2017 (5) TMI 1706 - AT - Income Tax

Short term capital gain - Whether transaction did not belong to the appellant individually and the transactions were required to be considered in the hands of AOP in which the appellant was a member with 1/7th share? - HELD THAT - Short term capital gain, but while doing so, he has not taken into account the expenditure incurred in levelling the plot. Undisputedly the assessee has carved out 90 plots out of the total lands purchased and for its carving out, some expenditure is bound to be incurred. AO did not taken into account the expenditure incurred in this regard and he has computed the short term capital gain without taking into account the expenditure incurred after the purchase of plot. This approach of AO is incorrect as for developing a plot, some expenditure is bound to be incurred. Therefore, this issue requires readjudication by the AO and accordingly set aside the order of CIT(Appeals) and restore the matter to the file of AO with a direction to reexamine the claim of expenditure incurred in levelling of the plot or otherwise relevant for the purpose of computation of short term capital gain. - Appeals of the assesses are allowed for statistical purposes.

Summary

Issues:
1. Reopening of assessment under section 147 of the Act
2. Assessment framed in the hands of individuals instead of Association of Persons (AOP)
3. Disallowance of cost of improvement while computing short term capital gains

Analysis:

Issue 1: Reopening of assessment under section 147 of the Act
The assesses challenged the reopening of assessment, arguing that there was no material information before the Assessing Officer (AO) to justify the reopening. They contended that the sale/purchase of land was undertaken by the AOP of which they were members, and thus the assessment should have been framed in the hands of the AOP, not the individuals. However, the Department submitted that the assesses, along with others, had purchased land and sold plots without offering the income to tax. The AO reopened the assessment under section 147, asserting that income from the sale of plots had escaped assessment. The Tribunal found that the returns were regularly filed by the individuals, but no evidence was presented regarding the filing of returns by the AOP. As the AO had information about the sale of plots by the assesses, the Tribunal upheld the reopening of assessment.

Issue 2: Assessment framed in the hands of individuals instead of AOP
The assesses argued that the assessment should have been framed in the hands of the AOP, not the individuals. They claimed that the AOP had declared short term capital gains from the sale of plots. However, the Tribunal noted that no concrete evidence was provided to support the filing of returns by the AOP. As the AO had information about the sale of plots by the individuals, the Tribunal upheld the assessment framed in the hands of the individuals. The Department also clarified that as no return of income was filed in the name of the AOP, there was no basis for reopening the assessment in the hands of the AOP.

Issue 3: Disallowance of cost of improvement while computing short term capital gains
Regarding the computation of short term capital gains, the assesses contended that the cost of improvement incurred on leveling of plots should be allowed. They argued that the expenditure incurred in levelling and marketing should be considered while computing short term capital gains. The Tribunal observed that the AO did not account for the expenditure incurred in levelling the plot while computing the short term capital gain. Acknowledging that developing a plot incurs certain expenses, the Tribunal directed the AO to reexamine the claim of expenditure incurred in levelling the plot for the purpose of computing short term capital gains.

In conclusion, the Tribunal allowed the assesses' appeals for statistical purposes, setting aside the order of the CIT(Appeals) and directing the AO to reexamine the claim of expenditure incurred in levelling the plot for the computation of short term capital gains.