2002 (10) TMI 226 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of addition of Rs. 1,92,250 on account of profit on the sale of land by treating it as an 'adventure in the nature of trade' instead of capital gains.
2. Confirmation of addition of Rs. 23,06,112 on account of sale of jewellery by treating it as business profits instead of a capital loss.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Rs. 1,92,250 on Account of Profit on Sale of Land:

The assessee declared an income of Rs. 21,22,150 and filed his return on 30th Dec., 1998. The case was selected for scrutiny, and during the assessment, the AO noted that the assessee had shown capital gains of Rs. 1,54,949 after cost indexation on the sale of land. The AO treated the income from the sale of land as business income, rejecting the assessee's claim of capital gains, and added Rs. 1,92,250 to the taxable profit.

Before the CIT(A), the assessee argued that the land was purchased with the intention to raise a farmhouse but had to be sold in portions due to unforeseen problems. The CIT(A) observed that the assessee was involved in multiple transactions of sale of land over several years, indicating a systematic business of dealing in land, and upheld the AO's decision.

The Tribunal, however, noted that the land purchase was a single transaction, and the Department had treated similar transactions as capital gains in previous and subsequent years. The Tribunal found no evidence that the assessee developed the land into house sites or advertised the sale of plots. Citing the case of M. Ramanamma vs. CIT, the Tribunal concluded that the transaction was not an adventure in the nature of trade and directed the AO to treat the income as capital gains.

2. Confirmation of Addition of Rs. 23,06,112 on Account of Sale of Jewellery:

The assessee declared jewellery worth Rs. 20,56,964 under VDIS 1997 and claimed a capital loss of Rs. 9,72,471 after cost indexation. The AO treated the sale of jewellery as a business transaction, considering the jewellery as stock-in-trade of the assessee's business, and added Rs. 23,06,112 as business income.

Before the CIT(A), the assessee argued that the jewellery was self-owned and declared in the individual capacity, not as business assets. The CIT(A) observed that the jewellery was sold to a sister concern and recorded in the business books, indicating it was business assets, and upheld the AO's decision.

The Tribunal noted that the declaration under VDIS 1997 was made in the individual capacity of the assessee, and the jewellery was not converted into stock-in-trade. The Tribunal found that the Department had not provided any evidence to prove the jewellery was business assets. Citing the case of Asstt. CIT vs. Kethan Kumar A. Shah, the Tribunal concluded that the sale of jewellery should be treated as a sale of capital assets and deleted the addition of Rs. 23,06,112.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the AO to treat the income from the sale of land as capital gains and deleting the addition made on account of the sale of jewellery.