2013 (11) TMI 1716 - AT - Income Tax

Summary

Issues Involved:
1. Addition made by the AO on account of capital gain for the assessment years 2003-04, 2006-07, and 2007-08.
2. Assessee's claim for deduction on account of security charges for the assessment year 2007-08.

Summary:

Issue 1: Addition made by the AO on account of capital gain (Assessment Years 2003-04, 2006-07, and 2007-08)

The Revenue's appeals for the assessment years 2003-04, 2006-07, and 2007-08 were heard together and disposed of by a single consolidated order. The solitary issue raised by the Revenue related to the addition made by the AO on account of capital gain, which was deleted by the learned CIT(A). The AO had received information regarding the sale of two properties of land at Bikaner by the assessee for a sale consideration of Rs. 9 lakhs each, against the value adopted by the Sub-Registrar for stamp duty at Rs. 27,50,000. The AO issued a notice u/s 148 and assessed the long-term capital gain at Rs. 1,14,72,466.

The assessee contended that the activity of selling plots was a business activity, having converted the inherited land into stock-in-trade in 1999. The AO rejected this claim, treating the land as a capital asset and assessing the profit as capital gain. The learned CIT(A) accepted the assessee's claim, noting that the assessee was engaged in the business of selling plots of land, supported by substantial, systematic, and organized activity over several years. The CIT(A) found no requirement under the law for the assessee to inform the department about the conversion of land into stock-in-trade.

The ITAT upheld the CIT(A)'s decision, agreeing that the land was converted into stock-in-trade in 1999, and the profit from its sale was chargeable to tax as business income. The ITAT referenced the Supreme Court decision in Raja J. Rameshwar Rao vs. CIT, which held that acquiring land with the intention to sell it after development constitutes a business venture.

Issue 2: Assessee's claim for deduction on account of security charges (Assessment Year 2007-08)

For the assessment year 2007-08, the Revenue's appeal also included the issue of the assessee's claim for deduction on account of security charges of Rs. 1,03,000 as business expenditure. The ITAT held that since the main issue was decided in favor of the assessee, treating the income from the sale of plots as business income, the security charges were deductible as business expenditure.

Conclusion:

All appeals of the Revenue were dismissed, and the ITAT upheld the orders of the learned CIT(A) for the respective assessment years, recognizing the income from the sale of plots as business income and allowing the deduction for security charges as business expenditure.