2021 (10) TMI 18 - AT - Income Tax

Appellate Tribunal rules on capital gains from land transfer, emphasizing taxation of only the share transferred.

Yandrapu Joseph Ratna Kumar Versus Asst. Commissioner of Income Tax Circle-4 (1) Visakhapatnam

The Appellate Tribunal set aside the Principal Commissioner of Income Tax's order under section 263, directing a recomputation of capital gains on land ... Revision u/s 263 - Correctness/computation of capital gains - Share of capital gain - HELD THAT:- In the instant case, there is no dispute that the assessee has admitted the capital gains in the returns of income and the case was taken up for scrutiny for the purpose of verification of large long term capital gains. During the course of assessment proceedings, the AO called for the relevant details in respect of computation of capital gains as evident from para No.5 and 6 of the assessment . The issue with regard to correctness of capital gains was verified by the AO before completing the assessment. In the instant case, the assessee along with 4 others (co- owners)transferred the land admeasuring 10,648 sq.yards for development on 50:50 basis and the assessee is having 1/5th share in the said land. Since the co-owners have transferred the land in lieu of receipt of 50% of constructed area and retained the 50% of land towards their share, for the purpose of computation of capital gains, only 50% of the land transferred to the developers share required to be considered but not the entire land. This Tribunal in the case of Vijaya Medical Center [2018 (4) TMI 1517 - ITAT VISAKHAPATNAM] on similar facts viewed that capital gains has to be computed on 50% of the land transferred to the developer when the land was given for development on 50:50 basis. There is no dispute that the AO has called for the details and considered the issue of capital gains in the assessment order. It is undisputed that the assessee has transferred the land for development and entitled to 50% of the constructed space and the land. As on the date of transfer there is no constructed space is available. Therefore, On facts and the law we are of the view that the AO rightly has computed the capital gains and the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue - Decided in favour of assessee. Issues:Assessment order challenged under section 263 for computation of capital gains on land transfer.Analysis:The appeals were filed against the orders of the Principal Commissioner of Income Tax (PCIT) under section 263 for the Assessment Year 2015-16. The assessee declared total income of Rs. 2,16,55,690, with the assessment completed by the Assessing Officer (AO) under section 143(3). The PCIT found discrepancies in the valuation of property by the assessee, leading to a revision under section 263. The PCIT observed that the assessee undervalued the property at Rs. 21.29 crores, whereas the market value was Rs. 41.97 crores. The PCIT held that the entire land transfer amount should be taxed as capital gains, setting aside the AO's order and directing a recomputation. The assessee contended that the AO's assessment was correct, as the value was based on the land share transferred for development. The PCIT's decision was challenged, arguing that the revision was not permissible based on a mere difference of opinion. The assessee maintained that only 50% of the land's value should be considered for capital gains, as the developed area was not yet constructed. The case was heard before the Appellate Tribunal, which analyzed the details of the assessment process. The Tribunal referred to previous judgments where it was held that only the share of land transferred should be taxed as capital gains. Considering the facts and applicable law, the Tribunal concluded that the AO's assessment was accurate, setting aside the PCIT's order and allowing the appeals of the assessees.