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TMI Blog2011 (1) TMI 1461X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The CIT[A] erred in law and on facts in confirming the action of the assessing officer in adding u/s.41(1) of the Act a sum of ₹ 1,40,000/- on account security deposits received by the appellant in earlier year and which were never claimed as expenditure any time while computing the assessable income. Thus the addition must be deleted. 3. Ground No.1: Brief facts are that assessee is owner of a piece of land measuring about 7326.14 sq.mts. on which a house was also built. The house has been let out to one Shri Vinod P. Patel and Shri Rajesh P. Patel, his brother, and the tenancy was duly recorded in the revenue records. This property was sold through tripartite agreement to M/s Abhilasha Built-Art. The consideration payable to the assessee by M/s.Abhilasha Built-Art for the property was stated to be ₹ 90 lakhs and the consideration paid to Shri Vinod P. Patel and Shri Rajesh P. Patel, who were the confirming party in this tripartite agreement through which they had agreed to release, relinquish and surrender their rights, title, possession and interest in the property in favour of the developer was stated to be ₹ 30 lakhs plus two 2 BHK flats. During asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [114 TTJ 841]. 5. The ld. CIT(A) after considering these submissions found that names of the confirming parties had been incorporated in the tripartite agreement and it is recorded that with the confirmation of the parties who were in exclusive uninterrupted physical possession would also hand over their rights. He also noted that fact of tenancy has been recorded in the revenue records. The ld. CIT(A) agreed that what assessee has sold is his encumbered property and, therefore, full value of consideration for unencumbered property could not be adopted because it was a well known fact that tenanted properties fetch subsequently lower prices. He further observed at the same time sec. 50C was mandatory during the relevant period and, therefore, its application could not be totally ignored. He further observed that the entire consideration could not be assessed in the hands of the assessee because there were two sellers of the same property as the assessee has sold the title, whereas the tenants has sold the possession and their rights and, accordingly, he was of the view that proportionate amounts should be assessed which have been worked out vide paras 2.19 and 2.20 of his ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd assessee was concerned with his own consideration. He argued that assessee has sold only title of property for development rights and, therefore, strictly speaking the provisions of sec.50C were not applicable. In any case, the AO was duty bound to refer the matter to the DVO for valuation of the mere title of the property without physical possession and in this regard he submitted that though sec. 50C has used the expression may but the same has been interpreted as shall by various Benches of the Tribunal and in this regard he mainly relied on the decision of the Jodhpur Bench of the Tribunal in the case of Meghraj Baid vs. ACIT [supra]. 7. On the other hand, Ld.DR submitted that for the purpose of sec. 50C it is only the assessee who has to be treated as the owner and the tenant cannot be called as the owner. He argued that the purpose of sec.50C was to check the cash element involved in the dealing of the property. Since the tenants have been allotted alternative flats by the builder in addition to ₹ 30 lakhs, the rest of consideration must have gone to the assessee only. He also submitted that the decision in the case of Chatrabhuj Dwarkadas Kapadia vs. CIT [sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifica-tions, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. A plain reading of the above provisions show that wherever a transfer of capital asset, being land and building or both is involved, these provisions would be attracted. In the case before us, assessee has definitely transferred the title of the land and, therefore, section 50C was applicable. It cannot be said that since land was given for development rights, therefore, provisions of sec. 50C are not applicable. In the case before us assessee has himself admitted to the transfer of land, therefore, sec. 50C could be applicable. However, at the same time what assessee has sold i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son given was that assessee has sold only the title and that the possession was not with the assessee, we are of the view that the AO should have referred the matter to the DVO for valuation of the portion of the assessee s rights i.e. valuation of the title of the property without the possession. Therefore, following the above decision, we set aside the order of the ld. CIT[A] and remit the matter back to the file of the AO with a direction to first refer the matter to the DVO and thereafter assess the capital gains. 9. Ground No.2: After hearing both the parties, we find that during the assessment proceedings AO observed that in the balance-sheet a sum of ₹ 1.4 lakhs was being shown as security deposits. He then referred to the statement recorded during survey proceedings which is as under: As per the return of income filed for AY 2005-06, the deposits from the following quarry lessees are shown as outstanding. S.No. Name of the Party Amount in Rs. 1 A Mahendra Co. 35,000 2 Bharat Stone Metal Supply Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, Ld. DR strongly relied on the order of the CIT[A]. 13. We have considered the rival submissions carefully. We find that ld. CIT[A] has confirmed the addition on the basis of decision of the Hon'ble Bombay High Court in the case of CIT vs. Chowgule Co. Pvt. Ltd. 92 CTR 5. however, at the same time if the amount was not credited to the profit loss account in this year and the same was offered voluntarily by the assessee for taxation in A.Y 2006-07, then same could not have been subjected to tax in this year because there is no finding that the amount was transferred to the profit loss account in this year. At the same time, Ld. counsel of the assessee could not file copy of accounts for A.Y 2006-07, therefore, we set aside the order of the Ld. CIT[A] and remit the matter back to the file of the AO with a direction to verify if this amount has already been offered for tax in A.Y 2006-07, then it should be assessed in A.Y 2006-07, otherwise AO may decide the issue in accordance with the law. 14. In the result, assessee s appeal is allowed for statistical purposes. 15. I.T.A.No.5775/M/08 [Revenue s appeal]: In this appeal, Revenue has raised the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not appreciating the judgment given in the cases of (i) Raza Sugar Co. Ltd. 130 ITR 421 (Del) (ii) Hanemp Property Ltd. 101 ITD 19 [Del] wherein it is held that in the cases of transfer of immoveable property, the value need not be taken as declared by the assessee. Based on those judgments, Valuation as per Stamp duty authority which is prescribed as per provisions of section 50C can be one of the parameter to arrive at the full value of the property that is to be transferred. 16. Ground (A): As far as issue raised in this ground is concerned, this issue has been adjudicated by us while adjudication assessee s ground No.1 of assessee s appeal in the above noted para-8 whereby the matter has been remanded to the file of the AO for making reference to the DVO and, therefore, this ground has become infructuous and the same is dismissed accordingly. 17. As far as other grounds raised under caption (B) are concerned, they revolve around two disputes, namely, [i] dispute regarding transfer of property and [ii] application of section 50C. 18. Brief facts regarding transfer of property are as under: The assessee has through Memorandum of Understanding [for short MOU] agreed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed that since transfer did not take place in this year, therefore, capital gains could not be charged in this year. AO did not accept this position because of the following reasons: 1) The assessee has himself offered the capital gains in the return of income for the year under consideration. 2) The MOU dated 24-4-1992 is only a MOU and the same could not be considered as Development Agreement. This MOU provided that assessee was required to simultaneously execute irrevocable power of attorney in favour of the Unique which clearly shows that MOU has to be followed by other documents. The assessee could not produce any Development Agreement and even during the survey conducted on 12-12-2007, in reply to question No.21 Shri Jitendra A. Sheth did not refer to any such Development Agreement. 3) The MOU was registered not in 1992 but on 27-1-1999. 4) From the letter of Unique dated 8-10-2007 addressed to the assessee it emerged that Deed of Confirmation and Modifications dated 4-2-2000 was registered with the Sub Registrar Mumbai on 10-2-2000. This shows that there was a second registration also. 5) Though two power of attorneys dated 4-2-2000 were signed and the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arkadas vs. CIT [supra] and observed that necessary conditions prescribed in the decision have not been fulfilled. 19. On the above observations, AO held that capital gains were assessable on the sale of the said property in the year under consideration. 20. Before the CIT[A] it was mainly submitted that assessee entered into MOU on 24-4-1992, through which sale consideration @ ₹ 185/- per sq.ft. on the basis of FSI was agreed. Since the land had some encroachments as well as other disputes, the buyers agreed to resolve the same at its cost baring few exceptions. However, the sale consideration remained fixed at ₹ 185/- per sq.ft. and assessee was not to get any further benefit after resolution of the dispute. Necessary clearance of Appropriate Authority u/s.269UC in form No.37I was obtained on 16-7-1992 and possession of the land was also handed over to the developer before May, 2000. Finally Deed of Declarationcum- Indemnity and Deed of Confirmation-cum-Modifications were also executed before 4-2-2000. The developer made application for the commencement certificate to the Bombay Municipal Corporation which was accordingly issued on 28-4-2000. In respect of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the project and the date of transfer is not dependent on the date of payment and in any case substantial payments have been received before the relevant year. It was argued that there is no force in the allegation that encumbrances were finally removed in F.Y 2004-05 because of series of documents mentioned in para-8 of the assessment order itself shows that various steps were taken much before the present year. 22. Then reliance was placed on the decision of the Hon'ble Bombay High Court in the case of Chatrabhuj Dwarkadas Kapadia [supra], wherein it was held that in the case of Development Agreement where consideration has been agreed and the possession of the land has been given, then such transfer of development rights is required to be treated as transfer. Some other decisions were also relied before him for various purposes. The ld. CIT[A] after considering the submissions, decided the issue vide paras 3.15 to 3.21 which are as under: 3.15 The undersigned has carefully perused through the rival contentions. On a careful consideration of the facts and legal position, as established by the above mentioned case laws, the undersigned is of the considered view tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the irrevocable GPA executed pursuant to the agreement, the execution of the GPA shall be regarded as the transaction involving the allowing of the possession of land to be taken in part performance of the contract and therefore, the transfer within the meaning of section 2(47)(v) must be deemed to have taken place on the date of execution of such GPA. The irrevocable GPA was executed on May 8, 2006, i.e., during the previous year relevant to the assessment year 2007-08 and the capital gains must be held to have arisen during that year. Incidentally, it may mentioned that during the said year, i.e., financial year 2006-07, a final licence was granted and the applicant/owners received nearly 2/3rds of the consideration. 4. Once it is held that the transaction of the nature referred to in clause (v) of section 2(47) had taken place on a particular date, the actual date of taking physical possession need not be probed into. It is enough if the transferee has by virtue of that transaction a right to enter upon and exercise the acts of possession effectively. 3.17 Clinching evidence is found available in favour of the appellant by way of the letter dated 26-12-2007 sent dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory provisions. Lack of assessment in the earlier year is no reason to impose tax in the subsequent year. It was held in Vimal Chand Gautam Chand Vs. Union 267 ITR 377 (Raj) that annoyance should not disturb the judicial composure of AO. 3.20 Considering the above facts and circumstances in their totality, the undersigned is of the opinion that no capital gains accrued to the appellant out of this transaction in land with M/s. Unique in the A.Y. 2005-06. 3.21 The AO is therefore accordingly directed to exclude the entire capital gains in respect of the transaction with Unique form the assessable income of the A.Y. 2005-06 including the amount offered by the appellant itself in the impugned return of income. 23. Before us, Ld. DR submitted that once assessee had himself offered the capital gains for taxation, he could not backtrack and taken benefit of his own mistake. He then referred to the copy of statement of Shri Jitendra A. Sheth recorded during the survey conducted on 12- 12-2007. In particular he invited our attention to page 135 of the paper book, wherein through question No.21 assessee was confronted with the difference in area mentioned in various agreements an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement certificate was issued on 28-4-2000 which is clear from page 156 of the paper book. This clearly shows that construction activity commenced in the year 2000 and, therefore, suggestions must have been given to the builder in any case before this date. Therefore, no event took place in the present year which would show that transfer took place in the year under consideration and only some balance instalments of payments were received but that is not determinative of the date of transfer. 25. He further argued that the AO himself raised certain queries from Unique and vide their letter dated 26-12-2007 it was clearly stated by the said party that they have already offered the above project for taxation in A.Y 2003-04 which makes it clear that project was complete by that time. This finding has been recorded by the ld. CIT[A] at para 3.17. This clearly shows that there is no question of transfer of land in the year under consideration when the project itself was completed by the developer Unique and even offered for taxation in A.Y 2003-04. 26. He pointed out that the Ld. DR has referred to the difference in areas by reference to the statement of the assessee recorded duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot declared by the assessee in the original return. Some TDS was deducted by the bank on the interest income and though assessee has not declared this interest income but had claimed the credit for TDS, returns were processed u/s.143[1] in which credit for TDS was allowed. Later on notice u/s.148 was issued wherein interest income was also offered for taxation after a rider that though this interest income was not assessable but to avoid litigation the same was being offered for taxation with a clear understanding that no penalty or interest would be levied. The AO brought this interest income to tax and also initiated penalty proceedings u/s.271[1][c] and also levied interest under sections 234A, 234B and 234C. Appeal filed before the CIT[A] was rejected by observing that assessee himself has declared the interest income. When the matter travelled upto the Tribunal the preliminary objection of the Revenue was rejected that grounds raised in the appeal that such interest income is not taxable cannot be entertained and original grounds were admitted. The Tribunal after detailed discussion and following the decision of the Hon'ble Bombay High Court in the case of Nirmala L. Mehta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961, did not become applicable to the State of Sikkim, Income Tax Act, 1961, could not be applied to the income earned in Sikkim. The President of India in exercise of his powers conferred by cl. (n) of article 371F of the Constitution, extended to the State of Sikkim, the Income-tax Act, 1961, by Notification No. S.O. 1028(E), November 7, 1988 with effect from 1st April, 1989. However, the commencement of the Income-tax Act, 1961, was deferred for one year making it effective from April 1, 1990, applicable from the asst. yr. 1990-91 and onwards. The legal position that emerges thus is that the IT Act, 1961, was made applicable and came into force in the State of Sikkim from the asst. yr. 1990-91 (previous year 1989-90) and on the coming into force of the Income-tax Act, 1961, the Sikkim Income-tax Manual, 1948, stood repealed. Ultimately, it was held by the Hon'ble Court as under: Held, (i) that merely because the assessee offered the prize money won in the lottery of the Sikkim government, to tax under the Incometax Act, 1961, that would not take away her right to contend that the prize money was not chargeable and assessable to tax under the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the party the relief that he is entitled to. In the instant case, therefore, it may be held that merely because the petitioner offered the prize money won in the lottery of the Sikkim Government, to tax under the Income-tax Act, 1961, that shall not take away her right in contending that the said prize money was not chargeable and assessable to tax under the Income-tax Act in the revisional jurisdiction. The said prize money was chargeable to income-tax under the Sikkim Income-tax Manual that held the field at the relevant time and the income-tax from the prize money as per the then existing Sikkim Income-tax Manual was deducted. The order dated June 25, 1991, passed by the Commissioner of Income-tax, Bombay City IV, Bombay, therefore, cannot be sustained and in the light of what we have observed above, the assessment order dated November 29, 1989, for the assessment year 1988-89 shall have to be reworked out as per this order. Thus, it is very clear from the above decision that even if an item of income has been offered but the same is not chargeable to tax, then the same cannot be charged to tax. 28. In the case before us, the assessee had entered into a MOU on 24-4-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004-05 Rebate given by the assessee 28.58 lakhs 2004-05 Rebate given by the assessee towards litigation charges 27.67 lakhs Rs. 25 lakhs was retained by M/.UEDCL and was paid only on 17.04.2006 From the above, it is clear that even the major amount of payment was also received much earlier than the year under consideration. The Ld. DR could not point out to any major happening or event before us which shows that transfer took place during the year. Therefore, we can conclude that transfer of the land took place during the year before us. 29. Before the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT [supra] the issue for consideration came whether Development Agreement itself would constitute transfer and what should be the date on which such transfer can be said to have taken place. The Hon'ble High Court held that sec.2(47)(v) r.w.s. 53A of Transfer of Property Act indicates that capital gain was taxable in the year in which transactions were entered into even if the transfer of an immovable property i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y 2003-04 which clearly shows that the possession must have been taken much earlier and that is why project must be completed in A.Y 2003-04. The Revenue has not shown us any document which would show that possession was taken during the year or any other event which would lead to the conclusion that the transfer took place during the year. 30. The Ld. CIT[A] has also referred to the decision of Authority for Advance Ruling in the case of Jasbir Singh Sarkaria In re 294 ITR 196. on perusal of this judgment we find that more or less same principles have been taken into consideration which were laid down by the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT [supra]. It was further observed in this case that it is not necessary that entire sale consideration upto the last installment should be received by the owner. As observed earlier, that consideration was agreed to be paid over a period of time on the conclusion of particular event and major consideration has already been received by the assessee upto A.Y 2003-04. Merely because some instalments were received later on, it would not make much difference. In other words, the transactions cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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