2012 (1) TMI 354 - AT - Income Tax

Summary

Issues involved: Assessment of long term capital gains, treatment of sale proceeds from building, disallowance of expenses, appeal against CIT(A) order.

Assessment of long term capital gains:
The appellant, an HUF, filed a return of income for the assessment year 2004-05, declaring a loss and long term capital gains. The assessing officer completed the assessment on a taxable income after making additions/disallowances, including in relation to the capital gains disclosed by the assessee. The dispute arose regarding the deduction of indexed cost of a building in the computation of long-term capital gains. The assessing officer held that only the land was transferred, not the building, and re-computed the capital gains accordingly. On appeal, the CIT(A) confirmed the assessing officer's view. However, the ITAT Hyderabad, following a precedent, held that the indexed cost of the building existing at the time of sale had to be deducted while computing the capital gains. The ITAT directed the assessing officer to recompute the capital gains in light of this decision.

Treatment of sale proceeds from building:
The appellant contended that the sale proceeds of the building should not be treated as "income from other sources" but as part of the capital gains. The ITAT, based on the facts that the building was demolished before the land transfer and a specific clause in the sale agreement, agreed with the appellant's argument. The ITAT set aside the lower authorities' orders on this issue and directed the re-computation of the capital gains.

Disallowance of expenses:
The CIT(A) disallowed certain expenses claimed by the assessee against income from other sources. The appellant argued that these expenses were directly related to earning income from the partnership firm and should have been allowed under the head 'business income.' The ITAT agreed with the appellant and directed the assessing officer to verify the details of the expenditure and allow the same against business income if substantiated by the assessee.

Appeal against CIT(A) order:
The appellant raised multiple grounds challenging the CIT(A)'s order, including the treatment of the building sale proceeds and the disallowance of expenses. The ITAT partially allowed the appeal, directing the re-computation of capital gains and the verification of expenses against business income.

This summary highlights the key issues involved in the legal judgment and provides a detailed overview of the ITAT Hyderabad's decision on each issue raised by the appellant.