2018 (11) TMI 1234 - AT - Income Tax

Reopening of assessment - reasons to believe - Held that - In the light of the fact that assessee has not filed any return of income, there was every reason to believe that there was escapement of income chargeable to tax in terms of Explanation 2(a) to section 147. It is not disputed before me that the deposits in the bank account referred to by the AO in the reasons recorded would be above the limit of income which is not chargeable to tax. Thus uphold the validity of initiation of proceedings u/s. 148 of the Act. Capital gain on sale of property - belonging of property to assessee or a firm of partnership - Held that - The sale deed under which the property was sold clearly shows that both the assessees were owners of the property. The assessee having sold the property as belonging to them and having received the sale consideration on their own account cannot be permitted to plead that they were not the owners of the property. U/s. 45 of the Act, long term capital gain arising on transfer of a capital asset is liable to tax in the hands of the transferor. Since the transferors of the property were assessees, capital gain is to be taxed in their hands. Thus the plea of the assessees that property belongs to the firm cannot be accepted in the income-tax proceedings. As far as dispute with regard to FMV as on 1.4.1981 is concerned, it is of the view that the claim of the assessee that FMV of the land is ₹ 1,10,000 is not supported by any evidence; whereas the AO has based his conclusion based on a Gazette Notification of 1999 giving the value of the properties in the vicinity of the area, where the property of the assessee is situated. No merit in the submissions of the assessee on this issue. Claim for deduction on account of brokerage - There is no evidence filed by the assessee to substantiate its claim that it paid brokerage and therefore the claim made by the assessee is rejected. Cost of construction of the property - AO has adopted cost of construction of the building by estimating the same at ₹ 11,20,000 - Held that - The only credible evidence available is the evidence of the Chartered Engineer towards value of the property for the purpose of availing loan by the assessee from KSFC. This report gives the year of construction as 2000 to 2001 February, whereas the assessee claims that it had carried out construction between the period 05.10.2001 and Nov. 2003. The assessee has himself claimed indexation only from the year 2003 for the purpose of computing long term capital gain. This has been apparently done based on the bill of J.J. Construction, Mysore. It would be just and appropriate to adopt the cost of construction as given in the registered engineer s report at ₹ 18 lakhs. Since the assessee has claimed indexation benefit only from 2003, the same is directed to be allowed only from 2003. The AO is accordingly directed to compute the long term capital gain.

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 147 of the Income-Tax Act, 1961.
2. Ownership of the property and assessment of long-term capital gain.
3. Fair Market Value (FMV) of the land as on 01.04.1981.
4. Deduction on account of brokerage.
5. Cost of construction of the property.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 147:
The assessee argued that the initiation of proceedings under Section 147 was invalid, citing that cash deposits in the bank account and non-filing of returns cannot be the basis for concluding escapement of income. The Tribunal rejected this argument, stating that since the assessee did not file any return of income for AY 2009-10, there was a valid reason to believe that income chargeable to tax had escaped assessment. The Tribunal upheld the validity of initiation of proceedings under Section 148.

2. Ownership of the Property and Assessment of Long-Term Capital Gain:
The assessee claimed that the property belonged to a partnership firm and not to the individual assessees. The Tribunal examined the partnership deed and other documents but found that the sale deed clearly showed the assessees as the owners of the property. Therefore, the Tribunal concluded that the long-term capital gain arising from the transfer of the property should be assessed in the hands of the individual assessees.

3. Fair Market Value (FMV) of the Land as on 01.04.1981:
The assessee claimed the FMV of the land as on 01.04.1981 to be ?1,10,000, but did not provide supporting evidence. The AO adopted a value of ?10,000 per acre based on a Gazette Notification of 1999. The Tribunal found the AO's method reasonable and upheld the FMV as determined by the AO.

4. Deduction on Account of Brokerage:
The assessee claimed a deduction for brokerage expenses of ?65,000 but did not provide any evidence to substantiate this claim. The AO disallowed the deduction, and the Tribunal upheld this decision due to the lack of supporting evidence.

5. Cost of Construction of the Property:
The assessee claimed the cost of construction to be ?23,77,575, supported by a bill from J.J. Construction, Mysore. The AO doubted the reliability of this bill, estimating the cost of construction at ?11,20,000 based on the construction cost in 2003. The Tribunal found the AO's estimation lacked a proper basis and instead relied on a valuation report prepared for availing a loan from KSFC, which valued the property at ?18 lakhs. The Tribunal directed the AO to adopt this value and allow indexation benefit from 2003 as claimed by the assessee.

Conclusion:
The Tribunal partly allowed the appeals, upholding the initiation of proceedings under Section 147, confirming the ownership of the property by the individual assessees, and directing the AO to compute the long-term capital gain based on the revised cost of construction. The claims regarding FMV and brokerage were rejected due to lack of evidence.