2013 (2) TMI 323 - AT - Income Tax

Addition u/s 68 Cash credit - Unexplained cash deposit - Identity and creditworthiness of the depositors Held that - As The A.O. has not put any queries so far as this amount of Rs.1,00,000/- received by Shri B.G. Patel from Dhirubhai V. Patel of USA is concerned. The A.O. has not established that this amount given by Sri B.G. Patel to the assessee was not out of the money received by him from Dhirubhai V. Patel of USA.A.O. himself has stated in the remand report that on examination of depositor Mr. Patel he found to have earned income of Rs. 3,00,000/- from agriculture and animal husbandry. Mr. Patel also confirmed to have advanced amount of Rs. 1,00,000/- to the assessee during the course of examination while the A.O. was preparing its remand report. Creditworthiness of Shri B.G. Patel is established and he, therefore, delete the addition u/s 68. In his confirmation letter Shri. Patel has also mentioned that details of cheque number through which the above amounts were paid to the assessee for purchase of plots. Shri Jigar A. Patel has also given the detail of bank in his confirmation letter from which the above payments were made to the assessee. In favour of assessee Addition u/s 40A(3) Purchase of land in cash - Payment made in cash above Rs. 20,000 A.O. treating the assessee to have been engaged in the business of purchase and sale of land Held that - A.O. has not been able to make out a case that the lands purchased were shown by the assessee as stock in trade. Said amount not included in P&L account of assessee, shown in asset side in balance sheet. Therefore decides in favour of assessee Capital Gain or business income Long Term capital gain from sale of land - A.O. argued that the assessee used to get the agricultural land converted in the non-agricultural land and small pieces of plots of land and then used to sale the plots to the customers Held that - Assessee has shown the long term capital gain in respect of sale of land which was purchased in March, 1994. It is also not in dispute that this land was shown by the assessee under the head fixed assets. The assessee sold this land during the year under consideration i.e. almost after 13 years. Therefore, the profit arising on account of sale of such land has rightly been treated by ld. CIT(A) as long term capital gain and not business income. In favour of assessee

Summary

Issues Involved:
1. Deletion of additions made under Section 68 of the Income Tax Act.
2. Deletion of additions made under Section 40A(3) of the Income Tax Act.
3. Classification of income as long-term capital gain instead of business income.

Detailed Analysis:

1. Deletion of Additions under Section 68 of the Income Tax Act:
The Revenue challenged the deletion of additions amounting to Rs.1,00,000/- and Rs.10,10,000/- made under Section 68 of the Income Tax Act by the Assessing Officer (A.O.). The A.O. had added these amounts as unexplained deposits due to the assessee's failure to furnish confirmations and evidence of the depositors' identity and creditworthiness. The CIT(A) deleted these additions after obtaining a remand report from the A.O.

For the Rs.1,00,000/- deposit from Shri B.G. Patel, the A.O.'s remand report acknowledged the identity and genuineness of the depositor but questioned his creditworthiness. The CIT(A) disagreed, noting that the A.O. did not adequately challenge the source of the funds, which were received from a relative in the USA. The CIT(A) found the creditworthiness established and deleted the addition.

For the Rs.10,10,000/- deposit from Shri Jigar A. Patel, the A.O. questioned the genuineness and creditworthiness due to the depositor's non-appearance for examination. The CIT(A) found that the transaction was genuine, supported by documentary evidence, and conducted through proper banking channels. The CIT(A) concluded that the A.O. failed to disprove the nature of the advance, leading to the deletion of the addition.

2. Deletion of Additions under Section 40A(3) of the Income Tax Act:
The Revenue contested the deletion of Rs.21,80,000/- added under Section 40A(3) by the A.O., who treated the payment for land purchase as a business expense made in cash, violating Section 40A(3). The CIT(A) deleted the addition, stating that the land was shown as an investment in the balance sheet, not as a business purchase.

The CIT(A) noted that the A.O. did not provide specific findings to classify the transaction as a business purchase. The land was consistently shown as a fixed asset, not stock-in-trade, and the payment was not debited to the profit and loss account. Additionally, the CIT(A) accepted the assessee's claim that the payment was made in a village without banking facilities, which justified the cash transaction.

3. Classification of Income as Long-term Capital Gain:
The Revenue objected to the CIT(A)'s decision to treat Rs.9,38,176/- as long-term capital gain instead of business income. The A.O. had reclassified the income based on the assessee's regular engagement in land transactions. The CIT(A) directed the A.O. to assess the income as long-term capital gain, considering the land was purchased in 1994 and held as a fixed asset until sold after 13 years.

The CIT(A) found that the land was consistently shown under fixed assets and not as stock-in-trade. The long holding period supported the classification as a capital asset, and the profit from its sale was rightly treated as long-term capital gain.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on all grounds. The additions under Sections 68 and 40A(3) were correctly deleted, and the income was rightly classified as long-term capital gain. The Revenue's appeal was dismissed in entirety.