2015 (7) TMI 287 - AT - Income Tax

Profit from sale of flat - treated as income from capital gain OR business income - Held that - In the present case the assessee held the plot of land as capital asset and all along had been declaring as capital asset and had no intention to convert into stock in trade. In the agreement for developing the property the assessee is shown as the owner. As per the agreement the assessee is parting with part of the land and in lieu thereof, he has received 49.29% of the constructed area without carrying out any task towards development. The assessee has not incurred any expenses towards construction of building nor it had carried out any activity for the construction of the building. No infirmity in the order of ld. CIT(A), who has rightly held that the said income has to be assessed as capital gain and not as business income. - Decided against revenue. Addition of deemed dividend u/s 2(22)(e) - assessee had taken loan from M/s.Rungta Engineering Pvt. Ltd. and the AO further observed that one of the shareholder of the assessee company was holding more than 10% shares in the lender company had reserves and surplus in its balance sheet - CIT(A) deleted the addition - Held that - As per section 2(22)(e) of the I.T.Act the payment must be to a person who is a registered share holder. The word share-holder existed in section 2(22)(e) and has been interpreted to mean a registered shareholder. In the present case it is true that Mr.S.N.Rungta, a shareholder is having more than 20% share in the assessee company and also 10% share in M/s.Rungta Engineering Pvt. Ltd wherefrom the assessee has taken loans. The recipient company does not hold any share in the lender company in view of the decision of Special Bench of Mumbai Tribunal in the case of ACIT vs.Bhaumik Colour Pvt. Ltd. (2008 (11) TMI 273 - ITAT BOMBAY-E) where it has been held that deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender and not in the hands of the person other than the shareholders. Therefore the AO is not justified in treating the same as deemed dividend in the hands of the assessee. We find no infirmity in the order of the ld. CIT(A), who has rightly allowed the claim of assessee. - Decided against revenue. Treatment to loss as bogus - CIT(A) allowed assessee claim - Held that - As a matter of fact the AO doubted the integrity of the broker or the manner in which the broker operation as per the statement of one of the directors of the broker firm and also AO observed that assessee had not furnished any explanation in respect of the intention of showing trading of shares only in three penny stocks. AO relied upon the decisions of various courts of law. As observed herein above AO disallowed the loss of ₹ 25,30,396/- only on the basis of information submitted by the Stock exchange. AO has himself has not brought on record that the transaction as false or fictitious. AO has also not doubted the genuineness of the documents placed on record by the assessee. AO s observation and conclusion are merely based on the information given by the Calcutta Stock Exchange and submissions made by the company representative. Therefore on such basis no disallowance can be made and accordingly we find no infirmity in the order of ld. CIT(A), who has rightly allowed the claim of assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of income from the sale of flats as capital gains or business income.
2. Deletion of additions made under Section 2(22)(e) of the Income Tax Act, 1961.
3. Disallowance of loss from trading in penny stocks.
4. General grounds raised by the Department.

Detailed Analysis:

1. Classification of Income from Sale of Flats:
- Facts: The assessee owned land and building since 1965 and entered into a joint venture agreement in 1994 for development. The AO treated the profit from the sale of flats as business income, while the assessee declared it as capital gains.
- AO's Observations:
- Treatment of rental income before and after the building's completion.
- Comparison of the area of unsold flats given on rent.
- Various other observations including non-filing of Wealth Tax returns.
- Concluded that the intention was to earn profit, not capital gains.
- CIT(A) Decision: Accepted the assessee's submission and directed the AO to treat the income as long-term capital gains.
- Tribunal's Analysis:
- The assessee had no expertise in development and did not incur any construction expenses.
- The land was held as a capital asset since 1965.
- Relied on the Mumbai Bench ITAT decision in ACIT vs. M/s. Shree Dhootapapheswar Ltd.
- Concluded that the income should be assessed as capital gains, not business income.

2. Deletion of Additions under Section 2(22)(e):
- Facts: The AO treated loans taken from M/s. Rungta Engineering Pvt. Ltd. as deemed dividends since a shareholder held more than 10% shares in both companies.
- CIT(A) Decision: Deleted the addition based on the Special Bench Mumbai Tribunal decision in ACIT vs. Bhaumik Colour Pvt. Ltd., which held that deemed dividend can only be assessed in the hands of a registered shareholder.
- Tribunal's Analysis:
- Confirmed that the recipient company did not hold shares in the lender company.
- Agreed with CIT(A) that the deemed dividend cannot be assessed in the hands of the assessee.

3. Disallowance of Loss from Trading in Penny Stocks:
- Facts: The AO treated the loss from trading in shares of M/s. Sharang Vinyog Ltd. as bogus based on information from the Calcutta Stock Exchange and the broker's suspension by SEBI.
- CIT(A) Decision: Deleted the disallowance after considering the assessee's explanations.
- Tribunal's Analysis:
- The AO's conclusions were based on information from the Stock Exchange and the broker's statement.
- The AO did not bring any evidence on record to prove the transactions as false or fictitious.
- Confirmed that the documents provided by the assessee were genuine.
- Upheld CIT(A)'s decision to allow the claim of the assessee.

4. General Grounds:
- Grounds Raised: The Department sought to amend, alter, or delete grounds or add new ones.
- Tribunal's Decision: These grounds were deemed general and did not require adjudication.

Conclusion:
- The appeals of the Revenue were dismissed, and the Cross Objection of the assessee was also dismissed.
- The Tribunal upheld the CIT(A)'s decisions on all issues.