2018 (12) TMI 1947 - AT - Income Tax

Gain on sale of property - Capital gain computation v/s Business income - addition invoking the provisions of section 50C - whether the sale of property was capital gains or business income? - HELD THAT - Assessee was carrying the business of construction. The plot which has been sold during the year was part of stock-in-trade in earlier years. The assessee for assessment years 2008-09 to 2010-11 had filed the returns of income in response to notices issued under section 148 of the Act and even the tax audit report, wherever applicable, were filed for all these years and the sale of unit in Gurudev Towers was accepted as business income of assessee. In such scenario, there is no reason to treat the said income differently in the year under consideration. The assessee had sold one of the units of Gurudev Towers in the year and just because the assessee declared the same as short term capital gains but later pointed out that the same was by way of an inadvertent mistake, then such declaration made by assessee cannot be held against the assessee. It is the duty of Assessing Officer to examine the facts in proper perspective and assess the income in the hands of assessee as per law. CBDT vide Circular No.14(XL-35) of 1955, dated 11.04.1955 had laid down the said directions for AO and the same merits to be applied in assessing the income in the hands of assessee. Accordingly, we find no merit in the grounds of appeal raised by Revenue and we hold that income arising on sale of unit in Gurudev Towers is to be assessed as Income from business and the provisions of section 50C of the Act are thus, not applicable. Addition u/s 68 by assessing peak cash balance in assessee s bank account - HELD THAT - AO made the addition which was the peak of cash balance as per Cash Book, but which also included opening cash - The said opening cash balance has been accepted in the hands of assessee and once the same has been accepted in earlier years, there is no merit in including the same as addition under section 68 of the Act. So, upholding the order of CIT(A) in this regard, we dismiss the ground of appeal No.3 raised by Revenue. Addition made on account of loan received from wife of assessee - said addition was made in the hands of assessee on the ground that wife of assessee was not assessable to tax - HELD THAT - The assessee has filed complete evidence in this regard before the CIT(A) and even before us that wife of assessee has been taxed to all years and had sufficient funds to make the aforesaid advances. Accordingly, we find no merit in the ground of appeal No.4 raised by Revenue and the same is dismissed.

Summary

Issues Involved:
1. Deletion of addition under section 50C of the Income-tax Act.
2. Classification of transactions as business income or capital gains.
3. Addition under section 68 of the Act for peak cash balance.
4. Addition under section 68 for a loan received from the wife.

Analysis:

Issue 1: Deletion of addition under section 50C:
The Revenue challenged the deletion of an addition of ?98,96,077 under section 50C by the CIT(A). The Assessing Officer treated the income from the sale of property as short term capital gains based on stamp duty valuation. However, the CIT(A) accepted the assessee's claim that it was business income due to being engaged in the construction business. The CIT(A) emphasized the principle of consistency and referred to previous years' assessments where the property was treated as stock-in-trade. The CIT(A) directed the Assessing Officer to delete the addition, citing the duty of the Revenue to rectify mistakes made by the assessee. The Tribunal upheld the CIT(A)'s decision, concluding that the income from the property sale should be assessed as 'Income from business', making section 50C inapplicable.

Issue 2: Classification of transactions as business income or capital gains:
The Revenue also contested the classification of the transactions as business income instead of capital gains. The Tribunal noted that the assessee had a history of filing returns as a construction business and treating the sold property as stock-in-trade in previous years. The Tribunal emphasized that the declaration of short term capital gains was due to an inadvertent error and upheld the CIT(A)'s decision to assess the income as 'Income from business'.

Issue 3: Addition under section 68 for peak cash balance:
The Revenue challenged the deletion of an addition of ?46,38,879 under section 68 related to peak cash balance. The CIT(A) upheld the deletion, noting that the opening cash balance had been accepted in earlier years. The Tribunal dismissed the Revenue's appeal, agreeing with the CIT(A)'s decision regarding the opening cash balance.

Issue 4: Addition under section 68 for a loan received from the wife:
The Revenue raised an issue regarding the addition of ?5,59,879 for a loan received from the wife of the assessee. The Tribunal found that the wife had been assessed to tax in her individual capacity and had sufficient funds to provide the loan. Consequently, the Tribunal dismissed the Revenue's appeal, concluding that the loan from the wife was adequately explained.

In conclusion, the Tribunal dismissed the Revenue's appeal on all grounds, affirming the CIT(A)'s decisions regarding the issues raised.