Assistant Commissioner OF Income Tax Central Circle2-(4), Hyderabad V. Madhusudana Rao Chunduri, Hyderabad

ITA 743/Hyd/2020

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5681 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Assessment Year: 2009-2010
• Appeal Filed On: 02-12-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Question of law; Capital Gains
• Section: 234B; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A” : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S.S.GODARA, JUDICIAL MEMBER I.T.A. No. 743/HYD/2020 Assessment Year: 2009-10 Asst.Commissioner of Income Tax, Central Circle-2(4), Hyderabad Vs Madhusudana Rao Chunduri, Hyderabad [PAN: ABJPC6724B] (Appellant) (Respondent) For Revenue : Shri Rajendra Kumar, DR For Assessee : Shri Mohd.Afzal, AR Date of Hearing : 23-11-2021 Date of Pronouncement : 23-12-2021 O R D E R PER A.MOHAN ALANKAMONY, A.M. : This appeal is filed by the Revenue for the AY.2009-10, aggrieved by the order of the Ld.CIT(Appeals)–9, Hyderabad, in DIN & Order No.ITBA/APL/S/250/2020-21/1028041654(1), dated 23-09-2020. 2. The Revenue has raised the following grounds in its appeal: “1.The ld.CIT(A) erred in law and on facts of the case in granting relief to the assessee. 2.The ld.CIT(A) erred in holding that the capital gains was not taxable in the previous year 2008-09 when the Development agreement was entered into without considering the decision of the Hon'ble A.P. High ITA No.743/Hyd/2020 :- 2 -: court in the case of Potla Nageswara Rao vs DCIT in ITTA No. 245 of 2014. 3.The ld.CIT(A) erred in accepting the contention of the assessee that the developer was given only a license to enter the property for carrying out development activities without appreciating the fact that as per the Development Agreement, the transfer of ownership was effective from the execution of the agreement in the proportions specified in the schedule of milestones to be achieved. 4.The ld.CIT(A) erred in holding that the property was transferred in the previous year 2013-14 when the Supplementary Development Deed was executed ignoring the fact that the Supplementary Deed merely demarcated the built up areas to be shared and did not materially alter the transfer of land provided for in the original agreement. 5.The appellant craves leave to amend or alter any ground or add any other grounds which may be necessary”· 3. Brief facts of the case are that assessee is an individual, filed his return of income for the AY.2009-10 on 27-10-2010 admitting total income of Rs.53,45,630/-. There after the case of the assessee was re-opened and assessment was completed u/s.143(3) r.w.s.147 of the Income Tax Act [Act], wherein the Ld.AO made an addition of Rs.13,72,57,514/- under the head Long Term Capital Gain. 4. During the course of assessment proceedings in the case of M/s.Meenakshi Infrastructure (P) Ltd., for the AY.2009-10, it was noticed that the assessee has executed a development agreement cum General Power of Attorney (GPA) on 22-04- 2008 for construction of a commercial complex in the name of Meenakshi Tech Park on the land owned by the assessee at Sy.No.30 part and 39 part situated at Gachibowli (V), Serilingampalli (M), R.R.Dist. According to the agreement, the assessee had transferred the property to the company for ITA No.743/Hyd/2020 :- 3 -: development by executing an agreement by virtue of which the assessee was to receive 47.5% of the developed area. Ld.AO opined that by virtue of the development agreement and GPA, the assessee had transferred the property to the developer. From the agreement it was also observed that the assessee was to receive 74,500 Sq. Ft., and the cost of construction is at Rs.1,900/- per Sq.Ft. Accordingly, the Ld.AO computed the sale consideration at Rs.14,15,50,000/- and worked out the Long-Term Capital Gain at Rs.13,72,57,514/-. 5. On appeal before the Ld.CIT(A), the assessee has raised the following grounds: “1.The order of the Assessing Officer is erroneous both on facts and in law. 2. The Assessing Officer erred in holding that there was transfer of capital asset during the financial year 2008-09 relevant for the assessment year 2009-10 and further erred in holding that the capital gain on entering into development agreement arose for the assessment year 2009-10. 3. The Assessing Officer failed to consider the peculiar facts and circumstances of the appellant's case. He ought to have observed the fact that the development agreement though entered into during the financial year 2008-09, was not implemented by the developer and the actual transfer of the property as per the development agreement took place only during the financial year 2013-14 relevant for the assessment year 2014-15. 4. The Assessing Officer erred in observing that the capital gain arose for the assessment year 2009-10 and not for the assessment year 2014- 15. 5. The Assessing Officer erred in determining the consideration for the property at Rs. 1,900/- per Sft. or at Rs.14,15,50,000/- without providing opportunity to ascertain the cost as per the books of the developer. 6. The Assessing Officer erred in adopting the statement of the developer recorded on 11.10.2013 without providing opportunity to cross examine and without verifying the amount so arrived at. ITA No.743/Hyd/2020 :- 4 -: 7. The Assessing Officer ought to have seen that he was determining the value for the year 2008-09 and the market value of the constructed area for the said year were to be adopted and not the market value or the figures as ascertained in any later financial years. The Assessing Officer ought to have seen that the facts as available during the year have to be considered. 8. The Assessing Officer erred in determining the capital gain at Rs. 13,72,57,514 /- . 9. The Assessing Officer ought to have seen that the tax on capital gain was paid for the assessment year 2014-15 and such an amount is to be adjusted against the tax determined for the assessment year 2009-10. 10. The Assessing Officer erred in not considering the deduction u/s 54F of the I.T.Act. 11. The Assessing Officer erred in charging interest u/s 234A of Rs.41,94,749/-, 234B of Rs.2,22,64,438/- and u/s 234C of Rs.42,793/-. 12. Any other grounds that may be urged at the time of hearing.” 6. The Ld.CIT(A) after examining the facts of the case in depth, deleted the addition, by observing as under: “10.In the assessment order, the Assessing Officer noted that the appellant has executed a development agreement, on 22.04.2008, with the company M/s. Meenakshi Infrastructures Pvt. Ltd. for construction of a commercial complex on the land owned by the appellant. The appellant did not declare capital gains in the return filed, for A.Y. 2009-10, and as the income chargeable to tax has escaped assessment, the Assessing Officer issued notice u/s. 148, on 17.03.2015, for A.Y. 2009-10. 10.1 In the course of the re-assessment proceedings, the Assessing Officer issued show cause notice dt. 29.07.2015 and proposed to tax the capital gains, in A.Y.2009-10, on the basis of the development agreement dt. 22.04.2008. Thereafter, the appellant filed submissions dt. 17.08.2015 along with copies of various documents The appellant also filed submissions dt. 24.09.2015 along with copies of certain case laws. Explaining his case, before the Assessing Officer, the appellant objected to the proposal and stated that the development agreement was not acted upon and that given the facts of his case, the capital gains are taxable in A.Y. 2014-15. The appellant submitted that he declared capital gains in the return filed, for AY. 2014-15, and paid the taxes due. ITA No.743/Hyd/2020 :- 5 -: 10.2 At para 3.1 of the assessment order, it is stated that the submissions of the appellant have been carefully considered and that the same are not acceptable. Stating so, the Assessing Officer proceeded to rely upon the decision of the Hon'ble jurisdictional High Court of Andhra Pradesh, in the case of Potla Nageswara Rao, before taxing the capital gains, in AY. 2009-10. In other words, the date of development agreement i.e., 22.04.2008 became the basis for the decision of the Assessing Officer. 10.3 The basic contention of the appellant, before the Assessing Officer, is that the developer could enter the property only for the purpose of carrying out development activity and that unrestricted possession over the property was not given. The appellant submitted that even power to transfer the property was not given to the developer and that the same was linked to fulfillment of conditions specified in the agreement. The appellant also submitted that the building plan was approved only on 03.06.2011. In view of this, the appellant objected to the proposed addition, in AY. 2009-10, and stated that the decision in the case of Potla Nageswara Rao was not applicable. The appellant also relied upon certain decisions, including those of the jurisdictional Hon'ble ITAT, Hyderabad, in the following cases. (i) Binjusaria Properties Pvt. Ltd. vs. ACIT, Central Circle-4, Hyderabad, (2014) 45 taxmann.com 115. (ii) S. Ranjit Reddy vs. DCIT, Circie-6(1), Hyderabad, (2013) 35 taxmann.com 415. (iii) Fibars Infratech Pvt. Ltd. vs. ITO, Ward-1 (2), Hyderabad, (2014) 46 taxmann.com 313. (iv) Dilip Anand Vazirani vs. ITO, (2015) 57 taxmann.com 142 (Mumbai-Trib). 11. In the course of the appeal proceedings, the appellant furnished detailed submissions along with copies of various documents and case laws. After perusing the assessment record, it is seen that the appellant, in the appeal proceedings, has reiterated the submissions made before the Assessing Officer and relied upon the same set of documents and case laws. Before going to the relevant legal position, it would be in order to first establish the facts in the case of the appellant. 11.1 The appellant entered into development agreement with M/s. Meenakshi Infrastructures Pvt. Ltd., on 22.04.2008 for construction of a commercial complex on the land owned by the appellant. Clause 1, on page 3, of the development agreement clearly states that the ITA No.743/Hyd/2020 :- 6 -: owners agreed to give, grant license to enter the Schedule-A property to the promoter for carrying out development activities as per the Schedule-B of the agreement. 11.2 Further, according to clause 10, on page 6, of the development agreement, it is stated that the power to present documents for registration before registering authorities and to do all acts and deeds deemed necessary for registration of documents of promoter's share (52.5%) of property, on accomplishment of milestones and the associated percentages of property indicated against such milestones in Schedule-C. Schedule-C property is reproduced, as below. " The powers as covenanted by the Owners in favour of the Promoters as per Clause 10(b), 10(c) and 10(e) will be as per the following cumulative percentages that the Promoters can act upon Tower-A of Sy. No. 39. Sl. No. Mile Stones Cumulative Percentage of the Schedule-A Property 1. Upon Executing this Agreement 13.50% 2. Completion of Parking Slabs 26.50% 3. Completion of 7 Upper Floors 39.50% 4. Completion of All Slabs as per approved plans 52.50% 11.3 In view of what is said at paras 11.1 and 11.2, as above, there is merit in the argument that license to enter the property was given to the developer only for the purpose of carrying out development activity and there is no proper transfer of property rights. Further, the developer gets right to sell or mortgage property, falling· to his share, only after achieving the mile stones forming part of the agreement. Therefore, possession of the property was not given so also the power to transfer the property under the Transfer of Property Act. In addition to this, the developer got the municipal permission for construction of 14 floors only on 03.06.2011. These crucial facts relating to approval of the building plan, possession and transfer of rights in property are not disputed by the Assessing Officer. In fact, the show cause letter dt. 29.07.2015 is clear that the proposal to tax capital gains, in AY 2009-10, is based on development agreement dt. 22.04.2008. 11.4 It is also a fact that the developer did not act upon the agreement in right earnest and that there were differences and disputes between the parties to the agreement. The appellant received his share of property only on 01.06.20'13 on the basis of the registered supplementary development deed dt. 01.06.2013. The supplementary deed is the result of resolution of issues between the ITA No.743/Hyd/2020 :- 7 -: parties. As the appellant received his share of the property on 01.06.2013, the appellant declared capital gains in the return filed, for A.Y. 2014-15, and paid taxes. These facts were also submitted before the Assessing Officer. The show cause letter refers to 74,500 sq ft built up area received, by the appellant. This, the appellant received on 01.06.2013 and by virtue of the supplementary deed, which is at variance with the principal development agreement. 11.5 The appellant submitted that the developer did not honour many of the clauses, forming part of the principal development agreement dt. 22.04.2008. These include non-completion of the building in time and non-payment of compensation for the delay. The appellant also submitted that due to the non-co-operation of the developer, he was forced to waive off many conditions (which are part of the principal agreement) and agree to the changes in terms as reflected in the supplementary agreement. 12. As the Assessing Officer applied the decision of the Hon'ble High Court of Andhra Pradesh, in the case of Potla Nageswara Rao, 365 ITR 249 (A.P.), it would now be useful to refer to the factual position in that case. In the case of Potla Nageswara Rao, the Hon'ble Tribunal, on facts, found as follows. "In the instant case, on March 7, 2003, an agreement was entered into by the assessee with M/s. Bhavya Constructions Pvt. Ltd., and the plan of the building was approved on March 31, 2003. These dates fall in the previous year 2002-03, relevant to the assessment year 2003-04. Thus, in this case, the land being capital asset was transferred by the assessee to the developer during the assessment year under consideration, viz., 2003-04, for construction and it is enough if the assessee has received the right to receive consideration on a later date, so as to attract eligibility to tax on capital gains during the year under appeal." 12.1 On the basis of the finding of fact, as above, the Hon'ble High Court considered the question of law and held that when transfer of capital asset is complete, sale consideration has to be taken into consideration for purpose of assessment even though payment of consideration deferred till other assessment year. As brought out in para 11, as above, the facts in the case of the appellant are totally different. While the development agreement is dt. 22.04.2008, the approval for the building plan was obtained on 03.06.2011. Further, possession of the property and power to transfer the property are linked to conditions, as specified in the development agreement. As the developer did not satisfy the conditions, it cannot be said that possession of the property was given and so also the power to ITA No.743/Hyd/2020 :- 8 -: transfer the capital asset. Therefore, in the case of the appellant, it cannot be said that the appellant has received the right to receive the consideration on a later date, in the previous year 2008-09, relevant to A.Y. 2009-10. Accordingly, in the case of the appellant, the transfer of capital asset was not complete and nothing follows, automatically. 12.2 In view of the position, as above, the decision in the case of Potla Nageswara Rao is not applicable to the case of the appellant. 13. On perusal of the case laws cited by the appellant, it is seen that the same are applicable to the facts in the case of the appellant. 13.1 The Hon'ble jurisdictional IT AT, Hyderabad, in the case of Binjusaria Properties Pvt. Ltd., held that as the developer has not done anything to discharge the obligations cast on it, the capital gains could not be brought to tax in the year under appeal merely on the basis of signing of development agreement. 13.2 In the case of S. Ranjith Reddy, the jurisdictional ITAT, Hyderabad, held that for a development agreement to give rise to a transfer as defined in Section 2(47)(v) of the I.T. Act, the conditions stipulated in Section' 53A of the Transfer of Property Act need to be satisfied; and the execution of a development agreement by itself does not give rise to transfer under the Income Tax Act; all conditions laid down in Section 2(47)(v) of the Income Tax Act read with section 53A of the Transfer of Property Act need to be fulfilled. 13.3 In the case of Fibars Infratech Pvt. Ltd., the Hon'ble ITAT, Hyderabad, observed that the sanction of the building plan is utmost important for the implementation of the agreement and that without sanction of the building plan, the very genesis of the agreement fails. It was noted that as there was no amount of investment by the developer in the construction activity, during the year, it would amount to non-incurring of required cost of acquisition by the developer. It was noted that nothing was brought on record, by the authorities, to show that there was development activity in the project, during the year. Referring to the handing over of the possession of the property, it was observed that that is only one of the conditions u/s. 53A of the Transfer of Property Act, but it is not the sole and isolated condition. It was further observed that when the transferee, by its conduct and deeds, demonstrates unwillingness to perform its obligations under the Agreement, in the relevant assessment year, the agreement ceases to be relevant. The ITAT also referred to the judgement in the case of Chaturbhuj Dwarkadas Kapadia vs. Commissioner of Income Tax and observed that "willingness to perform" has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of section 53A of the Transfer of Property Act. ITA No.743/Hyd/2020 :- 9 -: 13.4 In the case of Dilip Anand Vazirani, the Hon'ble ITAT, Mumbai, observed that the assessee has given only license to enter into the property, meaning thereby, the possession was not given by in the relevant year. In this case also, the developer did not start the development activity during the relevant year. 13.5 The Hon'ble ITAT, Hyderabad, in the case of Sri P. Venkateswara Rao (ITA NO. 213/Hyd/2014), noted the fact that development agreement has not been acted upon by the developer. Since there was no willingness to perform, the ITAT held that it cannot be said that there is transfer of capital asset as envisaged u/s. 2(47)(v) of the I.T. Act rws 53A of the Transfer of Property Act. 13.6 The legal position, as above, clearly supports the case of the appellant. 14. Considering the totality of the facts and circumstances and the relevant legal position discussed at paras 10 to 13, as above, it is held that there was no transfer of capital asset in F.Y. 2008-09, relevant for AY. 2009-10. Therefore, the capital gains cannot be taxed in AY. 2009-10 and the Assessing Officer is directed to delete the addition made. Further, as the actual transfer of property took place in F.Y. 2013-14, relevant for AY. 2014-15, the appellant righfly declared the capital gains in the return filed for AY. 2014-15. Accordingly, the grounds of appeal no. 2 to 4 are allowed. 15. The grounds of appeal no. 5 to 8 relate to the determination of the consideration for the property while working out the capital gains, for AY. 2009-10. As the main issue relating to the year of taxability of the capital gains itself is decided in favour of the appellant, the outcome of the adjudication of these grounds will not be operative. 15.1 As seen from the assessment order, the Assessing Officer obtained the details of cost of construction and the built up area from the developer i.e., Mis. Meenakshi Infrastructures Pvt. Ltd. According to the details given by the developer, the built up area received by the appellant is 74,500 sft. There is no dispute on this point. The cost of construction adopted by the Assessing Officer is Rs.1,900/- per sft. The appellant objected to the cost of construction on various counts. 15.2 The appellant vide submissions dt. 22.09.2017 stated that the details of cost of construction were obtained from the developer and that the same were not made available to the appellant. The appellant did not agree with the statement given by the developer and submitted that he was not allowed to examine the statement I developer. The appellant argued that the cost of development given by the developer, as on 11.10.2013, cannot be considered for taxing the capital gains in A.Y. 2009-10. The appellant submitted that the ITA No.743/Hyd/2020 :- 10 -: market value of the land transferred, during the relevant year, can be adopted instead of the hypothetical value of the cost of construction. 15.3 The appellant vide submissions dt. 12.02.2019 stated that the developer handed over only the shell structure without flooring, plastering, partitions, etc.. Therefore, the appellant had to incur additional expenses. The appellant furnished details of the expenses incurred and submitted that the cost of construction, as stated by the developer, cannot be applied for the purpose of determining the sale consideration. The appellant submitted that the consideration in the F.Y. 2008-09 cannot be decided on the basis of cost incurred in the year 2011. 15.4 The appellant vide submissions dt. 19.02.2019 furnished a copy of the letter dt. 27.10.2015 of the Joint Sub Registrar, Ranga Reddy District, addressed to the Assessing Officer. According to this, the cost of construction for the year 2007-08 is Rs. 580/- per sft. and for the year 2008-09 it is Rs. 6001- per sft. The market value for the period from 01.08.2007 to 31.07.2009 is given at Rs. 1,2001- per sft. (including cost of land). The appellant submitted that the cost of construction, as per the SRO value, may be adopted for A.Y. 2009-10. 15.5 In the written submissions dt. 06.08.2020, the appellant stated that he received bare shell structure only on 01.06.2013 by means of the supplementary development deed, registered on 02.07.2013. The appellant submitted that the time taken for construction and extraordinary overhead charges of the developer influence the cost of construction incurred by the developer. The appellant furnished the details of substantial amounts paid by him, separately, towards various amenities. 15.6 On perusal of the assessment record, it is seen that the show cause notice dt. 29.07.2015 and the assessment order are silent on the detailed working of the cost of construction. Though, it is said that the cost of construction was adopted based on the statement given by the developer, the details of the same were not shared with. the appellant. There is merit in various arguments made by the appellant. It is not disputed that the appellant received only shell structure and that he had to incur additional expenses against various works. The cost incurred by the developer in the year 2011 cannot be directly applied as cost in the F.Y. 2008-09. As there is no proper and verifiable basis for the value adopted by the Assessing Officer, the same is not reliable. 15.7 In response to the letter dt. 18.09.2015, of the Assessing Officer, the Joint Sub Registrar reported the cost of construction for the period from 01.08.2007 to 31.07.2008 at Rs.580/- per sft .. For the period from 01.08.2008 to 31.07.2009, the cost of construction is Rs. 600/- ITA No.743/Hyd/2020 :- 11 -: per sft.. Further, the market value for the period from 01.08.2007 to 31.07.2009 is reported at Rs. 1,200/- per sft., which is inclusive of cost of land. The appellant requested for adoption of the SRO value for the built up area received. Section 500 provides for adoption of fair market value of the asset, as on the date of transfer, to be deemed as the full value of consideration received or accruing as a result of such transfer. This applies in cases where consideration accruing as a result of the transfer of a capital asset is not ascertainable or cannot be determined. The SRO value for the built up area is Rs. 600/- per sft. and the market value of the land also works out to Rs. 600/- per sft .. Therefore, it is reasonable to adopt the SRO value of Rs. 600/- per sft. for the built up area received by the appellant for computing the capital gains, for AY. 2009-10. 15.8 In view of the discussion made, as above, the grounds of appeal no. 5 to. 8 are allowed. However, this remains inoperative as against the main issue it has been held that the capital gains are not taxable in AY. 2009-10”. 7. Before us, Ld.DR vehemently argued in support of the order of the Ld.AO and prayed for sustaining the same, whereas the Ld.AR relied on the order of the Ld.cit(a). 8. We have heard the rival submissions through video conference and carefully perused the material on record. From the facts of the case, it appears that the assessee has only permitted the developer to construct the building in his land. It also appears that assessee has not received any consideration during the relevant assessment year on account of joint development. Therefore, the two ingredients required for treating the transaction as transfer u/s.2(47) of the Act does not seems to exist, because neither the possession of the land is handed over to the developer nor the assessee has received any consideration during the relevant assessment year. Moreover, in the relevant assessment year there was no activity on the land because there was a delay in obtaining the ITA No.743/Hyd/2020 :- 12 -: approval for construction. In these circumstances, computing the Long-Term Capital Gain in the hands of assessee based on the notional income would not be appropriate. In the circumstance when neither any consideration is received nor any benefit out of the transaction is derived the assessee will not have any liquidity for the payment LTCG tax. To avoid such situation, the provisions of Section 45, Sub-section(5A) of the Act was amended, which is also relied by the Ld.CIT(A) in his order. Considering these facts and circumstances of the case, we do not find any infirmity in the order of the Ld.CIT(A), who had made an elaborate finding, based on the facts of the case. Therefore, we do not find it necessary to interfere with the order of Ld.CIT(A). 9. In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on the 23 rd December, 2021 Sd/- Sd/- (S.S.GODARA) (A. MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 23 rd -12-2021 TNMM ITA No.743/Hyd/2020 :- 13 -: Copy to : 1.The Asst.Commissioner of Income Tax, Central Circle-2(4), Hyderabad. 2.Madhusudana Rao Chunduri, No.601, Pent House, Sai Balaji Towers, Erramanjil, Hyderabad. 3.CIT(Appeals)-9, Hyderabad. 4.Pr.CIT(Central)-Hyderabad. 5.D.R. ITAT, Hyderabad. 6.Guard File.