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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A.MOHAN ALANKAMONY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:- The appeal by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-5, Chennai dated 01.06.2017 in for the assessment year 2011-12 passed U/s.250(6) r.w.s. 143(3) & 147 of the Act.
2. The assessee has raised four elaborate grounds in her appeal however the cruxes of the issues are as follows:- (i) Reopening of assessment U/s.147/148 of the Act is bad in law because it was based on transfer of land during the relevant assessment year though in the relevant assessment year there was no transfer of land within the provisions of Section 2(47) of the Act. (ii) The Ld.CIT(A) had erred in confirming the order of Ld.AO who had held that the assessee had transferred her land
during the assessment year 2011-12 based on the sale agreement dated 08.03.2011. (iii) The Ld.CIT(A) has erred in confirming the order of Ld.AO who had erroneously included the cost of the undivided interest in land retained by the assessee with respect to the six residential flats allotted to her by the developer as part of sale consideration.
(iv) The Ld.CIT(A) has erred in confirming the order of Ld.AO who had not granted deduction U/s.54F of the Act for Rs.2,59,39,307/-.
The brief facts of the case are that the assessee is an individual engaged in the business of sale of books and undertaking job work for binding books, filed her return of income for the assessment year 2011-12 on 18.02.2012. Subsequently, during the course of scrutiny assessment for the assessment year 2013-14, it was observed that the assessee had disclosed long term capital gain as ‘nil’ in her return of income with respect to the land transferred by her in Survey No.276, Velachery village, Mambalam-Guindy Taluk, Chennai District. However it was revealed that the assessee had entered into an agreement of sale on 08.03.2011 with respect to the same property for sale consideration of Rs.6,60,00,000/-. Therefore the assessment was reopened U/s.147/148 of the Act for the relevant assessment year 2011-12. Thereafter the Ld.AO assessed long term capital gain in the hands of the assessee as Rs.5,81,18,565/-. On appeal the Ld.CIT(A) confirmed the order of the Ld.AO.
Ground No.2(i): Reopening of assessment U/s. 147/148 of the Act:-
The Ld.AR submitted before us that the reopening of the assessment for the relevant assessment year 2011-12 is bad in law because it was on the basis of an erroneous finding that the land transferred by the assessee was during the previous year 2010-11. We do not find any merit in the arguments advanced by the Ld.AR because during the course of scrutiny assessment for the assessment year 2013-14 it was revealed that the assessee had entered into agreement for sale of a property on 08.03.2011 which is relevant to the assessment year 2011-12. Therefore fresh tangible materials had surfaced before the Revenue based on which the Ld.AO was duty bound to reopen the case of the assessee for the assessment year 2011-12. Hence this ground raised by the assessee devoid of merit and it is disposed off accordingly.
Ground No.2(ii): Ascertaining the period of transfer of asset for assessing Long Term Capital Gain:-
The Ld.AO had observed in his order that the assessee had entered into a sale agreement with M/s. Indu Housing Development (Chennai) Pvt. Ltd., for total sale consideration of Rs.6,66,00,000/- on 08.03.2011. The purchaser had paid an advance of Rs.10,00,000/- and had further agreed to pay and the assessee had agreed to receive the balance sale consideration as follows:-
Rs.15,00,000/- on or before 25.03.2011
Rs.50,00,000/- within 10 days from the date of obtaining plan
sanction.
3. Balance sale consideration of Rs.5,91,00,000/- proportionate
to the individual shares / shares to be conveyed and till completion of the full consideration.
It was also stated in the sale agreement date 08.03.2011 that the vendor has delivered possession on the date of execution of the agreement. Based on the above agreement, the Ld.AO opined that as per the provisions of Section 2(47)(v) of the Act and Section 53A of the Transfer of Property Act, 1982, the transfer of property has taken place on 08.03.2011 for the purpose of determining long term capital gain. Accordingly the Ld.AO held that Long Term Capital Gain has accrued to the assessee in the assessment year 2011-12. The Ld.CIT(A) also agreed with the view of the Ld.AO.
5.1 Before us the Ld.AR submitted that the property was vested with Life Interest of her father Mr.M. Kuppurangam who had earlier conveyed the property to the assessee by way of settlement deed dated 18.08.2008 wherein he retained life interest on the property. The Ld.AR further submitted that the sale agreement executed by the assessee on 08.03.2011 is not valid because the property was encumbered with the life interest of her father. Therefore the possession handed over by the assessee to the purchaser in lieu of the sale agreement is not valid as on 08.03.2011. Hence it cannot be construed that transfer of property had taken place during the assessment year 2011-12. The Ld.AR further submitted that the assessee had obtained a release deed from her father with respect to his life interest in the property on 22.03.2012. It was therefore submitted that the purchaser of the property enjoyed legal rightful possession only from 22.03.2012. The Ld.AR further argued stating that the assessee had only given symbolic possession of property to the purchaser and not constructive possession. He further submitted that the assessee had executed general power of attorney to the purchaser of the property on 02.05.2012 i.e., after the release deed executed by her father. It was therefore argued that the year of transfer should be taken as assessment year 2013-14. The Ld.D.R on the other hand argued in support of the Order of the Ld.CIT(A).
5.2 We have heard the rival submissions and carefully perused the material on record. From the facts of the case it is apparent that the assessee has received an advance of Rs.10 lakhs by virtue of the agreement of sale dated 08.03.2011. Vide the same agreement the assessee had delivered possession of the property to the buyer. However as pointed out by the Ld.AR on that date the property was encumbered with the life interest of the assessee’s father because in the settlement deed dated 18.08.2008 executed by the assessee’s father he had retained his life interest and only by virtue of that settlement deed the assessee had become owner of the property. Therefore, though the assessee had handed over possession to the purchaser on 08.03.2011, the purchaser of the property did not enjoy absolute possession of the property. Moreover the agreement of sale executed by the assessee itself is void ab-initio because the assessee’s father had life interest on the property. Hence it cannot be construed that the assessee had handed over possession of the property on 08.03.2011 to the purchaser of the property in legal parlance. This lacuna was subsequently cured by way of executing release deed on 22.03.2012 by the father of the assessee in favour of the assessee. Therefore it can be construed that the absolute possession of the property is enjoyed by the purchaser of the property from 22.03.2012 for the purpose of computing capital gain under the provisions of the Act which is relevant to the assessment year 2012-13 though the sale agreement dated 08.03.2011 becomes legally valid from the date of execution due to the lacuna being cured because of the release deed executed by the assessee’s father on 22.03.2012. It is pertinent to mention that capital gain cannot be assessed in the hands of the assessee for the assessment year 2011-12 as per the provisions of the Act because as on 31.03.2011 the transfer of property has not crystalized. Further only after the execution of the release deed dated 22.03.2012 by the father of the assessee the transfer of property has become legally valid with retrospective effect from 08.03.2011 and by then the time limit for filing the return of income by the assessee U/s. 139(1) of the Act for the assessment year 2011-12 which is either on 30.09.2011 or 31.07.2011 has lapsed. Hence we are of the opinion that for the purpose of Section 2(47) of the Income Tax Act, since the assessee had handed over absolute right of possession on 22.03.2012, capital gain with respect to the transfer of property would be assessable in the assessment year 2012-13. It is pertinent to mention that the agreement of sale dated 08.03.2011, deed of settlement dated 18.08.2008 and release deed dated 22.03.2012 are not in dispute. Accordingly in this situation by virtue of Section 2(47) of the Act coupled with 53A of the transfer of Property Act, 1982 we hereby hold that the Long Term Capital Gain can be assessed in the hands of the assessee only for the assessment year 2012-13 and not for the assessment year 2011- 12 as held by the Ld.Revenue Authorities.
Ground No.2(iii): Erroneously Including the cost of the undivided interest in land retained by the assessee in the sale consideration for determining Long Term Capital Gain:- The Ld.AR submitted before us that in the agreement of sale dated 08/03/2011 the total sale consideration was wrongly stated as Rs.6,66,00,000/-. Further out of the total extent of land of 14,543 sq.ft., 3,458 sq.ft., of land was retained by the assessee which is assigned to the six flat allotted to the assessee aggregating to 6,800 sq.ft. Therefore the actual land sold by the assessee is only 11,085 sq.ft., (14,543 – 3,458) and not 14,543 sq.ft.,land as held by the Ld.Revenue Authorities. It was therefore argued that the actual sale consideration received by the assessee has to be adapted as Rs. 3,93,00,000/- as illustrated herein below :-
Advance received Rs.10,00,000/- Advance received Rs.15,00,000/- Rs. 25,00,000/- Bank Payments Recd. In AY 2013-14 Rs.2,25,00,000/- In AY 2014-15 Rs. 75,00,000/- Estimated cost of construction for 6800sq.ft. @ Rs.1000/- per sq.ft. Rs. 68,00,000/- Total Rs.3,93,00,000/- ========== The Ld.AR further submitted that the Ld.Revenue Authorities drawing strength from the agreement of sale dated 08.03.2011 executed by the assessee, wherein the sale consideration was wrongly mentioned as Rs.6,66,00,000/- erroneously assessed the sale consideration in the hands of the assessee as Rs.6,66,00,000/- by inferring as follows: Advance received Rs.10,00,000/- Advance received Rs.15,00,000/- Rs. 25,00,000/- Bank Payments Recd. In AY 2013-14 Rs.2,25,00,000/- In AY 2014-15 Rs. 75,00,000/- Cost of flat aggregating to 6800 sq.ft. allotted to the assessee @ Rs.5000/- per sq.ft. (cost of undivided interest in land Rs.4900/- per sq.ft. Rs.3,40,00,000/- Cost of construction Rs.1000/- per sq.ft.) Miscellaneous receipt Rs. 1,00,000/- Total Rs.6,66,00,000/- ============ 6.1 The Ld.AR argued by stating that the value of the land of 3,458 sq.ft., retained by the assessee cannot be treated as the sale consideration received by the assessee because this amount was never received by the assessee. He further reiterated that the sale consideration mentioned in the agreement of sale dated 08.03.2011 is erroneous and therefore the same should not be considered. It was therefore pleaded that the actual sale consideration received by the assessee as explained herein above should be treated as the sale consideration for the transfer of the land extending to 11,085 sq.ft.
6.2 The Ld.DR on the other hand relied on the orders of the Ld.Revenue Authorities.
6.3 We have heard the rival submissions and carefully perused the materials on record. On perusing the agreement of sale dated 08.03.2011, we find that the clause “7” states as follows: “In case the vendor agrees to purchase some portion of the built up area in the land which shall be at the rate of Rs.5,000/- per sq.ft. If the option is exercised by the Vendor the total amount of purchase value of flat shall be adjusted from total sale consideration payable by the Purchaser to the Vendor.” From the above, it is evident that the rate of Rs.5,000/- per sq.ft., also includes the land cost. If the land cost is taken as Rs.4,000/- per sq.ft., it is a case where the assessee has sold the land of 14,543 sq.ft., to the promoter for Rs.4,000/- per sq.ft., and re-purchased the retained portion of land of 3,458 sq.ft., at the rate of Rs.4,000/- per sq.ft., which is absurd. In fact the correct inference would be that the assessee has sold only 11,085 sq.ft., (14,543 – 3,458) of land and not 14,543 sq.ft., of land as held by the Ld.Revenue Authorities Therefore the value of 3458 sq.ft., of land retained by the assessee has to be excluded while arriving at the sale consideration received by the assessee. Thus we are of the view that the negligible flaw in clause “2” and clause “7” of the agreement of sale dated 08.03.2011 needs to be ignored and interpreted in the correct prospective. Hence though we find merit in the explanation offered by the Ld.AR herein above with respect to the correct sale consideration of Rs.3,93,00,000/- received by the assessee, in the interest of justice, we hereby remit the matter back to the file of Ld.AO in order to verify the correct value of sale consideration as presented by the Ld.AR herein above and pass appropriate order in accordance with merit and law keeping in view of our observations brought out herein above.
Ground No.2(iv): Deduction of Rs.2,59,39,307/- U/s. 54F of the Act:- At the outset the Ld.AR submitted before us that the assessee had claimed deduction U/s.54F of the Act, for Rs.2,59,39,307/-. However the Ld.AO did not grant the benefit of deduction to the assessee U/s.54F of the Act. On perusing the assessment order, we find that the Ld.AO has neither granted deduction with respect to the claim of deduction U/s.54F of the Act nor passed a speaking order on that issue. Further we find
that the Ld.CIT(A) has also not discussed the issue in his order. Therefore we hereby remit the matter back to the file of Ld.AO in order to verify whether the assessee is eligible for claiming deduction U/s.54F of the Act for Rs.2,59,39,307/- admitting this ground raised before us even if it raise for the first time, thereafter pass appropriate speaking order in accordance with law and merit. While arriving at our decision herein above we place reliance in the decision of the Hon’ble Apex Court in the case National Thermal Power Co. Ltd., V/s., CIT reported in 229
ITR 383 and Goetze (India) Ltd., V/s., CIT reported in 284 ITR 254.
In the result the appeal of the assessee is partly allowed for statistical purposed as indicated herein above.
Order pronounced on the 23rd January, 2018 at Chennai.