2020 (9) TMI 411 - AT - Income Tax

Exemption u/s 54F - adopting the sale consideration for transfer of land and the receipt of constructed area as per the JDA - HELD THAT - There was no material evidence furnished by the assessee to support the cost of construction (Sale consideration) to be at ₹ 550/- per sq. ft. as claimed by the assessee. At the same time, the assessee claimed the deduction u/s 54F @ ₹ 1200/- per sq. feet and there was apparent inconsistency in the claim of the assessee. The correctness of cost of construction stated to be incurred by the builder also needs verification and cannot be applied blindly. In the absence of proper information, it is obligation of the AO to refer the cost of construction to the valuation cell or to obtain the market information from the SRO to arrive at the sale consideration for the constructed area received by the assessee towards his share. This issue needs to be verified by the AO and hence we remit the matter back to the file of the AO with a direction to re-work the cost of construction on the basis of proper evidence or by referring to the valuation cell or obtaining the information from the SRO. We set aside the issue back to the file of the AO with a direction to re-estimate and determine the sale consideration to compute the capital gains. It is needless to say that the AO is required to give sufficient opportunity to the assessee. Sale consideration to be taken for computing the capital gains - HELD THAT - We find some inconsistency in this regard. During the appeal hearing the Ld.AR submitted that the balance 1100 sq ft represent the common area where, as per the CIT(A) s order the assessee contended that he had not received the 1100 sq. ft. No evidence was placed before the CIT(A) or before us with regard to non-receipt of the area of 1100 sq ft from the builder. If the same represent the common area, we are of the view that common area also to be considered for sale consideration as per JDA. e, remit the matter back to the file of AO to examine the issue with regard to constructed area received by the assessee with the JDA and the builder and decided the issue on merits after giving opportunity to the assessee. The appeal of the assessee on this issue is allowed for statistical purposes. AR did not make any argument or produce any evidence in support of the ground. No infirmity in the order of the learned CIT (A). CIT(A) allowed the deduction @₹ 550/- per sq feet for 4147 square feet as per the sale consideration claimed by the assessee. Since we have remitted the issue of sale consideration to the file of the AO, we direct the AO to allow the deduction as per the sale consideration determined by the AO in ground No.3 4 of this order. Reopening of assessment u/s 147 - HELD THAT - In the instant case the original assessment resulted in determining the total income and the re-assessment also resulted in same income. In both the assessments i.e. original as well as re-assessment, the AO assessed the constructed area received under JDA as long-term capital gains. Though the assessment was reopened for computing the capital gains under the head short term or long-term capital gains, ultimately the AO did not find any mistake in his original order thus accepted the income originally assessed. Since there was no escapement of income found by the AO, the reassessment becomes infructuous. Accordingly, the reassessment made u/s 143(3) r.w.s. 147 is treated as infructuous and the same is annulled.

Issues Involved:
1. Taxability of capital gains arising from a joint development agreement (JDA).
2. Determination of the correct sale consideration for the constructed area received.
3. Allowance of deduction under section 54F of the Income Tax Act.
4. Validity of notice issued under section 148 for reassessment.

Issue-wise Analysis:

1. Taxability of Capital Gains:
The assessee entered into a JDA on 07.12.2005 to develop land into a residential complex, receiving 24,100 sq. ft. of constructed area. The Assessing Officer (AO) observed that the assessee admitted undisclosed income of ?1 crore but later retracted. The AO computed the capital gains based on the information provided by the builder, which the assessee contested. The CIT (A) upheld the AO's computation of sale consideration at ?1,48,40,450/- and denied the assessee's claim for indexed cost of the existing building as of 01.04.1981 due to lack of proof. The Tribunal found that the AO must verify the cost of construction through proper evidence, valuation cell, or market information from the SRO and remitted the matter back to the AO for re-evaluation.

2. Determination of Sale Consideration:
The AO adopted the value of the property at ?125/- per sq. yard as of 01.04.1981 and computed the sale consideration at ?1,48,40,450/-. The assessee argued for a lower rate of ?550/- per sq. ft. for 23,000 sq. ft., excluding 1,100 sq. ft. of common area. The Tribunal noted inconsistencies and the absence of evidence to support the assessee's claim. The Tribunal remitted the issue back to the AO to re-estimate and determine the sale consideration based on proper evidence or market information.

3. Deduction under Section 54F:
The AO allowed a deduction of ?7,42,022/- for one residential unit, while the CIT (A) allowed ?22,80,850/- for 4,147 sq. ft. The assessee claimed a higher deduction of ?49,76,400/- for improvements, which was not substantiated with evidence. The Tribunal upheld the CIT (A)'s decision but directed the AO to allow the deduction as per the sale consideration determined upon reassessment.

4. Validity of Notice under Section 148:
The AO reopened the assessment to verify the nature of capital gains (short-term or long-term) but ultimately found no discrepancy, resulting in the same income as originally assessed. The Tribunal held that since there was no escapement of income, the reassessment was infructuous and annulled it.

Conclusion:
The Tribunal remitted the issues related to the determination of sale consideration and deduction under section 54F back to the AO for re-evaluation based on proper evidence. The reassessment proceedings under section 148 were annulled due to the absence of income escapement. The appeals were allowed for statistical purposes, and the order was pronounced on 9th September 2020.

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