THE ITO, WARD - 1(2), Vijayawada V. Sri Y.V.S.Chalapathi Rao, Vijayawada

ITA 57/VIZ/2013

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9626 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-12-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NARAYANA RAO
• Keywords: Capital asset; Fair market value; Revised return
• Section: 143(3); 147; 148

Judgement Text

ITA NO.57/VIZAG/2013 Y.V.S. CHALAPATHI RAO, VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.57/VIZAG/2013 ( / ASSESSMENT YEAR: 2006-07) ITO, WARD - 1(2), VIJAYAWADA VS. Y.V.S. CHALAPATHI RAO, VIJAYAWADA [PAN: AAAHY2 903A ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI M. NARAYANA RAO, DR / RESPONDENT BY : SHRI C. SUBRAHMANYAM, AR / DATE OF HEARING : 06.12.2016 / DATE OF PRONOUNCEMENT : 23.12.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE CIT(A), VIJAYAWADA DATED 19.11.2012 AND IT PERTAINS TO THE ASSESSMENT YEAR 2006-07. ITA NO.57/VIZAG/2013 Y.V.S. CHALAPATHI RAO, VIJAYAWADA 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A HUF FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 27.12.2006 DECLARING TOTAL INCOME OF ` 9,78,738/- BESIDES AGRICULTURAL INCOME OF ` 10,000/-. THE RETURN WAS PROCESSED U/S 143(1) OF T HE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') ON 31.3.2007 . SUBSEQUENTLY, THE CASE HAS BEEN RE-OPENED BY ISSUING NOTICE U/S 148 O F THE ACT, BY RECORDING REASONS THAT INCOME CHARGEABLE TO TAX HAS BEEN ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. THE A.O. RE- OPENED THE ASSESSMENT FOR THE REASON THAT DURING TH E FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2006-07, THE ASSESSEE H AS TRANSFERRED LAND ADMEASURING 966SQ.YDS. IN PURSUANCE TO A JOINT DEVE LOPMENT AGREEMENT WITH M/S. SRI SAI CONSTRUCTIONS AND AGREED TO SHARE CONSTRUCTED FLATS IN THE RATIO OF 50% FOR THE LAND OWNER AND REMAINING 5 0% FOR THE BUILDER. SINCE THE ASSESSEE HAS ALLOWED POSSESSION OF LAND I N PURSUANCE OF JOINT DEVELOPMENT AGREEMENT, TRANSFER REFERRED TO IN CLAU SE (V) OF SECTION 2(47) OF THE ACT WAS HAPPENED DURING THE ASSESSMENT YEAR 2006-07. THE ASSESSEE OUGHT TO HAVE OFFERED CAPITAL GAINS ON TRANSFER OF LAND, HOWEVER, ON PERUSAL OF DETAILS AVAILABLE ON RECORDS , IT WAS NOTICED THAT THE ASSESSEE HAS NOT ADMITTED CAPITAL GAIN ON TRANS FER OF LAND IN PURSUANCE TO JOINT DEVELOPMENT AGREEMENT. THEREFOR E, THE A.O. OPINED ITA NO.57/VIZAG/2013 Y.V.S. CHALAPATHI RAO, VIJAYAWADA 3 THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMEN T AND ACCORDINGLY ISSUED NOTICE U/S 148 OF THE ACT. 3. IN RESPONSE TO NOTICE U/S 148 OF THE ACT, THE AS SESSEE HAS FILED REVISED RETURN FOR THE ASSESSMENT YEAR 2006-07 ON 1 6.9.2009 DECLARING TOTAL INCOME OF ` 71,58,132/-. SUBSEQUENTLY, THE CASE HAS BEEN SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLE TED U/S 143(3) R.W.S. 147 OF THE ACT, DETERMINING TOTAL INCOME OF ` 1,08,36,760/-. WHILE COMPLETING THE ASSESSMENT, THE A.O. HAS ADOPTE D CONSIDERATION TOWARDS TRANSFER OF LAND IN PURSUANCE OF JOINT DEVE LOPMENT AGREEMENT AS PER COST OF CONSTRUCTION INCURRED BY THE BUILDER TOWARDS CONSTRUCTION OF FLATS AS AGAINST THE ASSESSEES COMPUTATION OF L ONG TERM CAPITAL GAIN BY ADOPTING FAIR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF JOINT DEVELOPMENT AGREEMENT. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). TH E CIT(A) AFTER CONSIDERING THE EXPLANATIONS AND ALSO TAKEN INTO AC COUNT REMAND REPORT OF THE A.O. HELD THAT THE A.O. WAS NOT JUSTIFIED IN ADOPTING RATES AS PREVAILING AS ON 31.3.2008 FOR THE AGREEMENT ENTERE D INTO ON 9.1.2006 AND AS SUCH THE A.O. IS DIRECTED TO DELETE ADDITION S MADE TOWARDS COMPUTATION OF CAPITAL GAINS. AGGRIEVED BY THE CIT (A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. ITA NO.57/VIZAG/2013 Y.V.S. CHALAPATHI RAO, VIJAYAWADA 4 4. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT AS PER DEVELOPMENT AGREEME NT, THE DEVELOPER INCURRED ENTIRE COST OF CONSTRUCTION IN LIEU OF 50% OF LAND TRANSFERRED THAT THE COST OF 50% LAND GIVEN IS EQUAL TO COST OF CONSTRUCTION INCURRED BY THE BUILDER FOR THE PORTION OF OWNERS SHARE. T HE D.R. FURTHER SUBMITTED THAT THE ITAT, PANAJI BENCH IN THE CASE O F PANOJI MAVANI BROTHERS VS. DCIT 112 ITD 68, HELD THAT TOTAL SALE CONSIDERATION TOWARDS TRANSFER OF LAND IN PURSUANCE OF JOINT DEVELOPMENT AGREEMENT IS PROPORTIONATE COST OF BUILDING TRANSFERRED TO THE L AND OWNERS SHARE. IT WAS FURTHER SUBMITTED THAT SINCE THE ASSESSEE HAS T RANSFERRED LAND IN EXCHANGE FOR A CONSTRUCTED FLATS, TO DETERMINE CONS IDERATION FOR TRANSFER OF LAND TO BE DECIDED BASED ON THE COST OF CONSTRUC TION INCURRED BY THE BUILDER, BUT NOT FAIR MARKET VALUE OF THE PROPERTY AS PER THE SUB REGISTRAR VALUE. 5. THE LD. A.R. FOR THE ASSESSEE, ON THE OTHER HAND STRONGLY SUPPORTING ORDER OF THE CIT(A), SUBMITTED THAT THE A.O. WAS ERRED IN ADOPTING COST OF CONSTRUCTION INCURRED BY THE BUILD ER TOWARDS CONSIDERATION FOR TRANSFER OF LAND AS ON THE DATE O F JOINT DEVELOPMENT AGREEMENT, AS COST OF CONSTRUCTION INCURRED BY THE BUILDER CANNOT BE FORESEEN BY THE ASSESSEE. THE A.R. FURTHER SUBMITT ED THAT THE LIABILITY ITA NO.57/VIZAG/2013 Y.V.S. CHALAPATHI RAO, VIJAYAWADA 5 FOR CAPITAL GAIN IS ACCRUED IN THE YEAR IN WHICH JO INT DEVELOPMENT AGREEMENT IS ENTERED, WHEREAS, THE COST OF CONSTRUC TION CAN BE ASCERTAINED ONLY WHEN THE BUILDER HAS COMPLETED CON STRUCTION OF BUILDING AND HANDED OVER THE POSSESSION TO THE LAND OWNER. IN THE PRESENT CASE ON HAND, THE ASSESSEE ENTERED INTO JOI NT DEVELOPMENT AGREEMENT ON 9.1.2016, WHICH COMES UNDER THE ASSESS MENT YEAR 2006-07, WHEREAS THE BUILDER HAS COMPLETED CONSTRUC TION ON 31.3.2008 WHICH COMES UNDER THE ASSESSMENT YEAR 2008-09, THER EFORE, IT IS INCORRECT TO DETERMINE CONSIDERATION TOWARDS TRANSF ER OF LAND BASED ON THE COST INCURRED BY THE BUILDER SUBSEQUENT TO THE DATE OF TRANSFER OF ASSET. IN SUPPORT OF HIS ARGUMENTS, RELIED UPON TH E DECISION OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. VED PRAKASH RAKHRA REPORTED IN (2015) 370 ITR 762 AND ALSO ITAT HYDERA BAD B BENCH DECISION IN THE CASE OF B.V. NARAYANA REDDY VS. ACI T IN ITA NO.1616/HYD/2012 DATED 10.12.2014. THE A.R. FURTHE R SUBMITTED THAT AS PER THE NEWLY INSERTED PROVISIONS OF SECTION 50D OF THE ACT BY THE FINANCE ACT, 2012, FOR THE PURPOSE OF CAPITAL GAINS , THE FAIR MARKET VALUE OF ASSET ON THE DATE OF TRANSFER SHALL BE THE FULL VALUE OF CONSIDERATION WHERE THE CORRECT VALUE OF THE ASSET CANNOT BE ASCE RTAINED. THOUGH THIS HAS COME INTO EFFECT FROM 1.4.2013, THE SECTION IS INSERTED TO CLARIFY THE ITA NO.57/VIZAG/2013 Y.V.S. CHALAPATHI RAO, VIJAYAWADA 6 AMBIGUITY, THEREFORE, IT IS APPLICABLE RETROSPECTIV ELY FOR THE EARLIER PERIOD. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. RE-COMPUTED CAPITAL GAINS TOWARDS TRANSFER OF LAND IN PURSUANCE OF A JOINT DEVELOPMENT AGREEMENT BASED ON THE COST OF CONSTRUCTION INCURRED BY THE ASSESSEE TO DETERMINE THE CONSIDERA TION TOWARDS TRANSFER OF LAND. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS TRANSFERRED LAND IN EXCHANGE OF A CONSTRUCTED BUILD ING, THEREFORE, IT IS APPROPRIATE TO DETERMINE CONSIDERATION BASED ON THE COST OF CONSTRUCTION INCURRED BY THE BUILDER. IT IS THE CONTENTION OF T HE ASSESSEE THAT IT IS INAPPROPRIATE TO DETERMINE THE CONSIDERATION TOWARD S TRANSFER OF LAND IN PURSUANCE TO A JOINT DEVELOPMENT AGREEMENT BASED ON THE COST OF CONSTRUCTION INCURRED BY THE ASSESSEE, WHICH IS KNO WN ONLY WHEN THE BUILDER HAS COMPLETED THE CONSTRUCTION. THE ASSESS EE FURTHER CONTENDED THAT IT CANNOT EXPECT TO FORESEE THE COST OF CONSTR UCTION INCURRED BY THE ASSESSEE TO COMPUTE THE CAPITAL GAIN AS ON THE DATE OF TRANSFER. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL ON RECORD, WE FIND THAT THE ASSESSEE HAS CONSIDERED FAIR MARKE T VALUE OF THE PROPERTY AS ON THE DATE OF JOINT DEVELOPMENT AGREEM ENT TO DETERMINE ITA NO.57/VIZAG/2013 Y.V.S. CHALAPATHI RAO, VIJAYAWADA 7 THE CONSIDERATION TOWARDS TRANSFER OF LAND TO THE B UILDER. WE FURTHER NOTICED THAT THERE IS NO DISPUTE WITH REGARD TO THE TRANSFER OF ASSET. THE ONLY DISPUTE IS WITH REGARD TO APPLICATION OF CONSI DERATION TOWARDS TRANSFER OF LAND. ACCORDING TO THE ASSESSEE, CONSI DERATION FOR TRANSFER OF LAND IN PURSUANCE TO A JOINT DEVELOPMENT AGREEMENT TO BE ADOPTED BASED ON THE FAIR MARKET VALUE OF THE PROPERTY AS P ER THE SUB REGISTRAR GUIDANCE RATES. ACCORDING TO THE A.O., THE COST OF CONSTRUCTION INCURRED BY THE BUILDER IS RELEVANT FOR DETERMINATION OF CON SIDERATION FOR TRANSFER OF LAND IN PURSUANCE TO A JOINT DEVELOPMENT AGREEME NT. THE ISSUE IS NO LONGER RES INTEGRA. THE HONBLE HIGH COURT OF KARN ATAKA IN THE CASE OF CIT VS. VED PRAKASH RAKHRA (SUPRA) HELD THAT WHEN T HE POSSESSION OF THE IMMOVABLE PROPERTY IN PURSUANCE TO THE SAID AGR EEMENT IS GIVEN IN PART PERFORMANCE OF THE SAID AGREEMENT, IT IS TO BE CONSIDERED THAT THERE IS A TRANSFER FOR THE PURPOSE OF COMPUTING CAPITAL GAIN. HENCE, THE ASSESSEE IS ENTITLED TO ADOPT FAIR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF AGREEMENT. A SIMILAR ISSUE HAS BEEN CONSID ERED BY THE ITAT, HYDERABAD B BENCH IN THE CASE OF B.V. NARAYANA RE DDY IN ITA NO.1616/HYD/2012 DATED 10.12.2014, WHEREIN THE COOR DINATE BENCH HELD THAT IN SO FAR AS ADOPTION OF SALE CONSIDERATI ON IS CONCERNED, THE VALUE ADOPTED BY THE SRO HAS TO BE CONSIDERED AS FA IR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF AGREEMENT. ITA NO.57/VIZAG/2013 Y.V.S. CHALAPATHI RAO, VIJAYAWADA 8 8. IN THE PRESENT CASE ON HAND, THE ASSESSEE HAS CO MPUTED CAPITAL GAINS BY ADOPTING FAIR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF JOINT DEVELOPMENT AGREEMENT. WHEREAS THE A.O., HAS COMPUTED CAPITAL GAIN BY ADOPTING COST OF CONSTRUCTION INCURRED BY T HE ASSESSEE TO DETERMINE THE CONSIDERATION TOWARDS TRANSFER OF CAP ITAL GAIN. SINCE THE VALUE AS ON THE DATE OF AGREEMENT IS RELEVANT FOR T HE PURPOSE OF COMPUTATION OF CONSIDERATION, THE A.O. WAS INCORREC T IN ADOPTING THE COST OF CONSTRUCTION INCURRED BY THE BUILDER WHICH IS KNOWN ONLY WHEN THE CONSTRUCTION IS COMPLETED. IN THIS CASE, JOINT DEVELOPMENT AGREEMENT IS ENTERED ON 9.1.2006 WHICH COMES UNDER ASSESSMENT YEAR 2006-07. THE BUILDER HAS COMPLETED CONSTRUCTION OF BUILDING ON 31.3.2008 WHICH COMES UNDER ASSESSMENT YEAR 2008-09 . THEREFORE, WE ARE OF THE VIEW THAT FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN IN PURSUANCE OF A JOINT DEVELOPMENT AGREEMENT, CONSIDE RATION TOWARDS TRANSFER OF LAND HAS TO BE DETERMINED BASED ON THE FAIR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF JOINT DEVELOPMENT AG REEMENT BUT NOT BASED ON THE COST OF CONSTRUCTION INCURRED BY THE B UILDER. THE CIT(A) AFTER CONSIDERING THE RELEVANT DETAILS HAS RIGHTLY DIRECTED THE A.O. TO COMPUTE CAPITAL GAIN BASED ON THE FAIR MARKET VALUE OF THE PROPERTY AS COMPUTED BY THE ASSESSEE. WE DO NOT SEE ANY ERROR O R INFIRMITY IN THE ITA NO.57/VIZAG/2013 Y.V.S. CHALAPATHI RAO, VIJAYAWADA 9 ORDER PASSED BY THE CIT(A), HENCE, WE INCLINED TO U PHOLD THE CIT(A) ORDER AND REJECT THE APPEAL FILED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 23 RD DEC16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 23.12.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-1(2), VIJAYAWADA 2. / THE RESPONDENT SRI Y.V.S. CHALAPATHI RAO, C/O PRATAP INDUSTRIES, D.NO.4-25, ENIKEPADU, VIJAYAWADA RURAL. 3. + / THE CIT, VIJAYAWADA 4. + ( ) / THE CIT (A), VIJAYAWADA 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM