2020 (7) TMI 332 - AT - Income Tax

Sale of Land Deemed Business Income; Tax Liability to Be Recalculated; Penalty Canceled Due to Extraordinary Circumstances.

Shri Ajay Kumar Versus ITO, Ward-2 (5), Hazaribagh

The Tribunal partially allowed the appeal by classifying the sale of land as business income, directing the Assessing Officer to compute tax liability ... Income from sale of land - Income from business OR capital gain - object of the assessee to purchase the land to convert into small plots and then sale these small plots on profit - AO and CIT-A held that since the assessee’s main business is to do liasoning work in the real estate property and therefore assessee is not a business man in property - HELD THAT:- Presumption of the Assessing Officer that since the assessee does liasoning work in the real estate transaction therefore he cannot do the business, is not tenable. We note that the business is defined u/s 2(13) - Business as contemplated by section 28 of the Act, is an activity capable of earning of profit which can be taxed. One of the ingredients of “business” is that it must be carried on with profit motive. However, while doing the business, the loss may also be incurred but the person who starts the business has always a profit motive. We note that Hon’ble Supreme Court in the case of Mercantile Corporation Pvt. Ltd. [1972 (1) TMI 2 - SUPREME COURT] held that the company dealing in real estate can be said to carry on business which develops a market- place, and lease out shops, sales plots. We note that in the assessee’s case under consideration, the assessee is fulfilling the condition of section 28 of the Act, being a business, therefore, we direct the Assessing Officer to treat the transaction under the head income from business and compute the tax liability accordingly. The assessee is directed to submit necessary details to compute income from business from such transaction. Addition made on account of opening capital balance - assessee submitted before the Assessing Officer that the opening capital balance represents the capital which has been accumulated over years as per the returns of income filed with the Income tax Department - HELD THAT:- As assessee contends before us that in the income tax return there was no any requirement to file the figure of the proprietor’s capital account and in fact there was no column in the income tax return to show the proprietor’s capital account therefore, in the income tax return, the figure of ₹ 34,80,000/- is not getting reflected, this issue needs to be remitted back to the file of AO to examine afresh the balance sheets of the assessee vis-à-vis income tax returns filed by the assessee. We direct the Assessing Officer to examine the income tax returns and the copy of the balance sheet and profit and loss account of the assessee and adjudicate this issue in accordance with law. For statistical purposes this ground is treated to be allowed. Unexplained cash credit - HELD THAT:- We note that before us the assessee submitted the SBI saving bank account details wherein we noticed that the respective amount have been deposited by way of account payee cheque and it is not a cash deposit, as wrongly admitted by the assessee during the assessment stage. The purpose of taxation law is to tax the right income in the hands of the right person and in the right assessment year. Therefore, we remit this issue back to the file of the Assessing Officer to examine the bank statement and adjudicate the issue in accordance with law. The assessee is directed to file the copy of bank statement of A/c of SBI saving bank account. For statistical purposes, the third issue is treated to be allowed. Penalty u/s 271(1) (c) - HELD THAT:- Since we have adjudicated the appeal of the assessee on merits and deleted some additions and we also remitted some issues back to the file of Assessing Officer to adjudicate these issues afresh. Since the quantum has been deleted by us therefore the penalty should not survive. That is, since we have deleted the additions/ issues remitted back to the file of the AO for fresh adjudication therefore penalty u/s 271(1) (c) does not survive hence we cancel the penalty U/s 271(1) (c). Issues involved:1. Classification of sale of land as business income or capital gain.2. Addition on account of unexplained opening capital balance.3. Addition of unexplained cash deposits in the bank account.4. Imposition of penalty under section 271(1)(c) of the Income Tax Act.Analysis:Issue 1: Classification of sale of landThe appellant contended that the sale of land should be treated as business income due to the intention of developing and selling small plots for profit. The Assessing Officer applied section 50C of the Act and computed short term capital gain, which the appellant disputed. The Tribunal noted that the appellant's business activities fulfilled the conditions of section 28 of the Act, indicating a profit motive. Citing relevant case law, the Tribunal directed the Assessing Officer to treat the transaction as income from business and compute tax liability accordingly.Issue 2: Unexplained opening capital balanceThe Assessing Officer questioned the legitimacy of the opening capital balance of the appellant. The appellant argued that the balance represented accumulated capital over the years. However, discrepancies were found in the balance sheet and income tax returns. The Tribunal remitted the issue back to the Assessing Officer for a fresh examination of the balance sheets and returns to determine the authenticity of the opening capital balance.Issue 3: Unexplained cash depositsThe Assessing Officer noted significant cash deposits in the appellant's bank account, which the appellant claimed were proceeds from the sale of land received via account payee cheques. The Tribunal directed the Assessing Officer to re-examine the bank statement and resolve the issue in accordance with the law, emphasizing the importance of taxing the correct income to the right person in the right assessment year.Issue 4: Penalty under section 271(1)(c)Given the Tribunal's decision to delete certain additions and remit some issues back to the Assessing Officer, the penalty under section 271(1)(c) was deemed unnecessary and subsequently canceled.The Tribunal considered the extraordinary circumstances of the Covid-19 pandemic and excluded lockdown days from the calculation of the hearing period. The final decision partially allowed the appeal on the first issue and fully allowed the appeal regarding the penalty under section 271(1)(c) of the Income Tax Act.