YALAMANCHILI NEELIMA,,GUNTUR vs. THE INCOME TAX OFFICER, WARD-2(2),, GUNTUR

PER S. BALAKRISHNAN, Accountant Member :

This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals)-1, Guntur [Ld. CIT(A)] dated 07/06/2019 arising out of the order passed U/s. 144 r.w.s 147 of the Income Tax Act, 1961 [the Act] for the AY 2016-17.

2 2. This case is a recalled matter where the assessee has opted

for Vivad-se-Vishwas Scheme by filing Form No.3. Later, the

assessee could not pay the balance tax arrears and hence

pleaded for recalling the appeal filed by the assessee.

entered into a Development Agreement-cum-General Power of

Attorney with M/s. Lakshmi Infratech India Pvt Ltd., Hyderabad

(herein after referred as “Developer”) vide Doc No. 2742/2016,

dated 14/03/2016 registered at SRO, Mangalagiri for

construction of Multistoried Residential Complex by name

‘Lakshmi’s Sreelikhitha Pride’ in Survey No.66, Mangalagiri. The

assessee being the land owner is in possession of vacant land

admeasuring 4,776 sq. yds acquired through a Registered Gift

Deed bearing No. 3175/2013 dated 30/03/2013. The assessee

granted absolute power to the Developer to construct residential

complex at their own cost. The assessee and the Developer agreed

to share the built up are in the ratio of 46:54 respectively. Since

the possession of the property was handed over to the Developer

during the previous year relevant to the AY 2016-17 the Ld. AO

as per the provisions of section 2(47) of the Act read with section

53A of the Transfer of Property Act considered the property as

3 transferred during the assessment year 2016-17. The Ld. AO

noticing that the assessee has not filed return of income for the

AY 2016-17 believed that the income chargeable to tax escaped

assessment and notice u/s. 148 of the Act was issued and served

on the assessee on 24/11/2017 requiring him to file the return of

income within 15 days from the date of receipt of notice. The

assessee did not respond to the notice nor filed the return of

income. Subsequently, the Ld. AO issued notice U/s. 142(1) of

the Act dated 18/09/2018 and served on the assessee on

19/09/2018. The Ld. AO sought objections for considering Rs.

6,30,76,166/- as capital gains from the transaction entered into

by the assessee with the Developer and also sought information

regarding the flats sold. The assessee failed to furnish any replies

even to this notice. The Ld. AO once again issued notice on

19/11/2018 and served on the assessee on 19/11/2018. The

assessee did not respond to this notice also. Considering these

circumstances, the Ld. AO issued one more notice U/s. 142(1)

dated 5/12/2018 for which also the assessee did not respond.

The Ld. AO therefore proceeded to compute the capital gains

based on the materials available with him. The Ld. AO worked

out the capital gains at Rs. 6,20,13,020/- while framing the

assessment U/s. 144 r.w.s 147 of the Act. Aggrieved by the order

4 of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A).

The assessee’s Representative filed written submissions before

the Ld. CIT(A) challenging the reopening of assessment and also

chargeability of the capital gains in the AY 2016-17. The Ld. AR

also further submitted before the Ld. CIT(A) regarding the

expenses claimed towards NALA tax of Rs. 22,43,340/-, property

tax of Rs. 1,88,965/- and deviation charges amounting to Rs.

31,36,000/- as per the terms of the development agreement. The

Ld. CIT(A) considering these as additional evidences submitted

U/s. 46A of the IT Rules, 1962 sought a remand report from the

Ld. AO. The Ld. AO submitted his reply stating that the assessee

has not filed any details during the assessment proceedings and

hence these additional evidences should not be considered.

However, the Ld. AO in his remand report accepted the payment

of property tax and requested the Ld. CIT(A) it may be considered

for deduction in the hands of the assessee. Further, the Ld. AO

with respect to NALA charges and Deviation charges stated that

the assessee may be allowed 46% of the payments made as it is

related to the development of land consequent to Development

Agreement entered into by the assessee with the Developer. The

copy of the remand report of the Ld. AO was forwarded to the

assessee for furnishing a rejoinder. The Ld. AR submitted a

rejoinder and pleaded that the additional evidence may be

considered while deciding the appeal. The Ld. CIT(A) considering

the provisions of Rule 46A of the IT Rules, 1962 observed that

the conditions prescribed under the Rule 46A were not satisfied

and did not accept the additional evidence filed by the assessee.

The Ld. CIT (A) hence dismissed the appeal of the assessee.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal

before us.

“1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts of the case. 2. The Ld. CIT(A) ought to have quashed the notice issued U/s. 148 of the Act and further he ought to have held that the reassessment proceedings are liable to be quashed as void ab initio. Without prejudice to the above:

6 expenses were incurred by the appellant as per the terms and conditions of the development agreement: NALA Charges (conversion charges) : Rs. 22,43,340 Property Taxes : Rs. 1,88,965 Deviation Charges : Rs. 31,36,000 7. The Ld. CIT(A) ought to have allowed the exemption of capital gains /s. 54F of the Act towards the built up area received by the appellant. 8. The Ld. CIT(A) ought to have held that the Assessing Officer is not justified in charging interests of Rs. 41,32,499/- U/s. 234A and Rs. 52,25,779/- u/s. 234B of the Act. Any other grounds may be urged at the time of hearing.” 9.

adjudication.

issuance of notice U/s. 148 of the Act and pleaded that the

reassessment proceedings are liable to be quashed as void ab

initio. We find from the records that the assessee has failed to

respond to the notices and the Ld. AO has rightly after seeking

permission from the Additional Commissioner of Income Tax,

Guntur found that the income has escaped assessment and

hence notice U/s. 148 was issued to the assessee. The Ld. AO

further observed that the assessee has failed to furnish the

return of income for the relevant assessment year inspite of

having capital gains. In these circumstances, we find that

reopening of assessment proceedings U/s. 147 of the Act is valid

7 in law and hence this ground raised by the assessee is

dismissed.

challenged the year of taxability of capital gains. The Ld. AR

argued that the assessee has entered into a development

agreement on 14/3/2016. Consequently, a supplementary

agreement was entered into with the Developer by adding

additional 209 sq yds on 18/5/2016. Further, the Ld. AR

submitted that 209 sq yds of land was gifted to the mother of the

assessee on 5/3/2016 before entering into the development with

the Developer. However, the gift deed was revoked on 18/5/2016

thereby requiring the assessee to enter into a supplementary

development agreement with the Developer on 18/5/2016

including this 209 sq yds arising out of the revocation of the gift

deed. The Ld. AR therefore pleaded that the capital gains shall be

taxable only in the AY 2017-18 as the agreement became final on

18/5/2016 only. Per contra, the Ld. DR relied on the orders of

the Ld. Revenue Authorities.

We have heard both the sides and perused the material available

on record. Admitted facts are that the development agreement

was originally entered into by the assessee on 14/3/2016 in the

8 ratio of 46:54 with the Developer. Consequently, additional 209

sq yds acquired subsequent to execution of the development

agreement by way of revocation deed dated 18/5/2016 and added

in the supplementary deed dt 18/5/2016 during the AY 2017-18.

We find that the supplementary deed is an extension of the

original development agreement with the same terms and

conditions only with an addition of 209 sq yds. Therefore, in our

considered view since the possession of the land has already been

granted to the Developer vide the original development agreement

entered into on 14/3/2016, the year of chargeability of capital

gains in the hands of the assessee shall be AY 2016-17 and not

AY 2017-18. We are therefore inclined to uphold the order of the

Ld. CIT(A) on this ground and needs no interference.

Accordingly, the Grounds No. 3 and 4 raised by the assessee

are dismissed.

the relinquishment of 54% of the land to the Developer. The Ld.

AR argued that since the land is owned by the assessee, cost of

land shall not be included in the sale consideration received

while computing the capital gains. The Ld. AR pleaded that only

the cost of the construction shall be included as consideration or

9 the value of the land conveyed to the Developer shall be

considered as sale consideration for the purpose of computing

the capital gains. The Ld. AR therefore pleaded that the cost of

land as computed by the Ld. AO at Rs. 1,09,84,800/- including

the value of parking area at Rs.61,28,396/-, aggregating to Rs.

1,71,13,196/- shall be considered as deemed sale consideration

for the purpose of computing the capital gains. The Ld.AR relied

on the decision of the Coordinate Bench in the case of Yandrapu

Joseph Ratna Kumar vs. ACIT in ITA No. 84 & 85/Viz/2021,

dated 24/09/2021.

Per contra, the Ld. DR pleaded that the cost of built up area

shall be considered as deemed sale consideration while

computing the capital gains. The Ld. DR relied on the order of

the Ld. AO with respect to the cost of computation.

available on record and the orders of the Ld. Revenue

Authorities. Admittedly the assessee has conveyed 54% of the

land admeasuring 2579.04 sq yds to the Developer for the

purpose of constructing multistoried residential complex at

Mangalagiri. The consideration for the part conveyance of the

land to the Developer is the receipt of the super built up area

10 including the parking area. Admittedly both the Revenue and the

assessee has not disputed the cost per square yard adopted by

the Ld. AO. In these circumstances, we find that the

consideration for the relinquishment of 54% of the land to the

Developer shall be the cost of construction of super built up area

including parking area (Rs. 4,59,62,970 + Rs. 61,28,396 = Rs.

5,20,91,366/-) shall be the deemed sale consideration for the

purpose of computation of capital gains. We therefore direct the

Ld. AO to compute the capital gains adopting the above deemed

sale consideration. Accordingly, this ground no. 5 raised by the

assessee is allowed for statistical purposes.

certain expenses like NALA Charges, Property taxes and

Deviation Charges. The Ld. AR submitted that as per the

Development Agreement the assessee is supposed to incur these

charges for the purpose of conversion of the agricultural land to

residential purposes. The Ld. AR further submitted that the

assessee is in agreement to the deviation in the construction of

the Multistoried Residential Building and hence the payment

made towards the deviation charges shall be allowed as cost of

construction for the purpose of computing the capital gains. Per

11 contra, the Ld. DR submitted that the conversion of the land

arises out of the development agreement entered into by the

assessee and hence it has to be borne by the Developer. Further

the Ld. DR submitted that the deviation charges shall also be

payable by the Developer for the deviation occurred during the

construction of the building and hence no deduction shall be

allowable to the assessee.

the Ld. DR. The Ld. AR in paper book page 51 has submitted the

payments of NALA charges of Rs. 22,43,340/- paid to

Government of Andhra Pradesh for the purpose of conversion of

the land. The receipt shows that it is paid by the assessee and

we find merit in the argument of the Ld. AR that the assessee has

to bear the cost of conversion of the agricultural land which

would entitle the Developer to construct the multistoried

residential building and which was part of the development

agreement. We therefore direct the Ld. AO to allow these

expenses towards the cost of construction. Further, it is also

noticed from the remand report of the Ld. AO that the AO has not

objected to the property tax paid by the assessee for Rs.

1,88,965/- and hence these expenses incurred by the assessee

12 shall be allowed while computing the cost of construction.

However, with respect to deviation charges, the Ld. AR has

submitted in page 53 of the paper book the fine paid of Rs.

31,36,000/- is with respect to set back as per the sanctioned

plan in comparison with the completed building plan. These

expenses are incurred for the entire building and the claim made

by the Ld. AR that they should be allowed in the hands of the

assessee could not be accepted. We find the deviation has

occurred in the construction of the entire building and does not

belong exclusively to the assessee. In these circumstances, the

cost of deviation charges pertaining to the assessee shall be in

proportion to the ratio of the land agreed between the Developer

and the assessee as per the development agreement. We

therefore direct the Ld. AO to allow 46% of Rs. 31,36,000/-

amounting to Rs. 14,42,560/- as deduction from the capital

gains for the assessee. Accordingly, this ground No.6 raised by

the assessee is partly allowed.

U/s. 54F of the Act, the Ld. AR submitted that the assessee

claimed the entire share of building received by him as one unit

and also claimed as deduction U/s. 54F of the Act. The Ld. AR

submitted that the assessee is entitled for one unit and

accordingly the exemption may be allowed U/s. 54F of the Act.

Per contra, the Ld. DR submitted that the assessee is having two

houses and hence exemption U/s. 54F cannot be allowed in this

scenario. The Ld. DR relied on the order of the Ld. Revenue

Authorities.

We have heard both the sides and perused the material available

on record and the orders of the Ld. Revenue Authorities. The

provisions of section 54F of the Act is extracted herein below for

reference:

'54F. Capital gain on transfer of certain. capital assets not to be charged in case of investment in residential house.—(1) Where, in the case of an assessee being an individual, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or 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 (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where the assessee owns on the date of the transfer of the original asset, or purchases, within the period of one year after such date, or constructs, within the period of three years after such date, any residential house,

the income from which is chargeable under the head "Income from house property", other than the new asset. Explanation.—For the purposes of this section,— (i) "long-term capital asset" means a capital asset which is not a short- term capital asset; (ii) "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of one year after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not changed under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause, (a) or, as the case may be, clause (b), of sub-section (I) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred.'.

The assessee has claimed exemption U/s. 54F considering the

entire built up area as one residential unit. In our view it cannot

be considered as a single residential unit. The Ld. AO is

therefore directed to verify whether the assessee is owning more

than one house to claim deduction u/s. 54F of the Act.

Accordingly, we direct the Ld. AO to verify these facts and afford

a reasonable opportunity of being heard to the assessee and the

deduction U/s. 54F shall be allowed in accordance with law.

15 Accordingly, this ground No.7 raised by the assessee is allowed for statistical purposes.

Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated :15.12.2022 OKK - SPS

आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – Smt. Yalamanchili Neelima, D.No. 5-66- 1. 232/A/1, The Card Shop, Main Road, Lakshmipuram, Guntur. राज�व/The Revenue – Asst. Commissioner of Income Tax, Central 2. Circle-1, Raj Kamal Complex, Lakshmipuram Main Road, Ashok Nagar, Guntur. 3. The Principal Commissioner of Income Tax, Guntur.

16 आयकर आयु�त (अपील)/ The Commissioner of Income Tax (A), Guntur. 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam