2023 (4) TMI 22 - AT - Income Tax

Correct head of income - profit arising on sale of land should not be assessed - Income from capital gains or Income from profits and gains of business - whether asset sold was capital asset.? - HELD THAT - From the findings of the CIT(A), we find that the asset sold in question was bought in the year 1997 and the industrial shed was constructed for the purpose of giving the said property on rent and the rental income earned on the said property/shed was assessed under the head Income from house property . This fact clearly establishes that the intention of the respondent-assessee is to hold the asset as capital asset . Therefore, no fallacy in the findings of the ld. CIT(A) in holding that the asset sold was a capital asset. Accordingly, this ground of appeal nos.1, 2 stands dismissed. Allowing the cost of construction of the shed as cost of acquisition - Whether CIT(A) had fell in serious error in allowing the cost of industrial shed on said land and also relying upon a new material which was not furnished before the AO during the course of assessment proceeding and without complying with Rule 46A of the Rules? - HELD THAT - On perusal of the assessment order, it would be evident that this valuer s report was not furnished before the AO during the course of assessment proceedings and, therefore, the ld. CIT(A) ought not to have allowed the cost of construction at 900 per sq. ft. without complying with the provisions of Rule 46A of the Rules. In these circumstances, we remit this ground to the file of the ld. CIT(A) to decide the cost of acquisition based on the valuer s report after giving an opportunity of hearing to the Assessing Officer. Ground of appeal stands partly allowed.

Summary

Issues:
1. Assessment of profit arising on the sale of land under different heads of income.
2. Allowance of cost of construction of shed as cost of acquisition.

Analysis:
1. The appeal was filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals) for the assessment year 2011-12. The respondent-assessee, an individual deriving income from house property, had filed a return of income declaring total income of Rs.5,30,35,008/-. The Assessing Officer completed the assessment at a total income of Rs.10,31,85,008/-, assessing the profit from the sale of land under the head "Income from business." The ld. CIT(A) confirmed that the land was not agricultural and assessed the gains under "Income from capital gains," allowing deductions for construction of a shed and indexed cost of acquisition. The Revenue challenged this decision, arguing that the property should be treated as a business asset, not a capital asset, and that the cost of construction was allowed without proper evidence before the Assessing Officer.

2. The Revenue contended that the property sold should be treated as a business asset due to the intention of the assessee to earn rental income. They also argued that the cost of construction of the shed was allowed based on a valuer's report not presented during the assessment proceedings, violating Rule 46 of the Income Tax Rules, 1962. On the other hand, the respondent argued that the property was held as a capital asset, given the long holding period and previous assessments under "Income from house property." The Tribunal found that the property was intended as a capital asset, dismissing the Revenue's appeal on this ground. However, regarding the cost of construction, the Tribunal remitted the decision back to the ld. CIT(A) for proper consideration based on the valuer's report and compliance with procedural rules.

3. The Tribunal upheld the ld. CIT(A)'s decision that the property sold was a capital asset and dismissed the Revenue's appeal on this issue. However, the Tribunal found fault with the allowance of the cost of construction without proper evidence before the Assessing Officer, remitting this aspect for reevaluation. The appeal filed by the Revenue was partly allowed, and the matter was remanded for further proceedings in line with the Tribunal's directions.