2014 (1) TMI 1349 - AT - Income Tax

Disallowance of expenditure u/s 48(1) - Held that - The shops sold during the year were already in possession of tenants - The assessee has actually paid Rs. 9,92,000/- for vacating the shops to the tenants - The ld. CIT(A) has recorded factual finding regarding actual payment of eviction to the tenants as per sale deed so executed - The action of the CIT(A) was justified for giving deduction of Rs. 9,92,000/- paid to the tenants for evicting the shops while computing gains earned by assessee on sale of shops Decided against Revenue. Disallowance of long term capital gain Held that - No depreciation was claimed by assessee on the shops sold by the assessee durig the year - The observation of the Assessing Officer to the effect that depreciation were claimed on these shops in earlier years, are not supported by material on record - The Assessing Officer has not considered indexed cost of acquisition claimed by assessee at Rs. 39,52,699/- while computing capital gains nor CIT(A) has deliberated on this issue Provisions of section 50 are not applicable in this case - The issue was restored for fresh adjudication.

Summary

Issues:
1. Disallowance of expenditure claimed for eviction of premises under section 48(1).
2. Addition of short term capital gain on depreciable asset.

Issue 1 - Disallowance of Expenditure for Eviction of Premises:
The Revenue filed an appeal against the order passed by the CIT(A) regarding the disallowance of Rs. 9,92,000 claimed as expenditure for eviction of premises under section 48(1) for the assessment year 2004-05. The Assessing Officer added back the amount to the total income of the assessee, citing that the claim of compensation was a transaction within the family. The CIT(A) allowed the deduction after examining the evidence, stating that the payment was genuine and not disputed. The CIT(A) found that the disallowance made by the Assessing Officer was based on presumption and surmises, hence deleting the disallowance.

Issue 2 - Addition of Short Term Capital Gain on Depreciable Asset:
The Assessing Officer added Rs. 10,08,000 as short term capital gain on depreciable assets, rejecting the claim of long term capital loss by the assessee. The CIT(A) deleted this addition after considering the facts that the shops were vacated by paying Rs. 9,92,000 to the tenants and that no depreciation was claimed on these shops in the previous years. The CIT(A) directed the Assessing Officer to reconsider the matter, not apply section 50, and allow the deduction of Rs. 9,92,000 paid to the tenants while computing capital gains. The matter was restored back to the Assessing Officer for fresh consideration in light of the evidence presented.

In conclusion, the appeal of the Revenue was allowed in part for statistical purposes, and the case was remanded back to the Assessing Officer for reevaluation regarding the treatment of the claimed expenditure for eviction of premises and the calculation of capital gains on the sale of depreciable assets.