H P Constructions Private Limited, Hyderabd, Hyderabad V. ITO, Ward-2(2), Hyderabad, Hyderabad

ITA 363/HYD/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5077 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Assessment Year: 2005-2006
• Appeal Filed On: 28-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DIVYA J
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Cost of acquisition; Reassessment proceedings; Capital Gains
• Section: 2(14); 147; 148

Judgement Text

ITA NO 363 OF 2017 HP CONSTYRUCTIONS P LTD HYDERABA D PAGE 1 OF 6 SIN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.363/HYD/2017 ASSESSMENT YEAR: 2005-06 M/S. HP CONSTRUCTIONS PRIVATE LTD, HYDERABAD PAN:AAACH9910R VS. INCOME TAX OFFICER WARD 2(2) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI S. RAMA RAO REVENUE BY : SMT. DIVYA J. DR DATE OF HEARING: 07/10/2020 DATE OF PRONOUNCEMENT: 12/10/2020 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2005-06 AGAIN ST THE ORDER OF THE CIT (A)-2, HYDERABAD, DATED 29.11. 2016. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF CONSTRUCTION, FILED ITS RETURN OF INCOME FOR THE A.Y 2005-06 BELATEDLY ON 03/05/2006 ADMITTI NG RS.NIL INCOME. THE RETURN WAS INITIALLY PROCESSED U/S 143( 1) ON 27.10.2006. LATER ON, TO VERIFY THE TAXABILITY OF R S.60.00 LAKHS RECEIVED BY THE ASSESSEE COMPANY UNDER POST DECRETA L AGREEMENT FROM M/S. MODI ESTATES IN CONNECTION WITH LAND SETT LEMENT, THE AO REOPENED THE ASSESSMENT U/S 147 OF THE I.T. ACT BY ISSUANCE OF A NOTICE DATED 1/3/2011. THE ASSESSEE, VIDE A LE TTER DATED 7.4.2011, SUBMITTED THAT THE RETURN ORIGINALLY FILE D ON 3.5.2006 BE ITA NO 363 OF 2017 HP CONSTYRUCTIONS P LTD HYDERABA D PAGE 2 OF 6 TREATED AS A RETURN FILED IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT. 3. DURING THE REASSESSMENT PROCEEDINGS, THE AO NOTI CED THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 28/07 /1992 WITH THE MAIN OBJECT OF CARRYING ON BUSINESS IN CONSTRUC TION ACTIVITY AND THAT THE ASSESSEE COMPANY HAD ENTERED INTO AN A GREEMENT OF SALE FOR PURCHASE OF LAND ADMEASURING 2,331 SQ. YAR DS SITUATED AT KARBALA MAIDHAN, RANIGUNJ, SECUNDERABAD ON 18/12/19 92 FOR RS.70,85,000/- WITH VENDOR SHRI GURUDEV SIDDHA PEET H AND SATISH MODI (CONSENTING PARTY). HE ALSO OBSERVED TH AT THE ASSESSEE HAS PAID A SUM OF RS.12.00 LAKHS TOWARDS A DVANCE AND THE BALANCE, WAS TO BE PAID LATER SUBJECT TO THE FU LFILMENT OF THE CONDITIONS BY THE VENDOR, VENDEE AND THE CONSENTING PARTIES. SUBSEQUENTLY, THE AGREEMENT COULD NOT BE GONE AHEAD DUE TO NON-FULFILMENT OF THE CONDITIONS BY THE VENDOR AND THE CONSENTING PARTY AS WELL AS THE VENDEE AND THE VENDOR HAD APPR OACHED THE CITY CIVIL COURT, BY FILING A SUIT WHICH WAS DISPOS ED BY THE ADDL. CHIEF JUDGE, CITY CIVIL COURT, SECUNDERABAD ON 17.0 1.2005 DIRECTING THE ASSESSEE COMPANY TO VACATE AND DELIVE R THE VACANT POSSESSION OF THE SUIT SCHEDULE PROPERTY TO THE VEN DOR. THEREAFTER, THE PARTIES ENTERED INTO POST DECRETAL AGREEMENT ON 19.03.2005 ACCORDING TO WHICH, THE ASSESSEE COMPANY WILL RECEI VE AN AMOUNT OF RS.60.00 LAKHS (INCLUDING THE ADVANCE OF RS.12.0 0 LAKHS) PAID BY THE COMPANY FROM THE DECREE HOLDERS FOR VACATING THE PREMISES. HOWEVER, THE ASSESSEE DID NOT OFFER RS.60 .00 LAKHS TO TAX. 4. WHEN THE ASSESSEE WAS REQUIRED TO EXPLAIN, THE ASSESSEE SUBMITTED THAT THE AGREEMENT COULD NOT BE GONE AHEAD BECAUSE OF VIOLATION OF THE CONDITIONS BY THE VENDO RS AND THE ITA NO 363 OF 2017 HP CONSTYRUCTIONS P LTD HYDERABA D PAGE 3 OF 6 CONSENTING PARTY AND THE AMOUNT OF RS.60.00 LAKHS P AID BY THE VENDOR WAS NOT ONLY TOWARDS RETURN OF RS.12.00 LAKH S WITH INDEXATION, BUT IT WAS TOWARDS EXPENDITURE INCURRED BY THE ASSESSEE IN EXCAVATION WORK AND OTHER DEVELOPMENTAL WORK AND ALSO TOWARDS LEGAL EXPENSES AND THE EXPENSES INCURR ED TOWARDS WATCH AND WARD OF THE PROPERTY FOR A PERIOD OF TEN YEARS. THEREFORE, THE ASSESSEE HAD EXPLAINED THAT THE SUM OF RS.60 LAKHS IS ONLY REIMBURSEMENT OF THE EXPENDITURE INCURRED B Y THE ASSESSEE TOWARDS THAT PROPERTY AND IS NOT COMPENSAT ION RECEIVED AND THAT SINCE THERE WAS NO ASSET ACCRUED IN FAVOUR OF THE ASSESSEE, IT CANNOT BE TREATED AS CAPITAL GAIN AND FURTHER THAT THERE WAS NO CAPITAL GAIN ARISEN TO THE ASSESSEE TH EREFROM. 5. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ASSESSEES CONTENTION THAT THE ASSESSEE HAD NOT ACQ UIRED ANY RIGHT IN THE PROPERTY. HE HELD THAT AFTER THE JUDGE MENT OF THE CITY CIVIL COURT, THE ASSESSEE HAD EVERY RIGHT TO CONTES T THE JUDGMENT, BUT SINCE THE ASSESSEE CHOSE TO EXTINGUISH SUCH RIG HT ONLY, THE ASSESSEE COMPANY HAS RECEIVED RS.60.00 LAKHS AND TH EREFORE, THERE IS A CAPITAL ASSET AND CAPITAL GAIN HAS ARISE N THEREFROM AND ARRIVED AT THE LONG TERM CAPITAL GAINS OF RS.22,36, 712/- AND COMPUTED THE TAX THEREON @20% AND ARRIVED AT RS.4,4 7,342/-. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS I N SECOND APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS B OTH ON FACTS AND IN LAW. 2. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTI ON OF THE AO IN INITIATING PROCEEDINGS U/S 147 OF THE I.T . ACT. THE LEARNED CIT (A) OUGHT TO HAVE SEEN THAT THE NOT ICE U/S 148 WAS ISSUED AFTER A PERIOD OF FOUR YEARS AND IS NOT VALIDLY ISSUED. ITA NO 363 OF 2017 HP CONSTYRUCTIONS P LTD HYDERABA D PAGE 4 OF 6 3. THE LEARNED CIT (A) IN HOLDING THAT THERE IS ANY TRANSFER OF PROPERTY AND THAT CAPITAL GAIN AROSE TO THE APPELLANT DURING THE YEAR UNDER CONSIDERATION. 4. THE LEARNED CIT (A) ERRED IN CONFIRMING THE DETERMINATION OF CAPITAL GAIN BY THE AO AT RS.22,36,712/-. 5. ANY OTHER GROUND OR GROUNDS THAT MAY E URGED AT THE TIME OF HEARING. 6. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT INTERES TED TO PRESS GROUND NO.2 AGAINST VALIDITY OF THE RE-ASSESSMENT P ROCEEDINGS U/S 147 OF THE I. T. ACT. GROUND NO.2 IS ACCORDINGL Y REJECTED AS NOT PRESSED. 7. AS REGARDS GROUNDS NO.3 AND 4, THE LEARNED COUNS EL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAD ONLY ENTERED INTO AN AGREEMENT OF SALE BUT HAD NOT BECOME THE OWNER OF THE PROPERTY NOR HAS ANY RIGHT ACCRUED TO HIM THEREON AND THEREFORE, THERE WAS NO CAPITAL ASSET OWNED BY THE ASSESSEE WHICH HAS BEEN TRANSFERRED RESULTING IN CAPITAL GAI NS. FURTHER, HE ALSO SUBMITTED THAT THE SUM OF RS.60.00 LAKHS RECEI VED BY THE ASSESSEE IS NOTHING BUT REIMBURSEMENT OF THE EXPEND ITURE INCURRED BY THE ASSESSEE TOWARDS THE ADVANCES PAID, EXCAVATION WORK, LEGAL EXPENSES AND THE WATCH AND WARD EXPENSE S OVER A PERIOD OF TEN YEARS AND HENCE THERE IS NO INCOME EM BEDDED IN SUM OF RS.60 LAKHS WHICH CAN BE BROUGHT TO TAX. 8. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT BY VIRTUE OF THE REGISTERED AGREEMENT OF SALE AND THE ASSESSEE BEING PUT IN POSSESSION OF THE PROPERTY, THERE IS ACCRUAL OF A R IGHT/INTEREST IN ITA NO 363 OF 2017 HP CONSTYRUCTIONS P LTD HYDERABA D PAGE 5 OF 6 THE PROPERTY AND BY RECEIVING THE PAYMENT OF RS.60. 00 LAKHS, THE ASSESSEE HAS RELINQUISHED THE RIGHT/INTEREST IN THE PROPERTY IN FAVOUR OF THE VENDEE. THEREFORE, ACCORDING TO THE L EARNED DR, THERE IS A TRANSFER OF RIGHT IN THE PROPERTY AND HE NCE CAPITAL GAINS HAS RIGHTLY BEEN BROUGHT TO TAX BY THE AUTHORITIES BELOW. 9. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT UNDISPUTEDLY, THE ASSESSEE HAD ENTERED INTO AN AGREEMENT OF SALE AND ALSO HAD RECEIVED THE POSSESSION OF THE PROPERTY. IN THE SUIT BEFORE THE CITY CIVIL COU RT, FOR CANCELLATION OF THE AGREEMENT OF SALE, THE ASSESSEE HAD PLEADED THAT THERE WAS TRANSFER OF PROPERTY. THEREFORE, THE ASSESSEE HAD CLAIMED TO HAVE A RIGHT IN THE PROPERTY BY VIRTUE O F THE AGREEMENT OF SALE WITH POSSESSION. WHETHER SUCH A RIGHT CAN B E CONSIDERED AS A CAPITAL ASSET UNDER THE INCOME TAX ACT IS TH E QUESTION BEFORE US. SUB SECTION 14 OF SECTION 2, OF THE I.T ACT DEFINES CAPITAL ASSET TO MEANS: ( A ) PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER O R NOT CONNECTED WITH HIS BUSINESS OR PROFESSION 10. AS REGARDS THE MEANING OF THE PROPERTY OF ANY K IND, THE AO HAS BROUGHT OUT THE ASSESSMENT ORDER, THE DE CISION OF THE HON'BLE COURT WHEREIN EVEN THE RIGHT IN THE PROPERT Y HAS BEEN HELD TO BE A CAPITAL ASSET U/S 2(14) OF THE I.T. AC T. THEREFORE, THE AO TREATING THE SUM OF RS.60.00 LAKHS AS RECEIVED F OR TRANSFER OF RIGHT IN THE CAPITAL ASSET CANNOT BE FAULTED. AS RE GARD THE COMPUTATION OF CAPITAL GAINS, WE FIND THAT THE AO H AS ALLOWED INDEXATION OF ONLY COST OF ACQUISITION OF RS.12.00 LAKHS AND ALSO RS.6.00 LAKHS WHICH IS THE SUM INCURRED BY THE ASSE SSEE FOR EXCAVATION WORK. HOWEVER, THE LITIGATION BETWEEN TH E ASSESSEE AND THE VENDORS BEFORE THE CITY CIVIL COURT, SECUNDERAB AD IS NOT IN DISPUTE. THEREFORE, ASSESSEES CLAIM OF LEGAL EXPEN SES OUGHT TO ITA NO 363 OF 2017 HP CONSTYRUCTIONS P LTD HYDERABA D PAGE 6 OF 6 HAVE BEEN ALLOWED. FURTHER, THE ASSESSEES CLAIM OF EXPENDITURE TOWARDS WATCH AND WARD OF THE PROPERTY OVER A PERIO D OF 10 YERARS ALSO CANNOT BE BRUSHED ASIDE. THE ASSESSEE HAD BEEN PROTECTING THE PROPERTY FROM ENCROACHERS FOR A PERIOD OF 10 YE ARS AND THEREFORE, IT CANNOT BE RULED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TOWARDS SUCH WORK. THEREFORE, WE AR E OF THE VIEW THAT A SUM OF RS.10.00 LAKHS WOULD BE REASONABLE EX PENDITURE TOWARDS LEGAL EXPENSES AND ALSO TOWARDS WATCH AND W ARD EXPENSES WHICH IS TO BE ALLOWED FROM THE AMOUNT REC EIVED BY THE ASSESSEE FOR COMPUTING THE TAXABLE CAPITAL GAIN. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO DIRECT THE AO TO RECOMPUTE THE CAPITAL GAIN AFTER ALLOWING A SUM OF RS.10.00 LAKHS TOWARDS THE ABOVE DISCUSSED EXPENSES AND THE ASSESSEES APPEAL IS THEREFORE, TREATED AS PARTLY ALLOWED. 11. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OCTOBER, 2020. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 12 TH OCTOBER, 2020. VINODAN/SPS COPY TO: 1 HP CONSTRUCTIONS (P) LTD C/O SRI S. RAMA RAO, ADV OCATE, FLAT NO.102, SHRIYAS ELEGANCE, 3-6-643 STREET NO.9 HIMA YATNAGAR, HYDERABAD 500029 2 ITO WARD 2(2) SIGNATURE TOWERS, KONDAPUR, HYDERAB AD 3 CIT (A)-2 HYDERABAD 4 PR. CIT 2 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER