2016 (5) TMI 105 - AT - Income Tax

Sale of the plots - chargeable to tax as business income or capital gains - Held that - On reading of the entire documents placed before us, we could not find the relevant dates when the assessee converted this capital asset into stock in trade, if at all and what price(value), prevalent circle rates thereof,documents and actions of assessee for such conversion to convert the capital asset into stock in trade is not demonstrated. Further, from the remand report it is apparent not only the properties owned by the assessee, but the properties owned by the other person is also listed. Therefore, we are of the view that the finding of the assessing officer was not based on the list of properties purchased or owned by the assessee. It is also apparent that assessee has not shown any business income from the sale of stock in trade, which was stated to have been converted from the capital asset. If the assessee has converted capital asset into stock in trade in prior years, then part of the profit arising on sale of land, shall be chargeable to tax under the head capital gains and part of the profit under the head business income.On verification of computation of total income furnished by the assessee for assessment year 2010-11, we did not find any income offered by the assessee under the head business income on sale of the plots. As these vital facts are not brought on record, either by the assessee or by the revenue, in the interest of the Justice, we set-aside these grounds of appeal to the file of the assessing officer to verify the facts and then to decide issue accordingly. That assessing officer shall afford proper opportunity to the assessee to substantiate its claim before deciding the issue on the merit. - Decided in favour of assessee by way of remand. Disallowance of the development charges - Held that - CIT (A), while allowing ₹ 4 lakhs and disallowing ₹ 553 400/-did not give any reason for such bifurcation. It is also not apparent that even despite the assessee has not furnished the bills and vouchers related to these expenses under this head how he has come to the conclusion that ₹ 5 53 400 is disallowable. Therefore, as these expenses are related to the development of the above said property which has been dealt with by us in ground No. 1 and 2 of the appeal, We also set aside this ground of appeal to the file of the assessing officer to verify the amount of expenditure incurred by the assessee with the supporting bills and other relevant materials. If the assessee is found to have incurred thisexpenditure, it should be granted to assessee as deduction under the head of business income if AO treats the activity of the sale of plot as business income and if the activity is found to be of sale of capital asset. Then this expenditure should be allowed as cost of improvement of the asset - Decided in favour of assessee Non granting exemption under section 54F for purchase of the residential flat - Held that - The deduction under section 54F of the income tax act is allowable only if the assessee has earned any capital gain on sale of the property. No such deduction is allowable if the income is chargeable to tax under the head business income. As we have already set aside Ground No. 1 and 2 of the appeal of the assessee to the file of assessing officer, we also set aside this ground of appeal to the file of assessing officer and to grant deduction under section 54F if income of the assessee is chargeable to tax under the head capital gains. We also direct assessing officer to verify the claim of the assessee in accordance with the provisions of the law while granting deduction under section 54F of the income tax act after affording reasonable opportunity of hearing and to produce relevant evidence before him - Decided in favour of assessee by way of remand. Addition for the cash deposited in IDBI bank account of the assessee - Held that - Before us, appellant submitted a chart, which it is placed at paper book paper book page No. 47 to 48. According to the chart ₹ 28,35,000/- has been deposited in cash in the IDBI bank account of the assessee. The assessee is stated that out of those ₹ 34 lakhs are withdrawn on various dates from syndicate bank and IDBI bank by the assessee. Precisely an amount of ₹ 5,75,000/- has been withdrawn from IDBI bank account itself and ₹ 34 lakhs from Syndicate bank on various dates. These facts were shown by a cash flow chart. Argument of taxing peak credit is only an alternative argument and it was not the only contention of the assessee when it is submitted the detailed cash flow chart before lower Authorities.The particular chart either was not controverted by the assessing officer, CIT (A) or learned DR before us. In view of this, we are of the view that the addition of rupees, 976805/- confirmed by the CIT appeal is not proper and we reverse his findings on this count.- Decided in favour of assessee Allowance of expenditure under the head development charges - Held that - Assessee has claimed to have incurred an expenditure of ₹ 45 lakhs on development of the properties, and out of that the claim of ₹ 953,400/- has been made. Learned CIT (A) out of the disallowance of ₹ 9,53,400/- allowed expenditure of Rs. Four lakhs and confirmed disallowance of ₹ 5 53 400/- Both the parties contested the respective aggrieved action of CIT appeal. We have already set aside Ground No. 1, 2 and 3 of the appeal of the assessee to the file of assessing officer for determining head of taxability of income and verification of details of expenditure and then grant deduction. Therefore, we also set aside this ground of the appeal of the revenue to the file of assessing officer subject to the direction contained while deciding the appeal of the assessee Addition on account of purchase of property in cash - Held that - It is an admitted fact that assessee has purchased residential flat on 08/02/2010 for an investment of ₹ 1962400 in cash. For the purpose of availability of the cash assessee has shown that it is received ₹ 3863905/-as its source, which has derived from sale of plot before date of investment in residential house and firm. This statement of the funds is not disputed. Therefore, in our opinion assessee has enough sources of funds available to buy that property in cash on 08/02/2010. In the result ground No. 2 of the appeal is dismissed and the action of the CIT (A) in deleting the addition of ₹ 1962,400/- is confirmed. Addition on proportionate basis as interest - Held that - It is an admitted fact that assessee has advanced a sum of ₹ 13,24, 500/- to others without charging any interest and assessee is paying interest on other loans. Assessee has submittedstatement of affairs as on 31/03/2010where assessee has own fund of ₹ 49,51,036/-. Therefore, a presumption can be drawn that the amount that has been invested by the assessee in the interest-free advances given to some parties is out of the capital of the assessee, which is free of interest. Therefore, in view of the above, we confirm the action of the CIT (A) in deleting the disallowance on account of interest expenditure of ₹ 47135/-. Disallowance made by the assessing officer under section 37 (1) being 20% of various miscellaneous expenses - Held that - We are of the view that no ad-hoc disallowances can be made without pointing out the instances of use of the assets or expenditure incurred for the personal purposes. - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of income as business income or capital gains.
2. Disallowance of development charges.
3. Denial of exemption under Section 54F.
4. Addition under Section 68 for unexplained cash deposits.
5. Allowance of development charges without bills and vouchers.
6. Deletion of addition for unexplained cash investment in property.
7. Deletion of addition for unexplained cash credit.
8. Deletion of addition for proportionate interest not charged on loans.
9. Deletion of disallowance under Section 37(1) for miscellaneous expenses.

Detailed Analysis:

1. Classification of Income as Business Income or Capital Gains:
The assessee contended that the income from the sale of plots should be treated as long-term capital gains, whereas the revenue argued it should be classified as business income. The Tribunal observed that the assessee held the properties for 5-6 years, indicating a capital asset. However, the assessee also engaged in multiple property transactions. The Tribunal noted the absence of clear evidence regarding the conversion of capital assets into stock in trade and remanded the issue back to the Assessing Officer (AO) for verification and proper classification.

2. Disallowance of Development Charges:
The assessee claimed development charges of Rs. 9,53,400, but the AO disallowed the entire amount due to lack of supporting bills and vouchers. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed Rs. 4 lakhs and disallowed Rs. 5,53,400. The Tribunal found the CIT(A)'s bifurcation arbitrary and remanded the issue back to the AO for verification of the actual expenses incurred with supporting evidence.

3. Denial of Exemption under Section 54F:
The assessee claimed exemption under Section 54F for the purchase of a residential flat. The AO denied the exemption, treating the income as business income. The Tribunal, having remanded the classification issue, also remanded this issue to the AO to grant the exemption if the income is classified as capital gains.

4. Addition under Section 68 for Unexplained Cash Deposits:
The AO added Rs. 29,25,000 as unexplained cash deposits in the IDBI bank account. The CIT(A) reduced this to Rs. 9,76,805 based on peak credit theory. The Tribunal found that the assessee provided a cash flow chart showing withdrawals from other bank accounts, which was not properly considered by the lower authorities. The Tribunal reversed the CIT(A)'s finding and allowed the assessee's appeal on this ground.

5. Allowance of Development Charges Without Bills and Vouchers:
The revenue contested the CIT(A)'s allowance of Rs. 4 lakhs out of the disallowed development charges. The Tribunal, having remanded the development charges issue, also remanded this ground to the AO for verification.

6. Deletion of Addition for Unexplained Cash Investment in Property:
The AO added Rs. 19,62,400 for the cash purchase of a property. The CIT(A) deleted the addition, noting that the assessee had sufficient cash from the sale of plots. The Tribunal confirmed the CIT(A)'s decision, finding the assessee had enough sources of funds.

7. Deletion of Addition for Unexplained Cash Credit:
The AO added Rs. 19,48,985 as unexplained cash credit. The CIT(A) deleted this, confirming only the peak credit addition. The Tribunal, having allowed the assessee's appeal on the peak credit issue, dismissed the revenue's appeal on this ground.

8. Deletion of Addition for Proportionate Interest Not Charged on Loans:
The AO disallowed Rs. 47,135 for interest not charged on loans given by the assessee. The CIT(A) deleted the disallowance, noting no evidence that the loans were given from interest-bearing funds. The Tribunal upheld the CIT(A)'s decision, presuming the loans were given from the assessee's own funds.

9. Deletion of Disallowance under Section 37(1) for Miscellaneous Expenses:
The AO disallowed 20% of miscellaneous expenses, suspecting personal use. The CIT(A) deleted the disallowance, finding no specific evidence of personal use. The Tribunal confirmed the CIT(A)'s decision, stating that ad-hoc disallowances cannot be made without specific instances of personal use.

Conclusion:
The Tribunal remanded several issues back to the AO for further verification and upheld the CIT(A)'s decisions on others, resulting in partial allowance of both the assessee's and the revenue's appeals.