THE INCOME TAX OFFICER, WARD-1(4), VISAKHAPATNAM vs. PAKKI TIRUPATHI RAO,, VISAKHAPATNAM

In all the appeals, there was a delay of 25 days in filing the appeals. The Revenue has filed separate affidavits for condonation of delay. I have gone through the affidavits and find that there is a sufficient cause to condone the delay. Accordingly, delay is condoned.

Facts of the case, in brief, are that assessee (HUF) filed its return of income by declaring total income of Rs. 50,516/- for capital gains. The case of the assessee was selected for scrutiny under CASS and assessment was completed on 28/07/2011 by assessing capital gains at Rs. 7,64,090/-. Subsequently, the Assessing Officer has issued a notice u/sec. 148 on the ground that there was an escarpment of income, and after following due procedure assessment was completed u/sec. 143(3) r.w.s 147 of the Act, dated 20/08/2014. In the assessment order, the Assessing Officer has noted that assessee along with his two brothers entered into development agreement with M/s. SRC Constructions on 03/05/2007 for development of the property on sharing system for construction of residential and commercial apartments. The share of the builder and the owners in the built up area are as under:- Particulars Owner’s share Builder’s share 1st 2nd Ground, & ½ of the built-up area ½ of the built-up area floors– for commercial on the eastern side on the western side purpose from north to south from north to south 3rd floor comprises of Entire 3rd floor NIL 4 residential flats 4th floor comprises of Entire 4th floor NIL 4 residential flats

On appeal, ld. CIT(A) reversed the order of the Assessing Officer by observing that deemed consideration to the landlord would be the cost of construction to the developers and directed the Assessing Officer to adopt the consideration as cost of construction to the developer.

On being aggrieved, the Revenue is in appeal before this Tribunal.

The ld.DR has submitted that the Assessing Officer rightly calculated the capital gains by considering the market value of the capital asset transferred on the date of transfer as per SRO, Visakhapatnam and submitted that the order of the Assessing Officer may be upheld.

On the other hand, ld.AR has submitted that cost of construction in the hands of the developer has to be considered.

I have heard both the sides, perused the material available on record and orders of the authorities below. 9. The only issue for consideration in this appeal is to ascertain the capital gains whether SRO value of the land transferred on the date of agreement has to be considered or cost of construction in the hands of the developer has to considered. In this case, assessment was completed u/sec. 143(3) on 28/07/2011 and subsequently, the case was reopened on the ground that there is an escapement of income. According to the Assessing Officer, to ascertain the capital gains the SRO value of the land transferred as on the date of agreement has to be considered and accordingly calculated the capital gains. The case of the assessee is that assessment was reopened on 05/06/2013, in the meantime, the developer has already constructed a building and the assessee has received his share in the complex in lieu of the exchange of 413 sq.yds. as per development agreement, therefore the cost incurred by the developer has to be considered to ascertain the capital gains. The ld. CIT(A) by considering the entire facts and circumstances of the case, came to a conclusion that cost of construction has to be considered in the hands of the developer to ascertain the capital gains. For the sake of convenience, the relevant portion of the order of the ld. CIT(A) is extracted as under:- “4.3 I have gone through the submissions made by the appellant and the order of the A.O. and carefully perused the relevant material placed on record. I found merit in the submission of the appellant. In development agreement the developer would give certain pre-agreed constructed area to the land owner in consideration for the land owner allowing the construction on its land. The land owner was required to pay tax on the capital gains arising on the so-called transfer of land at the time of entering the DA and giving possession of the land to the developer for construction thereon, while it would receive the consideration in form of constructed area. Hence the consideration to the landlord would be cost of construction to the developers. Section 45(5A) was introduced vide Finance Act, 2017, effective A.Y. 2018-19, prescribing the taxability of area-sharing arrangement under a DA in the hands of land owner, according to which the cost of acquisition of the share in the project being land or building or both, in the hands of the land owner shall be the „stamp duty value‟ which is deemed as full value of consideration. Hence, it can be presumed that prior to the above amendment, deemed consideration to the landlord would be cost of construction to the developers. In view of the above the A.O. is directed to adopt the value of consideration as cost of construction to the developers.”

The ld. CIT(A) has suggested the Assessing Officer to adopt the cost of construction in the hands of the developer, in my opinion, ld. CIT(A) correctly decided the issue, therefore, I find no reason to interfere with the order passed by the ld. CIT(A). Thus, this appeal filed by the Revenue is dismissed. & 447/VIZ/2019 11. The facts involved in these appeals are similar to the facts involved in ITA No. 445/VIZ/2019. Therefore, my decision in ITA No. 445/VIZ/2019 shall apply mutatis mutandis to these appeals also. 12. In the result, appeals filed by the Revenue are dismissed. Order Pronounced in open Court on this 28th day of Feb., 2020.