2019 (2) TMI 1055 - AT - Income Tax

Capital gain computation - Additional compensation received from CIDCO in form of re-allotment of land under 12.5% scheme is taxable under the head capital gain - inclusion of cost of acquisition - Held that - Cost of land when it was subsequently transferred shall be determined as on the date of receipt of additional compensation. The stamp duty authorities have fixed the market value as on the date of re-allotment of land to the assessee is at ₹ 9,14,40,000. Since the authorities fixed the cost of land as on the date of allotment is ₹ 9,14,40,000, obviously cost of acquisition for the assessee, when the land has been subsequently sold, will have to be taken at ₹ 9,14,40,000. AO is incorrect in not allowing the cost of acquisition to the assessee while computing long term capital gain on transfer of leasehold rights in land. We direct the AO to re-compute long term capital gain. However, such long term capital gain computed by the AO shall not go below long term capital gain computed by the assessee in her return of income, because the assessed income cannot go below the returned income. Payment of consideration to M/s Perfect Associates, it is irrelevant for the purpose of computation of long term capital gain, because the assessee has failed to prove the testimony of the documents including agreements entered into between M/s Perfect Associates so as to show that it is genuine document and also the said consideration had been paid for rendering services in connection with transfer of property. Further, when total enhanced compensation is exempt, related expenses need to be ignored for computation. Accordingly, we set aside the issue to the file of the AO for the purpose of re-computation of long term capital gain in terms of our discussions given in the preceding paragraphs hereinabove - Appeal filed by the assessee is allowed, for statistical purpose.

Summary

Issues Involved:
1. Taxability of enhanced consideration received on compulsory acquisition of agricultural land.
2. Nature of the asset transferred and its classification as a capital asset.
3. Application of Section 50C of the Income Tax Act.
4. Validity of assessment due to the service of notice under Section 143(2) beyond the statutory period.
5. Deduction of expenses related to the transfer of leasehold rights.

Detailed Analysis:

1. Taxability of Enhanced Consideration:
The assessee argued that the entire consideration received from the compulsory acquisition of agricultural land should not be taxable. The CIT(A) initially accepted that the additional compensation received from CIDCO under the 12.5% scheme should be treated as agricultural income and thus exempt from tax. However, the CIT(A) later concluded that the compensation received was for leasehold rights, not agricultural land, and thus taxable under 'capital gains'.

2. Nature of Asset Transferred:
The CIT(A) determined that the land acquired by the government and subsequently re-allotted to the assessee was not agricultural land but a leasehold right. This conclusion was based on the ITAT Mumbai's decision in the case of Atul G Puranik, which held that rights in a plot allotted under similar circumstances could not be considered agricultural land. The CIT(A) held that the nature of the asset transferred was a capital asset, not agricultural land.

3. Application of Section 50C:
The AO applied Section 50C to replace the sale consideration with the market value fixed by the stamp duty authorities, which was significantly higher than the consideration shown in the sale deed. The CIT(A) upheld this application, determining the full value of consideration for the transfer of the leasehold rights should be ?9,14,40,000, the value fixed for stamp duty purposes.

4. Validity of Assessment:
The assessee contended that the assessment was invalid as the notice under Section 143(2) was served beyond the statutory period. This issue was not elaborated upon in the judgment, implying it was not a primary focus of the appellate proceedings.

5. Deduction of Transfer Expenses:
The assessee claimed a deduction for expenses paid to M/s Perfect Associates for services related to the transfer. The AO rejected this claim, doubting the authenticity of the documents provided. The CIT(A) supported this rejection, stating that the assessee failed to prove the genuineness of the expenses. The ITAT directed the AO to re-compute the long-term capital gain, considering the cost of acquisition as per the market value at the time of re-allotment but excluding the disputed expenses.

Conclusion:
The ITAT concluded that the additional compensation received from CIDCO should be treated as agricultural income and exempt from tax. However, for the purpose of computing capital gains on the transfer of leasehold rights, the full value of consideration should be the market value fixed for stamp duty purposes. The cost of acquisition should be determined as on the date of re-allotment of land by CIDCO, and the AO was directed to re-compute the long-term capital gain accordingly. The assessed income should not go below the returned income, and the issue of expenses paid to M/s Perfect Associates was set aside for further verification. The appeal was allowed for statistical purposes.