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October 14, 2023

Property bought or sold as company property is exempt from section 50C’s provisions

Property bought or sold as company property is exempt from section 50C’s provisions

Fact and issue of the case

This appeal is filed by assessee and is arising out of the order of the National Faceless Appeal Centre, Delhi dated 29/03/2023 [here in after (NFAC)/ ld. CIT(A) ] for assessment year 2011-12 which in turn arise from the order dated 11.12.2018 passed under section 147 r.w.s 143(3) of the Income Tax Act, by ITO, Ward-4(2), Jaipur.

The assessee has marched this appeal on the following grounds:-

That the learned commissioner of income tax has erred in not mentioning any detail comment on reopening of assessment. Profit from sale of property was already shown by us in return of income therefore there was no tax evasion. The reopening of case u/s 147 was totally invalid and bad in law

That the learned cit(a) has erred in maintaining addition of 472780/- as capital gain. We have already shown business income of Rs.25000/-. Section 50c was not applicable in our case because sale/purchase was in the name of khandelwal steel traders therefore profit was business income which was already shown by us in return of income kindly therefore delete the addition of Rs.472780/- on account of capital gain

That the learned cit(a) has erred in confirming adhoc addition of 500000/- on account of business income. We request please to delete the addition of Rs.500000/- on acoount of business income.

That the assessee reserve his right to add alter or delete any ground of appeal on or before the date of hearing.”

The fact as culled out from the records is that the assessee filed return of income on 31 .03.2013 declaring total income at Rs. 5,19,200/- which was processed u/s 143(1). It was noticed that the assessee had sold an immoveable property situated at 601, Pratap Nagar Extn. Vaidh Ji Ka Choraha Murlipura Scheme Jaipur for a consideration of Rs. 16,50,000/- which was valued at Rs. 20,97,780/- by the stamp valuation authority. The ld. AO was of the view that the assessee had not declared capital gain on the transfer of the above-mentioned property. Therefore, after recording reasons and taking prior approval for opening of case u/s 147 from the Pr. Commissioner of Income-tax-2, Jaipur, notice u/s 148 was issued to the assessee on 26.03.2018. However, no return of income was filed in compliance to the notice u/s 148 within the stipulated time. Therefore, notices dated 31.05.2018 and dated 03.07.2018 were also issued requesting the assessee to file return of income in compliance to the notice issued u/s 148 dated 26.03.201

Shri. P. C. Jain, CA and A.R. of the assessee filed a copy of Acknowledgement (ITR-V) of return of income e-filed on 04.09.2018 along with computation of income on 11.09.2018 declaring total income at Rs. 5,19,200/- and sought copy of reasons for initiating of proceedings u/s 147 of the Income Tax Act, 1961. A copy of recorded reasons was provided to the assessee on the same date day i.e. 11.09.2018. Since, no objection was filed by the assessee till 14.10.2018 therefore, assuming that the assessee has no objection on initiating proceedings u/s 147, the assessment proceedings were proceeded and notice u/s 143(2) and 142(1) along with a questionnaire and the assessee was requested to file, among other information, necessary documentary evidence in respect of the sale and cost of the property.

Observation of the court

We have heard the rival contentions and perused the material placed on record. The bench noted that the assessee as regards the purchase and sale of immovable property. The cost of purchase which is not disputed amounts to Rs. 16,25,000/-. The assessee sold the property at Rs. 16,50,000/- and thus offered the income as other income for an amount of Rs. 25,000/- so earned while filling the original return of income. As the purchase and sale transactions for which the profit arise out of that transaction is duly accounted and offered for tax. The transaction is also not offered under the capital gain and therefore, considering this aspect and evidence already placed on record which has not been disputed by the revenue. It is not also not in dispute that the provision of section 43CA was made applicable from the assessment year 2014-15 and since this transaction is duly accounted as adventure in the nature of trade and the profit of this is already included while filing the return of income the addition u/s 50C cannot be made in the hands of the assessee. Therefore, Ground No. 2 raised by the assessee is allowed.

So far as the Ground No. 3 raised by the assessee, it is not in dispute that the assessee is subjected to audit under the provision of section 44AB of the Act and has filed the audit report and audited accounts. But at the same time, the assessee was called upon to file certain details before ld. AO which the assessee failed to submit. Based on this non action of the assessee ld. AO has invoked the provisions of section 145(3) of the Act. The bench also noted from the record and grounds so raised by the assessee that the assessee has not raised any ground for rejection of books of accounts. Thus, we confirm the rejection of books of accounts but at the same time looking to the fact presented before us, we are of the considered view that the assessee has already declared profit of business of profession at Rs. 5,84,783/- and at the same time the estimation of additional income of Rs. 5,00,000/- made by the ID. AO is also higher and it does not have any base. Looking to the nature of the business undertaken by the assessee, since, the assessee has not disputed the rejection of books of accounts and considering the overall aspect of the case, we are of the considered view that the assessee might have not disclosed the profit correctly and therefore, not objected to the rejection of the book results. As also assessee failed to give the required details to the ld. AO. Considering that failure of the assessee, we deem it fit in the interest of justice to add 10% more of the profit of Rs. 5,84,783/- and therefore, 10% of this profit is sustained which is Rs. 58,478/- and therefore, this ground of appeal is partly allowed.

Since we have decided the appeal of the assessee on merit the ground challenging reopening of the assessment become educative in nature and therefore, Ground No. 1 is not decided. Ground No. 4 being general in nature and the same is also not required to be adjudicated. In terms of these observations, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 21/09/2023


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here


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