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2020 (7) TMI 148 - AT - Income TaxExemption of the indexed cost of acquisition and improvement - AO denied assessee claim of cost of improvement stating that he did not furnish any proof to substantiate cost of improvement on the sold property, Ld.AO also denied - HELD THAT - Coming to quantification of construction/improvement carried out by assessee on plot purchased, there is mention of of some construction in the year 2005-06 being new building of 1400 sq.ft RCC roofing and shed 500 sq.ft with AC sheet roofing in valuation report dated 06/12/2012 by SPR Associates, placed at page 14 to Annexure 1 in paper book, The valuation report values new building constructed by assessee at ₹ 1,000/- per sq.ft and ₹ 800/- per sq.ft for shed, approximately valuing at 14 lakhs and 4 lakhs respectively. Further assessee has not been able to establish the balance amount being utilised for any other construction or any improvements carried out by assessee on the existing buildings. We are therefore unable to appreciate the quantification made out by assessee to the extent of ₹ 1,41,77,065/-. Also that there is nothing on record to establish that various valuation reports referred to and relied upon by assessee have been before AO. In the interest of justice, direct Ld.AO verify the reports and to consider cost of improvement/construction in accordance with law. Ld.AO shall ascertain by way of proper enquiries regarding construction/improvements that originally existed at the time of purchase and any construction/improvements subsequently carried out by assessee on plot for purposes of computing capital gains in the hands of assessee. Denial of claim under section 54G - assessee did not fulfil necessary conditions for eligibility - assessee had not used new land for industrial purpose - HELD THAT - Hon ble Supreme Court in case of Fibre Boards (P) Ltd. vs CIT 2015 (8) TMI 482 - SUPREME COURT held that, even an agreement to purchase is good enough, and that assessee cannot be denied exemption under section 54G for the reason that plant and machinery has not been purchased. It is clear that for the assessment year in question all that is required for the assessee to avail of the exemption contained in the section is to 'utilize' the amount of capital gains for purchase and acquisition of new machinery or plant and building or land. Admittedly, in present facts of the case, assessee has utilised capital gains for purchasing new land in an area other than urban area as specified under section 54G of the Act within the time period specified therein. Reject reasoning of Ld.AO to deny exemption claimed by assessee. Further, reasoning of Ld.CIT (A) has already been negated as the evidences relied upon by Ld.AR speaks in volumes, of structures existing on original assets, from the time the plot of land was transferred to assessee by Karnataka Industrial Areas Development Board. - We hold that assessee is eligible for exemption under section 54G of the Act. The quantum of capital gains to be considered under section 54G would have to be computed in accordance with law. Ld.AO is directed to granting benefit u/s 54G while computing capital gains. Compute capital gains in respect of original asset sold by assessee in accordance with law.
Issues Involved:
1. Opposition to the assessment order. 2. Dispute over total income assessed. 3. Denial of indexed cost of acquisition and improvement. 4. Denial of exemption under Section 54G. 5. Levy of interest under Section 234. 6. Consideration of evidence and natural justice. Detailed Analysis: 1. Opposition to the Assessment Order: The appellant contended that the orders of the AO and CIT(A) were opposed to law, equity, and the weight of evidence, probabilities, facts, and circumstances of the case. 2. Dispute Over Total Income Assessed: The appellant denied liability to be assessed to a total income of ?2,80,41,600/- as opposed to the returned income of ?74,59,410/-. 3. Denial of Indexed Cost of Acquisition and Improvement: The appellant challenged the denial of indexed cost of acquisition and improvement amounting to ?1,41,77,065/-. The appellant claimed that the cost of improvements was based on reliable records, including audited financial statements and tax records, despite the loss of primary records due to unforeseen events like floods. The Tribunal rejected the CIT(A)'s observation that the appellant sold a vacant plot of land. The Tribunal directed the AO to verify the valuation reports and consider the cost of improvement/construction in accordance with the law, after proper inquiries regarding the construction/improvements on the plot. 4. Denial of Exemption Under Section 54G: The appellant contested the denial of exemption under Section 54G, asserting that the statute does not require the commencement of industrial production at the new premises for exemption eligibility. The Tribunal noted that the appellant had invested the capital gains in purchasing new land outside the urban area within the specified period. The Tribunal rejected the AO's reasoning for denying the exemption and held that the appellant is eligible for exemption under Section 54G. The AO was directed to compute the capital gains and grant the benefit under Section 54G accordingly. 5. Levy of Interest Under Section 234: The appellant denied the interest levied under Section 234, arguing that there was no liability to additional tax and that the original return was filed within the due date. The Tribunal noted that this ground was consequential in nature. 6. Consideration of Evidence and Natural Justice: The appellant argued that the CIT(A) failed to consider corroborative and circumstantial evidence and did not provide a reasonable opportunity to be heard, thus violating the principles of natural justice. The Tribunal found that sufficient evidence was presented to prove the existence of buildings/sheds on the original plot and directed the AO to verify the reports and consider the cost of improvement/construction. Conclusion: The appeal was partly allowed, with directions to the AO to verify and consider the cost of improvements and to grant the benefit under Section 54G while computing the capital gains. The Tribunal emphasized the need for proper inquiries and adherence to the principles of natural justice.
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