2024 (11) TMI 420 - AT - Income Tax

Benefit of indexation in respect of capital gain on sale of land - HELD THAT - We find that the CBDT Circular No. 471 dated 15.10.1986 and the ratio of the decision of CIT Vs, Ram Gopal 2015 (2) TMI 500 - DELHI HIGH COURT squarely applies to the facts and circumstances of the case as stated that the allottee gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow up action and taking the delivery of possession is only a formality Thus, we hold that the AO has erred in denying the benefit of indexation from FY 2007-08. In that view of the matter, the assessee is allowed benefit from the date of allotment letter i.e. 17.02.2008. To that extent, the decision of the CIT(A) is sustained. Cost of acquisition/improvement of the land sold determination of cost of land on proportionate basis and the other pertains to cost of improvement of land - AO has calculated the proportionate cost of acquisition for the parcel of land admeasuring 9900 sqmts. We find that the assessee has maintained a separate account for each parcel of land in its books of account since FY 2013- 14 as non-current asset. Since the accounts are separately maintained for each parcel of land, the cost of the parcel of land admeasuring 9900 sqmts can be determined and taken from the books of account itself unless it is bogus or unsubstantiated. We therefore, hold that the CIT(A) has rightly accepted the assessee bifurcation of land parcel for determining the cost of the parcel of 9900 sq mts as per the books. Other aspect for determining the cost of improvement - As we find that the assessee has claimed an amount in FY 2015-16. AO has held that the assessee has not been able to substantiate the expenses on improvement of land to the extent of Rs 65,78,905/-. Before us also the ld AR admitted that details were not filed before the AO earlier but the same can be filed if required. In the light of the above, we find it appropriate to set aside the issue of determining the cost of improvement to the file of the AO for a fresh investigation and determination. In view of the above discussion, the ground number 1 is partly allowed for statistical purposes. Disallowance of expenses - assessee failed to explain as to why such expenses are being claimed when there is no revenue in the given year - AO has not examined the issue of commencement of the business in a proper manner for allowance of expenses u/s 37(1) - assessee has also not been able to substantiate the factum of commencement of business in the previous year. Assessee has merely claimed that the interest has been paid towards the loans borrowed for the purchase of land which the AO has not examined thoroughly. There is, however, some substance in the alternate claim of assessee that where the interest paid is towards loans borrowed for purchase of land, the same may be allowed to be capitalized. We find that the complete facts on this issue have not been enquired/examined by the AO. We therefore deem it appropriate to set aside this issue to the file of the AO to enquire and examine the facts comprehensively and reach a conclusion in accordance with law.

Summary

Issues:
1. Benefit of indexation on capital gain
2. Disallowance of expenses charged to profit and loss account

Analysis:
1. Benefit of Indexation on Capital Gain:
The appeal by the Revenue was against the order of the ld. CIT(A) regarding the benefit of indexation on the sale of land for A.Y. 2016-17. The Revenue contended that the indexation should not be allowed from the date of the allotment letter as the payment for land acquisition was made in a different financial year. The Assessing Officer had calculated the cost of acquisition differently, leading to a dispute. The CIT(A) allowed the benefit of indexation from the date of allotment letter, citing relevant CBDT Circular and a decision of the Delhi High Court. The Tribunal upheld this decision, referring to the legal precedents and Circular, and held that the AO erred in denying indexation from FY 2007-08.

2. Disallowance of Expenses Charged to Profit and Loss Account:
The second issue revolved around the disallowance of expenses of Rs. 47,05,802/- charged to the profit and loss account. The AO disallowed the expenses as the assessee had not conducted any business during the year except for the sale of land. The CIT(A) allowed the appeal of the assessee on this count, but the Revenue challenged it. The Revenue argued that since there was no business activity, the expenses should not be allowed. The Tribunal found that the AO did not thoroughly examine the commencement of business and directed a fresh investigation. The Tribunal allowed the expenses to be capitalized if they were incurred for land purchase, emphasizing the need for a comprehensive examination by the AO.

In conclusion, the Tribunal partially allowed the Revenue's appeal for statistical purposes, addressing the issues of indexation benefit and expense disallowance. The judgment highlighted the importance of legal precedents, relevant circulars, and thorough examination of facts in determining tax liabilities and deductions.