Mr. Mustafa Khaleel, Bangalore V. Income Tax Officer, Ward- 7(2)(2), Bangalore

ITA 2496/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2225 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-12-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 09-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMI
• Keywords: Cost of acquisition; Fair market value; Set aside; Capital Gains

Judgement Text

ITA NO.2494 TO 2496/BANG/2019 MR. ASIF KHALEEL& OTHERS, BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENTAND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.2494/BANG/2019 ASSESSMENTYEAR:2014-15 MR. ASIF KHALEEL (INDIVIDUAL) NO.70, H. SIDDAIAH ROAD OPP. NAYADEGULA BANGALORE-560 027. PAN NO :AMYPK6342N VS. ITO WARD-7(2)(3) BANGALORE APPELLANT RESPONDENT ITA NO.2495/BANG/2019 ASSESSMENT YEAR: 2014-15 MR. ISMAIL KHALEEL (INDIVIDUAL) NO.70, H. SIDDAIAH ROAD OPP. NAYADEGULA BANGALORE-560 027. PAN NO : AJXPK4935G VS. ITO WARD-7(2)(3) BANGALORE APPELLANT RESPONDENT ITA NO.2496/BANG/2019 ASSESSMENT YEAR: 2014-15 MR. MUSTAFA KHALEEL (INDIVIDUAL) NO.70, H. SIDDAIAH ROAD OPP. NAYADEGULA BANGALORE-560 027. PAN NO : AIDPM3523H VS. ITO WARD-7(2)(3) BANGALORE APPELLANT RESPONDENT ITA NO.2494 TO 2496/BANG/2019 MR. ASIF KHALEEL& OTHERS, BANGALORE PAGE 2 OF 8 APPELLANT BY : SHRI RAJEEV C. NULVI, A.R. RESPONDENT BY : SMT. R. PREMI, D.R. DATE OF HEARING : 03.12.2020 DATE OF PRONOUNCEMENT : 03.12.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE APPEALS FILED BY THE RESPECTIVE ASSESSEES ARE D IRECTED AGAINST THE ORDERS PASSED BY LD. CIT(A)-10, BENGALU RU IN THEIR RESPECTIVE HANDS AND THEY RELATE TO THE ASSESSMENT YEAR 2014-15. SINCE THE ISSUES URGED IN THESE APPEALS ARE IDENTIC AL IN NATURE, ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DIS POSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS URGED BY THE ASSESSEES GIVE RISE TO A SINGLE ISSUE, VIZ., WHAT WILL THE COST OF ACQUISITION OF FLATS SOLD BY THESE ASSESSEES? 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. DURING THE FINANCIAL YEAR 2005-06, THE ASSESSEES HEREIN ALONG WITH ANOTHER BROTHER AND 2 SISTERS ENTERED INTO A JOINT DEVELOPM ENT AGREEMENT (JDA) WITH M/S. KUTEER BUILDERS TO DEVELOP THE LAND AT SY. NO.14/A, NOBONAGAR, BANNERGHATTA ROAD, BANGALORE 560 076 A ND THE PROJECT WAS NAMED KUTEER BLISS. THE JDA WAS REGI STERED ON 6.1.2006. AS PER JDA, THE ASSESSEE ALONG WITH HIS BROTHERS AND SISTERS ARE ENTITLED FOR 52,784.51 SQ.FT. OF SUPER BUILT UP AREA. THE ASSESSEES HAD HANDED OVER HIS POSSESSION OF THE LAN D ON THE DATE OF ENTERING INTO JDA. IN RETURN THE ASSESSEE HAD RECE IVED 5 FLATS INDIVIDUALLY AND 4 FLATS JOINTLY IN THE FINANCIAL Y EAR 2011-12. ITA NO.2494 TO 2496/BANG/2019 MR. ASIF KHALEEL& OTHERS, BANGALORE PAGE 3 OF 8 4. DURING THE FINANCIAL YEAR 2008-09, THESE THREE A SSESSEES ALONG WITH ONE MORE BROTHER ENTERED INTO A JDA WITH M/S. SKYLARK MANSIONS PVT. LTD., TO DEVELOP THE LAND AT SY.NO.41 /1C OF CHIKKATHOGURU VILLAGE, BEGUR HOBLI, BANGALORE SOUTH TALUK, NAMING THE PROJECT AS SKYLARK ZENITH. THE JDA WA S REGISTERED ON 16.12.2008. AS PER JDA THE ASSESSEES ALONG WITH TH EIR BROTHER ARE ENTITLED FOR 37,537 SQ.FT., OF COMMERCIAL SUPER BUI LT UP AREA AND 36,301 SQ.FT. OF RESIDENTIAL SUPER BUILT UP AREA. THE ASSESSEE HAD HANDED OVER HIS POSSESSION OF THE LAND ON THE DATE OF ENTERING INTO JDA. IN RETURN THE ASSESSEES HAD RECEIVED 32 FLATS JOINTLY WITH THEIR BROTHER BY THE FEBRUARY 2013 AND THE COMMERCIAL PRO PERTY IS YET TO BE HANDED OVER. 5. IT IS PERTINENT TO NOTE THAT THE ASSESSEES DID N OT DECLARE CAPITAL GAINS WHEN THEY ENTERED JOINT DEVELOPMENT A GREEMENT IN RESPECT OF TWO PROPERTIES MENTIONED ABOVE, I.E. IN FY 2005-06 AND IN FY 2008-09. 6. DURING THE FINANCIAL YEAR 2013-14 RELEVANT T O AY 2014-15, ALL THESE ASSESSEES SOLD 2 FLATS JOINTLY IN KUTEER BIL L AND FOUR FLATS JOINTLY IN SKYLARK ZENITH. BESIDES THE ABOVE, EAC H OF THE ASSESSEES SOLD ONE FLAT EACH INDIVIDUALLY IN THE F.Y. 2013-14 RELEVANT TO AY 2014-15. 7. THE ASSESSEES DID NOT ORIGINALLY DECLARED CAPI TAL GAINS ON SALE OF FLATS. DURING THE COURSE OF HEARING, THE ASSESSEES FILED A STATEMENT OF TOTAL INCOME DECLARING CAPITAL GAIN ON SALE OF F LATS. THE A.O. NOTICED THAT THE ASSESSEES HAVE CLAIMED DEDUCTION O F COST OF ACQUISITION OF FLATS RANGING FROM RS.13,67,100/- TO RS.15,90,300/- AND ALSO CLAIMED COST OF IMPROVEMENT OF RS.6.5 LAKH S IN RESPECT OF EACH OF THE FLATS. ITA NO.2494 TO 2496/BANG/2019 MR. ASIF KHALEEL& OTHERS, BANGALORE PAGE 4 OF 8 8. THE A.O. ASKED THE ASSESSEES TO FURNISH COPIES O F AGREEMENT TO SALE AND ALSO COPIES OF SALE DEED EXECUTED IN RESPECT OF FLATS SOLD BY THEM. THE A.O. NOTICED THAT SALE CONSIDERA TION MENTIONED IN THE SALE AGREEMENT WAS MORE THAN THE SALE CONSID ERATION STATED IN THE SALE DEED. ACCORDINGLY, FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN, THE A.O. ADOPTED THE SALE CONSIDERATI ON MENTIONED IN THE AGREEMENT TO SALE. 9. WITH REGARD TO THE DEDUCTION TOWARDS COST OF ACQ UISITION, THE A.O. NOTICED THAT THE ASSESSEES HAVE NOT DISCLOSED CAPITAL GAIN IN THE YEAR OF ENTERING JOINT DEVELOPMENT AGREEMENT. ACCORDINGLY, THE A.O. TOOK THE VIEW THAT THE COST OF ACQUISITION REL ATING TO THE LAND ALONE CAN BE DEDUCTED FROM THE SALE CONSIDERATION. THE A.O. ALSO REJECTED CLAIM OF COST OF IMPROVEMENT FOR WANT OF E VIDENCES. ACCORDINGLY, THE A.O. COMPUTED LONG TERM CAPITAL GA IN BY ADOPTING SALE CONSIDERATION MENTIONED IN THE AGREEMENT TO S ALE AND DEDUCTING INDEXED COST OF ACQUISITION OF LAND ONLY. 10. BEFORE LD. CIT(A), THE ASSESSEES FURNISHED EVID ENCES TOWARDS COST OF IMPROVEMENT. ACCORDINGLY, THE LD. CIT(A) C ALLED FOR A REMAND REPORT FROM THE A.O. IN THE REMAND REPORT, THE AO SUBMITTED THAT THE COST OF IMPROVEMENT MAY BE ALLOW ED TO THE EXTENT OF RS.3 LAKHS. THE ASSESSEES ALSO AGREED WI TH THE REMAND REPORT. ACCORDINGLY, THE LD. CIT(A) DIRECTED THE A .O. TO ALLOW DEDUCTION OF COST OF IMPROVEMENT TO THE EXTENT OF R S.3 LAKHS PER FLAT. 11. WITH REGARD TO THE CLAIM FOR DEDUCTION OF COST OF ACQUISITION, THE ASSESSEES CONTENDED BEFORE LD. CIT(A) THAT THE CAPITAL GAINS IN RESPECT OF JOINT DEVELOPMENT AGREEMENTS HAVE TO BE COMPUTED AT TWO STAGES, VIZ., ITA NO.2494 TO 2496/BANG/2019 MR. ASIF KHALEEL& OTHERS, BANGALORE PAGE 5 OF 8 (A) FIRSTLY, AT THE TIME OF ENTERING INTO JOINT DE VELOPMENT AGREEMENT AS PER THE DECISION RENDERED BY HONBLE K ARNATAKA HIGH COURT IN THE CASE OF DR. T.K. DAYALU (2011) 14 TAXMANN.COM 120 AND (B) NEXT AT THE TIME OF SALE OF CONSTRUCTED PROPERT Y. ACCORDINGLY, IT WAS CONTENDED THAT THE COST OF ACQU ISITION OF THE FLAT SOLD BY THE ASSESSEE DURING THE YEAR UNDER CONSIDER ATION WOULD BE THE VALUE OF CONSIDERATION ADOPTED FOR THE FLATS WH ILE COMPUTING CAPITAL GAIN AT THE TIME OF ENTERING INTO JOINT DEV ELOPMENT AGREEMENT. THE ASSESSEES ALSO CONTENDED THAT MEREL Y BECAUSE THE ASSESSEE DID NOT DISCLOSE CAPITAL GAINS AT THE TIME OF ENTERING JOINT DEVELOPMENT AGREEMENT DUE TO THEIR IGNORANCE, THE A SSESSEES SHOULD NOT BE DEPRIVED OF CLAIMING RIGHT AMOUNT OF COST OF ACQUISITION AS DEDUCTION AGAINST SALE CONSIDERATION OF FLATS. 12. THE LD. CIT(A) DID NOT AGREE WITH THE CONTENTIO NS OF THE ASSESSEE. HE REFERRED TO THE DECISION RENDERED BY THE COORDINATE BENCH IN THE CASE OF M/S. SHANKAR VITTAL MOTOR COMP ANY LTD. {ITA NO.35(BANG)2015} FOR THE A.Y. 2010-11 AND INTERPRET ED THAT THE TRIBUNAL HAS PERMITTED DEDUCTION OF COST OF LAND ON LY. ACCORDINGLY THE LD CIT(A) CONFIRMED THE ORDER OF AO WITH REGARD TO COST OF ACQUISITION. THE ASSESSEES ARE AGGRIEVED. 13. WE HEARD THE PARTIES AND PERUSED THE RECOR D. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE CAPITAL GA INS LIABILITY WOULD ARISE AT THE TIME OF ENTERING OF JOINT DEVELOPMENT AGREEMENT AS PER THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF DR. T.K. DAYALU (SUPRA). FOR THE PURPOSE OF COMPUTING CAPITAL GAIN AT THAT POINT OF TIME, THE S ALE CONSIDERATION HAS TO BE DETERMINED. NORMALLY, THE SALE CONSIDERA TION IS DETERMINED BY ASCERTAINING THE FAIR MARKET VALUE OF CONSTRUCTED ITA NO.2494 TO 2496/BANG/2019 MR. ASIF KHALEEL& OTHERS, BANGALORE PAGE 6 OF 8 AREA THAT WILL BE RECEIVED BY THE ASSESSEE PLUS ANY OTHER CONSIDERATION THAT MAY BE RECEIVED AS PER JDA. IN THE CASE OF M/S. SHANKAR VITTAL MOTOR COMPANY LTD (SUPRA), THE CO-OR DINATE BENCH HAS EXPRESSED FOLLOWING VIEW AT THE END OF ITS ORDE R ON THIS ASPECT:- THEREFORE, IN OUR FINAL CONCLUSION, VALUATION OF T HE CAPITAL GAIN SHOULD BE APPROPRIATE TO ADOPT THE FMV/ASSET A S DEEMED CONSIDERATION, BUT NOT THE COST OF CONSTRUCT ION. THOUGH THE FINAL DECISION OF THE TRIBUNAL IS NOT HA PPILY WORDED, THE CO-ORDINATE BENCH HAS EXPRESSED THE VIEW THAT THE F AIR MARKET VALUE OF CONSTRUCTED AREA SHOULD BE ADOPTED AS DEEMED CON SIDERATION. THUS, WE NOTICE THAT THE LD CIT(A) HAS NOT CORRECTL Y INTERPRETED THE DECISION RENDERED BY CO-ORDINATE BENCH IN THE ABOVE SAID CASE. 14. IN THE INSTANT CASES, THE ASSESSEES HEREIN HAVE SOLD PART OF THE CONSTRUCTED AREA RECEIVED BY THEM IN THE FORM O F FLATS. WHEN THE CAPITAL GAIN IS ASSESSED/ASSESSABLE AT THE TIME OF ENTERING THE JDA, SALE CONSIDERATION HAS TO BE DETERMINED BY TAK ING FAIR MARKET VALUE OF THE CONSTRUCTED AREA THAT WILL BE RECEIVED BY THE ASSESSEES. SINCE THE FAIR MARKET VALUE SO DETERMINED IS LIABLE FOR CAPITAL GAINS TAXATION, THE SAID FAIR MARKET VALUE SHALL BECOME C OST OF THE CONSTRUCTED AREA. WHEN THE CONSTRUCTED AREA IN THE FORM OF FLATS ARE SOLD SUBSEQUENTLY, THE COST OF ACQUISITION/INDE XED COST OF ACQUISITION OF FLATS ARE REQUIRED TO BE DEDUCTED IN ORDER TO ASCERTAIN THE CAPITAL GAIN, WHICH SHALL BE THE FAIR MARKET VA LUE, AS DISCUSSED ABOVE. 15. WE NOTICE THAT THE AO DID NOT ALLOW THE DE DUCTION OF COST OF ACQUISITION OF FLATS SOLELY FOR THE REASON THAT THE ASSESSEES HAVE NOT DECLARED CAPITAL GAINS IN THE YEAR IN WHICH JDA WAS ENTERED. WE HAVE ALSO NOTICED THAT THE LD CIT(A) HAS NOT CORREC TLY INTERPRETED THE DECISION RENDERED BY THE CO-ORDINATE BENCH. IT IS WELL SETTLED PROPOSITION OF LAW THAT THE INCOME OF A PARTICULAR YEAR IS ASSESSABLE ITA NO.2494 TO 2496/BANG/2019 MR. ASIF KHALEEL& OTHERS, BANGALORE PAGE 7 OF 8 IN THAT YEAR ONLY. HENCE THE CAPITAL GAIN ARISING ON ENTERING JDA IS ASSESSABLE ONLY IN THE YEAR IN WHICH THE JDA WAS EN TERED. IF THE ASSESSEES HAVE NOT DECLARED CAPITAL GAINS IN THE AP PROPRIATE YEAR, THE AO MAY TAKE APPROPRIATE ACTION TO TAX THE SAME IN ACCORDANCE WITH THE LAW. BUT, IN OUR VIEW, THE FAILURE OF THE ASSESSEES TO OFFER CAPITAL GAINS IN THE APPROPRIATE YEAR WILL NOT DISE NTITLE THE ASSESSEE TO CLAIM COST OF ACQUISITION. ACCORDINGLY, WE ARE OF THE VIEW THAT THE AO WAS ALSO NOT RIGHT IN LAW IN REJECTING THE SAID CLAIM OF THE ASSESSEES FOR DEDUCTION OF CORRECT AMOUNT OF COST O F ACQUISITION/INDEXED COST OF ACQUISITION. 16. IN VIEW OF THE FOREGOING DISCUSSIONS, WE AR E OF THE VIEW THAT THE ISSUE OF COMPUTATION OF CAPITAL GAINS, PARTICUL ARLY THE CLAIM FOR DEDUCTION OF COST OF ACQUISITION OF FLATS, REQUIRES TO BE EXAMINED AFRESH BY THE AO. ACCORDINGLY, WE SET ASIDE THE OR DERS PASSED BY LD CIT(A) ON THIS ISSUE IN THE HANDS OF ALL THE THREE ASSESSEES HERE AND RESTORE THE SAME TO THE FILE OF THE AO FOR EXAMININ G IT AFRESH. 17. AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEI NG HEARD, THE AO MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LA W. 18. IN THE RESULT, ALL THE APPEALS OF THE ASSE SSEES ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DEC, 2020. SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 3 RD DEC, 2020. VG/SPS ITA NO.2494 TO 2496/BANG/2019 MR. ASIF KHALEEL& OTHERS, BANGALORE PAGE 8 OF 8 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.