2016 (10) TMI 994 - AT - Income Tax

Determination of capital gain on transfer of land - long term capital gain v/s capital loss - Held that - If we exclude the DVO s report, there is no other evidence available with the AO, except the calculation submitted by the assessee based on an exercise of reverse indexation from the order of the Deputy Secretary, Revenue determining fair market value of the land in this area. Other evidence collected by the AO from Sub-Registrar was not considered by the AO himself, because, the DVO has reported value of this property at ₹ 192/- per sq.yard. Value considered by the AO at ₹ 2/- per sq.yard was not supported by any corroborative evidence. The assessee has pointed out that the rates considered by the AO were not of similar land. These were for agriculture land having different geographical locations, whereas the land sold by the assessee was of an industrial land. Therefore, the calculations made by the assessee deserve to be accepted. We set aside the orders of the Revenue authorities on this issue and direct the AO to take figure of long term capital loss of ₹ 52,50,759/-.- Decided in favour of assessee Addition on on-money received over and above, the amounts stated in the sale deed - Held that - AO failed to bring conclusive evidence on record to say that the assessee has received on-money. It is also pertinent to mention that AO has made an addition of ₹ 1,92,06,000/- in the total income of the assessee. To our mind, the AO has erred in making a separate addition. At the most, it could be part of total sale consideration, and the capital gain ought to be computed on the basis of taking this amount. A thought struck to our mind that let it be inquired again at the level of AO, but when we appraised ourselves about the ultimate tax effect on this exercise, then it revealed that even if for argument sake this amount is added, then, long term capital gain on it will be roughly ₹ 38 lacs. It will be set off against the LTC loss accepted at ₹ 52,50,759/-. The assessee is a salaried person. No carry forward of loss would affect him. Thus, in view of the above discussion, we are of the view that addition of ₹ 1,92,06,000/- is not sustainable in the case of the assessee, because AO failed to bring conclusive evidence on record. We allow this ground of appeal, and delete this addition. - Decided in favour of assessee

Summary

Issues Involved:
1. Determination of capital gain on transfer of land.
2. Addition of ?1,92,06,000/- as on-money received by the assessee.

Detailed Analysis:

1. Determination of Capital Gain on Transfer of Land:

The assessee, an individual deriving salary income, filed a return declaring a total income of ?11,18,670/-. The scrutiny revealed a long-term capital loss of ?52,50,759/- from the sale of land at Survey Nos.165/1 and 165/2 in Village Dabhel, Nani Daman. The sale deed was executed on 21.10.2011, selling 8800 sq. meters at ?1887.50 per sq. meter to M/s. Alkem Laboratories, with a sale consideration of ?1,66,10,000/-. The assessee adopted a cost of acquisition of ?316/- per sq. meter as of 1.4.1981. The AO, unsatisfied, issued a notice under section 133(6) to the Civil Registrar-cum-Sub-Registrar, who reported an average rate of ?2/- per sq. meter. The AO calculated the long-term capital gain at ?1,64,71,840/- and confronted the assessee, who objected, stating the Sub-Registrar’s rate pertained to agricultural land, not industrial land. The AO referred the matter to the Valuation Officer (DVO), who reported a value of ?192/- per sq. meter. The AO then rectified the assessment under section 154, resulting in a capital gain computation of ?35,46,640/-.

On appeal, the CIT(A) concurred with the AO’s adoption of the acquisition cost as of 1.4.1981, rejecting the assessee's reverse indexation method based on a 2012 order by the Deputy Secretary, Revenue Department. The CIT(A) upheld the DVO's report as the assessee did not challenge it under section 154 proceedings.

The Tribunal found that the AO’s reference to the DVO under section 55A was not competent for transactions executed before 1.7.2012, as per the Gujarat High Court rulings in CIT Vs. Gauranginiben S. Shodhan and CIT Vs. Manulaben M. Unadkat. Excluding the DVO’s report, the Tribunal accepted the assessee’s reverse indexation calculation, directing the AO to recognize a long-term capital loss of ?52,50,759/-.

2. Addition of ?1,92,06,000/- as On-Money:

During a survey at M/s. Alkem Laboratories, a loose paper indicating cash and cheque payments for the land sold by the assessee was found. The AO, interpreting this as on-money, confronted the assessee, who explained the ?50 lakhs cash deposit in Goa State Co-op. Bank as proceeds from selling a bungalow in Goa. The AO rejected this explanation, noting the vendees lacked documentary evidence of payment sources and denied the assessee’s request to cross-examine the vendee.

The Tribunal noted that the loose paper alone, without corroborative evidence, was insufficient to prove on-money receipt. The AO failed to identify the author of the paper or provide the assessee with cross-examination opportunities, violating principles of natural justice as per the Supreme Court ruling in M/s. Andaman Timber Industries Vs. Comm. Of Central Excise. The Tribunal found the AO’s rejection of the vendees’ statements unjustified and the addition of ?1,92,06,000/- unsustainable due to a lack of conclusive evidence. The Tribunal deleted the addition, noting that even if added, it would offset the long-term capital loss, resulting in no tax effect.

Conclusion:

The Tribunal allowed the appeal, setting aside the Revenue authorities' orders on the capital gain calculation and deleting the addition of ?1,92,06,000/- for on-money, due to insufficient evidence and procedural lapses.