PR COMMISSIONER OF INCOME TAX JAIPUR-II vs. SMT MANJU BANSAL

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 83/2018 Principal Commissioner Of Income Tax, Jaipur-Ii, Jaipur Raj ----Appellant Versus Smt. Manju Bansal, Plot No.5 Mangal Vihar Gopalpura Byepass, Jaipur Raj ----Respondent For Appellant(s) : Mr. K.D. Mathur for Mr. R.B. Mathur For Respondent(s) : HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 13/03/2018 By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal of the assessee reversing the view taken by the AO as well as CIT(A). Counsel for the appellant has framed following questions of law:- “i) Whether in the facts and circumstances of the case the ITAT was justified in deleting the addition of Rs. 7834422/- made by the Assessing Officer on account of short term capital gain, by treating the transaction as business transaction. ii) Whether in the facts and circumstances of the case the ITAT was justified in treating the short term capital transaction as business receipt without appreciating the fact that assessee has claimed it u/s 44AD as business receipt is belated return and only after initiation of enquiries by the department. Further, the assessee has not filed earlier year returns and was unable to explain the said asset as stock in trade, specially when several other properties are shown as capital assets.”

(2 of 6) [ITA-83/2018] Counsel for the appellant has contended in view of the statement which has been recorded by the department which reads as under:- “iz’u 4% vki viuk O;olk; fdl uke ls djrh gS ,oa O;olk; esa D;k D;k ys[k iqLrdsa j[krh gSA mRrj4% eSa [kqn ds uke ls gh O;olk; djrh gw¡ ,oa dsoy cSd [kkrs ds fglkc ls ys[kk iqLrdsa cukbZ tkrh gSaA iz’u5% o"kZ 2009 esa tc vkius viuk O;olk; 'kq: fd;k Fkk ml o"kZ esa vkids ikl D;k D;k lEifr Fkh ftlds vk/kkj ij vkius O;olk; 'kq: fd;kA mRrj5% eq>s bl ckjs esa ;kn ugh gSA o"kZ 2009 esa O;olk; 'kq: djrs le; dkSulh lEifr ls O;olk; 'kq: fd;k Fkk ,oa ml o"kZ esa D;k cspk Fkk ;g Hkh /;ku ugha gSA iz’u6% blds ckn ds o"kZ 2010&11 vFkkZr fu0o"kZ 2011&12 esa vkius D;k D;k [kjhn cspku fd;k FkkA mRrj% o"kZ 2010&11 esa eSu ,l0,e0,l dkWyksuh okyk IykV [kjhnk Fkk ,oa cspk Fkk ,oa ,d IykV vkj ds iqje dkyksuh esa [kjhnk Fkk ,oa mls cukdj dc cspk Fkk bldk eq>s /;ku ugha gSA ,l0,e0,l dkWyksuh okyk tSlk Fkk oSlh gh fLFkfr esa cspk FkkA He contended that the AO while considering the matter has observed as under:- “For the sake of arguments, the assessee had shown certain assets purchased as Fixed Assets or taking into consideration as Investment in a particular year and later-on in the subsequent year(s) wants to start the activity of Sale and purchase of the Land/Properties then it has to convert the Fixed assets into Stock in trade. IN that case as per provisions of Section 45(2) of the Income Tax Act, 1961 till the date of such conversion the Income can be treated as CAPITAL GAIN and not as Business Income. After the date of conversion the income will be treated as Business Income. This Section under the Income Tax Act provides an exception for the purpose of capital gains. When a person converts any capital asset owned by him into stock in trade of a business carried on by him, it is regarded as a transfer. The Fair Market Value of the asset on the date of such conversion shall be the full value of consideration for the transfer. The Capital gain will be calculated on this amount. It means even fixed assets is treated as Stock in trade on later stage income will be capital gain till the date of conversion.”

(3 of 6) [ITA-83/2018] It is further contended that the CIT(A) while considering the appeal has considered the submissions made by both the sides and after taking into consideration has observed as under:- “The above clearly shows that the assessee has sold the plots and not filed the return of income, information for which was received by the department. On being questioned for the same, the assessee has come up with the plea of having sold the same as stock in trade. No evidence of the fact that the assessee was in the business of sale and purchase of land and the plots were held as stock in trade could be produced by the assessee. All books of accounts, balance sheet, profit and loss account are prepared subsequently, no returns of income had been filed prior to the year or for the year in question. Four other plots are appearing as capital assets in the balance sheet and the two plots sold are being claimed to be stock in trade based on the balance sheet of previous year which is again arrived at and submitted subsequent to the enquiry by the department. The returns for subsequent years are filed under Section 44AD. The assessee is claiming that construction had been carried out on the plot before its sale to supplement its stand that it was the part of business, whereas the registered sale deed records only a 100 sq. ft. tin shade room on the plot at the time of sale. The onus for proving treating a particular asset as stock in trade or asset rests with the assessee especially in a case where no returns were filed and the return is filed after detection of the transaction by the department and notice thereon based on information received. Reliance is placed on the case of V.S. Chandra Shekhar vs. ACIT, Bangalore wherein it has been held that since the assessee failed to bring any evidence on record to show that the amount was paid to the vendor for acquiring land as stock in trade for the purpose of business, addition made thereon by the authorities below was to be confirmed. (54 Taxmann.com 185, Bangalore Tribunal). In view of the discussion and facts of the case, the addition made by the Assessing Officer under the head capital gain is confirmed. The ground of appeal is dismissed.” In that view of the matter, he contended that the view taken by the Tribunal is contrary to law. In our considered opinion, the Tribunal while considering the matter has rightly observed as under:-

(4 of 6) [ITA-83/2018] “3.4. We have heard the rival contentions and perused the materials available on record. The assessee during the relevant previous has sold two properties 74, SMS Colony, Durga Jaipur and 91, R.K. Puram, Sanganer, Jaipur. The first property 74, SMS Colony, has been sold vide Regd. Sale deed dated 21.07.2010 for sale consideration of Rs.10,00,000/-, the stamp valuation authority for the purpose of Registration adopted DLC Value of Rs.20,44,872/- which was later on enhanced to Rs. 76,21,852/-by the DIG stamps. The second property 91, R.K. Puram, Sanganer, Jaipur has been sold vide Regd. Sale deed dated 31.01.2011 for sale consideration of Rs.10,21,000/-which was more than the DLC Value of Rs.9,86,873/- adopted by the stamp valuation authority(PBP-71 backside). The registered sale deeds of both the properties are placed at Page No.60 and 71 of the Paper Book. The first property 74, SMS Colony, was purchased by the assessee vide Regd. Purchase deed dated 26.03.2010 for Rs.400000/- (PBP-52-59) and second property 91, R.K. Puram was purchased vide Regd. Purchase deed dated 24.06.2010 for Rs.3,00,000/-(PBP 66-70), which after certain construction thereon have been sold during the relevant previous year. The registered purchase deeds of both the properties are placed at Page No.52 and 66 of the Paper Book. The assessee also vide Regd. Deed dated 25.11.2010 purchased another land B-6, Devi Chiranjeevi Colony, Jaipur for Rs.4,96,000/- (PBP 81-88) which is lying in hand at the end of relevant previous year. The assessee in response to certain inquiries conducted by the revenue, filed belated return u/s 139(4) of the IT Act 1961, declaring net profit of Rs.1,75,491/- from the above said transactions of purchase, construction and sale of properties. The relevant return of income and Trading and Profit & Loss Account and Balance Sheet are placed at Page No.28-31 of Paper Book. There is no dispute on these facts of the case, the only dispute involved in the case is that whether the relevant transactions of purchase, construction and sale of properties falls within the nature of carrying on business assessable under the heading “profit and gains of business or Profession” u/s 28 of IT Act or falls within the nature of transfer of capital assets assessable as Capital gain u/s 45 of IT Act. The assessee has claimed the relevant transactions as business transactions assessable under the heading “profit and gains of business or Profession” u/s 28 of IT Act, and thus without taking into account the DLC Value adopted by stamp valuation authority, declared net profit on the basis of face value of sale consideration, whereas the AO has held the same as transfer of capital assets assessable as Capital gain u/s 45 of IT Act, and thus applying the enhanced DLC Value of Rs.76,21,852/-as provided u/s 50C of IT Act determined Short Term Capital Gain of Rs.71,28,702/-in respect of First Property 74, SMS Colony and of Rs.705720/- in respect of second

(5 of 6) [ITA-83/2018] property 91, R.K. Puram, Jaipur. The ld. A.R. drew our attention to the Balance Sheet for the preceding A.Y.2010-11, placed at page No.27 of the paper book where in the closing stock of Rs.4,93,150/- has been shown. The ld. A.R. explained the same pertaining to the property 74, SMS colony, Jaipur purchased on 26.03.2010, comprising face value of Rs.4,00,000/- and registry exp. of Rs.93,150/-.The ld. A.R. further in support of his contention submitted that the assessee is regularly engaged in the business of purchase, construction and sale of flats /houses and relied on return of income, Trading and Profit & Loss Account and Balance Sheet of the succeeding years placed at Page No.32-42 of paper Book, wherein similar activities have been shown to be regularly carried on and claimed as business activities. The ld.A/R also referred to statements of the assessee and her husband recorded by the AO placed at page No.43-51 of paper book , where in both the assessee and her husband affirmed the carrying of business of purchase, construction and sale of properties. The ld A.R. submitted that in case of business transactions provisions of section 50C are not applicable. It is evident that the property 74, SMS colony was purchased on 26.03.2010 in the form of land and the same was sold on 21.07.2010 after construction of boundary wall etc. as mentioned in regd. Sale deed .The second property 91, R.K.Puram was purchased on 24.06.2010 which after construction of complete residential house has been sold on 31.01.2011. Both the properties have been sold within short time interval of 4-7 months from the date of purchase. The similar purchase, construction and sale activities of flats/house are evident in succeeding years also. The assessee in her statements in response to Q. No.10 (PB No.45), has categorically stated that both the properties sold during the relevant previous year are included in her business activities. The husband of the assessee in response to Q.No.3 (PB No.48) has also confirmed such business activities carried on by the assessee. Thus cyclical, regular, and frequent activities of purchase, construction and sales having short time interval of few months between sale and purchase are evident from the documents available on record which constitute business activities. Therefore we hold that the relevant transactions of purchase, construction and sale of properties carried on during the relevant previous year are falling within the nature of carrying on business assessable under the heading “profit and gains of business or Profession” u/s 28 of IT Act 1961.The assessee has already declared the net profit of Rs.1,75,491/-u/s 44AD of the Act, and filed relevant details before the AO which have been not doubted by the AO, therefore the additions of Rs.71,28,702/- and 7,05,720/- made by the AO towards Short term Capital Gain are deleted. Thus Ground No. 3 of the assessee is allowed. It is also pertinent to mention that we have

(6 of 6) [ITA-83/2018] deleted the additions, on the basis of evidences and material available on the record, therefore Ground No.2 relating to admission of additional evidences and alternative plea of the assessee do not require adjudication.” In our opinion, the same amount was shown as business assets and it was never shown in the capital account merely because belated return was filed, it is not a ground to convert the business assets into capital account. It is for assessee to decide where to show his income unless he has been shown to have some ulterior motive, in that case, it will be open for the department to stick to one view as earlier the assessee has not changed her position. In that view of the matter, it will not be available for her to change the position and she has done the transaction in accordance with law. Therefore, the Tribunal has not committed any error. Hence, no substantial question of law arises. The appeal deserves to be dismissed. The same is dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J A.Sharma/82