2012 (9) TMI 961 - AT - Income Tax

Summary

Issues Involved:
1. Classification of properties as investment or stock-in-trade.
2. Treatment of gains on sale of properties as long-term capital gains or business income.
3. Deduction of fair market value of apartments from the sale consideration.
4. Addition of 'on-money' to the turnover and its implications.

Summary:

Issue 1: Classification of Properties as Investment or Stock-in-Trade
The assessee contended that certain properties were held as investments, not stock-in-trade. The Tribunal upheld the AO's decision, noting that the intention at the time of purchase was to sell the properties at a profit. Therefore, the properties were held as stock-in-trade, and the sale proceeds were to be treated as business income.

Issue 2: Treatment of Gains on Sale of Properties
The assessee argued that gains from the sale of properties held for more than three years should be treated as long-term capital gains. The Tribunal rejected this, affirming that the properties were held as stock-in-trade, thus the gains were business income. The Tribunal also addressed the sale of flats obtained through a joint development agreement, treating them as business income and not capital gains.

Issue 3: Deduction of Fair Market Value of Apartments
The assessee sought to deduct the fair market value of apartments received under a joint development agreement from the sale consideration. The Tribunal remanded the issue to the AO to verify the cost from the developer and adjust the trading account accordingly. The cost of the remaining flats was to be added to the closing stock.

Issue 4: Addition of 'On-Money'
The AO added Rs. 83,60,865 as 'on-money' to the turnover based on discrepancies in the trading account. The Tribunal found no evidence supporting the receipt of this amount and criticized the AO's selective reliance on the trading account. The Tribunal directed the AO to reduce the sales figure by Rs. 83,60,865 and recast the trading, profit & loss account accordingly.

Conclusion:
The assessee's appeal was partly allowed, with directions to the AO for recalculating the trading account, while the revenue's appeal was dismissed.