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TMI Blog2024 (7) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... s activity carried out by the assessee because the activity relating to development of land and constructing the project was the sole responsibility of M/s KHPL and, therefore, the transactions of transferring the land, receiving the flats in consideration and subsequent sale of two flats would be taxed as per the capital gain provisions under the Income Tax Act. We find that on 09/06/2011 vide agreement with M/s. KHPL, the land was given to M/s. KHPL for developing it into a residential complex. The cost of acquisition of the land is undisputedly at Rs. 21,07,504/- and for the purpose of calculating long-term capital gain the index cost of acquisition of the plot of land as on 09/06/2011 comes to Rs. 33,18,220/-. The fair market value of the land as on the date of transfer of land i.e., 09/06/2011 as per the prevailing circle rate comes to Rs. 1,36,82,490/- which thus finally gives rise to net long-term capital gain at Rs. 1,03,64,270/-. Whether the assessee is liable to pay any capital gain on long term capital gain? - The assessee has claimed that he is eligible for exemption u/s 54F for seven units of residential flats received from the developer. In view of the judgement of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also taking into account the sale consideration received from sale of Flat no. 401 and 403 at Vishwamohini Complex, held that the ld. Assessing Officer has grossly erred in calculating the cost at circle rate - HELD THAT:- Valuation report has been done by a Government registered valuer who has valued the construction cost of Rupam Tower having basement+ground+4 Floors as commercial and top floor as residential and vide report dt. 10/04/2018, the total cost is estimated to be Rs. 1,66,25,000/- of which some part has been spent during the financial year 2013-14 at Rs. 9,00,000/-, Rs. 37,25,000/- having been incurred for financial year 2015-16 and Rs. 1.20 Crores during financial year 2014-15. The assessee had already shown the investment in construction during the year at Rs. 1,28,63,311/-. The source of the same is available in the regular financial statement filed by the assessee and major source of the sum is from sale of flat no. 401 and 403 during the year. Therefore, since the cost incurred by the assessee is marginally higher than the cost estimated by the registered valuer, we fail to find any justification in the imaginary value adopted by the ld. Assessing Officer at Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case, the learned CIT(A) is fully justified in deleting the addition of Rs. 5,39,15,000/- made by the Assessing Officer on account of alleged sale proceeds of Residential Units by resorting the provisions of section 28(iv) of the I. T. Act, 1961. The learned CIT(A) passed the order after full appreciation of the facts of the case and after application of judicial mind. The learned CIT(A) called for Remand Report from the Assessing Officer but the Assessing Officer did not respond to the Remand Report inspite of reminders having been given by the learned CIT(A). It is hereby submitted that the order of the learned CIT(A) does not call for any inference. 3. For that in the facts and circumstances of the case, the learned CIT(A) is fully justified deleting the addition of Rs. 10,32,40,650/- made by the Assessing Officer on account of alleged / impugned investment in construction of Rupam Tower. The Assessing Officer has taken imaginary and hypothetical value (Rate) of Rupam Tower. The Assessing Officer has erred in coming to the conclusion that the assessee has derived the effective benefit over the Rupam Tower. The learned CIT(A) passed the order after full appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee also owned another piece of land nearby the land used for constructing Vishwamohini Complex. In this other land, the assessee made investment and constructed "Rupam Tower" which is a commercial-cum-residential building and five floors of Rupam Towers are rented out to M/s. Vasan Healthcare Pvt. Ltd. and in the residential portion, the assessee is residing. Based on this information and observation of other details, show-cause notice issued on 19/12/2017, asking the assessee as to why not the sale consideration received in the form of seven flats located at Vishwamohini Complex be treated as business receipt since the assessee is engaged in business of land development and construction work. The assessee was also asked to reply about the huge investment in "Rupam Tower project". Further the ld. Assessing Officer also asked the assessee to explain as to how he is entitled to exemption/deduction u/s 54F of the Act. In reply, the assessee submitted that the agreement entered into between him and Dr. A.B. Prasad on 28/04/2010 was never acted upon. The assessee and Dr. A.B. Prasad approached the developer M/s. KHPL and it was agreed that against the land owned by both these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e & 5702 sq.ft. of Dr Akhouri B Prasad was considered at Rs 2,14,07,000 by the sub- registrar. The assessee has claimed that "the exchange value of the land of the assessee per sq. ft comes to Rs 1,36,82,490 (i.e Rs. 2,14,07,000 / 15,802 sq.ft. x 10,100 sq.ft.). Total carpet area of the seven flats received by the assessee is 8200 sq.ft. and the exchange value per sq. ft comes to Rs 1668.60/- which shall be considered as the cost of the flat in the hands of the assessee." However, the contention of the assessee is mis-leading. It is hot the case that market value was adopted as per the provisions of Section 45(2) of the Income Tax Act, 1961 on conversion of investment into stock-in-trade because no such value of stock in trade was declared in the return of income for the year A.Y. 2014-15 or 2015-16 for that matter it is considered only fair that after introduction of tax on capital gains on sale of investment, the assessee should pay tax on such capital gains, with reference to the market value adopted for computing the business income arising to the assessee from investments or personal assets converted to stocks. But the assessee has not done any such exercise, no capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.1 Therefore, the value of the above benefits (out of which some of the part was converted into money by virtue of as many as two sale deeds registered during the year under consideration) is arrived at Rs. 5,39,15,000+ 10,32,40,650/- i.e. Rs. 15,71,55,650/-. Against the same the assessee incurred expenses/divested capital assets to the tune of Rs. 21,07,504/-. Therefore, the effective benefit comes at Rs. 15,50,48,146/- This amount of Rs. 15,50,48,146/- is hereby added back to the total income of the assessee for the year under consideration as per the discussion made in preceding paragraphs. [Addition 15,50,48,146]" 5. Aggrieved the assessee preferred appeal before the ld. CIT(A) and filed various details which were placed before the ld. Assessing Officer also, asserting the fact that the assessee did not enter into any business transactions for the purpose of constructing the flats at "Vishwamohini Complex" and transactions are purely in the nature of capital gain where the assessee had first given the land to the developer M/s. KHPL vide agreement dt. 09/06/2011 and thereafter received seven flats in consideration. However, out of these seven flats assessee sold only two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegory of short term capital gain and that from sale of flat No. 403 at Rupam Tower will fall under long term capital gain and, therefore, benefit u/s 54F of the Act would be available only against the sale consideration of sale of Flat No. 403. The ld. CIT(A) also held that the ld. Assessing Officer has exaggerated the cost of investment made in Rupam Tower without having any substance nor making any enquiry and even without making reference to the DVO. The ld. CIT(A) has further held that the stamp duty value/circle rate is only for the purpose of capital gain as per the provisions of Section 50C of the Act and cannot be taken as a basis for calculating the cost of construction. 6. Aggrieved, the revenue is now in appeal before this Tribunal raising various grounds of appeal which mainly includes the ground relating to deletion of addition of Rs. 5,39,15,000/- made by the ld. Assessing Officer u/s 28(iv) of the Act and deletion of addition of Rs. 10,32,40,650/- made by the ld. Assessing Officer on account of valuation of cost incurred for constructing Rupam Tower. The revenue has also raised additional grounds challenging the finding of the ld. CIT(A) allowing the benefit u/s 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etion Certificate by the competent authority and the amount of CG will be the total sum of cash compensation received and the stamp duty vale of the completed structure as received by the land owner less the indexed cost of acquisition of the land. 2. Since the present case is prior to A/Y 2017-18, it is submitted that AO is justified in not taking the transaction through JDA as leading to Capital Gains. The conduct of assessee of first pooling the land with neighbor, then constructing a commercial complex on the front portion of the land and then involving a developer to build a residential complex having approximately 24 flats clearly establishes his business intent. The construction activity taken up on such a large scale is clearly an adventure in the nature of trade with profit motive. The stand of the AO for treatment of these transactions as business adventure receipt is based on the first JDA dated 28-04-2010 which was drawn between the assessee as builder and his neighbor as land giver. It is also to be pointed out that the part of erection of commercial complex named Rupam Tower remained unchanged in the second and subsequent agreements. So, it was definitely adventure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec 54F. Even the action of the assessee also clearly shows that the seven flats altogether did not account for a single unit as the assessee himself was negotiating, contracting and selling the units of flats separately as is evident from the facts of the case. Therefore, the assessee should have been denied the benefit of sec 54F altogether of at best can be allowed for only one of the seven flats. 8. The CIT(A) held that the LTCG on sale of one residential unit as sold on 18-07-2014 should get the benefit of sec 54 as invested in Rupam Tower where on the 5th floor the assessee himself is residing. Now the section clearly states that the gain is to be invested in one residential house. Now again, Rupam Tower is a commercial building as clearly stated in the agreements and also as per the sanctioned plan of PMC. That the fact that the assessee is occupying only one floor of the basement, ground and 5 floors cannot change the character of the building from commercial to residential. The performance of the assessee by leasing out ground and 4 floors to a fully commercial entity, also suggested that the building is mainly used for commercial purpose. The CIT(A) at one hand, held all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upam Tower should have been reasonably estimated at Rs. 3,50,00,000/- for completion of construction of Rs. 17,500 sq ft of built up area in Rupam Tower, within F/Y 2013- 14; instead of accepting the sum of Rs. 1,28,63,311/- as claimed by the assessee. In such case the investment made by the assessee was beyond explanation as out of sale proceeds of residential flats. 10. In view of the above, it is requested that the order of the CIT(A) may be set aside." 8. On the other hand, the ld. Counsel for the assessee has heavily supported the finding of the ld. CIT(A) and also placed a short synopsis on various issues raised in the revenue's appeal and the same reads as follows:- "1) The respondent being owner of a piece of land entered into an agreement with an another land lord Dr. A.B. Prasad who has a piece of land adjoining to the land of the assessee on 28.04.2010 to construct a residential complex, which was not executed and became void as terms of agreement was not fulfilled. 2) Thereafter, the respondent made a land development agreement with a builder / developer namely Kashyap Green Homes Pvt. Ltd. on 09.06.2011 to Construct the residential complex on the said land of bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the residential complex which was clearly not executed and performed as mentioned in the share sharing supplementary agreement and calculated the income of the assessee at the rate of circle rate of a flat which was sold by the assessee during the year @ 6575/- per sq.ft., amounting to Rs. 5,39,15,000/- (6575/- x 8200). It is pertinent to mention that the assessee got his share of built up area measuring 8210 sq.ft. while A.O. has calculated on 8200 sq.ft. The A.Q. treated as stock in trade. (Page-21 para-12). 5) Findings of Ld. CIT(A) is on page 22. Issue of stock in trade is discussed after relying on CIT vs Ashok Kapur (HUF)213 CTR 0241 (2007). Accordingly, Ld. CIT(A) has judiciously given findings that it is clear case of capital gain rather business income in part of the assessee since terms of the agreement of dated 28.04.2010 was not executed. (Appeal order - on page-24 , 3rd para and on page 37, 2nd para.) 6) Issue of Rs. 10,32,40,650/- (Gr. No.- 2) 7) The assessee has constructed a commercial cum residential building of G+5 Floor namely Rupam Tower on his southern side land and regarding sanction of map it is clearly mentioned in the page 4 of development agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 16) Issue under limited scrutiny w.r.t. difference in actual value of sold flat visa- vis stamp duty value. CIT (A) applied the provision of section 50C and directed to compute capital gain accordingly after recording the findings under last 2 para on page 38 of appeal order. 8.1. The ld. Counsel for the assessee also placed reliance on the following decisions:- (i) CIT vs. Gita Duggal reported in 357 ITR 153 (Del.) (ii) CIT vs. D. Ananda Basappa reported in 309 ITR 329 (Kar.) (iii) CIT vs. Narsimhan (PV) [1990] 181 ITR 101 (Mad.) (iv) Amit Kumar Bansal vs. ITO, Ward-1, Raigargh in ITA No. 130/RPR/2013; Assessment Year 2009-10 9. We have heard rival contentions, perused the material placed before us, gone through the case-law relied upon by both the sides as well as the findings of the lower authorities. The revenue has challenged the finding of the ld. CIT(A) on the following four issues:- (i) Deletion of addition of Rs. 5,39,15,000/- made u/s 28(iv) of the Act. (ii) Deletion of addition of Rs. 10,32,40,650/- for alleged unexplained investment in Rupam Towers. (iii) The ld. CIT(A) erred in giving benefit of deduction u/s 54F of the Act for the investment in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant initially entered into a land development agreement on 28.04.2010 with his neighbour Dr. A. B. Prasad who has a piece of land adjoining to the land of the appellant to construct a residential complex on agreement on amalgamated land and subsequently made another 09.06.2011 with builder M/s Kashyap Green Homes Pvt. Ltd. who developed/constructed the residential building on proportionate basis. Further, by a tripartite supplementary agreement on 12.03.2014 regarding share distribution of flats the builder Kashyap Green Homes Pvt. Ltd. had delivered respective share of flats to both the la d lords i.e. appellant and Dr. A.B. Prasad separately and directly and retained his share of flats itself. In the agreement dated 09.06.2011 made between the appellant and the builder, it is not mentioned that the first agreement of dated 28.04.2010 became void but it is mentioned in Para 5 on page 4 of supplementary agreement of dated 12.03.2014 that the agreement of 2010 was not executed. Considering the above factual position, it is apparent that the appellant had not constructed the multi storied building. The terms and condition of first agreement made between the appellant and Dr. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported by the ratio of the decision of the Hon'ble Supreme Court in the case of Padma kumara & Ors. Vs. Dasayyan & Ors. Vide (Civil Appeal No(S). 3570 of 2015 drising out of S.L.P. (C) No.1169 of 2008. The A.O. has failed to appreciate this significant point and instead erroneously held on to the original agreement t of 2010 as the basis of the project. The view of the AO that "the claims of not doing any realty business is a blatant lie because all the documentary as well as circumstantial evidence prove that the assessee entered into an adventure in the nature of developing real-estate and deriving benefits/earning/incomes therefrom" lacks strength due to the fact and evidence available on record and discussed above. This is also supported by the order of the Hon'ble Delhi High Court in CIT Vs. Ashok Kapur (HUF) Cited 213 CTR 024 (2007). I therefore, hold that the appellant himself is just one of the three parties to the transaction related to the Project and therefore the transfer of his land is not in the nature of business activity and instead will attract Capital Gain as per Law." 10.2. From perusal of the finding of the ld. CIT(A) and also on going throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,36,82 duty value on that date. The appellant has further mentioned that the actual cost of acquisition of land was Rs. 21,07,504/-. These details were examined by the A.O. during the course of assessment proceedings and are duly mentioned in Para 12 of the assessment order. However, the A.O. has incorrectly concluded the discussion by utilizing these figures for determining business income u/s 28(iv) of the Act and has made an addition of Rs. 5,39,15,000/- by multiplying the built up area of 8210 sq. ft. received by the appellant with Rs. 6575/- which is the circle rate of a flat. As discussed with respect to Grounds of the correct inference is to determine capital gain treat the same as business income. In respect of the capital gain arising out of submission of the appellant made during the course of these proceedings was examined. It has been submitted that the on 09.06.2011 is Rs. 33,18,220/- and 1,03,64,270/-. This working has been done by taking the sale consideration at the stamp value rate as on the date of transfer The appellant has further contended that no capital gain is payable on this amount as the whole of capital gain is exempt under sec. 54F. In support o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the appellant has not made the course of these proceedings. I am therefore of the view that provisions of s squarely attracted in this situation and direct the Assessing Officer to compute the STCG for flat no. 401 and LTCG for flat no. 403 as provided Act and indexed cost of acquisition claimed by the cost of acquisition per sq. ft. on the basis of the land value of Rs. 1,36,82,490/- and built up area of 8210 sq. ft. received in lieu of this land. As regards the appellant's claim that the LTCG on the sale of flat no 403 is exempt as per provisions of Sec 54 of the Act, it is on record that the appellant is residing in the 5th floor of multi storied Commercial cum residential building namely Rupam Tower which has been constructed out of the funds available to the appellant. Further the appellant relied upon the order of the Hon'ble Madras High Court in the case of CIT vs. Narsimhan (PV) [1990] 181 ITR 101 (Mad) where the Hon'ble High Court has held that "the assessee sold his residential property and invested the capital gain within the stipulated time in the construction of new floor on another house owned by him, was entitled to exemption under section 54.& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has been applied for getting the seven flats, the assessee is entitled to deduction u/s 54F of the Act at Rs. 1,03,64,270/-. This finding of the ld. CIT(A) needs no interference. 12.1. Further as regards the two flats bearing no. 401 & 403 sold during the year, the date of acquisition of flats can be considered as 09/06/2011 because it is on this date on which the agreement was entered into with the developer. Now, flat no. 401 has been sold on 31/05/2014 and since the date of acquisition of flat is 09/06/2011, the assessee has held this flat for less than 36 months and, therefore, it will attract short-term capital gain, for which necessary directions have already been given by the ld. CIT(A) to the ld. Assessing Officer for calculating the short term capital gain from sale of flat no. 401 after giving deduction for cost of acquisition as per the square feet rate of land taking the FMV at Rs. 1,36,82,490/-. So, this finding of the ld. CIT(A) also needs no interference. 12.2. As regards the sale of flat no. 403 which is held by the assessee for more than 36 months, the capital gain would fall under the category of long-term capital gain. Further since the assessee made investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orey property (Rupam Tower having five commercially used floors, rented out to a corporate) and two floors for self-occupation…….." A perusal of the assessment order shown that the A.O. had directed the appellant to furnish original bills & vouchers of expenses incurred in construction of Rupam Tower. However the same were not furnished. Instead, the assessment folder on page no. - 508 mentioned that the appellant had submitted the balance sheet at on 31.03.2015 in which investment in Rupam Tower is shown at Rs. 1,59,38,311/- and further on page no. - 302 break-up of Rs. 1,59,38,311/- (Rs.1,28,63,311/- + advance of Rs. 30,75,500/-) is available which also gives the details of expenses made, mostly through bank. Further, these expenses of construction are also supported by the valuation report prepared by the Registered valuer arid provided by appellant during this proceedings as valuer has valued the construction cost at Rs. 1,66,25,000/- till 31.03.2016. The source of investment in construction of Rupam Tower was met from the side consideration of 2 flats and advance taken of one flat which was registered on 01.04.2015. The A.O. has applied the stamp duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition made by the ld. Assessing Officer is on account of alleged unaccounted investment made in construction of Rupam Tower is on surmises and conjectures and without any logic, ld. CIT(A) has rightly held in favour of the assessee and deleted the addition of Rs. 10,32,40,650/-. Thus, finding of the ld. CIT(A) needs no interference. Accordingly, Ground No. 2 raised by the assessee is also dismissed. 15. Other grounds raised by the revenue are general in nature. 16. So far as the cross-objection raised by the assessee is concerned, the ground nos. 1 to 4 are merely in support of the finding of the ld. CIT(A) and since we have already confirmed the findings of the ld. CIT(A), the ground nos. 1 to 4 raised by the assessee in the cross-objection have become infructuous. 16.1. Ground No. 5 of the cross-objection challenges the jurisdiction of the ld. Assessing Officer over the assessee's case. We find that the ld. Counsel for the assessee has not advanced any arguments on this issue. Even otherwise, we fail to find any merit in this ground because the ld. Assessing Officer has acted well within the limited scrutiny criteria and the additions made in the assessment order are ema ..... X X X X Extracts X X X X X X X X Extracts X X X X
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