THE issue before the Bench is - Whether income from sale of property acquired in the past can be claimed as capital gain, when the assessee engaged in the business of development of housing project has continuously failed to record such acquisition in his books of account which is audited every year. NO is the verdict.
Facts of the case
The assessee is an individual. He filed his return for A.Y. 2007-2008 declaring total income at Rs.19,86,268/-. The case was selected for scrutiny by issuing notice u/s 143(2). In computation of total income, the assessee stated to have earned income from business, other sources, agricultural, and Capital Gain. The assessee declared Rs.12,12,220/- as net agricultural income. To substantiate the agricultural income, the assessee submitted the copy of the bills of M/s.Parshwa Trading Co. and M/s.Harsh Corporation. The assessee stated to have sold Drum Stick of Rs.97,500/-. The assessee also declared Long Term Capital Gain on sale of Revenue Survey and declared Rs.68,50,473/- as Long Term Capital Gain. The assessee declared Long Term Capital Gain at Rs.NIL after claiming deduction u/s 54EC. The A.O. did not accept the claim of the assessee with respect to agricultural income as well as Long Term Capital Gain with respect to income from land transactions. Thus, while finalizing the assessment, the A.O. held income from land transaction as business income and not Capital Gain, as claimed by the assessee and therefore made addition of Rs.1,42,97,628/- to the total income of the assessee, disallowing the Long Term Capital Gain being business income.
On appeal, the CIT(A) partly allowed the appeal and deleted the addition made by the AO with respect to the sale of Revenue Survey No.91 treating it as Capital Gain but confirmed the addition of Rs.32,55,053/- made by the A.O. on sale of property bearing Revenue Survey No.287 by treating the income derived from the sale of Revenue Survey No.287 as income from business. The Tribunal quashed and set aside the orders passed by the CIT(A) and restored the respective assessment orders and treated the income from sale of Revenue Survey Nos.91 and 287 as business income and confirmed the addition made by the AO.
Having heard the parties, the HC held that,
++ it is noted that the assessee has treated the income received on sale of Revenue Survey No.91 as capital gain. It was the case on behalf of the assessee that he along with others acquired the said land by way of Will executed by the original owner. The said land was acquired through Will more than 20 years back and therefore, on its sale, the income derived therefrom is to be treated as capital gain. On appreciation of evidence and the material on record, the tribunal has not accepted the case on behalf of the assessee. The Tribunal also noted that the assessee has claimed deduction u/s 80IB for the development of Housing Project, meaning thereby he was engaged in the business of development of Housing Project in the year under consideration. The tribunal while confirming the findings recorded by the AO that profit from sale of land bearing Survey No.91 as business income, observed that the land was received by him more than 20 years back, but it is also a fact that the aforeasid land was not disclosed in the balance-sheet of the assessee after its acquisition. When the assessee is maintaining the Books of Accounts and had got the same audited, no valid justification has been offered for not showing the land acquired through inheritance from the F.Y 1997-98 onwards in the balance-sheet;
++ this court is in complete agreement with the view taken by the Tribunal holding the income from sale of land bearing Survey No.91 as business income and not as capital gain as claimed by the assessee. Further, cogent reasons have been assigned by the Tribunal in holding the income derived from sale of land bearing Survey No.91 as business income. With respect to land bearing Revenue Survey Nos.287 and 485 is concerned, at the outset it is required to be noted that the aforesaid parcels of land were held as "Stock-in-trade" by M/s.Satyanarayan Traders and even the same were also shown in the Balance-sheet of M/s.Satyanarayan Traders. It is a fact that the said parcels of land were not recorded in the individual balance-sheet of the assessee. It was assessee's case that due to mistake in maintaining accounts, the same were not mentioned in his balance-sheet. However, as rightly observed by the CIT(A) as well as the Tribunal, the assessee did not demonstrate as to how the said mistake continued for so many years, more so when accounts of the firm and the assessee were audited year after year. Therefore, this court is in complete agreement with the view taken by the tribunal as well as CIT(A).