2018 (12) TMI 103 - AT - Income Tax

Computation of capital gains u/s 48 - expenditure not incurred wholly and exclusively in connection to the transfer of the property - Held that - Matter requires reconsideration at the level of the A.O. A.O. has examined the issue in the light of Section 48(i) and noted that except brokerage paid and transfer fee, other expenditure were not incurred wholly and exclusively in connection to the transfer of the property. A.O. did not examine the issue whether interest was paid on borrowed capital which was used for acquisition of the asset. No details have been mentioned in the impugned orders and even no specific details have been referred to during the course of arguments. Therefore, interest of justice requires that the matter should be re-examined by the A.O. in the light of contention of the assessee, in the light of provisions of Section 48(ii) and the decision relied upon by the Learned Counsel for the Assessee. Set aside the orders of the authorities below on this issue and restore the matter in issue to the file of A.O. with a direction to re-decide the above issue strictly on merits, as per law, by giving reasonable, sufficient opportunity of being heard to the assessee. Initiation of re-assessment proceedings under section 147/148 - Assessee stated that he is not in a position to argue this ground because he is not having even copy of the reasons recorded under section 148 - In the absence of any material on record and any serious challenge to the issue of re-assessment proceedings, no interference is called for in the order of the Ld. CIT(A) in rejecting this ground of appeal of assessee. - Decided partly in favour of assessee

Summary

Issues:
1. Disallowance of certain expenses claimed by the assessee under the head "Short Term Capital Gains."
2. Disallowance of interest on loan and other expenses claimed by the assessee.
3. Validity of notice under section 148 for reopening the assessment.

Issue 1: Disallowance of Expenses:
The appeal was against the disallowance of expenses claimed by the assessee under the head "Short Term Capital Gains." The AO disallowed certain expenses, except brokerage paid and transfer fees, totaling ?2,98,103, as they were not wholly and exclusively in connection with the property transfer as per Section 48 of the Income Tax Act. The CIT(A) upheld the AO's decision, stating that interest on borrowed capital cannot be considered part of the capital asset and is allowed as revenue expenditure. The assessee's argument that interest on borrowed capital should be included in the cost of acquisition was dismissed. The reopening of the assessment was justified based on the disallowance of part of the expenses accepted by the assessee, indicating income escapement.

Issue 2: Disallowance of Interest on Loan and Other Expenses:
The assessee, a commission agent, claimed interest on loan of ?2,80,336 as part of the cost of acquisition of the asset. The CIT(A) rejected this claim, stating that interest on borrowed capital used for acquisition cannot be included in the cost of acquisition as it is a revenue expenditure. The Tribunal found that the AO did not consider whether interest was paid on borrowed capital used for acquisition and directed a re-examination of the issue. The matter was restored to the AO for reconsideration in light of Section 48(ii) of the IT Act and relevant case laws cited by the assessee.

Issue 3: Validity of Notice under Section 148:
The assessee raised the issue of the validity of the notice under section 148 for reopening the assessment. However, due to the lack of material on record and a serious challenge to the re-assessment proceedings, the Tribunal found no interference necessary in the CIT(A)'s decision to reject this ground of appeal. The ground challenging the validity of the notice under section 148 was dismissed.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, directing a re-examination of the disallowed expenses issue by the AO and dismissing the challenge to the validity of the notice under section 148. The decision emphasized the need for a thorough consideration of expenses and interest on borrowed capital in connection with property transfers, as per the provisions of the Income Tax Act.