Asst.CIT, Circle -5(1), Hyderabad V. C Narendranath, Hyderabad

ITA 48/HYD/2013

• Counselvise Citation: 4822514 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 11-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Diversion of income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.48/HYD/2013 ASSESSMENT YEAR 2008-2009 THE ACIT, CIRCLE 5(1), HYDERABAD. VS. MR. C. NARENDRANATH HYDERABAD PAN ABJPC6657R (APPELLANT) (RESPONDENT) FOR REVENUE : MR. D. SUDHAKAR RAO FOR ASSESSEE : MR. K.C. DEVDAS DATE OF HEARING : 19.11.2014 DATE OF PRONOUNCEMENT : 26.11.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER O F LD. CIT(A)-V, HYDERABAD DATED 31.10.2012. THE ISSUE CONTESTED BY REVENUE IS ABOUT THE DEDUCTION DIRECTE D BY LD. CIT(A) OF RS.31,32,000, OUT OF FULL VALUE OF CONSID ERATION. THE REVENUE HAS RAISED FOLLOWING TWO GROUNDS. 2. THE CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANC ES IN RESPECT OF CAPITAL GAINS CONSIDERING THAT THE A. O. COULD NOT HAVE BEEN EXPECTED TO ALLOW DEDUCTORS BEYOND TH E PURVIEW OF SEC.48 OF THE I.T. ACT. 3. THE CIT(A) FAILED TO APPRECIATE THE LEGAL CONSTR AINTS AND THEREBY ALLOWED THE ASSESSEES APPEAL ON CAPITA L GAINS. 2 ITA.NO.48/HYD/2013 MR. C. NARENDRANATH, HYDERABAD. 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS AN INDIVIDUAL, RECEIVED AN AMOUNT OF RS.7,55,98,125 AS SALE CONSIDERATION FROM SALE OF 1288 SQ. YARDS OF LAND A ND BUILT-UP AREA OF 24 FLATS SITUATED AT MIYAPUR, HYDERABAD. WH ILE CALCULATING THE LONG TERM CAPITAL GAIN, ASSESSEE CL AIMED DEDUCTION FROM THE SALE CONSIDERATION OF THE FOLLOW ING AMOUNTS: (I) INFRASTRUCTURE EXPENDITURE RS. 24 LAKHS (II) CORPUS FUND RS. 06 LAKHS (III) AMOUNT PAYABLE TO BUILDER TOWARDS WOOD QUALITY DIFFERENCE 24 X. RS.5500 RS.1,32,000 ASSESSING OFFICER WAS OF THE OPINION THAT THE ABOVE AMOUNTS ARE NOT ALLOWABLE AS AN EXPENDITURE UNDER SECTION 4 8 OF THE ACT AND DISALLOWED THE SAME REFERRING TO THE SAID SECTI ON. 3. BEFORE THE LD. CIT(A), ASSESSEE SUBMITTED THAT AS PER THE AGREEMENT ENTERED BETWEEN THE ASSESSEE-LAND OWNER AND M/S. SMR BUILDERS P. LTD., ASSESSEE IS REQUIRED TO PAY CORPUS FUND, INFRASTRUCTURE FUND AND DIFFERENCE ON ACCOUNT OF TEAK WOOD USED IN THE FLATS FALLING TO HIS SHARE. T HE BUILDER INSTEAD OF COLLECTING THE SAME FROM FLAT OWNERS, PA SSED ON THE RESPONSIBILITY TO THE LAND OWNER. THE ABOVE IS BY V IRTUE OF CLAUSE IN THE AGREEMENT AND THERE IS AN OBLIGATION CREATED UNDER THE AGREEMENT. IT WAS ALSO FURTHER SUBMITTED THAT ASSESSEE AT THE TIME OF SALE OF 24 FLATS ASSIGNED T O HIM AS PART OF DEVELOPMENT AGREEMENT, HAVE COLLECTED ABOVE AMOU NTS FROM THE BUYERS AND PASSED ON TO M/S. SMR BUILDERS P. LT D., AND FILED COPIES OF SOME SALE DEEDS INDICATING THE ABOV E FACTS AND ALSO CERTIFICATE FROM M/S. SMR BUILDERS P. LTD., TH AT THE AMOUNTS WERE RECEIVED BY WAY OF CHEQUE. CONSIDERING THE 3 ITA.NO.48/HYD/2013 MR. C. NARENDRANATH, HYDERABAD. ABOVE, LD. CIT(A) ALLOWED ASSESSEES CONTENTION BY STATING AS UNDER : 4.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE APPELLANT AND THE FACTS OF THE CASE. AFTER VERIFICA TION OF DOCUMENTS SUBMITTED BY THE APPELLANT, IT IS CLEAR T HAT AN OBLIGATION IS CREATED BETWEEN THE BUILDER AND THE L AND OWNER I.E., THE APPELLANT TO COLLECT THE CHARGES FR OM BUYERS AND REMIT THE SAME TO THE BUILDER. IN THE AGREEMENT BETWEEN THE BUILDER AND THE APPELLANT, THIS CLAUSE IS CLEARLY STATED IN PAGE NOS. 2 AND 3 OF ANNEXURE-II OF THE AGREEMENT DATED 3 RD NOVEMBER, 2005, WHICH IS AS UNDER : .THAT THE FIRST PARTY FURTHER AGREED TO PAY THE CORPUS FUND AND INFRASTRUCTURE AMOUNT AND T HE DIFFERENCE AMOUNT FOR THE TEAK WOOD USED ETC., WILL BE PAID TO THE SECOND PARTY BEFORE TAKING POSSESSION O F THE FLATS IN VARIOUS BLOCKS AS MENTIONED BLOCK WISE. . .. AGREED COST OF INFRASTRUCTURE PER FLAT RS.1,00,000 CORPUS FUND PER FLAT RS.25,000/- EXTRA COST FOR TEAK WOOD RS.6,000/- PER FLAT 4.4. AS PER THE OBLIGATION, THE APPELLANT HAD FULFI LLED THE REIMBURSEMENT OF INFRASTRUCTURE OF RS.24,00,000/-, CORPUS FUND OF RS.6,00,000/- AND WOOD QUALITY DIFFERENCE O F RS.1,32,000/-, TOTALING TO RS.31,32,000/- OUT OF TH E FULL VALUE OF CONSIDERATION RECEIVED BY HIM. THIS PAYMEN T OF RS.31,32,000/- IS ALSO EVIDENCED BY A CONFIRMATION LETTER SUBMITTED BY THE SMR BUILDERS PVT. LTD., DATED 30.10.20125 IN WHICH IT WAS CLEARLY MENTIONED THAT THE APPELLANT HAS PAID AN AMOUNT OF RS.73,73,000/- TOWA RDS REFUND OF DEVELOPMENT ADVANCE, COST OF INFRASTRUCTU RE, CORPUS FUND AND WOOD QUALITY DIFFERENCE FOR HIS SHA RE OF FLATS IN SMR VINAY CITY AND THE PAYMENT WAS ALSO RE CEIVED BY THEM THROUGH CHEQUE NO.327885 DATED 06.04.2007. 4.5. IN THE LIGHT OF THE ABOVE EVIDENCES SUBMITTED BY THE APPELLANT AND ALSO ON THE FACTS OF THE CASE, THIS A DDITION OF RS.31,32,000/- SHOULD NOT HAVE BEEN MADE BY THE ASSESSING OFFICER AS THE SAME WERE NOT ACTUALLY RE CEIVED 4 ITA.NO.48/HYD/2013 MR. C. NARENDRANATH, HYDERABAD. BY THE APPELLANT. HENCE, IT CANNOT THE INCOME APPEL LANT. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO D EDUCT THE ABOVE AMOUNT FROM FULL VALUE OF CONSIDERATION WHILE CALCULATING THE CAPITAL GAINS. 4. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE FACTS ON RECORD, WE DO NOT SEE ANY MER IT IN REVENUE GROUNDS. IT IS AN OBLIGATION CREATED AS PAR T OF THE AGREEMENT AND THERE IS NO DISPUTE THAT THE AMOUNTS ARE COLLECTED FROM THE BUYERS AND PAID TO THE DEVELOPER . SINCE, THESE AMOUNTS ARE INCLUDED IN THE SALE CONSIDERATIO N, ASSESSEE CAN CERTAINLY CLAIM THE AMOUNT IN ORDER TO ARRIVE A T FULL VALUE OF CONSIDERATION. SINCE, THERE IS CONTRACTUAL OBLIG ATION TO PAY THE ABOVE AMOUNTS, LD. CIT(A) IS CORRECT IN ALLOWIN G THE AMOUNTS. HONBLE A.P. HIGH COURT IN THE CASE OF CIT VS. MANOHAR RAO, MANAGING DIRECTOR 155 ITR 696 CONSIDER ED THE SCOPE OF FULL VALUE OF CONSIDERATION IN A CASE AND HELD THAT CAPITAL GAIN HAD TO BE COMPUTED BY TAKING INTO ACCO UNT ONLY THE AMOUNT WHICH WAS ACTUALLY RECEIVED BY ASSESSEE. IN THAT CASE, ASSESSEE OWNS 4.27 GTS OF LAND, HAD ENTERED INTO AN AGREEMENT TO SELL THE LAND AT RS.25,000 PER ACRE. S UBSEQUENT TO THAT, THE LAND WAS ACQUIRED BY GOVERNMENT AND ON LY AN AMOUNT OF RS.2,20,220 WAS RECEIVED BY ASSESSEE. AS ASSESSEE HAS ENTERED INTO AGREEMENT, ASSESSEE PAID AN AMOUNT OF RS.1,05,220 IMMEDIATELY ON RECEIPT OF COMPENSATION TO THE AGREEMENT HOLDER AND OFFERED THE BALANCE AMOUNT OF RS.1,20,000 AS CAPITAL GAIN. CONSIDERING THE FACTS OF THE CASE AND THE FACT THAT THERE IS A LEGAL RIGHT IN THE COM PENSATION AMOUNT, HONBLE HIGH COURT HELD THAT THIS IS A CASE OF DIVERSION OF INCOME BY OVERRIDING TITLE. SINCE, IN ASSESSEES CASE ALSO THERE IS CONTRACTUAL RIGHT IN PAYING AMOUNTS, WE CONFIRM THE ORDER OF LD. CIT(A) AND DISMISS REVENUE GROUNDS . 5 ITA.NO.48/HYD/2013 MR. C. NARENDRANATH, HYDERABAD. 5. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.11.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 26 TH NOVEMBER, 2014 VBP/- COPY TO 1. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 5(1 ), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. MR. C. NARENDRANATH, 5-9-22/58, FLAT 101, A-BLOC K, ASHOK GARDENS, ADARSH NAGAR, HYDERABAD. 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD.