2013 (12) TMI 6 - AT - Income Tax

Short term capital gain on sale of plot of land - Held that - The assessee has only sought to exploit the market potential of his land buying it from one developer and contracting it to another for construction - The only difference is that the consideration for the same rather than being in cash is in kind i.e. a defined share in the area to be constructed - The transaction to be more in the nature of a joint effort to commercially exploit the land each party agreeing to share the risk and reward from the activity leveraging its advantage and deploying its resources - No capital gains arising to the assessee during the relevant year - Decided against Revenue. Unsecured loans - Held that - On oppurtunity being given to assessee - The assessee has only produced confirmations from the said parties and no return of income bank statement were produced - The assessee has failed to prove the identity capacity and genuineness of the loans taken and the parties from whom such loans were taken - Decided in favour of Revenue. Gift from elder sister - Held that - The financial capacity of the donor to gift such a substantial amount of her wealth could not be established - The donor was the resident of Dubai which is a tax-free country - No return of income or any other tax document could be produced in respect of her business - The assessee s explanation as to the nature and source of the credit be considered as not reasonable - Decided in favour of Revenue.

Issues Involved:
1. Assessment of income as Short Term Capital Gains (STCG).
2. Addition of unsecured loans under section 68 of the Income Tax Act.
3. Addition of a gift received from a sister under section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Assessment of Income as Short Term Capital Gains (STCG):
The first issue revolves around the assessment of income as STCG by the Assessing Officer (AO) at Rs. 27,93,103/-, which was subsequently deleted by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee, engaged in trading diamonds, garments, and shares, bought plots from M/s. Moti Developers and entered into a development agreement with M/s. Ashirwad Builtech Pvt. Ltd. (ABPL) on the same day. The AO considered this a transfer under section 2(47)(v) of the Income Tax Act, as the assessee transferred his interest in land for 50% of the built-up area. The AO valued the consideration based on the ready reckoner rate and applied a discount factor, calculating the capital gain at Rs. 27.93 lakhs.

In appeal, the CIT(A) found no transfer of ownership or beneficial rights in the property, as the possession was allowed solely for development purposes. The CIT(A) concluded that no gain could arise on the same day without any development work or revenue generation. The Tribunal agreed with the CIT(A), stating that the transaction was in the nature of trade and no income would arise until the flats were sold. The Tribunal emphasized that the transaction was a joint effort to commercially exploit the land, with each party sharing the risk and reward. Consequently, no capital gains arose during the relevant year, and the assessee would be assessed for business income upon the actual sale of his share of the property.

2. Addition of Unsecured Loans under Section 68:
The second issue pertains to the addition of unsecured loans amounting to Rs. 12 lakhs from two parties: M/s. Denim Washers (Rs. 8 lakhs) and M/s. Deep Laundry (Rs. 4 lakhs). The AO added the loans under section 68 due to the assessee's failure to produce confirmations from the creditors. During appellate proceedings, the loan of Rs. 8 lakhs was proved, but the AO questioned the genuineness of the Rs. 4 lakhs loan despite the confirmation provided. The CIT(A) deleted the addition, stating that the AO had found nothing wrong with the confirmation, and it was the AO's responsibility to verify the details.

The Tribunal, however, upheld the AO's addition of Rs. 4 lakhs, emphasizing that the onus to establish the genuineness of the transaction under section 68 lies with the assessee. The Tribunal noted that the only document provided was a confirmation, which merely established the identity of the creditor, not their capacity or the genuineness of the transaction. Consequently, the Tribunal confirmed the addition of Rs. 4 lakhs as the assessee failed to discharge the burden of proof.

3. Addition of Gift Received from Sister under Section 68:
The third issue involves the addition of Rs. 30 lakhs received by the assessee from his sister through a banking channel, claimed as a gift. The AO assessed the amount under section 68 due to the non-proving of the donor's financial capacity. The CIT(A) deleted the addition, noting that sections 56(2)(v) and 56(2)(vi) were not applicable as the gift was from a relative.

The Tribunal scrutinized the transaction and found that the Revenue impugned the credit of 1,00,000 Dirham (Rs. 12.11 lakhs) claimed as sale proceeds of a fixed deposit. The Tribunal noted that the donor's financial capacity was not substantiated, and the credits in the bank accounts appeared to belong to the donor's daughters. The Tribunal emphasized that the onus to prove the source of the credit lies with the assessee, and the absence of evidence entitled the Revenue to take an adverse view. The Tribunal upheld the AO's addition of Rs. 12.11 lakhs under section 68, setting aside the CIT(A)'s deletion.

Conclusion:
The appeal by the Revenue was partly allowed. The Tribunal confirmed the addition of Rs. 4 lakhs as unsecured loans under section 68 and Rs. 12.11 lakhs as a gift received from the sister under section 68. However, it found no capital gains arising to the assessee during the relevant year concerning the development agreement and the associated transaction.

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