HARMOHAN LENKA,BHUBANESWAR vs. ITO, WARD-4(3), BHUBANESWAR

This is an appeal filed by the assessee against the order of the

Commissioner of Income Tax(Appeals)-2, Bhubaneswar dated 11.6.2018 for the

assessment year 2014-2015.

“1. For that on the facts and in the circumstances of the case the order passed by the AO as well as CIT(A) is arbitrary and bad in law. 2. For that the income computed by the AO under head long term capital gains is very much erroneous and excessive in as much as the sale consideration is in correct; disallowance of cost of improvement is in proper, and deduction allowed u/s.54 is also improper. 3. For that the addition as made under head long term capital gains at Rs.38,32,225/- is not justified.” 3. Facts in brief are that the assessee is an individual and derives income from

long term capital gains. During the assessment year under consideration, the

P a g e 1 | 11 Assessing Officer noticed that the assessee has sold a homestead land measuring

AC 0.607 decimals to Sri Rabindra Kumar Gouda, At- Plot No. EB/30, Stage-V,

Laxmisagar, PO- Budheswari, P.S. Laxmisagar, Bhubaneswar for the sale

consideration of Rs. 1,44,99,600/- as is evident from the deed of agreement for

sale. The Assessing Officer also noticed that the assessee has received the sale

consideration of Rs. 67,20,000/- in cash and balance amount of Rs. 77,60,000/-

through cheque. Against such sale consideration of land, the assessee has claimed

exemption u/s. 54 to the tune of Rs. 71,55,662/- declaring income from LTCG at

Rs. 2,41,834/- in his return of income for the year under consideration. The

Assessing Officer required the assessee to produce the details of such transaction

alongwith the calculation of long-term capital gain as shown in the return of

income. In compliance to same, the assessee produced the purchase deeds,

agreement for sale deed, bank account copies and part documents in support of

exemption claimed u/s.54 of the Act. Out of sale consideration of land at

Rs.1,44,99,600/-, the assessee has shown long term capital gain of Rs.2,41,834/-

after claiming cost of acquisition and cost of improvement at Rs.36,89,239/- and

Rs.30,52,865/-, respectively. Thereafter, the assessee purchased a flat in

Bangalore for a consideration of Rs.67,34,387/- and on payment of registration

fees of Rs.2,43,750/-. The Assessing Officer worked out the taxable long term

capital at Rs.2,46,411.47.

the financial year 2005-06 at Rs.19,52,664/-; assessee incurred conversion stock of

Rs.16,05,840/-; the assessee entered into an agreement with Ravindra Kumar

Gouda to sell the land for a consideration of Rs.1,36,57,500/-; assessee received

P a g e 2 | 11 only Rs.40,00,000/- as advance in cash in June, 2013; balance amount was not

paid to the assessee and, therefore, the agreement for sale was cancelled. In

support of cancellation the assessee submitted a notice given to Gouda on

4.3.2013. Thereafter a fresh agreement was executed with Shri Ravindra Kumar

Gouda on 11.6.2013 for sale consideration of Rs.1,44,99,600/- and earlier cash

received of Rs.40,00,000/- was adjusted and balance amount was required to pay.

Since, Sri Gouda could not make the payment the balance amount, the said

agreement was cancelled and Rs.40 lakhs was refunded to Shri Gouda.

Thereafter, the land was divided into 12 plots and 9 plots were sold to actual users

and three plots were sold to a power of attorney for total consideration of

Rs.74,47,688/- and the taxable capital gain was computed at Nil. On this, the

CIT(A) called a remand report from the Assessing Officer, wherein, the AO has not

given any findings. The remand report was forwarded to the assessee for

rejoinder and the assessee filed rejoinder.

division of land into 12 plots on the ground that the none of the documents are

either notarized or registered with Registrar of property and approval of competent

authorities has not been obtained to divide the lands into 12 plots. He observed

that on the contrary, the agreement with Shri Gouda was notarized, which stand

on much better legal footing as compared to the agreements. He also observed

that regarding the cost of improvement, the assessee could not give any evidence

excepting receipts of Rs.9,777/- and Rs.8,656/- and, accordingly, confirmed the

computation of long-term capital gain at Rs.38,32,225/- by the Assessing Officer.

P a g e 3 | 11

submissions and other relevant papers submitted by the assessee.

made with Shri Rajendra Kumar Gouda on 21.1.2013 to sell the entire land of

A.0.607 for Rs.1,36,57,500/- against which advance of Rs.40 lakhs was received.

He submitted that the agreement was valid till 28.2.2013 and since no sale deed

could be executed till that date, the agreement was cancelled. Ld A.R. submitted

that further a fresh agreement was made with the same person i.e. Shri R.K.Gouda

on 11.6.2013 with the sale consideration of Rs.1,44,99,600/- and earlier advance

amount of Rs.40 lakhs was adjusted and balance was to be made before

execution of sale deed before 30.7.2013. Since the intending buyer could not

arrange the fund, the agreement entered into on 11.6.2013 was also cancelled and

the advance amount of Rs.40 lakhs was refunded to Shri R.K.Gouda. Ld A.R

submitted that after cancellation of said two agreements, the assessee decided to

sell the land by dividing it into small plots to different 12 persons through

registered sale deed. Ld A.R. submitted that out of total land of Ac. 0.607, 12 sale

deed were executed for A.0.478.30 against sale consideration of Rs.74,47,688/-.

Out of which one sale deed was executed on 31.7.2014 for Rs.7,52,700/-

pertaining to assessment year 2015-16. Ld A.R. pointed out that as the land was

divided into small 12 plots, measuring area of A.0.478.30, then balance area of

A.0.128.70 was used for roads and passage. The assessee could not earn or

receive any amount as the remaining area of A.0.128.70 was covered for road and

passage. Ld A.R. submitted that while filing the return of income, the sale

consideration of land was wrongly shown as Rs.1,44,99,600/- although the actual

P a g e 4 | 11 sale price for both the lands received was Rs.74,47,688. He submitted that the

sale deed executed on 31.7.2014 for Rs.7,52,700/- should have been excluded

from computation for the year under consideration as same relates to assessment

year 2015-16. Ld A.R. submitted that the AO as well as the CIT(A) were not

correct and justified in relying on the remand report of the Inspector of Income tax

having several mistakes and in disbelieving the expenditure incurred by the

assessee on improvement of land. Ld A.R. submitted that the assessee actually

incurred expenditure for constructing boundary wall and on improvement of land

by way of levelling and filling of sand giving the land a proper shape. Therefore,

the cost of improvement and indexation and inflation thereon was wrongly not

allowed to the assessee by the authorities below.

21.1.2013, and on 11.6.2013 and submitted that since the sale consideration in

both the agreements were very high and excessive, therefore, the buyer could not

make the payment and deal was not materialized. Ld A.R. submitted that the

assessee has returned the entire advance amount of Rs.40 lakhs to Shri

R.K.Gouda. Therefore, after termination of said agreements, no inference can be

drawn regarding sale consideration on the basis of those agreements. Ld A. R

vehemently pointed out that later on the land was sold to 12 purchasers.

Therefore, no adverse inference can be drawn against the assessee on the basis of

amortized and scrapped sale agreements. Ld A.R. submitted that from the list of

purchasers, it is very much clear that all plots have been sold to different persons

and copies of sale deed reflects that sale consideration received by the assessee is

not less than the stamp valuation. Therefore, the sale of plots cannot be alleged

P a g e 5 | 11 as doubtful by any stretch of imagination. Ld A.R. submitted that the authorities

below have not considered the documentary evidence submitted by the assessee

in a right perspective and even the important factum has been ignored while

making the addition that out of 12 sale deeds, one sale deed was executed in the

subsequent assessment year 2015-16 on 31.7.2014 for sale consideration of

Rs.7,52,000/-. Therefore, the orders of lower authorities are not sustainable and

same may kindly be dismissed.

assessee may kindly be allowed to explain its case before the Assessing Officer to

meet the ends of justice.

authorities below and submitted that sale consideration was shown by the

assessee himself, therefore, same cannot be negated or ignored. Ld D.R.

submitted that the remand report by the Inspector clearly reveals that there was

no activities on improvement of land or construction of boundry wall. Therefore,

the authorities below were right in dismissing the claim of the assessee on the cost

incurred for improvement of land and indexation thereon.

land in the year 2005 and the expenditure was incurred for improvement of land

and also for construction of boundary, filling of sand on the land and levelling of

the same. Ld A.R. submitted that land was sold in converting the same into 12

plots after lapse of 8-9 years during which, boundary wall was damaged and due

to regular rain, the filling of sand and levelling was also vanished. Therefore, the

P a g e 6 | 11 factum of improvement and construction of boundary wall cannot be disbelieved in

the totality of the facts and circumstances of the case. Ld A.R. furnished a chart

mentioning the purchase of land and subsequent sale to 12 persons as below:

Purchase of Land -

Date of Actual price Stamp duty Sl.No Purchase paid Area paid Remarks A. 19.04.2005 Rs. 3,93,550 A.0.322 Rs.1,08,325 Benchmark Value Rs.9,91,120/- B. 27.07.2005 Rs. 8.77,800 A.0.285 Rs.1,40,558 Rs.12,71,350 A.0.607 Rs.2,48,883

Details of Sales - Land Sl.No Date of Sale Name of Buyer Area Consideration 1. 22.06.2013 Santosini Swain A.0.054.00 Rs.8,10,000 2. 03.07.2013 Urmila Pradhan A.0.027.54 Rs.4,15,000 3. 19.08.2013 Deeptimayee Lenka A.0.048.54 Rs.7,26,600 4. 28.09.2013 Tukuna Sahoo A.0.042.10 Rs.6.90,000 5. 07.02.2014 Umesh Ch. Rout A.0.042.00 Rs.7,31,500 6. 31.07.2014 Prasanna Kr. Sahoo A.0.050.18 Rs.7,52,700 A.0.264.36 Area allotted for Roads & passage A.0.57.64 Total Area sold A.0.322 Note : SI. No.4,5,6 were sold through Power of Attorney holder Sunil Kumar Dwevedi. Power of Attorney was executed on 26.08.2013 and at the time of execution of power of attorney assessee receive a consolidated amount of Rs.20,71,288/-. Hence the total amount received for Land A amounts to Rs.40,22,888/- Land -B Sl.No Date of Sale Name of Buyer Area Consideration 1. 22.06.2013 Silpirekha Mohanty A.0.048.44 Rs. 7,26,600 2. 22.06.2013 Bipan Kr. Pattnaik A.0.048.44 Rs. 7,26,600 3. 03.07.2013 Lipsa Tripathy A.0.020.54 Rs. 4,15,000 4. 03.07.2013 Prabhat Kr. Satpathy A.0.027.54 Rs. 4,15,000 5. 03.07.2013 Dusmant Kr. Padhi & Ratikant Padhi A.0.020.54 Rs. 4,15,000 6. 19.08.2013 Manor anj an Swain A.0.048.44 Rs. 7,26.600 A.0.213.94 Rs.34,24,800 Area allotted for Roads & passage A.0.071.06 Total Area sold A.0.285

P a g e 7 | 11 Total area Sold A.0.607 (Land A + Land B ) Total price received Rs.74,47,688/-(Rs. 40.22.888 +Rs.34,24,800)”

by the Bench, ld D.R. could not controvert the fact that the land was sold after

converting into 12 plots and out of 12 plots, sale deed of one plot was executed

during the subsequent assessment year 2015-16 on 31.7.2014 whereas the

authorities below have ignored this fact and entire sale has considered to be held

during the present assessment year 2014-15. Therefore, I have no hesitation to

hold that the authorities below proceeded to decide the case and frame

assessment and subsequent first appellate order on the basis of incorrect fact. I

may also point out that copies of all 12 registered sale deeds placed before the

Tribunal in the form of paper book, spread over 171 pages, were also filed before

the authorities below. From these sale deeds, I apparently noticed that the sale

consideration is not less than the stamp valuation and this fact cannot be ignored

merely because the assessee has due to inadvertent mistake, adopted the wrong

sale consideration on the basis of scrapped second agreement for sale dated

11.6.2013, which was never materialized the actual transaction of transfer of

property.

persons are not registered or notoraised with registrar of property and these

documents do not mention the stamp duty valuation of the plots and that approval

of the competent authorities has not been obtained. On the other hand the

agreements with Sri Gouda are notarized.

P a g e 8 | 11

of sale and execution of sale deed. If the transfer of property is on a future date

and is subjected to further terms and conditions then it is known as an agreement

of sale. An agreement of sale can be generally defined as a memorandum of

agreement where the terms and conditions of a potential contract of sale are

enumerated alongwith the offered consideration and payment details. Whereas a

sale deed is formed if it is subject to an immediate transfer of the property. A sale

deed is considered as a mandatory registered instrument whereas an agreement of

sales differs.

purchaser i.e. Shri Gouda with the offered sales consideration and since Shri

Gouda could not adhere to the agreement on two occasions, the agreements were

cancelled and the advance amount of Rs.40 lakhs was refunded to him by the

assessee. Thereafter, the assessee divided the land into small 12 plots and by way

of registered sale deed transferred the land to the new persons/purchasers.

Hence, earlier agreements to sale cannot be treated as the valid transaction and

the amount shown in those transactions also not valid for the purpose of

computation of capital gains.

were notoraised and the sale deeds for 12 divided plots were not

notorised/registered, on perusal of the sale deeds produced before the Tribunal, it

is evident that the sale deeds are executed in the office of Sub-Registrar,

Bhubaneswar, Dist: Khurda on different dates, placed on record in the paper book

P a g e 9 | 11 and hence, it cannot be said they are not registered. However, earlier agreements

were for sale and those were not final for sale of property.

land by way of filling of sand and also levelling the same, then only the land will be

in a proper shape to attract the purchasers. Hence, the claim of the assessee that

he has incurred expenditure for development of land and also construction of

boundary wall cannot be doubted. It is also seen that earlier the agreement for

sale was executed twice but the same was not materialised and the advance

amount was refunded.

the assessee's contentions may require fresh examination by the Assessing Officer.

Assessee is free to furnish necessary evidence and rely on case law and the

Assessing Officer is directed to examine the sale deeds executed with 12 persons

to compute the long term capital gains. With these observations, the orders of the

A.O. and Ld. CIT(A) are hereby set aside and entire assessment is restored to the

file of A.O. for fresh examination.

has placed a claim u/s.54 of the Act against long term capital gain accrued to him

during relevant assessment year. This claim of the assessee was not also allowed

by the Assessing Officer and the findings of the Assessing Officer were confirmed

by the CIT(A). Since by earlier part of the order, the main issue of long term

capital gain is restored to the file of the AO, consequently, the issue of claim of the

assessee u/s.54 of the Act against long term capital gain is also restored to the file

P a g e 10 | 11 of the AO for fresh adjudication without being prejudiced from the earlier

assessment and first appellate order. The AO is directed to adjudicate the

grievance of the assessee after allowing due and proper opportunity of being

heard to the assessee and keeping in view the entire facts and circumstances of

the case as per scheme of section 54 of the Act.

purposes.

Order pronounced on 05/08/2019. Sd/- (Chandra Mohan Garg) JUDICIALMEMBER Cuttack; Dated 05/08/209 B.K.Parida, SPS

Copy of the Order forwarded to : 1. The Appellant : Harmohan Lenka,Plot No.241, Sashtri Nagar, Unit-04, Bhubaneswar

Sr. Pvt. Secretary, ITAT, Cuttack

P a g e 11 | 11