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TMI Blog2020 (5) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... s really converted the business asset into capital asset. Character of the impugned land is to be considered as business asset only and consequently, the profit arising on its sale is required to be assessed as business income only. Accordingly, we set aside the order passed by CIT(A) on this point. Indexation benefit - CIT(A) has given reduction of ₹ 45.00 lakhs from the sale consideration, since the buyer of the land Smt Latha, has confirmed that she has not honoured the cheques given for ₹ 45.00 lakhs - HELD THAT:- CIT(A) was justified in giving reduction of ₹ 45.00 lakhs. Since there is no dispute that the assessee has taken cash of ₹ 11.00 lakhs, CIT(A) has added the same. Accordingly, we are of the view that the CIT(A) was justified in adopting the sale consideration as ₹ 3.21 crores. The parties are not also disputing the decision of CIT(A) in allowing deduction of cost of purchase of land. We notice that the first appellate authority has allowed indexed cost of acquisition, since he has held that the profit is assessable under the head Capital Gains. The indexation benefit will not be available to the assessee, since we have held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind Project. At the time of hearing, the Ld A.R did not press the issue no.2 cited above. The other grounds urged by the assessee are either general or consequential. Hence only two issues survive in the appeal of the assessee. 3. The revenue is in appeal challenging the decision rendered by Ld CIT(A) on the following issues:- (a) Whether the Ld CIT(A) was justified in directing the AO to assess the profit arising on sale of Kadri Kamble property as Income from Capital gains as against the decision of the AO to assess the same as Income from Business. (b) Whether the Ld CIT(A) was justified in directing the AO to allow deduction u/s 54F of the Act. (c) Whether the Ld CIT(A) was justified in reducing the addition relating to unaccounted investment in the flats purchased in West Wind Project. All the issues urged by the revenue is interconnected with the issues urged by the assessee. 4. The facts relating to the above said additions are discussed in brief. The assessee is engaged in the business of property development. He is the proprietor of M/s Classic Promoters and Developers. The revenue carried out search and seizure operation u/s 132 of the Act on 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold a land situated at Kadri Kambla Road, Mangalore to some Bangalore Party. Please tell me what is the cost of the acquisition of the land? When was it acquired? When did you sell the land? Who is the buyer? And what is the total sale consideration received? Ans:- The land was purchased during the financial year 2005- 06. It consists of 42 cents. I do not remember the consideration paid to the vendors. However, the purchase of this property is reflected in my balance sheet. This property is now sold to one Mrs. A Latha, w/o K Ashoka residing at SB 242, Vijaya Enclave, Bilhakahalli, SRS Nagar, Bannerghatta Road, Bangalore-76 during December, 2008. The total agreed consideration was ₹ 3,55,00,000/-. I purchased the land from the land owners in the year 2006-07 with a understanding that I will settle the tenants demands. I entered into agreement with the tenants and offered them 8 flats out of the 24 flats that was proposed to be constructed in this land. I got the tenants vacated and they are living in rented premises. I am paying the rent for their residences now. In the meanwhile, I entered into agreement with the Bangalore Party for sale of the land. As per the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee is engaged in the business of property development. (b) The above said land was purchased for the purpose of construction of flats, which is a business activity of the assessee. He also entered into an agreement with the sellers of land to allot/sell flats in the proposed residential condominium. (c) This activity is in the nature of adventure in the nature of trade. (d) The assessee has shown this property also along with other business assets under the head investments in the Balance Sheet. Other lands shown under this head is treated as business assets by the assessee. (e) The assessee has not filed any Wealth tax returns declaring the above said land as capital asset taxable under the Wealth tax Act. Even if the assessee files wealth tax return subsequently, its character as business asset will not change. (f) The assessee has sold another land located at Kodical during the AY 2007-08 and disclosed the profit arising therefrom as his business income. 11. The assessee submitted before the AO that he purchased the impugned land for business purposes only. Since there was change in licensing policy prescribed by the City Corporation, it came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- as worked out below:- Sale consideration shown in the agreement - 3,55,00,000 Less:- Amount not given to the assessee - 45,00,000 3,10,00,000 Add:- Amount given in cash 11,00,000 3,21,00,000 14. The Ld CIT(A) also took the view that the Kadri Kamble land should be considered as Capital asset in the hands of the assessee and hence the profit arising therefrom should be assessed as Capital gains. Based on the submissions made by the assessee before Ld CIT(A), the first appellate authority has given following reasoning in this regard:- (a) In the Balance Sheet, the assessee has shown both personal properties and business assets under the head Investments . (b) The amount given to tenants towards compensation for rent for the alternative accommodation has not been claimed as expenditure, but the same has been capitalized. (c) In the statement taken u/s 132(4) of the Act, the assessee has stated that the capital gains shall be worked out and tax shall be paid. It sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the financial year 2005-06. There should not be any dispute that the entries made in the books of accounts are not deciding factor. In fact, the Ld CIT(A) has given a finding that the assessee has shown all assets, i.e., personal assets, business assets and capital assets under the same heading in the Balance Sheet. 19. It is the submission of the assessee that there was change in licensing policy of the Municipal Corporation and hence there was reduction in the built-up area, which made the project unviable. Further there were problems with tenants also. Accordingly, it was stated that the assessee has converted the business asset into Capital asset and accordingly sold the same as Capital asset only. We notice that the assessee has not brought any material to substantiate the above said contentions. This property was purchased on 10-10-2005 and sold on 03- 12-2008. Thus the assessee has held the property for about 3 years and 2 months. The assessee has not explained as to when he has decided to convert the business asset into Capital asset. Without explaining the datewise sequence of events which persuaded the assessee to abandon the project, it would be difficult to apprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oblem, legal problems etc., yet the same, in our view, would not justify the reduction of sale consideration from ₹ 3.55 crores to ₹ 1.07 crores. As observed by the assessing officer, such kind of huge reduction in the agreed consideration is against human probabilities. During the course of hearing, the Ld A.R invited our attention to the letter written by the buyer of land Smt Latha to the assessing officer. A perusal of the said letter would also show that no credible explanation was given as to why the sale consideration was reduced from ₹ 3.55 crores to ₹ 1.07 crores. The letter only narrates the sequence of payments made. Hence, we are of the view that the sale consideration cannot be taken as ₹ 1.07 crores as contended by the assessee. 21. We notice that the Ld CIT(A) has given reduction of ₹ 45.00 lakhs from the sale consideration, since the buyer of the land Smt Latha, has confirmed that she has not honoured the cheques given for ₹ 45.00 lakhs. She has also given the reason as to why the said payments were not made, viz., difference in the size of plot, earmarking of four cents for road purposes, tenants problem etc. Hence we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant for the period from 1.4.2008 to 12.2.2009. This has been worked out after incorporating the data found in the seized material and after making a declaration of ₹ 4 crores in their group concerns. The declaration of ₹ 4 crores is stated to have been honoured by the appellant. Considering the same and considering the fact that the appellant has worked out their assets and liabilities in the case of M/s Classic Promoters and Developers for the period from 01.04.2008 to 12.02.2009 which showed an investment of ₹ 61,83,225/-, the unexplained investment is to be computed with reference to this figure, as per the seized document quoted by the A.O. in page 33 which has been taken by him for computation at ₹ 68,86,000/-. Since the appellant has shown in their books a sum of ₹ 61,83,225/-, the difference works out to ₹ 7,02,775/-. Out of this sum, in the same seized material, it is shown that ₹ 3,29,415/- is paid and ₹ 3,86,860/- (total comes to ₹ 7,16,275/- being the difference between ₹ 68,66,500/- and ₹ 61,50,225/-) is outstanding. Neither the paid amount of ₹ 3,86,860/- is reflected in the accounts nor the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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