Sama Subhash Reddy, Hyd, Hyderabad V. ITO, Ward-5(2), Hyd, Hyderabad

ITA 780/HYD/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2430 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Assessee Lawyers: S RAMA RAO
• Section: 143(3); 5(2); 148

Judgement Text

ITA NO 780 OF 201 7 SAMA SUBHASH REDDY HYDERABAD. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.780/HYD/2017 (ASSESSMENT YEAR: 2007-08) SHRI SAMA SUBHASH REDDY HYDERABAD PAN: AD WPR 7455 F VS INCOME TAX OFFICER WARD 5(2) IT TOWERS HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SMT. U. MINI CHANDRAN, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y2007-08 AGAINS T THE ORDER OF THE CIT (A)-10, HYDERABAD, DATED 26.12 .2016 CONFIRMING THE ORDER OF THE AO. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A N INDIVIDUAL, WHO IS ENGAGED IN THE BUSINESS OF TRADI NG OF FLOWERS, FILED HIS RETURN OF INCOME FOR THE A.Y 2007-08 ON 2 8.11.2007 RETURNING AN INCOME OF RS.2,09,120. IT HAD COME TO THE KNOWLEDGE OF THE AO THAT THE ASSESSEE AND EIGHT OTHER PERSONS HAVE ENTERED INTO A DEVELOPMENT AGREEMENT WITH M/S. SUNRISE HOME S LTD FOR DEVELOPMENT OF THEIR LAND AND THAT IN HIS RETURN OF INCOME, THE ASSESSEE HAS NOT DISCLOSED THE CAPITAL GAINS ARISIN G OUT OF THE SAID DATE OF HEARING: 15.02.2018 DATE OF PRONOUNCEMENT: 2 1 . 0 3 .2018 ITA NO 780 OF 201 7 SAMA SUBHASH REDDY HYDERABAD. PAGE 2 OF 6 AGREEMENT. THEREFORE, A NOTICE U/S 148 WAS ISSUED O N 30.03.2014, AFTER OBTAINING NECESSARY APPROVAL FROM THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-5, HYDERABAD. THE SAID NOTICE WAS SERVED ON THE ASSESSEE ON 30.03.2014, IN RESPONSE TO WHICH THE ASSESSEE FILED A LETTER STATING THAT THE RETURN FILED ON 28.11.2007 MAY BE TREATED AS A RETURN FILED IN RESP ONSE TO THE NOTICE U/S 148. 3. THEREAFTER, DURING THE ASSESSMENT PROCEEDINGS U/ S 143(3) R.W.S. 147 OF THE ACT, THE AO OBSERVED THAT BY VIRTUE OF THE DEVELOPMENT AGREEMENT, THE ASSESSEE HAD GIVEN HIS L AND OF 1 ACRE 33 GUNTAS TO M/S. SUNRISE HOMES LTD WITH THE SHARIN G RATIO OF 45:55 I.E. THE ASSESSEES SHARE IS 45% AND THE DEVE LOPERS SHARE IS 55%. HE OBSERVED THAT THE ASSESSEE AND FOURTEEN OTH ER PERSONS ALSO ENTERED INTO A SUPPLEMENTAL AGREEMENT WITH THE DEVELOPER M/S. SUNRISE HOMES LTD ON 8.4.2011, BY VIRTUE OF WH ICH, THE ASSESSEE WAS ALLOTTED SEVEN VILLAS/HOUSES ALONG WIT H UNDIVIDED SHARE OF LAND OF 2275 SQ. YARDS (325 X 7). OBSERVIN G THAT THE DEVELOPER HAS NOT HANDED OVER THE VILLAS/HOUSES THA T WERE ALLOTTED TO THE ASSESSEE DURING THE FINANCIAL YEAR 2006-07 RELEVANT TO THE A.Y 2007-08, THE AO HELD THAT THE ASSESSEE I S LIABLE TO PAY CAPITAL GAIN TAX ON THE LAND TRANSFERRED BY THE ASS ESSEE TO THE DEVELOPER VIDE THE DEVELOPMENT AGREEMENT DATED 9.11 .2006. TO KNOW THE COST OF LAND ON THE DATE OF DEVELOPMENT AG REEMENT, A LETTER DATED 17.12.2015 WAS SENT TO SRO RAJENDRANAG AR, REQUESTING HIM TO FURNISH THE MARKET VALUE OF THE L AND AS ON 9.11.2006. THE SRO, VIDE LETTER DATED 19.01.2015 RE PLIED THAT THE MARKET VALUE ON 09.11.2006 WAS RS.48.00 LAKHS. THE AO ITA NO 780 OF 201 7 SAMA SUBHASH REDDY HYDERABAD. PAGE 3 OF 6 THEREFORE, ISSUED A SHOW-CAUSE NOTICE TO THE ASSESS EE WITH REGARD TO THE COMPUTATION OF THE LTCG. 4. THE ASSESSEE, VIDE LETTER DATED 25.02.2014, REPL IED THAT AS PER THE DEVELOPMENT AGREEMENT DATED 9.11.20 06, 55% OF HIS LAND WAS TRANSFERRED TO THE BUILDER AND THE ASS ESSEE WAS HOLDING 45%. THE AO, HOWEVER, OBSERVED THAT THE ASS ESSEE WAS SUPPOSED TO RECEIVE 325 SQ. YARDS FOR EACH PLOT AND THE TOTAL LAND RETAINED BY THE ASSESSEE WAS ONLY 2275 SQ. YARDS (3 25 X 7). THUS, ACCORDING TO HIM, THE ASSESSEE HAS RETAINED ONLY 25 .78% OF THE TOTAL LAND AND THEREFORE, THE LAND TRANSFERRED BY T HE ASSESSEE IS 74.22%. THEREAFTER, THE AO COMPUTED THE SHORT TERM AND LONG TERM CAPITAL GAINS ARISING FROM THE SAID TRANSACTIO N. 5. FURTHER, HE ALSO OBSERVED THAT THE ASSESSEE HAD SOLD A PIECE OF LAND TO ONE SHRI MOHD. AKBAR AND THAT THE LTCG ARISING OUT OF THE SAID TRANSACTION IS TO BE BROUGHT TO TAX . HE ACCORDINGLY COMPUTED THE LTCG ARISING OUT OF THIS TRANSACTION A LSO AND BROUGHT IT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRE D AN APPEAL BEFORE THE CIT (A), WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN O UR ATTENTION TO THE RELEVANT CLAUSES OF THE DEVELOPMEN T AGREEMENT TO DEMONSTRATE THAT THE ASSESSEE AND THE DEVELOPER WER E TO SHARE THE PLOTS IN THE RATIO OF 45:55, AND THEREBY THE LA ND COVERING THE COMMON AREAS SUCH AS ROADS AND THE LAND LEFT FOR AM ENITIES ETC., IS ALSO TO BE SHARED IN THE SAME RATIO. HE SUBMITTE D THAT THE AO ITA NO 780 OF 201 7 SAMA SUBHASH REDDY HYDERABAD. PAGE 4 OF 6 AND THE CIT (A) HAVE TAKEN ONLY THE NET PLOTTED ARE A ALLOTTED TO THE ASSESSEE FOR COMING TO A CONCLUSION THAT THE ASSESS EE HAS ONLY TRANSFERRED 74.22%, WHICH IS INCORRECT. 7. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE WAS THE OWNER OF 1 ACRE 33 GUNTAS OF LAND, WHICH HE HAS GIVEN FOR DEVELOPMENT TO M/S. SUNRISE HOMES LTD. AS PER THE DEVELOPMENT AGREEMENT DATED 9.11.2006 AND CLAUSE-3 THEREOF, THE ASSESSEE IS ENT ITLED TO 45% OF THE PLOT WITH HOUSES TOWARDS HIS SHARE AND THE DEVE LOPER IS ENTITLED TO 55% OF THE PLOT WITH HOUSES TOWARDS THE SHARE OF THE DEVELOPER. FOR THE SAKE OF CONVENIENCE AND READY RE FERENCE, THE SAID CLAUSE IS REPRODUCED HEREUNDER: 3. IT IS AGREED AMONG THE PARTIES HEREINABOVE TO S HARE THE PLOTS WITH HOUSES IN THE LAYOUT OF GATED COMMUNITY/GROUP HOUSING IN THE RATIO OF 45%:55% RESPECTIVELY I.E. THE LAND OWNERS OF THE FIRST PART ARE COLLECTIVELY ENTITLED TO 45% OF THE PLOTS WITH HOUS ES TOWARDS THEIR SHARE AND THE DEVELOPER IS ENTITLED T O 55% OF PLOTS WITH HOUSES TOWARDS THE SHARE OF THE DEVEL OPER. HOWEVER, THE LAND OWNERS OF FIRST PART ARE IN TURN ENTITLED TO THEIR RESPECTIVE SHARES OUT OF THE SAID 45% SHARE IN PROPORTION TO THEIR EXTENT OF OWNERSHIP OU T OF THE SCHEDULED LAND 9. THUS, IT CAN BE SEEN THAT WHAT IS TO BE SHARED A MONGST THE LAND OWNERS AND THE DEVELOPER, ARE THE PLOTS WI TH HOUSES. THE DEVELOPER IS REQUIRED TO MAKE A LAY-OUT AND THE ENT IRE COST OF THE DEVELOPMENT OF THE SCHEDULED PROPERTY SUCH AS LEVEL LING, SURVEYING, DEMARCATION AND MAKING OF PLAN, ARCHITEC TURAL DESIGN ITA NO 780 OF 201 7 SAMA SUBHASH REDDY HYDERABAD. PAGE 5 OF 6 AND THE COST OF CONSTRUCTION ETC., INCLUDING THE AM OUNT SPENT FOR OBTAINING SANCTION OF LAY-OUT AND PERMIT AND THE CO ST OF PROVIDING INTERNET, ELECTRIFICATION TO THE BUILDINGS SHALL BE BORNE EXCLUSIVELY BY THE DEVELOPER OF THE SECOND PART. FURTHER, AFTE R THE SANCTIONING OF THE LAY-OUT, THE PARTIES HAD ENTERED INTO A SUPPLEMENTAL AGREEMENT FOR DEMARCATING THEIR SHARES OF PLOTS/HOUSES. THE NO. OF PLOTS WITH HOUSES ALLOTTED TO THE ASSESSEE TOWARDS HIS SHARE OF LAND WAS 7, WITH EACH PLOT BEI NG OF 325 SQ. YARDS. BUT, IN OUR OPINION, THE AREA COVERING ROADS AND COMMON FACILITIES ETC., ALSO FALLS TO THE SHARE OF THE ASS ESSEE FOR CALCULATING THE ASSESSEES SHARE OF LAND AND IT HAS TO BE IN TH E SAME RATIO. THEREFORE, THE FINDINGS OF THE AO AND THE CIT (A) T HAT THE ASSESSEE IS HOLDING ONLY 25.78% AND HAS TRANSFERRED 74.22% T O THE DEVELOPER IS NOT CORRECT. IN VIEW OF THE SAME, WE D EEM IT FIT AND PROPER TO REMIT THE ISSUE BACK TO THE FILE OF THE A O FOR RECOMPUTATION OF THE CAPITAL GAINS AFTER TAKING INT O CONSIDERATION, 45% OF THE TOTAL PLOTTED AREA INCLUDING THE ROADS A ND COMMON FACILITIES AS PART OF THE ASSESSEES SHARE. NEEDLES S TO MENTION THAT THE AO SHALL GIVE THE ASSESSEE, A FAIR OPPORTUNITY OF HEARING BEFORE QUANTIFYING THE LTCG/STCG ARISING OUT OF THE DEVELO PMENT AGREEMENT. 10. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2018. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 21 ST MARCH 2018. VINODAN/SPS ITA NO 780 OF 201 7 SAMA SUBHASH REDDY HYDERABAD. PAGE 6 OF 6 COPY TO: 1 SHRI SAMA SUBHASH REDDY, H.NO.5-2-200/A/38/B NEW OSMANGUNJ, HYDERABAD 500001 2 ITO WARD 5(2) IT T OWERS, AC GUARDS, HYDERABAD 3 CIT (A)-10 HYDERABAD 4 PR. CIT 4 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER