Asst.CIT,Circle - 12(1), Hyderabad V. Dr. K. Mohan, Hyderabad

ITA 550/HYD/2014

• Counselvise Citation: 55022514 RSA 2014
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Salary income; Principle of natural justice; Cost of acquisition; Capital receipt
• Section: 54F; 2(14); 54

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.550/HYD/2014 ASSESSMENT YEAR 2009-2010 ACIT, CIRCLE 12(1) HYDERABAD. VS. DR. K. MOHAN HYDERABAD PAN-ACWPK-9002-G (APPELLANT) (RESPONDENT) FOR REVENUE MR. SOLGY JOSE T KOTTARAM FOR ASSESSEE MR. K.C. DEVDAS DATE OF HEARING 31.07.2014 DATE OF PRONOUNCEMENT 13.08.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS REVENUE APPEAL AGAINST THE ORDER OF LD. CIT(A)-IV, HYDERABAD DATED 25.11.2013 FOR AY 2009-2 010. 2. BRIEFLY STATED, ASSESSEE IS AN INDIVIDUAL AND W AS A DIRECTOR OF INDIAN SCHOOL OF BUSINESS, HYDERABAD. H IS MAIN SOURCE OF INCOME FROM SALARY AND PROPERTY WAS ASSES SED TO TAX. FOR THE IMPUGNED ASSESSMENT YEAR ASSESSEE FILED RET URN OF INCOME DECLARING INCOME UNDER THE HEAD SALARY AND PROPERTY AND ALSO UNDER THE HEAD CAPITAL GAINS. WITH REFER ENCE TO CAPITAL GAINS, ASSESSEE OFFERED CAPITAL GAINS OF RS .68,89,437 AND CLAIMED EXEMPTION UNDER SECTION 54/54F IN INVES TMENT OF A HOUSE. A.O. IN HIS BRIEF ORDER DENIED THE CLAIM O F 54/54F BY STATING AS UNDER : THE ASSESSEE SOLD PLOT TO THE TUNE OF RS.5,25,997/ - WHICH RESULTED IN CAPITAL GAIN OF RS.68,89,437/-. THE ASS ESSEE CONTENDED THAT THIS AMOUNT IS EXEMPT U/S. 54 SINCE THE 2 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. ASSESSEE ENTERED INTO AN AGREEMENT FOR PURCHASE OF A PLOT ALONG WITH AN AGREEMENT TO CONSTRUCT A HOUSE OVER T HE PLOT. IN THE COURSE OF TIME, DUE TO SOME UNAVOIDABLE CIRCUMSTANCES, THE ASSESSEE SOLD BACK THE PLOT TO T HE INDIVIDUAL FROM WHOM THE PROPERTY WAS PURCHASED WIT HOUT ANY CONSTRUCTION OF HOUSE OVER THAT. MERE AGREEMENT FOR CONSTRUCTION OF HOUSE PROPERTY DOES NOT ENTITLE THE ASSESSEE TO CLAIM EXEMPTION U/S. 54 AS THE CONSTN. OF THE PR OPERTY DOES NOT EXIST. HENCE THE CLAIM U/S. 54 IS WITHDRAW N. TO CONSIDER EXEMPTION U/S. 54F, THE ASSESSEE IS HAVING 3 HOUSES INCLUDING THE NEW HOUSE CLAIMED TO HAVE BEEN CONSTRUCTED. IN FACT, THE ASSESSEE PURCHASED A HOUS E ONE YEAR BEFORE THE DT. OF SALE OF THE PLOT. BUT IT IS DISALLOWED U/S. 54F SINCE ON THE DT. OF TRANSFER OF PLOT, THE ASSESSEE WAS HAVING 3 HOUSES. THE CLAIM OF EXEMPTION FOR LTC G IS DISALLOWED. 2.1. AS CAN BE SEEN FROM THE ASSESSMENT ORDER, ENT IRE FOCUS OF THE A.O. WAS ONLY ON DENIAL OF CLAIM UNDER SECTION 54/54F ON THE REASON THAT ASSESSEE OWNS MORE THAN T WO HOUSES AT THE TIME OF CAPITAL GAINS AND THEREFORE, DEDUCTION UNDER SECTION 54F WAS NOT ENTITLED. ASSESSEE, HOWEV ER, CONTESTED BEFORE THE LD. CIT(A) INITIALLY ON THE DE NIAL OF DEDUCTION UNDER SECTION 54F. HOWEVER, IN THE COURSE OF APPEAL PROCEEDINGS, ASSESSEE FILED ADDITIONAL GROUNDS THAT THE ENTIRE CAPITAL GAINS OFFERED IS NOT TAXABLE. ADDITIONAL GR OUNDS FILED ARE AS UNDER : 1. THE A.O. ERRED IN IGNORING THE FACT OF CANCELLATIO N DEED DATED 22.09.2008 CAME INTO FORCE RETROSPECTIVELY I. E., FROM THE DATE AND EXECUTION OF REGISTRATION OF THE ORIGI NAL SALE DEED NO.10104/2005 AND ARRIVED AT AN IMPROPER CONCL USION THAT THERE WAS TRANSFER OF IMPUGNED PROPERTY IN THE HANDS OF APPELLANT FALLING WITHIN THE AMBIT OF SECTION 45 OF THE IT ACT. 2. THE A.O. OUGHT TO HAVE NOTED THE FACT THAT THE IMPU GNED CONSIDERATION OF RS.75,00,000/- WAS PASSED ON TO TH E APPELLANT BY THE VENDORS REFERRED TO IN THE DEED DA TED 22.09.2008 ONLY TOWARDS EXTINGUISHMENT OF RIGHTS T O SUE, BUT NOT TOWARDS RESALE BY THE APPELLANT AND THEREFO RE THERE WAS NO ELEMENT OF CAPITAL GAIN COMING INTO THE AMBI T OF SECTION 45 OF THE IT ACT. 3 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. 2.2. ALONG WITH FILING OF THE ADDITIONAL GROUNDS, A SSESSEE SUBMITTED WHY GAINS ARE NOT TAXABLE AS UNDER: '2.2: THE FACTS OF THE CASE WHICH LED TO THE AFORES AID ADDITION IN THE GUISE OF 'CAPITAL GAINS' ARE BRIEFL Y BROUGHT ON RECORD SO AS TO MAKE THE MEMORANDUM A SELF CONTAINED ONE. IT IS TO SUBMIT THAT THE APPELLANT PURCHASED A SITE IN PLOT NO. 19, ADMEASURING ABOUT 453 SQ. YDS SITUATED IN GREENDA LE VILLAS, A LAY-OUT APPROVED BY THE GRAM PANCHAYAT OF MANCHEREVULA VILLAGE OF RAJENDRANAGAR MANDAL, RANGA REDDY DISTRICT, ANDHRA PRADESH (5. NO.S. 505 & 506) FROM M/S. N.K. LEASING & CONSTRUCTIONS LTD., REPRESENTED BY ITS DIRECTOR SRI N. K. AGARWAL, HYDERABAD AND M/S. S. D. INVESTMENTS PVT. LTD., REPRESENTED BY ITS DIRECTOR SRI N.K. AGARWAL, HYDERABAD BY MEANS OF A 'REGISTERED TITLE DEED NO.10104/2005, DT.16-09-2005' ( ANNEXURE-A) FOR A CONSIDERATION OF RS.3,75,000/-, WITH THE PREDOMINAN T OBJECT OF HAVING A 'RESIDENTIAL STRUCTURE', KNOWN A S VILLA AND THEREAFTER HE ENTERED INTO AN AGREEMENT O F CONSTRUCTION/DEVELOPMENT DT.05-11-2005 (ANNEXURE-B) WITH THE PREVIOUS VENDORS, AND DEVELOPERS, VIZ., M/ S. N. K. LEASING AND CONSTRUCTIONS LTD., FOR 'CONSTRUCTIO N OF A VILLA WITH THE CONSTRUCTED AREA OF ABOUT 3000 SQ. F T. THEREON. AS AGAINST THE 'AGREED COST OF CONSTRUCTIO N OF RS.27,15,000/-, AN ADVANCE PAYMENT OF RS.1,50,000/- WAS ALSO MADE BY THE APPELLANT TO THEM WITH AN ARRANGEMENT THAT THE BALANCE CONSIDERATION WAS TO B E PAID IN INSTALLMENTS AT VARIOUS STAGES OF THE CONSTRUCTION. 2.3 HOWEVER, THE DEVELOPERS COULD NOT PROCEED AHEAD WITH THE 'CONSTRUCTION' WORK ENTRUSTED TO IT IN VIEW OF THE 'BAN' IMPOSED BY THE STATE GOVERNMENT. TO ANALYSE, THE GOVERNMENT OF ANDHRA PRADESH ISSUED A NOTIFICATION IN A.P. GAZETTE EXTRAORDINARY DATED 20 - 04-2007 BANNING THE 'CONSTRUCTION ACTIVITIES IN THE VICINITY OF OUTER RING PLAN WITHIN 1 KM BELT ON EIT HER SIDE OF IT. THE PROPERTY OF THE APPELLANT ON WHICH THE CONSTRUCTION OF THE BUILDING WAS PLANNED, AS ENVISA GED ABOVE, FELL WITHIN THE NOTIFIED AREA AND AS PER THE NOTIFIED ORDERS OF THE GOVT., THERE EMERGED A BAN F OR CONSTRUCTION OF RESIDENTIAL HOUSES THEREIN. IN VIEW OF THIS MANDATORY RESTRAINS, THE 'CONSTRUCTION WORK ' WAS DISPENSED WITH. THEREUPON, THE APPELLANT APPROACHED THE PREVIOUS OWNER AND ALSO THE DEVELOPER TO PROVID E 4 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. ANY ALTERNATIVE SITE FOR ENABLING THE APPELLANT TO HOLD A DWELLING UNIT IN THE SURROUNDING AREA AND THIS WAS NOT ACCEDED TO BY IT. THUS THE APPELLANT WAS LEFT WITH THE ONLY ALTERNATIVE OF MOVING A COURT OF LAW AGAINST T HE PREVIOUS OWNER/DEVELOPER SO AS TO SEEK COMPENSATION FOR THE DAMAGE CAUSED TO HIM WITH THE NON-DISCLOSUR E OF THE 'LATENT DEFECT ' WITH WHICH THE SUBJECT MATTER OF PROPERTY IS COVERED. IT MAY BE PERTINENT TO POINT O UT THAT THE PREVIOUS OWNER NEVER REVEALED ABOUT THE 'IMPEND ING BAN OF THE STATE GOVERNMENT' AND THEREBY PLACING MU CH RELIANCE ON IT, AND WITH THE PREDOMINANT AND PROFOU ND OBJECT OF HOLDING A VILLA IN THE AFORESAID PRIMA AR EA OF THE CITY, THE IMPUGNED SITE WAS PURCHASED BY HIM AN D THE DEVELOPMENT/CONSTRUCTION WORK WAS ALSO ENTRUSTE D TO IT AS RECORDED ABOVE. BUT SUCH EFFORTS TO HOLD T HE DWELLING UNIT THEREIN RESULTED IN VAIN. HOWEVER, AF TER CONCERTED DELIBERATIONS, THE PREVIOUS OWNER ULTIMAT ELY AGREED FOR AN AMICABLE SETTLEMENT AND WITH THE OBJE CT OF AVOIDING PROTRACTED LITIGATION IN A COURT OF LAW, T HE APPELLANT ULTIMATELY AGREED FOR EXTINGUISHMENT OF H IS RIGHT TO SUE THE PREVIOUS OWNER AND RESULTANTLY, IT WAS AGREED INTEREST FOR 'CANCELLATION OF THE EARLIE R PURCHASE DEED NO.10104/2005, DT.16-9-2005' BY WHICH THE OWNERSHIP RIGHTS OVER THE IMPUGNED PROPERTY WER E EARLIER VESTED WITH THE APPELLANT. 2.4. GIVING EFFECT TO THE AFORESAID INTERSE AGREEMENT, A CANCELLATION DEED WAS EXECUTED ON 22ND SEPTEMBER, 2008 (ANNEXURE-C) AND THE SAME WAS REGISTERED WITH THE SRO - VIDE REGD. DOE. NO.3952/08 AND AS PER RECITALS RECORDED THEREIN, TH E ORIGINAL DEED NO. 10104/2005 WHICH CONVEYED RIGHTS OVER THE PROPERTY TO THE APPELLANT REMAIN CANCELLED AND THEREBY THE RIGHTS OF OWNERSHIP AND POSSESSION WERE TAKEN OVER BY THE PREVIOUS OWNER AND THIS 'CANCELLATION DEED' CAME INTO FORCE FROM THE DATE OF EXECUTION OF THE ORIGINAL SALE DEED BEA RING DOC.NO.10104/2005, I.E., FROM 16-9-2005 (VIDE PAGE 3 OF THE TITLE DEED THEREOF). THUS THE ORIGINAL SALE DEED BECAME VOID AB INITIAO AND BY THIS EMPHATIC DECLARATION BY BOTH THE PARTIES, THE IMPUGNED PROPERTY SHALL BE DEEMED TO BE VESTED WITH THE ORIGINAL/ PREVIOUS OWNERS AND HENCE IT COULD NOT BE CONSTRUED THAT THE APPELL ANT HELD TITLE OVER THE SAME FOR SOME PERIOD COMMENCING FROM THE DATE OF ORIGINAL DEED VIZ., DT.16-9-2005. THUS THERE IS NO RECOGNISED TRANSFER OF THE 5 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. IMPUGNED PROPERTY DURING THE PERIOD FROM 16-9-2005 TILL THE DATE OF C ANCELLATION DEED EXECUTED ON 22- 9-2009. THUS, LITERALLY AND LEGALL Y SPEAKING, THERE IS NO ELEMENT OF TRANSFER OF THE IMPUGNED PROPERTY BY THE APPELLANT TO THE ORIGINAL OWNER SO AS TO ATTRACT THE CAPITAL GAINS TAX LIABILITY FOR T HE A. Y. UNDER REVIEW. 2.5. HOWEVER, WITHOUT IDENTIFYING THIS LEGAL BACKGROUND, IN ITS PROPER PERSPECTIVE, THE APPELLAN T, NO DOUBT COMPUTED THE CAPITAL GAINS AT RS.68,89,437/- WITH REFERENCE TO THE 'COMPENSATION OF RS.75,00,000 /- RECEIVED BY HIM IN CONSEQUENCE TO THE EXECUTION OF THE ABOVE CANCELLATION DEED DT.22-09-2008' AND WITH REFERENCE TO THE ORIGINAL SALE DEED DT.16-9-2005 EXECUTED IN FAVOUR OF THE APPELLANT AND THEREFROM, HE CLAIMED DEDUCTION U/S. 54/54F OF THE ACT. 2.6: BUT THE LD. A.O. REJECTED THE CLAIM OF DEDUCTION U/S.54 OF THE ACT ON THE FINDING THAT THE APPELLANT EFFECTED TRAN SFER OF A 'VACANT SITE' WITHOUT ANY STRUCTURE FORMULATED THEREON. HE ALSO REJECTED THE CLAIM OF DEDUCTION UN DER SEC.54F ON THE FINDING THAT INCLUSIVE OF THE NEW RESIDENTIAL HOUSE PURCHASED BY THE ASSESSEE PRIOR T O SALE OF THE IMPUGNED PROPERTY, VIZ., THE RESIDENTIA L HOUSE (VILLA BEARING NO.8-18 SITUATED AT DHULLPALLY VILLAGE, QUTBULLAPUR MANDAL, R.R. DIST.) ON 12-9-20 07 FOR RS.55,00,000/- FROM M/S. ASHOKA BUILDERS PVT. L TD. HYDERABAD, THE APPELLANT WAS HOLDING 3 RESIDENTIAL HOUSE AS AGAINST THE 2 RESIDENTIAL HOUSE AUTHORIZED BY LAW. 2.7. THUS WITH THE ABOVE FINDINGS, THE LD. A.O. DETERMINED THE CAPITAL GAIN AT RS.66,89,437/- AND T HE SAME LED TO THE ESCALATION OF THE ASSESSED INCOME T O RS.83,32,427/- WITH THE RESULTANT ADDITIONAL DEMAND OF RS.28,54,355/-. HE ALSO REJECTED THE CLAIM OF LTCG WITHOUT ASSIGNING ANY REASONS THEREFORE, IGNORING T HE FACT THAT THE PROPERTY IN QUESTION WAS EARLIER PURC HASED BY THE APPELLANT BY MEANS OF A REGD. DEED DT.16-9- 2005 AND THE SAME WAS TAKEN BACK BY THE ORIGINAL OWNER BY MEANS OF A REGD. CANCELLATION DT.22-9- 2008 AND THOUGH A COMPARISON OF THOSE TWO SHOWS THE PERIOD OF HOLDING EXCEEDED 3 YEARS.' 2.3. AFTER SUBMITTING WHY THE ADDITIONAL GROUNDS WERE RAISED, ASSESSEE ALSO CONTESTED THAT THERE IS NO 6 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. TRANSACTION COMING INTO THE PURVIEW OF SECTION 45 O F THE ACT AND HIS SUBMISSIONS FROM (A) TO (L) WERE EXTRAC TED BY THE LD CIT(A) AT PAGES 5, 6 AND 7 OF THE ORDER. ASS ESSEE ALSO RELIED ON VARIOUS CASE LAW WHICH WERE EXTRACTE D IN PARA 6.2 OF THE ORDER. THEREAFTER, LD. CIT(A) CONSI DERED THE ASSESSEES CONTENTIONS AND ALLOWED THE CLAIM OF THE ASSESSEE BY STATING AS UNDER : 7. I HAVE GONE THROUGH THE ELABORATE SUBMISSIONS MADE BY THE APPELLANT. I HAVE ALSO DISCUSSED IN DET AIL THE RELEVANT POINTS WITH THE AR. 7.1. THE APPELLANT FOR THE PURPOSE OF CONSTRUCTION OF A RESIDENTIAL BUILDING PURCHASED A SITE OF 453 SQ. YA RDS FROM M/S.N K LEASING & CONSTRUCTIONS CO LTD VIDE DOCUMENT DATED 16.09.2005. SUBSEQUENTLY, THE APPELLANT ENTERED INTO AN AGREEMENT WITH THE SAME CONCERN AND PAID CERTAIN AMOUNT AS ADVANCE. BY THAT TIME ITSELF THERE WAS A PROPOSAL FOR LAYING RING RO AD WHICH WOULD AFFECT THE SITE ACQUIRED BY THE APPELLA NT. THE APPELLANT UNKNOWINGLY ENTERED INTO THE TRANSACT ION WITH THE ABOVE SAID CONCERN FOR PURCHASE OF SITE AN D SUBSEQUENTLY, HANDING OVER THE SAME FOR DEVELOPMENT . HOWEVER, AS THE CIRCUMSTANCES GONE BEYOND CONTROL O F THE SAID CONCERN, THEY COULD NOT PROCEED WITH THE DEVELOPMENT OF THE SITE. THE APPELLANT, AS EXPLAINE D, CONTEMPLATED VARIOUS ACTIONS INCLUDING LEGAL ACTIO N AGAINST THE SAID CONCERN. HOWEVER, AFTER DETAILED NEGOTIATIONS IT WAS AGREED BY BOTH THE PARTIES TO C OME TO AN UNDERSTANDING AND THUS TO AVOID PROTRACTED LITIG ATION. IT WAS SUBMITTED THAT AS THE APPELLANT AGREED TO SURRENDER HIS RIGHT TO SUE THE SAID CONCERN HE WAS PAID AN AMOUNT OF RS.75,00,000/-. IT WAS FINALLY MENTION ED THAT ALL THOSE ASPECTS WERE SUPPORTED BY PROPER DOCUMENTARY EVIDENCES. 7.2 NOW THE POINT THAT REQUIRE CONSIDERATION IS WHETHER THE AMOUNT OF RS.,75,00,000/- IN LIEU OF SURRENDERING OF HIS RIGHT TO SUE CONSTITUTE CAPITAL RECEIPT. 7.3 DETAILED FACTS RELATING TO THE TRANSACTION ARE ALREADY BROUGHT INTO EARLIER PART OF THE PRESENT OR DER. UNDER SIMILAR CIRCUMSTANCES, THE HON'BLE MUMBAI HIG H COURT HELD IN THE CASE OF CIT VS ABBASBOY A 7 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. DEHGAMWALLA (195 ITR 28) HELD THAT 'COMPENSATION PAID FOR MERE EXTINGUISHMENT OF A RIGHT TO SUE FOR DAMAGES FOR BREACH OF CONTRACT' WOULD NOT ATTRACT CAPITAL GAINS TAX LIABILITY WITHIN THE MEAN ING OF SECTION 45 RWS 2(47) AND 2(14) OF THE IT ACT. FURTH ER, IN THE CASE OF BHARAT FORGE CO. LTD VS. CIT (205 ITR 3 39) THE HON'BLE MUMBAI HIGH COURT HELD THAT SUCH COMPENSATION TOWARDS EXTINGUISHMENT OF A RIGHT TO S UE WOULD NOT ATTRACT CAPITAL GAINS TAX LIABILITY. FURT HER, I FIND FORCE IN THE ARGUMENT OF THE APPELLANT THAT IN THE PRESENT CASE THE COST OF ACQUISITION I.E. THE EXTINGUISHMENT OF RIGHT TO SUE WAS INDETERMINATE AN D THEREFORE, THE SAME WAS NOT EXCISABLE IN THE LIGHT OF HON'BLE SUPREME COURT DECISION IN THE CASE OF B. SRINIVAS SETTY (128 ITR 294). 8. CONSIDERING ALL THE MATERIAL FACTS AS WELL AS DECISIONS OF VARIOUS JUDICIAL AUTHORITIES, IT IS CL EAR THAT THE AMOUNT RECEIVED BY THE APPELLANT WAS IN LIEU OF THE RIGHT FOREGONE TO SUE THE CONCERNED PARTY. IN THE L IGHT OF THE CONCLUSION AND AFTER CAREFUL READING OF PROVISI ONS OF SECTION 2(14), 2(47), 45 AND 55(2) OF THE IT ACT, I AM OF THE OPINION THAT THERE IS NO GAIN FOR THE APPELLANT LIABLE FOR TAX U/S.45 OF THE IT ACT. HENCE, THE ADDITIONAL GROUND RAISED BY THE APPELLANT IS ALLOWED. LD. CIT(A) CONSEQUENTLY ALLOWED ASSESSEE CONTENTION S. REVENUE IS AGGRIEVED. 3. CONTESTING THE ABOVE, LEARNED D.R. SUBMITTED THAT LEARNED CIT(A) ERRED IN ADMITTING ADDITIONAL G ROUND OF APPEAL THAT ASSESSEE IS NOT IN RECEIPT OF CAPITA L GAINS EVEN THOUGH ASSESSEE ADMITTED THE SAME IN THE RETUR N OF INCOME. MOREOVER, LD. CIT(A) SHOULD HAVE CALLED FOR REMAND REPORT ON THE ADDITIONAL GROUNDS/EVIDENCE UN DER RULE 46A. IT WAS ALSO CONTENDED THAT LD. CIT(A) HAS NOT DECIDED THE ISSUE WHETHER ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 54F OR NOT. LEARNED D.R. BROUGHT TO OUR NOTICE THAT LD. CIT(A) HAS CONSIDERE D THE ISSUE ON NEW FACTS BROUGHT TO HIS KNOWLEDGE AND REF ERRED TO THE ORDER OF THE A.O. WHEREIN ONLY ISSUE OF 54F WAS 8 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. EXAMINED BY THE A.O. AND NOT TAXABILITY OF CAPITAL GAINS, WHICH WAS ALTOGETHER NEW ISSUE ENTERTAINED BY THE L D. CIT(A). IT WAS THE SUBMISSIONS THAT THE ORDER OF TH E LD. CIT(A) IS NOT CORRECT. MOREOVER, IT WAS SUBMITTED T HAT THE ORDER OF THE LD. CIT(A) RESULTS IN REFUND OF TAX WH ICH WAS PAID BY THE ASSESSEE AND AS PER THE DIRECTIONS OF T HE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SHELLY PRODUCTS & ANOTHER (2003) 261 ITR 367 (SC) , THE ADMITTED TAX CANNOT BE REFUNDED. THIS ORDER IF APPROVED, WOU LD RESULT IN ADMITTED TAX BEING REFUNDED AS ASSESSEES CLAIM UNDER SECTION 54F WAS ONLY DENIED AND BALANCE OF CA PITAL GAINS TAX WAS OFFERED BY THE ASSESSEE. 4. LD. COUNSEL HOWEVER, REFERRED TO THE PAPER BOOK FILED ON RECORD CONTAINING PAGES 1 TO 82 AND SUBMITTED THAT ASSESSEE WAS WRONGLY ADVISED IN OFFE RING CAPITAL GAINS WHEREAS ACTUALLY HE HAS PURCHASED A PROPERTY WHICH WAS SUBSEQUENTLY CANCELLED AND AN AMOUNT OF RS. 75,00,000/- WAS PAID TO THE ASSESSEE FROM BREACH OF CONTRACT BY THE BUILDER AND FOR THE PURPO SE OF AVOIDING THE COURT PROCEEDINGS. IN VIEW OF THIS, TH E AMOUNT CANNOT BE BROUGHT TO TAX. HE REFERRED TO THE AGREEMENT OF SALE, PURCHASE DEED, DEVELOPMENT AGREEMENT AND CANCELLATION OF DEED WHICH ARE PLACED ON RECORD. HE ALSO FILED A DATA SHEET REFERRING TO VAR IOUS DOCUMENTS PLACED ON PAPER BOOK ON THE TRANSACTIONS THEREIN. 5. WE HAVE PERUSED THE ORDERS OF THE LD. CIT(A) AND THE DOCUMENTS PLACED IN PAPER BOOK. AS SEEN FRO M THE ORDER OF THE ASSESSMENT, THE ONLY ISSUE WHICH A .O. HAS CONSIDERED WAS THE CLAIM OF 54F MADE BY THE 9 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. ASSESSEE. OBVIOUSLY, THERE IS NO DISPUTE WITH REFER ENCE TO THE FACT THAT ASSESSEE WAS NOT ENTITLED TO THE DEDU CTION UNDER SECTION 54F AS ASSESSEE OWNS MORE THAN TWO HOUSES AND ACCORDINGLY, DEDUCTION UNDER SECTION 54/ 54F CANNOT BE ALLOWED. BE THAT AS IT MAY, LD. CIT(A) AD MITTED THE ADDITIONAL GROUNDS AND HAS COME TO A CONCLUSION THAT EVEN THE ADMITTED CAPITAL GAIN WAS NOT TAXABLE. 5.1 WE ARE UNABLE TO AGREE WITH THE OBSERVATIO NS OF THE LD. CIT(A). HIS ORDER, IN OUR OPINION, IS AT VARIANCE WITH THE FACTS ON RECORD. AS SEEN FROM THE ORIGINAL PURCHASE DEED BY THE ASSESSEE, THERE WAS A SALE DEE D DATED 16 TH NOVEMBER, 2005 BETWEEN M/S. NK LEASING CONSTRUCTION LTD., AND M/S. S.D. INVESTMENTS P. LTD ., REPRESENTED BY ITS DIRECTOR SRI N.K. AGARWAL AND AS SESSEE FOR PURCHASE OF PLOT NO. 19 ADMEASURING 453 SQ. YAR DS EQUIVALENT TO 378.90 SQ. METRES IN THE PROJECT NAME D GREENDALE VILLAS FOR A CONSIDERATION OF RS.3,75,000 /-. THERE IS NO DISPUTE WITH REFERENCE TO EITHER PURCHA SE OF THIS PROPERTY OR PAYMENT OF CONSIDERATION. SUBSEQUE NTLY, ASSESSEE HAS ENTERED INTO A DEVELOPMENT AGREEMENT F OR CONSTRUCTION/DEVELOPMENT VIDE AGREEMENT DATED 5 TH NOVEMBER, 2005. AS PER THIS AGREEMENT PLACED IN PAG E 39 TO 49 OF PAPER BOOK, ASSESSEE HAS GIVEN THE SAID PL OT PURCHASED ABOUT 3 MONTHS EARLIER, FOR DEVELOPMENT T O ONLY ONE COMPANY I.E., M/S. N.K. LEASING AND CONSTRUCTION LTD., FOR CONSTRUCTION OF 3000 SQ. FEE T VILLA FOR A CONSIDERATION OF RS.27.15 LAKHS TO BE PAID OV ER A PERIOD IN 7 INSTALMENTS AND ASSESSEE ADMITS TO HAVE BEEN PAID ADVANCE AMOUNT OF RS.1,50,000. 10 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. 5.2. IN VIEW OF THE NOTIFICATION ISSUED, IT SEEMS THAT THE SAID DEVELOPER COULD NOT DEVELOP AND ASSESSEE I N FACT, ENTERED INTO AN AGREEMENT OF SALE ON 3 RD DECEMBER, 2008 PLACED ON RECORD AT PAGE NO. 35 FOR RE-CONVEYANCE O F THE SAME PLOT NO.19 FOR A CONSIDERATION OF RS.75,00,000 OUT OF WHICH, ADVANCE OF RS.11,00,000 WAS RECEIVED. THE BALANCE OF RS.64,00,000 AS PER THE TERMS WAS TO BE PAID ON OR BEFORE 31 ST SEPTEMBER, 2008. IN THAT, IT WAS STATED THAT IN PURSUANCE OF SAID AGREEMENT, THE PURCHASERS DOTH HEREBY AGREE TO PURCHASE FROM THE FIRST PART VENDOR THE 'S AID PLOT NO.19 IN LAY-OUT KNOWN AS GREENDALE VILLAS AD MEASURING 453 SQ. YDS OR 378.90 SQ. MTRS. IN SY. NOS. 505 & 506 SITUATED AT MANCHIREVULA VILLLAGE, RAJENDRANAGAR MA NDAL, R.R.DIST MORE FULLY DESCRIBED IN THE SCHEDULE OF T HE PROPERTY HEREIN FOR A CONSIDERATION OF RS.75,00,000/- HAS PAID AN ADVANCE OF RS. 11,00,000/- (RUPEES ELEVEN LAKHS ONL Y) TOWARDS PART OF SALE CONSIDERATION, THE RECEIPT OF WHICH SU M THE FIRST PART VENDOR HEREBY ACKNOWLEDGE AND THE BALANCE SALE CONSIDERATION OF RS.64,00,000/- I S AGREED TO BE PAID ON OR BEFORE 21 ST SEPTEMBER, 2008 IN SETTLEMENT OF COST OF THE SAID PLOT AND ALSO AGAINST CANCELLATION OF AGREEMENT OF CONSTRUCTION/DEVELOPMENT DATED 5TH NOV.2006 . 5.3. THUS, AS CAN BE SEEN FROM THE ABOVE TERMS, AN AMOUNT OF RS.75,00,000/- WAS PAID FOR SELLING THE SAID PLOT NO.19 TO THE ORIGINAL VENDORS BY THE ASSESSEE. HOWEVER, FOR THE REASONS BEST KNOWN TO THE ASSESSEE, INSTEAD OF SALE DEED, THEY CONVERT ED INTO CANCELLATION OF SALE DEED BY WHICH THE SALE DEED ORIGINALLY REGISTERED IN FAVOUR OF THE ASSESSE E DATED 16.09.2005 BEARING DOCUMENT NO.10104/2005 FOR A CONSIDERATION OF RS.3,75,000/- 11 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. WAS CANCELLED. ASSESSEE PLACED ON RECORD A SEPARATE RECEIPT FOR RS.64,00,000/- PLACED AT PAPER BOOK PAGE NO.62 ACCEPTING AMOUNTS BY WAY OF PAY ORDER ON 15.09.2008 FOR AN AMOUNT OF RS.35,00,000/-, CHEQUE DATED 19.09.2008 FOR RS.25,00,000/- AND CHEQUE DATED 19.09.2008 FOR RS.4,00,000/- VIDE RECEIPT DATED 19.09.2008. HOWEVER, NEITHER THE ABOVE RECEIPT NOR THE CANCELLATION DEED INDICATE ABOUT RS.11,00,000/- RECEIVED BY THE ASSESSEE AT THE TIME OF AGREEMENT OF SALE. ADMITTEDLY, ASSESSEE RECEIVED A TOTAL OF RS.75,00,000/- ON WHICH THERE I S NO DISPUTE. THUS, AS SEEN FROM THE ABOVE, EVEN THOUGH THE CANCELLATION DEED WAS ENTERED PRESUMABLY FOR SAVING THE STAMP DUTY, THE INTENTION OF THE ASSESSEE SEEMS TO BE SELLING THE PLOT NO.19 PURCHASED THREE YEARS BACK FOR A CONSIDERATION OF RS.75,00,000 AS CAN BE SEEN FROM THE TERMS OF AGREEMENT OF SALE THROUGH WHICH ASSESSEE ACKNOWLEDGES RECEIPTS OF RS.11,00,000/-. IN VIEW OF THE FACTS STATED ABOVE, IT IS OBVIOUS THAT ASSESSEE HAS ORIGINALLY ADMITTED THE CAPITAL GAIN CORRECTLY TREATING THE RE-TRANSFER/RE-CONVEYANCE OF THE PLOT AS A TRANSFER THEREON AND CLAIMED DEDUCTION UNDER SECTION 54F. IN VIEW OF THIS, WE ARE OF THE OPINION THAT LD. CIT(A) ORDER IN TREATING THE AMOUNT AS BREACH OF CONTRACT SEEMS TO BE DEVOID OF FACTS. EVE N FOR BREACH OF CONTRACT, THE CONTRACT IS BETWEEN THE ASSESSEE AND THE DEVELOPER FOR CONSTRUCTION OF VILL A BUT NOT OTHERWISE. HAD ASSESSEE PURCHASED PLOT ALONG WITH VILLA WITH THE UNDERTAKING THAT THE DEVELOPER WILL CONSTRUCT WITHIN A PERIOD, AS PART O F THE ORIGINAL PURCHASE DEED, THERE COULD BE A 12 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. SITUATION OF BREACH OF CONTRACT, FOR NOT HANDING OV ER THE POSSESSION OF VILLA. HOWEVER, ASSESSEE HAS PURCHASED THE PLOT FIRST AND AFTER THREE MONTHS ENTERED INTO A CONSTRUCTION/DEVELOPMENT AGREEMENT SEPARATELY BY WHICH THE DEVELOPER UNDERTOOK CONSTRUCTION OF THE VILLA AND TERMS OF AGREEMENT AL SO INDICATE THAT IT HAS UNDERTAKEN THE CONSTRUCTION WORK ON BEHALF OF THE ASSESSEE. WHAT ASSESSEE ACTUALLY INTENDED FROM THE CITATIONS OF THE DOCUMENTS ON RECORD IS TO RESELL THE PLOT TO THE ORIGINAL VENDOR AT A CONSIDERATION OF RS.75,00,000/ - AND ASSESSEE CLAIMED INDEXATION BENEFIT ON THE COST OF THE PURCHASE OF PLOT IN 2005. THEREFORE, THE ORD ER OF THE LD. CIT(A) SEEMS TO BE DEVOID OF FACTS. 5.4. NOT ONLY THAT, ADMISSION OF ADDITIONAL GROUNDS BY THE LD. CIT(A) INVOLVED EXAMINATION OF FACTS WHICH ARE NOT ON RECORD. AS CAN BE SEEN FROM THE ORDER OF THE A.O. THERE IS NO DISPUTE WITH REFERENCE TO CAPITAL GAINS BEING OFFERED BY THE ASSESSEE. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. S.A. BUILDERS LTD., 289 ITR 26 (SC) HAS UPHELD THE ITAT ORDER WHEREIN ITAT DID NOT ADMIT ASSESSEES ADDITIONAL GROUND ON THE REASON THAT FACTS WERE NOT AVAILABLE ON RECORD. THE FACTS IN TH AT CASE ARE AS FOLLOWS: 4. THE APPELLANT ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. IT CLAIMED DEDUCTIO N UNDER S. 32AB OF THE IT ACT, 1961, WHICH WAS RAISED AS AN ADDITIONAL GROUND BEFORE THE INCOME-TAX APPELLATE TRIBUNAL, CHANDIGARH (HEREINAFTER REFERRED TO AS TH E 'TRIBUNAL'). IN PARAS 19-21 OF ITS ORDER DT. 20TH J UNE, 2002, THE TRIBUNAL HAS REJECTED THE CLAIM OF THE AS SESSEE ON TWO GROUNDS. THE FIRST GROUND IS THAT THE ASSESS EE WAS 13 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND W AS NOT CARRYING ON ANY MANUFACTURING ACTIVITY. HENCE, THE CLAIM, WAS NOT ALLOWABLE IN VIEW OF THE JUDGMENT OF THIS C OURT IN CIT VS. N.C. BUDHARAJA & CO. (1993) 114 CTR (SC) 42 0 : (1993) 204 ITR 412 (SC). THE SECOND GROUND FOR REJE CTING THE CLAIM WAS THAT THE CLAIM WAS NOT BASED ON FACTS ON RECORD. THE DEDUCTION UNDER S. 32AB WAS NOT AUTOMAT IC AND WAS SUBJECT TO VARIOUS CONDITIONS LAID DOWN IN THAT PROVISION. WHETHER THE ASSESSEE FULFILLED THOSE CON DITIONS FOR CLAIMING THE DEDUCTION OR NOT REQUIRED EXAMINAT ION INTO FACTS WHICH WERE NOT ON RECORD. EVEN BEFORE THE TRI BUNAL, THE ASSESSEE HAD NOT PLACED ANY MATERIAL TO SHOW HO W THE ASSESSEE IS ENTITLED TO SUCH DEDUCTION. HENCE, THE TRIBUNAL REJECTED THE ASSESSEES CLAIM. BY THE IMPU GNED JUDGMENT THE HIGH COURT HAS AGREED WITH THE VIEW OF THE TRIBUNAL. THE HONBLE SUPREME COURT UPHELD THE ABOVE DECISION BY STATING AS UNDER: 5. WE HAVE ALSO CAREFULLY CONSIDERED THE MATTER AND WE ARE FULLY IN AGREEMENT WITH THE TRIBUNAL AS WELL AS THE HIGH COURT. 6. FOR BOTH THE REASONS MENTIONED BY THE TRIBUNAL IN PARAS 19-21 OF ITS ORDER, WE ARE OF THE OPINION THA T THE ASSESSEE WAS NOT ENTITLED TO THE DEDUCTION CLAIMED BY IT. THERE IS NO MERIT IN THIS APPEAL WHICH IS ACCORDING LY DISMISSED. 5.5 AS CAN BE SEEN FROM THE ABOVE, IF THE FACTS ARE NOT AVAILABLE ON RECORD, ADDITIONAL GROUN D CANNOT BE RAISED ON ANY LEGAL ISSUE. IN THIS CASE, THE FACTS ON THE ISSUE OF CAPITAL GAINS ARE OBVIOUSLY N OT EXAMINED BY THE ASSESSING OFFICER AS THE ASSESSEE HIMSELF OFFERED THE CAPITAL GAINS. THEREFORE, WE AR E OF THE VIEW THAT LD. CIT(A) ENTERTAINED ADDITIONAL GROUND WHICH INVOLVE EXAMINATION OF FRESH FACTS WHICH IS NOT PERMITTED UNDER LAW. IN VIEW OF THIS, WE ARE NOT IN A POSITION TO UPHOLD THE ORDER OF THE LD. CIT(A). THEREFORE, WE UPHOLD THE GROUNDS OF 14 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. REVENUE THAT LD. CIT(A) ERRED IN ADMITTING ADDITIONAL GROUNDS OF APPEAL AND ALSO NOT GIVEN THE OPPORTUNITY TO THE A.O. TO EXAMINE UNDER RULE 46A. 5.6. KEEPING IN MIND THE PRINCIPLES OF NATURAL JUSTICE, WE ARE OF THE OPINION THAT THE ASSESSEES CONTENTIONS MAY REQUIRE FRESH EXAMINATION BY THE A.O. THE ABOVE OBSERVATIONS ARE ONLY MADE IN THE CONTEXT OF ESTABLISHING THAT THE ORDER OF THE LD. CIT(A) IS NOT CORRECT. HOWEVER, THE ABOVE OBSERVATIONS SHOULD NOT COME IN THE WAY OF DETERMINING THE ISSUE WHETHER THE CAPITAL GAINS IS TAXABLE OR NOT WHICH REQUIRE RE-EXAMINATION BY THE A.O. IN ITS ENTIRETY. ASSESSEE IS FREE TO FURNISH NECESSARY EVIDENCE AND RELY ON CASE LAW AND A.O. IS FREE TO DETERMINE WHETHER THE AMOUNT IS TAXABLE OR NOT. WITH THESE OBSERVATIONS, THE ORDERS OF THE A.O . AND LD. CIT(A) ARE HEREBY SET ASIDE AND ENTIRE ASSESSMENT IS RESTORED TO THE FILE OF A.O. FOR FRES H EXAMINATION. 6. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT O N 13.08.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 13 TH AUGUST, 2014. VBP/- 15 ITA.NO.550/HYD/2014 DR. K. MOHAN, HYDERABAD. COPY TO 1. ACIT, CIRCLE 12(1), 2 ND FLOOR, AAYAKAR BHAVAN, HYDERABAD. 2. DR. K. MOHAN, FLAT NO.404, PLOT NO.27, NCL KRISH NA KARTHIKA LAYOUT, MADHAPUR, HYDERABAD 500 034. 3. CIT(A)-V, HYDERABAD 4. CIT-I, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD.