2017 (1) TMI 384 - AT - Income Tax

Applicability of provision of section 50C - adoption of value as per stamp duty valuation - Held that - We find that in the earlier assessment year the AO has held that the asessee s income from sale of land was income from business. Despite this submission the authorities below have chosen to ignore this aspect on the plea that the assessee has submitted the return of income in Form ITR-2. In our considered opinion this is not at all a cogent reasoning. In the preceding scrutiny assessment the Revenue has held that the assessee s transaction in sale and purchase of land was a business income. If this be so, there is no question of applying the provisions of section 50C. Further more even if the same is not treated as business asset, it is incumbent upon the AO to refer the matter to the valuation cell if the assessee objects it. Further more the assessee s plea of submission of books of accounts has also not been entertained. We find that the Revenue having held that in earlier years the assessee was engaged in the business of purchase and sale of land cannot make an about-turn and hold that the assessee was not engaged into the same merely because the return of income has been filed in Form ITR-2. Hence on this anvil interest of justice would be served if the matter is remitted to the file of the AO. The AO is directed to decide afresh after taking into account the result of earlier years assessment and the Hon ble Apex Court exposition as mentioned above. Needless to add the assessee should be granted adequate opportunity of being heard.

Summary

Issues:
1. Disallowance of ground No. 1(a) under Sec. 50C
2. Disallowance of ground No. 1(b) treating business loss as Capital Loss
3. Disallowance of ground No. 1(c) treating unexplained investment

Analysis:

Issue 1: Disallowance of ground No. 1(a) under Sec. 50C
The AO applied Sec. 50C to tax short term capital gain on the sale of Property No.1 despite the appellant's explanation of selling the property for profit. The appellant argued that he was engaged in the business of sale and purchase of property, as recognized in the previous assessment year. The CIT(A) dismissed the plea, stating the appellant did not show the transaction in the return of income. However, ITAT noted that the Revenue previously treated the appellant's land transactions as business income. The ITAT found the CIT(A)'s reasoning flawed and directed the matter to be reconsidered by the AO, emphasizing the need to account for past assessments and the Supreme Court's stance on finality in judgments.

Issue 2: Disallowance of ground No. 1(b) treating business loss as Capital Loss
The AO calculated short term capital loss on the sale of Property No. II, which the appellant claimed as business loss. The CIT(A) dismissed the appellant's plea based on the assertion that the appellant was not engaged in the business of property sale. However, the ITAT found the CIT(A)'s decision unjustified, considering the appellant's past business activities. The ITAT allowed the appeal for statistical purposes, emphasizing the importance of considering the appellant's business nature in determining the appropriate treatment of losses.

Issue 3: Disallowance of ground No. 1(c) treating unexplained investment
The AO added a significant amount as unexplained investment due to the appellant's failure to explain the source of cash related to a property transaction. The appellant claimed the investment was reflected in the books of accounts, offering to produce relevant financial records. However, the CIT(A) upheld the addition, citing the appellant's failure to provide necessary documentation. The ITAT acknowledged the appellant's offer to produce records but upheld the CIT(A)'s decision due to the appellant's failure to present essential evidence.

In conclusion, the ITAT allowed the appeal for statistical purposes, emphasizing the need for a comprehensive reconsideration of the issues by the AO, taking into account past assessments and legal principles to ensure justice and fairness in the decision-making process.