2013 (6) TMI 667 - AT - Income Tax

Addition towards LTCG on sale of house property - Penalty u/s 271(1)(c) - Held that - It is an undisputed fact that the assessee had received Rs. 34,11,000/- on the sale of property & assessee out of the total cost of Rs.16.70 lacs incurred for acquiring the property, the assessee had paid only Rs.7,97,500/- and the remaining amount was paid by Shri Jagdish Khurana. In the audited balance sheet of the assessee for F.Y. 2003-04 it is seen that the assessee had shown investments in Sweet Co.Op. Housing Society of Rs. 8,12,500/-. Assessee also has placed on record the copy of computation of income for A.Y. 2006-07 of Shri Jagdish Khurana wherein the long term capital gain on sale of property has been disclosed by him. As the Revenue has not brought on record any material to prove that the assessee was the sole owner of the property it is also a fact that Mr. Khurana, the co-owner of the property, has offered his share of capital gains in the return of income for A.Y. 2006-07. However there is nothing on record to show as to how the profit on sale of aforesaid property has been treated in the hands of Shri Jagdish Khurana while finalizing his assessment. Thus the entire capital gains cannot be taxed in the hands of assessee ,therefore this aspect needs examination at the end of AO. As the addition itself has been deleted the penalty does not survive. In favour of assessee.

Summary

Issues:
1. Appeal against order of CIT(A) for A.Y. 2006-07 and penalty u/s 271(1)(c).

Detailed Analysis:

Issue 1: Appeal against CIT(A) Order for A.Y. 2006-07
The appellant, a creative advertisement agency, filed its return for A.Y. 2006-07 declaring income of Rs. 1,91,543/-. The assessment framed under Section 143(3) assessed the income at Rs. 6,72,566/-. The CIT(A) granted partial relief, but the appellant appealed citing various grounds related to LTCG on the sale of a property. The Assessing Officer disallowed the deduction claimed by the appellant regarding the share of profits paid to another individual, leading to a taxable LTCG of Rs. 4,81,023/-. The CIT(A) upheld this decision, emphasizing the appellant's legal ownership and possession of the property. The appellant argued that the other individual had a 50% share in the property and disclosed capital gains accordingly. The ITAT found no evidence proving sole ownership by the appellant and directed the Assessing Officer to examine how the gains were treated for the other individual, allowing the appeal.

Issue 2: Penalty u/s 271(1)(c)
The Assessing Officer levied a penalty under Section 271(1)(c) due to the addition of long-term capital gains. The CIT(A) upheld this penalty. However, since the ITAT had already deleted the addition in the quantum appeal, the penalty was deemed not sustainable and was subsequently deleted by the ITAT. Therefore, the penalty was removed, and the appeal was allowed in favor of the Assessee.

In conclusion, the ITAT allowed the appeals of the Assessee, overturning the CIT(A) order regarding LTCG and deleting the penalty imposed under Section 271(1)(c). The judgment highlighted the importance of proper examination of ownership and profit-sharing in determining tax liabilities, ensuring fair treatment and compliance with legal provisions.