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TMI Blog2013 (6) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid view of the matter, the order passed u/s 263 is legally unsustainable and therefore liable to be set aside. So far as the merits of the issue is concerned, it is very much clear from the facts on record that the assessee has only transferred 50% of the land to the developer under the development agreement in-lieu of 50% of the constructed area to be received by her. Therefore, the assessee retained 50% share in the land. At the time of sale of flats the assessee not only transferred the constructed are but along with it her undivided share in the land. Therefore, the CIT was completely wrong in considering the entire amount of Rs. 1,79,00,000/- as sale consideration of flats only without reducing the cost of land there from while computing the 'short term capital gain'. Thus order passed u/s 263 cannot be sustained.In favour of assessee. - ITA No. 576/Hyd/2012 - - - Dated:- 7-6-2013 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Shri K. C. Devadas For the Respondent : Shri D. Sudhakara Rao ORDER Per Saktijit Dey, J.M. This appeal preferred by the assessee is directed against the order of CIT-II, Hyderabad, dated 27/03/2012, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.78,83,545 II (B) Computation of 2nd stage Capital Gains: Sale consideration of flats received Less: Cost of construction of flats Rs.I,79,00,000 Rs. 88,87,550 SHORT TERM CAPITAL GAIN Rs. 90,12,450 Thus, the total capital gains to be brought to tax works out as under:- A. Long Term Capital Gain : Rs.78,83,545 B. Short Term Capital Gain : Rs.90,12,450 2.2. As against the aforestated mode of computation of long term short term capital gains involved in the admitted transaction - which mode of computation is judicially approved and accredited - the AO mechanically accepted the erroneous mode of computation offered in the Income Tax Return, which had declared long term capital gain at a low figure of Rs.47,595/-. In the said return there was not a whisper of any short term capital gain. The A.O., of-course, did not grant deduction in the computation as claimed by the assessee i.e. the deduction towards construction in 1982 was restricted by the A.O. to Rs.3 lakhs as against the assessee's claim of Rs.6 lakhs; the assessee's claim of deduction towards improvement in 1995 was totally rejected by the A.O. He had also restri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y virtue of the DA I am entitled to SO% of the constructed area against SO% of the land transferred. In short SO% of the ownership in the land still vests with me. I have been given built-up area only excluding my SO% of the land is retained by me and which is a long term capital asset. The entire sale price of flats at Rs.l,79,00,000/- includes the sale value of SO% of my land retained and therefore the land price included in the sale price of Rs.l,79,00,00/- would be liable for long term capital gain. This is demonstrated below:- Total sale price of flats Rs.l,79,00000 Sale price attributable to land: The developer has given me constructed area of Rs.88,87,SSO/- for surrendering SO% of the land. Thus the value of the SO% of the land would be Rs. 88,87, SSO/-. Rounded off to Rs.90 lacs Rs. 90,00,000 Value of super structure Rs.89 00 000 Less: Cost of construction of flat Rs.88,87,SSO Short Term capital Gain Rs.12,450 04. In the show cause notice issued u/s.263 on 23.02.2012 while computing the computation of capital gains at I" stage at Rs. 78,83,545/- the value of indexed cost of land has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is a case of land development agreement. On 22/06/2005, the assessee had entered into Development Agreement with M/s.Tibrewala Builders. The land to be developed admeasured 823.25 sq. yds or 688.78 sq metres forming part of Survey No. 56 to 68, ew Municipal No.1-11-253/2, Motilal Nagar, Begumpet, Hyderabad. By virtue of the Development Agreement, the assessee swapped 50% of her share in the said land in favour of the developer for 50% of the developed area together with proportionate undivided share of the land in the said property. The property was to be developed entirely at the cost and the expenses of the developer. Residential apartments were to be constructed. In the process 5 flats (admeasuring 13,265 sft) fell to the share of the assessee. Para 13 of the Development Agreement stipulates that the developer shall complete the project work within a period of 18 months from the date of obtaining all the necessary permissions and sanctions for the construction of the complex. Common area including parking area would belong to both the parties in equal ratio. The 5 flats in question were handedover to the owner assessee in the previous year relevant to the assessment year und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of flats after examining the record of the builder" xxxxxxx "The submission of assessees that value determined by the Assessing Officer in the original assessment proceedings should be taken, could not be accepted, since the approach of the Assessing Officer was also erroneous" 4.3. On material facts, the cited case is identical to the present case. If this judicially approved method of working out Capital Gains in this type of case is adopted, the Long Term Capital Gain and the Short Term Capital Gains work out as under: I. Computation of 1st stage Capital Gains:- (A) Value of 50% of constructed area received (13,265 x 670) : Rs.88,87,550/- In exchange for 50% land share Less: Indexed cost : Rs.24,32,445/- Long Term Capital Gains :Rs.64,55,105/- II. Computation of 1st stage Capital Gains:- (B) Sale consideration of flats received Rs. 1,79,00,000/- Less: Cost of construction of flats Rs. 88,87,550/- Short Term Capital Gains : Rs.90,12,450/- As against this judicially approved method of computation of capital gains, in this type of case, the assessing officer had mechanically endorsed and adopted the erroneous mode of computation as done by the assessee the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is that the assessment order cannot be subjected to 263 proceedings as it has merged with the order of the CIT(A). The objection is devoid of substance and merit. The correctness of the mode of capital gains i.e. Long Term/Short Term was never an issue before the CIT(A) as the assessing officer had mechanically endorsed and adopted the method of the assessee except for disallowances relating to figures and claim u/s, 54. As the correctness of the mode of computation was never adjudicated by the CIT(A), the doctrine of merger would not be applicable. The assessing officer had erroneously ignored the element of short term capital gain entailed in the reported transaction thereby causing substantial prejudice to the revenue. In view of the foregoing, I direct the assessing officer to bring to tax Long Term Capital Gains of Rs.64,55,105/- and Short Term Capital Gains of Rs. 90,12,450/-. 4.7. In completing the original assessment the assessing officer had not applied his mind to the issue of the correctness of the method of computation adopted by the assessee which was bereft of short term capital gains. He had never examined this issue at any point of time, thereby rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Commissioner of Income Tax - IV, Hyderabad, failed to note that the I TO, Ward 8(1), Hyderabad, examined the issues in consideration and came to conclusion that the capital gains disclosed was in order and therefore the Commissioner of Income Tax - IV, Hyderabad, erred in holding that the Order passed u/s 143(3) was erroneous and prejudicial to the Interests of Revenue. 4. The learned Commissioner of Income Tax - IV, Hyderabad, failed to appreciate the explanations tendered by the Appellant before the Assessing Officer and overlooks the fact that the Assessinq Officer keeping his independence and having examined the fact and evidence on record on a detailed examination passed an Independent Order of Assessment and therefore by no stretch of imagination the Commissioner of Income Tax can interfere with the independence of the Assessing Officer which is the basic feature of any statutory scheme involving adjudicatory process and therefore the Order passed by the learned Commissioner of Income Tax - IV, Hyderabad, u/s 263 of the Income Tax Act, 1961 is clearly unsustainable. 5. The learned Commissioner of Income Tax - IV, Hyderabad failed to note that when two views are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gain arising out of the sale of flats having adopted a view, it cannot be considered to be erroneous only because it is not acceptable to the CIT. It was submitted that even if the view adopted by the Assessing Officer may be erroneous but certainly cannot be held to be prejudicial to the interests of the revenue as he has taken that view after proper application of mind and considering all facts and material. The learned counsel arguing on the merits of the issue submitted that the CIT was completely wrong in not reducing the cost of land as it is included in the total sale consideration of flat at Rs. 1,79,00,000/- being the assessee's undivided share in the land. In this context, the learned counsel referred to the computation made by the assessee in her reply to the show cause notice issued by the CIT. It was thus submitted that the order passed u/s 263 is liable to be set aside for want of jurisdiction as well as on merit. 9. The learned Departmental Representative on the other hand supported the order of the CIT. 10. We have heard rival submissions and perused the materials on record. As can be seen from the facts on record, the assessee was owner of a property. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ap V/s. CIT 89 ITD 73. the It is a settled principle of law that power u/s 263 can be exercised on fulfillment of two conditions cumulatively. The conditions are, the order sought to be revised must be erroneous and at the same time it is prejudicial to the interests of the revenue. Jurisdiction u/s 263 cannot be invoked if both the conditions are not satisfied simultaneously. In the facts of the present case, it would be apparent from the observation made by the CIT that on the basis of a decision of the Income-tax Appellate Tribunal, he considers the assessment order to be erroneous as according to him the Assessing Officer has no correctly computed the capital gain, but that by itself would not make the assessment order also prejudicial to the interests of the revenue. The Assessing Officer having applied his mind to the facts and materials available on record has taken a view, which may not be acceptable to the CIT but that by itself would not empower the CIT to revise the assessment order u/s 263 of the Act. In case of Malabar Industrial Co. Ltd. V/s. CIT, 243 ITR 83 the Hon'ble Supreme Court held as under: "The phrase 'prejudicial to the interests of the revenue' has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration before the CIT(A) are still open to the CIT to revise u/s 263 of the Act. Thus, considered in the light of the ratio laid down as aforesaid, the assessment order so far as relating to the capital gain arising out of the sale consideration of Rs.1,79,00,000/- having merged with the order passed by the first appellate authority is no longer available to be subjected to the proceeding u/s 263 of the Act. In the aforesaid view of the matter, the order passed u/s 263 of the Act is legally unsustainable and therefore liable to be set aside. So far as the merits of the issue is concerned, it is very much clear from the facts on record that the assessee has only transferred 50% of the land to the developer under the development agreement in-lieu of 50% of the constructed area to be received by her. Therefore, the assessee retained 50% share in the land. At the time of sale of flats the assessee not only transferred the constructed are but along with it her undivided share in the land. In other words, the sale consideration of Rs. 1,79,00,000/- also includes assessee's undivided share in 50% of the land transferred to the developer. Therefore, the CIT was completely wrong in c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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