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Income Tax Appellate Tribunal, BANGALORE BENCH “ A ”
Before: SHRI A.K. GARODIA & SHRI VIJAY PAL RAO
Per Shri Vijay Pal Rao, J.M. : This appeal by the Revenue is directed against the order dt.26.5.2014 of Commissioner of Income Tax (Appeals), Mysore for the A. Y. 2011-12.
The Revenue has raised the following grounds :
“1. The order of the learned CIT (Appeals) is opposed to law and facts of the case.
2. The learned CIT (Appeals) has erred in considering the non-est return filed by the assessee as a valid return on the premise that the return was filed at the assessment stage. This is contrary to the facts of the case.
3. The learned CIT (Appeals) has erred in not appreciating the fact that the assessee is liable to receive 30% of the super built area as per the terms of the JDA dt.21.10.2010 & that simply because construction is still going on, the sale consideration cannot be deemed to be the market value of the property alone. 4. For these and such other grounds it is urged that the order of the learned CIT (Appeals), on the above points may be set aside and the order of the Assessing Officer be restored. 5. The appellant craves leave to add, alter or amend all or any of the grounds of appeal before or at the time of the hearing of the appeal.”
The assessee is an individual and had entered into a Joint Development Agreement (in short ‘JDA’) with M/s. R & S Turnkey Contractors Pvt. Ltd. on 21.10.2010 for the development of 84 Cents of land owned by the assessee situated at Kodialbail village. As per the terms of JDA, the assessee is entitled 30% of the total saleable super built up area in the residential building to be built up by the developer. In a supplementary JDA dt.26.5.2011, the sharing ratio was revised to 26.89% and 73.11% between the assessee and the developer respectively. During the scrutiny assessment, the Assessing Officer issued a show cause notice asking the assessee to show cause as to why capital gains in respect of 84 Cents of the property should not be computed by adopting the cost of construction as sale consideration. In response the assessee vide letter dt.10.3.2014 filed objections. The Assessing Officer issued a notice under Section 133(6) of the Income Tax Act, 1961 (in short 'the Act') to the developer M/s. R & S Turnkey Contractors Pvt. Ltd. for furnishing cost of construction in respect of the property to be constructed. The developer vide its letter dt.11.3.2014 has stated that the construction of cost is Rs.1,600 per sq. ft. Accordingly, the Assessing Officer has computed the capital gains by considering the sale consideration of the land of the assessee as cost of construction @ Rs.1,600 per sq. ft. and consequently brought to tax the capital gains of Rs.5,68,19,443. The assessee challenged the action of the Assessing Officer before the CIT (Appeals). The CIT (Appeals) held that on the right of JDA, the consideration would be the guidance value of the property and it would take the character of cost of acquisition for built up area to be handed over by the developer to the assessee. Accordingly, the CIT (Appeals) has directed the Assessing Officer to compute the capital gains by considering the sale consideration as the fair market value based on the government record.
Aggrieved by the order of the CIT (Appeals), the Revenue is in appeal before us.
We have heard the rival submissions as well as considered the relevant material on record. The learned Authorised Representative of the assessee has Tribunal dt.18.3.2016 in case of ACIT Vs. Shankar Vittal Motor Co. Ltd. in ITA No.35/Bang/2015. At the outset, we note that an identical issue has been considered and decided by the co-ordinate bench of this Tribunal in the case of Shankar Vittal Motor Co. Ltd. (supra) in para 7 as under :
“ 7. We have heard both parties and have considered the relevant material available on record.
The learned DR argued that the portion of the constructed apartment that are to be assigned to the assessee has already been decided and crystallized and considering the scenario, it is only logical that the value of these apartment be considered as sale consideration. Further it was argued by the learned DR that assessee should only treat the cost of construction as sale consideration and not the market value of the asset because, the assessee is not selling the apartment and is only receiving them hence, the true value of asset is the cost of construction which is actually money spent in bringing the assets to life.
The learned DR further relied on the judgment of the Coordinate Bench of the ITAT at Hyderabad in case of Smt Prathima Reddy Vs ITO, Ward-6(4) (2012) 25 Taxmann.com 264(Hyd.) and emphasized that similar issue was decided by the said Bench, as the said Bench determined the cost of construction while transferring the assets.
On the other hand, learned AR relied on the orders of CIT(A) and submitted that the learned CIT(A) was agreed on the submissions of the assessee that for the deemed transfer of JDA the logical deemed consideration has to be guidance value of property and even otherwise it was observed by the CIT(A). Even on the date of transfer, the capital gains can only be worked out on the deemed market value of the property as per municipal records which has some basis.
We have given our thoughtful consideration and rival submissions and facts and circumstances of the case and also gone through the order of the authorities below.
As the case referred as Smt Prathima Reddy Vs ITO, Ward- 6(4) (2012) 25 Taxmann.com 264(Hyd.) by the learned DR actually dissimilar to the facts of the present case because in the said case, the controversy was with regard to the assessment year, but the determination of value was not in dispute. However, in the instant case, the main controversy is not with regard to the assessment year, but it is of the valuation of property whether market value as on the date of JDA has to be considered or Construction cost has to be considered. The judgment passed by the jurisdictional High Court in the case of CIT Vs Dr. T.K.Dayalu 292 Taxman.com531 is relevant for deciding the present controversy.
We are of the view, because at the time of signing JDA the capital gain has to be computed only on the guidance value of the land. Even otherwise, if any capital gains to be accrued in future in favour of assessee after receiving the possession of the property. Certainly that would also be subject to capital gains. Therefore, in our final conclusion valuation of the capital gain should be appropriate to adopt the FMV/asset as deemed consideration, but not cost of the construction. With the above observation we dismiss the appeal of the revenue.”
It is clear to note that the co-ordinate bench of this Tribunal has followed the judgment of Hon'ble jurisdictional High Court in the case of CIT Vs. Dr.T.K.
Dayalu reported in 292 Taxman 531 and therefore by following the decision of the co-ordinate bench (supra), we do not find any reason to interfere with the impugned order of the CIT (Appeals) on this issue.
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 27th day of April, 2016.