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2015 (8) TMI 841 - AT - Income TaxUnexplained investment in the property - difference between the stated consideration and the value determined by the stamp duty valuation - Held that - Assessee has appropriately explained the reasons for the difference between the stated consideration and the value determined by the stamp duty valuation authority and/or the report of the DVO. The assessee had explained before the CIT(A) that the premises were acquired on the basis of a price negotiated in September, 2007 and that he had paid almost 70% of the total consideration in September & October 2007 itself knowing fully that the premises would be available for occupation only after a period of 3 years to 4 years. The second aspect canvassed by the assessee was the increase in the stamp duty Ready Reckoner rates in 2008 visa- vis the rates in 2007. The facts and figures, in this regard have been reproduced in the order of the CIT(A) which clearly establish that the stamp duty ready recknor rate in 2008 were almost 53.5% higher than those in 2007. All the aforesaid explanations furnished by the assessee to show that the purchase consideration paid was justified, has not been controverted or found to be false by the income tax authorities. Therefore, in the absence of any repudiation of the explanation furnished by the assessee, we are satisfied that the difference in the stated consideration paid vis- -vis market value in March, 2008 is quite justified and is certainly not reflective of payment of any consideration by the assessee over and above the stated consideration. Thus direct the AO to delete the entire addition made on account of unexplained investment in the property. - Decided in favour of assessee. Sale of shares and securities - Long Term Capital Gain as well as Short Term Capital Gains V/S business income - Held that - In the present case, the pertinent facts are that the assessee was employed with Larsen & Toubro Ltd. for 41 years and retired in the year 2001 as the President of the company. In the years 1999 and 2000, assessee was offered stock options which resulted in his getting 41000 equity shares of the said concern in 2004 and after the bonus issue in the year 2006-07, the total share holding increased to 82000 shares. Out of this holding, a small quantity of 6895 shares were sold by the assessee which has resulted in a long term capital gain of ₹ 2,61,39,275/-, out of the total long term capital gain of ₹ 3,85,55,838/-. The balance of the long term capital gain has also resulted out of the shares which have been held since 2004 and 2005 and it is also brought out that assessee has sold shares of only eight companies, which has resulted in the long term capital gain. The aforesaid factual background does not inspire any confidence in the plea of the Revenue that the assessee transacted in shares as a trader. It is also notable that assessee had canvassed before the lower authorites that no borrowed funds have been used for making the investment in shares. Thus no error on the part of the CIT(A) in holding that the long term as well as the short term capital gains earned by the assessee are not to be assessed as business income. - Decided against revenue.
Issues Involved:
1. Classification of income from sale and purchase of shares and securities as 'capital gains' or 'business income.' 2. Addition on account of unexplained investment in acquisition of property. Detailed Analysis: 1. Classification of Income from Sale and Purchase of Shares and Securities: The primary issue is whether the income from the sale and purchase of shares and securities should be classified as 'capital gains' or 'business income.' The Assessing Officer (AO) treated the transactions as 'business income' based on the volume and frequency of transactions, suggesting a motive to earn profit through trading. The assessee contested this classification, arguing that the transactions were investments, not business activities. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's plea, noting that in previous years, the Department had treated similar transactions as capital gains. The CIT(A) relied on the principle of consistency, supported by the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Gopal Purohit, 336 ITR 287 (Bom), which emphasizes uniform treatment across assessment years unless there is a change in facts or law. The Tribunal upheld the CIT(A)'s decision, stating that the factual background did not support the Revenue's claim that the assessee was trading in shares. The Tribunal noted that the assessee held shares for long periods, did not use borrowed funds for investments, and had been consistently treated as an investor in previous years. The Tribunal affirmed that the long-term and short-term capital gains should not be assessed as business income, citing the principle of consistency and the lack of any new facts or changes in law presented by the Revenue. 2. Addition on Account of Unexplained Investment in Acquisition of Property: The second issue involves the addition of Rs. 2,04,65,000/- proposed by the AO for unexplained investment in property acquisition. The AO based this addition on the difference between the stated purchase price (Rs. 3,50,00,000/-) and the stamp duty valuation (Rs. 5,54,65,000/-). The CIT(A) reduced this addition to Rs. 1,00,25,000/- based on the valuation by the District Valuation Officer (DVO), which estimated the property's value at Rs. 4,50,25,000/-. The assessee argued that the property was booked in September 2007, with substantial payments made upfront, and the registration in March 2008 reflected higher stamp duty rates. The assessee provided evidence showing a significant increase in stamp duty rates between 2007 and 2008, justifying the lower purchase price. The Tribunal found merit in the assessee's explanation and noted that the AO had no evidence of any consideration paid over and above the stated amount. The Tribunal emphasized that the stamp duty valuation or DVO's report alone could not justify the addition without concrete evidence of undisclosed payments. Citing the judgment of the Punjab & Haryana High Court in CIT vs. Chandni Bhuchar, 323 ITR 510 (P&H), the Tribunal held that the deeming provisions of section 50C of the Income Tax Act apply only to the seller and not the purchaser. The Tribunal concluded that the difference in the stated consideration was justified and directed the AO to delete the entire addition of Rs. 1,00,25,000/-, as there was no evidence of any undisclosed investment. Conclusion: - The appeal of the assessee is allowed, confirming that the income from the sale and purchase of shares and securities should be treated as 'capital gains.' - The appeal of the Revenue is dismissed, with the Tribunal directing the deletion of the entire addition made on account of unexplained investment in the property.
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