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2012 (6) TMI 383 - AT - Income TaxChallenging the validity of assessment u/s 143 (3) r.w.s 147 Held that - A survey u/s 133A revealed that a sum on account of sale of TDR was received by the assessee during the year under consideration, since profit arising from the sale of said TDR was not declared by the assessee in its return of income, the AO conclusion to reopen the assessment as such profit representing income of the assessee chargeable to tax under the head Capital Gains has escaped the assessment is valid in favour of revenue. Exemption on account of profit arising from sale of TDR Held that - Considering the New Shailaja Cooperative Housing Society Ltd. case there being no cost of acquisition that could be assigned to the TDR no capital gain arising from transfer of the said TDR could be brought to tax what assessee sold was TDR received as additional FSI as per the Rules of the Development Control Regulations Agreement, 1991 and it was not the case of sale of development rights already embedded in the land acquired and owned by the assessee - in favour of assessee.
Issues Involved:
1. Validity of assessment under section 143(3) read with section 147. 2. Taxability of the receipt from the sale of Transferable Development Rights (TDR) as long-term capital gains. Issue-wise Detailed Analysis: 1. Validity of Assessment under Section 143(3) Read with Section 147: The assessee challenged the validity of the assessment on the grounds that the notice issued under section 148 was without jurisdiction and bad in law. The assessee argued that there was no reason to believe that income had escaped assessment. The Tribunal observed that a survey under section 133A revealed that the assessee received Rs. 2,23,25,157 during the year from the sale of TDR, which was not declared in the return of income. The Assessing Officer (AO) had a valid reason to believe that income had escaped assessment, justifying the reopening of the assessment. The Tribunal found no merit in the assessee's arguments and dismissed this ground. 2. Taxability of the Receipt from the Sale of TDR as Long-term Capital Gains: The assessee contended that the TDR received due to additional FSI allotted under the Development Control Regulations 1991 had no cost of acquisition, making the computation of capital gains impossible. The assessee relied on the Tribunal's decision in the case of New Shailaja Cooperative Housing Society Ltd., which held that no capital gain could be computed if the TDR had no cost of acquisition. The AO, however, referred to a contrary decision in Shakti Insulated Wires Ltd. vs. JCIT, where the sale of development rights was held taxable. The CIT(A) upheld the AO's decision, reasoning that TDR/FSI rights are part of the land's bundle of rights, and any gain from their transfer is taxable as long-term capital gains. The CIT(A) also noted that the cost of acquisition could be apportioned on a pro-rata basis from the cost of the land. Upon appeal, the Tribunal examined various judicial precedents. It found that the facts in the present case were similar to those in New Shailaja Cooperative Housing Society Ltd., where the Tribunal had ruled that no capital gains could be charged on the transfer of additional FSI as it had no cost of acquisition. The Tribunal concluded that the decision in New Shailaja Cooperative Housing Society Ltd. was directly applicable and thus deleted the addition made by the AO and confirmed by the CIT(A) on account of capital gains from the sale of TDR. Conclusion: The appeal was partly allowed. The Tribunal upheld the validity of the assessment under section 143(3) read with section 147 but ruled in favor of the assessee regarding the taxability of the receipt from the sale of TDR, holding that no capital gains could be computed due to the absence of a cost of acquisition.
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