2014 (1) TMI 1349 - AT - Income Tax

Revenue appeal partially allowed for eviction expenditure & capital gain addition. CIT(A) directs reassessment without section 50.

The appeal of the Revenue was partially allowed for statistical purposes in the case involving the disallowance of expenditure claimed for eviction of ... Allowability of expenditure for eviction of tenants as deduction in computation of capital gains - characterisation of transfer as long-term or short-term capital gain where depreciation has allegedly been claimed - application of the proviso to the capital gains computation doctrine requiring exclusion of section 50 where no depreciation on the asset is shown - recomputation of capital gains after allowing eviction-related expenditure and consideration of indexed cost of acquisitionAllowability of expenditure for eviction of tenants as deduction in computation of capital gains - Deductibility of Rs. 9,92,000 paid to tenants for vacating shops while computing capital gains - HELD THAT: - The Tribunal examined the record including the tripartite/sale deed showing payment to tenants and the tenants' returns disclosing receipt and computation of capital gains. The Assessing Officer disallowed the expenditure on the basis that the payment was a familial transaction and that mere mention in the sale documents did not establish that the amount was in lieu of vacation. The CIT(A) accepted the documentary evidence and factual finding of payment by the buyer directly to tenants and concluded the disallowance was based on presumption. The Tribunal found from the record that the shops were in possession of tenants and that the payment for eviction was actually made; it confirmed the CIT(A)'s deletion of the disallowance and directed the Assessing Officer to allow the deduction of Rs. 9,92,000 while recomputing capital gains. [Paras 3, 6]Disallowance of Rs. 9,92,000 is deleted and the Assessing Officer is directed to allow the deduction while recomputing capital gains.Characterisation of transfer as long-term or short-term capital gain where depreciation has allegedly been claimed - recomputation of capital gains after allowing eviction-related expenditure and consideration of indexed cost of acquisition - Whether the gain on sale of shops is to be taxed as short-term under section 50 or as long-term and consequential direction for recomputation - HELD THAT: - The Assessing Officer treated the entire sale consideration as short-term capital gain invoking section 50 on the ground that depreciation had been claimed on the shops. The CIT(A) concluded the gains were long-term after examining precedent and the material before him. The Tribunal observed that the depreciation charts placed on record showed no claim of depreciation on these shops in the relevant years, undermining the AO's basis for invoking section 50. However, the Tribunal also noted that the Assessing Officer had not considered the assessee's claimed indexed cost of acquisition (Rs. 39,52,699) when computing capital gains and that the CIT(A) did not address this aspect. In the interest of justice the Tribunal directed that the matter be restored to the file of the Assessing Officer for fresh computation of capital gains, with express directions not to apply section 50 and to allow the eviction expenditure; the Assessing Officer is to consider and apply the indexed cost of acquisition in recomputing the capital gains. [Paras 4, 6]Matter remitted to the Assessing Officer for recomputation of capital gains; AO directed not to apply section 50 and to allow the Rs. 9,92,000 deduction while considering indexed cost of acquisition.Final Conclusion: The Tribunal confirmed deletion of the disallowance of Rs. 9,92,000 paid to tenants and remitted the matter to the Assessing Officer for fresh computation of capital gains without applying section 50 and after allowing the eviction expenditure and giving due consideration to the claimed indexed cost of acquisition; appeal of the Revenue is allowed in part for statistical purposes. 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.