SMT. Y.S. MYTHILY,BANGALORE vs. ITO, BANGALORE

This is an appeal filed by the assessee, against the order of the CIT (A)-3, Bengaluru, dt.25.12.2015, for the assessment year 2006-07.

The assessee has raised the following grounds of appeal :

The Assessee had owned a Vacant site Bearing No. 22, 3rd Cross, Sultanpalya (B.B.M.P Ward No. 95) measuring 5733 sq.ft., The Assessee had entered into a JDA, dated 23-07-2005 with a Developer M/s. Sai Dwaraka Builders and Developers represented by its Managing Partner Sri. G. Prem Kumar Reddy for construction of residential Flats on the above Site.

The Assessee submits that as per the terms of JDA the Assessee had agreed to transfer 55% of the undivided portion of land measuring 3153 sq.ft out of the total extent of 5733 sq.ft and the remaining undivided portion of land measuring 2580 sq.ft was retained by the Assessee. The proposed built-up area was about 19836 sq.ft., out of which the Assessee was entitled to 45% of the Built-up area measuring 8735 sq.ft., in exchange of 3153 sq.ft of undivided portion of land and the Developer was entitled to 55% of built-up area measuring 11100 sq.ft.

The Ld. AO issued a notice u/s. 148 of the Act, in order to assess the income of the assessee. In the course of the Scrutiny Assessment proceedings, the AO proposed to adopt the cost of construction incurred by the Builder as consideration for the exchange of 55% of the undivided portion of land measuring 3153 sq.ft. The cost of construction as stated by the AO on the basis of the information provided by the Developer was of Rs. 1,238/- per sq.ft., and accordingly, the consideration was determined by the AO at Rs. 1,08,13,930/- in respect of 55% of the undivided portion of the land transferred in favour of the developer.

The Assessee submits that the Ld. AO has not followed the ratio laid down by the jurisdictional High Court of Karnataka in the case of Sri. Ved Prakash Rakhra (2015) 370 ITR 762 (Kar) that the cost of construction incurred by the Builder cannot be the consideration for exchange of land in the scheme of Joint Development in determining the consideration at Rs. 1,08,13,930/-.

The consideration of Rs. 1,08,13,930/- determined by the AO based on the Builder's cost was opposed to the law and facts of ITA.235/Bang/2016 Page - 5 the case in view of the decision of the Hon'ble High Court of Karnataka (Supra) and therefore, the Assessee having been aggrieved with the Assessment order has filed an Appeal before the Ld. CIT(A)-3, Bangalore.

The Ld. CIT(A) has passed an Appellate order dated: 25-12- 2015 and dismissed the Appeal on the ground that the decision of the Honble High Court of Karnataka in the case of Ved Prakash Rakhra (2015) 370 ITR 762 (Kar) was not applicable since the facts of the Assessees case are distinguishable from the facts in the case of Ved Prakash Rakhra (2015) 370 ITR 762 (KAR).

The Ld. CIT(A)-3 got misdirected by mis-reading the judgment of the Honble High Court of Karnataka in the case of Ved Prakash Rakhra (2015) 370 ITR 762 (KAR). The Ld. CIT(A) has mis-read the facts of the Assessee’s case and erroneously held that the facts of the Assessee’s case are different from the facts in the case of Ved Prakash Rakhra (2015) 370 ITR 762 (KAR), ignoring the ratio laid down by the Hon'ble High Court of Karnataka. The Ld. CIT(A) has held that the facts of the Assessees case were different than the facts in the case of Ved ITA.235/Bang/2016 Page - 6 Prakash Rakhra wherein the consideration was specified in the JDA but in the case of Assessee no such consideration was mentioned in the JDA.

The Assessee begs to reproduce herewith, the relevant substantial question of law formulated by the Hon'ble High Court of Karnataka in the case of Ved Prakash Rakhra (2015) 370 ITR 762 (Kar) as under relating to the determination of the consideration attributable to the exchange of land in the Scheme of JDA: "(ii) Whether the Tribunal was right In holding that the estimated cost of construction of Rs. 66 lakhs shown in the joint development agreement for the development of the property situated at Aga Abbas All Road, Bangalore, should be taken into account and not 50 percent.(1.43 Crores) of Rs. 2.86 Crores actually spent by the builder in working out the Sale Consideration for the purpose of section 45 of the Act ?"

The Assessee submits that a question of law formulated as stated above was answered by the Hon'ble High Court of Karnataka by laying down the ratio which is reproduced as hereunder:

The Assessee submits that the non-mentioning of the price of the land transferred could not have been held as ground to hold the differentiation in facts. The Assessee submits even though no specific price was mentioned in JDA, the FMV as on the date of JDA shall be the consideration for the exchange of 55% of land. The Ld. CIT(A) has not appreciated the facts that the consideration of Rs.66,00,000/- mentioned in the case of Ved Prakash Rakhra represented the FMV as on the date of JDA and similarly the Ld. CIT(A) ought to have held that in the absence of consideration in the JDA, the FMV as on the date of JDA should have be considered for quantifying the consideration of the land transferred.

The Assessee submits that the AO and the CIT(A) have relied upon the information provided by the Developer wherein the cost of Rs. 1238/- per sq.ft was reported by the Builder and the same was adopted by the AO and Confirmed by the CIT(A) for quantification of the ITA.235/Bang/2016 Page - 8 consideration which was determined at Rs. 1,08,13,930/- determined by the Ld. AO. The findings of the CIT(A) as regards adoption of Builders cost of Rs. 1238/- per sq.ft is completely opposed to the ratio laid down by the Hon'ble High Court of Karnataka.

On the other hand, the learned DR relied upon the order passed by the lower authorities and has also relied on the judgment of the Hon’ble jurisdictional High Court in the case of Ved Prakash Rakhra (supra). In the facts and circumstances of the case, the DR pleaded that the order passed by the authorities below is required to be upheld.

We have heard the rival contentions and perused the materials on record. Relevant clauses, viz., 2(f), (g), 4.1, 4.2, 5.1 to 5.6, 6.1, 8.1 to 8.3 and 12.1 to 12.3 of the JDA are reproduced hereunder for the purposes of record , as neither AO nor the CIT (A) had adjudicated as to the date of transfer i.e as to when the property would be transferred after built up to the assessee in term of JDA. In our opinion, prima facie the property would not be transferred to the assessee during the assessment year under consideration in terms of JDA, we are not adjudicating this issue on merit as this has not been urged before us .

For the purposes of determining the cost of construction, in identical facts and circumstances of the case, the Hon’ble jurisdictional High Court in the case of Ved Prakash Rakhra (supra), has held that the date of entering into JDA would be “the date” for the purposes of arriving at the cost of transfer i.e. cost of structure as on the date of agreement would be the cost of transfer instead of cost of actual construction in term of JDA.

In the result, appeal of the assessee is allowed.