ACIT, CIRCLE-4, PATNA vs. SH. SURESH , PATNA

The ld. CIT(A) erred in deleting addition of Rs.10,32,40,650/- made by the A.O. on account of valuation of investment in construction of commercial tower namely Rupam Tower at circle rate holding that no business activity has been carried out by the assessee.

Any other grounds taken at the time of hearing.

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 assesse. (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.”

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.

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 provisions of section 28(iv) of the I. T. Act, 1961. The learned CIT(A) passed the order after full appreciation of the facts of the case and after application of judicial mind. The learned CIT(A) called for Remand Report from the Assessing Officer but the Assessing Officer did not respond to the Remand Report inspite of reminders having been given by the learned CIT(A). It is hereby submitted that the order of the learned CIT(A) does not call for any inference.

For that in the facts and circumstances of the case, the learned CIT(A) is fully justified deleting the addition of Rs. 10,32,40,650/- made by the Assessing Officer on account of alleged / impugned investment in construction of Rupam Tower. The Assessing Officer has taken imaginary and hypothetical value (Rate) of Rupam Tower. The Assessing Officer has erred in coming to the conclusion that the assessee has derived the effective benefit over the Rupam Tower. The learned CIT(A) passed the order after full appreciation of the facts of the case and after application of judicial mind. The learned CIT(A) called for Remand Report from the Assessing Officer but the Assessing Officer did not respond to the Remand Report inspite of reminders having been given by the learned CIT(A). It is hereby submitted that the order of the learned CIT(A) does not call for any inference.

For that the value of flats sold by the assessee was much depreciated on account of going various litigations. It is submitted that the circle municipal value shown in the sale deed is merely for the limited purpose calculation of stamp duty by the state government. The assessee was engaged in legal dispute over the title of the immovable property in question. Due to dispute attached to the property the assessee did not get good deal. The Assessment Year: 2015-16 C.O. No. 03/Pat/2022 Assessment Year: 2015-16 Shri Suresh Kumar 3 capital gains is to be calculated on the price stated in Registered Sale Deed of the flats. The assessee prays accordingly.

For that the learned ACIT, Circle - 4, Patna has no juri iction over the assessee's case and as such appeal filed by ACIT, Circle - 4, Patna is infructuous and vitiated in law.

For that the assessee craves leave to urge, add or alter any other ground or grounds of this cross objection.”

Brief facts of the case as culled out from the records are that the assessee is an individual and he e-filed his income tax return for Assessment 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 Tower” which is a Assessment Year: 2015-16 C.O. No. 03/Pat/2022 Assessment Year: 2015-16 Shri Suresh Kumar 4 commercial-cum-residential building and five floors of Rupam Towers are rented out to M/s. Vasan Healthcare Pvt. Ltd. and in the residential portion, the assessee is residing. Based on this information and observation of other details, showcause notice issued on 19/12/2017, asking the assessee as to why not the sale consideration received in the form of seven flats located at Vishwamohini Complex be treated as business receipt since the assessee is engaged in business of land development and construction work. The assessee was also asked to reply about the huge investment in “Rupam Tower project”. Further the ld. Assessing Officer also asked the assessee to explain as to how he is entitled to exemption/deduction u/s 54F of the Act. In reply, the assessee submitted that the agreement entered into between him and Dr. A.B. Prasad on 28/04/2010 was never acted upon. The assessee and Dr. A.B. Prasad approached the developer M/s. KHPL and it was agreed that against the land owned by both these persons, M/s. KHPL will construct a residential complex and give certain flats as agreed in the agreement to both the land owners. It was also submitted that the fair market value (FMV) of land as on the date of entering into development agreement, has to be considered as deemed sale consideration of land and after reducing the cost of land, the long term capital gain arising therefrom would be subject to exemption u/s 54F of the Act for the investment in residential flat at Vishwamohini Complex. It was also submitted that the investment in Rupam Tower is only Rs.1.26 Crores (approx.), and the source for the same in mainly from the sale of flats located at Vishwamohini Complex as well as Assessment Year: 2015-16 C.O. No. 03/Pat/2022 Assessment Year: 2015-16 Shri Suresh Kumar 5 other funds available with the assessee. However, the ld. Assessing Officer after making various discussions about the first development agreement dt. 24/08/2010 and thereafter another agreement date 09/06/2011 and also considering the square feet rate of flats given to the assessee by the developer, took a view that the assessee has entered into business project and the gain arising from converting the land and sale of flats is purely business receipts and, therefore, the assessee is not entitled to any indexed cost benefit nor is entitled to any deduction/exemption u/s 54F of the Act. The ld. Assessing Officer also calculated the investment in Rupam Tower on the basis of prevailing 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-