2014 (6) TMI 732 - AT - Income Tax

Accrual of capital gain - additions during remand proceedings - property given for development of a multi-storied under the development agreement - Receipt from sale of floor space under valuation - applicability of section 50C - Held that - Following Mekins Agro Product(P) Ltd. Versus Income-tax Officer 2014 (6) TMI 495 - ITAT HYDERABAD - in case of development agreement which were executed the capital gains cannot be postponed - the profits/ capital gains arising from development of the land cannot be brought to tax this year, except to the extent the assessee himself has offered for tax in his return - Only the profits accrued on the sale of the built up area during the year shall be subject to tax the Tribunal has issued a clear direction to the AO to compute the profit/capital gains arising from sale of built-up area together with an undivided interest in land, if any made during the year. The assessee has also not produced any material to show the actual date of sale of the constructed area in Mayank Plaza or for that matter the actual built up area sold during the AY - the CIT (A) has not at all dealt with the issue of addition of Rs.18,55,000/- made on account of understated sale consideration and an amount of Rs.9,28,951/- u/s 50C being the difference between the valuation made by the registering authority for stamp duty purposes and sale consideration mentioned in the sale deed - thus, the matter is required to be remitted back to the AO for fresh adjudication any advance received by the assessee towards sale of built up area should not be considered for capital gain - Decided in favour of Revenue.

Summary

Issues Involved:

1. Computation of capital gains from the sale of built-up area.
2. Treatment of receipts from the sale of floor space.
3. Addition of Rs.18,55,000/- due to understated sale consideration.
4. Applicability of Section 50C regarding the difference in valuation for stamp duty purposes.

Detailed Analysis:

1. Computation of Capital Gains from the Sale of Built-up Area:

The primary issue in this appeal is the computation of capital gains arising from the sale of built-up area. The Income-tax Appellate Tribunal (ITAT) had previously directed the Assessing Officer (AO) to compute capital gains only in respect of the built-up area sold during the year. The AO initially computed the gains treating the entire receipts from the sale of floor space as short-term capital gains, amounting to Rs.4,15,33,255/-. However, the CIT (A) held that only the capital gains arising from the sale of constructed area during the previous year should be taxable, and not the entire amount received.

2. Treatment of Receipts from the Sale of Floor Space:

The assessee argued that the receipts from the sale of floor space were incorrectly treated as short-term capital gains by the AO. The assessee contended that the built-up area in Mayank Plaza was sold in earlier years and not in the assessment year under consideration. The CIT (A) accepted this argument and computed the capital gains at Rs.50,34,452/- after deducting the cost of the constructed area. The Department, however, argued that the entire amount of Rs.4,15,33,255/- should be considered as receipts from the sale of floor space.

3. Addition of Rs.18,55,000/- Due to Understated Sale Consideration:

The AO added Rs.18,55,000/- to the income of the assessee, citing an understatement in the sale consideration as per the sale deed. The CIT (A) did not address this issue in detail. The ITAT directed the AO to reconsider this addition afresh, taking into account all relevant materials and providing the assessee with a reasonable opportunity to be heard.

4. Applicability of Section 50C:

The AO invoked Section 50C of the Income Tax Act, adding Rs.9,28,951/- to the income of the assessee due to a difference between the valuation for stamp duty purposes and the sale consideration mentioned in the sale deed. The ITAT noted that the AO did not comply with the direction to refer the matter to the District Valuation Officer (DVO) for determining the market value. The ITAT directed the AO to comply with this requirement and refer the matter to the DVO.

Conclusion:

The ITAT remitted all issues back to the file of the AO for fresh consideration. The AO was directed to ascertain the actual sale consideration received from the sale of built-up area by examining the sale deeds executed during the relevant assessment year. The AO was also instructed to ensure that any advance received by the assessee towards the sale of built-up area should not be considered for capital gains. Additionally, the AO was directed to comply with the ITAT's earlier direction to refer the matter to the DVO for determining the market value under Section 50C. Finally, the AO was to reconsider the addition of Rs.18,55,000/- afresh and provide the assessee with a reasonable opportunity to be heard.

Order Pronouncement:

The appeal filed by the department was treated as allowed for statistical purposes. The order was pronounced in the court on 4th June 2014.