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Facts
The assessee, an individual and senior consultant, filed a return for AY 2012-13 and claimed a deduction under Section 54. The case involved a joint development agreement for land where the assessee was to receive flats in consideration. The Assessing Officer (AO) and CIT(A) made additions regarding sale consideration and cost of construction, which the assessee contested.
Held
The Tribunal held that the refundable deposit paid by the promoter should not be added to the sale consideration. It also found merit in allowing the deduction for life interest for a co-owner, as a similar stand was taken in another co-owner's case. The Tribunal further noted that the AO's computation of capital gains involved duplication and was incorrect.
Key Issues
Whether a refundable deposit paid by the promoter can be added to the sale consideration for capital gains computation, and whether the assessee is entitled to a deduction for life interest on par with other co-owners.
Sections Cited
54, 250
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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K
O R D E R Per Padmavathy S, AM:
This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/ National Faceless Appeal Centre (NFAC), Delhi [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 06.05.2025 for AY 2012-13. The assessee raised the following grounds of appeal:
Sudarshan Kumar “1. The order of the NFAC, Delhi dated 06.05.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1076060181(1) for the above mentioned Assessment Year is contrary to law, fact and in circumstances of the case.
The NFAC, Delhi erred in confirming the assessment of total sale consideration received in relation to the transaction with M/s Bhagyyam Constructions at Rs.5,50,76,750/- (appellant's share at Rs. 91,79,458/-) as against the actual consideration received in relation thereto at Rs. 3,61,68,000/- (appellant's share at Rs.60,28,000/-) in the computation of taxable total income without assigning proper reasons and justification.
3. The NFAC, Delhi erred in confirming the action of the Assessing Officer in re-computing the cost of construction of the flats received / allotted over and above the sale consideration received in relation thereto in the computation of taxable total income without assigning proper reasons and justification.
4. The NFAC, Delhi erred in confirming the assessment of the indexed cost of the property sold at Rs. 15,780/- and consequently erred in confirming the assessment of the Capital Gains in this regard in the computation of taxable total income without assigning proper reasons and justification.
5. The NFAC, Delhi failed to appreciate that reporting of the Capital Gains by the appellant forming part of the return of income filed for the assessment year under consideration was correct on various facets and ought to have appreciated that the arbitrary re-computation of the Capital Gains in this regard was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
The NFAC, Delhi failed to appreciate that having placed on record the fact of the sum of Rs. 1,89,18,750/- (3 x Rs. 63,06,250/-) being returned back to the promotor/builder, by 3 of the family members, the assessment of such sum as part of the sale consideration received in relation to the transfer under consideration and the consequential re-quantification of the appellant's share of Capital Gains would vitiate the disputed addition in its entirety.
7. The NFAC, Delhi failed to appreciate that having placed on record the fact of sale consideration received in relation to the sale of UDS measuring about 6576 sq. ft. with the promotor and the construction of four flats retained by the family members, the assessment of the disputed cost of construction over and the above the actual sale consideration received should be reckoned as bad in law.
Sudarshan Kumar 8. The NFAC, Delhi failed to appreciate that assessment of Rs. 15,780/- as the indexed cost of property sold would be contrary to the facts of the present case and further ought to have appreciated that having not examined the details in proper perspective, the impugned order passed in confirming such assessment of the Capital Gains should be reckoned as bad in law.
The NFAC, Delhi failed to appreciate that in any event, the re-quantification of the Capital Gains would have no impact on the taxable total income in view of the appellant having claimed deduction under Section 54 of the Act, which claim was not denied in the scrutiny assessment order, requiring for enhancing the said claim of tax deduction / exemption, thereby vitiating the disputed addition made in this regard in its entirety.
The NFAC, Delhi failed to appreciate that having not examined the documentary evidences filed during the course of appellate proceedings as well as the remand proceedings, the disputed additions made and its sustenance would vitiate the impugned order in its entirety in view of gross violation of principles of legitimate expectation.
The NFAC, Delhi failed to appreciate that in any event, having not independently examined the details pertaining to the computation of Capital Gains, the consequential sustenance of the disputed Capital Gains as income of the appellant was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
The NFAC, Delhi erred in sustaining a sum of Rs. 5,646/- as income of the appellant under the head "Income from Other Sources" in the computation of taxable total income without assigning proper reasons and justification.
The NFAC, Delhi failed to appreciate that the entire computation of taxable total income was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
The NFAC, Delhi failed to appreciate that having not adhered to the prescription of faceless regime, the consequential order passed should be reckoned as bad in law.
The NFAC, Delhi failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.”
Sudarshan Kumar 2. The assessee is an individual and is working as senior consultant in Infosys Ltd. The assessee filed the return of income for AY 2012-13 on 16.10.2012 declaring a total income of Rs. 7,40,785/-. The case was selected for scrutiny to examine large deduction claimed under section 54 of the Act. The assessee has entered into a letter of commitment dated 19.03.2010 along with other co-owners for joint development of a land admeasuring 12580 sq. ft. at Royapettah with M/s Bhagyam Constructions. As per the terms of the agreement the landlord shall sell 6576 sq. ft. of undivided share of land to be used for construction of flats @ Rs. 5500/- per sq. ft. The promoter shall construct 10,268 sq. ft. built up area on the said UDS and collect the cost of construction from the intending buyers of flat. In consideration of this arrangement the co-owners of the land including the assessee shall get four constructed flats admeasuring 9,374 sq. ft. on UDS of 6004 sq. ft. at a cost of the promoters for residential purposes. The assessee while filing the return of income for the year under consideration computed the Long Term Capital Gain (LTCG) as below: Net consideration received : Rs. 3,61,68,000 Less: indexed cost of acquisition : Rs. 64,52,700 : Rs. 2,97,15,300 Add: cost of 4 Flats 9374 sq.ft @ Rs.2000/- sq.ft : Rs. 1,87,48,000 : Rs. 4,84,63,300 Less: 10% -Life interest for Mr.T.K.Balasubramanian : Rs. 48,46,330 Long term capital Gain : Rs. 4,36,16,970 1/6 th share of the assessee : Rs. 72,69,495 Less Deduction u/s.54 : Rs. 91,36,000 Taxable Long term Capital Gains : NIL
The AO during the course of assessment noticed that the promoter has paid deposit to the tune of Rs. 1,89,18,750/- to the land owners and treated the same as part of sale consideration. The AO further added the cost of construction at Rs. 5500/- per sq. ft. The AO also did not give credit claimed at 10% towards life Sudarshan Kumar interest for Mr. T.K. Balasubramanian father of the assessee. Accordingly, the AO recomputed the Capital Gain as under:
Amount of consideration received (3,61,68,000 + 1,89,18,750) : Rs.5,50,76,750 Assessee's 1/6th share : Rs. 91,79,458 Add: 1/6 th share in the cost of construction of 4 new flats-1/6*9374 *5500 : Rs. 85,92,830 Total sale consideration - assesse' share Rs.1,77,72,288 Less: Indexed cost of acquisition: Fair market value as on 01.04.1981 @ Rs.28000/- per ground Cost of 5 grounds 585 Sq.Ft 12585 sq.ft Land sold is 6576 sq.ft 28000/2400-76720 Assesse's share-1/6 = 12780/- 12780x 785/632 (u/s.48(iii)) : Rs. 15,870 Capital gain : Rs.1,77,56,418 Less; Deduction u/s,54 Cost of four new flats -5500 x 9374 = 5,15,57,000 Assessee's 1/6 th share: : Rs. 85,92,830 Net Taxable Long Term Capital Gain : Rs.91,63,588
Aggrieved the assessee filed further appeal before the CIT(A) contending that the deposit amount added to the sale consideration is a refundable one and subsequently returned to the promoter. The assessee also contended the cost of construction being added to the consideration and also the issue of not giving credit towards life interest and cost of acquisition. The CIT(A) dismissed the appeal by holding that “5.4 I have gone through the materialistic facts of the case and contention of the appellant. During the course of appellate proceedings, the appellant has furnished the statement of facts and form no. 35 along with his submission which has been taken on record. The appellant has claimed that he entered into a letter of commitment whereby it was agreed by the promoters and the owners that the owners shall permit the constructions of 6 flats in UDS belonging to the owners and in consideration of which the builders shall construct 4 flats in the UDS owned by the owners at the cost of the builder. In this connection, the appellant has submitted copy of ledger account and letter of commitment before the undersigned.
Sudarshan Kumar 5.4.1 Further, the appellant has blamed the assessing officer by saying that it has duplicated formula by doubling the sale consideration that is added to the cost realized for the UDS of land sold and cost of construction of the building in the 4 flats. He should have taken only the sale consideration of the UDS of land of 6 flats as the cost of construction of the building in the 4 flats given to the owner. However, the appellant has himself failed to provide any calculation in this regard. The appellant has merely made allegations against the Ld. AO without any concrete material. The appellant has further stated that the family sold 6576 sq.ft of undivided share of land out of the total area. In this 6576 sq.ft of UDS sold to promoter, promoter was to build flats at cost of Rs.5500/- per sq. ft for 6 intending buyers costing totally Rs.3,61,68,000/-. The claim of the appellant is unverifiable. The appellant has calculated capital gain on some hypothetical figures without any basis. As per the request of appellant personal hearing through video conferencing was made available on two occasions vide issue of VC link option duly exercised by him, however, the appellant did not attend the VC proceeding either on 02.05.2025 or on 05.05.2025. It is apparent that the appellant has nothing more to say in support of his grounds of appeal and accordingly the appeal has been decided vide above discussion considering the appellant's submissions already made, and the impugned assessment order. It is reiterated that the AO has calculated the capital gain on the basis of evidences available with him which is found justified and the same is sustained. Considering all these, the ground no. 2 of appeal is dismissed.”
We heard the parties and perused the material on record. With regard to the issue of deposit amount given by the promoter being added to the cost of construction, we notice that the same is returned by the assessee during the Financial Year (FY) 2015-16 which fact is substantiated by the ledger a/c of the assessee in the books of M/s Bhagyam Constructions (page 25 of PB). Accordingly, we see merit in the submission of the assessee that the refundable deposit cannot be added to the sale consideration for the purpose of computing the LTCG. On the issue of not reducing 10% towards life interest for father, the ld AR drew our attention to the order giving effect passed by the AO in one of the co-owners pursuant to the order of the Tribunal remitting the appeal, where the AO has given credit for 10% of life interest to Mr. T.K. Balasubramanian. Therefore we see merit in the contention of the ld AR that the revenue cannot take a different stand in the case of the assessee who is a co-owner of the same land.
Sudarshan Kumar 6. We notice that the assessee in the computation has offered the sale consideration by multiplying the UDS of 6576 sq.ft and Rs.5,500 i.e.3.61,68,000. The assessee has added a further amount to the sale consideration, by taking Rs.2000 per sq.ft as the construction cost and multiplied the same by the built-up area. However from the perusal of the computation of LTCG by the AO, we notice that the AO has added the entire built-up area i.e. 9374 sq.ft multiplied by Rs.5,500 to the sale consideration. This in our view is not correct since it is the UDS that is being transferred by the assessee and the construction cost of the built-up area is the deemed additional consideration for the transfer. The net effect of the amount of revised sale consideration may be nil for the reason that the higher amount as arrived at by the AO has also been considered for deduction under section 54. However, the sale consideration taken by the AO if accepted would amount duplication since the it consists of both UDS as well as Built-up area being added for the purpose of sale consideration. To this extent we hold that the computation done by the AO is incorrect and has to be revised. Accordingly we remit the appeal back to AO to recomputed the capital gains as per below directions – i. To delete the addition made to the sale consideration towards refundable deposit ii. To allow claim of deduction at 10% towards life interest for Mr.T K.Balasubramanian iii. To consider the entire sale consideration taken for computing the LTCG, as the amount reinvested for the purpose of allowing deduction under section 54
The amount of sale consideration for the purpose computing the capital gain, and the amount considered for the purpose of deduction under section 54 are the same since the assessee has reinvested the entire consideration in the new flats. Therefore any variation to the cost of acquisition may not have any impact in the Sudarshan Kumar computation of capital gain chargeable to tax. Accordingly the contentions raised by the assessee with regard to reduction in the cost of acquisition done by the AO are academic and left open.
In result the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 04-08-2025.