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TMI Blog2014 (6) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... ether with undivided interest in land if any, made during the year - The addition made by the AO in respect of unsold area cannot be sustained as only profits arising from land and building transferred can be brought to tax - As regards the addition of Rs. 18,55,000/- the explanation of the Assessee is not clear - As the other issues have been set asided to the file of the AO this issue is also remitted back to the AO for fresh adjudication - The AO will consider the applicability of sec 50C and if he feels that the provisions are applicable, he may refer to the Valuation officer for determining the market value- as required in that section – Decided in favour of Assessee. - ITA No. 1687/HYD/2010 - - - Dated:- 7-5-2012 - Shri Chandra Poojari And Smt. Asha Vijayaraghavan,JJ. For the Appellant : Shri S. Rama Rao For the Respondent : Shri V. Srinivas ORDER Per Asha Vijayaraghavan, J.M.: This appeal filed by the assessee is directed against the order of the CIT(A)- V, Hyderabad dated 29/11/2010 for the assessment year 2006-07. 2. The grounds of appeal raised by the assessee are as follows: 1. The order of the learned CIT(A) is erroneous to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the CIT(A) ought to have not accepted the method of working out of the capital gain by the Assessing Officer. 9. The learned CIT(A) ought to have given a direction that stamp duty charges would form part of the cost of acquisition of the land and the cost of demolition also has to be considered for the purpose of determining the capital gain. 10. The learned CIT(A) erred in confirming the action of the Assessing Officer in applying the provisions of sec 50C of the IT Act with reference to the flats sold. The CIT(A) ought to have seen that when an objection is raised the Assessing Officer can not ignore the provisions of sec 50C while ascertaining the market value from the valuer. 11. The learned CIT(A) ought to have seen that merely there is a difference between the sale consideration and Registrar s value the provisions of sec 50C can not be applied with reference to the valuation report. 12. The learned CIT(A) erred in holding that there is understatement of the sale consideration and further erred in confirming the addition made of Rs. 18,55,000/- by the Assessing Officer . The learned CIT(A) ought to have seen that the said amount is included in the advances. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year 2004-05 but the receipts there from are admitted in the year under consideration 5. The assessing officer held firstly that two transactions took place with respect to transfer of assets: (1) The first transaction took place when the appellant gave its lands to the builders and received back the built up area in lieu of surrender of 50% of the land to the builder. In other words the appellant gave 50% of its lands to a builder and in return received consideration in the form of built up buildings on its portion of the land, This sale of 50% of the lands was the first transaction. As per the assessing officer, this transaction took place in the financial year 2005-06 when the constructed area was handed over to the appellant by the builders. (2) The second transaction of sale also took place in the current asst. year when the appellant sold the build up area to various persons. 6. As per the assessing officer on both these transactions capital gain arose in the hands of the appellant. The appellant argued that the transactions were in the nature of business and could not be placed under the head capital gain. However in its own written submissions filed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9443 sqft) of Mayank Towers is also taken into consideration as a receipt for the land surrendered to the developer in lieu of the built up area. The assessee was therefore asked to offer his explanation if any to the above and also to furnish the cost of construction per square feet. However the assessee has not filed any explanation in this regard Therefore adopting the cost of construction at the average rate sft on the basis of the sales made by the assessee during the year as per the sale deeds (details of some of the deeds are discussed in the para (iii) below) the cost of unsold built up area is worked out at Rs 900/ per sq.ft and value of 9693 sqft @ Rs 900/- per sq.ft works out to Rs 89,36,946/- which is also taken into account as consideration received. Hence the AO added Rs 89,36,946/-. 10. Invoking of provisions of sec 50C, the AO observed that on verification of the sale deeds in respect of the sale made by the assessee AO noticed that in some of the deeds the market value on which and deficit stamp duty has been paid is higher than the sale consideration admitted. In view of the discrepancy in the registered value and market value as detailed above the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,42,40,379 Aggrieved by the order of the AO, the assessee carried the matter in appeal before the CIT(A). 14. In appeal proceedings before the CIT(A), the Assessee argued that the first stage of capital gain arose on the date of entering into the development agreement and not on the date when the built up area was received back. Therefore it was contended by the appellant that the first stage of capital gain was assessable in the asst. years relevant to the two dates i.e. 29.3.1995 and 3.8.2000. Further the appellant also stated that the cost of construction to the developer was only 400 per sq.ft. and that should be taken. The important portions of the written submissions of the appellant are as below: 15. The only income that becomes liable for taxation is the capital gain that is to be arrived at on sale of constructed area handed over by the developer. For this purpose the sale price is to be taken into consideration and therefore the cost of construction as admitted by the builder and the cost of the balance of land left with the appellant herein is to be reduced from such sale price for arriving at the capital gain. The said working is provided her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer ought to have taken into consideration the correct amount of sale consideration after excluding the advances received. 18. The assessing officer while working out the capital gain added the closing stock value of 9693 sq. area left unsold with regard to the Rajbhavan Road property. The appellant humbly submits that the stock remaining can not be added by the assessing officer. The question of arriving at the closing stock arises only while working the business income and when the appellant incurred expenditure for the purpose. Further the said amount is assessed as the capital gain and the cost of construction is already included in the first stage of capital gain, Therefore unless the said area is sold no gain is derived Further the appellant has not incurred any expenditure in acquisition of the said property and therefore no closing stock can be considered Further in so far as the constructed area is concerned the same is a capital asset and can not be taken as the closing stock. Therefore the assessing officer is not justified in adding the closing stock value. 19. In view of the above the appellant humbly submits that the assessing officer is not correct in adding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment agreement were entered into in the years 1995 and 2000 and therefore they become liable for taxation of capital gain in the respective asst. years and not in the asst. year 2006-07. 23. Being legal grounds touching the very basis of the additions made these additional grounds are hereby admitted. The written submissions and additional grounds of appeal were sent to Assessing Officer for a remand report. The Assessing Officer submitted the remand report on 24.5.2010. The Remand report was again confronted to the appellant who in reply filed its counter submissions. After considering the submissions of the assessee and the remand report obtained from the AO, the CIT(A) held as under:- I have considered carefully the arguments the counter arguments and all the facts of the case. Firstly what has to be decided is whether the capital gains arise in two stages or in one stage and at what stage are the capital gains to be assessed to tax. As per section 2(47) of the IT Act the term transfer with resect to a capital asset is defined as below: Sec 2(47) transfer in relation to a capital asset includes (i) The sale exchange or relinquishment of the asset or (ii) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough sale of another land then the only sale transaction in question is the sale of this other land. In my conclusions drawn above I am fortified by the decision of the Hon ble ITAT in the case of Smt.Vasavi prapat Chand vs Dy. CIT (2004 089 ITD 0073, (2004/ 090 TTJ TT) 0217. The next question is as to at what point of time the land was transferred and at what consideration since the same would be relevant for determining the cost of acquisition of 56 per cent of built up area. Admittedly no conveyance deed has been executed by the assessee from the nature of the agreement it is clear that assessee was bound to transfer the land after the possession of built up flats was given by the builder to the assessee We have been informed that possession of flats was given in financial years 1991-92 though no material is placed before is. Assuming the same to be correct it is held that there was simultaneous transfer of possession of 44 percent of land by the assesses to the builders and possession of 56 percent of built up area by the builder to the assessee in financial year 1991-92 un terms of section 2(47) of the IT Act 1961 read with sec 53A of Transfer of property act. Hence th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilders handed over the built up area and as a result received the right to enjoy their portions on the properties This decides additional ground no 2 in favour of the revenue. Coming to the additional ground no 1 the appellant stated that the amount of receipts i.e Rs 4,15,33,255/- included an amount of advance received from various parties to the tine of Rs 1,76,36,255/- However during appeal proceedings the appellant did not provide any concrete evidence as to the nature of advance. On the other hand the assessing officer verified the facts during remand proceedings and reported as under: The next ground of appeal is regarding the sale consideration. The assessee s argument is that the under mentioned amounts are deposits received from and are refundable to the developers. 28,00,000 Vasundaradevi estates pvt. Ltd., 4,00,000 Jyothi Bio energy Ltd 1,44,36,255 Advance received from Maheswari Plaza Resorts Ltd 1,76,36,255 However on verification of the balance sheet and scheduled thereto filed by the assessee for the AY 2006-07 it is noticed that these amounts are not reflected as liability to the assessee. Further on verification of the return of income and schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital gains arose when the land was transferred in lieu of the built up area. Therefore the assessing officer is absolutely correct in holding that the entire value of the built up area whether sold or unsold is the sale consideration in lieu of 50% of the land This ground of appeal is accordingly decided in favour of the revenue. b. With respect to the demolition charges the assessing officer verified the issue during assessment proceedings and has given a finding that this amount represents write off of depreciation claimed in earlier years on office buildings. Since the demolition charge is essentially a write off of depreciation. I agree with the assessing officer that the same cannot be allowed as part of acquisition of land. I hold that the assessing officer has rightly not added the demolition charges to the cost of acquisition of land. c. The fourth ground of appeal deals with the adoption of value of Rs 900/- per sq.ft. with regard to coat of construction the appellant has contended that this value is incorrect and the cost of the construction to the builder was only Rs 400/- per sq.ft. I find from the assessment order that the assessing officer has adopted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,804 Market Value Rs 21,02,500/-- CG. Mohan Rao Office space 1 1540 sq.ft. Regd.Value 15,12,500 Market value Rs 16,63,500 N.Padma Rao Office space 2 1066 sq.t. Regd.Value 10,46,965 Market value 11,51,500 N.Bhaskar Rao Office space 3 1079+126 sq.ft. Regd.value 10,59,780 Market value 11,98,500 G.Appala Raju Office sace 501 1055 sq.ft. Regd value 11,60,500 market value 11,95,500 Mayank plaza Jayesh Kumar Shop no 5,LG 750 sq.ft. Regd value 8,00,000 Market value 8,10,000 Thakrar Mrs.Saleema Shop no. 3 LG 750 sq.ft. Regd,Value 12,51,000 market value 13,85,000 Jayesh Manilal Mashru shop no. 4 LG 750 sq.ft. Regd.value 12,51,000 Market value 13,85,000 Total Regd,value 99,62,549/- Market value Rs 1,08,91,500 It is clear from above that there was a difference of Rs 9,28,951/- since the appellant could not offer any explanation the assessing officer invoked the provisions of sec 50C. During appeal proceedings the appellant stated that the properties were mortgaged to bank and there was a slump in the real estate business and the floor space was located at the back side of the building Therefore the sales were made at discounted price I do not find merit in the argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy been adjudicated upon in this order. In the result the appeal is partly allowed. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. 24. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. The facts are that the Assessee had two properties. These properties were given for development in the years 2001,2002 etc. The developed properties were received during these years and were also sold. The AO and the CIT(A) has brought to tax the capital gains arising from both the transaction viz., the development as well sale of the developed areas handed over to the Assessee. In our opinion that capital gains arising out of the development of the land on the basis of an agreement in 2001 and 2002 cannot be taxed in this year. The Assessee had given possession of the land and the developer has also commenced construction on the same from those years. In the following cases, the coordinate bench of the Hyderabad Tribunal in the case of Potla Nageswara Rao in ITA Nos. 1519/Hyd/2011 and others vide order dated 22/03/2012, held as follows: 9. In the instant case, on 7.3.2003 an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the meaning of cl. (v) ofs.2(47), there must be a transaction under which the possession of immovable property is allowed to be taken or allowed to be retained. Secondly, such taking or retention of possession as is well known is a facet of the equitable doctrine of part performance of contract falling within the scope of S.53A of the Transfer of Property Act. The legislature advisedly referred to any transaction with a view to emphasize that it is not the factum of entering into agreement or formation of contract that maters, but it is the distinct transaction that gives rise to the event of allowing the contractee to enter into possession that maters. That transaction is identifiable by the terms of the agreement itself and it takes place within the framework of the agreement. We may also refer in this behalf to the decision of the Hon'ble Karnataka High Court in the case of CIT V/s. Dr.T.K.Dayalu (202 Taxman 531), wherein it has been held that it is well settled position by now that the date on which possession was handed over to the developer is relevant for determination of the year in which the capital gains are assessable to tax. In this view of the matter, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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