2014 (5) TMI 150 - HC - Income Tax

Deletion made after including the consideration received in kind Scope of Section 48 of the Act Whether the taking up of full value of consideration has to be look into while the computation of capital gains Held that - The Tribunal and the CIT(A) rightly was of the view that under the collaboration agreement the assessee had transferred 60% of the ownership in the plot for a consideration of Rs.1,90,00,000/- on which the capital gains was paid and the addition made by the AO of Rs.1,33,54,388/- on account of remaining 40% of the plot could not have been made as the assessee did not transfer that share to the collaborator and retained the same for himself - the penalty proceedings are independent proceedings and the issue could not be adjudicated in quantum proceedings. It has rightly observed that the share was kept by him on which the builder constructed the ground floor and has given the same to the assessee after construction - The value of that construction which the assessee had received was Rs.29,78,965/- which the assessee was entitled to for exemption u/s 54 of the Act there was no justification for adding an amount thus, the order of the Tribunal is upheld Decided against Revenue.

Summary

Issues:
1. Whether the ITAT erred in deleting the addition of Rs. 1,33,54,388/- made by the Assessing Officer?
2. Whether the ITAT erred in inferring that the ground floor flat was received by the assessee in lieu of the transfer of 40% land rights?

Analysis:
1. The revenue filed an appeal under Section 260A of the Income Tax Act against the ITAT's order regarding the addition of Rs. 1,33,54,388/- in the assessment for the Assessment Year 2005-06. The dispute arose from the consideration received in kind for the sale of only 60% share in land. The revenue argued that the full value of consideration should be considered for computing capital gains as per Section 48 of the Income Tax Act. However, the High Court upheld the ITAT's decision, emphasizing that the assessee had only transferred 60% ownership in the property and had received the value of the constructed ground floor in kind, which was eligible for exemption under Section 54 of the Act. The Court agreed that the Assessing Officer erred in calculating capital gains for the 40% share that the assessee did not transfer, leading to the deletion of the additional amount.

2. The second issue revolved around the ITAT's inference that the ground floor flat was received by the assessee in exchange for the transfer of 40% land rights. The High Court clarified that the assessee had actually transferred only 60% ownership in the property, receiving consideration for this share. The value of the ground floor construction received by the assessee was considered as part of the exemption under Section 54 of the Act. The Court agreed with the ITAT's decision that the Assessing Officer incorrectly added Rs. 1,33,54,388/- for the 40% share not transferred by the assessee, which was rightfully deleted by the Commissioner of Income Tax (Appeals) and upheld by the Tribunal. The High Court found no substantial question of law arising from the Tribunal's order and dismissed the appeal.

In conclusion, the High Court upheld the decisions of the Commissioner of Income Tax (Appeals) and the ITAT, ruling in favor of the assessee regarding the disputed addition in the assessment of capital gains for the Assessment Year 2005-06.