Sneh Gupta , Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 226/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2008-09

The I.T.O. cuke Smt. Sneh Gupta Ward 4(2), Jaipur Vs. E-46, Road No. 1-B, VKI Area, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACIPG 4373 G vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Smt. Neena Jeph (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.)

lquokbZ dh rkjh[k@ Date of Hearing : 30/12/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 27/02/2015

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

1 This appeal by the Revenue arise from order dt. 12.12.2011 of

Ld. CIT(A)-II, Jaipur for A.Y. 2008-09. The grounds of appeal are as

under:-

"(i) On the facts and the circumstances of the case the Ld. CIT(A) has erred in holding the income earned on the transaction of sale of immovable property as business

2 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

income against the same being treated as short term capital gain by the AO.

(ii) On the facts and the circumstances of the case the Ld. CIT(A) has failed to appreciate:-

a. The assessee has never shown income from business of property in the earlier years. Even in the current year income from property business is not shown in the return of income filed on 30.09.2008 i.e. much after the date of survey. The assessee is the proprietor of two business entities i.e. M/s Carpenter Craft and M/s Continental Interiors for which audited books of accounts are maintained. if the assessee was doing property business there should also be books of accounts maintained in respect of this business and should also be audited as the turnover was Rs. 1,11,00,000/- (50,00,000 + 61,00,000), which is not in the case of assessee. Moreover no property has been shown as stock in hand in IT Returns.

b. The CIT(A) relied on the statement of Shri Sudhir Gupta in reply to question No. 27 of his statement recorded during survey but not appreciated the reply to question No. 36 of Shri Sudhir Gupta where he admitted to pay tax in respect of income of his wife from short term capital gain of Rs. 98,23,707/-.

c. The assessee Smt. Sneh Gupta also categorically admitted in the reply to Question No. 30 of her

3 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

statement recorded during survey about her income from short term capital gain and agreed to pay tax on income of Rs. 98,23,707/-."

2. In this case a survey u/s 133A was carried out on 12.09.2008.

The assessee enjoys income from manufacturing and trading of

furniture. In survey it is found that assessee has sold properties during

the year at a consideration which is lower than the DLC Rate as applied

by the sub-registrar. On verification it was found that assessee has not

shown these transactions in her return. When confronted, the assessee

in its reply dt. 15.12.2010 stated that it has sold property at A-4,

Central Spine Scheme, Vidyadhar Nagar, Jaipur by two registered

documents for a consideration of RS. 1,11,00,000/- but the DLC Rate

applied by the sub-registrar is of Rs. 1,50,11,346/-. The assessee is

doing property business and as per the profit and loss account the net

profit is Rs. 28,81,546/-. The assessee requested to add this amount in

this income and contended that in business income actual sale

consideration is to be considered for calculation of profit and not the

DLC Rate as in this area the DLC Rate are more than the market rate.

The assessee in her reply dt. 20.12.2010 further stated that the

business of the property was started in this year only.

4 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

2.1 The assessing officer found that the transaction in property is

solitary and the assessee has not done business in property in the past

or in the subsequent year. He considered the same as a transaction of

capital gain. Accordingly he considered the sale consideration u/s 50C at

Rs. 1,50,11,346/- and after allowing deduction towards purchase price,

registry expenses and maintenance charges of Rs. 67,28,963/-,

assessed the difference of Rs. 82,82,383/- as short term, capital gain.

3. Aggrieved by the order of the AO assessee filed appeal before Ld.

CIT(A). Before Ld. CIT(A) the assessee made detailed submission. The

summary of the submission made by the assessee is as under:-

"(i) The assessee, apart from doing the business of furniture, also

purchases the property and disposes off the same in a short

period. The position of the purchase of the property and

disposal of the same in earlier years as well as in subsequent

years is as under:-

Details of the Amount Year of Remarks property paid payment

Seven flats booked in 3500000 2004 to Flats are under Narayan Builders and construction and developers 2006 possession not received till date 5 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

Booking of Villa at 151000 2008-09 Villa is under Khatushyam Ji in construction stage Kushi Pramoters

Land at Sikar Road 2000000 2008-09 This land sold in the year 2011 3100000 2009-10

16 shops at 5187641 2004 to These shops were Vidhyadhar Nagar in sold to two parties Time Square Cineplex 2007 during the year. Private Limited 1541322 2007-08

(ii) The assessee has purchased these properties by taking the

loan. The purchases are not of one or two

flats/shops/property but number of flats/shops/properties.

They are sold in a short duration after getting the possession

of the properties. These facts show that assessee purchases

the property with an intention to sale.

(iii) In survey u/s 133A the husband of the assessee Shri Sudhir

Gupta in reply to Q.No.27 has also stated that her wife has

purchased some area in Time Square Cineplex Private Limited

which has been sold and this is the business of her wife.

(iv) The assessee has made payment for purchase of these 16

shops numbering F-1 to F-10 and F-13 to F-18 to M/s Times

Square Cine Private Limited between April 2004 to July 2007 6 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

amounting to Rs.51,87,641/-. The sale deed was executed on

25-07-2007. He further paid maintenance charges of

Rs.6,20,182/- and registration expenses of Rs.9,21,140/-.

Thus the total direct cost of these shops to the assessee was

of Rs.67,28,963/-. These shops were sold by the assessee

vide two sale deed dated 8-08-2007 for Rs.61,00,000/- and

dated 12-09-2007 for Rs.50,00,000/-. Thus these shops were

sold within few days of its purchase. In the return assessee by

oversight did not include the income from sale of these shops

but in course of assessment proceeding assessee vide letter

dated 15-12-2010 submitted the trading account of this

transaction and requested to include business profit of

Rs.28,81,546/-.

(v) The AO observed that the transaction is the solitary

transaction. The assessee has neither done any business in

past or in subsequent year. Therefore, relying on certain

decision as mentioned at page 5 & 6 of the order he held that

profit on sale of shops is chargeable to tax under the head

capital gain. By invoking section 50C he took the deemed

consideration on sale of the property at Rs.1,53,22,146/- as 7 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

against actual consideration of Rs.1,11,00,000/- and thus

worked out short term capital gain at Rs.82,82,383/-. He

further did not allow the claim of interest, finance charges,

bank commission and depreciation while computing the

capital gain.

(vi) The basic issue involved in this ground is whether profit on

sale of the property is to be assessed as business income or

assessed as capital gain. The chargeability of such profit as

business income or capital gain would depend on the

intention of the assessee at the time of the purchase of the

property. The intention to resale would, in conjunction with

the conduct of the assessee and other circumstances would

point to the business character of the transaction. Supreme

Court in case of G. Venktaswani Naidu & Company V. CIT 35

ITR 594, 609 has laid down some of the indicia for testing

whether the transaction was a transaction in the nature of

investment or of an adventure in the nature of trade. These

are:-

(a) What is the nature of the commodity purchased and

resold and in what quantity was it purchased and resold

8 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

(b) If the commodity purchased is generally the subject-

matter of trade, and if it is purchased in very large

quantities, it would tend to eliminate the possibility of

investment for personal use, possession or enjoyment.

Did the purchaser by an act subsequent to the purchase

improve the quality of the commodity purchased and

thereby made it more readily resalable.

(c) What were the incidents associated with the purchase

and resale.

(d) Were they similar to the operations usually associated

with trade or business.

(e) Are the transactions of purchase and sale repeated.

(f) In regard to the purchase of the commodity and its

subsequent possession by the purchaser, does the

element of pride of possession come into the picture.

(g) A person may purchaser a piece of art, hold it for some

time and if a profitable offer is received may sell it.

During the time that the purchaser had its possession he

may be able to claim pride of possession and aesthetic

satisfaction; and if such a claim is upheld that would be a 9 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

factor against the contention that the transaction is in

the nature of trade.

(vii) The assessee further relied on the following decisions :-

- Rajputana textiles (Agencies) Limited 42 ITR 743 (SC)

- ITO V. Rani Ratnesh Kumari 123 ITR 343 (All.)

- P.M.Mohammed Meerakhan V. CIT 73 ITR 735 (SC)

(viii) In the alternate it was submitted that even the computation

made by the AO by assessing the profit on sale of shops as

short term capital gain is incorrect. From the sale deed of

shops dated 25-07-2007 it is clear that the builder allotted the

shops/office to the assessee in the said property on 25-04-

2004 when the 1st installment payment was made by the

assessee. The subsequent installment payment was made by

the assessee from time to time as mentioned in the sale deed.

Thus assessee acquired the right to allotment of said shops

on 25-04-2004 and the subsequent sale deed dated 25-07-

2007 would relate back to date of such allotment. The shops

so sold on 8-08-2007 and 12-09-2007 are thus long term

assets and not short term assets as taken by the AO.

Therefore in case it is held that profit on sale of the shop is 10 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

taxable under the head capital gain, the AO be directed to

assess the same as Long Term Capital Gain after allowing the

indexation benefit and also to allow the brokerage and finance

charges of Rs.12,41,516/-. For this assessee placed reliance

on the case of CIT Vs. Vijay Flexible Containers 186 ITR 693

(Bom.).

(ix) It was further contended that AO has adopted the stamp duty

value for assessing the capital gain ignoring that assessee has

claimed that the same should be assessed as business

income. In such circumstances, AO is under obligation to refer

the valuation of the property to the valuation officer under

sub section (2) of section 50C. Having not done so, the

substitution of fair market value of the property by the value

adopted for stamp duty purpose is illegal and bad in law and

therefore the AO be directed to workout the capital gain by

taking the actual sale consideration."

4. The Ld. CIT(A) after considering the submission of the assessee

noted that the assessee apart from doing business of furniture also

purchase the property and sold it after making profit. He purchased 7

flats from Narain Builders and Developers and these were purchased 11 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

with an intention to sale as no prudent person would buy seven flats for

the purpose of residence or investment. Similarly he has purchased 16

shops in Time Square Cineplex Pvt. Ltd., Vidyadhar Nagar, Jaipur. He

referred to the statement of Sh. Sudhir Gupta, husband of the assessee

recorded in survey where in reply to Q. No. 27 he stated that on

purchase and sale of shops at Time Square Cineplex Pvt. Ltd. is the

business of the assessee and therefore the profit earned on it is

business income and not capital gain. The Ld. CIT(A) further held that

the AO has failed to consider that the assessee has purchased these

shops/flats/land not out of surplus fund but borrowing funds from open

market. In respect of the shops purchased for Rs. 51.87 lacs the

assessee has paid interest of Rs. 11,66,866/- in F.Y. 2004-05 to 2006-

07 and therefore the purchase of shops cannot be considered as

investment. The Ld. CIT(A) also referred to the principle laid down in

various cases i.e. in case of G. Venkataswami Naidu Vs. CIT 35 ITR 594,

Tetron Commercial Ltd Vs. CIT 261 ITR 422 and CIT Vs. S. P.

Balasubramanium 250 ITR 127 where it is held that a single transaction

may also constitute an adventure in the nature of trade, there need not

be a regularity or repetitiveness in the activity and whether a

transaction is in the nature of trade or commerce must be decided on 12 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

the facts and circumstances of each case and the same need not be

allied to the already existing activities of the assessee. In this

connection the Ld. CIT(A) highlighted the following facts relating to the

transaction under consideration:-

a) The assessee has purchased 7 flats and 16 shops starting

from 2004 to 2008. The assessee had purchased substantial

number of shops and flats. The sheer number of flats and

shops would eliminate the possibility of an investment or

personal use, possession or enjoyment. The transactions of

purchase and sale were repeated.

b) The appellant had purchased these shops/flats/land not out of

surplus funds but by borrowing funds from the open market.

The appellant had taken loans from HDFC Bank Ltd., ICICI

Bank, ABN Amro Bank, M/s K.Y. Continental, Sh. VK

Maheshwari, Smt. Pushpa Kandoi and M/s Rushi Trading.

These funds were borrowed in F.Y. 2004-05, 2005-06 and

2006-07. The appellant had paid interest of Rs. 11,66,886/-

on borrowed funds of Rs. 51.87 lacs.

c) The assessee did not attempt to earn any income out of these

flats & shops. It is a clear indication that these were 13 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

purchased with an intention to resell. No pride of possession

or aesthetic satisfaction could be associated with these shops

or flats. Even after purchase, there was no improvement and

these were not utilized in any manner. Thus the appellant had

dominant intention to resell.

d) The subsequent conduct of the appellant has to be borne in

mind. After getting possession of these shops, these were

immediately disposed off. Thus the intention of the appellant

right from the beginning was to resell the land.

e) The quantum of profit there from is not an important

criterion. The whole activity of purchase of flats & shops with

dominant intention to resell and subsequent conduct of the

appellant points out towards the business character of the

transaction.

f) Without prejudice to the above, in a case, there might be no

initial intention to resell at a profit. But the assessee might

make improvements and sell the plots at profit. Thus absence

of initial intention to resell is not conclusive and subsequent

events and conduct of the assessee should be taken into

account.

14 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

On the basis of these facts of the transaction the Ld. CIT(A) after

distinguishing the decision relied by the Ld. AO concluded that profit on

sale of shops constitute business income and therefore provisions of

section 50C would not apply for substituting the actual sale

consideration with the DLC Rate adopted by the sub-registrar. He

further observed that otherwise also the AO is not correct in holding

that on sale of shops, short term capital gain has arisen as the holding

period of shops is long term in as much as the same were allotted on

25.04.2004 which would entitle to the assessee indexation benefit and

also the claim of interest and brokerage of Rs. 12,41,516/- Accordingly

the Ld. CIT(A) directed to the AO to consider the profit on sale of shops

amounting to Rs. 28,81,546/- as business income instead of short term

capital gain assessed by the AO.

5. Being aggrieved by the order of the Ld. CIT(A) the revenue has

filed this appeal. The Ld. DR vehemently argued that transaction on

sale of immovable property should be treated as short term capital gain

as if the assessee was doing the property business there should be

books of accounts in respect of these business and the same is required

to be audited, which is not the case of the assessee. Moreover no

property has been shown as stock in hand in the income tax return. The 15 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

Ld CIT(A) has failed to appreciate the reply to Q. No. 36 of Sh. Sudhir

Gupta where he admitted to pay the tax in respect of the income of his

wife from short term capital gain of Rs. 98,23,707/- and the assessee

has also admitted in Q. No. 30 of her statement about her income from

short term capital gain. It was therefore prayed to reverse the order of

the Ld. CIT(A).

6. The Ld.AR on the other hand heavily relied upon the order of the

Ld. CIT(A). It was further contended that in course of assessment

proceedings assessee has filed trading and profit and loss account of

the shops sold during the year. The net profit declared therein is not

disputed by the AO. Only because separate books of the property

business are not maintained or that the audit is not conducted of this

business or that stock of property is not declared in the Income Tax

Return cannot be a relevant factor to treat a business income as income

from capital gain. The Ld. AR with reference to Q. No. 36 of Sh. Sudhir

Gupta stated that in reply to this question he only stated that his wife

has not filed the return for A.Y. 2008-09 for which the due date is still

available and therefore on the transaction of sale of shops she would

file the return and pay the tax. In this question he has not stated that

the income from sale of shop is a capital gain whereas in reply to 16 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

question no. 27 he has specifically stated that it is the business income

of his wife. Further in reply to Q. No. 30 which is similar to Q. No. 36

put before Sh. Sudhir Gupta, assessee only stated that she has not filed

the return for A.Y. 2008-09 which is required to be filed before

30.09.2008 and she would disclose the profit on sale of plot in her

return of income. The Ld. AR further contented that in case the profit

on sale of shops as resulting into capital gain, it would be a long term

capital gain as allotment of shops were made to the assessee on

25.04.2004 whereas the same is sold on 08.08.2007 and 12.09.2007

which would entitle the assessee for indexation benefit, deduction on

account of interest and brokerage at Rs. 12,41,516/- and also the lower

rate of tax of 20% as against 30% at which assessee has paid the tax.

It was further stated that if the AO has considered it as a capital asset

he ought to have referred the valuation of these shops to the valuation

officer u/s 50C(2). Having not done so the AO has not followed the law

but in any case the facts and circumstances of the case clearly proves

that profit on sale of shops can only be assessed as business income.

Therefore the Ld. AR prayed to uphold the order of the Ld. CIT(A).

7. We have heard the rival contentions of both the parties and

perused the material on record. We find that the assessee has 17 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

purchased/booked number of flats/shops/land in earlier years or in

subsequent which were sold during the year or in subsequent year. In

the year under consideration the assessee has sold 16 shops in a

complex which was allotted on 25.04.2004 when the first installment

payment was made which continues upto July, 2007. The sale deed of

these shops was executed in favour of the assessee on 25.07.2007 and

immediately thereafter all these shops were sold on 08.08.2007 and

12.09.2007. The number of shops purchased by the assessee from the

borrowed funds and selling all of them immediately after the sale deed

was executed in the favour of the assessee shows that the intention of

the assessee to purchase these shops was not to have a pride of

possession or to earn rental income or to hold it for capital appreciation.

The various facts and circumstances mentioned by Ld. CIT(A) in his

order when tested on the principles laid down by Supreme Court in case

of G. Venkataswami Naidu and Co. Vs. CIT 35 ITR 594, 609 only leads

to a conclusion that the transaction under consideration is not a

transaction of investment but only an adventure in the nature of trade.

This is also supported by the statement of Sh. Sudhir Gupta in reply to

Q. No. 27 where he stated that profit on sale of shops would be

declared by his wife in the return as business income. In Q. No. 36 of 18 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

Sh. Sudhir Gupta and Q. No. 30 of the assessee as mentioned in the

ground of appeal, nowhere it is stated by the assessee or Sh. Sudhir

Gupta that the shops were purchased as an investment. Further the

contention of Ld. DR that the assessee has not maintained the books of

the property business and has not got the same audited are not

germane to the issue under consideration, as for such default, separate

penal provisions are provided in the Act. Therefore considering the

entirety and the circumstances of the case and the elaborate finding

given by the Ld. CIT(A), which we for the sake of brevity do not intend

to repeat, uphold his order.

8. In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 27/02/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 27th February, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- The I.T.O., Ward 4(2), Jaipur

2. izR;FkhZ@ The Respondent- Smt. Sneh Gupta, Jaipur.

19 ITA 226/JP/2012_ ITO Vs. Smt. Sheh Gupta

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 226/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar