2023 (4) TMI 335 - AT - Income Tax

Gain on sale of property - status of the assessee - assessee s individual capacity or in the capacity of proprietary firm - as per AO capital gain arising out of sale of said land was not shown by the assessee - property in question was mortgaged with Punjab National Bank as security and Lakhia Brothers failed to pay the loan, bank initiated recovery proceedings and Debt Recovery Tribunal ordered to cancel the auction and allow the property to sale with the condition that the entire amount received in respect of the sale of the property will be deposited in the Punjab National Bank - HELD THAT - It is pertinent to note that in assessee s return of income for A.Y. 2009-10 the assets of the assessee is individual but in verification the assessee has signed in the capacity of proprietor of M/s. Lakhia Brothers. From the perusal of the sale deed it appears that M/s. Lakhia Brothers was a partnership firm and therefore, the land was sold by the partnership firm and not by the assessee in his individual capacity or as the proprietor of M/s. Lakhia Brothers. In fact, debt recovery proceedings also give the direction was given against the partnership firm M/s. Lakhia Brothers by the Debt Recovery Tribunal. Contention of the assessee that the status of the assessee was not correctly taken into account by the AO while making the addition appears to be correct. Besides this the assessee has rightly not indicated Long Term Capital Gain as it was not in assessee s individual capacity or in the capacity of proprietary firm that the assessee has made sale considerationin respect of sale of the property. Assessing Officer as well as the CIT(A) has not taken cognizance of the same and not taken a proper facts on record. Hence, the appeal of the assessee is allowed.

Issues involved:
The appeal against the order passed by the Ld. CIT(Appeals)-4, Ahmedabad for A.Y. 2009-10.

Grounds of appeal:
1. The CIT(A) erred in upholding the order of A.O. determining income without considering directions given.
2. A.O. complied with directions of CIT(A) without granting sufficient opportunity to produce evidence.
3. CIT(A) wrongly described the assessee and mentioned the assessed income incorrectly.
4. CIT(A) erred in holding that the property belonged to the assessee without considering vital evidence.
5. CIT(A) did not appreciate contrary evidence regarding possession of the property.
6. CIT(A) did not consider that the assessee was not a partner in the firm.
7. CIT(A) confirmed that the partnership firm was converted into the proprietary concern of the assessee.
8. A.O. disregarded evidence placed on record and made no independent inquiries.
9. Cost of indexation was not considered.
10. Long term capital gain was erroneously computed.
11. Interest under sections 234A, 234B, and 234C should not have been levied.
12. The returned income should have been accepted.

The Assessing Officer observed that the assessee, a proprietary for M/s. Lakhia Brothers, did not show capital gain from the sale of land. The sale deed was executed by the sole proprietor of the firm, not the assessee. The property was mortgaged, and debt recovery proceedings were initiated. The Assessing Officer made an addition to the income.

The assessee argued that the property did not belong to her individually, as it was sold by the partnership firm. The Assessing Officer did not consider this and ignored evidence, leading to an incorrect addition. The Debt Recovery Tribunal's direction was against the partnership firm, not the assessee. The appeal was allowed as the status of the assessee was not correctly taken into account.

The appeal was allowed, as the property was sold by the partnership firm, not the individual assessee or the proprietary firm. The Assessing Officer and CIT(A) did not consider this, leading to an incorrect addition to the income.

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