G. Purnachandra Rao, Hyderabad V. ITO, W-6(1), Hyderabad

ITA 501/HYD/2011

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4425 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-10-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Gift; Cost of acquisition
• Section: 143(3); 54; 132

Judgement Text

ITA NO 501 OF 2011 G PURNACHANDRA RAO HYDERABAD PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.501/HYD/2011 (ASSESSMENT YEAR: 2007-08) SHRI G. PURNACHANDRA RAO HYDERABAD PAN: AIKPG 0254 E VS INCOME TAX OFFICER WARD 6(1) HYDERABAD FOR ASSESSEE : SHRI P. MURALI MOHAN RAO FOR REVENUE : SHRI K.J. RAO, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2007-08. IN TH IS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF A O TREATING THE LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN AND CONSEQUENTLY DISALLOWING THE EXEMP TION CLAIMED BY THE ASSESSEE U/S 54EC OF THE ACT BY VIRTUE OF IN VESTMENT IN CAPITAL GAIN BONDS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A N INDIVIDUAL, FILED HIS RETURN OF INCOME FOR THE A.Y 2 007-08 ON 8.2.2008 DECLARING A TOTAL INCOME OF RS.1,07,380. D URING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A O NOTICED THAT THE ASSESSEE HAS OFFERED LONG TERM CAPITAL GAIN ON SALE OF THREE FLATS. HE OBSERVED THAT THE ASSESSEE HAS RECEIVED F OUR FLATS FROM HIS FATHER VIDE GIFT DEED DATED 31.12.2004 AND THAT THE ASSESSEE DATE OF HEARING : 24.10.2016 DATE OF PRONOUNCEMENT : 30.11.2016 ITA NO 501 OF 2011 G PURNACHANDRA RAO HYDERABAD PAGE 2 OF 8 HAS SOLD THREE FLATS DURING THE RELEVANT PREVIOUS Y EAR I.E. 2006-07. THEREFORE, THE AO WAS OF THE OPINION THAT THE CAPIT AL GAIN ARISING OUT OF SALE OF THESE THREE FLATS IS SHORT TERM CAPI TAL GAIN. THEREFORE, HE COMPUTED THE SHORT TERM CAPITAL GAIN ON ACCOUNT OF SALE OF THE UNDIVIDED SHARE OF THE LAND AS WELL AS THE BUILT UP AREA AND BROUGHT IT TO TAX. IN THE PROCESS, HE DID NOT A LLOW DEDUCTION U/S 54EC OF THE ACT FOR THE INVESTMENTS MADE BY THE ASSESSEE IN REC BONDS. AGGRIEVED, THE ASSESSEE PREFERRED AN APP EAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER OF THE AO AND T HE ASSESSEE IS IN SECOND APPEAL BEFORE US. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL AND ALSO THE ADDITIONAL GROUNDS OF APPEAL: THE HONOURABLE CIT APPEALS - IV, HYDERABAD, ERRED WHILE CONFIRMING THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) IN RESPECT OF G.PURNACHANDRA RAO FOR THE ASST. YEAR 2007-08 WHICH IS NOT CORRECT IN FACT AND IN LAW AND IN BOTH. THE GROUNDS OF APPEAL WHICH ARE GIVEN BELOW MAY PLEASE BE CONSIDERED. 1. THE CIT APPEALS - IV, HYDERABAD ERRED WHILE CONFIRMING THE ORDER PASSED BY ASSESSING OFFICER WHEREIN THE A.O HAS TREATED THE LONG TERM CAPITAL GAINS DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAINS AND DISALLOWED THE EXEMPTION AVAILED BY THE ASSESSEE IN CAPITAL GAIN BONDS WHICH IS NOT CORRECT AND NOT JUSTIFIED. 2. WE WOULD LIKE TO SUBMIT THAT, THE LAND PROPERTY AT PLOT NO. 3 IN SURVEY NO.7 (PART) MEASURING 733.66 SQ.YDS.,SITUATED AT KONDAPUR VILLAGE, SERILINGAMPALLY MANDAL, RANGA REDDY DISTRICT WAS BEQUEATHED IN THE NAME OF THE ASSESSEE BY WAY OF THE WILL EXECUTED BY SRI G.SAMBAIAH, FATHER OF THE ASSESSEE ON 17THE DAY OF JANUARY, 2002 WITH THE CONSENT OF THE FAMILY MEMBERS. ITA NO 501 OF 2011 G PURNACHANDRA RAO HYDERABAD PAGE 3 OF 8 3. WE WOULD LIKE TO SUBMIT THAT, SRI G. SAMBAIAH, HAS CONSTRUCTED A SMALL PORTION OF THE HOUSE/ROOM ON THIS LAND FOR THE SECURITY PURPOSE, CONSTRUCTED A COMPOUND WALL TO THE ENTIRE PREMISES TO PROTECT THE LAND FROM OTHERS SINCE THE PROPERTY IS GIFTED AS PER THE UNDERSTANDING OF THE FAMILY MEMBERS. 4. SUBSEQUENTLY, SRI G. SAMBAIAH ENTERED INTO A DEVELOPMENT AGREEMENT CUM GENERAL POWER OF ATTORNEY ON 14.04.2002 WITH M/S BHAVYA CONSTRUCTIONS PVT .LTD HAVING REGISTERED OFFICE AT PLOT NO. 452, VIVEKANANDA NAGAR COLONY, KUKATPALLY, HYDERABAD. AS PER THE DEVELOPMENT AGREEMENT, HE IS ENTITLED FOR 39 % OF SHARE IN THE BUILT UP AREA IN THE COMPLEX. 5. ACCORDINGLY, THE ASSESSEE HAS RECEIVED HIS SHARE OF FOUR FLATS IN THE SAID PROPERTY AS PER THE DEVELOPMENT AGREEMENT. ON 31.12.2004, A GIFT SETTLEMENT DEED HAS BEEN MADE IN FAVOUR OF THE ASSESSEE BY HIS FATHER SRI G.SAMBAIAH FOR EACH FLAT. 6. THE ASSESSEE HAS RETAINED ONE FLAT ( FLAT NO. 101) AND SOLD THE THREE FLATS (FLAT NO. 202, 301 AND 402) AND DECLARED THE LONG TERM CAPITAL GAINS BY REDUCING THE INDEXED COST OF LAND, COST OF CONSTRUCTION INCURRED. 7. WE WOULD LIKE TO SUBMIT THAT, THE ASSESSEE HAS INVESTED THE LONG TERM CAPITAL GAINS ARISED IN CAPITAL GAIN BONDS I.E., IN RURAL ELECTRIFICATION CORPORATION LIMITED AND CLAIMED EXEMPTION U/S 54 EC OF THE INCOME TAX ACT, 1961. 8. WE WOULD LIKE TO SUBMIT THAT, DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE AUTHORIZED REPRESENTATIVE HAS SUBMITTED THE A.O THAT, THE COPIES OF SALE DEEDS AND RELEVANT INFORMATION COULD NOT BE GATHERED FROM THE DEVELOPER ALSO SINCE A SEARCH U/S 132 WAS CONDUCTED BY THE INCOME TAX ITA NO 501 OF 2011 G PURNACHANDRA RAO HYDERABAD PAGE 4 OF 8 AUTHORITIES AND SEIZED THE BOOKS, RECORDS AND KEPT UNDER THE CUSTODY OF INCOME TAX AUTHORITIES. 9. HOWEVER, THE ASSESSING OFFICER HAS TAKEN A DIFFERENT VIEW AND TREATED THE COST OF ACQUISITION AND COST OF CONSTRUCTION OF BUILT UP AREA AS PER THE SRO RATES AND ARRIVED AT THE SHORT TERM CAPITAL GAINS OF RS.32,00,0001-, DISALLOWED THE EXEMPTION OF RS.30,50,0001- CLAIMED U/S 54 EC OF THE INCOME TAX ACT, 1961 AND IT HAS BEEN CONFIRMED BY THE CIT, APPEALS WHICH IS NOT CORRECT AND NOT JUSTIFIED. 10. WE WOULD LIKE TO SUBMIT THAT, THE ASSESSEE HAS BEQUEATHED THE PROPERTY BY WAY OF WILL EXECUTED BY HIS FATHER AND HENCE THE OWNERSHIP OF THE PROPERTY VESTS WITH THE ASSESSEE. HENCE, THE ACTION OF THE ASSESSING OFFICER TREATING THE CAPITAL GAINS AS SHORT TERM CAPITAL GAINS AND DISALLOWANCE OF EXEMPTION U/S. 54EC OF THE IT ACT IS NOT CORRECT AN D NOT JUSTIFIED. 11. HENCE, THE LONG TERM CAPITAL GAINS CLAIMED BY THE ASSESSEE MAY PLEASE BE ALLOWED AND THE EXEMPTION CLAIMED U/S. 54EC MAY PLEASE BE ALLOWED FOR THE ASST. YEAR 2007 -08. 12. THE ASSESSEE MAY ADD, ALTER OR SUBSTITUTE ANY OTHER POINTS TO THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE CASE/APPEAL. ADDITIONAL GROUNDS: THE FOLLOWING ADDITIONAL GROUNDS SL.NO 13 TO 15 MAY PLEASE BE CONSIDERED IN ADDITION TO THE EARLIER GROUND~ FILED WITH ITAT HAVING SI.NO 1 TO 12. 13. THE LD. ERR (A) ERRED IN UPHOLDING THE ORDER OF T HE AO WHEREIN CAPITAL GAINS HAS BEEN COMPUTED BY ADOPTING THE INDEXED COST OF INFLATION WITH REFERENC E TO THE YEAR IN WHICH ASSESSEE ACQUIRED THE PROPERTY BY WILL INSTEAD OF COMPUTING THE SAME WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSETS. ITA NO 501 OF 2011 G PURNACHANDRA RAO HYDERABAD PAGE 5 OF 8 14. THE LD. CIT (A)FAILED TO APPRECIATE THE DECISION OF HON'BLE ITAT, MUMBAI SPECIAL BENCH IN THE CASE OF DCIT VS. MANJULA J. SHAH VIDE ITA NO. 7315/MUM/2007 DATED OCTOBER 16, 2009. 15. THE ASSESSEE MAY ADD, ALTER OR MODIFY OR SUBSTITUTE ANY OTHER POINTS TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 4. THE ABOVE ADDITIONAL GROUNDS HAVE BEEN FILED ALO NG WITH AN APPLICATION FOR ADMISSION OF THE SAME ON TH E GROUND THAT THEY ARE ONLY LEGAL GROUNDS AND DO NOT REQUIRE FRES H INVESTIGATION OF FACTS. THE LEARNED COUNSEL FOR THE ASSESSEE ALS O PLACED RELIANCE UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF NTPC LTD VS. CIT (229 ITR 383). HAVING REGARD TO THE RIVAL CONTE NTIONS, WE FIND THAT THE ADDITIONAL GROUNDS OF APPEALS RAISED ABOVE ARE LEGAL GROUNDS AND THEREFORE, RESPECTFULLY FOLLOWING THE D ECISION OF THE APEX COURT (CITED SUPRA), WE ADMIT THE SAME. IN SUP PORT OF THE MERITS OF THE ABOVE ADDITIONAL GROUNDS OF APPEAL, T HE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE F OLLOWING DECISIONS: A) ITAT MUMBAI SPECIAL BENCH IN THE CASE OF MANJULA J. SHAH IN ITA NO.7315/MUM/2007 B) HON'BLE BOMBAY HIGH COURT IN THE CASE OF MANJULA J. SHAH REPORTED IN 16 TAXMANN.COM 42 C) HON'BLE GUJARAT HIGH COURT IN THE CASE OF GAUTHA M MANUBHAI AMIN REPORTED IN 38 TAXMANN.COM 42 D) HON'BLE BOMBAY HIGH COURT IN THE CASE OF NITA KAMLESH TANNA REPORTED IN 40 TAXMANN.COM 542 E) HON'BLE KARNATAKA HIGH COURT IN THE CASE OF DAIS Y DEVAIAH REPORTED IN 50 TAXMANN.COM 234 ITA NO 501 OF 2011 G PURNACHANDRA RAO HYDERABAD PAGE 6 OF 8 F) ITAT CHANDIGARH IN THE CASE OF VISHWANATHA SHARM A REPORTED IN 32 TAXMANN.COM 211. G) ITAT HYDERABAD BENCH IN THE CASE OF A. RAM PRASA D IN ITA NO.261/HYD/2014 5. THUS, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE DATE OF ACQUISITION AND HOLDING OF TH E FLATS BY THE ASSESSEES FATHER WHO HAS SUBSEQUENTLY GIFTED THEM TO THE ASSESSEE WOULD BE THE DATES WHICH WILL HAVE TO BE C ONSIDERED TO CALCULATE THE HOLDING PERIOD AND TO ARRIVE AT THE C ONCLUSION AS TO WHETHER THE CAPITAL GAIN IS LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN. ACCORDING TO HIM, THE ASSESSEES FATH ER HAS ENTERED INTO THE DEVELOPMENT AGREEMENT IN THE YEAR 2002, AN D THEREFORE, THE TRANSFER OF THE ASSET TO THE DEVELOPER HAS TAKE N PLACE IN THE SAID YEAR ONLY AND THEREFORE, THE SALE OF THE FLATS IN THE PREVIOUS YEAR 2006-07 WOULD RESULT IN LONG TERM CAPITAL GAIN AND THE ASSESSEE HAS ACCORDINGLY RIGHTLY DECLARED THE LONG TERM CAPITAL GAIN. HE SUBMITTED THAT THE AO HAS ERRONEOUSLY HELD THE SAME TO BE SHORT TERM CAPITAL GAIN BY TAKING THE GIFT DEED INTO CONSIDERATION AS THE DATE OF ACQUISITION OF THE PRO PERTY AND HAS ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE U/ S 54EC OF THE ACT AS WELL. 6. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEES FATHER HAD A CQUIRED THE SAID PLOT OF LAND ON 27.12.1995 AND HAS GIFTED THE SAME TO THE ASSESSEE INITIALLY BY WAY OF WILL AND THEREAFTER BY EXECUTION OF GIFT ITA NO 501 OF 2011 G PURNACHANDRA RAO HYDERABAD PAGE 7 OF 8 DEEDS. AS RIGHTLY CONSIDERED BY THE AO, THE WILL WO ULD COME INTO EFFECT ONLY ON THE DEATH OF THE TESTATOR. THEREFORE , THE DATE OF THE WILL HAS NO EFFECT ON THE TRANSFER OF THE ASSET. SU BSEQUENTLY, THE ASSESSEES FATHER HAD ENTERED INTO A DEVELOPMENT AG REEMENT CUM GPA BY DEED DATED 14.04.2002 WHEREBY HE HAD ALSO HA NDED OVER THE POSSESSION OF THE SAID PROPERTY TO THE DEVELOPE R. THEREFORE, BY VIRTUE OF THE DECISION OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF POTLA NAGESWARA RAO REPORTED IN ITTA NO.245 OF 2 014, THERE IS A TRANSFER OF PROPERTY TO THE DEVELOPER IN THE PREV IOUS YEAR 2002- 03 ITSELF. FURTHER, VIDE GIFT SETTLEMENT DEED, THE ASSESSEES FATHER HAS GIFTED 4 FLATS TO THE ASSESSEE OUT OF WHICH ASS ESSEE RETAINED ONE OF THEM AND HAS SOLD 3 OTHER FLATS IN THE PREVI OUS YEAR 2006- 07. FROM THE GIFT SETTLEMENT DEED, IT SEEN THAT PERM ISSION FOR CONSTRUCTION HAS BEEN OBTAINED BY THE DEVELOPER VID E PERMIT NO.7645/TI/H/2003 ON 8.1.2003 AND THE MUNICIPAL PRO CEEDINGS ARE DATED 11.3.2004. THEREFORE, THE ASSESSEES FATH ER COULD NOT HAVE RECEIVED THE FLATS IN THE PREVIOUS YEAR 2003-0 4. THE DATE ON WHICH THE ASSESSEES FATHER HAS RECEIVED THE FLATS IS NOT KNOWN FROM THE MATERIAL ON RECORD AND AS GIFT SETTLEMENT DEED IS DATED 31.12.2004, THE DONOR COULD NOT HAVE RECEIVED THE F LATS EVEN BY THAT DATE. THUS, THE ASSESSEE HAS RECEIVED THE POSS ESSION OF THE FLATS ONLY THEREAFTER AND THEREFORE, THE TRANSFER O F THE FLATS AS PRESUMED BY THE AO AS 15.04.2004 CANNOT BE ACCEPTED . THE ASSESSEE HAS INVESTED THE PROCEEDINGS OF THE SALE C ONSIDERATION IN RURAL ELECTRIFICATION BONDS ON 15.09.2006 AND 31.07 .2010 RESPECTIVELY. THEREFORE, THE ASSESSEE HAS SOLD THE FLATS UNDISPUTEDLY DURING THE PREVIOUS YEAR 2006-07. AS P ER THE JUDGMENT RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN, IT IS T HE DATE OF ACQUISITION BY THE PREVIOUS OWNER/DONOR WHICH SHOUL D BE TAKEN ITA NO 501 OF 2011 G PURNACHANDRA RAO HYDERABAD PAGE 8 OF 8 AS THE DATE OF ACQUISITION OF THE PROPERTY BY THE D ONOR AND THE DONEE ONLY STEPS INTO THE SHOES OF THE DONOR. THERE FORE, THE TRANSFER OF THE UNDIVIDED SHARE OF THE LAND TO THE DEVELOPER CLEARLY RESULTS IN LONG TERM CAPITAL GAIN ONLY. HOWEVER, SI NCE THE CONSTRUCTED FLATS WERE RECEIVED BY THE ASSESSEE AFT ER 15.4.2004 AND ARE HELD BY HIM FOR LESS THAN 3 YEARS, THE CONS IDERATION FOR TRANSFER OF THE CONSTRUCTED AREA WOULD ATTRACT SHOR T TERM CAPITAL GAIN. THE AO HAS CONSIDERED THE ENTIRE TRANSACTION AS ONLY SHORT TERM CAPITAL GAIN WHICH IS NOT CORRECT. THEREFORE, WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE FILE OF THE A O TO RECOMPUTE THE LONG TERM CAPITAL GAIN ON SALE OF UNDIVIDED SHA RE OF LAND AND ALLOW THE COST OF INDEXATION THEREON AND THEREAFTER TO COMPUTE THE SHORT TERM CAPITAL GAIN ON THE SALE OF CONSTRUCTED AREA. THE AO SHALL ALSO ALLOW THE CLAIM OF EXEMPTION U/S 54EC OF THE ACT AS REGARDS LONG TERM CAPITAL GAIN IN ACCORDANCE WITH L AW. THE OTHER GROUNDS OF APPEAL ARE NOT ADJUDICATED IN VIEW OF OU R DECISION ABOVE. 8. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 30 TH NOVEMBER, 2016. VINODAN/SPS COPY TO: 1 P. MURALI & CO. CAS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500082 2 INCOME TAX OFFICER WARD 6(1) HYDERABAD 3 CIT (A)-IV HYDERABAD 4 CIT III HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER