2024 (3) TMI 472 - AT - Income Tax

Capital gain - STCG - compensation on the compulsory acquisition of capital assets - deduction the cost of acquisition of the land in dispute along with indexation - CIT(A) contended that it has shown the impugned assets being land and building as part of the block of asset and claimed the depreciation thereon, therefore, the written down value should be allowed as a deduction against the compensation received - AR contended that even the compensation received by the assessee towards the land is excluded from the income shown by the assessee under the head short term capital gain, then also the assessee is entitled for the deduction the cost of acquisition of the land in dispute along with indexation HELD THAT - From the preceding discussion, we note a defect in the order of ld. CIT(A) in so far as the benefit of cost of acquisition with respect to the land has not been provided as mandated under the provisions of law. As such, we note that the ld. CIT(A) on the one hand is denying the benefit of a deduction representing the written down value and on the other hand, the ld. CIT(A) has not given the benefit of acquisition of land along with the indexation cost. Thus, we are of the view that such an order passed by the CIT(A) is not based on the provisions of law. Thus we hold that the order passed by ld. CIT(A) is not sustainable and accordingly, we direct the Assessing Officer to delete the addition made by him. Hence, the grounds of appeal of the assessee are hereby allowed.

Summary

Issues:
The appeal concerns the addition made by the Assessing Officer for Rs. 7,67,802/- on account of sale of land and building for the assessment year 2016-17.

Details of the Judgment:

Issue 1: Addition on account of sale of land and building
The Assessing Officer found that the assessee received compensation on the compulsory acquisition of capital assets amounting to Rs. 1,00,09,775/- but showed short term capital gain of Rs. 92,41,973/- instead of the gross amount. The difference of Rs. 7,67,802/- was treated as short-term capital gain and added to the total income of the assessee.

Issue 2: Disallowance of deduction for written down value of land
The assessee contended that the written down value of Rs. 7,67,802/- should be allowed as a deduction against the compensation received. However, the ld. CIT(A) disagreed, stating that the land cannot be part of the block of assets, hence depreciation cannot be claimed.

Issue 3: Denial of benefit of cost of acquisition
The ld. CIT(A) did not provide the benefit of deduction representing the written down value of Rs. 7,67,802/- and also did not give the benefit of acquisition of land along with the indexation cost. The Tribunal noted this as a defect in the order, stating it was not based on the provisions of law.

Issue 4: Tax liability calculation
The Tribunal calculated the tax liability based on the method adopted by the ld. CIT(A) and found that the tax liability of the assessee would reduce significantly if the compensation was bifurcated based on long term and short-term capital assets.

Conclusion:
The Tribunal held that the order passed by ld. CIT(A) was not sustainable and directed the Assessing Officer to delete the addition made. Consequently, the grounds of appeal of the assessee were allowed, and the appeal was allowed in favor of the assessee.