MANJAPRA VARIETH BALACHANDRAN,CHENNAI vs. ITO NON CORPORATE WARD 3(2), CHENNAI

आदेश / O R D E R

Per A. Mohan Alankamony, AM:-

2. Determination of Fair Market Value under Section 48 of IT Act. 1961 of Rs. 62.79.438/-(As per Remand Report the amount is Rs.1.OO.03.350 vide para 3 page 2 of the chart): (i) The Lower authorities erred in fixing the fair market value at Rs 62,79,438. (ii) The CIT(A) erred in not directing the AO to adopt sum of Rs. 250.42 lakhs as “fair market value “for the purpose of Section 48 read with Section 45 of the Income tax Act,1961. (iii) The Lower Authorities failed to appreciate that the said amount of Rs. 250.42 Lakhs represents two components viz.... i. value of apartment at No.5 1 Sir, Madhavan Nair Road, Mahalingapuram, Chennai-34 built by M/s. Swathi Builders for Rs. 2,40,00,000/-, under IDA dated 08.09.2011, and the possession of which was handed over on 02.01.2014. This value is as near to the amount as received on transfer to Mrs. J.Vasanthi the proposed purchaser by the appellant, vide agreement to sell dated 19.03.2014 (wrongly mentioned by AO as 19.04.2014 in para 10(ii) of his order) and ii. Rs. 10.52 lakhs(Observed by AO as Rs. 12.12 Lakhs which includes rental reimbursement given to other Co-Owners vide Para 10) representing the amount of appellant’s share of non-refundable deposit from the builder(M/s Swathi Builders), which should be considered to evaluate the fair market value. (iv) Without prejudice to the above grounds, the appellant submits that the Lower Authorities erred in assessing the value of the apartment No 51 , Sir Madhavan Nair Road, Mahalingapuram, Chennai-34 at Rs. 62,79,438/- ,thereby, ignoring the valuation of Rs. 1,00,03,350/-(such sum representing UDS transferred to Nominee 1 of the Builder M/s Swathi Builders vide Para 3 of Annexure of the Remand Report bearing Doc. No.1076 of 2012 dated 26.11.2012 for Rs. 43.95 Lakhs and Nominee 2 of the said builder as stated supra vide Para 3 of Annexure of the Remand Report bearing Doc. No.204 of 2013 dated 21.02.2013 for Rs.43.95 Lakhs together with the advance of Rs. 12.12 Lakhs.). (v) The Appellant further submits that he had also furnished the copy of the paper book submitted to the CIT (A) to the AO at the time of remand proceedings as part of his submissions containing the copies of these documents together with other relevant documents forming part of his paper book. (vi) The said Remand Report was sent to the CIT(A) by the AO and a copy was also given to the Appellant vide letter dated 18.09.20 17 and directing the Appellant to furnish his comments on the Remand Report on or before 25.09.2017.In response to that letter dated 18.09.2017, the Appellant filed his reply consisting of 4 pages and filed it with CIT(A) in person on 25.09.2017 at the time of hearing on that date. (vii) The CIT(A) in Para No.17 @ Pg.19 of 21 makes a reference to the same, but he has not considered the reply in full force. Instead he observes in Pg.20/21 Para 17 that the observations and findings of the AO in the Remand Report are well reasoned and based on the facts of the case. He further observes “I do not find any infirmity in the same for the reasons discussed ….” (viii) The CIT(A) vide Para 18 & 19 considered only one aspect of the reply filed by the Appellant to the Remand Report. The other contents of the reply given by the Appellant in response to Remand Report were not considered at all. (ix) At the risk of repetition, the CIT(A) has considered only the application of Sec. 54, indexed cost of acquisition, allocation of indexed cost of acquisition etc and did not consider the issue re1ajng to the deduction of Rs. 100 Lacs representing of UDS and share of advance received vide Para No. 4 of the Remand Report and Appellant’s response to the same justifying the deduction of Rs. 100 Lacs which will result in lower Capital Gains Tax in the hands of the Appellant. (x) The methodology adopted by the AO in his Order U/s. 143(3), Order U/s. 154 on principle and also the Remand Report is not disputed to the extent of “Calculation of Capital Gains” transfer 1 and Chart in Pg.1 of 2.The Appellant objects at this stage to the value fixed in order u/s 143(3) and 154 at Rs.62,79,438 as against the correct value of Rs. 1,00,03,350/- mentioned in Annexure to the Remand Report - Chart No.2 which is A 0’s finding in favor of the Appellant. (xi) However, the Appellant objects to the finding of the AC in the Remand Report in Pg.3 of vide Chart. (xii) In Pg. 2 of 2 in Remand Report the AO has given the Item A - calculation of Long Term Capital Transfer - 983 Sq.ft. of UDS and Item B - Short Term Capital Transfer of 2021 Sq.ft.,The AG has not given suitable reduction towardsRs.1,00,03,350/- representing the sale transaction of transfer 1(between Swathi Builders nominees and the appellant as mentioned supra )to be adjusted against transfer 2 )(Between Appellant and J Vasanthil 19.03 2014).

(xiii) The Appellant submits that the above grounds and facts narrated are forming part of the Appellant’s response to the Remand Report filed before CIT(A) on 25.09.2017 which has been lost sight of by the CIT(A) in the impugned order)though he says in Para 17,that he has considered all aspects mentioned in the reply filed by the Appellant to the cited Remand Report. (xiv) However in those Orders passed U/s. 143(3) and 154 ,the AG’s adopted valuation of Rs.62,79,438/- of transfer 1( supra 1) has been entirely reduced in computation of transfer 2(supra 2),. (xv) In the Remand Report filed before CIT(A) ,by the AO, he has adopted Rs. 100 Lacs as per Annexure read with Calculation of Capital Gain Transfer 1 Chart at Pg. 1 of 2. to the said Report. In the transfer 2 in Pg. 3 of Para head Short Term Capital Gains: Transfer of 2021 Sq. ft., the AO has reduced only Rs. 50,67,438/- representing the cost of construction in the books of the Builder M/s Swathi Builders as deduction U/s. 48 instead of Rs. 100,03,350 Lacs as mentioned in the remand report before the CIT(A).

(i) The lower authorities erred in computing capital gains both in transfer 1(supra) & transfer 2(supra) by allocating indexed cost of Rs. 37.75Lakhs to transfer 1(Supra) and Rs. 4.66 lacs to transfer 2(Supra) without indicating the basis behind such allocation made by them. (ii) The CIT(A) erred in ignoring the finding in the Remand Report vide Pg. 2 of 2 of Paras A & B given by the AO to the CIT(A) wherein he has given a finding that the indexed cost has to be allocated on the basis of the area of property comprised in each transfer, namely, 492 sq ft of UDS in transfer 1(Supra) and 983 sq ft of UDS in transfer 2(Supra) resulting in indexed cost being allocated at Rs.10,50,218/- in transfer 1(Supra) and Rs. 21,00,436/- being the value of indexed cost of land and old building in transfer 2(Supra). (iii) The CIT(A), however, in para 17 of his order observed that there is no infirmity in the findings of the AG in his remand report forwarded to the CIT(AJ, which is favorable to the Appellant in so far as the valuation comprised in transfer 1 (Supra) , is concerned.

(i) The appellant had claimed deduction under Sec.54 in reinvestment of the capital gains in three apartments in KG Signature City , Adayalampattu Village (By —pass Road, Ambattur Taluk, Maduravoiyal, Chennai), a project under construction, which fact was not considered by the department. The Lower Authorities wrongly opined that the deduction U/s. 54 should be denied to the Appellant since the investment of the Capital Gains was not in the very same apartment, namely, No. 51, Sir Madhavan Nair Road, Chennai34 received as consideration under JDA dated 08.09.2011 between the Appellant and M/s. Swathi Builders. (ii) The lower authorities erred in denying the exemption under Sec 54 on the ground that the appellant had sold the apartment received as consideration under JDA within 3 years from the date of transfer, viz.19.03.2014 being the date on which the agreement of sale of the apartment was entered into with Mrs. J.Vasanthi proposed purchaser. (iii) The Lower Authorities failed to appreciate the crucial fact that the Capital Gains in question sought to be reinvested factually arose out of sale of land and building (hereinafter referred to as original Asset for the sake of clarity) situated at No.51, Sir Madhavan Nair Road Mahalingapuram Chennai 600034 which was the subject matter of the JDA entered into between Appellant and M/s. Swathi Builders on 8.09.2011. (iv) The CIT(A) erred in denying the benefit of Sec.54 on the ground that though the Appellant had invested the capital gains in three apartments in KG Signature City(Supra) the said apartment had not been completed and no possession was taken within the three years stipulated period U/s. 54. (v) The CIT(AJ did not consider the full details of investments made in the three Apartments(Supra)including copy of the documents pertaining to the registration of UDS in land, construction agreements, details of payments made to the Builders etc.

5. Impact of Sec 54(2) not duly considered:

(i) The lower authorities erred in taking into account of Rs. 75 lakhs deposited in Capital Gains Deposit Account with Corporation Bank Chennai Egmore Branch for the AY.2014-15 which sum was earmarked for utilization for further investment of Apartments at KG Signature City. (II) The Appellant submits that he had taken a loan of Rs. 83.90 lacs from Corporation Bank, Egmore Branch Chennai, disbursed on various dates and this together with own funds totaling in all to Rs 134.49 lacs were invested in three apartments at KG Signature City(Supra). The details of the loans were not given to the AO at the time of assessment but were produced before the AO in the remand proceedings and before CIT(A) forming part of the Paper Book filed before him. (iii) The Appellant submits that in order to comply with the provisions of Sec. 54(2), the Appellant had to deposit Rs. 75 lacs under Capital Gains Deposit Scheme during the year under consideration.

(iv) The said amount of Rs. 75 lacs was taken Out of Capital Gains Deposit Scheme Account and the loan was repaid in part on 30.09.2015, a sum of Rs. 8 lacs odd is outstanding as on date. (v) The Appellant submits that the apartments at KG Signature City were not getting completed for the reasons beyond the control of the Appellant as the builder could not complete as promised to the Appellant on scheduled time. Even as on date the Apartments still remain incomplete.

6. Treatment of Second Transfer as Short Term Capital gain:

(i) The CIT(A) erred in confirming the levy of Short Term Capital Gain in respect of the Second transfer of the flat which the Appellant had received from the Developer on 02.01.2014 under JDA which was sold by the Appellant on 19.04.20 14 as per the assessment order passed by the A O.(The correct date should be 19.03.20 14). (ii) The CIT(A) erred in his observation that the capital asset in question was held by the Assessee for less than 36 months.The correct fact as recorded by the AO in his remand report is that the capital asset represents two components viz UDS of 983 sft in land which as per the AO ‘s finding both in the remand report as well as the order under Sec 154 is long term in nature and 2021 sft of apartment which as per the remand report and the order under Sec 154 is short term in nature. (iii) The CIT A having observed in Para 17 that the contents of the remand report are well reasoned and based on the facts of the case and that he did not find any infirmity, ought to have accepted those facts and circumstances which are undisputedly in favour of the appellant.

3. The brief facts of the case are that the assessee is an individual earning income from salary, house property, business, capital gains and other sources, filed his return of income for the assessment year 2014-15 electronically on 27.11.2014 admitting total income of Rs.18,65,560/-. The case was selected for scrutiny and notice U/s.143(2) of the Act was issued on 31.08.2015. Finally U/s.143(3) of the Act on 31.12.2016 wherein the Ld.AO made several additions. However the appeal before us is with respect to the ground determining the Long-term capital gain tax that has been levied on the assessee.

4. At the outset the Ld.AR submitted before us that the Ld.CIT(A), though, have obtained a Remand Report from the Ld.AO, has failed to examine the detailed submission made by the assessee justifying his stand against the Remand Report obtained from the Ld.AO. The Ld.AR further submitted that the case of the assessee may be remitted back to the file of Ld.AO, so that the entire matter can be examined afresh in the light of the detailed explanation submitted by the assessee and the additional grounds raised by him along with fresh evidence presented in the paper book, otherwise it would result in great injustice to the assessee. The Ld.DR stoutly opposed to the submission of the Ld.AR and argued in support of the orders of the Ld.Revenue Authorities praying for dismissing the appeal of the assessee.

Order pronounced on the 01st June, 2018 at Chennai.