2013 (11) TMI 413 - AT - Income Tax

Deduction u/s 48 - Development expenditure - Onus of proving nature of exdpenditure - Held that - Suffice it to say that the assessing officer categorically observed that the sale deed do not contain any clause, whereby development of land was required to be carried out by the assessees as part of the package of sale. Section 48(i)&(ii) provides for mode of computation of capital gains whereby, an assessee is entitled to compute the capital gains taxable under the Act by deducting, from the full value of the consideration received, the following amounts i.e. (a) expenditure incurred wholly and exclusively in connection with such transfer and (b) the cost of acquisition of the asset and the cost of any improvement thereto - In respect of any claim of expenditure, the initial onus is upon the assessees to prove that such expenditure was incurred wholly and exclusively in connection with such transfer. In the instant case, the assessing officer repeatedly asserted that development is not a pre-condition for sale - the expenditure claimed to have been incurred by the assessees herein is about 30% and no business man would ordinarily spend such amount voluntarily unless they are compelled to do so and such compulsion should be reflected in the sale deed. Similarly, even if the land had to be developed/filled in, nobody would be willing to incur generously 30% of the sale price that too without any agreement, either with the purchaser or with the developers. It is also necessary to notice that the developers, being business men, would not ordinarily take up such contracts without anything in writing and without any prior payment. The entire surrounding circumstances plainly go to prove that the assessing officer has correctly noticed the facts and arrived at a conclusion that development expenditure cannot be allowed as deduction u/s 48 of the Act. Merely because he has drifted from his main observations to estimate expenditure on adhoc basis and to generously allow the same as deduction the Ld. CIT(A), whose powers are co-terminus with that of the assessing officer, should not remain as a mute spectator of the game - Therefore, matter is restored back to CIT - Decided in favour of Revenue.

Summary

Issues Involved:
1. Deduction of development expenses claimed by the assessees.
2. Validity and necessity of the development expenses.
3. Estimation of development expenses by the assessing officer.
4. Role and powers of the CIT(A) in reviewing the assessing officer's decision.

Detailed Analysis:

1. Deduction of Development Expenses Claimed by the Assessees:
The primary issue revolves around the deduction of development expenses claimed by the assessees under sections 54B and 54F of the Income-tax Act. The assessees claimed significant amounts towards the cost of development of the land sold. The assessing officer scrutinized these claims and observed that the development appeared to have taken place after the date of transfer, with no substantial evidence proving that the development was a pre-condition for the sale. Despite the payments being made by cheques, the assessing officer doubted the necessity and genuineness of these expenses, as there were no agreements or prior conditions documented in the sale deed.

2. Validity and Necessity of the Development Expenses:
The assessing officer questioned the necessity of the development expenses, noting the absence of any agreement between the assessees and the purchaser (M/s. GSPCL) or between the assessees and the developers. The officer highlighted that no prudent person would undertake such a significant expenditure without a prior agreement or knowledge of the rates. The officer also pointed out that the payments were made post-sale, raising doubts about the legitimacy of the claimed expenses.

3. Estimation of Development Expenses by the Assessing Officer:
Despite the initial strong foundation laid by the assessing officer questioning the development expenses, he proceeded to estimate the expenses at Rs. 3 lakhs per acre on an ad hoc basis, instead of disallowing the entire claim. This estimation was significantly lower than the amount claimed by the assessees but was not based on concrete evidence or a comparable basis. The CIT(A) later allowed the expenses claimed by the assessees, criticizing the assessing officer for reducing the expenses without a proper basis.

4. Role and Powers of the CIT(A) in Reviewing the Assessing Officer's Decision:
The CIT(A) observed that the assessing officer did not entirely disallow the development expenses but estimated them arbitrarily. The CIT(A) accepted the development expenses as claimed by the assessees, noting that the assessing officer did not doubt the payments or the development activity. However, the Tribunal found that the CIT(A) should have called for a remand report to verify the necessity and genuineness of the expenses, given the substantial observations made by the assessing officer regarding the lack of evidence and agreements. The Tribunal emphasized that the CIT(A) has the duty to correct errors and ensure a thorough review, which was not adequately done in this case.

Conclusion:
The Tribunal set aside the matter to the file of the CIT(A) for reconsideration, directing the CIT(A) to give the assessing officer a reasonable opportunity to be heard and to make further inquiries if necessary. The appeals filed by the revenue were allowed for statistical purposes, highlighting the need for a more detailed and evidence-based review of the claimed development expenses.