2015 (7) TMI 520 - AT - Income Tax

Capital gain - transfer of immovable property without any written contract - whether there is a transfer of capital asset during the year in terms of section 2(47)(v) as alleged by AO? - CIT(A) deleted he addition - Held that - Thus, it is patent and obvious, handing over possession of property by assessee to the income tax department is by virtue of an unilateral act of the state govt. over which assessee has neither any say nor any control but at the same time it has to comply to the same. In the aforesaid facts and circumstances, it cannot be said that the basic condition of section 53A of T.P. Act in the present case has been fulfilled. Moreover, consideration payable towards transfer has also not been quantified till date. Though, it is provided in GOMS that a separate order would be passed determining the cost of the property and adjusting the same towards loan payable by assessee to the state govt., but, as yet no such order has been passed by the state govt. In the aforesaid facts and circumstances, in absence of written contract, quantification of consideration to be paid, it cannot be said that there is a transfer in terms of section 2(47)(v) of the Act. It is clear from the GOMS issued by govt. that the cost of land will be determined by the state govt. through a separate order. However, as yet no order has been passed by the govt. determining the cost of land. It is also evident from the statement of audited accounts of assessee, though, assessee has credited the market value of the property to P&L A/c, but, it has been shown as receivable and has not been adjusted against loan repayable to the state govt. In the aforesaid facts and circumstances, in our view, in absence of determination of cost of land by state govt., no capital gain can be computed in the impugned AY. Ld. CIT(A), in our view, is therefore justified in deleting the addition made by AO on account of long term capital gain. - Decided in favour of assessee. Deduction claimed on payment of VRS - direction of ld. CIT(A) amounts to setting aside the issue to AO - Held that - we are of the view that ld. CIT(A) instead of directing AO to verify assessee s claim and decide the issue, should himself have decided the issue as direction of ld. CIT(A) amounts to setting aside the assessment order, which he is not authorized to do under the statute. If at all ld. CIT(A) wanted to verify any factual aspect, he could have called for a remand report from AO and accordingly decided the issue himself. In the aforesaid view of the matter, we are inclined to set aside the order of ld. CIT(A) on the issue and remit the matter back to his file for deciding the issue afresh on merit after due opportunity of being heard to assessee. If necessary ld. CIT(A) may call for a remand report from AO before deciding the issue. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition made by AO on account of capital gain.
2. Deduction claimed on payment of Voluntary Retirement Scheme (VRS).

Issue 1: Deletion of Addition Made by AO on Account of Capital Gain

The department's appeal was against the CIT(A)'s decision to delete the addition made by the AO on account of capital gain. The assessee, a state public sector undertaking, initially declared a long-term capital gain of Rs. 19,53,14,791 but later revised it to Rs. 1,16,33,336, excluding the gain related to the AC Guards, Hyderabad property, arguing there was no transfer as per Section 2(47)(v) of the Income Tax Act. The AO contended that the transfer had occurred as per the Government Order (G.O.) directing the assessee to hand over possession to the income tax department, and computed the capital gain accordingly.

The CIT(A) found that there was no written contract between the assessee and the state government as required under Section 53A of the Transfer of Property Act, which is necessary for a transfer under Section 2(47)(v). The CIT(A) also noted that the cost of the property had not been determined by the government, and the entries in the assessee's books were not conclusive. The CIT(A) thus concluded that no capital gain could be computed for the impugned assessment year and deleted the addition made by the AO.

The Tribunal upheld the CIT(A)'s decision, agreeing that the absence of a written contract and the undetermined cost of the property meant no transfer had occurred under Section 2(47)(v). The Tribunal also noted that the transfer, if any, was akin to a compulsory acquisition, and capital gain would be taxable in the year the compensation is received, as per Section 45(5). The department's appeal was dismissed.

Issue 2: Deduction Claimed on Payment of Voluntary Retirement Scheme (VRS)

The assessee claimed a deduction for VRS payments, which included prior period adjustments. The AO disallowed the prior period adjustment of Rs. 10,82,16,659 and allowed only 1/5th of the VRS expenditure for the current year. The CIT(A) directed the AO to verify the claim and allow the deduction as per the relevant provisions, effectively setting aside the issue to the AO.

The Tribunal found that the CIT(A) should have decided the issue himself rather than directing the AO, as he is not authorized to set aside the assessment order. The Tribunal remitted the matter back to the CIT(A) for a fresh decision after due verification, allowing the assessee's C.O. for statistical purposes.

Related Appeals:

For the subsequent assessment years, the issues related to Section 35DDA deductions were remitted back to the CIT(A) to be decided in accordance with the decision for AY 2002-03. The appeals for these years were also allowed for statistical purposes.

Conclusion:

The department's appeal was dismissed, and the assessee's appeals and C.O. were allowed for statistical purposes. The CIT(A) is to re-examine the VRS deduction claims and decide afresh.