2016 (9) TMI 1180 - AT - Income Tax

Capital gain on inherited land sold - indexed cost of improvements - Held that - It is a fact that the assessee has filed a detailed cash flow shown different sources from which the money has been brought in. The assessee also has explained that during those days bank accounts were not so common and large families use to keep cash with themselves as most of the receipts were from agriculture and other allied sources. The fact that without improvements the assessee would not have received this amount is also pointed out. The learned Dr has not raised any specific objection to the cash flow other than the opening balance, the non banking of cash and production of records for the past 26 years from 1.4.1981 onwards. The learned Counsel has requested the Hon. Bench to have a pragmatic approach in respect of old records as normally people miss or misplace records after a reasonable period. In the circumstances and facts of the case, it is evident that the assessee has made substantial improvements to the land which is supported by year wise cash flow. The Assessing Officer has simply ignored the cash flow stating various other reasons. The Ld. CIT(A) has considered the cash flow and in order to compensate any probable defects and omissions has made an estimated disallowance of 40% which the learned DR during the course of hearing has accepted as correct except for the size of the amount. However, to meet the interest of justice, the disallowance of cost of improvement is directed to be fixed at 45% of the cost claimed, i.e., the assessee is eligible for 55% of the improvement cost claimed. This will take care of defects pointed out by the Assessing Officer and Ld. DR including the opening cash in hand.

Summary

Issues Involved:
1. Challenge to order of CIT(A) regarding fair market value and indexed cost of improvements.
2. Dispute over fair market value of land inherited and claimed indexed cost of improvements.
3. Assessment of improvements claimed by the assessee.
4. Disagreement on the allowance of improvement costs by the Assessing Officer and CIT(A).
5. Arguments on the sources of income for improvements and adequacy of supporting documents.
6. Examination of satellite survey images and cash flow statements.
7. Decision on the percentage of improvement costs to be allowed.

Issue 1: Challenge to order of CIT(A) regarding fair market value and indexed cost of improvements
The appeal by the department challenged the findings of the CIT(A) regarding fair market value and indexed cost of improvements. The High Court confirmed the fair market value but set aside the issue of indexed cost of improvements for fresh consideration. The Tribunal had dismissed the appeal and cross objections, leading to the Revenue filing an appeal before the High Court.

Issue 2: Dispute over fair market value of land inherited and claimed indexed cost of improvements
The respondent sold inherited land and claimed indexed cost of improvements. The Assessing Officer rejected the fair market value and indexed cost, recalculating the capital gain. The CIT(A) determined fair market value at ?11,000 per cent and allowed 60% of the claimed improvement amount based on a judgment reference. The Revenue challenged this decision, leading to the High Court confirming the fair market value but remanding the indexed cost issue for fresh consideration.

Issue 3: Assessment of improvements claimed by the assessee
The assessee claimed ?62,05,000 towards improvements over 26 years, but the Assessing Officer allowed only ?21,000. The CIT(A) disallowed 40% of the claim and allowed ?37,23,000 based on facts and materials. The Revenue contended that the large amount claimed lacked adequate details and supporting documents.

Issue 4: Disagreement on the allowance of improvement costs
The Revenue argued against the CIT(A) decision to grant 60% of the improvement cost, citing lack of evidence for the claimed sources of income. They also disputed the validity of satellite images and computerized topography in evidencing improvements on the property.

Issue 5: Arguments on sources of income for improvements and supporting documents
The Revenue raised concerns about the lack of evidence for the sources of income used for improvements and the absence of supporting documents, such as bank account statements. The assessee defended the sources of income, highlighting funds from various sources and advances from relatives detailed in family cash flow statements.

Issue 6: Examination of satellite survey images and cash flow statements
The Revenue emphasized the satellite survey results showing no improvements and questioned the authenticity of the cash flow statements. The assessee argued that the satellite images were inconclusive and explained the absence of bank accounts due to common practices in large families involved in agriculture.

Issue 7: Decision on the percentage of improvement costs to be allowed
After considering the rival contentions and records, the Tribunal found that the assessee had made substantial improvements supported by cash flow statements. To address potential defects, a 45% disallowance was set for improvement costs, allowing the assessee 55% of the claimed amount. The cross objection of the assessee was dismissed as supportive and infructuous.

This detailed analysis covers the various issues involved in the legal judgment, providing a comprehensive overview of the arguments, decisions, and considerations made by the authorities involved in the case.