A.P.State Agro Industries Development Corpn.Ltd., Hyderabad V. DCIT, Hyderabad

CO 32/HYD/2006

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0984 (ITAT-HYDERABAD)
• Duration Of Justice: 9 year(s) 1 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-06-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 22-05-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Depreciation; Revised return
• Section: 45(5)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER SL. NO. ITA NO. AY APPELLANT RESPONDENT 1. 256/H/06 2002-03 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 1(1), HYDERABAD M/S AP STATE AGRO INDUSTRIES DEVELOPMENT CORPORATION LTD., HYDERABAD. PANAABCA7378 R 2 & 3 214 & 215/H/10 2005-06 & 2006-07 M/S AP STATE AGRO INDUSTRIES DEVELOPMENT CORPORATION LTD., HYDERABAD. PANAABCA7378 R INCOME-TAX OFFICER, WARD 1(1), HYDERABAD. C.O. S.NO. C.O. AY CROSS OBJECTOR RESPONDENT 4 32/H/06 (IN ITA NO. 256/H/06) 2002-03 M/S AP STATE AGRO INDUSTRIES DEVELOPMENT CORPORATION LTD., HYDERABAD. PANAABCA7378 R DY. COMMISSIONER OF INCOME-TAX, CIRCLE 1(1), HYDERABAD REVENUE BY : SHRI D. SUDHAKAR RAO ASSESSEE BY : SHRI S. RAMA RAO DATE OF HEARING 10-06-2015 DATE OF PRONOUNCEMENT -06-2015 O R D E R PER BENCH: AFORESAID APPEALS ONE BY THE DEPARTMENT AND TWO BY ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDERS OF LD. CIT(A)- II, HYDERABAD FOR THE AYS 2002-03, 2005-06 AND 2006-07. ASSESSEE HAS ALSO FILED C.O. AGAINST THE ORDER OF LD. CIT(A) FOR AY 2002-03. AS THE APPEALS FILED ARE ON COMMON ISSUES AND RELATE TO SAME ASSESSEE, T HEY ARE 2 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. CLUBBED AND HEARD TOGETHER, THEREFORE, THESE APPEAL S ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR T HE SAKE OF CONVENIENCE. ITA NO. 256/HYD/2006 2. THIS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINS T THE ORDER DATED 30/12/2005 PASSED BY LD. CIT(A)-II. THERE IS A DELAY OF THREE DAYS IN FILING THE APPEAL. A PETITION HAS BEEN FILE D EXPLAINING THE CAUSE OF DELAY AND SEEKING CONDONATION FOR THE SAME . ON PERUSING THE REASON SHOWN FOR DELAY, WE ARE SATISFIED WITH T HE SAME AND CONDONE THE DELAY OF 3 DAYS AND ADMIT THE APPEAL FO R HEARING ON MERIT. 3. THE ONLY ISSUE RAISED BY THE DEPARTMENT IN THIS APPEAL IS IN RELATION TO THE DECISION OF LD. CIT(A) IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF CAPITAL GAIN. 4. BRIEFLY THE FACTS RELATING TO THIS ISSUE ARE, AS SESSEE IS A STATE PUBLIC SECTOR UNDERTAKING AND IS IN THE BUSINESS OF LAND LEVELING, HIRING AND SALES OF TRACTORS. FOR THE AY UNDER CONS IDERATION, ASSESSEE FILED ITS RETURN OF INCOME DECLARING NIL INCOME A FTER SETTING OFF BROUGHT FORWARD LOSSES OF RS. 2,38,74,504. SUBSEQUE NTLY, ASSESSEE FILED A REVISED RETURN ON 01/11/2003 DECLARING NIL INCOME AFTER SETTING OFF BROUGHT FORWARD LOSS OF RS. 10,36,36,46 1. DURING THE ASSESSMENT PROCEEDING, AO NOTICED THAT INITIALLY AS SESSEE HAD SHOWN AN AMOUNT OF RS. 19,70,83,862 AS TOTAL SALE CONSIDE RATION FROM THE PROPERTY SITUATED AT NALGONDA, WARANGAL AND HYDERAB AD AND WORKED OUT LONG TERM CAPITAL GAIN AT RS. 19,53,14,791. HOW EVER, IN THE FOOT NOTE TO THE COMPUTATION OF INCOME, IT WAS STATED BY ASSESSEE THAT NO CAPITAL GAIN AROSE DURING THE RELEVANT PY IN RESPEC T OF THE LAND AT 10- 2-3, AC GUARDS, HYDERABAD AS IT WAS NOT THROUGH A R EGISTERED CONVEYANCE DEED AND THERE WAS NO TRANSFER WITHIN TH E MEANING OF SECTION 2(47)(V) OF THE ACT. DURING ASSESSMENT PROC EEDING, ASSESSEE ALSO FILED A REVISED COMPUTATION OF INCOME WORKING OUT THE LONG TERM 3 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. CAPITAL GAIN AT RS. 1,16,33,336 AFTER EXCLUDING CAP ITAL GAIN SHOWN EARLIER IN RESPECT OF THE PROPERTY AT AC GUARDS, HY DERABAD. AO ISSUED SHOW CAUSE NOTICE CALLING UPON ASSESSEE TO E XPLAIN WHY THE CAPITAL GAIN EARLIER SHOWN WITH REGARD TO THE PROPE RTY SOLD AT AC GUARDS, HYDERABAD SHOULD NOT BE TAXED IN THE IMPUGN ED AY. IN REPLY TO THE SHOW CAUSE NOTICE, IT WAS SUBMITTED BY ASSES SEE AS UNDER: 1. IN VIEW OF SOME ARRANGEMENT BETWEEN THE STATE GO VT. AND THE INCOME TAX DEPARTMENT, THE STATE GOVT. DIRECTE D THE ASSESSEE CORPORATION VIDE G.O. MS. NO. 33, DT. 03/ 07/2011 TO HAND OVER POSSESSION TO THE INCOME TAX DEPARTMENT. 2. THE VALUE OF THE LAND TRANSFERRED WAS TO BE DET ERMINED BY THE STATE GOVT. AND SET-OFF AGAINST LOANS PAYABLE BY THE CORPORATION TO THE STATE GOVT. THE SAME WAS NOT FI NALIZED TILL DATE. SOME VALUE WAS DETERMINED FOR BOOK ENTRY PUR POSES BUT WAS YET TO BE FORMALLY APPROVED BY THE STATE GOVT. ONLY AFTER THE CONSIDERATION RECEIVABLE IS FINALLY DETERMINED AND THE STATE GOVT. FINALISES THE LEGAL FORMALITIES OF TRANSFER OF LAND WITH THE INCOME TAX DEPARTMENT, TRANSFER COULD BE SAID TO B E COMPLETE. 3. FOR THE PURPOSES OF THE PART PERFORMANCE UNDER THE TRANSFER OF PROPERTY ACT, THERE SHOULD BE A WRITTEN CONTRAC T BETWEEN TRANSFEROR AND TRANSFEREE FOR TRANSFER OF AN IMMOV ABLE PROPERTY. HOWEVER, NO SUCH CONTRACT EXISTED BETWEEN THE ASSE SSEE CORPORATION AND THE INCOME TAX DEPARTMENT. 4. ENTRIES MADE IN THE BOOKS OF ACCOUNT OF ASSESSE E CORPORATION WITH RESPECT TO THE TRANSFER HAVE NO R ELEVANCE UNTIL THE TRANSFER IS COMPLETED IN ALL THE ABOVE RESPECT S. AO AFTER EXAMINING THE SUBMISSIONS MADE BY ASSESSEE , NOTED THAT IN THE ORIGINAL RETURN, ASSESSEE HAS NOT DISCLOSED ANY CAPITAL GAIN ON THE PROPERTY SITUATED AT AC GUARDS, HYD. HOWEVER, IN TH E REVISED RETURN, EVEN THOUGH, ASSESSEE MENTIONED THAT SALE WAS NOT C OMPLETE, BUT, STILL IT OFFERED SALE CONSIDERATION AS INCOME IN TH E P&L A/C. ACCORDINGLY, DEPRECIATION STATEMENT WAS PREPARED DE LETING THE PROPERTY AT AC GUARDS, HYD. FROM THE LIST OF FIXED ASSETS. THUS, IT WAS OBSERVED BY AO ONLY ON AN AFTER THOUGHT THAT THE T OTAL INCOME WILL INCREASE TO THE EXTENT THAT IT CANNOT BE SET OFF AG AINST BROUGHT FORWARD LOSSES, WHICH MAY SUBSEQUENTLY RESULT IN TAX, ASSES SEE HAS SOUGHT TO WITHDRAW LONG TERM CAPITAL GAIN ON THE PROPERTY AT AC GUARDS. AO 4 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. ALSO OBSERVED THAT IN THE RETURNS FOR 2003-04 AND 2 004-05, ASSESSEE HAS NOT OFFERED CAPITAL GAIN IN RESPECT OF THE PROP ERTY AT AC GUARDS. AO OBSERVED, THOUGH, AS PER ASSESSEES SUBMISSION I T WILL APPEAR THAT IT HAS TRANSFERRED LAND TO THE INCOME-TAX DEPA RTMENT, BUT, ACTUALLY ASSESSEE HAS TRANSFERRED THE LAND TO THE STATE GOVE RNMENT, FOR A CONSIDERATION EQUIVALENT TO THE LOANS TO BE PAID BY IT TO THE GOVT. OF AP. AO REFERRING TO THE GOMS NO. 33 DATED 03/07/200 1 OF STATE GOVT. FOR HANDING OVER POSSESSION OF THE PROPERTY TO THE INCOME-TAX DEPARTMENT, OBSERVED THAT THE ACT OF THE STATE GOVT . PASSING G.O. TRANSFERRING LAND TO A THIRD PARTY INDICATES THAT S TATE GOVT. HAS TAKEN OVER OWNERSHIP/POSSESSION OF THE LAND. AS FAR AS CO NSIDERATION WAS CONCERNED, THE SAID G.O. ALSO MAKES IT CLEAR THAT N ECESSARY ORDERS IN RESPECT OF THE COST OF LAND AND ITS ADJUSTMENT AGAI NST LOAN AMOUNT PAYABLE BY ASSESSEE TO THE GOVT. WOULD BE ISSUED SE PARATELY. THUS, AO OBSERVED THAT ASSESSEES ARGUMENT THAT NEITHER C ONSIDERATION WAS DETERMINED NOR TRANSFER TOOK PLACE U/S 2(47)(V) IS ACCEPTABLE. AO REFERRING TO SECTION 2(47)(V) OF THE ACT, STATED TH AT AS PER THE SAID PROVISION TRANSFER OF THE PROPERTY HAS IN FACT TAKE N PLACE. AO FURTHER OPINED THAT ASSESSEE CORPORATION HAS ITSELF REMOVED THE LAND FROM ITS BALANCE SHEET AS ON 31/03/2002, WHICH INDICATES TRA NSFER OF LAND TO THE STATE GOVT. AO OBSERVED, EVEN ASSESSEE HAS HAND ED OVER THE POSSESSION OF PROPERTY IN COMPLIANCE TO THE GO ISSU ED BY THE STATE GOVERNMENT. ON THE BASIS OF THE AFORESAID FACTS, AO OBSERVED THAT TRANSFER OF PROPERTY HAS TAKEN PLACE AND ONLY ADJUS TMENT ENTRY HAS TO BE PASSED IN RESPECT OF LAND TOWARDS LOAN AMOUNT PA YABLE TO GOVT. OF AP, THEREFORE, THE CONSIDERATION IN A SENSE HAS BEE N RECEIVED IN ADVANCE BY ASSESSEE CORPORATION. ON THE AFORESAID B ASIS, AO PROCEEDED TO COMPUTE LONG TERM CAPITAL GAIN FROM SA LE OF PROPERTY AT RS. 19,53,14,291 AS SHOWN BY ASSESSEE IN THE REVISE D RETURN. BEING AGGRIEVED OF DETERMINATION OF CAPITAL GAIN AS ABOVE , ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). 5. IN COURSE OF HEARING OF APPEAL, ASSESSEE ADVANCE D ELABORATE ARGUMENTS IN SUPPORT OF ITS CONTENTION THAT NEITHER THERE IS TRANSFER OF 5 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. PROPERTY IN TERMS OF SECTION 2(47(V) AS A RESULT OF WHICH LONG TERM CAPITAL GAIN ACCRUED TO ASSESSEE DURING RELEVANT P Y. IT WAS SUBMITTED BY ASSESSEE THAT, THOUGH, AO HAS PUT MUCH EMPHASIS ON THE ENTRIES MADE IN THE BOOKS OF ACCOUNT, BUT, THEY ARE NOT DETERMINATIVE OF A RECEIPT OR ITS ASSESSABILITY AS INCOME. IT WAS SUBMITTED THAT THE GOVT. ORDER ITSELF WOULD REVEAL THAT NECESSARY ORDERS IN RESPECT OF COST OF LAND AND ITS ADJUSTMEN T AGAINST LOAN AMOUNT WILL BE ISSUED SEPARATELY. THEREFORE, WHEN C OST OF LAND ITSELF IS NOT DETERMINED, COMPUTATION PROVISION WOULD FAIL IN VIEW OF THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF B.C. SRINIVAS SHETTY, 128 ITR 295. IT WAS SUBMITTED BY A SSESSEE THAT EVEN AOS CONCLUSION THAT THERE IS A TRANSFER IN TERMS O F SECTION 2(47(V) IS WITHOUT ANY BASIS AS THERE IS NO CONTRACT BETWEEN A SSESSEE AND THE STATE GOVT. OF THE NATURE ENVISAGED IN SECTION 53A OF THE TRANSFER OF PROPERTIES ACT. 6. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD FOUND THAT AS PER GOMS NO. 33 DATED 03/07/01 ISSUED BY THE GOVT., ASSESSEE WAS DIRECTED TO HAND OVER POSSESSION OF THE PROPERTY TO THE INCOME-TAX D EPARTMENT AND IN COMPLIANCE TO THE GOVERNMENTS ORDER, ASSESSEE HAND ED OVER POSSESSION OF THE PROPERTY TO THE INCOME-TAX DEPART MENT ON 31/10/2001. LD. CIT(A) OBSERVED THAT TILL POSSESSI ON OF THE PROPERTY WAS HANDED OVER BY VIRTUE OF THE GOVT.S ORDER, ASS ESSEE WAS THE OWNER OF THE PROPERTY. HOWEVER, THE INCOME-TAX DEPA RTMENT IN EXCHANGE OF LAND OWNED BY IT AT SOME OTHER PLACE SE CURED THE SAID PROPERTY FROM THE GOVT. THUS, THE TRANSACTION INVOL VING THE PROPERTY IN QUESTION WAS BETWEEN ASSESSEE AND THE GOVT. AND THE GOVT. IN ITS ORDER HAS INTENDED TO ISSUE A SEPARATE ORDER IN RES PECT OF THE COST OF PROPERTY AND ADJUST THE SAME AGAINST THE LOAN BORRO WED BY ASSESSEE. HE OBSERVED, THOUGH, GOVT. TILL THE DATE OF HEARING OF APPEAL HAS NOT ISSUED ANY ORDER FIXING THE COST OF PROPERTY, BUT, AO HAS PROCEEDED TO COMPUTE CAPITAL GAIN ONLY ON THE GROUND THAT ASSESS EE HAD HANDED OVER THE POSSESSION OF THE SAID PROPERTY. LD. CIT(A ) AFTER GOING 6 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. THROUGH THE PROVISION OF SECTION 2(47)(V) OF THE AC T, OBSERVED THAT AS PER THE SAID PROVISION ANY TRANSACTION INVOLVING T HE ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882 IS TO BE TREATED AS TRANSFER. KEEPING IN VIEW AFORESAID PROVISION, LD. CIT(A) WHI LE EXAMINING THE FACTS OF THE CASE FOUND THAT THOUGH PROPERTY IN QUE STION WAS HANDED OVER BY ASSESSEE TO INCOME TAX DEPARTMENT AS PER TH E GOVT. ORDER, BUT, THERE IS NO CONTRACT OF THE NATURE REFERRED TO U/S 53A OF THE TRANSFER OF PROPERTIES ACT BETWEEN ASSESSEE AND THE STATE GOVT. THEREFORE, PROVISIONS OF SECTION 2(47(V) ARE NOT AP PLICABLE. AS FAR AS THE ALLEGATION OF AO THAT ASSESSEE HAS CREDITED MAR KET VALUE OF THE SAID PROPERTY TO P&L A/C, LD. CIT(A) OBSERVED THAT MERE ENTRY MADE BY ASSESSEE UNILATERALLY IN THE BOOKS OF ACCOUNT, P ENDING APPROVAL OF THE GOVT. CANNOT BE TAKEN AS FULL VALUE OF CONSIDER ATION WITHIN THE MEANING OF SECTION 48 OF THE ACT. HE, THEREFORE, CO NCLUDED THAT IN VIEW OF THE SPECIFIC ORDER OF THE GOVT. PROVIDING F OR DETERMINATION OF COST OF LAND THROUGH A SEPARATE ORDER, CREDITING TH E MARKET VALUE BY ASSESSEE IN ITS ACCOUNTS WILL HAVE NO RELEVANCE AND ASSESSEE CANNOT BE TIED DOWN TO SUCH WRONG ENTRY MADE IN THE BOOKS OF ACCOUNT. IN THIS CONTEXT, HE RELIED UPON A DECISION OF HONBLE SUPREME COURT IN CASE OF ALAPATI VENKATA RAO VS. CIT, HE, THEREFORE, HELD THAT CREDITING OF MARKET VALUE BY ASSESSEE IN ABSENCE OF ANY ORDER PASSED BY GOVT. DETERMINING THE COST OF PROPERTY CANNOT BE TAKEN INTO CONSIDERATION. ON THE AFORESAID BASIS, LD. CIT(A) H ELD THAT LONG TERM CAPITAL GAIN COMPUTED BY AO IN THE IMPUGNED AY CANN OT SURVIVE, HENCE, ADDITION MADE WAS DELETED. HOWEVER, LD. CIT( A) DIRECTED ASSESSEE TO DISCHARGE ITS OBLIGATION OF PAYMENT OF CAPITAL GAIN TAX AS AND WHEN IT ARISES OR ACCRUES BY AFTER GOVT. PASSES NECESSARY ORDERS IN RESPECT OF THE COST OF THE SAID PROPERTY. 7. LD. DR STRONGLY SUPPORTING THE REASONING OF THE AO SUBMITTED BEFORE US, ONCE POSSESSION IS HANDED OVER BY ASSES SEE OF THE 7 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. IMMOVABLE PROPERTY, THERE IS A TRANSFER IN TERMS OF SECTION 2(47)(V) OF THE ACT IRRESPECTIVE OF FACT WHETHER THERE IS A WRI TTEN CONTRACT OR NOT. LD. DR SUBMITTED, WHEN THE HANDING OVER OF POSSESSI ON IS NOT IN DISPUTE AND FURTHER WHEN ASSESSEE HAS CREDITED MARK ET VALUE OF THE PROPERTY TO P&L A/C AND REMOVED IT FROM THE LIST OF FIXED ASSETS, TRANSFER CANNOT BE DENIED. IN SUPPORT OF SUCH CONTE NTION, HE RELIED UPON THE DECISION OF HONBLE AP HIGH COURT IN CASE OF POTLA NAGESWARA RAO, 365 ITR 249. 8. LD. AR, ON THE OTHER HAND, SUBMITTED BEFORE US, UNDER NO CIRCUMSTANCES, IT CAN BE TREATED AS TRANSFER U/S 2( 47)(V) AS THE CONDITIONS OF SECTIONS 53A OF THE T.P. ACT HAS NOT BEEN FULFILLED. LD. AR SUBMITTED, AS PER SECTION 53A OF TP ACT, ONLY A RIGHT IS CONFERRED ON THE TRANSFEREE AND IN REAL SENSE OF THE TERM TH ERE IS NO TRANSFER. HE SUBMITTED, IN THE FACTS OF THE PRESENT CASE, AS PER THE ORDER ISSUED BY GOVT., ASSESSEE HAS HANDED OVER THE POSSESSION O F THE PROPERTY TO THE INCOME TAX DEPARTMENT. THERE IS NO CONTRACT IN WRITING BETWEEN ASSESSEE AND STATE GOVT. SO AS TO TREAT IT AS TRANS FER AS ENVISAGED U/S 53A OF THE T.P. ACT. LD. AR REFERRING TO THE GOVT. ORDER SUBMITTED, IT IS AN UNILATERAL ACT OF THE STATE GOVT. TO HAND OVER T HE LAND IN QUESTION TO THE INCOME TAX DEPARTMENT. HOWEVER, THOUGH, IN THE SAID ORDER, IT HAS BEEN MENTIONED THAT A SEPARATE ORDER WILL BE PASSED DETERMINING THE COST OF LAND AND ADJUSTING THE SAME AGAINST REPAYME NT OF LOAN BY ASSESSEE TO THE STATE GOVT., BUT, TILL DATE NO SUCH ORDER HAS BEEN PASSED. THEREFORE, IN ABSENCE OF COST OF LAND, COMP UTATION PROVISION ITSELF FAILS, HENCE, THERE CANNOT BE ANY CAPITAL GA IN FOR THE IMPUGNED AY. LD. AR SUBMITTED, NEITHER ASSESSEE HAS EFFECTED ANY TRANSFER NOR ANY CONSIDERATION HAS BEEN RECEIVED. IT WAS SUBMITT ED, EVEN THE MARKET VALUE OF THE LAND CREDITED IN THE BOOKS OF A CCOUNT HAS BEEN SHOWN AS RECEIVABLE AND NOT ADJUSTED AGAINST LOAN. IN THIS CONTEXT, HE REFERRED TO THE BALANCE SHEET AND P&L A/C OF ASSESS EE COMPANY. FURTHER, HE SUBMITTED, ENTRIES MADE IN THE BOOKS OF ACCOUNT WITH REGARD TO MARKET VALUE OR REMOVING THE LAND FROM FI XED ASSETS ARE 8 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. NEITHER DETERMINATIVE NOR CONCLUSIVE FACTOR FOR AC CRUAL OF INCOME SO AS TO TAX IT IN THE HANDS OF ASSESSEE. LD. AR RELYI NG UPON A DECISION OF THE HONBLE SUPREME COURT IN CASE OF K.P. VARGHE SE, 135 ITR 591 SUBMITTED, WHAT IS NOT RECEIVED OR ACCRUED CANNOT B E CONSIDERED AS INCOME OF ASSESSEE. ALTERNATIVELY, IT WAS SUBMITTED BY ASSESSEE, EVEN IF IT IS TO BE CONSIDERED AS TRANSFER, THEN, I T IS AKIN TO COMPULSORY ACQUISITION OF LAND BY GOVT. AND IN THAT EVENT CAPI TAL GAIN WOULD BE TAXABLE IN THE YEAR OF RECEIPT OF COMPENSATION AS P ER SECTION 45(5) OF THE ACT. AS FAR AS THE DECISION OF POTLA NAGESWARA RAO (SUPRA) IS CONCERNED, LD. AR SUBMITTED, THE FACTS OF THE SAID CASE ARE CLEARLY DISTINGUISHABLE AND WILL NOT APPLY TO ASSESSEES C ASE. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD AS WELL AS ORDERS OF REVENU E AUTHORITIES. AS CAN BE SEEN, SOLELY RELYING UPON THE FACT THAT ASSE SSEE HAS HANDED OVER POSSESSION OF THE PROPERTY TO THE INCOME-TAX D EPARTMENT IN TERMS WITH THE GOMS ISSUED BY GOVT., AO HAS INFERRE D THAT THERE IS A TRANSFER IN TERMS OF SECTION 2(47)(V) OF THE ACT. T HEREFORE, THE FUNDAMENTAL ISSUE WHICH REQUIRES TO BE DECIDED IS W HETHER THERE IS A TRANSFER OF CAPITAL ASSET DURING THE YEAR IN TERMS OF SECTION 2(47)(V) AS ALLEGED BY AO. BEFORE DECIDING THE ISSUE IT IS W ORTHWHILE TO LOOK INTO THE PROVISION OF SECTION 2(47)(V) WHICH READS AS UNDER: 2(47) (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKE N OR RETAINED IN PART PERFORMANCE OF A CONTRACT OF TH E NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882 1 (4 OF 1882 ); 9.1 A PLAIN READING OF THE AFORESAID PROVISION WOUL D MAKE IT CLEAR THAT THE WORDS ALLOWING THE POSSESSION OF ANY IMMO VABLE PROPERTY CANNOT BE READ IN ISOLATION, BUT, HAS TO BE READ IN CONJUNCTION WITH THE WORDS TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSF ER OF PROPERTY ACT, 1882. THEREFORE, IT IS ALL THE MORE NECESSARY TO L OOK INTO THE PROVISION OF SECTION 53A OF THE T.P. ACT, 1882 WHIC H READS AS UNDER: 9 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. 53A. PART PERFORMANCE.WHERE ANY PERSON CONTRACTS T O TRANSFER FOR CONSIDERATION ANY IMMOVEABLE PROPERTY BY WRITING SIGNED BY HIM OR ON HIS BEHALF FROM WHICH THE TERMS NECESSARY TO CONST ITUTE THE TRANSFER CAN BE ASCERTAINED WITH REASONABLE CERTAINTY, AND THE TRANSFEREE HAS, IN PART PERFORMANCE OF THE CONTRACT, TAKEN POSSESSION OF THE PROPERTY OR ANY PART THEREOF, OR THE TRANSFEREE, BEING ALREADY IN POSSESSION, CONTINUES IN POSSESSION IN PART PERFORMANCE OF THE CONTRACT AND HAS DONE SOME ACT IN FURTHERANCE OF THE CONTRACT, AND THE TRANSFEREE HA S PERFORMED OR IS WILLING TO PERFORM HIS PART OF THE CONTRACT, THEN, NOTWIT HSTANDING THAT WHERE THERE IS AN INSTRUMENT OF TRANSFER, THAT THE TRANSFER HAS NOT BEEN COMPLETED IN THE MANNER PRESCRIBED THEREFOR B Y THE LAW FOR THE TIME BEING IN FORCE, THE TRANSFEROR OR ANY PERSON CLAI MING UNDER HIM SHALL BE DEBARRED FROM ENFORCING AGAINST THE TRANSFEREE AN D PERSONS CLAIMING UNDER HIM ANY RIGHT IN RESPECT OF THE PROPERTY OF WHICH THE TRANSFEREE HAS TAKEN OR CONTINUED IN POSSESSION, OTHER THAN A RI GHT EXPRESSLY PROVIDED BY THE TERMS OF THE CONTRACT: PROVIDED THAT NOTHI NG IN THIS SECTION SHALL AFFECT THE RIGHTS OF A TRANSFEREE FOR CONSIDERATIO N WHO HAS NO NOTICE OF THE CONTRACT OR OF THE PART PERFORMANCE THEREOF. 9.2 ON CAREFULLY ANALYZING THE AFORESAID PROVISION, IT IS VERY MUCH CLEAR, A CONTRACT IN WRITING BETWEEN THE PARTIES FR OM WHICH INTENTION OF THE PARTIES TO TRANSFER CAN BE ASCERTAINED WITH REA SONABLE CERTAINTY IS A SINE QUA NON FOR APPLYING THE PROVISION OF SECTIO N 53A. FURTHER, THOUGH, SECTION 2(47)(V) RECOGNIZES DELIVERY OF POS SESSION IN PURSUANCE TO A CONTRACT IN THE NATURE ENVISAGED U/S 53A OF T.P. ACT, 1882 AS DEEMED TRANSFER FOR CHARGING CAPITAL GAIN T AX, BUT, SECTION 53A OF THE T.P. ACT, 1882 DOES NOT CONTEMPLATE A TR ANSFER OF IMMOVABLE PROPERTY BY ITSELF. WHAT IT PROVIDES IS A LEGALLY ENFORCEABLE RIGHT UPON THE TRANSFEREE IN RESPECT OF THE OWNERSH IP OF THE PROPERTY PROVIDED TRANSFEREE HAS PERFORMED OR WILLING TO PER FORM HIS PART OF THE CONTRACT. 9.3 IF WE CONSIDER THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE STATUTORY PROVISIONS REFERRED TO ABOVE, IT COULD BE SEEN THAT FIRSTLY THERE IS NO WRITTEN CONTRACT, EITHER BETWEEN THE AS SESSEE AND STATE GOVT. OR BETWEEN ASSESSEE AND INCOME-TAX DEPARTMENT , OF THE NATURE REFERRED TO IN SECTION 53A OF THE T.P. ACT, 1882 FR OM THE TERMS OF WHICH TRANSFER OF IMMOVABLE PROPERTY CAN BE ASCERTA INED WITH REASONABLE CERTAINTY. AT LEAST, EXISTENCE OF ANY SU CH CONTRACT HAS NOT 10 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. BEEN BROUGHT TO OUR NOTICE BY THE LD. DR. THOUGH, IT IS A FACT THAT POSSESSION OF THE PROPERTY HAS BEEN HANDED OVER BY ASSESSEE TO THE INCOME TAX DEPARTMENT, BUT, THE SAME IS IN COMPLIAN CE TO THE DIRECTION OF THE GOVT. VIDE GOMS NO. 33 OF 03/07/20 11. THUS, IT IS PATENT AND OBVIOUS, HANDING OVER POSSESSION OF PROP ERTY BY ASSESSEE TO THE INCOME TAX DEPARTMENT IS BY VIRTUE OF AN UNI LATERAL ACT OF THE STATE GOVT. OVER WHICH ASSESSEE HAS NEITHER ANY SAY NOR ANY CONTROL BUT AT THE SAME TIME IT HAS TO COMPLY TO THE SAME. IN THE AFORESAID FACTS AND CIRCUMSTANCES, IT CANNOT BE SAID THAT THE BASIC CONDITION OF SECTION 53A OF T.P. ACT IN THE PRESENT CASE HAS BEE N FULFILLED. MOREOVER, CONSIDERATION PAYABLE TOWARDS TRANSFER HA S ALSO NOT BEEN QUANTIFIED TILL DATE. THOUGH, IT IS PROVIDED IN GOM S THAT A SEPARATE ORDER WOULD BE PASSED DETERMINING THE COST OF THE P ROPERTY AND ADJUSTING THE SAME TOWARDS LOAN PAYABLE BY ASSESSEE TO THE STATE GOVT., BUT, AS YET NO SUCH ORDER HAS BEEN PASSED BY THE STATE GOVT. IN THE AFORESAID FACTS AND CIRCUMSTANCES, IN ABSENCE O F WRITTEN CONTRACT, QUANTIFICATION OF CONSIDERATION TO BE PAID, IT CANN OT BE SAID THAT THERE IS A TRANSFER IN TERMS OF SECTION 2(47)(V) OF THE A CT. AS FAR AS THE DECISION OF POTLA NAGESWARA RAO (SUPRA) IS CONCERNE D, ON CAREFUL ANALYSIS OF THE SAME, IT IS FOUND THAT THE SAME IS FACTUALLY DISTINGUISHABLE AND WILL NOT APPLY TO PRESENT CASE . IN CASE OF POTLA NAGESWARA RAO (SUPRA), ASSESSEE HAS ENTERED INTO A DEVELOPMENT AGREEMENT AND IN TERMS WITH THE DEVELOPMENT AGREEM ENT, ASSESSEE HAS HANDED OVER POSSESSION OF THE PROPERTY TO THE DEVELOPER, WHEREAS, IN THE PRESENT CASE THERE IS NO WRITTEN AG REEMENT BETWEEN THE PARTIES. 9.4 ONE MORE ASPECT, WHICH NEEDS CONSIDERATION IS, ANOTHER REASON FOR AO TO CONCLUDE THAT CAPITAL GAIN HAS ARISEN IS DUE TO THE FACT THAT ASSESSEE HAS CREDITED MARKET VALUE OF THE COST OF L AND TO P&L A/C AND SIMULTANEOUSLY REMOVED THE PROPERTY IN QUESTION FROM THE LIST OF FIXED ASSETS. IN OUR VIEW, ENTRIES MADE BY ASSESSEE IN THE BOOKS OF ACCOUNT ARE NEITHER CONCLUSIVE NOR DETERMINATIVE FA CTOR TO CONCLUDE ACCRUAL OF REAL INCOME AT THE HANDS OF ASSESSEE. IT IS CLEAR FROM THE 11 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. GOMS ISSUED BY GOVT. THAT THE COST OF LAND WILL BE DETERMINED BY THE STATE GOVT. THROUGH A SEPARATE ORDER. HOWEVER, AS Y ET NO ORDER HAS BEEN PASSED BY THE GOVT. DETERMINING THE COST OF LA ND. IT IS ALSO EVIDENT FROM THE STATEMENT OF AUDITED ACCOUNTS OF A SSESSEE, THOUGH, ASSESSEE HAS CREDITED THE MARKET VALUE OF THE PROPE RTY TO P&L A/C, BUT, IT HAS BEEN SHOWN AS RECEIVABLE AND HAS NOT BE EN ADJUSTED AGAINST LOAN REPAYABLE TO THE STATE GOVT. IN THE AF ORESAID FACTS AND CIRCUMSTANCES, IN OUR VIEW, IN ABSENCE OF DETERMINA TION OF COST OF LAND BY STATE GOVT., NO CAPITAL GAIN CAN BE COMPUTE D IN THE IMPUGNED AY. LD. CIT(A), IN OUR VIEW, IS THEREFORE JUSTIFIED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF LONG TERM CAPITAL GAIN. 9.5 HOWEVER, BEFORE PARTING, IT NEEDS TO BE MENTION ED, THERE IS NO DOUBT THAT THE LAND IN QUESTION HAS BEEN TRANSFERRE D TO THE INCOME TAX DEPARTMENT, ALBEIT, THROUGH AN ORDER OF THE STATE G OVT. THE SAID ORDER ALSO PROVIDES THAT THE GOVT. WILL DETERMINE THE COS T OF LAND AND ADJUST THE SAME TOWARDS LOAN REPAYABLE BY ASSESSEE TO GOVT . FROM THE AFORESAID FACTS, IT IS CLEAR THAT TRANSFER OF LAND WAS NOT OUT OF ASSESSEES OWN VOLITION BUT AT THE INSTANCE OF THE STATE GOVT. THEREFORE, EVEN ASSUMING THAT THERE IS A TRANSFER B UT THE SAME IS AKIN TO OR SIMILAR IN NATURE TO TRANSFER BY WAY OF COMPU LSORY ACQUISITION AS ENVISAGED U/S 45(5) OF THE ACT. THAT BEING THE CASE , IN TERMS WITH THE SAID PROVISION CAPITAL GAIN ACCRUES ONLY IN THE AY IN WHICH COMPENSATION/CONSIDERATION IS RECEIVED, WHICH IN TH E PRESENT CASE WOULD BE THE ASSESSMENT YEAR IN WHICH COST OF LAND IS DETERMINED BY THE STATE GOVT. AND IT IS ADJUSTED AGAINST THE LOAN REPAYABLE BY ASSESSEE. WITH THE AFORESAID OBSERVATIONS, WE UPHOL D THE ORDER OF LD. CIT(A) BY DISMISSING THE GROUND RAISED. 10. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. C.O. NO. 32/HYD/06 12 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. 11. THE ISSUE RAISED BY ASSESSEE IN C.O. IS IN RELA TION TO THE DIRECTION OF LD. CIT(A) WITH REGARD TO THE DEDUCTIO N CLAIMED ON PAYMENT OF VRS. 12. BRIEFLY, THE FACTS RELATING TO THIS ISSUE ARE, DURING THE ASSESSMENT PROCEEDING, AO NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF PAYMENT MADE TOWARDS VOLUNT ARY RETIREMENT SCHEME (VRS). HE FOUND THAT ASSESSEE WHILE COMPUTIN G ITS PROFIT HAS REDUCED AN AMOUNT OF RS. 10,82,16,659 AS PRIOR PERI OD ADJUSTMENT. WHEN ASSESSEE WAS ASKED TO SHOW THE REASONS FOR NOT ADDING BACK PRIOR PERIOD EXPENSES, IT WAS SUBMITTED BY ASSESSEE THAT PRIOR PERIOD ADJUSTMENT WAS ON ACCOUNT OF VRS OF EMPLOYEES. IT W AS SUBMITTED BY ASSESSEE THAT PRIOR PERIOD EXPENDITURE RELATING TO AYS 1997-98, 98-99 AND 99-2000 ON ACCOUNT OF VRS IS AND ARE THEREFORE REQUIRED TO BE ALLOWED IN INSTALMENTS, WHEREAS, EXPENDITURE INCURR ED ON VRS FOR THE IMPUGNED AY AMOUNTING TO RS. 3,47,59,447 IS REQUIRE D TO BE ALLOWED IN FULL. AO, HOWEVER, WAS NOT CONVINCED WITH THE SU BMISSIONS OF ASSESSEE AND HELD THAT PRIOR PERIOD ADJUSTMENT OF R S. 10,82,16,659 IS NOT ALLOWABLE. AS FAR AS THE EXPENDITURE INCURRED T OWARDS VRS FOR THE IMPUGNED AY IS CONCERNED, AO OBSERVED THAT ONLY 1/5 TH OF THE AMOUNT CLAIMED IS ALLOWABLE. BEING AGGRIEVED OF THE DISALL OWANCE MADE, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). 13. IN COURSE OF APPEAL PROCEEDING, IT WAS SUBMITTE D BY ASSESSEE THAT AS ASSESSEE HAS INCURRED EXPENDITURE TOWARDS V RS FOR THE AYS 1997-98, 1998-99 AND 2000-01 AS WELL AS FOR THE CUR RENT AY, SUCH EXPENDITURE IS TO BE AMORTIZED AND ALLOWABLE IN FIV E AYS COMMENCING FROM AY FOLLOWING THE PY IN WHICH IT WAS FIRST INCU RRED IN TERMS WITH THE PROVISIONS CONTAINED U/S 35DDA OF THE ACT. IT W AS SUBMITTED BY ASSESSEE, THOUGH IT HAS DEBITED THE CONSOLIDATED EX PENDITURE OF RS. 15,56,36,411 PERTAINING TO ALL THE ASSESSMENT YEARS TO P&L A/C FOR AY 2002-03 AND CLAIMED RS. 9,37,98,122 BEING 1/5 TH AS DEDUCTION U/S 35DDA, BUT, AO HAS ONLY CONSIDERED THE EXPENDITURE INCURRED DURING THE RELEVANT PY AND ALLOWED 1/5 TH OUT OF THE SAME WHILE DISALLOWING 13 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. THE EXPENDITURE RELATING TO EARLIER AYS. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, DECIDED THE ISSUE AS U NDER: 5.2 THE AR WAS HEARD AND THE APPELLANT'S WRITTEN SU BMISSIONS DULY CONSIDERED. I FIND FROM THE RELEVANT PART OF THE IMPUGNED ORDER THAT THERE IS NO MENTION OF THE BROUGHT FORWARD VRS-EX PENDITURE PERTAINING TO THE AYS: 1997-98, 98-99 AND 2000-01. IT IS APPARENT THAT THE APPELLANT ALSO APPEARED TO HAVE HAD NOT R AISED THIS ISSUE DURING THE COURSE OF THE PROCEEDINGS OF THE IMPUGNED ORD ER. MOREOVER, IT IS SEEN FROM THE STATEMENT OF COMPUTATION OF TOTAL I NCOME- ENCLOSED TO THE REVISED RETURN- THAT 1/5TH EXPENSES ON EXG RATIA PAID ON VRS HAS BEEN CLAIMED IN A CONSOLIDATED MANNER, WITHOUT BR EAK-UP OF THE SAME, REFLECTING INCLUSION OF SUCH CLAIMS OF THE S AID EARLIER AYS. BESIDES, THE IMPUGNED ORDER ALSO DOES NOT INDICATE , IF THE APPELLANT HAD HAD RAISED THIS ISSUE BEFORE THE AD. IN THE CIRCU MSTANCES, THE AD IS DIRECTED TO VERIFY THE SAID CLAIM(S) BY THE APPEL LANT AND ALLOW AS PER RELEVANT PROVISIONS OF THE ACT. THE APPELLANT IS ALSO DIRECTED TO FURNISH ALL NECESSARY INFORMATION IN THIS BEHALF T O THE AO TO ENSURE COMPLETE APPRECIATION OF THE FACTS THEREOF. THUS, THIS GROUND OF APPEAL IS TREATED AS ALLOWED. 14. LD. AR SUBMITTED BEFORE US, THE DIRECTION OF LD . CIT(A) AMOUNTS TO SETTING ASIDE THE ISSUE TO AO, WHICH HE IS NOT A UTHORIZED TO DO AS PER THE STATUTE. HE, THEREFORE, SUBMITTED THAT MATT ER MAY BE REMITTED BACK TO CIT(A) FOR DECIDING ON MERIT. 15. LD. DR HAS NO OBJECTION IF THE MATTER IS REMITT ED TO CIT(A) FOR DECIDING AGAIN. 16. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD, WE ARE OF THE VIEW THAT LD . CIT(A) INSTEAD OF DIRECTING AO TO VERIFY ASSESSEES CLAIM AND DECIDE THE ISSUE, SHOULD HIMSELF HAVE DECIDED THE ISSUE AS DIRECTION OF LD. CIT(A) AMOUNTS TO SETTING ASIDE THE ASSESSMENT ORDER, WHICH HE IS N OT AUTHORIZED TO DO UNDER THE STATUTE. IF AT ALL LD. CIT(A) WANTED TO VERIFY ANY FACTUAL ASPECT, HE COULD HAVE CALLED FOR A REMAND REPORT FR OM AO AND ACCORDINGLY DECIDED THE ISSUE HIMSELF. IN THE AFORE SAID VIEW OF THE MATTER, WE ARE INCLINED TO SET ASIDE THE ORDER OF L D. CIT(A) ON THE ISSUE AND REMIT THE MATTER BACK TO HIS FILE FOR DEC IDING THE ISSUE AFRESH ON MERIT AFTER DUE OPPORTUNITY OF BEING HEAR D TO ASSESSEE. IF 14 ITA NOS. 256/H/06 AND 214 & 215//HYD/2010 & CO NO. 32/H/06 M/S AP STATE AGRO DEVELOPMENT CORPN. LTD. NECESSARY LD. CIT(A) MAY CALL FOR A REMAND REPORT F ROM AO BEFORE DECIDING THE ISSUE. 17. IN THE RESULT, C.O. FILED BY ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ITA NOS. 214 & 215/HYD/2010 BY ASSESSEE 17. THE ISSUE RAISED BY ASSESSEE IN ITS APPEALS IS PERTAINING TO DEDUCTION U/S 35DDA. SINCE THE CLAIM OF ASSESSEE IN THESE YEARS ARE CONSEQUENTIAL TO AND DEPENDENT UPON THE DECISION T O BE TAKEN BY LD. CIT(A) ON SIMILAR ISSUE IN AY 2002-03, WE THINK IT APPROPRIATE TO REMIT THE MATTER BACK TO THE FILE OF LD. CIT(A) FOR DECID ING THE SAME IN ACCORDANCE WITH THE DECISION TO BE TAKEN IN AY 200 2-03. 18. IN THE RESULT, BOTH THE APPEALS OF ASSESSEE AR E TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 19. TO SUM UP, APPEAL OF REVENUE IN ITA NO. 256/HYD /06 IS DISMISSED AND THE APPEALS OF ASSESSEE IN ITA NOS. 2 14 & 215/HYD/10 AS WELL AS C.O. NO. 32/HYD/06 ARE ALLOWED FOR STATI STICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2015. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 30 TH JUNE, 2015 KV COPY TO:- 1) M/S AP STATE AGRO INDUSTRIES DEVELOPMENT CORPN. LTD., C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, H. NO. 3-6-643 , ST. NO. 9, HIMAYAT NAGAR, HYDERABAD 500 029 2) DCIT, CIRCLE 1(1), HYDERABAD 3 CIT(A)-II, , HYDERABAD 4) CIT-I, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.