2016 (2) TMI 826 - AT - Income Tax

Claim of expenditure under the head business income - CIT(A) allowed the claim - Held that - CIT(A) had noted that the business activity of the assessee continues and therefore the relevant corresponding expenditure is allowable. While observing that the expenditure claimed by the assessee s in its business of trading in derivates, other securities and money lending was substantial when compared to meagre income/revenue therefrom, the Ld. CIT(A) held that the expenditure necessary for maintaining the assessee s corporate existence or expenditure relating to the assessee s trade in derivates, securities and money lending are to be allowed. The finding of the Ld. CIT(A), in our considered view, is reasonable in the facts and circumstances of the case. Before us, except for raising this ground, Revenue has filed to controvert the finding of the Ld. CIT(A) on this issue. In this view of the matter, we uphold the finding of the Ld. CIT(A) that since the business activity of the assessee in trading of derivates, other securities, and money lending continues in the year under consideration, even though on a much reduced volume and scale, the expenditure claimed in respect of such business income is to be allowed to the extent that they are necessary for maintaining the corporate existence of the assessee or those expenses which are related to such business - Decided against revenue Sale consideration received on sale of ownership land - business income or capital gain - Held that - CIT(A) observing that since the actively of sale of ownership lands plots was quite frequent, that the land was treated as stock-in-trade and the assessee had to execute conveyance deeds and maintain its rights and in this context requires legal consultation and other expenses to be incurred; concurred with the view of the AO that the income from sale of ownership lands is business income . Except for raising the ground that income from sale of ownership lands should be assessed as capital gains, since the assessee had declared the same as income from capital gains, no cogent reasons or evidence has been put forth by the Ld. DR to controvert the factual findings of the Ld. CIT(A) and also those of the AO that the income from sale of ownership lands is to be assessed as business income. In the facts and circumstances of the case as discussed above, we concur with the findings and reasoning of the Ld. CIT(A) that, in view of the frequency of sale of ownership lands ; the fact that the same was treated as stock-in-trade and the extent of expenses involved to execute conveyance deeds, maintain its rights and legal and other expenses incurred in this regard, we uphold the view of the ld. CIT(A) that the income from sale of ownership lands is to be assessed as business income - Decided against revenue Applicability of provisions of Section 50C - Held that - CIT(A) has in fact correctly held that the provisions of Section 50C of the Act are not applicable in the case of in case business income in view of the decision of inter alia, Indralok Hotels P. Ltd.(2009 (2) TMI 235 - ITAT BOMBAY-I ) - Decided against revenue Allowance of expenses claimed by the assessee as the computation has started from net profit - Held that - we concur with the observation of the Ld. CIT(A) that the AO at para 9 of the Order of assessment, while assessing the transfer of ownership lands as business income, has allowed all expenses claimed by the assessee in regard to transfer of lands. We also find that the AO has observed that the various components of income and expenses in respect of transfer of ownership lands left him with no other option than to conclude that land dealings constitute that main business of the assessee and that the nature of expenses are such that it is apparent that the assessee has been employing various resources for maintaining its rights in land, for disposing the assets through lawyers, brokers, employees, directors etc. In this factual matrix as laid out above, we concur with the order of the Ld. CIT(A) in holding that all expenses, other than that part of the legal expenses, relating to Eksali lands and those for maintaining the corporate existence of assessee and for the assessee s trading in derivatives, other securities and money lending, are to be allowed against business income from sale of ownership lands . - Decided against assessee

Summary

Issues Involved:
1. Allowability of business expenditure despite reduced business activity.
2. Classification of income from the sale of ownership land as business income or capital gains.
3. Applicability of Section 50C of the Income Tax Act on the sale of capital assets.
4. Disallowance of brokerage and professional charges while computing capital gains.
5. Ad-hoc addition while computing Long Term Capital Gains (LTCG) without reference to District Valuation Officer (DVO).
6. Assessment of advance received against sale consideration as capital gains.

Detailed Analysis:

1. Allowability of Business Expenditure Despite Reduced Business Activity:
The revenue contended that the CIT(A) erred in allowing the assessee's claim of expenditure under the head business income, arguing that there was minimal activity relating to derivatives and finance during the previous year to justify the expenditure. The assessee argued that similar expenses had been incurred and accepted in previous years, and a reduction in revenue does not warrant disallowance of business expenses. The Tribunal noted that the assessee had been in the business for over two decades, and the business activity continued, albeit on a smaller scale. The Tribunal upheld the CIT(A)'s decision, allowing necessary expenditures for maintaining corporate existence and business activities, dismissing the revenue's ground.

2. Classification of Income from Sale of Ownership Land:
The revenue argued that the CIT(A) erred in treating the sale consideration from ownership land as business income, contending it should be assessed as capital gains since the land was held as an investment. The Tribunal noted that the assessee frequently sold ownership lands, treated them as stock-in-trade, and incurred significant expenses for legal consultations and conveyance deeds. The Tribunal concurred with the CIT(A) that the income from the sale of ownership lands should be assessed as business income due to the frequency of transactions and the nature of expenses involved, dismissing the revenue's grounds.

3. Applicability of Section 50C:
The revenue contended that the provisions of Section 50C, applicable to the sale of capital assets for computing LTCG, were not appreciated by the CIT(A). The Tribunal found that the CIT(A) correctly held that Section 50C does not apply to business income, referencing relevant case law. Thus, the Tribunal rejected the revenue's ground.

4. Disallowance of Brokerage and Professional Charges:
The AO disallowed brokerage and professional charges while computing capital gains. The Tribunal upheld the CIT(A)'s decision that all expenses related to the business of trading in derivatives, securities, and money lending, as well as those necessary for maintaining corporate existence, should be allowed against business income from the sale of ownership lands.

5. Ad-hoc Addition Without Reference to DVO:
The AO made an ad-hoc addition while computing LTCG on the sale of ownership land without referring to the DVO. The Tribunal did not specifically address this issue in the detailed analysis but upheld the CIT(A)'s overall decision, implying agreement with the CIT(A)'s handling of such additions.

6. Assessment of Advance Received as Capital Gains:
The AO assessed an advance received against sale consideration as capital gains. The Tribunal did not specifically address this issue in the detailed analysis but upheld the CIT(A)'s overall decision, implying agreement with the CIT(A)'s handling of such assessments.

Conclusion:
The Tribunal dismissed the revenue's appeal and the assessee's Cross Objections for the assessment year 2009-10, upholding the CIT(A)'s order and providing detailed reasoning for each issue raised by the revenue. The Tribunal's decision emphasized the continuity of business activities and the nature of expenses incurred, supporting the CIT(A)'s classification of income and allowance of business expenditures.