2017 (12) TMI 260 - AT - Income Tax

Capital gain - reassessment u/s 147 - transfer through development rights agreement - admission of additional ground - new legal ground in view of the clarificatory amendment brought in by Finance Act of 2017 by way of insertion of sub-section (5A) to section 45 of the I.T. Act 1961 w.e.f. 1.4.2017 - Held that - By virtue of amendment the Legislature intends to confer a benefit which was hitherto not available and hence it is applicable prospectively. The Legislature was very clear that this provision is applicable w.e.f. 1.4.2018. While inserting subsection (5A) to section 45 the consequent amendment to section 49 was also made by inserting sub-section (7) thereto w.e.f. 1.4.2018 and section 194IC was also inserted for tax deductions at source at the time of payment applicable w.e.f. 1.4.17. Thus the Legislature was aware of the consequences of the amendments and intended to confer the benefit only from 1.4.2018. Therefore we are of the opinion that this ground though is a legal ground cannot be admitted at this stage as no useful purpose would be served in remanding the issue to the file of the AO as the sub-section itself is not applicable for the relevant A.Y. The additional ground of appeal raised by the assessee under Rule 11 of the ITAT Rules is accordingly rejected. As regards the validity of the re-assessment proceedings we find that the assessee has filed the return of income but has not offered the capital gains arising out of the development agreement in her return of income for the relevant A.Y. Therefore the AO had the material to form a reasonable belief that the income of the assessee has escaped assessment. Therefore we uphold the validity of the re-assessment proceedings. As regards the year of the taxability we find that this issue is now covered in favour of the Revenue by the decision of the Hon ble jurisdictional High Court in the case of Shri Potla Nageswara Rao vs. DCIT 2014 (8) TMI 636 - ANDHRA PRADESH HIGH COURT . Therefore the assessee s grounds of appeal on the year of taxability are rejected. Computation of the short term capital gains - estimated value of the property adopted by the parties to the development agreement - Held that - As regards the enhancement of the income by the CIT (A) we find that the AO has adopted the SRO value of the land on the date of transfer for the purpose of computing the short term capital gains while the CIT (A) has adopted the estimated value of the property adopted by the parties to the development agreement for registering the development agreement. In the development agreement the estimated value of the property is mentioned as Rs. 8.80 crores. In our opinion the CIT (A) has clearly erred in adopting this value for computation of the short term capital gains. At the time of development agreement what is transferred by the assessee is only her share of the land and not the entire super structure along with the land. The estimated value of the property as mentioned in the development agreement is clearly for the land as well as the super structure to be built up on such land which is given for development. Though the development agreement does mention the period of completion of the project it certainly remain uncertain as to whether the construction would be completed within the stipulated period. The market condition and the market rate when the constructed area is handed over to the assessee may also vary and it may be more or less than the estimated value of the property. Therefore the same cannot be adopted for the computation of the capital gains. In our view the value adopted by the AO i.e. Rs. 2200 per sft being the SRO value of the land on the date of transfer is reasonable and correct. We therefore uphold the order of the AO on the computation of the short term capital gains. As regards the allowability of the expenditure of Rs. 80.00 lakhs which she claimed to have paid to one Shri Gnaneshwar for arranging the development agreement the assessee has not been able to produce any evidence of making the payment during the relevant previous year even before the Tribunal in support of her contention. Therefore we are constrained to confirm the disallowance of the same. Penalty u/s 271(1)(c) - Held that - Having regard to the rival contentions and the material on record we find that the return of income for the A.Y 2006-07 was filed on 29.09.2006 while the decision of the Hon ble jurisdictional High Court in the case of Potla Nageswara Rao was delivered in 2014. Till such time there were decisions of the Tribunal both in favour of and against the assessee. Therefore it was a debatable issue. It is not the case of the assessee not offering the capital gains to tax at all but it is the case where she has offered it in the year of receipt of possession of the property. Therefore it cannot be said that the assessee had not offered the capital gains to tax with an intention to evade the tax. Therefore we are of the opinion that it is not a fit case for levy of penalty u/s 271(1)(c).

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Validity of re-assessment proceedings under Section 147.
3. Year of taxability of capital gains.
4. Computation of capital gains.
5. Disallowance of expenditure claimed.
6. Applicability of Section 45(5A) retrospectively.
7. Levy of penalty under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The assessee filed an application for condonation of a 38-day delay in filing the appeal for A.Y 2006-07, attributing the delay to a misunderstanding and subsequent travel by her son. The Tribunal found the delay neither wilful nor wanton and condoned it.

2. Validity of Re-assessment Proceedings under Section 147:
The assessee challenged the validity of the re-assessment proceedings, arguing no escapement of income. The Tribunal upheld the validity, noting that the assessee did not offer capital gains from a development agreement in her return, giving the AO reasonable cause to believe income had escaped assessment.

3. Year of Taxability of Capital Gains:
The assessee contended that capital gains should be taxed in the year of receipt of possession of the constructed area (A.Y 2011-12). The AO and CIT (A) held that the year of taxability was the year of execution of the development agreement (A.Y 2006-07), supported by the decision in Chaturbhuj Dwarkadas Kapadia vs. CIT. The Tribunal upheld this view, referencing the jurisdictional High Court's decision in Shri Potla Nageswara Rao vs. DCIT.

4. Computation of Capital Gains:
The AO computed the capital gains using the SRO value of the land, while the CIT (A) enhanced the income based on the development agreement's estimated property value. The Tribunal found the CIT (A)'s approach erroneous, as the estimated value included future superstructure value. The Tribunal upheld the AO's use of the SRO value for computation.

5. Disallowance of Expenditure Claimed:
The assessee claimed an expenditure of Rs. 80 lakhs paid for arranging the development agreement, which was disallowed by the CIT (A) due to lack of evidence. The Tribunal upheld this disallowance, noting the assessee failed to provide evidence even before the Tribunal.

6. Applicability of Section 45(5A) Retrospectively:
The assessee raised an additional ground, arguing that the insertion of Section 45(5A) by the Finance Act, 2017, should apply retrospectively. The Tribunal rejected this ground, determining that the provision was intended to minimize future hardship and was not clarificatory or retrospective.

7. Levy of Penalty under Section 271(1)(c):
The AO levied a penalty under Section 271(1)(c) for not offering capital gains to tax in A.Y 2006-07. The Tribunal found the issue of the year of taxability to be debatable at the relevant time, with the assessee having offered the gains in A.Y 2011-12. Consequently, the Tribunal held that the penalty was not warranted and allowed the appeal against the penalty.

Summary of Judgments:
- Appeals for A.Ys 2006-07 and 2011-12: Partly allowed.
- Appeal for A.Y 2007-08: Partly allowed for statistical purposes.
- Appeal against penalty for A.Y 2006-07: Allowed.

Order Pronounced:
The Tribunal pronounced the order in the Open Court on 30th November 2017.