GALLA RAVINDRANATH HUF,HYDERABAD vs. INCOME TAX OFFICERS ,WARD -2, ANANTAPUR

Brief facts of the case that could be gathered from the record are that during the financial year 2014-15 the assessee along with his brother entered into development agreement with M/s Heriall constructions Pvt. Ltd for construction of villas in 400 cents of land and as per the agreement the builder has to construct 64 villas out of which 32 villas were to be given to the landowners share. Assessee filed the return of income for the assessment year 2015-16 on 25/05/2017 admitting NIL income, and the same was processed under section 143(1) of the Income Tax Act, 1961 (for short “the Act”). Subsequently, the assessment was re-opened and according to the learned Assessing Officer, the provisions of section 47(2) of the Act are applicable to the development transaction and after receiving the objections of the assessee for re-opening the assessment and issuing summons under section 131 of the Act and recording the sworn statement, learned Assessing Officer concluded the assessment at Rs. 2,82,09,850/- towards the assessee’s share in the long term capital gains taking the consideration cost as per the development agreement at Rs. 6,000/- per sq.yd. Subsequently, the PCIT, Tirupati on a perusal of record found that the assessment order was erroneous insofar as it is prejudicial to the interest of Revenue inasmuch as the learned Assessing Officer did not make proper verification in respect of the value of land of builder’s share. According to the PCIT, the learned Assessing Officer should have taken the value of land fell to the share of owners at Rs. 13,67,60,500/-

Assessee is, therefore, aggrieved and filed this appeal stating that as per the Joint Development Agreement (JDA), the builder agreed to construct villas and give 50% thereof to the owners and the assessee was under the bonafide impression that under section 45(5A) of the Act, the capital gains tax can be paid only upon completion of construction and handing over the possession and labouring under such impression the assessee did not offer any taxable income in the assessment year 2015-16. Learned Assessing Officer, however, reopened the proceedings under section 147 of the Act and after making thorough examination of the market value of the property by obtaining the same from the office of the Sub-Registrar, the learned Assessing Officer determined the value at Rs. 6,000/- per sq.yd. learned AR submitted that even under section 50C of the Act, the learned Assessing Officer is under an obligation to take into consideration the SRO value and, therefore, the learned Assessing Officer was correct in considering the SRO value as against the cost of construction at a future date. Learned AR placed reliance on the decision in the case of Shri Vivekanand Padegal Vs. ACIT (ITA No. 923/Bang/2018, AY. 2013-14, dt. 03/09/2020 and in the case of PCIT Vs. Smt. Sarojini M. Kushe P.V.S.Beedies (P) Ltd., [2022] 442 ITR 327 (Karnataka) in support of his contention that in this sort of cases, section 50D of the Act is applicable and the cost of construction at a future point of time cannot be taken to be the basis for determining the capital gains.

It is further contended by the learned AR that when once the learned Assessing Officer considered a particular aspect, after verification from the Sub-Registrar’s Office, merely because there was no elaborate discussion to the satisfaction of the learned PCIT, unless and until it is established by the learned PCIT such an order will be neither erroneous nor would it be prejudicial to the interest of Revenue and both the factors must be satisfied independently.

Per contra, it is submitted on behalf of the Revenue that the assessment order nowhere speaks about the basis for the learned Assessing Officer to consider Rs. 6,000/- per sq. yd. as against the capital gains at market value which are about three times than the capital gains assessed in the impugned order. When once the prejudice to the Revenue is caused because of non-verification of this fact by the Learned Assessing Officer, it automatically becomes erroneous insofar as prejudicial to the interest of Revenue.

We have gone through the record in the light of the submissions made on either side. It could be seen from the order under section 143(3) read with section 147 of the Act, the learned Assessing Officer made enquiries in respect of the capital gains by issuing summons under section 131 after re-opening the assessment. He also recorded the sworn statement of the assessee and enquired about the non-disclosure of the assets and liabilities and also the status and utilization of the land in question. Learned Assessing Officer also elicited from the assessee that there was a contract with M/s. Heriall Constructions Pvt. Ltd.

Assessee also produced the letter dated 27/10/2021 addressed to the Income Tax Officer with a request to furnish the basis along with supporting documents for the SRO value of the land adopted in the assessment order for computation of capital gains. Copy of the letter dated 29/11/2017 said to have been issued by the learned Assessing Officer to the assessee is in fact a letter addressed by the Sub-Registrar to the Income Tax Officer where under the Sub-Registrar informed the Income Tax Officer that on verification of the property in question, it was found out that its market value was about Rs. 6,000/- per sq. yd. as on 17/10/2014. This letter of the Sub-Registrar contains the reference of Income Tax Officer’s letter dated 27/11/2017 in -/ITO/W-2/2017-18. It is therefore clear that the learned Assessing Officer made enquiry about the value of the land as on the date of agreement of assessee with M/s. Heriall

On the face of these facts, it cannot be said that the learned Assessing Officer did not make any verification whatsoever in respect of the value of the land for determination of the capital gains accrued to the assessee as on the date of the agreement and, therefore, it cannot be said that the assessment order is erroneous insofar as prejudicial to the interest of Revenue. The twin requirements of section 263 of the Act for the PCIT to exercise the revisionary jurisdiction are not satisfied in this matter. Respectfully following the decision of the Hon'ble Apex Court in the case of Malabar Industrial Company Ltd., 243 ITR 83 (SC), we find it difficult to sustain the order passed under section 263 of the Act and the same is accordingly quashed.

In the result, appeal of the assessee is allowed.