2013 (8) TMI 322 - AT - Income Tax

Exemption u/s 54 - Transfer of property - investment of capital gains in the new house property - deduction of expenditure in connection with sale - Held that - Payments were made by cheques to people and were duly acknowledged through receipts wherein the payees has admitted of having received these payments - as the expenditure necessarily represented cost incurred by the assessee for effecting the sale of property as without settlement of earlier deal, the assessee was not in a position to execute the sale deed. Without terminating the agreement to sell, the assessee could not have sold this property to any other person. Therefore, the assessee has incurred these expenditure to finalize the sale transaction, therefore, expenses incurred by the assessee in connection with the said property for the purpose of final sale is to be treated as expenditure in connection with such transfer - assessee had necessarily complied with the conditions for allowability of claim as assessee had entered into an agreement for purchase of house and had invested more than capital gain in the said house property - possession of property is not necessary within the prescribed time, the only condition is the investment which in the present case the assessee has made - Decided in favour of assessee. Addition u/s 69C - Low withdrawals for household expenses - CIT upheld additions - Held that - in the immediately preceding year, the assessee along with his family members had made total withdrawals of Rs.3,62,868/- and assessment of the assessee was completed u/s 143(3), copy of which is placed at page 60 and there was no addition made by the Assessing Officer on account of low withdrawals. Though principle of res judicata does not apply to Income tax proceedings and every year is considered a separate year yet on the basis of consistency the facts and circumstances of the present year remains same as Assessing Officer did not point out any specific circumstances by which he assumed that assessee had made low withdrawals as against the assumed expenses of Rs.15 lakhs p.a. However, on the basis of financial position of the assessee, withdrawals made by him do not match with his probable actual expenditure. The addition made by the Assessing Officer by assuming an annual expenditure of Rs.15 lakhs is also on a higher side, therefore additions are reduced - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Confirmation of income under "Capital Gains" at Rs.70,09,618/- versus Rs.16,84,580/- returned by the assessee.
2. Addition of Rs.11,65,784/- under Section 69C of the Income Tax Act, 1961 for low withdrawals for household expenses.
3. Charging of interest under Section 234B of the Income Tax Act, 1961 amounting to Rs.4,22,015/-.

Detailed Analysis:

1. Confirmation of Income under "Capital Gains":
The assessee contested the confirmation of income under "Capital Gains" at Rs.70,09,618/- as against the declared Rs.16,84,580/-. The primary contentions were:
- Disallowance of Rs.5,00,000/- and Rs.2,50,000/-: The assessee claimed Rs.5,00,000/- paid for cancellation of an earlier agreement and Rs.2,50,000/- as brokerage paid to Shri Rajat Kapoor. The Assessing Officer (AO) disallowed these amounts, stating they did not pertain to the current sale transaction. However, the Tribunal found that these payments were made by cheques and were necessary to finalize the sale, thus allowing these expenses.
- Denial of Exemption under Section 54: The AO denied the exemption under Section 54, arguing the assessee did not invest in a house property within the stipulated period. The Tribunal, referencing CBDT Circulars and judicial precedents, concluded that the investment in the new property met the conditions for exemption under Section 54, thus allowing the claim.
- Treatment of Long Term Capital Gains as Short Term and Addition of STT Paid: The AO treated certain long-term capital gains as short-term and added STT paid on various transactions due to non-availability of transaction statements. The Tribunal remanded the matter back to the AO for re-adjudication based on the evidence provided by the assessee.

2. Addition under Section 69C for Low Withdrawals:
The AO added Rs.11,65,784/- under Section 69C, estimating the monthly household expenditure at Rs.1,25,000/-. The Tribunal found this addition to be based on surmises and conjectures, noting that the withdrawals in the previous year were similar and no addition was made then. The Tribunal reduced the addition to Rs.2,65,784/-, assuming a more reasonable annual expenditure of Rs.6,00,000/-.

3. Charging of Interest under Section 234B:
The interest charged under Section 234B was deemed consequential and did not require separate adjudication.

Conclusion:
The appeal was partly allowed. The Tribunal allowed the expenses related to the sale of the house property and the exemption under Section 54. The matter of capital gains was remanded for re-adjudication. The addition under Section 69C was reduced, and the interest under Section 234B was noted as consequential. The order was pronounced on 31st July 2013.