Property sale profit classified as capital gain, not business income. Tribunal directs income computation under 'capital gains'.

The Tribunal held that the profit from the sale of the property should be treated as a capital gain, not business income. The property was considered a capital asset as it was not held for business purposes by the assessee. The Tribunal directed the Assessing Officer to compute the income under the head 'capital gains' and remanded the deduction claim for further examination. The appeal of the assessee was partly allowed.

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Issues Involved:
1. Whether the profit earned on the sale of the impugned property should be treated as capital gain or business income.
2. Whether the deduction of Rs. 74,23,333/- claimed as expenses incurred for the improvement of the property sold should be allowed.

Issue-wise Detailed Analysis:

1. Treatment of Profit on Sale of Property:
The primary issue was whether the profit from the sale of the property should be treated as a capital gain or business income. The assessee argued that the property, initially acquired by a partnership firm in 1972 and later devolved to the assessee after his father's death in 1987, should be treated as a capital asset. The CIT(A) disagreed, considering the property as a business asset in the hands of the erstwhile partnership firm and thus assessable as business income.

The Tribunal noted that the property devolved to the assessee from the dissolved partnership firm and was not held for business purposes by the assessee. The Tribunal emphasized that there was no material to suggest that the property was stock-in-trade in the hands of the partnership firm. It was also highlighted that the assessee had not undertaken any business activity related to the land. The Tribunal referenced the Gujarat High Court judgment in H. Mohammed & Co. vs. CIT, which supports the notion that a business asset held by a concern cannot be automatically considered stock-in-trade.

The Tribunal found that the CIT(A)'s presumption was untenable and noted that the assessee had declared the gain on the sale of other plots as capital gain in the assessment year 2008-09, which was accepted by the Assessing Officer. Therefore, the Tribunal concluded that the plot of land should be treated as a capital asset, and the profit on its sale should be assessable under the head 'capital gain.'

2. Deduction of Rs. 74,23,333/- as Cost of Improvement:
The second issue was regarding the deduction of Rs. 74,23,333/- claimed as expenses for the improvement of the property. The assessee provided bills and a confirmation from the contractor, Mr. Nelson A. D’cruz, for the expenditure incurred on leveling the land and constructing a boundary wall. The CIT(A) denied the deduction, citing discrepancies in the contractor's reported income and the absence of tax deducted at source.

The Tribunal noted that the assessee had paid Rs. 30,00,000/- during the year under consideration and provided adequate explanations for the discrepancies noted by the Assessing Officer. However, the Tribunal found that the claim needed further verification, especially since the complete payment for the expenditure was not made during the year.

The Tribunal set aside the order of the CIT(A) and remanded the matter to the Assessing Officer for fresh examination of the deduction claim. The onus was placed on the assessee to justify the expenditure, and the Assessing Officer was directed to allow a reasonable opportunity for the assessee to present evidence before making a decision.

Conclusion:
The Tribunal directed the Assessing Officer to compute the income under the head 'capital gains' and remanded the matter of the deduction claim for fresh examination. The appeal of the assessee was partly allowed.

Order Pronouncement:
Order pronounced in the open court on 28/02/2018.

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