IN THE ITAT MUMBAI BENCH ‘C’
Income-tax Officer, Wd. 21(1)(1), Mumbai
V/s.
Mrs. Chetana H. Trivedi
I T APPEAL NO. 5037(MUM.) OF 2010
C.O. NO. 125 (MUM.) OF 2011
[ASSESSMENT YEAR 2005-06]
APRIL 11, 2012
ORDER
N.V. Vasudevan, Judicial Member
ITA No.5037/M/10 is an appeal by the revenue against order dated 18/3/2010 of CIT(A) 32, Mumbai relating to assessment year 2005-06.
2. The following are the grounds of appeal raised by the revenue in this appeal.
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding the action of the AO as incorrect in treating the transfer of development rights to be taxed under the head Income from Other Sources’ instead of ‘Capital Gains’.
2. The Ld. CIT(A) has further erred in holding that the amount received towards transfer of Development Rights is a ‘Capital Receipts’ wherein the cost of acquisition is Nil and hence the same cannot be chargeable to Capital Gain tax.
In doing so, the Ld. CIT(A) has erred in not considering the fact that the loading of TDR has been possible by virtue of ownership of land and building.
3. The Ld. CIT(A) has erred in stating that sec 50C is not applicable in the case of transfer of development rights as there is no transfer of land or building. In the instant case, the assessee has received flats in exchange of a building and building falls in the purview of assets as defined u/s 50C.
4. Furthermore, the Ld. CIT(A) has erred in stating that in case of applicability of sec. 50C is made, the AO will have to reach a satisfaction that the value of new property and the compensation put together is lower than the value of property given to the developers.
5. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the A.O. be restored.
6. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary”
3. The assessee has filed cross-objection against the order of the CIT(A). The grounds raised by the assessee in the cross-objection are as follows:
Following grounds of cross-objection are without prejudice to each other and assessee’s arguments in Department’s appeal:
1. The learned CIT (A) has erred in law and on facts in not holding that the reopening of the assessment by issuance of notice u/s. 148 of the Income-tax Act, 1961 was illegal and bad in law.
2. The learned CIT (A) has erred in law and on facts in upholding the order passed by the Assessing Officer u/s. 143(3) r.w.s. 147(b) of the Act which is illegal and bad in law.
3. The learned CIT (A) has erred in law and on facts in upholding the order of the Assessing Officer which was not passed in accordance with law.
4. The learned CIT(A) has erred in law and on facts in not vacating the order of the Assessing Officer as it was passed without complying with the principles of natural justice.
5. The cross-objector craves leave to add to, amend, alter or delete all or any of the foregoing grounds of cross-objection.
4. Since the validity of initiation of reassessment proceedings is challenged in the cross-objection, we deem it appropriate to take up the said issue for consideration as it involves the jurisdiction of the AO to frame order of reassessment.
5. The assessee is an individual. The assessee is 1/3rd co-owner of a residential property at 34/35, Hatkesh Cooperative Housing Society Limited, North South Road No. 5, Juhu Vile Parle Development Scheme, Vile Parle (W), Mumbai 400 056, hereinafter referred to as “the property”. The other two co-owners who are close relatives of the Assessee were Mrs. Meena Trivedi and Mrs.Prerana Trivedi. The property devolved on the assessee and the two other co-owners under the will of (Assessee’s sister-in-law) Mrs. Shardaben Trivedi. The property was held by the said Mrs. Shardaben Trivedi since the year 1972. The property consisted of three floors and one floor each was in exclusive possession and enjoyment of each co-owner. The structures in self-occupation needed repairs. Also, the building were constructed in the year 1959 & 1992 was not suitable for current day requirements. There were concerns about security and old age maintenance of co-owners. To address these concerns, having regard to relaxed construction norms, the co-owners decided to have assistance of a developer for use and exploitation of unused construction potential. Accordingly a development agreement was entered into with a developer dated 29/12/2004. There were two buildings in the property viz., building A which was in occupation of the co-owners and Building B which was in occupation of tenants. The unused construction potential by way of development rights of the entire plot was agreed to be used by demolishing building A without disturbing building B. As per terms of Development Agreement each co owner will be retaining one floor each in new building and balance extra floors that will be constructed will be retained by the developer for his benefit. Developer agreed to pay over and above the built up area monetary consideration of Rs. 1.25 crores to the co-owners, to be divided equally among the three co-owners. Thus each co owner’s share was Rs. 41,66,667/= (i.e. Rupees fourty one lacs sixty six thousand six hundred sixty seven only ).
6. The Capital Gain on the above transaction had to be declared by the Assessee. The Assessee invested Rs. 42,00,000 in NABARD Bonds which qualify for exemption under section 54EC of the Act. As in place of old house new house is built and given by the developer benefit of free new construction by the developer of one floor retained by the assessee was estimated at construction cost of @ Rs. 700/-per Sq. Ft. which was Rs. 17,50,000/-. The benefit in the form of construction cost would represent investment of the assessee in the acquisition of her flat and was claimed exempt under section 54/54F of the Act. The assessee did not own any other property. The Assessee therefore declared chargeable capital gain as NIL.
7. The computation of capital gain as given by the assessee was as follows:
LONG TERM CAPITAL GAINS:
