2015 (1) TMI 649 - AT - Income Tax

Sale of four plots - Assessment under the head business / adventure V/S Long term Capital Gains - Held that - The facts and circumstances of the case made out by the assessee establish that the intention of the assessee for acquiring the aforesaid property was to hold it as Investment and not as stock-in-trade . Therefore, in our view, the CIT(A) made no mistake in holding that the gain on sale of such property is liable to be assessed as income from capital gains and not as a business income. Thus, we affirm the order of the CIT(A) on this issue and accordingly Revenue fails in its appeal. - Decided in favour of assessee. Capital gains on the transfer of land - assessment year selection - Held that - Transfer for the purpose of accrual of capital gains takes place only on execution of the transfer deed by the owner, which in the present case was not done. As find that the instant year is neither the year in which the impugned agreement has been entered into and nor it is the year in which possession has been given or any consideration received. Therefore, we find no justifiable reason with the Assessing Officer to bring to tax the impugned sum in the instant assessment year. Thus, for all the aforesaid reasons, we affirm the conclusion drawn by the CIT(A) and as a result Revenue fails on this aspect also. - Decided against revenue.

Summary

Issues Involved:
1. Character of income earned on sale of plots at Kondhwa, Pune.
2. Addition of Rs. 31,27,500/- related to the advance from M/s. Mantri Construction.

Issue-wise Detailed Analysis:

1. Character of Income Earned on Sale of Plots at Kondhwa, Pune:

The Revenue challenged the decision of the CIT(A) which treated the income from the sale of plots at Kondhwa, Pune as 'capital gains' instead of 'business income' as assessed by the Assessing Officer (AO). The relevant facts are that the assessee, engaged in the business of a builder, declared the sale of four plots acquired in 1995 and sold in 2002, claiming the income as 'capital gains'. The AO contended that the plots were acquired as stock-in-trade for the business and thus the income should be assessed as 'business income'. The Assessing Officer's reasoning included the acquisition of development rights, the reflection of the purchase in the financial statements of the proprietary concern, and the development activities carried out on the plots.

The CIT(A) disagreed, noting that the plots were shown as investments in the balance sheets since acquisition, purchased in the assessee's individual name, and no significant development activity was carried out. The CIT(A) accepted the assessee's explanation that the acquisition was for investment purposes, not stock-in-trade, and the conversion of the land from Agricultural to Residential Zone was for better sale price, not for development.

The Tribunal upheld CIT(A)'s decision, emphasizing that the factual matrix did not suggest any development activity by the assessee and the plots were held as investments. The Tribunal noted that the mere nomenclature of the agreement as a 'development agreement' was not conclusive. The conversion to Residential Zone before sale was seen as a step to maximize sale price, not indicative of business activity. Thus, the income was rightly assessed as 'capital gains'.

2. Addition of Rs. 31,27,500/- Related to the Advance from M/s. Mantri Construction:

The second issue involved the addition of Rs. 31,27,500/- related to an agreement to sell dated 02-03-1987 for a property at Shivajinagar, Pune. The AO treated the advance received as sale consideration, asserting that the property transfer was complete within the meaning of section 2(47) of the Income-tax Act. The CIT(A) deleted the addition, noting that the transfer could only be inferred on execution of the conveyance deed, which had not occurred. The CIT(A) also observed that the provisions of section 2(47)(v) came into effect from 01-04-1988, after the transaction date, and thus did not apply.

The Tribunal affirmed CIT(A)'s decision, agreeing that the transaction did not constitute a 'transfer' under section 2(47) as the conveyance deed was not executed. The Tribunal also noted that the assessment year in question was neither the year of the agreement nor the year of possession or consideration receipt, thus finding no basis for the AO's addition in the instant year.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The income from the sale of plots at Kondhwa was rightly assessed as 'capital gains', and the addition of Rs. 31,27,500/- related to the advance from M/s. Mantri Construction was correctly deleted. The order was pronounced in the open Court on 31st December, 2014.