2020 (9) TMI 860 - AT - Income Tax

Income from sale of land/building - Business income or Capital gain computation - Addition invoking provisions of Section 50C - HELD THAT - The intention of the assessee in making above referred transaction of sale purchase was of business nature and was therefore assessable under head Income from Business. Although in the return of income, assessee made a bonafide mistake by showing all such transactions under the head Income from Capital Gain instead of Income from Business. Later during assessment proceedings assessee claimed the transaction as business/ adventure in the nature of trade on this logic that his nature of transactions are of business. Assessee made a request that provisions of section 50C are not applicable on him as the said section is applicable on Capital assets only. Assessee is not liable to pay capital gain tax. Income from sale of land building is taxable under the head income from business and profession where provisions of Section 50C are not applicable in so far as the shops were sold on agreement basis prior to 1st October, 2009 when the provisions of Section 50C of the Act are not applicable. Thus, the A.O. was not justified in invoking provisions of Section 50C of the Act. Accordingly, the A.O. is directed to delete the addition made u/s 50C of the Act. Addition u/s 69C and 69 - HELD THAT - Assessee has made investment for ₹ 1,60,651/- out of advance received from the sale of other shops i.e. out of ₹ 4,82,000/- and out of his own capital. It is worth to mention that the assessee has declared other income of ₹ 1,54,000/- from partnership business during the year and is an old income tax assessee. Ld CIT(A) accepted the claim of ₹ 1,93,315/- only and rejected the appeal for ₹ 6,34,000/-. Ld CIT(A) did not consider that the assessee was having ₹ 5,66,664/- prior to 29/06/2009 and has also withdrawn a sum of ₹ 1,00,000/- from saving bank a/c on 29/06/2009 itself. Both these amounts are more than ₹ 6,34,000/-. Accordingly, no justification for the addition of ₹ 6.34 lacs upheld by the ld. CIT(A). Hence, the A.O. is directed to delete the same.

Summary

Issues:
Reopening of assessment, addition under Section 50C of the Income Tax Act, 1961, addition under Section 69C and 69 of the Act.

Reopening of Assessment:
The appeal challenged the reopening of assessment and addition under Section 50C of the Act. The Assessing Officer (A.O.) initiated reassessment proceedings based on information regarding a property sale. The A.O. believed that income had escaped assessment due to the assessee's failure to declare capital gains. The A.O. dismissed the challenge to the reopening, citing sufficient reasons for the reassessment. However, the Tribunal found that the assessee's transactions were of a business nature, not capital gains, and therefore not liable for tax under Section 50C.

Addition under Section 50C:
The assessee had purchased land and constructed buildings for business purposes, but mistakenly declared the transactions as capital gains. The A.O. applied Section 50C, but the Tribunal held that the transactions were business income, not capital gains, as the assets were sold before Section 50C's applicability. The Tribunal emphasized that income should be assessed under the correct head, following a precedent that protects taxpayers from undue tax burdens due to genuine mistakes.

Addition under Section 69C and 69:
The A.O. made an addition under Section 69 for investments made during a financial year. The Tribunal found discrepancies in the A.O.'s calculations, noting that the assessee had withdrawn funds and had other income sources. The Tribunal directed the A.O. to delete the addition, as the justification for the addition was not supported by the evidence presented.

In conclusion, the Tribunal allowed the assessee's appeal in part, directing the A.O. to delete the additions made under Section 50C and Section 69C and 69 of the Income Tax Act, 1961. The judgment highlighted the importance of correctly assessing income under the appropriate head to prevent undue tax liabilities on taxpayers.