Income Tax Officer, Ward - 2(2)(3), Bangalore V. Sri sujaya sheshadri Bhagwan, Bangalore

ITA 1094/BANG/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8752 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 17-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Opportunity of being heard; Principle of natural justice; Cost of acquisition; Fair market value; Valuation report; TDS; Capital Gains
• Section: 54; 54F; 234B; 250; 139(1); 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER IT A NO . 822/BANG/2019 ASSESSMENT YEAR : 2015 - 16 SMT. SUJAYA SESHADRI BHAGAWAN, NO.201, CRICKET HOUSE, 34, 16 TH CROSS, 10 TH A MAIN, MALLESHWARAM, BANGALORE 560 055. PAN: AKMPB 5685J VS. THE INCOME TAX OFFICER, WARD 2(2)(3), BANGALORE. APPELLANT RESPONDENT IT A NO . 1094 /BANG/2019 ASSESSMENT YEAR : 2015 - 16 THE INCOME TAX OFFICER, WARD 2(2)(3), BANGALORE. VS. SMT. SUJAYA SESHADRI BHAGAWAN, NO.201, CRICKET HOUSE, 34, 16 TH CROSS, 10 TH A MAIN, MALLESHWARAM, BANGALORE 560 055. PAN: AKMPB 5685J APPELLANT RESPONDENT APPELLANT BY : S MT. SHEETAL BORKAR, ADVOCATE RESPONDENT BY : S M T. R. PREMI, JT. C IT(DR)(ITAT ), BENGALURU. DATE OF HEARING : 07.07 .2021 DATE OF PRONOUNCEMENT : 29 .0 7 .202 1 ITA NO.822 & 1094/BANG/2019 PAGE 2 OF 17 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS BY THE ASSESSEE AND REVENU E AGAINST THE ORDER OF THE CIT(APPEALS), BENGALURU-2, BENGALURU D ATED 22.03.2019 FOR THE ASSESSMENT YEAR 2015-16. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND:- S L. NO. G ROUNDS T AX EFFECT 1. THE LEARNED CIT (A) ERRED IN PASSING THE ORDER I N THE MANNER WHICH HE DID. GENERAL 2 . O N THE FACTS THE LEARNED CIT(A) OUGHT TO HAVE GIVEN THE FULL EXEMPTION U/S 54 OF THE ACT IN RESPECT OF ENTIRE COST OF THE RESIDENTIAL BUILDING ACQUIRED BY THE APPELLANT. R S.39,975,318 3 . THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAS SOLD RESIDENTIAL HOUSE AND INVESTMENT MADE IN THE RESIDENTIAL HOUSE, ACCORDINGLY THE APPELLANT IS ELIGIBLE FOR THE EXEMPTION U/S 54 OF THE ACT. RS.39,975,318 4 . W ITHOUT PREJUDICE THE ADDITION IS EXCESSIVE ARBITRARY AND EXCESSIVE AND OUGHT TO BE REDUCED SUBSTANTIALLY. G EN ERAL 5 . T HE LEARNED CIT(A) ERRED IN UPHOLDING THE INTEREST UNDER SEC 234B OF THE ACT I NTEREST 6 . FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING THE APPELLANT PRAYS THAT THE APPEAL MAY BE ALLOWED. GENERAL 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. CIT(A) HAS ERRED ON LAW AND FACTS IN ADOPTING T HE VALUE OF LAND AS ON 1.4.1981 AT RS 250 PER SQ FT WITHOUT PRO VIDING A SINGLE INSTANCE OF COMPARABLE SALE WHEREAS THE ASSESSING O FFICER HAD TAKEN THE VALUE OF RS 100 PER SQ FT AFTER CONSIDERI NG THREE COMPARABLE SALE INSTANCES OBTAINED FROM THE SUB-REG ISTRAR AS PER THE ASSESSMENT ORDER. ITA NO.822 & 1094/BANG/2019 PAGE 3 OF 17 2. (I) CIT(A) HAS ERRED ON LAW AND FACTS IN DETERMI NING THE VALUE FOR THE SURRENDER OF LAND TO THE DEVELOPER BY THE ASSESSEE AND THE CO-OWNER, FOR THE DEVELOPMENT OF A HOUSING PROJECT, BECAUSE HE CONSIDERED A PART (11475 SQ FT) OF THE C ORRESPONDING BUILT UP AREA OF 23,409 SQ FT AT ONLY RS 2,86,87,50 0!-, WHEN THE ALMOST EQUAL REMAINING PART OF 11934 SQ FT WAS RIGH TLY VALUED AT RS 13,30,00,000. (II) ALTERNATELY, CIT(A) ERRED ON LAW AND FACTS IN CONSIDERING THE SALE CONSIDERATION OF A SHORT-TERM ASSET, IE 'BUILT UP AREA' AS THE SALE CONSIDERATION OF THE LONG TERM ASSET, IE, 'LAN D' AND THEREFORE, INCORRECTLY CALCULATED THE SHORT TERM CAPITAL GAIN ON THE SALE OF 'BUILT UP AREA' AT 'NIL' INSTEAD OF SHORT TERM CAPI TAL GAIN AS CALCULATED IN THE ASSESSMENT ORDER. 4. THE BRIEF FACTS ARE THAT ASSESSEE IS AN INDIVID UAL. IN THE RETURN OF INCOME, SHE DECLARED THE CAPITAL GAINS ON TRANSFER HER SHARE IN THE IMMOVABLE PROPERTY AT NO. 68, OLD NO 285, 17TH CROS S, 4TH MAIN ROAD MALLESWARAM, BANGALORE 560055 MEASURING 1693 SQ MT [HEREINAFTER REFERRED TO AS SCHEDULE PROPERTY] ON ACCOUNT OF JOI NT DEVELOPMENT AGREEMENT EXECUTED ON 30.10. 2014 WITH M/S. PAVITHR A CONSTRUCTIONS PVT LTD [DEVELOPER]. 5. OWNERS OF THE PROPERTY AND THE DEVELOPER OF THE PROPERTY HAVE AGREED TO SHARE THE BUILT UP AREA IN THE RATIO OF 4 8.15 PERCENT TO THE OWNERS AND 51.85 PERCENT TO THE DEVELOPER RESPECTIVELY AND ACCORDINGLY THE UNDIVIDED SHARE IN THE LAND WAS ALSO TO BE DIVIDED. HOWEVER, ON 23.12.2014 A REVISED SUPPLEMENTAL AGREEMENT WAS MAD E WHERE THE SHARING RATIO HAD BEEN MODIFIED TO 47.39 PERCENT AN D 52.61 PERCENT. IN ACCORDANCE WITH THE SUPPLEMENTARY AGREEMENT TO JDA, THE OWNERS WERE ENTITLED TO 23,409 SQ.FT. OF BUILT UP AREA IN THE F ORM OF 11 APARTMENTS OUT OF 46,818 SQ.FT. OF CONSTRUCTED AREA AND FURTHER IT WA S AGREED THAT DEVELOPER WILL ACQUIRE 11934 SQ.FT. BUILT UP AREA ALONG WITH UNDIVIDED SHARE IN THE LAND FROM THE SHARE OF LAND OWNER FOR A LUMPSUM CONSIDER ATION OF ITA NO.822 & 1094/BANG/2019 PAGE 4 OF 17 RS.13,30,00,000 WHICH WAS ALSO PAID TO THE OWNERS A FTER TDS @ 1 PER CENT ON THE SALE CONSIDERATION. ACCORDINGLY, THE LONG TE RM CAPITAL GAINS IN RESPECT OF SURRENDERING OF 52.61% OF THE UNDIVIDED SHARE IN THE LAND TO THE DEVELOPER WAS DETERMINED ESTIMATING COST AT RS.2500 PER SQ.FT. WHILE DOING SO, THE OWNERS HAVE ALSO VALUED THE LAND AS O N 1.4.81 AT RS 500 PER SQ.FT. WHICH WAS SUPPORTED BY THE VALUATION REPORT OF AN APPROVED VALUATION OFFICER. ALSO THE OWNERS CLAIMED DEDUCTIO N TOWARDS VALUE OF THE EXISTING BUILDING ON THE SITE WHICH WAS AROUND 5000 SQ.FT. AND FURTHER IMPROVEMENT COST OF RS.20 LAKHS IN RESPECT OF IMPRO VEMENT MADE IN THE YEAR 2007-08 AND THEREAFTER APPLIED COST INFLATION INDEX TO ARRIVE AT THE TOTAL COST FOR DETERMINATION OF PROPORTIONATE CAPITAL GAI NS. THE ASSESSEE COMPUTED THE CAPITAL GAIN AS FOLLOWS:- COMPUTATION OF LONG TERM CAPITAL GAIN SALE CONSIDERATION FOR 6 FLATS AGREED TO BE SOLD WI TH NET SUPER BUIL T UP AREA OF 11934 SQ.FT. 13,30,00,000 BUILT UP AREA OF FLATS RETAINED BY OWNERS 11475 SQ FT @ RS.2500/ - PER SQ.FT. 2,86,87,500 TOTAL CONSIDERATION 16,16,87,500 50% FOR EACH OWNER 8,08,43,750 LESS: INDEXED COST OF ACQUISITION ON PROPOSITION OF LAND AREA DISPOSED OFF: 1. 6872.19 SQ.FT. LAND AREA @ RS.500 PER SQ.FT. AS ON 01.04.1981 3,51,85,612 2. 2500 SQ.FT. PROPORTIONATE BUILT UP AREA @ RS.200 PE R SQ. FT. AS ON 01.04.1981 51,20,000 3. PROPORTIONATE BUILT UP AREA OF ADDITIONS MADE IN F. Y. 2007 - 08 = RS.10,00,000 X 1024/51 18,58,439 4. TOTAL EXPENSES & COST OF ACQUISITIO N & IMPROVEMENT 4,21,64,052 LONG TERM CAPITAL GAIN 3,86,79, 698 LESS: DEDUCTION U/S. 54 (I) INVESTMENT IN NEW HOUSE PROPERTY (II) CAPITAL GAIN ACCOUNT SCHEME 3,99,75,318 1,25,00,000 LONG TERM CAPITAL LOS S 1,37,95,620 ITA NO.822 & 1094/BANG/2019 PAGE 5 OF 17 6. THE AO HAS COMPUTED THE CAPITAL GAINS AS UNDER:- AREA OF THE LAND SQ.FT. 18150 AREA EXCHANGED WITH D E VELOPER SQ.FT 9552.63 AREA RETAINED BY THE OWNERS SQ.FT. SUJAYA SHESHADRI BHAGAWAN AKMPB5685J CO OWNER 1 SHREYUS MOHAN BHAGAWAN, BVJPB0762 M CO OWNER 2 8597.37 FMV PER SQ.FT. AS ON THE DATE OF EXCHANGE AS PER GUIDANCE VALUE ADOPTED BY THE REGISTERING AUTHORITY AS ON 30-10-2014 BEING THE DATE OF REGISTERED JOINT DEVELOPMENT AGREEMENT 7.800 TOTAL FAIR MARKET VALUE AS PER GUIDANCE VALUE METHOD APPROACH (METHOD - I) 7,45,10,514 TOTAL BUILT UP AREA RECEIVED BY THE OWNERS SQ.FT. 23,409 VALUE ADOPTED BY THE ASSESSEE AT RS.2500 PER SQ.FT AS THE ESTIMATED COST OF CONSTRUCTION 2,500 SALE CONSIDERATION UNDER THE ESTIMATED COST OF CONSTRUCTED METHOD ADOPTED BY THE ASSESSEE (METHOD II) 58,522,500 THE METHOD ADOPTED BY THE ASSESSEE IS BENEFICIAL AND HENCE CONCLUDED UNDER II METHOD A 58,522,500 SHARE OF SALE PROCEEDS OF EACH CO-OWNER ON THE BASIS OF JDA B = A/2 29,261,250 LESS FMV AS ON 1.4.1981 SINCE THE PROPERTY IS INHERITED. VALUE ADOPTED AT RS.100 PER SQ.FT. FOR 9552.63 SQ.FT 955,263 INDEXE D COST OF ACQUISITION 1024/100 C 9,781,893 INDEXED COST OF ACQUISITION SHARE OF EACH ASSESSEE D = C/2 4,890,947 AS CLAIMED BY THE ASSESSEE 2500 X 100 X 1024 / 100 = 25,60,000 E 25,60,000 ASSESSEE SHARE IN INDEXED COST OF IMPROVEME NT F = E/2 12,80,000 TOTA L COST OF ACQU ISITION TO ASSESSEE G = D+F 6,170,947 LONG TERM CAPITAL GAINS ON JDA H = B G 23,090,303 ITA NO.822 & 1094/BANG/2019 PAGE 6 OF 17 LONG TERM CAPITAL GAIN ON SALE OF APARTMENTS BUILT UP AREA RECEIVED 23,409 UDI OF LAND SOLD WITH BUILT UP AREA : 4191.75 SQ.F T. GUIDANCE VALUE 7,800 PER SQ.FT (SUBSEQUENTLY REVISE D TO RS.9000 PER SQ.FT.) TOTAL CONSIDERATION FOR LAND 4191.75 X 7800 I 32,695,650 A SSESSEE S SHARE J = I/2 16,347,825 FMV AS ON 01.04.1981 FOR 4191.75 AT 100 EACH 419,175 INDEXED COST (419175 X 1024/100) K 4,292,352 A SSESSEE S SHARE L = K/2 2,146,176 LONG TERM CAPITAL GAIN ON UDI OF LAND IN APARTMENTS TREATED AS LT ASSETS M = J-L 14,201,649 LONG TERM CAPITAL GAIN FOR A ASSESSEE ON JDA AND SA LE OF APARTMENTS TOTAL LONG T E RM CAPITAL GAIN N = H + M 37,291,952 EXEMPTION CLAIMED BY THE ASSESSEE INVESTMENT IN HOUSE PROPERTY O 39,975,3 18 AMOUNT INV EST IN CAPITAL GAIN ACCOUNT P 12,500,000 TOTAL UTILIZATION Q = Q+P 52,475,318 TOTAL EXEMPTION ALLOWED AND RE STRICTED TO LTCG AS COMPUTED Q>N 37,291,952 SHORT TERM CAPITAL GAIN ON SALE OF APARTMENTS (BUIL T UP AREA): GROSS SALE VALUE RECEIVED FROM DEVELOPER ON 11,934 SQ.FT BUILT UP AREA AS ACCEPTED BY ASSESSEE, ON SALE OF BUILT UP AREA TREATED AS ST CAPITAL ASS ETS R 133,000,000 VALUE OF LAND 4191.75 SQ.FT TREATED AS LT ASSET I 32,695,650 SALE VALUE OF APARTMENTS WITH BUILT UP AREA 11,934 SQ.FT CONSIDERED FOR S = R-I 1,00,304,350 ITA NO.822 & 1094/BANG/2019 PAGE 7 OF 17 STCG A SSESSEE S SHARE T = S/2 50,152,175 COST OF APARTMENT @ RS.2500 PER SQ.FT F OR 11 934 ADOPTED FOR LTCG U 29,835,000 A SSESSEE S SHARE V = U/ 2 14,917,500 SHORT TERM CAPITAL GAIN SUBJECT TO TAX W = T-V 35,234,675 7. THE AO WHILE CONCLUDING THE ASSESSMENT DID NOT A CCEPT THE CAPITAL GAINS AS COMPUTED BY THE ASSESSEE. HE ESTIMATED THE VALUE AS ON 1.4.81 AT RS 100 PER SQ FT. HOWEVER HE DID NOT ACCEPT THE COST OF IMPROVEMENT ALLEGING THAT THERE WAS LACK OF EVIDENCE. THE AO HE LD THAT THE BUYBACK AGREEMENT WAS AN INDEPENDENT TRANSACTION AND WORKED OUT SHORT TERM CAPITAL GAINS IN RESPECT OF SUPER STRUCTURE TO BE C ONSTRUCTED AND TO BE TRANSFERRED. THUS, THE LONG TERM CAPITAL GAINS WAS COMPUTED EXCESSIVELY. WITH REGARD TO THE SUPERSTRUCTURE OF THE APARTMENTS THE CAPITAL GAINS WAS DETERMINED AS SHORT TERM CAPITAL GAINS. AFTER COMPU TING THE CAPITAL GAINS ACCORDINGLY 50 PERCENT OF THE CAPITAL GAINS WAS ASS ESSED IN THE CASE OF THE APPELLANT AT RS 3,72,91,952 AND ALLOWED THE EXEMPTI ON UNDER SEC 54 OF THE ACT CONSIDERING THE ACTUAL COST OF INVESTMENT IN TH E NEW PROPERTY AT RS 524,75,318. INDEPENDENTLY SHORT TERM CAPITAL GAINS WAS DETERMINED AT RS 3,52,34,675 IN RESPECT OF SUPER STRUCTURE OF THE AP ARTMENTS TO BE TRANSFERRED TO THE DEVELOPER. THUS, A TOTAL INCOME OF RS 3,52,34,675 WAS DETERMINED AND BROUGHT TO TAX. 8. ON APPEAL, THE CIT(APPEALS) WAS OF THE VIEW THA T THE TRANSFER OF LAND SINCE THE HOLDING PERIOD IS MORE THAN 36 MONTH S RESULTED INTO LTCG AND THE TRANSFER OF FLATS INTO STCG AND COMPUTED TH E CAPITAL GAIN AS FOLLOWS:- ITA NO.822 & 1094/BANG/2019 PAGE 8 OF 17 LONG TERM CAPITAL GAIN RS. SQ FT: 23409 AGREEMENT OF SALE 11934 11475 SALE CONSIDERATION OF 6 FLATS AGREED TO BE SOLD BUILT UP AREA 11934 133,000,000 BUILT UP AREA OF FLATS RETAINED BY OWNERS 11475 SQ FT RS.2500/ - SQ FT 28,687,500 TOTAL 161,798,500 LESS: BUILDING CONSTRUCTION COST OF 6 FLATS (11934 *25 00) 29,835,0 00 131,852,500 5 0% FOR EACH OWNER (RS.131852500/2) 65,926,250 LESS: INDEXED COST OF ACQUISITION PR OPORTION LAND AR EA DISPOSED O FF: 1. 6872.19 SQ FT LAND AREA @ 250 PER SQ FT AS ON 01.04.1981 1,718,047 2. 2500 SQ FT PROPORTIONATE BUILT UP AREA @ 200 PER SQ FT AS ON 01.04.1981 500,000 2,218,047 INDEXED AT 2218047*1024/100 22,712,801 LONG T E RM C A PITAL G AIN 2,49,30,848 4,09,95,402 INVESTMENT IN CAPITAL GAIN ACCOUNT SCHEME 12,500,000 LONG TERM CAPITAL GAINS 2,84,95,402 SHORT TERM CAPITAL GAIN ON BUILDING BUILDING CONSIDERATION (2500*11934) 29,835,000 50% SHARE 14,917,500 LESS: COST OF ACQUISITION (2500*11934) 29,835,000 50% SH ARE 14,917,500 SHORT TERM CAPITAL GAIN - ITA NO.822 & 1094/BANG/2019 PAGE 9 OF 17 REVENUES APPEAL 9. FIRST WE WILL TAKE UP REVENUES APPEAL FOR CONSI DERATION. THE FIRST GROUND OF THE REVENUE IS THAT THE CIT(APPEALS) ADOP TED THE VALUE OF LAND AS ON 1.4.1981 AT RS.250/SQ.FT. AS AGAINST RS.100/SQ.F T. BY THE AO. 10. THE CONTENTION OF THE LD. DR IS THAT ADOPTING V ALUE OF LAND AS ON 1.4.1981 AT RS.250 / SQ.FT. BY THE CIT(A) WITHOUT P ROVIDING A SINGLE INSTANCE OF COMPARABLE SALE IS INAPPROPRIATE, INSTEAD OF TAK ING THE AOS VALUATION MADE @ RS.100 / SQ.FT. THE AO HAD CONSIDERED 3 COM PARABLE SALE INSTANCES OBTAINED FROM SUB-REGISTRAR. 11. THE LD. AR STRONGLY RELIED ON THE ORDER OF CIT( APPEALS) AND SUBMITTED THAT THE SUB-REGISTRARS GUIDANCE VALUE A S ON DATE IS RS.8,500 / SQ.FT. AND GOING BY REVERSE INDEXATION METHOD, THE VALUE OF THE SAME PROPERTY WOULD BE RS.781.25 / SQ.FT. AS ON 1.4.1981 . BEING SO, THE VALUE ADOPTED BY THE CIT(APPEALS) @ RS.250 / SQ.FT. IS VE RY REASONABLE AND SAME IS TO BE UPHELD. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE AO IN THIS CASE BROUGHT ON RECORD COMPARABLE IN STANCES OBTAINED FROM SUB-REGISTRARS OFFICE, RAJAJINAGAR, BANGALORE AND ASCERTAINED THE MARKET GUIDANCE VALUE OF THE PROPERTY AS ON 1.4.1981 @ RS. 85/SQ.FT. ON THAT BASIS, HE CONSIDERED COST OF ACQUISITION OF LAND @ RS.100/SQ.FT. BUT THE AO FAILED TO MENTION THE EXACT NATURE AND ADDRESS OF T HE PROPERTY CONSIDERED FOR DETERMINING THE VALUE OF PROPERTY AS ON 1.4.198 1. THE CIT(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THAT ON REVERSE INDEXATION METHOD, THE VALUE OF LAND AS ON 1.4.1981 IS @ RS.781.25 / SQ.FT., CONSIDERED THE SAME AT RS.250 / SQ.FT, WHICH IS MOS T REASONABLE AND THE SAME IS TO BE ADOPTED. FURTHER THE JURISDICTIONAL HIGH COURT IN THE CASE OF ITA NO.822 & 1094/BANG/2019 PAGE 10 OF 17 LATE SMT. KRISHNA BAJAJ V. ACIT IN ITA NO.391 OF 20 07 DATED 25.11.2013 HELD AS UNDER:- 7. ONE OTHER ASPECT, WHICH THE AUTHORITIES HAVE FA ILED TO NOTICE IS, WHERE THE PROPERTY IS SITUATED AND ITS L OCATION. FROM THE ADDRESS GIVEN ABOVE, IT IS CLEAR THAT THE PROPE RTY IS SITUATED IN THE HEART OF BANGALORE CITY, IN A PRIME COMMERCIAL LOCALITY WHERE THE VALUE OF THE PROPERTY HAS MULTIPLIED AUTOMATICA LLY OVER THE YEARS. IF THE PROPERTY WAS PURCHASED FOR RS.25,00 0/- IN 1964 AND THAT PROPERTY WAS SOLD FOR RS.27,55,000/- IN 2000, EITHER ADOPTING A PROCEDURE FOR ESCALATION OR RE-ESCALATION, THE FA IR MARKET VALUE OF THE PROPERTY WOULD BE AROUND RS.2,75,000 AS PUT FORTH BY THE ASSESSEE. 13. ACCORDINGLY, WE DISMISS THIS GROUND TAKEN BY TH E REVENUE. 14. THE SECOND GROUND OF THE REVENUE IS WITH REGARD TO DETERMINING THE VALUE FOR THE SURRENDER OF LAND TO THE DEVELOPER BY THE ASSESSEE AND THE CO-OWNER FOR DEVELOPMENT OF A HOUSING PROJECT WHERE IN THE CIT(A) CONSIDERED A PART (11475 SQ.FT.) OF THE CORRESPONDI NG BUILT-UP AREA OF 23,409 SQ.FT. AT RS.2,86,87,500 WHEN THE ALMOST EQU AL REMAINING PART OF 11934 SQ.FT. WAS RIGHTLY VALUED AT RS.13,30,00,000. ALTERNATELY, THE CIT(A) CONSIDERED THE SALE CONSIDERATION AS A SHORT TERM A SSET I.E., BUILT-UP AREA AS THE SALE CONSIDERATION OF THE LONG TERM ASSET I. E., THE LAND AND THEREFORE INCORRECTLY CALCULATED THE SHORT TERM CAPITAL GAIN OF THE BUILT-UP AREA AT NIL. 15. THE CONTENTION OF THE LD. DR IS THAT THE CIT(AP PEALS) CONSIDERED THE VALUE OF 11934 SQ.FT. OF CONSTRUCTED AREA AT RS.13. 30 CRORES WHICH WAS SOLD TO THE DEVELOPER VIDE SUPPLEMENTARY AGREEMENT TO JD A. HOWEVER, HE ALSO CONSIDERED THE BALANCE 11475 SQ.FT. OF CONSTRUCTED AREA RETURNED BY THE LAND OWNER AT RS.2,86,87,500 WHICH IS WRONG. ACCOR DING TO THE LD. DR, THE VALUE OF 11475 SQ.FT. OF CONSTRUCTED AREA TO BE VAL UED IN LINE WITH THE VALUATION OF 11934 SQ.FT. OF CONSTRUCTED AREA AND H E PRAYED ACCORDINGLY. ITA NO.822 & 1094/BANG/2019 PAGE 11 OF 17 16. THE LD. AR SUBMITTED THAT THE JDA HAS TO BE REA D ALONG WITH SUPPLEMENTARY AGREEMENT TO JDA WHICH SUGGESTS THAT THE ASSESSEE HAS TRANSFERRED 75.72% PROPORTIONATE SHARE OF UNDIVIDED INTEREST IN LAND AS AGAINST THE ORIGINAL TRANSFER OF 51.85% OF UNDIVIDE D SHARE IN LAND AND ASSESSEE WILL RETAIN ONLY 24.28% OF PROPORTIONATE S HARE OF UNDIVIDED INTEREST IN LAND [11475 SQ.FT. OF CONSTRUCTED AREA] . BEING SO, THE VALUE OF 11475 SQ.FT. UNDIVIDED SHARE IN LAND TO BE VALUED A T THE COST INCURRED BY THE DEVELOPER. THE SAME WAS FOLLOWED BY THE CIT(APPEAL S) AND THERE IS NO ERROR IN THE COMPUTATION. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE UNDIVIDED SHARE IN LAND BETWEEN T HE LANDLORD AND DEVELOPER AS PER FIRST JDA DATED 30.10.2014 WAS 51. 85% AND 48.15% RESPECTIVELY. THIS WAS REVISED VIDE SUPPLEMENTARY AGREEMENT DATED 19.8.2015 I.E., DEVELOPER 75.72% AND LANDLORD 24.28 % AND THE ASSESSEE ALSO RECEIVED EXTRA CONSIDERATION OF RS.13.30 CRORE S VIDE AGREEMENT DATED 19.8.2015 FOR GIVING UP THE RIGHT IN 11934 SQ.FT. O F CONSTRUCTED AREA IN FAVOUR OF THE DEVELOPER. BEING SO, WHEN WE READ JD A DATED 13.10.2014 ALONG WITH SUPPLEMENTARY AGREEMENT DATED 9.8.2015 I T SHOWS THAT ASSESSEE TRANSFERRED ONLY 24.28% OF UNDIVIDED INTER EST IN LAND TO THE DEVELOPER FOR A CONSIDERATION OF RS.13.30 CRORES AN D 11475 SQ.FT. OF CONSTRUCTED AREA. FURTHER, THE 6 FLATS AGREED TO BE SURRENDERED BY THE LANDLORD BY THE REVISED JDA AGREEMENT COMPRISES OF TWO COMPONENTS I.E., LAND AND BUILDING. THE VALUE OF PROPORTIONATE AREA OF UNDIVIDED INTEREST IN THE LANDED PROPERTY OF 8957.37 SQ.FT AT RS.24,611.6 4 PER SQ.FT. AND THE VALUE OF BUILDING OF CONSTRUCTED AREA OF 11934 SQ.F T. CHARGED AT RS.2,500 PER SQ.FT. WORKS OUT TO RS.2,98,35,000. THE LAND V ALUE WILL BE RS.10,91,65,000 WORKED OUT AT RS.24,611.44 PER SQ.F T. THE REGISTERED VALUER HAS GIVEN THE VALUE OF LAND IN HIS REPORT AT RS.20,000 TO RS.22,000 PER SQ.FT. WHICH IS KEPT ON RECORD AT PAGE 127 OF P B. THEREFORE, THE ITA NO.822 & 1094/BANG/2019 PAGE 12 OF 17 VALUATION ADOPTED FOR 11934 SQ.FT. CONSTRUCTED AREA CANNOT BE COMPARED WITH THE VALUE OF CONSTRUCTED AREA OF 11475 SQ.FT. RETAINED BY THE OWNER. BEING SO, THIS WAS RIGHTLY FOLLOWED BY THE CIT(APP EALS) AS MENTIONED IN HIS ORDER. WE DO NOT FIND ANY INFIRMITY IN THE VALUATI ON OF THE CIT(APPEALS) TOWARDS TRANSFER OF 75.72% UNDIVIDED INTEREST IN LA ND TO THE DEVELOPER. THE SAME IS CONFIRMED. 18. THE NEXT GROUND OF THE REVENUE IS THAT THE CIT( APPEALS) CALCULATED THE SHORT TERM CAPITAL GAIN ON SALE OF BUILT-UP ARE A AT NIL. ACCORDING TO THE LD. DR THE SHORT TERM CAPITAL GAIN TO BE COMPUTED A S DONE BY THE AO. IN OUR OPINION, THIS ARGUMENT OF THE LD. DR IS MISCONC EIVED. THE ASSESSEE HEREIN TRANSFERRED 75.72% OF UNDIVIDED SHARE IN LAN D TO THE DEVELOPER. THE JDA AND SUPPLEMENTARY AGREEMENT CANNOT BE READ ISOL ATEDLY AND IT GIVES DISTORTED PICTURE ON TRANSFER OF LANDED PROPERTY TO THE DEVELOPER. WHEN WE READ JDA DATED 13.10.2014 ALONG WITH SUPPLEMENTARY AGREEMENT TO JDA DATED 19.8.2015, IT SUGGESTS THAT THE WHOLE ARRANGE MENT IS TO TRANSFER 75.72% OF UNDIVIDED SHARE IN LAND TO THE DEVELOPER AND THIS IS A SINGLE TRANSACTION SO THAT THERE IS NO COMPUTATION OF SHOR T TERM CAPITAL GAIN IN THIS CASE AS COMPUTED BY THE AO. THE CIT(APPEALS) HAS G IVEN RELIEF ON A DIFFERENT COUNT AND COMPUTED THE SHORT TERM CAPITAL GAIN AT NIL. THE SAME IS CONFIRMED. ASSESSEES APPEAL 19. THE GRIEVANCE OF THE ASSESSEE IS WITH REGARD TO DENIAL OF EXEMPTION U/S. 54 OF THE ACT. IN THIS CASE, ORIGINALLY THE AO GRANTED DEDUCTION U/S. 54 AT RS.3,99,75,318. HOWEVER, THIS WAS WITHDRAWN BY THE CIT(APPEALS) BY PLACING RELIANCE ON THE PROVISIONS OF SECTION 54F A ND OBSERVED THAT THE ASSESSEE COULD NOT HAVE MORE THAN ONE RESIDENTIAL H OUSE. THE CIT(APPEALS) OBSERVED AS FOLLOWS:- ITA NO.822 & 1094/BANG/2019 PAGE 13 OF 17 5.4. FROM THE PLAIN READING OF THE PROVISION OF SE CTION 54F(1) OF THE ACT IT IS AMPLY CLEAR THAT THE APPELLANT SHO ULD NOT OWN MORE THAN ONE RESIDENTIAL HOUSE, OTHER THAN THE NEW ASSET, ON THE DATE OF TRANSFER OF THE ORIGINAL ASSET. IN THE PRES ENT CASE UNDER CONSIDERATION THE APPELLANT HAS GOT FOUR INDIVIDUAL FLATS WHICH HAVE SEPARATE MUNICIPAL RECEIPTS, SEPARATE TENANTS, AND THEY ARE SITUATED ON DIFFERENT FLOORS. THOUGH THE WORDS 'CON STRUCTED A RESIDENTIAL' HOUSE HAVE BEEN SUBSTITUTED AS CONSTRU CTED ONE RESIDENTIAL HOUSE IN INDIA BY FINANCE(NO.2) ACT, 20 14 W.E.F.01/04/2015, PRIOR TO THIS AMENDMENT SINCE THE RE WAS AN AMBIGUITY AS TO WHETHER A MEANS MANY OR,A,4INGLE HO USE AND INVESTED IN INDIA OR ELSEWHERE. HOWEVER, IN THE APP ELLANT'S CASE THE CLAIM OF DEDUCTION U/S 54 OF THE ACT STATING TH AT THE INVESTMENT IS NOTHING BUT THE COST OF THE FLATS REC EIVED IS THEREFORE DENIED ON TWO COUNTS. AS ON THE DATE OF TRANSFER OF THE FLATS THE APPELLANT WAS HAVING IN POSSESSION OF MORE THAN TWO FLATS AND THE COST OF CONSTRUCTION OF THE FLATS CANNOT BE TREATED AS INVESTMENT OF THE SALE PROCEEDS. THE COMPUTATION OF THE LTCG AND STCG ARE WORKED OUT AS UNDER BASED ON THE SUBMISSIONS MADE B Y THE APPELLANT AND ALSO THE AO'S FINDINGS BY DENYING THE CLAIM OF DEDUCTION U/S 54 OF THE ACT. A SHOW CAUSE NOTICE DA TED 20.03.2019 WAS ISSUED TO THE APPELLANT TO EXPLAIN A S TO WHY THE DEDUCTION CLAIMED U/S 54 SHOULD NOT BE DENIED AS UN DER: DURING THE ASSESSMENT PROCEEDINGS THE APPELLANT HAS DECLARED AS LTCG AND CLAIMED U/S 54 APART FROM INVESTMENT MADE IN CG SCHEME U/S 54 WHEREAS THE AO HAS TREATED THE ENTIRE CG AS SHORT TERM AND TAXED AT 30% RATE. DURING THE APPELLATE PR OCEEDINGS, THE ISSUE HAS BEEN EXAMINED AND NOTICED THAT THE EXEMPT ION CLAIMED U/S 54 IS NOT ALLOWABLE, IN VIEW OF THE FACT THAT T HE SALE PROCEEDS RECEIVED IN LIEU OF THE TRANSFER OF THE LAND ARE TH E COST OF CONSTRUCTION OF THOSE FLATS RECEIVED, AND COMPUTED LTCG ACCORDINGLY IN ACCORDANCE WITH THE JURISDICTIONAL H IGH COURT'S ORDERS OF T. K. DAYAL AND VED PRAKASH RAKHRA. FURTH ER THE CLAIM MADE U/S 54 AGAINST THE LONG TERM CAPITAL GAINS IS FOUND TO BE AGAIN THE COST OF FLATS, WHICH CANNOT BE ALLOWED. A S A RESULT OF WHICH THE LTCG COMPUTATION WOULD BE REWORKED. SINCE , THE LTCG ARE TO BE REWORKED AND DENYING THE CLAIM OF SE CTION 54 RESULTED INTO DISALLOWANCE OF THE SAME THOUGH NOT E NHANCEMENT YOU ARE REQUESTED TO SHOW CAUSE AS TO WHY THE LTCG SHOULD NOT BE REWORKED AND DENIED THE CLAIM OF DEDUCTION U/S 5 4 AND WITH A ITA NO.822 & 1094/BANG/2019 PAGE 14 OF 17 VIEW TO GIVE AN OPPORTUNITY OF BEING HEARD AS PER T HE PRINCIPLES OF NATURAL JUSTICE, YOUR EXPLANATION SHOULD REACH T O THIS OFFICE ON OR BEFORE 22/03/2019. 20. IN OUR OPINION, IN THIS CASE THE DEDUCTION WAS CLAIMED BY ASSESSEE U/S. 54 OF THE ACT AND THERE WAS NO PROHIBITION IN THIS ASSESSMENT YEAR WITH REGARD TO OWNING MORE THAN ONE RESIDENTIAL HOUSE SO AS TO DENY EXEMPTION U/S. 54. WE REPRODUCE THE PROVISIONS OF SECTION 54 OF THE ACT AS IT STOOD IN THE RELEVANT ASSESSMENT YEAR AS FOLLOWS:- 54. (1) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), WHERE, IN THE CASE OF AN ASSESSEE BEING AN INDIVIDUAL OR A HINDU UNDIVIDED F AMILY, THE CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASS ET, BEING BUILDINGS OR LANDS APPURTENANT THERETO, AND BEING A RESIDENTIAL HOUSE, THE INCOME OF WHICH IS CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPER TY' (HEREAFTER IN THIS SECTION REFERRED TO AS THE ORIGINAL ASSET), AND THE ASSESSEE HAS WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON W HICH THE TRANSFER TOOK PLACE PURCHASED, OR HAS WITHIN A PERIOD OF THREE YE ARS AFTER THAT DATE [ CONSTRUCTED, ONE RESIDENTIAL HOUSE IN INDIA ], THEN, INSTEAD OF THE CAPITAL GAIN BEING CHARGED TO INCOME-TAX AS INCOME OF THE P REVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE, IT SHALL BE DEALT WITH IN ACCORDANCE WITH THE FOLLOWING PROVISIONS OF THIS SECTION, THAT IS TO SA Y, ( I ) IF THE AMOUNT OF THE CAPITAL GAIN IS GREATER THAN THE COST OF THE RESIDENTIAL HOUSE SO PURCHASED OR CONSTRUCTED (HERE AFTER IN THIS SECTION REFERRED TO AS THE NEW ASSET), THE DIFFEREN CE BETWEEN THE AMOUNT OF THE CAPITAL GAIN AND THE COST OF THE NEW ASSET SHALL BE CHARGED UNDER SECTION 45 AS THE INCOME OF THE PREVI OUS YEAR; AND FOR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSE T ANY CAPITAL GAIN ARISING FROM ITS TRANSFER WITHIN A PERIOD OF THREE YEARS OF ITS PURCHASE OR CONSTRUCTION, AS THE CASE MAY BE, THE COST SHALL BE NIL ; OR ( II ) IF THE AMOUNT OF THE CAPITAL GAIN IS EQUAL TO OR LESS THAN THE COST OF THE NEW ASSET, THE CAPITAL GAIN SHALL NOT BE CHARGED UN DER SECTION 45; AND FOR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISING FROM ITS TRANSFER WITHIN A PERIOD OF T HREE YEARS OF ITS PURCHASE OR CONSTRUCTION, AS THE CASE MAY BE, THE C OST SHALL BE REDUCED BY THE AMOUNT OF THE CAPITAL GAIN. (2) THE AMOUNT OF THE CAPITAL GAIN WHICH IS NOT APP ROPRIATED BY THE ASSESSEE TOWARDS THE PURCHASE OF THE NEW ASSET MADE WITHIN O NE YEAR BEFORE THE DATE ITA NO.822 & 1094/BANG/2019 PAGE 15 OF 17 ON WHICH THE TRANSFER OF THE ORIGINAL ASSET TOOK PL ACE, OR WHICH IS NOT UTILISED BY HIM FOR THE PURCHASE OR CONSTRUCTION OF THE NEW ASSET BEFORE THE DATE OF FURNISHING THE RETURN OF INCOME UNDER SECTION 139, SHALL BE DEPOSITED BY HIM BEFORE FURNISHING SUCH RETURN [SUCH DEPOSIT BEING M ADE IN ANY CASE NOT LATER THAN THE DUE DATE APPLICABLE IN THE CASE OF THE ASS ESSEE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 1 39] IN AN ACCOUNT IN ANY SUCH BANK OR INSTITUTION AS MAY BE SPECIFIED IN, AN D UTILISED IN ACCORDANCE WITH, ANY SCHEME WHICH THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, FRAME IN THIS BEHALF AND SUCH RET URN SHALL BE ACCOMPANIED BY PROOF OF SUCH DEPOSIT; AND, FOR THE PURPOSES OF SUB-SECTION (1), THE AMOUNT, IF ANY, ALREADY UTILISED BY THE ASSESSEE FO R THE PURCHASE OR CONSTRUCTION OF THE NEW ASSET TOGETHER WITH THE AMO UNT SO DEPOSITED SHALL BE DEEMED TO BE THE COST OF THE NEW ASSET : PROVIDED THAT IF THE AMOUNT DEPOSITED UNDER THIS SUB-SECTIO N IS NOT UTILISED WHOLLY OR PARTLY FOR THE PURCHASE OR CONSTRUCTION O F THE NEW ASSET WITHIN THE PERIOD SPECIFIED IN SUB-SECTION (1), THEN, ( I ) THE AMOUNT NOT SO UTILISED SHALL BE CHARGED UNDER SECTION 45 AS THE INCOME OF THE PREVIOUS YEAR IN WHICH THE PERIOD OF THREE YEARS FROM THE DATE OF THE TRANSFER OF THE ORIGINAL ASSET EXPI RES; AND ( II ) THE ASSESSEE SHALL BE ENTITLED TO WITHDRAW SUCH A MOUNT IN ACCORDANCE WITH THE SCHEME AFORESAID. 21. THUS, THE CONDITION FOR GRANTING DEDUCTION U/S. 54 IS AS FOLLOWS:- 1 NATUR E TRANSFER OF RESIDENTIAL HOUS E 2 AVAILABLE T O IN DIVIDUAL , HU F 3 PERIOD HELD BEFORE TRANSFER MORE THAN 36 MONTH (THUS ONLY LONG TERM ASSETS ) 4 AMOUNT EXEMPTION OF IF CAPITAL GAIN AMOUNT INVESTED= DIFFERENCE IS TAXABLE 5 CONDITION S ANY RESIDENTIAL HOUS E PROPERTY IS TR ANSFERRED REINVESTMENT IN ONE RESIDENTIAL HOUSE PROPERTY IN INDIA EITHER. PURCHASE ONE YEAR BEFORE TRANSFER OR PURCHASE TWO YEAR AFTER TRANSFER OR CONSTRUCTED THREE YEAR AFTER TRANSFER HOUSE PROPERTY CANNOT BE TRANSFERRED FOR THREE YEARS AFTER ACQUISITION OR CONSTRUCTION 6 IF AMOUNT NOT DEPOSIT IN NATIONALIZED BANK UNDER THE CAPITAL GAIN ITA NO.822 & 1094/BANG/2019 PAGE 16 OF 17 UTILISED TILL FILLING OF RETURN U/S 139(1) DEPOSIT A/C SCHEM E 7 IF DEPOSIT NOT UTILISED UNUTILIZED AMOUNT TAXABLE AS LTCG IN THE PY IN WHICH THREE YEARS THE DATE OF TRANSFER OF ORIGINAL ASSET EXPIRES. 8 CONSEQUENCES OF TRANSFER BEFORE THREE YEARS THE COST OF THE NEW ASSETS SHALL BE REDUCED BY THE AMO UNT OF CAPITAL GAINS EXEMPTED EARLIER. THEREFORE AMOUNT OF CAPITAL GAIN ON SALE OF NEW PROPERTY AND (CAPITAL GAINS EXEMPTED EARLIER) CHARGEABLE TO TAX IN THE YEAR OF SAL E OF HOUSE PROPERTY. 22. BEING SO, THE ASSESSEE IN THIS CASE PURCHASED N EW RESIDENTIAL HOUSE SITUATED AT NO.228 (ORIGINALLY PART OF NO.285 AND SUB-NUMBERED AS 285/1, RENUMBERED AS 66 AND LATER AS NO.228) 4 TH MAIN ROAD, MALLESHWARAM, BANGALORE 560 055, PID NO.7-3-66 FO R A CONSIDERATION OF RS.7.5 CRORES ALONG WITH STAMP DUTY TOTALLING TO RS .7,99,50,636. THE ASSESSEES SHARE IN THE VALUE OF PROPERTY IS RS.3,9 9,75,318 ON WHICH THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 54. THE SAME IS DIRECTED TO BE GRANTED. 23. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D AND THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF JULY, 2021. SD/- SD/- ( N V VASUDEV AN ) ( C HAND RA POOJARI ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 29 TH JULY, 2021. / DESAI S MURTHY / ITA NO.822 & 1094/BANG/2019 PAGE 17 OF 17 COPY TO: 1. ASSESSEE 2. REVENUE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.