Tribunal directs reassessment under Section 45(2) of Income Tax Act

The Tribunal allowed the appeal for statistical purposes, directing the A.O. to verify the computation filed by the assessee and re-compute the income by applying the provisions of Section 45(2) of the Income Tax Act. The Tribunal upheld the A.O.'s re-computation of the cost of acquisition but found that the A.O. erred in not considering the alternative plea of the assessee regarding the application of Section 45(2).

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Issues Involved:
1. Validity of the unregistered, un-possessory sale agreement.
2. Computation of long-term capital gain.
3. Cost of acquisition of the property.
4. Application of Section 45(2) of the Income Tax Act.

Detailed Analysis:

1. Validity of the Unregistered, Un-possessory Sale Agreement:
The primary issue revolves around the validity of an unregistered, un-possessory sale agreement dated 3.12.2007, purportedly entered into between the deceased assessee and Shri P. Venkata Prasad for the sale of agricultural land. The Assessing Officer (A.O.) rejected the agreement, citing that Shri P. Venkata Prasad denied entering into any such agreement and claimed the signature on the agreement was forged. The A.O. listed several reasons for rejecting the agreement, including the fact that the agreement was unregistered, un-possessory, and the consideration was paid mostly in cash. The CIT(A), however, held that the assessee had indeed entered into an agreement for the sale of the property, supported by affidavits and other evidences, and directed the A.O. to compute long-term capital gain based on this agreement.

2. Computation of Long-term Capital Gain:
The A.O. computed the long-term capital gain based on the sale deeds executed by the assessee to various flat buyers, rejecting the sale agreement. The A.O. adopted the market value of the property as deemed consideration under Section 50C of the Income Tax Act due to discrepancies between the consideration shown in the sale deed and the sub-registrar's value. The CIT(A) directed the A.O. to consider the sale agreement for computing the long-term capital gain, which was challenged by the revenue in the appeal.

3. Cost of Acquisition of the Property:
The assessee claimed a cost of acquisition of Rs. 4,95,465/- as on 1.4.1981, which was indexed to Rs. 28,83,306/-. The A.O. questioned this valuation and obtained a certificate from the SRO, which indicated a lower market value for the property. The A.O. reworked the cost of acquisition by adopting Rs. 25,000/- per acre instead of the assessee's claim. The CIT(A) upheld the A.O.'s re-computation of the cost of acquisition.

4. Application of Section 45(2) of the Income Tax Act:
The assessee alternatively pleaded for the application of Section 45(2) of the Act, arguing that the conversion of investment into stock-in-trade should be considered, which would result in both capital gains and business income. The A.O. rejected this plea, stating that the assessee had computed long-term capital gain under normal provisions. The CIT(A) found merit in the assessee's alternative plea and held that the provisions of Section 45(2) should be applied. The Tribunal agreed with this view and directed the A.O. to re-compute the income by considering the provisions of Section 45(2).

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the A.O. to verify the computation filed by the assessee and re-compute the income by applying the provisions of Section 45(2) of the Income Tax Act. The Tribunal upheld the A.O.'s re-computation of the cost of acquisition but found that the A.O. erred in not considering the alternative plea of the assessee regarding the application of Section 45(2).

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