2022 (8) TMI 906 - AT - Income Tax

Capital gain computation - whether the amount paid by the buyer to the tenant for the vacation of tenancy can be taxed in the hands of the tenants or owner of the capital asset? - HELD THAT - Purchaser of the property viz., M/s. Saravana Selvarathnam Retail Private Limited, Chennai, it is very clear that the purchaser has agreed to pay for vacation of tenants of the premises, which was noted in the sized document by the Department and the purchaser has admitted to have made payment for vacation of tenants of the premises, which means, the purchaser has purchased encumbered property and in order to clear the encumbrances, the purchaser paid lump-sum amount to the tenants/occupants of the property. Nowhere it was mentioned that the above sum was paid either to the seller or through the seller of the property. From the above statement, it is also very clear that dealings are only between the purchaser of the property and tenants occupied in that premises - purchaser has not given any details/break-up for arriving the figure of ₹.7.40 crores/₹.6.65 crores, which it was aggrieved to pay for vacation of tenants of the premises or how many tenants have occupied in that premises. Under the above facts and circumstances, we are of the considered opinion that whatever amount paid by the buyer to the tenant for the vacation of tenancy should not be taxed in the hands of the owner of the capital asset. Adoption of value of the property sold by the assessee - AO shall, either adopt the value of the property under section 50C of the Act or DVO valuation of the property. Without any evidence, the AO cannot adopt the value other than the above. In this case, AO has neither referred for the valuation of FMV to the DVO nor considered the guideline value adopted for the stamp duty purposes by the SRO - Admittedly, there was no search and seizure operation carried out in the premises of the assessees. There was absolutely no evidence to show that the assessee have received on-money for the sale of the property. When the Department is alleging receipt of on-money by the assessee the onus cast upon the Department to prove either by way of unaccounted cash deposits in their bank accounts, or unaccounted purchase of any property or any other material evidence about the receipt of the on-money. No allegation shall be sustained without evidence - we set aside the order of the ld. CIT(A) in confirming the addition and direct the AO to adopt the guideline value adopted for the stamp duty purposes by the SRO as FMV of the property under section 50C of the Act and accordingly compute the capital gain. Additional capital gain u/s 54F - Since the assessees could not file the details of cost of constructions, plan approval, or PAN of Shri J. Suresh, Consultant Civil Engineer Approved Value, the Assessing Officer rejected the claim of the assessee. On appeal, the assessees could not produce any details of cost of constructions, plan approval, etc., the ld. CIT(A) confirmed the order of the Assessing Officer in rejecting the claim of the assessees. Before us, assessee has submitted that the assessee s are ready to file all the details before the Assessing Officer and prayed for remitting the matter back to the file of the AO for fresh consideration. By considering the submissions of the ld. Counsel, we set aside the order of the ld. CIT(A) on this issue and remit the matter back to the file of the Assessing Officer for de novo consideration afresh in accordance with law. The assessees are directed to furnish complete details before the Assessing Officer for verification and deciding the issue.

Issues Involved:
1. Erroneous and arbitrary order by the Commissioner of Income Tax (Appeals).
2. Confirmation of addition based on partial statement by the Assessing Officer.
3. Denial of cross-examination opportunity.
4. Non-invocation of Section 50C for computing capital gain.
5. Taxation of amount paid to tenant for vacation of tenancy.
6. Denial of exemption under Section 54 for purchase of a new residential house.

Detailed Analysis:

1. Erroneous and Arbitrary Order by the Commissioner of Income Tax (Appeals):
The assessees contended that the order by the Commissioner of Income Tax (Appeals) was erroneous and arbitrary, contradicting settled principles of law. The appeals were filed against a common order dated 14.11.2019 relevant to the assessment year 2012-13.

2. Confirmation of Addition Based on Partial Statement by the Assessing Officer:
The Commissioner of Income Tax (Appeals) erred in confirming the addition which was based on only a portion of the statement recorded by the Assessing Officer. The assessment was framed solely on the statement recorded under section 132 of the Income Tax Act, 1961, from M/s. Saravana Selvarathnam Retail Pvt. Ltd. The Tribunal found that the Assessing Officer's assertion regarding the payment details was incorrect and not supported by the purchaser's statement.

3. Denial of Cross-Examination Opportunity:
The assessees were not allowed to cross-examine the person who deposed the statement relied upon by the Assessing Officer. The Tribunal noted the reliance on the Hon'ble Supreme Court judgment in Andaman Timber Industries v. Commissioner of Central Excise, Kolkata €“ II, emphasizing the importance of cross-examination in such cases.

4. Non-Invocation of Section 50C for Computing Capital Gain:
The Assessing Officer did not invoke Section 50C of the Income Tax Act, 1961, to take the guideline value as the value for computing capital gain. The Tribunal directed the Assessing Officer to adopt the guideline value for stamp duty purposes as the Fair Market Value (FMV) of the property under section 50C and accordingly compute the capital gain.

5. Taxation of Amount Paid to Tenant for Vacation of Tenancy:
The Tribunal considered whether the amount paid by the buyer to the tenant for vacation of tenancy should be taxed in the hands of the tenants or the owner of the capital asset. It was concluded that the amount paid for the vacation of tenancy should not be taxed in the hands of the owner of the capital asset, as the dealings were between the purchaser and the tenants.

6. Denial of Exemption Under Section 54 for Purchase of a New Residential House:
The assessees claimed exemption under section 54 of the Act for the purchase of a new residential house. The Assessing Officer rejected the claim due to the assessees' failure to provide details of cost of construction, plan approval, etc. The Tribunal remitted the matter back to the Assessing Officer for fresh consideration, directing the assessees to furnish complete details for verification.

Conclusion:
The Tribunal allowed the appeals filed by the assessees for statistical purposes and directed the Assessing Officer to reconsider the issues afresh in accordance with the law. The order was pronounced on 29th July, 2022, at Chennai.

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