2009 (6) TMI 991 - AT - Income Tax

Summary

Issues Involved:
1. Indexed cost of property.
2. Exemption u/s 54 of the IT Act.

Summary:

Issue 1: Indexed Cost of Property
The assessee, a HUF, filed a return showing a business loss and claimed exemption u/s 54F for purchasing residential properties. The AO disputed the computation of capital gains (CG), particularly the indexed cost of the property sold. The AO argued that the market value of the property as on 1.4.1981 should be Rs. 1.35 lakhs as per wealth-tax records, not Rs. 38,86,200/- as adopted by the assessee. The CIT(A) upheld the AO's decision on this issue.

Issue 2: Exemption u/s 54 of the IT Act
The AO also disputed the exemption claimed u/s 54F, stating that no evidence was produced to show that four residential properties were acquired. The CIT(A) verified the facts and concluded that only one property (No. 16) had a residential structure, allowing exemption for Rs. 11.60 lakhs but not for the claimed development charges of Rs. 17.00 lakhs.

Revenue's Appeal:
The Revenue argued that the CIT(A) erred in allowing exemption for one property, contending that the mud structures were temporary and not suitable for human habitation. The AO's report, which included physical verification, supported this view. The AO found no substantial structures or facilities like water and electricity, and the properties were registered as vacant plots.

Assessee's Appeal:
The assessee contended that the CIT(A) should have allowed exemption for all four properties. The assessee relied on a Karnataka High Court decision, arguing that the CIT(A) should have considered the development charges and the existence of residential structures.

Tribunal's Decision:
The Tribunal upheld the AO's findings, stating that the assessee is not entitled to exemption u/s 54 for any of the properties. The Tribunal noted the lack of substantial evidence for the existence of residential structures and the improbability of the claimed development charges. The Tribunal also referenced relevant case laws, including decisions from the Delhi and Punjab & Haryana High Courts, which supported the AO's stance.

Conclusion:
The Tribunal allowed the Revenue's appeal and dismissed the assessee's appeal, restoring the AO's decision that the assessee is not entitled to exemption u/s 54 of the IT Act for any of the properties.