Cost of Improvement not to be attributed to joint owners: ITAT upholds revision proceedings [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has upholds revision proceedings, affirming that the cost of improvement should not to be attributed to joint owners. The assessee, holding a joint interest, had divested itself of a specific piece of land along with a factory building and associated machinery.

The land was owned by three directors of the corporate entity, namely M/s Sri Renga Creative Apparels India Pvt. Ltd., while the corporate entity retained ownership of the building. The valuation of the property for stamp duty purposes was determined to be higher than anticipated. As a result, the Assessing Officer (AO) applied the provisions of Section 50C of Income Tax Act, 1961, and made certain additions to the income of the assessee. The counsel for the respondent V.Nandakumar noted that the assessee had deducted both the indexed cost of land and the indexed cost of building when calculating capital gains. This, according to the counsel rendered the order erroneous and detrimental to the revenue’s interests.

The Assessing Officer (AO) did not address this issue in the initial assessment proceedings. AO had thoroughly examined the matter, conducting sufficient inquiries. The assessee also presented submissions and furnished various documents supporting its position on the cost of improvement of land. The assessment order and the queries posed during the assessment proceedings, it becomes apparent that the matter concerning the cost of improvement on the building was entirely overlooked and not examined by the Assessing Officer (AO). No submissions were put forth, and there was a noticeable absence of due consideration by the AO on this particular issue. The two member bench of the tribunal comprising Mahavir Singh (Vice President) and Manoj Kumar Agarwal (Accountant member) observed that according to the details in the sale deed, exclusive rights over the building were vested solely in the corporate entity. Consequently, the cost in question should not have been claimed by the joint owners in their individual capacities.

The bench concluded that failure to address the highlighted issue, as brought to attention by the Principal Commissioner of Income Tax, undoubtedly rendered the order subject to revision under section 263. Hence, there appeared to be no compelling reason to intervene in this matter. The appeal stand was dismissed.

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