JAJANT S.SANGHVI(HUF),,BARODA vs. INCOME TAX OFFICER, WARD-2(4),, BARODA

PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-

These two appeals filed by assessee for A.Y. 2011-12 & 2013-14, arise from order of the CIT(A)-II, Baroda dated 22-09-2014, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.

I.T.A Nos. 3470/Ahd/2014 & 116/Ahd/2017 A.Y. 2011-12 & 2013-14 Page No 2 will be applicable to ITA No. 116/Ahd/2017 for assessment year 2013-14 for the sake of convenience.

The return of income declaring income of Rs. nil was filed on 28th

I.T.A Nos. 3470/Ahd/2014 & 116/Ahd/2017 A.Y. 2011-12 & 2013-14 Page No 3 Rs.84,04,176/- Rs.1,33,79,000/- 49,74,824/-

On query the assessee explained that all these properties were always held as investment in the books of accounts as business assets. He has also stated that these assets were included in the wealth tax returns. However , the assessing officer was of the view that all the residential units sold during the year under were acquired for the sole motive of earning profit. The assessing officer also observed that purchase of residential units in such large numbers tend to eliminate the possibility of investment for personal use, possession or enjoyment. He also stated that assessee has not acquired the residential units for its own residential purpose. Consequently profit/gain of Rs. 49,74,824/- on sale of four residential units was treated as profit/gain from its business activities holding that such profit was assessable under the head business from profession and not under the head capital gain.

I.T.A Nos. 3470/Ahd/2014 & 116/Ahd/2017 A.Y. 2011-12 & 2013-14 Page No 4 income since the builder enjoys good reputation in the market, the facts are entirely different. The investments were clearly made with an intention to: earn profits as the appellant has sold 4 flats on a substantial premium within 2 years and without paying any tax wanted to set off the capital gains against the capital loss from the sale of shares. Hence, it is held that the acquisition of the said residential units was made with clear intention to earn profit as the appellant has sold 4 flats on a substantial premium within 2 years and without paying any tax wanted to set off the capital gains against the capital loss from the sale of shares. Hence, it is held that the acquisition of the said residential units was made with clear intention not to earn profits as held by the Assessing Officer and the profit/gain of Rs.49,74,824/-made by the assessee on sale of four residential units is rightly treated- as profit/gains from arising from business activities. Such profit is assessable under the head "Business or Profession" and not under the head "Capital Gains''. Therefore, the profit/gain, of Rs.49,74,824/- arising in the hands of the assessee on sale of residential units was rightly brought to tax under the head "Profits & Gains of Business or Profession" and not under the head "Capital Gains", The claim of set-off of Short Term Capital loss of Rs.59,04,213/- on sale of shares was rightly' not allowed in view of provisions of section 71 of the Act Thus, addition of Rs.49,74,824/- made to the total income of the assessee is confirmed.”

I.T.A Nos. 3470/Ahd/2014 & 116/Ahd/2017 A.Y. 2011-12 & 2013-14 Page No 5 as investments from assessment year 2008-09 and continually treated as investment in 2011-12 . These investments were also reflected in the wealth tax return and duly paid the wealth taxes thereon. We observe that the assessing officer has not disproved the aforesaid material facts demonstrated with the copies of wealth tax returns filed in the paper book furnished during the course of appellate proceedings before us. In the light of the above facts, we consider that the assessing officer has failed to substantiate how the income arisen to the assessee out of the sale of house property was assessable under the head profit and gain of business or profession. After considering the above facts, we are of the view that the assessee has made investment in house property as investor and therefore, the income arisen to the assessee out of the sale of house property is assessable under the head capital gain and not profit and gain of business or profession. Accordingly, this ground of appeal of the assessee is allowed. Ground no. 3 for charging of interest u/s. 234B and ground no. 4 for initiating of penalty proceedings u/s. 271(1)(c) are of general and consequential in nature which do not require any adjudication at this stage, therefore, the same are dismissed.

I.T.A Nos. 3470/Ahd/2014 & 116/Ahd/2017 A.Y. 2011-12 & 2013-14 Page No 6 आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:-