2003 (12) TMI 281 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of gain on sale of investment as business income.
2. Disallowance of deduction under section 48 of the Income-tax Act.
3. Invoking the provisions of section 145 of the Income-tax Act to treat the investment as stock-in-trade.
4. General grounds and non-pressed ground.

Issue-wise Detailed Analysis:

1. Treatment of Gain on Sale of Investment as Business Income:
The primary issue was whether the gain on the sale of space in Devika Tower should be treated as business income or capital gain. The assessee contended that the space was an investment and any gain should be treated as a capital gain. The Assessing Officer (AO) treated it as business income, arguing that the assessee firm was a dealer in real estate, and the space was sold in parts over several years, indicating a business activity rather than an investment. The AO highlighted that the firm admitted its business was the sale of flats and that the intention behind purchasing the space was to trade it for profit. The AO also noted that the space was shown as an investment in the balance sheet, but this classification was not conclusive. The CIT(A) upheld the AO's decision, and the Tribunal agreed, emphasizing that the consistent sale of space indicated it was stock-in-trade, not a capital asset.

2. Disallowance of Deduction under Section 48 of the Income-tax Act:
The assessee claimed a deduction under section 48 for Rs. 55,386, which the AO disallowed. The Tribunal noted that nothing was stated on behalf of the assessee regarding this ground, and thus, it did not require adjudication.

3. Invoking Provisions of Section 145 of the Income-tax Act:
The AO invoked section 145 to treat the investment as stock-in-trade, arguing that the assessee's actions and the history of transactions indicated an intention to trade rather than invest. The AO cited the Supreme Court's decision in CIT v. British Paints (I) Ltd., which held that the AO has the duty to ensure the books disclose the true state of accounts and correct income. The Tribunal supported this view, stating that the AO is not bound by the method followed in earlier years if it does not reflect the true income. The Tribunal concluded that the consistent sale of space over the years supported the AO's decision to treat it as stock-in-trade.

4. General Grounds and Non-Pressed Ground:
Ground No. 1 was general in nature, and ground No. 5 was not pressed by the assessee. Therefore, these grounds did not require detailed adjudication.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the AO's decision to treat the gain on the sale of space in Devika Tower as business income, disallow the deduction under section 48, and invoke section 145 to treat the investment as stock-in-trade. The Tribunal emphasized that the AO's duty is to ascertain the true intention behind transactions and that past acceptance of the assessee's claims does not preclude the AO from re-evaluating the facts in subsequent years.