclusion reached that the Assessee failed to place
relevant and satisfactory materials before the authorities in support of its
claim that the property should have been treated as its `stock in trade' and
not as an investment. The mere passing of a resolution by the Board of
Directors regarding commencing of a new line of business or the mere
inclusion of the property in question in its `stock in trade' in its accounts
will not relieve the Assessee from satisfying the Income Tax Authorities of
the genuineness of the sale of the property as `stock in trade'.
ITA 251/2016 Page 5 of 7
12. Learned counsel for the Assessee sought to rely on the decisions in
Commissioner of Income Tax v. Sutlej Cotton Mills Supply Agency
Limited (1975) 100 ITR 706 (SC) and the 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) the Supreme Court noted that "the difficulty arises where
the transaction is outside the Assessee's line of business and then, it must
depend upon the facts and circumstances of each case whether the
transaction is in the nature of trade." Thus, while neither continuity of
similar transactions is necessary to constitute such a transaction as
"adventure in the nature of trade" it will depend on the facts and
circumstances of every case whether the Assessee has been able to
demonstrate, by placing relevant materials that the transaction undertaken by
it was, in fact, in the nature of trade.
14. The other decisions cited by the learned counsel for the 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 the
Revenue had accepted the treatment of shares as `inventories' in the
ITA 251/2016 Page 6 of 7
previous years.
15. In the present case, there were only two properties shown as `stock in
trade' by the Assessee. The mere fact that the sale of the property in the
earlier AY and the resultant reduction of the `stock in trade' was not
questioned by the AO will not relieve the Assessee from having to
demonstrate that the sale of the plot in question in the AY under
consideration was not by way of an investment resulting in short term
capital gains.
16. The Court is unable to find anything perverse in the factual and
concurrent determination of the AO, the CIT(A) and the ITAT that the plot
in question was the investment of the Assessee and not its `stock in trade'.
17. No substantial question of law arises from the impugned order of the
ITAT. The appeal is, accordingly, dismissed.
S. MURALIDHAR, J
PRATHIBA M. SINGH, J
JULY 04, 2017/b'nesh
ITA 251/2016 Page 7 of 7
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