The DCIT, Circle-1(1), Guntur V. Sri Padarthi Venkata Siva Ramakrishna Rao, Guntur

ITA 75/VIZ/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56774 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 25-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: TH LUCAS PETER
• Keywords: Capital asset; Cost of acquisition

Judgement Text

ITA NO 75 OF 2011 PADARTHI VENKATA SIVA RAMAKRISHNA RAO GUNTUR PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.75/VIZAG/2011 ASSESSMENT YEAR: 2007-08 DY.COMMISSIONER OF INCOME TAX, CIRCLE-1(1) GUNTUR VS. PADARTHI VENKATA SIVA RAMAKRISHNA RAO, GUNTUR (APPELLANT) (RESPONDENT) PAN NO:AABHP 9986 K APPELLANT BY: SHRI T.H. LUCAS PETER, CIT (DR) RESPONDENT BY: SHRI NONE ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 23.09.2010 PASSED BY LEARNED CIT(A), GUNTUR AND IT RELATES TO THE ASSESSMENT YEAR 2007-08. THE ASSESSEE HAS MOVED A PETITION FOR ADJOURNMENT OF CASE. HOWEVER, IN THE PREVIOUS HEAR ING, THE CASE WAS SPECIFICALLY ADJOURNED AT THE SPECIFIC REQUEST OF T HE ASSESSEE. HENCE WE REJECT THE PETITION SEEKING ADJOURNMENT AND PROCEED TO HEAR THE APPEAL EX PARTY, QUA THE ASSESSEE. 2. THE EFFECTIVE GROUNDS RAISED BY THE REVENUE READ AS UNDER: (2) THE LEARNED CIT (APPEALS) IS SILENT ON THE FAC T THAT AS EVIDENT FROM THE SALE DOCUMENT, THE ASSESSEE DISMANTLED THE CONSTRUCTION AREA OF 7000 SQ.FT BEFO RE THE DATE OF SALE AND SOLD ONLY 1000 SQ.FT. OF BUILD ING ON SITE WITH TOTAL AREA OF LAND OF 1167 SQ.YARDS. (3) THE LEARNED CIT (APPEALS) FAILED TO OBSERVE THAT TH E ASSESSEE DID NOT TRANSFER THE TOTAL BUILDING WITH A PLINTH AREA OF 8000 SQ.FT., AS CLAIMED BY WAY OF SA LE AND HENCE IT IS NOT CAPITAL ASSET TO THE EXTENT I T WAS NOT TRANSFERRED AS PER SECTION 48 OF THE I.T. ACT A ND THE INDEXED COST OF IMPROVEMENT ALSO CANNOT BE ALLOWED AS PER EXPLANATION (IV) OF THE SECTION 48 O F I.T. ACT. ITA NO 75 OF 2011 PADARTHI VENKATA SIVA RAMAKRISHNA RAO GUNTUR PAGE 2 OF 4 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN B RIEF. THE ASSESSEE HUF FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSI DERATION DECLARING LONG TERM CAPITAL GAIN OF RS.9,19,610/-. THE LONG TERM C APITAL GAIN WAS REALIZED BY THE ASSESSEE ON SALE OF A LAND ALONG WITH A BUIL DING CONSTRUCTED ON IT. WHILE COMPUTING THE INCOME FROM LONG TERM CAPITAL G AIN, THE ASSESSEE HAD DEDUCTED INDEXED COST OF PURCHASE. BESIDES THE ABO VE THE ASSESSEE ALSO CLAIMED TO HAVE SPENT A SUM OF RS.15,48,136/- TOWAR DS ADDITIONAL CONSTRUCTION OF BUILDING AND COMPOUND WALL AND ACCO RDINGLY CLAIMED DEDUCTION TOWARDS INDEXED COST OF IMPROVEMENT AGAIN ST THE SALE CONSIDERATION. IN EFFECT THE ASSESSEE CLAIMED INDEX ED COST OF CONSTRUCTION FOR A PLINTH AREA OF 8000 SQ. FT. BEFORE THE ASSES SING OFFICER, THE ASSESSEE COULD NOT PRODUCE ANY CREDIBLE EVIDENCE IN SUPPORT OF ITS CLAIM OF ADDITIONAL CONSTRUCTION. ON THE CONTRARY, THE ASSESSING OFFICE R NOTICED FROM THE RELEVANT SALE DEED THAT THE ASSESSEE HAS ACTUALLY S OLD BUILDING HAVING A PLINTH AREA OF 1000 SQ. FT ONLY ALONG WITH THE LAND . WHEN QUESTIONED, THE ASSESSEE STATED THAT IT HAD DEMOLISHED MAJOR PORTIO N OF CONSTRUCTED AREA TO THE EXTENT OF 7000 SQ. FT, AT THE INSTANCE OF THE B UYER BEFORE THE DATE OF REGISTRATION. HOWEVER, THE ASSESSING OFFICER REJECT ED THE EXPLANATIONS OF THE ASSESSEE AND HELD THAT THE INDEXED COST OF BUILDING COULD BE ALLOWED FOR 1000 SQ. FT. ONLY FOR THE REASON THAT THE ASSESSEE HAS ACTUALLY TRANSFERRED ONLY 1000 SQ.FT OF BUILDING. ACCORDINGLY THE ASSESS ING OFFICER RECOMPUTED THE LONG TERM CAPITAL GAIN. THE ASSESSEE CARRIED TH E MATTER BEFORE THE LEARNED CIT (A). BEFORE HIM, THE ASSESSEE FILED CER TAIN EVIDENCES TO PROVE THE EXISTENCE OF BUILDING TO THE EXTENT OF 8000 SQ. FT. HENCE THE LEARNED CIT (A) IN PRINCIPLE AGREED ABOUT THE EXISTENCE OF 8000 SQ. FT. HOWEVER HE REDUCED THE COST OF IMPROVEMENT CLAIMED BY THE ASSE SSEE BY 25% THEREOF AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO R E-COMPUTE THE LONG TERM CAPITAL GAIN. AGGRIEVED BY THE ORDER OF LEARNED CI T(A), THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENT ATIVE AND CAREFULLY PERUSED THE RECORD. THE UNDISPUTED FACT IS THAT THE CONSTRUCTED AREA OF THE BUILDING TRANSFERRED BY THE ASSESSEE IS ONLY 1000 SQ.FT. THE ITA NO 75 OF 2011 PADARTHI VENKATA SIVA RAMAKRISHNA RAO GUNTUR PAGE 3 OF 4 LONG TERM CAPITAL GAIN IS COMPUTED IN ACCORDANCE WI TH THE PROVISIONS OF SEC. 48 OF THE ACT. THE SAID SECTION READS AS UNDER: 48. THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY: - (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER (II) (III) THE COST OF ACQUISITION OF THE ASSET AND THE COST O F ANY IMPROVEMENT THERETO .. PROVIDED FURTHER THAT WHERE LONG-TERM CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, OTHER TH AN CAPITAL GAIN ARISING TO A NON-RESIDENT FROM THE TRANSFER OF SHARES IN, OR DEBENTURES OF, AN INDIAN COMPANY REFERRED TO IN THE FIRST PROVISO, THE PROVISIONS OF CLAUSE (II) SHALL HAVE E FFECT AS IF FOR THE WORDS COST OF ACQUISITION AND COST OF ANY IMPROVEMENT, THE WORDS INDEXED COST OF ACQUISITIO N AND INDEXED COST OF ANY IMPROVEMENT HAD RESPECTIVELY BEEN SUBSTITUTED. THUS, IT IS SEEN THAT THE ASSESSEE IS ENTITLED TO D EDUCT FROM THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET (A) THE EXPENDITURE INCURRED WHOLLY AND EXCL USIVELY IN CONNECTION WITH THE TRANSFER OF ASSET AND (B) THE INDEXED COST OF ACQUISITION OF THAT ASSET AND THE INDEXED COST OF IMPROVEMENT THERETO. 5. IN THE INSTANT CASE, THERE IS NO DISPUTE WITH REGARD TO THE CLAIM MADE TOWARDS EXPENDITURE INCURRED IN CONNECTION WITH THE TRANSFER OF ASSET. HOWEVER THE DISPUTE IS WITH REGARD TO THE COST PERT AINING TO THE CONSTRUCTED AREA OF THE BUILDING. THE CLAIM OF THE ASSESSEE IS THAT IT HAD CONSTRUCTED 8000 SQ. FT.; HOWEVER DEMOLISHED MAJOR PORTION OF T HE CONSTRUCTED AREA HAVING AN EXTENT OF 7000 SQ. FT. BEFORE THE DATE OF TRANSFER. ACCORDINGLY THE ASSESSEE HAS CLAIMED THAT IT IS ELIGIBLE FOR DEDUCT ION THE INDEXED COST OF BUILDING WITH A PLINTH AREA OF 8000 SQ. FT. HOWEVE R, THE FACT REMAINS THAT THE PLINTH AREA OF THE BUILDING THAT WAS ACTUALLY T RANSFERRED BY THE ASSESSEE WAS ONLY 1000 SQ. FT, AS EVIDENCED IN THE CONVEYANC E DEED EXECUTED IN CONNECTION WITH SALE OF LAND AND BUILDING. UNDER SECTION 48, ONLY THE ITA NO 75 OF 2011 PADARTHI VENKATA SIVA RAMAKRISHNA RAO GUNTUR PAGE 4 OF 4 INDEXED COST OF ASSET/COST OF IMPROVEMENT PERTAININ G TO THE ASSET THAT WAS TRANSFERRED SHOULD BE DEDUCTED FROM THE FULL VALUE OF CONSIDERATION. SINCE, IN THE INSTANT CASE, THE PLINTH AREA OF THE BUILDIN G TRANSFERRED BY THE ASSESSEE WAS ONLY 1000 SQ. FT., IN OUR VIEW, THE AS SESSEE IS ENTITLED TO DEDUCT ONLY INDEXED COST OF CONSTRUCTION/COST OF IM PROVEMENT PERTAINING TO 1000 SQ. FT. ONLY. THE FACT THAT THE ASSESSEE HAD DEMOLISHED BUILDING HAVING A PLINTH AREA OF 7000 SQ. FT HAS NO RELEVANC E HERE, AS THE ASSESSEE HAS NOT TRANSFERRED THE SAME AND HENCE THE QUESTION OF COMPUTATION OF CAPITAL GAIN DOES NOT ARISE WITH RESPECT TO THE 700 0 SQ. FT REFERRED ABOVE. HENCE, WE APPROVE THE VIEW OF THE ASSESSING OFFICER . ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT(A) RESTORE THAT OF T HE ASSESSING OFFICER. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 03-08-2011 COPY TO 1 THE DY.COMMISSIONER OF INCOME TAX CIRCLE-1(1) GUNT UR 2 SRI PADARTHI VENKATA SIVA RAMAKRISHNA RAO, 4-16-2 6/6 BANDLAMUDI COMPLEX, AMARAVATHI ROAD, GUNTUR 3 4. THE CIT GUNTUR THE CIT(A), GUNTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM