M/S. C.K.GUPTA (HUF),MUJMBAI vs. CIT -17(1) , MUMBAI

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [ in short ‘the CIT(A)’] dated 25/11/2021, for the Assessment Year 2016-17.

The appeal is time barred by 18 days. The assessee has filed an application citing reason for delay in filing of the appeal. After perusal of same we are satisfied that the delay is not intentional but was caused due to bonafide reasons stated therein. The delay in filing of appeal is condoned and appeal is admitted for hearing on merits.

The solitary ground raised by the assessee in appeal is against disallowance of exemption claimed u/s.54EC of the Income Tax Act, 1961 [in short ‘the Act’].

The brief facts of the case as emanating from records are: The assessee is a HUF. The assessee owns a land . The assessee entered into two Joint Development Agreements with two developers viz. Regency Nirman Limited and Om Sidhivinayak Enterprises for development of two separate parcels of land. The land was developed by the developers and the assessee retained the character of owner of the land with no liability to develop the land. The land was reflected in the books of assessee as capital asset. The assessee claimed exemption u/s. 54EC of the Act on the capital gains arising from sale of land. In assessment proceedings the Assessing Officer changed the character of income from sale of land as ‘Business Income’ and consequently rejected the claim of exemption u/s. 54EC of the Act. Aggrieved by the assessment order dated 30/12/2018 passed u/s. 143(3) of the Act, the assessee filed appeal before the CIT(A) inter-alia assailing the findings of Assessing Officer in treating the ‘capital gains’ on sale of land as ‘business income’ and the consequent rejection of claim of exemption u/s. 54EC of the Act. The CIT(A) vide impugned order reversed the findings of the Act in treating income from sale of land as business income. The CIT(A) accepted the contention of the assessee that the income from sale of land is assessable under the head capital gains, however, the CIT(A) rejected assesee’s claim of exemption u/s. 54EC on the ground that the assessee has already claimed the benefit of said exemption. The CIT(A) held that exemption u/s. 54EC on the same parcel of land cannot be allowed in piecemeal. Against the findings of CIT(A) the assessee is in appeal before the Tribunal.

Shri Rajen Damani appearing on behalf of the assessee submitted that theassessee has entered into an agreement with two different developers for development of land. The ld. Authorized Representative of the assessee pointed that a perusal of the Joint Development Agreement dated 28/05/2008 with Regency Nirman Limited at page 81 of the Paper Book would show that the total area of land is 303731.72 sq. meters comprising in Survey Nos.42/1, 42/2, 42/3,42/4/1, 42/4/02, 42/5, 42/6,47/1,50/1/B,50/2, 220/1 & 251/1 & Survey No. 201/1, 223/1,224/1A, 225/1 & 246/1 situated at village Titwala. In the said agreement it is specifically mentioned that area comprising in Survey No.42/4/2 admeasuring 1500 sq. meters and Survey No.42/4/1 admeasuring 3600 sq. mtrs. at Vill.Manda are excluded. The assessee entered into a separate Joint Development Agreement dated 29/12/2011 with Om Sidhivinayak Enterprises in respect of land comprising in survey No.42/4/1 and 42/4/2 situated at Village Manda. The assessee has claimed exemption u/s.54EC in respect of transfer of capital asset in the proceeding Assessment Year only to the extent of corresponding sale of flats. For granting development rights, the assessee is remunerated by Developer by way of 20% share in the net sales proceeds from sale of constructed building on the said land. The capital gains arose only when the flats were sold by the Developer as per Joint Development Agreement in each of the years on transfer of development rights in a phased manner. Thus, as and when the flats are sold the assessee claimed exemption u/s.54EC of the Act to the extent of consideration received. The ld. Authorized Representative of the assessee referred to the proviso inserted to section 54EC by the Finance Act, 2014 w.e.f. 01/04/2015. He submitted that in a particular Assessment Year the exemption u/s. 54EC cannot exceed Rs.50.00 lacs. It is not the case of the Revenue that the assessee has claimed exemption in excess of the limit specified in 2nd Proviso to section 54EC (1) of the Act. The assessee has not claimed exemption u/s. 54EC of the Act twice in respect of same capital asset. He asserted that the assessee is entitled to claim exemption u/s.54EC of the Act on the capital gains arising/accrued and offered to tax during the previous year on sale of flats to the ultimate buyers. He further submitted that in any case, exemption u/s. 54EC of the Act is in respect of different parcels of land mentioned in two different agreement. The land which was subject matter of Joint Development Agreement dated 29/12/2011 has been specifically excluded in Joint Development Agreement dated 18/05/2008 with Regency Nirman Limited.

Per contra, Shri Shambhu Yadav representing the Department vehemently defended the impugned order and submitted that the assessee is not entitled to claim exemption u/s. 54EC of the Act repeatedly on same parcel of land.

We have heard the submissions made by rival sides and have examined orders of authorities below. The issue before us is limited qua assessee’s claim of exemption u/s. 54EC of the Act. The assessee had entered into two separate joint development agreement with Regency Nirman Limited and Om Sidhivinayak Enterprises, respectively. A perusal of the joint development agreements placed on record reveal that the said agreements are in respect of two separate parcels of land. The joint development agreement entered into by assessee with Regency Nirman Limited specifically excludes survey numbers which are subject matter of agreement with Om Sidhivinayak Enterprises. A perusal of the agreement at page 81 of the paper book with Regency Nirman Limited shows that land comprising in Survey No.42/4/2 and 42/4/1 at village Manda were excluded from the said agreement. The other agreement entered into by the assessee with Om Sidhivinayak Enterprises is in respect of land comprising in Survey No.42/4/1 and 42/4/2. Thus, there is no ambiguity with respect to the two parcels of land mentioned in the two different agreements. The details of the property are clearly defined in the respective agreements. The CIT(A) denied assessee’s claim of exemption u/s. 54EC on the ground that assessee cannot claim exemption exceeding Rs.50.00 lacs u/s. 54EC of the Act in respect of land comprising in joint development agreement entered with Regency Nirman Limited. The contention of the assessee is that assessee has restricted the claim of exemption u/s. 54EC of the Act to Rs.50.00 lacs in each of the Assessment Year in which the assessee has received consideration on the sale of flats. We find that the issue has not been examined by Assessing Officer. The Assessing Officer at the threshold had rejected the assessee’s claim of exemption by changing the nature of receipts from ‘capital gain’ to ‘Business Income’. The CIT(A) in para 5.3 of the impugned order has observed that the relevant complete documents were not furnished by the assessee in respect of claim u/s. 54EC of the Act. We deem it appropriate to restore this issue back to the file of Assessing Officer to examine assessee’s claim of exemption u/s. 54EC of the Act in the impugned assessment year. The Assessing Officer shall give reasonable opportunity of making submissions to the assessee before deciding the issue, in accordance with law.

In the result, appeal of the assessee is allowed for statistical purpose.