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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI INTURI RAMA RAO, AM & SHRI PARTHA SARATHI CHAUDHURY, JM
आदेश / ORDER
PER BENCH :
These are the appeals filed by the assessees directed against the separate orders of the learned Commissioner of Income Tax (Appeals) – 3, Pune for the assessment year 2015-16.
Since the identical facts and issues are involved in all these three appeals, we dispose of the same vide this common order. For the sake of convenience and clarity, the facts relevant to in the case of Amit Vishnu Pashankar are stated herein.
The appellant has raised the following grounds of appeal :
“1. The learned CIT (Appeals) erred on facts and in law in upholding the AO’s action of taking ready reckoner rates of flats / shops as consideration as against the consideration as returned by the assessee.
2. The learned CIT (Appeals) erred on facts and in law in upholding the AO’s action of applying section 45(5A) of the Act to the present case when in fact the said section was not applicable to the relevant agreement executed by the assessee as also to the relevant assessment year.
3. The learned CIT (Appeals) erred on facts and in law in not appreciating the nature of transaction. He also erred in upholding fair market value of the constructed area particularly when the construction was not even complete / started.”
Briefly, the appellant is an individual engaged in the business of trading. The return of income for A.Y. 2015-16 was filed on 31.08.2015 declaring a total income of Rs.1,83,08,370/-. Against the said return of income, the assessment was completed by the Assessing Officer at a total income of Rs.8,01,69,010/-. The disparity between the returned income and the assessed income is on account of addition under the head “Capital Gains” arising on entering into the Joint Development Agreement (JDA) of land by adopting a higher value of consideration by the Assessing Officer.
The brief factual matrix leading the above additions reads as under :
The appellant along with two other family members namely (Mr. Amit Vishnu Pashankar (Brother) and Mr. Vishnu Pundilik Pashankar (Father) owning a property situated at Sl.No.37/1, Hinjewadi, Mulshi, Pune admeasuring 7,900 sq.mtrs. During the previous year relevant to the assessment year under consideration, the appellant along with two other family members entered into a Joint Development Agreement (JDA) on 30.06.2014 with M/s. Icon Reality in respect of the said property. In terms of the said JDA, the total sale consideration was fixed at Rs.8,76,70,000/-.
Out of this, a sum of Rs.3,75,00,000/- was paid by way of cheques and the balance to be settled by handing over saleable constructed area of 60,000 sq .ft (residential 30,000 sq. ft + commercial 30,000 sq. ft) to all the three members of the family and the share of each co-owner comes to Rs.1,25,00,000/- by way of cheque and were entitled for a constructed area of 20,000 sq. ft i.e., (10,000 sq. ft commercial and 10,000 sq. ft residential). The appellant was entitled to receive nine residential flats, five office shops and two commercial shops. In the return of income, the appellant had shown a sum of Rs.2,95,66,593/- as ‘full value of consideration’. The said amount is arrived at by adding up monetary consideration of Rs.1.25 lacs and balance of Rs.1,70,66,593/- represents the value of the share of construction area of 20,000 sq. ft (10,000 commercial sq. ft and 10,000 residential sq. ft). The appellant has adopted the rate at Rs.9,000/- per square meter to arrive at the value of constructed area. Accordingly, the total value of the constructed area comes to Rs.5,01,70,000/-. Thus, the value of construction was adopted by the appellant is at Rs.8,76,70,000/- (total area). The share of appellant came to Rs.2,95,66,593/-.
However, the Assessing Officer was of the opinion that the ready reckoner value of saleable area should be adopted as full value of consideration. Accordingly, the appellant was called upon to explain as to why the ready reckoner value of saleable area should not be adopted. The appellant objected to adoption of ready reckoner value of the saleable area of the flats on the ground that the saleable area includes value of land appurtenant to the land. Since in the present case, ownership of land appurtenant to 60,000 sq. ft of built-up area always lies with the appellant, it cannot be adopted. However, the Assessing Officer by rejecting the contention of the appellant had proceeded to adopt the ready reckoner value of the saleable residential area as well as commercial area placing reliance on provisions of Sec.48 of the Act. Accordingly, computed the full value of consideration at Rs.9,11,53,660/- and accordingly, computed the Capital Gains at Rs.8,01,69,010/-.
Being aggrieved with the order of Assessing Officer, assessee preferred appeal before the learned Commissioner of Income Tax (Appeals), who vide impugned order confirmed the action of the Assessing Officer.
Being aggrieved with the order of ld.CIT(A), the appellant is in appeal before us.
The learned counsel of the assessee Shri Ajay Singh objected the action of the Assessing Officer adopting the ready reckoner value of the saleable residential and commercial flats on the following grounds :
1) The ready reckoner value is inclusive of the value of the land.
2) In the present case, the appellant never parted with the share of the land appurtenant to 60,000 sq.ft of built-up area which always remained with the assessee.
The substance of transaction i.e., entering into the JDA means transfer of part of land to the builder for a consideration of Rs.8,76,70,000/- and the full value of the transaction is to be arrived at by adopting the monetary consideration plus cost of construction of saleable area of the appellant. The Assessing Officer cannot make resort to the provisions of Sec.45(5A) of the Act which are brought into the statute by the Finance Act, 2017 w.e.f. A.Y. 2018-19. Since the appurtenant consideration stated in the Joint Development Agreement is more than the value adopted for stamp duty valuation purpose, the appurtenant consideration stated in the sale deed should be taken as a conclusive evidence of ‘full value consideration’.
He also placed reliance on the following decisions :
1) Punjab Poly Jute Corporation Vs. ACIT (2009) 120 ITD 233. 2) Dy. Director of Income Tax Vs. G. Raghuram (2010) 39 SOT 406 (Hyd).
On the other hand, the ld. CIT D.R. submitted that the method adopted by the Assessing Officer for the purpose of arriving at ‘full value of consideration’ of the property transferred is justified as it is open to the Assessing Officer to take guidance from the provisions of Sec.45(5A) of the Act. He also supported the method of working out of capital gains by the Assessing Officer by submitting that the whole piece of land was sold to the developer and the appellant while working out the capital gains in the return of income has claimed the total cost of land as deduction and he further submitted that the ready reckoner rates adopted by the Assessing Officer cannot be called in question now as the same were communicated to the assessee during the course of assessment proceedings and the assessee had not disputed the ready reckoner rates.
The ld. CIT D.R. also controverted the submission of the Ld.A.R. that the nature of the agreement entered into by the appellant herein is a contractee / contractor by stating that in terms of the development agreement (1) It is the duty of the developer to prepare a plan for the property and get the sanction from the Town Planning Department and the expenses for the preparation and the approval has to be borne by the developer if any. (2) Developer is required to obtain permission from the District Magistrate for using the said property for non – agricultural purposes. (3) Required to obtain the permission for construction from the local administration. (4) The developer is also required to obtain the occupancy certificate for building corresponding to the share of the assessee. (5) The developer has to borne the whole cost of the electricity deposit with State Electricity Board for such separate connections, transformer, cabling etc. and (6) The developer was to bear the cost of the stamp duty on the salable built up area given to the assessee. He also distinguished the case laws relied upon by the learned counsel for the appellant.
We have heard the rival submissions and perused the material on record. The issue in the present appeal relates to the quantum of sale consideration to be taken for the purpose of computing the capital gains on transfer of property in terms of the JDA entered into between the appellant with builder. The undisputed facts of the case are that the appellant along with his two other family members namely (Mr. Amit Vishnu Pashankar (Brother) and Mr. Vishnu Pundilik Pashankar (Father) owns a property situated at Sl.No.37/1, Hinjewadi, Mulshi, Pune admeasuring 7,900 sq.mtrs. The appellant along with other two co-owners entered into Development Agreement on 30.06.2014 with M/s. Icon Reality for the purpose of developing the said property. In terms of the JDA, the appellant along with two others have to receive monetary consideration of Rs.3.75 lacs and the balance to be settled by handing over saleable constructed area of 60,000 sq .ft (residential 30,000 sq. ft + commercial 30,000 sq. ft) to all the three members of the family and the share of each co-owner comes to Rs.1,25,00,000/- by way of cheque and were entitled for a constructed area of 20,000 sq. ft i.e., (10,000 sq. ft commercial and 10,000 sq.ft residential).
It is agreed that the exchange value of 60,000 sq. ft is arrived at by the parties to the JDA at Rs.5,01,70,000/- calculated at construction cost of Rs.9,000/- per square meter. Accordingly, in the return of income, the appellant had shown 1/3rd of the consideration so arrived at as “full value of consideration”. However, the Assessing Officer was of the opinion that ready reckoner value of the saleable area should be adopted drawing guidance from the provisions of Sec.45 of the Income Tax Act. Even on appeal before the ld.CIT(A), the action of the Assessing Officer was affirmed without giving any independent reasons. In the present case, the year of chargeability to Capital Gains is not under challenge. The controversy is only with regard to what amount has to be taken as the full value of consideration. There is no dispute about the monetary component of consideration. The controversy is only as to what is the value to be adopted in respect of the total constructed area of 60,000 sq. ft. falling to the share of the land owners. The relevant clause of the Joint Development Agreement about the consideration for entering into the JDA reads as under :
“(38) Total value of the property described in above clause (1) (a) as per government ready reckoner is Rs.5,90,000/- and compensation for the agreement will be 60,000 square feet built up that is 5,574,18 square meters x 9,000/- per square meters = Rs.5,01,70,000/- plus compensation in form of money Rs..3,75,00,000/- thus total Rs.8,76,70,000/- and on the higher value out of these…….”
14 On careful perusal of the said clause, it is clear that the total agreed consideration between the parties to the JDA is Rs.8,76,70,000/- only. The exchange value of the constructed area of 60,000 sq. ft. was determined at Rs.5,01,70,000/-. The above clause of the JDA cannot be construed in any other manner except to mean that the total agreed consideration is only Rs.8,76,70,000/-. It is also clear from the material on record that the value adopted for stamp duty purpose is only Rs.5,90,00,000/- which is lower than the agreed consideration of Rs.8,76,70,000/-. Therefore, the provisions of Sec.50C have no application to the facts of the present case nor is it the case of the Department. Then the question that crops up for consideration, is under what provisions of the Income Tax Act, the AO can disturb appurtenant consideration by substituting the agreed consideration by Fair Market Value of the capital asset ? The provisions of Sec.48 of the Income Tax Act which deal with the computation of income chargable under the head “Capital Gains” reads as under :
“The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :—
(i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto:”
15 The provisions of Sec.48 of the I.T. Act refers to the term ‘full value of consideration’ received, accrued as a result of transfer of the capital asset.
The term Fair Market Value had come up for interpretation before the Hon'ble Supreme Court in the case of CIT Vs. George Henderson & Co., Ltd reported in 66 ITR 622 (SC) wherein it was held that the term “full value" means the whole price without any deduction whatsoever and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor has it any necessary reference to the market value of the capital asset which is the subject-matter of the transfer. The ratio of this decision was subsequently followed by the Hon'ble Supreme Court in the case of CIT Vs. Gillanders Arbuthnot & Co., (1973) 87 ITR 407 (SC). Therefore, the legal position that emerges from the decision of the Hon'ble Supreme Court cited supra is that “full value of consideration” does not mean market value of the capital asset which is the subject matter of the transfer. Originally, the parliament has enacted the provisions of Sec.52 in the I.T. Act, 1961, in order to enable the assessing authority to substitute the stated consideration by Fair Market Value of the capital asset which is the subject matter of transfer under the following two specific circumstances. These provisions had come up for interpretation before the Hon'ble Supreme Court in the case of KP Varghese Vs. ITO 131 ITR 597 wherein the Hon'ble Supreme Court had held that mere difference between the consideration actually received and the market value of the consideration by itself would not justify the provisions of Sec.52. The Hon'ble Supreme Court further held that under-statement of consideration cannot be assumed because the fair market value was higher than the amount received. Higher fair market value by itself cannot be a ground and reason to assume and hold that there was under statement of consideration. Subsequently, the same ratio was followed by the Hon'ble Supreme Court in the case of CIT Vs. Sivakami Company Private Limited reported in (1986) 159 ITR 71. The Parliament in view of the judgment of Hon'ble Supreme Court in the case of K.P. Varghese (supra) omitted the provisions of Sec.52 by the Finance Act, 1987 w.e.f. April, 1988. Therefore, the said provision was not applicable from the A.Y. 1999-2000. Perhaps, the provisions of Sec.50C were enacted by the Parliament by the Finance Act, 2002 w.e.f 01.04.2003, to remove this lacuna in the provisions of Income Tax Act providing that where value adopted or assessed by the Stamp Valuation Authorities in respect of transfer of land or building or both for the purpose of payment of stamp duty exceeds the consideration received or accrued by the assessee for such transfer, the value so adopted or assessed assessee shall be deemed to be the full value of the consideration received or accruing as a result of such transfer. The facts of the present case does not justify the invocation of provisions of Sec.50C.
Apart from provisions of Sec.50C of the Act, we do not see any other provisions under the I.T.Act, 1961 enabling the Assessing Officer to substitute the actual sale consideration received, accrued by the Fair Market Value.
Recently, the Hon’ble Delhi High Court in the case of Arjun Malhotra Vs. CIT reported in (2018) 403 ITR 354 after referring to the old provisions of Sec.52 of the Income Tax Act and the decision of Hon'ble Supreme Court in the case of CIT Vs. George Henderson & Co., (supra) and CIT Vs. Gillanders Arbuthnot & Co., (supra) and the judgment of the Hon'ble Supreme Court in the case of K.P. Varghese Vs. ITO (supra) in the context of Sec.52 of the I.T.Act as omitted by the Finance Act 1987 as existing upto A.Y. 1998-99 held that the Assessing Officer should not substitute the actual consideration by Fair Market Value. The relevant paragraph reads as under :
“25. As noted above, Section 52 of the Act was omitted by Finance Act, 1987 with effect from 1st April, 1988. The said provision, therefore, was not applicable in the Assessment Year 1999-2000. We have referred to the aforesaid judgment in K.P. Verghese (supra) as this judgment was referred to and distinguished by the tribunal in the impugned order. We have also referred to K.P. Verghese (supra) to elucidate that the legal ratio propounded with reference to then applicable Section 52 of the Act would be against the Revenue even if the said Section was applicable. It is obvious that when Section 52 of the Act itself was not applicable, the Assessing Officer could not have substituted the actual sale consideration received by the Assessee with another figure stating that this was the fair market value. The aforesaid discussion would also take care of the argument that M/s GIPL had paid for foreign travel of the assessee. The fact that M/s GIPL had incurred any such expenditure would not be a ground and reason to substitute the actual consideration received with the figure relying upon the market quotation of the share as the fair market value.”
The Hon’ble Karnataka High Court in the case of CIT and another Vs. Ved Prakash Rakhra reported in 370 ITR 762 held that the exchange value specified in JDA is to be taken as the full value of the consideration for the purpose of computing the capital gains on entering into the JDA. The relevant paragraph is as under :
“9. …… The exchange value in consideration of 50% of the land was agreed to be conveyed to the Developer and/or his nominee/s valued at Rs.1,16,70,000/-. The fair market value as on 01-04-1981 as per the Sub-Registrar valuation has to be taken into consideration. However, the Assessing Authority has not taken into consideration this aspect of the matter. Taking into consideration the project cost incurred by the developer on the basis of their letter dated 01- 02-2004, which includes all expenditure connected with the construction of the Residential Apartment. The exchange value as specified in the project development agreement can be taken as the basis for computation of the construction in joint development. The cost incurred by the developer need not necessarily represent only a cost of construction. The detailed particulars are not given. The transaction of Joint development is one of exchange. The consideration specified in the said document represents the market value on the date of entering into the agreement. The assessment made by assessing authority is contrary to law. Hence, we hold issue No.2 against the Revenue.”
Hon’ble Karnataka High Court subsequently in the case of CIT Vs Khivraj Motors Pvt. Ltd., 380 ITR 215 held that the agreed exchange value of the land for construction area should be taken as a full value consideration for the purpose of computing the Capital Gains which reads as under :
“14. The cost of construction having been agreed upon between parties at Rs.800/- per sq. ft. and same being the full value of consideration which was agreed to between the parties and which was not rejected by the Assessing Officer by assigning reasons, same ought to have been accepted. We are of the considered view that amount of Rs.1,40,00,000/- paid to the land lord to be accepted as part of actual construction and as such we are of the view that the finding arrived at by the Appellate Commissioner at Paragraph 6 by holding payment of Rs.1.40 crores made to owner and amount paid to assessee to vacate the premises had nothing to do with the construction and it is also held that same is in consonance with the Tripartiate Agreement entered into between the parties and in that view of the matter it is to be held that the Appellate Authorities were correct in holding that the addition of Rs.56 lakh made by the Assessing Officer on the basis of project cost indicated by the developer is liable to be deleted. The Assessing Officer has not gone into the issue of valuation adopted by the assessee, about and with regard to its correctness, the CIT (appeals) has proceeded to delete the additions made by the Assessing Officer on the facts obtained which we find that there is no infirmity. Said reasoning is just and proper.”
What emerges from the above discussion, is that the Assessing Officer is not empowered to substitute the agreed consideration by Fair Market Value except in situations envisaged u/s 50C of the Act. Whenever the Parliament intended to substitute the actual sale consideration by the Fair Market Value, it has done so, by enacting specific provisions for example the provisions of Sec.45(4) etc.
Further, we find that the method adopted by the Assessing Officer to compute Fair Market Value of salable constructed are is flawed for the following reasons viz (1) invoking the provisions of Sec.45(5A) of the Act which is inserted by the Finance Act, 2017 w.e.f. A.Y. 2018-19 is bad-in-law in as much as that the Assessing Officer should have applied the provisions of Sec.45(5A) in its entirety not in part i.e., only by adopting the value for stamp duty purpose of the saleable area, (2) not applying other limb of provisions, which determines the tax of chargeability of “Capital Gains” to tax. It is suffice to say that the action of the Assessing Officer is bad-in-law without delving into issue whether the said provisions have retrospective effect or not.
Secondly, the Assessing Officer should not have adopted ready reckoner value for the purpose of determining fair market value of the saleable constructed area, in as much as, it does not reflect the Fair Market Value as held by the jurisdictional High Court in the case of CIT Vs. Nirman Laxmanarayan Grovver reported in 223 ITR 572 Bom.
Thirdly, the Assessing Officer can adopt only discounted value of the ready reckoner value even if ready reckoner value is held to be Fair Market Value.
The arguments advanced by the ld.CIT D.R. are only on the aspect of computation of the fair market value, since we held that in the absence of any enabling provision under the Income Tax Act, 1961 the Assessing Officer is not empowered to substitute the agreed consideration by fair market value except in the situations envisaged under the provisions of Sec.50C of the Act. we need not deal with arguments of the ld.CIT D.R.
Therefore, what follows from the above discussion is that first of all the Assessing Officer ought not have embarked upon exercise of substituting the agreed consideration by Fair Market Value of the salable area in the facts of the present case nor the values adopted can be approved in the light of the discussions cited above. Thus, according to us, the orders of the lower authorities are contrary to the law. Therefore, we hereby set aside the orders of ld.CIT(A) and the Assessing Officer and allow the grounds of appeal filed by the assessee.
In the result, the appeal of assessee in is allowed.
Now we will take up the remaining appeals i.e., and 429/PUN/2019.
We have already decided the issue under identical facts in favour of the assessee in and allowed the appeal in favour of the assessee . Therefore, our decision in ITA No.427/PUN/2019 shall apply, mutatis mutandis, to these appeals also i.e., ITA Nos.428 & 429/PUN/2019 and accordingly, these appeals are allowed.
In the result, appeals in & 429/PUN/2019 are allowed.
In the combined result, all the appeals of assessee are allowed.
Order pronounced on 7th day of July, 2021.