2020 (5) TMI 185 - AT - Income Tax

Property profit classified as business income, deductions denied under Section 54F, revised sale consideration upheld

Shri Ashok Kumar Chouta Versus The Deputy Commissioner of Income Tax, Central Circle, Mangalore. And (Vice-Versa)

Shri Ashok Kumar Chouta Versus The Deputy Commissioner of Income Tax, Central Circle, Mangalore. And (Vice-Versa) - TMI Issues Involved:1. Determination of Sale Consideration for Kadri Kamble Property.2. Assessment of Profit from Kadri Kamble Property as Capital Gains vs. Business Income.3. Eligibility for Deduction under Section 54F of the Income Tax Act.4. Addition of Unaccounted Investment in Flats Purchased in West Wind Project.Detailed Analysis:1. Determination of Sale Consideration for Kadri Kamble Property:The assessee sold the Kadri Kamble property to Smt. A Latha for a consideration of Rs. 1,07,00,000 as per the sale deed. However, during a search, a sale agreement was found indicating a sale consideration of Rs. 3,55,00,000. The assessee claimed that due to legal issues and tenant problems, the actual sale consideration was reduced to Rs. 1,07,00,000, and further claimed that Rs. 45,00,000 of this amount was not received. The Ld CIT(A) reduced the sale consideration to Rs. 3,21,00,000 considering the non-receipt of Rs. 45,00,000 and the addition of Rs. 11,00,000 received in cash. This was upheld by the tribunal, which found no credible explanation for the drastic reduction in sale consideration from Rs. 3.55 crores to Rs. 1.07 crores.2. Assessment of Profit from Kadri Kamble Property as Capital Gains vs. Business Income:The AO assessed the profit from the sale of Kadri Kamble property as business income, considering the assessee's business of property development and the intention to construct flats on the land. The Ld CIT(A) treated the land as a capital asset, citing reasons like the capitalization of tenant compensation and the assessee's statement under section 132(4). However, the tribunal held that the land was a business asset, given the assessee's initial intention and lack of evidence for conversion to a capital asset. Consequently, the profit was to be assessed as business income.3. Eligibility for Deduction under Section 54F of the Income Tax Act:The AO denied the deduction under section 54F, as the profit was assessed as business income and the new residential property was in the joint name of the assessee and his spouse. The Ld CIT(A) allowed the deduction, treating the profit as capital gains. The tribunal reversed this decision, affirming that since the profit was business income, the deduction under section 54F was not applicable.4. Addition of Unaccounted Investment in Flats Purchased in West Wind Project:The AO added Rs. 28,57,506 as unexplained investment, noting that the assessee accounted for only Rs. 40,28,494 out of Rs. 68,86,000 paid for the flats. The Ld CIT(A) reduced this addition to Rs. 7,16,275 based on the revised balance sheet showing an investment of Rs. 61,83,225 and certain discrepancies in the seized material. The tribunal upheld the Ld CIT(A)'s decision, finding it reasonable and based on available materials.Conclusion:The tribunal dismissed the assessee's appeal and partly allowed the revenue's appeal, affirming the treatment of the Kadri Kamble property profit as business income and denying the deduction under section 54F. The tribunal also upheld the revised sale consideration and the reduced addition for unaccounted investment in the West Wind flats.