VENUGOPAL NAIDU PUSHPARAJ ,BANGALORE vs. INCOME TAX OFFICER WARD-1(3), BANGALORE

PAN NO : AFJPPI1140C APPELLANT RESPONDENT Appellant by : Shri H. Guruswamy, A.R. Respondent by : Smt. R. Premi, D.R. Date of Hearing : 07.04.2021 Date of Pronouncement : 16.04.2021 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by the assessee is directed against order of the CIT(A) dated 30.6.2017. The assessee has raised the following grounds of appeal:

1. The impugned Appellate order dated 30-06-2017 passed by the Learned CIT(A), is opposed to law, facts and circumstances of the case.

2. The Ld. CIT(A) has erred in holding that the Appellant is not entitled for cost of construction of the 7 flats sold on the ground that the Appellant has not incurred any expenditure for construction of the flats without appreciating the fact that the Built-up area received was in lieu of the land transferred in favour of the Developer.

4. The Appellant craves leave to add, alter, amend and delete any of the grounds at the time of hearing. 2. The facts of the case are that the Assessee had filed the original return of income for the Asst Year 2008-09 on 30-10-2008. declaring income of Rs. 55,81,323/- without claiming the cost of Construction of the 7 Flats sold. The return of income so filed was processed u/s. 143(1) of the act. dated 18-02-2010. Subsequently, the AO initiated re-assessment proceedings by issue of a notice u/s. 148 of the Act. dated 11-02-2013 and called for the return of income. The Re-Assessment Proceedings were initiated on the ground that the Capital Gains chargeable to tax was escaped Assessment in respect of the Land transferred in favour of M/s. Sai Gokul Builders in the scheme of JDA dtd: 28-01-2008. In response to the said notice the Assessee has filed a return of income on 26-12- 2013 declaring income of Rs. 15.49.445/- as under:-

a) Short Term Capital Gains on sale of 7 flats as reduced by the cost of land, cost of construction and incidental expenses Rs. 13,27.915/- b) Short Term Capital Gains on JDA. dtd 28-01-2008 entered into with M/s. Sai Gokul Builders. Rs. 1,73.450/- c) Short Term Capital Gains on sale of two sites as reduced by the cost and incidental expenses Rs. 48,080/- Rs. 15,49,445/- 3. The Ld. AO has completed the Scrutiny Re-Assessment u/s. 143(3) r.w.s 147 of the Act, dated 31-03-2014 determining the Total income at Rs. 68,85,955/- as against the declared income of Rs. 15,49,445/- in the return of income filed on 26-12-2013 in response to notice u/s. 148 of the Act. The break-up of the assessed income is as under :- a) Income from two sites (as asmitted) Rs. 48,080/- b) Capital Gains on sale of 7 Flats obtained fromM/s. S.V Developers as per JDA Rs. 58,29,375/- c) Short Term Capital Gains, out of JDA, dtd 28-01-2008 entered into with M/s. Sai Gokul Builders Rs. 10,08,500/- TOTAL Rs. 68,85,955/-

SI.No. Flat No. Floor Super Built Area 1 A-01 Ground Floor 1153 sq.ft A-02 Ground Floor 1190 sq.ft 2 3 A-03 Ground Floor 1190 sq.ft 4 A-04 Ground Floor 1203 sq.ft Ground Floor 1162 sq.ft 5 A-05 6 A-06 Ground Floor 1332 sq.ft Ground Floor 1380 sq.ft 7 A-07 8 B-02 First Floor 1190 sq.ft 9 B-07 First Floor 1280 sq.ft C-01 Second Floor 1153 sq.ft 10 11 C-06 Second Floor 1332 sq.ft 12 D-05 Third Floor 1162 sq.ft

The Assessee and his co-owner out of the 12 flats, have sold the following 7 flats for a consideration of Rs. 1,20,67,000/-.

SI.No. Flat Floor Super Sale No. Built Area Consideration 1 A-01 Ground Floor 1153 sq.ft Rs. 16,22,000/- 2 A-02 Ground Floor 1190 sq.ft Rs. 16,71,000/- 3 A-03 Ground Floor 1190 sq.ft Rs. 16 71 000/- 4 A-04 Ground Floor 1203 sq.ft Rs. 16,88,000/- 5 A-05 Ground Floor 1162 sq.ft Rs. 16,34,000/- 6 A-06 Ground Floor 1332 sq.ft Rs. 18,59,000/- 7 A-07 Ground Floor 1380 sq.ft Rs. 19,22,000/- TOTAL 8610 sq.ft Rs. 1,20,67,000/-

Rs. 1,20,67,000/- Sale Consideration for 7 Flats Less : 1.Proportionate cost of Land 45% of land Rs. 3,90,250 2.Cost of construction of Super Built area at 1000 per sq.ft (Rs.1000X8610sft) Rs.86,10,000 Rs. 90,00,250/- Balance Rs. 30,66,750/- Less: Incidental Expenses

1. Commissioner paid Rs.1,46,919 2. Customers Flat visit Expenses Rs. 1,20,000 3. Legal and documentation ChargesRs. 18,000 4.Security charges of the Flats Rs.1,26,000 •

Venugopal Naidu Pushparaj, Bengaluru Rs. 4,10,919/- Net Sale Consideration from Sale of 7 Flats Rs. 26,55,831/- Assessee's 50% Share of the Sale Proceeds Rs. 13,27,915/-

Venugopal Naidu Pushparaj, Bengaluru

Page 6 of 20 Therefore. the AO was not justified to hold that the Assessee has not made any investment in construction of flats.

The Flats so acquired in the Scheme of Joint Development were in lieu of the land transferred in favour of the Developers and therefore the built-up area received in the form of flats represents the consideration for such deemed transfer and consequently, the said consideration received amounts to cost of flats sold subsequently. The consideration in the form of built-up area for transfer of land represents the cost of flats in the first stage and the sale of flats was a subsequent event in the second stage. The Assessee submits that at the time of sale of flats in the second stage, the Capital Gains are to be quantified as reduced by the cost and other incidental expenses as per Section 48 of the Act. However, the Ld. Assessing Officer has not allowed the cost of construction claimed by the Assessee and therefore, the Capital Gains amounting to Rs. 58,29,375/ determined by the AO without providing deduction towards the cost of acquisition as required u/s. 48 of the Act are not in accordance with law and are not justifiable and consequently, the addition so made without providing the cost of construction is liable to be deleted and the capital gains offered by the Assessee amounting to Rs. 13,27,915/-after claiming the cost of flats, proportionate land cost and incidental expenses requires to be restored.

Venugopal Naidu Pushparaj, Bengaluru

Page 7 of 20 “6. The Cost of construction of 7 flats sold: The assessee had claimed the cost of construction of 7 flats sold at Rs. 86,10,000 at the rate of Rs. 1000 per sq.ft on the build-up area of 8610 sq.ft, the Ld. AO has disallowed the cost of construction on the ground that the cost of construction was incurred by the builder and not by the assessee. In this context, the assessee submits that he is entitled for the deduction of the cost of construction of the flats sold while determining the capital gains as per section 48 of the Act. The assessee was entitled for the built-up area of 7 flats in lieu of transfer of 55% of the undivided portion of the land in the scheme of joint development."

The Assessee submits that a Joint Development Agreement dated 28-01-2008 was entered into with M/s. Sai Gokul Builders in respect of the property situated at Hoodi Village, K.R Puram. Bangalore East Taluk, Bangalore. According to a JDA, 62% undivided portion of the land was deemed to have been transferred in favour of the Developer against which the Assessee has not offered any Capital Gains for the Asst Year 2008-09. Therefore. the Ld. AO has issued a notice u/s. 148 of the Act to levy tax on the Capital Gains arising out of the Venugopal Naidu Pushparaj, Bengaluru

Page 8 of 20 JDA dated 28-01-2008 relating to the transfer of 62% of the undivided portion of the land. The Ld. AO in the re-assessment Order has held that the Capital Gains arising out of a JDA dated 28-01-2008 are chargeable to tax for the Asst Year 2008-09 as per Section 2(47)(v) of the Act r.w.s 53A of the Act and accordingly, the consideration was determined on the basis of the provisions of Section 50C of the Act by obtaining the guidance value at Rs. 800/- per sq.ft., from the Sub-registrar. Mahadevapura, Bangalore. Accordingly, the Ld AO has quantified the Assessee's 50% share of Capital Gains at Rs. 10,08,500/- arising out of the JDA dated 28-01-2008 with the Developers M/s. Sai Gokul Builders. The Ld. AO vide letter dated 24-03-2014 called upon the Assessee to file objections if any as to why the Capital Gains arising out of the JDA dated 28-01-2008 should not be chargeable to tax for the Asst Year 2008-09 adopting the guidance value of Rs. 800/- per sq.ft., as certified by the Sub-registered, Mahadevapura, Bangalore as against Rs. 500/- per sq.ft. adopted by the Assessee. The Assessee has filed a detailed objection vide letter dated 27-03-2014. However, the Ld. AO has not appreciated the objections filed by the Assessee and quantified the Capital Gains chargeable to tax arising out of the JDA dated 28-01-2008 at Rs. 10,08,500/- adopting the guidance value at Rs. 800/- per sq.ft., provided by the Sub-registrar. Mahadevapura, Bangalore. The Assessee submits that the rate of Rs. 800/- adopted by the AO is not justifiable, since the rate applicable was of Rs. 500/- sq.ft., as per the guidance value prescribed by the Government of Karnataka. The Assessee submits that the capital gains so determined at Rs. 10,08,500/- are arbitrary, unreasonable and opposed to the law and facts of the case and therefore an Appeal against the adoption of value at Rs. 800/- per sq.ft as against Rs. 500/- per sq.ft was filed before the Ld. CIT(A) and provided a copy of the Guidance Value Notification. However the Ld.

Venugopal Naidu Pushparaj, Bengaluru

Page 9 of 20 CIT(A) has not appreciated the contention of the Assessee and held as under:

......... also the claim of Rs. 500/- per sq.ft cannot be accepted. The value at Rs. 800/- per sqft is in order and upheld."

Venugopal Naidu Pushparaj, Bengaluru

Page 10 of 20 12.1 The Appellant and his Co-owner N. Prakash had entered into a Joint Development Agreement dtd: 02-06-2006 with M/s. S.V Developers in respect of the land measuring 10890 sq.ft situated in Sy. No. 115/2, B. Narayanapura Village, K.R. Puram Hobli, Bangalore East Taluk. The Appellant had agreed to transfer 55% of the land measuring 5990 sq.ft in favour of the Developer in lieu of 45% of the Built-up area consisting of 12 flats out of which 7 flats were sold for a consideration of Rs. 1,20,67,000/- and the Capital Gains arising there from were offered as under - 2

Sale Consideration for 7 Flats Rs. 1,20,67,000/- Less : 1.Proportionate cost of Land 45% of land Rs. 3,90,250 2.Cost of construction of Super Built area at 1000 per sq.ft (Rs.1000X8610sft) Rs.86,10,000 Rs. 90,00,250/- Balance Rs. 30,66,750/- Less: Incidental expenses

Venugopal Naidu Pushparaj, Bengaluru

Page 11 of 20 12.2 The Appellant submits that the AO has disallowed the cost of construction of the 7 flats sold mainly on the ground that the Developer had incurred the expenditure and not the Appellant. In this regard the Appellant submits that the flats were received in lieu of transfer of 55% of the undivided portion of land in favour of the developer and therefore the Developer had incurred the expenditure. The Ld. CIT(A) has held that the claim of the Appellant in respect of cost of construction of the 7 flats was not allowable and accordingly the addition made by the AO was upheld.

12.3 The Appellant submits that the Co-ordinate Bench of the Hon'ble ITAT Bangalore in its order dtd: 07-09-2012 in the case of Jeeva Vadivelu in (at para 31) has held that the Cost of Construction was allowable. Further the Hon'ble ITAT in its order dtd: 04-09-2015 in the case of Sri. K. Rajanna in ITA No. 928/Bang/2014 for the A.Y 2008-09 has held at para 10.4.2 (internal page 12) that the Appellant was entitled for the cost of construction. The Appellant further relies upon the decision of the Hon'ble CIT(A) Bangalore - 2, in the Appellate Order dtd: 28-02-2019 in the Appellant's own case for the A.Y 2010-11 wherein the cost of construction was allowed. The relevant findings as found on page 5 of the Appellate Order is reproduced as under "The Cost of construction of two flats sold was claimed to an extent of Rs. 18,92,000/-. In support of his contention, the Appellant relied on the Hon'ble Jurisdiction ITAT order in the case of Smt. Jeeva Vadivelu wherein it was held that the Assessee should be allowed the benefit of cost of construction of the flats sold for the purpose of working out of the cost of acquisition while computing the CG. Further relied on Sri. Rajanna wherein the Hon'ble Jurisidictional

Venugopal Naidu Pushparaj, Bengaluru

Page 12 of 20 ITAT followed the ruling given in the case of Smt. Jeeva Vadivelu. Respectfully following the above stated jurisdictional ITAT Orders I hereby allow the grounds taken by the Appellant.

In the result the Appeal is allowed"

12.4 The Appellant submits that in view of the above judicial decisions, the Appellant is entitled for the deduction towards the cost of construction of 7 flats sold amounting to Rs. 86,10,000/- out of the Sale Consideration of Rs. 1,20,67,000/- and prays that this Hon'ble ITAT be pleased to pass orders and to allow the claim of the Appellant in respect of the cost of construction.

12.5 The Ld. D.R. submitted that this was a new claim on account of cost of construction for a total amount of Rs.86,10,000/-. This is not the cost incurred by the assessee. At any point of time the cost of construction is incurred by the builder to equalize the land holding of the land lord. It is a claim of expenditure to be made by builder to determine his profitability and the cost which is never incurred by the assessee cannot be claimed as an exemption except the proportionate cost of land. Since this is an expenditure not actually incurred by the assessee, the exemption claimed on the cost of construction cannot be allowed. Further, assessee could not produce any documentary proof in the nature of vouchers or bills for various expenditure incurred by the assessee. Hence, the A.O. allowed proportionate cost of land at 45% worked out at Rs.3,90,250/- and legal & documentation charges Rs.18,000/- total cost of acquisition Rs.4,08,250/- was deducted from total sale consideration of 7 flats at Rs.1,20,67,000/- and computed the total capital gain at Rs.1,16,58,750/- and assessee’s shares at 50% i.e. Rs.58,29,375/- was brought to tax and the same to be confirmed.

Venugopal Naidu Pushparaj, Bengaluru

As far as computation of income on sale of 5 flats is concerned, we 30. are of the view that the revenue authorities have proceeded to compute the income of the assessee incorrectly. In our view, in the A.Y. 2004-05, there would be income arising out of joint development agreement dated 20.10.03. Such income would have to be arrived at by reducing from the value of 8664 sq.ft. of built up area which the assessee was to receive from the developer the market value of 70% of the land as on the date of the joint development agreement. This conclusion is on the basis that a sale by the assessee to the developer had happened during the previous year relevant to A.Y. 2004-05. It appears that the revenue has not taken any steps to tax the income for the A.Y. 2004-05. We are not, however, concerned at this stage on the above aspect. We are now concerned with the question as to whether the assessee should get the benefit of cost of construction of the 5 flats sold during the previous year. In our view, the assessee should be allowed the aforesaid benefit. Admittedly, the assessee had to pay a cost for acquiring these 5 flats. The Assessing Officer in the order of assessment has not given any cost to these flats. In our view, therefore the cost of 5 flats has to be worked out and for this purpose of working out the cost of acquisition of 5 flats, the Venugopal Naidu Pushparaj, Bengaluru

Page 14 of 20 matter is remanded to the Assessing Officer. The AO will verify the cost from the developer, who developed the properties and arrive at the cost of 8664 sq.ft. This cost should be debited to the trading account. The assessee has retained 3 flats out of 8 flats and we direct the cost of these 3 flats lying in the stock with the assessee has to be added as part of the closing stock in the trading account. Similarly, 30% of the value of the land (retained by the Assessee) should also be shown as cost in the debit side of the profit and loss account. The value for this purpose will be 30% of the value for which the Assessee purchased the entire property which was given for joint development. Out of the 30% undivided share of land retained by the Assessee, the value attributable to the extent of undivided share of land sold by the assessee (along with the 5 flats) should be shown as receipt on the credit side of the profit and loss account. The AO is directed to work out the trading account by following the aforesaid procedure and in accordance with law and the directions given earlier. Thus, issue (C) is decided accordingly.

31………….We are now concerned with the question as to whether the assessee should get the benefit of cost of construction of the 5 flats sold during the previous year. In our view, the assessee should be allowed the aforesaid benefit. Admittedly, the assessee had to pay a cost for acquiring these 5 flats. The Assessing Officer in the order of assessment has not given any cost to these flats. In our view, therefore the cost of 5 flats has to be worked out and for this purpose of working out the cost of acquisition of 5 flats, the matter is remanded to the Assessing Officer. The A.O. will verify the cost from the developer, who developed the properties and arrive at the cost of 8664 sq.ft………….

“5. I have considered the above grounds of appeal, statement of facts and written submissions filed by the appellant and also perused the assessment order. The AO while computing the CG on the sale of two flats out of the ten flats received from the developer in lieu of the transfer of 62% of land measuring 5567 SFT in favor of the developer as per the joint development

Venugopal Naidu Pushparaj, Bengaluru

Page 15 of 20 agreement has considered only the market value of the land attributable to two flats sold out of 38% of undivided portion of land as cost. Aggrieved by this computation the appellant filed this appeal submitting that the cost of construction of two flats sold is also required to be allowed. Further submitted that he and his co-owner were entitled to 10(Ten) flats in lieu of deemed transfer of 62% of land measuring 5567 sq.ft. in favour of the Developer. In lieu of the said deemed transfer of land measuring 5567 sq.ft., the Developer has incurred the entire cost of construction of the flats constructed and delivered to the Appellant and his Co-owner. The deemed consideration arising out of the transfer of 62% of the land in favour of the Developer was utilized towards the cost of construction of the 10(ten) flats and therefore, the Appellant and his Co-owner were lawfully entitled towards the cost of construction of the two flats (G2 and G5) sold during the previous year ending 31-03-2010 relevant to the Asst Year 2010-11. The cost of construction of the two flats sold was claimed to an extent of Rs. 18,92,000/-. In support of his contention the appellant relied on the Hon'ble jurisdictional ITAT order in the case of Smt Jeeva Vadivelu wherein it was held that the assessee should be allowed the benefit of cost of construction for the flat sold for the purpose of working out the cost of acquisition while computing the CG. Further relied on Sri K Rajanna wherein the Hon'ble jurisdictional ITAT followed the ruling given in the case of 5mt. Jeeva Vadivelu. Respectfully following the above stated jurisdictional ITAT orders, I hereby allow the grounds taken by the appellant.”

Venugopal Naidu Pushparaj, Bengaluru

Page 16 of 20 in every reasonable way, particularly in the matter of claiming and securing relief and in this regard the officers should take the initiaitive in guiding a tax payer where proceedings or other particulars before them indicte that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting the square deal from the department. Although, therefore, the responsibility for claiming refunds and relief rests with the assessee on whom it is imposed by law, officers should………

(a) Draw their attention to any refunds or reliefs to which the assessee appear to be clearly entitled but which they have omitted the claim for some reason or other;

(b) Freely advise them when approached by them as to the rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.”

Venugopal Naidu Pushparaj, Bengaluru

Page 17 of 20 out of a JDA dated 28-01-2008 are chargeable to tax for the Asst Year 2008-09 as per Section 2(47)(v) of the Act r.w.s 53A of the Act and accordingly, the consideration was determined on the basis of the provisions of Section 50C of the Act by obtaining the guidance value at Rs. 800/- per sq.ft., from the Sub-registrar. Mahadevapura, Bangalore. Accordingly, the Ld AO has quantified the Assessee's 50% share of Capital Gains at Rs. 10,08,500/- arising out of the JDA dated 28-01-2008 with the Developers M/s. Sai Gokul Builders. The Ld. AO vide letter dated 24-03-2014 called upon the Assessee to file objections if any as to why the Capital Gains arising out of the JDA dated 28-01-2008 should not be chargeable to tax for the Asst Year 2008-09 adopting the guidance value of Rs. 800/- per sq.ft., as certified by the Sub-registered, Mahadevapura, Bangalore as against Rs. 500/- per sq.ft. adopted by the Assessee. The Assessee has filed a detailed objection vide letter dated 27-03-2014. However, the Ld. AO has not appreciated the objections filed by the Assessee and quantified the Capital Gains chargeable to tax arising out of the JDA dated 28-01-2008 at Rs. 10,08,500/- adopting the guidance value at Rs. 800/- per sq.ft., provided by the Sub-registrar. Mahadevapura, Bangalore. The Assessee submits that the rate of Rs. 800/- adopted by the AO is not justifiable, since the rate applicable was of Rs. 500/- sq.ft., as per the guidance value prescribed by the Government of Karnataka. The Assessee submits that the capital gains so determined at Rs. 10,08,500/- are arbitrary, unreasonable and opposed to the law and facts of the case and therefore an Appeal against the adoption of value at Rs. 800/- per sq.ft as against Rs. 500/- per sq.ft was filed before the Ld. CIT(A) and provided a copy of the Guidance Value Notification. However the Ld. CIT(A) has not appreciated the contention of the Assessee and held as under:

Venugopal Naidu Pushparaj, Bengaluru

Page 18 of 20 ......... also the claim of Rs. 500/- per sq.ft cannot be accepted. The value at Rs. 800/- per sqft is in order and upheld."

Page 19 of 20 the Tahsildar, South Taluk, situated at Hoodi’s village, Bengaluru, East Taluk (erstwhile South Taluk), Mahadevapura, CMC Limits, Ward No.12, K.R. Puram Main Road, Hubli, Bengaluru. As such notified value was Rs.550/- per sq.ft. which can be seen from entry No.19 as follows: