2019 (1) TMI 1987 - AT - Income Tax

Profits on sale of land - LTCG - CIT(A) held that the land comprised in the project RMT Phase II is a capital asset and the gain out of the sale of the same should be treated as capital gains - HELD THAT - When we called for the relevant documents, both the parties could not place anything but pleaded on the orders of the lower authorities. However, both of them have agreed that this issue can be remitted back to the AO for a fresh examination. In the facts and circumstances, we deem it fit to remit this issue back to the AO for a fresh examination. The assessee shall place all the materials in its support before the AO and comply to the AO s requirements as per law. A O is free to conduct appropriate enquiry as deemed fit, but he shall furnish adequate opportunity to the assesssee on the material etc to be used against it and decide the matter in accordance with law for assessment years 2008-09 to 2011-12. The proposal of the AO for enhancement of income to the CIT(A), towards disallowance of expenditure in the activity of breeding horses for assessment year 2008-09, the Ld. DR pleaded on the lines of grounds of appeal extracted. CIT(A) followed the order of this tribunal, supra, we do not find any reason to interfere with his order and hence, the corresponding grounds of the Revenue for assessment year 2008- 09 is dismissed.

Summary

Issues Involved:
1. Classification of income from the sale of land and flats in Rani Meyyammai Towers Phase II (RMT-II) as either long-term capital gains or business profits.
2. Disallowance of expenditure incurred for breeding horses due to lack of sales in the financial year.

Detailed Analysis:

1. Classification of Income from RMT-II:

Facts and Background:
- The assessee inherited land and was involved in developing it into multistoreyed buildings (Rani Meyyammai Towers).
- The land was divided between the assessee and his brother’s family, leading to disputes and eventual partition.
- The assessee sold undivided shares of land and constructed flats from Rani Meyyammai Towers Phase I (RMT-I) and Phase II (RMT-II).
- The Assessing Officer (AO) treated the sale of land in RMT-I as long-term capital gains but treated the sale of land in RMT-II as business profits.

Contentions:
- The AO argued that the land in RMT-II was acquired by purchase and not inherited, thus should be treated as business profits.
- The CIT(A) disagreed, stating that the land was obtained through partition and should be treated as long-term capital gains.

Judgment:
- The Tribunal remitted the issue back to the AO for a fresh examination, directing the AO to verify the nature of the transaction and provide the assessee an opportunity to present supporting materials.
- The AO is to conduct an appropriate inquiry and decide the matter in accordance with the law for assessment years 2008-09 to 2011-12.

2. Disallowance of Expenditure for Breeding Horses:

Facts and Background:
- The AO proposed an enhancement of income by disallowing the expenditure incurred for breeding horses, citing no sales of horses during the year.
- The expenditure amounted to Rs. 4,44,56,451/-.

Contentions:
- The assessee argued that all activities related to horses should be considered as a single commercial activity, as per previous Tribunal decisions.
- The assessee maintained that the expenditure for breeding horses should be allowed, even without sales, as it is part of the ongoing business activity.

Judgment:
- The CIT(A) upheld the assessee’s method of accounting, which had been consistently followed and accepted by the Department in earlier years.
- The CIT(A) rejected the AO’s proposal for enhancement, supported by previous Tribunal decisions and the Delhi High Court ruling in CIT v. Usha Stud and Agriculture Farm Pvt. Ltd.
- The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the Revenue’s appeal on this issue for the assessment year 2008-09.

Conclusion:
- The Tribunal remitted the issue of classification of income from RMT-II back to the AO for a fresh examination for assessment years 2008-09 to 2011-12.
- The Tribunal upheld the CIT(A)'s decision on the disallowance of expenditure for breeding horses, dismissing the Revenue’s appeal for the assessment year 2008-09.
- The Revenue’s appeal for the assessment year 2008-09 was partly allowed, while appeals for assessment years 2009-10, 2010-11, and 2011-12 were allowed for statistical purposes.