2016 (9) TMI 1631 - AT - Income Tax

Reopening of assessment u/s 147 - chargeability of capital gains - residential house received as a gift from her husband - CIT-A deleted the addition - HELD THAT - The assessee has received a residential house as a gift from her husband dated on 17.11.1977. She had given the said property to M/s. Dutta Constructions, Vijayawada vide agreement dated 29.1.2001. As per the said agreement, she has to received 50% of the constructed area of the commercial complex to be constructed by the developer. As per the A.O., the developer of the property has obtained the approval no.1440/2003. Subsequent to the approval only, the construction was started and partly completed during the financial years 2004-05 and 2005-06. We find that the assessee has also offered capital gains for the assessment year 2005-06 as well as 2006-07. It appears from the record that though the assessment for the A.Y. 2005-06 is not before us, the A.O. has completed assessment u/s 143(3) of the Act, thereafter the Commissioner has issued a notice u/s 263 - Assessee carried matter in appeal before the ITAT, Visakhapatnam. The ITAT, Visakhapatnam Bench has set aside the order of the Commissioner u/s 263 of the Act and directed the A.O. to complete the assessment u/s 143(3) r.w.s. 254 of the Act. The order already passed on 24.2.2015 and the order is under appeal before Ld. CIT(A). In so far as, assessment year 2006-07 is concerned, the Ld. CIT(A) without considering the agreement various clauses incorporated, without considering the facts and circumstances of the case, without considering the capital gains offered by the assessee herself simply held that the assessment year 2001-02 is not before me and it has to be taxed only in assessment year 2001-02. We find that the order passed by the Ld. CIT(A) is not correct and the Ld. CIT(A) ought to have considered all the details. We also find that in the assessment years 2005-06 and 2006-07 facts are similar - we find that the request made by the Ld. D.R. is justified and accordingly we set aside the order passed by the Ld. CIT(A) and direct the Ld. CIT(A) to examine all the details and decide de-novo, in accordance with law. Appeal filed by the revenue is allowed for statistical purposes.

Summary

Issues Involved:
1. Determination of the correct assessment year for taxing capital gains.
2. Inclusion of common area and undivided land in the computation of capital gains.
3. Validity of the reopening of the assessment under Section 147 of the Income Tax Act.
4. Examination of the development agreement and its implications on capital gains tax.

Detailed Analysis:

1. Determination of the correct assessment year for taxing capital gains:
The primary issue revolves around the correct assessment year for taxing the capital gains arising from the development agreement dated 29.1.2001. The assessee argued that the capital gains should be taxed in the assessment year 2001-02, as the possession of the property was handed over to the developer in that year. However, the Assessing Officer (A.O.) contended that the actual possession and construction started only after obtaining municipal approval in 2003, and hence, the capital gains should be taxed in the assessment years 2005-06 and 2006-07. The CIT(A) sided with the assessee, stating that the capital gains should be taxed in 2001-02, but the Tribunal found this conclusion to be incorrect and remitted the matter back to the CIT(A) for a de-novo examination.

2. Inclusion of common area and undivided land in the computation of capital gains:
The A.O. included the value of the common area and undivided land while computing the capital gains. The assessee contended that the inclusion of these areas was not justified as the common area should not be considered part of the assessee's share. The CIT(A) agreed with the assessee, stating that once the development agreement is executed and the property is shared between the landlord and the developer, the common area does not revert to the landlord. However, the Tribunal found that the CIT(A) did not adequately consider all the details and directed a re-examination of the issue.

3. Validity of the reopening of the assessment under Section 147 of the Income Tax Act:
The A.O. reopened the assessment under Section 147, following the due procedure, based on the information that the capital gains were not correctly taxed in the original assessment. The Tribunal did not specifically address the validity of the reopening in its order, focusing instead on the substantive issues of the correct assessment year and the computation of capital gains.

4. Examination of the development agreement and its implications on capital gains tax:
The development agreement dated 29.1.2001 was a crucial document in determining the tax implications. The A.O. highlighted that the shares of the property between the owner and the developer were to be decided only after obtaining necessary approvals, and actual construction began only in 2004-05. The Tribunal noted that the CIT(A) failed to consider various clauses of the agreement and the factual circumstances surrounding the case. Consequently, the Tribunal remitted the matter back to the CIT(A) for a thorough examination of the agreement and its implications on the capital gains tax.

Conclusion:
The Tribunal set aside the order of the CIT(A) and remitted the matter back for a de-novo examination, directing the CIT(A) to consider all the details and decide the issues in accordance with the law. The appeal filed by the revenue was allowed for statistical purposes. The order was pronounced in the open court on 9th September 2016.