TaxTMI 
TaxTMI 
2024 (7) TMI 39
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....onstruction of commercial tower namely Rupam Tower at circle rate holding that no business activity has been carried out by the assessee. 3. Any other grounds taken at the time of hearing. 2.1. The revenue has raised the following additional grounds of appeal:- (i) Ld. CIT(A) has erred in allowing deduction u/s 54F on the gain of transfer of lands as arose to the assessee. (ii) Ld. CIT(A) erred in holding Rupam Tower as Residential House and has erred in allowing deduction u/s 54 to the LTCG arising to the assessee. (iii) Ld. CIT(A) erred in accepting the claim of the assessee regarding the cost of construction of the Rupam Tower building. He also erred in accepting the actual period of construction of the building." 3. The assessee has raised the following grounds of appeal in cross-objection:- "1. For that the grounds of cross objection hereto are without prejudice to each other. 2. For that in the facts and circumstances of the case, the learned CIT(A) is fully justified in deleting the addition of Rs. 5,39,15,000/- made by the Assessing Officer on account of alleged sale proceeds of Residential Units by resorting the p....
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....nt Year 2015-16 on 30/03/2016 declaring total income of Rs. 49,88,720/-. Case selected for scrutiny through CASS under limited scrutiny criteria "to examine the sale of property in ITR being less than the sale consideration reported in From 26QB and substantial increase in capital in a year". The ld. Assessing Officer after examining the records as well as the information in his possession noticed that the assessee owned a plot of land and he entered into a land development agreement on 28/04/2010 with his neighbor, namely, Dr. A.B. Prasad, owning the another piece of land. Subsequently, another land development agreement was jointly entered into by the assessee and Dr. A. B. Prasad with M/s. Kashyap Homes Pvt. Ltd. (in short 'M/s. KHPL') on 09/06/2011 to develop the land owned by them. M/s. KHPL agreed to develop the residential project and give certain flats as consideration to both the land owners. The residential complex is named as "Vishwamohini Complex". The ld. Assessing Officer also noticed that the assessee also owned another piece of land nearby the land used for constructing Vishwamohini Complex. In this other land, the assessee made investment and constructed "Rupam Tow....
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....revailing circle rate and ignored the valuation report given by Registered Valuer. In all, for the flats located at Vishwamohini Complex received as consideration by the assessee of the ld. Assessing Officer after giving the benefit of cost of acquisition of the land, made addition of Rs. 5,39,15,000/- as business receipt not declared by the assessee. Secondly, for the cost of construction of commercial tower, namely, Rupam Towers, the ld. Assessing Officer applied the prevailing circle rate and observed that unspecified/unascertained expenditure amounting to Rs. 10,32,40,650/- has been made by the assessee out of the undisclosed sources. The crux of the observation of the ld. Assessing Officer are summarised at para 12 to 13.1. of the assessment order and the same is reproduced below:- "12. The assessee entered into registered joint development agreement with builder in the year 2011 (Copy available on record) wherein the value of land measuring 15802 sq.ft. which included 10100 sq.ft. of the assessee & 5702 sq.ft. of Dr Akhouri B Prasad was considered at Rs 2,14,07,000 by the sub- registrar. The assessee has claimed that "the exchange value of the land of the assessee pe....
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....quantum of actual incurrence as well as identification of the source of funds for the same. Against such unspecified / unascertainable expenditure out of undisclosed sources, the assessee has derived benefit of ownership of a commercial tower measuring 15,702 sq. feet commercial space in the Rupam Tower / Rupam House. The value of the sane as per prevailing circle-rate for commercial space at the said place is Rs. 6,575/- per sq feet. Therefore, the assessee has derived this benefit valued at Rs. 6,575/-X15,702 i.e. Rs. 10,32,40,650/-. 13. The provisions of Section 28(iv) of the Income Tax Act, 1961 are hereby reproduced as under: Profits and gains of business or profession. 28. The following income shall be chargeable to income-tax under the head "profits and gains of business or profession" - (i) ........... (ii) ........... (iii).............. (iv) the value of any benefit or perquisite, whether convertible into money or not, aising from business or the exercise of a profession;] 13.1 Therefore, the value of the above benefits (out of which some of the part was converted into money by virtue of as many as tw....
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....le consideration from sale of flats at Vishwamohini Complex should be subjected to capital gain provisions and secondly, it was submitted that the ld. Assessing Officer has erred in treating the investment in Rupam Tower at Rs. 10,32,40,650/- which is merely on surmises and conjectures without any evidence in possession of the ld. Assessing Officer and the cost estimated by the registered valuer should only be considered for the purpose of calculating the investment in Rupam Tower. Based on these details and submissions, the ld. CIT(A) found sufficient merit in the contention of the ld. Counsel for the assessee and gave substantial relief to the assessee mainly holding that the assessee has not entered into any business agreement with M/s. KHPL, the assessee is entitled to deduction u/s 54/54F of the Act for the value of flat received in consideration for developing the land. So far as the capital gain from sale of Flat No. 401 & 403 at Vishwamohini Complex is concerned, the ld. CIT(A) held that the capital gain from sale of Flat No. 401 falls under the category of short term capital gain and that from sale of flat No. 403 at Rupam Tower will fall under long term capital gain and, ....
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.... 31-05-2014 (iv) LTCG arose on sale of one flat out of the 7 flats received by the assessee, which took place on 18-07-2014 (v) For calculation of CG as per (iii) and (iv) above, sec 50C is applicable 3rd Ground: Applicability of deductions u/s 54 and 54F Held as follows: (i) LTCG on transfer of land for getting 7 flats is deductible u/s 54F (ii) LTCG on transfer of flat on 18-07-2014 is deductible u/s 54 4th Ground: Construction of Rupam Chambers as undisclosed stock: Held as follows: Accepted assessee's claim that the investment in Rupam Tower is completely explained as made out of sale of two flats and receipt of advance from another party for sale of a third flat which took place in the immediately following F/Y. Being aggrieved The Department filed an appeal. 1. It is submitted that the legislature through introduction of a new provision of sec 45(5 A) wef. A./Y 2017-18, has made it clear that the gain of land owner through JDA is to be taxed as Capital Gains. Through another amendment made in that provision w.e.f. 01-04-2018 it has made further clear that CG will arise on the date of issue of Completion Certif....
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....part as residence cannot change its nature. 5. Lastly the CIT(A) was also satisfied that the cost estimated by the AO for construction of the Rupam Tower was the exaggerated and explanation of the assessee that the construction of Rupam Tower was out of revenue generated by sale of three flats in the residential complex; is acceptable to him. It is noteworthy that the flats of Vishwamohini complex were received and sold by the assessee in A.y.2015-16, while Rupam Tower was already completed in A.Y. 2011-12. 6. Further, he held that LTCG on transfer of land in lieu of flats arose in A/Y 2012-13 on registration of the JDA on 09-06-2011 but chargeable in A/Y 2014-15 as per sec 45(2). This provision is not applicable in A.Y.2015-16. 7. He further erred in holding that such CG is fully covered by deduction u/s 54F as in lieu of the capital gain, the assessee had made investment of equal amount of sum in a residential property. He followed the Anand Basappa caselaw. Factually, the ratio of Anand Basappa was overturned w.e.f. A/Y 2015-16 itself when the word "a" was replaced by the word "one" residential house through the amendment in the provision of sec 54 and....
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.... if we consider that the cost estimated by the AO is erroneous, the following facts are on record. (a) As per second para on internal Page 6 of supplementary agreement dated 14-03-2014, the proposed multistoried commercial building complex has been constructed and completed (from the basement to fifth floor) in accordance with the said sanctioned plan is standing by the name of Rupam Tower..... Therefore, the claim of the assessee as supported by the valuation report that the construction of Rupam Tower took place in F/Y 2013-14, 14-15 and 15-16 is blatant lie and LD CIT(A) completely erred in the facts of the case (b) At numerically marked para 2 at internal page 7 of the supplementary agreement, the assessee agreed to pay Rs. 2000/- per square ft of built up area as compensation to his neighbor for getting 226 sq ft of extra built up area than his legitimate due in the Residential complex. In-stead of blindly accepting the construction cost as claimed by the assessee and the concocted valuation report of the RV made only to suit assessee's stand, the CIT(A) should have reasonably estimated the construction cost at the same rate agreed by the assessee to pay ....
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....ts each in lieu of relinquishment of their land as 7 flats measuring 8210 sq.ft. and 5 flats measuring 6073 sq.ft. respectively and developer's (Kashyap Green Homes Pvt. Ltd.) share is 12 flats Of 14,283 sq.ft. It is pertinent to mention that as per the first agreement dated 28.04.2010 between the assessee and the land lord Dr A.B. Prasad, that Dr A B Prasad will get about 7500 Sq Ft. of built up area as per FAR was calculated 2.5. But according to executed agreement of dated 09.06.2011 and final tripartite supplementary agreement the FAR was achieved as 2.27 and accordingly built up area was distributed among both the land lords and builder. It confirms that the distribution of built up area was not performed according to terms and conditions of first agreement of dated 28.04.2010. CIT(A) called for Remand report as well as AO's comments 3 times but AO neither send remand report nor appear but send the case record before CIT(A). (Page-17- appeal order) Issue of Addition of Rs. 5,39,15,000/- (Gr. No-1) 4) The A.O. has considered assessee's share of flat in building received from builder in lieu of relinquishment of his land measuring as 8210 sq.ft., as business....
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....es made through bank. Issue of Section 54F (Additional Gr. No. -1) 12) After considering the capital gain as per land development agreement made between builder and land lords, section 54F is applicable and after relying on the judgement in CIT us Geeta Duggal 357 ITR 153 (Del) whole capital gain arose due to getting residential flats is exempted. (2nd para on page 38 in Appeal order). While, AO did not consider this provision since he considered as business income. (Para-7 on page 19 in AO order). 13) As per the assessment order assessee did not disclose in ITR but assessee submitted during scrutiny that the capital gain arised at the time of execution of development agreement is exempted u/s 54F so has not mentioned in the ITR and has relied on the CBDT Circular No. - 014 (XL - 35) of dated 11.04.1955, for claiming exemption during assessment proceedings. Issue of Section 54 (Additional Gr. No. -2) 14) The assessee sold the 2 flats from his share of flats during the year under consideration. 15) Evidences w.r.t. residential floor (5th Floor) of Rupam Tower, such as Property Tax receipt & SAS issued by Patna Municipal ....
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....a building, namely, Rupam Towers. For the purpose of earning income from rent from the Rupam Towers, five floors were given on lease for carrying out commercial activities to Vasan Eye Care Pvt. Ltd., and that too is claimed that only unfinished frame construction was completed and on the top of the complex residential portion constructed in which the assessee resides. He also claimed that against Flat No. 403, sold during the year, assessee deserves benefit u/s 54 of the Act for investment in residential house at Rupam Tower. 10.1. Now, so far as residential flats at Vishwamohini Complex received as consideration against giving rights for development of land for constructing Residential complex. The ld. Assessing Officer firstly held that the assessee is carrying out business activity of constructing the flats and it has partly acted upon the agreement dt. 28/04/2010 and secondly the sale consideration of flats received from developer M/s. KHPL was estimated and after giving deduction of cost of land the addition at Rs. 5,39,15,000/- has been made. So was the allegation of the ld. Assessing Officer that the assessee has carried out business activity of converting the land into ....
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...., final delivery/ possession of share of Flats are decided on the terms and condition of agreement which itself is regulated by the agreement dated 09.06.201| and not by the first agreement dated 28.04.2010. At the time of entering into the third agreement in 2014, Dr. A.B. Prasad has not raised any dispute in terms of the agreement dated 09.06.2011 which was signed by the appellant and the builder. In effect this substantiates the contention of the appellant that the agreement of 2011 was in the knowledge and with the approval bf Shri A.B. Prasad and therefore the agreement of 2010 entered into between him and Dr. A.B. Prasad stood cancelled. It is on record that (a) The project was initiated and completed by the builder Kashyap Homes Pvt. Ltd. (b) The sharing of the flats/area was done in accordance with a tripartite agreement duly entered into by all 3 parties in 2014 including Dr. A.B. Prasad. (c) The agreement of 2014 was itself a supplementary agreement to the agreement entered into between the appellant and builder in 2011 and is regulated by the same. (d) The supplementary agreement of 2014 mentions on Page 4 Para 4 & 5 ....
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....s not a business activity carried out by the assessee because the activity relating to development of land and constructing the project was the sole responsibility of M/s KHPL and, therefore, the transactions of transferring the land, receiving the flats in consideration and subsequent sale of two flats would be taxed as per the capital gain provisions under the Income Tax Act. 11. Now we take up the issue relating to addition made at Rs. 5,39,15,000/-. The ld. Assessing Officer only to the basis of total square feet of the flats received by the assessee and applying the circle rate calculated the total value of seven flats at Rs. 5,39,15,000/- and treated it as a business receipt. We, however, notice that the ld. CIT(A) after holding that the assessee has not done any business transactions, calculated the capital gain into two portions. Firstly, capital gains arising from transfer of land vide agreement dated 09/06/2011 and secondly, capital gains arising from sale of flat nos. 401 & 403. We find it necessary to reproduce below the finding of the ld. CIT(A) which has been arrived at after dealing with the factual aspect and the details filed by the assessee and the same reads a....
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....ent that the appellant has received a residential house comprising of 7 units (8210 sq. ft. of built up area) in lieu of his share of land and the value or the investment in the said residential complex is Rs. 1,36,82,490/- as per the value of development agreement, since LTCG arose on 09.06.2011 and possession was received on 12.03.2014 in AY 2014- 15. I am, therefore, of the opinion that the appellant will get the benefit of section 54F. Therefore, the appellant is entitled to exemption of Rs. 1,36,82,490/- u/s 54F of the Act as against the LTCG amounting to Rs. 1,03,64,270/- arising due to land transferred to builder on 09.06.2011. On the issue of calculation of Capital gains arising out of the sale of flats, it was noted that 2 flats no.s 401 (built up area 1114 sq. ft.) and 403 (built up area 1312 sq. ft. were sold by the appellant. The appellant has sold flat No. 401 on 31.05.2014. The date of acquisition of this flat will be the same as the date of transfer of land i.e. 9/6/2011. Therefore the period of investment will be less than 36 months and will attract STCG. Similarly, the appellant has sold flat NO. 403 on 18.07.2014. The date of acquisition of this ....
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.... floor of Rupam Tower may be calculated on the basis of this report and thereafter give the benefit of exemption u/s 54 of the Act, 1961 on the LTCO arising on the sale of Flat No. 403. As regards, the STCG arising on account of sale of Flat No. 401, the same shall be subject to tax as per the relevant provision of the Act and the addition of Rs. 5,39,15,000/- made under Sec. 28(iv) is deleted." 12. Now from perusal of the above finding and also considering the details placed before us, we find that on 09/06/2011 vide agreement with M/s. KHPL, the land was given to M/s. KHPL for developing it into a residential complex. The cost of acquisition of the land is undisputedly at Rs. 21,07,504/- and for the purpose of calculating long-term capital gain the index cost of acquisition of the plot of land as on 09/06/2011 comes to Rs. 33,18,220/-. The fair market value of the land as on the date of transfer of land i.e., 09/06/2011 as per the prevailing circle rate comes to Rs. 1,36,82,490/- which thus finally gives rise to net long-term capital gain at Rs. 1,03,64,270/-. Now, whether the assessee is liable to pay any capital gain on long term capital gain of Rs. 1,03,64,270/-. The assess....
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.... dismissed. 13. Now, we take up Ground No. 2 raised by the revenue deletion of addition of 10,32,40,650/- made by the ld. Assessing Officer for alleged investment in construction of Rupam Tower from undisclosed sources. We observe that the ld. CIT(A) after considering the valuation report of the estimated cost incurred for the construction of Rupam Towers and also taking into account the sale consideration received from sale of Flat no. 401 and 403 at Vishwamohini Complex, held that the ld. Assessing Officer has grossly erred in calculating the cost at circle rate. Finding of the ld. CIT(A) on this issue reads as follows:- "I have considered the issue. I have also gone through the assessment order, the submission of the appellant, assessment folder as well as material on record. It is on record that the appellant has constructed commercial cum residential building Rupam Tower out of the funds available to the appellant. It is also on record that the appellant has let out ground plus four floors to Vasan Eye care Pvt. Ltd. as unfinished and is occupying the fifth floor for residential purpose for himself. It is also duly mentioned in the agreement of 2011 that t....
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....luer and submitted by the appellant. The stamp duty/circle rate is only for the purpose of determining Capital Gains as per provision of section 50C of the I.T. Act, 1961 and can not be taken as cost of construction on assumptions. Accordingly the addition of Rs. 10,32,41,650/- on account of valuation of investment in construction of Rupam Tower at circle rate is deleted as it is held that no business activity has taken place." 14. We on going through the above finding and also going through the valuation report placed at page 53 to 58 of the paper book note that the valuation report has been done by a Government registered valuer who has valued the construction cost of Rupam Tower having basement+ground+4 Floors as commercial and top floor as residential and vide report dt. 10/04/2018, the total cost is estimated to be Rs. 1,66,25,000/- of which some part has been spent during the financial year 2013-14 at Rs. 9,00,000/-, Rs. 37,25,000/- having been incurred for financial year 2015-16 and Rs. 1.20 Crores during financial year 2014-15. The assessee had already shown the investment in construction during the year at Rs. 1,28,63,311/-. The source of the same is available ....