2022 (7) TMI 496 - AT - Income Tax

Capital gain computation - exclude the cost of land while calculating the sale consideration - inclusion of the cost of land relinquished by the assessee in the deemed sale consideration received by the assessee - determination of full value of consideration received on transfer of capital asset (undivided proportionate area of land, constructed area of the flat and common area of the building are also transferred by the assessee as mentioned in the registered sale deed) - whether CIT(A) erred in directing to adopt the rate of constructed area @ Rs. 300 per sq ft without appreciating the fact that the AO has adopted the value as per SRO records, applying the provisions of section 50C which is mandatory when the value adopted by SRO is higher than the actual consideration received by the assessee? - HELD THAT - We note from the material available on record that the assessee has relinquished her right over 50% of the land to M/s. Datta Constructions and has received a constructed area of 8704 sft including the common areas from M/s. Datta Constructions as per the sale-cum-development agreement. The deemed consideration for relinquishing of the land flows from the cost of construction of the building admeasuring 8704 sft, given by M/s. Datta Constructions to the assessee and hence, the cost of land owned and relinquished by the assessee shall not be included in the deemed consideration. Further, it is noted that M/s. Datta Constructions has delivered an incomplete building which was not disputed by the Revenue. Since the building was semi finished with only RCC roof and walls, the cost of construction could not be considered at the value of Rs.400 per sft as given by the Registration and Stamps Department. We are of the considered view that the rate of Rs. 400 per sft is for the completed building and not for the semi-finished building. In view of the discussion above, we find no infirmity in the order of the Ld. CIT(A) wherein he has rightly considered the cost of construction @ Rs. 300 per sft which works out to 75% of the SRO value and hence no interference is required - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment under section 147 of the Income Tax Act for AY 2006-07.
2. Inclusion of cost of land in deemed sale consideration.
3. Computation of cost of construction for parting with land.
4. Dispute over the rate of construction cost.
5. Appeal by Revenue against CIT(A) order.
6. Cross Objections by the assessee.

Issue 1: Reopening of assessment under section 147 of the Income Tax Act for AY 2006-07:
The case involved the reopening of assessment under section 147 of the Income Tax Act for AY 2006-07. The assessee received a residential house through a will and filed the return of income. The assessment was reopened, and after various proceedings, the Assessing Officer assessed the total income at a higher amount. The CIT(A) allowed the appeal, leading to the Revenue filing an appeal before the ITAT. The ITAT directed the CIT(A) to re-examine the case, which led to further submissions and a remand report. Ultimately, the CIT(A) partly allowed the appeal, leading to the Revenue appealing before the ITAT.

Issue 2: Inclusion of cost of land in deemed sale consideration:
The main dispute was regarding the inclusion of the cost of land relinquished by the assessee in the deemed sale consideration received. The Revenue argued for the inclusion of land cost, while the assessee contended that the cost of land already owned should not be added to the cost of construction. The ITAT held that the cost of land owned and relinquished by the assessee should not be included in the deemed consideration, as it was part of the sale-cum-development agreement.

Issue 3: Computation of cost of construction for parting with land:
Another point of contention was the computation of the cost of construction for parting with the land. The Revenue argued for a specific rate, while the assessee argued for a different rate based on the incomplete status of the building. The ITAT agreed with the assessee's argument, stating that the rate of construction should be based on the incomplete status of the building and upheld the CIT(A)'s decision on this ground.

Issue 4: Dispute over the rate of construction cost:
There was a dispute over the rate of construction cost, with the Revenue advocating for a higher rate based on certain records. However, the ITAT considered the incomplete status of the building and upheld the lower rate decided by the CIT(A) for computing the cost of construction.

Issue 5: Appeal by Revenue against CIT(A) order:
The Revenue raised several grounds of appeal against the CIT(A) order, including errors in law and facts, disagreement on the treatment of land cost and construction rate, and the applicability of specific SRO rates. The ITAT carefully considered these grounds and made a decision based on the arguments presented by both parties.

Issue 6: Cross Objections by the assessee:
The assessee raised cross objections in support of their case, which were allowed in their favor. The ITAT dismissed the Revenue's appeal and allowed the assessee's cross objections, thereby concluding the case in favor of the assessee.

This detailed analysis covers the various issues involved in the legal judgment delivered by the ITAT Visakhapatnam regarding the assessment for AY 2006-07 and the disputes related to the inclusion of land cost and computation of construction cost in the deemed sale consideration.