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Anil Amrutlal Relia vs. Income Tax Officer

ITAT Ahmedabad Bench "B"

A.K Garodia Kul Bharat, AM & Kul Bharat, JM

ITA NO. 1323/AHD/2010 & 2911/AHD/2011 & 1516/AHD/2012, 3249 & 3250/AHD/2011

Decision on: 16th November, 2012

1212 Taxpundit 27 (2012) 34 CCH 058 AhdTrib

section 68/69, Section 2(14)

Assessment Year: 2006-07, 2007-08 & 2008-09

Favour : Revenue

Counsel appeared:

S N Divotia, AR for the Petitioner.: BKS Pandya, CIT DR for the Respondent

A. K. GARODIA, AM.

1. Out of this bunch of five appeals, there are four cross appeals of the assessee and the revenue for the assessment years 2006-07 & 2007-08 and the remaining one appeal is of the revenue for the assessment year 2008-09. All these appeals are filed against separate orders of Ld. CIT (A) XI, Ahmedabad of various dates. All these appeals were heard together and are being disposed off by way of this common order for the sake of convenience because the issue involved is interconnected.

2. First, we take up the cross appeals for the assessment year 2006-07 in I.T.A.No. 1323/Ahd/2010 and 1516/Ahd/2012. The grounds raised by the assessee in I.T.A.No. 1323/Ahd/2010 are as under:

"The order passed u/s 250 on 26.03.2010 for A.Y.2006-07 by CIT(A)-XI, A'bad, partly allowing the appeal against order u/s.-143(3) dated 30.12.2008 passed by the A.O. is wholly illegal, unlawful and against the principles of natural justice. The Ld. CIT (A) has grievously erred in law and on facts in not admitting the ground relating to claim of the appellant regarding exemp ion of profit from sale of paintings in view of personal effect u/s.2 (14) of the Act. www.taxpundit.org That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) ought to have admitted and disposed off the ground relating to non-chargeability of profit from sale of paintings in view of personal effect u/s.2(l 4) of the Act.

2.3 The Ld. CIT (A) has failed to appreciate that the powers of the appellate authority include the power to admit the ground relating to claim of exemption or deduction which was not made be A.O. by filing a revised return of income.

3.1 The Ld. CIT (A) ought to have held that the paintings held by the appellant were ' "personal

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effect" u/s.2 (14) of the Act so that the profit from the sale thereof was not chargeable to tax u/s.45.

4.1 The Ld.CIT (A) ought to have considered and disposed off the consequential grounds to the main ground of non-chargeability of profit from sale of paintings u/s.2 (14) of the Act. 5.1 The Ld.CIT (A) has grievously erred in holding that the ground relating to exemption u/s.54B/54D/54G was academic and did not call for adjudication.

5.2 That in the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that when the levy of capital gains tax on the profit from sale of paintings was upheld, the ground relating to exemption was not academic and the same ought to have been adjudicated.

The above grounds of appeal are in the alternative and without prejudice to each other."

2.1 The Grounds raised by the revenue in I.T.A.No. 1516/Ahd/2012 are as under:

"1) The Ld. CIT(A) XI, Ahmedabad has erred in law and on facts in holding that paintings sold were not stock in trade and sale of original painting w not part of assessee's business.

2) The Ld. CIT (A) has erred in law and on facts in holding that the painting in question were received by way of gift even when no gift deed was produced either before the A.O. or the CIT (A).

3) On the facts and in the circumstance s of the case, the Ld CIT (A) ought to have upheld the order of the A.O.

4) It is, therefore, prayed that the order of Ld. CIT (A) may be set aside and that of the A.O. be restored."

2.2 The appeal of the revenue was filed late by 721 days. In the condonation application submitted by the revenue, it was submitted that Ld. CIT(A) has decided the present case by the impugned order that the income form sale of paintings has to be onsidered as income from capital gain and on this very issue, the department has filed appeal before the tribunal for the assessment year 2007-08 and 2008-09 but for the assessment year 2006-07, although, CIT-III, Ahmedabad has already authorized and directed the A.O. to file appeal before the tribunal against the impugned order of Ld. CIT(A) dated 17.05.2010 but due to inadvertence, such appeal remained to be filed. It is also submitted in the nd condonation application that such failure to file the 2 appeal was caused because the then incumbent st have been deputed to attend seminar of IRS Officers of 61 batch held at National Academy of Direct Taxes (NADT), Nagpur form 24-26 May 2010 and after the seminar, the then incumbent joined the office on 27.05.2010 but the then incumbent and officers who had charge in the management have failed to give attentionwww.taxpundit.org to the deadline and therefore, failed to file the appeal in time. 2.3 In the course of hearing before us, Ld. D.R. furnished an affidavit of Shri Puneet Gulati being the ACIT-VI in support of the contentions raised in the condonation application. He also submitted that the delay in filing the appeal should be condoned. The Ld. A.R. objected to condonation of delay but considering the explanation of the revenue in the condonation application, we feel it fit and proper to condone the delay in the interest of justice and in the facts of the present case and hence, the delay in filing the appeal is condoned. 2.4 Brief facts of the present case till the assessment stage are noted by Ld. CIT (A) in para 4 & 4.1 of his order which are reproduced below:

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"4. The first effective ground of appeal is regarding the A.O's action of treating the proceeds from sale of paintings as business income of the appellant. As stated earlier the sale proceeds of Rs. 1,75,54,800/-were offered by the appellant as long term capital gains [claiming deduction of commission paid of Rs.15,12,000/-and deduction of Rs.72,00,000/-being investment in capital gain bonds]. Thus the appellant offered net amount of Rs.88,42,800/-[ Rs. 1,75,54,800/-minus Rs. 87,12,000/-] as long term capital gains. In the statement filed in October 2008, he excluded the said capital gains from computation income. As seen from the assessment order the A.O held that the appellant is in the business of trading in paintings and therefore the entire sale proceeds of paintings were to be assessed as business income.

4.1 While assessing the sale proceeds as business income the observations made by the A.O in brief are as follow. Survey u/s. 133-A was conducted on 23/12/2005. Appellant was found running an art gallery. The appellant failed to establish that the impugned paintings were received by way of gift as claimed by the appellant. As the gifts are not established the paintings are taken to have been purchased during the year. On the date of survey substantial stock of paintings was found. He is having employees and workers at his shop/art gallery and he organizes art exhibitions indicating that the appellant is a trader in paintings. The purchase price is being taken as Nil as the appellant claimed not to have spent anything on the acquisition of the impugned paintings."

2.5 Being aggrieved, the assessee carried the matter in appeal before Ld CIT(A) against the A.O.'s action of treating the proceeds from sale of paintings as business income of the assessee. Ld. CIT(A) held that the sale proceeds of paintings cannot be treated as business income and the same has to be assessed as capital gain. Now, the revenue is in appeal against the direction of Ld. CIT(A) that the sale proceeds of the paintings is taxable as capital gain and not as business income. The assessee is in appeal before us against this direction of Ld. CIT(A) that paintings were not personal effect u/s 2(14) of the Income tax Act, 1961 and hence, is taxable as capital gain u/s 45.

2.6 The second grievance of the assessee is that Ld CIT(A) has erred in holding that the claim for deduction u/s 54B, 54D and 54G was academic and did not call for any adjudication.

2.7 Ld. A.R. submitted that on page 81 of the paper book is the confirmation of sale form Shri Amit Ambalal and this confirmation of sale has been verified by the A.O. in the course of remand proceedings and in the remand repot available on page 85-86 of the paper book, he also reported that it was stated by Shri Amit Ambalal before him that he has given some paintings in gift such as family portrait etc. and he further stated that painting items are given out of love, affection and artistic relations and negligible amount was taken. He further confirmed that he knew Shri Amit Ambalal for more than 30 years. Regarding the claim of the assessee that Shri M F Hussein was his close friend, it is reported by he A.O. in the remand report that Shri M F Hussein stayed in Doha, Dubai (Middle East) andwww.taxpundit.org Shri B Khakhar expired four years back. He also reported that they are well known and reputed painters. He further reported that in the light of Shri Amit Ambalal's confirmation and considering line of activities, profession and business carried out by the assessee, additional evidence may be admitted and considered accordingly. He also pointed out that on pages 109-116 of the paper book, which contain the statement of Shri Anil A Relia recorded on 05.01.2006 and submitted that in the statement, it is clearly stated by the assessee that the business of the assessee was not of selling the original paintings but the business consists of drafting and printing along with printing of Diwali Cards, Marriage Cards and posters of advertisements etc. He also pointed out that question No.8 was specific as to whether the assessee sold painting of some artists and in reply, it was stated by the assessee that when the artists come to him with his paintings and used to decide who will keep how many prints and they fix the number of prints to be given and sign

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the prints which would be sold by the assessee and the assessee did not sell original paintings of any artist. He submitted that from the statement of the assessee, it is clear that the assessee was not engaged in the business of selling the original paintings and hence, the A.O. was not justified in treating the sale price of the paintings as business income. He placed reliance on the following judgements: i) 57 ITR 207 G S Poddar Vs CWT Bombay City-II

ii) 129 ITR 295 (S.C.) Barendra Prasad Ray and Others Vs ITO

iii) 101 ITR 234 (S.C.) Sole Trustee, Loka Shikshana Trust Vs CIT Mysore

2.8 Learned DR of the revenue supported the assessment order. He also submitted written submissions, which are reproduced below:-

Written Submissions of the Revenue: ITA Nos.1323 of 2010, 2911, 3249, 3250 of 2011 and 1516/2012 Assessment Years 06-07, 07-08 and 08-09 Anil Amrutlal Relia

1) At the outset, following is submitted with respect to the evidences filed in the second paper book on 29/6/2012

a) The evidences as under were neither before AO nor before CIT(A) and there is no reasonable cause as to why the same could not be furnished before lower authorities,. i) Pg 117 to 138 ii) Pg 179-283

b) It is submitted that these evidences are not as per ITAT rules. Some evidences are supposed to be very old but are computer generated and hence the veracity and genuineness of the same cannot be meaningfully enquired into and therefore can seriously, if admitted and considered, jeopardize the revenue.

c) Some papers are no evidences at all, but some photographs which can be , in the era of computers and software, easily created. They are obviously not admissible.

d) Lastly, assessee mentions that the "evidences are being filed as directed by Tribunal". As such, this is a clearly wrong statement. No such orders in writing for ALL THE PAPERS have been passed by the Tribunal within the meaning of ITAT rules.

2) BROAD FACTS

a) As per Para no. 8(a) of the report u/s 44AB,(APB pg 13, AY 06-07) the business activity of the assessee includes trading in paintings. b) Admittedly, the business of the assessee commenced in 1979. The assessee is www.taxpundit.organ art graduate and as per assessee himself he runs a business which involves occupying a business premise and selling original paintings, 'reprographs' and 'serigraphs' of paintings including displaying them in his business premises. It is the case of the assessee that the business run by him excludes the sale of 'original paintings', which is obviously contrary to the nature of business noted in report u/s 44AB and the affairs/position found during action u/s 133A. Moreover, assessee's own description of growth of his business as depicted in his web-site, the screen-shot of which has been taken on 01/07/2012 is as under: "Anil Relia, the founder Chairman of the Archer Group is a Fine Art major in Applied Arts, Photography and Serigraphy. In 1978, he started a Designing Studio in a small room under the name 1 'Archer . Today, the administrative headquarter of Archer Group is 10,000 sq. ft., four storey 'Archer

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House' and the group's manufacturing facilities are at various places. During the period of last 20 years, the commitment to quality & dedication of work paid off in terms of numerous National Awards & Achievements & blue chip clientele. Besides publications, today Archer also runs Design studio, Art gallery & real estate business. Publications:

Archer has published various books related to the art field like -Gaja Gamini, Roop Samhita, Dharti, Somi, Gujarat ma Kala na Pragrana , CD-ROM on Encyclopedia of Indian Motifs & M.F. Hussain's Biography in Gujarati & many more.

Design Studio: Archer has its own team of designers with Hi-Tech equipment, in-house. We make made-to-order Greeting cards, Wedding cards, Calendars, Brochures, Handmade paper-bags & point-of-purchase. All these products can also be made from Handmade paper. Archer had launched 1 all these products in 'Asian International Gift Fair , in Singapore in May 1994.

Art Gallery: During this process of growing, Archer came into contact with many artists like M F Hussain, Bhupen Khakhar, Amit Ambalal, Gulam Mohammed Sheikh, Jatin Das and many more. It is Hussain, who motivated the idea of starting an Art Gallery with his blessings in 1996. Since then, we have grown many folds and now have one of the largest collections of Contemporary Paintings, Sculptures and Graphics.

The Gallery is actively involved in promoting upcoming artists and also organizes the Exhibitions of various artists. To promote art, the Gallery is planning to publish a tri-monthly Newsletter within next couple of months. The Gallery is also planning to take a show of few upcoming artists of Gujarat to various cities of India and abroad."

a) The description under the Para 'art gallery', which na rates, in assessee's own words, the past activities of the assessee essentially concludes the issue that the assessee was very much actively in the business of high-end stationary, reprographs and also of treading in original paintings

b) There was an action u/s 133A at the Busine s premises of the assessee on 23/12/2005 and during the course of the survey, inter alia, following was found at the business premises: i) More than 550 paintings including a sizable number of original and costly and valuable paintings by renowned artists like M. F. Hussain, Bhupen Khakkar, Amit Ambalal and many more were found. The same were inventorised. (this would support the conclusion in Para c above) c) As per the reply given by the assessee to the investigating officer on 3/1/2006 and as per the annexure to the said letter, the assessee has clearly admitted that dealing in original paintings is and has been the inbuilt business activity of his business. It is seen that original paintings of various artist have been purchased for sale by the assessee (copy of annexure enclosed). It is a concluded matter, it is submitted that, the stock of original paintings found during the course of survey at the business premises of the assessee is the stock-in trade of the www.taxpundit.orgassessee and the only issue for consideration of the Hon'ble Tribunal is the source of investment in such stock-in-trade. d) Return for AY 06-07 was filed on 19.10.2006 wherein on sale of 70 original paintings as per table in point no. h below[,and APB pg 108-109 (AY 06-07)], apart from business income, income under the long term capital gains of Rs. 1.75 crores was disclosed and relief u/s 54B/D/G was also claimed.

e) The cost of acquisition was claimed to be NIL on the ground that ALL the paintings sold were received by way of gifts, h) There was NO categorical, credible and contemporaneous evidence for the following, filed before the AO or the CIT(A), with respect to the alleged gifts totaling to 70 paintings (9 paintings for AY 07-08): i) The date of acquisition of each/any of the paintings sold during the year

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ii) The credible evidence of alleged gift like

(1) Categorical Confirmation by the donor concerned

(2) Gift deed depicting the date, description etc of the painting which is the subject matter of alleged gift

(3) The evidence of natural love and affection

(4) Sr no AY No. o Amount Number of No of Amount The paintin f Selling Price paintings painting Purchase gs sold Rs crores in the s price. alleged claimed gifts to be purchase d. 1 06-07 70 1.75 70 0 0 2 07-08 38 3.29 9 29 45311 occasion, if any

(5) The fact of delivery, mode of delivery and transfer of ownership

(6) Acceptance by the assessee

i) During the course of Assessment Proceedings wide letter dated 29/11/2009 the assessee raised a claim (via filing time-barred revised return) that the paintings must be deemed to be the 'personal effects' within the meaning of s. 2(14), and therefore, not 'asset' and hence not liable for capital gains.

j) The inventory of paintings prepared during the course of survey conducted on

k) No evidence of any nature what-so-ever has been filed to establish that the alleged paintings are 'personal effects'. On the contrary, the assessee relied on a and ridiculous circular logic, without any evidence, also to claim that the proceeds of sale of paintings is neither a trading receipt nor a consideration received on transfer of a capital asset as under:

i) The alleged paintings were received as gifts( AY 06-07) and gift/token cost (AY 07-08) (no evidence for this) ii) Because the paintings are received as gifts/for nominal token amounts, they are personal effects also. iii) Because the paintings are personal effects, they cannot be trading goods 1) There is no evidence to establish the 'personal' and 'intimate' and 'proximate' bond existing between the paintings sold duringwww.taxpundit.org the year and 'the person' of the assessee. Thus there are no facts on records justifying the claim of 'personal effect' with respect to sale of paintings and thus, the claim was rightly not entertained by the CIT(A) in the absence of a valid revised return.

m) The year-wise position of number of paintings sold and alleged mode of acquisition of those paintings is as under:

3) The gist of Assessment order (06-07)is as under:

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a) There is no direct, reliable and contemporaneous evidence of alleged gifts from M F Hussain or from Vasudev Smart

b) No reliable confirmation from the alleged donors

c) No attempt to establish the occasion for gift, natural love and affection and genuineness of the alleged gift

d) The affidavit and the statement u/s 131 of Sri Jaydeep Smart is general, vague, accommodative and not reliable and is not even secondary evidence within the meaning section of Evidence Act. Though the rigours of Evidence Act do not apply to Income-tax proceedings, absence of such rigour does not turn wholly incredible / unreliable and inadmissible evidence into credible or reliable evidence

e) The so-called gifts are not genuine as they lack the essential and contemporaneous/credible evidences as listed in Para l(e) above.

f) The paintings in questions have been purchased by the assessee during the course of his business of treading in paintings, reprographs, serigraphs, sculptures etc from unaccounted sources. This fundamental allegation and conclusion of the Assessing Officer has not been controverted by assessee by any credible evidence either before Ld. CIT(A) or before Hon ble Tribunal. g) The burden of establishing

i) The date of purchase/acquisition

ii) The purchase price iii) Source of funding/ financing the purchases iv) The details and confirmations of the sellers

has not at even been attempted to be discharged by the assessee by producing legal and reliable evidences

h) All attendant other circumstances like the paintings found from business premises, paintings having been sold to reputed concerns other expenses like commission, interest etc. debited and the amount of sale considerations received, and most importantly, the nature of admitted business of the assessee support this finding that these paintings sold by assessee during the relevant years were in fact purchased from unaccounted sources during the regular course of business and were thus forming part of unaccounted stock.

i) Show-cause dated 24/12/08 was issued on the above lines. 4) It would be seen that the order of the CIT(A) for AY 06-07, which is the basis for decision of the CIT(A) in AY 07-08 also suffers from the following vital defects:www.taxpundit.org

a) The basis of AO's conclusion as summarized by CIT-A in Para 4.3 is misconceived. The AO has considered the totality of circumstances narrated above, findings in 133A, and including the complete inability of the assessee to support his claims of i) The mode/time of acquisition of paintings sold ii) Genuineness of alleged gifts/purchases iii) Exclusion of treading of original paintings from his business

b) There is no evidence to support the following findings of facts of the CIT(A) noted in Para 4.3 i) That the Paintings sold were held by assessee for more than 7 years ( Para a) ii) That the

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paintings of renowned artists M.F Hussain etc. were sold for the 'first time'

[Para (b)]

iii) That the assessee was "not running" an art-gallery[Para c] iv) That the assessee's" intention was not to sell" the paintings at a profit at the 'time of acquisition' Para d] v) That M.F. Hussain had 'close proximity' with the assessee. [Para e][comment: a picture

showing two persons dining together cannot generate the conclusion of close proximity, and

newspaper reports are here-say, opinionated, can be "planted", not admissible, and, in any

case, not the 'best evidence' ]

vi) That there are some "circumstantial evidences" vii) That the Circumstantial evidence "suggest" that Hussain gifted ALL paintings sold by assessee. [Para e ][there are no relevant circumstances either noted by CIT or evidenced by any credible, independent evidence. Moreover, the alleged circumstantial evidence can conclude what?: the date, the genuineness of the gift? The heavy onus of proving the acquisition/source cannot be discharged by any circumstantial evidences]

c) It must be reiterated that in Para e, the CIT (A) does not list/narrate any circumstances to base his conclusion on 'alleged circumstantial evidences'. Thus, CIT(A)'s decision is based on "no evidence" and is clearly contrary to evidence already on records and completely ignores the principle of burden of proof enunciated in various decisions. d) Even if for the sake of argument it is accepted that there was 'close proximity' between the renowned painters and the assessee, close proximity alone cannot prove the fact of N number of gifts at M number of times by P number of artists at Z number of places by Y number of different modes on X number of occasions on ABC dates.

e) If the 'circumstantial evidence' as relied on by the a sessee and accepted by the CIT (A) can be so accepted, it would lead to a ridiculous freedom to assessee to invest in/ purchase/sale/ deal in any number of original paintings from the market even in future and when asked about the sources of investments, to plead 'the circumstantial evidence' and proclaim any number of gifts from all renowned painters for any number of paintings for any number of years and even in future, when in fact the paintings have been acquired as business stock in trade from unexplained sources. This would be a clear mockery of section 68/69 and be wholly against the statutory provisions and principles of burden of proof

f) Thus, CIT(A)'s order for AY 06-07 i) Is based on no reliable/crediblewww.taxpundit.org evidence ii) The conclusion arrived has no rational nexus with evidence, or absence of it, on record iii) Is in contravention of the principles enunciated by Hon'ble SC and Hon'ble Gujarat HC and so many other HC and of Binding decision of ITAT approved by Gujarat HC as under:

(1) Sumati Dayal(SC)-214 ITR 801

(2) P.Mohankala (SC)-291 ITR 278

(3) DineshThakker(Ahd)-39SOT332

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(4) Dinesh Thakker (Guj) (unreported) iv) Is therefore liable to be set-aside.

g) Similarly, for AY 07-08, the order of CIT(A), in addition to the short-comings listed above also suffers from vice of basing the decision on conclusions not warranted on the basis of evidence on record or there being 'no evidence' as under: i) The 'intention to invest' is inferred from capital gain disclosed in Return of Income and investment in capital gain bonds pg 29. This amounts to simply accepting what is stated in return of income without looking at finding of the AO. ii) In Para II pg 29: findings about time of receipt, genuineness of gift for which no evidence exists

iii) That Paintings were 'purchased for small/nominal price [Para iii] iv) That' purchased over a very long period'[Para iv pg 31] v) There are complete factual and fatal contradictions between

(1) Para 3.9 findings and those in Para 3.5, pg 23 last 10 lines,;

(2) Para 3.5 and Para c pg 26; Para 3.5

(3) and Para d pg 29;, Para j and Para 3.5 h) Similarly for AY 08-09, the CIT(A)'s reliance on his order for earlier year suffers from the same short-comings and needs to be set aside. 5) Thus Assessment orders for all the three years need to be restored and CIT(A)'s orders need to be set aside as

i) Assessee has not discharged his onus to establish the source of investments in purchases of paintings sold during the year either before the AO or before the CIT(A)

ii) There is no discharge of onus as to how the iii) The Celt(A)'s decision is based practically on "no evidence" or on highly unreliable and vague evidences iv) CIT(A)'s conclusions are based on faulty and unacceptable reasoning/ logic

6) The department relies on the following other judgments with respect to the admission / need for additional evidences at this stage and for the proposition that the alleged gifts of paintings, in this circumstances of the case, cannot be accepted as genuine. Therefore, the sources of investments have remained unexplained and therefore the order of the A.O. needs to be upheld.

(1) Mrs. Jyotsna SurtiVs. DCIT-61 ITD 131 (Del.)

(2) N. B. Surti Family Trust Vs CIT -288 ITR 523 (Guj.)

(3) Velji Deoraj & Co. Vs. CIT -68 ITR 708 (Bom.) (4) CIT Vs. Jaipur Udyogwww.taxpundit.org Ltd. -227 ITR 345 (Raj.) (5) Swami Premananda Alias PremkumarVs. CIT &Anr. -180 Taxmann 368

(6) Tirath Ram Gupta Vs. CIT -304 ITR 145 (P&H)

(7) Prakashchandra Singhvi (HUF) Vs. I.T.O. -134 ITD 283 (Ahd)

(8) DCIT Vs. Vira Construction Co. -61 ITD 33 (Bom) (Sd/-B. K. S. PANDYA, IRS) CIT(DR)-II, 'B' BENCH, ITAT, AHMEDABAD. 2.9. We have considered the rival submissions, perused the material on record and have gone through

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the orders of authorities below and the judgements cited by both the sides. The issue in dispute was decided by Ld. CIT(A) as per paras 4.3 and 4.3.1 of his order, which are reproduced below:

"4.3 I have carefully considered the submissions made and evidence produced by the appellant and A.O's observations in the assessment order. The Assessing Officer treated the sale of paintings to be in the course of business of the appellant on the grounds that during the course of survey substantial stock of paintings was found; the appellant was having employees and workers at his shop/art gallery; and that he organizes art exhibitions. However, I find considerable force in the contentions of the appellant that the paintings sold in the year could not be said to be trading assets and sale of original paintings was not part of the business of the appellant for the following reasons:

(a) The appellant is a student of Fine Arts 'Hum MSU, Baroda. Though the appellant was making collections of the paintings for the last several years, it is for the first time in this year, he has sold ten paintings of Shri M.F. Hussain and two paintings of Late Shri Smart. The chart furnished by the appellant also indicates that though the appellant was having the impugned paintings for more than seven years, he has not sold the same which will not be the case with a dealer in paintings. Thus the test of period of holding proves that he was not a dealer in paintings,

(b) The sale of paintings cannot be said to be in course of the business carried on by the appellant. He was originally in the business of printing of calendars, diaries, advertisement posters etc., yet he was collecting the paintings. He started the business of serigraphy 9 years ago. The business of serigraphy is different from trading in paintings inasmuch as for the purpose of serigraphy, the appellant receives relevant material by way of photograph, CD et ., and the required number of copies are taken out on special paper by screen printing and the resultant product duly signed and numbered by the artist is sold in the market by the appellant at his own price. The painter is given share in the sale proceeds or fixed amount as mutually agreed upon. For the first time, in this year the appellant sold original paintings of the renowned painters, Shri M.F. Hussian and Late Shri Vasudeo Smart. Thus, the paintings sold cannot be said to be in ourse of the business of serigraphy carried on by the appellant so as to treat it as business income

(c) The contention of Assessing Officer that the appellant was running an Art Gallery appears to be factually incorrect. The survey party did not find any such gallery at the business premises. An art gallery is meant for the exhibition or sale of the paintings/pictures. Had the appellant been running an art gallery, there would have bee continuous and repetitive trading of the paintings of different artists whether professional or amateur.

(d) Whether a transaction could be treated in the nature of business or investment depends upon the total impression and effect of all the relevant factors and circumstances in each case. There is no single test which could be said to be conclusive. Though the question depends upon the overall facts and circumstances of each case, the motive or intention of the assessee at the time of acquisition of an asset is one of the www.taxpundit.orgimportant factors. In the instant case, it is difficult to come to the conclusion that the intention of the appellant at the time of "acquisition" of paintings was to sell them at a profit and that he had no intention of holding them for himself or otherwise enjoying them. (e) The appellant could establish, on the basis of newspaper clippings, photographs etc., his proximity to Shri M.F. Hussain for more than 15 years. Though he could not furnish any confirmation that the impugned paintings were gifted to him, circumstantial evidence suggests so. As regards the paintings of late Shri Vasudeo Smart, it is mentioned in the assessment order that Shri Jagdeep Smart (nephew of Shri Vasudeo Smart) stated in the statement recorded u/s. 131 on 30/12/2008 by the A.O that his uncle had given some paintings by way of gift to the appellant. Further, affidavit dated 30/12/08 was also filed by Shri Jagdeep Smart before the A.O. confirming the gift of paintings by his uncle.

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(f) During the course of survey more than 500 paintings were found. In the statement recorded during survey, appellant gave the mode of acquisition of the paintings. 47 of the paintings were stated to have been purchased at long intervals. No evidence was found to indicate frequent purchase and sale of paintings. Appellant claimed that it was for the first time he sold original paintings.

(g) Five of the twelve paintings were sold before the survey on 23/12/05. Balance seven of the impugned paintings were not found during survey. Appellant contends that these paintings were at Mumbai office. No evidence was found during survey to the effect that these paintings were purchased or were received by way of gift. 4.3.1 Keeping in view the totality of the facts and circumstances of the case, I hold that the paintings sold were not stock-in-trade. The sale of original paintings was not part of his business. Assessing Officer was not justified in treating the same as business income. This ground of appeal is allowed. The next ground of appeal relates to disallowance of commission of Rs.15,12,000/-. A.O. observed that no expenses were required because the customers purchasing the paintings were directly coming to the appellant's art-gallery. The appellant submits that the impugned commission of Rs. 15,12,000/-was paid for introducing the NRI customers and even copy of return of income of the recipients of commission was filed with AO. The details of commission such as name of the party, mode of payment etc. were given in reply dated 14.11.2008 furnished to the A.O. Even TDS was made under sec.194H from commission paid to both the parties. However, the AO has failed to bring on record any evidence to prove that the said commission was not genuine. Under the circumstances, the AO was not justified in disallowing commission expenses." 2.10 From the above para of the order of Ld. CIT(A), we find that a clear finding is given by Ld. CIT(A) that 5 out of 12 paintings wee sold before the survey on 23.12.2005 and the balance 7 of the impugned paintings were not found during the survey. It was submitted by the assessee before Ld. CIT(A) that the paintings were at Mumbai office. Regarding 500 paintings found in the course of survey, it is noted by Ld. CIT(A) that in the statement recorded during the survey, the assessee has given the explanation that the acquisition of the paintings as per which 47 of the paintings were stated to have been purchased at long intervals. It has also given finding that no evidence was found to indicate frequent purchase and sale of paintings. He also noted that as per the report, it was for the first time he sold original painting. Regarding the normal paintings sold we find that as per the details available on page 5 of the paper book, the sale price of Rs.1,75,54,800/-received during this year is on account of 14 paintings and the entire sale proceeds of these paintings were offered by the assessee as long term capital gain without claiming any deduction. In respect of costs of acquisition and regarding the source of acquisition of these paintings, it was stated that these were received by way of gift and the assessee has also given the dates of acquisition of these paintings. The A.O. has not brought out on record any evidence of any other sale of paintings by the assessee in the present year or in any earlier year The finding of the A.O. is on this basis that so called gifts of paintings shown by the assessee are not established as genuine and therefore acquisition of paintings is treated as unaccounted having been acquired from undisclosed source of income. By this finding of the A.O., we are of the considered opinion that admittedly, the assessee could not produce any proper evidence regarding giftswww.taxpundit.org of paintings from Shri M F Hussain but various photographs placed in the paper book show the assessee with Shri M F Hussain sitting before him when he is making the paintings. It has to be accepted that the assessee was having very close relations with Shri M F Hussain and if a person is having such a close relation with such a great painter, it cannot be out rightly rejected that he might have given some paintings to the assessee as gifts even in the absence of any confirmation because if a person received gift in kind from such a great person, he cannot ask him to give a gift declaration or confirmation also. In the light of the evidences available in the paper book in the form of various photographs of the assessee with Shri M F Hussein indicating very close relationship with the assessee with such a great painter, we have no hesitation in holding that the claim of the assessee regarding gift received from Shri M F Hussein cannot be rejected on this basis

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alone that the assessee could not produce gift confirmation /declaration. Regarding the gift from other painters, we find that in the remand report available on pages 85-86 of the paper book, it is reported by he A.O. in the remand repot that he examined Shri Amit Ambalal in the course of remand proceedings and he also confirmed his confirmation dated 12.07.2010 that 22 paintings were sold by him to the assessee in 1980. It is also certified by him that a painting was sold by him to the assessee in 1980 and the same paintings won an award from Ahmedabad Municipal Corporation in 1974 and on his request, the assessee returned it back to him and in place of this, he has given 22 paintings to the assessee from time to time as per the list enclosed with this certificate. When the A.O. examined Shri Amit Ambalal, he confirmed this certificate and he also confirmed that these paintings were given by him to the assessee out of love and affection and artistic relationship and some times he has taken small amounts of consideration also. The A.O. has also reported in the remand repot that he could not examine Shri M F Hussain because he stays at Doha and he also could not examine Shri B Khakhar because he expired 4 years back. He also reported that they are also well known and reputed painters. He further reported that in the light of the confirmation from Shri Amit Ambalal and considering the line of activities profession and business carried out by the assessee, the additional evidence submitted by the assessee can be considered. Considering all these facts, we are of the considered opinion that regarding the claim of the assessee of receiving gifts from other painters also, it cannot be rejected on this basis alone that the assessee could not furnish gift declaration/confirmation because asking such a great painter to give confirmation/declaration for nd gift is not realistic. 2.11 The 2 finding of the A.O. is that if the assessee could not establish gift of paintings, it has to be held that the assessee acquired these paintings during the present year out of unaccounted money for the purpose of doing trading busies of paintings. Once we accept this claim nd of the assessee regarding gifts of paintings received by him, the 2 objection of the A.O. does not have any relevance because the source of acquisition of the paint ngs stands established.

rd 2.12 The 3 objection of the A.O. is that substantial stock of paintings was found at the time of survey but he has not brought out on record any evidence regarding frequent purchase and sale of paintings and hence, only for this reason that 500 or more paintings were found in the course of survey, it cannot be alleged that the assessee is engaged in the business of purchase and sale of paintings. Regarding the business of the assessee the assessee has explained that he was not in a business of purchase and sale of original paintings but he was in the business of making copies of paintings and to sell the same with signatures of the painter and no evidence has been brought on record by the A.O. to show that this explanation of the assessee is not acceptable. In the absence of any evidence on record, having been brought by the A.O. indicating that the assessee was engaged in the regular purchase and sale of original paintings, it cannot be said that the sale proceeds of original paintings has to be assessed as business income and hence, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. We, therefore, uphold the order of Ld. CIT(A) on this issue and accordingly, the grounds raised by the revenue are rejected. 2.13 Regarding the grounds raised by the assessee, we find that ground No. 1. 1 was not agued by the Ld. A.R. and hence, the same is ejected as not pressed.www.taxpundit.org

2.14 Regarding ground No.2.1 to 4.1, we find that various arguments by the Ld. A.R. were raised contending that the paintings were personal effects of the assessee as per the provisions of Section 2(14) of the Income tax Act, 1961 and hence, the sale proceeds of such personal effects is not chargeable to tax but we do not find any merit in these grounds of the assessee because the assessee could not establish this claim that the paintings were held by him as personal effects. In support of this contention, Ld. A.R. drew our attention to the photocopies of some paintings on which even the name of the assessee was mentioned but the same cannot clinch the issue for all the paintings particularly for those paintings which were sold by the assessee. It is not the case of the assessee that the paintings sold were also containing the name of the assessee. Those paintings, which were

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containing the name of the assessee, may be considered as personal effect but in the absence of any evidence on record to show that the paintings sold by the assessee were also containing the name of the assessee, this argument of the assessee does not help the assessee with regard to the claim of the assessee that personal effect u/s 2(14) were sold by the assessee. Since the assessee could not establish that the paintings sold by him were personal effects, we reject these grounds of the assessee being grounds No 2.1 to 4.1.

2.15 Regarding ground No.5.1 of the assessee's appeal, we find that this claim of the assessee regarding deduction u/s 54B, 54D and 54G was decided by Ld. CIT(A) against the assessee on this basis that additional ground was not admitted by him and, therefore, this issue does not call for any adjudication. We find that when the Ld. CIT(A) has held that the income form sale of paintings is assessable under the head long term capital gain, this issue regarding allowability of deduction u/s 54B, 54D ad 54G is not an academic issue and hence, this additional ground should have been admitted by him and should have been decided by him. This aspect was not examined and decided by the A.O. also because he had held that the income from the capital gain is assessable as business income, and therefore, there is no long tem capital gain and hence, assessee is not entitled for deduction u/s 54B, 54D and 54G of the Act. Under these facts, we feel that even if we send back this matter to the file of Ld. CIT(A), he has to obtain remand repot form the A.O. in this regard because this issue was not decided by the A.O. also and, therefore, we feel it fit and proper that this issue should go back to the file of the A.O. for a fresh decision and hence, we set aside this matter back to the file of the A.O. for a fresh decision. A.O. should examine the claim of the assessee regarding deduction u/s 54B, 54D and 54G and if it is found that the assessee is eligible for deduction u/s 54B, 54D and 54G, the A.O. should decide the matter as per law. This ground of the assessee is allowed for statistical purposes.

2.16 In the result, the appeal of the assessee is partly allowed for statistical purposes.

3. Now, we take up the cross appeals of the assessee and the revenue for the assessment year 2007-08 in I.T.A.No. 2911/Ahd/2011 and 3249/Ahd/2011. 3.1 It was agreed by both the sides that the grounds raised by the revenue and the grounds raised by the assessee except grounds No.3.1and 3.2 in assessee's appeal are identical to the appeal of the assessee and the revenue in assessment year 2006-07 involving the issue as to whether the sale proceeds of paintings is assessable as business income or capital gain or is exempt being sale of personal effect. Both the sides agreed that these issues can be decided on similar lines. In assessment year 2006-07, we have confirmed the order of Ld. CIT(A) and have approved that the profits on sale of paintings is assessable as long term capital gain and accordingly, in the present year also, we hold that the profits on sale of paintings is assessable as long tem capital gain as claimed by the assessee in the original return of income.

3.3 The assessee's grounds No.3.1 and 3.2 in I.T.A.No. 2911/Ahd/2011 are as under:

"3.1 Without prejudicewww.taxpundit.org to the above and in the alternative, that in the facts and circumstances of the case, the Ld. CIT(A) ought not to have upheld the addition of Rs.3,29,26,450/-and restricted he addition to the profit from sale of paintings.

3.2 The Ld. CIT(A) has ere in upholding that the said paintings was an unaccounted stock acquired form undisclosed source."

3.4 It was submitted by the Ld. A.R. that on pages 9-10 of the paper book is the details regarding sale proceed of paintings of Rs.3,29,26,450/-and also regarding cost of acquisition of these paintings along with year of acquisition. While working out long term capital gain, indexed cost of acquisition

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should be allowed as deduction. Ld. D.R. submitted that there is no evidence regarding cost of purchases claimed by the assessee.

3.5 We have considered the rival submissions and we find that majority of paintings are claimed to have been purchased form Shri Amit Ambalal and total costs regarding purchase of paintings form Shri Amit Ambalal is claimed at Rs.35,000/-. Shri Amit Ambalal has already appeared before the A.O. and has confirmed that he used to sell paintings to the assessee at the nominal cost and hence, this claim of the assessee regarding payment of this nominal cost to Shri Amit Ambalal cannot be rejected. In addition to this, assessee has submitted that Rs.700/was paid for acquisition of 5 paintings from unknown artist and this being a very small amount, in our considered opinion, the same should also be allowed. In addition to this, assessee has claimed payment of Rs.11,111/-in respect of purchase of 1 paintings form Shri M.F. Hussain and Rs.250 for another painting claimed to have been purchased from Shri M F Hussain and these two paintings were sold by the assessee for Rs.125 lacs and Rs.50 lacs respectively. In view of this claim of the assessee that the assessee was having very close relations with Shri M F Hussain and he used to give gifts of paintings to the assessee, we are of the considered opinion that the claim of the assessee regarding payment of these two amounts of Rs.11,111/and Rs.250/-to Shri M F Hussain cannot be accepted in the absence of any evidence particularly in view of the claim of the assessee that the assessee was having very close relations with such a great painter. I is not acceptable that such a great painter will charge such small amount of Rs.11,111/-and Rs.250/-respectively for valuable paintings from a close friend. The assessee's claim regarding cost of acquisition of these two paintings acquired form Shri M F Hussain is rejected. We direct the A.O. to allow indexed cost of acquisition in respect of purchase price paid to Shri Amit Ambalal of Rs.35,000/-and Rs.700/-to unknown artist Indexing has to be done and deduction has to be allowed as per law. The A.O. is directed accordingly. These two grounds of the assessee are partly allowed for statistical purposes. 3.6 In the result, appeal of the assessee for the assessment year 2007-08 is partly allowed for statistical purposes and the appeal of the revenue for this year is also dismissed.

4. Now, we take up the remaining appeal of the revenue for the assessment year 2008-09 in I.T.A.No. 3250/Ahd/2011. In this appeal, revenue is disputing regarding the order of Ld. CIT(A) as per which he directed the A.O. to take the sale proceeds of the paintings of Rs.4.29 lacs as capital gain and not as business income. Both the sides agreed that this issue in assessment year 2008-09 can also be decided on similar lines as in assessment year 2006-07 and 2007-08. Since in those two years, we have confirmed the order of Ld. CIT(A), in this year also, we do not find any reason to interfere in the order of Ld. CIT(A).

1 In the result, this appeal of the revenue is also dismissed.

2 In the combined result, all the three appeals of the revenue are dismissed whereas both the appeals of the assesseewww.taxpundit.org are partly allowed for statistical purposes.

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