2021 (9) TMI 958 - AT - Income Tax

Computation of capital gain - JDA - as per CIT-A since the assessee has retained 1/3 share and transferred 2/3 share to the developer, the Ld.CIT(A) held that only the sale consideration of 13608 sq.ft needs to be brought to capital gains tax, after deducting the cost of acquisition - HELD THAT - As per the JDA, land owners were entitled for 1/3rd share of constructed area along with 1/3rd share of car parking. Thus, it is clear that out of the total land transferred to the developer, the land owners were entitled for 1/3rd share of land. What was transferred to the developer was only 2/3rds of the land, but not the entire land as rightly observed by the Ld.CIT(A). Therefore, what is to be brought to tax under capital gains is 2/3rd of land area, but not the entire land. CIT(A) has rightly directed the AO to adopt 2/3rd of 19602 sq.ft instead of 19602 sft. adopting the SRO rate of ₹ 5,500 per sq.ft which worked out to 13068. Hence, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue on this ground is dismissed. Pro-rata development expenses disallowance - HELD THAT - It is a fact that the landowners have paid the development charges, additional FSI and other expenditure related to the project. The said development charges were intrinsically related to the project land. The benefit on account of additional FSI would accrue to the landowners also. Thus, the land owners have transferred the bundle of rights for constructing the residential cum commercial project including additional FSI, which is nothing but cost of improvement. Once it is agreed that the additional FSI and development charges are in the nature of improvement, the same required to be allowed as deduction. It is not the case of the department that both land owners and the promoters have claimed the expenditure - AO is incorrect in holding that the development charges and additional FSI charges are neither related to transfer nor cost of improvement. We are of the considered view that the amount of the expenditure on the project on account of development and additional FSI needs to be considered as cost of improvement and the assessee would be entitled for deduction of ₹ 5.18 crores out of ₹ 16.72 crores as observed by the Ld.CIT(A). Thus the deduction is covered in Section 48 of the Act, hence, we do not find any reason to interfere with the order of the CIT(A) and the same is upheld. Appeal of the revenue on this ground is dismissed. Cash deposits as unexplained and made addition u/s 69 - HELD THAT - In the instant case the assessee had withdrawn the amounts in the immediately preceding year on six occasions. Thus the facts of the case law relied up on by the AO is distinguishable and has no application to the instant case, therefore, we are of the view that the assessee s case is squarely covered by the decision of this Tribunal in Mandava Ravi Kumar 2018 (7) TMI 2207 - ITAT VISAKHAPATNAM and accordingly, we set aside the order of the Ld.CIT(A) and delete the addition made by the AO. The appeal of the assessee is allowed. Unexplained cash deposits - A.Y.2014-15 - source of the cash was explained to be withdrawals made from the bank account on 13.10.2012 - HELD THAT - In the instant case, the assessee has withdrawn the money at one go on 13.10.2012, which was later deposited. Thus, keeping in view the explanation of assessee kept the cash for some time to meet the unforeseen expenses appears to be satisfactory and the facts of the case relied upon by the AO is distinguishable. This Tribunal in the case of Mandava Ravi Kumar 2018 (7) TMI 2207 - ITAT VISAKHAPATNAM on similar facts accepted the source of earlier withdrawals for deposits made in the bank account - view taken by the Tribunal, we hold that the explanation of the assessee that the deposits were made out of earlier withdrawals is acceptable. Accordingly, we delete the addition made by the AO and allow the appeal of the assessee. In the result, appeal of the assessee is allowed.

Summary

Issues Involved:
1. Taxation of capital gains on land transferred under a Joint Development Agreement (JDA).
2. Deductibility of development charges and premium Floor Space Index (FSI) charges.
3. Addition of unexplained bank deposits under Section 69 of the Income Tax Act.

Detailed Analysis:

1. Taxation of Capital Gains on Land Transferred under JDA:

The assessee filed a return of income declaring total income and agricultural income. The Assessing Officer (AO) issued a notice under Section 148 and took up the case for assessment. During scrutiny, the AO found that the assessee, a co-owner of 0.45 acres of land, entered into a JDA with a developer. Under the JDA, the landowners were entitled to 1/3 share of the super built-up area, while the developers were entitled to 2/3 share. The AO taxed the entire land of 19602 sq.ft as long-term capital gains, valuing it at ?10,78,11,000/- and brought the amount of ?10,75,79,050/- to tax after reducing the indexed cost of acquisition. The AO also rejected the assessee's claim for proportionate share of expenses incurred towards development and premium FSI charges.

On appeal, the CIT(A) found that the assessee retained 1/3 share of land and transferred only 2/3 share to the developer, thus only 13608 sq.ft should be taxed as capital gains. The CIT(A) directed the AO to compute the capital gains accordingly. The Tribunal upheld the CIT(A)’s decision, stating that only 2/3 of the land area should be brought to tax under capital gains.

2. Deductibility of Development Charges and Premium FSI Charges:

The AO rejected the deduction of ?5.18 crores claimed by the assessee out of the total expenditure of ?16.72 crores incurred for development and premium FSI charges, arguing that these were neither related to improvement nor transfer of the capital asset. The CIT(A) observed that the FSI and other expenditures were intrinsically related to the project and considered them as cost of improvement. The Tribunal agreed with the CIT(A), stating that the development charges and additional FSI charges were in the nature of improvement and should be allowed as deduction under Section 48 of the Income Tax Act.

3. Addition of Unexplained Bank Deposits under Section 69:

A.Y. 2013-14: The AO added ?3,50,000/- to the income of the assessee, treating it as unexplained bank deposits under Section 69. The assessee explained that the deposits were from self-withdrawals made earlier. The CIT(A) confirmed the addition. On appeal, the Tribunal found that the assessee had withdrawn the amounts in the immediately preceding year and there was no evidence of the amounts being spent elsewhere. The Tribunal set aside the order of the CIT(A) and deleted the addition, relying on a similar case where the Tribunal had allowed the appeal of the assessee.

A.Y. 2014-15: The AO added ?25,00,000/- as unexplained cash deposits. The assessee explained that the deposits were from earlier withdrawals. The CIT(A) confirmed the addition. On appeal, the Tribunal found that the assessee had withdrawn ?25,00,000/- at one go and there was no evidence of the amounts being spent elsewhere. The Tribunal deleted the addition, finding the explanation of the assessee satisfactory and distinguishing the facts from a cited case where the withdrawals were periodical and over a longer time gap.

Conclusion:

The Tribunal upheld the CIT(A)'s decision on the taxation of 2/3 share of land under capital gains and allowed the deduction of development charges and premium FSI charges as cost of improvement. The Tribunal deleted the additions made by the AO for unexplained bank deposits for both A.Y. 2013-14 and A.Y. 2014-15, finding the assessee's explanations satisfactory. The appeals of the revenue were dismissed, and the cross appeals of the assessee were allowed.