Mohammed Kadheer, Hyderabad vs Assessee

Mohammed Kadheer, vs. Income-tax Officer, Ward - Hyderabad. 8(1), Hyderabad.

PAN - BQRPM 6822 L (Appellant) (Respondent)

Assessee by : Shri D. Satyanarayana Revenue by : Shri Ramakrishna Bandi

Date of hearing 09-04-2015 Date of pronouncement 17-04-2015

O RDE R

PER SAKTIJIT DEY, J.M.:

This appeal by the assessee is directed against the order dated 31/01/2014 of ld. CIT(A), Vijayawada for AY 2004-05.

2. Briefly the facts are, assessee an individual along with ten other persons was the coowner of a portion of a property bearing House Nos. 8-3-483, 486 to 502 along with open land admeasuring 4705.52 sq.yds, excluding the property bearing bearing No. 8-3-483 comprising of about 250 sq.yds, situated at Yellareddyguda, Hyderabad. On the basis of the information available to the effect that assessee along with other co-owners has entered into a development agreement with a firm M/s Sun Mark Builders on 04/11/2003 for the development of property for construction of residential flats sharing the built-up area in the ratio of 39:61%. AO initiated proceeding u/s 2 ITA No. 688 /Hyd/2014 Mohammed Kadheer, Hyd.

147 of the Act, for bringing to tax the capital gain arising out of such transaction. Accordingly, AO issued a notice u/s 148 of the Act on 29/03/2011 calling upon assessee to furnish his return of income for the impugned AY. Though, originally, assessee did not file any return of income u/s 139 of the Act, but, in response to the notice issued u/s 148, assessee, ultimately, filed his return of income on 19/12/2011 declaring income of Rs. 35,000. However, assessee did not declare any income from capital gain. During the assessment proceeding, AO going through development agreement noticed that as per the terms of the said agreement residential flats were to be constructed over the property within a period of 42 months from the date of the development agreement and 39% of the built-up area has to be handed over to assessee and other co-owners. He further noticed that as per the development agreement, developer has paid amount of Rs. 45 lakhs to the land owners as refundable security deposit to be repaid by the land owners at the time of handing over the possession of their share of built-up area. From the aforesaid facts, AO was of the view that as assessee along with other co-owners have entered into development agreement and has also handed over the possession of the property to the developer, in pursuance of such agreement there is a transfer of capital asset giving raise to capital gain. AO on cross verification from the developer found that between the period from the date of execution of development agreement upto 31/03/2010, the developer admitted of paying total amount of Rs. 1,21,01,800 to the land owners. Therefore, AO was of the view that assessee's 1/11 th share in the amount received of Rs. 1,21,01,800 amounting to Rs. 11,00,164 is taxable in the year under consideration. Further, having held that transfer of capital asset under the development agreement has taken place during the relevant PY in terms with section 2(47)(v) of the Act, AO was of the opinion that capital gain arises in the impugned AY. From the information furnished by the developer, AO noted that the cost of construction incurred by the developer for construction was Rs. 1210 per sq.ft. for 3 ITA No. 688 /Hyd/2014 Mohammed Kadheer, Hyd.

built-up area of semi-finished flats. However, the market value as per the SRO records as furnished by the developer was Rs. 1700 per sq.ft. AO, therefore, opined that since the flats are semi-finished and the market price for the fully completed flats is Rs. 1700 per sq.ft. as per the SRO records , sale consideration for computing capital gain has to be taken at Rs. 1700 per sq.ft. Therefore, applying the aforesaid rate to the total built-up area of 41266 sq.ft., AO determined the sale consideration at Rs. 7,00,84,200 and worked out assessee's 1/11 th share in the total sale consideration at Rs. 63,71,290. Further, AO arrived at the cost of acquisition at Rs. 60 per sq.yd. on the basis of value obtained from SRO and by adopting that value worked out indexed cost of acquisition at Rs. 1,18,835 as far as assessee's share in the property is concerned. Accordingly, the taxable long term capital gain was computed at Rs. 75,90,290. Being aggrieved of the assessment order, assessee preferred appeal before ld. CIT(A).

3. Before ld. CIT(A), assessee advanced detailed argument submitting that capital gain does not arise in the impugned AY as there is no transfer of the capital asset during the year under consideration. It was submitted by assessee by merely entering into the development agreement, 'transfer' in terms of section 2(47) does not take place. Assessee also challenged the determination of sale consideration by adopting the rate of Rs. 1700 per sq.ft. Assessee also challenged the computation of indexed cost of acquisition by adopting the cost of acquisition of Rs. 60 per sq.yd. It was also contended before ld. CIT(A) by assessee that if at all capital gain is computed in the impugned AY, then, assessee should be allowed benefit u/s 54F of the Act.

4. Ld. CIT(A), however, did not find merit in any of the submission s of assessee. As far as the accrual of capital gain is concerned, ld. CIT(A) held that as assessee has delivered possession of the property in pursuance to the development agreement in the impugned 4 ITA No. 688 /Hyd/2014 Mohammed Kadheer, Hyd.

AY, there is a transfer of capital asset giving raise to capital . Ld. CIT(A) also upheld the computation of capital gain made by AO. As far as the claim of deduction u/s 54/54F is concerned, ld. CIT(A) rejected such claim by observing that assessee has not claimed such deduction in the return of income filed in pursuance to the notice issued u/s 148 of the Ac and further deduction u/s 54F is not available to assessee as capital gain has arisen on transfer of an asset being used by assessee for the residential purpose. Accordingly, assessee's appeal was dismissed. Being aggrieved of the order passed by ld. CIT(A), assessee is before us raising various grounds on the issue of year of taxability, sale consideration to be adopted, computation of indexed cost of acquisition and claim of deduction u/s 54/54F of the Act.

5. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. At the outset, ld. counsels for both the parties agreed before us that issues raised by assessee are more or less covered by the decision of the coordinate bench in case of other co-owners in ITA Nos. 666 to 669/Hyd/2014 and ITA Nos. 718 to 720, dated 20/03/2015. On a perusal of the aforesaid order of the coordinate bench, we find that on identical issue of capital gain arising out of the very same transaction in case of other co-owners, the coordinate bench after considering the submissions of the parties and going through the development agreement as well as other materials on record upheld the view of AO as far as the year of taxability is concerned by holding that capital gain arises in the impugned AY as transfer in terms of section 2(47)(v) has taken place during the relevant PY. Coordinate bench following the principle laid down by the Hon'ble A.P High Court in case of P. Nageswara Rao Vs. DCIT, 365 ITR 249 held as under:

"17. Considering the judgment of the jurisdictional High Court and the facts of the case, we are of the opinion that the agreement entered into 5 ITA No. 688 /Hyd/2014 Mohammed Kadheer, Hyd.

by assessees also satisfies the provisions of Section 53A of Transfer of Property Act, and therefore, the said transaction attracts the provisions of Section 2(47) ie. definition of transfer so as to attract capital gains during the impugned year.

18. In the case of Mr. R. Srinivasarao and others ITA.No.1786/Hyd/2012 and others dated 28.08.2014, Binjusaria properties P. Ltd., vs. ACIT ITA.No.157/Hyd/2011 dated 04.04.2014 and also in the case of K. Radhika and others vs. DCIT, Central-II, Hyderabad in ITA.No.208/Hyd/2011, relied on by assessee's counsel the agreements have not been implemented and it was considered that there was no willingness to perform for the purpose of section 53A. In those cases, it was held unless the party has performed or is willing to perform its obligations under the contract and in the same sequence in which these are to be performed, it cannot be said that the provisions of section 53A of the Transfer of Property Act will come into play on the facts of that case. It is further held that unless provisions of section 53A of T.P. Act are satisfied on the facts of case, the transactions in question cannot fall within the scope of deemed transfer under section 2(47)(v) of the I.T. Act. As briefly stated above, the parties have performed the contract as per the terms of the contract. Therefore, the principles laid down in the above case, does not apply to the facts of the present case. Therefore, we are of the opinion that capital gains is correctly imposed in the order under consideration. The action of the Assessing Officer in levying capital gains in the impugned year is consequently upheld."

In the view of the aforesaid, we reject assessee's contention as far as the year of taxability of capital gain is concerned and hold that AO was justified in assessing capital gain in the impugned AY.

5.1 As far as the sale consideration determined by AO by applying the rate of Rs. 1700 per sq.ft. of built-up area by relying upon SRO records, it is seen that the coordinate bench after considering the submissions of the parties remitted the issue back to the file of AO with the following observations:

"19. As briefly stated above, the A.O. while considering the sale consideration has taken two amounts for consideration, one amount is 'sale consideration received under the guise of refundable deposit' of Rs.11,00,165 and other 'value of constructed area of flats received in lieu of asset given for development' at Rs.63,71,290 in each case. assessee did contest that both the amounts cannot be taken and value of cost of construction for the builder has to be adopted and not the 6 ITA No. 688 /Hyd/2014 Mohammed Kadheer, Hyd.

market price of sale value. As already stated above, Ld. CIT(A) did not adjudicate this issue at all.

20. After considering the rival contentions, we are of the opinion A.O. cannot take both the amounts into consideration as it will be a double addition. To that extent, A.O. action cannot be upheld. It is also assessee's contention that value of constructed area adopted by the A.O. is on the basis of the sale price of certain apartments and assessee's were not given any opportunity to place their submissions. Since most of the orders are exparte, the assessee's contentions that cost of construction of the builder should be adopted has not been examined at all. Therefore, in the interest of justice, we set aside this issue to the file of A.O. with a direction to adopt value of constructed area of flats in view land parted with, after giving due opportunity to the assessee. Assessees contention should be considered in its correct perspective and should not be brushed aside without any valid reason. With this direction, the issue of adopting value of sale consideration is restored to the file of A.O.. Assessees grounds on that are accordingly allowed for statistical purposes."

Respectfully following the decision of the coordinate bench as aforesaid, we also remit the issue back to the file of AO with similar directions.

5.2 As far as adoption of indexed cost of acquisition at Rs. 1,85,837 is concerned, the coordinate bench also directed AO to examine the issue afresh by observing as under:

"21. This issue also require re-examination by the Assessing Officer. Assessing Officer adopted amount of Rs.1,18,835 in each case as cost of acquisition. It was the contention of the assessee that there were buildings on the said land which were demolished and the cost of which was also to be adopted. Therefore, cost of land alone cannot be adopted. Cost of buildings at the time of entering into agreement should be considered. In addition, assessee also claims to have paid lot of amounts to the tenants, unauthorized hutment dwellers as part of clearing the title along with litigation expenses. This expenditure also will form part of cost of acquisition. Subject to verification and furnishing necessary evidences, the A.O. is directed to examine, assessees contentions and allow the indexed cost of acquisition on the basis of facts and law. This issue also accordingly restored to the file of A.O. for fresh consideration."

7 ITA No. 688 /Hyd/2014 Mohammed Kadheer, Hyd.

Respectfully following the decision of the coordinate bench, we also restore this issue back to the file of AO for deciding afresh keeping in view the directions of the coordinate bench in case of other co-owners as referred to hereinabove.

5.3 As far as assessee's claim of deduction u/s 54/54F is concerned, it is seen that ld. CIT(A) has rejected assessee's claim for two reasons. Firstly, because assessee has not made any claim in the return filed in response to section 148 notice and secondly, because as the property sold is not simply land, but, have hutments also, which is in the nature of residential house, deduction u/s 54F cannot be given. In this context, it needs to be observed, admittedly assessee in the return of income filed in response to the notice issued u/s 148 of the Act, did not declare capital gain, therefore, the question of claiming deduction u/s 54/54F does not arise. However, once capital gain is computed in the impugned AY rejecting assessee's claim, then, consequential relief u/s 54/54F has to be given to assessee if assessee is otherwise eligible for such relief. As far as second objection of the ld. CIT(A) is concerned, it needs to be observed that there is no dispute to the fact that asset transferred is a capital asset. Therefore, if at all assessee is not eligible u/s 54F since in ld. CIT(A)'s view the property transferred is not a land, but, is a property used for residence by assessee, then, eligibility for deduction u/s 54 could have been considered alternatively by ld. CIT(A). Thus, in our view, rejection of assessee's claim of deduction either u/s 54 or 54F without examining assessee's eligibility to such claim under law is legally unsustainable. Be that as it may, it is seen from the order of coordinate bench in case of other co-owners (supra), this issue has also been restored back to the file of AO for examining assessee's claim of deduction u/s 54/54F keeping in view the judicial pronouncements on the issue. Respectfully following the same, we restore this issue to the file of AO with similar directions.

8 ITA No. 688 /Hyd/2014 Mohammed Kadheer, Hyd.

6. In the result, appeal of assessee is partly allowed for statistical purposes.

Pronounced in the open court on 17 th April, 2015.

Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 17 th April, 2015 kv

Copy to:-

1) Shri Mohammed Kadheer, C/o Shri S. Rama Rao, Advocate, Flat No. 102, Shriya's Elegance, H.No. 3-6-643, St. No. 9, Himayatnagar, Hyderabad - 500 029

2) ITO, Ward - 9(1), Hyderabad 3 CIT(A), Vijayawada

4)CIT-II, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.