2015 (3) TMI 753 - AT - Income Tax

Profit arising out of the sale of property - business income or capital gain - Commissioner of Income-tax (Appeals) treating the same as capital gain - Held that - In the case on hand, the property was not purchased in the name of firm. The property was purchased in the individual name even though the assessee was a partner in a firm by name, Sion Land Developers and Builders. If the intention of the assessee was to trade in the land, then, the property would have been purchased in the name of the partnership firm. The very fact that the land was purchased in the individual name clearly shows that the intention was to keep the land as a pride owner of the property. After retaining the property for about eight years there was a capital accretion to the assessee and thereafter she constructed a residence on it by investing ₹ 48 lakhs. In the year 2008, the building along with the land was sold to one Shri E. B. Anilkumar. In these facts and circumstances of the case, this Tribunal is of the considered opinion that this is a sale transaction entered into by the assessee in her individual capacity. Therefore, there is no presumption that the assessee purchased the property with an intention to sell the same. The very fact that the assessee retained the property for eight years before construction shows that the assessee intended to possess the property as a pride owner. Therefore this Tribunal is of the considered opinion that the judgment of the apex court in the case of G. Venkataswami Naidu and Co. 1958 (11) TMI 5 - SUPREME Court may not be applicable to the facts of the case. Hence, the Commissioner of Income-tax (Appeals) has rightly found that what is to be assessed is only capital gain and not any business profit. Hence, the order of the Commissioner of Income-tax (Appeals) on this issue is confirmed. - decided in favour of assessee. Profit on sale of agricultural land - no capital gain arose to the assessee on sale of such land as has been found by the Commissioner of Income-tax (Appeals) - Held that - This Tribunal is of the considered opinion that when the land was maintained as agricultural land and coconut trees were cultivated on it, the land has to be treated as agricultural land. The mere fact that the purchaser has developed the plot into residential plots cannot be a ground for treating the land as non-agricultural land in the hands of the assessee. In other words, for all practical purpose, the land should be treated as agricultural land in the hands of the assessee. Therefore, no capital gain arose to the assessee on sale of such land as has been found by the Commissioner of Income-tax (Appeals).The issue does not rests here in this case. The Assessing Officer found that the profit on sale of land is business income. The Commissioner of Income-tax (Appeals) has not addressed this issue in the impugned order. If the assessee is herself engaged in the business activity in purchase and sale of land, then this Tribunal is of the considered opinion that the profit has to be classified as business income. The intention of the assessee at the time of purchase of the property needs to be ascertained. Though the assessee claims that the land was purchased during the assessment year 1996-98 the intention of the assessee to purchase land to such an extent is also not known. It is also necessary to find out whether the assessee has purchased by way of one single sale deed or by means of several sale deeds. It also needs to be ascertained whether the assessee has also purchased property in the same area and sold the same to persons other than M/s. Manhattan Enterprises (Private) Limited. Since the Commissioner of Income-tax (Appeals) has not addressed this issue, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Commissioner of Income-tax (Appeals) - decided in favour of revenue for statistical purposes. Profit o sale of villas - capital gain v/s business income - Held that - The Commissioner of Income-tax (Appeals) being an officer having jurisdiction co-terminus with that of the Assessing Officer has to rectify the procedural error committed by the Assessing Officer by calling for the remand report. Merely because the Assessing Officer has not made further enquiry, this Tribunal is of the considered opinion that deleting the entire addition by accepting the claim of the assessee may not be justified. The Assessing Officer, as rightly claimed by the assessee, has mainly placed reliance on the appraisal report of the Department and the seized material. The seized material discloses the profit on sale of the property. The assessee, however, claims that it is an anticipated sale profit and not the actual profit. When the assessee claims that it is only an anticipated sale profit, the Assessing Officer ought to have found out what was the actual sale consideration received on sale of villas.Therefore, this Tribunal is of the considered opinion the Assessing Officer has to examine the matter afresh. Since the Assessing Officer placed reliance on the appraisal report of the Department, the copy of the same shall be furnished to the assessee so as to enable the assessee to offer his comments on the appraisal report. Accordingly, the orders of the lower authorities are set aside and the issue of computation of profit on sale of villas at Irinjalakuda is remitted back to the file of the Assessing Officer. The Assessing Officer shall examine the matter afresh - Decided in favour of revenue for statistical purposes. Profit on sale of agricultural land - Commissioner of Income-tax (Appeals) has deleted the addition - Held that - It is not in dispute that during the course of the assessment proceedings, the Inspector of Income-tax inspected the land on the instructions of the Assessing Officer and found that pineapple was cultivated on the land which is not disputed at any quarter. It is also not in dispute that the assessee has disclosed agricultural income from the above property. Though the amount shown as agricultural income is very paltry, the fact remains is that agricultural income has been disclosed. When the report of the Inspector of Income-tax discloses that the land was cultivated with pineapple and the assessee also claims that earlier the land was cultivated with plantain, tapioca and pineapple, we find no reason to reject the claim of the assessee. It is also a fact that the subject land was classified as wetland in the records of the State Government. When the assessee is using the land for cultivation, this Tribunal is of the considered opinion that it cannot be a capital asset within the meaning of section 2(14) of the Act. Therefore, the Commissioner of Income-tax (Appeals) has rightly found that it cannot be treated as capital asset within the meaning of section 2(14) of the Act. - decided in favour of assessee Cash seized from the locker - CIT(A) deleted addition - Held that - in the absence of any satisfactory explanation for the earning of the amount or receipt of advance in pursuance to the agreement it has to be treated as income from unaccounted source. The very fact that the cash was received and kept in the locker would go to show that it is an unaccounted transaction between E. P. Jose and the assessee. No person would keep ₹ 20 lakhs in the bank locker nowadays if it is a real transaction. Therefore, it is for the assessee to explain how he came to the possession of ₹ 20,50,000 in cash and the circumstances under which it was kept in the bank locker. The normal human conduct and behaviour cannot be ignored while deciding the ownership of the money in question. Therefore, this Tribunal is of the considered opinion that the Commissioner of Income-tax (Appeals) is not justified in deleting the addition. Accordingly, the order of the Commissioner of Income-tax (Appeals) is set aside and the order of the Assessing Officer on this issue is restored.- Decided against assessee.

Summary

Issues Involved:
1. Profit on sale of villas at Irinjalakuda.
2. Profit on sale of agricultural land.
3. Cash seized from the locker.
4. Loan given to Shri T. J. Rajan and Smt. Pushpa Rajan.

Detailed Analysis:

1. Profit on Sale of Villas at Irinjalakuda:
The first issue revolves around whether the profit from the sale of villas should be treated as business income or capital gain. The Revenue argued that the assessee, being a partner in a real estate firm and a non-resident Indian, intended to engage in real estate business rather than personal residence. The Assessing Officer treated the profit as business income, relying on the judgment in G. Venkataswami Naidu and Co. v. CIT [1959] 35 ITR 594 (SC). However, the Commissioner of Income-tax (Appeals) (CIT(A)) found the activity to be capital gain since the property was held for eight years before construction. The Tribunal confirmed the CIT(A)'s decision, emphasizing that the property was purchased in the individual name and retained for a significant period, indicating no intention of trade.

2. Profit on Sale of Agricultural Land:
The second issue concerns whether the profit from the sale of agricultural land should be treated as business income or exempt from capital gain tax. The Revenue argued that the land, sold for development as housing plots, should be treated as non-agricultural land. However, the CIT(A) found that the land was classified as wetland and cultivated with coconut and teak trees, thus exempt from capital gain. The Tribunal remanded the matter back to the CIT(A) for reconsideration, emphasizing the need to ascertain the intention at the time of purchase and whether the land was part of a business activity.

3. Cash Seized from the Locker:
The third issue pertains to the cash amounting to Rs. 20,50,000 seized from the locker of Shri T. V. Johnson, claimed to be received on behalf of the assessee. The Revenue argued that the amount was unaccounted income of the assessee. The CIT(A) deleted the addition, stating it should be assessed in Johnson's hands. However, the Tribunal found that the cash was indeed received on behalf of the assessee and kept in the locker for handing over, thus treating it as unaccounted income of the assessee and restoring the Assessing Officer's order.

4. Loan Given to Shri T. J. Rajan and Smt. Pushpa Rajan:
The final issue involves the genuineness of loans given by the assessee to his cousin and his wife. The Revenue argued that the assessee, having no independent source of income, provided accommodation entries. The CIT(A) found the transactions genuine, as the funds were transferred through banking channels from the non-resident (external) account of Shri Simon Varghese. The Tribunal confirmed the CIT(A)'s decision, noting that the assessee had sufficient funds from his brother-in-law to provide interest-free loans.

Conclusion:
In conclusion, the Tribunal addressed each issue comprehensively, confirming the CIT(A)'s decisions on the nature of profit from the sale of villas and the genuineness of loans, while remanding the issue of agricultural land profit for reconsideration and restoring the Assessing Officer's order regarding the cash seized from the locker. The appeals filed by the Revenue were partly allowed, and the cross-objections filed by the assessees were dismissed.