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Facts
The assessee, an individual, filed a return of income and was selected for scrutiny due to recurring issues from previous assessment years. The Assessing Officer treated the sale consideration of immovable properties as business income, rejecting the assessee's claim of Long-Term Capital Gains.
Held
The Tribunal held that the assessee was continuously engaged in trading of properties, making the gain from the sale of these properties business income. The contention of maintaining two portfolios (investment and trading) was not substantiated by the assessee.
Key Issues
Whether the gain arising from the sale of properties held for several years constitutes Long-Term Capital Gains or business income, considering the assessee's past transactions and the nature of the activities.
Sections Cited
143(2), 142(1), 68, 14A, 54
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
PER R.K. PANDA: This appeal filed by the assessee is directed against the order dated 27.06.2024 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2018-19.
Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 31.03.2019 declaring total income of Rs.1,92,64,150/-. Subsequently the case of the assessee was selected for scrutiny for the reason “Addition in an earlier assessment year confirmed in appeal or has become final on recurring issue of law or fact”. Accordingly, statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee in response to which the assessee did not file any submission.
During the course of assessment proceedings the Assessing Officer noted that the case of assessee was selected for scrutiny for the AYs 2011-12 to 2015-16 on recurring issues of (i) LTCG viz., treating the LTCG declared by the assessee as business income, (ii) denial of claim of indexation, (iii) addition u/s 68 and (iv)
1. addition under section 14A of the Income-tax Act, 1961. He further noted that the assessee has declared Rs.4,01,10,000/- towards sale consideration received under LTCG and claimed indexation benefit totalling Rs.3,50,96,000/- and declared long term capital gain of Rs.59,14,000/- u/s 54. Since there was no response from the side of the assessee and this issue is recurrent for last five years and in all the assessment years, the Assessing Officer had assessed the sale consideration received as business income and denied indexation benefits as the assessee is involved in the business of buying and selling of properties, the Assessing Officer made the addition of Rs.4,01,10,000/- to the total income of the assessee by treating such income as business income.
Before the Ld. CIT(A) / NFAC it was submitted that the assessee is not engaged in trading of immovable properties and the properties were shown under investment in his personal Balance Sheet. Relying on various decisions it was argued that the assessee can make two portfolios i.e. one for trading purpose and another for investment purpose. It was also submitted that the Assessing Officer was not justified in not deducting the cost of acquisition from such sale consideration.
Based on the arguments advanced by the assessee, the Ld. CIT(A) / NFAC directed the Assessing Officer to deduct the cost of acquisition of immovable properties of Rs.2,18,69,120/- from the sale consideration and also deduct expenses on transfer at Rs.9,96,064/- against the sale consideration of Rs.4,01,10,000/- and treat the balance amount of Rs.1,72,44,816/- as business income.
Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:
On the facts and circumstances of the case and in law, the assessment as completed is illegal, invalid, violative of the principles of natural justice and deserves to be quashed as per law and in the interest of justice.
2. On the facts and circumstances of the case and in law, the AO grossly erred in treating and the CIT(A) grossly erred in confirming the transaction of sale of capital assets by the Appellant as Business Income instead of Long- Term Capital Gains offered to tax by the Appellant ignoring the fact that the assets so sold were capital assets of the Appellant and which deserves to be assessed as capital assets under law.
3. On the facts and circumstances of the case and in law, the AO grossly erred in assessing and the CIT(A) grossly erred in confirming the assessment of the transaction pertaining to the receipt of sale consideration of Rs. 4,01,10,000 on account of sale of capital assets as business income of the Appellant instead of Long-Term Capital Gains offered to tax by the Appellant. The transaction pertaining to the receipt of the amount of Rs.4,01,10,000 received on account of the sale of capital assets deserves to be assessed as Long-Term Capital Gains under law and as offered by the Appellant in his return of income. 4. The Appellant craves leave to add, amend, alter, vary and/or withdraw the above ground of appeal with the kind permission of the Hon'ble Tribunal.
The Ld. Counsel for the assessee referring to page 77 of the paper book drew the attention of the Bench to the following details and submitted that the immovable assets sold during the year were held for more than 7 years:
Sr No Description of the Date of Sale Date of Holding Property Purchase Period (Years) 1 Asset : FLAT NO 4 30-apri-2017 24-Jan-2011 Approx 7 AT 6 PRABHAT years 2 Asset : WAKAD SR 30-Dec-2017 24-Oct-2011 Approx 7 NO 260 years 3 Asset : HINJEWADI 14-Mar-2018 29-Apr-2006 Approx 12 SR NO 152/3/3 years
He submitted that merely because the assessee in the preceding years have filed the application under Vivad Se Vishwas Scheme does not mean that the assessee has accepted the treatment of such transactions by the Assessing Officer in the past. Relying on various decisions, he submitted that an assessee can have two portfolios i.e. one for investment purpose and another for trading purpose. He submitted that the conduct of the assessee in the instant case shows that the properties so held for more than 7 and 12 years respectively are not meant for trading purposes but for investment purposes and therefore, the gain that has arisen to the assessee has to be taxed as long term capital gain and not as business income being adventure in nature of trade.
The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case in absence of any satisfactory explanation given by the assessee, brought to tax the sale consideration of two residential flats and one plot which were sold for a consideration of Rs.4,01,10,000/- as business income. While doing so, he rejected the claim of the assessee treating the capital gain from such transaction at Rs.59,14,000/- after claiming the indexed cost of acquisition of Rs.3,50,96,000/-. According to the Assessing Officer, the transactions in immovable properties were held to be business transactions in the past. He accordingly concluded that the assessee was engaged in business of sale and purchase of the properties and therefore, such entire sale consideration of immovable properties should be treated as business income. While doing so, the Assessing Officer did not even deduct the cost of acquisition of Rs.2,18,69,120/- from such sale consideration apart from the expenses on transfer at Rs.9,96,064/-. We find in appeal the Ld. CIT(A) / NFAC while upholding the action of the Assessing Officer in treating such transactions as business transactions, however, directed the Assessing Officer to deduct the cost of acquisition of the said immovable properties at Rs.2,18,69,120/- and the expenses on such transfer at Rs.9,96,064/-.
It is the submission of the Ld. Counsel for the assessee that the two flats were held for approximately 7 years while the plot was held for approximately 12 years. It is also his submission that various Courts have held that the assessee can maintain two portfolios i.e. one for investment purpose and another for trading purpose. It is also his submission that merely because the assessee in the past, to avoid protracted litigation opted for Vivad Se Vishwas Scheme does not mean that the assessee has accepted the treatment given by the Assessing Officer treating such transactions in purchase and sale of properties as business income / adventure in nature of trade. We find the submissions filed before the Ld. CIT(A) / NFAC by the assessee read as under (para 22 and 23 of the paper book) :
“Date: 05 July 2022
To, The Commissioner of Income Tax (Appeals) Income Tax Department Sub-AY 2018-19 PAN-AATPR6854L Respected Sir,
Please refer to your Clarification Letter ITBA/NFAC/F/17/2022-23/1043629271 (1) Dated 26 June 2022, I submit my clarification herewith following -
1) AY 2009-10 - I have filled all the due forms under Vivad se Vishwas scheme. I have received Form No 5 towards full and final settlement of tax under Section 5(2) read with Section 6 of the Direct Tax Vivad Se Vishwas Act, 2020, after all the taxes are paid and withdrawn the appeal. (Necessary documents are attached - Annexure 4 & 5).
2) AY 2010-11- Normal assessment completed and all taxes paid (Annexure -6)
3) AY 2011-12-I have filled all the due forms under Vivad se Vishwas scheme. I have received Form No 5 towards full and final settlement of tax under Section 5(2) read with Section 6 of the Direct Tax Vivad Se Vishwas Act, 2020, after all the taxes are paid and withdrawn the appeal. (Necessary documents are attached Annexure 7 & 8)
4) AY 2012-13-1 have filled all the due forms under Vivad se Vishwas scheme. I have received Form No 5 towards full and final settlement of tax under Section 5(2) read with Section 6 of the Direct Tax Vivad Se Vishwas Act, 2020, after all the taxes are paid and withdrawn the appeal. (Necessary documents are attached 9 & 10)
5) AY 2013-14-I have filled all the due forms under Vivad se Vishwas scheme. I have received Form No 5 towards full and final settlement of tax under Section 5(2) read with Section 6 of the Direct Tax Vivad Se Vishwas Act, 2020, after all the taxes are paid and withdrawn the appeal. (Necessary documents are attached 11 & 12)
6) AY 2014-15-I have filled all the due forms under Vivad se Vishwas scheme. I have received Form No 5 towards full and final settlement of tax under Section 5(2) read with Section 6 of the Direct Tax Vivad Se Vishwas
Act, 2020, after all the taxes are paid and withdrawn the appeal. (Necessary documents are attached Annexure 13 & 14) 7) AY 2015-16 I have filled all the due forms under Vivad se Vishwas scheme. I have received Form No 5 towards full and final settlement of tax under Section 5(2) read with Section 6 of the Direct Tax Vivad Se Vishwas Act, 2020, after all the taxes are paid and withdrawn the appeal. (Necessary documents are attached - Annexure 15 & 16)
8) AY 2016-17 - Normal assessment completed and all taxes paid (Annexure 17) 9) AY 2017-18-Normal assessment completed and all taxes paid (Annexure 18) 10) AY 2018-19- Details attached (a) Statement of facts & ground of appeal (Annexure 19) (b) Statement showing computation of Capital gain and wrong treatment (Annexure 20) Sir, the result of Appeals in above 6 years from AY 2009-10 to AY 2015-16 - Since we had filled all the due forms under Vivad se Vishwas scheme, the appeals had been withdrawn and dismissed for the statistical purposes. Sir, I again request you to kindly delete the additions made of Rs.40110000/- towards treating the entire sale consideration as business income as per all details submitted.
Thanking you, Yours faithfully Natha Pandit Raut”
We find from the above submission filed before the Ld. CIT(A) / NFAC dated 05.07.2022 that the Assessing Officer is continuously treating such gain from purchase and sale of the properties as business income for which the assessee has opted for Vivad se Vishwas Scheme for assessment years 2009-10, 2011-12, 2012- 13, 2013-14, 2014-15 and 2015-16. Similarly, for assessment years 2010-11, 2016-17 and 2017-18, normal assessment was completed and the assessee has paid all the taxes. This shows that the assessee is continuously engaged in trading of properties and therefore, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC in confirming the action of the Assessing Officer in treating such purchase and sale of properties as business income. We find the Ld. CIT(A) / NFAC has given a finding also that all the immovable properties were shown by the assessee under investment in earlier as well as present financial year therefore, the claim of the assessee that he was maintaining two separate portfolios is not correct. The Ld. Counsel for the assessee also could not bring any material before us to substantiate that the assessee is maintaining two separate portfolios i.e. one for investment and another for trading purpose. We find the Ld. CIT(A) / NFAC while adjudicating the issue has relied on the decision of Delhi Bench of the Tribunal in the case of Young Indian vs. ACIT (2022) 137 taxmann.com 12 (Delhi – Trib) where it has been held that not only a business itself but also any activity akin to business would be an adventure in nature of trade and a single transaction may constitute same and alleged activity need not be allied to already existing.
The Tribunal also held that 'business' may not mean carrying out trade or commerce or manufacture per se but any activity which has some trapping of a trade, commerce or manufacture would fall within ambit of expression 'in nature of trade or commerce'. Similarly, the Hon'ble Madhya Pradesh High Court in the case of CIT Vs Jawahar Development Association [1981] 127 ITR 431 (MP) relied on by the Ld. CIT(A) / NFAC has held that where, purchase is made solely and exclusively with intention to resell at a profit and, purchaser has no intention of holding property for himself or otherwise enjoying or using it, presence of such an intention raises a strong presumption that transaction is an adventure in nature of trade. The Ld. Counsel for the assessee could not bring any material before us to distinguish the above 2 decisions relied on by ld.CIT(A)/NFAC. Since the assessee is continuously engaged in purchase and sale of properties, therefore, under the facts and circumstances of the case, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC treating the profit from such sale of properties after deducting the cost of acquisition and related expenses as business income. We therefore uphold the order of the Ld. CIT(A) / NFAC and dismiss the grounds raised by the assessee.
In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court on 14th May, 2025.
Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 14th May, 2025 GCVSR आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The Respondent 2. 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘A’ Bench, Pune गाड� फाईल / Guard file. 5. आदेशानुसार/ BY ORDER,/ //True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
S.No. Details Date Initials Designation 1 Draft dictated on 06.05.2025 Sr. PS/PS 2 Draft placed before author 07.05.2025 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to the Head 9 Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order