2017 (10) TMI 993 - AT - Income Tax

Gain on sale of immovable properties - business income or capital gain - Held that - The assessee has not filed any Wealth Tax Return, and if filed, not placed on record showing the said plots as investment as per valuation to be made under the wealth tax rules. This goes to prove that the assessee is carrying on the business of purchase and sale of properties and is a property dealer-direct selling agent holding assets as stock in trade and not as investment. Accordingly, find no infirmity in the order of the ld. CIT(A) who has rightly confirmed the action of the Assessing Officer. Ground of the assessee is dismissed. No transfer of assets is involved - Held that - It is evident from record that the assessee had made investment in shares in two companies and the companies have been closed and it was stated that the name of the company had been struck out under the Companies Act and the shares invested as loss. Therefore, there cannot be any gain to the assessee in this regard and the same cannot be the income of the assessee from any angle. Accordingly, the addition so confirmed by the ld. CIT(A) is directed to be deleted. Ground of the assessee is allowed. Addition being 20% of the various expenses for which no evidence, such as copies of bills, vouchers were furnished - Held that - No satisfactory reply or cogent explanation was put forth. The ld. CIT(A) confirmed the action of the Assessing Officer. Before here also, no cogent explanation has been put forth under such facts and circumstances of the case. Find no infirmity in the order of the ld. CIT(A) who has rightly confirmed the action of the Assessing Officer. Thus, Ground of assessee dismissed. Addition on account of wage expenses because no bills and vouchers were produced before the Assessing Officer as well as before the ld. CIT(A). Since the assessee has not produced any cogent explanation before any of the authorities below or even before us, ld. CIT(A) has rightly confirmed the action of the Assessing Officer. Ground of assessee dismissed.

Summary

Issues Involved:
1. Classification of income from sale of immovable properties as business income versus capital gains.
2. Claim for capital loss on extinguishment of investment in equity shares.
3. Lump sum addition of ?55,444/- for various expenses.
4. Lump sum addition of ?72,372/- for vehicle and telephone expenses.

Issue-wise Detailed Analysis:

1. Classification of Income from Sale of Immovable Properties:
The primary issue was whether the income of ?40,02,248/- from the sale of immovable properties should be classified as business income or capital gains. The Assessing Officer (AO) and the CIT(A) treated the income as business income, citing that the assessee was involved in the business of sale and purchase of properties, as evident from the audit report and the nature of the business. The assessee's argument that the properties were held as investments was dismissed, as the intention at the time of purchase was deemed to be for trading purposes. The tribunal upheld the CIT(A)'s decision, confirming that the income should be treated as business income.

2. Claim for Capital Loss on Extinguishment of Investment in Equity Shares:
The assessee claimed a capital loss of ?1,52,302/- due to the extinguishment of investment in equity shares after the companies were struck off. The CIT(A) dismissed the claim, stating no transfer of assets was involved. However, the tribunal allowed the assessee's claim, acknowledging that the investment was lost due to the companies being struck off, and thus, there was no gain to the assessee. The addition confirmed by the CIT(A) was directed to be deleted.

3. Lump Sum Addition of ?55,444/- for Various Expenses:
The AO made a lump sum addition of ?55,444/- (20% of various expenses) due to the lack of evidence such as bills and vouchers. The CIT(A) confirmed this addition, and the tribunal found no infirmity in this decision, stating that no satisfactory explanation or cogent evidence was provided by the assessee. Thus, the addition was upheld.

4. Lump Sum Addition of ?72,372/- for Vehicle and Telephone Expenses:
Similarly, the AO added ?72,372/- (20% of vehicle and telephone expenses) due to the absence of supporting bills and vouchers. The CIT(A) upheld this addition, and the tribunal concurred, noting that the assessee failed to produce any cogent explanation or evidence before any of the authorities. Therefore, this addition was also upheld.

Conclusion:
The tribunal partly allowed the appeal of the assessee. The claim for capital loss on extinguishment of investment in equity shares was allowed, while the classification of income from the sale of immovable properties as business income and the lump sum additions for various expenses were upheld. The order was pronounced on 16.10.2017.