2019 (11) TMI 412 - AT - Income Tax

Income from sale of property - income from business and profession OR capital gains - HELD THAT - It is pertinent to observe that the alleged rate of profit for computation of income for assessment out of sale of property is depended upon the issue, whether the profit from sale of property is to be assessed as a business income or under the head capital gain from investments. In two years, this issue is subject matter of appeal before the Hon ble High Court. Therefore, there is no justification for dealing them specifically in this assessment year. The Assessing Officer has to first determine, whether profit from sale of property is to be assessed as income from business/profession or under the head income from capital gains. In case it is determined that income from such activity is to be assessed under the head business income/profession, then the rate of profit be determined afresh. Accordingly, both these grounds of appeal are allowed for statistical purpose. Unexplained cash found at the time of search - HELD THAT - Assessing Officer ought to have appraised himself status of cash flow in the books of these persons, and how they have owned up the cash in their accounts. He ought to have not disbelieved the version of the assessee without any analysis. We have already set aside two issues to the file of the Assessing Officer for re-adjudication. We deem it appropriate to remit this issue also for re-adjudication. The ld.AO should make an analysis of the treatment given by the alleged creditors about the cash balance found at the time of search in their books, and thereafter form an opinion, whether cash found during the course of search stands explained or not. It is needless to say that observation made by us will not impair or injure the case of the AO and will not cause any prejudice to the defence/explanation of the assessee.

Summary

Issues Involved:
1. Classification of income from the sale of property as business income or capital gains.
2. Estimation of profit from the sale of properties.
3. Addition of unexplained cash found during the search.

Issue-wise Detailed Analysis:

1. Classification of Income from Sale of Property:
The assessee argued that the income from the sale of property should be assessed as capital gains rather than business income. The Tribunal noted that identical issues had been previously decided against the assessee for the assessment years 2008-09 and 2010-11. The Tribunal's earlier decision was under appeal before the Hon'ble High Court. The Tribunal decided to remit the issue back to the Assessing Officer (AO) for adjudication in line with the ultimate outcome of the High Court's decision. The AO was instructed to first determine whether the profit from the sale of property should be assessed as business income or capital gains. Depending on this determination, the appropriate rate of profit would then be established.

2. Estimation of Profit from Sale of Properties:
The AO had initially estimated the profit on the sale of immovable properties at 30% of the sales value, which was contested by the assessee. The Tribunal found that the AO's estimation was arbitrary and lacked a rational basis. The Tribunal referred to the Hon'ble Punjab & Haryana High Court's judgment in the case of Telelinks Vs. CIT, which emphasized that the discretion to determine a net profit rate must be exercised based on relevant factors such as past tax history, the nature of the business, prevailing economic conditions, and comparable cases. The Tribunal concluded that a profit rate of 21% would be more appropriate for the year under consideration, rather than the 30% applied by the AO. This adjustment was directed to be applied by the AO.

3. Addition of Unexplained Cash Found During Search:
During a search, cash amounting to ?21,46,150/- was found, out of which ?13,45,647/- was added as unexplained cash in the hands of the assessee. The assessee explained that portions of the cash belonged to other individuals, including his brother, sister, brother-in-law, and father-in-law, and provided supporting evidence. However, the AO and CIT(A) did not accept this explanation. The Tribunal noted that the authorities had not analytically examined the evidence provided by the assessee. The Tribunal remitted this issue back to the AO for re-adjudication, instructing the AO to analyze the cash flow in the books of the individuals who allegedly owned portions of the cash and to form an opinion on whether the cash found during the search was explained.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remitting the issues back to the AO for re-adjudication based on the detailed instructions provided. The AO was directed to consider the ultimate outcome of the High Court's decision regarding the classification of income from the sale of property and to re-examine the evidence regarding the unexplained cash found during the search. The Tribunal emphasized the need for a rational and analytical approach in determining the profit rate and assessing the explanations provided by the assessee.