2013 (10) TMI 610 - AT - Income Tax

Deduction from Long Term Capital Gains - cost of improvement - Compensation paid to tenant for alternate accommodation - Held that - the said amount of Rs.4, 25, 00, 000/- was paid by the assessee for getting the entire land free from all types of encumbrances which enabled the assessee to transfer the property as per agreement dated 28.03.1994. However out of the entire property only 2/3rd of the same was transferred. Hence the cost of acquisition is required to be calculated in proportion to the portion of land sold/transferred. Thus the assessee for this year is entitled to claim deduction to the extent of 2/3rd of the total amount - Decided partly in favour of assessee. Determination of consideration for sale of 2/3rd share in property - Held that - once the assessee has claimed and furnished a value of consideration to the statutory authorities he is now estopped from claiming any other value for the purpose of computation of income. The assessee cannot be allowed to approbate and reprobate at the same time. He cannot claim one value before the statutory authorities so as to defeat or escape out from the statutory provisions under the Act and at the same time claim another value to avoid tax. Such a conduct is not only hit by principles of estoppels but is also unreasonable and against the principle of equity justice and good conscience. It is settled position of law that a person who seeks equity must do equity. In our view such a conduct of the assessee is not appreciable. - Decided against the assessee.

Summary

Issues Involved:
1. Computation of Long Term Capital Gains.
2. Determination of consideration for sale of property.
3. Estimation of fair market value of the plot of land as on 1st April 1981.
4. Indexation on cost for the purpose of computing capital gains.
5. Reworking business income based on cost of construction.

Issue-wise Detailed Analysis:

1. Computation of Long Term Capital Gains:
The primary issue concerns the computation of long-term capital gains, specifically whether the compensation paid to tenants amounting to Rs. 4,25,00,000/- should be included as the cost of improvement in computing capital gains on the sale of land. The assessee, a partnership firm engaged in real estate development, claimed this deduction. However, the Assessing Officer (AO) disallowed the deduction, and the CIT(A) upheld this decision. The Tribunal found that the compensation payment was genuine and supported by documentary evidence. The Tribunal allowed the deduction to the extent of 2/3rd of the total amount for the year in question, amounting to Rs. 2,83,33,333/-.

2. Determination of Consideration for Sale of Property:
The second issue pertains to the determination of consideration for the sale of a 2/3rd share in the property. The assessee declared the consideration as the estimated cost of construction/development of the remaining 1/3rd area at Rs. 6,60,14,520/-. The AO and CIT(A) upheld this valuation. The Tribunal noted that the assessee had declared this value to statutory authorities under Chapter XXC of the IT Act and was now estopped from claiming a different value. The Tribunal emphasized that the assessee cannot approbate and reprobate, and upheld the valuation of Rs. 6,60,14,520/- as the consideration for the sale.

3. Estimation of Fair Market Value of the Plot of Land as on 1st April 1981:
The third issue involves the estimation of the fair market value of the plot of land as on 1st April 1981. The assessee contended that the CIT(A) did not decide on this contention. The Tribunal remanded the case back to the CIT(A) for adjudication on this ground, ensuring that proper opportunity of hearing is given to the parties.

4. Indexation on Cost for the Purpose of Computing Capital Gains:
The fourth issue is whether the indexation on cost for computing capital gains should be granted up to the year of sale or up to the year of conversion. The Tribunal held that as per the provisions of the IT Act, capital gains are computed on the date of conversion of the asset into stock in trade, and indexation is applicable only up to that date. The Tribunal rejected the assessee's contention for indexation up to the year of sale, noting that the assessee had initially claimed indexation up to the date of conversion in its return for A.Y. 2004-05.

5. Reworking Business Income Based on Cost of Construction:
The fifth issue concerns the reworking of business income based on the cost of construction. The revenue appealed against the CIT(A)'s direction to rework the business income after considering the cost of construction at Rs. 6,60,14,520/-. The Tribunal upheld the CIT(A)'s direction, affirming that the cost of construction should be taken at Rs. 6,60,14,520/- as declared by the assessee to statutory authorities.

Conclusion:
The appeals by the assessee were partly allowed, with specific deductions and remand orders issued for further adjudication on certain grounds. The appeal by the revenue was dismissed, upholding the CIT(A)'s directions on the computation of business income. The order was pronounced in the open court on 7/06/2013.