TaxTMI 
TaxTMI 
2016 (2) TMI 619
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.... stated to be Rs. 11,41,00,474/-. The assessee has sold the lands in a short span of time to DSK Ltd. during the year relevant to A.Y. 2009-10 for a consideration of Rs. 22,36,57,524/-. (ii) While computing the short term capital gain the assessee has reduced the cost of land of Rs. 11,41,00,474/- and another additional amount stating it to be cost of selling amounting to Rs. 10,79,82,051/- . This cost of selling is the amount refunded by the assessee to DSK Ltd for certain development work to have been undertaken by her. The development work to have been undertaken by her is stated to be for such work such as fencing, removing of debris, excavation, amalgamation of land, leveling of land, mojini, construction of walls, and other related developments. Apparently as per the submission made before the undersigned it appears all these works were to be completed within one year from the agreements to sale. The assessee has not undertaken such work. (iii) In the agreements to sale with DSKD Ltd there is no mention of this cost to be incurred by the assessee, the amount has not been quantified at all. The assessee has submitted the estimate of such work which was prepar....
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....10,79,82,051/- which was apparently to be used within one year, was never decided or quantified in the said sale deed, hence the development work expenses, refunded by the assessee later to DSKD Ltd. is an afterthought to reduce the liability of short term capital gain. The money refunded by the assessee to the company was prompted by the fact that the proposed SEB project of the company did not materialize, but it in no way can this amount be reduced as cost of selling. Also the money has not been expended by the assessee at all. (viii) The entire scenario of purchase of lands by the assessee and the almost immediate sale within short span of time for huge sums, it is apparent that by purchasing the lands at Rs. 22,36,57,524/-, DSKD Ltd was enhancing the value of lands in its Books and passing the consideration to interested parties, i.e. family members, relatives, members of sister concerns, directors etc. (ix) The assessee has stated in the submissions that the development work was to be carried out by her within one year of the agreements of the sale, but from the submission it is seen the estimate was prepared by her only in January 2009, while she would be r....
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....show cause notice issued by the AO on 05-12-2011. 6. It was submitted that she has entered into MOU dated 16-08-2007 with DSKD Ltd. which describes the consideration of land to be sold, development work to be done such as removing and disposing bunds, laying of compound walls, removing of grass, shrubs, debris, disposing carting away and cleaning, Govt. and private measurement of land etc. In the said MOU various conditions have been mentioned. On the basis of aforesaid MOU, sale deeds were executed between the assessee and DSKDL. The sale deeds include nature of development work that has to be performed by the assessee which was essence of the sale deeds. It was submitted that it is her contractual obligation to perform the work and it is also mentioned that if there is change in proposed project the assessee has to refund the money set apart for development work. The amount was not mentioned separately in the sale deeds for the work to be performed by her since sale deeds are public documents which are open to public at large. However, the nature of work was specifically mentioned in the respective sale deeds as per MOU. Referring to the documents filed in the paper book it wa....
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....d to the joint venture with foreign company at higher rate of Rs. 1.55 crores per acre approximately which indicates that considering the development cost the foreign company had also accepted the above rate for the land which was even higher than what the assessee has charged to DSKDL, i.e. Rs. 1.30 crores per acre. It was submitted that the assessee was going to appoint technocrats/engineers to undertake such development work. Therefore, it is not necessary that every developer/contractor should be an expert in the field. It is a business and not a profession. The assessee further submitted that she has purchased the lands from farmers and not from DSKDL and the lands were sold to DSKDL wherein she is a shareholder. Relying on various decisions it was submitted that a part of the consideration to the extent of Rs. 10,79,82,051/-did not accrue to the assessee and it was refunded to DSKDL. Therefore, the consideration for transfer of property must be reduced by the above amount of Rs. 10,79,82,051/- for determining the capital gains u/s.48. It was further submitted that the same issue had come up in the case of D.S. Kulkarni and Co. for A.Y. 2008-09. They had also sold various land....
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....nd private measurement of land (Mohani) are mentioned. 11. The AO further noted that the assessee, for the first time, has referred to and produced a copy of MOU entered into with DSKDL which enumerates the consideration for the sale of lands and work to be done. The MOU produced by the assessee is dated 16-08-2007 and there was no mention of the existence of such an MOU till now, i.e. 26-12-2011. The assessee, by way of sale deeds, is under no obligation to undertake the development work claimed by her. The MOU is a self serving document, the veracity of which is in doubt as it is neither a registered deed nor a notarised one, therefore, the MOU prepared on a Rs. 100/- stamp paper and presented for the first time on 26-12-2011 cannot be relied upon. It is merely an understanding between a Public Limited Company entered into with an interested family member. Further, the deed of confirmation produced by the assessee is dated 15-01-2009. The assessee by way of the sale deeds is under no obligation to undertake the development work claimed by her and the same was never quantified in the sale deeds. Therefore, the deed of confirmation filed by the assessee is a self-serving documen....
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....refore, even though the lands were scattered, ultimately the same will be merged along with one project of DSKDL of about 250 to 270 acres. Regarding the sale deed having no clause for refund of money in the event of development work not carried out it was explained that the sale deed included nature of development work to be performed by the assessee whereas the MOU dated 16.08.2007 entered into by the assessee with DSKDL describes the various details of work to be done and various conditions have also been mentioned. The assessee thus submitted that it was a contractual obligation of the assessee to perform the work as per the MOU and Deed of confirmation and in the event of any change of size or specification of project or delay in instruction from DSKDL for development work, the assessee has to refund the money set apart for the said work as per para 3 of MOU and para (ix) of Deed of confirmation. 14. With respect to the notings of the Assessing Officer regarding the DSKDL having enhanced the value of land and passing the consideration to interested parties it was submitted that the proofs relating to the money having been returned by the assessee to DSKDL has been submitted....
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....he assessee the Ld.CIT(A) directed the AO to reduce the amount of Rs. 10,79,82,051/- from the sale consideration for computing short term capital gain. The relevant observation of Ld.CIT(A) from para 4.5 to 4.10 of the order reads as under : "4.5 The submission made by the appellant has been considered and material on record perused. It is undisputed fact that the appellant has sold various lands to the developers, i.e. DSK Developers who were desirous to purchase about 100 to 120 acres of contiguous land for development of their SEZ projects, which was later on revised to one project of about 250 to 270 after negotiation with the foreign company viz. GTC Cyprus, Netherlands for a joint venture for setting up the SEZ. The Co. i.e. DSK Developer Ltd had even entered into an agreement with the foreign company vide agreement dated 10-7- 2008. It is also seen that the appellant agreed to sell the developed lands at rate approved of Rs. 1.30 crores per acre for a developed land though the fair market value was much low at 4.40 lacs per acre. The developer had offered the appellant such handsome consideration for sale only after the appellant had undertaken to develop the lands ....
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....Officer has not carried out any verification so as to justify the stand taken by her and various Objections raised based on the details furnished by the appellant. It is also seen that the Addl CIT Range-3 had also given directions to examine the return of the developers DSK Developer Ltd. The Assessing Officer has failed to consider that the development work on the lands sold by the appellant was a contractual obligation which the appellant was bound to follow lest the deal would not have taken place. The Assessing Officer has thus failed to go into the merits of the expenditure estimation which were to be incurred by the appellant has been rejected outrightly. The Assessing Officer, has also not considered the issue of double taxation which has also been pointed out in the 144A proceedings. The fact which remained and which cannot be ignored while making an assessment is that the Assessing Officer is duty bound to compute the real and correct income and the events till the passing of the order be considered for deciding the case as held in the case of Sushila S. Jhaveri Vs UOI (supra). 4.6. The Assessing Officer has accepted the sales consideration received by the appell....
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....ed prior or subsequent to the passing of title. It is also submitted that as per the MOU dated 16-08-2007 the appellant promised and took responsibility to carry out the development work on the said land as per the understanding and based on the same the consideration was fixed which included the said cost of the development work. It is also contended that the estimate of expenditure to be incurred on the said land was also approved by the company and was intrinsically linked with the transfer though the same has been incurred subsequent to the execution of the sale deed. It has, therefore, been contended that the A.O. had failed to consider that the development work was appellant's contractual obligation and if the said work was not carried out, the company would have recovered the said amount. It is also submitted that various authorities have held that expenditure wholly and exclusively incurred in connection with transfer has to be allowed and it is immaterial that the said expenditure was incurred subsequent to the sale deed. The appellant has relied on the following judicial contentions: 1. V.A. Vasumati vs. CIT (1980) 123 ITR 94 (KER) 2. CIT Vs. Dr.P. Rajen....
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....in value of the asset or there is a rise in its price or the asset is made to grow better. In the case of Valliammal Vs. CIT (1981) 127 ITR 713 (Mad) (TB), betterment charges paid to municipality was held to constitute cost of improvement for the purpose of clause (i) of section 48 of the Act, as it contributed to the increase in potential value of land in a real sense. In the present case also the appellant has carried out a diverse set of development work on the land such as construction of road network in concrete, removing bund, old huts, houses and cleaning grass, shrubs, debris etc. build the compound wall, which has indeed added value to the land for which the sale consideration received by the appellant was much more than the existing price as per the stamp duty valuation. 4.9 Sections 48 and 50 of the Act clarify that capital gain can be correctly worked out only if cost of acquisition or improvement of the asset is deducted from the full value of consideration received. Therefore, to entitle the assessee to any deduction in terms of the said provisions on account of any improvement it is required that a claim for such deduction is made before the assessing author....
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....ion with transfer". The expression means intrinsically linked with transfer. Such expenditure has to be wholly and exclusively in connection with the transfer. Even if such expenditure has some nexus with the transfer it does not qualify for deduction unless it is wholly and exclusively in connection with the transfer. Further, the expression "wholly and exclusively" does not mean that the expenditure should be a 'necessary' expenditure. Thus, in the computation of capital gains, in order to qualify for deduction under section 48, the expenditure should be "wholly" in terms of quantum in connection with transfer and the motive for such expenditure should also be the transfer of the capital asset in order that expenditure comes within the ambit of the word "exclusively". The allowability has to be examined from this angle. 4.10 In view of the above stated facts, the disallowance made by the Assessing Officer is liable to be deleted and the grounds of appeal no.2 and 3 raised by the appellant are allowed." 16. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds : "1. The learned Commissioner of Income-tax (Appeals....
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....sessee had no obligation under the Sale-Deed or MOU to make any refund in any contingency. 8. The learned Commissioner of Income-tax (Appeals) erred in failing to appreciate that as per the terms and conditions of the sale deeds, the assessee was not under any obligation either to incur any development expenses ore to refund any sum to the buyer and, therefore, the ratio in the case of V.A. Vasumati 123 ITR 94 and in the case of Valliammal, 127 ITR 713, would not apply to the assessee's case." 17. The Ld. Departmental Representative strongly challenged the order of the CIT(A). He submitted that whatever documents were produced are post fact scenario. He submitted that the liability of the assessee to pay back does not arise out of the sale deed. The assessee is the owner of the money received. Further, the assessee is a family member of the director of the company. Referring to the copy of the assessment order the Ld. Departmental Representative submitted that the AO has thoroughly discussed the issue and rejected the claim of refund of the amount. When nothing is mentioned in the sale deed, no deduction or allowance can be granted while computing capital gain. There wa....
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.... the ground that in the agreement to sale with DSKDL, there is no mention of this cost to be incurred by the assessee and that the amount has not been quantified at all. Further, the amount to be expended for the development is a huge amount of Rs. 8,30,66,636/- which was to be used within one year and the same was prepared on the basis of only estimates prepared by the assessee and subsequently refunded by her to D.S. Kulkarni Developers Ltd. It is also the case of the AO that when compared to the cost of land, the cost of development is almost as much as the cost of the land. Further, according to the AO the lands sold by the assessee to D.S. Kulkarni Developers Ltd. are scattered over large expanse of land and the development work and expenses according to the AO is illogical. Further, in the sale deed, there is no clause which states that the money will be refunded in the event of such development work not carried out by the assessee. Further, according to the AO, the entire scenario of purchase of lands by the assessee and the almost immediate sale within short span of time for huge sums shows that it is apparent that by purchasing the lands at Rs. 17,67,80,000/- D.S. Kularni ....
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.... pages 269 to 279, we find the assessee has submitted almost identical submissions before the AO in respect of such query raised by the AO in that case. Clause (1) of the reply given by D.S. Kulkarni & Co. read as under : "With reference to captioned subject we would like to submit as under : As on 31-03-2008 provision outstanding is Rs. 95,76,016,240/- out of which provision Rs. 54,82,24,680/- is debited for this year towards expenses to be incurred for development of land at Fursungi. (1) During the F.Y.2007-08 we have sold lands at Mouje Fursungi to D.S. Kulkarni Developers Ltd. (Hereinafter referred to as DSKDL) and received consideration of Rs. 87,17,34,375/-, which was reflected on credit side under the head sales accounts. We had agreed to sell the developed land by carrying some development work in the lands which were sold/transferred/assigned to DSKDL. Therefore, after estimation for the expenses we have debited the liability provision of Rs. 54,82,24,680/- about which in the last hearing, you have asked for justification. For this purpose, the facts of the case are to be properly appreciated and which are stated hereunder - . . . . . .....
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....ts before us, namely, S/Shri Amol Krishna Ashtekar and Atul Krishna Ashtekar, the Assessing Officer has made scrutiny assessment for assessment year 2007-08 u/s 143(3) dated 17.12.2009 wherein the capital gains declared by the assessee in the returns of income have been assessed. Ostensibly, such assessments, which are in line with the stand of the Department in the cases of other farmers who are similarly placed as the assessee, itself show that in the impugned proceedings, Revenue has departed from its accepted position. There is no justification brought out by the Revenue for such a departure. Therefore, on the principle of uniformity of approach which is required to be adopted by the Revenue in relation to similarly placed assessees as laid down by the Hon'ble Supreme Court, in our view, the action of the income-tax authorities in the present case to initiate proceeding u/s 147/148 to assess capital gains on the basis of the agreement dated 26.03.1999 with MTDC is not justified." Therefore, when the AO in the case of D.S. Kulkarni & Co. has also raised similar queries as raised by the present AO and after elaborately recording the various details submitted by the a....
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....the original findings. In our considered view, the subsequent events brought on record have completely changed the colour of the original findings extracted in para. 2. Supra. In the peculiar facts and circumstances of this case, we feel that it would be necessary to direct the Commissioner of lncome-tax to reconsider the application filed and the submissions made by the petitioner on its own merits in the light of the subsequent events since they have dislodged the validity of the adverse findings suffered by the petitioner." 29. We further find the Coordinate Bench of the Tribunal in the case of ACIT Vs. Shirish D. Kulkarni vide ITA No.709/PN/2012 has already discussed the issue and dismissed the appeal filed by the revenue by observing as under : "4. We have heard the parties and perused the record. The Ld. Counsel submits that the assessee had negotiated with the landlords at Village-Fursungi, Tal.-Haveli, Distt.-Pune for purchase of lands. The assessee purchased the agricultural land during the F.Y. 2007-08 at Village-Fursungi. The assessee argues that the assessee purchased the land admeasuring 234.5R and the cost of acquisition to the assessee was to extend....
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....per the MOU between the assessee and developer dated 26-09- 2007 there were conditions for giving the higher consideration to the assessee and hence, or in other words the higher consideration offered by the DSKDL was subject to the improvement and development of the plot of land suitable for SEZ project. He argues that as per clear understanding between the assessee and DSKDL the assessee has to make the said land compatible to the SEZ project. 6. The Ld. Counsel submits that the assessee filed before the Ld. CIT(A) the details of the expenditure to the extent of Rs. 1,62,33,447/- which were actually incurred when the hearing before the Ld. CIT(A) was going on. He argues that subsequently, the developer changed the project and made it Special Township Project. Due to change in the project, the assessee was instructed to hold the development work. He argues that the consideration fixed for the sale of the land was linked with the development expenditure which was the assessee's contractual liability and hence, the assessee was entitled to claim the same expenditure as a deduction. Ld. Counsel supported the order of the Ld. CIT(A). 7. Per contra, the Ld. DR vehemen....