Tribunal directs AO to deduct construction cost & use specific land value in computing capital gains.

The Tribunal allowed the assessee's appeal, directing the AO to deduct the cost of construction of Rs. 86,10,000 while computing the capital gains on the sale of 7 flats and to adopt the value of Rs. 550 per sq.ft. for the land transferred under the Joint Development Agreement with M/s. Sai Gokul Builders.

---

---

Issues Involved:
1. Deduction of cost of construction of 7 flats sold.
2. Determination of capital gains on Joint Development Agreement (JDA) with M/s. Sai Gokul Builders.

Issue-wise Detailed Analysis:

1. Deduction of Cost of Construction of 7 Flats Sold:

The assessee filed an appeal against the CIT(A) order dated 30-06-2017, challenging the disallowance of the cost of construction of 7 flats sold. The assessee argued that the built-up area received was in lieu of the land transferred to the developer, and thus, the cost of construction should be deductible while computing capital gains. The AO had disallowed this cost, stating that the builder incurred the construction expenses, not the assessee. The CIT(A) upheld this view.

The Tribunal noted that the flats were received as consideration for the transfer of land under the JDA, and the cost of construction should be considered while computing capital gains. The Tribunal cited previous decisions, including the case of Jeeva Vadivelu and K. Rajanna, where it was held that the cost of construction should be allowed. The Tribunal directed the AO to consider the cost of construction of Rs. 86,10,000/- while computing the capital gains from the sale of the 7 flats.

2. Determination of Capital Gains on JDA with M/s. Sai Gokul Builders:

The assessee contested the AO's determination of capital gains based on a guidance value of Rs. 800/- per sq.ft., arguing that the correct value should be Rs. 500/- per sq.ft. as per the Government of Karnataka's notification. The AO had adopted the higher value based on information from the Sub-Registrar, Mahadevapura, Bangalore, which was upheld by the CIT(A).

The Tribunal reviewed the market guidance value published by the Government of Karnataka and found that the correct value for the property should be Rs. 550/- per sq.ft. instead of Rs. 800/- per sq.ft. adopted by the AO. Consequently, the Tribunal allowed the assessee's appeal on this ground as well.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the AO to:
1. Deduct the cost of construction of Rs. 86,10,000/- while computing the capital gains on the sale of the 7 flats.
2. Adopt the value of Rs. 550/- per sq.ft. for the land transferred under the JDA with M/s. Sai Gokul Builders.

Order Pronounced:

The order was pronounced in the open court on 16th April 2021.

---