2018 (3) TMI 141 - AT - Income Tax

Profit earned on the sale of impugned property - capital gain or busniss property - Held that - In assessment year 2008-09 the land devolved on the assessee from his father has already been accepted as a capital asset . The entire conspectus of facts on record also bring out that there is nothing to suggest that assessee has undertaken any business activity vis- -vis the impugned plot of land, so as to construe the profit on its sale as business income . Therefore, in our considered view, having regard to the facts and circumstances of the case there is no justification to treat the plot of land in question as stock-in-trade and that the assessee was justified in treating the gain on sale of the plot to be assessable under the head capital gain . Thus, on this aspect assessee succeeds. Denying the deduction being expenses claimed to have been incurred as cost of improvement of the property sold - Held that - In this case, cost of improvement is claimed by the assessee on account of expenditure incurred on leveling of land and construction of boundary wall. Undoubtedly, for a claim to be admissible, the same is required to be verified and for that matter the onus is on the assessee to produce necessary evidence to justify the incurrence of the impugned expenditure, especially considering the fact that in the instant year complete payment for the expenditure has not been made. The Remand Report of the Assessing Officer, which has been reproduced by the CIT(A) also brings out that the attempt to issue summons to the party did not fructify as Mr. Nelson A. D cruz was not available at the given address. Considering the entirety of facts and circumstances of the case, in our view, it would be in the fitness of thing that this aspect is required to be examined by the Assessing Officer afresh and for that matter the onus shall be on the assessee to justify the incurrence of the impugned expenditure on levelling and construction of boundary wall on the land in question.

Summary

Issues Involved:
1. Whether the profit earned on the sale of the impugned property should be treated as capital gain or business income.
2. Whether the deduction of ?74,23,333/- claimed as expenses incurred for the improvement of the property sold should be allowed.

Issue-wise Detailed Analysis:

1. Treatment of Profit on Sale of Property:
The primary issue was whether the profit from the sale of the property should be treated as a capital gain or business income. The assessee argued that the property, initially acquired by a partnership firm in 1972 and later devolved to the assessee after his father's death in 1987, should be treated as a capital asset. The CIT(A) disagreed, considering the property as a business asset in the hands of the erstwhile partnership firm and thus assessable as business income.

The Tribunal noted that the property devolved to the assessee from the dissolved partnership firm and was not held for business purposes by the assessee. The Tribunal emphasized that there was no material to suggest that the property was stock-in-trade in the hands of the partnership firm. It was also highlighted that the assessee had not undertaken any business activity related to the land. The Tribunal referenced the Gujarat High Court judgment in H. Mohammed & Co. vs. CIT, which supports the notion that a business asset held by a concern cannot be automatically considered stock-in-trade.

The Tribunal found that the CIT(A)'s presumption was untenable and noted that the assessee had declared the gain on the sale of other plots as capital gain in the assessment year 2008-09, which was accepted by the Assessing Officer. Therefore, the Tribunal concluded that the plot of land should be treated as a capital asset, and the profit on its sale should be assessable under the head 'capital gain.'

2. Deduction of ?74,23,333/- as Cost of Improvement:
The second issue was regarding the deduction of ?74,23,333/- claimed as expenses for the improvement of the property. The assessee provided bills and a confirmation from the contractor, Mr. Nelson A. D’cruz, for the expenditure incurred on leveling the land and constructing a boundary wall. The CIT(A) denied the deduction, citing discrepancies in the contractor's reported income and the absence of tax deducted at source.

The Tribunal noted that the assessee had paid ?30,00,000/- during the year under consideration and provided adequate explanations for the discrepancies noted by the Assessing Officer. However, the Tribunal found that the claim needed further verification, especially since the complete payment for the expenditure was not made during the year.

The Tribunal set aside the order of the CIT(A) and remanded the matter to the Assessing Officer for fresh examination of the deduction claim. The onus was placed on the assessee to justify the expenditure, and the Assessing Officer was directed to allow a reasonable opportunity for the assessee to present evidence before making a decision.

Conclusion:
The Tribunal directed the Assessing Officer to compute the income under the head 'capital gains' and remanded the matter of the deduction claim for fresh examination. The appeal of the assessee was partly allowed.

Order Pronouncement:
Order pronounced in the open court on 28/02/2018.