2010 (3) TMI 1126 - AT - Income Tax

Assessee's appeal partly allowed by Tribunal: Land sale income classified as capital gains, not business income.

Asha Housing Enterprises Versus Dy. Commissioner of Income-Tax, Central Circle 1 (1), Bangalore

The Tribunal dismissed the ground related to the issuance of notice under Section 148 as not pressed by the assessee. Regarding the classification of ... - Issues Involved:1. Jurisdiction for issuance of notice under Section 148 of the Income Tax Act.2. Classification of income as business income versus capital gains.Issue-wise Detailed Analysis:1. Jurisdiction for Issuance of Notice under Section 148:Background: The assessee firm challenged the jurisdiction of the Assessing Officer (AO) for issuing a notice under Section 148 of the Income Tax Act, arguing that the conditions precedent for the issuance of such notice were absent, making the proceedings void-ab-initio.Arguments and Findings:- The AO issued notices under Section 148 based on documents and evidence gathered during a search on the Mantri Group, which indicated transactions with the assessee.- The assessee objected to the reopening of the assessments under Section 147, arguing that the AO did not pass a speaking order on these objections.- The AO responded by stating that detailed reasons for reopening the assessments were provided and that the objections were disposed of in the order sheet noting.- The CIT(A) found that the AO's order, although brief, contained reasons for rejecting the objections and held that the reasons recorded for reopening the assessment were sufficient to dispose of the objections.- The Tribunal noted that the AO's handling of the objections was not in conformity with the ruling of the Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO, which mandates that the AO must dispose of objections by passing a speaking order.- The Tribunal observed that the objections were not disposed of by a speaking order, but the assessee's representative did not press this ground further.Conclusion: The Tribunal dismissed the ground related to the issuance of notice under Section 148 as not pressed by the assessee.2. Classification of Income as Business Income vs. Capital Gains:Background: The assessee firm reported income from the sale of land as capital gains for the assessment year 2005-06, while the AO classified it as business income for the assessment year 2003-04.Arguments and Findings:- The AO argued that the sale of land was in line with the business activity of the assessee firm, which was created for real estate business, and thus, the income should be taxed as business income.- The CIT(A) supported the AO's view, stating that the partnership deed indicated the firm was constituted for dealing in real estate, and the sale of land was part of its business activity.- The CIT(A) also noted that the possession of the land was handed over to the purchasers through a General Power of Attorney (GPA) in 2002, and the construction of a residential project commenced in 2003, indicating that the transfer of ownership occurred in the assessment year 2003-04.- The assessee argued that the sale agreement stipulated that the sale would be completed upon the payment of the entire sale consideration, and the possession was to be delivered only on the date of sale.- The Tribunal noted that the AO did not have conclusive evidence to show that the possession of the property was handed over to the purchasers during the financial year 2002-03 and that the income should be taxed in the assessment year 2003-04.- The Tribunal observed that the assessee had consistently disclosed the land as an investment in its balance sheets and had previously reported income from the sale of a portion of the land as capital gains, which was accepted by the Revenue.Conclusion: The Tribunal concluded that the assessee held the land as an investment and that the income from the sale of the land should be assessed as capital gains in the assessment year 2005-06, not as business income in the assessment year 2003-04. The assessee's appeal was partly allowed.Final Order: The Tribunal ordered that the income offered as capital gains by the assessee should be assessed in the assessment year 2005-06, and the AO's classification of the income as business income for the assessment year 2003-04 was not justified. The appeal was partly allowed.