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Income-tax Officer, Ward 8 (1) , Hyderabad Versus Smt. Kasa Latha, Hyderabad

Long term capital gain - dis allowance of cost of acquisition of proportionate land area sold during the year and cost of improvement incurred to the proportionate sale of flats - Held that:- The main issue is, the assessee had built the five flats, two flats were sold during the current AY, two flats were sold in the subsequent AY and retained one flat for self occupation. AO, based on the statement of joint developer, treated the whole building as complete and ready for sale whereas the assess .....

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cided against revenue

Determination of sources of funds to the above investment in the building for construction of the flats up to the end of the financial year 31/03/2007 - Held that:- We find that the assessee has made investment in the building to the extent of cost involved. The assessee had sufficient funds to finance the investment in the building. There may be mismatch on the micro level but at the outset, it is established that the assessee had sufficient funds to make the in .....

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her return of income on 11/07/2008 for AY 2007-08 declaring total income of ₹ 2,50,330/-, which included income from long term capital gain of ₹ 1,82,803/-. The case was selected for scrutiny under CASS. The AO determined the taxable income at ₹ 39,30,900/- by making disallowance of cost of acquisition of proportionate land area sold during the year and cost of improvement incurred to the proportionate sale of flats. 2.1 During the FY 2004-05, the assessee had entered into Mem .....

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ased by her father on 07/12/1974 for a consideration of ₹ 1,521/-. On the said land, assessee s mother constructed a house after taking permission from municipality on 22/10/1990 and the construction was completed in the year 1993. Her mother also died on 24/07/2000. The said property was inherited by the assessee on 11/10/2002. Later, assessee took a loan of ₹ 5 lakhs to carry out additional constructions and repairing of the existing structures so as to enhance the life of the buil .....

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ng 2020 sq.ft. each and car parking along with undivided share of land of 60 sq.yds. of each flat as per the sale deed submitted before the AO. 2.2 Assessee has filed return of income claiming ₹ 3,60,000/- as cost of acquisition in FY 2000-01, which is indexed at ₹ 4,60,197/-. AO disallowed to the extent of ₹ 3,68,070/- by observing that at the time of construction, assessee had only vacant land for construction. As per the section 55(2) of the IT Act, assessee must have adopte .....

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est of revenue. AO has estimated ₹ 17,751/- as the cost of land which pertains to the two flats. 2.3. The Assessing Officer has also found from the computation of capital gains that the appellant has incurred expenditure of ₹ 25,25,000/- for the construction of flats bearing Nos.101 and 401 sold during the year. When the AO has asked about the sources of the improvements claimed by the appellant, it was submitted that the same were borne out the sale proceeds of flat Nos.101 and 401. .....

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idential flats, the total expenditure/improvements have been arrived by the Assessing Officer at ₹ 25,25,000/- for 2 flats and ₹ 37,87,500/- for 3 flats. Accordingly, the Assessing Officer determined the total investment in construction of 5 flats by the appellant at ₹ 63,12,500/-. However, as the appellant has explained the sources to, the extent of ₹ 30 lakhs, the Assessing Officer has brought to tax the remaining amount of investment of ₹ 33,12,500/- as unexplain .....

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t, which was extracted by the CIT(A) at pages 5 to 7 of his order. 5. The CIT(A) after considering the additional evidences, written submissions of the assessee and remand report of the AO deleted the additions made by the AO by observing as under: 7.1. The first issue pertains to the cost of acquisition determined for the purposes of computing capital gains on sale of proportionate undivided share of land along with flat Nos.1 01 and 401. The Assessing Officer observed that the appellant could .....

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in' existence on the said land as is evidenced from the permissions taken by the appellant's mother from the Municipal. Authorities for construction of house, taking loan from M/s.Can Fin Homes Ltd., copies of invitation card regarding Gruha Pravesham, photos of the house, loan taken by the appellant from Oriental Bank of Commerce for additional construction etc. These evidences produced by the appellant cannot be ruled out that there is no building constructed on the so called plot of .....

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ts. In view of the above, the. Assessing Officer is directed to take into account the cost of acquisition arrived by the appellant at ₹ 4,60,197/- for the purposes of computation of capital gains. 7.2. The other issue pertains to the addition made u/s.69 of the Act of ₹ 33,12,500/-. The Assessing Officer observed that the appellant could not explain the sufficient sources and details with supporting evidence for the investment in the, shape of construction of residential flats. The a .....

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view of the fact that the appellant has not sold all the flats during the year under consideration only and to that effect sale deeds were executed in the next year. It is also observed that appellant has filed return of income for the Asst. Year 2008-09 declaring capital gains on the remaining sale of flats , which were construction during the Asst. Year 2007-08. Therefore, as per the assessment order, the improvement/ expenditure for construction of 3 flats of ₹ 37,87,500/- addition mad .....

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. 6. Aggrieved by the order of the CIT(A), the revenue is in appeal before by raising the following grounds of appeal: i. The Ld. CIT(A) order is erroneous and bad in law. ii. The Ld.CIT(A) erred in allowing the relief without verifying the sources for investment in the construction. iii. The Ld. CIT(A) erred in treating the advance amount received for flats were invested but in the sale deed registered in the F. Y 2006-07 nowhere mentioned as advances given. iv. The Ld.CIT(A) erred in consideri .....

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that 90% of the construction activities were already completed. As the assessee had confirmed that the construction cost of each flat is ₹ 12,62,500/-, AO had correctly calculated the undisclosed investment of ₹ 33,12,500/-. He also submitted that the source for the above investments were not properly explained before the AO. Ld. CIT(A) had given the relief to the assessee merely based on submission rather than on any evidence or findings. 8. Ld. AR relied on the order of CIT(A). 9. .....

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