2014 (11) TMI 1119 - AT - Income Tax

Computation of capital gain - Held that - As upheld the action of the Assessing Officer that the assessee has treated the purchase of the plot as an investment. He has sold his investment in three parts. With regard to earlier two sale transactions he has already offered the income under the head capital gain but later on revised his stand. This revision has been made after the survey operation. It was not a venture for business purpose. Therefore the assessee cannot be permitted to claim that he has completed the project of development in this year and income is to be recognised in this year. The loss if any though represent to earlier years not to this year. More so if the rates for determining the sale consideration for the purpose of section 50C is to be seen then it would suggest that there is no loss. The loss has been computed by taking the sale consideration at 902/- per sft and the cost of acquisition at 1085/- per sft. We do not know the guideline value of the property on 26.03.2007 when the assessee sold two pieces of land. If it was more than 1085 per sft then there could not be any loss and for the sake of arguments contention of the assessee are to be accepted in this year then 1400/- per sft is to be applied on earlier two sale deeds also for the purpose of computation of capital gain. Then again there would not be any loss. Therefore we do not find any merit in the contentions of the learned Counsel for the assessee consequently appeal of the assessee is dismissed. Miscellaneous receipts - Held that - On verification of the facts and circumstances found that this sum on miscellaneous receipts included in the provisional P 3, 15, 00, 603/-. The learned CIT (A) has reproduced the list of the persons to whom these miscellaneous sundry credit represent. After going through the findings of the CIT (A) in Para No.4.5 we are of the view that the assessee has duly explained the miscellaneous receipts accounted during the course of survey and pointed out that these receipts have been included in the total amount offered by the assessee. The learned DR could not bring any material to our notice pointing out any factual error in appreciation of the facts by the learned CIT (A). Since the assessee himself has accounted those miscellaneous receipts in the total amount offered during the course of survey no separate addition can be made. The learned CIT (A) has rightly deleted the addition

Summary

Issues Involved:
1. Whether the sale of the plot should be treated as an investment giving rise to capital gain or as a business loss.
2. Applicability of Section 50C of the Income Tax Act in the present case.
3. Validity of the assessee's claim of a loss of Rs. 60,43,859/- on the property.
4. Deletion of the addition of Rs. 33,17,427/- by the CIT (A).

Issue-wise Detailed Analysis:

1. Treatment of Sale of Plot:
The primary issue revolves around whether the sale of the plot should be treated as an investment giving rise to capital gain or as a business loss. The assessee claimed a loss of Rs. 98,62,500/- on the sale of a property, asserting it was a business venture. However, the Assessing Officer (AO) and the CIT (A) treated it as an investment, resulting in a capital gain. The assessee argued that the land was purchased for business purposes, evidenced by advances shown as current assets in the balance sheet. However, it was noted that the assessee had changed the treatment of the land to an investment in the accounts for the year ending 31.3.2008. The Tribunal upheld the AO's view, stating that the land was an investment, and on its sale, capital gain would arise. The assessee's reliance on various judicial decisions was found to be unhelpful as the facts of those cases were distinguishable.

2. Applicability of Section 50C:
The assessee contended that Section 50C, which deals with the consideration received on the transfer of a capital asset being less than the value adopted for stamp duty purposes, was not applicable as he only possessed rights in the agreement to purchase the land. However, the Tribunal observed that the assessee had substantial rights in the property and had paid more than 80% of the sale consideration. Therefore, for all practical purposes, the assessee was treated as the owner of the property. Consequently, Section 50C was applicable, and the capital gain was to be computed by adopting the value for stamp duty purposes, which was Rs. 1400 per sq. ft., as against the assessee's declared value of Rs. 902 per sq. ft.

3. Claim of Loss of Rs. 60,43,859/-:
The assessee argued that he had declared a loss of Rs. 60,43,859/- on the property, which should not have been ignored by the Revenue authorities. The Tribunal found no merit in this contention, as the assessee had treated the purchase of the plot as an investment and had sold it in parts. The earlier sale transactions were offered under the head "capital gain," and the revised returns were filed after the survey operation. The Tribunal noted that the loss was computed by taking the sale consideration at Rs. 902 per sq. ft. and the cost of acquisition at Rs. 1085 per sq. ft. However, if the guideline value of Rs. 1400 per sq. ft. was applied, there would be no loss. Therefore, the assessee's claim was dismissed.

4. Deletion of Addition of Rs. 33,17,427/-:
The Revenue's grievance was against the deletion of the addition of Rs. 33,17,427/- by the CIT (A). During the survey, a provisional profit and loss account showed miscellaneous receipts of Rs. 34,62,981/-, whereas the return of income showed Rs. 1,22,779/-, resulting in a deficit of Rs. 33,40,202/-. The AO rejected the assessee's explanation that this amount was part of the total amount offered for tax during the survey. The CIT (A) found that the miscellaneous receipts were included in the total amount offered by the assessee and deleted the addition. The Tribunal upheld the CIT (A)'s findings, noting that the assessee had duly explained the miscellaneous receipts and included them in the total amount offered during the survey. Therefore, the Revenue's appeal was dismissed.

Conclusion:
Both the appeals by the assessee and the Revenue were dismissed. The Tribunal upheld the treatment of the sale of the plot as an investment giving rise to capital gain and the applicability of Section 50C. The assessee's claim of loss was dismissed, and the deletion of the addition by the CIT (A) was upheld.