2014 (6) TMI 776 - AT - Income Tax

Assessment of STCG assessment in the hands of individual member or AOP (assessee) - income escaping assessment - Revision of return u/s 139(5) - return of loss - Held that - the assessee has brought in the value of the first, second and third floors in the books of account of assessee AOP and has claimed depreciation - there should not be any dispute that the AOP is not a legal person in the eyes of law and only for the purpose of income tax purposes, it is treated as a separate person - the immovable properties have to be necessarily to be held by the members of AOP on behalf of the AOP - once the value of immovable property is brought into the books of the Association of Persons shall be treated as the property of the AOP for the purposes of income tax - Decided in favor of revenue. With regard to ground floor and land - the value of ground floor were not shown in the books of AOP - Held that - the issue relating to the Ground floor and the land requires fresh examination thus, the matter is to be remitted back to the AO for re-computation of the amount of Short term Capital gain Decided in favour of Assessee.

Issues Involved:
Assessment of short term capital gain based on written down value of assets, computation of short term capital gain on sale of property, ownership of property for capital gain assessment, exclusion of land value in capital gain computation, expenses on property improvement, applicability of depreciation on depreciable assets.

Analysis:

1. Assessment of Short Term Capital Gain:
The appeal contested the assessment of short term capital gain by the Ld. CIT(A) based on the written down value of assets. The Assessing Officer reopened the assessment due to discrepancies in the declared values. The assessee claimed revised returns for previous years, but the AO disregarded them. The AO computed the gain based on the original return's written down value, leading to a disparity with the assessee's declared value.

2. Computation of Short Term Capital Gain on Property Sale:
The property sale involved land and a building managed by an Association of Persons (AOP). Discrepancies arose in the computation of the gain due to differing values assigned by the assessee and the AO. The AO assessed the gain based on a lower written down value, while the assessee claimed a higher value. The AOP's ownership structure and asset management were key points of contention.

3. Ownership of Property for Capital Gain Assessment:
The appeal raised concerns regarding the assessment of capital gains in the AOP's hands instead of the individual owners. The AOP structure and asset ownership by members were pivotal in determining the correct entity liable for the gains. The discrepancy in the inclusion of ground floor value in the balance sheet added complexity to the ownership assessment.

4. Exclusion of Land Value in Capital Gain Computation:
The exclusion of land value in the capital gain computation was disputed, with the assessee arguing that land value should not be included in short term capital gains. The discrepancy in the treatment of land value and its impact on the capital gain assessment required further examination by the AO.

5. Expenses on Property Improvement:
The claim of expenses on property improvement was contested, with the assessee asserting deductions for improvement costs. The AO's observations on the timing and disclosure of improvements post a fire accident raised questions about the validity of the expense claims. The need for proper documentation and verification of improvement expenses was highlighted.

6. Applicability of Depreciation on Depreciable Assets:
The applicability of depreciation on depreciable assets was a key aspect in the capital gain computation. The disagreement on the treatment of depreciable assets and the relevance of previous court decisions underscored the complexity of applying depreciation rules to the asset sale. The need for a thorough reassessment by the AO was emphasized.

The judgment highlighted the intricate details of the capital gain assessment, ownership structure, asset valuation, and expense claims, necessitating a fresh examination by the AO to ensure accurate computation of short term capital gains. The decision to set aside certain aspects for reevaluation underscored the need for a comprehensive review to address the discrepancies and complexities involved in the case.

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