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Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE
Before: SHRI N.V. VASUDEVANAND SHRI B.R. BASKARAN, ACCOUTANT MEMBER
PER B.R. BASKARAN, ACCOUNTANT MEMBER:
The revenue has filed two appeals challenging the orders passed by the Ld. CIT(A)-2 Panaji in the quantum assessment proceedings as well as in penalty proceedings. The assessee has filed cross objection in respect of order passed by Ld. CIT(A) in the penalty proceedings. All the appeals relate to assessment year 2008-09.
We shall first take up the appeal filed by the revenue in the quantum assessment proceedings. Grounds of appeal
raised by the revenue read as under: 1. “The order of the CIT(A) is erroneous both on facts and in law.
2. The CIT(A) erred in adopting the area of the land transferred at 1,05,850 sft while the evidence on record show that the area of the land transferred is 1,09,253 sft.
3. The CIT(A) erred in allowing the claim of difference on the measurement of land transferred and the fair market value without giving the assessing officer an opportunity of being heard. The CIT(A) has admitted additional evidence in violation of Rule 46A of the I.T. Rules.
4. The CIT(A) erred in admitting fresh evidence with regard to the fair market value while determining it at Rs.350 per sft without giving the A.O. an opportunity in violation of Rule 46A of the I.T. Rules.
5. The CIT(A) erred in adopting the fair market value at Rs.350 per sft while the average rate prevailing in the area was Rs.600 per sft. The CIT(A) erred in adopting the lowest rate of guidance value while the assessee has not made such plea either before the assessing officer or the CIT(A).
6. The CIT(A) erred in considering higher cost of acquisition in respect of the land received as gift while the value of the lands as per the gift deed should have been adopted for the purpose of computing indexed cost of acquisition of the lands transferred.
2706/Bang/2017 & CO 33/Bang/2018 Smt. Mamatha Mohan, Mysore Page 3 of 14 7. The CIT(A) failed to appreciate the fact that the assessee had not offered to tax any LTCG for the AY 2008-09 on account of the JDA.”
All the grounds relate to determination of long term capital gains in respect of transfer of land by way of entering into a Joint Development Agreement by the assessee with M/s. Brigade Enterprises Ltd. (BEL). The assessee entered into a joint development agreement with BEL on 27.8.2007 for development of a land belonging to the assessee situated at Industrial lay out, Khilli Mohalla, Mysuru. As per the said agreement, the assessee has to relinquish 81% of the land in favour of BEL. The assessee would retain 19% of the land. In lieu of relinquishment of 81% of the land, the assessee would get 19% of built up area as consideration. The assessee initially declared capital gain in assessment year 2010-11. However she agreed with the view of the A.O. that the capital gain is assessable in assessment year 2008-09, since the joint development agreement was executed on 27.8.2007. Hence the AO assessed capital gain in the year under consideration, i.e., AY 2008-09.
The A.O. determined the long term capital gain at Rs.5,59,85,915/-. The A.O. arrived at the above said figure by adopting (a) Area of land as 1,09,253 sq.ft., (b) Fair market value of land at Rs.600/- per sq.ft. and (c) Adopting indexed cost of acquisition as Rs.1,18,09,734/-.
The assessee did not agree with the AO on all the above said three points. Hence, before Ld. CIT(A), the assessee disputed all the three points. The Ld. CIT(A), after examining the contentions of the assessee as well as the materials furnished before him, determined the long term capital gain at Rs.2,76,37,846/-. Accordingly, he gave relief of Rs.2,83,48,069/- to the assessee. The revenue is aggrieved
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Page 4 of 14 by the relief so granted to the assessee by Ld. CIT(A). The revenue is also contending that the Ld. CIT(A) has violated provisions of rule 46A of I.T. Rules, while adopting the sale value at Rs.350/- per sq.ft.
We heard the parties and perused the record. For the sake of convenience, we extract below the decision rendered by Ld. CIT(A). 4.4 I have gone through the submissions of the AR of the appellant and the order of the AO. It is a fact that the appellant entered into Joint Development Agreement (JDA) with BEL on 27.08.2007 and handed over the possession of the land on the same day. Therefore, the transfer of the land as defined in sec 2(47) of I.T. Act has taken place on 27.08.2007 and hence, capital gain chargeable to tax has accrued to the appellant in A.Y 2008-09. In the written submissions, the AR of the appellant has also agreed that the capital gain on transfer of land has to be brought to tax in A.Y 2008-09. Thus, taxing of capital gains in A.Y 2008-09 as done by the AO and as agreed by the AR is confirmed in principle.
4.5 Now, the area of dispute is the quantification of sale consideration and computation of capital gains. The first aspect of this exercise is the area actually transferred by the appellant to BEL. AO has taken the area transferred in the assessment order at 1,09,253 Square feet. In the original joint development agreement (JDA) the area to be transferred was 1,65,000 Sq.Ft. This area included three schedules. In first two schedules the land area was of 63,600 sq.ft and 71,880 sq.ft respectively, was specified but the area in third schedule was not specified as the land was to be subsequently, allotted to the appellant by Mysore Urban Development Authority (MUDA). Thus approximately, the land was taken at 1,65,000 sq.ft, considering the land to be allotted by MUDA to be 29,600 sq.ft. .Thus, the area in schedule 3 of JDA though not specified was to be read as 29,600 sq.ft. However, the land in the possession of the appellant as on the date of JDA was 1,35,480 sq.ft , which is shown in schedule 1 and schedule 2 of JDA. The land which was to be subsequently allotted by MUDA to the appellant as per schedule 3 was never allotted. The appellant had to execute a deed of rectification with appellant to rectify the area in second schedule of the JDA. The AR of the appellant has produced the rectification deed dated 13.08.2010 between the appellant and BEL which provides for transfer of 63,600 sq.ft as per schedule 1 and 67,080 sq.ft as per schedule 2 totalling to 1,30,680 sq.ft. The rectification deed also provides for third schedule relating to land to be allotted by MUDA to the appellant. But as the said land was never
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Page 5 of 14 allotted by MUDA to the appellant, hence the land transferred by the appellant to BEL as per JDA is 1,30,680 sq.ft. Out of this land, the appellant has retained 19% in the form of built up area after the land was developed by BEL. Thus, the net land transferred by the appellant to BEL i; 81% of 1,30,680 sq.ft. ie. equal to 1,05,850.80 sq.ft. Thus, the area of the land actually transferred by the appellant for computation of capital gains is 1,05,850 .80 sq.ft.
4.6. The next aspect of dispute is the rate per sq. foot for determination of sale consideration of land transferred by the appellant. In the JDA the sale consideration in terms of value has not been mentioned. JDA provides for giving 19% of the built up area in the project to the appellant by BEL. In the assessment order, AO has taken the sale consideration per sq. foot of land at Rs.600/- , which is as per the prevailing rate for the stamp duty valuation applicable to assessment year 2010-11. The appellant as stated earlier had offered the capital gains for taxation in the return filed for A.Y 2010-11. In the said return, the appellant had taken the rate per sq. foot at Rs.600/- being the rate for stamp duty valuation relevant to A.Y 2010-11. During appellate proceedings, it was submitted by the AR that if the capital gains are to be brought to tax in AY 2008-09, the stamp duty valuation rate applicable to A.Y 2008-09 be taken. The AR also produced the copy of stamp duty valuation rates for F.Y 2006-07 to 2008-09 issued by senior sub-registrar, Mysore South dated:-09.02.2016. The applicable rate of the land transferred by the appellant as per the said chart for industrial land used for residential purposes is Rs.350/- per sq.foot. The AR of the appellant has submitted that the stamp duty valuation rate of Rs.350/- per sq.foot be adopted for valuation of capital gains. I have gone through the said chart issued by the Senior Sub-Registrar, Mysore South and it is found that the applicable rate for A.Y 2008-09 for the land transferred is Rs. 350/- per sq.foot. AO is directed to apply the said rate for computation of capital gains.
4.7 Thus the capital gains on the basis of the above analysis and finding in the case of the appellant is as under: Sale consideration = Land transferred Rate as per in sq.feet x Stamp duty Authorities Rs.3,70,47,780/- = 1,05,850.80sq.ft. Rs.350/-
4.8 Now I come to the computation of Indexed cost of acquisition. The appellant had purchased and received as gift the entire stretch of land in four parts in different A.Ys. The AR of the appellant has filed a detailed computation of the Indexed cost which is reproduced below: z
2706/Bang/2017 & CO 33/Bang/2018 Smt. Mamatha Mohan, Mysore
COMPUTATION OF INDEXED COST ACQUISITION OF IN RESPECT OF PROPERTY AT INDUSTRIAL SUBURB, MYSORE FOR THE YEAR ENDING 31.03.2008 ITEM A: Rs. Rs. No.18, Industrial Suburb, 3rd Stage, Mysore (Measuring: 40,800 Sq.Feet) (i) Purchased by M/s. Rangsons Industries alias M/s. N Ranga Rao & Sons On 30-04-1986 (F.Y. 1986-1987) (ii) Gifted by M/s. Rangsons Industries alias M/s. N Ranga Rao & Sons On 21-09-1995 (iii) Cost (As per books) 8,58,000 (iv) Indexed Cost of acquisition: Rs. 8,58,000 X 551 140 33,76,843 ITEM B: No.18/1, Industrial Suburb, 3rd Stage, Mysore (Measuring: 27,000 Sq.Feet) (i) Purchased by R.Mohan On 23-01-2002 (F.Y. 2001-2ö02) (ii) Gifted by R. MOHAN (Husband) On 06-08-2002 3,67,579 (iii)Cost of acquisition (iv)) Indexed Cost of acquisition: 4,75,437 Rs. 3,67,579 X 551 426 ITEM C: No.16/B, Industrial Suburb, 3rd Stage, Mysore (Measuring: 45,000 Sq.Feet) _ 24,50,000 (i) Purchased On 06-09-2001(F.Y. 2001-2002) (ii)Cost of acquisition 31,68,897 (iii)Indexed Cost of acquisition: Rs. 24,50,000 X 551 426 ITEM D: No.16/B, Industrial Suburb, 3"I Stage, Mysore (Measuring :22,080 Sq.Feet) 2,88,673 (i) Purchased On 13-03-2003(F.Y. 2002-2003)
(ii)Cost of acquisition 3,55,836 (iii)Indexed Cost of acquisition: Rs. 2,88,673 X 551 447 ITEM E: No.18/1, 18/2 & 16/B, Industrial Suburb, 31d Stage, Mysore
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Page 7 of 14 Conversion Fee paid to MUDA for Industrial to Commercial Purpose: (i) Conversion Fee paid (F.Y. 2007-2008) 42,03,300 (ii)Registration Fee — Gift Deed by R Mohan (F.Y. 2007-2008) 4,10,262 Total 46,13,562 (iii)Indexed Cost of acquisition: Rs_ 46,13,562 X 551 46,13,562 551 Total Indexed Cost of Acquisition 1,19,90,575 4.9. In the above chart the Indexed cost of acquisition has been worked at Rs.1,19,90,575, which is for total area of 1,34,880 sq.ft. However the land transferred by the appellant as discussed in para 4.5 is 1,05,850 .80 sq.ft. Thus, the Indexed cost of land transferred is proportionately worked out at Rs.94,09,934/-.(Rs.1,19,90,575/- X 1,05,850.80 sq.ft./ 1,34,880 sq.ft.)
4.10. Thus, the capital gains on sale of land is worked out as under:
Saleconsideration as determined in para 4.7 above Rs.3,70,47,780/-
Less: Indexed cost of acquisition as determined in para 4.9 above Rs. 94,09,934/-
Long term capital gain chargeable to tax Rs.2,76,37,8461- 4.11. In the assessment order, the AO has brought to tax undisclosed capital gain at Rs.5,59,85,915/-. The addition made by the AO on undisclosed long term capital gain as worked in para 4.10 amounting to Rs.2,76,37,846/- is hereby confirmed. The appellant gets relief of Rs.2,83,48,069/- . Ground no 11 to 13 taken by the appellant are partly allowed.”
We notice that the CIT(A) has arrived at the area of land transferred by the assessee as 1,05,850.80 sq.ft. by considering the “Deed of rectification” entered between the parties and also on noting the fact that the area of the land mentioned in Schedule-2 was rectified and the land mentioned in Schedule 3 was not available with the assessee. The Ld. CIT(A) also noticed that the fair market
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Page 8 of 14 value of the land taken by the A.O. as Rs.600/- per sq.ft. was applicable to the assessment year 2010-11, while the fair market value fixed by the stamp authorities for assessment year 2008-09 was Rs.350/- per sq.ft. The Ld. CIT(A) has also arrived at the indexed cost of acquisition by considering the actual purchase value of the land either purchased by the assessee or by the donor of the land to the assessee. He has adopted the proportionate value pertaining to 1,05850.80 Sq.ft. Accordingly, the Ld. CIT(A) has arrived at the long term capital gain at Rs.2,76,37,846/-. Even though the revenue is challenging the workings made by Ld CIT(A), yet no material was brought on record to controvert the findings and workings of Ld CIT(A).
The revenue has raised an issue on violation of rule 46A. However, we notice that the Ld. CIT(A) has adopted stamp duty valuation fixed by the stamp authority for the year relevant to the assessment year 2008-09 to determine the Fair Market Value of the property transferred by the assessee. There should not be any dispute that the details relating to guideline value fixed by the stamp authorities are available in the public domain and the Ld CIT(A) has adopted the Fair market value pertaining to the year under consideration, while the AO had adopted the value pertaining to AY 2010-11. Hence, we do not find merit in the contentions of revenue. Further, the contentions of the revenue on this issue are liable to be rejected on one more ground. At the time of hearing, the Ld. A.R. also pointed out that the A.O. has reopened the very same assessment year for considering the very same issue and he has passed the assessment order dated 28.3.2016 u/s 143(3) r.w.s. 147 of the Act by determining the capital gain at Rs.5,61,35,743/-., i.e. at a figure more than that determined in the original assessment proceedings. We notice that, during the course of re-assessment
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Page 9 of 14 proceedings, the assessee has furnished the details of valuation fixed by the stamp value authorities for the year relevant to assessment year 2008-09 and accordingly, sought for adoption of fair market value of the land @ Rs.350/- per sq.ft. Thus, we notice that the details of fair market value fixed by the stamp authorities was brought to the notice of the A.O. during the course of re-assessment proceedings, even though the A.O. did not accept the above said value of Rs.350/- per sq.ft. in the reassessment proceedings for the reasons stated in the reassessment order. Hence, the FMV rate of Rs.350/- per sq. ft. has already been brought to the notice of the AO. Hence we do not find any merit in the ground raised by the revenue on violation of Rule 46A by Ld CIT(A).
Thus we notice that the Ld. CIT(A) has determined the long term capital gain by examining all relevant facts. Hence, we are of the view that the order passed by Ld CIT(A) does not call for any interference.
At the time of hearing, the Ld. A.R. submitted that the assessee had challenged the re-assessment order by filing appeal before Ld CIT(A) and the Ld CIT(A) has again determined the long term capital gain at Rs. 2,76,37,846/-. He submitted that the order so passed by Ld. CIT(A) has since been accepted by the revenue by not filing appeal before ITAT. This fact also supports our view that the order passed by Ld. CIT(A) does not call for any interference.
The Ld A.R also raised a legal issue, i.e., the Ld A.R submitted that the AO has passed the reassessment order by assessing very same long term capital gains, which was earlier assessed in the original assessment order. By placing reliance on the decision rendered by Hon’ble Supreme Court in the case of ITO vs. K.L.
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Page 10 of 14 Srihari (HUF)(250 ITR 193), the Ld A.R submitted that the reassessment order shall efface the original assessment order. In that view of the matter, the original assessment order shall not survive in the eyes of law, in which case, the present appeal filed by the revenue shall also not survive.
We do not find it necessary to address this legal issue, since we have already confirmed the order passed by Ld CIT(A) by dismissing the appeal of the revenue.
We shall now take up the appeal filed by the revenue in respect of penalty proceedings. We notice that the Ld. CIT(A) has quashed penalty proceedings by following the decision rendered by Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory Ltd. 35 Taxmann.com 250, since the A.O. did not specify the limb of section 271(1)(c) of the Act on which the penalty was proposed to be levied and also did not strike off inapplicable portion in the penalty notice. The revenue is aggrieved by the said decision.
The Ld. D.R. submitted that the Hon’ble Karnataka High Court did not consider provisions of section 292B of the Act, which saves proceedings of the revenue in respect of inadvertent errors. The Ld. D.R. placed his reliance on the decision rendered by the coordinate bench in the case of P.M. Abdullah Vs. ITO (ITA Nos.1223 & 1224/Bang/2012 dated 17.10.2016). He also placed reliance on the decision rendered by the Chennai Bench of Tribunal in the case of ITO Vs. Shri Rajan Kali Muthu (ITA No.2900/Chny/2018 dated 22.5.2019), wherein the decision rendered in the case of P.M. Abdullah (supra) was followed. The Ld. A.R. also placed reliance on the decision rendered by Hon’ble High Court of Madras in the case of 2706/Bang/2017 & CO 33/Bang/2018 Smt. Mamatha Mohan, Mysore
Page 11 of 14 Sundaram Finance Ltd. (2018) 403 ITR 107, wherein the Hon’ble High Court has expressed the view that all violations will not result in nullifying the orders passed by statutory authorities. Accordingly, the Ld. D.R. submitted that the decision rendered in the case of Manjunatha Cotton & Ginning Mills is distinguishable.
On the contrary, the Ld. A.R. placed his reliance on the order dated 11.3.2020 passed by the jurisdictional High Court of Karnataka in the case of ITO Vs. Ryatara Sahakari Karkhane Niyamitha (ITA No.100013/2019 dated 11.3.2020) and submitted that the jurisdictional High Court, in its latest decision has followed the decision rendered by it earlier in the case of Manjunatha Cotton & Ginning Factory (supra). He further submitted that the decision rendered by Hon’ble Madras High Court in the case of Sundaram Finance Ltd (supra) was quoted before the Hon’ble Karnataka High Court in the above said case. Accordingly, he submitted that the order passed by Ld. CIT(A) does not call for any interference.
We heard the parties on this issue and perused the record. We notice that the Ld. CIT(A) has quashed the penalty order in view of the fact that the A.O. did not specify the limb under which penalty proceedings are initiated and also did not strike off the inapplicable portion in the penalty notice. The Ld. CIT(A) followed the decision rendered by the jurisdictional High Court in the case of Manjunatha Cotton & Ginning Factory Ltd. On perusal of the order passed by the Hon’ble Karnataka High Court in the case of Ryatara Sahakari Karkhane Niyamitha(supra) we notice that the decision rendered by the Madras High Court in the case of Sundaram Finance Ltd. (supra) was brought to the notice of the Karnataka High Court in the question framed before it, yet the jurisdictional High Court followed
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Page 12 of 14 the decision rendered in the case of Manjunatha Cotton & Ginning Factory Ltd. by observing as under: “4. It is apparent that the show-cause notice issued under section 274 of the Act does not specifically disclose the charge against the Assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income, which is sine-quo-non for issuance of show-cause notice and for want of such particulars, the Tribunal set-aside the order of the penalty levied on the Assessee. In the circumstances, the questions of law being answered in the case of Manjunatha Cotton and Ginning Factory (supra) confirmed by the Hon’ble Supreme Court, we do not find any reason to entertain the present appeal to answer the questions of law raised by the appellant-Revenue. Hence, the appeal stands dismissed.”
Thus, we notice that the jurisdictional High Court has reiterated the principles laid down by it in the case of Manjunatha Cotton & Ginning Factory Ltd. We have also noticed that the Ld. CIT(A) has followed the decision rendered by the Hon’ble jurisdictional High Court in the case of Manjunatha Cotton & Ginning Factory Ltd.
The learned DR relied on the order of the CIT(A). He placed reliance on the decision of the Hon'ble ITAT Bangalore Bench in the case of Shri P.M. Abdulla Vs. ITO (supra) taking a view that absence of specific mention in the show cause notice u/s.274 of the Act about the charge u/s.271(1)(c) of the Act is not fatal to levy of penalty u/s.271(1)( c) of the Act. In coming to the aforesaid conclusion the Bench followed decision of Hon'ble Karnataka High Court in the case of CIT Vs. Sri Durga Enterprises (2014) Taxmann.com 442 (Karnataka). A Co-ordinate bench in the case of Shri A Nagaraju (ITA No.2196/Bang/2016 dated 6/4/2018), has considered the decision cited by the learned DR in the case of P.M. Abdullah (supra) and has held that the same is contrary to the decision of Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Spinning Mills Ltd., (supra) and therefore cannot be followed. The decision rendered in 2706/Bang/2017 & CO 33/Bang/2018 Smt. Mamatha Mohan, Mysore
Page 13 of 14 the case of Sri Durga Enterprises (supra) was in a totally different context of defect in notice issued u/s.148 of the Act wherein the AY was not mentioned and period within which the return was to be filed was not mentioned. The defect was held to be curable u/s.292B of the Act. The same reasoning cannot be applied in the context of show cause notice u/s.274 of the Act.
In view of the foregoing discussions, we do not find any reason to interfere with the orders passed by ld. CIT(A) in quashing the penalty order.
Since we have dismissed the appeal of the revenue in the penalty proceedings, the cross objection filed by the assessee does not require adjudication, as it only supports the order passed by the Ld. CIT(A).
In the result, both the appeals filed by the revenue and the cross objection filed by the assessee are dismissed.
Order pronounced in the open court on 28th Sept, 2020.