COMMISSIONE OF INCOME TAX-I CHANDIGARH vs. YOGINDER MOHAN SEHGAL

I.T.A. No.82 of 2012 (O&M) -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.A. No.82 of 2012 (O&M) Date of Decision: April 22, 2014 The Commissioner of Income Tax-I, Chandigarh ... Appellant Versus Yoginder Mohan Sehgal .... Respondent CORAM: HON'BLE MR.JUSTICE SATISH KUMAR MITTAL HON'BLE MR.JUSTICE KULDIP SINGH Present: Ms. Urvashi Dhugga, Advocate, for the appellant. Mr. Akshay Bhan, Senior Advocate, with Mr. Alok Mittal, Advocate, for the respondent. .. SATISH KUMAR MITTAL, J. The revenue has filed the instant appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') against the order dated 03.11.2011 (Annexure A-6) passed by the Income Tax Appellate Tribunal, Chandigarh Bench “B”, Chandigarh (hereinafter referred to as 'the Tribunal') in ITA No.550/Chd/2010, pertaining to the Assessment Year 2005-06, raising the following substantial questions of law:- “(i) Whether on the facts and circumstances of the case, the Hon'ble ITAT has erred in law in Kumar Vinay 2014.05.01 12:46 integrity of this document Chandigarh

I.T.A. No.82 of 2012 (O&M) -2- deleting the addition of Rs. 1,33,54,388/- made by the Assessing Officer after including the consideration received in kind i.e. the value of ground floor/flat in the total consideration received on account of sale of only 60% share in land. The Hon'ble ITAT has failed to appreciate the provisions of section 48 of the Income Tax Act which clearly states that 'full' value of consideration has to be taken into account while computing capital gains. (ii) Whether on the facts and circumstances of the case, the Ld. ITAT has erred in law in inferring that the ground floor flat was received by the assessee in lieu of the transfer of 40% land rights losing sight of the fact that the addition of Rs. 1,33,54,388/- made by the AO in substance relates to transfer of 60% land rights only & that does

not change

the overall additions/computation of capital gains made by the AO.” The brief facts of the case are that originally the assessment of the assessee (who derives income from salary, house property, capital gains and other sources) was framed by the Assessing Officer vide order dated 9.4.2007 (Annexure A-1) under Section 143(3) of the Act at an income of Rs.61,38,784/-. Subsequently the Commissioner of Income Tax initiated the proceedings under Section 263 of the Act against the assessee on the ground that the capital gains declared by the assessee with reference to collaboration agreement dated 04.06.2004 had been accepted by the Assessing Officer without application of mind. After hearing the assessee, Kumar Vinay 2014.05.01 12:46 integrity of this document Chandigarh

I.T.A. No.82 of 2012 (O&M) -3- the assessment order was set aside by the Commissioner of Income Tax vide order dated 22.07.2008 (Annexure A-2) and the matter was remanded to the Assessing Officer for fresh adjudication in accordance with law. The assessee challenged the said order by filing an appeal before the Tribunal which was dismissed vide order dated 27.01.2009 (Annexure A-3). Thereafter, the Assessing Officer re-framed the assessment under Section 143(3) of the Act vide order dated 30.11.2009 (Annexure A-4). By the said order, the Assessing Officer assessed the value of consideration received by the assessee in kind from the collaborator as Rs.1,63,33,333/- and allowed exemption under Section 54 of the Act to the tune of Rs.29,78.965/- and thereafter determined the capital gains earned by the assessee as Rs.1,33,54,368/- on account of his share of 40% over and above what he has declared for 60% share of the property. Aggrieved against the said order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) which was partly allowed by the Commissioner of Income Tax vide order dated 22.02.2010 (Annexure A-5) while holding that under the collaboration agreement the assessee had transferred 60% of the ownership in the plot for a consideration of Rs.1,90,00,000/- on which the capital gains was paid and the addition made by the Assessing Officer of Rs.1,33,54,388/- on account of remaining 40% of the plot could not have been made as the assessee did not transfer that share to the collaborator and retained the same for himself. With regard to penalty proceedings, it was held by the Commissioner of Income Tax that the penalty proceedings are independent proceedings and Kumar Vinay 2014.05.01 12:46 integrity of this document Chandigarh

I.T.A. No.82 of 2012 (O&M) -4- the issue could not be adjudicated in quantum proceedings. The said order was challenged by the revenue by filing an appeal before the Tribunal which has been dismissed by the impugned order dated 03.11.2011 (Annexure A-6).

We have heard the learned counsel for the parties and do not find any illegality in the order passed by the Tribunal as in our opinion the substantial questions of law framed by the revenue in this appeal do not arise in the facts and circumstances of the case. Undisputedly, the assessee entered into a collaboration agreement with the builder M/s Saluja Construction Company Limited on 4.6.2004, according to which, he had transferred 60% share of the land on which the construction was to be raised after demolition of the existing construction. The builder was given right to sell first and second floor, two servant quarters and two car parking spaces and right to use common space and terrace on 2nd floor, and in lieu of all, the builder was to pay a sum of Rs.1,90,00,000/- to the assessee besides construction of the basement, ground floor and servant quarter etc. The assessee received Rs.1,90,00,000/- as consideration for sale of 60% of the plot along with right of the builder to raise the construction and to sell the same to any one. In addition to that, he had received the consideration in kind, i.e., cost of construction of the basement, ground floor, servant quarter etc., which was to be given to him as per the agreement. Undisputedly, the value of construction on basement and ground floor, which was to be given to the assessee, was Rs.29,78,965/-. That was the cost of construction which the assessee received in kind and Kumar Vinay 2014.05.01 12:46 integrity of this document Chandigarh

I.T.A. No.82 of 2012 (O&M) -5- qua that cost of construction, the assessee is entitled to get exemption under Section 54 of the Act. But the Assessing Officer had adopted a novel method in calculating the capital gains. He had obtained the report with regard to total sale consideration of the two floors by the builder which was Rs.2,45,00,000/-; and by taking the said figure, the Assessing Officer calculated the total value of the plot with construction as Rs.4,08,33,333/- and thereafter assessed the cost of 40% of the value of the plot and construction as Rs.1,63,33,333/- and then held that the said amount is the consideration which the assessee has received in kind, and after deducting an amount of Rs.29,78,965/-, i.e. cost of construction which the assessee is entitled for exemption under Section 54 of the Act, the Assessing Officer assessed the capital gains as Rs.1,33,54,368/-. In our opinion, the learned Commissioner of Income Tax (Appeals) has rightly held that there was no justification by the Assessing Officer in computing the capital gains in respect of 40% share in the property in the above manner as the assessee never transferred 40% share to the builder. What he has gained in kind was the constructed portion on the ground floor, the value of which was undisputedly Rs.29,78,965/-. The learned Tribunal while upholding the decision of the Commissioner of Income Tax (Appeals) has rightly observed that the Assessing Officer has completely overlooked the fact that the assessee had transferred only 60% ownership in the property for which he was paid an amount of Rs.1,90,00,000/. The assessee never transferred 40% share in the property to the builder. The said share was kept by him on which the builder constructed the ground floor and has given the same to the assessee after construction. The value of that construction which the Kumar Vinay 2014.05.01 12:46 integrity of this document Chandigarh

I.T.A. No.82 of 2012 (O&M) -6- assessee had received was Rs.29,78,965/- which the assessee was entitled to for exemption under Section 54 of the Act. Thus, there was no justification for adding an amount of Rs.1,33,54,388/- and the said addition has been rightly deleted by the Commissioner of Income Tax (Appeals), and the said order has been rightly upheld by the learned Tribunal. In view of the above, we do not find any illegality in the impugned order and in our opinion, no substantial question of law is arising from the impugned order of the Tribunal. Dismissed. ( SATISH KUMAR MITTAL) JUDGE April 22, 2014 ( KULDIP SINGH ) vkg JUDGE Kumar Vinay 2014.05.01 12:46 integrity of this document Chandigarh