2013 (12) TMI 54 - AT - Income Tax

Capital gain - sale of property - revision u/s 263 on the ground that AO and allowed the exemption u/s 54 wrongly - Held that - The AO allowed the claim for deduction u/s 54 on the basis of unregistered purchase dded - The Assessee has not mentioned anything about capital gains or capital loss - There is also no claim for exemption u/s 54. The AO has also not dealt with any of the claim of the Assessee regarding sale of property at Somaji Guda, Hyderabad - Even if some documents were filed before the AO, for which no proof or acknowledgement has been filed with us, the AO has not even made a passing mention about sale of immovable property much less the capital gain/ loss arising therefrom or deduction u/s 54 - revision u/s 263 is valid - Decided against the assessee. CIT worked out the short term capital gains holding that the Assessee is not entitled to deduction u/s 54. He has not appreciated that for determining whether an asset is long term or short term capital asset, the period of holding the asset is relevant and not merely the date of registered conveyance - The period of holding of the asset by the Assessee has to be reassessed based on the facts of the case - The Assessee had incurred expenditure Rs. 17,10,000/- which may have to be added to the cost of acquisition of the asset - If this expenditure is taken into account there will not be any capital gains but only loss on sale. This aspect has not been considered by the CIT - The issue was restored for fresh decision. - Decided partly in favor of assessee.

Summary

Issues:
Appeal against Order passed under section 263 of the Income Tax Act, 1963 for assessment year 2007-2008.

Analysis:
1. The appeal was filed by the assessee against the Order passed under section 263 of the Income Tax Act, 1963 by the Commissioner of Income Tax-III, Hyderabad. The assessee derived income from house property and other sources, declaring total income at Rs.1,63,307/-. The Commissioner held that the Order passed by the Assessing Officer under section 143(3) read with section 148 was erroneous and prejudicial to the Revenue's interests. The issue arose from the sale of a house property and the claim of exemption for Long Term Capital Gains u/s. 54 of the IT Act based on an unregistered purchase document. The Commissioner directed revision of the Order, bringing short term capital gains to tax and initiating penalty proceedings under section 271(1)(c) of the Act.

2. The assessee contended that the assessment was completed after due verification and explanation, relying on relevant case laws. The Commissioner held that the gains were short term capital gains, denying exemption u/s. 54 due to lack of proof for investment. The dispute centered on the nature of capital gains and eligibility for deduction u/s. 54. The learned D.R. supported the Commissioner's decision, emphasizing the short term capital gain aspect.

3. The re-joinder presented the computation of short term capital gain, disputing the existence of any long term or short term capital gain. The Tribunal observed that the Assessee had not mentioned capital gains or loss in the return, and the AO had not addressed the issue adequately. The Tribunal found that the AO had not considered the sale of the property or the application of mind regarding capital gains or deduction u/s. 54. While upholding the Commissioner's jurisdiction under section 263, the Tribunal disagreed with the computation of short term capital gains and the denial of deduction u/s. 54.

4. The Tribunal highlighted the relevance of the period of holding an asset in determining its capital gain nature, citing legal precedents. It directed a reassessment of the period of holding and the consideration of additional expenditure to potentially result in a loss on sale. The matter was remitted to the AO for further consideration in accordance with the law. The Tribunal modified the Commissioner's order, allowing the appeal for statistical purposes.

In conclusion, the Tribunal upheld the Commissioner's jurisdiction under section 263 but disagreed with the computation of capital gains and the denial of deduction u/s. 54. The matter was remitted to the AO for a reassessment based on the period of holding and additional expenditure, potentially resulting in a loss on sale.