2025 (1) TMI 285 - AT - Income Tax

Addition of Long Term Capital Gain Without allowing deduction for indexed cost and exemption u/s 54B - HELD THAT - As decided in order passed by CIT(A) in the hands of the co-owner A.O. has added total sale consideration without giving effect of the indexed cost of acquisition of the said property. The appellant has submitted the sale deed, valuation report, proof of agricultural activity. In view of the above documents and the remand furnished by the AO, it is held that the appellant is entitled to get benefit of the indexed cost of acquisition while computing the capital gain arose with regard to sale of the aforementioned property - Decided in favour of assessee. Addition u/s 68 - investment in purchase of immovable property unexplained - HELD THAT - As assessee has furnished various details in support of the loan the name of the parties, their address, their return of income, confirmation of the parties, extract of the relevant passbook to show the creditworthiness of the parties etc. Accordingly, we are of the considered view that the assessee has been able to discharge the onus regarding the source from Shri Devraj Harshadrai Patel and Ms. Reshmaben Vikrambhai Patel and accordingly addition is not liable to be sustained in the hands of the assessee u/s 68 of the Act. Addition u/s 69 - unexplained investment - HELD THAT - The assessee has been able to duly explain the source of investment in the aforesaid property and accordingly, we are of the view that the balance investment of Rs. 32.96 lakhs has been that explained by the assessee - addition is not liable to be sustained as unexplained investment in the hands of the assessee u/s 69 since the assessee has duly explained source of investment in purchase of immovable property, as having been sourced out of sale of immovable property, during the impugned year under consideration. Unexplained sundry creditors - HELD THAT - We observe that the assessee had furnished various details of parties viz. their names, addresses, PAN numbers, copy of confirmation, banks statement, ITR-V of all the parties and the relevant bank statement. Accordingly, in light of the elaborate supporting documents produced by the assessee, we find no infirmity in the order of CIT(A) in granting relief to the assessee by holding that the assessee has been able to prove the genuineness and creditworthiness of the lenders. Accordingly, we find no infirmity in the order of Ld. CIT(A) so as to call for any interference.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment involves the following core issues:

• Whether the addition of long-term capital gain amounting to Rs. 40 lakhs was justified without allowing deduction for indexed cost and exemption under Section 54B of the Income Tax Act.
• Whether the addition of Rs. 38,50,000 under Section 68 as unexplained cash credit was justified.
• Whether the addition of Rs. 32,96,140 under Section 69 as unexplained investment was justified.
• Whether the relief of Rs. 1,32,90,000 granted by the CIT(A) regarding unexplained investment in land under Section 69 was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Long Term Capital Gain

• Relevant Legal Framework and Precedents: The issue revolves around the application of Section 54B of the Income Tax Act, which provides for exemption from capital gains tax under certain conditions.
• Court's Interpretation and Reasoning: The court noted that the assessee was unable to furnish evidence of investment in new property, thus failing to justify the claim for deduction under Section 54B.
• Key Evidence and Findings: The assessee had sold property receiving Rs. 40 lakhs but failed to justify the capital gains shown as Rs. 17,14,550.
• Application of Law to Facts: The court found the addition of Rs. 40 lakhs as long-term capital gain by the Assessing Officer to be correct due to lack of evidence from the assessee.
• Treatment of Competing Arguments: The court considered the similar case of a co-owner where the addition was deleted, but noted the absence of an appeal by the Department in that case.
• Conclusions: The court allowed the appeal, deleting the addition of Rs. 40 lakhs, aligning with the treatment of the co-owner's case.

Issue 2: Addition under Section 68

• Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits.
• Court's Interpretation and Reasoning: The court examined the evidence provided by the assessee regarding loans taken from family members and third parties.
• Key Evidence and Findings: The assessee provided confirmations, bank statements, and income tax returns of the lenders.
• Application of Law to Facts: The court found the evidence sufficient to establish the identity and creditworthiness of the lenders.
• Treatment of Competing Arguments: The Department argued lack of creditworthiness, but the court found the evidence compelling.
• Conclusions: The court allowed the appeal, deleting the addition of Rs. 38,50,000 under Section 68.

Issue 3: Addition under Section 69

• Relevant Legal Framework and Precedents: Section 69 pertains to unexplained investments.
• Court's Interpretation and Reasoning: The court considered the evidence of sale proceeds from immovable property as a source of investment.
• Key Evidence and Findings: The assessee provided bank statements showing receipt of sale proceeds.
• Application of Law to Facts: The court found the source of investment explained through documented sale proceeds.
• Treatment of Competing Arguments: The Department's claim of unexplained investment was countered by documented evidence.
• Conclusions: The court allowed the appeal, deleting the addition of Rs. 32,96,140 under Section 69.

Issue 4: Relief of Rs. 1,32,90,000 under Section 69

• Relevant Legal Framework and Precedents: The issue involves the genuineness of loans as a source of investment.
• Court's Interpretation and Reasoning: The court evaluated the supporting documents provided by the assessee.
• Key Evidence and Findings: The assessee provided PAN, ITR-V, confirmations, and bank statements of the lenders.
• Application of Law to Facts: The court found the evidence sufficient to prove the genuineness and creditworthiness of the loans.
• Treatment of Competing Arguments: The Department's appeal against the relief was not supported by counter-evidence.
• Conclusions: The court dismissed the Department's appeal, upholding the relief granted by CIT(A).

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "In such circumstances, addition of Rs. 40,00,000/- on sale of immovable property as LTCG made by the AO is found correct and thus, ground 3 is dismissed."
• Core Principles Established: The court emphasized the importance of providing sufficient evidence to substantiate claims for deductions and the necessity of proving the genuineness and creditworthiness of financial transactions.
• Final Determinations on Each Issue: The court allowed the appeals of the assessee regarding the additions under Sections 68 and 69, and dismissed the Department's appeal, thereby upholding the relief granted by the CIT(A).