TMI Blog2013 (11) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's money lending business - The appeal is dismissed by holding that on the facts of the present case, the Tribunal has rightly held that the provisions of section 50C are not applicable with respect of sale of land as sale of land was not capital asset - Decided against Revenue. Income from other sources or Business income - Search u/s 132(4) - Held that:- cash was found from the residential and business premises of the assessee. The assessee in his statement recorded u/s.132(4) has accepted the same as unaccounted business income and offered the same for taxation along with unexplained investment in Icon Tower. The declaration made u/s.132(4) for investment in Icon Tower was accepted without assigning any specific reason but the same was not accepted selectively for the cash found. Further, the declaration for taxability was accepted but the source of the cash found was not accepted. It has been held in a number of judicial decisions that statement recorded during the course of search u/s.132(4) has to be considered and accepted as a whole if the Assessing Officer wants to use it as an evidence. The Assessing Officer cannot be allowed to blow hot and cold simultaneo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto existence on 03-02- 2006. It is a joint venture between Mr. Ali Akbar Jafari, residing at Bungalow No. 8, Napier Road, Pune -411001 i.e. the assessee, and M/s. Nikita Builders and Developers having its office at Kale Palace, Ground Floor, Block No. A-25, Room No. 145/146, Madhuban Hotel Road, Ulhasnagar-421 001. ii. The copy of the joint venture shows that Mr. Ali Akbar Jafari was having development rights of the land bearing S. No. 8, Hissa No. 1+2/1 to 65 totally admeasuring 6 Hectares, 15 R i.e. 60630.59 sq. mtrs. At Village Katraj within the limits of the PMC. Mr. Ali Akbar Jafari has agreed to bring in the rights in the land as its capital in the joint venture. The book value of the said property is agreed at Rs. 25,00,000/-. iii. The document for transferring the rights and the commencement of the joint venture has been registered with the Registrar at Pune on 03-02- 2006. From the copy of the Index II for such registration, it is seen that the value of the plot for registration by the parties is considered at Rs.25,00,000/-. However, the market value of the property for the purpose of stamp duty is at Rs. 56,67,000/-. iv. Now, as per the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dopted by stamp valuation authorities whichever is higher. He therefore was of the opinion that the value adopted or assessed by the authority of State Government for the purpose of payment of stamp duty has to be taken for computation of capital gain arising to the assessee. He observed that the full value of the consideration in this case comes at Rs.56,67,000. He further observed that there is no clear cut bifurcation in the balance sheet of the assessee as to which are the capital assets and which are the stock in trade. Further, according to the AO even if there was any such bifurcation it cannot be sacrosanct and every transfer has to be seen individually. The fact that the assessee has introduced his rights in the said land as capital asset itself exposes the hallowness of the assessee s claim that it was stock in trade and not the capital asset. He therefore rejected the contention of the assessee that the asset which he introduced in the joint venture was not at all a capital asset. After deducting the cost of acquisition from the full value of consideration received the Assessing Officer determined the net taxable long term capital gain for A.Y. 2006-07 at Rs.8,19,377 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, the assessee in the instant case has held the development rights and had shown the same as stock in trade and had reflected the same under the head "current assets. Therefore, the development right in the property in the instant case cannot be a capital asset so as to attract the provisions of section 45(5). 7. Referring to provisions of section 2(14) it was submitted that capital asset means property of any kind held by an assessee whether or not connected with his business/profession but does not include any stock in trade, consumable stores or raw materials held for the purpose of his business or profession. 8. It was submitted that since the assessee has introduced his stock in trade as his capital in the AOP, therefore, the profit on introduction of development rights should be treated as business income. For this purpose the assessee relied on the following decisions: 1) Alpha Associates Vs. JC1T, 52 ITD, 640 (Bom) 2) Hathising H. Shah Vs. ITO, 25 777, 137 (Ahd) 3) ACIT Vs. Ashok Motilal Kataria 308 ITR(AT) 298 Pune. 9. The assessee also relied on the decision of Hon ble Madras High Court in the case of CIT Vs. Thiruvengadam Investments Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... introduced his rights in the said land as capital asset itself exposes the hollowness of assessee's claim that it was stock-in-trade and not the capital asset. Therefore, assessee's contention in this regard is not acceptable." The appellant in this regard has submitted the copy of the audited balance sheet during appeal to show that the investment in development rights in land was shown as stock-in-trade under the heading 'Current Assets'. On examination of the same, it is noted that the above land is appearing in the balance-sheet under the broad head 'Current Assets' and under the sub-head 'Plot Land Account'. Therefore, contention of the appellant looks correct. Now coming back to the other argument of the AO advanced in the assessment order on the above issue that such a classification cannot be sacrosanct, it is noted that the appellant is an established builder and developer who is engaged in this activity in individual capacity as well as through partnership firm, since 1994 and therefore the above classification appearing in the balance-sheet is also in agreement to his actual activity. In addition to the above, the argument of the appellant that the asset which has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's claim that it was stock-in-trade and not the capital asset. 6. In facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating the fact that the Section 50C being specific provision overrides the provisions of Section 45(3) and Section 48 with regard to the definition of full value of consideration. 7. The appellant craves its right to add or alter the ground of appeal at any time before or during the course of hearing of the case." 12. The Ld. DR heavily relied on the order of the Assessing Officer. He submitted that the assessee has not shown the asset as stock in trade. Referring to the balance sheet as on 31-03-2005 (a copy of which is placed at PB 102) he submitted that the balance sheet does not specifically show the stock in trade under the head "current assets". Therefore, the asset has to be treated as an investment. Referring to the decision of the Pune Bench of the Tribunal in the case of Purushottam Mukunddas Lohia Vs. DCIT vide ITA No.944/PN/2010 he submitted that provisions of section 50C are applicable to stock in trade also. He accordingly submitted that the order of the Ld. CIT(A) being not in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Paper Book he drew the attention of the Bench to the balance sheet as on 31-03-2005 and submitted that there is clear bifurcation of fixed assets current assets and the amount so paid has been shown under the head "current assets". He submitted that if the land so held by the assessee is treated as capital asset the assessee would have paid wealth tax. Referring to the Pages 111 to 114 of the Paper Book the Ld. Counsel for the assessee drew the attention of the Bench to the Wealth Tax return filed by the assessee and submitted that he has not paid any wealth tax on this development right of the land although he has paid the wealth tax on various other assets which are declared in the wealth tax return. Referring to the copy of the wealth tax assessment order (a copy of which is placed at Page 115 of the PB) he submitted that the Assessing Officer in the order passed u/s.16(3) r.w.s.17 of the Wealth Tax Act, 1957 has passed the order on 31-12-2008 and has not made any addition on account of the land. Referring to the balance sheet as on 31-03-2001 the Ld. Counsel for the assessee drew the attention of the Bench to the "current assets, loans and advances" and submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pers, a partnership firm and has transferred the development rights to the said joint venture as his capital contribution and valued the same at Rs.25 lakhs. After deducting the cost of acquisition of land and development rights the assessee has declared profit of Rs.5,59,000/- as his business income. It the case of the revenue that since there is no clear cut bifurcation in the balance sheet as to which are capital assets and which are stock in trade, therefore, the claim of the assessee that it was stock in trade and not capital asset is not acceptable. Further, the market value of the property for the purpose of stamp duty is Rs. 5,66,70,000/-. Since the asset is a capital asset the Assessing Officer applied the provisions of section 50C and determined the capital gain at Rs.8,19,377/- which was subsequently rectified to Rs.5,12,19,377/-. 14.1 It is the case of the assessee that since the value of development rights was shown in the balance sheet under the head "current assets" and since Assessing Officer in the wealth tax assessment order has excluded the land at Katraj from the purview of wealth tax, therefore, the development right shown in the balance sheet is in the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence has to be drawn on a cumulative consideration. 14. Coming to the facts of the present case, the assessee is a builder. Construction of buildings is its business. The assessee has sold number of buildings referred to above, with regard to which there is no dispute. The dispute is with regard to the sale of plots. Investment in purchase and sale of plots by a builder who is indulged in selling buildings is ancillary and incidental to his business activity. It is a matter of record that the assessee has treated the land as stock in trade which finds corroboration from its balance sheet. Stock in trade has been excluded from the definition of capital asset. According to the Webster's New International Dictionary, the 'stock-in-trade' is "a. The goods kept for sale by a shopkeeper. b. The fittings and appliances of a workman." In other words, the stock-in-trade includes all such chattels as are required for the purposes of being sold or let to hire on a person's trade. According to Stroud's judicial dictionary, 4th Edition, Volume 5 page 2623 "stock-in-trade comprises all such chattels as are required for the purposes of being sold, or let to hire on a person's trade. In Add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal which is last fact finding court, in this regard is essentially a finding of fact or at the most is a mixed question of fact, but if is not a substantial question of law to warrant the interference under section 260A of the Income Tax Act. 17. The view taken by the Tribunal is on terra-firma. The inference drawn by the Tribunal is based on relevant consideration. 18. At the end, the learned counsel for the appellant had prayed time to file a copy of balance sheet and sought adjournment. The said request was made at the fag-end of the argument. The memo of the appeal does not contain any ground. It contains statements of facts', 'substantial question of law' and 'prayer'. No grievance appears to have been raised therein with regard to misreading of balance sheet either by the Tribunal or by the Commissioner of Income-tax (Appeals). There being no grievance to the observations of the Tribunal that in the balance sheet also the land has been disclosed as stock in trade, the prayer for time to file copy of the balance sheet was declined. 19. There is no merit in the appeal. The appeal is dismissed by holding that on the facts of the present case, the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 and stated that on the basis of the said statement he had declared the additional income as "business income" for the A.Y. 2007-08. It was contended that the assessee by saying in his statement recorded on 22-09-06 that "This is not my business cash" he meant that it was not cash as per his business books of accounts. It was further submitted that out of Rs.1.20 crores the assessee had explained the source of Rs.40 lakhs out of specific land dealings and only in respect of Rs.80 lakhs he could not recollect the source. It was submitted that the assessee in his statement has stated that the main source of income was business income only. 19. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He reproduced the answers given by the assessee in Question No.15 to 36 recorded u/s.132(4) on 21-09-2006. He observed that the assessee while answering to Question No.36 had clearly mentioned that the cash found was not his business cash which clearly meant that the cash was not generated from the regular business of the assessee. Now the assessee is explaining that what he meant was that it was not cash as per his business books of accounts. He ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment order has analysed the cash found and seized on the basis of declaration made by the assessee to say that out of the total of approximately Rs.1.2 crores, Rs.40 lakhs admittedly has come for organising a land deal belonging to a firm in which the assessee is a partner with third party and therefore according to the AO the receipt of Rs. 40 lakhs is a premium which is required to be assessed under the head "other sources". According to the learned CIT(A) the word "premium" has been inappropriately used for this transaction as the land was not belonging to the assessee but was that of the partnership firm in which the assessee was a partner and therefore, money received for organising this deal can most appropriately be described as brokerage or commission or service charges. But the money definitely has been received due to land deal. According to the learned CIT(A) the Assessing Officer has not analysed this issue in the assessment order as to why for the above reason such receipt would fall under the head "income from other sources". 22. So far as the remaining amount of Rs. 80 lakhs or so is concerned he observed that the assessee during the course of search as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not discharged his liability in proving the source of remaining cash of Rs. 80 Lakhs. 5. The appellant craves its right to add or alter the ground of appeal at any time before or during the course of hearing of the case." 24. The learned Departmental Representative heavily relied on the order of the Assessing Officer. He submitted that the income declared during the course of search cannot be treated as "business income" and has to be treated as "income from other sources". In his alternate contention he submitted that out of the cash of Rs. 1.20 Crores plus the assessee was able to explain only to the tune of Rs.40 lakhs. Therefore, atleast the balance Rs.80 lakhs for which the assessee could not explain the source should be treated as income from other sources. 25. The Ld. Counsel for the assessee on the other hand heavily relied on the order of the CIT(A). He submitted that the AO simply relied on the reply to the answer of the assessee to Question No.36 but ignored the reply to all other questions. Referring to question No.36 he drew the attention of the Bench to the mental condition of the assessee in which he had submitted that he was unable to explain the source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the order of the CIT(A) be upheld. 27. We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute that during the course of search an amount of Rs.1,20,14,501/- was found in the bed room of the assessee, out of which an amount of Rs. 1,20,00,000/- was seized by the department. Similarly, cash of Rs. 2,36,500/- was found at the business premises of the assessee out of which an amount of Rs. 2 lakhs was seized. There is also no dispute to the fact that the assessee in his statement recorded u/s.132(4) on 21-09-2006 had offered the unexplained cash of Rs.1.20 crores as additional income for A.Y. 2007-08 over and above the regular business income of the assessee. 28. We find the Assessing Officer in the assessment treated the cash found amounting to Rs. 1,22,36,500/- as "income from other sources" and did not allow the set off of carry forward losses from the business income of the assessee. We find the Ld. CIT(A) considered the income of Rs.1,22,36,500/- as "income from business and professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ans. This cash of Rs.1.20 crore belongs to me. This is my income from business. Q.No.16 Please state whether this cash of Rs.1.20 crore has entered in your books of accounts of any business concern". Also this cash is in the denomination of Rs.1,000/- and currency is new. From which business did you get such huge amount of cash and that to all currencies are in the denomination of thousand? Pl. Explain this ? Ans. It was collected in due course of time and denomination was changed after that as and when required to be changed. Q.No.21 From where you have accumulated this currency of Rs.1.20 Crores? Ans. I withdrawn the money from the banks and from different business income which I could not recollect right now. Q.No.25 From which business income did you get cash and whether it is reflected in books of accounts ? Ans. I have sold land at Sachapeer Street, Pune and received Rs.20 lac from Sujay Builder, Pune in cash which is reflected in books of accounts. I sold this land in Jan/Feb 2006. Total sale consideration of this land I couldn t recollect now. I have sold land at Kondva Khurd in March 2006. The land was sold to Mahanagar Housing. I received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cash found as his additional unaccounted income and the above fact has also been noted by the Assessing Officer in Para 3 of the assessment order. 34. So far as determining the additional income as income from other sources we find as per the provisions of section 56(1) income of every kind, which is not to be excluded from the total income under this act, shall be chargeable to Income tax under the head "income from other sources" if it is not chargeable to Income tax under any of the heads specified in section 14 item No. A to E. Further, provisions of section 56(2) gives the nature of income which shall be chargeable to tax under the head income from other sources. 35. In this case, the cash was found from the residential and business premises of the assessee. The assessee in his statement recorded u/s.132(4) has accepted the same as unaccounted business income and offered the same for taxation along with unexplained investment in Icon Tower. The declaration made u/s.132(4) for investment in Icon Tower was accepted without assigning any specific reason but the same was not accepted selectively for the cash found. Further, the declaration for taxability was accepted but th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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