2013 (10) TMI 558 - AT - Income Tax

Computation of short term capital gain - Deduction of Title Perfection Cost - Held that - assessee by himself was never the sole owner of the land. Had the assessee been the sole owner then there was no necessity for the first party namely the Society to sign the sale deed dated 3.12.2005. Once the document has been signed by original owner namely M/s Malineni Perumallu Educational Society along with assessee we cannot say that assessee had no obligation for curing the defects if any in the title. Assessee had himself returned the short-term capital gains arising out of transaction. Assessing Officer also admits that some disputes have been mentioned in the sale deed itself but such disputes were shown as settled and a compromise arrived at. There is no finding by the Assessing Officer that the payments for settling the disputes the original owners had with M/s Malineni Perumallu Educational Society were effected after the sale deed was executed on 3.12.2005. Therefore the settlement of disputes mentioned in the sale deed had relevance to disputes which were settled prior to the date of sale. Assessee having paid the full amount when he entered into the agreement of sale cum general power of attorney with M/s Malineni Perumallu Educational Society on 6.6.2005 in our opinion it was in his own interest to perfect the title which otherwise could have been an impediment for a sale. We cannot say that the amount of Rs. 13 lakhs paid by the assessee had no relevance in such a situation. Assessee had produced confirmation for payments effected to the parties for settlement of the disputes. Veracity of the payments was not questioned at all - Therefore assessee was eligible for deducting such amount while computing short-term capital gains - Decided in favour of assessee. Jurisdiction of CIT - Revisionary power exercised by CIT u/s 263 - Whether revisionary power exercised by CIT was due to letter written by A.O. or due to his independent assimilation of facts - Held that - Two reasons have been cited by the CIT for invoking revisionary power. First is that investment in property which was sold by the assessee was not examined by the A.O. Second is that the cost of acquisition of rights of feature film could be considered only when amounts were actually paid - letter written by the Assessing Officer to CIT on 19.3.2012 gives a lucid exposition of the state of affairs - assessee had furnished the statement of accounts for both the bank accounts from where it had effected payments for acquiring the property. Assessing Officer himself says that it was on close look the dates of payments were not found to be tallying - letter clearly brings out that Assessing Officer had applied his mind during the course of original assessment proceedings. He had taken a lawful view that the assessee had explained the source of investment. CIT himself in his order noted that only Rs. 2 lakhs out of the total Rs. 24 lakhs remained explained. Thus what was sought by the CIT was to substitute the view taken by the A.O. in the original assessment proceedings - A.O. had during the course of original assessment proceedings considered the issues and gave the allowances to the assessee. Revisionary powers were invoked by the CIT based on letter of the Assessing Officer and not based on an independent assimilation of facts. CIT was only trying to stamp his approval to a change of opinion of the Assessing Officer. - Therefore decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 148.
2. Allowability of "Title Perfection Cost" in computing short-term capital gains.
3. Validity of revisionary powers invoked under Section 263.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 148:
The assessee contested the reopening of the assessment, arguing that the reasons for reopening were given orally and were merely for verification of the loss returned. The CIT(Appeals) upheld the reopening, citing the Hon'ble Apex Court decision in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (291 ITR 500), which validates reopening even if the original return was processed under Section 143(1). The Tribunal did not delve into the jurisdictional question since it decided the issue on merits in favor of the assessee.

2. Allowability of "Title Perfection Cost" in Computing Short-term Capital Gains:
The assessee claimed Rs. 13 lakhs as "Title Perfection Cost" while computing short-term capital gains, arguing that the payments were necessary to settle disputes with original owners to perfect the title. The Assessing Officer disallowed this claim, stating that the original vendor, M/s Malineni Perumallu Educational Society, was the absolute owner, and the payments to third parties were irrelevant. The CIT(Appeals) agreed, noting that any disputes should have been settled by the vendor.

The Tribunal, however, found that the assessee had an obligation to perfect the title to facilitate the sale, as the eventual sale deed was a tripartite agreement involving the original vendor. The Tribunal noted that the payments were made before the sale deed execution and were necessary to settle disputes mentioned in the sale deed. The veracity of the payments was not questioned. Consequently, the Tribunal allowed the deduction of Rs. 13 lakhs while computing short-term capital gains.

3. Validity of Revisionary Powers Invoked under Section 263:
The CIT invoked Section 263 to revise the Assessing Officer's order, arguing that the source of investment in the property and the cost of acquisition of film distribution rights were not properly verified. The CIT noted discrepancies in the dates of payments and the amounts actually paid for film distribution rights.

The Tribunal found that the Assessing Officer had indeed verified the bank accounts and other relevant details during the original assessment proceedings. The Tribunal emphasized that the Assessing Officer had taken a lawful view based on the evidence presented. Regarding the film distribution rights, the Tribunal cited Section 43(2), which includes amounts incurred as per the accounting method followed by the assessee. The Tribunal concluded that the CIT was attempting to substitute his view for the Assessing Officer's lawful view, which is not permissible under Section 263. Thus, the Tribunal quashed the CIT's order.

Summary of Result:
Both appeals filed by the assessee were allowed, and the orders of the lower authorities were set aside. The Tribunal ruled in favor of the assessee on the merits of the "Title Perfection Cost" and quashed the CIT's revisionary order under Section 263.