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2016 (10) TMI 524 - AT - Income TaxComputation of Long term capital gains (LTCG) - Disallowance of payment made to hutment dwellers for vacating the land - Held that - These unauthorized occupants do not have permanent place of stay and they move from one place to another till the time they get place to settle down. Moreover, the dwellers were not personally known to the assessee. In such circumstances it is not prudent to expect from the assessee to produce the illegal occupants of land to whom payments were made. In so far as second objection is concerned the assessee has furnished a copy of title of civil suit filed in the Civil Court, Jalgaon. A perusal of same shows that the suit was filed against 19 defendants, if the assessee has included the name of some more persons in the list of unauthorized occupants to whom the payments have allegedly been made and the same are not verifiable, the Assessing Officer could have made reasonable disallowance rather than rejecting the claim of assessee in toto. The third objection is that there is no formal agreement with the slum dwellers. The Assessing Officer has observed that the receipts produced by the assessee are cyclostyled bearing only name and amount. We are of the considered view that when payments are made to encroachers/illegal occupants for vacating the land no formal agreement is required to be executed. The prime object of the owner of land is to seek the possession of land and ensure that land is free from encumbrances and encroachments. The assessee has produced receipts signed by some of the persons to whom payments have been made. The objection of the Department that receipts are on cyclostyled paper and lacks information is unwarranted. When the possession of land is retrieved from unauthorized occupants especially when they are hutment dwellers against some payment the details such as area occupied by each one of them is not relevant. Thus, the objections raised by the Department in disallowing the entire payment made to encroachers for vacating the land are not justified. The assessee had jointly purchased the land with Shri Narayan S. Khadake, though the assessee had major share in the land. As per assessee own admission, the assessee has paid ₹ 7.80 lakhs out of ₹ 10.00 lakhs paid to encroachers. The remaining sum of ₹ 2.20 lakhs was contributed by Shri Narayan S. Khadake. Taking into consideration the entirety of facts we are of considered opinion that no disallowance on account of payment of compensation is called for. Accordingly, ground assessee is allowed. Treating the profit from sale of land - Long Term Capital Gain or business income - Held that - The documents on record show that the assessee has not indulged in sale-purchase of land/property. The assessee has purchased some properties over period of time starting from 1985 onwards. Except from the land in question the Revenue has not been able to show that the assessee has sold any other property or was dealing in land/property. The ld. DR has not been able to controvert the findings of the first appellate authority. In our opinion the findings of Commissioner of Income Tax (Appeals) are well reasoned and justified. We concur with the same. No other issue has been raised by the Department in appeal. Accordingly, the appeal of the Revenue is dismissed.
Issues Involved:
1. Validity of reassessment proceedings initiated against a dead person. 2. Disallowance of payment made to hutment dwellers for vacating the premises. 3. Treatment of income from the sale of land as Long Term Capital Gain versus business income. Detailed Analysis: 1. Validity of Reassessment Proceedings Initiated Against a Dead Person: The assessee argued that the reassessment proceedings were void ab initio because the notice under section 148 was issued in the name of a deceased person, Mr. Sitaram Anandram Baheti. The legal representative (LR) of the deceased informed the Assessing Officer (AO) about the death but the AO continued the reassessment without issuing a fresh notice to the LR. The assessee cited several judgments to support the claim that an assessment made on a dead person is null and void. The Department contended that the AO was unaware of the death at the time of issuing the notice and subsequently issued notices under sections 143(2)/142(1) to the LR. The LR participated in the proceedings and even filed a revised return of income. The Department argued that the defect in the notice was cured by the subsequent actions and no prejudice was caused to the assessee. The Tribunal observed that the AO issued subsequent notices to the LR after being informed of the death and the assessment order was passed in the name of the LR. The Tribunal distinguished the facts from the cited cases where assessments continued in the name of the deceased despite knowledge of death. The Tribunal held that the reassessment proceedings were valid as the AO regularized the assessment by bringing the LR on record and dismissed the assessee's objection. 2. Disallowance of Payment Made to Hutment Dwellers for Vacating the Premises: The assessee claimed a deduction for ?10,00,000 paid to hutment dwellers to vacate the land, which was disallowed by the AO and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO disallowed the payment on the grounds that the assessee did not produce the recipients, there were discrepancies in the list of recipients, and there was no formal agreement with the hutment dwellers. The assessee argued that the land was encroached by slum dwellers and the payment was necessary to vacate the land. The payment was made in cash as the dwellers would not accept other forms of payment. The assessee contended that it was impractical to produce the recipients as they were not personally known and had no permanent place of stay. The Tribunal noted that the land was indeed encroached and vacated after payment to the hutment dwellers. The Tribunal found merit in the assessee's argument regarding the necessity of cash payments and the impracticality of formal agreements with illegal occupants. The Tribunal held that the objections raised by the Department were not justified and allowed the deduction for the payment made to the hutment dwellers. 3. Treatment of Income from Sale of Land as Long Term Capital Gain versus Business Income: The Department appealed against the CIT(A)'s decision to treat the income from the sale of land as Long Term Capital Gain instead of business income. The AO had treated the transaction as an adventure in the nature of trade, citing the assessee's intention to make a profit. The CIT(A) found that the assessee purchased the property in 1995 and sold it in 2002, which indicated an investment rather than a business transaction. The assessee was an advocate and not engaged in real estate business. The CIT(A) concluded that the transaction did not have the characteristics of trade and directed the AO to assess the income as Long Term Capital Gain. The Tribunal concurred with the CIT(A)'s findings, noting that the assessee had not indulged in frequent sale-purchase of properties and the land was sold after a significant period. The Tribunal upheld the CIT(A)'s decision and dismissed the Department's appeal. Conclusion: - The appeal of the assessee was partly allowed, validating the reassessment proceedings and allowing the deduction for payment to hutment dwellers. - The appeal of the Revenue was dismissed, affirming the treatment of income from the sale of land as Long Term Capital Gain.
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