The Indore bench of the Income Tax Appellate Tribunal (ITAT) held that the deduction on actual cost is allowable before the imposition of tax on the entire amount received from the sale of land.
A search under Section 132 of the Income Tax Act was carried out on the “Chugh Group” of Indore wherein two documents were seized by authorities. These documents revealed details of a sale transaction of land done by the assessee.
The parties to the documents were namely (i) Distinct Realty Private Limited, (ii) KMM Real Estate and Constructions Private Limited, and (iii) Shri Ram, Shri Laxman, Shri Munna, these persons were the original owners of land [“RLM”], and (iv) Shri Vikram Agnihotri, the attorney holder of RLM [“Vikram”].
The assessee had agreed to sell land to KMM for a consideration of Rs. 1,28,50,000/-; KMM shall pay the entire consideration to the assessee only and the consideration shall have two components, namely Rs. 99,20,000/- towards the cost of land and Rs. 29,30,000/- towards surrender of a right.
The Assessing Officer found that the assessee had filed a return of income declaring income of Rs. 2,77,320/- from the business but without declaring the receipt of Rs. 1,28,50,000/- and, therefore, the receipt of Rs. 1,28,50,000/- had escaped assessment. The Assessing Officer after taking approval from the Joint Commissioner of Income Tax (JCIT), issued notice under Section 148 and conducted proceedings under Section 147 of the Income Tax Act.
The assessee filed a copy of the purchase agreement as evidence to show that the subject land was purchased from RLM. The assessee also submitted that as per the Memorandum of understanding (MOU), the assessee’s share, namely the surrender value of right over and above the cost was fixed at Rs. 29,30,000/- and the assessee had already offered it in the Previous Year on the basis of the MOU.
The assessee claimed “Cost of land with expenses for exploitation on land and others” before the Assessing Officer. Then, it claimed “Cost of consideration and expenses (As per MOU)” in the Statement of Facts filed to the Commissioner of Income Tax (Appeal) [CIT(A)], and the CIT(A) has gained an understanding that the assessee paid Rs. 99,20,000/- to original owners itself and accordingly proceeded for adjudication of first-appeal.
The Two-member bench comprising of Vijay Pal Rao (Judicial member) and B.M. Biyani (Accountant member) held that if the land is sold for Rs. 1,28,50,000/- the department cannot tax the entire sum of Rs. 1,28,50,000/- as income of assessee; the department has to allow deduction of actual cost incurred by assessee since the impugned land actually belonged to RLM once upon a time and the assessee purchased from RLM and therefore certainly incurred cost whatever amount may be.
It is necessary to ascertain the correct cost incurred by the assessee and give a deduction to the assessee. At the same time, we also note that it’s the assessee’s onus to prove conclusively the amount of cost incurred.
Therefore, the issue was remanded back to the file of the Assessing Officer will decide the issue afresh. The assessee shall avail those opportunities; in the event of any failure by the assessee without just cause, the Assessing Officer shall be free to take a decision as the situation warrants. The assessee was also directed to submit all documentary evidence, as may be required by the Assessing Officer, to prove its claims. Thus, the appeal of the assessee was allowed.
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