SHRI SOMESH BHATNAGAR, Bhopal V. THE DCIT-1(1), Bhopal

ITA 541/IND/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5315 (ITAT-INDORE)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-12-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 17-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Fair market value
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .., .., % BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER SHRI SOMESH BHATNAGAR, BHOPAL .. ./ PAN: AA VS. DY. CIT, 1(1), BHOPAL / APPELLANT / RESPONDENT / APPELLANT BY SHRI ANIL KHABYA, C. A. / RESPONDENT BY SHRI MOHD. JAVED, SR. DR DATE OF HEARING 06.12.2016 DATE OF PRONOUNCEMENT 19.12.2016 / O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-I, BHOPAL .. . / I.T.A. NO. 541/IND/2016 %' ' / ASSESSMENT YEAR: 2012-13 I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 2 OF 13 [HEREINAFTER REFERRED TO AS THE CIT(A)] DATED 15.03 .2016 AND PERTAINS TO ASSESSMENT YEAR 2012-13 AS AGAINST APPE AL DECIDED IN ASSESSMENT ORDER PASSED U/S 143(3) OF T HE ACT DATED 10.02.2015 OF DY. CIT 1(1), BHOPAL [HEREINAFT ER REFERRED TO AS THE AO]. 2. GROUND NO. 1 RELATES TO NOT ALLOWING CLAIM OF DEDUCT ION OF INTEREST EXPENSES OF RS. 14,60,076/- BY HOLDING THAT TRANSACTION OF SALE AND PURCHASE OF THE HOUSE WAS NO T ASSESSABLE AS INCOME FROM BUSINESS AND PROFESSION BUT WAS A TRANSACTION ASSESSABLE UNDER THE HEAD INCOME FRO M CAPITAL GAIN. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CIVIL AND LABOUR CONTRACTOR, WHO HAS F ILED THE RETURN OF INCOME ON 01.10.2012 DECLARING TOTAL INCO ME OF RS. 28,59,480/-. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE AO NOTICED THAT THE CONTRACT RECEIPT OF THE ASS ESSEE WERE AT RS. 3,67,69,356/-. THE AO FURTHER NOTICED THAT T HE ASSESSEE HAS MADE A SEPARATE TRADING ACCOUNT FOR SALE OF HOU SE AT E-7, ARERA COLONY, BHOPAL, IN RESPECT OF A HOUSE PURCHAS ED ON I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 3 OF 13 25.02.2011 FOR RS. 1,20,00,000/- AND ALSO CLAIMED EXPENDITURE OF RS. 12,39,000/- ON REGISTRATION EXPE NSES. THEREFORE, THE TOTAL COST WAS WORKED OUT AT RS. 1,32 ,39,000/-. THE ASSESSEE HAS SOLD THIS HOUSE ON 24.03.2012 FOR RS. 1,52,00,000/-. IN THE TRADING ACCOUNT, THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS. 14,60,076/- ON ACCOUNT O F INTEREST OF HOUSING LOAN AND AN AMOUNT OF RS. 4,96,960/- ON ACCOUNT OF LEASE RENT AND TRANSFER FEE ON THE ACQUISITION O F THE HOUSE. THE ASSESSEE HAS TREATED THE SALE OF HOUSE PROPERTY AS HIS BUSINESS INCOME AND SHOWN A GROSS PROFIT OF RS. 3,9 64/-. HOWEVER, THE AO FOUND THAT THE ASSESSEE IS NOT ENG AGED IN THE BUSINESS OF SALE AND PURCHASE OF IMMOVABLE PROP ERTY. SUCH TRANSACTION WAS NEVER DONE IN PREVIOUS YEAR NOR IN SUCCESSIVE YEAR. THE ASSESSEE HAS NOT MAINTAINED SE PARATE BOOKS OF ACCOUNTS FOR BUSINESS OF TRADING IN PROPER TY. THE AO ALSO NOTED THAT THE ASSESSEE HAS NEITHER OPENING BA LANCE NOR CLOSING BALANCE OF THE PROPERTY. NO FIXED EXPENDITU RE FOR RUNNING A SEPARATE BUSINESS HAVE BEEN BOOKED BY THE ASSESSEE AND THE ASSESSEE HAS SHOWN ONLY ONE HOUSE P ROPERTY I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 4 OF 13 DURING YEAR UNDER CONSIDERATION, WHICH WAS PURCHASED BY HIM IN HIS INDIVIDUAL CAPACITY BY TAKING HOUSING LOAN. THEREFORE, THE AO WAS OF THE OPINION THAT THE TRANSACTION OF PU RCHASE OF IMMOVABLE PROPERTY WAS CLAIMED AS BUSINESS TRANSACTI ON BY THE ASSESSEE JUST TO REDUCE THE PROFIT FROM HIS CON TRACTORSHIP BUSINESS. THE AO ALSO NOTED THAT THE ASSESSEE HAS S HOWN MAIN PROFIT FROM CONTRACT BUSINESS AT 8.02 % OF HIS TOTAL RECEIPT FROM CONTRACT, WHEREAS AFTER CONSIDERING THE TRADING ACCOUNT OF THIS HOUSE, THE NET PROFIT RATE COMES TO 5.68 %, WHICH IS VERY LOW IN COMPARISON TO 8 % NET PROFIT RA TE IN SUCH TYPE OF BUSINESS. THEREFORE, THE AO TREATED THE SAI D TRANSACTION OF SALE OF IMMOVABLE PROPERTY AS SHORT TERM CAPITAL GAIN AND COMPUTED SHORT TERM CAPITAL GAIN AT RS. 19 ,61,000/- ( RS. 1,52,00,000/- (-) RS. 1,32,39,000/-). 4. AGGRIEVED WITH THE ORDER, THE ASSESSEE HAS FILED THE APPEAL BEFORE THE CIT(A). 5. THE LD. CIT(A) NOTED THAT THERE IS NO DISPUTE THAT TRANSACTION IN THE HOUSE PROPERTY IS AN ISOLATED TR ANSACTION AND THE ASSESSEE HAD NO RECORD OR HISTORY IN TRADIN G OF I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 5 OF 13 PROPERTY. BESIDES THE FACT, THE ASSESSEE GOT THE PR OPERTY REGISTERED IN HIS NAME AND INCURRED A VERY SUBSTANT IAL AMOUNT OF STAMP DUTY ETC. IS INDICATIVE OF THE FACT THAT H E INTENDED TO HOLD ON THE PROPERTY AS A CAPITAL ASSET. IF THE INT ENTION OF THE ASSESSEE WAS TO TRADE IN THE PROPERTY, THEN THE EXPE NSES ON REGISTRATION, STAMP DUTY ETC. WOULD HAVE BEEN AVOID ED BY THE ASSESSEE. THE LD. CIT(A) HAS ALSO NOTICED THAT THER E WAS NO REPORT U/S 44AB FOR THIS CLAIMED BUSINESS OF TRADIN G IN PROPERTY. THEREFORE, THE ASSESSEE WAS LIABLE NOT ONL Y TO MAINTAIN SEPARATE BOOKS OF ACCOUNTS FOR THE PROPERT Y BUSINESS BUT ALSO GET THEM SEPARATELY AUDITED. IN VIEW OF THI S, THE ACTION OF AO IN TREATING THE TRANSACTION AS CAPITAL GAIN DISALLOWING THE EXPENSES OF RS. 19,61,000/- AND TREA TING THE EQUIVALENT AMOUNT AS CAPITAL GAIN WAS UPHELD. 6. BEING AGGRIEVED, THE ASSESSEE HAS FILED THE APPEAL BEFORE US. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS ALS O REITERATED THE SAME FACTS AS CONTENDED BEFORE THE L OWER I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 6 OF 13 AUTHORITIES, BUT COULD NOT CONTROVERT THE FINDINGS OF THE LOWER AUTHORITIES. 8. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE DECISIONS OF THE L OWER AUTHORITIES. 9. WE HAVE CONSIDERED THE FACTS AND MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAS PURCHASED A H OUSE PROPERTY ON 25.02.2011 FOR RS. 1,20,00,000/- AND IN CURRED AN EXPENDITURE THEREON OF RS. 12,39,000/- ON ACCOUNT O F REGISTRATION EXPENSES. THE ASSESSEE HAS SOLD THIS H OUSE FOR RS 1.52 CRORES ON 24.03.2012 AND CONSIDERED THE SAME A S TRADING IN PROPERTY. HOWEVER, WE FIND FROM THE ASSESSMENT O RDER THAT THE ASSESSEE IS A CONTRACTOR DEALING IN CONSTRUCTIO N BUSINESS, WHICH IS ALSO EVIDENT FROM THE FORM 30CD AUDIT REPOR T. WE ALSO FIND THAT NO SEPARATE BOOKS OF ACCOUNTS WERE M AINTAINED IN RESPECT OF BUSINESS OF TRADING IN PROPERTY NOR A NY OPENING OR CLOSING BALANCE IN RESPECT OF THE SAID PROPERTY IS SHOWN. THEREFORE, THIS IS AN ISOLATED TRANSACTION OF PURCH ASE OF A HOUSE, WHICH, OFCOURSE, PURCHASED IN THE NAME OF IND IVIDUAL I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 7 OF 13 CAPACITY AFTER OBTAINING HOUSING LOAN FOR THE SAID PURCHASE. THE HOUSE PROPERTY IS REGISTERED IN HIS NAME ON WHIC H STAMP DUTY PAYMENT HAS ALSO BEEN MADE. THEREFORE, THE ASS ESSEE HAS PURCHASED A CAPITAL ASSET, WHICH HAS BEEN SOLD IN A VERY SHORT SPAN OF TIME. THEREFORE, IN THE LIGHT OF THESE FACT S, WE ARE OF THE CONSIDERED OPINION THAT THE LOWER AUTHORITIES H AS RIGHTLY TREATED THE SAME AS SHORT TERM CAPITAL GAIN TRANSAC TION. ACCORDINGLY, THE ACTION OF THE LOWER AUTHORITIES AR E CONFIRMED. THIS GROUND OF APPEAL IS, THEREFORE, DISMISSED. 10. GROUND NOS. 2 & 3 ARE THE ALTERNATIVE GROUNDS OF APPEAL BY WHICH THE ASSESSEE CONTENDED THAT THE LD. CIT(A) OUGHT TO HAVE COMPUTED THE INCOME FROM HOUSE PROPE RTY AFTER ALLOWING DEDUCTION OF INTEREST OF RS. 14,60,07 6/- U/S 24 OF THE ACT, IF THE TRANSACTION OF SALE AND PURCHASE OF THE HOUSE WAS NOT ASSESSABLE AS INCOME FROM BUSINESS AND PROF ESSION AND THE LD. CIT(A) ALSO ERRED IN NOT ALLOWING DEDUCT ION OF LEASE RENT AND TRANSFER FEE ETC. TO RS. 4,98,960/- INCURR ED BY THE ASSESSEE FOR ACQUISITION OF THE HOUSE, WHILE COMPUTI NG THE TOTAL INCOME OF THE ASSESSEE. I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 8 OF 13 11. THE FACTS APROPOS OF THE ABOVE GROUNDS ARE THAT THE ASSESSEE HAS PURCHASED THE HOUSE PROPERTY ON 25.02. 2011 FOR RS. 1.20 CRORES, WHICH WAS SOLD ON 24.03.2012 FOR RS. 1.52 CRORES AND THE TRANSACTION WAS CLAIMED AS BUSINESS I NCOME AS DISCUSSED IN GROUND NO. 1 ABOVE. HOWEVER, THE AO T REATED THE SAME AS SHORT TERM CAPITAL GAIN AND COMPUTED SHORT TERM CAPITAL GAIN AT RS. 19,61,000/-. THIS CLAIM OF THE ASSESSEE WAS TURNED DOWN BY THE LD. CIT(A) FOR THE REASON THAT Q UESTION BEFORE HER WAS NOT WORKING OF INCOME FROM HOUSE PROP ERTY. THE INCOME ASSESSABLE UNDER THE HEAD HOUSE PROPERT Y IS SEPARATE AND OVER AND ABOVE THE INCOME ASSESSABLE U NDER THE HEAD CAPITAL GAIN. IT WAS ALSO OBSERVED BY THE LD. C IT(A) THAT THE CAPITAL ASSET MAY RESULT INTO INCOME FROM HOUSE PROPERTY IN VARIOUS YEARS AND THE YEAR OF TRANSFER MAY BE SU BJECTED TO BOTH, IF THE FACTS AND CIRCUMSTANCES SO REQUIRED. I N THE CASE OF THE ASSESSEE, NEITHER THERE IS A CLAIM OF INCOME/LO SS FROM HOUSE PROPERTY NOR IS THERE ANY ADDITION/REDUCTION OF THE SAME. HENCE, ALTERNATIVE ARGUMENT OF THE ASSESSEE WA S TURNED DOWN. I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 9 OF 13 12. BEING AGGRIEVED THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 13. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE AO AND LD. CIT(A) HAVE CONSIDERED THE TRANSACTION O F PURCHASE AND SALE OF IMMOVABLE PROPERTY AS SHORT TERM CAPITA L GAIN AND NOT BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. HOWE VER, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE COMPUTA TION OF INCOME FROM HOUSE PROPERTY AS ALTERNATIVE CLAIM. IT WAS SUBMITTED THAT THE ASSESSEE HAS PURCHASED A RESIDEN TIAL HOUSE ON 25.02.2011 BY TAKING HOUSING LOAN FROM BAN K OF BARODA AT RS. 7 LAKHS ON 07.01.2011 AND RS. 95 LAKH S ON 07.02.2011 ON WHICH THE ASSESSEE HAS PAID INTEREST A T RS. 14,60,076/- AND THE ASSESSEE HAS ALSO PAID LEASE RE NT OF RS. 80,500/- AND TRANSFER FEE OF RS. 4,04,660/-. THEREF ORE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THE THEO RY OF AO IS ACCEPTED, THE INCOME FROM HOUSE PROPERTY IS REQUIRE D TO BE WORKED OUT IN ACCORDANCE WITH THE PROVISIONS OF SECTI ON 22 TO 24 OF THE ACT. AS PER LD. COUNSEL FOR THE ASSESSEE, A CERTIFICATE FROM THE ENGINEER AND VALUER WAS FILED, ACCORDING T O WHICH I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 10 OF 13 FAIR MARKET RENT OF THE HOUSE IS SHOWN AT RS. 12,000 /- TO RS. 14,000/- PER MONTH. THEREFORE, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT THE A NNUAL LETTING VALUE OF THE HOUSE MAY BE CONSIDERED AT RS. 1,60,000/- OUT OF WHICH DEDUCTION @ 30% ON ACCOUNT OF REPAIRS A ND INTEREST PAID ON HOUSING LOAN OF RS. 14,60,076/- MA Y BE DEDUCTED U/S 24(B) OF THE ACT. ACCORDING TO THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, THE INCOME IS COMPU TED FROM HOUSE PROPERTY AND WAS WORKED OUT AT NEGATIVE FIGURE AT RS. 13,42,476/-. 14. ON THE OTHER HAND, THE LD. SR.DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE LOWER AU THORITIES AND SUBMITTED THAT NO SUCH CLAIM WAS MADE BY THE ASS ESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AS SESSEE HAS NOT DISCLOSED THE INCOME FROM HOUSE PROPERTY. T HEREFORE, THERE WAS NO QUESTION TO COMPUTE THE INCOME FROM HOU SE PROPERTY AS THE ASSESSEE HAS NOT MADE ANY SUCH CLAI M IN THE RETURN OF INCOME. I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 11 OF 13 15. WE HAVE HEARD THE FACTS AND FIND THAT THE ASSESSEE HAS CLAIMED THIS PURCHASE AND SALE OF THIS HOUSE PROPER TY AND SHOWN BUSINESS INCOME THEREON AT RS. 3964/- BY COMPU TING SEPARATE TRADING ACCOUNT. HOWEVER, THE LOWER AUTHO RITIES HAVE FOUND THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSIN ESS OF REAL ESTATE, AS THIS WAS A SOLITARY TRANSACTION CONDUCTE D BY THE ASSESSEE. THEREFORE, THE INCOME FROM THIS PROPERTY WAS ASSESSABLE AS INCOME UNDER THE HEAD CAPITAL GAIN. ACCORDINGLY, SHORT TERM CAPITAL GAIN OF RS. 19,61,0 00/- WAS WORKED OUT AND ASSESSED ACCORDINGLY. WE ALSO FIND TH AT THE ASSESSEE HAS RAISED HIS ALTERNATIVE PLEA BEFORE THE LD. CIT(A). HOWEVER, THE SAME WAS NOT FOUND ACCEPTABLE BY THE L D. CIT(A) ON THE GROUND THAT NO SUCH CLAIM WAS MADE BEFORE THE AO AND THE ISSUE UNDER CONSIDERATION WAS NOT WORKING OF INCO ME FROM HOUSE PROPERTY, BUT THE ISSUE OF INCOME IS ASSESSAB LE UNDER THE HEAD CAPITAL GAINS. IN VIEW OF THESE FACTS, WE FIND THAT THE ISSUE HAS NOT BEEN EXAMINED BY THE AO AND BY TH E LD. CIT(A) . THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE MAY BE RESTORED TO THE FILE I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 12 OF 13 OF THE AO FOR RECONSIDERATION THE ENTIRE CLAIM AS I NCOME FROM HOUSE PROPERTY. THE AO WILL EXAMINE WHETHER THE ASSES SEE IS AT ALL ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN RESPECT OF THIS PROPERTY. IT IS APPARENT FROM TH E RECORD THAT THE ASSESSEE HAS NOT LET OUT THIS PROPERTY DURING T HE YEAR UNDER CONSIDERATION , BUT IT IS NOT CLEAR FROM THE FACTS WHETHER THE ASSESSEE IS HAVING ANOTHER HOUSE AND THE REASON S FOR TREATING THIS PROPERTY AS S.O.P. THE AO WILL ALSO EN QUIRE AND INVESTIGATE THE FAIR MARKET VALUE OF RENT. THE AO WI LL ALSO ENQUIRE FROM THE BANK AUTHORITIES WHETHER THE ASSESS EE HAS TAKEN LOAN FOR PURCHASE OF THIS PROPERTY AND ALSO WH ETHER THE EXPENDITURE ON ACCOUNT OF LEASE RENT ETC. ARE ALLOWA BLE OR NOT. THEREFORE, WE RESTORE THE ENTIRE ISSUE FOR AFRESH A DJUDICATION IN THE LIGHT OF THE AFORESAID OBSERVATIONS AND AO WILL COMPUTE THE INCOME FROM HOUSE PROPERTY ONLY IF HE IS SATISFIED THAT THE ASSESSEE HAS FULFILLED ALL THE CRITERIA TO BE ASSES SED AS INCOME FROM HOUSE PROPERTY OR ANY LOSS ARRIVED ON ACCOUNT OF THIS IS ALLOWABLE AGAINST THE SET OFF OF BUSINESS INCOME IN ACCORDANCE WITH LAW. THE ASSESSEE WILL COOPERATE AND THE AO IS FR EE TO I.T.A.NO. 541/IND/2016 A.Y.2012-13 SHRI SOMESH BHATNAGAR, BHOPAL. PAGE 13 OF 13 MAKE ANY INQUIRY IF HE DEEMS NECESSARY. GROUND NO. 2 IS, THEREFORE, ALLOWED FOR STATISTICAL PURPOSES. CONSEQ UENTLY, GROUND NO. 3 REGARDING CLAIM OF DEDUCTION OF LEASE RENT AND TRANSFER FEE OF RS. 4,98,960/- IS ALSO SET ASIDE TO THE FILE OF THE AO IN THE LIGHT OF ABOVE OBSERVATIONS. 16. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON THE 19 TH DECEMBER, 2016. SD/- (..) (D.T.GARASIA) JUDICIAL MEMBER SD/- (..) (O.P.MEENA) ACCOUNTANT MEMBER * / DATED : 19 TH DECEMBER, 2016. CPU*