Ghyanshyam Dass Gupta & Sons HUF, New Delhi V. ACIT, New Delhi

ITA 3337/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81729 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-05-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 24-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH SENIOR
• Assessee Lawyers: VED JAIN SMT RANO JAIN; VENKTESH CAS
• Keywords: Capital asset; Business income; Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3337/DEL./2011 (ASSESSMENT YEAR : 2006-07) GHANSHYAM DASS GUPTA AND SONS HUF, VS. ACIT, CIRCLE 28 (1), 4800/23, 2 ND FLOOR, NEW DELHI. BHARAT RAM ROAD, DARYAGANJ, DELHI 110 002. (PAN : AAAHG0918D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, SMT. RANO JAIN AND SHRI VENKTESH, CAS REVENUE BY : SHRI SATPAL SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE CIT (APPEALS)- XXV, NEW DELHI DATED 29.03.2011 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE IS AN HUF. ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN THE PAPER, INDENTING AND MONEY LENDING BUSINESS IN THE PAST SO MANY YEARS. IT IS REGISTERED WITH SALES TAX DEPARTMENT SINCE 1969. EXPENSES CLA IMED IN PROFIT & LOSS ACCOUNT WERE ALLOWED TO ASSESSEE IN PRECEDING YEARS. THE RETUR N OF INCOME WAS FILED ON 28.03.2007 DECLARING INCOME AT RS.26,44,980/- WHICH ALSO INCLU DES LONG TERM CAPITAL GAIN ON 28.03.2007. DURING THE YEAR, THE ASSESSEE HAS SHOW N INTEREST INCOME OF RS.29,82,231/- AND HAS ALSO CLAIMED EXPENDITURE OF RS.4,75,982/- T OWARDS THE SALARY AND BONUS, ITA NO.3337/DEL./2011 2 TELEPHONE EXPENSES, ELECTRICITY CHARGES, CAR MAINTE NANCE, ADDITIONAL SALES-TAX DEMAND, BANK CHARGES & INTEREST, SUBSCRIPTION AND LEGAL CHA RGES. THE ASSESSING OFFICER HELD THAT THESE EXPENSES ARE REMOTELY CONNECTED WITH THE INCOME SHOWN BY THE ASSESSEE. HE DISALLOWED THE EXPENDITURE BY HOLDING THAT THE ASSE SSEE IS HAVING ONLY INTEREST INCOME AS A SOURCE OF INCOME, THEREFORE, THE QUESTION OF A LLOWING SUCH EXPENDITURE DOES NOT ARISE. THE CIT (A) HAS CONFIRMED THE ACTION OF THE AO. AGAINST THE ABOVE ISSUE, THE ASSESSEE IS IN APPEAL BEFORE US BY TAKING THE FOLLO WING GROUNDS OF APPEAL :- 1. THAT THE FACTS AND IN LAW THE COMMISSIONER OF I NCOME TAX (APPEALS) (HEREINAFTER REFERRED AS CIT (A)) ERRED I N DISALLOWING BUSINESS EXPENDITURE OF RS.4,75,982/-. 2. THAT THE FACTS AND IN LAW THE CIT (A) ERRED IN HOLDING/OBSERVING THAT THE INTEREST INCOME OF RS.29 ,82,231/- IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. WHILE PLEADING ON BEHALF OF THE ASSESSEE, LD. AR SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN PAPER, IN DENTING AND MONEY LENDING BUSINESS FOR THE PAST SO MANY YEARS. HE DRAWS OUR ATTENTION TO PAGE 122 OF THE PAPER BOOK WHICH IS A TRADING AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR YEAR ENDING 31.03.2003 WHEREIN SALES HAVE BEEN SHOWN AT RS.14,47,66,282/-. HE SUBMITTED THAT DURING THE YEAR, THE ASSESSEE COULD NOT CARRY OUT THE TRADING IN THE PAPER. HOWEVER, THE MONEY LENDING BUSINESS WAS CARRYING ON AND IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. D.C.M. LIMITED IN ITA NO.987 OF 2007 DATED 13 TH JANUARY, 2009, IT WAS PLEADED THAT EXPENSES DEBITED IN PROFI T & LOSS ACCOUNT RELATING TO MONEY LENDING IS AN ALLOWABLE EXPENDITURE. 4. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS O F THE AUTHORITIES BELOW. ITA NO.3337/DEL./2011 3 5. AFTER HEARING BOTH THE SIDES, WE HOLD THAT THE A SSESSEE WAS ENGAGED IN THE BUSINESS OF PAPER TRADING, INDENTING AND MONEY LEND ING BUSINESS FOR SO MANY YEARS PRIOR TO THE ASSESSMENT YEAR UNDER CONSIDERATION. DURING THE ASSESSMENT YEAR 2003-04, THE ASSESSEE HAS CARRIED OUT BUSINESS IN THE PAPER TRADING. FOR THE YEAR, THE ASSESSEE WAS ENGAGED IN MONEY LENDING BUSINESS AND HAS SHOWN INTEREST INCOME OF RS.29,82,231/-. THE TOTAL EXPENDITURE DEBITED IN T HE PROFIT & LOSS ACCOUNT WERE OF RS.4,75,982/- UNDER VARIOUS HEADS AS MENTIONED ABOV E. THE MAJOR EXPENSES WERE SALARY & BONUS, TELEPHONE EXPENSES, ELECTRICITY CHA RGES AND CAR RUNNING & MAINTENANCE. SINCE THE ASSESSEE WAS CONTINUING THE MONEY LENDING BUSINESS IN THIS YEAR ALSO WHICH IS CLEAR FROM THE INTEREST INCOME RECEIVED FROM OTHERS . THE ASSESSEE WAS CARRYING ON TWO BUSINESSES IN THE PAST, I.E. ONE IS THE PAPER TRADI NG AND THE OTHER IS MONEY LENDING. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. D.C .M. LIMITED, CITED SUPRA, HAS CONSIDERED SUCH A SITUATION WHERE ONE UNIT OF THE B USINESS WAS CLOSED BUT THE OTHER UNIT WAS CARRYING OUT THE OPERATIONS, IN SUCH SITUATION, THE HONBLE DELHI HIGH COURT HAS HELD THAT DEDUCTION OF EXPENDITURE ON RETRENCHMENT COMPENSATION, INTEREST, PF TO EMPLOYEES AND THE LEGAL EXPENSES IS ALLOWABLE EXPEN DITURE IN RESPECT OF THE CLOSED UNIT. ASSESSEE WAS CARRYING OUT THE BUSINESS OF MONEY LEN DING DURING THE YEARS, THEREFORE, WE HOLD THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT AND WE DIRECT TO ALLOW TH E EXPENDITURE. SINCE WE HAVE ALREADY HELD THAT THE ASSESSEE IS CARRYING OUT THE MONEY LENDING BUSINESS ALSO, THEREFORE, THE INTEREST INCOME RECEIVED BY THE ASSE SSEE DURING THE YEAR SHALL BE TAXED AS INCOME FROM BUSINESS AND PROFESSION. ACCORDINGLY, G ROUND NOS.1 & 2 ARE ALLOWED. 6. IN THE GROUND NO.3, THE ISSUE INVOLVED IS WITH R EGARD TO THE COMPUTATION OF INCOME DERIVED BY THE ASSESSEE AS A CO-OWNER FROM T HE SALE OF PROPERTY LOCATED AT 3, UNDER HILL LANE, CIVIL LINES. THE GROUND READ AS U NDER :- ITA NO.3337/DEL./2011 4 3. THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN H OLDING THAT INCOME DERIVED BY THE ASSESSEE AS A CO-OWNER FROM T HE SALE OF PROPERTY LOCATED AT 3 UNDER HILL LANE, CIVIL LINES IS CHARGEABLE TO TAX UNDER THE HEAD BUSINESS AND PROFESSION (I.E. AT R S.16,23,247/-) AS AGAINST INCOME FROM CAPITAL GAINS (I.E. LOSS OF R S.6,37,430) DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. 7. THE ASSESSING OFFICER TREATED THE INCOME AS BUS INESS AND PROFESSION. HOWEVER, THE ASSESSEE HAS CLAIMED IT AS INCOME FROM CAPITAL GAINS. THE ASSESSEE HAS PURCHASED A LAND AT 3, UNDER HILL LANE, CIVIL LINES , NEW DELHI-110054 IN 1996 ALONG WITH OTHER NINE CO-OWNERS. THE COST OF LAND TO ASS ESSEE WAS OF RS.26,04,880/-. AS PER ASSESSEES SUBMISSION, THE CONSTRUCTION WAS DONE ON THE PLOT OF LAND AND RESIDENTIAL SEMI-FINISHED UNITS/STRUCTURES WERE RAISED ON THE P LOT. SOME OF THE UNITS WERE SOLD IN THE FINANCIAL YEAR 2005-06 AND REMAINING IN FINANCI AL YEAR 2006-07. SINCE THE CAPITAL ASSET WAS HELD FOR MORE THAN 36 MONTHS, THEREFORE, THE COST OF LAND AND COST OF IMPROVEMENT WAS INDEXED AND THE SAID INDEXED COST W AS DEDUCTED FROM THE SALE PROCEEDS. SINCE THE AMOUNT CAME IN MINUS, THEREFOR E, THE SAME WAS DECLARED IN THE RETURN AS LONG TERM CAPITAL LOSS UNDER THE HEAD IN COME FROM CAPITAL GAINS. WHILE PLEADING ON BEHALF OF THE ASSESSEE, LD. AR SUBMITTE D THAT THE ASSESSEE WAS HAVING 8.5% SHARE IN THE PLOT AND WAS SHOWN AS INVESTMENT IN TH E PLOT UNDER THE HEAD INVESTMENTS AND IT WAS NEVER SHOWN AS STOCK-IN-TRADE. THE ASSE SSEE WAS NEVER ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPERS/BUILDERS OR ANY OF THE ALLIED ACTIVITIES. THE ASSESSEE HAS ALSO NEVER BEEN ENGAGED WITH THE OTHER CO-OWNER S OF THE PROPERTY EITHER IN THE BUSINESS OF BUILDERS/DEVELOPERS OR IN ANY OTHER BUS INESS IN ANY OF THE PRECEDING OR SUCCEEDING YEARS. AS SHOWN, THE ASSESSEE WAS ENGAG ED ONLY IN THE BUSINESS OF TRADING IN PAPER AND MONEY LENDING FOR THE PAST 15 YEARS. SINCE THE LAND WAS HELD MORE THAN 36 MONTHS, IT WAS A LONG TERM CAPITAL ASSET AND STR UCTURE WAS COMPLETED IN FINANCIAL ITA NO.3337/DEL./2011 5 YEAR 2005-06 AND IT WAS HELD FOR LESS THAN 36 MONTH S, THEREFORE, IT WILL BE TREATED AS SHORT TERM CAPITAL ASSETS AND, THEREFORE, THE SALE PROCEEDS BE BIFURCATED BETWEEN LAND AND STRUCTURE. IT WAS ALSO STATED THAT IN NONE OF THE CO-OWNERS CASE, THIS INCOME HAS BEEN TAXED AS INCOME FROM BUSINESS OR PROFESSION. 8. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS O F THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS PURCHASED JOINTLY A PLOT OF LAND WITH OTHER CO-OWNERS AND IT WAS DEVELOPED JOINTLY BY THE CO-OWNER. AFTE R COMPLETING THE CONSTRUCTION OF FLATS, THE SAME WERE IMMEDIATELY SOLD AND THE ASSES SEE EARNED PROFIT OF RS.11,47,265/-. THE MOTIVE OF THE ASSESSEE WAS TO DEVELOP PROPERTY AND SELL THE SAME AND MADE PROFIT. IT IS NOT A SIMPLE CASE OF INVESTMENT BY THE ASSESS EE. THEREFORE, THE ASSESSEE SHALL NOT BE ENTITLED FOR THE BENEFIT OF CAPITAL GAINS AS THE MOTIVE OF THE ASSESSEE WAS TO EARN THE PROFIT. AS PER THE DEFINITION OF BUSINESS U/S 2 (13) OF THE ACT, THE BUSINESS INCLUDES ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE, WHICH IN EFFECT MEANS THAT ANY INCOME FROM ADVENTURE IN THE NATURE OF BUSINESS WILL BE TREATED AS BUSINESS INCOME. 9. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. IT I S AN UNDISPUTED FACT THAT ASSESSEE HAS PURCHASED THE PLOT OF LAND ALONG WITH OTHER CO- OWNERS IN 1996 AND SINCE THEN THIS ASSET WAS DECLARED AS INVESTMENT AND IT WAS NEVER S HOWN AS STOCK-IN-TRADE. FACTS OF THE CASE SHOW THAT ASSESSEE WAS NOT A DEVELOPER OR PROMOTER OF REAL ESTATE. THE LAND WAS HELD ALL ALONG AS INVESTMENT. THE PERIOD WAS FOR MORE THAN 36 MONTHS. THE ASSESSEE HAD NEVER ENGAGED IN REAL ESTATE BUSINESS WITH OTHER CO-OWNERS NEITHER IN PRECEDING OR SUCCEEDING YEARS. ON THE QUERY FROM T HE BENCH, LD. AR HAS STATED THAT IN NONE OF THE OTHER CO-OWNERS CASE, REVENUE HAS TREA TED THIS INCOME FROM BUSINESS OR PROFESSION. COPY OF ORDER U/S 143(3) OF THE ACT P ASSED BY THE DCIT, CC-21, NEW DELHI IN RESPECT OF ONE OF THE CO-OWNERS, SHRI ASHO K KUMAR GUPTA FOR THE ASSESSMENT ITA NO.3337/DEL./2011 6 YEAR 2006-07 DATED 18.12.2008 WAS FILED BEFORE US W HICH IS PLACED ON RECORD. THE RETURN INCOME WAS ACCEPTED AND COMPUTATION OF INCOM E SHOWS THAT INCOME HAS BEEN OFFERED FOR TAX UNDER THE HEAD CAPITAL GAIN. SO, I N VIEW OF CONSISTENCY OF ISSUE, ASSESSEE DESERVES A RELIEF. CONSIDERING ALL THESE FACTS, WE ALLOW THIS GROUND OF ASSESSEES APPEAL. 10. GROUND NO.4 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 15 TH DAY OF SEPTEMBER, 2014. SD/- SD/- (DIVA SINGH) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 15 TH DAY OF SEPTEMBER, 2014 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXV, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.