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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M. :
Both these appeals filed by the assessees are directed against a common order of the Commissioner of Income Tax (Appeals)-8, Hyderabad, dated 22-12-2017. As identical issues are involved in both these appeals, we find it convenient to pass a common order.
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Brief facts of the case, as taken from the case of Shiva Prasad Penumasta (ITA No. 308/H/2018), are that the assessee, an individual, filed his return of income for the AY. 2014-15 on 11- 02-2016, declaring income of Rs. 3,81,370/- and the same was processed u/s. 143(1) of the Income Tax Act [in short ‘the Act’] on 26-02-2016. The case was selected for scrutiny under CASS. Accordingly notice u/s. 143(2) of the Act was issued on 20-09- 2016. Subsequently, a notice u/s. 142(1) was issued to the assessee calling for necessary information pertaining to deductions claimed u/s. 54B, 54C, 54D, 54G, 54GA and 54F (as quoted in CASS reasons) etc. In response to the notices, the AR of the assessee appeared from time to time and submitted the information/clarification called for. The assessee’s submissions/ clarifications were verified by the Assessing Officer and accordingly, a show cause notice was issued to the assessee on 09-12-2016.
2.1 In response to the above mentioned show cause letter, assessee submitted his reply on 16-12-2016 wherein it was stated that the capital gain arises only when the developer had done something on his part to implement the provisions of Development Agreement-cum-Irrecoverable General Power of Attorney (DAIGPA) dated 07/10/2013 and it is demonstrated in the assessee’s case that nothing has been done by the developer in this regard. It was, therefore, stated that capital gains shall not be attracted for the AY. 2014-15 and in support of the same, Ld.AR of the assessee relied on the following case law : i. Binjusaria [106 DTR 321] (HYD)(Trib); ii. Fibars Infratech P. Ltd., [98 DTR 281] (HYD)(Trib); iii. Ranjith Reddy in ITA No. 292/Hyd/2012, dt. 07-06-13; iv. K. Radhika & Others [65 DTDR 250] (HYD)(Trib);
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2.2 After considering the submissions of the assessee, the AO relying upon the decision of the ITAT, Hyderabad in the case of B. Mahender Reddy in ITA No. 1567/H/20914, dated 26/06/2015, held that the assessee is liable for capital gains on the said DAIGPA in the year under consideration. Accordingly, AO computed the capital gains at Rs. 1,32,52,469/-, by observing as under: “1.0 During the year relevant to the assessment year 2014- 15 the assessee has given his land of 1 Acr at Survey No.367 of Puppalguda village, Rajendranagar MandaI, Ranga Reddy Dist for development into independent villas bearing size 400 to 500 Sq.yds as detailed in the development agreement dated 07-10-2013 (vide Doc No.14837/13). This Development Agreement was entered with M/s Aparna Constructions & Estate Pvt Limited by the assessee along with other 13 landlords aggregating to a total land of Ac.6-34 Gts. in the survey No.367 of Puppalguda Village, Rajendranagar MandaI, R.R. Dist. to develop into a modern gated community having residential villas etc. This agreement was entered with one of the premier well established developer i.e., M/s Aparna Constructions & Estate Pvt Limited with clear terms and conditions, share of ratios among owners and developer and on receipt of refundable/adjustable deposit from the developer by landlords etc so as to conclude the construction. 2.0 Hence, the development agreement entered by assessee clearly depicts the intent and clear desire of land owners and developer to develop a modern gated residential villas community. In view of these facts, it is clearly qualified as transfer of property as defined under sec.2(47) of the I.T Act, 1961. However, when the same is put across before the assessee/ Authorized Representative of the assessee during the course of the scrutiny proceedings, the assessee's AR contended that the applicable capital gains is not attracted as project is not taken up yet. The assessee's AR's contention is not acceptable as the property is clearly transferred within the liberal meaning of Section 2(47) of the I.T. Act to the developer so as to start subsequent construction works such as obtaining plan approval,
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municipal approval, land levelling and other constructions related activities. Hence, not withstanding the stage of completion I stage of works taken up by the developer, the spirit of the Development Agreement clearly envisage the true transfer of property by the assessee to the developer as stipulated under sec.2(47) of the I T Act, and squarely attracts the capital gains on the basis of the facts of the assesse's case and assessee has clearly admitted the same in the return of income which was filed for the Asst Year 2014-15 holding to the analogy of Transfer of Property in the year of Development Agreement that is A Y 2014-15, under sec.2(47) of the I T Act, read with Sec.53A of Transfer of property Act. Hence, as per the Development Agreement, the capital gain is squarely leviable in assessee's case in view of above discussion and following logical and analytical reasoning as per the provisions of I.T. Act read with the Development Agreement of the assessee as entered on 7-10-2013. (i) The clause(i) of the Development Agreement dated 07- 10-2013 reads as under and clearly proves depicting the possession of the assessee's land by developer as transferred with irrecoverable rights to the developer. Hence, section 2(47) of the I T Act is squarely applicable as it is Transfer of Property leading to levy of Capital Gains in the hands of landlords / transferor as per this Development Agreement. "The owners hereby grant the irrevocable rights to the developer to construct the gated community consisting of independent houses, as per the specifications annexed hereto, subject to the other terms of this agreement and accordingly, deliver the possession of a schedule property of the developer." (ii) Further, the Development Agreement at clause (b) clearly provides rights to enter into subsequent agreement if any for earmarking their respective shares by identifying the same by number of residential units / villas etc so as to complete the project. (iii) Further, at clause (4), it is clearly mentioned that the developer shall obtain necessary permission, clearance etc., as per law to construct the residential gated community without any further reference to the owner on such terms as
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the developer may deem fit to expedite for the developer in the interest of the project for brevity and clarity the clause (4) as quoted is re-produced as under. "The developer shall obtain all the necessary permissions, clearances, service connections, etc., from the authorities / service providers concerned and construct independent Houses, as per the specifications mentioned in schedule-B annexed hereto and as per the sanctioned plan, at the developer's cost. The developer shall be entitled to include any other land for the purpose of developing the same along with the Schedule property, without any further reference to the owners, on such terms as the developer may deem it expedient for the developer, without anyway reducing the Schedule Areas and enter into suitable agreement with third parties. If the developer enters into development agreement with third parties and obtains permission for construction from the competent authority, the land covered by the same permission shall be treated as joint property, subject to the scheme and the developer shall be entitled to allot the Schedule Area out of plotted covered by such permission. " Similarly the other clauses also reinforce the Transfer of Property by the assessee to the developer as per the provisions of sec.2(47) of LT. Act i.e. to say without transfer of property in clear terms by the land lord / assessee, it would be very difficult for developer to start the project for construction as envisaged. Hence, the developer becomes true owner of the property from the date of development agreement and the assessee is virtual owner to the extent of to be constructed area and he is no more a owner of the full land as it existed prior to development agreement falling under 60% share of developer. Hence, the 60% share of land stands completely transferred. to the Developer for a consideration computable as equivalent to the construction cost attributable to 40% of total constructed area falling to the asessee's share. On this analysis the chargeable capital gain is to be calculated in the hands of the assessee by adopting construction cost as obtained per sft as equivalent to transfer of land. Accordingly the same is computed as under as per the provisions of the I.T. Act, as under:
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The total chargeable value of the Rs. 22,82,00,000 Development agreement as per SRO District, Registrar Ranga Reddy The total land given for development Ac. 6.34 guntas or by the assessee along with others equivalent to 274 guntas. 40% of the chargeable value of the Rs.1,33,25,547 development agreement (Land owners share) Proportionate share of the assessee Rs. 1,33,25,547 9,12,8000 x 40 gts /274 guntas Less: Indexed cost of the land Rs. 73,078 foregoing of the assessee (60% of the 1 acre land) 22310 x 939 (13-14) = 1,21,797 x 60% 172 (89-90) (the assessee indexed cost of acquisition at Rs. 1,21,797/- as per computation of total income and the same is restricted 60% (as the foregoing land is 60% Balance (Long term capital gain) Rs. 1,32,52,469
2.3 As regards, assessee’s claim of deduction u/s 54, the AO disallowed the same on the following grounds: “i) The amendment made in the 54F regarding allowance of one residential house as deduction is declaratory and clarificatory in nature and it is applicable for the year under consideration. ii) Even otherwise, the assessee did not complete the construction of the residential house within 3 years from the date of transfer.”
Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A), who has upheld the order of AO.
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Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal:
The order of the learned CIT(A) is not only erroneous both on facts and in law but is perverse in not following the judicial principles of discipline. 2. The learned CIT(A) failed to appreciate that once the fact is clear that the land itself is not converted from agriculture to non-agriculture and the developer has not done anything on his part the case is covered by the decision of the Hon'ble ITAT in the case of Binjusaria and Radhika which is in accordance with the ratio of the Hon'ble Supreme Court in the case of Balbir Singh Maini and thereby erred in upholding the action of the Assessing officer assessing capital gains. 3. Without prejudice to the above, the learned CIT (A) erred in rejecting the ground for allowing deduction u/s.54F though the same is supported by the decision of the Hon'ble ITAT and of Hon'ble High Court of Karnataka. 4. Any other ground that may be urged at the time of hearing.”
Ld. AR submitted that assessee has entered into development agreement on 07/10/2013, as per which, the developer has to convert the agricultural land and then proceed with the development of the property. As per the status report submitted By the developer, it has not even applied for conversion of land in order to commence the development activities. He submitted that there is no transfer as envisaged by the AO and prayed for deleting the addition.
Ld. DR submitted a status report of the project dated 03/01/2019 from the AO on the direction of the Bench. However, he relied on the order of ld. CIT(A).
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Considered the rival submissions and perused the material on record. It is noticed that assessee has entered into development agreement and handed over the land to the developer, but, the developer has not carried out any activities in the land to fulfil its part of obligation. Further, the report of the AO clearly indicates that the developer has not carried out any activity even now and the status of the project is still at the premature stage. It clearly shows that the transfer as per section 2(47)(v) of the Act has not taken place during the AY under consideration. However, assessee has declared in the return of income as transfer taken place in the AY by offering capital gains and claiming the same as deduction u/s 54F. In our considered view, there is no transfer in the AY under consideration. Therefore, long term capital gain has not arisen during this AY. But, we notice that assessee has not filed any revised return of income to claim the above deduction and assessee has filed only revised computation. Whether, this can be claimed by assessee before AO As AO does not have power to entertain the revised computation in which assessee has withdrawn capital gains offered in return of income. But, the appellate authorities have power to entertain the valid/legal claim of the assessee as held in the case of CIT Vs. Pruthvi Brokers & Shareholders (P) Ltd. [2012] 349 ITR 336 (Bom.). In the said case, the Hon’ble High Court has held as under: “The orders of the CIT(A) and the Tribunal clearly indicated that both the appellate authorities had exercised their jurisdiction to consider the additional claim. The conclusion that the error in not claiming the deduction in the return of income was inadvertent could not be faulted for more than one reason. It was a finding of fact which could not be termed perverse. There was nothing on record that militated against the finding. The revenue had not suggested much less established that the omission was deliberate or mala fide. Both the appellate authorities had themselves
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considered the additional claim and allowed it. They had not remanded the matter to the AO to consider it. Both the orders expressly directed the AO to allow the deduction of Rs. 40 lakhs u/s 43B of the Act. The AO had, therefore, now only to compute assessee’s tax liability which he must do in accordance with the orders allowing the assessee a deduction of Rs. 40 lakhs u/s 43B.” 7.1 In the case of CIT Vs. Prabhu Steel Industries Pvt. Ltd., 171 ITR 530, the Bombay High Court – Nagpur Bench, held that the Tribunal and the Appellate Assistant Commissioner were right in the view they took. The claim having been made in the course of the assessment proceedings, the ITO was obliged to entertain it and consider it on merits.
7.2 Therefore, the claim of the assessee is legal and the incidence of transfer has not taken place in the AY under consideration and capital gains tax cannot be imposed on the assessee. Therefore, the ground raised by the assessee is allowed.
As the facts and grounds are materially identical in ITA No. 307/Hyd/2018 in the case of Rama Raju Seetha Penumatsa to that of Shiva Prasad Penumatsa’s case, following the conclusions drawn therein, we allow the grounds raised in this appeal.
In the result, both the appeals under consideration are allowed. Order pronounced in the open court on 13th March, 2019
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 13th March, 2019.
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kv Copy to :
Sri Shiva Prasad Penumatsa and 2) Rama Raju Seetha Penumatsa, C/o. K. Vasant Kumar, A.V. Raghu Ram & P. Vinod, Advocates, 610, Babukhan Estate, Basheerbagh, Hyderabad. 2. Income Tax Officer, Ward-8(1), Hyderabad. 3. CIT(Appeals)-8, Hyderabad. 4. Pr.CIT-2, Hyderabad.
D.R. ITAT, Hyderabad. 6. Guard File.