2004 (4) TMI 518 - AT - Income Tax

Summary

Issues Involved:
1. Determination of the cost of land.
2. Allowance of 10% of the cost of construction.
3. Validity of the transfer of property.
4. Ownership of the plot.
5. Service of mandatory notice under section 143(2).
6. Taxation of advance money received.
7. Deduction on account of indexed cost of acquisition and payment to Shri Nemchand Chheda.

Detailed Analysis:

1. Determination of the Cost of Land:
The revenue contended that the cost of the land should be Rs. 6 lakhs, the amount paid by the assessee, rather than Rs. 26 lakhs, the amount later assigned. The CIT(A) directed the Assessing Officer to adopt the cost of the plot at Rs. 26 lakhs, considering the deed of assignment executed by Shri Nemchand V. Chheda in favor of the assessee on 15-4-1993. The Tribunal upheld this decision, noting that the land was assigned to the assessee for Rs. 26 lakhs, making him the real owner from that date.

2. Allowance of 10% of the Cost of Construction:
The Assessing Officer disallowed 10% of the cost of construction due to the absence of details. The CIT(A) allowed the full cost of construction, noting that the construction was carried out by a third party per an agreement. The Tribunal agreed with the CIT(A), stating there was no justification for arbitrary deductions.

3. Validity of the Transfer of Property:
The revenue argued that the property transfer to Mr. Kaushik Chheda was invalid, asserting that the property always belonged to him. The CIT(A) held that the property was indeed transferred to the assessee via a deed of assignment on 15-4-1993, making him the owner from that date. The Tribunal upheld this view, emphasizing that the real ownership was transferred only through the assignment deed.

4. Ownership of the Plot:
The primary dispute was whether the plot was owned by the assessee or his brother, Shri Nemchand V. Chheda. The Tribunal noted that the land was reflected in Shri Nemchand Chheda's wealth tax returns and was assigned to the assessee on 15-4-1993. The Tribunal concluded that the real owner of the property was Shri Nemchand Chheda until the assignment deed was executed, after which the assessee became the owner.

5. Service of Mandatory Notice under Section 143(2):
The assessee raised an additional ground, arguing that the mandatory notice under section 143(2) was not served within the statutory time limit, rendering the assessment order void. The Tribunal did not adjudicate this issue, deeming it unnecessary in light of its decision on the main grounds.

6. Taxation of Advance Money Received:
The assessee contended that no income arose from the advance money received as the property was not transferred during the relevant previous year. The Tribunal's decision to recognize the property transfer only from 15-4-1993 supported the view that any income from the property should be taxed in the assessment year 1994-95.

7. Deduction on Account of Indexed Cost of Acquisition and Payment to Shri Nemchand Chheda:
The assessee argued for deductions on the indexed cost of acquisition and the amount paid to Shri Nemchand Chheda. The Tribunal acknowledged that the cost of the land was Rs. 26 lakhs, as per the assignment deed, and that any profits from the sale of flats constructed on the land should be recognized in the assessment year 1994-95.

Conclusion:
The Tribunal upheld the CIT(A)'s decision for the assessment year 1992-93, directing the adoption of the cost of the plot at Rs. 26 lakhs and allowing the full cost of construction. For the assessment year 1993-94, the Tribunal deleted the addition of Rs. 16,73,710, recognizing the assessee as the owner of the property only from 15-4-1993 and thus liable for taxation in the assessment year 1994-95. The additional grounds raised by the assessee were deemed infructuous and dismissed. The appeal by the revenue for the assessment year 1992-93 was dismissed, and the appeal by the assessee for the assessment year 1993-94 was partly allowed.