DR.ANAVARATHAN SOMASUNDARAM,VELLORE vs. ACIT, VELLORE

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA No.402/Mds/2016 :- 2 -:

The assessee has raised the following grounds:- 2.

1. ‘’The Appellant respectfully objects to the Order under section 250(6) made by the CIT (A) - 13, adding Rs.58,96,590, being the exempted Capital Gains, as opposed to law, facts and circumstances of the case.

2. Firstly, the CIT(A)-13 has erred in treating the transaction as purchase of House Property on surrender of 40% of Un-divided Share in Land. He ought to have understood that the transaction was allotment of residential flat under Joint Development agreement for giving up a residential flat.

3. Secondly, the CIT(A)-13 has erred in not considering the exemption under section 54. He ought to have appreciated the fact that as per "If the amount of the section 54(1)(ii), capital gain is equal to or less than cost of the new asset, the capital gain shall not be charged under section 45". Therefore, the CIT(A)-13, ought to have accepted our submission that when the charging section fails, there is no obligation on the part of the appellant to disclose it in his return of income. 4. Thirdly, the appellant respectfully submits that the CIT(A)-13, has erred in stating (page 5 of the Order) that 'the capital gain shall not be charged under section 45 is just an argument and not the claim made before the Assessing Officer". This statement made is contradictory to the fact the CIT(A)-13 makes in the 3rd paragraph of page 3 of his Order "It is mentioned in the Assessment Order that the assessee was put before him on the specific questions by the Assessing Office that has he shown the value of the transactions entered by him for purchase of new residential flat in the income-tax return. To its reply assessee has stated that he has received new flat against the old one and therefore he has not shown this transaction to the income-tax Department in the income tax.

ITA No.402/Mds/2016 :- 3 -:

s, there is no obligation on the part of the appellant to disclose it in the return of income.

6. The appellant prays that he may be permitted to file additional grounds of appeal, if necessary, at the time of hearing.

The Brief facts of the case are that the assessee is a salaried 3. employee and Deputy Director in Health Department, Tirupattur filed Return of Income with net taxable income of �6,85,252/-.

Subsequently, the case was selected for scrutiny under CASS as per AIR information from the Sub-Registrar, Adyar, Chennai that there was a real estate transactions amounting to �1,49,40,460/- with the assessee and notice u/s.143(2) of the Act was issued. The ld. Assessing Officer issued notice u/s.142(1) of the Act and also summons u/s.131 of the Act calling for the details of sale deed, purchase deed, MOU and calculation of Long Term Capital Gains. In response to the summons u/sec. 131 of the act, the assessee

ITA No.402/Mds/2016 :- 4 -: appeared and statement was recorded. The assessee has filed Return of Income ITR 1 SAHAJ for the assessment year 2011-2012, and the fact of Real estate transaction was not disclosed in the e-filed Return.

The assessee purchased property with UDS of land in respect of flat No.3, First floor, Block No.A-9, 3rd Main Road, G.O.C.H. Colony, Besant Nagar, Chennai -90 and measuring 1250 sq.ft by registered sale deed dated 08.06.2005 for a consideration of �22,00,000/- including �2,00,000/- towards stamp duty and registration charges. The ld. Authorised Representative filed copy of MOU entered by the assessee and his wife with the Builder dated 03.01.2010 and purchase deed dated 08.06.2005. The ld. Assessing Officer on verification of MOU found that the assessee has surrendered 40% Undivided Share (UDS) of land i.e. 630 sq.ft. in exchange of new residential flat. The ld. Assessing Officer also perused the para 7 & 8 of MOU referred at page No. 4 & 5 of his order and finally concluded that the assessee has surrendered 40% UDS of land and the value as per SRO being deeming consideration of �.1,49,40,460/- and the transaction was not disclosed in Income Tax Return. The ld. Assessing Officer has worked out Long Term Capital Gains based on deemed consideration and ITA No.402/Mds/2016 :- 5 -: allowed deduction of indexation of cost of acquisition of property in 2005 and calculated Long Term Capital Gains taxable to the share of assessee by 50% �58,96,589/- and passed assessment order u/s.143(3) of the Act dated 25.03.2014. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).

ITA No.402/Mds/2016 :- 6 -: conclusion that the assessee has failed to disclose the transaction in the Return of income and also there is no claim under section 54 in the income tax return by the assessee, the ld. Authorised Representative explained that if the amount of capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45 but the ld. Commissioner of Income Tax (Appeals) relied on order of the ld. Assessing Officer and confirmed the addition and dismissed the appeal of the assessee. Aggrieved by the order of Commissioner of Income Tax (Appeals), the assessee has assailed an appeal before Tribunal.

Before us, the ld. Authorised Representative reiterated the 5. submissions made in the assessment and appellate proceedings alongwith material evidence of purchase deed, sale deed and MOU entered with Builder. The ld. Authorised Representative argued that the assessee has surrendered UDS of land along with old residential flat to the builder for allotment of a new residential flat. The Sec.54 of the Act are exemption provisions and the assessee has complied the prerequisite conditions as stipulated under the Act. The assessee was allotted new Residential flat against old flat and there is no income and hence not disclosed in the Return of income. The ld. Authorised Representative emphasized that it is a clear case of surrender of existing old flat for allotment of new residential flat and assessee has ITA No.402/Mds/2016 :- 7 -: complied the provisions of Sec. 54 of the Act and stipulated requisite conditions of the Act and prayed for allowing the appeal.

Contra, the ld. Departmental Representative relied on the 6. order of Commissioner of Income Tax (Appeals) and opposed to the grounds of the Revenue.

We heard the rival submissions, perused the material on 7. record and judicial decisions. The crux of the issue raised by the ld. Authorised Representative that assessee alongwtih spouse has purchased a residential flat with UDS in land in the year 2005.

Subsequently, the assessee entered into MOU with Builder on 03.01.2010 and as per terms and conditions, the assessee in exchange against 40% UDS in land the assessee entitled for new residential flat with the construction specifications mentioned in the MOU and Builder has delivered possession the property. Now question arise under the provisions of Sec. 2(47) of the Act, the transfer definition includes exchange:-

‘’2(‘47) transfer", in relation to a capital asset, includes,-

(i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock- in- trade of a business carried on by him, such conversion or treatment;] 6 or]

ITA No.402/Mds/2016 :- 8 -:

(v)any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 1 (4 of 1882 ); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co- operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation.- For the purposes of sub- clauses (v) and (vi)," immovable property" shall have the same meaning as in clause (d) of section 269UA;] and also, we perused the provisions of Sec. 54 as under:-

‘’54. [(1)] [Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset [***], being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of [one year before or two years after the date on which the transfer took place purchased], or has within a period of three years after that date [constructed, a residential house], then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

(i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged

ITA No.402/Mds/2016 :- 9 -: under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain’’.

On the combined reading of composition of both the provisions applying to the present case, the assessee is a owner of a residential flat and entered into MOU with Builder for allotment of new residential flat in ‘’exchange’’ of existing old residential flat and satisfied the provisions of Sec. 2(47) of the Act. Further the assessee was allotted the Residential flat and took possession in lieu of UDS. Prime facie, the assessee has complied both the provisions and eligible for benefit under the Income Tax Act. We found that the Revenue has not disputed MOU with Builder , purchase and exchange of property. But the sole grievance of the Revenue is that the assessee has not disclosed this transaction in Income Tax Return and claim of exemption u/s.54 of the Act. We on perusal of provisions of Sec. 54 of the Act found that it is a exemption provision allowed on investment in Residential property and the contention of the assessee that since exemption is claimed and there is no taxable income, therefore there is no necessity to disclose the transaction. Further, under the provisions of Sec. 54(1) of the Act where the amount of Capital Gains is equal or less than cost of new asset, the Capital Gains shall not be charged u/s.45 of the Act. On analyzing of above

ITA No.402/Mds/2016 :- 10 -: explanations, the disclosure shall be made if only there is chargeability or taxability of Capital Gains. The ld. Authorised Representative drew our attention to the MOU and purchase deed of the property and emphasized that the property exchanged was residential property and there is no violation of conditions as per the terms entered with the Builder. The ld. Authorised Representative relied on the decision of ITAT, Bangalore Bench in the case of Essae Teraoka Ltd vs. DCIT (2016) 67 taxmann.com 147 were the cost of new property allotted in exchange of old shall be as recorded in the Books of developer. Prime facie, the capital gains on exchange has been reinvested in new residential flat, therefore there is no taxability of Long Term Capital Gains. The assessee has missed in disclosing the information, but it is not a serious omission. On comparing the realistic facts and genuineness of transactions and bonafide claim proved with a registered document and MOU entered with builder. When the ld. Assessing Officer has the knowledge that the assessee has not disclosed information in the Return of Income he could intimate u/s.139 (9) of the Act stating that the return of income filed by the assessee is defective and give an opportunity to rectify the defect within a period fifteen days from the date of such intimation and furtherthe relevant information was not disclosed in ITR -1 (SAHAJ) were no heading of Income from Capital gains is available. We are of ITA No.402/Mds/2016 :- 11 -: the opinion considering the apparent facts and material evidence and the decisions relied. The assessee having Bonafide evidence to substantiate the claim shall not be deprived of his right to claim Benefit due to omission to include in the return. We also take support from the Apex Court decision of National Thermal Power Co. Ltd vs. CIT 229 ITR 383. Therefore, we set aside the disputed issue to the file of ld. Assessing Officer to verify the claim of the assessee with material evidence as per the applicable provisions of the Act and pass the orders. The assessee shall be provided adequate opportunity of hearing before deciding the issue on merits. The appeal of the assessee is allowed for statistical purpose.

Order pronounced on Friday, the 29th day of July, 2016, at Chennai.