THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3(1), VISAKHAPATNAM vs. GANTA SRINIVASA RAO, VISAKHAPATNAM

Brief facts of the case for the A.Y.2013-14 are that the assessee had filed his return of income declaring total income of Rs.2,05,60,960/- and agricultural income of Rs.1,28,900/-. Since the return of income was filed beyond the due date for filing the returns of income, the Assessing Officer (AO) issued notice u/s 148 and taken up the case for assessment. During the course of scrutiny proceedings, the AO found that the assessee was the co-owner of land admeasuring 1.45 acres located at old survey No.318/3A1, New Survey No.318/3A1B, 318/3A1C, 318/3A1D &318/3A1E, Nolambur village, Ambattur Taluk, Thiruvallur District of Tamilnadu. Out of total land holding of 1.45 acres, the assessee owns 0.45

Against the order of the AO the assessee went on appeal before the CIT(A) and the Ld.CIT(A) found that the assessee was co-owner for 0.45

With regard to the proportionate share of development charges, after having gone through the JDA, the Ld.CIT(A) observed that the FSI and other expenditure is intrinsically related to the project, therefore, it is nothing but the cost of improvement, hence directed the AO to allow the pro-rata expenses of Rs5.18 crores and recompute the capital gains accordingly.

Against the order of the Ld.CIT(A)the department has filed appeal before this Tribunal. During the appeal hearing, the Ld.DR vehemently supported the order of the AO and argued that since, the assessee has 6 ITA No.417/Viz/2019, CO No.04/Viz/2020 ITA No.423/Viz/2019 and 424/Viz/2019 A.Y.2013-14 & 2014-15 Ganta Srinivasa Rao, Visakhapatnam transferred the entire land to the developer, the entire sale consideration of 19602 sq.ft needs to be considered for the purpose of capital gains and accordingly argued that the AO rightly taxed the capital gains which worked out to Rs.10.78 crores and no interference is called for in the order of the Ld.AO and hence requested to set aside the order of the Ld.CIT(A) and restore the order of the AO.

In respect of pro-rata share of expenses, the Ld.DR supported that OSR charges, premium FSI etc.. are neither related to improvement nor related to transfer of the capital asset, hence argued that they never fall under specific items of deduction u/s 48 of the Income Tax Act, therefore, not allowable deductions and hence, requested to set aside the order of the Ld.CIT(A) and allow the appeal of the revenue.

On the other hand, the Ld.AR relied on the order of the Ld.CIT(A) and argued that the AO erroneously taken the entire land of 19602 sq.ft for computing the capital gains. Since the assessee was supposed to receive 1/3rd share of built up area, therefore he retained 1/3rd share of land, hence, submitted that what was transferred to the developer was only 2/3rd of the land holding, but not the entire land. Hence, submitted that the Ld.CIT(A) rightly directed the AO to consider only 2/3rd share of the 7 ITA No.417/Viz/2019, CO No.04/Viz/2020 ITA No.423/Viz/2019 and 424/Viz/2019 A.Y.2013-14 & 2014-15 Ganta Srinivasa Rao, Visakhapatnam land for capital gains and no interference is called for in the order of the Ld.CIT(A).

With regard to pro-rata share of development expenses, the Ld.AR argued that it is the project cost and as per the agreement, the assessee needs to bear the 2/3 of expenses, however, due to delay, the land owners were forced to bear the entire expenses, thus, transferred the bundle of rights along with additional FSI. Therefore, argued that the bundle of rights accrued to the assessee on account of additional space is nothing but improvement which is related to the transfer of land, hence, argued that the Ld.CIT(A) has rightly directed the AO to allow the sum of Rs.5.18 crores out of Rs.16.72 crores and no interference is called for.

We have heard both the parties and perused the material placed on record. As per the JDA, land owners were entitled for 1/3rd share of constructed area along with 1/3rd share of car parking. Thus, it is clear that out of the total land transferred to the developer, the land owners were entitled for 1/3rd share of land. What was transferred to the developer was only 2/3rds of the land, but not the entire land as rightly observed by the Ld.CIT(A). Therefore, what is to be brought to tax under capital gains is 2/3rd of land area, but not the entire land. Thus, the Ld.CIT(A)has rightly

The next issue is with regard to pro-rata development expenses of Rs.5.18 crores out of total expenditure of Rs.16,72,00,000/-incurred for the project towards additional FSI and development charges. As per the agreement, the assessee has to bear 2/3rd of development and FSI charges. However, due to delay in handing over the site, on the demand made by the developer, the landowners have paid the entire development and additional FSI charges which was not disputed by the AO. It is a fact that the landowners have paid the development charges, additional FSI and other expenditure related to the project. The said development charges were intrinsically related to the project land. The benefit on account of additional FSI would accrue to the landowners also. Thus, the land owners have transferred the bundle of rights for constructing the residential cum commercial project including additional FSI, which is nothing but cost of improvement. Once it is agreed that the additional FSI and development charges are in the nature of improvement, the same required to be allowed as deduction. It is not the case of the department that both land owners

The assessee filed cross objections, supporting the order of the Ld.CIT(A) in respect of computing the capital gains by allowing the related expenditure, cost of improvement of the assets. Since the appeal of the revenue is dismissed, the cross objections of the assessee becomes infructuous, hence dismissed. In the result, appeal of the revenue and cross objections of the assessee are dismissed and the cross appeal of the assessee is allowed.

The assessee filed this cross appeal agitating the addition of Rs.3,50,000/- confirmed by the Ld.CIT(A) relating to bank deposits. The assessee has made the cash deposit of Rs.3,50,000/- on 23.04.2012 and explained the source as self withdrawals made from 05.04.2011 to 12.01.2012 on various dates. The AO did not believe the source as withdrawals since, the assessee has made withdrawals subsequently and viewed that if the assessee is holding the cash on hand, there is no requirement for subsequent withdrawal and relied on the decision of ITAT Hyderabad Bench in the case of Mir Basheeruddin Ali Khan Vs. ITO, Ward- 6(3), Hyderabad. Reported in [2014] 42 taxmann.com 69 and made the addition u/s 69 of the Act.

Against which the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO. Against which the assessee is in appeal before this Tribunal.

We have heard both the parties and perused the material placed on record. The assessee has furnished the details of withdrawals made from the bank and the department did not make out a case that the assessee has spent the above amounts for personal purposes or otherwise made the 11 ITA No.417/Viz/2019, CO No.04/Viz/2020 ITA No.423/Viz/2019 and 424/Viz/2019 A.Y.2013-14 & 2014-15 Ganta Srinivasa Rao, Visakhapatnam investments. The AR relied on the decision of this Tribunal in the case of Mandava Ravi Kumar in ITA No.184/Viz/2015 dated 25.07.2018, wherein, on similar facts, this Tribunal has allowed the appeal of the assessee relating to cash deposits made in the bank. Merely because, the assessee has withdrawn the amounts subsequently, the AO cannot disbelieve the source of cash and it is a fact that a sum of Rs.3,50,000/- withdrawn by the assessee and is available to make use of the same. The case law of Mir Basheeruddin Ali Khan Vs. ITO, Ward-6(3), Hyderabad reported in [2014] 42 taxmann.com 69 (Hyderabad-Trib), the cash deposits of Rs.6,50,000/- were made on 08.09.2014 was stated to be out of periodical withdrawals made by the assessee from February 2002 to September, 2003. Thus, there was time gap of more than one year and the cash was not withdrawn at one go. In the instant case the assessee had withdrawn the amounts in the immediately preceding year on six occasions. Thus the facts of the case law relied up on by the AO is distinguishable and has no application to the instant case, therefore, we are of the view that the assessee’s case is squarely covered by the decision of this Tribunal in Mandava Ravi Kumar (supra) and accordingly, we set aside the order of the Ld.CIT(A) and delete the addition made by the AO. The appeal of the assessee is allowed.

For the A.Y.2014-15 AO found that the assessee made cash deposit of Rs.25,00,000/- in State Bank of Hyderabad account on 18.07.2013 and 19.07.2013 amounting to Rs.10,00,000/- and Rs.15,00,000/- respectively. The source of the cash was explained to be withdrawals made from the bank account on 13.10.2012. The AO did not accept the source of the cash, since the assessee had withdrawn some small amounts subsequent to the withdrawal of cash of Rs.25,00,000/-. Hence the AO viewed that the assessee’s explanation is not satisfactory, accordingly, treated the cash deposit as unexplained and made addition u/s 69 of the Income Tax Act.

Against which the assessee went on appeal before the CIT(A) and the Ld.CIT(A) concurred with the view of the AO, stating that the probability of keeping the withdrawn cash for long time is not convincing in the light of withdrawals made by the assessee subsequently. Hence confirmed the addition and dismissed the appeal of the assessee.

We have heard both the parties, perused the material placed on record. The assessee had withdrawn the cash of Rs.25,00,000/- on 13.10.2012 and there is no dispute on withdrawal of cash. The AO did not give any finding with regard to usage of the withdrawn money. There was 13 ITA No.417/Viz/2019, CO No.04/Viz/2020 ITA No.423/Viz/2019 and 424/Viz/2019 A.Y.2013-14 & 2014-15 Ganta Srinivasa Rao, Visakhapatnam no evidence having made the investments or incurred any other expenses by the assessee. The AO relied on the decision of Mir Basheeruddin Ali Khan Vs. ITO, Ward-6(3), Hyderabad reported in [2014] 42 taxmann.com 69 (Hyderabad-Trib), wherein, ITAT confirmed the addition. In the cited case, cash deposit of Rs.6,50,000/- made on 08.09.2014 was stated to be out of periodical withdrawals made by the assessee from February 2002 to September, 2003 and there was time gap of more than one year and the cash was not withdrawn at one go. In the instant case, the assessee has withdrawn the money at one go on 13.10.2012, which was later deposited. Thus, keeping in view the explanation of the Ld.AR that the assessee kept the cash for some time to meet the unforeseen expenses appears to be satisfactory and the facts of the case relied upon by the AO is distinguishable. This Tribunal in the case of Mandava Ravi Kumar supra on similar facts accepted the source of earlier withdrawals for deposits made in the bank account. Therefore, respectfully following the view taken by the Tribunal, we hold that the explanation of the assessee that the deposits were made out of earlier withdrawals is acceptable. Accordingly, we delete the addition made by the AO and allow the appeal of the assessee. In the result, appeal of the assessee is allowed.

In the result, appeal of the revenue and cross objections of the assessee are dismissed and the appeals of the assessee for the A.Y.2013-14 and 2014-15 are allowed.

The Pr.Commissioner of Income Tax-1, Visakhapatnam

The Commissioner of Income Tax (Appeals)-1, Visakhapatnam 5. तवभागीय प्रतितितर्, आयकर अिीिीय अतर्करण, तवशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्ाफ़ाईि / Guard file आदेशािुसार / BY ORDER ////