2006 (6) TMI 161 - AT - Income Tax

Summary

Issues:
1. Deletion of trading addition made by AO
2. Charging tax on long-term capital gain

Deletion of Trading Addition:
The appeal pertains to the deletion of a trading addition of Rs. 13,14,019 by the AO, which was challenged by the Revenue. The AO rejected the books of account of the assessee due to a low profit rate and a negative capital balance. The CIT(A) deleted the addition stating that the AO did not point out any defects in the books of account. The GP rate declared by the assessee was better than the previous years, and the AO failed to provide any specific reasons for adopting a net profit rate of 4 percent. The ITAT noted that the GP rate shown by the assessee was better than the previous year's, and there was no justification for the trading addition. The ITAT dismissed the Revenue's appeal on this issue.

Charging Tax on Long-Term Capital Gain:
The second issue revolved around the charging of tax on long-term capital gain. The assessee showed short-term capital gain on the sale of certain assets and long-term capital gain on the sale of a plot. The AO treated the plot and building as a single unit, not allowing long-term capital gain on the land. However, the assessee contended that the land was a separate asset and no depreciation was claimed on it. The CIT(A) allowed relief to the assessee after examining the documents provided. The ITAT reviewed the documents and found that the assessee consistently showed the land separately without claiming depreciation. Referring to a decision of the Hon'ble Rajasthan High Court, the ITAT upheld the CIT(A)'s decision to charge tax on the sale of land as long-term capital gains. Consequently, the Revenue's appeal was dismissed on this issue.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the trading addition and charge tax on long-term capital gain. The Revenue's appeal was dismissed on both issues, emphasizing the importance of consistent documentation and adherence to legal provisions in determining tax liabilities on capital gains.