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2024 (7) TMI 39 - AT - Income TaxCorrect head of income - sale proceed of residential units - Capital gain or business receipts - Addition made of sale proceed of residential units as per section 28(iv) - HELD THAT - As we find that the assessee has never acted upon the agreement and the residential project namely Vishwamohini Complex was initiated and completed by the builder M/s. KHPL and assessee only received seven flats as consideration against giving land for developing to M/s. KHPL. We also note that a tripartite supplementary agreement was entered into on 12/03/2014 it was again stated that the agreement dated 28/04/2010 was not executed and all the activity for developing the project has been made as per the agreement dated 09/06/2011. Thus we fail to find any infirmity in the finding of the ld. CIT(A) holding that the assessee is just one of the three parties of the transactions and it was merely transfer of land for the purpose of developing a project but it was not a business activity carried out by the assessee because the activity relating to development of land and constructing the project was the sole responsibility of M/s KHPL and therefore the transactions of transferring the land receiving the flats in consideration and subsequent sale of two flats would be taxed as per the capital gain provisions under the Income Tax Act. We find that on 09/06/2011 vide agreement with M/s. KHPL the land was given to M/s. KHPL for developing it into a residential complex. The cost of acquisition of the land is undisputedly at Rs. 21, 07, 504/- and for the purpose of calculating long-term capital gain the index cost of acquisition of the plot of land as on 09/06/2011 comes to Rs. 33, 18, 220/-. The fair market value of the land as on the date of transfer of land i.e. 09/06/2011 as per the prevailing circle rate comes to Rs. 1, 36, 82, 490/- which thus finally gives rise to net long-term capital gain at Rs. 1, 03, 64, 270/-. Whether the assessee is liable to pay any capital gain on long term capital gain? - The assessee has claimed that he is eligible for exemption u/s 54F for seven units of residential flats received from the developer. In view of the judgement of the Hon ble Delhi High Court in the case of Geeta Duggal 2013 (3) TMI 101 - DELHI HIGH COURT we find merit in the finding of the ld. CIT(A) that long-term capital gain from transfer of land as on 09/06/2011 has been applied for purchasing the residential house at Vishwamohini Complex and since the total sale consideration i.e. the FMV of the land has been applied for getting the seven flats the assessee is entitled to deduction u/s 54F of the Act at Rs. 1, 03, 64, 270/-. This finding of the ld. CIT(A) needs no interference. Two flats bearing no. 401 403 sold during the year the date of acquisition of flats can be considered as 09/06/2011 because it is on this date on which the agreement was entered into with the developer. Now flat no. 401 has been sold on 31/05/2014 and since the date of acquisition of flat is 09/06/2011 the assessee has held this flat for less than 36 months and therefore it will attract short-term capital gain for which necessary directions have already been given by the ld. CIT(A) to the ld. AO for calculating the short term capital gain from sale of flat no. 401 after giving deduction for cost of acquisition as per the square feet rate of land taking the FMV at Rs. 1, 36, 82, 490/-. So this finding of the ld. CIT(A) also needs no interference. Sale of flat no. 403 which is held by the assessee for more than 36 months the capital gain would fall under the category of long-term capital gain . Further since the assessee made investment in the residential house at Rupam Tower within the parameters prescribed u/s 54 of the Act it deserves the benefit u/s 54 of the Act for the cost of investment in the residential portion of the 5th floor of Rupam Towers which also needs to be calculated by the ld. Assessing Officer based on the valuation report of Rupam Towers. Thus with these directions as given by the ld. CIT(A) we are inclined to hold that the ld. CIT(A) made no error in deleting the addition by not treating it as a business receipt liable for addition u/s 28(iv) of the Act and has rightly held it to be falling under the category of capital gain. Thus Ground No.1 and additional Ground No. 1 2 of the revenue are dismissed. Addition for alleged investment in construction of Rupam Tower from undisclosed sources - CIT(A) after considering the valuation report of the estimated cost incurred for the construction of Rupam Towers and also taking into account the sale consideration received from sale of Flat no. 401 and 403 at Vishwamohini Complex held that the ld. Assessing Officer has grossly erred in calculating the cost at circle rate - HELD THAT - Valuation report has been done by a Government registered valuer who has valued the construction cost of Rupam Tower having basement ground 4 Floors as commercial and top floor as residential and vide report dt. 10/04/2018 the total cost is estimated to be Rs. 1, 66, 25, 000/- of which some part has been spent during the financial year 2013-14 at Rs. 9, 00, 000/- Rs. 37, 25, 000/- having been incurred for financial year 2015-16 and Rs. 1.20 Crores during financial year 2014-15. The assessee had already shown the investment in construction during the year at Rs. 1, 28, 63, 311/-. The source of the same is available in the regular financial statement filed by the assessee and major source of the sum is from sale of flat no. 401 and 403 during the year. Therefore since the cost incurred by the assessee is marginally higher than the cost estimated by the registered valuer we fail to find any justification in the imaginary value adopted by the ld. Assessing Officer at Rs. 10, 32, 40, 650/- and that too without any basis and not conducting any enquiry and without referring to any other record. Therefore since the addition made by the ld. Assessing Officer is on account of alleged unaccounted investment made in construction of Rupam Tower is on surmises and conjectures and without any logic ld. CIT(A) has rightly held in favour of the assessee and deleted the addition of Rs. 10, 32, 40, 650/-. Thus finding of the ld. CIT(A) needs no interference. Accordingly Ground No. 2 raised by the assessee is dismissed.
Issues Involved:
1. Deletion of addition of Rs. 5,39,15,000/- made under section 28(iv) of the Income Tax Act, 1961. 2. Deletion of addition of Rs. 10,32,40,650/- for alleged unexplained investment in Rupam Towers. 3. Applicability of deduction under section 54F of the Income Tax Act for the investment in residential flats at Vishwamohini Complex. 4. Applicability of deduction under section 54 of the Income Tax Act for investment in the residential floor at Rupam Tower. Detailed Analysis: 1. Deletion of Addition of Rs. 5,39,15,000/- under Section 28(iv) of the Income Tax Act: The Assessing Officer (AO) added Rs. 5,39,15,000/- as business income under section 28(iv) of the Income Tax Act, 1961, by treating the sale consideration received in the form of seven flats as business receipts. The AO based this on the assumption that the assessee was engaged in the business of land development and construction. However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee had not acted upon the initial agreement dated 28/04/2010 and instead entered into a subsequent agreement dated 09/06/2011 with M/s. Kashyap Homes Pvt. Ltd. (KHPL) for developing the land. The CIT(A) concluded that the assessee was not involved in any business activity and the transaction should be treated as capital gains. The CIT(A) held that the assessee was entitled to exemption under section 54F for the investment in residential flats at Vishwamohini Complex. The Tribunal upheld the CIT(A)'s findings, noting that the assessee's activity was not business-related and the transaction should be taxed under capital gains provisions. 2. Deletion of Addition of Rs. 10,32,40,650/- for Alleged Unexplained Investment in Rupam Towers: The AO added Rs. 10,32,40,650/- as unexplained investment in Rupam Towers, calculating the cost of construction based on the prevailing circle rate. The CIT(A) found that the AO's calculation was exaggerated and not supported by any evidence or enquiry. The CIT(A) accepted the valuation report prepared by a registered valuer, which estimated the total cost of construction at Rs. 1,66,25,000/-. The CIT(A) noted that the source of investment was mainly from the sale of flats at Vishwamohini Complex and other available funds. The Tribunal upheld the CIT(A)'s decision, agreeing that the AO's addition was based on surmises and conjectures without any logical basis. 3. Applicability of Deduction under Section 54F for Investment in Residential Flats at Vishwamohini Complex: The CIT(A) held that the assessee was entitled to deduction under section 54F for the investment in residential flats at Vishwamohini Complex. The CIT(A) noted that the long-term capital gain arising from the transfer of land on 09/06/2011 was fully applied for purchasing the residential flats, and thus, the assessee was eligible for the deduction. The Tribunal agreed with the CIT(A)'s findings, referencing the judgment of the Hon'ble Delhi High Court in the case of Geeta Duggal, which supported the assessee's claim for exemption under section 54F. 4. Applicability of Deduction under Section 54 for Investment in Residential Floor at Rupam Tower: The CIT(A) found that the assessee was entitled to deduction under section 54 for the investment in the residential floor at Rupam Tower. The CIT(A) noted that the assessee had invested in constructing a residential portion on the 5th floor of Rupam Tower and provided a valuation report prepared by a registered valuer. The Tribunal upheld the CIT(A)'s decision, directing the AO to calculate the investment cost based on the valuation report and grant the benefit of exemption under section 54 for the long-term capital gain arising from the sale of flat no. 403. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all issues. The Tribunal confirmed that the transactions should be treated under capital gains provisions, and the assessee was entitled to the exemptions claimed under sections 54 and 54F. The Tribunal also dismissed the cross-objection raised by the assessee regarding the jurisdiction of the AO.
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