ASST COMMISSIONER OF INCOME TAX, BIKANER vs. MUKESH SHAH, SRIGANGANAGAR

3.1 For the year under consideration the assessee is engaged in the business of trading of agri-commodities and development of properties.

During the year under reference, the assessee has shown income from salary, house property, income from business and profession, income from capital gain and income from other sources.

3.2 After considering the facts of the case and replies submitted by the assessee ld. AO noted that the assessee deposited cash of Rs 80,00,000/- in the bank account between 9.11.2016 to 30.11.2016.

While the assessment proceedings assessee was asked to explain the source of the cash deposit in the bank account. In response assessee stated that he has already submitted response in respect of cash deposited by him in his bank account during the demonetization period.

He has also furnished the copy of the response sheet submitted by him.

On perusal of the response sheet, ld. AO noticed that the assessee has claimed that the cash was deposited out of the withdrawals made from the bank. Vide query letter dated 11.10.2019, the assessee was specifically asked to explain the reason for withdrawing cash from his bank account despite having sufficient cash in hand. In response, the assessee stated that assessee was planning to start the project under ACIT vs. Mukesh Shah 4 "Mukhya mantri Jan awas Yojana in Sri Ganganagar and for that purpose he withdrew cash from the bank over a period of time. He further claimed that since acquisition of land for that purpose, completion of various other formalities required cash and that is why he accumulated cash in hand balance by withdrawing cash from bank in August, September and October 2016. He further claimed that since the deal failed to materialize, cash could not be utilized. Subsequently due to demonetization, the cash was deposited into the bank account. Ld. AO considered the submission of the assessee and but did not consider that reasons as acceptable, as reasoned in the order and same reads as under :-

1. The arguments of the assessee are too general in nature and lack any substance.

2. The closing cash balance at the end of the month of July was Rs.11,17,717. As evident from the break-up of the sales and purchase, all the purchases have been made at credit. In such a scenario why assessee will need additional cash in hand balance. Thus it is out of common understanding that assessee kept on accumulating cash balance by withdrawing another 27lacs in the month of August, 54 lacs in the month of September and Rs18,00,000/- in October 2016.

3. Even if the claim of the assessee is accepted as far as planning to start a real estate project is concerned, the same do not lend any substance to the holding of such a huge cash balance as even the property purchase in cash has been prohibited by law w.e.f 01.06.2015. In fact, had he really planned such a project he would have needed amount in the bank rather than cash to invest in the purchase of the property. 4. Such claims of accumulating cash balance for investment in the project under Mukyamantri Jan Awas Yojana have been made by the Id. Chartered Accountant despite knowing the fact that the property purchase in cash has been prohibited by law w.e.f 01.06.2015. This shows that assessee is merely making a story to somehow create source for the cash deposits. 5. The assessee did not even submit any evidence such as any agreement or contract signed with any party to establish his intention use such a huge amount of cash in purchase of property etc.

ACIT vs. Mukesh Shah 5

7. Not even a single penny has been shown as advance amount paid to any party for purchasing their land therefore, the claim of the assessee regarding negotiation for procurement of land is not acceptable.

In view of the above discussion, the cash deposit of Rs 80,00,000/- was added to income of the assessee under the provisions of section 68 r.w.s. 115BBE of the IT Act, 1961 @ 60% by the ld. AO.

3.3 Ld. AO also noted from the computation of income filed that the assessee has claimed Short Term Capital Gain of Rs. 17,19,605/- on account of sale of immovable properties. Ld. AO considering the fact that the assessee engaged in the business of real estate developer, therefore, vide notice dated 11.10.209, the assessee was asked to explain why the income from sale of properties should not be assessed as business income instead of long term capital gain & short term capital offered by him. In response, the assessee vide submission dated 5.11.2019 contended that few properties were purchased for investment purposes and the same were held as part of fixed assets in the preceding years. Accordingly the sale of these properties was considered as sale of capital assets rather than stock in trade. Ld. AO considered the submission of the assessee but did not found acceptable and for which he has given following reasons:

ACIT vs. Mukesh Shah 6

1. The nature of business in the column no 10(a) of the form no. 3CDis mentioned as 'builder' and sub-sector is mentioned as 'property developers'. Once assessee is into business of 'property developers', it is not open to him to treat certain property sales as capital transactions and others as business transaction.

2. Assessee did not furnish any worth-while explanation as to show on what basis he classifies plots as capital assets or part of stock.

3. The perusal of the trading account shows that there are various plots which have been purchased prior to 2010 and the same are held as closing stock till date. Assessee failed to establish that why those plots acquired prior to Central Circle 2010 were kept as stock without doing any development activities and kept certain other plots as capital investment.

4. It is an attempt on the part of the assessee to evade tax by reducing tax- liabilities on account of claim of indexation benefit.

3.4 ld. AO further went on observing that the sale of plot was business income as the assessee is engaged in the business activities of sale / purchase / developing of properties. Thus, the transactions fall in the category of adventure in the nature of trade or business transactions. It is pertinent to mention here that in order to constitute a transaction as adventure in the nature of trade, it is essential that the transaction should be akin to the main activity carried on by the assessee. The assessee is engaged in the business of real estate developer. Hon'ble Supreme Court in the case of G. Venkataswami Naidu & Co. v. CIT (1959) 35 ITR 594 (SC) has laid down test for coming to a conclusion whether a particular transaction is adventure in the nature of trade or not. Hon'ble Bombay High Court in the case of CIT v. Himalayan Tiles and Marbles (P) Ltd. (1975) 100 ITR 177 (Bom) for the same proposition. The word ACIT vs. Mukesh Shah 7 'business' has been defined in Section 2(13) of the IT Act which reads as under:

"Business" includes any trading, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture."

The above definition has used the words 'trade' 'commerce' or 'manufacture' or "any adventure or concern in the nature of trade, commerce or manufacture". The Hon'ble Gujarat High Court in the case of CIT v. Motilal Heerabhai Spinning and Weaving Co. Ltd. (1977) 113 ITR 173 (Guj) and Hon'ble Delhi High Court in the case of Bharat Development (P) Ltd. v. CIT (1982) 133 ITR 470 (Del) has observed that the word 'business' is of large and indefinite import and connotes something which occupies the time, attention and labour of a person normally with the object of making profit. Hon'ble Calcutta High Court in the case of Turner Morission & Co. (1929) ILR 56 (Cal) 211 and the Hon'ble Orissa High Court in the case of Narasinghakar. & Co, v. CIT (1978) 113 ITR 7-12 (Ori) have held that the word 'business' denotes continuous and systematic exercise of an occupation or profession with an object of making profit. Neither the term "Business" nor the term "Adventure in the nature of trade" is defined under the provisions of Income tax Act, 1961. Therefore, ld. AO considered the dictionary ACIT vs. Mukesh Shah 8 meaning, for each word separately, which he considered in his reads is reproduced herein below ;

As far as the word 'adventure' is concerned, it implies a pecuniary risk, a venture, a commercial purpose. The word 'venture' is defined as a commercial activity in which there is a risk of loss as well as a chance of gain. The term 'trade' in the context of the definition of the expression 'business' is a wider concept and once this term is associated with the term 'adventure, 'the scope is further enlarged. The term 'trade' means the action of buying and selling goods and services between two or more parties in consideration of money or money's worth.

Based on the above definition, the "adventure in the nature of trade or commerce” can be defined as a pecuniary risk or venture of buying and selling the goods or services between two or more parties in consideration of money or money's worth where there is a risk of loss as well as chance of gain and these activities may be quite similar to the ordinary business. Hon’ble Courts in the cases Khan Bahadm Ahmed Alladin& Sons v. CIT (1968) 68 ITR 573 (SC), P. Mohd. Meera Khan v.

CIT (1969) 73 ITR 735 (SC). Premji Bhimji. v. CIT (1971) 81 ITR 179 (Cal), CIT v. H. Holck Larsen (1986) 160 1TR 67 (SC) and CIT v.

VA.Trivedi (1988) 172 ITR 95 (Bom) have held that it was not possible to evolve any single test or formula which can be applied in determining whether a transaction is adventure in the nature of trade or not. The answer to question must necessarily depend in each case as the total impression and effect of all the relevant factors and circumstances which ACIT vs. Mukesh Shah 9 determine the character of the transaction. The expression 'adventure in the nature of trade clearly suggests that the transaction cannot properly be regarded as a trade or business. It is allied to transaction that constitutes trade or business but may not be trade or business itself. It is characterized by some of the essential features that make up trade or business but not by all of them and so even an isolated transaction can satisfy the description of an 'adventure in the nature of trade'. The above observation is duly supported by the decisions, of Hon'ble Bombay High Court in the case of Estate Investment Co. Ltd. v. CIT (1980) 121 ITR 580 (Bom), and the decision of Hon'ble Madhya Pradesh High Court in the case of Bhagirath Prasad Bilgaiya v. CIT (1983) 139 ITR 916 (MP). It is not necessary that there should be a series of transactions, both of purchase and of sale, a single transaction of purchase and sale outside the assessee's line of business may constitute adventure in the nature of trade. Neither repetition nor continuity of similar transaction is necessary to constitute a transaction and adventure in the nature of trade. If there is repetition and continuity, the assessee would be carrying on business and the question whether activity is an adventure in the nature of trade can hardly arise. The transaction may be regarded as isolated although a similar transaction may have taken place a fairly long time before. The above observations find support from the decision of Hon'ble Supreme ACIT vs. Mukesh Shah 10 Court in the case of CIT v. Sutlej Cotton Mills Supply Agency Ltd. (1975)

100 ITR 706 (SC). Hon'ble Supreme Court in the case of G.

Venkataswamy Naidu vs. CIT (1959) 35 ITR 594(SC) has observed that the certain factors are relevant for deciding the character of a transaction. These factors and their fulfilment in the case under reference was discussed by AO and the same is reproduced herein below:-

Factors Applicability in the case under reference Was the purchaser, a trader and whether Yes, the assessee is engaged in the the purchase of the commodity and its business of real estate and developing resale allied to his usual trade or properties. He has also shown closing business or incidental to it? stock of various plots of land in his books of accounts. What is the nature of commodity The assessee has purchased the plots purchased and sold and in what quantity and it sold them in the year under was purchased or resold? reference and held some piece of lands as stock in trade and some piece of lands as investment. The assessee is continually selling and buying properties.

Did the purchaser by any act subsequent The assessee is engaged in the business the purchase improve the quality of real estate thus, this condition is commodity purchased and thereby made directly applicable as the plots were more readily resaleable? purchased with a sole intention of selling them on a profit instead of keeping the same for the long term. Since, the property was located in a well developed locality of the Jaipur city arid duly converted for residential purposes there is no need to incur any improvement expenses.

What were the incidences associated The sale of the plots is directly related to with the purchase and sale and whether the business activities of the assessee. they are akin to the operations usually associated with trade or business? Are the transactions of the purchase and Yes, the assessee is regularly selling and ACIT vs. Mukesh Shah 11 sale repeated? buying properties.

Ld. AO based on the above discussion and considering the parameters set by the Hon'ble Supreme Court in the afore mentioned case, the sequence of events leading to the eventual sale of the plots do not seem to help the cause of the assessee. The assessee purchased the plots under reference in 2012-13, 2014-15 & 2016-17 and sold the same in the year under reference. As the assessee is engaged in the business of real estate and property developer therefore, the sale of these plots covered within the business activities of the assessee and income from the same constitutes business income. Reliance was placed from the Hon'ble Rajasthan high Court judgment in the case of Sohan Khan and Mohan Khan as reported in 304 ITR 194(Raj.). Accordingly, ld. AO held that the transaction of sale plots was in the nature of business activities and the claim of the assessee regarding indexation benefit was disallowed. The business income of the assessee from the sale of the plots was recomputed in the following manner:-

Total sale consideration - Rs. 2,37,60,000/- Less: Purchase cost - Rs. 1,70,60,573/- Profit - Rs. 66,99,427/- ACIT vs. Mukesh Shah 12 Accordingly, the income of Rs.66,99,427/- was added to the business income of the assessee. This resulted into addition of Rs. 66,69,427/- to the total income of the assessee and taxed in his hands accordingly under the head income from business and profession.

3.5 The assessee has also made certain other plots as part of fixed assets rather than stock in trade. However, the same was not disturbed or reworked merely due to the fact that such reworking will not have any impact on the profit from the real estate business as the same amount will be taken to both opening and closing stock. However, this does not mean that the claim of assessee regarding other plots being capital asset and their inclusion in the fixed asset schedule was considered as accepted. All the immovable property which are not being used by assessee in his business are part of stock only.

3.6 Ld. AO in the pendency of the assessment proceeding noted that the assessee has shown income from plots under the head income from house property and claimed deduction u/s 24(a) of the IT Act. Rental income from plots is chargeable to tax as income from other sources instead of income from house property. Therefore, rental income received by the assessee from plots was treated as income from other sources and claim of the assessee for deduction u/s 24(a) of the Act was disallowed and added to the total income of the assessee. This would ACIT vs. Mukesh Shah 13 result in addition of Rs. 36,750/- and entire rental income of Rs. 1,22,500/- was treated as income from other sources.

Based on that observation the ld. AO completed the assessment on 26.11.2019.

4. Aggrieved from the order of Assessing Officer, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

Finding on cash deposit “4.3 I have considered the facts of the case gone through the submission and the paper book. It is seen that the assessee has maintained day to day books of accounts which are duly audited and has been accepted by the AO. The cash deposit is made in the regular bank account of the assessee. The assessee has explained the source of cash deposit as withdrawals made from the regular bank account in the month of August 2016 to September 2016. The appellant had submitted the cash balance position as under:-

Cash Opening Cash Cash deposit Closing Month Withdrawal Cash utilized Balance Realization in Bank Balance from Bank Aug-16 11,17,717 - 27,00,000 6,55,210 - 31,62,507 Sep-16 31,62,507 - 54,00,000 2,45,175 - 83,17,332 Oct-16 83,17,332 12,500 27,00,000 5,25,538 18,25,000 86,79,294 Nov-16 86,79,294 - - 45,700 80,00,000 6,33,594 Total 32,500 1,08,00,000 16,64,513 1,16,25,000 The above position of cash balance is clealy showing the source of cash deposit in bank account. The AO has not brought any evidence to establish that this cash has been utilized some where else. In the absence of such evidence, the claim of the assessee can't be rejected specially when the books of accounts have been ACIT vs. Mukesh Shah 14 accepted and no evidence of use of cash for other purpose was brought on record by the AO. The various cases relied by the appellant supports his case. In these facts, I find that the source of cash deposit during the demonetization period is verifiable from the earlier bank withdrawals itself and therefore the addition of Rs.80,00,000/- made by the AO is deleted. In the result, this ground of appeal is allowed.

Finding on Business Income or capital gain 5.3 I have considered the facts of the case gone through the submission and the paper book. On perusal of the facts and submission I find that the assessee is dealing in real estate as well as also making investment in real estate. He has also filed the details of the lands which are held as stock in trade and the registry of the plots treated as capital assets. On going through the same it is seen that the land shown in the stock in trade are mainly big chunk of land whereas plots classified in capital assets are mainly small plots. The plots sold by him during the year are consistently shown under the head fixed assets in earlier years as evident from the fixed asset chart of earlier years filed in the paper book. This fact has not been disputed by the AO. I further find that whether the plot sold by the assessee represents stock in trade or capital assets is to be seen from the intention of the assessee at the time of the purchase of the plot. If the intention of the assessee at the time of the purchase is to keep the same for appreciation than the gain on sale of the same is chargeable to tax under the head income fom capital gain. If the intention of the assessee at the time of purchase is to sale the plots and earn profit than the profit on sale of the same is chargeable to tax under the head income from business. In this case the intention of the assessee is clear from the fact that the same is regulary shown under the head fixed assets. The various cases relied upon by the assessee also supports his case. Considering all these facts, the action of the AO in treating the profit on sale of the plots as business profit is rejected and the AO is directed to assess the gain on sale of these plots under the head capital gains as declared by the assessee. In the result this ground of appeal is allowed.

Finding on deduction of house property 6.3 I have considered the facts of the case gone through the submission and the paper book. I find that in respect of rent from plot no. T-03, T-03A, T-04A, the assessee has agreed that the same should be taxed under the head income from other sources as this is rent from open land only. Therefore, the disallowance to the extent of Rs. 6750/- u/s 24(a) in respect of rent from these plots is confirmed.

So far as rent from property Sl. -05, 9,10 is concerned, I find that this rent is from building given on rent as evident from the rent agreement, water and electricity bills filed before the AO. Therefore the same has correctly been offered by the assessee under the head income from house property. Accordingly the disallowance of Rs. ACIT vs. Mukesh Shah 15 30,000/- made u/s 24(a) is deleted. In the result, this ground of appeal is partly allowed.

5. Feeling aggrieved from the finding so recorded in the order of ld. CIT(A), revenue preferred the present appeal challenging the finding of the ld. CIT(A) on the grounds as reproduced herein above.

Apropos to the grounds so raised ld. DR representing the revenue relied on the finding recorded herein above. As the same has been reproduced herein above the same are not repeated.

6. On the other hand, ld. AR of the assessee supporting the finding so recorded in the order of ld. CIT(A). In support of that order ld. AR of the assessee also filed a written submissions in respect of the various grounds raised by the revenue and the same is reproduced herein below:

1. The assessee is engaged in the business of trading of agri- commodities and development of properties. He also invest in the properties. The return of income was filed on 04/10/2017 declaring total income of Rs.36,64,810/-.

2. In course of assessment proceedings AO observed that the assessee has made cash deposit of Rs.80,00,000/- in his bank account between 09-11- 2016 to 30-11-2016 i.e. during demonetization period. The assessee explained that same is out of earlier withdrawals made by him from his bank account as under:-

Cash Withdrawal from Month Bank Aug-16 27,00,000 Sep-16 54,00,000 ACIT vs. Mukesh Shah 16

Oct-16 27,00,000 Total 1,08,00,000

3. The A.O required the assessee to explain the reason for withdrawing cash from his bank account despite having sufficient cash in hand. The assessee filed the explanation which is reproduced at page 2 of the assessment order. The AO, however, rejected the explanation of assessee as per the finding given at Para 3.3 of the order and thus made addition of Rs.80,00,000/- u/s 68 of the Act.

4. The Ld. CIT (A) at Para 4.3 Page 10-11 of the order held that assessee has maintained the day to day books of accounts which are duly audited and accepted by the A.O. The cash is deposited out of the withdrawals made from the regular bank accounts in the month of Aug 16- Sep16. A.O has not brought any evidence to establish that this cash has been utilized somewhere else. The various cases relied by the assessee supports his case. Accordingly he deleted the addition made by the A.O.

Submission:

1. The finding of CIT (A) is relied upon. In fact the source of cash deposit is verifiable from the cash book maintained in the normal course of business. As per the cash book the position of opening balance, cash withdrawal from bank, cash deposited in the bank and the cash utilized by the assessee is as under:-

Cash Opening Cash Cash deposit Closing Month Withdrawal Cash utilized Balance Realization in Bank Balance from Bank Aug-16 11,17,717 - 27,00,000 6,55,210 - 31,62,507 Sep-16 31,62,507 - 54,00,000 2,45,175 - 83,17,332 Oct-16 83,17,332 12,500 27,00,000 5,25,538 18,25,000 86,79,294 Nov-16 86,79,294 - - 45,700 80,00,000 6,33,594 Total 32,500 1,08,00,000 16,64,513 1,16,25,000

The AO has accepted the books of accounts of assessee maintained in the normal course of business. On the basis of these audited books of accounts he has assessed the income of the assessee. He has not disputed the cash withdrawals from the bank account. After considering this cash withdrawals the cash balance as per cash book is much more than the amount of cash deposited in the bank account. The AO has not brought any evidence to indicate that the cash withdrawal from the bank account has been utilized somewhere else. Therefore CIT (A) has rightly accepted the source of cash deposit in the bank account.

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2. Reliance in this connection is placed on the following cases :- Muon Computing (P) Ltd. vs. ITO (ITA No. 7606/Del/2019) 4th Aug, 2021 (ITAT Del)

Para 9 of this decision is reproduced as under:

"9. There is no dispute with regard to the fact that Revenue has not brought any material suggesting that the withdrawal made by the assessee were utilized for making payments. It is also not brought on record that the amounts so withdrawn from the bank account was utilized for any other undisclosed purposes. Further, it is noticed that learned CIT(A) observed that despite having sufficient cash in hand, the assessee withdraw the amount. It is correct that the assessee has withdrawn higher amounts than the immediate preceding years but that cannot be sole reason for making addition purely on the basis of suspicion. Further, I failed to understand the reasoning of the AO that the amount was withdrawn to justify the cash deposits during demonetization period i.e., between 9th Nov., 2016 to 30th Dec., 2016. It is also seen that the cash was withdrawn much prior to such event. So far observation regarding sharp increase in payable expenses is concerned, there is no finding by the AO that such expenses are bogus. Therefore, in my considered view, the addition has been made purely on the basis of suspicion. Such action of authorities below cannot be affirmed. I, therefore, direct the AO to delete the impugned addition. Thus, ground raised by the assessee in this appeal is allowed." Nand Kumar Taneja & Anr. vs. ITO(2019)

55. CCH 0705 (DelTrib) Para 6 & 7 of this decision is reproduced as under:-

“6. Apart from that, the details of; opening cash, cash withdrawal, cash deposited, cash expenditure; closing cash in hand and increase cash in hand, in case of both the assessees were given before the authorities below, which has been incorporated above in para 3 and 3.1 No discrepancy or any inquiry has been done by Assessing Officer to disapprove the cash disclosed in the books of account and balance sheet. The sole reason for disbelieving the assessee’s explanation is that, firstly, no prudent person after withdrawing the cash will keep at home; and secondly, if there was an OD account having negative balance on which interest is being charged, then there was no need to keep such huge cash in hand at home. Such reasoning dehors any contrary material on record that the cash disclosed in the books of accounts has been invested somewhere else, then on mere surmise assessee’s explanation cannot be discarded. If assessees have genuine sources of income which are received through banking channels, out of which cash has been withdrawn and have been disclosed in the income tax return and in the balance sheet as cash-in-hand, then I am unable to apprehend how the provision of section 69A is applicable. Because the section can only be invoked where in any financial year the assessee is found to be the owner of any money, etc., which has not been recorded in the books of accounts and assessee offers no explanation. Here in these cases, Assessee’s cash in hand duly stands recorded and source has been explained from the income deposited in the bank account and withdrawal, then in my opinion deeming provision of section 69A cannot be invoked. The reasoning given by the AO and Ld. CIT (A) is vague and based on surmise as to what a prudent person should have done. Once assessee has explained that being of senior citizen they have maintained such liquidity of cash out of their own disclosed income with them for certain contingencies, then without any material to ACIT vs. Mukesh Shah 18 controvert such an explanation, addition cannot be sustained. Assessees before the lower authorities have filed following documents to substantiate the cash in hand with them:- a. Income Tax Return with computation of total income. b. Balance Sheets for FY 2013-14, 2014-15 and FY 2015-16. c. Comparative Chart of cash movement FY 2013-14, 2014-15 and FY 2015-16. d. Cash book maintained by the assessee. e. Kotak Mahindra Bank Statement bearing A/c No. 6311509485 f. Standard Chartered Bank: Statement of account. g. Bank: Book of Kotak Mahindra Bank. h. Bank Book of Standard Chartered Bank. i. Copy of all medical treatment documents.

7. All these documents have neither been rebutted nor there is any finding that cash- in-hand disclosed in the balance sheet was beyond the scope of their income or are not substantiated from the bank account. Simply because after the period of demonetization, that is, 08.11.2016, certain amount of cash has been deposited in the bank account, it does not mean that the cash-in-hand as on 31.3.2015 and 31.03.2016, duly shown in the balance sheet and disclosed to the department in the respective income tax return filed much earlier, is unexplained. Accordingly, in view of the above reasoning, addition made by the AO and sustained by the Ld. CIT (A) is directed to be deleted.”

Krishna Agarwal vs. ITO (2021) 63 CCH 0048 (JodhTrib)

Para 14 of the decision is reproduced as under:-

“14. In this regard, it is noted that the assessee has explained that out of earlier year's cash withdrawals from her bank account which were available as cash balance as on 01/04/2016, the assessee had deposited a sum of Rs. 68,95,000/- in her bank account during the year under consideration. It has been submitted that the assessee has sold a property, transferred in her name after the death of her husband, for a consideration of Rs 1,31,45,200/- during the financial year 2015-16 and the sale consideration has been received in installments during the financial year 2014-15 and financial 2015-16 directly in her bank account which has been subsequently withdrawn from time to time and due to non-fulfillment of purpose for which the cash was withdrawn, it was again re-deposited in the bank account during the year under consideration. In this regard, it is noted that the assessee in her return of income for A.Y 2016-17 has disclosed sale consideration on sale of plot of land for Rs 1,31,45,200/- and offered capital gains to tax. The plot has been sold through a registered deed and the valuation has been determined at Rs 1,31,45,200/- by the stamp duty authority. Thus, the sale consideration equivalent to stamp duty value has been duly disclosed by the assessee and there is no finding that the assessee has received any amount over and above the declared sale consideration. Therefore, given that the sale consideration has been received directly in the assessee's bank account, the source of cash withdrawals in the earlier two years has been clearly demonstrated by the assessee and we see no reason but to accept the said explanation which is clearly demonstrated through the sale documentation and tax filings by the assessee”.

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Neeta Breja, New Delhi vs ITO order dt.25.11.2019 :- The Hon’ble bench at Para 12 of its order held as under:-

“12. In the present case also the learned assessing officer or the learned CIT A did not show that above cash was not available in the hands of the assessee or have been spent on any other purposes. Further the coordinate bench in ACIT vs Baldev Raj Charla 121 TTJ 366 (Delhi) also held that merely because there was a time gap between withdrawal of cash and cash deposits explanation of the assessee could not be rejected and addition on account of cash deposit could not be made particularly when there was no finding recorded by the assessing officer or the Commissioner that apart from depositing this cash into bank as explained by the assessee, there was any other purposes it is used by the assessee of these amounts. In view of above facts, the ground number 1 of the appeal of the assessee is allowed and orders of lower authorities are reversed.”

DCIT Vs Veena Awasthi (ITAT Lucknow) (2018) order dt.30.11.2018

The Hon’ble ITAT AT Para 8 of its order held as under:

“8. We have perused the case record and heard the rival contentions. We find that addition has been made by the Assessing Officer, as is evident from his order, on the ground that he has come to the conclusion that cash deposits were from some other source of income which is not disclosed to the Revenue. Assessing Officer nowhere in his order has brought out any material on record to show that assessee is having any additional source of income other than that disclosed in the return nor Assessing Officer could spell out in his order that cash deposits made by the assessee was from some undisclosed source. All throughout Assessing Officer has raised suspicion on the behavioural pattern of frequent withdrawal and deposits by the assessee. There is no law in the country which prevents citizens to frequently withdraw and deposit his own money. Documentary evidences furnished before the Revenue clearly clarifies that on each occasion at the time of deposit in her bank account, assessee had sufficient availability of cash which is also not disputed by the Revenue. Entire transaction of withdrawals and deposits are duly reflected in the bank account of the assessee and are verifiable from relevant records. Assessing Officer himself admitted that assessee had sufficient cash balance on each occasion at the time of deposit in her bank account on different dates during the assessment year under consideration. We have also examined the order of ld. CIT(A) and we find that his decision is based on facts on record and is supported by adequate reasoning and, therefore, we do not want to interfere with the order of ld. CIT(A) and accordingly we uphold the findings of the ld. CIT(A) sustaining relief granted to the assessee.”

3. It is submitted that assessee has withdrawal the cash from the bank account as he was planning to start the project under ‘Mukhya Mantri Jan Awas Yojna’ but since the deal did not materialized, the cash was deposited back in the bank account. This explanation has not been accepted by the A.O on suspicion without bringing on record any material to show that cash so withdrawn has been utilized somewhere else. The department in its ground has taken an objection that when cash purchase of property was prohibited by law w.e.f. 01.06.2015, the explanation given by the assessee is not justified by ignoring the fact that assessee has nowhere stated that he has withdrawn the ACIT vs. Mukesh Shah 20

money for purchase of land. Further AO ignored the fact that when out of such cash withdrawal, Rs.18,25,000/- deposited in the bank in Oct-2016 has been accepted, there is no reason not to accept the cash of Rs.80,00,000/- deposited in the bank in Nov-2016 out of the same cash withdrawal.

In view of the above the order of CIT (A) be upheld by dismissing the ground of the revenue.

Ground No.2 Whether on the facts and in the circumstances of the case the Ld. CIT (A) was justified in not treating the sale transaction of property as business income of Rs.66,99,427/- but as Capital Gain, thereby ignoring the facts that nature of business of the assessee is ‘builder/property developer’ as declared in column 10(a) of the 3CD form.

Facts:

1. During the year under consideration assessee sold certain plots held as investment. On sale of the same he computed short term capital gain of Rs.7,60,849/- and long term capital gain of Rs.9,58,756/- as under -: A. Short term capital gain

Address of property Date of purchase Cost of acquisition Date of Sale Sale Value Net STCG

Anukampa Housing 15.07.2016 522120 20.07.2016 1030000 507880 Plot No. 373, Oriental 30.09.2014 997031 19.08.2016 1250000 252969 Arcade Yojna, Mahal, Jaagatpura Total STCG 1519151 2280000 7,60,849/-

B. Long term capital gain

Indexed cost of Date of Acquisition Net LTCG or Address of property Purchase Date of sale Sale value and LTCL Improvemen t ACIT vs. Mukesh Shah 21

Plot No. C-67, 03.09.2012 16089560 24.11.2016 17500000 1410440 MotiDoongri Scheme, (PB 11-25) Tilak Nagar, Ram Marg, PriyadarshiMarg, Jaipur

Plot No. C-517, 11.02.2013 2215842 17.11.2016 1990000 (-)225842 Siddharth Nagar, (PB 26-36) Malviya Nagar, Jaipur

Plot No. C-516, 11.02.2013 2215842 17.11.2016 1990000 (-)225842 Siddharth Nagar, (PB 37-46) Malviya Nagar, Jaipur

Total 20521244 21480000 958756

2. The A.O however assessed the same as income from business by holding that in Form No.3CD, Clause no.10(a) is stated to be property developers. Once assessee is into the business of property developers it is not open to him to treat certain property sales as capital transactions. The trading account shows that plots purchases prior to 2010 are held as closing stock. He therefore treated the sale of plot as business income by referring to certain decisions and thus treated the profit on sale of plots offered as Capital Gain as business income and made addition of rs.66,99,427/-.

3. The Ld. CIT (A) at Para 5.3, Page 19 of the order observed that the land shown as stock in trade are mainly big chunk of land whereas plots classified in capital assets are mainly small plots. The plots sold during the year are consistently sold under the head fixed assets in earlier years. This fact has not been disputed by the A.O. Whether plots sold represent stock in trade or capital asset is to be seen from the intention of the assessee at the time of purchase of the plot. The intention of the assessee is clear from the fact that same is regularly shown under the head fixed asset. The various cases relied by the assessee also supports his case. Accordingly he directed the A.O to assess the gain on sale of plots under the head Capital Gains.

Submission:

intention of the assessee at the time of purchase is to sale the plots and earn profit than the profit on sale of the same is chargeable to tax under the head income from business.

“Merely for the reason that assessee was into real estate business and involved in buying and selling of lands for profits, profit derived from sale of agricultural land cannot be brought to tax under the head 'income from business or profession”.

Further Hon’ble ITAT Ahmedabad Bench in case of Hitesh Kumar Ashok Kumar Vaswani Vs. JCIT 2017 157 DTR 167 held as under:-

“Assessee having sold few plots during the relevant year out of the large land portfolio which was held for considerable time and shown as capital investment all along and has been subjected to wealth-tax, the land/property was held by the assessee as capital asset. Act of usage of borrowed funds by itself is not sufficient to substitute the declared intention of the assessee and alter the character of the asset substantially. Allegation of the revenue that land has been converted into non-agricultural land prior ACIT vs. Mukesh Shah 23 to its sale is of no effect. Such act can only be with a view to maximize the gain on sale of property by a prudent investor for which he cannot be faulted. No adverse inference is permissible on account of the land was made to a developer. What is relevant to determine the issue is to enquire into the intention at the time of acquisition of the asset and not when the asset is proposed to be sold. Revenue has not alleged any real substantive and systematic course of activity or conduct with set purpose. Sec. 2(14) stipulates that property can be ‘capital asset’ even if connected with business of the assessee. Thus, assessee is entitled to hold certain class of assets as capital asset even while he is dealing with the asset of similar nature in business with commercial objectives. Accordingly, land/properties were held by the assessee as ‘capital assets’ before its sale and consequential gains arising on sale thereof is chargeable under the head ‘capital gains’.

Factors Observations of AO Assessee’s Explanation Was the purchaser a Yes the assessee is As per the CBDT Circular No.4/2007 dt. trader and whether the engaged in the business 15.06.2007 in respect of shares it is purchase of the of real estate in stated that assessee can have 2 portfolios commodity and its resale developing properties. He i.e. one investment portfolio and second allied to his usual trade or has also shown closing trading portofilio. Assessee has also business or incidental to stock of various plots of maintained two portfolios, investment it? land in his books of portfolio which is held by the assessee for accounts capital appreciation is shown in the Fixed Assets and the trading portfolio is shown separately as Stock in trade (Item wise). Thus simply for the reason that assessee is engaged in the business of Real Estate it cannot be held that assessee cannot hold immovable property as Capital Asset. What is the nature of the The assessee has Two separate portfolios have been made commodity purchased purchased the plots and by the assessee. The properties situated and sold and in what sold them in the year in Jaipur is held for investment purpose quantity was it purchased under reference and held whereas property mainly situated in or resold? some pieces of lands as Ganganagar is held as Stock in Trade. stock in trade and some The properties situated in Jaipur was pieces of lands as purchased in the FY 12-13 and the same investment. The assessee is sold during the year and thus it is a is continually selling and separate transaction and the same cannot buying properties be linked with the business of the assessee. Did the purchaser by any The assessee is Engaged The properties held as investments were act subsequent to the in the business of real acquired in the year FY 12-13 and the purchase improve the estate thus this condition same is shown in the Fixed Assets at quality of the commodity is directly applicable as cost. No improvement has been ACIT vs. Mukesh Shah 24 purchased and thereby the plots were purchased subsequently done to improve the quality made it more readily with the sole intention of of these properties.. resaleable selling them on profit instead of keeping the same for the long term. since the property was located in a well developed locality of the Jaipur city and duly converted for residential purpose there is no need to incur any improvement expenses What were the incidences The sale of the plots is The sale of the properties held as Capital associated with the directly related to the Asset has no relation with the existing purchase and sale and business activity of the business of sale and purchase of real whether they are akin to assessee estate. It is separate transaction of the operations usually investment in capital assets and duly associated with trade or shown in balance sheet as fixed assets business? and thus the consequential gains arising from the sale thereof is chargeable under the head Capital Gain. Are the transaction of the Yes assessee is regularly No the transaction is not repeated as the purchase and sale selling and buying same is an Investment transaction repeated? properties separate from the trading transaction. The A.O has wrongly linked the capital assets purchased at Jaipur with the regular business of real estate carried out at Ganganagar.

In view of the above the action of the A.O in treating the long term/ short term capital gain as Income from Business is incorrect and therefore the Ld. CIT(A) ahs rightly directed the A.O to assess has gain on sale of plots under the head Capital Gain . Hence, the order of CIT (A) be upheld by dismissing the grounds of the department.

Ground No.3 Whether on the facts and in the circumstances of the case the Ld. CIT (A) was justified in allowing the deduction u/s 24(b) on rental income from plots of land ignoring the fact that there is no constructed house or building on these plots.

Facts & Submissions :-

1. The assessee has declared Income From House Property at Rs.1,22,500/- from the following two properties:-

Particulars Amount Plot at SI-05,9,10 Rental Income 1,00,000 Less: Deduction u/s 24(a) 30,000 Net Income 70,000 ACIT vs. Mukesh Shah 25

Plot No. T-03, T-03A, T-04A Rental Income 22,500 Less: Deduction u/s 24(a) 6,750 Net Income 15,750

2. A.O observed that the assessee has claimed deduction u/s 24(a) whereas the same being income from plot are to be assessed under the head Income from Other Sources. Accordingly he disallowed the claim of deduction u/s 24(a) for Rs. 36,750/-.

3. The Ld. CIT (A) at Para 6.3 of its order observed that the assessee has agreed that the rent of Plot No T-03, T-03A & T-04A should be assessed under the head Income from Other Sources and thereby confirm the disallowance to the extent of Rs.6,750/-. However, in respect of property at SI-05, 9 & 10 , he held that from the rent agreement and water electricity bills filed before the A.O it is evident that the rent is form the building and thereby the disallowance of Rs.30,000/- made u/s 24(a) is deleted.

4. It is submitted that during the year under consideration the assessee has earned rental income of Rs.1,00,000/- in respect of constructed building at SI-05, 09, 10. This building is given on rent to Gurdeep Singh and Kulvinder Singh. Copy of the rent agreement in support of the same was filed to the A.O. In the return the same has been wrongly mentioned as plot rent instead of building rent. The Ld. CIT (A) after pursuing the rent agreement has rightly deleted the disallowance of Rs.30,000/- made u/s 24(a) of the Act and therefore the order of CIT (A) be upheld by dismissing the grounds of the department. ”

S. No. PARTICULARS Page No. Filed before AO/ CIT(A) 1. Copy of submission filed before Ld. CIT(A) along with 1A-1O CIT(A) Paperbook 2. Copy of Cash Book for FY 2016-17 Both 1-10 3. Copy of registry of Plot No.C-67 Moti Doongri Scheme, Tilak 11-25 Both Nagar, Ram Marg, Priyadarshi Marg, Jaipur 4. Copy of registry of Plot No.C-517, Siddharth Nagar, Malviya 26-36 Both Nagar, Jaipur 5. Copy of registry of Plot No.C-516, Siddharth Nagar, Malviya 37-46 Both Nagar, Jaipur 6. Copy of Fixed Asset register for FY 2012-13, 2013-14, 2014- 47-50 Both 15 and 2015-16 7. Copy of rent agreement Both 51-52 8. Copy of order of Hon’ble ITAT Lucknow Bench in case of 53-58 Both DCIT Vs. Veena Awasthi (2018) ACIT vs. Mukesh Shah 26

Against that detailed finding of the ld. CIT(A), ld. AO through the ld. DR did not brough on record anything contrary to the finding of facts so recorded in the order of the ld. CIT(A) and therefore, merely based on the nature of the business for tax audit purpose will not determine the nature of other head of income. In the light of the above discussion, we do not find any infirmity in the detailed finding of the ld. CIT(A) and therefore, the ground no. 2 raised by the revenue stands dismissed.

The revenue could not provide any justification as why the said detailed and consistent finding of the ld. CIT(A) does not hold good when it is supported by the facts already placed on record before the ld. AO and thereby, we dismiss the ground no. 3 raised by the revenue.

ACIT vs. Mukesh Shah 30

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

Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.