2017 (10) TMI 318 - AT - Income Tax

Assessment in hands of legal heirs - assessment in the hands of the vendee as well as the co-owner - capital gain - Held that - ITAT in the earlier proceedings, had clearly considered the issue and had set aside the assessment to the file of the AO observing that the cases of the vendee Shri Sai Sree Projects and the co-owner, Smt. N. Andalamma have been set aside to the file of the AO. Consequent to this direction, the AO is required to consider the assessments in the hands of the vendee as well as the co-owner before completing the assessment in the hands of the assessee to adopt a uniform and rational approach. Further, we also find that the assessment was initially completed in the hands of Shri A. Ramulu, who has died thereafter, and all his legal heirs have to be brought on record to bring to tax his income. Though the assessee has brought to the notice of the AO that Shri A. Ramulu is survived by three sons, the AO has refused to bring them on record stating that the assessee has not filed the legal heir certificate. We cannot find fault with this approach of the AO, since the assessee has not filed the legal heir certificate even before us at this stage. But, the assessee can file such certificate even at this stage. Neither the AO nor the CIT (A) have correctly followed the earlier directions of the Income Tax Appellate Tribunal. In view of the same, we deem it fit and proper to remand the issue to the file of the AO with a direction to consider the assessee s application for bringing all the legal heirs of Shri A. Ramulu on record and to complete the assessments in the hands of the assessee and the other legal heirs de novo after making due inquiries and also after making due inquiries with regard to assessee s contentions that possession of the property was never handed over to the vendees and that the construction permission has been given to the other co-owners of the property, to come to a conclusion on the question as to whether there is a transfer of the property.

Summary

Issues:
Assessment of capital gains in the block period 1991-92 to 2000-01; Validity of assessment order; Transfer of land attracting capital gain tax; Assessment of indexed cost of acquisition; Apportionment of property shares among legal heirs; Compliance with ITAT directions; Inclusion of all legal heirs in assessment proceedings.

Analysis:
The case involved the assessee's appeal for the block period 1991-92 to 2000-01, challenging the order of the CIT (A) regarding the assessment of capital gains arising from the transfer of land co-owned by the assessee. The primary issues raised in the appeal included the correctness of the assessment order, failure to consider further inquiries directed by ITAT, validity of the transfer of land for capital gain tax, adjudication on the assessment order's validity in the absence of notices to all legal heirs, and the computation of indexed cost of acquisition.

The property in question was co-owned by three groups, with the assessee being the legal representative of one group. The land was originally allotted as Service Inamdari land to the descendants of the original owners. The assessment was triggered by a search and seizure operation revealing undisclosed transactions related to the transfer of land in 1995-96. The AO concluded that the capital gains were not disclosed and initiated proceedings under section 158BD of the Income Tax Act.

Multiple legal proceedings ensued, including challenges to assessment orders and revisions under section 263 of the Act. The ITAT directed a re-examination of the assessment in light of related cases involving co-owners and the purchaser. The issue of apportioning property shares among legal heirs, including the deceased co-owner's sons, was also contested.

The ITAT, after considering the rival contentions and previous directions, remanded the issue to the AO for a fresh assessment. The AO was directed to consider all legal heirs, investigate related assessments, and determine the existence of a property transfer before finalizing the assessment. The ITAT upheld the CIT (A)'s finding on the extent of land to be taxed but required compliance with its directions for a comprehensive assessment.

In conclusion, the ITAT allowed the assessee's appeal for statistical purposes, emphasizing the need for a thorough investigation and compliance with legal requirements in assessing capital gains from the land transfer.