LALITHA KUMARI PRAKASH CHAND,CHENNAI vs. ACIT NON CORP. WARD 10(1), CHENNAI

PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against

order of the learned Commissioner of Income Tax (Appeals)-12,

Chennai, dated 28.01.2019 and pertains to assessment year

2015-16.

“Conversion of limited scrutiny to complete scrutiny 1. For that the Ld.CIT(A) is not justified in upholding the assessment order passed by the Assessing Officer in spite of the fact that the case of the appellant being selected for

2 ITA No.841/Chny/2019 limited scrutiny was converted into complete scrutiny without the prior approval of PCIT. 2. For that the Ld.CIT(A) erred in confirming the additions and disallowances made by the Assessing Officer in completing the assessment even though the said additions and disallowances were beyond the issues selected for limited scrutiny. Order of assessment barred by limitation 3. For that without prejudice to Ground Numbers 1 and 2, the Ld.CIT(A) erred in not holding that the order of assessment dated 31.12.2017 passed u/s.143(3) of the Act is barred by limitation. Without prejudice to the above legal grounds, on merits the following grounds are raised No sufficient opportunity given by the Assessing Officer 4. For that the Ld.CIT(A) ought to have appreciated that the Assessing Officer has not given sufficient opportunity to the appellant to explain the case on merits. Capital gains arising from JDA 5. For that the Ld.CIT(A) is not justified in holding that Rs.3,64,32,706/- is taxable as short term capital gains instead of long term capital gains. 6. For that without prejudice to Ground Number 4, the Ld.CIT(A) erred in not appreciating that the cost of acquisition to be allowed is more than Rs.1,25,02,755/-. 7. For that without prejudice to Ground Numbers 4 and 5, the Ld.CIT(A) ought to have appreciated that actual

3 ITA No.841/Chny/2019 constructed area sold during the impugned assessment year was only 1835.19 sq ft and not 16670.34 sq ft as taken by the Assessing Officer and consequently full value of consideration to be adopted for computing capital gains will be Rs.60, 17,104/- and not Rs.4,89,35,461- as taken by the Assessing Officer (Ground not before the Ld.CIT(A)). Capital Gains on sale of shares of M/s. Akshaya JMB Properties Private Limited 8. For that the Ld.CIT(A) erred in confirming the action of the Assessing Officer in making an addition of Rs. 12,70,51,132/- under the head long term capital gains. 9. For that the Ld.CIT(A) erred in not appreciating that the actual consideration received by the appellant for the shares transferred was only Rs.4,46,69,825/- and not Rs.13,63,10,512/- as adopted by the Assessing Officer. 10. For that the Ld.CIT(A) ought to have appreciated that there is no provision in the Income Tax Act to enable the Assessing Officer to substitute the full value of consideration arising from the sale of unquoted shares with any other value other than the actual consideration received. 11. For that without prejudice to Ground Numbers 8, 9 and 10, the Ld.CIT(A) failed to appreciate that even going on the basis of the latest value as stated in the assessment order, the value can at best be Rs.419.40 per share as against Rs.3298.50 per share taken by the Assessing Officer.

4 ITA No.841/Chny/2019 12. For that the Ld.CIT(A) failed to appreciate that the Assessing Officer in computing long term capital gains, has erred in computing the cost of acquisition at Rs.10/- per share as against the actual cost of Rs.53.87/- per share. Addition uls.56(2)(vii)(b)(ii) 13. For that the Ld.CIT(A) erred in confirming the action of the Assessing Officer in making an addition of Rs.40,50,100/- u/s.56(2)(vii)(b)(ii). 14. For that the Ld.CIT(A) failed to appreciate that in the facts and circumstances of the case, the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer. 15. For that the Ld.CIT(A) erred in sustaining the addition made by the Assessing Officer without reference to the District Valuation Officer. Addition u/s.50C 16. For that the Ld.CIT(A) erred in confirming the action of the Assessing Officer in making an addition of Rs.6,74,527/- u/s.50C. 17. For that the Ld.CIT(A) failed to appreciate that in the facts and circumstances of the case, the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer. 18. For that the Ld.CIT(A) erred in sustaining the addition made by the Assessing Officer without reference to the District Valuation Officer. Disallowance of exemption claimed u/s.54

5 ITA No.841/Chny/2019 19. For that the Ld.CIT(A) erred in confirming the action of the Assessing Officer in disallowing the exemption of Rs.4,07,52,117- claimed by the appellant u/s.54 of the Act. Disallowance of exemption claimed u/s.54F 20. For that the Ld.CIT(A) is not justified in upholding the action of the Assessing Officer in restricting the exemption u/s.54F to Rs.59,97,000/- as against an amount of Rs.3,16,75,164/-.”

6 ITA No.841/Chny/2019 of undivided share of 73% was offered to tax in the year of

entering into joint development agreement i.e. assessment

year 2012-13. During the year under consideration,

constructed flats belonging to the assessee was sold. The sale

of such constructed flats have also been duly declared for tax

after claiming exemption u/s.54F of the Act in respect of one

residential house purchased in Metropolis. During the year

under consideration, the assessee had also sold 41,325 shares

held by her in M/s.Akshaya JMB Properties Pvt.Ltd. for

consideration of Rs.4,46,69,825/- and sale consideration was

invested in one residential house by virtue of which exemption

u/s.54F of the Act was claimed. During the course of

assessment proceedings, the Assessing Officer noticed that

the assessee has declared capital gain from sale of flats till date

for the year under consideration on the ground that

possession of constructed flats was handed over by the builder

only during financial year relevant to the assessment year

2015-16. Therefore, the Assessing Officer opined that since

capital asset sold by the assessee was held for less than

specified period, the assessee is not entitled for indexed cost

of acquisition and thus, re-computed long term capital gains by

7 ITA No.841/Chny/2019 taking into account sale consideration of Rs.4,89,35,461/- and

allowed cost of acquisition without indexation @ 750/- per sq. on total constructed area sold for whole period, including previous financial years and determined short term capital gain of Rs.3,64,32,706/-.

Assessing Officer towards computation of capital gain on transfer of 27% share in constructed flats for the assessment year 2015-16, even though, flats have been sold for assessment year 2012-13 to 2014-15. It is an admitted fact that

builder started selling constructed area from the assessment year 2012-13 onwards. Accordingly, the assessee had received consideration pertaining to built up area of 27% right from

assessment year 2012-13. Therefore, same needs to be taxed as and when the assessee has sold flats. Although, the assessee had admitted capital gain in respect of all flats sold

during the current year, but in fact, what was required to be taxed for year under consideration is actual consideration received for 1/3rd share of flats sold during the assessment

year 2015-16 amounting to Rs.60,17,104/-.

8 ITA No.841/Chny/2019

the learned CIT(A) submitted that there is no merit in the

arguments of the assessee that only consideration received

towards flats sold during the assessment year 2015-16 needs

to be taxed for the impugned assessment year, because the

assessee herself has admitted short term capital gain for sale

of flats upto assessment year 2015-16 by way of letter dated

06.12.2017, as per which, sale proceeds from construction

have been recognized from assessment year 2015-16, and

later, because final payments have been received during the

course of the year from flat owners and possession was handed

by the builder during the financial year relevant to assessment

year 2015-16. The learned DR further submitted that the

assessee has not raised this issue either before the Assessing

Officer or learned CIT(A), however, for the first time, issue has

been raised before the Tribunal. Therefore, the learned DR

submitted that the assessee cannot be permitted to change her

stand when the issues were not raised before lower authorities.

In this regard, he relied upon certain judicial precedents,

including decision of the Hon’ble Madras High Court in the

case of M/s. Southern Foundation Vs ACIT 324 ITR 76.

9 ITA No.841/Chny/2019

available on record and gone through orders of the authorities

below. There is no dispute with regard to fact that the assessee

had entered into joint development agreement with the builder

M/s.Siddharth Finance & Housing Ltd. on 19.08.2011 and

admitted capital gain on transfer of 73% undivided share of the

land in exchange of 27% built up area for the assessment year

2012-13. It is also an admitted fact that the assessee had

declared capital gain on transfer of 27% built up area for the

assessment year 2015-16, even though, sale of flats took place

right from assessment year 2012-13 to 2015-16. The Assessing

Officer claims that the assessee herself has offered capital gain

on total consideration received for sale of built up area

aggregating 16,670.34 sq.ft. for the assessment year 2015-16

on the ground that final payments have been received for the

impugned assessment year and further, possession of the

building was handed over by the builder for the impugned

assessment year. Except this, the Assessing Officer has never

disputed fact that the assessee has sold flats right from the

assessment year 2012-13 upto 2015-16. In fact, the assessee

10 ITA No.841/Chny/2019 has filed details of sales made in each assessment year, as

per which majority of flats have been sold upto assessment

year 2014-15. Further, for the assessment year 2015-16, the

assessee has sold 1835 sq.ft of super built up area for

Rs.60,17,104/-. Therefore, in our considered view, what is

taxable for the impugned assessment year is consideration

received for transfer of 1835 sq.ft of built up area for

Rs.60,17,104/-, but not on total consideration received by the

assessee for sale of 16,670 sq.ft of built up area, because sale

made during earlier assessment years cannot be brought to tax

for the current assessment year, even though the assessee

makes admission in the return of income filed for relevant

assessment year, because right amount of tax to be collected

for the right assessment year. It is well established principles of

law by decisions of various courts that unless authority of law,

no taxes can be collected from the assessee . Further, income

should be taxed in a particular assessment year, when the

income is accrued or arises to the assessee. In this case,

there is no doubt with regard to fact that for the impugned

assessment year only a sum of Rs.60,17,104/- is received by

the assessee from sale of flats. Therefore, we are of the

11 ITA No.841/Chny/2019 considered view that the Assessing Officer ought to have taxed

consideration received during the assessment year 2015-16

only instead of taxing entire consideration received by the

assessee, including consideration received for earlier financial

years. Therefore, we are of the considered view that the

Assessing Officer as well as learned CIT(A) were erred in taxing

total consideration received by the assessee amounting to

Rs.4,89,35,461/- for the assessment year 2015-16 on the basis

of admission of the assessee. Hence, we direct the Assessing

Officer to consider amount received for the assessment year

2015-16 alone and compute capital gain from transfer and

determine whether it is short term or long term depending upon

period of holding of asset by the assessee.

M/s.Akshaya JMB Properties Pvt.Ltd., the assessee has sold

41,325 shares for consideration of Rs.4,46,69,825/-. The

Assessing Officer noted that value of these shares have been

decided by way of MoU dated 10.05.2014 between the

assessee, existing shareholder, M/s.Akshaya JMB Properties

Pvt.Ltd., rest of the shareholders and purchasing

12 ITA No.841/Chny/2019 shareholders. As per said MOU, one tranche of sale of 26,850

shares has been sold for consideration of Rs.2.95 crores and

price per share works out to Rs.1098.70 per share. Another

tranche consists of 1800 shares was sold for consideration of

Rs.59,37,234/- and rate works out to Rs.3,298.5 per share.

The third tranche of remaining 12,675 shares has been sold for

consideration of Rs.53,15,464/- and rate works out to Rs.419.4

per share. The Assessing Officer, after considering relevant

facts and also taken note of various clauses in MoU opined

that agreement between parties is tool for avoidance of

payment of taxes and thus, adopted Rs. 3298.50 per equity

share as consideration received for transfer of 41,325 shares

and determined total sale consideration of Rs.13,63,10,512/-

and computed long term capital gain of Rs.13,54,59,060/-, after

allowing cost of acquisition.

Assessing Officer as well as the learned CIT(A) erred in

considering full value of consideration for transfer of unquoted

equity shares by replacing actual consideration received by the

assessee for transfer of shares, without appreciating fact that

there is no provision in the Income Tax Act to substitute full

13 ITA No.841/Chny/2019 value of consideration arising from sale of unquoted shares

with any value except actual consideration received. The

learned A.R. further referring to provisions of section 48 r.w.s.

50C and 50D submitted that as per section 48 of the Act, full

value of consideration means actual consideration received

accruing as a result of transfer which cannot be substituted

with fair market value or nominal value, except as provided

u/s50C & 50D of the Act. In this case, there is no dispute with

regard to application of section 50C & 50D of the Act, because

what was transferred is unquoted equity shares by a company.

The assessee has transferred shares as per MoU dated

10.05.2014 and such shares have been transferred in three

tranches for different prices. The assessee has received

consideration by cheque and the purchasers have confirmed

transactions. The Assessing Officer, disregarding all evidences

has arrived at hypothetical value at Rs. 3298.50 per share, on

the basis of amount received by the assessee from buyers and

presumed that the assessee has transferred shares for

consideration of Rs. 3298.50 per share and received excess

consideration in cash, ignoring fact that these shares have been

transferred to different persons.

14 ITA No.841/Chny/2019 9. The learned D.R., on the other hand, supporting order of

the learned CIT(A) submitted that the assessee has

transferred equity shares of unregistered private limited

company to related party and undervalued share price and this

fact has been brought out in the assessment order in light of

asset value of private limited company. The Assessing Officer

has arrived at share price on the basis amount retained by the

assessee for pending consideration and if you consider said

consideration to the percentage of share held by the assessee

in the company, then share price works to Rs.3298.50 per

equity share. Since, the assessee has transferred shares at

lesser price, the Assessing Officer has rightly worked out price

to be received by the assessee for transfer of shares and

computed long term capital gain.

available on record and gone through orders of the authorities

below. There is no dispute with regard to fact that the assessee

has transferred 41,325 equity shares of M/s.Akshaya JMB Properties Pvt.Ltd. for consideration of Rs.4,46,69,825/-. The

assessee has sold first tranche of 26,850 equity shares on

03.07.2014 @ Rs.685/- per share and received consideration

15 ITA No.841/Chny/2019 of Rs.1,83,92,250/-. The said consideration has been received

through bank. The second tranche of 13,475 equity shares has

been transferred @ Rs.1,797 per equity share on 13.11.2014

and received consideration of Rs.2,42,14,575/- and said

consideration is received through bank. The assessee has

transferred final tranche of 1000 shares@ Rs.2,063 per share

on 31.03.2015 and received consideration of Rs.20,63,000/-

through bank. These facts are not disputed by the Assessing

Officer. However, the Assessing Officer has determined full

value of consideration received for transfer of shares on the

basis of MoU dated 10.05.2014 and worked out different rates

of transfer by wrongly interpreting terms & conditions of MoU on

the ground that MoU between the parties is tax avoidance

arrangement.

shareholders dated 10.05.2014 and we find that MoU does not

deal with valuation of equity shares of M/s.Akshaya JMB

Properties Pvt.Ltd., but it only deals with modalities and rights

of respective parties and what is existing shareholders should

do with dividends. Therefore, we are of the considered view that

share price arrived at by the Assessing Officer @ Rs.3298.50

16 ITA No.841/Chny/2019 per share is erroneous, which is not based on any evidences to

suggest that the assessee has received consideration over and

above what was stated in share transfer forms. We further

noted that the Assessing Officer has calculated Rs.3258.50 per

share on the basis of amount paid to the assessee for sale of

26,850 equity shares and argued that the assessee has

received a sum of Rs.2,95,00,000/- for sale of Rs. 25,850/- per

equity share. We find that once again, the Assessing Officer

has wrongly interpreted extracted part of MoU and came to

wrong conclusion that share price in first tranche works out to

Rs.1098.70/- per equity shares. However, fact remains that

extracted part of MoU implies that dividend of Rs.2.95 crores

declared by the company and proceeds of dividend will be

used by purchasing shareholders to buy 26,850 shares from

the assessee, but nowhere in the MoU, it is stated that 26,850

shares will be purchased @ Rs.1098.70 per share. As a matter

of fact, first tranche of sale made on 03.07.2014, the assessee

has received only an amount of Rs.1,83,92,250/- and not

Rs.2,95,00,000/-. Therefore, working arrived at by the

Assessing Officer is completely wrong and without any basis.

The Assessing Officer has worked out second tranche of 1800

17 ITA No.841/Chny/2019 shares sold by the assessee for Rs.59,37,234/- and arrived at

share price of Rs.3298.50 per share. The Assessing Officer,

once again, erred in coming to the conclusion without

understanding terms of MoU between the parties. First of all,

the assessee never sold 1800 shares, which is evident from

number of shares sold to different shareholders. Therefore,

calculation arrived at by the Assessing Officer is completely

wrong. In fact, the assessee has sold 26,850 shares on

03.07.2014, 13,475 shares on 13.11.2014 and finally, 1000

shares was sold on 31.03.2015. Therefore, observations of the

Assessing Officer that another tranche consists of 1800 shares

was sold at Rs.59,37,234/- is completely false and baseless.

Therefore the price worked out by the Assessing Officer on the

basis of assumption of sale of 1800 shares and share price of

Rs.3298.50 per share is illogical and incorrect. Therefore, we

are of the considered view that sale consideration adopted by

the Assessing Officer on the basis of hypothetical working of

equity share price of Rs.3298.50 and adopting said rate to total

number of 41,325 equity shares sold by the assessee is totally

baseless and incorrect. On the other hand, evidences placed by

the assessee clearly shows that the assessee has transferred

18 ITA No.841/Chny/2019 41,325 equity shares on three dates to different persons and

different rates and also received consideration through cheque.

The evidences filed by the assessee further strengthened fact

that entire consideration has been received through cheque and

purchasers have confirmed transactions. The parties have

entered into MoU to set out terms & conditions of sale of

shares, but nowhere specified manner in which share price is to

be determined. Therefore, we are of the considered view that

the Assessing Officer has completely erred in replacing full

value of consideration of Rs.13,63,10,512/- as against actual

consideration received by the assessee at Rs.4,46,69,825/- and

computed long term capital gain and hence, we direct the

Assessing Officer to adopt consideration as received by the

assessee for transfer of 41,325 equity shares of M/s.Akshaya

JMB Properties Pvt.Ltd. for consideration of Rs.,4,46,69,825/-

and compute long term capital gain in accordance with law.

ground of the assessee is cost of acquisition of equity shares of

M/s.Akshaya JMB Properties Pvt.Ltd . The learned A.R. for

the assessee submitted that the Assessing Officer has adopted

Rs.10/- per share as against actual cost of Rs.53.87 per share.

19 ITA No.841/Chny/2019 According to the assessee, actual cost of equity shares

acquired by the assessee works out to Rs.53.87/- per share,

whereas the Assessing Officer has adopted face value of

equity shares @ Rs.10/- per share. The matter needs further

examination from the Assessing Officer. Hence, we set aside

the issue to file of the Assessing Officer and direct the A.O to

reconsider the issue after considering relevant materials and

decide correct amount of cost of acquisition of shares sold by

the assessee.

grounds no.13 to 15 of the assessee appeal is addition

u/s.56(2)(vii)(b)(ii) of the Act. The Assessing Officer has made

addition of Rs.40,50,100/- towards difference in sale

consideration for transfer of UDS in 11 flats devolved to the

share of assessee as per MOU and observed that there is

difference between sale price and market value of flats. It was

explanation of the assessee that the Assessing Officer has

made addition without affording reasonable opportunity of

hearing being heard to the assessee Further, before invoking

provisions of section 56(2)(vii)(b)(ii) of the Act, the Assessing

Officer should have referred valuation to the valuation cell.

20 ITA No.841/Chny/2019 Therefore, pleaded that the matter may be set aside to the file

of the Assessing Officer for further verification.

materials on record, we are of the considered view that issue of

application of section 56(2)(vii)(b)(ii) of the Act, needs to go

back to the file of the Assessing Officer to give one more

opportunity of hearing to the assessee to ascertain correct facts

with regard to market value of flats sold by the assessee and

sale consideration received for transfer of property and thus, we

set aside issue to the file of the Assessing Officer and direct the

Assessing Officer to re-examine claim of the assessee in

accordance with law.

ground no.16 to 18 of the assessee appeal is addition u/s.50C

of the Act. The Assessing Officer has made addition a sum of

Rs.6,74,527/- u/s.50C of the Income Tax Act, 1961, towards

UDS involved in flats sold by the assessee. According to the

Assessing Officer, the assessee has registered 440 sq.ft of

UDS for consideration of Rs.3,30,000/-, whereas guideline

value of 440 sq.ft was at Rs.6,60,000/-. The Assessing Officer

21 ITA No.841/Chny/2019 further noted the assessee has registered UDS @ Rs.750/-

per sq.ft and guideline value was at Rs.1,500/- per sq.ft and

thus, difference amount has been added u/s.50C of the Income

Tax Act, 1961.

material available on record. The learned A.R for the assessee

pleaded for one more opportunity of being heard before the

Assessing Officer to justify her case with reference to guideline

value of the property and consideration for transfer of UDS.

Hence, we set aside the issue to the file of the Assessing

Officer and direct the Assessing Officer to reconsider the issue

in accordance with law.

ground no.19 & 20 of the assessee appeal is disallowance of

exemption claimed u/s.54 & 54F of the Income Tax Act, 1961.

The Assessing Officer has disallowed exemption claimed u/s.54

of the Income Tax Act, 1961, on the ground that the assessee

does not qualify for exemption u/s.54 of the Income Tax Act,

1961, however, allowed deduction for only one flat.

22 ITA No.841/Chny/2019 18. We have heard both the parties and considered relevant

material available on record. The learned A.R for the assessee

pleaded for one more opportunity of being heard before the

Assessing Officer to justify her case to verify eligibility of the

assessee for claim of exemption u/s.54 & 54F of the Act.

Therefore, we are of the considered view that the issue needs

to go back to the file of the Assessing Officer for further

examination of claim of the assessee. Hence, we set aside the

issue to file of the Assessing Officer and direct the A.O. to re-

examine claim of the assessee in accordance with law and

decide the issue.

partly allowed for statistical purposes. Order pronounced in the open court on 20th July, 2022 Sd/- Sd/- ( वी.दुगा� राव) (जी.मंजुनाथ) (V.Durga Rao) (G.Manjunatha) #या�यक सद%य /Judicial Member लेखा सद%य / Accountant Member चे#नई/Chennai, (दनांक/Dated 20th July, 2022 DS आदेश क� ��त*ल+प अ,े+षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु-त (अपील)/CIT(A) 4. आयकर आयु-त/CIT 5. +वभागीय ��त�न2ध/DR 6. गाड� फाईल/GF.