2013 (6) TMI 359 - AT - Income Tax

Profit on sale/transfer of land - capital gains v/s business income - Held that - There is no material filed by the Revenue to rebut the CIT(A) s findings that the assessee is yet to part with its possession and consideration has not been received as on 31.03.2007. In principle, the contention of the Revenue is that the MOU gives rise to business income instead of capital gains as claimed by the assessee. In this background, the present case involves a single transaction in question. There is no evidence or any cogent material produced which could prove that the property in question held by the assessee for more than five decades has ever been converted into stock-in-trade. Thus unable to accept the contention of the Revenue. Further in the absence of any evidence to the contrary to prove that the MOU in question is not proved as an instance of adventurous trading, CIT (A) has rightly treated income from the transaction in question under the head capital gains instead of business income as done by the AO. In favour of assessee.

Summary

Issues:
Assessment of income as business income instead of capital gains, validity of reference to DVO for fair market value determination, appeal against CIT(A)'s order.

Analysis:
The case involved an appeal by the Revenue against the order of the Commissioner of Income (Appeals) regarding the assessment of income for the assessment year 2007-2008. The assessee, a company, had entered into a Memorandum of Understanding (MOU) to sell its property and opted for cash consideration, treating it as profit on sale/transfer of land. The Assessing Officer considered the receipt as business income instead of capital gains, leading to a higher total income assessment. The CIT(A) agreed with the assessee's contentions that the transaction did not involve adventurous trading and that possession of the property had not been transferred. The Revenue challenged the CIT(A)'s order on various grounds, including the treatment of the sale under capital gains, the validity of the reference to the District Valuation Officer (DVO), and the reliance on case laws. During the hearing, the Revenue clarified that one ground did not apply to the case but reiterated other grounds. The assessee relied on the CIT(A)'s findings and requested confirmation. The Tribunal found that the property had been held for decades and had not been converted into stock-in-trade, concluding that the transaction was rightly treated as capital gains by the CIT(A) and not business income as assessed by the AO. As a result, the appeal was dismissed, with the Tribunal emphasizing the lack of evidence to support the Revenue's contentions.

In summary, the key issues in the judgment were the classification of income as business income or capital gains, the validity of the DVO reference for fair market value determination, and the grounds raised in the appeal against the CIT(A)'s order. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of evidence to support treating the transaction as business income and concluding that the property had not been converted into stock-in-trade. The appeal was dismissed based on these findings, with one ground raised by the Revenue deemed to have only academic significance and not specifically adjudicated upon.