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TMI Blog2014 (8) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... t u/s. 54 since the assessee entered into an agreement for purchase of a plot along with an agreement to construct a house over the plot. In the course of time, due to some unavoidable circumstances, the assessee sold back the plot to the individual from whom the property was purchased without any construction of house over that. Mere agreement for construction of house property does not entitle the assessee to claim exemption u/s. 54 as the constn. of the property does not exist. Hence the claim u/s. 54 is withdrawn. To consider exemption u/s. 54F, the assessee is having 3 houses including the new house claimed to have been constructed. In fact, the assessee purchased a house one year before the dt. of sale of the plot. But it is disallowed u/s. 54F since on the dt. of transfer of plot, the assessee was having 3 houses. The claim of exemption for LTCG is disallowed." 2.1. As can be seen from the assessment order, entire focus of the A.O. was only on denial of claim under section 54/54F on the reason that assessee owns more than two houses at the time of capital gains and therefore, deduction under section 54F was not entitled. Assessee, however, contested before the Ld. CIT(A) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce consideration was to be paid in installments at various stages of the construction. 2.3 However, the Developers could not proceed ahead with the 'construction' work entrusted to it in view of the 'ban' imposed by the State Government. To analyse, the Government of Andhra Pradesh issued a NOTIFICATION in A.P. Gazette Extraordinary dated 20- 04-2007 banning the 'construction activities in the vicinity of OUTER RING plan within 1 KM belt on either side of it. The property of the appellant on which the construction of the building was planned, as envisaged above, fell within the NOTIFIED AREA and as per the notified orders of the Govt., there emerged a BAN for construction of RESIDENTIAL HOUSES therein. In view of this mandatory restrains, the 'construction work' was dispensed with. Thereupon, the appellant approached the Previous Owner and also the Developer to provide any alternative site for enabling the appellant to hold a dwelling unit in the surrounding area and this was not acceded to by it. Thus the appellant was left with the only alternative of moving a Court of Law against the previous Owner/Developer so as to seek compensation for the damage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y. under review. 2.5. However, without identifying this legal background, in its proper perspective, the appellant, no doubt computed the capital gains at Rs. 68,89,437/- with reference to the 'Compensation of Rs. 75,00,000/- received by him in consequence to the execution of the above CANCELLATION DEED Dt.22-09-2008' and with reference to the ORIGINAL SALE DEED dt.16-9-2005 executed in favour of the Appellant and therefrom, he claimed deduction u/s. 54/54F of the Act. 2.6: But the Ld. A.O. rejected the claim of deduction U/s.54 of the Act on the finding that the appellant effected transfer of A 'VACANT SITE' without any structure formulated thereon. He also rejected the claim of deduction under Sec.54F on the finding that inclusive of the new residential house purchased by the assessee prior to sale of the impugned property, viz., the residential house (villa bearing NO.8-18 situated at Dhullpally village, Qutbullapur Mandal, R.R. Dist.) on 12-9-2007 for Rs. 55,00,000/- from M/s. Ashoka Builders Pvt. Ltd. Hyderabad, the appellant was holding 3 residential house as against the 2 residential house authorized by law. 2.7. Thus with the above findings, the Ld. A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration is whether the amount of Rs.,75,00,000/- in lieu of surrendering of his right to sue constitute capital receipt. 7.3 Detailed facts relating to the transaction are already brought into earlier part of the present order. Under similar circumstances, the Hon'ble Mumbai High Court held in the case of CIT Vs Abbasboy A Dehgamwalla (195 ITR 28) held that "Compensation paid for mere EXTINGUISHMENT OF a RIGHT TO SUE for DAMAGES FOR BREACH OF CONTRACT" would not attract capital gains tax liability within the meaning of section 45 rws 2(47) and 2(14) of the IT Act. Further, in the case of Bharat Forge Co. Ltd Vs. CIT (205 ITR 339) the Hon'ble Mumbai High Court held that such compensation towards extinguishment of a right to sue would not attract capital gains tax liability. Further, I find force in the argument of the appellant that in the present case the cost of acquisition i.e. the extinguishment of right to sue was indeterminate and therefore, the same was not excisable in the light of Hon'ble Supreme Court decision in the case of B. Srinivas Setty (128 ITR 294). 8. Considering all the material facts as well as decisions of various judicial authorities, it is clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious documents placed on paper book on the transactions therein. 5. We have perused the orders of the Ld. CIT(A) and the documents placed in paper book. As seen from the order of the assessment, the only issue which A.O. has considered was the claim of 54F made by the assessee. Obviously, there is no dispute with reference to the fact that assessee was not entitled to the deduction under section 54F as assessee owns more than two houses and accordingly, deduction under section 54/54F cannot be allowed. Be that as it may, Ld. CIT(A) admitted the additional grounds and has come to a conclusion that even the admitted capital gain was not taxable. 5.1 We are unable to agree with the observations of the Ld. CIT(A). His order, in our opinion, is at variance with the facts on record. As seen from the original purchase deed by the assessee, there was a sale deed dated 16th November, 2005 between M/s. NK Leasing Construction Ltd., and M/s. S.D. Investments P. Ltd., represented by its Director Sri N.K. Agarwal and assessee for purchase of plot No. 19 admeasuring 453 sq. yards equivalent to 378.90 sq. metres in the project named Greendale villas for a consideration of Rs. 3,75,000/-. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 64,00,000/- placed at paper book page No.62 accepting amounts by way of pay order on 15.09.2008 for an amount of Rs. 35,00,000/-, cheque dated 19.09.2008 for Rs. 25,00,000/- and cheque dated 19.09.2008 for Rs. 4,00,000/- vide receipt dated 19.09.2008. However, neither the above receipt nor the cancellation deed indicate about Rs. 11,00,000/- received by the assessee at the time of agreement of sale. Admittedly, assessee received a total of Rs. 75,00,000/- on which there is no dispute. Thus, as seen from the above, even though the cancellation deed was entered presumably for saving the stamp duty, the intention of the assessee seems to be selling the plot No.19 purchased three years back for a consideration of Rs. 75,00,000 as can be seen from the terms of 'agreement of sale' through which assessee acknowledges receipts of Rs. 11,00,000/-. In view of the facts stated above, it is obvious that assessee has originally admitted the capital gain correctly treating the re-transfer/re-conveyance of the plot as a transfer thereon and claimed deduction under section 54F. In view of this, we are of the opinion that Ld. CIT(A) order in treating the amount as breach of contract seems to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down in that provision. Whether the assessee fulfilled those conditions for claiming the deduction or not required examination into facts which were not on record. Even before the Tribunal, the assessee had not placed any material to show how the assessee is entitled to such deduction. Hence, the Tribunal rejected the assessee's claim. By the impugned judgment the High Court has agreed with the view of the Tribunal." The Hon'ble Supreme Court upheld the above decision by stating as under: "5. We have also carefully considered the matter and we are fully in agreement with the Tribunal as well as the High Court. 6. For both the reasons mentioned by the Tribunal in paras 19-21 of its order, we are of the opinion that the assessee was not entitled to the deduction claimed by it. There is no merit in this appeal which is accordingly dismissed." 5.5 As can be seen from the above, if the facts are not available on record, additional ground cannot be raised on any legal issue. In this case, the facts on the issue of capital gains are obviously not examined by the Assessing Officer as the assessee himself offered the capital gains. Therefore, we are of the view that Ld. CIT(A) ent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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