Yalamanchili Neelima Vs ITO (ITAT Visakhapatnam)
ITAT Visakhapatnam held that capital gain taxable in the year in which possession of land is granted to the developer vide the original development agreement and not in the year in which supplementary agreement is entered.
Facts- The assessee is an individual entered into a Development Agreement-cum-General Power of Attorney with M/s. Lakshmi Infratech India Pvt Ltd., Hyderabad (“Developer”) registered at SRO, Mangalagiri for construction of Multistoried Residential Complex by name ‘Lakshmi’s Sreelikhitha Pride’. The assessee being the land owner is in possession of vacant land measuring 4,776 sq. yds acquired through a Registered Gift Deed. 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 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 transferred during the assessment year 2016-17. 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. 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. 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.
In spite of issuance of various notices, the assessee failed to furnish any replies. AO therefore proceeded to compute the capital gains based on the materials available with him. 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 of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). However, the appeal was dismissed.
Conclusion- Held that 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 when supplementary agreement was entered.
Held 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.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
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. 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.
3. Brief facts of the case are that the assessee is an individual 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 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 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. 3 1,36,000/- 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.
4. The assessee has raised the following grounds of appeal:
“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:
3. The Ld. CIT(A) is not justified in confirming the addition of Rs. 6,20,13,020 made by the AO towards long term capital gains in respect of a land property alleged to have been transferred by development agreement dated 14/3/2016.
4. The Ld. CIT(A) ought to have held that the capital gains if any are applicable for the AY 2017-18 in view of the supplementary agreement entered into by the appellant with the developer on 18/5/2016.
5. The Ld. CIT(A) is not justified in upholding the action of the AO in including the value of the land received towards the share of the appellant also as part of the sale consideration while computing the capital gains.
6. The Ld. CIT(A) ought to have allowed the following expenses as deduction from capital gains in as much as the expenses were incurred by the appellant as per the terms and conditions of the development agreement:
