2016 (12) TMI 1797 - AT - Income Tax

Disallowance of deduction of interest expenses - holding that transaction of sale and purchase of the house as not assessable as income from Business and Profession but was a transaction assessable under the head Income from Capital gain - HELD THAT - We find from the assessment order that the assessee is a contractor dealing in construction business, which is also evident from the form 30CD audit report. We also find that no separate books of accounts were maintained in respect of business of trading in property nor any opening or closing balance in respect of the said property is shown. Therefore, this is an isolated transaction of purchase of a house, which, ofcourse, purchased in the name of individual capacity after obtaining housing loan for the said purchase. The house property is registered in his name on which stamp duty payment has also been made. Therefore, the assessee has purchased a capital asset, which has been sold in a very short span of time. Therefore, in the light of these facts, we are of the considered opinion that the lower authorities has rightly treated the same as short term capital gain transaction. Accordingly, the action of the lower authorities are confirmed. This ground of appeal is, therefore, dismissed. Income from house property after allowing deduction of interest u/s 24 - HELD THAT - Assessee has claimed this purchase and sale of this house property and shown business income thereon at ₹ 3964/- by computing separate trading account. However, the lower authorities have found that the assessee is not engaged in the business of real estate, as this was a solitary transaction conducted by the assessee. Therefore, the income from this property was assessable as income under the head Capital Gain. Accordingly, short term capital gain of ₹ 19,61,000/- was worked out and assessed accordingly. We also find that the assessee has raised his alternative plea before the ld. CIT(A). However, the same was not found acceptable by the ld. CIT(A) on the ground that no such claim was made before the AO and the issue under consideration was not working of income from house property, but the issue of income is assessable under the head Capital Gains. In view of these facts, we find that the issue has not been examined by the AO and by the ld. CIT(A) . Therefore, in the interest of justice, we are of the considered opinion that this issue may be restored to the file of the AO for reconsideration the entire claim as income from house property. Ground No. 2 is, therefore, allowed for statistical purposes.

Summary

Issues involved:
1. Disallowance of deduction of interest expenses and treatment of transaction as capital gain.
2. Disallowance of deduction of lease rent and transfer fee while computing total income.

Issue 1: Disallowance of deduction of interest expenses and treatment of transaction as capital gain:

The appeal was filed against the order of the Commissioner of Income-tax (Appeals) regarding disallowance of deduction of interest expenses amounting to ?14,60,076. The Assessing Officer treated the transaction of sale and purchase of a house as income from Capital Gain instead of Business and Profession. The assessee, a Civil and Labour Contractor, claimed the sale of the house as business income but failed to maintain separate books of accounts for trading in property. The Assessing Officer noted that the transaction was isolated, and the profit rate was lower than usual for such business types. The Commissioner upheld the decision, stating that the assessee intended to hold the property as a capital asset. The Tribunal confirmed the lower authorities' decision, concluding that the transaction was rightly treated as short-term capital gain due to lack of evidence supporting it as business income.

Issue 2: Disallowance of deduction of lease rent and transfer fee while computing total income:

The assessee contended that the income from the house property should be computed after allowing deductions for interest, lease rent, and transfer fee. The Assessing Officer and Commissioner treated the transaction as short-term capital gain, rejecting the alternative claim. The Tribunal found that the assessee did not engage in real estate business, making the income assessable under Capital Gains. However, the Tribunal observed that the issue of income from the house property was not examined by the lower authorities. Therefore, the Tribunal restored the issue to the Assessing Officer for reconsideration. The Assessing Officer was directed to determine if the property should be assessed as income from house property and investigate relevant details. The Tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to reexamine the claim for deductions of lease rent and transfer fee in light of the observations.

In conclusion, the Tribunal partially allowed the appeal, directing the Assessing Officer to reconsider the issue of income from the house property and deductions claimed by the assessee. The judgment emphasized the need for a thorough examination of the facts to determine the appropriate tax treatment for the transaction in question.