TaxTMI 
TaxTMI 
TaxTMI 
2014 (12) TMI 296
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....1.2010 declaring total income of Rs. 35,59,600/-. The assessee is a deed writer. He was also doing business of typing and xerox. He has declared business income from the proprietary concern M/s Bhagirath Enterprises at Rs. 13,83,194/-. He has also declared house property income at Rs. 2,03,986/- and capital gains at Rs. 19,06,984/-. He also declared income from other sources at Rs. 1,55,438/-. The case of the assessee was selected for scrutiny assessment and a notice u/s 143(2) dated 30.08.2010 was issued and served upon him. The Assessing Officer has passed the assessment order on 15.12.2011. During the course of the assessment proceedings, on scrutiny of the accounts it revealed that the assessee has sold five properties. The Assessing Officer has noticed the details of thes properties in a tabular form on page 3 of the assessment order. The details exhibiting the date of acquisition, date of sale and share of assessee, purchase price, sale price and gains. Four properties were purchased in the year 2007 and the 5th was purchased on 3.10.2008. Four properties were sold in the year 2008 and one property which was purchased on 31st July, 2007 was sold on 2nd February, 2009. The ass....
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....urchase of the property. The Assessing Officer has applied his mind on the transactions carried out by the assessee and thereafter reached a conclusion that income from the sale of property is to be assessed as a business income and not as a capital gain. He made reference to the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd vs. CIT, 243 ITR 83 and CIT vs. Max India Ltd, 295 ITR 282. The learned CIT had made a lucid analysis of the facts and law brought before him by the assessee in his submissions. It is worth to take note of his findings: "ii. Income from sale of properties to be assessed under the head "income from capital gains":- a. Before examining this issue, it is worthwhile to refer the provisions of the I.T. Act relating to Heads of Income and relevant sections for taxing income under the head "Income from Business" and "Income under the head Capital Gains". Section 14 of the I.T. Act provides that for the purposes of charge of income-tax and computation of total income, all income shall be classified under the heads of income specified in section 14 of the Act i.e. (a) salaries, (b) Income from House Property (c) Profits and Gains o....
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....s given by the assessee in his books of accounts. The fact that the assessee was not carrying on real estate business is also evident from the fact that, all the properties held by the assessee are depicted as capital assets under the head "Fixed Assets" whereas, the Assessing Officer came to a wrong conclusion that the income derived from sale of such properties have to be assessed under the head "Income from Business" by holding that these properties were held by the assessee as stock in trade in real estate business and that these properties were not inherited by the assessee. c. Thus, the conclusion reached by the Assessing Officer that the properties held by the assessee are in the nature of stock in trade is prima facie incorrect. On perusal of the financial statements enclosed with the return of income, assessee is having two proprietorship concerns but, in the financial statements of these concerns, assessee has never shown any properties dealt by him as stock in trade whereas, all the immovable properties held by the assessee have been depicted as "Fixed Assets" in the Balance Sheet and only income earned from sale of such fixed assets is credited to Profit and Loss Appro....
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....er the head "Profits and gains of business" the A.O erred in classifying income from sale of properties under this head. When the A.O has come to certain conclusion based on wrong assumption of facts due to which income is wrongly assessed under certain head of income, such order passed is clearly erroneous and liable for revision u/s 263 of the I.T. Act, as judicially held by various courts". 4. Before us the learned Counsel for the assessee reiterated his contentions, as were raised before the learned CIT. He placed a compilation containing copies of decisions which include the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd and Max India Ltd (Supra). The decision in the case of CIT vs. Sri Hariram Hotels (P) Ltd reported in 229 CTR 455 is of Hon'ble jurisdictional High Court. The learned Counsel also placed on record copies of the written submissions which has already been reproduced by the learned CIT. On the other hand, the learned DR relied upon the order of the CIT. 5. We have duly considered the rival contentions and gone through the record carefully. Before embarking upon an inquiry about the facts available on record and how to co....
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....ecause in his order he does not make an elaborate discussion in that regard. 6. Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 wherein the Hon'ble High Court has propounded a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note: "12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as r....
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.... of Saranath Infrastructures (P) Ltd vs. ACIT reported in 120 TTJ 216 has made analysis of a large number of decisions in order to decide whether the activities undertaken by the assessee in the shares was adventure in nature or investment, though this decision pertains to the investment made in shares and the question, whether it was investment or a business activity always pose a difficult situation before the adjudicator. The Tribunal has propounded the following broader tests amongst others in order to appreciate the facts and circumstances of a particular case. The tests read as under: "13. After considering above rulings we cull out following principles, which can be applied on the facts of a case to find out whether transaction( s) in question are in the nature of trade or are merely for investment purposes: (1) What is the intention of the assessee at the time of purchase of the shares (or any other item). This can be found out from the treatment it gives to such purchase in its books of account. Whether it is treated as stockin- trade or investment. Whether shown in opening/ closing stock or shown separately as investment or non-trading asset. (2) Whether assessee has b....
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....es (or the items in question) for investment. (9) One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee is complying with them. Whether it is the argument of the assessee that it is violating those legal requirements, if it is claimed that it is dealing as a trader in that item ? Whether it had such an intention (to carry on illegal business in that item) since beginning or when purchases were made ?. (10) It is permissible as per CBDT's Circular No. 4 of 2007 of 15th June, 2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintaining separate account for each type, there are distinctive features for both and there is no intermingling of holdings in the two portfolios. (11) Not one or two factors out of above alone will be sufficient to come to a definite conclusion but the cumulative effect of several factors has to be seen". 9. Though these are the tests pointed out for deciding the nature of share transaction, but these are the pointer towards the way how an inquiry should be made for ascertaining the nature of any transaction for the purpose of assessi....