2015 (1) TMI 651 - AT - Income Tax

Determination of the assessment year in which the Capital gains is assessable - whether date of MOU cannot be considered as date of transfer? - Held that - The finding given by the tax authorities that the assessee had given possession of the property upon entering into the MOU has not been controverted by the assessee. Further, it is a fact that the assessees have been receiving the monetary portion of the consideration in instalments and the said fact was also not denied by the assessees, though the developer did not give the instalments at the agreed point of time at the agreed amount. We notice that the tax authorities have made reference to sec. 2(47)(v) of the Act and the assessees are disputing about the applicability of that section to them. However, in view of the decision of Hon ble jurisdictional Bombay High Court rendered in the case of Chaturbhuj Dwarkadas Kapadia (2003 (2) TMI 62 - BOMBAY High Court), we are inclined to reject the said contentions of the assessee. Even otherwise, we notice that the assessee s case would also fall u/s 2(47)(vi) of the Act. Hence, we are of the view that the Ld CIT(A) was justified in upholding the action of the assessing officer in assessing the Capital gain in assessment year 2000-01. - Decided in favour of assessee. Validity of reassessment proceedings - Held that - Notice from the order of the Ld CIT(A) that the first appellate authority has given a finding that the assessing officer has explicitly discussed about assessing Capital gain in the assessment order relating to AY 2004-05 and has also recorded the same reasons before issuing notice u/s 148 of the Act for AY 2000-01. Before us, the assessee could not produce any material to contradict the findings given by the Ld CIT(A). Accordingly we do not find any merit in the grounds relating to validity of reassessment and accordingly dismiss them. - Decided against assessee. Determination of sale consideration - Held that - Set aside the order of Ld CIT(A) on this issue passed in the hands of both the assessees and restore the matter to the file of the assessing officer with the direction to compute the sale consideration by following the decision rendered in the case of G. Raghuram 2010 (4) TMI 712 - ITAT, HYDERABAD wherein held the Real consideration received by the assessee in lieu of the land foregone by him is only the cost of construction of proposed building to the extent of which falls to the assessee in the ultimately constructed area and not the market value of such share of constructed area which may be available after the completion of construction.- Decided in favour of assessee for statistical purposes. Determination of FMV of the property as on 1.4.1981 - Held that - AO did not examine the valuation report obtained by the assessee from a Registered Valuer. In our view, the AO should have examined the same and should have given reasons for not accepting the same. In the absence of the same, we are of the view that this issue also requires fresh examination at the end of the assessing officer.- Decided in favour of assessee for statistical purposes. Deduction claimed u/s 54 - Held that - As decided in Jatinder Kumar Madan Vs. ITO 2012 (5) TMI 316 - ITAT MUMBAI the flats obtained under development agreement is eligible for deduction u/s 54 of the Act if the new flat had been constructed within a period of 3 years from the date of transfer. Thus, we notice that the view entertained by the tax authorities have been rejected by the Tribunal. Hence, this issue also requires examination at the end of the assessing officer. Accordingly, we set aside the order of Ld CIT(A) on this issue passed in the hands of both the assessees and restore the same to the file of the AO with the direction to examine the same afresh by duly considering the decision rendered in the case of Jatinder Kumar Madan (supra). - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Determination of the assessment year in which the capital gains should be assessed.
2. Determination of the value of sale consideration.
3. Determination of the fair market value (FMV) of the property as on 1.4.1981.
4. Denial of exemption claimed under Section 54 of the Income Tax Act.

Detailed Analysis:

1. Determination of the Assessment Year for Capital Gains:

The primary issue was whether the capital gains from a development agreement should be assessed in the year the Memorandum of Understanding (MOU) was signed (1999-2000) or in the year the assessees received their share of the constructed property (2003-2004). The assessees argued that the developer did not comply with the MOU terms, and therefore, the date of the MOU should not be considered the date of transfer. They contended that the capital gains should be assessed in 2004-05 when possession was handed over.

The tribunal, however, was not convinced by the assessees' arguments, noting that the clauses in the MOU regarding revocation rights, payment delays, and possession conditions were standard protective measures. The tribunal emphasized that the developer's delay was due to legal complications, not a breach of the MOU. The tribunal upheld the tax authorities' reliance on the MOU, citing the Bombay High Court's decision in Chaturbhuj Dwarkadas Kapadia vs. CIT, which stated that the transfer is considered complete when the transferee is willing to perform the contract. Consequently, the tribunal agreed with the tax authorities that the capital gains should be assessed in the financial year 1999-2000.

2. Determination of the Value of Sale Consideration:

The assessing officer had determined the value of the constructed areas allotted to the assessees based on the Fair Market Value (FMV) for stamp duty purposes. The assessees argued that the value should be based on the cost of construction of the proposed building, as supported by the Hyderabad Tribunal's decision in Deputy Director of Income Tax vs. G. Raghuram.

The tribunal agreed with the assessees, referencing the Hyderabad Tribunal's decision, and directed the assessing officer to compute the sale consideration based on the cost of construction.

3. Determination of FMV as on 1.4.1981:

The assessees had provided a valuation report from a registered valuer, which the assessing officer ignored, instead relying on information from the Sub-registrar. The tribunal found merit in the assessees' contention that the FMV should be determined per Section 55A of the Income Tax Act and that the assessing officer should have considered the registered valuer's report.

The tribunal set aside the order of the CIT(A) on this issue and directed the assessing officer to re-examine the FMV by duly considering the registered valuer's report.

4. Denial of Exemption Claimed Under Section 54:

The assessees claimed exemption under Section 54 for two contiguous flats obtained through the development agreement, arguing they should be considered a single residential unit. The assessing officer rejected the claim, stating the flats did not fall under the 'purchase' or 'construction' categories of Section 54, and the CIT(A) upheld this view.

The tribunal referred to the decision in Jatinder Kumar Madan vs. ITO, where it was held that flats obtained under a development agreement are eligible for deduction under Section 54 if constructed within three years from the date of transfer. The tribunal directed the assessing officer to re-examine the issue, considering this decision and the claim that the two flats should be treated as a single residential unit.

Conclusion:

The tribunal partly allowed the appeals, directing the assessing officer to re-assess the issues of sale consideration value, FMV as on 1.4.1981, and the Section 54 exemption claim, while upholding the assessment of capital gains in the financial year 1999-2000. The order was pronounced on December 31, 2014.

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