2016 (9) TMI 1202 - 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 showing 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 used 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:
1. Challenge to the fair market value of land and indexed cost of improvements.
2. Disallowance of claimed improvements by the Assessing Officer.
3. Dispute over the percentage of improvement cost allowed.

Analysis:

Issue 1: Challenge to Fair Market Value and Indexed Cost of Improvements
The appeal by the department stemmed from the CIT(A)'s order, which was upheld by the tribunal, confirming the fair market value of the land as on 1.04.1981. However, the High Court directed a reevaluation of the claim for indexed cost of improvements, emphasizing the need for a fresh decision based on the evidence presented.

Issue 2: Disallowance of Claimed Improvements
The respondent had sold inherited land and claimed indexed cost of acquisition and improvements. The Assessing Officer rejected the claim, leading to a tax levy. The CIT(A) partially allowed the claim, considering the judgment of the Madras High Court and allowing 60% of the claimed amount. The tribunal dismissed the appeal by the Revenue, which led to the challenge before the High Court.

Issue 3: Percentage of Improvement Cost Allowed
The Revenue contested the percentage of improvement cost granted by the CIT(A), arguing lack of evidence for the claimed improvements. The Revenue also raised concerns about the validity of satellite images and the cash flow statements provided. However, the Counsel for the assessee defended the claim, citing the family's sources of income, advances, and loans detailed in the cash flow. The Tribunal, after considering the arguments, directed the improvement cost disallowance to be fixed at 45% of the claimed amount, granting the assessee 55% of the improvement cost claimed.

In conclusion, the judgment addressed the challenges to the fair market value and indexed cost of improvements, the disallowance of claimed improvements, and the percentage of improvement cost allowed. The Tribunal's decision balanced the arguments presented by both parties, ultimately adjusting the disallowance percentage to ensure fairness and justice in the assessment of improvement costs.