2015 (3) TMI 935 - AT - Income Tax

Capital gains - assessee have entered into a development agreement with M/s. Sun Mark Builders on 04-11-2003 for development of property for construction of residential flats sharing the built up area in the ratio of 39 61 - Year of Taxability - Held that - There is no dispute with the fact that before entering in to this agreement with M/s. Sun Mark Builders, assessees have entered into many agreements which did not fructify. However, that does not mean that this agreement also had the same fate. Considering the judgment of the jurisdictional High Court in the case of Potla Nageswara Rao vs. DCIT 2014 (8) TMI 636 - ANDHRA PRADESH HIGH COURT and the facts of the case, we are of the opinion that the agreement entered into by assessees also satisfies the provisions of Section 53A of Transfer of Property Act, and therefore, the said transaction attracts the provisions of Section 2(47) ie. definition of transfer so as to attract capital gains during the impugned year. Sale Consideration to be adopted - A.O. while considering the sale consideration has taken two amounts for consideration, one amount is sale consideration received under the guise of refundable deposit and other value of constructed area of flats received in lieu of asset given for development in each case. - Held that - A.O. cannot take both the amounts into consideration as it will be a double addition. To that extent, A.O. action cannot be upheld. It is also assessee s contention that value of constructed area adopted by the A.O. is on the basis of the sale price of certain apartments and assessee s were not given any opportunity to place their submissions. Since most of the orders are exparte, the assessee s contentions that cost of construction of the builder should be adopted has not been examined at all. Therefore, in the interest of justice, we set aside this issue to the file of A.O. with a direction to adopt value of constructed area of flats in view land parted with, after giving due opportunity to the assessee. Assessees contention should be considered in its correct perspective and should not be brushed aside without any valid reason. With this direction, the issue of adopting value of sale consideration is restored to the file of A.O. - Decided in favour of assessee for statistical purposes. Cost of Acquisition - Held that - Assessing Officer adopted amount of ₹ 1,18,835 in each case as cost of acquisition. It was the contention of the assessee that there were buildings on the said land which were demolished and the cost of which was also to be adopted. Therefore, cost of land alone cannot be adopted. Cost of buildings at the time of entering into agreement should be considered. In addition, assessee also claims to have paid lot of amounts to the tenants, unauthorized hutment dwellers as part of clearing the title along with litigation expenses. This expenditure also will form part of cost of acquisition. Subject to verification and furnishing necessary evidences, the A.O. is directed to examine, assessees contentions and allow the indexed cost of acquisition on the basis of facts and law. This issue also accordingly restored to the file of A.O. for fresh consideration.- Decided in favour of assessee for statistical purposes. Claim of deduction under section 54 and 54F - Held that - Since assessees have entered into a development agreement of constructing residential properties in lieu of parting with the residential building, they are eligible for deduction under section 54/54F as the case may be. The A.O. had no occasion to examine this aspect as the assessment was completed exparte. Before the Ld. CIT(A), assessee made this claim which Ld. CIT(A) rejected on the reason that provisions of section 54F are not applicable. Ld. CIT(A) ignored the fact that alternate contention under section 54 is eligible to the assessee. Since we are setting aside the entire computation of capital gains to the file of Assessing Officer, he is directed to examine the aspect of claim of deduction under section 54/54F.- Decided in favour of assessee for statistical purposes. Assessment exparte - Failure of filing return of income itself will call for best judgment assessment - Held that - Since no returns of income were filed by these assessees summons under section 131 dated 15.11.2011 were issued and served on the assessees. Assessees did appear on 22.11.2011 and while recording the statement they were asked why capital gain should not be assessed. Assessee have admitted that they will obtain the PAN and file returns of income. However, they have not filed returns of income as promised. Since the A.O. issued notice under section 148 calling for return and issued a show cause notice on 30.03.2011 and further also summons under section 131 but, there is no compliance by the assessees in filing the returns of income. We are of the opinion that A.O. is well within his rights to complete assessment exparte. Assessee was informed that capital gain will be levied and asked to explain under the provisions of Sec.131 itself. Eventhough a separateshow cause was not issued giving final opportunity this may at best be a procedural lapse. Since we are setting aside the assessments to the A.O. for redoing it, on the issue of computation of capital gains on merits, we are of the opinion that there is no merit in these contentions, as assessee themselves have not filed returns of income in spite of so many notices issued to the assessee. Accordingly, this issue is rejected.

Summary

Issues Involved:
1. Year of taxability
2. Sale consideration to be adopted
3. Cost of acquisition to be considered
4. Claim of deduction u/s.54 or 54F
5. Jurisdiction in passing the order u/s.144 ex-parte for assessees who did not file returns

A: Year of Taxability:

The primary issue here is the year in which the capital gains should be taxed. The assessees entered into a development agreement on 04-11-2003 with M/s. Sun Mark Builders. The Assessing Officer (AO) determined that the capital gains arose in the year the agreement was signed, considering the refundable deposit and possession transfer. This was supported by legal precedents such as Chaturbhuj Dwarkadas Kapadia Vs. CIT [260 ITR 491]. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, noting that the possession was handed over and tenants vacated before 14th March 2003. The Tribunal confirmed that the transaction satisfied Section 53A of the Transfer of Property Act, thus falling under Section 2(47) of the Income Tax Act, making the capital gains taxable in the year of the agreement.

B: Sale Consideration to be Adopted:

The AO considered both the refundable deposit and the value of the constructed area as sale consideration, leading to double addition. The Tribunal found this approach incorrect and directed the AO to adopt only the value of the constructed area of flats, after giving the assessees a chance to present their case. The AO must consider the cost of construction rather than the market price when determining the sale consideration.

C: Cost of Acquisition:

The AO initially adopted a cost of acquisition of Rs. 1,18,835 per assessee, based on land value alone. The assessees argued that this should include the cost of existing buildings, demolition, tenant settlements, and litigation expenses. The Tribunal directed the AO to re-examine this issue, allowing for the inclusion of these additional costs in the cost of acquisition, subject to verification.

D: Claim of Deduction u/s.54 or 54F:

The assessees claimed deductions under Sections 54 and 54F for obtaining residential flats in exchange for their property. The CIT(A) rejected this claim, stating it was not made in the return and Section 54F was not applicable. The Tribunal directed the AO to examine this claim afresh, considering the judicial pronouncements and giving the assessees an opportunity to present their case.

Jurisdiction in Passing the Order u/s.144 Ex-parte:

Three assessees did not file returns, leading to ex-parte assessments under Section 144. They argued that they were not given notice under Section 142(1). The Tribunal found that the AO had issued multiple notices, including summons under Section 131, and the assessees failed to comply. Therefore, the AO was justified in completing the assessments ex-parte. However, since the entire computation of capital gains was being reconsidered, this procedural issue was deemed non-meritorious.

Conclusion:

The Tribunal set aside the orders of the AO and CIT(A) and directed fresh assessments, considering the Tribunal's observations and giving the assessees due opportunity to present their case. The appeals were partly allowed for statistical purposes, emphasizing the need for a thorough re-examination of each issue by the AO.