K A SUJIT CHANDAN,BENGALURU vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE BENGALURU.-5(2)(1), BENGALURU

First, we take up the ITA No.963/Bang/2025 for the AY 2021-22, wherein the assessee has raised the following grounds of appeal:

1 During the course of search operations u/s.132 of the Act at the residence of the assessee, several documents among which the material related to a joint development agreement with the developer, namely M/s. Renaissance Holdings and Developers Pvt. Ltd. were seized. On perusal of the seized material, it was seen that the assessee along with six other parties, in the capacity of land owners enter into a joint development agreement with the developer on 01/03/2007 for a land measuring 13 Acres 24 Guntas situated in Basavanpura Village, Bengaluru. As per the terms of the JDA,

2 After the completion of the JDA, the assessee was handed over his share of flat as per the terms of conditions set out. During the year under consideration i.e. AY 2021-22 the assessee sold 4 villas i.e. B-77, D-103, B-13 and Villa No.15 for a total consideration of Rs.8,96,22,061/- and declared capital gain on the same. On examination of the calculation of cost of acquisition

3 The AO did not accept the contention of per unit cost of Rs.92.99 per sq.ft. because of the following reasons: -

4 Further, it is seen from the calculations adopted by the assessee, the guidance value of the properties sold have not been ITA Nos.962 & 963/Bang/2025 K.S. Akhilesh Babu ITA No.964/Bang/2025 K.A. Sujith Chandan ITA No.965/Bang/2025 K.G. Subbarama Setty Page 10 of 33 considered while determining the sale consideration as per the provisions contained in section 50C of the Act. The guidance value of the property was @ Rs.5,110/- per sq.ft. as seen from the SRO’s registry for stamp duty value. The guidance value prescribed by the SRO from 1/04/2018 till 31/12/2018 WAS Rs.48,000/- per sq.mt. and thereafter the value prescribed is Rs.55,000/- per sq.mt. Converting the same to sq.ft., it comes to Rs.5,110/- per sq. ft.

5 Further, as regardsto the claim of exemption u/s. 54 of the Act, it was seen by the AO that the assessee had invested an amount of Rs.75,47,933/- in constructing residential house property at vacant site owned by the assessee and accordingly claimed exemption u/s. 54 of the Act. The assessee was required to provide proof of actually having incurred the construction expenses and in response to the same the assessee submitted invoices for expenses to the tune of Rs.71,67,207/- and accordingly the AO restricted the claim of exemption u/s. 54 of the Act amounting to Rs.71,67,207/- only. Considering all the above, the AO reworked out the taxable capital gain in the hands of the assessee for the AY 2021-22 as follows:-

6 With regard to the Notional rent on residential property owned, it was seen that the assessee owned one building and four residential villas during the year.On perusal of ITR filed, the assessee had declared rental income only from one building and claimed two residential house properties as self-occupied. The gross annual value of the remaining house properties had not been brought to tax during the year. In response to show cause, the assessee in his reply submitted that apart from the properties already declared and properties which are considered as self- occupied, the assessee owns villas 78, 104 and 04. The assessee suo-moto provided the details of Municipal value and notional rent in respect of above mentioned three properties. The main contention of assessee is that he had entered into agreement of sale for the above two villas on 07/08/2021 and 12/04/2021 and therefore these villa could not be put up for rent and the same should not be considered for calculation of notional rent. The AO did not accept the contention of the assessee since, the assessee being the owner of the House property during the year, the annual value of the property must be determined and brought to tax during the year. Further, the AO observed that the purchaser only agreed to purchase the property and ownership had not been transferred yet as the sale deed was not executed during the year. In view of the same, the notional rent of two properties, that is D-104 and D-04 (D-78 considered as self-occupied) are brought to tax as follows: -

The ld.CIT(A) dismissed the appeal of the assessee by observing as follows: -

Again aggrieved by the order of the ld.CIT(A)-11, Bebgaluru dated 25/02/2025, the assessee has filed the present appeal before this Tribunal. The assessee has filed written synopsis and case law compilation in support of his case.

Before us, the ld.A.R. of the assessee vehemently submitted that the ld.AO had taken the value of cost of acquisition @ 45.91 per sq.ft. instead @ 92.99per sq.ft. has claimed by the assessee by ignoring the cost of acquisition of the area which cover roads, amenities amongst other miscellaneous lands which enables the habitability of the property. The assessee had correctly included the total cost of acquisition of land and distributed the same over the salable area/ built up area as per the agreements with the builders vide Joint Development Agreement. Further, with regard to adoption of guidance value over the actual sale consideration of ITA Nos.962 & 963/Bang/2025 K.S. Akhilesh Babu ITA No.964/Bang/2025 K.A. Sujith Chandan ITA No.965/Bang/2025 K.G. Subbarama Setty Page 15 of 33 villa no.13, the ld.A.R. of the assessee vehemently submitted that as per the third proviso to section 50C of the Act the assessee is entitled to the take actual sales consideration wherein the guidance value is within the range of 110% of the sales consideration of the property. The ld.AO had alsoerred in considering the value towards garden while arriving at sale consideration. Further with regard to difference in investment claimed and having proved with the documentary evidences, the ld. A.R. of the assessee submitted that in the construction& development business, there are certain expenses such as labour charges, petty materials, transportation, supervision exp and allied outlays which often do not carry formal bills or vouchers and hence the difference which was in the range of approx 5.50% should not be discarded. Lastly the ld.A.R. of the assessee with regard to addition of notional income with respect of two villas vehemently submitted that the assessee was unable to sell the properties solely due to the ongoing pandemic situation which severely degraded the assesses’s ability to advertise and find customers. The assessee had in an effort to sale the properties also entered into sale agreements with the parties for both the properties which clearly demonstrate the earnest attempts made by the assessee to sale the properties involved. Further the ld. AR of the assessee also submitted that the assessee had also intention of letting out & earning the rental income but did not find any tenant due to the Covid pandemic and therefore the notional rent should be deleted.

The ld.D.R. on the other had supported the authorities of order below.

We have heard the rival submission perused the material available on record. First, we are adjudicatingthe matters relating to ITA Nos.962 & 963/Bang/2025 K.S. Akhilesh Babu ITA No.964/Bang/2025 K.A. Sujith Chandan ITA No.965/Bang/2025 K.G. Subbarama Setty Page 16 of 33 capital gains on sale of 04 numbers of flats which resulted inthe net addition of Rs.17,96,704/- being the difference of Rs.4,92,69,179/- and Rs. 4,74,72,475/- as calculated by the assessee. It is an undisputed fact that the assessee, along with the other five parties in the capacity of landowners had entered into a Joint Development Agreement on 01/03/2007 with the developer namely M/s. Renaissance Holdings and Developers Pvt Ltd. As per the terms of the JDA, the landowners transferred 61.5% of their ownership in the land in lieu of 38.5% of the super built up area in the form of villas and row house. The assesses’s share in the flats to be received as part of the JDA is 15% of the SBA. During the year under consideration, the assessee sold villa no.B-77, D-103, B-13 and villa no.15 and declared capital gains amounting to Rs. 4,74,72,475/-. It is an undisputed fact that the total cost at which the land was transferred to all the partners was Rs.2,72,00,000/- out of which the owners share being Rs.1,04,72,000/- ( 38.5%). It is also an undisputed fact that the assessee share in the cost of acquisition in the owner’s share is Rs.15,70,800/- (1,04,72,000 X 15/100). The only dispute is with regard to cost per sq.ft. towards the land to be adopted while arriving at the capital gain on the sale of the properties. The assessee himself adopted a rate of Rs. 45.85 per sq.ft. in the return of income filed for the AY 2021-22 however, during the course of assessment proceedings submitted that the correct rate of cost of acquisition towards the land is Rs.92.99 per sq.ft. (1,02,22,000 / 1,09,924 sq.ft.). Theassessee claimed that as per the sharing agreement, the landowners had got undivided share of saleable area of 1,09,924 sq.ft. The AO, on the other hand taken the cost of acquisition@ Rs.45.91 per sq.f.t (1,67,28,000/ 3,64,335.64). We are of the considered opinion that both the Authorities below failed to understand the real issue involved in considering the rate of cost of land to be applied for calculating the ITA Nos.962 & 963/Bang/2025 K.S. Akhilesh Babu ITA No.964/Bang/2025 K.A. Sujith Chandan ITA No.965/Bang/2025 K.G. Subbarama Setty Page 17 of 33 capital gains. Both the Authorities below held that the cost can be claimed only to the extent of what was actually claimed in at the time the JDA was offered toTax which in our opinion is completely incorrect. The proportionate cost of the land amounting to Rs. 1,67,28,000/- was already allowed as deduction while calculating capital gain for the AY 2007-08. What is relevant for the AY 2021- 22 is the remaining proportionate cost of Rs. 1,04,72,000/- to be considered for deduction while calculating the capital gains. Since the actual cost of acquisition amounting to Rs.1,04,72,000/- (assesses’s share 15% amounting to Rs.15,70,800/-) is not in dispute however, we feel that the exclusion of cost of acquisition of the area which covered roads, amenities, common areas amongst other miscellaneous lands which enables the habitability of the said property is not correct. When the sale consideration is determined on the basis of the saleable area/ built up area as per the agreements, we have to decide the propionate cost of saleable area/ built up area only. The value of Rs.45.91 determined by the AO is on the basis of entire land of owner’sarea however, the sale consideration is decided only of 1,09,924 sq.ft. and therefore in our opinion, the cost of land per sq.ft. should be 95.26 per sq.ft. (1,04,72,000/1,09,924) which should be allowed while computing the capital gain. The methodology of reducing the exemption of STCG of Rs.2,50,000/- as calculated by the assessee is not correct as in our view it will not reduce the actual cost of the acquisition incurred for the property.

1 Further, with regard toadoption of the guidance value over the actual sale consideration in respect of villa no.13, the AO had taken the guidance value of Rs.2,32,54,118/- and disregarded the actual sale consideration of property amounting to Rs.2,18,29,631/- while calculating the capital gains.We are of the ITA Nos.962 & 963/Bang/2025 K.S. Akhilesh Babu ITA No.964/Bang/2025 K.A. Sujith Chandan ITA No.965/Bang/2025 K.G. Subbarama Setty Page 18 of 33 considered opinion that as per the third proviso of section 50C of the Act, where the value adopted or assessed or assessable by the stamp valuation authority does not exceed 110% of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48 of the Act, be deemed to be the full value of consideration. In the present case, the sale consideration of villa no.13 was Rs.2,18,29,631/-. The 110% of the consideration received is Rs.2,40,12,594/- whereas the stamp duty value was only Rs.2,32,54,118/-and therefore we of theconsidered opinion that the actual sale consideration so received amounting to Rs.2,18,29,631/- shall be deemed to be the full value of the consideration for the purpose of section 48 of the Act. Accordingly we direct the AO to consider sale consideration of Rs.2,18,29,631/- instead of Rs.2,32,54,118/- as determined in respect of Villa No.13. 9.2 Now with regard to restriction of the claim of exemption under section 54 of the Act to Rs.71,67,207/- only instead of Rs.75,47,933/- as claimed by the assessee, the AO had discarded the balance amount of Rs.3,87,726/-since the assessee during the course of assessment proceedings had submitted the invoices for expenses to the tune of Rs.71,67,207/- only. The ld.CIT(A) also in the absence of bills and vouchers confirmed the disallowance of Rs.3,87,726/- as made by the AO. We are of the considered opinion that in case of construction and development ventures, it is not possible to maintain and preserve the bills/ invoices/ vouchers etc. for each and every component of expenditures such as labour expenses, transportation, petty materials, supervision and other miscellaneous expenditures. These type of expenses often do not carry formal bills and vouchers. Further, taking into consideration the assessee had produced almost 95% of bills and vouchers during

3 Now with regard to AO’s addition of notional income amounting to Rs.71,331/- as the annual rent of two villas kept for sale during the relevant FY, we take a note of the fact that assessee had entered into agreement of sale for the above two villas on 07/08/2021 and 12/04/2021 and therefore these villas could not be put up for rent. Further, before us the ld.A.R. of the assessee vehemently submitted that the assessee was unable either to let out or sale the properties solely due to the ongoing covid pandemic situation which severely degraded the assesses’s ability to advertise and find customers. However, the AO on the ground that as per section 23 of the Act, as long as the assessee is owner of house, the annual value of the properties must be determined and brought to tax.It is an undisputed fact that the assessee wanted to sell these two villas and he had entered into an agreement for sale and for this reason he kept the property vacant. We are of the considered opinion that for the application of section 23(1)(c) of the Act, it is not at all relevant as to whether the property was let out in past or not. If the property is held by the owner for let it out and efforts were also made to let it out, then the properties were covered by provision of section 23(1)(c) of the Act. We are also of the ITA Nos.962 & 963/Bang/2025 K.S. Akhilesh Babu ITA No.964/Bang/2025 K.A. Sujith Chandan ITA No.965/Bang/2025 K.G. Subbarama Setty Page 20 of 33 considered opinion that in case the property is vacant because of inability of the assessee to let out or sale due to the pandemic, then the notional rent should not be added as income of the assessee. In our opinion as the assessee clearly demonstrated that the same was kept for the sale and no one came forward to take on rent during the covid period due to the covid pandemic, the notional rent determined amounting to Rs.71,331/- is unwarranted and accordingly the same is deleted.

In the result appeal filed by the assessee is allowed.

Now, we take up the three appeals related to the Asst. year 2007-08 in which all three assessee being the partners of the erstwhile firm raised the sole issue that whether the capital gain accruing to the assessee on transfer of land under the joint development agreement is a long-term capital gain or a short-term capital gain.

In ITA No.962/Bang/2025 for the AY 2007-08, wherein the assessee has raised the following grounds of appeal:

In ITA No.964/Bang/2025 for the AY 2007-08, wherein the assessee has raised the following grounds of appeal:

In ITA No.965/Bang/2025 for the AY 2007-08, wherein the assessee has raised the following grounds of appeal:

In all these three appeals, the brief facts of the case are that the assessing officer passed an order u/s. 143(3) r.w.s 147 of the Act on 10/02/2015 for the AY 2007-08 by calculating the short termcapital gains on transfer of land under the Joint development agreement dated 01/03/2007 as detailed belowfor ease of reference and convenience-

1 Thus, the sole ground to be adjudicated on merits in the set aside proceedings was whether and gain accruing to the assessee on transfer of land under the joint development agreement is a long-term capital gain or a short-term capital gain. A capital asset is long term capital asset if it is held by the assessee for more than 36 months. The assessee submitted that the land i.e. the matter of joint development, was originally acquired a decade ago by the partnership firm M/s. Komarla Hatcheries, in which the assessee is one of the partners. It was contended that under the partnership law, the firm by itself has no formal existence. Further, the assessee hadsubmitted that, in case of gift or acquisition by will, the holding of the previous owner is considered and even in this case, the holding of the firm should be considered and taxed as LTCG. The period of holding is reckoned from the date of purchase

2 On going through the assessment order, the ld.CIT(A) noticed that the property was originally held in the name of the firm M/s. Komarla Hatcheries in which the assessee is one of the partners. Due to dispute between the partners the land which was owned by the partnership firm was distributed among the partners in their own respective sharing ratios on court settlement. The firm paid the capital gains on the distribution of land to the partners at the notified value of the land. The Partners then entered into a JDA with the developers. The assessee has not disputed the year of the taxability of the capital gains arising on entering into JDA. However, the AO’s action of treating the capital gain as short term capital gain @ 30% instead of long-term capital gain to be taxed @ 20% is the sole issue in the set aside appellate proceedings. The ld. CIT(A) held that thebasic ingredients required for attracting section 45(4) of the Act are: -

Theres should be dissolution of the firm or other wise and 2. Distribution of the assets.

3 On perusal of the relevant provisions of the Act and the written submission of the assessee, the ld.CIT(A) was of the opinion that assessee become the owner of the property once the asset was distributed by a court order and the assessee immediately entered into a JDA with the developer. Thus, the asset was held by the co- owners for a short period which is less than 36 months. Since, the asset was held with the co-owners for a short period, the AO had correctly computed the gain as short term capital gain which is confirmed by the ld.CIT(A). Accordingly Ground No.9 of the appeal was dismissed. Further, with regard to Ground No.10 related to chargeability of interest u/s. 234B of the Act, the ld.CIT(A) was of opinion that it is mandatory and consequential in nature and there is no need for any specific adjudication and accordingly dismissed the appeal of the assessee.

4 Aggrieved by the order of the ld.CIT(A), the assessee has filed present appeal before this Tribunal. The assessee has filed a paper book comprising 91 pages containing therein the copy of the court order along with the compromise petition as well as various case laws relied upon by the assessee.

Before us, the ld.A.R. of the assessee vehemently submitted that the partnership firm were consisting of family members of the assessee only and it is akin to the partition due to the family settlement and accordingly the cost as well as period of holding of the previous owner must be considered for calculating the capital gains.

The ld.D.R. on the other hand vehemently submitted that the property was originally held in the name of firm M/s. Komarla

We have heard the rival submission perusal the materials available on the record. It is an undisputed fact that the assessee was partner in the erstwhile firm M/s. Komarla Hatcheries, which originally owned the land and the partnership firm had transferred the said land to all its partners in their respective ratios and paid the capital gain tax in the AY 2007-08. The assessee entered into a JDA along with other five co-owners in the same AY i.e. AY 2007- 08. The AO had taxed the capital gain arising on signing the JDA @ 30% as short term capital gain and not considered the same as long term capital gain which had to be taxed@ 20% since the asset was held for more than three years.

1 During the course of assessment proceeding, the assessee firstly submitted that there was no transfer in the relevant year and there was no reason to tax the capital gain as the land was continued to be agricultural land and it was not a capital asset with the meaning of section 2(14) of the Act. Before us, the AR of the assessee neither argued this ground taken before the AO nor produced any details & evidence to show that the land in question was agricultural land. Anyway when the land were transferred from the partnership Firm to its partners, the firm had paid the capital gain tax on the Long term capital gain & the assessee had never

2 Undisputedly, the property was originally held in the name of the firm M/s Komarla Hatcheries in which the assessee was one of the partners. Due to dispute between the partners, the land which was owned by the partnership firm was distributed among the partners in their respective sharing ratio by virtue of compromise petition filed before the Civil Court. The partnership firm had paid the capital gains on the distribution of land to the partners which is also not disputed. The Co-owners thereafter entered into a JDA & executed the power of attorney with the developer namely M/s Renaissance Holdings and Developers Pvt. Ltd. on 01/03/2007 in their individual capacity as co-owners & not in the capacity of Partnership firm. Further, on going through the compromise petition, we also take a note of the fact that all the co- owners will receive their share of sales consideration directly from the developer. Thus, once the assets have been distributed to the partners, the partners/co-owners had entered into the JDA in the same year i.e FY 2006-07 relevant for the Asst. year 2007-08. Thus we are of the considered opinion that since the asset was held by the co-owners for a short period i.e. less than 36 months, the AO had correctly computed the gain as short term capital gain. We also agree with the contention of the ld. DR that the decision relied upon by the council of the assessee are totally distinguishable from the fact of the present case and therefore the contention of the A.R. of the assessee is not acceptable. Accordingly we dismiss all these three appeals.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file