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TMI Blog2019 (12) TMI 1588X X X X Extracts X X X X X X X X Extracts X X X X ..... upport of the above capital gain offered for tax. Since no evidence was furnished before the AO, the AO determined the long term capital gain of Rs. 12,44,78,990/- u/s 143(3) of the Act. Subsequently, assessee filed a letter dated 31.12.07, wherein development agreement between assessee alongwith his son and M/s Lokhandwala Construction Industries Pvt. Ltd. The above agreements were dated 06.02.04 and which falls under AY 2004-05. According to AO, the income is chargeable to tax in the year in which the development agreement was entered. In this regard, AO relied upon decision of Hon'ble Bombay High Court in the case of Chatrabhuj Dwarkadas Kapadia - 260 ITR 491 (Bom), in which capital gains should be charged to tax in the year in which development agreement was entered. Accordingly, AO issued notice u/s 148 of the Act and reopened the assessment for AY 2004-05 and assessed the income on protective basis as under:- Capital Assets transferred to stock in trade (as claimed by the assessee) - 15,22,66,333/- Less: Cost of acquisition Cost of plot 1-4-1981 =2973871 / 100x497 - 1,07,89,501/- Capital Gain - 14,14,76,832/- Less: Long Term Capital gain already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, the cost of construction of Rs. 3,51,30,3257. c) The DVO estimated the cost of Rs. 15,08,49,000/- towards built up area. d) The actual cost incurred by the developer which is Rs. 13,44,21,345/-. 6. Further the AO observed that the actual cost incurred by the Developer gives the most accurate cost for the purpose of estimating the value of sales consideration to the assessee. Accordingly he collected the information from the developer and the details of the cost of construction. 7. In response, the developer who has declared the sales proceeds of Rs. 18,37,73,750/- for the sale of 18 flats and the cost of construction including the cost of purchase of 2 flats from the assessee was Rs. 15,47,58,845. The developer also informed that it has earned income of Rs. 2,90,14,905. Accordingly AO observed that actual cost of construction was at Rs. 13,44,21,345/- (i.e. Rs. 15,47,58,845 - 2,03,37,500 = cost of purchase of 2 flats.) and AO observed from the agreement that the total FSI of the property is 35,987.4 Sq. ft. and share of the owners is 22,511 Sq. ft. and share of the developer is 13,475 Sq. ft. Accordingly, he calculated the cost of construction per FSI at Rs. 3,735 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) followed the remand report and allowed the deduction u/s 54 of the Act only on one flat after determining the total capital gains generated out of the project and then determined the capital gains belongs to the assessee i.e. 73% of the net capital gains determined. 11. For sustaining the above finding, Ld CIT (A) observed as below: 2.3 I have considered the facts and material on record. It is seen from the remand report and the assessment proceedings for AY 05-06 that the appellant had claimed exemption u/s. 54 in respect of construction of 6 flats on 10th, 11th& 12th floors which have been retained by the joint owners for their own and their family residence. However, the AO has considered the costof only 1 flat admeasuring 1560.23 sq. ft. on the ground that only 1 flat is eligible for exemption. The AO further examined and found that it has not been proved that during the present AY, 2 flats were combined to one single unit. It is further noticed that the claim of the appellant that all the 6 flats were intended for occupation of Shri Sunil Dutt and his family members and it is only on account of his demise shortly after the buildings was ready that the flats were div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer in his remand report at Rs. 10,28,48,571. 4. The learned Commissioner (Appeals) failed to appreciate that the value of the construction received by your appellant was not synonymous with the cost of construction to the developer. 5. The learned Commissioner (Appeals) failed to take into account the fact that such cost of construction collected by the Assessing Officer without the knowledge of your appellants could not have been adopted by the Assessing Officer without providing the appellants an opportunity to cross examine the developer and obtain full details in relation to such cost. 6. Without prejudice to the foregoing, the learned Commissioner (Appeals) failed to consider the mistakes pointed out by your appellant in the computation of the cost of construction of the developer, and to consider whether all such expenses could form a part of the cost of construction. 7. The learned Commissioner (Appeals) erred in confirming the computation of the exemption u/s 54F made by the learned Assessing Officer at Rs. 57,00,610. 8. The learned Commissioner (Appeals) failed to appreciate that the appellants had already\ furnished evidence of the two flats being reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 flats and 2 penthouse i.e. 4 flats were combined into 2 flats and as far as area is concerned, the area remained same i.e. 22,511 Sq. ft. He further brought to our notice the agreement dated 06.02.04 and 31.08.04 and submitted that aggrieved, the assessee is in appeal before ITAT and grounds nos 3 to 6 are calculation of cost of construction and further he submitted that with regard to methodology adopted by the tax authorities, assessee has no dispute and acceptable to the assessee. He further submitted that AO has adopted 2.06 crores received as cash component and added as part of the sale consideration for the land transferred to the developer. He further submitted that when the AO and Ld. CIT(A) preferred to adopt the cost of construction to the developer for making 40 flats, relied on the submission of the developer, then the cost of construction to the developer is inclusive of the cash component given to the assessee as the part of the development cost considering the fact that the developer has declared the total cost incurred to construct the whole project. The cash component given to assessee also a part of cost of construction. Now, the same cash component cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the paper book, in which the AR of the assessee submitted in the remand proceedings, the details of the combined flats vide letter dated 29th Dec 2011. He submitted that the above 2 flats are penthouse and the assessee is eligible to claim deduction u/s 54F even when the assessee has two partitions but has only one kitchen in the above combined flats. In this regard, he relied upon the decision of Hon'ble High Court of Bombay in the case of CIT vrs. Raman Kumar Suri (2013) 212 Taxman 411/29 taxman.com 231 (Bom)and further relied upon the following case laws:- 1. 228 Taxman 62 (SC) CIT v Gita Duggal 2. 54 ITR (Trib) 37 (Mum) ACIT v Sanjay B Pahadia 3. 394 ITR 666(Mad) CIT v Gumanmal Jain 4. 45 ITR (Trib) 228 (Mum) Nilesh Pravin Vora & Anr. v ITO 5. 413 ITR 189 (Mad) Tilokchand And Sons v ITO 17. On the other hand, Ld. DR submitted that it was not brought to the notice of authorities below about the combined flats and further he submitted that it is not proved by the assessee that the flats were combined during the assessment year under consideration. He supported the findings of Ld. CIT(A) which is in para 2.2 and 2.3 of the order of CIT(A). He further submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchases of 2 flats, of Rs. 15,47,58,845 and developer earned a profit of Rs. 2.90 crores in the project. Considering the above information, AO calculated the total cost of project/making per Sq. Ft. at Rs. 3,735/- and determined the total cost of construction for the area constructed for the assessee at Rs. 8,22,48,571/-. Now before us, assessee makes representation contending that the cost the construction determined by the AO which was collected from the developer and the above cost of construction does not have the details of the particulars of the expenditure and the above expenditure may not be cost of construction alone but total cost to the developer, it may include other cost component like interest expenditure and other sale promotion expenditure, etc. Further assessee made a submission that the AO has included the cash component received by the assessee i.e. 2.06 crores as part of sale consideration. Ld. AR submitted that the cost of construction to the developer will naturally include the cost paid to the assessee as part of the project expenditure and the same cannot be included one more time. Further, Ld. AR brought to our notice the cost adopted by the AO as cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no record that this combing of flats were made during the impugned assessment year. We cannot accept the contention of the AO for the reason that the purpose of modification of the development agreement was to combine 4 flats and to make 2 penthouses. Therefore, we are in agreement with the submission of Ld. AR that there exist 2 penthouses at the site developed by the developer as per the terms of agreement in modified development agreement. 24. Coming to the exemptions, we notice that the development agreement was entered by the assesse along with his son with share of 73:27 between them and it is clear that there exist 2 penthouses and two individual assessees. Therefore, each assessee will get separate exemption u/s 54F of the Act. This benefit is legally available to both the assessees. There are catena of cases in which courts have held that when there exists two portion of flats with one ketchen then the whole combined portion of the area will be treated as one single unit for the purpose of granting exemption u/s 54 as well as 54F. Accordingly, we direct the AO to grant exemption u/s 54F of the Act to each assessee and as per their choice. On record, assessee prefers to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gains. 32. Aggrieved with the above order, revenue is in appeal before us on the grounds mentioned above. 33. Before us, Ld. DR brought to our notice the para no. 3 of the assessment order in which AO has observed that from the perusal of the agreement, it is seen that the flat purchaser has irrecoverably withdrawn his rights for any future FSI /TDR benefits awarded to the owners. Therefore, unlike in normal agreements the owners retained the land component and have not transferred the benefits appurtenant to the ownership of the land. There is no clause which states that part of the ownership of land has been passed on to the flat buyer. In fact all the rights for development, re-development or construction of additional structure are with the developer and the flat purchaser has irrecoverably consented to the same. Therefore, he rejected the contention of the assessee to bifurcate the sale proceeds between land and cost of flat. Further, he submitted that there is no mention in the sale deed entered by the assessee with the purchaser of the flats which indicates that assessee transferred the ownership of the land alongwith super structure. He contended that this case is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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