BHAUSAHEB SOPANRAO BHOIR,PUNE vs. INCOME-TAX OFFICER, WARD -9(1), PUNE

आदेश / ORDER

PER R.S. SYAL, VP :

This appeal by the assessee is directed against the order dated

29-11-2022 passed by the CIT(A) in National Faceless Appeal

Centre (NFAC) u/s.250 of the Income-tax Act, 1961 (hereinafter

also called ‘the Act’) in relation to the assessment year 2016-17.

of addition of Rs.3,43,92,718/-.

assessee was selected on the basis of AIR information about the

assessee having made large investment in property as compared to

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total income. The Assessing Officer (AO) observed from the AIR

information that the assessee, along with other co-owners, entered

into a development agreement with M/s. Kunal Realty on

22-01-2016 for a consideration of Rs.10,31,78,154/- in respect of

land situated at Gat No.164, Hissa No.6, Chinchwad. The

agreement was for transfer of their rights in the land in lieu of

receiving constructed area in the developed property. Since the

assessee had not declared any capital gain on such transaction of

transfer of right in the land to the developer, the assessee was called

upon to explain as to why income u/s.45 of the Act be not

computed. The assessee denied any liability towards capital gains

by submitting that though the Agreement was entered into with M/s.

Kunal Realty but there was some internal problem as a result of

which the transaction could not materialize. It was further stated that

possession of the land was still with him. The AO did not accept

the assessee’s contention on the ground that the development

agreement executed on 22-01-2016 was duly registered on

25-01-2016 after paying due stamp duty. Considering the assessee’s share at 1/3rd and no further detail coming to highlight the cost of acquisition, the AO treated the assessee’s share of 1/3rd of

stamp value at Rs.3,43,92,718/- as capital gain. The ld. CIT(A) did

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not provide any relief, against which the assessee has come up in

appeal before the Tribunal.

material on record, it is found as an admitted position that the

assessee, along with other co-owners, entered into development

agreement with M/s. Kunal Realty on 22-01-2016. This agreement

was duly registered with stamp value of Rs.10.31 crore on which

stamp duty of Rs.61,93,000/- and registration fees of Rs.30,380/-

was paid by M/s. Kunal Realty. A copy of the registered agreement

has been placed at page 7 onwards of the paper book. This

agreement, whose English translation has been provided at page 198

onwards of the paper book, provides through clause (EE) of the

preamble that the Vendors had obtained Industrial Exemption order

from Hon’ble Saha Sanchalak Udyog and Vice Secretary

Government of Maharashtra in accordance with Urban Land

(Ceiling and Regulation) Act for the first time in year 1986 but in

the year 2001, the entire land was declared as non-vacant land.

However, in other rights column of 7/12 extract, a remark has been

given “said property is entitled for exemption order” but the

Vendors needs to get deleted said remark within three months.

Clause (F) of the preamble further refers to encroachments on the

said property on account of use by the third persons, which were to

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be taken back. It also provided that if any area was required to be

given to the Trespassers, or third persons against compromise with

them, then the complete responsibility of the same was that of the

vendor no. 2(i.e. the assessee). Clause 6.2.1 of the registered

development agreement provides that : “The said Developer shall

do construction for the vendor on the said property according to the

sanctioned plans….. The aforesaid agreed consideration in the

nature of final constructed unit has to be given to the Vendors only

on the complete fulfillment of conditions mentioned in para 1 and 2

herein above”. Clause 6.2.3 of the agreement further states that: `the

said construction shall be started within three months and shall be

completed within 36 months of registering the development

agreement similarly cancelling the remark of ‘Entitled for

exemption order under Urban Land (Ceiling and Regulations) Act,

sanctioning of the plans of the proposed building, obtaining the

permission of Non Agricultural Usage.’ Clause 8.1.7 of the

agreement further states that: “In case of any objection regarding

the ownership and possession of the said property, its entire

responsibility with cost and consequences thereof shall be our’s.

We fully indemnify and keep indemnified the developer in such

case and till complete clearance of such objection, we will not ask

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for any consideration either in cash or kind and it will not become

due”.

agreement clearly indicates that the assessee along with other co-

owners transferred development rights of the land to M/s. Kunal

Realty. It was the obligation of the assessee to get the proper

clearances and do the needful qua 7/12 extract and also in respect of

exemption order. It is also clear that the developer agreed to

discharge consideration in the nature of giving finally constructed

units only on the complete fulfillment of the above conditions.

The ld. AR contended that no possession of land took place

pursuant to the development agreement because the above

conditions could not be fulfilled by the assessee.

deposited a sum of Rs.1.54 crore in the office of Senior Divisional

Electrical Engineer towards estimated cost of work of shifting 110

KV tower line in respect of the property under consideration. On

one hand M/s. Kunal Realty paid Rs.1.54 crore to Electricity

department and also stamp duty of Rs.61.93 lakh at the time of

registration of the transfer of development agreement, on the other

hand, there is a claim by the assessee that the possession of the said

land was and has not been transferred to M/s. Kunal Realty. A

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confirmation letter dated 20-05-2023 from M/s. Kunal Realty has

been placed on record as per which the possession of land was still

not transferred because of encroachment by school and other few

parties not having been cleared. It further states that the

development activities on this land have not been started. On a

specific query, the ld. AR admitted that Kunal Property has not

taken up any civil proceedings against the assessee for recovery of

the amounts spent or cancellation of the agreement.

cannot be decisive as to the `transfer’ inasmuch as there can be a

transfer of an encumbered property as well resulting into liability

towards capital gains. If a buyer purchases an encumbered property

and takes upon himself the task of removing the encumbrances, it

will still amount to transfer. On the other hand, if the transfer of an

encumbered property has an obligation attached with the seller to

remove the encumbrances, then one needs to see the consequences

of such non-removal. If the agreement provides for non-removal of

the obligations leading to cancellation of the agreement of transfer

after a certain time frame, then the transfer will not take place till

the encumbrances are removed within the stipulated time frame. If

the consequences are that the seller will pay some damages as a

quid pro quo of non-removal, then the transfer will not be impacted

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at that stage itself. This deciphers that `transfer’ does not depend on

handing over per se `possession’ or non-possession.

certain pages of a petition filed by the assessee’s sister against M/s.

Kunal Realty staking claim in the said property. That is also in the

shape of additional evidence.

development rights were transferred by the assessee in respect of the

land, on the other hand, there are certain other circumstances

suggesting to the contrary. At any rate, there has to be some stage

of transfer, if the deal is not called off, as is the case under

consideration. Since the additional evidences have been placed on

record for the first time and have some bearing on the issue, we are

of the considered opinion that it would be just and fair if the

impugned order is set aside and the matter is restored to the file of

the AO. We order accordingly and direct him to decide this issue

afresh in the light of additional evidences which the assessee has

placed on record. Needless to say, the assessee will have liberty to

lead any further evidence in his defence and be allowed reasonable

opportunity of hearing in the fresh proceedings.

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confirmation of addition of Rs.4,95,37,200/- made by the AO by

invoking provisions of section 56(2)(vii)(b) of the Act.

copy of Sathekhat (Sale deed) registered with Joint Sub Registrar,

Haveli-17. As per this Sathekhat, the assessee purchased a piece of

land at Sy.No.24, Balewadi, Haveli, Pune for a consideration of

Rs.1.85 crore. Circle rate of the land was Rs.6,80,37,200/-. The

AO observed that immediately after entering into agreement for

purchase, the assessee also entered into simultaneous agreement to

sell the same property to one Mr. Ravindra N. Sakla, as per the

terms of which Mr. Sakla paid a part consideration to the sellers of

the assessee. The assessee was called upon to explain as to why the

provisions of section 56(2)(vii)(b) of the Act be not invoked in

respect of the difference between the stamp value and declared

consideration in sale (Sathekhat) executed through registered deed.

The assessee submitted that the purchase was not complete. The AO

observed that after the purchase of land, the assessee entered into an

agreement to sell the same and hence the assessee’s claim that the

purchase was not complete, was wrong. He invoked the provisions

of section 56(2)(vii)(b) of the Act and added a sum of

Rs.4,95,37,200/-, being, the difference between circle rate of the

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land and the declared consideration of Rs.1,85,00,000/-. No relief

was allowed in the first appeal.

relevant material on record, it is observed that the assessee did

purchase the land at Survey No.24, Balewadi, Haveli, Pune through

a registered sale deed in the month of July, 2015. The contention of

the ld. AR that the parties, who sold the land to the assessee, were

not the real owners, in our considered opinion, does not carry any

force because agreement to sale cannot be registered with non-

owners as the sellers. Since in this case, a registered agreement to

sale has been executed between the assessee and the sellers with the

photographs and thumb impressions of all the parties properly

placed thereon, we cannot accept the contention that the parties

shown as sellers were not the real owners. But for such persons

being owners, no sale deed could have been registered. A copy of

the registered agreement to sale has been placed on record at page

30 onwards of the paper book, which clearly indicates the payment

of registration fees at Rs.30,380/- with payment of stamp due on the

stamp value of the property at Rs.6,80,37,200/- as against the

declared purchase consideration of Rs.1.85 crore. The fact that the

land was actually purchased from the true legal owners is further

corroborated by the fact that the assessee simultaneously agreed to

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sell the same property to another person on the same day itself. All

these facts clearly establish that the assessee did purchase the land at

Balewadi at the declared consideration of Rs.1.85 crore. Section

56(2)(vii)(b) is patently attracted in this case as per which the

difference between the stamp value and the declared purchase

consideration is liable to be added in the hands of the assessee.

raised before the ld. CIT(A), as has been reproduced at page 3 of the

impugned order, challenging the making of addition u/s.

56(2)(vii)(b) without making a reference to the Department

Valuation Officer as required by the proviso after sub-clause (c) of

section 56(2)(vii)(b). This shows that the assessee did raise the

issue before the ld. CIT(A) about the stamp value of the property at

this high level and hence the necessity to make a reference to the

DVO. It further goes without saying that first appeal is a

continuation of the assessment proceedings. The third proviso to

section 56(2)(vii)(b) provides that where the stamp value of the

immovable property is disputed by the assessee on the ground

mentioned in section 50C(2), the AO may refer the valuation of

such property to the Valuation Officer. The word `may’ in such

provision has been interpreted as `shall’ in many cases, making it

mandatory on the part of the AO to make a reference to the DVO,

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where the assessee asserts that the stamp value is excessive. The

additional ground raised before the ld. CIT(A) in this regard has

remained undisposed off, which in our considered opinion, is not

correct. Going with the mandate of the third proviso to section

56(2)(vii)(b), we are of the considered opinion that it would be in

the fitness of things if the impugned order on this score is set aside

and the matter is remitted to the file of the AO for making a

reference to the Departmental Valuation Officer for determining the

value of the property afresh. It is thereafter that the computation of

capital gain will be done by the AO after allowing a reasonable

opportunity of hearing to the assessee.

raised an additional alternative ground contending that deduction of

cost of acquisition should be given in the computation of the capital

gain. It is seen that the AO computed capital gain at the gross value

of stamp value without allowing any deduction towards cost of

acquisition and cost of improvement etc. It is axiomatic that capital

gain does not refer to taxing the gross receipt. Section 48 of the Act

clearly provides the mechanism for computation of capital gain by

stating that cost of acquisition of the asset and cost of any

improvement should be reduced from the full value of

consideration, in addition to the expenditure incurred wholly and

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exclusively in relation to the transfer. It is, therefore, directed that

while computing the capital gain in the hue of the above

observations, the AO shall also grant deduction towards cost of

acquisition etc. of the asset.

Order pronounced in the Open Court on 30th May, 2023.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 30th May, 2023 सतीश

आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The respondent 2. 3. The Pr.CIT concerned 4. DR, ITAT, ‘A’ Bench, Pune गाड� फाईल / Guard file. 5.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

13 ITA No.74/PUN/2023 Bhausaheb Sopanrao Bhoir

Date 1. Draft dictated on 29-05-2023 Sr.PS 2. Draft placed before author 30-05-2023 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *