Flat Sale Gains Taxable as Capital Gains; Search Additions Deleted: ITAT Mumbai

Aurum Platz Private Limited Vs DCIT (ITAT Mumbai)

Summary: ITAT Mumbai disposed of five connected appeals concerning Aurum Platz Private Limited for AYs 2015-16 to 2018-19. The principal disputes concerned whether gains from sale of high-end residential flats were taxable as business income or capital gains, disallowance of interest under section 36(1)(iii), additions in unabated years under section 153A, treatment of unsold flats as stock-in-trade, an addition of Rs. 20,00,000/- under section 69C and disallowance under section 14A read with Rule 8D. The assessee had originally acquired land and constructed the building known as “7, Marine Drive”, with its stated main object being to own and let out apartments. It consistently reflected the property as investment and contended that flats were sold only after efforts to secure long-term tenants failed.

For AYs 2015-16 and 2016-17, which were completed/unabated assessment years when the search took place on 22.03.2018, the Tribunal upheld the CIT(A)’s deletion of the additions. It found that the Assessing Officer’s treatment of capital gains as business income and the disallowance of interest under section 36(1)(iii) were not founded on incriminating material found during search. The additional material produced by the Revenue, including board resolutions, escrow arrangements and documents relating substantially to the holding company’s financing, formed part of regular/statutory records and did not establish undisclosed income. The Tribunal therefore confirmed that completed assessments could not be disturbed under section 153A in the absence of incriminating search material.