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2007 (2) TMI 244 - AT - Income TaxComputation of Capital Gains - enhanced compensation - immovable property - HELD THAT - There is no dispute in this case in respect of charging the capital gain on the enhanced compensation but the only dispute is in respect of the year in which it should be charged to tax and in our opinion, sub-section (5) of section 45 is relevant on the issue. The contention of the assessee was that, unless the issue of the enhanced compensation has reached finality, the same cannot be taxed on receipt basis. In the present case, enhanced compensation was paid to the assessee in September, 1991. In our opinion, on receipt basis, the Assessing Officer has rightly brought to tax the capital gain on the said enhanced compensation. In our further opinion, the principle laid down by the Hon'ble Special Bench of the Income-tax Appellate Tribunal in the case of Padam Prakash (HUF) 2006 (9) TMI 222 - ITAT DELHI-E are squarely applicable to the facts of the present case. We are, therefore, of the opinion that the Assessing Officer has rightly brought to tax the amount of enhanced compensation in the assessment year 1992-93. We, therefore, decide this issue against the assessee. Assessability of Interest on the enhanced compensation - whether it should be assessed on accrual basis or receipt basis - After carefully considering the principles laid down in the different precedents in the case of Padam Prakash (HUF), we are of the opinion that the Assessing Officer has rightly brought to tax the interest on the enhanced compensation on accrual basis. In our opinion, the correct working of the interest needs reconsideration by the Assessing Officer. We, therefore, restore this issue to the file of the Assessing Officer to examine the year-wise working of the interest on the enhanced compensation brought to tax after considering the order of Sub-Court granting interest to the assessee. Only for the limited purpose of correctly verifying the working of the interest assessed under the head 'Income from other sources', this issue is restored to the Assessing Officer. If necessary the Assessing Officer should modify the order. The Assessing Officer should of course give reasonable opportunity of being heard to the assessee as per the principles of natural justice. We, therefore, decide the issue of assessability of interest on the enhanced compensation against the assessee. Estimation of the domestic expenses - search u/s 132(4) - HELD THAT - In this case, the additions are made which are based on some of the admissions or statements of the deceased assessee during the course of search action u/s 132. The CIT (Appeals) himself has come to the conclusion that the said additions are not based on any material and are only on pure assumption. The CIT (Appeals) has also given the finding that that the Assessing Officer has not made any attempt to quantify the household expenses for the year when the statement was made. The CIT (Appeals) has further given the finding that there is merit in the assessee's contention that the estimate is illogical and baseless. The revenue has not challenged this finding of the CIT (Appeals) before us. We find substance in the argument of the ld. Sr. counsel that merely on the basis of some of the admissions and statements of the deceased assessee which was recorded during the course of search u/s 132 estimation or addition cannot be made. When the CIT (Appeals) himself has come to the conclusion that the said estimation is only on the assumption and the Assessing Officer has not given any reason for quantifying the amount per year. We find that the CIT (Appeals) has also sustained without giving any reasons and that is also on assumption. It is not the case of the Assessing Officer that any incriminating document or material was found during the course of search. Having regard to these facts, we do not find any justification to uphold the addition sustained by the CIT (Appeals). We, therefore, direct the Assessing Officer to delete the entire addition sustained by the CIT (Appeals) relating to the alleged household expenses and legal expenses. This issue, is decided in favour of the assessee. In the result, the assessee's appeals are partly allowed, ITA are dismissed.
Issues Involved:
1. Year of assessment of enhanced compensation. 2. Assessment of interest on enhanced compensation. 3. Estimation of domestic expenses. Issue-Wise Detailed Analysis: 1. Year of Assessment of Enhanced Compensation: The assessee challenged the assessment of enhanced compensation as capital gain in the assessment year 1992-93. The property was acquired by the Government of Kerala, and the compensation was enhanced by the Sub-Court in 1990. The State Government appealed, and the amount was released to the assessee in 1991 on furnishing a bank guarantee. The assessee argued that the receipt of compensation should be considered when the bank guarantee expired in 1994 or when the appeal was finally decided in 2003. The Tribunal referred to the case of Padam Prakash (HUF) and held that enhanced compensation is to be taxed on receipt basis, irrespective of whether it is received under an interim order or conditionally. The Tribunal concluded that the Assessing Officer rightly brought the enhanced compensation to tax in the assessment year 1992-93. 2. Assessment of Interest on Enhanced Compensation: The Assessing Officer assessed interest on enhanced compensation on an accrual basis from 1987-88 to 1992-93. The assessee argued that interest should be taxed only when the appeal was finally decided in 2003. The Tribunal referred to the case of Hindustan Housing & Land Development Trust Ltd. and Smt. Rama Bai, which established that interest on enhanced compensation should be taxed on an accrual basis from year to year. The Tribunal upheld the Assessing Officer's decision to assess interest on an accrual basis but restored the issue to the Assessing Officer to verify the correct working of the interest. 3. Estimation of Domestic Expenses: The Assessing Officer made additions for unexplained family and legal expenses based on a statement recorded during a search in 1995. The CIT (Appeals) reduced the estimation but did not provide a basis for the reduced amount. The Tribunal found that the additions were based on assumptions without any supporting material. It directed the Assessing Officer to delete the entire addition sustained by the CIT (Appeals). Conclusion: The Tribunal upheld the assessment of enhanced compensation in the year of receipt (1992-93) and the accrual basis assessment of interest on enhanced compensation. It directed the Assessing Officer to verify the correct working of interest. The Tribunal also directed the deletion of additions for domestic expenses, finding them to be based on assumptions without supporting evidence.
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