Sri G.V.Arjun Goud, Hyderabad V. Income Tax Officer, Ward-8(2), Hyderabad

ITA 1939/Hyd/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3854 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 30-01-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 28-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S ARVINDAKSHAN
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Capital asset; Cost of acquisition; Capital Gains
• Section: 48; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES SMC, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 1939/HYD/17 2009-10 SRI G.V.ARJUN GOUD, HYDERABAD [PAN: AHAPG4681N] INCOME TAX OFFICER, WARD-8(2), HYDERABAD 133/HYD/18 2009-10 SRI ASHOK KUMAR, HYDERABAD [PAN: AKCPK1944R] FOR ASSESSEE : SHRI K.C.DEVDAS, AR & SHRI P. MURALI MOHANA RAO, AR FOR REVENUE : SHRI R.S.ARVINDAKSHAN, DR DATE OF HEARING : 30-01-2020 DATE OF PRONOUNCEMENT : 28-02-2020 O R D E R BOTH THE APPEALS ARE FILED BY THE RESPECTIVE ASSESSEES FOR THE AY.2009-10 AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS)-2, HYDERABAD, DATED 01-09-2017. 2. BRIEF FACTS OF THE CASE ARE THAT THE DEPARTMENT RECEIV ED INFORMATION THAT BOTH OF THESE ASSESSEES WHO ARE INDIVID UALS HAVE ENTERED INTO A DEVELOPMENT AGREEMENT CUM GENERAL POWER OF ATTORNEY (GPA) WITH M/S.THIRTHA INFRA PROJECTS (P) LTD., VIDE REGISTERED DEED NO.2587/2008, DT.17-07-2008 FOR DEVELOPMENT/COMPLETION OF SEMI-FINISHED APARTMENTS CONS TRUCTED BY THEM IN THE LAND ADMEASURING 3372 SQ. YDS., IN SUR VEY NO.57/P SITUATED AT BANDLAGUDA JAGIR VILLAGE, RAJENDR A NAGAR I.T.A. NOS. 1939/HYD/2017 & 133/HYD/2018 :- 2 -: MANDAL, DIST. RANGA REDDY. AS PER THE DEED, THE TOTAL E XTENT OF LAND IS 3372.41 SQ. YDS., AND THE PROPOSED BUILT UP A REA IS 50,000 SQ. FT., AND THE PROPOSED ESTIMATE OF THE RESIDENTIAL F LATS WAS 3,57,45,000/-. THE SHARING RATIO BETWEEN THE LANDOWN ERS AND THE DEVELOPER WAS 43:57 RESPECTIVELY. A FURTHER RECTIFIC ATION DEED DT.06-06-2011 WAS ENTERED INTO TO RECTIFY THE SHARE OF BU ILT UP AREA TO 13.6 : 86.4 BETWEEN LAND OWNERS AND DEVELOPER RES PECTIVELY. THE ASSESSING OFFICER (AO) ALSO OBSERVED THAT THE ASSE SSEES HAVE HANDED OVER THE POSSESSION OF SEMI-FINISHED APARTMEN T TO THE DEVELOPER AND THEREFORE, HE HELD THAT THERE IS A TRANSF ER OF PROPERTY WITHIN THE MEANING OF SECTION 2(47)(V) OF THE INCOME T AX ACT [ACT]. SINCE THE DEVELOPMENT AGREEMENT CUM GPA WAS EXECUTED ON 17- 07-2008, HE HELD THAT THE CAPITAL GAINS WOULD BE TAXABLE IN THE AY.2009-10. ACCORDINGLY, HE COMPUTED THE CAPITAL GAIN S AND ARRIVED AT ASSESSEES SHARE OF CAPITAL GAIN AT RS.14,4 9,305/- EACH, IS TO BE BROUGHT TO TAX DURING THE RELEVANT ASSESSMENT YE AR. 3. AGGRIEVED, THE ASSESSEES FILED THEIR APPEALS BEFOR E THE CIT(A), WHO CONFIRMED THE ORDER OF AO AND THE ASSESSEES ARE I N SECOND APPEALS BEFORE THE TRIBUNAL. THE GROUNDS RAISED BY S HRI G.V.ARJUN GOUD ARE AS UNDER: 1. THE ORDER OF THE HON'BLE CIT(A) IS ERRONEOUS IN LAW AS WELL AS FACTS OF THE CASE. 2. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT B ECAUSE OF NON- COMMUNICATION OF REASONS RECORDED U/S.148(2) OF THE IT ACT THE PROCEEDINGS U/S.147 CANNOT BE HELD VALID. 3. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE CAPITAL GAIN IF ANY OUGHT TO HAVE BEEN ASSESSED FOR THE ASST. YEAR 2012 -13 AS THE CAPITAL GAIN MATERIALIZED IN THE LIGHT OF DOCUMENT DATED 06 .06.2011. I.T.A. NOS. 1939/HYD/2017 & 133/HYD/2018 :- 3 -: 4. THE HON'BLE CIT(A) OUGHT TO HAVE DIRECTED THE AS SESSING OFFICER TO ALLOW THE EXPENDITURE CLAIMED WHICH WAS ALREADY INCURRED BY THE OWNERS OF THE SITE FOR THE SEMI-FINISHED STRUCTURE. 5. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE CIT(A) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO DELETE THE A DDITION OF RS.14,49,305/- MADE WITHOUT PROPER BASIS. 6. ANY OTHER GROUND WILL BE RAISED AT THE TIME OF H EARING OF APPEAL. 4. AS REGARDS GROUND NO.2, THE LD.COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE ASSESSEE HAS NOT BEEN SUPPLIED WITH THE REASONS FOR RE-OPENING OF ASSESSMENT AND THEREFORE THE RE-ASSESSMENT PROCEEDINGS ARE NOT VALID. HOWEVER, ON GOING THROUGH THE MATERIAL ON RECORD AND AFTER HEARING BOTH THE PARTIES, I FIND THAT THE ASSESSEE HAD NEVER ASKED THE AO FOR THE R EASONS FOR RE-OPENING OF ASSESSMENT DURING THE ASSESSMENT PROCEE DINGS, BUT HAS MADE AN APPLICATION UNDER RTI, ONLY AFTER THE ASS ESSMENT ORDER WAS PASSED AND HAS ALSO SUBSEQUENTLY WITHDRAWN THE SAID APPLICATION. THE HON'BLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFTS INDIA (P) LTD. V. CIT, (2003) [1 SCC 72] HAS CLEARLY HELD THAT THE ASSESSEE HAS TO ASK FOR REASONS FOR RE-OPENING . THE ASSESSEE HAS FILED HIS RETURN OF INCOME, PURSUANT TO TH E NOTICE U/S.148 OF THE ACT AND THEREAFTER, ON SUCH REQUEST, THE AO HAS TO PROVIDE THE REASONS FOR RE-OPENING TO THE ASSESSEE. IF THE ASSESSEE SO DESIRES, IT MAY RAISE ITS OBJECTIONS TO THE RE-OPENIN G AND SUCH OBJECTIONS SHALL BE DISPOSED OF BY THE AO BEFORE PRO CEEDING WITH THE ASSESSMENT PROCEEDINGS. SINCE IN THIS CASE, NONE O F THE ABOVE CIRCUMSTANCES EXISTED, THE ASSESSEE HAS NO CASE ON THI S GROUND. THEREFORE, GROUND NO.2 RAISED BY ASSESSEE IS NOT SUS TAINABLE. 5. AS REGARDS THE MERITS OF THE ISSUE, LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT BOTH THE OWNERS OF THE PROPERTY HA VE I.T.A. NOS. 1939/HYD/2017 & 133/HYD/2018 :- 4 -: STARTED CONSTRUCTION OF APARTMENTS BUT SINCE THEY WERE FA CING FINANCIAL CRUNCH AND WERE NOT IN A POSITION TO COMPLE TE THE PROJECT, THEY HAD ENTERED INTO A DEVELOPMENT AGREEMENT. IT WAS SU BMITTED THAT CAPITAL GAINS HAVE BEEN OFFERED TO TAX IN THE AY.201 3-14, AS AND WHEN THE FLATS HAVE BEEN SOLD. IT IS FURTHER ARG UED THAT WHILE COMPUTING THE CAPITAL GAIN, THE COST OF ACQUISITION BY T HE ASSESSEE SHOULD INCLUDE THE COST INCURRED BY THE ASSESSEE IN C ONSTRUCTION OF THE SEMI-FINISHED APARTMENTS. 6. LD.DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF AO AND SUBMITTED THAT SINCE THE DEVELOPMENT AGREEMENT HAS BEEN EN TERED INTO IN THE RELEVANT ASSESSMENT YEAR AND THE ASSESSEES HAVE HANDED OVER THE POSSESSION OF THE PROPERTY TO THE DEVEL OPER, THERE IS TRANSFER WITHIN THE MEANING OF SECTION 2(47)(V) OF T HE ACT AND THEREFORE, THE ASSESSEE IS LIABLE TO PAY TAX ON THE SHOR T TERM CAPITAL GAINS, ARISING FROM SUCH TRANSFER. IT IS SUBMI TTED THAT ASSESSEE HAD NOT FURNISHED ANY BILLS/VOUCHERS IN SUP PORT OF THE EXPENDITURE WHICH IS SUPPOSEDLY INCURRED BY THE ASSE SSEES FOR CONSTRUCTION OF THE SEMI-FINISHED BUILDING. IT IS FOR THIS REASON THAT THE AO HAS NOT ALLOWED THE EXPENDITURE AS COST OF IMPRO VEMENT OF THE PROPERTY. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATERIAL O N RECORD, I FIND THAT BOTH THE ASSESSEES HAVE JOINTLY STARTE D THE CONSTRUCTION OF THE BUILDING AND SINCE THEY COULD NOT CO MPLETE THE BUILDING WITH THEIR OWN FUNDS, THEY HAVE ENTERED INTO THE JOINT DEVELOPMENT AGREEMENT. IT IS THE CASE OF THE ASSESSEES THAT IN THE AYS.2012-13 & 2013-14, THE ASSESSEES HAVE OFFERED CA PITAL GAINS TO TAX BY CONSIDERING THE VALUE OF THE LAND AND ALSO CO NSTRUCTED I.T.A. NOS. 1939/HYD/2017 & 133/HYD/2018 :- 5 -: AREA AS COST OF ACQUISITION AND HAVE OFFERED THE BAL ANCE AS LONG TERM CAPITAL GAIN AND HAVE ALSO NOT CLAIMED ANY EXEM PTION U/S.54F OF THE ACT. BOTH THE ASSESSEES ARE THE OWNERS O F THE LAND, ON WHICH THEY HAVE STARTED THE CONSTRUCTION AND SUBSEQUEN TLY HAVE GIVEN IT FOR DEVELOPMENT. THE DEVELOPER ALSO HA S COMPLETED THE CONSTRUCTION AS PER THE PLAN OBTAINED BY THE ASSESSE ES. THEREFORE, THE CONSTRUCTION HAS BEEN COMPLETED THROUGH T HE DEVELOPER. THE DEVELOPMENT AGREEMENT IS PLACED AT PGS. 32 TO 48 OF THE PAPER BOOK. AS PER THE DEVELOPMENT AGREEMENT, IT IS SEEN THAT THE DEVELOPER HAD TAKEN OVER THE CONSTRUCTION AS PER THE PLAN OBTAINED BY THE ASSESSEES I.E., THE DEVELOPER HAS AGR EED TO COMPLETE THE CONSTRUCTION. THE DEVELOPMENT AGREEMENT DOES NOT MENTION ABOUT ANY CONSIDERATION PAID BY THE DEVELOPER TO THE PARTIES FOR THE SEMI-CONSTRUCTED AREA. SINCE BOTH THE AS SESSEES HAVE ENTERED INTO DEVELOPMENT AGREEMENT DURING THE RELEV ANT ASSESSMENT YEARS AND HAVE HANDED OVER THE POSSESSION OF THE PROPERTY, THE CAPITAL GAIN ON TRANSFER OF LAND TO THE D EVELOPER WOULD ARISE IN THE RELEVANT ASSESSMENT YEAR ONLY. THE ASSESS EES HAVE SOLD THE FLATS SUBSEQUENTLY AND HAD OFFERED THE CAPITAL GAINS IN THE YEAR OF SALE ON SALE OF THE FLATS. BUT WHETHER IN THE AY.2013 -14, THE CAPITAL GAIN OFFERED BY THE ASSESSEES INCLUDED BOTH THE VALUE OF THE LAND RELEVANT TO THE FLAT WHICH IS SOLD AND ALSO THE LAN D WHICH IS TRANSFERRED TO THE DEVELOPERS SHARE OF THE PROPERTY NE EDS VERIFICATION. THEREFORE, I AM OF THE OPINION THAT THE C APITAL GAIN ON TRANSFER TO LAND TO THE DEVELOPMENT HAS TO BE BROUGHT TO TAX DURING THE RELEVANT ASSESSMENT YEAR ONLY IF IT IS NOT OFFERED T O TAX IN THE SUBSEQUENT A.Y AND HAS BEEN ACCEPTED BY THE DEPARTMENT. HOWEVER, I AGREE WITH THE CONTENTIONS OF THE LD.COUNSEL S FOR THE ASSESSEE THAT THE EXPENDITURE INCURRED BY THE RESPECTIVE ASSESSEES I.T.A. NOS. 1939/HYD/2017 & 133/HYD/2018 :- 6 -: FOR RAISING THE BUILDING TO A SEMI-CONSTRUCTED POSITIO N HAS TO BE ALLOWED TO THE ASSESSEE WHILE COMPUTING CAPITAL GAINS. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA NO.1939/HYD/2017 IS PARTLY ALLOWED FOR STATISTICAL PURP OSES. ITA NO.133/HYD/2018 (SHRI ASHOK KUMAR): 9. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS: 1. THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL S) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LD. CIT (A) ERRED IN DISMISSING THE APPEAL. 3. THE LD.CIT (A) ERRED IN UPHOLDING AO'S PROCEEDIN GS UNDER SECTION 147 OF THE ACT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION . 4. THE LD.CIT (A) ERRED IN UPHOLDING THE ADDITION O F RS. 14,49,305/ - MADE TOWARDS SHORT TERM CAPITAL GAINS SINCE NO AMOUNT HA S BEEN RECEIVED OR ACCRUED TO THE APPELLANT DURING THE YEAR OF ACCOUNT . 5. WITHOUT PREJUDICE TO OTHER GROUNDS, THE LD.CIT ( A) OUGHT TO HAVE APPRECIATED THAT THE AO HAS NOT CONSIDERED THE COST OF CONSTRUCTION OF THE SEMIFINISHED STRUCTURE AND THE COST OF LAND, WHILE COMPUTING THE SHORT TERM CAPITAL GAINS. 6. THE LD.CIT (A) OUGHT TO HAVE APPRECIATED THAT TH E ACCRUAL OF CAPITAL GAINS IN THE APPELLANT'S CASE IS CONTINGENT ON THE COMPLETION OF CONSTRUCTION AND SALE OF APARTMENTS. 7. THE LD.CIT (A) OUGHT TO HAVE APPRECIATED THAT NO THING IS DONE BY THE DEVELOPER DURING THE YEAR UNDER CONSIDERATION. 8. THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THAT THE RE IS NO TRANSFER OF PROPERTY DURING THE YEAR OF ACCOUNT AS PER SECTION 2(47) OF THE IT ACT, OR SECTION 53A OF TRANSFER OF PROPERTY ACT., SINCE THE EXISTING DAGPA HAS BEEN CANCELLED AND NEW DAGPA HAS BEEN ENTERED INTO DURING THE FINANCIAL YEAR 2011-12. 9. THE ASSESSEE MAY ADD, ALTER OR MODIFY ANY OTHER POINTS TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEAR ING OF THE APPEAL. I.T.A. NOS. 1939/HYD/2017 & 133/HYD/2018 :- 7 -: 9.1. THOUGH THE ASSESSEE HAS RAISED AS MANY AS EIGH T GROUNDS IN THIS APPEAL, SINCE THE FACTS OF THE PRESENT CASE ARE IDE NTICAL TO THE FACTS AND CIRCUMSTANCES OF ITA NO.1939/HYD/2017 (SUPR A), MY FINDINGS IN THE ABOVE APPEAL, MUTATIS MUTANDIS , WOULD APPLY TO THIS APPEAL AS WELL. HENCE, THIS APPEAL OF ASSESSEE IS AL SO PARTLY ALLOWED. 10. TO SUM-UP, APPEALS OF BOTH THE ASSESSEES ARE PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2020 SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED: 28-02-2020 TNMM COPY TO : 1. SHRI G.V.ARJUN GOUD, C/O. B.NARSING RAO & CO., CHARTERED ACCOUNTANTS, PLOT NO.554, ROAD NO.92, JUB ILEE HILLS, HYDERABAD. 2. SHRI ASHOK KUMAR, C/O. P.MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 3. THE INCOME TAX OFFICER, WARD-8(2), HYDERABAD. 4. CIT (APPEALS)-2, HYDERABAD. 5. THE PR.CIT-2, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.