Kolla Gowri , Chennai V. Income Tax Officer, Ward-2, Chittoor

ITA 1039/Hyd/2019

AI Insights

The case involves Mrs. Kolla Gowri, who entered into a Joint Development Agreement (JDA) with Sri Dhanalakshmi Constructions, transferring 65% of her land for development in exchange for flats and monetary consideration. The Assessing Officer (AO) treated this transaction as a transfer of capital asset under Section 2(47) of the Income Tax Act, 1961, and calculated short-term capital gains based on the JDA value. Mrs. Gowri contested this, arguing that the SRO value should be considered instead. The CIT(A) and subsequently the ITAT upheld the AO's decision, emphasizing that the JDA was a registered document and constituted a transfer of capital asset, making the JDA value the appropriate consideration for calculating capital gains.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 122284 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2021
• Appeal Filed By: Assessee
• Order Result: DismissedAllowed
• Bench Allotted: DB-B
• Next Hearing Date: 23-11-2022
• Assessment Year: misc
• Appeal Filed On: 23-02-2024
• Other Referred Cases: Alapati Venkatramaiah (57 ITR 185), Balbir Singh Maini (252 taxmann 202), Potla Nageswara Rao (50 taxmann.com 137), K. Vijayalakshmi (ITA No.1561/Hyd/2016), Mrs. Adeebunnisa Begum & ors. (ITA No.816 to 820/Hyd/2017), Gujarat Flurochemicals Ltd. (97 Taxmann.com 10), NA Haris Vs. Add. CIT (124 Taxmann.com 354)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Capital Gains
• Section: 148; 143(3); 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) B EFORE SH RI SA TBEER SING H GODA RA, JU DI CIA L MEM BER AND SHR I L AXMI PR AS A D SAHU , AC COUNT ANT MEMBE R ITA No. 1039/H/2019 Assessment Year: 2013-14 Kolla Gowri, Chennai PAN – AOEPG 6939E Vs. Income-tax Officer, Ward – 2, Chittoor (Appellant) (Respondent) Assessee by: None Revenue by: Shri Rohit Mujumdar, CIT-DR Date of hearing: 24/11/2021 Date of pronouncement: 30/11/2021 O R D E R PER L.P. SAHU, A.M.: This appeal filed by the assessee is directed against CIT(A), Tirupati’s order dated 25/04/2019 for AY 2013-14 involving proceedings u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 ; in short “the Act on the following grounds of appeal: “1. The order of the Commissioner (Appeal) is bad in law and on facts of the case. ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 2 -: 2. The learned Commissioner (Appeals) erred in confirming the addition of Rs.70,80,340/- as short-term capital gains made by the Assessing Officer. 3. The Commissioner (Appeals) failed to see that the Assessing Officer erred in calculating the capital gains by taking into the proposed cost of construction, which is against the provisions of section 50D of the Income Tax Act, 1961. 4. The Commissioner (Appeals) failed to see that a transfer of some rights for limited purpose cannot be regarded as transfer of capital asset in the context of capital gains. There should not be a situation of contingent transfer which can be reverted back on some contingencies. The transfer must be full and final. In light of the above grounds and such other grounds that may be raised at the time of hearing, it is prayed that the Hon'ble Tribunal may allow the appeal and delete the addition made and render justice. 2. Briefly the facts of the case are that as per the information received, it is revealed that, the appellant, as a land owner entered into a joint development agreement cum general power of attorney (JDA) vide document No.1388/2012 dated 30/04/2012 for Rs.2,48,20,000/- in favour of Sri Dhanalakshmi Constructions (Developer/ Builder with reference to the undivided share of land admeasuring 446 Sq. Yds. in Sy.No. 386-1, 384-2 & 385 situated at 77, Gandlapalle, Chittoor. 2.1 The appellant did not admit any capital gains on account of this JDA. Hence, in order to verify these issues, ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 3 -: the AO issued notice u/s. 148 of the Act dated 15.12.2016 and served upon the appellant on 16.12.2016. The appellant in response to the notice has filed a letter dated 19.01.2017 stating that return filed on 27.01.2014 may be treated as the return filed in response to the notice issued. The appellant admitted income in the said return at Rs. 89,130/-. Subsequently, appropriate notices were issued upon the appellant. 2.2 During the course of assessment proceedings, the appellant, in response to the show cause notice filed detailed objections against the taxation of capital gains at the time of JDA. It was also stated that the developer has not handed over the possession of the building and also not issued occupancy certificate and hence capital gains was not admitted. The appellant stated that the builder was not given out right possession of the land but given license to enter into the land for the specific V purpose i.e., constructing buildings. Hence, provisions of Sec. 2(47) of the Act do not apply. It was contended that the JDA is not resulting into sale, exchange or relinquishment of right to attract Sec. 2(47) of the Act. It was further contended that there is no monetary consideration as such there is no sale to attract capital gains provision. 2.3 The AO rejected the contentions of the appellant and completed the assessment relying on the decisions of the ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 4 -: Hon'ble Supreme Court in the case of Alapati Venkatramaiah (57 ITR 185) and other relevant cases considered JDA as transfer in terms of Sec. 2(47) of the Act and also on Sec. 53A of Transfer of Property Act. The AO held that appellant is eligible to receive future profits on the day of execution of JDA on 30.04.2012 i.e., in the financial year 2012-13 relevant to AY 2013-14 and hence the capital gains is calculated for the AY. 2013-14 itself. 2.4 The AO calculated short term capital gains of Rs. 70,80,340/- on the consideration of Rs. 77,80,000/- received by the appellant in lieu of forgoing 65% share of land by virtue of JDA after reducing the cost of acquisition of Rs. 6,99,660/- on account of 65% of the value of land surrendered. The appellant acquired the land on 29.07.2009 and entered into JDA on 30.04.2012. Hence, the AO considered it as short term capital gains. 2.5 Further, the AO treated the agricultural income offered by the appellant as income from other source as the appellant has not admitted of having any asset of agricultural land in the balance sheet but admitted an income of Rs. 1,67,914/- as agricultural income. The AO notes that asset mentioned in the balance sheet is agricultural land (Factory) and upon verification of document it is noted no agricultural activity has been done in the said land. Hence, land is considered as non- ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 5 -: agricultural land. Since, the appellant has not furnished any bills/vouchers/receipts as a proof for agricultural income, the AO treated the agricultural income admitted as income from other sources and added to the income returned. 3. Aggrieved by the order of AO, the appellant preferred an appeal before the CIT(A). 4. Before the CIT(A), the assessee filed elaborate written submissions, which were extracted by the CIT(A) in his order at pages 4 to 10 pages and summarized the same as under: “During the course of appellate proceedings, the appellant stated that, a JDA was entered on 30.04.2012 for sharing the built up area in the ratio of 65% : 35%. The appellant contended that she has extinguished her right in the 65% of the land and retained only 35% of the land. By surrender of 65% of the land, the appellant is entitled to get 07 flats with 7,280 sq. ft and 500 sq. ft of car parking area / the constructed area. The appellant contended that value/consideration adopted by the AO considering the JDA is incorrect. Instead, the AO should have adopted the SRO value as on the date of JDA to work out the capital gains. It was contended that where the consideration received/accruing as a result of transfer of capital asset is not ascertainable, then, fair market value of the capital asset should be adopted as full value of consideration. The appellant relied on Sec. 50D of the Act which was inserted by Finance Act, 2012 and came into being with effect from A.Y. 2013-14 and stated that in the facts of the case, the fair market value should have been taken by the AO instead of values mentioned in the JDA. The appellant raised so many arguments vide submissions supra including the ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 6 -: argument that the JDA value is on the basis of future cost which should not have been applied by the AO. The appellant relied on the several decisions and requested to delete the addition. It was also stated that after taking possession of the flats, capital gains. were offered in the A.Y. 2017-18, hence, requested to delete the addition made by the AO.” 5. After considering the submissions of the assessee, the CIT(A) confirmed the order of the AO, by observing as under: “I have carefully considered the submissions of the appellant and material facts of the case. The main contention of the appellant is that the AO should have taken the SRO value of the land portion which was surrendered to the builder on the date of JDA to workout capital gains. The value mentioned in the JDA is only tentative one and it may vary depending on certain factors, hence, the same should not have been adopted by the AO for working out the capital gains. As per Sec. 45 of the Act, any profits or gains arising from the transfer of a capital asset affected in the previous year shall be chargeable to tax under the head capital gains subject to the other conditions. Sec. 48 of the Act gives mode of computation by which the capital gains chargeable to tax can be deduced. To work out the capital gains what is required is a capital asset and transfer of the same for a consideration. The consideration can be received or accrued so as to work out the capital gains. In the present case, the appellant has a land which is a capital asset and there is no dispute about this. Out of the land possessed by the appellant by virtue of JDA, the appellant surrendered 65% to get 07 flats with other benefits as discussed above. The appellant contended that there is no transfer until the flats were received. This contention appears to be incorrect. The JDA is a registered document and the builder was allowed to construct the ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 7 -: project which means the possession was handed over by the appellant, hence, this is nothing but a transfer u/s. 2(47) of the Act. The Registration Act, 1908 and Transfer of Property Act amended with effect from 24.09.2001. By virtue of these amendments requirement of registration of agreement was made mandatory. Considering these amendments, Hon'ble Supreme Court in the case of Balbir Singh Maini (252 taxmann 202) held that subsequent to the amendments to the said Acts, unless the agreement is registered, the same cannot be treated as transfer u/s. 2(47) of the Act. In the present case, the JDA was a registered document and the same was executed on 30.04.2012, hence, these amounts to transfer as per Sec. 2(47) of the Act. From the above, it is to be noted that the appellant was having a capital asset and the same was transferred to the builder and now we should see whether any profit or gain arising from such transfer. To arrive at profit or gain, one has to have consideration on account of transfer of capital asset. In the present case, the appellant contends that the SRO value of the land portion surrendered to the builder; is the consideration. The AO considered the JDA value as consideration. In the light of this fact, one should see the appropriate method to work out the capital gains. Considering the SRO value is also a method to work out the capital gains. The JDA value can also be taken to work out the capital gains. When these two values are available, it is to be seen the reasonable and fair value to work out the capital gains. The JOA is a registered document and the said document was executed on mutual agreement between the builder and the appellant. The project value was taken into consideration for the purpose of stamp duty. This is in my opinion is a authentic and appropriate consideration when compared to the SRO value of the land. The appellant is going to get flats/constructed area in lieu of land and hence it is the consideration/value mentioned in the JOA which is appropriate value to work out capital gains. In view of ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 8 -: this, the figures mentioned in the JOA have to be considered as the consideration. Now the three ingredients required for computing capital gains are available and hence the capital gains worked out by the AO is on the right footing. The arguments put forth by the appellant are rejected. The appellant argued that the consideration received or accruing is not ascertainable and relying on the Sec. 500 of the Act, SRO value being fair market value should be adopted. In this connection, it is to be seen that the JDA mentioned the consideration and hence, the consideration is ascertainable. Invoking the provisions of Sec. 50D of the Act does not arise as the consideration is clearly mentioned in the JDA. Hon'ble ITAT, Ahmedabad, in the case of Gujarat Flurochemicals Ltd. (97 Taxmann.com 10) held that for invoking Sec.50D of the Act, consideration in respect of transfer of an asset should not be determinable or ascertainable. The appellant argued that the JDA may fell through hence, considering the value is improper. This is only a hypothetical argument. The JDA entered was accomplished and share of the flats were received by the appellant and offered capital gain in the A. Y. 2017- 18. Hence, this argument is a Iso rejected. Hon'ble High Court of Andhra Pradesh in the case of Potla Nageswara Rao ( 50 taxmann.com 137) held that when transfer of capital asset is complete, sale consideration has to be taken into consideration for purpose of assessment even though payment of consideration deferred till other assessment year. In view of this, as the JDA was entered by the appellant, the capital gain has to be charged in the year under consideration only. The Hon'ble ITAT Hyderabad in the case of K. Vijayalakshmi (ITA No.1561/Hyd/2016) held that once the development agreement allows the developer to ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 9 -: enter into the premises and to do all the necessary things for construction 01 apartment and the project is completed, then Sec.2(47)(5) is attracted. In view 01 this, considering the JDA and completion of the project it has to be held that transfer was complete to attract capital gains in the year under consideration. Hon'ble ITAT, Hyderabad, in the case of Mrs.Adeebunnisa Begum & ors., (ITA No.816 to 820/Hyd/2017) held that the cost 01 constructed area received by the assessee should be taken as consideration in lieu of development agreement and not SRO value. In view of this decision, it is to ,be noted that the cost of construction to the builder and the value in the JDA has to be treated as consideration for working out the capital gains. Respectfully following the above decisions and also considering the material facts, all the arguments raised by the appellant are hereby rejected and the value adopted by the AO is hereby confirmed. The ground raised by the appellant is hereby dismissed.” 6. Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT. 7. None appeared on behalf of the assessee at the time of hearing of this appeal. Therefore, we proceed to decide the appeal after hearing the ld. DR and considering the facts available on record. 8. The ld. DR relied on the orders of revenue authorities and submitted that since the appellant got flats/constructed area in lieu of land, it is the consideration/value mentioned in the JDA which is ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 10 -: appropriate value to work out capital gains. He, therefore, submitted that the capital gains worked out by the AO is on the right footing and the CIT(A) has rightly confirmed the order of AO. 9. We have considered the submissions of ld. DR and perused the material on record as well as gone through the orders of revenue authorities. The assessee’s contention that the SRO value of the land portion surrendered to the builder is the consideration, whereas, the AO considered the JDA value as consideration. The CIT(A) confirmed the order of AO relying on various decisions quoted supra including the decision ITAT Hyderabad in the case of Mrs. Adeebunnisa Begum & ors., (ITA No.816 to 820/Hyd/2017) wherein the coordinate bench held that the cost of constructed area received by the assessee should be taken as consideration in lieu of development agreement and not SRO value. We further rely on the decision of the ITAT, Chennai Bench in the case of Sumeru Soft (P.) Ltd. Vs. ITO, [2017] 82 Taxmann.com 5 (ITA Nos. 2101 & 2484/MDS/2016, order dated May 8, 2017) and also on the decision of the ITAT, Bengaluru Bench in the case of NA Haris Vs. Add. CIT, [2021] 124 Taxmann.com 354 (ITA No. 988/Bang/2018, order dated February 15, 2021). In the impugned case, there is no submission from the assessee’s side before the lower authorities that later on the JDA executed was cancelled; it shows that the transactions have ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 11 -: been materialized. Therefore, the issue in dispute is settled by the cases relied upon by the CIT(A) and also relied upon by us cited supra, hence, we do not find any infirmity in the order of the CIT(A) in confirming the addition of Rs. 70,80,340/- made by the AO towards short term capital gains and accordingly, upholding the same, we dismiss the grounds raised by the assessee on this issue. 10. The AO is directed to compute the necessary tax after giving benefit of exemption u/s 54/54F of the Act to the assessee, if the assessee is eligible to get the benefit of exemption under the said sections. 11. In the result, appeal of the assessee is dismissed in above terms. Pronounced in the open court on 30 th November, 2021. Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 30 th November, 2021. kv ITA No. 1039/Hyd/2019 M r s . K o l l a G o w r i , C h e n n a i . :- 12 -: Copy to : 1 Mrs. Kolla Gowri, Ground Floor, Door No. 10A, North Boag Road, T. Nagar, Chennai ITO, Ward – 2, Gandhi Road, Chittoor 3 CIT(A), Tirupati 4 Pr. CIT, Tirupati 5 ITAT, DR, Hyderabad. 6 Guard File.