ITO 25(2)(5), MUMBAI vs. KIRIT RAOJIBHAI PATEL, MUMBAI

This appeal is filed by the learned Income Tax Officer- 25(2)(5), Mumbai, against the order passed by the learned CIT(A)-37, Mumbai dated 05.01.2017.

Earlier, the learned assessing officer has raised several grounds of appeal however later on concise grounds were placed as Under:-

Brief facts of the case shows that the assessee is an individual resident who filed his return of income for Assessment Year 2007-08 declaring total income of ₹1,67,420/- on 24.12.2007. Assessee was assessed under section 143(3) of the Act on 21.12.2009.

The learned assessing officer was of the view that assessee has entered into a development agreement dated 1/12/2006 only provides the developer of permission to facilitate to load additional transferable development rights on plot of land owned by the assessee and to sell the same to purchasers without relinquishing any of the rights in the plot of the assessee at Vallabhnagar CHS Ltd. Thus the payment received by the assessee was treated by the learned AO as a compensation for permitting to load additional transferable development rights in the plot hence the above transaction according to him does not amount to transfer within the provisions of Section 45 of the income tax act hence, he proposed to tax the above sum being the compensation value of ₹ 35,000,000 being the market value of the flat received and the payment made by the development for alternative residential accommodation as income from other sources. At the time of making of the assessment, the learned assessing officer noted that as he is taxing the sum received as income from other sources the issue of applicability of Section 50 C and the claim of deduction u/s 54 and 54 EC have not been looked into. Accordingly he computed the total income of the assessee at Rs 1, 87,87,423 computing the capital gain at rupees nil

Assessee aggrieved with that order preferred an appeal before the learned Commissioner Of Income Tax (Appeals) – 32, Mumbai, who passed an order on 31/3/2010 holding that the amount received by the assessee are capital receipts and are not chargeable to capital gains tax at all. Thus, he held that the action of the learned assessing officer holding the above sum as income from other sources is not correct accordingly, he allowed the appeal of the assessee.

Subsequently the learned assessing officer preferred a rectification application before the learned CIT – A that in case of the brother of the assessee Shri Bharat Patel, who has also received the balance 50% share of the same receipt, the learned CIT – A has passed an order dated 31/3/2010 holding that the gain arising has to be taxed as a capital gain. The AO stated that two different treatments have been given for a single nature of the transaction and therefore there is a mistake apparent from the record.

Based on the same the learned CIT – A noted that order in case of Mr. Bharat Patel was made just before passing the order in case of the assessee and when the taxability of capital receipt in the case of gain arising out of the sale of the same property is already decided in the case of the co-

Based on this order the learned assessing officer passed an order giving effect to the order of the learned CIT – A on 6/9/2010 working out the chargeability of the capital gain tax where the sale consideration of Rs 1,86,20,000 was reduced by the indexed cost of acquisition of ₹ 7,555,170 373 resulting into a long-term capital gain of Rs 1,30,64,827 and as assessee has made investment in various bonds deduction u/s 54 EC of the income tax act was granted to the extent of Rs 1, 30,64,827 and computed the chargeable to tax capital gain at rupees nil.

Assessee challenged the order of the learned CIT – A passed u/s 154 of the income tax act before the

Meanwhile, against the original order passed by the learned CIT – A dated 31/3/2010, learned assessing officer preferred appeal before the coordinate bench in ITA number 5001/M/2010 and the appeal of the assessee in ITA number 6717/M/2010 against the passing of the order by the learned CIT – A u/s 154 of the act was challenged for the same assessment year.

At the time of the hearing both the parties submitted before the coordinate bench that in view of the subsequent developments where the issue has been reopened in case of the assessee by issue of notice u/s

Meanwhile another order in ITA no 6717/M/2020 came to be passed by ITAT on 10th/2/2016 holding that that as on the issue conceivably two opinions could have been about the taxability of the sum and the learned CIT – A has adopted one of the two possible opinions and therefore it cannot be said that the order of the learned CIT – A was suffering from a mistake apparent from record. It was further held that the learned CIT – A has ignored the principle and basic scope of rectification of the order and hence the order passed by the learned CIT – A on 20/7/2010 u/s 154 of the act is not sustainable and hence it was set-aside.

In that circumstances, perhaps the appeal of the assessee in ITA number 6717/M/2010 for assessment year 2007 – 08 was revived before the coordinate bench [ However nothing is available on file or produced before us ] and an order came to be passed on 10th of February 2016 by the

Subsequently, notice under section 147 of the Act was issued on 27.03.2012 served on assessee on 28.03.2012. The assessee filed its return of income in response to that notice on 31.04.2012 at the originally filed income. The assessee requested for the reasons recorded which were supplied on 10.05.2012. Assessee filed objections, which were disposed off on 08.02.2013.

The learned assessing officer has held that undoubtedly the assessee is one of the co owners of the plot having 50% share. When assessee purchased the land originally all rights present and future was embedded into, it was also acquired. As the assessee as one of the co-owners have transferred its transferable development right entitlement to the developers, consideration received by the co-owners in this regard and the consent terms are nothing but an agreement towards transfer of the transferable development rights. Therefore, benefit in the form of transferable development right arising out of the existing land is an immovable property, the transfer of which amounts to transfer of a long-term capital asset and hence liable to be taxed as income Under the head capital gains. For computation of the capital gain the learned AO considered the agreement value of ₹ 3.50 crores and stamp valuation authority determined its market value at

Thus, the long-term capital gain was computed at ₹3,44,82,550/-. The order under section 147 read with section 143(3) of the Act was passed on 28.03.2013 determining the total income of assessee at ₹3,46,49,917/-. 019. Assessee preferred appeal before the learned CIT(A) challenging the reopening of the assessment as well as the addition on merits. On the issue of chargeability of capital gain the learned CIT(A) held that assessee has sold Transferable Development Rights (TDR), which is not chargeable to capital gain tax. The learned CIT(A) followed decision of Hon'ble Bombay High Court in case of CIT vs. Smbhaji Nagar Co.op Hs. Society Ltd. (370 ITR 325) (Bom) and also co-ordinate Bench decision in the case of Ishwarlal Manmohandas Kanakia in ITA No. 3053/Mum/2010. Therefore, he deleted the addition on account of capital gains by passing an order dated 05.01.2017. Before the learned CIT(A), decision in the case of assessee’s brother Mr. Bharat Patel who was also

The learned Departmental Representative vehemently submitted that the issue is squarely covered in favour of Revenue by the decision of co-ordinate Bench in the case of other co-owner of the same property Shri Bharat Raojibhai Patel vide in ITA No. 5058/Mum/2010 dated 31.05.2016. He referred to the paragraph No. 12 of the decision and stated that the transfer of development right was held to be chargeable to tax under the head capital gain. Therefore, the learned CIT(A) has not decided the issue correctly. It was further stated that as on the date of order of the learned CIT(A) i.e. on 05.01.2017, decision of the co-ordinate Bench in the case of brother of assessee dated 31.05.2006 was already there, which was not considered by learned CIT(A) on identical issue. Therefore, the order of the learned CIT – capital is not sustainable.

Learned departmental representative also filed a paper book containing 84 pages wherein the complete assessment orders, appellate orders etc. were placed on record.

The learned Departmental Representative also stated that the assessee did not press the reopening of assessment

The learned Authorised Representative referred to Paragraph No. 3 of order of learned CIT(A) to show the history of the case. He submitted that the Assessing Officer in the original assessment proceedings treated above amount as income from other sources as against the capital receipt claimed by the appellant. On appeal before the learned CIT(A), the claim of the assessee was upheld that the sale of TDR was not chargeable to capital gain tax. However, in the case of the assessee’s brother where it was claimed by the assessee himself that it was chargeable to tax under the head capital gain, it was upheld. Thus, the same 50% of the receipt was claimed by the assessee in his hands as capital gain receipt not chargeable to tax, whereas, balance 50% offered by the brother of the assessee was considered to be transfer of capital asset chargeable to capital gain tax. Therefore according to him there is a basic difference between the decision of in the case of the brother of the assessee and the same cannot be applied in the case of the assessee.

He further referred paragraph number 6.6 of the order of the learned CIT – A. He submitted that the order of the learned CIT – A was rectified by him u/s 154 of the act at the behest of the learned assessing officer as the order passed by the learned CIT in the case of the assessee was

He further referred to paragraph No. 6.8 of the order of the learned CIT(A) stating that there were divergent claims in the case of assessee as well as his brother. It was stated that in case of brother, it was never contended that the amount received on sale of TDR is not chargeable to capital gains. The brother of the assessee always pleaded that it is chargeable to capital gain tax. In the case of the assessee, it was always claimed that the same receipt on sale of TDR is a capital receipt and it is not chargeable to capital gain.

He submitted that the case of the assessee is supported by the decision of the Hon'ble Bombay High Court and co- ordinate Benches. Thus, the decision of the co-ordinate Bench in the case of brother does not apply. He specifically referred to the decision of Hon'ble Bombay

The learned Authorised Representative further submitted that the issue of the reopening has already been decided against the assessee by the learned CIT(A) therefore, the same can be agitated by the assessee at any stage. He stated that this ground of appeal was already there as per ground No. 2 of the appeal. He referred to page No. 2 of the learned CIT(A) where the grounds of appeal are reproduced. He referred to the reasons recorded by the learned Assessing Officer. He submitted that the reopening has been made only for the reason of reinstating stamp duty valuation as deemed sale consideration. The other reason was for the purpose of the cost of construction deduction under section 54 and 54F of the Act. He further stated that the assessee objected against the same and the Assessing Officer passed an order dated 08.02.2013

We have carefully considered the rival submissions on perusal of various orders passed by the learned assessing officer in original assessment proceedings as well as reassessment proceedings, orders of the learned CIT – A in the original appellate proceedings as well as in appeal against the reassessment order, the order of the coordinate bench in case of the assessee where appeal of the assessee as well as the learned assessing officer were dismissed as withdrawn and further the order of the coordinate bench by which the order passed by the learned CIT – A u/s 154 of the act was held to be unsustainable. We have also carefully considered the order of the coordinate bench in case of the brother of the assessee who is also the 50% owner of transferable development rights transferred by the assessee as well as his brother in ITA number 5038/M/2010 for assessment year 2007 – 08 dated 31/05/2016. In that case, the issue was whether the consideration received as a result of

At the time of the hearing the learned departmental representative submitted that ground number 1 and 5 of the appeal are not pressed. Therefore we dismiss the same.

Therefore, we first proceed to decide ground number 2 of the appeal. We would first examine the issue whether the issue is squarely covered by the decision of the coordinate bench against the assessee by the order of the brother of the assessee in ITA number 5038/M/2010 for assessment year 2007 – 08 dated 31/5/2016.

The fact of the case of the brother of the assessee Mr. Bharat Patel shows that he has offered the receipt from sale of TDR as chargeable to tax under the head capital gains. The learned assessing officer treated the same as income from other sources. On appeal before the ITAT, it has been held that the order of the Commissioner of income tax is correct wherein he held that the treatment given by the assessee on transfer of development right under the head capital gain is proper. However, the issue in the appeal of the assessee is that the amount received

Now coming to the issue whether the sale consideration received on transfer of transferable development right was taxable as a long-term capital gain in the hands of the assessee or not. This issue is squarely covered in favour of the assessee by the decision of the honourable Bombay High Court in case of CIT versus Shambhaji Nagar Coop Housing Society Ltd 370 ITR 325 wherein it has been held as Under:-

In view of this, we hold that the consideration received by the assessee on sale of transferable development rights not chargeable to tax under the head capital gain in view of the fact that there is no cost of acquisition.

We are also conscious of the fact that the learned assessing officer when raised the issue of chargeability of the above sum Under the head capital gain, initially the assessee contended that there is no cost of acquisition in respect of the transfer of the asset and therefore that capital gain being the resultant transaction could not be chargeable however letter on the assessee submitted a valuation report during the assessment proceedings of Mr. K C Gandhi & co dated 13/3/1989 valuing the asset as on 31/3/1986 at ₹ 666,000. However the learned assessing officer vide para number 10.4 of his order has stated that

Accordingly, ground number 2 and 3 of the appeal of the the learned assessing officer are dismissed.

In view of our decision in ground number 2 and 3 of the appeal the ground number 4 of the appeal do not survive. Hence, same are dismissed.

In the result appeal of the learned AO is dismissed.