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2017 (11) TMI 626 - AT - Income TaxGains on sale of property - Short Term Capital Gain OR Long Term Capital Gain - Held that - In the sale agreement dated 05-07-2006 for conveying the title of the property to the seller, in the preamble of the sale deed it was categorically stated that the original licencee Sheth Akshay Harshadrai has transferred and assigned flat No.28 to M/s Keki Consultants Pvt Ltd through its directors, Mr. Anu D Lohana and others by tripartite agreement dated 27-10-2004 and deed of confirmation dated 05-08-2005 duly registered with Sub Registrar, Thane. Though assessee claims that she had got right over the property in the financial year 1995-96 by virtue of an allotment letter from M/s Sheetal Builders Pvt Ltd, the said arrangement between parties is a mere willingness to purchase properly under an agreement for conveying the title in the property to the assessee. Therefore, we are of the considered view that the AO was right in treating the holding period of the property from the day on which the assessee has got right over the property by virtue of a valid sale agreement, according to which the holding period of the property is less than 36 months and hence, the AO has rightly computed income from sale of house property as short term capital gain - Decided against assessee Cost of acquisition of the property - sum paid by assessee s husband towards purchase of property - Held that - Once addition has been made towards unexplained investment in the hands of the assessee s husband, the source available in the form of investment towards property cannot be denied as cost of acquisition. Insofar as balance amount of ₹ 4,24,900 the assessee has paid cash for purchase of property out of cash balance available in the books of account which fact has not been disputed by the lower authorities. The CIT(A) has though accepted the fact that the ITAT has accepted as such in its order, disallowed the cost incurred by the assessee by holding that the additions made in the hands of the assessee during block period on protective basis has already been deleted, cannot again be claimed by the assessee now. We do not find any merit in the findings of the CIT(A) for the reason that since substantive addition has been made in the hands of the assessee s husband, addition made on protective basis in the hands of the assessee cannot be a ground for denying the sources available in the form of cash. Therefore, we are of the view that the issue needs to be examined by the AO in the light of the claims of the assessee that ₹ 8,51,835 has been paid by the assessee s husband for which a separate addition has been made for the block period and also availability of source for ₹ 4,24,900, as per the order of the ITAT. Hence, we set aside the issue to the file of the AO and direct him to verify the cost of acquisition of the assessee and recompute the capital gain. Addition towards unexplained cash credit u/s 68 - Held that - The assessee has shown cost of improvement of ₹ 6 lakhs towards property and shown the same as payable in the balance-sheet. The AO has disallowed cost of improvement shown by the assessee on the ground that the assessee has not filed any evidence to justify cost of improvement. Once cost of improvement has been disallowed while computing capital gain, the credit shown in the balance-sheet against cost of improvement automatically nullifies. Therefore, the AO was incorrect in making additions towards payables u/s 68. However, we set aside the issue to the file of the AO for verification of the fact with regard to the cost of improvement and payables shown by the assessee in the balance-sheet. Hence, we direct the AO to verify the claim of the assessee and if the payable shown in the balance-sheet is on account of cost of improvement already disallowed while computing capital gain, then addition made u/s 68 cannot be sustained in the eyes of law and it should be deleted. Addition towards difference in capital account as per balance-sheet enclosed - Held that - There is no merit in the argument of the assessee that addition cannot be made u/s 68 of the Act, in the absence of books of account. The AO has made addition towards difference in capital account which is apparently from the books of account of the assessee and hence, we uphold the additions made by the AO and dismiss grounds raised by the assessee
Issues Involved:
1. Classification of capital gains on the sale of property as Short Term Capital Gain instead of Long Term Capital Gain. 2. Denial of deduction under Section 49(1) for the cost of acquisition paid by the appellant's husband. 3. Determination of the cost of acquisition of the property sold. 4. Clubbing of capital gains in the hands of the appellant's husband under Section 64(1)(iv). 5. Addition of ?6,00,000 as unexplained cash credit under Section 68. 6. Addition of ?10,99,955 as unexplained cash credit under Section 68. Detailed Analysis: 1. Classification of Capital Gains: The appellant contended that the property was a long-term capital asset, asserting ownership from 1994 based on an allotment letter. The Assessing Officer (AO) and CIT(A) disagreed, stating the appellant acquired rights in 2004 through a tripartite agreement. The Tribunal upheld the AO’s view, noting the appellant’s right over the property began in 2004, making the holding period less than 36 months, thus classifying the gains as short-term. 2. Deduction under Section 49(1): The appellant sought deduction for ?8,51,835 paid by her husband, which was previously treated as unexplained investment in his hands. The Tribunal found merit in the appellant’s argument, noting the CIT(A) had acknowledged the payment but disallowed it based on procedural grounds. The Tribunal directed the AO to verify and allow the cost of acquisition, considering the appellant’s husband’s payment. 3. Determination of Cost of Acquisition: The appellant claimed a total cost of ?15,30,350, including ?6,00,000 for improvements. The AO disallowed these claims due to lack of evidence. The Tribunal acknowledged the CIT(A)’s partial allowance but directed the AO to re-examine the claims, especially the cash payment of ?4,24,900, which the ITAT had accepted in a block assessment. 4. Clubbing of Capital Gains: The appellant argued part of the gains should be clubbed with her husband’s income under Section 64(1)(iv), as he incurred part of the acquisition cost. The Tribunal did not explicitly address this issue separately, implying it was covered under the broader examination of acquisition costs and gains classification. 5. Addition of ?6,00,000 as Unexplained Cash Credit: The AO added ?6,00,000 as unexplained cash credit, which the appellant argued was a double addition since it was also disallowed as a cost of improvement. The Tribunal agreed, stating if the cost of improvement was disallowed, the corresponding payable should nullify, and directed the AO to verify and rectify this. 6. Addition of ?10,99,955 as Unexplained Cash Credit: The AO added ?10,99,955 due to discrepancies in capital accounts across different balance sheets. The appellant claimed it was a clerical error. The Tribunal upheld the AO’s addition, emphasizing the appellant failed to maintain proper books of account and could not explain the discrepancies. The Tribunal referenced the Bombay High Court’s decision, reinforcing the need to explain each credit in the books. Conclusion: The appeal was partly allowed for statistical purposes, directing the AO to re-examine specific claims regarding the cost of acquisition and adjustments for unexplained credits, while upholding the classification of capital gains and the addition of unexplained cash credits.
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