2015 (7) TMI 280 - AT - Income Tax

Tribunal decision on appeal: Capital Gains, Business Income, Section 54F deduction, unexplained cash deposits

Mr. Kolli Gopi Krishna, Hyderabad and others Versus Deputy Director of Income Tax-I, (International Taxation) Hyderabad and others

The Tribunal dismissed the assessee's appeal and partly allowed the Revenue's appeal, emphasizing the need for a detailed assessment based on specific ... Treatment to gain on sale of property - 'Capital Gains' or under the head 'Business' as an adventure in the nature of trade - CIT(A) held it is not in the nature of adventure in nature of trade, but only of exploiting the existing asset which should be considered under the head 'Capital Gains' only.Held that:- We notice that the building permission filed before the CIT(A) is not the building permission required to establish that assessee intended to construct a residential building. As seen from the building permission, the permission was in the name of Shri D. Ram Mohan Rao, who incidentally was the owner of the plot which was purchased by assessee in the year 2005. As can be seen from the permission also the building permission was granted on 19-11-2005 i.e., much before the purchase of adjacent property by assessee's brother and brother-in-law in 2006. Subsequently, only by August, 2008, entire property became property of assessee. Therefore, the building permission granted to the erstwhile owner of the plot No. 60 cannot be considered to be the intention of assessee, in constructing a residential building on the entire property in 2008. There must be some other plans sanctioned by the Municipal authorities for the construction on the above property on Plot No. 60 & 61A. Therefore, Ld.CIT(A) wrongly classified the building as that of a residential building as against the observation of the AO, that assessee has constructed a commercial building. Since the later approvals were not placed on record and copies of the 25 sale deeds are also not before us, we are not in a position to give any finding that assessee has intended to construct either a residential property or a commercial property. Since the basic information was not available on record, it is very difficult for this forum to approve either the action of AO who relied on Canadian Case Law as against various principle laid down by the Hon'ble Supreme Court in the case of G. Venkataswamy & Co Vs. CIT (1958 (11) TMI 5 - SUPREME Court). Moreover, there seems to be no examination of plans, investments, correspondence by the AO in coming to a conclusion that it is in the ‘nature of business’. Therefore, the matter can be remitted back to AO to examine the necessary permissions and actions of assessee and examine whether the transaction would come as an adventure in the nature of trade or to be assessed under 'Capital Gains - Decided in favour of revenue for statistical purposes. Disallowance of cost of construction - Held that:- We agree with the Ld.CIT(A) that the expenditure which was otherwise held genuine, cannot be disallowed under the provisions of Section 40A(3). As seen from the orders, an amount of ₹ 45.50 Lakhs was disallowed on the reason that assessee has not furnished the details of payments whereas it is on record that assessee has furnished necessary bills and vouchers. Moreover, with reference to ₹ 2,86,71,752/- disallowed u/s. 40A(3), AO gives finding that entire payment was in cash. As seen from the Ledger A/c filed only part of the expenditure was in cash i.e., particularly for labour and purchase of sand etc. AO treated the payment made to purchase of lift also as that of cash, whereas the bill itself indicate that assessee has paid by various cheques. Since only provisions of 40A(3) are invoked, there is no question of treating the expenditure as 'non-genuine' as no amount was disallowed u/s. 37(1). Provisions of Section 40A(3) can only be invoked on the expenditure which was paid in cash, otherwise not disallowable u/s. 37(1). Since AO has not disallowed anything u/s. 37(1) we are of the opinion that CIT(A) is correct in treating the amount as 'genuine expenditure' - Decided in favour of assessee Unexplained cash deposit - Held that:- The facts indicate that assessee has withdrawn an amount of ₹ 8.5 Lakhs, 3 Lakhs and 1 Lakh from 05-04-2010 to 24-04-2010 and amounts were deposited in two installments i.e., ₹ 8.5 Lakhs on 10-06-2010 and ₹ 4 Lakhs on 11- 06-2010. As seen from the bank account, there are no other transactions of withdrawal of cash, therefore, assessee's explanation that the deposit of cash was from out of the withdrawals of the cash earlier can be accepted as a genuine explanation. In the absence of any contrary evidence that assessee has utilized these amounts which were earlier withdrawn. Assessee's contentions are to be accepted. - Decided in favour of assessee Issues Involved:1. Assessment of gain under 'Capital Gains' or 'Business' category.2. Disallowance of construction expenses and cash payments.3. Eligibility for deduction u/s. 54F.4. Addition of unexplained cash deposits.5. Admissibility of additional evidence under Rule 46A(3).Issue 1: Assessment of Gain CategoryThe case involved cross-appeals by the Revenue and assessee regarding the categorization of gain returned by the assessee as either 'Capital Gains' or 'Business Income.' The Assessing Officer (AO) determined the income as 'Income from Business/Profession' due to the construction of a commercial complex. The Commissioner of Income Tax (Appeals) held that the transaction was not an adventure in the nature of trade but should be treated as 'Capital Gains.' The CIT(A) directed the AO to allow the claimed expenditure under 'Capital Gains' and rejected the disallowances made by the AO.Issue 2: Disallowance of Expenses and Cash PaymentsThe AO disallowed construction expenses, citing cash payments violating Section 40A(3). The AO also disallowed a portion of claimed expenditure as non-genuine if assessed under 'Capital Gains.' The CIT(A) found the expenditure genuine and directed its allowance under 'Capital Gains.' The CIT(A) accepted the explanation for a cash deposit, rejecting the AO's disallowance.Issue 3: Eligibility for Deduction u/s. 54FThe assessee claimed deduction u/s. 54F for purchasing a residential property but later constructed a commercial building. Both the AO and CIT(A) concluded that the provisions of Section 54F did not apply due to the nature of the property turning commercial. The Tribunal upheld this decision, denying the deduction under Section 54F.Issue 4: Addition of Unexplained Cash DepositsRegarding the addition of unexplained cash deposits, the Tribunal accepted the assessee's explanation that the deposits were from earlier withdrawals, finding it genuine and rejecting the Revenue's appeal on this issue.Issue 5: Admissibility of Additional EvidenceThe Revenue contested the admission of additional evidence by the CIT(A) without referring it to the AO under Rule 46A(3). The Tribunal found a violation of the rule and remitted the matter back to the AO for a thorough examination of permissions and actions to determine if the transaction should be treated as an adventure in the nature of trade or under 'Capital Gains.'In conclusion, the Tribunal dismissed the assessee's appeal and partly allowed the Revenue's appeal for statistical purposes, emphasizing the need for a detailed assessment based on the specific facts and legal provisions involved in the case.