2017 (10) TMI 106 - AT - Income Tax

Reopening of the assessment u/s 143(3) r.w.s.147 - period of limitation - Held that - The notice u/s 148 was issued on 14.3.2013 and the order which was the subject-matter of appeal before the Tribunal was dated 30.06.2011. The A.Y before us is 2005-06 and as per section 149(1)(b) of the Act, six years from the end of the relevant A.Y is 31.03.2012 beyond which period a notice u/s 148 cannot be issued for the A.Y 2005-06. Since as per section 2 of section 150, the notice u/s 148 cannot be issued if the order under appeal before the Tribunal, was beyond the limitation period prescribed u/s 149(1)(b) of the Act. However, we find that the order of the CIT (A) which is subject matter of appeal before the Tribunal is dated 30.06.2011 is well within the period of six years from the end of the relevant financial year and therefore, the proceedings initiated by the AO by issuance of notice u/s 148 for the A.Y 2005-06 in the case of the assessee is sustainable. Therefore, we see no reason to interfere with the order of the CIT (A) on this issue. Entitlement to deduction u/s 54F in respect of more than one residential flats received by virtue of a development agreement - Held that - As by virtue of various decisions of the Tribunal and also the jurisdictional High Court in the case of Shri Syed Ali Adil (2013 (6) TMI 278 - ANDHRA PRADESH HIGH COURT) and also CIT vs.V.R. Karpagam (2014 (8) TMI 899 - MADRAS HIGH COURT) and CIT vs.Smt. K.G. Rukminiamma (2010 (8) TMI 482 - Karnataka High Court ), the assessee was entitled to deduction u/s 54F of the Act in respect of more than one residential flats received by virtue of a development agreement. Capital gain computation - applicability of the provisions of section 50C - Held that - We find that the AO has adopted the SRO value of flats received by the assessee as consideration for the transfer of the land under the development agreement u/s 50C of the Act. In our opinion, this is not correct. The cost of the constructed area received by the assessee should be taken as the consideration received by the assessee in lieu of the development agreement and not the SRO value. The SRO value u/s 50C of the Act would come into play when the assessees sell their share of the flats and if the sale consideration received by them is less than the SRO value. Therefore, the AO is directed to take the cost of construction of the flats by the builder as the sale consideration received by the assessee for transfer of land to the development for computing the long term capital gain

Summary

Issues Involved:
1. Validity of reopening the assessment under sections 143(3) and 147 of the Income Tax Act.
2. Applicability of section 50C for determining the sale consideration.
3. Eligibility for exemption under section 54F of the Income Tax Act.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The assessees contended that the reopening of the assessment under sections 143(3) and 147 was erroneous. The assessees did not file returns for the year in question. The Assessing Officer (AO) issued notices under section 148 based on the development agreement executed on 31.12.2004, which indicated that capital gains should be assessed for the Assessment Year (A.Y.) 2005-06. The assessees argued that the notice under section 148 was issued after the statutory period of six years, making it invalid. The Tribunal held that the AO's notice was within the permissible period since the order of the CIT (A) dated 30.06.2011 was within the six-year limitation period prescribed under section 149(1)(b). Therefore, the reopening of the assessment was deemed valid, and the Tribunal rejected the assessees' grounds on this issue.

2. Applicability of Section 50C:
The AO applied section 50C to determine the sale consideration based on the Stamp Duty Act, which the assessees challenged. The Tribunal found that the AO incorrectly adopted the SRO value of the flats received by the assessees as consideration. Instead, the cost of the constructed area received by the assessees should be considered as the sale consideration for computing the long-term capital gain. The Tribunal directed the AO to take the cost of construction of the flats by the builder as the sale consideration, not the SRO value.

3. Eligibility for Exemption under Section 54F:
The assessees claimed exemption under section 54F, which the AO denied on the grounds that the assessees received more than one residential unit. The Tribunal referred to various High Court decisions, including CIT vs. Smt. K.G. Rukminiamma, CIT vs. V.R. Karpagam, and CIT vs. Syed Ali Adil, which held that multiple residential units received under a development agreement could be considered as "a residential house" for the purpose of section 54F. Consequently, the Tribunal allowed the assessees' claim for exemption under section 54F.

Conclusion:
The Tribunal upheld the validity of the reopening of the assessment under sections 143(3) and 147. It directed the AO to consider the cost of construction as the sale consideration instead of the SRO value under section 50C. Additionally, the Tribunal allowed the assessees' claim for exemption under section 54F in respect of multiple residential units received under the development agreement. The appeals were partly allowed.