2017 (4) TMI 1562 - AT - Income Tax

Deduction u/s 54F and 54EC - Claim denied as asset happened to be short term capital asset - CIT(A) arrived at a conclusion that as the period of holding is treated as short term period, the benefit of indexed cost and inflation cost to the asset to the previous owner is not applicable because the transfer of asset is not covered by sec. 49(1) r.w.s. 2(42A). The AO is accordingly, directed to withdraw the cost of indexation given in the assessment order - HELD THAT - Admittedly, there was no issue of applicability of Sec.46 of Transfer of Property Act, 1882 was raised before the lower Authorities and this is a new plea taken by the ld.A.R before us. The lower authorities have no occasion to consider this plea. Being so, in the interest of justice, we remit the issue back to the file of Ld.CIT(A) for denovo consideration and decide after giving opportunity of hearing to the assessee. Before the Ld.CIT(A), the assessee is at liberty to present necessary documents in support of claim made by the assessee. At this stage, we refrain from adjudicating any other grounds raised before us.

Summary

Issues involved:
- Appeal against the Commissioner of Income Tax's order for assessment year 2013-14.
- Dispute over enhancement of assessment without justification.
- Disagreement on the nature of the transferred asset affecting deductions under sections 54F and 54EC of the Income Tax Act.
- Claim for indexation benefit based on the Deed Settlement terms.
- Ownership and transfer issues related to a property acquired through a Settlement Deed.
- Calculation of capital gains, indexation, and deductions under sections 54 and 54EC.

Analysis:
1. Enhancement of Assessment: The appeals contested the CIT(A)'s decision to enhance the assessment without sufficient reason. The ITAT Chennai noted that both appeals shared common issues and thus were clubbed together for convenience. The disagreement primarily revolved around the justification for the enhanced assessment.

2. Nature of Transferred Asset and Deductions: The CIT(A) held that the asset transferred was a short-term capital asset, impacting the eligibility for deductions under sections 54F and 54EC of the Act. The settlement deed terms were crucial in determining the nature of the asset and the subsequent tax implications for the assessee.

3. Indexation and Ownership Issues: The settlement deed executed by the grandfather, transferring the property to the father and subsequently to the grandsons, raised questions regarding ownership and entitlement to indexation benefits. The CIT(A) concluded that the asset transfer did not qualify as inheritance, affecting the applicability of certain provisions of the Income Tax Act.

4. Capital Gains Calculation and Deductions: The AO's calculation of capital gains, indexation, and deductions under sections 54 and 54EC were disputed in the appeals. The CIT(A) directed the AO to withdraw the indexation benefit and deductions due to the asset being treated as a short-term capital asset, thus impacting the tax liability of the assessee.

5. Applicability of Transfer of Property Act: During the hearing, a new plea was raised regarding the applicability of Section 46 of the Transfer of Property Act, 1882. The ITAT Chennai decided to remit this issue back to the CIT(A) for fresh consideration, allowing the assessee to present supporting documents for their claim.

6. Outcome: Ultimately, the appeals of the assessees were partly allowed for statistical purposes, with the ITAT Chennai ordering a fresh consideration of the Transfer of Property Act's applicability by the CIT(A) to ensure justice and a fair assessment process.