2016 (12) TMI 182 - AT - Income Tax

Profit on sale of property Business income or Capital Gain - Held that - A perusal of the various recitals in the agreement indicate that apart from acquiring all development rights, the assessee is the de facto owner of the property as he has the absolute rights of possession, developing, selling, receiving sale proceeds, etc. to the total exclusion of the erstwhile owner. This view of ours is further confirmed as perusal of the sale agreement of the said property that the assessee has signed, sealed and delivered the property in his actual capacity as OWNER of the property. If the ownership still vested in the erstwhile owners, as claimed by the assessee, then they should have been at least consenting parties to the sale deed dated 30.12.2009. These documentary evidences, in our view, puts paid to the assessee s claim on facts that the income/profit arising on sale of the gala was his business income. In our view, the income from sale of gala has been correctly held by the authorities below to be exigible to tax as STCG and not business income. - Decided against assessee Applicability of the provisions of section 50C - Held that - Holding that the assessee s profit on sale of the gala vide agreement dated 30.12.2009 is to be assessed as STCG and not business income the provisions of section 50C are to be invoked and have been rightly invoked in this case by the authorities below. Since the sale consideration stated in the sale agreement dated 30.12.2009 for sale of gala at ₹ 80 lakhs, was lower than the valuation shown for stamp duty papers by the Stamp Validation authorities at ₹ 1,02,20,000/-, the provisions of section 50C have been correctly invoked for taking the sale value of land at ₹ 1,02,20,000/- while computing the STCG. Cost of Improvement disallowed - Held that - Except for raising these general arguments before us, the assessee had not placed on record any material evidence which controverts any of the findings of the authorities below on this issue. In this factual matrix of the case, we uphold the action of the authorities below in disallowing the assessee s claim for having incurred expenditure as cost of improvement - Decided against assessee Disallowance out of Wages @10% - Held that - CIT(A) upheld the said disallowance of 10% of wages expenditure as he found the explanation put forth by the assessee to be unsatisfactory. Before us, except for raising this ground, the assessee has not been able to bring on record any material to controvert the findings of the authorities below. In this factual matrix of the case, we uphold the disallowance of ₹ 38,344/- being 10% of expenditure incurred on wages. - Decided against assessee Disallowance of interest expenditure - Held that - Both the AO and CIT(A) has summarily brushed aside the assessee s arguments as unsatisfactory without assigning any cogent reason for the said disallowance. In this factual view of the matter we, in the interest of justice, set aside the orders of the authorities below on this issue and restore the matter to the file of the learned CIT(A) for fresh consideration and adjudication after affording the assessee adequate opportunity of being heard and to file details/ submissions required and the AO opportunity to rebut the same.

Summary

Issues Involved:
1. Classification of profit on sale of property as Business Income or Capital Gain.
2. Applicability of the provisions of section 50C of the Income Tax Act.
3. Disallowance of cost of construction/improvement as non-genuine.
4. Disallowance of 10% of wages.
5. Disallowance of interest expenditure.
6. Consideration of additional ground regarding computation of income.

Issue-wise Detailed Analysis:

1. Classification of Profit on Sale of Property:
The primary issue was whether the profit from the sale of an industrial gala should be classified as Business Income or Short Term Capital Gain (STCG). The assessee argued that the profit should be treated as Business Income, as the property was acquired for development and sale. However, the Tribunal upheld the Assessing Officer's (AO) and CIT(A)'s decision, stating that the assessee had acquired ownership of the property and sold it, thereby making the profit taxable as STCG. The Tribunal noted that the property was not listed as stock-in-trade in the assessee’s financial records, reinforcing the classification as STCG.

2. Applicability of Section 50C:
Given the Tribunal's decision to treat the profit on sale as STCG, the provisions of section 50C of the Income Tax Act were applicable. The sale consideration was lower than the valuation by the Stamp Valuation authorities, and thus, the higher valuation of ?1,02,20,000/- was correctly adopted for computing STCG.

3. Disallowance of Cost of Construction/Improvement:
The AO disallowed expenses amounting to ?30,64,396/- claimed as cost of improvement, as the notices sent to verify these expenses returned unserved, and the assessee failed to produce the concerned parties or their confirmations. The Tribunal upheld the AO and CIT(A)'s decision, as the assessee did not provide sufficient evidence to substantiate the claim.

4. Disallowance of 10% of Wages:
The AO disallowed 10% of the wages amounting to ?38,334/- due to lack of supporting evidence. The Tribunal upheld this disallowance, noting that the assessee failed to provide adequate documentation to support the wage expenses.

5. Disallowance of Interest Expenditure:
The AO disallowed interest expenditure of ?1,05,628/- paid in excess of 12%. The Tribunal found that the AO and CIT(A) dismissed the assessee’s arguments without providing cogent reasons. Therefore, the Tribunal set aside the disallowance and remanded the issue back to the CIT(A) for fresh consideration and adjudication.

6. Additional Ground Regarding Computation of Income:
The assessee contended that the AO failed to reduce the profit from the sale of gala from business income while computing total income, leading to double taxation under Capital Gains. The Tribunal directed the CIT(A) to admit this additional ground and verify the factual claim with the assistance of the AO.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for fresh consideration on certain issues. The Tribunal upheld the classification of profit as STCG, the applicability of section 50C, and the disallowance of certain expenses, while remanding the disallowance of interest expenditure and the additional ground for further verification.