2007 (1) TMI 239 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening the assessment u/s 147/148.
2. Determination of capital gains versus capital loss.
3. Consideration of Rs. 66 lakhs paid to outgoing partners.
4. Cost of construction and its certification.
5. Cost of acquisition of the property.

Summary:

1. Validity of Reopening the Assessment u/s 147/148:
The assessee objected to the reopening of the assessment, arguing non-compliance with statutory requirements and non-availability of the original return. The ld. CIT(A) upheld the reopening, stating that the conditions for applying sections 147 and 148 were satisfied. The reasons for reopening were duly recorded and communicated, and the confidential report of the DDIT was not required to be supplied to the assessee. The Tribunal agreed with the ld. CIT(A), finding that the Assessing Officer had sufficient material to believe that income had escaped assessment. The first ground of appeal was rejected.

2. Determination of Capital Gains versus Capital Loss:
The assessee challenged the determination of capital gains, claiming a capital loss. The Tribunal found that the theatre property was transferred to the Developer as per the agreement dated 8-8-1995, and the capital gain was liable to be assessed as on that date. The payment of Rs. 66 lakhs to the outgoing partners was considered an application of funds receivable by the assessee and not the cost of the property. The Tribunal upheld the determination of capital gains by the lower authorities and rejected the revised grounds of appeal.

3. Consideration of Rs. 66 Lakhs Paid to Outgoing Partners:
The assessee argued that Rs. 66 lakhs paid to the legal heirs of late Shri Tajdin Mavany should be considered the cost of the property. The Tribunal found that the payment was made in lieu of their shares of profit upon retirement from the firm and was not relevant to the cost of the property. The claim that it was part of a family arrangement was also rejected.

4. Cost of Construction and Its Certification:
The assessee contended that the cost of construction was overstated by the Developer. The Tribunal found that the cost of construction was rightly worked out by the Assessing Officer and confirmed by the ld. CIT(A). The Developer's certification of the cost at Rs. 1,55,00,000 was accepted, and the assessee failed to provide evidence to challenge this certification.

5. Cost of Acquisition of the Property:
The Tribunal found that the cost of acquisition taken by the lower authorities was not successfully challenged by the assessee. The payment of Rs. 66 lakhs to the outgoing partners was not considered the cost of acquisition, as the firm was constituted on 8-8-1995, and the cinema theatre became its asset.

Conclusion:
The appeal of the assessee was dismissed, and the decisions of the lower authorities were upheld.