2023 (2) TMI 800 - AT - Income Tax

ITAT Bangalore: Reclassification of Income in Capital Gains Ruling

Vankadari Chinna Reddappa Chetty Versus ACIT Circle-3 (2) (1) Bengaluru

The Appellate Tribunal ITAT Bangalore ruled in favor of the assessee, directing the Assessing Officer to reclassify the income from the sale of ... Correct head of income - profit earned from the sale of flat in Ramya Residency through JDA - income from short term capital gain/long term capital gain or income from business - assessment has been settled by the assessee under VSVS Scheme, 2020 - HELD THAT:- As full and final settlement of tax arrears u/s 5(2) r.w.s. 6 of Direct Tax Vivad Se Vishwas Act, 2020 in Form 5 has been passed by the Principal Commissioner of Income Tax (Central), Bengaluru confirming the payment under VSVS scheme, 2020. Thus, it means that assessment of income from “Ramya Residency” project has been accepted by the department as income from short term capital gain. Being so, lower authorities are not justified to treat the profit from same Ramya Residency as income from business instead of claim of assessee as income from short term capital gain/long term capital gain as the case may be in the assessment order passed u/s 143(3) - Accordingly, we direct the AO to treat the income from profit earned from the sale of flat in Ramya Residency through JDA as income from short term capital gain/long term capital gain only instead of income from business. Issues involved:Characterization of income as business income for assessment year 2013-14 and the validity of the order passed by lower authorities.Detailed Analysis:Issue 1: Characterization of income as business income- The assessee, an individual engaged in agricultural operations, declared income from long-term capital gains (LTCG) from the sale of residential flats and agricultural plots.- The Assessing Officer treated the LTCG as 'Income from Business' without clarifying whether the assets were held as capital assets or stock in trade.- The assessee appealed before the Commissioner of Income-tax (Appeals) challenging the characterization of income.- The CIT(A) dismissed the appeal, upholding the treatment of LTCG as business income, leading to further appeal before the Tribunal.- The Tribunal, after hearing submissions, directed the AO to treat the income from the sale of flats as short-term or long-term capital gains, not as business income.- The Tribunal highlighted that the department had previously accepted the income from the same project as short-term capital gain under the Vivad Se Vishwas Scheme, emphasizing consistency in treatment.- The Tribunal's decision was based on the principle of estoppel and consistency, directing the AO to reclassify the income as capital gains.Issue 2: Validity of the lower authorities' order- The lower authorities' decision to treat the income as business income was challenged by the assessee on the grounds of inconsistency with previous assessments and the department's acceptance of the income as capital gains under a settlement scheme.- The Tribunal found that the lower authorities were not justified in characterizing the income as business income when the department had accepted it as short-term capital gain previously.- The Tribunal directed the AO to treat the income from the sale of flats as capital gains, emphasizing the finality of assessments under the settlement scheme.- The Tribunal's decision rendered other grounds of appeal infructuous, as the primary issue of income characterization was resolved in favor of the assessee.- Consequently, the Tribunal partly allowed the assessee's appeal, directing the AO to treat the income from the sale of flats as short-term or long-term capital gains, not business income.In conclusion, the Appellate Tribunal ITAT Bangalore ruled in favor of the assessee, directing the Assessing Officer to reclassify the income from the sale of residential flats as short-term or long-term capital gains, based on the department's previous acceptance of the same income as capital gains under a settlement scheme. The Tribunal emphasized the principles of consistency and estoppel in its decision, highlighting the importance of uniform treatment of income across assessments.