/2023 INSC 0392/
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.  2565 OF 2022
Commissioner of Income  ...Appellant(s)
Tax 8 Mumbai
Versus
Glowshine Builders &           …Respondent(s)
Developers Pvt. Ltd.
J U D G M E N T
M.R. SHAH, J.
1. Feeling   aggrieved   and   dissatisfied   with   the
impugned   judgment   and   order   dated
04.09.2017   passed   by   the   High   Court   of
Judicature   at   Bombay   in   Income   Tax   Appeal
No.   1756   of   2014,   by   which,   the   High   Court
has   dismissed   the   said   appeal   preferred   by
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the   Revenue,   thereby   confirming   the   order
passed by the Income Tax Appellate Tribunal,
“G” Bench, Mumbai (hereinafter referred to as
the   ITAT)  by  which   the  addition   made  by  the
Assessing   Officer   (AO)   of   Rs.   15,94,06,500/­
was   deleted,   the   Revenue   has   preferred   the
present appeal. 
2. The   dispute   pertains   to   the   Assessment   Year
(AY)   2009­10   i.e.,   Financial   Year   (FY)   2008­
09.   The   assessee   entered   into   an   agreement
dated   06.05.2008   with   one   M/s   Kirit   City
Homes   Pvt.   Ltd.   The   development   rights   in   a
property   at   Vasai   were   sold   for   a   total
consideration   of   Rs.   15,94,06,500/­.   It
appears   that   as   per   paragraph   6   of   the
development agreement and as per the receipt
of   the   deed,   consideration   of   Rs.
15,94,06,500/­   was   agreed   and   received   by
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the   assessee.   During   assessment,   it   was
noticed by the AO that the aforesaid was not
disclosed   while   filing   the   return   of   income.
The   assessee   did   not   enter   the   aforesaid
income   into   his   profit   and   loss   account.   The
assessee was asked to explain the transaction
as   it   was   not   appearing   in  its   profit   and   loss
account.   The   agreement   dated   06.05.2008
was also furnished to the assessee along with
the   notice.   In   response,   the   assessee   vide
letter   dated   04.10.2011   stated   that   the
transaction   was   duly   offered   to   tax   in   AY
2008­09   reflecting   a   consideration   of   Rs.
5,24,27,354/­.   The   assessee   also   stated   that
it had entered into a “rectification deed” with
the   said   party   on   30.05.2008.   By   the   said
ratification,   it   was   claimed   that   the   value   of
the development rights was reduced from Rs.
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15,94,06,500/­   to   Rs.   5,24,27,354/­.   As   the
transaction   was   pertaining   to   AY   2009­10,
the   assessee   was   served   a   further   notice
dated   10.10.2011   under   Section   142(1).   The
assessee was requested to explain as under: ­
(i) “You   are   aware   that   perusal   of   AIR
information,   copy   of   'Development
Agreement'   dt.   06.05.2008   revealed
that   you   had   entered   into
"Development   Agreement"   with   M/s.
Kirit   City   Homes   Mau,   Pvt.   Ltd   in
respect of various properties as detailed
in   the   said   agreement.   It   is   also   seen
that   you   had   received   Rs.
13,94,06,500/­   on   account   of
granting/allowing   development   rights
assigned.
(ii) As   per   the   agreement,   the   transaction
is   dt.   06.05.2008,   so   this   transaction
falls   under   the   A.Y.   2009­10   whereas
you   had  offered   this   transaction   in   the
A.Y.   2008­09.   Please   explain   the   logic
and basis thereof
(iii) Perusal of the 'Development Agreement'
dt. 06.05.2008, you had claimed to had
received the entire sale proceeds of Rs.
15,94,06,500/ ­. In this regard, you are
requested   to   furnish   the   details   of   sale
proceeds received mode there details of
proceeds realized, etc in respect of sale
proceeds   of   Rs.   15,94,06,500/­.   Please
also   furnish   the   copy   of   'Bank   Book'   /
'Cash   Book'   reflecting   the   receipts   and
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narrations   thereof   alongwith   copy   of
the   bank   account   statement   reflecting
credits thereof. 
(iv) Vide   'Deed   of   rectification'   dt.
30.05.2008,   you   had   claimed   to   have
revised   the   value   from   Rs.
15,94,06,500/­   to   Rs.   5,24,27,354/­.
In   this   regard,   please   explain   whether
you   had   refunded   the   differential
amount. If yes, please furnish the mode
and   details   thereof   with   supporting
documentary evidences.
(v) Vide   'Deed   of   rectification'   dt.
30.05.2008,   you   had   claimed   to   have
revised   the   value   from   Rs.
15,94,06,500/­   to   Rs.   5,24,27,354/­.
In   this   regard   please   furnish   the   basis
thereof   with   supporting   documentary
evidences.
(vi) Considering the above, I am of the view
that   for   the   above   transaction,
provisions of section 50C of the I.T. Act
1961   are   clearly   applicable   despite   the
reduction   in   your   agreement   value.   In
this   regard,   you   are   requested   to
explain   as   to   why   the   provisions   of
section   50C   of   the   I.T.   Act   should   not
be initiated as well as please explain as
to why the sale proceeds should not be
treated at Rs. 15,94,06,500/­.
(vii) Perusal of  all the  documents  furnished
by you in respect of above transactions,
I   am   of   the   view   that   the   transaction
definitely   belongs   to   this   year   and
market   value   u/s.   50C   should   be
considered as the sale consideration. In
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this   regard,   please   explain   as   to   why
the treatment as mentioned above does
not be made applicable in your case. In
view of the above, it is proposed to treat
the transaction for this year and to add
the sale proceeds of Rs. 15,94,06,500/­
in   your   hands.   You   are   requested   to
furnish   your   explanation,   if   any,   with
supporting documentary evidences.”
2.1 The   assessee   replied   to   the   same   and   with
regard   to   the   applicability   of   provision   of
Section   50C,   the   assessee   stated   that   the
assessee   had   sold   its   stock   in   trade   and   not
the   assets.   The   AO   made   the   addition   of   Rs.
15,94,06,500/­ by treating the same as short
term   capital   gains   and   consequently,   added
the   same   to   the   income   for   the   year   under
consideration.   The   Commissioner,   IT
(Appeals),   Mumbai   dismissed   the   appeal   and
confirmed   the   addition   made   by   the   AO   and
upheld   the   view   of   the   AO   to   treat   the
transaction as income for capital gains for the
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AY   2009­10.   The   CIT   (A)   also   discarded   the
submissions   made   by   the   assessee   that
transfer   of   development   rights   were   made   in
FY   2008­09   pursuant   to   the   MOU   dated
27.12.2007.   In   the   absence   of   proof   to
buttress   such   claim,   the   CIT   (A)   also
discarded the claim of the assessee that value
of   the   transfer   of   development   rights   was
reduced   from   Rs.   15,94,06,500/­   to   Rs.
5,24,27,354/­
2.2 The assessee filed an appeal before the ITAT.
The   ITAT,   after   examining   the   chart
submitted   by   the   assessee   pertaining   to
opening   balance   and   closing   balance   for   the
assessment   years   1996­97   to   2007­08   held
that   the   assessee   in   all   these   years   showed
inventory   and   expenses.   Consequently,   ITAT
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held   that   the   assessee   is   engaged   in   the
business   of   building   and   development.   The
ITAT   further   noted   that   the   assessee   showed
the   cost   of   land   along   with   related
expenditure   as   work   in   progress/inventory
since   1999­2000   and   the   assessment   orders
were   subsequently   made   under   Section
143(3) of the IT Act, wherein the AO accepted
the   nature   of   business   of   the   assessee.
Therefore, ITAT concluded that what was sold
by the assessee was part of its inventory and
not   a   capital   asset.   The   ITAT   also   held   that
the   assessee   has   reduced   the   sale
consideration from  Rs. 15,94,06,500/­ to Rs.
5,24,27,354/­   during   FY   2007­08   on   the
basis of MOU dated 27.12.2007 and the said
amount   of   the   income   has   already   been
declared   in   the   AY   2008­09   i.e.,   FY   2007­08
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and   therefore,   such   income   cannot   be
declared in AY 2009­10 i.e., FY 2008­09. The
ITAT   also   confirmed   and/or   agreed   with   the
assessee   that   the   sale   consideration   was   Rs.
5,24,27,354/­   only.   Based   on   these   findings,
the   ITAT   reversed   the   findings   of   the   AO   as
well as the CIT (A) and allowed the appeal by
deleting   the   addition   made   by   the   AO   of   Rs.
15,94,06,500/­.
2.3 The   Revenue   preferred   an   income   tax   appeal
before   the   High   Court   by   way   of   ITA   No.
1756/2014.   By   the   impugned   judgment   and
order, the High Court has dismissed the said
appeal   filed   by   the   Revenue   by   holding   that
none   of   the   questions   proposed   by   the
Revenue are substantial questions of law. 
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2.4 Feeling   aggrieved   and   dissatisfied   with   the
impugned  judgment  and order  passed by  the
High   Court   dismissing   the   appeal,   the
Revenue has preferred the present appeal. 
 
3. Shri Balbir Singh, learned ASG has appeared
on   behalf   of   the   Revenue   and   Shri   S.K.
Bagaria,   learned   Senior   Advocate   has
appeared on behalf of the assessee. 
4. Shri Balbir   Singh,  learned  ASG appearing  on
behalf   of   the   Revenue   has   vehemently
submitted   that   the   High   Court   has   failed   to
appreciate   that   the   order   of   the   ITAT   was
perverse and contrary to facts on record. It is
submitted   that   the   ITAT   failed   to   appreciate
that   the   assessee   has   taken   contrary   stands
before   the   assessing   authority   and   the
Tribunal,   on   account   of   sale   of   development
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rights.   It   is   submitted   that   firstly,   the
assessee   vide   its   letter   dated   25.11.2011
submitted   the   Ledger   Account   in   respect   of
development   agreement.   The   perusal   of   the
said   Ledger   Account   revealed   that   the
assessee   claimed   to   have   received   income   of
Rs.   15,94,06,500/­   from   a   development
agreement   on   31.03.2008   and   the   said   entry
was   reversed   on   the   same   day   by   passing   a
rectification   entry   on   31.03.2008   itself.
Therefore,   it   was   reflected   that   the   aforesaid
payment was paid by the purchasing party on
31.03.2008   to   an   entity   SICCL   and   all   these
entries   were   reflected   on   the   same   date.
Based   on   the   Ledger   furnished   by   the
assessee,   pertinent   questions   were   raised   by
the   Assessing   Officer   which   included   reason
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of   rectification   and   confirmation   of   the   fact
that   the   differential   amount   of   Rs
10,69,79,146/­   was   refunded   to   the
purchaser.   However,   perusal   of   the   order
passed   by   the   ITAT   reflects   that   the   fact   of
receipt of money on 31.03.2008 was not even
discussed.   On   the   contrary,   a   reference   was
made   to   the   MOU   dated   27.12.2007   for   a
total  consideration  of Rs. 5,24,27,354/­.  It  is
submitted   that   the   ITAT   without   examining
the   true   nature   of   transaction   and   entry
made in the books of accounts of the assessee
simpliciter   confirmed   that   the   transactions
pertained   to   earlier   years   i.e.,   Assessment
Year   2008­09   and   the   reduction   of   amount
arising   out   of   the   Development   Agreement
dated   06.05.2008   and   Rectification   dated
30.05.2008 was due to mistake.   
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4.1 It   is   further   submitted   by   Shri   Balbir   Singh,
learned ASG, that the ITAT failed to take into
account   the   fact   that   the   entry   made   and
reflected   in   the   Ledger   Account   of   the
assessee as on 31.03.2008 was on account of
a   third   party   i.e.,   SICCL   and   that   too   for   a
total of Rs. 15,94,06,500/­. Further, the ITAT
did not even question 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.   That   the   ITAT   has
failed   to   appreciate   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,   is   to   be
treated   as   income   in   the   hands   of   the
recipient.
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4.2 Secondly,   balance   sheets   for   the   Assessment
Years   2006­07  to   2009­10  were  examined  by
the Assessing Officer and it was recorded that
there   was   not   even   a   single   sale   during   all
these   years   and   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   that   of   transfer   of   capital   asset   and   not
that   of   transfer   of   stock   in   trade.   However,
the   ITAT   in   its   order,   after   examining   the
opening   and   closing   balance   for   the   year
1996­97   upto   2007­08   held   that   in   multiple
years   there   was   inventory   shown   in   the
Balance   Sheet   and   since   subsequent
assessment   orders   were   made   under   Section
143(3)   of   the   Income   Tax   Act,   without
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disputing the claim of assessee, held that the
transaction   in   question   is   sale   of   stock   in
trade.   It   is   contended   that   the   ITAT   neither
dealt with the findings given by the Assessing
Officer   nor   verified/examined   the   total   sales
made   by   the   assessee   during   the   relevant
year   and   during   the   previous   years.
Therefore, the ITAT as well as the High Court
have   materially   erred   in   holding   that,   merely
because   the   entry   made   in   the   books   of
accounts   involved   recording   of   inventory,   the
transaction in question becomes sale of stock
in   trade.   That,   it   is   well   settled   that   in   order
to   examine   whether   a   particular   transaction
is   sale   of   capital   asset   or   business
transaction, multiple factors like frequency of
trade,   volume   of   trade,   nature   of   transaction
over   the   years   etc.   are   required   to   be
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examined.   However,   in   the   present   case,   the
ITAT   without   examining   any   of   the   relevant
factors   confirmed   that   the   transaction   was
transfer of stock in trade. 
4.3 It   is   further   submitted   that   the   ITAT   without
any   basis   and   solely   on   the   basis   of   claim
made   by   the   assessee,   contrary   to   the
accounts   produced   before   the   Assessing
Officer,   agreed   that   the   transaction   was
reflected   as   sale   in   the   tax   return   for   the
Assessment   Year   2008­09.   That,
interestingly,   the   ITAT   did   not   even   question
as   to   what   happened   to   the   differential
amount   of   Rs.   10,69,79,146/­   on   account   of
reduction of sale value of development rights.
4.4 It   is   further   submitted   by   Shri   Balbir   Singh,
learned   ASG,   that   the   High   Court   has   failed
to   examine   the   inherent   contradiction   in   the
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order   of   the   ITAT   and   that   the   claim   was
allowed   by   the   Tribunal,   contrary   to   the
records   produced   before   the   Assessing
Officer. Therefore, the order of the High Court
holding   that   there   was   no   substantial
question   of   law   involves   is   illegal   and
perverse.
4.5 It   is   further   submitted   that   the   High   Court
has   failed   to   appreciate   that,   even   in   the
event   of   acceptance   of   claim   made   by   the
assessee,   including   the   assertion   that   Rs.
5,24,27,354/­   was   shown   in   the   tax   return
for the earlier Assessment Year i.e., 2008­09,
the differential amount of Rs. 10,69,79,146/­
on   account   of   reduction   in   the   sale
consideration   of   development   rights   is   to   be
assessed   in   the   current   year   as   either   as
capital   gain   or   business   income.   This   is
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without   prejudice   to   the   submission   that   the
Assessing   Officer   has   correctly   assessed   the
income   in   his   Assessment   Order   dated
29.11.2011. 
4.6 Making   the   above   submissions,   it   is   prayed
that   the   present   appeal   be   allowed   and   the
order passed by the ITAT as well as the High
Court   be   set   aside   and   the   order   of   the
Assessing Officer be restored.
5. Shri   S.K.   Bagaria,   learned   Senior   Advocate
appearing on behalf of the assessee has taken
us to the findings recorded by the High Court
as   well   as   the   ITAT.   It   is   submitted   that   the
assessee   is   engaged   in   the   business   of
building   and   development   of   properties   since
the   year   1999­2000.   That   the   assessee's
balance   sheets   show   that   it   had   work­in­
progress/inventories   year   after   year,   since
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1999­2000.   The   same   has   been   accepted   by
the   department   all   these   years;   even   after
scrutiny assessments under Section 143(3) of
the Income Tax Act, 1961.
5.1 It is submitted that the assessee had entered
into an MOU dated 27.12.2007 with M/s Kirit
City   Homes   Private   Limited,   whereby,
Development   Rights   in   a   property   at   Vasai
were   sold   for   a   total   consideration   of   Rs.
5,24,27,354/­.   That   the   said   MOU   was   on
record   before   the   lower   authorities   and   has
been referred in the Assessment Order as well
as   in   the   order   passed   by   the   CIT   (A).   In
connection with the said transaction, detailed
findings   were   given   by   the   Income   Tax
Appellate   Tribunal   (Tribunal/ITAT)   and   these
were also duly considered by the High Court.
The findings given by the Tribunal were pure
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findings of facts and therefore, the High Court
has   rightly   dismissed   the   appeal   after
considering the facts and the tribunal’s order
and   by   holding   that   no   substantial   question
of law arises in the matter. 
5.2 Shri   S.K.   Bagaria,   learned   Senior   Advocate
has   taken   us   to   the   following   facts   recorded
by the High Court in the impugned judgment
and order: ­ 
a)  It   is   a   common   ground   that   the
assessee   is   in   the   business   of
building   and   development   of
properties.   There   was   no   change   in
the   activities   of   the   assessee   during
the year under consideration.
b)  For the year ending 31/03/2006 the
assessee   disclosed   inventories   at   Rs
8.66 crores
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c)  For   the   year   ending   31/03/2007
there   was   no   change   and   the   same
figure   of   Rs   8.66   crores   was
disclosed.
d)  For   the   year   ending   31/03/2008
(assessment   year   2008­09),   the
assessee   showed   sale   of   land
development   rights   at   Rs
5,24,27,354/­   and   the   cost   of   land
was shown at Rs 5,21,37,454/­. 
5.3 It   is   submitted   that   in   connection   with   the
aforesaid   transaction   during   financial   year
2007­08,   the   High   Court   has   further
considered   the   following   facts   in   the
impugned judgment and order: ­ 
i.  In   MOU   dated   27/12/2007   with
KCH   transfer   of   development   rights
was   for   the   said   total   consideration
of Rs 5,24,27,354/­. 
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ii.  The   assessee   was   holding   50.16
acres   of   land,   out   of   which   27.44
acres of land was the subject matter
of   the   aforesaid   MOU   dated
27/12/2007.   Total   cost   of   the   land
was determined proportionately.
iii.  On   02/01/2008   necessary   entries
were   passed   debiting   the  account   of
KCH   but   crediting   the   account   of
one   M/s   SICCL.   The   assessee   owed
SICCL   a   sum   of   Rs   8.10   crores   and
it   therefore   directed   KCH   to   pay   the
consideration directly to SICCL. 
iv.  Corresponding entries relating to the
aforesaid   transaction   were   also
made in the accounts of SICCL.
v.  On   02/01/2008   possession   of   the
land was also handed over.
vi.  The   aforesaid   events   took   place
during   the   financial   year   2007­   08
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relating   to   assessment   year   2008­
09.   In   that   assessment   year,   the
assessee   offered   to   tax   the   income
arising   out   of   the   aforesaid
transaction   under   the   head
"business income".
vii.  In the development agreement dated
06/05/2008   the   sale   consideration
was   incorrectly   mentioned   as   Rs
15,94,06,500/­   and   on   realising   the
mistake,   a   Deed   of   Rectification   of
executed on  30/05/2008. This deed
of   rectification   was   registered   with
the   office   of   the   Sub   Registrar,
Vasai.
5.4 Shri   Bagaria,   learned   Senior   Advocate   has
also   taken   us   to   the   following   further   facts
recorded and findings given by the ITAT: ­
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a) The   aforesaid   50.16   acres   of   land
was acquired by  the assessee in the
financial year 1996­97. The tribunal
gave year   wise  details  from   1996­97
which   clearly   showed   that   the
acquisition   of   land   was   in   financial
years 1996­97 and 2004­05. During
the   financial   year   2007­   08,   cost   of
the inventory was Rs. 9,53,06,475/­
and   the   tribunal   gave   a   definite
finding   that   "the   above   inventory
represents the cost of 50.16 acres of
land   out   of   which   27.44   acres   has
been   sold   vide   Memorandum   of
Understanding dated 27/12/2007".
b)  The   assessee   was   showing   work   in
progress   under   the   head   current
assets   and   loans   and   advances   in
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the   balance   sheets   filed   with   the
Department   and   in   the   Income   Tax
Returns.   The   tribunal   considered
the   year­wise   position   and   gave   the
following findings for different years.
c)  For   assessment   year   2001­02   the
assessee's   Return   was   selected   for
scrutiny   assessment   and   the
assessment   was   completed   under
section   143   (3)   vide   order   dated
11/09/2003, wherein, the assessing
officer gave a categorical finding that
the   assessee   was   engaged   in   the
business   of   builder   and   developer,
erectors,   construction   of   building,
houses,   apartments,   ownership
flats.   Work   in   progress   of   Rs   7.66
crores   was   also   mentioned   in   the
Page  25  of  44

assessment order and it covered cost
of   land   and   various   expenses
including   land   development,   stamp
charges etc.
d)  For   financial   year   2002­03,   work   in
progress   was   shown   at   Rs.   8.51
crores.
e)  For   financial   years   2003­04   and
2004­05   (year   ending   31/03/2004
and   31/03/2005),   inventories   were
shown at Rs 8.58 crores and Rs 8.66
crores   respectively.   For   the
assessment   year   2005­06   (financial
year   2004­05)   the   assessee   was
again   subjected   to   scrutiny
assessment   and   its   assessment   was
completed   under   Section   143   (3)   by
order   dated   30/11/2007   and   the
assessing   officer   again
Page  26  of  44

acknowledged   the   business   of   the
assessee   as   that   of   builder   and
developer,   erectors,   construction   of
building,   houses,   apartments,
ownership   flats.   The   assessing
officer   specifically   found   that   there
was   no   change   in   the   activities   of
the   assessee   during   the   year   under
consideration.
f)  For the financial years 2006­07 and
2007­08 the inventories were shown
at   Rs   8.66   crores   and   there   was   no
change. For the financial year 2007­
08   (year   ending   31/03/2008)   the
assessee   had   shown   sale   of   land
development   right   at   Rs.
5,24,27,354/­   and   cost   of   the   said
land was shown at Rs 5,21,37,454/­
Page  27  of  44

The   facts   relating   to   MOU   dated
27/12/2007,   necessary   entries
being made in the books of accounts
on   02/01/2008,   debiting   the
account   of   KCH   and   crediting   the
account   of   SICCL,   mistake   in   the
development   agreement   dated
06/05/2008  and  its  being  corrected
by   the   said   registered   deed   of
rectification were also mentioned.
g)  It   was   found   that   since   1999­2000
the   assessee   was   showing   cost   of
land   along   with   other   related
expenditures   as   work   in
progress/inventory   in   the   balance
sheets   and   its   Income   Tax   Returns
for   several   intervening   years   as   the
above   were   assessed   under   Section
Page  28  of  44

143   (3)   wherein   the   nature   of   the
assessee's business was accepted by
the   assessing   officer.   It   was   held
that   what   was   sold   by   the   assessee
was   part   of   its   inventory   and   not   a
capital   asset   and   the   tribunal
decided   the   matter   by   taking   into
consideration   these   undisputed
facts.
5.5 It   is   submitted   that   based   on   the   aforesaid
facts   and   findings,   the   ITAT   has   rightly   held
that   the   impugned   transaction   related   to
transfer   of   stock   in   trade   and   that   the
assessee   had   shown   “stock   in
trade/inventories”   year   after   year   in   its
balance   sheets   and   its   contention   was
accepted   by   the   Assessing   Officer   and   twice
the   assessments   were   completed   under
Page  29  of  44

Section 143(3). It is submitted that ultimately
the Tribunal concluded the issues as under: ­
a)  The impugned transaction related to
transfer   of   stock   in   trade   and   that
the   assessee   had   been   showing
"stock   in   trade/inventories"   year
after   year   in   its   balance   sheets   and
its   contention   was   accepted   by   the
assessing   officer   and   twice   the
assessments   were   completed   under
Section 143(3).
b)  The   said   transaction   had   taken
place   during   the   financial   year
2007­08   pertaining   to   assessment
year   2008­09.   The   assessee   had
shown the sale consideration as also
the  cost  of land  in  its balance  sheet
and   profit   and   loss   account   filed
with   the   Return   of   Income   for   the
Page  30  of  44

said assessment year 2008­09. Even
in   the   abstract   from   AST,   the
assessing   officer   had   referred   the
said   sale   as   part   of   the   return   for
assessment year 2008­09.
c)  Considering   the   MOU   and   the   Deed
of   Rectification,   the   consideration
was   Rs   5.24   crores.   The   assessing
officer   completed   assessments
simply   by   relying   on   AIR   data
received   from   the   office   of   the   Sub­
Registrar,   Vasai   but   failed   to
consider   the   Deed   of   Rectification
registered   by   the   same   Sub­
Registrar   and   did   not   even   care   to
verify   the   figure   from   the   said   Sub­
Registrar, Vasai.
d)  Perusal   of   balance   sheets   of   the
assessee   since   1999­2000   clearly
Page  31  of  44

showed   that   the   assessee   had   been
showing   work   in
progress/inventories   year   after   year
and   apportioned   the   cost   in
proportion   to   the   part   of   the   land
transferred   and   the   cost   of   the   land
was   as   per   the   cost   shown   in   the
Return   of   Income   for   assessment
year 2008­09.
e)  Since   the   impugned   transaction
related   to   the   business   of   the
assessee   and   was   to   be   assessed   as
such   under   the   head   "profit   and
gains   of   business   or   profession"   the
provisions   of   section   50C   of   the
Income   Tax   Act,   1961   were   not
applicable to the facts of the case.
 
Page  32  of  44

5.6 It   is   submitted   that   the   above   findings
recorded   by   the   ITAT   which   were   upheld   by
the High Court are pure findings of facts and
therefore,   no   substantial   question   of   law
arises   in   the   matter.   Therefore,   it   is   prayed
that no interference of this Court against the
findings recorded on material and evidence is
called   for.   Reliance   is   placed   on   the   decision
of this Court in the case of   Mantri Techzone
Private   Limited   Vs.   Forward   Foundation
and Ors.; (2019) 18 SCC 494 . 
5.7 It   is   further   submitted   by   Shri   Bagaria,
learned   Senior   Advocate   appearing   on   behalf
of   the   assessee   that   the   assessment   order
simply   referred   to   AIR   data.   As   recorded   in
the   assessment   order   itself   the   assessee   had
submitted   that   the   transaction   in   question
Page  33  of  44

was   duly   offered   to   tax   in   assessment   year
2008­09   reflecting   its   consideration   at   Rs.
5,24,27,354/­.   The   MOU   relating   to   the   said
transaction   was   already   before   the   assessing
officer   and   the   consideration   of   Rs.
5,24,27,354/­   was   duly   mentioned   in   the
MOU.   In   the   Development   Agreement,   there
was   a   mistake   in   mentioning   the
consideration   and   on   realizing   the   error,
within a short period of 24 days, the aforesaid
Deed   of   Rectification   was   entered   into   and
was duly registered. The said consideration of
Rs. 5,24,27,354/­ was correctly mentioned in
the   MOU   which   was   before   the   Assessing
Officer   as   well   as   before   the   CIT   (Appeals).
The   amount   mentioned   in   the   Deed   of
Rectification,   rectifying   the   mistake   in   the
Development   Agreement   also   mentioned   the
Page  34  of  44

same   consideration   and   the   said   Deed   of
Rectification   was   duly   registered   with   the
Sub­Registrar,   Vasai   with   whom   the
Development   Agreement   was   also   registered.
It   is   important   to   mention   that   if   the
Department   intended   to   dispute   the
valuation,   it   could   have   easily   referred   the
matter   to   the   valuation   officer   but   it   did   not
do   so.   Not   only   this,   as   recorded   by   the
tribunal,   the   development   agreement   as   well
as   the   deed   of   rectification   were   both
registered with the same Sub­Registrar, Vasai
but   the   income   tax   officer   did   not   make   any
enquiry from the said Sub­Registrar.
5.8 It is further submitted that with regard to the
nature   of   business   of   the   assessee,   the
income tax officer  proceeded as if there must
be   regular   transactions   of   purchase   and   sale
Page  35  of  44

every   year.   Firstly,   the   income   tax
Department   itself   had   accepted   that   the
assessee's   business   was   of   builder   and
developer, erectors, construction of buildings,
houses etc and the assessments on that basis
were   completed   year   after   year   including   the
assessments   under   Section   143   (3)   for
different years as mentioned above. Secondly,
the regularity and frequency itself depends on
the   nature   of   business   and   nothing   prevents
the   assessee   from   buying   plots   of   land,
holding them as stock in trade, developing or
continuing   to   hold   as   it   is   and   then   entering
into   the   transactions   of   sale   or   disposal   or
transfer   at   an   appropriate   time.   Reliance   in
this   regard   is   placed   on   the   judgement
reported   in   (1961)   42   ITR   179   (Raja   J.
Page  36  of  44

Rameshwar   Rao   Vs.   Commissioner   of
Income Tax, Hyderabad)  wherein it was held
inter   alia   that,   "no   doubt,   this   was   only   a
single venture; but even a single venture may
be   regarded   as   in   the   nature   of   trade   or
business."   As   regards   the   applicability   of
Section   50C   of   Income   Tax   Act,   it   is
submitted that when the land in question was
held   by   and   transferred   by   the   assessee   as
stock   in   trade   and   not   as   capital   asset,
Section 50C  could  have  no application  at all.
In the income tax return for assessment year
2008­09 (during which the relevant events as
mentioned   above   took   place)   the   transaction
in question was duly offered to tax under the
head   "profit   and   gains   of   business   and
profession". All these facts were considered by
Page  37  of  44

the tribunal and findings of fact as mentioned
above were given.
5.9 Making   the   above   submissions   that  the   High
Court is correct in holding that the Tribunal’s
findings   were   findings   of   fact   supported   by
written   documents   and   corroborating
materials   and   that   there   was   nothing
perverse   in   the   tribunal’s   findings   and   the
case did not involve any substantial question
of   law,   it   is   prayed   to   dismiss   the   present
appeal. 
6. Heard learned counsel appearing on behalf of
the respective parties at length.
7. 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
Page  38  of  44

on   examining   the   balance   sheets   for   the   AY
2006­07 to 2009­10 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   1996­97   to   2007­08
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
Page  39  of  44

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.
7.1 The   High   Court   has   also   failed   to   appreciate
that  even  in  the  event  of  acceptance  of  claim
Page  40  of  44

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.,   2008­09,   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
Page  41  of  44

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. 
7.2 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
Page  42  of  44

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.     
8. 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,   while   taking   into
consideration   the   observations   made
hereinabove   and   to   take   an   appropriate
decision   on   whether   the   transaction   in
Page  43  of  44

question is the sale of capital assets or sale of
stock   in   trade   and   other   aspects   referred
hereinabove.   It   is   observed   that   we   have   not
expressed   anything   on   merits   in   favour   of
either   of   the   parties.   It   is   ultimately   for   the
ITAT   to   take   an   appropriate   decision   in
accordance with law and on its own merits as
above.    
………………………………….J.
[M.R. SHAH]
………………………………….J.
[B.V. NAGARATHNA]
NEW DELHI;
MAY 04, 2023
Page  44  of  44