2023 (9) TMI 210 - AT - Income Tax

Validity of the re-assessment proceedings - disallowance of expenditure while computing the income under the head capital gains - HELD THAT - As re-assessment proceedings initiated by the AO are valid in law, inasmuch as, the information received by the AO that the co-owners of the property which was sold during the previous year relevant to the assessment year under consideration, in respect of which the capital gains arising on sale of such property were offered to tax constituted an information enabling the Assessing Officer to form an opinion that the income escaped assessment to tax. On merits of the issue, there is no material to disbelieve that the expenses incurred on account of development of the flat sold is genuine. Therefore, the Assessing Officer was not justified in making the addition as well. Thus, the grounds of appeal filed by the assessee stand partly allowed.

Summary

Issues:
The validity of re-assessment proceedings and the disallowance of Rs. 96,850 under the head "capital gains".

Validity of Re-assessment Proceedings:
The appeal was against the order of the National Faceless Appeal Centre for the assessment year 2011-12. The appellant, an individual deriving income under "salary" and "capital gains", had filed the Return of Income declaring total income of Rs. 4,89,519. The Assessing Officer completed the assessment at a total income of Rs. 5,50,170, making a disallowance of Rs. 50,650 under "capital gains". Subsequently, the Assessing Officer reopened the assessment u/s 148 of the Income Tax Act on the grounds that income had escaped assessment to the tune of Rs. 90,850. The Tribunal held that the re-assessment proceedings were valid as the information received enabled the Assessing Officer to form an opinion that income had escaped assessment to tax.

Disallowance of Rs. 96,850 under "Capital Gains":
The Assessing Officer completed the assessment at a total income of Rs. 6,47,020, making a disallowance of Rs. 96,850 while computing income under "capital gains". The appellant challenged this disallowance before the Tribunal. The Tribunal found that there was no material to disbelieve that the expenses incurred on the development of the flat sold were genuine. Therefore, the Tribunal held that the Assessing Officer was not justified in making the addition of Rs. 90,850. Consequently, the grounds of appeal filed by the assessee were partly allowed.

Conclusion:
The Tribunal partly allowed the appeal filed by the assessee, concluding that the re-assessment proceedings were valid in law and the disallowance of Rs. 96,850 under "capital gains" was not justified.