2019 (9) TMI 193 - HC - Income Tax

Cost of acquisition in computing capital gains - indexation of interest - HELD THAT - There may not be any necessity for this Court to decide these two questions namely (i) with regard to interest on borrowed funds for acquiring capital asset and whether it should be treated as cost of acquisition for computing the capital gain and (ii) with regard to indexation of interest, since we affirmed the order passed by the Tribunal remanding the matter to the AO to examine the correctness of the payment of interest. In fact, the AO, while completing the assessment u/s 143 read with Section 147 held that there was no agreement between the lender and the recipients as to the date of repayment, rate of interest, for which, money is lent, etc. AO held that the plea raised by the assessee that they availed the loans from five of their sister concerns at different rates of interest is only an afterthought to reduce the capital gains tax liability. Tribunal remanded the matter for a fresh consideration to examine the genuineness of the transaction. Thus, unless and until the assessee is able to succeed before the AO in the de novo proceedings to be conducted on remand, the question of considering as to whether the interest on borrowed funds should be treated as cost of acquisition and as to whether the assessee is entitled to indexation of interest would not arise. Thus, in our considered view, in the light of our decision to approve the order of remand for examining the genuineness of the loan transactions, the two issues pointed out above have become academic and are not required to be answered at this juncture. Penalty under Section 271(1)(c) - wilfulness on the part of the assessee to declare the land as an agricultural land for the purpose of claiming the benefits - HELD THAT - When the penalty proceedings were initiated, the AO was fully justified in holding that the assessee was consciously aware of the real position and knowingly furnished inaccurate particulars of income in the revised return. The assessee is not an individual, but a company, which is an association of persons consisting of other corporate giants. Therefore, there is no reason to interfere with the factual finding recorded by the Assessing Officer stating that the assessee was consciously aware of real position and knowingly furnished inaccurate particulars. CIT(A) reversed the order of the AO on the ground that the AO proceeded on the assumption that the assessee was guilty. When the correctness of the same was examined, in our considered view, the Tribunal rightly held that there is a wilful concealment. We find that there is absolutely no ground to interfere with the common order passed by the Tribunal. Since we have already approved the finding recorded by the Tribunal, which is on re-appreciation of facts, we find that the decision in the case of Gem Granites 2013 (11) TMI 1375 - MADRAS HIGH COURT will not be of any assistance to the case of the assessee.

Issues Involved:
1. Classification of land as agricultural land under Section 2(14)(iii) of the Income Tax Act, 1961.
2. Entitlement to indexation of interest payment on borrowed funds used for the purchase of land.
3. Remittance of the issue of allowing compound interest on borrowed funds as cost of acquisition.
4. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for concealment or furnishing of inaccurate particulars.

Detailed Analysis:

1. Classification of Land as Agricultural Land:
The primary issue was whether the land sold by the assessee fell within the definition of agricultural land under Section 2(14)(iii) of the Income Tax Act, 1961. The court noted that the Assessing Officer, CIT(A), and the Tribunal had all concurred that the land was not agricultural. The court emphasized that it could not reappreciate the factual position under Section 260-A of the Act, which allows appeals only on substantial questions of law. The land was within the Chennai Metropolitan Development Authority (CMDA) jurisdiction and assessed as urban land. The court concluded that by operation of law, the land could not be considered agricultural, despite being recorded as such in revenue records. Thus, the court found no grounds to interfere with the factual findings of the authorities and the Tribunal.

2. Entitlement to Indexation of Interest Payment:
The court addressed whether the interest on borrowed funds used for acquiring the capital asset should be treated as the cost of acquisition for computing capital gains and whether the assessee was entitled to indexation of interest. The Tribunal had affirmed the CIT(A)'s decision that interest paid on borrowed funds for buying the land should be treated as the cost of acquisition, relying on the case of CIT Vs. Rajagopala Rao. However, the Revenue challenged this, citing the Supreme Court's decision in CIT Vs. Tata Iron & Steel Company Limited, which distinguished between the cost of an asset and the cost of raising money for its purchase. Given the remand order to re-examine the genuineness of the interest payment, the court deemed these issues academic and not necessary to decide at this juncture.

3. Remittance of the Issue of Allowing Compound Interest:
The Tribunal had remanded the matter to the Assessing Officer to re-examine the genuineness of the interest payment. The court upheld this remand, noting that the assessee could not claim prejudice as the Tribunal provided independent reasons for the remand. The court found no reason to interfere with the Tribunal's order for a fresh examination by the Assessing Officer.

4. Levy of Penalty under Section 271(1)(c):
The court examined whether the Tribunal was correct in upholding the penalty under Section 271(1)(c) for the assessee's claim that the land was agricultural. The court noted that the assessee had knowingly furnished inaccurate particulars, as evidenced by the agreement to convert the land into housing plots and the payment of urban land tax. The Tribunal's finding of wilful concealment was upheld, and the court found no grounds to interfere with the Tribunal's order confirming the penalty.

Conclusion:
- TCA.Nos.181 to 184 of 2009 were disposed of, affirming the Tribunal's findings on the classification of land and remittance for re-examination of interest payment.
- TCA.Nos.521 and 522 of 2009 were allowed, favoring the Revenue's challenge on the cost of acquisition and indexation issues.
- TCA.Nos.545 and 546 of 2009 were dismissed, upholding the penalty imposed under Section 271(1)(c).

The court also noted the procedural aspect regarding the deposit of penalties as directed in earlier orders, allowing the Assessing Officer to proceed with recovery based on compliance with those orders.

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