2015 (10) TMI 479 - AT - Income Tax

Tribunal allows appeal on LTCG exemption & construction cost, reverses CIT(A) decisions

Sri K. Rajanna Versus Dy. Commissioner of Income Tax, Circle 9 (1), Bangalore.

The Tribunal partly allowed the assessee's appeal for AY 2008-09 by admitting the additional ground on the year of chargeability of LTCG, reversing the ... Exemption under Section 54 - assessee was in receipt of sale consideration from sale of 12 flats received from the developer consequent to a joint development Agreement (‘JDA’) entered into between the assessee and Wing commander Santosh Kumar Sharma, the developer in respect of certain lands - reopening of assessment - Assessing Officer determined the LTCG on transfer of 60% of the undivided portion of land at ₹ 1,85,10,384; STCG on sale of 11 flats was computed at ₹ 1,34,13,797 and LTCG attributable to the sale of undivided interest of land in respect of the 11 flats at ₹ 2,73,751 - rejevtion of additional ground - Held that:- action of the learned CIT (Appeals) in rejecting the admission of the additional grounds raised by the assessee on allegations of mala fide intention on the part of the assessee is without basis as the information in this regard was with the authorities below from 24.1.2012. The intention of law is that the income of an assessee is to be brought to tax correctly in the correct year. If an item of income is taxable in a particular year, then the Assessing Officer can tax that amount in that year only. The scheme of the Act does not envisage that if a particular item of income has escaped taxation in one year, it can be brought to tax in another year solely for the reason that the time limit to reopen the assessment in that year has expired. On an appreciation of the facts additional ground raised by the assessee in respect of the year of chargeability of capital gains on transfer of 60% of land to the developer pursuant to JDA dt.18.1.2006 requires to be admitted as it goes to the very root of the matter. - remand the same to his file for consideration and adjudication thereon after affording the assessee adequate opportunity of being heard and to file details/submissions required. It is ordered accordingly - Decided in favour of assessee for statistical purposes. Chargeability of capital gains arising out of the said land by virtue of JDA and GPA dt.18.1.2006 within the ambit of the provision of Section 2(47)(v) of the Act rws 53A of the Transfer of Property Act - Held that:- Since the issue of the year of chargeability of capital gains on transfer of land to the developer vide JDA dt.18.1.2006, raised at Ground No.2, in respect of additional ground, preferred by the assessee on 18.12.2013 and denied admission by the learned CIT (Appeals), has now been admitted for consideration by us and restored to the file of the learned CIT (Appeals) for examination and adjudication, we are of the view that the finding therein would have a bearing on the issues raised in the grounds raised - We, therefore, deem it fit to refrain from adjudicating these grounds at this juncture.- Decided in favour of assessee for statistical purposes. Exemption u/s.54F - CIT (Appeals) has directed the Assessing Officer to disallow the cost of improvement amounting to ₹ 5 lakhs, which claim of the assessee, the Assessing Officer had allowed - Held that:- On a perusal of the impugned order, it is evidently clear that the learned CIT (Appeals)’s action led to an enhancement of the assessee's income to the extent of ₹ 5 lakhs whereby the exemption under Section 54F of the Act was directed to be reduced from ₹ 32,87,252 to ₹ 27,87,252. In such circumstances, as per the provisions of Section 251(2) of the Act, the learned CIT (Appeals) was required to afford the assessee reasonable opportunity of showing cause against such enhancement; which we find the learned CIT (Appeals) failed to do. In this factual matrix, we find that the action of the learned CIT (Appeals)’s action in disallowing the cost of improvement of ₹ 5 lakhs, already allowed by the Assessing Officer to the assessee, to be in gross violation of the provisions of section 251(2) of the Act, rendering the same illegal and unsustainable in law. We, therefore, reverse the order of the learned CIT (Appeals) and restore that of the Assessing Officer on this issue. - Decided in favour of assessee. Cost of Acquisition of 11 flats sold - Held that:- we find that the Assessing Officer’s computation of the cost of acquisition to the assessee in respect to the11 flats sold in the year under consideration was done after obtaining the cost of construction from the developer to arrive at the figure of ₹ 1,97,32,354 (i.e. 18,939 sq. ft. @ ₹ 1,042 per sq. ft.), as allowed in the order of assessment, appears to be in order. We are of the view that the finding of the learned CIT (Appeals), in reducing the cost of acquisition of the 11 flats sold by the assessee in this year from ₹ 1,97,32,354 to Rs.;1,49,40,196 by unilaterally reducing the built up area from 18,939 sq. ft. to 14,338 sq. ft. is not sustainable on facts and therefore set aside the same and restore the finding of the Assessing Officer in the order of assessment. It is ordered accordingly - Decided in favour of assessee. The action of the learned CIT (Appeals) in reducing the cost of construction of the 11 flats sold by the assessee in the period under consideration, to be in gross violation of the provisions of section 251(2) of the Act, rendering the same illegal and unsustainable in law. We, therefore, reverse the order of the learned CIT (Appeals) and restore the order of the Assessing Officer on this issue. Consequently, Ground No.6 of the assessee's appeal is allowed on this alternate argument also. Issues Involved:1. Non-admission of additional ground regarding the year of chargeability of Long Term Capital Gains (LTCG).2. Year of chargeability of LTCG arising out of the transfer of 60% of the undivided interest in land.3. Disallowance of exemption of Rs. 5,00,000 under Section 54F.4. Cost of construction allowable for the 11 flats sold by the assessee.Detailed Analysis:1. Non-admission of Additional Ground Regarding the Year of Chargeability of LTCG:The assessee contended that the Commissioner of Income Tax (Appeals) [CIT (Appeals)] erred in not admitting an additional ground regarding the year of chargeability of LTCG attributable to the transfer of 60% of the undivided portion of the land as per the Joint Development Agreement (JDA) and General Power of Attorney (GPA) dated 18.01.2006. The assessee argued that the LTCG should be chargeable for the Assessment Year (AY) 2006-07, not AY 2008-09, under Section 2(47)(v) of the Income Tax Act read with Section 53A of the Transfer of Property Act. The Tribunal found that the additional ground was relevant and went to the root of the matter, and thus should have been admitted by the CIT (Appeals). Consequently, the Tribunal admitted the additional ground and remanded it to the CIT (Appeals) for consideration and adjudication.2. Year of Chargeability of LTCG Arising Out of the Transfer of 60% of the Undivided Interest in Land:Grounds 3, 4, and 7 pertained to the year of chargeability of LTCG arising from the transfer of 60% of the undivided interest in the land by virtue of the JDA and GPA dated 18.01.2006. Since the Tribunal admitted the additional ground regarding the year of chargeability of LTCG and remanded it to the CIT (Appeals) for consideration, it refrained from adjudicating these grounds at this juncture.3. Disallowance of Exemption of Rs. 5,00,000 Under Section 54F:The assessee contended that the CIT (Appeals) erred in directing the Assessing Officer (AO) to disallow the exemption of Rs. 5,00,000, which was allowed by the AO under Section 54F of the Act, for the cost of improvement of the flat retained by the assessee. The Tribunal found that this action of the CIT (Appeals) resulted in the enhancement of the assessee's income without providing an opportunity to the assessee as required under Section 251(2) of the Act. Consequently, the Tribunal reversed the order of the CIT (Appeals) and restored the order of the AO, allowing the exemption of Rs. 5,00,000.4. Cost of Construction Allowable for the 11 Flats Sold by the Assessee:The assessee contended that the CIT (Appeals) erred in holding that the cost of construction was allowable for only 14,338 sq. ft. instead of 18,937 sq. ft. as allowed by the AO. The Tribunal found that the AO had computed the cost of construction based on the details obtained from the developer, which amounted to Rs. 1,97,32,354 for 18,937 sq. ft. The CIT (Appeals) reduced this to Rs. 1,49,40,196 by unilaterally reducing the built-up area to 14,338 sq. ft. The Tribunal held that the CIT (Appeals) was not justified in reducing the cost of construction and that this action led to an enhancement of the assessee's income, which required a notice to be given to the assessee as per Section 251(2) of the Act. Consequently, the Tribunal reversed the order of the CIT (Appeals) and restored the order of the AO, allowing the cost of construction for 18,937 sq. ft.Conclusion:In conclusion, the Tribunal partly allowed the assessee's appeal for AY 2008-09, admitting the additional ground regarding the year of chargeability of LTCG and remanding it to the CIT (Appeals) for consideration, reversing the disallowance of exemption of Rs. 5,00,000 under Section 54F, and restoring the AO's computation of the cost of construction for 18,937 sq. ft.