ORDER
Pramod Kumar, A.M.
1. This is an appeal filed by the assessee and is directed against the order dt. 4th April, 2003, passed by the CIT(A) in the matter of assessment under Section 143(3) of the IT Act, 1961 for the asst. yr. 1999-2000.
2. The assessee has filed concise grounds of appeal which substitute the original grounds of appeal as set out in the memorandum of appeal. In fact, concise grounds of appeal do not raise any new grievance but merely rephrase the grievances originally raised in the memorandum of appeal. The concise grounds of appeal are, therefore, accepted. These are reproduced below for ready reference:
1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the loss incurred on sale of industrial building, (galas) of Rs. 66,65,600 as short-term capital loss, on applying the provisions of Section 50 as against business loss claimed by the appellant.
2. The learned CIT(A), before holding the loss as short-term capital loss, ought to have considered the following facts:
(a) The industrial building is disclosed separately in balance sheet as capital work-in-progress following AS 2 and AS 7 of ICAI.
(b) That industrial building (gala) is a partly self-constructed asset intended for sale of galas under ‘magna consumer scheme’, therefore not disclosed in trading account as opening or closing stock.
(c) The appellant received advances towards sale of industrial galas under ‘magna consumer scheme’ from various parties disclosed in audited balance sheet and tax audit report.
(d) The industrial building (galas) has not formed part of block of assets and no depreciation has been ever claimed or allowed in any earlier assessments.
3. Alternate ground
Without prejudice to the above, the learned CIT(A) ought to have appreciated that the provisions of Section 50 can be applied only in case of depreciable asset forming a part of the block of assets.
3. The material facts giving rise to this appeal before us are like this. In the course of assessment proceedings, the AO, inter alia, noted that the assessee has sold its entire factory building and land to one Deepak Pens (P) Ltd. for a consideration of Rs. 70 lakhs. So far as the issue in this appeal is concerned, it pertains to only one, out of the two buildings, of the buildings on the leased land property. The stand of the assessee, as set out in the letter dt. 11th March, 2002 filed during the course of assessment proceedings, was that while one of the building was used for the manufacturing activity of the assessee, the other building was used as a part of constructing industrial galas which were held as stock-in-trade for sale, as trading asset. So far as this building, and the proportionate land was concerned, the assessee claimed that the loss on sale attributable to the same was concerned, it was required to be treated as business loss. It was submitted by the assessee that the assessee had tried to sell such industrial units in the earlier years and has received the advance payments from various parties towards allotment of industrial galas in such building which was treated as stock-in-trade. It was also pointed out that the advances so received were duly disclosed in the audited year end financial statements, as well as tax audit report, as ‘advances accepted under the consumer scheme’ Copies of these documents were filed before the AO. It was also pointed out that because of various problems such as infrastructure support, proper approach, accessible roads and lights, water and heavy electrical meter charges, the assessee was not in a position to deliver the promised industrial galas to the parties from whom advances were received, and was thus compelled to refund the deposits on cancellation of deal. The assessee pointed out that in the relevant previous year, the assessee had sold both the part of its assets-the one held as fixed asset on which depreciation was charged, and the other held as trading asset on which obviously no depreciation was charged. The assessee claimed that so far as the one treated as trading asset is concerned, the loss on sale of the same should be treated as business loss. The AO, however, was far from impressed. He observed that undoubtedly the old records show that the assessee had received advances under ‘consumer scheme’ but this did not prove that what was received was advance against sale of galas. He observed that it is thus clear that ‘all these persons have given money to the assessee for the purpose other than construction of galas’. As regards the claim that one of the buildings was treated as stock-in-trade, the AO reproduced the fixed assets chart to show that the land and building was included in the fixed assets. The ‘Capital Work in progress-Building’ was shown separately under this chart, but under the head fixed assets. It was also noted that no opening or closing stock of galas was shown in the P&L a/c, which also showed that the work-in-progress was not in the nature of stock-in-trade The AO also observed that since it was only capital work-in-progress, the depreciation was not anyway admissible on the same. The AO thus indicated that not claiming the depreciation on this asset does not establish that the same was in the nature of trading asset. It was in this backdrop that the AO declined assessee’s claim to the effect that loss on sale of this building should be treated as business loss. The AO, accordingly, computed the loss as ‘short-term capital loss’. Aggrieved by the action of the AO, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee’s request for admission of additional evidence, to establish factual aspects embedded in his contentions, was rejected on the ground that it was not filed before the AO even as ample opportunity was provided, and on the ground that a prohibition, on admitting the same, is imposed by Rule 46A of the IT Rules. It was noted that the capital work-in-progress was shown under fixed assets, that industrial galas were not taken in opening or closing stock, that the accounting standards are of no consequence as these accounting standards do not determine basic character of an activity under the IT Act, and that even if the construction of galas for commercial purposes was even intended it was not put into practice. It was also observed that there was no business activity that intention, even if any, was laid to rest by abandoning the contemplated venture and that there cannot be any business loss when business itself is not in existence On the basis of this reasoning, the CIT(A) upheld, and in fact fortified, the action of the AO. The assessee is not-satisfied and is in appeal before us.
4. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
5. It is not in dispute that the assessee had filed details at the assessment stage itself about the advances having been received for sale of galas under, what has been termed as, ‘magna consumer scheme’. The AO accepts that there are some deposits under the consumer scheme, but goes on to add that since there is no clinching evidence that those deposits were for the purposes of sale of galas, it is clear that “all these persons have given money to the assessee for the purpose other than construction of galas”. One can understand a finding about purpose of a deposit but it is indeed difficult to fathom as to how does he conclude, without examining these persons, without any findings about the nature of deposits placed under the consumer scheme, without even bothering to collect even elementary details about the transactions, that the monies so given to the assessee are “for the purpose other than construction of galas”. We have also noticed that no show cause or requisition was issued to the assessee before jumping on this conclusion and thus the assessee had no opportunity to clear the doubts of the AO. Yet, when the assessee files the necessary evidence before the CIT(A), the evidence is simply brushed aside on the ground that the assessee was given ample opportunity at the assessment stage. Let us not forget that assessment proceedings are not adversarial proceedings; these are proceedings to get at the truth and assess income of an assessee in accordance with the law. Be that as it may, it is an undisputed position that the assessee had not claimed depreciation on the asset on which galas were being constructed, even as the assessee was claiming depreciation on the other part. We also find that the assessee had received deposits in connection with the sale of industrial galas and the relevant details have also been filed before us. In these circumstances, so far as the building which was being used for construction of galas, and the land relatable thereto, can only be treated as a business asset. The question of these galas being shown as opening and closing stock in the P&L a/c can only arise when the assessee trades in the same; that was not the position in this case. Once an assessee has a trading asset, and the assessee, for whatever reason, sells the same in whatever form, the resultant profit or loss can only be treated as a business profit or loss. We have no doubt that once the assessee starts the activity for developing industrial galas on one of the buildings and related land, to that extent, land and building is to be treated as business asset. Whether this business asset is sold in the form in which the assessee originally intended, or in any other form, would not affect the nature of profits or losses on such transactions. As regards the Revenue’s stand that the land and building was shown in the fixed assets, it is not really relevant. When its being taken out of the depreciable assets and construction activity is carried out on the same, with the intention to sell its units and advances are also received for that purpose, it cannot be said that it was used as a fixed asset of the business. As regards CIT(A)’s observation that it was a case of a business never coming into existence, we are unable to subscribe to this view either. In the present case, the assessee started a business venture, carried out activities in that direction, but instead of selling the individual units, he sold the whole project as a part of a composite deal. The sale was thus in the course of the business even though after this sale, the business itself may come to an end. If a part of trading stock is sold as part of the ‘close of the business sale’, it continues to be a sale of trading; its character cannot change due to timing of sale. In view of these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to uphold the grievance of the assessee. We, accordingly, direct the AO to treat the impugned loss of Rs. 66,65,600 as business loss.
6. Ground No. 1 is thus allowed.
7. Ground No. 2 only consists of arguments in support of ground No. 1. It does not, therefore, call for any specific adjudication. Ground No. 3 is in the nature of an alternative ground of appeal which would have been relevant only in the event of main grievance of the assessee not being upheld. That is not the case here.
8. Ground Nos. 2 and 3 are thus dismissed as infructuous.
9. In the result, the appeal is allowed in the terms indicated above.