ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "F", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI J.S. REDDY, ACCOUNTANT MEMBER
I.T.A. Nos. 4139/DEL/2011
AND
I.T.A. Nos. 4188 &
4189/Del/ 2013
A.Yrs. : 2008-09 AND
2006-07 & 2007-08
ACIT, CIRCLE 32(1), VS. SH. PRAGY ARYA,
ROOM NO. 376-A, D-25, DEFENCE
CR BUILDING, COLONY,
IP ESTATE, NEW NEW DELHI
DELHI
(PAN:ADQPA1878D)
(APPELLANT) (RESPONDENT)
AND
C.O. NOS. 158 &
159/DEL/2014
(IN I.T.A. NOS. 4188 &
4189/DEL/2013)
A.Yrs. : 2006-07 & 2007-08
SH. PRAGY ARYA, VS. ACIT, CIRCLE 32(1),
D-25, DEFENCE ROOM NO. 376-A,
COLONY, CR BUILDING,
NEW DELHI IP ESTATE, NEW
DELHI
(PAN:ADQPA1878D)
(APPELLANT) (RESPONDENT)
Department by : Sh. Shameer Sharma, Sr. DR
Assessee by : Sh. Rajiv Saxena & Prakash
Yadav, Advocates
Date of Hearing : 22-10-2014
Date of Order : 30-10-2014
ORDER
PER H.S. SIDHU : JM
1
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
These are the three appeals filed by the Department and Cross
Objections filed by the Assessee emanuate from separate orders of
Ld. CIT(A), New Delhi. The appeals of the Revenue are relevant to
asstt years 2006-07 to 2008-09 and Cross Objections of the assesee
are relevant to asstt. years 2006-07 to 2007-08. Since the issues
involved are common and identical, therefore, for the sake
convenience we are adjudicated the same by this consolidated
order.
2. The grounds raised by the Revenue for the asstt. year 2006-
07 read as under:-
1. "Whether the CIT(A) has erred in the facts &
circumstances of the case in holding that paintings sold
by assessee were personal effects in spite of the vital
observation of the AO that paintings were not personal
effects."
2. "Whether the CIT(A) has erred in the facts &
circumstances of the case in ignoring the vital admitted
fact that the two paintings were sold at a price higher
than the purchase price by the company of the same day
of purchase despite of the fact that the assessee himself
was controlling the same company i.e P Aryan Art Gallery
(P) Ltd and by doing this made collusive arrangement to
avoid tax on a major part of the profit."
3. "Whether the CIT(A) has erred in facts &
circumstances of the case in granting relief to assessee
on the basis' of a copy of affidavit filed by assessee
stated to be not examined by the Aa despite the fact that
the assessee has not furnished event the basic
2
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
details/bank account etc during 31 opportunities allowed
to him."
4. "Whether the CIT(A) has erred in the facts &
circumstances of the case in ignoring the observation and
also corroborative evidences brought on record by the AO
during assessment as well as the remand proceedings
which proves that assessee is actively engaged in the
business of sale & purchase of paintings."
5. "Whether the CIT(A) has erred in the facts &
circumstances of the case in deleting the addition of
Rs.1,14,75,5OO/- made as business income and in
holding that paintings were personal effects of assessee."
6. "The appellant craves leave to add, alter or amend
any/all of the grounds of appeal before or during the
course of the hearing of the appeal.
3. The grounds raised by the Revenue for the asstt. year 2007-08
read as under:-
1. "Whether the CIT(A) has erred in the facts &
circumstances of the case in holding that paintings sold
by assessee were personal effects in spite of the vital
observation of the AO that paintings were not personal
effects."
2. "Whether the C!T(A) has erred in the facts &
circumstances of the case in ignoring the vital admitted
fact that the two paintings were sold at a price higher
than the purchase price by the company of the same
day of purchase despite of the fact that the assessee
himself was controlling the same company i.e P Aryan
3
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
Art Gallery ( P ) Ltd and by doing this made collusive
arrangement to avoid tax on a major part of the profit."
3. "Whether the C!T(A) has erred in facts &
circumstances of the case in granting relief to assessee
on the basis of a copy of affidavit filed by assessee
stated to be not examined by the AO despite the fact
that the assessee has. not furnished event the basic
details/bank account etc during 31 opportunities
allowed to him."
4. "Whether the CIT(A) has erred in the facts &
circumstances of the case in ignoring the observation
and also corroborative evidences brought on record by
the AO during. assessment as well as the remand
proceedings which proves that assessee is actively
engaged in the business of sale & purchase of
paintings."
5. "Whether the CIT(A) has erred in the facts &
circumstances of the case in deleting the addition of
Rs.3,20,56,480/- made as business income and in
holding that paintings were personal effects of
assessee."
6. "The appellant craves leave to add, alter or amend
any/all of the grounds of appeal before or during the
course of the hearing of the appeal."
4. The grounds raised by the Revenue for the asstt. year 2008-09
read as under:-
1. "On the facts and circumstances of the case,
whether Id.CIT(A) was correct in holding that income from
4
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
sale of' paintings was assessable under the head :
'Capital Gain' as against assessed by the A.O. under the
head "Business" when prior to introduction of
Amendment by Finance Act,2007 w.e.f. 01.04.2008 the
same was not shown as Capital Gain in the guise of
Personal Effect vis-a-vis Capital assets."
2. On the facts and circumstances of the case,
whether the Id CIT(A) was correct in accepting the
contention of the assessee that the paintings sold by him
were ancestral properties when the assessee could not
substantiate the claim with any evidentiary documents in
the form of will/inheritance deed etc.
3. On the facts and circumstances of the case,
whether the Id CIT(A) was correct in holding the income
from sale of paintings under the head "Capital Gain"
when series of transactions incurred by the assessee
shows that the assessee held the various painting as
stock in trade and the sold them when a good
opportunity for the same was available and the assessee
had been continuously and habitually engaged in
substantive and systematic course of activity with the set
purpose of making profit assessable under the head
"Income from Business".
4. On the facts and circumstances of the case,
whether the Id,.CIT(A) was correct in admitting additional
evidence in violation of Rule 46A by relying on a letter
dated 19.1.2008 from 'M/s Osian's Connoisseurs of Art
pvt Ltd which was never subject matter during the course
5
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
of assessment proceedings u/s 143(3) and was also not
asked by the Id.CIT(A) to be commented upon by the A.O.
5. The appellant craves leave to add, alter or amend
any/all the grounds of appeal before or during the course
of hearing of the appeal."
5. The grounds raised by the Assessee in the Cross Objection for
the asstt. year 2006-07 read as under:-
1. That the CIT (A) has erred in law as well as on
facts in justifying the reopening of the assessment
because she failed to appreciate that:
(a) AO has no reason to believe that assesse
is engaged in the business of sale and purchase
transactions of paintings.
(b) AO had no fresh material on record, which led
him to believe for reopening the assessment as
provided U/S 147 even if the same was completed
U/S 143 (1) of the IT Act, 1961.
( c ) The paintings were kept as personal affect
which were treated as capital asset w.e.f.
01.04.2008 only but not in earlier years.
(d) There was no escaped income as all the receipts
were duly been declared being received through a/
c payee cheques in the bank statements.
(e) Assessee has not kept paintings as stock-in-
trade or maintained any books of account for
claiming expenditure against any such business.
6
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
(f) View of the assessee was held to be justfied
by the CIT(A) in AY 2008-09 in assessee's own case
which was accepted by her also.
(g) Assessment can't be reopened when there are
two possible views of declaring income or merely on
change of opinion.
(h) Clause (b) to the explanation 11 of section 147
can be applied when there is under statement of
income while she herself allowed the appeal on
merits as there was no understatement.
6. The grounds raised by the Assessee in the Cross Objection for
the asstt. year 2007-08 read as under:-
1. That the CIT (A) has erred in law as well as on facts
in justifying the reopening of the assessment because
she failed to appreciate that:
(a) AO has no reason to believe that assesse is engaged
in the business of sale and purchase transactions of
paintings.
(b) AO had no fresh material on record, which led him to
believe for reopening the assessment as provided u/s 147
even if the same was completed U/S 143 (1) of the IT Act,
1961.
(c) The paintings were kept as personal affect which were
treated as capital asset w.e.f. 01.04.2008 only but not in
earlier years.
7
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
(d) There was no escaped income as all the receipts were
duly been declared being received through a/c payee
cheques in the bank statements.
(e) Assessee has not kept paintings as stock-in-trade or
maintained any books of account for claiming
expenditure against any such business.
(f) View of the assessee was held to be justified by the
CIT (A) in AY 2008-09 in assessee's own case which was
accepted by her also.
(g) Assessment can't be reopened when there are two
possible views of declaring income or merely on change
of opinion.
(h) Clause (b) to the explanation 11 of section 147 can be
applied when there is under statement of income while
she herself allowed the appeal on merits as there was no
understatement."
REVENUE`S APPEALS (Asstt. years 2006-07 to 2007-08)
7. The facts of the case are not in dispute by both the parties,
therefore, need not repeated here for the sake of convenience.
8. Against the assesment order, the Assessee appealed before
the Ld. First Appellate Authority who vide impugned order has held
as under:-
"In view of the above discussion, I hold that in the
year under consideration the paintings sold were
personal effect of the assessee and they are not
8
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
liable to tax under the provisions of the Income Tax,
1961 as prevalent in this assessment year under
consideration. This ground of appeal is allowed.
The appellant gets a relief of Rs. 1,14,75,500/-."
9. Against the aforesaid order passed by the Ld. First Appellate
Authority, the Revenue is in appeal before us.
10. Ld. Counsel of the assessee filed a paper book containing
pages 1 to 125 having the assessment records and copies of
various decisions of the Hon'ble High Court and Hon'ble Supreme
Court of India. At the time of hearing, Ld. Counsel of the assessee
stated that the issue in dispute has been squarely covered in favour
of the assessee by the decision of the Hon'ble Jurisdictional High
Court in the case of Faiz Murtaza Ali vs. Commissioner of Income Tax
[2014] (360 ITR 200) {Delhi} and he requested the same may be
followed in the present case also.
10.1 On the contrary, Ld. DR relied upon the orders of the lower
authorities.
11. We have heard both the counsel and perused the relevant
records, the paper book filed by the ld. Counsel of the assessee
and especially the orders passed by the Revenue authorities
alongwith the judgment of the Hon'ble Jurisdictional High Court's in
the case of Faiz Murtaza Ali vs. Commissioner of Income Tax (360
ITR 200) (Supra). We find that the Hon'ble High Court of Delhi in
the aforesaid case has held as under:-
"If articles fall within the expression "personal
effects" they are not to be included as part of
capital assets. Now, the expression "personal
effects" has been defined as movable property
9
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
(including wearing apparel and furniture, bu
excluding jewellery) held for personal use by the
assessee or any member of his family dependent on
him. Section 2(14) of the Income Tax Act, 1961, was
amended with effect from April 1, 2008. With effect
from April 1, 2008, even paintings, sculptures,
works of art, archeological collections and drawings,
in addition to. jewellery, have been excluded from
the expression "personal effects".
In the return filed by the assessee far the
assessment year 2002-03 he declared income af Rs.
31,71,656. The Assessing Officer noticed that in the
bank account af the assessee there was a deposit
aggregating to Rs. 39.47 lakhs which according to.
the assessee was the amount realised by him from
the sale af certain "personai effects". According to
him, the sums realised from the sale were exempt
under section 2(14). The assessee explained that he
had received various household items, paintings,
carpets, collector items, furniture items, etc., owned
by his grandfather, father, uncle and aunt. These
movable properties were held for personal use by
the assessee. The Assessing Officer was of the view
that these items could not be treated as personal
effects and were in fact capital assets within the
meaning af section 2(14). The Cam missioner
(Appeals) held that the items sold were articles
meant for personal use and were, therefore,
personal effects. This order was upheld by the
Tribunal. On appeal to. the High Court :
10
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
Held, allowing the appeal, that the assessee had
been able to show that the articles were inherited or
received by him by way of gift. Those articles were
movable properties. They did not include any
jewellery and they had been held for personal use
by the assessee and they were subsequently sold
by him to various buyers. The fact that these
articles were held by him for personal use had been
indicated in the affidavit filed by the assessee
before the Assessing Officer. No material had been
brought out by the Assessing Officer or the Revenue
to indicate that the affidavit was false. The
amendment af section 2(14) with effect from April
1, 2008, was praspective in operation. The assessee
was entitled to exemption from tax an the sale af
personal effects."
12. In the background of the aforesaid discussions and precedent
relied upon by the ld. Cousnel of the assessee, we find considerable
cogency in the contention of the Ld. Counsel of the assessee that
the issue in dispute in the present cases have been squarely
covered in favor of the assessee by the decision of the Hon'ble Delhi
High Court in Faiz Murtaza Ali vs. Commissioner of Income Tax [2014]
(360 ITR 200) {Delhi}, therefore, respectfully following the
precedent as aforesaid, we decide the issue in favor of the assessee
and dismiss the appeals of the Revenue relevant to asstt. year 2006-
07 to 2007-08.
Revenue's Appeal (ASSTT. YEAR 2008-09)
13. Briefly stated facts are that the assessee has filed original
return of income for the asstt. year 2008-09 on 6.1.2009 disclosing a
11
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
total income of Rs. 29,17,060/-. During the previous year relevant to
assessment year 2008-09, the assesee has derived income from
salary from M/s P. Aryan Art Gallery Pvt. Ltd. (in which assessee has
25% shareholding), income from Short Term Capital Gains and
Income from Long Term Capital Gains on the sale of paintings,
besides income from other sources (interest income). The
Assessing Officer, concluded that the capital gains, (including the
long term and short term) shown by the assessee amounting to Rs.
2,56,86,0547/- is treated as the business income of the assessee
derived from the trading of painting and added to his income
accordingly.
14. Against the Order dated 30.12.2010 passed by the Assessing
Officer u/s. 143(3) of the I.T. Act, assessee appealed before the Ld.
CIT(A), who vide impugned order dated 17.6.2011 has allowed the
appeal of the assessee by holding as under:-
"On the facts and circumstances of the case,
income from sale of paintings is required to be
assessed under the head `Capita Gains', and not as
income from business. The Assessing Officer is,
accordingly, directed to recomputed the total
income of the assessee by taking the income from
sale of paintings under the head Capital Gains. The
revised two paintings to Osian's by taking the
indexed cost of acquisition for financial year 1997-
98 should also be taken into account."
15. Against the above order dated 17.6.2011 passed by the Ld.
CIT(A), Revenue is in appeal before us.
12
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
16. We have heard both the counsel and perused the records.
We find that Ld. CIT(A) has adjudicated the issue in respect of the
asstt. year 2008-09 as under :-
"I agree with the view taken by the assessee that in the
present case, the appellant as argued by the Ld. Cousnel
that in present case, the appellant was not engaged in
the business of trading of paintings. A letter issued by Mis
Osian's-Connoisseurs of Art Pvt. Ltd. clearly shows that it
was addressed to Sh. Pragy Arya. This shows that the
assessee was not representing himself as a business
concern but was representing himself in the individual
capacity as the owner of the paintings and not as a
painter or as an artist. In the business of trading of
paintings or any other business, normally trade names
are used so that business people could treat them as
businessman. There is no proprietorship concern named
either which is normally there in the case of individual
businessman. In the present case, the appellant did not
maintain any shop or office from where he was displaying
the paintings. In fact, the paintings were sold either by
displaying them in the gallery of M/s Osian's-
Connoisseurs of Art Pvt. Ltd. or through the company who
ultimately displayed and sold them for profits declared in
their hands. This shows that the appellant has brought
the paintings from his personal assets and sold them
whenever needed but not traded by him through his
office or gallery maintained by him. Further, there are
hardly three to four transactions of sale in a year and
there is no income declared either of the commission
earned en the sale of paintings or on account of rental
13
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
income of the paintings or any expenditure incurred on
the employees which is a very common feature of
handling any business in this trade. There is no
expenditure claimed for framing or upkeep of the
paintings also which is a normal feature for sale of any
paintings. The appellant has not claimed any such
expenditure even under the head capital gains such as
traveling and conveyance expenses for Mumbai where
these paintings were sold or expenditure incurred for
transferring these painting to Mumbai at Taj Mahal Hotel.
These expenses are bound to happen but the appellant
did not claim them, probably as such expenditure is
disputable under the head income from capital gains. In
case the assessee was engaged in business, there was no
reason for him to deposit the sum earned by him in the
capital gains account either. His action of rectifying his
mistake in calculating the indexed cost wrongly also
shows his intention to declare the profits truly and
correctly.
In my view, the appellant has, thus, rightly shown the
profits and gains on sale of paintings under the head
"Capital Gains".
Moreover, the Assessing Officer is also not correct in
computing the profits under the head income from
business by reducing the indexed cost as against market
price of the paintings on the date when she was having
opinion that they were introduced as stock-in-trade,
specifically in view of the decision of the Hon'ble
Supreme Court discussed earlier. In that case, there
would be hardly any business profits to be taxed. There is
14
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
no provision under Chapter IV, Part D of the Income-tax
Act dealing with profits and gains of business or
profession, to reduce the indexed cost for calculating the
business profits.
Since I am of the view that the appellant was not
engaged in the business, I do not find any reason to go
into the depth of taking market price of the paintings or
to go into the depth on the date on which the paintings
were introduced in the business as stock in trade.
Since all the grounds of appeal taken originally or
additionally revolve on the one issue "whether the profits
are required to be assessed under the head Income from
Business or Capital Gains", I do not find it necessary to
dispose them separately and so all these grounds are
disposed of by me collectively by holding that on the
facts and circumstances of the case, income from sale of
paintings is required to be assessed under the head
Capital Gains, and not as Income from Business. The
Assessing Officer is, accordingly, directed to recompute
the total income of the assessee by taking the income
from sale of paintings under the head Capital Gains. The
revised working of the capital gains on sale of two
paintings to Osian's by taking the indexed cost of
acquisition for financial year 1997-98 should also be
taken into account.
It may also be mentioend here that during the coufrse of
the appeal, a report dated 18.05.2011 was received from
the Assessing Officer enclosing therewith an. affidavit
from the appellant's father submitted during the course
15
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
of the reassessment proceedings for AY 2006-07 and AY
2007-08 in the case of the assessee. In brief, it has been
pointed out by the Assessing Officer that the paintings
sold in the AY 2008-09 do not appear in the affidavit and,
therefore, they are not ancestral. It has, however, been
submitted by the Ld. Counsel of the appellant in this
regard that the aforesaid affidavit was given specifically
for the purposes of the reassessment proceedings for the
AY 2006-07 and AY 2007-08 and so it contains only the
list of seven paintings pertaining to those two years and
naturally does not mention anything about the paintings
pertaining to the year under consideration, i.e., AY 2008-
09. On examination of the facts of the case, the
submissions are found to be in order. No further
comments are, therefore, called for in the matter."
17. In view of the aforesaid elaborate discussions made by the Ld.
CIT(A), we find that the order of the Ld. CIT(A) is a well reasoned
order which does not need any interference on our part, hence, we
uphold the same and accordingly, dismiss the appeal of the
Revenue.
ASSESSEE'S CROSS OBJECTIONS
18. Since the appeals filed by the Revenue have been dismissed
by us as aforesaid, therefore, both the cross objections filed by the
Assessee have become infructuous and dismissed as such.
19. In the result, the three appeals filed by the Revenue and Two
cross objections filed by the Assessee stand dismissed.
16
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
Order pronounced in the Open Court on 30/10/2014.
Sd/- Sd/-
[J.S. REDDY] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 30/10/2014
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
17
ITA NOS. 4139/DEL/2011 & 4188 & 4189/Del/2013
AND CO NOS. 158 & 159/DEL/2014
18
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