The Deputy Commissioner of Income Tax Central Circle-2 , Mangaluru V. Shri P M A Razak , Mangaluru

ITA 194/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2314 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 19-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Keywords: Capital asset; Opportunity of being heard; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA , ACCOUNTANT MEMBER ITA NO. 194 /BANG/201 8 ASSESSMENT YEAR : 20 06 - 07 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, MANGALORE. VS. SHRI. P. M. A. RAZAK, HC-12, HIS GRACE APARTMENTS, MARTIN PAES ROAD, HAT HILL, MANGALURU. PAN : A D YPR9231M APPELLANT RESPONDENT REVENUE BY : DR . P. V. PRADEEP KUMAR, ADDL. CIT ASSESSEE BY : SMT. SHEETAL BORKAR, ADVOCATE DATE OF HEARING : 1 9 . 0 7 .201 8 DATE OF PRONOUNCEMENT : 07 . 0 9 .201 8 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER THE CIT(A), INTER ALIA, ON FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 1.60 CRORES BEING CAPITAL GAIN ON THE ASSESSEE'S SHARE OF BUILT UP AREA IN THE PROJECT EXECUTED UNDER JDA DATED 15.03.2016. ITA NO. 194/BANG/2018 PAGE 2 OF 7 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IS NOT APPRECIATING THE FACT THAT AO HAS RIGHTLY ADOPTED THE COST OF THE CONSTRUCTION @ RS. 1600/- PER SQ. FT FOR THE 10,000 SQ.FT. OF LAND AS PER JDA TO COMPUTE THE CAPITAL GAIN AS HERE THE ISSUE IN QUESTION WAS NOT A CHOICE BETWEEN CONSIDERING THE SALE CONSIDERATION AS RS. 37,60,000/- OR RS. 1,60,00,000/-. THE LEARNED CIT(A) HAS FAILED TO CONSIDER THAT THE ASSESSEE HAD RECEIVED 10,000 SQ FT. OF CONSTRUCTED SPACE IN ADDITION TO THE EXCHANGE VALUE OF LAND AMOUNTING TO RS. 37,60,000/-. FOLLOWING THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN CIT VS. DR. T. K DAYALU IN ITR 3209 AND 3165 OF 2005 (292 TAXMAN 531), THE EXCHANGE VALUE OF 10,000 SQ. FT. OF LAND ALSO HAD TO BE INCLUDED AS THE SALE CONSIDERATION RECEIVED DURING THE FINANCIAL YEAR. 4. THE CIT(A) ALSO FAILED TO APPRECIATE THE HON'BLE ITAT JUDGMENT (ITAT BANGALORE-A BENCH) IN THE CASE OF ITO WARD-7(2), BANGALORE VS. N S NAGARAJ(2014)52 TAXMAN 211, WHERE THE COST OF CONSTRUCTION ADOPTED BY THE A.0 HAS BEEN UPHELD. 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING THE ORDERS OF LD.CIT(A) MAY BE SET ASIDE AND THAT OF ASSESSING OFFICER MAY BE RESTORED. 2. THE GROUNDS RAISED IN THIS APPEAL RELATE TO THE DELETION OF ADDITION OF RS.1.6 CRORES BEING CAPITAL GAIN ON ASSESSEES SHARE OF BUILT UP AREA IN THE PROJECT EXECUTED UNDER JOINT DEVELOPMENT AGREEMENT (JDA) BY ADOPTING COST OF CONSTRUCTION AT THE RATE OF RS.1600/- PER SQ.FT. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT IN FIRST ROUND OF APPEAL THE TRIBUNAL VIDE ITS ORDER DATED 31.08.2017 SET ASIDE THE ORDER OF THE CIT(A) AND RESTORED THE MATTER TO THE FILE OF CIT(A) WITH A DIRECTION TO READJUDICATE THE ISSUE IN THE LIGHT OF JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VED PRAKASH RAKHRA 376 ITR 762, WHICH WAS NOT CONSIDERED BY THE CIT(A) AND THE ORDERS OF THE TRIBUNAL IN THE CASE OF SMT. Y. S. MYTHILI VS. ITO AND SHRI. REDDY, HUF VS. DCIT. PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL, THE CIT(A) HAS AFFORDED OPPORTUNITY TO THE ITO AS WELL AS THE ASSESSEE. THE SUBMISSIONS FILED BY THEM WERE ALSO CONFRONTED TO EACH OTHER. BEFORE THE CIT(A), THE LEARNED COUNSEL FOR THE ITA NO. 194/BANG/2018 PAGE 3 OF 7 ASSESSEE HAS PLACED A RELIANCE UPON THE LATEST JUDGMENTS OF THE APEX COURT IN THE CASE OF CIT VS. BALBIR SINGH MAINI (CIVIL APPEAL NO. 15619 OF 2017) ORDER DATED 04.10.2017 WHEREIN THE HONBLE APEX COURT HAS HELD THAT THE INCOME SHOULD BE BROUGHT TO TAX ONLY IN THE YEAR IN WHICH THE ASSESSEE HAS RIGHT TO RECEIVE THE INCOME UNDER JDA. 3. THE CIT(A) RE-EXAMINED THE RIVAL SUBMISSIONS IN THE LIGHT OF AFORESAID JUDGMENTS AND CAME TO THE CONCLUSION THAT APPELLANT TRANSFERRED THE LAND THROUGH JDA AND TO RECEIVE 10,000 SQ.FT OF CONSTRUCTED SPACE AS A CONSIDERATION. THE ASSESSEE OFFERED THE SALE CONSIDERATION AT RS.37,60,000/-, BEING THE EXCHANGE VALUE THOUGH THE SAID SALE CONSIDERATION IS NOT SPECIFIED IN THE JDA. THE GUIDANCE VALUE AS PER THE VALUATION DONE BY THE SUB-REGISTRAR FOR THE PROPERTY TRANSFERRED IS RS. 20,00,000/- AND ACCORDINGLY RS.37,60,000/- BEING HIGHER OF THE TWO VALUES, WAS TAKEN AS THE SALE CONSIDERATION. FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VED PRAKASH RAKHRA (SUPRA), THE CIT(A) HELD THAT THE SALE CONSIDERATION SHOULD BE ADOPTED AT RS.37,60,000/- AND NOT RS.1,60,00,000/- AS HELD BY THE AO. ACCORDINGLY, HE DELETED THE ADDITION. 4. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND PLACED HEAVY RELIANCE UPON THE ORDER OF THE AO WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE, BESIDES PLACING RELIANCE UPON THE ORDER OF THE CIT(A), HAS INVITED OUR ATTENTION TO THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. BALBIR SINGH MAINI (SUPRA) IN WHICH IT HAS BEEN HELD THAT IF THE OWNER CONTINUES TO BE THE OWNER THROUGHOUT AGREEMENT, AND HAD NO STAGE PURPORTED TO TRANSFER RIGHTS AKIN TO OWNERSHIP TO DEVELOPER, THERE WOULD BE NO TRANSFER OF RIGHTS AND NO TRANSFER OF PROFIT OR GAIN WOULD ARISE FROM SUCH TRANSFER OF CAPITAL ASSET. ITA NO. 194/BANG/2018 PAGE 4 OF 7 5. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER INVITED OUR ATTENTION TO THE JDA WITH THE SUBMISSION THAT THE ASSESSEE REMAINED THE OWNER OF THE LAND AND LIMITED RIGHT WAS GIVEN TO THE BUILDER FOR THE DEVELOPMENT OF THE LAND. HE HAS ALSO INVITED OUR ATTENTION TO VARIOUS CLAUSES IN ORDER TO DEMONSTRATE THAT POSSESSION REMAINS WITH THE ASSESSEE. HE HAS ALSO PLACED A RELIANCE UPON JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VED PRAKASH RAKHRA (SUPRA) IN SUPPORT OF HIS CONTENTION THAT THE EXCHANGE VALUE OF THE PROPERTY AS SPECIFIED IN PROJECT DEVELOPMENT AGREEMENT, REPRESENTED MARKET VALUE ON DATE OF ENTERING INTO AGREEMENT SHOULD BE TAKEN AS BASIS FOR COMPUTATION OF CAPITAL GAIN. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT FAIR MARKET VALUE AS PER THE SUB REGISTRARS VALUATION HAS TO BE TAKEN AS CONSIDERATION. HE HAS ALSO INVITED OUR ATTENTION TO THE FACT THAT IN SUCCEEDING YEARS, THE ASSESSEE HAS OFFERED THE PROFIT FROM THE SALE OF CONSTRUCTED AREA RECEIVED AS CONSIDERATION IN KIND AT RS. 3,24,85,000/- AND OFFERED IT TO TAX. THEREFORE, NO ADDITION AS ALLEGED BY THE REVENUE IS CALLED FOR. 6. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHORITIES BELOW IN THE LIGHT OF RIVAL SUBMISSIONS WE FIND THAT PURSUANT TO THE DIRECTION OF THE TRIBUNAL, THE CIT(A) HAS AFFORDED AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS WELL AS THE AO WHILE ADJUDICATING THE ISSUE AND CIT(A) HAS EXAMINED THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VED PRAKASH RAKHRA (SUPRA), JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. BALBIR SINGH MAINI AND THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. SMT. SAROJINI M KUSHE, AND ACIT VS. SHANKAR VITTAL MOTOR CO. LTD. HE HAS ALSO TAKEN NOTE OF THE GUIDANCE VALUE AS PER THE VALUATION DONE BY SUB-REGISTRAR OF THE PROPERTY AT RS.20 LAKHS AND SINCE THE ASSESSEE HIMSELF HAS SHOWN THE VALUE AT 37,60,000/-, ITA NO. 194/BANG/2018 PAGE 5 OF 7 THE CIT(A) ACCEPTED THE SAME. HE HAS ALSO TAKEN A COGNIZANCE OF THE FACT THAT ASSESSEE HIMSELF HAS OFFERED PROFIT FROM SALE OF CONSTRUCTED AREA RECEIVED AT RS.3,24,85,000/- ON WHICH TAX WAS OFFERED BY ASSESSEE IN THE ASSESSMENT YEARS 2014-15 TO 2016-17. THE CIT(A) HAS EXAMINED THE ISSUE IN DETAIL IN HIS ORDER AND FOR THE SAKE OF REFERENCE WE EXTRACT THE RELEVANT PORTION OF HIS ORDER AS UNDER: 1.7 I HAVE GONE THROUGH THE RATIO OF DECISION OF HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. VED PRAKASH RAKHRA (376 ITR 762). IN THE SAID CASE, THE ISSUE BEFORE THE HON'BLE HIGH COURT WAS WHETHER THE TRIBUNAL WAS RIGHT IN HOLDING THAT ESTIMATED COST OF CONSTRUCTION OF RS.66,00,000/- SHOWN IN THE JOINT DEVELOPMENT AGREEMENT (JDA) FOR DEVELOPMENT OF PROPERTY SHOULD BE TAKEN INTO ACCOUNT AND NOT THE 50% OF RS.2,86,00,000/- ACTUALLY SPENT BY THE BUILDER FOR THE PURPOSE OF SECTION 45 OF THE ACT. ON THE SAID ISSUE, THE FINDING OF THE HON'BLE HIGH COURT IS AS UNDER: '9. INSOFAR AS THE PROPERTY SITUATED AT AGA ABBA ALI ROAD IS CONCERNED, AS PER THE DEVELOPMENT AGREEMENT OF THE YEAR 1994, THE DEVELOPER WAS PUT IN POSSESSION OF THE PROPERTY ON 6-3-1995 FOR CONSTRUCTION OF THE APARTMENT AND CONSTRUCTION OF THE APARTMENT WAS COMPLETED IN THE YEAR 2000. CLAUSE 1.1 OF THE AGREEMENT READS AS UNDER: 'THE OWNER SHALL SELL 50% OF UNDIVIDED RIGHT AND INTEREST IN THE SCHEDULE-A PROPERTY TO DEVELOPER AND/OR THEIR NOMINEE/S IN ALL EQUIVALENT TO 8,250 SQ.FT. APPROXIMATELY (HEREINAFTER CALLED THE 'SALEABLE UNDIVIDED RIGHT AND INTEREST IN THE SCHEDULE PROPERTY IN CONSIDERATION OF THE DEVELOPMENT). A. PAYING NON-REFUNDABLE DEPOSIT OF RS. 21,00,0001. (RUPEES TWENTY ONE LAKHS ONLY) AS SET OUT IN PARA 11.3; B. THE CONSTRUCTION AND HANDING OVER TO THE OWNERS 50% OF THE SUPER BUILT AREA TO BE CONSTRUCTED ON THE SCHEDULED PROPERTY; C. CONSTRUCTION AND HANDING OVER TO THE OWNERS 50% BASEMENT, CAR PARKING UNITS; D. ALLOTMENT OF 50% OF SALEABLE GARDEN/TERRACE AREA; E. PROVIDING RENT FREE ACCOMMODATION AS SET OUT IN CLAUSE (1.4).' THE EXCHANGE VALUE IN CONSIDERATION OF 50% OF THE LAND WAS AGREED TO BE CONVEYED TO THE DEVELOPER AND/OR HIS NOMINEE/S VALUED AT RS. 1,16,70,000/-. THE FAIR MARKET VALUE AS ON 01-04-1981 AS PER THE SUB- REGISTRAR VALUATION HAS TO BE TAKEN INTO CONSIDERATION. HOWEVER, THE ASSESSING AUTHORITY HAS NOT TAKEN INTO CONSIDERATION THIS ASPECT OF THE MATTER. TAKING INTO CONSIDERATION THE PROJECT COST INCURRED BY THE DEVELOPER ON THE BASIS OF THEIR LETTER DATED 01-02-2004, WHICH INCLUDES ALL ITA NO. 194/BANG/2018 PAGE 6 OF 7 EXPENDITURE CONNECTED WITH THE CONSTRUCTION OF THE RESIDENTIAL APARTMENT. THE EXCHANGE VALUE AS SPECIFIED IN THE PROJECT DEVELOPMENT AGREEMENT CAN BE TAKEN AS THE BASIS FOR COMPUTATION OF THE CONSTRUCTION IN J2INT DEVELOPMENT. THE COST INCURRED BY THE DEVELOPER NEED NOT NECESSARILY REPRESENT ONLY A COST OF CONSTRUCTION. THE DETAILED PARTICULARS ARE NOT GIVEN. THE TRANSACTION OF JOINT DEVELOPMENT IS ONE OF EXCHANGE. THE CONSIDERATION SPECIFIED IN THE SAID DOCUMENT REPRESENT THE MARKET VALUE ON THE DATE OF ENTERING INTO THE AGREEMENT. THE ASSESSMENT MADE BY ASSESSING AUTHORITY IS CONTRARY TO LAW. HENCE, WE HOLD ISSUE NO. 2 AGAINST THE REVENUE.' 1.8. FROM THE ABOVE FINDING, IT IS CLEAR THAT THE HON'BLE HIGH COURT HAS HELD THAT THE FAIR MARKET VALUE AS PER THE SUB- REGISTRAR VALUATION HAS TO BE TAKEN AS CONSIDERATION. IN THAT CASE, THE AO HAD TAKEN INTO CONSIDERATION THE PROJECT COST INCURRED BY THE DEVELOPER. IN THE SAID CASE, THE COST OF CONSIDERATION TOWARDS CONSTRUCTION OF THE PREMISES TO BE GIVEN TO THE SELLER IN JDA WAS SPECIFIED TO BE RS.66,00,000/- AND THE AO HAD TAKEN THE COST OF CONSTRUCTION OF THE ENTIRE PROPERTY AT RS.2,86,00,000/- OF WHICH 50% BELONGED TO THE SELLER AND OTHER 2 CO-OWNERS. IN THESE FACTS OF THE CASE, THE HON'BLE HIGH COURT HELD THAT THE TRANSACTION OF JOINT DEVELOPMENT IS ONE OF EXCHANGE AND CONSIDERATION SPECIFIED IN THE SAID DOCUMENT REPRESENTED THE MARKET VALUE AS ON THE DATE OF ENTERING INTO JDA. HENCE, THE ASSESSMENT MADE BY THE AO ON RS.2,86,00,000/- WAS HELD TO BE CONTRARY TO LAW AND THE ISSUE WAS DECIDED AGAINST THE REVENUE. 1.9 IN THE LIGHT OF THE ABOVE REFERRED DECISION OF HON'BLE HIGH COURT, IN THE CASE OF THE APPELLANT, THE FACTS ARE THAT THE APPELLANT TRANSFERRED THE LAND THROUGH JDA AND IS TO RECEIVE 10,000 SQ.FT. OF CONSTRUCTED SPACE AS A CONSIDERATION. THE APPELLANT OFFERED THE SALE CONSIDERATION AT RS.37,60,000/- BEING THE EXCHANGE VALUE AND THE SAID SALE CONSIDERATION IS NOT SPECIFIED IN THE JDA. THE GUIDANCE VALUE AS PER THE VALUATION DONE BY THE SUB-REGISTRAR FOR THE PROPERTY TRANSFERRED IS RS.20,00,000/- AND ACCORDINGLY, RS.37,60,000/- BEING HIGHER OF THE TWO VALUES, WAS TAKEN AS THE SALE CONSIDERATION. THE AO ON THE OTHER HAND TOOK THE COST OF CONSTRUCTION OF 10,000 SQ.FT. PREMISES THAT THE APPELLANT WAS TO GET IN FUTURE AT RS.1,60,00,000/-. NOW, THE ISSUE FOR ADJUDICATION IS WHETHER THE SALE CONSIDERATION SHOULD BE RS.37,60,000/- OR RS.1,60,00,000/-. AS PER THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS VED PRAKASH RAKHRA (SUPRA), THE SALE CONSIDERATION SHOULD BE RS.37,60,000/- AND NOT RS.1,60,00,000/- (IN THE SAID CASE SALE CONSIDERATION WAS TAKEN AT RS.66,00,000/- AS AGAINST COST OF CONSTRUCTION OF RS.2,86,00,000/-). FURTHER, THE AR OF THE APPELLANT HAS ALSO SUBMITTED THAT THE PROFITS FROM SALE OF CONSTRUCTED AREA RECEIVED AS CONSIDERATION IN KIND TOTALING TO RS.3,24,85,000/- HAS BEEN OFFERED TO TAX BY THE APPELLANT IN A.Y. 2014-15 TO 2016-17. ITA NO. 194/BANG/2018 PAGE 7 OF 7 1.10 IN VIEW OF THE ABOVE, THE AO IS DIRECTED TO TAKE THE SALE CONSIDERATION FOR JDA AT RS.37,60,000/- AND ACCORDINGLY, ADDITION MADE BY THE AO OF RS.1,60,00,000/-STANDS DELETED. THE GROUND SET ASIDE BY HON'BLE ITAT IS DECIDED IN FAVOUR OF THE APPELLANT FOLLOWING THE RATIO OF DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS VED PRAKASH RAKHRA (SUPRA). 7. SINCE THE CIT(A) HAS ADJUDICATED THE ISSUE IN THE LIGHT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VED PRAKASH RAKHRA (SUPRA) AND ALSO THE APEX COURT IN THE CASE BALBIR SINGH MAINI (SUPRA), WE FIND NO INFIRMITY IN HIS ORDER AS THE GUIDANCE VALUE OF THE PROPERTY WAS OF RS.20 LAKHS AND THE ASSESSEE HIMSELF HAS OFFERED THE HIGHER VALUE I.E., RS.37,60,000/- TO TAX. THEREFORE, WE CONFIRM THE ORDER OF CIT(A). ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER, 2018. SD/- SD/- BANGALORE. DATED: 7 TH SEPTEMBER, 2018. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE. ( A. K. GARODIA ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER