Income Tax Appellate Tribunal – Jaipur
Deputy Commissioner Of Income … vs M/S Man Prakash Talkies Pvt. Ltd., … on 20 February, 2020 vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH ‘A’, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k
Before : Shri Vijay Pal Rao, JM & Shri Vikram Singh Yadav, AM vk;dj vihy la-@ITA No. 406/JP/2018 fu/kZkj.k o”kZ@Assessment Year : 2008-09 The DCIT cuke M/s. Man Prakash Talkies Pvt. Ltd.
Circle – 2 Vs. Upper Ground Floor, A-8,Golcha
Jaipur Trade Centre, M.I. Road, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@ PAN/GIR No.: AABCM 6213 F
vihykFkhZ@Appellant izR;FkhZ@Respondent C.O. No. 11/JP/2018 (Arising out of vk;dj vihy la-@ITA No. 406/JP/2018) fu/kZkj.k o”kZ@Assessment Year : 2008-09 M/s. Man Prakash Talkies Pvt. Ltd. cuke The DCIT
Upper Ground Floor, A-8,Golcha Trade Vs. Circle – 2
Centre, M.I. Road, Jaipur Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@ PAN/GIR No.: AABCM 6213 F
vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 407/JP/2018 fu/kZkj.k o”kZ@Assessment Year : 2009-10 The DCIT cuke M/s. Man Prakash Talkies Pvt. Ltd.
Circle – 2 Vs. Upper Ground Floor, A-8,Golcha
Jaipur Trade Centre, M.I. Road, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@ PAN/GIR No.: AABCM 6213 F
vihykFkhZ@Appellant izR;FkhZ@Respondent
2 ITA No.406/JP/2018
The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur C.O. No. 12/JP/2018 (Arising out of vk;dj vihy la-@ITA No. 407/JP/2018) fu/kZkj.k o”kZ@Assessment Year : 2009-10 M/s. Man Prakash Talkies Pvt. Ltd. cuke The DCIT
Upper Ground Floor, A-8,Golcha Trade Vs. Circle – 2
Centre, M.I. Road, Jaipur Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@ PAN/GIR No.: AABCM 6213 F
vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by : Shri Varinder Mehta, CIT-DR fu/kZkfjrh dh vksj ls@ Assessee by : Shri H.M. Singhvi, CA lquokbZ dh rkjh[k@ Date of Hearing : 20/12/2019 ?kks”k.kk dh rkjh[k@ Date of Pronouncement : 20 /02/2020 vkns’k@ ORDER PER VIJAY PAL RAO, JM These two appeals by the Revenue and equal numbers of Cross Objections by the assessee are directed against two separate orders of the ld. CIT(A)-1, Jaipur both dated 25-01-2018 for the Assessment Year 2008-09 and 2009-10 respectively.

2.1 First of all, we take up the appeal of the Revenue for adjudication wherein the Revenue has raised the following grounds in ITA No. 406/JP/2018 for the A.Y. 2008-09 ”(i) Whether on the facts and circumstances of the case and in law the ld. CIT(A) has erred in quashing the re- assessment proceedings without appreciating the facts that
3 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur mere omission of some words does not quash the entire proceedings.

(ii) Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in appreciating the law laid down by the Hon’ble Supreme Court in the case of M.V. ‘Vali Pero” vs Fernandeo Lopex, AIR 1989 (SC) 2206 wherein it has been held that the outcome ad fairness of the procedure have been forwarded, there is no reason to discard the result simply because certain details which have not prejudicially affected the result have been inadvertently omitted in a particular case.

(iii) Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred without appreciating that the assessee made transfer as per Section 2(47) of the Act while making treatment of its capital asset i.e. land of Cinema Hall into stock in trade of the business of selling of shops u/s 45(2) of the Act 3.1 The Ground No. 1 and 2 of the Revenue are regarding reopening of the assessment which was quashed by ld. CIT(A) on the ground that the same is hit by the proviso to Section 147 of the Act and the AO has reopened the assessment after 04 years without any new material or information so as to hold that the assessee has failed to disclose fully and truly all the facts necessary for assessment.

3.2 The assessee is Private Limited Company and was earlier engaged in the business of exhibiting films in the Cinema Hall known as ”Man Prakash. In the F.Y. 1999-2000, the assessee decided to dismantle the cinema hall building and to develop a commercial complex on the land.
4 ITA No.406/JP/2018
The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur The assessee also obtained the permission from Jaipur Development Authority (for short ”JDA”) for change of use of the land from Cinema Hall to Multistoried Commercial Complex comprising of shops, showrooms and other commercial space. The assessee entered into a Development Agreement dated 12-12-2001 with M/s. Golcha Buildtech Pvt. Ltd. (for short ”GBT”). As per terms and conditions of the said agreement , the assessee has contributed the land to the project whereas the Developer has agreed to bear all the costs of constructions including obtaining the necessary approvals and permissions from the local authorities. The parties have agreed to have 50% – 50% shares in the constructed commercial complex and were free to sell the same. The assessee also received inter alia a sum of Rs. 2.00 crores as on the date of agreement which is non-refundable. The commercial complex was completed during the year under consideration and there was sale of shops and showrooms by the assessee. The assessee filed its return of income on 29-03-2010 as belated return u/s 139 of the Act and declared the total income at Rs. 2,00,29,760/-. The assessment was completed u/s 143(3) of the Act on 3-12-2010 whereby the AO accepted the returned income of the assessee. Thereafter the AO reopened the assessment by issuing notice u/s 148 of the Act on 31-03-2015. In response, the assessee
5 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur vide letter dated 18-05-2015 submitted that return of income filed on 29- 03-2010 should be treated as returned income filed in response to notice issued u/s 148 of the Act. The AO completed the reassessment on 30-03- 2016 whereby addition on account of Long Term Capital Gain of Rs. 9,69,04,854/- u/s 45(2) of the Act was made to the total income of the assessee. The AO has also assessed the business income of the assessee at Rs. 2,32,10,026/- as against business income declared by the assessee at loss (-) of Rs. 1,80,968/-. The assessee challenged the action of the AO before the ld. CIT(A) and also raised the objection against the validity of the reopening of the assessment. The ld. CIT(A) decided the issue of reopening of the assessment in favour of the assessee and quashed the reopening of the assessment. The ld. CIT(A) also decided the issue of assessment of Long Term Capital Gain u/s 45(2) of the Act in favour of the assessee by holding that there was no conversion of capital asset into stock in trade by virtue of demolition of Cinema Hall Building and conversion of land use as well as entering into Development Agreement dated 12-12-2001 with GBT. Since reopening of the assessment was quashed by the ld. CIT(A), therefore, other grounds raised by the assessee against the validity of the reassessment order on the ground of proper service of notice u/s 148 of the Act was not adjudicated upon by the ld.
6 ITA No.406/JP/2018
The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur CIT(A). Thus aggrieved by the order of the ld. CIT(A), the Revenue has filed this appeal and the assessee has filed the C.O. on the issue of validity of service of notice u/s 148 of the Act.

3.3 The ld. DR has submitted that the ld. CIT(A) has quashed the reassessment by holding that the same is hit by the proviso to Section 147 of the Act without considering the relevant facts which were subsequently detected by the Department as well as by the AO by conducting an enquiry and on the basis of outcome of such enquiry and the facts pointed out by the Audit Team/ Department, the AO has formed belief that income assessable to tax being Long Term Capital Gain in pursuance of conversion of capital asset into stock in trade, has escaped assessment. The ld. DR has pointed out that there was detailed enquiry conducted by the audit team and audit objection, pointing out the fact that the assessee has actually converted its capital asset into stock in trade by converting the land use after demolition of Cinema Hall Building and entered into a Development Agreement for construction of multistoried commercial complex. Therefore, the provisions of section 45(2) are clearly applicable in the case of the assessee. After receipt of audit objections , the AO has also conduced the enquiry by issuing notices / letters dated 01-09-2014 as well as 25-09-2014 u/s 133(6) of the Act . Thus the
7 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur information gathered by the AO from the audit objection as well as through enquiry conducted, constitutes the tangible material to form the belief that income assessable to tax has escaped assessment. The ld. DR further contended that the ld. CIT(A) has failed to ignore these facts while arriving to the conclusion that reopening of the assessment is based on same facts and material already available in the assessment record. Thus the ld. DR has submitted that order passed by the ld. CIT(A) ignoring the relevant material facts is not sustainable in law. The ld. DR has referred to reasons recorded by the AO as well as the audit objection and submitted that there was a tangible material which came to the knowledge of the AO to show that the assessee had converted the capital asset into stock in trade and thereby the income assessable to tax has escaped assessment.

3.4 On the other hand, the ld.AR has submitted that during the course of original scrutiny assessment, the AO had issued the notice u/s 142(1) on 23-09-2010 calling information from the assessee. In response to the said notice, the assessee filed letter dated 4th Oct. 2010 and furnished all the relevant information sought by the AO regarding capital gains arising from transfer of land in question as well as the sale of the shops. The assessee in the return of income has clearly declared the Long Term
8 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur Capital Gain on account of transfer of land in question and Short Term Capital Gain on account of sale of shops in the commercial complex. Therefore, the assessee furnished all the relevant details and materials which were necessary for assessment and consequently the reopening of the assessment after 04 years from the end of the Assessment Year under consideration is not valid when there is no failure on the part of the assessee to disclose fully and truly all materials facts necessary for assessment. The ld.AR of the assessee has submitted that the AO on the satisfaction of the reply filed by the assessee has accepted the returned income, while passing the assessment order dated 03-12-2010. In support of his contentions, the ld.AR of the assessee relied on following decisions.

(i) Ritu Investments Ltd. vs DCIT 51 DTR 162 (Del.) (ii) CIT vs Eicher Ltd. (2007) 294 ITR 310 (Del.) (iii) CIT vs Kelvinator India Ltd, 256 ITR 1 (Del.) (iv) CIT vs Jet Speed Auto (P) Ltd. (2015) 372 ITR 762 (Bom.) (v) CIT vs Bhanji Lavji (1972) 79 ITR 582 (SC) Thus the ld.AR of the assessee submitted that reopening of assessment based on change of opinion is not valid as the AO has no jurisdiction to initiate proceedings u/s 147/148 of the Act to correct the error of
9 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur judgement while passing the original assessment order. Thus the ld.AR of the assessee supported the impugned order of the ld. CIT(A). 3.5 We have considered the rival submissions as well as relevant materials available on record. There is no dispute on the facts that original assessment was completed u/s 143(3) of the Act on 3-12-2010 whereby the AO has accepted the return of income of the assessee. The AO issued notice u/s 148 of the Act on 31-03-2015 which is clearly after the expiry of 4 years from the end of the Assessment Year under consideration. The assessee has challenged the validity of reopening of the assessment on the ground that there is no failure on the part of the assessee to disclose fully and truly all materials facts necessary for assessment and consequently the proviso to section 147 is applicable. The assessee also referred to the notice issued by the AO u/s 142(1) of the Act and reply thereto. It is pertinent to note that the AO while passing the original assessment u/s 143(3) of the Act on 3-12-2010 has taken up the issue in the scrutiny only regarding the interest income from the business of loans and advances. Therefore, the bare reading of the assessment order dated 3-12-2010 does not reveal that any enquiry was conducted by the AO on the issue of nature of income arising from the arrangement of development of commercial complex after demolition of Cinema Hall Building on the
10 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur land in question. For ready reference, we reproduce the assessment order dated 3-12-2010 passed u/s 143(3) as under:-

”The assessee e-filed return of income without digital signatures for assessment year 2008-09 on 29.03.2010, which was subsequently physically filed with ‘the department on 06.04.2010 declaring income of Rs. 2,00,29,760.00.The return of income was processed u/s 143 (1) and was picked up for scrutiny by issuing notice u/s 143 (2) of the I.T. Act,1961. The jurisdiction over this case has been assigned from the Asstt. Commissioner of Income-tax, Circle-2, Jaipur to the, undersigned (Asstt. Commissioner of Income-tax (OSD), under the administrative central of Addl. CIT, Range-2, Jaipur) by the Commissioner of Income-tax, Jaipur-I in exercise of power conferred by sub-section (1) of section 127 of the Income-tax Act, 1961 vide his order NO. CIT-I / ITO (Hors) / JPR / U/s 127 (1) / 2010-11 / 302 dated 15/10/2010. In compliance to the statutory notices Shri. R. C. Verma, C. A. & A. R. attended the proceedings from time to time and filed necessary details / information / documents etc. as required and produced books of accounts which were examined on test on the basis and the case was discussed with him.
The assessee is a Private Limited Company having income from interest, dividend, long term and short term capital gain on shares, capital gain on sale of shops etc. During the course of scrutiny it was revealed that the assessee is doing the business of advancing loans to parties and yielding interest income thereon. During the year under, consideration the assessee had earned an interest income of Rs. 57,48,187.57 which is duly reflected in the profit and loss account of the assessee. As such the turnover of the assessee got exceeded the limit prescribed by the section 44AB of Income Tax Act, 1961. The assessee had not furnished the tax audit report as required by section 44AB of the Income Tax Act, 1961. As such I am satisfied that the penalty provisions under section 271B of Income Tax Act, 1961 are applicable against the assessee. Penalty proceedings u/s. 271B of the Income Tax Act, 1961 are initiated separately.
It was further noticed during the course of scrutiny that the assessee had filed its return of income on 29.03.2010 and was having a taxable income for the relevant assessment year. By virtue to third proviso to section 139(1) of Income Tax Act, 1961 the assessee was required to file its return of income on or before 30 th September, 2008 but the assessee had filed return belatedly. Therefore I am satisfied that
11 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur the penalty provisions under section 271F of Income Tax Act, 1961 are applicable against the assessee. Penalty proceedings u/s. 271F of the Income Tax Act, 1961 are initiated separately.
After discussion returned income is accepted.

Assessed at Rs. 2,00,29,760.00. Issue demand notice and challan. Issue necessary forms. ITNS 150 is part of this order. Penalty proceedings under section 271B and 271F are being initiated separately.
Sd/- (K.C. Gupta) Asstt. Commissioner of Income Tax (OSD),Jaipur On perusal of the above scrutiny assessment order dated 3-12-2010, it is clear that the AO has taken up only two issues of not furnishing tax audit report as required u/s 44AB of the Act and filing belated return of income and consequently initiated penalty proceedings u/s 271B and 271F of the Act respectively. Apart from these two issues, the AO has not made any reference to any reply filed by the assessee. Thus it is manifest from the said assessment order that the AO has not conducted the bare minimum enquiry on the issue of conversion of capital asset into stock in trade. It is a very brief and cryptic assessment order passed summarily. From the said assessment order, it reveals that the AO has not taken up any issue for the scrutiny assessment or applied his mind on the issue of conversion of capital asset into stock in trade and thereby, resulting the income of Long Term Capital Gain. Thus the said order does not exhibit any thought
12 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur process of the AO on the issue. We further note that in the case in hand after scrutiny assessment order passed dated 3-12-2010, there was an audit objection giving elaborate point wise factual details regarding the issue of conversion of capital asset into stock in trade as result of converting the land use and entering into a Development Agreement for construction of Multistoried Commercial Complex on the land. The Audit party has conducted a thorough enquiry of relevant facts pertaining to the entire exercise of conversion of land use from Cinema Hall Building to Development of commercial complex. We further note that the AO has also conducted an enquiry by issuance of notices u/s 133(6) dated 01-09- 2014 and 25-09-2014 which are not in dispute. The assessee has also responded to those notices by filing the reply dated 7-10-2014. All these documents are part of the paper book filed by the assessee. Therefore, the question arises whether the facts pointed out by the audit party as well as enquiry conducted by the AO by issuing notices u/s 133(6) of the Act constitute a tangible material revealing the facts which were not disclosed by the assessee in the return of income filed u/s 139 of the Act as well as during the original scrutiny assessment. As far as scrutiny assessment proceedings are concerned, we have also discussed this aspect in the foregoing part of this order and noted that the AO has not even taken up
13 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur any such issue for scrutiny. Further no reference was made by the AO to the alleged reply filed by the assessee which are the basis for raising objection against the validity of reopening of the assessment. In order to verify this fact, the Bench directed the ld. DR to file copies of the Note sheet of the original scrutiny assessment. We find that the proceedings upto 8-10-2010 were conducted by the ACIT, Circle – 2, Jaipur and thereafter the jurisdiction of the case was transferred to ACIT (OSD) Jaipur vide order dated 15-10-2010 by CIT (Hq.) passed u/s 127(1) of the Act. After transfer of the case to ACIT (OSD), no further enquiry was conducted but the assessment order was passed accepting the returned income. Therefore, the question of conducting any enquiry on this issue does not arise The ld. CIT(A) has decided this issue by presuming the fact that no new facts were brought to the knowledge of the AO after completing the scrutiny assessment u/s 143(3) of the Act. The relevant concluding para’s Nos. (xii) and (xiii) of ld. CIT(A)’s order on this issue are as under:-

‘ ‘(xii) Therefore, in view of the above discussion and looking to the totality of facts and circumstances of the case, it is held that the initiation of proceedings u/s 147 of the Act by the AO for the year under consideration was not in conformity with the provisions of section 147 of the Act. Further, the assessment was reopened after 4 years from the end of the relevant assessment year, which was earlier completed u/s 143(3) of the Act, therefore, proviso to the section 147 of the Act is clearly applicable to the facts of the instant case under
14 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur consideration. The AO has neither stated that there was default on the part of the appellant to disclose material facts truly and fully, which are necessary for its assessment nor it is discernible from the reasons recorded by the AO. Further, the AO has not stated in the reasons recorded for reopening the case of the appellant, what material facts were not disclosed by the appellant at the time of original assessment proceedings.
(xiii) Therefore, it could be concluded that the reassessment proceedings under consideration were initiated on the basis of re- appreciation of the same set of facts available on record and is nothing but merely change of opinion which could not be allowed in view of the various judicial pronouncements as discussed earlier in this order. Further, since original assessment was completed u/s 143(3) of the Act and the reassessment proceedings were initiated after four years from the end of the relevant assessment year, the proviso to section 147 of the Act is also applicable. Further, there was no failure on the part of the appellant to disclose, truly and fully all material facts, which are necessary, for its assessment for the year under consideration at t h e t im e of o ri gi n al ass essm ent p ro ceedi n gs, it i s h el d th at th e co n dit io n s req ui red fo r i ni ti at io n o f reass es sm ent p ro ceedi n gs, as s ti pu l at ed in t h e p ro vi so t o s ecti on 14 7 o f t h e Act were n o t s ati s fi ed. Hen ce, i n v i ew o f th e ab ove di s cus sio n , lo oki n g t o t h e fact s an d ci rcum st an ces o f th e cas e, it i s h el d t h at t h e reas sessm ent p ro ceedi n gs i nit i at ed b y t h e AO u nd er co n si d erati on were b ad i n l aw an d co ns equen tl y, t h e as s es sm en t o rd er b as ed o n su ch b ad in iti ati on can no t b e al lo wed t o b e s us t ai n ed an d th u s, h ereb y q u ash ed .” To avoid unnecessary burdening of the order, we have reproduced only the concluding part of the findings of the ld. CIT(A). However, we have carefully perused the entire findings of the ld. CIT(A) qua this issue and found that the ld. CIT(A) has decided this issue by presuming the fact that reassessment proceedings were initiated on the basis of re-appreciation of the same set of
15 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur facts available on record and is nothing but merely change of opinion whereas the facts regarding the audit objections pointing out certain facts based on the enquiry as well as the enquiry conducted by the AO by issuing notices u/s 133(6) of the Act were not considered by the ld. CIT(A). Therefore, ignoring the relevant facts which are necessary to arrive to the conclusion whether subsequent enquiry and audit objection would constitute a tangible material to form the belief that income assessable to tax has escaped assessment, would render the impugned order of the ld. CIT(A) as not sustainable. Accordingly, in the facts and circumstances of the case, we set aside this issue to the record of the ld. CIT(A) to re-adjudicate the same after considering the audit objection as well as enquiry conducted by the AO by issuing notices u/s 133(6) of the Act. Needless to say that the Revenue be given appropriate opportunity of hearing of appeal before passing the fresh order. Thus Ground No. 1 and 2 of the Revenue are allowed for Statistical purposes.
16 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur 4.1 The Ground No. 3 of the Revenue is regarding the addition made by the AO u/s 45(2) of the Act on account of conversion of capital asset into stock in trade which was deleted by the ld. CIT(A). 4.2 The ld. DR has submitted that when the assessee was having the business assets in the form of Cinema Hall and was engaged in exhibiting the films then the decision taken by the assessee to discontinue the earlier business by dismantling the cinema hall building and converting the land use for development of commercial complex amounts to conversion of capital asset into stock in trade. The ld. DR further contended that in the year 2000-01, the assessee had entered into an agreement dated 12-12- 2001 which was a clear decision of cessation of capital asset and converting the same to stock in trade in the form of commercial complex to be sold by the assessee. The ld. DR further submitted that even at the time of entering into the agreement, the assessee has received the consideration which is non-refundable and therefore, the intention of the parties to use the land in question as stock in trade is manifest from the terms and conditions of the Development Agreement. The ld. DR thus relied on the order of the AO and submitted that all these undisputed facts establish the conversion of capital asset into stock in trade and therefore, as per provisions of section 45(2) of the Act when the
17 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur assessee has finally sold the shops and showrooms in the commercial complex then the profit from said transactions of sale shall have two components, one is capital gain in respect of conversion of land from capital asset into stock in trade and another is business income by sale of the stock in trade. Therefore, the AO has rightly assessed the income of the assessee under two heads, one is Long Term Capital Gain and another is business from sale of shops as well as other commercial space. The ld. CIT(A) has given the findings ignoring all these facts emerging from the record that the assessee has decided to stop the business of exhibiting the films and demolish the cinema hall building and thereby converted the capital asset into stock in trade to earn the profit from the activities of development of commercial complex and sale of the same which is nothing but enduring in nature.

4.3 On the other hand, the ld. AR further submitted that construction of commercial complex on the land on which cinema hall was built remained as capital asset. The change in use of the land from cinema hall to commercial complex does not tantamount the conversion into stock in trade. The land remained as capital asset because the assessee has shown the same as capital asset in the books of account. Therefore, the provisions of Section 45(2) cannot be invoked when the assessee has not
18 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur converted the land in question into stock in trade. In the balance sheet as on 31-03-2007, the assessee has shown the land as well as shops/ offices under the head investment. Similarly, in the balance sheet as on 31-03- 2001, the cinema hall building was shown as fixed asset. The activities of the assessee of construction of commercial complex and sale of shops/ offices are not in the nature of trade or business but it is in the nature of capital asset. Section 45(2) of the Act is applicable in a situation where there is transfer by way of conversion by owner of capital asset into stock in trade of business or the owner has treated such capital asset as stock in trade of business. Therefore, to attract the provisions of Section 45(2), there must be a positive act on the part of the owner to transfer the asset by way of conversion into stock in trade or treating such capital asset as stock in trade of business. In the absence of such positive act on the part of the owner of the capital asset, the provision of section 45(2) does not apply. There is no such material in this regard on record to show that the assessee has transferred the capital asset by conversion of the same into stock in trade or has treated such capital asset as stock in trade of business. In support of his contentions, the ld.AR of the assessee relied on following decisions.
19 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur (i) CIT vs Express News Papers Ltd , 53 ITR 250 (SC)
(ii) CIT vs Mohan, Sohan Khan 304 ITR 194 (Raj.)
(iii) CIT vs Suresh Chand Goyal, 298 ITR 277 (M.P.)
(iv) CIT vs MLM Mahalingam Chettiar. 107 ITR 236 (Mad.)
(v) CIT vs Pai Provision Stores,203 Taxman 196 (Kar.)
(vi) Amrit Corp Ltd. vs Addl. CIT The ld.AR of the assessee thus supported the impugned order of the ld. CIT(A).

4.4 We have considered the rival submissions as well as the material available on record. There is no dispute that business of exhibiting films in the cinema hall was ceased to exist when the assessee decided to demolish the building and converted the land use for development of commercial complex. In order to develop the commercial complex on the land, the assessee entered into a Development Agreement dated 12-12- 2001 with GBT. The assessee also obtained the permission to change the land use from cinema hall to commercial complex which establishes the intention of the assessee not to use the land in question for its erstwhile business of exhibiting films. To ascertain the true and real intentions of the parties to the Development Agreement dated 12-12-2001, it is essential to consider various clauses of the said agreement. The purpose
20 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur and object of the conversion of land use for development of multistoried commercial complex is stated in clause 2 of the recital of the agreement as under:-

”2. WHEREAS looking to the demand for showroom and offices in multistoried buildings situated at a good location, Owner herein decided to develop a multistoried commercial complex on the said plot of land in accordance with the rules, regulation and building bye laws of the local authorities, and the State Government.” Thus the assessee decided to develop the multistoried commercial complex on the said plot of land to cater the demand of offices/ showrooms in the multistoried building at good location. The clause 2 of the terms and conditions of the said agreement describes the consideration to be paid or received by the parties. For ready reference, the clause 2 of the said agreement is reproduced as under:-

”2. That the developer has agreed to keep with the owner a sum of Rs. 2.50 crores (Rupees Two Crores and Fifty Lacs) by way of interest free security deposit towards proper commencement and timely completion and development of the plot as per the stipulation made in the agreement and to secure due performance of the Developer’s obligations under this agreement. The security deposit shall be refunded on completion of the new building and making over of the owner’s allocation to the owner inhabitable condition in the new building or builder will adjust this security amount of Rs. 2.50 crores by way of buy-back of the part of the owner’s allocation in the property at the rate mutually settled between parties. Developer has also agreed
21 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur to pay to Owner a sum of Rs. 2.00 Crores (Rupees Two Crores only) as consideration money (Non adjustable , Non Refundable).” The Developer has given a sum of Rs. 2.50 crores to the assessee by way of interest free security deposit as performance security/ guarantee.

However, the said security was to be refunded on completion of the project/ complex. Apart from the said security, a sum of Rs. 2.00 crores was also paid by the Developer to the assessee towards the consideration of transfer of land in question in favour of the Developer. As per clause 11 of the agreement, the parties were to share the constructed area in the manner specified therein which is reproduced as under’ ”11. That the owner and developer will share built up area in the new building and car/two wheeler parking space and space for putting up hoardings, bill boards etc. floorwise, including the roof and other areas, in the ratio of 50:50 respectively. The left half of the building will be earmarked for and belong to Owners (Owner’s allocation) and Right hall of the building will be for and belong to the Developer (Developer’s allocation). However, when the final plans are approved by the concerned authorities actual areas will be demarcated according to the above theme by different colours in the approved building plans i.e. Owner’s allocation shall be marked in Red Colour and the Developer’s allocation shall be marked in Green Colour. However, it is further made clear that before completion of the structure, no sale deed will be executed of the Developers share.”
22 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur Thus the clause 11 of the agreement set out the manner in which the constructed commercial complex will be divided between the assessee and the Developer. The share of each party was also proposed to be marked in different colour of Red and Green. Apart from the constructed area, the assessee also received Rs. 2.00 crores as consideration. As per clause 12 of the said agreement, the assessee was free to sell / transfer its share in the built up area of new building including the parking space and space for hoardings, bill boards etc. Similarly, the developer was also free to sell or transfer its share of 50% in the built up area including parking spare, space for hoarding, bill boards etc. Therefore, it is not an agreement of mere development of the land owned by the assessee but the assessee and developer entered into this venture of development and sale of developed space in the shape of shops/ offices and other commercial space including parking and space of hoarding, bill boards etc. The intention of the parties is apparent and clear from the terms and conditions of the agreement that commercial complex was developed only for sale / resale purposes. There is no dispute that the said complex was stock in trade in the hands of the Developer. Similarly, the assessee once decided to discontinue the business of exhibiting the films and converted the land use for development of commercial complex and sale
23 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur the space in the complex then said land was no more remained as business asset or capital asset to be used for business of the assessee or as investment of the assessee. It is not a case of exploitation of the capital asset for carrying out the business but it is a case of selling of the property in question itself after developing it and then selling the shops/offices and other space individually as an independent unit and not the entire share of the assessee in commercial complex as one unit. Therefore, the entire arrangement and exercise of converting the land use for development of commercial complex and sale of the same is nothing but activity in the nature of trade and business involving risks and rewards to be borne by the assessee, as a result of such exercise. Thus entering into such venture of developing commercial complex is enduring in nature and therefore, it cannot be regarded as investment on the part of the assessee. The assessee and the Developer were having their own exclusive and independent right to sell each and every shops/offices as well as other commercial space. Hence, the intention of the assessee is established that the assessee decided to sell the land in question not as a capital asset but by converting the same into stock in trade in the shape of developing a commercial complex comprising of shops/offices and each shops/ offices was to be sold independently. Thus the entire sequence of development of the land
24 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur in question as carved out by the parties under the development agreement manifest the substantial and material facts of doing the activity of adventure and therefore, it was never the intention of the assessee to keep the commercial complex so developed with itself or to exploit the same by maintaining or use as an apparatus for earning the income. Even it was not the intention of the assessee to sell the commercial complex as the capital asset under the development agreement. The parties were to sell each and every shop/ office as well as other space as a separate unit. The exercise of development of multistoried commercial complex was a well pre-planned venture of the assessee and developer which shows the adventurous act on the part of the assessee except the activity of development and selling of shops/ offices and other space of commercial complex, there was no other business activity of the assessee. Therefore, all these undisputed facts of conversion of land use, demolition of cinema hall building and discontinue of business of exhibiting films and development of commercial complex for the purpose of sale of shops/ offices and other commercial complex establishes the fact that the assessee had converted the capital asset into stock in trade with the motive to earn the maximum profit out of the said venture. Thus entering into Development Agreement and selling of constructed shops/ offices of
25 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur the multistoried commercial complex constitutes the business activity of the assessee. The assessee also executed the Power of Attorney in favour of the Developer authorizing him to execute the sale deed and other acts in this regard to the extent of 50% of shares in the said commercial complex. Therefore, all these facts clearly establish the intention of the assessee of not keeping the said land and commercial complex as capital asset but the very purpose of development of the land right from the beginning was to sell the same as there was a demand of shops/ offices at such good location. In view of the above facts and circumstances of the case, we find that it was a case of conversion of business asset into stock in trade and thereby the profit on sale of the said land and shops / offices contains two components of income i.e. one is capital gain on account of conversion of capital asset into stock in trade u/s 45(2) of the Act and another is business income on account of sale of stock in trade. The computation of capital account would be based on the consideration being fair market price as on the date of conversion being in the year 2001 though the same will be assessed to tax in the year under consideration when the assessee has finally sold the stock in trade. Therefore, the said finding of the ld. CIT(A) is contrary to the undisputed material facts of discontinue the existing business of exhibiting films in the cinema hall,
26 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur demolition of cinema hall building and conversion of land use to commercial complex for sale constitute a positive act on the part of the assessee to establish the conversion of capital asset into stock in trade. 4.4.1 During the course of hearing, it was noted that as per Development Agreement dated 12-12-2001, the land in question was transferred in the name of the assessee by the JDA in the year 1995 whereas the index cost was claimed by the assessee by taking the date of acquisition as prior to 01-04-1981. This point was specifically put to the assessee for clarification and in response the ld.AR of the assessee submitted that land in question was originally allotted to the directors/ shareholders of the company who were partners and on dissolution of the partnership firm, the land was acquired / owned by the assessee company. However, we find that even if it is presumed for the sake of argument that the assessee company has acquired the land on dissolution of the partnership firm, the same does not fall in the modes of acquisition as specified u/s 49(1) of the Act so as to deem the cost of acquisition of the asset in the hands of the previous owner of the property. However, without going into the merit of the issue, we note that this fact was not at all brought into the notice of the authorities below and therefore, for the purpose of computing the capital gain the actual date of acquisition is required to be
27 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur determined by considering all these facts as well as claim of the assessee. Accordingly, the limited issue of indexed cost of acquisition is set aside to the record of the ld. CIT(A). We are conscious about the facts that the AO has not disturbed the indexed cost of acquisition as claimed by the assessee, however, it is a matter of fact that as per Development Agreement the assessee has claimed to have acquired the land in the year 1995. Therefore, when this is part and parcel of subject matter of assessment of capital gains which is the subject matter of the appeal filed by the Revenue then the issue of computation of capital gains is required to be decided based on true and correct facts. Since we have already set aside the issue of reopening to the record of the ld. CIT(A), therefore, this issue is also set aside to the record of the ld. CIT(A) and consequently the ld. CIT(A) is directed to compute the capital gains by taking the correct indexed cost of acquisition. Needless to say that the assessee be given appropriate opportunity of hearing of appeal before passing the fresh order. Thus the Ground No. 3 of the Revenue is partly allowed for Statistical purposes.

5.1 In the C.O. No. 11/JP/2018 for the Assessment Year 2008-09, the assessee has raised the following grounds.
28 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur ” (1) Because the Departmental appeal is bad in law as well as on facts and is liable to be dismissed.

(2) Because the ld. CIT(A) erred in not deciding the Ground No. 6 relating to the service of notice u/s 148 and ld. CIT(A) erred in para 3.2.2. page74 that it is an academic in nature.

(3) Because the ld. CIT(A) erred in not deciding the Ground No. 3 relating to not providing the copy of the reasons recorded by AO before issue of notice u/s 148 in spite of the request.” 6.1 The assessee has raised the issue of validity of service of notice u/s 148 of the Act as well as the copy of the reasons was not supplied to the assessee.

6.2 We have heard the ld.AR as well as the ld. DR and considered the relevant materials available on record. The grievance of the assessee is against non-adjudication of these issues by the ld. CIT(A). As regards the service of notice issued u/s 148 of the Act, we note that the AO issued notice through registered post and assessee has filed the copy of the notice issued u/s 148 of the Act dated 31-03-2015 alongwith postal receipt. Therefore, as far as the issuance of notice is concerned, the same is not in dispute when the AO has issued the said notice and sent the same through Regd.Post on 31-03-2015. Only dispute is regarding service of notice. Parties have taken their respective stands on this issue. However,
29 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur there is no dispute that the assessee in response to said notice has filed the return of income and also participated in the reassessment proceedings, therefore, the issue has to be decided after considering the provisions of Section 292BB of the Act. Since the ld. CIT(A) has not adjudicated upon both these issues, therefore, the grounds raised by the assessee in the C.O. are set aside to the record of the ld. CIT(A) for adjudication after providing adequate opportunity of hearing to the assessee. Thus the Cross Objection of the assessee is allowed for Statistical purposes. 7.1 In the ITA No. 407/JP/2018 for the Assessment Year A.Y. 2009- 10, the Revenue has raised the following grounds:-

”(1) Whether on the facts and in the circumstances of the case and in law th8e ld. CIT(A) has erred in deleting the addition made by the AO without appreciating that the assessee made transfer as per section 2(47) of the Act while making treatment of its capital asset i.e. land of Cinema Hall into stock in trade of the business for selling of shops u/s 45(2) of the Act. (ii) Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in deleting the addition of Rs. 2,06,71,225/- on account of business income and Rs. 66,76,744/- on account of Long Term Capital Gain without deciding it on merit.” 7.2 We have considered the rival submissions as well as relevant materials available on record. The only issue raised by the Revenue in
30 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur this appeal is regarding the assessment on Long Term Capital Gain u/s 45(2) of the Act which was deleted by the ld. CIT(A) as well as the assessment of business income was accepted by the ld. CIT(A) as capital gain. This issue is common to the issue raised by the Revenue in Ground No. 3 of the appeal for the Assessment Year 2008-09. In view of our findings on this issue for the Assessment Year 208-09, this appeal of the Revenue stands allowed subject to the issue of indexed cost of acquisition, if any, which is set aside to the record of the ld. CIT(A). Thus the appeal of the Revenue for the Assessment Year 2009-10 is allowed. 8.1 In the C.O. No. 12/JP/2018 for the Assessment Year 2009-10, the assessee has raised the following ground.

” (1) Because the Departmental appeal is bad in law as well as on facts and is liable to be dismissed.” 8.2 We have considered the rival submissions as well as relevant materials available on record. It is clear that the assessee has not raised any independent issue but simply supported the order of the ld. CIT(A). In view of our findings on the appeal of the Revenue, the C.O. of the assessee stands dismissed
31 ITA No.406/JP/2018 The DCIT, Circle – 2, Jaipur vs M/s. Man Prakash Talkies Pvt.Ltd. Jaipur 9.0 In the result, the appeal of the Revenue for the Assessment Year 2008-09 is partly allowed for Statistical purposes, appeal for the Assessment Year 2009-10 is allowed and C.O. of the assessee for the Assessment Year 2008-09 is allowed for Statistical purposes and C.O. for the Assessment Year 2009-10 is dismissed.

Order pronounced in the open court on 20 /02/2020. Sd/- Sd/- ¼ foØe flag ;kno ½ ¼fot; iky jko½
(Vikram Singh Yadav) (Vijay Pal Rao)
ys[kk lnL;@ Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 20 /02/ 2020
*Mishra
vkns’k dh izfrfyfi vxzfs ‘kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The DCIT, Circle – 2, Jaipur
2. izR;FkhZ@ The Respondent- M/s. Man Prakash Talkies Pvt. Ltd., Jaipur
3. vk;dj vk;qDr¼vihy ) @ CIT(A),
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.406/JP/2018) vkns’kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar

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