2004 (8) TMI 332 - AT - Income Tax

Summary

Issues Involved:
1. Calculation of capital gains on the sale proceeds of the entire loan on auction.
2. Deletion of interest charged under section 139(8) amounting to Rs. 10,12,745.

Issue 1: Calculation of Capital Gains on Sale Proceeds

The first issue pertains to the calculation of capital gains on the sale proceeds of the auctioned property. The deceased assessee's property was sold by the Tax Recovery Officer (TRO) in 1983 to recover outstanding tax dues. The Assessing Officer (AO) levied capital gains tax on the entire sale proceeds, taking the cost of the land as of 1st April 1964, as shown in the balance sheet for the assessment year 1964-65. The AO allowed deductions under section 80-T and computed the capital gains tax accordingly.

The legal heir challenged this computation, arguing that the TRO should have stopped the auction after satisfying the certificate, as per rules 43 and 52 of Schedule II of the Income Tax Act, 1961. The Tribunal found serious infirmities in the AO's computation, noting that the cost of acquisition should be determined based on the fair market value as of 1st April 1981, considering the indexed cost of improvement. The Tribunal directed the AO to reassess the value by collecting requisite information from the District Sub-Registrar (DSR) to determine the indexed cost as of 1st April 1981.

Issue 2: Deletion of Interest Charged Under Section 139(8)

The second issue concerns the deletion of interest charged under section 139(8) amounting to Rs. 10,12,745 for the delay in furnishing the return or non-furnishing the return. The AO charged interest under sections 139(8) and 217, but the CIT(A) deleted the interest charged under section 217. The legal heir argued that interest under section 139(8) should not be levied in reassessment proceedings under section 147, citing several case laws supporting this contention.

The Tribunal reviewed the cited case laws, which consistently held that interest under section 139(8) could not be levied in reassessment proceedings, especially for assessment years prior to 1985-86. The Tribunal concluded that the CIT(A) was not justified in charging interest under section 139(8) for the assessment year 1984-85 and deleted the interest charged.

Conclusion

The appeal was partly allowed. The Tribunal directed the AO to reassess the capital gains tax based on the fair market value as of 1st April 1981 and deleted the interest charged under section 139(8).