Vipin Arora, Ghaziabad vs Department Of Income Tax

This appeal of the Revenue is directed against the Order dated 04.09.2012 passed by the Ld. Commissioner of Income Tax (Appeals), Ghaziabad for the Assessment year 2007-08 on the following grounds:-

"1. In the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating that the cost of land and building have been mentioned separately in the registered purchase deed and accordingly the AO has rightly computed the Capital Gain.

2. In the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating that the benefit of capital gain, especially when cost of acquisition of land and building have been mentioned separately in the purchase deed.

3. In the facts and circumstances of the case, whether the Ld. CIT(A) was justified in holding that the issue is also squarely covered by the order by the order of ITAT Hyderabad in Dr. May Shenoy vs. Asstt. CIT (2009) 124 ITR J (HYD) 692.

4. That in the facts and circumstances of the case, it is requested that the order of Ld. CIT(A) being erroneous in law and on facts is liable to be reversed / set aside and the order of the AO may be restored.

ITA NO. 6077/Del/2012

5. The appellant craves leave to modify / amend or add any one or more grounds of appeal."

2. The facts in brief as noted by the ld CIT(A) are that in this case Return of income in this case was filed on 24.09.2007 declaring income of Rs. 7,72,060/- from salary, STCG and income from other sources. The case was picked up for scrutiny and notice u/s. 143(2) of the Income Tax, 1961 (herein after 'the Act') was issued to the assessee on 26.9.2008. In response to the notices issues u/s. 143(2)/142(1), assessee's counsel attended the proceedings from time to time and filed details. The assessee during the year under consideration received salary from M/s Emmar MGF Land Pvt. Ltd. and also sold residential property i.e. Plot No. III, E/92, Nehru Nagar-II, Ghaziabad for Rs. 24,00,000/- which was acquired by the assessee in the year 2006. The assessee has claimed the cost of acquisition at Rs. 23,70,020/-. Thus, net short term capital gain has been declared at Rs. 29,980/-. Copies of purchase deed and sale deed of the above property were filed before the AO. Thereafter, the AO completed the assessment u/s. 143(3) of the Act, vide his order dated 14.09.2009 on an income of Rs. 22,00,241/-.

3. Being aggrieved with the assessment order dated 14.9.2009, assessee appealed before the Ld. CIT(A), who vide impugned order dated 4.9.2012 has partly allowed the appeal of the assessee.

4. Now the Revenue is aggrieved against the impugned order dated 14.9.2009 and filed the present appeal before the Tribunal.

5. At the time of hearing Ld. DR relied upon the order of the AO and reiterated the contentions raised by the Revenue in the grounds of appeal.

6. On the contrary, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and submitted that the same may be upheld.

7. We have heard both the parties and perused the relevant records available with us. We find that in this case return of income was filed on 24.9.2007 declaring income of Rs. 772060/- from salary, STCG and income from other sources. The assessee during the year under consideration 2 ITA NO. 6077/Del/2012

received salary from M/s Emmar MGF Land Pvt. Ltd. and also sold residential property i.e. Plot No. III, E/92, Nehru Nagar-II, Ghaziabad for Rs. 24,00,000/- which was acquired by the assessee in the year 2006. The assessee has claimed the cost of acquisition at Rs. 23,70,020/-. Thus, net short term capital gain has been declared at Rs. 29,980/-. AO completed the assessment u/s. 143(3) of the Act. Vide his order dated 14.9.2009 and income of the assessee was computed as under:-

-Salary as per computation Rs. 8,39,651/- -Income from capital gain as discussed Rs. 13,28,160/- -Income from other sources as per computation Rs. 2,430/- - Income from other sources as discussed Rs. 1,30,000/- Rs. 23,00,241 Less: Deduction u/s. 80C (-) Rs. 1,00,000 Rs. 22,00,241/-

7.1 We find that assessee aggrieved with the aforesaid computation has

appealed before the Ld. CIT(A), who vide his order dated 4.9.2012 has elaborately discussed the issues in dispute by considering the assessment order as well as the submissions of the Ld. Counsel of the assessee and observed that assessee is an employee who has purchased and sold an immovable property situated at III-E/92 Nehru Nagar, Ghaziabad and declared short term capital gain Rs. 29,980/- from the said property. In the computation, assessee has taken cost of acquisition of Rs. 23,70,020/- as per the sale deed dated 17.5.06 against the sale consideration of Rs. 24 lacs. But the construction was demolished as the same was in bad condition for constructing new house on the same but ultimately assessee sold the property vacant (plot) as he could not arrange the funds for construction. We find that on these facts AO disallowed the claim of cost of acquisition as assessee had not declared sales consideration of Rs. 1,30,000/- against sale of 'Malwa' of demolished construction and claim of interest paid Rs. 1,42,715/- to Citi Bank against loan taken for acquisition of the said property. We find that the Ld. CIT(A) has observed that the actual cost incurred by the assessee for the acquisition of the property has to be taken for computing capital gain and part of it cannot be disallowed on the basis that construction is 3 ITA NO. 6077/Del/2012

demolished before sale. The ld CIT(A) has considered the possibility that if part of construction had fallen down on its own i.e, Act of God; then also the result would have been the same and it would not have been possible to disallow value of such demolished part out of actual cost of acquisition incurred. It is true that assessee has not disclosed the consideration against sale of Malwa, cannot be a basis for such computation (as income from other sources) but that by itself, about which he has given a plausible explanation. It is clear that act of demolition of building and sale of Malwa is intricately linked to the sale or vacant plot for which assessee has received Rs 24,00,000/-. Thus, the sale of land and structure (which was demolished) should be considered together for deriving the total sale consideration. Thus, we concur with the observation of the ld. CIT(A) that there is no reason to tax the sale of 'Malwa' under different head, income from other sources, when it is intricately connected to sale of same property. And even if it is to be taxed under the said Head, then also associated cost of construction is be deducted and, thus, consequential loss is to be allowed against gain arriving, which ultimately would yield the same result.

7.2 We also find that the Ld. CIT(A) has also referred a decision of ITAT, Hyderabad in the case of Dr. Maya Shenoy vs. ACIT [2009] 124 TTJ (Hyd.) 692 and observed as under:-

"Section 2(47) of the Income Tax Act, 1961 -Capital Gains - Transfer Development agreement under which developer was to handover 45 percent of constructed area as consideration to assessee could not merely amount to granting of licence to builder to carry on development activities but would be a case of transfer under section 2(47)(i) [Assessment year 2001-02) [in favor of Revenue]

Dr. May Shenoy v. ACIT [2009] 124 TTJ (Hud.) 692

The assessee had purchased a property consisting of land with a double storied building standing on it. The assessee entered into a development agreement with one A.S.R. on 9-3-1995 for construction of flats. As per the agreement, the developer was to be handed over the possession of the said land and in turn had to give 45 per cent of the constructed area to the owner i.e., the assessee, and the assessee was to demolish the existing structure. Accordingly, the assessee 4 ITA NO. 6077/Del/2012

demolished the structure in 1999 and handed over the vacant land for development. The builder commenced construction in January, 2000 and completed the construction by 31-3-2001. He handed over flats representing the assessee' s 45 per cent share in the constructed area. During the year, the assessee sold two flats for a consideration of Rs. 17,91,000/-. The long-term capital gain on the sale of flats was computed by adopting the value of the original property at Rs. 5 lacs as on 1-4-1981. It was suitably indexed and the long-term capital gain was worked out at Rs. 11,14,290. The Assessing Officer was of the view that the working shown by the assessee was not in order. According to him, the land given for development in consideration of 4-1/2 flats constituted one transaction liable for long-term capital gain and the flats sold by the assessee constituted a separate transaction liable to long-term/short-term capital gain. He worked out long-term capital gain on the transfer of land. On sale of two flats, short-term capital gain was worked out holding that the development agreement under which the developer was to hand over 45 per cent of constructed area as consideration to the assessee was not merely granting of licence to the builder to carry on development activities but amounted to transfer under section 2(47)(i).

Held that In the instant case, on facts, the assessee had, in fact, exchanged her present property for consideration in kind which was in the nature of 4-1/2 flats to be given to her by the developer: Thus, it was a case of exchange as understood in clause (i) of section 2(47). There was no force in the argument that the handing over of the possession was not in pursuance of part performance of the contract. Possession of the land being one of the interest in property had been transferred to the developer who also would be enjoying the usufruct of the land. If the shield of section 53A was available to the developer, it obviously meant that handing over of the possession was pursuant to the transfer contemplated under the Transfer of Property Act and hence under clause (v) of section 2(47). In the present case, this was not a sale transaction as money was not the consideration but some other valuable consideration was passing to the assessee in the form of 4-1/2 flats.

Therefore, the transfer in the present case was for consideration and it was immaterial that the consideration may be received in future. Therefore, the development agreement in the present case had the effect of transfer as contemplated in section 2(47). Having held that the execution of the development agreement resulted into the transfer of land from the assessee to the developer, the next issue which fell for consideration was as to what was the effective date of transfer. The possession of the vacant land was handed over to the developer. The agreement was merely an executory agreement and not acted upon. Thus, it could be said that the developer got the possession of the land sometimes in December, 1999. Thus qua the entire. piece of land, the 5 ITA NO. 6077/Del/2012

assessee was left with nothing but the husk of title and hence it was a transfer as per section 2(47); handing over of the possession was towards the part performance of the agreement. Therefore, as per clause (v) of section 2(47), transfer took place in December, 1999, the effective assessment year being 2000-01.

The stand of the assessee to treat the two transactions as one was too fallacious. It did not merit acceptance. Accordingly, transfer of land in consideration of the flats constituted one transaction giving rise to capital gains and the sale of flats by the assessee constituted another transaction giving rise to capital gains.

The long-term capital gain arising on transfer of land was not taxable during the year under consideration as it had accrued in the previous year relevant to assessment year 2000-01. Therefore, the Assessing Officer might consider, if law permitted and if so advised, to compute the gains in the year to which it pertained.

So far as the computation of gains on sale of flats was concerned, there was no dispute that two flats were sold in the year relevant to the assessment year 2002-03. Hence, that part did not fall for consideration in the instant appeal. During the year, there was a sale of flats. Accordingly, this issue was restored back to the file of the AO with the direction to recomputed the short term capital gain on sale of flats after considering the view point of Commissioner (Appeals) and also after giving due opportunity of being heard to the assessee."

7.3 In view of the above, we find considerable cogency in the finding of the Ld. CIT(A) wherein he respectfully applied the aforesaid principle and held that the demolition of building was a part of the process of land transaction and, hence, the cost of property was the actual cost incurred by the assessee for purchasing the land along with the building. Therefore, he held that the assessee has claimed cost of acquisition correctly which is to be allowed in full. Ld. CIT(A) also noted that there is no authentic evidence that sale of Malwa was only for Rs. 1,30,000/- and noted that in this behalf assessee's own affidavit is self serving and therefore, observed that in the absence of any authentic evidence, he held that sale consideration for Malwa requires to be estimated and accordingly, estimated the said consideration at Rs. 2.75 lacs which should be added to the consideration disclosed Rs. 24 lacs.

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7.4 Keeping in view of the above detailed discussions, we find force in the Ld. CIT(A)'s computation which read as under:-

Total sale consideration [As per registered deed Rs. 26,75,000/- dated 3.2.07 + sale consideration of 'Malwa' (Rs. 24,00,000 + Rs. 2,75,000/-) Less : Cost of acquisition as per registered deed Rs. 23,70,020/-

dated 17.5.06 SHORT TERM CAPITAL GAIN Rs. 3,04,980/-

7.5 In the background of the aforesaid discussions, we are of the view that

no interference is called for in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by dismissing the appeal filed by the Revenue.

8. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 27.03.2015.

-Sd/- -Sd/- (R.S. SYAL) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated:27/03/2014 A K Keot

Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi

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