2013 (8) TMI 182 - AT - Income Tax

Deduction towards self- supervision allowed in the hands of the assessee - whether assessee eligible for the same when the assessee has not supervised the construction? - Held that - There is no merit in the revenue s appeal as the building is constructed by a builder and the assessee obtained 60% share in the said building constructed, in lieu of surrender of the land for development. Therefore, whatever is cost incurred by the builder can only be the basis for arriving at the capital gains. Further, whenever the matter was referred to the DVO, allowed 7.5% towards self-supervision to the builder and arrived at the entire value of the building. There is no dispute with reference to the estimation made by the DVO, which is more or less the same as the cost incurred by the builder, as returned by the assessee. It is not the assessee s building which is being valued, but the building constructed by the developer in which assessee got 60% share. Since the building was constructed on the land given by the assessee, naturally the cost of the building has to be estimated in the hands of the M/s. Lumbini Constructions alone and proportionate share of the assessee therein, will have to be considered as price for surrendering the land. As informed that no action has been taken in the hands of M/s. Lumbini Constructions no merit in the Revenue s appeal. Capital gains - assessment arise in the year in which the assessee entered into agreement or in which the assessee took possession of the developed property - Held that - CIT(A) considered the term transfer with respect to capital asset under S.2(47) and also provisions of S.53A of Transfer of Property Act, held that there is only one transaction which took place with reference to the capital gains and that is the sale of 40% of the land in the financial year relevant to assessment year 2007-08 and the sale consideration in respect thereof was worked out at Rs.6.30 crores at Rs.997 per sq. ft. towards 63226 sq. ft. of built up area surrendered in the building constructed. Therefore, the CIT(A) held that there is no transfer which took place in assessment year 2004-05 and capital gains arose only in assessment year 2007-08. This order of the CIT(A) was accepted by the Revenue, and there is no second appeal. Since the order of the CIT(A) became final for assessment year 2007-08, respectfully following the same, CIT(A) deleted the addition made in this year. Since the order of the CIT(A) for assessment year 2007-08, giving rise to the reopening of the assessment for the assessment year 2004-05, has become final, there is no merit in the Revenue s contentions for contesting the impugned order of the CIT(A) for this assessment year, in which simply the findings of the CIT(A) for assessment year 2007-08, which attained finality, are followed.

Summary

Issues involved:
- Revenue's appeals against separate orders of CIT(A) for assessment years 2004-05 and 2007-08.
- Assessment of long term capital gains on surrender of land for development into a commercial complex.
- Reopening of assessment, addition to capital gains, and deduction on account of self-supervision.
- Discrepancy in valuation by Valuation Officer and assessee.
- Interpretation of 'transfer' with respect to capital asset.
- Appeal against CIT(A)'s order on assessment year 2004-05.
- Cross objections by the assessee regarding reopening of assessments.

Analysis:

Assessment of Long Term Capital Gains:
- The assessee surrendered 40% of land to a developer for a commercial complex and received 60% of the developed land. The Assessing Officer initially taxed the capital gains in the year of transfer of 40% land. However, CIT(A) held that capital gains arose only when the land was transferred, not when the building was sold. The DVO's valuation differed slightly from the assessee's, leading to a reassessment and addition to capital gains.
- The CIT(A) deleted the addition, citing the low allowance for self-supervision by the Valuation Officer and minimal difference in valuations. The Revenue contested the deduction for self-supervision, arguing that the assessee did not supervise the construction. However, the Tribunal upheld the CIT(A)'s decision, emphasizing that the builder's cost should determine capital gains, not the assessee's supervision.

Interpretation of 'Transfer' and Assessment Year 2004-05:
- The Assessing Officer mistakenly assessed capital gains for both assessment years 2004-05 and 2007-08 based on the same transaction. However, the CIT(A) clarified that the capital gains only arose in 2007-08 when the land was transferred. The Revenue's appeal for assessment year 2004-05 was dismissed based on the finality of the CIT(A)'s decision for 2007-08, which was uncontested by the department.

Cross Objections and Final Decision:
- The cross objections by the assessee regarding the reopening of assessments were deemed academic and dismissed since the main issues were already addressed in the appeals. Ultimately, both the Revenue's appeals and the assessee's cross objections for both assessment years were dismissed by the Tribunal.

This detailed analysis covers the various issues involved in the legal judgment, including the assessment of capital gains, interpretation of 'transfer,' valuation discrepancies, and the final decision by the Tribunal on the appeals and cross objections.