2014 (1) TMI 1693 - AT - Income Tax

Tribunal rules land sale income as capital gains, denies deduction claim under section 54F. Trading additions deemed bogus.

Smt. Usha Modi Versus The ACIT

Smt. Usha Modi Versus The ACIT - TMI Issues:1. Determination of nature of income from sale of land - business income or capital gains.2. Claim of deduction u/s 54F of the Act.3. Treatment of trading addition as bogus purchases.Analysis:Issue 1 - Determination of nature of income from sale of land:The appellant filed an appeal against the order of the ld. CIT(A) for the assessment year 2008-09, challenging the treatment of income from the sale of land as business income. The AO concluded that the land was held for selling as a business commodity and added the income to the total income. The appellant contended that the land was acquired for investment purposes and not as stock in trade. The tribunal examined various arguments presented by both parties, including the use of own funds for land acquisition, treatment of transactions as investments, and past wealth tax assessments. After thorough consideration, the tribunal held that the land was treated as an asset by the appellant and not as stock in trade. The income from the sale of agricultural land was deemed exempt under the Act, and thus not classified as business income. Consequently, the impugned addition was deleted, and the income was treated as long-term capital gains, not business income.Issue 2 - Claim of deduction u/s 54F of the Act:As a result of the finding in Issue 1, the tribunal determined that the claim of deduction u/s 54F of the Act was of academic interest only. The land in question could not be treated as a capital asset under the Act, and the receipt from its sale was considered long-term capital gains. Therefore, the tribunal disposed of Ground No. 1 and 2 of the appellant accordingly.Issue 3 - Treatment of trading addition as bogus purchases:The AO made a trading addition of a certain amount by treating it as bogus purchases, which was partially sustained by the ld. CIT(A). The books of account were rejected under Section 145(3) of the Act, and a profit estimation was made. The tribunal upheld the ld. CIT(A)'s decision based on the past history of the assessee, stating that past history is a reliable guide after the rejection of books of account. Consequently, the tribunal confirmed the addition as reduced by the ld. CIT(A).In conclusion, the appeal of the assessee was partly allowed, and the tribunal pronounced the order on 30-01-2014.